Re Crow Inn Pty Ltd (No 2)

[2020] NSWSC 1749

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Crow Inn Pty Limited (No 2) [2020] NSWSC 1749

Hearing dates:

25 August 2020

Date of orders:

7 December 2020

Decision date:

07 December 2020

Jurisdiction:

Equity

Before:

Rees J

Decision:

Amend share register under s233 Corporations Act; wind up companies on just and equitable ground; stay orders for 14 days to permit share buy-out; appoint receiver to family trust.

Catchwords:

CORPORATIONS – OPPRESSION – principles at [217]-[224] – oppression of majority shareholder by minority shareholder – majority shareholder did not have control – minority shareholder with operational control excluded majority shareholder from management and obstructed efforts to remove capital on reasonable terms: at [247]-[248].

CORPORATIONS – Family engaged in hotel businesses – grandparents retire – grandparents fund land and construction of hotel in Wagga as gift to son and grandson – son is majority shareholder – grandson operates hotel, being his first hotel – son mentors and supervises grandson from Sydney – shareholders agreement – grandson to be general manager for 5 years in return for $1m and further 10% shares in operating company – grandson buys land to build hotel nearby without telling son – son issues buy-out notice – grandson rescinds shareholders agreement – CCTV feed relied on by son in Sydney is cut – sustained delay in implementing resolutions to sell land and business – grandson progresses own development over son’s protest – bad behaviour – police called – grandson resigns and claims $1.6m wages – deadlock – irretrievable breakdown of relations.

CORRECT SHARE REGISTER – s175 Corporations Act – principles at [257]-[258] – not applicable where shares transferred under contract later repudiated when part-performed.

OPPRESSION – remedies – principles at [259]-[261] – buy-outs at [268]-[270] – grandson offers to buy shares in operating company but not landholding company – won’t cure oppression – ample time to agree – won’t order buy-out but will stay winding up order for 14 days to permit buy out – amend share register.

CORPORATIONS – winding up on just and equitable grounds – s 461(1)(k), s 467(4) Corporations Act – deadlock – irretrievable breakdown of relationship in family companies – companies are solvent – whether able to co-operate in one company but not the other – liquidator appointed to both companies.

LIQUIDATORS – choice of liquidator – principles at [290]-[292] – no evidence that plaintiffs’ nominated liquidator lacked independence – cost advantages.

RECEIVERS – ipso facto clause – trust constitution requires consent between deadlocked directors to appoint new trustee – interim receiver of assets of operating company appointed as receiver to assets of family trust.

Legislation Cited:

Australian Consumer Law, ss 18, 20

Corporations Act 2001 (Cth), 175, 232, 233, 461(1)(k), 467(4)

Trustee Act 1925 (NSW), s 70

Uniform Civil Procedure Rules 2005 (NSW), r 7.12(2)

Cases Cited:

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

Alati v Kruger [1955] ALR 1047; (1955) 94 CLR 216

Ample Source International Ltd v Bonython Metals Group Pty Ltd (No 6) (2011) 285 ALR 488; [2011] FCA 1484

Asia Pacific Joint Mining Pty Limited v Allways Resources Holdings Pty Limited (2018) 125 ACSR 227; [2018] QCA 048

Ausino International Pty Ltd v Apex Sports Pty Ltd [2007] NSWSC 360

Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 116 ACSR 566; [2016] NSWCA 347

Australian Securities and Investments Commission, Re Richstar Enterprises Pty Ltd v Carey (No 6) (2006) 153 FCR 509; [2006] FCA 814

Bailey (Liq) v Rock Solid Rendering Pty Ltd (in liq) ATF Rock Solid Trust [2020] FCA 600

Bell v Lever Brothers Ltd [1931] All ER Rep 1; [1932] AC 161

Boardman v Phipps [1966] 3 All ER 721; [1967] 2 AC 46

Boyd v Feeney [2017] NSWSC 1595

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Canberra Residential Developments Pty Ltd v Brendas (2010) 188 FCR 140; [2010] FCAFC 125

Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62

Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37

Corbett v Corbett Court Pty Ltd (2015) 109 ACSR 296; [2015] FCA 1176

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; (1978) 19 ALR 223

Dulhunty v Dulhunty [2010] NSWSC 1465

Elders Trustee & Executor Co Ltd v Higgins [1964] ALR 408; (1963) 113 CLR 426

Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

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

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

Gartside v Inland Revenue Commissioners [1968] AC 553

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

Grocon Constructions Pty Ltd v Kimberley Securities Ltd [2009] NSWSC 572

Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21

HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230; [2015] VSC 519

IceTV Pty Ltd v Ross [2008] NSWSC 1321

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

In the matter of Austral Alloys Pty Limited [2017] NSWSC 1833

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

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

In the matter of Crow Inn Pty Limited [2020] NSWSC 601

In the matter of Denham Constructions Pty Limited [2016] NSWSC 1425

In the matter of El Zorro Transport Pty Ltd [2013] NSWSC 1082

In the matter of Glenvine Pty Limited (in liq) [2020] NSWSC 866

In the matter ofHayes Steel Framing Systems Pty Ltd (Administrators Appointed) [2017] NSWSC 385

In the matter of Motasea Pty Ltd (2014) 97 ACSR 589; [2014] NSWSC 69

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

In the matter of Richardson & Wrench Holdings (2013) 97 ACSR 351; [2013] NSWSC 1990

International Hospitality Concepts Pty Limited v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 at 135; [2007] HCA 61

Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623

Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; [2012] FCA 634

Love v Williams [2019] NSWSC 555

Mann v Paterson Constructions Pty Ltd [2019] HCA 32

Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 71 ACSR 395; [2007] NSWSC 153

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222

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

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

Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553

R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59

Re a company (No 00709 of 1992); O’Neill v Phillips [1999] 2 All ER 961; [1999] UKHL 24

Re Dernacourt Investments Pty Ltd (1990) 2 ACSR 553; (1990) 20 NSWLR 588

Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364

Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364

Re Indoor Climate Technologies Pty Ltd [2019] NSWSC 35

ReKnight, Second ICO Pty Ltd (in liq) (2020) 144 ACSR 329; [2020] FCA 608

Re London School of Electronics Ltd [1986] Ch 211 at 222; [1985] BCLC 273 at 279

Re Mogul Stud Pty Ltd [2012] NSWSC 1639

Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279; (1987) 5 ACLC 184

Re Polyresins Pty Limited [1999] 1 Qd R 599; (1998) 12 ACLC 1674

Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17

Ryder v Frohlich [2004] NSWCA 472

Shelton v National Roads and Motorists Association Ltd (NRMA Ltd) (2004) 51 ACSR 278; [2004] FCA 1393

Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620

Snell v Glatis (No 2) [2020] NSWCA 166

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

Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544

Watson v Foxman (1995) 49 NSWLR 315

Watson v James [1999] NSWSC 600

Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459; [1985] HCA 68

Workers Compensation Nominal Insurer v Denny Earthmoving & Bulk Haulage Pty Ltd [2008] NSWSC 1167

Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380

Texts Cited:

Michael Lambiris in The Historical Context of Roman Law (William Gaunt & Sons 1997)

JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis, 2016

Category:

Principal judgment

Parties:

Netjay Pty Ltd (First Plaintiff)
Basil Berrigan (Second Plaintiff)
Crow Inn Pty Ltd (First Defendant)
Phatso Investments Pty Ltd (Second Defendant)
Joel Berrigan (Third Defendant)
Puddy Pty Ltd (Fourth Defendant)

Representation:

Counsel:
Mr LT Livingston (Plaintiffs)
Mr GA Sirtes SC / Mr J Adamopoulos (Defendants)

Solicitors:
HWL Ebsworth Lawyers (Plaintiffs)
Madison Marcus Law Firm (Defendants)

File Number(s):

2020/141395

Judgment

1. HER HONOUR: Basil Berrigan and his family company, Netjay Pty Ltd, seek an order that the first defendant, Crow Inn Pty Ltd, and the fourth defendant, Puddy Pty Ltd, be wound up on just and equitable grounds under section 461(1)(k) of the Corporations Act 2001 (Cth) and that a receiver and manager be appointed to the assets of The Puddy Trust. Crow Inn operates the business of the International Hotel Wagga Wagga and leases the land on which that business operates. Puddy owns the land in its capacity as trustee of The Puddy Trust. Basil and his nephew Joel Berrigan, the third defendant, are the two directors of Crow Inn and Puddy. Without intending any disrespect, I have generally referred to members of the Berrigan family by their first name.

2. The plaintiffs are the majority shareholders of Puddy and Crow Inn, owning 60% of the issued shares while, Joel and his family company, Phatso Investments Pty Ltd, own 40%. I will generally refer to Basil and Netjay as the plaintiffs and to Joel and Phatso as the defendants. A deadlock has arisen as the constitutions of Puddy and Crow Inn require both shareholders to attend meeting of members, and both directors to attend a directors’ meeting. Joel will likely not attend a meeting at which a resolution is proposed to remove him as a director or to sell the land or business. Thus, whilst Basil is the majority shareholder, he does not have control of the companies.

3. Basil and Joel accept that their relationship has irretrievably broken down, for which each blames the other. Each accuse the other of engaging in oppressive conduct contrary to section 232 of the Corporations Act by reason of which Basil seeks an order that the share register of Crow Inn be rectified to record that Netjay owns 70, and Phatso owns 30, of the 100 issued shares of Crow Inn. In turn, Joel seeks a declaration that Phatso is entitled to 40 shares in Crow Inn. Both seek share buy-out orders. Joel also seeks a declaration that he is entitled to $1,269,334 standing in his loan account with Puddy, although I did not understand Basil to suggest otherwise. Joel also seeks damages from Basil for misleading or deceptive conduct or unconscionable conduct. In the result, Basil is entitled to succeed entirely. The factual premise of Joel’s oppression suit and related claims has not been established. Joel thus accepts that the appointment of a liquidator is appropriate, at least to Crow Inn. Joel’s reasons as to why Puddy should be treated differently cannot be sustained.

4. The defendants suggested that the Berrigan family resembled an ancient Roman family as described by Michael Lambiris in The Historical Context of Roman Law (William Gaunt & Sons 1997) and Emmett AJA In Love v Williams [2019] NSWSC 555 at [50] and [51], where Thomas Berrigan – Basil’s father and Joel’s grandfather – was a “paterfamilias” vested with overwhelming power over family and property. The reality was more and ordinary. The business enterprise was established with the generous support of Thomas and wife Helen to Basil and Joel, and the hard work of each which the other does not now recognise. In 2018, Joel, apparently with the support of his grandfather, bought land nearby to build another hotel, without telling Basil. Basil sought to end their business arrangement by buying out Joel under a Shareholders Agreement. Joel has thrown every obstacle in Basil’s path. Thomas did his best to help his grandson, even swearing an affidavit shortly before he died. Thomas’ affidavit was, unsurprisingly in the circumstances, materially inaccurate. Armed with this, Joel’s behaviour towards his uncle hardened and could be described as taunting. Basil did not take to this kindly. It is clear from the struggle which ensued that a liquidator must now be appointed to both companies, and a receiver be appointed to The Puddy Trust, to make decisions for these corporate entities which Basil and Joel cannot make together.

