Cox v Wilson & Ors[2015] QDC 216

DISTRICT COURT OF QUEENSLAND

1. [1]
   The third defendant was incorporated on 4 March 2010.^[1]It had and has two shareholders, the first and second defendants.^[2]The plaintiff alleges that there was an agreement between him and the first and second defendants for him to become a shareholder of the third defendant.  The first and second defendants agree that at one point the plaintiff was invited to become a director and shareholder of the third defendant, but say that this was much later, and that it depended on his paying one third of the value of the company, which he never did.  The third defendant is no longer trading.   The plaintiff’s claim is for damages for breach of contract. 

Background

2. [2]
   The plaintiff has worked all his life in the mining industry, starting as an electrician, and then achieving additional qualifications which entitled him to perform certain statutory functions within mines, and also from 1990 becoming involved in the process of training employees and contractors who were wanting to come onto mine sites: p 1-10. More recently he has dealt in mining equipment through his company, OPEQ Pty Ltd. He knew the first defendant having met him in about 1983 as an apprentice electrician at a mine where he was working, and they worked together for over ten years: p 1-11. He met the second defendant in 1992; he was also an electrician and was then training electricians, but in the context of underground mining operations: p 1-11.

3. [3]
   The first defendant has qualifications as an electrician, but is also qualified in relation to training and assessing: p 1-99. In February 2009 he acquired a business Central Highlands Safety Services (“CHSS”) which provided training services to the mining industry.^[3]In that context he came to be working with the second defendant, who was providing training services to customers of that business as a subcontractor: p 1-100. 

4. [4]
   The second defendant qualified as an electrician in 1973, and also had qualifications in training and assessment and in workplace health and safety: p 2-69. He had worked at least since 1985 in the mining industry in central Queensland, in more recent years mainly in training. From the end of 2009 he was providing contract training through a partnership with his wife: p 2-70.^[4]This was provided to various companies, including the first defendant’s company CHSS, with whom a relationship developed and the amount of work they were doing together increased. 

5. [5]
   The first defendant said that in early 2010 he discussed with the second defendant establishing a business to provide labour hire services to the mining industry, providing qualified persons in the four trades of electrician, electrical technician, boilermaker and fitter: p 1-100.^[5]These discussions led to the incorporation of the third defendant.  The second defendant said that most of the incorporation costs were actually paid by the first defendant, though he made a smaller contribution: p 2-70.  It appears however that that company did not actually do any business, perhaps for lack of capital, until late 2010 when an opportunity arose for the provision to a large mining company of extended induction training for electricians: p 1-101.  The first contact with the mining company was through the second defendant, who said he wanted the work done through the third defendant: p 2‑71.  The mining company had previously dealt with the first defendant’s company, which had the advantages that it was a registered training organisation and had a vendor number for the mining company (p 1-56), but the proposal was that the third defendant would do the work as a subcontractor for the first defendant’s company, so as to make money which would serve as capital for that business: p 1-101. 

6. [6]
   They needed an additional trainer because of the volume of work on offer, and for that purpose they spoke to the plaintiff.^[6]The second defendant said that there was a three-way phone call with the plaintiff and first defendant in which the plaintiff agreed to provide training at a particular daily rate: p 2-74.^[7]The practical effect of this was that the plaintiff was actually providing the training which was provided on behalf of his company, as a subcontractor to the third defendant which in turn was a subcontractor to CHSS, which was the contractor with the mining company: p 2-74.  This in fact happened from 17 November 2010.  The plaintiff’s company also charged for accommodation, meals, airfares and other expenses.^[8]

Agreement – plaintiff’s version

7. [7]
   The plaintiff said he received a telephone call from the first defendant in about June or July 2010 when the first defendant told him that the third defendant had been set up to provide training and also to provide labour hire eventually, and that they were wanting someone with the particular qualifications of the plaintiff to help them to break into training work in the area: p 1-11. He said that the first defendant asked if he would be interested in joining the company, and he replied that he would think about that seriously; matters were to be discussed further at a later date: p 1-12. He said that the first defendant proposed that they would all be equal partners, with him having a third shareholding in the third defendant, at no cost to himself: p 1-12. There was some discussion about charging rates, and about reimbursement for travelling expenses, bearing in mind that the plaintiff was at the time living in Tasmania. The plaintiff said that he wanted to charge for training through his company: p 1-13. It was also proposed that when they were working for the third defendant they would represent that company and promote that company and not their own companies. He said that the second defendant proposed that a bank account for the third defendant be opened with each of them as signatories, on the next occasion that the plaintiff was available: p 1-13.^[9]The plaintiff said that he agreed with this but had to get advice from his accountant as to whether his shares in the third defendant should be held by him personally or by his company, and he said that the first defendant said that that was not a problem and to let him know when he was ready: p 1-13.  He said that there was nothing said in that conversation specifically about his becoming a director.  The first defendant denied that any such conversation took place: p 2-5.^[10]He said his first mention of the third defendant was to ask the plaintiff if he would do training for it in late 2010 if the work for the mining company eventuated: p 2-2. 

8. [8]
   The plaintiff went to central Queensland in October 2010 to do some other training for the first defendant’s company CHSS: p 1-14. He said that while he was there, there was some further discussions about his involvement in the business, and the first defendant raised the question of his being a director.^[11]He said in November 2010 he raised this issue and said that he was concerned that there might be problems with that because of the risk of litigation against his company: p 1-14, 42.  Some time later he obtained advice from an accountant that there was no risk of that nature, and he said about August 2011 he let the first and second defendants know that he was prepared to be a director of the third defendant: p 1-14. 

9. [9]
   The plaintiff said that he did most of the training required by the mining company: p 1‑15.  He said that the preparation of documents was done initially by the first defendant through his company, and subsequently by the second defendant and his wife: p 1‑15.  He said that when the opportunity arose he promoted the third defendant as a training company and as a labour hire company, but it appears no specific business arose from this.^[12] They also did some work with the mining company on the development of their standard operating procedure documentation: p 1‑18.^[13]

10. [10]
    The plaintiff took advice about who should hold the shares on 23 November 2010, and said that in December 2010 he told the first defendant that he would hold the shares in the third defendant personally: p 1-19.^[14]In January 2011 a bank account was opened in the name of the third defendant, with each of the plaintiff and the first and second defendants as signatories on the account.^[15]The plaintiff said that the first defendant said that he would attend to issuing the shares, and later, at about the end of 2011, the first defendant proposed a meeting with a solicitor Mr Agnew about drawing up a shareholders agreement: p 1-20. 

Agreement – first defendant’s version

11. [11]
    The first defendant said that in December 2010, after the training for the mining company had started, he spoke to the second defendant about taking the plaintiff into the third defendant: p 2-3.  There was subsequently a meeting of the three of them at his house in Emerald.  He said that he offered the plaintiff a directorship in the company and an equal shareholding in the company, provided it was all done through ASIC.  He said the second defendant then said that it was fair that the plaintiff also throw in some money equivalent to what had been put in by them when setting up the company: p 2-4.  This was quantified as $1,500, and he said that the plaintiff said he did not have a problem with that: p 2-5.^[16]The plaintiff also indicated that he still required to be paid for any services he provided to the company.  He said that the plaintiff did not definitely agree at that meeting but said he would need time to think about it.  He said however that “at some stage, by prior to” the bank account being opened, the plaintiff indicated that “he may be interested in the proposition”: p 2‑6.

12. [12]
    The first defendant said that the plaintiff subsequently told him he had some concern about being a director because of the risk of litigation involving his other company: p 2-7.  He said he suggested that the plaintiff get some advice on that, but the plaintiff had never told him he had obtained such advice, and that right through to the meeting in 2012 the plaintiff continued to say that he had problems with being a director: p 2-7.  He said that at a meeting at the house in Emerald (in 2011, not the original meeting) the plaintiff proposed that he become the general manager of the company in lieu of being a director, which the others rejected: p 2-7.^[17]

Agreement – second defendant’s version

13. [13]
    The second defendant said that he had a discussion with the first defendant about inviting the plaintiff into the business, and that as a result of that an offer was made to the plaintiff in a conversation in December 2010 when he and the first defendant were at the first defendant’s house in Emerald and the plaintiff was on the telephone: p 2-77, 78.  He said that the plaintiff was asked to come into the business, but there was no discussion about money, or any specific details about how he would become part of the business: p 2-78.  He said that what the plaintiff was offered was a one third share and a directorship: p 2-77.  He did not recall any discussion about ASIC at the time.  He said that the plaintiff did not accept the offer and expressed some concern about how the companies would interact, which led to further discussion and nothing was decided on that occasion: p 2‑79.  There was a later conversation when the plaintiff was in Emerald.

