Tom Elvin Pty Ltd v Knell & Anor [2003] ACTSC 65 (11 July 2003)

Last Updated: 15 August 2003

TOM ELVIN PTY LTD v SYDNEY CHARLES KNELL & ANOR [2003] ACTSC 65 (11 July 2003)

EQUITY - application for specific performance of option for purchase of shares in private company - valid exercise of option previously established - specific performance resisted on ground of hardship - risk of deadlock in conduct of company - whether relevant to show prejudice to another company in which grantor's husband has substantial interest.

CORPORATIONS - application for specific performance of option for purchase of shares in private company - valid exercise of option previously established - specific performance resisted on ground of hardship - risk of deadlock in conduct of company - whether relevant to show prejudice to another company in which grantor's husband has substantial interest.

CORPORATIONS - dispute about the appointment of directors - whether meeting attended by directors was a "directors' meeting" - history of informality in decision making - provisions in articles of association authorising informality - requirements for notice of annual general meeting - affect of failure to comply on purported appointment of further director at meeting.

Gall v Mitchell [1924] HCA 48; (1924) 35 CLR 222

Pottinger & Anor v George & Anor [1967] HCA 25; (1967) 116 CLR 328

Norton v Angus [1926] HCA 35; (1926) 38 CLR 523 at 534

Hope v Walters [1900] 1 Ch 257

Dowsett v Reid [1912] HCA 75; (1912) 15 CLR 695

Thomas v Dering (1837 1 Keen 729

Colyton Investments Pty Ltd v McSorley & Anor [1962] HCA 44; (1962) 107 CLR 177

No SC 751 of 2002

Judge: Crispin J

Supreme Court of the ACT

Date: 11 July 2003IN THE SUPREME COURT OF THE )

) No. SC 751 of 2002

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: TOM ELVIN PTY LIMITED

Plaintiff

AND: SIDNEY CHARLES KNELL

First Defendant

AND: ALISON CAMILLE KNELL

Second Defendant

REASONS FOR JUDGMENT

Judge: Crispin J

Date: 11 July 2003

Place: Canberra

1. On 11 July 2003 I declared that the first defendant had been validly elected as a director of Dickson Hotel Pty Ltd ("Dickson") on 6 August 2002 and that the second defendant had been validly elected as a director of Dickson on 23 August 2002. I also made the following orders:

1. Subject to the conditions herein after specified I order that the second defendant convey 84 shares in Dickson Hotel Pty Ltd to the plaintiff upon the payment of the sum of $90,000. The conditions are as follows.

* First, within seven days the parties appoint an appropriately qualified valuer and in default of agreement as to the identity of the valuer to be appointed, the parties authorise the President of the Institute of Valuers and Land Economists to make such an appointment in their stead.

* Second, within three months each party, that is the plaintiff on the one hand and the first and second defendants on the other, submit to the valuer so appointed their proposals for the best way of realising the assets of Dickson Hotel Pty Ltd.

* Third, the parties agree that the valuer may select from the proposal submitted to him or from any further proposals of his or her own making what proposals he or she is of the opinion will achieve the best financial return to the parties consistent with condition 4.

* Fourth, that the parties authorise the valuer to implement the proposals selected by the valuer pursuant to condition 3 so that the property is effectively disposed of within 18 months of this date.

* Fifth, the costs of any valuer appointed under condition 2 be paid equally by the parties, that is 50% by the plaintiff and 50% by the defendants.

* Sixth, that Mr Victor Elvin and the second defendant resign from their directorships in Dickson within seven days hereof but be available for appointment as alternate directors. In the case of Victor Elvin, as an alternate to Mr Craig Elvin, or any other member of the Elvin family appointed in his stead. And in the case of the second defendant, the first defendant or any other director appointed in his stead. In each case approval for such appointments as alternate directors may not be withheld by the other member of the board. I vary condition 6 by providing that notwithstanding its present terms Mr Tom Elvin may be appointed as an alternate director in lieu of Mr Victor Elvin should he so desire.

* Seventh, that any chairman of the board refrain from exercising any casting vote in relation to any motion concerning the business of the company.

* Eighth, that in the event of any dispute concerning the conduct of the business of the company an arbitrator be appointed by agreement, or in default of agreement, by the President of the Australian Institute of Management, and that the directors of the board authorise the person so appointed to exercise a casting vote.

