In the matter of 1A Eden Pty Limited

[2021] NSWSC 82

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of 1A Eden Pty Limited [2021] NSWSC 82

Hearing dates:

20, 21 August 2020

Date of orders:

12 February 2021

Decision date:

12 February 2021

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

Proceedings dismissed with costs.

Catchwords:

CORPORATIONS – winding up on “just and equitable” grounds – property development company – $8 million profit – applicant receives $2 million profit share – majority shareholder yet to receive his profit – building defects – applicant and associated shareholder were builders – ‘deadlock’ has air of artificiality – application infused with self interest – other remedies available – applicant acting unreasonably.

Legislation Cited:

Corporations Act 2001 (Cth) ss 461(1)(e), 461(1)(k)

Home Building Act 1989 (NSW)

Cases Cited:

Accurate Financial Consultants Pty Limited v Koko Black Pty Limited [2008] VSCA 86; (2008) 66 ACSR 325

Exton v Extons Pty Limited (2017) 53 VR 520; [2017] VSC 14

Fexuto Pty Limited v Bosnjak Holdings Pty Limited [1998] NSWSC 413; (1998) 28 ACSR 688

Fexuto Pty Limited v Bosnjak Holdings Pty Limited [2001] NSWCA 97; (2001) 37 ACSR 672

Guerinoni v Argyle Concrete & Quarry Supplies Pty Limited (Supreme Court (WA), 22 April 1999, unrep) BC9902042

Guerinoni v Argyle Concrete & Quarry Supplies Pty Limited [2000] WASCA 170; (1999) 34 ACSR 469

In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568

In the matter of Bicher & Son Pty Limited [2020] NSWSC 711; (2020) 147 ACSR 108

In the matter of Catombal Investments Pty Limited [2012] NSWSC 775

In the matter of Docklands Chiropractic Clinic Pty Limited [2020] VSC 364

In the matter of Organic Brands Pty Limited [2011] VSC 247

In the matter of Pure Nature Sydney Pty Limited [2018] NSWSC 914

In the matter of Straw Products Pty Limited [1942] VLR 222

Kingjade Holdings Pty Limited v Pineridge Nominees Pty Limited (1997) 15 ACLC 910

Melos v Melos [2003] NSWSC 118; (2003) 44 ACSR 511

Mudgee Dolomite & Lime Pty Limited v Murdoch [2020] NSWSC 1510

Nassar v Innovative Precasters Group Pty Limited [2009] NSWSC 342; (2009) 71 ACSR 343

Ruut v Head (1996) 20 ACSR 160

Shenouda v Work Safe Medics Pty Limited [2011] NSWSC 45

Tomanovic v Argyle HQ Pty Limited [2010] NSWSC 152

Tomanovic v Global Mortgage Equity Corp Pty Limited [2011] NSWCA 104; (2011) 84 ACSR 121

Wondoflex Textiles Pty Limited [1951] VLR 458

Category:

Principal judgment

Parties:

Christopher Zaarour (Plaintiff)
Robert Moore (First Defendant)
1A Eden Pty Limited (Second Defendant)

Representation:

Counsel:
Mr A Davis (Plaintiff)
Mr D Weinberger (First Defendant)

Solicitors:
Walker Hedges & Co (Plaintiff)
Dentons Australia (First Defendant)

File Number(s):

2020/15422

Judgment

1. HER HONOUR: This is an application by the plaintiff, Christopher Zaarour, to wind up the second defendant, 1A Eden Pty Limited, under section 461(1)(e) or section 461(1)(k) of the Corporations Act 2001 (Cth) or by reason of oppressive conduct under section 233 of the Corporations Act. The oppression suit was not actively pursued and I need not consider it further.

2. Mr Zaarour is a director of 1A Eden, as is the first defendant, Robert Moore, who opposes the orders sought. 1A Eden is the trustee of a unit trust known as The 1A Eden Unit Trust, being the corporate vehicles used by Mr Zaarour, Mr Moore and Joseph Sleiman to undertake a property development in North Sydney. Mr Zaarour also seeks an order that a receiver and manager be appointed to the assets of the trust, with powers to realise the assets of the trust.

3. The matter did not proceed by way of pleadings and thus the basis on which it was contended that it was just and equitable to wind up the company, or that Mr Moore had acted in his own interests or engaged in oppressive conduct, was not precisely identified. The thrust of the application was that the company was said to be in deadlock and that the relationship between directors had irrevocably broken down. Mr Zaarour also raised concerns as to the company’s solvency. For Mr Moore’s part, the application was said to be entirely misconceived, there being no evidence that Mr Moore had preferred his own interests nor engaged in any oppressive conduct. There was said to be no basis to take the drastic steps sought by the plaintiff.

4. For the reasons which follow, I decline to appoint a liquidator to 1A Eden. On completion of the property development, Mr Zaarour and Mr Sleiman each received some $2 million as their share of the profits whilst Mr Moore was, by and large, yet to receive his $4 million share. The development had some minor building defects which were being rectified, largely by, and at the expense of, a third party sub-contractor. After a minor squabble about who should pay a $15,000 bill for a court-appointed expert in respect of the building defects – which has since been resolved by Mr Moore and his companies funding such expenses – Mr Zaarour has embarked on a course which appears to be directed to ensuring that Mr Moore’s share of the profits is used to pay for any liabilities of 1A Eden, whilst Mr Zaarour, Mr Sleiman and Mr Sleiman’s company (which – on the documents at least – was the builder) are somehow untouched. The irretrievable breakdown of relations asserted by Mr Zaarour has a confected quality. In short, the plaintiff is acting unreasonably in seeking to have the company wound up instead of pursuing other available remedies.

WITNESSES

5. Mr Zaarour gave evidence and was cross-examined. He is a pleasant man who worked on eight building contracts for Mr Moore before taking a financial interest in the property development undertaken by 1A Eden. He was clearly upset with how the project unfolded.

6. Mr Moore gave evidence and was cross-examined. Mr Moore appeared to be a successful, professional property developer who appeared straightforward but appeared exasperated with this project. He gave evidence in a careful manner. One issue in the proceedings was whether management fees charged to 1A Eden by Mr Moore’s company, MoDog Pty Limited, were inappropriate. However, it was never put to Mr Moore in cross examination that he should not have been charging these fees or that it was contrary to an agreement with Mr Zaarour and I make no finding in this regard.

7. I was not asked to make adverse credit findings in respect of Mr Zaarour or Mr Moore, and I do not do so. The evidence of both witnesses had some problems, but it was not necessary on this application to unravel those problems.

8. Mr Moore employs Stella Chen, a chartered accountant, to manage the finances of his group of companies, the Moore Development Group. I was asked to draw a Jones v Dunkel inference in respect of the defendants’ failure to call Ms Chen, notwithstanding that an affidavit sworn by Ms Chen was served. I draw that inference, although it was not entirely clear what the plaintiff submitted I should find as a consequence of so doing. The practical consequence of not calling Ms Chen was that it was apparent that Mr Moore was not himself aware of the financial detail of particular payments or transactions; it was apparent that Mr Moore left the detail of these matters to Ms Chen and Nicholas Rickard.

FACTS

9. Mr Zaarour and Mr Sleiman are builders. As I understood it, their practice was to form a special purpose vehicle for each construction project, called “ZS Constructions (Location) Pty Limited”. Three such companies were referred to in these proceedings: ZS Constructions (NSW) Pty Limited (ZS NSW), ZS Constructions (Queenscliff) Pty Limited (ZS Queenscliff) and ZS Constructions (Eden) Pty Limited (ZS Eden). Mr Moore, in conversations and emails, referred generically to “ZS”, which I took to be a reference to Mr Zaarour and Mr Sleiman’s building partnership including the corporate vehicle which it was anticipated that they would use for any given project.

10. Mr Moore is a property developer. Mr Moore has carried out numerous property developments in the Sydney Metropolitan area. Mr Moore has office premises and employs Ms Chen to manage the finances of his group. Mr Moore is presently involved in some 25 to 35 companies and, in addition to property development, is involved in ten other businesses. One of Mr Moore’s companies is Garawin Pty Limited, being the trustee of the Moore Family Trust; another is MoDog (already mentioned); another company about which there was little evidence in these proceedings has “Heritage” in its name.

