McMillan v Coolah Home Base Pty Ltd (No 4)

[2022] NSWSC 584

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

McMillan v Coolah Home Base Pty Ltd (No 4) [2022] NSWSC 584

Hearing dates:

30, 31 August; 1, 2, 3, 8, 9, 10, 13, 14, 15, 16, September; 9, 10 November 2021

Date of orders:

13 May 2022

Decision date:

13 May 2022

Jurisdiction:

Equity

Before:

Parker J

Decision:

See [656]-[664]

Catchwords:

REAL PROPERTY – caravan park with long-term cabin sites subject to company title – claim by purchasers of shares to equitable interests in cabin sites as well – whether purchase contracts included interests in land – specific performance – resulting trust – proprietary estoppel

CORPORATIONS – oppression – company owning caravan park with long-term cabin sites subject to company title – ownership company’s finances and operations managed by separate company controlled by directors – ownership company placed in administration by directors following contested application by shareholders for access to company documents – land sold to another company controlled by directors following adoption of deed of company arrangement proposed by directors – whether oppressive conduct by directors – relief

CONSUMER PROTECTION – misleading or deceptive conduct – unconscionable conduct – undue harassment or coercion – conduct “in trade or commerce” – contravention – loss and damage – purchase of company title shares in caravan park with long-term cabin sites – disappointment and distress

CORPORATIONS – voluntary administration – caravan park with long-term cabin sites subject to company title – claim by shareholders against administrators for compensation for loss arising out of sale of land pursuant to deed of company arrangement – whether administrators owed common law duty of care to shareholders – whether administrators negligent in discharge of their duties – causation – Insolvency Practice Schedule s 90-15 – whether unconscionable conduct by administrators – whether administrators “involved in” oppressive conduct by directors

Legislation Cited:

Australian Consumer Law, ss 18, 21, 50

Civil and Administrative Tribunal Act 2013, Sch 4, Cl 5(3)

Conveyancing Act 1919, s 66G

Corporations Act 2001 (Cth), ss 9, 179, 180, 181, 182, 183, 232, 233, 236, 237, 238, 239, 240, 241, 242, 247A, 293, 437A, 437B, 438A, 438D, 439C, 440D, 442C, 444E, 445D, 1314, 1324

Insolvency Practice Rules (Corporations) 2016 (Cth), rr 75-140, 75-225

Insolvency Practice Schedule (Corporations), s 90-15

Limitation Act 1969, s 15

Residential (Land Lease) Communities Act 2013

Retirement Villages Act 1999

Uniform Civil Procedure Rules 2005, Pt 54

Cases Cited:

Australian Securities and Investment Commission v Kobelt (2019) 267 CLR 1

Baltic Shipping Co v Dillon (1993) 176 CLR 344

Cadwallader v Bajco Pty Ltd [2002] NSWCA 328

Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594

Correa v Whittingham (2013) 278 FLR 310

Eastlake v Eastlake [2015] NSWSC 1772

Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411

FexutoPty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97

Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486

Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540

Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1

Jarvis v Swan Tours Ltd [1973] 1 All ER 71

John Alexander’s Clubs Pty Ltd v White City Tennis Club (2010) 241 CLR 1

Little v Law Institute of Victoria [1990] VR 257

LPD Holdings (Aust) Pty Ltd v Phillips (2013) 281 FLR 227

Macks v Viscariello (2017) 130 SASR 1

McMillan v Coolah Home Base [2020] NSWSC 935

McMillan v Coolah Home Base (No 2) [2020] NSWSC 1243

McMillan v Coolah Home Base (No 3) [2020] NSWSC 1325

McMillan v Coolah Tourist Park Pty Ltd [2021] NSWCATAP 73

Metropolitan Gas Co v City of Melbourne (1924) 35 CLR 189

National Australia Bank Ltd v Clowes [2013] NSWCA 179

Ngurli Ltd v McCann (1953) 90 CLR 425

New South Wales v Fahy (2007) 232 CLR 486

NSW Lotteries Corporation Pty Ltd v Kuzmanovski (2011) 195 FCR 234

Re Dernacourt Investments Pty Ltd (1990 20 NSWLR 588

Re Smith [2006] NSWSC 780

Sullivan v Moody (2001) 207 CLR 562

Watson v Foxman (1995) 49 NSWLR 315

Texts Cited:

Austin, R P and Ramsay I M, Ford,Austinand Ramsay’s Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths

Heydon, J D, Leeming, M J and Turner, P G, Meagher Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

Geoffrey Ian McMillan (First Plaintiff)
David Arthur Darch (Second Plaintiff)
Helen Dawn Waugh (Third Plaintiff)
Margaret Joy Vale (Fourth Plaintiff)
Jill Cook (Fifth Plaintiff)
Lee Marilyn Tait (Sixth Plaintiff)
Jennifer Sue Axtell (Seventh Plaintiff)
Sietske Elisabeth Brown (Eighth Plaintiff)
James Terence James (Ninth Plaintiff)
Neville John Kelly (Tenth Plaintiff)
Susan Anne Kelly (Eleventh Plaintiff)
Christine Margaret McMillan (Twelfth Plaintiff)
Janne Marnie Robertson (Thirteenth Plaintiff)
John Daniel Sheahan (Fourteenth Plaintiff)
Richard Jim Squire (Fifteenth Plaintiff)
Susan Janet Squire (Sixteenth Plaintiff)
Leslie Townsend (Seventeenth Plaintiff)
Allana Mary Townsend (Eighteenth Plaintiff)

Coolah Home Base Pty Limited (First Defendant)
Coolah Tourist Park Pty Limited (Second Defendant)
Janet Marilyn Kelly (Third Defendant)
Graeme George Booker (Fourth Defendant)
Cameron Hamish Gray (Fifth Defendant)
Ronald Dean-Willcocks (Sixth Defendant)
Home Base Solutions Pty Limited (Seventh Defendant)

Representation:

Counsel:
P E King (Plaintiffs)
A Macauley (First, Second, Third, Fourth and Seventh Defendants)
D Krochmalik (Fifth and Sixth Defendants: 30 August, 1, 2, 3 September 2021)
A Harding SC (Fifth and Sixth Defendants: 9, 10, 13, 14, 15, 16 September; 9, 10 November 2021)

Solicitors:
The Peoples’ Solicitors (Plaintiffs)
Bridges Lawyers (First, Second, Third, Fourth and Seventh Defendants)
Brown Wright Stein Lawyers (Fifth and Sixth Defendants)

File Number(s):

2020/44327

Publication restriction:

Nil

Judgment

1. The third defendant, Janet Marilyn Kelly, and the fourth defendant, Graeme George Booker, are former “grey nomads”. This term was used in the evidence to refer to people who are retired, or semi-retired, and live for all or most of their time out of a caravan or motorhome, travelling around the country.

2. Between them, Ms Kelly and Mr Booker, devised a plan to establish a grey nomad “home base”. Their vision was to offer grey nomads a permanent dwelling-place in or near a regional town, readily accessible by road, which would function as a home and to which they could return during breaks in their travels. The idea has unfortunately ended in recrimination and dispute, culminating in these proceedings.

3. Ms Kelly and Mr Booker set up their grey nomad home base at Coolah, in central western New South Wales, where there was an existing caravan park. They incorporated the first defendant, Coolah Home Base Pty Limited (“CHB”), and the seventh defendant, Home Base Solutions Pty Limited (“HBS”). CHB purchased and held the caravan park land (to which I will refer as the “Park”) and business. HBS (which was wholly owned by Ms Kelly and Mr Booker) was the operating company. The directors of both companies were Ms Kelly and Mr Booker.

4. The venture was set up as a “company title” arrangement. Residents who bought in would buy a share in CHB carrying the right to occupy a specified site in the Park. On some of the sites demountable cabins had already been erected. On others, incoming residents erected cabins for themselves. This began in 2012.

5. Ownership of a share carried with it an obligation to pay a site fee to contribute towards the cost of maintaining the Park. The existing caravan park business (referred to in the evidence as the “tourist business”) continued alongside the company title arrangement, and allowed shareholders to rent out their sites to visitors. Ms Kelly and Mr Booker managed this through HBS.

6. In the end sixty shares, each corresponding with a site in the Park, were issued by CHB. The plaintiffs are grey nomads who, between them, bought sixteen of those shares. Through another company, Ms Kelly and Mr Booker own thirty-three of them. The remaining shares are owned by purchasers who are not involved in the proceedings.

7. By 2016, disputes had arisen between some of the plaintiffs, on the one hand, and Ms Kelly and Mr Booker, on the other, concerning management of the park and the affairs of CHB. The disputes resulted in proceedings being instituted in this Court against CHB in 2018. The plaintiffs in the proceedings, who were two of the present plaintiffs, sought access to documents of CHB pursuant to s 247A of the Corporations Act 2001 (Cth) (“CA”). I will refer to these proceedings as the “s 247A proceedings”.

8. In August 2019, while the s 247A proceedings were still pending, Ms Kelly and Mr Booker put CHB into voluntary administration. The administrators were Ronald John Dean-Willcocks and Cameron Hamish Gray. They are the sixth and fifth defendants in the proceedings. At the time both were principals of a firm of insolvency practitioners known as “DW Advisory” (in fact Mr Dean-Willcocks appears to have been the senior principal).

9. The statutory administration resulted in the approval by CHB’s creditors of a deed of company arrangement prepared by Ms Kelly and Mr Booker (“Kelly-Booker DOCA”). The creditors consisted of Ms Kelly, Mr Booker and professional advisers to CHB. The Kelly-Booker DOCA provided for the sale of the Park to Coolah Tourist Park Pty Limited (“CTP”), another company belonging to Ms Kelly and Mr Booker. It is the second defendant in the proceedings.

10. As contemplated by the Kelly-Booker DOCA, control of CHB (now a shell) reverted to Ms Kelly and Mr Booker, as its directors, following the sale of the Park to CTP. The statutory administration ended but Mr Dean-Willcocks and Mr Gray continued their involvement with CHB as administrators of the DOCA.

11. CTP, as the new owner, is now operating the Park. The plaintiffs continue to occupy, or rent out, their cabins, but refuse to accept the validity of the transfer. Apart from these proceedings, the parties have been involved in ongoing litigation in the New South Wales Civil and Administrative Tribunal (“NCAT”) under the Retirement Villages Act 1999 and the Residential (Land Lease) Communities Act 2013.

12. The defendants fall into two groups, each group being commonly represented in the proceedings. One group consists of Ms Kelly, Mr Booker and the three companies I have mentioned, CHB, CTP, and HBS. I will refer to these parties collectively as the “Kelly-Booker parties”. Where claims are made against Ms Kelly and Mr Booker in their capacity as directors of CHB, I refer to them as “the Directors”. The other defendants, Mr Dean-Willcocks and Mr Gray, are referred to as the “Administrators”.

Claims for determination

13. There are six claims, or groups of claims, pleaded by the plaintiffs in the proceedings and which require determination. They may be summarised as follows.

14. First, the plaintiffs claim equitable ownership interests in the sites which they occupy at the Park. They allege that when purchasing their shares in CHB, they were promised interests in the sites themselves. They contend that they are entitled to relief by way of specific performance or equitable (proprietary) estoppel, and that this relief is available against CTP (if they fail in their application to have the transfer of the Park to CTP rescinded, to which I will refer in a moment).

