East & Company Pty Ltd v Total Driver Pty Ltd [2012] QCAT 350

CITATION: East & Company Pty Ltd v Total Driver Pty Ltd [2012] QCAT 350 PARTIES: East & Company Pty Ltd (Applicant) v Total Driver Pty Ltd (Respondent) APPLICATION NUMBER: MCDO1118-11 (Southport) MATTER TYPE: Other minor civil disputes matters HEARING DATE: 28 June 2012 HEARD AT: Southport DECISION OF: J Bertelsen, Adjudicator DELIVERED ON: 27 July 2012 DELIVERED AT: Brisbane ORDERS MADE: The respondent pay to the applicant the sum of $15,281.69 within 30 days. CATCHWORDS: Minor civil dispute – repayment of loan to business – offered and accepted as short term loan – not payment of shareholders agreement as no agreement signed and applicant not shareholder APPEARANCES and REPRESENTATION (if any): APPLICANT: East & Company Pty Ltd was represented by Nick Dowling, Director/CEO RESPONDENT: Total Driver Pty Ltd was represented by Gene Corbett, Director REASONS FOR DECISION Application [1] By application filed 25 October 2011 the applicant seeks repayment of its loan of $15,000 made to the respondent on 19 April 2011. Background and evidence -- 1 of 5 -- 2 [2] Mr Corbett conducted a small 2 vehicle driving school business, Total Driver Australia. In early 2011 negotiations involving 5 parties (including the applicant and Mr Corbett) were in train with a view to establishing a much more ambitious enterprise involving driver training, sponsorship and interaction with the public and various commercial and community entities as well as government. This market opportunity required the input of expertise, availability of business and cash. [3] The proposed structure was outlined in a written but non binding “term sheet” signed by the parties and dated on or about 8 March 2011. A holding company Total Driver Pty Ltd was to be registered. It would hold the intellectual property and assets whilst a second company to be incorporated Total Driver (Australia) Pty Ltd was to be given license to use the intellectual property and run the business. Mr Corbett’s existing small driving school business was to be transferred to Total Driver Pty Ltd. Each of the 5 parties would have mirrored percentage shareholdings in each of Total Driver Pty Ltd and Total Driver (Australia) Pty Ltd. Both Total Driver Pty Ltd and Total Driver (Australia) Pty Ltd were registered on 17 March 2011. [4] The term sheet was the precursor to the shareholders agreement. This latter document was to be the binding document that recorded, amongst other things, the percentage involvement of each of the parties, what money was to be paid or input made and the allotment of shares. It would restrict the participation of any other parties as shareholders in both corporations. The applicant was to invest $75,000 for a 10% share in the newly formed corporations. This document though prepared was never signed it appears by any party but crucially in any event not by the applicant. [5] In April 2011 Total Driver Pty Ltd was incurring set up expenses particularly its IT and communications component, the building of a technology platform. Additionally during that month income from operations ie driving lessons dropped off markedly due to Anzac Day holiday and Easter and school holidays. Funds were required. According to the applicant it offered to loan $15,000 to the respondent on or about 18 April 2011. The email offer stated “happy to advance $15,000 but it needs to be structured as a short term loan that we can reconcile against the $75,000 investment (when made) based on the following; the money to be used as per the agreed short term budget and to implement the short term business plan … the key items are the outstanding IT and communications related invoices totalling, along with other outstanding invoices, $9,947.50. The balance of the loan is to be made available as a working capital buffer but it is expected that this will not be required. The school and student KPI’s are fixed and you have full responsibility for achieving them.” [6] The same day the loan offer was accepted the respondent stating, “I am happy with the terms as agreed … in terms of documentation, I am aware that we are waiting on your approval and feedback with the shareholders agreement. We are all keen to proceed with our relationship. If you could -- 2 of 5 -- 3 advise on the shareholders agreement that would be appreciated …” The $15,000 was paid into the respondent’s bank account on 19 April 2012. [7] The applicant in terms of reconciling the loan against the $75,000 investment stated it was a case of (a) “pay back $15,000 and then the $75,000 went in” or (b) a “paper transaction” would be effected and a further $60,000 invested. [8] The respondent stated that the $15,000 was effectively a deposit in respect of $75,000 to be invested and that the respondent would not have entered into a loan agreement with no capacity to service the loan unless the respondent was selling shares for a predetermined sum. That understanding the respondent stated was based on previous conversations and the 2 emails themselves; that reconciliation was in fact to protect the applicant “so that it couldn’t be held to ransom” ie by having to pay the full $75,000. [9] The applicant asserted the loan was made in the context of working towards an investment that never eventuated. It was a short term loan. The applicant never became part of the more ambitious enterprise envisaged and was never issued any shares in the 2 newly formed companies. The respondent contended there was nothing in the payment to define it as an independent loan, no timeframes, no interest rates and no repayment conditions. [10] The respondent on its own evidence stated that the company Total Driver Pty Ltd now “just sits there … ever since this arrangement fell through”. The $15,000 has long since been used up to pay for IT, legals and set up costs; that business operations have since been transferred to Total Driver (Australia) Pty Ltd. In answer to whether the respondent derived any ongoing benefit