Foundation Enterprises Ltd v Ml and C Heritage Pty Ltd [1999] NSWSC 89 (23 February 1999)

Last Updated: 24 February 1999

NEW SOUTH WALES SUPREME COURT

CITATION: Foundation Enterprises Ltd v ML & C Heritage Pty Ltd [1999] NSWSC 89

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): 3519/98

HEARING DATE{S): 10, 11 December 1998

JUDGDMENT DATE: 23/02/1999

PARTIES:

Foundation Enterprises Ltd (1st plaintiff)

Lim Choon Huat (2nd plaintiff)

ML & C Heritage Pty Ltd (1st defendant)

Tee Lay Ting (2nd defendant)

Tee Meng Wee (3rd defendant)

Tee Lay Ting and Tee Meng Wee (Cross claimants)

Jerry Chan Fook Sing (1st cross defendant)

Lim Choon Huat (2nd cross defendant)

Foundation Enterprises Ltd (3rd cross defendant)

ML & C Heritage Pty Ltd (4th cross defendant)

JUDGMENT OF: Young J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Plaintiffs: P M Wood

Defendants: D E J Ryan

SOLICITORS:

Plaintiffs: Clayton Utz

Defendants: T A Williams

CATCHWORDS:

Corporations [71]

Shares

Invalid allotment by deliberate act

No relief given in this case

Corporations Law, s254E

Evidence [86]

Admissions

Letter not answered

Significance

Guarantee & Indemnity [38]

Implied indemnity

Joint venture

Defendants with 30% share paying outgoings

No implied indemnity

ACTS CITED:

Corporations Law s 254E

DECISION:

See para 60

JUDGMENT:

THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

YOUNG, J

Tuesday 23 February 1999

3519/98 - FOUNDATION ENTERPRISES LIMITED & ANOR V ML & C HERITAGE PTY LTD & ORS

JUDGMENT

1 HIS HONOUR : The first defendant is a vehicle for a joint venture between the first plaintiff as to 70%, Mr Lim the second plaintiff as to 10% and the second defendant Mr Tee as to 20%. The first defendant has invested in 16 residential units and 10 shop units in a strata development known as "The Goldsbrough" at Darling Harbour at a total cost of about 7 million dollars.

2 The first plaintiff is a company incorporated in the British Virgin Islands on 5 May 1997. Its board meets in St Helier Jersey. Although he is neither a director nor a shareholder of the first plaintiff, Mr Jerry Chan, the first cross defendant, is in a position where he can control the first plaintiff. Mr Jerry Chan is a resident of Malaysia.

3 The third defendant, Ms Wendy Tee, who is the sister of the second defendant, has at all material times managed the investment at Darling Harbour.

4 When the statement of claim was filed, there were a series of disputes between the parties. Many of those have now been solved. Thus at the beginning of the hearing on 10 December last I was able to make orders 29(iia) to (iiic) inclusive and 29(ivb) in the amended statement of claim without opposition. This then left 9 matters for decision as follows:

(1) Were 6 shares validly allotted in August 1997 to Mr Lim, Mr Tee and Ms Tee?

(2) If the answer to question 1 is "No", should an order be made under s 254E of the Corporations Law validating the allotment?

(3) In respect of the $85,000 allegedly received by Mr Lim from Mr Tee -

(a) Was that sum received for on-payment to Mr Chan; or

(b) Was it the proceeds of a lottery win?

If the former, is there a breach of a Quistclose trust?

(4) Was the first plaintiff the relevant party to the agreement or was it Mr Chan?

(5) Was it a term of the agreement that Mr Chan undertook to indemnify the first defendant for 70% of any monies that the other joint venturers may have to pay Citibank?

(6) Was there an implied term that Mr Chan or the first plaintiff had an obligation to provide funds for the first defendant proportionately to his stake in the joint venture?

(7) Are the Tees able to restrain the first plaintiff or Mr Chan removing them as directors?

(8) Did the Tees' contribution to the joint venture result in a debt owing to them?

(9) What is the result of this case?

5 I will deal with these matters seriatim referring to the relevant facts under each head.

6 (1) I was surprised to see that this question was vigorously debated because were it not for the ingenuity of counsel for the defendants I would have thought it was virtually unarguable.