Property development in North Sydney

11. Mr Moore was interested in purchasing an office building at 1A Eden Street, North Sydney and converting it into a residential building. Mr Moore invited Mr Zaarour and Mr Sleiman to participate in the 1A Eden development. This would be the first project in which Mr Zaarour and Mr Sleiman would have a financial interest in the outcome beyond payments under a building contract. Both Mr Moore, on the one hand, and Mr Zaarour and Mr Sleiman on the other, independently formed the view that they could make a profit of about $9 million to $10 million on this development.

12. Mr Zaarour and Mr Sleiman agreed to Mr Moore’s proposal. Regrettably, the terms of the agreement were not documented. Those terms, as described by Mr Zaarour and Mr Moore, differ somewhat. It is not necessary on this application to ascertain whose version of the agreement is correct.

13. As Mr Moore described it, he proposed that Mr Zaarour and Mr Sleiman would provide $500,000 to pay the deposit on the contract to buy the property whilst Mr Moore would fund the costs of obtaining development approval, expected to be in a similar sum. It appears to have been envisaged that, once development approval was obtained, the value of the property would increase substantially. Finance would then be raised against the re-valued property to fund the balance of the purchase price and the building works. Mr Zaarour and Mr Sleiman would do the building work on a ‘cost only’ basis. Mr Moore would not charge his time to the project. Mr Moore would be responsible for ‘the back-office’ and Mr Zaarour and Mr Sleiman would be responsible for ‘the build’. The profit would be split 50% to Mr Moore and 50% to Mr Zaarour and Mr Sleiman together. Each would be reimbursed for their initial outlays.

14. Mr Zaarour says that the deal required Mr Moore on the one hand and Mr Zaarour and Sleiman on the other to provide $250,000 each for the deposit and that, as Mr Moore was short of cash, Mr Zaarour lent Mr Moore’s half of the deposit to him. Mr Zaarour denies that there was any agreement that Mr Moore would be reimbursed for the costs of obtaining development approval. Mr Zaarour does agree that Mr Moore would attend to the financial and administrative matters for 1A Eden and manage and operate its bank accounts, and that Mr Zaarour and Mr Moore both agreed not to charge the development for their time.

15. On 31 January 2013, 1A Eden was incorporated. Mr Zaarour and Mr Moore were appointed as directors. Of the four issued shares, one was issued to Mr Zaarour, one to Mr Sleiman and two to Mr Moore. The purpose of the company was to purchase the property, administer accounts during the construction phase of the redevelopment, and to act as trustee of the 1A Eden Unit Trust.

16. On 12 March 2013, the 1A Eden Unit Trust was established. 1A Eden was the trustee. Of the 100 units in the trust, 25 were issued to a company associated with Mr Zaarour, being Zaarour Investments Pty Limited as trustee for The Zaarour Investment Trust; 25 units were issued to a company associated with Mr Sleiman, being Joesandra Pty Limited as trustee for The Sleiman Family Trust; and 50 units were issued to a company associated with Mr Moore, being Garawin.

17. On 25 March 2013, a Deed of Loan was executed by Mr Zaarour and Mr Sleiman as lenders and Garawin as borrower. Mr Zaarour and Mr Sleiman each agreed to lend Garawin the sum of $125,000. The loan was to be repaid on 29 September 2013. The money was advanced and, ultimately, deposited into the bank account of 1A Eden. It would thus appear that Mr Zaarour and Mr Sleiman were providing Mr Moore with funds to contribute to the project. According to Mr Zaarour, Mr Moore asked for an extension of time to repay the loan, and this was informally agreed. Mr Moore denies this. It is not necessary on this application to determine precisely what happened.

Purchase of development site

18. On 27 March 2013, a contract for the sale of land was exchanged: 1A Eden agreed to buy land at 1A Eden Street, North Sydney for $6.55 million, with a deposit of $1 million to be paid in two instalments, with $500,000 by 4 April 2013 and the balance within 12 months. Completion was to take place in 18 months. The first instalment of the deposit was paid as required; it appears that Mr Zaarour and Mr Sleiman funded Mr Moore’s half of that instalment by funds advanced under the Deed of Loan.

19. On 8 November 2013, development consent was obtained to construct 34 units and 2 retail spaces, apparently following proceedings in the Land and Environment Court. Following development approval, 1A Eden was able to obtain a loan to fund the balance of the purchase price and the building works. In January 2014, an engineer, Wallace & Spratt Pty Limited, began rendering invoices to the Moore Development Group in respect of the 1A Eden project.

20. On 29 January 2014, ZS Queenscliff was incorporated. ZS Queenscliff had a building contract with a company associated with the Moore Development Group to build a block of residential apartments in Queenscliff. ZS Queenscliff held a contractor licence authorising it to do residential construction work. Mr Sleiman was the sole director of ZS Queenscliff and his company, Joesandra, was the sole shareholder of the company.

21. On 25 March 2014, Garawin rendered an invoice to 1A Eden for accountancy, administration and overheads in respect of the project, in the amount of $126,000.

22. On 8 April 2014, Garawin rendered an invoice to 1A Eden for $570,405.39 for development application costs and management to 27 March 2014. A ten page charge summary and detail was attached to the invoice, comprising MYOB print-outs listing expenses incurred in relation to the project which roughly equated to the invoiced amount, comprising commissions, pre-sale advertisements and promotions, permits and development application expenses, building regulation consultants, search fees, architects fees, surveyors fees, arborists fee, landscape designers, model and artist impressions, DA co-ordinators and managers, hydraulic engineers, environmental engineers, town planning consultants, access assessment, traffic assessment, energy efficient assessment, heritage impact assessment, project managers, valuers, solicitors, hire of plant and equipment, site cleaning and preparation, repairs and maintenance, accountancy, administration, overheads, couriers, printing and stationery.

23. On 11 April 2014, purchase of the 1A Eden site was completed. On completion, Garawin was reimbursed for the costs associated with the development application, being $570,405.39. Mr Zaarour now contends that Garawin was not entitled to be reimbursed for these costs.

24. In May 2014, Core Sites Pty Limited began to render invoices to the Moore Development Group in respect of management services rendered for the 1A Eden project. Core Sites was Mr Rickard’s company. Mr Rickard also worked for the Moore Development Group – although not full time – and appears to have charged for his services through his corporate vehicle. Mr Moore paid the invoices and claimed the monies back from 1A Eden. Mr Moore understood that Mr Rickard’s fees were disclosed to Mr Zaarour but said that Mr Zaarour’s approval for the payments was not required in any event as it was Mr Moore’s role to administer the project. Mr Moore did not regard the invoices rendered by Mr Rickard as substantial; the work that Mr Rickard was engaged in was very time consuming.

25. On 6 June 2014, ZS NSW went into administration and, later, into liquidation.

The building contract

26. Although it had been initially intended that Mr Zaarour and Mr Sleiman would undertake the building work, another company (Cubic) was found which could do the building work for substantially (some $2.5 million) less. On 17 June 2014, Cubic submitted a tender for the conversion of the existing commercial building into 35 residential apartments.

27. On 30 June 2014, MoDog rendered an invoice to 1A Eden for administration charges from 28 March 2014 to 30 June 2014 in the sum of $20,592. Mr Moore said, “This is an administration cost. That’s not to do with the profit. … MoDog … actually incurred the costs of administration”.

28. On 7 July 2014, ZS Eden was incorporated. Mr Zaarour and Mr Sleiman were appointed directors and became equal shareholders in the company. Presumably, this was the “ZS” corporate vehicle intended to be used for the 1A Eden development project. The company was incorporated with the assistance of Ms Chen.

29. On 8 July 2014, a building contract was signed between 1A Eden, as principal, and ZS Eden, as contractor. The contract sum was $6.705 million plus GST. However, ZS Eden did not then hold a contractor licence authorising it to do residential construction work as required under the Home Building Act 1989 (NSW).

