Surface to Air (Franchising) Pty Limited v Burns [2010] NSWSC 999 (27 September 2010)

Last Updated: 28 September 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Surface to Air (Franchising) Pty Limited v Burns [2010] NSWSC 999


JURISDICTION:
Equity Division

FILE NUMBER(S):
258751 of 2009

HEARING DATE(S):
21, 22, 23, 24, 25 June and 17 August, 2010

JUDGMENT DATE:
27 September 2010

PARTIES:
Surface to Air (Franchising) Pty Limited (Plaintiff)
Anthony Burns (First Defendant)
Philomena Burns (Second Defendant)
Combined Auto Logistics Pty Ltd (Third Defendant)
Erol Ince (Fourth Defendant)

JUDGMENT OF:
Lindgren AJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
P Barham (Plaintiff)
No Appearance (First and Second Defendants)
R Newell (Third and Fourth Defendants)

SOLICITORS:
Somerville & Co (Plaintiff)
No Appearance (First and Second Defendants)
C Muriniti & Associates (Third and Fourth Defendants)


CATCHWORDS:
PROPERTY - goodwill - CONTRACT - breach of fiduciary duty - alleged merger of two businesses of A & B - no contract concluded before the two businesses begin to be carried on as one by B with A's consent - agreement never reached as to proportionate interests in the consolidated business - B has discussion with C about selling the consolidated business to C - A warns B and C that no sale must take place without A's consent in the light of A's claim to have an interest in the business - and in view of the dispute between A and B as to the existence and extent of A's interest, C decides not to purchase - however, B, wishing to be relieved of the business, allows C to take over the running of it, provided C assumes liability for rental of all property used in the business - A accuses C of having purchased with knowledge of A's interest - C denies having purchased at all, but in any event offers to hand over the business to A - A does not take up the offer - A sues B who does not appear and whose whereabouts are not known, and C for having participated in B's wrongdoing.
HELD: A's claim not proved - no suffering of loss proved. Proceeding dismissed with costs.

LEGISLATION CITED:
Fair Trading Act 1987 (NSW)
Trade Practices Act 1974 (Cth)

CATEGORY:
Principal judgment

CASES CITED:


TEXTS CITED:
Justinian's Institutes II. 1. 27,28

DECISION:
1. The proceeding be dismissed.
2. The plaintiff pay the costs of the third and fourth defendants, except the costs of preparation of submissions.
3. Liberty to the third and fourth defendants to apply for an order that the costs referred to in (2) above be on the indemnity basis.
4. If the third and fourth defendants wish to exercise the liberty to apply, they must do so by filing and serving submissions in support of the order by 4 October 2010.
5. If the third and fourth defendants file and serve submissions in accordance with (4) above, the plaintiff must file and serve any submissions in reply within seven days after being served with those submissions.



JUDGMENT:

67

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

LINDGREN AJ

MONDAY 27 SEPTEMBER 2010.

06/258751 SURFACE TO AIR (FRANCHISING) PTY LIMITED V ANTHONY BURNS & ORS

JUDGMENT

Introduction

1 The plaintiff, Surface to Air (Franchising) Pty Limited (STAF) claims to have been part owner with the first defendant Anthony Burns (Mr Burns) and the second defendant Philomena Burns (Mrs Burns) of a business which it alleges Mr and Mrs Burns sold in mid 2006 without STAF’s approval to the third defendant, Combined Auto Logistics Pty Ltd (CAL), a company of which the fourth defendant, Erol Ince (Mr Ince), is the sole member and director.

2 The business was that of an airport shuttle bus service called “Northside Shuttle”.

3 STAF’s case is that its alleged interest in the business arose out of a merger on and from April 2003 of STAF’s then business of “Northern Beaches Airport Shuttle” and Mr and Mrs Burns’s then business of “Northside Shuttle Bus”.

4 STAF claims that when the merger occurred, STAF and Mr and Mrs Burns became 50/50 owners of the merged consolidated business but that from 12 May 2005, and therefore by the time of the alleged sale by Mr and Mrs Burns to CAL, STAF’s interest was 42.5% while that of Mr and Mrs Burns was the remaining 57.5%. There is no written contract between STAF and Mr and Mrs Burns establishing STAF’s claimed interest in the consolidated business, whether the 50% or the 42.5%. Heads of Agreement were drafted but no document was ever concluded, let alone signed.

5 Prior to the alleged sale by Mr and Mrs Burns to CAL, STAF, through its solicitors Somerville & Co (Somervilles), gave notice to Mr Ince and his solicitors, L C Muriniti & Associates (Murinitis) that STAF claimed to be a part owner of the business and that Mr Ince dealt with Mr and Mrs Burns alone at his peril.

6 There is no contract of sale of the business from Mr and Mrs Burns to CAL either. CAL and Mr Ince (for convenience, I will refer simply to Mr Ince) deny there was any “sale”. Mr Ince concedes that from in or about August 2006, CAL carried on a business under the name “Northside Shuttle” from the address where Mr and Mrs Burns had carried on business under that name, namely, Unit 25A, 176 South Creek Road, Dee Why. Mr Ince says that what happened was that Mr and Mrs Burns wished to get out of the business and be relieved of its burdens, including the rental in respect of the premises and buses, and came to an arrangement with him that if he would take over the outgoings, he (or CAL) could carry on the business. Their case was therefore in effect that Mr and Mrs Burns abandoned the business and that at their invitation, Mr Ince had carried it on using the same name and premises.

7 In any event, Mr Ince says, when STAF pressed its claim he offered to hand the business over to STAF just as Mr and Mrs Burns had done to him.

8 Although served and called outside the courtroom, Mr and Mrs Burns did not appear at or participate in the hearing.

9 According to its further amended statement of claim, STAF seeks to recover damages and exemplary damages, apparently without discrimination, against all four defendants.

10 STAF’s causes of action against Mr and Mrs Burns are for breach of contract, engaging in misleading and deceptive conduct in contravention of s 42 of the Fair Trading Act 1987 (NSW) (FT Act), breach of trust, breach of fiduciary obligation, conspiracy with CAL and Mr Ince to injure STAF by unlawful means and to defraud STAF, failure to account for 42.5% of the proceeds of sale, and negligently selling the business for less than its value, said to be $250,000.

11 STAF’s causes of action against CAL and Mr Ince are for engaging in misleading conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TP Act) (CAL) and s 42 of the FT Act (Mr Ince); s 75B TP Act conduct by Mr Ince; s 61 FT Act conduct by each of the defendants; dishonest assistance in breach of trust and breach of fiduciary duty by Mr and Mrs Burns; and conspiracy to injure STAF by unlawful means and to defraud STAF.

12 STAF pleads that all four defendants are jointly and severally liable in damages for conspiracy “and for unlawful interference with the business of [STAF]” (para 74.13).

13 A particular claim made again CAL and Mr Ince is that by reason of their dishonest assistance to Mr and Mrs Burns in the breach of trust and of fiduciary duty, by continuing with the alleged purchase and conducting the business and failing to account to STAF notwithstanding knowledge of STAF’s claim to be a part owner of the business, CAL and Mr Ince are liable to compensate STAF in equity and/or otherwise liable to pay equitable damages to STAF and are liable as a constructive trustee to account to STAF (para 74.9).

Facts

14 The following is a chronological outline of the main facts.

15 STAF is now a wholly owned subsidiary of Ultimate Media Group Pty Ltd (Ultimate Media Group) which holds all 1,000 shares on issue in STAF. At an earlier time in the company’s history, Dean William Fullbrook, to whom reference will be made below, had held 500 of the 1000 shares. It appears that the remaining 500 were held initially as to 250 by Mr Cope and 250 by Mr Mount, then later as to Mr Cope’s 250 by his wife Narelle Louise Cope (Mrs Cope) and as to Mr Mount’s 250 by his wife Anne Louise Mount (Mrs Mount) (see below).

16 On 22 February 1999 Mr and Mrs Burns registered the business name “Northside Shuttle” in respect of a business of “airport transfers”. The principal place of business was shown as 9 Birinta Street, Narraweena, NSW, 2099. That was the place of residence of Mr and Mrs Burns. Apparently they both began working in that business at that time.

17 STAF was incorporated on 29 June 2001under the name “Emajen Pty Ltd”. It changed its name to “Flightlink Shuttle Pty Ltd” on 26 July 2001, when it was “acquired” by Peter Norman Cope (Mr Cope) and Neil Norman Mount (Mr Mount), who are the driving force behind STAF.

18 Mr Cope and Mr Mount became directors of STAF on 3 July 2001. STAF adopted its present name some five months later on 5 December 2001 in the circumstances related below. Robert Edward Ash, Chartered Accountant (Mr Ash), became a director of STAF on 18 April 2003. All three directors gave evidence.

19 According to Mr Cope, in about July or August 2001, when it was called “Flightlink Shuttle Pty Ltd”, STAF established “from scratch” an airport shuttle bus business operating out of Chatswood to Sydney Airport, and leased buses for that purpose. He said that the name of that business was “Flightlink”. Mr Cope said that this business operated for only three or four months. The evidence relating to it was slender in the extreme. STAF’s income tax returns for the year 1 July 2001 to 30 June 2002, which were not lodged until November 2009, show that STAF suffered an operating loss in that year of $624 based on a gross income of $187,017 and expenses of $187,641.

20 Mr Mount’s version is different from that of Mr Cope. He says that he and Mr Cope or their wives were not in a business alone and that their first venture was a 50/50 arrangement in relation to a business of Dean Fullbrook that was run from the Central Coast that is referred to below. There was no contemporaneous documentary evidence that resolved the difference.

21 On 2 November 2001, Mrs Cope and Mrs Mount contracted in writing to purchase from Peter John Rixon and Janet Fay Rixon a business described as an “airport shuttle bus service” carried on under the name “Northern Beaches Airport Shuttle Bus” for $100,000. (In some places the business name “Northern Beaches Airport Shuttle” appears without the word “Bus”.) Mr Mount described the business as that of “transporting clients to and from Sydney’s Northern Beaches and Sydney Airport”. The price was allocated in the contract as to $80,000 for equipment and as to $20,000 for goodwill. Mrs Cope and Mrs Mount borrowed the purchase price from Bosnjak Investment Group Pty Ltd, a shareholder in Ultimate Media Group. The equipment purchased was described in the contract as a 1992 Toyota Coaster 18-seater van TV 2037; three Toyota Commuter 10-seater buses TV 1208, TV 3093 and TV 3270; and a luggage trailer. As well, a business telephone number 9913 9912 was to be transferred. Apparently the transaction was completed on 15 November 2001 (that was the date stated in the contract as the intended “Completion date”). The contrary was not suggested and I infer that Mrs Cope and Mrs Mount paid the purchase price of $100,000 to the Rixons on or about that date. The evidence concerning the number of buses was unclear. Mr Cope said that at the time of the purchase, the wives had two buses already so that with the four vehicles purchased from the Rixons, the number increased to six. He said that soon afterwards the six buses were “sold” and in their place four Volkswagens were “leased”. It will be noted that the amount paid by Mr Cope and Mrs Mount for goodwill, $20,000, was quite small.

22 A few days after completing the purchase from the Rixons, Mrs Cope and Mrs Mount entered into a written contract on 22 November 200, with Surface to Air (Central Coast) Pty Ltd (STACC) and its principal, Dean Fullbrook (Mr Fullbrook). This agreement recited that STACC carried on a business of transporting passengers by bus from the Central Coast and Newcastle to and from Sydney, Williamtown and Belmont Airports, and that Mrs Cope and Mrs Mount were arranging to acquire the Northern Beaches Airport Shuttle Bus business. The parties agreed to incorporate STAF which was to carry on a business of granting and managing franchises under which the franchisees would acquire the relevant buses. STACC was to operate a “call centre” which would take passenger bookings, plan pick-ups and drop-offs and otherwise manage the franchises. STACC was to transfer know-how and intellectual property to STAF. Mr Fullbrook guaranteed performance by STACC of its obligations.

23 According to the Agreement, the shares in STAF were to be held as to 500 by Mr Fullbrook and 250 by each of Mrs Cope and Mrs Mount. The directors of STAF were to be four in number: two appointed by STACC and two appointed by Mrs Cope and Mrs Mount. The initial directors were to be Mr Cope and Mr Mount representing their wives, and Mr Fullbrook and Donald King representing STACC. Mr Fullbrook was to be the chief executive officer of STAF.

24 The Agreement provided that Mrs Cope and Mrs Mount were to pay $75,000 to STAF as a subscription to share capital which was then to be paid by STAF to STACC as consideration for the transfer of intellectual property by STACC to STAF. STAF was also to pay STACC the first $50,000 of franchise payments received by way of a management fee. Mrs Cope and Mrs Mount were to transfer to STAF as soon as reasonably possible the goodwill (apparently worth $20,000) associated with the Northern Beaches Airport Shuttle Bus business which they had bought from the Rixons (cl 43). It was stated that the goodwill did not include the buses. This suggests that the buses were to continue to be owned by Mrs Cope and Mrs Mount (but see below). Clause 4.3 contemplated a formal transfer of goodwill but there is no evidence that this happened.