7 The Articles of Association of the first defendant place the shares under the control of the directors (vide article 2.1.2). The Articles provide for the directors to meet and for a director at any time to convene a meeting of directors. Article 15.1.1 provides that "The directors may meet together by electronic means or otherwise for the dispatch of business and adjourn and otherwise regulate their meetings as they think fit." Article 15.5 provides that a quorum shall be two. Article 15.9.1 provides for circular resolutions. There is no particular article in the Articles of Association dispensing with notice to directors or permitting meetings without directors being present or without directors being notified of the meeting.

8 Mr Wood's submissions for the plaintiffs were very simple. He put that unless the Articles or the Corporations Law provide otherwise, all directors have the right to attend board meetings and participate and a meeting cannot be held without notice being given to the directors. Moreover, unless the Articles otherwise provide, the fact that a director is overseas does not by itself mean that notice need not be given to that director: Mitropoulos v Greek Orthodox Church and Community of Marrickville & District Ltd (1993) 10 ACSR 134, 137. Although the prerequisites of a valid meeting of directors will differ from company to company and will be influenced by circumstances, as Tadgell, J said in Bell v Burton (1993) 12 ACSR 325, 329, "one ineluctable prerequisite ... for a valid meeting is reasonable notice, to those entitled to attend, that a meeting will be held, and an indication of when and where or how it will be held."

9 Mr Ryan for the defendants, sought to outflank these submissions by focusing on the joint venture agreement between the parties and subsequent discussions between them in which the defendants say it was agreed that shares would be issued as were issued on 7 August 1998. They say that even if there was a defect in the meeting the issue was in accordance with the agreement and that the plaintiffs cannot complain.

10 This argument must be rejected. It may be that by the appropriate steps and proceedings in court the issue of shares in accordance with the agreement could be enforced, but one cannot simply avoid those necessary steps by purporting to hold a meeting of directors and for the company to issue shares without any authority. Accordingly, the answer to this question must be that the shares were not validly issued.

11 (2) The answer to question (1) raises the question as to whether the court should validate the improper issue of shares under s 254E of the Corporations Law.

12 Section 254E empowers the court "on application by a company, a shareholder, a creditor or any other person whose interests have been or may be affected, ... (to) make an order validating, or confirming the terms of, a purported issue of shares ...". The section is a recasting of what before July 1998 was s 194 of the Law.

13 It is clear that the court's power under this section is very wide. In Wallington v Kokotovich Constructions Pty Ltd (1993) 11 ACSR 759, 765, I said of the former section, "The court has power whenever it is just and equitable to validate the issue of shares not only where the validation is non-contentious. Indeed the main thrust of s 194 is to validate defective titles where there has been a bona fide transaction involving the issue of shares which is flawed for some technical reason ...". This decision was affirmed by the Court of Appeal in (1995) 17 ACSR 478.

14 Although the discretion is very wide, there is a tendency not to exercise it in favour of validation where less than all the stakeholders have a chance to participate in the decision to issue the shares: Moran v Moranco Enterprises Pty Ltd (1996) 22 ACSR 65.

15 Mr Wood's submissions are that the entirety of the events surrounding the impugned allotment must be considered in the exercise of the discretion and whilst legitimate expectations of innocent allottees should be taken into account, this does not extend to "illegitimate expectations of non-innocent allottees". He cites Re Monitronix Ltd (1987) 12 ACLR 161, 175-6 and Moran's case at pp 68 and 70. I think, with respect, that submission goes a little too far. All Kennedy, J did in the Monitronix case was to make it clear that he was not persuaded that he should exercise his discretion in favour of promoters who had shown a consistent course of blatant disregard of their obligations including filing returns for the authorities which were patently false (p 176). However, the flavour of Mr Wood's submission certainly is a strong reason why the court might not exercise its discretion in the instant case because there was no mere inadvertent act but a deliberate abandonment of any attempt to comply with the Corporations Law in order to give the similitude of regularity to an allotment which may well not have taken place had Mr Chan or his representative been told about it. That this is so is evident by the fact that these proceedings were commenced shortly afterwards.

16 I do not consider that this is a proper case for exercise of the power under s 254E of the Law. The acts sought to be validated were deliberate acts which would, if not challenged, have put the Tees in a far superior position and when those acts are challenged I cannot see any substantial reason for validating them so that the Tees can retain that advantage.

