Three Two Three Pty Ltd v Cattanach
[2022] QSC 2
•3 February 2022
SUPREME COURT OF QUEENSLAND
CITATION:
Three Two Three Pty Ltd v Cattanach [2022] QSC 2
PARTIES:
THREE TWO THREE PTY LTD ACN 639 517 552
(first plaintiff)
AND
AYDAN STURGESS
(second plaintiff)AND
THREE TWO THREE (SERVICES) PTY LTD ACN 643 580 581
(third plaintiff)V
ANGUS ROBERT MICHAEL CATTANACH
(first defendant)
AND
LEAH ANNE CATTANACH
(second defendant)
AND
X CARGO ASSET PTY LTD ACN 616 193 394
(third defendant)
AND
SOCIAL IP PTY LTD CAN 628 438 988
(fourth defendant)
AND
X CARGO ASSET PTY LTD ACN 611 604 392
(fifth defendant)
AND
DOSDOS PTY LTD ACN 616 387 547
(first defendant by counterclaim)
AND
THREE TWO THREE (ASSETS) PTY LTD ACN 645 213 494
(second defendant by counterclaim)
FILE NO/S:
12938/20
DIVISION:
Trial
PROCEEDING:
Civil
ORIGINATING COURT:
Supreme Court
DELIVERED ON:
3 February 2022
DELIVERED AT:
Brisbane
HEARING DATES:
8, 9, 10 and 11 November 2021
JUDGE:
Freeburn J
ORDERS:
1. Three Two Three Pty Ltd and Three Two Three (Services) Pty Ltd be wound up;
2. Three Two Three (Services) Pty Ltd pay Angus Cattanach in the sum of $76,275;
3. The court will hear parties on the form of the orders and as to costs.
CATCHWORDS:
SALE OF BUSINESS – SALE AGREEMENT – CORPORATE RESTRUCTURE – where the second plaintiff, the first defendant, and second defendant set up a nightclub business, structured using shipping containers – where several companied were established to facilitate the running of the nightclub – where the nightclub experienced financial problems and was placed in liquidation – where the shareholders of the insolvent business decided to sell the business to a new entity – whether there was an agreement whereby the second plaintiff purchased the business – whether there was a binding agreement reached in December 2019 to the effect that the second defendant was entitled to a separate shareholding in the new entity – whether on 14 February 2020 each of second plaintiff, the first defendant, and second defendant temporarily agreed that the second plaintiff hold all 100 shares in the new business – whether the temporary agreement, if one exists, was to be superseded by a further agreement, intended to be recorded in a shareholders’ agreement – whether the second plaintiff attempted to exclude the first defendant and second defendant from the new business and its management
EMPLOYMENT LAW – TERMINATION AND BREACH OF CONTRACT – REMEDIES AGAINST EMPLOYER – DAMAGES – where the second plaintiff terminated the first defendant’s employment with the new business – whether the first defendant’s contract of employment was wrongfully terminated – whether the first defendant’s contract was terminated for failing to perform their duties – whether the second plaintiff has proved that the first defendant has, or should have, obtained alternative employment.
Corporations Act 2001 (Cth), s 232(e), s 233
HNA Irish Nomiee Ltd v Kinghorn (No 2) (2012) 202 FCR 417, cited
Tomanovic v Global Mortgage Equity Corp Pty Ltd (2011) 288 ALR 310, cited
COUNSEL:
JR Ward
(plaintiffs)
D Skennar QC
(defendants)
SOLICITORS:
Kanther Law
(plaintiffs)Morgan Conley Solicitors
(defendants)
REASONS
Contents
Background
X Cargo’s Financial Woes
Rescuing the Business
Aydan’s Version
Angus & Leah’s Version
Advice to Re-structure the Business
Agreement on an Equal Partnership?
Implementing the Re-structure
Operation During the 2020 Covid-19 Shutdown
Re-Opening
Jamie’s Position
The Falling Out
The Sale Agreement
What Was the Re-structure Agreement?
Jamie’s Version
Angus and Leah’s Version
Findings
Angus’ Claim for Wrongful Termination of Employment
Appropriate Orders
Background
In early 2016, the second plaintiff (“Aydan”)[1] and the first defendant (“Angus”) developed a bar and nightclub concept based on the use of a collection of shipping containers.
[1]First names were used for the main protagonists in the course of the trial. It is convenient to adopt the same practice in these reasons.
Aydan, Angus, and the second defendant (“Leah”) then set about trying to attract investors to the project. The three of them agreed on a name – X Cargo.
There are some disputes about some of the details relating to the origin of the concept, the formation and development of the concept, and the approaches to potential investors. However, those disputes do not matter.
Two early investors were Jamie Tully and Cameron Todeschino. Mr Tully (“Jamie”) paid $500,000 for a 40% interest in the project. He also loaned $500,000 although the loan records that he personally lent the money to Dosdos Pty Ltd and Funk Corporation Pty Ltd, entities controlled by Aydan and Angus respectively. Each of Aydan and Angus personally guaranteed those loans.
The parties were not particularly diligent about recording how the project was to proceed and their relationship. However, by 2018 several entities were established with the following functions:
(a) McLachlan Street Holdings Pty Ltd (MSH)[2] - this company was the corporate trustee of the McLachlan Street Unit Trust;[3] the units in that trust were held as follows:
[2]Incorporated on 24 May 2017, with Leah, Angus and Aydan as directors, and Leah as the lone shareholder. As will be explained, this company is now in liquidation.
[3]The trust deed is AS-2 to Aydan Sturgess’ affidavit (ex 15).
(i)Funk Corporation Pty Ltd as trustee for the Cattanach Family Trust (an entity controlled by Angus and Leah) held 20 units;
(ii)Dosdos Pty Ltd as trustee for the Sturgess Family Trust (an entity controlled by Aydan) held 20 units;
(iii)Todeschino Ventures Pty Ltd as trustee for the Todeschino Family Trust held 20 units;
(iv)Jamie Campbell Tully as trustee of the Tully Family Trust held 40 units;
(b) X Cargo Holdings Pty Ltd[4] - This entity held 100 of the shares on issue in X Cargo Pty Ltd (see below).[5]
(c) X Cargo Operations Pty Ltd[6] - This is the operations entity, which employed the staff and invoiced the trust for the wages;
(d) X Cargo Asset Pty Ltd[7] (the third defendant) – This entity held the premises via a lease from the landlords[8] and permitted the trust to operate the business from the premises;
(e) Social IP Pty Ltd[9] (the fourth defendant) – This entity held the intellectual property;
(f) X Cargo Pty Ltd[10] (the fifth defendant) – This entity leased the equipment, including the Silver Chef equipment leases referred to below; and
(g) X Cargo Social Hub Pty Ltd[11] - this entity operated the social media
[4]Incorporated on 29 November 2016, with Leah and Angus as directors, and Leah and Angus as equal shareholders. X Cargo Holdings Pty Ltd was deregistered on 29 November 2016.
[5]Amended Statement of Claim at 10.
