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Aquatic Air Pty Ltd v. Siewert & anor

The impact of this case on ATO policy is discussed in Decision Impact Statement: Aquatic Air Pty Ltd v Siewert & Anor (Published 17 February 2020).

(Decision by: Brereton J)

AT Air Group Pty Ltd (first plaintiff)
Ross Edward Seller (second plaintiff)
Aquatic Air Pty Ltd (third plaintiff)
Avtex Air Services Pty Ltd (fourth plaintiff)
Dieter Siewert (first defendant)
Lieselotte Siewert (second defendant)
Heron Airlines Travel Pty Ltd (third defendant)
Wingaway Air Pty Ltd (in liq) (fourth defendant)
AT Air Group Pty Limited (in liq) (fifth defendant)

Court:

Supremet Court of New South Wales

Judge:
Brereton J

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999 - 9-15(2); 38-10(5)
Australian Securities and Investments Commission Act 2001 - 12GM
Competition and Consumer Act 2010 - Sch 2, 243
Corporations Act 2001 - 477(2)(c)
Taxation Administration Act 1953 - Sch 1, 105-100

Case References:
Bosaid v Andry - [1963] VR 465
Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd - [2006] FCA 1352; (2006) 236 ALR 720
Brew v Whitlock (No 2) - [1967] VR 803
Byers v Doroteas Pty Ltd - [1986] FCA 593; (1986) 69 ALR 715; (1987) ATPR 40-760
Caltex Oil (Aust) Pty Ltd v Alderton - [1964-65] NSWR 456
Colorado Products Pty Ltd (in prov liq) - [2014] NSWSC 789; (2014) 101 ACSR 233
David Jones Ltd v Lunn - (1969) 91 WN (NSW) 468
Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd - [2008] HCA 41; (2008) 237 CLR 473; (2008) 248 ALR 693; (2008) 82 ALJR 1411; (2008) 67 ACSR 593
Fitzgerald v Masters - (1956) 95 CLR 420
Hare v Nicoll - [1966] QB 130
In the matter of Wingaway Air Pty Ltd (Administrator Appointed) ACN 003 200 128 and Heron Airlines Travel Pty Limited (Administrator Appointed) ACN 052 408 170 - [2012] NSWSC 246
Mijac Investments Pty Ltd v Graham (No 2) - [2009] FCA 773; (2009) 72 ACSR 684
Munchies Management Pty Ltd v Belperio - (1988) 58 FCR 274; (1989) 84 ALR 700; (1989) ATPR 40-926
Myers v Transpacific Pastoral Co Pty Ltd - (1986) ATPR 40-673
Owners of Strata Plan 5290 v CGS & Co Pty Ltd - [2011] NSWCA 168
Re AT Air Group Pty Ltd - [2012] NSWSC 774
Re Cant (in his capacity as liquidator of Novaline Pty Ltd (ACN 006 622 933) (in liq)) [2011] FCA 898 - (2011) 282 ALR 49; (2011) 85 ACSR 31
Seller v Jones - [2014] NSWCA 19
SST Consulting Services Pty Ltd v Rieson - (2006) 225 CLR 516
Tonitto v Bassal - (1992) 28 NSWLR 564
Torrens Re-Development and Research Pty Ltd v Oakworth Developments Pty Ltd - [2008] NSWSC 1096; (2008) 13 BPR 25,501
Tosich v Tasman Investment Management Ltd - [2008] FCA 377; (2008) 250 ALR 274
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd - (1996) 14 ACLC 1610
Whitlock v Brew - (1968) 118 CLR 445

Hearing date: 10, 11, 12, 13, 17, 19 February 2015
Judgment date: 27 July 2015

Sydney

Decision by:
Brereton J

1 HIS HONOUR: The defendants Dieter and Lieselotte Siewert were the owners of all the shares in Wingaway Air Pty Ltd, Heron Airlines Travel Pty Ltd and Avtex Air Services Pty Ltd ("the aviation companies"), through which Mr Siewert conducted various aviation operations, including the provision of air ambulance services to regional hospitals and area health services. In these proceedings, the third and only remaining plaintiff Aquatic Air Pty Ltd - a company indirectly owned and controlled by Mr Ross Seller, an experienced tax lawyer with an interest in aviation - claims, in its own right or as assignee of the rights of AT Air Group Pty Ltd (a subsidiary of Aquatic that is now in liquidation and has assigned its rights against the Siewerts to Aquatic):

(1): orders avoiding a share sale agreement made on 22 July 2011 ("the main Share Sale agreement"), by which the Siewerts sold their shares in Wingaway and Heron to AT Air, for misrepresentation, in that Wingaway had a GST liability of $2 million contrary to a representation that it had none ("the GST liability representation") and a redundancy liability of $105,323 contrary to a representation and/or warranty that it had none ("the Redundancy liability representation");
(2): damages for misrepresentations and/or breaches of warranty in connection with the main Share Sale agreement (being payments made by AT Air in respect of the purchase price, and its costs of subsequent related litigation, and alternatively the amount of the GST liability and the Redundancy liability);
(3): orders avoiding another share sale agreement made on 22 July 2011 ("the Avtex agreement"), by which the Siewerts sold their shares in Avtex to AT Air, for misrepresentation, in that Avtex had liabilities for redundancy payments of $62,102 and unpaid workers compensation premiums of $67,189 contrary to representations and/or warranties that it had no such liabilities ("the Avtex representations"), and also on account of the GST liability representation and the Redundancy liability representation which are said also to have induced the Avtex agreement;
(4): damages for misrepresentations and/or breaches of warranty in connection with the Avtex agreement (being payments made by AT Air in respect of the purchase price, and its costs of subsequent related litigation, and alternatively the amount of Avtex's redundancy and workers compensation liabilities);
(5): orders avoiding a security agreement ("the Security agreement") and associated securities (including a call option over Aquatic's property at Pearl Bay Avenue, Mosman ("the Call option")) given by AT Air and Aquatic to the Siewerts on 13 October 2011 as security for the unpaid balance purchase price under the Share Sale agreements ("the Security agreements"), for misrepresentation, in that the Siewerts had drawn $674,428 from the bank accounts of Wingaway and Heron between 22 July 2011 and 13 October 2011, contrary to a representation that they had withdrawn only $110,000 ("the Bank Accounts representation"), and also on account of the GST liability representation and the Redundancy liability representation, which are said also to have induced the Security agreements;
(6): damages for misrepresentation in connection with the Bank Accounts representation (being the liabilities incurred by Aquatic under the Security agreements), including exemplary damages against Mr Siewert;
(7): alternatively to (5), damages for breach of the Security agreement (by failure to pay the outgoings and mortgage instalments in respect of the Mosman property from 13 October 2011 in accordance with the Security agreements);
(8): also alternatively to (5), a declaration that the Call option, which the Siewerts purport to have exercised, has not been validly exercised in conformity with its terms.

2 The principal issues for determination are:

(1): Did the Siewerts make a representation or warranty to the effect of the GST liability representation? If so, did Wingaway have a GST liability (of $2 million or some other amount)?
(2): Did the Siewerts make a representation or warranty to the effect of the Redundancy liability representation? If so, did Wingaway have a redundancy liability (of $105,323 or some other amount)?
(3): Did the Siewerts make a representation or warranty to the effect of the Avtex representations? If so, did Avtex have liabilities for redundancy payments (of $62,102 or some other amount) and unpaid workers compensation premiums (of $67,189 or some other amount)?
(4): If yes to any of (1) to (3), is avoidance of the Share Sale agreements available to Aquatic as AT Air's assignee? If so, should the Share Sale agreements be avoided, or should avoidance be refused by reason of election, acquiescence, or estoppel?
(5): If avoidance is not available or is refused, what if any damages are recoverable by Aquatic in respect of any established misrepresentations and/or breaches of warranty in connection with the Share Sale agreements?
(6): Did the Siewerts make a representation to the effect of the Bank Accounts representation? If so, had the Siewerts drawn $674,428 (or some other amount, in excess of $110,000), from the bank accounts? If so, was any such misrepresentation intentional?
(7): If so, should the Security agreements be avoided, or should avoidance be refused by reason of election, acquiescence or estoppel?
(8): If avoidance of the Security agreements is not available or is refused, what if any damages are recoverable by Aquatic in respect of the misrepresentation?
(9): Are the Siewerts in breach of the Security agreement by failure to pay the outgoings and mortgage from 13 October 2011? If so, what damage has that breach caused Aquatic?
(10): Has the Call option been validly exercised in conformity with its terms?

Background

3 By the end of 2009, Mr Siewert, who was then 66 years of age, was contemplating retirement. Although Mrs Siewert was a shareholder in the aviation companies, she was not actively involved in their operation. Mr Siewert approached an aircraft sales broker, Richard Maclean, about selling his aviation businesses. In late 2009 or early 2010, Mr Maclean approached Mr Seller as a prospective purchaser. Following between ten and twelve meetings (or thereabouts) between Messrs Maclean, Seller and Siewert, in March 2010 Mr Seller made an offer to purchase the companies for $6 million, on terms. However, on 15 June 2010, a plane owned by Wingaway and operated by Skymaster Air Services Pty Ltd, another company owned by the Siewerts and of which Mr Siewert was a director, was involved in a fatal accident. The Civil Aviation Safety Authority suspended the Air Operator's Certificates ("AOC") held by Skymaster and Avtex, which had the consequence that Wingaway could not operate as it previously had. Skymaster ceased business as a result, and Wingaway sought the assistance of external contractors to enable it to continue to supply air ambulance services. By about November 2010, Macquarie Air Pty Ltd was operating about 95% of Wingaway's aircraft as a contractor to enable it to provide those services.

4 Negotiations for a sale continued with Mr Seller, although Mr Siewert also had discussions with Macquarie. Mr Siewert was prepared to reduce the sale price because of the impact on the businesses of the accident and loss of an AOC, which included that a purchaser would now need to hold its own AOC. He thought that the sale of the companies was a better solution than just selling their assets, as they were still profitable, and would remain so to a purchaser who had an AOC.

5 In late 2010, Mr Seller proposed to Mr Siewert that the aviation companies could access an AOC through an arrangement with Mr Seller's companies AT Air and Australian Aerial Specialists Pty Ltd ("AAS"). By February 2011, the Civil Aviation Safety Authority ("CASA"), as it was then known, was pressing Mr Siewert to cease his involvement in the aviation companies, and Mr Seller remained interested in acquiring them, through one of his controlled entities. After further negotiations, on 21 February 2011 - very shortly before Mr Siewert was to travel overseas, and at the request of Mr Seller that something in principle be recorded before he departed - they executed agreements for the sale (to be completed by 30 June 2011) of the shares in Wingaway, Heron and Avtex ("the February Agreement"). The gravamen of the February Agreement was contained in a document entitled "Annexure Subject to", which relevantly provided for the sale of the shares in Wingaway and Heron at a price of $2.5 million, the grant of an option to acquire the shares in Avtex, and the drawing by the Siewerts, on account of dividend, of $50,000 per month between agreement and completion in June 2011.

6 As a result of arrangements made by Mr Seller, from February 2011 Wingaway and Heron continued to operate by providing their services through AAS. Because these arrangements were crucial to the continuation of those businesses while they did not hold their own AOC, Mr Siewert was prepared to wait for Mr Seller to obtain finance, which Mr Seller assured him was available, to complete a sale of the businesses as a going concern.

7 The conditions for the performance of the February Agreement were not satisfied: Mr Seller was not able to raise finance in time. However, Mr Seller continued to press Mr Siewert to sell to him, and this, coupled with the pressure from CASA and Mr Siewert's desire to retire, culminated in the Share Sale agreements of 22 July 2011.

The Share Sale Agreements of 22 July 2011

8 The main Share Sale agreement made on 22 July 2011 - between the Siewerts as vendor and AT Air as purchaser - provided for the sale of the Siewerts' shares in Wingaway and Heron to AT Air for a total consideration of $2.3 million, comprising a deposit of $200,000, a balance of $800,000 on completion, and $1.3 million by way of vendor finance repayable by monthly instalments over a term of 3 years. Like the earlier February agreement, this agreement was drafted by Mr Seller; Mr Siewert had no legal assistance at this stage.

9 Clause 3.2 provided that the consideration for the purchase of the shares was $2.3 million: the reduction from the $2.5 million referred to in the February Agreement reflected the withdrawal of the four monthly distributions of $50,000 contemplated by the earlier agreement for the months of March, April, May and June. Payment of the purchase price was covered by annexure B, which relevantly provided as follows:

Timing of Payment under Clause 3

The consideration referred to in Clause 3 is payable as to a deposit of $200,000 or security as agreed, and $800,000 (the Financed Amount) by 30 June 2011 or such later dates as the parties may agree, and $1,300,000 (the Vendor Finance) by equal monthly instalments until 30 June 2014 (Settlement).

The Vendor acknowledges that the deposit of $200,000 has been paid as to $100,000 with the balance of $100,000 to be paid by 31 October 2011 and for which adequate security has been given in the form of a motor vessel (value $250,000).

The Vendor agrees that payment of the Vendor Finance will be by equal monthly instalment with each instalment no greater than the difference between $50,000 and any monthly payments due to any Finance Company in relation to the Financed Amount. These monthly payments to the Vendor will include any other payments due by the Purchaser to the Vendor pursuant to this Agreement or the Agreement for Sale of Shares in Avtex Aviation Pty Limited entered into around the same time as this agreement (the Avtex Sale Agreement).

10 By 22 July 2011, Radio Nominees Pty Ltd, a subsidiary of Aquatic, had paid the Siewerts $100,000 on account of the deposit, as referred to in annexure B. The balance of the $200,000 deposit was, as the agreement records, secured by a boat.