25 STACC undertook to manage the call centre 24 hours a day seven days a week, to schedule pick-ups and drop-offs to accord with airport arrival and departure times, to handle income and outgoings, to manage “the fleet of buses used in the ... business”, to effect insurance and to carry out sales, marketing and promotional activities. For this work, STACC was to receive “10% of moneys received (excluding franchise fees and administration fees)”. The remaining 90% was to be paid 54% to the bus owner and 36% to STAF. This provision confirms an intention that STAF’s business would be that of a franchisor. STAF was to be entitled to 100% of all franchise and administration fees but there were none because the granting of franchises did not eventuate.

26 It will be recalled that it was on 4 December 2001, that STAF changed its name from Flightlink Shuttle Pty Ltd to its present name. No doubt the inclusion of the word “Franchising” reflected the Agreement with STACC of 22 November 2001.

27 The evidence touching the Agreement of 22 November 2001 between Mrs Cope and Mrs Mount and STACC is unsatisfactory. Some aspects of it were carried into effect. For example, on 4 December 2001, Flightlink Shuttle Pty Ltd was, by the change of name to STAF, appropriated to the Agreement, and Mr Fullbrook did become the chief executive officer of STAF. On the other hand all of the aspects relating to franchising were never realised.

28 The annual return of STAF dated 31 January 2002 showed its shareholders as Mr Fullbrook (500 shares) Mrs Cope (250 shares) and Mrs Mount (250 shares). It showed Mr Fullbrook and Mr Cope as the only two directors, and Mr Mount as the secretary.

29 According to para 6 of its Further Amended Statement of Claim (FASOC) in or about December 2001 STAF purchased a “Northern Beaches Airport Shuttle” business for $100,000. The evidence, however, is that it was Mrs Cope and Mrs Mount who purchased it for that price in November 2001. STAF claims to have acquired the business from Mrs Cope and Mrs Mount. The evidence relating to this alleged acquisition of the business by STAF is unsatisfactory. At that price? When and how was the price paid? What assets were transferred? Unlike the purchase by Mrs Cope and Mrs Mount from the Rixons, there is no written contract between Mrs Cope and Mrs Mount as vendors and STAF as purchaser. Nor is there evidence of an oral contract between them.

30 It may be suggested that it should be inferred from the issue of shares in STAF to Mrs Cope and Mrs Mount (see below) that the issue of those shares was consideration for the acquisition. I disagree. If a sale price had been fixed, it may be appropriate to infer that the issue price was that amount divided by the number of shares (500 in all to Mrs Cope and Mrs Mount). But how would the result be accommodated to the issue of 500 shares to Mr Fullbrook? Moreover, Mr Ash chose (retrospectively) to show the price as owed by STAF to Mrs Cope and Mrs Mount on loan account rather than as satisfied by the issue of shares (see [173] below).

31 In the unsatisfactory state of the evidence, I am not satisfied that title ever passed from Mrs Cope and Mrs Mount to STAF. Notwithstanding this, for convenience I will refer to STAF as if it somehow became the owner of the Northern Beaches Airport Shuttle Bus business, that is, the goodwill. On the evidence before the Court, the buses certainly did not pass from Mrs Cope and Mrs Mount to STAF.

32 Mr Mount asserts that “[f]rom 5 December 2001 STAF used the name, logo and telephone number of Surface to Air in relation to the Northern Beaches Airport Shuttle Bus business and it became part of the Surface to Air Business”. He did not explain what he meant by “became part of the Surface to Air Business”, or identify the name, logo or telephone number.

33 Mr Mount said that board meetings of STAF were attended by himself, Mr Cope and Mr Ash. Mr Cope said that he thought that STAF would have “broken even” financially during the fifteen months from 1 January 2002 to the end of March 2003. That evidence was challenged. STAF submits that the matter has no bearing on the case. I will refer to the matter of the profitability of STAF’s business later.

34 In late 2002 or early 2003 Mr Fullbrook suggested to Messrs Cope and Mount that Tony Burns might be interested in entering into a partnership with them. At that time Mr and Mrs Burns were conducting their airport shuttle business under the name “Northside Shuttle” from the downstairs section of their residence at 9 Birinta Street, Narraweena.

35 By a deed dated 12 January 2003, STACC and Mr Fullbrook transferred to STAF intellectual property, computer software, manuals and telephone numbers associated with the STAF business. They did so pursuant to their undertaking contained in the Agreement dated 22 November 2001 referred to at [22] above.

36 In February 2003, there were several conversations between Mr Mount, Mr Cope and Mr and Mrs Burns. They discussed a merger of the two businesses: the Northside Shuttle business of Mr and Mrs Burns and the Northern Beaches Airport Shuttle Bus business of STAF. Mr and Mrs Burns apparently reacted favourably to the proposal.

37 According to Mr Mount at a meeting on 27 February 2003 Mr Cope proposed that “after the merger both businesses be promoted for the first three to six months so we lose no customers within the initial period.” According to Mr Mount, Mrs Burns’s suggestion that the business be moved out of the Burns’s home in the first 12 months was agreed to. Mrs Burns expressed a preference for continuing to operate under the name of their existing business, “Northside Shuttle”, being a better-known name in the market than “Northern Beaches Airport Shuttle Bus”. At the end of the meeting, Mr Cope said, according to Mr Mount, that he would get Mr Ash “to start drawing up the necessary agreement and the paperwork”, explaining that Mr Ash did a lot of accounting work.

38 Mr Ash drafted a “Heads of Agreement” document between STAF and Mr and Mrs Burns on the instructions of one or other of Mr Cope or Mr Mount. He said that he prepared the draft in late March 2003 and that once there was agreement, STAF’s solicitor was to be instructed to prepare a contract. Mr Ash said that while he was confident that a copy of his draft was given to Mr and Mrs Burns, he could not recall who give it to them. He said that he was not involved in the negotiations with Mr and Mrs Burns. Moreover, he said that he had no discussion with them about the terms of the draft. He was also unaware of any communications between Mr Cope or Mr Mount or Mr and Mrs Burns about signing the document.

39 The first recital in the draft was that STAF operated a “business comprising a shuttle service from the Northern Beaches and North Shore regions of Sydney and regional airports”. CAL and Mr Ince submit, however, that there is no evidence that Mrs Cope and Mrs Mount had ever transferred to STAF the Northern Beaches Airport Shuttle Bus business that they had bought from the Rixons (or any business). I agree (see [29] – [31] above).

40 The second recital was that Mr and Mrs Burns operated a shuttle business from the northern suburbs of Sydney to Sydney and regional airports.

41 The draft Heads of Agreement provided that STAF and Mr and Mrs Burns (Mr and Mrs Burns were called “Northside” in the draft, no doubt because their business was called “Northside Shuttle”) were to transfer their respective businesses to “New Co” in exchange for an issue of shares in New Co, in each case representing 50% of its capital. Any difference in the value of vehicles transferred was to be contributed in cash by the party whose vehicles were less in value to New Co as working capital.

42 New Co was to own all of the assets of the respective businesses but just what these assets were not defined.

43 From the commencement date, which the parties hoped would be 1 April 2003, the revenues and operations of the two businesses were to be combined. Mr and Mrs Burns were to manage the combined business. For doing so they were to be remunerated. Clause 4.1 of the draft provided:

Such remuneration could be a % of the gross revenue from the joint venture operations.

44 The draft provided that STAF and Mr and Mrs Burns were to subscribe $2,000 each as share capital (total $4,000) which was to represent the working capital of New Co and would remain in New Co “during the term of the joint venture agreement”.

45 The parties agreed to enter into shareholders’ agreements which would restrict the terms on which they could “exit” New Co and would provide for a party wishing to leave to offer its shareholding for sale to the continuing party.

46 The draft Heads of Agreement never led to an executed Heads of Agreement document, let alone a contract more formal than a “Heads”. There is no evidence or suggestion that the terms of the Heads of Agreement were ever agreed to by Mr and Mrs Burns.

47 According to Mr Cope and Mr Mount, they met with Mr and Mrs Burns in late March 2003 (apparently on 26 March 2003) when agreement was reached that a “combined salary” of $90,000 should be paid to Mr and Mrs Burns for managing the combined business and that the name “Flightlink” was to be the name of the proposed company.

48 On 27 March 2003, Mr Cope requested Telstra to divert calls made to [phone], which was the business number of the Northern Beaches business, to [phone], which, I assume, was the number of Mr and Mrs Burns’s “Northside Shuttle” business. Telstra advised that the redirection work would be completed by 12.30 pm on 31 March 2003.

49 At the request of Mr Ash, on 28 March 2003 Mr and Mrs Burns signed an application to “BH Company Formations” to register a company to be called “Flightlink Holdings Pty Ltd”, forms of consent to act as directors of that proposed company, and applications for shares in it (100 shares each).

50 Flightlink Holdings Pty Ltd (Flightlink Holdings) was registered on 28 March 2003 with Messrs Mount, Cope and Burns and Mrs Burns as its four directors, Ultimate Media Group holding 200 shares and each of Mr and Mrs Burns holding 100 shares. It is clear that Flightlink Holdings was to fill the role of “New Co.” referred to in Mr Ash’s draft Heads of Agreement.

51 However, neither business was ever transferred to Flightlink Holdings, which, so far as the evidence reveals, never traded.

52 Notwithstanding this, on the following day, 29 March 2003, there was a breakfast meeting at the Deck 23 Restaurant at Dee Why attended by Mr and Mrs Burns, Mr Cope, Mr Mount and Mr Ash and the drivers of the Northern Beaches Airport Shuttle Bus business and the Northside Shuttle business, at which Mr Cope and Mr Burns explained to drivers how the new merged business would operate.

53 At a meeting on 31 March 2003, Mr Ash advised Mr Mount and Mrs Burns that it would be necessary for valuations of the two businesses to be obtained. This was clearly sound advice. Apart from anything else, there was the cash adjustment provision mentioned earlier. More importantly, the starting point for the merger was identification of the assets that STAF and Mr and Mrs Burns were to transfer to Flightlink Holdings and agreement on whether or not a 50/50 split did indeed reflect the values of those assets.

54 It is clear, however, that Mr Cope and Mr Mount were anxious, at the expense of first reaching agreement with Mr and Mrs Burns, that STAF’s business should be merged into that of Mr and Mrs Burns without delay and that Mr and Mrs Burns should take over the running of what was formerly STAF’s business.

55 Mr Cope and Mr Ash gave evidence of the aspects of the running of the business as from 1 April 2003, which STAF submits shows that there was a partnership or joint venture operating a single business from that date.

56 Following Mr Cope’s request to Telstra referred to above, the telephone calls were in fact redirected from 5.50 pm on 1 April 2003. It is from 1 April 2003 that STAF claims that it and Mr and Mrs Burns carried on the merged businesses known as “Northside Shuttle” as a single consolidated business pursuant to an agreement made in February and March 2003. I accept that on and from that date Mr and Mrs Burns managed, as merged with their own business, the Northern Beaches Airport Shuttle Bus business, from the downstairs part of their residence.

57 There were meetings of Messrs Cope, Mount and Burns and Mrs Burns at which aspects of the business were discussed. The meetings were usually held at the home of Mr and Mrs Burns or at a restaurant.

58 There was much evidence on which STAF relies from which it is submitted I should infer, not only that the two businesses were merged, but also that STAF had a 50% interest in the consolidated business. Although I accept that a merger of the two goodwills occurred because the two businesses were run as one, and that some, at least, of the expenses of the consolidated business were paid by Mr and Mrs Burns, apparently out of a single revenue stream, I do not accept that agreement was reached as to the proportionate interests of the contributors to the merger.

59 An illustration of the lack of clarity concerning the merger relates to the buses and trailers. Mr Mount’s affidavit states (para 28) that “[t]he buses and trailers were owned by Ultimate Outdoor Pty Ltd ACN 093 233 768 as it was known at that time”. He then lists seven vehicles and gives their number plates as follows:

a. XUD076

b. XUD077

c. XUD078

d. XUD079

e. M74442 (Dinkum Van Trailer Van)

f. M92555 (Impril)

g. M92564 (Impril)

Mr Mount states that the buses and trailers were “made available to the Combined Business”. Finally he states that “routine servicing” of the buses was paid for “by the Combined Business” while major repairs were paid for by STAF.

60 In summary, according to this evidence, the buses and trailers were, and continued to be, owned by Ultimate Outdoor Pty Ltd, were used in the consolidated business managed by Mr and Mrs Burns, and the repairs were paid for by the two payers mentioned above, neither of which was the owner of the buses and trailers. It must be recalled that the intended joint venture company, Flightlink Holdings, was never used as the trading entity. The most that can be said in relation to the buses and trailers is that they were made available by their owner, Ultimate Outdoor Pty Ltd, to be used in the consolidated business on the basis that Ultimate Outdoor Pty Ltd did not have to bear the cost of running them.

61 But was Ultimate Outdoor Pty Ltd the owner? At paras 41 to 45 of the same affidavit, Mr Mount stated:

41. I am a director Ultimate Media Group Pty Ltd ACN 121 580 747 (“Ultimate Media”) ...

42. I was formerly a director of a company known from 7 June 2000 to 16 March 2004 as Ultimate Outdoor Pty Ltd ACN 093 233 768 and from 17 March 2004 to 3 January 2007 as Ultimate Media Group Pty Ltd ACN 093 233 768 but now known as Eye Study Pty Ltd ACN 093 233 768 (“Ultimate Outdoor”) ...

