Short v Crawley (No 30)

[2007] NSWSC 1322

CITATION:	Short v Crawley (No. 30) [2007] NSWSC 1322
HEARING DATE(S):	13/02/06 – 17/02/06, 20/02/06 – 24/02/06, 27/02/06 – 02/03/06, 06/03/06 – 10/03/06, 13/03/06 – 17/03/06, 20/03/06 – 23/03/06, 27/03/06 – 31/03/06, 03/04/06 – 07/04/06, 10/04/06 – 12/04/06, 21/04/06, 01/05/06, 04/05/06, and 08/05/06 – 12/05/06
JUDGMENT DATE :	26 November 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	White J
DECISION:	Plaintiffs to bring in short minutes of order in accordance with the reasons.
CATCHWORDS:	CORPORATIONS – Oppression – Numerous instances of oppression by director of companies – Remedies – Winding up – Whether discretion to order winding up should be exercised – Order to wind up a solvent company only as a last resort – Appropriate remedy a compulsory purchase order – Valuation of shares. - EQUITY – Fiduciary duties – Causation – Breach of obligation to act for proper purpose distinguished from failure to disclose improper purpose – Consideration of application of principle in London Loan and Savings Co of Canada v Brickenden [1934] 3 DLR 465 – Director precluded from alleging would have derived profits irrespective of improper purpose – Liable to account for profits derived – No liability to pay equitable compensation where loss would have occurred irrespective of breach of duty. - EQUITY – Breach of fiduciary duty – Remedies – Account of profits – Director and third party company under his control each received benefit from director’s breach of duty – Third party company with full knowledge that profits derived by reason of fiduciary’s breach – Purpose of account of profits considered – Each liable to account for profits derived by them from fiduciary’s breach – Entitlement to claim just allowances for skill, expertise and labour. - EQUITY – Fiduciary duties – Conflict of interest – Director owing concurrent fiduciary duties as solicitor – Duties as director owed in addition to duties owed as solicitor – Onus on fiduciary to show that fully informed consent obtained – What constitutes fully informed consent – Circumstances requiring independent advice. - LIMITATION PERIODS – Application of Limitation Act 1969 (NSW) by analogy – General rule that statutory limitation period applied by analogy only if court satisfied it is just to do so – Where account ordered for breach of fiduciary duty not constituting a breach of trust, analogy prima facie drawn between action to account at law and action to account in equity – Limitation period applicable to account at law applied where reliance on statute of limitations by analogy not unconscionable. - EQUITY – General principles – Equitable defences – Laches and delay – Equitable doctrine of laches applies where Limitation Act does not apply either directly or by analogy. - EQUITY – Fiduciary duties – Directors’ duties to shareholders – Consideration of circumstances in which directors may owe fiduciary duties to shareholders. - MEETINGS – Voting – Circumstances in which directors interested in transaction may vote on resolution to enter into transaction – Articles providing that interested director may vote where disclosure in certain manner made – s 231, Corporations Law - s 123, Companies Act 1961 (NSW) – Whether Article applicable where only two directors, both personally interested in transaction – Continuing underlying requirement that directors act in accordance with fiduciary duties when voting notwithstanding that declaration of interest made in accordance with articles.
LEGISLATION CITED:	Real Property Act 1900 (NSW) Companies Act 1961 (NSW) Corporations Act 2001 (Cth) Corporations Law 1989 (Cth) Companies (NSW) Code 1981 (NSW) Limitation Act 1969 (NSW) Legal Profession Act 1987 (NSW) Legal Profession (Trust Account and Controlled Money) Regulations 1988 (NSW) Legal Profession Reform Act 1993 (NSW) Supreme Court Rules 1970 (NSW) Income Tax Assessment Act 1936 (Cth) Conveyancing Act 1919 (NSW) Company Law Review Act 1998 (Cth) Companies (Qld) Code 1981 (Qld)
CASES CITED:	Short v Crawley (No. 25) [2005] NSWSC 928 Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 166 FLR 451; 40 ACSR 619 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No. 6) (2007) 63 ACSR 1 Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 Wagner v International Health Promotions (admin appointed) (1994) 15 ACSR 419 Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756; 5 ACLC 1,076 Roden v International Gas Applications (1995) 18 ACSR 454 Poliwka & Anor v Heven Holdings Pty Ltd (No. 2) (1992) 8 ACSR 747 Hotien Holdings Pty Ltd v Frits Maré (2007) 25 ACLC 854 Maguire v Makaronis (1997) 188 CLR 449 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 Briginshaw v Briginshaw (1938) 60 CLR 336 O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 London Loan and Savings Co of Canada v Brickenden [1934] 3 DLR 465 Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 Commonwealth Bank v Smith (1993) 42 FCR 390 Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 Stewart v Layton (1992) 111 ALR 687 Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239 Wan v McDonald (1992) 33 FCR 491 Nocton v Lord Ashburton [1914] AC 932 Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1 State Bank of New South Wales v Chia (2000) 50 NSWLR 587 Janesland Holdings Pty Ltd v Simon & Monti [2000] ANZ ConvR 112; [1999] ACTSC 35 Mills v Mills (1938) 60 CLR 150 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 Henville v Walker (2001) 206 CLR 459 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Riley, New South Wales Solicitors Manual, Trust Account and Controlled Money, Butterworths, March 1992 Stewart v Strevens [1976] 2 NSWLR 321 Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 Hawkins v Clayton (1988) 164 CLR 539 Phipps v Boardman [1965] 1 Ch 992 Law Society of NSW v Harvey [1976] 2 NSWLR 154 O’Reilly v Law Society of NSW (1988) 24 NSWLR 204 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 The Duke Group (in liq) v Alamain Investments Ltd [2003] SASC 415 Barker v Duke Group Ltd (In Liq) (2005) 91 SASR 167; [2005] SASC 81 Hewitt v Henderson [2006] WASCA 233 Brightwell & Ors v RFB Holdings Pty Ltd (2003) 44 ACSR 186 Tyler, Young & Croft, Fisher & Lightwood’s Law of Mortgage, 2nd Australian ed (2005) Chatswood, Butterworths Meagher, Heydon & Leeming, Meagher, Gummow & Lehane’s Equity, Doctrines & Remedies, 4th ed, (2002) Chatswood, Butterworths Sims v Craig Bell & Bond [1991] 3 NZLR 535 Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 Alati v Kruger (1955) 94 CLR 216 Aberdeen Railway Co v Blaikie Bros (1854) 2 Eq Rep 1281; [1843-60] All ER Rep 249 Devaynes v Noble, Baring v Noble, Clayton’s Case (1816) 1 Mev 529; 35 ER 767; [1814-23] All ER Rep 1 Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 Parker v Paton (1941) 41 SR (NSW) 237 Hampton Court Ltd v Crooks (1957) 97 CLR 367 Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation [1985] 1 NSWLR 561 Krstik v Brindley [2006] NSWSC 1414 R v McNeil (1922) 31 CLR 76 Urquhart v McPherson (1880) 6 VLR (E) 17 Tito v Waddell (No 2) [1977] Ch 106 McGee v Yeomans [1977] 1 NSWLR 273 Greater Lithgow City Council v Wolfenden [2007] NSWCA 180 O’Sullivan v Management Agency & Music Ltd [1985] QB 428 Warman International Ltd v Dwyer (1995) 182 CLR 544 Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No. 2) [1984] WAR 32 Bailey v Namol Pty Ltd (1994) 53 FCR 102 Boardman v Phipps [1967] 2 AC 46 Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440 Guinness plc v Saunders [1990] 2 AC 663 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Cook v Deeks [1916] 1 AC 554 Slatter v Railway Commissioners (NSW) (1931) 45 CLR 68 Boreland v Docker [2007] NSWCA 94 888 Casino & Tavern Pty Ltd v Hurlfobe Pty Ltd (1997) 8 BPR 15,505 Chan v Zacharia (1984) 154 CLR 178 Stern v McArthur (1988) 165 CLR 489 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 DKLR Holding Co. (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 Re Transphere Pty Ltd (1986) 5 NSWLR 309 Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335 Bond Corporation Pty Ltd v White Industries Ltd [1980] 2 NSWLR 351 Kingston v Keprose Pty Ltd (No 3) (1987) 11 NSWLR 404 Percival v Wright [1902] 2 Ch 421 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 Brunninghausen v Glavanics (1999) 46 NSWLR 538 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Coleman v Myers [1977] 2 NZLR 225 Ngurli Ltd v McCann (1953) 90 CLR 425 Youdan, Equity, Fiduciaries and Trusts (1989) Carswell, Toronto Charlton v Baber (2003) 47 ACSR 31 Re Jarvis (decd); Edge v Jarvis [1958] 2 All ER 336 Clegg v Edmondson (1857) 8 De GM & G 787 Re Hampshire Land Company [1896] 2 Ch 743 J C Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 Furs Ltd v Tomkies (1936) 54 CLR 583 Centofanti v Eekimitor Pty Ltd (1995) 65 SASR 31; (1995) 15 ACSR 629 Re Bright Pine Mills Pty Ltd [1969] VR 1002 Australian Growth Resources Corporation Pty Ltd (receivers and managers appointed) v Van Reesema & Ors (1988) 13 ACLR 261 R v Byrnes (1995) 183 CLR 501 Toms v Cinema Trust Company Ltd [1915] WN 29 AM Spicer & Son Pty Ltd (in liq) v Spicer (1931) 47 CLR 151 Anaray Pty Ltd v Sydney Futures Exchange Ltd & Ors (1988) 6 ACLC 271 Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18 Adrenalin International Powersports Pty Ltd v John Caines Management Pty Ltd [2004] FCA 206 Short v Crawley [2004] NSWSC 752 University of New South Wales v Moorhouse (1975) 133 CLR 1 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 Netbush Pty Ltd v Fascine Developments Pty Ltd (2005) 189 FLR 320 Deputy Commissioner of Taxation of the Commonwealth of Australia v Casualife Furniture International Pty Ltd (2004) 9 VR 549 Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148 Re London School of Electronics Ltd [1986] Ch 211 Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 Profinance Trust SA v Gladstone [2002] 1 WLR 1024 Scottish Co-operative Wholesale Ltd v Meyer [1959] AC 324 Re a Company [1983] 2 All ER 854 Re Bodaibo Pty Ltd (1992) 6 ACSR 509 Bagot Well Pastoral Company Pty Ltd; Shannon v Reid (1992) 9 ACSR 129 Shirim Pty Ltd v Fesena Pty Ltd [2002] NSWSC 10 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 Re a Company (1986) 2 BCC 99,453 Re a Company (1986) 2 BCC 99,495; also cited as Re Cumana Ltd [1986] BCLC 430 In the Matter of Rankine Bros Pty Ltd (3 April 1998, de Jersey CJ, unreported; BC9801022) In re Bird Precision Bellows Ltd [1986] Ch 658 CVC/Opportunity Equity Partners Ltd v Almeida (Cayman Islands) [2002] UKPC 16 Virdi v Abbey Leisure Ltd; Re Abbey Leisure Ltd [1990] BCLC 342
PARTIES:	Roslyn Short as executrix of the estate of the late Warwick Gordon Short v Christopher Crawley & 9 Ors (No. 30)
FILE NUMBER(S):	SC 2824/98
COUNSEL:	Plaintiffs: I M Jackman SC & T M Thawley 1st-6th Defendants: R Weber SC & M Meek 7th-9th Defendants: L Robberds QC & J V Gooley
SOLICITORS:	Plaintiffs: Kemp Strang 1st-6th Defendants: Blake Dawson Waldron 7th-9th Defendants: James Tuite & Associates

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Monday, 26 November 2007

2824/98 Roslyn Short as executrix of the estate of the late Warwick Gordon Short v Christopher Crawley & 9 Ors (No. 30)

JUDGMENT

CONTENTS

Section 1	Introduction	Page 3	Para [1]
Section 2	Elizabeth Street Centre Development	66	[193]
Section 3	Legal Fees	151	[444]
Section 4	Advances at 17.5% Interest	175	[511]
Section 5	Deed of Acknowledgement of 30 June 1994	206	[588]
Section 6	Accounting and Management Fees to 30 June 1997	238	[668]
Section 7	The Australian Youth Hotel	285	[770]
Section 8	Racecourse Hotel Partnership	293	[794]
Section 9	Springsley Share Purchase and Aldonet Loan	307	[843]
Section 10	Account of Profits on Aldonet Loan	358	[973]
Annexures	397
Section 11	Fees or Salary for Mr Crawley’s Service as Managing Director	402	[1054]
Section 12	Accounting and Management Fees After 30 June 1997	428	[1107]
Section 13	Provision of Information After 1 July 1997	436	[1122]
Section 14	Unpaid Tax on Yurong Street Development	454	[1175]
Section 15	The Hotdog Stand	468	[1209]
Section 16	Loan from the Short Family Superannuation Fund	471	[1218]
Section 17	Appropriate Remedy	472	[1220]
Section 18	Conclusions	508	[1301]

SECTION 1 - Introduction

1 HIS HONOUR: This is an oppression suit relating to the affairs of J & J O’Brien Pty Ltd and Marsico Pty Ltd. The second plaintiff, Nabatu Pty Ltd, holds one of three issued shares in each of J & J O’Brien and Marsico. It is the trustee of the Short family settlement trust. The directors of Nabatu were Mr Warwick Short and Mrs Roslyn Short. Mr Short died on 14 February 2004. At all material times until 25 July 1997 Mr Short was a director of J & J O’Brien and Marsico.