11 Annexure C provided as follows:

Undistributed Profits and Long Service Leave and Holiday Pay Obligations;

The Vendor and Purchaser agree and acknowledge that an agreed amount of undistributed profits existed in Wingaway at 30 June 2011 of $580,000 which is to be distributed to the Vendors (the Undistributed Profits). In addition for the purposes of this Agreement certain amounts of Long Service Leave and Holiday Pay (the LSL amount) are owing to staff of Wingaway and Heron as at the date of this Agreement. The LSL amount is agreed to be $85,000 and is to be paid out by Wingaway forthwith.

It is agreed that the Undistributed Profits have been or will be reduced by:

(a)
an amount of $200,000 previously paid as a dividend to the Vendors, plus

(b)
an amount of $145,000 to be paid to the Vendors during July 2011 as a further dividend, plus

(c)
the LSL amount of $85,000.

The balance of the Undistributed Profits being $150,000 will be withheld by Wingaway until such time as the Workers Compensation Audit currently being undertaken is completed. Once completed any amount payable pursuant to the audit will be deducted from the said balance of the Undistributed Profits.

Management Staff;

The Purchaser agrees, to maintain the employment of certain key personnel in Wingaway and Heron for least 12 months, subject to the normal terms and conditions of their employment.

These personnel are

John Ives - Heron
Paul Lynch - Avtex
Ron O'Brien - Wingaway
Yvonne Pound - Wingaway
Michael Pound - Wingaway

12 Thus AT Air - by Mr Seller, who drafted the agreement - knew that there had been and/or were to be payments to the Siewerts from Wingaway's accounts during July 2011 of $345,000 in respect of undistributed profits.

13 The Avtex agreement, also made on 22 July 2011 between the Siewerts as vendor and AT Air as purchaser, provided for the sale of the shares in Avtex for a price of $200,000, of which $70,000 was applied to unpaid long service leave, and the balance of $130,000 was payable by 12 equal monthly instalments from when the long service leave amount was fully paid out, which was estimated to be by 30 September 2011. Annexure B to the Avtex agreement provided as follows:

Timing of the Payments Under Clause 3 and Long Service Leave

The Vendor and Purchaser acknowledge and agree that for the purposes of this agreement that certain amounts of Long Service Leave and Holiday Pay (the LSL amount) are owing to staff ... The LSL amount are [sic] agreed to total $70,000 and this amount is to be deducted from the Consideration referred to in Clause 3.

Approximately $28,000 of this LSL amount has already been paid out leaving approximately $42,000 to be paid. This remainder will be paid by Avtex at the rate of approximately $14,000 per month for the next 3 months until 30 September 2011.

The Consideration referred to in Clause 3 will then be reduced by an amount equal to the LSL amount of $70,000 and the balance of the Consideration being $130,000 will then be payable by 12 equal monthly instalments by the Purchaser to the Vendor commencing from the time when the LSL amount is fully paid out, which should be by 30 September 2011.

14 Contemporaneously with the making of the Share Sale agreements on 22 July 2011, the transfers of the shares the subject of the sales were approved and registered. Mr Siewert resigned as a director, and Mr Seller was appointed a director and secretary of each of the aviation companies. However, the Siewerts did not then relinquish control of the bank accounts of Wingaway, Heron and Avtex. This would later become the subject of complaint by Mr Seller, who contended that upon the proper construction of the main Share Sale agreement, the Siewerts were obliged to relinquish control of the bank accounts upon completion, and that completion took place on 22 July 2011. It is convenient to address this issue here.

15 Clause 4.2 of both Share Sale agreements provided as follows:

4.2 By Completion the Vendor must:

(a)
Deliver to the Purchaser share certificates for the Sale Shares and duly executed transfers in respect of the Sale Shares in registrable form in favour of the Purchaser.

(b)
Procure that a meeting of the directors of. the Company is held at which those directors shall (except to the extent to which the Purchaser may by written notice waive compliance with the provisions of this paragraph (b)):

(i)
resign, by written notification to the Company effective from Completion (a copy of which must be provided to the Purchaser) acknowledging that the directors, respectively, have no claim outstanding for loss of office, remuneration or otherwise against the Company, from their office as directors of the Company in such manner and at such time as will enable the persons nominated in writing by the Purchaser to be appointed directors of the Company effective from Completion (such nominations to be made not less than 2 Business Days prior to the Completion Date), and so appoint the Purchaser's nominees as directors;

(ii)
revoke the authorities in respect of the operation of the Company's bank accounts and grant new authorities effective from Completion to such persons as the Purchaser shall nominate (any such nomination to be made not less than 2 business days prior to the Completion Date);

(iii)
revoke effective from Completion all current powers of attorney granted by the Company, notify the attorneys in writing of such revocation and provide a copy of each such notice of revocation to the Purchaser; and

(iv)
approve the transfer of the Sale Shares and (subject to payment of stamp duty) the registration of such transfer and the issue of new share certificates to the Purchaser.

(vi)
Arrange for the transfer of the ownership of the Hire Aircraft into the name of the Vendors or their nominees.

(c)
Procure where required by the Purchaser by written notice given to the Vendor not less than 2 Business Days prior to the Completion Date the delivery to the Company (with a copy to the Purchaser) of written resignations of the secretary, and public officer of the Company effective from Completion acknowledging that they, respectively, have no claim outstanding for loss of office, remuneration or otherwise against the Company.

(d)
Cause to be delivered to the Purchaser the current certificate of incorporation, seals, registers, minute books and constitution of the Company and all other books of account, records and documents of the Company by delivering to the Purchaser a letter from each person having the custody of any of such property addressed to the Purchaser acknowledging that such person holds the relevant property of the Company for the Company, that such property is not subject to any lien or similar right of retention, and undertaking to deal with such property as directed by the Purchaser.

16 The agreements distinguished between "completion" and "settlement". Clause 3.3 provided:

In consideration of the time period between Completion and Settlement and as security for the Vendor, the Vendor has security over some of the sale Aircraft as set out in the Schedule and may transfer those Sale Aircraft into the name of a nominee until Settlement.

17 "Settlement" was to be when the last instalment of the vendor finance was repaid, on 30 June 2014 (see the first paragraph of the extract from annexure B set out above). "Completion" was defined as "completion of the sale and purchase of the Sale Shares pursuant to this Agreement", and "Completion Date" meant "1 July 2011 or such later date as may be agreed to by the Vendor and the Purchaser in writing". As appears from the part of annexure B to the main agreement extracted above, the consideration under the agreement was payable by (1) a deposit of $200,000 which was acknowledged to have been paid as to $100,000 and the balanced adequately secured and to be paid by 31 October 2011, (2) $800,000 by 30 June 2011 "or such later date as the parties may agree", and (3) $1,300,000 by vendor finance repayable by equal monthly instalments of $50,000 for three years. It must be assumed that the parties had agreed to some later date for payment of the balance purchase price of $800,000 - by reason that the agreement itself was not made until 22 July 2011, and that payment of the balance of the deposit was deferred to 31 October 2011 - but there is otherwise no evidence of agreement as to any such later date.

18 In the context that there were conditions precedent to completion (clause 2.2), obligations to be performed "by Completion" (clause 4.2, 4.3), and provision in respect of conduct between agreement and completion (clause 5), a construction that the making of the agreement and completion were one and the same is an improbable one. Moreover, clause 4.2 imposed obligations which were to be performed by - not on - completion, which is entirely consistent with some of the completion obligations being performed contemporaneously with making the agreement, before completion. Read as a whole, and in the light of orthodox conveyancing practice, the proper construction of the agreement is that "completion" involved the payment of the balance purchase moneys of $800,000.

19 Thus, contrary to the position adopted by Mr Seller, the making of the agreement on 22 July 2011, and payment of the deposit, was not "Completion" within the meaning of the agreement - even though the shares were in fact transferred on that date - and there was no obligation on the Siewerts to relinquish control of the bank accounts until the balance purchase money of $800,000 was paid. While, through the share transfers, Mr Seller was enabled from 22 July 2011 to operate the aviation companies, he was not entitled to control their bank accounts until the balance purchase money was paid. The Security Agreements of 13 October 2011

20 On 2 September 2011, Radio Nominees paid a further $100,000 on behalf of AT Air, which completed the deposit of $200,000, and the Siewerts had taken from the bank accounts a further $110,000 on account of repayments of the vendor finance. AT Air endeavoured to obtain finance from a financier for the balance purchase money of $800,000, but was unsuccessful in doing so. While complaint was made in the course of the proceedings that the Siewerts unreasonably objected to one of the proposed financiers, this has no relevance to any pleaded cause of action.

21 By October 2011, the $800,000 balance purchase moneys remained unpaid, and Mr Siewert was threatening enforcement action. Further negotiations ensued, which resulted in an agreement to the effect that the purchase price would be reduced by $800,000 in return for the transfer to the Siewerts of the equity in the Mosman property, estimated to be $700,000 (after allowing for a mortgage by Aquatic to the National Australia Bank which then secured $1.8 million), and the proceeds of sale of a boat (up to $170,000), and that the remaining balance purchase money (after the deposit and a sum of $110,000 which had been appropriated by the Siewerts) of $1,190,000 would be paid by AT Air by 30 June 2014 by equal monthly instalments of $30,000, such payments being guaranteed by Wingaway and Heron. This agreement was implemented by the Security agreements made on 13 October 2011 between Aquatic, Wingaway, Heron and AT Air and the Siewerts, which comprised the Security agreement, a Charge, a Power of Attorney and the Call option.

22 The Security agreement recited that the deposit had been paid, and that the vendor finance component was treated as having been paid to the extent of $110,000, but that the "financed amount" of $800,000 had not been paid:

B The Share Sale Agreement provides that the Purchase Price is to be paid by the AT Air Group to Siewert as follows:

(1)
two hundred thousand dollars ($200,000) on or prior to the date of that agreement which has been received by Siewert;

(2)
eight hundred thousand dollars ($800,000) on or prior to 30 June 2011 or such later date as the parties agree; and

(3)
one million three hundred thousand dollars ($1,300,000) by equal monthly instalments until 30 June 2014 which has been received by Siewert as to $110,000.

23 The Security agreement further recited that AT Air had not paid part of the purchase price in accordance with the main Share Sale agreement (recital C), and that AT Air had agreed to mortgage its shares in Wingaway and Heron to the Siewerts as security for payment of the balance of the purchase price (recital D).

24 Clause 2.1 provided that, except to the extent that the document expressly otherwise provided, it did not affect a person's rights, obligations, powers or remedies under the main Share Sale agreement. By clause 3.1, Mr and Mrs Siewert acknowledged that they had received an amount of $310,000 from AT Air in part payment of the purchase price. (This sum comprised the $100,000 paid on account of the deposit by Radio Nominees as part of the deposit, the further $100,000 paid on 2 September as the balance of the deposit, and $110,000 appropriated by Mr and Mrs Siewert from the bank accounts of the aviation companies and applied to vendor finance repayments).

25 By clause 3.2, AT Air acknowledged that it was indebted to the Siewerts in the amount of the "Secured Money" on account of the delayed payment of the purchase price, for which purpose "Secured Money" was defined as $1,190,000, being the remainder of the purchase price payable under the main Share Sale agreement and the Security agreement, after the $800,000 reduction. Clause 3.3 provided as follows:

3.3 Repayment

(1)
The Secured Money must be paid in full by AT Air Group to Siewert on or before 30 June 2014 (Repayment Date).

(2)
The Secured Money is to be paid by AT Air Group in the following manner:

(a)
equal monthly instalments of $30,000.00 plus interest with the first instalment payable on 31 October 2011; and

(b)
the remainder of the Secured money (including interest) by the Repayment Date.

(3)
The Secured Money must be paid in accordance with paragraph (2) by electronic funds transfer (on a direct debit basis) to the account nominated by Siewert from time to time. If required, AT Air Group and the Security providers must sign and authorise all necessary documents (including direct debit forms) to give effect to the preceding sentence.

(4)
AT Air Group may pay the Secured Money or any part thereof and accrued Interest to Siewert prior to the Repayment Date without penalty or charge.

26 By clause 4, Wingaway and Heron guaranteed payment by AT Air of the Secured Money and performance by AT Air of its obligations, and (by clause 6) agreed to grant a fixed and floating charge over their assets and undertaking in favour of the Siewerts.

27 By clause 5, Aquatic appointed the Siewerts its power of attorney to sell the Mosman property (which was estimated to be worth about $2.5 million), to repay the outstanding mortgage to the National Australia Bank of $1.8 million, and to pay the balance to the Siewerts, in return for which the balance purchase price under the main Share Sale agreement was reduced by $700,000 (corresponding to the estimated equity in the property) - from $1.99 million to $1.29 million. Aquatic also agreed to enter into a call option deed with the Siewerts with respect to the Mosman property.

28 By clause 7, Aquatic charged all its right title and interest in its motor cruiser boat, agreed to endeavour to sell the boat and to pay the first $170,000 from the proceeds to the Siewerts, and appointed the Siewerts its power of attorney to sell the boat and retain the first $170,000, in return for which the balance purchase price under the main Share Sale agreement was reduced by a further $100,000 (upon the earlier of the sale of the boat or nine months from the date of the agreement) - from $1.29 million to $1.19 million.

29 AT Air and Aquatic warranted that the Security agreement (and completion of the transactions it contemplated, such as the Call option) did not conflict with, or result in, a breach of, or default of, any material term or provision of any other agreement by which they were bound (clause 8.2); and agreed not to allow any "Encumbrance" to arise or be created over the Mosman property, with the exception of the extant mortgage to the National Australia Bank (clause 5.8).