43. Ultimate Outdoor provided vehicles to STAF for use in the Surface to Air Business.

44. In or about late 2006 or early 2007 two of Ultimate Outdoor’s businesses were sold to Ultimate Media. This included the vehicles that had previously been utilised by the Surface to Air Business and later by the Combined Business.

45. At no stage did I, or Ultimate Outdoor, authorise the transfer of the following vehicles to Tony Burns, Northside Shuttle or Errol Ince:

(a) M92564

(b) M92555

(c) M74442 [my emphasis]

The owner of the buses and trailers is now suggested to have become Ultimate Media Group. One thing is clear: on the affidavit evidence, the owner was not STAF, the plaintiff.

62 At a meeting on 6 August 2003, Messrs Cope and Mount agreed to a suggestion by Mr and Mrs Burns that in the forthcoming “Yellow Pages” they should not advertise using the separate business names “Northern Beaches Airport Shuttle” and “Northside Shuttle”, but “Northside Shuttle” alone. The reason that Mr and Mrs Burns gave was that passengers had by then come to realise that the same call centre, buses and drivers were involved, and that the same people were giving the prices.

63 By 14 August 2003 problems in the relationship with Mr and Mrs Burns were emerging. Mr and Mrs Burns apparently rescheduled appointments to see Mr Ash and Mr Burns had failed to keep two appointments with Mr Mount and to return phone calls. A letter of that date from Mr Mount to Mr and Mrs Burns read as follows:

Dear Tony and Phil

I write to advise of our concern re: your three recent rescheduling of appointments with Robert Ash, Tony’s failure to meet with me at two agreed times last week and your non response to our several phone calls this week.

This activity follows many confirmations by yourselves in previous weeks that the only thing to complete was to get your final accounts from your accountant so that we could agree on any adjustments required to reflect the equality of the merger. Then last week we hear innuendo of you being unsettled.

Tony/Phil, in all honesty we are presently fairly miffed by this irrational and questionable behaviour, as the results to date have been most positive, in Tony’s words “great”.

As our activities to date include ....

Agreement on terms (after your legal and accounting people’s advice);

Our meeting with drivers (Northside and STA) and you advising them of our merger and future prospects;

Our handing management over to you including control of all marketing of the merged business;

As part of our terms of agreement you are drawing a 90K per annum salary;

Trading off our name including introduction of Northside to STAF/Northern Beaches customers; and

Managing all moneys and accounts

We cannot allow this situation to continue. Tony/Phil by way of this notice I request that you either:

a) Meet with Robert Ash and fulfil your commitments; or

b) Discuss openly with us your concerns or issues.

Tony/Phil, Peter and I do empathise with your personal situation but we cannot allow this to interfere with your commitments. Hence, should we not hear from you we will, without any further notice take the appropriate legal actions.

Yours faithfully

Neil Mount

P.S. I have put our order x 2 Commuters on hold. [my emphasis]

64 On 20 August 2003, Cara Marasco, solicitors for Mr and Mrs Burns, replied to Mr Mount’s letter requesting numerous particulars of the allegations made in it.

65 Somervilles, representing STAF, replied on 28 August 2003 and wrote a follow up letter of 3 September 2003. In the second letter, Somervilles asserted that that firm’s clients had heard it suggested that Mr and Mrs Burns intended to sell the business, and advised them that in the circumstances, Somervilles’s clients opposed any sale.

66 On 23 September 2003, Cara Marasco responded making certain denials but in any event advising that they had advised Mr and Mrs Burns not to proceed with the sale and stating that if they did propose to do so, Cara Marasco would first advise Somervilles so that Somervilles would have the opportunity to protect any rights its clients might have.

67 Throughout this period, Mr and Mrs Burns were continuing to manage the business and to send notes from time to time to Messrs Cope and Mount on operational matters. They may have done so because they thought that Messrs Cope and Mount or persons or an entity or entities associated with them had some sort of proprietorial interest in the single business giving them a right to be consulted or because they thought they were “minding” STAF’s business in contemplation of a merger being concluded.

68 At a meeting on 14 October 2003 at the offices of Somervilles, it was agreed that Mr Ash should value both businesses and that to enable this to be done Mr Burns should furnish him with certain business and financial records, namely, run sheets, banking details, financial details for the preceding 12 months and details of motor vehicles and lease payments.

69 On 17 October 2003, Mr Ash wrote to Mr and Mrs Burns identifying the information that he required of them “in order to come up with the preliminary valuations of the businesses.” Mr Ash’s letter included the paragraph:

When I have completed the preliminary valuation I will arrange to meet with you and your accountant to go through the figures as well as all of the Surface to Air information.

70 On 7 November 2003, Messrs Cope, Mount and Burns signed an application as “Northside Shuttle” to lease new mini buses from Bill Buckle Toyota. In the form’s provision for a statement of the capacity in which they signed the words “Partners”, “Guarantors” and “Sole Trader” were all deleted leaving only the word “Directors” remaining. However, the name of the “Applicant” was left blank while “Northside Shuttle” was inserted against “Trading as:” In summary, in the result the three men signed as directors of an unnamed company that was trading as “Northside Shuttle”. There was no such company: the individuals, Mr and Mrs Burns, were carrying on “the business” under that name.

71 In early 2004 (apparently in January 2004) Mr Burns gave Mr Ash a “Profit and Loss Statement”. According to Mr Ash, he also gave him a Balance Sheet, but unlike the Profit and Loss Statement this is not exhibited to Mr Ash’s affidavit.

72 On 4 March 2004 there were discussions at a meeting attended by Messrs Cope, Mount, Burns, Ash and Mrs Burns of a summary report that Mr Ash had produced.

73 On 23 March 2004 Mr Burns sent to Mr Ash copies of minutes of a meeting of directors of Flightlink Holdings held on 4 March 2004 (perhaps the meeting referred to in the preceding paragraph) and a form of “driver contract”, each bearing annotations made by Mr Burns.

74 In August 2004 Mr Burns faxed to Mr Cope various draft “driver’s agreements” and a draft agreement for the sale of a bus on which he sought Mr Cope’s comments.

75 On 5 November 2004 Mr Ash wrote to Mr and Mrs Burns concerning the unresolved question of valuing the two businesses. Mr Ash referred to areas of difference between himself and the accountant for Mr and Mrs Burns, and expressed the hope that their having appointed a “new accountant” might present an opportunity to resolve the matter.

76 In December 2004 and early 2005 Mr and Mrs Burns were advised by “new accountants”, J D Clayton & Associates, Chartered Accountants, in their dealings with STAF. There was a meeting at Mr Clayton’s offices at Chatswood on 21 December 2004. On 25 February 2005 Mr Clayton wrote to Mr Ash on behalf of Mr and Mrs Burns offering $12,500 as a one-off payment if Mr Ash and those associated with him would “withdraw any claim of a share of this business going forward”. The reference was clearly to a single business and Mr Clayton was careful not to admit that STAF in fact had an interest in it.

77 Mr Ash, as Company Secretary, replied on STAF’s letterhead on 9 March 2005, rejecting the offer as inadequate and in fact offering to buy out Mr and Mrs Burns for the same price. The letter asserted that the parties were 50/50 owners of the combined business; stated that Mr and Mrs Burns had been conducting the business in the name of their own company, although they had signed documents enabling a new “holding company” to be incorporated (clearly a reference to Flightlink Holdings); and asked Mr Clayton to urge his clients to cooperate in completion of the restructuring. Apparently the accusation in relation to Mr and Mrs Burns having been conducting the business in the name of their own “company” was a reference to their having continued to trade under their business name “Northside Shuttle” (see [37] and [62] above).

78 Mr Ash wrote a reminder letter to Mr Clayton on 6 May 2005 and Mr Clayton proposed a meeting the following week.

79 STAF claims in its FASOC that from 12 May 2005 STAF owned a 42.5% beneficial interest in the business, while Mr and Mrs Burns owned the remaining 57.5% beneficial interest. According to Mr Cope, at a meeting attended by himself, Mr Ash and Mr Burns on that date he opened the discussion by stating:

As you know, the idea of today’s meeting is to try and agree the final shareholdings of our merged business. I know you believe your business was worth more than ours despite the similar turnovers before the mergers and I want to see if there isn’t a simple formula we can use to finally put this to bed.

Mr Cope says that he performed some calculations and secured the agreement of Mr Burns to them step by step leading to their final agreement to formalising the shareholding on a 42.5%/57.5% basis. Mr Cope said that this was subject to the agreement of Mr Mount and Mr Bosnjak. (Mr Ash says that Mr Mount also attended the meeting.) According to Mr Cope, Mr Burns said that he and his wife would probably consider the alternative of selling their share of the business to STAF for $100,000. As will appear below, I do not accept that the parties entered into a binding contractual arrangement on 12 May 2005 fixing the parties’ respective interests in the business.

80 On 16 May 2005, Mr Burns wrote to Messrs Cope, Mount and Ash referring to the discussions held on 12 May 2005 “regarding the combining of both businesses” and “the amalgamation and ... the possible costs involved of pursuing a legal path to satisfy the amalgamation”. The letter also referred to “our share in the business” which Mr Burns and his wife offered to sell for $110,000 provided he and she were offered a “one-year work contract”. The letter spoke of the desirability of facilitating the sale “to enable us all to meet the new commencement date of 1/7/05”. The letter is ambiguous: the references to amalgamation suggest that amalgamation is yet to occur. The reference to a “share” in the business suggests that Mr and Mrs Burns were not the sole owners but were only part owners of the business. One thing is clear: as early as four days after the meeting on 12 May 2005, Mr Burns did not regard what had happened on that date as having concluded the terms of a merger.

81 In oral evidence, Mr Cope said he responded to Mr Burns by telephone advising that STAF was not keen to buy out Mr and Mrs Burns at that stage.

82 On 23 June 2005, Mr Burns emailed Messrs Cope and Mount stating “Phil and I are both happy to sell our shares so the previous proposition remains.” The reference to shares (in the plural) may have been a reference to the 200 shares held by Mr and Mrs Burns (100 each) in Flightlink Holdings, but the business had in fact not been transferred to that company. Perhaps, the “s” in “shares” was a mistake, and the intention was to refer in a general way to the Burnses’ share in the business.

83 On 4 July 2005, Mr Cope replied to Mr Burns advising that he and Mr Mount were not keen on the idea of continuing without having Mr and Mrs Burns as shareholders and that they doubted they could find “a manager that would do as good a job as you do”. Mr Cope proposed a sale of the entire business with the proceeds being divided 57.5%/42.5% “based on the calculation I promised to you at our meeting at our office on 12 May.” This email did not speak as if a 57.5%/42.5% split in proprietorial interests had been concluded on 12 May 2005.

84 On 17 July 2005, Mr Burns replied saying “we agree with your suggestions” and advising that he was working on finalising the accounts to the end of June 2005. He advised that once “the accountant” had inserted figures for depreciation, the accounts could be supplied to Mr Ash to facilitate preparation of sale documents.

85 On 18 October 2005 Mr Ash received the financial report for the year ended 30 June 2005 of “Northside Shuttle Services ABN 47 735 901 820” prepared by J D Clayton & Associates.

86 In early November 2005, Mr Cope requested from Mr Burns and received from him details of the amounts required to pay out the leases of the vehicles.

87 In November/December 2005, there was correspondence between Messrs Cope and Burns concerning the mode of sale of the business and the form of the advertisement of the proposed sale.

88 On 23 February 2006, Mr Burns wrote to Cara Marasco, solicitors, providing them with details of telephone numbers for the business, bus registration numbers, employees, and the lease of the office, to enable those solicitors “to complete the contracts for the sale of our business”. The word “our” is ambiguous: it could refer to Mr and Mrs Burns or to them and STAF. For reasons that will appear, it is unimportant which was meant. According to the letter, at that time a particular purchaser was in contemplation, but nothing came of this.

89 On 14 March 2006, there was a “meeting of directors” at which the question of the proposed sale was discussed. Apparently those present were Messrs Cope, Mount, Ash and Burns and Mrs Burns. The notes of the meeting are as follows:

1. Need to get latest turnover and profit figures including an indication of the proprietor’s earnings.

2. Need to prepare the business for sale with a clean structure by transferring the business of Northside Shuttle and Surface to Air to Flightlink Holdings Pty Ltd. The business still to be conduct as “Northside Shuttle”.

3. Transfer of the business name “Northside Shuttle” to Flightlink Holdings.

4. Execution of share issues as follows:

Tony Burns 2,775

Phil Burns 2,775

Ultimate Media 4,050

5. Transfer of accounting to Flightlink using the opening balances as per the financial statements at that date.

6. Commencement of the use of the ABN for Flightlink

ABN 43 104 241 634

TFN 804 034 734

7. Amend other corporate arrangements to reflect Flightlink entity.

8. Create website to improve the profile of the business.

9. Actively advertise the business in SMH and on the internet.

Paragraph 2 accepts that a single business of “Northside Shuttle” and “Surface to Air” was being carried on under the former name. The minutes show that much was yet to occur to complete aspects of the merger, in particular, the transfer to Flightlink Holdings and the issue of shares in that company.

90 On 16 March 2006, Mr Cope emailed Mr Ash asking him to send “the other share certificates and Flightlink information to Tony Burns at Northside”, and asking him to keep a record of his correspondence because “we don’t want him [Mr Burns] to start wandering off again”.

