IN THE FEDERAL COURT OF AUSTRALIA)
)
NEW SOUTH WALES DISTRICT REGISTRY) No. AG 79 of 1994
)
GENERAL DIVISION )
BETWEEN: GILLFORD PTY LIMITED
First Applicant
ALAN VARLEY HANNAFORD
Second Applicant
KATHERINE ELIZABETH HANNAFORD
Third Applicant
GREGORY JAMES GILBERT
Fourth Applicant
NICOLA FRANCES GILBERT
Fifth Applicant
AND: BURDON PTY LIMITED
First Respondent
ROBERT GRAHAM KENT
Second Respondent
KEVIN GEORGE WHITE
Third Respondent
JUDGE MAKING ORDER: LOCKHART J.
WHERE ORDER MADE: SYDNEY
DATE ORDER MADE: 30 MARCH 1995
MINUTE OF ORDER
THE COURT ORDERS THAT:
1. The matter be stood over to a date to be fixed to hear argument on the question of costs and the further conduct of the proceeding.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
CATCHWORDS
SETTLEMENT AGREEMENT - whether concluded agreement - whether agreement subject to approval of respondent's accountant - whether agreement subject to disclosure of identity of informants - whether finality in arranging all the terms - duress.
Trade Practices Act 1974: s. 52.
GILLFORD PTY LIMITED, ALAN VARLEY HANNAFORD, KATHERINE ELIZABETH HANNAFORD, GREGORY JAMES GILBERT, NICOLA FRANCES GILBERT v BURDON PTY LIMITED, ROBERT GRAHAM KENT, KEVIN GEORGE WHITE
AG 79 of 1994
LOCKHART J.
30 MARCH 1995
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA)
)
NEW SOUTH WALES DISTRICT REGISTRY) No. AG 79 of 1994
)
GENERAL DIVISION )
BETWEEN: GILLFORD PTY LIMITED
First Applicant
ALAN VARLEY HANNAFORD
Second Applicant
KATHERINE ELIZABETH HANNAFORD
Third Applicant
GREGORY JAMES GILBERT
Fourth Applicant
NICOLA FRANCES GILBERT
Fifth Applicant
AND: BURDON PTY LIMITED
First Respondent
ROBERT GRAHAM KENT
Second Respondent
KEVIN GEORGE WHITE
Third Respondent
30 MARCH 1995
REASONS FOR JUDGMENT
LOCKHART J.
Burdon Pty Limited (Burdon) (the first respondent) conducts the business of operating discount stores in Australia under the name "Fairdinkum Bargains"; and in the course of its business has granted franchises to persons to operate some of those stores under that name. Robert Graham Kent (the second respondent) and Kevin George White (the third respondent) are directors of Burdon and responsible for its management and the conduct of its business and affairs. The applicants sued Burdon and Mr Kent in this Court by proceeding commenced in 1993 (No AG 118 of 1993). They claimed that Burdon and Mr Kent had engaged in misleading and deceptive conduct in breach of s. 52 of the Trade Practices Act 1974 (the TP Act). The parties to that proceeding decided that the dispute should be mediated, if possible.
Consequently, on 9 and 10 June 1994 Alan Varley Hannaford and his wife, Katherine Elizabeth Hannaford (the second and third applicants) together with Mr Kent and Mr White, went to the offices of Malleson Stephen Jaques, solicitors, for mediation. The mediation was conducted by a solicitor who was a member of that firm with a view to settling the dispute the subject of proceeding AG 118 of 1993. On 10 June 1994 the parties agreed to settle the dispute and the agreement was reduced to writing.
The applicants allege that in the course of the mediation Mr Kent and Mr White made various representations including representations that:-
. neither Mr Kent nor Mr White nor Burdon had any significant surplus of assets over liabilities, and that nothing would be recovered by the applicants if damages were awarded against the respondents in proceeding AG 118 of 1993;
. Burdon was at, or close to, the limit of its capacity to borrow for the purpose of funding its trading operations;
. if appointed to manage the stores, Burdon could and would manage each of them far more profitably than the applicants had been doing;
. if appointed to manage the stores, each of Burdon, Mr Kent and Mr White would co-operate in the performance of the agreement.
