Slaven v Menegazzo
[2009] ACTSC 94
•14 August 2009
MICHAEL EDWARD SLAVEN v CLINTON JOHN MENEGAZZO
[2009] ACTSC 94 (14 August 2009)
No. SC 926 of 2008
Judge: Mansfield J
Supreme Court of the ACT
Date: 14 August 2009
IN THE SUPREME COURT OF THE )
) No. SC 926 of 2008
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:MICHAEL EDWARD SLAVEN
First Plaintiff
R & R NOMINEES PTY LTD
(IN LIQUIDATION)
ACN 081 759 766
Second Plaintiff
AND:
CLINTON JOHN MENEGAZZO
Defendant
ORDER
Judge: Mansfield J
Date: 14 August 2009
Place: Canberra
THE COURT DECLARES THAT:
The contract entered into between the second plaintiff and the defendant on 4 August 2006 relating to property known as Unit 5, 30 Pacific Street, Batemans Bay in the State of New South Wales is void.
THE COURT ORDERS THAT:
Within 28 days the defendant take all such steps as are necessary to discharge Caveat AC640779E lodged by him over the property known as Unit 5, 30 Pacific Street, Batemans Bay in the State of New South Wales.
The defendant pay to the plaintiffs the costs of the proceeding.
THE ISSUE
This application under s 588FF of the Corporations Act 2001 (Cth) (the Act) seeks to have declared void a contract made between R & R Nominees Pty Ltd (In Liquidation) (the company) as vendor and Clinton Menegazzo (Mr Menegazzo) as purchaser, made on 4 August 2006 (the Contract). The Contract related to certain real property at Lot 5 in Strata Plan 79102, a property known as Unit 5, 30 Pacific Street, Batemans Bay in New South Wales (the property). The foundation for the claim is that the Contract is an unreasonable director-related transaction for the purposes of s 588FDA of the Act. Michael Slaven is the liquidator of the company.
THE FACTS
There is no real dispute between the parties about the facts.
At material times, the shareholders and directors of the company were John Menegazzo and Raymond Schofield. John Menegazzo is the father of Mr Menegazzo.
At the time of the Contract, the company was in the process of completing the construction of a development at 30 Pacific Street, Batemans Bay, comprising 10 units (the development). In fact, the project was well advanced. On 5 October 2006, the accountant for the company provided a document setting out the “Projected Net Profit” position for the development, based on actual costs to 30 June 2006 and estimates thereafter. It shows projected gross revenue on sales of the 10 units, based on a real estate agency’s listing price, of $4.604M. After allowing for the incurred and estimated completion costs, the land cost, and the sales costs, the estimated net fund available for distribution to the “unit holders” is shown as $971,903. The estimated completion costs at 30 September 2006 were only $156,935.
The accountant’s “Projected Net Profit” document indicates that the company is a trustee company for the “R & J Development Trust”. I assume (although there is no direct evidence of it) either that (and more probably) each of the directors’ family trusts were unit holders in the R & J Development Trust, or that it was anticipated that there would be a direct personal distribution to the beneficiaries of the R & J Development Trust. It anticipates the “Distribution to Unit Holders” as follows:
- Schofield Interests 458,951.50
- Menegazzo 458,951.50
$917,903.00
It also then records the following:
But, as 1 unit valued at $430,000 was transferred to the Menegazzo Family, the Distribution will be affected as follows:
(a) Schofield Interests (50%) 458,951.50
(b) Menegazzo Interests (50% less $430,000) 28,951.50
NET DISTRIBUTION $487,903.00
There is no evidence as to how the $430,000 figure was reached.
The accountant’s “Projected Net Profit” document suggests, as I find was the case, that somehow the property was ultimately to be paid for by John Menegazzo or his family interests, as between the respective interests of the two directors.
Eight of the units (including the property) face Pacific Street, and I was told are more desirable because they have “distant filtered views”, and two face High Street. The property is a ground floor unit of the development, and so may be a little less valuable than an upper level unit.