17 (3) The background facts of the claim of the Tees may be found in paragraphs 28 and 29 of Mr Tee's affidavit. He says that on 21 March 1998 he saw off Mr Lim who was flying out to Sydney. He said he handed Mr Lim 1,200 ringgit and 60 Australian dollars in three cheques made out to Mr Tee by NSW Lotteries. At the then conversion rate this was about $500. He asked Mr Lim to buy 50 tickets of Lucky Seven and said that if Mr Lim topped up this sum by another $500 Australian then the two would share the winnings 50/50. Mr Lim said that this was a bit too much but he might put in 20% and Mr Tee said that if that happened then he would get a 20% share of the profits. Mr Lim returned to Kuala Lumpur on 27 March 1998 and said that the exchange rate was not as good as Mr Tee had anticipated and that he did buy 60 tickets. One of the tickets won $1 million Australian. Mr Tee says that he later ascertained that Mr Lim had only bought 46 tickets and had only put in $10 or $20 of his own money. There was a discussion as to what, if anything, Mr Lim was entitled to out of the proceeds and there was an agreement, according to Mr Tee, that Mr Lim would receive $100,000. Mr Tee says he said to Mr Lim, "As you know, I still owe Jerry (Chan) about $80,000, maybe $85,000 with interest. I will give you a cheque for $A185,000. Please pay the balance of $85,000 to Jerry so that I can clear my account with him." Mr Lim said "Consider it done." Mr Tee in fact gave Mr Lim a cheque for $185,000 on 21 April 1998.

18 Mr Lim says that indeed one of the tickets did win a million dollars but that he spent $400 of Mr Tee's money and $100 of his own money to buy the tickets. Mr Lim says he told Mr Tee of the win and the following weekend went with his wife to Mr Tee's house to bring him the lottery tickets. Mr Tee and his wife were both present. Mr Tee gave Mr Lim a cheque for $A185,000 saying that he had deducted $15,000 to cover gifts and tips he made to various people who assisted in the formation of ML & C, including Wendy Tee. He also said he needed to tip the girls who printed out the winning numbers at the newsagent. Mr Lim says he did not say anything because he was so happy to have a return of $185,000 from an investment of $100. Mr Lim denies that there was any agreement that he would pay $85,000 of his lottery winnings to Mr Chan in consideration for the allotment of shares in ML & C. He says that at the time of the lottery win it was his understanding that Mr Tee had paid for Mr Lim's shares in ML & C.

19 Mr Lim says that Mr Tee collected his winnings by a telegraphic transfer to his Australian Citibank account from NSW Lotteries. Mr Tee and Mr Lim then came to Australia to have a little celebration and Mr Tee helped him open a bank account for his share of the winnings. This account was opened at the Martin Place branch of Citibank through Mr Tee's personal banker, Ms Albine Martin.

20 The Citibank documents show that on 20 April 1998 Mr Lim opened two accounts, one a cheque account in which there was a deposit of $35,000 and secondly an investment account in which $150,000 was deposited. In oral evidence Mr Lim said that Mr Tee was sitting right beside him when he was opening the accounts with Ms Martin. In cross examination Mr Tee did not deny that he was sitting next to Mr Lim when the accounts were opened but says he did not pay any attention to what Mr Lim was saying to Ms Martin.

21 Mr Tee also agreed with Mr Wood in cross examination that there had been five occasions between August 1997 and February 1998 where there was conversation between Mr Chan and Mr Tee about paying Mr Chan the $85,000. Mr Wood put it to Mr Tee that "It would be patently absurd for you to give a cheque to Mr Lim to pay Mr Chan the balance when you had five direct contacts with him previously, wouldn't you agree?" A. "No I did not speak to Mr Chan after March of 1998... and I did not give the cheque to Mr Lim until April of 1998." Mr Tee was then challenged about his story that Mr Lim couldn't afford to put in $100 to the lottery quest when he was just flying to Australia from Malaysia with his wife at a cost vastly in excess of $100. Mr Wood put it to Mr Tee that it was absurd to suggest that he couldn't afford $100 for lottery tickets, a man who was an investment analyst and a stockbroker who travelled often. Mr Wood put that Mr Tee's story was a pure invention to avoid paying anything to Mr Chan. Mr Tee, of course, denied this and said that Mr Chan had so insulted him that he did not wish to talk to him directly.