The applicants allege that they entered into the agreement following mediation as a result of, and in reliance upon, each of the relevant representations. They allege that, at the time the representations were made, each of them was false; and that the relevant conduct engaged in by the respondents surrounding the representations constituted misleading or deceptive conduct in contravention of s. 52 of the TP Act. The applicants allege also that, at the time the representations were made Mr Kent and Mr White each knew that the representations were false.
Other allegations are made in the statement of claim relating to alleged unconscionable conduct, guarantees and certain other matters including alleged misuse of confidential financial information.
The present hearing before the Court was concerned, however, with allegations raised by the amended statement of claim which was filed on 17 February 1995. The paragraphs following the heading "Settlement Agreement" allege that on 16 December 1994 Mr White invited Mr Hannaford and Mr Gilbert (the fourth applicant) to meet with Messrs White and Kent in the Botanic Gardens in Sydney to discuss whether there was some way that the disputes between the parties could be settled directly between them. The invitation was accepted by Mr Hannaford and Mr Gilbert; and in the result the four men met in the Botanic Gardens in Sydney on 22 December 1994.
The applicants allege that during the course of that meeting an agreement was concluded (the settlement agreement). However, on 5 January 1995 Mr Kent and Mr White told Mr Gilbert and Mr Hannaford that the respondents did not intend to perform the settlement agreement. Accordingly, the applicants claim declarations and orders to give effect to the settlement agreement.
The respondents deny all material allegations made by the applicants.
By consent the Court heard, on a final basis, the issues raised in the proceeding concerning the alleged settlement agreement (paragraphs 49 - 56 of the amended statement of claim). If the applicants succeed on these issues it is likely that the whole of the remaining issues will be subsumed in the findings of the Court with respect to the settlement agreement, and the case effectively concluded.
Evidence was given by Mr Gilbert and Mr Hannaford on behalf of the applicants and by Mr Kent and Mr White on behalf of the respondents. Evidence was also given on behalf of the respondents by a chartered accountant, John Gary Florent, who practices in Macksville and who is retained by the respondents as their accountant.
Counsel for the respondents called another witness in somewhat unusual circumstances which I shall explain. Affidavits were filed on behalf of the applicants sworn by Mr Gilbert and Mr Hannaford and their solicitor, Mr Weber, concerning conversations between them and a person. At the request of the applicants I directed that, until further order those affidavits be placed in a sealed envelope and not opened without the leave of a judge, and that the contents of the affidavits remain confidential to named counsel and solicitors for the parties and not be disclosed to other persons and be used only for the purposes of the proceeding.
As it happened those affidavits were not read in support of the applicants' case. They did not go to any issue relevant to the case for the applicants. However, counsel for the respondents called this person as a witness and oral evidence was given by that person. I directed that the evidence be taken in closed court and gave a similar direction with respect to the evidence to retain its confidentiality as I gave with respect to the affidavits mentioned above.
I was asked by counsel for the applicants to discharge the confidentiality order with respect to that person; but I declined to do so and I gave reasons for that decision which I need not recite. The confidentiality order remains in place and in my opinion it should remain in place indefinitely though, of course, subject to the Court's power to discharge or vary it. Consequently I will not identify the person in these reasons for judgment, but will simply refer to the person as "the unidentified witness".
The issues of fact turn essentially on the credit of Messrs Gilbert, Hannaford, Kent, White, Florent and the unidentified witness.
I should say at once that I accept the credibility of the unidentified witness. The person impressed me as a frank and truthful witness.
The issue to which the evidence of the unidentified witness went was an issue tendered by the respondents in their case. They allege that during the discussion in the Sydney Botanic Gardens on 22 December 1994 Mr Gilbert and Mr Hannaford threatened to inform the Australian Taxation Office about moneys allegedly taken from Burdon's businesses in the form of cash not accounted for in its tax returns or the tax returns of Mr Kent or Mr White. They allege that if a concluded agreement was reached on 22 December 1994 (which they deny) any such agreement was procured by the duress and unconscionable conduct of the applicants, namely, the threat to reveal information about cash takings to the Australian Taxation Office. The respondents sought to illicit from the unidentified witness evidence to the effect that Mr Hannaford and Mr Gilbert had either offered inducements to that witness to reveal to them the facts relating to the taking of the cash out of the business by Messrs Kent and White, or had threatened that witness in some way if the witness did not reveal the information to them.
