Jones & Jones v Aust Pac Hotels (CG) Pty Ltd & Ors No. Scgrg-98-178 Judgment No. S6575

[1998] SASC 6575

JONES & JONES V AUSTRALIAN PACIFIC HOTELS (CHALLA GARDENS) PTY LTD & ORS

Application  (Ex Tempore)

LANDER J

This is an application by Richard Ernest Jones and Dennis Andrew Jones as trustees for RE & DA Jones Family Trust and Mr Jones himself, for the appointment of a Receiver to Australia Pacific Pty Ltd, which acts as trustee for the Australia Pacific Trust, Australia Pacific Hotels (Challa Gardens) Pty Ltd, which acts as trustee for Australia Pacific Hotels (Challa Gardens) Trust and Australia Pacific Hotels (Northern) Pty Ltd which acts as trustee for the Australia Pacific Hotels (Northern Trust). 

The plaintiffs seek appointment of a Receiver to the trustees and the trusts.  In seeking those appointments, they seek to have the Receiver empowered to enter into possession and take control of the property of the companies, and carry on any business of the companies.  They also seek to have the Receiver given ancillary powers for both purposes. 

They also seek orders of the court that the Receiver be appointed Receiver and manager of the assets of the Australia Pacific Hotels (Challa Gardens) Trust, Australia Pacific Hotels (Northern) Trust and Australia Pacific Trust, and in respect of those trusts, be given powers to enter into possession and take control of the assets of the trusts.  They also seek orders that the Receiver be given ancillary powers to assist in the carrying out of the principal powers. 

Lastly, they seek orders that the Receiver and manager should within 28 days of the date of appointment provide a report to the court in respect of enquiries into accountable dealings and transactions of the trust and all dealings and transactions between the plaintiffs and the defendants and their associated entities as beneficiary and trustee of the trust, or any of them, and any other person or persons and enquiries as to the assets and liabilities of the trust and the value of those assets as at the date of the report. 

Ordinarily, I would take time to consider the application for the purpose of writing reasons for the decision at which I have arrived.  I have, however, a firm view of the appropriate order to be made in respect of the application.  I therefore will deliver these reasons immediately, not only for that reason but, because I am informed by Mr Besanko QC, who appeared for all of the defendants, that the fifth, sixth and seventh defendants, who are residents of Singapore, intend to leave Australia on Saturday to return to their home.  Because it is so late in the afternoon, indeed early in the evening, necessarily these reasons will have to be short.  The unsuccessful parties may wish to have further and more extensive reasons for the purpose of considering whether or not they wish this matter to be reconsidered on appeal.  If the unsuccessful parties do seek to appeal, I reserve my right to further add to these reasons, but only of course in a way consistent with the reasons which I will now give. 

The plaintiff, Richard Ernest Jones, first met the fifth defendant in 1994 when Mr Jones was a director and shareholder of Hotel Adelaide Management Pty Ltd which then operated the business of the Hotel Adelaide in O'Connell Street.  Mr Jones was seeking investors. 

Through the agency of a company, Mr Teo purchased the land and business of the Hotel Adelaide and thereafter Mr Jones acted as manager of that hotel for Mr Teo and his company.  About six months later, Mr Jones began negotiations for the purchase of the land and business of the Challa Gardens Hotel.  He discussed with Mr Teo the possibility of Mr Teo and his family investing in Adelaide and in particular in that hotel.  Mr Teo agreed to invest in the property and there were further negotiations during which Mr Jones first suggested that Mr Jones and his family and Mr Teo and his family each invest 50 per cent of the capital.  Ultimately the hotel was purchased with capital provided by the Teo family to the extent of 80 per cent, and capital provided by Mr Jones and his wife to the extent of 20 per cent. 

The hotel was purchased by Australia Pacific Pty Ltd, which acts as trustee for Australia Pacific Trust, which is a unit trust of which Mr Teo and his family took 80 per cent and Mr Jones's family 20 per cent.  The business of the hotel and the licence was purchased by Australia Pacific Hotels (Challa Gardens) Pty Ltd acting as trustee for Australia Pacific Hotels (Challa Gardens) Trust.  That again was a unit trust in which the units were held in the same proportion as in the first mentioned trust. 

It is asserted by Mr Jones and not denied by the defendants that when the hotel was bought it was agreed that Mr Jones would act as manager of that hotel.  A short time later the parties purchased the Great Northern Hotel in Port Lincoln and by way of the same vehicle, Australia Pacific Pty Ltd, and therefore, of course, in the same proportions.  The business of that hotel was purchased by Australia Pacific Hotels (Northern) Pty Ltd as trustee for the Australia Pacific Hotels Northern Trust.  Again, Mr Jones asserts it was agreed that he would act as manager of that hotel.