* Ninth, that any cheques drawn on the account of Dickson be signed by two directors and any bank accounts at Dickson be operated by two directors, or in each case their alternates.

* Tenth, within seven days hereof the plaintiff pay the sum of $500,000 and the defendants jointly pay a further sum of $500,000 to the National Australia Bank to be used in reduction of the indebtedness of Dickson to that bank so soon as that reduction may be arranged. Such payments are to be secured by two equal ranking second mortgages over the real estate of Dickson providing for the loans to attract equal rates of interest equivalent in each case to the standard rate of interest payable from time to time by Dickson to the National Australia Bank on the existing loans.

* Eleventh, copies of all financial records are to be provided to both the plaintiff on the one hand and the defendants on the other. And that the original records are to be made available for inspection by either party on demand.

* Twelfth, the administration and maintenance costs of the hotel are to be approved by both directors.

* Thirteenth, the company is to hold 10 board meetings per annum called on each occasion upon no less than five days' notice, and such meetings are to be held at the premises of Dickson Hotel.

* Fourteenth, within six weeks the directors conduct an annual general meeting and that adequate notice be given of that meeting to comply with the Corporations Law.

* Fifteenth, the plaintiff pay any outstanding interest on the sum of $90,000 referred to in order 1 within seven days of agreement as to that sum or within seven days of the determination of that sum by the arbitrator referred to in condition 8.

* Sixteenth, the first 15 conditions may be varied by an agreement in writing signed by the directors of the company, that is of Dickson, or their alternates.

2. The parties have liberty to apply for further orders, including orders discharging or varying order 1, whether on the ground of non-compliance with any of the conditions upon which the order was made or otherwise.

3. The orders presently restraining the first and/or second defendants from acting as directors of the company be discharged.

2. It is now necessary for me to provide a statement of my reasons.

3. The matter first came before me on a motion for interlocutory relief relating to issues concerning the validity of the registration of a transfer of 4,916 shares in Dickson from Reswick Pty Ltd ("Reswick") to Nationwide Development Corporation Pty Ltd ("Nationwide") and the validity of the first defendant's appointment as a director of Dickson. However, it quickly became apparent that there was an urgent need to resolve other issues relating to the control and management of Dickson. I granted leave for the action to proceed without pleadings and it was agreed that the matter should proceed as a final hearing in respect of the specific issues identified by counsel for the parties.

4. The most pressing issue appeared to be whether the plaintiff had acquired a legally enforceable right to purchase 84 shares in Dickson from the second defendant pursuant to a deed executed by those parties and Reswick on 21 June 2002. The 84 shares in question represented half of a parcel of 168 shares in Dickson that the second defendant had acquired from an organisation called Parents without Partners. The plaintiff held 4,916 shares, or 49.16 % of Dickson's shares, and Nationwide had purchased the same number from Reswick, though, as I have mentioned, the validity of the registration of the share transfer was disputed. Since the first defendant who was the second defendant's husband, was the sole shareholder and director of Nationwide, it was suggested that the continued retention of the whole parcel of 168 shares by the second defendant would have enabled her and her husband to effectively control Dickson. On the other hand, the acquisition of the 84 shares in question by the plaintiff would have increased the plaintiff's shareholding to 5,000 or 50% of Dickson's shares.

5. I was urged to approach the issue as if on a construction summons and, whilst it is normally inappropriate to determine particular issues prior to the hearing of the overall action, I accepted that there was an urgent need to resolve the effective control of Dickson because a potential decision about future leasing of its property could have had a very substantial effect on the value of the company.

6. On 16 May 2003 I gave judgment declaring that the plaintiff had validly exercised an option to purchase 84 shares from the second defendant and that the option agreement had been of such a character as to warrant an order for specific performance should the grounds for such an equitable remedy be established. The issue as to whether an order for specific performance could be resisted on the ground of potential hardship was left in abeyance.

7. I also noted that both these proceedings and those in matter No SC 775 of 2002 raised other issues and that it had been agreed that any judgment I might give on this issue should not be taken to prejudice any of the parties' rights save, of course, to the extent to which the findings might directly impinge upon such issues. The outstanding issues included disputes as to the validity of the first and second defendants' appointments as directors of Dickson, though the parties had consented, without prejudice to the resolution of those disputes, to a declaration that the first defendant was a director with effect from 21 March 2003.