Mr Gilbert and Mr Hannaford strongly denied that any such inducement had been offered or threat made by them to the unidentified witness. The unidentified witness also strongly denied any such inducement or threat. I accept the evidence of all three witnesses on this question.
I am satisfied that there was no inducement offered or threat made by Mr Gilbert or Mr Hannaford to the unidentified witness. Even if I had rejected the evidence of Mr Gilbert, Mr Hannaford and the unidentified witness on the issue of inducement or threat, it would have taken the respondents' case no further. It would not be evidence of similar fact such as to be admissible in the case, nor would it be admissible on any other basis.
I turn to the issues of fact raised with respect to the settlement agreement.
Mr Gilbert is a veterinary surgeon who lives in Braidwood. Mr Hannaford is a cattle farmer who lives near Braidwood. Mr Kent and Mr White are company directors who live at Kempsey.
Arrangements were made between the four men to meet in the Botanic Gardens at Sydney on 22 December 1994 to see if the dispute between them could be settled. They met on 22 December 1994 in the Botanic Gardens and they spoke together for a considerable time. There is no serious disagreement between them as to much of what was said. There is, however, substantial disagreement between Mr Gilbert and Mr Hannaford on the one hand, and Mr Kent and Mr White on the other, about certain matters to which I shall refer later.
In attempting to discern the nature of the settlement agreement I shall not relate the whole of the conversation of which there is a great deal of evidence, but only the material statements. My findings follow.
Mr Gilbert said that he and Mr Hannaford wanted the same things from the settlement as had been offered in the mediation process, or as he put it: "We want the same as we always have. You got our faxed offer. Its really the same offer as the first one in mediation. We want out ...".
Accordingly Mr Gilbert claimed that the respondents were to pay out the applicants loans of $140,000 (by way of overdraft) and $420,000 (as fixed loan) and take over the Moree/AGC leases and the Narrabri AGC/premises leases, the latter together with all personal guarantees. The applicants would rent the Moree premises to someone else; whilst Mr Kent and Mr White were to give personal guarantees for the Gunnedah shopfit and lease of premises.
Mr Kent said that the respondents would not give any collateral security to the AGC. Mr Hannaford agreed with this and said that he could keep his collateral so long as Mr Kent and Mr White signed all the leases and gave personal guarantees. Mr Kent said that that was no problem at all.
There was discussion about the AGC lease and the Moree store; the four men agreed that if the respondents paid half the sum of $80,000 which was owing thereunder in a lump sum and got "the shopfit" that would be suitable.
Mr Kent said that he and Mr White could not possibly provide a lump sum payment for the loans. The four men then agreed that term payments would be suitable with respect to those moneys.
The four men agreed that stock could be kept by the applicants in order that the applicants try and pay off their personal debts. They also agreed that the respondents would pay out any residual moneys due to AGC, except for the Moree store, on the understanding that the shopfit at the end of the leases would be owned by the respondents.
As to the overdraft of $140,000, it was agreed that this would be the subject of a lump sum payment by the respondents to the applicants. However, in discussing the principal and interest repayments on the $420,000, it was agreed that these would be paid monthly over a period, with bigger payments in December because of the benefit of Christmas trading.
It was also agreed to have the agreement expressed in the form of a Court order and the parties would agree that it would inform the Court that they would perform their obligations under the agreement. The terms of the agreement would be embodied in a formal document to be prepared by the solicitors. All extant legal proceedings would be terminated, and the parties would pay their own costs.
In summary, what was agreed on 22 December between the four men was that:
(A) the respondents would -
(i) pay to the applicants a lump sum of $140,000 in January 1995;
(ii)pay to the applicants half the cost of paying out the shopfit lease for the Moree store (estimated at $40,000) with payment to be made at the same time as the lump sum payment mentioned in (i);
(iii)pay to the applicants the sum of $420,000 (the bank loan), plus an amount equal to the interest payable by the applicants to their bank on the bank loans (the bank interest) which Mr Gilbert estimated and told the others during the Botanic Gardens meeting was about $4,500 per month but would decline as payments were made in the following manner:
(a) for the period January to November 1995 inclusive $10,000 per month plus the bank interest payable for each month;
(b) in December 1995 payment of $100,000 plus the bank interest payable for that month;
(c) for the period January to November 1996 inclusive payment of $10,000 per month plus the bank interest payable for each respective month; and
(d) in December 1996 payment of $100,000 plus the bank interest payable for that month.