[6]Incorporated on 17 July 2018, with Angus as director and secretary and McLachlan Street Holdings Pty Ltd being its sole member and shareholder. Since 24 September 2019, X Cargo Operations had been under the external administration of Mr Stimpson of SV Partners.
[7]Incorporated on 30 November 2016, with Leah and Angus as directors, and Aydan added as a director on 22 May 2020; X Cargo Holdings Pty Ltd is the shareholder.
[8]The initial lease commenced on 1 December 2016 and expired on 30 November 2021. That lease was replaced by another lease with a five-year option which was exercised on 25 May 2021.
[9]Incorporated on 28 August 2018, with Leah, Angus and Aydan as directors, and Leah, Angus and Aydan as equal shareholders.
[10]Incorporated on 31 March 2016, with Angus, Leah, and Aydan as directors and Angus being the sole shareholder of the 10 shares on issue.
[11]Incorporated on 11 September 2018, with Aydan as director and MSH as shareholder.
The directorships of the various companies were shared by Aydan, Angus, and Leah but not in a consistent way. All three were directors of MSH, X Cargo Asset, Social IP, and X Cargo. Aydan was the sole director of X Cargo Social Hub. Leah and Angus were directors of X Cargo Holdings, and Angus was the sole director of X Cargo Operations.
Similarly, there were differences in the shareholdings. MSH held all the shares in X Cargo Operations and X Cargo Social Hub. X Cargo Holdings held all the shares in X Cargo Asset. Angus, Leah, and Aydan were all shareholders in Social IP. Leah and Angus were directors of X Cargo Holdings but only Angus held shares in X Cargo. Leah was the sole shareholder of MSH although the units in that trust company were held as described above.
There was no explained rationale for that allocation of directorships and shareholdings. It is likely that the formal positions were held in accordance with what was convenient at the time.
The entity regarded as having overall control of the various entities in the group was MSH. As noted above, the sole shareholder of that entity was Leah. That may have led to Leah becoming personally liable to at least one of the group’s principal creditors.
Nevertheless, in spite of the slightly haphazard way the directorships and shareholdings were allocated, it is reasonably clear that together Aydan, Angus, and Leah were operating the business, with Jamie and Mr Todeschino having a role as investors.
In mid-2018, the four holders of the units in the McLachlan Street Unit Trust, each agreed to transfer 2.5 units to a further investor, Joytree Pty Ltd, so that that company would hold 10 units in return for an investment of $350,000. However, that transaction was never documented.
X Cargo’s Financial Woes
On 28 July 2018, the nightclub and bar opened at 37 McLachlan Street in Fortitude Valley. By late 2019, the business was experiencing financial problems. In November 2019, X Cargo Operations Pty Ltd was placed in liquidation as that company had failed to pay the employee entitlements for the business.[12]
[12]Trial Bundle at 680.
A subsequent report of the liquidator of MSH, Mr Lee Crosthwaite of Worrells,[13] discloses that as at March 2020 MSH had traded at increasing losses of $376,366, $603,649, and $1,423,041 for the respective financial years (or parts of the financial years) ending 30 June 2018, 2019, and 2020. Mr Crosthwaite’s preliminary view was that MSH was insolvent from September 2018, possibly even earlier.[14]
[13]Trial Bundle at 687.
[14]Trial Bundle at 686.
Aydan now blames Leah for the business’ financial woes, apparently because she was in charge of the finances and ‘kept lots to her chest’.[15] The allegation has no evidence to support it. In fact, on numerous occasions, Leah copied Aydan into emails about financial matters.[16] Further, Aydan says that he became more actively involved in the finances of the business from mid-2019. There is no evidence of an improvement from that time onwards. And, there is no evidence that Aydan made any specific complaints about Leah’s financial management at the time.
[15]Transcript at T1-27 lines 15 to 37; see also Aydan Sturgess’ affidavit (ex 15) at [72].
[16]Trial Bundle documents 2.50, 2.51, 2.52, and 2.68.
The impression gained from the cross-examination of Aydan was that he was confident that he would have been more successful in convincing the various creditors not to take action on their debts, or at least to delay taking action.[17] Of course, even if Aydan possessed superior negotiation skills there was no reason why he could not have employed those skills. Even if he had, those skills would unlikely have turned an unprofitable business into a profitable one.
[17]In subsequent offers Aydan spoke of “managing” debts, a concept which appeared to involve not paying debts as and when they fell due but instead attempting to placate creditors with delayed and/or part payments.
I mention that aspect as it bears on the credibility of the different versions of what happened – discussed below.
By late 2019 and early 2020, there were many creditors of the business who were unpaid. Two significant creditors of the business were:
(a) the landlord of the premises who was owed rent by the lessee company, X Cargo Asset Pty Ltd; and
(b) Silver Chef Rentals Pty Ltd who had supplied equipment used in the business and had an agreement with X Cargo Pty Ltd.
Those two debts were significant and were guaranteed by Angus and Leah. As at 15 June 2021, the Silver Chef debt was $984,123.[18] As early as 18 September 2019, Silver Chef had registered a caveat over Leah’s property.[19]
[18]Trial Bundle at 266 to 267.
[19]Exhibit 3.
At the time of entering into the lease with the landlord of the premises, X Cargo Asset Pty Ltd was required to provide a $100,000 bank guarantee.[20] Around April 2020, the bank guarantee was drawn down by approximately $60,000.[21]
[20]Transcript at T3-27 lines 1 to 3.
[21]Transcript at T3-27 lines 5 to 18.
On 17 December 2019, a cleaning contractor, Zaval Cleaning Services Pty Ltd, brought an application to wind up MSH. Mr Angelo Farhat, a solicitor who had acted for the business, advised Angus, Leah, and Aydan of the winding up application and that ‘(t)he matter is now critical, and a plan needs to be put into place asap.’[22] The application was adjourned and a repayment arrangement was entered into with Zaval. However, a number of other creditors, including X Cargo Operations Pty Ltd (in liquidation) sought to be substituted as petitioning creditors. X Cargo Operations was owed $560,656 for outstanding employee entitlements,[23] or for management fees,[24] or possibly $125,933 owed to employees.[25] The sum of $492,094 was owed to the ATO.[26]
[22]AS-11 to Aydan Sturgess’ affidavit (ex 14).
[23]Trial Bundle at 875; Transcript T2-63 at lines 19 to 21.
[24]Trial Bundle at 877; Transcript T2-62 at lines 22 to 23, and T2-63 at lines 45 to 47.
[25]Trial Bundle at 875; Transcript T2-63 at lines 16 to 23.
[26]Trial Bundle at 877; Transcript T2-63 at lines 40 to 43.
Rescuing the Business
In the period from late 2019 to March 2020, Aydan, Angus, and Leah explored a number of options to rescue the business. They courted investors who could supply further working capital and explored the option of a business re-structure. There was no joy from potential investors.
In September 2019, Jamie moved from the ACT to Brisbane. His role changed from a mere investor to becoming a part of the management team. He became involved in the operations of the business and in the discussions about the options to rescue the business. Jamie’s new role was not formalised. He did not become a director of any of the entities. His new management role in the business was simply accepted by Aydan, Angus, and Leah.