Mr Schofield confirmed what is recorded in that document. The property was sold on the understanding between the directors, not formally recorded, that the price would be deducted from the “Menegazzo Interests” share of profit from the development, either through the relevant Menegazzo family trust or in some other way. Mr Schofield at the time understood that Mr Menegazzo’s parents had promised him one unit in the development as repayment of his loan to them. At the time, the company expected to have sufficient profit to accommodate that arrangement. In effect, he explained, the price was ultimately to come out of the Menegazzo family’s share of the profits, and not from company funds. John Menegazzo gave no evidence.
As is apparent, whatever the intention, that is not how the transaction was structured at the time. The company sold the property to Mr Menegazzo, and the issue arises as to whether it is an unreasonable director-related transaction.
There is no evidence to suggest that the company was not solvent at the time of the Contract, or that it was not paying its secured and unsecured creditors in a timely manner.
The Contract provided for the sale of the property for $425,000. No deposit was payable. The completion date is “21 days after notice of registration of Strata Plan”. That registration occurred only on 17 July 2007.
The Special Conditions in the Contract are significant.
They provide:
1. The Vendor acknowledges that on the 10th day October 2003 the purchaser made a loan of $130,000.00 to JOHN MENEGAZZO a director of the Vendor Company and his wife JILL MENEGAZZO. On completion the Vendor agrees to accept in full satisfaction of the monies payable under this contract the sum of $40,000.00 paid to JOHN MENEGAZZO provided the Purchaser on completion provides a written acknowledgment of the discharge of the loan of $130,000.00 herein referred to.
2. Following completion the Purchaser agrees to rent the unit the subject of this contract (Unit 5) as soon as practicable and at a market rent. The Purchaser agrees that all rent received nett of letting agents commission will be paid to JOHN MENEGAZZO or as he may direct until the date of discharge of mortgage AB362927 to Westpac Banking Corporation over Lot 242 in DP 755902.
The provisions of this clause will not merge on completion.
3. The Purchaser acknowledges that when complete the unit will not include floor tiling to kitchen and living areas or carpet to the bedrooms. Otherwise the Vendor will include all standard fittings and finishes.
4. The purchaser agrees that he will pay any tax liability that arises for JOHN MENEGAZZO as a result of the sale of this property.
The italicised section in Special Condition 1 is handwritten, and obviously added after the document was typed. The parties were agreed that it formed part of the Contract when it was signed.
To meet Special Condition 1, and indeed to anticipate settlement, Mr Menegazzo borrowed $40,000 from an acquaintance, and paid that sum to his father in cash on 4 August 2006, when the Contract was signed, rather than at settlement. He did so at the insistence of his father, because his father indicated that he would not otherwise sign the Contract. Mr Menegazzo, to protect his interest under the Contract, then lodged Caveat AC640779E dated 15 September 2006 over the land on which the development was occurring. (The caveat refers to the Contract as being made on 4 August 2005, but that is obviously in error. Nothing turns on that erroneous date.)
It is clear that Mr Menegazzo on 10 October 2003 lent $130,000 to his parents, John and Jill Menegazzo, and that that amount was still outstanding at the time of the Contract. It is also clear that Mr Menegazzo was and is prepared to acknowledge the discharge of that loan at the time of settlement of the Contract.
In essence, therefore, the Contract involved the sale of the property of the company to Mr Menegazzo for $425,000, but on terms as to payment of the purchase price which are not routine. The purchase price of $425,000 was to be satisfied by the payment of $40,000 to Mr Menegazzo’s father John Menegazzo (already paid in cash on 4 August 2006) and by the release of his parents’ indebtedness to him of $130,000. There is nothing to indicate that the original loan of $130,000 was for the purposes of the company. What little evidence there is suggests the purpose of that loan was for his parents to undertake some renovations to their home. There is also nothing to indicate that the $40,000 paid to John Menegazzo on 4 August 2006 was, or was to be, applied for the purposes of the company. The company was not, in fact, to receive the purchase price.