(iv)Mr Kent and Mr White would provide personal guarantees in relation to the Gunnedah shopfit and lease of premises.
(v) Burdon would take over the premises lease and shopfit leases for the Narrabri store and Mr Kent and Mr White would provide personal guarantees.
(vi)The respondents would pay any residual amounts remaining on the Gunnedah and Narrabri shopfit leases.
(vii)Gillford would retain ownership of the stock at the Narrabri store; and
(viii)The terms of the settlement agreement would be made the subject of a Court order; and the parties would attend before the Court to confirm to the Court that each of them would comply with the terms of the settlement agreement.
(B) In consideration of these matters the applicants agreed not to pursue (i) the first Federal Court proceeding (AG118 of 1993), (ii) the costs order made in their favour in the Supreme Court proceeding (3268 of 1994), (iii) their statutory demand which subsequently became Federal Court proceeding G3670 of 1994, and (iv) the second Federal Court proceeding being the present matter (79 of 1994).
There was some disagreement between the parties about the matters mentioned above, but overall there was broad agreement between them. The sharp disagreement between Mr Gilbert and Mr Hannaford on the one hand and Mr Kent and Mr White on the other hand arose with respect to the following matters:-
(a) whether any agreement reached between the four men was to be subject to approval being given by the accountant for the respondents, Mr Florent, to the agreement and in particular the agreement to be subject to Mr Florent being satisfied as to the merits and financial viability of the proposed settlement;
(b) whether the agreement reached was subject to a condition that there would be no agreement unless and until the applicants told the respondents the name or names of the person or persons who had told Mr Gilbert and Mr Hannaford about the unlawful taking of moneys by Mr Kent and Mr White out of Burdon's business without disclosing the details in the relevant tax returns;
(c) whether the agreement reached was simply an agreement in principle, but not intended to have any contractual force;
(d) whether Mr Kent and Mr Hannaford or either of them threatened to reveal to the Australian Taxation Office the wrongful taking of moneys out of Burdon's business and not disclosing them to the Australian Taxation Office. This was said by the respondents to constitute duress which vitiated any agreement that had been reached.
These are the four critical issues on which this case turns. I shall make my findings with respect to them.
(a) Was it a term of the arrangement that the respondents would not settle unless the arrangement was given the approval of Mr Florent?
Mr Kent and Mr White gave evidence that the settlement had to be "okayed" by Mr Florent and that Mr Gilbert or Mr Hannaford agreed to that course. Both Mr Gilbert and Mr Hannaford in substance denied that this was said, though Mr Hannaford said that there was a reference to Mr Florent at one stage during the meeting when Mr Kent said that an accountant could work out the exact figure for interest.
I accept the substance of the evidence on this question given by Mr Kent and Mr White. My finding on this point is in accord with my assessment of the probabilities as well as based on my observation of the witnesses.
The respondents were committing themselves to paying a very large sum of money to the applicants, a substantially greater figure than they had agreed to pay earlier following the mediation in June 1994. Although Mr Kent and Mr White would have had a good idea of the financial position of themselves and Burdon, I am satisfied that they wished to have the facts placed before their accountant (who had not acted for them for a very long time beforehand) and obtain his views on the settlement and in particular their ability to pay for it.
Also, two days later, namely, Christmas Eve 1994 there was a meeting at Mr Florent's house between himself, Mr Kent, Mr White and a Mr Constantine, a business associate. The meeting lasted for about three hours. In the course of it Mr Florent said that Burdon could not afford to pay the amount of money required to give effect to the settlement as discussed at the meeting in the Botanic Gardens, whether payments were made in a lump sum or by instalments. He said: "It's not a figure that Burdon can handle." He recommended that Mr Kent and Mr White: "... reject that offer". I accept Mr Florent as a witness of truth on this point.