14. [14]
    The second defendant consulted a solicitor he knew, and received some advice dated 19 July 2011: Document 20.^[18]The advice spoke of there being “three shareholders in 4 Trades”, though it also said that “the one of you that doesn’t currently hold any shares in 4 Trades will need to be issued shares and be appointed a director of 4 Trades”.  The second defendant said it was important to him that the plaintiff become a director, so that he would be part of the management team and would feel he had some ownership of the business: p 2-83.  In an email to his solicitor on 24 July 2011 the second defendant said he would look into making “the third person” a director: Document 21. 

15. [15]
    The second defendant said that in February 2011 the first defendant received from the mining company a scope of works document, which involved some additional work on the part of the third defendant under a contract: p 2-80. The first and second defendants flew to Tasmania and worked out the costing for this with the plaintiff: p 2-81.  The plaintiff charged for his time for this,^[19] but the first and second defendants did not charge for their time.  During this meeting in Tasmania he said there was further discussion about whether the plaintiff was going to come into the business, and he said the plaintiff raised some concern about the third defendant being affected if his company OPEQ was sued: p 2-82.  On 27 July 2011, when they were in Tasmania, the second defendant emailed his solicitor about the plaintiff’s concern about being a director if his company was involved in litigation: Document 22.  The following day the solicitor expressed the opinion that the plaintiff’s operations would not impact on the third defendant, but how he operated his business might have an impact on how any shares in the third defendant would be held: Document 22.  On 28 July 2011 the second defendant emailed his solicitor to advise that he had “spoken to Greg and he is more relaxed now and will come on board as a Director of 4 Trades”: Document 23.  The second defendant said that the email reflected what had passed between him and the plaintiff.^[20]He asked the solicitor to draft an agreement between CHSS and the third defendant, and the solicitor said he would do so: Document 23. 

16. [16]
    The solicitor was also to draft a shareholders agreement for the shareholders in the third defendant. On 2 August 2011 he sent drafts of each of these to the second defendant by an email which is Document 25.^[21]In the email the solicitor said that the shareholders agreement assumed that the plaintiff would not be required to pay anything for the shares he received.  However, if there was already a business operating or the plaintiff would only be involved in part of the third defendant’s business, some consideration would have to be given to whether payment would be made and, if so, how much. 

17. [17]
    In late July 2011 the first defendant received an enquiry about providing labour hire in the form of electricians, which led to a proposal from the mining company: p 2-82. A labour hire arrangement for the mine eventuated, and four electricians were trained by the third defendant, the training actually being given by the plaintiff and the first defendant, though the first defendant never charged for that.^[22]The second defendant paid the electricians himself for the week while they were in training: p 2-87.  They were accommodated at the first defendant’s house for a few weeks until the third defendant rented a house in Emerald for them to live in: p 2-88.  The second defendant and his wife set up the rental house, and provided it with certain consumables, and did routine maintenance on it: p 2-28.  There was another labour hire contract arranged for the third defendant, involving one person, over a period of three to four months: p 2-89.  There was subsequently another house also rented.  He did not charge for his work or expenses in organising or maintaining those houses: p 2-89. 

18. [18]
    The second defendant also said that at some point^[23] each of the three of them agreed to put $25,000 into the third defendant as working capital, though in the case of the plaintiff the money came from the plaintiff’s wife rather than from him: p 2-90.  The loan was repaid in June 2012, to avoid any complications in relation to interest.^[24]In spite of this, the second defendant said that there was no definite agreement from the plaintiff about his taking up the role of shareholder and director: p 2-91.  He said in September or October 2011 the plaintiff had raised the suggestion of being general manager rather than director, but the others would not agree to that.  According to the second defendant there was no definite agreement from the plaintiff at any time. 

Meetings in May

19. [19]
    The second defendant said that in April 2012 he raised his concern with the first defendant about the fact that they were not charging for anything they did for the company, but the plaintiff was charging for everything he did, and basically just working as a subcontractor; he wanted to press the plaintiff for a decision one way or the other: p 2-93. The first defendant said that on or about 7 April 2012 there was a meeting at the second defendant’s place with a view to getting some finality to the position with the plaintiff: p 2-9.  The second defendant said that the plaintiff again raised his concern about being sued because of some other business his company had done: p 2-93.   At that meeting there was some discussion about the plaintiff’s getting some advice, and the first defendant suggested they see Mr Agnew, a solicitor who was a friend of his: p 2-10.   That was agreed, and he arranged a meeting.

20. [20]
    Mr Agnew suggested Mr Seymour to give accounting advice, and on 19 April 2012 the first defendant sent Mr Seymour an email to arrange a meeting “to discuss a few things with you regarding each individually owned company, owned by each partner, the collective company owned by the three partners and the interaction between all of the companies and the transfer of profits and funds to each shareholder”: document 26.^[25]A meeting was arranged with Mr Agnew on 3 May 2012, and later that day with Mr Seymour: document 26. 

21. [21]
    Mr Agnew gave evidence, and a couple of diary notes of his were in Exhibit 1: Document 28. He said that before the meeting he was told by the first defendant that he and the second defendant had a labour hire business and that they wanted to bring another person into the business: p 1-79. The diary notes confirm that they were told by Mr Agnew that he could only represent the first defendant and his company and the others needed to get independent advice, and they needed to get tax advice from an accountant, but records that he expressed the view that the plaintiff was not prevented from becoming a director by any threat of litigation involving his own company.  Another diary note referred to the $25,000 which each had advanced to the company,^[26] but there was no reference to any other payment by the plaintiff. 

22. [22]
    Mr Agnew said that he advised the first defendant that it was important to formalise the relationship in writing: p 1-75. Mr Agnew had on his file the document which became Document 41. He thought he had drafted this document (p1-76, 81) but Exhibit 6 shows that it was actually drafted by the second defendant’s solicitor and sent to him on 2 August 2011; at some later date it must have been forwarded by the second defendant to Mr Agnew. Subsequently there was a conversation with the first defendant when Mr Agnew was told not to do anything further because the plaintiff had not come up with the money: p 1-77.

23. [23]
    The plaintiff said that the three of them saw Mr Agnew in May 2012 in Brisbane. He recommended that the second defendant and the plaintiff be separately advised, and that they obtain tax advice: p 1-20. The first defendant said that Mr Agnew got books out and went through them, and gave his determination of “this problem at hand.”^[27]He also said that Mr Agnew was instructed to prepare a shareholders agreement.   

24. [24]
    The second defendant said that at the meeting with the solicitor he was told about the concerns of the plaintiff, and his advice was that there was no comeback from one company to the next: p 2-94.^[28]When asked whether anything was decided at the meeting he said that “we also asked [the solicitor] to draw up a shareholders agreement”: p 2-94.  For that purpose the solicitor was provided later with a copy of the draft shareholders agreement which had earlier been drawn up by the other solicitor, which was part of Exhibit 6. 

25. [25]
    The three of them then consulted the accountant, Mr Seymour, who gave evidence that there was a meeting on 3 May 2012 attended by the plaintiff, the first and the second defendants.^[29]He appeared to have limited personal recollection of what was discussed at the meeting, though he had some notes, some made at the time, and some notes which he had made a little later.^[30]He said that he was giving advice on the tax implications of the introduction of another party as a shareholder of the company: p 2‑45.  There would be tax implications in that the current shareholders would have to pay capital gains tax since the company had been trading profitably and accordingly had built up a value based on the business of the company: p 2-51-54.  Those tax issues would still arise if the company had simply issued a third share to the plaintiff without payment: p 2-55.  He had some recollection that at some point, he thought a later date, there was some discussion about reducing the value of the company by people invoicing for work which had not at that stage been charged for, but his recollection was very vague: p 2-51.  He noted that other ways of dealing with the issue involved starting a new company, and selling the business, or for the new company just to take over the business: p 2-52.  Mr Seymour said there was some discussion about the plaintiff’s raising money to buy in to the business at the meeting, but he could not recall who raised it: p 2-48.  He had no recollection of the plaintiff’s asserting during the meeting that he had a right not to have to pay that money: p 2‑48. 