2 The first defendant, Mr Christopher Crawley holds one share in J & J O’Brien and Marsico. At all material times he has been a director of J & J O’Brien and Marsico.

3 The remaining share in each of J & J O’Brien and Marsico is owned by the eighth defendant, Springsley Holdings Pty Ltd. Springsley purchased those shares from Athann Pty Ltd, a company controlled by Mr Athol Davis. The boards of J & J O’Brien and Marsico approved the transfer of Athann’s shares to Springsley on 27 March 1997. Springsley held the shares on trust, initially for Mr Davis and members of his family. On 16 May 1997, Mr Davis and members of his family ceased to be beneficiaries of the trust and were replaced by the sixth defendant, Mrs Judith Crawley, (Mr Crawley’s wife), and two of Mr Crawley’s daughters. On 16 May 1997, Mrs Crawley was appointed a director of both companies and Mr Davis resigned. Since at least 16 May 1997 Mr Crawley has controlled the affairs of J & J O’Brien and Marsico.

4 Marsico owns a hotel called Jackson’s on George situated in a prime location near Circular Quay in Sydney. J & J O’Brien owns the Marlborough Hotel located on the corner of King Street and Missenden Road in Newtown.

5 In closing submissions, the first to sixth defendants accepted that this was an appropriate case for a compulsory buy-out order being made against Mr Crawley. The first to sixth defendants accepted that “on any view of it, the affairs of the companies since May 1997, when the parties effectively commercially disengaged from each other, have been conducted contrary to the interests of the members as a whole”.

6 Nabatu seeks an order that J & J O’Brien and Marsico be wound up. If a winding-up order is not made, there is a dispute as to whether Nabatu’s shares should be purchased at current values, or at their value as at 16 May 1997 with interest. There is also an issue as to whether in valuing the shares, there should be a discount for the fact that the shares are a minority holding.

7 In addition, the plaintiffs contend that Mr Crawley, Mrs Crawley, and companies controlled by Mr Crawley, are liable to pay damages or equitable compensation to J & J O’Brien and Marsico, and to a subsidiary of Marsico, Trudale Pty Ltd. The plaintiffs also claim that Mr Crawley or companies controlled by him are liable to account for profits derived by him and them from a variety of transactions.

8 The events giving rise to the claims ventilated in these proceedings stretch back to 1982. Mr Crawley and Mr Short had known each other from school days. Mr Short and Mr Davis were publicans. Mr Crawley was and is a solicitor. He is the principal of a practice carried on under the name of Aubrey F Crawley & Co.

9 Until 1 July 2003, the fourth defendant, Vensel Pty Limited, provided accounting and management services to the group of companies and partnerships with which these proceedings are concerned. Mr Crawley is the managing director and principal shareholder of Vensel.

10 The seventh defendant, Aldonet Pty Ltd, was acquired by Mr Crawley as a shelf company in 1995. He and Vensel own the shares in Aldonet. Mr and Mrs Crawley are Aldonet’s directors. Mr and Mrs Crawley are also the directors of the ninth defendant, Gladewood Enterprises Pty Ltd. Mr Crawley holds the only share in Gladewood. According to the company search, he does not hold it beneficially.

11 An outline of relevant events is required to understand the nature of the various claims. It will be apparent from this outline that all of the plaintiffs’ claims belong to Nabatu and not to Mr Short’s estate. Nonetheless, in accordance with the way the case was presented, for the most part, I will describe them as the plaintiffs’ claims.

Australian Youth Hotel

12 The first business venture between Messrs Crawley, Short and Davis commenced in 1982. On 3 November 1982, Nabatu, Mr Crawley and Athann contracted to purchase the Australian Youth Hotel in Ultimo from Tooth & Co Ltd. The purchase was completed with vendor finance of $262,500. The balance of the purchase price was contributed by Nabatu, Athann and Mr Crawley equally. Each contributed capital of $33,000 (CC1 para 46(b)). From 1983 until 1995, Nabatu, Athann and Mr Crawley carried on the business of the Australian Youth Hotel in partnership.

Marlborough Hotel

13 The next business venture between Messrs Crawley, Short and Davis concerned the Marlborough Hotel in Newtown. The hotel was owned by J & J O’Brien. The shareholders in J & J O’Brien were Mr and Mrs O’Brien. On 8 March 1985, Nabatu, Athann and Mr Crawley contracted to purchase Mr & Mrs O’Brien’s shares in J & J O’Brien for $560,000. The share purchase was completed on 15 April 1985. One share was transferred to Athann. One share was transferred to Nabatu. A third share was issued to Mr Crawley. The purchase was partly funded by vendor finance but principally by a loan from Westpac of $560,000. The loan was made to Mr Crawley, Mr Short and Mr Davis and was secured by, amongst other things, mortgages over real property owned by Mr Crawley and a second mortgage over the family home of Mr & Mrs Short.

Port Jackson Tavern

14 The parties’ next business venture concerned the hotel then known as the Port Jackson Tavern which is now Jackson’s on George. On 26 February 1986, J & J O’Brien contracted to purchase the business carried on by the then lessee of the Port Jackson Tavern for $285,000. J & J O’Brien took a transfer of the lease. The purchase was fully funded by a loan from Westpac. Money was also borrowed from Westpac to discharge the balance of the vendor finance owed to Tooth & Co for the purchase of the Australian Youth Hotel. The loan from Westpac was secured by mortgages over the Australian Youth Hotel and the Marlborough Hotel and also by mortgages by Mr & Mrs Short, Mr Davis and Mr Crawley over their homes and over other real property owned by Mr Crawley. On 26 March 1986, J & J O’Brien took a three-year lease of the Port Jackson Tavern from Tooth & Co.

Yurong Street Development

15 In September 1986, J & J O’Brien entered into a joint venture with Viapro Pty Ltd for the redevelopment of a property in Yurong Street, East Sydney. Viapro was a company associated with a Mr Max Ryan, who was a client of Mr Crawley’s. J & J O’Brien had a 40% share in the joint venture. Viapro and J & J O’Brien acquired shares in a company called Sinodun Pty Ltd which owned the land. To fund the venture, Mr Crawley arranged finance of $4,800,000 through Westpac. This covered $3,500,000 for the purchase of the shares in Sinodun and $1,300,000 for construction costs. The loan was secured by, amongst other things, a mortgage given by Sinodun over the Yurong Street property, together with the existing mortgages given by J & J O’Brien over the Marlborough Hotel, and a mortgage by the partners over the Australian Youth Hotel. It also appears from documents of Westpac (TB 483.1-483.17) that the loan was to be secured by existing guarantees by Mr Crawley, Mr Davis and Mr & Mrs Short, and mortgages over their properties, as well as securities to be provided by Mr & Mrs Ryan.

16 The Yurong Street development was profitable. The property was sold on 23 December 1988 for a profit of $4,011,722. J & J O’Brien was entitled to 40% of the profit. In December 1989, it received advice from its accountants as to the tax liability for the profit.

Newtown Properties

17 In 1988, J & J O’Brien purchased two properties adjacent to the Marlborough Hotel at 149 King Street and 199 Missenden Road, Newtown. The properties were purchased using the trading profits of J & J O’Brien and its overdraft facility.

Freehold Purchase of Jackson’s on George

18 In 1989, the opportunity arose to purchase the freehold of Jackson’s on George. J & J O’Brien’s lease was due to expire in March 1989. On 20 January 1989, Nabatu, Athann and Mr Crawley acquired one share each in Marsico, which was then a shelf company. On 23 February 1989, Marsico exchanged contracts for the purchase of the freehold of Jackson’s on George for $14,500,000. The purchase was completed on 27 June 1989. The purchase was funded by three facilities: first, a $10,300,000 bill acceptance facility in favour of Marsico; secondly, the $4,800,000 bill acceptance facility in favour of Sinodun was continued, notwithstanding the sale of the Yurong Street project; and thirdly, an existing $1,430,000 bill acceptance facility in favour of J & J O’Brien was continued. The purchase price was provided from the $10,300,000 facility provided to Marsico with the balance of the funds being provided by Sinodun. Notwithstanding the purchase of the freehold by Marsico, J & J O’Brien continued to carry on the business of Jackson’s on George until some time after 1 July 1992.

19 J & J O’Brien’s share of the net profit on the sale of the Yurong Street property was $1,604,689. Mr Crawley deposed that that amount was used to pay interest in advance on Marsico’s loan from Westpac in the year ended 30 June 1989 (CC1 para 247).

Racecourse Hotel

20 Part of the deal negotiated with Tooth & Co for the purchase of the freehold of Jackson’s on George was that Tooth & Co would sell the freehold of another hotel cheaply. On 20 February 1989, Marsico exchanged contracts for the purchase of the Racecourse Hotel at Randwick for $1,350,000. The purchase was settled on 23 April 1990. Tooth & Co provided vendor finance of $1,300,000 repayable in three years.

21 Mr Crawley and Mr Short agreed that because Mr Davis had not provided as much security as had they for the group’s borrowings, and had not been as actively involved in running the businesses, Mr Davis should not participate in the operating profits or any profit on the sale of the Racecourse Hotel (CC1 para 238; WS1 para 88). Mr Davis accepted this. Although the hotel was purchased by Marsico, separate accounts were kept in respect of the trading of the Racecourse Hotel. These were described as partnership accounts, with Mr Crawley and Nabatu being equal partners.

195 Missenden Road, Newtown

22 In February 1989, J & J O’Brien purchased a property at 195 Missenden Road for $215,000.

Completion of Purchase of Racecourse Hotel

23 The purchase of the freehold of the Racecourse Hotel was completed on 23 April 1990. A dispute with the lessee had delayed the completion of the purchase.

Financing of Acquisitions

24 Apart from the initial capital injection of $99,000 on the purchase of the Australian Youth Hotel, all of the subsequent acquisitions were financed through borrowings and from the revenues generated from trading at the Australian Youth Hotel, the Marlborough Hotel and Jackson’s on George. In addition, renovations had been made to the hotels. The values of those hotels increased, thus supporting new borrowings.

Accounting and Management Services

25 Staff employed by Mr Crawley in Aubrey F Crawley & Co, or by his service company, Vensel, provided accounting and management services for the operation of the hotels. The plaintiffs contend that from 1987 to 1997, fees of $2,089,767 were paid to Vensel or Aubrey F Crawley & Co for management and accounting fees. According to Mr Crawley, the amount was $1,677,485.

26 Mr Crawley or his employees arranged for the payments by Marsico, J & J O’Brien, or the Australian Youth Hotel partnership, or the Racecourse Hotel partnership, of expenses, including charges for management and accounting services provided by Vensel and Aubrey F Crawley & Co, and legal services provided by Aubrey F Crawley & Co. Mr Crawley contends that the practice was for Mr Short to sign the cheques.

27 The plaintiffs allege that Mr Crawley had no authority from the directors of the relevant companies, or from the partners of the Australian Youth Hotel partnership and the Racecourse Hotel partnership, to charge and receive such fees. They allege that fees were charged and received without adequate disclosure and were excessive for the services provided.

28 Mr Short also said that there was an express agreement between him, Mr Crawley and Mr Davis at the time the Australian Youth Hotel partnership was established that neither he, Mr Davis nor Mr Crawley would charge for their time or services provided. Mr Short said that it was agreed that Mr Crawley would provide legal services and look after all financing requirements and maintain the accounts, Mr Short and Mr Davis would look after the management of the hotels, and Mrs Short would supervise refurbishments.

Elizabeth Street Centre Development

29 In 1989 and 1990, Mr Crawley acted for a company called Trudale Pty Ltd, then controlled by a Mr Harry Londy. Trudale had taken options to purchase land at 439-453 Elizabeth Street, Surry Hills with a view to demolishing the existing buildings on the properties and constructing a mixed commercial and residential development. It had obtained development consent. It had made a number of sales “off the plan” and received a number of deposits. Mr Londy proposed to Mr Crawley that Mr Crawley take over the Elizabeth Street project, provided that Mr Londy’s company, R B Foster (Real Estate) Pty Ltd, was appointed as selling agent for the units in the development and was entitled to receive all commissions on past and future sales. Mr Crawley told Mr Londy that J & J O’Brien might be interested. He said that that was a company in which he and Mr Short were involved. Mr Crawley was given a preliminary feasibility study of the project and an “on completion” valuation. He formed the view that the development was feasible and likely to produce a significant profit.

30 On 10 May 1990, Mr Crawley, on behalf of Trudale, made a submission for finance to Bill Acceptance Corporation Ltd (“BAC”). The finance submission stated that Marsico proposed to acquire the undertaking of Trudale subject to development finance being secured from BAC. The submission summarised a feasibility study which had been obtained and projected that the total development cost would be $20,194,000 and the total sales value $25,816,000, yielding a net profit of $5,622,000. The submission proposed that there be an initial advance of $3,700,000 secured by first mortgage over the Elizabeth Street Land to be acquired and a collateral security by way of a second mortgage over the Racecourse Hotel. Mr Crawley said that the Racecourse Hotel was then valued at about $3,500,000. It was subject to a first mortgage in favour of Tooth & Co of $1,300,000 which did not carry interest. The Elizabeth Street site had been valued at $5,500,000. The finance submission also stated that guarantees would be provided by Messrs Short, Crawley and Londy (TB 9/1135).

