Boz One Pty Ltd v McLellan

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2014 0082

BOZ ONE PTY LTD and WALLABAH PTY LTD	First Appellant Second Appellant
v
ANDREW JAMES MCLELLAN, CRAIG DAVID CROSBIE, INVESTEC BANK (AUSTRALIA) LIMITED and GADENS LAWYERS	First Respondent Second Respondent Third Respondent Fourth Respondent

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JUDGES:	WHELAN, SANTAMARIA and KYROU JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	5 February 2015
DATE OF JUDGMENT:	23 April 2015
MEDIUM NEUTRAL CITATION:	[2015] VSCA 68
JUDGMENT APPEALED FROM:	Boz One Pty Ltd v McLellan [2014] VSC 208 (Digby J)

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RECEIVERS — Exercise of power of sale under a deed of charge — Charged property comprised loans made by chargor and shares owned by chargor in a private company — Receivers sold charged property by private sale — Whether receivers failed to take all reasonable care to sell the charged property for not less than its market value, in breach of s 420A(1)(a) of the Corporations Act 2001 (Cth) — Whether receivers obliged to sell the charged property on the open market — Whether receivers obliged to engage selling agents and to advertise the sale of the charged property.

RECEIVERS — Scope of duty under s 420A(1) of the Corporations Act 2001 (Cth) — Applicable legal principles.

CORPORATIONS — Deed of charge — Whether chargee and director of chargor acted in concert and were thus associates for the purposes of s 267(1) of the Corporations Act 2001 (Cth) — Whether by servicing a notice of demand on the chargor, the chargee purported to take a step in the enforcement of the charge for the purposes of s 267(1) of the Corporations Act2001 (Cth).

CORPORATIONS — Execution of contracts — Sole director of a company which did not have a secretary purported to sign a deed of charge as ‘Director/Secretary’ — Whether deed validly executed — Principles relating to execution of a contract by a director as an act of the company as distinct from an act of an agent for and on behalf of the company — Corporations Act 2001 (Cth) s 127 — Principles of unanimous assent discussed.

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APPEARANCES:	Counsel	Solicitors
For the appellants	Mr D B Clough	Goldsmiths Lawyers
For the first and second respondents	Mr G D Dalton	Moray & Agnew
For the third respondent	Mr H N G Austin	Arnold Bloch Liebler
For the fourth respondent	Mr S J Maiden	Colin Biggers & Paisley

TABLE OF CONTENTS

Introduction and summary

Facts

Incorporation of IPS to conduct the slipway business

The Wallabah debt

Loan by Investec to Glodale Pty Ltd

IPS’s draft balance sheet as at 30 June 2002

Loan by Lewis Securities to Wallabah

Appointment of Receivers to Boz One and their initial investigations

IPS’s draft balance sheet as at 30 June 2003

Events in June-September 2003

Events in October 2003, including the ‘in principle’ agreement of 9 October 2003

Events in November-December 2003

Settlement of the transaction to sell the Sold Assets on 12 December 2003

Events after the settlement on 12 December 2003

The trial
Decision below
Grounds of appeal and refusal of leave to pursue a new argument
Legal principles relevant to s 420A(1) of the Act
Validity of the Lewis Charge

Relevant grounds of appeal

Relevant provisions of the Lewis Charge and ASIC Form 309

Relevant provisions of IPS’s constitution

Relevant provisions of the Act (other than s 267)

The execution of the Lewis Charge

The applicability of s 267(1) of the Act

Practical issues relating to a legal challenge of the validity to the Lewis Charge

Conclusion on the grounds of appeal relating to the Lewis Charge

IPS’s leasehold interest in the Slipway Land

Relevant grounds of appeal

Analysis of the grounds of appeal

Quantum and sale of the Wallabah debt

Relevant grounds of appeal

Quantum and terms of the Wallabah debt

Market value of the Wallabah debt

IPS’s capacity to pay interest on the Wallabah debt and to repay the principal

Market value and sale of Boz One’s IPS shares

Relevant grounds of appeal

Relevant provisions of IPS’s constitution

Evidence of market value of the Sold Assets adduced at trial

The Receivers’ failure to sell the Sold Assets on the open market

The Receivers’ failure to take other steps in selling the Sold Assets

Conclusion on the grounds of appeal relating to Boz One’s IPS shares

Conclusion

WHELAN JA
SANTAMARIA JA

KYROU JA:

Introduction and summary

In early 2000, James Rolfe entered into a partnership with Leon Miller to conduct a slipway business (the Island Point Slipway) that Mr Miller had previously commenced in Wharf Street, Port Douglas. Island Point Slipway Pty Ltd (‘IPS’) was incorporated to take over the slipway business. A company controlled by Mr Rolfe, Boz One Pty Ltd (‘Boz One’), and a company controlled by Mr Miller, Island Point Marine Pty Ltd (‘IPM’), became equal shareholders in IPS. Another company controlled by Mr Rolfe, Wallabah Pty Ltd (‘Wallabah’), made loans to IPS to finance the further development of the slipway business.

On 11 March 2003, the first respondent, Andrew McLellan, and the second respondent, Craig Crosbie, were appointed as receivers and managers of Boz One and on 23 September 2003, they were appointed as receivers and managers of Wallabah. Mr McLellan and Mr Crosbie (collectively the ‘Receivers’) were appointed by Investec Bank (Australia) Ltd, which is now known as BOQ Specialist Bank Ltd (‘Investec’).

On 12 December 2003, the Receivers sold to Mr Miller for $2 Boz One’s 50 per cent shareholding in IPS (‘Boz One’s IPS shares’) and also assigned to him for $499,998 the loans that Wallabah had made to IPS (‘Wallabah debt’). The amount of the Wallabah debt was stated to be $671,835 in IPS’s records. We will refer to Boz One’s IPS shares and the Wallabah debt collectively as the ‘Sold Assets’.

The Receivers obtained advice from Investec’s lawyers, Gadens, throughout the receiverships and they did not engage independent lawyers. The advice was provided mainly by David Reichenberg, partner, and Karen McMaster, solicitor.

In 2009, well after the termination of the receiverships on 9 July 2004, Boz One and Wallabah (collectively the ‘appellants’) instituted proceedings against the Receivers and Investec relying principally on s 420A(1) of the Corporations Act 2001 (Cth) (‘Act’). That section relevantly provided:

In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a) if, when it is sold, it has a market value ‑ not less than that market value; or
(b) otherwise ‑ the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

The appellants alleged that the Receivers, as controllers,[1] breached their duties under s 420A(1) of the Act by failing to take all reasonable care to sell the Sold Assets for not less than their market value or the best price that was reasonably obtainable in the circumstances. Boz One and Wallabah alleged that Investec was also a controller for the purposes of s 420A(1) of the Act and that it too had breached its duties under that section.
[1]Section 9 of the Act relevantly defines ‘controller’ to include a receiver or receiver and manager of the property of a company.

Investec and the Receivers served contribution notices upon each other and third party notices upon Gadens.

The trial judge held that the Sold Assets probably had a market value and therefore para (a) of s 420A(1) of the Act applied.[2] He concluded that the Receivers had not breached their duties under that provision. In relation to Boz One’s IPS shares, the judge held that a number of factors adversely affected their market value, including: uncertainty about the existence of executed or registered sub-leases over the Crown land upon which IPS conducted its business (‘Slipway Land’); a registered fixed and floating charge granted by IPS to a financier, Lewis Securities Ltd (‘Lewis Securities’); and provisions in IPS’s constitution which conferred a right of first refusal upon existing shareholders.[3] In relation to the Wallabah debt, the judge concluded that the uncertainty about the sum of the Wallabah debt and IPS’s ability to pay it adversely affected the market value of the debt.[4]
[2]Boz One Pty Ltd v McLellan [2014] VSC 208, [10(c)] (‘Reasons’).
[3]Reasons [10(h)].
[4]Reasons [10(h)].

The judge held that s 420A(1) of the Act did not apply to Investec because it was not a ‘controller’ for the purposes of that section.[5]
[5]Reasons [10(i)].

The judge dismissed the appellants’ claims against the Receivers and Investec. In a separate decision,[6] the judge ordered the appellants to pay the costs of the Receivers and Investec. He also made orders for costs in relation to the contribution notices and the third party notices. In making these orders, he held that Investec was liable to indemnify the Receivers under deeds of indemnity dated 11 March 2003 and 23 September 2003.
[6]Boz One Pty Ltd v McLellan (Unreported, Supreme Court of Victoria, Digby J, 20 June 2014).

The appellants have appealed against the dismissal of their claims against the Receivers but not against the dismissal of their claims against Investec. Investec has filed a contingent appeal and the Receivers have filed a contingent cross-appeal dealing with indemnity and cost issues that they say will arise if the appellants’ appeal is successful.

For the reasons set out below, we have concluded that the judge was correct to dismiss the appellants’ claims against the Receivers. It follows that the appeal will be dismissed and that it will not be necessary for us to deal with the contingent appeal or the contingent cross-appeal.

Facts
Incorporation of IPS to conduct the slipway business

Mr Miller commenced the slipway business on the Slipway Land sometime before 2000. He also conducted a marine repair business known as Island Point Shipwrights on the same site, through IPM. Mr Miller’s solicitor was Dayle Smith of Lyon Smith.

The Slipway Land comprised separate lots on two Crown plans and was managed by the Douglas Shire Council (‘Council’). The Council leased the Slipway Land to Mirage Resort Holdings Pty Ltd (‘Mirage’).

Mr Rolfe and Mr Miller arranged for IPS to be incorporated on 23 March 2000. Mr Rolfe and Mr Miller were appointed as directors and Mr Miller was also appointed as company secretary. Mr Rolfe was at no time appointed as company secretary. IPS’s 200,000 issued shares were allocated equally to IPM and Boz One. Wallabah loaned $100,000 to each of IPM and Boz One to enable them to acquire their shares in IPS.

Clause 15 of IPS’s constitution contained a right of first refusal in relation to the sale of shares in the company. Clause 15 is summarised at [331] below and is discussed in detail at [331] to [342] and [401] below. For present purposes, it suffices to note two aspects of cl 15. First, the clause precluded Boz One from selling its shares in IPS to a third party without first giving IPM the opportunity to buy the shares at the price offered by the third party. Secondly, the clause entitled IPM to veto a proposed sale to a third party, in which case Boz One could require IPM to purchase the shares the subject of the proposed sale at the price offered by the third party.

IPS entered into three sub-lease arrangements with Mirage in relation to the Slipway Land and paid monthly rent to Mirage. The nature and scope of those arrangements were key issues at trial. IPS in turn entered into sub-sub-lease arrangements with tenants conducting businesses on the lots and received monthly rent from the tenants. The nature and scope of those arrangements were also in dispute at trial. The sub-lease and sub-sub-lease arrangements are discussed in detail at [293] to [304] below.

Mr Miller resided at Port Douglas and conducted the day to day management of IPS’s slipway business. Mr Rolfe resided in Victoria.

The Wallabah debt

The Wallabah debt arose out of a series of loans that Wallabah made to IPS between May 2000 and June 2002. The companies did not sign any documentation in relation to these loans.

On 4 May 2000, Mr Rolfe and his wife purported to sign a ‘Loan Agreement’ between Wallabah and IPS (‘Purported Loan Document’). The Purported Loan Document stated: that the principal was ‘[u]p to $550,000’; that the interest rate was 8% per annum payable monthly in arrears; that the loan was interest only for three years and then interest and principal; and that the security would be a charge by IPS and a guarantee by Mr Miller. Mr Miller did not execute that Purported Loan Document on behalf of IPS and neither the proposed charge nor the proposed guarantee was executed.

There was conflicting evidence at trial about the total amount of Wallabah’s loans to IPS and there was also uncertainty about important terms of the loans, such as the interest that was payable and when the loans were repayable. The Wallabah debt is discussed in detail at [305] to [326] below.

Loan by Investec to Glodale Pty Ltd

On 19 September 2001, another company controlled by Mr Rolfe, Glodale Pty Ltd (‘Glodale’), borrowed $11,800,000 from Investec (‘Glodale loan’). Security for the loan included guarantees by the appellants and fixed and floating charges over their assets and undertaking. Glodale and the appellants experienced cash flow problems and fell into arrears under the Glodale loan.

During 2001, Mr Rolfe sought additional funding. A potential financier, Yarra Capital Group, obtained a valuation report dated 18 October 2001 from Herron Todd White which valued IPS’s leasehold interest in the Slipway Land at $700,000 on the capitalisation of future maintainable earnings basis.

IPS’s draft balance sheet as at 30 June 2002

A draft balance sheet as at 30 June 2002 prepared by IPS’s accountants, SM Gibson & Associates, disclosed total assets of $977,987, total liabilities of $831,024 and net assets of $146,963. Shareholders’ equity amounted to $146,963, represented by issued share capital of $200,000 less accumulated losses of $53,037.