26. [26]
    Ultimately, Mr Seymour’s firm arranged for an extra 59 shares to be issued to each of the existing shareholders, for which no particular capital contribution was made: p 2-53.  On 1 August 2012 Mr Seymour had someone enquire of the second defendant of the full details of the plaintiff so that share transfer could be processed: Document 37.^[31]The second defendant responded that “At this stage we are still waiting for Greg Cox to raise the money.  He has indicated that it may be two or three weeks but that was two or three weeks ago.”  That email then spoke about ruling off the business on the basis that any profit to that point belonged to the first and second defendants.  On 5 September 2012 Mr Seymour agreed that this is what happened with profits until the plaintiff was admitted, and that at some point it would be necessary to do a set of accounts at that date, which could be done at any time: Document 37.  After 5 September he did not receive any further instructions in the matter: p 2-48. 

27. [27]
    The plaintiff said that Mr Seymour pointed out that there would be tax implications if shares were issued to him in accordance with the original agreement, though it was not clear that his evidence was that Mr Seymour had referred specifically to the original agreement: p 1-21. The plaintiff said that he did not quite understand what the issue was about this, and that he pointed out that there had been work done by them for which no charge had been made so that the company’s profitability had been somewhat inflated: p 1-21. The first defendant said that the purpose of seeing Mr Seymour was concern with the process of getting the plaintiff into the business: p 2-12.  The first defendant said that Mr Seymour advised that the plaintiff “can’t walk in now in this situation because the company is now trading and there’s now going to be significant capital gains tax issues if this was to happen”: p 2-12, 13. 

28. [28]
    The second defendant said that Mr Seymour said that there would be capital gains tax for them if they just transferred shares or a share to the plaintiff: p 2-94. He said that the plaintiff suggested that if the bank accounts in the third defendant were run down to zero the shares could just be transferred to him, but the others did not agree to that: p 2-95. The accountant said that there would be tax implications regardless of the amount of money in the bank account. There was no decision then and there as to what was to happen, in response to this development.

Later meetings

29. [29]
    At one stage in early June 2012 the first and second defendants came up with a fairly complicated scheme which was designed to reduce the value of the third defendant somewhat so as to reduce capital gains tax, which was put to the accountant for his advice on 11 June: Document 32. It is unnecessary to go into the details of this scheme, because there was no evidence it was ever discussed in detail with the plaintiff. The second defendant said he could not recall whether they received any and what advice from Mr Seymour about it (p 2-96) and Mr Seymour was not asked anything about this email when he gave evidence.

30. [30]
    The plaintiff said there was subsequently a meeting in late May or early June in Emerald when there was some discussion about the plaintiff’s paying a total of $100,000 to the other two: p 1-22.^[32]It was pointed out that the company had $360,000 in the bank so that money would be available to pay that back from the company.  The plaintiff said that he responded that he would have to take advice because it did not look to him like the original agreement under which he did not have to pay for the shares.  He said there were a lot of further discussions, but that ultimately the sticking point was that he felt that he was entitled to a one third interest in the company without having to make any additional payment for it, and the others would not agree to that: p 1-22, p 1-39. 

31. [31]
    The first defendant said that after meeting the accountant he and the second defendant proposed a solution to the capital gains tax issue, that the plaintiff would pay each of them $50,000, and $300,000 would be left in the company’s bank account so that the plaintiff would in effect have a one-third share of that money: p 2-13.  He said that the plaintiff was initially not happy with this. 

32. [32]
    The second defendant said that there was a further meeting in June with the plaintiff and the defendants about the matter, when the plaintiff was still pressing for some way to be devised under which he could come into the company without payment: p 2‑96.  An arrangement was suggested to him which involved his paying $100,000.^[33]The second defendant said that after some discussion the plaintiff stood up, put his hand on the defendant’s shoulder, and said that he was in and he would have the money in two to three weeks, or words to that effect: p 2-97.^[34]The second defendant said the plaintiff also agreed to become a director of the company.  He said that they asked Mr Seymour to split the shares so that each defendant would have 60, with a view to each transferring 20 to the plaintiff.  That occurred, but the further transfer to the plaintiff did not. 

33. [33]
    On 29 July 2012 the first defendant sent an email to the solicitor advising that they were “finalising our new arrangement with Greg Cox coming into 4 Trades as a third Director” and asking about the “partnership agreement”: Document 34. On the following day the solicitor sought details of the parties and a breakdown of the shareholding, and said he would draft a shareholders agreement: Document 35. Time went by, no money was forthcoming, and in August there was another meeting where the whole thing was discussed again, and again, the plaintiff agreed: p 2-97.

34. [34]
    The first defendant said that in August 2012 the plaintiff agreed to pay the sum of $50,000 to each of them and said that he would have the money in a few weeks: p 2‑16.^[35]The money was not paid during the rest of 2012, and the plaintiff had not sought to follow up either a written shareholder agreement or how the deal was progressing: p 2-16. 

35. [35]
    The second defendant said that in September 2012 he was told by the first defendant that the mining company had suspended all training until further notice, apparently due to a downturn in the industry: p 2-91, Exhibit 5, 21 September 2012. The plaintiff agreed this had happened: p 1-71. 

36. [36]
    The first defendant said in late 2012 he received a phone call from the plaintiff asking how the third defendant was going and how much money was in the bank account, and the plaintiff said that things had changed and they would have to have a meeting: p 2-17.  A meeting was organised for the three of them in early January.  The plaintiff said that there was another meeting of the three of them in January 2013 at which he was told that the other two were proposing to close down the third defendant: p 1-23, 49.^[36]   He was told that if there was any money outstanding under any subcontract arrangement he would be paid out, but he had no other entitlements in relation to the third defendant.  There were no further relevant discussions, prior to the commencement of the proceeding. 

37. [37]
    The first defendant said that when the meeting was held in January 2013 they withdrew their offer to the plaintiff to come into the third defendant, as he was proposing to offer the second defendant a half-interest in CHSS and to merge the two companies: p 2-19, 20.  He said the plaintiff responded that he thought that he was in from the start but they replied that he had never come on board as a shareholder of the company.  The plaintiff said that he believed he had put in contributions in kind, and they invited him to put in an invoice for anything that he believed the third defendant owed him. 

38. [38]
    According to the second defendant, at that meeting the first defendant said that the offer to the plaintiff for him to be a director and shareholder of the third defendant was no longer on the table, and that it was proposed to merge CHSS and the third defendant: p 2-100. The plaintiff responded that he thought he was a third shareholder in the company, but he was told that he had never paid the money he said he would pay: p 2-100. There was further discussion, the plaintiff asked what the company was worth and they refused to tell him. The plaintiff then said that he had some further claim, and was invited to submit an invoice which they would look at: p 2-101, p 3‑13.  The second defendant said there was no subsequent meeting with the plaintiff. 

39. [39]
    On 9 January 2013 the second defendant sent an email to Mr Seymour saying that there was a meeting the previous day when the plaintiff was told that the offer had been withdrawn: Document 38. He said in the email: “Greg indicated that while no signed agreement existed he felt that a verbal agreement was in place and that if 4 Trades was to be wound up he was entitled to some remuneration… We had 3-4 meetings (one with you) on his entry and to date there had been no movement on his part towards making this happen and due to the current circumstances with CHSS we had to act”: Document 38.

40. [40]
    The second defendant said that on 28 February he received an email apparently from the plaintiff referring to the January meeting and continuing: “to finalise my involvement with the training/labour hire business, I need to issue an invoice for costs owed from the Business Development Days, as discussed at the same meeting. Which company would you like me to issue the invoice to? (As I am not aware if the restructure has gone ahead as discussed at the meeting …)”: Document 39. The second defendant replied that it could be issued in the third defendant’s name: Document 39. The plaintiff sought to explain this email by saying that it was sent by his wife without his knowledge: p 1-24.  He said it was common for her to send emails on his behalf particularly while he was away from home: p 1-25.  When he found out it had been sent he first took legal advice.