30 Contemporaneously, and in conformity with the Security agreement, AT Air granted the Siewerts a mortgage of its shares in Wingaway and Heron, and Wingaway and Heron granted a fixed and floating charge over their assets and undertaking in favour of the Siewerts, in each case to secure any outstanding balance of the secured money; and Aquatic entered into the Call option deed, by which Aquatic granted the Siewerts an option to purchase the Mosman property for any price they determined provided that the purchase price was not less than the amount required to discharge the National Australia Bank mortgage.

The dispute

31 Between 22 July and 13 October 2011, the Siewerts retained control of the bank accounts of the aviation companies. Their daughter, Yvonne Pound, was and remained employed as a bookkeeper for the aviation companies, and was a signatory to their bank accounts. During that period, Mr Siewert - usually with Ms Pound's assistance - withdrew amounts totalling $514,428 from those accounts, which the Siewerts purported to appropriate to payment of the undistributed profits and repayments of vendor finance. A further $150,000 had been withdrawn between 8 and 19 July, and a further $10,000 was withdrawn on 25 October. Aquatic says that these payments were not disclosed to it prior to the Security agreements, and that it was induced to enter the Security agreements by a representation - the Bank Accounts representation - that only $110,000 had been taken from the companies' bank accounts.

32 Shortly after the Security agreements were entered into, Mr Seller learnt that Mr Siewert had taken substantially more than $110,000 from the companies' bank accounts. AT Air purported to appropriate those payments, in part, to future vendor finance instalments, and made no further repayments after 13 October 2011. The Siewerts, on the other hand, learnt that Aquatic had granted a mortgage, which had not been registered, over the Mosman property to Atanaskovic Hartnell, solicitors who had acted for Mr Seller in other proceedings - which they allege was in breach of a warranty in the Security agreement that the Mosman property was unencumbered except by a mortgage to the National Australia Bank - and they did not pay the outgoings of the Mosman property as the Security agreement required.

33 In January 2012, the Siewerts purported to exercise the Call option. Aquatic disputed that the option was validly exercised, and claimed that the Security agreements were induced by a misrepresentation, namely the Bank Accounts representation, and ought to be avoided. Aquatic also alleged that the Siewerts had defaulted by failing to pay outgoings in respect of the Mosman property for which they were responsible under the Security Agreement.

34 The Siewerts, in purported exercise of their powers under the Share Mortgage, retook control of Wingaway and Heron, and on 9 February 2012 caused them to appoint Mr Jones of Jones Partners as a voluntary administrator. When Mr Jones sought to take control of the business of Wingaway and Heron and the premises from which they operated, AT Air commenced proceedings challenging his appointment. However, in March 2012 - when Mr Seller says he first became aware of Wingaway's potential GST liabilities - AT Air ceased to press its application for removal of the administrator because the imminent GST liability would result in its being insolvent regardless. On 14 March 2012, Hammerschlag J, with the consent of AT Air, validated the appointment pursuant to (CTH) Corporations Act 2001, s 447A [In the matter of Wingaway Air Pty Ltd (Administrator Appointed) ACN 003 200 128 and Heron Airlines Travel Pty Limited (Administrator Appointed) ACN 052 408 170 [2012] NSWSC 246]. Subsequently, AT Air attended and voted at creditors meetings and lodged a proof of debt, and Avtex entered into contractual arrangements with the administrator. Wingaway subsequently went into liquidation. Its liquidator holds a fund of about $1,300,000, which may be available to satisfy the Siewerts' claims or, if the Security agreements are set aside, unsecured creditors of Wingaway.

35 Meanwhile, on 14 February 2012, the Siewerts served on AT Air a creditor's statutory demand under Corporations Act 2001, s 459E(2)(e), claiming a debt of $1,317,030.82, comprising $1,197,030.82 said to be overdue instalments of the Secured Money under the Security agreement for the period 13 October 2011 to the date of the demand, and $120,000.00 said to be overdue instalments of the purchase price under the Avtex agreement for the period 22 October 2011 to the date of the demand. On 6 March 2012, AT Air applied pursuant to s 459G for an order setting aside the statutory demand, on the ground that there was a genuine dispute about the existence or amount of the debt to which the demand related, and/or that AT Air had an offsetting claim. AT Air contended that it had at least an arguable claim to have the Security agreement set aside (on the basis that it had been induced to enter the Security agreement by the Bank Accounts representation), and that the result of the taking of funds from the accounts of the aviation companies was to satisfy part of its obligations under the security agreement.

36 However, AT Air did not at that time submit that the Share Sale agreements should be set aside. On the s 459G application, I held that, even if there was an arguable case that the Security agreement should be set aside, there was no bona fide dispute as to $920,000 owing by AT Air to Mr and Mrs Siewert pursuant to the Share Sale agreements [Re AT Air Group Pty Ltd [2012] NSWSC 774]. Consequent upon that decision, AT Air applied for the appointment of a provisional liquidator on 29 June 2012, and went into liquidation on 25 July 2012.

37 AT Air's liquidator has purportedly assigned its claims against Mr and Mrs Siewert to Aquatic, by deed of assignment dated 11 March 2013 (made pursuant to leave granted by Black J on 14 February 2013). At the time of that assignment, AT Air had sought to set aside only the Security agreements, and no claim for rescission or avoidance of the Share Sale agreements had been made.

Non issues

38 Before turning to the issues I have outlined above, it should be observed that multifarious other complaints were raised in the plaintiff's submissions, but are not issues on the pleadings. I will mention the more prominent of them.

39 First, the plaintiff complained that the vendors did not relinquish control of the bank accounts of Wingaway, Heron and Avtex as contemplated by clause 4.2(b)(ii) of the Share Sale agreements upon the making of the agreement on 22 July 2011, but retained control of the accounts, which enabled them to withdraw moneys from them - the plaintiff says, without any proper authority - between then and 13 October. Given the view I have reached, as already explained, as to the meaning of "completion", there was, upon the proper construction of clause 4.2 of the Share Sale agreements, no obligation on the vendors to relinquish control of the bank accounts before completion, which did not occur on 22 July. In any event, it is not clear how this complaint would support any of the relief claimed by the plaintiff. Insofar as the plaintiff complains that the Siewerts withdrew funds from the bank accounts, this is addressed under issue (6).

40 Secondly, the plaintiff contended that the purported appointment of Mr Jones as an administrator was wrongful, on the basis that the preceding steps by which the Siewerts purported to regain the shareholding and directorships in Wingaway and Heron were not authorised by or in accordance with the Security agreements. Even if this were correct, it is difficult to see how complaint can be made of the appointment of the administrator when it has been validated by an order of the court, to which AT Air consented. And even if such complaint could be sustained, it does not support any of the causes of action nor claims for relief advanced in these proceedings: while such a complaint had previously been pleaded (in the Amended Statement of Claim, at paragraphs 83 to 93), it was abandoned in the Further Amended Statement of Claim, which was the final version of the pleading.

41 Thirdly, reference was made to repudiation and uncertainty. However, no claim is pleaded that any relevant agreement is void for uncertainty. Nor is any claim pleaded that any relevant agreement has been repudiated by the Siewerts, or that such repudiation has been accepted. The pleaded allegations are of breaches of warranties and misrepresentations, and the only pleaded claims for rescission rely upon misrepresentation - either statutory or fraudulent.

42 Fourthly, submissions were made to the effect that the aviation companies' external accountant Mr Rodionov did not act in a reasonably competent professional manner in a number of respects. However, this is irrelevant to any pleaded cause of action.

43 Those matters, therefore, are not relevant to the plaintiff's case as pleaded and the relief claimed, and do not require further consideration. The Share Sale agreements

44 Aquatic's pleaded claims in respect of the Share Sale agreements are:

(1): avoidance of the main Share Sale agreement and the Avtex agreement (pursuant to (CTH) Competition and Consumer Act 2010, Sch 2, s 243, or (CTH) Australian Securities and Investments Commission Act 2001, s 12GM), for misleading and deceptive conduct in contravention of those statutes, constituted by the GST liability representation, the Redundancy liability representation, and the Avtex representations;
(2): further or alternatively, damages pursuant to the same statutes for that misleading and deceptive conduct; and
(3): alternatively, damages for breach of warranty.

45 There is no allegation of fraudulent misrepresentation in respect of the Share Sale agreements, such a cause of action being pleaded only in respect of the Security agreements, founded on the Bank Accounts representation.

46 Aquatic was not a party to the Share Sale agreements. It claims relief as assignee of such causes of action as AT Air might have had against the Siewerts, pursuant to the deed of assignment of 11 March 2013. In due course, it will be necessary to address the efficacy of the assignment in respect of those causes of action.

Did the Siewerts make the GST liability representation? If so, did Wingaway have a GST liability (of $2 million or some other amount)?

47 The plaintiff's case is that the main Share Sale agreement contained warranties and representations to the effect that Wingaway's 30 June 2011 accounts were accurate, that those accounts disclosed no GST liability, but that in truth Wingaway had a GST liability of in excess of $2 million. The defendants' case is that no relevant representation and/or warranty was conveyed or relied upon, that Wingaway had no GST liability, and that if it did it would have made no material difference to the accounts because there would have been an offsetting credit in respect of GST recoverable from customers.

Was the GST liability representation/warranty made?

48 The main Share Sale agreement contained no representation or warranty that explicitly addressed GST. However, the plaintiff submits that the GST liability representation/warranty was conveyed by and/or contained in clause 6.1 of the main Share Sale agreement and warranties 10, 11, 13, 18, 26, 29, 30, 35, 44, and 45 in Schedule 3.

49 Clause 6.1 provided as follows:

6.1 The Vendor warrants and represents to the Purchaser (for itself and as trustee for the Company) in accordance with the warranties and representations set out in Schedule 3.

50 The relevant warranties contained in Schedule 3 (see par 16A of the further amended statement of claim) are:

10. The Accounts:

...

(d) give a true and fair view of the financial position and state of affairs of the Company at the balance sheet date in the Accounts and of the results for the period to which they relate;

(e) contain full provision for all liabilities, Taxes and capital commitments of the Company at the balance sheet date in the Accounts and a full and fair disclosure of all contingent liabilities (whether unquantified; disputed or otherwise);

...

(h) contain a full and accurate statement of all the assets and all liabilities of the Company, and no Material change has taken place since the balance sheet date in the Accounts in such assets or liabilities other than those arising from carrying on business in the ordinary course and in a normal and proper manner ... ;

...

18. To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation) the Company has complied with all applicable legislation relating to the carrying on of its business (including Tax legislation ...) and holds all licences necessary for the conduct of its business.

...

26. To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation) the Company has not done or failed to do any act being an act or omission which constitutes wholly or partly a breach of contract or a tort or a breach of statute or a breach of delegated legislation.

...

29. The provisions for Tax included in the Accounts are sufficient to cover in full all Tax for which the Company was as at the relevant balance sheet date or at any subsequent time may have become or may become liable to pay in respect of or by reference to the period ended on the balance sheet date in the Accounts or any prior period.

...

35. To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation):

(a) the Company has lodged with the appropriate fiscal authorities all proper and requisite Tax returns;

(b) all returns of the Company made for Tax purposes were when made and remain correct and on a proper basis and all other information supplied to the relevant fiscal authorities for such purpose was when supplied and remains correct and on a proper basis and such returns include all returns and information which they ought to have respectively made or given and are not subject to any dispute with the relevant fiscal authorities and there is no fact or matter known to the Company which might result in any such dispute or any liability for Tax (present or future) not fully provided for in the Accounts;

51 In clause 1.1 of the agreement, "Company" is defined as Wingaway and Heron, and "Warranties" is defined as "... the representations and warranties in subclause 6.1 read with Schedule 3". "Accounts" is defined to mean "the accounts of the Company contained in Schedule 2". However, Schedule 2 is as follows:

Accounts as at 30 June 2011 of Wingaway and Heron, as prepared by PJ Russell & Associates and provided to the Purchaser.

52 It is not in dispute that, as at the date of the agreement, no such accounts as are described in Schedule 2 were in existence. Unsigned and unaudited financial statements as at 30 June 2011 for Heron were first provided by Mr Rodionov of P J Russell & Co to Mr Seller on 2 August 2011. Although they were not at the time described as "draft", adjusted accounts were provided later, on 27 September 2011. While there was a dispute as to whether or not the 2 August accounts were "draft" or "final", for present purposes it does not matter. The only accounts of Wingaway for that period that are revealed by the evidence do not provide for any GST liability; when they were provided to Mr Seller is unclear, though it may have been on 2 August 2011; in any event, it was not before 2 August 2011. (While clause 5 of the main Share Sale agreement refers to accounts as at 31 December 2010, no party sought or suggested that the reference in Schedule 2 should be construed (or rectified) to refer to those accounts - if they exist, which the evidence does not reveal).

53 While, by clause 6.9 of the main Share Sale agreement, the vendor acknowledged and agreed that it had made the Warranties to the purchaser with the intention of inducing the purchaser to enter into the agreement, and that the purchaser had entered into the agreement in full reliance on the warranties and representations, it is not possible that AT Air relied on representations as to the accuracy of accounts that it had not seen and did not exist. The plaintiff invoked clauses 6.3, 6.4 and 6.6 of the agreement, which are as follows:

6.3 If before Completion the Vendor acquires any knowledge of any, event or matter (whether occurring or existing before the execution of this Agreement or not) which is or might be or lead to a breach of any of the Warranties or which renders or might render any of those Warranties incorrect or misleading, the Vendor agrees that it will at once disclose in writing to the Purchaser all that it knows about the event or matter in question. The Vendor agrees to make any investigations concerning the event or matter which the Purchaser may reasonably require.