30. Further negotiations ensued with Cubic in respect of its tender. On 29 July 2012, ZS Queenscliff issued a letter of intent to Cubic, noting that Cubic had been awarded the contract for a lump of $6.7 million plus GST, with work to begin on 4 August 2012. Mr Zaarour says that, in order to avoid delays with the project financier, it was decided to assign the benefit of the building contract from ZS Eden to ZS Queenscliff. Mr Moore says the building contract was assigned because ZS Eden was unable to obtain a licence given that ZS NSW was then in external administration. It is not necessary on this application for me to determine why the building contract was assigned to ZS Queenscliff.

31. On 12 August 2014, ZS Eden entered into a Sub-Contract for Performance and Construction Works with Cubic for $6.79 million plus GST. Mr Zaarour and Mr Sleiman appear to have ignored the assignment of the building contract to ZS Queenscliff. According to Mr Zaarour, the sub-contract was entered into at the request of Mr Moore to avoid problems with the project financier. According to Mr Moore, Cubic did not hold a building licence and could not be the builder but, if “ZS” wished to engage Cubic as a sub-contractor, that would satisfy “ZS’s” obligations to the property development.

32. Cubic carried out the building and construction work. Cubic rendered progress claims to ZS Eden, which rendered an identical claim to 1A Eden. On 19 September 2014, ZS Eden began making progress claims to 1A Eden, which were paid. A volume of accounting and bank documentation was in evidence in respect of these payments. It was not entirely clear what the problem with these payments was thought to be, if any, as it was not identified by any pleadings. It is not easy nor necessary to ascertain what Mr Zaarour’s concerns were in respect of these transactions, or whether those concerns were well-founded.

33. On 15 April 2015, Zaarour Investments Pty Limited began rendering invoices to 1A Eden in respect of consulting services. Contrary to the initial agreement not to charge the project for his time, Mr Zaarour says he approached Mr Moore and asked whether he could charge for his time in supervising Cubic. Apparently, Mr Moore agreed and Mr Zaarour proceeded to charge some $3,000 a month. Mr Zaarour’s company charged $61,600 in total. Mr Moore said he did not agree to pay Mr Zaarour fees for supervising Cubic. Although some invoices rendered by Mr Zaarour were paid – having been authorised by Mr Rickard – Mr Moore said that he only became aware of the invoices during the course of these proceedings.

34. In May 2015, Mr Sleiman ceased to be a director of ZS Eden and Mr Zaarour remained the sole director.

26. On 30 June 2015, MoDog rendered an invoice to 1A Eden for administrative charges for that financial year, totalling $82,768. Zaarour Investments also rendered an invoice for consulting services for June 2015, rendering no charge. A handwritten note on the invoice records “No charge due to partnership does deserve some free hours to assist in reducing total cost”.

27. On 8 July 2015, a Deed of Assignment was finally entered into between ZS Eden and ZS Queenscliff, by which ZS Eden assigned its rights, title and interest in the building contract to ZS Queenscliff. From 31 August 2015, progress claims were made to 1A Eden by ZS Queenscliff rather than ZS Eden. Mr Zaarour says that the provisions of the Deed of Assignment were never acted upon and the deed was defunct. It is not necessary for me to determine on this application whether the Deed of Assignment remained operative.

Completion of development

37. On 18 November 2015, the strata plan was registered for the development site. The Owners - Strata Plan No. 92226 was formed. On 9 December 2015, an interim occupation certificate was issued. Residents began moving into the building. On 22 January 2016, MoDog issued an invoice to 1A Eden for administrative charges since 1 July 2015 in the sum of $47,520. On 26 April 2016, Cubic rendered its final invoice. On 19 May 2016, a final occupation certificate was issued.

38. On 19 May 2016, Mr Moore, Mr Zaarour, Mr Sleiman, Mr Rickard and Ms Chen met to discuss distributing the profits from the development to the participants. Most of the apartments had, by this time, been sold and the net proceeds of sale used to repay the project financier. It was agreed to distribute the profits by transferring the remaining unsold apartments to the unitholders, although Mr Sleiman requested a portion of his distribution, being $500,000, in cash. Taking a $500,000 cash distribution into account, it was agreed that Lots 1 and 2 would be transferred to Mr Sleiman’s company; Lots 3, 4, 5 and 6 would be transferred to Mr Moore’s company; and, Lots 26 and 27 would be transferred to Mr Zaarour’s company. Mr Moore proposed that the final distribution of the apartments occur after a development application to change the use of Lots 1 to 6 had been approved. If approved, the change of use would benefit both Mr Moore and Mr Sleiman by increasing the value of the apartments to be transferred to each of them, and thus needed to be factored into the final distribution of profit.

39. Also on 19 May 2016, $500,000 was transferred to Mr Sleiman’s company. On 10 June 2016, MoDog lodged an application for development consent to change the use of Lots 1 to 6 from serviced apartments to residential apartments. On 9 September 2016, that application was approved.

Final profit distribution

40. In about February 2017, financial statements for the 1A Eden Unit Trust for the 2016 financial year were signed by Mr Moore and Mr Zaarour. A tax return was lodged, declaring a profit of $7,457,952, to be distributed to Mr Sleiman’s company ($1,865,488), Mr Zaarour’s company ($1,864,488) and Mr Moore’s company ($3,728,976).

41. In May 2017, Mr Moore asked Ms Chen to prepare a Distribution Schedule of the unitholders’ entitlements, so that the unitholders could receive their entitlements under the trust deed. Ms Chen prepared a spreadsheet, referred to by the parties as a “Distribution Sheet”. For each of the 36 lots in the strata plan, the cost of land, stamp duty, legals and building was apportioned to the unit based on the unit entitlements in the strata plan. The total cost of each unit was thereby calculated. According to the spreadsheet, the net profit on the project was $7,826,220 such that Mr Zaarour and Mr Sleiman were entitled to receive $1,956,555 each and Mr Moore was entitled to receive $3,913,110. Notional sale prices were then attributed to the unsold lots in the Distribution Sheet. According to Mr Moore, these figures had been agreed at the meeting in May 2016. Consistent with what had been discussed in May 2016, the Distribution Sheet proceeded on the basis that Lots 1 and 2, with a combined notional sale price of $1.32 million, would be transferred to Mr Sleiman as his share in the profit on the development. Lots 3 to 6, with a combined notional sale price of $2.985 million, would be transferred to Mr Moore for his share of the profit. Lot 27, with a notional sale price of $1 million and Lot 36, with a notional sale price of $800,000, would be transferred to Mr Zaarour.

42. On 23 May 2017, Mr Moore attended a meeting with Mr Zaarour, Mr Sleiman, Ms Chen and Mr Rickard. Those present agreed that the values attributed to Lots 1 to 6, 27 and 36 were appropriate and – taking into account the $500,000 already paid to Mr Sleiman – Lots 1 and 2 would be transferred to Mr Sleiman, Lots 3 to 6 would be transferred to Mr Moore and Lots 27 and 36 would be transferred to Mr Zaarour. Some funds were retained by 1A Eden, to pay stamp duty on the transfers, as well as retention monies in respect of Cubic.

43. On 23 November 2017, Mr Sleiman and Mr Zaarour signed a letter from 1A Eden to a financier in respect of Lots 5 and 6 which, it will be recalled, were apartments to be transferred to Mr Moore. By the letter, Mr Sleiman and Mr Zaarour confirmed that Lots 5 and 6 could be used by Mr Moore as collateral security. The letter stated:

Given the commercial benefit resulting from the completed development whereby all beneficial owners have been allocated a percentage of the residual stock. The residual stock has been apportioned to each respective owner as their profits from the transaction.

It would thus appear that, at the date of this letter, Mr Zaarour and Mr Sleiman were satisfied that the profits from the development had been appropriately allocated to each of the stakeholders and no issues of accounting then arose.

Building defect proceedings

44. The Owners’ Corporation complained that defects had appeared in the building. Mr Zaarour passed these complaints onto Cubic. Mr Zaarour says the defects were quite minor with one exception, being a claim that the door frames and jambs on the entry door to each apartment did not comply with fire standards. Cubic proposed a solution. The Owners’ Corporation did not agree and asked for the door and door jambs to be replaced.

