FEDERAL COURT OF AUSTRALIA

Henderson v McSharer [2015] FCA 396

THE COURT DECLARES THAT:

(1)    The Letter of Engagement dated 22 July 2011 is void ab initio.

(2)    The Stock Purchase Agreement dated 24 August 2011 is void ab initio.

(3)    The 16 February Agreement dated 16 February 2012 is void ab initio.

THE COURT ORDERS THAT:

1.    Within 7 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at Francis Burt Chambers, Level 19, Allendale Square, 77 St George’s Terrace, Perth, Western Australia, an affidavit disclosing the following information:

(a)    the number and composition of all sheep, including lambs in the possession, custody or control of each of them (together, the sheep);

(b)    the precise location(s) of all of the sheep;

(c)    the location of any bales of wool in their respective possession, custody or control obtained from the sheep (the wool bales);

(d)    the identity of any person or company to whom or to which any of the sheep including lambs have been transferred but which remain within the control of Mr and/or Mrs McSharer and or Astraea.

2.    Each of the respondents be restrained whether personally or by their agents or employees from further dealing in the sheep within their possession, custody or control including transferring, conveying, gifting, selling, leasing or encumbering those sheep or removing them from their location(s) at the date of judgment.

3.    Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy, Skyprince Pty Ltd, the second respondent, and W.B. McSharer Superannuation Pty Ltd each be restrained from transferring any shares held by them legally or beneficially in the third respondent.

4.    The respondents do all things necessary to deliver up the sheep and the wool bales for collection and removal by the applicants within 21 days of judgment or such further period as the Court may permit on application by the applicants.

5.    Within 28 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at the above address, an affidavit disclosing the number of sheep, including lambs, which have been sold, at what price and to whom since the conclusion of the trial of this matter.

6.    The respondents, jointly and severally, pay to the applicants compensation in the sum of $1,912,050 in respect of the first respondent’s contraventions of the Competition and Consumer Act 2010 (Cth) Sch 2, in which the second respondent and the third respondent were involved.

7.    The compensation assessed will be reduced to the extent of the value of the sheep and wool bales, if any, delivered up by the respondents under order 4, with the value to be assessed by an expert valuer appointed by the Court.

8.    Liberty granted to the applicants to apply to the Court for the appointment of an expert valuer for the purposes of order 7.

9.    The award of compensation be stayed until further order to enable time for compliance with orders 1, 4, 7 and 8.

10.    The first respondent pay the applicants $20,000 in exemplary damages in respect of the first respondent’s deceit.

11.    Liberty granted to the parties to apply on the question of any interest that should be paid with respect to the compensation awarded under order 6, as well as on the question of costs.

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

REASONS FOR JUDGMENT

table of contents

Introduction

1    This case involves commercial dishonesty. It primarily involves the first respondent, Mr William McSharer, by conduct which was both misleading and deceptive, taking advantage of the applicants, Mrs Susan Henderson and Mr Kim Henderson, who were in a position of special disadvantage at a time when they had lost control of most of their assets built up over a lifetime of hard work and were confronting the prospect of personal bankruptcy. They looked to Mr McSharer for advice and assistance to ameliorate their financial position. The impugned conduct was also unconscionable conduct.

2    I find, for reasons I set out below, that he, for his part, represented that he had the capacity to assist the Hendersons in ways which were well beyond his actual capacities. He lied about his qualifications and exaggerated his experience. He engaged in misconduct for his own personal financial advantage.

3    The Hendersons relied upon his (false) representations to engage his services and ultimately to transfer a valuable flock of sheep to a company practically controlled by him which were then sold. The Hendersons never received any of those proceeds.

Background

4    The Hendersons conducted a successful sheep farming enterprise for many years. However, in the years 2006 to 2008 they became involved, through Bonthorpe Pty Ltd (Bonthorpe), the trustee of their family trust, in an off-farm business venture. The Hendersons are the directors of Bonthorpe and conducted their farming business on properties owned by Bonthorpe as partners under the name K & SJ Henderson Partnership. This venture, a land subdivision near Denmark, Western Australia, failed (the Denmark Subdivision). Failure of the venture left Bonthorpe, and the Hendersons as guarantors, indebted to the National Australia Bank (NAB) in an amount of some $16 million.

5    By mid-2011, the Hendersons were experiencing financial difficulty. Their counsel, at trial, rightly described their situation as “desperate”.

6    NAB had appointed partners of the firm McGrath Nicol as receivers and managers to Bonthorpe, and they had taken possession of the farm at York (the York farm) owned by Bonthorpe and operated by the Hendersons. I will generally refer to the receivers and managers as “the Receivers” generically even when, for example, correspondence is sent to only one of them or to any employee of the firm. The Hendersons subsequently entered into an agreement with the Receivers to lease the York farm from Bonthorpe.

7    The Hendersons had been forced to sell various properties including their home in Perth and the home they had purchased for their disabled son. They still owed a substantial amount of money to NAB. NAB had obtained a default judgment against them, and had commenced bankruptcy proceedings by having a bankruptcy notice issued against them.

8    Mr Trevor Brickhill, the Hendersons’ then lawyer, had been consulted to advise the Hendersons on their dealings with the NAB and subsequently was able to secure them employment in the pawpaw ointment business in which he was involved. They moved to Queensland to take up this employment. However, the relationship with Mr Brickhill deteriorated. The Hendersons had their employment terminated in September 2011.

9    The Hendersons believed that the debt to NAB could be paid or reduced if they could realise value from certain rights held by Bonthorpe: the rights to a deposit of bauxitic gravel located on the York farm (the Gravel Project), and the rights to bring action against parties involved in the Denmark Subdivision (the Denmark Litigation Rights). However, by July 2011 the Hendersons had not succeeded in persuading the Receivers to transfer those rights.

10    Against this background, in July 2011 a mutual business contact referred the Hendersons to Mr McSharer. The first communication between the parties occurred on 20 July 2011.

11    In the period leading up to his first contact with the Hendersons, Mr McSharer had experienced his own share of financial and emotional distress.

12    After a career of some 20 years as a commercial rock lobster fisherman, he had established a security business which specialised in providing security services carried on in a publicly unlisted company. Mr McSharer was its executive chairman. However, this company failed and was placed in voluntary administration and subsequently in liquidation. Not long before this, Mr McSharer and his first wife were divorced.

13    Mr McSharer then married Hailey Manners (Mrs McSharer) in January 2009. Not long after, he suffered a cerebral haemorrhage which left him incapacitated for some time.

14    In August 2009 Mr McSharer was declared bankrupt on the petition of the Australian Taxation Office. In November 2009 receivers and managers were appointed to Skyprince Pty Ltd (Skyprince), trustee of the McSharer Family Trust. As a consequence, the McSharers suffered, to use Mr McSharer’s own words, severe personal and financial hardship.

15    The relationship between the Hendersons and the McSharers is central to the present litigation.

The applicants’ case

16    The Hendersons claim that by misleading or deceptive conduct in contravention of s 18 of the Competition and Consumer Act 2010 (Cth) Sch 2 (ACL) or, alternatively, unconscionable conduct in contravention of s 21 of the ACL, Mr McSharer induced them to accept him as a provider of business consultancy services to them, and, on his advice, to transfer their last remaining asset – a flock of approximately 6,000 sheep – to a company, for all practical purposes, controlled by him – Astraea Group Pty Ltd (Astraea).

17    The conduct involved continuing representations express and implied that Mr McSharer was a qualified lawyer and had the necessary experience as a business consultant to resolve the Hendersons’ financial problems and in particular to resolve their very significant debt obligations to the NAB. During the period when Mr McSharer was providing consultancy services and providing advice to the Hendersons he also stated that he had been bankrupt but impliedly represented that he was no longer a bankrupt and that he was in relatively good financial standing.

18    The Hendersons say that the initial misleading or deceptive conduct was ongoing. It was never corrected and was aggravated by further unconscionable conduct which resulted in the sale of the sheep and the proceeds therefrom being retained by Mr McSharer or his interests.

19    They also contend that this conduct amounted to the tort of deceit.

20    The Hendersons claim that, because of Mr McSharer’s conduct (in which Mrs McSharer and Astraea were involved), they have suffered loss for which they are entitled to compensation. The Hendersons also claim compensation from Mrs McSharer and Astraea as persons involved in the conduct of Mr McSharer.

21    Alternatively, the Hendersons claim damages for deceit and, in any event, exemplary damages.

The respondents’ case

22    The respondents’ case is that Mr McSharer never provided any assurances or undertakings that he could assist the Hendersons, and did not provide services to them. The respondents say that Mr McSharer disclosed to the Hendersons that he was a business consultant, had a law degree but was not admitted to practise law and was an undischarged bankrupt.

23    The respondents’ case is that when the Hendersons advised Mr McSharer that they could not pay for the services of Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy (Fides Consulting), pursuant to a letter of engagement dated 22 July 2011, the Hendersons suggested that they and the McSharers should enter into a joint venture involving a new company which could pursue:

(a)    the primary production of sheep and wool;

(b)    the cause of action in relation to the failed Denmark subdivision; and

(c)    the rights to exploit the minerals and gravel on the farm.

24    The respondents say that the Hendersons never wanted to be directors of Astraea due to their financial situation. They also assert that it was the Hendersons’ suggestion to transfer the sheep to Astraea to pursue the joint venture, and that it was also they who suggested the final terms and conditions for the sale of the sheep.

25    The respondents say that the Hendersons agreed to:

(a)    the designation of “A” and “B” class shares between the parties;

(b)    the director of the company having the power or discretion to distribute dividends to any class of the shareholders; and

(c)    the director of Astraea receiving directors’ fees of $500.00 per week.

26    The respondents say that the dispute over whether or not the sheep should be sold was caused by the notice of termination of the grazing licence on the farm and the Hendersons wish to pursue the issue of their “property rights”. This will be discussed in more detail below.

27    Accordingly, the respondents say that they did not engage in misleading or deceptive conduct, unconscionable conduct or deceit.

The facts

Factual issues

28    There is a substantial conflict as to facts, primarily between the evidence given by Mr McSharer and by Mrs Henderson.

The McSharers’ evidence

29    Mr McSharer’s evidence was generally confused and confusing. He dissembled on numerous occasions. I find much of Mr McSharer’s evidence to be inherently improbable. His evidence was often evasive, internally inconsistent and displayed the hallmark of reconstruction. He would assert with confidence a matter to be fact and it was immediately demonstrated under cross-examination to be wrong. He was an unreliable and dishonest witness. Examples of his untruthful evidence are too numerous to identify individually.

30    Mrs McSharer’s evidence sought to corroborate much of her husband’s dishonest evidence. In the main, I do not accept her evidence as reliable.

The Hendersons’ evidence

31    The Hendersons, by contrast, were credible witnesses. They gave evidence carefully. Their evidence was not shaken in cross-examination.

32    Mrs Henderson kept contemporaneous notes of most of her conversations with Mr McSharer, and placed these notes in evidence. She also produced relevant telephone call records, to the extent that they were available to her. The Hendersons’ version of what occurred is entirely consistent with contemporaneous documents, including documents adduced by the respondents, other than some of the latter category, which I have concluded were fraudulent.

33    The McSharers, by contrast, produced only very few documents said to be contemporaneous notes and no telephone records. I found Mr McSharer’s explanation about not keeping records of his business consultations – that he now considered this to be very bad practice and that this matter had been “brought home to [him] with spades” only in the last few weeks preceding trial – to be disingenuous.

34    For these reasons and for the reasons set out below, to the extent that the McSharers’ evidence is inconsistent with the evidence given by the Hendersons, I have preferred the evidence of the Hendersons.

35    It will be convenient to approach the facts using the “phases” of the relationship identified by counsel for the Hendersons.

Phase 1: The initial communications

36    The Hendersons were referred to Mr McSharer in July 2011.

37    By email to the Hendersons on 15 July 2011, Mr Michael Taylforth, a town planner and principal of Land Insights, offered to introduce them to another client who ran a quarrying business and was “buying up other sites…in the wheatbelt”.

38    Around 18 July 2011, Mr Taylforth contacted Mr McSharer in relation to the Hendersons. Mr Taylforth emailed Mr Henderson to say that while the operator he had in mind was not in a position to assist at present, Mr Taylforth had spoken to “their business advisor” who mentioned that he would be interested in assisting the Hendersons with “any issues pertaining to approvals, finding JV partners or operators to buy the site”. The Hendersons were provided with the telephone number of Mr McSharer.

20 July 2011

Mr McSharer’s evidence

39    It seems to be agreed that on 20 July 2011, Mr Henderson had a telephone conversation with Mr McSharer. Mr McSharer explained that what he said to Mr Henderson during this conversation included that:

(a)    the Hendersons may seek to engage the services of Fides Consulting to assist them;

(b)    he was speaking to Mr Henderson on behalf of Fides Consulting and if Fides Consulting did work for Mr Henderson it would be Mr McSharer who did the work;

(c)    Fides Consulting provides strategic business services in assisting clients with “a host of commercial matters”; and

(d)    if a client has any issues with which they require assistance, he (Mr McSharer) looks at the issues and advises the client if Fides Consulting can assist, otherwise he tells them to seek other advice.

40    Mr McSharer’s further evidence as to this initial conversation was as follows.

41    Mr Henderson gave him a brief outline of the issues confronting them, including telling of the Denmark Subdivision and that it had “gone horribly wrong”, leaving them with “financial problems as a result”. Mr Henderson told him of the appointment of the Receivers and the application for bankruptcy, and that Mr Henderson was most concerned about the potential bankruptcy and the attitude of NAB.

42    After the discussion, Mr Henderson asked if Mr McSharer “could be of assistance to them and would [he] be prepared to undertake specific tasks on their behalf”. Mr Henderson said he would provide more information about him, his wife, the company, their financial position and the Extractive Industries Licence (EIL) approval. Mr McSharer said that he had said that Fides Consulting Pty Ltd would need more information before it could determine whether or not it could help. Mr McSharer told Mr Henderson that he, as an employee of Fides Consulting, may be able to help but did not know anything about the Hendersons or the scope of what may be required.

43    He did not say anything on 20 July 2011 regarding his tertiary or professional qualifications, his past health, “money”, “life in general”, “people in general”, lawyers, his bankruptcy or contacting the Receivers.

44    He told Mr Henderson that he would send Fides Consulting’s “usual letter of engagement and schedule of fees”.

45    However in cross-examination, Mr McSharer said that the whole purpose of the conversation with Mr Henderson was to obtain more information in relation to the issues; he “just made a general statement that [he] would need more information”. He said that “whether Kim Henderson believed that was Fides [Consulting], whether Kim Henderson believed that was me trading as Fides [Consulting], or whether Kim Henderson believed that was…myself, I’ve got no idea.”

46    When counsel for the Hendersons suggested that he did not actually refer to Fides Consulting at all, Mr McSharer responded that he “would have made mention of it along with the discussion. The whole thing was I would need more information in relation to the issues that he was potentially talking to me about because I did not understand them”.

47    Mrs McSharer, consistently with what was said by Mr McSharer, said that after a telephone conversation on 20 July 2011, Mr McSharer had said that the caller was a potential client in the York area with some planning issues with which Fides Consulting may be able to assist, and that he would need more information from Mr Henderson.

Mr Henderson’s evidence

48    Mr Henderson’s evidence was as follows.

49    Mr McSharer had told him during the conversation on 20 July 2011 that he had suffered a stroke and had an operation on his brain, and that since then he was “more interested in helping people than making money”. He had said that he could help the Hendersons and that he “had ways of taking the bank out of the equation”. This was a most significant representation given that the Hendersons at that time owed the NAB in the order of $16 million. It conveyed to the Hendersons that Mr McSharer had the necessary business and commercial experience to negotiate such an outcome with the Bank.

50    Mr McSharer also told him that he had a law degree but was not a practising lawyer, that he hated lawyers and that he knew what the Hendersons were going through because he “had been” where the Hendersons now were. This was an allusion to the severe financial distress that the Hendersons were in. It also implied that Mr McSharer was no longer in that position. Mr McSharer did not say that he was still bankrupt.

51    Mr McSharer told him that he and Mrs Henderson should write a letter to the Receivers to say that Mr McSharer was allowed to talk to them about the Hendersons’ business. Mr Henderson subsequently told Mrs Henderson that Mr McSharer wanted her to write an email to the Receivers to authorise Mr McSharer to speak to them on behalf of the Hendersons.

52    Mr McSharer never mentioned Fides Consulting in this first conversation, and Mr Henderson did not become aware of the name ‘Fides Consulting’ until 23 July 2011.

53    I accept Mr Henderson’s evidence. As I have mentioned, I found him to be a reliable and honest witness. The corollary is that I do not accept Mr McSharer’s evidence that he made repeated reference to ‘Fides Consulting’ and that he did not say anything on 20 July 2011 regarding his qualifications, past health, money or contacting the Receivers. Indeed, for reasons I will later explain I find that Mr McSharer and Mrs McSharer gave dishonest testimony in material respects.

21 July 2011

54    Mr McSharer received emails from Mrs Henderson on 21 July 2011.

55    He said that he did not say to the Hendersons that he could help them at this stage and that as at 21 July 2011, neither he nor Fides Consulting had undertaken any activities in relation to the EIL. He said that at this point, more information was needed and it would be necessary to undertake due diligence.

56    Mrs McSharer’s evidence in relation to certain emails from Mrs Henderson on 21 July 2011 was that while she read the emails, she did not take a particular interest and “left it to Bill”.

57    On 21 July 2011, Mrs Henderson sent an email to Mr McSharer, which included the following:

Kim has told me that he had a lengthy talk with you last night.

From what I understand, we should write a letter to the receivers to say that we give permission for you to contact them. Is this as straight forward as it sounds? Do you wish to make any suggestions as to the content of that letter? Are we saying, as Directors or shareholders, that we give authorisation? Does this mean that you are acting on our behalf? I am not being silly here, rather I want to understand the slant and tone of the letter.

We will write another detailed email tonight to fill some more of the gaps.

In the meantime (I am on my lunch break, so only limited time here) I will try and send a few relevant documents to you to peruse.

We are appreciative that you are willing to work with us in our case with the receivers.

58    Considering the content of this email, I do not accept Mr McSharer’s evidence that he had not, at this stage, indicated that he would assist the Hendersons. It also further supports Mr Henderson’s evidence that Mr McSharer did indeed discuss contacting the Receivers with Mr Henderson on 20 July 2011. Mrs Henderson thereafter sent another email to which a summary of the licences obtained by the Hendersons was attached. Mrs Henderson’s evidence as to 21 July 2011 was as follows.

59    In the afternoon of 21 July 2011, she received a phone call from Mr Brickhill informing her that he would be unable to represent the Hendersons in court on 22 July 2011 in a hearing concerning their application in the then Federal Magistrates Court to set aside the bankruptcy notice.

60    Mr Brickhill said that there was “probably no point in being present”. Mr Brickhill’s statements led her to believe that he did not think that the Hendersons had much chance of avoiding bankruptcy. I accept this evidence.

22 July 2011

61    On 22 July 2011, Mrs Henderson sent an email to the Receivers which stated:

Please be advised that we authorise Mr Bill McSharer to assist and advise on behalf of the Directors of Bonthorpe, and Bonthorpe in it’s (sic) own right and Susan and Kim Henderson personally, in all financial and corporate matters.

62    Also on 22 July 2011, Mr McSharer sent an email to Mr Brickhill, asking that Mr Brickhill “please call [Mr McSharer] as soon as possible”, and stating that “Kim and Sue are happy for me to speak to you”.

Mr McSharer’s evidence

63    Mr McSharer said the following in relation to communications on or around 22 July 2011.

64    When he received the email of 21 July 2011 set out above, he was “only doing due diligence or compiling documents in relation to the matters affecting the Hendersons”. He did not have any input into the email sent by Mrs Henderson to Mr Norman Oehme of the Receivers on 22 July 2011.

65    He decided to undertake further due diligence in relation to the issues Mrs Henderson detailed in discussions between Mrs Henderson and Mr McSharer from 21 July 2011 to 10 August 2011.

66    On 22 July 2011 he contacted Mr Brickhill to enquire as to the progress of the bankruptcy application against the Hendersons. Mr Brickhill told him that the matter was going before the court the following week, but the telephone conversation was brief and he was not able to say anything to Mr Brickhill.

67    He called Mrs Henderson after speaking to Mr Brickhill, and told Mrs Henderson that in his “personal view if the sequestration order is made you are declared bankrupt and it would be best to speak to the person she had been dealing with at the NAB and try to get them to accept a scheme of arrangement”. This suggestion was based on his previous experience as a bankrupt. He had no memory of saying anything about the Receivers, and did not recall speaking again with Mrs Henderson on 22 July 2011.

68    As I have mentioned, Mr McSharer’s evidence is that he did not have any input into the email sent by Mrs Henderson to Mr Oehme of the Receivers on 22 July 2011. He attempted, in his evidence in chief and in cross-examination, to distance himself from this letter. I do not accept his evidence in these respects.

Mrs Henderson’s evidence

69    Mrs Henderson referred to a file note typed by her while speaking to Mr McSharer on 22 July 2011. I accept it as a contemporaneous record of the conversation. The note contains the following:

    Email to receiver

    We have authorised Bill Mc over the matters relating to the company and ourselves personally.

    Cc to Bill and the receiver, and also to Trevor.

70    The substantial similarities between the note written by Mrs Henderson and the content of the email sent to the Receivers leads me to infer that Mr McSharer influenced its content.

71    Indeed, it was Mrs Henderson’s evidence that during this conversation, Mr McSharer dictated words for Mrs Henderson to use in an email authorising Mr McSharer to act on behalf of the company and the Hendersons personally. She said that she emailed the Receivers after speaking to Mr McSharer. I accept this evidence.

72    Mrs Henderson said the following concerning communications on 22 July 2011. During the conversation on 22 July 2011, Mr McSharer said that he had spoken with Mr Brickhill and that “today’s hearing is not a sequestration order”. Mr McSharer told her that it “would normally take about 6 weeks to receive a sequestration order”, so the Hendersons would need to enter into a scheme of arrangement in the next five weeks.

73    This is consistent with the file note, which contains the statements “We have about 5 weeks to put a deal into place” and “Need to enter into a scheme of arrangement, in the next five weeks”.

74    On the evening of 22 July 2011, she again spoke to Mr McSharer by telephone. In this conversation, Mr McSharer said that he:

(a)    had had a stroke;

(b)    could “take the bank out of the equation”;

(c)    had a law degree but that he hated lawyers and did not wish to be admitted to the bar;

(d)    also hated receivers and that they “would eat their young”; and

(e)    “had been” where the Hendersons were at that time.

75    This evidence is in substance the same as that given by Mr Henderson as to what Mr McSharer said to him in their phone call on 20 July 2011.

76    Mrs Henderson told Mr McSharer of the Hendersons’ background, including the failed Denmark Subdivision and the potential litigation arising from it (the Denmark litigation), the gravel on the York farm and the discussions and meetings about potential bauxite mining and the possibility of diamonds being present on the property.

77    Mr McSharer pressed for details of the Hendersons’ debt and equity positions, and she told Mr McSharer that she estimated that the debt was around $8 million to $9 million. She also told Mr McSharer about the sheep, estimating them to be worth $500,000 - $600,000, and told him that the NAB did not have a charge over the livestock.

78    Mr McSharer said that he could help them and that he wasn’t interested in “revenue raising” for himself.

79    Mrs Henderson said that she was “especially satisfied” with Mr McSharer’s repeated statement that he could “take the bank out of the equation”, and said that she “had no idea how this could happen” but suspected that “it would be to do with the gravel, through some Joint Venture arrangement – or sale – which would satisfy the debt with the NAB”.

80    She was, she said, “in awe” of Mr McSharer “who had a law degree as well as the ability and the expertise to change our financial situation”. Her perception was that Mr McSharer was very confident of his ability to achieve a resolution of their financial predicament in relation to the Receivers and the NAB.

81    Mrs Henderson’s evidence that Mr McSharer told her he could “take the bank out of the equation” is supported by the statement in her email sent on 25 July 2011 to the Hendersons’ accountant, Mr Brian Slatter. In that email Mrs Henderson explained the role of Mr McSharer as follows: “Bill is assisting us with the receivers and may have a solution for the NAB”.

82    I accept Mrs Henderson’s evidence. I do not accept Mr McSharer’s assertions that he was still undertaking due diligence and did not say to the Hendersons that he could assist them. I find that he did indeed tell Mrs Henderson that he could help them and that this included a representation to the Hendersons that he could “take the bank out of the equation” (Bank Representation).

83    I infer that the several references to “five weeks” was intended to, and did, have the effect of putting pressure on the Hendersons to seek an urgent solution.

23 and 24 July 2011

84    On 23 July 2011, Mr McSharer sent a letter of engagement with accompanying documents (Letter of Engagement) to the Hendersons. There were several versions of these documents. One version of the Letter of Engagement contains markings made by Mrs Henderson, pointing out the numerous spelling errors throughout the documents. A schedule of rates was attached, which states, amongst other things, that “Matters of Law” attract a rate of “$130.00/hr”.

85    The Letter of Engagement contains a disclaimer in the following terms:

Fides Consulting Pty Ltd trading as W.B.McSharer Strategic Business Consultancy shall not and does not accept any legal liability howsoever arising for any advice, opinion or view provided to the     recipient.

The suitability and fitness for purpose of all information is the sole responsibility of the recipient.

86    The accompanying email included the following:

Would you please review the documents and if happy please execute and return as scan documents to myself.

I would suggest the first piece of the cake that we need to address is bankruptcy.

The McSharers’ evidence

87    Mr McSharer’s evidence as to the 23 and 24 July 2011 was as follows.

88    He did not say anything to the Hendersons about the terms of the Letter of Engagement nor give any assurances or undertakings at this time.

89    Mrs Henderson did not say anything about selling sheep to pay Fides Consulting.

90    He did not recall speaking to Mrs Henderson later on the same day after sending the Letter of Engagement. However, he then referred to “another phone conversation of the 23rd July”, occurring after the Letter of Engagement was sent. When this inconsistency was pointed out to him in cross-examination, Mr McSharer responded that he “can’t remember every single phone call”.

91    During this later conversation, Mrs Henderson told him that they were unable to pay for Fides Consulting’s services and asked if the McSharers would be interested in establishing a commercial joint venture business with the Hendersons.

92    Mrs Henderson said that they proposed the joint venture instead of the provision of consultancy services because they were unable to pay for Fides Consulting’s services and “believed a business focused on the issues was likely to produce a significant profit”.

93    He responded by saying that he and Mrs McSharer would be prepared to investigate the matter further as she was raising the possibility of a business opportunity for himself and Mrs McSharer, as opposed to services provided by Fides Consulting.

94    On 23 July 2011, Mrs Henderson told him that she did not want to carry on with the consultancy agreement, and proposed instead a joint venture arrangement.