The current assets of $124,416 included cash at bank of $1,171 and trade debtors of $108,245. The non-current assets of $853,571 included ‘leasehold improvements’ in the amount of $819,628, and plant, equipment, motor vehicles and furniture and fittings of $33,943.

The current liabilities of $105,919 included trade creditors of $97,682. The non-current liabilities of $725,105 included the Wallabah debt in the amount of $701,477, a loan of $9,025 from IPM and hire purchase liabilities of $14,603.

A draft profit and loss statement for the year ended 30 June 2002 disclosed a net profit of $46,392, retained losses of $99,429 and accumulated losses of $53,037.

Loan by Lewis Securities to Wallabah

In August 2002, Mr Rolfe negotiated with Lewis Securities a possible loan of $500,000 to Wallabah. He wished to procure IPS as a guarantor of the proposed loan and for it to provide a fixed and floating charge as security. Mr Miller refused to sign the proposed charge, but he agreed to resign as a director of IPS and as its company secretary so that Mr Rolfe could sign the charge as sole director. Mr Miller resigned his two positions on 27 August 2002 and thus Mr Rolfe became sole director. However, no steps were taken to appoint him as company secretary and ASIC was not informed of the changes to IPS’s office-holders until January 2003.

On 3 September 2002, Mr Rolfe signed a deed of charge between IPS and Lewis Securities to secure the loan of $500,000 to Wallabah (‘Lewis Charge’). If IPS had a common seal, it was not affixed to the charge. The following typed text appeared under Mr Rolfe’s signature and handwritten name:

Director/Secretary*
*Delete as appropriate

Mr Rolfe signed ASIC Form 309 ‘Notification of details of a Charge’ dated 3 September 2002 (‘ASIC Form 309’) on behalf of IPS as its ‘Director’ rather than its ‘Director/Secretary’. The Lewis Charge was registered with ASIC on 10 September 2002 with a maximum prospective liability of $1,000,000.

The loan agreement between Wallabah and Lewis Securities was dated 4 September 2002 (‘Wallabah’s loan agreement with Lewis Securities’). That agreement described the purpose of the loan to Wallabah as follows:

2.3 Use of Principal Sum
Unless otherwise agreed between [Wallabah] and [Lewis Securities], [Wallabah] must use and apply the Principal Sum, immediately upon it being advanced, for the purpose of assisting with developments at Wharf Street, Port Douglas, North Queensland by [IPS].

Notwithstanding cl 2.3 of Wallabah’s loan agreement with Lewis Securities, no part of the principal amount of $500,000 was made available to IPS. Clause 4.2 required Wallabah to repay the Principal Sum on the ‘Repayment Date’, which was defined by cl 1.1 as ‘the date that is 90 days after the Principal Sum is advanced to [Wallabah].’

The schedule to Wallabah’s loan agreement with Lewis Securities listed the securities that Lewis Securities required in connection with its loan to Wallabah. Apart from the Lewis Charge granted by IPS, those securities included a mortgage of Wallabah’s shares in another company, a charge by Wallabah,[7] a mortgage of IPS’s sub-leases over the Slipway Land,[8] a charge by Glodale, and a personal guarantee by Mr Rolfe.
[7]This charge was executed on 4 September 2002 and thus ranked behind Wallabah’s charge to Investec dated 19 September 2001.
[8]It appears that this mortgage was not executed.

IPS’s constitution contained provisions regarding the powers of directors and the manner in which the company could execute documents. Those provisions are summarised at [188] to [197] below. For present purposes, it suffices to say that, while the constitution provided that a document could be executed by a director who was the sole director and sole secretary of the company, it made no express provision for a sole director alone to sign a document where he or she was not also the sole secretary, or where IPS did not have a secretary.

At trial, it was common ground that the question of whether the Lewis Charge was valid was crucial to the value of the Sold Assets. The appellants alleged that the Lewis Charge was invalid in part because Mr Rolfe was not authorised under IPS’s constitution to be the sole signatory of the charge. The validity of the Lewis Charge is discussed at [178] to [292] below.

On 17 January 2003, Mr Miller wrote to Mr Rolfe stating: ‘You put [the Lewis Charge] in place without the shareholders’ knowledge in favour of debts not concerning IPS, is that legal? As I see it IPS is insolvent’.

On 23 January 2003, Mr Miller’s solicitors (Lyon Smith) wrote to Lewis Securities’ solicitors (Hunt & Hunt) stating that the Lewis Charge was not valid because there had not been any ‘dealings’ between Lewis Securities and IPS, and requesting documents about the charge. Lyon Smith also stated that it was their understanding that there were not then ‘in place any currently valid and executed subleases.’ Lyon Smith made similar assertions in a letter dated 17 March 2003 to Lewis Securities.

On 28 January 2003, Mr Rolfe prepared a written response to Mr Miller’s letter dated 17 January 2003. However, it is not clear whether this was sent to Mr Miller. In the response, Mr Rolfe stated:

2. You were aware in August 2002 that I was intending to borrow against my loan funds/interest in the Slipway. These borrowings were through Lewis Securities. You will also remember that you resigned as a director so that I could execute the loan documents in Melbourne quickly.
3. You know that this loan was delayed because the sub-leases were not executed. Therefore other security had to be given to Lewis Securities.
4. The charge Lewis Securities holds over the Slipway is to be paid from the loan funds supplied by Wallabah. It is not in addition to Wallabah’s claim under its debenture.[9]

[9]Emphasis in original.

On 12 February 2003, Mr Rolfe sent an email to Mr Miller in which he stated:

(a) In June 2002, Mr Rolfe agreed to release IPS from accrued interest up to June 2002 and to waive interest to December 2002. (It appears that reference was being made to interest payable in respect of the Wallabah debt.)

(b) Wallabah’s loan from Lewis Securities was a means by which Wallabah could borrow against its loan funds to IPS. They ‘can be treated as the same debt’. The total commitment was approximately $740,000 rather than $1,700,000.

(c) The day prior to the execution of the Lewis Securities loan documents, Mr Rolfe asked Mr Miller to resign as a director of IPS so that Mr Rolfe could sign the documents as a single director. Mr Miller’s suggestion that Mr Rolfe had lodged the Lewis Charge without Mr Miller’s knowledge was totally incorrect.

(d) The current problem with selling the slipway business is ‘the still unfinished matter of the sub-leases’.

On 18 February 2003, Mr Miller’s accountant, SM Gibson & Associates, wrote to Mr Rolfe to propose a commercial resolution of issues in dispute relating to IPS. The proposal included repayment of the Wallabah debt, but the amount of the debt was not identified. In his response dated 19 February 2003, Mr Rolfe stated the following about IPS’s failure to pay interest on the Wallabah debt: ‘IPS has an obligation to pay interest to Wallabah from January 2003. … An agreement was reached whereby I purchased 50% of the shipwright business. My consideration was to write off the accumulated interest to June 2002 plus a further 6 months to December 2002.’ Mr Rolfe also stated that the Lewis Charge ‘will remain in place until all loan funds have been repaid.’

In February 2003, Wallabah defaulted on its loan obligations to Lewis Securities.

On 24 February 2003, Lewis Securities served a default notice upon IPS demanding immediate payment of all monies then due to it, namely, $918,000.[10] The default notice relevantly stated:

Default having been made by Wallabah … in payment of Money Outstanding … under the [loan agreement with Lewis Securities], which is also a default under the [Lewis] Charge, Lewis Securities … now elects that the Secured Money under the [Lewis] Charge is due and payable immediately.
…
Unless the default specified in this notice is remedied immediately, Lewis Securities … proposes to commence enforcement proceedings against … [IPS] and may take other action against … [IPS] … including the appointment of a receiver or manager or receiver and manager of the Charged Property under the [Lewis] Charge without further notice to [IPS].

Appointment of Receivers to Boz One and their initial investigations

[10]A default notice was also served upon Wallabah.

In the meantime, Glodale defaulted in making payments to Investec under the Glodale loan. On 20 August 2002, Investec served a demand for payment on Glodale, Boz One, Wallabah and other companies controlled by Mr Rolfe seeking payment of the amount of $11,839,158. All the companies executed an asset management deed on 29 November 2002 but they failed to comply with its terms.

On 11 March 2003, Investec appointed the Receivers as receivers and managers of Boz One and other companies controlled by Mr Rolfe, but not Wallabah. The day to day receivership work was performed by Mr Crosbie. He was assisted by a manager, Adrian Hunter.

The Receivers wrote to Lewis Securities on 14 March 2003 advising of their appointment and again on 24 March 2003 seeking information about the creation and registration of the Lewis Charge and the amount of Lewis Securities’ loan.

The Receivers reported to Investec throughout the receivership. In a report dated 17 March 2003, Mr Crosbie noted that the financial statements for IPS showed that it had a loan from Wallabah ‘of around $694,000’ and that ‘[o]n the face of it, Boz One’s interest in IPS is at least $146,000 (50% shareholding in reported net assets of $292,000).’

On 2 April 2003, Hunt & Hunt wrote to Lyon Smith and asserted that the Lewis Charge was valid, and that one of the purposes of Lewis Securities’ loan to Wallabah was to assist with the development of the Slipway Land by IPS. On the same day, Hunt & Hunt sent a similar letter to the Receivers.

On 8 April 2003, Gadens advised the Receivers that the Lewis Charge might be defective because IPS was a two director company and the charge had been executed solely by Mr Rolfe.

On 9 April 2003, solicitors at Gadens had a conference with Mr Rolfe during which he said: that Mr Miller was aware of the proposal for IPS to grant the Lewis Charge; that Mr Miller had resigned as a director of IPS so that Mr Rolfe could execute it as sole director; and that Mr Miller objected after the event. Mr Rolfe also stated that Lewis Securities was aware of the purposes of its loan to Wallabah and that IPS would not receive any of the loan funds.

On 14 April 2003, Mr Hunter sent an email to Gadens in which he reported on his discussion with Mr Smith. According to Mr Hunter, Mr Smith stated that, in his view, the Lewis Charge was invalid because Mr Rolfe did not have the power to bind IPS and because the loan was for the benefit of Wallabah rather than IPS. Mr Hunter also reported that Mr Smith stated: that he was keen to help the Receivers defeat the Lewis Charge; that Mr Miller wanted to buy Boz One’s IPS shares but only after the Lewis Charge issue was resolved; and that Mr Rolfe should be removed as a director of IPS as he was uncooperative.

In a further email to Gadens dated 15 April 2003, Mr Hunter stated that Mr Miller had previously told him that he had resigned as an office-holder of IPS because ‘he didn’t agree with how Rolfe was running the company and didn’t want to be seen as being part of his “underhanded” dealings.’

On 15 April 2003, Lyon Smith wrote to the Receivers explaining why, in their view, the Lewis Charge had not been lawfully entered into by Mr Rolfe on behalf of IPS. Lyon Smith also stated: that the principal asset of IPS was an equitable interest in the Slipway Land; that the execution of sub-leases had stalled in part because Mr Miller was reluctant to sign a personal guarantee; and that it was plain that, ‘until IPS can sort its internal affairs out, it … has no real prospects of having the proposed [sub–leases] executed by anyone.’

On 1 May 2003, Ms McMaster sent an email to Investec in which she recommended that receivers and managers be appointed to Wallabah so that they could investigate the Wallabah debt. Ms McMaster stated that ‘it appears at this stage that the [Lewis] Charge may be invalid’ and that, if the charge could be defeated, ‘significant proceeds may be realised from a sale of the company’s shares.’

On 6 May 2003, Mr Crosbie wrote to Investec to advise that, based on his investigations, IPS ‘appears solvent’. He referred to the ‘concerns’ that Lyon Smith and Gadens had expressed about the validity of the Lewis Charge, and stated that, if the charge could be released, the Receivers could recover the Wallabah debt and sell Boz One’s IPS shares.

On 7 May 2003, Gadens wrote to Hunt & Hunt requesting information about the circumstances of the granting of the Lewis Charge. Hunt & Hunt did not respond.

At a meeting held on 27 May 2003, the Receivers, Investec and Gadens discussed possible litigation over the Lewis Charge. A file note prepared by Ms McMaster included the following statements:

Charge is invalid. Depends on how far Investec prepared to go.
Best bet … attack Lewis Securities. Lewis knows what their problem is.
If they threaten to appoint a Receiver. Bringing an injunction/costs/damages. Appointment of a Receiver. Seek to injunct them. Will destroy the business.

