Coonwarra Pty Ltd v CornoNero Pty Ltd

[2023] VSC 781

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2017 00190

Coonwarra Pty Ltd	Plaintiff
v
CornoNero Pty Ltd and others (according to the attached Schedule)
Defendant

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-	Nichols J
WHERE HELD:	Melbourne
DATE OF HEARING:	20 to 22 September 2021; 23 September 2021; 27 September 2021; 29 September to 15 December 2021; 28 February to 4 March 2022
DATE OF JUDGMENT:	22 December 2023 (reasons re-issued 11 January 2024)
CASE MAY BE CITED AS:	Coonwarra Pty Ltd v CornoNero Pty Ltd
MEDIUM NEUTRAL CITATION:	[2023] VSC 781

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EQUITY — Fiduciary Obligations — Joint venturers — Land owner and developer — Written agreement to develop land — Profit sharing and joint decision making — Whether there was a common endeavour — Whether relationship was fiduciary in ‘substance’ — Whether dealings outside of agreement — Joint endeavour arose out of operation of agreement — Parties in a common endeavour — ‘Substantial dominance’ by developer — Land owner on risk for secured borrowings — Developer had unfettered discretion over deployment of funds — Relationship fiduciary at least in part — United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1 cited — Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd (2017) 54 VR 625 cited.

CONTRACTS — Implied Terms — Implied Duty of Good Faith — Whether a duty of good faith is implied — Whether implied by law — Whether implied term to act in best interests — Whether implied term to not gain advantage for oneself — Duty of good faith not implied indiscriminately in Victoria — Implication of term in particular class of contracts — Test of necessity — Incorrect approach taken by plaintiff — No duty of faith implied — Breach not considered — Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 cited — Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 cited.

CONTRACTS — Alleged Agreements — Partly oral, partly implied — Developer used borrowed funds to reimburse pre-construction development costs — Developer used borrowed funds for own purposes — Whether there was agreement to take advance borrowed funds as reimbursement — Whether there was agreement to advance profits from borrowed funds — Whether there was agreement for borrowed funds to be used for own purposes — Informal dealings between parties — First advance agreement collateral to Asset Development Agreement — First advance agreement established — Second advance agreement not established.

CONTRACTS — Breach of Contract — Loan Agreements — Agency — Lender and Borrower — Lender disbursed funds to parties other than Borrower — Whether Lender entered loan agreements as agent for disclosed principals — Whether Lender a concurrent principal — No intention for Lender to assume personal liability — Lender intended to contract only in capacity as agent — Breach of contract claim failed.

CONTRACTS — Implied Terms — Lender disbursed funds to parties other than Borrower — Whether Lender disbursed funds at direction or with consent of Borrower — Whether Lender disbursed funds other than for stated purpose — Implied payment authority term established — No implied lending purpose term — Borrower partly consented to disbursement of funds — BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 cited — Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678 cited.

CONTRACTS — Novation — Tripartite — Agreement between landowner and developer to develop land — Project sold to incoming builder — Whether novation of agreement occurred — Whether original contract is extinguished — Whether novatee inherited fiduciary obligations — Informal agreement to novate — Intention to novate evinced by parties’ conduct — Novatee assumed fiduciary obligations owed by novator — McMahon v National Foods Milk Ltd (2009) 25 VR 251 cited — Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678 cited.

ESTOPPEL — Guarantees — Ostensible authority — Single director offered guarantees on behalf of principal company — Whether director had authority to execute guarantee — Whether the guarantee was supported by consideration — Whether principal was obliged to pay under the guarantee — No actual authority — Director had ostensible authority — Principal ‘held out’ director as having broad authority over development project — Consideration in the form of agreement to sign contract of sale — Guarantee legally binding on principal — Principal not obliged to pay on proper construction of guarantee — NIML Ltd v Man Financial Australia Ltd (2006) 15 VR 156 cited — Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd [2007] VSC 158 cited.

EQUITY — Fiduciary Duty — Third Party Liability — Fiduciary relationships already established — Company assumed duties under novation of agreement — Attribution of conduct and knowledge to a company — Whether there were breaches — Procuring breach of fiduciary duty — Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 cited — Commonwealth Bank of Australia v Kojic [2016] FCAFC 186 discussed — Pittmore Pty Ltd v Chan [2020] NSWCA 344.

EQUITY — Knowing receipt — Trust property — Baden scale — Whether third party knowingly received trust funds — Director’s knowledge attributable to the company — Company had notice of the trust — Farah ConstructionsPty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 cited.

MISLEADING OR DECEPTIVE CONDUCT — Future matters — Pleaded representations re-formulated in submissions — Case confined to pleading — Representations as to necessity for land owner to borrow funds for development — Oral representations — Whether representations were made — Whether representations were misleading or deceptive — Finding that representations made — Representations were not misleading — Competition and Consumer Act 2010 (Cth), sch 2 — Australian Consumer Law, ss 4, 18.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr AT Schlicht with Ms CJ Dawes	Simon Nixon
For CornoNero	Mr RM Garrett QC with Mr A Germano	Corrs Chambers Westgarth
For Peter Breckenridge	Mr AT Strahan QC with Mr P Tiernan	Dentons Australia Pty Ltd
For Silvio Ascenzo	Mr J Tsalanidis with Mr G Lubofsky	Sinisgalli Foster Legal Pty Ltd
For Berkeley Capital Partners	Mr CG Juebner with Mr KR Hickie	Russell Kennedy Lawyers

Contents

I.... Introduction

A...... The central issues in contest

B...... Structure of these Reasons

C...... Principal actors

D...... Credit of witnesses

II.. Chronological Narrative, Facts and Events

III. Mernda Development Work and Trimont Financial Position

A...... Work done on the Mernda development

B...... The financial position of Trimont Pty Ltd

IV. Issues and Claims

A...... Did Trimont owe fiduciary duties to Coonawarra?

B...... Were terms to be implied in the Asset Development Agreement, as alleged?

C...... Did Coonwarra and Trimont or CornoNero make the alleged ‘Advance Agreements’?

D...... Was the Asset Development Agreement novated to CornoNero?

E...... Is CornoNero or Breckenridge liable under the written guarantees?

F....... Breaches of fiduciary duty and third party liability

G...... Is Breckenridge or Ascenzo liable by reason of misleading or deceptive conduct?

H...... Is BCP liable to Coonwarra for breach of contract?

Annexure A – Connections between people and entities

Annexure B - Work done on the Mernda Land

Annexure C - The Financial Position of Trimont Pty Ltd – History

Annexure D – List of Loan Disbursements

HER HONOUR:

1. Introduction

A          The central issues in contest

1. Before the events the subject of this proceeding, the plaintiff, Coonwarra owned a large, unencumbered parcel of land in Mernda, in Melbourne’s North‑East. With the spread of Melbourne’s urban growth zone Coonwarra became interested in developing the Mernda Land. Coonwarra, controlled by Martin Van der Burgt, entered into a venture with Trimont Pty Ltd, a company controlled by Silvio Ascenzo, to develop the land into a shopping centre. The Land was valued at $6.5 million at that time. Trimont was in the building and construction business. Coonwarra was not, and nor were its principals, Martin Van der Burgt and his son Benjamin.

2. Between late 2014 and early 2016, Coonwarra borrowed $7 million[1] under three written loan agreements for the purposes of developing the Land, each secured by a mortgage against the Land. Coonwarra’s case is concerned with the receipt and use of the borrowed funds. Coonwarra says that it was induced to borrow money secured against the land, having been led to believe that the funds were required for and being used in the development of the land pursuant to the parties’ joint objectives, whereas in fact the moneys were paid out to persons and entities largely unconnected with the development, who were creditors or associates of Trimont.

   [1]Coonwarra borrowed $1.5 million under the First Loan Agreement in December 2014; $5.2 million under the Second Loan Agreement in August 2015 ($1.5 million of which was used to repay the First Loan) and $1.8 million under the Third Loan Agreement in February 2016 (a total borrowing of $8.5 million, including the repayment of the First Loan in the sum of $1.5 million).

3. Some 20 months after Coonwarra and Trimont commenced their relationship (which was governed by a written ‘Asset Development Agreement’ or ADA) the Mernda Land was sold to a third party, Mernda Junction Shopping Centre Pty Ltd (MJSC), who at the same time, entered into an agreement with Trimont’s successor, CornoNero Pty Ltd[2] (who acquired Trimont’s business in 2015) to develop the Land into a shopping centre. The Land was acquired at an agreed price of $7.8 million, but the whole of the purchase price went to repay the borrowings and accrued interest and to discharge the mortgage. Coonwarra received nothing from the sale proceeds and had no contractual relationship with MJSC. The development of the land as contemplated by the development agreement between CornoNero and MJSC did not proceed. Coonwarra had agreed that it would sell the Land to MJSC to facilitate the development, in return for a separate guarantee of certain payments to Coonwarra by CornoNero. CornoNero in fact made no payment under the guarantee and says that it was unauthorised and non‑binding.

   [2]CornoNero Pty Ltd (initially named Trimont Australia) is the first defendant.

4. Coonwarra characterises the relationship between it and Trimont as a joint venture giving rise to fiduciary obligations, and says that CornoNero assumed Trimont’s obligations under the ADA by novation of that agreement to it, at which time it also assumed fiduciary obligations towards Coonwarra.

5. Trimont and CornoNero are said to have effected a dishonest and fraudulent scheme by misleading Coonwarra to believe that the borrowings were necessary for the purposes of the development whilst knowing that the proceeds of the loans were in fact going to be used for unrelated purposes which had nothing to do with the development, and causing the funds to be so disbursed. The conduct implementing that scheme is said to have involved breaches of trust and breaches of the Asset Development Agreement, which, on Coonwarra’s case, required that funds obtained by the developer and secured against the property be used for the development, and imposed an obligation of good faith.

6. Ascenzo[3] was the sole director of Trimont and a director of CornoNero. Peter Breckenridge[4] worked for Ascenzo[5] in Trimont’s construction and development business, and later became a director and the Chief Executive Officer of CornoNero. Each of Ascenzo and Breckenridge is said to have procured and knowingly assisted Trimont and CornoNero to commit breaches of fiduciary duty, knowing of the dishonest and fraudulent design.

   [3]Silvio Ascenzo is the fourth defendant.

   [4]Peter Breckenridge is the third defendant.

   [5]I refer to parties and relevant persons throughout these Reasons by their surnames or by first names as the case requires and mean no disrespect by doing so.

7. Coonwarra brings a number of other claims – including against Breckenridge and Ascenzo, for misleading or deceptive conduct in relation to the borrowings, and against CornoNero under the guarantee (which concerned payment to Coonwarra in relation to the sale of the Land and the profit, if any, arising from the development of the Land) and for knowing receipt of trust funds. Berkeley Capital Partners (BCP)[6] is a company controlled by Brett Hartwig. It was the lender of the borrowed funds, as agent for disclosed principals under the loan agreements with Coonwarra. Coonwarra brings claims against BCP as lender for breach of the loan agreements, on the ground that BCP was not authorised by the loan agreements to disburse the funds in the way that it did. As Coonwarra put it, it commenced with valuable, unencumbered land and was left with nothing, as a result not of mere investment risk being realised but because of the defendants’ wrongful conduct.

   [6]BCP is the fifth defendant.

8. The disbursement of the borrowed moneys (how much, when and to whom moneys were paid) is not in contest. It was accepted that funds drawn down under the loans were not used for the purposes of the development of the Land but were used to service Trimont’s debts. Some of the moneys were paid directly to Trimont and some were paid into CornoNero’s bank account. Some funds were paid to BCP. Otherwise, all of the moneys were paid to third parties associated with Trimont – in payment of Trimont’s creditors or for its own purposes. The parties reached agreement about the disbursement of the funds drawn down under the loans. The agreed facts are set out in Annexure D.

9. All of the claims, however, were contested.

10. Trimont was placed into liquidation in 2017 and accordingly Coonwarra’s claims against it did not proceed.[7] CornoNero agreed that Trimont and those through whom it acted perpetrated a dishonest and fraudulent scheme, but said that they did not do so on its behalf. It said that it was not involved in the various dealings between Coonwarra, Trimont, Ascenzo, Breckenridge, and BCP. It did not know of the Asset Development Agreement or the guarantee purportedly given by Breckenridge on its behalf. None of the conduct that occurred was authorised by CornoNero or legally attributable to it.

    [7]Trimont was the second defendant.

11. There was a central contest concerning the authority given to BCP to disburse the funds, the instructions given by Coonwarra as to the purposes for which the funds could be used, and the terms on which Trimont was entitled to access those moneys.

12. Breckenridge and Ascenzo contend that the first loan was intended to permit recoupment of moneys already expended on the Mernda development and for future development costs. The defendants also rely heavily on asserted agreements between Ascenzo and Martin Van der Burgt that they say were made in conversations occurring in October 2014, December 2014 and July 2015, to the effect that Ascenzo was permitted to access moneys representing anticipated profit from the development from the borrowed funds (the so called ‘Advance Agreements’). In that way, the defendants say that while moneys were paid to Trimont and other entities including for purposes not connected with the development of the Land, Coonwarra had consented to that arrangement. Because Trimont was entitled to the money, it could direct that funds drawn down on the loans be paid to whomever it nominated. The parties, including BCP who was disbursing the funds, acted on that basis. Coonwarra denied that it agreed to the use of borrowed moneys other than for the purposes of the development of the Land. It says that the Advance Agreements were recently invented justifications for the wrongful appropriation of funds intended to benefit the development and the joint venture.

13. The defendants disputed that the relationships between Coonwarra and Trimont and CornoNero were fiduciary in nature. They also contended that the course of dealings in respect of the Land in fact occurred outside the ADA – that what the parties agreed in respect of the way in which the Land was to be developed was a new and different arrangement.