There was a subsequent telephone conversation on 29 or 30 December between Mr Gilbert and Mr White. Mr Gilbert gave evidence that he said to Mr White: "You spoke to your accountant on Saturday?" To which Mr White said: "Yes." Mr Gilbert said: "Is the same deal still on?" and Mr White replied: "Yeah!" Mr Gilbert then said: "So everything is OK, he thought the payments were OK?" and Mr White replied "Oh, yeah."
Mr Gilbert gave evidence that
on 5 January 1995 there was a telephone conversation between himself and Mr
Kent when he [Mr Gilbert] said: "You've
spoken to your accountant. Has anything
changed with our deal?" to which Mr Kent said: "Well, yes it has. We are
not going ahead with it." Mr
Gilbert gave evidence that he then said: "Why, what happened?" and Mr Kent said: "We found out that we would go broke if we
had to pay it. Our accountant told us we
couldn't afford it." Mr Gilbert
said: "But Kevin told me everything
was okay after your meeting with the accountant." Mr Kent said: "Oh, that was only around the pool at his place. We had a proper meeting on Tuesday with him
and yesterday with Peter Hannaford."
Mr Peter Hannaford was the solicitor acting for Mr Kent and Mr
White. Mr Gilbert gave evidence that he
said: "Bob, you know the financial
position of your business. Are you
saying you thought it was okay and made an agreement and then your accountant
said you couldn't?" Mr Kent
replied "We don't think it's right
to pay $420,000. We think the
mediation agreement was the correct settlement and that's all we'll do. Peter said we'd be silly to settle."
Mr White gave evidence about those two conversations in which he agreed in substance with some of the version of events given by Mr Gilbert but disagreed with others. Mr Gilbert said in cross-examination that, when he asked Mr White on 29 or 30 December 1994: "Is the same deal still on?", he assumed that Mr Kent and Mr White "would be speaking to their accountant for the correct method to word the Court order" and that he asked the question: "Is the same deal still on?" "Because we were to make the agreement into a Court order and they had told us they couldn't make the Court order until their solicitors were back from holidays. That was the purpose of my call." When asked by counsel for the respondents: "What did you mean by the same deal?" he replied "That the agreement become [sic] a Court order" ... "that's exactly what I meant."
When cross-examined about the conversation of 5 January 1995 Mr Gilbert said that when he said: "You've spoken to your accountant. Has anything changed with our deal?" he was still talking about the Court order.
I do not accept Mr Gilbert's
evidence on this point to the effect that he was referring in both
conversations to the Court order. In my
opinion when he made the statements about
"the deal" he was referring to the arrangement, made in the Botanic
Gardens, by which the respondents were to check with their accountant as to the
merits and financial viability of the proposed settlement. Thus in asking about "the deal" Mr
Gilbert wanted to know whether that arrangement was still on foot following the
discussion between Mr Kent and Mr White with their accountant.
Accordingly, Mr Gilbert's evidence on this point indicates that Mr Gilbert did not hold the view, at the conclusion of the meeting in the Botanic Gardens, that a concluded agreement had been made between the four men, in the sense that it was a legally enforceable agreement; as distinct from having reached agreement in principle on outstanding matters, but subject nevertheless to Mr Florent approving it in the interests of the respondents and in particular approving whether or not the respondents could afford to enter into the settlement.
In my opinion it was a term of the arrangement made in the Botanic Gardens between the four men on 22 December 1994 that Mr Florent, the respondents' accountant, would have to approve it, and in particular approve the financial capacity of the respondents to pay the moneys which would be due under the settlement, before there would be any legally binding agreement between the parties.
For this reason alone the applicants' case must fail.
(b) Was it term of the arrangement that the respondents would not settle unless the identity of the person or persons who had informed Mr Gilbert and Mr Hannaford of the failure of the respondents to disclose all the takings from Burdon's business to the Australian Taxation office was revealed to Mr Kent and Mr White?