95    However, the Hendersons returned the Letter of Engagement, executed, the very next day. In cross-examination, the following exchange occurred:

So your evidence is that on the Saturday night, 23 July, the nature of this engagement was transformed from what was described in the letter of engagement to a joint venture?--- My evidence is that it was not transformed: the one was terminated, and the opportunity of another was opened. So, if you like, in a general term, one door closed and another door opened.

But the Hendersons still returned a document to you on the 24th, which related to the first door, didn’t it?--- Ask the Hendersons. I’ve got no idea.

Well, you know they returned it to you, don’t you?--- But I don’t know why they returned it to me. It was and it is a mystery to me.

96    Mrs McSharer said that on 24 July 2011, she read an email from Mrs Henderson which contained the executed documents. She said that she printed these documents out and placed them into the lever arch file she had opened earlier for this new client, together with other emails from Mrs Henderson. In cross-examination, Mrs McSharer agreed with counsel’s suggestion that it would be important to keep a record of this document, and that it was a contract that Fides Consulting had with the Hendersons.

The Henderson’s evidence

97    Mrs Henderson gave evidence that in receiving the Letter of Engagement and accompanying documents, she was surprised to receive the schedule of rates, as the Hendersons were not in the process of looking for a consultant, nor actively looking to proceed with any actions associated with Bonthorpe. Mrs Henderson said that she thought that if Mr McSharer was going to assist the Hendersons by arranging a joint venture or a sale, he would benefit through this process. She said she knew that it did not take long for consultancy hours to pile up.

98    Mr Henderson also testified that he was surprised to receive the schedule of rates, as Mr McSharer had not discussed fees with Mr Henderson “at all” but that Mr McSharer was “the only ray of hope for us at that point in time”, so the Hendersons signed the Letter of Engagement.

99    The Hendersons both said that they were worried about how they were going to pay fees to Mr McSharer and that Mrs Henderson suggested to Mr McSharer that in lieu of payment for his services, he might like to purchase the newborn lambs for a nominal amount of around $10 per head. The Hendersons said that Mrs Henderson suggested that Mr McSharer could sell the lambs in the spring and make a good profit.

100    Mrs Henderson said that she thought that this would give the Hendersons some income, as well as solving the problem of not having the funds to pay for Mr McSharer’s services.

Analysis of evidence

101    In cross-examination, Mr McSharer denied that Mrs Henderson had spoken to him about selling the lambs to pay the fees.

102    Mr McSharer took no action in response to the receipt of the executed Letter of Engagement. It is highly improbable that, if the Hendersons had conveyed their wish to withdraw from the consultancy arrangement and pursue a joint venture, they would have sent the executed Letter of Engagement to Mr McSharer or that Mr McSharer would not have sought to clarify with the Hendersons this apparently contradictory action and to confirm that they had, as he alleged, terminated the consultancy agreement.

103    Mr McSharer also said that he would carry out investigations to see whether or not he and Mrs McSharer would be prepared to go into a joint venture with the Hendersons in circumstances where he knew that their only assets were the sheep. I find this to be unlikely.

104    Further, in my view there is an inherent improbability in Mr McSharer’s assertions that Mrs Henderson proposed a joint venture agreement. It is highly improbable that the Hendersons, who had been farming successfully for many years, would enter into a joint venture agreement in relation to their sheep with two people with absolutely no farming experience. At the time Mr McSharer, by his own admission in cross-examination, “didn’t know much about sheep” and had made a comment to the effect that he did not know one end of a sheep from the other but only that they were good to eat.

105    Mr McSharer’s own conduct also flies in the face of the existence of a joint venture agreement. Other than a vague reference to a “partnership” in an email dated 13 February 2012, to which I will refer later in these reasons, the Court was not taken to any document in which a joint venture agreement is mentioned by the McSharers.

106    Mrs McSharer’s evidence is inconsistent with Mr McSharer’s assertions. As I mentioned, she agreed under cross-examination that it would be important to keep a record of the document and that it was a contract between Fides Consulting and the Hendersons.

107    Whilst, formally, the agreement was between the Hendersons and Fides Consulting, in substance I find that it was one between the Hendersons and Mr McSharer. He was to provide the services personally. Fides Consulting was a mere vehicle introduced by him without any consultation with the Hendersons.

108    I accept the Hendersons’ evidence as to what occurred on 23 and 24 July 2011. I do not accept Mr McSharer’s assertions that the consultancy agreement was terminated or “torn up”, to use his words in cross-examination.

109    I find that Mrs Henderson proposed an alternative method of payment for Mr McSharer’s services, being the sale of lambs to Mr McSharer.

25 and 29 July 2011

25 July

110    On 25 July 2011, Mr McSharer sent an email to Mrs Henderson, stating the following:

Hi Susan,

I propose to contact:

•    Receiver to determine their position in relation to developing a scheme of arrangement. (this will include the Bankruptcy issue)

•    Contact Phil Bellamy. (Determine if Phil’s group has a capacity to propose a scheme of arrangement)

•    Contact Mines Department re mining lease.

Once these questions are answered I will have a better insight to a way forward.

Regards

Bill McSharer

For and on behalf of:

Fides Consulting Pty Ltd, T/A

W.B McSharer Strategic Business Consultancy

…

The McSharers’ evidence and analysis

111    Mr McSharer’s evidence as to 25 and 29 July 2011 was as follows.

112    He mentioned the scheme of arrangement based upon his personal experience. He was not at this time “going down the track of a joint venture”; the McSharers had not yet made up their minds as to whether or not they would enter into a joint venture with the Hendersons. He and Mrs McSharer agreed that more information was needed. During a telephone conversation with Mrs Henderson, he “reported his findings to date” after also speaking to Mr Oehme of the Receivers.

113    During the “numerous phone conversations” of 25 July 2011, Mrs Henderson again raised the issue of the joint venture and referred to the Hendersons’ various assets, being sheep, gravel and litigation rights against all parties involved in the Denmark Subdivision.

114    Mrs Henderson again told him that the Hendersons were unable to pay for Fides Consulting’s services as they had used all of their money in the failed subdivision, but suggested the assets of the joint venture could be the sheep, the gravel deposit and the litigation against parties involved in the Denmark Subdivision.

115    Mrs Henderson asserted that they were able to deal with the assets of Bonthorpe.

116    He again told Mrs Henderson that they should “develop a scheme of arrangement in relation to the appointment of the Receivers and their bankruptcy”, and that the Hendersons stood to lose everything if they “could not get NAB to enter into a scheme of arrangement or forebear from any further action until the Hendersons could come up with a financial proposal acceptable to NAB”.

117    He also said to Mrs Henderson that the Hendersons should sell the stock and pay the proceeds of the sale to the Hendersons as the owners.

118    Mrs Henderson had then said in response that any joint venture between the parties could buy the stock and if the McSharers were interested, they could approach the Receivers to see if they could develop a commercial arrangement to be able to leave the stock on the farm.

119    He said to Mrs Henderson that Fides Consulting would approach the Receivers to see if it would lease the farm to Fides Consulting.

120    Mrs Henderson again said that the Hendersons would like to retain the assistance of Fides Consulting but could not afford to do so, and that she believed a joint venture would produce the best results for both parties.

121    Mrs Henderson said that the lambs could not be transported.

122    He asked Mrs Henderson for stock numbers, values and financial data on the viability of sheep farming. In the evening of 25 July 2011, Mrs Henderson sent to Mr McSharer a spreadsheet detailing stock numbers and income projections (Stock Value Email). These were for consideration by Mrs McSharer and himself as part of their “deliberations in relation to undertaking commercial operations with them”. I will return to this document shortly.

123    In late July to early August, he spoke to Mrs Henderson and said that he and Mrs McSharer agreed in principle to form a new company which would be the vehicle that would purchase the sheep.

124    He told Mrs Henderson that there was an in-principle agreement for the agistment of lambs and that the Receivers would draft and forward a grazing licence to Fides Consulting for consideration.

125    He said to Mrs Henderson that, subject to agreement by both parties, all dividends in the new company were to be equal unless otherwise agreed and that the new company’s constitution would reflect this. He did not say anything about using a company already incorporated by the Hendersons, about any references to the Hendersons in relation to the new company or say anything about who should hold the shares in the new company on behalf of the Hendersons.

126    Following the telephone discussions on 25 July 2011, on 29 July 2011 he, on behalf of Fides Consulting, asked the Receivers if they would be prepared to lease the farm to Fides Consulting. He drafted for Mrs McSharer the letter of 29 July 2011 to Mr Oehme of the Receivers containing such request (the 29 July Letter).

127    Mrs McSharer’s evidence in relation to the 29 July Letter was that Mr McSharer directed that she type a letter which he would dictate to the Receivers, to enquire as to whether or not they would be interested in leasing the York farm. She said she did not know the specifics of the contents in the letter but she knew it was related to the Hendersons.

128    The 29 July Letter contains, relevantly, the following:

Dear Norman

Further to our discussion of Monday 25th July 2011.

…

Fides Consulting Pty Ltd, or its nominee, is acquiring all the stock (Ewes, Hogget’s [sic], Lambs and Rams) from K and S Henderson.

The stock described in paragraph 4 above is currently located on the farming land owned by Bonthorpe Pty Ltd, to which you have been appointed the Receiver

…

I wish to enquire if McGrath Nicol would consider leasing the property on the Terms set out below:

•    Lessee:     Fides Consulting Pty Ltd and or its nominee

…

I look forward to your response; please contact my husband, Bill on 0447733372 if you wish to discuss this matter further.

129    I find much of Mr McSharer’s evidence as to the conversations on 25 July 2011 and the 29 July Letter unconvincing.

130    It was put to Mr McSharer that it was evident from his email of 25 July that he was doing research in preparation for advising the Hendersons. Mr McSharer denied this, and said that the “contacts” proposed to be made was “me doing my due diligence simply to see whether Hailey and I were even prepared to go into this joint venture that was being proposed by Susan Henderson”.

131    However, Mr McSharer was unable to satisfactorily explain the relevance of the scheme of arrangement mentioned in this email to the alleged proposal of a joint venture.

132    The following exchange occurred in cross-examination:

Well, tell me what the scheme of arrangement had to do with the joint venture?--- Nothing.

Nothing. Well, why were you going to investigate that?--- Originally, I was led to believe that Hendersons were looking to engage Fides Consulting trading as W.B. McSharer Strategic Business Consultancy to try and help them go through all the issues that they had before them of which, basically, I didn’t understand the full scope. That’s why I didn’t make any comment or why I made a limited comment about it because I wanted to try and understand it. Initially, there were general statements in the first instance. I think Kim Henderson made a statement about the NAB and how they felt they were unhappy with them but I didn’t know anything about it in detail.

So you say that originally you were going to advise them on bankruptcy?--- No, I said that I was doing my due diligence to try and understand what the issues were. I had no idea. These are difficult and complex issues. There’s not two of them; there’s not three of them; there’s not four of them; there’s not five of them as I know now. That’s subsequent to my knowledge now. That’s my knowledge now. I had no idea and - - -

I’m just asking you about - - -?--- I haven’t finished, please.

…

Right. Well, just now I’m asking you about bankruptcy and when I asked you why you were determining the position in relation to developing a scheme of arrangement which would include the bankruptcy issue you said that was because that’s what the Hendersons originally were going to ask you for?--- I didn’t say to them that I was proposing for me to develop a scheme of arrangement. I said to them, “You will need to develop a scheme of arrangement,” whether it was me, Bird Cameron, whoever – I don’t know – but I do remember on more than one occasion mentioning to Hendersons, “You need to develop a scheme of arrangement,” and I never proposed that I was about to do it.

But you jumped into that on the Monday, didn’t you? That’s the first thing you refer to?--- As I said yesterday, I think, because of my knowledge having been through it I realised that it was something that needed to be attended to urgently because unlike other commercial matters, when a court orders the – I used the word – I forget what the word was – programming orders, they’re not discretionary.

….

Well, here’s what I think you were doing, Mr McSharer. You got a signed letter of engagement on the Sunday and you jumped into the job on the Monday. Is that what you were doing?--- No.

133    I do not accept Mr McSharer’s evidence as to why he indicated in the email of 25 July 2011 that he would pursue the issue of a scheme of arrangement. Rather, I find that the content of the email is consistent with Mr McSharer commencing work as a provider of consultancy services to the Hendersons.

134    Furthermore, he knew that the only immediately realisable assets of the Hendersons were the sheep. Considering this fact, and the fact of the Hendersons’ substantial debt, a scheme of arrangement was simply not feasible. However, mentioning that he was pursuing a solution by way of a scheme of arrangement would likely inspire confidence and hope in the Hendersons in their new consultant. I infer that this was the purpose of this communication.

135    With regard to Mr McSharer’s assertion that Mrs Henderson had said to him that she was able to deal with the assets of Bonthorpe, Mr McSharer denied repeatedly in cross-examination that he did not know that the Receivers had taken possession of all of the assets of Bonthorpe except the sheep. However, he was taken to his affidavit of 5 October 2012, which contained the following at [28]:

The Applicants otherwise told me that a receiver and manager had taken possession of all of their assets except their sheep.

136    This is but one example of several stark contradictions between evidence given by Mr McSharer at trial and evidence provided by affidavit at an earlier date.

137    In relation to his evidence concerning the content of his discussions with Mrs Henderson on 25 July 2011, Mr McSharer said under cross-examination that as part of his due diligence he checked the title of the York farm to confirm that it was not alienated by the Crown prior to 1899 and therefore was “private land” to which the relevant provisions of the Mining Act 1978 (WA) applied.

138    He said that he had established that the freehold was granted after 1899. However, Mr McSharer was subsequently shown the title for the York farm, which showed that it was part of “Avon Locations O and Q”. Mr McSharer was then shown copies of the Crown grants for Avon Locations O and Q, dated 1848 and 1840 respectively.

139    This is another example of Mr McSharer’s evidence so confidently asserted at trial being shown to be inaccurate.

140    In cross-examination, Mr McSharer insisted that Mrs Henderson suggested that any joint venture between the Hendersons and the McSharers could buy the stock. He emphatically denied that it was he who suggested purchasing the stock; Mr McSharer insisted that he had suggested selling the stock, but did not refer to buying the stock in the joint venture. He said that they were “Susan Henderson’s words because, at this moment in time, we hadn’t made up our mind”.

141    Mr McSharer denied the suggestion that Mrs Henderson had proposed that Mr McSharer buy the lambs. However, when counsel referred Mr McSharer to the part of his witness statement in which he stated that Mrs Henderson had said that the lambs could not be transported, he was unable to explain why this was relevant to the conversation of 25 July 2011.

142    In cross-examination Mr McSharer said that the 29 July Letter sent to Mr Oehme of the Receivers was written and sent to enable himself and Mrs McSharer to determine whether or not they wanted to be involved in the joint venture.

143    However, the letter contains an express statement that Fides Consulting “is acquiring all the stock”. Mr McSharer agreed in cross-examination that the letter contains a “firm statement” that Fides Consulting or its nominee was acquiring all of the stock.

144    This firm statement is wholly inconsistent with the suggestion that Mr and Mrs McSharer were still “making up their minds”.

The Hendersons’ evidence and analysis

145    The affirmative statement that Fides Consulting was acquiring the stock is also consistent with a file note prepared by Mrs Henderson concerning a conversation with Mr McSharer on 25 July 2011.

146    The Hendersons said that during this conversation the telephone was on ‘speaker’ and Mr Henderson sat next to Mrs Henderson and listened.

147    Mrs Henderson said that there were probably two conversations that day. She typed notes during them. This file note, which I will refer to as the 25 July Note, relevantly sets out the following:

What are the choices.

1.    too late to try and stop the receivership or develop a scheme of arrangement.

2.    Bankruptcy will continue if we cant get a SOA (sic).

3.    He would let the bankruptcy proceed, not do anything.

4.    He thinks that they have well and truly stitched us up,

5.    Are they old enough, to sell the ewes and lambs in the next 5 week (sic).

6.    It is likely that the bankruptcy would claim the livestock

7.    They can’t take the cash unless, they can try and claw back, but it is usually too expensive.

8.    Draft email, is OK> it is perfectly reasonable that Alan, it is an estoppal, once they become of a legal then the estoppal disappears (sic).

9.    He thinks that we are about to lose everything.

10.    Potentially we can negotiate a mining lease with the BRL (he hasn’t done any due diligence as he doesn’t have our authority),

11.    Need to negotiate, to allow a mining lease.

12.    We could negotiate in secret through a nominee and the people who have the exploration license

13.    He is not in the business of ‘revenue raising’

14.    He is interested in taking a percentage

15.    He will probably come over talk to us.

16.    If both parties are happy with each other, one of his companies could enter in negotiation

17.    We need a fairy with about $9million

18.    Do we have a bag full of the 2nd mineral,

19.    We can get Alan to take a sample to Genalysis

20.    The lambs should be mulesed.

21.    Sell the lambs and ewes, get rid of it all, pay it into K & SJ, before any order for BR is made, otherwise the trustee holds it for the creditors.

…

He and Haley have had a discussion, and they are prepared to go down the track

Exempt Pty Ltd, as trustee

2     sheep – they will go ahead with a share-outcome based arrangement.

He will speak to the receiver, and approach him in such a way.

He is the buyer of the stock, and that you want to approach him for a lease arrangements.

It would be inappropriate to buy lambs for $10 and sell for $80.

(Emphasis added.)

148    Mr McSharer denied that the matters set out in items numbered 3, 5, 6, 7, 8, 12 and 21 and the sentence beginning “It would be inappropriate…” were discussed. However, he was unable to answer counsel’s question as to whether or not the rest of the file note was accurate. He said that he did not recall a lot of these things that she had written in the note.

149    Nevertheless, he had picked out a number of matters which he insisted were not discussed. When counsel pointed this out, he replied that those were the matters of which he did have a firm recollection, but he could not “say for sure that [he] discussed these matters with Susan Henderson and this actual file note is a true and correct record of the discussion”. He denied counsel’s suggestion that he had selected those paragraphs because he believed them to be damaging to his case.

150    I find it implausible that Mr McSharer was able to recall with certainty that some matters were not discussed, and yet cannot speak to the accuracy of the rest of the file note.

151    As to final lines of the note, Mr McSharer said in cross-examination that this was the proposal that Mrs Henderson put to him. He also said that he had said to Mrs Henderson that the McSharers may be interested in going down this road but that there was no final decision and no commitment. He said this note reflected an assumption on her part. When pointed to the reference in the note to “Exempt pty ltd as trustee”, he denied that this was something he had suggested to Mrs Henderson on 25 July 2011.

152    However, his evidence was also that he and Mrs McSharer had agreed, albeit “in principle”, to “form a new company which would be the vehicle that would purchase the sheep from the Hendersons”.

153    The similarities between the 29 July Letter and the final lines of the 25 July Note are evident. They do not support Mr McSharer’s assertion that he and Mrs McSharer were still considering whether or not to enter into a joint venture. Rather, they indicate an affirmative decision to purchase the stock and to take steps to conduct negotiations as purchaser. I do not accept Mr McSharer’s evidence that the 29 July Letter to Mr Oehme of the Receivers was sent as part of an information-gathering process.

154    I also do not accept that Mrs Henderson proposed that any joint venture purchase the stock. Rather, I find that Mrs Henderson proposed to sell the lambs to Mr McSharer. I accept the evidence of the Hendersons as to events on or around 25 July 2011. They gave evidence carefully and their evidence was supported by detailed contemporaneous records. It was during this conversation that Mr McSharer said that he did not know anything about sheep, except that they were nice to eat.

155    Mr Henderson said that Mr McSharer was pushing the Hendersons to sell the sheep, telling them they were about to lose everything and that the bankruptcy trustee would get the livestock if they did not sell them. He “kept going on about the ages of the lambs”, but the Hendersons told him that they were not old enough to be transported for sale.

156    Mrs Henderson said the following in relation to 25 July 2011.

157    During the conversations she had with Mr McSharer on this day, Mr McSharer said, amongst other things, that it was too late to stop the receivership, that the Hendersons should not do anything and let the bankruptcy continue, that they were about to lose everything, and that they should sell the lambs and ewes before any order for bankruptcy was made, otherwise the trustee would hold the livestock for the creditors.

158    Mr McSharer clearly said that “they would go ahead with a share in an outcome based arrangement”. Mr McSharer said that he would probably come to Queensland to talk to the Hendersons, and that one of his companies could enter into negotiations. Mrs Henderson explained that this reference to “one of his companies” gave the Hendersons confidence that Mr McSharer was a substantial business person. I accept this evidence.

159    The Hendersons said that Mr McSharer told them that he would approach the Receivers as if he were the buyer of the stock. The Hendersons said Mrs Henderson asked Mr McSharer whether or not he could take his fees as a percentage of any outcome, and that this was suggested as a substitute for selling the lambs. They said that Mr McSharer said that he had thought of the same thing but did not know how to raise the subject.

160    The Stock Value Email sent on 25 July 2011 by Mrs Henderson containing details of sheep numbers and estimates of their value are set out in full.

Bill,

The stock details as follows:

    Shearing/Wool Income

Sheep sales income for the last financial year was $217,182.26.

Our usual practice is not to sell the lambs.

As the lambs are bred to continually improve the bloodline, only the old culled sheep and the culled ewe hoggets (12months old) should be sold.

The natural increase in lamb numbers should roughly equal the number of sheep sold in the same financial year, to keep the flock numbers stable.

This equates to around 5000 grown sheep in the summer.

Please note, that the values given to livestock at the top, are ‘off-shears’. That is, straight after shearing with ‘no wool’ in October.

The Eastern States buyers are entering back into the sheep market (together with the Live Sheep exporters) and this will keep the price steady or with an upward trend.

Consider (sic) may need to be given to grain supplies for sheep feed. We usually grow our own crop for sheep feed and sales, however with the current situation with the Receivers, we were unable (due to the late rain, and their attitude) to put a crop in. The grain is fed to the sheep over the summer and until the break of the season the following year, to keep the sheep (and the wool) in top condition. This would require about 70 – 80 tonne of grain at about $230/t which is about $16,000.

I trust that this is of help. I haven’t checked the sums above. I am too tired.

161    I will return to the contents of this email later in these reasons.

162    It follows that I accept that on 25 July 2011, Mr McSharer, in purported performance of giving advice to the Hendersons both as a supposed lawyer and experienced business consultant, told the Hendersons that:

(a)    the Hendersons were about to lose everything;

(b)    the Hendersons should let the bankruptcy continue;

(c)    the Hendersons should sell the stock before a bankruptcy order was made so that it would not fall into the hands of the trustee;

(d)    he would approach the Receivers as if he were the buyer of the stock;

(e)    that Mr McSharer was interested in taking his fees by way of a percentage in an outcome-based arrangement; and

(f)    that one of his companies could enter into negotiations.

August 2011

163    Mr McSharer’s evidence was that from 29 July 2011 to 2 September 2011, he negotiated with the Receivers for the grazing licence under which the new company, which would become Astraea, could agist the stock. There were numerous emails between Mr McSharer and the Receivers concerning a potential agreement. These disclose that the Receivers would not enter into a lease agreement, but were prepared to enter into an agistment agreement. Early in August, the Receivers proposed a draft grazing licence.

The McSharers’ evidence and analysis

164    Mr McSharer’s evidence as to events in August 2011 was as follows.

165    On about 2 August 2011, he contacted Mrs Henderson by telephone and said to her that the Receivers had indicated that they would enter into a grazing licence. Mrs Henderson then requested that Mr McSharer incorporate a new company to purchase the stock and enter into a grazing licence. Mrs Henderson also said that the new company should be owned jointly between McSharer and Henderson interests (at 50% each), and that if the matter went forward she would have the Hendersons’ shareholding held by a nominee who she could not nominate yet but would advise of later.

166    He did not give any advice to Mrs Henderson as to who should hold the shares in the new company. He told Mrs Henderson that he and Mrs McSharer would need to consider her proposal. He did not “advise or promote with [Mrs Henderson] if or how, or by what means the company be formed”. Mrs Henderson did not say from where she got the idea about incorporating the company. He told Mrs Henderson that if the new company was formed it would need to sign a letter of engagement with Fides Consulting. Mrs Henderson said that it would be necessary for Fides Consulting to “undertake all sorts of matters for the new company”.

167    During this conversation, Mrs Henderson said that the sale of stock could help to fund legal assistance for the Denmark litigation, and that the basis of dividends from the proposed company would be equal between the members but that the director of the company would have the power to decide when any distribution would take place.

168    Mrs Henderson questioned him in relation to the “Matters of Law” referred to in the “Fides Consulting Pty Ltd scope of services document”. I assume that this refers to the schedule of rates attached to the Letter of Engagement.

169    He told Mrs Henderson that he had passed a “Bachelor of Law” some years earlier, but was not a qualified lawyer, was not admitted to practice and had limited knowledge and that the “Matters of Law” referred to undertaking client due diligence when compiling a brief to lawyers. Mrs Henderson told him that she believed in clairvoyants, and that her clairvoyant had told her that, amongst other things, a party would come along and assist the Hendersons in resolving their problems and that there were diamonds in the gravel deposits.

170    Mr McSharer wanted to meet and understand the Hendersons first before committing to doing anything. During this conversation, which he says he assumes was on 2 August 2011, he did not say anything about:

(a)    using a company which the Hendersons had already incorporated;

(b)    the name of the new company; or

(c)    land being available for agistment if the farm was sold,

but he did say that he did not believe that the parties needed to own land to be in the business of primary production.

171    Mr McSharer had a discussion with Mrs McSharer “in relation to Hendersons’ proposal for the JV”, and he and Mrs McSharer wanted to wait until they had met the Hendersons in Queensland. During the 2 August 2011 telephone conversation, Mrs Henderson asked him if he had access to a pro forma contract for the sale of the stock that they could use if they proceeded with her suggestion, and that any contract for the sale of the stock would need to be in place from the date of the grazing licence.

172    On 4 August 2011, Mrs McSharer began collecting information such as details of directors, company secretary and a registered office for the incorporation of a company with Shelf Companies Australia.

173    Mrs McSharer’s evidence as to events in August 2011 was as follows.

174    Mr McSharer had asked her on 4 August 2011 to email Mrs Henderson and to enquire as to details for a nominated shareholder to begin collecting the preliminary information for incorporation of a company through Shelf Companies Australia.

175    Somewhere from 29 July to 1 August, while the McSharers were on holiday, Mr McSharer received a phone call and had told her that it was from Mrs Henderson. Mr McSharer had taken a few telephone calls from Mrs Henderson and although she did not know what was discussed in detail, Mr McSharer had told her that he was considering if they should “take a commercial association with the Hendersons”.