8. I was subsequently informed that the plaintiff no longer challenged the validity of the share transfer from Reswick to Nationwide. However, the parties were unable to resolve their other differences in the light of the judgment which I delivered on 16 May 2003.

9. Both Mr Walker, who appeared for the plaintiff, and Dr O'Hair, who appeared for the defendants, stressed the need for a prompt decision on the outstanding issues. There was a continuing deadlock between the parties as to the conduct of Dickson. Furthermore, Greenway Hotel Pty Ltd ("Greenway"), which is another member of what were described in argument as the Elvin group of companies, had stopped providing additional security for a loan from the National Australia Bank ("the bank") to Dickson. As a consequence, Dickson was losing some $6,000 per week due to the imposition of penalty interest of an additional 6% per annum on the outstanding principal of more than $5,000,000. The bank had warned that, if the deadlock persisted, it might appoint a receiver. The strain of the continuing dispute also seemed to be taking a personal toll on some of the participants. Mr Tom Elvin, who was a central figure in many of the relevant negotiations, was seriously ill and it was suggested that the continuing dispute was having an adverse affect on his health. There had also been some measure of tension between the parties. In these circumstances, I agreed to hear the outstanding disputes as to whether specific performance should be ordered and as to whether the first and/or second defendant had been validly appointed directors.

10. The contention that specific performance should be refused on the ground of hardship was initially based upon allegations of unilateral mistake and prejudice.

11. The second defendant gave evidence that she had understood that the options provided by the deed executed on 21 June 2002 were exercisable only in the event that Nationwide, which was a company in which her husband had a substantial interest, did not purchase the shares of Reswick or the plaintiff within the stipulated period. She paid a substantial premium to purchase a small parcel of shares because they provided an opportunity for she and her husband to effectively gain a controlling interest in Dickson even if Nationwide proved able to only purchase the shares of Reswick or only purchase the shares of the plaintiff. She would not have entered into the transaction had she understood that the option granted to the plaintiff was exercisable even if Nationwide purchased Reswick's shares. Her belief had been based upon advice from two solicitors and statements from her husband to the effect that from what he had been told by Mr Parton and Mr Tom Elvin it was a good deal. The first defendant gave evidence that Mr Parton had told him that the shares would give him control of Dickson once he completed a deal with either Tom Elvin or him.

12. As mentioned in the earlier judgment, the deed contained the following recitals:

(C) Nationwide Developments Corporation Pty Ltd (ACN 100 695 663) ("Nationwide") proposes to purchase from Reswick and/or Elvin their respective shareholding in Dickson pursuant to a respective agreement ("the Share Sale Agreement").

(D) Region has agreed to grant to Reswick and to Elvin or their nominees each an option to acquire their respective shares should the Share Sale Agreement not proceed in accordance with this Deed.

13. Whilst I have held that the effect of the deed must be governed by clauses in the operative part of the deed notwithstanding these recitals, there was considerable force in the contrary arguments advanced during the last hearing and I accept that even solicitors may have construed the deed in the manner suggested by the second defendant. In any event, I found her to be an entirely credible witness and accept her evidence.

14. Mr Parton gave evidence that he had understood that the options agreement would have permitted either Reswick or the plaintiff to regain a full 50% shareholding if Nationwide purchased the shares of the other. However, I formed the impression that he may have been somewhat uncertain as to the effect of the agreement or at least as to how he had understood the intended effect of the deed when speaking to the first defendant on 20 June 2002 and, insofar as there was any conflict between their evidence as to that conversation, I preferred the evidence of the latter.

15. Surprisingly, Mr Craig Elvin, who was also a director of both Dickson and the plaintiff gave the following evidence about the option agreement:

It was designed for Alison Knell to take out the shares of a company held - called Parents Without Partners. They were designed to be non-voting shares and had an expiry option by which if Sid Knell didn't purchase half or the whole of the hotel that they would then revert back to the opportunity for the original shareholders to purchase them back.

