In the matter of Sahab Holdings Pty Ltd

[2022] NSWSC 4

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Sahab Holdings Pty Ltd [2022] NSWSC 4

Hearing dates:

1 September 2021

Decision date:

17 February 2022

Jurisdiction:

Equity

Before:

Rees J

Decision:

Proceedings dismissed with costs

Catchwords:

CORPORATIONS — receivers and managers — Court appointed to manage property and defend litigation — application for inquiry under s 423(1) Corporations Act 2001 (Cth) — principles at [107]-[115] – failure to cooperate with receivers — no prima facie case — application refused.

Legislation Cited:

Civil Procedure Act 2005 (NSW) s 98

Corporations Act 2001 (Cth) ss 420, 423, 536

Evidence Act 1995 (NSW) s 135

Supreme Court Act 1970 (NSW) s 68

Surveillance Devices Act 2007 (NSW)

Cases Cited:

Aardwolf Industries LLC v Tayeh [2020] NSWCA 301

Aardwolf Industries LLC v Tayeh [2020] NSWSC 299

ASIC v Edge [2007] VSC 170

ASIC v Forestview Nominees Pty Ltd (Receivers and Managers Appointed) (2006) 236 ALR 652; [2006] FCA 1530

Belvista Pty Ltd v Murphy (1993) 11 ACSR 628

Burns Philp Investment Pty Ltd v Dickens (1993) 11 ACLC 272

Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280

Eighty Second Agenda Pty Ltd v Handberg [2014] VSC 665; (2014) 32 ACLC 14-081

GE Capital Australia v Davis (2002) 180 FLR 250; [2002] NSWSC 1146

Hall v Poolman (2009) 75 NSWLR 99; [2009] NSWCA 64

Kanjian v Kanjian [2019] NSWSC 166

Kanjian Holdings No 1 Pty Ltd v Kanjian; Kanjian v Kanjian (No 3) [2021] NSWSC 839

Leon v York-O-Matic Ltd [1996] 1 WLR 1450; [1966] 3 All ER 277

Leslie, Re Aboriginal Councils and Associations Act 1976 v Hennessy [2001] FCA 371

Macchia v Nilant (2001) 110 FCR 101; [2001] FCA 7

Mamone v Pantzer [2001] NSWSC 26; (2001) 36 ACSR 743

Naumoski v Parbery (2002) 171 FLR 322; [2002] NSWSC 1097

Naxatu Pty Ltd v Perpetual Trustee Co Ltd (2012) 207 FCR 507; [2012] FCAFC 163

Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434; (1989) 1 ACSR 79

Nut Trading Co Aust Pty Ltd v KKL (Kangaroo Line) Pty Ltd (1997) 25 ACSR 580

Oswal v Carson (No 3) (2013) 300 ALR 149; [2013] FCA 357

Re Biposo Pty Ltd; Condon v Rodgers (1995) 13 ACLC 1271; (1995) 120 FLR 399

Re Peters; Ex parte Lloyd (1882) 47 LT 64

Re S & D International Pty Ltd [2009] VSC 225

Re Siromath Pty Ltd (No 1) (1991) 9 ACLC 1580

Re St Gregory’s Armenian School (in liq) [2012] NSWSC 1215; (2012) 92 ACSR 588

Senses Northbridge Pty Ltd v Sahab Holdings Pty Ltd [2019] NSWSC 1201

Senses Northbridge Pty Ltd v Sahab Holdings Pty Ltd (No 2) [2019] NSWSC 1458

Senses Northbridge Pty Ltd v Sahab Holdings Pty Ltd (No 3) [2020] NSW 345

Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd (1996) 144 ALR 159; (1996) 65 FCR 234

Vink v Tuckwell (2008) 216 FLR 309; [2008] VSC 100

Category:

Principal judgment

Parties:

Sahab Holdings Pty Ltd (Plaintiff)
Bradley Tonks trading as PKF Australia (First Defendant)
Mark Roufeil trading as PKF Australia (Second Defendant)

Representation:

Counsel:
Mr AJ Bannon SC / Mr MR Davis (Plaintiff)
Mr RD Glasson (First and Second Defendants)

Solicitors:
Kanjian & Company Solicitors (Plaintiff)
Piper Alderman Solicitors (First and Second Defendants)

File Number(s):

2021/104020

Judgment

1. HER HONOUR: This is an application under section 423(1)(b) of the Corporations Act 2001 (Cth). The plaintiff, Sahab Holdings Pty Ltd, seeks an inquiry into the receivership and management conducted by the defendants, Bradley Tonks and Mark Roufeil. On 7 June 2021, Black J ordered that the question whether Sahab has established a prima facie case that something requires inquiry and, if so, whether the Court should exercise its discretion to order an inquiry, be listed for hearing before me. In support of the application, Sahab relied on the evidence of director, Ken Kanjian, whilst the defendants relied on evidence from Mr Tonks. There was no cross-examination.

FACTS

2. These events concern members of the Kanjian family. With no disrespect intended, I will refer to them by their first names. The parents, Loris and Sonia, are elderly and live in a nursing home. Sonia lacks capacity. They have four children, of which Ken is the eldest. He is also a solicitor and, indeed, the solicitor for Sahab in these proceedings. Ken’s siblings are Victor, Philip and Marianne.

3. In 1984, Sahab was incorporated. Ken and his mother were appointed directors. As the share capital was ultimately configured, Ken and his mother each held an A Class share (with voting rights); Ken held his share on trust for his father. Each of the children also held a B Class share, which had no voting rights nor the right to receive dividends until the parents had passed away. Sahab was appointed as trustee of the Metropole Trust. As I understand it, the parents are the primary beneficiaries of the trust, while the children (or their corporate entities or superannuation funds) are secondary beneficiaries.

4. In 1984, Sahab, in its capacity as trustee of the Metropole Trust, purchased “Northbridge Village” at Strathallen Avenue, Northbridge, comprising six shops and parking spaces. The parties sometimes referred to this property as “Sahab I”.

5. In 1987, Sahab, in its capacity as trustee of the Metropole Trust, purchased a property on Concord Road, North Strathfield. The parties referred to this property as “Sahab II”. Woolworths was the long-term lessee of the property.

6. In 2006, Sahab was appointed as trustee of the Kanjian Family Trust. The sole unitholder in the Kanjian Family Trust was Kanjian Holdings No 1 Pty Ltd in its capacity as trustee of the Vasir Superannuation Fund, of which Sonia was the beneficiary. Sahab, in its capacity as trustee for the Kanjian Family Trust, purchased a property adjoining Northbridge Village. The parties referred to this property as “the Drycleaners”, it being leased to a dry cleaner.

Family troubles

7. In May 2017, disharmony arose between Ken and his family on a number of fronts, including that Ken wanted to redevelop the Northbridge properties, whilst his family wanted to sell. In particular, Ken wanted to redevelop the Northbridge properties into a childcare centre. He was negotiating with Senses Northbridge Pty Ltd to redevelop the site and enter into an agreement for lease to that end.

8. In July 2017, Marianne sought to retain a solicitor for Sahab, to remove Ken as a director “as per wish of our Parents … Mum is wishing to sell the property, but Ken won’t allow it”. However, as the solicitor approached put it, “the problem that we have … is that your parents (particularly your father) tend to say one thing to you and your sister Marianne and then, when they speak to Ken and/or Ken’s wife, they say exactly the opposite. … Unless your parents speak to us and give clear, uniform and consistent instructions … there is really nothing further that can be done.”

9. On 21 April 2018, Ken’s wife made a secret recording of a lengthy meeting between Ken and his parents, in which a wide range of family issues were discussed and, in particular, Ken sought to persuade his parents to support him against the allegations being made by Philip and Marianne. This recording became relevant, as Ken later provided it to the receivers as evidence that his parents, in fact, supported the redevelopment of the Northbridge properties: see [82].