31 On 26 June 1990, BAC offered Trudale a bill facility for $16,314,000 (TB 10/1163). It required security over the Elizabeth Street land, together with a second mortgage over the Racecourse Hotel and a second registered charge over the liquor licence of the Racecourse Hotel. It also required joint and several guarantees from Mr Short, Mr Crawley, Mr Londy, Marsico and J & J O’Brien. The facility provided for the purchase of the land, the construction of a seven-storey retail, commercial and residential development, a bank guarantee in favour of the vendor of adjoining land, and the capitalisation of interest. A non-refundable establishment fee of $81,470 was payable on acceptance of the offer. On 30 July 1990, Trudale accepted the offer and paid the fee. At this time, Trudale was still owned and controlled by Mr Londy, or persons associated with him.

32 On about 5 September 1990, numerous agreements were executed preparatory to the draw down of the first tranche of the bill acceptance facility. These included a Deed of Guarantee and Indemnity in favour of Bill Acceptance Corporation signed by Mr Short, Mr Crawley and Mr Londy, and by Marsico and J & J O’Brien. The deed was subsequently dated 12 September 1990, being the date upon which moneys were advanced under the facility. The guarantee was of Trudale’s obligations to BAC. The affixing of J & J O’Brien’s common seal was witnessed by Mr Short as director, and Mr Crawley as secretary. The affixing of Marsico’s common seal was witnessed by Mr Crawley as director, and Ms Kuan as secretary. Ms Kuan was employed by Mr Crawley. There is no minute of any board resolution of the directors of Marsico or J & J O’Brien authorising the guarantees of those companies.

33 On 10 September 1990, Mr Londy transferred the two issued shares in Trudale to Marsico. On the same day, two further shares in Trudale were issued to Marsico. Mr Londy and the other directors of Trudale resigned. Mr Short, Ms Kuan and Mr Crawley were appointed as directors of Trudale.

34 On 13 September 1990, Trudale completed the purchase of the Elizabeth Street properties. It drew down $3,942,000 under the facility with BAC (TB 11/1339.36).

35 By late 1991, the market had turned against Trudale. A report of a valuer, Heron Todd White, of 29 August 1991, commented upon a “dramatic downturn” in property values over the preceding two years and projected that little improvement was anticipated over the next eighteen months (TB 17/1851.3 at 1851.5).

36 On 23 January 1992, Trudale entered into a building contract with Sabemo Australia Pty Ltd for the construction of the buildings on the site for a price of $8,091,000. The original facility with BAC provided that the term of the loan would be eighteen months from initial draw down.

37 On 27 March 1992, a new deed of loan and guarantee was entered into between BAC, Trudale, Mr Short, Mr Crawley, Mr Londy, Marsico and J & J O’Brien. Mr Short witnessed the affixing of the common seal of Trudale, Marsico and J & J O’Brien. He, along with the other guarantors, also signed the document personally as a guarantor. This agreement was necessary for the drawing down of further funds to meet construction costs. The new facility was for $17,180,000, an increase of $866,000.

38 BAC was acquired by Westpac. Westpac was concerned about its exposure to Marsico, J & J O’Brien and Trudale. On 30 July 1992, it advised its approval for facilities to the group companies, excluding Trudale, of $17,180,000. The facilities expired on 31 December 1992. Westpac stressed that renewal should not be regarded as a “fait accomplis” but would be dependent on a number of matters including provision of up-to-date audited financial statements and an acceptable schedule for repayment of principal to move to an annual reduction of principal of $850,000.

39 Construction of the Elizabeth Street Centre development was completed in about May 1993. A building certificate for the development was issued on 4 May 1993 (TB 29/2927.1, 2928.1). The strata plan was registered on 18 June 1993.

40 From July or August 1993, Marsico and J & J O’Brien started meeting interest payments on the loan from BAC to Trudale.

Elizabeth Street Centre Joint Venture Agreement

41 On 18 November 1993, Trudale, J & J O’Brien, Marsico and Mr Crawley entered into a Joint Venture Agreement in relation to the Elizabeth Street Centre. The agreement provided that the joint venture should be deemed to have commenced from 20 September 1990. The whole of the business of the joint venture was to be under the control of Trudale. However, J & J O’Brien and Marsico were to contribute 100 per cent of all of the costs of the joint venture. Trudale, J & J O’Brien and Marsico were to share any profits of the joint venture in a proportion of fifty per cent to Trudale and fifty per cent to J & J O’Brien and Marsico, or in such other proportions as might be agreed by the joint venturers from time to time. Mr Crawley was appointed as the “manager” of the joint venture until such time as the joint venturers and he might otherwise determine.

42 The principal purpose of the joint venture agreement was to provide a purported basis for Marsico and J & J O’Brien to deduct the losses associated with the Elizabeth Street Centre joint venture from their taxable profits.

43 The audited financial statements of the Elizabeth Street Centre joint venture, and of Marsico, J & J O’Brien and Trudale record that losses were incurred in respect of the Elizabeth Street Centre joint venture up to and including 30 June 2004 of $9,535,648.

Plaintiffs’ Claims in Respect of the Elizabeth Street Centre Development

44 The plaintiffs claim that Mr Crawley is liable to compensate Marsico, J & J O’Brien and Trudale for losses they sustained in relation to the Elizabeth Street Centre joint venture. Mr Short deposed that Mr Crawley represented to him that the project would be owned equally by Mr Short and Mr Crawley and that none of the hotels would be required to support the project.

45 As a result of rulings I gave during the hearing in relation to the plaintiffs’ application to amend the particulars of this claim (Short v Crawley (No. 27) 1 March 2006), the grounds upon which the plaintiffs contend that Mr Crawley is liable to compensate Marsico and J & J O’Brien for their losses are that:

(a) Mr Crawley failed to obtain board approval for the guarantees from J & J O’Brien and Marsico, and did not disclose to Mr Short or to Mr Davis that guarantees were required from those companies;

(b) Mr Crawley failed to act bona fide in the best interests of J & J O’Brien and Marsico but acted for an improper purpose and preferred his own interest, in that if the Elizabeth Street Centre project was profitable, he intended to assert that either 50% or 80% of the shares were beneficially owned by him;

(c) Mr Crawley failed to advise Mr Short and Mr Davis to obtain independent legal and financial advice; and

(d) Mr Crawley acted for an improper purpose and not in the best interest of the companies by procuring the companies to enter into the transactions partly for the undisclosed purpose of obtaining excessive legal fees.

Advances at 17.5% Interest

46 Between December 1990 and February 1994, J & J O’Brien purchased a further four properties in Newtown in the vicinity of the Marlborough Hotel. At least three of these purchases were substantially funded by loans made by Mr Crawley to J & J O’Brien on mortgage security. There is a dispute as to whether an advance of $168,300, described as such in a mortgage over 197 Missenden Road, Newtown was in fact made by Mr Crawley.

47 The mortgages provided that interest would be payable on the loans at 17.5% per annum. The advances were repayable on demand, but there was no penalty for early repayment.

48 During all of this period, the J & J O’Brien Group was under vigorous pressure from Westpac to reduce the debt owed to Westpac. The Westpac facility put in place at the time of the purchase of the freehold of Jackson’s on George in the amount of $16,530,000 expired on 30 June 1992. The loan was extended and the facility increased, but Westpac wanted the facility discharged. This facility was in addition to the Trudale facility guaranteed by J & J O’Brien and Marsico.

49 Between January and April 1993, in May 1994, and in February 1995, Mr Crawley made advances to J & J O’Brien totalling $340,000. He charged interest at the rate of 17.5% on the advances.

50 The plaintiffs contend that there was no board approval for the loans made by Mr Crawley, that the loans were made by him in breach of his fiduciary duty as a director of J & J O’Brien and as a solicitor to it, and that the interest charged was excessive. They contend that Mr Crawley should be required to account for the interest paid or credited to him in respect of those advances.

Assertions of Unpaid Legal Fees

51 Mr Crawley maintained that he was owed money for legal services, although he had not rendered accounts. He says the reason for not rendering accounts for all the work done was because the companies did not have the money to pay for his firm’s work. On 2 and 17 May 1994, Mr Crawley wrote to Mr Short and Mr Davis, asserting that he was owed approximately $700,000, or in the vicinity of $800,000, for unpaid legal fees and advances. The minutes of a meeting of directors of J & J O’Brien and Marsico of 19 May 1994, prepared by Mr Crawley, record his having reported that he was owed approximately $1,000,000 for unpaid legal costs and advances which had not been repaid. The minutes record a resolution that the indebtedness of the companies to Mr Crawley be secured and fresh security documents be executed if necessary to that end. The minutes also record a purported resolution that Mr Crawley was authorised to transfer moneys as from time to time might be held in the trust account of Aubrey F Crawley & Co to meet the indebtedness, whether or not bills of costs had been rendered.

30 June 1994 Deed

52 The minutes of a meeting of directors of J & J O’Brien of 30 June 1994, also prepared by Mr Crawley, record that on that day he tabled a deed between himself and J & J O’Brien and variations of mortgage together with a notice entitled “Notice of Commercial Benefit to Crawley”.

53 As at 30 June 1994, according to the general ledger of J & J O’Brien, J & J O’Brien owed Mr Crawley $305,000 for outstanding advances.

54 On 30 June 1994, a deed was entered into between Mr Crawley and J & J O’Brien (TB 39/4033). Mr Short witnessed the affixing of the common seal of J & J O’Brien to the deed. On its face, the deed contained two schedules. Schedule 1 provided that there were legal costs owing by J & J O’Brien to Aubrey F Crawley & Co totalling $920,000. This figure comprised three amounts described as follows (TB 39/4037):

“ Legal Costs owing by J & J O’Brien Pty Ltd to Aubrey F Crawley & Co:
(a) costs and disbursements in acting for the J & J O’Brien Group of Companies in the 1993/94 refinancing of $32,000,000 of loan facilities with Westpac, at the rate of 1%

$320,000

(b) costs and disbursements in acting for Trudale Pty Ltd and J & J O’Brien Pty Limited and Marsico Holdings Pty Ltd in respect of the purchase, development and commercialisation of the property situate at 446-458 Elizabeth Street, Surry Hills and known as Elizabeth Gardens to the date hereof

$300,000

(c) costs and disbursements in acting for J & J O’Brien Pty Limited and its Related Companies in numerous matters from time to time, involving liquor licensing, property sales, purchases, leases, corporate and tax structuring, payroll and group tax matters, litigation matters and banking/finance matters, in particular involving dealings and negotiations with Westpac Banking Corporation

$300,000

Total Amount of Legal Costs $920,000 ”

55 Schedule 2 stated that the total value of outstanding principal sums under the mortgages to date before the addition of legal costs was $305,000.

56 The deed provided that the acknowledged debt for legal costs should be secured by four mortgages held by Mr Crawley notwithstanding that J & J O’Brien had made part-repayment of advances secured by those mortgages. It provided that the principal sums owing under the four mortgages should be increased so that the new principal sum secured under the four mortgages totalled $1,225,000.

57 If valid, the effect of these provisions was also to provide that interest at 17.5% per annum, which was payable on the principal sums (and arguably on all debts) secured by the mortgages, would be payable on the acknowledged debt for legal costs.

58 On the same day, Marsico gave Mr Crawley a guarantee of the obligations of J & J O’Brien to Mr Crawley. Mr Short witnessed the affixing of Marsico’s common seal to the guarantee (TB 39/4039).

59 The plaintiffs claim that the deed of 30 June 1994 should be set aside. They dispute that the schedules to the deed were attached to it at the time the deed was signed. The plaintiffs also contend that the deed was entered into without a resolution of the board of directors, without the informed consent of Messrs Davis and Short, and without their having had the benefit of independent advice. The plaintiffs say that as Mr Crawley was in a position of conflict between his own interests and his fiduciary duties as a solicitor to, and director or, J & J O’Brien, the deed should be set aside. They contend that Mr Crawley had no entitlement to charge the amounts which the deed acknowledged was due to him.

60 On 22 September 1994, J & J O’Brien executed a charge over all of its assets to secure outstanding debts owed by it to Mr Crawley. The affixing of the common seal of J & J O’Brien was witnessed by Mr Davis and by Mr Short. They each signed each page of the deed. The deed provided that the company would pay interest at 17.5% per annum. The plaintiffs contend that this security should be set aside also.

Engagement of Mr Mark Cohen and Mr Bill Hannan

61 On 22 September 1994, it was resolved that Mr Mark Cohen be engaged as chief executive officer of the group and that he be authorised to commence all necessary works for implementing a plan for financial management for the next five years and that he be responsible for negotiations, under the direction of Mr Crawley, for refinancing the companies’ debts. Mr Cohen had had a long experience with Westpac. Although the group had not defaulted in paying interest and principal, it was under severe constraints from Westpac to effect debt reductions. There was a fear that Westpac might appoint a receiver or otherwise enforce its securities on expiry of the facilities or on any default. At that time, the total amount of the debt owed to Westpac was about $30,100,000. According to a contemporaneous file note, apparently prepared either by Mr Crawley or by Mr Cohen for discussion with Westpac, Westpac at that stage valued the group’s assets at $38,485,000.