B          Structure of these Reasons

1. These Reasons are structured as follows:

   (a)Part I – Introduction

   (b)Part II ‑ Factual Narrative

   (c)Part III – Consideration – work on the Trimont land, and Trimont’s financial position

   (d)Part IV – Issues for decision – consideration of claims and defences:

   (i)Did Trimont owe fiduciary duties to Coonawarra?

   (ii)Were terms to be implied in the Asset Development Agreement, as alleged?

   (iii)Did Coonwarra and Trimont or CornoNero make the alleged ‘Advance Agreements’?

   (iv)Was the Asset Development Agreement novated to CornoNero?

   (v)Did Trimont or CornoNero breach any Fiduciary Duties owed to Coonwarra?

   (vi)Is CornoNero or Breckenridge liable under the written guarantees?

   (vii)Were Breckenridge or Ascenzo involved in the procurement of breaches or knowing assistance in breach of fiduciary duty?

   (viii)Did CornoNero knowingly receive property obtained in breach of fiduciary duty?

   (ix)Is Breckenridge or Ascenzo liable by reason of misleading or deceptive conduct?

   (x)Is BCP liable to Coonwarra for breach of contract?

   (xi)Apportionment and contribution.

2. This case was heard together with GJB Building Pty Ltd & Ors v AI&PB Property Pty Ltd & Ors (the CornoNero Proceeding), and evidence in one proceeding was admitted as evidence in the other.

C          Principal actors

1. Annexure A depicts in diagrammatic form the principal connections between the people and entities in this proceeding and the CornoNero Proceeding.

2. As noted, Coonwarra Pty Ltd was from 2000, the registered proprietor of the Mernda Land. Together with other companies, Coonwarra conducted a garden supplies and bulk haulage business.

3. Martin Van der Burgt was at all relevant times, Coonwarra’s sole director. He worked in the garden supplies and haulage business conducted by Coonwarra.

4. Benjamin (Ben) Van der Burgt is Martin’s son. Ben is a qualified civil engineer. He worked in that capacity until 2012 when he commenced working in the Coonwarra businesses. His role at Coonwarra included sourcing produces for the garden nursery business, managing mulch and compost deliveries, coordinating the freight and delivery arm of the business, and client and overall business management.

5. Silvio Ascenzo (the fourth defendant) is a builder by trade. He has worked in the building and construction industry since 1981, obtaining his building licence in 1995. Ascenzo started his own building business, incorporating Trimont Paving & Construction Coy Pty Ltd in 1982, which was renamed Trimont Pty Ltd in 2008. Ascenzo carried on a concreting and building business throughout the 2000s, through Trimont and other entities like Ascenzo Industries.

6. In 2015, Trimont sold certain of its assets including its building and construction business to Trimont Australia Pty Ltd. Ascenzo was the sole director of Trimont and of Trimont Australia at the time of the sale.

7. Trimont Australia was renamed CornoNero in February 2016, and is the first defendant to these proceedings.

8. At the time of the relevant events the shareholders in Trimont Australia/CornoNero were GJB Building Pty Ltd, AI&PB Pty Ltd and Berkely Capital Developments Pty Ltd (BCD). Between its incorporation on 1 July 2015 and 14 September 2015, Ascenzo was its sole director. On and after 15 September 2015 its directors were Ascenzo, Breckenridge, Hartwig, Geoff Brady and independent chairman, Robert McEniry.

9. Peter Breckenridge is a qualified electrical engineer. He started working with McDonalds restaurants while at university, assisting with development of McDonalds property sites. Throughout the 2000s, Breckenridge held various management positions at McDonalds, and was involved in construction, development and land procurement work for the company. In 2007, he became Vice President of Property at McDonalds.

1. Breckenridge commenced working for Ascenzo in 2011. He held various positions at Trimont entities or entities associated with Ascenzo. He was the CEO of CornoNero from mid‑2015 until his resignation in November 2016. He was a director of CornoNero between September 2015 and November 2016.

2. Breckenridge and Ascenzo jointly owned and controlled AI&PB, a shareholder in CornoNero.

3. Brett Hartwig is a director of Berkeley Capital Partners (BCP) which operates a mortgage and finance broking business. He has over 40 years of experience in the banking and finance industry, and previously worked at both ANZ and Westpac banks.

4. BCP was incorporated on 17 April 1997. Hartwig has been its Chief Executive Officer since incorporation. Hartwig owned and controlled BCD, a shareholder in CornoNero.

5. Geoff Brady controls GJB Building Pty Ltd which was the controlling shareholder in CornoNero. He has a background in owning and operating car dealerships in Melbourne’s East and South‑East since 1970. He is a former director and shareholder of carsales.com.au. His business endeavours are conducted through The Brady Group which includes GB Autos Pty Ltd, GJB and G.J.E.B Pty Ltd.

6. At the time of these proceedings, GJB had acquired the shares in CornoNero, formerly held by AI&PB and BCD, and was a director of CornoNero.

7. Rachael Brady is Geoff’s daughter. She started working in her father’s businesses in about 1994. From 2000, she commenced her own business in retail and homewares and a café. In 2013, Rachael returned to work in administration and finance for The Brady Group.

8. Upon the resignation of Breckenridge in late 2016, Rachael became the Chief Executive Officer of CornoNero. She was appointed a director of CornoNero on 23 November 2016.

9. Anna Boyko is Ascenzo’s sister‑in‑law, who worked as the office manager of Trimont. Boyko, alongside the Trimont accounts team, managed Trimont’s creditors. She was not called to give evidence. She was not shown to be unavailable to give evidence.

10. Bill Thurgood was the financial controller of Trimont. Thurgood had been a partner at Pitcher Partners where he dealt with Trimont matters until about April 2015 when he took up employment with Trimont. Along with other Trimont employees, Thurgood was transferred to Trimont Australia (CornoNero) after the sale of the business. Thurgood was not called as a witness.

11. Brian Sockalingum was Trimont’s in‑house accountant, referred to as its ‘finance manager’. He was responsible for managing Trimont’s MYOB accounting system and meeting its reporting obligations. Although it was initially intended that Sockalingum be transferred with other Trimont employees over to CornoNero, it was decided at a CornoNero board meeting on 21 September 2015 to not retain him and he was made redundant.

12. Jevan Clay has a background in accounting and has been the Chief Operations Officer of Amber Property Group Ltd since its formation in 2016. He worked with Breckenridge at McDonalds before he too was later employed at Trimont from February 2013. Clay held the position of financial controller although he was primarily responsible for discovering new business opportunities. He was later transferred to CornoNero where he took up the role of Business Development Manager.

13. James Hunt had been employed at Trimont after his time as an Acquisition Manager at McDonalds. Hunt reported directly to Breckenridge.

14. Robert McEniry was a friend of Geoff Brady and brought in as chairman of CornoNero. McEniry passed away before the commencement of the trial.

15. Bailey and Cameron Hunter were clients of BCP. BCP acted as agent to their family superannuation fund, C & N Hunter Super Fund Pty Ltd.

16. BidCo was a syndicate of investors from UBS Investment Bank that later became known as Mernda Junction Shopping Centre Pty Ltd (MJSC). BidCo (MJSC) purchased the Mernda Land from Coonwarra through a deal arranged by Breckenridge. Kelvin Barry at BidCo (MJSC).

17. ISPT Super Fund was a property fund manager and another interested bidder for the Mernda Land.

D          Credit of witnesses

1. It is convenient at this point to say something about the credit of the witnesses.

2. The principal actors (Martin Van der Burgt, Ben van der Burgt, Ascenzo, Breckenridge, Hartwig and Geoff Brady) were cross‑examined for lengthy periods.

3. The parties urged somewhat binary assessments – that I generally prefer certain witnesses over others. The defendants said, for example, (to state the submission only generally) that the adherence of Martin Van der Burgt to his views that certain meetings occurred on dates that were likely incorrect, fundamentally undermined the reliability of his evidence. Binary characterisations are ill‑suited to the assessment of witness evidence addressing a range of inter‑related subjects that traversed not only the occurrence of many events and discussions, but the witnesses’ subjective understandings of the parties’ dealings and the implications of those dealings. Furthermore, despite the lengthy cross‑examination of witnesses on many matters, the factual substratum comprising the events was not truly in contest. Certain conversations were in dispute. Much of the contested evidence comprised the understanding that witnesses had of their dealings at the time.

4. In assessing the credit of witnesses, I have taken into account the fact the events in question occurred several years before the witnesses gave evidence, and that the parties’ dealings between one another were in many but not all respects, informal. There was little or no documentary record of some significant conversations. Significant agreements were documented. In the circumstances, I have paid particular attention to the coherence of the witnesses’ evidence, and its relationship with objectively ascertainable facts and the documentary record, on the particular subject matter in issue.

5. Martin Van der Burgt had a poor recollection of the sequence of events and at times during his evidence, confused events and timeframes. At the same time, he rigidly adhered to his view about the dates on which certain meetings occurred. Where, for example, he considered that a meeting (and thus, a conversation) had occurred on one day or month and not another, he was inclined to say that a meeting did not occur, if it was put that it occurred on a date that he did not accept. In that way, he answered some questions in an overly literal or concrete way. On certain other subjects he adopted rigid responses. That said, for the most part he answered the questions put to him straightforwardly, without engaging in argument. Mostly, he made concessions where appropriate. His evidence was in very large measure, coherent and internally consistent.

6. Ben Van der Burgt also rigidly insisted that certain meetings occurred on certain dates and in that way and on that subject he tended to literal and concrete answers. Otherwise, he made concessions where appropriate. He gave considered, precise, reflective and direct evidence to the questions he was asked. He did not seek to avoid difficult questions or argue a case. He was not combative. He appeared to have a good recollection of the events and gave a clear accounts of what he understood at the time. His evidence was coherent and internally consistent.

7. Silvio Ascenzo had a very poor recollection of events. When cross‑examined, he also had a poor grasp of some subject matter that had been addressed in his evidence in chief,[8] which was itself extremely limited in scope. He gave evidence in very broad and unspecific terms. He was not argumentative. He mostly answered the questions asked, although in many instances the answers were unrevealing because they were devoid of meaningful content. Some parts of his evidence were internally coherent but several parts were not. Ascenzo frequently sought to shift responsibility away from himself onto others, and asserted a lack of knowledge on an extensive range of subjects. I accept that Ascenzo’s primary day‑to‑day role in his various companies has been ‘on the tools’ as it were, working on building sites, and that his preferred method of communication is conversation rather than writing. Despite those facts, I doubt that his knowledge and understanding of events and circumstances affecting the companies of which he was a director was as limited as he claimed.

   [8]The parties gave evidence in chief by witness statement, with evidence of significant conversation and contested events given orally.

8. Peter Breckenridge’s evidence was problematic in many respects. An aspect of his communication style is to over‑explain and to talk around a subject as it were. It appears that he is not naturally given to precision in his language. I have taken that into account. However, allowing for that tendency to circumlocution, I assessed Breckenridge as frequently argumentative and combative. Often (although not universally) he avoided answering difficult questions and only made concessions after lengthy cross‑examination. When concessions were called for, he frequently sought to argue a case, adding elaborate and often incredible justifications and explanations for his conduct or the events about which he was asked. In many (although not all) parts of his evidence, what he said was lacking internal coherence and consistency. As will appear below, I have assessed the evidence on each issue taking into account the totality of the evidence on that issue. On some issues (but not all) it has been necessary to accept Breckenridge’s evidence only where it is corroborated. The quality of his evidence varied with the subject matter to which it was addressed.

9. Brett Hartwig gave precise evidence. He appeared to have a good recollection of events. He gave direct answers put to him, without arguing. He made concessions where appropriate.

10. Geoff Brady had a poor recollection of events and candidly admitted to his poor memory. He was frequently confused about events. In many respects his memory appears to have been overlaid with reflections on the issues now being litigated. At times, he was combative and sought to argue a case. At other times he endeavoured to answer the questions put directly, without argument.

11. Rachael Brady had a poor recollection of events. She explained that she had a medical condition that had affected her memory. She asserted though, that she had a very good recollection of certain events, and also that she could not recall other events. Rachael was often (but not universally) combative in her answers and on certain subjects sought to argue a case.

1. Chronological Narrative, Facts and Events[9]

   [9]This part sets out the factual findings and conclusions on which the analysis in Part IV proceeds.

The Mernda Land and the parties’ early relationship

1. From May 2000, Coonwarra was the owner of a large parcel of land on the corner of Bridge Inn Road and Plenty Road, Mernda (Mernda Land).[10] When Coonwarra acquired the land the area was semi‑rural with a mix of farming, hobby farms and industry with a small village nearby. Coonwarra and related companies operated agriculture and garden supplies businesses and trucking delivery operations. The retail arm of the businesses was conducted from the land. Buildings on the land housed retail premises and a tenanted café.

   [10]Registration of the transfer of land was effected on 12 December 2000.

2. By 2010, Melbourne’s urban growth zone was spreading and substantial development was underway on land adjacent and to the rear of the Mernda Land, including for a shopping village and residential estate. Martin, for Coonwarra, became interested in and began to make inquiries about the potential development of the Land. In 2011, he approached McDonalds to see if they would be interested in the site. Unbeknownst to Martin, McDonalds had been interested in the site for some time.

3. Breckenridge had been employed by McDonalds, and from 2007 was its Vice President of Property, working from its national head office. In that capacity, he had identified the Mernda region as a highly desirable development area for McDonalds and had looked at numerous sites for acquisition including the Mernda Land. Agents for McDonalds had made inquiries about the Mernda Land. Breckenridge said that he had been ‘trying to buy the land’ for McDonalds, but the inquiries were not ultimately pursued during his time at McDonalds.