15. Secondly, the plaintiffs seek orders rescinding the transfer of the Park to CTP. They allege that they are entitled as shareholders of CHB to have the transfer set aside on the ground of wrongful conduct by the Directors. Thirdly, the plaintiffs seek declarations that, as against both CHB and CTP, their cabins are chattels rather than fixtures.

16. Fourthly, the plaintiffs allege that in conducting the affairs of CHB the Directors have breached their directors’ duties and oppressed CHB’s shareholders. The complaint includes the diversion of income and assets of CHB to HBS and the placement of CHB in voluntary administration. Under CA s 233, the plaintiffs seek orders rescinding the transfer of the Park as between CHB and CTP (if they are unable to obtain that relief directly as shareholders), orders removing the Directors from control of CHB, and orders for compensation to undo the effect of the Directors’ breaches.

17. Fifthly the plaintiffs make monetary claims for damages or compensation (at general law or under statute) on various bases against the Kelly-Booker parties. Some of these claims are made as an alternative to the claim for recognition of an equitable proprietary interest in the plaintiffs’ sites. Others are made as an alternative to the plaintiffs’ application for rescission orders and other relief against oppression. Some are independent. The heads of damage alleged by the plaintiffs include both financial losses and harm in the form of disappointment and distress.

18. Finally, the plaintiffs make monetary claims for damages or compensation against the Administrators. Again, some claims are made as an alternative to the plaintiffs’ application for rescission orders and other relief against oppression, and other claims are independent.

19. CTP made a cross-claim against some of the plaintiffs for outstanding site fees. This cross-claim arose out of an undertaking which was given at an earlier stage of the proceedings. It is common ground that the cross-claim should be dismissed. The only outstanding question on the cross-claim is costs, which I will deal with when dealing with the costs of the principal proceedings. That will be after I have handed down this judgment and the parties have had an opportunity to consider it.

Chronology of key facts

20. Ms Kelly is a retired chartered accountant. In 1997, following her husband’s death, she purchased a motorhome and began to travel around Australia. Around this time, she joined an organisation called the Campervan and Motorhome Club of Australia (“CMCA”). It was through this organisation that she later met Mr Booker. He is a retired businessman, having been the owner of various motels, service stations and truck stops during his working life.

21. Whilst a member of the CMCA, Ms Kelly met a number of travellers who had sold their homes and could not afford to buy new ones. In 2001, she began to develop the home base idea. In 2011, she started looking for a suitable property. Her relationship with Mr Booker apparently began at around the same time. They are both life partners and business partners.

22. In early 2012 Ms Kelly came across the Park, which was then known as the Cunningham, or Coolah, Caravan Park. Apparently, it had originally been developed in the 1960s or thereabouts. It was rather run down. Ms Kelly however liked its central location. She and Mr Booker decided to buy it and turn it into the home base.

23. The Park was laid out with sites available for rental to travellers and longer-term residents. Council approval was required for this purpose, and the approval distinguished between two different types of site which I will describe in a moment. The rest of the property (referred to in the evidence as the “common property”) comprised: an office building which also contained residential accommodation for a manager (to which I will refer as the “management building”); a camp kitchen and other shared facilities; and surrounding parkland which contained some camping sites.

24. On the first type of rental site, occupation was only permitted for a continuous period of not more than twenty-eight days at a time. These sites were suitable for travellers in motorhomes or other recreational vehicles (RVs), or with caravans. The sites were essentially only a place to park, with a power supply. They were referred to in the evidence as “short-term” or “powered” sites.

25. On the other type of site continuous occupation was permitted. These sites were thus suitable for the erection of cabins, and a number of cabins had already been erected. The sites were supplied not only with power but also with connections to other services. They were referred to in the evidence as “long-term” or “cabin” sites.

26. Under CHB’s ownership, some refurbishment and development was undertaken on the common property. It appears from Ms Kelly’s report at the CHB AGM in August 2013 (see below) that the approval at that time was for forty-two sites. How many were long-term and how many short-term she did not say. The approval itself does not appear to be in evidence.

27. A revised approval was obtained in October 2014, which also covered the construction of a recreation room on the common property. Soon afterwards, an application was made in the name of CHB for a variation to the consent. This was approved in January 2015.

28. A plan of the property, showing the accommodation sites, the facilities and the rest of the common property, as attached to the approval, is reproduced below:

29. The approval specified forty-one long-term sites and twenty-one short-term sites (the key is incorrect in suggesting that there were twenty-two short-term sites). The site numbering on the plan identifies sixty-three sites in total for temporary or permanent accommodation; this is because it includes the management building (site 40) which was not let out.

30. A later permit from November 2015 records permission for letting out twenty short-term sites and forty-two long term sites. Although approval was obtained for a total of sixty-two sites, two of them were never set up for accommodation purposes. It seems that these were both long-term sites. It is unclear which of the dwelling sites shown on the January 2015 site plan they were.

31. CHB was incorporated for the purpose of purchasing the Park on 22 February 2012. HBS was incorporated two days later. The copy of the contract between CHB and the vendors which is in evidence is undated, but the contract appears to have been executed sometime in March. The purchase price was $390,000, which was broken down into land ($80,000), plant and equipment ($210,000) and goodwill of the existing tourist business ($100,000).

32. The purchase was financed in part with a loan from the Commonwealth Bank of Australia (“CBA”) in the amount of $225,000. Ms Kelly and Mr Booker contributed the remaining $165,000. The CBA loan was secured by a mortgage over the Park, supported by personal guarantees provided by Ms Kelly and Mr Booker and a mortgage over other property owned by them.

33. CHB’s constitution established a company title land-holding arrangement. Ms Kelly and Mr Booker were the directors upon incorporation, and at all times thereafter. CHB settled on the purchase of the Park and became the registered proprietor on 27 April 2012.

34. I set out the terms of CHB’s constitution in detail in a later section of this judgment. For present purposes they may be summarised as follows:

1. There were two classes of share, ordinary and A class.

2. There were two ordinary shares, held by Ms Kelly and Mr Booker.

3. The ordinary shares gave the holders control of the management of CHB and of its unissued A class shares.

4. The ordinary shares were to be redeemed when the CBA loan had been repaid.

5. Each A class share gave the holder the exclusive right to one of the long-term or short-term sites.

6. Holders of A class shares were obliged to pay a weekly site fee (indexed by reference to pension rates) towards the cost of operating the Park.

7. There was to be a “managing agent” appointed by the directors (initially HBS) whose responsibilities included calculating and collecting the site fee.

8. Residents were subject to by-laws set out in a schedule.

9. Sale of the Park required the written consent of at least 80% of the shareholders.

35. Starting in March 2012, Ms Kelly and Mr Booker caused CHB to “sell off” the sites by issuing the corresponding A class shares in return for payment to CHB by the incoming purchasers. The parties used the language of sale and purchase for these transactions. For convenience I will do the same in this judgment, although in legal terms, they involved the “purchasers” subscribing for, rather than buying, shares in CHB. Unless otherwise specified, in the rest of this judgment I will for simplicity refer to A class shares in CHB as “shares”. Shares carrying rights of occupation over short-term sites and long-term sites will be referred to as “STS shares” and “LTS shares” respectively.

35. Ms Kelly and Mr Booker promoted the sale of the shares in various ways. Starting in early 2012, before the completion of the purchase of the Park by CHB, they made presentations at rallies and other gatherings of CMCA members. These presentations were made using slides on an overhead projector, with questions taken orally afterwards. Ms Kelly and Mr Booker also had promotional flyers and brochures produced.

36. Some of the purchasers bought sites with existing cabins. Other long-term sites were vacant, and a kit home or other dwelling was later installed by, or for, the purchaser. The installation work was in some instances done by Mr Booker through HBS, and in others by external contractors.

37. Through HBS, Ms Kelly and Mr Booker bought some of the shares for themselves. Over time they bought several LTS shares. Also, in April 2014, Ms Kelly and Mr Booker caused CHB to sell to HBS nineteen of the twenty STS shares. The price per STS share was $550, which was well below the price being paid for other shares. This is one of the things which the plaintiffs complain about, and will be dealt with in more detail in a later section of the judgment.

38. Ms Kelly and Mr Booker later transferred the CHB shares they held through HBS to another company controlled by them, Residential Cluster Pty Limited (“RC”). RC is not a party to these proceedings.

39. Some of the CHB shares, once issued, were the subject of further transactions. The evidence refers to a number of what were described as “buy-backs” of shares originally issued to purchasers. I have not investigated the precise legal nature of these transactions. But it seems clear that the parties ignored the prohibition on a company buying its own shares otherwise than in accordance with the specific procedures laid down in CA Part 2J.1 (see Austin, R P and Ramsay I M, Ford, Austin and Ramsay’s Principles of Corporations Law (17^th ed, 2018, LexisNexis Butterworths) at [24-370]).

40. There were also transactions in which, through HBS/RC, Ms Kelly and Mr Booker bought shares on the secondary market. There were some secondary market transactions in which they were not involved as buyer or seller, but even in those cases Ms Kelly and Mr Booker seem to have adopted a broker-type role. One of the plaintiffs’ purchases is an example of this: see [408] below.

41. One of the selling points used by Ms Kelly and Mr Booker was that shareholders would have a stake in the affairs of the Park as a whole. At least until the disputes between the parties arose, shareholders undertook volunteer work alongside Mr Booker and Ms Kelly on refurbishing and maintaining the common property in the Park.

42. Although shareholders would occasionally congregate in the camp kitchen, the common property was largely used for the tourist business. Ms Kelly and Mr Booker retained exclusive control over management of the tourist business (through HBS) and the issue of CHB shares as I have described.

43. I have already mentioned Ms Kelly’s background as a chartered accountant. She did the bookkeeping for CHB and HBS using bookkeeping software. An external accountant, Mr Randolf Rindfleish, who practised locally, used the records prepared by Ms Kelly to prepare CHB’s tax returns and financial statements.

44. As will be seen, the constitution of CHB contained no provision for annual accounts or annual general meetings. Nevertheless, Ms Kelly and Mr Booker had annual accounts prepared, and convened AGMs, from 2013 onwards. At these meetings an oral report, which included an explanation of the annual accounts, would be presented to the shareholders by Ms Kelly. The first AGM was held in August 2013.

45. In September 2014, at the 2014 AGM of CHB, a Shareholders Advisory Group (“SAG”) was formed. The stated purpose of this group was to act in the interests of the shareholders and resolve any disputes which arose between them and CHB. In practice it seems to have operated as a liaison group.

46. From around 2015 onwards, Ms Kelly and Mr Booker stopped doing the day-to-day management of the Park and handed that over to employed managers. This made no difference to the way in which the Park operated. HBS employed the managers and continued, under the direction of Ms Kelly and Mr Booker, as the management company. As directors of CHB, Ms Kelly and Mr Booker remained in full control of its affairs.

