Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Ltd & Ors
[2012] NSWSC 403
•27 April 2012
Supreme Court
New South Wales
Medium Neutral Citation: Denis Cassegrain & Ors v Gerard Cassegrain & Co. Pty Ltd & Ors [2012] NSWSC 403 Hearing dates: 10, 11, 12, 13 and 14 October 2011; 7 December 2011 Decision date: 27 April 2012 Jurisdiction: Equity Division - Corporations List Before: Bergin CJ in Eq Decision: Plaintiffs entitled to relief. Cross-Claim to be dismissed
Catchwords: [CORPORATIONS] - whether the transfer of shares of the corporation in two other corporations by directors to wife and daughter respectively amounted to oppression against the minority shareholders - whether notice was given - whether consent or acquiescence - whether shares transferred at undervalue.
[DIRECTORS] - Obligations in circumstances where transfer of corporation's assets are to be transferred to a family member - whether consent obtained - whether breach of statutory duties and breach of fiduciary duties.
[KNOWING RECEIPT] - where wife/daughter to whom shares transferred aware of circumstances which would indicate the facts to an honest and reasonable person - where admission that transfer was to avoid litigation and/or appointment of provisional liquidator.
[CONVEYANCING] - Conveyancing Act 1919 (NSW) - s 37A - whether alienation of shares to delay hinder or defraud creditors - where admissions that transfer was made to avoid the appointment of a provisional liquidator.
[EVIDENCE] - where plaintiffs did not give evidence - "rule" in Jones v Dunkel - whether necessity to give evidence to prove oppression under s 232 of the Corporations Act 2001 (Cth) - and/or to prove prejudice under s 37A of the Conveyancing Act 1919 (NSW)Legislation Cited: Conveyancing Act 1919 (NSW)
Corporations Act 2001 (Cth)
Evidence Act 1995 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Agricultural & Rural Finance Pty Limited v Gardiner [2008] HCA 57; 238 CLR 570
Atkinson v Australian Rural Group Ltd [2002] NSWSC 1232; 44 ACSR 152
Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce [1992] 4 All ER 16
Bank of Credit & Commerce International (Overseas) Ltd v Akindele [2001] Ch 437
Barnes v Addy (1874) 9 Ch App 244
Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393
Cassegrain v Cassegrain [1998] FCA 811; BC9803240
Cassegrain v Cassegrain [1999] NSWSC 1165
Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2004] NSWSC 1068
Cassegrain & 1 Or v CTK Engineering Pty Ltd & 1 Or [2005] NSWSC 495; 54 ACSR 249
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Denis Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; 68 ACSR 132
Dunn v CTK Engineering Pty Ltd [2002] NSWSC 365
Ebrahimi v Westbourne Galleries [1973] AC 360
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89
Fexuto Pty Limited v Bosnjak Holdings Pty Limited [2001] NSWCA 97; 37 ACSR 672
Gerard Cassegrain & Co Pty Limited v Cassegrain [2011] NSWSC 1156
Housing Commission of NSW v Falconer & Anor [1981] 1 NSWLR 547
Jones v Dunkel (1959) 101 CLR 298
Marcolongo v Chen [2011] HCA 3; 242 CLR 546
Morgan v 45 Flers Avenue Pty Limited (1986) 10 ACLR 692
Minister for the Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459
Re George Newman & Co [1895] 1 Ch 674
Robins v Incentive Dynamics Pty Ltd (in liq) (2003) NSWCA 71
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 70 ASCR 1; (2008) WASC 239
Tomanovic v Argyle Hq Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152Category: Principal judgment Parties: Denis Cassegrain (1st Plaintiff/2nd Cross Defendant)
Catherine Dunn (2nd Plaintiff/3rd Cross Defendant)
Patrick Cassegrain (3rd Plaintiff/5th Cross Defendant)
John Cassegrain (4th Plainitff/4th Cross Defendant)
Gerard Cassegrain & Co. Pty Limited ACN 000 342 174 (1st Defendant)
Claude Cassegrain (2nd Defendant/Cross Claimant)
Felicity Cassegrain (3rd Defendant)
Anthony Blake Sarks (4th Defendant)
Expressway Spares Pty Ltd (1st Cross Defendant)
Anne Marie Cameron (6th Cross Defendant)Representation: M A Ashhurst SC/ G Colyer (Plaintiffs/2nd to 5th Cross Defendants)
G C Lindsay SC/ G McGrath SC/ P Bolster (2nd and 4th Defendants/ Cross Claimant)
J J Garnsey QC/P J Gormly (3rd Defendant)
D Stack (1st Cross Defendant)
McCabe Terrill Lawyers (Plaintiff/2nd to 5th Cross Defendants)
Oliveri Lawyers (1st, 2nd, 4th Defendants/Cross Claimant)
Peter Condon & Associates (3rd Defendant)
Thomsons Lawyers (1st Cross Defendant)
File Number(s): 2008/281625 Publication restriction: Nil
Judgment
The members of the Cassegrain family have been litigating against each other for years. This litigation arises out of yet another dispute in the family. The plaintiffs, Denis Cassegrain (Denis), Catherine Dunn (Catherine), Patrick Cassegrain (Patrick) and John Cassegarain (John), who are siblings, seek a declaration and consequential orders that the transfer in January 2005 of the shares of Gerard Cassegrain & Co Pty Limited (GCC), the 1st defendant, in Cassegrain Tea Tree Oil Pty Ltd (formerly Endwise Holdings Pty Ltd) (TTO) and Oceania Agriculture Pty Ltd (OAL), to Felicity Cassegrain (Felicity), the 3rd defendant, the wife of the 2nd defendant, Claude Cassegrain (Claude) (a sibling of the plaintiffs) and daughter of the 4th defendant, Anthony Sarks (Mr Sarks), was oppressive to, unfairly prejudicial to, or unfairly discriminatory against them. Although there were claims under s 37A of the Conveyancing Act 1919 (NSW) in respect of these share transactions, the plaintiffs limited this claim to only the OAL share transaction. The plaintiffs seek declarations that Felicity holds her shares in TTO and OAL on trust for GCC.
In a derivative action brought by Denis on behalf of GCC, there are claims that Claude and Mr Sarks were in breach of their fiduciary and statutory duties as directors of GCC in causing the transfer of the shares to Felicity without obtaining an up to date market appraisal of the value of the shares and in selling the shares to Felicity at an undervalue. It is claimed that Felicity was knowingly involved in these breaches.
There is a Cross Claim brought by Claude against Expressway Spares Pty Ltd (Expressway) (1st cross defendant), Denis, Catherine, John and Patrick (2nd to 5th cross defendants respectively) and Anne Marie Cameron (Anne Marie), another sibling (6th cross defendant). Each of the siblings is a shareholder of Expressway. Claude claims, inter alia, that his siblings have conducted the affairs of Expressway and its wholly owned corporations, Cassegrain Wines Pty Ltd (Wines) and Cassegrain Tradition Pty Ltd (Tradition), to their advantage and to his disadvantage. Claude also claims that the plaintiffs have brought these proceedings for the predominant purpose of exerting pressure on him or GCC to surrender their rights. He claims oppression and seeks an order that Expressway be wound up on just and equitable grounds.
The proceedings were heard on 10, 11, 12, 13 and 14 October 2011. The matter was then adjourned by consent to 7 December 2011 when final oral submissions were made in addition to the written submissions that had been filed in the interim. Mr M A Ashhurst SC, leading Mr G Colyer, of counsel, appeared for the plaintiffs. Mr G C Lindsay SC and Mr G McGrath SC, leading Mr P Bolster, of counsel, appeared for Claude and Mr Sarks. Mr JJ Garnsey QC leading Ms P J Gormly, of counsel, appeared for Felicity. Mr D Stack, of counsel, appeared for Expressway.
The Corporations
There are a number of corporations involved in the events, the subject of the disputes between the parties, the structure of which it is appropriate to refer at this point.
Gerard Cassegrain & Co Pty Ltd (GCC)
GCC was incorporated in 1960. It was the company through which the late Gerard Cassegrain (who died on 29 October 1993) carried on his logging business. Over time GCC acquired extensive landholdings in the Port Macquarie area.
At the times relevant to the issues in these proceedings Claude was a director and shareholder and Mr Sarks was a director. Claude held all of the 20 Ordinary shares, 10 A Class shares in his own right and another 40 A Class shares jointly with Felicity. Denis, Catherine, Patrick, John and Anne-Marie each held 10 A Class shares. The 20 Ordinary shares entitled Claude, as the holder of not less than fifteen percent of the paid up capital of GCC, to demand a poll at any general meeting of GCC and to command a majority of votes on a poll at any general meeting of GCC.
On 15 June 1999 the Commonwealth Bank of Australia (CBA) appointed receivers and managers to GCC pursuant to a facility provided to GCC in respect of which it was in arrears.
Cassegrain Tea Tree Oil Pty Ltd (TTO)
Cassegrain Tea Tree Oil Pty Ltd (TTO) (referred to in some of the documents as CaTTO), formerly Endwise Holdings Pty Ltd (Endwise) was incorporated in November 1989. At the relevant time Claude was a director and shareholder and Mr Sarks was a director. Claude held one Ordinary Share and GCC held the other. Since 12 February 1990 TTO has been the registered proprietor of what has been referred to in the proceedings as the "Wynne Property" (and sometimes referred to as "Minnamurra") at Bill Hill Road, The Hatch, New South Wales. A tea tree plantation was operated on the Wynne Property that is the subject of later analysis.
On 15 June 1999 the CBA appointed receivers and managers to the assets of TTO pursuant to a facility provided to TTO in respect of which it was in arrears.
Oceania Agriculture Pty Ltd (OAL)
Oceania Agriculture Limited was incorporated on 18 November 1996 as an unlisted public company. On 24 July 2003 it changed its status to a proprietary company and became known as Oceania Agriculture Pty Ltd (OAL). It is a wholly owned subsidiary of GCC. Claude has been a director of OAL since 27 September 2002 and its sole director since 23 October 2003. It was involved in the tea tree Projects described later.
Agricultural & Rural Finance Pty Limited (ARF)
Agricultural & Rural Finance Pty Limited (ARF) was incorporated in 1997. Between 27 March 1997 and 15 February 2005, Mr Sarks was a director. ARF was involved in the provision of loans to investors in the tea tree Projects as described later.
CTK Engineering Pty Limited (CTK)
Barrett J (as his Honour then was) described CTK Engineering Pty Limited (CTK) as follows in Dunn v CTKEngineering Pty Ltd [2002] NSWSC 365:
[2] CTK was formed in March 1966 by Gerard Rene Jean Francois Cassegrain, Joseph Roy Terp and Nedo Kundicevic. It became their successor in a business of carrying timber in the Wauchope area. The name of the company was derived from the first letter of each surname. The initial share capital consisted of three fully paid A class voting shares, one held by each of the founders. B class non-voting shares were later issued to members of the founders' families. Certain of these shares were afterwards transferred to other persons. Further B class shares were subsequently issued in circumstances which it is not relevant to relate.
...
[4] After its formation, CTK carried on a logging business for several years. It then became involved in civil engineering works, sand mining and restoration works. CTK no longer pursues any of these activities but is the owner of several parcels of land in the Sancrox area lying between Port Macquarie to the east and Wauchope to the west. GC&Co has land holdings in the same locality. All relevant land carries a rural zoning under the planning scheme administered by Hastings Council. In about 1988, a proposal was conceived under which the land of both CTK and GC&Co might become the subject of a major development. Steps were taken in that direction and expenditures were incurred by GC&Co. In the end, the plans came to nothing. CTK has sold two parcels of land in recent years to produce funds required for particular purposes. At this stage, its assets consist virtually exclusively of the residue of the land and the balance of the sale proceeds.