4. By mid‑2011, Breckenridge had starting working for Silvio Ascenzo, who had told Breckenridge that he wanted him to help build a property development business that would provide opportunities for the existing Ascenzo construction business.

5. Ascenzo conducted and had interests in a number of businesses including those known as Trimont Builders, Trimont Concrete, TSA Electrical and AI Group.[11]

   [11]The relationships between the entities owned or controlled by Ascenzo, were not otherwise exposed in the evidence in this proceeding.

6. Breckenridge understood that he was working for the AI Group, which he later learned was a trading name for Ascenzo Industries Pty Ltd (or AI) and Ascenzo Investments Pty Ltd.[12] Breckenridge’s role at that time was principally to identify development sites and commercial development opportunities and present them to Silvio Ascenzo, and Silvio’s business partner Tony Ascenzo. Breckenridge’s process for assessing opportunities entailed estimating and engaging quantity surveyors to prepare costings, engaging architects to draft sketches, making inquiries about zoning and planning issues and preparing assessments reflecting that preliminary due diligence. If Silvio and Tony were interested in an opportunity that Breckenridge presented, they would take steps to acquire the site and then Breckenridge would do the work to get the project ready for construction, including obtaining planning permission. Breckenridge had broad licence from Ascenzo to engage necessary consultants and incur expenditure for the purposes of readying a site for development and construction. He was permitted to do so without working within a budget. Breckenridge arranged for the work to be done and presented invoices for payment to Silvio or Tony. His evidence was that he did not track costs incurred against his costs projections. During the course of a project unrelated to the Mernda Land, Breckenridge introduced Ascenzo to Brett Hartwig.

   [12]The ‘AI Group’ was used as a trading name and informal descriptor of a number of entities including Ascenzo Industries Pty Ltd and Ascenzo Investments Pty Ltd.

7. A few months after he had started working for Ascenzo, Breckenridge received a call from a former McDonalds colleague, James Hunt, who was then still with McDonalds. Hunt told Breckenridge that McDonalds was interested in the Mernda site. Hunt suggested that he and Breckenridge, for Ascenzo’s company and McDonalds, might negotiate a deal to develop the site, with a view to McDonalds operating from one part of the site and AI developing the remainder. At Hunt’s request, Breckenridge met with Hunt and his contacts at Coonwarra, Martin Van der Burgt and Mark Jones. At the site meeting, Hunt said that the Mernda site was regarded as a prime development site for McDonalds. Martin said that he did not want to sell the land.

8. After the site visit, Hunt told Breckenridge that he had not been able to do a deal with Martin, and asked Breckenridge if he would discuss with Martin a possible deal between the owners of the site and McDonalds. Hunt proposed that McDonalds might buy a portion of the site and AI could acquire the rest of the land and develop it.

9. Breckenridge agreed and met with Martin and Jones again. Martin said he was interested in leasing the land. They discussed possible ways of generating income from the land, including allowing a tenant to build on the land at its own cost. Breckenridge agreed to come back to Martin and Jones with some concepts for a development based on a lease.

10. Around this time, Breckenridge told Martin that he was now working in the business of Silvio Ascenzo, and that he and Ascenzo were interested in the site. He told Martin about the AI Group and the construction capability of Ascenzo’s businesses and about his own experience in the development and construction industries. He gave Martin a “capability statement” for AI that set out the experience of Silvio Ascenzo, Tony Ascenzo and Breckenridge in construction and development, and described several completed and current projects. It described Trimont’s restructure into Ascenzo Industries and said, among other things, that AI was offering ‘end to end turnkey development and project delivery’, and providing services including site identification and acquisition, design management, cost planning and project feasibility, project management, construction management, concrete solutions, electrical services and plumbing services. As Martin put it, Breckenridge told him that he, Ascenzo and AI were experienced in the construction and development industries.

11. By September 2011, the title of the Mernda Land was unencumbered.

12. Breckenridge’s evidence (which Ascenzo did not challenge) was that Silvio and Tony were very keen on the development of the Mernda site because they wanted to move away from residential and industrial subdivision work and towards more blue‑chip commercial work. He told Silvio and Tony that he would retain consultants as part of conducting preliminary due diligence, and they told him to ‘go for it’. With approval from Ascenzo, Breckenridge engaged consultants including architects and environmental engineers to do some preliminary due diligence on the site.

13. Meanwhile, negotiations proceeded between Breckenridge and Mark Jones for the purposes of reaching a lease arrangement between Coonwarra and AI Group. Breckenridge told Jones that they would need to enter an agreement for lease and not a lease, because AI did not want to enter a lease unless various conditions including a grant of planning approval, were satisfied. They ultimately agreed upon a sunset period of 42 months for the conditions precedent to be met. A rental amount of $390,000 per annum was agreed on the basis of an assumed site value of $6.5 million and a 6 percent return. Once the critical terms had been agreed, the Agreement for Lease (or AFL) was prepared by AI’s solicitors, and in that process Coonwarra was represented by its own solicitors.

14. On 15 December 2011, Ascenzo Industries and Coonwarra entered an Agreement for Lease for the Mernda Land. Silvio Ascenzo was at that time (and remained at all relevant times) the sole director and shareholder of AI. The AFL provided in substance that:

    (a)Coonwarra agreed to lease to AI the property at 1435 Plenty Road Mernda subject to satisfaction of the terms and conditions provided by the AFL, or waiver of those conditions by AI.

    (b)The conditions precedent were relevantly that being satisfied with the results of due diligence (surveys, studies, tests, investigations, inspections, valuations and assessments) in its absolute discretion; and AI procuring from all relevant authorities or relevant planning permits consents and approvals to carry out the development (defined only as ‘as a proposed redevelopment of the property by the tenant’) to a design and layout as required by AI and the use of the property for such purposes associated with the development as required by AI.

    (c)AI must at its expense as soon as reasonably practicable make applications for all necessary permits, consents and approvals.

    (d)Upon AI giving notice to Coonwarra that conditions precedent have been satisfied or waived, Coonwarra must take prompt steps to terminate any agreements in respect of the land and must give AI possession of the property within the stated time.

    (e)Coonwarra must give AI possession of the property no later than six months after the date on which AI gives notice that the conditions precedent have been satisfied or waived.

    (f)Upon AI taking possession, Coonwarra will grant and AI will take a lease of the property on the terms set out in the annexed lease which were, relevantly:

    (i)Rent for the first year of the lease will be $390,000 plus GST per annum subject to stated adjustments and rent review provisions.

    (ii)The land will be leased for a term of 30 years with the option of six further terms of 5 years each.

    (iii)AI may in its absolute discretion and without Coonwarra’s consent make any alternations or additions to the property including the construction of buildings and structural or other works on the property.

    (iv)Coonwarra agrees to consent to any application by AI in respect of the use or development of the property including planning and building.

1. By the Agreement for Lease, Coonwarra and AI agreed that subject to AI being satisfied as to the conditions precedent being satisfied (or AI waiving them), Coonwarra would lease the Land to AI for a lengthy term, giving AI complete discretion about how it developed the property, and that AI would do so at its expense. The essential concept was that by way of return AI would retain the difference between the rents it could charge commercial tenants who occupied the developed site, and the modest annual rent it paid Coonwarra.

2. Martin’s evidence was that his rationale for entering into the AFL with AI was two‑fold. The intention was to develop the land, but he was not experienced in property planning, development or construction and he considered, from what he had been told by Ascenzo and Breckenridge, and what he had read in the capability statement they gave to him, that they were experienced in those fields. As far as the structure within which the development of the Land was to proceed, Martin thought that having Coonwarra retain ownership of the land on a long‑term basis would provide a future income stream for his three children and their families.

3. In late 2011, Breckenridge began to consider an alternative strategy for the development of the Mernda Land. Drawing on experience from another AI project, he thought that Coles might be interested in placing a Liquorland store on the site. He met with representatives of Coles who told him that Coles was interested in getting a supermarket into Mernda. At that time, the Whittlesea City Council planning scheme stipulated that the first two supermarkets in Mernda would have to be located on ‘designated shopping centre land’. The site diagonally across from the Mernda Land had been designated. Having heard of Coles’ interest in Mernda, Breckenridge decided to investigate whether he would be able to persuade the Council to support a development for the Mernda site that included a Coles supermarket. He engaged McCabe Architects to prepare some preliminary sketches for the site. Ascenzo was kept informed by Breckenridge about the discussions with Coles and said that he regarded positively Breckenridge’s advice that securing Coles as an anchor tenant would substantially increase the value and size of the development. In the first half of 2012, Breckenridge had two potential development concepts for the Mernda site under consideration – a lease to McDonalds and some other subtenants such as a petrol station and liquor store, or a shopping centre development involving a Coles supermarket.

4. In early 2012, Martin’s son, Ben Van der Burgt, commenced as manager of Coonwarra, following the resignation of the previous manager, Mark Jones.

5. After the Agreement for Lease was executed Breckenridge, Ascenzo, Martin and Ben met from time to time. Breckenridge said that the meetings were not regular in 2012. Ascenzo was not always present, but his evidence was that he and Breckenridge met regularly with Martin. Ben took responsibility for Coonwarra for dealings with the land from about mid‑2012, but Martin was present at a number of discussions.

6. Meetings were informal, minutes or notes were not taken. They often took place at Coonwarra’s office on the Mernda Land, or at a nearby café. From time to time, Breckenridge gave Ben and Martin verbal updates about the development process. At times, Breckenridge gave documents to Ben including concept plans and feasibility analyses identifying potential rental yields.

7. At some point in the second half of 2012, Breckenridge told Ben and Martin that they were ‘looking at doing a shopping centre complex on the site’. Among other things, they discussed planning issues, the search for anchor tenants for the site, Coles’ interest in the site and negotiations with Coles, and alternative options for the structure within which the development of the property might occur. In early 2013, Martin was diagnosed with cancer. Ben began to attend all meetings with Breckenridge and Ascenzo, often in his father’s place due to Martin’s continuing ill‑health. As set out below, as things progressed, some pre‑arranged meetings were held, and at times in‑person discussions were followed by email exchanges and telephone conversations.

8. Ascenzo’s evidence was that:

   In those several years [meaning throughout the duration of the Agreement for Lease] Martin and I dealt with one another regularly and trusted each other. We both considered ourselves to be “old school” and relied on each other’s word. Whilst we generally spoke about the Mernda project we also spoke, from time to time, about other projects we might do together once Mernda was completed. I told Martin that he could always trust me and that I would stick to my word.

9. Martin gave evidence in very similar terms. He said that he regarded the relationship between himself and Ascenzo and Breckenridge to be co‑operative, and that at the time, during the period between 2011 and 2015, Martin considered that they were honest in their activities and their reports. Breckenridge was his main contact at Trimont and in meetings did most of the talking.

10. It was understood early on that the Whittlesea Council would require the construction of a road traversing the Mernda Land from Bridge Inn Road, an extension of Sissinghurst Parade. The Land was accordingly to be subdivided into two lots ‑ the lot that fronted Plenty Road (the Front Block) and the lot that fronted Bridge Inn Road (the Back Block). Much of the discussion between the Van der Burgts and Breckenridge and Ascenzo made reference to plans for the Front Block and the Back Block. Various ideas for the development of each block were discussed.

11. The development remained in the planning stage during 2012. Tract Consultants were engaged by AI Group in late 2011 to liaise with the Council throughout the planning process. They submitted a proposal to the Council on behalf of AI Group in December 2011. The Council, Tract Consultants and Breckenridge subsequently held a number of consultation workshops.

12. In early 2012, AI Group instructed McCabe Architects to prepare preliminary sketches for a supermarket. In February 2012, Breckenridge told his contact at Coles that sketches were underway and opened a dialogue with Coles during the course of the design process in 2012.

13. On 2 July 2012, Breckenridge attended a pre‑application meeting at the Council with a traffic engineer and representatives from Tract Consultants and McCabe Architects.

14. AI Group engaged Deep End Services to prepare an economic assessment report in mid‑2012. Deep End Services provided a report in August 2012 and a subsequent report in March 2013. The reports were addressed to establishing the need for a third supermarket in the area. Breckenridge gave the second Deep End Services report to Coles. On considering the report, Coles communicated to Breckenridge (in March 2013) its intention to negotiate with a view to securing a lease. Breckenridge then commenced negotiations with Coles. Negotiations continued until August 2016 (as set out further below). McDonalds had withdrawn its interest in the site in early 2013.

15. AI Group submitted a development application for a Coles supermarket at the Mernda site to the Whittlesea City Council in May 2013. Moving forward in time, the application was not approved by the Council within the required time and in an effort to expedite the approval process, AI Group commenced a VCAT proceeding in relation to its development application on 12 December 2013. The application was heard by VCAT on 24 and 25 March 2014.

16. In June 2013, the Mernda Land was valued by LandMark White at $6.25 million undeveloped, before the later incorporation of a Site Specific Control under the Whittlesea Planning Scheme. Breckenridge arranged the valuation at Martin’s request.

17. Meanwhile during 2013, negotiations between the Council and Coles continued while the approval of the development application was pending. Coles had provided a letter of offer in the last quarter of 2013. AI Group continued negotiations with its prospective tenant during 2014. On 4 February 2014, Coles sent through a letter of intent, and around this time, began to draft an agreement for lease. Revisions of the agreement were exchanged throughout the year.