It is at this point, in the period from late 2019 to March 2020, where the parties’ versions of what happened diverge.
Aydan’s Version
Aydan says that what then happened was that he purchased the business. He says that came about in this way:
[86] In or around late January and early February 2020, I proposed to Angus and Leah that rather than selling the business to a third party that I would purchase the Business.
[87] Initially, Angus and Leah sought for there simply to be a restructure of the Business to the effect that there would be a new company with myself as the sole director, but both they and Jamie would be shareholders along with another potential share-holder, Martin Van Zeeland (Martin), becoming involved in return for an investment of funds.
[88] Jamie was not opposed to the sale of the Business but told me that he did not want to be involved if Angus and Leah were still involved in the Business.
[89] I did not agree to the restructure of the Business as suggested by Leah and Angus as I considered the best chance to keep the Business operating, given the significant financial stress that MSH was under, was if I took over the business myself.
[90] 323 [the first plaintiff] was established with just myself as the sole director and my company DosDos as the sole shareholder.
[91] I agreed to purchase the Business for $10,000 and take on the substantial liabilities for the Silver Chef contracts and the property Lease to avoid the personal guarantees that Angus and Leah had being called in.
[92] The intention was that once 323 had purchased the Business, including the assignment of the Lease and the Silver Chef contracts, that I would then transfer shares in 323 to Jamie, in satisfaction of the debt owed to him as recorded in the Deed of Guarantee and Indemnity.
[93] Once Martin agreed to invest, his funds would then be used to finalise the outstanding personal liabilities of Angus and Leah who would not further involved in the Business long term. Angus, Leah and Jamie told me that they would agree to sell the Business on this basis.[27]
[27]Aydan Sturgess’ affidavit (ex 14) at [86]-[93].
There are some obvious problems with this version. The precise date and circumstances of the agreement are not identified. There are numerous emails and text messages between the parties but, as will be explained, none speak of Aydan purchasing the business. Indeed, the electronic communications between the parties assume a continuing relationship, including the continuing involvement of Angus and Leah. And, if there was a specific conversation whereby the purchase was agreed to by Angus and Leah, that essential detail is missing from Aydan’s version.
Angus & Leah’s Version
Leah says this about the events:
[94] Eventually, in about February and March 2020, it was agreed between Angus, Aydan and I that Aydan would be the sole director of the new entity, and that Aydan's company would hold the shares in that new entity on behalf of all owners. Angus, Aydan and I all agreed that Aydan would hold our shares on our behalf. This occurred in continuous conversations between Aydan, Angus and I in conjunction with our discussions regarding the restructure. Most of those conversations were face-to-face at the venue or at Angus and my house. It was Aydan's suggestion that this occur because of the debt associated with Angus and my names. Angus and I also agreed to this due to our debt levels.
[95] Between paragraphs 86 to 89 of Aydan's affidavit, Aydan appears to suggest that he purchased the business. This is not the case. Rather, Aydan, Angus and I restructured the business. Angus and I never agreed to sell our interest in the business to Aydan.
[96] I had ruined my credit rating, poured money and time into the business, and had my only asset put up as security. I still had personal guarantees and a personal loan associated with the business and would not have agreed to be bought out without those guarantees being removed.[28]
[28]Leah Cattanach’s affidavit (ex 27) at [94]-[96].
Angus gives a similar version.[29] Again, there are some absent particulars. Not even an approximate date for the agreement is identified. The circumstances of the relevant conversations are not identified.
[29]Angus Cattanach’s affidavit (ex 25) at [70]-[73].
In summary, therefore, Aydan contends that there was an oral agreement whereby he purchased Angus and Leah’s interest in the business. Angus and Leah deny that there was any such agreement. They allege a re-structure whereby the business would be sold to, and would continue under, a new entity. Aydan was to hold their shares in that new entity for practical reasons related to their credit rating.
Before assessing each version, and the credibility of each witness, it is necessary to explain what then happened.
Advice to Re-structure the Business
On 17 December 2019, when she received the email from Mr Farhat advising of the winding up application and that ‘(t)he matter is now critical, and a plan needs to be put into place asap’, Leah emailed Darren Addison of de Jong Read, a firm specialising in insolvency and corporate strategy. In her email, copied to Aydan, Leah asked for a meeting with Mr Addison. There had been previous discussions with de Jong Read but the likelihood is that those had been preliminary discussions when there was a potential investor. On the same day, 17 December 2020, $10,000 was paid into de Jong Read’s trust account, presumably on account of its fees for advising Aydan, Angus, and Leah on the re-structure of the business.
Mr Addison’s evidence about his advice is as follows:
Aydan, Angus and Leah never formally engaged me for the restructure of their business, but I did continue to provide general consultancy advice. This mainly occurred from December 2019, when a creditor commenced a wind up application against McLachlan Street Holdings Pty Ltd, through to March 2020, although my involvement during that time was sporadic. Mostly, one of them would contact me to arrange a meeting, all four of us (me, Aydan, Angus and Leah) would meet, and I would provide general advice and guidance.[30]
[30]Statement of Darren Addison (ex 29) at [10].
Agreement on an Equal Partnership?
At this point, in December 2019, Leah says that she had a meeting with Aydan and Jamie to discuss a proposed investment:
[82] I recall having a meeting in December 2019 with Aydan and Jamie to discuss Julius' potential investment and setting up a new entity. The meeting occurred in my office. Angus was not in attendance as he was working downstairs at the bar at the time. I told Aydan and Jamie that:
82.1. I was upset as my credit rating, which I had spent years protecting, was ruined and all our savings and money from our family had gone into the business;
82.2. My name was all over everything to do with the business;
82.3. I was still carrying debt regarding the business;
82.4. SilverChef had a caveat over my house;
82.5. I had pretty much sacrificed everything for the business;
82.6. If we were going to move forward together in business, then I wanted a separate shareholding;
82.7. It was only fair that Angus and I be treated as two separate shareholdings, as we are both individually working in the business - we can't be view (sic) as one unit when both of us are separately putting in the work;
82.8. I was adamant that in whatever new entity was created that I would be an equal partner with Angus, Aydan and Jamie and our shareholding would be accurately represented.
[83] Jamie responded "Of course Leah, that's completely understandable. We know how much you have done for this business and that's only fair".
[84] Aydan nodded in agreement with Jamie's response.
[85] Leaving that meeting, I had no reason to believe that I would not be an even shareholder with Angus, Aydan and Jamie moving forward.
Jamie agrees that Leah made those statements. In evidence he said:
She [Leah] did ask for her own shares, which I actually had no issue with, but my understanding was they would be divided between Angus and her shares. I – I at no time accepted that I would be giving up any of my shares for that.[31]
[31]Transcript T2-30 at lines 1 to 3.