Special Condition 2 contemplated that, following settlement, the property would be leased by Mr Menegazzo and the rental received for a time be paid to John Menegazzo (apparently towards discharge of the mortgage granted by the company to the Westpac Banking Corporation (the bank) to procure funding for the development). In the events which have happened, that Special Condition has become otiose. The Contract was not completed, so it was never activated. Moreover, the mortgage has been discharged. However, that Special Condition may be seen to have procured some benefit for the company.
In fact, Mr Menegazzo took possession of the property soon after the construction was completed. He completed it by adding tiling, carpeting, curtains and blinds at a total cost of $5,398. It may be noted that, by reason of Special Condition 3, tiling and carpeting of the property was not required of the company. That did not oblige Mr Menegazzo to himself pay for the tiling and carpeting, but he did so. Mr Slaven (the liquidator of the company) accepts that those items are all fixtures, and would remain part of the property. Mr Menegazzo also furnished the property at his cost. He retains ownership of those assets. The property was used for a brief time as a display unit to promote sales of the other units, and rented from time to time for a few weeks during the holiday season (the rent received was given to John Menegazzo). Otherwise, from November 2006, Mr Menegazzo has generally occupied the property as his own, and exclusively so since July 2008. He has not paid rent. He agrees that a long term rental of the property since November 2006 would have been, and would still be, at something less than $270 per week (the rental rate for the unit immediately above the property). As a matter of arithmetic, rental at $250 per week from November 2006 to the present would be a little more than $33,000.
In February 2007, Mr Menegazzo arranged for the property to be valued. It was necessary for a valuation, so that he could have the Contract duly stamped. The valuation procured at that time valued the property at $370,000. The Contract was duly stamped: Mr Menegazzo paid stamp duty of $14,619.
Following the registration of the Strata Plan on 17 July 2007, Mr Menegazzo sought, after a time, to complete settlement of the property. He proposed to do so without paying any money to the company. If the settlement had proceeded on his terms, the company would have received nothing for the property.
Events intervened before the property was settled. The relationship between John Menegazzo and Mr Schofield had broken down. The relationship between Mr Menegazzo’s parents had broken down. There was apparently some litigation as a result.
The sales of the units in the development, other than the property, were greatly delayed, probably by reason of the breakdown in relationship between the directors. When the other nine units were sold, they realised nowhere near the previously anticipated revenue. They were sold between November 2007 and July 2008 for a total of $2,784,500 or an average unit sale price of $309,389. An appraisal by a real estate agent suggests the property would now attract a price of about $320,000.
On 25 July 2008, the company was wound up. Mr Slaven was appointed its liquidator. It was wound up by reason of the breakdown in the relationship of its directors, and not for insolvency.
Shortly after his appointment, Mr Slaven received a claim on behalf of Mr Menegazzo to complete the Contract upon the basis set out above. After investigation, he declined to do so. Hence, these proceedings.
Evidence as to the state of affairs in the winding up of the company was given. It may be relevant to discretionary relief if the Contract is voidable under s 588FF of the Act.
Mr Slaven has identified only two assets: cash of about $171,000, which he said is presently the net proceeds of sale of the nine other units and secondly, the property itself. He has proofs of debt from unsecured creditors of about $942,752. None have yet been adjudicated upon by Mr Slaven. They include proofs of debt from “J & J Constructions” (J & J Constructions Pty Ltd (in liquidation)) for $274,303 (a company which, I was told, was the construction company which built the development), from Jill Menegazzo (Mr Menegazzo’s mother) for $181,000, from John Menegazzo for $75,000, and from Mr Schofield for $232,967. There are also proofs of debt from the Australian Taxation Office, and three relatively small claims by businesses apparently providing services to the development. J & J Constructions Pty Ltd (in liquidation) is a company of which John Menegazzo was also a director.
