Boz One Pty Ltd v McLellan

IN THE SUPREME COURT OF VICTORIA AT MELBOURNE

Not Restricted

COMMON LAW DIVISION

No. S CI 2009 10160

BETWEEN

BOZ ONE PTY LTD (ACN 089 415 430) and WALLABAH PTY LTD (ACN 007 096 531) (in its capacity as trustee of the James Rolfe Family Trust)	Plaintiffs
And
ANDREW JAMES McLELLAN, CRAIG DAVID CROSBIE and INVESTEC BANK (AUSTRALIA) LIMITED (ACN 071 292 594)	Defendants
and
GADENS LAWYERS	Third Party

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JUDGE:	DIGBY J
WHERE HELD:	Melbourne
DATE OF HEARING:	4-8, 12-14, 18, 25 and 27 March 2013
DATE OF JUDGMENT:	9 May 2014
CASE MAY BE CITED AS:	Boz One Pty Ltd & Anor v McLellan & Ors
MEDIUM NEUTRAL CITATION:	[2014] VSC 208

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REAL PROPERTY - Mortgages – Mortgagee’s duty – Whether all reasonable steps taken to obtain market value – Duty and breach under s 420A Corporations Act 2001 (Cth) – Whether appropriate remedy damages or taking of accounts.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr A Sandbach with Mr D Clough	Goldsmiths Lawyers
For the First and Second Defendants	Mr G Dalton	Moray & Agnew
For the Third Defendant	Mr H N G Austin	Arnold Bloch Liebler
For the Third Party	Mr S Maiden	Colin Biggers & Paisley

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

General background..................................................................................................................... 1
Summary of relief sought............................................................................................................ 2
Overview of the key issues......................................................................................................... 2

Summary of overall conclusions..................................................................................................... 4

James Geoffrey Rolfe......................................................................................................................... 7

Background to Proceedings............................................................................................................. 7

The Glodale and First Melbourne Capital Pty Ltd Loans...................................................... 7
The IPS Shares................................................................................................................................ 8
The Wallabah Debt....................................................................................................................... 9
The Lewis Loan and the Lewis Charge................................................................................... 11
Appointment of the Receivers and Sale of the Assets........................................................... 13

Issues in these Proceedings............................................................................................................ 17

Principal issues – plaintiffs-defendants.................................................................................. 17
Subset issues – between plaintiffs and the first, second and arguably the third defendants 18

The Pleadings................................................................................................................................... 20

The plaintiffs’ contentions......................................................................................................... 20
Plaintiffs’ Further Particulars of Breach (at 27 February 2012)................................... 21
Plaintiffs’ asserted value of IPS shares and Wallabah debt........................................ 23

The Receivers’ Defence.............................................................................................................. 24
Investec’s defence........................................................................................................................ 28

Summary of the significant evidence........................................................................................... 33

A detailed exposure of the relevant facts is necessary.............................................................. 33

Crosbie’s evidence in chief........................................................................................................ 33
Meeting on 9 October 2003............................................................................................... 41
Valuation of the Assets..................................................................................................... 44

Crosbie’s evidence under cross-examination......................................................................... 48
Valuation of the Assets..................................................................................................... 50
Litigation to remove the Lewis Charge.......................................................................... 54
The Status of the Leases and Subleases......................................................................... 55
Receivers’ meeting with Gadens on 25 June 2003........................................................ 56
Meeting on 9 October 2003............................................................................................... 58
Re-Examination of Crosbie.............................................................................................. 72
Conclusion as to Crosbie’s Evidence.............................................................................. 75

DavidReichenberg – legal practitioner.................................................................................. 76
Evidence in Chief............................................................................................................... 76
Cross-examination of Reichenberg................................................................................. 82
Leases...................................................................................................................................... ..... 83
Value of the Wharf properties......................................................................................... 92
Valuations of the IPS shares............................................................................................. 93
Meeting of 9 October 2003................................................................................................ 95
The valuations.................................................................................................................. 107
Threat of voluntary administration of IPS................................................................... 111
Cross-examination by Counsel for Investec................................................................ 116
Re-examination by Counsel for Gadens...................................................................... 117

Expert evidence in relation to valuation issues – damages............................................... 118
Cross-examination in relation to the December 2012 draft report........................... 125

The parties’ principal submissions............................................................................................. 134

The defendants’ duty under s 420A(1) of the Act................................................................. 134
The plaintiffs’ argument................................................................................................. 134

Investec is a “controller”............................................................................................................... 137

Investec’s Liability for the Conduct of the Receivers................................................. 137
Summary/Chronology of the Sale Process................................................................. 145

The Lewis Charge..................................................................................................................... 157
Invalidity under s 267 of the Act................................................................................... 157
Execution of the Lewis Charge by Rolfe...................................................................... 166
Conclusion........................................................................................................................ 169
Unanimous assent........................................................................................................... 170
Extent to which the many issues raised as relevant to the conduct of the defendants and the third party require determination.............................................................................. 172

Criticisms of the Defendants’ Conduct concerning the Lewis Charge.............................. 173
The defendants ought to have obtained settled advice concerning the invalidity of the Lewis Charge................................................................................................................... 173
The defendants ought to have continued to support and encourage Miller’s proposed litigation................................................................................................................................ 176
Reasonable care would have led to the removal of the Lewis Charge................... 178

Defendants’ responses to the plaintiffs’ allegations concerning the Lewis Charge........ 178
Receivers’ assistance in proceedings by IPS............................................................... 180
The Receivers’ obligation to cause Boz One to instigate proceedings in relation to the Lewis Charge................................................................................................................... 181
The Receivers failed to obtain independent legal advice......................................... 182

Valuations premised on validity / invalidity of the Lewis Charge....................................... 182

Method of sale of the IPS shares............................................................................................. 183
Discount of the Wallabah Debt............................................................................................... 186
Enforcement of the Wallabah debt......................................................................................... 191
Negotiation with Miller........................................................................................................... 192
Documentation................................................................................................................. 193
Payment............................................................................................................................ 194

Advertise the Wallabah debt for Sale.................................................................................... 195
Investigate Solvency of IPS...................................................................................................... 196
Consider and Conduct Analysis of Alternative Courses.................................................... 196
The subleases............................................................................................................................. 196
There were executed subleases..................................................................................... 197
The relevant law.............................................................................................................. 199
IPS had no registered interest in the land at the relevant time................................. 201
IPS had no executed subleases at the relevant time................................................... 203
IPS did not have the consent of the Minister to any sub-lease, or of the head tenant to any charge over any sub-lease............................................................................................... 214
Failure to take reasonable steps to locate or obtain executed subleases................ 215
IPS has an enforceable leasehold interest in any event............................................. 220
Conclusions in relation to the subleases...................................................................... 224

IPS business had value notwithstanding uncertainty over the IPS subleases................. 226
The pre-emptive right was no obstacle to a sale on the open market.............................. 228
Meeting on 9 October 2003...................................................................................................... 232
Potential liability of Investec................................................................................................... 238
Investec’s reliance on proportionate liability of both the Receivers and Gadens........... 241
Gadens as a concurrent wrongdoer........................................................................................ 242
Relief – quantum....................................................................................................................... 243
Defendants’ position....................................................................................................... 245
Market value of the Wallabah debt.............................................................................. 249
Best price reasonably obtainable in the circumstances............................................. 250
Allocation of consideration between the Boz One shares and the Wallabah debt 251
Remedies.......................................................................................................................... 253

The nature and extent of the duties imposed by s 420A(1) of the Act.............................. 253
Conclusions as to Liability...................................................................................................... 264
The Lewis Charge............................................................................................................ 264
The IPS Leases and Subleases....................................................................................... 265

First Right of Refusal................................................................................................................ 267
The Wallabah Debt.......................................................................................................... 267

Cumulative effect of the above factors.................................................................................. 271

Summary of findings and conclusions...................................................................................... 273

Decision............................................................................................................................................ 276

Appendix 1 – Defined Terms........................................................................................................... 1

HIS HONOUR:

Introduction
General background

The first plaintiff (‘Boz One’) and the second plaintiff (‘Wallabah’) bring this proceeding against the defendants, alleging that the defendants failed to take all reasonable care in the sale of certain assets owned by the plaintiffs and, by such failure, caused the plaintiffs loss and damage.

The assets that the plaintiffs assert were carelessly disposed of comprised certain shares owned by Boz One in a company known as Island Point Slipway Pty Ltd (‘IPS’), and a debt owed by IPS to Wallabah (‘Wallabah debt’). (See Appendix – 1 Defined Terms).

Boz One and Wallabah were guarantors of a loan of $11.8 million (‘the Glodale loan’) from Investec Bank (Australia) Limited (‘Investec’) to Glodale Pty Ltd (‘Glodale’). On default by Glodale in relation to the Glodale loan and upon the inability of Boz One and Wallabah to fulfil their obligations under the relevant guarantees, Investec appointed the first and second defendants (‘Receivers’) as Receivers and Managers of both plaintiffs.

The Receivers were chartered accountants of the firm Carson & McLellan PPB (‘PPB’). They were appointed by Investec as Receivers and Managers of Boz One in March 2003. They were then appointed as Receivers and Managers of Wallabah on 22 September 2003.

Boz One and Wallabah allege that the Receivers did not take all reasonable steps to obtain the market value, or alternatively the best price reasonably attainable, for the IPS shares and the Wallabah debt (‘the Assets’). In that regard they allege that the Receivers and Investec owed them a duty to take all reasonable care pursuant to s 420A of the Corporations Act 2001 (Cth) (‘Act’).

Boz One and Wallabah assert that, as a result of the alleged breaches by the defendants, Boz One and Wallabah are entitled to orders for the taking of accounts between Boz One and Wallabah (as mortgagors) and the Receivers and Investec (as mortgagees) in consequence of the sale of the IPS shares and the assignment of the Wallabah debt by the Receivers and Investec.

Summary of relief sought

On the basis of the alleged breaches, the plaintiffs claim damages against the defendants. Further, and in the alternative, they seek a declaration that the Receivers sold the Assets pursuant to Investec’s election, and did so failing to take all reasonable care to sell such shares and loans for not less than their respective market values. In the alternative, the plaintiffs allege that, in the sale of the Assets, the defendants failed to obtain the best price reasonably attainable in the circumstances.

The plaintiffs seek orders for the taking of all necessary accounts, and further orders that the Receivers and Investec pay the plaintiffs equitable damages in the sums found to be owing upon the taking of accounts.