16. As Dr O'Hair pointed out, this passage suggested that Mr Craig Elvin had understood the effect of the deed in much the same manner as the second defendant. However, Mr Elvin had also maintained that the plaintiff would not have accepted having less than an equal 50:50 shareholding and I am not certain that the passage quoted genuinely reflected his state of mind. Furthermore, Dr O'Hair argued that Mr Craig Elvin had effectively authorised Mr Parton to negotiate a deal that would ensure that demands apparently made by Parents Without Partners were averted and that, having conceded that he would not have been surprised by anything that Mr Parton may have said to someone approached about the matter, the plaintiff could not wholly disclaim responsibility for his representation as to the effect of the deed. Whilst that may be true, no claim for rectification was made and it was not suggested that the representation had been made other than innocently or that it had been the only cause of the belief that induced the second defendant to enter into the deed.

17. The second defendant also gave evidence to the effect that the financial position of Dickson appeared to be far more precarious than it would have been had it not been for the deadlock that had ensued since August 2002. Her husband's plans to subdivide the property into strata title units and market them had been thwarted and further losses had been sustained due to the penalty interest and the cost of litigation.

18. Dr O'Hair argued that if she were obliged to transfer the shares, rather than merely pay compensatory damages for any loss that might be occasioned by breach of the agreement, she and her husband's company would have effectively committed a substantial amount of capital to a venture very different from what they had had in mind. In that event, the plaintiff and Nationwide would each have a 50% shareholding in Dickson and a continuing deadlock would be likely to prove financially ruinous. The evidence revealed that neither defendant had contemplated having to work with the plaintiff as if equal partners in a corporate venture and, even since 9 April 2003 when the first defendant's continuing status as a director was made clear, it had been difficult to persuade Messrs Craig or Victor Elvin, who were the other directors, to attend board meetings to discuss the company's affairs. Furthermore, it had become apparent during the course of proceedings that Messrs Craig and Victor Elvin harboured significant antipathy towards at least the first defendant. Dr O'Hair submitted that the apparent inability of the Elvin and Knell families to work together would be likely to expose both Nationwide and the defendants to uncontemplated loss and provoke further litigation.

19. There is authority to the effect that specific performance may be refused on the ground of unilateral mistake, at least when the circumstances are such that it would be "highly unreasonable" to enforce the agreement. In Stewart v Kennedy (1890) 15 App Cas 75 Lord Macnaghten said at 105:

It cannot be disputed that the Court of Chancery has refused specific performance in cases of mistake when the mistake has been on one side only; and even when the mistake on the part of the defendant resisting specific performance has not been induced or contributed to by any act or omission on the part of the plaintiff. But I do not think it is going too far to say that in all those cases - certainly in all that have occurred in recent times - the Court has thought, rightly or wrongly, that the circumstances of the particular case under consideration were such that (to use a well-known phrase) it would be "highly unreasonable" to enforce the agreement specifically. The Court will not be active in assisting one party to an agreement who has always his remedy in damages to take advantage of the mistake of the other so as to involve him in serious and unforseen consequences.

20. Dr O'Hair argued that that was precisely what had occurred in this case. The second defendant had entered into the options agreement on the understanding that it would enable her to hold the balance of power in Dickson should her husband succeed in buying the shares of either Reswick or the plaintiff, but not both. That was important because she and her husband had entered into the relevant transactions with the intention of having the property converted to strata title, the individual units sold and the profits derived from those transactions distributed and not with the intention of acquiring an indirect interest in a continuing business. If she were to be forced to transfer half of her shares to the plaintiff, the continuing deadlock would effectively render the other half of her shares worthless and expose her husband's company, Nationwide, to even greater financial losses.

21. Specific performance is clearly a discretionary remedy. In Gall v Mitchell [1924] HCA 48; (1924) 35 CLR 222, Isaacs J referred with evident approval to Lord Macnaghten's decision in Stewart v Kennedy and stated that:

Lord Macnaghten seems to have had in mind the language about to be quoted. In Watson v Marston (1853) 4 De GM & G 230 at 239-240] Turner L. J. confirms the law as stated by Lord Langdale M. R. in Wedgwood v Adams [{1843} 6Beav. 600 at 605], in the following words: - "I conceive the doctrine of the Court to be this, that the Court exercises a discretion, in cases of specific performance, and directs a specific performance unless it should be what is called highly unreasonable to do so. What is more or less reasonable, is not a thing that you can define, it must depend on the circumstances of each particular case. The Court, therefore, must always have regard to the circumstances of each case, and see whether it is reasonable that it should, by its extraordinary jurisdiction, interfere and order a specific performance, knowing at the time that if it abstains from so doing, a measure of damages may be found and awarded in another Court. Though you cannot define what may be considered unreasonable, by way of general rule, you may very well, in a particular case, come to a balance of inconvenience, and determine the propriety of leaving the plaintiff to his legal remedy by recovery of damages."

