FEDERAL COURT OF AUSTRALIA

Nati v Bunt [2013] FCAFC 60

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellants jointly and severally pay the respondent’s costs of the appeal.

3.    The amount of $20,000 paid into Court by the appellants as security for costs be paid together with any accretions to the respondent in part satisfaction of the respondent’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The appellants, Robert Nati and Ying Jia Dai, appeal from a judgment of this Court delivered on 6 September 2012 as a result of which each appellant, severally, was subsequently ordered to pay Gregory Bunt, the respondent, $573,809.02, being a total of $1,147,618.04. The primary judge had found that there was a total failure of consideration in relation to a contract made in early August 2004 between the appellants and the respondent. It is the challenge to this finding which is central to the appeal.

2    Under the contract, in consideration of the respondent paying the purchase price of $750,000, each of the appellants were to sell and transfer to the respondent shares equivalent to 20% of the shares registered in their names and beneficially owned by them in the issued share capital of Rowa Australia Pty Limited (Rowa), giving the respondent a total of 20% of Rowa’s issued shares. The judgment sum, in each case, comprised $375,000 being half the total purchase price for the shares together with an additional amount of $198,809.02 for interest.

3    The terms of the contract were varied in June 2005 which, in effect, would have enabled the appellants to meet their obligations by causing Rowa to issue to the respondent by the allotment of 20% of its share capital. As there were only 2 issued shares in Rowa, one of which was held by each appellant, such an implementation of the contract would necessarily have involved a restructuring of Rowa’s share capital. The primary judge, significantly, found that no such restructure or allotment of shares had occurred and that documents lodged with ASIC in 2008, which purported to evidence that they had occurred in 2004, were fraudulent.

Background

4    The contract came into existence in the following way. Following prior negotiations and shortly after 2 August 2004, Mr Nati sent to Mr Bunt a draft share transfer agreement. The parties named in the draft agreement were the appellants, the respondent and Rowa. The draft recited relevantly, that the appellants owned shares in Rowa and wished to sell shares to Mr Bunt and that he agreed to buy shares in Rowa. The pivotal provision of the draft agreement provided that the appellants agreed to sell to the respondent, and he agreed to purchase, 20 per cent of the shares in Rowa registered in the name of the appellants for a purchase price of $750,000. Shortly after 2 August 2004, the first appellant and the respondent met at the Willoughby Hotel. The first appellant, relevantly, confirmed that he and the second appellant were happy to proceed to transfer their shares to the respondent. It was common ground that at all times the first appellant acted as the agent of the second appellant in relation to these negotiations. The first appellant said there would be a share transfer. At the end of the meeting, the two of them shook hands and agreed that a deal was in place.

5    Thereafter, the respondent made payments between 11 August 2004 and 6 September 2004, with a part-repayment to him on 19 November 2004, the net effect of which was that the respondent paid the appellants $750,000 in three instalments as the price for a 20% shareholding. The respondent, at the direction of the first appellant, paid this sum directly from his bank into a bank account in the name of Rowa. However, no shares were transferred by the appellants to the respondent.

6    A meeting was held on 10 June 2005, attended by the appellants, the respondent and a Ms Low who did accounting work for Rowa. At this meeting Ms Low informed the appellants that the transfer of a 20% shareholding from them to the respondent would, relevantly, attract a substantial capital gains tax liability for each of them.

7    The respondent indicated at the meeting that he did not mind whether he received his 20% shareholding from each of the appellants or by means of a direct allotment by Rowa by way of the implementation of the contract made in August 2004.

8    The primary judge at [47] held that if there had been an allotment of shares at some time before the proceedings were instituted by the respondent, there may well have been a good basis for the conclusion that there was not a total failure of consideration. His Honour, however, concluded that there had been no such allotment, that the consideration had totally failed and that the respondent was entitled to the return of the monies he had paid as money had and received together with interest.

9    This conclusion was reached after consideration of documents prepared by ASIC, concerning Rowa, which were prima facie evidence to the contrary.