47. The plaintiffs between them hold sixteen shares, all of them LTS shares. In order of becoming shareholders, the plaintiffs’ details are as follows:

1. John Daniel Sheahan (14^th plaintiff): site 5;

2. Neville John Kelly (10^th plaintiff) and Susan Anne Kelly (11^th plaintiff) (no relation of Ms Janet Kelly): site 42;

3. Margaret Joy Vale (4^th plaintiff): site 21;

4. Jennifer Sue Axtell (7^th plaintiff): site 10;

5. James Terence James (9^th plaintiff): site 8;

6. Lee Marilyn Tait (6^th plaintiff): site 33 (originally purchased with her husband Barry John Tait who has since died);

7. Helen Dawn Waugh (3^rd plaintiff): site 14;

8. Jill Cook (5^th plaintiff): sites 38 and 50;

9. Sietske Elisabeth Brown (8^th plaintiff): site 39;

10. Richard Jim Squire (15^th plaintiff) and Susan Janet Squire (16^th plaintiff): sites 1 and 2;

11. Janne Marnie Robertson (13^th plaintiff): sites 46;

12. Geoffrey Ian McMillan (1^st plaintiff) and Christine Margaret McMillan (12^th plaintiff): site 52;

13. David Arthur Darch (2^nd plaintiff): site 37; and

14. Leslie Townsend (17^th plaintiff) and Alana Mary Townsend (18^th plaintiff): site 13.

49. The plaintiffs’ purchases took place between March 2012 and March 2017. Some, but not all, of the purchases followed attendance at presentations given by Ms Kelly and Mr Booker. The first fourteen purchases were directly from CHB; the last two (Mr Darch and Mr & Mrs Townsend) involved the transfer of shares from existing shareholders. I describe the purchases in more detail in a later section of this judgment.

50. As already noted, the nineteen STS shares issued in April 2014 are now held by Ms Kelly and Mr Booker through RC. RC also holds fourteen LTS shares (the sites for seven of which are undeveloped). Purchasers unconnected with either the plaintiffs or the Kelly-Booker parties hold the remaining shares.

51. The shareholder alignments may therefore be summarised as follows:

Long-term sites	Short-term sites	Total
RC	14	19	33
Plaintiffs	16	16
Unaligned	10	1	11
Total	40	20	60

52. By 2016, some of the shareholders had become dissatisfied with the way in which Ms Kelly and Mr Booker were operating the Park. Leading roles in this were played by Mr McMillan, the first plaintiff, and Mr Darch, the second plaintiff. Mr McMillan (along with his wife) had become a shareholder in July 2014 and he had become the secretary of the SAG a few months later. Mr Darch had bought his share in February 2015. He joined the SAG in March 2016 and became chairman shortly afterwards.

53. The initial concern focussed on the role of HBS, and in particular the potential for conflict of interest between it and CHB. Mr McMillan and Mr Darch established an unofficial group called the “Reform Group”, which was independent of the SAG. Most, if not all, of the plaintiffs were, at one stage or another, involved in the Reform Group, although there does not appear to have been any formal membership.

54. In late 2016, solicitors’ correspondence began between Mr Andrew Boog, who had been retained by Mr McMillan and Mr Darch, and Mr Tom Flynn, acting on the instructions of Ms Kelly and Mr Booker, for CHB. The correspondence culminated in the institution of the s 247A proceedings in 2018 by Mr McMillan and Mr Darch against CHB. Mr Flynn was later replaced as the solicitor for CHB by Mr Aleco Vrisakis, whose firm is based at Rylstone and is known as Mid-West Law Practice.

55. The s 247A proceedings were heard by Black J in August 2019. A few days later, and before final submissions had taken place, Ms Kelly and Mr Booker appointed Mr Dean-Willcocks and Mr Gray as voluntary administrators of CHB.

56. The unsecured claims against CHB when it went into administration were nearly all for expenses associated with the s 247A proceedings (including for this purpose the prior dispute with shareholders). The main component was a claim by Ms Kelly and Mr Booker for reimbursement of legal and accounting expenses paid by them on CHB’s behalf. They also claimed remuneration and expenses. There was also a claim by Mr Vrisakis for unpaid fees.

57. The Administrators largely accepted these claims. They accepted that CHB was insolvent as a result. The debt owed to the CBA was $60,000 but the bank relied on its rights as secured creditor and did not participate as a creditor in the administration process.

58. Initial and final meetings of unsecured creditors were convened by the Administrators in accordance with the statutory timetable. The final meeting was adjourned (as was permissible) to allow for further investigations by the Administrators and to permit Ms Kelly and Mr Booker to submit their deed of company arrangement (the plaintiffs were also afforded an opportunity to submit a deed of company arrangement but did not in the end do so).

59. The Kelly-Booker DOCA provided for CTP to purchase the Park from CHB for $430,000 (plus GST). The Administrators were to remain in control of CHB’s affairs until the transaction was completed. The resulting funds would, in the usual way, be used to pay off the CBA mortgage and meet the administration costs, with the balance being divided among CHB’s creditors. To this end, Mr Dean-Willcocks and Mr Gray were to continue as administrators of the DOCA.

60. The Administrators recommended the Kelly-Booker DOCA in their report to the creditors and it was approved at the adjourned final meeting in late November. For the purposes of that meeting of creditors, the Administrators accepted claims by unsecured creditors totalling $272,000, including claims by Ms Kelly and Mr Booker for $230,300 and by Mr Vrisakis for $41,400. The approval resolution was unanimous, the claim by Mr Vrisakis being voted in favour of the resolution by Ms Kelly as his proxy. Following the meeting, the DOCA and the contract for the sale of the Park to CTP were executed on CHB’s behalf.

61. Between November and December, Ms Kelly and Mr Booker wrote a series of letters to the shareholders advising them that upon completion of the purchase of the Park by CTP, their existing right of occupation of their sites would cease. The shareholders were invited to enter into residential site agreements with CTP (carrying a site fee of $185 per week, compared with approximately $60 per week that the shareholders were then paying by way of site fee to CHB). Some of the unaligned shareholders appear to have accepted, but all of the plaintiffs eventually refused.

62. In December, Mr McMillan and Mr Darch consulted a new solicitor, Mr Peter Vogel. His office is at Penrith and his practice operates under the name “The People’s Solicitors”. The completion of the sale to CTP was due to take place on 17 December. On the morning of that day, Mr Vogel lodged caveats on behalf of Mr McMillan and Mr Darch over the Park. Their caveats claimed a proprietary interest in the sites occupied by them.

63. The lodgement of the caveats made it impossible to complete the registration of the transfer of the Park from CHB to CTP. Nevertheless, the rest of the transaction was settled (presumably CBA as the existing mortgagee permitted this to happen because it was financing the purchase by CTP). Mr Dean-Willcocks and Mr Gray as Deed Administrators received the balance due to CHB. They surrendered control of CHB back to Ms Kelly and Mr Booker.

64. Following the last-minute lodgement of the caveat and the settlement of the rest of the sale transaction, correspondence passed between Mr Vrisakis and Mr Vogel. Mr Vrisakis contended that the caveats were unsustainable. Mr Vogel maintained that they were justified. In mid-January Mr Vrisakis responded re-stating his position. This was the last exchange before legal proceedings were commenced.

65. Meanwhile, further caveats had been lodged by Ms Vale (the fourth plaintiff) and Ms Tait (the sixth plaintiff) on 23 December, followed by Ms Waugh (the third plaintiff) on 22 January. Ms Waugh’s caveat was lodged on her behalf by Mr Vogel; Ms Vale’s and Ms Tait’s caveats were lodged by another lawyer. But following agreement between the parties in February, after these proceedings had begun, all the plaintiffs’ caveats were withdrawn or permitted to lapse. This allowed the registration of CTP as owner of the Park to proceed.

Procedural history

66. These proceedings were commenced on 11 February 2020 in the names of the first six plaintiffs (Mr McMillan, Mr Darch, Ms Waugh, Ms Vale, Ms Cook and Ms Tait) against the first six defendants (CHB, CTP, Ms Kelly, Mr Booker and the Administrators). The proceedings were commenced by summons, which was accompanied by a notice of motion seeking urgent interlocutory relief which came before Emmett AJA, sitting at first instance, on the following day.

67. His Honour set a timetable for pleadings and evidence which provided for the final hearing to take place on 11 and 12 May. An interlocutory regime was established by the parties exchanging undertakings to the Court. The plaintiffs undertook to pay the occupation fees specified in the residential site agreements offered by CTP and to withdraw their caveats. CHB, CTP, Ms Kelly and Mr Booker undertook not to dispose of or otherwise deal with the Park, or to take any steps to evict the plaintiffs, without giving fourteen days prior written notice.

68. The timetabling directions resulted in the plaintiffs filing a statement of claim on 2 March. By this stage the remaining Kelly-Booker party, HBS, had been joined. Defences were filed for the Kelly-Booker parties and the Administrators, followed by replies to those defences.

69. On 2 April, Mr Vogel filed an application to join the remaining plaintiffs to the proceedings. An amended statement of claim was filed on 20 April. On 28 April Emmett AJA granted the necessary leave and excused the defendants from filing fresh defences, noting that their existing denials extended to any new allegations in the amended statement of claim. His Honour also vacated the May hearing dates and fixed a new timetable for the filing of the parties’ evidence, to be followed by a further directions hearing in late June.

70. Disputes had also arisen about the payment of the occupation fees the subject of the 12 February undertaking, which had resulted in the filing of CTP’s cross-claim. There were also disputes about other amounts claimed by way of arrears. Emmett AJA made a revised set of interlocutory orders on 28 April but the disputes continued and there were further modifications by Rein J on 1 July.

71. In the end, the filing of the affidavit evidence appears not to have been completed until December. In the interim, the proceedings were case-managed by Ward CJ in Eq (as her Honour then was). This process resulted in three interlocutory judgments.

72. The first interlocutory judgment dealt with an application by the Administrators to have the proceedings against them summarily dismissed or the statement of claim struck out. The Administrators’ contention was that the plaintiffs had no tenable claims against them, or at least that the statement of claim did not disclose any tenable claims.

73. Her Honour delivered judgment on 23 July: McMillan v Coolah Home Base [2020] NSWSC 935. She concluded that the pleading of the plaintiffs’ case against the Administrators was deficient and should be struck out. The plaintiffs should however have leave to re-plead, but not to advance certain claims which her Honour considered were untenable.

74. Before the revised pleading was finalised, another issue arose about the plaintiffs’ claims against CHB. The plaintiffs, as members of CHB, were bound by the Kelly-Booker DOCA and could not bring proceedings against it without the leave of the Court: see CA s 444E(3). The plaintiffs applied for leave to pursue their claims in these proceedings and in the NCAT proceedings (see below). In a judgment delivered on 14 September (McMillan v Coolah Home Base (No 2) [2020] NSWSC 1243 her Honour granted the necessary leave, on the condition that the plaintiffs would not seek to enforce any judgment obtained against CHB without further leave of the Court.

75. Meanwhile, the plaintiffs had propounded a new pleading of their claims against the Administrators, which they applied for leave to file. The Administrators opposed the grant of leave on the ground that the pleading was still inadequate. The Chief Judge dealt with the application on 30 September: McMillan v Coolah Home Base (No 3) [2020] NSWSC 1325. Her Honour granted the necessary leave, subject to some excisions and adjustments.