45. On 30 November 2017, the Owners’ Corporation commenced proceedings in the Technology and Construction List of this Court against 1A Eden, ZS Eden, ZS Queenscliff and Cubic (building defect proceedings), seeking rectification of the building defects. Presumably, both ZS Eden and ZS Queenscliff were joined given the assignment of the building contract from the former to the latter. The Owners’ Corporation obtained a freezing order in respect of the eight un-sold apartments by reason of the fact that the apartments were being transferred to Mr Moore, Mr Sleiman and Mr Zaarour’s respective companies.

46. Piper Alderman Solicitors were retained to represent 1A Eden in the building defect proceedings. After a meeting with Mr Moore, Mr Rickard, Mr Zaarour and Mr Sleiman, Piper Alderman prepared a note recording the substance of their instructions, including:

These things are not as sinister as the other side have made them look:

… the proposed transfer of the units into your personal trusts was just the ordinary splitting of profit (or more accurately the dividing up of the remaining properties in lieu of payments of profit) on conclusion of the development.

Further, the solicitors noted that 1A Eden did not seek to avoid liability for defects. The estimated cost of repairing the defects was no more than $100,000. There was no objective urgency to remedy the defects as the defects liability period had not yet expired. Further, 1A Eden was holding sufficient funds in retention from Cubic to remedy the defects.

47. Piper Alderman provided a costs estimate and requested $30,000 on account of fees. On 7 December 2017, 1A Eden paid $30,000 to Piper Alderman’s trust account. Mr Zaarour was the nominated person to provide instructions to Piper Alderman on behalf of 1A Eden and to carry out any tasks required by the solicitors. Mr Zaarour received the solicitor’s invoices, which he sent to Ms Chen for payment from 1A Eden’s funds.

48. On 14 December 2017, the unitholders of the 1A Eden Unit Trust entered into a deed, covenanting to indemnify 1A Eden from and against any claim the subject of the building defect proceedings.

49. On 18 December 2017, orders were made in the building defect proceedings, noting 1A Eden’s undertaking not to deal with Lot 27 (being an apartment which was to be transferred to Mr Zaarour) without first paying $950,000 into a controlled monies account. The Court also noted the deed of indemnity dated 14 December 2017. Thus, Lot 27 and the deed of indemnity were effectively offered as security by 1A Eden for its performance of any rectification works. The Court also ordered that a joint expert be appointed to inspect the building works, identify any defective works and specify the work required to remedy such defects. The costs of a joint expert were to be shared by the Owners’ Corporation and 1A Eden. Piper Alderman advised that 1A Eden’s share of the experts’ fees was $25,000.

50. On 30 January 2018, the Owners’ Corporation’s solicitors advised that, having obtained copies of the building contract in answer to notices to produce, it wished to discontinue the proceedings against ZS Queenscliff. On 9 February 2018, a notice of discontinuance was filed. Notwithstanding the discontinuance, Mr Moore may wish to pursue a claim against ZS Queenscliff for any losses arising from the building defects proceedings. Mr Zaarour says that 1A Eden will be unable to pass a resolution to bring such proceedings as he and Mr Moore cannot agree. Further, Mr Zaarour does not support such a claim as he does not believe it has any merit. Further, he says Cubic continues to rectify the defects to the building and, as such, there are no losses to be pursued. Mr Moore said that, if Mr Zaarour does not agree for 1A Eden to take legal action against ZS Queenscliff, he will pursue the claim by another avenue.

51. On 8 March 2018, Core Sites rendered an invoice to 1A Eden for $92,850 for fees due for reviewing, attending and negotiating defect issues. On 12 April 2018, MoDog rendered an invoice to 1A Eden totalling $92,730 for administrative charges.

52. On 12 April 2018, Lots 1 and 2 were transferred to Mr Sleiman’s company. Lots 27 and 36 were transferred to Mr Zaarour’s company. It is not entirely clear how Lot 27 was transferred to Mr Zaarour’s company given the orders made in the building defect proceedings on 18 December 2017; this was not the subject of evidence in these proceedings. On 14 April 2018, Lot 4 was sold for $750,000 and, on 28 May 2018, the net proceeds of sale were paid to Mr Moore’s company, Garawin. Thus, the only apartments to be transferred in accordance with the final profit distribution agreed in May 2017 were Lots 3, 5 and 6, to be transferred to Mr Moore’s company.

53. On 7 June 2018, 1A Eden paid a further $25,000 to Piper Alderman’s trust account. On 26 October 2018, Piper Alderman rendered a statement of account with fees due of $55,789.85. These fees appear to have been paid from the monies held in trust. According to Mr Zaarour, Cubic agreed to carry out the rectification works and pay the cost of rectification. On 14 December 2018, orders were made in the building defects proceedings that Cubic execute a contract to perform the rectification works by 18 January 2019. On 24 December 2018, Core Sites rendered a further invoice to 1A Eden for fees due to attending defect issues, being $31,200.

54. By 31 March 2019, 1A Eden’s bank account was essentially empty. On 15 April 2019, Mr Zaarour sent an email to Mr Rickard asking that he attend to payment of the court appointed expert. Mr Moore replied:

All funds that were owed to you and Joe have been used to pay Piper Alderman and [the expert’s] fees. As there are no more funds to pay anymore bills, both you and Joe as joint venture partners will have to stump up with additional funds to pay outstanding legal bills.

The email was something of an exaggeration as 1A Eden still held the retention monies for Cubic, albeit not (as I understand it) in 1A Eden’s operating account. Mr Zaarour objected to Mr Moore’s response, suggesting that Mr Moore had “no right to use both Joe’s and my money without consent” and demanded the money still outstanding for the development “with interest less 50% of legal fees to date”.

55. On 8 May 2019, Mr Moore and Mr Zaarour met, but could not agree on who should pay for the joint expert’s fees. According to Mr Zaarour, Mr Moore said that “ZS” was the builder and therefore “ZS” should pay, saying:

I will not be paying a cent more for defects, as all the money has been used. Joe [Sleiman] has done nothing on this project and he can pay it. If you lose your unit, then you can chase Joe. … There is nothing left, I am not putting any more money in, you get Joe to pay, he can pay it all, I am sick of him doing nothing and taking all the money for doing nothing.

Mr Moore does not disagree with this rendition of their conversation. Mr Moore says that, by this time, Mr Zaarour and Mr Sleiman had received their entitlements under the 1A Eden Unit Trust but were looking to 1A Eden to fund the legal issues that they had caused.

56. Mr Zaarour continued to press Mr Moore to attend to payment of the expert’s fees of $15,000. It is not clear what funds Mr Zaarour expected that Mr Moore would use to pay the account, given that there were no funds remaining in 1A Eden’s bank account. On 14 May 2019, Mr Moore sent a copy of the bank statement to Mr Zaarour:

As yourself and Joe are the building side of the joint venture for 1A Eden Pty Ltd and the money for the dispute is for building matters, I suggest yourself and Joe provide the funds required into 1A Eden Pty Ltd bank account so that outstanding accounts can be satisfied.

57. The squabble between Mr Moore and Mr Zaarour obviously had implications for the progress of the building defect proceedings. Mr Zaarour says that, in order to avoid 1A Eden being in default of the Court’s orders, he paid the $15,000 from his own funds but has not been reimbursed by 1A Eden. Mr Moore says that Mr Zaarour has never requested payment, nor provided the invoice said to have been paid.

58. Mr Zaarour says he spoke to Mr Sleiman about the fact that there was no money left in 1A Eden’s bank accounts. They agreed they should look into it. On 6 June 2019, Mr Zaarour’s solicitor wrote to Mr Moore advising that his client had concerns over the conduct and operation of 1A Eden. The solicitor advised that Mr Sleiman would vote on all matters with Mr Zaarour and thus, together, their votes equated to those of Mr Moore. Mr Zaarour expressed concerns about: 1A Eden’s ability to meet existing and ongoing financial commitments, said to give rise to questions of solvency; a lack of provision of financial information and company records of Mr Zaarour; and, the failure of the company to continue to operate as a result of a deadlock. The books and records of the company were sought by 12 June 2019. The letter stated that, unless Mr Moore addressed the funding of the joint expert “in a sensible manner”, an application would be made to the Court to appoint a provisional liquidator. (The letter, with respect, was out of proportion to the problem at hand.) Further, Mr Zaarour’s solicitors suggested that one of the remaining apartments be sold to place the company in funds. This can only have been a reference to an apartment which, under the agreed profit distribution, was to be transferred to Mr Moore, all other units having already been transferred to Mr Zaarour or Mr Sleiman.