10    As at late 2007 no shares had been transferred or issued by allotment to the respondent. The parties became in dispute, at first directly and then conducted through correspondence between Mr Price, the respondent’s solicitor, and Mr Ziman, the appellants’ solicitor. Mr Price wrote to Mr Ziman on 30 October 2007 and said that he was instructed to request that each appellant transfer forthwith to the respondent the shareholding that was agreed to and in respect of which the respondent had paid the sum of $750,000 in August 2004.

11    Mr Ziman responded by letter of 6 November 2007 confirming that the appellants were willing to transfer the shares to the respondent. The respondent received share transfer forms, each for 10 shares, on 22 December 2007. One was signed by the first appellant and the other by the second appellant. The consideration was stated to be $375,000, receipt of which was in each case acknowledged by each of the appellants. These transfer forms were of no effect. There were only 2 issued shares in Rowa as at December 2007. Neither appellant could have transferred 10 shares to the respondent at that time.

12    As at February 2008, as the primary judge found, it was apparent that there was then no suggestion of an allotment of shares but that there would be a transfer of shares albeit after a capital reorganisation.

13    Further correspondence ensued between the parties culminating in a letter from the respondent’s solicitor dated 11 April 2008. However, no transfers of shares were effected.

14    On 23 April 2008, 5 and 15 May 2008, several documents in relation to Rowa, were lodged with ASIC. The appellants relied on these as evidencing performance by them of their contract with the respondent. They, taken together, purported to give notice to ASIC, amongst other things, that in March 2004 each of the appellants were issued a further 49 shares in Rowa, and further, that in August 2004, the respondent was issued with 25 shares in Rowa, for the consideration of $30,000 per share, a total consideration of $750,000, as well as showing the share capital of Rowa as 125 ordinary shares. A current and historical company extract, prepared by ASIC, records, amongst other things, these shareholdings. This ASIC document, by virtue of s 1274B(2) of the Corporations Act 2001 (Cth) (the Corporations Act), was admissible as prima facie evidence of the matters contained in it, in the absence of proof to the contrary. We will refer to this in more detail below.

15    The primary judge concluded that there was ample evidence to the contrary to prove that there was no issue or allotment of any shares to the appellants or to the respondent either in 2008 or previously in 2004. There had been no meetings of Rowa’s directors on 29 March 2004 and 11 August 2004 being the dates stated in the documents lodged with ASIC as when the shares were issued to the appellants and the respondent respectively. His Honour found that, notwithstanding these documents, no formal or even informal steps were taken to effect any change in the share structure of Rowa, and that accordingly, no juridical act occurred that involved any change in the share capital of Rowa before it was deregistered on 11 December 2011 as a consequence of its failure to comply with the Corporations Act to lodge certain documents, which default had not been rectified.

16    The primary judge concluded that the documents lodged with ASIC had been “brought into existence for the purpose of putting forward to the world a pretence that something had happened in 2004 that did not happen”. This was, in effect, a finding that the documents were fraudulent, not only as to the dates they bore respectively but as to their content in each case. The documents did not satisfy the terms of the contract, even in its terms as to performance as amended at the meeting on 10 June 2005. Indeed, the first appellant had conceded in cross-examination that as at 2007 there were only 2 issued shares in Rowa.

17    It followed, his Honour concluded, that had there been a register of members in Rowa at the time of its deregistration it would have disclosed that the only shareholders were the appellants and that each held one share.

18    The consequence of these findings was that the primary judge held that while the respondent had paid $750,000 as consideration for the acquisition of 20% of the share capital of Rowa, whether by transfer or allotment, that consideration had totally failed.

19    The primary judge held that this amount was paid by the respondent to the appellants and paid to Rowa upon their direction.

20    There was no suggestion on appeal that there had ever been a transfer of shares by the appellants to the respondent. The primary judge noted, correctly, that it was common ground that there had been no transfer of shares. Counsel for the first appellant conceded as much on the first day of the trial. The appellants’ case at trial was that their contractual obligations to the respondent had been satisfied by the issue of shares by allotment from Rowa to the respondent, consequent upon a capital restructure.