91 According to Mr Ince, he had discussions with Mr Burns in the first half of 2006 about buying the business. He said that relying on representations made by Mr Burns he thought that the business was worth $250,000.

92 On 17 May 2006 Mr Burns faxed to Mr Ince details of the leases from Westpac of six vehicles, identifying the vehicle numbers, lease numbers, expiry dates and monthly rentals. Three of the leases were to expire in December 2008, each with a monthly rental of $795.00, one was to expire in October 2009 with a monthly rental of $836.07 and one was to expire in November 2009 with a monthly rental $833.49. Details of the sixth lease are illegible. Mr Ince raised a complaint that Mr Burns had initially represented to him that all leases were due to expire in December of the current year (2006). It is also clear, however, that following this disclosure on 17 May 2006 of the true position, Mr Ince remained interested in buying the business for $250,000.

93 On 24 May 2006, Mr Burns (or Mr and Mrs Burns – the evidence is not clear), trading as “Northside Shuttle” entered into a contract with CIT Group (Australia) Ltd (CIT) for the rental of computers and telephone handsets. The term of the lease was 60 months and the monthly rental was $330.

94 On 7 June 2006, Mr Ince emailed Bruno Cara of Cara Marasco advising that CAL was buying the business as trustee for the Ince Family Trust, trading as “Northside Shuttle”. Mr Cara prepared a form of Agreement for Sale of Business (on the instructions of Mr and Mrs Burns) and forwarded it to Ultima Media Group. It showed the price as $250,000.00. Cara Marasco’s letter was careful not to admit that the addressee was entitled to approve the documents. On the contrary, the letter asserted that Mr and Mrs Burns no longer wished to run the business and intended to proceed to exchange contracts, and that Cara Marasco were simply inviting comments on the document. I accept that Mr and Mrs Burns were by then in fact anxious to be out of the business (see below).

95 On 7 and 8 June 2006, there was correspondence between Cara Marasco and Ask Australians Pty Ltd (ASK), the lessor of the business premises at Suite 25A, 176 South Creek Road, Dee Why concerning the termination of the lease of the premises to Mr Burns and the granting of a new lease to the purchaser. Cara Marasco forwarded to Mr Ince a copy of ASK’s letter setting out the terms on which a new lease would be available.

96 According to Mr Ince, it was in about mid June 2006 that he took over the running of the business. He was still living in Melbourne at that time working full-time in an accountant’s office there “doing tax returns”. As well, he was trying to complete an Accounting degree, with five subjects remaining to be passed. He said that Vic Mastroianni was his man on the ground at the business in Sydney, and that he (Mr Ince) would come up for visits to check on the business, staying at Mr Mastroianni’s house on those occasions.

97 On or about 13 June 2006 Mr Ince retained L C Muriniti & Co (Murinitis) to act for him and CAL on the purchase of the business and supplied Murinitis with the form of Agreement for Sale of Business that had been prepared by Cara Marasco. He instructed Murinitis that he was “taking over the liabilities” and had arranged for assignment of the lease of the vehicles. He also said that the purchaser would be CAL as trustee for the Ince Family Trust which would continue to trade as “Northside Shuttle”.

98 On 14 June 2006, Somervilles wrote to Cara Marasco asserting the interest of Somervilles’s clients in the business and asking for details of the purchaser’s solicitors. Somervilles’s letter included the following:

The draft agreement for sale of business enclosed with your letter is for the sale of a combined business, made up of the businesses operated by our respective clients prior to the merger in 2003.

At our meeting in October 2003, it was agreed that the respective interests of the parties in the combined business would be determined as follows. Mr Robert Ash was to value both businesses. Your clients’ accountant would then be entitled to vet such figures and, if no agreement was then reached, the matter would be determined by an independent valuer. Such valuations were prepared and, at a meeting on 12 May 2005, the parties agreed that their respective interests in the combined business would be 57.5% for your clients, and 42.5% for our client, based on the respective values of the businesses as at the merger date in 2003.

In order to allow the proposed sale to proceed, our client requires either a clear agreement to be made prior to such sale as to how the proceeds of sale are to be divided or, if such agreement cannot be reached prior to such sale, an undertaking to place the proceeds of such sale into trust, pending agreement or determination of the issue of the division of such proceeds.

In any event, our client requires that the only amounts to be paid out of the proceeds (prior to division between the parties) be genuine debts of the business as agreed in writing between the parties. Such debts will include monies paid by our client including payments for the formation of companies for the contract drivers. Such debts must be established upon the basis of proper records, reviewed by our client, with any dispute to be determined by an independent accountant.

99 On 25 or 26 June 2006 Mr Ince came up from Melbourne to confer with his solicitors, Murinitis, concerning the draft agreement for Sale of Business.

100 His visit led to Murinitis, on 27 June 2006, writing a detailed eight-page letter to Cara Marasco making requests for amendments or additions to the document. The letter does not suggest any disagreement with the price of $250,000. In oral evidence Mr Ince said that he intended to borrow from a bank but up to that time had not been able to make a loan application because he had difficulty getting in touch with Mr Burns to tie him down. Counsel for STAF draws attention to the references in the letter to “purchase” and “sale” and makes the valid point that at least as at the date of the letter, Mr Ince was still interested in purchasing. I agree, but nothing is shown to have come of this.

101 On 29 June 2006 Mr Somerville telephoned Mr Ince and told him, in effect, that he acted for someone who claimed to be a silent partner in the business. Cross-examined on whether, in the light of the evidence that he had now seen, he conceded that STAF was indeed a silent partner in the business, Mr Ince said that he did not.

102 On 29 June 2006, Mr Burns, as the Manager of Northside Shuttle, signed an “Order Agreement” with Website Expressions Pty Ltd (Website Expressions) regarding registration of the domain name “Northside Shuttle.com”. The “registrant” was shown as CAL. Four email addresses were given, in all of which “Northside” featured. The tax invoice from Website Expressions dated 29 June 2006 was addressed to Northside Shuttle for attention Erol Ince. It may be, however, that Mr Burns was responsible for the references to CAL and to Mr Ince.

103 At some stage Mr Ince signed a lease to himself from ASK of the business premises at Suite 25A, 176 South Creek Road, Dee Why. The lease ran for two years from 1 July 2006 to 30 June 2008 at a monthly rental of $1,397.98 with an option of renewal for a further term of two years. Mr Ince said he thought he signed the lease about mid-June 2006, and when his attention was drawn to the fact that Peter Schweinsberg of ASK had indicated in his letter of 8 June 2006 to Cara Marasco that he would be overseas from 12 June 2006 to 16 July 2006, Mr Ince firmed up on some date prior to 12 June 2006 as the date of his having signed the lease. Clearly he must have felt confident at that stage that he would be taking over the business on some basis or other.

104 On 3 July 2006, Somervilles wrote to Murinitis advising that STAF claimed to have an interest in the business of “Northside Shuttle” arising out of the merger, and warning against any attempt by CAL to take ownership without STAF’s agreement. Somervilles’s letter did not give details of the extent of STAF’s claimed interest and in fact said that the merger agreement had never been finalised. On the same date, according to Mr Cope, he telephoned Mr Burns who said that he would instruct his solicitor to place the proceeds of sale in a trust account. Mr Cope said that he told Mr Burns that there would have to be a written undertaking from the solicitor. Mr Cope made contemporaneous notes of the conversation which are in evidence.

105 On 5 July 2006, Cara Marasco wrote to Somervilles, again raising questions as to the evidence that STAF had an interest in the business. Cara Marasco asked Somervilles to identify which company (STAF or “Ultimate Outdoor”) was their client. Cara Marasco asked for copies of all documents supporting STAF’s contention. Of course, there were no documents to be produced.

106 On 10 July 2006, Mr Cope again spoke directly to Mr Burns who said he would contact his solicitors immediately to chase up the written undertaking. Again Mr Cope’s contemporaneous notes of the conversation are in evidence.

107 On 11 July 2006, Somervilles wrote to Murinitis advising that they were instructed that negotiations were taking place directly between STAF and Mr Burns “towards reaching agreement on the division of the proceeds of sale” and that in the meanwhile they were to be placed in a trust account. The idea of working towards reaching agreement on a division of the proceeds of sale is inconsistent with STAF’s case that an agreement of that kind had been made on 12 May 2005, let alone an agreement that fixed the parties’ respective interests in the business at those levels. The letter concluded by insisting that no steps be taken regarding the disposition of any interest in the business without notification to Somervilles.

108 On the same day Somervilles wrote to Cara Marasco asserting that it had been agreed directly between the clients (STAF and Mr and Mrs Burns) that the proceeds of sale would be held in trust “and then distributed between the parties based on the agreed values of the original 2 business, after deducting any debts of the business”. As an alternative, Somervilles advised that Somervilles could draft an agreement including “the relative percentage values of the businesses that were agreed last year” if this would help expedite the sale. Somervilles asked Cara Marasco to confirm the arrangement. Again, the letter hardly suggests that the parties’ proprietary interests in the business itself had already been conclusively fixed in the percentages mentioned.

109 On 13 July 2006, Cara Marasco replied to Somervilles advising that Mr Burns denied that there was any agreement as alleged by STAF or at all, and that Mr and Mrs Burns requested that future correspondence between the parties be conducted between their respective solicitors.

110 Notwithstanding this request, on 17 July 2006 Mr Cope telephoned Mr Burns’s mobile telephone number and a person called “Vic” answered and said that he was now the manager of the business. Mr Cope’s contemporaneous notes of the telephone call are in evidence. There seems to be no controversy that this person was Mr Ince’s friend, Hugo Victor Mastroianni. According to Mr Cope, Mr Mastroianni said that he was buying the business and did not know that Mr Burns had a “partner”.

111 On the same date, 17 July 2006, Mr Cope wrote to Mr Burns complaining that the latest letter from Cara Marasco showed that he was misleading either them or Messrs Cope and Mount over the question of an agreement for the division of the proceeds of sale. Mr Cope requested that Mr Burns telephone him to arrange a meeting to sort things out sensibly and to avoid legal proceedings.

112 On 18 July 2006, Murinitis wrote to Somervilles asking for details of the precise nature of STAF’s claimed interest in the business and the arrangements that might be concluded between STAF and Mr and Mrs Burns. Murinitis said that their client did not wish to be drawn into litigation between those parties. They also said that they would advise Mr Ince to proceed with the purchase only in circumstances in which there was no potential for that to occur.

113 Also on 18 July 2006, Somervilles sought from Cara Marasco an undertaking by Mr and Mrs Burns not to sell the business without STAF’s consent, and warned that if the undertaking was not given STAF would seek injunctive relief. Somervilles sent a copy of the letter to Murinitis. The letter to Murinitis stated:

We respectfully suggest that you provide careful advice to your client as to the consequences of entering into a purported purchase of the business, in view of our client’s entitlements to that business. We also respectfully suggest that you give careful consideration to the role of your firm in such transaction.

114 On the same date Murinitis advised Cara Marasco that Murinitis would recommend that Mr Ince not proceed with the purchase unless they were satisfied that he would not end up in litigation between STAF and Mr and Mrs Burns.

115 On the same date, Murinitis sent to Mr Ince a copy of Somervilles’s letter of 18 July to Murinitis and its enclosure and copies of Murinitis’s own letters of 18 July to Somervilles and Cara Marasco.

116 Finally, and still on 18 July 2006, Cara Marasco wrote to Somervilles advising that Mr and Mrs Burns undertook not to exchange contracts without giving STAF at least 24 hours’ notice. Apparently this undertaking was not breached because, according to the evidence, there never was an exchange of contracts between Mr and Mrs Burns and Mr Ince or CAL. My finding is that I am not satisfied on the evidence that Mr Ince or CAL purchased the business from Mr and Mrs Burns.

117 On 19 July 2006, Somervilles wrote to Cara Marasco advising that Somervilles would seek an injunction in the Supreme Court that afternoon. Cara Marasco replied on the same day proffering an undertaking that the business would not be sold without STAF’s consent.

118 On 20 July 2006, Cara Marasco wrote to Somervilles enclosing a copy of Murinitis’s letter to Cara Marasco dated 18 July 2006 and advised that in the light of that letter it appeared that the “sale” would not be proceeding. The letter stated that it followed that there were a number of issues requiring immediate attention “as regards the continued operation of the business.” No doubt this was a reference, inter alia, to the operation of the business without Mr and Mrs Burns. Cara Marasco suggested an urgent meeting between the parties and their lawyers. On the same date Cara Marasco forwarded copies of six letters covering the period 19 July 2006 to 20 July 2006 to Mr and Mrs Burns.

119 On 21 July 2006, Somervilles wrote to Cara Marasco suggesting an early meeting of the parties “to resolve outstanding issues”. The letter said that it was important to prepare a legally binding agreement to be signed by the parties at the meeting, covering the questions whether the sale was to proceed and if so how disputes as to the division of the proceeds should be resolved and what was to be done with the proceeds pending such resolution.

120 On 24 July 2006, Snap Printing invoiced Northside Shuttle for the printing of Northside Shuttle business cards bearing the names “Errol Ince” and “Vic Mastroianni”. The invoice was paid on that date. This shows that either CAL or Mr Ince was by then conducting the business or that Mr Ince was confident that that they soon would be.