Agreement for Lease

10. At this point of family disharmony, on 10 May 2018, Sahab entered into an Agreement for Lease with Senses in respect of Northbridge properties. The parents signed the document. The agreement envisaged that Senses would construct a childcare centre on the site at a cost of at least $5.5 million. Once constructed, Senses and Sahab would enter into a lease with a term of up to 45 years. Under the lease, Senses would pay rent of $500,000 in the first year, $550,000 in the second year, $605,000 in the third year and $665,500 in the fourth year.

11. Two obligations under the Agreement for Lease gain prominence in what follows. Clause 3.2 provided:

The development application must be based on the architectural drawings and must include all information and documents which the Council reasonably requires to enable it to be assessed.

“Architectural drawings” was defined as the schematic concept architectural plans prepared by Nordon Jago Architects disclosed to Sahab before the commencement of the Deed of Agreement: clause 1.1. This clause became important as Senses’ plans for the childcare centre changed radically after the Agreement for Lease.

12. Second, clause 3.4 provided:

… [Sahab] must consent to the development application and must sign all documents reasonably required by [Senses] to enable the development application to be lodged with the Council.

As a consequence of family disharmony, Ken was unable to endorse consent on the development application, leading to proceedings commenced by Senses, to which I will return at [20].

13. The initial proposal to redevelop the site under the Agreement for Lease did not involve any excavation of the site. In a statement of claim later filed by Senses, it was said that, by email on 17 May 2018, Ken informed Senses that Sahab did not require Senses to adhere to its original plans “but [could] start from scratch – I will leave that to you”. On 10 July 2018, Senses proposed a more extensive redevelopment and presented Ken with revised drawings, which included excavation at the northern end of the property to create more parking. Senses later alleged in its statement of claim that Ken raised no objection to the revised plans.

14. According to Council records, a petrol station had operated on the Northbridge Village site since at least the 1960s. In the 1970s, the Council approved industrial dry cleaning on the adjoining site. In 1980, approval was given to construct retail shops on the site. Ken inspected the Council records in 2012 and made notes on the approved location of the underground fuel tanks.

Litigation ensues

15. Meanwhile, family disharmony led to litigation. On 14 May 2018, Kanjian Holdings No 1 Pty Ltd commenced proceedings in the Corporations List of this Court against Ken making various allegations of improper conduct concerning the affairs of that company (Kanjian Holdings proceedings). In due course, Ken filed a cross-claim against Kanjian Holdings No 1, his parents and siblings seeking a wide range of relief.

16. On 22 August 2018, the parents commenced proceedings in the Equity Division of this Court, alleging that Ken had engaged in improper conduct in relation to their affairs and the ownership and management of Sahab, including wrongly refusing to transfer his A class share to the father and acting improperly in causing Sahab to enter into the Agreement for Lease (parents’ proceedings). Sahab was named as a third defendant. In due course, Ken filed a cross-claim against his parents.

17. By November 2018, Senses was ready to lodge a development application, which now involved demolition of all existing structures, construction of a 124-place childcare centre and swim centre, 51 car spaces and associated services, infrastructure and landscaping. The proposed development was now substantially different to the “architectural plans” referred to in the Agreement for Lease and, indeed, prepared by a different firm of architects. Ken was in favour of the proposed development.

18. The development application was accompanied by a Preliminary Site Investigation report, which assessed potential contamination constraints for the proposed development. The potential for significant or widespread contamination at the site was considered to be low to moderate. Although the portion of the site historically used for drycleaning was considered a potential area of environmental concern (AEC), the use of the site as a petrol station was not considered to be an AEC as there was no evidence of the storage of dangerous goods on the site. The site was considered suitable for redevelopment subject to confirmation of contamination status within the vicinity of the drycleaners.

19. On 29 November 2018, Senses provided the development application to Sahab for its consent. On 5 December 2018, Ken’s solicitors gave notice to his parents and siblings’ solicitors that he intended to consent to lodgement of the development application on behalf of Sahab. On 14 December 2018, Lindsay J made orders restraining Ken from giving consent. Further, his Honour found that Sonia was no longer capable of managing her affairs and appointed NSW Trustee and Guardian as her tutor in the proceedings. Under Sahab’s articles of association, the mother was automatically disqualified as a director of Sahab, leaving Ken as the only director. The articles of association required that the company have two directors, such that the company was now without a properly constituted board.

20. On 19 December 2018, Senses commenced proceedings in this Court against Sahab, seeking to compel Sahab to consent to lodgement of the development application (Senses proceedings). Senses also sought damages and costs.

Appointment of receivers

21. On 18 February 2018, the father filed a motion in the parents’ proceedings, seeking the appointment of the defendants as receivers and managers of Sahab in its capacity as the trustee of the Metropole Trust and the Kanjian Family Trust until determination of the proceedings. In support, the father and his solicitor swore affidavits. In short, the father said that he no longer had a working relationship with Ken and suggested that he and his wife had signed the Agreement for Lease under pressure from Ken and without being given the opportunity to read the documents. Having now read the Agreement for Lease, the father considered it a very poor arrangement to which he would not have agreed. Rather, he wished the Northbridge properties to be sold.

22. Mr Tonks said that, prior to being appointed as receiver, his firm conducted a conflict check to ensure that his firm had not previously acted for any of the stakeholders in the receivership, being family members or their corporate entities.

23. The application for appointment of receivers was heard by Lindsay J on 20 and 21 February 2019 and, on 25 February 2019, his Honour gave judgment and made orders appointing receivers: Kanjian v Kanjian [2019] NSWSC 166. His Honour observed, “Effective management of [Sahab], a corporate vehicle of the Kanjian family, is critically impeded by a fundamental breakdown of personal relationships within the family. The critical division is between [Ken] … on the one hand and, on the other hand, the rest of the family”: at [1]. The father sought the appointment of receivers and managers of Sahab so as to permit the orderly conduct of the Senses proceedings: at [4].

24. His Honour noted that there was then a dispute about the beneficial ownership of the A class share registered in the name of Ken, where the father claimed to be the beneficial owner by virtue of a declaration of trust executed by Ken on 17 April 1984 whilst Ken contended that his father was estopped from requiring him to transfer legal title to the share to his father: at [12]. Further, as the mother had now been declared infirm, her office as director of Sahab had fallen vacant. Ken had power under the articles of association to appoint a substitute director but family divisions were such that any decision by Ken, without the agreement of his father, to fill the casual vacancy was likely to exacerbate existing divisions within the company without any assurance of orderly governance of the company going forward: at [19].

25. His Honour noted that the father strenuously opposed the Senses development whilst Ken supported the development “with equal force”: at [21]. The Senses litigation was “looming large on the horizon”, where Senses was seeking expedition: at [22], [37]. In the absence, at least, of a determination of the contest between the father and Ken about beneficial ownership of the disputed A class share, “no decisions can safely be made on behalf of [Sahab] with respect to the ‘Senses proceedings’ without exposing [the parents] (if not also [Ken] and his siblings) to risks of financial loss and ongoing litigation”: at [23]. Given the deadlock in management of Sahab, his Honour considered that the only practical means of bringing order to the administration of the Metropole Trust and the Kanjian Family Trust was to appoint receivers and managers to the property held on trust and to authorise them to manage the Senses litigation: at [29]. This was considered more appropriate than appointing a receiver and manager to Sahab, which would affect another trust in which there was no need to intervene, and was a better course than appointing new trustees, “which lacks the potential for ongoing control by the Court, if such control be necessary”: at [30].