41. [41]
    The first defendant said that he subsequently had a phone call from the plaintiff at a date he did not specify when the plaintiff had said that there was a verbal agreement and he believed he was owed something in relation to the third defendant, and that he subsequently had another conversation referring to an invoice that was coming through, inviting the first defendant to disregard references in it to CHSS: p 2-21.  The second defendant said there was no further contract with the plaintiff: p 2-101. 

The business

42. [42]
    The training was carried out in training rooms in Emerald, basically a shed, which was owned or occupied by CHSS, but no fee was charged for use of those rooms: p 2‑91.  The second defendant said that he and his wife had a lot of printing for the third defendant, though eventually that was reduced by the third defendant buying some iPads: p 2-92.  Later however he said that during the training work, the plaintiff arranged for the printing to be done: p 3-4.^[37]

43. [43]
    The first defendant claimed that he and the second defendant were doing about 40 hours per week in work for the third defendant during the period from about January 2011 to April 2012: p 2-6.  These services were not paid for, or indeed charged for.  He was very vague about just what was being done during these many hours, which were entirely undocumented.  He said that the second defendant was also not paid for services provided to the third defendant: p 2-7. 

44. [44]
    The second defendant said the third defendant purchased a 12 seat bus to transport trainees, the purchase of which was not assisted by the plaintiff,^[38] and that in the latter part of 2012 there was a change in the mining company’s accounting systems which held up their cash flow, as a result of which the first and second defendants had to put extra money into the third defendant: p 2-99.^[39]He said they did not even ask the plaintiff for money on this occasion, because the plaintiff was always crying poor.  He was sometimes asking to be paid for his work even before he had left Emerald.  The second defendant said he did not speak to the plaintiff after September 2012, though he was present at the meeting in early January 2013 in Brisbane, arranged by the first defendant, where the first defendant did the talking: p 2-100. 

45. [45]
    In late 2012 the second defendant issued invoices to the third defendant in respect of some work that he had done (Exhibit 7) but only the last of these, for supply of a trainer, was paid: p 2-102.^[40]He said he never made any charge for when he was using his car for the purposes of the third defendant’s business: p 2-102.  Ultimately a charge was made for the use of the printers owned by his wife’s company: p 2-103.  This may have been formulated as involving a charge for his wife’s time: p 2-103.  The second defendant said that no contract was ever signed between CHSS and the third defendant in relation to the rights to the contract with the mining company, or indeed for the provision of administrative services to the third defendant: p 2-104. 

46. [46]
    The second defendant said that towards the end of 2012 there were three handwritten invoices that the first defendant submitted for work done by his company and these were paid: p 2-104.^[41]He had prepared a document setting out the work that he had put in for the third defendant over the period, breaking it down to the different roles he was doing, which was at p 297 within Document 43.  He also said that he had seen the similar document at p 296, which would be reasonably correct in its description of the role of the first defendant: p 2-105.  After the company ceased to trade he sold the furniture and electronics for about $800, which was paid into the company’s bank account.^[42]The bus was sold in 2014: p 2-106.

47. [47]
    The former general manager of CHSS gave evidence that in November 2010 (p 3-21) he negotiated with the second defendant for the third defendant to make payments to CHSS about the use of its resources: p 3-22.^[43]The witness said that it was agreed that the third defendant would pay for the additional insurance costs experienced by CHSS, and would pay for administration services such as printing and processing the invoices, at $68 per hour plus GST: p 3-23.  Later he said there was also agreement that this covered the use of the room in which training was conducted: p 3-28.^[44]He said that there was some discussion about the use of the vendor number, but nothing was ever agreed: p 3-24.  He produced copies of five invoices which were issued while he was general manager: Exhibit 8. 

48. [48]
    The first of these, dated (I think, incorrectly) 27 November 2010, simply carried forward an outstanding balance from 2010-2011 when a different bookkeeping system was in use: p 3-26.^[45]Invoice 7453 dated 29 June 2012 was for printing 100 manuals at $100 each.  Invoices 7523 and 7524 were also dated 29 June 2012.  The former included printing another 53 manuals at $100 each, and hire of the training room for 36 days at $150 each, while the latter, apart from a charge of $2,500 referred to below, charged for 29 days’ hire of the training room at $100 per day, and administration labour for 1.5 hours per month from December 2010 to September 2011 at $68 per hour, and 1.5 hours per week from October 2011 to June 2012 again at $68 per hour.  The witness was not able to explain why printing and hire of a training room charges were spread over two invoices (p 3‑27, 28) but at p 3-27 he said that the manuals were printed prior to there being any agreement in place, presumably to pay for them.  He said that it took 1.5 hours to process the single invoice for training being processed each month, because of the complexity of the mining company’s online accounting system: p 3-31. 

49. [49]
    The first defendant also called evidence from an accountant who in May or June 2013 took over the bookkeeping for CHSS: p 3-34.  She was able to verify and explain five invoices from CHSS to the third defendant between August and October 2013: Exhibit 9.  She referred to a mediation meeting held in June, presumably 2013, when certain agreements were made, including that the Nissan Navara referred to in the invoices would be used by the third defendant and paid for by it: p 3-36.  One of the invoices, 14/6075, referred to a service charge of 6% of gross billings to the mining company, presumably the amount being paid by the third defendant for having its invoices processed through CHSS.  This came to $26,693.55, and indicates gross billings to the mining company of just over $30,000 per week.  However, she said that although the rate of 6% was proposed at the mediation meeting, there was no final agreement on that: p 3-37. 

50. [50]
    This indicates that what was foreshadowed at the January 2013 meeting contended by the plaintiff had not come about, and the third defendant was still trading, though I had no evidence from anyone about just what was happening with it by this time. To complicate matters further, a profit and loss summary, which is in annexure 5 to document 43, the report of Mr Lytras, indicated gross income for the third defendant in the 2014 financial year of only $327,171. If the figure in invoice 14/6075 were spread evenly over the weeks 23-36 referred to, this covered most of the income for the whole financial year. Paragraph 8.3(d) of his report indicates that he was instructed to assume that the third defendant ceased trading in September 2013 “due to the variation by [the mining company] of CHSS work contract with [the mining company] and a change in the business relationship between 4 Trades and CHSS”. Strictly speaking this is not evidence of what actually happened, but it is consistent with the financial records.

51. [51]
    It follows therefore that the training part of the third defendant’s business came to an end in September 2012, for reasons independent of the dispute between the parties, and the labour hire part came to an end about a year later, for reasons not clearly explained, but which may well have been a product of the general decline in the mining industry. Certainly by then the third defendant had no valuable goodwill. With hindsight, it was never going to make anyone rich, as sooner or later it would have been a victim of the collapse of the mining boom. In a sense, the parties are fighting over the spoils of defeat.

Pleadings

52. [52]
    In the ultimate version of the statement of claim, filed by leave on the first day of the trial, the plaintiff alleged that in or about July 2010 there was an oral agreement made between the plaintiff and the first and second defendants that, materially:

“(a) Wilson and Stephenson would cause 4 Trades to issue a share or shares representing a one third shareholding as directed by Cox;

(b) RITE^[46](by Wilson), Stephenson and OPEQ (by Cox) would provide training services to 4 Trades at competitive rates;

(c) Wilson, Stephenson and Cox would develop and promote 4 Trades’ business;

(d) Wilson and Stephenson would undertake the management of 4 Trades’ business.”

53. [53]
    It was further alleged that in or about December 2010 the plaintiff directed that the share or shares to be issued pursuant to the agreement be issued to him, and that the first and second defendants repudiated the agreement on 8 January 2013.

54. [54]
    There were differences between the plaintiff’s evidence and the case alleged: the plaintiff was not consistent about whether he agreed to the proposal in the first conversation. At p 12 he said that his response in that conversation was that he would “think about that seriously” and get back to them at a later date: line 11. At p 13 he said that he was asked at one point whether he was still interested and he replied he was “more than interested” but he needed to clarify with his accountant whether the shares would be better held by him or his company: line 31.  Later he said the idea of joining the third defendant was first raised by the first defendant in a phone call and in a later phone call involving all three he agreed: p 1-62, 65.  The plaintiff gave no evidence about the first and second defendants undertaking the management of the business, although he said there was no discussion initially about his becoming a director: p 13.  He said initially that he told the first defendant that he would hold the shares in the third defendant personally (p 1-19) whereas the further amended particulars dated 24 November 2014 said that the direction was given orally to both the first and second defendants: paragraph 4.  He later said he told both: p 1-64. 