62 Although the minutes recorded that Mr Cohen would be engaged as the chief executive officer, he in fact acted as a consultant to the group. He reported on the group’s financial position on 14 December 1994. He concluded that whilst the underlying cash flow from the hotel businesses was strong, the business was not capable of sustaining indefinitely the negative cash flow arising out of the Elizabeth Street Centre property development. He noted that J & J O’Brien faced substantial tax liabilities. No tax returns had been lodged for the financial years 30 June 1985 and following. This was likely to attract penalties. He recommended an injection of capital and discussed the options of selling assets to reduce debt.

63 In January 1995, Mr Davis indicated that he wished to be bought out of the companies. In February 1995, Mr Short engaged the services of Mr Bill Hannan to provide him with financial advice. Mr Hannan was a merchant banker and a friend of Mr Short.

64 Mr Cohen’s engagement as a consultant to the Group was terminated by mutual consent on 30 March 1995.

Deed of Charge of 27 February 1995

65 On 7 and 16 February 1995, Mr Crawley made further advances to J & J O’Brien. The effect of the deed of charge of 22 September 1994 was that interest at 17.5% per annum would be repayable on those advances. The plaintiffs say that there were no board resolutions approving of these loans before they were made. At a directors’ meeting of J & J O’Brien on 27 February 1995, Mr Crawley sought and obtained a resolution that his further advances be the subject of a deed of equitable charge. The plaintiffs say there was no disclosure of the interest rate of 17.5% being charged on the loans. On the same day, that is 27 February 1995, J & J O’Brien executed a further charge and executed variations of the Real Property Act 1900 (NSW) mortgages. The security documents provide for interest at the rate of 17.5% per annum on the advances. The plaintiffs contend that there was no express disclosure of the interest rate and there was no basis upon which Mr Crawley could have thought that the giving of the charges and the variations of mortgage were in the interests of the companies.

Offers to Acquire Shares

66 On 2 March 1995, Mr Short wrote to Mr Crawley and said that if Mr Davis decided to sell his shares, and if he decided not to participate equally with Mr Crawley in the purchase, it would be unacceptable for him to remain indefinitely as a one-third shareholder with his guarantee and family home at risk. He said that if no satisfactory arrangement was made for Mr Crawley to buy Mr Short’s shares, as well as Mr Davis’ shares, Mr Short proposed that the assets of the group be realised without any forced sales and that the group’s liabilities, including its liability to Mr Crawley, be paid out, subject to Mr Crawley’s substantiating the amount claimed by him, and the balance to be distributed to shareholders (TB 44/4612).

67 From March 1995, following the appointment of Mr Hannan as Mr Short’s advisor, Mr Short made various complaints and requested detailed information. By then, the relationship between Mr Crawley and Mr Short, which was already acrimonious, had deteriorated further. On 29 March 1995, Mr Crawley threatened to exercise his powers under the mortgages and equitable charges which he held unless the group ceased to pay directors’ fees and paid all of the interest which he claimed was due to him (TB 45/4748 at 4750).

68 On 5 April 1995, Mr Crawley wrote to Mr Short asserting that he was then owed $1,862,765. This included interest at 17.5% from 1991 on amounts for legal costs claimed to have been due to him from that time.

69 In April 1995, Mr Crawley made offers which, if accepted, would have given him the option to purchase Nabatu’s shares in Marsico and J & J O’Brien. The offers were not accepted.

70 On 26 April 1995, Mr Short advised Mr Crawley that he and Mr Davis were prepared to accept $3,000,000 for their interest in the group, provided there were mutual releases and they were released or indemnified in relation to their guarantees and other obligations to Westpac and other lenders. That offer was not accepted.

Sale of Australian Youth Hotel

71 On 18 May 1995, contracts were exchanged for the sale of the Australian Youth Hotel for $1,745,000. The sale was completed on 3 July 1995. Westpac received either $1,625,000 or $1,620,456. Twenty thousand dollars was paid to Aubrey F Crawley & Co. The balance of $100,000 plus adjustments on settlement was paid to J & J O’Brien. The plaintiffs claim that the partners in the Australian Youth Hotel did not agree to the payment of $20,000 to Mr Crawley. This payment forms part of their claim that Mr Crawley should disgorge moneys received by him in payment of legal fees. He rendered a memorandum of costs on 18 July 1995. No application was made by Nabatu following the rendering of the memorandum of costs for it to be assessed.

72 Mr Crawley gave notice terminating the Australian Youth Hotel partnership on 8 August 1995. The financial statements for the partnership of the Australian Youth Hotel for the year ended 30 June 1996 record that the partnership had a surplus of $1,242,762. This was represented by a receivable being a loan to related entities of $1,757,624 less a liability, being an unsecured loan, to related entities of $514,862. Thus, as would be expected, the application of the proceeds of sale of the Australian Youth Hotel to reduce Marsico’s debt to Westpac was accounted for in the books of the Australian Youth Hotel as creating a debt owed by Marsico to the partners. It appears from subsequent financial statements of Marsico that in the financial year ended 30 June 1996 it also treated $1,242,762 as a debt owed by it to “related entities”, that is, to the Australian Youth Hotel partnership.

73 According to the 30 June 1996 financial statements, Nabatu’s share of the net partnership assets of $1,242,762 was $405,358. It seeks to recover this sum as a debt owed to it by Marsico. The defendants contend that the Australian Youth Hotel had come to be regarded as an asset of “the Group” and not an asset of the partners, and that the partners consented to the proceeds of sale of the Australian Youth Hotel being treated as an asset of Marsico (in which the partners were equal shareholders) rather than belonging to the partners individually.

Insurance Claim

74 On 17 October 1995, a fire occurred at Jackson’s on George. This gave rise to an insurance claim. Marsico became entitled to $91,000 from its insurers. The fire also had an adverse effect on Marsico’s trading from the hotel.

Appointment of Hilldean Pty Ltd and Mr Hannan as Company Consultants

75 Following May 1995 at the latest, Mr Crawley found himself in the position that Mr Short and Mr Davis voted together on a number of matters. On 25 October 1995, they proposed that Mr Hannan be appointed as a consultant to the group to act as manager of finance administration. Mr Crawley objected to Mr Hannan’s appointment. He threatened to exercise his rights as a secured creditor unless the debt owed to him was paid. Discussion over this and other issues was acrimonious. It does not appear that a formal vote for the appointment of Mr Hannan or his company, Hilldean Pty Ltd, was taken at the meeting. However, from that time until his appointment was terminated in 1997, Hilldean and Mr Hannan provided consultancy services to the group.

76 At the 25 October 1995 board meeting Mr Crawley objected to any discussion in relation to the Racecourse Hotel and objected to the appointment of Mr Hannan as a consultant to the Racecourse Hotel business on the basis that that business was of no concern to the companies but was a partnership matter between him and Mr Short.

Sale of Racecourse Hotel

77 There were further negotiations with Westpac for the extension of its facilities. The debt had been reduced by some sales of units in the Elizabeth Street development and by the sale of the property at 199 Missenden Road. Westpac was prepared to extend the facilities to 31 March 1996 on terms which included that the proceeds of sale of the Racecourse Hotel be applied first by the reduction of $3,350,000 of the debt owed by Trudale to BAC, next by the payment of $400,000 to Mr Crawley trading as Aubrey F Crawley & Co, next as to the reduction of $150,000 in unpaid interest owed by Trudale to BAC, and as to the balance by its application in reducing the amount of principal owed by Trudale to BAC. Mr Hannan and Mr Short were prepared to agree to Westpac’s terms subject to their confirming their agreement to the payment of $400,000 to Mr Crawley.

78 On 6 December 1995, Marsico obtained a favourable judgment in the Land and Environment Court in relation to its development application for the Racecourse Hotel.

79 A contract for the sale of the Racecourse Hotel was finally exchanged on 7 May 1996 for $4,140,000. The contract for sale described Marsico as bare trustee for Nabatu and Crawley. At a board meeting on 28 September 1996, Mr Short and Mr Davis agreed that the sum of $400,000 could be paid to Mr Crawley provided it was applied in reduction of advances rather than legal costs.

80 On 30 August 1996, the parties entered into a deed which provided for the $400,000 from the sale to be deposited into a trust account on behalf of Marsico as trustee for Nabatu and Mr Crawley, and that that amount could be withdrawn if Mr Crawley gave a written notice to that effect to the solicitors, but that the moneys would be applied towards amounts owing in respect of advances and interest thereon or costs of enforcement in respect of such advances, and not to legal costs or interest on legal costs (TB 61/6664 at 6678).

81 The sale of the Racecourse Hotel was completed on 2 September 1996. The deposit of $415,000 had been released and paid to BAC in reduction of the Trudale debt. Following the completion of the sale, BAC received a further $3,232,561.31.

82 On instructions from Mr Crawley, the proceeds of sale of the Racecourse Hotel and the profit derived from the sale of the Racecourse Hotel were accounted for in Marsico. Initially, the accounts of Marsico recorded a debt owed by it to each of Nabatu and Mr Crawley of $1,321,533 representing their shares of the profit on the sale of the Racecourse Hotel. The entries were subsequently reversed.

83 On 13 September 1996, Mr Crawley gave notice of termination of the Racecourse Hotel partnership. The financial statements for Marsico for the year ended 30 June 1997 treat the proceeds of sale of the Racecourse Hotel as assets of Marsico and recorded as an abnormal gain of $2,643,067 a profit on the sale of the Racecourse Hotel. Mr Crawley’s position is that the agreement between him, Mr Davis and Mr Short when the Racecourse Hotel was acquired was that Mr Davis should not participate in the Racecourse Hotel, either by participating in profits derived from trading, or in the capital gain on sale. Originally, this agreement was reflected by describing the arrangements as one where Marsico held the hotel on trust for Nabatu and Mr Crawley as partners. However, later, he concluded that it was more accurate to characterise the arrangement as an agreement as between the shareholders in Marsico. He says that the profits on the sale of the Racecourse Hotel were properly accounted for as profits of Marsico. The proceeds of sale went to reduce the group’s indebtedness to BAC.

84 Nabatu contends that Marsico is required to account to it for half of the net profits derived from the sale of the Racecourse Hotel.

85 The contract for sale of the Racecourse Hotel contemplated that the purchaser might permit the vendor to continue to conduct the business after completion. Mr Crawley negotiated a licence from the purchaser to Vensel. It became common ground that the profits derived by Vensel from trading from the hotel were accounted for to Marsico. Nabatu claims that Marsico is obliged to account to it for half of those profits because the opportunity to derive the profits belonged to the alleged partnership.

86 Nabatu also claims that the liquor licence, which is held by Mrs Crawley for Marsico, is held by Marsico on trust for it and Mr Crawley. It seeks an order that Mr Crawley pay to Nabatu half the value of the liquor licence.

Messrs Short and Davis Obtain Legal Advice

87 In the latter half of 1996, Messrs Short and Davis, with the assistance of Mr Hannan, prepared a long information memorandum for Gilbert & Tobin, who were retained to advise them on claims they or the companies might have against Mr Crawley. The 33-page memorandum described in detail the concerns and complaints Messrs Short and Davis then had about Mr Crawley, including complaints concerning the Elizabeth Street Centre development; the licence for the Racecourse Hotel; taxation liabilities; Mr Crawley’s claimed outstanding legal fees; an alleged debt then recorded as owed to Vensel arising from J & J O’Brien’s share of profit from the Yurong Street development; the deed of 30 June 1994; the securities taken by Mr Crawley; undue pressure allegedly applied by Mr Crawley; and his refusal to agree to sales of the Newtown properties (TB 47/4981.13).

Purchase of Athann’s Shares and Arranging Aldonet Finance

88 During 1996, Mr Crawley made a number of applications to prospective lenders to refinance the Westpac facility. From at least April 1996, Mr Crawley had in mind that the finance would be used to pay out one or both of Athann and Nabatu. On 26 June 1995, Mr Crawley purchased a shelf company, Aldonet Pty Ltd, the seventh defendant. Aldonet purchased some of the units in the Elizabeth Street development.

89 On 8 August 1996, Mr Crawley telephoned Mr Phillip Wiseman, a solicitor then at Rosenblum & Partners. Mr Wiseman had been retained by Mr Davis. There is a dispute as to whether Mr Short was also his client, but it is not necessary to go into that. Mr Crawley told Mr Wiseman that he was prepared to pay $750,000 for Mr Davis’ shares in the whole group. Between mid October 1996 and 16 December 1996, Mr Wiseman, acting on behalf of Athann and Mr Davis, negotiated a deal with Mr Crawley for the acquisition of Athann’s shares. By 28 October 1996, a price of $1,000,000 had been agreed, split as to $600,000 for the share in Marsico, and $400,000 for the share in J & J O’Brien.