6.4 To the extent permitted by law, the Vendor agrees to ensure that the Purchaser and its advisers and representatives will be given all facilities which it may request in order to establish the accuracy of the Warranties and in particular will allow the Purchaser and its advisers and representatives full access to all accounting and other records of the Company.

...

6.6 The Vendor represents and warrants that each of the Warranties will be true and correct both at the time of execution of this Agreement and immediately preceding Completion as if made at each of those times, respectively.

54 But while those clauses have the effect that a breach of warranty may be established by a matter arising after agreement but before completion, they do not affect the definition of "the Accounts", and they do not affect the conclusion that AT Air cannot have relied upon any representation about the June 2011 accounts when it entered into the agreement on 22 July 2011.

55 Although that conclusion would exclude liability for misrepresentation, it would not necessarily exclude liability for breach of warranty, of which reliance is not a necessary element. That raises the question, what effect is to be given to those warranties which refer to "the Accounts". The possibilities are that those warranties are devoid of effect as there were no such accounts; or they operate on the accounts that were eventually provided.

56 As to the latter, the parties can hardly have intended to warrant the accuracy of accounts that had not yet been produced, such that their contents were unknown. And as a matter of construction, the use of the word "contained" in the definition of "Accounts", and the words "provided to the Purchaser" in Schedule 2, point against any intention that the subject accounts be provided in the future. The better view is that the warranties are devoid of content in the absence of any accounts to which they refer, but given that the parties proceeded to implement the contract it may be concluded that they intended those warranties to be severable [Bosaid v Andry [1963] VR 465; Caltex Oil (Aust) Pty Ltd v Alderton [1964-65] NSWR 456; Fitzgerald v Masters (1956) 95 CLR 420; Brew v Whitlock (No 2) [1967] VR 803; Whitlock v Brew (1968) 118 CLR 445; David Jones Ltd v Lunn (1969) 91 WN (NSW) 468; SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516, [39]].

57 Accordingly, insofar as the GST liability representation is said to arise from the non-disclosure of any GST liability in the 30 June 2011 accounts, no such representation or warranty was made.

If made, would the GST liability representation have been false?

58 If Wingaway had no GST liability as at 30 June 2011, then there could have been no relevant misrepresentation or breach of warranty in any event. And even if Wingaway had a GST liability, there would not necessarily be a breach of those warranties (namely, warranties 18, 26 and 35) which were expressed not in absolute terms but to the effect "To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation)".

59 When the Siewerts purchased Wingaway, they were informed by their vendor that provision of ambulance services to hospitals was GST-exempt, and provided with an ATO private ruling issued on 25 October 2000 (albeit in favour of Wingaway National Pty Ltd, a company related to their vendor) to that effect:

The supply of specialist medical transport by Wingaway National Pty Ltd will be GST-free and no GST will be payable on the supply. Wingaway National Pty Ltd is entitled to input tax credits for anything acquired or imported to make the GST-free supply.

60 The exemption was supposed to arise under Section 38-10(5) in Chapter 3 of the A New Tax System (Goods and Services Tax) Act 1999 ("the GST Act"), which provides:

A supply is GST-free if it is provided by an ambulance service in the course of the treatment of the recipient of the supply.

61 The affairs of the aviation companies - such as its invoicing and accounts - had been conducted on that basis by the Siewerts' predecessors. After acquiring Wingaway, the Siewerts continued to conduct its affairs on the same basis, supplying air ambulance services under arrangements that were structured in the same way. While the Siewerts owned and operated Wingaway, the ATO made inquiries as to the nature of the business and the absence of any remission of GST and appeared satisfied with the explanation provided to them that Wingaway was an air ambulance service and accordingly did not have to pay GST. The ATO conducted a number of tax audits, and raised no concern or objection in this respect. Thus at no time did Wingaway's accounts and financial statements reflect a GST liability (or asset).

62 Mr Jones continued to operate the aviation businesses after his appointment as administrator and became concerned as to the applicability of the GST Act. On 23 July 2012, the ATO issued assessments against Wingaway for over $2.9 million, being unpaid GST in respect of the period 1 July 2008 to 31 May 2012, and penalties and interest. Wingaway objected to the assessment, which resulted in the ATO deciding, on 24 October 2012, to remit the penalties and interest, but the assessment of the primary liability was maintained. Wingaway did not appeal from that decision, and it may be inferred that the administrator saw insufficient commercial justification for expending moneys on such an appeal, the tax liability being an unsecured debt.

63 The defendants submit that, for the reasons outlined in the objection lodged by Wingaway with the ATO on 14 September 2012, the ATO's decision to issue the assessment was wrong, and that there is no such liability. But while it stands, the assessment is conclusive evidence of the existence and amount of the tax liability [(CTH) Taxation Administration Act 1953, Sch 1, s 105-100; and see Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473; (2008) 248 ALR 693; (2008) 82 ALJR 1411; (2008) 67 ACSR 593, [30]-[38]]. Wingaway indisputably now has a GST liability of in excess of $2.3 million, and had such a liability from 23 July 2012 when the assessment issued.

64 However, while the assessment is conclusive that there was such a liability at the date of the assessment, it does not conclude whether Wingaway had any such liability as at 30 June 2011. That question depends on the correct application of s 38-10(5) to the facts as at 30 June 2011, irrespective of the later assessment. Nonetheless, the argument that there was such a liability adopts the ATO's reasons supporting the later assessment; while the argument that there was not adopts the submissions advanced in Wingaway's objection.

65 Essentially, the ATO's reasoning involved two elements: the first was that as Wingaway did not hold an AOC, it could not be providing air ambulance services; and the second was that the services were provided to the hospitals, not to the individual transported, and thus not in the course of the treatment of the recipient.

66 As to the first, the GST legislation makes no reference to any requirement for an ambulance service to hold an AOC - nor for that matter any other licence or permit. There seems to me no reason why an ambulance service could not contract with another entity for the use of vehicles or aircraft owned and/or operated by that other entity. Even if the ambulance service were to cease to hold a relevant licence, it would not cease to be an ambulance service. While the ATO has issued an "interpretative ruling" [ATO ID 2005/185] that considers that an ambulance service is one that relevantly "is permitted to provide aerial ambulance services pursuant to section 27 of the Civil Aviation Act and regulation 206 of the Civil Aviation Regulations 1988", and thus hold an AOC, that is not a requirement of the GST legislation.

67 As to the second, the essential question is, who is the recipient of the supply - the hospital that contracts the ambulance service, or the patient. Often - probably usually - an ambulance will be called by a person other than the patient. Hospitals often arrange for specialist attendances and investigations on patients. It seems to me that in each of those cases, the recipient of the supply is, at least ordinarily, the patient - not the person who calls the ambulance, nor the hospital that arranges the specialist investigation. Likewise, it seems to me that the recipient of the supply of an air ambulance service, although it might be arranged by the hospital, is the patient. It is the patient, not the hospital, who is transported. It is the patient, not the hospital, who receives the benefit of the service. It is the patient who usually ultimately pays. But even if it is the hospital that pays, the GST Act recognises that the recipient of a supply is not necessarily the person who pays for it: s 9-15(2) provides:

It does not matter whether the payment ... was made by the recipient of the supply.

68 For those reasons, and while minds may reasonably differ on the question, in my view, upon the proper construction of s 38-10(5), Wingaway was an ambulance service, and the services it supplied were supplied to the patients it transported, in the course of their treatment. Such services were therefore exempt within s 38-10(5), and as at 30 June 2011 - more than a year before the assessment issued - Wingaway did not have a liability for GST, even though such a liability arose upon the issue of the assessment on 23 July 2012.

69 It follows that even if the GST liability representation was made, there was no misrepresentation or breach of warranty, because Wingaway had no GST liability. Moreover, even if it had a GST liability, there was no breach of those warranties which are expressed in terms of "the best of the Vendor's knowledge, information and belief", because having regard to the information with which the Siewerts were provided by their predecessor, the ongoing attitude of the ATO, the absence of complaint by the ATO, and the nature of Wingaway's business, it cannot reasonably be suggested that the Siewerts did not genuinely and honestly believe that Wingaway's air ambulance services were GST exempt. It has not been shown that the Siewerts had knowledge, information or belief to the contrary, nor that reasonable enquiry and investigation would have produced such knowledge.

70 The defendants submitted that even if Wingaway had a GST liability, any misstatement in this respect would be immaterial, because there would be an offsetting right to recover any GST from customers. But even if the GST liability would be offset by the right to recover the tax from the customer retrospectively - which I do not regard as self-evident - its actual recoverability in respect of transactions long since passed would be quite another matter. I would not have accepted that any such misrepresentation, if otherwise established, was immaterial.

71 Accordingly, in respect of the GST liability representation:

(1): No relevant warranty was given or representation made. Because there were no 2011 accounts in existence at the date of the agreement, the warranties in respect of such accounts are void for uncertainty, but severable. Accordingly, the agreement contained no warranty or representation as to those accounts, and causes of action founded on them must fail.
(2): AT Air did not rely on any such representation. Because there were no 2011 Accounts in existence at the date of the agreement, the plaintiff could not establish reliance by AT Air on any misrepresentation in the agreement as to their accuracy. Thus, while reliance is not essential to a case of breach of warranty, the causes of action founded on misrepresentation must fail for this reason also.
(3): Any such warranty or representation would not have been false. On the proper construction and application of s 38-10(5) of the GST Act, Wingaway did not have a GST liability as at 30 June 2011. Further, insofar as the warranties are expressed in terms of "the best of the Vendor's knowledge, information and belief", no breach is established because it has not been shown that the Siewerts had knowledge, information or belief to the contrary (ie, that there was a GST liability), nor that reasonable enquiry and investigation would have produced such knowledge.
(4): I would not have accepted that any such misrepresentation, if otherwise established, was immaterial.

Did the Siewerts make the Redundancy liability representation? If so, did Wingaway have a redundancy liability (of $105,323 or some other amount)?

72 The plaintiff's case is that the main Share Sale agreement contained a warranty and representation to the effect that there was no liability to any employee of Wingaway that was not disclosed in Wingaway's 30 June 2011 accounts, whereas in truth Wingaway had a redundancy liability for $105,323 due to employees for the period prior to 30 June 2011 which was not recorded or provided for in the accounts. For this purpose, the plaintiff relied on paragraph 14 of Schedule 3:

14. The Company will not at the Completion Date have any liability for any long service leave, sickness benefits, superannuation payments or any other payments or liabilities due to any employee or ex-employee of the Company under any industrial award or applicable legislation or any contract, agreement or arrangement other than as reflected in the Accounts or disclosed in writing to the Purchaser prior to the date of the Agreement to which this Schedule forms part.

73 For the reasons already given in respect of the GST liability representation, the non-existence as at the date of the agreement of any such accounts as referred to means that the agreement contained no relevant warranty or representation. Paragraph 14 is void for uncertainty, but severable.

74 Again for the reasons already given in respect of the GST liability representation, AT Air cannot have relied on any such representation, because there were no 2011 Accounts in existence at the date of the agreement.

75 As to whether any such representation, if made, would have been false, annexure C to the main Share Sale agreement relevantly acknowledged that there was $85,000 in long service leave and holiday pay owing to staff of Wingaway and Heron as at the date of the agreement, and that such sum was to be paid out by Wingaway forthwith. Annexure C also provided that the Purchaser agreed to maintain the employment of nominated certain key personnel in Wingaway and Heron for at least 12 months, subject to the normal terms and conditions of their employment.

76 Mr Rodionov, the accountant who prepared the accounts, agreed that he had never included in the accounts provision for liabilities for holiday pay, long service leave or redundancy amount. He accepted that, in accordance with AASB 119, paragraph 141, where there is uncertainty about the number of employees who will accept an offer of termination benefits, a contingent liability exists, which should be disclosed unless the possibility of an outflow is remote. But he did not accept that there was uncertainty about the number of employees who would accept an offer of termination.

77 As was conceded in closing submissions, there was no evidence before the court to establish the true position in respect of what, if any, provision should have been made for redundancy liabilities. Contrary to the plaintiff's submission, I cannot infer merely from the fact that the company had employees that some provision ought to have been made, particularly given the agreement that their employment would be maintained for the next twelve months. Mr Seller accepted that it was his decision whether or not to make an employee redundant - and thus incur a redundancy-related liability. In short, the evidence does not establish that there was a liability for employee entitlements greater than that referred to in annexure C.

78 Accordingly, in respect of the Redundancy liability representation, the Siewerts made no relevant representation or warranty; and in any event, it is not established that Wingaway had a redundancy liability in excess of the amount disclosed in annexure C.

Did the Siewerts make the Avtex representations? If so, did Avtex have liabilities for redundancy payments (of $62,102 or some other amount) and unpaid workers compensation premiums (of $67,189 or some other amount)?

79 The plaintiff's case is that the Avtex agreement contained warranties and representations to the effect that Avtex's 30 June 2011 accounts were accurate, whereas in truth as at 30 June 2011 Avtex had a liability for redundancy amounts of $62,102 due to employees, and a liability to pay unpaid workers compensation premiums of $67,189, neither of which was recorded or provided for in the accounts. The plaintiff invoked express written warranties in the Avtex agreement that were identical to the corresponding warranties in the main agreement.

80 As with the main Share Sale agreement, as at 22 July 2011 there were no accounts in existence as described in Schedule 2 to the Avtex agreement. For the reasons already given in respect of the GST liability representation, as there were no 2011 Accounts in existence at the date of the agreement, the Avtex agreement contained no relevant warranty or representation. The warranties as to the accuracy of those accounts are void for uncertainty, though severable.