CTK operated the tea tree plantation at a time after the Projects were terminated. A provisional liquidator was appointed to CTK on 12 November 2004: Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2004] NSWSC 1068.
Expressway Spares Pty Ltd
Expressway Spares Pty Limited (Expressway) was registered in New South Wales on 10 December 1964. Its main business is acquiring machinery and selling it off as spare parts.
Claude holds 15 (13.89%) of the ordinary shares in Expressway. Denis holds 15 shares (13.89%); Catherine holds 20 shares (18.52%); John holds 3 shares (2.8%); Patrick holds 20 shares (18.52%); and of Anne-Marie holds 35 shares (32.4%).
Expressway is the sole beneficial owner of Cassegrain Vineyards Pty Limited (now Wines) and Tradition.
The Tea Tree Project
From 1995 Claude and others developed two Projects to establish a tea tree plantation on the Wynne Property that would be financed by public investment (the Scheme). Shortly described TTO leased the Wynne Property to the Project Trustee, Australian Rural Group Limited (ARG). ARG subleased the Wynne Property to OAL. OAL licensed identified portions of the Wynne Property to investors. OAL acted as manager of the Scheme and was responsible for planting, maintaining and harvesting tea trees on the Wynne Property. ARF offered investors a loan to pay for part of the initial licence and management fees. ARF in turn borrowed from OAL in order to lend to the investors. OAL entered into Indemnity Agreements with investors who borrowed from ARF under which, in certain circumstances, OAL agreed to indemnify investors against any amount owing to ARF on the investor's loan.
On 1 April 1997 TTO, as landowner, entered into a Project Deed for the Port Macquarie Tea Tree Plantation to be operated on the Wynne Property. OAL also entered into this Deed, as manager of the Tea Tree Plantation. TTO was obliged to use its best endeavours to register a lease to ARG as Trustee of the Project Deeds and also a sublease to OAL. The Project Deed also provided that if the Trustees' office became vacant and a new Trustee was not appointed within 60 days the Projects would terminate.
On 27 May 1997 OAL and ARF entered into an agreement pursuant to which OAL would loan funds to ARF who would in turn make loans to investors, referred to as "Farmers". On 30 June 1997 TTO, as lessor, entered into a lease with ARG, as lessee, of the Wynne Property. It also consented to a sublease to OAL. A second Project Deed was entered into on 11 February 1998 between TTO as landowner and OAL as manager.
Between April 1997 and June 1999 ARF entered into loan agreements with approximately 230 investors for $24,000 per farm allotment. Each of the investors entered into an Indemnity Agreement with OAL at the same time that they entered into the loan agreement with ARF. As at 30 June 2000 ARF was indebted to OAL in the amount of $9,875,000.
In the Prospectus for the Projects of 1 June 1999 a price of $45-$55 per kilo of tea tree oil had been anticipated. By May 2001, the market price had fallen to between $12 and $20 per kilo. On 20 June 2001 OAL sent a letter to the investors advising that OAL and ARG believed that there was no alternative but to wind up the Projects. At this time most of the tea tree plantation had not been harvested, although it was bearing a crop that was ready to be harvested.
In September 2002, one of the investors, John Atkinson, commenced proceedings against ARG, OAL and ARF seeking a declaration that no grounds had arisen to justify termination of the Projects. Mr Atkinson also sought a declaration that the Indemnity given by OAL remained effective.
On 27 September 2002 ARG was placed into voluntary administration. On 5 November 2002 the administrators advised OAL that ARG had retired as Project Trustee of the Projects with effect from 27 October 2002.
On 12 November 2002 OAL wrote to the investors informing them that the effect of the retirement and non-replacement of ARG was that the Projects would terminate on 26 December 2002.
By 4 January 2003 the amount payable to ARF from the investors in the Project was $11,605,832.33. On 6 January 2003 ARF made written demands on the investors for repayment of their loans. In early 2003 many of the investors in the Projects who had received a demand from ARF claimed an indemnity from OAL pursuant to the terms of the Indemnity Agreements for the amount demanded by ARF.
On 17 February 2003 Claude received a letter of advice from his solicitors that the Indemnity Agreements were not enforceable by the investors. On 24 May 2003 Claude received advice from Senior Counsel that the Indemnity Agreements were enforceable so long as the investors had made payments punctually in accordance with the Indemnity Agreements.
In mid-2003 Claude developed a proposal for CTK to harvest the tea tree crop by leasing machinery from OAL. On 20 July 2003 Claude sent a handwritten proposal to his co-director Troy Terp for CTK to harvest the crop. Mr Terp agreed to this proposal and CTK began harvesting the tea tree crop in early November 2003. Mr Terp resigned as a director of CTK in February 2004 after which Claude remained as sole director.
In August 2004 two of Claude's cousins (Thomas Jean Cassegrain and Emilie Cassegrain) who were shareholders of CTK, commenced proceedings against CTK and Claude seeking a declaration that the affairs of CTK were being conducted in a manner oppressive to them and also seeking an order that CTK be wound up (the CTK proceedings). The evidence that the plaintiffs relied upon in those proceedings relevantly included that of an expert accountant, Robin Geoffrey Humphreys, who expressed the view that the tea tree oil business was not viable.
Claude received correspondence from the solicitors for the plaintiffs in the CTK proceedings advising him that the plaintiffs would seek leave to bring proceedings in the name of CTK against him personally. The letter advised that there would be allegations that included: (a) that the tea tree business was highly speculative and had potential to incur substantial losses for CTK; (b) that OAL had made substantial losses from conducting the tea tree business on TTO's land; and (c) the tea tree business had resulted in CTK incurring losses.
A provisional liquidator was appointed to CTK on 12 November 2004. Although harvesting was continued until around 13 December 2004 it ceased by direction of the provisional liquidator who concluded that its continuation would be to the detriment of shareholders. The provisional liquidator determined that CTK should cease trading and at around this time Claude decided to drop his opposition to the winding up of CTK.
The Tea Tree Litigation
In about June 2003 Claude, on behalf of OAL, decided that ARF should commence proceedings against the investors. On 18 June 2003 ARF, with the consent of OAL, commenced proceedings in this Court against 206 investors seeking to recover outstanding amounts under loans of approximately $10 million. On 19 March 2004 an order was made that the issues raised by ARF's claims against one of the defendants, Bruce Gardiner, be determined separately to all other investors claims subject to undertakings by the investors to be bound on common questions arising in those proceedings (the Gardiner proceedings).
On 26 November 2004 Mr Gardiner filed an Amended Cross Claim against OAL claiming an indemnity from OAL pursuant to the Indemnity Agreement in relation to the amount being claimed by ARF. OAL filed a Defence to the Cross Claim in which it relied on the defaults in punctual payment by Mr Gardiner to invalidate the Indemnity Agreement.
As at late 2004 the Gardiner proceedings included a serious question as to whether the Indemnity Agreements were enforceable, and if so whether OAL would be liable to indemnify the investors for their debts to ARF of approximately $10 million.
The Impugned Share Transactions
On 7 September 2004 the receivers and managers of GCC (the Receivers) wrote to Claude referring to their recent discussions regarding his "proposed refinance of the remaining debts" due to the CBA at the time of completion of the sale of the property of Claude's late mother, Francois Cassegrain, on 15 October 2004. The Receivers advised Claude that the CBA would require payment in full of all outstanding debts including their costs, legal costs and any other expenses incurred or expected to be incurred until the date of completion of the sale. The estimate of the outstanding debt provided at that time was $357,492.11. The Receivers had previously advised that if Claude could not refinance the residual debt then the CBA would expect them to commence the sale of "any residual assets" under their control, "the most valuable of which is the tea tree land".
On 9 September 2004 Claude's solicitor, Christopher McCarron of Priest McCarron, Solicitors, wrote to the Receivers confirming that he was instructed that simultaneously with the settlement of the late Mrs Cassegrain's property Claude would provide the balance of the moneys required to discharge the obligations to the CBA and to retire the Receivers.
On 15 September 2004 Mr Humphreys' affidavit was filed in the CTK proceedings. It included his opinion that the tea tree business was incurring such losses that it could not reasonably be considered a beneficial investment opportunity for the shareholders. Mr Humphreys expressed the view that the losses to which he referred in his affidavit could only have the effect of dissipating shareholder value.
On 17 September 2004 Claude had a discussion with Mr McCarron whose note of the conversation included instructions from Claude that he had engaged in discussions with the Receivers about paying them out. Mr McCarron noted "through LAW FUND - Felicity lends money and GC & Co and gets a MTGE and company charge".
As at 22 September 2004 the Cassegrain Family Trust (CFT) was indebted to GCC in the amount of $721,892. On 22 September 2004 Claude wrote to Mr McCarron in terms that included the following:
1. During the period that CG. Co (sic) were appointed I have incurred costs and (sic) lost wages on behalf of the company. I have not calculated the costs of the disbursements and lost wages/salary. More the (sic) less it is substantial.
The cost I refer to relate to funding the case against the CBA or CDB and the receivers. The cost of the Appeal to the trial judge decision. Interest cost I paid on behalf of the company. Time spent without paid compensation relating to matters of the company between 15 June 1999 to date.
Approx. $324,000 of the above mentioned costs were paid by Felicity with Borrowings she made with CTK Engineering.
2 Cassegrain Family Trust Trustees have agreed in Principle to repay by way of a Bank cheque payable to the CBA/CBD - $200,000 on 15 October or alternative settlement date as may be advised by the purchaser of lots 4 and 5.
3 Felicity has agreed to provide another Bank Cheque to the sum of $157,492.11 as adjusted to the exact sum as advised to you by the Bank.
...
5 Documents are to be prepared and executed but only to take effect upon the discharge of the Bank's mortgages and floating charges were by (sic) Felicity is to have a fixed and floating charge over the companies (sic) assets - Registered 1st Mortgage over the companies (sic) land
On 29 September 2004 the CFT paid $215,000 on behalf of GCC to the CBA.
There was a delay in reaching a final settlement to pay out the Receivers and in the meantime the CTK proceedings continued until 12 November 2004 when Windeyer J appointed a provisional liquidator to CTK: Cassegrain & Anor v CTK Engineering Pty Limited & Anor.
There is in evidence a document dated 29 November 2004 headed "Gerard Cassegrain & Co Pty Limited". It is in the following terms:
Notice is hereby given -
A meeting of Directors of Gerard Cassegrain & Co Pty Ltd is to be held on Tuesday 21 December 2004 at 9.00am at Sancrox Park, 482 Sancrox Road, Wauchope.
AGENDA ITEMS
- RETIREMENT OF RECEIVERS
- LOAN FROM FELICITY CASSEGRAIN TO GERARD CASSEGRAIN & CO PTY LTD
- SALE OF GERARD CASSEGRAIN & CO PTY LTD'S SHARE IN ENDWISE HOLDINGS PTY LTD
- SALE OF GERARD CASSEGRAIN & CO PTY LTD'S SHARES IN OCEANIA AGRICULTURE PTY LTD
- OTHER BUSINESS - ANY OTHER MATTERS THE DIRECTORS DEEM APPROPRIATE TO BE DEALT WITH
- If you are unable to attend would you kindly provide your proxy
On 15 December 2004 Claude and Felicity signed a document entitled "Loan Agreement" which is in the following terms:
We confirm that Gerard Cassegrain & Co Pty Ltd needs to retain lawyers, accountants and management services to act for it in the legal proceedings against the ATO disputing the amended assessment issued for the 30 June 1994 period.