121 A New South Wales Business Names Extract reveals that on 27 July 2006, “Anthony Burns” ceased carrying on the business of “Northside Shuttle” at 25A/176 South Creek Road, Dee Why, and that CAL of 64 Haldane Road, Niddrie, Victoria 3042 commenced to carry it on then at the same address. The same search shows that previously Mr Burns had carried on the business from 22 February 1999 to 27 July 2006 and that from 22 February 1999 to 25 October 2004, he had carried it on at 9 Birinta Street, Narraweena, NSW 2099 (the residential address of Mr and Mrs Burns). STAF claims that the date 27 July 2006 represents the date at which Mr and Mrs Burns ceased to carry on the consolidated business.

122 Mr Ince said that he paid $60.00 for the business name. It seems clear that this was the fee paid to register the “statement of change in certain particulars”. This was the only amount paid by Mr Ince or CAL on the occasion of the handing over the business to Mr and Mrs Burns, as distinct from the ongoing payment of the outgoings of the business.

123 An ASIC search also shows that CAL had been registered back on 1 July 2004 and that Mr Ince was at all times its sole director, secretary and shareholder.

124 On 26 July 2006 Cara Marasco emailed Somervilles inquiring whether the following Monday 31 July 2006 would be convenient for a meeting. On the same date they wrote (by fax) to their clients, Mr and Mrs Burns, enclosing a copy of Somervilles’s letter dated 21 July 2006 and advising that they (Cara Marasco) would be available to attend a meeting on 31 July 2006. They asked to be supplied urgently with details of an alleged indebtedness of “the business” to Mr and Mrs Burns and of “undrawn wages” said to be due to them.

125 On 27 July 2006, Mr Ince wrote to his solicitors, Murinitis, advising that in spite of all the information he had received about “the business, the owners, the structuring, etc”, he had decided not to proceed any further and cancelled his offer to purchase. He asked for a memo of Murinitis’ fees, adding “Once I have paid my outstanding debt for your services I no longer wish to have further correspondence in relation to this matter in any shape or form”.

126 On the same date, Mr Burns wrote to his solicitors, Cara Marasco. He advised them that Mr Ince had decided “not to proceed with the sale” and so there was no need to convene a meeting on 31 July 2006. In any event, he suggested, a meeting would be as unproductive as previous meetings had been. Finally, he advised that he had engaged other solicitors and asked for Cara Marasco’s account.

127 On 2 August 2006, Murinitis wrote to Mr Ince enclosing that firm’s memo of fees, remarking that in view of the serious dispute brewing between Mr and Mrs Burns and “the persons who claim to have an interest in their business” it seemed a prudent and proper decision that Mr Ince had taken (not to proceed).

128 On 7 August 2006, Somervilles wrote to Cara Marasco complaining that Mr Burns had cancelled on short notice the meeting that had been arranged to take place at Somervilles’s office. Somervilles’s letter stated:

Our client considers that this forms part of the same pattern which has been evidence for the last 3 years. Our client clearly has rights relating to the combined business, but encounters prevarication and delays whenever it seeks to formalise its interest in the business.

Accordingly, we are instructed to call upon you to contact us to arrange for a meeting at which a legally binding agreement will be entered into relating to our client’s interest in the business.

The letter threatened court proceedings if satisfactory arrangements were not made for a meeting.

129 On the same day Cara Marasco replied advising that that firm no longer acted for Mr and Mrs Burns and suggesting that Somervilles contact them directly. Cara Marasco faxed to Mr Burns the correspondence received from Somervilles dated 7 August and their reply.

130 On 10 August 2006, Mr Ince paid an invoice for $245.00 issued by Website Expansions to Northside Shuttle for “New Version Upgrade/PayPal Payment Processing 50% Balance Owing”.

131 In late October 2006 (28 or 31 October) Mr Burns transferred the registration of three trailers to Mr Ince stating the reason as “sale of business”. Of course, STAF relies on this as an admission by Mr Burns. Mr Ince testified that there was no “sale”.

132 Over a period in August 2006 Mr Cope tried unsuccessfully to establish telephone contact with Mr and Mrs Burns.

133 On 20 September 2006, STAF commenced this proceeding against Mr and Mrs Burns alone.

134 On 29 September 2006, Snap Printing invoiced Northside Shuttle for the printing of business cards. The invoice was marked “Attention: Errol”, clearly a reference to Mr Ince.

135 By a statement made to the police (on 6 March 2007), Ugo Vittorio (Vic) Mastroianni, reported that the premises of Northside Shuttle at 25A/176 South Creek Road, Dee Why had been broken into around the beginning of November 2006. He told the police that he had been the manager of the business since 1 July 2006. Vic’s son, Fred Mastroianni, stated to the police (also on 6 March 2007) that he worked for the Northside Shuttle business and discovered the break in at 6.00 am on Monday 30 October 2006 when he arrived for work, informing them that the business was owned by his father Ugovic Mastroianni.

136 On 14 November 2006, Mr Cope telephoned the Northside Shuttle number and was told by a person named Teresa:

Phil and Tony have gone. We don’t know where they went and we do not have their contact details. There is now a new owner.

Mr Cope asked that if Mr and Mrs Burns contacted her, she should ask them to contact him.

137 Mr Ince reported to police that the premises had again been broken into on 26 December 2006. Vic’s statement to the police referred to above also referred to this second break-in.

138 There are various business records of “Sensis” and CIT showing that the Northside Shuttle business had been “sold” by Mr and Mrs Burns and that it was in the hands of Mr Ince or Mr Mastroianni or both of them rather than Mr and Mrs Burns.

139 It seems clear, and in any event it is not controversial, that in July 2006 the business changed hands from Mr and Mrs Burns to Mr Ince or his company, CAL. The dispute is over the circumstances touching the change and, in particular, whether a “sale” occurred.

140 As noted earlier, when he took over the business (to speak in neutral terms) from Mr and Mrs Burns, Mr Ince was residing and employed full-time in Melbourne. At that time the business was being run by his friend, “Vic” Mastroianni, who worked full time in it. Mr Ince estimated that Mr Mastroianni worked 70-80 hours per week in the business and that his son, Fred Mastroianni, worked in it for 50-60 hours per week. [T 236-7] As noted earlier, Mr Ince would come up from Melbourne for visits. He said, however, that mainly he would give advice and assistance over the telephone and by email.

141 His evidence as to the frequency of his visits to the business varied, but he said that their frequency increased substantially in mid 2007 when he began staying for two to three days a week because he had come to appreciate that his presence on site was necessary. On those occasions he would stay at the place of his friend, Vic Mastroianni, at 9 Pinta Place, Cromer.

142 At about Christmas 2007, the Mastroiannis ceased working in the business when Vic was suffering from an arthritic condition. In January 2008 Mr Ince moved from Melbourne to Sydney to live and took over the day to day operations. He said that when he first relocated to Sydney he lived in a “room share” at Collaroy for a month to two months. Later his estimate of the period changed to three months and then he settled on five months. He said that after Collaroy, he moved to live at the rear of the premises where the business was carried on. That was 17/42-46 Wattle Road, Brookvale. Ultimately, his evidence seems to be that it was in June 2008, five months after coming to Sydney to live, that he relocated the business, telephone number and his place of residence to that Brookvale address.

143 CAL was joined as third defendant in the proceeding by the filing of a further amended summons on 2 April 2007 pursuant to leave granted that day. CAL filed its notice of appearance on 13 June 2007.

144 CAL had offered to make available its books for inspection and on 25 June 2007 Somervilles wrote to Murinitis accepting that offer and requesting to be informed as to when and where inspection might take place. Somervilles also advised, however, that they were preparing documents to join Mr Ince as a fourth defendant and asking Murinitis to confirm that they would accept service on his behalf.

145 On 27 June 2007 Murinitis replied advising that STAF had not accepted a certain offer made on behalf of CAL within seven days and so they had had to file an appearance on behalf of CAL. They also advised that CAL would grant access to its accounting records to any trustee appointed by the Court pursuant to the relief being sought by STAF in the proceeding. Finally, they advised that if Mr Ince were joined, he would strenuously defend the proceeding and would seek indemnity costs.

146 Mr Ince was subsequently joined as fourth defendant and a statement of claim against all four defendants was filed on 16 August 2007.

The Further Amended Statement of Claim

147 The FASOC is an unsatisfactory document as, unfortunately, are the written submissions of both parties. The FASOC is confused and contains several misconceptions.

148 STAF’s submissions, while detailed, are not confined by reference to the FASOC. They followed a course of their own, at least until they address the legal principles governing the causes of action in the second half of the submissions. The submissions consist largely of an attack on Mr Ince’s credit, as distinct from all of the positive elements of STAF’s various asserted causes of action, the onus of proving which rests on STAF.

149 I should say at once that I agree that in certain respect that Mr Ince’s evidence was not satisfactory. He does not keep a diary and relies on his memory. Inevitably his recollection was not clear as to certain dates and periods. A particular matter of concern was that while his wife received the summons and passed it on to him and he read it, when Mr James the solicitor telephoned him he said, “Anyway I could say I haven’t received the summons” and “My wife collected the documents and she is not part of my company”. When asked whether he had been “totally dishonest”, Mr Ince confessed “You could say that”. It was a technical quibble that Mr Ince made of which he should not be proud. His response cannot be excused, but he was a layman responding to the solicitor for the company that was suing him and who had expertise and knowledge superior to his own.

150 Notwithstanding some deficiencies in Mr Ince’s evidence, I accept his testimony on the main issues. I accept that he did not buy the business from Mr and Mrs Burns for $250,000 or any other price and that he did not borrow from a bank or any other source for the purpose. There is no evidence that he did, and there is his denial. I accept that Mr and Mrs Burns were content to walk out provided he would assume liability for the business outgoings for the future and so relieve them from their burdens and worries. It may be that initially (in or about July 2006) this was not an “abandonment” of the business to Mr Ince. It may be that the understanding at that time was that Mr and Mrs Burns were entitled if they so wished to return and resume control of the business. But with the passing of time it became clear that they had no intention of doing so.

151 The submissions made on behalf of CAL and Mr Ince lack references to the evidence on which they are supposed to rely. They contain very few references to the transcript or to the Court Book. I will not waste time attempting to track down the evidence referred to in those submissions. In at least one case the submissions contain a quotation which almost certainly is to be found somewhere in the 370 pages of transcript or 1,065 pages of the Court Book but I will not search for it.

152 The FASOC alleges that STAF and Mr and Mrs Burns merged their respective businesses, “Northern Beaches Airport Shuttle Bus” and “Northside Shuttle” respectively and operated them as a single merged entity for the benefit of STAF and Mr and Mrs Burns. The FASOC refers to this agreement as having been made in or about March 2003 and calls it “the agreement”. The agreement is alleged to have been made orally or partly orally and partly by implication. To the extent that it was made orally, it is alleged to have been made by Mr Mount, a director of STAF, and Mr and Mrs Burns on 17 and 27 February 2003 and 29 March 2003. To the extent that it is implied it is said to have been implied from the various circumstances set out in the particulars to para 8 of the FASOC. According to the FASOC, initially the shares were 50/50.

153 An alternative way in which the claim is put is that after the merger and until a formal transfer of the businesses to a company to be formed (in the event, Flightlink Holdings), Mr and Mrs Burns would hold their interest in the assets undertaking and get up of their Northside Shuttle business in trust for themselves and STAF in equal share, and, likewise, STAF would hold its interest in the assets, undertaking and get up of its Northern Beaches Airport Shuttle business in trust for itself as to 50% and Mr and Mrs Burns as to the other 50% (para 10.2).

154 According to para 11 of the FASOC, in or about May 2005 STAF and Mr and Mrs Burns varied the agreement or entered into a new one by which they agreed that their respective interests would be 42.5% held by STAF and 57.5% held by Mr and Mrs Burns.

155 The above background introduces the claims made by STAF against Mr and Mrs Burns (paras 13-52) and against CAL and Mr Ince (paras 53-74).

156 Unfortunately, notwithstanding earlier headings, the FASOC in para 74.1 pleads a claim against all four defendants, then in paras 74.2 ff, pleads a claim of breach of fiduciary duty against Mr and Mrs Burns and dishonest assistance in the breach by CAL and Mr and Mrs Burns.

157 There are claims of misleading and deceptive representations, yet STAF was not misled or deceived. There is a pleading of a case of passing off, but there was no passing off to STAF.

158 I appreciate that the claims of misleading and deceptive conduct and passing off are claims that conduct of that kind was directed by CAL and Mr Ince to members of the public. But there has been no attempt to prove that the conduct or passing off caused loss to STAF.

159 There is even a claim that STAF suffered from a “special disability” and was the victim of unconscionable conduct.

160 In the light of the general lack of assistance I have received from the FASOC and counsel’s submissions, I think it appropriate to consider the claim on the basis of first principles and of the issues on which the case was fought.

CONSIDERATION

The merger on and from 1 April 2003

161 STAF and Mr and Mrs Burns did not conclude a contract in their discussions in February/March 2003. This is plain and does not call for lengthy discussion. Mr Ash himself said that the parties “didn’t get beyond the single Heads of Agreement” and that he would recommend the inclusion of further provisions in the final agreement, including a non-competition clause. The draft left unresolved whether it was the Northern Beaches Airport Shuttle Bus business or shares in STAF that were to be transferred to Flightlink Holdings. Asked why STAF was not a shareholder in Flightlink Holdings, Mr Ash said:

“... we looked at it rather loosely in those circumstances that Ultimate Media was, Mrs Cope and Mrs Mount held the shares that eventually would all be put under the umbrella of Ultimate Media anyway certainly once Mr Fullbrook was out of the way.”