81 Again, for the reasons already given in respect of the GST liability representation, AT Air cannot have relied on any such representation in entering into the agreement, because there were no 2011 Accounts in existence at the date of the agreement.

82 As to whether there was any such liability, Mr Rodionov agreed that there were employees in Avtex, but disagreed that there was uncertainty as at 30 June 2011 about the number who would accept an offer of termination benefits. When asked whether there were circumstances of which he was aware or on which he had instructions such as to require a provision to be made for holiday pay and long service leave in Avtex, he answered "Possibly, yes". But the matter was taken no further, and the evidence does not establish what if any provision ought to have been made. The evidence does not establish that there was a liability for employee entitlements of $62,102, or of any amount. Workers compensation liabilities were separately identified and provision made for them in annexure C to the main Share Sale agreement. There is no evidence that Avtex had workers compensation liabilities in excess of the provision there made.

83 Accordingly, in respect of the Avtex representations, there was no relevant representation or warranty; and in any event, it is not established that Avtex had a redundancy liability, or a workers compensation liability, that exceed the amount disclosed in the main Share Sale agreement.

Is avoidance of the Share Sale agreements available to Aquatic as AT Air's assignee? If so, should the Share Sale agreements be avoided, or should avoidance be refused, by reason of election, acquiescence, or estoppel?

84 This question strictly does not arise, as avoidance would be available, whether under statute or at general law, only if it were established, at least, that AT Air entered into the agreement in reliance upon a misrepresentation. The above conclusions are that AT Air was not influenced by any misrepresentation in so doing. However, I will nonetheless address whether, had operative misrepresentations been established, rescission would have been available or appropriate. The matters for consideration in this respect fall into two categories: whether any right of rescission is available to the plaintiff Aquatic (as distinct from its predecessor AT Air), and whether any right of rescission was lost by affirmation.

85 Whether Aquatic has a right of rescission depends on the efficacy of the deed of assignment of 11 March 2013 between AT Air as assignor, Aquatic as assignee, the liquidator of AT Air, and Mr Seller, which purports to assign all AT Air's right, title and interest in specified claims in the statement of claim in these proceedings, together with "any causes of action that the Assignor has or may have that arise out of the facts, matters or circumstances relating to the formation, performance and enforcement (and mortgagee accounting) of the Main Share Sale Agreement and/or the Securities". It does not purport to assign the benefit of the main Share Sale agreement, and it does not refer to the Avtex agreement.

86 It is true, as the defendants submit, that as at the date of the assignment, AT Air had not rescinded, nor purported to rescind, either share sale agreement. However, the assignment included "any causes of action that the Assignor ... may have that arise out of the ... circumstances relating to the formation ... of the Main Share Sale Agreement". While the exercise by a party of a right to rescind at general law may not be a cause of action, a claim in legal proceedings for a statutory remedy of rescission is. In my view, a cause of action for a statutory remedy avoiding the main Share Sale agreement was within the terms of the assignment, as was a cause of action for damages for misrepresentation (whether at general law or statutory) or for breach of warranty.

87 However, the statutory causes of action for damages under the Competition and Consumer Act and the ASIC Act pleaded in paragraphs 16E and 16F of the further amended statement of claim are not assignable, because those sections do not contemplate an award of damages in respect of loss not suffered by a party to the proceeding [Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352; (2006) 236 ALR 720, [51]-[52]; Tosich v Tasman Investment Management Ltd [2008] FCA 377; (2008) 250 ALR 274, [37]; Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684, [31]; Re Cant (in his capacity as liquidator of Novaline Pty Ltd (ACN 006 622 933) (in liq)) [2011] FCA 898; (2011) 282 ALR 49; (2011) 85 ACSR 31, [19]; Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233, [392]-[396]]. The same applies to the statutory causes of action for relief in the nature of rescission or avoidance, because they too are limited to orders which will compensate a person who is a party to the proceedings and who has suffered (or is likely to suffer) damage by the contravening conduct. Notwithstanding cases that hold that Corporations Act, s 477(2)(c), empowers a liquidator to assign the company's causes of action notwithstanding the law of champerty and maintenance [UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 14 ACLC 1610; Re Cant (in his capacity as liquidator of Novaline Pty Ltd (ACN 006 622 933) (in liq)), [14]-[21]], at least in New South Wales the position is that s 477(2)(c) does not have the effect of making assignable causes of action which are otherwise not assignable [Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168, [70]-[72]].

88 It follows that Aquatic cannot sue on any cause of action that AT Air may have had under the Competition and Consumer Act or the ASIC Act for damages or rescission for misleading and deceptive conduct, because such causes of action are not assignable. While the assignment would permit Aquatic to sue for damages for fraudulent misrepresentation or breach of warranty, if those causes of action were otherwise viable, fraud is not pleaded in respect of the Share Sale agreements, and only breach of warranty need be considered.

89 Generally speaking, a party whose entry into a contract is induced by a fraudulent misrepresentation is entitled to elect to rescind the contract, or to affirm the contract and sue for damages. At general law, an election to affirm will preclude later rescission. In the field of statutory remedies under the Consumer and Competition Act and equivalent provisions, while acts of affirmation are not an absolute bar to obtaining a remedy in the nature of rescission, courts are ordinarily guided by the equitable principles concerning rescission [Byers v Dorotea Pty Ltd [1986] FCA 593; (1986) 69 ALR 715; (1987) ATPR 40-760; Myers v Transpacific Pastoral Co Pty Ltd (1986) ATPR 40-673; Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274; (1989) 84 ALR 700; ATPR 40-926].

90 Election involves a choice by the relevant party between two inconsistent remedies. It may be, and often is, manifested not by an expressed decision, but by action that is consistent with only one of the two alternatives. But there can be no election to affirm a contract unless and until the right to rescind has arisen and is known to the party entitled to elect.

91 The defendants pointed to numerous alleged acts of affirmation, dating from January 2012. They emphasise Mr Seller's acknowledgement, in cross-examination, that as at 25 January 2012, he was not seeking to rescind the agreements because he believed that Wingaway was profitable - to the extent of approximately $1 million per year - and decided to proceed with the the agreements. But if there were a relevant right to rescind the main Share Sale agreement, it arose from the alleged GST liability and Redundancy liability misrepresentations. So it would be important to identify when the matters said to falsify those representations became known to AT Air. As to GST, that Wingaway had such a liability did not become known with certainty until the assessment issued on 20 July 2012, but Mr Sweller suspected it before 15 May 2012, on which date AT Air served notices of breach under the Share Sale agreements in relation to the alleged redundancy, long service leave, workers compensation and GST liabilities (estimated at $3 million) it contended should have been disclosed in the accounts of Wingaway, Heron and Avtex. Plainly, by then AT Air had knowledge of the relevant alleged breaches. The notices required that the breaches be remedied by payment of compensation - which is the antithesis of rescission.

92 On or about 25 January 2012, at a meeting attended only by Mr Seller, Wingaway declared a dividend in favour of AT Air of $5,500,000 and purported to satisfy that dividend in specie by transferring to AT Air two aircraft. Even following the appointment of Mr Jones as administrator on 9 February 2012, and his entry in that capacity on 15 May 2012 into a contract to sell the businesses of Wingaway and Heron to a third party, on 16 May 2012 Mr Seller took possession of Wingaway's and Heron's premises at Bankstown Airport, and removed and relocated two of Wingaway's aircraft, claiming an entitlement to do so either in his own right, or in right of AT Air, based on the resolution of 25 January 2012 [see Seller v Jones [2014] NSWCA 19]. These were rights derived from AT Air being the sole shareholder in Wingaway and Heron, which AT Air or Mr Seller could only have had if the main Share Sale agreement was valid and effective, and by continuing to assert such rights AT Air affirmed the main Share Sale agreement.

93 Although AT Air asserted in the s 459G proceedings [In the matter of AT Air Group Pty Ltd [2012] NSWSC 774] that it had avoided, or was entitled to avoid, the Security agreement, it did not then suggest that the Share Sale agreements had been or were liable to be rescinded; to the contrary, the s 459G application proceeded on the footing that the Share Sale agreements remained on foot. So too did these proceedings, in which from their commencement the plaintiffs sued for rescission only of the Security agreements. The original statement of claim (filed 12 June 2012) claimed rectification and specific performance of the Avtex share sale agreement, and orders confirming AT Air's shareholding in Wingaway and Heron. Indeed, AT Air maintained these proceedings, until it ceased to be a plaintiff, on the footing that it was entitled to those shares. The Amended Statement of Claim (filed 14 February 2013) claimed damages for breach of the warranties in the main Share Sale agreement and the Avtex agreement - again, the antithesis of rescission. The breaches asserted were the existence of the GST liability, the redundancy liability, the Avtex redundancy liability and the Avtex workers compensation liability. It was only when the further amended statement of claim was filed on 13 August 2013, claiming rescission of the Share Sale agreements, that any intent to claim rescission was communicated.

94 The claim for rescission of the Security agreements, advanced initially in the s 459G proceedings and also in these proceedings, was itself founded on AT Air's claimed entitlement to the shares in Wingaway and Heron, which was dependent upon the validity and effectiveness of the main share sale agreement. AT Air's essential argument was that the Security agreement should be rescinded because, contrary to the Share Sale agreement, the Siewerts had failed to hand over control of the bank accounts of Wingaway and Heron, and had withdrawn in excess of $500,000 from those accounts without the authority of the directors (and contrary to the representation that only $110,000 had been withdrawn). Moreover, AT Air pleaded that it had appropriated those withdrawals to, inter alia, payment of instalments of the vendor finance under the security agreement. All this is consistent only with the Share Sale agreement remaining on foot, and inconsistent with rescission.

95 When, on 1 March 2013, AT Air by its liquidator purported to assign to Aquatic all its right, title and interest in any cause of action it had against the Siewerts, it had not sought to avoid the Share Sale agreement and no cause of action it pleaded then sought rescission. It did not assign the benefit of the Share Sale agreement, but its causes of action. The causes of action it had asserted were consistent only with affirmation. I have accepted, above, that (subject to what I have said about the assignability of statutory causes of action) a cause of action in which rescission was a remedy sought from the court (as opposed to an act of a party) could be assigned, and an assignment of "any cause of action" would include it, even if it had not yet been propounded. But here, causes of action inconsistent with rescission had been propounded, in which case AT Air had no remaining cause of action for rescission - except arguably a statutory one, which was unassignable.

96 As to the Avtex Share Sale agreement, AT Air never sought to rescind it. On 2 November 2012, AT Air transferred its shareholding in Avtex to Radio Nominees. That act is unequivocal, because it not only assumed that AT Air was entitled to the shares, but it made restitution practically impossible. Rescission was first raised by Aquatic in the further amended statement of claim, by which time Avtex had gone into liquidation.

97 In the case of both Share Sale agreements, restitutio is now not possible. AT Air is in liquidation. It can no longer return the shares it acquired in Avtex, having disposed of them to Radio Nominees. Wingaway and Heron are also in liquidation.

98 Accordingly, any right to rescind at general law for misrepresentation is foreclosed by AT Air's election to affirm the Share Sale agreements after learning of the matters which found its claim for rescission. That result is compounded by the impossibility of restitution. The same matters present a formidable discretionary obstacle to statutory relief in the nature of rescission.

99 Accordingly, had the plaintiff established that relevant misrepresentations had been made and relied upon, it would not have been entitled to rescission of the Share Sale agreements, by reason first that the causes of action for statutory rescission were not assignable, and secondly that any right of rescission was lost by affirmation. The defendants also submitted that an issue estoppel arises, from my decision in the statutory demand proceedings that there was no genuine dispute as to AT Air's liability under the main Share Sale agreement, which precludes Aquatic (presumably as AT Air's privy) from now asserting that it has a claim for rescission or damages in respect of that agreement. However, there are sufficient other grounds for rejecting the plaintiff's claims under the Share Sale agreements that it is unnecessary to resolve whether such an estoppel would arise from a decision on a s 459G application.

If no to (4), what if any damage was caused by the misrepresentations/breaches of warranty?

100 Because, as I have found, the alleged representations/warranties were not made, and if made would not have been false, no question of damages arises in respect of them. However, I will make some brief observations about some aspects of the claims for damages that were advanced.

101 Aquatic particularised its claim for damages in paragraphs 16H and 22G of the further amended statement of claim, and subsequently confirmed (in response to a request for particulars) that the claim was confined to the items so particularised and did not include any claim for consequential loss. Despite this, Aquatic's written submissions agitated a much more extensive damages claim, which in light of the manner in which the case was conducted is simply not open, not least because the Siewerts had no reasonable opportunity to adduce evidence in response to such claims. Moreover, no evidence of the damages alluded to in Aquatic's outline of submissions was tendered. If damages were to be claimed by reference to diminution in the value of the shares, then some evidence of the diminution was required.

102 Ordinarily, the measure of damages for breach of warranty is the difference between the value of the subject matter "as is" and the value it would have had had the warranties been true; while the measure of damages for misrepresentation is the difference between the contract price and the value of the subject matter "as is". If the non-disclosure of the GST liability were a breach of warranty, the subject shares would have been worth more than they were in truth worth, by the amount of that liability less the amount recoverable from the hospitals. The administrator/liquidator recovered from the hospitals and area health services 99.66% of the GST assessed by the ATO in respect of the period during which he carried on the business but was not collecting GST. It therefore appears probable that a high level of recovery could have been achieved, particularly in respect of more recent transactions. It may be that there would have been a lower level of recovery in respect of older transactions, but given that the customers were hospitals it seems likely that there would have been a relatively high level of recovery.

