Data Transfer Services Pty Ltd v White

1. [1]

   THE COURT: Data Transfer Services Pty Ltd and its sole director Mr Maher Mina appeal from a judgment against them in the amount of $2,340,000 in favour of the respondent Mr John Anthony White, following a three day trial in the Commercial List of this Court: White v Data Transfer Services Pty Ltd (No 2) [2022] NSWSC 963. The first appellant was differently named at the time, but it is convenient to refer to it as “DTS”.

2. [2]

   Mr White as Lender, DTS as Borrower and Mr Mina as Guarantor entered into a Deed of Loan and Guarantee witnessed by the solicitors acting for each side and dated 22 August 2014. Mr White sued on the Deed, which provided in cl 2.1, under the heading “Advances”:

3. [3]

   “Facility Limit” was defined as $2,000,000. “Advance” was defined to mean “any drawdown of the Facility and any payment or liability which is deemed to be an Advance”. The “Commencing Date” was defined to mean 1 September 2014, some ten days after the Deed was executed. Repayments were required in the amount of $200,000 on or by 10 September 2014 and the balance by $25,000 monthly instalments commencing on 1 February 2015. Clause 6 made the obligations of the lender subject to the delivery by the borrower on or before the commencing date of the “Current Security”. Current Security was defined to mean:

4. [4]

   At the forefront of the appellants’ submissions in this Court, and their defence at trial, was the fact that DTS never received $2 million from Mr White, either on 22 August when the Deed was executed, or on 1 September 2014 when cl 2.1 stated that an amount equal to the Facility Limit was received. On that basis they denied the indebtedness acknowledged in cl 2.1 of the Deed which Mr Mina had executed on his own and his company’s behalf.

5. [5]

   At the forefront of Mr White’s case at trial, and his defence of this appeal, was that he was entitled to rely on an estoppel created by the Deed, and that while it was true that equity would, in principle, permit DTS and Mr Mina to depart from what was stated in the Deed, no case had been established for that to occur. That was because the Deed reflected the agreement reached between the parties, which was that it was in substance the vendor-financed aspect of a larger transaction whereby Mr Mina’s company would complete its acquisition of a business owned by companies controlled by Mr White for $5.5 million, having already acquired some of the assets of the business. Hence the references in the definition of “Current Security” to “assets being purchased” and the “written sale of business agreement”. Because the Deed was found to have correctly encapsulated the parties’ bargain, there was no occasion for equity to relieve DTS and Mr Mina from the estoppels it created.

6. [6]

   The primary judge upheld Mr White’s claims. We have concluded that her Honour was correct, essentially for the reasons she gave. The most convenient course is to summarise the most important documentary evidence relied on by her Honour and the most important aspects of her Honour’s reasoning, after which the grounds of appeal may conveniently be addressed. We acknowledge at the outset that her Honour’s analysis was considerably more detailed and appropriately so, especially in light of the challenges to the credit of each of Messrs White and Mina. The much more limited challenges made on appeal have enabled us to adopt a more concise approach.

Factual background – 2013

1. [7]

   For many months Messrs White and Mina and solicitors retained by each of them had been negotiating the sale of a mailing services business operated by JW Mailing Services Pty Ltd and J&S Mailing Services Pty Ltd to Mr Mina’s company. Mr White was, at all times after 18 October 2013, the sole director of both companies. He was also the sole shareholder of JW Mailing Services. He and his wife Sharon (who worked in the business) were equal shareholders of J&S Mailing Services.

2. [8]

   There was no challenge to the existence of negotiations in the second half of 2013, nor that Mr Mina advised Mr White that his position was complicated because the assets of his marriage were affected in divorce proceedings that were then pending. Nor was there any challenge to the finding by the primary judge that by October 2013 agreement was reached as to price of around $5.5 million, comprising $4 million for the business and $1.5 million attributable to equipment: at [31].

3. [9]

   In December 2013 a draft contract for the sale of business was sent by Mr White’s solicitor to Messrs White and Mina specifying a price for the sale of business of $5.5 million and including special condition 5.1 which involved the vendor companies providing financing to the purchaser in the amount of $2.5 million.