Then, said Turner L. J. for himself: " . . . The court does not refuse a specific performance on the arbitrary discretion of a Judge. It must be satisfied that the agreement would not have been entered into if its true effect had been understood." In that case the vendor inadvertently placed herself in a situation by which she incurred a serious risk of direct ulterior loss if the contract were performed. That was held to be a ground of such unreasonableness as attracted the Court's discretion to refuse specific performance.

22. These principles have been applied in a variety of circumstances. To take a few examples, the remedy has been refused on the ground that the defendant would be exposed to prosecution (see Pottinger & Anor v George & Anor [1967] HCA 25; (1967) 116 CLR 328 at 337 and Norton v Angus [1926] HCA 35; (1926) 38 CLR 523 at 534); incur a forfeiture (see Norton v Angus at 530 & 540); or be forced to become the reluctant proprietor of a brothel (see Hope v Walters [1900] 1 Ch 257). More relevantly, it has been refused on the ground that it would cause great financial hardship to one of the parties (see Dowsett v Reid [1912] HCA 75; (1912) 15 CLR 695).

23. Mr Walker argued that the contentions advanced on behalf of the defendants were unsustainable because any hardship would be borne by Nationwide rather than the second defendant. It is true that in Gall v Mitchell Isaacs J said at 230 that hardships to third persons entirely unconnected to the property were immaterial. However, there have been cases in which the remedy has been refused on the ground of hardship to third parties interested in the property (see Thomas v Dering (1837 1 Keen 729 and Colyton Investments Pty Ltd v McSorley & Anor [1962] HCA 44; (1962) 107 CLR 177) and I do not accept that the concept is confined as narrowly as Mr Walker suggested.

24. As mentioned earlier, the first defendant was the sole director and shareholder of Nationwide and, in my opinion, he could not be dismissed as a person entirely unconnected with the property in question. Furthermore, despite the social changes of the last few decades, the financial position of married couples remains interdependent to some extent. Accordingly, I was unable to accept that, as a matter of practical reality, any financial hardship suffered by the first defendant due to losses incurred by Nationwide could be dismissed as being unlikely to have any adverse flow on effect to the second defendant. On the contrary, I accepted that the second defendant could suffer real financial hardship, not only by reason of her own shareholding in Dickson, but also as a consequence of losses sustained Nationwide.

25. Whilst it is, perhaps, unnecessary to recount the turgid history of negotiations revealed in evidence, I accepted that there was a real likelihood that the protagonists would have been unable or unwilling to reconcile their differences and work together to achieve the best financial outcome for Dickson and that, as Dr O'Hair contended, the consequences of a continuing deadlock could have been financially ruinous. Mr Craig Elvin had warned the first defendant that he and his wife stood to lose their entire $530,000 investment in the company and, in the face of continuing liability for penalty interest on loans which apparently exceeded $5,000,000 and the threat of receivership, this warning could not be wholly dismissed as mere hyperbole or an unrealistic threat.

26. In view of my earlier finding, the plaintiff had strong grounds for an order enabling it to actually acquire the shares in question and to prevent it from being relegated to the position of a minority shareholder, with the defendants effectively controlling the company. Whilst I accepted that the second defendant had entered into the transaction due to an understandable mistake as to its effect and that she and her husband had unexpectedly found themselves participants in a continuing business rather than in a scheme to subdivide and sell property, I did not accept that those facts, of themselves, established a sufficient case of hardship to justify denying specific performance. However, there did seem to me to be a real likelihood that the second defendant and her husband would suffer considerable financial hardship if the deadlock were permitted to continue. Furthermore, in view of the antipathy formed by Messrs Craig and Victor Elvin for at least the first defendant, I was satisfied that there was a substantial likelihood of the confrontational attitudes that had led to the deadlock being maintained even when the opportunity to jostle for position had passed and obdurate persistence could achieve nothing but mutual financial loss. Those apparently manning the palisades may have been experienced business people accustomed to making hard commercial decisions but there had been no real sign that common sense would ultimately prevail.