76. The plaintiffs’ further amended statement of claim was eventually filed on 6 October. The Administrators filed a defence to the amended pleading on 28 October, followed by the Kelly-Booker parties on 29 October.

77. In December, with case management apparently complete, the proceedings were fixed for hearing for five days on 30 August 2021. The hearing was later allocated to me. There was then a further interlocutory flurry when Mr Vogel learned that Ms Kelly and Mr Booker were planning to sell an apartment they owned in Queensland. He made an application for freezing orders over both the Park and the proceeds of any sale. The application was resolved with consent undertakings given to Lindsay J at the end of January.

78. On 21 June last year I arranged for the proceedings to be listed before me for a pre-trial directions hearing. Coincidentally, at the end of April, Mr Vogel had filed an application for disclosure from both groups of defendants, covering various specified categories of documents (it seems that disclosure had not previously been required). That application was referred to me at the pre-trial directions hearing.

79. In preparing for the 21 June hearing, I thought that the prayers for relief in the plaintiffs’ statement of claim did not make clear just exactly what proprietary interests the plaintiffs were claiming in the Park. Nor was it clear how, if granted, such proprietary interests were to be reconciled with the claimed relief against oppression, which sought to have the Park put back into the hands of CHB and the control by Ms Kelly and Mr Booker over CHB’s affairs removed. I was concerned that, even if the plaintiffs succeeded in the proceedings, they might in future find themselves in conflict with each other, or with CHB, about the operation of the Park. I also thought it unclear what monetary relief was sought against which of the defendants and how that fitted in with the other claims in the case.

80. I raised these questions with counsel for the plaintiffs, who had no immediate satisfactory answer. The upshot was that counsel undertook to reconsider the prayers for relief (at least) in the statement of claim. I held over dealing with the disputed categories of documents until that had happened.

81. The matter returned to Court on 30 June. Counsel for the plaintiffs produced a revised set of prayers for relief. Following further debate, the disclosure dispute was confined to the plaintiffs’ application to have HBS produce all of its financial records going back to 2012. I declined to order disclosure in these terms because counsel was unable to satisfy me that disclosure of such width was justified by the specific pleaded claims made on the plaintiffs’ behalf. I made orders for disclosure of the other agreed categories.

82. Counsel for the plaintiffs was, over the course of both hearings, very resistant to the idea that the plaintiffs’ statement of claim might require any reconsideration or amendment. Counsel asserted more than once that the statement of claim in its then form had been “approved” by the judges who had previously been handling the matter.

66. Despite these assurances I remained sceptical, and said so. I emphasised that the proceedings would be conducted on the pleadings. Towards the end of the hearing I said to counsel for the plaintiffs:

One thing that has to be clearly understood on your side is that this is not a Royal Commission into the sins or the alleged sins of the defendants; it is a claim or series of claims by your clients for specific legal relief, whether cumulatively or alternatively. It is incumbent on your clients, before we get near preparing this case for the hearing, to articulate exhaustively what those claims are and what the pleaded factual basis for those claims are.

84. The pre-trial directions which I gave on 30 June permitted the plaintiffs to make a further application to amend their statement of claim. Ultimately they did so. The revised pleading, styled “Third Amended Statement of Claim” (“TASOC”), was filed on 20 July. The amendments (which only affected the Kelly-Booker parties) were not opposed and a further defence was later filed.

85. The trial began before me on 30 August as scheduled. From the outset, there were problems with understanding what actual relief the plaintiffs were seeking. In the course of the evidence of Ms Brown, who was the first witness, counsel for the plaintiffs observed, as if in passing, that questions of quantum would be determined at a later hearing. When I rose to the bait, counsel informed me that this was because I had already indicated at the pre-trial hearings this was to be the course followed. Counsel also asserted that the plaintiffs were already claiming orders in the nature of an account or accounts, which would, in accordance with the usual practice, be undertaken at a later stage.

86. In fact I had never actually indicated that there would be a separate hearing on quantum issues. All I had done was to say that I would consider such an application. But none had been made. In due course, counsel also conceded that no relief in the nature of an account was expressly sought in the plaintiffs’ statement of claim.

87. On the following day (31 August), counsel for the plaintiffs obtained leave to file a notice of motion returnable instanter so as to seek an order for deferral of quantum issues. The motion also sought to add further claims for relief to the statement of claim, including an application to bring derivative proceedings under CA s 237 on behalf of CHB against other defendants and an application for an order to have the Kelly-Booker DOCA set aside.

88. The motion was opposed by both defendants’ counsel. I thought that it had clearly come too late. Having regard to the pre-trial background which I have just described, the plaintiffs’ legal representatives had been given ample opportunity and encouragement to reconsider the plaintiffs’ claim and decide just exactly what it was that the Court was to be asked to do at the hearing. The evidence in support of the motion did not attempt to explain why it had not been made earlier. In fact, the absence of any application for s 237 relief had been noted by the Chief Judge during the previous year.

89. In refusing the motion, I also said that it raised too many unanswered questions. The motion sought an order providing baldly that “the questions of relief and quantum of damages be determined at a separate inquiry”. In a case where the plaintiffs were advancing numerous different monetary claims, sometimes cutting across each other, and where those claims included common law and statutory claims where damage was the gist of the cause of action, ordering a separate hearing on “damages” would have left it quite uncertain what was being determined in the “liability” hearing and what was being deferred. Adding in all questions of “relief” (including, presumably, equitable relief and relief against oppression) would have added further dimensions to the confusion. Making an order in the terms sought would have been out of the question.

90. Other practical problems rapidly emerged at the hearing. The trial had to take place by way of remote hearing because of the Covid-19 lockdown in Sydney. The audio/visual facilities left a lot to be desired. Indeed, on the afternoon of the very first day counsel for the plaintiffs went so far as to apply for the hearing to be vacated on the ground that it was not possible to have a fair trial. But, difficult and tiresome as the conditions were, they were the same for all the parties. Giving up and adjourning the hearing would have been unthinkable.

91. Even before this application was made and rejected, it had become apparent that the five day hearing estimate was hopelessly inadequate. Indeed it would have been hopelessly inadequate even for a perfectly prepared face-to-face hearing. There was no alternative but to sit extended hours and try to obtain further hearing dates.

92. Eventually I was able to allocate a further seven days of hearing through the month of September, making twelve hearing days in total for the evidence. I then found two further days in November and the parties’ oral submissions were completed within those two days, although not without grumbling from counsel for the plaintiffs about lack of time.

93. It must be said that the hearing conditions continued to be adverse. Nor were they helped by the fact that the electronic bundle of documents was, contrary to the instructions in the protocol sent out before the hearing, split over numerous different separate documentary bundles. The plaintiffs’ legal representatives were also seemingly incapable of providing the court books to their witnesses in electronic form to facilitate cross-examination.

94. My rulings did not quell the disputes between the parties about the proper scope of the plaintiffs’ case. Counsel for the plaintiffs manifested a determined refusal to limit the case to issues squarely raised by the pleadings. In particular, disputes recurred because counsel persisted in propounding the allegation that Ms Kelly and Mr Booker had imposed a “sham administration” on CHB. Counsel for the Kelly-Booker parties contended that this was not fairly within the terms of the plaintiffs’ statement of claim, even as most recently amended.

95. The term “sham administration” was an unfortunate one. Obviously Ms Kelly and Mr Booker (and the Administrators, as the other parties to the supposed “sham”) had intended there to be a real and effective administration in accordance with the requirements of the Corporations Act. What counsel for the plaintiffs appears to have meant by the term “sham transaction” was that the ground for administration, namely the insolvency or approaching insolvency of CHB, had been contrived by Ms Kelly and Mr Booker.

96. Another contentious issue which arose in the course of Ms Kelly’s cross-examination was the production of CHB’s accounting records. Some records had been discovered and some further accounting printouts were produced by Ms Kelly in the course of her cross-examination (which extended over several days). But it emerged that full electronic records did not exist for the first financial year or so of CHB’s operations. There was a suggestion that further hard copy records might exist in storage in Queensland.

97. On the morning of Monday 13 September, which was day nine of the hearing, counsel for the plaintiffs made a further interlocutory application by way of notice of motion. The motion sought orders for discovery and production of further documents by the Kelly-Booker parties. It also sought a grant of leave for the plaintiffs to make further amendments to their statement of claim.

98. Counsel for the Kelly-Booker parties opposed both further discovery and further amendment. Counsel’s position was that if the Court acceded to the application, then the hearing would need to be adjourned. Counsel for the plaintiffs formally took the position that no adjournment was necessary, but did not oppose such an adjournment if (as he characterised it) the Kelly-Booker parties wanted it; indeed, counsel rather seemed to welcome the idea. But given the waste of time and costs which would ensue, it was unrealistic to deal with the application on that basis.

99. Evidence was led from the Kelly-Booker parties’ solicitor about the discovery of financial records, and specifically the way in which computerised records had been made available. Mr Vogel was also cross-examined on this subject.

100. On the evidence, it became clear that the plaintiffs’ legal representatives had had ample opportunity to obtain and review CHB’s financial records in advance of the hearing. It appeared that the plaintiffs’ legal representatives had only got to grips (or begun to get to grips) with understanding the accounting records in the course of Ms Kelly’s cross-examination. I was not satisfied that there had been any failure to comply with orders of the Court, or anything inaccurate or misleading said by the solicitors for the Kelly-Booker parties, which would have justified an order for further discovery at that point. Accordingly, I rejected the application for further discovery.

101. The argument on the amendment aspect of the motion took an unusual course. The proposed amendments to the statement of claim spelt out the “sham administration” allegation, among others. But in the course of argument, when counsel for the Kelly-Booker parties objected that the amendments introduced new factual claims, counsel for the plaintiffs disclaimed any need to rely on them. He said that the relevant proposed paragraphs only drew together and spelt out in clear terms allegations that were already in the statement of claim.

102. I must admit that I had some difficulty in accepting this. But I considered that I really had no choice but to take counsel at his word. And if, as counsel claimed, the proposed amendments only reflected factual allegations already made, then they were not necessary. I therefore refused the amendment application as well.

103. The “sham administration” issue came to a head later that day, in the course of the ongoing cross-examination of Ms Kelly. Counsel for the Kelly-Booker parties objected to a question about the Directors’ motivation for putting CHB into administration. I heard argument at some length and ruled that an allegation that the appointment of the Administrators, or the apparent indebtedness of CHB at the time, was contrived, or a “sham”, was not fairly within the terms of the plaintiffs’ case as pleaded against the Kelly-Booker parties (although it was within the terms of the case pleaded against the Administrators).

104. The scope of the plaintiffs’ pleaded case re-emerged as an issue in the course of final argument. Counsel for the Kelly-Booker parties contended that many of the submissions by counsel for the plaintiffs fell outside the pleadings.

105. On 10 November, which was day fourteen, the last day of the hearing, counsel for the plaintiffs produced yet a further revised version of the statement of claim. I was told that some, at least, of the amendments were not objected to. I indicated that it was far too late at that stage for a further contested amendment application, but that if there were amendments which were uncontentious I would receive them in the form of a further amended statement of claim in due course. But after I had reserved judgment I heard nothing further from the parties about this. I have therefore considered the parties’ submissions by reference to the version of the plaintiffs’ statement of claim filed in July.