18. In about early 2014, Silvio Ascenzo and Tony Ascenzo decided to separate their business interests.

19. Silvio Ascenzo’s businesses began trading under the name Trimont sometime in 2014. When that occurred, Ascenzo told Breckenridge that he was to describe himself as the Chief Executive Officer of Trimont. Tony Ascenzo had previously been the CEO of the AI Group. Breckenridge’s opinion about the conferral of that title was that it was not particularly meaningful to him because his roles and responsibilities did not change and nor did his remuneration. He emphasised that he was not involved in setting or approving budgets and said that did not have any authority to pay or authorise the payment of invoices which was a matter for Silvio Ascenzo. The accounts team did not report to him. Breckenridge managed the two employees who worked in property development with him.

20. Breckenridge admitted when cross‑examined by Coonwarra, that he was Trimont’s CEO.[13] His evidence lacked consistency. He said at one point in his evidence that he was CEO ‘by title only’. He also accepted however, that he ‘took on’ the title and represented to people that he was CEO. He added that the job was nothing like the role he assumed with CornoNero. He accepted that he was in charge of project development within Trimont. Ascenzo’s evidence was that Breckenridge was ‘in charge of all the developments that we had’. As to Breckenridge’s role in the financial affairs of Trimont, Breckenridge conceded that he approved the payment of invoices from time to time, but said that, ‘no payment happened within Trimont without Silvio’s approval’. Breckenridge accepted (as was the fact) that he received a large number of emails from Trimont’s accounts department seeking instructions about payment of outstanding creditors of Trimont, and received such emails on a regular basis. Breckenridge said that it was not his job to manage creditors. To the extent that his knowledge of Trimont’s financial position at particular points in time is relevant to the issues for decision it is considered elsewhere.

    [13]Breckenridge had, in his defence, denied that he was Trimont’s CEO.

21. There was a degree of opacity about the internal workings of Trimont, including because Ascenzo gave little evidence on the subject. It appeared that Trimont was governed loosely and informally from a structural perspective. I accept that there were likely aspects of the business, including the relationship between Trimont and other Ascenzo‑controlled entities, that were neither within Breckenridge’s control nor his knowledge. However, I find that he was the Chief Executive Officer of Trimont, relevantly with authority to deal with property development projects including the development of the Mernda Land. He had authority to represent himself as CEO and in fact held himself out as such, to Coonwarra. That did not mean that Ascenzo was uninvolved in making decisions, as discussed below. Breckenridge frequently discussed with Ascenzo the projects on which he was working, including Mernda.

22. In December 2013, planning approval for the shopping centre concept had not yet been obtained and AI was about to issue an application in VCAT to advance the approval process. Breckenridge told Ascenzo that the development and the construction would cost somewhere around $16 million and that the scale of the development had grown from that originally contemplated which would make it harder to fund. Ascenzo told him that they needed to get bank funding and that he wanted to proceed with the development of the Mernda site. His evidence was that Ascenzo said during their frequent discussions about Mernda that he wanted to obtain the freehold to the site.

A change in the relationship – moving towards the Asset Development Agreement

1. In early 2014 a structural change to the relationship between AI and Coonwarra was contemplated.

2. Breckenridge invited Brett Hartwig[14] to attend a meeting with Martin and Ben at Trimont’s offices in about March 2014.[15] Hartwig understood that he had been invited to talk about how Trimont might finance a potential shopping centre development of the Mernda Land. Breckenridge told Hartwig that under the then existing AFL structure, Trimont would seek to finance the cost of the development against its long term lease of the Land. Hartwig’s opinion was that under that structure the security that Trimont could provide in order to provide funding would be limited to the value of the lease which he expected might be secured by a charge over the assets of Trimont. He was concerned that under that structure Trimont would not be able to borrow against the value of the Mernda Land or offer it as mortgage security. At the meeting, he said that Trimont’s borrowing capacity to fund the development would be limited if the security for the facility that would be required was limited to a long‑term lease, and that, as a tenant, Trimont could not realise the full borrowing capacity in respect of the Mernda Land. He said it would be difficult to deal with a bank to obtain funding for the development if the only security that Trimont could make available was a long term lease, contrasted with the position it would be in if a financier could take a mortgage over the freehold title of the Land. Hartwig spoke about private (non‑bank) lending.

   [14]Hartwig was the Chief Executive Officer of BCP, a firm that since 1997 had operated a mortgage and finance broking business. Hartwig has worked in the banking and finance industry for about 40 years. He had known Breckenridge since about 2007.

   [15]Breckenridge recalled that he and Ascenzo had asked Hartwig to consider some options for funding the development of the Mernda site in late 2013 or early 2014. Hartwig recalled that the issue was first raised when he attended a meeting in March 2014. Nothing turns on whether Hartwig was requested to consider the issue before March 2014. Martin and Ben had met Hartwig for the first time in early 2013 at a Trimont networking function but had not had professional dealing with him. There was some dispute about when the meeting occurred ‑ whether it was in March 2014 as Breckenridge and Martin recalled or earlier in 2014 as Ascenzo and Hartwig recalled – but the issue was not material.

3. Breckenridge described in broad terms a structure whereby, as he put it in his evidence, Coonwarra would put the land in, Ascenzo would pay to develop and construct the land, and there would be some sort of division of profits at the end. He stood at a whiteboard and presented illustrative numbers he had prepared to assess the possible outcomes of such a development.

4. Ben’s evidence was that at a meeting that he placed in mid‑2014, Breckenridge put up a set of figures on a whiteboard to demonstrate the benefits of proceeding by way of joint venture with an ultimate sale of the Front Block to a superannuation fund or similar buyer; and Breckenridge said that he thought they could sell the Front Block and the shopping centre complex as a completed package for $28 million. Martin agreed that at the meeting they had discussed restructuring their agreement to facilitate funding.[16] Martin’s account of the discussion was that Breckenridge said that an alternative was to have a superannuation fund or like entity purchase the development and finance it along the way, and that the typical target market was a superannuation fund who would want to acquire the freehold. Martin’s understanding was that, at that stage, the concept under discussion was selling only part of the Land whilst retaining a portion of it for future development. As Ascenzo put it, ‘the [Asset Development Agreement] was to occur in two stages, the first stage being the development of the Front Block and the second, the development of the Back Block’.

   [16]Hartwig was not present for that part of the discussion.

5. Ben’s evidence was that he took from those discussions that both Breckenridge and Ascenzo saw their association with Coonwarra as being long term, including because there was a broad discussion about further investment opportunities that Coonwarra and Trimont would be working on together for the future benefit of both of them.

6. Thereafter, from time to time before the execution of the Asset Development Agreement (ADA) in December 2018 (see further below) Breckenridge, Ascenzo, Martin and Ben discussed the shift to a new structure, moving away from the AFL arrangement. It is likely that various ideas of different complexion were discussed. It is sufficiently clear that at least three things were considered.

7. First, from the time of the meeting that Hartwig attended, the need to find the capacity to finance the cost of development was identified. Hartwig’s advice (his opinion, given based on his experience) was that using the title to the Land for the purposes of securing a funding facility for the development was important.

8. Second, the prospect that the Land might be sold to a superannuation fund or similar investor who had access to significant moneys and would fund the completion of the development was also considered.

9. Third, the potential development of the Front Block separately from the Back Block was discussed. Ascenzo’s evidence was that he and Breckenridge proposed to the Van Der Burgts that under the structure they were discussing, Coonwarra would receive ‘the value of the Front Block of the property (which was at that time $6.5 million), we would share 50 percent of any profits’ at the end of the development. Further, he said, the remainder of the land, being the Back Block, was intended to be developed at a later stage and the profits of that development also split in even shares. Likewise, Breckenridge said that he told the Van Der Burgts that once the first stage of the development was complete there would be an opportunity to develop the balance of the land. Breckenridge agreed that in March 2014, he had incorporated a residual value of $2.5 million for the site of the Back Block in his feasibility assessments. His alternatives for the development of the Back Block were discussed. Ben and Martin described the discussions about the Front and Back blocks by reference to the proposed subdivision of the Land. Breckenridge denied that he discussed subdivision in 2014 or that he assigned a value to each proposed subdivided part. Whether or not he did so, is immaterial to the issues for decision.

10. Much was made in the defendants’ submissions of the disagreement between witnesses about when meetings occurred. In my view, little if anything turns on those disputes, particularly given that it was not in dispute that numerous discussions occurred, and that the parties’ dealings were informal, without records kept. It is likely that there were a number of discussions about the proposed structure for the development of the Land. There was no material difference between the accounts of the witnesses concerning the essential concepts discussed. The relevance of these discussions is not that they amounted to a binding agreement to do anything in particular. Rather, they illustrate the broad goals under consideration which later found expression in the ADA and the significant move away from the concepts that had underpinned and been expressed in the Agreement for Lease. I conclude (including by reference to the below evidence concerning the discussions that occurred in October and December 2014 that the parties (Ben and Martin, Breckenridge and Ascenzo, for Coonwarra and Trimont) did not settle on a definitive or rigid view about the point in time at which a third party (superannuation fund or like) investor might become involved, when a sale of the Land might occur, and nor did they define the relationship between the funding that might be provided by an investor and what would be raised against the Land.

1. On or around 19 September 2014, the then Minister for Planning advised Whittlesea City Council that a Site Specific Control for the Mernda Site would be incorporated into the planning scheme. On 16 October 2014, a Site Specific Control for the Mernda Land was issued. Martin agreed that by that point very considerable work had been put into the development.

2. In early October 2014, a meeting occurred between at least Breckenridge, Ben and Ascenzo, at which they discussed the proposed development venture. Martin said that he did not attend a meeting in early October (which Breckenridge placed at 11 October), however it is likely that he did attend. Ascenzo said during his evidence that he did not recall the meeting, although he had given evidence in chief that he had attended a meeting in early October. [17]

   [17]Ascenzo’s evidence was that a meeting occurred in early October 2014 at which Breckenridge said they were close to obtaining a permit and should plan to enter into documentation to ‘reflect the new arrangement’. He said that, at that meeting, Breckenridge outlined likely costs and projected profits and ‘went through the documents on a whiteboard so that we were all on the same page’.

3. Ascenzo had asked Breckenridge to make a presentation at the meeting. Breckenridge prepared a draft proposal letter which he gave to Ben and Martin at the meeting. Breckenridge projected a copy of the letter onto a screen and discussed its content. The letter referred to a proposed asset development agreement between Trimont and Coonwarra and attached a table setting out proposed terms. It was in the same form as the document later signed in December 2014 (but by December 2014 some of terms had changed, as set out below). Breckenridge handed around a document in the form of a spreadsheet, called an ‘Estate Master Feasibility Statement’ (Estate Master Spreadsheet). The Estate Master Spreadsheet recorded the outputs from a software program that Breckenridge used when making due diligence assessments for property development projects. Among other things, the program calculated projected returns over time, based on the inputs Breckenridge supplied including estimated land acquisition and construction costs. Breckenridge referred to versions of that document (iterations produced at various points in time) throughout his evidence. The Estate Master Spreadsheet (in its various iterations) consisted of several pages of closely spaced tables, each comprising numerous columns containing many numerical values. In my assessment, it presented to the lay person without professional experience in property development, as a dense document recording numerous figures, the significance of which is not readily apparent (or apparent at all) without explanation. Breckenridge’s evidence was that he used a whiteboard at the meeting to ‘try and explain and summarise how the Estate Master feasibility worked’. Ben or Martin said that the feasibility statement was too complicated and asked for a simpler document to look at. Breckenridge took a photo of what he had written on the whiteboard and said he would prepare a simple table. He did that after the meeting and circulated a document which is described below (his ‘Feasibility Summary’). Martin’s uncontradicted evidence was that that the content of the Estate Master Spreadsheet was otherwise unexplained.

4. Those present at the October 2014 meeting discussed the need to obtain a loan to fund the progress of the development. As Breckenridge put it, he and Ascenzo explained that the Mernda Land would be put up as security for the funding but there was no specific discussion at that meeting about how the loan funds would be disbursed once they were advanced. Breckenridge said (on Ben’s account) that one way to fund the project was to commence the works, obtaining funding secured by a mortgage over the Land whilst they sought to secure an end purchaser who would then fund the project through to completion. As Breckenridge recalled it, one of the concepts discussed was that after ‘stage 1’ of the development the ‘residual land’ would be used to undertake a second stage development through a new entity that Ascenzo and Martin had begun to describe as ‘Triwarra’.

5. Breckenridge said that at the October meeting and also in December 2014, Ascenzo said that Trimont had spent considerable money on the development up to that point and wanted to take some money out, and wanted to find a way to access the ‘uplift’ in the value of the land, meaning the increase in the value of the land that had been created by the work done to develop it. Cross‑examined by Coonwarra about what was discussed, Breckenridge said that the parties to the ADA (via Ascenzo and Martin) had made a verbal agreement. He was asked whether he was saying that it was an agreement about an advance on profits. His answer was:

   I don’t have a strong recollection of those words. I remember there being a discussion between Martin and Silvio about the advance of profits but that discussion was much stronger around the time of the second loan…

   [and in relation to the First Loan] I remember the words, ‘accessing the uplift in the value of the property’ being discussed.

6. Breckenridge was taken in cross‑examination to the various iterations of the alleged agreement in his defence. His evidence was in substance, that he didn’t understand the detail; that he knew ‘some of it was going to be advanced in as part of the uplift in order to fund future working capital requirements for the development’. He said that he didn’t get involved in how that agreement worked.

7. On the question of the costs incurred in respect of the Mernda Land, Ascenzo’s evidence was that while Ascenzo Industries was the party to the Agreement for Lease with Coonwarra, ‘Trimont paid all the bills’. He couldn’t say whether the costs were met by way of loan between Trimont and Ascenzo Industries (and there was no evidence of the financial relationship between Trimont and Ascenzo Industries). He said in one part of his evidence that ‘all the work and all the expenditure was done through Trimont’, but also accepted, that all work was ‘done in the name of Ascenzo Industries’.