27. Each "side" had put forward suggestions for breaking the deadlock but each involved purchasing the shares of the other or, in the case of those put forward by the plaintiff, each injecting a further sum of $600,000 to avoid the need for external security for Dickson's indebtedness to the bank. However, neither side could compel the other to accept any of these offers.

28. The only other obvious means of breaking the deadlock would have been the appointment of a receiver to ensure that Dickson adopted a common sense approach to important business decisions, notwithstanding the uncooperative attitudes of at least some of its shareholders. However, that would have involved considerable expense and may not have persuaded the bank to waive further entitlements to penalty interest or even refrain from taking steps to sell the property under the power of sale contained in the mortgage. All of the parties would have remained at risk of incurring further substantial, and perhaps financially ruinous, losses.

29. Faced with these difficulties, it seemed to me to be appropriate to order specific performance but only on terms that provided a reasonable basis for ensuring that the deadlock would be broken and outstanding issues resolved within a reasonable period.

30. Accordingly, I sought an indication as to whether, if specific performance were to be ordered, the plaintiff would undertake to accept the advice of an appropriate expert for the orderly and most effective means of disposal of Dickson's property. Mr Walker indicated that his client would be prepared to do so. Counsel then sought some time to confer with their clients and to negotiate appropriate arrangements. Orders 1 to 3 were subsequently made in accordance with the terms agreed.

31. The disputes as to the validity of the first and second defendants' appointments as directors of Dickson raised different issues. It was alleged that the first defendant had been appointed at a meeting on 6 August 2002 at which the agreement had been made for Nationwide to buy Reswick's shares. The meeting was attended by Mr Parton, who was both a principal of Reswick and a director of Dickson, Messrs Craig and Victor Elvin, who were the other directors of Dickson, Mr Tom Elvin who was their father and a shareholder in Dickson, Mr Lo Pilato who was an accountant engaged by Mr Tom Elvin, Mr Bhardwaj who was the plaintiff's book keeper, the first defendant, who was the principal of Nationwide, and Mr Caldwell, who was then the general manager of what were described as the Knell companies. It was alleged that the second defendant had been appointed at a subsequent meeting on 24 October 2002 at which the first defendant was elected chairman and Mr Parton's resignation as a director was accepted.

32. It appears that no contemporaneous minutes or notes were taken of the meeting on 6 August 2002 and there were substantially different accounts as to the manner in which this meeting was convened and conducted. For example, Mr Parton asserted that he had chaired the meeting, Mr Tom Elvin asserted that it had been chaired by Mr Lo Pilato, and Mr Lo Pilato asserted that it had not been chaired by anybody.

33. Nonetheless, the first defendant claimed that he was appointed as a director and this claim was supported by the evidence of Mr Caldwell and Mr Parton who subsequently prepared minutes recording the appointment. On the other hand, Messrs Tom, Craig and Victor Elvin ("the Elvins') all claimed that the meeting was not a directors' meeting and Mr Victor Elvin claimed that the directors did not discuss or approve either the transfer of shares from Reswick to Nationwide or the appointment of the first defendant as a director. Their contention that the meeting was not a directors' meeting received support from Mr Lo Pilato and Mr Bhardwaj.

34. I formed the impression that the differences in the accounts of the meeting were at least substantially attributable to differences of perception and/or recollection which had to be considered in the context of the issues that had led to the meeting being convened, the tensions that had existed between the Elvins and Mr Parton and the fact that the directors of Dickson had habitually conducted their affairs in an informal manner. The combination of these factors seemed to have created considerable potential for confusion as to the legal character of the meeting and even as to the nature and extent of the transactions that took place.

35. It was clear that the relationship between the Elvins and Mr Parton had become strained. The Elvins were resentful of the fact that Mr Parton had not arranged for Reswick to provide acceptable securities for half of Dickson's indebtedness to the bank and hence relieve their company, Greenway, of the burden of securing the whole debt. They were also resentful of his conduct in allegedly taking an amount of $200,000 from the funds of Dickson as a fee for managing the construction of the Dickson Hotel property after he had transferred much of the task to a building company, Pendon Pty Ltd. In addition, there was also a dispute as to a debt apparently owed to the plaintiff for the provision of concrete used in that construction. Mr Lo Pilato had been approached to act as an intermediary in relation to these issues and had apparently chaired several meetings between the Elvins and Mr Parton.