59. A detailed response followed from Mr Moore. The suggestion that financial information had not been provided was strongly refuted, as was the suggestion of a deadlock. Mr Moore stated:

2.   … Your clients accountant received in 2018 a zip file that contained all the entries and workings of the company, its financial tax records and all aspects of the financial transactions up to that date. Later in that year (2018) your client Chris received an updated profit distribution of the 8 units held in a full financial statement and any suggestion that we have breached any provisions of the corporations act is a lie.

…

6.   The debts incurred by 1A Eden Pty Ltd are the making of your clients. The moneys already expended to defend 1A Eden Pty Ltd against legal action from the Owners Corporation at 1A Eden Street, NS are in fact not 1A Eden Pty Ltd obligation, they are infact [sic] ZS Constructions (Queenscliff) Pty Ltd as 1A Eden Pty Ltd have had to defend the non performance of ZS Constructions (Queenscliff) Pty Ltd, so infact [sic] 1A Eden Pty Ltd will be pursuing ZS Queenscliff Pty Ltd for its losses.

7.   … If you and your client wish to proceed down the liquidator route, knock yourself out.

60. Mr Moore says that Mr Zaarour had access to all the books and records of 1A Eden from its incorporation. Further, Mr Zaarour spoke to Ms Chen on an almost weekly basis. Mr Zaarour agrees that he saw Ms Chen on a regular basis but said this was only for the purpose of submitting invoices for progress payments. Mr Moore also noted that all the monies for the building of the project were paid to ZS Eden, being a company of which Mr Zaarour was the sole officeholder and thus with access to its books and records.

61. On 7 and 12 June 2019, Mr Zaarour lodged caveats over Lots 3, 5 and 6, being the properties that were to be transferred to Mr Moore. Mr Zaarour says he lodged the caveats as he was afraid that Mr Moore would act unilaterally and transfer these units out of 1A Eden for his own benefit. Mr Zaarour says he sought thereby to preserve the company’s assets until an inquiry into the company’s finances could be carried out.

62. On 31 July 2019, Mr Moore obtained an offer of finance from ING Bank for $5.1 million to refinance an existing facility. The loan was to be guaranteed by Mr Moore, MoDog, 1A Eden Street Pty Limited and Garawin. The loan was to be secured, in part, by a registered mortgage over Lots 5 and 6 of 1A Eden. The caveats lodged by Mr Zaarour over these lots presented an immediate obstacle to the re-finance.

63. On 22 August 2019, Mr Moore’s solicitor provided Mr Zaarour’s solicitor with MYOB records, financial statements and tax returns in respect of 1A Eden and The 1A Eden Unit Trust. By now, 1A Eden owed $12,475.10 to Piper Alderman. On 24 September 2019, Garawin lodged a caveat over Lot 1 (Mr Sleiman’s lot). On 14 October 2019, notwithstanding the caveat, Mr Sleiman entered into a contract to sell Lot 1 for $675,000. On 1 October 2019, Mr Zaarour was given financial records of 1A Eden. Mr Zaarour says he reviewed the records and has a number of concerns. The concerns were generally expressed.

64. According to Mr Zaarour, Mr Moore insists that he may deal with the remaining units as he sees fit and he refuses to consider retaining these assets in the company. Whilst I have no doubt that Mr Moore has expressed these sentiments, they are hardly surprising in circumstances where the parties agreed that these apartments would be transferred to Mr Moore as a final profit distribution of the 1A Eden development. Mr Zaarour says, “On this point therefore there has been a total breakdown in the relationship between Mr Moore and myself and the company therefore cannot function and operate”. Mr Zaarour’s evidence on this subject appeared to proceed on the basis that he and, presumably, Mr Sleiman were entitled to retain the cash and apartments transferred to them as part of the distribution of profits from the development whilst the apartments to be transferred to Mr Moore should be available to fund any ongoing obligations of 1A Eden arising out of building defects and the costs of the building defects proceedings.

60. On 22 October 2019, Mr Moore and Mr Zaarour attended a mediation but were unable to resolve their differences.

Caveat proceedings

66. On 7 November 2019, Garawin commenced proceedings in the Real Property List of this Court against 1A Eden, Zaarour Investments, Joesandra and Mr Zaarour (caveat proceedings), seeking the removal of caveats lodged by Mr Zaarour over Lots 3, 5 and 6. A declaration was sought that 1A Eden held Lots 3, 5 and 6 on trust for Garawin, and an order that the titles be transferred forthwith. In the alternative, Garawin sought a declaration that Zaarour Investments held Lots 27 and 36 on trust for Garawin, Zaarour Investments and Joesandra in the proportions 50:25:25 and a like declaration that Joesandra held Lots 1 and 2 on trust for Garawin, Zaarour Investments and Joesandra in the same proportions. A statement of claim filed by Garawin described the agreements reached in May 2016 and May 2017 in respect of the distribution of profits. Thus, essentially, Mr Moore sought to ensure that the profit distribution agreed by the parties in May 2016 and May 2017 be implemented vis a vis his company or, failing that, the apartments transferred to Mr Zaarour and Mr Sleiman’s companies be held on trust for the participants in the property development in the proportions initially agreed.

67. On 15 November 2019, Mr Sleiman served a lapsing notice in respect of the caveat lodged by Garawin on Lot 1. On 29 November 2019, Garawin filed a motion seeking to extend the caveat. On 3 December 2019, Mr Zaarour’s solicitor wrote to Mr Moore’s solicitor noting that, as Garawin had now commenced proceedings against 1A Eden as the defendant, a directors’ meeting should be held to determine what response, if any, the company should make in the proceedings including engaging solicitors to act for the company.

68. On 4 December 2019, defences were filed by Zaarour Investments, Joesandra and Mr Zaarour in the caveat proceedings. Mr Zaarour denied the matters said to have been agreed at the meetings in May 2016 and May 2017. Further, Mr Moore was said to have made representations as to the financial status of the project, the net income of the project and a proposed division of reported profits. These representations were said to be false or misleading and any agreement was said to be based on such information. Further, Mr Zaarour said that, upon a review of the books and records of the business, he had identified and may identify further transactions which may affect the amounts available for distribution.

69. On 17 December 2019, Garawin filed an amended motion in the caveat proceedings, seeking an order extending the operation of the caveat lodged over Lot 1, or in the alternative, an order that Joesandra pay the net proceeds of sale of $572,500 into Court on completion of settlement of the property.

70. On 16 January 2020, Mr Zaarour commenced these proceedings.

71. On 28 February 2020, Darke J heard Garawin’s motion in the caveat proceedings. His Honour concluded that there was a serious question to be tried as to whether Garawin had a beneficial interest in Lot 1. The balance of convenience also favoured preserving the status quo in relation to that property. As Lot 1 was the subject of a contract for sale to a third party, the sale ought to be allowed to complete with the proceeds of sale being paid into Court pending the outcome of the proceedings.

A deadlock?

72. On 3 March 2020 and 9 April 2020, Piper Alderman followed up its outstanding fees. On 6 May 2020, Piper Alderman advised that, if its fees were not paid, it would file a notice of ceasing to act. Piper Alderman’s fees appear to have been paid on 11 and 15 May 2020 by Garawin. Mr Zaarour agreed in cross-examination that Mr Moore or his related entities funded 1A Eden to pay Piper Alderman’s fees.

73. On 2 June 2020, the joint expert submitted his report to the Court in the building defect proceedings. The expert expected that the rectification work would be completed by 5 October 2020, with completion of associated documentation by 31 October 2020. On 29 June 2020, a fee proposal was obtained for the rectification work. Mr Zaarour and Mr Sleiman did not accept the proposal. On 7 August 2020, Piper Alderman submitted the expert’s invoice to Mr Zaarour and Mr Moore, who confirmed they would pay the invoice.