We confirm the Receivers and Administrators of GC&Co authorised Claude Cassegrain to take whatever action is necessary to object to the ATO's amended assessment.
We confirm that the company needs funds to pay such lawyers, accountants and Claude Cassegrain in this dispute and that the company has requested that we lend moneys to it to pay for such costs from time to time.
This letter is to confirm that we agree to lend moneys to GC&Co for the payment of such costs from time to time on the following terms:
1 Any moneys advanced by us to GC&Co will accrue simple interest as the bank reference rate plus a margin of 7% per annum which will be calculated daily on the balance of our loan accounts provided that the margin will reduce to 4% per annum if GC&Co is not in default of its obligations to us under this or any other agreement.
2 All or any part of the loans including interest accrued will be repayable on call on 14 days notice.
3 Any advances to GC&Co under this agreement will be made at our absolute discretion as we consider appropriate.
4 Any advances by us to GC&Co may be made to GC&Co or as requested to any third party to whom GC&Co owes money.
On 16 December 2004 Claude wrote to the provisional liquidator of CTK consenting to the liquidation of that corporation. That letter included the claim that it "was now not possible to trade out of the current situation" which it was claimed had been brought about by the appointment of the provisional liquidator.
On 16 December 2004 the Receivers of GCC notified Claude that the payout figure for them to retire was $194,249.19.
At about this time Claude had another conversation with Mr McCarron in which he informed Mr McCarron that he was trying to convince the ATO to agree that if GCC were wound up the payment out of the Receivers would be a secured loan. Mr McCarron advised that counsel's advice was "negative" on this particular topic.
On 20 December 2004 Ms Winifred Gibson, accountant with NorthCorp Accountants, wrote to Katherine Yager, a solicitor with Priest McCarron in the following terms:
Re Oceania Agriculture Pty Ltd
Further to our telephone conversation I advise the following information -
SALE AND PURCHASE OF SHARES
- Felicity Cassegrain wishes to enter into an agreement with GC&Co to purchase at a future date the shares GC&Co hold in Oceania Agriculture Pty Ltd ("OAL").
- On signing the agreement she will pay 1 cent per share with the balance to be paid if and/or when she exercises her option to purchase (which will be at her discretion).
- The number of shares held by GC&Co in OAL is 100,000.
- The final price for the shares to be the value of the company as per the balance sheet as at 30 June 2004.
- OAL WANTS A LEASE AGREEMENT WITH ENDWISE HOLDINGS PTY LTD
- The lease of the Tea Tree property for a period of 5 years (unless otherwise agreed).
- OAL will have the right to use any fixtures and fittings on the land but must maintain same.
- OAL to maintain the property, harvest and market the crop and is entitled to the income.
- OAL responsible for land rates.
On 20 December 2004 Mr McCarron wrote to Ms Gibson referring to the telephone advice that there was a requirement for an option and a lease. That letter enclosed a draft Deed of Option and included advice that the draft Lease would be sent under separate cover. Mr McCarron noted that there were several matters that needed to be considered such as the grantor (GCC) being in receivership. The draft Deed of Option provided that in consideration of the payment of the option fee GCC granted to Felicity an option to purchase the shares in OAL and that such option was exercisable only by Felicity or her nominee on or before 5pm on 30 June 2005.
On 20 December 2004 and 21 December 2004 Claude had a number of conversations with Mr McCarron in relation to the payment out of the receivers. The notes of those conversations record that there was to be a fixed and floating charge dated 21 December 2004 in respect of "all moneys owing".
On 21 December 2004 Claude wrote to the Receivers advising that:
We propose to deposit a bank cheque at the CBA Port Macquarie for the amount of $194,249.19 in exchange for documentary proof of your notice of resignation and documentary proof of the CBA discharge of mortgages.
On 21 December 2004 Felicity wrote to Westpac Banking Corporation (Westpac) requesting a bank cheque in the amount of $194,249.19 to be collected by Priest McCarron. That cheque was made available and paid to the CBA.
On 21 December 2004 the Receivers wrote to Claude confirming the transaction and advising that they would shortly return any company records that had been received from Claude with copies of receivership transactions.
On 21 December 2004, Claude signed a letter as a director of GCC addressed to Felicity in the following terms:
The company hereby provides a charge in favour of yourself to secure all moneys advanced to the company and it is agreed to provide you with formal company charges to be registered with ASIC.
There are in evidence Minutes purporting to be a record of meetings on 21 December 2004 of GCC, Endwise, OAL, Le Cros Sancrox Pty Ltd and Clos Farming Estates Pty Ltd. Those Minutes are in identical terms save for some small differences. The Minutes of GCC, Endwise, Le Cros Sancrox Pty Ltd and Clos Farming Estates Pty Ltd record that present at the meetings were Claude and Mr Sarks. The Minutes of OAL record that Claude was present at the meeting. Each of the Minutes includes the following:
Retirement of Receivers
It is noted that the receivers have advised that the bank requires an amount of $194,249.19 in order that the Receivers of Gerard Cassegrain Co Pty Ltd (GC&Co), Endwise Holdings Pty Ltd, Le Clos Sancrox Pty Ltd and Clos Farming Estates Pty Ltd to be retired from the companies. It is also noted that the directors have formed the opinion the Receivers ought to be retired as early as possible in order to avoid ongoing penalty interest, administration and receivership costs, which would continue to diminish the future value of the companies.
It is recorded that Felicity Mary Cassegrain has offered to provide $194,249.19 to retire the Receivers. For the provision of these funds;
It was agreed GC & Co will sell its shares in Endwise Holdings Pty Ltd to Felicity Mary Cassegrain for $60,423. Felicity will deposit this amount to the GC & Co's account at the Commonwealth Bank. That amount being the value of the shares disclosed in Endwise Holdings Pty Limited Special Purpose Financial Report for the year ended 30 June 2004.
It was agreed GC & Co will sell its share in Oceania Agriculture Pty Ltd to Felicity Mary Cassegrain for $71,450. Felicity will deposit this amount to the GC & Co's account at the Commonwealth Bank. That amount being the value of the shares disclosed in Oceania Agriculture Pty Ltd Special Purpose Financial Report for the year ended 30 June 2004.
It was agreed GC & Co would borrow an amount of $62,376.19 from Felicity Mary Cassegrain to be paid to the Commonwealth Bank of Australia and this loan by Felicity to be secured by way of registered first mortgage over land whereby the exposure is not greater than 50% of the land value. This loan to attract interest at the rate of 1% per month and interest is to be capitalised and calculated on a compounding balance. The term of this loan is 12 months.
These proposed transactions are subject to the deposit of funds to the Commonwealth Bank as outlined above and the subsequent retirement of the Receivers.
The above proposed transaction should occur simultaneously.
The transactions are to be adjusted if there is any significant alteration in values when an up to date market appraisal is obtained for purposes of deriving current values.
The directors propose to request NorthCorp Accountants to arrange the transfer of the shares upon the receipt of the written confirmation from the Receivers and Managers of the retirement.
The directors also recognise that upon retirement of the receivers and the resultant return of the company records, that all expenditure incurred whilst in receivership by related parties be identified and quantified.
Preparation of Documents
The secretary was requested to complete the documents required to reflect the change to details of the company.
Closure
There being no further business the meeting was closed
The OAL Minutes included the following additional paragraph:
Recognition of Contingent Liability
It was noted that Oceania Agriculture Pty Limited is currently being sued by investors in the Port Macquarie Tree Plantation Prescribed Interest Scheme and there is uncertainty as to the outcome.
There is in evidence a document entitled "Memorandum of Resolutions of the Director(s)" of GCC. It records the Resolutions for GCC to sell its share in Endwise and its shares in OAL to Felicity for $60,423 and $71,450 respectively in identical terms to that which is referred to in the Minutes as the agreements to sell the shares. It also contained the following:
Loan-Felicity Cassegrain
It was resolved that the balance of the funds being $62,376.19 received from Felicity Mary Cassegrain to enable the retirement the receivers would be borrowed by Gerard Cassegrain & Co Pty Ltd under the following terms.
The amount of $62,376.19 from Felicity Mary Cassegrain would be paid to the Commonwealth Bank of Australia and this loan from Felicity Mary Cassegrain is to be secured by way of registered first mortgage over land whereby the exposure is not more than 50% of the land value. This loan to attract interest at the rate of 1% per month and interest is to be capitalised and calculated on a compounding balance. The term of this loan is 12 months.
The GCC Memorandum of Resolutions bears Claude's signature with the date 12 January 2005. It also bears Mr Sarks' signature without a date.
There is also in evidence a "Memorandum of Resolutions of the Director(s)" of Endwise in the following terms:
Transfers of Shares
It was resolved to approve the following transfers of shares:
From: Gerard Cassegrain & Co Pty Ltd
To: Cassegrain, Felicity Mary
No of Shares: 1
$1.00 Ordinary Shares Fully Paid
Preparation of Documents
The secretary was requested to complete the documents required to reflect the change to members of the company.
It was also resolved to complete the new share certificates pursuant to the rules that govern the execution of documents by the company and to cancel any certificates that are no longer required.
The Endwise Memorandum of Resolutions bears the signatures of Claude and Mr Sarks both with the date 19 January 2005.
On 6 January 2005 Claude wrote to the trustees of the CFT referring to their offer of 28 September 2004 and his reply of the same date. That letter included the following:
The proposal for the trust to settle its debt to the company in full by transfer of all remaining assets and investments of the trust is accepted. Any amount owed to the company in excess of the value of the trust assets will be written off by the company on completion of the transfer of the remaining assets of the trust.
I understand that an agreement has been drawn up by your solicitors for signature by this company will be forthcoming.
A Deed of Agreement was entered into by GCC, as lender, and CFT, as borrower, although the date of such entry is unclear, whereby the CFT transferred its interest in various parcels of land to GCC.
On 7 January 2005 the trustees of the CFT wrote to OAL advising that the whole of the interest of the CFT in the loan from CFT to OAL of $207,835.62 including interest had been assigned to GCC and that all future payments were to be made directly to GCC. A similar letter was sent to Felicity advising that the loan to her in the amount of $92,434.51 had been assigned to GCC and that all future payments were to be made directly to GCC.
On 15 January 2005 Claude wrote to Ms Gibson in relation to the balance sheets and profit and loss of ARF and OAL in terms that included the following:
Endwise Holding P/L has requested OAL and ARG to remove their respective lease and sub-lease (sic) registered on Endwise Land.
Endwise and OAL would like to determine which entity is the one that ought to manage the plantation. Your respective verbal opinion would be greatly appreciated considering tax, simplicity etc.
My current thoughts is (sic) that the business should be undertaken by Endwise Holdings Pty Ltd and Endwise ought to change its name to "Port Macquarie Tea Tree Plantation Pty Ltd" or "'Minnamurra' Tea Tree Plantation Pty Ltd" or "Oceania Agriculture Pty Ltd" or "Cassegrain Tea Tree Oil Pty Ltd" or "Claude Cassegrain & Co Tea Tree Oil Pty Ltd" or "Australian Tea Tree Oil Pty Ltd" or "Oceania Tea Tree Oil Pty Ltd" ????? .