4. [10]

   On 11 December 2013, Mr Mina signed a letter which her Honour described as “the commitment document” and sent it to, among others, Mr White’s solicitor in the following terms:

Factual Background – 2014

1. [11]

   The primary judge recorded at [45] that it was common ground that by the end of January 2014 the plant and equipment of the business had been moved from Mr White’s business premises in Blacktown to Mr Mina’s business premises in North Parramatta and the staff were working out of the North Parramatta premises. This was consistent with the statement in the commitment document concerning the relocation from Blacktown to Parramatta of the business machinery and operation.

2. [12]

   On 13 June 2014 Mr Mina sent to his broker, and the solicitors acting for the parties exchanged between each other, an executed contract for the sale of business signed by Mr Mina on behalf of DTS. That agreement by handwritten amendment altered the price to $5,460,000 with completion 21 days after the date of contract. This contract included, once again, special condition 5.1 which provided for vendor financing in the sum of $2.5 million. Mr Mina made it plain in his email to his broker that it was dependent upon his obtaining finance (the broker was dealing with at least two banks on Mr Mina’s company’s behalf): “Please see attached at long last a copy of the final contract signed but not exchanged till approval is received”. At around this time documents suggested that there was agreement that $40,000 of the price be allocated to trading stock: see at [51].

3. [13]

   On Monday 18 August 2014 a substantially different draft contract for the sale of business was exchanged between the solicitors acting for the parties. This draft specified a price of $2,650,000 and deleted special condition 5.1 which had made provision formerly for vendor finance. There was competing testimonial evidence about the reason for the marked reduction in price. The primary judge rejected Mr Mina’s account that he was very concerned about the true value of the business, that he was no longer prepared to pay the price previously discussed, that he did not require vendor finance and that he signed the Deed to “placate” Mr White and to stop him from carrying out his threat to cease negotiations, and that “I had formed the view that if vendor finance was not required and I was in a position to pay the purchase price in full by other means, the Deed of Loan and Guarantee would thereby be of no effect.” In cross-examination he said that he was “intimidated” into signing the Deed. All this evidence was rejected by the primary judge as follows at [83]-[84]:

4. [14]

   Mr Gough was the solicitor acting for Mr Mina, and his file note dated 22 August 2014 concerned the execution of the Deed, to which we shall return. There was no challenge on appeal to the rejection of Mr Mina’s evidence.

5. [15]

   Negotiations as to the terms of the sale of business agreement continued thereafter and, critically for the purposes of ground 3 of this appeal, Mr White caused his vendor companies to execute a revised sale of business contract with a purchase price of $2,650,000 on 28 August 2014.

6. [16]

   It seems that neither DTS nor Mr Mina executed thereafter a counterpart of that revised sale of business contract. It was common ground that DTS or Mr Mina paid $2 million to Mr White’s companies on 2 September 2014 and paid the further sum of $1 million to those companies on 12 September 2014.

7. [17]

   The solicitors continued to be involved until late October 2014, exchanging on 16 October 2014 a “Settlement Adjustment Sheet”. Mr Mina’s solicitor stated at this time that “in total, my client has paid $3,040,000 so far being $3m towards the price and $40,000 for stock”. However, it seems that DTS never executed a sale of business agreement for the business it acquired.

8. [18]

   The primary judge found Mr Mina to be a “most unsatisfactory” witness, but further that the inconsistencies in his evidence were not wholly attributable to the inevitable unreliability of recalling events some seven or eight years beforehand, but also extended to giving untruthful evidence, including what her Honour found to have been false evidence in relation to the file note prepared by Mr Mina’s solicitor on 22 August 2014: at [20]. Her Honour also made an unfavourable assessment of Mr White’s evidence: at [19]. No challenge was made on appeal to any of her Honour’s adverse assessments of the witnesses at trial.