Overview of the key issues

The key issues raised in the pleaded primary case between the plaintiffs and the defendants are:

(a)Whether, in the course of the process to sell the Assets, the Receivers, and if relevant, Investec, took all reasonable care to sell the Assets for not less than their market value, whatever that market value was;
(b)Whether, in the course of the process to sell the Assets, the Receivers, and if relevant Investec, took all reasonable care to sell the Assets for not less than the best price reasonably attainable, having regard to the circumstances existing when the property was sold. I note however that ultimately the Plaintiffs’ case was pursued under the first limb of s 420A(1), and not s420A(1)(b);
(c)Whether the Assets had a “market value” at about mid-December 2003 and, if so, what it was.
(d)Alternatively, what was the best price reasonably attainable for the Assets at about mid-December 2003.
(e)Whether the Receivers sold the IPS shares and assigned the Wallabah debt for a price less than the market value or, alternatively, the best price reasonably attainable in the circumstances.
(f)If so, whether this was a result of their failure to take reasonable care in breach of s 420A(1) of the Act.
(g)Whether the total sum of $500,000, for which the Assets were sold, was in fact the market value of the Assets, or the best price reasonably attainable in the circumstances, in particular, given:
(i)the existence and effect of a charge (‘Lewis charge’) over all the assets of IPS in favour of Lewis Securities Ltd (‘Lewis Securities’) in relation to a loan of $1.2 million (‘Lewis loan); [1]
[1]See also associated Deed of Rectification, Variation, Assignment and Guarantee: 18/6/2003.
(ii)the uncertainty as to the sum of the Wallabah debt;
(iii)the enforceability of the Wallabah debt against IPS;
(iv)the valuations of the IPS shares and the Wallabah debt;
(v)the existence and enforceability of the sub-leases and the sub-subleases relating to the IPS slipway businesses;
(vi)the significance of Mr Leon Miller (‘Miller’) to the successful operation of the slipway business;
(vii)the effect of the pre-emptive rights under cl 15 of the IPS Constitution; and

(viii)the solvency of IPS.

(h)If the Receivers are liable whether the third party is liable to the defendants.
(i)If the Receivers would otherwise be liable, the effect of the Deed of Charge on any liability that the Receivers might have to the plaintiffs and the effect of the Deed of Charge as between the Receivers and Investec.
(j)If Investec would otherwise be liable, the effect of the Deed of Indemnity on any liability that Investec might have to the plaintiffs and Investec’s rights of indemnity against the Receivers.
(k)Whether, on the evidence presented, the plaintiffs have established any relevant damages.

Summary of overall conclusions

In summary, my principal findings in this matter are as follows:

(a) In the process of selling the Assets, the Receivers took all reasonable care to sell the Assets for not less than their market value;

(b) Notwithstanding that the plaintiffs and the defendants and the third party submitted that the Assets had a “market value”, and therefore the second limb of s 420A(1), namely s 420A(1)(b) is not applicable, and further, notwithstanding that the plaintiffs conducted its case by pursuing the defendants and Gadens for breach of s 420A(1)(a) , for completeness I also find that in the course of the process to sell the Assets, the Receivers took all reasonable care to sell the Assets for not less than the best price reasonably attainable, having regard to the circumstances existing when the property was sold;

(c) The Assets probably had a “market value”, however I make no determination as to the market value of the Assets;

(d) The Market value of the Assets in about mid-December 2003, which was considered by the Receivers and Gadens as a factor in their evaluations, was:

(i) the shares in IPS: nil to $185,000; and

(ii) the Wallabah debt: probably unrecoverable, although the Wallabah debt had a “book value” of $670,000, or possible more;

(e) The Receivers did not sell the Assets at less than what they reasonably considered to be their market value.

(f) Further, although not of determinative significance given that the Assets probably had a market value such as to render s 420A(1)(a) applicable, the Receivers also obtained what they reasonably considered to be the best price reasonably attainable in the circumstances existing when the Assets were sold;

(g) The Receivers did not fail to take all reasonable care in the sale of the Assets and did not breach s 420A(1) of the Act.

(h) In exercising their power of sale over the Assets, the Receivers took all reasonable care to sell the Assets at not less than market value and they did so in special and difficult circumstances, which negatively affected the market value and saleability of the Assets, which circumstances were principally constituted by the following factors:

(i)the existence and effect of the Lewis charge over all the assets of IPS in favour of Lewis Securities;
(ii)the uncertainty as to the sum of the Wallabah debt;
(iii)the possible enforceability of the Wallabah debt against IPS;
(iv)the low valuations of the IPS shares and the Wallabah debt;
(v)the uncertainty as to the existence and enforceability of the sub-leases and sub-subleases relating to the IPS slipway businesses;
(vi)the significance of Miller to the successful operation and goodwill of the slipway business operated by IPS;
(vii)the effect of any pre-emptive rights exercisable by Miller’s company, Island Point Marine Pty Ltd (’IPM’), under cl 15 of the IPS Constitution, in relation to the purchase of the Boz One shares; and
(viii)the solvency of IPS.

(i)Investec was not a “controller”, and did not owe the plaintiffs a duty under s 420A(1) of the Act. Further, the conclusion reached in relation to the Receivers means that Investec did not breach any duty alleged by the plaintiffs.
(j)The plaintiffs did not establish the market value or any alternative value for the Assets.
(k)The plaintiffs did not establish that, had the Receivers acted differently, a materially better sale price would have been attained for the Assets.
(l)The plaintiffs did not prove that they have suffered any loss or damage.
(m)Given my primary findings it is not necessary to determine whether the third party (‘Gadens’), who at all times acted for Investec, and after appointment for the Receivers also, owed the alleged duties of care to the defendants.
(n)Further, in any event, Gadens acted reasonably and appropriately as its clients’ lawyer.
(o)Given the above, it is not necessary to determine the effect of the Deeds of Charge between the Plaintiffs and the Receivers and Investec nor is it necessary to determine the effect of the Deed of Indemnity between the Receivers and Investec.
(p)Given the above, it is not feasible or appropriate to attempt to ascribe a theoretical apportionment of contribution and/or attribution of loss and damage as between the parties pursuant to their various claims under the Wrongs Act 1958 (Vic) (‘Wrongs Act’).

James Geoffrey Rolfe

I summarise James Geoffrey Rolfe’s (‘Rolfe’) evidence at this point because that evidence largely deals with the overall factual context relevant to the other summaries of evidence which follow.

Background to Proceedings
The Glodale and First Melbourne Capital Pty Ltd Loans

Rolfe, was the sole director and a shareholder of Boz One between 6 September 1999 and 19 July 2004. Rolfe was a director and shareholder of Wallabah between 27 October 1988 and 19 July 1994, and also a director of IPS between 23 March 2000 and 11 June 2003. Rolfe arranged a loan facility on behalf of Glodale, of which Rolfe was also a director, between 23 March 2000 and 11 June 2003, in the sum of $11.8 million, to provide working capital for his companies, inter alia. That loan was procured from Investec.

In paragraph 6 of his statement dated 19 October 2012, Rolfe states that, on about 19 September 2001, the Glodale loan agreement was entered into by Glodale on behalf of Boz One and another company known as Boathouse Port Douglas Pty Ltd (‘Boathouse’).

In addition to various properties provided as security to Investec, Rolfe and his wife Rachel Elizabeth Rolfe (‘Mrs Rolfe’) provided personal guarantees to Investec in relation to the Glodale loan. The Glodale loan was also secured by means of various fixed and floating charges provided by Glodale and other companies including Boz One and Wallabah.

On 18 October 2001, Wallabah entered into a loan agreement with First Melbourne Capital Pty Ltd (‘FMC’) for an amount of $800,000 (‘the FMC loan’). The loan was required to cover the shortfall of capital that was not provided by the Glodale loan.

In about the first quarter of 2002, all of Rolfe’s companies were experiencing severe cash flow problems. By 19 April 2002, Glodale was in arrears to Investec under the terms of the Glodale loan and, although it appears that this initial default was remedied, further defaults occurred in relation to the Glodale loan in June and July of 2002.

Consequently, on 1 August 2002, Investec issued a demand for payment of the full amount outstanding under the Glodale loan.

The IPS Shares

Sometime earlier than the events outlined above, Rolfe had made a decision to invest in a slipway in Wharf Street, Port Douglas in Queensland. The slipway business was conducted by Miller, and was run in conjunction with a marine repair service known as Island Point Shipwrights. It would appear that this later business was probably run as part of IPM.

Miller operated the shipwrights and marine repair services out of premises at Wharf Street, Port Douglas, enjoying occupation of those premises under sub-leases from Mirage Resort Holdings Pty Ltd (‘Mirage’), a trustee for the Port Douglas Resort Trust.

In his evidence, Rolfe said that the original executed sub-leases were sent by him to his then solicitor Geoff Klooger (‘Klooger’), of Geoff Klooger & Associates in Brisbane, and that Klooger then sent Rolfe copies of those sub-leases for execution by Miller.[2] Rolfe also deposed that he received a further letter from Klooger dated 24 January 2001,[3] which confirmed that the sub-leases had been lodged and registered. As will be seen, there is considerable dispute about the existence and status of both the sub-leases from Mirage to Miller’s company IPS and also as to the existence and status of the sub-subleases from IPS to the tenants occupying the Wharf St Slipway premises.
[2]Rolfe’s Witness Statement “Rolfe WS” 19 October 2012 [24] (CB 1001(a)-(c)).
[3]CB 1115(a)-(d).

In 1999 or early-2000, Rolfe and Miller discussed the possible development of the slipway and, in about April or May 2000, they entered into a partnership agreement. In order to advance their commercial plans, Rolfe and Miller also registered IPS, in which Rolfe’s company Boz One held 50 percent of the shares, and Miller’s company IPM held the remaining 50 percent. At incorporation on 23 March 2000, Rolfe and Miller were appointed directors of IPS. In about May 2000, Boz One purchased 100,000 shares, which constituted half the issued shares in IPS.

The Wallabah Debt

The plaintiffs’ case is that, between about May 2000 and June 2002, Wallabah, in its capacity as trustee of the James Rolfe Family Trust, lent sums totalling $941,420 to IPS. The plaintiffs further allege that IPS, via Miller, agreed to give Wallabah a debenture charge over all its assets as security for the Wallabah debt.

In relation to the Wallabah debt and the related charge over the assets of IPS, in his statement dated 19 October 2012 [29]-[43], Rolfe deposes to a number of discussions and requests and demands by him to Miller to formalise the loan agreement, charge and guarantee documentation between Wallabah and IPS and Rolfe. In relation to certain securities for both Miller and his wife, Rolfe made repeated demands for Miller to execute the requested documentation in order to advance what Rolfe had procured via Wallabah to IPS. Rolfe summarises this rather unsatisfactory series of dealings with Miller, and the further advance by Wallabah to IPS in the sum of $80,000, as follows:

· “After releasing the $80,000, I continued to release further loan funds to IPS without any loan documentation signed or any security in place. A total of $180,000 was advanced during the period to 30 June 2000, $690,000 to 30 June 2001 and $71,420 to 30 June 2002, being a total of $941,420. These funds were paid by JRTV as a loan to Wallabah as well as directly from Wallabah to IPS. At the time, I did my banking with the Ascot Vale branch of the Commonwealth Bank of Australia. I no longer have copies of any bank statements as they were delivered to the respective receives [sic] of JRTV and Wallabah.

· Soon after 23 October 2000, I received from Klooger the subleases to be executed by IPS with Miller and myself as guarantors. By letter dated 15 November 2000, Klooger sent the executed documents to Allen Allen & Hemsley, the solicitors for Mirage, together with a cheque for $7392.90. Now produced and shown to me at “CB 1115(a)” is a true copy of the letter from Geoff Klooger & Associates to Allen Allen & Hemsley dated 15 November 2000.