IPS’s draft balance sheet as at 30 June 2003

A draft balance sheet as at 30 June 2003 prepared by IPS’s accountants, SM Gibson & Associates, disclosed total assets of $1,001,326, total liabilities of $863,074 and net assets of $138,252. Shareholders’ equity amounted to $138,252, represented by issued share capital of $200,000 less accumulated losses of $61,748.

The current assets of $181,373 included cash at bank of $324 and trade debtors of $111,653. The non-current assets of $819,953 included ‘leasehold improvements’ in the amount of $787,639 and plant, equipment, motor vehicles and furniture and fittings of $32,314.

The current liabilities of $149,543 included trade creditors of $116,267 and loans from directors of $5,000. The non-current liabilities of $713,531 included the Wallabah debt in the amount of $671,835, a loan of $21,134 from IPM and hire purchase liabilities of $10,098.

A draft profit and loss statement for the year ended 30 June 2003 disclosed a net loss of $8,711, retained losses of $53,037 and accumulated losses of $61,748.

Events in June-September 2003

On 11 June 2003, the Receivers and IPM, exercising the powers of the shareholders of IPS, appointed Mr Miller and his wife as directors of IPS and removed Mr Rolfe as a director. Mr Miller was also appointed as company secretary.

On 17 June 2003, Ms McMaster and Mr Hunter discussed the agenda for a meeting of shareholders of IPS that was ultimately held on 20 June 2003. Ms McMaster’s handwritten notes contain the following statements in relation to the agenda item dealing with possible litigation by IPS against Lewis Securities: ‘Legal costs. No big deal. Better that they do it. We’ll see what happens there.’ Following the discussion, Ms McMaster sent an email to Mr Hunter in which she stated: ‘As discussed, the issue of Smith’s costs not of too great concern at the moment’.

On 18 June 2003, Lewis Securities, Wallabah and IPM purported to execute a Deed of Rectification, Variation, Assignment and Guarantee (‘Deed of Rectification’). The Deed of Rectification was signed by: Lewis Securities; Mr Rolfe and his wife as directors of Wallabah; and Mr Rolfe purportedly as ‘Sole Director’ of IPS, even though he knew that he had ceased to be a director of IPS. The Deed of Rectification contained the following provisions:

1.5 There are prospective issues as to the effectiveness of the [Lewis] Charge to secure the [loan to Wallabah] in the manner intended by the parties.
…
2.1Wallabah and [IPS] confirm that the [amount of $500,000] was borrowed by Wallabah for the purpose (inter alia) of providing funding to [IPS], and has been substantially advanced by Wallabah to [IPS], and used by IPS for its own commercial purposes.

The Deed of Rectification relevantly purported: to assign the Wallabah debt (which was said to total $914,000) to Lewis Securities;[11] to acknowledge the loan of $500,000 from Lewis Securities to Wallabah; to add further guarantees and indemnities by IPS to Lewis Securities in relation to Wallabah’s loan from Lewis Securities; and to amend the definition of ‘Secured Money’ in the Lewis Charge in order to ‘rectify’ any possible deficiency in the charge.
[11]The assignment was capped at the total amount owing by Wallabah to Lewis Securities.

In a letter dated 18 June 2003 to Investec, Mr Crosbie reported that Lewis Securities approached him to discuss how it could cooperate with Investec so that they could recover their debts and that Lewis Securities had raised a number of ‘entrepreneurial suggestions’ which were not acceptable. Mr Crosbie stated that ‘legal advice from Gadens would indicate that the [Lewis Charge] is defective’ and that Mr Miller and Lyon Smith understood the Wallabah debt to be ‘at least $700,000.’ Mr Crosbie also stated that without the sub-leases and sub-sub-leases in place ‘the business of IPS has limited value.’ Mr Crosbie also stated that if the Lewis Charge were found to be invalid, ‘significant funds could become available to Investec from any sale proceeds via the repayment of the [Wallabah debt] and the realisation of [Boz One’s IPS shares].’

On 20 June 2003, the Receivers and Mr Miller (representing IPM) attended by telephone a meeting of the shareholders of IPS. The following occurred at the meeting:

(e) IPS acknowledged the following in relation to the Wallabah debt:

(i) the amount of the principal was $671,835;

(ii) there was an interest-free period of three years from the date of each loan advance;

(iii) interest was payable at the rate of 8 per cent per annum after the expiration of the interest-free period; and

(iv) the first interest payment was due on 1 November 2003.

(f) Lyon Smith were instructed to act for IPS to seek, or to advise on the prospects of success of, proceedings challenging the validity of the Lewis Charge.

(g) IPS's accountants, SM Gibson & Associates, were instructed to prepare a ‘presentation for sale’ document for prospective purchasers of Boz One’s IPS shares and the refinancing of the Wallabah debt.

(h) It was resolved that valuers be appointed to prepare a valuation based on two scenarios: the first, on the basis that the sub-leases with Mirage had not been executed; the second, on the basis that they had.

(i) It was resolved that legal advice be obtained as to the validity of the sub-leases proposed by Mirage and what security could be given to Mr and Mrs Miller for providing personal guarantees in relation to the sub-leases. It was resolved that until all outstanding issues surrounding the sub-leases were clarified, the sub-leases should not be executed and registered.

On 25 June 2003, Lyon Smith wrote to Hunt & Hunt asserting that the Lewis charge is invalid and giving Lewis Securities seven days to satisfy IPS that there was a proper legal basis for the charge to remain registered. The letter stated that, unless Lewis Securities did so, IPS ‘will be bringing an application for a declaration … that the charge … is invalid’.

On 10 July 2003, Lyon Smith sent a letter to Hunt & Hunt which stated: that the Lewis Charge ‘is invalid’ in part because IPS ‘is not a single director company’; that no sub-leases have been executed by IPS over the Slipway Land and that ‘[n]one are likely to be executed by IPS in the immediate future’; and that ‘[n]o rational director would provide a guarantee’ of IPS’s obligations under the proposed sub-lease ‘until the ASIC Register has been corrected.’ The letter gave Lewis Securities seven days to agree to the removal of the Lewis Charge and enquired whether Hunt & Hunt had ‘authority to accept service of proceedings to be instituted by [IPS].’

On 11 July 2003, Gadens wrote to Hunt & Hunt about the Lewis Charge. Gadens asserted that Mr Rolfe was not authorised to bind IPS because it was ‘a two director company’ and that IPS did not benefit from the granting of the Lewis Charge. Gadens sought a ‘full explanation’ of the loan by Lewis Securities to IPS and its purpose.

On 14 July 2003, Lyon Smith forwarded to Gadens a draft Federal Court application. The application named IPS as the applicant and Lewis Securities as the respondent and sought declarations that the Lewis Charge and the Deed of Rectification were invalid. The application alleged that the Lewis Charge was not authorised by IPS and that IPS received no benefit under it.

On 16 July 2003, Lyon Smith forwarded to Gadens a detailed letter of advice that Lyon Smith had provided to IPS. The tenor of the letter was that it was likely that the Lewis Charge would be found by a court to be invalid because it had not been validly executed.

On 22 July 2003, Lyon Smith sent a letter to Gadens containing an offer on behalf of IPM for the purchase of Boz One’s IPS shares for $50,000. The Receivers did not accept the offer as they considered it to be too low.

Lyon Smith’s letter dated 22 July 2003 to Gadens enclosed a valuation report dated 21 July 2003 from Horwath Kehoe Smith. The report stated that if the shares in IPS were valued on the capitalisation of future maintainable earnings basis, they would have no value because the value of IPS’s business ($120,617) was less than the company’s debts. On the other hand, if the shares were valued on the net tangible assets basis, they had a value of $135,033 and Boz One’s IPS shares had a value of $67,517.

Lyon Smith’s letter dated 22 July 2003 also enclosed a copy of a letter dated 17 July 2003 from a solicitor based in Port Douglas, Robert Palethorpe, to Mr Miller. Mr Palethorpe’s letter advised: that the sub-leases were not in a form that could be executed because they did not attach relevant plans; that many terms of the sub-leases were not appropriate for the purposes for which the Slipway Land was being used; and that the termination clauses were unfavourable to IPS. The letter also noted that Mr Miller was required to execute a guarantee of IPS’s obligations as sub-lessee, and that the Minister must consent to the sub-leases before they could be lodged for registration.

On 26 and 27 August 2003, Mr Crosbie met with representatives of Gadens and Investec. Ms McMaster’s handwritten notes of the first meeting record: ‘Our understanding value of shares is a min of $150,000 — if clean co.’ Ms McMaster’s handwritten notes of the second meeting record that IPS had ‘gone quiet’ and that Mr Miller ‘hasn’t signed the leases’.

On 28 August 2003, Mr Miller told Mr Hunter that: he was surprised that his offer of $50,000 for Boz One’s IPS shares had not been accepted; that he was scared about signing the sub-leases; that the Lewis Charge was invalid; that he had ‘done nothing for the last month or so’; and that ‘some time ago’ Mr Smith had spoken to Lewis Securities about IPS.

On 3 September 2003, Mr Smith informed Ms McMaster that documents for IPS’s proposed proceeding against Lewis Securities had been settled by counsel but had not yet been filed, and that Lewis Securities had been ‘offering to do all kinds of deals’. In a ‘without prejudice’ discussion on the same day, Ms McMaster told Mr Smith that the Receivers were of the view that Boz One’s IPS shares were worth $150,000 and that the Wallabah debt could be treated as being worth $700,000, with a total value for both assets of $850,000. Ms McMaster’s handwritten notes of the discussion record the following: ‘have to sell shares on open market … One requirement is that Lewis debenture discharged’. It appears from the notes that Mr Smith told Ms McMaster that IPS’s business was ‘going [reasonably] well.’

On 3 September 2003, representatives of Gadens met with representatives of the Receivers and Investec. The hand written notes of that meeting contain the words: ‘Risks — setting aside Deb Charge. not a risk.’

On 5 September 2003, Gadens wrote to Lyon Smith stating: that the valuation of IPS’s business by Horwath Kehoe Smith[12] was ‘too conservative’; that ‘it will be necessary to go to the open market for the sale of [Boz One’s IPS] shares’; that the right of first refusal in IPS’s constitution may be an impediment to a market sale of the shares; and that IPS’s records indicate that the amount of the Wallabah debt was $900,000. The letter enclosed a ‘critique’ of the Horwath Kehoe Smith valuation. The critique suggested that, on a capitalisation of future maintainable earnings basis, Boz One’s IPS shares were worth $172,995. The critique also suggested that IPS’s net assets ‘may be more than $346,000’.
[12]See [73] above.

Lyon Smith responded to Gadens’ letters of 5 September 2003 by letter dated 8 September 2003. In that letter, Lyon Smith agreed that ‘it may be necessary to go to the open market for the sale of [Boz One’s IPS] shares’ and stated that their instructions were that the current balance of the Wallabah debt was $679,000. Lyon Smith also noted the unresolved issues relating to the sub-leases over the Slipway Land and the lack of response from Lewis Securities to requests for information concerning the Lewis Charge. Finally, Lyon Smith asked whether the Receivers wished to be joined as a party to IPS’s proposed proceeding against Lewis Securities or whether they preferred to be the applicants.

On 12 September 2003, Ms McMaster discussed IPS’s proposed proceeding to remove the Lewis Charge with representatives of Investec. Ms McMaster’s handwritten notes record that, in response to Investec’s concerns about the likely success of the proceeding, she stated that the proceeding was ‘[s]till … worth investigating’ but that Gadens ‘can’t say [it] will definitely succeed’.

On 18 September 2003, Mr Hunter sent an email to Mr Crosbie which relevantly stated:

Investec have gone cold on the idea at this stage and fear they will be caught up in a federal court action to have the lewis charge removed. … Karen [McMaster] is of the view that Investec Sydney think they can do a deal with Lewis on the side and that Melbourne have gone cold on the whole idea and will simply ask [the Receivers] to retire.

On 20 September 2003, Mr Reichenberg and Ms McMaster met with two representatives of Investec. The issues discussed included: that Investec could seek an offer of $700,000 from Lewis Securities or Mr Miller; and that Mr Crosbie could make an initial approach to Lewis Securities.

On 22 September 2003, Mr Reichenberg and Ms McMaster met with Mr Crosbie and Mr Hunter. Ms McMaster’s handwritten notes stated the following concerning IPS’s proposed proceeding to set aside the Lewis Charge: ‘Go to court. Lewis can’t sit there doing nothing … Smith — lodge docs — supporting affidavit’.

On 23 September 2003, Investec appointed the Receivers as receivers and managers of Wallabah.

On the same day, Mr Hunter spoke to Mr Smith to advise him of the Receivers’ appointment. Mr Smith stated that if the Receivers made a formal demand upon IPS for payment of the Wallabah debt, IPS would become insolvent and Mr Miller would place it in voluntary administration. Mr Smith also asked whether Gadens could act as Lyon Smith’s Melbourne agent for IPS’s proposed Federal Court proceeding against Lewis Securities. Later that day, Ms McMaster advised Mr Hunter that it would not be appropriate for Gadens to act as agent.