55. [55]
    The first defendant filed an amended defence dated 29 September 2014, which denied the alleged agreement in or about July 2010, and otherwise pleaded the history of the matter, essentially as set out in the evidence of the first defendant. Paragraph 3(p)(iv) alleged that Mr Seymour advised that if shares were issued for no consideration to Cox there would be significant CGT implications for him, which was not the case as the CGT implications were for the first and second defendants, and the allegation in subparagraph (v), that if the plaintiff paid $100,000 for one third of the shareholding that would resolve any capital gains tax implications for the plaintiff, was also not correct as there were no capital gains tax implications for him. It would also not have the effect of removing an obligation to pay capital gains tax from the first or second defendants, though it might well have the effect of quantifying that obligation, at least if the commissioner accepted that the shares were being sold for their true value, or at least did not argue about the point. The first defendant’s pleading also did not allege that the proposal in December 2010 involved the plaintiff’s playing $1,500 as a contribution to the start-up costs, as he testified: p 2-5.

56. [56]
    The second defendant also denied that there was any agreement in or about July 2010: paragraph 2. He alleged that from November 2010 to January 2011 the first and second defendants had preliminary discussions with the plaintiff about his becoming a shareholder and director of the third defendant, and that between January 2011 and mid-2012 there were further discussions about this: paragraphs 2(b), (c). It was alleged that in June 2012 an offer was made to the plaintiff to becoming a director and shareholder of the third defendant on the basis that he would pay $50,000 to each of the first and second defendants, and that the plaintiff agreed to that offer. It was alleged that that offer was subject to receipt of the money from the plaintiff and the plaintiff’s taking up a position as director of the third defendant, neither of which occurred. As a result no shares were ever issued to him. On the other hand, the second defendant’s evidence was that in December 2010 the plaintiff was offered a one third share and a directorship, without anything being said about payment of money by the plaintiff, but that was not accepted at that time: pp 2-78, 79. It appears that the second defendant accepted that the plaintiff agreed to become a director of the third defendant on about 28 July 2011, as evidenced by the email to his solicitor which led to the drafting of the shareholders agreements.^[47]That was inconsistent with the pleading in paragraph 2(c)(ii)(A) that the plaintiff continually rejected becoming a director of the third defendant.  In other respects however, the pleading is generally consistent with the evidence of the second defendant. 

Credibility

57. [57]
    There are difficulties about the credibility of each of the parties. With regard to the plaintiff, his explanation for the email on 28 February 2013, Document 39, that it was sent by his wife without his knowledge, is unconvincing. For this to have occurred, he must have explained to her a good deal about what happened at the meeting in Brisbane, including the reference to the restructuring proposed by the first and second defendants, but had either left her with the impression that it was appropriate to send an invoice for those costs, or at least failed to convey properly that he was not happy with any proposal to put in an invoice for unclaimed costs, though his evidence was that he was invited to put in an invoice for any money outstanding.

58. [58]
    When asked later about the email, he said that he had discussed the conversation in detail with his wife including that he had told the others that he would have to consider the economic loss to himself and to his company at the end of that meeting, and they had subsequently talked about what action they would take, and he had said he had to think about things, but she had put this together in her own words and sent it off to the second defendant without her knowledge: p 1-50.  That would be very odd behaviour indeed for his wife in such circumstances, possible I suppose but not likely.

59. [59]
    He said that he did not pay the $1,500 in the invoice emailed on 10 January 2011 (Exhibit 2) because he was subsequently told that the wrong bank account details had been put on it, which is plausible, but does not explain why, when a bank account for the third defendant had been opened with his involvement soon after that, he failed to pay the money into that account at any time. His only explanation was that there was no follow up from the first or second defendants, and he never received another invoice with the correct bank details, which are not plausible reasons. When asked about the email on 5 August 2012, Document 36, he suggested that this was not a matter of raising money to pay for shares, but raising money to put into the business as working capital, presumably as a loan: p 1-28.

60. [60]
    The plaintiff’s evidence was that from August 2011 he no longer had any objection to becoming a director because of his concern about liability through his company OPEQ: p 1-14.  That is inconsistent in my view with the evidence of Mr Agnew, supported by his diary note: Document 28.  The plaintiff raised at the meeting in May 2012 the question of what effect it would have if he were a director and had problems with his own company: p 1-75.  That was also inconsistent with the plaintiff’s evidence at p 1-43 that at the time of the meeting with Mr Agnew he had already clarified the position with the other defendants, and that he said he had no concerns about being a director as long as “we do legally the right things”.  When it was put to him at p 1-68 that in the meeting with Mr Agnew he expressed concern about being a director if he was insolvent, he said that he raised that he had been advised that the only reason he could not be a director was if he acted insolvently, and that Mr Agnew had answered that that was correct and that that would apply to anyone.  That was also inconsistent in my view with both Mr Agnew’s evidence, and with his own evidence at p 1-43. 

61. [61]
    The first defendant seemed at times to have great difficulty in the witness box in telling a coherent story in response to questioning.^[48]The first defendant said it was an essential term of the offer he made to the plaintiff that the plaintiff become a director of the third defendant, but had difficulty in explaining why he wanted it to be an essential term of the offer: p 2-25, 26.  The one explanation he did not offer was to share the risks associated with the business, the explanation pleaded^[49] and put in cross-examination of the plaintiff.^[50]

62. [62]
    I was also not impressed by the first defendant’s evidence about the statement from CHSS to the third defendant dated 22 November 2014.^[51]He said at p 2-21 that this document had been reviewed by him and he believed that these amounts were owing to CHSS from the third defendant at that point.  Later when I asked him about that statement, he said that it was a statement of account for what his accountant believes is owed to CHSS: p 2-39.  He said that administration services included the cost of processing the invoice his company issued to the mining company in response to invoice for the third defendant.  When I asked about a suggestion that this document was invented to make the third defendant look less valuable, his response was that it was done back in 2013 before this (presumably this proceeding) was even raised: p 2‑41.  But on p 2-39 when I first asked him about the statement, he said, “This is just what we call a statement of accounts to 4 Trades, and it was prepared in relation to Mr Lytras, our expert report was why it was submitted.”  Mr Lytras was the forensic accountant who prepared a report dated 26 November 2014 which was Document 43, and who gave evidence; the statement appears as annexure 3 to that report. 

63. [63]
    The statement included, as the fourth invoice, invoice 7524 dated 31 December 2012, including an entry “Administration services/hour, 1 @ $2,500 = $2,500”. When I asked who it was who was providing these services, the first defendant said that the invoice actually related to the “actual cost of – of the vendor which … CHSS was providing at a percentage rate of – of the invoices total that were provided to [the mining company] for payment. That was – that was how the vendor services were worked out.”^[52]That seems to be a reference to the imposition of a charge by CHSS for the use of its vendor number, that is to say for its allowing the third defendant to charge the mining company in its name for the work the third defendant was doing. 