· By letter dated 24 January 2001, I received notification from Klooger that the subleases had been signed by Miller and Mirage. Now produced and shown to me at “CB 1115(d)” is a true copy of the letter from Geoff Klooger & Associates to me dated 24 January 2001. I was also asked to provide another cheque for $5830.15 made payable to Office of State Revenue. Now produced and shown to me at “CB 1115(b)” is a true copy of the invoice from the Office of State Revenue.“

Rolfe’s evidence is that, from about January 2001, he had attempted to attract long-term funding to replace the Wallabah debt, but that such attempts were unsuccessful. As part of this process, a valuation dated 18 October 2001 was obtained from Herron Todd White, valuers of Cairns in Queensland, who valued the IPS interest in the relevant subleases at $700,000. This amount did not include the value of the business conducted on the site, or other assets owned by the company; for example, boat cradles, lifting equipment and forklift equipment. The Herron Todd White valuation report of 18 October 2001 was provided on the instructions of Yarra Capital Group, and gave a market value of IPS’s interest at $700,000.[4]
[4]CB 1556-1575.

As already touched on above, Rolfe also deposes to his attempts to have Miller sign the loan documentation relating to the Wallabah debt. However, Miller ultimately refused to sign the loan documentation, including a “Consent to Mortgage of Lease”, dated 8 August 2001, prepared by Allens Arthur Robinson (‘Allens’) on Rolfe’s instructions. This proffered “Consent to Mortgage of Lease” was sent by Lillian Nagan (“Nagan”), solicitor for IPS.

By the second quarter of 2002, Glodale had defaulted on its interest commitment to Investec. At this time, Rolfe had endeavoured to meet with Miller. Miller failed to attend arranged meetings, although by mid-2002 Rolfe and Miller had made telephone contact. Rolfe’s evidence was that, by about mid-2002, Miller had agreed to an arrangement whereby Wallabah would forego its interests in IPS to June 2002 in return for Wallabah taking a 50 percent shareholding in IPM.[5] Further, Wallabah desisted from raising further invoices in relation to interest payable by IPS through to December 2002, which Rolfe says became the consideration for the 50 percent shareholding by Wallabah in IPM.
[5]Rolfe WS [52].

The Lewis Loan and the Lewis Charge

In about August 2002, Rolfe received an offer for finance of Wallabah from Lewis Securities. This possible transaction gave rise to Lewis raising Miller’s advice with Rolfe; that is, that there were no executed leases in relation to the IPS site. Rolfe disputed this with Lewis at the time, observing that Mirage accepted rent from IPS every month.

Rolfe says that, at about August 2002, so as to overcome Miller’s unwillingness to sign the documents guaranteeing the Lewis loan on behalf of IPS, Rolfe suggested to Miller that he resign as a director of IPS so that Rolfe could sign as sole director and secretary. Rolfe says Miller agreed to this,[6] and that, at the time, Rolfe did not give any thought to whether he was able to sign as sole director.
[6]Rolfe WS [61].

Rolfe also stated that, after considering ways in which to provide adequate financial comfort to Lewis Securities, he subsequently informed Miller that there was no need for Miller to resign as a director of IPS. However, Miller’s response was that he had already resigned and had no intention of becoming a director again until he knew what was going on.[7]
[7]Rolfe WS [65].

On 3 September 2002, Rolfe and Mrs Rolfe signed loan documentation on behalf of Wallabah and other companies, as security to Lewis Securities.[8] Rolfe signed this documentation on behalf of IPS in his capacity as the sole director. In February 2003, Wallabah defaulted on its loan obligations under the terms of the Lewis loan and, on 24 February 2003, Lewis Securities issued default notices to Wallabah and the entities that had provided security and guarantees under the Lewis loan.[9]
[8]First Rolfe affidavit [67]: CB 1927.
[9]CB 2335-2338.

At paragraph 11 of the plaintiffs’ Amended Statement of Claim dated 8 March 2013, the plaintiffs allege, in connection with the Lewis Loan and the Lewis charge, that Mr Tony Lewis (‘Lewis’), of Lewis Securities, and Rolfe acted in concert. They argue, therefore, that they were associates within the meaning of s 15 of the Act, and that Lewis was a relevant person within the meaning of s 267 of the Act.

On 24 February 2003, Lewis Securities also issued a default notice directed to IPS, seeking to enforce the Lewis charge. The plaintiffs alleged that Lewis did so without the required leave of the Court. On this basis, the plaintiffs contend that the Lewis charge was void by operation of s 267(1) of the Act.[10]
[10]Amended Statement of Claim (‘ASC’), [12] and [13].

The plaintiffs also assert, in the alternative, that the Lewis charge is void and/or unenforceable on the basis that it:

(a) was signed by Rolfe alone, purportedly as a director of IPS, in contravention of the requirements of cl 26.1 of the Constitution of IPS;[11]

(b) did not fall within the provisions of s 127(1) of the Act;[12] and

(c) was not supported by consideration, or was given for past consideration only.[13]

[11]ASC [13A(a)-(b)].

[12]ASC [13A(c)-(h)].

[13]ASC [14].

Appointment of the Receivers and Sale of the Assets

On 11 March 2003, Investec appointed PPB as Receivers and Managers to Boz One and other related companies, although not to Wallabah at that time.

In a report from the second defendant (‘Crosbie’) to Rolfe dated 17 March 2003,[14] Crosbie noted that:

(a)Boz One held half of the issued shares in IPS.
(b)IPM held the other half of the issued shares in IPS.
(c)IPM was an entity controlled by Miller.
(d)The financial statements for IPS showed that it had a loan from Wallabah (a company associated with Rolfe) of around $694,000.
(e)The ASIC database recorded that Lewis Securities had a fixed and floating charge over IPS.
(f)Crosbie had formed the preliminary view that Boz One’s interest in IPS was worth at least $146,000 (50% shareholding in reported net assets of $292,000).

[14]Letter from Craig Crosbie to Michael Sack; copied to David Reichenberg dated 17 March 2003 [CB 2458-2464].

On 12 May 2003, Wallabah was served with a notice of default from FMC in relation to the FMC loan.

On 11 June 2003, Rolfe was removed as a director of IPS. Both Miller and PPB voted to support Rolfe’s removal as a director of IPS.

On 2 July 2003,[15] Rolfe wrote to PPB highlighting PPB’s duty to protect the interests of Boz One and Boathouse as mortgagor and, amongst other things, to take reasonable care to obtain market value for the relevant property. A similar communication was sent by Mrs Rolfe on 6 October 2003, again putting PPB on notice that it was under a legal obligation to take reasonable care to sell the assets of Wallabah at market value.[16]
[15]CB 2854.
[16]CB 3519,

On 22 July 2003 Lyon Smith Commercial Lawyers (‘Lyon Smith’) sent a letter to Karen McMaster (‘McMaster’) of Gadens,[17] which contained an offer from Miller to purchase Boz One’s shares in IPS for $50,000. Attached to that letter was a valuation report dated 21 July 2003 from Horwath Kehoe Smith (‘HKS’). The valuation report valued Boz One’s shareholding in IPS at $67,517. The Receivers did not accept this offer. Also attached to the letter from Lyon Smith was a copy of a letter to Miller from a solicitor based in Port Douglas, Robert Palethorpe (‘Palethorpe’), in relation to the issue of relevant leases.
[17]Letter from Dayle Smith to Karen McMaster dated 22 July 2003 [CB 2978-2990].

On about 23 September 2003, Investec appointed PPB as Receivers and Managers of Wallabah, and PPB advised Rolfe accordingly.[18]
[18]CB 3278.

On 9 October 2003, an important meeting occurred. That meeting was attended by Messrs Crosbie, Hunter, Sack, Hirst, Miller, Smith, Elias (on behalf of Lewis), Arthur (of Allens, for Lewis), as well as McMaster and David Reichenberg, a partner at Gadens (‘Reichenberg’). The purpose of the meeting was to see whether a commercial deal could be done between the parties in relation to the acquisition of the IPS shares and the Wallabah debt and related issues. At this meeting Miller communicated that he could only raise $500,000 in total to pay for the Boz One shares in IPS and the Wallabah debt and that he was willing to do a deal to purchase the Assets for that sum.

On 15 October 2003, Rolfe communicated by letter to PPB, inter alia alleging that:

(a)Wallabah had an outstanding loan to IPS for $741,420, plus interest;
(b)the Lewis charge over the assets of IPS was not a valid charge, and that fact was known to Miller;
(c)Mr Elias of Lewis Securities had acknowledged to Rolfe that the Lewis charge was not valid;
(d)earlier sales by PPB of “the Verandah’s” and “the Boathouse”, two properties sold pursuant to security holders rights, had been sold grossly under value; and
(e)putting PPB on notice that Rolfe’s companies intended to issue legal proceedings against Investec in relation to any sales that were considered to be under market value, when the directors of those companies were able to take effective action.

On 24 November 2003, Rolfe again wrote to PPB to emphasise that the relevant Queensland companies had been sold under value.[19] Rolfe also sent a letter in similar terms to PPB on 24 November 2003 relating to the assets of Wallabah.[20] In this letter, Rolfe informed PPB that the amount of the Wallabah debt was $941,420, not $741,420.[21]
[19]CB 3936.
[20]CB 3950.
[21]CB 3966(a).

Shortly before 12 December 2003, Investec received an offer of $500,000 from Miller and/or IPM for the IPS shares and for the assignment of the Wallabah debt. On 12 December 2003, there was a further meeting arranged by Reichenberg (representing Investec), between Nigel Elias (representing Lewis), a lawyer from Allens (representing Lewis), Michael Sack (representing Investec) and Miller.

The plaintiffs say that, on 12 December 2003:

(a)Investec purported to accept the offer of $500,000, without any attempt to obtain a higher offer and without consulting with the Receivers;
(b)those representing Lewis acknowledged that the Lewis charge was invalid;
(c)it was agreed on behalf of Lewis to lend $500,000 to Miller and/or IPM to finance the purchase of the shares and the assignment of the Wallabah debt, respectively; and
(d)IPS and IPM each agreed to provide fixed and floating charges to Lewis to secure the said loan.

The plaintiffs allege that, after the meeting on 12 December 2003:

(a)the Receivers adopted the purported agreement between Investec, Miller and IPM, without any attempt to obtain a higher offer;
(b)the Receivers thereby sold the IPS shares and assigned the Wallabah debt to Miller and IPM for the sum of $500,000 (‘Asset Sale’); and
(c)the Asset Sale settled.

The plaintiffs also assert that:

(a)the Receivers effected the Asset Sale at the direction of Investec and as its delegates;
(b)the Receivers did not offer for sale, invite offers for the purchase of, or advertise the availability of, the IPS shares to any persons other than Miller and IPM;
(c)the Receivers did not offer for assignment, invite offers for assignment, or advertise the availability of the Wallabah debt to any persons other than Miller and IPM; and
(d)the Asset Sale realised a price for the Assets that was below market value.

On 23 December 2003, PPB sent a letter to Mrs Rolfe stating that the sale of the Assets had been completed.[22]
[22]CB 4451.