WITNESSES

5. The plaintiffs relied on the evidence of Basil Berrigan, accountant Andrew Teece and building designer Darryl Forbes-Taber, the last of whom was not cross-examined and whose evidence I accept.

Basil Berrigan

6. Basil Berrigan was not an entirely satisfactory witness. Basil’s early affidavits omitted his worst behaviour in his battle with Joel. These omissions, partly corrected by subsequent affidavits, did not serve him well and were exploited during cross examination. He was cross examined at length. He generally answered questions fairly and clearly. He made reasonable concessions including in respect of uncomfortable and embarrassing matters. Basil bridled at matters of significant emotional intensity concerning events soon after his father’s death and when dealing with his nephew in respect of accessing his father’s unit to take some items of sentimental value where, as Basil understood it, other family members had been permitted to do so. Basil’s evidence on events at this time was not always consistent, for example, Basil initially denied that he wished to access his father’s unit in order to remove some items but later agreed that he did take some possessions when he was in the room, see also at [198] and [203]. The questions canvassed emotional issues that appeared raw and I am prepared to give Basil a bit of latitude in respect of his conduct at the time and the answers which he gave about them. Basil spoke fondly of his father and I expect he was genuinely distressed at the time.

7. More relevantly, Basil’s early affidavits sworn before service of his father’s affidavit understated his father’s interest in the hotel development (see [31]) and mischaracterised Basil’s contributions to the development as self-funded when, on closer inspection, his contributions were largely gifts to him by his parents. Basil explained this as due to a wish to prevent controversy with his siblings, which appeared a reasonable explanation having regard to the evidence overall. To some extent, Basil’s evidence about his involvement in the construction and management of the hotel was overstated. That said, Basil’s role was far greater than that for which Joel gave him credit.

8. On occasion, Basil changed his answers when more information was brought to light which suggested his earlier answers were incorrect. Basil tended to say he did not recall when he got into difficulty, which he did from time to time. Sometimes, Basil said what he thought he could get away with, and generally perceived that line well, with some notable exceptions. Whilst I did not accept everything which Basil said, a substantial portion of his evidence was correct. On points of great controversy, I have put Basil’s evidence to one side and relied on contemporaneous documents and evidence of more reliable witnesses.

Andrew Teece

9. Andrew Teece is an accountant. He and his father Philip Teece have been the accountants for the Berrigan family for many years, starting with Thomas and Helen Berrigan. Andrew Teece has prepared the financial statements for Puddy and Crow Inn since their incorporation, and continues to be the accountant for these companies. Whilst called as a witness for the plaintiffs, the defendants’ legal representatives had conferred with Mr Teece before he gave evidence. There is, of course, no property in a witness. The cross-examination of Mr Teece was, in reality, calling evidence in chief from a well-prepared and co-operative witness. If anything, Andrew Teece’s evidence had a partisan quality favouring Joel Berrigan, although I note that Andrew Teece has worked valiantly over the years to endeavour to broker a peace between these warring parties, in an apparently even-handed and fair manner, for which he can only be commended.

10. The defendants relied on the evidence of Joel Berrigan, construction manager Mark Churcher and an affidavit sworn by Thomas Berrigan shortly before he died. In relation to Thomas’ affidavit, the defendants also relied on the evidence of their solicitor, Annabelle Tan, who assisted in preparing Thomas’s affidavit, as well as the evidence of Thomas’ treating doctor, Dr Victor Antoun. Ms Tan and Dr Antoun were not required for cross-examination and I accept their evidence.

Joel Berrigan

11. Joel was a most unsatisfactory witness. Before giving his evidence, Joel was present during the evidence of Basil and Andrew Teece. Joel was initially charming and affable but took every opportunity – whether in his affidavits or during cross-examination – to make gratuitous, disparaging remarks about Basil. This was in stark contrast to Joel’s abiding suggestion that he was deserving of pity, compassion and understanding. Joel persistently dismissed or diminished any contribution made by Basil to the construction or management of the hotel. Joel consistently over-stated his own contribution. See, for example, [28]-[29], [63], [75], [82].

12. Joel sought to portray himself as naïve and passive in respect of his dealings with Basil when negotiating a Shareholders Agreement – “I’m pretty simple” – or, in relation to Basil’s efforts to buy him out in accordance with the agreement, “Yeah, so I took this letter to my solicitors because I didn't really understand it, to be honest.”  Similarly in respect of his solicitor’s letter disavowing the agreement, “My very broad understanding of this letter was that the agreement was poorly written, a joke and that I had rights and it was clear to me that I didn't even understand what those were, and to be perfectly honest I still don't to this day.  This letter … is full of a lot of things that I just don't understand.” However, Joel displayed detailed knowledge when it mattered to his case, such as in respect of a Wagga Wagga Development Control Plan (2010), micro and macroeconomics and the local accommodation market. When asked about his presentation at a Wagga Wagga Council meeting, Joel said, “They need to understand that these projects can be managed, that men like me know what we’re doing”.

13. Joel was often evasive and non-responsive, for example at [104], [170], [176], or inconsistent, at [165], [173]. Joel volunteered remarks which he thought would advance his case. Joel made gratuitous references to what his grandfather had said to give credence to Joel’s evidence; such conversations were often not referred to in his affidavits. Joel had excellent recall when it suited him and not otherwise. His answers on many occasions were unlikely: for example, at [102]; [104], [109], [113], [128], [174], [209]. He appeared to make things up: see [133], [140], [160]. I conclude that Joel would say whatever he thought would advance his case regardless of whether it was true or not. I ultimately did not believe him. That is not to say that everything Joel said was untrue, but I have no confidence in what he said unless it is corroborated by contemporaneous documents, the evidence of another reliable witness, inherently likely or adverse to Joel’s own interest.

14. Mr Churcher seemed an honest fellow. He was friends with Joel, having known him since he was a baby and played a significant role in developing Joel’s skills as a builder. Mr Churcher remembered Thomas fondly. I accept his evidence.

Thomas Berrigan

15. The defendants relied on an affidavit by Thomas Berrigan sworn on 17 October 2019, twenty days before Thomas died of leukaemia, aged 85. Basil and his son visited Thomas that morning. Basil says that his father appeared extremely weak, fragile and exhausted. His body was emaciated and he appeared to be half his usual body weight, was very gaunt in the face with long black circles around his eyes. Thomas had sores all over his legs and required assistance when he moved. He needed pillows to support his body and legs. At times, his father drifted off to sleep whilst they sat with him. He laboured at times with talking. He took small nibbles of watermelon and had difficulty swallowing. He was medicated for pain.

16. Dr Antoun was asked by Joel’s solicitor to confirm Thomas’ cognitive ability before giving instructions for the affidavit. Dr Antoun understood that he was tasked with assessing Thomas’ ability to make decisions for and about himself as some legal documents were required to be signed by him. Dr Antoun administered a Standardised Mini-Mental State Examination (SMMSE) test. According to “Standardised Mini-Mental State Examination (SMMSE) – Guidelines for administration and scoring instructions, Independent Hospital Pricing Authority (IHPA) on behalf of the Commonwealth of Australia (2014), the test was first developed in 1975 and has become widely used as a screening test for cognitive impairment in older individuals, where early signs of dementia are often missed.

The test covers a variety of cognitive domains, including orientation to time and place, short and long-term memory, registration, recall, constructional ability, language and the ability to understand and follow commands.

Thomas achieved the highest possible score (although Basil notes Thomas actually got one question wrong). Based on the results of the test, Dr Antoun was of the opinion that Thomas possessed the cognitive ability to make his own decisions, his mind was still sharp and he could recall everything without hesitation.

17. Ms Tan explains how instructions for the affidavit were taken, beginning at about 9.45 am. It is apparent from Ms Tan’s affidavit that Thomas was coming to the end of his life and family members were visiting him during the day. Ms Tan and a barrister completed the exercise at 5.00 pm. Whilst they were not with Thomas throughout the day, leaving and returning to his room as the document was prepared, it was likely a very long day for a man in his condition. I infer from Dr Antoun’s evidence that he apprehended that Thomas was going to be asked to sign a legal document – perhaps a Will – which had already been prepared. Dr Antoun may not have appreciated the nature of the task ahead of Thomas that day. This is not to criticise Ms Tan, counsel nor Dr Antoun but to recognise that the circumstances in which Thomas’ affidavit was prepared were difficult indeed.

18. Further, notwithstanding Dr Antoun’s observations, there are a number of inaccuracies in Thomas’ affidavit which suggest, unsurprisingly, that his recollection was not particularly accurate.

1. Thomas says he was diagnosed with leukaemia in May 2017 whilst Dr Antoun said he was diagnosed in March 2018.

2. Thomas appears to have confused two hotels in Sydney: a hotel bought in the 1980s called the Airport Sydney International Hotel and another hotel owned by Basil in Arncliffe where Joel had worked in 2010: at [33]-[34].

3. Thomas appears to have been a decade “out” when he recalled the sale of the Airport Sydney International Hotel in 2002, and accounting advice said to have been received in 2003 in respect of the proceeds of sale. The evidence of Andrew Teece and contemporaneous documents indicate that the accounting advice, at least, was given in the 2012 and 2013 financial years.

4. Most importantly, in recalling critical conversations and events, Thomas appears to have conflated events which happened over several years. See further at [181]-[192].

19. This is not to criticise Thomas but simply to observe that his affidavit was incorrect in places and, as he was not available for cross-examination and did not have the benefit of reviewing additional contemporaneous documents which no doubt became available during the course of these legal proceedings, just because Thomas said it does not necessarily make it so.

20. Both Joel and Basil relied on what Thomas had said to them, in respect of which I have borne in mind that, in a claim based on communications with a deceased person, the Court will treat uncorroborated evidence of such communications with considerable caution and will regard as of particular significance any failure of a party to bring forward corroborative evidence which was, or ought to have been, available: Plunkett v Bull (1915) 19 CLR 544; [1915] HCA 14.

FACTS

21. Thomas and Helen Berrigan hailed from Wagga Wagga, where they had five children, including son Basil and daughter Marianne. In 1984, they began managing hotels. The first venture appears to have been the Blakehurst Motor Inn. Basil, then in his early 20s, worked with his father at the motel for five years. Thomas and Helen bought a house in Sydney. Basil set up home in Blakehurst.

22. In about 1985 or 1986, Thomas retained BJC Constructions Pty Limited to carry out alterations and additions to the motel. Barry Churcher was the builder and his son, Mark Churcher, was a carpenter. Mark Churcher met Basil and Joel, then a baby. Barry and Mark Churcher worked closely with Thomas and his companies over the years which followed. According to Mark Churcher, Thomas’ pattern was to be heavily involved in the preliminary stages of development such as the scope of works, structural design, costing, procurement and engaging contractors. Having involved himself in major decisions and financial aspects, Thomas left construction to the builder.