CONSIDERATION
Section 588FDA(1) of the Act provides:
(1) A transaction of a company is an unreasonable director-related transaction of the company if, and only if:
(a) the transaction is:
(i) a payment made by the company; or
(ii) a conveyance, transfer or other disposition by the company of property of the company; or
(iii) the issue of securities by the company; or
(iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and
(b) the payment, disposition or issue is, or is to be, made to:
(i) a director of the company; or
(ii) a close associate of a director of the company; or
(iii) a person on behalf of, or for the benefit of, a person
mentioned in subparagraph (i) or (ii); and
(c) it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(i) the benefits (if any) to the company of entering into the transaction; and
(ii) the detriment to the company of entering into the transaction; and
(iii) the respective benefits to other parties to the transaction of entering into it; and
(iv) any other relevant matter.
The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.
Note: Subparagraph (a)(iv) – This would include, for example, granting options over shares in the company.
Section 588FDA(2) makes it plain that the test in s 588FDA(1)(c) is to be applied to the circumstances as they exist at the time when the transaction was entered into, relevantly the time of the Contract.
It is accepted by Mr Menegazzo that the Contract amounted to a transaction either constituting a disposition by the company of property of the company or the incurring by the company of an obligation to make a disposition by it of its property, so that s 588FDA(1)(a) is satisfied. It is also accepted by Mr Menegazzo that the disposition is made to a close associate of a director of the company, that is because he is the son of a director of the company. The term “close associate” is defined in s 9 of the Act.
Consequently, it is common ground that the critical consideration in issue in the proceeding, at least in the first place, is whether the test in s 588FDA(1)(c) is made out. If the Contract was an unreasonable director-related transaction, it is voidable pursuant to s 588FE(6A) because it is within four years of the relation-back day, that is four years from the date of winding up of the company on 25 July 2008 or, more accurately, the date of the application for winding up: see s 9 of the Act. In that event, the Court has a discretion under s 588FF(1) whether to make an order declaring the Contract void or to make some other order, if any, in relation to the Contract and its performance. Section 588FF(4) limits the exercise of the powers in s 588FF(1) in the case of an unreasonable director-related transaction to make orders only for the purpose of recovering for the benefit of the creditors of the company the difference between the total value of the benefits provided by the company under the transaction and the value (if any) that it may be expected that a reasonable person in the circumstances of the company would have provided having regard to the matters referred to in s 588FDA(1)(c).
The word “transaction” in Pt 5.7B (which includes s 588FDA) is defined to include a transaction to which a company is a party.
Consequently, the transaction for the purposes of s 588FDA is the Contract. It is the Contract by which the company disposed of its equitable interest in the property, or alternatively incurred the obligation to dispose of the property. The introductory words of s 588FDA, in particular the word “is”, require that identification of the transaction in that narrow way. That does not preclude the wider circumstances surrounding the transaction, or underlying the transaction, being taken into account. Section 588FDA(1)(c)(iv) directs attention to “any other relevant matter”. On this application, Mr Slaven through counsel, accepted that other relevant matters included the wider arrangements and circumstances underlying or surrounding the Contract.
It is necessary to address each of the topics referred to in placita (i)-(iv) of ss 588FDA(1)(c) in turn.
The benefits to the company of the transaction are negligible. It contracted to sell the property, which it and its directors then apparently considered to be valued at or in excess of $425,000, for no real benefit to the company. It was to have received no payment on settlement. There was no legal obligation that John Menegazzo, upon receipt of the $40,000, was to pay that sum to the benefit of the company. In fact, as noted, that sum was not paid at settlement, but paid at the time of the Contract. There is nothing to suggest it was paid to the company. The only possible benefit to the company was the obligation undertaken by Mr Menegazzo, on settlement, to rent the property at a market rent, and to pay the net rent to John Menegazzo until the mortgage of the whole development granted to the bank was discharged. There is no direct obligation on John Menegazzo to pay the rent so received to the company. It therefore is of no benefit to the company in any event.