Aydan denies that ‘the meeting took place or that Leah said the words stated or that Jamie Tully said the words stated or that I agreed with them as none of this occurred.’[32]
[32]Aydan Sturgess’ affidavit of 12 October 2021 (ex 15) at [15].
Both Leah and Jamie say the meeting took place and that Leah argued for her own allocation of a share in the business. I think that at least that much is likely to have occurred - despite Aydan’s evidence to the contrary. It is also likely that neither Jamie nor Aydan raised an objection to Leah having her own separate interest in the new re-structured business. Jamie does not dispute that he had no issue with Leah receiving her own interest in the new enterprise. And there was a logic to Leah’s argument that she was entitled to be regarded as an equal partner in the business.
There are, however, a number of related difficulties with the claim that there was a binding agreement, or some binding arrangement reached at this point. First, even on Leah’s version of the meeting, it is hard to conclude that the discussion involved an intention to create a legally binding relationship. Leah put two central propositions to Aydan and Jamie, namely that her contributions to the business meant that she was entitled to be separately recognised as a partner in the business, and that she was entitled to hold an equal share with Angus, Aydan and Jamie. Whilst it is likely that Aydan and Jamie would have agreed to the first of those central propositions, it is unlikely that they would have accepted the second without some explicit discussion.
At this point, excluding the undocumented interests of Joytree Pty Ltd, the shareholdings in the existing business were held in these proportions:
·Angus and Leah – 20%;
·Aydan – 20%;
·Todeschino – 20%; and
·Jamie – 40%
That meant that, for each of Angus, Leah, Aydan and Jamie to each hold equal shares in the business, each of their interests needed to be 25%. Such an allocation would have involved allocating nothing to Todeschino, reducing Jamie’s share from 40% to 25%, and increasing Angus and Leah’s combined share from 20% to 50%. I am unable to accept that those at the meeting committed to such a dramatic re-allocation of proposed shareholdings without, at the least, some explicit discussion of, and agreement about, the resulting percentage interests in the re-structured business. As will be explained, Jamie held some leverage over the business and the personal assets of Aydan and Angus, which makes it unlikely that they would have risked reducing his interest in the business.
Second, Leah’s version of the discussion does not involve either Aydan or Jamie directly responding to the proposition that they were all to hold equal shares in the new business. Jamie’s response was to acknowledge how much Leah had done for the existing business. Aydan’s response, according to Leah, was merely to nod. That suggests that they supported the idea of Leah owning a share of the business in her own right. But there is nothing explicit to the effect that Jamie and Aydan agreed, and became legally bound to, allocating to Leah a specific percentage interest in the business, or that the four of them would be equal owners of the new business.
Third, Angus was not at the meeting. Whilst it is likely that Angus would have agreed to the propositions Leah was advancing, his absence from the meeting gives the meeting an informal flavour that suggests that those at the meeting were not agreeing to be legally bound. The position may have been different if all parties were at the meeting, and there were some substantive discussion of the respective shareholdings.
Fourth, the discussions at this point are at the very early stages of the re-structure. That makes it more likely that the individuals were setting out their stances for a future agreement rather than reaching a legally binding agreement on the precise ownership percentages for the new business. The form of the re-structure had not been identified. The eventual purchaser of the business, Three Two Three Pty Ltd, was not incorporated until March 2020. There were subsequent discussions about how the shareholding was to be arranged.[33] The subsequent communications are inconsistent with there having been an agreement reached in December 2019.[34]
[33]See, for example, the email of 8 September 2020 (Trial Bundle doc 2.203). See also Leah Cattanach’s email of 11 February 2020 discussed below (Trial Bundle doc 2.125).
[34]See, for example, Leah Cattanach’s email of 11 February 2020 (Trial Bundle doc 2.125) which, rather than referring to a prior agreement reached in December, seeks to again discuss the idea of Leah becoming a unitholder in the new entity.
Fifth, there is a vagueness to the alleged agreement. The agreement is not said to have occurred on any specific day – merely at a meeting sometime in December 2019. The arrangement is not recorded in any email, text message, or communication on social media. The context is such that one would expect that to happen if the parties had arrived at such a significant milestone.
Leah’s evidence is not that she left the meeting with any firm commitment or binding agreement but that she left the meeting with ‘no reason to believe that I would not be an even shareholder with Angus, Aydan and Jamie moving forward.’ The use of the double negative emphasises the vagueness.
For those reasons, the court is unable to make a finding that some binding arrangement reached at this point – in December 2019.
Implementing the Re-structure
By late January 2020, Leah was coordinating a program whereby she and the other three business owners were trying to placate creditors.[35] On 11 February 2020, Aydan sent an email to Angus and Mr Farhat (the group’s solicitor) about the new company to take over the business:
[35]Trial Bundle doc 2.203
I think needs to happen over next week.
OPEN NEW COMPANY: OGRAC
New Directors: Aydan Sturgess, Jamie Tully
Liquor Licence: AYDAN (Gets RMLV tomorrow), Move Liquor Licence from MSH to OGRAC, Aydan is new Licensee
UNIT HOLDERS of OGRAC
Aydan
Angus
Jamie
Martin [i.e. proposed investor, Martin Van Zeeland]
———————————————————————————————
Sort Vendor Finance Deal with Cam
Sort Payment Structure with Brian.
Put MSH into Voluntary Liquidation.
1.1 million Investment goes into OGRAC.. OGRAC pays suppliers that we want to continue wit (sic) from MSH
Thoughts on this?[36]
[36]Trial Bundle doc 2.125.
Within 20 minutes or so, Leah responded as follows:
Agree, can we please discuss me coming on as a unit holder please? I have really put up my name, my credit rating and pretty much my reputation into this business and I also have taken a hit financially as well as personally. I never intended to have such a huge part in this business but I have pretty much put everything on the line including the caveat attached to my only asset (coolum house). Realistically if we don't pay out Capify and shut MSH down they will come after me personally too? I stand to lose pretty much everything in MSH, it's going to take Angus and I at least 7 years to get any kind of financial credibility back at this stage.[37]
[37]Trial Bundle doc 2.125.
On 13 February 2020, Leah emailed Aydan, Angus, and Jamie a restructure action plan and ‘to do’ list. That email discussed these items:
(a) making a final payment to Zaval;
(b) ‘opening’ a new company Three Two Three Pty Ltd (Mr Farhat was to arrange this);
(c) ‘opening’ a new family trust (Mr Farhat);
(d) getting the Zaval winding up application adjourned for one month (Mr Farhat);
(e) checking with Mr Farhat on the status of the lease;
(f) paying ASIC bills;
(g) liquor license transfer;
(h) opening (new) business bank accounts;
(i) contact creditors in order to make the move across to new companies;
(j) remove charges over MSH.[38]
[38]Exhibit LC-4 to Leah Cattanach’s statement (ex 27).