26. Accordingly, his Honour ordered that, until final determination of the parents’ proceedings or further order, the defendants be appointed without security as receivers and managers of all of the property held on trust by Sahab for the Metropole Trust and the Kanjian Family Trust, with the receivers to have “subject to Order 4” all the power set out in section 420 of the Corporations Act (mutatis mutandis, that is, the necessary changes being made) for the purpose of managing the trust property.

27. Section 420(1) of the Corporations Act provides that receivers of the property of a corporation have the power to do “all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed”. Sub-section 2 of that section confers statutory powers on receivers, subject to any limitation in their instrument of appointment, which relevantly include:

(a)   to enter into possession and take control of property of the corporation in accordance with the terms of [the order or instrument appointing the receiver]; and

(b)   to lease, let on hire or dispose of property of the corporation; and …

(e)   to insure the property of the corporation; and

(f)   to repair, renew or enlarge the property of the corporation; and

(g)   to convert property of the corporation into money; and

(h)   to carry on any business of the corporation; and

(k)   to execute any document, bring or defend any proceedings or do any    other act or thing in the name of and on behalf of the corporation; and

(p)   to appoint a solicitor, accountant or other professionally qualified person to assist the receiver …

28. Order 4 provided:

ORDER, subject to further order, that, in their conduct of the receivership of The Metropole Trust and The Kanjian Family Trust pursuant to these orders, the Receivers are:

(a)   AUTHORISED to appear on behalf of [Sahab] in the [Senses] proceedings … and, in the name of Sahab …, to defend any and all claims for relief made against the company … or property of the trusts by [Senses] in those proceedings.

(b)   AUTHORISED to indemnify Sahab … (from the property held on the trusts …) against liability for costs arising from the conduct of those proceedings in its name.

(c)   DIRECTED not to make any claim for relief by way of a cross claim in those proceedings (otherwise than by way of a cross-claim against Senses …) without:

(i)   the prior written consent of the [father, Ken and Kanjian Holdings]; and

(ii)   first giving to the NSW Trustee (as receiver and manager of the protected estate of the [mother] and as her tutor in these proceedings) not less than seven days prior written notice of an intention to do so; or

(iii)    the prior leave of the Court.

(d)   DIRECTED not to compromise those proceedings without:

(i)    the prior written consent of the [father, Ken and Kanjian Holdings]; and

(ii)    first giving to the NSW Trustee (as receiver and manager of the protected estate of the [mother] and as her tutor in these proceedings) not less than seven days prior written notice of an intention to do so; or

(iii)    the prior leave of the Court.

(e)    DIRECTED not to sell, charge or otherwise dispose of any estate or interest in … the land held on the trusts … without

(i)    the prior written consent of the [father, Ken and Kanjian Holdings]; and

(ii)    first giving to the NSW Trustee (as receiver and manager of the protected estate of the [mother] and as her tutor in these proceedings) not less than seven days prior written notice of an intention to do so; or

(iii)    the prior leave of the Court.

(f)    AUTHORISED and directed to apply the net income, other than any income received from Senses …, derived from [trusts], first, towards payment of the Receivers’ remuneration proportionate to the income derived; secondly, in satisfying any entitlement Sahab … may have to an indemnity against liability for costs arising from conduct of the [Senses] proceedings …; and, thirdly, [net income from the properties to be distributed to the beneficiaries of the trusts].

Conduct of Senses proceedings

29. On 25 February 2019, the receivers engaged Piper Alderman to provide advice and representation in the Senses proceedings. Mr Tonks understood that the solicitors were competent and experienced, being a partner and senior associate practising in insolvency and commercial litigation. In addition, Marcus Pesman SC was briefed. Mr Tonks understood that Mr Pesman SC was a competent barrister having been appointed as Senior Counsel in 2013 and had the relevant and necessary experience to advise and represent Sahab in the Senses proceedings.

30. On 28 February 2019, Senses filed a statement of claim. In particular, Senses alleged:

5.   On 10 July 2018, at a meeting between [Ken and Senses, Ken] was provided with plans for the premises prepared by two Form Architects, which were more detailed and differed in various respects from the Nordon Jago plans.

6.   In the period from 10 July 2018, [Sahab] raised no objection to the Two Form Architects plans for the premises and the revisions to those plans with which it was provided.

Obtaining information

31. Things started well enough. On 1 March 2019, the receivers sent an email to Ken, thanking him for his emails “and time on the phone over the last few days”. A meeting was arranged to discuss the operational aspects of the receivership. Noting that the Court’s orders required the receivers to form a view as to the legal proceedings, “As part of forming that view, we require our solicitors to meet with you to discuss your position as to the situation in order to maximise the outcome for the parties.” Ken agreed to meet but, shortly afterwards, advised the receivers:

While I certainly wish to co-operate, my barrister suggested that I proceed cautiously because there was a suggestion in open court recently that Sahab … might file a cross-claim against me arising out of the agreement for lease. Therefore I must change the position communicated to you in my email earlier today.

Rather than simply meeting with your designated solicitors, My barrister suggests one of two ways of proceeding. In the first instance, I can speak to them freely if the company grants me a release and indemnity in respect of any possible cross claim or cause of action which it may have against me arising out of or in connection with the matter. In the second instance, the questioning can proceed by way of written questions which I can then consider and respond to. Guided by legal advice, that is my position.

32. On 7 March 2019, the father’s solicitors wrote to the receivers enquiring whether the receivers intended to bring a cross-claim against Ken in the Senses proceedings in relation to Ken’s alleged coercion of his parents to sign the Agreement for Lease. If the receivers did not intend to do so, then the father was considering bringing such a cross-claim himself. Presumably, the father’s solicitors were enquiring as to whether the receivers were minded to seek the consent of the parties, or the leave of the Court, to bring a cross-claim in accordance with the procedure defined by Order 4(c) made by Lindsay J.

33. The Senses proceedings had been stood over by Lindsay J to the Expedition Judge on 8 March 2019. On that occasion, the receivers advised the Court that four weeks was needed to file a defence. Sackar J expedited the proceedings and ordered Sahab to file its defence by 14 March 2019, a little less than a week away.

34. On 12 March 2019, Ken wrote to the receivers, repeating his offer to assist in connection with the Senses litigation on receipt of the release and indemnity in respect of any cross-claim or, alternatively, by answering questions in writing. Ken expressed concern that the receivers may commit Sahab to expensive litigation when there was not prospect of success but “disastrous fiscal consequences” for Sahab in terms of the receivers’ costs and costs payable to Senses’ lawyers. Ken wished to “avoid a gratuitous financial calamity”. Ken sought a response to his earlier offer of assistance, noting “if you merely rely on information supplied to you by lawyers representing my father and siblings, you will be misled and badly so. They were not at the coal face and had nothing at all to do with the negotiations. Their role and intention is to wreck the transaction.” Ken also requested a copy of Sahab’s defence. A letter in the same terms was sent by Ken’s solicitor to the receivers’ solicitor. (Notwithstanding that Ken had retained solicitors, he continued to write to both the receivers and their solicitors directly using his law firm’s letterhead, in addition to letters sent by his solicitors.)

35. Piper Alderman promptly wrote to all parties advising that Sahab was defending the Senses proceedings (as, indeed, the receivers were obliged to do in the absence of the family’s consent or leave of the Court) and enclosed an unfiled copy of the defence. The unfiled defence was brief, largely containing non-admissions (in particular, paragraphs 5 and 6 of the statement of claim were not admitted), but also asserted that Sonia lacked capacity when the Agreement for Lease was signed. Piper Alderman also advised, “Our clients do not intend to file a cross-claim in the proceedings.”