In reality, the bank would almost certainly have been entitled to receive the proceeds of sale of each of the 10 units progressively, as part of the secured property under its mortgage, in payment of the moneys secured by its mortgage. The mortgage was not in evidence. However, that would be a standard provision, so either way Special Condition 2 of the Contract did not really provide any benefit to the company.
It was not explored in evidence whether the transaction, in any event, was in breach of the mortgage because it disposed of property of the company without the consent of the mortgagee. Until the mortgage was discharged, the property and each of the other nine units almost certainly would have been part of the security granted by the mortgage, so the bank would have been entitled to the proceeds of sale of the property whilst there was money owing on the debt secured by the mortgage. Had there been a significant shortfall in the mortgage debt after sale of the other nine units, the position would have been stark. The company would have disposed of, or been obliged to dispose of, the property to Mr Menegazzo to its detriment (subject to the bank enforcing terms of its mortgage). Consequently, if there had been a shortfall on the mortgage debt from the sale of the other units, that issue is likely to have arisen. I note that, in the events which had happened, any notional benefit to the company from Special Condition 2 following the rental of the property does not arise because the mortgage has been discharged.
The Contract did not oblige Mr Menegazzo to occupy the property, to complete the tiling and carpeting, to fit it out, and to make it available for a display unit. Nor did it oblige him, before settlement, to arrange for the letting of the property for some short periods for holiday rentals and to account to anyone for those holiday rentals received. I note, however, that he did in fact do those things. I shall refer to those matters in another context, but for the purposes of s 588FDA(1)(c)(i), the transaction did not convey those benefits to the company.
The detriment to the company of entering into the transaction is plain. It disposed of a significant asset, to the benefit of John and Jill Menegazzo and possibly to Mr Menegazzo, but for no real consideration to itself. In other words, in effect, it gave away a valuable asset.
The respective benefits to the other parties to the transaction is a little more complex. The transaction enabled Mr Menegazzo to recover from his parents the indebtedness of $130,000, and correspondingly they were to be released from that indebtedness. There is no evidence as to whether that debt was otherwise recoverable. John Menegazzo also directly received $40,000, and there may have been a further benefit to him by reason of Special Condition 4. That was not addressed in any detail in submissions. From the company’s point of view, Mr Menegazzo received the benefit of the property for no cost, but by private arrangement between himself and his parents, he had to forego repayment of the debt of $130,000 from his parents and he was obliged to pay to his father $40,000 and any tax liability incurred by his father in relation to the transaction under the Contract.
As noted above, Mr Menegazzo occupied the property almost since the time of the Contract, rent free, albeit having expended money on carpeting, tiling and other finishings, and on fitting out the property. That is not a benefit which was provided to him under the Contract. It does not appear, therefore, that the benefit to the company by that fitout or the occupancy benefit to Mr Menegazzo are covered by placita (i) and (iii) respectively of s 588FDA(1)(c). There were no other parties to the transaction apart from the company and Mr Menegazzo. His father appears to have used the transaction as a lever to secure benefits to himself personally, namely repayment of the debt and the payment of the $40,000 additional money to be paid, but his father signed the Contract only as director of the company and not in his personal capacity. I shall consider those aspects under the matters covered in placitum (iv), namely any other relevant matter.
The other relevant matters, as acknowledged in the submissions, are more complex. In the first place, as I have found, underlying the transaction was the existing state of the indebtedness of John and Jill Menegazzo to Mr Menegazzo. There is nothing to suggest it was not otherwise a recoverable debt. Also underlying the transaction was the expectation of the company, through its directors, that the assets of the company, namely the units, would be progressively and reasonably promptly realised, and that there would be a significant surplus available to the unit holders of the trust on whose behalf the company was operating, and which somehow would be distributed to those unit holders and which, apparently, so far as the “Menegazzo Interests” was concerned, was under the control of John Menegazzo. That expectation was that the sums available for distribution following realisation of the assets, and repayment of expenses, would be in the order of $459,000 for the “Menegazzo Interests”. There was no particular reason to expect, at the time of the Contract, that those estimates would not come to pass in the relatively near future. When, and if, those benefits became the reality, it would have been appropriate for the unit holders to have applied the respective proceeds of distribution under the trust in such manner as the trustee (the company) permitted, of course provided the discretion was exercised lawfully. It is also not clear what circumstance or circumstances prompted the arrangement entered into by the Contract on 4 August 2006, rather than simply awaiting the realisation of all the units, including the property, and the distribution through the trusts. That was not explored in evidence.