103 If the non-disclosure of the redundancy and workers compensation liabilities were a breach of warranty, then the subject shares would have been worth more, by the amount of those liabilities, than in truth they were. However, the evidence does not enable calculation of this, as there is no admissible evidence of the amount of any such liability.

104 The payment of the deposit under the Share Sale agreements is not referable to any breach of warranty, and would only be recoverable by way of restitution upon rescission. Nor are the legal costs incurred in the ensuing proceedings within the scope of damages for breach of warranty or misrepresentation.

The Security agreements

105 In respect of the Security agreements, Aquatic claims:

(1): Avoidance pursuant to Competition and Consumer Act, Sch 2, s 243, or ASIC Act, s 12GM, for misleading and deceptive conduct in contravention of those statutes, constituted by the GST liability representation, the Redundancy liability representation and the Bank Accounts representation, and/or at general law for fraudulent misrepresentation constituted by the Bank Accounts representation;
(2): further or alternatively, damages pursuant to the same statutes for that misleading and deceptive conduct, and/or at general law for fraudulent misrepresentation.

106 As Aquatic is a party to the Security agreement, its standing in this respect does not depend on the deed of assignment.

107 For the reasons already given, the GST liability representation and the Redundancy liability representation were not made, were not relied upon, and if made would not have been false. Accordingly, in respect of the Security agreement, the case turns on the Bank Accounts representation.

Had the Siewerts drawn $674,428 (or some other and if so what amount), in excess of $110,000, from the bank accounts? If so, was there a misrepresentation with respect to the Bank Account Representation? Was it intentional?

108 Aquatic's case is that it - and AT Air - entered into the Security agreements on 13 October 2011 in reliance on a representation made to Mr Seller by Mr Siewert to the effect that the Siewerts had withdrawn only $110,000 from the bank accounts of the aviation companies, whereas in fact they had withdrawn $674,428. Mr Seller said that he did not, prior to 13 October 2011, have access to the companies' bank accounts, and that he believed, at the time of entering into the Security agreement, that the only amounts that had been paid from their accounts was $110,000. He says that AT Air and Aquatic entered into the October 2011 agreements in reliance on the assurance that no other moneys had been transferred from Heron's or Wingaway's accounts.

109 Between 8 July and 25 October 2011, the Siewerts (by Mr Siewert or by their daughter Yvonne Pound, who was, and after the July agreement, remained, employed by the aviation companies as a bookkeeper) transferred from the bank accounts of the companies to Mr Siewert sums totalling $674,428. In cross-examination, Mr Siewert admitted that all the payments were made, that he knew they were made when they were made, and that he did not tell Mr Seller of them. By reference to the further amended statement of claim (the relevant allegations in which are admitted) and a document that Mr Seller received from Mr Siewert on 18 October 2011 entitled "Summary of funds drawn from Wingaway and Heron bank accounts", the withdrawals made by the Siewerts from the bank accounts may be identified and characterised (according to the Siewerts) as follows.

Serial	Date	Source	Amount $	Description
1	8 Jul	Wingaway	50,000	on account of dividend
2	19 Jul	Wingaway	50,000	on account of dividend
3	19 Jul	Wingaway	50,000	Super/Vendor finance (Jul)
4	22 Jul	Wingaway	200,000	Undistributed profits
5	25 Jul	Wingaway	50,000	Undistributed profits
6	2 Aug	Wingaway	50,000	Undistributed profits
7	11 Aug	Wingaway	45,000	Undistributed profits
8	1 Sep	Wingaway	30,000	Vendor finance (Aug)
9	8 Sep	Heron	79,428	Heron profits
10	19 Sep	Heron	30,000	Vendor finance (Sep)
11	5 Oct	Wingaway	30,000	Vendor finance (Oct)
12	25 Oct	Avtex	10,000	Vendor finance (Oct - Avtex)
			674,428

110 Serials 1 and 2 - which predated the July agreement - represented the monthly payments of $50,000 for May and June, to which the Siewerts were entitled under the February agreement, on account of which the price was reduced from $2.5 million under the February agreement to $2.3 million under the July agreement.

111 Serials 4, 5, 6 and 7, totalling $345,000, represent the undistributed profits to which the Siewerts were entitled in accordance with annexure C to the main Share Sale agreement. Even if the method by which the payments were made, allegedly without the knowledge of Mr Seller or the authority of the directors, was irregular, the entitlement to that amount is plain. Moreover, knowledge and authority can hardly be disputed given the specific terms of annexure C.

112 Serials 3, 8, 10 and 11 were purportedly appropriated to vendor finance payments under annexure B to the Share Sale agreement. While the amounts paid may have been amounts to which the Siewerts were entitled, the party liable to pay under the agreement was the purchaser AT Air, not Wingaway or Heron, from whom the moneys were taken. I can see no proper basis on which the Siewerts were entitled to appropriate those funds from Wingaway or Heron, as distinct from AT Air. However, the pleading raises no claim in that respect. Moreover, it is common ground - and appears on the face of the Security agreement - that the Siewerts disclosed that $110,000 had been taken from the accounts, which corresponds with the payments in serials 3, 8 and 10. However, the payment of $30,000 on 5 October was not so disclosed.

113 Serial 9 - the transfer of $79,428 from Heron on 8 September 2011 - represents the amount of retained earnings in Heron according to its financial statements for the year ended 30 June 2011, as revised in September 2011. Financial statements for Heron provided to Mr Seller on 2 August 2011 showed accumulated losses of $7,616; however, these were revised between then and mid-September, to show retained earnings for the year of $79,428, which sum was thereupon withdrawn and appropriated by Mr Siewert, without any disclosure to Mr Seller, who at that time was the sole director and secretary of Heron. I do not see any basis on which the Siewerts were entitled to the accumulated profits in Heron. Nothing in the Share Sale agreement made provision to that effect. Mr Siewert seemed to think that he was entitled to the Heron profits for 2011 under the February agreement, but the July Share Sale agreement contained an "entire agreement" clause and the February agreement had no continuing operation. When asked what he thought permitted or authorised him to take that sum on 8 September, Mr Siewert said:

Because for whatever reason the fact that the Heron profit should have been part of the contract was probably still in my mind. I mean I didn't go through and look that it's not there anymore. In my mind it still says I'm entitled to the Heron profit. Considering that I left so much money in the company it wouldn't have made any difference. I could have said instead of 580 make it $650,000 and forget about the Heron profit, but I didn't. I think there was evidence that at least 650,000 of spare cash was in the company.

114 That answer demonstrates eloquently that there was no basis on which Mr Siewert was entitled to take that sum. However, no cause of action was pleaded or relief claimed on that basis; again its only relevance to the pleaded case is that it is said to falsify the Bank Accounts representation.

115 Serial 12 reflects the first instalment payment under the Avtex agreement. The party liable to pay that instalment was AT Air, not Avtex. Again, I can see no proper basis on which the Siewerts were entitled to appropriate those funds from Avtex, as distinct from AT Air. However, once again, the pleading raises no claim in that respect. In any event, this withdrawal was made after the date of the Security agreement, and its non-disclosure could not have induced the Security agreements.

116 The plaintiff made submissions to the effect that these payments, having been made without the knowledge of Mr Seller or the authority of the directors of the relevant companies, amounted to a misappropriation by Mr Siewert and "not merely a breach of his fiduciary duty owed to the company as a former director and exercising powers as if he were a director, it was a specifically unauthorised one and hence a deceitful action on his part". However, while it seems to me very likely that the Siewerts were not entitled to the $30,000 taken on 5 October, nor to the $79,428 taken from Heron, the only relevant causes of action pleaded was fraudulent misrepresentation and misleading and deceptive conduct, constituted by a misrepresentation said to have been made orally in a conversation between Mr Siewert and Mr Seller on or just before 13 October 2011, to the effect that "he had transferred $110,000 only from the bank accounts of Heron, Wingaway and Avtex to the Siewerts in part-payment of the purchase price owing by AT Air Group to the Siewerts for the shares in Wingaway and Heron and that no other amounts had been transferred to either of the Siewerts from the bank accounts of Heron, Wingaway or Avtex".

117 As has been mentioned, by clause 3.1 of the Security agreement, Mr and Mrs Siewert acknowledged that they had received an amount of $310,000 on account of part payment of the purchase price. This sum apparently comprised the $100,000 paid by Radio Nominees on account of the deposit, the further $100,000 subsequently paid as the balance of the deposit, and $110,000 treated as payments of the vendor finance and appropriated for that purpose by Mr and Mrs Siewert from the bank accounts of the aviation companies, which accounts remained under their control until 13 October. But that was an acknowledgment that that sum had been received and applied on account of the purchase price. It was not a representation that nothing else had been received. In particular, the Security agreement said nothing as to amounts received in respect of undistributed profits (as distinct from on account of the purchase price), and the Share Sale agreement itself acknowledged that the Siewerts had received $200,000 on that account, and were to receive a further $145,000 in July. Save that the acknowledgement in the Security agreement understated the amount that had been taken on account of the purchase price by $30,000 - being the sum taken on 5 October 2011 - it was correct: Mr and Mrs Siewert had received the deposit of $200,000, and $110,000, on account of the purchase price; the other $345,000 they had received was not on account of the purchase price but undistributed profits.

118 At the core of the plaintiff's case in this respect is the evidence of Mr Seller, contained in paragraph 67 of his affidavit, that prior to execution of the 13 October Security agreement, he had a conversation with Mr Siewert in which the latter said (emphasis added):

I acknowledge that you have paid $310,000 so far for the shares. $200,000 was the initial deposit you paid. The further $110,000 I have transferred from the company's accounts since 22 July 2011. I have not transferred any other money from the company's bank accounts.

119 On 16 September 2011, Mr Seller sent an email to Mr Crittenden, a solicitor at Marsdens who were, by then, acting for the Siewerts, relevantly as follows (emphasis added):

All in all I think it best to stay close to the original deal as possible. We are after all now talking about $250,000-$300,000 out of a $2.5million deal. There has been over $500,000 paid so far to Dieter under our arrangements so there have been substantive steps that have been taken so far.

120 Mr Seller agreed that this indicated that he knew that over $500,000 had been paid so far to Mr Siewert under their arrangements. He was cross-examined as follows:

Q. Mr Siewert, prior to you executing the security agreement on 13 October, did not say to you that he hadn't transferred any other money from the company's bank accounts did he?

A. I remember that being said.

Q. You knew by at least 16 September that year that over $500,000 had come out of the bank accounts?

A. No. How did I know that?

Q. You remember your 16 September letter where you said over $500,000 had been paid?

A. Yes, but that letter talked about $200,000 of the deposit that I paid.

Q. No, no. You remember your 16 September letter, it didn't break down the $500,000, it just said over or in excess of $500,000 has been paid or taken out?

A. No, the only thing is that we would need may be to look at that letter again.

121 Ultimately, Mr Seller adhered to the explanation he had previously given of that letter, namely that the $500,000 he had in mind comprised the $200,000 deposit paid under the Share Sale agreement, the $100,000 paid in late June, and the $200,000 paid under the "Annexure subject to" agreement of February 2011. This is not an implausible explanation, and I do not rely on Mr Seller's reference to $500,000 as establishing that he was aware that Mr Siewert had withdrawn, since 22 July, more than $110,000 (although other matters, referred to below, suggest that he did). But that does not resolve whether the Bank Accounts representation was made.

122 Mr Siewert said, in answer to the alleged oral representation:

With respect to paragraph 67 of Seller's first affidavit I deny that I had the conversation as alleged or at all by this stage I was not speaking directly to Mr Seller.

123 His cross-examination on this topic was as follows:

Q. I put to you that in a conversation with Mr Seller you said you'd transferred $110,000 only from the bank account of Heron, Wingaway and Avtex?

A. That's --

Q. In part payment of the purchase price?

A. That's supposed to be a conversation we had when?

Q. Between 9 October and 13 October?

A. Never happened.

Q. So you say that never happened?

A. Yes, because I wasn't talking to Mr Seller at that time, we were only talking through solicitors.

124 I am unpersuaded that Mr Siewert made the alleged oral representation. In circumstances where annexure C to the share sale agreement provided for him to receive undistributed profits, it is highly improbable that he would make a representation that he had not. Moreover, only days later, on or about 18 October, Mr Siewert or his daughter provided to Mr Seller a document which listed the amounts they had withdrawn from the companies' accounts. It seems highly unlikely that he would have so promptly produced evidence to Mr Seller that so comprehensively falsified the representation he is alleged to have made. There is no evidence that this disclosure produced the prompt responsive complaint from Mr Seller that one would have expected. In a contest of what was really word against word, on which the plaintiff bears the onus, there was insufficient reason for preferring Mr Seller's version to that of Mr Siewert; indeed I found Mr Siewert's evidence the more plausible and the more probable.

125 Accordingly, I do not accept that the Bank Accounts representation was made.

126 Aquatic submitted that the non-disclosure of the withdrawal of these funds meant that the Security agreement was procured by misrepresentation. Mr Seller deposed that had he known "that Mr Siewert had been paid over $600,000 from the company's bank accounts, then I would not have signed the security agreement or the other documents I signed that day. I would have pursued debt finance with Scottish Pacific". While the precise basis of this was unclear, it appears to be contended that AT Air and Aquatic would not have entered into the security agreement, but would have paid the $800,000 balance purchase money to the Siewerts out of borrowed funds and funds made available from shareholders.