On 8 January 2004, PPB advised that, after the Asset Sale, there was still an outstanding sum of $500,000 to $600,000.[23]
[23]CB 4497.

On 26 February 2004, Mrs Rolfe sent a fax to PPB, inter alia, seeking details in relation to the sale of the Assets, as to the identity of the valuers of the Assets, the sale process, the advertising in relation to the Assets and the identity of the local selling agent.[24]
[24]CB 4559.

On 10 March 2004,[25] PPB faxed a letter to Mrs Rolfe advising her that independent valuations were obtained from Ferrier Hodgson and KPMG, both of whom valued the relevant shares at “nil or nominal value” in the event that the Lewis charge was valid. In this letter, Crosbie stated that the Wallabah debt had been valued taking into account the cost of realisation, the lack of documentation and the likelihood of recovery. Crosbie also advised that, because of the complexities contained within the IPS Constitution regarding the sale and transfer of shares, a sale by public auction was inappropriate.
[25]CB 4595.

It would appear that Mirage purchased the Wharf St Slipway subleases from IPS for $2,400,000 on 23 February 2006.[26]
[26]CB 4799.

Throughout, Rolfe asserts that, between 11 March 2003 (when the Receivers were appointed to Boz One) and 12 December 2003 (the date of sale of the Assets), Rolfe was not contacted by Investec, PPB, Gadens or any valuers or other agents involved in the process of the sale of the Assets.

Issues in these Proceedings
Principal issues – plaintiffs-defendants

In essence, the plaintiffs’ case against the defendants seeks to establish that, in selling the IPS shares and the Wallabah debt, the Receivers failed to take all reasonable care to obtain their market value or, alternatively, the best price that was reasonably attainable in the circumstances. The plaintiffs claim that, by those failures, the defendants breached s 420A(1) of the Act. The plaintiffs’ case, as outlined, is predicated on the Court’s acceptance of duties imposed upon the defendants pursuant to s 420A(1) of the Act, and gives rise to various subsets of questions.

Subset issues – between plaintiffs and the first, second and arguably the third defendants

Subsets of questions arise as to:

(a) whether Investec was “a controller” under s 420A(1) of the Act and, if so, whether Investec breached such duties;

(b) whether Investec is responsible for breaches, if any, by the Receivers and the losses, if any, caused thereby;

(c) the extent of any loss and damage suffered by the plaintiffs if such breaches are made out; and

(d) whether it is necessary or appropriate to order the taking of all necessary accounts or provide other relief to the plaintiffs in the circumstances.

The key determinative issues in the principal proceedings between the plaintiffs and the defendants are as follows:

(a)whether the Receivers, who have admitted to owing duties under s 420A(1) of the Act, took all reasonable care to sell the Assets:
(i)for not less than their market value; or
(ii)at the best price that was reasonably attainable, having regard to the circumstances existing at the time of sale;

(b)whether the Receivers breached their duties under s 420A of the Act in the numerous respects alleged by the plaintiffs (‘Breaches’).
(c)whether the Receivers effected the sale of the Assets at the direction of Investec, as its delegate or otherwise, in a way that rendered Investec liable for the breaches of the Receivers;
(d)if the foregoing questions are answered in the affirmative, the extent of the loss and damage thereby suffered by the plaintiffs;
(e)if necessary to determine, whether the Deeds of Charge appointing the Receivers gives rise to effective protection for the Receivers and Investec against the plaintiffs’ claim;
(f)if necessary to determine, whether the Deeds of Indemnity between Investec and the Receivers entered into upon the Receivers appointment, entitle the Receivers to contribution and indemnity from Investec in relation to the plaintiffs’ claim;
(g)if necessary whether, in the circumstances, the plaintiffs are entitled to an order for the taking of accounts, as sought by Boz One, and/or an order that the defendants pay Boz One a sum of damages.

Further, by an Amended Third Party Statement of Claim against Gadens filed on 13 March 2013, the defendants claim:

(a) an indemnity, contribution or damages from Gadens in respect of the plaintiffs’ claims;

(b) that the plaintiffs’ claims are apportionable claims under Part IVAA of the Wrongs Act; and

(c) that Gadens is a concurrent wrongdoer in relation to those claims.

Investec’s claims against Gadens relate to the discharge of Gadens’ alleged duties to the Receivers, and to Investec.

The Pleadings
The plaintiffs’ contentions

The plaintiffs raise a number of matters and circumstances, which they assert establish that the defendants failed to take all reasonable care to sell the Assets at not less than market value or, alternatively, at the best price that was reasonably attainable. Those alleged factors and circumstances are:

(a)the defendants’ failure to establish the ineffectiveness of the Lewis charge, which was provided on about 10 September 2002, over the assets of IPS;
(b)the defendants’ failure to attempt to obtain acknowledgement from Lewis Securities that the Lewis charge was invalid;[27]
[27]ASC [28].
(c)the defendants’ failure to obtain independent legal advice as to the validity of the Lewis charge;[28]
(d)the defendants’ failure to obtain from IPS an acknowledgement of IPS’s liability in relation to the Wallabah debt;[29]
(e)the defendants’ careless acceptance of a discount of the value of the Wallabah debt that was below the value of advances plus interest;[30]
(f)the defendants’ erroneous assumption that the IPS shares had no value, because of the effectiveness of the Lewis charge;
(g)the Receivers’ failure to offer the IPS shares on the open market, or to invite offers from the open market to purchase such shares, or to advertise on the open market the availability of the shares;
(h)the Receivers’ failure to properly value the Wallabah debt, or to negotiate or obtain repayment of the Wallabah debt from IPS;
(i)the Receivers’ failure to offer on the open market, or invite offers from the open market for the purchase of, or to advertise on the open market the availability of, the Wallabah debt;
(j)the defendants’ failure at the meeting on 12 December 2003, at which Investec purported to accept the Miller and/or the IPM offer, to attempt to obtain a higher offer; and
(k)the Receivers’ sale of the IPS shares and assignment of the Wallabah debt to Miller and IPM for the sum of $500,000.

[28]ASC [26].

[29]ASC [34].

[30]ASC [37].

The plaintiffs allege that, as a result of these matters and circumstances, the Asset Sale realised a price for the Assets that was below market value, in breach of the defendants’ duties pursuant to s 420A(1) of the Act.

Plaintiffs’ Further Particulars of Breach (at 27 February 2012)

On 27 February 2012, the plaintiffs provided the following Further and Better Particulars of paragraph 47 of their then Statement of Claim dated 10 June 2011, in relation to the defendants’ breaches of their duties under s 420A of the Act:

Under paragraph 47
McLellan and Crosbie did not offer for sale, invite offers for the purchase of, or advertise the availability of, the IPS shares to any persons other than Leon Miller and IPM. Investec took no steps to cause McLellan and Crosbie to do so. The Lewis Charge was invalid. The particulars under paragraph 45 regarding the Lewis Charge are repeated. Neither McLellan, Crosbie nor Investec ascertained that the Lewis Charge was invalid when it was reasonable for them to have done so. McLellan and Crosbie did not offer for assignment, invite offers for assignment, or advertise the availability of the Wallabah loans to any persons other than Leon Miller and IPM. Investec did not take any steps to cause McLellan and Crosbie to do so. The Asset Sale realised a price for the IPS shares and the Wallabah loans that was below the market value of those assets. The particulars under paragraph 45 regarding the market value of the leasehold property are repeated.

The plaintiffs also provided Further and Better Particulars, dated 8 March 2013, of their allegation that, in breach of s 420A(1) of the Act, the defendants had failed to take all reasonable care to sell the IPS shares and the Wallabah debt for not less than market value or, alternatively, the best price that was reasonably attainable. Those particulars, provided under paragraph 47 of the plaintiffs’ then Statement of Claim dated 10 June 2011, particularise the defendants’ failure to take reasonable steps as follows:

(a)Negotiate with Lewis for the removal of the Lewis Charge.
(b)Assist in the Federal Court proceedings against Lewis proposed by Miller or at least to await the outcome of such proceedings.
(c)Cause Boz One to take its own legal action against Lewis for the removal of the Lewis Charge and to vitiate the Deed of Rectification, Variation, Assignment and Guarantee dated 18 June 2003.
(d)Obtain valuations of the IPS shares prior to the meeting on 9 October 2003.
(e)Give fair and objective instructions to KPMG and Ferrier Hodgson.
(f)Obtain settled independent legal advice as to the validity of the Lewis charge and the likely costs of legal action against Lewis.
(g)Enforce payment by IPS of the Wallabah loans.
(h)Negotiate with Miller for the documentation or repayment by IPS of the Wallabah loans.
(i)Offer the Wallabah loans for sale at large, to advertise them for sale or to make enquiries to identify prospective purchasers.
(j)Make proper enquiries to locate an executed sub‑lease, including enquiries of Rolfe, the lawyers involved in the preparation of the sub‑leases or the proposed amended sub‑leases or the sub‑lessor.
(k)Negotiate with Miller for the execution of the proposed amended sub‑lease.
(l)Alternatively to (j) and (k), negotiate with the sub‑lessor for documentation of the proposed amended sub‑lease.
(m)Obtain settled independent legal advice as to the enforceability of the leasehold, such as on grounds of part performance and estoppel.
(n)Obtain settled independent legal advice as to the effect of the pre‑emptive rights in clause 15 of the IPS Constitution.
(o)Formulate a sales process for the IPS shares that would accommodate the effect of clause 15 of the IPS Constitution.
(p)Determine the solvency status of IPS.
(q)Consider alternatives to selling the IPS shares and the Wallabah loans together to Miller.
(r)Identify alternative courses open in relation to the sale of each of the Boz One shares and the Wallabah loans.
(s)Conduct a cost/benefit or any other analysis of each of the courses open in relation to the sale of each of the Boz One shares and the Wallabah loans.

Plaintiffs’ asserted value of IPS shares and Wallabah debt

The plaintiffs also provided the following particulars of the market value of both the IPS shares, as at 10 December 2003, and the Wallabah debt, in the plaintiffs’ further and better particulars dated 7 March 2012, of its then Statement of Claim dated 10 June 2011:

Under paragraph 45:
(i)The market value of the IPS shares as at 10 December 2003 was not less than the value of the net assets of the company excluding for this purpose, the value of the outstanding loans. The assets were the value of the property leased by IPS comprising leases over the slipway (the whole of the land under SR9/47104), the main structural improvements (part of Lease D, LR853, reserve for local government (port and harbor) purposes R171) and the jetty and access from Wharf Street (the whole of Lease J, LR857, reserve for local government purposes R171).
The value of the IPS shares is calculated as follows:
Leases, structural improvements, jetty and access        $    730,000
plus operation and plant equipment:  $    240,755
plus goodwill:  $    200,000
$ 1,170,755

less liabilities as per book value reflected in
Ferrier Hodgson valuation: $ 202,802
$967,953

(ii)The market value of the Wallabah loans was the full amount outstanding in the sum $941,420. This was the amount due thereunder plus interest calculated at 8% due monthly in arrears pursuant to the loan agreement dated 4 May 2000. The loan was sold for $500,000 hence the difference in the value obtained as opposed to the market value which is $441,420 plus any interest payable pursuant to the loan.