22 Both Mr Tee and Mr Lim were cross examined by experienced counsel. Mr Lim did not seem to me to waiver at all in cross examination. On the other hand, I found Mr Tee's evidence a little hard to accept. My observation was that he was a witness who tried not to answer the questions. Furthermore the evidence suggests to me that at least some of the documents Mr Tee created must have been backdated. When I add these impressions to the inherent unlikelihood of Mr Tee's evidence being correct (particularly in respect of Mr Lim's inability to pay $100 for lottery tickets and Mr Tee's non-observance of Mr Lim opening two bank accounts) I must reject Mr Tee's account. Accordingly, I find that the $85,000 was paid by Mr Tee to Mr Lim as part of the proceeds of the lottery win.

23 (4) Was it Foundation Enterprises Limited or Mr Chan personally who was the relevant party to the joint venture agreement?

24 The plaintiffs say that the relevant agreement was concluded by Mr Chan on behalf of the first plaintiff with Mr Lim and Mr Tee the agreement being partly written, partly oral and partly implied. The plaintiffs say that on 10 May 1997 Messrs Tee, Lim and Chan met together in Mr Chan's office in Penang. Mr Tee proposed that there should be a joint venture in which Mr Lim and Mr Tee collectively contributed 30% and Mr Chan 70% and that profits should be divided proportionately. The parties settled on 10% for Mr Lim, 20% for Mr Tee and 70% for Mr Chan. Mr Chan agreed to arrange the necessary capital on the basis that the others could pay him back in one or two months. The parties agreed that there would be a shelf company and that Messrs Tee and Lim and either Mr Chan or his company would be entitled to hold shares in proportion to their capital contributions and that Messrs Tee and Lim and Ms Tee would be directors. The property was acquired at a cost of just under 7 million Australian dollars of which 2 million dollars was supplied by the first plaintiff, Foundation Enterprises Limited, and the balance from a loan from Citibank.

25 The plaintiffs say that in pursuance of this agreement 12 shares were allotted to Foundation Enterprises Limited on 29 May 1997.

26 In their defence, the Tees admit that Foundation Enterprises Limited acquired those 12 shares and that such acquisition took place pursuant to the joint venture agreement but say that it merely acted as an agent for Mr Chan. They say that the agreement was that although Mr Chan was to remain anonymous he would be entitled to 70% of the joint venture company, with Mr Tee receiving 20% and Mr Lim 10%. They say that Mr Chan's interest and his shareholding would be held on his behalf by Foundation Enterprises Limited. They say that Mr Chan was not to be a director to preserve his anonymity, that the directors of the joint venture company would be Messrs Lim and Tee and Ms Tee. They would provide personal guarantees to Citibank and they would be indemnified by Mr Chan to the extent of 70% of that liability. Ms Tee would act as general manager and would have an option over 5% of the company's equity and that all shareholders would make further proportionate contributions of funds to ML & C Heritage Pty Limited if required. They say that the written part of the agreement was a letter of 18 September 1997 from Mr Tee, Ms Tee and Mr Lim to Mr Chan.

27 Mr Tee was cross examined as to his knowledge of the name Foundation Enterprises Limited. He agreed that he knew the name of the company by the end of May 1997. He acknowledged he knew Mr Chan was proposing to use an off-shore company for his investment in this project. It was no surprise that Foundation Enterprises Limited was a British Virgin Islands company. It was then put to Mr Tee: "You knew that Mr Chan was not proposing to enter into an arrangement himself personally but was going into it using an off-shore company as a vehicle to enter the arrangement?"

28 Mr Tee's answer was, "I knew the off shore company was going to be used as a personal investment for ML & C. I might add, he wanted to remain anonymous in this investment." The extra piece of evidence that Mr Tee added was not very useful to him. Of course it repeated what he had said in his defence but it is quite improbable that Mr Chan would be wholly anonymous when he had personally corresponded with officers of Citibank, especially relating to his personal guarantee and that he had come out to Perth to negotiate a deal with a company called "Jaguar" and had met the heads of Jaguar in Perth.