64. [64]
    There are three difficulties with that explanation. The first is that it is not what the statement actually says. The second is that there was not only no evidence that there ever was an agreement between CHSS and the third defendant to make some particular payment for the use of the vendor number in this way, the evidence was that there was never any agreement about this.^[53]The third is that there was evidence from the man who was general manager of CHSS as at 31 December 2012 when this invoice was issued.  He produced a copy of the invoice^[54] which charged the amount of $2,500 as a “vendor fee,” but he said this was actually a charge for the additional cost of insurance because the amount CHSS had to pay for insurance had been pushed up by the extra turnover associated with the work it was charging for on behalf of the third defendant.^[55]He was unable to explain the fact that it was such a nice, round number other than by suggesting it had been rounded up or rounded down: p 3‑29.  So the invoice described inaccurately what the charge was for, and then whoever put together the statement described it in different but also inaccurate terms.^[56]

65. [65]
    As to the second defendant, there are a number of documents which on their face look to be inconsistent with his evidence. Document 20 is an email from the solicitor to him which was sent apparently in response to a telephone discussion earlier that day, and contains passages noted earlier suggesting that there were already three shareholders in the third defendant, although one of the three did not currently hold any shares and would need to be issued shares if appointed a director. It seems odd that the second defendant would have conveyed that impression to the solicitor in July 2011 if as he claims at that stage there had been no definite agreement that the plaintiff would be coming into the company. There was a further email from him on 24 July which did not challenge those assumptions, and when on 27 July he sent an email to the solicitor raising the plaintiff’s concerns about the effect of litigation on him arising from his own company, he spoke about the plaintiff as “the third person in 4 Trades (non-director)”: Document 22. This contemporaneous documentation seems to me to be inconsistent with his claim that the plaintiff never definitely agreed to accept their offer to come into the third defendant. His evidence (p 2-78) that when the offer was made there was no discussion about money is inconsistent with the invoice for $1,500 he sent to the plaintiff on 10 January 2011: Exhibit 2. 

66. [66]
    The second defendant said that it was important to him that the plaintiff be a director of the third defendant, for reasons he gave (p 2-83) but his solicitor prepared a draft shareholders agreement which was sent to him which did not require the plaintiff to be a director, but merely permitted each shareholder to appoint a director.  He dismissed this as simply a draft agreement which was not shown to anybody (p 3-8) but it was subsequently provided, presumably by the second defendant, to Mr Agnew after he was given instructions in April 2012 to prepare a shareholders agreement.  Even when, according to the email (Document 23) from the second defendant, the plaintiff had said he would come on board as a director, no steps were taken by the existing directors to appoint him as a director, or to issue shares to him.  This was, after all, something under the control of the first and second defendants, not the plaintiff.  In addition, the second defendant’s explanation for the fact that the plaintiff was made a signatory on a bank account of the third defendant opened in January 2011, when on his account the plaintiff had not even agreed to become a shareholder at that stage, struck me as quite unconvincing: p 3-17.^[57]Although the second defendant was more impressive in the witness box than the other two parties, in the light of these factors it is appropriate for me to be cautious about his evidence as well. 

67. [67]
    In these circumstances I do not regard any of the parties who gave evidence as being a particularly reliable witnesses. No doubt the matter is not helped by the fact that nobody bothered at any relevant time to keep track in any systematic way of what had been discussed or agreed upon, and the whole process appears on any version to have been handled in an extremely casual fashion, despite the fact that from time to time professional advice was obtained. As a result there are not a lot of useful contemporaneous documents, but I think that there are some contemporaneous documents which are a more reliable source of guidance to what happened than the oral evidence of the parties. Accordingly, I am relying heavily on the documents, and on the inherent reasonableness or plausibility of the accounts given.

Analysis

68. [68]
    The first issue is whether there was an oral agreement as alleged by the plaintiff in about July 2010, for him to come into the third defendant’s business. As I have indicated, the plaintiff’s evidence in relation to this was not always consistent or clear, there were differences between the agreement pleaded and the plaintiff’s testimony, there is no contemporaneous documentation which supports the existence of an agreement of that time, and an agreement then was denied by both of the other parties. It also seems to me that the defendants’ account of how contact came to be made with the plaintiff in relation to the third defendant is more plausible: the defendants had obtained the opportunity to do some training for the mining company, and the plaintiff was a person who would be useful in performing that particular activity, so the contact was initially made with him for that purpose, and it was only after that arrangement was working well that the defendants decided to offer for him to come into the company.

69. [69]
    The plaintiff’s account, that in effect he was asked to come into the company at an earlier stage, in order to exploit his contacts in the mining industry with a view to obtaining labour hire work, is I think implausible. The third defendant had not long been set up, and although the first and second defendants had not obtained any labour hire work at that stage, I think it unlikely that as early as July 2010 they would have been considering the expedient of inviting a third person into the company simply on that basis. Further, the second defendant’s explanation, that the training opportunity initially came to him, and what was agreed between him and the first defendant was that it be done through the third defendant rather than the first defendant’s company so that the second defendant could share in the benefit of this opportunity, strikes me as particularly plausible. In those circumstances I am not persuaded that there was an agreement in July 2010 as alleged by the plaintiff.

70. [70]
    On the other hand, both defendants said that the plaintiff was invited to come into the third defendant in December 2010, on terms very like the terms alleged by the plaintiff. The differences were, they said, that the plaintiff never accepted that offer, it was part of the offer that he also become a director, and that he pay $1,500 as a contribution to the setting up expenses of the company. The plaintiff accepted that there was at some stage a conversation about that payment and that he agreed to it, though in fact he never paid that contribution.

71. [71]
    In the circumstances I find that such an offer was made to the plaintiff by both defendants in December 2010. In relation to the question of his becoming a director, I do not accept that it was a condition of the offer that the plaintiff become, or agree to become, a director. I consider that being a director as well as being a shareholder was part of what was offered to the plaintiff, but I am not persuaded that this was done in terms which actually made it a condition of the offer. Although the plaintiff said that the offer which was made to him initially did not involve saying anything about being a director, his evidence was that he was also offered a directorship, indeed before December 2010.

72. [72]
    The next issue is whether that offer was accepted by the plaintiff. Strictly speaking, the plaintiff’s evidence was not that he accepted that offer, but that he accepted an offer in similar terms which had been made to him some months earlier, but the plaintiff’s evidence was to the effect that he accepted the offer that was made to him, and I find that he did accept it orally. There are broadly speaking three reasons for this conclusion. One is that the plaintiff was made a signatory to the bank account in January 2011. I cannot accept that the parties would have done this if the plaintiff was merely considering becoming a part of the third defendant, even if he had indicated some interest in doing so, short of actual agreement. The second is that the plaintiff’s wife lent the third defendant $25,000 in about October 2011, which is more consistent with his having agreed than his having not agreed.

73. [73]
    The third is that there were contemporaneous documents which were consistent with the plaintiff’s having agreed. The fact that the invoice for $1,500 was sent to him suggests that he had agreed. There would have been no point in sending him an invoice if he had not agreed. There are a number of documents^[58] in 2011 or 2012 which speak of the plaintiff as being one of three people in the third defendant, or one of three partners, and I think that this was not just loose language, speaking of something as if it had already happened where there had not even been an agreement that it would happen.  That might occur occasionally, but there are too many documents at that time.  In all the circumstances I consider there was an oral agreement for the plaintiff to become a shareholder in the third defendant, even though not very much was done to carry this agreement into effect. 

74. [74]
    The contemporaneous documents do confirm that the plaintiff was, in mid‑2011, concerned about the effect on the third defendant if he was sued because of his involvement with his own company.  That suggests some degree of concern for the wellbeing of the third defendant consistent with his already being part of it, but I accept that once the advice from the second defendant’s solicitor was passed on that concern was allayed.  I think it likely that the matter was raised again with Mr Agnew, in the light of a particular prospect of legal action which was then facing the plaintiff’s company, with a view to obtaining confirmation of the earlier advice.  At that meeting Mr Agnew was asked to prepare a shareholders agreement, which indicates that the parties were proceeding to formalise this agreement,^[59] at least until they saw the accountant who raised the difficulty about capital gains tax. 