On the following day, 14 February 2020, Aydan, Angus, and Leah had a meeting with Mr Farhat at his office. They discussed the ‘to do’ list with Mr Farhat. Mr Farhat’s evidence was that he assumed that all three of Aydan, Angus, and Leah were to be directors and shareholders of the new company to be called Three Two Three Pty Ltd (‘323’). However, he says that during the course of the meeting, contrary to that assumption, he was advised to put Aydan down as the sole director and shareholder because Leah had signed various personal guarantees as a director of the existing business and because Angus had some issues with suppliers.[39] As it was explained to Mr Farhat, that arrangement was temporary, in order to facilitate the transfer of the business, with the shares ‘to be divided up post-incorporation.’[40] Mr Farhat recalls that each of Angus and Leah were to hold 20% of the shares, and that Aydan and Jamie would each have a shareholding.[41] He recalls a discussion about the financial risk Leah had borne and thus recognition of that in the shareholdings for the new business.
[39]Transcript T3-45 lines 30 to 38.
[40]Transcript T3-46 lines 15 to 24.
[41]Mr Farhat’s evidence did not make clear whether he was told that Jamie would hold 20% or 40%.
Following that meeting, steps were taken to transfer the business from MSH to 323:
(a) 323 was registered on 3 March 2020. Aydan was named the sole director and shareholder of that company in accordance with the agreement between Aydan, Angus, and Leah;
(b) Mr Farhat prepared the contract for the sale of the business by MSH to 323 for the sum of $9,900; and
(c) Steps were taken with respect to the transfer of the liquor licence, transfer of the food business licence, obtaining funding, insurance, the connection of merchant facilities and utilities, setting up new accounting software, to enable 323 to step in to run the business.[42]
[42]This summary is taken from the defendant’s written submissions at [24].
At about this time the parties signed an REIQ sale of business contract.[43] The contract is dated 4 March 2020 and records a sale by MSH to 323 of ‘X Cargo bar and nightclub’ for $9,900. The date for completion was specified to be 23 March 2020.
[43]Trial Bundle doc 1.79.
The special conditions included a term that the parties engage a business valuer to prepare a business valuation report for the ‘Business Assets’[44] within three months and that the purchase price be adjusted in accordance with that business valuation report.
[44]Under clause 3.2 the Business includes the goodwill, fixtures, fittings, furniture, chattels and the plant and equipment. Industrial and intellectual property, work-in-progress (if any), permits, licences, stock-in-trade and other assets set out in any schedule attached to this Contract (but excluding any Excluded Assets) and which assets are in this Contract referred to as the “Business Assets”.
A valuation report was subsequently prepared by Premier Auctions & Asset Management Services on 3 June 2020.[45] The values arrived at were $9,230 for fair market value and $3,675 on the basis of a forced liquidation value. However, that valuation report is some distance from a valuation of the business. It merely values 11 items of outdoor furniture comprising timber picnic tables, plastic outdoor chairs, bar stools and the similar items.
[45]Trial Bundle doc 1.88.
Some of the debts owed by the old business were brought over and assumed by the new 323 business.
In late March 2020, just as the restructuring was complete, the business was forced to close because of the government’s Covid-19 lockdown.
On 30 March 2020, with the winding up application against MSH to be heard the following day, Mr Addison provided advice to Aydan and Angus to this effect:
As we agreed on Thursday last week, I believe that the best course of action for McLachlan Street Holdings Pty Ltd is to not oppose the wind up hearing due on the 31st March 2020.
I have spoken to your solicitor Angelo who has indicated that he does not oppose this direction.
The basis of this decision is:
(a) The ongoing costs to keep the company open are significant and you believe that they cannot be sustained.
(b) SV Partners are unhappy that to date there has been no funds paid in order to compromise the liability outstanding to X Cargo Operations Pty Ltd (In Liquidation). It was discussed two weeks ago that an initial payment of $5,000 be paid. This has been unable to be remitted.
(c) The business is currently closed under the new shut down laws. There is no idea when these restrictions will be relaxed or what the trading environment will be at that time.
(d) All staff have been terminated or casuals informed that they are not required.
(e) The lease is held in a different corporate entity. You are currently in discussions with them in regard to the situation.
(f) The majority of assets are held in a different corporate entity. The only physical assets held in McLachlan Street Holdings Pty Ltd is furniture etc. which is minimal.
(g) The leasing of equipment is done through a different corporate entity.
(h) The liquor licence transfer has been approved.
If the wind-up hearing is not adjourned, we understand that SV Partners will continue to have the company placed into liquidation…
That advice was accepted. And so, with creditors looming, and no sign of rescue capital from new investors, and a restructure having been implemented, the decision was taken to not oppose the application to wind up of MSH. On 2 April 2020, MSH went into liquidation.
Operation During the 2020 Covid-19 Shutdown
As a result of the lockdown, Angus took alternative employment to support his family and Leah was involved in caring for her sister. Angus was not eligible for Jobseeker whilst Aydan was eligible for this benefit.[46]
[46]See paragraph [28] of the defendant’s submissions.
The defendant’s submissions fairly summarise the limited activity during the Covid-19 lockdown:
(a) Aydan and Tully decided to do some touch ups during lockdown, mostly painting. As Angus was employed elsewhere, he went to the business when he could;
(b) Angus remained in communication with Aydan and Tully in relation to business decisions, as did Leah;
(c) There were discussions about debts to be moved across from MSH to 323.
(d) Steps were taken to find new investors; and
(e) Mr Farhat was asked to prepare a letter to secure a rent abatement from the landlord of the premises…
It will be noticed that, if Aydan’s version was accurate, and he had in fact purchased the business from Angus and Leah, there is some incongruity in Angus and Leah continuing to participate in the management of the business.
Re-Opening
On 21 August 2020, with the ending of the Covid-19 lockdown, the nightclub and bar re-opened, albeit under the new management of 323. Aydan and Angus worked in the business. Aydan, Angus, Leah, and Jamie communicated about the proposed investment by Martin Van Zeeland and other business matters. A few days earlier, on 18 August 2020, a new company, Three Two Three (Services) Pty Ltd (‘323 Services’) was incorporated to employ the staff of the business. As with 323 Aydan was appointed the sole director and shareholder.
A chronology prepared by the plaintiffs (323 and Aydan) records this for August 2020:
Angus, Leah, Sturgess and Tully looking for additional investor.
Ashley and Martin Van Zeeland investors looking to acquire a 20% stake in the Business.
This is the chronology entry for 8 September 2020: ‘Above dealing evidenced in email from Sturgess to Angus and Tully.’
That email, with the subject line ‘Shareholder Agreement’, is in these terms:
Boys.. need the red[47] sorted this week so we can finalise this shareholders agreement.
Jamie has Martin and the boys gotten back to you about Company and Trust yet?
- Angus need trust and company asap
- Jamie need company asap
Angelo is figuring out how get this money in so I don't have to pay capital gains on it.
Rodney also suggested that we put the same shareholders on Three Two Three Services so we are not paying GST on any money transferred. Currently I am the only director on services
DOS [Aydan]
[47]The items in red were Angus and Leah’s new company and Jamie’s new company.