Summary and analysis of the evidence

Witnesses

106. Fifteen of the eighteen plaintiffs were called as witnesses and were cross-examined. I refused belated applications for leave to lead evidence from Mr Neville Kelly (10^th plaintiff) and Mr Townsend (17^th plaintiff). Mrs Squire (16^th plaintiff) was not called. All three were co-shareholders with their spouses who did give evidence.

107. The plaintiffs’ oral evidence lasted for seven days. There was extensive cross-examination by counsel for the Kelly-Booker parties. The credibility of some of the plaintiffs was challenged in cross-examination. Counsel submitted that in general their evidence was unreliable at best. I will return to this when analysing the evidence on the share purchases in a later section of this judgment.

108. The witnesses for the Kelly-Booker parties were Ms Kelly and Mr Booker themselves. Ms Kelly was extensively cross-examined (over a period of five days) and Mr Booker was also cross-examined at some length. In closing submissions, counsel for the plaintiffs was highly critical of both of them as witnesses. Counsel submitted that their evidence on disputed questions of fact was not worthy of credit. The submissions went so far as to accuse Ms Kelly as having falsified some of the documents in evidence.

109. Counsel for the Kelly-Booker parties made a vigorous rebuttal of these submissions. Counsel complained that some at least of the more lurid allegations had not even been put in cross-examination. There was force in these submissions and I agree that counsel for the plaintiffs went too far in the allegations which he made.

110. Ms Kelly, as one would expect from a retired chartered accountant, presented as experienced and knowledgeable in matters of accounts and administration. She is clearly an astute person. I found certain aspects of her conduct commercially unsatisfactory but this did not necessarily make her evidence unreliable on a factual level. In the end it has not proved necessary to go into the allegations made against her by counsel for the plaintiffs in his closing submissions (if and to the extent that any of them was properly open). Nor has it been necessary to go into the allegations of threatening and overbearing conduct made against Mr Booker.

111. Mr Dean-Willcocks gave evidence in the Administrators’ case. He was cross-examined at some length, but his credibility was not challenged on any factual issues. Mr Gray did not give evidence.

Constitution of CHB

112. The original version of CHB’s constitution was presumably prepared before CHB was incorporated in February 2012. The version of CHB’s constitution to which I was referred during the hearing is annotated as having been amended on 9 July 2014. The amendments are not marked up. I have assumed that those amendments, whatever they were, and any other amendments which may have been made beforehand, make no difference for the purpose of these proceedings.

113. For the purposes of the constitution, the “Land” was defined as the parcels of land which made up the Park. The constitution contained the following further definitions:

Building means the improvements upon the Land.

Allotment means a portion of land, including and [sic] buildings constructed thereon, and being one of the sites designated by numbers 1 to 60 inclusive in the plan set out in Schedule 4.

Common Property means all areas of the Land and Buildings that are not Allotments or Buildings on Allotments.

114. Schedule 4 was a site plan in generally the same form as the site plan which was the subject of council approval in January 2015 (see [23] above). It is undated and seems to be an earlier version of that plan. It identifies only sixty-one shareholder sites (and the management building). Site 63 in the January 2015 site plan (a short-term site) does not appear. It seems likely that the plan in the version of the constitution to which I was referred post-dates the incorporation of CHB. But no point was taken about this.

115. Schedule 3 contains a list of the shareholder sites, showing both the shareholder site number and the share number for each Allotment. It also shows the area, in square metres, of each Allotment. It does not include the two sites which were not in the end developed as such.

116. Schedule 3 is described as CHB’s “member register” as at 31 January 2017. It is not in fact a register of members since it contains no information about who the registered owner of the relevant share was on that date. On its face, it also post-dates the original constitution by almost five years. Again, no point was taken about this for the purposes of the hearing.

117. Clause 2 of the constitution dealt with the objects of CHB. Those objects included:

2.1 Without limiting the powers of the Company under the Corporations Act and this Constitution, the objects for which the Company is established and to carry on business are:

(a)   To acquire all that piece of land being [the Park], the business operating on the property and all improvements erected thereon.

…

(c)   To maintain decorate repair replace reconstruct enlarge develop alter demolish furnish supply services to and otherwise improve generally the whole or any part of the said improvements and the gardens and grounds of and the approaches to any land owned occupied or used by the Company and without limiting the generality of the foregoing to erect construct and provide premises in which the Share Holders of the Company or their respective tenants licensees or nominees may reside.

118. Clause 2.2 provided:

2.2 Notwithstanding any other provision in this Constitution, any proposal to sell, subdivide, mortgage, charge or otherwise encumber (including lodging of a caveat) the Land, the Building, or any part thereof, shall not be put into effect without with the prior written consent of 80% of Share Holders, provided that such written consent will not be valid unless it is also witnessed by another person who are not a Share Holder or Director of the Company.

119. Clause 3 dealt with share capital. It provided that CHB’s share capital was $62. Sub-clause 3.1 dealt with shares. It gave the Directors power to issue shares and to allocate and confer or impose special rights or restrictions on those shares concerning voting, dividends and the like. The number of shareholders (counting joint shareholders as a single owner) could not exceed sixty-two.

120. Sub-clause 3.3 dealt with share classes. It provided for two classes of shares, ordinary and A class shares. The “terms of issue” of these classes of share was specified in schedule 2, to which I will refer in more detail below. Subclause 3.3(c) went on to provide:

Notwithstanding anything contained in this Constitution, only the owner of shares pertaining to an Allotment shall be entitled to hold shares which grant any rights in respect of an Allotment.

121. Sub-clause 3.5 dealt with increasing or decreasing CHB’s share capital. It gave the shareholders in general meeting the power to do so, and to attach rights or privileges to any group or groups of shares, with or without dividing them into classes. But this was subject to the proviso that eighty per cent approval of shareholders present and voting at the meeting was required. Sub-clause 3.7 dealt with variation of rights attaching to shares. Again, this required the consent of eighty per cent of shareholders.

122. Clauses 4 to 13 dealt, among other things, with general meetings, directors and executive officers, winding up, minutes and records, and indemnity and insurance. These provisions were generally conventional in form for a proprietary company. For the purposes of this judgment, it is only necessary to record the following:

1. Clause 6 provided for general meetings to be convened either by the directors or the shareholders. There was no provision for annual general meetings.

2. So far as directors’ fees and expenses were concerned, clause 7.3 provided:

(a)   Each Director is entitled to the remuneration out of the funds of the Company as the Directors determine, but if the Company in general meeting has fixed a limit on the amount of remuneration payable to the Directors, the aggregate remuneration of Directors must not exceed that limit.

(b)   The remuneration of Directors:

(i)   may be a stated salary or a fixed sum for attendance at each meeting of Directors or both; or

(ii)   may be a share of a fixed sum determined by the Company in general meeting to be the remuneration payable to all Directors which is to be divided between the Directors in the proportions agreed between them or, failing agreement, equally, and if it is a stated salary under rule 7.3(b)(i) or a share of a fixed sum under rule 7.3(b)(ii), is taken to accrue from day to day.

(c)   In addition to their remuneration under rule 7.3(a), the Directors are entitled to be paid all travelling and other expenses properly incurred by them in connection with the affairs of the Company, including attending and returning from general meetings of the Company or meetings of the Directors or of committees of the Directors.

(d)   Subject to any amount fixed in general meeting pursuant to rule 7.3(a), if a Director renders or is called on to perform extra services or to make any special exertions in connection with the affairs of the Company, the Directors may arrange for a special remuneration to be paid to that Directors, either in addition to or in substitution for that Directors' remuneration under rule 7.3(a).

3. Clause 11.1, dealing with winding up, provided that the surplus on winding up should be distributed to the shareholders “in proportion to the square meterage attached to the shares held by them”.

4. Clause 12 dealt with minutes and records. Concerning records, sub-clause 12.4 relevantly provided:

(a) Subject to the Corporations Act, the Directors may determine whether and to what extent, and at what time and places and under what conditions, the minute books, accounting records and other documents of the Company or any of them will be open to the inspection of Share Holders other than Directors.

(b)   A Share Holder other than a Director does not have the right to inspect any books, records or documents of the Company except as provided by law or authorised by the Directors.

…

(e) The Company must keep the financial records required by the Corporations Act.

123. Clause 14 provided for levies on shareholders. Sub-clause 14.1 gave the directors power, with the sanction of a “special resolution” of the shareholders, to impose an “Ordinary Levy” once per financial year and a “Special Levy” from time to time and at such times as the directors should see fit. Each shareholder was obliged to pay a proportion of the levies imposed, being the proportion which the “allotment entitlement” of the shareholder’s Allotment bore to the “aggregate land” shown in the site plan. Presumably this was to be understood as the aggregate of allotments for which shares had been issued.

124. There was no definition of the term “Ordinary Levy” in the constitution. The definition for “Special Levy” was:

Special Levy means a levy imposed to cover payments of a capital, irregular or major nature and shall include amounts sufficient to cover the liability of the Company for:

(a)   the cost of painting and re-painting any part of the Common Property of the Building;

(b)   the cost of acquisition of any personal property;

(c)   the cost to renew or replace any fixtures, fittings or personal property owned by the Company;

(d)   the cost of structural repairs to the Building;

(e)   any amounts that the Company is liable to pay forthwith but is unable to pay unless such a levy is raised; and

(f)   any amount payable by the Company that cannot be paid by current funds.

125. Clause 15 dealt with funds for operational purposes. It provided for three funds: a reserve fund; an ordinary fund; and a special fund. The ordinary and special funds were for the proceeds of Ordinary and Special Levies respectively.

126. Clause 16 provided for a Managing Agent:

(a)   A Managing Agent may be appointed by the Directors upon such terms as the Directors see fit.

(b)   The Managing Agent appointment is defined in Schedule 1.

(c)   The Managing Agent is responsible for calculating and charging a Site Fee for each Allotment.

(d)   The Site Fee levied is to cover costs as defined in Schedule 1.

(e)   The Managing Agent's appointment may be revoked subject to a special resolution of Share Holders decided by an 80% majority of votes cast any vacancy arising from the revocation.

127. Schedule 1 unhelpfully defined “Managing Agent” as follows:

Managing Agent means a person or entity appointed in accordance with rule 16 of this Constitution. The Managing Agent appointed is [HBS].

128. The combination of clause 16(b) and the definition in Schedule 1 was effectively circular. As a result, there was no definition in the constitution of the authority or functions of the Managing Agent.

129. The wording of clause 16(e) seems to have gone wrong. The initial words seem to provide, somewhat clumsily, that the Managing Agent could be removed by the shareholders by an eighty per cent vote. The last six words referred to filling of a vacancy but were incomplete.