from the IT system originally under development the respondent stated that it was having to pay for that system to be redeveloped, the originally contracted IT company in the meantime having “gone broke”. [11] The applicant attached various emails to its application. On 4 August 2011 the applicant emailed the respondent requiring repayment of the $15,000 loan “due to the terms of this contract not being met (see attached) we feel it is past time for this to occur … after repayment is made we are happy to continue with Total Driver but until we see tangible signs of the commercial viability of the business and, in particular, your ability to deliver them, there can be no funding”. [12] Thereafter there were some further emails back and forth between the parties. On 22 August 2011 the respondent emailed the applicant stating, “I will set up a direct debit for $25.00 per week, until we have more answers … you were advanced mirrored shareholdings in two companies on the basis of a commitment you obviously had no intention of honouring”. -- 3 of 5 -- 4 [13] By email of 26 August 2011 the applicant’s lawyers made formal demand for repayment of the applicant’s loan. [14] On 6 September 2011 the respondent emailed the applicant’s lawyers stating, “Total Driver did not request a loan facility for East, it was considered a deposit on shares allocated to the value of $75,000 for 10%... as East has formally defaulted on terms by not signing the shareholders agreement… Total Driver formally advise the offer to subscribe shares has being withdrawn… Total Driver are prepared to agree to mutually agreeable terms to repay the “loan”, director Gene Corbett has started proceedings to sell his car to fund the arrangement”. The respondent stated further, “if the company is liquidated there will be nothing left after outstanding creditors and employee entitlements… a repayment schedule on a per month basis is the preferred option with no penalties for early repayment”. [15] Subsequently on 14 October 2011 the respondent emailed the applicant stating, “we have made considerable advances in the business, however will not have the final details to confirm a repayment plan until the end of next week… all financial parties are aware of East claim and have expressed their desire to simply pay out East. However we, Total Driver, need to finalise which of these parties we will proceed with and who will honour their commitment to us”. [16] By email of 20 October 2011 the applicant’s lawyers set a deadline of 24 October 2011 for repayment of the loan. Conclusions on evidence [17] The applicant’s email of 18 April 2011 makes it clear that the advance of $15,000 was to be structured as a short term loan; that the money was to be used as per the short term budget and short term business plan with the balance to be made available as a working capital buffer. The respondent’s email of the same day accepts the loan and the terms on which it was made. That email acknowledges that any shareholders agreement is yet to be finalised. [18] A substantial portion of the loan was needed immediately. There was a degree of urgency. It is not surprising that no detailed loan agreement beyond what was stated in the emails was recorded. It is clear from those two emails however that the $15,000 was to be repaid or credited in some manner. [19] It cannot be said as argued by the respondent that the applicant was committed to invest $75,000 and that the $15,000 loan was really an advance or deposit against that $75,000 proposed investment. Negotiations had only ever proceeded to the signing of a non binding term sheet. The crucial and binding document was always to be the shareholders agreement which never eventuated. -- 4 of 5 -- 5 [20] The applicant cannot be held responsible for the fact that the shareholders agreement did not eventuate. There was no evidence the applicant ever became a shareholder in the respondent. [21] The applicant understood the respondent to be paying its way operationally. In those circumstances, perhaps optimistically, the applicant considered the respondent would be able to repay the short term loan. The respondent on the other hand entered into a loan which it apparently on its own evidence had no capacity to repay except on the assumption that a sale of shares for a predetermined sum would occur. However there was at the time no basis for that assumption other than negotiations and a non binding timesheet. [22] The respondent argued applicant’s default in not committing to purchase shares for $75,000 in terms of the proposed shareholders agreement. The investment of $75,000 was premised on a binding shareholders agreement. In the event there was never an agreement in respect of which default could be alleged. [23] It is impossible to rationalise the $15,000 as an investment. It is not termed as such, no share in the respondent was ever effected such as to categorise the loan as an investment; nor did the shareholders agreement that might otherwise have given legitimacy to the loan being treated as an investment ever eventuate. [24] Finally there are the emails that passed between the applicant/applicant’s lawyers and the respondent in the period August to October 2011. Statements by the respondent in these emails make it abundantly clear that the respondent acknowledged liability for repayment of the loan. [25] The offer by the applicant was to make an advance structured as a short term loan that could be reconciled against a $75,000 investment when it was made. $75,000 investment was never made. There could be no reconciliation. It remained structured as a short term loan. [26] As no other terms and conditions were recorded it is not reasonable to impose any additional costs such as interest. [27] The Tribunal finds that the short term loan of $15,000 is payable and allows the filing fee of $265.00 and company search fee of $16.69, a total of $15,281.69. Order [28] The respondent pay to the applicant the sum of $15,281.69 within 30 days. -- 5 of 5 --