There are three common directors of the three companies, viz Mr Jones, Kok Waan Teo, the sixth defendant and Cheng Woon Teo, the seventh defendant

In about June 1996 operations were commenced in the Challa Gardens Hotel and, in about December 1996, in the Great Northern Hotel.  Both hotels became members of the Jackpot Club, a promoter of gaming venues.  The Jackpot Club is a company owned by Noxville Pty Ltd, which is in turn controlled by Mr Jones and his wife.  In due course this was one of the matters which gave rise to the breakdown of relationships between the parties.  It was asserted by the defendants that they were unaware that Mr Jones and his wife had a connection with Noxville Pty Ltd and the Jackpot Club.  They claim that they were unaware that that company, and indirectly the plaintiffs, obtained income from the management of the gaming operations in addition to the management fee that Mr Jones took as had been previously agreed. 

In March 1997 the parties bought the Henry Waymouth Car Park, which is a commercial site in Adelaide, for a figure of $5.85 million.  That property was also bought by Australia Pacific Pty Ltd and of course held in the same proportions.  The parties did not conduct a business from that site, but leased that site to another operator.

In about June 1997 relationships between the parties started to break down.  The breakdown may have occurred initially by reason of a disagreement about a particular matter of management of the Hotel Adelaide.  It does not matter much why but, thereafter, the parties' relationship cooled.  It is clear enough, from Mr Jones's affidavit, that he appreciated that there was a cooling in the relationship.  Eventually he was advised that he was no longer to act as manager of either of the hotels.  That caused him a significant financial loss.  Even later he was advised by those who were acting as managers of the two hotels that he was not to be provided with any further financial information in relation to those hotels.

At or about the same time as the relationship began to deteriorate, Mr Jones wrote to the personal defendants seeking to have their relationship put on a commercial basis.  He sought, I think it is fair to say, a dissolution of their business interests such that either he was to acquire all of the assets from Mr Teo's family or, alternatively, Mr Teo was to acquire his interest in the assets from him.  I think it is fair to say that he received almost no co-operation from the defendants in his endeavours to put their relationship on a commercial basis.  They mainly ignored his letters.  There were some responses but whenever he got a response, which was rare enough, that response was often not responsive to the matters which he had raised in his communication.  It is clear enough from the correspondence and, indeed, from the action which he has subsequently taken, which has led to this hearing today, that he became quite frustrated by the reaction of the defendants.  One can understand, at least on his evidence, the reasons for his frustration. 

Eventually, in January of 1998, he instructed solicitors who wrote to the defendants seeking a resolution of this conflict. 

In October 1997, Mr Jones obtained what might be described as kerb side valuations of all three properties from McGees, valuers.  Sometime later he obtained a formal valuation of the Challa Gardens property and the Henry Waymouth property, also from McGees. 

He used those two valuations and the kerb side valuation for the purpose of making proposals to Mr Teo and his family for the resolution of this dispute.  In a communication to Mr Teo and his family he suggested that he would be prepared to accept 20 per cent of the net value of the properties arrived at upon the basis of the valuation of McGees.  In due course he received a response to his offer and that was, upon the McGees’s valuation, an offer of about 8 per cent of the value of the properties.  There is no real explanation as to how that offer came about.  I think it was that final offer which precipitated these proceedings and the relief to which I have referred. 

Mr Wells QC, who appeared for the plaintiffs, claimed that a Receiver needed to be appointed for the purpose of resolving the impasse which existed between the parties.  In further support of that submission he said that the behaviour of the defendants effectively gave rise to a real apprehension that the affairs of the company were not being conducted appropriately.  In support of his submission, he referred to a number of aspects of Mr Jones’s affidavit evidence, particularly in relation to the conduct of the operations of the businesses, since Mr Jones ceased to be manager. Further, he relied upon the failure to advise Mr Jones of the financial circumstances of the businesses, notwithstanding that Mr Jones was a director of the trustee and proprietor of the businesses.  He referred to the deliberate instruction given to the managers of the business to keep information from Mr Jones. 

The defendants oppose the appointment of a Receiver to the companies or to the trusts.  Mr Besanko said that it might be admitted that his clients had been slow to respond and, in some circumstances, not responsive, but that did not give rise to any reason for the appointment of a Receiver. 

Mr Besanko put his argument upon the basis that I could accept that there might be three complaints.  First, that Mr Jones had been dismissed from the management of the company.  Secondly, that Noxville Pty Ltd had lost its association with the defendants.  Thirdly, that Mr Jones had been denied access to the books and records of the company and the trust. 

As to the first and second matters he said they were not breaches of trust or any evidence of any breach of trust. As to the third matter he said that that would not be sufficient to give rise to the appointment of a Receiver. He said that might allow the plaintiffs to seek redress under s260 of the Corporations Law but the fact that information was not provided to the plaintiffs did not of itself indicate any reason for the appointment of a Receiver.  He said there was no evidence that there was any risk to any of the trustees’ assets or any risk to the trusts.

Mr Wells argued that a Receiver ought to be appointed under the provisions of s29 of the Supreme Court Act, which allow for the appointment of a Receiver by an interlocutory order in all cases in which it appears to the court to be just or convenient so to do.  He also relied upon rule 103 of the Supreme Court Rules, which he said allows for the appointment of Receivers in circumstances of this kind. 