90 On 14 October 1996, QIDC advised that it was willing to consider providing a facility to Aldonet for an amount of up to $17,000,000, subject to the loan not exceeding 65% of the current market value of the security properties, being Jackson’s on George and the Marlborough Hotel. Mr Short and Mr Davis had no knowledge of the terms upon which Mr Crawley was negotiating to obtain finance to refinance the group’s facilities. Any drawdown of the finance by Aldonet was dependent upon Mr Crawley’s obtaining control of J & J O’Brien and Marsico by acquiring Athann’s shares.

91 Mr Crawley was concerned about the effect of “pre-emption provisions” in the articles of Marsico and J & J O’Brien, that is, provisions restricting the right of a holder of shares to transfer the shares. Mr Wiseman proposed a structure by which the provisions could be overcome. Springsley was incorporated as a shelf company on 15 October 1996.

92 On 1 November 1996, Mr Crawley sent to Mr Wiseman consent forms for signature by Mr and Mrs Davis for them to become the directors of Springsley. They became directors of Springsley on that day and acquired two shares in it. On 1 November 1996, they each executed a declaration of trust of the shares they held in Springsley in favour of Athann. On the same day, a deed of settlement was entered into between Mr Davis as settlor and Springsley as trustee. The deed provided for the creation of a trust fund and for assets to be accepted by Springsley as an addition to the trust fund. There were various classes of beneficiaries. Primary Beneficiaries were divided into two classes. The first class (in Part 1) was Mr Davis and his wife and children and their spouses. The second class (in Part 2) was Mrs Crawley, and two daughters of Mr Crawley. The definition of “Primary Beneficiary” meant the persons named or described as such in Part 1 until such time as a notice was issued by all of the directors of Springsley nominating alternate Primary Beneficiaries, whereupon the Primary Beneficiaries would mean the persons described in Part 2.

93 On 16 December 1996, the share sale agreement was entered into between Athann and Springsley (TB 65/7143.1). The purchase price was $1,000,000 allocated as to $400,000 for Athann’s share in J & J O’Brien and as to $600,000 for its share in Marsico. The agreement provided that Athann would procure a meeting of directors of Marsico and J & J O’Brien to be held within 28 days to vote in favour of certain resolutions required by Mr Crawley. They included the adoption of the group companies’ financial statements as tabled by him; authority for the companies to sign and lodge the income tax returns prepared by Glen Neilsen & Co, the group’s auditors; approval to the assignment of the future proceeds of the insurance claim on Sun Alliance Insurance to Vensel; and approval to the registration of the transfer of the shares.

94 Clause 4.1(d) of the share sale agreement provided that Athann was required to use its best endeavours to ensure that, without the prior written consent of Springsley, J & J O’Brien and Marsico did not lodge any applications for the funding of or refinancing of their current mortgage loan facilities, nor permit any resolution challenging the validity of the mortgages to Vensel, nor the equitable charge to Mr Crawley, nor authorise any payments to be made to Hilldean or Mr Hannan, nor convene a directors’ meeting to remove Mr Crawley as a director.

95 Clause 4.6(b), although badly worded, in substance required that, upon Mr Crawley’s convening a directors’ meeting, Athann vote in favour of the acceptance and approval of loan facilities to discharge the facilities from Westpac and BAC, and to authorise the execution of all loan documents required.

96 Clause 5.2 dealt with steps to be taken on the completion of the sale. These included procuring meetings of the directors of each of the companies to procure the dismissal of Hilldean Pty Ltd and Mr Hannan as consultants to each of the companies; the appointment of an additional director by a person nominated by the purchaser, and the resignation of Mr Davis as a director; the tabling of all legal opinions obtained by the “Company” in relation to the joint venture with Trudale and the legal fees outstanding to Aubrey F Crawley & Co; and withdrawing any instructions to any solicitors to prepare any advice to the company or to instigate any proceedings in relation to any secured advances or liabilities. It also required the procuring of a resolution approving the release of $400,000 to Aubrey F Crawley & Co in part-payment of costs from moneys with the Australian New Zealand Banking Group Ltd. This was a reference to the $400,000 which was held by the solicitors in a trust account with the ANZ bank from the proceeds of sale from the Racecourse Hotel and which the earlier deed had provided should be released to Mr Crawley not in reduction of the alleged debt for costs, but in reduction of the debt owed to him for advances.

97 The share sale agreement did not deal with who should control Springsley at completion of the purchase or with the beneficiaries of the Springsley trust (TB 65/7143.1). These matters were dealt with in a separate document called a supplementary deed entered into on the same day (TB 65/7246). The supplementary deed provided that upon the passing of the resolutions set forth in clause 4.6 of the share sale agreement, Springsley would procure a loan of $100,000 which it would pay as a deposit to Athann’s solicitors to be held as stakeholders. Mr Crawley had provided a cheque for that sum to Mr Wiseman on 12 December 1996. The supplementary deed also provided for more documents to be tabled on completion of the share sale agreement. The documents to be provided included resignations of Mr and Mrs Davis as directors of Springsley and executed transfers of the shares in Springsley and also a signed nomination of the alternate primary beneficiaries pursuant to clause 1(i) of the deed of settlement of the Springsley trust, as well as the resignation of Mr Davis as appointor of the Springsley trust. The supplementary deed also provided that Springsley would be required to provide the balance of the purchase price of $900,000.

98 The share sale agreement provided that its contents were to be kept confidential. Mr Crawley was not a party to the share sale agreement. On the same day, 16 December 1996, he entered into an agreement with Mr and Mrs Davis, Athann and Springsley (TB 65/7253.20). Mr and Mrs Davis, Athann and Springsley undertook to maintain the secrecy of the transaction and also of “information received by [Mr Crawley] in the pursuit of the performance of [his] obligations to its proposed financiers and the documentation to reflect the conclusion of the transaction which by its nature is confidential financial information, and business plans of [Mr Crawley].” They warranted that they had not disclosed any details of the negotiations to Mr or Mrs Short, or any third parties associated with J & J O’Brien and Marsico.

99 Mr Hannan and Mr Short were themselves attempting to obtain finance to pay out the Westpac and BAC facilities. Mr Crawley did his best to prevent Mr Davis or Mr Short from obtaining finance.

100 On 11 February 1997, Gilbert & Tobin, advised the directors of J & J O’Brien and Marsico on various causes of action against Mr Crawley (TB 67/7362.5). They advised that the deed of acknowledgement of 30 June 1994 and subsequent securities were voidable.

101 On 12 February 1997, the ANZ bank made an offer to Mr Crawley to provide facilities totalling $5,600,000 (TB 67/7362.46). The security for the facilities was to be guarantees from the group companies, mortgages over the two Newtown properties still owned by J & J O’Brien and over the unsold units in the Elizabeth Street development and mortgages over various properties owned by Mr Crawley together with second mortgages over Jackson’s on George and the Marlborough Hotel with a deed of priority limiting QIDC’s mortgage to $15,000,000 plus interest and charges. A fee of $10,000 was payable on acceptance.

102 On the same day, the ANZ Bank made an offer of finance to J & J O’Brien of an overdraft facility in the amount of $400,000 (TB 47/7362.23). Mr Crawley accepted the offer on 25 February 1997.

103 At a directors’ meeting on 19 March 1997, Mr Crawley advised Messrs Short, Davis and Hannan that he had applied for finance on his own behalf and not on behalf of the companies. He refused to answer any questions in relation to his finance applications. Mr Crawley demanded to be told what applications Mr Hannan was making on behalf of the companies. Mr Hannan refused to provide that information until Mr Crawley told him what he was doing. There matters rested for the time being.

104 On 25 March 1997, Westpac and BAC agreed to a further extension of their facilities from 31 March 1997 to 30 April 1997 (TB 70/7523, 7524).

105 On 25 March 1997, QIDC made an offer of finance of $15,000,000 to Aldonet (TB 70/7527.16). The facility was split into two components. One was a cash advance facility of $14,000,000 to assist with refinancing of the debt over Jackson’s on George and the Marlborough Hotel. The second facility was for $1,000,000 to assist with the payment of licence and gaming fees. The security required by QIDC comprised first mortgages over the hotel properties, charges over Aldonet, Marsico and J & J O’Brien, and joint and several guarantees from Aldonet, Marsico, J & J O’Brien and Mr Crawley. Aldonet had not offered, and QIDC did not require, any guarantee from Mr Short or Mr Davis, or any mortgage over their properties. The letter provided for the payment of an establishment fee of $45,000. It provided that interest would be calculated at QIDC’s Cash Advance Rate plus a margin of 2.25%. The default rate would be the Cash Advance Rate plus 5.25% per annum. A condition of draw down of the facility was that QIDC be satisfied with all matters relating to proposals concerning the shareholding of J & J O’Brien and Marsico. Prior to settlement, it was required to be satisfied that Mr Crawley, or interests controlled by him, had a majority shareholding in and unimpeded control of Marsico and J & J O’Brien (at 7527.19-7527.20).

106 On the same day, Mr Crawley forwarded a copy of QIDC’s letter of 25 March 1997 to Mr Wiseman of Rosenblum & Partners. He stated that:

“ We refer to and confirm the prior agreement as to confidentiality. This document is provided upon the further agreement that it is done so on a strictly confidential basis and upon your personal undertaking that:
a. the documents, their contents and their nature will not be disclosed;
b. neither of the other directors shall be advised of the source of funds. ”

107 The information in this correspondence was not disclosed by Mr Wiseman either to Mr Davis or to Mr Short.

108 On 26 March 1997, Mr Crawley, on behalf of Aldonet, sent by facsimile to the company secretary of J & J O’Brien and Marsico, and to Mr and Mrs Short, an offer to provide $19,400,000 of finance to J & J O’Brien, Marsico and Trudale (TB 71/7528). The offer was of three facilities, but they were not offered separately. Facility A was for $15,000,000. Facility B was for $4,000,000 and Facility C was for $400,000. The letter stated that Aldonet would be obtaining the advance of funds from “its Primary Lender”. The terms of the offer of Facility A were based upon the terms of QIDC’s letter to Aldonet. The facility was for the same amount. Aldonet stipulated the same security as QIDC required but with the addition of joint and several guarantees from Mr and Mrs Short and Mr and Mrs Davis. Aldonet stated that its establishment fee would be $150,000. QIDC’s establishment fee was $45,000. The interest rate proposed by Aldonet was stated to be its Primary Lender’s cash advance rate plus a margin of 2.75% per annum. QIDC’s offer was its cash advance rate plus a margin of 2.25%. Aldonet’s offer was for the default interest rate to be half a percent higher than QIDC’s default rate. Aldonet’s offer did not replicate QIDC’s condition that it be satisfied of proposals regarding the shareholdings of J & J O’Brien and Marsico, and in particular, that Mr Crawley or interests controlled by him have a majority shareholding in, and unimpeded control of, the companies.

109 Facility B comprised a fixed rate commercial bill facility for $2,000,000 and a variable rate bill facility for $2,000,000. The facility was based on the ANZ Bank’s offer to Mr Crawley. The fee payable on acceptance was $40,000 rather than $10,000. Aldonet’s offer included a line fee of 2% per annum on the facility limit compared with the line fee to be charged by the ANZ Bank of 1.75%.

110 Facility C was a $400,000 overdraft facility to be provided by the ANZ Bank.

111 Aldonet’s offer was considered at a meeting of directors of J & J O’Brien, Marsico, Trudale and other companies in the group held on 27 March 1997. As well as Messrs Crawley, Short and Davis, Hannan and Wiseman were present. A resolution was passed on the votes of Mr Crawley and Mr Davis, with Mr Short objecting, to accept Aldonet’s letter of offer of 26 March 1997 as modified in two respects as notified during the meeting. Those two respects were that personal guarantees of Mrs Short and Mrs Davis would not be required and that the acceptance fee of $150,000 for facility A could be paid in two instalments: $75,000 then and $75,000 on acceptance.

112 Accounts for 30 June 1995 were approved with Mr Short dissenting. A resolution was also passed authorising the auditors, Glen Neilsen & Co, to lodge income tax returns for the years 1990 to 1995. Mr Hannan pointed out that an earlier schedule that had been provided showed that tax returns had not been lodged since 1985. He asked whether tax returns for the five years from 1985 to 1990 had been lodged. Mr Crawley advised that they had not been lodged, but the financiers wanted returns from 1990 to 1996 and it was probably not a good idea to have the earlier income tax returns “floating around”.

113 After debate as to the allocation of losses from the joint venture, Mr Crawley proposed a resolution that the income tax returns prepared by Glen Neilsen & Co for the years 1990 to 1995 as before the board be accepted, and that he be authorised to sign the returns on behalf of the company; or, alternatively, that they be signed by the public officer, and the documents thereafter be returned to Glen Neilsen & Co for execution by Mr Leddin, as noted in the returns, and lodged by that firm on each of the group companies’ behalf; and that it be noted that the returns disclosed there was no income tax payable by any of the group companies. The resolution was passed by a majority with Mr Short voting against.

114 A resolution was put that each of the share transfers from Springsley to Athann in J & J O’Brien and Marsico be accepted by each of the companies, and that the share transfers, subject to due stamping by the Commission of Stamp Duties, be registered and that two new share certificates for each share be issued immediately in favour of Springsley. The resolution was passed on the votes of Mr Davis and Mr Crawley. Mr Short abstained.