176    She told Mr McSharer she thought it would be beneficial that they meet with the Hendersons in person before proceeding further. Mr McSharer was the main contact with Mrs Henderson, and she thought it was important that she was able to get an impression of who the Hendersons were. Consistently with this evidence, Mr McSharer said that Mrs McSharer had suggested to him that she and Mr McSharer go to Queensland and “see if the commercial opportunity was real, to get to know the Hendersons personally and to understand the commercial issues and check if we liked the Hendersons”.

177    Mrs McSharer said that upon the McSharers’ return from their holiday, Mr McSharer requested that she undertake a search on ‘Biztree’, an online subscription-based database, to find a pro forma contract. She said that she did not know what it was for, except that it related to the Hendersons’ matter.

178    Consistently with the evidence of his wife, Mr McSharer also said that he requested Mrs McSharer to search Biztree for a suitable pro forma contract for the sale of stock. Mrs McSharer said that Mr McSharer asked her to compile a basic pro forma contract in draft form for the Hendersons to consider.

179    In an email sent on 4 August 2011, Mr McSharer wrote to Mr Ward the following:

It will be necessary to incorporate a separate P/L company for the farming operations. I will do this ASAP.

Once I am aware of the Company name and the certificate of registration number I will execute the agistment agreement with McGrath Nicol.

180    Also on 4 August 2011, Mrs McSharer sent an email addressed to Mrs Henderson, which relevantly stated:

Bill and I are in the process of incorporating the company and would ask you to please forward the following details regarding the nominated shareholder as per your discussions with Bill;

•    Name

•    Address

•    Date of Birth

•    Place of Birth

…

181    It does not appear to be in dispute that in early August 2011 the Hendersons nominated Ms Katie Payne, Mrs Henderson’s niece, to hold the shares in the proposed new company. The wording of these emails and the evidence of the McSharers as to steps taken to set up a company contradict the repeated assertions that the McSharers were still considering Mrs Henderson’s proposal at this stage, and were not yet prepared to commit to any arrangement with the Hendersons.

182    These documents contain unqualified, absolute statements that the McSharers were incorporating a company. I do not accept the McSharers’ evidence that they were still, at this stage, in the process of considering whether or not to enter into an arrangement with the Hendersons.

183    To the extent that it differs from the evidence of the McSharers, I accept the evidence of the Hendersons as to what occurred between the parties in late July and early August 2011.

The Hendersons’ evidence and analysis

184    Mrs Henderson’s evidence as to this period was as follows.

185    Sometime between 29 July and 3 August 2011, she spoke to Mr McSharer by telephone. Mr McSharer suggested that the McSharer interests would hold 50% of a new company and the Hendersons or their nominees would hold 50%. Mr McSharer did not say to her that any new company formed would need to sign a letter of engagement with Fides Consulting and said that it was not agreed and not discussed that Fides Consulting would carry out consulting work on behalf of the company.

186    The “origin of the whole Astraea concept was the advice that [Mr McSharer] gave [the Hendersons] by telephone on Monday 25 July 2011”. The only suggestion that she made was in asking Mr McSharer if he would consider taking payment through a percentage of the outcome from what the parties did. She suggested this because she realised the Hendersons would not be able to pay Mr McSharer’s fees as set out in the schedule of rates attached to the Letter of Engagement.

187    Mr McSharer repeated to her what he had earlier said, namely, that he was a qualified lawyer but he “didn’t want to get admitted to the bar because he hated lawyers”. Mr McSharer did not tell her that a reference to a “Matter of Law” in the consulting agreement referred to carrying out due diligence when compiling a brief to lawyers. She had not asked Mr McSharer to prepare a pro forma contract for the sale of stock. Indeed, she said that a contract in relation to the sale of stock “hadn’t occurred to [her]”.

188    Mrs Henderson said she took notes of this conversation. This document was in evidence. Although the document appears to be dated “19.08.11”, Mrs Henderson said that when she was collecting documents for an affidavit she thought these notes were from 19 August and wrote that date on the top, but she could now see that the notes were from a conversation “at the end of July or in early August”.

189    I accept this explanation and accept the document as a contemporaneous record of the conversation. I also infer that the notes relate to the conversation occurring around 2 August 2011, about which Mr McSharer gave evidence.

190    Relevantly, in the handwritten note the following appears:

Law – Would never practice.

Basic understanding.

(Emphasis in original).

191    This is consistent with Mr McSharer’s evidence that Mrs Henderson raised the issue of “Matters of Law”, and that he told Mrs Henderson that he was not admitted to practice and did not claim expertise in the law. However, it does suggest that Mr McSharer claimed some understanding of the law. The assertion that Mr McSharer would “never practise” is consistent with Mrs Henderson’s evidence that Mr McSharer had said that he hated lawyers. I accept her evidence. The name “Astraea” is noted at the bottom of the page. I do not accept Mr McSharer’s assertions that the name of the proposed new company was not discussed.

The qualifications, experience and role of Mr McSharer

The McSharers’ evidence and analysis

192    Mr McSharer’s evidence in relation to his qualifications was as follows. He:

(a)    holds a “Bachelor of Law” issued by the Australian Institute of University Studies based on an external course offered by the University of London, which was obtained in approximately 1998;

(b)    holds a Diploma of Company Directorship issued by the Australian Institute of Company Directors (obtained in approximately 1993); and

(c)    does not have any tertiary education in commerce or business.

193    He was a commercial rock lobster fisherman for 20 years, and then went into the security business for about 10 years. However, this security business failed in 2008.

194    Fides Consulting Pty Ltd was registered with the Australian Securities and Investments Commission (ASIC) on 16 May 2007.

195    He suffered a cerebral haemorrhage in March 2009, and was thereby incapacitated for 18 months.

196    He was declared bankrupt on 11 August 2009, on the petition of the Australian Taxation Office (ATO), as a result of an imputed director liability for a debt owed by an unlisted public company to the ATO.

197    He commenced providing business consultancy services in August 2010, which include:

(a)    project management;

(b)    business and corporate statutory requirements;

(c)    due diligence;

(d)    rezoning and development;

(e)    applications for local governments;

(f)    environmental consulting (issues relating to catchment management plans or offset management plans); and

(g)    contaminated sites issues (including negotiations with the Department of Environmental Regulation, reclassification of sites and submissions to the contaminated sites committee).

198    In relation to matters of law, he only prepares briefs to lawyers if a client is prepared to seek advice from lawyers. The briefs he prepares to lawyers include “contemporaneous statements, preservation of evidence and gathering evidence (including photo and video evidence), information on clients and what the client is seeking advice on”.

199    He prepares briefs to lawyers in relation to all of the business consultancy services he provides. He described his preparation of briefs as a “fact finding mission”. He was released from bankruptcy on 10 August 2012.

200    The business name “Fides Consulting Pty Ltd t/a W.B McSharer Strategic Business Consultancy” was registered on 20 July 2011 and he had been employed by Fides Consulting Pty Ltd t/a W.B McSharer Strategic Business Consultancy since 1 July 2011. His name was included in the business name on the advice of his trustee in bankruptcy to ensure compliance with the relevant law.

201    Any and all services he provided to clients was in his capacity as an employee of Fides Consulting. Fides Consulting “has never provided any services to K & S Henderson”, and that “[he has] never provided any professional services to K & S Henderson”. Fides Consulting had previously worked with Land Insights and Mr Taylforth to provide advice on town planning matters to clients of Fides Consulting.

202    Consistently with this, Mrs McSharer said that in the course of its service since 2011 Fides Consulting had previously engaged the services of Mr Taylforth, who she said provides advice on town planning issues for the clients of Fides Consulting. She referred on numerous occasions to past clients of Fides Consulting. In relation to conditions for the EIL, she stated that she had some knowledge of this “from other work done for Fides Consulting clients”.

203    She also said that on 22 July 2011, Mr McSharer asked her to “compile” a Fides Consulting Letter of Engagement, Schedule of Rates and Non-Disclosure Agreement. She said, in this regard, that this is a standard process of Fides Consulting when entering into new work with clients, and that she would compile the documents and open a new lever arch file for each new client.

204    Mr McSharer said that in July 2011, Mr Taylforth told Mr McSharer that he had a client who had financial trouble, although he did not explain the extent of such trouble, and that the client was having “issues with obtaining an Extractive Industry Licence”. He said that Mr Taylforth said to him that he felt this client “may need the services of someone like you”.

205    As I have mentioned, Mr McSharer’s evidence was that he began providing consultancy services in August 2010. This date was confirmed by him in cross-examination.

206    However, Mr McSharer prepared a “Chronological Statement of Events”. He confirmed during the course of cross-examination that this document was accurate. This document says, quite specifically, that Mr McSharer undertook (unspecified) casual work from April 2010 and began providing business consultancy services on 25 January 2011.

207    When this inconsistency was pointed out, Mr McSharer confirmed again that the August 2010 date was correct.

208    Mr McSharer was then taken to the defence filed on behalf of the respondents. Paragraph [10] pleads:

Fides Consulting Pty Ltd is a company through which the first respondent from January 2011 carried on business consulting under the name W B McSharer Strategic Business Consultancy.

(Emphasis added.)

209    Mr McSharer again confirmed that August 2010 was the correct date and that the other date was an error and an “honest mistake”. Nonetheless he confirmed in cross-examination that the defence was accurate.

210    However, as is evident from the ASIC Business Name Historical Extract the business name “W.B McSharer Business Consultancy” was not registered until 20 July 2011. Mr McSharer also gave evidence of this fact.

211    As to his assertion that he was employed by Fides Consulting Pty Ltd t/a W.B McSharer Strategic Business Consultancy on 1 July 2011, it was pointed out to Mr McSharer during cross-examination that the Chronological Statement of Events prepared by Mr McSharer states that he was employed by Fides Consulting t/a W.B McSharer Strategic Business Consultancy on 6 July 2011.

212    The Chronological Statement of Events asserted that the company began trading as Fides Consulting Pty Ltd t/a W.B McSharer Strategic Business Consultancy in August 2011. To this, Mr McSharer responded that it was a “typo” and should be 2010.

213    When asked what the company was doing trading under the business name many months before the business name was registered, Mr McSharer explained that there was a period of time “when I just traded personally by myself”.

214    However, during the course of cross-examination, Mr McSharer appeared to resile from his assertion that the relevant date was August 2010 and confirmed that Fides Consulting began trading under the business name W.B McSharer Strategic Consultancy on 20 July 2011.

215    When again presented with the date of January 2011 that appears in the defence filed on behalf of the respondents and asked which was correct, Mr McSharer responded that he did not know.

216    These are examples of Mr McSharer’s confused, confusing and unreliable evidence.

217    I find that the business “Fides Consulting Pty Ltd t/a W.B McSharer Strategic Business Consultancy” was brought into existence on 20 July 2011 – the very same day Mr McSharer first spoke to Mr Henderson.

218    Mr McSharer’s assertion that neither he nor Fides Consulting has ever provided services to the Hendersons was confirmed by him during cross-examination. However, this assertion is to be compared with [47] of the affidavit of Mr McSharer sworn on 6 March 2013, where he deposed:

As a business consultant I did provide advice to the Applicants on the approval process for Extractive Industries Licence authorizing an Extractive Industry on an area of the farm.

219    Confronted with this paragraph in his earlier sworn evidence, Mr McSharer said it was a mistake.

220    Mr McSharer (through Fides Consulting) entered into a written agreement with the Hendersons on 23 July 2011.

221    This agreement specifically provided for the provision of services. Indeed, the Letter of Engagement dated 22 July 2011 states specifically that “services are provided on an ad hoc and task specific basis”.

222    Mr McSharer’s assertion that no services were provided is also inconsistent with advice given by him and recorded in reasonable detail in the 25 July Note.

223    Further, the actions of Mr McSharer on 25 July 2011, proposing to contact and contacting various people, then calling Mrs Henderson to report to her on his activities, are consistent with the commencement of work on the consulting assignment.

224    As I have found, Mr McSharer’s claim that the consultancy agreement between the Hendersons and Fides Consulting was “torn up” and converted into a joint venture is implausible.

225    The bankruptcy issue had nothing to do with any proposed joint venture. However, the reference to bankruptcy follows directly from the reference in Mr McSharer’s email accompanying the Letter of Engagement to bankruptcy being the “first piece of the cake that we need to address”. The Hendersons submit that this reference reveals the true nature of what Mr McSharer was doing for the Hendersons in this period: he was advising them, and the first thing he was advising them on was bankruptcy. I accept this submission.

226    In cross-examination, Mr McSharer said, in relation to the “first piece of the cake” statement, that in his personal experience, he knew that the bankruptcy issue was pressing and important, but that he was not giving the Hendersons advice, as this was Mr Brickhill’s job.

227    He disagreed with counsel’s suggestion to him that telling the Hendersons that the first piece of the cake is bankruptcy constituted advice. Mr McSharer asserted that the statement was merely his opinion, “as a business consultant and as an individual and personally”.

228    I do not accept Mr McSharer’s assertions that he had not provided services to the Hendersons. He began to provide advice and purported to conduct investigations on their behalf from 25 July 2011.

229    Mr McSharer claimed to hold a Bachelor of Laws issued by the Australian Institute of University Studies based on an external course offered by the University of London, obtained in “approximately 1998”.

230    In cross-examination, Mr McSharer was taken to a statutory declaration made by him, which includes the statement that Mr McSharer was awarded “a LLB in 1996”. When asked by counsel which of these dates was correct, Mr McSharer responded that he didn’t know. He said: “It’s one of those dates, or somewhere in between, because it’s well and truly – what is it – well in excess of 20 years ago, and to be honest with you, I don’t remember the exact date, because as a result of the stroke, a lot of my memory from behind me has gone”. Mr McSharer said that he was unable to obtain any records confirming his degree in law.

231    His statutory declaration, to which I have referred, states that the relevant certificate and all other certificates “were lost or destroyed in or around 2006”. Mr McSharer was asked about his attempts to obtain information from the University of London. Counsel referred Mr McSharer to a document headed “University of London International Programmes”, which stated, amongst other things, the following:

If you require a replacement certificate of your University of London degree, please send an email to…. and state your name, qualification and year of graduation.

We will post a Statutory Declaration form to you. You must get this form authorised by a Commissioner for Oaths…

When we have received the form and payment, we will issue a Replacement Certificate to your address.

232    Mr McSharer confirmed that Mrs Henderson had sent this document to him. Mr McSharer then explained that despite what the document said, to obtain a replacement certificate “you need both the Cricross number or the ID number for the Australian Institute of University Studies, and the personal ID number that you had yourself, and I’ve got no idea about either”.

233    I do not accept that Mr McSharer holds a degree in law. I do not accept that it would not be possible, by contacting the university and providing basic information such as a full name and approximate dates, to obtain some record of this achievement.

234    Mr McSharer’s own evidence was that he told Mr Henderson in the initial telephone conversation that he would send his “usual” letter. It was put to Mr McSharer that it was a “bit of an exaggeration” to say that it was the “usual letter”, because he had just started doing business. To this Mr McSharer responded that it was his “usual one”. When it was put to him that such a phrase would give someone the impression that the letter had been used on a number of occasions, Mr McSharer replied that that was “for their interpretation, not myself. I’ve just said to you what I did”.

235    There were many typographical and spelling errors on the Letter of Engagement sent to the Hendersons and on this basis it was put to Mr McSharer that this was the first time he had used the letter. He denied this and asserted that he had used it with a previous client “[a]round about the second half of [2010]”.

236    He was asked whether or not the same letterhead was used with the previous client. He replied:

Because of the confusion, I don’t know that either now or whether it was just initially, firstly, W.B. McSharer and then it changed to Fides. I don’t know when it was but what happened was that I started providing business consultancy services under my own name and then after speaking to Mr Holbrook and talking about putting it in to the company and drawing a wage then it changed.

237    He confirmed that the schedule of rates attached to the Letter of Engagement was a document he had used previously, albeit with different numbers.

238    I find that Mr McSharer’s reference to the “usual” letter was an attempt to portray his business consultancy as the type of business in which he was generally and often engaged, when in actual fact he had given advice previously to one entity only.

239    I find that in this first phase of the relationship, Mr McSharer’s conduct amounted to a representation to the Hendersons that he was an experienced business consultant as well as being a qualified lawyer and had the requisite skill and experience to ameliorate their financial situation (Qualifications and Experience Representation). As outlined later in these reasons, I find that his conduct towards the Hendersons in Phase 2 of the relationship further perpetuated this Representation. His conduct gave the Hendersons hope that they could indeed “fight back” and indeed induced them to engage his personal services as a business consultant.

240    However, in fact, he had no such qualifications or experience in the field of strategic business advice, and particularly in the area of personal bankruptcy and corporate insolvency. His career background consisted of 20 years as a commercial rock lobster fisherman, 10 years in the security industry building a business which failed, and various casual jobs.

241    I find that he was neither an experienced business consultant nor did he hold a degree in law.

242    Mrs Henderson acknowledged that she had read the Letter of Engagement which stated that Mr McSharer was a consultant. Nevertheless, as I mentioned at [80], she said that she was “in awe” of Mr McSharer. She said that what they were seeking was someone to help them to “fight back against losing everything”, and that Mr McSharer seemed to “tick all the boxes”, as he had the legal skills, the practical skills and business experience, as well as personal experience of “how it felt to lose everything, and to fight his way back”. I accept this evidence.

The Hendersons’ experience

McSharers’ evidence

243    Mr McSharer said that during discussions between himself and Mrs Henderson, she had said that the Hendersons were requested by Mr Brickhill to go to Queensland to assist in the development and marketing of Tom McArthur Pty Ltd (McArthur Natural Products). He said that Mrs Henderson had said that she was engaged as the Chief Executive Officer (CEO) for that company. He also said that Mrs Henderson told him that Mr Henderson was on the Wool Council of Western Australia and had in excess of 20 years breeding and sheep farming experience.

244    In cross-examination, Mr McSharer said that Mrs Henderson would sometimes call him “four, five, six, seven” times a day. However, he disagreed with counsel’s suggestion that such conduct “sounds like the action of a needy and dependent person”. Mr McSharer said that he saw Mrs Henderson “as somebody that, in reality, is what I call well and truly versed in commercial matters”.

Mrs Henderson’s evidence

245    Mrs Henderson said during cross-examination that the Hendersons have been involved in 57 individual property settlements from the early 1990s through to 2011, which included farm, residential and commercial properties. She said that included in this figure was a house in Denmark which was subdivided into three lots, a commercial subdivision development which ultimately resulted in a loss of between $50,000 and $100,000. The Denmark Subdivision was also included.

246    Mrs Henderson’s evidence in cross-examination as to the first subdivision project in Denmark and the Denmark Subdivision was as follows. While she had some knowledge of the processes undertaken and some contact with the relevant parties, her daughter and her daughter’s partner engaged consultants and estate agents and generally arranged the subdivision and sale.

247    Mrs Henderson was “somewhat hands off” in relation to these dealings. Neither her daughter nor her daughter’s partner had any experience in relation to land development. No formal agreement was drawn up in relation to the development with her daughter and her daughter’s partner, but said that there was an agreement that her daughter and her daughter’s partner would receive 30 per cent of any profits. There was no formal written contract entered into with Pingelly Contracting, a contractor engaged to carry out civil engineering works in the Denmark Subdivision. One of the lessons learned in dealing with Pingelly Contracting was to have commercial arrangements reduced to writing.

248    The purchaser of the land for the Denmark Subdivision was Swamp Haven Grazing Pty Ltd (Swamp Haven), of which Mrs Henderson is a director and a shareholder. The entire amount required to purchase the property for the Denmark Subdivision, $725,000, was borrowed from NAB. More funds were borrowed from NAB to carry out the development.

249    In a document typed by Mrs Henderson and given to Mr McSharer at the meetings at Childers, Queensland in August 2011 (Childers meetings), to which I will shortly turn, she noted that when the NAB arranged for cross-collateralisation to strengthen their position in relation to the peak debt of around $16 million, the NAB did not require that Bonthorpe seek legal advice before signing the relevant documents. She was previously a Shire Councillor on the Shire of Pingelly.

250    The Hendersons had entered into an agistment agreement with the Receivers to enable the sheep to remain on the York farm.

251    Despite Mr McSharer’s attempt to portray Mrs Henderson as being fully versed in commercial matters, I do not accept this to be the position. The evidence to which I have referred does not establish this. As I mentioned, Mr McSharer said that Mrs Henderson said she was engaged as CEO for McArthur Natural Products. However, at [26] of his affidavit sworn 5 October 2012, more than 18 months prior to trial, Mr McSharer deposed to the fact that Mrs Henderson told him that she was working “as an administrator for McArthur Natural Products”. This was an attempt by him to exaggerate her business experience. She was not CEO, and I accept her evidence that she never claimed to hold this position.

252    I will turn now to Phase 2 of the relationship.

Phase 2: The Childers meetings

253    On 12 August 2011, Mr and Mrs McSharer flew to Queensland and stayed with the Hendersons in their home in Childers, Queensland.

254    It is evident that during this weekend the parties agreed upon an arrangement which included the transfer of the sheep to a new company, Astraea. However, there is otherwise significant disagreement as to what occurred during this time.

255    The Hendersons submit that as a result of negotiations and discussions extending over the period between 20 July 2011 and 14 August 2011, they entered into an agreement with Mr McSharer, referred to as the “Retainer Agreement”, whereby Mr McSharer agreed to provide services to the Hendersons to enable them to regain an interest in and realise value from the Denmark Litigation Rights and the Gravel Project.

256    Nonetheless, for reasons that follow, I find that the negotiations during the period between 20 July 2011 and 14 August 2011 related in the first instance to the Letter of Engagement, rather than by reference to the submitted “Retainer Agreement”. As I have outlined at [107], I find that the Letter of Engagement was, for all purposes, the provision of services by Mr McSharer and that Fides Consulting was introduced as a convenient vehicle, because unknown to the Hendersons, Mr McSharer was still an undischarged bankrupt.

257    They say that the sheep were to be sold to Astraea to protect the flock from the effects of bankruptcy and to enable the sheep to be used to generate income necessary to pursue the Denmark Litigation Rights and the Gravel Project. Conversely, the respondents say that it was the Hendersons’ suggestion to transfer the sheep to Astraea to pursue the joint venture.

Discussions as to Mr McSharer’s skills and experience

Mr McSharer’s evidence and analysis

258    Mr McSharer’s evidence as to what was said over the course of the weekend concerning his background and experience was as follows.

259    During the evening of 12 August 2011, Mr McSharer spoke of his stroke and how this had affected him; that the stroke had caused him to be unable to work and that the bank had foreclosed on his family company and he had lost everything. He said he had an executive chairman of an unlisted public company that he “placed into the hands of receiver managers”. He did not want to say anything about his bankruptcy as he was embarrassed, and there was no need to say anything until such time as the parties undertook business together.

260    He said he had “an LLB, never had been and was not admitted to practise law, only had a basic understanding but had access to a good qualified legal practitioner”. He said that lawyers were best avoided if possible as they are expensive and some are not that good.

261    On Saturday, 13 August 2011, the parties discussed “the EIL licence [Mr McSharer] was working on for the client in Carnamah”. Mrs Henderson asked if he had any experience with extractive industry licences, and he said he was currently undertaking a large project in relation to an EIL, the Shire of Carnamah and the Department of Environment and Conversation. He said the project also required some consideration of the Mining Act 1978 and the safety regulations. He also said to the Hendersons that he used the firm Chan Galic to prepare legal documents, and that he felt they were good lawyers who may be prepared to represent Astraea in any recovery proceedings against the parties involved in the Denmark Subdivision.

262    He talked about his experience in dealing with the Department of Mines, and also said that he was currently undertaking services for another client with Mr Taylforth in relation to “extractive industries licence and a DEC category 12 works approval” and that he was currently undertaking approvals “before the Local Government”. He did not say to Mrs Henderson that she could discuss with him matters concerning McArthur Natural Products with him because he was her lawyer.

263    On Sunday, 14 August 2011, the Hendersons and the McSharers went out to lunch and then later for drinks. In the afternoon, the parties purchased drinks and sat on the sundeck at the Woodgate Beach Hotel. Mrs Henderson then asked him about his commercial background.

264    He told the Hendersons, amongst other things, that:

(a)    he had been in business for 40 years, 20 of which was as a commercial rock lobster fisherman;

(b)    during his time as a fisherman he had represented the fishing and aquaculture industries on ministerial groups and policy working groups for the Department of Fisheries;

(c)    he had sat as an executive chairman of an unlisted public company;

(d)    the unlisted public company, which operated a security business, failed and he appointed Taylor Woodings as receiver and manager, and that the security business had become too much for him to control and it was on the brink of insolvency;

(e)    he suffered a cerebral haemorrhage, or stroke, in March 2009 and was incapacitated for 18 months;

(f)    he was declared bankrupt in August 2009 and that he was an undischarged bankrupt;

(g)    he would be released from bankruptcy in August 2012;

(h)    Rabobank had appointed Ferrier Hodgson as receiver and manager to his family company;

(i)    Rabobank received 100 cents in the dollar from the receivership and returned the family company to the director (Mrs McSharer);

(j)    from March 2009 to April 2010, he and Mrs McSharer had suffered severe personal and financial hardship;

(k)    in August 2010 he began providing business consultancy services;

(l)    Mr Taylforth had advised him that the “issues with the EIL had achieved planning consent, that the planning consent delegated authority to the CEO for the Shire of York to issue an EIL to Bonthorpe Pty Ltd subject to Bonthorpe Pty Ltd meeting all of the conditions of planning approval at the sole discretion of the CEO of the Shire of York”.

265    Mr Henderson said to him, “well at least you know and understand what we are going through”. Mr McSharer did not say anything similar in response. Mrs McSharer’s evidence as to these conversations was broadly consistent with that of her husband, although less detailed.

266    Her evidence was as follows.

267    On 13 August 2011, there were a lot of discussions on many topics and it was difficult to remember the specifics. She recalled that Mrs Henderson was “doing most of the talking” and that she was taking notes. Mrs McSharer was not taking any notes and did not really have much to say. Mr McSharer told the Hendersons that he had a Bachelor of Laws but that he does not practice as a lawyer.

268    At the Woodgate Beach Hotel, Mr McSharer told the Hendersons “more about being bankrupt”, about “how he was put into liquidation by the ATO coming after him” and that the ATO had proceeded to bankrupt him. Mrs McSharer agreed that the matter of her husband’s bankruptcy was discussed.

269    On the way back to the Hendersons’ home, the Hendersons “cajoled” the McSharers about the “endless possibilities and opportunities if the rocks were in fact diamonds”. Mr and Mrs McSharer “laughed… off” the suggestions in a dismissive way.

270    I find implausible Mr McSharer’s claim to have disclosed that he was an undischarged bankrupt. I do not believe that the Hendersons would have considered entering into an arrangement with an undischarged bankrupt. It is not even corroborated by Mrs McSharer, who said nothing to the effect that Mr McSharer told the Hendersons that he remained an undischarged bankrupt. A more plausible picture of Mr McSharer’s conduct with respect to this issue is presented by Mr McSharer’s assertion that he did not disclose his bankruptcy status because he was embarrassed. As I have already mentioned, I found Mr McSharer to be a thoroughly unreliable as a witness and he was contradicted on numerous occasions.