36. In May 2002 there was a discussion about the sale of Dickson's property and on 26 July 2002 the first defendant met with members of the Elvin family to discuss purchasing it. At the end of that meeting the first defendant said that he was prepared to offer Mr Parton $300,000 to buy Reswick's shares in Dickson but indicated that he would require an audit to be done of the loan account figures. Following this meeting Mr Lo Pilato contacted Mr Parton who indicated that, whilst he would not be prepared to accept $300,000 for Reswick's shares in Dickson, he would accept $350,000. Mr Lo Pilato suggested that Mr Parton come to Canberra and meet with the Elvins and Mr Knell to settle the matter.

37. The meeting of 6 August 2002 took place in this context. It was, in my opinion, clearly intended to bring together all of the interested parties with a view to facilitating the sale of Reswick's shares and otherwise resolving issues of substantial importance to Dickson. Whilst Messrs Craig and Victor Elvin gave evidence that they did not understand that the meeting constituted a directors' meeting, and the evidence of Mr Lo Pilato and Mr Bhardwaj is at least consistent with that position, there seems little doubt that Messrs Craig and Victor Elvin were present in their capacity as directors of Dickson and that the meeting related to matters of vital concern to the future of that company.

38. Furthermore, Mr Parton gave evidence that directors' meetings had never been formally convened but called on an ad hoc basis when matters required face to face discussion. Much of the business had been decided over the telephone. This history of informal meetings was substantially confirmed by Mr Tom Elvin and Dickson's book keeper, Mr Bhardwaj.

39. Considerable informality of procedure was sanctioned by Dickson's articles of association. Sub regulation 74(1) provided that "the directors may meet together for the dispatch of business and adjourn and otherwise regulate their meetings as they think fit", and sub reg 74(3) permitted the directors to meet by telephone. Mr Walker suggested that there may have been a subtle but important difference between meetings attended by the directors to discuss company business and directors' meetings. However, the articles of association did not reflect such a distinction and the evidence did not reveal any identifiable protocol by which any such difference in the character of various meetings might have been recognised. Mr Bhardwaj claimed that directors' meetings had been conducted more formally since the dispute with Mr Parton had emerged. However, Mr Victor Elvin, who had been appointed a director on 8 August 2001, could nominate only two meetings that he claimed were actually directors' meetings, one held in a solicitor's office and the other held on a `without prejudice' basis apparently in the precincts of the Court. He seemed to suggest that meetings of the directors could only be "directors' meetings" if minutes were taken. Yet his own appointment could not have been made at such a formal meeting because Mr Parton was overseas at the time and his brother, Mr Craig Elvin was the only other director. I accepted the evidence that the directors had normally met informally and formed the clear impression that minutes were only taken when it was thought necessary to have some documentary evidence of particular resolutions.

40. Given this history, I was not impressed by the contention that the meeting of 6 August 2002 could not have been a directors' meeting because it was not properly convened and formal resolutions were not moved, determined and duly minuted. The evidence established that the directors of Dickson rarely, if ever, held meetings attended by such formality and the articles of association did not require it. The contention displayed, in my opinion, some measure of opportunism.

41. The informal approach to the management of Dickson revealed by the evidence may have been entirely understandable. Dickson was the corporate entity for what was, in essence, a partnership of practical and presumably hard working men engaged in the conduct of a relatively small business. However, there is nothing to prevent a company's board from inviting outsiders to a directors' meeting and when there are no identifiable criteria by which a directors' meeting may be distinguished from other meetings attended by the directors for the purpose of discussing issues relating to the company's business it may be difficult for the company to later establish that a decision apparently made by agreement at such a meeting did not constitute a resolution of the board.