The contents of that email are inconsistent with Aydan’s version that he purchased the business in March 2020. If he had purchased the business, there would be no reason for him to discuss these management issues with Angus and there would be no reason for Angus to be involved in the shareholders agreement. And, the last two sentences illustrates that practical considerations involving minimising GST was the motivation for choosing the shareholders of 323 Services.
The diagram at the end of the email (not included in the quote above) shows Aydan, Angus, Leah, and Jamie holding shareholdings in the percentage interests consistent with the interests they held in MSH, namely Aydan 20%, Angus and Leah 20%, Jamie 40%, with 20% reserved for proposed new investors. That allocation of percentage interests is inconsistent with Aydan having purchased the business in March 2020. It is also inconsistent with Leah’s contention that there was a binding agreement whereby she was allocated an equal shareholding in the new business.
On 21 September 2020, Mr Farhat sent an email to Aydan, Angus, and Leah enclosing a draft shareholders agreement.[48] Mr Farhat had prepared the draft agreement on the instructions of Aydan. The draft shareholders agreement had Aydan holding 60% of the shares, Jamie holding 20%, and the proposed new investor holding 20%. Angus and Leah argue that the allocation of 60% to Aydan is consistent with there being an arrangement that he was to hold 20% for each of them for practical reasons relating to their credit rating. Thus, the draft deed is consistent with the discussions at Mr Farhat’s office on 14 February 2020.
[48]Trial Bundle doc 2-206.
Jamie’s Position
It will be noticed that the position of Jamie is a little unclear. He was not at the meeting with Mr Farhat on 14 February 2020. In his absence, it was recognised that he would have an unspecified shareholding in the new business. Mr Farhat appears to have assumed it was an equal (i.e. 20%) interest. However, Aydan’s email of 8 September 2020 speaks of Jamie having a 40% interest. Then, the draft shareholders agreement prepared by Mr Farhat allocates only 20% to Jamie – presumably based on either the instructions to Mr Farhat or based on what he was told at the February meeting. It is possible that Aydan, and perhaps the others, were reluctant to explicitly say to Jamie that they had decided to reduce his percentage. Or it is possible that the percentage interests to be allocated to each party were unclear, especially as there was a potential investor in the wings.
Of course, Jamie was in a peculiar position. The MSH business in which he held a documented 40% interest had been placed into liquidation. Other investors such as Todeschino and Joytree had lost their investments in that prior business. In so far as the new business was concerned, only Aydan was formally a shareholder of the 323 companies. Angus and Leah were at the 14 February 2020 meeting with Mr Farhat and had agreed that they would postpone a formal recording of their shareholdings in the new company because of the damage to their credit. Jamie was not at the meeting but the other three participants appear to have either stated or assumed that Jamie was entitled to an interest in the new enterprise.
Subsequently, between March and October 2020, there were attempts to document the parties’ relationship in a shareholders’ agreement but in a context where there were parallel discussions with a new proposed investor. It is likely that these issues led to the parties falling out. Certainly, in his evidence, Jamie said that he regarded it as outrageous that he had been asked to give up, in effect, one half of his shares in favour of Leah.[49] That, of course, is not strictly accurate. He had no shares. His investment had been lost. The parties were discussing their proposed allocations in the new business. Jamie did, however, have some leverage. It will be recalled that Jamie had invested in two ways. He paid $500,000 for a 40% interest in the MSH business. He also personally loaned $500,000 to Dosdos Pty Ltd and Funk Corporation Pty Ltd, entities controlled by Aydan and Angus respectively. Each of Aydan and Angus personally guaranteed those loans. That means that the context was that Jamie’s interest could not so easily be dismissed.
[49]Transcript T2-43 line 8; cf Transcript T2-30 line 1.
Thus, there were three moving parts. First, Leah was insisting on being an equal partner. Second, there were continuing discussions with potential investors, the Van Zeelands, and thus it was thought that it was going to be necessary to allocate a share, or shares, of the new business to them. And, third, there appears to be a recognition, perhaps a tacit admission, that Jamie’s contribution to the old business, and his loan which was personally guaranteed by Aydan and Angus, and his continuing participation warranted a shareholding in the new business.
The Falling Out
On 2 October 2020, Leah sent a Facebook message to Aydan which discussed a further draft of the shareholders agreement sent by Mr Farhat. The message enquired: ‘Are you holding oue (sic, our) shares in Dos Dos (Aydan’s company)’. Aydan agreed to meet.
In October and early November 2020, the following events occurred:
(a) Aydan engaged separate solicitors, Trinity Law, to prepare a separate shareholders deed. This deed was between Aydan, Tully, and Martin van Zeeland. The draft deed identified the three shareholders of 323 as being Aydan’s company (Dosdos), Jamie’s trust, and Martin Van Zeeland’s company (Martinus Capital Pty Ltd). In other words, Aydan was attempting to exclude Angus and Leah.
(b) On 12 October 2020, Aydan contacted Ms Roma Clayton-Tweedy, the landlord’s representative, seeking to get himself on the lease if possible.
(c) On 13 October 2020, Aydan sent an email to Michael James at Trinity Law requesting the shareholders percentages in the draft shareholders deed to be adjusted as follows: 40% Dosdos (Aydan’s company); 40% Tully Family Trust (Jamie’s trust); and 20% Martinus Trust (Mr van Zeeland’s trust);
(d) An updated version of the shareholders agreement was provided by Trinity Law on 15 October 2020;
(e) On 18 October 2020, Aydan sent Angus and Leah an email wanting to discuss a buy-out;
(f) On 22 October 2020, Aydan sent Ms Clayton-Tweedy an email about the transfer of the lease, and asserting that 323 owned all the business’ assets;
(g) On 23 October 2020, Adyan and Jamie received advice from Trinity Law referring to ‘problems with business partners’ and indicating that going forward the ratios for ownership would be 40/40/20. There is reference to a debt equity swap in relation to the loan between Aydan and Tully;
(h) On 27 October 2020, Aydan met with Ms Clayton-Tweedy, presumably in order to try to have the lease transferred to 323 or to a company controlled by him;
(i) On 10 November 2020, Aydan wrote to Ms Clayton-Tweedy advising that he hoped to finalise a deal with Angus and Leah over the next week or two; and
(j) On the same day, Aydan sent an email to X Cargo accounts (Mr Rodney Caldicott) regarding the rent and insurance. He said: ‘When I went back to her (i.e. Ms Clayton-Tweedy) before she did ask for the sale contract again. But I really don’t want to send that through. She did asks me who owns all the equipment who I said I did.’[50]
[50]See defendant’s submissions at [38].
On 16 November 2020, Aydan sent Jamie a draft of an email he was proposing to send to offering a $100,000 buyout to Angus and Leah. The offer was:
-100k total payout
-Silver Chef Caveat lifted / Refinance being looked into now
-Directors Guarantees Managed
-Jamie Indemnifies personal loan
-40k upfront (return of bank guarantee from assets).
-Remaining 60k over next 12 months (5k a month for 12 months on the 1st of the month)
-Silver Chef Caveat to be lifted within 6 months through refinance and buyout of debt
-CCA, Moet & Capify to be finalised (find if if required to pay ?)