On 25 September 2003, Gadens sent a letter to Lyon Smith noting that the Wallabah debt was recorded in IPS’s books in the amount of $941,420 as at 30 June 2002, and that all repayments were to be made to the Receivers. The letter did not demand payment of the debt.

Events in October 2003, including the ‘in principle’ agreement of 9 October 2003

On 1 October 2003, Nigel Elias of Lewis Securities telephoned Ms McMaster to discuss a meeting to achieve a commercial resolution of issues relating to IPS. They discussed attendance at the proposed meeting by Mr Miller and Mr Smith. On the following day, Ms McMaster sent an email to Mr Crosbie in which she stated: ‘I spoke to Nigel Elias again yesterday — I indicated that Investec & the Receivers were prepared to meet with him, but that we would all be wasting our time unless he was in a position to talk figures reflecting the value of the shareholding and the Wallabah debt … I have spoken to Dayle Smith and he is quite keen on the idea of meeting Elias’. Also on 2 October 2003, Mr Smith sent an email to Mr Elias headed ‘Lewis Securities & IPS without prejudice meeting at Gadens’. The email stated: ‘I can arrange for Leon Miller and I to be in Melbourne to attend such a conference next Thursday, but only on the basis that you make available … a return J class … ticket for [Mr Miller and Mr Smith].’

Mr Rolfe became a bankrupt on 2 October 2003.

On 9 October 2003, there was a meeting between Mr Crosbie, Mr Hunter, Mr Reichenberg, Ms McMaster, Mr Miller, Mr Smith, Mr Elias and his solicitor (Peter Arthur) and representatives of Investec (Michael Sack and Andrew Hirst). The purpose of the meeting was to discuss a possible commercial deal between the parties in relation to the sale of the Sold Assets. Mr Elias stated that Lewis Securities was prepared to facilitate a deal in which Mr Miller fully controlled IPS and Investec released its securities. Either Mr Sack or Mr Hirst stated that Investec was owed approximately $1,000,000 and that it would accept $800,000 by way of settlement. After initially mentioning an amount between $250,000 and $300,000, Mr Miller offered $500,000 for the Sold Assets, which was to be borrowed from Lewis Securities, and said that he could not offer any higher amount for those assets.

At the 9 October 2003 meeting, an ‘in principle’ agreement was reached for the sale of the Sold Assets to Mr Miller for $500,000 to be funded by Lewis Securities. The agreement was conditional upon Mr Miller submitting a formal offer to the Receivers and upon the Receivers receiving legal advice and valuations in support of the offer. As part of the agreement, Mr Miller agreed to ensure that the sub-leases over the Slipway Land were executed and to pay Lewis Securities a management fee of $200,000.

An internal report prepared by Investec on 14 October 2003 stated: ‘The value of the 50% shareholding is estimated at circa $150,000. Whilst we are confident of achieving a result, there are some serious obstacles to reaching a “cash result”, including a dubious charge granted by IPS in favour of [Lewis Securities].’

Mr Rolfe sent to the Receivers a letter dated 15 October 2003 in which he stated: that the Wallabah debt amounted to $740,000 plus interest; that the Lewis Charge was invalid and that Mr Miller knew this; and that Mr Elias of Lewis Securities had acknowledged to him that the Lewis Charge was invalid.

On 20 October 2003, the Receivers sought advice from Gadens about the obtaining of valuations and the taking of any other necessary steps in relation to the proposed sale of the Sold Assets to Mr Miller for $500,000, in order to comply with their duty under s 420A of the Act. The Receivers also sought advice on the following matters that they considered might affect the value of the Sold Assets: the right of first refusal in IPS’s constitution; the unsigned sub-leases over the Slipway Land and Mr Miller’s apparent unwillingness to sign any guarantees in respect of the sub-leases; the Lewis Charge; the undocumented Wallabah debt; the legal costs involved in recovering the Wallabah debt and the sale of Boz One’s IPS shares; and the solvency of IPS if Wallabah demands immediate repayment of the Wallabah debt.

On 23 October 2003, Lyon Smith wrote to Gadens on behalf of Mr Miller offering to buy Boz One’s IPS shares and the Wallabah debt for $500,000. The offer was subject to certain conditions, including finance from Lewis Securities and the release of the Lewis Charge.

On 24 October 2003, Gadens provided a letter of advice to the Receivers. Gadens’ advice may be summarised as follows:

(j) If the Receivers proposed to sell the Sold Assets other than by an open market process, they should obtain independent valuations.

(k) Gadens had been advised that sub-leases over the Slipway Land had not been executed and it was Gadens’ understanding that no binding sub-sub-leases were in place. As the draft sub-leases required a personal guarantee from Mr Miller, he was unlikely to formalise the sub-leases until he was in control of IPS. In the absence of executed sub-leases, IPS had no saleable interest in the Slipway Land. As Mr Miller was the driving force behind the success of the slipway business and he had exclusive dealings with Mirage and IPS’s tenants, any goodwill attaching to the business was inextricably linked to him.

(l) Without the benefit of knowledge of the factual context surrounding the execution of the Lewis Charge, it was impossible for Gadens to comment on the likelihood of success of any court action to remove the charge. Lewis Securities had advised that it would vigorously defend any such action. A defended action could cost IPS between $80,000 and $150,000, would be likely to take between six and 12 months, and there was some risk that it would fail.

(m) The right of first refusal provisions in IPS’s constitution meant that any due diligence a prospective purchaser of Boz One’s IPS shares conducted to assess their value may be rendered worthless if IPM objected to the purchase or matched the purchaser’s offer. This was likely to pose a significant disincentive to purchasers and was an impediment to the sale of the shares on the open market.

(n) The Wallabah debt would be very difficult to enforce as it was undocumented and the only individuals in a position to provide evidence — Mr Miller and Mr Rolfe — were likely to be uncooperative. IPS had advised that it was unable to pay the debt in full and that the making of a demand to pay may cause IPS to become insolvent. Accordingly, any application to enforce the debt would be costly and ultimately might be in vain.

Events in November-December 2003

On 11 November 2003, the Receivers retained Ferrier Hodgson to provide a valuation of Boz One’s IPS shares on four alternate bases:

(o) the Lewis Charge was valid and the Wallabah debt of $671,835 was fully recoverable;

(p) the Lewis Charge was valid and the Wallabah debt of $671,835 was uncollectable;

(q) the Lewis Charge was invalid and the Wallabah debt of $671,835 was fully recoverable;

(r) the Lewis Charge was invalid and the Wallabah debt of $671,835 was uncollectable.

On 19 November 2003, the Receivers retained KPMG to provide a valuation of Boz One’s IPS shares on the same basis that they had retained Ferrier Hodgson. The Receivers’ letters of appointment to Ferrier Hodgson and KPMG briefly outlined ‘factors impacting upon the sale and transfer of [Boz One’s IPS] shares’, namely: IPM’s right of first refusal under cl 15 of IPS’s constitution; the Lewis Charge which IPS and its solicitor considered was invalid; the undocumented Wallabah debt; and the unexecuted sub-leases over the Slipway Land. In relation to the sub-leases, the letter stated that ‘Mirage has the ability to “terminate” them or place them “back on the market” at any stage [albeit] subject to any legal claim that IPS may be able to mount against such an action.’

On 24 November 2003, Mr Rolfe wrote to the Receivers stating that the Wallabah debt amounted to $941,420 rather than $741,420.

On the same day, the Receivers received a draft report from Ferrier Hodgson, which was finalised on 12 December 2003 (‘Ferrier Hodgson report’). That report valued Boz One’s IPS shares on the capitalisation of future maintainable earnings basis as follows: $185,000 if the Lewis Charge was invalid and the Wallabah debt was uncollectable; $80,000 if the Lewis Charge was invalid and the Wallabah debt was collectable; and zero if the Lewis Charge was valid. Ferrier Hodgson advised the Receivers as follows:

(s) Ferrier Hodgson did not inspect IPS’s premises or value its leasehold improvements or other assets.

(t) In selecting the capitalisation rate, Ferrier Hodgson took into account: the dispute relating to the Lewis Charge; the uncertainty surrounding the terms of the Wallabah debt; the fact that the sub-leases and sub-sub-leases over the Slipway Land were unexecuted; and the restrictions in the right of first refusal clause of IPS’s constitution.

On 4 December 2003, the Receivers obtained a draft report from KPMG, which was finalised on 9 December 2013 (‘KPMG report’). That report valued Boz One’s IPS shares on the capitalisation of future maintainable earnings basis as follows: $135,000 to $165,000 if the Lewis Charge was invalid and the Wallabah debt was uncollectable; and zero if the Lewis Charge was valid or the Wallabah debt was collectable. KPMG advised the Receivers as follows:

(u) On the assumption that the Lewis Charge was invalid and the Wallabah debt was uncollectable, the shares in IPS had a value of between $450,000 and $550,000. However, it was inappropriate to value Boz One’s 50 per cent shareholding on a pro rata basis. Rather, a 40 per cent discount to the pro rata value was required to take into account Boz One’s lack of control and the marketability restrictions in the right of first refusal clause in IPS’s constitution.

(v) The KPMG report provided a ‘desktop valuation’ rather than a formal valuation opinion, as KPMG did not visit IPS’s premises or discuss its business with Mr Miller.

(w) The report took into account the following matters that impacted on IPS’s business: the dispute over the validity of the Lewis Charge; the undocumented nature of the Wallabah debt; IPM’s right of first refusal under IPS’s constitution; and the absence of formal sub-leases over the Slipway Land. However, KPMG’s valuation of $135,000 to $165,000 for Boz One’s IPS shares assumed that IPS had no liabilities to Lewis Securities or Wallabah and that IPS had a maintainable rental income stream notwithstanding the absence of formal sub-leases.

On 5 December 2003, Mr Rolfe’s wife (who was a director of Wallabah) wrote to Mr Crosbie stating that the Wallabah debt was ‘approx $720,000.’[13]
[13]The letter erroneously referred to the debt being owed by Island Point Shipwrights Pty Ltd. This error was corrected in a subsequent letter dated 15 December 2003. However, the amount allegedly owed remained $720,000.

On 10 December 2003, Gadens provided a letter of advice to the Receivers. In that letter, Gadens analysed the Ferrier Hodgson and KPMG reports and referred to the undocumented and uncertain nature of the Wallabah debt, the evidentiary problems in seeking to enforce it and doubts about IPS’s ability to repay it. Gadens recommended that the Wallabah debt be discounted by at least $150,000 to $250,000 to reflect these concerns. Gadens concluded that, if Ferrier Hodgson’s valuation of $80,000 for Boz One’s IPS shares were adopted and the costs and risks to IPS of proceedings to remove the Lewis Charge were taken into account as well as the uncertainties about the Wallabah debt, ‘the current offer of $500,000.00 for both assets would appear a realistic one.’

Settlement of the transaction to sell the Sold Assets on 12 December 2003

On 12 December 2003, the Receivers settled the sale of the Sold Assets as follows:

(x) Boz One transferred its IPS shares to Mr Miller for the sum of $2; and

(y) Wallabah assigned the Wallabah debt to Mr Miller for $499,998.

The deed of assignment of the Wallabah debt assigned ‘[a]ll money owing to [Wallabah] from [IPS]’ without specifying an amount. It also provided that neither Wallabah nor the Receivers warranted: the amount of the debt; the terms upon which the debt was payable; or the ‘collectability’ of the debt.

The allocation of $2 to Boz One’s IPS shares and $499,998 to the Wallabah debt did not emanate from Mr Miller. Rather, the allocation was made by the Receivers after discussion with Gadens and in reliance on the valuations by Ferrier Hodgson and KPMG. As the Ferrier Hodgson and KPMG valuations were to the effect that, if the Lewis Charge was effective, Boz One’s IPS shares had nominal value, the Receivers decided to allocate a nominal value of $2 to those shares.

Mr Miller’s purchase of the Sold Assets was financed by Lewis Securities. That company provided a loan of $500,000. As part of the overall transaction, Mr Miller paid to Lewis Securities a management fee of $200,000 and Lewis Securities executed a release of the Lewis Charge.

The sub-leases over the Slipway Land were executed by IPS and Mirage on 12 December 2003 and guarantees were executed by Mr and Mrs Miller. The sub-leases were expressed to commence from 1 July 1999. Executed consents were obtained from the mortgagee (National Australia Bank Limited) on 24 December 2003 and from the Minister’s delegate on 10 May 2005.