23. In 1987, Thomas and Helen Berrigan established Bryzer Pty Limited. Bryzer purchased land in Mascot to develop a hotel which became the Airport Sydney International Hotel. BJC Constructions was the builder. Mark Churcher was site manager. The completed hotel had 60 guest rooms, a restaurant and bar and offices. Basil worked with his father for 12 years at the Airport Sydney International Hotel.

24. In about 1990, Marianne became a single parent. Marianne and her children went to live with Thomas and Helen for a time. Joel developed a close relationship with his grandfather. In 1991, Basil became a director of Bryzer. In 1999, Bryzer engaged BJC Constructions to construct a second hotel behind the Airport Sydney International Hotel. Mark Churcher was site manager. Joel was then 13 and took a keen interest in what was going on; Mark Churcher was happy to answer Joel’s questions.

25. In 2003, Joel’s mother contacted Mark Churcher and asked whether he could give Joel, then aged 17, some work, “Joel’s not doing too well at school. He doesn’t like it very much … Are you able to help him out with some work …?”. Mr Churcher helped Joel get work as a labourer with a construction company; BJC Constructions also hired Joel as a labourer from time to time. Joel wanted to learn how to manage a large construction site and Mark Churcher was happy to teach Joel, who he described as a hard worker.

26. From June 2006 to November 2008, Basil worked with his father at the Coffs Harbour International Motel. In 2006, Joel undertook a personal training course for a year while continuing to work part-time as a builder’s labourer. In 2007, Joel says that his grandfather encouraged him to pursue a career in hospitality so that he could help the family. Joel got a job at the St George Rowing Club, where he worked for about a year undertaking a traineeship to become a bar manager. In 2008, Joel went to work at a hotel in Maitland, which his mother and grandmother owned.

27. In 2010, according to Basil, Thomas asked him to give Joel a job at an Arncliffe hotel in which Basil had an interest and which was undergoing renovations. Basil agreed. Joel, then aged 24, is recorded in the wages book as having worked on site in 2010 and 2011. Basil paid Joel almost double what he paid the other labourer. Joel’s higher wage may have been referable to the fact he was family, or because he was doing more than labouring: Basil says it was the former.

28. According to Joel, he returned to Sydney when Thomas asked him to assist Basil to construct and fit out the Arncliffe hotel. Thomas told Joel that he had visited the site and there were “some alarming things that are happening there. There are no licensed trades on site. Could you please go there and get started and use some of your connections to help Basil get going? Using your connection with Churcher and [a colleague who ran a construction company] would be very helpful”. Joel described his duties as engaging tradesmen and obtaining quotes for works to be completed, arranging all prime cost items such as bathroom and kitchen fittings; undertaking timber framing, tiling, fitting windows, gyprocking, insulation and ventilation, painting, demolition and roofing. He addressed design issues together with his colleague in respect of the removal of weight-bearing walls and implementing a strategy with the help of an engineering to rectify these issues.

29. The contemporaneous documents include invoices rendered by various trades, some addressed to Basil and none addressed to Joel. Mr Churcher says Joel was contracted by BJC Constructions from 2007 to 2012 to assist on various building projects as a labourer and undertook general labour tasks such as sweeping, jackhammering, concrete, breaking down walls and cleaning bricks. The absence of any reference to Joel in the contemporaneous documents concerning the Arncliffe hotel, other than the wages book, and Mr Churcher’s description of the tasks on Joel was generally engaged over this period, suggests that Joel overstated his role on this project.

Going back to Wagga

30. In 2010, Thomas and Helen were both aged 77 and wished to retire to Wagga Wagga. Basil was 48 and had worked with his parents for 26 years in three hotels as well as pursued other hotel ventures himself. Joel was 24 and had worked in a range of jobs in labouring, personal training, bar work, hotels and construction. As Joel said, “I didn’t have a five-year plan as you can tell from my employment history”. In conjunction with his parents’ return to Wagga, Basil wanted to purchase and develop a hotel there. Basil and his father found suitable land which was up for auction. In November 2010, Thomas prepared handwritten notes of estimated construction and fit out costs, operating profit, return on investment, room layouts and the like. Some of the plans and drawings are Basil’s. Basil said they “brain stormed” different ideas because of their collective knowledge of the hotel industry.

31. Basil initially said that his father was not interested in being financially involved in the project and denied that Thomas expressed any interest in purchasing the land, saying Basil located the land without assistance from his father. After receiving his father’s affidavit, Basil acknowledged his father’s interest in purchasing the land, which he described as mutual. In cross-examination, Basil agreed that his initial affidavit was knowingly false but maintained that he instigated the purchase. Basil accepted that he had wanted to take credit for paying some $6 million worth of construction costs but maintained that he was involved in designing the hotel. Basil got into difficulty in this part of his evidence, but I accept that Basil and Thomas’ roles in locating and investigating the site were as Basil ultimately described.

Buying the land, setting up Puddy and the trust

32. On 8 December 2010, Thomas, Helen, Basil and Joel attended the auction. Basil did the bidding. Basil signed the contract, buying the land for $1.4 million. The deposit of $140,000 was initially paid by Netbas Trust, being a trust associated with Basil. Basil immediately called Andrew Teece from the auction and told him to go ahead and register a company – Puddy Pty Ltd – where Puddy was Thomas’ pet name for Helen. When Andrew Teece asked how Basil wanted the shares allocated, Basil put his father on the phone. Thomas said the shares should be allocated 50% to Basil, 20% each to Helen and himself, and 10% to Joel. Basil let his father dictate the shareholdings out of respect for Thomas as the head of the family. Joel says that he and Helen stayed outside until after the auction was complete, and “however [Puddy] was set up was never revealed to me”. It is more likely that Thomas informed his grandson at the time that Joel was a 10% shareholder in this exciting new project.

33. According to Thomas’ affidavit, he allocated the shares in this manner to reward Basil and Joel for their assistance to that point and their intended involvement in the new venture, being Basil’s capital contributions and Joel’s contribution to the construction of the hotel as a builder.

Furthermore, in relation to the former hotel at Mascot, I felt at the time that Joel’s contributions had not been adequately rewarded.

34. Thomas was referring to the Airport Sydney International Hotel. There is no suggestion that Joel made any particular contribution to that hotel. It may be that Thomas was referring to the Arncliffe hotel, in which case Thomas’ recollection at the time of giving his affidavit was a little confused. If Thomas did mean to refer to the Arncliffe hotel, then it is also not obvious why Thomas thought that Joel’s contributions had not been adequately rewarded where Joel had been paid wages. Joel was then living with his grandparents in Sydney. It may be that Joel described his work at the Arncliffe hotel to his grandfather in similar terms to that described in these proceedings and his grandfather accepted this description as, obviously, more than that of a labourer. It may simply be – and I think this is likely – that Thomas’ recollection, shortly before his death, as to precisely why he had given Joel a 10% shareholding in Puddy nine years earlier was not accurate.

35. Thus, of 200 ordinary shares issued by Puddy, Basil held 98, Thomas and Helen held 41 shares each and Joel held 20 shares. Thomas, Helen and Basil Berrigan were appointed directors. The fact that Joel was not appointed a director suggests that, at this point in time, Joel was very much a junior partner in this new venture. The constitution of Puddy adopted the replaceable rules except to the extent modified by the constitution. In particular, section 248F and section 249T of the Corporations Act applied such that the quorum for a meeting of the company’s members was two members, the quorum for a meeting of directors was two directors, and the quorum must be present at all times during the meeting.

36. The Puddy Trust was also established. Philip Teece was the settlor. Thomas was the appointor. Puddy was appointed trustee. The trust deed was signed by Basil, Thomas, Helen and Joel (so presumably Joel had some idea he was involved with The Puddy Trust, at least). The Puddy Trust is a discretionary trust. The beneficiaries were Basil, Thomas, Helen and Joel together with spouses, child or other relatives. As trustee, Puddy has “absolute discretion” to accumulate or distribute income as it thinks fit: clauses 3, 5 and 15(a). Puddy does not carry on any other business nor own any assets in its personal capacity. All assets are owned in its capacity as trustee of the Puddy Trust.

37. As completion of the purchase approached, Thomas made a handwritten note on 13 January 2011 adding up the cost of the land, tax, duty and expenses to some $1.475 million. According to the note, these funds were to be provided by Basil as to $1 million and Thomas and Helen as to $500,000. Basil provided his portion; $1 million was deposited to Puddy’s bank account that day. A further $500,000 was deposited on 21 January 2011. On 21 January 2011, the purchase was completed using funds from Puddy Trust’s bank account. A letter confirming settlement was sent by Puddy’s solicitor, Gordon Bryant, to Thomas. The total cost, including stamp duty and legal costs, was $1,498,804.19 and recorded in the balance sheet of The Puddy Trust.

38. According to Thomas, Bryzer had sold the Airport Sydney International Hotel in 2002 for $10 million, although it likely occurred some years later. In any event, in March 2011 a term deposit in the name of Bryzer matured. On 18 March 2011, Thomas and Helen Berrigan sent a handwritten note to the bank instructing that the monies be transferred to Puddy’s bank account.

The design phase

39. Basil retained a building designer, Mr Forbes-Taber, who had designed numerous projects for Thomas, Basil and the Berrigan family for over 50 years. Mr Forbes-Taber says he was engaged by Basil on behalf of Puddy; Basil was the client and principal contact while Thomas was involved in discussions from time to time. Basil says he formulated the concept design and had many meetings with Mr Forbes-Taber and Council to finalise the plans and resolve issues with the development application, while Thomas sat in on some of the discussions with Mr Forbes-Taber. Mr Forbes-Taber said he was “totally involved” with Basil in the development approval process, whilst Thomas was “kept in the loop”. I accept Mr Forbes-Taber’s evidence, which is also consistent with the contemporaneous documents. Thomas and Basil were nominated as contact persons on an application to enter railway land to investigate the extinguishment of an easement; communications ensued with both.

40. According to Joel, Thomas took photographs of a medical centre in Wagga Wagga which he provided to Mr Taber-Forbes, unfortunately described as a draftsman, to design the International Hotel. Mr Taber-Forbes said he had designed the medical centre and took Basil and Thomas there to show them the type of building he could design for the hotel, including tilt-up concrete panel walls. Joel also said that Mr Churcher was responsible for the development application; he clearly was not. Having reviewed the contemporaneous documents, Joel tended to over-state Thomas’ role in this phase of the development and had no role himself.

41. On 7 April 2011, the development application was lodged with the Council of the City of Wagga Wagga. The estimated cost of construction was $6.5 million.

More money from Bryzer

42. On 10 May 2011, another Bryzer term deposit reached maturity and was deposited to Puddy’s bank account. A term deposit in Thomas and Helen’s names also reached maturity and was deposited as well. Both deposits were treated as loans by Basil to Puddy. On 17 May 2011, another Bryzer term deposit reached maturity. On 18 May 2011, Thomas and Helen Berrigan signed a handwritten note recording that a cheque for part of the term deposit was being deposited in Puddy’s cash deposit account.