115 Mr Short and Mr Davis had given authority to a finance broker, Balmain NB Commercial Mortgages Ltd, to attempt to arrange suitable non-bank mortgage finance on the security of Jackson’s on George, the Marlborough Hotel, Mr Short’s residence at Cremorne, and Mr Davis’ residence at Vaucluse, together with guarantees from Mr Short and Mr Davis. (TB 69/7411.14).

116 Balmain negotiated with Prudential Portfolio Managers Ltd to obtain an offer of finance. On 27 March 1997, Prudential made an offer of finance to the J & J O’Brien group. It advised that it was prepared to grant a loan of $19,500,000 or 65% of the valuation of properties identified in the letter. The properties identified were Jackson’s on George, the Marlborough Hotel, and the residences of Mr Short and Mr Davis at Cremorne and Vaucluse. Interest was to be 13.05% per annum, reduceable to 9.05% per annum if paid on time. The letter provided that the loan was to be guaranteed by Mr Short, Nabatu, Mr Davis, Athann, Trudale and any other directors or shareholders of the borrowing company, that is, of Marsico and J & J O’Brien. The offer remained open for five business days. A commitment fee of $58,500 was payable on acceptance of the offer. This offer of loan was procured by a Mr Mumby. He advised that the interest rate of 9.05% was based on a margin of 1.75% above a three-year swap rate calculated by Prudential at 7.3% per annum.

117 On about 31 March 1997, Mr Short retained Mr Linden of Kemp Strang to act for Nabatu and Mr and Mrs Short.

118 On 1 April 1997, QIDC revised its offer of finance to Mr Crawley. The facility was restructured as a single facility for $15,000,000. The establishment fee was reduced to $30,000. The letter provided for interest on different parts of the facility to be either fixed or floating. The rate of interest was to be QIDC’s fixed base rate or its variable rate, plus a margin of 2.25% per annum. The term of the loan was for five years (TB 72/7739.154).

119 On 3 April 1997, Mr Linden sent a letter to Mr Wiseman and Mr Crawley (the letter is dated 2 April 1997) commenting upon the principal differences between the Prudential offer and the Aldonet offer of finance (TB 73/7758). He said that the Prudential offer gave the group an interest rate and fee advantage compared with the Aldonet offer, the security required under the Prudential offer was less than that required under the Aldonet offer and it would not be necessary to grant security to Prudential over the Elizabeth Street Centre assets or the Newtown terraces. He also said that the Prudential offer was superior because it did not require repayment of an amount of $1,000,000 within the first year, and it was a three-year fixed facility rather than being subject to annual review. In relation to the Aldonet offer, he advised that the following matters caused Mr Short extreme concern. The first was that Aldonet was controlled by Mr Crawley and there were provisions in the offer which enabled Mr Crawley to exercise de facto control over the group. Aldonet was required to be satisfied of all matters relating to the structure and operation of the group. Secondly, he said that Mr Short did not understand why the facility could not be entered into directly between the group and the lender to Aldonet. He noted that Aldonet had refused to disclose the terms upon which it had obtained the funds from its lender. Thirdly, he said that the security schedule to the Aldonet offer included a condition entitling Aldonet at its absolute discretion to release any security, or any party before completion of the advance without notice to the other parties. He said:

“Our client is not prepared to give consideration to providing any guarantees or security unless it is clear that all of the security listed in the schedule will also be provided. As the offer is presently drafted our client could be the sole guarantor of the facility unbeknownst to him. ”

120 Mr Linden also noted that the recent amendments to the articles of the companies had not been filed with the Australian Securities Commission. He advised that he had been instructed that a resolution was passed in 1993 regarding certain pre-emptive rights amongst shareholders. He asked to be provided with a copy of the current memorandum and articles of association of each of the companies in the group.

121 A substantial part of Mr Crawley’s defence to the claim that he had engaged in oppressive conduct was based on his allegation that Mr Short had refused to provide security to support the group’s operations such that Mr Crawley was left as the only party willing to provide security over his own assets to support the group’s borrowings so as to discharge the Westpac facility and provide working capital. He identified the letter from Mr Linden of Kemp Strang & Chippendall of 2 April 1997 as one of the occasions upon which Mr Short had given that refusal. The plaintiffs emphasise that by that letter Mr Short did not refuse to provide his guarantee or a mortgage over the residence of Mr and Mrs Short, but merely refused to do so if it lay in Mr Crawley’s discretion to release other providers of security.

122 Mr Crawley replied to Mr Linden’s letter on 4 April 1997 (TB 73/7763.8). In relation to the question of guarantees, he said:

“Under the Aldonet facility, the securities and guarantees required to be provided by Athol Davis, Warwick Short and Roslyn Short are no longer required. In the circumstances, the expressed refusal of Mr Short to provide any guarantees or security under the Aldonet facility suggests a misconception of the nature and scope of such facility. ”

123 The second sentence is mere bombast. However, the first sentence was clear. Aldonet did not require guarantees from Mr and Mrs Short.

124 On 3 April 1997, Mr Crawley advised Mr Wiseman that Springsley, as purchaser under the share sale agreement, required Athann as vendor to act in accordance with the terms and conditions of the agreement and vote at the meeting to be held the next day against the acceptance of the offer of facilities by Prudential (TB 73/7760.2).

125 A directors’ meeting was held on 4 April 1997. Messrs Crawley, Short, Davis, Linden, Mumby, Wiseman and Hannan were present. There was discussion about the Prudential offer. Mr Crawley’s position was that the Aldonet offer had already been accepted and that the Prudential offer had already expired. He confirmed that, “Mr Short’s securities and Mr Davis’ securities are no longer required in relation to the [Aldonet] facility.” (exhibit BM; Auscript Transcript page 12). Mr Crawley also contended that Aldonet’s was the better facility. No resolution was passed in relation to the Prudential facility.

126 Also on 4 April 1997, Mr Crawley accepted the variation of QIDC’s offer as conveyed by QIDC’s letter of 1 April 1997.

127 On 7 April 1997, Aldonet made a revised loan offer to J & J O’Brien and Marsico (TB 74/7764). Again the facility was for $15,000,000. The change generally reflected the changes made in QIDC’s offer to Aldonet. Aldonet’s offer provided for an acceptance fee of $190,000 of which $95,000 had already been paid. This can be compared with QIDC’s requirement for an establishment fee of $30,000, and ANZ’s fee of $10,000. Aldonet’s offer also provided that guarantees of Mr and Mrs Short, and Mr and Mrs Davis, and mortgages over their properties were not required. Aldonet’s letter was not framed as an offer capable of acceptance or rejection. Rather, it was framed as the exercise of its rights under its earlier loan approval letter as accepted by the borrowers on 26 March 1997, with other amendments being made for the benefit of the borrowers.

128 Aldonet’s letter of 7 April 1997 was provided to Messrs Linden, Short and Davis the following day (TB 74/7775.29, 7780.2). On 8 April 1997, Mr Crawley gave a further “instruction” to Mr Wiseman that Springsley required Aldonet’s letter to be tabled before the board for acceptance of the terms of variation (TB 7775.29). He required that Athann and Mr Davis vote for the acceptance of the varied approvals and for the rejection of the Prudential loan, and that they also vote against the company seeking to obtain other finance (TB 7775.29).

1264 Not surprisingly, this offer was not acceptable to Mr Short or Mr Davis. On 2 May 1995, Mr Short advised that the offer was rejected. Amongst other things, Mr Short rejected Mr Crawley’s claimed debt of $1,800,000 which formed part of the basis on which he calculated the offered price of $2,500,000. Mr Short took issue with other estimates of the value of assets and liabilities. He also rejected the idea that Mr Crawley might have a discretion to acquire only one party’s interest which would leave the other party locked in as a minority shareholder (TB 47/4902).

1265 There was no further progress in relation to the acquisition by Mr Crawley of Nabatu’s shares.

1266 Mr Crawley made no offer which, had it been accepted, would have compelled him to purchase Nabatu’s shares. All he proposed was that he be given the option to do so on onerous conditions, including that Athann and Nabatu acknowledge his asserted debt. Had his offer been accepted, he could have obtained control of the group by electing to acquire Athann’s shares rather than Nabatu’s shares. He exerted pressure on Mr Short and Mr Davis to accept his offer by reason of the cash flow difficulties of the group, as it was common ground that the group needed further advances from him to meet its obligations, and/or that it needed to be able to raise funds on security of the Newtown properties. The group’s cash flow difficulties were contributed to by the excessive payments for accounting and management fees made to Vensel, as well as by the obstacles to raising funds on the security of the Newtown properties posed by Mr Crawley’s assertions as to the amount of the debts secured over those properties.

1267 No reasonable offer was made by Mr Crawley for the purchase of Nabatu’s shares. Rather, he obtained majority control of the companies in a deceitful way as described in Section 9.

1268 I do not accept the defendants’ contention that the group was an “economic basket case” in 1997, or that receivership was inevitable if Mr Crawley had not provided finance through Aldonet but had complied with his fiduciary obligations. Despite Mr Crawley’s efforts to frustrate the raising of finance, an offer of finance (which did not depend upon security being taken over the Newtown properties) had been obtained from Prudential.

1269 The hotels had substantially increased in value by 1997 compared with the values which Mr Crawley and Mr Short ascribed to the hotels in negotiations in 1995. Thus, in explaining the basis of his offers by reference to the net assets of the group companies, Mr Crawley, in April 1995, ascribed a value of $15,500,000 to Jackson’s on George and $5,500,000 to the Marlborough Hotel (TB 46/4857.22). Mr Short adopted a value of $16,000,000 for Jackson’s on George and $5,500,000 for the Marlborough Hotel (TB 47/4904). The August 1996 valuation of JLW Transact valued Jackson’s on George as at 13 May 1996 at $19,500,000, and the Marlborough Hotel at $6,800,000. (Mr Crawley refused to make that valuation available to Mr Short or Mr Davis.)

1270 I do not regard the $1,000,000 price agreed on for the purchase of Athann’s shares as being a reliable indicator of the true value of each of the shares in 1997. Moreover, for the reasons in paras [982]-[985] of Section 10, I do not accept that the Aldonet offer of finance was the only means of discharging the Westpac debt and avoiding receivership.

1271 For the reasons in Section 9, I do not accept the defendants’ submissions that the manner in which Mr Crawley acquired control of the group did not involve oppressive conduct. There is nothing in Wade v NSW Rugby League Ltd which suggests to the contrary. I accept that the relationship between the shareholders had broken down. Had Mr Crawley proceeded openly and not sought to exploit his position of advantage as a purported secured creditor for in excess of $1,800,000, and had Mr Davis’ shares been offered in accordance with the articles of association of each company, and had Mr Crawley not sought to frustrate the other directors’ attempts to refinance, the case would have been very different. But it is not correct to say that because both Mr Short and Mr Crawley were manoeuvring to buy each other out, and a buy-out was commercially essential, the means adopted by Mr Crawley to obtain control can be dismissed as merely decisive steps the circumstances called for.

1272 In any event, the steps taken by Mr Crawley did not involve a commercial buy-out of Nabatu’s share. It involved obtaining control and excluding Mr Short from further involvement in the businesses of the companies without buying Nabatu’s shares.

1273 The defendants submit that Mr Short was manoeuvring to attempt to exclude Mr Crawley from any management role in the group. The defendants referred to the fact that in the mortgage proposal to Prudential, no security of Mr Crawley was offered to Prudential and Prudential was told that Messrs Short and Davis were considering “unwinding their partnership with Mr Crawley” (TB 70/7516.10). At the board meeting held on 1 April 1997, attended by Mr Mumby, Mr Mumby said that Mr Crawley was not amongst the directors and shareholders included in the application for loan. He added “there is no problem including you in the application”. Mr Crawley said “good” (TB 72/7710). The defendants referred also to a conversation between Mr Wiseman and Mr Linden on 3 April 1997 in which Mr Linden told Mr Wiseman that Prudential did not require security from Mr Crawley. Mr Linden added that:

“ If he is not prepared to sign a guarantee, he could be removed as a director. It would be difficult for him to argue that he is being oppressed in circumstances where the remaining directors were prepared to give security .” (Linden 6/2/04 para 5).

1274 It is not profitable to speculate what would have happened had Mr Short and Mr Davis borrowed funds from Prudential to discharge the Westpac debt and had Athann’s shares not been sold to Springsley. That has no bearing on what orders should be made to relieve the effects of the oppressive conduct engaged in by Mr Crawley. Even if Mr Crawley had been excluded from the future management of the group, that would not necessarily have been oppressive conduct on the part of Messrs Short and Davis. But if they had engaged in oppressive conduct, Mr Crawley would have been entitled to relief. That possibility is irrelevant to the relief to which Nabatu is entitled in respect of the oppressive conduct which has occurred.

1275 The defendants also referred to evidence that Mr Short would have found Nabatu’s position as a minority shareholder after Athann’s shares had been purchased as untenable. There is certainly plenty of evidence to that effect. Mr Short said as much, for example, in his letter of 2 March 1995 (TB 44/4612) referred to above. The defendants then submitted that it should be inferred that the plaintiffs would not have been prepared to provide guarantees and to mortgage the Cremorne property had that security been sought by Aldonet. They referred to the fact that in Mr Linden’s letter of 3 April 1997 referred to in para [119] of Section 1, Mr Linden did not say that the Shorts would provide security for the Aldonet transaction, but that they were not prepared to consider providing such security if they were exposed to the risk of being the sole guarantor of the facility. They submitted that the Shorts were not prepared to provide security in the circumstances of Athann’s shares being bought.