36. Piper Alderman also wrote to Ken’s solicitors in response to his offer of assistance noting that, as the receivers were newcomers to the company and its affairs, they relied heavily on information provided by third parties. Ken’s offer of assistance was subject to a number of conditions to which the receivers did not accede, in particular, the receivers did not propose to offer an assurance that any information provided would not be used against Ken, nor to release him from any cross-claim or indemnify him from any cross-claim, “However, the receivers expect your client’s cooperation notwithstanding this”, given their appointment by the Court, Ken’s obligations as a director of the company and as an officer of the Court (presumably that latter being a references to the fact that Ken was a solicitor, although it is not clear why this enlarged Ken’s obligations to cooperate with the receivers). “In those circumstances, the receivers expect frank disclosure of all matters relevant to their appointment and duties, including the disclosure of facts, matters and circumstances which may be used against your client. If your client considers that the foregoing analysis is incorrect, or that the receivers’ position in this respect is unreasonable, please let us know, with reasons why.”

37. As to Ken’s concern that the receivers may defend the Senses proceedings, the receivers asked Ken to explain the reasons for his view that the company had no prospect of success, and what approach he considered the receivers should take in the proceedings and why. In respect of Ken’s concern that little reliance should be placed on information received from the solicitors for his father and siblings, the receivers noted these views and advised that, where possible, the receivers would seek to independently verify information provided by any third parties. Ken’s comments were sought on the proposed defence, which had been prepared based on the information the receivers had been able to gather to date. Finally, the receivers advised that they were happy to meet so that Ken could provide any further information relevant to the proceedings.

38. The receivers did not receive any comments on the proposed defence from Ken, nor, for that matter, other family members. Mr Tonks said the decision to file the defence was not made until the last possible moment, after the stakeholders had been afforded a chance to comment. The receivers took into consideration the letter from Ken’s solicitors. The defence was filed on 14 March 2019. Mr Tonks said that, at that stage, the receivers had yet to make a decision as to whether it was reasonable to defend the Senses proceedings on the merits.

39. Ken said that some of the allegations in Senses’ statement of claim should have been admitted, including paragraphs 5 and 6. Further, it should not have been suggested that Sonia lacked capacity when the Agreement for Lease was executed, pointing to expert reports (albeit not then in the possession of the receivers) that his mother had capacity at that time. On 19 March 2019, Ken’s solicitors wrote to the receivers’ solicitors taking issue with these aspects of the defence. The receivers were asked to reconsider the defence; Ken’s offer of assistance was reiterated. (Mr Tonks said the receivers considered Ken’s request for a release and indemnity, as a precondition to his cooperation, as unreasonable.)

Looking after property

40. At the time of appointment of the receivers:

1. Shops 1 and 2 were tenanted by a single tenant, being a pizzeria. The lease had expired on 31 October 2017.

2. Shop 3 was vacant.

3. Shop 4 was a laundrette (not to be confused with the drycleaners at the adjoining property). The lease was due to expire on 16 March 2019. On 20 March 2019, the tenant gave notice of an intention to vacate shop 4.

4. Shop 5 was an Asian restaurant. The lease had expired.

5. Shop 6 was a hairdressers.

6. Shop 7 was a solicitor’s office. The lease had expired

41. The adjoining property was tenanted (although the lease had expired), as was the North Strathfield property. It is apparent from the contemporaneous documents that the Northbridge properties were somewhat rundown, presumably because the family was focussed on redeveloping or selling the properties.

42. As part of his appointments as receiver, Mr Tonks commonly used Gallagher Insurance for recommendations as to the sufficiency of insurance for assets he is appointed over. He has a long-term relationship with Gallagher and has found over the course of his dealings with them that they have a good understanding of insurance requirements for external administrators. Based on his opinion that Gallagher was a competent supplier of advice for external administrators, the receivers engaged Gallagher to provide pre and post-appointment review on the sufficiency of the insurance for each of the three properties owned by the trust. It is also a requirement of insurance arranged by Gallagher that an assessment of occupational health and safety, as well as fire safety, be undertaken to identify any potential legal liability which might fall on the receivers in respect of the commercial tenanted buildings.

43. On 18 March 2019, Mr Tonks sought appraisals by Colliers International of the value of the properties owned by the trusts. On 20 March 2019, the receivers sought insurance cover in respect of the Northbridge and North Strathfield properties. The receivers advised the insurance broker, Gallagher Insurance, that they were currently liaising with a valuer to obtain a valuation and also obtaining a work health and safety and risk management report. The receivers also liaised with Colliers’ commercial leasing team to seek short-term tenants to occupy the two empty shops, but were unsuccessful.

44. On 28 March 2019, the receivers provided their first report to stakeholders, noting that the Northbridge properties appeared to be in poor condition and may require ongoing repairs and maintenance; “We will be having insurance and health and safety professionals attending this property shortly to provide an assessment.” Further, “each of the tenants have raised concerns with our staff about the run-down nature of the lots that they occupy, and the rectification work they have requested to be done. One tenant has also refused to make payment of rent until the air conditioning has been fixed in their lot which they are claiming has been reported on and failed to be fixed since around August 2018. We will be issuing a formal demand to make payment shortly. Another tenant has formally requested a rent reduction and one other has vacated. There are currently four (4) tenants. Of the four (4) tenants, only one (1) is on a current lease which expires in February 2022.”

Senses’ settlement offer

45. On 27 March 2019, Senses’ solicitors sent a letter without prejudice save as to costs to the receivers’ solicitors, offering to dismiss the Senses proceedings with no order as to costs if Sahab gave its consent to lodgment of the development application within seven days. Senses suggested that Sahab’s defence did not dispute the evidence of Senses’ witnesses; it was said to be clear that Ken did not deny any significant part of that evidence. Further, to the extent that it was suggested that Sonia lacked capacity, any such capacity was said to have been irrelevant in the circumstances where Senses was entitled to assume that she had authority to bind the company. Senses suggested that its offer constituted a significant compromise as Senses would thereby forego damages under section 68 of the Supreme Court Act 1970 (NSW), “which are likely to amount to many tens of thousands of dollars”, and costs, being $70,000 already incurred and an estimated $75,000 to be incurred.

46. On 28 March 2019, the receivers sent a copy of the Calderbank letter to the parties. The stakeholders were asked to consider Senses’ offer as a matter of urgency and provide the receivers with their position in writing as soon as possible, “We intend to form an opinion on the basis of our lawyers and counsel in terms of the settlement offer generally.” Stakeholders were also asked to provide any books and records or relevant information. The receivers noted Ken’s conditional offer of assistance, “We are currently not in a position to agree to these conditions. In the absence of Ken’s assistance at this time, it makes our job inherently more difficult and we have reminded him of his obligations to assist us.”

47. On 31 March 2019, Ken’s solicitors wrote to Mr Tonks, advising that Ken believed that Senses’ offer was “extraordinarily generous under the circumstances and ought to be accepted forthwith”. Ken had represented Sahab in its dealings with Senses in relation to the Agreement for Lease and no one else in the family had “hard, accurate, first-hand knowledge of the matter. … our client … will give evidence if called on that paragraphs 5 and 6 of the statement of claim are true.” Sonia was said to have had capacity at the time; copies of expert medical evidence to that effect were provided. Ken’s solicitors expressed grave concern that Mr Tonks chose to ignore the correspondence of 13 March 2019 and filed a defence. “That Defence should never have been verified by you. It is an abuse of process and arguably a contempt of court.” Whilst this may have overstated the position, the writer was just getting started. It was said that Sahab’s defence of the Senses proceedings would fail with onerous financial consequences to the company including paying Mr Tonks costs “at the very high rates which you are charging”. (The receivers’ costs and expenses to the end of February 2019 were reported to be some $13,600.) Further: (emphasis added)

That will have been brought about as a result of your failure to exercise due care and skill in the conduct of the litigation and the application to it of Sahab’s resources which had been carefully husbanded by [Ken] before you were appointed but now which appear to be dissipating at an alarming rate.