29 I just cannot accept that there was use of Foundation Enterprises Limited merely to keep Mr Chan's name from exposure. The facts show this could not be so. There was no other reason proffered for someone going to all the trouble of using a British Virgin Island company for this investment. The only logical reason was to safeguard Mr Chan's interests by having a company in which he controlled the joint venture partner.

30 Accordingly, in my view the joint venture partner was Foundation Enterprises Limited and not Mr Chan personally.

31 (5) Was it a term of the agreement that Mr Chan undertook to indemnify the first defendant for 70% of any sum that it may have to pay Citibank?

32 It follows from what I have already said that the answer to this question must be "No" so far as Mr Chan personally is concerned, but it may be that there is such an indemnity due from the first plaintiff so I will need to explore this matter in detail.

33 The first thing to note is that the contract was made in Malaysia between natural persons resident there and Foundation Enterprises Limited which, although a British Virgin Islands corporation, was in fact controlled by a Malaysian resident. Accordingly it would appear fairly clear that Malaysian law applies. There is no evidence as to what the Malaysian law is in this respect so I am entitled to assume that it is the same as the law of New South Wales.

34 The Tees' case on this matter stems from an oral agreement allegedly made over lunch in Kuala Lumpur in August 1997 confirmed by Mr Tee's letter of 18 September 1997 to which I have already referred. Mr Tee says that at the lunch at which Mr Chan, Mr Lim, Ms Tee and himself were present, it was reported that the purchase had been completed but it was touch and go because Citibank nearly didn't commit. Mr Tee then said to Mr Chan, "Jerry, on the subject of the Citibank guarantee, would you agree that you should indemnify us for your 70% share?" to which Mr Chan said "Yes, I have no problems with that." There was then discussion about pooling various other loans and Mr Tee said that he had given his irrevocable transfer in trust to Wendy Tee in respect of his own apartment, Unit 642. He said the net worth of that unit was $185,500. There was then a discussion as to whether Wendy Tee would be paid a salary and a compromise was reached that Wendy would have an option to participate in 5% of the investment and that Mr Chan's interest would be reduced to 66.5% and that the interests of Messrs Lim and Tee would be reduced 1.5%.

35 Mr Chan agrees that there was a lunch at a restaurant in Kuala Lumpur in August 1997. He agrees that the question of Wendy Tee's salary was raised by her brother. Mr Chan says the agreement was that Wendy Tee could live in one of the units free of charge and would be reimbursed for legitimate expenses but otherwise would not receive any remuneration. He says that it was agreed that Ms Tee would give regular monthly written reports. She did not do this, though Mr Tee did ring up from time to time to say that all was going well.

36 Mr Chan agreed that Mr Tee sent the letter of 18 September though he does not know of any "transfer in trust" that was actually executed and mentioned in the letter, nor was there a cheque for $80,103 attached. He says he did not respond to that letter because he realised that Mr Tee was not as financially secure as he had been led to believe. The cheque was not attached and the letter contained erroneous calculations assessing Foundation Enterprises Limited's contribution at only $885,344 when in fact it had been over 2 million dollars.

37 Under cross examination from Mr Ryan, Mr Chan denied that the question of indemnifying the directors in relation to their guarantee to Citibank was ever raised at the lunch in August 1997. He said he was absolutely sure of this. Mr Ryan put that it was incredible that the directors with a 30% interest in the venture would have to guarantee 5 million dollars without any recourse to Mr Chan or Foundation Enterprises Limited. Mr Chan's response was "When FEL came up with 2 million what did FEL have. It didn't have control of a bank account, it wasn't involved in signing cheques, it didn't have sight of any records, it didn't have any actuarial matters in its hands and yet FEL gave the money; it was all based on trust."

38 Mr Lim was asked by Mr Ryan whether there was any mention of the indemnity at the lunch in Malaysia. He said (p T44) "I can't remember this was a detailed discussion. Maybe something about it but I remember later on Mr Tee give me a letter after lunch that letter is 18 September letter, asking me to sign that letter and pointing out to me `Choon you are to sign this because the lunch is finished and I have to rush for another appointment and you have to sign. Choon you have 10% share, if you have to be responsible for 70% you have, you will be indemnified.'" He was then asked "You are happy to sign because you knew it had been agreed in August that that would be the position?" A. "No I sign because it was in my interest to sign it." He then, however, agreed that he would not have signed it if he believed it was false.