The Receivers’ Defence

In summary the Receivers’ Further Amended Defence dated 13 March 2013 states as follows:

(a)the Receivers do not admit that the Lewis Charge was void by operation of s 267(1) of the Act and, further, the Receivers deny the various alleged requirements of cl 26.1 of the Constitution of IPS asserted by the plaintiffs in para 13A(b) of the plaintiffs’ Amended Statement of Claim dated 8 March 2013;
(b)Lewis did not know or suspect at the time the Lewis Charge was signed that it was not signed in accordance with s 127(1) of the Act;

In paragraph 13A of the Further Amended Defence dated 13 March 2013, in response to the plaintiffs’ alternative allegations directed against the validity of the Lewis Charge, the Receivers assert that:

(a)the Lewis charge was signed by Rolfe alone as a director of IPS;
(b)cl 26.1 of the Constitution of IPS required that IPS must execute documents (with or without affixing the company seal) by the signature of two directors of IPS or a director and the company secretary of IPS or, if IPS had a sole director who was also the sole company secretary, by the signature of that director;
(c)cl 26.3 of the Constitution provides that cl 26 shall not be interpreted as limiting the manner in which IPS may execute a document, including a deed;
(d)they admit the plaintiffs’ allegations that Rolfe signed the Lewis charge and the Lewis loan guarantee as the sole director of IPS, and at a time when he was not company secretary, and argue that the execution of the Lewis charge did not fall within s 127(1) of the Act, and was not signed in accordance with s 127(1); and
(e)they deny that the Lewis Charge was not executed by IPS.

As to the plaintiffs’ allegation that Lewis knew or suspected (at the time the Lewis Charge was signed) that it was not signed in accordance with s 127(1), within the meaning of s 128(4), the Receivers say, in paragraph 13B:

(a)under the IPS Constitution, Rolfe, as sole director of IPS, had express actual authority to enter into the Lewis charge, on behalf of IPS; or
(b)alternatively, Rolfe had implied actual authority to enter the Lewis charge on behalf of IPS, because:
(i)on or about 27 August 2002, Miller, with knowledge that Rolfe intended IPS to enter into the Lewis charge, resigned as a director of IPS, to enable Rolfe to execute the Lewis charge on behalf of IPS; and
(ii)Miller signed a letter on the IPS letterhead, dated 27 August 2002, confirming and communicating his resignation as a director of IPS; and

(c)further and alternatively, Rolfe had apparent authority to enter into the Lewis charge on behalf of IPS, because:
(i)IPS had power under its Constitution (in particular cls 22 and 26) to enter into the Lewis charge, and its directors could exercise that power;
(ii)by an IPS letter dated 27 August 2002, a representation was made by IPS to Lewis that Rolfe had authority to enter into the Lewis charge on behalf of IPS as sole director;
(iii)at all times before Miller’s resignation, he and Rolfe had actual authority to manage IPS generally and specifically as to whether or not to enter into the Lewis charge;
(iv)from the time of Miller’s resignation on 27 August 2002, Rolfe had actual authority to manage IPS generally and specifically as to whether it entered into the Lewis charge;
(v)Miller and Rolfe represented to Lewis that Rolfe was able to execute the Lewis charge on behalf of IPS as its sole director:
a.by Miller signing the resignation letter of 27 August 2002, knowing that it would be provided to Lewis; and
b.by Rolfe executing the Lewis charge as sole director of IPS when he knew that the letter of 27 August 2002 had been provided to Lewis;

(vi)when entering into the Lewis charge, Lewis was induced by and relied on the above representations;

(d)because of the above matters in 13B(a) and 13B(b), Rolfe had authority to enter into the Lewis Charge on behalf of IPS, and the members of IPS unanimously assented to the execution of the Lewis Charge, and it was therefore unnecessary for Lewis to rely upon the assumptions in s 129 of the Act in order for the Lewis Charge to be valid; and
(e)the Receivers allege that the level of indebtedness by IPS to Wallabah was uncertain, although the first and second defendants’ Further Amended Defence dated 13 March 2013 (at [15.4]) appears to particularise the level of indebtedness by IPS to Wallabah as $671,835.29, at the lowest.

The Receivers make the following admissions:

(a) that the IPS shares were sold and the Wallabah debt was assigned to Miller, for $500,000;[31]

(b) that, at all material times, they acted in accordance with instructions received from Investec;[32] and

(c) that they owed duties pursuant to s 420A of the Act.[33]

[31]Further Amended Defence, dated 13 March 2013 [41].

[32]Further Amended Defence [42].

[33]Further Amended Defence [46].

The Receivers deny that they breached their duties under s 420A of the Act. They say further that, at all material times, they relied upon the advice provided to them by Gadens and the valuation reports obtained from KPMG (dated 9 December 2003) and Ferrier Hodgson (dated 12 December 2003).[34]
[34]Further Amended Defence [47] and [24.4].

The Receivers deny the Boz One and Wallabah entitlements, pleaded in the plaintiffs’ Amended Statement of Claim (at [48]). They say, further, that they were appointed as Receivers pursuant to a Deed of Charge between the plaintiffs and Investec, dated 19 September 2001,[35] pursuant to which they were not liable for any loss or damage including, but not limited to, consequential loss or damage arising directly or indirectly from any omission or delay in the exercise of any power or from their neglect or default, otherwise than loss or damage arising from their wilful default, fraud or gross negligence.
[35]CB 1381‑1434.

The Receivers also plead that, if the plaintiffs have suffered loss and damage (which is denied) as a result of the Receivers’ conduct, the plaintiffs’ claim is an apportionable claim within the meaning of Part IVAA of the Wrongs Act and/or Division 2A of Part 7.10 of the Act.[36]
[36]Further Amended Defence [50].

Further, the Receivers allege that, if adjudged liable to the plaintiffs, then each of Investec and Gadens is a concurrent wrongdoer, within the meaning of the parts of the Wrongs Act and the Act relied upon, and therefore their liability to the plaintiffs is limited to an amount reflecting that proportion of the damage which the Court considers just having regard to the extent of the responsibility of Investec and/or Gadens for any such damage.[37]
[37]Further Amended Defence [51] and [52].

Investec’s defence

The Second Further Amended Defence of Investec, dated 13 March 2013, in essence, alleges as follows:

(a)for reasons addressed in more detail below, Investec asserts the validity and effectiveness of the Lewis Charge;
(b)it is admitted that, by letter from Lyon Smith to Gadens dated 23 October 2003, Miller, Catherine Miller and IPM offered to buy shares held by Boz One in IPS, and to acquire the debt owed by IPS to Wallabah for $500,000;[38]
(c)it is also admitted that the Receivers sold the Assets for the said sum of $500,000;[39] and
(d)it is admitted that the Receivers were under duties pursuant to s 420A of the Act.

[38]Second Further Amended Defence, dated 13 March 2013 [38].

[39]Second Further Amended Defence, dated 13 March 2013 [41(a)].

Investec pleads that, pursuant to cl 8.6 of the Deed of Charge, the exercise by Investec of any power thereunder does not cause or deem Investec:

(a)to be a mortgagee in possession;
(b)to account as mortgagee in possession; or
(c)to be answerable for any act or omission for which a mortgagee in possession is liable.[40]

[40]Second Further Amended Defence, dated 13 March 2013 [46(c)].

Investec says further that, pursuant to cl 8.2 of the Deed of Charge, Boz One and Wallabah are responsible for the acts and defaults of the Receivers, not Investec.[41] Accordingly, Investec denies that it breached any duties pursuant to s 420A of the Act and, specifically, it pleads that it:
[41]Second Further Amended Defence, dated 13 March 2013 [46(d)].

(a)denies that it breached any duties (which are denied) pursuant to s 420A of the Corporations Act;
(aa)further or alternatively, says that:
(i)its conditional consent under the Deed of Charge was conditional on the Receivers and Gadens confirming that the sale of the IPS shares and the assignment of the Wallabah loans complied with the Receivers’ obligations under s 420A of the Corporations Act 2001 (Cth); and
(ii)it relied upon the conduct of the Receivers in complying with those obligations and Gadens’ advice that the offer of $500,000 for the IPS shares and the Wallabah loans was, on the information to hand, a commercial settlement;

PARTICULARS
The Receivers’ conduct included obtaining valuation reports from Ferrier Hodgson and KPMG. Investec gave its consent in an email from Andrew Hirst of Investec to Karen McMaster of Gadens on 13 October 2003. The advice was provided in the email from Karen McMaster of Gadens to the Second Defendant and Andrew Hirst on 15 October 2003 and Gadens’ letter to the Second Defendant dated 24 October 2003, which was copied to Investec. The Receivers also received a letter of advice from Gadens dated 10 December 2003. Copies of the valuation reports, the emails and the letter are in the possession of Investec’s solicitors and may be inspected upon reasonable notice.

Investec pleads that, pursuant to cls 11.2(a) and (b)(i) of the Deed of Charge, it is not liable for any loss and damage suffered by Boz One and/or Wallabah arising from any omission or delay in exercise or non‑exercise of any power, as pleaded, except in relation to any loss or damage that arises from the wilful default, fraud or gross negligence of Investec.[42]
[42]Second Further Amended Defence [48(aa)].

Finally, Investec pleads that the plaintiffs’ claims are apportionable claims within the meaning of ss 24AE and 24AF(i) of the Wrongs Act, and that each of the Receivers and Gadens is a “concurrent wrongdoer” within the meaning of s 24AH(i) of the Wrongs Act. On that basis, by reason of s 24AI(i) of the Wrongs Act, Investec asserts that its liability in relation to the claim is limited to the amount reflecting the loss and damage the Court considers just, having regard to the extent of Investec’s responsibilities.