On 18 January 2005 the Administrative Appeals Tribunal (AAT) dismissed GCC's objections to the amended tax assessments for GCC for the years 1994 ($1,904,292.25 plus interest and penalties) and 1996 ($230,423.08 plus interest and penalties).
On 18 January 2005 Mr McCarron made a file note of the telephone conversation he had with Claude. The note is on the following terms:
Claude said he wants to transfer GC&Co's one share in Endwise P/L to Felicity (Claude owns the other share) He said Endwise has a nil book value - He said Felicity could probably pay $50,000 for the share.
On 19 January 2005 Ms Gibson wrote by email to Ms Patricia Webber, Ms Bronwyn Edwards and Mr Graham White, members of her staff, in the following terms:
GERARD CASSEGRAIN & CO PTY LTD
Can you prepare minutes and a resolution whereby Claude and Tony resolve to sell the share owned by GC&Co in Endwise Pty Ltd to Felicity Cassegrain today for 50% of the book value at 30 June 2004 of Endwise which is $60,423 (100% is $120,846). The amount Felicity is paying for the share ($60,423) will reduce the amount GC&Co owes Felicity. (Felicity paid to get GC&Co out of receivership)
ENDWISE HOLDINGS PTY LTD
Can you prepare the documentation required to transfer the share from GC&Co to Felicity and the stamp duty requirements etc necessary.
Can this be completed today please. We will have to send them to Claude & Felicity for signing. Can you attach a copy of the Articles of Association with Felicity's letter please.
Any queries let me know
The Share Transfer form by which GCC transferred its share in Endwise/TTO to Felicity for $60,423 is signed by Claude and Mr Sarks and is dated 19 January 2005.
On 20 January 2005 Bronwyn Edwards sent an email to Patricia Webber in the following terms:
Subject: Company Minutes
Patricia
1. Felicity Cassegrain is purchasing shares in Oceania Agriculture Pty Ltd (OAL) and Cassegrain Tea Tree Oil Pty Ltd (CTTO) (formerly Endwise Holdings Pty Ltd) at book value. Please prepare the following minutes of directors meetings held on 21 December 2004:
In GERARD CASSEGRAIN & CO PTY LTD
"It was agreed that as a condition of Felicity Cassegrain loaning funds to Gerard Cassegrain & Co Pty Ltd (GC&C) to enable the receivers to be retired that Gerard Cassegrain & Co Pty Ltd would sell to Felicity Cassegrain its shares in Cassegrain Tea Tree Oil Pty Ltd and Oceania Agriculture Pty Ltd and that any balance of money owed by GC&C to Felicity be secured against any property GC&C owns as a result of the retirement of the receivers."
In OAL
"It was noted for the record that as a condition of Felicity Cassegrain loaning funds to Gerard Cassegrain & Co Pty Ltd (GC&C) to enable the receivers to be retired that Gerard Cassegrain & Co Pty Ltd would sell to Felicity Cassegrain its shares in Cassegrain Tea Tree Oil Ltd and Oceania Agriculture Pty Ltd and that any balance of money owed by GC&Co to Felicity be secured against any property GC&C owns as a result of the retirement of the receivers."
"It was noted that OAL is currently being sued by investors in the Port Macquarie Tea Tree Plantation Prescribed Interest Scheme and there is uncertainty as to the outcome."
In CTTO
"It was noted for the record that as a condition of Felicity Cassegrain loaning funds to Gerard Cassegrain & Co Pty Ltd (GC&C) to enable the receivers to be retired that Gerard Cassegrain & Co Pty Ltd would sell to Felicity Cassegrain its shares in Cassegrain Tea Tree Oil Pty Ltd and Oceania Agriculture Pty Ltd and that any balance of money owed by GC&C to Felicity be secured against any property GC&C owns as a result of the retirement of the receivers."
2. OAL please print a copy of the annual return recently sent to Claude Cassegrain and send it to Anthony Sarks for him to sign where applicable.
3. Where not already prepared please prepare the necessary share transfer documents etc in relation to 1 above.
The Share Transfer form by which GCC transferred its shares in OAL to Felicity for $71,450 is signed by Claude and Mr Sarks and is dated 20 January 2005.
Subsequent Events
On 4 February 2005 Ms Gibson wrote to Claude enclosing Minutes of a meeting of directors of GCC on 3 February 2005 recording that Claude and Mr Sarks were present and that a resolution was passed to open a trading account at the ANZ bank, the signatories of which were to be either Claude or Felicity.
On 6 February 2005 Claude wrote a Memorandum on GCC letterhead addressed to the plaintiffs and Anne-Marie, in the following terms:
On 21st December 2004 the Receivers and Managers of Gerard Cassegrain & Co retired as external managers.
The consequence of their appointment and management is the company incurred substantial losses each year and all easily realisable assets have been sold.
The company's remaining assets consist of some land affected by 3rd parties and loans. Against the assets the company has creditors and borrowings. The net effect is the company has no value.
Other than the appeal against the ATO assessment of the companies (sic) tax liability, resulting from the CSIRO payment, there are not other tax issues. The company's, carried forward, tax losses have yet to be determined - they may have some value.
On 4 February 2005 we received a box of documents from the receivers containing the company's files and records generated during the receivers 5 ½ year administration. These files and records have to be studied and put into order in order to finalise the company's position.
On 8 February 2005 Mr McCarron made a file note of a conversation with Claude, which included the following:
Claude + Northcorp Felicity purchased Endwise and OAL shares
Claude to send us copies and we are to delete previous corresponds
On 8 February 2005 Claude wrote to Mr McCarron by facsimile referring to his phone conversation and enclosing the Minutes of 21 December 2004 of GCC and the other companies in receivership "for your record and file".
On 28 February 2005 NorthCorp forwarded a tax invoice to GCC in which the following appeared:
Our fee for professional services rendered in relation to:
...
Interview with Ms W Gibson in relation to shares.
Preparation of Company minute dated 21 December 2004 in relation to retirement of receivers and recognition of contingent liability.
Preparation and lodgement of Company documents due to Company minute dated 21 December 2004.
Telephone calls in relation to taxation matters.
On 14, 15 and 16 February 2005 Claude, as second defendant, was represented before White J in the CTK proceedings. The plaintiffs sought costs of the application before Windeyer J for the appointment of the provisional liquidator and the subsequent winding up of CTK in December 2004. It appears that White J was probably not advised of the share transactions with Felicity because his Honour referred in his judgment to the two issued shares in Endwise being held by Claude and GCC. His Honour also referred to OAL as a company wholly owned by GCC and controlled by Claude: Cassegrain & 1 Or v CTK Engineering Pty Ltd & 1 Or 54 ACSR 249; [2005] NSWSC 495 at [21]-[22].
In March 2005 Claude prepared a document entitled "Business Plan" for TTO, referred to in more detail later in this judgment.
On 28 June 2005 Denis wrote to Claude (with a copy to Mr Sarks and Ms Gibson) noting that there had been no Annual General Meeting (AGM) for GCC. Denis asked Claude to advise him if an AGM had taken place and if so when and where it took place and why he was not informed of it. Denis also asked that if an AGM had not taken place, that Claude explain why that was so. Denis complained about "oppression" and his extreme concern about the current status of GCC. The letter included the following:
I must remind you that Northcorp records the financial position of the company with the information supplied by the directors, who must control the affairs with the interests of all of the shareholders been taken into account fairly. Consequently I request that you provide answers to the following questions:-
1. What were the assets of GC&Co when the receivers and managers took control of GC&Co?
2. What assets of GC&Co did the receivers and managers liquidate? Please also provide the details of purchases and purchase price.
3. What assets did GC&Co possess when the directors took control from the receivers and managers? For example: GC&Co has 50% interest in Endwise Holdings P/L please advise on the present position of Tea Tree Land Holdings & any Endwise Holdings P/L activities. OAL is a fully owned subsidiary of GC&Co please advise shareholders of the state of affairs re: lease agreement with Tea Tree Farms & farmers & current situation of the interests that GC&Co holds in that company.
Claude responded to Denis by letter of 12 July 2005, which included the following:
You are fully aware your allegation of suffering oppression as a shareholder of GCC and CTK is false and the persons who have suffered oppression are myself, Anne-Marie, our late mother and subsequently the Estate, at the instigation of yourself, Catherine, Patrick and John with the assistance of others you had recruited to the evil cause.
As to each numbered paragraph:-
1 & 2 I am awaiting the accountant's report.
3. I repeat my response to 1 & 2 above and add that GCC has no interest in either Endwise Holdings or OAL. Its interests were sold in order to retire the Receivers and Managers. Felicity purchased the GCC interests in both companies, after appropriate advice was taken.
On 22 July 2005 Denis wrote to Claude in terms that included the following:
I refer to your answer "... that GCC has no interest in either Endwise Holdings or OAL ... Felicity purchased the GCC interests in both companies ..". Your answer does not surprise me at all. This is the behaviour that I have come to expect from you and confirms my fear that you, along with Anthony B Sarks, have conducted the company in a manner which is oppressive and unfairly prejudicial to myself and other members of the company.
Please provide a copy of the following:-
1. Transfer of GCC's interest in Endwise Holdings to Felicity Cassegrain, including the purchase price and date of transfer.
2. Transfer of GCC's interest in OAL to Felicity Cassegrain, including the purchase price and date of transfer.
On 10 September 2005 Denis wrote again to Claude noting that he had not received a reply to his letter of 22 July 2005. That letter referred to Claude's Memorandum of 6 February 2005 and his letter to Denis of 12 July 2005. It also referred to paragraphs [21] and [22] of White J's judgment in Cassegrain & 1 Or v CTK Engineering Pty Ltd & 1 Or referred to above in which his Honour described the share structure of GCC and Endwise. The letter continued:
Claude, if the shares of OAL and EH were sold to Felicity to retire the Receivers & Managers who retired in December 2004 why would White J's judgment, and at this stage I remind you that the hearing dates were 14-16 February 2005, refer the above share structure?
Denis again requested copies of the transfers of GCC's interests in Endwise and OAL to Felicity. He also requested a copy of the "appropriate advice" to which Claude had referred in his letter of 12 July 2005.
On 10 September 2005 Denis wrote to Mr Sarks advising him that Claude had failed to provide the information requested in the letter of 22 July 2005, a copy of which had been previously sent to Mr Sarks. Denis asked Mr Sarks as a director of GCC to ensure that the company responded in an appropriate manner to his request. He also enclosed a copy of his letter to Claude dated 10 September 2005.
Claude replied to Denis by a handwritten undated letter (probably received by Denis on 22 September 2005) in terms that included the following:
In regards to Justice White's comments you refer to. His Honour relied upon the evidence that was submitted before Justice Windeyer J prior to 5 November 2005. Justice Windeyer declared that CTK was losing money in operating the tea tree plantation and in order to avoid further losses appointed a provisional liquidator to CTK. Justice White was determining the issue of costs.
I have filed an objection to Justice White's determination. The issue you raise does not form part of the objection simply because of relevance.
On 30 November 2005 the plaintiffs' solicitors, McCabe Terrill, wrote to Claude seeking amongst other things copies of the Transfer Forms in relation to GCC's shares in TTO and OAL and a copy of the "appropriate advice". The solicitors also sought copies of any Notices, Agendas and Resolutions at meetings at which GCC resolved to sell the shares to Felicity. It was not until 20 January 2006 (under cover of a letter wrongly dated 20 January 2005), that the defendants' solicitors provided to the plaintiffs' solicitors the requested documents.