130. The Site Fee to be collected by the Managing Agent was defined in Schedule 1 as follows:

Site Fee means a levy to cover the day to day administration, maintenance or repair of the property for the twelve month period following imposition of the levy and shall include amounts sufficient to cover the liability of the Company for:

(a)   council rates and all other amounts properly payable to municipal authorities;

(b)   water sewerage and drainage rates and all other amounts properly payable to water sewerage or drainage authorities;

(c)   amounts payable for Federal or State land taxes and any other charges and taxes imposed upon the Land by a properly constituted body;

(d)   insurance premiums for insurance of the Building in accordance with rules 13.4 and 13.6;

(e)   the cost of repairs and maintenance to the Buildings and the Common Property as are necessary to keep the Buildings in first class order and condition;

(f)   the cost of cleaning of the Common Property including all cleaning materials, implements and labour;

(g)   the cost of electricity to the Common Property;

(h)   the wages of any caretaker or other employee of the Management Company employed in the running, administration and maintenance of the Building;

(i)   any items of expenditure carried forward from the previous year;

(j)   any amount payable as Directors fees in accordance with this Constitution;

(k)   interest, bank charges and institutional of other ancillary charges payable upon any moneys borrowed of raised by the Company;

(I)   management, accounting, legal, secretarial and other professional charges including, without limiting the generality of the foregoing, any fees payable to the Managing Agent;

(m)   maintenance and repair of fire prevention equipment including the fire extinguishers within the Home Units; and

(n)   any other expenditure properly incurred by the Management Company in the day to day running, administration and maintenance of the property.

The Site Fee commencing April 2012 is $50 per week.

The Site Fee is reviewed six monthly and adjustments are based on 20% of the Single Aged Base Pension rate increase.

The Site Fee is payable weekly.

131. Clause 17 dealt with by-laws. It provided:

(a) Unless the Company otherwise resolves in general meeting, the ByLaws of the Company shall be those contained in Schedule 5 of this Constitution.

(b)   The Directors may amend the By-Laws from time to time as the Directors see fit.

132. Clause 18 dealt with conversion to strata title. It relevantly provided:

The Company may, subject to property suitability, availability of finance and the approval by the unanimous resolution of the Share Holders, take all necessary steps to apply for and proceed to the conversion of the property to Strata Title.

133. I now come back to schedule 2, which defined the “terms of issue” of classes of shares. Clause 2 of the schedule dealt with the ordinary shares. It provided:

Ordinary shares

Two ordinary shares were issued when the Company was registered. They remain in existence whilst the initial loan from the Commonwealth Bank to purchase the property and business remains unpaid. When the debt is repaid in full and all shares are issued, these two ordinary shares are to be recalled.

134. Clause 2 went on to provide that ordinary shareholders were to have one vote each at general meetings of the Company. The shareholders were also to have power to “make management decisions for the Company” and to “control the issue of all unissued shares”.

135. Clause 3 dealt with class A shares. Sub-clause 3.1 dealt with class entitlements. Such shares were to have one vote at general meetings of the Company. Further:

…

(b)   in the event of a sale of the whole of the Land, Class A Share Holders:

(i)   share equally in the square meterage of Common Property to calculate this portion of their share in the total sale proceeds, and

(ii)   the square meterage allocated to the Class A Share in Column 4 of Schedule 3 is used to calculate their entitlement to their portion of the total sale proceeds.

(c) the exclusive right, subject to rule 3.3(c) of this Constitution, to use, enjoy and occupy the Allotment which appears opposite the Share Number of that Share Holder in Column 4 of Schedule 3, together with the right to use the Common Property in common with all others similarly entitled.

136. Subclause 3.2 set out rights and obligations of the class A shareholders. Relevantly, these included:

3.2 Rights and obligations

…   

(b)   the right to rent or lease to another person over [the Share Holder’s Allotment]. The grant of any such rental or lease shall not affect the liability of the Share Holder to observe and perform the obligations arising under the Constitution:

(i)   A lease or rental of any Allotment may be granted without prior approval of the Company and without any restriction to such person as shall in the opinion of the relevant Share Holder (or that person's agent), be a suitable and responsible licensee or lessee.

…

(e)   Each Share Holder and any lessee, rental or invitee of that holder is entitled to use the Common Property subject to compliance with any ByLaws that may apply to the use of the Common Property.

…

137. Schedule 5 contained the by-laws. The schedule was drafted in the form of an agreement between the shareholder and the “ownership company” (CHB). It contained an acknowledgement by the parties that, upon signing of a share purchase agreement, they had entered into an agreement on the terms of the by-laws and the constitution. The author of the document appears to have been unaware that of its nature the constitution had contractual force (CA s 140(1)).

138. The schedule noted the provisions of clause 17 of the constitution which I have set out above. It recorded that the original by-laws had been dated 19 March 2012 (which post-dated the incorporation of CHB). The schedule represented the result of a “first amendment”, done on 10 August 2013 “after review by the directors following the first annual general meeting”. Again, it was not suggested that the earlier version or versions of the by-laws were relevant.

139. The by-laws also referred to the “management company” (HBS). It stated:

The shareholder/resident acknowledges that Coolah Home Base/Caravan Park is managed under an agreement between the ownership company [CHB] and the management company [HBS].

The shareholder/resident acknowledges that any reference in this agreement to the ownership company also refers to the authority of the management company under the management agreement.

140. The schedule set out an extensive set of rules for living at the Park. The following provisions were included:

Site fees and other payments

The shareholder/resident agrees:

1.   to pay the site fees as nominated by the ownership company from time to time

…

3.   to pay for electricity and gas supplied to the residential site

4.   to pay for any reasonable expense incurred for maintenance on their behalf

...

Shareholder site fee

The shareholder agrees:

1.   the shareholder site fee is payable for occupation of their purchased    allotment only

2.   the shareholder is to occupy their own allotment when at the park unless agreed verbally or in writing with the management company

3.   if the shareholder occupies another site, normal caravan park site fees can be applied by the management company

4.   the shareholder site fee does not cover frequent use of amenities, camp kitchen or other facilities provided for tourists. Additional charges may be made for frequent use of these facilities.

Installation of moveable/transportable or fixed dwellings or buildings

The shareholder/resident agrees:

1.   only transportable buildings are permitted for residential dwellings

2.   all building on the park is under the control and management of the management company

3.   all building on the park is at the sole discretion of the management company unless the management company first agrees in writing

…

6.   all construction in the park is carried out by the management company unless otherwise agreed in writing.

Acknowledgement of shareholder/resident's property

The shareholder/resident agrees:

1.   any dwelling, associated structure, shed, retaining wall or any structure or fixture including but not limited to, any landscape [for example, paths, driveways and concrete slabs] or landscape on the shareholder/residential site are the property of the shareholder

2.   any plumbing and/or gas fitting that connects the shareholder/residents dwelling or any of the shareholder/residents structures to the utility services provided by the ownership company are the property of the shareholder

3.   any electrical wiring and/or fittings from any structure on the site to the point of connection to the meter board/s are the property of the shareholder.

Personal occupancy

The shareholder/resident agrees:

1.   to personally occupy the shareholder/residential site

2.   unless the shareholder/resident is a corporation and the site is occupied by a natural person/s nominated by the company

3.   if the shareholder/resident is absent, not to permit any person to occupy the shareholder/residential site without first obtaining the management company's consent

4.   Exception to this clause is when prior arrangements have been made with the management company to rent the residential site to tourists under a managed site arrangement.

Right to sub-let

The ownership company agrees:

1.   that the shareholder/resident may sub-let the shareholder/residential site through an arrangement with the management company

2.   the shareholder receives the nominated percentage of rent after paying rental expenses

Occupants, guests and visitors

The shareholder/resident agrees:

1.   any other person who comes on to the park to visit the shareholder/resident is a visitor

2.   any visitor who stays overnight is a guest

3.   a guest may not stay longer than 7 consecutive days without the consent of the management company

4.   the shareholder/resident may be required to pay the management company a guest fee for each night the guest stays on the shareholder/residential site.

141. I have already referred to several difficulties in the drafting of the constitution. It appears to have been based on a company title constitution for a home unit building (in particular, sub-paragraph (m) in definition of “Site Fee” refers to “Home Units”, a term which is not defined), with modifications (not fully thought out) designed for the home base venture to be operated by CHB. I assume that those modifications were made by Ms Kelly, but there is no evidence about that.

142. Three particular difficulties should be mentioned at this stage. First, the body of the constitution seems to have contemplated that any buildings erected on the land would be built by CHB and would be fixtures on the land (see clause 2.1(c) ([117] above) and the definition of “Allotment” ([113] above). The by-laws, on the other hand, contemplated that any dwellings on the allotments would be moveable dwellings belonging to the shareholders, as would ancillary structures, even though as a matter of law such structures would usually be fixtures.

143. Second, there is slippage in the raising of funds for the payment of ordinary expenses. I suspect that the definition of “Site Fee” as it now appears was based on the definition for “Ordinary Levy”, with an indexed capping mechanism then applied. There were however obvious difficulties with that mechanism.

144. First, the ordinary expenditure was necessarily variable from year to year (as was acknowledged by sub-paragraph (i) of the definition of Site Fee). Second, it might have been expected that the expenditure would increase more rapidly than the cap. The extent to which a special resolution of the shareholders might be used to override that cap is difficult to answer. On any view however, a shortfall could have been dealt with by means of Special Levy (see sub-paragraph (e) and (f) in the definition of that term).

145. A related problem was the question of unissued shares. Levies could only be imposed upon shareholders. So long as shares remained unissued, there was no one liable to pay the Site Fee for the relevant allotment or to contribute to Special Levies.

146. A third difficulty concerned the by-laws. In the first place, it is not easy to see how the Directors’ power to vary the by-laws could operate consistently with the provision allowing the by-laws to be determined in general meeting. Furthermore, in certain respects the by-laws appear inconsistent with the provisions of the constitution itself. For example, the constitution gave class A shareholders the right to let out their allotments without needing any consent to do so, but the by-laws purported to impose conditions, including conditions of consent. It is difficult to accept that the by-laws could prevail over shareholder rights entrenched in the constitution. It seems quite clear from clause 17 that they were to be regarded as subordinate provisions, and therefore would give way to the extent of any inconsistency.

Share purchases by plaintiffs

147. As already noted, it is common ground that each of the plaintiffs purchased (individually or jointly) at least one share in CHB carrying with it the right to exclusive use of the corresponding site. What is disputed is whether the plaintiffs’ purchase contracts included the site itself, as a piece of land. In this section of the judgment, I deal with what the terms of the purchase contracts in fact were. I will, for convenience, refer to each of the purchases as a purchase of the relevant site. I will address the interpretation issues in a later part of the judgment.

148. Between the plaintiffs there were sixteen site purchases (two of the plaintiffs made more than one purchase). I will refer to them as purchases 1 to 16. In each case a share certificate corresponding with the subject site was issued to the purchaser.

149. Terms of purchase contracts: For fourteen of the purchases there is a signed written agreement in evidence. There are some differences in form.

150. Purchase 1 is recorded in a formal agreement between CHB and the purchaser styled “Share Sale Deed”. The front-sheet bears the name of a firm of solicitors at Port Macquarie. Purchase 2 is documented in the same way, except that the Share Sale Deed does not have a front-sheet bearing the solicitors’ name. Purchases 1 and 2 date from March and April 2012, and were completed before CHB had completed the purchase of the Park.

151. The later agreements, which all post-dated the completion of the purchase of the Park, are all printed on letterhead. They appear to have been prepared by Ms Kelly and Mr Booker without professional assistance. I will refer to them as the “letter agreements”. They consist of two pages. I discuss their terms in more detail below. All of the agreements are recognisably based on the same template but there are some changes over time.