The Breaches alleged by the plaintiffs against the defendants are:

(a)the failure to appropriately value the IPS shares, because the valuations were based on the assumption that the Lewis charge was valid when, in fact, it was void and/or invalid and/or ineffective;[43]
[43]ASC [12]-[14] and [25].
(b)the failure to obtain independent legal advice as to the validity of the Lewis charge;[44]
[44]ASC [26].
(c)the failure to obtain valuations of the IPS shares on the basis that the Lewis charge was invalid;[45]
[45]ASC [27].
(d)the failure to make any attempt to obtain acknowledgment from Lewis that the Lewis charge was invalid;[46]
[46]ASC [28].
(e)the failure to make any attempt to negotiate with Lewis for the deregistration of the Lewis charge by agreement;[47]
[47]ASC [29].
(f)the failure to undertake any analysis of the costs associated with taking steps to obtain deregistration of the Lewis charge and the benefits of realising a higher value for the IPS shares;[48]
[48]ASC [30].
(g)the failure to offer on the open market the sale of, invite offers from the open market for the purchase of or advertise on the open market the availability of the IPS shares;[49]
[49]ASC [31].
(h)the failure to obtain independent valuations of the Wallabah debt;[50]
[50]ASC [32].
(i)the failure to make any attempt to negotiate for or obtain from IPS the repayment of the Wallabah debt;[51]
[51]ASC [33].
(j)the failure to make any attempt to negotiate for or obtain from IPS an acknowledgement of IPS’s liability to repay the Wallabah debt;[52]
[52]ASC [34].
(k)the failure to undertake any analysis of the cost associated with obtaining judgment against IPS for remedies arising from default in relation to the Wallabah debt, compared with the benefit of doing so;[53]
[53]ASC [35].
(l)the failure to offer on the open market the sale of, invite offers from the open market for the purchase of or advertise to the open market the availability of the Wallabah debt;[54]
[54]ASC [36].
(m)the discount of the value of the Wallabah debt, below the total of the advances thereunder plus interest, without any basis for doing so;[55]
[55]ASC [37].
(n)the failure to obtain valuations in relation to the Assets that were:
(i)independent; and
(ii)in time, so that they were received prior to any decision being made as to the sum for which the Assets would be sold by the Receivers;

(o)the purported acceptance by Investec of the offer of $500,000 from Miller and/or IPM for the IPS shares and for assignment of the Wallabah debt, without any attempt to obtain a higher offer and without consulting with the Receivers;[56]
(p)the adoption by the Receivers of the purported agreement between Investec, Miller and IPM for the sale of the Assets for a sum of $500,000, without attempting to obtain a higher offer;[57]
(q)the failure to offer for sale, invite offers for the purchase of or advertise the availability of the IPS shares to any person other than Miller and IPM;[58]
(r)the failure to offer for assignment, invite offers for assignment, or advertise the availability of the Wallabah debt to any person other than Miller and IPM;[59]
(s)the sale of the assets for a price that was below the market value of those assets;[60]
(t)the failure by Investec to take steps to cause the Receivers to offer for sale, invite offers for the purchase of, or advertise the availability of, the IPS Shares and the Wallabah debt to any person other than Miller and IPM.[61]

[56]ASC [40](a).

[57]ASC [41](a).

[58]ASC [43].

[59]ASC [44].

[60]ASC [45]; Further and Better Particulars of Statement of Claim: 27 February 2012 under paragraph 47.

[61]Plaintiffs’ Further and Better Particulars of Statement of Claim dated 27 February 2012 under paragraph 47.

In relation to the case as between the plaintiffs, the Receivers and Investec, the following issues also arise:

(a)if it becomes relevant, whether the Deed of Charge[62] precludes or limits the Receivers’ and/or Investec’s liability to the plaintiffs;
(b)if it becomes relevant, whether the plaintiffs have established the asserted damage; and
(c)if it becomes relevant, whether there should be an apportionment of the Receivers and Investec’s liability under the Wrongs Act.

[62]CB 1381-1434.

By Notice of Contribution or Indemnity dated 30 September 2012, the Receivers claimed contribution and indemnity against Investec in respect of the plaintiffs’ claims against them. The claim for indemnity is based on certain Deeds of Indemnity between the Receivers and Investec. The Deed of Indemnity relating to the appointment of the Receivers to Boz One is dated 11 March 2003,[63] and the Deed of Indemnity with Investec in relation to the appointment of the Receivers to Wallabah is dated 23 September 2003.[64]
[63]CB 2413‑2418.
[64]CB 3390‑3400.

Additional pleadings included the third parties’ Defence dated 13 March 2013 to the plaintiffs’ Amended Statement of Claim dated 8 March 2010, and Notices of Contribution and Indemnity.

In light of my findings and decisions below, I do not consider that it is necessary to traverse all the pleadings between the parties in detail.

Summary of the significant evidence
A detailed exposure of the relevant facts is necessary

Because of the nature of the issues relating to the care with which the Receivers addressed and dealt with the Asset sale process and Gadens advice in relation thereto, in particular the multi-faceted, unusual and complex set of factors establishing the complicated relevant circumstances impacting on the Receivers, Investec and Gaden’s considerations and ultimate actions in the Assets sale process, I consider it important to deal with the evidence given in relation to those facts and circumstances in some detail, particularly in relation to the actions, and alleged inactions, of the parties and relevant others.

Crosbie’s evidence in chief

By his witness statement dated 19 October 2012,[65] Crosbie stated that, at the time he was appointed as a Receiver and Manager of Boz One in March 2003, he was employed by PPB. He stated that, by then, he had been earlier appointed as a Receiver and Manager, Liquidator or Administrator to approximately 12 companies. By March 2003, Crosbie had also assisted in the receivership of approximately 30 companies, but had never been appointed as a Receiver and Manager by Investec.[66]
[65]CB 120[a62]–[a120].
[66]Crosbie’s Witness Statement “Crosbie WS” [4].

Crosbie’s evidence in chief was that, in early January 2003, Reichenberg telephoned him to enquire as to whether Crosbie and/or Ian Carson (‘Carson’) were available to accept an appointment as Receivers and Managers of Boz One and Boathouse.

The Receivers were ultimately appointed as Receivers and Managers of Boz One by Investec on 11 March 2003, pursuant to a Deed of Appointment dated 11 March 2003,[67] with an associated Deed of Indemnity dated 11 March 2003.[68] The appointment of the Receivers was a joint and several appointment. Crosbie was responsible for the day to day management of the Receivership.[69]
[67]CB 2421-2426.
[68]CB 2413-2418.
[69]Crosbie WS [13].

Crosbie retained Gadens as the solicitors in respect of the receivership of Boz One. Reichenberg acted and was assisted by McMaster of Gadens.[70]
[70]Crosbie WS [17].

Crosbie stated that his objective as Receiver and Manager of Boz One was to identify the relevant assets of the company, secure those assets for the benefit of Investec, ascertain the value of those assets and then realise them. In this regard, Crosbie acknowledged that he was aware that he was under statutory obligations, including the obligations imposed by s 420A of the Act.[71]
[71]Crosbie WS [18].

Crosbie stated that, through his inquiries as Receiver and Manager of Boz One, he learnt that Boz One had a shareholding in IPS.[72] He also became aware that IPS operated a slipway business on Wharf Street, Port Douglas, on Crown land leased to Mirage, which in turn subleased the property to IPS. IPS further subleased part of the property to four retail businesses, from which rent was collected.[73]
[72]Crosbie WS [21].
[73]Crosbie WS [22].

Crosbie’s searches also revealed that Rolfe was the sole director of IPS, and that the IPS shares were held equally by Boz One and IPM – a company controlled by Miller. Those inquiries by Crosbie also revealed that Lewis Securities was the first-ranking secured creditor of IPS.[74]
[74]Crosbie WS [23].

Crosbie states that his review of relevant financial records and the like to 30 October 2002 disclosed that, at 30 October 2002, IPS had:

(i)a reported net profit, before tax, of approximately $88,000 for the five months ending 30 October 2002;
(ii)net assets of approximately $292,000; and
(iii)a loan from Wallabah of around $694,000;

As a result, Crosbie formed the view that Boz One’s interest in IPS was at least $146,000.[75]

[75]Crosbie WS [24]-[25].

In his statement,[76] Crosbie points out that he was provided with a copy of an unexecuted sublease between Mirage and IPS. He says further that he recalls that the leases had not been executed because IPS had only one director, whereas two were required to execute legal documents under IPS’s Constitution. Crosbie states that he was concerned that the leases were not properly executed because of the adverse effect on the value of the business given that, in his view, the leases could not be transferred to prospective purchasers. Crosbie also stated that, in his view, if the head-lease were sold, there was a risk that the sublessees would walk away because there was nothing to lock them in.[77]
[76]Crosbie WS [26]-[27].
[77]Crosbie WS [27].

As a result of information received, Crosbie also believed that, in addition to the fixed and floating registered debenture charge over IPS, Lewis may have provided a loan to IPS that was not disclosed in the financial statements of IPS.[78] Accordingly, on 13 March 2003,[79] Crosbie wrote to Goldsmith Lawyers – who had, Crosbie believed, previously acted for Rolfe – requesting that the firm provide him with an up to date copy of the financial statements of IPS to enable the Receivers to ascertain the value of Boz One’s investment and shareholding in IPS. The Receivers did not receive a response from Goldsmith Lawyers.[80]
[78]Crosbie WS[28].
[79]CB 2436-2437.
[80]CB 2473(a)‑2473(b).

Crosbie’s statement refers to the inquiries and efforts that the Receivers made to ascertain the nature and extent of the indebtedness of IPS under the Lewis charge, which was purported to secure advances made by Lewis to Wallabah.[81] Similarly, the Receivers requested financial information from IPS.[82]
[81]Crosbie WS [35]-[38].
[82]Crosbie WS [33]-[34].

On 2 April 2003, Hunt & Hunt, solicitors for Lewis Securities, wrote to the Receivers,[83] informing them that money was advanced to Wallabah by Lewis Securities. Hunt & Hunt stated that security was taken from IPS because Wallabah was, according to Lewis Securities, the holder of half the shares in IPS. Hunt & Hunt also informed the Receivers that Lewis Securities had provided a loan to Wallabah in part to assist with developments at Wharf Street, Port Douglas by IPS.
[83]CB 2513.

Crosbie states that he was aware from his own searches that Wallabah did not at any point own shares in IPS, and was therefore concerned about the validity of the Lewis charge.[84] Further, Crosbie states that, as a result of concerns about the validity of the Lewis charge, he met with Reichenberg and McMaster of Gadens on 8 April 2003. Those discussions confirmed that concerns about the validity of the Lewis charge were shared by Gadens. In particular, Gadens had concerns in relation to the debt that was the subject of the charge, as well as the validity of the charge. These concerns were based on the fact that the charge was executed by Rolfe alone when it appeared that, at the time of execution of the charge, Rolfe was not authorised to bind the company because the company’s Constitution required two directors to bind it in that way.
[84]Crosbie WS [39].

On 14 April 2003 Adrian Hunter (‘Hunter’) of PPB sent an email to McMaster, which was copied to Crosbie. By virtue of that email, Crosbie was also acquainted with the then views of Mr Dayle Smith (‘Smith’) of Lyon Smith, who acted for Miller and IPM. Lyon Smith harboured concerns about whether the Lewis charge had been lawfully and effectively entered into by Rolfe on behalf of IPS.

Clause 15 of the Constitution of IPS at (CB 948-983) is set out in full below.

Accordingly, I am not satisfied that the Receivers failed to take all reasonable care to sell the Assets for not less than their market value.

In the event that I am not correct in my above interpretation of s 420A(1) of the Act and in particular my exhaustive and mutually exclusive interpretation of s420A(1)(a) and s420A(1)(b) and in the event that I am also also wrong about my finding that the plaintiffs should be fixed with the case they pursued under s420A(1)(a) alone, for completeness, I add that I am also satisfied that the Receivers, took all reasonable care to sell the Assets for the best price reasonably attainable in the circumstances.

For the above reasons the Receivers did not breach s 420A(1) of the Act.

For the above reasons no liability is made out by the plaintiffs against Investec or Gadens.