271    For these reasons I do not accept Mr McSharer’s evidence that he disclosed to the Hendersons during the weekend at Childers that he remained an undischarged bankrupt. In fact, for reasons outlined below, I find that Mr McSharer said to the Hendersons either during this weekend or before that he “had been” bankrupt meaning that he no longer was bankrupt.

272    I infer that in the discussion at the Woodgate Beach Hotel on the Sunday afternoon of the weekend at Childers, Mr McSharer continued to be embarrassed about his status as an undischarged bankrupt.

273    I accept the evidence of the Hendersons and, to the extent it contradicts the Hendersons’ evidence, do not accept the evidence of the McSharers.

The Hendersons’ evidence

274    Mrs Henderson said the following in the relation to the Childers meetings.

275    During the first evening, and over the entire weekend, Mrs McSharer did not speak much at all and allowed Mr McSharer to do most of the talking. They discussed Mrs Henderson’s employment with McArthur Natural Products as she was concerned that she was about to lose her job. Mr McSharer told of his stroke and paid tribute to Mrs McSharer and her mother, Ms Elaine Manners, for the way they cared for him. Mr McSharer told of his association with the martial arts, and, in particular, Bushido, “which meant courage, honour, respect and honesty”. She and Mr Henderson were “presented with a confident and experienced 58 year old businessman, skilled in martial arts with a law degree and his 26 year old wife”.

276    On 13 August 2011, Mr McSharer said he had a tame lawyer who would sign off legal work prepared by Mr McSharer, and that this lawyer had told Mr McSharer that he “was as good as any lawyer he knows”.

277    During the cross-examination of Mrs Henderson, she confirmed that before the McSharers arrived at Childers on 12 August 2011, Mr McSharer told her that he had been bankrupt. He never said that he was at that time still a bankrupt.

278    On Sunday, 14 August 2011, the Hendersons and McSharers discussed the “Trevor Brickhill and the McArthur situation”. Mr McSharer asked about the shareholding and other matters concerning McArthur Natural Products. Mrs Henderson said she should not talk about matters that she thought were confidential. Mr McSharer then said that as he was her lawyer, she was allowed to disclose matters confidentially to him. Mrs Henderson then said, “What about Hailey?”, to which Mr McSharer replied that it was okay because Mrs McSharer was his secretary.

279    At the Woodgate Beach Hotel, the Hendersons took the opportunity to ask Mr McSharer about his background in business. Mr McSharer told the Hendersons about his crayfishing business and said that he would get his boat back, and that the Hendersons would get their farm back. He also told them about a security business that he had, and that he had had the “Federal Minister” telephone him asking about security risks and the devices which Mr McSharer’s company used.

280    They asked how he had become bankrupt, and Mr McSharer told them he was a director of a company where the CEO had not paid tax, and as he was the director, he “had to wear the consequences”. I infer that Mrs McSharer was present at this conversation. He did not tell them that it was his company, and that he was the CEO, or that he was still undischarged as a bankrupt. Mr McSharer described his bankruptcy in the past tense, saying things such as “I have been where you are now”, and that he “had been” a bankrupt. This was consistent with what he had earlier told Mrs Henderson before the weekend at Childers.

281    Like Mrs Henderson, Mr Henderson said that on the evening of 12 August 2011, the Hendersons and McSharers discussed Mr Brickhill and McArthur Natural Products. He said Mrs Henderson was upset about the situation as they did not have a good relationship with Mr Brickhill and it looked as if they might lose their jobs.

282    His further evidence was as follows.

283    Mr McSharer had told them that he had been bankrupt, and had only just got back on his feet financially. This was confirmed in the cross-examination of Mr Henderson. This statement implied that he was no longer bankrupt and was in relatively good financial standing. Mr McSharer “never at any time” said that he was still an undischarged bankrupt. He told the Hendersons that the McSharers had never been as well off as they were at that time; that they were invoicing clients fortnightly and that “the money was rolling in”.

284    Mr McSharer told of his stroke and about his involvement with martial arts. Mr McSharer said that he had a law degree but hated lawyers. He said that he used to work for Mr Ron Davies QC when Mr Davies QC wanted a “mongrel” to help on the Royal Commission he would work for him but that now he wanted to help people and “wasn’t in it for the money”.

285    I do not believe this evidence as I do not accept Mr McSharer’s evidence that he had a law degree. These statements were further statements going to Mr McSharer’s representations as to his false qualifications and exaggerated experience as well as his financial well-being. They were false. Nonetheless, they operated to reinforce the misrepresentation made by him from the outset to the Hendersons as to his qualifications and experience.

286    On 13 August 2011, the parties to the meeting discussed in detail the assets of Bonthorpe. Mr McSharer said that he knew all about dealing with gravel and extractive industries as well as the Department of Mines, and that he was doing a lot of consulting in the Carnamah area concerning extractive industries. Mr McSharer had told them that he had a tame lawyer called Mr Chan, who had told him that he was “as good as any lawyer” and that Mr Chan would sign off on any paperwork that Mr McSharer had done.

287    He told the meeting of his security company, including that the Federal Minister of Police telephoned him about ankle bands which were put onto prisoners to track them when out of jail. Mr Henderson explained that these discussions impressed the Hendersons as it indicated that Mr McSharer was a successful and well-connected businessman. Mr McSharer told them that when he had a security company, because the CEO did not pay certain tax, and he was the chairman of the board, the ATO came after him and bankrupted him.

288    On 14 August 2011, when Mrs Henderson expressed reluctance to discuss confidential information regarding her employment, Mr McSharer replied that it was acceptable for her to do so because he was her lawyer and Mrs McSharer was his secretary.

289    I accept the Hendersons’ evidence as to what was said during discussions at Childers about the experience and qualifications of Mr McSharer. Although there is some inconsistency between the Hendersons as to the day on which certain matters were discussed, I do not consider this to be significant. Their evidence was largely consistent, and it is understandable that after several years it may be difficult to recall with accuracy if something was said on a Saturday or a Sunday. It is also possible that the matters were discussed on more than one occasion.

290    I find that over the course of the weekend, Mr McSharer exaggerated his qualifications, success and capacity to assist the Hendersons. He once again improperly held himself out as having legal qualifications and the ability to provide legal advice, even if this from time to time required to be “signed off” by another, and indeed said words to the effect that he was the Hendersons’ lawyer. This conduct further added to the Qualifications and Experience Representation: that he had a law degree, had legal qualifications although he was not admitted to practice, and that he was an experienced business consultant.

291    Further, I find that he told the Hendersons that he had been bankrupt and was in relatively good financial standing. This conduct, combined with his failure to disclose the fact that he was an undischarged bankrupt, amounted to a representation that he was no longer a bankrupt and was in relatively good financial standing (Bankruptcy Representation).

Agreement for the provision of services or joint venture agreement?

The McSharers’ evidence and analysis

292    Mr McSharer said the following in relation to the nature of the agreement reached at Childers.

293    On Saturday, 13 August 2011, the Hendersons again raised the issue of their financial situation and that they had no money to pay for the consultancy services “as per the original agreement”. Mrs Henderson said that they were unable to engage Fides Consulting and that that matter was at an end. She said the Hendersons were indebted to NAB, that NAB had appointed the Receivers as receivers and managers to Bonthorpe and that NAB was seeking to put them into bankruptcy. She raised the issue of a commercial association and dealings between the McSharers and Hendersons in relation to their remaining assets.

294    The Hendersons said they owed the NAB a substantial amount of money and disclosed that the upper limit of their facility with the NAB had risen to $19.5 million, and that the facility was needed to complete the Denmark Subdivision. Mrs Henderson said that NAB had cross-collateralised all of their assets and that they had provided their disabled son’s house as collateral.

295    They asked Mr McSharer what it meant to be declared bankrupt, and he replied that the Court may declare them bankrupt and would appoint a trustee to take control of their personal assets and affairs. He told the Hendersons that they would need to speak to Mr Brickhill to give them professional legal advice as bankruptcy was a serious issue. He also told the Hendersons they needed to enter into “some sort of a scheme of arrangement with NAB before the matter got out of hand”, and that his experience told him that they should attempt some sort of resolution with NAB before it started selling Bonthorpe assets and pursued bankruptcy.

296    A general discussion ensued in relation to the business of Fides Consulting, and the Hendersons said they would like to enter into a commercial association with the McSharers. Mrs Henderson confirmed again that they wanted to enter into a joint venture agreement with the McSharers. Mrs Henderson said that the joint venture represented a good commercial opportunity for both parties, and that it should consist of:

(a)    selling the sheep to a joint venture company;

(b)    extracting gravel from the York farm; and

(c)    pursuing legal action against all parties involved in the Denmark Subdivision.

297    Mrs Henderson said that all parties stood to make a substantial profit if they sold the sheep to a joint venture company to engage in the business of primary production in order to fund the secondary purposes, being the Gravel Project and the Denmark Litigation Rights.

298    The Hendersons said that the old sheep and wool would be sold each year and the proceeds would be used to fund the secondary purposes of the joint venture. Mrs Henderson said that Mr Henderson would be an ideal advisor to the company having regard to his unique experience of breeding fine wool sheep. They also said that the company would need ongoing assistance from Fides Consulting to provide general secretarial and administration, bookkeeping and financial management together with day-to-day management, and requested that Fides Consulting enter into an agreement for services with the joint venture company in the same manner and terms as the original Letter of Engagement.

299    He told the Hendersons that once the company was incorporated, Fides Consulting would complete a Letter of Engagement with the company and undertake the tasks discussed. The Hendersons agreed. The Hendersons also said they hoped the new company would obtain the Denmark Litigation Rights for the Denmark Subdivision from the Receivers and proposed that Mr McSharer should proceed with this matter straight away. Mr McSharer took the Hendersons’ advice and “as soon as the new company was incorporated [he] proceeded to commence negotiations with [the Receivers] to acquire the chose in action”.

300    In the discussions that took place on 13 August 2011, Mr McSharer said that he would “have to firstly undertake a due diligence and secondly dependent on the due diligence outcome determine what if anything may be done about the chose in action, the NAB and the gravel and bauxite deposits”. He said that to the best of his knowledge it would be very difficult for the sheep and farm to be returned to the Hendersons, and that from his own personal experience and what they had told him it would seem the receivership of Bonthorpe would proceed.

301    Mrs Henderson prepared a document showing the cashflow projection for the new company carrying out the primary purpose. I note that it shows the total “inflow” from wool and sheep sales from August 2011 to December 2011 as being $349,460, and total “outflow” being $109,408, leading to a surplus of $240,052. I will refer to this as the Cashflow Document.

302    On 13 August 2011, he “sought further confirmation” and asked if both Mr and Mrs Henderson would be prepared to sell the sheep to the company and for the company to own the sheep and carry on with sheep farming irrespective of the outcome of the “secondary issues”.

303    The Hendersons told him they were “more than happy” to allow the company to continue with sheep farming even if the secondary purpose was not achieved as they had moved to Queensland and were no longer interested in farming. However, he then went on to say that Mr Henderson had said that the flock was special as it had been closed for 20 years and although he would not like to sell the sheep he would support a sale of the sheep if the company was able to acquire the Denmark Litigation Rights. He said that the Hendersons said they had commenced a new life in Childers and would be happy to no longer be involved in the day-to-day farming operations and that they wanted to put the past behind them.

304    Mr McSharer said that on Sunday, 14 August 2011, the Hendersons said that the sheep would produce “surplus income” into the company to be used in the other proposed activities of the company and that if necessary the sheep could be sold to provide funding for the chose in action. Mr McSharer said that he did not, on that day, say anything to Mrs Henderson about the legality of transferring the sheep to the new company. He said he told the Hendersons that they needed to obtain independent legal advice in relation to the sale of the sheep and all other matters they had discussed, and that they were to “make sure of all issues” before entering into a purchase agreement with the new company.

305    He said that he indicated that the company should pursue the Denmark Litigation Rights and the Gravel Project, and that the parties discussed that the sources of income for the company would be from primary production through the sale of sheep and wool. He said that the Hendersons said that there needed to be a contract between the company and Fides Consulting on the same terms as between the Hendersons and Fides Consulting.

306    Mr McSharer said that at the discussion at the Woodgate Beach Hotel on 14 August 2011, the Hendersons indicated that they still wished to proceed with the new company and with the joint venture, and said that the joint venture participants should be:

(a)    Mrs McSharer as director of the new company;

(b)    Mr McSharer as consultant to the new company;

(c)    Mrs Henderson as consultant to the new company; and

(d)    Mr Henderson as consultant to the new company.

307    He said that he did not say anything about the Hendersons getting back their farm.

308    Under cross-examination, Mr McSharer said that the idea of forming a new company that would be the vehicle to purchase the sheep came from Mrs Henderson. He specifically denied that the idea came from him.

309    Like Mr McSharer, Mrs McSharer said that the Hendersons, on 13 August 2011, told the McSharers that due to their financial situation they would have no money to pay Fides Consulting “which was what they initially agreed to”.

310    Her evidence was as follows.

311    Mrs Henderson spoke about incorporating a company to undertaking farming activities. Mrs Henderson said that all parties would have equal shareholdings in the company and therefore equal profits from the farming activities.

312    Mrs Henderson suggested that this was a way that Fides Consulting could be paid for its services. She said that they wanted to pay Fides Consulting because they were in complex situations and needed its help for them to move forward.

313    The Hendersons “promoted” that the sheep and farming activities would be the primary purpose of the company and said that the sheep and farming would produce income to support the secondary purpose, pursuing the Denmark Litigation Rights. The Hendersons said that the company should seek the Denmark Litigation Rights from the Receivers.

314    Mr McSharer said that with the income generated from sheep and farming activities and the Denmark Litigation Rights, there was a way that Fides Consulting would be paid. He said that he could not guarantee success in achieving all results but that Fides Consulting was willing to assist the Hendersons to go through the necessary steps.

315    All parties agreed that as Fides Consulting was engaged by the Hendersons it was natural that Fides Consulting would also be engaged by the company.

316    Mrs McSharer was asked in cross-examination whether Mr McSharer’s contribution to the arrangement was to provide his consultancy services. She answered “Yes”.

317    I do not accept the McSharers’ assertions that it was Mrs Henderson who came up with the idea of forming a new company that would be the vehicle to purchase the sheep. This evidence is inconsistent with what Mr McSharer deposed in his affidavit of 5 October 2012:

35.     The Applicants told me that they wanted to prevent the National Australia Bank from seizing their sheep pursuant to a personal guarantee they had given to the bank and that they wanted the sheep to be transferred to another entity.

36.    I therefore suggested that the sheep be transferred to a company.

37.     The name “Astraea” was then suggested by the Applicants as the name for the company.

(Emphasis added.)

318    I also do not accept that the Hendersons said during this Childers weekend that there needed to be a contract between the new company and Fides Consulting on the same terms as the contract with Fides Consulting executed by the Hendersons on 23 July 2011.

319    It was put to Mr McSharer in cross-examination that it had been agreed at Childers that Fides Consulting would be granted a 50% equity in Astraea as payment for providing services to the Hendersons. This proposition was put twice and Mr McSharer denied it twice.

320    It was then pointed out to Mr McSharer that the proposition twice put to him, and twice denied by him, was taken directly from his own affidavit of 6 March 2013 at [92], of which [91] and [92] say as follows:

91.    The Applicants also engaged the services of Fides Consulting Pty Ltd pursuant to a Letter of Engagement, dated 22nd July 2011…

92.    Fides Consulting Pty Ltd however did not charge the Applicants under the letter of engagement as it was agreed in Queensland that Fides Consulting Pty Ltd would instead be granted a 50% equity in Astraea Group Pty Ltd as payment for providing services to the Applicants.

321    In answer to a later question Mr McSharer said that the second part of [92] of his affidavit, relating to 50% equity in payment for services to the Hendersons, was incorrect – he had “made a mistake in that paragraph”.

322    I do not accept this explanation. Mr McSharer had yet again given evidence which directly contradicted evidence given earlier under oath. I do not accept that these numerous contradictions on crucial matters were “mistakes”. I find that his evidence at trial as to those matters was deliberately and cynically untruthful.

323    That Mr McSharer was to receive a 50% equity in Astraea for the provision of his services to the Hendersons is consistent with the Hendersons’ evidence, to which I will shortly turn. It is also more plausible. As I have mentioned, I find it inherently implausible that the Hendersons, with substantial knowledge of sheep farming, would enter into a joint venture agreement with the McSharers, who possessed no knowledge whatsoever of such activities.

324    The McSharers had little money and no relevant expertise. I do not accept that the parties agreed to embark upon a joint venture agreement. The only plausible explanation for Mr McSharer’s involvement is that he was bringing consultancy services to the arrangement, in exchange for a 50% equity in Astraea.

325    Mrs Henderson said that she did not recall referring to Astraea as a joint venture, but may have. She said she did see what was being proposed as a joint activity between the Hendersons and the McSharers with each party doing specific tasks. She said Mr McSharer was going to negotiate with the Receivers and advise on the projects if they could get hold of them. However, she also said that she thought the work that the McSharers would be doing would be paid for through the percentage share of outcomes.

326    Mr McSharer’s evidence that the Hendersons said that they were “more than happy” to allow the company to continue with sheep farming even if the secondary purpose was not achieved is particularly improbable. It would make no commercial sense for the Hendersons to agree to such an arrangement involving the equal sharing of profits, when they had been successfully farming without the assistance of the McSharers for many years.

327    Furthermore, the McSharers’ evidence that it was agreed that the new company would enter into an agreement with Fides Consulting for the provision of services appears to be at odds with Mr McSharer’s assertions that the parties had agreed to enter into a joint venture in which Mr McSharer, Mrs Henderson and Mr Henderson would all be “consultants” to the new company. As I have mentioned, Mrs McSharer agreed that Mr McSharer’s contribution to the arrangement was the provision of services. It would therefore be wholly unnecessary to also sign a contract with Fides Consulting.

328    I find it curious that Mr McSharer said that he told the Hendersons that they would need to speak to Mr Brickhill to give them professional legal advice as to bankruptcy, yet also said, as I have noted above, that “lawyers are best avoided if possible as they are expensive and some are not that good”.

329    For these reasons and for reasons as to credibility to which I have earlier referred, I do not accept the evidence given by Mr or Mrs McSharer to the extent that it is inconsistent with the evidence given by the Hendersons.

The Hendersons’ evidence and analysis

330    Mrs Henderson’s evidence as to the agreement reached at Childers was as follows.

331    On the morning of 13 August 2011, the matters discussed by the Hendersons and the McSharers included:

(a)    the assets of the K & SJ Henderson partnership and Bonthorpe;

(b)    company structures controlled or owned by the Hendersons;

(c)    the outstanding amount owed to the Hendersons’ son Wesley Henderson, $188,000, which had been borrowed in an attempt to save the Denmark Subdivision;

(d)    the possibility of obtaining a mining licence or making a claim over the bauxite area independent of the Receivers; and

(e)    the fact that selling 1,500 sheep between August and December at $100 per head would gross $150,000.

332    That these matters were discussed is supported by handwritten notes said by Mrs Henderson to have been taken during the discussion. I accept these notes as a contemporaneous record of the discussions. Mr McSharer advised that the Hendersons would soon be declared bankrupt and that they should quit the sheep as soon as possible. The Hendersons and the McSharers agreed ‘in principle’ that the Hendersons would sell the sheep into a company where the Hendersons and the McSharers would have equal shareholding.

333    She and Mr Henderson had agreed that if Mr McSharer could do what he said and obtain the Denmark Litigation Rights and also “get the bank out of the equation” by somehow realising or exploiting the value of the gravel or bauxite, it would be a good deal for both parties. She asked Mr McSharer “several times” over the weekend if his proposals about the transfer of the sheep were legal, and that each time he assured her that they were. He told her that as long as any sale of the sheep was six weeks away from any bankruptcy declaration, then it was not illegal.

334    The Hendersons relied on Mr McSharer for this advice and that at no time did Mr McSharer say that the Hendersons should obtain independent legal advice. They did not consider seeking legal advice, as they had put their trust in Mr McSharer.

335    At the end of the Childers meetings, the Hendersons believed that Mr McSharer would be able to help them find a way to recover their financial position through the Gravel Project and Denmark Litigation Rights, and that Astraea was going to be a vehicle for whatever they could do with the gravel/bauxite deposit and the Denmark Litigation Rights.

336    Selling the sheep was merely the “first step in the plan”, as they envisaged that they would be able to pay for the pursuit of the Gravel Project and Denmark Litigation Rights using the income derived from the sheep, which would be safe from the bankruptcy because of the arrangement Mr McSharer had made to sell them to Astraea.

337    The Hendersons did not say, as Mr McSharer alleged, that they had started a new life in Childers and no longer wanted to be involved in day-to-day farming operations. At the time of the Childers meetings they still had control of the sheep and were still intending to be involved with the new company. They continued to pay the wages, to pay the husbandry, and to give Mrs McSharer advice. They had moved to Queensland for employment purposes.

338    Like Mrs Henderson, Mr Henderson said that during discussions on 13 August 2011 Mr McSharer said that it was important to get the sheep away from the bankruptcy. His evidence as to the agreement made at Childers was as follows.

339    It was agreed during the Childers meetings that in the future only the old sheep, plus the wool, would be sold for cash flow. Mr Henderson only ever said that the rest of the sheep would be sold if “we absolutely needed to, to fund the litigation”.

340    Mr McSharer told the Hendersons that they would have the sheep returned to them at a later stage.

341    Although they had not discussed in detail “how Astraea would work”, the Hendersons had a clear understanding of what it was supposed to do – namely, obtain the Denmark Litigation Rights and the rights concerning the Gravel Project from the Receivers and work on these projects to bring income into the company. Any profit in the company would be shared equally and Mr McSharer would take his reward through a 50% share of profit.

342    The Hendersons knew this percentage was high, but it meant “[they] didn’t have to worry about his fees”.

343    It was agreed at Childers that Mr McSharer would provide his consultancy services as part of the activities of Astraea and receive remuneration out of the proceeds from the Denmark litigation and the Gravel Project. Fides Consulting was not mentioned in the discussion at all.

344    I accept this evidence. As I have mentioned, Mr and Mrs Henderson gave evidence carefully and consistently.

345    I find that during the Childers meetings, it was agreed that the sheep would be transferred to Astraea and would be used to generate a profit to enable the pursuit of the Denmark Litigation Rights concerning the Denmark litigation and the Gravel Project. Accordingly this agreement was directly linked to the agreement by which, as I have found, the Hendersons engaged Mr McSharer as a consultant to extricate them from their financial predicament.

346    I find that the Hendersons were induced to enter into this agreement in reliance upon the several representations made to them by Mr McSharer. I will deal with the issue of reliance in more detail below.

347    I also find that it was agreed that Mr McSharer was to provide services to the Hendersons in the form of advising on these projects, in return for a 50% share in the new company and any profits generated from these projects.

348    I accept Mrs Henderson’s evidence that Mr McSharer did not suggest that the Hendersons obtain independent legal advice. I find that Mr McSharer during this period again held himself out as able to conduct legal work and provide advice on legal matters. As such, I accept that the Hendersons did not perceive it to be necessary to obtain independent advice. Advice as to “Matters of Law” was something Mr McSharer was to provide to the Hendersons, in return for a 50% share in Astraea. Indeed, it is my view that during this period, Mr McSharer did advise the Hendersons as to matters of law, in relation to their bankruptcy and as to the legality of transferring of the sheep.

The formation of a new company

The McSharers’ evidence

349    Mr McSharer said the following in relation to the formation of Astraea.

350    Mrs Henderson had said that the new company should be owned “50/50”, that is, equally, between the interests of the McSharers and the Hendersons.

351    The Hendersons said that they did not want to hold a directorship in the proposed company due to their financial problems. He told the Hendersons that if they were declared bankrupt, they would need to resign their directorship in the company. He also told the Hendersons he did not want to be a director. Mrs Henderson then said that this left Mrs McSharer to be the sole director and company secretary. Mrs McSharer indicated her preparedness to be sole director and company secretary. Mrs Henderson asked him again to be a director, but he said that he could not be a director but did not explain why not.

352    Mrs Henderson proposed that the new company be called Astraea Pty Ltd, but as this name was unavailable it was eventually agreed that the name be Astraea Group Pty Ltd. Mrs McSharer also gave evidence to this effect. The Hendersons had said that no party should take dividends out of the company until such time as the company had sufficient cash flow to pay dividends after the secondary purposes had been funded.

353    Mrs McSharer constructed a file note in relation to the corporate structure of the proposed company. I will refer to this file note as the 13 August File Note. The 13 August File Note contains, relevantly, the following:

Elements of the enterprise:

1.    Farming – Livestock

2.    Farm Land

3.    Mining

4.    Litigation

Corporate Structure:

Name:        Astraea Group Pty Ltd

Director:    Hailey McSharer (Sole Director Company)

Secretary:    Hailey McSharer

Members:    Hailey McSharer     10 Shares

        Katie Payne        10 Shares

Note – the 20 shares will be then allocated to various entities associated with either party member to the maximum number of 10 shares thereby retaining a 50% interest by each party through associated entities.

The constitution is to be amended to provide the capacity of the Director to allocate in whole or in part income to shares holders (sic) of any class and for any amount to time to time (sic).

354    Mr McSharer did not recall dictating anything to Mrs McSharer “specifically about any amendments to the constitution of the new company”. Mrs Henderson suggested amending the constitution to allow the director to declare dividends in whatever portion the director sees fit.

355    The Hendersons did not say anything to him about their son, Wesley Henderson, being involved with the company. The Hendersons only said that Wesley Henderson was their son and had assisted them at Denmark, and that they borrowed money from him.

356    Like her husband, Mrs McSharer said that Mr McSharer and the Hendersons said that they did not want to be directors. She said Mrs Henderson gave bankruptcy as the reason for the Hendersons’ not wishing to be directors. She recalled the events as follows.

357    Mr McSharer said it would not be wise for the Hendersons to be directors if they were to go bankrupt, as they would have to resign.

358    It was agreed by all that Mrs McSharer would be the sole director and company secretary. She kept notes in relation to the corporate structure of the company. She referred to the 13 August File Note. It was agreed that the members of the company were to be herself and Ms Katie Payne, holding ten ordinary fully paid shares classed “A” and “B”.

359    The evidence of the McSharers differs from that of the Hendersons in material respects. For reasons going to credibility and reliability which I have already addressed, I do not accept the evidence of the McSharers to the extent that it seeks to contradict the evidence of the Hendersons.