74. Whilst Mr Zaarour acknowledged that, from time to time, financial reports and tax returns were presented for approval, and he checked the reports, Mr Zaarour says he did not look at the source documents but accepted Mr Moore’s representation that the financial affairs were managed by Ms Chen and everything was prepared properly. Notwithstanding Mr Zaarour’s endorsement of the financial statements referred to (at [42]), he now suggests the accounting records are inaccurate or, more precisely, various invoices were inappropriately paid from the development’s funds. Mr Zaarour now disputes that Garawin was entitled to be reimbursed for the development approval costs; that Mr Rickard’s company was entitled to charge the project; and that MoDog was entitled to charge administration costs for the project. The shortfall identified by Mr Zaarour is some $156,000. Similarly, Mr Zaarour says that, in agreeing to distribute the profits of the development at the meetings in May 2016 and May 2017, he relied on the figures presented by Mr Moore as being true and correct.

75. In cross-examination, it was put to Mr Zaarour that he wanted the company to be wound up because he perceived that it would bring the building defect proceedings to an end. Mr Zaarour denied this. It was suggested that Mr Zaarour thought appointing a liquidator would be to his advantage in the caveat proceedings, to which Mr Zaarour replied “Well, I’ve got no choice, because Mr Moore and myself are in dispute. We can’t make a decision”. When pressed as to what decision they could not make, it was said to concern ongoing legal costs and expert fees and a final distribution of the profits of the development. Mr Zaarour did, however, agree that, whether or not a liquidator is appointed to 1A Eden, Mr Moore, Mr Sleiman and himself have a dispute as to whether Mr Zaarour is owed a further sum from the profits of the development.

76. Mr Moore said that Mr Zaarour’s concerns about the books and records of 1A Eden were only raised recently. Mr Moore was agreeable to a full and independent audit of the books by a forensic accountant. Mr Moore said:

I’d be more than happy to have any sort of investigation in the books.  I think originally, I said to Mr Zaarour that if he was unhappy with the books, then if he wanted a forensic and detailed account of all the books and all the invoices and all the tax invoices, I would be happy to pay for it myself if the books were out $1,000 either way.  But if the books were correct within the thousand dollars, he would have to pay it.

77. Mr Moore denies that there has ever been any deadlock. Rather, there was a dispute over the payment of legal fees which took on greater proportions because Mr Zaarour instructed his solicitors to place a caveat Mr Moore’s units. Mr Moore denies that Mr Zaarour has been treated unfairly: Mr Zaarour was provided with accounts of 1A Eden at all material times upon request. According to Mr Moore, it is Mr Zaarour’s actions in lodging the caveats and commencing these proceedings that have paralysed the company and prevented it from distributing the remainder of the trust income and taking action against ZS Queenscliff in relation to the losses arising out of the building defect proceedings. Mr Moore says that 1A Eden still has a number of functions to perform as trustee, including distributing the trust property and taking possible legal action in relation to the building defect proceedings.

SUBMISSIONS

78. Mr Zaarour submitted that 1A Eden should be wound up on just and equitable grounds, or by reason of Mr Moore having acted in his own interests. Mr Zaarour submitted that section 461(1)(k) is often used by minority shareholders and is a power of broad scope: In the matter ofWondoflex Textiles Pty Limited [1951] VLR 458 at 464. Here, there was said to be a deadlock such that the current arrangements of the company were a “predicament of paralysis”: Shenouda v Work Safe Medics Pty Limited [2011] NSWSC 45 at [5]. The company no longer carried on a business. There was said to be a failure of substratum, making it impossible for the business to achieve the purpose for which it was formed: Kingjade Holdings Pty Limited v Pineridge Nominees Pty Limited (1997) 15 ACLC 910. The court is not restricted in exercising its discretion: In the matter of Straw Products Pty Limited [1942] VLR 222 at 223. It is submitted that a court is not restricted to categories however, an accepted category includes a deadlock or disagreement in the management of the company’s affairs, including a breakdown in the relationship of the company’s principals: In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568 at [19] per Black J. It was submitted that Mr Zaarour was not challenged on his evidence that it was not possible to make a decision as to finances; that there had been a loss of trust in the relationship between directors; and, that a meeting of directors was not possible.

79. Mr Zaarour submitted that there has been an irretrievable breakdown of relations between the shareholders and directors; issues exist as to the distribution of assets from the business. It was said that such orders were necessary to place the administration of the company in the hands of an independent liquidator to ensure that the assets of 1A Eden were protected for the benefit of creditors and to prevent the dissipation of assets prior to distribution of the final adjusted profits after proper inspection and justification. The most appropriate course, Mr Zaarour argued, was for the appointment of a liquidator who would be appraised of all information and in a position to properly gather and distribute assets as appropriate; and carry on the management of the business in such way as is considered most appropriate in the interests of all shareholders and creditors of 1A Eden.

80. Mr Zaarour submitted that the apartments which remain registered in the name of 1A Eden are the only assets of 1A Eden and, if dissipated, as Mr Moore is said to demand, there will be no assets available for 1A Eden to pay its debts. The company continued to incur debts such as solicitors’ fees and did not have reasonable prospects of meeting those debts. Any review as to the distribution of the profits and any investigation by a liquidator as to the accounts and affairs of the business of 1A Eden will be rendered moot as all assets will have been removed. Further, a recent claim had been raised concerning ventilation of the building. This was said to be a design defect and not a building defect. Whilst the building defects had been met by Cubic, it was not responsible for any design defect. As the designer had been de-registered, any rectification costs associated with this issue would need to be borne by 1A Eden, with no recourse to the designer and no cash reserves. (The evidence on this subject was scant indeed).

81. Further, Mr Zaarour submitted that, although financial records had been provided, upon inspection, these records were said to indicate further problems. Modog has rendered fees of $243,832.14 to 1A Eden. Mr Rickard’s company has rendered fees of $279,455 to 1A Eden. Mr Zaarour was not aware that Mr Rickard was engaged and did not approve these invoices. Mr Moore was said to have transferred $793,000 from 1A Eden to another of his companies, “Heritage”, during the period 3 December 2015 to 14 March 2016, including one transaction of $480,000. (The evidence as to this assertion was also scant). It was submitted that there was ample evidence to support Mr Zaarour’s concerns regarding distribution of funds from the project. As to section 461(1)(e), it was submitted that Moore had transferred funds or received a benefit to the detriment of other shareholders / unitholders. The payment of more than $500,000 to related entities, without advising the other interested parties or director, was said to satisfy the sub-section. The co-mingling of funds between Mr Moore’s companies was also said to qualify. The evidentiary support for some of these submissions was not present.

82. Mr Zaarour submitted that the only matters remaining for 1A Eden was the completion of the rectification works, payment of fees associated with rectification, and completion of distribution of profits. Beyond these, there was said to be no remaining purpose or ongoing concern. Mr Zaarour argued that the remaining tasks may all be achieved by the appointment of a liquidator charged with the responsibility of ensuring creditors are properly protected and the affairs of the business may be examined to recover any unfair preferences or uncommercial transactions.

83. Mr Moore submitted that the application was entirely misconceived; the plaintiff's evidence was said to fall hopelessly short of enlivening the discretion to take the drastic step of winding up the company, particularly in circumstances where third parties would be affected and it is open to the plaintiff to simply resign as a director of the company. The factual premise of the application was said to be threadbare. The high-water mark of Mr Zaarour's evidence was said to be his inadmissible evidence that he has "questions over payments made out of the Company's work accounts". Not a single question, which would permit of an answer was said to be identified.

84. Mr Moore submitted that the books and records of the company were provided to Mr Zaarour on at least four occasions before 1 August 2019; Mr Zaarour regularly discussed matters with Ms Chen at the office; Mr Zaarour had access to all costs and expenses incurred as Cubic invoiced ZS Eden who, in turn, invoiced 1A Eden. Mr Moore exhibited all bank statements recording moneys paid to ZS Eden.

85. Mr Moore submitted that the charging of Mr Rickard’s fees and administration costs to the project was entirely consistent with the agreement between the joint venture parties. Mr Moore did not charge for his time. Mr Moore submitted that, the mere existence of a disagreement between shareholders or directors is not tantamount to deadlock and did not without more warrant a winding up order being made. Mr Zaarour was instructing Piper Alderman in the defect proceedings. Mr Moore was funding Piper Alderman’s legal fees. According to Mr Moore, the reality is that the company had been functioning for a number of years since disagreements began, including consenting to orders in the building defect proceedings.