Mr White gave evidence that
during the meeting in the Botanic Gardens he said to Mr Hannaford that he had
to know the names of the people who had "betray[ed] us" and that if
he was not given the names "this
just won't go ahead". He said
Mr Hannaford said that he would have to think "long and hard about this and talk to Greg" [Mr Gilbert] and
that he [Mr White] said that "there
is no way this deal is going ahead if you don't give up the people". Mr White says that Mr Gilbert had been away
during that conversation but upon his return Mr Hannaford told him what had
been said on this subject and Mr Gilbert said:"Oooooh, we're going to have to talk about this and come up with
something. There would have to be
strings attached so you wouldn't be able to sack anyone for at least 12
months." Mr White said, words
to the effect: "How can we go on
working with these people knowing that there is someone in there that has
betrayed us?" Mr Kent gave
evidence that at one stage during the meeting he said to Mr Hannaford words to
the effect: "We have to have the names of the people who betrayed us." Mr Hannaford said words to the effect: "That's a big problem." Mr White then said words to the effect: "There is no way this will go ahead if
you don't give us the
names."
Mr Kent gave evidence that Mr Gilbert, who had been absent during this conversation, returned and Mr Hannaford said to him words to the effect: "We've got a problem here they want us to give up the names of everyone." Mr Gilbert said words to the effect: "Ooooh, that's a real problem." Mr Kent said words to the following effect: "We don't just want the names of people working for us. We want to know about any franchisees that you've been talking to and want to have a go at us, like Jim Fowler."
Mr Hannaford denied this
evidence and said that Mr White did say words to the effect: "I wouldn't mind knowing who the people
who betrayed us were" and that Mr Hannaford said: "I don't know about that. I will have to have a yarn to Greg [Mr
Gilbert]". He denied that Mr
White said: "There is no way this
deal is going ahead if you don't give up the people." Mr Hannaford said that when Mr Gilbert did
return to the conversation he did not say the words which were attributed to
him by Mr White. Mr Hannaford gave
evidence that at a later stage in the conversation Mr White said to him that
"I would like to know the names of
the people who stabbed us in the back." And Mr Hannaford said: "I would like to know about the Stanton affidavit too." A reference to the Stanton affidavit was to
an earlier part of the conversation at the meeting in the Botanic Gardens to
which I need not refer. Mr Hannaford
denied the substance of what Mr Kent said in his evidence on this subject.
Mr Gilbert denied that the conversation as deposed to by Mr White and Mr Kent on this subject occurred. Certain other evidence was given by the witnesses on this point but I need not refer to it.
I accept the substance of the evidence of Mr Kent and Mr White on this matter. Mr Kent and Mr White were very concerned about knowing the identity of the persons who in their opinion had "betrayed" them and in my opinion they did regard this as a key question to be resolved before they would agree to settle the matter.
For this reason also, the applicants' case must fail.
(c) Generally whether Messrs Gilbert, Hannaford, Kent and White had reached finality in arranging all the terms of their settlement agreement and intended to be immediately bound to the performance of those terms but at the same time proposed to have the terms restated in the form of a formal Court order which would be fuller or more precise but not different in effect.
This is the way the question was posed by counsel and it is in the language of the judgment of the High Court in Masters v Cameron (1954) 91 CLR 353 at 360. Counsel for the applicants submitted that the first of the three classes referred to at page 360 of the report is apposite here.
I set out earlier a summary of the history of this matter including the earlier Federal Court proceedings and the proceeding in the Supreme Court of New South Wales, also the settlement of the dispute between the parties reached after mediation in June 1994. I accept that when all four men went to the Botanic Gardens in Sydney on 22 December 1994 they went there to see if they could reach agreement on the outstanding issues between them of which there were many. I do not accept that when any one of the four left the Gardens that day he thought that a legally binding agreement had been reached such that they were all immediately bound to the performance of the terms, subject only to having them restated in the form of a consent order to be made by the Court.
As I said earlier there is a large measure of agreement between the four men as to what was said at the meeting in the Botanic Gardens. The disagreement lies with respect to matters (a) and (b) above and to (c) presently under consideration. (There was also disagreement about duress (d), but that is a matter to which I shall return later). Even if I had accepted the evidence of Mr Gilbert and Mr Hannaford with respect to matters (a), (b) and (c) I would still have concluded that the case did not fall into the first class of Masters v Cameron.
I do not believe that these four men, who were in dispute about many matters concerning their business affairs thought they had reached other than agreement in principle when they shook hands at the conclusion of the meeting in the Botanic Gardens. They knew that there were conditions that had to be satisfied, being those to which I have already referred.