8. On 21 October 2014, Breckenridge emailed Coonwarra (at an email address to which Martin and Ben had access) a copy of the draft ADA proposal letter and the Feasibility Summary that he had prepared after the October meeting. Breckenridge said in his evidence that what he had written on the whiteboard and later sought to encapsulate in the Feasibility Summary document, was used for illustrative purposes to explain in a summary way, the structure of the proposed transaction. The numbers in the document were estimates and some of them were ‘not even indicative’. The Feasibility Summary was a single page document, setting out projected costs, income and profit, as follows:

9. Breckenridge elaborated on the elements of the summary in his evidence. The evidence took the form of an explanation of what the document was intended to mean. Relevantly he said in respect of costs, the amount of $6.5 million allocated to ‘land’‑ was a nominal figure. Ultimately, that number was repeated consistently throughout the various iterations of Breckenridge’s feasibility spreadsheets and it appeared in the ADA drafts and signed agreement. It represented the agreed value of Coonwarra’s contribution to, or investment in, the development project. The amount for zoning and other fees ($1,846,313) allocated to Trimont represented ‘amounts actually paid or to be paid’. Those costs were separate from projected construction costs. The ‘income’ portion of the document reflected notional or assumed annual rentals less non‑recoverable outgoings, multiplied by a desired yield, to arrive at a gross realisation or capital value of $29,092,563.

10. Breckenridge was cross‑examined by CornoNero on the subject of how the development was to be funded. He said that he expected that a lender would advance two‑thirds of the expected end‑value of the development. He was asked how it was expected that Coonwarra could service such a loan. Breckenridge said that the interest would compound and the idea was to sell the property at the end and the loan would be paid out.

11. Breckenridge’s explanation in fact made clear that under the structure contemplated, each party was to be taken to be making a contribution to a joint development project. Coonwarra was to contribute the land and Trimont was to contribute its time, expertise and resources to carry out the development. In the case of Coonwarra, its ‘investment’ as Breckenridge put it, was to be assigned an agreed value. After deducting costs comprising land value, pre‑construction and construction costs, the profit (gross realisation less costs) was to be split evenly with each party retaining a 50 percent interest in the nominal residual land value. As to profit, Breckenridge said in his evidence that in addition to ‘stage 1 profit being the shopping centre’, each party would realise a nominal $1,250,000 in residual land value for the balance of the land left undeveloped at the end of the project which was the land on the other side of Sissinghurst Parade. The gross profit amount (shown in the summary prepared in October 2014 at $4,019,938) was the projected gross realisation sum less the pre‑construction and construction costs. Breckenridge’s explanation also revealed little in the way of a detailed plan for, or understanding of, how the development of the land would be funded.

12. The final table in the document includes the word, ‘advance’ and records the amount of $1,000,000 against each of Trimont and Coonwarra.[18] Breckenridge said in evidence that during the October meeting, ‘Silvio had said ‘he wanted to take some money out and this section [of the document] explained what happened under the ADA if the parties took a distribution of prior income prior to the conclusion of the project’. He said that Silvio said words to the effect that he had spent a lot of money adding value to the Mernda site and wanted ‘some of his money back’ up front. He said that Martin said he only cared about ‘the line at the bottom’ and would prefer to keep his money invested in the project. Ascenzo did not challenge Breckenridge’s evidence, but his own evidence was only that ‘the loan’ was discussed in December 2014 (at two meetings which he said occurred on 19 and 22 December), and in substance that Trimont had spent a lot of money on the project and wanted to recoup that money and would pay interest on the loan. Ascenzo did not attribute any particular words to Martin or Ben.

    [18]Breckenridge and Ascenzo each submitted that that entry in the document supported the contention that the parties made an agreement about Ascenzo accessing some of the projected profit from the proposed development. That issue is considered further in Part IV.

13. Martin denied that there had been any discussion about accessing an advance on profits. He was cross‑examined on the reference in the Feasibility Summary to an ‘advance’ of $1 million assigned to each of Coonwarra and Trimont. He said (as did Breckenridge) that the document did not represent something that had been agreed or was ‘definite’ – it was (as Breckenridge’s counsel described it) in the nature of a discussion paper. Martin agreed that the single paged document could read as suggesting that the proposal was that each party take $1m at that point (I infer, from borrowed funds), but that did not mean that that was what was discussed or accepted. Martin’s evidence was that there was ‘never any discussion about taking $1 million out’, and it was never contemplated. It was put that the document reflected what was discussed. It was not put that the document itself was a record of an agreement. Martin said that they did not discuss any advance of money. He gave the same evidence when cross‑examined on the Estate Master Spreadsheet. He accepted that Ben was given a copy of the document but said they were not able to work out anything from the document.

14. Ben was cross‑examined by Breckenridge on this subject. It was put that Ascenzo ‘said something to the effect that he considered he had spent a lot of money bringing the project to a point at which it was now, and he wanted to find a mechanism to access some of the value that had been added to the land and recover his costs’. Ben did not recall that being said in the meeting. He accepted that Ascenzo had spent some money up to that point.

15. It was put that the reference to ‘advance’ in the one page Feasibility Summary reflected the conversation that had occurred at the meeting. Ben’s evidence was that, ‘the concept of an advance and Coonwarra and Trimont taking $1 million makes no sense to me because we never discussed taking money out and Coonwarra never had a reason to take money out’. He was asked what he understood was meant by the reference to ‘advance’ in the document. His evidence was, ‘I didn’t know what it meant. When reading it you would assume taking money out but I didn’t know what it meant because there was no discussion about Coonwarra or Trimont taking its $1 million out’. He said he understood the mathematics in the document, but didn’t understand why that reference was there. His evidence was that ‘the document came 10 days after the discussion was held. I don’t recall that discussion about advance and like I said, it doesn’t make any sense to me because Coonwarra never had any intention of withdrawing $1 million. I never discussed that at any stage so why would that be on the document? It doesn’t make any sense to me why… that entire line is there’. It was put that it would make sense if it was discussed, even if figures were not put on it. Ben said, ‘it’s hypothetical. It wasn’t discussed’. He said, that, ‘the broad numbers were discussed. The individual line items weren’t discussed, no. It was a very high‑level concept’. Ben was shown the Estate Master Spreadsheet (that he agreed he saw at the time, probably in December) he said that he did not understand what the numbers in the document reflected. It was put that the document appeared to have references to an offer to Coonwarra for an advance to each party. Ben’s evidence was that ‘we did not go through it in detail. It was barely legible. It was indicative of what the profit would be’.

16. Breckenridge sent a copy of the draft proposal letter and the Feasibility Summary that he had presented at the October meeting, to Hartwig on 3 November 2014. He contacted Hartwig and (as he put in it in his evidence), told Hartwig that, ‘there was an agreement for money to be drawn against the ADA or against the property’. Hartwig responded on 5 November 2014, saying relevantly:

    At this point in time I think that the best way to go here is to look at Coonwara [sic] Pty Ltd borrowing the money in its own right and then advancing to the JV out of which each party can take their $1.0 Million. (Thought we should get $2.5 million; that being $1.0Million each and leave $500k in the JV for “working capital” funding pre commencement of the works.)

    In order to facilitate this the easiest and quickest way I would need provision of the following information/documentation:‑

    ·Confirmation of the Ownership Structure of Coonwarra Pty Ltd.

    ·Confirmation of the Company Directors.

    ·A Directors Statement as to Financial Position. ( Our Standard form is attached.)

    ·Past (2) years Financial Accounts for the entity.

    ·An existing Tenancy Schedule. (Our standard Document is attached. )

    ·A copy of the Valuation that you had undertaken on the Property to confirm the $6.5 million starting point.

    ·A copy of HOA’s as held for existing new Tenancy Commitments.

    ·A schedule of Costs as expended to date.

    ·A copy of the D/A & Planning Approval.

    ·A suggested timeline for Development.

    If the Guy’s [sic] are happy to put me in touch with their Accountant I can work through Items 1 to 4 direct with him/her.

    I think we can move pretty quickly on this but will need that as detailed above in order to finalise a formal Submission.

    Let me know your thoughts.

17. Hartwig’s evidence was that having read the feasibility spreadsheet he understood that each of Trimont and Coonwarra wanted to have an advance of $1 million by borrowing against the Mernda Land, and in response he sought information that could be used to progress a funding application and that he was told (I infer, by Breckenridge) that that is how they wanted to structure their arrangement. Hartwig’s 5 November 2014 letter reflects Hartwig’s understanding of what he was told (and no more) but it is consistent with his having been told that the moneys borrowed against the Land would be advanced ‘to the JV’ ‑ meaning, I infer, the ‘joint venture’, namely a joint development project conducted by Trimont and Coonwarra. There was no response to that letter. It was not shown to Coonwarra at the time.

18. During 2014, Breckenridge and those working with him at Trimont had been seeking to secure tenants for the proposed retail complex. On 17 December 2014, James Hunt emailed Breckenridge stating that they had received offers from other prospective tenants including Hungry Jack, Jetts Fitness, a medical centre, Anytime Fitness, Brumbies, Gloria Jeans and Nando’s.

19. By November 2014, the Agreement for Lease and lease documentation for Coles were nearing readiness for execution. On 12 December 2014, AI Group submitted proposed plans to satisfy the first condition of the Site Specific Control.

20. The draft ADA proposal (that Breckenridge had first circulated in October 2014) had been prepared by Breckenridge using a template that had been created at his request by Kelly Hazel Quill Lawyers (KHQ) in late 2011 for use by AI in what the lawyers described as ‘joint‑venture style agreements’. Breckenridge said he told the lawyers that, ‘we don’t do joint ventures’, following which the draft agreement was re‑named, ‘asset development agreement’. KHQ’s memorandum to Breckenridge of 25 November 2011 said that the draft offer reflected the model that Breckenridge had outlined to them. They also said, among other things, that they anticipated that any asset development agreement would deal with a number of matters including ‘the financing of the ADA’, the basis on which decisions regarding the development of the site should be made, critical timeframes, the ability to sell a party’s interest in the ADA, the consequence of default including buy‑out rights and procedure for determination of disputes.

21. During 2014, Martin was undergoing treatment for cancer and Ben assumed the responsibility for negotiation of the ADA was with Breckenridge. Negotiations continued between Ben and Breckenridge throughout late 2014. Ben considered the draft ADA proposal he had received in October 2014 and requested a number of changes. Some of his proposed changes were accepted. They included annual adjustment of the notional land value to CPI, and Coonwarra taking responsibility for holding costs only up until 1 January 2015. Breckenridge’s draft had provided by way of a condition precedent to Trimont’s obligation to commence construction, that it obtain finance in respect of the development on conditions acceptable to it. By agreement, the condition was amended to refer to Trimont obtaining finance on conditions acceptable to both parties. Some changes sought by Coonwarra were rejected.

22. Ben’s evidence was that by the time that the proposed ADA was being discussed, Coonwarra and Trimont had had been dealing with each other since 2010 (when the negotiations in relation to the Agreement to Lease begun), and Breckenridge and Ascenzo had always acted fairly towards Coonwarra and gave Ben and Martin no reason to think that they were not acting ‘in the best interests of all’. They often said that they were of the old school mentality and that their word was their bond. For those reasons, Ben and Martin did not consider that Coonwarra needed to get independent advice on the ADA. Martin’s evidence was to the same effect. Coonwarra did not typically retain lawyers for its business dealings.

1. Breckenridge emailed a copy of a further draft of the ADA to Martin on 10 December 2014, comprising a cover letter formulated as an offer, with an attached table setting out proposed terms. On 18 December 2014, Martin sent an email to Breckenridge stating that he had sent via fax a signed last page of the ADA. Although there was a suggestion in Martin’s evidence that he did not see the ADA until shortly before he signed it, the substance of the evidence was in fact that he saw the final version shortly before he signed it. I am satisfied that Coonwarra had the opportunity to consider and negotiate the ADA.

Entry into the Asset Development Agreement

1. The letter of 10 December 2014 foreshadowed that once Coonwarra’s assent to the attached terms was confirmed, Trimont would instruct its lawyers to commence drafting the agreement. The attached terms themselves were described as ‘proposed’, and included the statement that the ADA would be prepared by Trimont’s solicitors ‘based upon Developer standard documentation’. However, no further formal written agreement was prepared, and the parties continued on the basis that the terms as documented, embodied their agreement. As a result, the terms were expressed broadly and without the detail that might otherwise have been drafted and agreed upon. In this proceeding, all parties accepted that Coonwarra and Trimont entered into a binding legal relationship constituted by a written agreement comprising a letter dated 10 December 2014, signed by Breckenridge and accompanied by a proposed terms sheet, and later signed by Martin Van der Burgt for Coonwarra on 18 December 2014 (the Asset Development Agreement, or ADA).

2. The Agreement provided as follows (with scarcely more detail than is set out here):

   (a)The agreement designated Coonwarra the Landowner and Trimont (and/or its nominee) the Developer;

   (b)The contemplated development was defined as ‘the construction of a mixed use development including a supermarket and associated retail uses upon the Land’;

   (c)The parties assigned an ‘agreed land value’ of $6,500,000 ‘to be increased by CPI on each anniversary after the 1^st of July 2012’.[19]

   [19]The notion of annually increasing land value is considered below.

   (d)Trimont’s central obligation (under the heading, ‘undertaking the development’) was described in these terms:

   The Developer will be responsible for undertaking (and have complete discretion in respect) all aspects of the Development including

   1.        developing plans for the Development;

   2.        pursing planning permits, consents and approvals;

   3.        marketing and selling lots;

   4.selecting (with approval from both parties) and engaging all necessary consultants and contracting a builder to construct the Development; and

   5.obtaining finance for the Development to the satisfaction of both parties.