152. There were ten letter agreements on the letterhead of CHB. These were for purchases 5 to 14, which covered the period from January 2013 to November 2014. In each case CHB was identified as the “vendor”.

153. The two remaining letter agreements were for purchases on the secondary market. That for purchase 15 (February 2015) was on the letterhead of RC (then called Cluster Park Pty Limited). RC was identified as the vendor. The letter agreement for purchase 16 (March 2017) was on the letterhead of HBS. The vendor was identified as Lorraine Faye Parsell. It seems that RC and Ms Parsell had previously “purchased” the relevant sites from CHB.

154. This leaves two purchases for which there is no written agreement in evidence. The purchase price for the first of these (purchase 3) was paid in October 2012. It appears that there was no written agreement and the transaction was purely oral. The remaining purchase is purchase 4. According to the evidence, the purchase took place in “late 2012”. Apparently, there was a written agreement, but it has been lost.

604. Another important contextual factor is that the administrator owes duties to the company. An administrator is an officer (CA, s 9) and therefore subject to statutory duties of reasonable care, honesty, etc: CA, ss 180(1), 181(1), 182(1) and 183(1). These overlie a common law duty of care and equitable fiduciary duties (see CA s 179). Furthermore, all of the actions by the administrator are deemed to be actions as agent for the company (s 437B), and this is another source of fiduciary obligation: see Correa v Whittingham (2013) 278 FLR 310 at [144], [148].

605. In considering the imposition of common law duty of care, it is of particular significance that the Act itself imposes, in express terms, statutory duties of proper conduct. It has always been recognised that these duties are owed to the company. The Act also recognises and confirms the continuing existence of duties of care and equitable fiduciary duties again owed to the company.

606. In support of the plaintiffs’ contention that a duty of care arose from a “proximate relationship”, counsel submitted that harm of the type suffered by the plaintiff was reasonably foreseeable. As will be seen below, this proposition may to some extent be debatable: it is far from clear what it is the Administrators could have done to avoid the outcome. But it is not necessary to go into that any further at this point. Even if foreseeability is established, it is only a necessary condition for the recognition of a duty. It is not sufficient. Something more is required.

607. There are a number of difficulties with the plaintiffs’ “proximate relationship” contention. Four in particular stand out.

608. The first and fundamental difficulty is that the statutory procedure itself gives the creditors of a company in administration control over the company’s future, and relegates the shareholders. There is nothing that the administrator can do about this; the administrator’s tasks are confined to advising the creditors on what decision they make, and keeping the company going until the decision is made. Any duty of care imposed on the administrator cannot operate outside this statutory straightjacket.

609. Once a company has been placed in administration, there may be a conflict between the interests of the shareholders and the creditors. For instance, it may be in the creditors’ interests to secure a quick sale of the company’s assets whereas the shareholders will desire to hold out for a longer period so the assets can be sold in an orderly way for a higher value. But in an administration where the company is insolvent the statute has laid down that the creditors’ wishes are to prevail. It would be pointless for the common law to oblige the administrator, when preparing a report for the creditors on what they should do, to investigate and advise on conflicting shareholder interests: compare Sullivan v Moody (2001) 207 CLR 562 at [55]-[60].

610. It may be acknowledged that not everything an administrator does will necessarily involve conflict between the shareholders’ and the creditors’ interests. But even in situations where these is no direct conflict, the second point is that to impose on the administrator a duty to protect the financial interests of the shareholders would be incoherent with the established duties (firmly anchored, as I have pointed out, in the words of the statute itself) owed by the administrator to the company. In a case where the company had insufficient assets to meet its liabilities, that would effectively elevate shareholders’ interests above those of creditors. It would also cut across the basic principle that the proper means for redressing losses suffered by the company is through a derivative action brought in the company’s name from which all creditors and shareholders may benefit.

611. Third, where (as here) the shareholders may have other means of redress. The Court of Appeal decision in Cadwallader v Bajco Pty Ltd [2002] NSWCA 328 shows that a shareholder has standing to invoke the equitable power to set aside the improper placement of the company in administration (and the statutory power under CA s 445D to terminate any resulting Deed of Company Arrangement). The shareholders may also present their own Deed of Company Arrangement. They may also pursue the liquidation of the company, or, if it continues under the directors’ management, apply for leave to bring a derivative action against the directors or third parties.

612. It would be going too far to say that the shareholders’ interests are always irrelevant in an administration. Where a company is insolvent or near insolvent, the officers’ duties to the company are, for practical purposes, equated with those of the creditors. As I have said, that is the approach expressly adopted in the Corporations Act. But in the rare case of a company in administration which is actually solvent, then the interests of the company will certainly involve taking account of, and may for some purposes be equated with, those of the shareholders.

613. This does not affect any of the points that I have made. It is only an illustration of the way in which the duties which the law already imposes in favour of a company require that creditors’ or shareholders’ interests, according to the circumstances, be considered when identifying the company’s overall interests.

614. I therefore conclude that the Administrators owed no duty of care to the plaintiffs based on a “proximate relationship”. This conclusion is consistent with authority. In Macks v Viscariello (2017) 130 SASR 1, the South Australian Full Court held that an administrator held no duty of care to creditors: see at [192], [202], [208]. There was no challenge (nor could there have been at trial level) to that decision. The conclusion in the present case that the Administrators owed no duty of care to the plaintiffs as shareholders follows a fortiori.

615. The second pleaded basis for the duty for which the plaintiffs contended was alleged foreseeability of harm to them as a result of matters learned by the Administrators in the course of the administration. These matters fall into two groups.

616. First, it was alleged that the Administrators knew, or ought to have known, that the plaintiffs were vulnerable elderly people. Their cabins were not transportable. If the Park was sold to a third party purchaser they stood to lose their homes.

617. Secondly, the Administrators were alleged to have been on notice of what was characterised as “dishonest and fraudulent conduct” by the Directors. Specially, that conduct was:

1. the April 2014 share issue (it being alleged that the Administrators should have appreciated that the market value of the short-term sites was $7,000, rather than $550 per share, resulting in a loss to CHB of $120,000);

2. the failure to pay site fees for the sites held by the Directors through HBS/RC (allegedly amounting to $180,000);

3. the presentation of accounts for CHB which contained no figures for profit and loss, the appointment of the Administrators just before the Court was to hear final submissions and give judgment in the s 247A application, and the circumstance that the only creditors were the Directors and their associates.

621. This conduct, it was alleged, should have led the Administrators to the conclusion that the shareholders’ “suspicions were well-founded” and the Directors planned to use the administration to buy the Park out of CHB and thereby defeat the plaintiffs’ rights.

622. As to the first group of factors, the Administrators knew the plaintiffs were retired and that some of them may have been unsophisticated. The allegation that they knew that the plaintiffs stood to lose their homes through the sale of CTP is however overstated.

623. What rights the shareholders had to remove their cabins, and the practical impact if they could not, were, as was acknowledged at the Administrators’ initial meeting with the shareholders, complex questions, the answers to which might vary between individual shareholders. Certainly the answers were important to shareholders who did not wish to take up the offer of an RSA from CTP. Even so, the additional cost of taking up the offer was about $120 per week. This may have been a significant sum for some of the plaintiffs but it would not on the face of it necessarily have been beyond their financial capacity.

624. There was also no reason for the Administrators to think that it was their responsibility to advise the plaintiffs on these questions. Mr McMillan and Mr Darch (and their associated shareholders) were not taking the Directors’ conduct lying down. They had legal representation from Mr Boog. In their position paper of 6 November 2019, Mr McMillan and Mr Darch expressly foreshadowed taking their own legal action over the Directors’ conduct.

625. As to the honesty of the Directors, I have accepted Mr Dean-Willcocks’ evidence that he did not think the Directors were using the administration to achieve a fraudulent takeover of CHB. In investigating and reporting on the Directors’ conduct the Administrators acted in good faith. There may be room to argue about whether they should have reached conclusions which were more unfavourable to the Directors. That would be relevant to establishing breach of duty, if one exists. It provides no reason for imposing a duty in the first place, and still less for imposing a duty in favour of the plaintiffs alongside the established duty to CHB.

626. For these reasons, the pleaded matters added nothing to general proximity considerations. No duty of care has been established and the plaintiffs’ claim fails for that reason alone.

627. Negligence and causation: As we have seen, the Administrators had a specific statutory task to perform and a limited time in which to perform it. The plaintiffs’ case was long on denunciation of the Administrators for the deplorable outcome of the administration for the shareholders, but short on practicalities. Even if the Administrators should have been (or in fact were) suspicious of the Directors’ motives, “no conclusion of negligence can be arrived at until the mind conceives affirmatively what ought to have been done” (Isaacs ACJ in Metropolitan Gas Co v City of Melbourne (1924) 35 CLR 189 at 194, quoted by Gummow and Hayne JJ in Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 at [192]).

628. As I have explained, the creditors’ claims by the Directors were to some extent questionable. There were also questions which might have been asked about whether CHB was insolvent. But Mr Dean-Willcocks genuinely believed that CHB was insolvent and counsel for the plaintiffs did not contend that he should have reached the contrary conclusion.

629. Still less was it suggested that the Administrators should themselves have taken some sort of action to set aside the administration or terminate the Kelly-Booker DOCA. That is not surprising because such action could have been taken by the plaintiffs had they wished.

630. The statement of claim alleged that, but for the Administrators’ failure to take reasonable care, the Directors could not have sold the Park without eighty per cent approval from the shareholders. But as we have seen, unless the administration had been set aside or terminated, the eighty per cent restriction was not applicable. The Administrators would have had no power to take it into account. In any event, approval of the Kelly-Booker DOCA was a matter for the creditors not the Administrators.

631. The plaintiffs alleged that the Administrators were negligent in recommending the Kelly-Booker DOCA to the creditors. The critical conclusions in the report were that: (1) overall, HBS had underwritten CHB’s expenses; and (2) there was insufficient evidence to decide whether the Directors had been justified in defending the s 247A proceedings.

632. As we have seen, conclusion (1) was contestable. There were arguments available that under CHB’s constitution the profit from the “tourist business” belonged to CHB not HBS. There were also arguments available that Ms Kelly’s division internal allocation of expenses and administration costs between the tourist business and “CHB Trading” was too favourable to HBS. But these arguments were not put to Mr Dean-Willcocks in cross-examination or articulated against the Administrators in final submissions.

633. For reasons I have given, there is room for suspicion about the Directors’ motives for defending the s 247A proceedings (and later placing CHB in administration). But it would be another thing entirely to say that the Administrators should have rejected Mr Vrisakis’ representations on behalf of the Directors. Ultimately the legitimacy of the Directors’ conduct turned on the facts. In any event, counsel for the plaintiffs did not mount any real challenge to the Administrators’ conclusion that they could not decide the question one way or another.

634. As we have seen, the plaintiffs’ real complaint was (or at least should have been) that the Directors by their conduct drove the company into administration. This of course was not something for which the Administrators were directly responsible. For reasons which I have given, once the administration had actually begun a failure by the Administrators to blame the Directors for CHB’s predicament made no practical difference.