Conclusions as to Liability

I am persuaded that there were four main reasons why the Boz One shares were in essence unmarketable, and which caused their value to be negligible. In summary those factors were:

(a)IPS had granted a charge over all its assets to Lewis Securities in relation to a borrowing of approximately $1.29 million.
(b)IPS had no security of tenure over its only significant assets, that is the leaseholds and improvements in relation to the land and premises on which it conducted its business and/or sublet to others;
(c)Miller’s company, IPM, enjoyed a first right of refusal in relation to the purchase of Boz One shares;
(d)The existence of the Wallabah debt.

I will address each of these factors in turn.

The Lewis Charge

Lewis Securities claimed the Lewis charge secured a debt of $1.29 million. The Lewis charge was registered with ASIC and would likely be noticed by a prospective purchaser of shares in IPS.

Although the effectiveness of the Lewis charge was a matter of debate and some uncertainty, the potential validity of the Lewis charge and the impact of that substantial encumbrance on the value of the IPS shares was, in my view, a real impediment to the sale of the IPS shares on the open market. This was because of the likely perception by prospective purchasers that the IPS shares were worth nothing, or at best very little, because of the extent to which they were encumbered. Further, a prospective purchaser would likely be very reluctant to purchase shares that were subject to a potentially substantial charge that could be enforced against the shares almost straight away.

Any legal challenge to the effectiveness of the Lewis charge carried with it both risks that such a challenge would not be successful, and also the burden of the costs to IPS associated with mounting such a challenge, probably in the order of $80,000 to $150,000. The Receivers quite reasonably considered that a prospective purchaser of the IPS shares would pay less for those shares if, at the time of any negotiation for the purchase of the shares, litigation was on foot to remove the Lewis charge. Further, the Receivers logically considered that unsuccessful litigation in this regard would further negatively impact the value of the IPS shares. Finally, the Receivers and Gadens were aware that Lewis had stated that he was intending to vigorously defend any application to remove the Lewis charge.

Furthermore, I accept that the Receivers’ and Gadens’ concerns in relation to any legal action to declare the Lewis charge invalid and have it removed were justifiable and reasonable in the circumstances. In particular, I accept their concerns that legal action would have been risky, and would potentially have generated costs sufficient to render such legal action detrimental to the overall value of IPS, taking into account that the value of the half interest in the IPS shares at the time was probably only in the range of between nil and about $185,000, as opined by Ferrier Hodgson and KPMG in their 2003 Reports.

I consider that the Receivers and Gadens acted with all reasonable care in considering and concluding that the potential validity of the Lewis charge probably rendered the IPS shares unmarketable and caused their value to be negligible.

The IPS Leases and Subleases

Similarly, the existence, execution and registration of the lease between Mirage and IPS, and the existence and execution of subleases in relation to the IPS property was also a matter of debate and some uncertainty on the evidence. In my view, on the evidence, a real risk existed at the time the Receivers were considering disposal of the Assets, and at the time of the Asset Sale, that there were no formal and binding leases or subleases in relation to the Slipway. I consider that, as a result of these factors, the Receivers and Gadens were justified in their view that there was no clear security of tenure over IPS’ most significant asset – namely, its rental stream. Further, I consider that it was likely that the sub-lessees were subject to only unsigned, informal and short term tenancies.

A further risk associated with the equivocal leases was the possibility that, if IPS shares were placed on the open market, a potential purchaser might deal directly with Mirage in an endeavour to better its negotiating position. As a result, I also find that the Receivers and Gadens were justified in their view that the value of IPS was greatly diminished, and would be so regarded by a potential purchaser of the relevant 50% shareholding in IPS.

Accordingly, I consider that the Receivers and Gadens were justified in regarding the uncertainty relating to the IPS leases and subleases as a real and substantial impediment to the sale of the IPS shares on the open market.

Further, due to the state of the documentation relating to the lease and subleases in 2003, I conclude that IPS probably had no saleable interest in the Slipway land.

I consider that the Receivers and Gadens acted with all reasonable care in considering and concluding that these potential uncertainties of tenure probably also rendered the IPS shares unmarketable, and caused their value to be negligible.

Furthermore, I accept that the Receivers’ and Gadens’ concern that it would be unacceptably risky to take the shares to the open market was justifiable and reasonable in the circumstances. This is particularly so given Miller’s effective commercial control over the Slipway business, and also because the Receivers and Gadens had good reason to conclude that, in reality, Miller controlled the goodwill associated with the Slipway business.

I accept that it was justifiable and reasonable for the Receivers and Gadens to be concerned that Miller and IPM may well move to render the IPS leases and Slipway business worthless by seeking to side step IPS and establish effective leases with the occupants of the Slipway businesses.

First Right of Refusal

Miller, via IPM controlled fifty per cent of the shares in IPS. As a result of this, and of the likely effect of cl 15 of the IPS Constitution, IPM and Miller were in a position in which they could ultimately block any transfer of IPS shares to a prospective purchaser. This meant that the Receivers could probably not make an unqualified offer to sell the IPS shares to anyone other than Miller.

The Receivers considered that, in the circumstances, any potential purchaser who was informed of the right of first refusal would not be likely to even undertake any due diligence on IPS. If the Receivers took the IPS shares to market and did not get a better offer than that made by Miller, via IPM, Miller would likely be aware of this and would probably withdraw, or reduce, his offer to purchase the IPS shares.

In the circumstances, I accept that the Receivers and Gadens were justified in their view that doing anything other than dealing directly with Miller was likely to result in realising the Assets for a lower value than would be achieved in direct negotiations with Miller.

The Wallabah Debt

The Receivers reasonably considered that the lack of formal documentation in relation to the Wallabah debt, the apparent lack of clear company records relating to the advances made by Wallabah and attendant uncertainty as to the terms of the debt rendered the Wallabah debt unrecoverable, or at least very difficult to recover.

Further, the Receivers reasonably considered that there was a real risk that, if the Wallabah debt was pursued against IPS, IPS would be insolvent and would immediately seek to enter voluntary administration. The Receivers believed that, if the Lewis charge was effective and remained in place, then the Wallabah debt would be unrecoverable from IPS.

The Receivers also reasonably believed that neither IPS nor Boz One were financially capable of funding litigation against Lewis Securities to challenge and, if possible, remove the Lewis charge.

The key factors which the Receivers and Gadens considered significantly diminished the value of the Wallabah debt were:

(a)the uncertain amount that had been advanced comprising that indebtedness by IPS;
(b)the uncertainty of the precise terms of the Wallabah debt;
(c)the significant risk that the Wallabah debt could not be recovered as a result of IPS solvency in 2003;
(d)the lack of evidence as to the market value of – or the best price reasonably attainable for – the Wallabah Debt.

In relation to each of the above factors I have addressed I accept that the Receivers and Gadens were justified in holding the views they did and that in relation to each factor I also consider that they each acted reasonably and with all reasonable care in the way, and in relation to the extent to which, they informed themselves about and considered the above matters.

I do not consider in the circumstances that the Receivers were required to undertake further enquiries or take any other or additional steps in the Assets sale process. I also note that a significant component of such circumstances was created by what I accept as the unsatisfactory state of the corporate records of the plaintiffs and IPS and the circumstance that the Receivers were not assisted by Rolfe, the controlling mind of the plaintiffs and a Director for some time of IPS, in relation to the Receiver’s enquiries and requests for information and documentation to assist them in their asset realisation tasks.

I find that, on the evidence, that the Receivers and Gadens were justified in concluding and acting on the basis that the Wallabah debt was an asset with a Market value well under $500, 000 and susceptible of being entirely unrecoverable.

Further, in assessing the extent of reasonable care taken by the Receivers, it weighs in their favour that they sought and received specific advice from Gadens in relation to what steps would be appropriate in the sales processes. They also sought advice that specifically addressed their obligations under s 420A(1) of the Act. Furthermore, the Receivers followed Gadens’ advice in the material respects. The key Gadens’ advice was given by letters dated 23 October 2003 and 10 December 2003.[960]
[960]CB 3657; CB 4169.

Similarly, the Receivers sought and obtained expert valuation reports from KPMG and Ferrier Hodgson as to the market value of the Assets. As I have already found to be the case, they sought this advice from the Valuers before they committed to the sale to Miller for $500,000. Again, the Receivers acted in a way that was consistent with the advice they received from the Valuers.

I recognise that by simply seeking, receiving and following professional advice in relation to the discharge of their obligations does not necessarily mean that the Receivers have fulfilled their duties under s 420A(1) of the Act. However, I consider that following such a course adds a significant element of support for the conclusion that, in all the circumstances, the Receivers took all reasonable care in the sale of the Assets.

Furthermore, although the Ferrier Hodgson and the KPMG valuation reports were not relied on by the defendants as to the truth of the opinions contained therein (DS 19 March 2013 [319]) and no qualified expert valuer was called to give evidence on behalf of KPMG or Ferrier Hodgson to speak to their valuation reports, or be exposed to cross-examination, the valuation reports were tendered and formed part of the agreed Court Book filed at the conclusion of the trial. Accordingly, the Ferrier Hodgson and the KPMG valuation reports are relevant to my evaluation of reasonableness of the actions of the Receivers, Gadens and the care those parties took in relation to the discharge of their respective duties, in particular in relation to the sales process.

The valuation reports also constitute material upon which the Receivers can base the justification of their acceptance of the sum offered by IPM and Miller which is an important factor in their careful discharge of their duties under s 420A(1) of the Act. These valuation reports are also relevant to my assessment of whether, in all the circumstances, the Receivers took all reasonable care as required by s 420A(1) of the Act and, if necessary, in my consideration as to whether Gadens discharged its separate duty of care.

Insofar as the valuation reports both ascribed a market value to half of the IPS shares, in the circumstances each took into account, at a market value of much less than the sum offered of $500,000, namely of nil to $185,000, they both provide further weighty justification for the Receiver’s decisions and actions in the sales process.

In this case, I am however not called upon to finally decide and declare the position in relation to the above factors, which potentially affect the marketability and market value of the Assets.

I also note that in this case, unlike Florgale the plaintiffs adduced no expert evidence as to what a sufficiently careful Receiver and manager should have done in the position of the first and second defendants. Similarly, no such expert evidence was available to the plaintiffs in its case against Investec or in relation to the Plaintiffs’ allegations against the third party.

In this case the plaintiffs also failed to adduce any acceptable probative or persuasive expert evidence as to the market value of the IPS shares at the relevant time.

Further,no evidence was sought to be put before the Court as to the market value of the Wallabah Debt.

Cumulative effect of the above factors

Finally, I am satisfied that the Receiver’s identification and evaluation of the relevant factors pertinent to the sales process, which are addressed above, were identified and evaluated by the Receivers with all reasonable care. I am also satisfied that the sales process undertaken by the Receivers in this case was such as to demonstrate that the Receivers took all reasonable care to sell the Assets for not less than their market value.

I am also satisfied, on the balance of probabilities, that the combination of all the factors referred to above were such as to justify the Receivers and Gadens in their view that the combined market value of the Assets was probably well under $500,000.

I am satisfied that the above factors are such as to justify their decision not to go to the open market to sell the Assets and to justify their decision to adopt the sales process they did, and also to justify their view that the Asset Sale was a satisfactory commercial outcome in all the circumstances.