   (e)It was specified that the Developer ‘estimates that the costs of undertaking the Development will be in the range of $1,500,000 ‑ $1,900,000 (ex GST)’.

   (f)The Land Owner was to grant unrestricted access to the Land to the Developer’s representatives, agents, employees, contractors for any purpose in connection with the development, and was not to interfere with those rights in any way, subject only to existing leases or occupation rights.[20]

   [20]As discussed elsewhere, Coonwarra arranged for its commercial tenants to vacate the land in preparation of the development.

   (g)Under the heading, ‘security’ the agreement provided:

   The Landowner agrees to grant (from the date the Developer Confirms that the Conditions Precedent have been satisfied or waived) such security as is required to enable the Developer to obtain finance for development including:

   1.        a mortgage(s) over the land; and

   2.a charge over the interest of the Landowner in the ADA and the Development.

   The Landowner agrees that it will procure the discharge of any mortgage or other security interests in respect of the land subsisting at the date of the ADA.

   Upon the request of the Developer, the Landowner agrees to transfer the land into such holding structure as is required to enable the Developer to obtain ,finance for the Development.

   (h)Conditions precedent expressed to be solely in favour of the Developer provided in substance that:

   The obligation on the Developer to commence construction of the development is conditional upon:

   Soil and geotechnical tests, surveys and other investigations to the satisfaction of the Developer in its absolute discretion,

   the Developer obtaining all necessary approvals, conditions and consents in respect of the Development on conditions acceptable to the Developer;

   the Developer obtaining finance in respect of the Development on conditions acceptable to both parties.

   Where the Developer considers (in its absolute discretion) that one or more of the conditions precedent are not (or will not be) satisfied, the Developer may terminate the ADA at any time by written notice or may choose not to enter the ADA.

   (i)The Land Owner was to be responsible for holding costs in respect of the land during the term of the ADA until 1 January 2015 or the date upon which the land could not be occupied or generate rental income because of development works, at which point ‘the ADA will be responsible for such costs’.

   (j)Under the heading, ‘income’, the agreement provided that the Land Owner Developer will each be entitled to ongoing income under the following arrangement:

   Land Owner – 10% p.a. on the agreed land value from the earlier of 1 January 2015 or the date on which the land is unable to be occupied or generate rental income due to any works required to undertake the development or construction. This return can be paid monthly in arrears or compounded and paid out with the Land Owner’s return (as agreed by both parties);

   The Developer – 10% p.a. on the costs incurred from the start of the project to the point where construction has started. These costs are to be agreed by both parties and can be paid monthly in arrears or compounded and paid out with the Land Owners return (as agreed by both parties).

   (k)The agreement provided for the ‘distribution of revenue from the development’ as follows:

   1.        Repayment of financer(s):

   (a)First mortgagee; then

   (b)Second mortgagee/mezzanine finance/charge;

   2.Land Owner – an amount equal to the agreed land value (in cash or equivalent stock);

   3. The Developer – an amount equal to the value of costs contributed to the undertaking of the project up to the point where construction has started (in cash or equivalent stock);

   4.Profit share between Developer and the Land Owner of the remaining revenue – 50% of the remaining project profit. Unsold lots or land will be transferred into a new entity with evenly split ownership between Land Owner and the Developer.

   (l)The Developer may terminate the ADA at any time without specifying a reason, upon providing written notice to the Land Owner. In that case the Developer will provide to the Land Owner all permits, plans, consents, approvals and related information obtained or developed by the Developer in relation to the ADA and where necessary assign its intellectual property and other rights to the Land Owner at no cost to the Land Owner.

   (m)The Land Owner may terminate the ADA at any time prior to the commencement of construction of the Development upon providing written notice to the Developer, in which case the Land Owner will provide to the Developer:

   (1)Reimbursement of all development costs incurred by the Developer in respect of the ADA up to the date of termination; and

   (2)       an amount equal to 10% of those costs; and

   (3)an amount equal to 50% of the increase in the value of the land between the initial valuation and the date of termination; and

   (4)a right of first refusal to purchase the land for a period of 24 months from the date of termination.

3. The substance and implications of certain obligations assumed by Coonwarra and Trimont under the ADA were in issue, as considered in Part IV.

4. Meanwhile in late 2014, discussions were underway within Trimont about its ability to fund its projects. Towards the end of 2014, Breckenridge asked Ascenzo how he was going to deliver all the projects he had taken on. In early December 2014, Hartwig, Ascenzo and Breckenridge met at BCP offices in relation to Trimont, to discuss the builder’s capacity to deliver projects given its large pipeline of work. They spoke about cashflow pressure on Trimont they had identified they would encounter in trying to undertake that work, and that the growth of the Trimont business over the period had put a strain on Trimont cashflows. Hartwig recommended that Ascenzo find an investor to bring into the business and agreed to see if he could source a potential investor. Numerous further discussions about a restructure of Trimont were held, and Hartwig put together a proposal for the creation of a new company that would acquire certain assets of Trimont.

First Loan Agreement[21]

[21]The expressions ‘First (or Second or Third) Loan’ and ‘First (or Second or Third) Loan Agreement’ may be read interchangeably in these Reasons, as the context allows.

1. In about mid‑December 2014, Hartwig had a number of telephone conversations with Breckenridge about potential funding for the development of the Mernda Land. In one of those conversations, Breckenridge told him that Coonwarra and Trimont did not have sufficient documentation to proceed with bank finance and that the development initially required finance of $1.75 million.[22] Breckenridge asked him whether he could make enquiries of potential non‑bank lenders to fund a loan. Breckenridge asked that, if possible, the funds be advanced prior to Christmas.

   [22]The amount was within the range of costs estimated in the ADA.

2. On 17 December 2014, Breckenridge sent Hartwig a projected summary of returns for the development in an Estate Master Spreadsheet in preparation for a finance proposal.

3. Breckenridge’s evidence was that he met with Ben and Martin on 19 December 2014 at which time he said that loans of approximately $19 million would be required to fund the development through to completion. That amount had been recorded in his Estate Master Spreadsheet that he had prepared on 17 December 2014. His evidence was that he said that, ‘about $6 million in loans would be drawn down using the Mernda site as security, and after that, we would need to look for ways to fund the rest of the project’. Ascenzo’s evidence was that, at that time, they discussed Coonwarra taking out a loan to fund the development. Martin and Ben did not agree that a meeting occurred on 19 December. I accept however, that a discussion occurred at which borrowing against the security of the land was raised. Before that time the specific basis on which the development would be funded was not discussed. As Martin put it, there had been talk that funding would be necessary, but without mention of amounts required, or how it would be obtained.

4. Around that time, Hartwig contacted one of BCP’s clients, Richard Minc, a long‑term business associate of Hartwig, to ascertain his interest in providing a short‑term loan of $1.75 million. Minc said he may be interested in making a short‑term loan, but required more information. On 19 December 2014, BCP prepared a finance proposal for Coonwarra. It relevantly stated that BCP had been appointed by Coonwarra to source a bridging facility by way of short‑term private equity loan to assist in the commercial and retail development of 1435 Plenty Road, Mernda and that Trimont had been appointed as builders for the development. The proposal was in these terms:

   A facility of $1,750,000 has been requested for a term of two months to fund costs expended to date in addition to covering costs involved in the building application which is currently under way. A Term Debt Facility will then be established upon receipt of an executed Coles Agreement for Lease and supporting tenancy which underpinned the development. The facility will be utilised to:

   Reimburse Trimont for costs to date  $1,000,000

   Fund the building application   $ 250,000

   Reimburse Coonwarra for costs to date                    $ 500,000

   Total  $1,750,000

5. The proposal is consistent with Hartwig having received instructions that $1 million was to be borrowed for the purposes of paying both parties for costs expended to date, and that otherwise for the advancement of the development of the Land.

6. The proposal went on to state that the property had been valued at $6.5 million as is, there were no mortgages held over the property and as such ‘this will be secured via a first ranking registered mortgage’; that the total development had been predicted to cost $25.09 million with an end return profit of $4.019 million; that there was an agreement for lease in place with Coles (to be executed in February 2015), which was a key requirement prior to establishing a senior debt facility and thus the requirement for a short‑term bridging facility. Under the heading ‘repayment’ it was said that BCP would arrange a property and construction facility which would facilitate the repayment of this mezzanine loan facility, and that ‘whilst there is this ability to lend against the property value, a strategic decision has been made to wait for [an] executed Coles Agreement for Lease prior to arranging these funds’. Hartwig understood at that point that the short‑term loan would be refinanced by a bank. He was never instructed to make any application to a bank for funding for the project.

7. Hartwig also prepared a terms sheet for the mezzanine loan facility dated 19 December 2014 which nominated Coonwarra as the borrower and Berkley Capital Partners as agent for Upper Hunter Developments (Scone) Pty Ltd as the lender. The purpose of the loan was stated as: ‘provide a Bridging Facility to allow for further progress of the Mernda development, prior to bank funding’. The interest rate was 12 percent per annum accruing daily, charged monthly. Hartwig did not receive any instructions directly from Martin or Ben in relation to the terms sheet but dealt with Breckenridge. I accept that the proposal as prepared by Hartwig reflected instructions given to him by Breckenridge. Hartwig gave a copy of the terms sheet to Breckenridge, who telephoned him to say that he had discussed it with Martin and Ben and that Coonwarra was happy to proceed with the loan, but it required $1.5 million not $1.75 million and that it had been agreed that $1 million was to be advanced then, with a further $500,000 to be advanced in the new year.

8. Hartwig told Minc (who went on to lend through Aida Nominees Pty Ltd) that the borrower wanted two cheques payable to Trimont in the sum of $1 million and one cheque drawn in the sum of $500,000. Minc drew cheques accordingly. He described each cheque as ‘Loan to Coonwarra P/L (Mernda)’ on the cheque stub and dated the stubs ‘22/12/14’. Minc left the payee details blank on each cheque. After Minc signed the cheques, Hartwig wrote ‘Trimont P/L’ on each cheque as the payee.

9. Days later, Martin and Ben were presented with loan documents for a loan of $1.5 million, in which BCP was named as Lender (as agent for disclosed principal Aida Nominees Pty Ltd). There was a dispute about the date on which these documents were first presented to Martin and Ben (whether 22 or 23 December 2014).

10. Each of Martin and Ben said that they were invited to attend a meeting at Trimont’s offices on the morning of 23 December 2014, and it was at that meeting that the loan documents were first presented by Hartwig, and executed by Martin for Coonwarra.

11. Martin’s evidence was that at that meeting Breckenridge told him that he had organised a loan through Hartwig and that:

    Peter had spoken about the need to get finance and that Trimont had spent a considerable amount of money on progressing the development and that AI should be entitled to be reimbursed for their expenditure… My reaction to that was that I was aware that they had expended money on the development, on things such as soil testing, environmental studies, getting consultants, applying for council permits and the like and my reaction was that I felt that they were entitled to be reimbursed… Mr Hartwig stated that he had sought finance and said that he was also experienced with construction and development and that he had organised the finance for the purpose of reimbursing AI for capital expenditure.

12. He also said that Ascenzo had made ‘a similar statement’ about having spent considerable sums, as did Hartwig. Martin said that he agreed to allow Trimont to be ‘reimbursed’ on the basis that Trimont would pay the interest and repay the loan. Martin agreed that before he signed the agreement, Hartwig told him the funds were to be loaned to Coonwarra and were to be paid at least in part for the purposes of compensating Trimont for costs incurred for the development to the stage it had been reached, and also for working capital for the development. At that time, Martin understood that construction works would start early in the new year and that was consistent with the need to maintain timelines in the Coles agreement for lease.

13. Ascenzo’s evidence was that ‘the loan’ was discussed with Martin and Ben on both 19 and 22 December 2014. He said that at both meetings, Hartwig explained to Martin and Ben that Coonwarra would take the loan, secured by the property, and that the proceeds would be paid to Trimont to carry out the required development activities. He said that the purpose of the first loan was discussed, namely that, ‘the purpose of the first loan was that Trimont spent a lot of money on the project and that Trimont could recoup a lot of its money that he had spent on the project’ and that whatever interest there was on the first loan Trimont would pay the interest’. Ascenzo said further that on 22 December ‘Peter asked Martin whether he wanted any of his entitlement under the ADA (that is, his share of the expected returns for the project) upfront’ and that Martin said that ‘he wanted to keep his money in the project and receive it at the end’.

14. Ascenzo did not know the value of the costs incurred in the work done on the Mernda project to that point, and nor did he have any documentary evidence of what had been spent.[23]

    [23]Such documentary evidence as there was in relation to the costs expended on the Mernda development was addressed separately by Breckenridge (see Part III).

15. That arrangement was confirmed in a letter dated 20 February 2015 prepared by BCP and provided to Coonwarra (as discussed below).

16. As Martin said in his evidence, he understood he was signing a mortgage and guarantee. He understood that Coonwarra was borrowing money and that it would have to repay the money under the terms of that agreement and it was not repaid, the lender, in whose favour Coonwarra was to grant a mortgage, could take possession of the land and sell it in order to recoup the loaned moneys.

17. Breckenridge said that a meeting occurred between himself, Ascenzo, Martin and Ben on 19 December (at Trimont’s office) at which time Coonwarra taking a loan was discussed. Cross‑examined by Coonwarra about what Martin and Ben were told about what the funds were needed for, Breckenridge said that there was a discussion about reimbursing Ascenzo’s costs and some working capital going forward, to be used to progress the development. He said that he could not recall any discussion about the amounts that had already been expended.