Between January 2006 and September 2008 the parties' legal representatives communicated about documents and preliminary discovery and Denis brought proceedings for preliminary discovery. In September 2008 Sackville AJ granted leave to Denis to bring proceedings on behalf of GCC: Denis Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; 68 ACSR 132. These proceedings were commenced in 2008.
There is in evidence a letter dated 28 September 2010 signed by Felicity addressed to the directors of GCC in the following terms:
Re: Charge to secure monies advanced to Gerard Cassegrain & Co Pty Ltd
You will be aware that on 22 December 2004, I advanced the amount of $194,219.19 to the company.
In a letter dated 21 December 2004, the company agreed to provide me with a charge that would be registered with ASIC.
To date, that charge has not been registered.
Would you please make the appropriate arrangements as soon as possible to have this charge registered.
There is also in evidence a Form 309 "Notification of details of a charge" dated 12 October 2010 filed with ASIC. Under the heading "Charge details" in the section "Briefly describe the liability (whether present or prospective) secured by this charge" there appears in handwriting the entry, "Present loan principal and interest of $139,407.22". In the section "The maximum prospective liability (if applicable; see s 282)" there appears in handwriting "$194,249.19", and under the heading "Briefly describe the property charged" there appears in handwriting "Assets of the company". Felicity is identified as the "chargee/trustee" and there is a cross in the box "I verify the Annexure marked A of 3 pages is a true copy of the instrument(s) creating or evidencing the charge and the instrument(s) has (have) been executed". The Annexure A consisted of the Minutes of a Meeting of Directors of GCC held on 28 September 2010 and a Loan Agreement. The Minutes recorded that present at the meeting were Claude and Thomas Cassegrain. The Minutes are in the following terms:
1. Charge in favor of Felicity Cassegrain
It was noted the Directors were in receipt of the letter from Felicity Cassegrain dated 28.09.10, requesting that the charge favoring her for moneys advanced to the Company be registered with ASIC in accordance with the agreement of 21.12. 2004.
Claude Cassegrain tabled:
the letter to Felicity dated 21.12.2004;
the letter from Felicity to Westpac Bank Corporation dated 21.12.2004 authorising $194,249.19 to be made available, payable to the Commonwealth Bank;
The Minutes of Meeting of Directors of GC&Co dated 21.12.2004 were read and confirmed;
Memorandum of Resolution of Directors signed on 12.01.2005;
the letter from the Commonwealth Bank dated 21.12.2004 to Claude Cassegrain confirming the receipt by the bank of $194,249.19;
Letter from McGrathNicol to Claude Cassegrain dated 21.12.2004 confirming the retirement of M.C.Smith as Receiver and Manager of GC&Co, LCS, CFE and EH.
The Directors acknowledge that the registration of the charge had been overlooked.
2 Resolution
It was resolved that Mr Peter Condon, Solicitor, be instructed to register the charge with ASIC forthwith and the cost of registering the charge to be invoiced to GC&Co.
The Loan Agreement is between Felicity as Lender and GCC as Borrower and includes the following:
1. PROMISE TO PAY
Within twelve (12) months from the date of this agreement the Borrower promises to pay to the Lender the sum of $62,376.19 principal plus interest and other charges stated below.
2. BORROWER'S LIABILITY
The Borrower accepts liability for full repayment of the loan and interest.
3. COMPOSITION OF LOAN
Amount of Principal: $62,376.19
Interest One (1)% per month which (sic) interest to be capitalised and calculated on a compounding balance for the purposes of calculating repayments.
Term of Loan Twelve (12) months
4.REPAYMENTS
The Borrower will repay the amount of $62,376.19 plus interest in twelve (12) equal monthly instalments commencing on 21 January 2005 and ending on 21 December 2005.
The plaintiffs' contentions
The plaintiffs submitted that, from a review of the documentary material referred to above, it is clear that Claude instructed Ms Gibson on 19 January 2005 to prepare Minutes and the Resolutions for GCC whereby he and Mr Sarks would resolve to sell GCC's share in TTO to Felicity for the "book value" of $60,423. The plaintiffs also submitted that at the same time Claude instructed Ms Gibson that "the amount Felicity is paying for the share will reduce the amount" GCC "owes Felicity" and that "Felicity paid to get "GCC "out of receivership".
The plaintiffs submitted that the December Minutes are "false". They contend that although the Minutes record an agreement made on 21 December 2004 between GCC and Felicity for the sale by GCC of its share in Endwise/TTO to Felicity for $60,423, no such agreement existed as at 21 December 2004, nor at any time prior to 19 January 2005. The plaintiffs also contend that although the December Minutes record an agreement made on 21 December 2004 for the sale by GCC of its share in OAL to Felicity for $71,450, no such agreement existed as at 21 December 2004, nor at any time prior to 20 January 2005.
The plaintiffs also contend that although the December Minutes record a loan agreement between GCC and Felicity as at 21 December 2004 in the amount of $62,376.19, the loan agreement that existed between those parties at that time was for $194,249.19. It is further contended that although the December Minutes record that the advance of $194,249.19 by Felicity to the CBA on behalf of GCC should occur simultaneously with the sale of GCC's shares in Endwise/TTO and OAL to Felicity, no such agreement was made prior to 19 and 20 January 2005 respectively.
The plaintiffs further contend that although the December Minutes recorded a resolution by the directors of GCC that they proposed to request NorthCorp to arrange the transfer of GCC's shares in Endwise/TTO and OAL to Felicity upon receipt of written confirmation of the receivers retirement, no such resolution was made at any time prior to 19 January 2005.
The plaintiffs allege that Claude signed the December Minutes with knowledge that they were false.
The plaintiffs claim that Claude signed the GCC Resolutions Document knowing it to be false because, inter alia, the loan agreement between Felicity and GCC as at 21 December 2004 was $194,249.19 and not $60,423. It is alleged that Claude signed the Resolutions Document after 20 January 2005 and wrote the "false date" of 12 January 2005 on the document. The plaintiffs contend that the December Minutes and the Resolutions Document were created to give the false impressions: (a) that the agreement to sell the shares occurred prior to the AAT decision dismissing GCC's objections to its 1994 and 1996 tax assessments; and (b) that the sales of the shares were made for the business purpose of paying out GCC's debt to the CBA, whereas the debt had already been discharged as at 21 December 2004.
The plaintiffs contend that at the time Claude executed the Share Transfer forms he knew: (1) that the shares were worth significantly more than the amount for which they were transferred; (2) that if the shares were not transferred, there was a significant risk that the shares may be sold by a liquidator of GCC and the proceeds distributed to GCC's creditors; (3) that no independent valuations of the shares had been obtained; and (4) that the minority shareholders of GCC had not been advised of any proposal to sell the shares to Felicity and had not consented to such sales.
The plaintiffs claim that Claude's decisions to execute the Share Transfer forms were not made for the benefit of GCC but were made for Felicity's benefit. They allege that these decisions were contrary to the interests of the GCC minority shareholders and were made with the intention of removing the shares from the possible reach of creditors.
The plaintiffs make similar allegations against Mr Sarks. They claim that as at 19 January 2005 Mr Sarks knew that GCC had discharged its liability to the CBA on 21 December 2004 and that the Receivers had retired on that date. It is alleged that Mr Sarks knew that GCC was indebted to Felicity in the amount of $194,249.19 and that the loan term was for 12 months. It is also alleged that Mr Sarks knew that CFT had assigned to GCC real property at Kew in Victoria and South Kempsey in New South Wales to the value of $354,250. It is also alleged that Mr Sarks knew that the AAT had dismissed GCC's tax objections on 18 January 2005 and that the effect of that decision was that GCC was indebted to the Australian Tax Office (ATO) for over $2 million.
The plaintiffs allege that at the time Mr Sarks (and Claude) executed the December Minutes and the Resolutions Documents he knew that the GCC minority shareholders had not been advised of the proposal to sell the shares to Felicity and had not consented to the sale of the shares. It is alleged that Mr Sarks knew at the time he signed the December Minutes and the Resolutions Document that they were false in the respects outlined earlier.
The plaintiffs allege that as at 19 January 2005 Felicity was aware of the dismissal of the tax objections by the AAT. It is also alleged that at the time Felicity executed the Share Transfers she knew that she had loaned GCC $194,249.19, which was not due to be repaid until 20 December 2005 and was secured by a charge over GCC's assets. It is also alleged that Felicity knew that it was not a condition of the loan that GCC had to transfer any of its shares or other assets to her. It is alleged that Felicity made no enquiries as to whether the minority shareholders had been advised of the proposal to sell the shares to her or whether they had consented to the share transfers. It is also alleged that Felicity made no enquiry as to how the price of the shares had been determined or whether there had been an independent valuation.
There is an alternative claim that Felicity appointed Claude to advise her on the appropriate purchase price of the shares and that she had the imputed knowledge of the true value of the shares that Claude, as her agent had, that the share prices were at a substantial undervalue.
Denis brings a claim as a creditor of GCC who was prejudiced by the share transactions. As I have already said, although it was originally alleged that both share transactions were alienations of property with intent to defraud creditors within the meaning of s 37A of the Conveyancing Act, the claim was ultimately limited to the OAL share transaction.
It is alleged that in causing the shares to be sold to Felicity, Claude and Mr Sarks were in positions of conflict between duty and interest and failed to obtain the fully informed consent of the GCC shareholders.
Consideration
The plaintiffs claim that the Minutes dated 21 December 2004 are a "subsequent fabrication". That submission involves the proposition that there was no meeting of directors held on 21 December 2004 at which Claude and Mr Sarks reached agreement on behalf of GCC as recorded in the Minutes. The plaintiffs accept that Felicity did make a payment of $194,249.19 to the CBA for the retirement of the Receivers from GCC and the other companies. However they contend that this payment was in reality a loan to GCC repayable in 12 months, with Felicity having security in the form of a fixed and floating charge over the assets of GCC.
The plaintiffs claim that irrespective of when the share transactions occurred, both Claude and Mr Sarks were in breach of their fiduciary duties to GCC in that such transactions were for the benefit of Felicity and not for the benefit of GCC. It is also claimed that the sale of the shares by Claude to his wife and by Mr Sarks to his daughter were not disclosed to the minority shareholders, who were therefore unable in the circumstances to provide their informed consent. In that respect it does not matter whether the share transactions took place in December 2004 or January 2005 because the timing will not change the character of the transactions in so far as a breach of fiduciary duty is concerned. However the plaintiffs make the submission that the concealment by Claude and Mr Sarks of the reality of what occurred is relevant in assessing their true intention in relation to those transactions.
Was there a meeting of GCC Directors on 21 December 2004?
Claude was asked by Interrogatory whether at any time between 1 October 2004 and 19 January 2005 he notified any of the shareholders in GCC of the proposed sale of GCC shares in TTO and OAL to Felicity. He answered that Interrogatory, "not that I recall". He was also asked by Interrogatory whether any shareholders of GCC ever advised him that they consented to the share sales to Felicity. He answered that Interrogatory "not that I recall". Claude was cross-examined about these answers to the Interrogatories and it was suggested to him that he had "no doubt" that he did not notify the minority shareholders of the intention to transfer GCC's shares to Felicity. In answer to that question he said, "I do have doubts" (tr 66). When asked why he said that he had doubts, he said (tr 66):
Because I had asked for an AGM notice to be given and circulated by my accountants and I have no idea if it was or wasn't circulated.