Grounds of appeal

21    The grounds of appeal, other than ground 9, which was, in effect, abandoned by counsel for the appellants in the amended notice of appeal were as follows, absent some particulars:

1.    His honour erred in finding that it was common ground that there had been no transfer of shares and there had in fact been no step taken to cause the Respondent to become the holder of any shares in the capital of Rowa Australia Pty Ltd, either by transfer or allotment.

2.    His Honour erred in finding that no formal or steps of any kind were taken by the Appellants to effect any change in the share structure of Rowa Australia Pty Ltd.

3.    His Honour erred in finding that in relation to the documents lodged on behalf of Rowa Australia Pty Ltd with ASIC, purporting to be minutes of a meeting of directors of Rowa Australia Pty Ltd held on 29 March 2004 and on 11 August 2004 relating to the share capital of Rowa Australia Pty Ltd, no such meetings occurred and that the minutes purporting to record such meetings were prepared at some time during 2008, in circumstances about which there had been no evidence.

4.    His Honour erred in finding that technical non compliance and procedural irregularities with the Corporations Law by the Appellants as directors of Rowa Australia Pty Ltd established a lack of intention on their part to satisfy the agreement made with the respondent in 2004.

5.    His Honour erred in finding that the payment of $750,000.00 by the Respondent must be treated as payments to the appellants, which they then directed to be paid to Rowa Australia Pty Ltd.

6.    His Honour erred in finding that while the Respondent paid $750,000.00 as consideration for the acquisition of 20% of the share capital of Rowa, whether by way of transfer or by allotment, that consideration has failed totally.

7.    Insufficient weight was given by his Honour to certain documentation in relation to the making of those findings made by his Honour in the Grounds of Appeal in paragraphs 1 to 6 above:

    . . .

8.    Although his Honour recognised that the Second Appellant’s English was not perfect, his honour erred in finding that his evidence which was going to be given through an interpreter would be worthless unless Mr Dai was able to give his recollection of what was said in English at the meetings he attended so that Mr Dai was made to give his evidence in English and that significantly affected the veracity of his Honour’s findings in the Grounds of Appeal in paragraphs 1 to 6 above.

Grounds 1, 2, 3, 4 and 6

22    The documents lodged with ASIC upon which the appellants relied at trial were described by the primary judge as follows:

[76]    On 23 April 2008, a form giving notice of change to company details and notification of a share issue was lodged. The document was dated 23 April 2008 and purported to notify of the issue, on 29 September 2003, of 98 new shares in the capital of Rowa. The document stated that 49 of those had been issued to Mr Nati and 49 had been issued to Mr Dai. On 5 May 2008, a further document was lodged with the Commission, being a form notifying a request for correction of the document that I have just described.  The document is dated 5 May 2008. The second document said that the date of the change should be 29 March 2004, in lieu of 29 September 2003.

[77]    On 15 May 2008, two further documents were lodged. One was a form purporting to constitute supplementary pages to the earlier document, confirming that the date of change in the share capital should be 29 March 2004. Curiously, there was annexed to the document a copy of minutes, recording that a meeting of the directors of Rowa, attended by Messrs Nati and Dai, had been held on 29 March 2004, and that it was agreed to issue 98 ordinary shares, 49 to Mr Dai and 49 to Mr Nati. There was, in fact, no such meeting ever held on that day, as Mr Nati confirmed in the course of cross-examination. Clearly, the document was manufactured by someone with a view to holding out to the world that something had happened on 29 March 2004 that had not happened. It is not clear who was responsible for the creation of the fraudulent document.

[78]    The other document lodged on 15 May 2008 was a form notifying change to company details in respect of Rowa.  It is signed by Mr Dai and it bears the date 9 May 2008. It purports to notify an issue of 25 ordinary shares in the capital of Rowa for $30,000 each on 11 August 2004 to Mr Bunt. It purports to report a change showing Mr Bunt as the holder of 25 shares having paid a consideration of $750,000 and that the issued capital as at 11 August 2004 was 125 shares.