162 The most striking feature not agreed upon was the shares the respective parties were to have in the consolidated business. Indeed, Mr Cope said that it was premature for the parties to turn their minds to turnover figures until they were ready “to produce such figures to substantiate the shareholdings of the joint venture”. He agreed that he “decided to go ahead without critical matters agreed” and referred to “the unhappy history of trying to get the agreement nailed down” with Mr and Mrs Burns, but explained:

Well, we weren’t thinking short-term. We were thinking through to five years before we expected any dividends from the business. We knew it was a sector that struggled to show profitability given its sale and we knew that it was going to require, you know, building and nurturing before it started to produce dividends and, really, we weren’t bogged down, if you like, in the detail of what the business was doing on that particular period. We’d just come out of a huge downturn in travel through the 9/11 scares and so we didn’t see necessarily the current year’s trading performances typical of the future and it wasn’t a short-term view. Now, I would say with hindsight that there was an element of naivety or lack of good judgment that we didn’t insist on having all the financial details or the arrangement and the agreement signed before we handed over our business to the Burnses’ joint venture and, you know, with hindsight that was obviously a wrong thing to do. [my emphasis]

163 The simple fact is that STAF handed over the Northern Beaches Airport Shuttle Bus business to Mr and Mrs Burns in the expectation that there would be no difficulty subsequently in concluding the terms of the merger. Messrs Cope, Mount and Ash felt optimistic about the future of the proposed consolidated business, thinking that it would grow. Their need to replace Mr Fullbrook and that optimism were a fatal combination, overriding their better judgment that they needed to “nail down” Mr and Mrs Burns to the terms of the merger before putting STAF’s business into their hands.

164 At that time STAF faced a predicament. Mr Fullbrook wished to leave. He resigned as a director of STAF on 18 April 2003 but Mr Cope said that he had filled in the relevant form wrongly at an earlier time, and that in fact he had put little effort into the business since mid-2002. None of Mr Cope, Mr Mount or Mr Ash was in a position to take over the demanding full-time job of running the Northern Beaches Airport Shuttle Bus business. Their core business was selling advertising through Ultimate Media Group. Mr Mount said he explained to Mr Burns at an early conversation concerning the proposed merger, that they got into the airport shuttle business through placing advertising on the trailers drawn behind shuttle buses. According to his affidavit (para 18) Mr Mount told Mr Burns:

Our involvement in the shuttle business has really come about via our getting involved with Dean Fullbrook on the Central Coast in the Surface to Air business.

In other words, in substance the earlier business that they started from scratch could be disregarded – their real involvement in the shuttle bus business began in December 2001 through their association with Mr Fullbrook.

165 Their involvement was as “absentee” investors rather than day to day “hands on” operators. STAF always depended upon having someone else to manage the business. Mr Cope said that Mr Fullbrook’s company went into liquidation. He said that when, from mid-2002, STACC could no longer afford to provide the full range of services it was to provide to the Northern Beaches Airport Shuttle Bus business, a man named Ian Thompson who lived on the Central Coast provided some of those services in STAAC’s place. STACC continue to provide the call centre function until, Mr Cope thought, December 2002, while Mr Thompson coordinated the drivers from out of the Ultimate Media Group’s offices at Alexandria. Mr Cope estimated that from and including January 2003 to the merger on 1 April 2003, they paid Mr Thompson on the basis of $20,000 to $40,000 per year for his services. Mr Cope said that the Northern Beaches Airport Shuttle Bus business had no employees: it used only independent contractors, not only as the bus drivers but in all respects. Unlike Mr Burns later, Mr Thompson did not drive buses as well as run the business. Mr Cope said that the business required very little hands on management and that his expectation was that it would grow through the favourable impression made on customers by the call centre and by the drivers.

166 It would be very difficult for Messrs Cope, Mount and Ash to find, as a replacement for Mr Fullbrook (and Mr Thompson), a manager who would put in the hours required for a salary that the business could afford. Mr Cope said that employing an independent contractor as manager was not a long-term solution for the step up in volume he and his associates had in mind. He said that discussions were held with the proprietors of other airport shuttle bus businesses with a view to a merger.

167 The only solution was a merger or at least the finding of a co-owner, in either case with someone to manage the business. A merger with the Northside Shuttle business of Mr and Mrs Burns, with them as the managers of the consolidated business, must have appeared to be a godsend that was not to be missed. Without any analysis of the financial records or statements, let alone a valuation, of the Northside Shuttle business, STAF was prepared to allow its own business to be incorporated into that business and to be operated by Mr and Mrs Burns as a single business in the hope that agreement on the terms of the merger would be reached. But essential to reaching agreement was the identification of the assets of the two businesses that were to be merged and valuations of those businesses. None of this ever happened.

168 Mr and Mrs Burns probably felt that they had little to lose. The expansion of their Northside Shuttle business might support a relocation of that business out of the downstairs area of their home – something that Mrs Burns, in particular, had been very anxious to achieve from the earliest discussions. In any event, they would not be entrusting their business to others but would be continuing to carry it on with such enlargement, if any, as the Northern Beaches Airport Shuttle Bus business might bring with it.

169 For STAF the prospect of losing Mr Fullbrook without a replacement would probably be the end of the road. In any event the value of the goodwill of the Northern Beaches Airport Shuttle Bus business appears to have been very low if it had any value at all. It was put to Mr Cope that STAF was not making any money at the time. Mr Cope replied [T 95]: “Well, we didn’t expect it to make any money at the time”. They were depending on the future being better than the present.

Goodwill

170 As from 1 April 2003 there was a merger of the two businesses. I prefer this analysis to that of two separate businesses. They were run by Mr and Mrs Burns as a single consolidated business. Mr Cope said that Mr and Mrs Burns put “the Surface to Air logo” on the Northside Shuttle buses so that those buses bore the logos of both businesses. Contractor-drivers of the component businesses continued to be used in the consolidated business. Telephone calls to the number for the Northern Beaches Airport Shuttle Bus business were diverted to the Northside Shuttle number.

171 Importantly, however, there is no expert valuation evidence of either of the merged businesses or of the consolidated business. This is a fatal problem for STAF’s case: in the absence of a concluded agreement, it is impossible to say what proportion, if any, of the consolidated business was STAF’s.

172 I say “if any” because I infer that the value of the goodwill of, relevantly, the Northern Beaches Airport Shuttle Bus business, was minimal, perhaps nil. First, Mrs Cope and Mrs Mount had bought the goodwill in November 2001 from the Rixons for only $20,000. Second, Mr Fullbrook had been conducting the business only from December 2001 to the time of the merger in on 1 April 2003 – a period of some 16 months - and I am not persuaded that the value of the goodwill increased significantly during that period (see [173] – [175] below). Third, in their pre-merger discussions, when Mrs Burns supported the proposed company name being “Northside Shuttle”, Mr Cope replied that he and Mr Mount were “not overly concerned about the business name”. Later, on 26 March 2003, it was agreed that the “more generic” name with “broader appeal”, “Flightlink”, should be the name of the proposed company. Later again, at a meeting on 6 August 2003 when Mr and Mrs Burns suggested that the name “Northern Beaches Airport Shuttle Bus” cease to appear in the Yellow Pages in favour of the name “Northside Shuttle”, Messrs Cope and Mount readily agreed, saying that it was immaterial to them what name was used. That was only four months after the merger. I am not persuaded that any goodwill attached to the business name “Northern Beaches Airport Shuttle Bus”.

173 Income tax returns were not lodged by STAF until December 2009. Mr Ash said that in 2008 he prepared the figures on which others prepared those returns. The returns were for the eight years ended 30 June 2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009. His working figures for the year ended 30 June 2003 showed that he treated STAF as having bought goodwill for $275,000. His cross-examination revealed that this was based on three misapprehensions. First, it included $75,000 being the value of intellectual property that STACC had transferred to STAF. Second, Mr Ash thought that Mrs Cope and Mrs Mount had bought from the Rixons for $200,000 and that for that purpose they had borrowed $200,000 from Mr Bosnjak, whereas in fact they had bought for only $100,000. Third, the $100,000 included only $20,000 for goodwill. (In the figures he prepared in 2008 Mr Ash showed STAF as owing $200,000 to Mrs Cope and Mrs Mount on loan account in the figures for 2002-2003, but this liability had “disappeared” in STAF’s accounts for the year 2003-2004.)

174 According to STAF’s income tax return for the year ended 30 June 2003, it had an operating loss $34,654 for that year. Mr Cope agreed that the business was losing money at the time of the merger and had lost money in the preceding financial year (2001-2002). He explained, however, that he and those associated with him were not looking to make money at that time but saw the Northern Beaches Airport Shuttle Bus business as “long-term investing” and as an opportunity to “make money when it structurally was able to.” By “long-term” he said he meant “probably after about three years”.

175 Mr Ash explained that the loss of $34,654 was for the period of nine months to 31 March 2003, that is, the period immediately prior to the merger on 1 April 2003. He explained that there were some abnormal expenses. One was a bad debt of $10,634.80 owed by STACC which, in view of its liquidation, would never be paid. Another was a substantial part of the total depreciation of $46,822.54 claimed in respect of the buses which proves to be a bit more than 20% (actually 20% multiplied by 12 divided by 9) of the value of the buses of $220,000. He said that ordinarily they would have been depreciated at a rate of 12% to 15% on a “useful life” basis and that the depreciation of $46,822.45 was abnormal to the extent of about $23,000, but because he knew that the buses were to be taken back by Ultimate Outdoor Pty Ltd and not used in the business after 1 April 2003, he depreciated them down to their “realisable value”.

176 But the fact is that the buses never did belong to STAF: see [59] – [61] above. Mr Ash’s evidence was that he had never seen “the leases”. He said that the buses in question were those that he understood STAF had acquired when the Northern Beaches Airport Shuttle Bus business was acquired. It became clear that Mr Ash did not know who owned the buses. He agreed that they might have been leased to Ultimate Outdoor Pty Ltd if that company’s name appeared on “the leases”. He did not know whether Mrs Cope and Mrs Mount had bought the buses but agreed that if they had done so, title would not have passed to STAF unless some step had been taken by which those two ladies assigned them to STAF. Mr Ash could only say that whether STAF was entitled to claim the depreciation depended on whether the buses had been “assigned across” and whether STAF used them in its business.

177 In the totally unsatisfactory state of the evidence I am not satisfied that STAF acquired the buses and was entitled to a deduction for depreciation. It may have been, but not on the state of the evidence before the Court. And not being the owner or lessee of the buses or trailers STAF did not contribute them as an investment in the consolidated business.

178 Even without the two abnormal items mentioned, STAF would have suffered an operating loss, albeit a smaller one, for the year ended 30 June 2003.

179 Mr Cope’s evidence was that in the period from the acquisition from the Rixons to the merger on 1 April 2003, which was, according to him, the only period in which STAF operated as a separate entity, “the best scenario” describing the profitability of the Northern Beaches Airport Shuttle Bus business was “break even”.

180 The year 2003-2004 marked a substantial increase in turnover above the level for 2002-2003. It was put to Mr Ince that he must have suspected that this resulted from a merger. It is not clear to me why that should have been his course of thought. In any event he said that Mr Burns had explained to him that 2002-2003 was a particularly poor year for the business because of the Bali bombing, and that 2003-2004 represented a recovery.

181 The doctrine of confusio or commixtio, dear to the Romans lawyers, is directly applicable to physical things such as corn, wheat, barley, oil and wine. Where A and B consent to their corn, wheat, barley, oil or wine being inextricably mixed, the composite whole becomes the property of A and B in common, assuming that there was no donative intention (A to B or B to A) in proportion to their respective contributions: see Justinian’s Institutes II.1.27, 28.

182 I see no reason why the principle would not apply to goodwill. In the present case, STAF consented to the goodwill, if there was any, of the Northern Beaches Airport Shuttle Bus business being inextricably mixed with the goodwill of Mr and Mrs Burns’s Northside Shuttle business.

183 In the case of physical things of the kind mentioned above, the respective proportionate interests can be ascertained by reference to volume or weight: a unit by volume or weight of A’s product is identical to the same unit by volume or weight of B’s product. Goodwill is different. In my opinion, in the case of goodwill, the relevant measure can only be value. But, as noted earlier, STAF led no expert evidence of value of either business that went into the merger or of the value of the consolidated business. Always assuming in STAF’s favour that it, rather than Mrs Cope and Mrs Mount, owned the Northern Beaches Airport Shuttle Bus business prior to the merger on 1 April 2003, STAF has failed to prove the extent of its share in the composite business that was carried on by Mr and Mrs Burns on and from that date and there is the possibility that the value of its contribution was nil. In substance STAF’s hope was that Mr and Mrs Burns would over time create a business investment of value for it.

184 In any event I accept Mr Ince’s evidence that he did not purchase the consolidated business from Mr and Mrs Burns. As noted below, he took over the running of the business and in doing so used (and preserved) any goodwill that existed.

Buses and trailers

185 I referred to the buses and trailers at [59] – [61] above. The owner of the buses and trailers originally used in the consolidated business was not STAF but one or other of the “Ultimate” companies. STAF has no cause for complaint in relation to the buses and trailers.