Claude was cross-examined further in relation to this matter as follows (tr 66):
Q. And you have no doubts that you never received any consent from any of the minority shareholders to the sale of these assets to your wife, correct?
A. I can't recall any discussions. I have no doubts I had no discussions, but I can't really recall.
Q. You know that you never got any consent from the minority shareholders to these transfers, don't you?
A. Yes.
Q. And you could have simply answered this interrogatory "No", couldn't you?
A. Yes.
Claude was then cross-examined about his claim that he had asked the accountants to circulate a notice for an AGM. His attention was drawn to the Notice dated 29 November 2004 referred to earlier in this judgment and he gave the following evidence (tr 67-71):
Q. Now, Mr Cassegrain, if you could please go to tab 80 in volume 4 of exhibit A, is that the document that you are referring to when you are answering my questions about possible notification to the minority shareholders?
A. Yes.
Q. That is notification of a directors' meeting, isn't it?
A. Yes.
Q. Which of the minority shareholders were directors of GC&Co as at 29 November 2004, Mr Cassegrain?
A. None of them.
Q. You never, to your recollection, caused any notification to be sent to the minority shareholders in relation to the intended transfer of the shares in Endwise or OAL to your wife, did you?
A. I don't know.
Q. You have no recollection of any such document ever being provided to the minority shareholders, do you?
A. I don't know.
Q. You do know whether you have got a recollection or not, don't you, Mr Cassegrain?
A. Yes.
Q. And you don't have a recollection of any document ever being provided to the minority shareholders about this topic, do you?
A. My recollection is that the intention at the time of creation of this document, and my instructions, were that an AGM be called.
HER HONOUR
Q. Just say that again for me.
A. At the time that this document was created, I asked my accountant to call for a meeting giving 21 days' notice.
ASHHURST
Q. So you are saying, are you - or do you accept, Mr Cassegrain, that there's no mention of that at all in any of your affidavits? Firstly, do you accept that?
A. I'll accept it if you say so.
Q. And is your evidence now that you claim that you instructed Miss Gibson to send out notification for an AGM, do you?
A. Yes.
Q. And when do you claim you gave Ms Gibson those instructions?
A. I'm a little bit confused, because I can't accurately recall but I - looking at the date, I suspect it was on that day.
Q. And where do you say that you instructed Miss Gibson that this AGM was supposed to take place?
A. I cannot recall.
Q. And do you say that you checked with Win Gibson to see if indeed she had followed your instructions and given notice of this intended annual general meeting?
A. I don't recall.
Q. When do you say that you instructed Miss Gibson that the date of this annual general meeting would be?
A. 21 December.
Q. The same date as you intended to have the directors' meeting?
A. Yes.
Q. And do you claim that you ever saw a copy of this notice of an intended annual general meeting?
A. The notice I refer to is actually this document (witness indicated), and Miss Gibson got it wrong and it was addressed to "directors' meeting", but it was really supposed to be to the members. I signed and overlooked it and let it go and after that I didn't worry about it.
Q. Sorry, are you now saying that when you signed the document that is at tab 80, you overlooked the fact that it was a reference to a directors' meeting?
A. Yes.
Q. And were you responsible for serving this notice of meeting that you thought was a notice of annual general meeting?
A. No.
Q. Who do you say was responsible for that?
A. Normally when notices of meeting were sent, they have always been sent by the accountants.
Q. And so you say you instructed Win Gibson to serve this notice on the minority shareholders, do you?
A. No.
Q. Then did you give instructions to anybody to serve this notice on the minority shareholders?
A. No.
...
Q. I just want to see if I understand your evidence, Mr Cassegrain. You now say that you had intended for the document that is at tab 80 to be a notice to the shareholders, rather than a notice to the directors about an annual general meeting?
A. I had intended it to be a notice to both the directors and to the members.
...
Q. When I asked you about whether you had any doubt as to whether or not you had notified the minority shareholders of this intended transfer, you raised as a basis for your doubt the document that is at tab 80, correct?
A. Yes.
Q. And do I now understand you to say that you never in fact instructed anybody to send the document that is at tab 80 to the minority shareholders?
A. Yes.
Q. And you don't say yourself you ever provided this document to the minority shareholders, correct?
A. Yes.
Q. In which case, why would the existence of this document, if never sent to the minority shareholders, cause you to have any doubt about whether or not they had in fact been informed about the intended transfer of these shares to your wife?
A. Only that that was the intention of the minutes, of the notice and I then had no idea if Northcorp had circulated them or not. It definitely wasn't withheld from them.
Q. You say yourself, don't you, that you never instructed Northcorp to send this letter to the minority shareholders?
A. Yes.
Q. And the notice is not addressed to the minority shareholders, is it?
A. No.
...
Q. Indeed you cannot recall any conversation with the minority shareholders about this transaction before you arranged for the transfer of the OAL shares to your wife, correct?
A. Correct.
Q. And neither do you have any recollection of even notifying any of the minority shareholders of the intended transfer of these OAL shares to your wife, correct?
A. Correct. Sorry, before or after?
Q. Before the transfer took place?
A. No.
Q. Indeed, you've never asked the minority shareholders for their retrospective consent after the transfers took place either, have you?
A. No.
Ms Gibson was not asked any questions in chief in relation to the Notice and the only question in cross-examination in relation to it was whether she knew who prepared it. She said she did not know (tr 209).
Claude claimed that the meeting referred to in the Minutes took place on 21 December 2004 and that he and Mr Sarks were present with Ms Gibson on the telephone (tr 138).
Ms Gibson recalled a meeting in early December 2004 with Claude in his office when he asked her what she thought of Felicity providing the funds to retire the Receivers "in exchange for security". Ms Gibson asked Claude what security could be used and he advised her that they could look at the shares in OAL and Endwise/TTO held by GCC. In this respect Ms Gibson said that there were discussions about the value of the shares and how much the companies were worth. She claimed that she advised Claude that they would have to see if the value of the shares represented enough security to cover the funds needed to retire the Receivers.
Ms Gibson also recalled that on one particular occasion Claude asked NorthCorp to do a valuation of the shares. She claimed that she informed Claude that she would rather he get someone else to do it because she was aware of the dissatisfaction between the siblings and preferred an "uninvolved" party to do the valuation. There was discussion as to whether the shares were worth the value stated in the Balance Sheets and Ms Gibson claimed that Claude said he was of the view that the shares were not worth anything. She claimed that he asked her what was wrong with selling the shares "at the balance sheet price". Ms Gibson claimed that she advised Claude that if the shares were not worth "book value" then he could not be criticised if he sold them at book value and paid the stamp duty on that figure for the transfer.
Ms Gibson referred to the facsimile from Mr McCarron dated 20 December 2004 in which he referred to Ms Gibson's "telephone advice" that she required an Option and a Lease. Ms Gibson said that she did not recall the conversation with Mr McCarron and that to the best of her recollection the Option Agreement did not proceed further. She claimed to clearly recall that the plan about how Felicity was to be protected changed in the period after Mr McCarron's facsimile was sent on 20 December 2004 and before Christmas 2004.
Ms Gibson's affidavit evidence was that on 21 December 2004 she received a telephone call from Claude from his office. She claimed that Claude informed her that he was on loud-speaker and that Mr Sarks was with him. She also claimed that Claude said that he and Mr Sarks had decided that it was best for Felicity to purchase the shares in Endwise/TTO and OAL at the book value of the shares. Her affidavit evidence was that Claude asked her whether she could do all the documentation required and "make sure it is all done properly and I don't have to worry anymore about it". Ms Gibson asked Mr Sarks whether he was "right with all that" and Mr Sarks advised her that he was. Ms Gibson asked Claude whether he was sure about the value of the shares to which Claude responded, "what do you mean, you know they're not worth anything. Of course it's okay at book value. You know it's not worth that". Ms Gibson claimed that she advised Claude that she would sort it out and get the documentation to him.
Ms Gibson said that a conversation then occurred concerning the particular arrangement between Felicity and GCC and the terms under which Felicity was prepared to fund the retirement of the receivers. Ms Gibson's affidavit evidence summarised those terms as being: (1) the receivers required $194,249.19 to be retired and payment by Felicity had been arranged on that day; (2) the receivers would be retired from the companies to which they had been appointed, being Endwise, GCC, Le Clos Sancrox Pty Ltd and Clos Farming Estates Pty Ltd; (3) the money was to come from Felicity; (4) GCC would sell its shares in Endwise (TTO) to Felicity for $60,423; (5) GCC would sell its share in OAL to Felicity for $71,450; (6) GCC would borrow the difference from Felicity and this amount would be secured by way of a mortgage over land; (7) the funds would be deposited or paid to the CBA that day and Ms Gibson would receive notification from the receivers that the money had been paid; (8) there was room for the transactions to be varied if there was to be any alteration in values once an up-to-date market appraisal was obtained; (9) NorthCorp was to arrange for the relevant share transfers upon receipt of confirmation that the receivers had been retired.
Ms Gibson's affidavit evidence was that during the telephone conversation with Claude and Mr Sarks on 21 December 2004 she had the Balance Sheets of Endwise/TTO and OAL on her desk and she was able to refer to the values of the shares. Ms Gibson claimed that she wrote a summary of the agreement and resolutions that had been reached in an A4 spiral notebook. However she claimed that the notebook has since been destroyed because her practice was to keep the notebooks for no more than a couple of years.
Ms Gibson said there was no discussion whatsoever during the course of the meeting on 21 December 2004, or later in January 2005, about the impact that a decision of the AAT might have on GCC. She was satisfied that the resolutions that were made on that day and subsequently recorded had nothing to do with the tax position of GCC. Indeed her affidavit evidence was that Claude did not raise GCC's tax position with her in the context of the share transactions.
Ms Gibson referred in her affidavit to her email to Patricia Webber on 19 January 2005 in which she asked her staff to prepare the Minutes and the Resolutions Document. She claimed that after she sent that email, she spoke with Ms Webber, Ms Edwards and Mr White and advised them of what was required by using her notes that she had taken in the A4 notebook during the conversation with Claude and Mr Sarks on 21 December 2004. Her affidavit evidence was that she spelt out to her staff in considerable detail what had transpired at the meeting that needed to be included in the documents.
Ms Gibson's affidavit evidence was that the Minutes, the Resolutions Documents and the Share Transfers, prepared in January 2005 to reflect what was discussed at the meeting on 21 December 2004, were all prepared using the BGL Corporate Register system which only Ms Webber was authorised to use. She said that the decision to transfer the shares held by GCC in Endwise (TTO) and OAL to Felicity was made before Christmas. Her evidence was that the circumstances of the transaction did not change thereafter and the only reason the transactions were not documented sooner was the intervention of the Christmas holidays and the fact that Ms Webber was away from the office until 17 January 2005.
Ms Gibson was cross-examined in relation to the timesheets produced by NorthCorp for the period December 2004 to February 2005 (Ex H). Those timesheets included an entry for Ms Gibson on 20 December 2004 for one hour as "Special" with an entry "RE FELICITY PCHSE SHARES ETC - AGREES ETC". It was suggested to Ms Gibson in cross-examination that a further detailed entry in relation to 20 December 2004 for work on GCC business for 30 minutes, recorded as "TTEL CC RE OAL/CC/FELICITY/ETC", related to the telephone conversation she had with Claude in respect of the facsimile of 20 December 2004 from Mr McCarron. Ms Gibson said that she could not remember when she spoke to Claude about the facsimile but agreed that this entry in the timesheet "could suggest" that she did so on 20 December 2004. Ms Gibson agreed that there is nothing in the timesheets recording any work done by her on 21 December 2004. It was suggested to her that this was because she did not perform any relevant work on that date. Ms Gibson said that this was "not correct" (tr 214).