39 Usually when a person sends to another person a letter containing details of an alleged agreement and that other person does not respond, then if the relation between the parties is such that a reply might properly be expected but not otherwise, the law may infer that there has been an admission by silence of the truth in the letter: Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225, 230; Thomas v Hollier [1984] HCA 35; (1984) 156 CLR 152, 157 per Gibbs, CJ.

40 In the instant case, the letter of 18 September asked for a signature by Mr Chan that the contents of the letter were agreed to. This signed acknowledgment was never forthcoming. In my view because the requested acknowledgment was never forthcoming, it is harder to draw the inference that there was an admission of the contents by silence. Again, the rather unconventional dealings between the parties where so much was being done with large sums of money informally provides some reason as to why there was not a formal response to the letter. The present problem is not a question of admissibility of evidence as the letter and the failure to answer it are before the court. However I do not consider that it is strong material from which I should draw an inference of admission by silence and I do not do so.

41 The case made by the defendants was one of actual contract rather than an implied contract. I do not, accordingly, need to consider whether, apart from the words which were allegedly spoken at the restaurant at Kuala Lumpur, I should imply any term as to indemnification.

42 At first blush it seems not unreasonable that where there is a joint venture and a syndicate member expends funds, that member ought to be indemnified. However, one must look at the total picture to see whether, in all the circumstances there was at least an implied request to expend money on the basis that there would be an indemnity. The circumstances here do not amount to such an implied request, particularly bearing in mind what I say in the next paragraph.

43 The rule adopted in Sheffield Corp v Barclay [1905] AC 392, 397 and applied by the High Court in Crown v Henrickson (1911) 13 CLR 43 is not apposite as there is no request to be implied from the relevant circumstances. Further, it would be difficult to say that such a term fell within the doctrine of implied terms as laid down by the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings SC (1977) 180 CLR 266, 283. In particular the implied term as to indemnity is not a matter that would "go without saying".

44 Another point that must be made is that if there was a cross indemnity from the plaintiffs, why when a Mr Tan was proposed to be a director of the company, did Mr Tee seek Mr Tan to join in the guarantee if there was in place an indemnity from Mr Chan for 70% of the liability to Citibank? This was put to Mr Tee by Mr Wood at T110-111 and although Mr Tee denied it, it does seem to me again to be inconsistent with the existence of the indemnity.

45 Again, I should add that I prefer the evidence, generally speaking, of Mr Chan to that of Mr Tee. I have already commented on Mr Tee's evidence. Mr Chan was not at all disturbed in cross examination despite being cross examined by an expert in the field.

46 I said earlier that one of the reasons why I am wary about accepting Mr Tee's evidence is because some of the letters he wrote were not despatched on the date which appears on the letters, assuming that they were written on such date. For instance, the letter from Mr Tee directed to Ms Wendy Tee of 1 August 1997 saying that he confirmed his irrevocable agreement to "pool" his apartment must have been written after 1 August because the address set out on the letter was not the company's address as at 1 August. Furthermore, the vital letter of 18 September clearly appeared from cross examination to have been sent later, though how much later was in dispute. Mr Tee agreed in the witness box that that letter was not sent for at least four days, probably longer. He said at T90 that he had written out a cheque for $153,000 to go with the letter, he had left a lot of money with his father who had died unexpectedly without leaving a will so he had restricted access to cash and was attending to his father's funeral "so the answer to your second question is that I did not send the 18 September letter to Mr Chan on the 18th. I believe it was sent later, but I can't remember how much later." Mr Tee was asked why it was that when he had a letter written out and signed and all he had to do was put it in the post box his father's death prevented that happening. There was no satisfactory answer.

47 The fact that the 18 September letter was not delivered to Mr Chan on or near the date which it bears, the fact that no money accompanied that letter despite its text, and the ongoing discussions between Mr Tee and Mr Chan in which Mr Tee was asking Mr Chan for a loan or to defer payments, make me decline to draw any inference from the fact that there was no response to the letter of any admission by Mr Chan of its correctness.