-MG & Liz, Edwina, Tegan & Other loans to be managed
-Martins 100k to go towards Lease Bond to refill 100k and Lease to be Transferred to Three Two Three Assets.[51]
[51]Trial Bundle doc 2.229.
Jamie approved the email, describing it as ‘perfect’.[52] Aydan sent the email to Leah on 17 November 2020, thus making the offer approved by Jamie.[53]
[52]Trial Bundle doc 2.229.
[53]Trial Bundle doc 2.230.
On 23 November 2020, Angus and Leah refused the offer. The email from Leah, on behalf of her and Angus, states:
We formally reject this offer.
There is no guarantee that you’ll receive a re-finance for silver chef.
You also promised a number of debts to be paid out from Martin’s funds - which are now earmarked for a bank guarantee top up.
As I’ve always stated, my personal and Director’s guarantees on loans and suppliers would need to be satisfied before we exited.
“Managing” the debts and personal loans in our name is not a reasonable offer…
Jamie’s shares were in MSH. When we liquidated that company his shares went with it - They no longer exist. As for Jamie’s loan repayment that both you and Angus are liable for - My suggestion is that either Jamie takes his 40% in Three Two Three Pty Ltd as payment for that loan (i.e loan agreement torn up) or we can use that 40% to sell and pay out his loan in completion. As far as I’m aware we never agreed that Jamie wouldn’t take 40% of his equity as well as the loan repayment? I am unsure as to why Jamie would assume 40% equity in the new company Three Two Three Pty Ltd as well as a loan repayment plus an $80,000 salary (for the role he undertakes in the business)…
Treating us like we have already exited the business or that this business is not ours is only going to make this transition harder for everyone. I think we’ve made our position pretty clear, we will not be exiting for this offer and we certainly will not be pushed out. We remain committed to staying on across all entities until we receive an offer we are satisfied with;
$100,000 in total for our shares is grossly undervalued. The majority of the debt you’re assuming is business debt - not mine or Angus’s personal debt. We have taken our shares out to market privately as this offer will not suffice. If this is the starting point and part of your offer is to ‘manage’ our debts, I am sure you can understand from the lack of trust between ourselves and you and Jamie now that is not something we are leaving to chance.
In the meantime, I would suggest you and Angus figure out a way to run this business together effectively to ensure our staff and the business doesn’t suffer as a result of the end of our partnership.
Within a few minutes of its receipt, Aydan forwarded Leah’s email to Jamie. He forwarded Angus and Leah’s rejection of the offer to Jamie with this comment:
lol. [i.e. laugh out loud]
keep in mind they don't have shares in 323.[54]
[54]Trial Bundle doc 2.231.
I will come back to that comment.
On the next day, 24 November 2020, Aydan replied to Leah’s email saying:
Thanks for your email. Angus and I spent 2 hours going through the transition this morning. As we both agree we want to make this as amicable as possible.
As discussed in our meeting 2 weeks ago I mentioned that this was a starting point and I was looking for feedback on what you thought was acceptable.
If you (sic) we could get a clear projection of what you’re after that would be greatly appreciated…
When you have time. It would be great to get an idea of what is going to satisfy you both within reason. And keep moving toward on amicable terms.
Hope to hear from you both soon.[55]
[55]Trial Bundle doc 2.233.
Aydan kept Jamie up to date. He forwarded that email to Jamie with the comment: ‘Email Reply below.. think we need to keep pushing. I want this done by the end of the week.’[56]
[56]Trial Bundle doc 2.233.
Jamie then applied pressure to Angus and Leah. He sent a Facebook message to Angus and Leah saying:
Guys, this is honestly it. If this agreement isn’t sorted by 5pm today I’m going to issue a 14 day notice to repay the loan. As the company is in voluntary administration, all that’s left is personal assets, particularly anything linked to the business such as shares or lease agreements.
Get it done or you’ll be sent the notice by COB today.
On the same day there was a heated phone call between Jamie and Angus.[57]
[57]See Angus Cattanach’s account of the conversation in his statement at [113] (exhibit 25).
On Friday 27 November 2020, Angus received three notices from the Commonwealth Bank that they had completed a request to remove him as an account operating authority on three of 323’s bank accounts.[58] That removal had been arranged by Aydan. Plainly, this was an attempt to exclude Angus from the operations of the business.
[58]Trial Bundle docs 2.237, 2.238 and 2.239.
Then, on the following Monday 30 November 2020, Angus and Leah struck back. On behalf of X Cargo Assets they issued a notice of termination of the licence to occupy held by 323. Angus and Leah physically re-took possession of the premises on behalf of X Cargo Assets.[59]
[59]Trial Bundle docs 2.315 and 2.316.
On 3 December 2020, Aydan and 323 obtained an order from this court requiring Angus and Leah to give up possession of the premises to 323.
On the same day, Jamie issued a letter of demand to Funk and Angus calling in the loan.[60] On 19 January 2021, Jamie followed that up with a demand on Angus as guarantor.[61] Jamie has pursued litigation in the Supreme Court of the Austalian Capital Territory (“ACT”) against Angus. Jamie has not pursued Aydan on his equivalent personal guarantee because he has an agreement with Aydan that he will convert the loan to an interest in the business. Angus has joined Aydan to the ACT litigation.[62]
[60]Trial Bundle doc 2.254.
[61]Trial Bundle doc 2.260.
[62]Angus Cattanach’s statement (ex 25) at [117].
The Sale Agreement
The parties agree that the principal issue for the court to determine is the nature of the agreement in March 2020. It will be recalled that Aydan argues that in about March 2020 there was an agreement that he would purchase the business for $10,000. The problem is that the detail and evidence of any such agreement is illusive.
The agreement contended for by Aydan was not established on the evidence. First, for a number of reasons, Aydan’s evidence of the alleged agreement lacked any credibility:
(a) Aydan says that ‘in or around late January and early February 2020, I proposed to Angus and Leah that rather than selling the business to a third party that I would purchase the Business.’[63] However, there is no evidence of such a proposal in any emails or Facebook messages. That is in contradistinction to the proposals by Aydan to buy-out Angus and Leah in November 2020 which are captured in numerous communications;
(b) Those November 2020 communications, whereby Aydan was offering to buy-out Angus and Leah, are inconsistent with Aydan having already purchased the business in March 2020;
(c) Aydan failed to identify the alleged agreement with any specificity. He merely says: ‘I agreed to purchase the Business for $10,000 and take on the substantial liabilities for the Silver Chef contracts and the property Lease to avoid the personal guarantees that Angus and Leah had being called in.’[64] That does not identify when the agreement was struck, or the circumstances of the agreement. Presumably, Aydan says that Angus and Leah said something to indicate that they agreed to sell to him, or to his company. However, no details are pleaded and proved.