The Hendersons’ evidence and analysis

360    Mrs Henderson’s evidence as to the formation of Astraea was as follows. The parties at Childers discussed using one of the Hendersons’ companies, which Mr McSharer “absolutely refused to entertain”.

361    When the Hendersons proposed that Wesley Henderson be the director and a shareholder, Mr McSharer reiterated that he did not want any Henderson name associated with the new company, especially while he was dealing with the Receivers. The contemporaneous notes created by Mrs Henderson, to which I have referred, include a brief note that “[a] sole director of the trustee company cannot be a Henderson”. Mrs Henderson’s recollection as to Mr McSharer’s reluctance to have any Henderson name associated with the new company is therefore consistent with contemporaneous records. I accept this evidence.

362    It was agreed that:

(a)    a new company be formed;

(b)    Mrs McSharer would be the director;

(c)    the Hendersons (or their nominee) would hold 50% of the shares and the McSharers (or their nominee) would hold 50% of the shares;

(d)    20 shares would be issued in total; and

(e)    once things had settled down, Wesley Henderson would become a director, or if the Hendersons’ financial status was clear, then either Mr or Mrs Henderson would become a director.

363    There was no discussion about different classes of shares.

364    Mr McSharer asked her to prepare some six month budget figures, which she presented to the meeting. This is the Cashflow Document, to which I have referred.

365    When discussions had finished for the day and Mrs McSharer was packing up, Mr McSharer told Mrs McSharer to write down something for later, and began some dictation which Mrs McSharer then typed.

366    Mr Henderson had left the room at this time, but Mrs Henderson quickly wrote the following on the meeting notes as Mr McSharer dictated:

The constitution is to be amended to provide the capacity for the director to allocate in whole or in part income to Shareholders of any class and any amount from time to time.

367    This note is clearly visible in the handwritten contemporaneous notes.

368    When she asked Mr McSharer about the meaning of the dictated passage, he “shrugged it off” and said that they would talk about it “down the track”. It was not discussed at any other time, and she did not see anything else in relation to the matter until it appeared in draft minutes of a meeting of Astraea in October 2011. Even then she did not fully understand what it meant. This will be discussed further below.

369    The 13 August File Note contains the dictated passage.

370    Mrs Henderson said she had never seen the 13 August File Note until it was produced in the course of discovery in these proceedings. She reiterated that there was no agreement about different classes of shares and differential dividends.

371    As I have mentioned, Mr Henderson said that Mr McSharer advised that it was important to get the sheep away from their trustee in bankruptcy in the likely event that each was declared bankrupt and that therefore there should not be a Henderson shareholder or director because that would demonstrate a connection. He said that Mr McSharer would not agree to Wesley Henderson being the shareholder or director, and said they should put the shares in to the name of a family member whose name was not Henderson. He said they did not discuss any directors’ fees being paid and did not discuss “A” or “B” class shares being issued.

372    I infer that Mr McSharer knew that he was not able to be a director due to his status as an undischarged bankrupt. However, he did not inform the Hendersons that this was the reason for his unwillingness to be a director of the new company.

373    I accept the evidence of the Hendersons and relevantly find that:

(a)    the parties at the Childers meetings did not discuss different classes of shares and differential dividends.

(b)    the parties to the Childers meetings did not agree that the constitution was to be amended to provide the capacity for the director to allocate, in whole or in part, income to shareholders of any class or any amount from time to time, and Mrs Henderson did not suggest such amendment.

(c)    Mr McSharer did not disclose to the Hendersons the reason why he was unable to be a director of the new company, namely that he was an undischarged bankrupt.

(d)    the Hendersons proposed that Wesley Henderson be the director and a shareholder, but Mr McSharer reiterated that he did not want any Henderson name associated with the new company, especially while he was dealing with the Receivers.

Remuneration

Remuneration of Mr McSharer for services

374    The Hendersons say that it was agreed that Mr McSharer was to take his remuneration through dividends paid by Astraea if and when the projects, the Gravel Project or the pursuit of the Denmark Litigation Rights concerning the Denmark litigation, generated profit.

375    Conversely, the respondents say that it was agreed that Mr McSharer was to be paid for his services through a contract between Fides Consulting and Astraea Group.

376    As I have mentioned, Mrs McSharer’s evidence was that Mr McSharer had said at the Childers meetings that with the income generated from sheep and farming activities and the Denmark litigation, there was a way that Fides Consulting would be paid.

377    However, for reasons I have already outlined in relation to credibility and cogency, and for the reasons that follow, I do not accept that it was agreed that Fides Consulting was to be paid in this manner for services.

378    Mrs Henderson’s evidence as to what was agreed in respect of remuneration was as follows. The parties agreed that nobody would receive payment for what they contributed to the activities (except for the farm manager, Mr Alan Fleay), although it was said that if, at a later stage, Mrs Henderson and Mr McSharer were working full time on the Denmark litigation, they might take payments for this work. They expected funds would be available out of wool or sheep sales.

379    At the end of the Childers meetings, the Hendersons envisaged that Mr McSharer would get paid out of dividends from Astraea’s activities if they were successful. There was no discussion of any of the sheep “belonging” to Mr McSharer or being sold for Mr McSharer’s benefit or to pay fees to Mr McSharer. Similarly, Mr Henderson said that it was agreed that none of the parties would receive any wages for work, except for Mr Fleay.

380    Mrs Henderson’s 25 July Note, to which I have referred, records the genesis of this arrangement: Mr McSharer said that in relation to the sheep, he and Mrs McSharer would go ahead with a share-outcome based arrangement.

381    On the basis of this contemporaneous document and the evidence of the Hendersons, which I accept, I find that it was agreed at Childers that Mr McSharer would be remunerated by way of dividends, if and when the Gravel Project and the Denmark Litigation Rights generated profits for Astraea.

Directors’ fees

382    Mr McSharer said that some time during the day on 13 August 2011 the Hendersons proposed that Mrs McSharer should be paid directors’ fees. He said that Mrs Henderson undertook to think of the appropriate payment for the director.

383    Mrs McSharer said that it was agreed that the director should be remunerated, but could not recall the quantum of remuneration discussed.

384    Conversely, Mr and Mrs Henderson both said that the parties at Childers did not discuss directors’ fees being paid.

385    In cross-examination, when asked about the alleged agreement that Mrs McSharer should be paid, Mrs Henderson denied that this had taken place and asserted that the parties “agreed that no one would get paid except for Alan Fleay”.

386    I have already found that the agreement made between the parties was that there would be no remuneration of the parties to the agreement unless and until success was achieved in Astraea’s activities.

387    For this reason, I do not accept the McSharers’ assertions that it was agreed that Mrs McSharer would be paid for her role as director.

388    I accept the Hendersons’ evidence that this was not discussed at Childers.

Reimbursement for Childers visit

389    Mr McSharer said he also asked the Hendersons if he and Mrs McSharer could be reimbursed for their airfares and expenses for the trip to Childers. He said the Hendersons replied that they could. This was denied by Mrs Henderson.

390    For the reasons I have outlined above in relation to remuneration, I accept Mrs Henderson’s evidence that Mr McSharer did not ask for, and Mrs Henderson did not agree to, reimbursement of the McSharers’ airfares and expenses for the trip to Childers.

The transfer of the sheep to Astraea

391    It is mutually agreed that a price of $60,000 for the sheep was agreed upon for the transfer of the sheep to Astraea (Stock Purchase Agreement). The Stock Purchase Agreement was signed on 14 August 2011 at Childers.

392    The respondents say that the Hendersons suggested the final terms and conditions for the sale of the sheep to the company.

The McSharers’ evidence and analysis

393    Mr McSharer’s evidence as to the Stock Purchase Agreement was as follows.

394    In the course of discussions on 13 August 2011 he tabled a pro forma/draft contract for the sale of the stock. Mrs Henderson said the document would be suitable for the purpose, but amended the draft to reflect the Hendersons’ requirements and payment details. The Hendersons said they were happy with the draft contract and requested that the McSharers construct a final version to sign in Western Australia and forward to them for further review and, if acceptable, signing. The Hendersons and the McSharers agreed that the Stock Purchase Agreement would include the following:

(a)    Consideration on the agreement: $60,000;

(b)    Payment of the Hendersons’ farm expenses from 1 July 2011: approximately $30,000;

(c)    Allocation of the “B” class shares in Astraea to a Henderson nominee.

395    He and Mrs McSharer felt that the proposed transaction was fair as the total cost of the sheep would be in the order of $90,000. He said to the Hendersons that a deposit should be paid by Astraea. The Hendersons stated the sum of $1,000 for the deposit and stated the timing for the payment of the balance of $59,000. Mrs Henderson undertook to provide a spreadsheet for the farming expenses from 1 July 2011.

396    In cross-examination, Mr McSharer asserted repeatedly that the Hendersons suggested the purchase price of $60,000. However, he conceded that the 13 August File Note, purporting to record discussions on the Saturday of the Childers meetings, referred to a value of $228,650.

397    I have set out the first part of the 13 August File Note. The second half of the note is as follows:

Stock:

Lambs:     1830

Ewes:        2500 (all ages take old ones to sell)

Hogets:        1790(12 month lambs)

Rams:        50

Total:        6170

Sell:        1500 now to December ($100 a head) $150,000

Shearing:

18 – 19 micro wool

Shearing – September

Purchase of Stock:

Lambs:        $5 per lamb (poor condition – unsaleable – unfit to load)

Ewes:        $50 per Ewes (poor condition – unsaleable – unfit to load)

Rams:        $100 per Rams (poor condition – unsaleable – unfit to load)

Total:        $228,650 (Wool on)

398    Mr McSharer was then taken to another document which was a version of the Stock Value Email sent by Mrs Henderson on 25 July 2011 containing handwritten annotations. This document shows “$228,650” written in pen beneath the typed word “Total”. When taken to these documents and asked about the value recorded, Mr McSharer said “[t]hat’s exactly what the Hendersons held out that the stock were worth”. It is to be noted that the 13 August File Note also refers to the proposed sale of 1,500 sheep “now to December” at $100 a head, suggesting that a much higher per head value was discussed.

399    Mr McSharer denied that he was pushing the Hendersons to lower the purchase price.

400    Mrs McSharer’s evidence in relation to the Stock Purchase Agreement was as follows.

401    On 13 August 2011, the parties discussed the draft contract to purchase the stock and Mr McSharer asked the Hendersons what they thought was the value of the sheep in the present market. The Hendersons had said the sheep were worth $60,000. Mrs McSharer had no knowledge of such matters and recalled that Mr McSharer did not disagree with this figure. Mr Henderson then referred to the Stock Value Email and looked over the values before confirming that the sheep were of that value. Both parties then made some amendments to the draft contract.

402    The Hendersons confirmed that they were happy with the contract and said that Mrs McSharer should finalise the draft contract ready for signing once the company was incorporated. On several occasions Mr McSharer asked the Hendersons if they were happy with the document and they confirmed that they were.

403    I do not accept the McSharers’ assertions that the Hendersons proposed the purchase price of $60,000. This evidence flies in the face of contemporaneous documents and is inherently implausible. The documentary evidence clearly indicates that the Hendersons had identified, and the parties had discussed, significantly higher per head values. Furthermore, Mr McSharer appeared to acknowledge in cross-examination that the Hendersons had indicated that the sheep were worth over $200,000.

404    I find it implausible that the Hendersons would then, at the Childers meetings, assert that the sheep were worth only $60,000 and suggest this as a purchase price.

The Hendersons’ evidence and analysis

405    I accept the Hendersons’ evidence as to how the parties reached agreement as to the purchase price.

406    Mrs Henderson said the following in this regard.

407    On 14 August 2011, the parties at Childers discussed the sale of the sheep. She was out of the room for the first part of the discussion concerning the sale of the sheep and Mr Henderson had taken the lead on this matter, as had always been the way in relation to sheep and farm matters. Mr McSharer reiterated that the Hendersons would become bankrupt, and that when agreeing upon the price for the purchase of the sheep it should be kept as low as possible, because the bankruptcy trustees would claim the proceeds. Eventually the Hendersons agreed to the purchase price of $60,000 because they could not see the point of receiving more if they were only going to lose it to the bankruptcy trustee. Mr McSharer said that they should concentrate on the sheep, as that was the main priority, and that they would focus on the Denmark Litigation Rights and the Gravel Project at a later stage.

408    On the morning of 14 August 2011, Mr McSharer dictated a deed for purchase of the livestock, which Mrs McSharer then typed on her laptop. Mr McSharer dictated the deed in “perfect sequence”. When the Stock Purchase Agreement was presented to her as a draft, she was surprised and upset by what she read. She was surprised to read that the McSharers would only contribute a deposit of $1,000 to purchase the sheep, and the balance of $59,000 would be paid prior to 31 December 2011, that is, from the sale of the wool from the sheep.

409    At no time during discussions had Mr McSharer said that the McSharers were only prepared to pay $1,000 to obtain their share in the sheep by virtue of their shareholding in the proposed new company. Although she was not happy about the $1,000 contribution, it was preferable to losing all of the sheep. Mr McSharer gave the Hendersons hope about obtaining the Denmark Litigation Rights and the relevant mining rights.

410    Mr Henderson recalled the events surrounding the Stock Purchase Agreement in the following way.

411    Mr McSharer said on 13 August 2011 that there was no need to pay the Hendersons the proper value for the sheep because the trustees would end up with all of the money paid for the sheep. Mr McSharer told him that the values in the Stock Value Email should not be used; he said there was no point transferring the sheep for a high value as the money would end up going to the bankruptcy trustee.

412    While Mrs Henderson was in the office preparing the Cashflow Document, Mr McSharer said to Mr Henderson that he did not have any money and Mr Henderson had responded that he could not buy the sheep for a lower price than the “book value” because if the ATO conducted an audit they would be in trouble. Mr Henderson told Mr McSharer this because the market value of the sheep was quite high at the time. Mr McSharer replied that it would not matter. He said it was “completely legal” and that they could put in any value they wanted.

413    The Hendersons accepted Mr McSharer’s advice and agreed to the price of $60,000.

414    In relation to the value of the sheep, Mr Henderson referred to a copy of the Stock Value Email on which there are handwritten numbers. He explained that he made these estimates of the values of the sheep and Mrs Henderson wrote them on the document. This was also confirmed by Mrs Henderson. This document records that, for example, ewes are valued at $100 each. Mr Henderson also referred to values provided by Mr Brian Barnsby in February 2012. These record that, for example, “green tag ewe lambs” are valued at $100 each and one and a half year old “orange tag ewes” are valued at $150/160.

415    This demonstrates that, given the number of sheep transferred to Astraea, the purchase price of $60,000 was significantly lower than the true value of the sheep.

416    Mr Henderson said that he thought that because Mr McSharer was a lawyer, and even though he had previously been “broke”, they would proceed with the deal because “it would be a good way forward for all of us”.

417    In cross-examination, Mr Henderson was asked about his concerns in entering into an agreement with Mr McSharer after he had told Mr Henderson that he had no money. Mr Henderson explained that he thought the Hendersons “were getting [a] lawyer and a person who can take the bank out” and a person who could secure a joint venture for the Gravel Project. Mr Henderson said he knew Mr McSharer was recovering from a stroke, but had just obtained employment with a person in Carnamah and was “billing him every fortnight”, that there was “good…money coming in, and he was back on his feet”.

418    I accept this evidence.

419    I find that the Hendersons had identified, and the parties had discussed, significantly higher per head values than were reflected in the ultimate purchase price of $60,000. However, Mr McSharer deliberately sought to lower the purchase price for the sheep. I accept that the Hendersons accepted the low purchase price and small deposit because they saw it as preferable to losing the sheep in the event of their bankruptcy and believed that Mr McSharer had the knowledge and experience to assist the Hendersons to pursue the Denmark Litigation Rights and the Gravel Project.

Phase 3: From the Childers meetings to 6 February 2012

420    Phase 3 is the period from the Childers meetings through to 6 February 2012, during which the new company, Astraea, was incorporated as the vehicle for the activities discussed at Childers.

Corporate governance and structure of Astraea

The McSharers’ evidence and analysis

421    Mr McSharer said the following in relation to the corporate governance and structure of Astraea.

422    There were many emails and documents sent between himself and Mrs Henderson, and numerous telephone conversations, during the time period of time from the Childers meetings and January 2012. He did not recall exactly the contents of all telephone conversations but said that they related to numerous commercial issues relevant to the company. In mid-August 2011, in a telephone conversation, Mrs Henderson “restated the corporate structure of Astraea…, the primary and secondary objects of the company, that the focus of the primary and secondary objects were agreeable to [the Hendersons]” and said that she felt $500.00 per week was an appropriate amount for a director to be paid and that this amount should be payable to Mrs McSharer.

423    Mrs Henderson said that she was prepared for Mrs McSharer to construct a “minute” in relation to:

(a)    directors’ fees;

(b)    the corporate structure of the new company being incorporated;

(c)    the amendment of the constitution to reflect the distribution of dividends in a manner determined by the director;

(d)    the shareholdings of the company; and

(e)    the division of the shares into identifiable parcels being “A” and “B”, with “A” class shares to be allocated to entities nominated by her.

424    Mrs Henderson nominated ten “B” class shares in the name of Ms Payne, and said she understood that “A” and “B” class shares were for identification purposes only and ranked equally with one another. He requested Mrs McSharer to prepare and sign the minute on 17 August 2011, which Mrs Henderson had agreed to.

425    On 17 August 2011, Mrs McSharer instructed Shelf Companies Australia to incorporate Astraea.

426    Mr McSharer, Mrs McSharer and Ms Manners went on a holiday to Denmark, Western Australia on 19 September 2011, where they met Wesley Henderson at the site of the Denmark Subdivision and were shown around the site.

427    He had a telephone conversation with Mrs Henderson on 20 September 2011. He said to Mrs Henderson that he and Mrs McSharer proposed to allocate the ten “A” class shares to various companies in what he referred to as the “McSharer Group” (which consisted of Fides Consulting and Skyprince), and Mrs Henderson replied that she had no problem allocating shares amongst the McSharer entities as long as the combined holding was no more than ten shares and the entities were controlled by the McSharers.

428    He read to Mrs Henderson the proposed resolution of Astraea in relation to the shareholding distribution. During this telephone conversation Mrs Henderson said that the proposed resolutions of Astraea on 20 September 2011 were in accordance with the parties’ discussions at Childers and were agreed to by the Hendersons. Mrs Henderson also said that at this time the Hendersons required no change to the “B” class membership. However, on 3 October 2011 Mrs Henderson nominated a share restructure for the Hendersons’ interests.

429    On Mrs Henderson’s instructions, Mrs McSharer drafted a proposed resolution on 10 October 2011 and emailed it to Mrs Henderson. I will return to the contents of this document. Mrs Henderson proposed an amendment to the draft resolution and later on the same day Mrs McSharer emailed Mrs Henderson an amended resolution.

430    Between 20 September 2011 and 10 October 2011 further discussions took place concerning the allocation of the “B” class shares in Astraea. Mrs Henderson told him the Hendersons were concerned that by using “A” and “B” class shares, the “B” class shares did not rank on the same level as the “A” class shares. He said to Mrs Henderson that this was not the case and that “A” and “B” was for identification purposes only and that the shares were all ordinary shares and ranked equally.

431    During an exchange on this subject on 1 October 2011, he “again referred [Mrs Henderson] to the resolution of 20th September 2011”. Mrs Henderson said to him that she remembered the resolution on 20 September 2011 and confirmed again to him that the resolution was in accordance with the parties’ agreement.

432    On 6 January 2012, Mrs McSharer emailed the Hendersons in relation to the “B” class share structure, but the Hendersons did not “advise, instruct, complete or undertake any resolution” in relation to the “B” class shareholding or complete the relevant ASIC form.

433    Like her husband, Mrs McSharer recalled that she instructed Shelf Companies Australia to incorporate Astraea on 17 August 2011. She also said the following in relation to Astraea.

434    The members of Astraea were Mrs McSharer and Ms Payne, each holding ten shares, classed “A” and “B”, as had been agreed with the Hendersons in Queensland.

435    She prepared and executed a resolution regarding the corporate structure and directors’ fees of Astraea, which were discussed with the Hendersons.

436    These alleged resolutions included the following.

ASTRAEA GROUP PTY LTD

(ACN 152 730 526)

Minutes of a Meeting of Members and Director

Held on the 17 August 2011 at 08:45 am

PRESENT

    H.M McSharer

    K & S Henderson by phone (Katie Payne Nominee)

RESOLVED BY MEMBERS AND DIRECTOR

1.    The Shareholders consent to Hailey Marie McSharer being the Sole Director and Secretary of Astraea Group Pty Ltd.

2.    Hailey Marie McSharer is elected Chairman of all Shareholders and Directors meetings.

….

4.    Hailey Marie McSharer is elected to hold office as Chairman and Managing Director in perpetuity.

5.    There are two be two classes of Shares, they being “A” and “B”.

6.    The “A” and “B” class Shares shall hold voting rights in equal proportion….The total paid up capital of the company shall be Twenty (20) Shares made up of “A” class Shareholders Ten 10 Shares, “B” class Shareholders Ten (10) Shares.

7.    The Constitution is hereby amended to empower the Director to declare dividends to one class of Shareholder as the exclusion of another class, without reason. The Directors may allocate either income or capital by a class of Share, jointly or severely (sic) and in whatever portions they may determine from time to time.

ASTRAEA GROUP PTY LTD

(ACN 152 730 526)

Minutes of a Meeting of Members and Director

Held on the 17 August 2011 at 09:00 am

PRESENT

H.M McSharer

    K & S Henderson by phone (Katie Payne Nominee)

RESOLVED BY MEMBERS AND DIRECTOR

1.    Directorship Fee

The Members resolved to pay Directorship Fee of $500.00 per week.

The fee shall be payable to the Director for the term, the Director holds office.

437    Both minutes are signed by Mrs McSharer.    

438    Mrs McSharer also gave evidence as to the holiday to Denmark on 19 September 2011, which was similar to the evidence of Mr McSharer on this point. She confirmed in cross-examination that the McSharers were still in Denmark on 20 September 2011. She said that on 20 September 2011, she prepared a resolution regarding the shareholding and strategic objectives of Astraea.

439    Mrs McSharer said that on 1 October 2011, she emailed Mrs Henderson in relation to the share structure of Astraea and the “B” class shares. The email sets out the proposal to distribute the ten shares held by Mrs McSharer such that the ten shares were held between Mrs McSharer, Fides Consulting and two other entities, and asks whether or not the “B” class shares need to be amended.

440    She said on 3 October 2011, the McSharers received an email from Mrs Henderson in relation to the reallocation of the “B” class shareholding, and that on 10 October 2011 she sent an email to Mrs Henderson in relation to the reallocation of the “B” class shareholding as she had requested and attached a proposed draft resolution. She said an amended draft resolution was sent to Mrs Henderson later on the same day.

441    The amended resolution sent on 10 October 2011 was in the following terms:

ASTRAEA GROUP PTY LTD

(ACN 152 730 526)

Minutes of a Meeting of Members and Director

Held on the 20 September 2011 at 09:00 am

PRESENT

    H.M McSharer

    K & S Henderson by phone (Katie Payne Nominee)

RESOLVED

1.    Shareholding

The members resolved to amend the existing shareholding structure of the company.

The Director is to transfer the existing “A” class shareholding in the company as follows:

•    2 Shares to Hailey M. McSharer

•    2 Shares to Fides Consulting Pty Ltd

•    3 Shares to Skyprince Pty Ltd ATF W.B McSharer Family Trust

•    3 Shares W.B & J.E McSharer Superannuation Pty Ltd ATF W.B McSharer Superannuation Fund

The Director is to transfer the existing “B” class shareholding in the company as follows;

•    3 Shares Katie N. Payne

•    3 Shares Kim Henderson and Susan Henderson ATF the Caliga Superannuation Fund

•    3 Shares Atonia Pty Ltd ATF Dunsky Trust

2.    Distributions

The constitution is hereby amended to empower the Director to declare dividends to one class shareholder at the exclusion of the other class, without reason.

The Director may allocate either income or capital by share, jointly or severely (sic) and in whatever portions they may determine from time to time

…

442    The amendments made to the first resolution appear to be the substitution of the word “members” rather than “shareholders”, and the introduction of the word “existing” before “shareholding”. In cross-examination Mrs McSharer said that she was unable to recall why the amendments had been made.

443    Several difficulties arise with the evidence of the McSharers. The purported minutes of 17 August 2011 record meetings which are supposed to have taken place before Astraea had been incorporated.

444    An email from Mrs McSharer to representatives of Shelf Companies Australia, attaching a signed record of particulars and invoice and asking Shelf Companies Australia to “please action ASAP”. This email is dated 17 August 2011 at 5:05 pm. This email was sent in response to an email from Shelf Companies Australia, also on 17 August 2011, to Mrs McSharer, asking for certain documents to be signed and return “so registration can proceed”. It is evident that Mrs McSharer was still giving instructions for incorporation of Astraea at 5.05 pm on 17 August 2011.

445    As I have mentioned, Mr McSharer said that in mid-August 2011 Mrs Henderson said that she was prepared for Mrs McSharer to construct a minute in relation to the amendment of the constitution to reflect the distribution of dividends in a manner determined by the director. A minute in these terms was indeed “constructed” and signed by Mrs McSharer.

446    However, the emails of 10 October 2011 and the attached documents indicate that Mrs McSharer was proposing this very amendment as part of a draft resolution which they were asking Mrs Henderson to approve on 10 October 2011.

447    It appears that Mrs McSharer again sent this 20 September 2011 resolution to Mrs Henderson on 6 January 2012.

448    It was pointed out to Mrs McSharer that she made a proposal on 10 October 2011 to make an amendment to the constitution, but also asserting, by way of the purported minute of 17 August 2011, that the amendment to the constitution was made on 17 August 2011. Mrs McSharer agreed with counsel that this “can’t be right”. Nevertheless, she acknowledged that she had signed it. Further, Mrs McSharer admitted that she had never spoken to Mr Henderson by telephone and the only time she spoke to Mrs Henderson by telephone was after the Ascot Waters meetings, to which I will refer shortly.

449    In view of this, it is not credible to suggest that Mrs Henderson had agreed to a minute incorporating this very significant amendment in mid-August 2011. On the basis of these inconsistencies and the evidence of Mrs Henderson, to which I will shortly turn, that the meetings on 17 August 2011 did not occur, I infer that Mr and Mrs McSharer decided to get around Mrs Henderson’s failure to accept the proposed constitution amendment by fabricating and backdating the minute of 17 August 2011. The purported “official” minute of 20 September 2011, which was signed by Mrs McSharer as a true and correct record, differs from the drafts sent to Mrs Henderson on 10 October 2011 and 6 January 2012. In addition, the meeting purportedly recorded by this minute happened on a day when Mr and Mrs McSharer were on holiday in Denmark.