Events after the settlement on 12 December 2003

On 23 February 2006, a company in the Mirage group purchased IPS’s sub-leases over the Slipway Land for $2,400,000.

The trial

At trial, the appellants were represented by the same counsel and solicitors and did not suggest that their interests in the proceeding diverged in any way.

The appellants asserted that the Sold Assets had a market value and thus pursued their claims under s 420A(1)(a) of the Act rather than under s 420A(1)(b).

While it was pleaded and argued by the appellants that the Receivers owed each of the appellants a separate duty pursuant to s 420A(1)(a) in relation to the sale of each of the Sold Assets, it was not part of the appellants’ case that the Receivers breached this duty by selling those assets as a bundle for a global amount that was then apportioned between the assets. Further, it was not part of the appellants’ case that the Receivers breached their statutory duty to Boz One by preferring the interests of Wallabah in the manner in which the proceeds of sale of the Sold Assets were allocated as between those companies. Rather, the appellants’ case was put on the basis that the manner in which the Receivers realised the Sold Assets, including their failure to engage in an open market sale process and to take other steps, resulted in the Receivers selling those assets for less than their market value.

The steps that the appellants alleged that the Receivers should have taken in discharging their duty under s 420A(1)(a) included the following:

(z) The Receivers should have obtained expert advice about the market value of the Sold Assets and the best way to sell those assets.

(aa) The Receivers should have realised the Sold Assets by an open market process rather than negotiating solely with Mr Miller.

(bb) The Receivers should have: thoroughly investigated the validity of the Lewis Charge; encouraged Mr Miller, as a director of IPS, to cause IPS to commence proceedings in the Federal Court for an order removing the Lewis Charge; and pursued the sale of Boz One’s IPS shares on the basis that the Lewis Charge was invalid or probably invalid.

(cc) The Receivers should have thoroughly investigated the existence of registered sub-leases in relation to the Slipway Land and, in the absence of registered sub-leases, the existence of equitable sub-leases.

Evidence was given for the appellants by Mr Rolfe and an expert valuer, Mark Stallman.

Mr Rolfe gave evidence that he had asked Mr Miller to come to Melbourne to sign the Lewis Charge but Miller was unwilling to do this. Mr Rolfe advised Mr Miller that if he resigned as director of IPS, Mr Rolfe would be able to sign on behalf of IPS. Mr Rolfe requested that Mr Miller provide him with a letter confirming his resignation.

Mr Stallman’s evidence related to the market value of IPS’s leasehold interests in the Slipway Land rather than the market value of either Boz One’s IPS shares or the Wallabah debt. The appellants did not adduce any expert evidence about the market value of the Sold Assets or about the best way to sell those assets.

In his report dated 10 February 2012, Mr Stallman valued IPS’s leasehold interests in the Slipway Land as at 10 December 2003 on a capitalisation of future maintainable earning basis at $730,000 (‘Stallman report’). The report stated that it was ‘a critical condition of this valuation that enforceable leases between Mirage … and [IPS] were in place at the date of valuation.’

In a supplementary report dated 14 December 2012, Mr Stallman reviewed his earlier valuation on the basis of the sale of the leasehold interest in an adjoining waterfront property on 5 February 2003 for $1,798,300 and the sale of IPS’s interests in the Slipway Land on 23 February 2006 for $2,400,000[14] (‘Stallman supplementary report’). Mr Stallman concluded that these sales ‘at least’ supported his earlier valuation of $730,000 and tended to indicate that ‘a higher value of up to $1,000,000 could be appropriate.’ In the same report, Mr Stallman also used the following phrases: ‘it is probable that a higher value would have been assessed on a Direct Comparison basis of up to $1,000,000’; ‘a Direct Comparison basis tends to support a higher value of up to $1,000,000’; and ‘a value of up to $1,000,000 would be reasonable’. By contrast, Mr Stallman’s draft of the supplementary report simply stated that the two sales supported his original valuation of $730,000[15] and could possibly support an increase, without specifying any higher amount.
[14]See [109] above.
[15]Mr Stallman’s draft report erroneously stated that he originally valued IPS’s leasehold interests at $720,000.

The Receivers objected to the admissibility of the Stallman report on the basis that it was not evidence of the truth of the facts relied upon in it. The appellant subsequently tendered the Stallman report and the Stallman supplementary report on the basis that they were expert reports as to opinion but that the facts relied upon in the reports were not being proven by Mr Stallman.[16]
[16]See Transcript of Proceedings, Boz One Pty Ltd v McLellan (Supreme Court of Victoria, SCI 2009 10160, Digby J, 6 March 2013) 240–2, 244. See also Reasons [344].

Evidence was given for the Receivers by Mr Crosbie.

The Receivers tendered in evidence the Ferrier Hodgson report and the KPMG report, not as evidence of the truth of their contents or as to the market value of the Sold Assets, but solely as evidence that the Receivers had received the reports and had relied upon them.[17] The authors of the reports did not give evidence.
[17]Reasons [499]–[500], [688], [768]–[770].

Investec did not call any witnesses.

Evidence was given for Gadens by Mr Reichenberg.

Although the appellants asserted that there was evidence of the existence of sub-leases over the Slipway Land that had been executed by IPS and Mirage, they did not produce any such sub-leases.

Decision below

The judge found that Mr Crosbie and Mr Reichenberg were credible and reliable witnesses.[18] On the other hand, he found that Mr Rolfe’s interest in the outcome of the proceeding supplied an obvious sound basis for treating with caution his evidence that sought to bolster the value of Boz One’s IPS shares.[19]
[18]Reasons [200], [334].
[19]Reasons [602].

In relation to Mr Stallman, the judge decided not to give any weight to his evidence[20] for the following reasons:
[20]Reasons [369].

(dd) The Stallman report and the Stallman supplementary report were not tendered as evidence of the truth of any facts stated in them and those facts were not otherwise proved in evidence.[21]
[21]Reasons [344]–[345].

(ee) The Stallman report set out facts contained in the Herron Todd White report dated 18 October 2001[22] rather than the results of Mr Stallman’s own investigations and he failed to ascertain actual annual rentals and occupancy levels.[23]
[22]The judge erroneously referred to the Horwath Kehoe Smith report which was dated 21 July 2003.
[23]Reasons [347]–[357]. When Mr Stallman was asked in cross-examination why he had not conducted his own investigations, he said that he considered the information in the Herron Todd White report to be fair and reasonable. See Transcript of Proceedings, Boz One Pty Ltd v McLellan (Supreme Court of Victoria, SCI 2009 10160, Digby J, 6 March 2013) 253–7.

(ff) Mr Stallman had altered the valuation in his draft supplementary report as a result of the undue influence of Mr Rolfe and was therefore not an independent expert.[24]

(gg) Mr Stallman’s evidence was highly unsatisfactory and unconvincing in its methodology.[25]

(hh) Mr Stallman was unwilling to make appropriate concessions on issues of importance and was reluctant to answer questions put to him in a direct and frank manner.[26]

[24]Reasons [363], [366], [695].

[25]Reasons [365].

[26]Reasons [368].

The judge treated the Ferrier Hodgson report[27] and the KPMG report[28] as being relevant to the reasonableness of the Receivers’ conduct, but not to the value of Boz One’s IPS shares.[29]
[27]See [100] above
[28]See [101] above.
[29]Reasons [499]–[500], [768]–[770].

The judge dealt with numerous issues relating to the Lewis Charge. Although he stated that it was not necessary for him to finally decide whether the Lewis Charge was valid,[30] he made the following relevant findings:
[30]Reasons [451].

(ii) Mr Rolfe was probably authorised by cls 2(f) and 22.1 of IPS’s constitution to execute the Lewis Charge as the sole signatory for IPS.[31]
[31]Reasons [441].

(jj) It was likely that Mr Rolfe had express authority from IPS to sign the Lewis Charge.[32]
[32]Reasons [444].

(kk) It was reasonable for the Receivers to proceed on the basis that there was unanimous assent by the two shareholders of IPS to the execution of the Lewis Charge by Mr Rolfe.[33]

(ll) Lewis Securities and Mr Rolfe did not act in concert and Lewis Securities was not a ‘person associated’ with Mr Rolfe or a ‘relevant person’ for the purposes of s 267 of the Act.[34] There was no evidence that Lewis Securities was aware of the existence of any improper or pejorative purpose at the time that the Lewis Charge was executed.[35] Even if Lewis Securities was aware of, or had reason to suspect, such a purpose, it did not follow that Lewis Securities and Mr Rolfe acted with a relevant common purpose.[36] Further, by serving a default notice upon IPS under the Lewis Charge,[37] Lewis Securities had not purported to take a step in the enforcement of its rights under the charge without the leave of the court, contrary s 267(1) of the Act.[38]

(mm) The Receivers had a reasonable basis to deal with the sale of the Sold Assets on the footing that it was more likely than not that the Lewis Charge was effective.[39]

[33]Reasons [449]. The doctrine of unanimous assent is discussed at [226]–[231] below.

[34]Reasons [423].

[35]Reasons [418]–[421].

[36]Reasons [422].

[37]See [42] above.

[38]Reasons [427]–[429]. Section 267 of the Act is set out at [232] below and is discussed at [232]–[262] below.

[39]Reasons [455].

The judge also dealt with numerous issues relating to the sub-leases of the Slipway Land. Once again, although he stated that it was not necessary for him to determine whether any executed sub-leases existed and the effectiveness of any sub-leases,[40] he made the following relevant findings:
[40]Reasons [453], [618].

(nn) It is likely that IPS did not have any executed or registered sub-leases in existence in relation to the Slipway Land or Ministerial approval for such sub-leases.[41]

(oo) At best, IPS would have had a mere informal de facto tenancy which could be terminated by Mirage on one month’s notice.[42]

(pp) Due to the state of the documentation relating to the sub-leases in 2003, IPS probably had no saleable interest in the Slipway Land.[43]

[41]Reasons [618].

[42]Reasons [557].

[43]Reasons [751].

The judge stated that it was not necessary for him to determine the amount owing under, or the enforceability of, the Wallabah debt.[44] Nevertheless, he made the following relevant findings:
[44]Reasons [453].

(qq) The Wallabah debt was substantially undocumented.[45]
[45]Reasons [516].

(rr) The Receivers had sound justification for their view that the lack of formality and clarity as to the Wallabah debt could render it unenforceable.[46]
[46]Reasons [513].

(ss) It was reasonable for the Receivers to take the approach that the balance of the Wallabah debt was $671,835 but that any amount above that was uncertain.[47]

(tt) There was a real prospect that IPS would be unable to respond to a requirement to repay the Wallabah debt.[48]

(uu) The Receivers were justified in their view that little value should be ascribed to the Wallabah debt.[49]

[47]Reasons [520].

[48]Reasons [300]–[301], [513].

[49]Reasons [513].

In relation to the market value of the Sold Assets, the judge made the following relevant findings:

(vv) The Sold Assets probably had a market value.[50]

(ww) There was no admissible, probative or persuasive evidence upon which to make a finding as to the market value of the Sold Assets at the time of their sale on 12 December 2003.[51]

[50]Reasons [10(c)], [731].

[51]Reasons [501], [731].

The judge stated that it was not necessary for him to determine whether IPS was solvent in 2003.[52] Nevertheless, he found that there was sound and ample justification for the Receivers to reach the opinion that IPS was not sufficiently solvent to pay the Wallabah debt on demand.[53]
[52]Reasons [453].
[53]Reasons [513]–[515], [522], [539].

In relation to the right of first refusal in IPS’s constitution, although the judge stated that it was not necessary for him to determine the effect of this right in cl 15 of IPS’s constitution,[54] he made the following relevant findings:
[54]Reasons [453].

(xx) If Boz One wished to sell its shares in IPS to a third party, cl 15 empowered IPM to purchase those shares at the price offered by the third party. Even if IPM did not avail itself of this right, cl 15 empowered IPM to prevent Boz One from selling the shares to a third party.[55]

(yy) A potential purchaser informed of the rights described at [133(a)] above would be unlikely to even undertake any due diligence on IPS.[56]

(zz) If the Receivers sought to sell Boz One’s IPS shares through an open market process, they exposed themselves to the risk that they may not receive a better offer than that made by Mr Miller. In those circumstances, it was likely that Mr Miller would become aware of this and cause IPM to withdraw, or reduce, its offer to purchase Boz One’s IPS shares.[57]

[55]Reasons [636].

[56]Reasons [756]–[757].

[57]Reasons [756]–[757].