As I have earlier noted it is however, not incumbent upon this Court to determine the market value of the Assets, or either of them. Further, in any event there is insufficient evidence before the Court to do so as explained above.

For the above reasons, I consider that the Receivers acted with all reasonable care in the process they adopted and prosecuted for selling the Assets which resulted in a sale for a total sum of $500,000. In relation to that sales process they took all reasonable care to sell the Assets for not less than their Assets market value.

Further, lest I am wrong about the matters referred to above in relation to the proper interpretation of s 420A(1), and the plaintiffs not being able to advance a case at trial under s 420A(1)(b), I also add for completeness that I am persuaded that the Asset Sale also achieved the best price reasonably obtainable, having regard to the circumstances existing when the Assets were sold, and that in this regard the Receivers also took all reasonable care in the sale of the Assets.

Although I have concluded that there has been no breach of s 420A(1) of the Act by the first and the second defendants and although I have also concluded in relation to the third defendant that it was not a controller, within the meaning of the Act and further that in any event it did not breach s 420A(1) of the Act for completeness I add the following in relation to the plaintiffs’ compensation claims.

If a relevant breach had been made out against the responding parties the resultant loss to the Plaintiffs would be measured by determining the difference between the market value and the sale price of the Assets. This figure would represent the primary loss. There may have been other discernable losses for which damages could be awarded were such losses causally related to the breach, Glodale [97]. However, as I have separately addressed the plaintiffs neither proved the primary loss to which I have referred nor did they seek to prove any other additional losses.

The plaintiffs also claim an entitlement to an account and equitable damages in the result. However, in my view although there have been diverging decisions as to the remedies applicable in relation to s 140A(1) of the Act, I consider that the common approach is for a Court to determine any compensation to which the plaintiff is entitled based upon the loss occasioned from the breach of duty, Glodale [ 102 ] and Kyuss Express Ltd [130]-[131], per Mandie J. Accordingly, if the plaintiffs had made out a breach I consider that the appropriate compensation would be in damages. Again I note that in all events the plaintiffs have failed to satisfy me that they have suffered any loss or damage.

Further, on the bases of my findings in relation to the plaintiffs’ failure to establish the breaches of the alleged duty against the defendants, and also as a consequence of the plaintiffs’ failure to demonstrate any loss and damage suffered as a result of the actions of any of the defendants, or any right to equitable damages or compensation, I am also not satisfied that the plaintiffs have established any entitlement to orders for the taking of an account or for equitable damages.

As a result of my above findings and conclusions it is not necessary or appropriate to determine the third party claims brought by the Receivers against their Lawyers, Gadens, or Investec’s claims in relation to Gadens.

Nor, given the above findings and conclusions, is it not necessary or appropriate to determine the several apportionment and contribution claims between the parties in these proceedings.

Summary of findings and conclusions

In summary, my principal findings in this matter are as follows:

(a) In the process of selling the Assets, the Receivers took all reasonable care to sell the Assets for not less than their market value;

(b) Notwithstanding that the plaintiffs and the defendants and the third party submitted that the Assets had a “market value”, and therefore the second limb of s 420A(1), namely s 420A(1)(b) is not applicable, and further, notwithstanding that the plaintiff conducted its case by pursuing the defendants and Gadens for breach of s 420A(1)(a), for completeness I also find that in the course of the process to sell the Assets, the Receivers took all reasonable care to sell the Assets for not less than the best price reasonably attainable, having regard to the circumstances existing when the property was sold;

(c) The Assets probably had a “market value”, however I make no determination as to the market value of the Assets;

(d) The Market value of the Assets in about mid-December 2003 which was considered by the Receivers and Gadens as a factor in their evaluations was:

(i) the shares in IPS: nil to $185,000 ; and

(ii) the Wallabah debt: probably unrecoverable, although the Wallabah debt had a “book value” of $670,000, or possible more;

(e) The Receivers did not sell the Assets for a sum less than they reasonably considered to be their market value.

(f) Further, although not of determinative significance given that the Assets probably had a “market value” such as to render s 420A(1)(a) applicable, the Receivers also attained what they reasonably considered to be the best price reasonably attainable in the circumstances existing when the Assets were sold;

(g) The Receivers did not fail to take all reasonable care in the sale of the Assets and did not breach s 420A(1) of the Act.

(h) In exercising their power of sale over the Assets, the Receivers took all reasonable care to sell the Assets at not less than market value and they did so in special and difficult circumstances, which negatively affected the market value and saleability of the Assets, which circumstances were principally constituted by the following factors:

(i)the existence and effect of the Lewis charge over all the assets of IPS in favour of Lewis Securities;
(ii)the uncertainty as to the sum of the Wallabah debt;
(iii)the possible enforceability of the Wallabah debt against IPS;
(iv)the low valuations of the IPS shares and the Wallabah debt;
(v)the uncertainties as to the existence and enforceability of the subleases and sub-subleases relating to the IPS slipway businesses;
(vi)the significance of Miller to the successful operation and goodwill of the slipway business operated by IPS;
(vii)the effect of any pre-emptive rights exercisable by Miller’s company, IPM, under cl 15 of the IPS Constitution, in relation to the purchase of the Boz One shares; and
(viii)the solvency of IPS.

(i)Investec was not a “controller”, and did not owe the plaintiffs a duty under s 420A(1) of the Act. Further, the conclusion reached in relation to the Receivers means that Investec did not breach any duty alleged by the plaintiffs.
(j)The plaintiffs did not establish the market value or any alternative value for the Assets.
(k)The plaintiffs did not establish that, had the Receivers acted differently, a materially better sale price would have been attained for the Assets.
(l)The plaintiffs did not prove that they have suffered any loss or damage.
(m)Given my primary findings it is not necessary to determine whether the third party (‘Gadens’), who at all times acted for Investec, and after appointment, for the Receivers also, owed the alleged duties of care to the defendants.
(n)Further, in any event, Gadens acted responsibly and appropriately as its clients’ lawyer.
(o)Given the above, it is not necessary to determine the effect of the Deeds of Charge between the plaintiffs, the Receivers and Investec, nor is it necessary to determine the effect of the Deed of Indemnity between the Receivers and Investec.
(p)Given the above, it is not feasible or appropriate to attempt to ascribe a theoretical apportionment of contribution and/or attribution of loss and damage as between the parties pursuant to their various claims under the Wrongs Act 1958 (Vic) (‘Wrongs Act’).

Decision
(1)The Plaintiffs’ claims are dismissed;
(2)I shall hear the parties, when convenient, as to consequential orders, including any orders as to costs.

Appendix 1 – Defined Terms

Defined Term	Meaning
Boz One	The first-named plaintiff – Boz One Pty Ltd.
Wallabah	The second-named plaintiff – Wallabah Pty Ltd.
IPS	Island Point Slipway Pty Ltd.
Wallabah debt	The debt owed to Wallabah by IPS, which was allegedly disposed of at below market value by the first and second defendants.
Glodale loan	The loan agreement pursuant to which Glodale borrowed $11.8 million from Investec, secured by guarantees from Boz One and Wallabah, among others.
Investec	The third-named defendant – Investec Bank (Australia) Limited.
Glodale	Glodale Pty Ltd.
Receivers	The first and second defendants – Andrew James McLellan and Craig David Crosbie.
PPB	Carson & McLellan PPB – chartered accountancy firm at which Crosbie and McLellan worked.
Act	The Corporations Act 2001 (Cth).
IPS shares	The shares in IPS, owned by Boz One, which were allegedly disposed of at below market value by the Receivers.
Assets	The IPS shares and the Wallabah debt.
Lewis charge	A charge over the assets of IPS, held by Lewis Securities to secure a loan of $1.2 million to IPS.
Lewis Securities	Lewis Securities Limited.
Lewis loan	The loan of $500,000 from Lewis Securities to Wallabah.
Miller	Mr Leon Miller, sole director of IPM, director of IPS along with Rolfe until his resignation.
MRH	Mirage Resorts Holdings Ltd
Gadens	The third party to the proceedings – Gadens Lawyers, who acted for Investec and the Receivers at all relevant times.
Wrongs Act	Wrongs Act 1958 (Vic).
Rolfe	James Geoffrey Rolfe – sole director of Boz One.
Boathouse	Boathouse Port Douglas Pty Ltd.
Mrs Rolfe	The wife of James Geoffrey Rolfe, who provided a personal guarantee to Investec.
FMC	First Melbourne Capital Pty Ltd.
FMC loan	Loan of $800,000 from FMC to Wallabah.
Crosbie	Craig David Crosbie, the second defendant.
IPM	Island Point Marine Pty Ltd, a company that owned the remaining 50% of the shares in IPS.
Mirage	Mirage Resorts Holdings Ltd, trustee for the Port Douglas Resort Trust.
Klooger	Geoff Klooger, solicitor for Rolfe and Boz One.
Lewis	Tony Lewis of Lewis Securities.
Allens	Allens Arthur Robinson, solicitors for Lewis Securities.
Lyon Smith	Lyon Smith Commercial Lawyers, solicitors for IPS, IPM and Miller.
McMaster	Karen McMaster, solicitor at Gadens.
HKS	Horwath Kehoe Smith, valuers for Miller and IPS.
Palethorpe	Robert Palethorpe, solicitor based in Port Douglas.
Reichenberg	David Reichenberg, partner at Gadens.
Asset Sale	The sale of the Assets.
Breaches	The breach by the Receivers of their obligations under s 420A of the Act, as alleged by the plaintiffs.
Carson	Ian Carson, who was approached to act as Receiver and Manager of Boz One.
Hunter	Adrian Hunter of PPB.
Smith	Dayle Smith of Lyon Smith, solicitors for Lewis and Lewis Securities.
Meredith	Greg Meredith, Partner at Ferrier Hodgson
Potter	Caretaker of an apartment in one of Mrs Rolfe’s buildings, whom Rolfe had asked to handle the sale of the IPS shares.
Gibson	IPS and Miller’s accountant.
Nagan	Lillian Nagan, solicitor for IPS in about 2002 or 2003.
Elias	Nigel Elias, solicitor, who acted for Lewis Securities.
Hirst	Andrew Hirst, of Investec.
Hunt & Hunt	Solicitors acting for Lewis Securities.
Valuers	KPMG and Ferrier Hodgson, who provided valuation reports in relation to the Assets.
Stallman	Mark Peter Stallman, a valuer based in Cairns in North Queensland, who was called by the plaintiffs.
IPS property	IPS Leasehold Property at Wharf and Inlet Streets, Port Douglas, Queensland
Stallman report	Stallman’s initial report dated 10 February 2012 valuing the IPS Property at $730,000 excluding GST.
Supplementary Report	Additional valuation report of Stallman, which was based on additional sales information that was not available at the time of writing the Stallman report.
Land Act	The Land Act 1994 (Qld), which governed the administration and management of the leases in Port Douglas.
Historical Search	The historical state tenure search produced by the Department of Natural Resources and Mines, Queensland in relation to the crown lease with title reference 17557040 (lot 103 on Crown Plan SR500).
NAB	National Australia Bank Ltd.

[2014] VSC 208

9 May 2014