In that event our client will commence proceedings against you for professional negligence and will seek very substantial damages.

The offer made by Senses represents a “get out of gaol card” for you (literally perhaps) and you should grab it with both hands.

The suggestion that the receivers may be at risk of imprisonment by reason of their conduct as receivers was obviously most offensive.

48. On 1 April 2019, Ken sent a letter in similar terms to Mr Tonks directly, suggesting in the strongest terms that Senses’ offer be accepted, even if agreement was not forthcoming from other family members (I note that this could only be done with the leave of the Court pursuant to the orders made by Lindsay J). Alternatively, the parties opposing the compromise should fund Sahab’s defence of the Senses proceedings and indemnify the company and receivers in respect of the costs and expenses of so doing (being a procedure not contemplated by the orders made by Lindsay J). Ken repeated his concerns in further emails to the receivers the following day.

Colliers’ appraisals

49. On 5 April 2019, Colliers provided its appraisals for the Northbridge and North Strathfield properties. The North Strathfield property was valued between $14 million and $17.6 million. As I understand that the mortgage secured over that property stands at some $1 million, the trust’s equity in this property was substantial. In respect of the (unencumbered) Northbridge properties, Colliers considered that the site was under-developed, however, the lease to Senses, “does not represent the highest and best use value.” Colliers valued the properties:

1. subject to the Senses lease at between $8 million and $9.5 million; or,

2. without the Senses lease, between $14.5 million and $17 million.

That is, Colliers’ appraisal suggested that the effect of the proposed Senses’ lease was to diminish the value of the Northbridge properties by between $6.5 million and $7.5 million.

50. On 8 April 2019, Mr Tonks met with the legal representatives for the father and siblings. Mr Tonks was informed that their position was that Senses’ offer should be rejected. Thus, the receivers were in the position that there was no consensus amongst family members as to a compromise of the Senses proceedings. The receivers were not entitled to accept Senses’ offer without the leave of the Court. Before seeking such leave, of course, the receivers would have needed to form the view that acceptance of that offer was an appropriate course. Given the recently received Colliers’ appraisal of the effect of the Senses lease on the value of the Northbridge properties, giving consent to the lodgment of a development application was not obviously in the interests of the Metropole Trust or, at least, ought not be acceded to without careful consideration as to why this was a good idea.

Defending the Senses proceedings

51. On 9 April 2019, Ken sought a response from Mr Tonks as to how he proposed to deal with Senses’ offer, which expired that day. The receivers’ solicitors replied in unsurprisingly firm terms, given the content of the letter from Ken’s solicitors of 13 March 2019. As to Senses’ offer, it was noted that the letters from Ken and his solicitors made clear his position with respect to the offer, “Our clients have sought the input of all parties which they have considered, along with the material that they have obtained in the course of their appointment, in determining how to proceed with respect to the offer.” The receivers’ solicitors complained that, despite numerous requests, Ken had failed or refused to provide meaningful assistance to the receivers, “As a result, [the receivers] are being tasked to undertake their role, generally and also with respect to the [Senses] proceedings, in a vacuum.” Ken was said to have failed or refused to provide complete books and records of Sahab, title documents for the properties and refused to meet with the receivers to discuss the affairs of Sahab without unreasonable and inappropriate conditions being imposed on any such meeting. “It is difficult to see in the above circumstances how your client has discharged his obligations as an officer of Sahab in his dealings with our clients.” Further,

To date, most of the information in our clients’ possession has been provided by third parties and your client has not been forthcoming, save for making bald and unsupported assertions and effectively demanding that our clients take a certain course of action, failing which, your client threatens that they will be subject to some penalty.

Our clients’ ability to carry out their function is being directly impeded by your client’s lack of candour and cooperation…

52. Ken’s allegations of misconduct were strongly rejected, as was the suggestion that the receivers were incurring unnecessary costs, “you have made this comment in circumstances where our clients have been forced into the position of undertaking a fact-finding mission, of having to reconstruct accounts and having to defend proceedings largely unassisted as a result of your client’s failure to provide the assistance required by him as an officer of Sahab.” A long list of documents and information was sought. If the title deeds for the properties were not delivered up, an application to the Court was in view. Finally, the receivers’ solicitors advised that a decision had been made to reject the Senses offer having regard to the views of the parties, “which may not be consistent but are all considered”, the material and information with which the receivers had been provided and “commercial considerations with respect to the alternative options.”

53. On 10 April 2019, Ken sent the receivers’ solicitors a lengthy reply, denying that he had failed to cooperate with the receivers but declining to provide the books and records beyond what he considered necessary for the administration of the three properties. As to the request for the title deeds to these properties, Ken asserted a possessory lien over the title deeds by reason of a claim for unpaid professional fees and disbursements arising from litigation undertaken for Sahab in 2014 and 2015.

54. On 12 April 2019, Sackar J set the Senses proceedings down for hearing on 11 June 2019. On 3 May 2019, Ken sent an email to the receivers, pressing for Sahab’s defence of the Senses proceedings to cease. As the receivers had now managed Northbridge Village for two months, “It should be apparent to you by now that the properties need to be repositioned in the market and that a continuation of current use has no future.” On 6 May 2019, the receivers’ solicitors replied to Ken’s 3 May 2019 email, confirming that the receivers did not intend to file any evidence in the Senses proceedings, and advised – apparently in answer to Ken’s remarks that redevelopment of the site into a childcare centre was beneficial – “our clients have obtained an appraisal of the property in the course of their appointment which reveals that [the] proposed lease to Senses has a significantly detrimental effect on the value of the property.”

55. On 7 May 2019, Ken sent an email to the receivers’ solicitors directly, querying the suggestion that the proposed Senses lease diminished the value of the property, noting that the receivers were not in a position to comment “because you have no idea whatsoever of the commercial parameters governing investment decisions taken by my family … a considered and informed decision was made taking a long-term view of the project and the locality. Unless independent persons you consulted were apprised of the decision-making process adopted and criteria thereby brought to bear, they could not possible [be] in a position to appraise or understand value as we assessed it. … those from whom you are taking your advice have not fully understood how the detailed provisions of the lease will in future work to the considerable advantage of the owner of the freehold property.”

56. This email did excite the interest of the receivers’ solicitors, who promptly emailed to Ken’s solicitor:

I have just seen the below email from Ken Kanjian …

This material is potentially quite important. So that it can be duly considered, please could you seek instructions to provide full particulars of:

•   The “commercial parameters” your client is referring to.

•   Details of the “decision-making process” he has referred to (what it involved, who was consulted, working papers, advice obtained etc.).

•   Details of the “criteria thereby brought to bear” (just a short description of the criteria will suffice in the first instance).

•   A short summary (as concise as possible, please) of “how the detailed provisions of the lease will in future work to the considerable advantage of the owner of the freehold property”.

Kindly direct your reply to Angelina. Many thanks in advance.

No response is in evidence.

57. On 10 May 2019, the receivers provided a second report to the beneficiaries of the trusts, calling a meeting on 16 May 2019 to discuss the funding of the defence of the Senses proceedings. The receivers provided details of the appraisals obtained from Colliers, observing:

The appraisals, whilst not formal valuations, indicate that the value of the Northbridge Properties is significantly impaired by the Senses lease. The impact on the value of the Northbridge Properties has been one of the factors considered in the current approach taken to defend the Senses lease proceedings.