23    Whilst there were no minutes attached to the form referred to at [78] of the reasons of the primary judge, a further document was produced to his Honour purporting to be minutes of a meeting of the directors of Rowa held on 11 August 2004, which purports to record a resolution to accept the respondent’s application to invest in Rowa, in the amount of $750,000, and an agreement to issue 25 shares to him at a premium of $749,975, noting that this percentage of shareholding by the respondent would equal 20% of the net worth of Rowa, thus giving the respondent 20% of the voting power. No such meeting, as the first appellant conceded before the primary judge, was ever held. The document, as the primary judge found, was not brought into existence until some time during 2008.

24    There was no evidence as to the circumstances in which these documents, as described by the primary judge, were drawn.

25    The appellants submit that the only reason the primary judge characterised Rowa’s records as fraudulent was because they were created in 2008 but backdated to 2004, notwithstanding they recorded the fact of an allotment of shares as having occurred in 2008 and that the backdating of the documents was known to all parties, and indeed requested by the respondent through his solicitors.

26    The appellants accept the finding that there were no meetings of Rowa’s directors in 2004. Nonetheless, they contend that the findings that ought to have been made were that the documents lodged on behalf of the company with ASIC were minutes of a meeting of directors of the company that occurred in and were created in 2008. This effect, they submit, is the substance of the documents lodged with ASIC as they evidenced an intention to allot shares for the benefit of the respondent, and that accordingly, there was not a total failure of consideration, but at the very least partial consideration. It follows, they submit, that the primary judge erred in finding that the documents, although fraudulent, did not constitute evidence of an allotment of shares to the respondent in 2008.

27    There is no challenge then to the finding of the primary judge that the documents lodged with ASIC, which it seems included the minute of directors meeting of Rowa dated 11 August 2004, were fraudulent in the sense that whilst purporting to evidence meetings, a capital restructure and the issue of shares to each of the appellants and the respondent in 2004, in truth, such meetings and transactions never occurred during 2004. The finding that the documents were fraudulent is unassailable in light of the appellants’ concessions that no such meetings or transactions ever took place in 2004.

28    Rather, the appellants submit that by inference these documents evidence that the relevant meetings and resolutions necessary to effect the capital restructure and share issues occurred in 2008. Such an inference, self-evidently, could never arise from the terms of these documents in isolation. There would need to be other evidence, but as we will explain, there was none capable of establishing, by inference or otherwise, the facts for which the appellants contend.

29    Accordingly, we reject the appellants’ contentions that there was an allotment of shares in 2008. There was no evidence capable of supporting a finding that any capital restructure had taken place. The first appellant, when asked about when and how these things had occurred, said that he could not recall. The second appellant gave no evidence about it. At trial, the then counsel for the first appellant, without demur from the then counsel for the second appellant, more than once conceded that there was no evidence of any allotment of shares in Rowa other than the documents lodged with ASIC itself. He also conceded that there was no evidence from the appellants as to how those documents had been prepared.

30    As the primary judge correctly found, no evidence was given by them as to any meeting or juridical act which occurred in 2008 which was productive of a capital restructure or an allotment of shares. His Honour stated the following in his reasons at [86]-[87]:

[86]    The documents purport to record events that occurred in 2004. The evidence is quite clear that nothing happened in 2004 by way of allotment of shares. Mr Nati confirmed that there never was a meeting of directors during 2004. Mr Nati accepted in cross-examination that, at least until 2007, there were only two issued shares of Rowa, one owned by him, and one owned by Mr Dai. He agreed that minutes of meetings purportedly held in 2004 did not exist in 2004, and that no meetings were held in 2004. He said that directors’ meetings of Rowa were not held every year. He could not recall whether there had been meetings held in 2004 and 2005. He thought there might have been meetings in 2006, and he thought there might have been meetings in 2007 and 2008.