186 Nor does it have cause for complaint in respect of any buses or other property subsequently leased by Mr Burns. It was Mr Burns, not STAF, that was subject to the liability of a lessee. Mr Ince gave evidence that Mr Burns was using six buses in the business when the two men had a conversation concerning them around April or May of 2006. Mr Ince said that Mr Burns told him that five of the buses were leased under leases that were due to expire in December 2006. He said that he understood that he (Mr Ince) would have the option of “paying them out” and keeping and using them for another year or two, or on the other hand “paying the residual” and “trading them in” on new buses. Mr Burns told him that the amount of the residual was about $10,000 on each of the five buses, making a total of about $50,000 to be found by December 2006. The sixth bus being leased was comparatively new – only five or six months old, with about four and a half years to go on its lease.

187 Later, however, Mr Burns faxed to Mr Ince details of the leases which showed a rather different picture: see [92] above. While the evidence touching the later buses and trailers is unsatisfactory the position seems to be that the leases to Mr Burns that expired in December 2008 and October and November 2009 ran their course, with Mr Burns and later Mr Ince paying the rental. I do not think that there is any basis on which STAF can claim to have any interest in any successor leases to CAL or Mr Ince.

The meeting on 12 May 2003

188 I do not accept that on 12 May 2005 STAF and Mr and Mrs Burns made a contract that their interests in the business were 42.5% and 57.5% respectively. They did not intend to make such a contract then and there. Rather, Mr Cope gave his calculations and Mr Burns assented to the apparent reasonableness of them. Agreeing that someone’s figures with which one is confronted for the first time seem reasonable and acceptable is far from making an agreement intended immediately to affect legal relations and, in particular, to fix proportionate proprietary interests.

189 If, contrary to my view, there was an agreement to affect legal relation at all it was not an agreement for settling the size of the respective interests in the business, but for division of the proceeds of a sale of it. There never was a sale and so, if a binding agreement was made, it had no scope for operation.

The handing over of the business by Mr and Mrs Burns to Mr Ince and CAL

190 Notwithstanding the lengthy and detailed attack on Mr Ince’s credit, I accept that he did not purchase the business from Mr and Mrs Burns. Certainly a sale was proposed but the idea was abandoned, one reason being the unresolved claim made on behalf of STAF. I accept Mr Ince’s testimony in answer to questions in cross-examination: “When I found out [about] your client’s interest I broke off negotiations and stopped my interest in buying the business” and “Once I heard that, the deal was off, there was no contract”.

191 Mr Ince said that he worked in the business with Mr Burns for two or three weeks in April or May 2006 as a form of “due diligence”. He said that Mr Burns told him that his daily takings were about $2,000 or about $60,000 per month. Mr Burns gave him figures showing a profit of $14,000 to $16,000 per month. He estimated the value of the business as equal to one and half years’ profits which he calculated on those figures as being $250,000. But in the two or three weeks mentioned, Mr Ince observed that the daily takings had reached only $1,200 to $1,300 which was only $36,000 to $39,000 per month – much less than the monthly figure of $60,000 given to him by Mr Burns. Mr Ince said that CAL lost $70,000 in the first 12 months of its operation of the business.

192 It was in May 2006, according to Mr Ince’s estimate, that a contract for the sale of the business was prepared showing a sale price of $250,000. Mr Ince agreed that the buses were worth about $25,000 each and that this made $140,000 worth of buses. Of course, the buses were leased. He also agreed that at the time when he took over the running of the business, it would have had $30,000 to $40,000 in advance bookings. He emphasised, however, that the advice he got from his accountant at that time was that he “was acting as a contractor for Tony Burns”. He agreed that he was to handle, and did handle, the money coming in, and was to pay and did pay, all the expenses associated with running the business.

193 I have referred above to the correspondence from Cara Marasco and Murinitis. I do not accept that contrary to what Mr and Mrs Burns and Mr Ince were instructing their respective solicitors, they were, in effect, secretly entering into a sale and purchase transaction for $250,000 or any other price. I accept Mr Ince’s denial of the proposition that was put fairly and squarely to him “You cancelled your offer to purchase the business because you had done a deal under the table with Mr Burns, hadn’t you?” In addition, there is the evidence of Mr Ince as to the nature of their dealings which contradicts any such proposition and whose evidence on the point I accept.

194 Mr Cope said that Mrs Burns applied pressure on Mr Burns to get out of the business, although Mr Burns himself was hesitant. The probability is that ultimately Mr and Mrs Burns became anxious to pull out of a business that was too demanding and instrusive for the reward it gave. Mr Cope said that he and his associates had found Mr and Mrs Burns to be “frustrating” partners and that they were becoming “fed up” with the venture. Asked why STAF rejected the opportunity to buy out Mr and Mrs Burns for $110,000 (see [80] above), Mr Cope said that at that time (16 May 2005), “it didn’t suit our allocation of management time”. This answer did not fully expose the position. In fairness to Mr Cope, he added: “it’s no small task finding another manager with the skills and the interest to – to be right to take the business to its potential” and he agreed with the Court’s suggestion that “really what was necessary at all times was a person ... with the expertise and the energy and also a proprietorial interest in the business”. There was never a time when Mr Cope and his associates could supply such a person from among their own number. They thought themselves fortunate in March 2003 to find Mr and Mrs Burns but once Mr and Mrs Burns decided to leave in mid 2006, they found themselves without a way forward. They had to find a way of extracting themselves from the business with such cash payment as they could get.

195 The word “sale” and related words can be found in the evidence but they do not persuade me that there was an agreement to transfer property for a price. Examples of such references to “sale” or its derivatives exist in the business records of CIT Group (Aust) Ltd (CIT), which was described as a “computer leasing company”. CIT was pursuing Mr Burns for money owed by him (apparently rental owed by him as lessee) and there was in evidence CIT’s records of telephone conversations its officers had when they rang the Northside Shuttle number. On 12 March 2007 a CIT officer phoned that number was told, according to a file note, “Anthony [Burns] sold business 6 months ago and don’t know his whereabouts.” According to a file note made on 29 March 2007 “a hugo called advised that they bought business of Tony last July they don’t know where he is hugo contact is [telephone number]”. Again, a file note dated 29 May 2007 is: “Hugo advised Burns sold the business and skipped. Burns location not known.” All of this evidence is unpersuasive in my view. It would be easy for a person not attuned to the legal niceties to refer to a sale as having occurred when Mr Ince took over the running of the business and payment of the business outgoings in place of Mr and Mrs Burns.

196 Another illustration is the RTA documents in relation to the transfer of the registration of the trailers in which Mr Ince’s handwriting refers to “sale of business” as the reason for the transfer. Mr Ince said that this was a mistake on his part.

197 Mr Ince certainly took over the running of the business and was aware of STAF’s claim to have some unquantified and, so far as he knew, unsupported, proprietorial interest in it, and of the dispute between STAF and Mr and Mrs Burns. The correspondence and his testimony show that in the circumstances he was not prepared to outlay money in a purchase. The evidence to that effect is credible. It is not lightly to be accepted that faced, with the persistent threats of litigation from STAF and against the advice of his own solicitors, Mr Ince would still borrow money and buy the business.

198 Mr Ince said that he last saw Mr Burns in about September/October 2006 when he turned up unexpectedly at the Northside Shuttle office to collect some papers of his. That was not long after Mr Ince took over from Mr Burns. Mr Ince said that he regarded himself as having no right to stop Mr Burns because the business was still his and the leases were still in his name. This was a reference to the leases of the buses because, as stated earlier, the lease of the premises was by now in Mr Ince’s name.

199 Mr Ince said that if Mr Burns had wanted to resume control (and resume payment of the outgoings) he (Mr Ince) would have offered no resistance because he thought that Mr Burns was entitled to do so. He said that Mr Burns still had keys to the premises, although he did not need to use them on the occasion in September/October 2006 because his visit was on a weekday morning and the doors were wide open.

200 I see no reason to reject Mr Ince’s evidence that he simply allowed Mr Burns full access to the premises to take whatever he wanted because of his understanding that it was still at the time the Burnses’ business and the Burnses were allowing him to run it on the basis that he paid all outgoings and relieved them of the worry and liabilities.

201 Mr and Mrs Burns may have committed a wrong against STAF by placing the composite goodwill in the hands of Mr Ince and his company without STAF’s consent, but in the light of Mr Ince’s offer to hand over the entire business to STAF noted below, STAF is not shown to have suffered any loss or damage as a result. I say “may” because I am not satisfied that STAF, as distinct from Mrs Cope and Mrs Mount, ever owned the Northern Beaches Airport Shuttle Bus business in the first place or that STAF was entitled to any particular share in the business.

202 I accept that on account of the long hours of work demanded and the low level of remuneration in the light of the hours required, Mr and Mrs Burns wished to escape from the burdensome situation in which they found themselves. They were prepared to hand over the business to Mr Ince provided only he would assume liability for payment of rent and other business outgoings. The leases of buses to Mr Burns or to Mr and Mrs Burns were not transferred to CAL or Mr Ince: Mr and Mrs Burns and Mr Ince seem to have proceeded in mid-2006 on the basis of Mr Ince’s undertaking to make the rental payments under them as those payments fell due.

203 But even if the leases had been transferred it is not shown that STAF suffered any loss in consequence (and see [187] above).

Mr Ince’s offer to STAF

204 I turn next to the evidence of Mr Ince’s offer to hand the business over to STAF.

205 According to Mr Ince’s affidavit, about one or two months after he had taken over running the business and put Vic Mastroianni in to manage it, and while he (Mr Ince) was still living in Melbourne, he received a telephone call from a solicitor who said that he was acting for the silent partners in the business. The solicitor said that his clients were part-owners of the business. Since Mr Ince took over the assets in late July 2006, the conversation can be placed between late August and late September 2006. According to his affidavit, Mr Ince told the solicitor:

Well, if what you say is true and your clients do have an interest in the business, they can have it. I am more than happy for them to take it. All they have to do is take over responsibility for the bus leases and for the business premises and they can have it. I only took over the business from Anthony Burns because he pleaded with me to take it off his hands because he was leaving straight away.

206 According to his affidavit, Mr Ince also said in the conversation:

If your clients are agreeable to take over responsibility for the bus leases and for the business premises and the telephones and everything else, I am out of there. You can have it straight away.

207 Mr Ince said that the solicitor did not get back in touch with him in relation to the proposal. Mr Ince said he believed that the solicitor who contacted him was from Somervilles but could not recall his name.

208 Apparently the solicitor was not David Paul James who was called as a witness. Mr James said that he spoke to Mr Ince on two or three occasions, on none of which Mr Ince offered to deliver up the business to STAF. But Mr James conducted STAF’s claim at Somervilles only from December 2006.

209 The only other person involved seems to have been Mr Somerville himself. Mr Somerville had had conversations with Mr Ince (and telephone conversations and correspondence with his solicitor) earlier in 2006. Mr Somerville’s affidavit of 25 March 2010 gives an account of the earlier communications but does not deny the correctness of the particular allegation by Mr Ince referred to in the last three paragraphs.

210 Mr James said that STAF had never suggested to him that it wanted the business back. He said that while his clients were not happy that the business had been “sold” from under their noses, they were more interested in “coming up with an agreement as to the ownership of the company” and “hav[ing] that all legally signed off” and receiving their entitlement from the proceeds of sale rather than getting the business back. This evidence of Mr James is perfectly consistent with the inference that I draw elsewhere from the evidence as a whole.

211 Mr Ince’s evidence of an offer, albeit an informal one made in the course of a telephone conversation, to deliver up the business to STAF is consistent with letters written on his behalf by Murinitis, admittedly quite some time later, on 18 May 2007, 22 June 2007 and 20 November 2009. In the letter of 18 May 2007, Murinitis wrote as follows:

As you are aware, our client is presently in possession of leased premises which were formerly leased by Anthony Burns and Philomena Burns. Anthony and Philomena Burns advised Mr Ince that they wished to move to Western Australia and wished to dispose of their obligations under the lease in respect of the premises in question and offered our client an assignment of the lease in order to be relieved from the obligation arising under the lease and in consideration for our client accepting an assignment of the lease and assuming full responsibility for the lessee pursuant to the lease, Anthony and Philomena Burns offered to transfer to our client the registered business name of Northside Shuttle.

Other than the demised premises and the business name, our client did not receive any other benefit from Anthony and Philomena Burns. We are instructed that the balance of the "assets" which formed part of the business which had previously been operated by Anthony and Philomena Burns were disposed of.

The buses which were used as part of the airport shuttle business have been made available to our client for its use, however, leases pertaining to those vehicles are still in the name of Anthony Burns and the benefit of those leases has not been assigned to our client. Again, in relation to those vehicles, our client will surrender custody of those vehicles to any appropriately authorised person.

So far as our client understands, any other plant fixtures and fittings which form part of the business operated by Anthony and Philomena Burns were disposed of by Anthony and Philomena Burns and our client does not have any knowledge in relation to any other plant, fixtures or fittings.

We are further instructed by our client that since commencing operations of its own airport shuttle business it has lost $70,000 and has not made any profits.

Our client is prepared to transfer to any trustee appointed by the Supreme Court or any other person approved by the Supreme Court the leases to the demised premises which we understand are premises at Suite 25A, 126 South Creek Road, Dee Why, and transfer the business name "Northside Shuttle".