86. Further, placing the company in liquidation may affect the entitlement of innocent third parties such as the Owners’ Corporation to have rectification works completed and may create a greater liability in the company than could otherwise be cured by completing the rectification works. It was not clear who will fund a liquidator to prosecute or defend, as the case may be, the caveat proceedings. Further, it was said that there was no point appointing a liquidator or receiver until such time as the caveat proceedings were determined. Even if a liquidator was appointed, who sold the remaining units, there would still be a dispute as to the division of the proceeds of sale less the significant costs which the liquidator or receiver would charge. The dispute could be ventilated in the caveat proceedings already on foot.

87. It was submitted that Mr Zaarour was acting unreasonably in seeking to have 1A Eden would up. Any adjustment of the distribution of the profits could be effected as a remedy in the caveat proceedings. The application to appoint a liquidator effectively sought to outflank the caveat proceedings and the building defect proceedings. Mr Zaarour could pursue an audit. The company continued to operate and there was no breakdown other than a disagreement as to whether Mr Zaarour was entitled to a greater distribution of profits.

88. Mr Moore noted that Mr Zaarour had lodged caveats over Lots 3, 5 and 6, which was not in accordance with the agreement reached in the May 2016 meeting and confirmed in the May 2017 meeting. The company held Lots 3, 5 and 6 in trust for the plaintiff as a bare trustee. Mr Zaarour had declined to remove the caveats, contending that the distribution was invalid. Mr Zaarour's position was said to be untenable. If the agreement to distribute in specie was invalid, then the lots transferred to Mr Zaarour (being Lots 27 and 36) were held on trust for the 1A Eden Unit Trust. Mr Zaarour could not keep the lots on the one hand, and on the other, maintain it had invalidly done so. For this reason alone, the court should not grant the plaintiff any relief; Garawin should be entitled to see the caveat proceedings to finality.

89. Mr Moore noted the requirements of section 467(4) of the Corporations Act, and that that the court should only look to wind up an otherwise solvent company as a "last resort": Fexuto Pty Limited v Bosnjak Holdings Pty Limited [1998] NSWSC 413; (1998) 28 ACSR 688 at 742 per Young J; Exton v Extons Pty Limited (2017) 53 VR 520; [2017] VSC 14 at [89] per Sifris J; In the matter of Organic Brands Pty Limited [2011] VSC 247 at [13] per Gardiner AsJ; Amazon Pest Control at [31]-[32] per Black J; In the matter of Bicher & Son Pty Limited [2020] NSWSC 711; (2020) 147 ACSR 108 at [122] per Black J; In the matter of Docklands Chiropractic Clinic Pty Limited [2020] VSC 364 at [65] per Hetyey AsJ. Further, it was submitted that it was difficult to see how section 461(1)(e) of the Corporations Act had any application in circumstances where the affairs of a trust were in issue as distinct from "affairs of the company".

JUST AND EQUITABLE GROUNDS

90. As to whether it is “just and equitable” that a company be wound up under section 461(1)(k) of the Corporations Act and a winding up order be made under section 467(4) of that Act, the principles were elegantly summarised by Hetyey AsJ in Docklands Chiropractic Clinic at [19] ff, which I gratefully adopt. The Court is not restricted to exercising its discretion to particular categories; the question whether it is just and equitable is a question of fact in respect of which each case must depend on its own circumstances: In the matter of Catombal Investments Pty Limited [2012] NSWSC 775 at [20] per Brereton J.

91. A deadlock in the management of the company’s affairs is a common case for a winding up under section 461(1)(k) of the Corporations Act where the Court is of the opinion that it is just and equitable in all the circumstances to do so, including where a company was formed on the basis of a personal relationship involving mutual confidence, and that confidence has broken down so that continuation of the association would be futile; or there has been oppression in relation to the affairs of the company: Catombal Investments at [19]-[20] per Brereton J; Accurate Financial Consultants Pty Limited v Koko Black Pty Limited [2008] VSCA 86; (2008) 66 ACSR 325 at [119] (Dodds-Streeton JA, with whom Ashley JA and Forrest AJA agreed); Nassar v Innovative Precasters Group Pty Limited [2009] NSWSC 342; (2009) 71 ACSR 343 at [90], [96] and [117] per Barrett J; Amazon Pest Control at [17] per Black J; Docklands Chiropractic Clinic at [22].

92. However, as Gardener AsJ observed in Organic Brands at [13], “More than a mere breakdown or loss of confidence between the parties is required before winding up on this ground would be justified”, citing Austin J’s observations in Tomanovic v Argyle HQ Pty Limited [2010] NSWSC 152. Austin J there observed at [50] and [52]:

[50]   First, the “breakdown” must be of a nature and degree that materially frustrates the commercially viable and sensible operations of the company in accordance with the incorporators’ expectations; and any “loss of confidence” must be justified. Thus, it has been held that winding up on the just and equitable ground may be appropriate:

(a)   where a working relationship predicated on mutual co-operation, trust and confidence has broken down”, such that the “continuation of such an association would be a futility”: Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86 ; (2008) 66 ACSR 325; quoted with approval in Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ASCR [sic] 343, at [322]; [2009] NSWSC 342; Jankar v Dellmain [2009] NSWSC 766 at [81]–[85];

(b)   where there is “no real prospect that the parties can work together sensibly to reach the necessary agreement to be able to conduct the company’s business in the future”, such that “the company’s operations in the future will not be able to be conducted in any commercially viable and sensible way”: Johnny Oceans Restaurant Pty Ltd v Page [2003] NSWSC 952 at [32];

(c)   there is a “serious and operative state of mistrust and disharmony” between incorporators: McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ASCR 603, at 619; [1995] FCA 1664;

(d)   where the relationship between incorporators “has completely broken down”, such that the company “could not continue to function meaningfully”: Malandris v Palmreef Pty Ltd (Unreported, FCA, Mansfield J, 12/3/1997, BC9701374) at 5;

(e)   where “the foundation of the whole agreement that was made, that the [incorporators] would act as reasonable men with reasonable courtesy and reasonable conduct in every way towards each other”, and there has been a breakdown in communication: Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426; quoted with approval in Khamo v XL Cleaning Services Pty Ltd (2004) 51 ACSR 397 ; [2004] NSWSC 1134, at [26]–[27]; Malos v Malos (2003) 44 ACSR 511 ; [2003] NSWSC 118 at [24];

(f)   there is a “justifiable lack of confidence in the conduct and management of the company’s affairs” (Loch v John Blackwood [1924] AC 783, at 788; quoted with approval in Stapp v Surge Holdings Pty Ltd [1999] FCA 545, at [49]) or (expressed another way) “it is impossible for the partners to place that confidence in each other which each has the right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it” (Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426; quoted with approval in Ruut v Head (1996) 20 ACSR 160, at 162). Consequently, unfounded lack of confidence should not of itself support a winding up.

(g)   mere disagreement is insufficient to ground a winding up order: See Carpenter v Carpenter Grazing Co Pty Ltd (1987) BC8701391 at 23–27.

…

[52]   An “important factor” in the exercise of the Court’s discretion is the extent to which the applicant is responsible for any breakdown of the relationship Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, at 708; see also Ruut v Head (1996) 20 ACSR 160, at 162.

93. Although Austin J’s judgment was reversed on appeal, the principles stated by his Honour as reproduced were not in dispute on appeal or reversed by the Court of Appeal: Tomanovic v Global Mortgage Equity Corp Pty Limited [2011] NSWCA 104; (2011) 84 ACSR 121 at [140] (Campbell JA, Macfarlan and Young JJA agreeing at [314] and [338] respectively). In short, whilst disagreements will frequently occur in the course of operating a company, much more is needed before the Court will wind up a company by reason of such disagreements.

94. A Court is less likely to grant such relief if the person excluded from management as a result of irreconcilable differences was responsible for the breakdown of the relationship: Fexuto Pty Limited v Bosnjak Holdings Pty Limited [2001] NSWCA 97; (2001) 37 ACSR 672 at [89]-[90].