450    When asked whether she had had a telephone conversation or meeting with Ms Payne on 20 September 2011, Mrs McSharer responded: “No. Not that I can remember”. In relation to the signed 20 September 2011 minute, Mrs McSharer admitted that the meeting did not occur “on that day”, but said that there were “several conversations…at Childers, after Childers and after this … regarding the shareholding, and I had not received any instructions from Mrs Henderson regarding the – what nominees she would like the shareholding to be transferred to”.

451    This strongly supports the inference that this minute has been fabricated.

452    I do not accept that the resolution of 20 September 2011 was in accordance with the parties’ discussions at Childers and agreed to by the Hendersons.

The Hendersons’ evidence and analysis

453    Mrs Henderson’s evidence in this regard was as follows.

454    On 3 September 2011, Mrs Henderson sent an email to the McSharers as she had not received any information from Mr or Mrs McSharer about the formation of the new company. The Hendersons did not know of any meeting on 17 August 2011 and certainly had not attended it. On 17 August 2011, the Hendersons were working all day at McArthur Natural Products in Queensland.

455    On 5 September 2011 the Hendersons received from Mrs McSharer the register of members for Astraea, showing ten “A” class shares for Mrs McSharer and ten “B” class shares for Ms Payne. Ms Payne was the Henderson’s nominee. At no time had the parties ever discussed separating the shares into different classes, and she was surprised to see this reflected in the register of members. She emailed the McSharers on the same day, asking why the shares had been so divided, and received no response.

456    On 22 September 2011, she again asked the McSharers via email why the shares were divided into “A” and “B” classes. On 26 September 2011, Mr McSharer responded with a brief email saying he would go over it on the phone, and when she next spoke to Mr McSharer, he said the “A” and “B” classes were only to make it easier to make distributions. Mrs Henderson recalled receiving the emails from Mrs McSharer, referred to above, on 1 October 2011, 10 October 2011 and 6 January 2012.

457    The shareholding structure in the draft resolution was in accordance with what the parties had discussed at Childers, and said that after the Childers meetings she had given Mr and Mrs McSharer the name “Atonia” as the new name for the trustee of the Dunsky Trust. I find that Mrs Henderson was in part mistaken in this respect. The draft resolution discloses that there were ten “A” class shares for the McSharers’ interests but only nine “B” class shares for the Henderson interests. It is common ground that at the Childers meetings it was agreed that the shares be held equally between them. Indeed, the Register of Shares discloses ten shares each. I have already held that there was no discussion at that meeting as to there being different classes of shares. This is why Mrs Henderson queried the fact that different classes of shares had been issued.

458    She responded to this email about the share transfers on 11 October 2011. It states that Mrs Henderson has “now finalised the order for the incorporation of Atonia Pty Ltd” and that “Atonia Pty Ltd will replace Luminescence as trustee for the Dunsky Trust”. It then states that the Hendersons are having the “legal documents drawn up this week” and asks if it is necessary to wait until the documents are finalised or if it is possible to proceed with the share transfers.

459    During September and October 2011, the Hendersons had every expectation that the “B” class shares would be transferred into an entity of theirs.

460    At this time she did not really notice or understand the part of the resolution concerning differential dividends, and still had the understanding from the Childers meetings and phone discussions with Mr McSharer that there would be no dividends without agreement.

461    The Hendersons did not discuss or agree to any resolution to allow the director to declare dividends to one class of shareholder at the exclusion of any other class, and that they did not know about, and did not agree to, dividing shares in Astraea into “A” and “B” class shares. She said they did not know of a resolution to appoint Mrs McSharer as chairman and managing director in perpetuity.

462    I accept this evidence.

463    The Hendersons also said that during this period after the Childers meetings they continued to make payments for Astraea’s expenses. Numerous documents support this fact.

464    The deposit of $1,000 for the purchase of the sheep was paid to the Hendersons by Astraea on 30 August 2011.

465    One document discloses that an amount of $20,000 was paid to the Hendersons on 2 December 2011 in partial payment of the purchase of the stock.

466    The Hendersons also said that on 20 December 2011, Astraea paid $39,000 into the Hendersons’ bank account, being the balance of the amount due for the sale of the sheep. They said that this payment came out of the proceeds of the sale of wool.

467    Indeed, in cross-examination, Mr McSharer said that the purchase price was paid to the Hendersons from the sale of wool and from the sale of stock. He said that the reimbursement of the Hendersons for the expenses of July 2011 also came from the same source.

468    Mr McSharer acknowledged that he and Mrs McSharers effectively gained a 50% interest in the sheep through Astraea by payment of $1,000. He described this as a “good commercial agreement”.

469    I accept the evidence of the Hendersons that they continued to make payments for Astraea’s expenses. I also accept that the balance of the purchase price was paid out of the proceeds of the sale of wool.

470    This was, indeed, a “good commercial agreement” for the McSharers but not for the Hendersons. The sale price was at a gross undervalue constructed by Mr McSharer for spurious reasons to advance his own financial interests. Most of this price was paid for out of the proceeds from the sale of some of the sheep and from the proceeds of wool sales. The Hendersons did not by any means receive any money from those proceeds. The Stock Purchase Agreement was the product of the Hendersons’ continued reliance on the various representations made by Mr McSharer as to his legal qualifications, his business experience and financial standing and the advice given to them concerning their financial affairs by him in that context. But for those representations the Hendersons would never have engaged Mr McSharer’s services nor as a consequence entered into the Stock Purchase Agreement.

Provision of services and advice

The McSharers’ evidence and analysis

471    Mr McSharer’s evidence as to activities undertaken in connection with the relationship between the Hendersons and the McSharers during this time was as follows.

472    On 19 August 2011, Astraea signed a letter of engagement with Fides Consulting for the services of general secretarial and administration, bookkeeping and financial management and professional advice and compliance. It is signed by Mr McSharer on behalf of Fides Consulting and Mrs McSharer as “Sole Director” on behalf of Astraea. This agreement was signed “as per the discussions held at Childers”.

473    On 23 August 2011, Mr McSharer again spoke to Mrs Henderson on the telephone and asked her if the Hendersons had any issues with the proposed Stock Purchase Agreement. He also stated that amendments and additions required by Mrs Henderson at the Childers meetings were now included into the final agreement. Mrs Henderson said she had reviewed the amended Stock Purchase Agreement and was happy to sign the document. He told Mrs Henderson that they should seek independent legal advice in relation to the Stock Purchase Agreement, and she said that this was not necessary as they were aware of what they were doing. Mrs Henderson said that the Stock Purchase Agreement was fine and asked him to please go ahead and execute the agreement. He then said again to Mrs Henderson that the execution of the Stock Purchase Agreement could be postponed while the Hendersons obtained independent legal advice if they wished to do so, but did not recommend any particular lawyer to them.

474    Mrs Henderson again confirmed that they were happy to sign the amended Stock Purchase Agreement. Astraea, through Mrs McSharer, executed the Stock Purchase Agreement on 24 August 2011 and Mrs McSharer emailed the partly executed Stock Purchase Agreement to the Hendersons on the same day for execution. Mr McSharer did not have any input into the email Mrs Henderson sent to Mr Taylforth on 28 August 2011.

475    On 31 August 2011, Mrs Henderson forwarded an email to him with attached mineral test results confirming that the gravel deposits did not contain economic minerals. It states that certain samples showed a lack of heavy minerals and therefore no minerals sands potential, and did not produce diamond indicators or economic materials.

476    On 2 September 2011, Astraea entered into a grazing licence with the Receivers for the grazing of stock on the York farm.

477    Sometime between 20 and 26 September 2011, Mrs Henderson told him that she had been accused of defamation by Mr Brickhill. She provided Mr McSharer with a copy of a letter from Mr Brickhill and asked if Mr McSharer could help her with a response.

478    On 26 September 2011 he sent Mrs Henderson an email making some “personal suggestions” as to how Mrs Henderson could reply to Mr Brickhill.

479    I will set out the contents of this email in full.

Hi Susan

I would reply to the letter from BRICKHILL as follows,

“I refer to your letter of 14 September 2011 and respond as follows;

•    I have not breached any related confidentiality or consultancy agreements howsoever.

•    I have not engaged in defamatory conduct in relation to T Brickhill.

•    I have not engaged in defamatory conduct in relation to Tom McArthur and or Tom McArthur Pty Ltd.

•    I have not engaged in any conduct which is detrimental to the business of, Tom McArthur Pty Ltd.

If you proceed with your threats and commence proceedings, I will have no choice but to lodge a counter claim for actual and punitive damages.

Your assertions are completely denied, all rights a (sic) strictly reserved in this matter for and on behalf of K&S Henderson and all other related entities.

Notwithstanding the above, It is my wish that this matter is concluded forthwith and simply just put     down to a bad experience, this will allow Tom McArthur Pty Ltd, T Brickhill and myself to simply move, allowing all parties to direct their minds to relevant issues.

I will be forwarding a copy of this correspondence to Tom McArthur.

The decision on how this matter now proceeds is up to you.”

Susan, you have copped enough shit from this bully, it is time for you to stand up to him.

480    Mr McSharer did not speak to Mrs Henderson on 26 September 2011.

481    On 26 September 2011, he sent an email to Mrs Henderson because he “wanted to brief Chan Galic on the Federal Magistrates Court proceedings”. This document is in the following terms:

Hi Susan

Can you please send me a copy of a letter from Brickhill detailing the file number for this matter in the Federal Court.

I will then contact the Court to determine the procedural issues for considerations (sic) by the Court and the likely timing of a decision.

482    He received an email from Mrs Henderson on 29 September 2011 providing a summary of the potential litigation concerning the Denmark Subdivision. He did not, in October 2011, discuss anything “in relation to the farm” with the Hendersons.

483    He did not speak to Mrs Henderson on 5 January 2012.

484    On 17 January 2012, Mrs Henderson sent to Mr McSharer an email to which a “list of…outstanding issues” was attached. I will set this out in part:

Here is a list of a few outstanding issues as far as Bonthorpe is concerned.

…

What will happen to the Bonthorpe shares if the farm sells?

Our understanding is that McGrath Nicol is selling land only, although it has advertised that the farm has subdivision approval and extractive industries approval.

…

You mentioned an injunction: What action needs to be taken, and what information is required, and when?

…

Letter by Trevor Brickhill to Lavan Legal, regarding Spencer v C’wealth of Australia

(Emphasis in original).

485    Mr McSharer said he had “no idea” why Mrs Henderson sent the email and did not respond to it.

486    He did not recall Mrs Henderson contacting him on 22 January 2012.

487    He did not discuss with Mrs Henderson “the success fees to be paid to NAB and how the remaining proceeds would be divided amongst the parties during December 2011 and January 2012”.

488    When the Hendersons informed him around 23 January 2012 of the outcome of the Federal Magistrates Court proceeding, namely that the bankruptcy notice was set aside, he said that he was pleased for them and that they now had time to develop some sort of scheme of arrangement with NAB.

489    On or around 25 January 2012 he asked Mrs Henderson to provide him with a copy of her response to Lavan Legal in relation to questions asked of her (the questionnaire). He explained that he wanted to know what she was saying as he was negotiating on behalf of the company to acquire the Denmark Litigation Rights from the Receivers. He said to Mrs Henderson to be very careful how she answered the questions and not to get into too much detail and just to stick to the facts as she knew them.

490    Both Mr and Mrs McSharer recalled attending the auction of the York farm in early February 2012. Mr McSharer said he called Mrs Henderson after the auction and told her that the farm did not sell. Consistently with the evidence of Mr McSharer, Mrs McSharer said that on 19 August 2011 Astraea executed a letter of engagement with Fides Consulting, as discussed with the Hendersons. Like her husband, Mrs McSharer also recalled signing the Stock Purchase Agreement on 24 August 2011, emailing the partly executed agreement to the Hendersons and receiving the executed Stock Purchase Agreement from the Hendersons on 25 August 2011. She stated that there were no objections to the Stock Purchase Agreement by the Hendersons at any stage.

491    In cross-examination, Mr McSharer said that he had a meeting with a representative of the Receivers to propose assignment of the Denmark Litigation Rights to Astraea. Initially he said that this meeting was in August or early September 2011. He said that there was no record of this meeting and that he never received any minute of a meeting with the Receivers.

492    Subsequently, Mr McSharer was shown a letter of 16 November 2011 from him to Mr Oehme of the Receivers, which refers to a meeting on 9 November 2011 and the “Minutes of Meeting”, and confirms that the minute “sets out our understanding”. He was then shown minutes of the meeting on 9 November 2011 and confirmed that these were the minutes referred to in his letter of 16 November 2011. I find, in this respect that Mr McSharer was yet again deliberately dishonest in his evidence.

493    Mr McSharer was referred to a statement attributed to him in the minutes, that he became aware of the litigation when Mr Henderson mentioned it in a passing comment during discussions with Mr McSharer and it was not discussed further.

494    It was put to him that this statement was deliberately calculated to deceive Mr Oehme. Mr McSharer denied this on the basis that when he told Mr Oehme it was not discussed further, he meant that it was not discussed further with Mr Henderson, although he admitted that it had been discussed extensively with Mrs Henderson.

495    This is yet another example of dishonesty on the part of Mr McSharer.

496    As I have mentioned, Mr McSharer said that he asked Mrs Henderson to provide him with a copy of her response to the questionnaire about the proposed Denmark litigation. Under cross-examination, however, when asked if he dictated responses on the questionnaire to Mrs Henderson, Mr McSharer conceded that he “must have done”. Nevertheless, Mr McSharer seemed immediately afterwards to continue to assert that his original evidence represented a full and frank statement of evidence to the Court.

497    During cross-examination, Mr McSharer also said repeatedly that he “shied away” from any involvement in issues between the Hendersons and NAB. However, the evidence of the Hendersons, which I have accepted, and contemporaneous notes made by Mrs Henderson of telephone conversations with Mr McSharer prove the contrary.

498    The telephone notes record statements such as the following:

(a)    “NAB – unconscionable – snatch and grab for the security – the cause of what put us into…”.

(b)    “$12m punitive – HOLD THEM TO ACCOUNT and name all the parties as co-defenders” (emphasis in original).

(c)    “The money was in the account for GST. Write to ATO & say that NAB has stolen the GST money… under their security”.

499    Mrs Henderson explained these notes. She said that Mr McSharer had said during September 2011 that the NAB had acted unconscionably and that it had made a “snatch and grab” for the security, what was “the cause of what put us into administration”. She said that he told her that she could “put [her] head on [her] pillow tonight and sleep knowing all is not lost”, because from our discussions he felt that the Hendersons had a case against the bank.

500    A handwritten note containing, amongst others, the words “Put yr (sic) head on yr (sic) Pillow tonight & sleep knowing ALL IS NOT LOST” was part of the bundle of notes relating to telephone conversations. She said he also talked of holding NAB “to account” and suggested that they had a case for $12 million for punitive damages and said that they could name all the parties as “co-defenders”. She explained that the note containing a reference to NAB “stealing” GST money recorded a conversation in which the parties were discussing that the bank had taken the sum of $200,000, despite the Hendersons writing to the bank and saying that they were not to take, and would not release it to the ATO.

501    I accept Mrs Henderson’s evidence as to the content of these conversations and that the notes accurately reflect the substance of what was said by Mr McSharer.

502    Furthermore, Mr McSharer attended the auction of the York farm on 3 February 2012 and made public statements calculated to cast doubt on the right of NAB and the Receivers to sell the property. In cross-examination, he admitted that he “had queried with the auctioneer did they have the ability to sell the property”. I do not accept his evidence that he “shied away” from any involvement in the issues between the Hendersons and NAB.

503    For these reasons, and for reasons relating to credibility and reliability generally, I do not accept the evidence of the McSharers to the extent that it differs from the evidence given by the Hendersons, to which I will now turn.

The Hendersons’ evidence and analysis

504    Mr and Mrs Henderson recalled that on 25 August 2011 they executed the new version of the Stock Purchase Agreement dated 24 August 2011 and sent a copy to the McSharers.

505    Mrs Henderson also said the following.

506    At the prompting of Mr McSharer, she emailed Mr Taylforth and authorised him to disclose information to Mr McSharer.

507    From mid-September 2011 until the beginning of February 2012, she and Mr Henderson spent every day scanning the Bonthorpe documents in preparation for the Denmark litigation, and believed that their only hope was to put all of their attention into getting the paperwork scanned and ready for litigation. They had agreed with Mr McSharer that they would do this as part of their contribution to what they were trying to achieve through Astraea, and that meanwhile, Mr McSharer was to negotiate with the Receivers to try to secure the Denmark Litigation Rights.

508    She received an email on 21 September 2011 from Mrs McSharer concerning sheep shearing and branding. This email contains the following:

Bill has advised me that it is very important to make sure both from an ownership and potential bankruptcy issue that all matters licenses, brands, names and marks are transferred into Astraea Group Pty Ltd as soon as possible.

509    On 21 September 2011 she sent a copy of the letter from Mr Brickhill to Mr McSharer to “get his advice on the defamation threat and how to respond”, and Mr McSharer subsequently sent her an email setting out a draft response. The contents of this email have been set out above.

510    Around 26 September 2011, she had further discussions with Mr McSharer about the bankruptcy matter in the Federal Magistrates Court, which awaited decision. On 26 September 2011, Mr McSharer emailed her in relation to this matter. I have also set out the contents of this email above.

511    During October 2011, Mr McSharer reiterated to the Hendersons that he thought they would have the opportunity to buy the York farm back. This is consistent with a handwritten note which contains the words “K & S will have the opportunity to buying (sic) the property back”.

512    During December 2011 or January 2012, she and Mr McSharer had many conversations about the NAB requiring a percentage of any successful outcomes regarding the Denmark litigation. Initially Mr McSharer suggested that a 25% fee be offered to the NAB. He said that as it was nothing to do with the McSharers that the Hendersons had a debt with the NAB, he and Mrs McSharer would take 50% of the proceeds from the litigation and the Hendersons would pay the fee out of their 50%. After several discussions, Mr McSharer agreed that any success fee would be paid to the NAB/Receivers as required and the balance would be split “50/50”, that is, equally, through Astraea.

513    On 5 January 2012, Mr McSharer wrote to the Receivers with a proposal for the acquisition of the Denmark Litigation Rights. This email was copied to Mrs Henderson, and includes the following:

I refer to Astraea Group Pty Ltd correspondence of the 8th December 2011 and email of the 19th December 2011.

…

I confirm that Lavan legal are to develop their advice and submit their recommendation for a commercial success fee to McGrathNicol (National Australia Bank) and Astraea Group Pty Ltd (the Parties) by the 31st January 2012.

The Parties are then to develop a mutually agreeable deed defining the success fee payable by Astraea Group Pty Ltd…to the National Australia Bank for the acquisition of Bonthorpe’s Chose in Action/litigation rights against all parties associated with the Denmark subdivision project.

The success fee will be paid to McGrathNicol in the capacity of receiver managers on behalf of the National Australia Bank or direct to the National Australia Bank, in both cases the success fee will be a contribution to the reduction of the overall indebtedness to the NAB by Bonthorpe Pty Ltd.

Lavan Lagal’s (sic), scope of opinion and total costs…for undertaking the task is $12,000.00, (the scope has changed, in that the questions to Susan Henderson are to be by email rather than oral, the only party to be contacted is Susan Henderson, all else remains as per the scope and costs)

…

Astraea Group Pty Ltd confirm acceptance and wish to proceed on the above basis.

As set out in Astraea’s previous correspondence, a resolution to this matter is of extreme urgency as the Statute of Limitations may well prevent Astraea commencing action against all parties associated with the Denmark subdivision.

…

514    The content of the above email discloses the parties did discuss a success fee, contrary to the assertions of Mr McSharer.

515    On 5 January 2012, Mr McSharer also sent to Mrs Henderson a series of emails attaching communications he had had with the Receivers over the period November to December 2011.

516    Also on or about that date she spoke to Mr McSharer by telephone and he said that he told the Receivers that he wished to include Mrs Henderson in the deed relating to the Denmark Litigation Rights so that she “wouldn’t run away”. He did not say anything at the time about the Hendersons being required to sign a release. She recalled sending information on several occasions in January 2012 to Mr McSharer concerning the Denmark Subdivision and the NAB.

517    On 17 January 2012, she received an email from Mr Philip Hassett of Lavan Legal, containing a series of questions she was requested to answer (the questionnaire).

518    On 22 January 2012, she sat down to answer the questionnaire and spoke to Mr McSharer by telephone and explained what she intended to do regarding the questionnaire. Mr McSharer told her not to give detailed answers and told her not to make it clear that she had access to all of the relevant documents concerning Bonthorpe.

519    Mr McSharer dictated the responses he wished her to write. A copy of the questionnaire, containing blue and red handwriting, was in evidence. Mrs Henderson explained that the notes in red pen were her intended answers, and the notes in blue pen were the answers Mr McSharer dictated to her.

520    On 24 January 2012, Mrs Henderson sent an email to the McSharers attaching a letter containing the responses to the questionnaire and asking Mr McSharer to check “if it is in order to be sent to Lavan Legal”.

521    She received verbal confirmation by telephone from Mr McSharer concerning the responses and thereafter emailed the letter to Lavan Legal. Mrs Henderson explained she was humiliated and embarrassed at the prospect of losing the family farm and could not bear to face anyone she knew who would attend the auction of the York farm.

522    She received a phone call on 3 February 2012 from Mr McSharer concerning the auction, during which he said:

(a)    talking about himself, that there was a “short fat bloke there” who raised a lot of questions and frustrated the auction, prior to the call for bids.

(b)    that amongst other things, he said that he asked about the “Do not Trespass” signs on the front gate of the farm property and why the gates were locked.

(c)    that he asked if the Receivers could guarantee a “free and clear title to the property”.

523    Like Mrs Henderson, Mr Henderson said that from mid-September 2011 until February 2012, he and Mrs Henderson spent every day scanning Bonthorpe documents into their computers, for use in the Denmark litigation if Astraea could obtain the Denmark Litigation Rights.

524    He said they left it to Mr McSharer to handle the negotiations with the Receivers, as agreed.

525    Mr Henderson recalled that on 5 January 2012, Mr McSharer sent to the Hendersons various emails between himself and the Receivers about the Denmark Litigation Rights. He said until this time, Mr McSharer had not provided any details about his negotiations and was “playing this close to his chest”.

526    I accept this evidence.

527    As I have mentioned, Fides Consulting subsequently purported to enter into a written agreement with Astraea dated 19 August 2011, specifically providing for the supply of services. Mr McSharer claimed this was agreed to and indeed requested by the Hendersons. However, as I have mentioned, Mrs Henderson’s evidence, which I accept, was that it was not agreed and not discussed that Fides Consulting would carry out consulting work on behalf of the company. On any view of the arrangement emerging from the Childers meetings, it is clear that the arrangement involved the supply of services by Mr McSharer personally. It was his legal qualifications and business consulting experience as represented by him, upon which the Hendersons were relying.

528    In cross-examination, Mr McSharer said that Fides Consulting was providing services to Astraea, “of which it was charging for the bookkeeping…as being paid, but none of my time has been paid whatsoever”. When asked what was meant in the Letter of Engagement by “professional advice”, Mr McSharer described his own role in relation to Astraea as “undertaking and managing and running the day-to-day operations of the business”.

529    As I have mentioned, Mrs McSharer was asked in cross-examination whether Mr McSharer’s contribution to the “deal” was to provide his consultancy services. She answered “Yes”. Despite Mr McSharer’s repeated assertions that no services were provided, I find that Mr McSharer did indeed provide services to the Hendersons during the period from the Childers meetings to 7 February 2012. Specifically, I find that he provided significant legal advice during this period. It is evident from numerous documents that Mrs Henderson consulted Mr McSharer about legal issues on a number of occasions. In a number of cases these documents may be matched with references in Mrs Henderson’s contemporaneous telephone notes. I note also that Mr McSharer had no hesitation in drafting “legal” letters for Mrs Henderson.

530    An example is the email by which Mrs Henderson requested Mr McSharer’s “thoughts” on the communications from Mr Brickhill concerning defamation, and Mr McSharer’s response on 26 September 2011, which I have set out above, in which he drafts a response for Mrs Henderson. Another is the letter to Lavan Legal in response to the questionnaire, containing comments which I find were dictated to Mrs Henderson by Mr McSharer.

531    I find that Mr McSharer during this period both held himself out as able to provide, and did provide, business consultancy services to the Hendersons, as well as the provision of legal advice and the drafting of letters.

The impact of events on the Hendersons

532    Mr McSharer said that Mrs Henderson did not say anything to him about any medical treatment she was receiving. Under cross-examination he explained that he knew she was unwell, but she never discussed her treatment. Mr McSharer then conceded that in an email to the Receivers on 19 December 2011 he made the statement “Susan Henderson is under medical care, both are having a hard time of it”. He also said that in September 2011, Mrs Henderson had said to him that she was having trouble sleeping, that she and Mr Henderson had lost their employment with McArthur Natural Products and that they had no income and “did not know what to do”. He said that he told her that the best thing for her to do was to “take the load off herself”. He said he confirmed that he was prepared to “fill the gap” until such times as Mrs Henderson was able to complete her obligations she had with the company.

533    In cross-examination, Mr McSharer said that in his opinion, the Hendersons were “distraught” from September 2011 until at least September 2012. I accept this evidence. It is consistent with that of Mrs Henderson. Mrs Henderson said that around 9 September 2011, her employment was terminated, and that Mr Henderson lost his employment the following week. She said that because they technically had assets, which were in the hands of the Receivers, they were unable to obtain any “social security”. She said the stress of being unemployed and without any income led her to “despair”, and she immediately sought medical assistance after leaving her employment. She said Mr McSharer was aware of her depressed condition.

534    On 13 September 2011, she received a letter from Mr Brickhill saying that his professional relationship with the Hendersons had broken down and they should find another solicitor to take over their matter in the Federal Magistrates Court concerning the bankruptcy notice. She said he wanted his account paid. She said that as a result, she was forced to advise the Court that she would be representing Mr Henderson and herself.

535    I accept all of this evidence. I find that Mr McSharer from September 2011, if not earlier, was well aware that the Hendersons were “having a hard time of it”, that they were “distraught” and that events had had serious effects upon the health of Mrs Henderson, causing her to seek medical assistance. This knowledge on Mr McSharer’s part contributes to my conclusion that his conduct, which was otherwise misleading and deceptive, was also unconscionable.

Phase 4: The Ascot Waters meetings

536    On 7 and 8 February 2012 the Hendersons met with the McSharers at the Ascot Waters Restaurant, Assured Ascot Quays Apartment Hotel in Ascot, Western Australia (Ascot Waters meetings). Mr Craig Harley was also present for part of these meetings. Ms Manners, Mrs McSharer’s mother, joined the parties at a later stage during the meeting on 7 February 2012. Ms Manners said that she became an employee of Fides Consulting in February 2012, but did some work for Fides Consulting on a casual basis for a few months leading up to this date. She described her role as an “accounts role, being responsible for the day-to-day bookkeeping for all the McSharer entities and Astraea”.