Ms Gibson was also cross-examined about the email to her work colleagues on 19 January 2005. She said that when she sent the email she realised it was inadequate and she waited until Ms Edwards and Mr White were available and had a meeting with them (tr 217). It was suggested to Ms Gibson that what actually happened was that she was not in attendance by telephone at any meeting of the directors of GCC on 21 December 2004. She was cross-examined as follows (tr 219-221):
Q. On your version of events, you say you send an email which is incorrect. You then gather the team and have them produce minutes which are correct and have them produce share transfers, correct?
A. That's correct.
...
Q. On your version of events, the email of 20 January 2005 is where your instructions are being given to the various entities to go ahead, produce the minutes and produce the share transfers?
A. That's correct.
Q. But you are aware, aren't you, Ms Gibson, that one of the share transfers, that is the share transfer involving the Endwise share, is in fact executed not on 20 January 2005 but rather on 19 January 2005? Would you like to look at document 105?
A. It's dated the 19th of January 2005.
Q. You are not suggesting that it has been backdated, are you? And if you would like to look at the share transfer from the OAL shares, that is behind tab 109. Have a look at that one?
A. Yes.
Q. That one is dated 20 January 2005.
A. Yep.
Q. So I suggest to you, Ms Gibson, what happened - what really happened - is that Mr Claude Cassegrain contacted you on 19 January 2005 and gave you instructions in accordance with your email to Ms Webber of 19 January 2005. I suggest to you that is what happened. Is that right?
A. No, that's not right.
Q. And I want to suggest to you that in accordance with your instructions, a share transfer was drawn up and, indeed, it was executed by both Mr Mr Sarks and Mr Claude Cassegrain on 19 January 2005, do you agree with that?
A. This is signed here with the date 19th of January 2005. I - I don't know whether Claude and Mr Mr Sarks knew what the date was the date they signed it.
Q. Wouldn't they have signed the two share transfers, on your version of events, at the same time?
A. You would think so but I would have to talk to my staff.
There was debate between the parties as to whether the word "today" in Ms Gibson's email of 19 January 2005 should be understood as an instruction to prepare minutes that contained a resolution that GCC sold its share in Endwise/TTO to Felicity on that day, or whether it was an instruction to prepare the resolution on that day. On balance it seems to me that the instruction should be understood as one that required a resolution for the transfer of the share on that day, 19 January 2005. There was no suggestion in the email that the date of the transfer or the resolution was to be 21 December 2004. The only temporal element relating to the transfer was the use of the word "today".
Ms Gibson was also cross-examined about correspondence from Denis in July 2005 in which he sought copies of the share transfers. She agreed that at this time she knew that Denis was seeking information regarding GCC, but said that she did not recall attention being given to the share transfers. Rather, she recalled attention being given to the financial statements (tr 226). The purpose of this cross-examination was to suggest to Ms Gibson that by mid 2005 she must have been aware that Denis was interested in knowing about the share transfers to Felicity and she would have appreciated that the A4 notebook in which she claimed she made notes of the meeting of 21 December 2004 would be pertinent to that matter. She agreed that she knew it was possible that Claude's siblings may impugn the share transactions (tr 223). She was not certain when the A4 notebook in which she claimed to have written the notes of the 21 December 2004 meeting was destroyed. She accepted she received the correspondence from Denis in July 2005, less than 8 months after the relevant meeting took place. She gave the following further evidence in cross-examination (tr 225-226):
Q. And as I understand what you say, your usual practice is you normally keep these records for about two years, don't you?
At a meeting of the Board of Directors of Expressway on 1 June 2007 it was resolved that consideration be given to a share buy-back policy and that Mr Browning and Mr Wardman prepare a draft policy for the directors. Mr Browning and Mr Wardman prepared the policy that was accepted by all directors in a circular resolution in June 2007.
Expressway then wrote to each of its shareholders including an offer to treat with respect to the possible buy-back of their shares for an offer price of $100,000 per share on the condition that the member offered their entire parcel of shares. That offer was expressed to expire on 30 September 2007. Mr Wardman gave evidence that the valuation methodology used and accepted by the Board of Expressway was based on a capitalisation of future maintainable earnings before interest and tax. No shareholder accepted the offer.
On 7 November 2008 the Board of Expressway resolved to approve a further share buy-back policy. The offer price remained at $100,000 per share (determined on the same basis as the previous offer) but the member was able to offer less that the entire parcel of shares. That offer was expressed to expire on 28 February 2009. No shareholder accepted the offer.
On 28 April 2010 the Board of Expressway resolved to approve a further share buy-back policy under which the offer price was $115,000 per share (determined on the same basis as the previous offers) with the members once again being able to sell less than their entire shareholding. That offer was expressed to expire on 30 June 2010. No shareholder accepted that offer.
On 20 April 2011 Board of Expressway resolved to approve a further buy-back policy. The offer price was $120,000 per share (determined on the same basis as the previous offers) with the ability to sell less than the member's entire shareholding. That offer was expressed to expire on 30 June 2011. John accepted the offer and sold 3 shares to Expressway at the offer price of $120,000 for each share. Those shares have since been cancelled by Expressway.
It was submitted that John's willingness to accept that offer undermines any challenge that these offers were oppressive. They were made to all shareholders and all shareholders were able to decide for themselves whether to take up the offers.
The idea for the making of the buy-back offers originated with Mr Wardman who explained in some detail the reasons that led to this idea. He said that he thought that the Board expressing its views as to the value of its shares would be helpful especially as there was no pubic market for these private company shares. He noted that whilst one of the motivating factors was the conflict between shareholders, other advantages were that it enabled the shareholders to cash out their shares for superannuation, property or other forms of investment. Mr Wardman explained that the share buy-back price was determined by applying the financial information in the audited accounts with an allowance for CPI and in accordance with usual valuation practice, a deduction of about 40% to take into account that all shareholders were minority shareholders and the fact that there was no marketability for the minority shares.
On 17 June 2011 Claude wrote to the directors of Expressway in relation to the offer of 20 April 2011. One of the questions he asked was whether the Board had obtained a "formal valuation or valuations in aid of its nomination" of the share price. He asked for a copy of "each valuation". Expressway responded by letter dated 23 June 2011 advising that it had received and considered a "confidential (to the Board) valuation, using the same methodology, for each of the four buyback policies". Expressway advised that because it was confidential, a copy would not be provided. In cross-examination, Mr Wardman gave evidence that no "formal valuation" was obtained but rather he and Mr Browning "took the balance sheets and our annual reports and also factored in CPI increases to land values and things like that to try to come to a realistic sort of figure as to what the value of the company was" (tr 306). I am satisfied that it was this process that was referred to in Expressway's correspondence as the "confidential" valuation.
In cross-examination Mr Wardman gave evidence that the buy-back offer made on 20 April 2011 was based upon the non-audited figures of Expressway to 31 December 2010. However since that date Expressway has improved its earnings and there would be an adjustment "in upward sense" in terms of any new policy that Expressway may decide upon (tr 306). However that evidence does not affect the propriety or reasonableness of the 20 April 2011 buy-back offer.
It was submitted on Claude's behalf that each of the buy-back offers were made by the Board, the composition of which included the plaintiffs but not Claude. There is nothing oppressive in this conduct. It was a consideration of a buyback offer by the directors of Expressway of which Claude is not one. He had been the Managing Director until about 2000 when he 'left' that position (tr 296).
There is no basis for a finding that the management of the affairs of Expressway in relation to the buy-back offers was in any way oppressive.
Exclusion from Management
The late Mr Cassegrain determined that Patrick, not Claude, should be the managing director of Expressway. It is not in issue that Claude has not been invited into the management of Expressway and indeed it is to be assumed that he has been excluded from its management. However it is submitted that his exclusion could not be characterised as improper. It was submitted that the litigious history between these parties establishes that Claude cannot work with Patrick and the other plaintiffs. The Board of Expressway is entitled to decide the most appropriate method by which the management of the affairs of the company are to be conducted. There was no imperative and there is no imperative that Claude should be invited into the management of this company.
There is no proper basis to claim that Claude's exclusion from the management of Expressway is oppressive.
Settlement of Proceedings
Mr Wardman gave affidavit evidence that on 3 March 2000 Anne-Marie commenced proceedings in this Court seeking possession of the land upon which the Expressway business was located in Wauchope. Expressway defended the claim and brought a Cross-Claim seeking an order permanently restraining Anne-Marie from interfering with its occupation of the land and a declaration that it held an equitable charge over the land in an amount equivalent to the value of the various improvements and maintenance of the buildings located on the land. The Cross-Claim also joined Claude and the former solicitor of Expressway who arranged for the transfer of the land to Anne-Marie notwithstanding Expressway's occupation and equitable interest in the land.
The parties to that litigation, except Claude, agreed to attend a mediation that occurred on 25 and 26 July 2002. Although Claude refused to go to mediation he attended for a short time and spoke with the mediator and with Anne-Marie. A resolution was reached at the mediation between Expressway, Anne-Marie and the former solicitor. The terms of the settlement were recorded in a confidential Deed signed by each of those parties.
Claude claimed that Expressway settled the proceedings with Anne-Marie in respect of the title to the land at Wauchope without his knowledge of the terms of the settlement. Mr Wardman's evidence in relation to this litigation was not challenged. Claude had every opportunity to attend the mediation of the proceedings and chose not to do so. When parties attend mediation and reach a confidential resolution of their disputes, it cannot be suggested that any failure to inform another person who was not party to the mediation of the details of the settlement reached at the mediation is inappropriate. Claude's claim in this regard is without foundation.
There is no oppression in the conduct of Expressway or the plaintiffs, in failing to inform Claude of the compromise reached with Anne-Marie.
Employment Opportunities
Mr Wardman gave affidavit evidence that since the 1970s various members of the Cassegrain family have played a crucial and significant role in the business affairs of Expressway. Various members of the family are still employed and are considered to be valuable employees. Mr Wardman gave unchallenged evidence that he believes that there is no employee of Expressway who receives an income without providing a valuable service to Expressway.
Mr Browning and Mr Wardman and (until his death last October) Mr Campbell, constituted Expressway's Remuneration and Nomination Committee. That Committee oversees and assists the Board of Expressway concerning remuneration of directors and executives, including remuneration to directors and executives who are Cassegrain family members.
Mr Wardman described the employment of each of Patrick (currently employed as Managing Director answering directly to the Board of Expressway), Catherine (currently employed as receptionist and Collections Officer reporting directly to Patrick), Stephane, Patrick's son, (currently employed as a Company Representative reporting to the Marketing Manager), Denis (co-ordinating and managing properties reporting directly to Patrick) and James Dunn (consulting on core and non-core property assets and facilities and an active member of the Board). It is true that no member of Claude's family has been employed by Expressway since 2000. There is no evidence of any application for employment by any members of Claude's family and thus no evidence of a rejection of any employment application that could be seen to be oppressive.
There is no justification for a finding that the conduct of the affairs of Expressway in this regard is oppressive.