In addition, a number of matters remained to be determined after the meeting in the Botanic Gardens, on any view of the evidence of any of the witnesses, which necessarily required more than a mere restatement in a form which would be fuller or more precise, but not different in effect to the matters resolved at the meeting.
The Court order had to be prepared by the solicitors so that it would give effect to the terms of the settlement to enable the four men to confirm to the Court that each of them would comply with the terms of the settlement agreement. Accordingly, the terms of the order would have had to have been discussed between the solicitors, rendering the contemplated order more than a mere formality.
Personal guarantees had to be provided by Mr Kent and Mr White in relation to the Gunnedah shopfit and lease of premises, and in relation to the lease of the Narrabri premises and the shopfit lease. The forms of those guarantees had not been ironed out in principle during the discussion of 22 December 1994 in the Botanic Gardens. I do not accept that some short form of guarantee could have been prepared by the solicitors expressing in more formal and precise language what had been agreed on between the four men. Rather the solicitors would have had to draft appropriate guarantees requiring that the parties agree on their terms. This must be implied from the relations between the parties and the way in which the discussions were held in the Botanic Gardens, especially in the light of the background of the matter, which was one of considerable acrimony and had led previously to a settlement following a mediation conference, a settlement which aborted.
In my opinion this also must lead to the failure of the plaintiff's case.
(d) Duress
In the light of my earlier findings it is not strictly necessary to consider this question, but there was considerable time devoted to the issue in both evidence and address so I shall deal with it. The case for the respondents is that, if any concluded and legally binding agreement was reached in the Botanic Gardens (which they deny) such agreement was procured by "the duress and/or unconscionable conduct of the applicants".
The respondents claim is that at some stage during the meeting in the Botanic Gardens on 22 December Mr Hannaford said something to the effect that he and Mr Gilbert would inform the Australian Taxation Office of the material which had come into their possession and knowledge about the tax evasion of the respondents, and that that would also involve the wives of Mr Kent and Mr White and the franchisees of Burdon's business if they did not settle. Mr Kent gave evidence to substantially the same effect as Mr White.
Mr Gilbert and Mr Hannaford knew before the meeting of 22 December, and had known for some weeks beforehand, of material suggesting that the respondents had failed to disclose to the Australian Taxation Office all the takings of Burdon, and that in fact Mr Kent and Mr White had themselves pocketed substantial sums of Burdon's money and failed to disclose this to the Australian Taxation Office. The shareholders and directors of Burdon are Mr Kent and Mr White, but Burdon is of course a legally separate entity from its shareholders, not only under the Corporations Law but under income tax law.
Evidence was led on behalf of the applicants that Mr Florent, Mr Kent and Mr White had known for some weeks before 22 December 1994 that the Australian Taxation Office had suggested that it might undertake an audit of the affairs of Burdon. Mr Florent gave evidence that when he first received the letter from the Australian Taxation Office (towards the end of November 1994) that Burdon was being considered for a tax audit, he spoke to an officer of the Australian Taxation Office and said that what he understood the officer to be wanting was the "1993 figures" of Burdon. He said it was his view that there was a mistake in the 1993 accounts of Burdon, but a mistake that "actually overstate[s] the income by some close to $100,000". Mr Florent said that in the light of his response to the Australian Taxation Office it was his belief that Mr Kent "felt quite contented that nothing would happen" about the audit. The relevant facts surrounding the possible audit were disclosed by Mr Florent to Mr Kent but he could not recall exactly whether they were disclosed to Mr White.
Mr Florent gave evidence that during the meeting in his house on Christmas Eve 1994 with Mr Kent, Mr White and Mr Constantine, he was told by Mr Kent that during the meeting on 22 December in the Botanic Gardens Mr Hannaford had said that if the matter was not settled he and Mr Gilbert would go to the Taxation Department with the information that they had found about the respondents and that Mr White then said: "I can't handle this sort of threat from Hannaford any longer. John we want you to go to the Tax Department and disclose to them everything." Mr Florent said that there then was discussion about cash being taken from the business, how it was taken from the business and the amount of money taken from it which could have been up to $150,000. Between Christmas and New Year Mr Florent telephoned the Australian Taxation Office and informed them of the failure of the respondents to disclose all the earnings of Burdon. He followed this up by sending amended returns for the years 1989 to 1993 inclusive to the Australian Taxation Office and he confirmed that he had done this to both Mr Kent and Mr White by letters to each of them dated 19 January 1995.