In relation to the Receivers’ decision to realise the Sold Assets by direct negotiation with Mr Miller rather than an open market process, the judge made the following relevant findings:

(aaa) The Receivers reasonably considered that the sale of the Sold Assets was beset with a range of real and substantial difficulties. Those difficulties justified the Receivers’ decision not to place the Sold Assets on the open market and to accept Mr Miller’s offer of $500,000.[58]

(bbb) The Receivers were justified in their view that the sale of the Sold Assets through direct negotiation with Mr Miller was the most likely way to maximise the proceeds of the Sold Assets.[59]

[58]Reasons [201], [622], [640], [777].

[59]Reasons [757]. See also Reasons [319]–[322], [537], [622], [640], [777].

The judge concluded that the market value and saleability of the Sold Assets was negatively affected by the following circumstances:

(ccc) the existence and effect of the Lewis Charge;

(ddd) the uncertainties as to the sum and enforceability of the Wallabah debt;

(eee) the low valuations of Boz One’s IPS shares and the Wallabah debt;

(fff) the uncertainties as to the existence and enforceability of the sub-leases and sub-sub-leases relating to the Slipway Land;

(ggg) the significance of Mr Miller to the successful operation and goodwill of the slipway business;

(hhh) the effect of the right of first refusal under cl 15 of IPS’s constitution; and

(iii) the solvency of IPS.[60]

[60]Reasons [10(h)]. See also Reasons [741]–[762].

In all the circumstances, the judge was satisfied that:

(jjj) the Receivers identified and evaluated the relevant factors pertinent to the sales process with all reasonable care;[61]

(kkk) the sales process undertaken by the Receivers demonstrated that they took all reasonable care to sell the Sold Assets for not less than their market value;[62] and

(lll) the Receivers were justified in their view that the combined market value of the Sold Assets was probably well under $500,000 and therefore that the sale to Mr Miller was a satisfactory commercial outcome.[63]

[61]Reasons [775].

[62]Reasons [202], [622], [775].

[63]Reasons [513], [776]–[777].

The judge concluded that, in all the circumstances, the Receivers did not fail to take all reasonable care to sell the Sold Assets for not less than their market value — whatever that market value was at the time of sale — and thus did not breach s 420A(1) of the Act.[64]
[64]Reasons [10(g)], [736], [779].

Grounds of appeal and refusal of leave to pursue a new argument

The appellants’ notice of appeal contains 32 grounds of appeal. At the hearing of the appeal, the appellants abandoned Grounds 1, 2, 19, 20 and 32. The remaining grounds relate to the following issues:

(mmm) the validity of the Lewis Charge (Grounds 3 to 7);

(nnn) IPS’s leasehold interest in the Slipway Land (Grounds 8 to 11);

(ooo) the quantum and sale of the Wallabah debt (Grounds 23 to 29); and

(ppp) the market value and sale of Boz One’s IPS shares (Grounds 12 to 18, 21 to 22 and 30 to 31).

Each of these issues will be discussed separately below under appropriate headings. The grounds pertaining to each issue will be set out under the relevant heading.

At the hearing of the appeal, the appellants acknowledged that it would be very difficult for the appeal to succeed if they could not establish that there was probative evidence of market value of the Sold Assets and that the Lewis Charge was either invalid or probably invalid.[65]
[65]The appellants also used the formulation ‘or, at least in the circumstances at the time the [Receivers] decided to sell the [Sold Assets], [the Receivers] ought to have … treated the [Lewis Charge] as invalid’. We do not agree with this formulation: if the circumstances prevailing as at 12 December 2003 indicated that the Lewis Charge was valid or probably valid, the Receivers could not have reasonably treated it as invalid.

The appellants also sought to argue that, by selling Boz One’s IPS shares for $2 as part of a lump sum price of $500,000 for the Sold Assets, the Receivers intermingled the interests of Boz One and Wallabah and thus breached their separate duty to Boz One under s 420A(1)(a) of the Act (‘intermingling issue’). The Receivers objected to the appellants’ raising the intermingling issue on appeal because the issue was not pleaded or argued at trial and was not the subject of any ground of appeal.

We will first discuss whether the appellants should be permitted to pursue the intermingling issue. We will then briefly summarise the legal principles relating to s 420A(1)(a) before discussing the issues set out at [138] above. The evidence relating to market value of the Sold Assets will be dealt with as part of the discussion of those issues.

Ordinarily, a party will not be permitted to raise on appeal an issue which was not pursued by that party at first instance unless it raises a pure question of law (such as the construction of a statute or some other instrument) or a question that arises out of facts which are not in dispute.[66] Leave to raise a new argument on appeal usually will not be granted if evidence could have been given (including by way of cross-examination) which possibly could have prevented the argument from succeeding at trial.[67]
[66]Water Board v Moustakas (1988) 180 CLR 491, 497; Devon v Capital Finance Australia Ltd [2014] VSCA 73, [76] (‘Devon’).
[67]Coulton v Holcombe (1986) 162 CLR 1, 7–8; Whisprun Pty Ltd v Dixon (2003) 200 ALR 447, 461 [51]; Devon [2014] VSCA 73, [75].

In the present case, the appellants’ statement of claim separately pleaded the Receivers’ duty under s 420A(1) of the Act to each of Boz One and Wallabah and also separately pleaded that the Receivers had breached their duty to each company. The appellants’ further and better particulars of the alleged breaches of duty included allegations that the Receivers had not taken reasonable steps to:

(q) Consider alternatives to selling [Boz One’s IPS shares] and the Wallabah [debt] to Miller.
(r) Identify alternative courses open in relation to the sale of each of the [Boz One’s IPS shares] and the Wallabah [debt].
(s)Conduct a cost/benefit or any other analysis of each of the courses open in relation to the sale of each of [Boz One’s IPS shares] and the Wallabah [debt].

The appellants did not raise the intermingling issue in their submissions. The closest they got to doing so were statements in paras 5 and 6 of their written submissions that the Receivers owed separate duties to the appellants to exercise ‘completely separate’ powers of sale in relation to the Sold Assets and that the Receivers had not conducted any analysis of the markets for either of these assets.

It is not surprising that the appellants did not pursue the intermingling issue at trial, as it would have caused their interests to diverge and they would have required separate legal representation. This is because the value of Boz One’s IPS shares was inversely related to the value of the Wallabah debt: the higher the debt that IPS owed to Wallabah, the lower the value of its net assets and shares would have been.

At trial, the appellants did not put their case for breach of duty on the basis that the interests of one of the appellants were subordinated to the interests of the other by the relative sale prices for each of the Sold Assets. Rather, the appellants put their case on the basis that the total consideration received for the Sold Assets was below the total market value of those assets because of the manner in which the Receivers realised those assets. The appellants’ key allegations against the Receivers were that they should have treated the Lewis Charge as invalid or probably invalid and that they should have attempted to sell the Sold Assets on the open market before negotiating their sale to Mr Miller.

In these circumstances, it is not surprising that the judge did not deal with the intermingling issue in his judgment.

At the hearing of the appeal, the appellants did not apply to amend the notice of appeal to add a ground dealing with the intermingling issue, contending instead that the issue was implicit in the existing grounds. We do not agree. As the judge did not deal with the intermingling issue, none of the grounds of appeal, no matter how generally they are expressed, are capable of encompassing an error by the judge about that issue.

In our opinion, as the appellants chose not to rely on the intermingling issue at trial, they should not be given leave to pursue it on the appeal. This is because the Receivers were not given an opportunity to deal with the issue at trial. Had they been given that opportunity, they could have adduced evidence — including expert evidence — about the interrelationship of the Sold Assets and the impracticality of attempting to sell them separately. As the intermingling issue does not involve a pure question of law, it cannot be said that the Receivers would not be prejudiced if the appellants were given leave to pursue it on the appeal.

Furthermore, the question of whether the sale by receivers of assets belonging to a group of companies which have common owners, directors or other links in a single transaction to a single purchaser constitutes a breach of s 420A(1) of the Act does not lend itself to a straight forward answer. Rather, the question involves complex legal issues which require a close analysis of the facts of each case.[68] As the manner in which the appellants conducted their case at trial did not require the judge to deal with these issues, this Court does not have the benefit of any analysis by him on those issues.
[68]Cf Irani v St George Bank Ltd [No 2] [2005] VSC 403, [142]–[170] (‘Irani’); Irani v St George Bank Ltd [2007] VSCA 33, [35]–[40].

For the above reasons, we have decided that the appellants should not be given leave to pursue the intermingling issue on the appeal.

Legal principles relevant to s 420A(1) of the Act

A power of sale is given to the mortgagee entirely for its own benefit, the purpose of the power being to enable the mortgagee to realise the property to satisfy its claim and to return whatever balance may remain to the mortgagor.[69] Similarly, a receiver appointed out of court is not appointed for the benefit of the company in receivership but for the purpose of realising the security held by the mortgagee or chargee.[70]
[69]Pendlebury v The Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676, 699 (‘Pendlebury’).
[70]In re B Johnson & Co (Builders) Ld [1955] 1 Ch 634, 644–5 (‘Johnson’). See also Visbord v Commissioner of Taxation(Cth) (1943) 68 CLR 354, 376 (‘Visbord’).

Notwithstanding the observations at [348] above, we will consider whether the judge erred in concluding that the appellants failed to adduce probative evidence of market value of Boz One’s IPS shares.

The only expert who gave valuation evidence at trial was Mr Stallman. As stated at [126] above, the judge did not give any weight to Mr Stallman’s evidence because:

(mmmmmm) The Stallman report and the Stallman supplementary report were not tendered as evidence of the truth of any facts stated in them and those facts were not otherwise proved in evidence.

(nnnnnn) The Stallman report set out facts contained in the Herron Todd White report dated 18 October 2001 rather than the results of Mr Stallman’s own investigations and he failed to ascertain actual annual rentals and occupancy levels.

(oooooo) Mr Stallman had altered the valuation in his draft supplementary report as a result of the undue influence of Mr Rolfe and was therefore not an independent expert.

(pppppp) Mr Stallman’s evidence was highly unsatisfactory and unconvincing in its methodology.

(qqqqqq) Mr Stallman was unwilling to make appropriate concessions on issues of importance and was reluctant to answer questions put to him in a direct and frank manner.

In our opinion, it was open to the judge to assess Mr Stallman’s evidence as carrying no probative value for the reasons given by him. The appellants have not demonstrated that the judge’s assessment involved any error.

Even if the judge had been wrong to not give any weight to Mr Stallman’s evidence, Mr Stallman’s valuation was not of the market value of Boz One’s IPS shares but rather of IPS’s leasehold interest in the Slipway Land. The value of that interest, as an asset, is not equivalent to the value of the shares in IPS.

Broadly speaking, the shares in IPS could have been valued either on the net tangible assets basis or on the capitalisation of future maintainable earnings basis. Where the former basis is used, all of IPS’s tangible assets and liabilities must be taken into account. Once the amount of net tangible assets is ascertained, the value of Boz One’s IPS shares could be determined by dividing that amount by two to reflect Boz One’s 50 per cent shareholding.

The discussion at [294] to [304] above about the sub-leases over the Slipway Land indicates that there was uncertainty about the nature and term of any leasehold interest that IPS had over the Slipway Land. That uncertainty is not reflected in Mr Stallman’s valuation of those interests. However, even if Mr Stallman’s valuation of the leasehold interest is treated as accurate, in the absence of a consideration of all of IPS’s other assets and its liabilities, Mr Stallman’s valuation does not constitute evidence of the market value of the shares in IPS or Boz One’s 50 per cent shareholding.

Our brief comments on the other items set out at [347] above — apart from the fact that they ignore the Lewis Charge — are as follows:

(rrrrrr) The Herron Todd White report dated 18 October 2001 valued IPS’s leasehold interest in the Slipway Land rather than Boz One’s IPS shares. Moreover, the report stated that no reliance should be placed on the valuation report ‘unless or until legal opinion has been obtained with regard to the [sub-leases] with specific reference to security of tenure as it relates to [IPS].’

(ssssss) Mr Crosbie’s letter dated 17 March 2003 to Investec did not contain an opinion on the value of Boz One’s IPS shares. The letter merely reported what appeared on the face of IPS’s financial accounts. In the same letter, Mr Crosbie stated that he had sought updated financial information on IPS. As for Mr Crosbie’s opinion that the shares were worth a minimum of $150,000, Ms McMaster’s handwritten notes indicate that this ‘understanding’ was conditional on IPS being a ‘clean co’.[262] The notes suggest that this may be a reference to possible irregularities with the Lewis Charge or the Wallabah debt. It must also be remembered that the figure of $172,995 that was communicated to Mr Smith on 5 September 2003 was part of the Receivers’ negotiations with Mr Miller in which they sought to maximise the value of the shares. As such, the figure cannot meaningfully be regarded as valuation evidence.
[262]See [75] above.

(tttttt) The report of Horwath Kehoe Smith did not constitute probative valuation evidence because no witness was called to give evidence of the opinion in the report.