58. As to the Senses proceedings, the receivers advised that “based on the review by our solicitors and counsel”, there was legal merit associated with the current approach to defending the proceedings and an arguable defence with prospects of success given the substantial variation in the proposed development application to that referred to in the Agreement for Lease and where Senses’ estoppel claim was said to be unavailable as a matter of law. Further, in light of the appraisal:

It is foreshadowed that negotiations may occur with Senses in relation to the variation of the proposed lease and / or the sale and acquisition of the Northbridge Properties by Senses.

59. The receivers also considered that, whether successful or not, there may be a further opportunity to negotiate or invite Senses to make an offer on the Northbridge properties which was more representative of the appraisal. Based on these factors, along with consideration of the position of the various stakeholders to Senses’ earlier settlement offer, the receivers considered it appropriate to defend the Senses proceedings. The receivers noted that, if the Senses proceedings were unsuccessful, there was a risk that the Court may order the company to pay Senses’ costs, which may range from $100,000 to $145,000. The receivers reserved all rights in relation to the ability of the trusts to bring future claims against Ken arising out of his conduct in connection with the Senses lease of the Northbridge properties.

60. It is also apparent from the receivers’ second report that they did not have relevant books and records. In particular, the receivers noted that a cheque for $90,742.03 was drawn from the bank account for Northbridge Village in July 2018 and deposited into the bank account for the North Strathfield property. “We have not been provided with cheque butts or complete books and records that sufficiently explain the nature of this transaction. We have been advised by Ken Kanjian that the transaction was a repayment of a loan account.” The receivers noted that, according to Ken, no formal ledgers were maintained in respect of the trusts; accounting and financial calculations were derived directly from bank statements. The receivers advised that the limited books and records received in respect of the trusts may impact on the receivers’ ability to complete tax returns. Parties having books and records or information that may assist the receivers were asked to provide the material to the receivers immediately, “we have not been provided with financial statements establishing a base set of financials and figures to be able to attribute distributions to each beneficiary in accordance with their respective entitlement nor to record and explain loan accounts with related parties.”

Meeting with stakeholders

61. On 16 May 2019, the receivers attended a meeting with the father’s solicitor, Ken and his brothers and the receivers’ solicitor, Thomas Russell. As to the meeting generally, Mr Tonks said that the receivers endeavoured to run a transparent process and to keep stakeholders up to date and involved in that process. According to Ken, Mr Tonks advised attendees that Northbridge Village was struggling financially with a number of empty shops, significant expenditure in the coming months and an exposure to the considerable cost of contesting the Senses proceedings. (Mr Tonks does not precisely recall what he said but agreed that cashflow was a problem as the trusts had millions of dollars in equity but limited liquid assets.) According to a contemporaneous note prepared by the receivers’ staff, the family was generally in agreement that proper insurance needed to be obtained and necessary work done on the Northbridge properties. The family discussed the potential contamination of the site, on which views differed. Some discussion also took place about the receivers’ request for documents; Ken “asked for us to send a list of what we need”, to which the receivers’ solicitor responded, “we want everything”.

62. As to the Senses proceedings, the receivers’ solicitor advised that the issue of Sonia’s capacity was not being pursued (presumably the receivers had taken ‘on board’ the medical reports provided by Ken) but the proceedings would otherwise continue to be defended. No meaningful settlement discussions had taken place since the last offer “which was rubbish”. As to funding the defence of the Senses proceedings, the father’s solicitor advised that the father did not have funds to do so, Ken had no interest in doing so, and Victor and Philip “will get back to us”. Mr Tonks recalls that the receivers wished to arrange to pay the fees for solicitors and counsel in the Senses proceedings. If rental income was not available to do so, the receivers would need to consider a variety of options including re-tenanting vacant shops (Colliers had advised that securing new tenants would be difficult given the Agreement for Lease meant that Northbridge Village was soon to be redeveloped), encumbering or selling the trust properties with court approval, applying income disproportionately across the trusts so that trusts with a larger income bore more of the costs, accessing payments from Senses or the potential for future payments from Senses, or inter-trust loans.

63. Discussion appears to have taken place as to the value of the Northbridge properties, with and without the Senses lease. Mr Tonks recalls that he spoke to Ken about Colliers’ appraisals, to which Ken said, “our family has its own valuation process. You don’t understand the way our family values property.” Mr Tonks asked Ken to explain the family valuation process, but Ken said this was a matter for evidence but the valuation obtained was “well under. If that number is true, then the property would be a steal to buy.” The receivers’ file note records:

Ken used methodology to consider value but won’t provide even when pressed by [the receivers’ solicitor] – Ken will say no more. Ken thinks its worth more than $8m … [he] refuses to explain how or what he relies on to explain why he thinks it is worth more.

64. In these proceedings, Ken said that, given the receivers’ reservation of rights against him in their second report, he was circumspect in what he said during the meeting. As his father’s solicitor was present and Ken was still the subject of the parents’ proceedings, he felt uncomfortable and unable to speak freely about the Agreement for Lease and informed those present accordingly. He did not wish to prejudice his defence to the parents’ proceedings. He does recall saying that the properties were worth much more than $8 million with the Senses lease.

65. Ken also attributes various statements to the receivers’ solicitor, Mr Russell. In particular, Mr Russell said he was looking for evidence that Ken had conspired with one of the directors of Senses “to shaft your family”. Mr Tonks does recalls that Mr Russell became frustrated with Ken’s refusal to provide information and recalled discussion of Ken’s bona fides in entering into the Agreement for Lease. Towards the end of the meeting, Ken said he would not provide documents or information until he got a release and Mr Tonks noted that Mr Russell may have said “we think you may have shafted the family.”

66. The next day Ken sent an email to the receivers expressing concern about the continued defence of the Senses litigation, particularly in the absence of an indemnity or funding from those members of the family who wished to pursue that course. The receivers’ time records record that, on 17 May 2019, they also received a call from Philip, who confirmed that the family was not prepared to fund the Senses proceedings. On the same date, Mr Tonks discussed the absence of funding with a staff member, who recorded that this was an “issue as likely liabilities as high as $230k, estimated shortfall around $100k, if we have no funding then why is it our fight”; a meeting with the receivers’ solicitor was arranged to discuss.

67. On 20 May 2019, the receivers’ solicitor followed up Ken’s solicitor in respect of the request for information underlying the family’s valuation of the Northbridge properties, “your previous response suggested you could not respond without our valuations, so we gave them to you.” On 23 May 2019, the receivers’ solicitors wrote to Ken’s solicitor again in respect of Ken’s repeated criticism of the receivers’ decision to defend the Senses proceedings.

… as you would expect, there have been many discussions and communications with Ken, or with you on his behalf, about why the Receivers are defending the proceedings. One of the main reasons why hinges on the following views, which appear to be shared by the Receivers, Ken’s father, and Ken’s siblings:

1.   The deal done by Ken with Senses was, prima facie, a very bad deal.

2.   Colliers’ report dated 5 April 2019, which Ken has been given, estimate that the deal resulted in a quite shocking reduction in the value of the land – from a range of $14.5M-$17M to a range of $8M-$9M.

3.   If the Receivers are victorious in the proceedings, it significantly increases the likelihood that Senses will lose interest in the site.

4.   This will in turn increase the chances of remedying the damage caused by Ken’s decision, and restoring the millions of dollars of value that was lost when he signed the Senses agreement.

The Receivers have been quite open about their decision-making and reasoning. However, whenever the foregoing propositions have been put to Ken, he has immediately taken issue with the fundamental proposition that the lease to Senses reduced the value of the land.

When it is pointed out to him that Colliers’ report can be interpreted in no other way, he says, in essence, that Colliers do not know how to value land, and do not understand his family’s unique methods of valuing land.