537    There is significant conflict of evidence as to what was said at the Ascot Waters meetings.

Further legal advice and services

538    Mr McSharer asserted that Mrs Henderson did not ask him for his personal advice on a letter she had received from Lavan Legal. However, he also said that Mrs Henderson had asked him if he could help her form a letter to Lavan Legal. He sent Mrs Henderson an email on 7 February 2012.

539    This email is in the following terms:

Dear Dean,

Further to your letter dated 6th February 2012.

The matter of your assertions contained within the above will be determined by a Court of competent jurisdiction.

Please advise if you are authorised to accept service of initiating documentation?

By the notice provided to McGrath Nicol (xxxx) and NAB (xxxx) the entire matter is in dispute.

Please be advised you do not have authority or capacity to deal with the assets …. Howsoever until a Court of competent jurisdiction has determined the legality of the matters.

All losses howsoever arising are to the account of Lavan Legal, McGrath Nicol, NAB and personally the officers of the corporate entities howsoever arising, jointly and severely (sic).

As evidenced by the above, Kim and Susan Henderson together with associated related parties intend to pursue the resolution of these matters both publicly and privately.

540    Mrs Henderson sent an email in substantially similar terms to Mr Dean Hely of the firm Lavan Legal on 9 February 2012.

541    Mr McSharer said Mrs Henderson had tried to respond but had become upset, and that she said to him that she knew this “is not within Astraea matters” but asked him for his personal help and asked him to write his thoughts and suggestions down to assist her. She said that the Hendersons had been told recently that NAB had no right to do what they had done.

542    During cross-examination, Mr McSharer asserted that his actions in relation to this letter did not constitute advice, and explained that Mrs Henderson asked him “could [he] make some suggestions”. He said that Mrs Henderson asked him for assistance, not advice, and that he did not promote or undertake any involvement with the “property rights” issues with NAB. He also explained that he said to the Hendersons, as he had said many times before, that time was of the essence as rights to instigate proceedings to recover damages from those involved in the Denmark Subdivision were about to run out. He said he previously explained to the Hendersons that the “Statute of Limitations” was six years and if Astraea did not commence the action inside six years, the company may be time barred.

543    I do not accept the distinction sought to be drawn by Mr McSharer between providing “assistance” and providing “advice” in relation to the response. Nor do I accept that what was provided was simply his “thoughts and suggestions”.

544    Mrs Henderson’s evidence was that at the Ascot Waters meeting of 7 February 2012, she showed Mr McSharer a letter she had received from Lavan Legal on the previous day about an on-going dispute the Hendersons had regarding the validity of the appointment of the Receivers and of the Bonthorpe loans. She said she was still looking to Mr McSharer for legal advice. She said Mr McSharer promised to provide a response to the letter that night. She confirmed that Mr McSharer sent to her the email of 7 February 2012, which I have set out above.

545    During cross-examination, Mrs Henderson said that she was in contact with Mr Harley in February 2012 in relation to concerns the Hendersons had about NAB. She agreed that Mr Harley was providing advice to the Hendersons on farmers’ “property rights”, amongst other things. She explained that she had asked Mr McSharer to come to give us his opinion given that he had legal experience and would understand it more than the Hendersons could. She did not concede in cross-examination, despite counsel’s suggestion, that by this stage, in relation to the farm, the Hendersons were really only listening to what Mr Harley had to say.

546    I accept this evidence. I find that in February 2012, Mr McSharer continued to provide legal advice to the Hendersons which reinforced the Qualifications and Experience Representation and which they continued to rely upon.

Sale of the sheep

547    There is substantial disagreement as to what was said during the Ascot Waters meetings concerning the sale of the sheep.

The Mcsharers’ evidence

548    Mr McSharer said that he had a general discussion with the Hendersons. He also said the following. He told the Hendersons that he had received oral advice from the Receivers that the grazing licence would be terminated effective 1 March 2012. This was confirmed in writing on 8 February 2012. He referred to a letter of 8 February 2012 from the Receivers (the 8 February letter). This states, amongst other things, that the grazing licence between Astraea and Bonthorpe relating to the York farm would not be extended and would be deemed to be terminated from 1 March 2012, and that Astraea was required to vacate the property and remove all livestock from the property by 5pm on 9 March 2012.

549    He and Mrs McSharer decided that this was the time to sell the stock and/or undertake an “in-species (sic) distribution” to the members. He told the Hendersons he had made enquiries and that it seemed Astraea would have great difficulty in finding another property on which to agist the stock. Mrs McSharer said that the stock would need to be sold forthwith, as the Receivers were not prepared to extend the termination date. The Hendersons requested him to try and seek alternative agist arrangements, and he said that he had tried to find alternative agistment but had been unsuccessful.

550    Mr Henderson said that he did not want to sell the stock and put forward farming projections for the pursuit of the Denmark Litigation Rights and the rights concerning the Gravel Project. Mrs Henderson said to him that she had spoken to someone in January 2012 about the issue of “property rights”, and that this may be another angle from which they could “attack” the Receivers and NAB. Mrs Henderson told him that NAB had sold the mortgage to a fidelity fund in the United States and NAB therefore did not have rights to foreclose on the mortgage.

551    The Hendersons said that they believed the issue of “property rights” would enable them to return to the farm, retain the stock, avoid bankruptcy and allow them to proceed in the Denmark litigation. He recalled that the Hendersons said they wanted to hold on to the farming operations until the “property rights” were determined.

552    He asked Mrs Henderson who had been advising the Hendersons in this “property rights” issue, and Mrs Henderson responded that the person’s name was “Craig”. This is a reference to Mr Craig Harley. Mr McSharer told Mrs Henderson that he and Mrs McSharer wanted to meet Mr Harley and hear his views in relation to farmers’ “property rights”. Mrs McSharer agreed to make further enquiries in relation to the agistment and to see if the Receivers could extend the grazing licence; however, the issue in relation to what to do with the sheep remained unresolved. Mr McSharer said that the acquisition of the Denmark Litigation Rights was proceeding and that the Receivers wanted Astraea to pay for further advice from Lavan Legal in relation to the assignment of those rights.

553    He had reported to the Hendersons about the progress of Astraea acquiring the Denmark Litigation Rights “at least 20 times prior” to the Ascot Waters meetings. He told the Hendersons of conversations with Bauxite Resources Limited and Mr Oehme, and explained to the Hendersons that it was not possible for Astraea to acquire or obtain any access to the gravel resource on the York farm. He had also said this having regard to the advice received that there were no diamonds or minerals in the gravel. The Hendersons displayed no reaction and did not ask if he could do anything in relation to the EIL. He first suggested that the sheep should be sold on 7 February 2012 as a consequence of the the Receivers’ notice of termination of the grazing licence. He did not mention anything at the Ascot Waters meeting on 7 February 2012 about Mrs McSharer wanting to use cash from the sale of the sheep for use in another project.

554    On 8 February 2012, the McSharers met again with the Hendersons, as well as a “person named Craig and an unknown male”, at Ascot Waters.

555    The Hendersons said that Mr Harley was providing advice to them on farmers’ “property rights” and how to get their farm back, that Mr Harley had told them that the mortgage was flawed and only enforceable by a third party to whom the mortgage had been transferred.

556    Mr McSharer told the Hendersons that notwithstanding Mr Harley’s view or advice, he felt it was unlikely to assist Hendersons getting the York farm back.

557    Mr Harley said that pursuant to Plenty v Dillon [(1991) 171 CLR 635], the NAB could not enforce the appointment of the Receivers and had no capacity to take possession of the farm or any of the assets of Bonthorpe. Mr Harley said that the Hendersons should retake possession of the farm and assert their rights, and should place a sign on the front gate referring to the Plenty v Dillon decision to prevent people’s access.

558    It became obvious to Mr McSharer and Mrs McSharer that the Hendersons did not want to listen to Mr McSharer’s views. They said they wanted to pursue the matter of “property rights” and expected Astraea and the McSharers to embrace Mr Harley’s concepts and become involved in their fight for “property rights”. He told the Hendersons that he did not agree with Mr Harley’s proposed course of action and warned that the “property rights” issue would “bring them and the company completely undone”. He also told the Hendersons that their proposition was contrary to the agreement of the parties at Childers. Mrs Henderson said to him that she felt the ideas Mr Harley was proposing fitted in with the predictions of her clairvoyant.

559    It was then that Mr and Mrs McSharer decided to extract themselves from any involvement with the Hendersons. The relationship between himself and the Hendersons had been destroyed by the advice of Mr Harley at the Ascot Waters meetings.

560    Mrs McSharer said the following in relation to the discussions at Ascot Waters.

561    Mr Henderson said that he had just been to a wool industry meeting and that the industry was doing well, and that because of this Astraea should continue with its activities. He said the income would assist with the Denmark litigation. At the time, Astraea was “looking at selling down sheep in the short-term to obtain some working capital for the Denmark Litigation”. While Mr McSharer responded that he was interested in the numbers, she (Mrs McSharer) was less enthusiastic because she felt “that in the short-term the sheep and farming activities were to be used to generate income for the Denmark Litigation and also because of the issue with agistment”.

562    Mrs Henderson said that because of the “property rights” the sheep should be retained. Mrs McSharer and Ms Manners took Mrs Henderson through the accounting reports of Astraea. Mrs Henderson did not raise any issues regarding the value of expenses or any of the costs incurred. Mrs McSharer had printed off copies of the accounts from August 2011 to February 2012 and gave these to Mrs Henderson. Mrs McSharer confirmed during cross-examination that these reports were accurate.

563    The parties then discussed the Denmark Litigation Rights, and Mr McSharer made general comments that the talks were still progressing and that the Receivers had advised Astraea that they were receptive to the offer to purchase the Denmark Litigation Rights.

564    The following day, the Hendersons introduced the McSharers to a group of people who were already at Ascot Waters, including a man named “Craig”. Mr Harley talked about “property rights” and mentioned Plenty v Dillon, but Mrs McSharer could not recall the details because it had not made sense to her. Mr Harley explained that banks couldn’t legally deal with mortgaged properties as the deeds were assigned to someone else, and said that because of the decision in Plenty v Dillon, it was possible to prevent access to a property by putting up a sign. Mr Harley explained that NAB could not enforce the appointment of the Receivers and take possession of the assets in Bonthorpe.

565    She gave a copy of the 8 February letter to the Hendersons.

566    Mr Henderson said that they should try to find a new property on which to agist the sheep.

567    The McSharers left the meeting soon afterwards and decided that they did not want any involvement with Mr Harley’s views and the direction that the Hendersons were considering. Following further discussion with Mr McSharer, she made the decision that in light of notice from the Receivers, they should seriously look at selling the sheep or undertaking an “equal in-specie distribution” to the members of Astraea. The McSharers discussed pulling out of all involvement with the Hendersons in relation to the sheep, but continuing to assist them with respect to the Denmark Litigation Rights.

Ms Manner’s evidence

568    Ms Manners also gave evidence in relation to the Ascot Waters meeting.

569    She said that prior to the Ascot Waters meetings, it had been explained to her by Mr and Mrs McSharer that the grazing licence with the Receivers was about to be terminated and the sheep had to be removed from the property. She recalled seeing some emails prior to the meeting “about selling the stock”. She recalled that at the Ascot Waters meetings, she heard Mr Henderson trying to convince Mr McSharer and Mrs McSharer otherwise, using the amount of income that he felt was possible if Astraea kept the sheep. She said that the discussion went back and forth amongst them and she made the comment that Mr and Mrs McSharer needed to talk this through by themselves “away from the table”. She recalled giving Mrs Henderson the profit and loss report and balance sheets to date.

The Hendersons’ evidence

570    Mrs Henderson said the following about the Ascot Waters meetings.

571    By way of background Mrs Henderson’s evidence, which I accept, was that Mr McSharer began proposing the sale of the sheep on or about 1 February 2012, just before the Hendersons left Queensland to come to Perth. She said that around 1 February 2012, Mr McSharer spoke to her about selling the sheep, and he told her that she should prepare a cash flow budget which would include the sales proceeds. She said when she responded that they did not have time to do this as they were about to fly to Perth from Queensland to attend a meeting, he told her to take the laptop computer and to do the work on the flight.

572    Mr McSharer showed her a letter from the Receivers but would not let her touch it, and she was only allowed to read the front page of the letter. This letter advised that the grazing licence would expire and that Astraea should vacate the property by 9 March 2012. She told Mr McSharer that she and Mr Henderson had spoken to three different farmers who had land where they could agist the sheep and that would be better than selling them.

573    She handed Mr McSharer a USB drive containing files relating to the Denmark litigation. Mr McSharer again raised the question of selling the sheep and Mr Henderson gave his opinion that it would be better not to sell them. Mr Henderson explained that the new lambs would add value, that they would only need to sell the old sheep (as was his normal practice) together with the lambs and when the sheep sales were added to the wool sales it would more than cover the cash flow requirements.

574    Mr McSharer replied that he had not thought about it from that perspective. Mr McSharer then went on to say that “the reason why [they] want to sell the sheep is because Hailey has a project of her own that she wants to get started on”. At this point Ms Manners loudly interjected and told Mr McSharer that this was not something that should be discussed at this table.

575    Mrs Henderson was provided with a copy of a profit and loss report for 1 August 2011 to 7 February 2012 and a balance sheet, showing a net profit of $95,532.18. She advised Mrs McSharer and Ms Manners that she required a detailed report to see how they arrived at the figures and that this was provided the next day.

576    The Hendersons did not discuss the Gravel Project with Mr McSharer during February 2012, and that as far as they knew, nothing had happened with the Gravel Project between the Childers meetings and the end of February 2012.

577    On 8 February 2012, Mr McSharer introduced himself to Mr Harley by saying “I’m a consultant, I’ve got an LLB and I’m here to help the Hendersons”. Mr McSharer did not say anything to her – before, during or after the Ascot Waters meeting on 8 February 2012 – about any problems that he had with the “property rights” principles.

578    Mr Henderson also recalled the following.

579    Like Mrs Henderson, Mr Henderson recalled that at the Ascot Waters meeting on 7 February 2012 Mr McSharer showed Mrs Henderson a letter from the Receivers, which he put on the table and then said to Mrs Henderson that she could read it but not touch it. Mr Henderson said that he did not read the letter himself, but that they discussed the contents.

580    It was clear from the discussion that the Receivers had advised that the grazing licence was going to expire and that Astraea had to vacate the property. Mr McSharer said this meant they had to sell the sheep. The Hendersons told Mr McSharer that they had spoken to three different farmers who had land on which they could agist the sheep rather than selling them. He said that they would be better off financially to keep the sheep, as the new lambs would add value and they would only need to sell the old sheep and wether hoggets. The sheep sales together with the wool sales would more than cover the cash flow requirements. Mr McSharer replied that he had not thought about it from that perspective.

581    Mr McSharer then stated that “the reason why [they] want to sell all the sheep is because Hailey has a project of her own that she wants to get started on”. Ms Manners told Mr McSharer that this was not something that should be discussed at the table.

582    Both Mr and Mrs Hendersons said that they were very upset about this exchange. Mr Henderson said that Mr McSharer did not say anything about any negotiations about the Gravel Project, but “didn’t say that the whole idea was dead either”. He said it just seemed to have “[gone] off the radar”. He also said that he never heard Mr McSharer criticise the “property rights” idea during the Ascot Waters meetings. He said he did hear Mr McSharer say to Mr Harley that he was a “consultant helping us, and he had an LLB”.

Consideration of Ascot Waters evidence

583    Mr McSharer advanced two reasons for the sale of the sheep. First, the Receivers had given notice of their intention to terminate the grazing licence under which the sheep were agisted on the York farm. Second, the advice of Mr Harley “destroyed” his relationship with the Hendersons and caused him and Mrs McSharer to decide “to extract themselves from any involvement with the Hendersons”.

584    I reject his evidence concerning these two reasons.

585    As to the Receivers’ termination of the grazing licence, there is no doubt that Astraea did receive the letter from the Receivers dated 8 February 2012. Mrs McSharer sent it by email to the Hendersons on 13 February 2012. Mr McSharer’s evidence was that in suggesting sale of the sheep on 7 February 2012, he was acting on oral advice from the Receivers.

586    I infer that Mr McSharer had obtained from the Receivers an advance draft of the letter they proposed to send concerning termination of the grazing licence. He used this, by letting Mrs Henderson read the first page, as the means of putting pressure on the Hendersons to agree to a sale of the sheep.

587    Mrs McSharer’s evidence does not support Mr McSharer’s emphasis on the termination of the grazing licence, or his statement that there were no alternative agistment properties available. Mrs McSharer’s evidence in cross-examination was that the first she heard of the Receiver’s decision to terminate the grazing licence was when she received the 8 February letter. She also acknowledged that the Hendersons suggested at least one alternative agistment property.

588    Mr McSharer also gave prominence to the “property rights” as an influence upon his decision to insist on sale of the sheep. He said that he heard of the “property rights” issues for the first time at Ascot Waters on 7 February 2012. However, this is contradicted by other evidence. For example Mrs Henderson sent an email to Mr McSharer on 1 February 2012, to which a document entitled “PROPERTY RIGHTS in AUSTRALIA” is attached. This document refers, amongst other things, to Plenty v Dillon. Further, there is also an email sent on 1 February 2012 from Mrs Henderson to Mr McSharer attaching photographs of a “property rights” sign, warning that trespass is an offence and citing Plenty v Dillon on the front gate of the York farm.

589    Mrs Henderson said that she explained to Mr McSharer what the Hendersons were trying to do by putting the sign on the gate. She said that Mr McSharer said that he supported them 100% and to make sure to send the photograph to the Receivers. Mrs Henderson’s contemporaneous note of this conversation supports her evidence.

590    Moreover, as I have mentioned, I accept Mrs Henderson’s evidence that Mr McSharer attended the auction of the York farm on 3 February 2012 and made public statements referring to the “property rights” sign on the front gate and questioning the Receivers’ right to confer a clear title.

591    At the Ascot Waters meeting on 7 February 2012, Mrs Henderson asked Mr McSharer to help her with a response to a letter from NAB’s solicitors Lavan Legal. Mr McSharer did provide Mrs Henderson with wording for this response. Mr McSharer said in cross-examination that when he put his “thoughts down on a piece of paper” for Mrs Henderson to mould into the letter of 7 February 2012, he knew there was an issue in relation to “property rights” “but did come to know the issue comprehensively until later on”. I do not accept this. The evidence to which I have referred establishes that Mr McSharer was appraised of the “property rights” issue before the meetings at Ascot Waters.

592    I do not accept Mr McSharer’s assertion that Mr Harley’s advice on “property rights” “destroyed” his relationship with the Hendersons. Mr McSharer’s conduct after the Ascot Waters meetings is not compatible with a relationship that had been destroyed, or a decision to extract himself from all involvement with the Hendersons. It is compatible with a determination on his part to sell the sheep thereby extracting value from Astraea, but to maintain his relationship with the Hendersons in order to preserve the opportunity represented by the Denmark litigation. I will turn to this later conduct in due course.

593    Mrs Henderson’s contemporaneous file note of 9 February 2012 records her telephone conversation with Mr McSharer. Above the heading “Shona” it records the following words: “[E]normous. He is prepared to help us out because of the value of the sheep”.

594    Mr McSharer did not deny having a conversation along the lines that the task proposed by Shona McLean, an acquaintance of the Hendersons, was “enormous”, but that he was prepared to help out the Hendersons because of the value of the sheep. While Mr McSharer says that he could not remember this conversation, he said that the file note did “in actual fact, say something”; he said that he was “overcommitted and [he] wasn’t having a bar of Shona”, but that “the priorities that were set with Hendersons at Childers were set”.

595    This too evidences that his relationship with the Hendersons had not been destroyed. It belies his evidence that he and his wife had decided to extract themselves from the relationship with the Hendersons. Further, it confirms the interest that Mr McSharer had, immediately after the Ascot Waters meetings, in the value of the sheep.

596    I find that Mr McSharer began pressing for the sheep to be sold to allow the “A” class shareholders to extract value from Astraea.

597    Nor do I accept Mr McSharer’s assertion that he did not say anything in relation to the use of the proceeds of the sale of the sheep for “another project” of Mrs McSharer. I accept the evidence of the Hendersons that he did say this.

598    Mr McSharer in his written evidence said that Mrs McSharer had not commenced any separate project. He confirmed this in cross-examination and also said that Fides Consulting had not commenced any separate project. He said he was “absolutely categorically positive” that Fides Consulting was not starting any new project in January or February 2012. However, he was then shown an ASIC extract establishing that on 17 January 2012 a company called Midwest Concepts & Solutions Pty Ltd was registered. Fides Consulting and Skyprince (as outlined earlier, another company associated with Mr and Mrs McSharer) became holders of shares in that company (together holding a 50% interest) and both Mr and Mrs McSharer became directors. Mr McSharer then said that Midwest Concepts & Solutions Pty Ltd had developed into a very successful consultancy business and that the total investment in the company was $4.00.

599    He said that it had not engaged in marketing activities and had not considered business cases for projects other than carbon farming and a registry for mining companies. However, an agenda for a meeting of Midwest Concepts & Solutions Pty Ltd refers to marketing activities and the consideration of a business case relating to bottled water, to be presented by “Bill”. This is yet another example of Mr McSharer asserting a matter with confidence immediately before it was demonstrated to be incorrect. I infer, from the timing of the registration of the company and Mrs McSharer’s appointment as director, that the ‘other project’ was Midwest Concepts & Solutions Pty Ltd.

600    I accept the evidence of Mr and Mrs Henderson as to the matters discussed at the Ascot Waters meetings.

601    The findings I have made in relation to the first four phases of the relationship are sufficient to establish the Hendersons’ claim so far as it depends upon Mr McSharer’s misleading or deceptive conduct, alternatively unconscionable conduct, alternatively deceit, inducing the Hendersons into entering agreements and resulting in the transfer of the sheep to Astraea. When that occurred the Hendersons were deprived of legal ownership and control of the sheep and thereby suffered damage. I will now consider what happened in the last three phases of the relationship. These are relevant to the assessment of damages. However, my findings of further unconscionable conduct on the part of Mr McSharer also constitute, were it necessary, a further basis for awarding damages to the Hendersons.

Phase 5: Communication between 10 February 2012 and the end of February 2012

The McSharers’ evidence

602    Mr McSharer’s evidence as to what occurred during the second half of February 2012 was as follows.

603    After the Hendersons returned to Queensland, he had the sheep valued and forwarded the valuation by Mr Barnsby to the Hendersons, to which I have referred earlier at [414] of these reasons.

604    On 13 February 2012, the Receivers advised that they were willing to consider an offer for the Denmark Litigation Rights. Their email of 13 February 2012 to Mr McSharer informed him that they were unable to accept the current offer but confirmed that they would be “willing to consider an offer for the [Denmark Litigation Rights] on the following terms….” The terms included a purchase price of $12,500 and a success fee of 12.5%. I will refer to this as the 13 February offer.

605    The Hendersons in an email of 13 February 2012 congratulated him for getting “this far” in relation to the Denmark Litigation Right and stated that they would “not hesitate to proceed with this course of action with Astraea, as planned”. The Hendersons advised him by telephone that they wanted Astraea to accept the 13 February offer. He sent emails to the Hendersons on 13 February 2012, in which he told them that he and Mrs McSharer were unsettled “big time” as Mrs McSharer had received a draft deed for the assignment of the Denmark Litigation Rights from the Receivers. The following email from him, which appears to have been sent after the email to which I have just referred, was in these terms:

Hi Kim and Susan,

Upon reflection I may not of (sic) explained myself properly below.

Astraea will not proceed any further with progressing the assessment of the Chose in Action to Astraea or any other matter until the outcome of Wednesday’s discussions between ourselves.

As said the discussions this morning have unsettled both of us big time and put the whole purpose into question.

I hope we cannot (sic) come to an acceptable position.

606    The reference to the “whole purpose” in the email was to the intent of the company and its objectives as agreed to at the Childers meetings.

607    He said to Mrs McSharer that they had actually achieved what the Hendersons had been unable to do: that they were standing at the door of obtaining the Denmark Litigation Rights and after all of this effort, the Hendersons had decided that they did not want to sign the deed of assignment because they did not want to waive any rights against NAB or the Receivers.

608    Later on 13 February 2012, Mrs McSharer sent an email to the Hendersons. This email contained the following:

Please find attached (by registered mail) the notice of termination by Bonthorpe Pty Limited (Receivers and Managers Appointed) terminating grazing licence 9th March 2012.

Unless Kim and yourself are able to obtain a legally binding injunction by COB Wednesday 15th February 2012, preventing Bonthorpe Pty Ltd through McGrathNicol from exercising their rights, Astraea has no way of preventing or delaying Bonthorpe’s termination.

Astraea must comply with the notice or be considered trespasses (sic) as of 5.00pm, 9th March 2012. The assets of Astraea for the benefit of all shareholders demand the sale of the sheep.

I want to support you both to the extent that the law allows but Astraea cannot proceed without a legal basis. As the Sole Director of Astraea Group Pty Ltd, I need to do what is right for the Shareholders and not for Kim and Susan Henderson other interests.

I am not suggesting nor am I criticizing Kim and Susan’s Henderson’s (sic) genuine interests (this is your life) but on this occasion and in these circumstances, the views and possible stance you are contemplating is wrong from any point of view, especially from a partnership and what was agreed at the beginning.

I have, again, spoken to Bill and completely agree and believe that there is no legal basis for Kim and Susan Henderson to argue before the Supreme Court of WA the granting of an injunction preventing Bonthorpe… from availing themselves to the fullness extent the law permits (sic)…

There is a lot at stake here and I would hate for you guys to waste your time and energy on a moral concept which has no legal basis at present and you need the solution NOW not in the future. The sale of the sheep and the Chose in Action are REAL today.

(Emphasis in original.)

609    The reference to “moral concept” was to the “property rights” mentioned by Mr Harley as the Ascot Waters meetings, and that the reference to “what was agreed at the beginning” was to the parties’ agreement to enter into a joint venture and to try as best as possible to achieve the primary and secondary objects of the company. He and Mrs McSharer had said to one another that the issue with the Hendersons had gone off track and that from now on she needed to adopt the view which was solely for the benefit of the company, without regard to the Hendersons’ agenda. The Hendersons did not want to remove the sheep.

610    He did not agree with the proposal or the figures in the email sent to him by Mrs Henderson on 15 February 2012 and which attaches the Hendersons’ analysis of sheep and wool sales. The Hendersons advised in the email that they did not agree with the figures provided by the McSharers. It also stated that they had provided this analysis in order to support their rationale for “hanging on to the sheep”.