(uuuuuu) Investec’s internal report dated 14 October 2003 expressly acknowledged that there were serious obstacles — including the Lewis Charge — to reaching a ‘cash result’ for the shares.[263]

(vvvvvv) In relation to the Ferrier Hodgson and KPMG reports, we accept that they were in the nature of indicative ‘desktop’ valuations which were prepared in the light of the instructions that the Receivers provided to the valuers. However, for the reasons discussed at [391] to [392] below, the Receivers acted reasonably in taking them into account in deciding to sell the Sold Assets to Mr Miller for $500,000.

[263]See [92] above.

The appellants also relied on the fact that on 23 February 2006, the Mirage group purchased the sub-leases for the Slipway Land for $2,400,000. They relied on Sablebrook for the proposition that a subsequent sale can be taken into account in assessing the market value of an asset.[264] The Receivers submitted that this fact had no probative value because no evidence was adduced about the circumstances that prevailed on that date compared to the circumstances prevailing on 12 December 2003 when the Sold Assets were sold. The Receivers submitted that a key change in circumstances was that the sub-leases had been signed prior to 23 February 2006. The appellants submitted that the sale to Mirage had strong probative value in the absence of evidence from the Receivers of any material changes between 23 February 2006 and 12 December 2003.
[264]Sablebrook [2008] QSC 242, [123]. See also [166] above.

The appellants’ reliance on the sale of the sub-leases to the Mirage group is misconceived. While it could be argued that the sale price is indicative of the value of one of IPS’s assets, it is not indicative of the value of the shares in IPS. Further, the sale price could only be of relevance to the value of the shares in IPS as at 12 December 2003 if there were no material differences in IPS’s circumstances between that date and 23 February 2006. Contrary to the appellants’ submission, as they sought to rely on the sale to the Mirage group as evidence of the value of Boz One’s IPS shares, the onus was on them rather than the Receivers to persuade the judge that there were no material differences in IPS’s circumstances.

It follows that, even if the Lewis Charge is put to one side, the judge was correct in deciding that the appellants had failed to adduce probative evidence of market value of Boz One’s IPS shares. Consistent with the appellants’ acknowledgement that it would be very difficult for the appeal to succeed if they could not establish that there was probative evidence of market value of the Sold Assets,[265] it also follows that the appeal must fail.[266]

The Receivers’ failure to sell the Sold Assets on the open market

[265]See [140] above.

[266]As appears from [369]–[375] below, our conclusion that the Receivers did not breach their duty under s 420A(1)(a) of the Act is not dependent on any individual finding, such as that the Lewis Charge was probably valid or that there was no probative evidence of market value of the Sold Assets.

The appellants submitted that, in order to comply with their duty under s 420A(1)(a) of the Act to take all reasonable care to sell the Sold Assets at not less than their market value, the Receivers were required to offer the assets for sale on the open market. They contended that, by only negotiating with Mr Miller for the sale of the Sold Assets, the Receivers breached their duty under the section.

The appellants also submitted that, as Mr Crosbie did not have prior experience in selling shares in a private company and loans, the Receivers should have engaged experts who were familiar with the markets for such assets to assist in the sale process.

Although the appellants made the above submissions in relation to both Boz One’s IPS shares and the Wallabah debt, the submissions were primarily directed to the sale of Boz One’s IPS shares. We will discuss these submissions here in relation to Boz One’s IPS shares. The Wallabah debt was discussed at [308] to [326] above.

The Receivers submitted that the following four matters rendered a sale of Boz One’s IPS shares on the open market unsuitable:

(wwwwww) the Lewis Charge, which was registered with ASIC;

(xxxxxx) the absence of executed and registered sub-leases over the Slipway Land;

(yyyyyy) the provisions of IPS’s constitution discussed at [331] to [343] above, particularly the right of first refusal; and

(zzzzzz) the uncertainty about the quantum and terms of the Wallabah debt.

The Receivers contended that a purchaser who conducted even a rudimentary due diligence in relation to Boz One’s IPS shares would become aware of each of the four matters set out above. They argued that each of the four matters provided a strong disincentive for any purchaser to make an offer for Boz One’s IPS shares. In relation to the right of first refusal, the Receivers contended that a purchaser other than Mr Miller would be reluctant to make an offer for Boz One’s IPS shares because Mr Miller (acting through IPM) had a right under cl 15 of IPS’s constitution to prevent the purchaser from acquiring the shares.

According to the Receivers, the four matters in combination created a real risk that, if Boz One’s IPS shares were offered for sale in the open market, they would not attract any bids, or only nominal bids, from potential purchasers. This was said to be because the Lewis Charge and the Wallabah debt would be seen as negating any shareholder equity in IPS and the absence of executed and registered sub-leases would be seen as undermining the security of tenure of the slipway business and its future income stream. The Receivers submitted that although legal proceedings by IPS might potentially resolve issues relating to the validity of the Lewis Charge, the quantum and terms of the Wallabah debt and the nature of IPS’s leasehold interest in the Slipway Land, the existence or prospect of such litigation would not be attractive to a potential purchaser.

The Receivers submitted that the risk created by the four matters that an offer to sell Boz One’s IPS shares in the open market would not attract any bids — or only nominal bids — from potential purchasers, made an open market sale inappropriate. This was said to be because, in either case, Mr Miller would inevitably learn of the outcome of the open market process and he would be placed in a stronger bargaining position than he would have been had that process not been adopted. The Receivers contended that if no bids were received Mr Miller was likely to make a nominal offer for Boz One’s IPS shares, and if only nominal bids were made he was likely to match the highest of the nominal bids.

The Receivers argued that the four matters created a market environment in which, realistically, Boz One’s IPS shares had value only for Mr Miller. They contended that, in these circumstances, the best way to maximise the sale proceeds of the shares was to negotiate with Mr Miller privately while intimating that, in the absence of a sale to him, an open market sale process would be undertaken. According to the Receivers, an open market sale process prior to negotiations with Mr Miller carried a significant risk of substantially diminishing the proceeds of sale.

The appellants submitted that the four matters, whether considered individually or collectively, did not render an open market sale process inappropriate. They argued that the four matters would not deter potential purchasers from bidding for Boz One’s IPS shares. Rather, so it was said, potential purchasers would conduct their own due diligence on those matters and use the results of the due diligence to determine the extent of any discount that they factor into the amount they offered for the shares.

We agree with the submissions of the Receivers, which accord with ordinary commercial experience and common sense. Legal and commercial uncertainty about matters that are fundamental to the management or viability of a business and the possibility of litigation over these matters inevitably affect the value of shares in that business.

In the present case the Receivers faced legal and commercial uncertainty about:

(aaaaaaa) the ability of a potential purchaser of Boz One’s 50 per cent shareholding in IPS to acquire those shares and, if the shares were acquired, to have any role in the management of IPS;

(bbbbbbb) the sub-leases pursuant to which IPS occupied the Slipway Land;

(ccccccc) the sub-sub-leases pursuant to which IPS collected rent in relation to the Slipway Land;

(ddddddd) the debts owed by IPS to Wallabah and Lewis Securities; and

(eeeeeee) the validity of the Lewis Charge.

Even if, contrary to our conclusion at [263] above, it could not be said that the Lewis Charge was probably valid, the above legal and commercial uncertainty gave rise to the potential for litigation by IPS to determine the validity of the Lewis Charge, to resolve issues relating to the sub-leases of the Slipway Land and to clarify the quantum and terms of the Wallabah debt. An unfavourable outcome for IPS on any one of these issues could significantly affect or even destroy its financial viability.

The principles summarised at [153] to [177] above make clear that the scope of the duty in s 420A(1)(a) of the Act is not defined by prescriptive steps which always must be undertaken by a controller when exercising a power of sale. Rather, the scope of the duty is defined by a general obligation to ‘take all reasonable care’. As the authorities illustrate, what must be done to comply with this general obligation will depend on the circumstances of each case, including the nature of the assets being sold and the circumstances of the chargor. While the failure to take a particular step — such as an open market sale process — may constitute a breach of s 420A(1)(a) in some cases, the failure may not constitute a breach in others.

In deciding whether a controller’s failure to take a particular step constitutes a breach of s 420A(1)(a), that step should not be considered in isolation. Rather, the court should consider the controller’s conduct as a whole in the context in which the controller was required to make decisions about which steps to take and which steps not to take. The controller’s conduct must be looked at holistically by reference to the dynamic circumstances that the controller faced at the relevant time.

In the present case, the Receivers were placed in an extraordinary difficult position by the convergence of several interdependent factors which adversely affected the value of the Sold Assets. In these circumstances, the Receivers were required to adopt an integrated legal and commercial approach to these factors rather than addressing each of them in isolation. In that context, the Receivers were justified in concluding that an open market sale process had greater potential to create legal and commercial obstacles to achieving a sale price that was not less than the market value of the Sold Assets than a private sale to Mr Miller.

The Receivers were also justified in concluding that, if direct negotiations with Mr Miller had not resulted in an acceptable offer, they would still have been able to pursue an open market sale process. In order to provide an incentive for Mr Miller to offer his best price so as to avoid the competition of an open market sale process, the Receivers were prudent in foreshadowing that such a process may need to be undertaken. If, as suggested by the appellants, an open market sale process had preceded negotiations with Mr Miller and had resulted in no, or only nominal, offers for the purchase of the Sold Assets, Mr Miller would have been placed in a strong position to acquire them for a nominal amount.

In all the circumstances, even if it could not be said that the Lewis Charge was probably valid, the course adopted by the Receivers minimised the legal and commercial risks of selling the Sold Assets for less than their market value. Put another way, that course maximised the prospects of selling the Sold Assets for not less than their market value. Legally and commercially, it was the most prudent course for the Receivers to take. As such, the Receivers took all reasonable care to sell the Sold Assets for not less than their market value.

The facts of the present case are not comparable to other cases. Accordingly, detailed analyses of the facts and findings of other cases are unhelpful.[267]
[267]For the reasons set out at [284] above, Sablebrook — upon which the appellants strongly relied — is distinguishable.

It follows from the above that the Receivers’ failure to sell the Sold Assets on the open market did not constitute a want of reasonable care on their part.

The Receivers’ failure to take other steps in selling the Sold Assets

The appellants relied upon a statement in O’Donovan’s Receivers and Administrators[268] of the steps that should be taken by a receiver as a benchmark against which to measure the Receivers’ compliance with s 420A(1)(a). Those steps were as follows:
[268]James O’Donovan, Thomson Reuters, Company Receivers and Administrators (as at February 2015).

(fffffff) identify the true nature of the mortgaged property and the market or markets in which it could be sold;

(ggggggg) engage appropriate experts who are familiar with the mortgaged property and the markets in which it could be sold;

(hhhhhhh) engage experts to conduct the sale;

(iiiiiii) ensure that the experts complete their tasks in accordance with the receiver’s instructions;

(jjjjjjj) ensure the property is properly advertised in a way that draws attention to its attractive features;

(kkkkkkk) sell by public auction, if possible, or ensure all offers made during a tender process or private sale are thoroughly investigated and considered;

(lllllll) refrain from disclosing details of the amount due to the mortgagee or the reserve price so as to compromise the market; and

(mmmmmmm) consult with the mortgagor and other interested parties if difficult issues arise in relation to the sale.[269]

[269]James O’Donovan, Thomson Reuters, Company Receivers and Administrators (as at February 2015) [11.3322].

According to the appellants, the Receivers did not undertake any of the above steps. Within the framework of the principle set out at [372] above, our comments on each of the steps are set out below.

Step (a). The Receivers understood the true nature of the Sold Assets and also understood that their value was affected by unique circumstances relating to IPS that are listed at [369] above. As discussed at [284(a)] above, the market for these assets did not have the distinct and well-established features of the real estate market. Moreover, the value of the Sold Assets was interdependent in that the quantum and enforceability of the Wallabah debt affected the net assets of IPS and therefore the value of Boz One’s IPS shares, and the financial position of IPS and its ability to repay the Wallabah debt affected the value of that debt. Indeed, as asserted by Lyon Smith, a demand for repayment of the Wallabah debt would affect IPS’s solvency and would result in the company being placed into voluntary administration.[270] In these circumstances, it would have been unrealistic to treat Boz One’s IPS shares and the Wallabah debt as assets which operated in independent markets and which could be sold independently of each other. For the reasons discussed at [362]–[377] above, the Receivers acted reasonably in assessing that the best way to maximise value for the assets was to sell them as a bundle to Mr Miller.
[270]See [86] above.