43. The parents appear to have been funding their son’s contribution to the new development but without recognising the distinct corporate entities involved. Such an approach is consistent with Thomas’ affidavit: he was not overly concerned about documentation; the family had always conducted business together based on trust and largely on an informal basis.

44. In about May 2011, Basil says that his parents expressed concern that they would have a capital gains tax problem if they continued to hold shares in Puddy when hotel operations commenced. Thomas said they proposed to give half their shares to Basil and the other half to Joel. On 10 June 2011, Thomas transferred his 41 shares in Puddy: 21 shares to Basil and 20 shares to Joel. As a consequence, Basil held 60% of the share capital of Puddy while Helen and Joel held 20% each.

45. As at 30 June 2011, the balance sheet for the Puddy Trust recorded loans of $6,273,040.90 from the Berrigan Trading Trust (of which Bryzer was trustee), $300,000 from the Berrigan Family Trust and $310,719.90 from Basil. It would appear that the balance sheet did not then align with what Thomas and Helen were trying to achieve vis a vis Basil.

Getting ready to build

46. Thomas called Mark Churcher and asked if he could help build another hotel in Wagga Wagga. Thomas said he wanted to keep costs down so did not want to contract BJC Constructions as the builder, but wanted to use Mr Churcher’s expertise. Thomas said that Puddy would be the builder and Joel and Basil would help out too. Mr Churcher agreed to help as construction manager, although he did not think that Thomas, Basil or Joel had the requisite experience to build a hotel on their own. Mr Churcher met with Thomas, Basil and Joel on numerous occasions from May to September 2011 to discuss the costs of construction. Whilst Mr Churcher did not recall how many meetings Basil attended, it was fewer than those which Thomas and Joel attended. Thomas, Joel and Mark Churcher were friends of long-standing and, I expect, communicated frequently in respect of the project. I also expect that Thomas wished to share this project with his grandson, with a view to supporting Joel’s keen interest in construction.

47. On 15 September 2011, Puddy entered into a construction management contract with BJC Constructions. The contract was signed by Thomas and Basil. Thomas was nominated as the contact person for Puddy and prepared, in handwriting, special conditions to be included in the contract. The conditions were duly included, which recorded the dual importance of Thomas and Basil to the project. Both were to agree before the appointment of any consultants, legal or other professionals. Both were to be consulted before advance ordering of materials and goods or entry into trade contracts.

48. Although only contracted by Puddy to be a construction manager, Mr Churcher says he undertook a long list of tasks to help the construction process due to Thomas, Basil and Joel’s inexperience. Mr Churcher directed and discussed the construction project with sub-contractors, following which Mr Churcher provided his recommendations as to which sub-contractors should be engaged and what further work was required. Mr Churcher provided his recommendations at meetings with Thomas and Joel and sometimes Basil. By April 2012, Mr Churcher had completed a Budget Estimate Report.

49. Given the size of the building project, there are surprisingly few records of communications with or by Basil, Thomas or Joel. This is consistent with the fact that a construction manager had been retained, who was presumably taking care of the vast bulk of organisational tasks associated with the build. Communications with Basil by and large concerned more significant matters such as design, fit out and liquor licencing. Communications involving Thomas generally concerned the payment of invoices. Communications with Joel generally concerned smaller trade-related matters, such as obtaining a quote for a kitchen benchtop or arranging the shipment of tiles from Sydney to Wagga Wagga. Overall, the bulk of the correspondence with consultants and suppliers – so far as it was not dealt with by Mr Churcher – was addressed to Basil. The first email also addressed to Joel is dated 26 August 2011, and Mr Churcher usually copied both Basil and Joel to emails thereafter. There is no doubt that Thomas, who did not have an email address, was also involved in the development.

50. Joel came to use an email address “tbjdevelopment”, being a reference to Thomas, Basil and Joel. The fact that Joel formulated this email address indicates that he regarded Thomas, Basil and himself as together being involved in the development. Joel says he was grateful to be given the opportunity by Thomas and Basil to be included in the project. He considered that Thomas and Basil had provided him with an opportunity to set himself and his young family up financially. That appears to have been a fair assessment.

51. Basil says that Thomas attended to the payment of creditors and the signing of cheques, which Basil considered to be Thomas’ primary role during the construction phase. “My father was meticulous and kept detailed of accounts he had paid on different projects. Everything was done by pen and paper”. Puddy also had a bookkeeper who was employed by Netbas and thus paid by Basil. Thomas’ role as described by Basil is supported by the contemporaneous documents. Various invoices from the hotel development are in evidence and refer to Basil and Thomas. In November 2011, Thomas obtained insurance for the contract works. On 1 December 2011, Thomas advised the Council that Puddy surrendered the consent granted under the development application.

Trying to tidy up Bryzer

52. In June 2012, Philip and Andrew Teece met with Thomas and Helen Berrigan to discuss the winding up of Bryzer. As Andrew Teece understood it, the funds were to be withdrawn from Bryzer for the purchase and construction of a motel. Andrew Teece had several discussions with Thomas about the winding up of Bryzer, “There was a clear understanding that the money was to be firstly gifted to Basil prior to going into the new entity”; Thomas was looking to divest himself of assets for estate planning reasons.

53. On 21 June 2012, Philip Teece wrote to Thomas and Helen Berrigan setting out the steps to take place before 30 June 2012 to wind up Bryzer “as discussed with you on previous occasions”. The term deposits in Puddy’s name were to be transferred back into Bryzer’s name. Bryzer was to pay two dividends of $1.5 million each to Thomas and Helen.

3.   Tom and Helen Berrigan can obviously do as they please with this money, and it has been discussed that this $3,000,000 will be transferred to Basil Berrigan. This needs to be a physical transfer from Tom and Helen’s bank account(s) to a bank account in Basil’s name.

4.   As per discussions, Basil Berrigan is to transfer the same $3,000,000 to Puddy Trust as a loan from Basil.

54. The accountant’s instructions appear to have been directed to recognising the separate entities of Bryzer, its shareholders Thomas and Helen Berrigan, Puddy and Basil, which appears to have been overlooked in the gifts referred to earlier. The funds transfers had to be reversed and done properly. Andrew Teece says that Thomas did not follow this advice and, instead, closed several bank accounts and term deposits directly into the Puddy Trust. Whether these are the transactions referred to at [38] and [42] or further transactions was not clear.

55. The financial statements for the Puddy Trust as at 30 June 2012 recorded loans owed to the Berrigan Trading Trust of $2,030,403.64 and to Basil Berrigan of $3,191,573.35. According to Andrew Teece, the loan from the Berrigan Trading Trust of $6,273,040.90 recorded in the 2011 financial statements (see [45]) had, by Thomas’ closing of terms deposits and paying money directly to the Puddy Trust, effectively become the loans recorded in the 2012 balance sheet by the Berrigan Trading Trust and Basil. Andrew Teece also said that he expected that the loan by Basil to the Puddy Trust of $3,191,573.35 was related to the $3 million dividend declared by Bryzer, referred to in the letter of 21 June 2012.

Construction begins

56. In June 2012, construction began. Given his years of working with Thomas, Mr Churcher understood that Thomas trusted Mr Churcher’s decisions but he nonetheless continued to seek Thomas’ approval in relation to more substantial matters. Thomas often asked for Mr Churcher’s opinion on these issues and followed his recommendation. Joel worked with Mr Churcher, including attending morning site meetings and, at Mr Churcher’s direction, attended to various building, supervision and administrative tasks.

57. Thomas, Helen, Joel and Mr Churcher shared a house in Wagga during construction; Puddy paid the rent. On 29 July 2012, Thomas added a further special condition to Mr Churcher’s contract, providing that Mr Churcher was responsible for his transport and living away from home expenses. Basil says that he also stayed at the house when he was in Wagga. Basil says between August 2012 and June 2013, he went to Wagga every three to four weeks and stayed at the house. Joel disputed this.

58. On 15 June 2012, Thomas made some notes calculating Joel’s cost of living in Sydney, what Joel would save if he moved to Wagga and the rent he could earn on his Sydney home. Joel did some calculations too: Joel needed to earn $62,000 a year to cover his expenses. Both notes are consistent with Thomas and Joel discussing how much money Joel needed to receive while working on site in order to get by. Consistently with this, from 1 July 2012, Joel began to make regular drawings from Puddy of some $1,500 a week. According to Joel:

it was insinuated to me by Tomo as a business lesson that I would have to repay that money to the business. So, I said to Tomo that I can’t live off this money and repay the money that has been forwarded to me, so he proceeded to fix that up.

59. According to Joel, Thomas did not ultimately ask for the money to be repaid. Thomas also assured Joel that when the hotel began operating, things would be different. Joel says he was not aware at the time that he held shares in Puddy nor how he would be remunerated for his work; he just knew that Thomas would look after him. At one point, Joel told Mr Churcher that he was quite strapped for money, which prompted Mr Churcher to ask Thomas whether Joel was being properly remunerated. Thomas said, “Mark, don’t worry about Joel, he will be looked after”.

60. In September 2012, Basil obtained legal advice from a solicitor regarding application for a liquor licence for the hotel. Joel obtained quotations for televisions, mattresses and window pelmets.

Winding up Bryzer

61. On 11 September 2012, Philip Teece wrote to Thomas and Helen Berrigan again noting that, prior to 30 June 2012, steps had been take to move towards the eventual winding up of Bryzer but further transactions needed to take place post 30 June 2012. The Puddy Trust was to repay the Berrigan Trading Trust an amount of $2,030,403.64. Bryzer was to pay a dividend of $1.5 million each to Thomas and Helen Berrigan. Then, $2.6 million was to be paid to Basil and $400,000 was to be transferred to Joel for each to transfer into Puddy Trust as a loan or capital contribution. This would leave only a small amount of retained profit in Bryzer which could be distributed by the liquidator upon winding up the entity. Thomas and Helen Berrigan would replace Bryzer as trustees of the Berrigan Trading Trust.

62. Andrew Teece said this letter was in respect of a second tranche of dividends and the transactions were incorporated into the financial statements for the Puddy Trust. Certainly, $400,000 was credited to Joel’s loan account with Puddy on 5 October 2012, as was a further $100,000. Joel’s weekly drawings continued, ranging between $1,200 and $2,000 a week.

Moving towards fit out

63. On 8 October 2012, Basil flew to Hong Kong to buy suitable products for fit out. Basil was assisted by his brother Tony. In response to a supplier’s suggestion that they could save the project $1 million on fit out, Thomas replied in a handwritten letter,

Basil was always responsible and was appointed to attend to fit out. Examine his record on fit outs.

[After listing seven fit-outs done by Basil and awards received]… Why would we look to you for fit out when Basil achieved outstanding results shown above and always under budget?

Joel suggests that Thomas and he “redrew” Basil’s designs and their revised drawings formed the basis of the order. The drawings do not indicate their authors. Mr Churcher recalled that Basil handled the procurement of fit out material while Joel and Mr Churcher handled the physical placement of the fit out materials. I think it is more likely that Joel over-stated his role and diminished Basil’s contribution to the project.