Purpose to exert pressure
Claude claims that the plaintiffs' "predominant purpose" in instituting and maintaining the present proceedings is to "exert pressure on him" and or GCC to surrender rights which he or GCC have or might have in respect of the plaintiffs or Expressway. Claude submitted that this predominant purpose is "laid bare" by a consideration of the contents, timing and terms of "global offers" made by the plaintiffs to Claude on or about 16 April 2007 (with Claude's response of 25 April 2007) and 24 September 2009 (with Claude's response of 8 October 2009).
The plaintiffs objected to the tender of this correspondence on the basis that such tender offended s 131 of the Evidence Act. I deferred ruling on this objection until delivery of these reasons. Section 131 provides relevantly:
131 Exclusion of evidence of settlement negotiations
(1) Evidence is not to be adduced of:
(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or
(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.
(2) Subsection (1) does not apply if:
...
(k) one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power.
...
(4) For the purposes of subsection (2) (k), if:
(a) the abuse of power is a fact in issue, and
(b) there are reasonable grounds for finding that a communication was made or document prepared in furtherance of the abuse of power,
the court may find that the communication was so made or the document was so prepared
The reasons for the tender of these documents were to demonstrate that: (1) for some time there has been broad agreement between the parties that they need to separate; (2) the plaintiffs have sought to obtain Claude's interest in Expressway; and (3) there has been a pattern of conduct which ties in with the buy-back proposals that emanated from Expressway (tr 276-277). It was submitted that the documents were prepared in furtherance of the deliberate abuse of power and therefore, pursuant to s 131(2)(k), the plaintiffs are unable to rely upon s 131(1) of the Evidence Act.
The first reason for the tender was obviated by the plaintiffs' concession that the parties are in agreement that they want to separate and, by inference, that they were of that view at the time of the correspondence in 2007 and 2009 (tr 281). The second reason for the tender was also obviated by the plaintiffs' concession that they offered to purchase Claude's shares in Expressway and by inference that they did so in 2007 and 2009 (tr 282). In those circumstances I intend to take into account those two matters in relation to Claude's submission that this conduct formed part of a pattern when combined with the buy-back offers that were made.
It is therefore unnecessary to consider whether these documents were prepared in furtherance of an abuse of power as that term is understood within s 131(2)(k) and s 131(4) of the Evidence Act. In any event it has not been established what the relevant "power" was that has allegedly been abused in these communications nor has it been established how the communication was such an abuse. Having regard to the concessions made by the plaintiffs that obviated the need for this consideration, the correspondence will not be admitted into evidence.
Claude also relies upon the content, timing and terms of the four buy-back proposals advanced by the Board of Expressway between September 2007 and April 2011. It is submitted that the primary object, if not the only object, of those buy-back proposals could only have been to induce Claude to divest himself of his shares in Expressway at "a substantial discount". Claude also relied on the fact that the 2011 buy-back proposal was published between the original hearing date for the trial of the proceedings on 12 April 2011 and the adjourned date when it finally came on for trial on 10 October 2011.
Claude also relied upon the timing of the plaintiffs' institution of these proceedings in 2008. It was submitted that the timing of the proceedings needs to be viewed in the context of Claude having pressed the Board of Expressway that year for information concerning the conduct of its financial affairs and two offers having been made that year to acquire his shares. He relies upon what seems to be a history throughout 2007 of his discontent with the provision, or lack thereof, of information by the Board, and the proximity of the commencement of the proceedings to that process, to submit that the plaintiffs' predominant purpose in bringing these proceedings is to force him to surrender his rights. He submitted that the plaintiffs have adopted a "winner take all" attitude in their conduct of the affairs of Expressway since they acquired control of Expressway by virtue of Bryson J's judgment in 1999 in respect of the estate of his late mother.
Claude also relies upon the knowledge of each of the plaintiffs that both he and GCC were under financial pressure associated with the refusal of the Board of Expressway to provide any support to GCC or to recognise debts to GCC recorded in the accounts of companies under their control. In this regard Claude also contends that the plaintiffs knew that GCC was under the control of receivers, that he was under pressure by reason of the CTK litigation, that he (on behalf of GCC) was engaged in layers of litigation with the ATO arising out of a settlement with CSIRO and that his time was occupied in advancing litigation against investors in the Tea Tree Projects in the Gardiner Proceedings. It is not really in issue that the plaintiffs had knowledge of these matters. However the claimed significance of these matters is clearly diminished by Claude's own conduct in secretly transferring valuable assets of GCC to his wife and claiming that he did so at a time when he clearly did not.
Claude also relied upon the "manner" in which the plaintiffs have conducted the present litigation, including that the proceedings were commenced originally only by Denis and it was only in about April 2011 that the other plaintiffs sought to be joined and collectively advanced allegations of fraud not only against himself but also against Felicity and her father. There is nothing oppressive in this conduct.
Claude's claim that the plaintiffs have conducted previous proceedings and have commenced and maintained these proceedings for an improper and collateral purpose is untenable. The previous proceedings to which Claude referred include the proceedings before Davies J in the Federal Court and Bryson J in this Court and the CTK proceedings. It is contended that the present proceedings have been commenced for the purpose of exerting inappropriate pressure on Claude and GCC to give up their rights. I infer that what is contended is that the plaintiffs have illegitimately exerted litigious pressure without foundation. This claim is rejected. The plaintiffs have established that Claude and Mr Sarks have adopted false Minutes of directors meetings in which valuable assets were purportedly transferred to a close relative, Felicity, at a time when no such transfer of assets had occurred but rather a loan arrangement had been entered into to facilitate the retirement of the Receivers from GCC. This was not an illegitimate exertion of litigious pressure to force a party to give up a right. The plaintiffs were fully entitled to bring this action and it cannot be described as having been brought for a collateral or inappropriate purpose.
Claude also claims that there has been a "resolute refusal" of the plaintiffs to support their allegations in the principal proceedings or in the cross claim with affidavits or any other evidence that would expose them to cross examination and that given GCC's prospective liability to the ATO they knew and know that there is no value in any of the shares held in GCC. It is submitted that the history of acrimonious litigation between the parties cannot be disregarded in a determination of the Cross-Claim either in assessing the jurisdiction of the Court to make orders or in an exercise of discretion by the Court in making of the orders. Claude once again made submissions that adverse inferences should be drawn against the plaintiffs in this regard pursuant to the principles referred to in Jones v Dunkel. I am not satisfied that such adverse inferences should be drawn in the circumstances of this case.
Subsequent to the conclusion of the trial on 14 October 2011 the Deputy Commissioner of Taxation has issued an Amended Notice of Assessment dated 24 October 2011 against GCC for the year ended 30 June 1994. It was contended that the "net effect" of that assessment is that GCC now has a crystallised liability to the ATO for an amount in excess of $4.17 million, with interest continuing to accrue, and that it does not have sufficient resources to pay the debt. This was drawn to the Court's attention particularly having regard to other proceedings between the respective parties and to the possible grant of relief in these proceedings. However it was also contended that GCC's taxation liability casts doubt upon the existence of any value whatsoever in the shares held by the plaintiffs in GCC. This is a matter post the conclusion of evidence and has not been the subject of any detailed evidence or submissions. However there is evidence that suggest that approximately $4 million has been recovered from the investors in the Tea Tree Litigation.
Claude's reliance upon the litigious history between the parties in support of his claim that these proceedings were brought for a collateral purpose does not improve his position. He claims that it would be appropriate for an order to be made whereby the plaintiffs sell him their shares at $120,000 per share, but that no order should be made requiring him to sell his shares to the plaintiffs. There is no justification for the adoption of such a position. It is important in this aspect of the claim to focus on the real issues in dispute between the parties on the cross-claim, rather than on broad-brush claims of conduct described as "winner take all".
I am not satisfied that Claude has established that these proceedings were commenced for any collateral purpose. I am not satisfied that Claude has proved oppression under s 232 of the Corporations Act.
Just and Equitable Ground
Claude also relied upon s 461(1)(k) of the Corporations Act that Expressway be wound up on just and equitable grounds. It has been held that a breakdown or loss of confidence between incorporators can provide a sufficient foundation for a just and equitable liquidation: Ebrahimi v Westbourne Galleries [1973] AC 360. However simply because there has been a breakdown or a loss of confidence between shareholders does not automatically result in the exercise of the power to wind up a company on just and equitable grounds.
While no single factor is determinative, a winding up order under s 461(1)(k) may be appropriate where the breakdown is such that it materially frustrates the commercially viable operations of the company (Tomanovic v Argyle Hq Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152 at [50]), or there is a restriction on the transfer of the shareholders interest (Ebrahimi v Westbourne Galleries [at 500]; Morgan v 45 Flers Avenue Pty Ltd; Tomanovic v Argyle at [50]). Neither of these circumstances exist in this instance. Indeed Expressway has been managed consistently with the desires of its originator, the late Mr Cassegrain. Since 2000 the Board of Expressway has included three independent directors and the dispute between Claude and the plaintiffs has not had an impact on the commercially viable and sensible operation of Expressway. It is a substantial, well-managed and profitable business. Expressway has made four buy-back offers that were open to Claude and which, if accepted would have returned to Claude between $1.5 and $1.8 million.
It was contended in the defendants' written submissions that "so deep is the antipathy" of the plaintiffs towards Claude that Mr Wardman's evidence actually reinforces the existence of grounds upon which the relief sought by Claude in his Cross-Claim should be granted. A similar submission was made that there has been a "long-standing deliberate campaign" to acquire Claude's shares in Expressway and to "cloak the campaign with apparent legitimacy". Submissions were also made about Mr Wardman's "friendship" with various members of the Cassegrain family. It was not suggested to Mr Wardman in cross-examination that he had compromised his fiduciary duties or statutory obligations in any way by reason of any friendships that he maintains. Accordingly these submissions are of no real relevance. These broad-brush allegations cannot be sustained. It is Claude that moves on the Cross-Claim to wind up a company that seems to have been the most successful of the Cassegrain companies. Mr Wardman's evidence was impressive, careful and measured. Expressway has managed to grow as a profitable business notwithstanding sibling rivalry, litigation and the global financial crisis. This would appear to be in no small measure due to the professionalism of the independent directors and their commitment to their statutory and other obligations to Expressway.
I am not satisfied that Expressway and/or the plaintiffs' conduct in the management of the affairs of Expressway amounts to oppression. There is no basis for a finding that it would be just and equitable that Expressway be wound up.
The Cross-Claim is to be dismissed.
Conclusion
There was no meeting of Directors of GCC as recorded in Minutes purporting to be Minutes of a meeting of GCC dated 21 December 2004. The plaintiffs have proved that Claude and Mr Sarks were in breach of their fiduciary and statutory duties to GCC in transferring GCC's shares in TTO and OAL to their wife and daughter respectively at undervalue and without the consent of the minority shareholders. This conduct amounted to oppression within the meaning of s 232 of the Corporations Act. Felicity was in knowing receipt of the shares and is liable under the first limb of Barnes v Addy in respect of the share transactions. The first plaintiff has made out a case under s 37A of the Conveyancing Act in respect of the OAL share transaction and Felicity's defence under s 37A(3) has failed. I refuse relief under s 1318 of the Corporations Act in respect of all defendants. The Cross-Claim is to be dismissed.
As requested I will list the matter for the purpose of the parties making submissions as to the appropriate relief. I will also hear submissions on costs if the parties are unable to agree on a costs order. The parties are to make contact with my Associate by no later than 24 May 2012, to fix a mutually convenient date for those submissions and any costs argument.
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Decision last updated: 27 April 2012
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