Steps (b), (c) and (d). It is not in dispute that the Receivers did not engage experts to advise it on the Sold Assets and the markets for those assets, or to conduct a sale of the assets. As we have already stated, the value of the Sold Assets depended on the unique circumstances of IPS with which the Receivers were familiar. It is to be doubted whether any expert existed who had relevant expertise and experience to properly assist the Receivers without duplicating the detailed examination of IPS’s circumstances that had been undertaken by the Receivers. At the hearing of the appeal, when counsel for the appellants was pressed to identify a particular type of expert who would be suitable, he was unable to assist the Court beyond noting that certain business brokers would regularly deal with the sale of assets similar to those in the present case.

The appellants submitted that the Receivers would have achieved a higher sale price for Boz One’s IPS shares if they had ‘appointed a local agent and put [the shares] on the open market with a proper marketing campaign’. The appellants also contended that Ferrier Hodgson and KPMG lacked ‘local knowledge or expertise in the sale of such assets.’ The appellants relied upon Jovanovic v Commonwealth Bank of Australia[271] and the related case of Fortson Pty Ltd v Commonwealth Bank of Australia.[272]
[271](2004) 87 SASR 570, 599 [117].
[272](2008) 100 SASR 162, 171–2 [30].

The appellants’ submissions fail to take into account the crucial difference between the sale of land — which has a distinct and well-established market in respect of which local knowledge by a real estate agent is very important[273] — and the sale of shares in a private company which is beset with multiple problems for which local knowledge would not provide any material assistance. The facts in Jovanovic and Fortson are far removed from the present case, as they involved the sale of land by a mortgagee in a transaction that was found not to be at arm’s length because (among other reasons) the mortgagee provided finance for more than 75 per cent of the purchase price.
[273]See [176] above.

It follows that the Receivers’ failure to undertake steps (b), (c) and (d) did not constitute a failure to take all reasonable care to sell the Sold Assets for not less than their market value.

Steps (e) and (f). It is common ground that the Receivers did not advertise the Sold Assets or sell them by public auction. For the reasons set out at [362] to [377] above, the Receivers properly assessed that a sale by public auction would involve significant risks that no, or only nominal, prices might be achieved for the Sold Assets. Accordingly, the Receivers’ failure to undertake steps (e) and (f) did not constitute a failure to take all reasonable care to sell the Sold Assets for not less than their market value.

Step (g). It is common ground that, at the meeting on 9 October 2003 Investec disclosed to Mr Miller — in the presence of Mr Crosbie — that the total indebtedness of Boz One and Wallabah to Investec was approximately $1,000,000 and stated that Investec would accept $800,000 by way of settlement.[274] The appellants submitted that these statements adversely affected the Receivers’ ability to negotiate with Mr Miller the best price for the Sold Assets. In our opinion, this submission is speculative. Based on the Receivers’ prior communications with Mr Miller and Mr Smith, the amount of $800,000 was well in excess of any offer that Mr Miller could be expected to make. The facts in the present case are far removed from those in Mike Gaffikin[275] where the totality of the mortgagee’s conduct — including inappropriate disclosures of information to the ultimate purchaser — sacrificed the mortgagor’s interests.[276] Even if Investec’s conduct can be attributed to the Receivers, viewed in the context of all the prevailing circumstances, that conduct did not constitute a failure to take all reasonable care to sell the Sold Assets for not less than their market value.
[274]See [90] above.
[275](1995) 122 FLR 294.
[276]Ibid 306.

Step (h). At trial, there was a conflict in the evidence as to the efforts the Receivers made to obtain information from Mr Rolfe and the extent to which Mr Rolfe cooperated with the Receivers. The judge found that the Receivers made appropriate enquiries of Mr Rolfe and that Mr Rolfe failed to cooperate with the Receivers. On the appeal, the appellants abandoned Grounds 19 and 20 which sought to impugn these findings. Accordingly, it is not necessary to discuss step (h).

The appellants submitted that the Receivers had not taken reasonable steps to identify the assets of IPS and to ascertain its financial status. In particular, they contended that the Receivers should have made their own enquiries rather than relying on the information that was provided to them by IPS’s accountants, Mr Miller and Mr Smith, and that the Receivers should have physically inspected the Slipway Land and the buildings and plant and equipment that formed part of the slipway business.

This submission fails to take into account that the Receivers were appointed as receivers and managers of Boz One and Wallabah but not of IPS and therefore had no control over IPS. The Receivers controlled Boz One which was a 50 per cent shareholder in IPS without board representation. Apart from information they could seek from IPS as a shareholder, they were dependent on Mr Miller and his advisors and Mr Rolfe for information regarding IPS. There was no evidence that Mr Miller or his advisors provided false or misleading information to the Receivers. There was evidence that Mr Rolfe failed to cooperate with the Receivers.

In any event, even if it were accepted that the Receivers failed to make all appropriate enquiries in relation to IPS, having regard to our conclusions on the key issues of the Lewis Charge, the sub-leases over the Slipway Land, the Wallabah debt, the evidence of market value of the Sold Assets and the sale process relating to those assets, any such failure could not assist the appellants. This is because the Receivers’ conduct, viewed as a whole, did not breach the duty in s 420A(1)(a) of the Act.

The appellants also submitted that the Receivers failed to take reasonable steps to obtain valuations of Boz One’s IPS shares from Ferrier Hodgson and KPMG on proper instructions including the accurate financial status of IPS. The appellants contended that the Receivers’ instructions to Ferrier Hodgson and KPMG were unduly pessimistic and designed to justify the proposed sale to Mr Miller and that they affected the valuation advice that those firms provided to the Receivers. The appellants also criticised Ferrier Hodgson and KPMG for not considering the market value of the leasehold improvements to the Slipway Land.

Once again, this submission cannot be accepted. The instructions that the Receivers provided to Ferrier Hodgson and KPMG were generally balanced and accurate. Even if the Receivers’ comments on the nature of IPS’s leasehold interest in the Slipway Land[277] are construed as being too pessimistic, they did not adversely affect the valuations because the valuers assumed that IPS would continue to receive rental income from the Slipway Land. It was not necessary for the valuers to value any of the assets because they adopted the capitalisation of future maintainable earnings basis of valuation. In any event, even if there were deficiencies in the Receivers’ instructions and the advice provided by Ferrier Hodgson and KPMG, having regard to the conclusions that we referred to at [390] above, these matters would not assist the appellants.
[277]See [98] above.

The appellants also submitted that the Receivers breached their duty under s 420A(1)(a) of the Act because Mr Crosbie lacked experience in the sale of private company shares and loans. This lack of experience was not disputed. However, Mr Crosbie received advice from Gadens, Ferrier Hodgson and KPMG and had the ability to consult his co-receiver, Mr McLellan, other staff of their firm and officers of Investec. In any event, in the light of the conclusions that we have reached about the reasonableness of the sale of the Sold Assets to Mr Miller, Mr Crosbie’s inexperience cannot in itself constitute a breach of the duty in s 420A(1)(a) of the Act.

The appellants submitted with considerable emphasis that, on any view, Boz One’s shares in IPS had a market value of more than $2 and that by selling them for that amount, the Receivers breached s 420A(1)(a) of the Act. This submission is misconceived. The Receivers sold Boz One’s IPS shares to Mr Miller as part of the total consideration of $500,00 for the Sold Assets. As discussed at [143] to [152] above, the appellants are precluded from pursuing the intermingling issue on the appeal. In any event, having regard to our conclusion that the Lewis Charge was probably valid, the Receivers acted reasonably in attributing $2 to the value of Boz One’s IPS shares. The attribution of that value was in accordance with the advice of Ferrier Hodgson and KPMG that the shares had no value if the Lewis Charge was valid. It was also in accordance with the acknowledgment made by the appellants that it would be very difficult for the appeal to succeed if they could not establish that the Lewis Charge was either invalid or probably invalid.[278]

Conclusion on the grounds of appeal relating to Boz One’s IPS shares

[278]See [140] above.

At [358] above, we concluded that the appellants had failed to adduce probative evidence of market value of Boz One’s IPS shares. At [377] above, we concluded that the Receivers’ failure to sell the Sold Assets on the open market did not constitute a want of reasonable care on their part. At [380] to [387] above, we concluded that the Receivers’ failure to take some of the steps set out in O’Donovan’s Receivers and Administrators[279] did not mean that they failed to take all reasonable care in selling the Sold Assets for not less than their market value.
[279]James O’Donovan, Thomson Reuters, Company Receivers and Administrators (as at February 2015) [11.3322].

It follows that we are not satisfied that the judge made any of the errors set out in Grounds 12, 13, 14, 17 and 22(a), (b), (c),[280] (d), (e), (f) and (g), of the appellants’ notice of appeal.[281]
[280]Ground 22(c) was addressed in the context of IPS’s leasehold interest in the Slipway Land.
[281]See [328] above.

Grounds 15, 16 and 18 relate to Mr Miller. The appellants contended that the judge should not have found that Mr Miller had effective commercial control over the slipway business, its associated goodwill and its leasehold interest in the Slipway Land (Ground 15). The appellants also contended that the judge should have found:

(nnnnnnn) that Mr Miller did not control the value of the slipway business and was not a significant impediment or risk to a sale of Boz One’s IPS shares in the open market (Ground 16); and

(ooooooo) that Mr Miller was likely to have participated in the sale of Boz One’s IPS shares in the open market (Ground 18).

Grounds 15, 16 and 18 must be rejected.

In relation to Ground 15, it was open to the judge on the evidence to find that Mr Miller had effective commercial control over the slipway business and its goodwill and the leasehold interest in the Slipway Land. The evidence that supported these findings included the following:

(ppppppp) Mr Miller established the slipway business well before IPS took over the business upon its incorporation on 23 March 2000.

(qqqqqqq) Mr Miller conducted the day to day management of the slipway business even when he was not a director of IPS. He was ‘on the ground’ at Port Douglas whereas Mr Rolfe resided in Victoria.

(rrrrrrr) After 11 June 2003, when Mr Rolfe was removed as a director of IPS, Mr Miller and his wife were the directors of the company and controlled its affairs. After that time, Boz One was not able to appoint a director or to secure the passage of any resolution of the company without Mr Miller’s cooperation.

(sssssss) Mr Miller negotiated the sub-lease arrangements with Mirage. After 11 March 2003, when Boz One went into receivership, the sub-leases could not be finalised and registered without Mr Miller’s cooperation. This is because it was a condition of Mirage’s execution of the sub-leases that Mr Miller provide a personal guarantee. A decision by Mr Miller to decline to provide a personal guarantee or to delay such a guarantee would prevent legal sub-leases coming into existence, or delay the timing of such sub-leases.

In relation to Ground 16, for the reasons set out at [341] to [342] and [362] to [377] above, Mr Miller was an important component in the value of the slipway business and an open market sale process involved a risk that no, or only nominal, bids may be received for Boz One’s IPS shares.

In relation to Ground 18, there was no evidence in support of the appellants’ assertion that Mr Miller was likely to have participated in the sale of Boz One’s IPS shares in the open market. This assertion is not only speculative but also defies common sense. By virtue of the right of first refusal in cl 15 of IPS’s constitution, Mr Miller’s company (IPM) could purchase Boz One’s IPS shares by simply matching the highest offer that was made. If no, or only nominal, offers were made, Mr Miller could buy the shares for a nominal amount. In those circumstances, by making any offer for the shares, Mr Miller would be taking a risk that he would be bidding against himself. He was better off standing aside from any public offering of the shares and awaiting the outcome.

Ground 21 alleges that the judge should have found that the Receivers failed to take reasonable steps to determine a reserve price for Boz One’s IPS shares or devise a negotiation strategy prior to meeting with Mr Miller and Lewis Securities on 9 October 2003. This ground cannot be accepted. For the reasons discussed at [341] to [342], [362] to [377], [380] and [401] above, the Receivers acted reasonably in determining that the best way to maximise the value of the Sold Assets was to negotiate directly with Mr Miller. It is clear from the evidence that the Receivers’ strategy was to seek to obtain the highest price that Mr Miller was willing to pay for those assets. At the meeting on 9 October 2003, Mr Miller stated that the maximum price that he was able to offer, using funds to be borrowed from Lewis Securities, was $500,000. That became the sale price for the Sold Assets.

Grounds 30 and 31 deal with the appellants’ alleged loss. As we have concluded that the judge was correct in finding that the Receivers had not breached their duty in s 420A(1)(a) of the Act, it is not necessary for us to discuss Grounds 30 and 31. Ground 32, which also dealt with remedies, was abandoned by the appellants.

Conclusion

For the reasons set out above, the judge was right to conclude that the Receivers did not breach their duty under s 420A(1) of the Act to take all reasonable care to sell the Sold Assets for not less than their market value. The appeal must be dismissed.

As the appeal will be dismissed, it is not necessary for us to consider the contingent appeal or the contingent cross-appeal.[282]
[282]See [11] above.

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[2015] VSCA 68

23 April 2015