42. In the present case, Mr Parton was, and apparently still remained, the company secretary of Dickson. He also claimed to have been chairman of the board and managing director. At one point in his evidence he was challenged as to the basis for these claims but Mr Tom Elvin described him as a "self appointed chairman of the board" and agreed that, at least during the period when Dickson's buildings were being constructed, he had substantially managed the company's affairs. Whilst there may be scope for some quibbling about a perceived distinction between a managing director and a director who is left to manage, I accept Mr Parton's evidence that he was, in fact, the managing director. Mr Parton, who said that he convened the meeting, clearly understood it was, or at least included, a directors' meeting. The first defendant apparently had the same impression. Mr Parton subsequently produced a minute of the meeting of directors recording that it had been resolved that the transfer of shares from Reswick to Nationwide be approved and that, upon the completion of the share transfer, the first defendant be appointed a director in lieu of Mr Parton. The first defendant duly paid for the shares and, at a further meeting on 23 August 2002 attended by Mr Parton and the first defendant, it was resolved that the transfer be registered and the first defendant's appointment as director be confirmed. The transfer was duly registered.

43. It was not suggested that during the course of the meeting any of the directors had expressed opposition to the sale or transfer of the shares or to the first defendant's appointment as a director in lieu of Mr Parton. Mr Walker argued, in essence, that the preponderance of evidence established that there was merely an agreement in principle that needed to be formalised by subsequent resolutions of the board. It was claimed that those resolutions had never been made.

44. Mr Craig Elvin claimed that once the agreement for the sale of the shares had been reached, Mr Lo Pilato "brought the meeting to an end", saying words to the effect that: "That will need to be documented by the solicitors for the parties to bring the matter to a head and so that the directors can approve the arrangement to bring Sid [the first defendant] on board . . . and get Neville [Mr Parton] . . . out and replacing Greenway as security for the loan." Mr Lo Pilato himself, gave evidence that he had said words to the effect that: "the agreement will have to be documented by your solicitors". Mr Bhardwaj offered a slightly more expansive version that: "the agreement will have to be properly documented so that the transfer of shares can be approved". It may be noted that neither Mr Lo Pilato's nor Mr Bhardwaj's account of the statement included any suggestion that the agreement should be regarded as being merely provisional or subject to conditions relating to the provision of security to relieve Greenway of some of its obligations to secure Dickson's debt and I did not accept that the statement was as extensive as Mr Craig Elvin suggested.

45. During the course of the same meeting there was some discussion between the first defendant and Mr Tom Elvin about Nationwide also purchasing the shares held by the plaintiff but the only agreement for sale actually concluded was between the first defendant and Mr Parton. Some or all of the members of the Elvin family present at the meeting may have left with the expectation that the first defendant would arrange for Nationwide to provide further security to the bank and there may even have been some discussion to that effect. However, I am not satisfied that the agreement between Reswick and Nationwide was subject to any such condition. Furthermore, neither Messrs Craig nor Victor Elvin claim to have made any statement at the meeting to the effect that they would either decline to register the agreed transfer of shares or oppose the appointment of the first defendant as a director unless and until Nationwide provided such security.

46. The first defendant gave evidence that he had previously provided at least Mr Tom Elvin with a document setting out his proposals and that those proposals essentially formed the basis for the propositions that he put to the meeting. He said that a number of matters had been agreed, including the purchase of Reswick's shares by Nationwide and the payment of $350,000 to Reswick within thirty days. He said that he was appointed a director by unanimous agreement and warmly welcomed by the Elvins. Given the absence of any evidence of disagreement between the first defendant and the Elvins at that time and their obvious desire to terminate Mr Parton's involvement in Dickson, this reaction seemed quite plausible. Despite a searching cross-examination of the first defendant I found him to be an entirely credible witness and I accepted his evidence.

47. Mr Caldwell gave evidence that the first defendant had spent at least twenty minutes speaking at the meeting and had highlighted a number of major issues including the proposition that he should become a director of Dickson, that Reswick's shares should be transferred to his company and that Mr Parton should be "paid out". Mr Caldwell did not purport to remember the entire conversation but did give evidence that the outcomes of the meeting included agreements that the first defendant would become a director of Dickson in his own right and that Reswick's shares would be transferred to interests of the first defendant. Mr Caldwell was an entirely credible witness and I accept his evidence.

48. I was left with some doubt concerning the objective accuracy of some aspects of Mr Parton's evidence. His credibility was attacked on the basis that he had omitted to mention the first defendant's appointment in the first draft of the minutes of the meeting of 6 August 2002 and that he had recorded the appointment in one of the two minutes prepared in relation to a subsequent meeting conducted on 23 August 2002; the other such minute recording that the appointment had been confirmed at the meeting