95. For example, in Guerinoni v Argyle Concrete & Quarry Supplies Pty Limited (Supreme Court (WA), 22 April 1999, unrep) BC9902042, upheld on appeal in Guerinoni v Argyle Concrete & Quarry Supplies Pty Limited [2000] WASCA 170; (1999) 34 ACSR 469, Michael Guerinoni sought to wind up two family companies on just and equitable grounds. Other family members were directors and shareholders in the companies, which had been established in the 1960s. Whilst there was no evidence of a deadlock within the companies, there was potential for Michael to be marginalised. Michael’s application was refused by Sanderson M, in part, because the difficulties in running the family business were largely of Michael’s making; he refused to attend meetings and disrupted the meetings which he did attend. Further, the Master referred to “what might be called the collateral purpose of this application”, being that the effect of winding up the two companies would severely impact the family business; where such damage should be avoided if possible. Although refusal to make the order had the consequence that Michael was locked into the corporate structure; it was difficult to see how Michael could work with his fellow directors, even in the short term; and the refusal to make the winding up order would likely make matters worse, the Master considered this was one factor in favour of winding up but “not sufficient to tip the balance”.

96. On appeal, Kennedy J, with whom Malcolm CJ and Pidgeon J agreed, noted that a lack of ‘clean hands’ by the applicant is a factor pointing against winding up a company on just and equitable grounds, referring at [38]-[39] to Ebrahimi v Westborne Galleries Limited [1973] AC 360 where Lord Cross of Chelsea observed at 387:

A petitioner who relies on the “just and equitable” clause must come to court with clean hands, and if the breakdown in confidence between him and the other parties to the dispute appears to have been due to his misconduct he cannot insist on the company being wound up if they wish it to continue.

97. Of course, the absence of clean hands is not a determinative factor: Exton at [90], citing Ruut v Head (1996) 20 ACSR 160 at 161 per Santow J; Melos v Melos [2003] NSWSC 118; (2003) 44 ACSR 511 at [26] per Barrett J. Nor is such conduct an absolute bar to a winding up order as, otherwise, neither party could obtain a winding up order where both are at fault: In the matter of Pure Nature Sydney Pty Limited [2018] NSWSC 914 at [70], [74]. That was the position in Pure Nature Sydney, where Black J considered that the conduct of both parties reinforced, rather than undermined, the strength of the case for a winding up. Nor was his Honour minded to postpone a winding up order to allow the parties an opportunity to negotiate a buy-out where the parties had already had ample opportunity to do so, albeit stayed his orders for 14 days to give the parties one last opportunity to avert the closure of their business, which would otherwise follow: at [74], [77].

98. In addition, when asked to wind up a company on just and equitable grounds, section 467(4) of the Corporations Act requires the Court to consider the availability of some other remedy and whether the applicant was acting unreasonably in seeking to have the company wound up instead of pursing that other remedy: Mudgee Dolomite & Lime Pty Limited v Murdoch [2020] NSWSC 1510 at [293]. The expression “some other remedy” in section 467(4) has been construed broadly to include not only legal remedies but alternative courses of action otherwise open to the parties including commercial remedies such as a buy-out: Exton at [84] per Sifris J.

99. Even if the Court is satisfied of circumstances which justify winding up a company on just and equitable grounds, section 467(4) makes clear that the Court must consider whether an alternative and less drastic form of relief is available: Docklands Chiropractic Clinic at [25], [65]. It may be that the perceived efficiencies and benefits of a liquidation are, on close examination, unlikely to be realised: Docklands Chiropractic Clinic at [63].

100. Whilst winding up should be a last resort, there is no absolute rule that the Court will not wind up a solvent company: Mudgee Dolomite at [293]. Solvency does not operate as a complete barrier to a just and equitable winding up, particularly where there have been serious and ongoing breaches of the Corporations Act: Docklands Chiropractic at [24]-[25].

CONCLUSION

101. Whilst Mr Zaarour is, strictly speaking, a minority shareholder in 1A Eden, the reality appears to be that he and Mr Sleiman operate as one. Thus both ‘camps’ have an equal shareholding in 1A Eden. That presents the possibility of a deadlock. However, the suggestion that there has been a breakdown in a relationship of trust and confidence between Mr Zaarour and Mr Moore has an air of artificiality. Mr Zaarour appears to have had no difficulty co-operating with Mr Moore from 2013 until 2019, during which time they undertook a multi-million dollar property development, which generated $8 million in profits. There appears to have been no difficulty agreeing how the profit should be divided between them.

102. During these years, Mr Zaarour was content to leave the administration and accounting side of the project to Mr Moore. Mr Zaarour signed financial statements in February 2017 reporting the profits, agreed how the profits of the project should be distributed by reference to a Distribution Sheet prepared by Ms Chen in May 2017, and signed a letter in November 2017 indicating that the profit distribution was finalised. Mr Zaarour appears to have had ready access to Ms Chen, if he had wished to query any particular transaction or item in the financial statements or Distribution Sheet.

103. Mr Zaarour was also able to work with Mr Moore notwithstanding the commencement of the building defect proceedings. Mr Zaarour was entrusted with the role of liaising with 1A Eden’s solicitors in respect of the building proceedings and, it appears, with Cubic in respect of rectification works. These activities continued from November 2017 for many months. Funds were made available by 1A Eden to pay legal and expert fees in respect of the building defect proceedings.

104. In April 2018, Mr Zaarour and Mr Sleiman received their profit share from the development, when cash and apartments were transferred to their companies. Mr Zaarour received some $2 million in this manner.

105. It was only a year later in April 2019, when Mr Zaarour and Mr Moore had an argument over whether $15,000 should be paid to the joint expert, that the suggested deadlock arose. The problem appears to have been resolved by Mr Moore’s continuing to provide funds to pay 1A Eden’s solicitors and the expert.

106. So far as the evidence reveals, the building defect proceedings have continued without interruption. So far as the evidence reveals, the cost of rectifying the building defects is relatively minor, being in the order of $100,000, and are being rectified and paid for by Cubic. 1A Eden holds retention monies which, in the event that Cubic did not rectify and pay for the works, enable 1A Eden to do so.

107. Mr Zaarour’s subsequent steps to lodge a caveat over the apartments to be transferred to Mr Moore, and Mr Zaarour’s insistence that these apartments be held in order to meet any continuing debts of 1A Eden or any liability in the building defects proceedings – whilst apparently not proposing to contribute to either liability from the profit distribution already made to him – is quite remarkable. Mr Zaarour’s application to appoint a liquidator to 1A Eden appears to be a crude attempt to thwart the caveat proceedings and/or the building defect proceedings and, in addition, to attempt to protect ZS Queenscliff from any further legal action. That is, this application is infused with self-interest.

108. There is no doubt that, if a liquidator is appointed to 1A Eden, a liquidator can defend the building defect proceedings, defend the caveat proceedings, decide whether to sue ZS Queenscliff, and investigate any accounting matters Mr Zaarour now wishes to be explored. A liquidator’s fees for attending to each of these tasks may be considerable. Noting that Mr Zaarour estimates that he may be entitled to a further $156,000 in profit distribution, the fees charged by a liquidator may be disproportionate to the quantum of the disputes he or she will be asked to resolve. Mr Zaarour did not undertake to fund the liquidator. Where Mr Moore is amenable to the accounts of 1A Eden being audited, such expense cannot be justified.

109. A share buyout is not suggested by either party, nor would it be a particularly viable option in circumstances where some of the shareholders have already received their profit distribution, whilst others have not.

110. Any winding up is likely to have adverse implications for the Owners’ Corporation and, quite likely, reputational damage for those involved in this development. Winding up is a remedy of last resort and it appears to me that alternative and less drastic remedies are available. Further, it appears that Mr Zaarour is acting unreasonably in seeking to have 1A Eden wound up in the circumstances of this case. I decline to make the orders sought.

ORDERS

111. For these reasons, I make the following orders:

1. Dismiss the Originating Process filed on 16 January 2020.

2. Order the plaintiff to pay the defendants’ costs of the proceedings.

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Amendments

15 February 2021 - Correction on coversheet to Date of orders and Date of decision.