9. [19]

   Having discounted the testimonial evidence, her Honour gave weight to the contemporaneous documents, reproducing Mr Gough’s file note mentioned above in full at [70]. The file note most relevantly records the following:

10. [20]

    The file note records in numbered paragraphs 2 and 3 an understanding that the $2 million in the Deed to be executed that day reflected part of the price for the businesses being sold by Mr White’s companies to Mr Mina’s company. The file note does not explain why the $5.5 million price previously agreed to was reduced to $4,650,000 (the sale of business price (excluding stock) and the $2 million lent by Mr White) but there was evidence to which her Honour referred at [71] to “a $500,000 discount” which had been negotiated.

11. [21]

    As noted above, it was common ground that in fact no funds were advanced by Mr White to DTS either on 22 August 2014, when the Deed was executed, or on 1 September 2014, the nominated Commencement Date.

The reasons of the primary judge

1. [22]

   Mr White sued on the basis of cl 2.1 creating an estoppel by deed so as to preclude the appellants from denying receipt of the $2 million and from denying the indebtedness to Mr White. Her Honour referred to the different approaches at common law and in equity to receipt clauses contained in a deed in Greer v Kettle [1938] AC 156 at 171-172, Cousens v Grayridge Pty Ltd [2000] VSCA 96 at [57]-[58] and Helmich and Taylor v Thorpe and Strathdee [1997] 3 NZLR 86. In the latter case it was said that the “exception” pursuant to which equity permits a party to challenge an acknowledgement in a deed:

2. [23]

   The primary judge expressed the applicable principle as follows at [119]:

3. [24]

   Her Honour applied that principle, accepting Mr White’s submission that both parties would, armed with knowledge of the background to the transaction, have understood cl 2.1 of the Deed as referring to “a facility that was yet to be provided in the form of a reduced purchase price payable to the Vendors on the basis that a significant component of the previous agreed purchase price that was to be the subject of vendor finance would be paid … to Mr White under the Deed … rather than paid to the Vendors”: at [125]. That conclusion turned on her Honour’s construction of cl 2.1, which was addressed, quite elaborately, at [124] as follows:

The appeal to this Court

1. [25]

   The second and third grounds of this appeal challenged the construction given to cl 2.1 by the primary judge in [125]. There was no challenge to the correctness of the nine matters reproduced above upon which her Honour relied in reaching that construction. Ground 2 maintained that her Honour had been wrong to rely on any of those contextual matters in the course of construing cl 2.1. Ground 3 separately challenged her Honour’s reliance on sub-paragraph (9), which post-dated the execution of the Deed.

2. [26]

   Because cl 2.1 accurately reflected the bargain between the parties, her Honour found that there was no basis for equity to intervene to relieve against the estoppel created by cl 2.1. The first and principal ground of appeal challenges that reasoning above asserting that there was no consideration, present or future, on the part of Mr White, who therefore could not rely upon the exception stated in Helmich and Taylor.

3. [27]

   It was said that the “exception” in Helmich and Taylor was only applicable where there was consideration, and here there was none. As developed in written and oral submissions, this turned on the proposition that Mr White was separate from the companies which were the vendors of the business, notwithstanding that he was their sole director and sole shareholder (or sole shareholder and one of two equal shareholders the other being his wife). It was therefore not for him to reduce the price to be paid for the companies’ business, and indeed that by purporting to do so, there was the spectre of him breaching his fiduciary and statutory obligations owed to each company. More generally, it was put that “equity” would not permit Mr White to enforce a debt which was fictitious.

4. [28]

   The appellants’ submissions misapprehend the operation of the common law rules and equitable principles in this area, which are well-settled in this country.

5. [29]

   First, a receipt clause contained in a deed binding the parties would, without more, give rise to an estoppel binding the parties at common law. Lord Mansfield said, “No man shall be allowed to dispute his own solemn deed”: Goodtitle d Edwards v Bailey (1777) 2 Cowp 597 at 600-601; 98 ER 1260. The doctrine originally applied to operative provisions and was extended to recitals, as Lord Maugham explained in Greer v Kettle at 168-169. The party estopped was unable to adduce evidence that the money had not in fact been received. To the foregoing there was an exception at common law if the deed were fraudulent or illegal: Greer v Kettle at 171.