[87]    Mr Nati acknowledged that he was aware that orders had been made by the Court for discovery of documents that included minutes of meetings of Rowa. He accepted that he looked for such minutes and produced everything that was in the files of Rowa. No such minutes were discovered. A call was made for any minutes of meetings of directors of Rowa either in 2004 or 2008. Nothing was produced.

31    Accordingly, the primary judge was entirely justified in concluding that the relevant documents did not constitute evidence of any share capital restructure or share allotments either in 2004 or 2008. They were a sham. So far as concerns events in 2008, they did not reflect or record the juridical acts necessary during 2008 to effect either a share capital restructure or allotments of shares. Only one of the factual findings in paras [86] and [87] is challenged on this appeal, namely that a meeting of directors of Rowa did, in fact, take place. However, that finding is beyond any tenable challenge for the reasons given by his Honour and not least also by reason of the concession made by counsel for the first appellant at trial that there was no evidence of any allotment in 2008 and that there was no evidence of anything happening in that year “other than somebody signing some false minutes”.

32    The high water mark of the oral evidence on this question was testimony given by the first appellant when the following exchange occurred during his examination-in-chief:

Yes, in the middle of 2008 was there a capital structure of Rowa?---Yes, there was.

Can you explain to the court how and why that occurred?---Yes, it was done for the purpose of issuing shares to Mr Bunt and it was done under constant pressure from their lawyers and being under stress as well because Jason and I had many cases at that stage, we had about six legal cases and there was another one.

33    Counsel for the appellants, in effect, conceded that this evidence, which was mere assertion, and other testimony given by the first appellant on this issue did not establish that a meeting was ever held to consider and effect the capital restructure. There were, as he accepted, “serious gaps in the evidence”. Moreover, he also accepted that there was a vacuum in the evidence as to the passing of any resolution for Rowa to issue further shares.

34    It is perhaps because of the absence of evidence that there was a capital restructure and the allotment of shares that the appellants’ counsel characterised the documents lodged with ASIC as evidencing an “intention on the part of the [a]ppellants to take steps to effect an allotment of shares to the benefit of the [r]espondent”. Even accepting this submission, it does not alter the fact that no capital restructure of Rowa or share issues to the parties upon such a restructure ever occurred prior to Rowa becoming deregistered.

35    The primary judge correctly found that no consideration passed from the appellants to the respondent under the contract and that the money paid by the respondent ought be repaid.

36    Accordingly, these grounds of appeal fail.

Ground 5

37    The appellants challenge the finding of the primary judge that the $750,000 payment was a payment to the appellants personally.

38    The primary judge held, correctly, that the contract made in August 2004 was between the respondent and the appellants to purchase their shares. It was not made with Rowa.

39    The respondent’s oral evidence was that, before he made the payments aggregating $750,000, he inquired of the first appellant as to where the funds were to be transferred, “to you and [the second appellant]”- to which the first appellant responded “can you just transfer them straight to Rowa”. On the respondent’s evidence, he received from the first appellant, acting on his own behalf and on behalf of the second appellant, a direction to pay the sums due to them to Rowa. The trial judge expressly accepted all of this evidence. It was never the appellants’ case nor could such a case have been established that, at the time the respondent paid the $750,000, the consideration under the contract was that he be issued shares by Rowa. The respondent’s contract was with the appellants and not with Rowa. Rather, the appellants were obliged to transfer 20% of their shares in Rowa to the respondent.