…

I have now asked you three times to explain to us how Ken’s valuation methodology works, so that the Receivers can understand what he is getting at when he says that Colliers have not valued the land correctly.

68. On 27 May 2019, Ken wrote to the solicitors directly at length. The themes of earlier correspondence were re-stated in similar terms. Ken demanded that the receivers withdraw. Ken appears to have considered that the receivers’ decisions reflected only the views of his father and siblings rather than the receivers’ independent view.

First hearing of Senses proceedings

69. On 5 June 2019, the receivers served written submissions in the Senses proceedings, prepared by Mr Pesman SC, who noted that Sahab led no evidence and did not suggest that Senses’ witnesses should not be accepted. Sahab accepted that the Agreement for Lease was valid. However, Senses had since substantially revised the proposed development beyond that referred to in the agreement. The estoppel claim was said to be problematic and confronted by a number of difficulties. Accordingly, the summons should be dismissed.

70. On 5 June 2019, the father’s solicitor served a valuation which he had obtained in respect of the Northbridge properties. The valuer concluded that the properties were worth $19 million as a development site or, assuming execution of the Senses lease, $13 million. That is, this formal valuation confirmed Colliers’ conclusion: the Northbridge properties were worth substantially less with the proposed Senses lease.

71. The father’s solicitor also advised that he intended to amend his claim in the parents’ proceedings to seek compensation and damages from Ken for breach of his duties as a director of Sahab in entering into the Agreement for Lease. Confirmation was sought that the receivers did not intend to bring such a claim against Ken themselves. The receivers’ solicitors replied that the difficulty with considering any claim against Ken was that the receivers were not receivers of Sahab but receivers of the property of the trusts. Sahab had standing to make a claim against Ken but not the trusts “although we cannot say at this stage whether Sahab would, in fact, have a claim against Ken.” Further, “the difficulty that exists is the paucity of records provided to our clients in the course of their appointment which are critical to identifying and bringing a cross-claim.” (In due course, Kanjian Holdings filed a cross-claim in the Senses proceedings against Ken in respect of his conduct as a director of Sahab and in relation to the Senses lease.)

72. On 10 June 2019, the receivers’ solicitors provided an advice on prospects to the receivers, being that there was an arguable basis on which to defend the Senses proceedings having regard to the contractual and equitable issues in dispute. The solicitors explained that there were two central aspects to the Senses proceedings. The first question was whether the plans submitted in the proposed development application were “based on” the plans referred to in the Agreement for Lease and Sahab was accordingly required to sign the Development Application. “Our strong view is that the architectural drawings are not based on the original plans submitted… [but] envisage a complete demolition and rebuild of the existing structures, involve the addition of a swimming pool and an underground carpark.”

73. As to the second aspect, the more difficult question was whether Ken, on behalf of Sahab, made representations which were relied upon by Senses in revising the architectural drawings and that Sahab was now unable to refuse to execute the Development Application because of those representations. It was considered arguable that the representations made by Ken did not amount to an estoppel, as argued in the written submissions prepared by Mr Pesman SC. Applying the legal principles set out in those submissions, the receivers’ solicitors were satisfied that Sahab had an arguable defence with reasonable prospects of success, “There is certainly a legal basis for resisting the relief sought”.

74. In support of the receivers’ decision to defend the proceedings, the receivers’ solicitors pointed to the fact that, with the exception of Ken, other members of the Kanjian family did not wish to resolve the Senses proceedings on the basis that Sahab sign the Development Application with no order as to costs. Further, if successful, “It may be possible to negotiate further with Senses for Senses to purchase the Property or for Senses and Sahab to mutually withdraw” from the Agreement for Lease. If the development was to proceed in its current form and the lease be entered into, the value of the Northbridge properties would be “diminished significantly”. (Emphasis in original.)

75. On 11 June 2019, Sackar J heard Senses’ application for relief. According to later correspondence, Ken was observed carrying a folder of documents bearing the brand of Senses’ solicitors. The approach of the receivers’ solicitors and senior counsel appears to have been well-founded as, during the course of the hearing, Senses found it necessary to amend its pleading in respect of estoppel. As later reported by the receivers’ solicitors, Sackar J granted leave to Senses to amend its pleadings to claim that a common law conventional estoppel arose in the course of dealings with Ken on behalf of Sahab and Senses. Sahab was awarded its costs thrown away by reason of the amendment and the adjournment of the hearing. On 13 June 2019, Senses filed an amended statement of claim. On 14 June 2019, Sahab filed a defence, including pleading that, even if any estoppel arose, Senses did not suffer any prejudice which was not curable by damages or equitable compensation. That is, specific performance remained opposed.

150. As to the second limb and discretionary factors, the plaintiff submitted that the inquiry was proposed to be held concurrently with the receivers’ application to the Court for the fixing of their remuneration and their entitlement to recover out of pocket expenses including legal fees. The inquiry would determine the extent to which the receivers were disentitled to such payment. As Young J said in Burns Philp at 287, “To deny an inquiry would mean that the people who were paying the liquidator’s fees would have no way in which the quantum could be challenged”. The plaintiff submitted that the conduct complained of was serious and involved want of good faith by the receivers.

151. The receivers submitted that the views of Ken and his parents/siblings as to the conduct of the defence of the Senses proceedings were diametrically opposed. The receivers retained experienced legal practitioners, who advised that Sahab had an arguable defence and that there were reasonable prospects of defending the proceedings. The receivers were entitled to, and did, rely on that advice. It was plainly within the scope of their appointment to defend the Senses proceedings on that basis. It was not "utterly unreasonable and absurd" or improper for them to have done so. Merely because Ken did not agree with the advice and/or Senses was ultimately successful and with the benefit of hindsight does not make that advice wrong or the receiver's decision to rely on it likewise wrong or improper in any way. There was no obvious or manifest error on the face of the advice given by Piper Alderman.

152. Whilst the receivers accepted that the Agreement for Lease was a valid and binding contact, the issue at trial was estoppel and, specifically, whether Senses could compel Sahab to sign a Development Application using plans that were significantly different from the plans referred to in the Agreement for Lease. Any concession that the Agreement for Lease was itself valid and binding did not bear on that issue based as it was on conduct outside and subsequent to the Agreement for Lease. I agree with this analysis.

Conclusion

156. Pursuant to section 420(1), the receivers had power to do all things necessary or convenient to be done for or in connection with, or incidental to, the attainment of the objectives for which the receivers were appointed. Those objectives, as may be gleaned from Lindsay J’s judgment, were to effectively administer the business of the trusts given the “fundamental breakdown of personal relationships within the family”. In addition, the receivers were charged with management of the Senses proceedings, where decisions would need to be made in the near future and could not be made by family consensus. The receivers’ powers conferred by section 420(1) were, however, subject to the limits specified in Order 4.

157. The receivers’ power to “bring or defend any proceedings” (section 420(2)(k)) was confined by Order 4(a), which provided that the receivers were authorised to defend the Senses proceedings and could not make any claim for relief by way of cross-claim or settle the proceedings unless they had the agreement of the family or the leave of the Court. In the absence of family consensus or leave, the receivers were obliged to defend the Senses proceedings. Similarly, Order 4 placed limits on the receivers’ ability to deal with trust property. The receivers’ power to dispose of property (sub-sections 420(2)(b) and (g)) was confined so that the properties could not be sold without family agreement or an order of the Court.

158. The solicitors and counsel retained by the receivers were obviously suitably qualified and experienced; the plaintiff does not suggest otherwise.

159. Whilst the plaintiff criticised the receivers for obtaining the Colliers appraisals, it appears that the receivers did so as a cost-effective means of ascertaining the value of the properties for the purpose of ensuring that the insurance cover was adequate (Colliers did not charge for the appraisals). On receipt, the Colliers’ appraisals suggested that the effect of the proposed Senses’ lease was to diminish the value of the Northbridge properties by between $6.5 million and $7.5 million.