64. In October 2012, Mr Churcher and Joel obtained a quotation for the installation of partition wall and ceiling linings for the project, totalling some $700,000. In November 2012, Basil obtained another quotation for plasterboard for some $600,000. It appears that Basil’s cheaper quotation was accepted and, on an invoice rendered in February 2013, Joel is mentioned as the contact person. Basil says that he negotiated the best available prices with tradespeople to carry out the construction of the hotel. Basil pointed to five contractors in particular where he considered that he had achieved savings in trade costs. Certainly, it seems that Basil was involved in obtaining quotations but, overall, it seems more likely that Mr Churcher bore the brunt of this task: see [49].

65. In November 2012, Thomas obtained insurance for the contract works. In December 2012, Basil obtained quotations for air conditioning. Joel obtained a quote from painters and accepted the quote for air conditioning. In January 2013, Basil obtained further legal advice in respect of the liquor licence. Joel obtained a quote for tiles and tiling. Thomas continued to pay and dispute invoices. In February 2013, Basil obtained a quotation for curtains and soft furnishings. Basil refined the furniture order, modifying quantities and clarifying descriptions. Mr Churcher recalled that Basil handled the procurement of the lift, while Joel and Mr Churcher handled oversight of the contractors on site.

A tax problem

66. According to Andrew Teece, Thomas and Helen had a combined tax liability of $1,509,500 from the 2012 and 2013 financial years. These tax liabilities arose from the gifts made by Bryzer to Puddy, by way of dividends paid by Bryzer to its shareholders. According to Andrew Teece, as Basil was largely the beneficiary of the proceeds of the money drawn by Thomas and Helen from Bryzer, it was agreed that Basil would pay Thomas and Helen’s tax.

67. To that end, on 6 March 2013 Netbas obtained an offer of finance from the Commonwealth Bank for $1.5 million to repay a loan facility to the Berrigan Family Trust. Andrew Teece was later informed by Thomas that he and his wife had paid their tax using their own funds or funds from the Berrigan Trading Trust. Basil then drew down part of Netbas’ loan facility to fund construction. It should be noted that is the most likely juncture at which Thomas’ suggested gift to Joel of $1 million may have occurred, to which I will return at [186].

68. Also in March 2013, Joel received an email in respect of window details from a building supply company. Basil fielded questions regarding furnishing and a trip was booked to travel to China to a furniture factory. Joel pressed plumbers to provide additional equipment and was asked by the engineers to check some plans. In April 2013, Basil was concerned with crockery and cutlery. On 23 April 2013, Joel exchanged emails with a potential kitchen supplier and a contractor delivering tiles. Joel’s email communications from this time suggest a lack of business experience.

Thomas steps down

69. On 18 April 2013, Thomas and Helen ceased to be directors of Puddy. Thomas says they did this to reflect that they were handing over the family business to Basil and Joel. Thomas said in his affidavit,

After ceasing to be a director I had very little involvement in the management and decision making concerning the Hotel.

Consistent with this, communications involving Thomas do ‘drop off’ as construction drew to a close and the hotel began to operate, consistent with Thomas having some involvement with construction but little involvement with hotel operations. On 10 May 2013, a liquidator was finally appointed to Bryzer in a members’ voluntary winding up.

70. On 1 May 2013, the Commonwealth Bank approved $3.5 million construction finance for Puddy. The letter of offer was addressed to Basil, Thomas and Helen and accepted by Basil. Basil executed a mortgage on behalf of Puddy in respect of the loan. Basil also gave a personal guarantee. On 30 May 2013, Joel accepted a quotation in respect of doors. Joel obtained a quote for benchtops, which he forwarded to Basil. Joel accepted a quote for beds. Joel obtained a quote for stairs, which he accepted. Joel pressed the plasterers to finish.

71. By 30 June 2013, the balance sheet for the Puddy Trust recorded that Netbas had lent $981,295 to Puddy. The construction finance had also been drawn down by $958,701. In addition, Basil’s loan account stood at $5,924,932 while Joel’s stood at $414,900. According to Andrew Teece:

… this relates to the remaining dividends declared by [Bryzer]. As mentioned before, the transactions were not [e]ffected as we would have ideally liked, and we have prepared accounting journal entries to reflect Tom and Helen's wishes.

72. As I understood this evidence, notwithstanding that Thomas did not take the steps recommended by the accountants, the accountants recorded the transactions as if he had. In any event, according to Andrew Teece the loan from Basil to the Puddy Trust was effectively the money paid by Bryzer into the bank account of the Puddy Trust. The same could be said, I gather, for the loan from Joel to the Puddy Trust.

Opening the hotel

73. Until May or June 2013, Mr Churcher was at the site most of the time. According to Mr Churcher, Basil was not often on site and, on occasion, his presence caused difficulty such as when Basil asked employees to “bundy on bundy off”. The contractors were unhappy with the introduction of this system and were not happy taking direction from Basil. Some of the contractors complained to Mr Churcher that Basil had “no idea”. Basil defends introduction of this procedure as there was then nothing in place to monitor the days and hours worked by contractors. Wages were being paid from the bank account of the Arncliffe hotel and Basil was keen to keep control of finances. According to Basil, his father approved of this system as it made wages easier; none of the contractors complained to Basil about it.

74. In June 2013, Mr Churcher went to hospital for a medical condition. In July 2013, products for the fit out of the hotel arrived from overseas and Joel dealt with a supplier of granite for the reception. On 2 July 2013, Joel had a seizure and was admitted to hospital for about eight days. After discharge, Joel rested for some ten days before returning to the site on 18 July 2013. Basil says that, from June 2013, he lived at the International Hotel full time during the working week, returning to home in Sydney for weekends. Whilst at the hotel, he opened the site, closed the site and acted as security. For about a month, Basil supervised workers on site and, due to Joel’s health, Joel did not participate other than in a minor way with fit out and final preparations for opening. Basil says he interviewed and hired staff with the assistance of Joel’s wife, who had worked as an event and business development manager for a Sydney hotel reception venue. Accommodation management software was arranged: Basil says he purchased this and other software for the hotel to commence operations; Joel says that he came across the software when working with his mother and Helen in Maitland and recommended it to Basil, who adopted it at the Arncliffe hotel. I think it more likely that Basil was across these aspects of hotel management at the time, if it matters.

75. In the months before the opening of the hotel, Thomas told Helen and Basil that he wanted Joel to be the operations manager for the hotel and each agreed. The hotel had a “soft opening” on 16 September 2013. According to Basil, all rooms were not complete and the bar was not operational; the purpose of the soft opening was to identify and eliminate “bugs” in the system. A local attraction, Henty Machinery Field Day, was also on from 17 to 19 September 2013. Joel says that Thomas chose that date for the soft opening and Basil was not there. However, according to Basil’s mobile phone records, he was in Wagga from 9 to 19 September 2013 and it is inherently likely that Basil, as the major shareholder and an experienced hotelier, was there for the opening.

76. As completed, the International Hotel has 80 guest rooms with en suites and is rated 4 ½ stars. It has conference and function rooms for hire, a restaurant and bar and an alfresco area. There is parking for 120 cars. Joel holds the liquor licence. The customers of the hotel are mainly corporate, including medical staff for the local hospital, visitors to a university and military base. The leisure market is usually for weekend accommodation. According to Andrew Teece, total construction costs were $6,890,356.84 plus plant and fit out of $1,556,380.91. Of this, $6 million was effectively funded by Bryzer, while the balance of the funds came from construction finance.

73. According to Thomas’ affidavit,

Joel took on the key responsibilities for the building works. Joel engaged contractors, supervised their work, ordered materials and managed the budget (excellently).

Whilst Thomas was no doubt proud of his grandson’s involvement in the project, Thomas’ description of Joel’s role exceeds what the contemporaneous documents reveal and Mr Churcher’s description.

78. After the soft opening, Basil sent an accountant employed by the Arncliffe hotel to Wagga to train the bookkeeper. Staff rosters commenced from 9 October 2013. Joel’s wife was rostered on for five days a week until the end of the year. Joel did not appear in the rosters. Joel and his family lived on-site. Thomas and Helen lived in a granny flat house on the grounds of the hotel. Joel was then 27 years old.

79. Joel agreed that, before the hotel opened, he had never managed a hotel. Basil believed that, due to Joel’s relative inexperience, Joel needed mentoring from Basil and Thomas on the finer points of operating and managing a hotel. Basil says that he dedicated considerable time to teaching Joel how to manage the business of a hotel and introducing Joel to his network of consultants, suppliers and professional advisers. Basil regarded himself as Joel’s mentor. Basil had no doubt that Thomas and Helen also provided mentoring assistance to their grandson, for whom they held great affection. Joel denied that Basil provided him with any mentoring at all.

Crow Inn

80. Andrew Teece advised that a separate entity be incorporated to run the hotel business and lease the land from Puddy. In about December 2013, Basil told his father this and Thomas suggested that they call the company “Crow Inn” as Wagga Wagga is known as the place of many crows. Basil told his father that Joel and he would be the directors of the company. Joel says he had no direct involvement in the incorporation of Crow Inn, and I accept this. While the defendants suggested that the incorporation of Crow Inn was a contrivance by Basil, it was not suggested to Andrew Teece during cross-examination that the incorporation of Crow Inn was Basil’s idea and it appears to have been an unremarkable event.

81. On 13 December 2013, Crow Inn was incorporated. Basil and Joel were appointed directors. The 100 ordinary shares were issued to Basil (70 shares) and Joel (30 shares). Basil says he agreed to the allotment of 30% of the share capital to Joel in recognition of Joel’s role as general manager. The constitution of Crow Inn, again, adopted the replaceable rules in respect of the quorum required for both a meeting of shareholders and directors’ meetings.

82. In May 2014, Joel received an award at the Wagga Business Chamber’s Awards evening. A newspaper article, “International Hotel owner humbled by Crow Award win” reported:

Mr [Joel] Berrigan paid tribute to his uncle, mentor and business partner, Basil Berrigan, for his guidance and support in getting the hotel up and running …

In his affidavit and during the hearing, Joel agreed he said this at the time but disclaimed the accuracy of his statement. However, it seems from a review of the contemporaneous documents that Basil played a large part in getting the hotel up and running when Joel had little or no relevant business experience. Basil said that Joel was a deserving recipient of the Crow Award but also said that his contribution was correctly acknowledged by his nephew at the time. I agree.

83. In 2014, Joel’s wife was rostered to work for the first two weeks of the year only, then three days for a function in July and four days “on call”. Joel was rostered on for a wedding expo in August. They were rostered “on call” for seven days between them in August and September.

Further divestment

84. In October 2014, Basil says that his father told him that Helen had changed her mind and wanted to give her shares in Puddy to Joel. Basil said that they were her shares and she could do with them what she liked. On 4 November 2014, Helen Berrigan transferred her 41 shares in Puddy to Joel. As a consequence, Basil now held 119 shares, or roughly 60%, in Puddy while Joel held the remaining shares. On 30 October 2014, Thomas appointed Basil and Joel as the new appointors of The Puddy Trust. Each signed letters of consent to their appointment.