6. [30]

   Secondly, much more significant than the limited exceptions at common law was the different approach in equity. Equity had a jurisdiction to rectify deeds which necessarily called for evidence of the parties’ actual bargain which had not been incorporated in the deed. Equity also had a jurisdiction to set aside deeds on other bases including innocent misrepresentation. Evidence that no money had been received, notwithstanding the estoppel at common law, was admissible in equity to support an entitlement to rectification. Likewise, evidence that a recital or other statement in the deed was untrue was admissible to establish an equitable right to rescind the deed. (Of course, it was also open to the other side to adduce evidence in response, to the effect that the Deed had been executed by the parties well knowing that the position was not as stated in the Deed, in order to deny any entitlement to rectification or recission: see further the sixth point below.)

7. [31]

   Thirdly, when a common law court had no jurisdiction to hear and determine an equitable defence based on rectification or rescission, those defences were vindicated by a common injunction from chancery. After the Judicature reforms, when the same court would hear and determine the plaintiff’s claim in debt and the defendant’s equitable defence, the position in equity prevailed. (Lord Maugham referred in Greer v Kettle at 172 to this occurring after the Judicature Act 1873 (UK), as does the Victorian Court of Appeal in Cousens at [58], although strictly speaking earlier reforms authorised common law courts to have regard to equitable defences, and in New South Wales for many years prior to 1972 an action in the Common Law Division could be met by an equitable defence. For most of the twentieth century, s 95 of the Common Law Procedure Act 1899 (NSW) was the source of that entitlement. Since 1972, in accordance with what Lord Maugham said in Greer v Kettle, defendants have been able to rely on equitable defences in the same proceeding pursuant to ss 57, 59 and 61 of the Supreme Court Act 1970 (NSW) which are the relevant local counterparts to the Judicature Act 1873 (UK).)

8. [32]

   Fourthly, it was not necessary for the defendant (who would once have had to commence a separate suit in chancery), to put on a cross-claim in the proceedings commenced by the plaintiff in order to establish an equity to rectify or rescind the deed. At least in simple cases, this could be done by way of defence.

9. [33]

   The result was stated by Lord Maugham in Greer v Kettle at 172, in terms reproduced and applied by the primary judge:

10. [34]

    This Court (Ward JA, Barrett JA and Sackville AJA agreeing) said in Compagnie Francaise D'Assurance Pour le Commerce Exterieur t/as Coface Australia v Sims Group Australia Holdings Ltd [2013] NSWCA 418 at [96] that:

11. [35]

    Fifthly and critically, it is quite wrong to conflate the propositions that (a) equity would admit evidence directed to establishing an entitlement to rectification or rescission and (b) if a case for rectification or rescission was made out, the plaintiff could not rely on the estoppel, with the conclusion for which the appellants contend, namely, that in all cases where a recital or other provision in a deed was shown to be incorrect it did not give rise to an estoppel. The question in such a case is not whether the recital or provision is incorrect. It is whether the party has made out an entitlement in equity to relief. That is the force of the qualification in the statement of principle by Ward JA reproduced above. That is why Buckley J said in Wilson v Wilson [1969] 1 WLR 1470 at 1474 that the deed must be “rectifiable”. That is why Buckley LJ said with the agreement of Everleigh LJ and Sir John Pennycuick in Pink v Lawrence (1978) 36 P & C R 98 at 101-2 that “there must be established those circumstances which would make rectification the appropriate remedy”. That is why Slade LJ writing for the Court of Appeal in Goodman v Gallant [1986] Fam 106 said at 117:

12. [36]

    That result reflects the interaction between the rules of the common law and the principles of equity.

13. [37]

    Sixthly, in cases where parties have chosen deliberately to enter into a transaction on a counterfactual basis, there will be no occasion for rectification or rescission. And of course parties may determine as between themselves to be bound on a counterfactual basis. There is nothing necessarily improper about such a course. Common examples include the backdating of a legal lease to the time when a tenant actually obtained possession, or parties agreeing by way of compromise of a dispute that their contract is taken to have commenced on a particular date. Of course, there are also occasions where producing a document which is factually false may be fraudulent or dishonest. Understating the consideration for the transfer of property may result in a fraud upon the revenue (and indeed Mr Gough was conscious of the potential implications for stamp duty purposes of what he described as the “paper document” in the present case; to be clear, the transcript records an undertaking that the Office of State Revenue would be notified when the documents in this trial were tendered).