127 This contention fails at several levels. First, Mr Seller cannot have believed that only $110,000 had been paid. He knew that payments had been made under the February agreement of $50,000 per month, because he negotiated a reduction in the purchase price of $200,000 to reflect them. In the Security agreement, it was expressly disclosed that Mr Siewert had received that $110,000 on account of the purchase price. Annexure C acknowledged (as to $200,000) and provided (as to $145,000, to be paid during July) for payment of unallocated profits to Mr Siewert. Those account for all the amounts taken prior to 13 October, save for the $79,428 taken from Heron and the $30,000 taken on 5 October. Thus Mr Seller knew at least that all but $109,428 of the disputed payments had been or were to be made. If Mr Seller were misled, it could only have been to that limited extent.

128 Secondly, Mr Seller's assertion of reliance on such a representation in that way is inherently incredible, given the position in which he then found himself: being unable to raise the $800,000 due under the Share Sale agreement; encountering difficulties in obtaining debtor finance, including the defendants' objections to that course; and enjoying the benefits accruing to him or to the company under the Security agreement, including the reduction in price of $800,000, with the Siewerts effectively to bear the inconvenience and risk (although also the benefit of) the sale of the Mosman property. It was because of AT Air's failure to pay the balance purchase money that the Security agreements were proposed. There is nothing in the evidence or the context to suggest that AT Air was in a position to pay the balance purchase money. The Security agreement offered the prospect of avoiding termination of the Share Sale agreement. And the amounts appropriated by the Siewerts were all applied against entitlements that they had under the share sale agreement, so that whatever the irregularities involved, they did not involve significant commercial detriment to AT Air or Aquatic - they were moneys which AT Air would have had to pay, had the Siewerts not helped themselves.

129 Thus, even if the Bank Accounts representation were made, I would not accept that AT Air and Aquatic would otherwise not have entered into the Security agreement. That conclusion is fortified by Mr Seller's affirmatory conduct after discovering the full detail of the withdrawals made by the Siewerts, referred to below, and the further conclusion, below, that, quite apart from absence of reliance, it has not been shown that any damage was incurred by AT Air in entering into the Security agreement.

130 Accordingly, while I accept that between 8 July and 25 October 2011, the Siewerts transferred from the bank accounts of the companies to Mr Siewert sums totalling $674,428, I do not accept that the Bank Accounts representation was made. And if it were made, I would not accept that it induced Aquatic to enter into the Security agreements.

If yes to (6), should the Security Agreement be avoided? Or is Aquatic precluded by election, acquiescence of estoppel from doing so?

131 Although on 18 October 2011 Mr Siewert or his daughter provided Mr Seller with a list of the withdrawals, there is no contemporaneous evidence of any objection by Mr Seller. In his affidavit sworn on 28 May 2012, Mr Seller said that a few days after the Security agreements were executed, Mr Siewert informed him that he had taken moneys out of the bank accounts since July, and Mr Seller disputed that he was authorised to do so; I do not accept that any such objection was conveyed to the Siewerts at that time. Mr Seller deposed:

Shortly thereafter, I decided to refrain from making any further payments due under the Security Agreement and Avtex SSA until such time as I had reconciled the amounts which Mr Siewert had taken from the Companies' bank accounts without my knowledge or approval.

...

The total amounts taken from the Companies' Bank accounts and paid to Mr Siewert from 30 June 2011 to 25 October 2011 totalled $674,428 not $110,000 which I was lead to believe, ...

As at 13 October 2011, ... Mr Siewert ... had taken from those accounts $564,428 (Unauthorised Payments) more than I was lead to believe that he had taken from those accounts at the time.

After reconciling the payments made to Mr Siewert from the Companies' accounts and identifying the amounts of Unauthorised Payments, I decided it would be easier to allow Mr Siewert to continue to hold the Unauthorised Payments and for them to be applied to the payment of future instalments of the purchase price than to request Mr Siewert to repay those amounts to the Companies.

The Unauthorised Payments were allocated to present and future payments owed to Mr and Mrs Siewert, as at 25 October 2011 in the following manner:

(a)
The sum of $345,000 towards payment of the undistributed profits to be paid as required under Annexure B of the Wingaway SSA; and

(b)
The remaining balance of $219,428, in the following manner:

(i)
$30,000 per month (for the months of October through to January 2012) for 4 months totalling $120,000 towards the payment of the monthly instalments required to be made under the Security Agreement for the purchase price of the Wingaway Shares;

(ii)
$47,093 to the remaining amount for the purchase of Avtex ...;

(iii)
The remainder being $52,335 towards future monthly payments under the Security Agreement.

132 That decision was consistent only with affirming the Security agreement, and inconsistent with rescinding it. In addition, in November 2011, with knowledge of the matters upon which it now relies for rescission, Aquatic paid the Siewerts the $170,000 payable under the Security agreement upon sale of the boat. AT Air and Aquatic, by Mr Seller, with knowledge of the nature and extent of the alleged misrepresentation, plainly elected to affirm and not to rescind the Security agreement.

133 Moreover, restitution is no longer possible: it would be a necessary condition of relief that Aquatic pay the $800,000 which was deducted from the purchase price in return for the securities, and there is no reason to suppose that Aquatic is able to do so, and every reason to think that it is not.

134 For all those reasons, it would be inappropriate now to avoid the Security agreements.

If no to (7), what if any damage was caused by the misrepresentation?

135 As I have concluded that the Bank Accounts representation was not made, and even if made did not induce AT Air and Aquatic to enter into the Security agreement, this question does not strictly arise. If it did, the measure of damages would prima facie be the amount by which AT Air and/or Aquatic was worse off by reason of having entered into an agreement and assumed obligations which they would not otherwise have assumed.

136 The Security agreement was not detrimental to the position of AT Air - to the contrary, it had the effect of averting termination of the Share Sale agreements, and reducing the price payable for Wingaway and Heron by some $800,000. While it imposed obligations on Aquatic that Aquatic did not otherwise have, those obligations were the grant of security over the Mosman property and the boat, in return for which the obligations of its wholly-owned subsidiary AT Air were commensurately reduced. The evidence does not enable me to conclude that Aquatic or AT Air suffered any damage by entering into the Security agreements. Are the Siewerts in breach of the Security agreement by failing to pay the outgoings and mortgage from 13 October 2011?

137 Aquatic contends that in breach of the Security agreement, the Siewerts have failed to pay the outgoings and mortgage instalments in respect of the Mosman property, which they were obliged to pay under clause 5.7 of the Security agreement. Clause 5.7 of the Security Agreement provided:

5.7 Outgoings

Subject to paragraph (2) and from the date of this document, Siewert will pay for the following outgoings incurred in relation to the Mosman Property:

Rates, taxes and charges (including but not limited to council rates, water rates and land tax) but excluding water, electricity, telephone, gas and other utility usage charges;

Strata or special levies; and

The minimum monthly repayments payable to National Australia Bank with respect to the Mosman Mortgage, (Outgoings).

If there is any invoice issued, whether before or after the date of this document, with respect to the Outgoings and which relates to the period prior to the date of this document, then Aquatic Air must pay that invoice (if applicable, as adjusted on a pro rata basis) within fourteen (14) days of this document.

Aquatic Air must:

Not breach any term of the Mosman Mortgage but will not be responsible for the consequences financial or otherwise for any breach of that mortgage caused by Siewert; and

Provide any notice it receives from the National Australia Bank (including Homeside Lending) in relation to the Mosman Mortgage to Siewert immediately after receiving that notice.

138 In their defence, the Siewerts admitted that they had not paid the outgoings and mortgage instalments, but denied that they were obliged to do so, by reason that (1) Aquatic was in breach of the Security agreement and the Call option by (a) having granted a mortgage to Atanaskovic Hartnell, contrary to a warranty or representation that there was no encumbrance on the Mosman property other than the NAB mortgage, and (b) not paying rent of $1,500 per week for continued occupation of the property as allegedly agreed between Mr Siewert and Mr Seller; (2) Aquatic refused to give vacant possession of the property as required by the Security agreement; (3) Mr Seller lodged a caveat on or about 13 April 2012 claiming an equitable interest in the property, opposed the lapsing of the caveat and sought to extend its operation; (4) Aquatic had undertaken to the Court since 25 June 2012 to pay the outgoings and mortgage; and (5) they were entitled to set off in equity or pursuant to the Security agreement Aquatic's alleged breaches of the Security agreement "set out below" in extinction or diminution of any damage [Amended Defence, para 63(f)]. While no alleged breaches were "set out below", the reference was presumably intended to be to "above".

139 The Security agreement did not operate by charging payment of the balance purchase price on the Mosman property; rather, in return for a reduction in price of $700,000, it gave the Siewerts power to sell the property and retain the proceeds after discharging the National Australia Bank mortgage. In effect, Aquatic transferred the equity in the property (then estimated to be $700,000) to the Siewerts in return for a reduction in the purchase price by that amount. The provision in respect of outgoings recognised that the effective date of transfer was the date of the Security agreement, namely 13 October 2011. Clause 5.4 required that Aquatic vacate and procure any occupier to vacate the Mosman property upon being requested to do so by the Siewerts in order to allow the purchaser to enter into possession upon completion of the sale by the Siewerts under power of attorney.

140 Contrary to their pleaded position, in submissions the Siewerts accepted that they were obliged to pay the outgoings (as defined in the Security agreement), but advanced a number of submissions as to why they were not in breach of that obligation. First, they submitted that no time was provided for such payment and time was never of the essence in this respect. However, Aquatic does not rely on this breach as repudiatory to justify termination, so whether time was essential is irrelevant. It is clear enough that the intention was that the Siewerts would pay the outgoings as and when they fell due. Secondly, they submitted that they could not pay except on production of information by Aquatic as to the relevant indebtedness. However, it is clear from Mr Siewert's evidence that this had nothing to do with their failure to pay. Indeed, he acknowledges that Aquatic's solicitors were raising, by November 2011, the question "you haven't paid it yet". Mr Siewert advanced, as his reasons for not having done so, that once a dispute arose he decided not to pay until it was sorted out; that there was an (undocumented) promise by Mr Seller to pay rent; and that Aquatic was in breach because of the existence of the mortgage to Atanaskovic Hartnell. Thirdly, they submitted that the outgoings were statutory charges or, in the case of the National Australia Bank mortgage, an interest in the land itself by mortgage, and would have been paid by the Siewerts had the Call option been allowed to be implemented, and would have been required to be paid upon completion of a sale to a third party to enable the transfer (or else would have become liabilities of the Siewerts on a transfer to them). That may be so, but that does not deny that it was a breach to fail to pay them as and when they fell due so as to exonerate Aquatic from the liability, nor that damage ensued if Aquatic were thereby compelled to pay them.

141 However, Aquatic paid the outgoings pursuant to an undertaking given by it to do so as a condition of the interlocutory relief it obtained, by consent, in these proceedings. On 25 June 2012, following interlocutory proceedings between the parties (in which Aquatic sought to restrain the exercise of the Call option), a consensual interlocutory regime was established by orders of that date, relevantly as follows:

Upon the undertakings to the Court by the plaintiffs set out below and given by their counsel, the Court orders that:

1.
Caveat number AG 914346 is extended until further order.

2.
The defendants are restrained from transferring the property known as 2/13B Pearl Bay Avenue, Mosman, being Lot 2 in Strata Plan 55795 ("the property"), where 'transfer' means the act set out in order 1(a) and (b) made on 30 May 2012.

UNDERTAKINGS BY THE PLAINTIFFS

3.
The usual undertaking as to damages.

4.
The plaintiffs undertake to pay all outgoings and not default on any liability which would cause a breach of any agreement in relation to the property, including, but not limited to, the National Australia Bank mortgage, payment of council rates, water rates, strata fees, any such payments made being without prejudice to any rights the plaintiffs may have against the first and second defendants and as an interim measure only.

5.
The plaintiffs by their solicitors will, upon request from the defendant's solicitor, provide any and all information relating to the liabilities in order 4 above, including confirmation that payment has been made.

6.
The plaintiffs undertake not to transfer or deal with the property, including entry in any residential tenancy agreement or use it or allow the property to be used as security and will not encumber or draw on any present encumbrance or security in relation to the property in any way.

7.
Aquatic Air undertake to remain in possession of the property and keep it in good maintenance and repair.

142 There were other undertakings and provisions, but they are not relevant for present purposes. Orders 1A and 1B of 30 May 2012 referred to in paragraph 2 of the above order were in the following terms:

(A): Exercising any rights consequent upon the service upon the third defendant of notice of exercise of option signed by the first and second defendants and dated 21 February 2012.
(B): Transferring, encumbering or creating an interest in the land known as 2/13B Pearl Bay Avenue Mosman being all that land in folio identifier 2/S55795.

143 The reference to the notice of exercise of option dated 21 February 2012 was to the purported exercise of the Call option.

144 The Siewerts contend that the payment of the outgoings by Aquatic (including the interest on the National Australia Bank Mortgage), from the time of Aquatic's breach of the Call option by failing to vacate, enjoining the sale of the property, and seeking rescission, was the result of Aquatic's decision to seek to preserve the property, so that Aquatic could pursue a claim to rescind the Security agreement; that Aquatic benefited by its possession of the property, the maintenance of its equity and the preservation of the status quo; and that any losses it suffered were not consequences of the Siewerts' failure to pay the outgoings, but of Aquatic's decision to endeavour to preserve the property for its own benefit.

145 However, the terms of undertaking (4) of 25 June 2012 were expressly "without prejudice to any rights the plaintiffs may have against the first and second defendants and as an interim measure only". The agreement embodied in the undertakings involved a temporary and interim arrangement, made in circumstances where the Siewerts were not paying the outgoings, and Aquatic was not vacating the property and was opposing the exercise by the Siewerts of the Call option. If Aquatic were to succeed in setting aside the Security agreement, then plainly the Siewerts' obligation to pay the outgoings would be discharged with it. But if the Siewerts were to succeed in upholding the validity of the Security agreement, the undertaking expressly preserved their ultimate liability in respect of outgoings. As Aquatic's application to set aside the Security agreement will fail, Aquatic's rights preserved by the undertaking are to be exonerated by the Siewerts in respect of outgoings accruing after 13 October 2011.