1276 The question never arose because such security was not required. The defendants’ submission that the plaintiffs enjoyed a free ride is answered by the fact that this was the result of the means adopted by Mr Crawley to obtain majority control. Nabatu remained a shareholder. No reasonable offer was made to acquire its shares. It was entitled to expect that, as a shareholder, it would share in the profits and increases in asset values of the companies. At least that would be so in the absence of a reasonable offer to acquire its shares.

1277 The defendants submitted that the date of the so-called “disengagement” was the appropriate date for valuation because that was the time the plaintiffs knew of the facts that would have permitted them to commence proceedings to restrain the Aldonet/Springsley transaction if they saw fit to do so. I have found that the plaintiffs’ laches and acquiescence in the Aldonet/Springsley transaction precludes them from claiming half of the advantage derived by Springsley from its shareholding. But its acquiescence in Springsley’s acquisition of Athann’s shares says nothing as to what is a fair basis for valuing Nabatu’s shares.

1278 I do not accept that the management of the companies from July 1997 under the stewardship of Mr and Mrs Crawley constituted a “sea-change” in the affairs of the companies which would justify a compulsory acquisition order based upon 1997 or 1998 values. Mr Crawley described in some detail the work which he carried out from July 1997 in relation to the hotels. He said that the businesses were affected by low staff morale arising from disunity of the board of directors, and the hotel buildings were dilapidated. He worked such hours as were required, sometimes early and late, in dealing with all matters concerning the businesses. He met with the managers daily to discuss management and operational issues. He dealt with architects, plumbers, engineers, builders and the like in connection with the building works carried out at the hotels. The accounting staff continued to perform the functions which they had previously in connection with maintaining the books, preparing accounts, dealing with creditors and debtors and like activities. There is no doubt that Mr Crawley had overall responsibility for the management of the hotels and that he performed those functions. He deposed:

“ 7. From July 1997 in relation to management of the businesses of the hotels:

(a) I continue to deal with the representatives of the lenders to Aldonet and to me;
(b) I monitored daily banking balances, statements from the bank on all of the accounts, staffing numbers and wage costs as a percentage of turnover, divided into separate profit centres with pertinent revenue and costing details. I perused cash flows daily, monthly balance sheets and profits and loss accounts, liaising with the stock taking personnel, to minimise stock holding and maximise rotation of stock prior to payment. I supervised preparation of budgets. I refined the financial reporting regime and structure to be provided to me. I perused the monthly (now quarterly) BAS statements and Group Tax Remittance returns and signed same. I met, and continue to meet, Janet Kuan usually for a daily weekday meeting to discuss current bank balances, bank statement printouts and any events of the previous day of importance. Each Monday I met, and continue to meet, Ms Kuan to discuss weekend sales revenues and the prior week’s performance in respect of revenue as to wage costs. I was, and continue to be, involved in annual consultations with the auditors upon presentation of trial balances and satisfying all audit requirements.
(c) Until 2004, I monitored quarterly poker machine returns for the LAB;
(d) I discussed with my fellow director, my wife, issues as to marketing and purchasing. I consultation [sic] with my wife I considered and discuss [sic] what competitors to the Businesses were doing and what needed to be done to maintain market share in the face of increasing competition;
(e) I maintained and reviewed the long term plans for the Businesses and the buildings from which they operate. The full implementation of those plans has been restricted because of the existence of this litigation;
(f) I have developed and established management systems and controls, and with the economies of scale in terms of buying and marketing, maintained and improved the profits derived from the Businesses’ operations; and
(g) I am informed of available software and upgrading of hardware to accommodate main office access to all rep9orting facilities within the hotel, and am involved in the negotiation and purchase of intelligent cash registers and ensuring that price changes are implemented in line with the competitors’ prices in the area.
(h) I supervise and communicate with the licensee/manager of each property on matters of property maintenance (covering the buildings, air-conditioning plant & equipment, kitchen equipment, furniture, carpets, painting and television supply agreements), so as to:
(i) negotiate maintenance contracts and pricing; and
(ii) ensure that the works quoted on are correctly performed. This includes negotiation of all maintenance contracts including the pricing for an employment of electricians, painters, plumbers, carpenters and other general maintenance work performers.
8. I have daily contact with managerial staff in respect of operational matters, covering:
(a) The running and operation of the management of the businesses;
(b) Maintenance and equipment matters;
(c) Staffing levels;
(d) Receive and review all final reports
(e) Peruse monthly management profti and loss accounts and balance sheets;
(f) Day to day overseeing of cash flows of the business;
(g) Negotiation of all purchases of plant and equipment, furniture, fixtures and fittings;
(h) Supervision of maintenance contracts of plant and equipment;
(i) Finalises all contract for purchases of all group buying of stock in bulk buying;
(j) Consults upon the calculation of all product margins and profit margins;
(k) Ordering guidelines and management principles;
(l) Basis of staff training and staff training manuals;
(m) Public relation planning;
(n) Marketing;
(o) Oversees management of stock holdings; and
(p) Daily monitoring of overdraft facilities.”

1279 This was not a “sea-change” in the affairs of the companies.

1280 Mr Crawley also described the work he did in obtaining poker machine entitlements and the finance for such entitlements and the realisation of profits from the sale of poker machine permits with respect to another hotel, the Railway View Hotel. He also described the building works carried out to Jackson’s on George and the Marlborough Hotel. Whilst I do not doubt that this work has increased the values of the hotels, it did not involve moving into new areas of business that would not have been expected to have been embarked upon had Mr Short not been excluded from involvement in the affairs of the companies. In causing the companies to embark upon such works and carrying out the duties he did, Mr Crawley was performing his duty as a director, and as managing director, to act in what he considered to be the best interests of the companies. I do not think he can be heard to complain that the shareholder should not enjoy the benefits of that work. He was obliged to act in the interests of all shareholders.

1281 It may also be observed that Vensel and Gladewood were paid for the management and accounting services which they provided. Whilst they will have to account for a portion of the fees received, being the portion which constitutes excessive fees, they will be entitled to keep what, on the evidence adduced, are reasonable fees for the services provided. Mr Crawley and Aldonet were paid and are entitled to keep fees of $150,000 per annum for his services. In the financial years ended 30 June 1999, 2000, 2002, 2003, 2004, 2005 and for eight months of 2006, Springsley was paid a total of $359,412 in respect of the services provided by Mrs Crawley. No claim was ultimately made by the plaintiffs for the recovery of those payments. In other words, not insubstantial payments were made to Mr Crawley, Aldonet, Vensel, Gladewood and Springsley in respect of services provided by Mr and Mrs Crawley, or their companies, which they are entitled to retain.

1282 The defendants submitted that, because the plaintiffs had no security at risk in relation to the borrowings of Marsico and J & J O’Brien, they were able to build a “hospitality empire” to trade in competition to the J & J O’Brien group and enjoy the benefits of increases in hotel values which applied across the industry generally.

1283 However, the plaintiffs were not able to realise the capital value of Nabatu’s shares. On 15 September 1997, Mr and Mrs Short borrowed $1,500,000 from Prudential on security of their property at Shellbank Avenue, Cremorne in order to pay out an existing liability to Westpac of $300,000 and to purchase the leaseholds of the Australian Hotel in The Rocks and the Youth Hostel Tavern. As the plaintiffs correctly submit, the only freehold interest owned by Nabatu at the time was a one-third interest in the Bridgeview Hotel, which it had held since 1991. In the absence of a reasonable offer in 1997 or 1998 to purchase Nabatu’s share, it is not just that Nabatu not enjoy the advantages of the increases in the value of the Marlborough Hotel and Jackson’s on George when it was unable to realise its investment in the companies in 1997 and hence unable to make the investments in hotels which it could otherwise have done. It is clear from their behaviour in 1997 and subsequently that the Shorts wished to continue their investments in hotels.

1284 Nor was there the complete “disengagement” as the defendants contended for if, by that, was meant the parties going their separate ways with no interference by the one of the other. Not only did the plaintiffs, from 1998, maintain their claims against Mr Crawley including claims for a compulsory purchase of Nabatu’s shares, but from 16 April 2003 (by the cross-claim filed on that date) Mr Crawley contended that the properties and businesses acquired by Mr Short, or members of his family through companies they controlled, being the Bridgeview Hotel, the King Street Wharf Bar, the Australian Hotel, and Scubar Down Under, were acquired by reason of breaches by Mr Short of his duty as a director of J & J O’Brien and Marsico. That claim was not abandoned until final submissions. Until then, Mr Crawley was contending that the properties and businesses acquired were held on trust for Marsico and J & J O’Brien. In other words, although the defendants contend that Nabatu’s shares in J & J O’Brien and Marsico should be valued as at the “disengagement” in 1997 (with provision for interest thereafter), until final submissions, the defendants were maintaining a claim that they (at least indirectly through their majority shareholding in Marsico & J &J O’Brien) were entitled to the current values of the businesses and properties acquired by the cross-defendants.

1285 For all these reasons, I consider that the fair basis upon which to value Nabatu’s shares is at their current value.

Discount for Minority Parcel

1286 If Nabatu’s share in J & J O’Brien and Marsico were to be offered for sale to any willing purchaser, Nabatu could not expect to obtain a price equal to one-third of the value of the net assets of the companies assessed on the assumption that there was an orderly realisation of assets, nor, (if the value were different), one-third of the value of the companies as going concerns. Any such purchaser would apply a discount to reflect the fact that it was a minority shareholding and that the articles of association of each company placed restrictions on transfer of the share. In part, the discount could be expected to reflect the vulnerability of the minority shareholder to an abuse of the majority shareholders’ control of the board as exemplified in this case. Clearly, it would be inappropriate for the price to be paid on a compulsory buy-out to reflect a discount which an outside purchaser would apply for this reason. However, the discount would also reflect the fact that, as a minority shareholder, the purchaser could not control, or necessarily influence, the direction of the company. A discount for these reasons would be made even if it were assumed that those having control of the companies faithfully performed their duties to act in the interests of the companies and the shareholders as a whole and sought no personal advantage.

1287 The cases generally hold that where an oppressed minority shareholder obtains an order for compulsory purchase of shares the price is fixed pro rata according to the value of the shares as a whole without a discount for the fact that the shareholding is a minority shareholding (In re Bird Precision Bellows Ltd [1986] Ch 658 at 667; Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 145-146; CVC/Opportunity Equity Partners Ltd v Almeida (Cayman Islands) [2002] UKPC 16 at [40]-[41]). One reason for this is that the minority shareholder seeking a compulsory purchase order as relief against oppression is not truly to be regarded as a willing vendor. In Virdi v Abbey Leisure Ltd; Re Abbey Leisure Ltd [1990] BCLC 342, Balcombe LJ said (at 350) that the cases “show a general inclination towards a pro rata basis for valuation”.

1288 In CVC/Opportunity Equity Partners Ltd v Almeida, the Privy Council said (at [41]):

“ 41 The rationale for denying a discount to reflect the fact that the holding in question is a minority holding lies in the analogy between a quasi-partnership company and a true partnership. On the dissolution of a partnership, the ordinary course is for the court to direct a sale of the partnership business as a going concern with liberty for any of the former partners who wish to bid for the business to do so. But the court has power to ascertain the value of a former partner's interest without a sale if it can be done by valuation, and frequently does so where his interest is relatively small: see Syers v Syers (1876) 1 App Cas 174. But the valuation is not based on a notional sale of the outgoing partner's share to the continuing partners who, being the only possible purchasers, would offer relatively little. It is based on a notional sale of the business as a whole to an outside purchaser.”

1289 However, as the other cases show, that is not the only rationale for denying a discount. Nor would it be a sufficient rationale for denying a discount in the present case. Whilst Marsico and J & J O’Brien could be regarded as a “quasi-partnership”, their affairs were carried on on the basis that they were corporate entities and not partnerships.

1290 It is also relevant that Nabatu was placed in the position of a minority shareholder, rather than having an equal one-third say in the operation of the companies, by oppressive conduct of Mr Crawley’s. To discount the value of its share by virtue of its being a minority parcel would infringe the principle for which Scottish Co-Operative Wholesale Ltd v Meyer is authority, that the valuation must exclude the depreciating effect on the plaintiff’s shares of the defendant’s oppressive conduct.

1291 The defendants submitted that the cases in which courts have ordered a minority shareholder’s shares to be purchased without a discount had involved unwilling vendors, who, absent oppression, would not wish to sell. The defendants submitted that Nabatu was not in that position because it had declined to restrain the transfer of shares from Athann to Springsley and had “gratefully accepted” the opportunity to use their assets to build up hotel businesses in competition with the group.