48 Accordingly, I do not find that there was any agreement as to indemnity.

49 It should also be remembered, as Mr Wood pointed out in his address, that the parties never thought as at the time they made the agreement that there would be any of the problems with the building that in fact occurred. It was perceived by all of them when the joint venture agreement was made to be a good investment with no expectation of any of them making any further contributions. These matters also go to show that there was no agreement on indemnity.

50 (6) The allegation that there was an agreement that all shareholders should make proportionate contributions is a provision of the letter of 18 September which I have already discussed. However, this provision does not form part of Mr Tee's evidence as to what occurred during the discussion at the restaurant in Kuala Lumpur in August. The claim based solely on the letter of 18 September must fail because I am not satisfied that that letter does contain the terms of any agreement. Again, this particular term is said to be an express term rather than implication from the joint venture agreement generally so I need not stay to consider any further aspects of this matter.

51 (7) Mr Ryan's submissions simply are that "clearly Chan/FEL intends to remove Mr Tee and Ms Tee from the board ... This would contravene a term of the agreement pleaded by the plaintiffs that such persons would be board members. Chan/FEL should be restrained from removing the Tees."

52 It is clear that the Tees' directorship was a term of the joint venture agreement. It is also clear that Mr Chan through FEL intends to remove the Tees as directors. The questions are whether they are entitled to do this and whether an injunction should go, conditional or otherwise.

53 The term of the contract as pleaded was that Mr Tee would be a director if and only if his contributions were paid to the joint venture as promised.

54 The application for an injunction is really closely akin to an application for specific performance of the joint venture agreement. The court does not grant specific performance as a general rule except in the case of a person who by his or her own conduct is doing everything possible to perform the agreement so far as it can be performed on his or her part. Normally one does not get specific performance of part of an agreement, nor is an injunction given which will have that effect. I have put these propositions in fairly general terms but they are supported by the learning referred to by Dr Spry in the 5th edition of his Principles of Equitable Remedies (LBC, Sydney, 1997) pp 113 and 588. The question is a discretionary one as to whether in the circumstances the grant of an injunction would be just.

55 I must confess this is a matter that has caused me considerable concern as I have deliberated. On the one hand the Tees were to be involved as directors, the project was one with which they were intended to be intimately involved and to control at the grass roots level and if no injunction is granted they will be completely removed from the investment. All that Mr Chan says is that if Mr Tee makes his contribution then he will reconsider the matter. On the other hand, the Tees' behaviour, claims Mr Chan, is something which I can well see would make him lose any confidence in dealing with the Tees in the future. Moreover, the Tees have sought to control this large investment to the exclusion of Mr Chan by unfair means without making a contribution save and except the debts they have paid on behalf of the company.

56 Again, I must take into account the fact that the joint venture agreement as to who is to be a director must be subject to some overriding conditions such as, for instance, that the Tees were not disqualified under the Corporations Law from being directors. Mr Wood submitted that even the cross claim recognises that the Tees need to act properly as a condition of their remaining on as directors: they have not so acted therefore no court will aid them.

57 I am not prepared to grant an injunction at this stage. However, it may be that when short minutes are handed up, I would be prepared to make a declaration or even an injunction that the Tees have the right to be directors subject to their giving an undertaking to the court that they will discharge their duties fairly and honestly including not convening any directors' meetings without giving the plaintiffs at least a certain number of days notice.

58 (8) Finally I need to consider the claim for debt. There is no doubt at all on the evidence that the Tees have had to pay out monies to make sure the mortgagee has been kept at bay.

59 Mr Wood says that no order for debt should be made because there has been no proper contradictor, the debtor, if any, would be the first defendant ML & C which is under the control of the cross claimants. I think this is right. In any event, in these situations where joint ventures go sour, the rule is that there cannot be part of an account. The remedy of any joint venturer is to seek to wind the joint venture up under the control of the court and for accounts to be taken between the relevant parties. The court does not merely find an amount due in respect of some part of the venture. Accordingly, I do not consider that I should make any order with respect to the "debt".

60 (9) It follows that the plaintiffs have been successful. There should be declarations in accordance with these reasons and the defendants should pay the plaintiffs' costs. What I will do at this stage is to publish these reasons and to stand the matter over until Thursday 11 March 1999 at 9.30 am for short minutes to be brought in. Should counsel contact my Associate at least 7 days before that date, it may be able to be altered to suit their convenience.

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LAST UPDATED: 23/02/1999