146 Insofar as the Siewerts seek to justify non-payment of the outgoings by pointing to breaches of the Security agreement by Aquatic and AT Air - including that the property was subject to the Atanaskovic Hartnell mortgage, that vacant possession was not given as requested, and that a caveat was lodged by Aquatic - a breach of contract by one party excuses the other from performance only if (1) the first breach is repudiatory and the innocent party accepts the repudiation by termination; or (2) one obligation is dependent on the other, so that performance of the other is a 'condition precedent' to performance of the first. As to the first, while it might well be that Aquatic's conduct was repudiatory and would have justified termination, the Siewerts did not elect to terminate; to the contrary, their service on of a creditor's statutory demand for the balance claimed was an act of affirmation. As to the second, there is no suggestion in the Security agreement that performance of the Siewerts' obligation to pay the outgoings and mortgage instalments was dependent upon performance by Aquatic of its obligations; indeed, the Siewerts' obligation arose forthwith and with effect from 13 October 2011, whereas Aquatic's obligation to vacate did not arise until a request for possession was made, and the call option could not be exercised until 25 November 2011.

147 Nor do the Siewerts seek in these proceedings any relief by way of cross-claim for damages in respect of any breach by Aquatic. They adduced no evidence to establish the rental agreement referred to, the amount secured by the Atanaskovic Hartnell mortgage, or the damage suffered by the delay in obtaining vacant possession - although it is conceivable that such damage might be addressed, at least in part, on an inquiry as to damages pursuant to Aquatic's undertaking as to damages.

148 It follows that the Siewerts are liable to Aquatic for the amounts paid by Aquatic in respect of outgoings accruing after 13 October 2011. There is evidence that $60,360.71 was incurred in this respect.^[1] As explained by Mr Seller, "I caused AT Air Group (the company) through Wingaway to pay these amounts". That appears to mean that the amounts were paid by Wingaway, at the request of AT Air, Aquatic's subsidiary. As Aquatic was the proprietor of the property, such a transaction would result in Aquatic incurring a debt to AT Air, which in turn incurred a debt to Wingaway. In that way, ultimately, the liability is borne by Aquatic, which thus suffered damage of $60,360.71.

Has the call option been validly exercised in conformity with the Call Option?

149 Aquatic contends that the purported exercise of the Call option on 17 May 2012 by notice of exercise dated 21 February 2012 did not conform with the requirements of the call option.

150 Clause 3.1 of the Call option deed provided that the Siewerts may exercise the Call option during the Call option period (which was defined as the period commencing 43 days after the date of the document and expiring on 31 October 2012). Clause 3.2 provided that to exercise the Call option, the Siewerts must serve on or provide to Aquatic (1) an Exercise Notice in the form attached; (2) an executed copy of the Contract; and (3) (where relevant) the balance of any deposit payable in accordance with the terms of the Contract. Clause 5.1 provided that upon exercise of the Call option, Aquatic authorised the Siewerts to insert any details and documents into the Contract, provided that any such insertions were (1) made in accordance with the Call option deed, (2) not inconsistent with the terms of the Contract; (3) made so as to ensure that the Siewerts complied with the (NSW) Conveyancing (Sale of Land) Regulation 2010; and where (1), (2) and (3) did not apply, with the prior consent of Aquatic. Clause 5.2 provided:

Aquatic Air acknowledges and agrees that Siewert may purchase the Property under the Call Option for any price it determines provided that the purchase price is not less than the amount required to discharge the mortgage registered over the Property in favour of National Australia Bank.

Aquatic Air authorises Siewert to amend the purchase price in the Contract provided Siewert complies with paragraph (1).

151 The annexed form of Notice of Exercise was as follows:

Pursuant to the Call Option Deed between the company listed above ("Aquatic Air") and the person(s) signing below ("Siewert"), Siewert gives notice to you that:

Except where the context is inconsistent, all terms referred to in this notice that are defined in the Call Option Deed have the meaning contained in the Call Option Deed;

It exercises the Call Option granted to it in relation to the Property;

It attaches to this notice an executed counterpart copy of the Contract; and

It attaches to this notice a cheque for the deposit payable in accordance with the terms of the Contract.

152 The annexed contract was in the 2005 standard form. It nominated the price as $2,500,000 and the deposit as $250,000, "10% of the price, unless otherwise stated". Clause 2 (Deposit and other payments before completion) was unamended. There were no special conditions.

153 The Notice of Exercise actually served by the Siewerts attached a contract which provided for a price of $1,800,000 and a deposit of "$ 0.00". It purported to, but did not, attach a cheque in payment of any deposit.

154 In their defence, the Siewerts contended that by reason that the deposit was security for the benefit of the Siewerts, not Aquatic, it could be waived by them and had in effect been paid by Aquatic as a credit of the equity in the property to be applied to the purchase price under the share sale agreement. This was somewhat elaborated in submissions: it was said that the requirement for a deposit could only be for the benefit of the Siewerts since they were to receive the whole of the purchase price of the Mosman Property (less the payment to NAB of the amount required to procure a discharge of its mortgage), and that a requirement that they pay a 10% per cent deposit to themselves made no sense and must have been capable of waiver by them; in a sense it could be said that they had paid the deposit because they had "credited" $700,000.00 to the purchase price.

155 However, as it seems to me, if the Siewerts elected to proceed under the Call option, Aquatic - not the Siewerts - was entitled to receive the purchase money, and the purchase money was not the subject of any charge in favour of the Siewerts. In any event, Aquatic had an interest in the purchase money to the extent necessary to discharge the NAB mortgage. The protection for the Siewerts was that they were authorised to adjust the purchase price to an amount that did not exceed the amount required to discharge that mortgage, as they indeed did; but that did not authorise them to dispense with a deposit. As between the parties, Aquatic was entitled to receive the purchase money - which no doubt on settlement it would have to direct to the Bank. The deposit represented part of that amount. It was not at all for the benefit of the Siewerts only, but for the benefit of Aquatic, to secure performance of the contract in the event that the Siewerts, having exercised the Call option, defaulted in performance of the ensuing contract.

156 Why the parties structured their arrangements in that way is not entirely clear, though it may have been influenced by considerations of stamp duty. And why the Siewerts chose to proceed by exercising the Call option, rather than pursuant to the power of attorney, is also not at all apparent. But having chosen to do so, they had to comply with its terms. It is of course well established that the effective exercise of an option requires strict compliance with the various conditions contained in the grant [Hare v Nicoll [1966] 2 QB 130; Tonitto v Bassal (1992) 28 NSWLR 564, 574G-575A; Torrens Re-Development and Research Pty Ltd v Oakworth Developments Pty Ltd [2008] NSWSC 1096; (2008) 13 BPR 25,501, [51] (Windeyer J)].

157 Here, it was a condition of the exercise of the option that the notice of exercise be accompanied by a contract in a particular form - which included provision for a deposit - and be accompanied by the balance of the deposit. Those were conditions precedent to the valid creation of a contract by exercise of the option. The purported exercise of the Call option did not conform with those requirements of clause 3.2 of the Call option deed. There was therefore no effective exercise. The requirements for exercise were a precondition of a contract being brought into existence. A condition precedent to formation of the contract not having been performed, the contract did not arise.

158 The Call option period has now expired. However, that would not necessarily have meant that the Siewerts were precluded from exercising their powers under the Security agreement pursuant to the power of attorney.

Conclusion

159 My conclusions may be summarised as follows.

160 As to the Share Sale Agreements:

(1): Because there were no 2011 Accounts in existence at the date of the agreements, the warranties in respect of such accounts are void for uncertainty, but severable. The agreements contained no warranty or representation as to those Accounts. It follows that the Siewerts gave no warranty and made no representation to the effect that Wingaway and Heron had no GST liability. Moreover, because there were no 2011 Accounts in existence at the date of the agreements, AT Air could not have relied on any such representation.
(2): In any event, any such warranty or representation would not have been false, because on the proper construction and application of s 38-10(5) of the GST Act, Wingaway and Heron did not have a GST liability as at 30 June 2011. Further, insofar as the warranties are expressed in terms of "the best of the Vendor's knowledge, information and belief", it has not been established that the Siewerts had knowledge, information or belief to the contrary (ie, that there was a GST liability), nor that reasonable enquiry and investigation would have produced such knowledge.
(3): Similarly, the Siewerts gave no warranty and made no representation to the effect that Wingaway and Heron had no redundancy liability, and AT Air could not have relied on any such representation. Nor would any such representation or warranty have been false, because the evidence does not establish that there was a liability for employee entitlements greater than that referred to in annexure C to the Share Sale Agreement.
(4): Likewise, the Siewerts gave no warranty and made no representation to the effect that Avtex had no redundancy or workers compensation liability, and AT Air could not have relied on any such representation. Nor would any such representation or warranty have been false, because it has not been established that there was a liability for employee entitlements of $62,102 (or of any amount), and the workers compensation liability was separately identified and provided for in annexure C to the main Share Sale Agreement.
(5): Any right to rescind the Share Sale Agreements at general law for misrepresentation is foreclosed by AT Air's election to affirm them after learning of the matters which found its claim to rescind. That result is compounded by the impossibility of restitution. The same matters present a formidable discretionary obstacle to statutory relief in the nature of rescission, which in any event is not available to Aquatic as a purported assignee.
(6): Accordingly, all Aquatic's claims for relief in connection with the Share Sale agreements fail.

161 As to the Security agreements:

(1): The Security agreement contained an acknowledgment that the Siewerts had received a total of $310,000 on account of the purchase price under the Share Sale Agreements, of which $110,000 was implicitly taken from the bank accounts between 19 July and 13 October 2011.
(2): Between 8 July and 25 October 2011, the Siewerts in fact took from the bank accounts of the companies sums totalling $674,428, which exceeds $110,000 by $564,428.
(3): I do not accept that Mr Siewert orally represented to Mr Seller that he had taken only $110,000 from the bank accounts. The written representation in the Security Agreement was limited to amounts withdrawn on account of payments of the purchase price, and did not cover payments of undistributed profits.
(4): Even if the Bank account representation were made, I would not accept that AT Air and Aquatic would otherwise not have entered into the Security agreement. Annexure C to the main Share Sale agreement specifically acknowledged (as to $200,000) and provided (as to $145,000, to be paid during July) for payment of undistributed profits to Mr Siewert, which accounts for all the amounts taken prior to 13 October, save for the $79,428 taken from Heron and the $30,000 taken on 5 October. Thus Mr Seller knew that all but $109,428 of the disputed payments had been or were to be made. Moreover, the assertion of reliance is not credible, given that AT Air was then unable to raise the $800,000 balance purchase money under the Share Sale Agreement, was encountering difficulties in obtaining debtor finance, and under the Security agreement obtained the benefit of a reduction in price equivalent to the assumed value of the equity in the Mosman property, the inconvenience and risk of the sale of which would be borne by the Siewerts. That conclusion is fortified by Mr Seller's affirmatory conduct after discovering the full detail of the moneys taken by the Siewerts.
(5): AT Air and Aquatic, by Mr Seller, with knowledge of the nature and extent of the alleged misrepresentation, plainly elected to affirm and not to rescind the Security agreements. Moreover, restitution is no longer possible. For those reasons, it would be not be open, or if open, appropriate on discretionary grounds, now to avoid the Security Agreements.
(6): Accordingly, all Aquatic's claims for relief in connection with the Security agreements fail.

162 However:

(1): The obligation of the Siewerts under the Security agreement to pay the outgoings in respect of the Mosman property was not dependent on any obligation of any other party; nor is it excused by any breach on the part of Aquatic in the absence of an accepted repudiation. The undertaking given by Aquatic on 25 June 2012 to pay the outgoings was expressly an interim one without prejudice to Aquatic's rights. The Siewerts are liable to Aquatic for the amounts paid by Aquatic in respect of outgoings accruing after 13 October 2011.
(2): The purported exercise by the Siewerts of the Call option did not conform with clause 3.2 of the Call option deed. The requirement for a deposit was not solely for the benefit of the Siewerts and could not be waived by them. There was no effective exercise of the Call option.

163 It follows that Aquatic is entitled to:

(1): Judgment against the Siewerts for the amount of $60,360.71 (being the liabilities incurred by it in respect of outgoings in respect of the Mosman property accruing on and after 13 October 2011), and interest;
(2): A declaration that the Call option was not validly exercised.

164 Although Aquatic might otherwise have been entitled to an injunction permanently restraining the Siewerts from exercising any rights consequent upon the service of notice of exercise of the Call option, this would not have prevented the Siewerts from exercising such other rights as they may have under the Security agreements, including by sale pursuant to the power of attorney. However, as a mortgagee sale by NAB has intervened and the surplus has been paid into court, that question is now moot. Prima facie, the moneys in court should be paid out to the Siewerts, as they are entitled to the equity pursuant to the Security agreement, but I will afford the parties an opportunity to be heard on this question, and in respect of any consequential relief, including as to whether the Siewerts may be entitled to an inquiry as to damages arising under the usual undertaking, and as to costs, when short minutes are brought in.

165 The remainder of Aquatic's claims should be dismissed.

166 THE COURT DIRECTS that the parties bring in short minutes of orders to give effect to this judgment on a date to be fixed.

[1]

Paragraph 98(c) of the same affidavit

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