611    On 15 February 2012, Mrs McSharer sent a proposal to Mrs Henderson in relation to the Denmark Litigation Rights. Mr McSharer has no memory of speaking to Mr Henderson on 15 February 2012.

612    Mr McSharer sent an email dated 15 February 2012 to Mrs Henderson. It is in these terms:

Hi Susan

I think we are just going around in circles, we are not going to agree to moving the sheep or retaining our portion of the sheep under any circumstances what so ever. This is not the original concept we agree (sic) to and we are just not interested in discussing this.

We have put to you what we consider a balanced proposal.

If you and Kim want to purchase our portion of the sheep, we are happy to sell the sheep to you. Any sale will be at market value with full payment by 1st March 2012. No sheep leave (sic) the property until payment in full.

After you pay for the sheep, you can move them where you wish.

The formula for the valuation of the sheep could be obtained by the average of three stock agents. (how this is to be done by 5:00 pm today I do not know)

I have not just pulled a value out of the air, Brian Barnsby is creditable and his figures calculate to an estimate the total value is 600k. The only true value is determined by the market place.

I have made it clear, that a (sic) 5:00pm today Astraea will make a decision.

If Astraea is placed in this position and forced to make a decision, Hailey will not be proceeding with McGrathNicol for the purchase of Bonthorpe’s Chose in Action (Denmark litigation).

This matter has just two hours to reach agreement.

613    This email was sent “after the relationship between the Hendersons and [Mr McSharer] had been destroyed by the advice of Craig [Harley] at Ascot Waters meeting”, and the Receivers had also required Astraea to vacate the farm and there were no other agistment options.

614    At this time the Hendersons were trying to pursue the “property rights” issue stated by Mr Harley at the Ascot Waters meetings and were trying to persuade the McSharers to accept it. He and Mrs McSharer wanted to remove themselves from the “property rights concepts of the Hendersons” and focus solely on the primary and secondary purposes of the company. The email Mrs McSharer sent later in the day on 15 February 2012 was to “achieve a balanced resolution to the issues confronting Astraea” and to “try and undertake a fair and equitable in-specie distribution of the stock”.

615    The email proposes that the “operating stock (Sheep) within Astraea Group Pty Ltd be liquidated” and that both “A” and “B” class shareholding “receive in specie (Sheep) distribution to the amount of 50% of current stock numbers”. The email states that this distribution is in accordance with clause 31.10 of the constitution of Astraea. Mr McSharer conceded in cross-examination that this was an erroneous reference to clause 30.10, which concerns methods of paying a dividend.

616    It appears that a ‘follow up’ email was sent by Mr McSharer, of which the subject line reads “Re: Chose in Action”, with further proposals, including that the parties accept the 13 February offer, obtain a draft of the assignment document and that each party contribute in equal amounts to fund the litigation. I will refer to this as the Chose in Action Email.

617    Mr McSharer recalled receiving the email from Mrs Henderson which appears to be a reply to the Chose in Action Email. This email states the following:

We agree to your proposal outlined below on the following conditions:

1.    that the B class shareholding be transferred to the Dunsky trust after the Chose in Action has been signed, as discussed

2.    that the Dunksy Trust appoint a director of its choosing, to sit on the board with the current director, and preserve the right to either retain that director or an alternate director.

618    Mr McSharer replied by email as follows:

Hi Susan

I do not know why you try to push the envelope.

The answers to the conditions you have tried to set out below is;

Point 1     Yes

Point 2    No, it was not discussed and will not be agreed to by the “A” class member under any circumstances.

I am proceeding on the Chose in Action as above.

619    He explained that he sent this email as he did “not want a deadlock arising when there was a dispute between the parties over the “property rights” issues mentioned by Craig [Harley] at Ascot Waters”.

620    He sent a further email to Mrs Henderson on 16 February 2012. This referred Mrs Henderson to correspondence “below”, which included an email from Mr McSharer to the Receivers confirming Astraea’s acceptance of the 13 February offer and advising that they wished to proceed to acquire from Bonthorpe all of the Denmark Litigation Rights. It also asked that Astraea be sent a draft of the deed of assignment for review. It was in the following terms:

Please see below, this is what you wanted, this is what I have delivered.

We are not going to agree to amend the company structure other than the member entity. This has never been discussed or resolved and it will not be.

If you now no longer agree to undertake the litigation based upon that company structure you need to advise myself that you wish to withdraw. This withdrawal needed to be in Astraea hands before 5:00pm, 15 February 2012. You have not done so.

The Director will now determine “what is the best interests of Astraea and the members” in relation to all matters.

…

Every opportunity was given to you to avoid conflict, by your conduct, you have chosen conflict.

621    He explained that the “5:00pm” deadline was “stated to get certainty”. He said he did not know the actual terms of the deed of assignment until he received the draft from the Receivers. He said that an agreement was signed by the parties on 16 February 2012 “to try and reach a compromise to the dispute”. He recalled that the issue became urgent as the Receivers required Astraea to vacate the farm by 9 March 2012.

622    I will refer to this agreement signed by Mr and Mrs McSharer and Mr and Mrs Henderson as the 16 February Agreement.

623    The terms of the agreement were as follows:

•    After the execution of the Deed of assignment conferring to Astraea Group Pty Ltd the rights in litigation (Chose in Action) for Denmark, the “B” class shareholding shall be transferred to the nominee of Kim and Susan Henderson.

•    All distributions shall be agreed between the members; any and all distribution shall be equal between the “A” and “B” class members.

•    All stock (sheep) currently owned by Astraea Group Pty Ltd is to be divided in species (sic) between the members in accordance with the shareholding. After the in species (sic) distributions of stock the (sheep) become the absolute property of the member’s corporate entity.

•    All future decisions of the company (Astraea Group Pty Ltd) shall be made by the unanimous resolution of the director of the company, its members and the parties to this Agreement.

•    All parties hereby undertake to progress and support each other in achieving a successful litigation/damages claim against all and any third party services providers to the Denmark project.

624    Mr McSharer then said he had no memory of speaking to Mr Henderson on 16 February 2012. He said that on 20 February 2012, Mrs Henderson sent a spreadsheet in relation to the distribution of the sheep which shows a proposed allocation of the sheep (divided into categories such as ewe lambs, wether lambs, ewes of two years).

625    He said that he and Mrs McSharer sought advice on the proposal by the Hendersons to distribute the stock from a friend, Mr Steven Borwick, who said to them that the proposal was “grossly unfair” and that they would be making a “very foolish decision” by accepting the Hendersons’ allocation. He recalled that Mr Borwick had said that because of the Hendersons’ knowledge in the farming industry, they were attempting to take advantage of the McSharers and “defraud [them] of their rightful entitlements”. He said that on 28 February 2012, the Receivers agreed to assign the Denmark Litigation Rights, and referred to a document which was an email to which a draft deed of assignment was attached.

626    Mrs McSharer’s evidence as to this period of communication was as follows.

627    On 13 February 2012, she read an email from the Receivers advising that they would consider an offer for the Denmark Litigation Rights on their terms. She forwarded this email to the Hendersons. She sent an email to the Hendersons and attached the notice of termination of the grazing licence from the Receivers. She and Mr McSharer had discussed that they were concerned and did not want to go down the path of the “Property Rights”, which the Hendersons were determined to do.

628    Between 12 and 16 February 2012, by a series of emails, she had Astraea attempt to develop an equitable arrangement between the shareholders to undertake an “in-species (sic) distribution” of the livestock. There was urgency due to the need to vacate on 9 March 2012. Mrs Henderson confirmed acceptance of the proposal put forward, with conditions.

629    On 16 February 2012, Mrs McSharer had Astraea email the Receivers confirming acceptance of the 13 February offer to acquire the Denmark Litigation Rights. This email was signed off as being from Mr McSharer.

630    She and Mr McSharer drafted the 16 February Agreement. Mr McSharer asked if she was happy with the draft agreement to be sent to the Hendersons and she replied that she was. She understood that the 16 February Agreement, and the arrangement that the Hendersons wanted, was that once the Denmark Litigation Rights were assigned to Astraea, the Hendersons would become shareholders of Astraea, not Ms Katie Payne, and take a position as a director in the company, and that the sheep would be distributed equally between the shareholders.

631    The spreadsheet received on 20 February 2012 proposed a distribution by which the Hendersons would retain the young breeding ewes and distribute all the wethers (male) and other ewes in different year groups to Mr McSharer and herself. Mr McSharer told her that he felt apprehensive of the proposed distribution from what we had learned in the sheep and farming industry. She had taken the proposed distribution at face value, as the dollar values were equal.

632    She agreed to Mr McSharer’s suggestion to consult Mr Borwick, as Mr Borwick was a long-time friend of Mr McSharer and had been a sheep and cattle farmer for many years.

633    Mr Borwick had said that it would be “very foolish” to accept the distribution and that they were getting “ripped off”. He said that they were being “taken advantage of” due to their lack of knowledge, and he went on to explain that the Hendersons would be getting the breeding stock while the McSharers would be getting the “old rubbish stock”. Mr McSharer called another friend to discuss the matter, and subsequently told her that the proposal was not fair.

634    She read an email dated 28 February 2012 which was also copied to the Hendersons, from the Receivers which contained the deed of assignment for the Denmark Litigation Rights.

Consideration of McSharer’s evidence

635    I find much of Mr and Mrs McSharer’s evidence as to this period to be unsatisfactory.

636    In cross-examination, Mrs McSharer was asked to describe the nature of an in specie distribution. She said that an in specie distribution was based on the different attributes of the sheep, specifically gender and age. She was also unable to identify the provision in the constitution of Astraea providing for an in specie distribution.

637    I do not accept Mr McSharer’s evidence that as at 13 February 2012, Mrs McSharer had received a draft deed of assignment from the Receivers. The evidence of Mrs McSharer does not support this. Neither does the documentary evidence. There is no evidence that any draft deed of assignment was received until 28 February 2012.

638    However, the supposed receipt of the deed of assignment and the Hendersons’ unwillingness to sign it were the reasons Mr McSharer gave for being “unsettled big time”.

639    As to the 16 February Agreement, Mr McSharer denied that, as at 13 February 2012, the McSharers were not trying to extract themselves from the relationship with the Henderson. He added “Otherwise, why would we enter into the document?”

640    This directly contradicts evidence given by Mr McSharer that after the Ascot Waters meetings the relationship was “destroyed” and that he and Mrs McSharer decided to extract themselves from involvement with the Hendersons. The evidence, including some given by Mr McSharer, demonstrates that the Hendersons were, in fact, agreeable as at 13 February 2012 to the assignment of the Denmark Litigation Rights. His evidence on this point was confused and confusing. I do not believe it.

641    As I have mentioned, by email on 15 February 2012 Mr McSharer asserted that the constitution of Astraea permitted division of the sheep between the McSharer interests and the Henderson interests by way of an in specie distribution of profit under Astraea’s constitution. This attempt to justify his version of events was falsely asserted.

642    The constitution made no such provision. Clause 30.10 of the constitution refers to payment of dividends, which under clause 30.3 are to be paid out of profits.

643    The profit of Astraea for the period from 1 August 2011 to 7 February 2012 was approximately $95,000, whereas the amount to be distributed, based on the valuation adopted by Mr McSharer, was $600,000. When this was put to Mr McSharer in cross-examination, he said he had “made a mistake in [his] description” of the action as being the paying of a dividend. I do not believe this explanation. It was a false and baseless explanation to justify his taking money out of Astraea.

644    Mr McSharer was also unable to adequately explain his refusal to allow the Hendersons to have representation on the Board of Astraea. He explained, during cross-examination, that the risk of “deadlock” arose by way of the “property rights” issue and the fact that the Hendersons wished to use the asserted “property rights” to attempt to get back the York farm. When asked by counsel how the “property rights” issue would be relevant to Astraea, he answered that the Hendersons wanted the McSharer’s support and had suggested that the sheep should stay at the York farm. He added that in his view, Mr Henderson’s desire to continue with the farming enterprise was dependent on the sheep remaining at the York farm, and denied that Mr Henderson had, in fact, suggested alternative agistment properties at the Ascot Waters meetings. I have already found that Mr Henderson did so.

645    I do not believe Mr McSharer’s assertions as to the risk of a “deadlock” on the basis of the Hendersons’ desire to assert certain “property rights”. I find that Mr McSharer was simply unwilling to relinquish control of the company. This control was, as he saw it, his means to obtaining significant monies from the company.

646    The McSharers could have separated Astraea completely from the Hendersons’ dispute with the Receivers and NAB, merely by moving the sheep to a different agistment property. I do not believe Mr McSharer’s repeated assertions that there were no other suitable agistment properties available. These are implausible. A number of alternative suggestions were made to him. His rejection of these is clear.

647    Despite his evidence that at the Ascot Waters meetings Mrs McSharer agreed to make further inquiries in relation to the agistment and that both he and Mrs McSharer did in fact make such inquiries, I find that he was not open to the idea of agistment by mid-February 2012.

648    I find that Mr McSharer’s real objective was not to dissociate themselves from the Hendersons’ dispute with NAB, but rather to engineer the sale of the sheep. Even assuming that the sheep could not be agisted elsewhere and that it was necessary to sell them, there was no reason why the sale proceeds should have been distributed to shareholders. Consistent with the arrangement reached at Childers, any proceeds from sale of the sheep could and should have been employed in advancing the Denmark Litigation Rights or the Gravel Project.

649    I find that Mr McSharer wanted funds from the sale for his own purposes including for investment in another project.

650    For these reasons, I do not accept the evidence of Mr or Mrs McSharer to the extent that it is inconsistent with the evidence of Mr and Mrs Henderson. I accept the evidence of the Hendersons.

The Hendersons’ evidence and analysis

Mrs Henderson’s evidence was as follows.

651    The Hendersons did not expect Astraea to become involved in their dispute with the Receivers and NAB; as far as they were concerned this was something they were doing separately. Soon after the Hendersons returned to Queensland after the Ascot Waters meetings, Mr McSharer telephoned the Hendersons and told them that they had to agree to sell the sheep. She told Mr McSharer that this was not something that they could do on the spot and said that they would need a few days to consider. Mr McSharer responded that they had until 5.00 pm on Wednesday, 15 February 2012 to make up their minds. She told Mr McSharer that they could move the sheep and agist them but he said he was not interested.

652    She did not understand why there was a cut-off date, but then it “dawned on [her]” and she called Mr McSharer and asked if he had already made arrangements to sell the sheep and if he needed to get the details to advertise the sale. He responded “yes”. She felt angry and disillusioned at learning that they were “about to lose the sheep as well”.

653    Mr McSharer increased the pressure on the Hendersons over the next few days with his emails and phone calls. They received the email on 13 February 2012 stating the McSharers were “unsettled…big time”. Following receipt, on 13 February 2012, of the communications between Mr McSharer and the Receivers leading to an offer by the Receivers to assign the Denmark Litigation Rights, she replied and said they wanted to go ahead with the assignment. She recalled receipt of the communications on 13 and 15 February 2012. She sent the analysis of sheep and wool sales on 15 February 2012 to demonstrate the financial benefits of holding on to the sheep.

654    Following receipt of the email of 15 February 2012 giving the Hendersons until 5.00 pm to buy half of the sheep at full market value, she was furious that the McSharers were now “‘allowing’ [the Hendersons] to buy [their] own sheep back ‘at market value’ – after [Mr McSharer] had talked [them] into selling them to Astraea at such a discounted price”. The Hendersons felt that they did not have any alternative but to accept the proposal, but wanted some sort of promise that something would happen with respect to the Denmark Litigation Rights.

655    The Chose in Action email followed on from content of an earlier telephone conversation, including that the Hendersons wanted something agreed about the Denmark Litigation Rights.

656    Following receipt of the email rejecting the Hendersons’ condition that they have director representation, she sent an email back to Mr McSharer asking why they should not have representation on the Board of Astraea and saying that they would not support Astraea in pursuing the Denmark Litigation Rights unless they received representation. She recalled further acrimonious communication, both by telephone and by email.

657    In relation to the 16 February Agreement, the Hendersons signed the agreement because they thought it was the only way they could retrieve situation with Mr McSharer and Astraea. It was their only hope of rebuilding their financial position and it looked to be falling apart.

658    Mr Henderson had flown to Western Australia on 27 February 2012 to take up residence at the York farm, as they believed that this was the only way they could protect their interests against NAB.

659    On 28 February 2012, she received a copy of the draft deed of assignment. This is, as I have mentioned, consistent with the email of 28 February 2012. She was very surprised to read the clause in the deed of assignment stating that the Hendersons would have no further right to any claim against NAB. This had never been discussed or mentioned. This was the “tipping point” as far and she and Mr Henderson were concerned. They had endured the pain and frustration of financial failure, the NAB and the Receivers were trying to sell their family farm, the McSharers had taken control of their sheep and now they were presented with a deed of assignment which took away their rights to take legal action against the NAB. She came, unassisted, to the view that she was not prepared to sign this proposed arrangement.

660    Consistently with Mrs Henderson, in relation to the communications from 13 to 15 February 2012, Mr Henderson said that the emails were “really putting pressure on [the Hendersons] to agree to sell the sheep”. He explained that he was strongly opposed to being forced to sell the sheep, partly because he thought it was a bad financial move, but also because Mr McSharer appeared to want to take the money out of Astraea for his and Mrs McSharer’s own purposes, rather than to fund the projects of Astraea as agreed.

661    Like Mrs Henderson, Mr Henderson explained that the Hendersons “came around to accepting” that they would “have to go along with [Mr McSharer’s] proposal to divide up the sheep”. He said that they didn’t seem to have any alternatives and so decided to do their best to hold the Astraea arrangement together by going along with what Mr McSharer wanted. Mr Henderson explained that the proposal the Hendersons made for the division of the sheep, by value rather than number, was based on the valuations made by Mr Barnsby, which the Hendersons received from Mr McSharer. He said that they were accepting less sheep and giving Mr McSharer more, and equalising the values using Mr Barnsby’s numbers.

662    Mr Henderson also explained that the clause in the draft deed of assignment stating that the Hendersons would have no further right to make any claim against NAB “was really the last straw”. He said that he discussed this with Mrs Henderson and they decided that they were going to rescind the Stock Purchase Agreement. They felt they could not trust Mr McSharer going forward.

663    I find that once the dispute over sale of the sheep had arisen in February 2012, Mr McSharer engaged in bullying and intimidatory tactics to force the Hendersons to “agree” to the sale of the sheep – for example, by giving ultimatums and setting an artificial deadline.

664    I accept that the Hendersons eventually gave in to the pressure applied by Mr McSharer and agreed that the sheep should be split into two groups. I accept that they believed that there was no alternative course of action. There was nothing unethical or uncommercial about the Hendersons’ proposal to divide the sheep: it was an attempt to fairly divide the sheep by value as opposed to number.

Phase 6: The breakdown of the relationship

665    What followed the communications in February 2012 was a period of acrimonious communication and eventually a complete breakdown of the relationship. At the end of this phase, the Receivers obtained an order for vacant possession of the York farm.

The McSharers’ evidence and analysis

666    Mr McSharer’s evidence as to this phase of the relationship was as follows.

667    On 1 March 2012, Mr Henderson returned to the York farm, locked the gate, erected a sign referring to the decision of Plenty v Dillon and refused all parties, including Astraea, access to the farm and stock grazing thereon. Mr Henderson said to him in a telephone conversation on 1 March 2012 that the Hendersons had rescinded the Stock Purchase Agreement.

668    Mrs McSharer, as sole director of Astraea, and Mr and Mrs McSharer in their personal capacity sent an email to Mrs Henderson in response to the telephone conversation with Mr Henderson of the same day. I will set out the contents of this email.

Susan,

Issues

I have spoken several times to Kim today, I have not been able to help him move away from his course of action.

We have been more than fair with our dealings with you and Kim.

Astraea Group will now move to enforce its rights.

Astraea will now proceed with:

•    Assignment of Chose in Action. (the draft has many clauses which are just not relevant, based on the conduct of Kim and Susan, and the intervening events prevent W.B.McSharer negotiating or arriving at a mutually agreeable assignment agreement. You and Kim have just thrown 50% of between 5 and 12 million dollars away). This will not proceed.

•    There will be no share transfer effecting the “B” class member.

•    The sale of sheep will be in accordance with the shareholders agreement dated 16th February 2012. (if you do not remove the sheep from the York as per the notice of McGrathNicol and the shareholders agreement ALL the sheep will be sold).

•    Enforcing the right of access to the York farm.

Notice

Astraea Group Pty Ltd, Bill and Hailey McSharer provide notice to Kim and Susan Henderson that they jointly refute all and any assertions by Kim and Susan Henderson that the sale of the sheep and all dealings between the parties where or are unconscionable.

This concept is personally offensive and that in consequence of such, the contract for the sale of the sheep to Astraea by K&S Henderson is rescinded by K&S Henderson.

K&S Henderson have no power, basis or capacity to rescind the sale contract of the 24th August 2011.

The sale contract remains binding on all parties thereto.

(Emphasis in original).

669    This email was sent to Mrs Henderson on 1 March 2012 because Mr Henderson had taken control of the farm and was preventing access by Astraea, and Mr Henderson was saying that Astraea had no rights to the sheep.

670    He and Mrs McSharer did not want Astraea to effect any share transfer for the Hendersons, and the director of Astraea wanted the shareholding to remain unchanged. He said to the Hendersons that the sheep had to be sold as the Receivers had said all of the sheep had to be removed from the property. He thereafter said to Mrs McSharer that if the Hendersons did not want to abide by the 16 February Agreement the sheep had to be sold.

671    He sent a further email on 1 March 2012 because Mr Henderson had taken possession of the farm, locked the gates, placed a sign on the gate in relation to Plenty v Dillon and had refused the stock agent, Mr Brian Barnsley, access to the property.

672    On the same day, he informed the Receivers in relation to to Mr Henderson’s occupancy of the farm. It is addressed to Mr Oehme and advises of recent events, including that Astraea had arranged to sell the sheep in accordance with the 8 February letter and that Mr Henderson had on 1 March 2012 advised Mr Barnsley that he was not to enter the property and the sheep were not to be sold or removed.

673    The Receivers by letter dated 7 March 2012 extended the time for Astraea to vacate the farm until the issue of Mr Henderson’s occupancy was resolved.

674    On 2 March 2012, the Hendersons emailed the Receivers withdrawing any support and cooperation with Astraea for the assignment of the Denmark Litigation Rights. It includes statements that the Hendersons “consider that [Mr McSharer] has unfairly and inequitably used [their] position for his own and his wife’s benefit and financial gain” and “consider Mr McSharer to be of dubious character and [they] had reason to doubt his honesty”.

675    The Receivers withdrew from negotiations to assign the Denmark Litigation Rights.

676    On 5 March 2012, Mr Henderson said during a telephone conversation that Mr McSharer had defrauded the Hendersons, to which Mr McSharer responded that there was no fraud. Mr Henderson again said that the Stock Purchase Agreement was rescinded and void, which Mr McSharer denied.

677    Mr McSharer sent an email to Mrs Henderson on 5 March 2012. This contains a statement that the Hendersons “are provided Notice that Kim Henderson is to cause the removal (in species) (sic) of the “B” class members stock (sheep) as per the Agreement, from the farm by no later than 5pm on the 9th March 2012”. He wanted to enforce the 16 February Agreement and to ask the Hendersons to take their portion of the sheep and go. The reason for removing the sheep was partly due to the Receivers’ notice of termination and also because Astraea was not interested in the “property rights” issue mentioned by Mr Harley at the Ascot Waters meetings.

678    On 6 March 2012, Astraea received a letter from the Hendersons, purporting to declare the Stock Purchase Agreement null and void and that the Hendersons considered the contract rescinded. This letter contains a statement that the Stock Purchase Agreement was null and void “as the Astraea Group Pty Ltd was founded on fraud, with the intent of knowingly obtaining an advantage by unconscionable bargain”.

679    On 6 March 2012, Mr McSharer sent an email to the Receivers. This was an attempt “to mitigate the loss that Astraea would have suffered if the Receivers did not proceed with the agreement to assign” the Denmark Litigation Rights. The email refers to the draft deed of assignment, and states that “[t]he intent is that Astraea purchase the Chose in Action for the litigation rights in relation to the matters referred to generally as ‘the Denmark Subdivision’”, and that “[t]he document you have presented refers to matters between McGrathNicol, the National Australia Bank and Henderson’s (sic), these matters are outside the scope of the Chose in Action and in my view has no place in the document”. The email then sets out numerous suggestions for changes to be made to the document and concludes that if they can “get these issues resolved, I will have the Deed reviewed by legal counsel…”.

680    Mr McSharer sent an email to the Hendersons on 10 March 2012, which simply stated “Do you know what deformation (sic) means, you soon will”. This email was sent as it was his opinion that the Hendersons had defamed Mrs McSharer.

681    On 25 April 2012, the McSharers and Ms Manners attended the York farm. When they arrived, the front gate was locked and had signs attached discouraging trespasses. He cut the lock and opened the gate to gain access the York farm. They were met by Mr Henderson, who advised that he had called the police and would hold them on the York farm until the police arrived. When two police officers attended the York farm, they were shown documentary evidence of the McSharers’ right to be on the farm. Mr Henderson was instructed to allow them to go about their lawful business.

682    When he, Mrs McSharer and Ms Manners attended the farm and inspected the stock, they found that some of the sheep had been tagged with a brand belonging to Swamp Haven and some had been painted, which was a way of marking sheep for sale. The police were notified. Mr Henderson said, when questioned by the police, that he was in the process of changing the identification tags of the sheep and the sheep were now the Hendersons’ property.

683    He, Mrs McSharer and Ms Manners attended the farm again on 26 and 27 May 2012, together with other parties, to inspect, muster and count the sheep “to assist with the police investigation”. The police had asked him to check the number of sheep present.

684    On 13 June 2012, Astraea made a formal complaint with the police in York.

685    Mrs McSharer’s evidence as to this period included the following.

686    On 1 March 2012, she had Astraea email the Receivers to alert them and complain about Mr Henderson being on the York farm. I have referred to this email above. It was sent by Mr McSharer.

687    On 5 March 2012, Mr McSharer spoke to Mr Henderson by telephone. The telephone was on “loud speaker” and she and Ms Manners were listening to the conversation. Mr McSharer asked Mr Henderson about the potential sheep sale, the Denmark litigation and about Astraea being allowed to access the York farm to look after the sheep. Mr Henderson’s response was a blunt and repeated “No”.

688    Mrs McSharer received the letter dated 6 March 2012 from the Hendersons. She was very upset at reading the letter because the Hendersons had asserted that the Stock Purchase Agreement was null and void and was rescinded, and, further, the email to the Receivers which was attached to the letter, was “even more damaging” as the Hendersons had stopped supporting the assignment of the Denmark Litigation Rights when Fides Consulting and Astraea had come to an agreement with the Receivers.