18. Breckenridge said that they next met at BCP’s offices on 22 December 2014, at which time Hartwig presented the loan documents and discussed them with Martin. Martin and Ben had been invited to attend the Trimont Christmas party the following day. On 23 December, Martin and Ben arrived at Trimont’s offices before the party was due to start, with the loan documents. Martin executed the documents in the presence of Breckenridge, who witnessed them.

1. On 27 November 2015, VWA’s agent, Gallagher Bassett, sent a letter of demand to Trimont for $100,946.35.

2. Trimont did not pay its LSL contributions for the October/December 2015 period when it fell due, and was served with a final notice for that amount on 5 February 2016.

3. Trimont and CoINVEST came to an arrangement on 2 March 2016 to pay the April/June debt in $2,000 monthly instalments. On 3 March 2016, by a letter from its solicitors, CoINVEST demanded payment of the remaining amount.

4. On 29 March 2016, United Super filed a claim in the County Court for contributions that had been unpaid to its members employed by Trimont since March 2015. The claim was for the total amount of $310,109 for the period March 2015 to March 2016. The amount outstanding for March 2015 to September 2015 was in excess of $190,000. Judgment was later granted in favour of United Super.

5. CoINVEST initiated debt collection for the unpaid amount in January 2016. The agency commenced proceedings in the Magistrates Court on 15 February 2016 for the amounts outstanding since April 2015 plus statutory interest.

6. From April to August 2016, CoINVEST sent demands by its solicitors and debt collector for the outstanding amounts for the July/September and October/December periods. Trimont went on to breach its payment plan with CoINVEST. On 8 June 2016, CoINVEST entered judgment against the company for the April/June contributions. Default judgment was entered in favour of CoINVEST for $48,111 according to an email from the debt collector Probe Group on 18 July 2016. It is not immediately clear whether Probe Group was referring to the previous judgment entered for the April/June amounts.

7. CoINVEST showed interest in the winding up application brought against Trimont by the SRO. On 2 August 2016, CoINVEST, alongside the VWA, filed a notice of intention to appear in the proceeding.

8. On 5 October 2016, Trimont reached another payment arrangement with CoINVEST for the outstanding 2015 quarters. It was agreed that Trimont would pay the contributions in four monthly instalments. Nevertheless, CoINVEST went on to file a Complaint in the Magistrates Court for $14,913 outstanding for the last quarter of 2015 and the first two quarters of 2016. CoINVEST later obtained judgment for that amount.

9. The VWA eventually took legal action and filed a complaint in the Magistrates’ Court to recover $102,586 in unpaid premiums on 5 February 2016. Ascenzo’s solicitor Tony Zita negotiated a payment arrangement with the VWA. There was no evidence as to how this arrangement fell apart, but VWA entered for default judgment in the Magistrates’ Court proceeding on 7 June 2016.

Sources of funding

1. As discussed earlier, money borrowed by Coonwarra was used to pay Trimont or Ascenzo‑related creditors and other interests. No positive case was made by Ascenzo or any other defendant that Trimont had available to it external funding that would fundamentally change its ability to meet its creditors’ demands, within a particular time period, or at all. The only evidence given by Ascenzo on arrangements with creditors was lacking in specificity and persuasiveness. It was not seriously contended that Trimont had the resources, by means of loans or other arrangements from related entities or third parties, to meet its debts as they fell due.

Trimont’s financial position as disclosed in its financial statements

1. Trimont’s financial statements for 2013 and 2014 were prepared by its accountants, Pitcher Partners. There was no issue about their reliability.

2. Ascenzo was cross‑examined on a draft set of financial statements for the financial years ended 30 June 2015 and 30 June 2016 (Draft Financial Statements). The reports of Trimont’s liquidator Michael Carrafa. referred to and exhibited a different set of financial statements in his 5 June 2017 report to Trimont’s creditors, which he said was compiled from Trimont’s management accounts (the Management Accounts). There were differences across the two sets of statements for the 2015 financial year. Nevertheless, for 2015, the reported net assets and net profits figures were substantially similar in each set of accounts. Both sets of accounts recorded negative net assets in the range of ($13,184,218) to ($14,010,890) and a negative net profit before tax of ($13,390,925) to ($14,013,872). The figures for 2016 in the Draft Financial Statements and Management Accounts were identical.

3. For the 2015 financial year, Trimont’s Draft Financial Statements recorded total assets of $10,362,619 and total liabilities of $24,373,509. Its current assets were $9,142,834 (including a total cash reserve of $21,456) with current liabilities of $23,407,930 (including $18,845,069 in payables, comprised of trade creditors, loans from associates and statutory and tax liabilities). With a recorded income of $26,848,320, Trimont’s cost of goods sold was $36,468,766. This resulted in a loss of ($9,620,446) and a negative gross margin of (35.8 percent). Trimont expended a total of $4,405,256 resulting in an operating loss of ($14,025,702) and a net loss before tax of ($14,013,872). Trimont’s EBIT was ($13,695,086) and EBITDA ($13,354,060).

4. The 2015 Management Accounts recorded total assets of $5,020,212 and current assets of $3,800,427 (including a cash reserve of $21,456). The difference between the current assets recorded in the Draft Financial Statements and the Management Accounts is explicable, and lies in an omission from what is recorded in the Management Accounts for Trimont’s receivables. According to the Management Accounts, Trimont had a total of $1,973,439 for receivables compared to $7,272,769 recorded in the Draft Financial Statement. In the Draft Financial Statement, Trimont has $5,919,330 in loans to associates. That figure is omitted from the Management Accounts, which only accounts for $1,020,962 in trade debt, $949,538 in subcontractor retentions held and $2,939 in fuel tax rebates for its total receivables.

5. The Management Accounts record that Trimont had total liabilities of $18,204,430 compared to the $24,373,509 recorded in the Draft Financial Statement. They record current liabilities of $11,813,589 (including $9,955,085 in payables). Unlike the Draft Financial Statement, the payables figure in the Management Accounts only accounted for trade creditor debt and not for loans from associates or statutory and tax liabilities (a difference of $8,889,984).

6. The Management Accounts and Draft Financial Statements recorded identical figures for total income, gross profit and the gross profit margin in 2015. Trimont expended a total of $3,782,309, resulting in an operating loss of ($13,402,755) and a net loss before tax of ($13,390,925). Trimont recorded EBIT of ($13,390,925) and EBITDA of ($13,390,925).

7. The Draft Financial Statement and Management Accounts for the 2016 financial year contain identical figures. Trimont had total assets of $2,053,681 and total liabilities of $12,604. Its current assets were $1,114,199 (including cash reserves of $21,456) with current liabilities of $4,080,564. Trimont recorded total income of $4,398,901. Its cost of goods sold was $6,218,085, resulting in a gross loss of ($1,819,184) and a gross margin of (41.4 percent). Trimont expended a total of $2,048,929, with an operating loss of ($3,868,113). The accounts showed a net profit before tax of $2,839,750.

8. Ascenzo was cross-examined on Trimont’s Draft Financial Statements for the year ended 30 June 2015. The documents appeared on their face to have been prepared by Pitcher Partners and were stamped ‘tentative and preliminary draft for discussion purposes only’. Ascenzo said he did not recall discussing the document with Pitcher Partners and that the document did not represent ‘the final figures’ because he did not sit down with Pitcher Partners or anybody to finish off the accounts. He did not think there was a loss of about $14 million. He said that he had a sense that the figures were wrong and that he did not know ‘if it made a profit or if it made a loss’.

9. The contemporaneous documents disclose that Pitcher Partners had prepared the draft accounts on Ascenzo’s instructions and with his involvement. On 10 August 2016, Ascenzo forwarded to Breckenridge an email he had received from Rigoni (sent to Trimont’s solicitor Zita copied to Ascenzo) attaching the 2015 Draft Financial Statement. Ascenzo’s message to Breckenridge with the forwarded email read, ‘when do you want to meet?’ Rigoni’s message to Ascenzo read as follows:

   As discussed attached are a copy of the draft 2015 financial statements which are stamped ‘tentative and preliminary draft for discussion purposes only’. Ben Lethborg of our office presented and discussed the draft financial statements with Silvio late yesterday afternoon. As I explained earlier today, we are yet to verify a number of balance sheet items to supporting documentation. In particular this comment relates to the various loan to and from associates. However I understand that Silvio yesterday afternoon did not question any of these balances. Nonetheless, they are yet to be verified…

10. Ascenzo said he did not recall meeting with Ben Lethborg. However, he had no reason to think that what was set out in the email was not true. It was put that as at August 2016 Ascenzo knew that Trimont had made trading losses of some $14 million in the year ended 30 June 2015. His answer was, ‘no, because they weren’t the final figures. There was a draft’. It was put that the draft was one with which he had not taken issue. He agreed. He also agreed that it had been prepared by Pitcher Partners on the basis of information provided by Trimont but added, ‘and not finalised by them’. Ascenzo was unwilling to admit the facts set out in the document but could not offer any credible alternative account despite his assertion that he had a sense that the figures were wrong. When the Draft 2015 Financial Statement was put to Breckenridge, he said that he recalled Ascenzo asking him to ‘provide resources to reconcile some items’ but that he did not remember ‘getting overly involved in the actual numbers’.

11. Ascenzo was also cross‑examined on the 2016 Draft Financial Statements. On 22 August 2016, Boyko wrote to Breckenridge and Ascenzo (addressing her email to Breckenridge) asking whether ‘as per’ Breckenridge’s discussion with Zita the previous week, he needed her to organise anything to complete the Trimont 2016 financial statements. She recalled that Zita had said he was ‘trying to gather Bill [Thurgood], Jevan [Clay], Dario [Ferella] and I think you mentioned Ben [Lethborg] to complete these financials asap’. Boyko asked Breckenridge to speak with Ascenzo, noting that Rigoni had emailed him regarding payment of the Pitcher Partners’ account before completing the 2016 financial statements. Boyko said she would leave that up to Breckenridge noting that they were now completing the financials in‑house. She said that the financial statements needed to be completed as a matter of urgency. Breckenridge recalled that Clay and Thurgood put the accounts together. His evidence was that he had spoken with Ascenzo and it was decided that because Clay and Thurgood had previously assisted Boyko with Trimont’s accounts, they could ‘put enough information together so the accounts could be finalised’.

12. Dario Ferella was Trimont’s former accountant who was assisting Ascenzo with respect to insolvency matters. Ascenzo agreed by reference to Boyko’s 22 August 2016 email, that Boyko was proposing the 2016 financial accounts be completed in‑house with access to Trimont’s accounting records and assistance from Ferella and Lethborg. Under cross‑examination, Ascenzo accepted that in all likelihood those people were involved in the in‑house preparation of the 2016 financial statements for Trimont.

13. On 5 September 2016, Thurgood emailed Breckenridge and Hartwig attaching draft financials for the Ascenzo Group, ‘that Ferella and Zita have’. Thurgood’s email stated that there was a lot of missing information so the financial statements were ‘pretty basic’. He said that all loans were ‘directed to’ Katia Ascenzo who then ‘lent to Trimont’. Thurgood stated that ‘all other entities either owe money to or have lent to Katia’. Financial statements for a number of Ascenzo‑related entities for year ended 30 June 2016 were attached including for the Ascenzo Family Trust. Ascenzo was taken to the 2016 draft statements during cross examination. He did not doubt that they were the documents prepared from Trimont’s accounting records at the time.

14. A note to the financial statements under ‘payables – non‑current’ recorded a loan from CornoNero Pty Ltd in the sum of $2,452,572. Ascenzo agreed that payables were debts owed by Trimont. It was put that CornoNero was owed that money because it had paid debts of Trimont. His answer was, ‘it paid debts for Trimont, yes’.

15. Breckenridge said he did not review the 2016 Draft Financial Statement when it was sent by Thurgood. He was unable to explain the various loans from associates that were recorded in Trimont’s payables. Breckenridge said: ‘I’m not sure of the accuracy of these accounts at all’. He proffered no positive case about the accounts.

16. The 2015 financial statements were in draft, and the accountants who prepared, them told Ascenzo that some items, in particular loans to associates, required verification. Nevertheless, they were prepared by Trimont’s own accountants, Pitcher Partners, on the instructions of Ascenzo who was Trimont’s sole director, with his involvement. Having weighed this evidence in light of the contemporaneous documentary and witness evidence, I consider that the 2015 Draft Financial Statements can be taken to express Trimont’s financial position at that time, as assessed on the basis of Trimont’s records, by Trimont’s accountants, an assessment with which Trimont’s sole director took no issue at the time. They may be regarded as relevantly reliable. Ascenzo’s insistence that they were ‘not final’ does not detract from that conclusion. He pointed to no fact that would have undermined any particular part of the accounts.

What do the 2015 accounts show?

1. The liquidators extracted the company’s financial position from its financial records and exhibited its profit and loss, balance sheet and working ratios in the Carrafa Report dated 5 June 2017.

2. Set out below are financial figures as analysed by Mr Carrafa, derived from the 2013 and 2014 reports and the 2015 Management Accounts. Added (in bold) are the same items and calculations derived from the Draft Financial Statements.