85. Joel also said that, in 2015, Thomas wished to step away from the business and Joel started operating Thomas’ bank accounts.

… cause he was a bit disinterested in that kind of stuff. I just wanted to guard him, to be honest.

Shareholders Agreement

86. According to Joel, Thomas raised the idea of entering into a shareholders agreement. Some litigation had ensued after the sale of the Maitland hotel, “so Basil suggested that it wasn’t a good idea that we have another Maitland situation. So, that was kind of concurred between them two …” Joel also agreed that he was becoming concerned about the amount of work he and his wife were doing as opposed to Basil, and their living conditions on site, and Thomas “said that he would attend to it.” Thus, on Joel’s evidence, a shareholders agreement was suggested by Thomas, either due to past experience or Joel’s concerns raised with his grandfather.

87. According to Basil, in about February 2015 Joel said he was not happy with their current arrangement as he was not making enough money and needed to be compensated appropriately for his role as manager. While Basil said that Joel received dividends from profits, he agreed to talk about it and asked what Joel wanted. Joel said he wanted an agreement to be prepared to document their rights and obligations as directors and shareholders. Basil agreed to have a meeting and to speak to Andrew Teece and Gordon Bryant to prepare a draft agreement. Joel disclaimed he had financial concerns,

I had no reason to be concerned about money. I never had been. … my main concern was my family, nothing to do with money.

88. In about April 2015, according to Andrew Teece, Thomas was removing himself from decision-making. Until then, Thomas was effectively “calling the shots” in respect of trust distributions; Andrew Teece said loan account transactions probably took place with Thomas’ oversight as Thomas had effective control of the structure until the end of the 2015 financial year.

89. On 20 April 2015, Andrew Teece met with Basil and Joel. Andrew Teece described it as an open discussion with both Basil and Joel stating their requirements of each other. Following the meeting, Andrew Teece forwarded a file note, “Puddy & Crow Inn profit share and split”, which recorded:

BB and JB were in to discuss a number of things in relation to the operation at Wagga. Items discussed and agreed upon were as follows:

•   Need to prepare a Heads of Agreement relating to the operation, including the following clauses:

•   Exit strategy

•   First right of refusal

•   Valuation method

•   Action if one party passes away or becomes incapacitated

•   Profit share of Trust is in line with the shareholding of Puddy Pty Ltd – but BB and JB decide which of their entities the relevant % is to go to

•   There should be a general tidy up of Puddy Trust, including

•   Repay Loan from Netbas Trust which is ̴ $1m

•   Transfer further 10% shares in Crow Inn Pty Ltd from BB to JB, taking share split to BB 60% and JB 40%

•   BB to advise what date the share transfer is to take place

•   Transfer $1m of BB’s loan to Puddy Trust across to JB – thereby reducing how much Puddy owes BB, and increasing how much Puddy owes JB

•   Operational matters were raised:

•   Managers residence allocation to be taken up in Puddy for 2015 and allocated to JB’s loan account

•   Nursery staff member to be reconsidered

•   Appointment of an external manager should JB and RB [Joel’s wife] decide they need the assistance or a break. BB & JB to determine how this is treated at a later date

•   The following commitments were made by JB in relation to the motel in the upcoming years

•   JB will stay in Wagga running the motel for 5 years

•   Prior to JB making any final decision relating to moving off-site to live he will consult BB

•   JB indicated that he is happy to assist in the training of Tom Jnr and Will

90. Andrew Teece was cross-examined extensively about his file note. Mr Teece said that the reason why the transfer of a further 10% of Crow Inn shares from Basil to Joel and transfer of the $1 million loan balance were recorded in separate bullet points from that concerning a heads of agreement was “because it was a separate issue that was discussed at the meeting”. Andrew Teece says that Basil raised both the share transfer and the transfer of the $1 million loan account, without any explanation as to the reason for either. The fact that Mr Teece remembered this so clearly five years later is a little surprising. Andrew Teece’s evidence is also inconsistent with Joel’s understanding of what was agreed at the meeting.

Q. – … you understood from what Basil told you that your commitment to him to manage the hotel for five years was necessary in order for you to become entitled to the $1 million transfer.

A.   At that meeting, yes.

91. I am reluctant to place too much weight on Mr Teece’s evidence in respect of the precise manner in which this meeting unfolded, or the separation between particular items discussed. The meeting occurred five years ago. However separate these issues may have been in an initial discussion, this was not the end of the matter but the starting point in the documentation of an agreement between the parties. In ascertaining what was agreed, regard must be had to the Shareholders Agreement as executed and, if it is necessary to do so, the pre-contractual documents which led up to it. See further at [99].

92. Basil was also cross-examined at length on the file note, being someone else’s file note. This cross-examination did not advance matters. Basil said his purpose in making the $1 million payment conditional on remaining general manager for five years was to create certainty for hotel operations. Basil denied telling Joel that this was what Thomas wanted, “It was what I was prepared to do as part of a commercial arrangement with Joel”. Basil denied any pre-existing agreement with Thomas to pay Joel $1 million without condition, “This was my agreement with Joel and was not influenced by my father”.

93. After the meeting, Andrew Teece discussed the matter with his father, Philip Teece, who suggested that Joel also be appointed a director of Puddy. Basil took Andrew Teece’s file note to Gordon Bryant and instructed him to prepare a draft agreement incorporating the matters contained in the file note. On 19 May 2015, Gordon Bryant sent a draft Shareholders Agreement to Andrew Teece and Basil, noting:

We enclose a copy of a draft agreement prepared on Basil’s instructions

… We note that the agreement essentially involves a payment by Basil to Joel pursuant to which Joel will remain in the position of Manager and will continue to run the business; plus a transfer of 10% of Basil’s shareholding in Crow Inn to Joel, presumably as part of the same arrangement.

Andrew Teece’s input was sought.

94. On 21 May 2015, Puddy repaid the loan from Netbas, being one of the matters discussed on 20 April 2015. On 24 May 2015, Basil flew to Wagga. He met with his parents and gave his father a copy of the draft Shareholders Agreement for him to look at for discussion the next day, when Basil and his father met again over coffee. Thomas gave Basil a copy of the agreement with handwritten notations. The recitals to the draft agreement noted the current shareholdings of Basil and Joel in Puddy and Crow Inn and the different roles performed by each company. Thomas says in his affidavit that he did not become aware of the existence of Crow Inn until 2018. However, on reviewing the draft Shareholders Agreement, Thomas would have been aware of Crow Inn and the differing shareholdings of Basil and Joel in Puddy and Crow Inn by, at least, May 2015. To that extent, his affidavit is incorrect.

95. The proposed operative clauses of the agreement provided (with Thomas’ handwritten comments [marked]):

1.   BB shall sign all documents and do all things necessary to transfer 10% of his current shareholding in Crow Inn to JB upon the execution of this agreement.

2.   BB will pay from his loan account with Puddy an amount of $1,000,000.00 to JB’s loan account in the same companies

3.   In consideration of such transfer and payment JB shall:-

(a)   remain as Manager of the business in Wagga Wagga for a minimum period of 5 years from the date of this agreement;

(b)   assume full personal responsibility for all fringe benefits tax in relation to his management of the business and in particular shall pay any nursery expenses incurred for his children and such expenses shall not be paid by either Puddy or Crow Inn;

(c)   take all steps necessary to arrange a Relief Manager and to pay from his own funds any fees or wages to such Manager if JB takes leave; [out]

(d)   not take leave from his Managerial role without prior consultation with BB; [the usual periods of leave and/or rest apply]

(e)   provide to Thomas Joseph Berrigan and William Robert Berrigan any tuition or training required for them to participate in the business during the 5 year period following the signing of this agreement. [Provided [they] follow instructions of [Joel] and meet accepted standards of performance and do nothing to harm the business]

96. Basil says he told his father that he did not have a problem with deleting clause 3(c) but did not agree to the proposed addition to clause 3(e). Basil says he drew his father’s attention to the clauses which made the transfer of the $1 million loan account to Joel conditional on him remaining general manager for five years and abiding by the other conditions. Thomas is said to have agreed with this proposal, including because, if Basil gave Joel $1 million all at once, Joel may waste it. According to Basil, Thomas said Joel should have enough money to live on with dividends and trust distributions, particularly as he would be saving money on rent and food by living at the hotel, and, at the end of the five years, Joel would have a “nest egg” to invest.

97. Whilst I do not necessarily accept that Thomas said all of this, the conditionality of the share transfer and transfer of the $1 million loan account balance was clearly stated in the draft agreement which Thomas reviewed. Thomas appears to have had his grandson’s interests firmly in mind and suggested some amendments, but made no amendment to the opening words of clause 3. It is likely, therefore, that Thomas considered that the proposed agreement was appropriate.

98. Thomas spoke to Joel about the draft agreement. According to Joel:

Q.   You had in fact spoken to Tomo about the terms of the agreement before you signed it, didn’t you?

A.   No. He did mention to me that he thought it was a bit ludicrous that I would work and then if I went away that I would have to pay for relief managers. He did mention to me that it was grossly unfair, but … we never discussed anything in detail.

Of course, Thomas struck out the “grossly unfair” clause 3(c) but not the opening words of clause 3.

99. On 25 May 2015, Andrew Teece separately provided his comments on the draft agreement to Basil and Joel. In respect of clause 3, Andrew Teece suggested a further sub-clause be added, should Joel wish to move his residence off-site. Various other suggestions were made, including that Joel be appointed as a director of Puddy. Andrew Teece concluded, “From my perspective, that is all I can see”. If Andrew Teece’s recollection on the meeting of 20 April 2015 is correct, it is unclear why he did not raise it when he reviewed the agreement with the benefit of Mr Bryant’s cover letter (at [93]). The agreement was short. It was simply drafted. The conditionality of the share transfer and transfer of loan account balances was not hidden in the detail or a footnote. It was front and centre. There are two possibilities: either Andrew Teece did not notice the obvious at the time and failed, despite several opportunities, to point it out, which I doubt; or Andrew Teece’s evidence given five years later is less accurate than documents created at the time and the inherent likelihood which these documents suggest.

100. On 29 May 2015, Mr Bryant provided a second draft to Andrew Teece and Basil. On 4 June 2015, following a further meeting with Basil, Andrew Teece requested further amendments, including to delete clause 3(c) – consistent with the notation made by Thomas – together with several amendments concerning the right to buy-out Joel in the event of non-cooperation. Thomas’ proposed amendments to clause 3(d) and (e) were not adopted. On 11 June 2015, Mr Bryant circulated a third draft to Andrew Teece. On 12 June 2015, Andrew Teece met with Basil and Joel and, on 15 June 2015 requested further changes, “That is about [all] Basil and Joel came up with in our meeting last week …”. On 17 June 2015, Mr Bryant send a fourth draft to Andrew Teece. On 25 June 2015, Crow Inn paid a dividend of $150,000 to Joel, commensurate with his 30% shareholding. Basil received a dividend of $350,000.