75. [75]
    In the light of all the evidence, it is my view that what really happened is that Mr Seymour put a spoke in the parties’ wheel by raising the issue of capital gains tax, in a way which indicated that, since the company had been trading already, for the plaintiff to be let in now it was necessary for him to buy his way in.  Whether or not that was correct,^[60] all parties seem to have accepted his fairly clear view that there would be some tax difficulties if the plaintiff was simply made a third shareholder without paying for the shares he received, because the company was regarded as already having value.  From then on, negotiations between them seem to have proceeded on the basis that it was necessary to work out some way in which the plaintiff could buy his way into the company, in a way which was acceptable to the plaintiff.  It may be of course that the plaintiff was reluctant to pay anything for his shares because he simply did not have the money to pay, though he (or his wife) was able to come up with $25,000 when that was needed for working capital in 2011.  I think a more plausible explanation is that the plaintiff was reluctant to accept this because it involved changing the deal which had previously been made, that he become the third shareholder at no cost except for a contribution to establishment expenses.  Hence the protracted and complicated negotiations, and the attempts to present the proposals as “cost neutral”.^[61]

76. [76]
    I accept however that eventually an agreement was reached. I accept the second defendant’s evidence that eventually the plaintiff agreed to pay the money, by his statement “I’m in”, supported as it is by his contemporaneous email to the solicitor.^[62]This involved a modification of the earlier oral agreement.  It was no longer an agreement for the plaintiff to come in without payment, but rather for the plaintiff to come in on terms that he would pay each of the first and second defendants $50,000 for shares in the third defendant.  I accept that this agreement was reached in mid‑July 2012.  However, the plaintiff did not pay the money, either within the two to three weeks that he originally asked for, or at all.  I think that by this stage the relationship between the parties had deteriorated somewhat, but more importantly, when the lucrative training contract effectively came to an end in September 2012, the position changed.  First, the major source of revenue for the company had been cut off, and second, the particular contribution which the plaintiff had made to the company, in the field of training, was no longer required.  That I think was the explanation for the defendants deciding to, as they put it, withdraw their offer. 

77. [77]
    It was of course by then more than an offer, since I have found that it was accepted. That acceptance produced a second agreement, which varied the terms of the previous oral agreement, so that instead of the plaintiff becoming a shareholder for nominal payment he was to make a substantial payment to become a shareholder. Even if it was not a term of that agreement that the payment be made within two to three weeks, there was an obligation to make the payment within a reasonable time, and in the circumstances I consider that the plaintiff’s failure to make the payment by January 2013 amounted to repudiation of the amended agreement, which the first and second defendants were entitled to accept and put an end to the agreement.

78. [78]
    In summary, I accept that what really happened here is that there was an oral agreement for the plaintiff to become a one third shareholder in the third defendant without substantial consideration, but the parties subsequently varied that agreement so that the plaintiff was required to pay substantial consideration, the plaintiff repudiated that varied agreement by failing to pay the substantial consideration within a reasonable time, and the first and second defendants accepted that repudiation and put an end to the agreement. In those circumstances, the plaintiff has no claim for damages for breach of contract.

79. [79]
    That account does not accord with the pleaded case of any party, but in circumstances where the whole relationship between the plaintiff and the first and second defendants in relation to the third defendant has been litigated, I consider that I am entitled to find what I think actually happened in the light of the evidence, on the balance of probabilities, even if it does not accord with the particular pleaded case of any party. As it happens, my analysis produces the same result as if I had simply rejected the plaintiff’s case on the basis that the factual allegation in para 2 of the statement of claim had not been made out. In these circumstances it is not necessary for me to consider whether it would have been open to me to give judgment for the plaintiff on a different basis from that pleaded by him, for example by finding that the plaintiff was entitled to damages for breach of an oral contract made in December 2010, as varied in July 2012.

Assessment of damages

80. [80]
    In case a different view should be adopted elsewhere however, I shall deal on a precautionary basis with the assessment of the plaintiff’s claim for damages. That, as pleaded, had two components, $306,437 for the value of the shares that were not issued to him, and $156,593 for dividends said to be payable in respect of the share or shares between December 2010 and January 2013. The latter may be dismissed at once; there was no evidence that the third defendant ever declared a dividend, and indeed the evidence was that there never was a dividend from the third defendant.^[63]

81. [81]
    If the plaintiff had a contractual right to be issued with shares in the third defendant, which he lost because of the wrongful actions^[64] of the first and second defendants in January 2013, he would be entitled to damages, being the value of what he ought to have obtained less the amount he ought to have paid in order to get it.  Damages for loss of the bargain would ordinarily be assessed as at the date on which the bargain was lost, that is the date on which the contract was terminated.^[65]Nobody argued in the present case that, if it were appropriate to assess damages, they should be assessed at some other date.  Effectively therefore what matters is the value of the shares in the company in January 2013. 

82. [82]
    The plaintiff led evidence from an accountant who is also a certified fraud examiner, Mr Ponsonby, who had prepared a report in November 2014: Document 42. Mr Ponsonby, in what he described as a limited valuation engagement, assessed the value of the total equity in the company as at 31 December 2012 at $919,311, so that the value of a one-third shareholding was one third of that amount, the amount claimed in the statement of claim: p 178.  He noted that as of 30 June 2013 there were substantial retained earnings in the company, which the company could have distributed as dividends.  It appears from para 16.1.5.4 of his report (p 198) that the valuation in terms of the net asset value of the company did not take into account the payment of dividends, so the value of the equity would have been lower if the retained earnings had been paid as dividends: p 1-88.  So even on his analysis the plaintiff has not lost both. 

83. [83]
    Mr Ponsonby’s report, para 3.2, noted that there was limited financial material, particularly after 1 July 2012, on which his valuation had been prepared. Mr Ponsonby said at para 7.2.2 that he had assumed that the 2012 and 2013 financial years were more representative of the likely sustainable turnover of the business rather than the 2010 and 2011 financial years.  The 2010 financial year was certainly properly excluded, but the training business ran only from November 2010 until September 2012.  The labour hire business arose in the 2012 financial year,^[66] and seems to have continued until sometime in September 2013.  In these circumstances, the concept of likely sustainable turnover strikes me as somewhat artificial.

84. [84]
    Mr Ponsonby’s report noted that the valuation of a business can be undertaken by different methods, capitalisation of maintainable earnings, discounted cash flow and asset backing, which can be assessed either on the going concern basis or the liquidation basis: para 9.1. He said that the first and second are preferred methods of valuation which in practice in a mature business with steady earnings will be interchangeable. In performing his valuation in schedule 5, Mr Ponsonby assessed the value of goodwill at $413,823.  It appears that this number was essentially an amount put in to increase the balance sheet value of the company to bring it into line with the valuation derived by the capitalisation of maintainable earnings method.

85. [85]
    There are numerous weaknesses within the valuation approach adopted by Mr Ponsonby, in the particular circumstances of this case and in the light of the evidence.  For the 2013 financial year, he depended on an internal profit and loss statement for about three months (p 1-86) which would have covered the period prior to the suspension in September 2012 of the training work by the mining company.  In these circumstances, the assumption he made, that those figures were representative of the likely future trading of the company, had even by January 2013 become quite unrealistic: p 1-86.  The report did not take into account any claims which had not been advanced by the first or second defendants in relation to time they had spent working on the third defendant’s business: p 1-88.  Mr Ponsonby said that the business activity statements showed an upward trend, changing to a decreasing trend only once the parties were in dispute, and he was not able to determine whether that change was due to external reasons or was a result of the dispute: p 1-93. 

86. [86]
    The first defendant called evidence from Mr Lytras, an accountant who had prepared a report dated 26 November 2014: Document 43. Mr Lytras assessed the value of the business owned and operated by the third defendant at nil dollars as at each of December 2010, January 2013 and currently. He did however assess the value of the equity in the third defendant as totalling $521,096 as at January 2013. His comments on Mr Ponsonby’s opinion were that there had been no accounting for the efforts of the first and second defendants in running the business, an incorrect forecasting of the likely future financial performance of the business, an underlying assumption of a maintainable business which led to the adoption of an incorrect valuation method, and the valuation figure and assessed dividend entitlement amounts were mutually exclusive: para 2.6. I agree with these propositions.

87. [87]
    As to the failure to account for the first and second defendant’s time, the evidence from Mr Lytras and those witnesses is that almost without exception no claims were made by either defendant in respect of any time that they devoted to the business of the third defendant up to the end of 2012. I accept this. Claims have been put in subsequently, but I am wary about those because they were formulated in the context of a dispute with the plaintiff. Given my lack of confidence in the reliability of the defendants, I would not place any great reliance on them. In addition, some of the claims have an air of exaggeration about them. The real difficulty with this business however was that the main customer of the business, both for training and for labour hire, was one particular mining company, and because of the way in which that company operated its business, any business done by the third defendant was done through CHSS.