14. [38]

    All this emphasises the distinction between the correctness of the recital or provision in the deed, and whether equity would permit one party to rely upon the estoppel generated by the counterfactual statement in the deed.

15. [39]

    Where, as the primary judge found, the parties have agreed to proceed on a counterfactual basis, then there is no basis for rectification in equity, and thus no basis for equity to deny Mr White’s entitlement to rely upon the estoppel created by the Deed. That is the short answer to the entirety of this appeal.

16. [40]

    In submissions, this was described as “the exception to the exception” in reliance upon what had been said in Helmich and Taylor. Fisher J’s admirably clear ex tempore judgment does not use that concept, although his Honour refers to the “receipt exception”. His Honour, with respect correctly, said that equity had nothing to do in a case where parties had deliberately contracted on a counterfactual basis. We agree. Rather than treating this as “an exception to an exception”, it may be better to identify the question as whether some basis exists at law or in equity (more usually, the latter) which will prevent the prima facie entitlement of a party to rely on an estoppel in a deed.

17. [41]

    Accordingly, and contrary to the appellants’ submissions, there is no basis for confining what was said in Helmich and Taylor to cases where parties had provided “real” or “actual” consideration. The question is whether they could make out a basis in equity to deny the availability to Mr White of the estoppel in his favour based on their execution of the Deed formally stating that DTS was indebted to him.

18. [42]

    We would not accept the appellants’ submissions as to the nature of conflict in any event. The separate legal identities of Mr White and his companies may be acknowledged, but that does not stand in the way of his giving valuable consideration in order to procure the companies’ acceptance of a $2 million reduction in purchase price. Submissions were made of Mr White’s fiduciary obligations to his companies and (in this Court although not at first instance) of the possibility of contraventions of s 182 of the Corporations Act 2001 (Cth). But there is nothing in the facts to cast any doubt upon Mr White’s ability to control a general meeting to authorise the sole director to receive some of the consideration for the sale of the business personally. Contrary to a submission made orally, there is no suggestion in the evidence of any creditors having, in August 2014, an interest in the company in the way described in Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 and more recently in BTI 2014 LLC v Sequana SA [2022] UKSC 25; [2022] 3 WLR 709 so as to require the director to have regard to the interests of creditors when procuring a reduction in the price. Reliance was placed on the fact that somewhat more than three years after the event the company of which Mr White was sole director and shareholder was wound up pursuant to a creditor’s resolution. That fact falls far short of establishing that Mr White could not lawfully cause his company to reduce by $2 million the price of the business it was selling and simultaneously cause the purchaser to pay the $2 million to Mr White personally. (It is unnecessary to consider the position which would arise if the appellants had in fact made out a case of breach of duty on the part of Mr White.)

19. [43]

    The second ground was that her Honour erred in relying upon the matters set out extensively in her judgment in construing what was said to be the plain and unambiguous receipt acknowledgement clause in cl 2.1. The appellants’ essential point was that there was no occasion to have regard to the context to alter the ordinary meaning of the clause.

20. [44]

    First, even if her Honour had adopted an incorrect construction of cl 2.1, that would not affect the outcome until and unless equity disentitled Mr White from relying upon the estoppel created by the clause and binding DTS and Mr Mina.

21. [45]

    The appellants were, in accordance with settled principle, permitted to adduce evidence of the fact that, contrary to what was said in the Deed, they did not receive $2 million in support of their claim that equity would not permit Mr White to rely upon the recital. However, that occurred in a context where, as a matter of fact, the price to be paid to the vendors was reduced by $2 million being the amount which DTS agreed to pay, separately, to Mr White. The admissibility of the evidence that there was no payment was an aspect of entertaining Mr Mina’s case that no moneys were in fact lent and he had renegotiated the price downwards by $2 million or alternatively had been improperly pressured into executing the Deed. The primary judge rejected that case (which is in the teeth of a number of documents, not least Mr Mina’s solicitor’s file note concerning which her Honour found that Mr Mina gave false evidence). There is no challenge to that rejection.