101. On 7 August 2015, Andrew Teece sent a fifth draft to Basil and Joel, asking them to sign if they were in agreement so that the share and loan account transfers could be effected. Andrew Teece says no further amendments to the agreement were requested; no amendments were requested by Joel at all. Joel denied that he understood that he was free to propose any amendments to the Shareholders Agreement that he wished, “No, it was not in family protocol for me to get involved in matters that were above my pay rate in the family.” On more than one occasion before the agreement was signed, Andrew Teece told Joel that he should obtain independent legal advice before signing the agreement, which Joel says he “took as an act against the honesty of Basil and my grandfather which I didn’t appreciate”. Joel says that he did not get legal advice as he thought that his uncle was acting in his best interests and Joel would not need to question his integrity. I expect that Joel knew that his grandfather had reviewed the document and sought amendments where appropriate and that was good enough for Joel.

102. Whilst Joel agreed that Thomas knew of the draft Shareholders Agreement, he denied seeking Thomas’ view on the document before signing it.

I never seek Tomo’s views about the agreement because his distaste to matters that’d happened in Maitland which were of a very sensitive nature to him because of how it affected his wife, so I just let a dead dog lie, and just leave it up to Basil and Tomo to [nut] out what they thought was appropriate which I have no doubt would of happened.

This answer was improbable and I do not accept it. I think it is more likely that Joel left it to his grandfather to review the draft agreement and negotiate whatever changes were thought necessary to protect Joel’s interest. Thomas did so and, likely, told Joel that he had done so. I have no doubt that Joel spoke to his grandfather before signing the final document.

103. The Shareholders Agreement in final form exhibited a degree of informality and imprecision consistent with family dealings. Notwithstanding a range of amendments which had been made to the recitals and operative clauses, the core bargain remained as originally stated and reviewed by Thomas: Basil would transfer 10% of his shares in Crow Inn to Joel and pay $1 million from his loan account in The Puddy Trust to Joel’s loan account and, “in consideration of such transfer and payment”, Joel was obliged to remain as manager at the hotel for a minimum of five years from the date of agreement. Further, Basil agreed to do all things and sign all documents necessary to appoint Joel as a director of Puddy; clause 11.

104. It was suggested to Joel that this was a very good deal for him, then aged 29 with no previous experience in managing a hotel, to be guaranteed $1 million and 40% ownership of the business in exchange for agreeing to work as general manager for five years. Joel’s response to this proposition was non-responsive and evasive, being ultimately that he had no choice in the matter. Joel disclaimed any particular interest in the $1 million, and maintained his motives were altruistic.

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

277. The plaintiffs submitted that there is a deadlock between Basil and Joel. Joel was said to have been primarily responsible for the breakdown in the relationship and the deadlock in the management by reason of the events already described, commencing in March 2018 by buying land in Forsyth Street. Any contribution by Basil to the deadlock was said to consequential upon Joel’s earlier wrongdoing or was insignificant as to culpability or causation when compared with Joel’s conduct. Thus the principles which, in an appropriate case, may operate such that a claimant who was responsible for the breakdown of the relationship should be less likely to be afforded relief under section 461(1)(k) were not engaged: Nassar at [90], [96], [117] per Barrett J; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd at [89]-[90] per Spigelman CJ); In the matter of Bicher & Son Pty Ltd (2020) 147 ACSR 108; [2020] NSWSC 711 at [123], [128] per Black J.

278. The plaintiffs submitted that the hotel business is substantial; the financial viability of the hotel is at risk by reason of the COVID-19 pandemic and Joel and his wife’s substantial and unjustified claims for unpaid wages total some $1.55 million. The plaintiffs submitted that it was in the interests of the creditors, members and employees of Crow Inn and Puddy that a liquidator have maximum control so as to identify and to implement the transaction that will best realise the value of what is, as a matter of commercial reality, a single economic enterprise. The Court does not confine itself to a narrow legalistic view which seeks artificially to differentiate the affairs of one corporate entity from another in respect of what is, in reality, an integrated commercial venture: Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279; (1987) 5 ACLC 184 per Derrington J; Re Dernacourt Investments Pty Ltd (1990) 2 ACSR 553; (1990) 20 NSWLR 588 at 605 per Powell J; IceTV Pty Ltd v Ross [2008] NSWSC 1321 at [13]. It would be for the liquidator, independently of the deadlocked directors, to consider and, if necessary, obtain expert advice relating to the economic, market and tax advantages and disadvantages of particular transactions and to exercise independent professional judgment.

279. The plaintiffs submitted that winding up orders under sections 461(1)(k) and 467(4) were appropriate here. The current receiver and manager of Crow Inn, Mr Hayes, should be appointed liquidator of both Crow Inn and Puddy. As an independent officer of the Court, he may then take such steps as are in the interests of all members, creditors and employees, directed to the likely joint disposal of the two principal, closely related, assets, namely the hotel business and the land on which it operates. The assets of both entities should be brought under the control of a single liquidator, appointed by and accountable to the Court, who may make decisions independently of the deadlocked directors.

280. The defendants accept that there has been a breakdown between Basil and Joel as directors of these companies but say this is because of Basil’s conduct in forcing Joel to sign the Shareholders Agreement in circumstances where, known to Basil but then unknown to Joel, Thomas had already gifted the 10% shares in Crow Inn and $1 million loan account balance to Joel. Basil was also said to be responsible for the deadlock by attempting to pass resolutions seeking to wind up Crow Inn and thereby foreclosing any ability of other relief being granted by the Court.

281. The defendants accepted that Basil and Joel’s relationship in Crow Inn had irretrievably broken down. However, the defendants submitted that no orders should be made in respect of Puddy. Whilst, if the Court found oppression within Crow Inn, it may extend its relief to Puddy as the Court can look at the economic entity of a corporate group (see Re Dernacourt Investments), it was said that the Court should not wind up Puddy, or appoint receivers and managers in respect of the Puddy Trust as this case concerned a breakdown in the management of the business of the hotel. The scope of the dispute was said to be limited to Crow Inn, not Puddy. There was said to be no basis to migrate the breakdown in relationship between Basil and Joel from Crow Inn to Puddy. Puddy is a passive landholder trust. Given that the lease included five options to renew, Puddy’s status as a passive landholder would not change any time soon. Puddy’s role is limited to collecting rent from Crow Inn and distributing the rent to the beneficiaries of the Puddy Trust. The trustee has always distributed the income to shareholders of Puddy in proportions with their shareholding. Puddy does not operate a business: In the matter of Crow Inn Pty Limited [2020] NSWSC 601 at [60]. There was no suggestion that Puddy is insolvent. The winding up of a solvent company is ‘drastic’ and the ‘court is extremely reluctant’ to do so: International Hospitality Concepts (No. 2) at 372 per Young J.

282. The plaintiffs submitted that the deadlock was not confined to Crow Inn but extended to Puddy. It was said to be highly artificial to segment or separate the clear loss of mutual trust and confidence and suggest that it only related to Crow Inn. Where mutual trust and confidence has been lost, it was fanciful to expect that the board of Puddy could function. This was said to be vividly illustrated by the fact that, although the resolutions passed by Puddy on 6 December 2018 spelled out the process of sale, the selling agent and the indicative reserve price, Joel and Basil were unable to co-operate in implementing those resolutions by selling the land. Two years have since passed. This was said to amount to an objective failure, over a lengthy period, on the part of the directors to co-operate in the implementation of the most important transaction in the commercial life of Puddy and of the Puddy Trust. This was said to be strong evidence of a fundamental impasse in the management of the affairs of Puddy. I agree.

283. The plaintiffs submitted that appointing a liquidator to Crow Inn alone would not break the impasse. The parties would be left with no means to resolve the inevitable deadlock between them. The appointment of a liquidator to Crow Inn was likely to be a catalyst for further disagreement. If a liquidator of Crow Inn were to pursue a sale of the hotel business, and thus an assignment of its lease or the grant of a new lease, an immediate question would arise as to whether Puddy, as lessor, would consent to an assignment of the lease or enter into a new lease and on what terms. How is a deadlocked board of directors of Puddy to resolve such questions? If one or other of the directors objected to the sale of Crow Inn’s business, the price, the terms, the process or timing of the sale, or the identity of the purchaser, that director could simply oppose the necessary resolution of the board of Puddy approving the assignment or the grant of the lease and, as a practical matter, that would spell the end of the sale. The same intractable deadlock would arise if Joel and Basil could not agree upon whether Puddy should sell the land, at what price, on what terms or to which purchaser? Or whether Puddy should participate in any marketing or expression of interest process by which the land and the hotel business might be offered for sale together? Or whether Puddy should agree to any variation of the lease, including any variation as to the rent or its duration? It was said to be no answer to say that, in the past, Puddy’s day-to-day business functions were limited to the receipt of rent and making distributions to beneficiaries of the Berrigan family.

Conclusion

287. The circumstances of this case indicate that it is just and equitable that Crow Inn and Puddy be wound up. There is a long-standing deadlock in two family companies where personal relationships have irretrievably broken down and oppressive conduct has occurred. Both companies are solvent. The majority shareholder of both companies wishes to realise his investment by selling the land and business. Andrew Teece was of the view that sale of the land and business together would be more attractive to a larger pool of potential purchasers than selling the land only or the leasehold only.

288. Whilst accepting that such an order would be appropriate in respect of Crow Inn, the defendants submit that no such order should be made in respect of Puddy as, notwithstanding their toxic relationship, Joel says that he and Basil can still work together in respect of Puddy. According to Joel, it requires almost no time or effort to run the activities of Puddy. However, the evidence suggests that Joel will seek to frustrate any decision with which he does not agree. Whilst the defendants submitted that the plaintiffs were conducting a “scare campaign” and “catastrophising” in respect of the issues which will likely arise for determination by the directors of Puddy, I do not agree. These are exactly the kinds of problems which are likely to emerge if Basil and Joel remain directors of Puddy. Thus, I am satisfied in the circumstances of this case that both companies should be wound up.

CHOICE OF LIQUIDATOR

289. In the event that I decided to appoint a liquidator, the defendants opposed the appointment of Mr Hayes as Mr Hayes was said to have been dealing with Basil and participated in lengthy meetings with him without any notice to or involvement of Joel. Mr Hayes submitted a report as to his activities to the Court, which was not admitted into evidence, but by reference inter alia to submission of this report, the defendants submitted that Mr Hayes was not approaching his appointment in a balanced way.