635. And even if the report were open to criticism for being too uncritical and accepting the Directors’ denials of breach of duty, all the Administrators could have done would have been to recommend that CHB proceed to liquidation so that recovery action might be pursued. It is hardly likely that this would have made the slightest difference to the decision by Ms Kelly and Mr Booker, as creditors, to approve their own DOCA. The creditors’ claims may have been to some extent overstated, but there was no opposition from any other creditor, so the overstatement would not have made any difference. It was not alleged that the Administrators had been negligent in admitting the Directors as creditors for the amounts claimed.

636. It is also alleged in the statement of claim that but for the Administrators’ failure to take reasonable care the s 247A proceedings would not have been stayed (under CA 440D) and the plaintiffs would have “pursued remedies and protected their interests” as shareholders. But what “remedies” the plaintiffs would have obtained was not identified. The s 247A proceedings did not include any claim for relief in the nature of oppression.

637. In any event the bar on legal action by the plaintiffs against CHB was not absolute. The bar would not necessarily have prevented the plaintiffs from challenging the administration itself, or from challenging the Kelly-Booker DOCA; and it would always have been open to the plaintiffs to seek the court’s leave to proceed anyway. Most fundamentally, the Administrators were not to blame for the existence of CA s 440D, nor was there anything they could do about it.

638. Finally, although the plaintiffs alleged that the Park was sold to CTP at an undervalue, there was no evidence to support this. The plaintiffs asserted that the valuation obtained by the Administrators was “flawed”. It is not necessary to go into whether that assertion was correct. It is true that the Park had a significantly higher carrying value in CHB’s accounts. But proof of an entitlement to damages required proper evidence that, in the hands of the Administrators, the Park was worth more than the $430,000 offered by the Directors. There was simply no such evidence.

639. For these reasons, I think that the plaintiffs’ common law claim fails on breach and causation grounds also. But even if I were wrong in this view, any entitlement to damages would be an entitlement of CHB’s, not the plaintiffs’. The common law cause of action fails.

Unconscionable conduct

640. The allegations of unconscionability are relevantly pleaded two ways.

1. The Administrators recommended entry in to the Kelly-Booker DOCA, thereby stripping CHB of assets without adequate compensation, to the advantage of the Directors and to the disadvantage of CHB and the shareholders.

2. The Administrators were involved in the sale of the Park at an undervalue, due to having given erroneous instructions to the valuer.

641. Neither of these allegations fits comfortably within the concept of statutory unconscionability. In each case, the Administrators were at best negligent in the discharge of their obligations to CHB in a way which indirectly affected the plaintiffs. The Administrators’ conduct was not conduct directed towards, nor did it impinge in any commercial way, on the plaintiffs. Indeed, it was not conduct “in trade or commerce” because it did not have the requisite trading or commercial character: Macks [233]-[234]. Furthermore damage is the gist of the action and, for reasons already given, no damage has been established.

CA, s 1324(10)

642. CA, s 1324(10) provides:

Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person.

643. Counsel for the Administrators submitted, by reference to authority, that the section only applies where an injunction has actually been, or is actually being, sought. No injunction is sought here against the Administrators, nor could one have been sought. The proceedings were not instituted until after the statutory administration had been completed.

644. There was no reply to this submission and I accept it. The claim for compensation under s 1314(10) fails.

Insolvency Practice Schedule s 90-15

645. IPS s 90-15 relevantly provides:

90-15 Court may make orders in relation to external administration

Court may make orders

(1)   The Court may make such orders as it thinks fit in relation to the external administration of a company.

Orders on own initiative or on application

(2)   The Court may exercise the power under subsection (1):

(a)   on its own initiative, during proceedings before the Court; or

(b)   on application under section 90-20.

Examples of orders that may be made

(3)   Without limiting subsection (1), those orders may include any one or more of the following:

(a)   an order determining any question arising in the external administration of the company;

(b)   an order that a person cease to be the external administrator of the company;

(c)   an order that another registered liquidator be appointed as the external administrator of the company;

(d)   an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;

(e)   an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;

(f)   an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.

Matters that may be taken into account

(4)   Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a)   whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and

(b)   whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and

(c)   whether an action or failure to act by the liquidator is in compliance with an order of the Court; and

(d)   whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and

(e)   the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.

646. The plaintiffs claimed an order for compensation for the losses suffered by them under s 90-15(3)(e). The breaches of duty were identified, apparently, as the breaches of common law, equitable and statutory duties elsewhere alleged against the Administrators.

647. The apparent intent of IPS s 90, of which this provision forms part, is to give the Court a wide power of supervision over the external administration of companies, comparable to the power of supervision which this Court has over the administration of trusts under Part 54 of the Uniform Civil Procedure Rules 2005. In particular, the power given by s 90-15(3)(e) parallels the Court’s power in trust administration proceedings to order a trustee whose breaches of trust have diminished the trust estate to pay compensation which will restore the trust estate. But it is important to recognise that the supervisory jurisdiction over trusts, while allowing for relief to be granted against trustees and third parties associated with trustees, reflects substantive rights and obligations. It does not give the Court power to make any order it pleases. I would interpret s 90-15(3)(e) in the same way.

648. Counsel for the Administrators submitted that the plaintiffs have no standing. Section 90-20 limits standing for members to cases of members’ voluntary winding up, which is not the present case. Counsel acknowledged a possible exception in the case of Mr Neville Kelly and Mrs Susan Kelly. They have lodged a proof of debt which has not yet been ruled upon by the Administrators. I am not however sure that that proof is relevant, as it is a proof of debt in the deed administration, not the statutory administration. In any event, I have found that the Kellys have no claim against CHB.

649. The pleaded claim by the plaintiffs is a claim for an order for payment of compensation, directly for them, for their loss. That is not within s 90-15(3)(e) and I have found that no such entitlement exists.

650. In closing submissions, counsel for the plaintiffs sought an order for payment of compensation for loss suffered by CHB. Counsel appeared to acknowledge that this would require an enquiry into the damages suffered, given the lack of evidence about the loss actually suffered by the plaintiffs. Even if I were satisfied that a claim had been established, I would be disinclined to order this now in the light of the procedural history to which I have referred.

651. In any event, I do not consider that any such claims have been established. At most there may be some available criticisms of the way in which the Administrators conducted the administration. If there are viable claims against the Administrators, entitling CHB to substantial damages or compensation, then those claims may be pursued by a liquidator or by way of derivative action. I am not satisfied that any actionable breach has been established which would at this stage warrant ordering an enquiry into damages or compensation.

Compensation by way of relief against oppression

652. Initially, the plaintiffs’ pleaded case included a claim that the Administrators’ conduct itself constituted a form of oppression. That allegation was abandoned in the course of the hearing, but during final submissions counsel for the plaintiffs still sought to obtain relief against the Administrators on the footing that they were “involved in” the Directors’ oppression.

653. I do not accept that this is a valid position to take. The court’s powers under s 233 are directed towards eliminating oppressive conduct, or the effect of it. Such orders can of course be made against the parties’ who engaged in, or are engaging in, the oppressive conduct. They can also be made against parties who are the beneficiaries of it. But there is no concept of “involvement in” oppressive conduct as there is for contraventions of the Corporations Act. CA ss 232 and 233 simply provide that if oppressive conduct takes place the court may make orders to redress the oppressive effect of that conduct. Engaging in oppressive conduct is not in itself a contravention of the Act.

654. In the present case, it might have been argued that, although the Directors’ control of the Company ceased with the appointment of the Administrators, and therefore direct oppressive conduct by the Directors ceased, the incurring of the Administrators’ fees and the sale of the land by the Administrators were a continuing consequence of the Directors’ previous oppressive conduct and therefore could be the subject of orders against the Directors and possibly also CTP. As I have already pointed out, this claim was not pleaded. But in any event it would not have given rise to a claim against the Administrators personally.

655. As counsel implicitly accepted by abandoning the allegation of oppressive conduct by the Administrators, their actions were taken in the course of performing their statutory obligations. Even if those actions were open to criticism on the grounds of negligence, they were not oppressive in the relevant sense.

Conclusions and orders

656. I have concluded that:

1. the plaintiffs’ claims to equitable proprietary interests in their sites fail;

2. so too do the plaintiffs’ claims as shareholders to have the transfer of the Park to CTP rescinded;

3. there is no utility in the declaration sought that the plaintiffs’ cabins are not “for any purpose” fixtures;

4. some actions by the Directors were oppressive and the conduct of CHB’s affairs has generally also been oppressive, but none of the relief against oppression expressly claimed in the statement of claim is appropriate;

5. the plaintiffs’ monetary claims against the Kelly-Booker parties fail;

6. the plaintiffs’ monetary claims against the Administrators fail.

657. As a consequence of conclusion (4) I will, as foreshadowed, give the plaintiffs an opportunity to seek an order for the winding up of CHB. It seems to me that otherwise the claims against the Kelly-Booker parties should be dismissed. The plaintiffs’ claims against the Administrators should also be dismissed.

658. I assume that the cross-undertakings given by the plaintiffs and the Kelly-Booker parties should be released and the freezing orders against the Kelly-Booker parties should be discharged. I will give the parties an opportunity to bring in a minute of order giving effect to my judgment and dealing with costs. If agreement cannot be reached I will hear further argument.

659. As I have described, the hearing was disjointed and difficult. The parties’ submissions were also lengthy and canvassed many issues which I have not found it necessary to address. As I will be deferring the making of any formal orders at this point, I invite the parties to raise with me any errors and omissions in my judgment which could suitably be corrected before the making of final orders.

660. The result is a disappointment for the plaintiffs. The conduct of Ms Kelly and Mr Booker in marketing the shares and in the subsequent operation of CHB is, to say the least, open to criticism. But the result must reflect the way in which the plaintiffs’ case was pleaded and presented to the Court.

661. With the benefit of hindsight, the decision to pursue the s 247A proceedings proved unfortunate from the plaintiffs’ point of view. The costs of defending the proceedings necessarily fell on CHB because it was joined as the sole defendant. That was what later allowed the Directors to put CHB into administration.

662. This is not necessarily to accept the criticisms levelled by the Directors against Mr McMillan and Mr Darch for bringing the s 247A proceedings. It may yet be found that the Directors breached their duties in defending the proceedings unreasonably or expending excessive amounts on the defence. It may also be found that the Directors abused their powers in putting CHB into administration. But on any view, once the s 247A proceedings had been launched, it would have been necessary for CHB to incur some costs, which would, directly or indirectly, have had to be borne by the shareholders.

663. In oppression proceedings, it is common to join the subject company as a defendant, and it is necessary to do so if relief is sought which may affect the company’s corporate interests (for example, a winding up order). But in a case involving a proprietary company it is often possible to ensure that the oppressors themselves are the main defendants and that they bear the costs of defending their conduct. Had the s 247A proceedings (which involved many of the same complaints as were later raised in these proceedings) been constituted as oppression proceedings, the whole outcome could well have been quite different.

664. The orders of the Court are:

1. Adjourn the proceedings to 9:30 am on 1 June 2022 or such other time as may be arranged with my Associate.

2. Direct that the parties confer on the form of orders to be made to give effect to this judgment and to deal with costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.

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Amendments

23 November 2022 - amendments as requested by parties

Decision last updated: 23 November 2022