1292 I do not accept this submission. It is true that Mr and Mrs Short accepted the opportunity to build up other hotel businesses which may have traded in competition with the group after the mortgage to Westpac over their Cremorne house to secure the debts of the group companies had been released. But I do not accept that, in the absence of oppression, Mr and Mrs Short would have wished to sell Nabatu’s shares in Marsico and J & J O’Brien. As this case illustrates, oppressive conduct may be engaged in by a shareholder who does not control a majority of the shares. (This is different from the proposition that a minority shareholder cannot oppress a majority shareholder.) Mr Crawley’s oppressive conduct was not confined to the events of 1997 whereby Springsley acquired Athann’s shares and Aldonet became the secured lender to the companies. As set out earlier in these reasons, it extended to his control of the accounting and management of the company to which excessive fees were charged for accounting and management services and his procuring (in breach of his fiduciary duties) of deeds acknowledging indebtedness which were not due, and securing that alleged indebtedness against the assets of the company. I do not accept the defendants’ submission that, in the absence of oppression, Nabatu would still have been a willing shareholder.

1293 In my view, the fair basis for valuing Nabatu’s share in J & J O’Brien and Marsico is that it be valued without discount for the fact that Nabatu has a minority shareholding.

Conclusion

1294 For these reasons, orders for the winding-up of Marsico and J & J O’Brien should not be made if Mr Crawley is able to purchase Nabatu’s shares in those companies on the basis of a valuation carried out in accordance with these reasons.

1295 The valuation should be made on the basis of what would be realised on an orderly sale of the assets of the companies in the current market. As the principal assets are the hotels, I think it unlikely that there would be any difference between a valuation on the basis of an orderly realisation of assets and a valuation of the companies as going concerns. The evidence is that hotels are valued by capitalising their future maintainable earnings.

1296 The valuations would not be on the basis of a forced sale but on the basis of current market values assuming willing but not anxious vendors and purchasers.

1297 There should be no discount for the fact that Nabatu’s shares are a minority holding.

1298 In valuing Nabatu’s shares, account must be taken of the assets and liabilities of Marsico (and its subsidiary Trudale), and of J & J O’Brien, to reflect the judgments to be entered pursuant to these reasons.

1299 To the extent either party raises it, the valuation will also need to take account of any liabilities for any taxation of the companies for which provision is not otherwise made in their balance sheets. It will need to take account of the tax consequences of the judgments to be entered in accordance with these reasons.

1300 It will be necessary to bring up to date the accounting for excessive accounting and management fees, for interest paid on the alleged debt of $1,769,568, for any payments made or fees credited in respect of the provision of Mr Crawley’s services over and above the fees of $150,000 per annum, and for the profits derived in respect of the Aldonet loans.

SECTION 18 - Conclusions

1301 For these reasons, I have reached the conclusions summarised below.

1302 Orders should not be made for the winding-up of J & J O’Brien, Marsico or Trudale unless Mr Crawley is unable to pay for the purchase of Nabatu’s share in J & J O’Brien and Marsico pursuant to the order for compulsory purchase.

1303 There should be an order requiring Mr Crawley to purchase Nabatu’s share in J & J O’Brien and Marsico at a valuation of one-third of the net assets of each company without discount for its being a minority parcel. Each company’s assets should be valued not on the basis of a forced sale, but on the basis of current market values assuming willing, but not anxious vendors and purchaser, or purchasers.

1304 In the valuation of Nabatu’s shares, the assets and liabilities of Marsico (and its subsidary Trudale) and of J & J O’Brien are to reflect the judgments to be entered pursuant to these reasons.

1305 To the extent either party raises it, the valuation will also need to take account of any liabilities for taxation for which provision is not otherwise made in the balance sheets. It will also need to take account of the tax consequences to the companies of the judgments to be entered pursuant to these reasons.

1306 The plaintiffs’ claims that Mr Crawley pay equitable compensation to Trudale, Marsico and J & J O’Brien in respect of losses incurred in the Elizabeth Street Centre development should be dismissed.

1307 There should be judgment for Marsico against Mr Crawley in the sum of $49,140.17 together with interest at the prescribed rates from 29 September 1990 in respect of moneys paid to Aubrey F Crawley & Co which Mr Crawley was not authorised to apply to his own benefit without following the procedures prescribed by clause 8 of the Legal Profession (Trust Account and Controlled Money) Regulations 1988 (NSW).

1308 There should be judgment for Trudale against Mr Crawley for:

(a) $20,000 together with interest at the prescribed rates from 24 December 1990;

(b) $15,000 with interest at the prescribed rates from 5 September 1991; and

(c) $57,875.76 with interest at the prescribed rates from 19 June 1991.

1309 The two payments totalling $35,000 are moneys received by Aubrey F Crawley & Co as conveyancing costs on the purchase of the Elizabeth Street Centre development which Mr Crawley had no authority to receive. The sum of $57,875.76 is the difference between the amount of $200,000 I have concluded was received by Aubrey F Crawley & Co on 19 June 1991 by way of professional fees for acting for Trudale to which Mr Crawley was not entitled, less a credit of $142,124.24 for moneys repaid by Mr Crawley.

1310 Otherwise the plaintiffs’ claims that Mr Crawley should account for the amount the plaintiffs contended was the difference between legal fees paid to Aubrey F Crawley & Co and accounts rendered should be dismissed.

1311 The deed of acknowledgement of 30 June 1994, and the deeds of charge of 22 September 1994 and 27 February 1995 should be rescinded ab initio.

1312 It should be declared that J & J O’Brien was not indebted to Vensel for the amount of $1,315,990 as at 30 June 1995 nor for interest purportedly capitalised on that debt for the years ended 30 June 1996 and 30 June 1997. It should be declared that J & J O’Brien was not indebted to Vensel or to Gladewood in the sum of $1,769,567.79 as recorded in J & J O’Brien’s financial statements from the year ended 30 June 2000. Vensel and Gladewood should be ordered to repay the amounts of interest received by them in respect of that alleged debt from 1998, such repayments to be made with interest at the prescribed rates from the time such interest payments were received. There should be an order that Mr Crawley pay equitable compensation to J & J O’Brien in respect of the interest payments made on the alleged debt.

1313 It should be declared that the amount of $414,250.74 received by J & J O’Brien from the proceeds of sale of the Racecourse Hotel on 1 April 1997 and the sum of $91,000 received by J & J O’Brien as the proceeds of Marsico’s insurance claim on 15 May 1997 should be taken to have been credited against Mr Crawley’s loan account with J & J O’Brien for advances, which account was transferred to Vensel as at 30 June 1999. It should be declared that the debt owed by J & J O’Brien in respect of that account was repaid by 30 April 1998.

1314 There should be an order that Mr Crawley and Vensel account to J & J O’Brien for the interest paid to them from 22 January 1993 in the amounts specified in the table in para [531] of these reasons, less:

(a) interest at the rate of 17.5% per annum compounded monthly on the advance of $100,000 made on 29 April 1994 until that mortgage is taken to have been discharged on 1 April 1997; and

(b) interest at the prescribed rates on advances made by Mr Crawley from 22 January 1993 as set out in the table at para [512] of these reasons until such advances are taken to have been repaid by 30 April 1998,

in each case on reducing loan balances as shown in the table at para [512] of these reasons, and by the crediting to such loan balances the credits purportedly applied in reduction of the alleged debt on Vensel’s loan account with J & J O’Brien as shown in para [515] of these reasons.

1315 Interest at the prescribed rates will be payable on the amounts of overpaid interest to be accounted for pursuant to the previous paragraph.

1316 Each of J & J O’Brien, Marsico, the Australian Youth Hotel partnership, and the Racecourse Hotel partnership are entitled to recover from Mr Crawley and Vensel as an account of profits after just allowances, the difference between the amounts paid for accounting and management services from 16 June 1992 to 30 June 1997 and reasonable fees for those services as determined in accordance with these reasons. Mr Crawley and Vensel are liable to account only for the profits derived by each of them and not for the profits derived by the other. Mr Crawley is liable to pay equitable compensation in the same amounts, being the difference between the fees paid and reasonable fees for the services provided, as determined in accordance with these reasons. The amount of fees paid in respect of such services (which include fees paid to Vensel in respect of services provided by Mrs Crawley, but not wages paid to Mrs Crawley, and received by Vensel) are as set out at paras [738] and [752]. The amount to be accounted for on an account of profits after the making of just allowances, or as equitable compensation for payment of more than reasonable fees, is 37.88% of the fees charged and received as set out in those paragraphs.

1317 Vensel and Gladewood are liable to account for profits in respect of fees for management and accounting services received by them from 1 July 1997 after just allowances on the same basis. I have found that Ms Kuan’s statement of fees charged and received is to be preferred to the evidence of Mr Bell on this topic. Mr Crawley is liable to pay equitable compensation in the same amounts, being the difference between the fees charged and reasonable fees.

1318 Aldonet is liable to account to J & J O’Brien and to Marsico for profits derived on loan facilities provided to the group in the amounts set out in the tables which are annexures B and C to section 10 of these reasons (being the plaintiffs’ schedules 3(e)(i)(2):2 and 10(e)(i)(2):1). It is also liable to account for $20,540 to each of Marsico and J & J O’Brien for its profit on the establishment fees for its 1997 facility.

1319 Mr Crawley is liable to repay to J & J O’Brien and Marsico the sums of $88,297 and $100,000 respectively credited to his loan account as alleged bonus commission payable to him pursuant to the agreement for provision of his services of 11 July 1997, together with interest at the prescribed rates from 30 June 2001. It should be declared that Aldonet is not indebted to J & J O’Brien or Marsico in respect of commission credited to it. If any such commission has been paid to Aldonet, there should be an order for repayment with interest at the prescribed rates. Mr and Mrs Crawley are liable to pay equitable compensation to the extent that J & J O’Brien is out of pocket by reason of the crediting of commission to Aldonet and in respect of the commission credited to Mr Crawley.

1320 The plaintiffs’ claims that Mr Crawley or Aldonet repay the amounts of $150,000 per annum paid as salary or fees for the provision of Mr Crawley’s services should be dismissed.

1321 Unless the parties agree to a different order to give effect to these reasons, a receiver should be appointed without security to the assets of the Australian Youth Hotel partnership and an order made that Marsico pay to the receiver the sum of $1,242,762 together with interest at the prescribed rates from 4 July 1997. It may be necessary to make orders in relation to the receivership, including orders as to how costs of the receivership should be borne between the individual partners. If necessary, those questions can be addressed on the bringing in of short minutes of order.

1322 Marsico should be ordered to pay Nabatu $1,321,533.50 together with interest at the prescribed rates from the time of the completion of the sale of the Racecourse Hotel.

1323 The first to sixth defendants conceded the plaintiffs’ claim that Marsico account to Nabatu for half of the profits derived from the trading of the Racecourse Hotel under licence. The orders should provide for the payment to be made with interest at prescribed rates.

1324 It should be declared that any benefit or gain derived, or which hereafter may be derived, by Mrs Crawley, Mr Crawley, or Marsico from the hotelier’s licence no. 104863 is held on trust for Nabatu and Mr Crawley as partners of the former Racecourse Hotel partnership.

1325 The plaintiffs’ claim that Nabatu be entitled to elect that its shares be purchased at a price equal to one-half of the current value of the companies upon paying Mr Crawley $500,000 with interest from 16 May 1997, should be dismissed.

1326 The plaintiffs’ claim that it should be declared that Mr Crawley is liable to indemnify J & J O’Brien in respect of penalties or interest which J & J O’Brien might be or become liable to pay arising from the non-lodgment of income tax returns or the lodgment of incorrect or false returns should be dismissed. If, on a valuation of Nabatu’s share in J & J O’Brien, either party contends that the company has a liability or contingent liability to pay penalties or interest, and if that question has not been finally determined as between the Commissioner of Taxation and J & J O’Brien, then in valuing J & J O’Brien’s liabilities, it will be necessary to assess the value of its liability to pay additional tax, penalties and interest. In the event that a valuation of J & J O’Brien’s liabilities includes a component for penalties and interest payable to the Commissioner of Taxation, then its assets should be valued on the basis that it is entitled to be indemnified by Mr Crawley in respect of that part of any such liability for penalties and interest as arises from the non-inclusion of J & J O’Brien’s share of the profit from the Yurong Street development in its income tax return lodged on 14 September 2004, but not otherwise.

1327 The plaintiffs’ claim that Mr Crawley is liable to pay equitable compensation or damages, or to account for profits derived by Mr Guderjahn, in respect of the operation of the hotdog stand should be dismissed.

1328 The short minutes will need to include orders to give effect to the parties’ agreement on the treatment of the loan from Nabatu as trustee of the Short Family Superannuation Fund, and the liability of the estate of Mr Short for advances of $83,160.

1329 If Marsico and J & J O’Brien have continued to pay or acknowledge a liability for:

(a) interest on the alleged debt of $1,769,567.79;

(b) interest to Aldonet which includes a margin over the cost of funds to Aldonet:

(c) fees for accounting and management services on the same basis as were paid up to 2005; or

(d) commission pursuant to the agreement for provision of Mr Crawley’s services,

it will be necessary to update the accounting in accordance with these reasons to the time the valuation of Nabatu’s share is completed and final orders made.

1330 I will stand the proceedings over to a convenient time to deal with questions of costs to date, and to hear submissions as to how the valuation of Nabatu’s shares should proceed. On that occasion, the plaintiffs’ counsel should bring in short minutes of order in accordance with these reasons.