We are instructed by Mr Ince that our client has had the benefit of the use of a telephone number: 9401 4654 and a facsimile number: 9401 4055, but that these numbers have not been transferred to our client and therefore it is not within our client's power or ability to do anything in relation to the telephone number and facsimile number, however, one would assume that once the demised premises are returned, given that the services in relation to the numbers in question are provided from the business premises, your client will no doubt be able to seek the appropriate orders from the Court or otherwise make appropriate arrangements through the trustee to be appointed.

Accordingly it is proposed and our client herewith formally offers to transfer back to your client (subject to any objection which the Lessor may have, of course) the lease for premises at Suite 25 A, 126 South Creek Road, Dee Why and the business name "Northside Shuttle".

Our client is also prepared to permit a properly qualified accountant, to be appointed by yourself, by the Court or by the trustee appointed by the Court, to inspect our client's accounts to satisfy itself that our client has not made any profits in operating its airport shuttle business and in fact it has suffered trading losses of some $70,000.

In the event that this offer is not accepted, we place you on notice that at the appropriate time a copy of this letter will be tendered in evidence in support of a costs application against your client. [my emphasis]

212 This letter reflected a reasonable approach by Mr Ince, but STAF did not take advantage of it.

213 In the letter of 22 June 2007 Murinitis advised that CAL and Mr Ince were prepared to surrender to a trustee to be appointed by the Supreme Court all choses in possession and choses in action as CAL and Mr Ince had been permitted by Mr and Mrs Burns to use or as had been given by Mr and Mrs Burns to them. Murinitis also indicated agreement to an inspection of CAL’s books being undertaken by the trustee to be appointed so that STAF could be satisfied that CAL had not made any profits in respect of which it would have to account to STAF and that in fact CAL had made an operating loss of some $70,000.

214 I find that Mr Ince probably did make an offer as outlined at [205] ff above.

215 Mr Cope said that he did not see the letters of 18 May and 22 June 2007 as an offer to hand back the business. He said that what was missing was:

[t]he forward bookings, customer files, exclusions from – in terms of what their non-complete arrangements might be, and quite frankly I and my fellow directors were quite suspicious.

I do not find this explanation at all convincing. In the first place, matters of the kind mentioned are the kinds of matters that would naturally be the subject of discussion. If STAF had been bona fide interested in taking the business over from Mr Ince, it would have responded positively with a view to concluding a contract.

216 Second, Mr Cope said that their suspicion was that “the new phone number could be set up with diversions in place and notes to existing customers that there’s a new business in town that is effectively the same the one they’d been using”. Asked how this diversion would work, Mr Cope said: “I would presume it would be an arrangement with Telstra. Or it may not be a diversion, may be just an education of the clients there’s a new telephone number.” In my opinion Mr Cope thought up this hypothetical fraudulent course of conduct by Mr Ince as an excuse for not considering his offer. Later he said that he did not take up Mr Ince’s offer by inspecting the books “because we were suspicious of the process and that the numbers would be cooked.” Yet he agreed that depending on the nature of the records kept, it would be a simple matter to check the turnover.

217 Third, it cannot be overlooked that the last thing Mr Cope and those associated with him wanted was to take the business back. By now they were generally “fed up” with it. They did not have the expertise or inclination to take over the management of it and the task of looking for a new “partner” was daunting to say the least. It may also have been a consideration that they lacked confidence in the record keeping of Mr and Mrs Burns.

218 In my opinion, the refusal to consider Mr Ince’s offer was for no reason that could be blamed on him, and the reason proffered in testimony was disingenuous. It is noteworthy that neither STAF nor its solicitors, Somervilles, ever put its rejection of the offer in writing or voiced or sought to overcome the concerns that were referred to in the witness box. Mr Cope conceded that the reason why he did not respond to Mr Ince’s offer by seeking to clarify it or otherwise was simply that he and his associates were “not interested”. All that they wanted was a payment of money by Mr Ince, if necessary by monthly instalments. I do not accept that Mr Cope and his associates in STAF were ever interested in taking back the business either from Mr and Mrs Burns or from Mr Ince.

219 In their third letter (dated 20 November 2009) Murinitis “confirmed” that CAL had offered to surrender the Airport Shuttle business in its entirety, lock, stock and barrel, but recorded that STAF had never responded. The letter continued:

We note that our client has previously made this offer to your client and your client has failed to respond.

Instead of responding to our client's offer, your client has continued to pursue our client in a Supreme Court action in which it is entirely unclear as to the remedy which your client is actually pursuing.

On the one hand, if one looks at the claim which your client is purporting to advance, it appears in substance to be a case for restitution.

On the other hand, without actually being articulate about it, your client appears to be claiming either equitable compensation and/or damages.

However, the basis as to how such equitable compensation or damages is to be calculated, the logic for any such claim being made and the methodology to be employed in calculating any such entitlement has been omitted in your client.

It is impossible to understand precisely what it is that your client actually wants. It does not appear that your client wants the business but on the other hand, it prosecutes a case which in substance appears to be a claim for restitution yet, it is also professing to be entitled to equitable compensation without articulating in a manner that can be properly understood, how such a claim is to be calculated and the foundation for any entitlement.

In the face of all that, court client has previously offered to surrender the business.

Please note that we will be tendering a copy of this letter and other relevant correspondence in support of a claim for indemnity costs.

220 I have previously dealt with goodwill and the initial seven vehicles that were owned by Ultimate Outdoor Pty Ltd and later by Ultimate Media Group and “made available” to the consolidated business. I have also dealt with the buses and the premises that were subsequently leased by Mr Burns and later by Mr Ince.

221 In any event, in relation to the leases to Mr Burns there are two possibilities, neither of which assists STAF. Leases involve payment of rent and it may be accepted that Mr Ince had been paying the rent. One possibility, the one asserted in Murinitis’s letter and which I find to be the fact, is that without taking an assignment of the leases, Mr Ince simply continued paying the rental out of the takings of the business, while the leases remained in the name of Mr Burns. In that case STAF would be in no worse position by taking the leased property over from Mr Ince or CAL than it would have been if it had taken it over from Mr Burns directly. Of course, STAF might wish to have the lessors terminate the leases to Mr Burns and grant fresh leases to STAF, but in view of the abandonment of the leased property by Mr Burns this would offer no difficulty.

222 The other possibility is that the leases were assigned by Mr Burns to Mr Ince or CAL (which I reject) or that in place of the existing leases new ones were granted to Mr Ince or CAL (which I accept happened with the business after expiry of the Burns leases). Mr Ince concedes that this was the case with the business premises. Again, Mr Ince’s offer was clearly an offer to assign, surrender or to take such steps as might be required to vest the leases in STAF. As well he offered to transfer the business name.

223 It is plain that all that Mr Ince was looking for was to be rid of the ongoing rental liability – something which, on any reckoning, STAF would have to assume. But the last thing that STAF wanted was to have to accept responsibility for the day to day running of the business and for the associated ongoing liability for rental and other outgoings.

224 It was not incumbent on Mr Ince to hold his offer to deliver up open to STAF for acceptance forever. STAF showed no interest in taking it up. Mr Ince was entitled to treat his offer as rejected. He was asked on the hearing whether the offer was still open and he said that it was not, explaining that over the last two years due to his efforts the business had grown.

225 In my opinion neither Mr and Mrs Burns nor Mr Ince has any liability to STAF because STAF has not shown that it suffered loss: by not accepting Mr Ince’s offer to deliver up the business it is the cause of any loss it has suffered.

226 STAF has purported to elect for equitable compensation, not an accounting for profits. I say “purported to elect” because in fact it was not entitled to either equitable remedy. It is not shown that STAF has suffered any loss. I accept that Mr and Mrs Burns may have owed fiduciary obligations to STAF, but these are irrelevant to STAF’s complaint. Not every breach of duty by a fiduciary is a breach of fiduciary duty. A duty not to dispose of another’s property or part with possession of another’s property without that other’s consent is a duty owed at common law and does not depend on the existence of a fiduciary relationship.

227 On the analysis set out above, at most Mr and Mrs Burns committed a common law wrong against STAF by placing any proprietorial interest STAF had in the hands of CAL and Mr Ince without STAF’s consent. However, not only has there been no attempt to prove the value of the business: the offers to hand back that were made on behalf of CAL and Mr Ince show that the duration of any suffering of loss was only a relatively short closed period which ended once the offer to deliver up possession was made. Any loss after that date (I am not persuaded that there was any) was caused by STAF’s failure to accept Mr Ince’s offer.

228 On an overall view of the case, I am not persuaded that the Northern Beaches Airport Shuttle Bus business had any significant value. The Northside Shuttle business appears to have been the more valuable of the two. Each was burdensome. Each required a proprietor who was prepared to put in long hours. Such a person might make a living out of the business. None of the persons associated with STAF fitted that description.

229 It would be a condition of any award of equitable compensation that STAF pay reasonable remuneration to Mr Ince for his labour in working in the business and so preserving STAF’s asset. There was evidence of the long hours that he put in, although no evidence of a reasonable market rate. It is difficult to avoid the impression that payment of a market rate would exceed the low figure that might be assigned to goodwill if the latter were ever to be valued.

THE CAUSES OF ACTION

230 Notwithstanding my observation at [160], I will refer briefly to certain aspects of the causes of action (I will use the headings from STAF’s submissions).

(a) Breach of contract.

The complaint worth mentioning is the alleged sale of the composite business said to be in breach of contract. I have dealt with this above as an unauthorised alleged sale of STAF’s proprietary interest. In submissions it is complained that Mr and Mrs Burns failed to meet in an attempt to agree on the terms of the merger and that they sold in breach of an undertaking not to sell. The first allegation does not merit discussion and the second does not merit separate discussion beyond that above.

(b) Breach of fiduciary duty by Mr and Mrs Burns.

In submissions STAF complains that it was a breach of fiduciary duty for Mr and Mrs Burns to part with possession of the business. The reference to fiduciary duty is superfluous: see [226] above.

(c) Knowing assistance by CAL and Mr Ince in a dishonest and fraudulent design.

For the reasons given above, this claim fails. Mr Ince knew of STAF’s claim but to this day does not know whether STAF in fact had a proprietorial interest in the business. In any event neither he nor CAL is shown to have purchased the business.

(d) Unconscionable conduct.

STAF submits that both Mr and Mrs Burns and CAL and Mr Ince were in a position of strength or influence in relation to STAF. STAF’s submissions point to various facts such as that Mr and Mrs Burns were in possession of the business and that they and CAL and Mr Ince had solicitors representing them. As to the former, this is not the kind of special disability or disadvantage to which the doctrine of unconscionable conduct refers. In any event STAF did not attempt to re-take possession from Mr and Mrs Burns or even to enter the office to inspect records. Somervilles represented STAF. There are other problems with the claim of unconscionable conduct which I need not discuss.

(e) Section 52 of the Trade Practices Act 1974/ s 42 of the Fair Trading Act 1987

STAF’s submissions (paras 57 and 58) are unhelpful. In any event, the pleaded claims of misleading or deceptive conduct are subsumed in the claim of selling STAF’s proprietary interest without its consent and contrary to its warning.

(f) Accessorial liability: Section 75B of the Trade Practices Act 1974/ s 61 of the Fair Trading Act 1987.

STAF’s strongest case is that Mr and Mrs Burns delivered up possession of (not “sold”) the business and therefore its proprietary interest in it, to CAL and Mr Ince who accepted that possession. I am not satisfied, however, that this caused loss to STAF. On the contrary, by keeping the business “alive” and offering to hand it back, CAL and Mr Ince enabled STAF to avoid any loss it might otherwise have suffered including the loss of any opportunity for future gain it might have foregone.

(g) Intentional and unjustifiable interference with trade or business: inducement of breach contract

CAL and Mr Ince did not have the required level of knowledge of the contractual relationship between STAF and Mr and Mrs Burns to support a finding of an intention to interfere with it.

(h) Intentional and unjustifiable interference with trade and commerce: unlawful means conspiracy

The required intention to injure is absent. CAL and Mr Ince did not accept and still do not accept that STAF was a “silent partner” with an interest in the business. They are not shown to have bought the business: they are shown to have taken over the running of it and the bearing of its outgoings.

(i) Passing off

STAF did not press this claim.

231 Reasons why all of the claims fail are that:

• it is not proved that the Northern Beaches Airport Shuttle Bus business bought by Mrs Cope and Mrs Mount from the Rixons ever passed to STAF;

• it is not shown what proportionate interest STAF had in the composite business; and

• the offer by Mr Ince to hand over the business to STAF means that STAF is not shown to have suffered any loss.

CONCLUSION

232 The proceeding should be dismissed and there should be an order that STAF pay the costs of CAL and Mr Ince, except the costs of the preparation of their written submissions.

233 In correspondence Murinitis threatened that that firm’s clients would seek indemnity costs. For this reason and only for this reason, I direct that if indemnity costs are to be sought, CAL and Mr Ince must file and serve submissions in support within seven days and STAF must file and serve submissions in response within seven days after they have received the written submissions of CAL and Mr Ince. I say nothing as to the likely prospects of success of any application for indemnity costs that may be made. If an application for indemnity costs is made but fails, the ordinary order would be that the unsuccessful party on that application must pay the costs of the other party of resisting the application.

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LAST UPDATED:
27 September 2010