290. In the ordinary course of events, and all things being equal, the Court’s practice in winding up cases is to appoint the plaintiff’s nominated liquidator: Grocon Constructions Pty Ltd v Kimberley Securities Ltd [2009] NSWSC 572 at [21] per Barrett J; Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380 per Barrett J; In the matter of El Zorro Transport Pty Ltd [2013] NSWSC 1082 at [5] per Brereton J, followed by Black J in In the matter ofHayes Steel Framing Systems Pty Ltd (Administrators Appointed) [2017] NSWSC 385 at [46]; In the matter of Denham Constructions Pty Limited [2016] NSWSC 1425 at [32]. To depart from this approach, there must be a reason, such that there is something to be said between competing nominees in relation to their fitness, qualifications or costs: El Zorro Transport at [5] as followed in Hayes Steel Framing at [46]; Boyd v Feeney at [56] per Black J. It is for the defendants to establish grounds to depart from the usual course: Ausino International Pty Ltd v Apex Sports Pty Ltd [2007] NSWSC 360 at [11].

291. There is some evidence before the Court as to how Mr Hayes has fulfilled his role as receiver. On 16 May 2020, Joel met with Mr Hayes, and provided information about the hotel. In evidence are a number of emails between Joel and Mr Hayes. It appears that Joel has largely co-operated with Mr Hayes, who appears to have conducted himself in a compassionate and professional manner. On 14 June 2020, Mr Hayes sent a letter to Joel confirming his advice to Joel that morning that he was not to attend the company’s trading premises without Mr Hayes’ written approval. On 6 July 2020, Joel sent an email to Mr Hayes entitled “Vision”, apparently explaining his activities recorded on CCTV; the only boxes removed were said to have been checked by Mr Hayes’ colleague. There was also evidence that Mr Hayes has met with Basil at the hotel and reviewed various records. There is no evidence that Mr Hayes has approached his task other than in an even-handed manner.

292. Three guiding principles in respect of the selection of a liquidator were set out by Barrett J in Workers Compensation Nominal Insurer v Denny Earthmoving & Bulk Haulage Pty Ltd [2008] NSWSC 1167: at [10]-[12]. First, the liquidator must be independent and have the appearance of independence. Second, generally, liquidators should not be chosen by the directors or other principals of the company. Third, the Court should select an option that is likely to incur the least costs. Here, Mr Hayes has acted as receiver for seven months. It is likely, as a consequence, that Mr Hayes has gained familiarity with the operations of Crow Inn, its staff and records, its assets and liabilities. Appointing someone else as liquidator of Crow Inn is likely to be more costly, as a new liquidator appointed to the role will have to gain the familiarity which Mr Hayes already enjoys. Such cost savings are a relevant advantage to appointing Mr Hayes to the position: Workers Compensation Nominal Insurer v Perfume Empire at [8]-[10] (Barrett J).

293. Appointing different liquidators to Crow Inn and Puddy does not appear to be warranted by reason of any particular difference between the operations of these companies.  Rather, it appears that distinct advantages of cost and efficiency are attended by having the same person in these roles.  The affairs of these companies have been intertwined since inception.  Were it otherwise, there would need to be a significant amount of consultation and co-operation between separate liquidators in order to achieve any co-ordinated sale of the land and business, should that be ascertained to be the best way forward.

APPOINTMENT OF RECEIVER

294. The plaintiffs submitted that Mr Hayes should also be appointed receiver and manager of the assets of the Puddy Trust. Such an order was said to be appropriate in circumstances where the making of a winding up order in respect of Puddy will bring an automatic termination of Puddy’s appointment as trustee; the appointment of a receiver and manager over the trust property will secure Puddy’s right, as former trustee, to be indemnified out of the assets of the trust; and this will enable the receiver and manager to realise the assets of the trust so that, as far as possible, liabilities incurred by Puddy in the performance of the trust can be met: see Bailey (Liq) v Rock Solid Rendering Pty Ltd (in liq) ATF Rock Solid Trust [2020] FCA 600 at [19]-[22] per Gleeson J; ReKnight, Second ICO Pty Ltd (in liq) (2020) 144 ACSR 329; [2020] FCA 608 at [16]-[18], [24] per Anderson J; In the matter of Glenvine Pty Limited (in liq) [2020] NSWSC 866 at [43]-[47] per Black J.

295. The defendants agreed that the winding up of Puddy would cause the position of the trustee of the Puddy Trust to become vacant. A receiver and manager would need to be appointed in respect of the trust assets, including the land: Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17. The defendants proposed that the Court exercise its power under section 70 of the Trustee Act 1925 (NSW) or its inherent jurisdiction to appoint a new trustee on the basis that it is expedient to do so where the dominant consideration is the welfare of the beneficiaries of the trust: Aspinall v Aqua Sports Pty Ltd [2018] NSWSC 706 at [18] per Ward CJ in Eq. The defendants suggested that Simon Cathro or the NSW Trustee and Guardian be so appointed.

296. The defendants submitted that, while the Puddy Trust is a discretionary trust, each of the beneficiaries have a right in equity to the due administration of the trust, irrespective of whether they have a fixed and transmissible benefit in the trust income or property: Australian Securities and Investments Commission, Re Richstar Enterprises Pty Ltd v Carey (No 6) (2006) 153 FCR 509; [2006] FCA 814 at [26] per French J; Spry v Kennon (2008) 238 CLR 366; [2008] HCA 56 at [125] per Gummow and Hayne JJ. The trustee has a fiduciary duty whether and in what way it exercises its powers: Spry at [125] per Gummow and Hayne JJ. The power of Puddy to sell trust property must be exercised “bona fide having regard to the purpose for which [the power] was established”: R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59 at 79 per Owen J. JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis, 2016) [16-08]. The concerns of the directors of a trustee company are not limited to the company’s shareholders; they extend to acting in the interests of the beneficiaries of the trust: Elders Trustee & Executor Co Ltd v Higgins [1964] ALR 408; (1963) 113 CLR 426 at 452-3 per Dixon CJ, McTiernan and Windeyer JJ. It was submitted that this power could not be exercised just because Basil considered he could not co-operate with Joel in the running of the business of the hotel.

297. The defendants submitted that to require a sale of trust property would prevent the trust and its beneficiaries from enjoying the benefit of up 25 years of rental income. On no view would a sale of the freehold be a bona fide exercise of the trustee’s power. To this, the plaintiffs noted that it would depend on the circumstances at the time when the power of sale was exercised, noting that the sale price of the land would factor in the rental stream. Further, the defendants submitted that the parties had a conflict of interest in seeking to wind up of the trustee company and dissolve the trust. Basil was said to want to aggregate the freehold with the leasehold to increase his own financial interests. Basil’s interests as a shareholder of Crow Inn did not align with the interests of the beneficiaries of the trust, who would be relinquishing an asset and losing the benefit of a potential revenue stream under a long term lease.

298. Further, the defendants submitted that whilst Puddy was a defendant in this proceeding, it was unrepresented. Whilst the beneficiaries of the Puddy Trust did not have a right to trust income or trust property except as determined by the trustee, they had a right to have their ‘interest protected by a court of equity’: Gartside v Inland Revenue Commissioners [1968] AC 553 at 617 per Lord Wilberforce, considered by French J in ASIC v Carey at [27]. While it was not necessary for the plaintiffs to join the beneficiaries to the proceedings, the Court needed to consider whether their interests were likely to be adequately represented by the existing parties or whether Joel and Phatso were sufficient contradictors: rule 7.12(2), Uniform Civil Procedure Rules 2005 (NSW); Dulhunty v Dulhunty [2010] NSWSC 1465 at [21] per Slattery J.

299. The plaintiffs submitted in reply that the very fact that any power of sale to sell trust assets must be exercised for the proper purpose was a good reason for that power to be reposed in an independent liquidator rather than in the hands of deadlocked directors. Nor was the fact that Puddy was unrepresented said to present an obstacle to making a winding up order and appointing a receiver. Rather, the Court would be concerned to ensure that the interests of beneficiaries were adequately protected and this, of itself, would be a reason to so appoint a liquidator and receiver so that the decision-making for Puddy could be placed in the hands of an independent officer of the Court.

Conclusion

300. The constitution of The Puddy Trust contains an ipso facto clause such that the making of a winding up order in respect of Puddy will bring about an automatic termination of Puddy’s appointment as trustee: clause 10. Further, clause 8 of the constitution of The Puddy Trust provides:

(a)   The power to appoint a new or additional Trustee and the power to remove a Trustee shall, subject to this paragraph, vest in:

(i)   The Appointor/s from time to time.

...

(b)   In the event that there shall be more than one Appointor they shall act by a simple majority.

That is, if Puddy ceases to be the trustee of The Puddy Trust, then Basil and Joel have to agree on the new trustee. That seems unlikely.

301. In the result, the defendants were effectively submitting that I should appoint a receiver to The Puddy Trust who was not the plaintiffs’ nominee. For the same reasons as given at [289]-[293], I am not minded to do so. Whilst the defendants submitted that there had been a very considerable degree of harmony within Puddy for years, the evidence indicates to the contrary. Essentially, for the reasons advanced by the plaintiffs’ submissions, set out at [294] and [299], I consider it appropriate to appoint Mr Hayes as receiver to The Puddy Trust.

ORDERS

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

1. Pursuant to section 233 of the Corporations Act 2001 (Cth), order that the share register of Crow Inn Pty Limited be amended to record that the first plaintiff, Netjay Pty Limited (ACN 616 556 220) owns 70, and the second defendant, Phatso Investments Pty Limited (ACN 618 226 216) owns 30, of the 100 shares in the issued share capital of Crow Inn Pty Limited (ACN 167 225 498).

2. Pursuant to section 461(1)(k) of the Corporations Act, order that the first defendant, Crow Inn Pty Limited, and the fourth defendant, Puddy Pty Limited (ACN 147 765 017), each be wound up by the Court.

3. Order that Alan John Hayes be appointed liquidator of Crow Inn Pty Limited and of Puddy Pty Limited.

4. Order that Alan John Hayes (“Receiver”) be appointed receiver and manager, without security, of the assets, property and undertaking of the Puddy Trust (“Assets”).

5. Order that, as receiver and manager of the Puddy Trust, the Receiver have, with respect to the Assets, the powers that a liquidator has in respect of a company pursuant to section 477(2) of the Corporations Act, including the power to realise the Assets of the Puddy Trust for the purpose of satisfying the indemnity of Puddy Pty Limited under the trust deed of the Puddy Trust.

6. Order that the costs, expenses and remuneration incurred by the Receiver in acting as receiver and manager of the Assets of the Puddy Trust, be paid from the Assets of the Puddy Trust.

7. Stay Orders 2 to 6 for fourteen days to permit the plaintiffs to buy-out Phatso Investments Pty Limited’s shares in Crow Inn Pty Limited and Puddy Pty Limited, at share prices to be determined by Andrew Teece and Mr Hayes in consultation, with Mr Teece and Mr Hayes’ costs of determining the share prices to be paid by the plaintiffs in the first instance.

8. The interlocutory process filed by the second and third defendants on 3 June 2020, and the points of claim filed by them on 27 July 2020, be dismissed with costs.

9. The second and third defendants are to pay the plaintiffs’ costs of the proceedings and half of any costs paid by the plaintiffs under Order 7.

10. Grant liberty for any party wishing to be heard in respect of any errors or omissions, or any variation of Order 7 or Order 9, to apply within 7 days.

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Decision last updated: 10 December 2020