160. Mr Tonks said he considered that the Agreement for Lease was a ‘bad deal’ as the parents were of advanced age, residing in a retirement home and heavily reliant on income from the trust. The Agreement for Lease would result in a period of low income to the trust, limiting the available income to distribute to the parents during the period that the property was redeveloped. The rent was a prescribed sum for the first 10 years rather than, say, per square metre on the basis of the building constructed. That sum was apparently selected on the basis of the first set of architectural plans for a smaller building with no swimming pool. Mr Tonks considered that the rent was inappropriately low for the larger building and pool now proposed by Senses but which had a much higher floor space and facilities for sub-tenancies, the rent for which would not flow to Sahab as lessor.

161. In these proceedings, Ken said he did not consider it necessary to revisit the rent under the proposed lease as Senses now proposed to spend $9 million on construction. The proposed lease also provided for an independent market appraisal on market review dates on the 10th and 15th anniversaries of the lease (and various dates thereafter). Ken expected that the higher value of the improvements on the land would give rise to higher rent on the market review dates (albeit the first such date was ten years into the lease). Ken did not share these views with the receivers at the time, despite requests.

162. In addition, Mr Tonks noted that the rental yield had a significant detrimental impact on the market value of the Northbridge property. If Senses abandoned the development project prior to completion, the finances to complete it would not be readily available and previous tenancies would have been lost. Further, the lease was for a possible term of 45 years, by which time the proposed building would be of a similar age to the present buildings on the site and would require significant refurbishment. If the proposed building required demolition at the conclusion of the lease, it would be more expensive to demolish than the present buildings.

163. The receivers were of the view that a successful defence of the Senses proceedings may lead to a renegotiation of the terms of the Agreement for Lease. This opportunity would likely been foregone if Senses’ offer was accepted. Noting the significant effect of the proposed lease on the market value of the Northbridge properties, consideration of this potential loss of commercial opportunity was part of their decision-making in order to comply with their duty of care as receivers and their obligation to maintain the trusts’ assets.

164. Mr Tonks said that, aside from his appointment as receiver, he and Mr Roufeil had no interest in the outcome of the Senses proceedings. The conduct of the Senses proceedings as receiver was subject to a number of considerations: what was in the best interests of Sahab; the views of all stakeholders which, even if inconsistent, were all considered; the orders made by Lindsay J; and, the prospects of success in those proceedings. Mr Tonks said that the receivers appreciated that Ken was a practising solicitor and had views on how to conduct the Senses proceedings. However, the other stakeholders also had the benefit of legal representation and were also being consulted and providing input on how to proceed.

165. Overall, Mr Tonks considered that he and Mr Roufeil conducted the receivership in a balanced way without preferring any stakeholder or acting improperly or without care and diligence. At no time was there consensus amongst stakeholders to settle the Senses proceedings. The receivers attempted to factor in the stakeholders’ competing positions as best they could, given their overarching obligation to care for the trust property. The receivers’ view was that if the Senses proceedings were defended successfully, then Senses would likely renegotiate the Agreement for Lease, with Sahab then having the opportunity to pursue more appropriate terms.

166. There is no evidence which points to a contrary conclusion. Whilst Ken pointed to the email from the receivers’ solicitors on 20 May 2019 as evidence of animus on the part of the receivers, I consider that it is more reflective of the frustration of the receivers’ solicitor, who appears determined to see whether there was any basis to Ken’s continued assertion that, notwithstanding Colliers’ appraisal, the decision to lease the Northbridge properties to Senses generated the best return on the properties or, at least, made sense on some level. The same can be said, I think, for the perhaps intemperate remark made by the receivers’ solicitor at the meeting of stakeholders on 16 May 2019 (to be fair to the solicitor, Ken does appear to have been somewhat provocative). But there was no evidence that the receivers were affected by animus or approached their task in anything other than an even-handed manner.

167. Whilst Ken also pointed to the email from the receivers’ solicitors of 18 July 2019 as evidence of animus, it rather appears that the receivers’ solicitors were carefully addressing the matters raised by Ken and reserving their rights to make a claim against Ken in due course should that become appropriate. I do not agree that animus is evident.

168. Ken contends that the receivers’ defence of the Senses proceedings with a view to doing a better deal with Senses was not within the receivers’ remit, as the Agreement for Lease was an asset of which they were receivers. However, based on the appraisal and valuation then available to the receivers and, in the absence of any information from Ken as to how his value of the Senses deal made sense, the Agreement for Lease would have appeared to the receivers to be more of a liability. Ken believed that the receiver included the issue of contamination in the Senses proceedings as part of their objective to cause Senses to lose interest in the site. I agree that was likely a consideration, but one of several relevant considerations, including the effect of undisclosed contamination of the proposed construction projects and, therefore, on the trust.

169. I decline to grant leave for an inquiry to be conducted into the receiver’s conduct of the Senses proceedings. There is no prima facie case. The receivers were appointed by the Court to make decisions in respect of the Senses proceedings, given the irreconcilable views of Ken, on the one hand, and his family on the other. In the absence of the agreement of the family to compromise the proceedings, or the leave of the Court, the receivers were obliged to defend the Senses proceedings. In doing so, the receivers were advised by capable, experienced solicitors and senior counsel.

170. The receivers were given careful advice which, with respect, makes perfect sense. On the basis of the material to hand, Ken had committed Sahab to a contractual arrangement which had the effect of wiping millions of dollars off the value of trust property. The receivers keenly sought information and details from Ken as to why this deal made sense. For whatever reason, Ken was not prepared to share this information. That left the receivers with the Colliers’ appraisal – later supplemented by a valuation obtained by the father – which indicated that it was in the interests of the trusts to defend the Senses proceedings if there was a proper basis to do so. Indeed, the receivers were obliged to defend the proceedings in any event given the lack of consensus amongst family members and no apparent basis – beyond Ken’s insistence – to approach the Court for leave to compromise the Senses proceedings on terms which would have committed Sahab to consenting to lodgment of the development application. The approach which the receivers took to the Senses proceedings was considered and made commercial sense. There is no prima facie case.

171. It is thus not necessary to consider whether, as a matter of discretion, I would have granted leave if I had been satisfied of the existence of a prima facie case. If I am wrong as to the first matter, then I would not have been minded to grant leave in any event given two things. First, as events have unfolded, the development application was lodged, Senses failed to prove any damages, the development application was refused by Council and the Agreement for Lease was terminated by Ken on behalf of Sahab. The likely amounts of money involved given the receivers’ defence of the Senses proceedings would be the additional receivers’ costs and additional Senses’ costs incurred as a consequence of the receivers’ defence of the Senses proceedings instead of – as Ken would have it – the receivers applying to the Court for leave to settle the proceedings on the terms proposed by Senses but absent the agreement of the father and siblings. These figures do not appear to be significant when viewed against the costs to be incurred in any inquiry.

172. Second, I am concerned that Ken did not help matters by refusing to assist the receivers in their task. I would be reluctant to allow Court appointed receivers to be subject to an inquiry where the agitant failed to cooperate with the receivers. I would consider it is necessary to protect the integrity of the Court-appointed receivership by refusing leave to permit Sahab (in effect, Ken) to now pursue an inquiry as to how the receivers did their job in the absence of such cooperation: Aardwolf Industries LLC v Tayeh [2020] NSWSC 299 at [130] (affirmed on appeal in Aardwolf Industries LLC v Tayeh [2020] NSWCA 301).

ORDERS

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

1. Dismiss the originating process filed on 15 April 2021.

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

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Decision last updated: 17 February 2022