Had the proceeds of sale of the units been achieved at the levels anticipated, and in a more timely manner than occurred, the present circumstances would not have arisen. The debt to the bank, and payment to the other creditors of the company would have been made from the proceeds of sale of the other nine units, and the mortgage discharged, and a distribution to the unit holders under the trust effected. Within the Menegazzo family, Mr Menegazzo and his parents could have agreed that the repayment of the debt owed to Mr Menegazzo by his parents, with an adjustment to an amount to be paid for the unit (with the additional tax liability protection) and occupancy in such terms as they wished after settlement, could have been tied to the sale of the property, and as between the unit holders of the trust an agreement could presumably have been reached as to the distribution of the profits of the company (including, if not all assets were realised, a distribution in specie).
However, the issue is whether at the time of the transaction it may have been expected that a reasonable person in the company’s circumstances would not have entered into the transaction having regard to the matters to which I have referred, and which were the matters addressed in submissions.
In my judgment, it is clear that a reasonable person in the company’s circumstances would not have entered into the transaction having regard to those matters. That is because, a reasonable person into the position of the company at the time of the transaction, would not have agreed to dispose of the property upon the terms upon which the company did so. At the time, the development had not been completed, although certain revenue was anticipated. Even if that revenue were reasonably anticipated, it was not assured. There were very substantial outstanding liabilities, in particular the secured liability to the bank. There are a number of contingencies involved in any property development, not least the price to be obtained for the assets when sold, and the timing of the realisation of those assets. Events may intervene to make the realisation of the assets more difficult, as apparently occurred here. The realisation of the assets was delayed beyond that which was initially anticipated at the time of the transaction, and the assets were not realised for the values which were anticipated. The company is a separate legal entity from its shareholders, and in the present circumstances as a trustee, it has obligations apart from those to the unit holders of the trust.
Notwithstanding that, at the time of the transaction, there was no particular reason to anticipate difficulty in realising the assets of the company in a timely manner, or that its assets would not produce a generous surplus available for distribution upon realisation to its unit holders, in my view a reasonable person in the company’s circumstances would not have entered into the transaction. It amounted to giving away a valuable asset of the company to the son of one of the directors, because it was anticipated that in due course the company would realise its assets and have a sufficient surplus (in excess of the value of the property) available for distribution to the unit holders of the trust of which it was the trustee, and that those unit holders would somehow be able to procure a distribution in kind of the property to Mr Menegazzo. Whatever the private arrangements between Mr Menegazzo and his parents by which he was able to “afford” to buy the property at the price agreed of $425,000, that is not a matter which a reasonable person in the company’s circumstances would have had regard to at the time in deciding whether to give a way an asset of the company.
The test of an unreasonable director-related transaction is relevantly expressed in s 588FD(a)(1)(c) itself. It is unhelpful to paraphrase the test, rather than simply to apply it. Nevertheless, the application of that test may be informed by the purpose of that provision: s 109H of the Act. In Skouloudis Group Pty Ltd (in liquidation) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369, Windeyer J took the same approach in considering the application of s 588FB of the Act to the facts of that case. Section 588FB(1) defines an uncommercial transaction in terms identical in relevant respects to s 588FDA(1)(c). The purpose is to prevent companies disposing of their assets through transactions which result in the recipient receiving a benefit from the company of such commercial magnitude that it is not explainable by normal commercial considerations. See also Woodgate v Fawcett (2008) 67 ACSR 611. As in this case, the transaction there considered inured to the substantial benefit of the family members of a director and to the significant prejudice (and at the time of this transaction to the significant potential prejudice) of its unsecured creditors: see per Hammerschlag J at [106].