There is no doubt, of course, that this Court does have power to appoint a Receiver, when, as s29 provides, it is just and convenient so to do. The question, in this case, is whether or not it is just and convenient to appoint a Receiver and, indeed, whether it is, on the present state of affairs, necessary so to do.

In National Australia Bank Limited v Bond Brewing Holdings Limited (1991) 1 VR 386, the Full Court of the Supreme Court of Victoria said at 539:

“The appointment of a receiver is one of the oldest remedies of the Court of Chancery, and a very useful remedy it is.  But its very efficacy means that a corresponding caution must attend its employment.  Where a receiver is sought to protect property of which no-one is in actual possession, no-one will be ousted by the appointment and probably no great harm will be done.  But where the subject matter is in the defendant’s hands he may suffer an irreparable wrong by being dispossessed and of course this danger will weigh with a judge from whom the remedy is sought.  The appointment of a receiver which is to be, so to speak, at the expense of the defendant's possession and without his consent is a step never to be taken without proper consideration of the defendant's position.”

Although dealing with an ex parte application, but in circumstances which are no less relevant, the Full Court went on to say in this case:

“But it must always be borne in mind that the appointment of a receiver in such a case authorises an irresistible invasion and that even if the army of occupation is withdrawn after only a short time things may never be the same again.  Rights of property and the company's privacy are violated.  Only the most pressing need can warrant such an invasion without notice.”

In the High Court, on the application for special leave, (169 CLR 271), Mason CJ and Brennan and Deane JJ said at 277:

“The damage to be apprehended by the making of an order for the appointment of a receiver and manager is not so much that the receiver and manager may so exercise his powers as to occasion loss in the business to which he has been appointed.  It consists of the consequences flowing from the fact of appointment and of the defendant's loss of “its title to control its assets and affairs” (the phrase of Viscount Haldane LC in Parsons v Sovereign Bank of Canada (1913) AC 160 at 167).

Notwithstanding those observations, Mr Wells pressed upon me the decision of Young J in the Equity Division of the Supreme Court of New South Wales in McLean v Burns Philp Trustee Company Pty Ltd (1985) 2 NSWLR 623. In that case Young J was concerned with an application for the appointment of a Receiver to a trust. His Honour considered the history of administration proceedings and referred to the wide powers of administration which existed before the Judicature Acts. He discussed the history of applications for administration actions since that time and, in particular, in matters of trusts.

His Honour’s reasons show that orders in administration are generally not made now and since the Judicature Acts have been replaced by other remedies available in the Rules.  At the same time, as he points out, the Rules in New South Wales (and indeed in South Australia) still provide for orders of that kind.  He does point out (at 635) that a general administration order will only be made in three categories of cases, none of which is relevant here.  However, Mr Wells argued that his clients did not seek a general administration order.  What they sought was the appointment of a Receiver under the rule which gives rise to the power to make an order for administration.  I think there is no doubt, as Mr Wells argued, that there are wide powers for the appointment of Receivers.  Those powers exist both under the rule which provides for administration and under other Rules in the Supreme Court Rules. The power to appoint the Receiver, however, derives from s29 itself.

In my opinion the appointment of a Receiver would only go forward if, as s29 provides, it is just and convenient so to do. It would only be just and convenient so to do in my opinion in the circumstances of this case - and I do not of course mean to be talking generally but only in this case - if it can be established that there is a possibility that the assets controlled by the trustee may be dissipated or wasted.

Without going into the facts in great detail, it is my opinion that there is not sufficient evidence to establish that possibility.  There is not in my opinion sufficient evidence identified in the affidavit of Mr Jones to suggest that any of the three defendant trustee companies, or the personal defendants, who are directors of the trustee companies, are likely to act in such a way so as to dissipate, waste or diminish the assets under the control of the trustees. 

In my opinion it follows that it would not be appropriate in the circumstances of this case, at least at this point in time, to appoint Receivers to the trustees or to the trust. 

During argument Mr Besanko said that his client had made disclosure of the financial details of the trading companies to Mr Jones, and he would get instructions as to whether or not his client would make available the financial information relating to this company.  I think it is necessary to avoid further interlocutory disputes that those instructions be obtained and communicated to those instructing Mr Wells. 

It appears, at least on the evidence presently before the court, that it will be necessary to make arrangements for the transfer of assets between Mr Jones and his family, on the one hand, and Mr Teo and his family on the other hand, and it would be in the interests of all of the parties that that happen as soon as possible.  Clearly such a transfer of assets will take place by having regard to the underlying asset value of the assets.  It would be in the interests of the parties, in order to identify those underlying assets, that Mr Besanko obtain instructions in accordance with his suggestion to the court.  It would be thereafter in the interests of all the parties that the assets were identified, and arrangements made for one party to purchase the assets from the other.

If, as I have said, the plaintiffs wish to have this decision and these reasons reviewed on appeal, I would wish to edit these reasons but without, of course, changing the underlying reasons.

I dismiss the application.