88. [88]
    At no material time was there a written agreement in place governing the relationship between CHSS and the third defendant, and all that at its highest was ever in place were some specific agreements about CHSS charging for certain things.^[67]Accordingly for the third defendant to carry on its business at all with the mining company it required either the continuing goodwill of the first defendant, or some alternative arrangement with the mining company.  There was no evidence about how difficult, and how expensive, some alternative arrangement would be but there must be some difficulty involved because steps were never taken to enable the third defendant to deal directly with the mining company.  On the evidence there was only ever one labour hire arrangement handled by the third defendant directly, for a few months, and no evidence about its value.^[68]

89. [89]
    The third defendant had two aspects to its business: training and labour hire. The first part had effectively gone by January 2013, and the second part was dependent upon the continued goodwill of the first defendant, or some other arrangement being put in place to enable the third defendant to deal with the mining company. That seems to me to be a factor which, obviously, needs to be taken into account when valuing the third defendant’s business, but it was ignored by Mr Ponsonby.

90. [90]
    Mr Lytras’ opinion unfortunately suffers from the difficulty that he has, in accordance with his instructions, assumed for the purposes of the valuation that reasonable remuneration for each of the first and second defendants between October 2010 and September 2013 was $172,800 per annum: Document 43 p 255. This led to his conclusion that, with the exception of one year, the business was never sufficiently profitable to pay this amount of reasonable remuneration to the first and second defendants, and accordingly was not economically viable. Hence the valuation of nil dollars. That however depends on the proposition that the first and second defendants were spending at least 40 hours per week on average on unpaid work for the business between October 2010 and September 2013, or in the case of the first defendant until January 2013: para 5.5. I am not prepared to accept the first and second defendants’ evidence to that effect, and therefore consider that this assumption was not justified. There was also no evidence that this valuation of their time was reasonable, except from them. Accordingly it follows that Mr Lytras’ opinion as to the value of the business must also be rejected.

91. [91]
    The other difficulty with Mr Lytras’ valuation is that he did not take into account the possibility that the third defendant could have made some other commercial arrangement with another registered training organisation which was also a vendor to the mining company, and in that way continued to carry on business with the mining company without the co-operation of CHSS.^[69]Mr Lytras has in a sense adopted, on instructions, the opposite extreme from Mr Ponsonby, which I think is also going too far.  In terms of the valuation of the equity in the third defendant as at the nominated dates, this was said to be calculated on the orderly realisation of assets method: para 8.14.  One difficulty with this method is that he adopted the book values of physical assets (para 9.7), and although there had been allowance for depreciation of these assets, the realisable value of them was like to be much lower.

92. [92]
    I propose to undertake my own valuation of the third defendant as at January 2013, though I am conscious of the fact that this will be very much an exercise in doing the best I can with such evidence as is available. Like Mr Lytras, I will start with the balance sheet as at 31 January 2013: Document 43 p 309. The main difference between this balance sheet and the one included by Mr Ponsonby in Schedule 5 of his report (Document 42 p 215) is that Mr Ponsonby included $413,823 for the value of goodwill, whereas goodwill does not feature in the actual balance sheet on p 309. I have already rejected Mr Ponsonby’s assessment of the value of the goodwill of the business, and I am sceptical of Mr Lytras’ evaluation of the goodwill at nil, also for reasons I have already given. The difficulty I face however is that there is no evidence on the basis of which I could form any view as to what it would cost to secure the use of another vendor number in the marketplace, if CHSS withdrew the arrangement with the third defendant under which the mining company could be billed through it. I think this is a factor which ought to have been investigated, but in circumstances where it has not been I do not feel that I can, on the evidence currently before me, make any assessment of the likely cost, and in that way a reasonable assessment of the likely maintainable earnings of this company, which could be the basis for a calculation of goodwill. In those circumstances I consider that I cannot include any figure in a valuation calculation for goodwill. I expect that the company did have some goodwill, but in order to show that it did and to assess it I need to have some evidence about what it would cost to the marketplace to obtain access to a vendor number to the mining company, and I do not have that evidence, so that any assessment by me of goodwill would be simply speculation.^[70]

93. [93]
    One matter which can be taken into account however as an adjustment to the balance sheet is liabilities in the form of amounts which could properly be claimed by the first and second defendants for work they had done in the business but which they have not charged for. This again is a complex area, bedevilled by an absence of reliable evidence. I do not accept their assessment of their entitlements, on the basis of which Mr Lytras prepared his valuation, as I have already indicated, but I do accept they did do quite a bit of work for the business for which they did not charge, and for which it would be reasonable for them to charge. It occurs to me that there may be difficulties from their having signed off on company accounts, and perhaps tax returns, on the basis of a certain view of the books of the company which did not include any provision for such remuneration for them, and that may have had the effect of waving any such rights to remuneration. There is also the consideration that there are some decidedly odd features to some of the accounts. For example, to return to the questionable statement from CHSS dated 22 November 2014 on p 293, one of the entries is invoice 7453 for $10,000 plus GST dated 31 December 2012, yet another document shows that an invoice of that number to CHSS for $10,000 was paid on 10 September 2012: Document 50 p 468.^[71]Mr Lytras agreed that this needed further investigation: p 2-67.  Document 50 includes two other payments to CHSS, totalling only $1,381.82. 

94. [94]
    Ultimately, I conclude that a reasonable allowance for amounts properly claimable by the first and second defendants but unclaimed comes to $100,000 each. This is essentially a matter of judgment,^[72] and is I must confess not uninfluenced by the fact that the total amount paid to the plaintiff was of the same order, so there is some rudimentary fairness about such an allowance.  That would reduce the total equity from $521,095.67 to $321,095.67. 

95. [95]
    There is also the consideration that the fixed assets are shown at their book value, but on a sale of second hand assets their realisable value will be much lower, probably in the order of $10,000. Accordingly, $58,938.02 should come off the value of equity.

96. [96]
    I am however concerned about some significant differences between the expenses which were incurred by the third defendant between July and September 2012, as shown in Document 49, and in the period from July 2012 to January 2013, as shown in Document 53. The former made no allowance for administration costs, whereas the latter included $19,880 for this. Data processing charges of $14,620 in the latter has no equivalent in the former, and there is the sum of $5,599.53 for entertainment expenses in the latter which are not mentioned in the former. Finally, there is a figure for “supply of trainer” of $26,300 in the latter which is not mentioned in the former. That seems particularly odd, since according to the defendants’ evidence the training work provided by the third defendant ceased in September 2012. It appears to relate to invoices put in by the second defendant’s company, after things went bad, for his time from April 2012.^[73]If so, I have already allowed for this. 

97. [97]
    There was also a large increase in consultancy fees between the former accounts and the latter accounts, an increase of the order of $55,000. According to Mr Lytras, this was investigated and it related to a particular named consultant (p 2‑64), and although there is no evidence about how such large fees came to be incurred at that time, on the whole I am prepared to accept this as a legitimate expense.  I think the other expenses that I have referred to are doubtful.  It may be that there is an element of people charging after the dispute with the plaintiff blew up for things that had not been charged for earlier, but even so I am not prepared to accept these large increases in expenses at face value.  What I propose to do is add back into the assets and hence the value of the company as at January 2013 half of these amounts, a total of $33,200. 

98. [98]
    The practical effect of these changes to the balance sheet is to produce a value of equity for the third defendant as at January 2013 of close to $300,000. In the circumstances I will adopt $300,000 as the value of the equity in the company then, and accordingly assess the value of the one third share which it had been agreed the plaintiff would acquire at $100,000. I am comforted in arriving at that figure by the fact that this equals the price that, on the findings I have made, the plaintiff agreed to purchase one third of the company for in the latter part of 2012. Given that the object of the exercise of putting a value on the share the plaintiff was to acquire was to avoid a situation where that was being acquired by the plaintiff other than at its true value, that suggests that the parties themselves valued his one third interest in the company at $100,000 at that time. It is true that after that time the training business of the company came to an end, but the labour hire business was still functioning, and the main effect of that change would have been on the value of the company’s goodwill, for which I am not making any allowance anyway. In any case, given the unsatisfactory nature of much of the evidence before me, that is the best I can do by way of assessing the value of that one third interest on such evidence as is available. The damages therefore are the difference between that amount and whatever he had agreed to pay, be it nothing, $1,500 or $100,000.

99. [99]
    For the reasons given earlier however the plaintiff’s claim is dismissed. I will hear submissions in relation to costs when these reasons are delivered, but assume that costs will follow the event.