It may be that, at the time of the transaction, Mr Menegazzo did not enjoy good relations with his father. Nevertheless, the terms of the Contract resulted in an inappropriate disposition of an asset of the company, by agreement between the directors of the company, in essence for no benefit to the company. Even though, at the time of the Contract, the company was not insolvent, I am satisfied that a reasonable person in the company’s position at the time would not have entered into the Contract.
Consequently, I am satisfied that the transaction is an unreasonable director-related transaction.
That being the case, it is a voidable transaction under s 588FE(6A) as it was entered into during four years ending on the relation-back day, that is, at least within four years of the date of winding up of the company. The Court therefore has the powers under s 588FF(1) of the Act. In the case of unreasonable director-related transactions, as noted above, s 588FF(4) permits the making of orders under that subsection only for the purpose of recovering for the benefit of the creditors of the company, the difference between the total value of the benefits provided by the company under the transaction, and the value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in s 588FDA(1)(c). In my view, that is clear. The value of the benefits provided by the company under the transaction is the value of the property, in effect its purchase price. A reasonable person in the company’s circumstances would have expected that amount and the total value of the benefits provided by the company under the transaction would have been to that amount. In other words, the company should have, and would have, recovered the Contract price. The Contract in fact arranged for the company to recover no price at all for the property.
In my view, an order under s 588FF(1)(h) is appropriate. I declare the Contract void at the time when it was made. Its making is a consequence of the wrong assumption that the company did not have a legal existence independently of that of its directors, its shareholders, or as a trustee company of its unit holders. It is simply inappropriate to merge those interests or to anticipate that they are the same. They are not.
I have considered whether some form of order should be made to give Mr Menegazzo credit for the $5,398 he has expended on fixtures and fittings on the property. He was not obliged to do so under the Contract, but he has done so. On the other hand, he has had the benefit of occupancy of the property since about November 2006 rent free, and without any such entitlement existing under the Contract. It is not quite clear how he came to exercise that occupancy. It is common ground that the rental value to him on a long term rental of the property over that period of time to the present is about $33,000. Mr Slaven, the liquidator, has indicated, in the event that the Contract is declared void, he will not take any action against Mr Menegazzo to recover any of that rental. In those circumstances, I do not think it is necessary to make any further order in relation to Mr Menegazzo in respect of the expenditure on fixtures and fittings on the property. Such an order works no injustice to Mr Menegazzo. He has not paid for the property. He has the indebtedness of his parents, which is still recoverable. He paid the $40,000 to his father on 4 August 2006, as a condition of receiving the benefit of the Contract, but as that consideration has failed (by the declaration that the Contract is void), that sum should be recoverable. In any event, it was not a payment made pursuant to the Contract, which required its payment at settlement.
I was not asked to make any alternative form of order, if I found that the transaction is an unreasonable director-related transaction, such as altering the terms of the Contract. Presumably that is because, on the evidence, the Contract price for the property is considerably higher than the present realisable value of the property, and because Mr Slaven will now be free to sell the property and Mr Menegazzo free to endeavour to acquire it at its market value.
ORDER
The Court declares that the Contract is void. It follows that Mr Menegazzo has no interest in the property. I also order that within 28 days he procure the discharge of the Caveat lodged over the property, being Caveat AC640779E.
Mr Menegazzo should pay the costs of the proceeding.
I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.
Associate:
Date: 14 August 2009
Counsel for the Plaintiffs: R Clynes
Solicitor for the Plaintiffs: DibbsBarker
Counsel for the Defendant: W Sharwood
Solicitor for the Defendant: Barker & Barker
Date of Hearing: 30 July 2009
Date of Judgment: 14 August 2009
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