Carrafa Reported Figures (above) Draft Financial Statements (below)	30‑Jun‑15	30‑Jun‑14	30‑Jun‑13
Total Current Assets	3,800,427	16,255,640	7,047,151
9,142,834	‑	‑
Total Non‑Current Assets	1,219,785	1,401,872	1,297,323
1,219,785	‑	‑
Total Assets	5,020,212	17,657,512	8,344,474
10,362,619	‑	‑
Total Current Liabilities	11,813,589	16,880,309	7,496,292
23,407,930	‑	‑
Total Non‑Current Liabilities	6,390,841	777,103	848,082
965,579	‑	‑
Total Liabilities	18,204,430	17,657,412	8,344,374
24,373,509	‑	‑
Net Assets / (Liabilities)	(13,184,218)	100	100
(14,010,890)	‑	‑
Working Capital Surplus / (Deficiency)	(8,013,162)	(624,669)	(449,141)
(14,265,096)	‑	‑
Working Capital Ratio	0.32	0.96	0.94
0.39	‑	‑

1. Carrafa analysed and recorded Trimont’s profit and loss figures derived from the 2013 and 2014 reports and the 2015 Management Accounts. Those figures are as follows, with figures from the Draft Financial Statements inserted (in bold) beneath.

Carrafa Reported Figures (above) Draft Financial Statements (below)	30‑Jun‑15	30‑Jun‑14	30‑Jun‑13
Total Income	26,848,320	30,314,991	19,480,874
26,848,320	‑	‑
Total Cost of Sales	36,468,766	25,716,397	16,753,088
36,468,766	‑	‑
Gross Profit /(Loss)	(9,620,446)	4,598,594	2,727,786
(9,620,446)
Total Expenses	3,782,309	3,044,373	2,062,878
4,405,256	‑	‑
Net Profit /(Loss)	(13,390,925)[313]	1,554,221	664,908
(14,013,872)	‑	‑

[313]The figure in the Carrafa Report was 13,402,755. It appears to be in error. The figure in the table above is taken from the Management Accounts.

Ascenzo’s evidence about Trimont’s financial position

1. Ascenzo’s evidence was that as at July 2015, Trimont was receiving debt collection notices and statutory demands from creditors. It was put to Ascenzo in cross‑examination that during the period December 2014 to December 2016 Trimont was not able to pay its debts with its own money when they fell due. Ascenzo’s response was: ‘Yes, that’s right’. Ascenzo agreed that if that was the case, there would have been serious commercial issues confronting Trimont, including delays on Kanyon projects, issues with unions, damage to business relationships and potential litigation risk. Ascenzo acknowledged that he was aware of those potential consequences if Trimont could not find the money to pay its creditors.

Conclusion

1. Although it is unnecessary to make any finding of insolvency for the purposes of this proceeding, it is relevant to record the fact that the evidence establishes that Trimont was under significant financial stress. It was unable to pay its debts as and when they became due and payable, as at 30 June 2015 (and also in August and September 2015).

2. Nothing in the evidence suggested that the difficulties Trimont encountered were instances of mere temporary illiquidity.

3. The evidence can be summarised as follows.

Ongoing losses

1. Ascenzo was cross‑examined on Trimont’s deteriorating financial position. He agreed that the company’s financial position had deteriorated over the course of the 2015 financial year. According to its annual financial reports, Trimont recorded a net profit of $664,908 in 2013 and $1,554,221 at 30 June 2014, followed by significant net losses of $13,402,755 at 30 June 2015.

2. It is difficult to determine whether the company continued on a downward trend from June 2015 to September 2015 in the absence of monthly financial information. Nevertheless, it is likely on the balance of probabilities that continued until August and September 2015 on the basis that Trimont had experienced significant loss on a continuing basis up until 30 June 2015, and in view of the continued inability to meet its debts into the August‑September 2015 period.

Liquidity ratios

1. An Applied Working Capital/Current ratio (AWC/C ratio) determines a company’s ability to use current assets to pay its liabilities. A Quick Asset ratio (QA ratio) ratio determines a company’s ability to use current assets to pay its liabilities without needing to sell its inventory. Trimont’s liquidity ratios remained under 1 from 2013 to 2015 (and 2016)[314]. The plaintiffs submitted that this demonstrated that the company was in substantial financial distress during this period. Taken together with the other evidence to which I have referred, I accept that submission.

   [314]Noting the reservations set out earlier in respect of the 2016 accounts.

2. Trimont recorded an AWC/C ratio of 0.94 at 30 June 2013, 0.96 at 30 June 2014, 0.32 at 30 June 2015 (and 0.27 at 30 June 2016[315]). It recorded a QA ratio of 0.25 at 30 June 2013, 0.40 at 30 June 2014, 0.17 at 30 June 2015 (and 0.22 at 30 June 2016[316]).

   [315]Noting the reservations set out earlier in respect of the 2016 accounts.

   [316]Noting the reservations set out earlier in respect of the 2016 accounts.

Creditors paid outside trading terms

1. Trimont was failing to make payments to creditors within trading terms as early as the first quarter of the financial year beginning 1 July 2014. Trimont staff were balancing creditor demands on a ‘daily basis’.

2. Trimont had not paid creditors within trading terms and had received continued payment demands and legal letters and defended legal proceedings. At 30 June 2015, it was recorded that Trimont had a total creditor debt of $10.1 million, a majority of which had been outstanding for over two months. I am satisfied that Trimont owed significant amounts to various creditors at 30 June 2015.

1. At 30 July 2015, Trimont remained indebted to various creditors. Ascenzo and Boyko had reached payment arrangements with many of them. Various payment lists were created and shared throughout August, recording significant debt figures, payment arrangements, and legal demands. I am satisfied that Trimont owed significant amounts to various creditors at August‑September 2015.

Special arrangements and unpresented cheques

1. The plaintiffs submitted that Trimont had entered special arrangements with select creditors to pay outstanding invoices. Trimont often arranged to pay creditors in instalments. Trimont had also agreed for select creditors to hold or not present cheques. One of the common features of insolvency as noted in Plymin, was the issuing of post‑dated cheques to creditors. In these circumstances, a company would negotiate an arrangement with its creditor which involved the receipt of cheques which were dated to be deposited at a later date. In this case, Trimont arranged for its issued cheques to be placed ‘on hold’ or not be presented by creditors. It is not apparent that the cheques were physically post‑dated, but Trimont’s arrangements were akin to this process.

2. It is clear that as of 30 June 2015, Trimont had numerous arrangements with creditors to pay in instalments or to hold their cheques. There was no substantive change by August‑September 2015. Accordingly, I am satisfied that the evidence gives rise to two Plymin indicia that support a finding that Trimont was insolvent as at 30 June 2015 and August‑September 2015.

Legal action

1. Over the course of 2015, many of Trimont’s supplier relationships had deteriorated to the point that it became the subject of legal action and threats. Trimont personnel recorded these escalated situations in internal documents and correspondence. The plaintiffs rely on that documentation and various legal letters received by Trimont from as early as November 2014.

2. Trimont received solicitors’ letters and statutory demands up until 30 June 2015. A winding up application was brought against the company only a month prior the end of the 2015 financial year.

3. Trimont continued to receive legal threats until the business was sold, including a final notice from the ATO. I accept that this indicia was present at August‑September 2015.

4. Trimont received further legal letters, complaints, judgments and warrants after the business sale. I do not consider that correspondence to be relevant for my purposes.

Rounded payments to creditors

1. It was submitted that Trimont made payments of rounded sums to creditors which were not reconcilable with specific invoices. However, the plaintiffs made no submissions directly to the presence of this Plymin indicia.

2. There is clear existence of rounded payments being made to creditors from at least 30 March 2015. It is difficult to ascertain, for most payments, whether the sum is reconcilable with an actual invoice. However, the payments are referred to, in internal correspondence and documentation, in a manner that suggests Trimont was trying to appease certain creditors with lump sum payments. The June Payment Master List dated 30 June 2023 contained a number of rounded payments.

3. The trend continued up until the finalisation of the business sale, with rounded payments being made in August and September 2015.

On stop‑credit

1. If a supplier places a company on stop‑credit, or demands payment before resuming supply, this may be an indicator of insolvency. The plaintiffs made no particular submissions in regard to this indicia, nevertheless I have identified instances in which this indicia arises.

2. Trimont personnel recorded creditors who had placed Trimont on stop‑credit in internal spreadsheets and emails. By 30 June 2015, six of Trimont’s creditors required payment to re‑open their accounts. By August‑September 2015, Trimont was on stop‑credit with its supplier, Amis.

3. I am satisfied that Trimont was on stop‑credit with numerous suppliers as at 30 June 2015 and August‑September 2015.

Overdue taxes and statutory liabilities

1. At the relevant dates, Trimont had accrued federal and state tax debt and had difficulty paying employee wages and entitlements such as superannuation contributions, or meeting its tax or statutory obligations as an employer, such as payroll tax, PAYG deductions or Workcover premiums.

2. Trimont had an outstanding debt to the ATO on a continuous basis from April 2014 to September 2015. By April and May 2015, Trimont stopped meeting its PAYG and BAS obligations. The ATO threatened legal action in April 2015 and Trimont failed to settle its debt by 30 June 2015. It does not appear that Trimont discharged its debt in full at any point during this period, but this is not necessary to establishing insolvency at the relevant dates. It is only necessary to decide whether Trimont had an outstanding federal tax debt at 30 June 2015 and 7 August and 11 September 2015. I am satisfied that this was the case.

3. For the period July 2014 to June 2015, Trimont owed $571,665 in superannuation contributions that had been deducted from wages. According to the Debt Form, there was $906,681.49 outstanding for the period July 2014 to March 2016. It is clear that the Debt Form accounted for unremitted superannuation for the 2015 financial year. I conclude that at 30 June 2015, Trimont had not remitted superannuation contributions nor settled SGCs owed for the period July 2014 to June 2015. I am satisfied based on the Debt Form, that this debt remained by the commencement of the BSA in August‑September 2015.

4. As for Trimont’s state tax debt, Trimont had an outstanding debt for a year’s worth of payroll tax by 30 June 2015. The debt remained unsettled at August‑September 2015.

Unpaid employee wages, entitlements and obligations

1. As to employee wages, there was no evidence that Trimont’s payroll issues persisted beyond March 2015 and into the next financial year. I have, however, concluded that Trimont had an outstanding debt of superannuation guarantee contributions to the ATO as at the relevant dates. This extends to my conclusion in relation to its unremitted contributions to the superannuation funds themselves. United Super had not been paid in the relevant period. I am satisfied that Trimont had not paid superannuation deducted from its employees’ wages as at 30 June 2015 and August‑September 2015.

2. As to its obligations to pay long service leave contributions, I am satisfied that as of August‑September 2015, Trimont had an outstanding debt with its long service leave provider CoINVEST. The April/June debt was not payable until 31 July 2015, so it was not outstanding at 30 June 2015.

3. The plaintiffs submitted that Trimont had failed to make its Workcover payments in the relevant period. It was submitted that Trimont stopped paying VWA in March 2015, but it is clear that Trimont made at least one further payment in June 2015. The 2015/16 Premiums Notice shows that a payment was made on 30 June 2015. VWA’s solicitors confirmed that a payment was made in June 2015 in their March 2016 email. The plaintiffs made no submissions on how the Court should treat this evidence. By 30 June 2015 and August‑September 2015, Trimont only had an outstanding liability of $261.94. The 2015/16 premiums did not fall due and payable until 1 October 2015.

4. Accordingly, I accept that at 30 June 2015, Trimont had accrued, and had outstanding:

   (a)BAS debt and unpaid SGCs due to the ATO;

   (b)Payroll tax due to the SRO;

   (c)Superannuation contributions to its employees’ allocated superannuation funds; and

   (d)Workcover premiums.

5. I accept that at August‑September 2015, Trimont had accrued, and had outstanding:

   (a)BAS debt and unpaid SGCs due to the ATO;

   (b)Payroll tax due to the SRO;

   (c)Superannuation contributions to its employees’ allocated superannuation funds;

   (d)Long service leave contributions due to its long service leave provider; and

   (e)Workcover premiums.

ANNEXURE D – List of Loan Disbursements

Item	Loan	Date of Disbursement	Amount of Disbursement	Disbursed to
1	1	24 December 2014	Total: $1,000,000	Trimont
2	1	23 January 2015	Total: $500,000	Trimont
3	2	Tranche 1 – 10 August 2015	Total: $2,500,000	·     $100,000 to Multifit Projects Pty Ltd ·     $100,000 to Renda Air Services Pty Ltd ·     $107,847.30 to Marijohn Group Pty Ltd ·     $284,900 to BCP ·     $1,907,252.70 to Trimont
4	2	Tranche 2 – 21 August 2015	Total: $400,000	Trimont
5	2	Tranche 2 – 24 August 2015	Total: $400,000	·     $248,476.09 to Minc Sallon (Laverton) Pty Ltd ·     $151,523.91 to Trimont
6	2	Tranche 2 – 25 August 2015	Total: $1,900,000	·     $274,305.64 to Trimont ·     $1,625,694.36 to Aida Nominees
7	3	Tranche 3: ·     24 February 2016 ·     23 February 2016 ·     23 February 2016	Total: $1,608,711.14	CornoNero: ·     $70,584.44, with description “Lygon St JV” ·     $145,042.70, with description “Queens Pde JV” ·     $1,393,084.00, with description “Kanyon PL”
8	3	Tranche 3: ·     24 February 2016 ·     24 February 2016	Total: $191,288.90	·     $160,000.00 to Minc Sallon (Laverton) Pty Ltd ·     $31,288.90 to CornoNero
9	3	Tranche 4 ‑ NOT DRAWN DOWN	Total: $600,000	·     N/A

SCHEDULE OF PARTIES

COONWARRA PTY LTD (ACN 063 839 832)

Plaintiff

and

CORNONERO PTY LTD (ACN 606 176 069)

First defendant

and

TRIMONT PTY LTD (in Liquidation) (ACN 006 065 701)

Second defendant

and

PETER BRECKENRIDGE

Third defendant

and

SILVIO ASCENZO

Fourth defendant

and

BERKELEY CAPITAL DEVELOPMENTS PTY LTD (ACN 116 121 665)

Fifth defendant