Evidence of the conversation between Messrs Kent, White, Constantine and Florent relating to these matters was first rejected by me as irrelevant and involving hearsay. As the case unfolded and the issues became clearer, I revised that ruling and then admitted this evidence, though on a limited footing. If the evidence were admissible as corroborating the story of Mr Kent and Mr White as to there being a threat made to them in the Botanic Gardens on 22 December by Mr Hannaford to disclose matters to the Australian Taxation Office, it would indeed corroborate that, but I do not regard it as being probative of this issue. I therefore do not take into account for the purposes of determining any of the issues in the case so much of the conversation on Christmas Eve as I initially rejected though later admitted albeit on a limited footing.
The fact is, however, that Mr Florent did reveal to the Australian Taxation Office the previously undisclosed income of Burdon by sending amended returns of income tax. Mr Florent did this after the meeting between himself and his clients on Christmas Eve, two days after the conversation in the Botanic Gardens. In my opinion the disclosure to the Australian Taxation Office was not prompted by the earlier suggestion of the Taxation Office that it may undertake an audit of Burdon's affairs. This was, as Mr Florent said in evidence, a standard letter from the Australian Taxation Office that "went out to some hundred odd clients". I accept that Mr Florent thought that he had solved the problems in relation to the audit before the meeting in the Botanic Gardens and that Mr Kent and Mr White knew broadly what Mr Florent had done on their behalf with the Australian Taxation Office before the meeting in the Botanic Gardens took place. I do not think that the earlier suggested possibility of an audit played any role in the subsequent disclosure of the undisclosed income made by Mr Florent on behalf of his clients to the Australian Taxation Office.
Mr Kent and Mr White were in my view of the opinion that, if the dispute between the parties was not settled and the litigation in this Court proceeded, their non-disclosure of assessable income would become public knowledge and therefore become known to the Australian Taxation Office. Indeed, affidavits had been filed on behalf of the applicants, before their meeting in the Botanic Gardens, disclosing material facts relating to the undisclosed income and the system by which this was done under the control of Mr Kent and Mr White. Although the evidence of Mr Kent and Mr White as to the effect upon them of the threats made to them on 22 December about potential disclosure to the Australian Taxation Office if the case had not settled was exaggerated, I accept that they were troubled by the possibility of disclosure and that it played a distinct part in their minds in agreeing in principle to settle the dispute that day (even though it was a conditional settlement as I have mentioned above). The statements of prospective disclosure of the taxation problems by Mr Hannaford was a reason for Mr Kent and Mr White agreeing to the settlement in principle and it in fact contributed to that agreement: Barton v Armstrong [1976] AC 104.
In conclusion I propose to make the following observations. I have not accepted any of the four principal witnesses (Mr Gilbert, Mr Hannaford, Mr Kent and Mr White) entirely in reaching my conclusions of fact. Much of the evidence of Mr Gilbert and Mr Hannaford as to what was said in the Botanic Gardens on 22 December 1994 was not disputed; indeed it was conceded, and I accept what they say on many of those matters. But I accept the substance of what Mr Kent and Mr White said as to the matters referred to by me earlier under the headings (a), (b), (c) and (d); and to that extent do not accept the evidence to the contrary of Mr Gilbert and Mr Hannaford.
The Court declines to grant the relief sought by the applicants in paragraphs 16A, 16B, 16C and 16D of the amended application dated and filed 17 February 1995. I shall make no orders today, but shall stand the matter over to a date to be
fixed to hear argument on the question of costs and the further conduct of the proceeding.
I certify that this and the preceding twenty-nine (29) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart.
Associate
Dated: 30 March 1995
Counsel for the Applicants : Mr I Barker QC
Mr P Comans
Solicitors for the Applicants : Sly & Weigall
Counsel for the Respondents : Mr B Toomey QC
Mr C Leggat
Solicitors for the Respondents: Donovan, Oates & Hannaford
Date of Hearing : 2, 3, 13, 14 March 1995
Date of Judgment : 30 March 1995