40    No appealable error has been demonstrated in this regard. Accordingly, ground 5 fails.

Ground 7

41    This ground challenges the findings made by the primary judge and which are the subject of the grounds of appeal already considered. The particulars to this ground refer to correspondence and other documents although, with one exception, counsel for the appellants did not press this ground as to any particular document. The document under this ground identified by counsel for the appellants was a letter dated 11 February 2008 from the appellants’ solicitor to the respondent’s solicitor. This is the document under ground 7(vii). The appellants submit insufficient weight was placed on this correspondence in showing the appellants had the intention of satisfying the August 2004 agreement and that there was an issue of the date to be placed on the transfer of shares known to both the appellants and the respondent. The primary judge referred to this letter in detail at [65]-[66] of his reasons for judgment in an unexceptional way. The factual conclusions contended for by the appellants from this document are not to the point. That the appellants intended to satisfy the 2004 contract does not detract from the conclusion correctly arrived at by the primary judge that they did not in fact perform their obligations under the contract. The date to be placed on the transfer documents, given the evidence as a whole, was irrelevant.

42    Even accepting the written submissions of the appellants at their highest these documents do not individually or in any combination demonstrate that the primary judge was in error in the conclusions he reached in the context of the evidence overall.

43    Nothing in Australian Securities and Investment Commission v Hellicar (2012) 286 ALR 501 at [165] relied upon by the appellants assists them. There the majority stated:

Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC.

(Original emphasis.)

44    This passage does no more than articulate particular principles relevant to the making of factual findings. No particular submissions were put, nor were any self evident, as to why, in light of this, there was any appealable error made by the primary judge.

Ground 8

45    The appellants’ complaint is that although the primary judge recognised that the second appellant’s English was not perfect, his Honour erred in finding that his evidence which was going to be given through an interpreter would be worthless unless he was able to give his recollection of what was said in English at the meetings he attended, and in ruling that the second appellant give his evidence in English. The appellants submit this significantly affected the veracity of all of his Honour’s findings. The appellants submit it is erroneous to conclude that, because others at the meetings that took place spoke in English, the second appellant had the capacity to express his understanding of the conversation between those other members fluently in English. The appellants submit that the requirement was a breach of procedural fairness particularly in relation to the meeting that occurred in 2005 where the company’s accountant, Irene Low, was present and was conversing with Mr Dai either in Mandarin or Cantonese.

46    The evidentiary context in which the primary judge ruled upon this question requires to be considered. The second appellant, at the outset, gave his evidence through an interpreter. It seems from the primary judge’s remarks that the second appellant was correcting the interpreter’s English. His counsel conceded that his client had “some ability” to understand English. The primary judge then determined that the second appellant should give his evidence in English. He did so after being told by the second appellant that he understood "a bit" of English "but not very fluent".

47    Relevant to his Honour’s decision was the fact that the second appellant was giving evidence about a conversation which, for the most part, was conducted in English and in which the second appellant spoke in English, other than when communicating with Ms Low who spoke either Mandarin or Cantonese.

48    The appellants’ submissions do not indicate why this ruling was productive of injustice. Neither of the appellants’ counsel at trial objected to the course taken. Furthermore, counsel for the second appellant advised him that he should tell the primary judge if he did not understand the questions being put to him in English. Thereafter, the second appellant did not state that he had any difficulty with any questions put to him in his examination-in-chief or cross-examination. No submission was put that this course adopted by the primary judge caused the second appellant to give inaccurate or incomplete evidence. No affidavit by him or on his behalf was provided deposing to the evidence which he would have given in his own language but did not give in English at the trial as a result of the trial judge’s ruling.

49    Indeed, so far as concerned the significant meeting on 10 June 2005 and to the extent that there was a conflict in the evidence as between the appellants and the respondent as to what occurred at that meeting, the primary judge accepted the evidence of the first appellant and Ms Low. The second appellant, obviously, challenged their evidence or its acceptance by the primary judge. The appellants’ complaint is devoid of substance.

Orders

50    For all these reasons this appeal will be dismissed with costs. The appellants have paid $20,000 into Court as security for the respondent’s costs. The respondent, in his written outline of submissions, asserted without demur on the part of the appellants, that his costs in this appeal are well in excess of $20,000. Senior counsel appeared for him. No point was taken about that by counsel for the appellants and in our opinion properly so. We consider that there ought also be an order that the sum of $20,000 together with accretions, if any, be paid out to the respondent.

Associate:

Dated:    7 June 2013