22. [46]

    The ultimate question is whether Mr Mina and DTS have made out a case in equity to relieve them from the effect of the estoppel created by the Deed. The rejection of Mr Mina’s renegotiation case means that they failed to do so. That is dispositive of the appeal.

23. [47]

    This ground extended to a submission made in written submissions in reply asserting that the Deed fell to be construed only by reference to the four corners of the 13 page document, relying on Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7. To the extent that this submission amounted to an overturning of more recent decisions upholding resort to surrounding circumstances or context in the first instance in order to determine whether the document bore a “plain meaning”, senior counsel confirmed that the submission was merely formal. The appellants’ submission paid no regard to what had been said more recently by the High Court in for example Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]:

24. [48]

    The primary judge expressly relied on that formulation of principle, which in turn expressly cited Electricity Generation Corporation v Woodside Energy Ltd on which the appellants’ submission was based.

25. [49]

    But in any event we would be disinclined to accept the submission. Clause 2.1 is an example of a clause which considered in isolation bears a straightforward meaning. However, it is part of a document which refers to the ongoing negotiations (“assets being purchased”) between the parties, and to a written sale of business agreement. Even on the narrowest approach to the admissibility of extrinsic evidence, evidence was admissible to identify the subject matter of the Deed. Lord Abinger CB said, in a case concerning extrinsic evidence relating to the subject matter of a will, “To understand the meaning of any writer, we must first be apprised of the persons and circumstances that are the subjects of his allusions or statements … All the facts and circumstances therefore, respecting persons or property, to which the will relates, are undoubtedly legitimate, and often necessary evidence, to enable us to understand the meaning and application of his words”: Doe d Hiscocks v Hiscocks (1830) 5 M & W 364 at 368; 151 ER 154 at 156. The evidence which demonstrated that the parties had been in negotiations to buy Mr White’s companies’ business, and had when the Deed was executed agreed on price and had transferred some of the assets to Mr Mina’s premises, made it quite plain that the Deed was one part of a wider transaction. Further, although Mr White’s companies executed a sale of business agreement, and DTS and Mr Mina executed various draft documents, DTS and Mr Mina never executed a sale of business agreement in its final form; instead, having acquired the assets and paid just over $3 million, Mr Mina chose to leave the documents pursuant to which his company acquired the business unexecuted.

26. [50]

    In short the position was that the Deed referred on its face to a related transaction involving DTS as purchaser, which was effected informally, and parts of which (the transfer of assets to Mr Mina’s premises) had already been effected. In those circumstances, we apprehend that even on the narrowest approach, extrinsic evidence was admissible to identify the related transaction. But nothing turns on any of this, because even if the primary judge misconstrued cl 2.1 and it means precisely what it says, the appellants must lose unless they can in Lord Maugham’s words “destroy” the estoppel created by the deed.

27. [51]

    Ground 3 was a separate challenge to construction based upon reliance upon the execution on 28 August 2014 of the sale of business agreement. For the reasons already articulated, that ground must also be dismissed. First, the sale of business agreement executed by Mr White’s companies identified the subject matter over which a charge was to be given as a condition of Mr White’s obligation in cl 2.1. Secondly, even if the sale of business agreement were not admissible on the issue of construction, the appellants made no attempt to explain how any different construction would be reached if regard could only be had to the matters identified in [124(1)-(8)] but not [124(9)]. Thirdly, even if the construction upheld by the primary judge were incorrect, the appeal must be dismissed unless the appellants are entitled to relief in equity, and standing in the way of that are the findings of fact as to the terms on which the business was to be transferred to DTS from which no appeal has been brought.

Orders

1. [52]

   For those reasons, her Honour’s reasons were correct. The appeal should be dismissed, with costs.