(d) In his cross-examination, the detail of the alleged agreement became more confusing. Aydan confirmed that the deal was that he bought the business for $10,000 and there was to be an assignment of debts owed by MSH to the new company. However, he said ‘[b]ut that never took place. They broke in and stole my money’.[65] He said he complied with ‘most of the deal’,[66] but it is unclear what Aydan did and did not comply with. Aydan was asked what debts owed by MSH were agreed to be assigned to the new company. He said there were specific debts, that he thought may have been written down in a list,[67] but there is no evidence of such a list. Then, when asked again what debts were to be assigned from MSH to the new company, Aydan said: ‘By debts I guess I was leaning towards Silver Chef and the responsibilities of the lease.’[68]
(e) The vagueness is emphasised by this question by counsel and Aydan’s response: ‘So when was it made clear, on your version of events, to Angus and Leah which debts that you were offering to take over? ---I’m not sure when it was made clear.’[69]
(f) Pressed further, Aydan was asked: ‘You never made it clear?’ He responded: ‘I never made it clear what debts I was taking over. Haven’t I – sorry, I believe I’ve written down what I offered’.[70]
(g) The cross-examination continued:
[63]Affidavit of Aydan Sturgess (ex 14) at [86].
[64]Affidavit of Aydan Sturgess (ex 14) at [91].
[65]Transcript T1-42 line 43. The reference to breaking in and theft appears to be a reference to the events that occurred in November 2020.
[66]Transcript T1-43 line 1.
[67]Transcript T1-43 line 21.
[68]Transcript T1-44 line 33.
[69]Transcript T1-44 line 39.
[70]Transcript T1-44 line 43.
You don’t know what the terms of the agreement were that you rely on? My terms of the agreement was that I would take over the – buy the business out, take over the Silver Chef debt and keep up with the lease payments.
Right. And that’s not what you have pleaded in your statement of claim? Which statement of claim?
The pleading document that his Honour and I have both been referring to? Yeah.
That’s not what you say because in here you say you will take over the obligations of the business and the debts owed by MSH? I say the debts owed by MSH in my pleading.
Yes? I’m not sure about that, sorry.[71]
(h) The amended statement of claim asserts an offer made by Aydan in late January 2020 and accepted by Angus and Leah on some unspecified date.[72] The terms of the (accepted) offer was that there would be an assignment of the debts owed by MSH to the new company.[73]
[71]Transcript T1-45 lines 3 to 16.
[72]See amended statement of claim at [51], [53].
[73]Those debts were said to be the debts of the group, including the rent owed to the lessor, the Silver Chef debt and debts owed to employees and contractors.
Implicit in that reasoning is my lack of confidence in Aydan’s evidence. Even in the absence of the strong objective facts set out below, I am reluctant to accept Aydan’s testimony unless it is independently verified.[74] As the extracts above illustrate his testimony lacked detail. In cross-examination, he seemed more interested in saying what suited his case, often in a combative way, rather than giving a careful account of what happened.
[74]See the discussion in Fox v Percy (2003) 214 CLR 118 at [30], [31].
Second, the evidence of Angus and Leah was to the effect that there was no such agreement.[75] Their evidence is preferred over the evidence of Aydan. Further, the evidence of Angus and Leah is largely supported by the independent evidence of:
(a) Mr Addison, to the effect that he assisted with a restructure;[76]
(b) Mr Farhat, to the effect that on 14 February 2020 he met with Aydan, Angus, and Leah for the purpose of incorporating the new company with Aydan to be the sole director and shareholder, for the practical reasons discussed above.[77]
[75]Leah Cattanach’s statement (ex 27) at [95]; Angus Cattanach’s statement (ex 25) at [72].
[76]Mr Addison’s evidence at [11].
[77]Transcript at T3-45 line 35.
In his cross-examination Aydan was keen to communicate that Mr Addison’s role was limited to the liquidation of MSH,[78] but that is contrary to the evidence of Mr Addison. It is also contrary to the evidence of Mr Farhat.
[78]See, for example, transcript at T1-71 line 41.
Aydan did not give any evidence of the meeting on 14 February 2020. Mr Farhat gave direct evidence of that meeting.
Third, as a matter of commercial reality, the alleged agreement is most unlikely. Despite its poor financial performance, each of Aydan, Angus, and Leah perceived that the business had some value. Under the deal alleged by Aydan, MSH would receive $10,000 from the new company, Angus and Leah would receive nothing,[79] and they would continue to remain liable for the very significant debts they had personally guaranteed. It seems unlikely that they would agree to a deal that did not involve some extinguishment or at least some reduction in their personal indebtedness or at least some mechanism for removing the caveat lodged over Leah’s property by Silver Chef.
[79]That is in contradistinction to the buy-out proposed in November 2020 which involved a payment to them of $100,000.
Fourth, the whole chronology at the time (as outlined above) was directed to a restructure of the business in the sense of having a new entity acquire the old business. That was why Mr Farhat and Mr Addison were engaged.
Fifth, if there had been an agreement whereby Angus and Leah sold their interest one would expect some record of the agreement in the correspondence. All of the correspondence, including the REIQ sale contract, is consistent with there being a restructure which involved MSH’s assets being transferred to a new company. After March 2020, Angus and Leah continued to be involved in management decisions. There is certainly no assertion by Aydan, subsequent to March 2020 that they had no business participating in the on-going management of the bar and nightclub. On 1 September 2020, Aydan emailed Angus saying ‘its your business as much as it is mine’.[80] Aydan directly involved Angus and Leah in the business and, in November 2020, offered to buy them out.
[80]Angus Cattanach’s statement (ex 25) at AC-2. This was in the context of Aydan complaining about Angus taking cash from the business. Each alleged that the other did that.
Sixth, as explained above, the parties were not particularly careful in ensuring that the directors and shareholders on ASIC’s register coincided with the persons who actually held the management and ownership interests in the various companies. That means that it was not surprising that Aydan was allocated all 100 of the issued shares. As Mr Farhat explained, it was a temporary arrangement as it was anticipated that Angus, Leah, Jamie and perhaps a further investor would be allocated shares.
On that point it is worth returning to Aydan’s email to Jamie of 23 November 2020 as follows: lol. [i.e. laugh out loud] …keep in mind they don't have shares in 323.
The context was that Angus and Leah had just rejected Aydan’s November 2020 proposal to buy-out Angus and Leah. The question the comment raises is why it would be funny to be saying that Angus and Leah do not have shares in 323. In his evidence Aydan did not satisfactorily explain the comment.[81] He seemed anxious to assure the court that he was not mocking Angus and Leah. However, the likely point Aydan was making to Jamie in this communication was that, although Angus and Leah may not realise it, as luck would have it, Angus and Leah were not shareholders of 323. In other words, Angus and Leah had an additional problem that they would need to overcome – the formal shareholding position.
[81]Transcript T2-27 line 1.
And so, whilst it is not a significant point, the ‘lol’ comment does reinforce the idea that there had not been a sale of the business to Aydan in March 2020. If there had been such a sale the content and tone of the correspondence would have been radically different. Aydan would have been asserting the existence of that sale. Those assertions are conspicuous by their absence.
A Facebook message sent by Angus to Aydan on 9 October 2020 is also relevant.[82] The context here was that Aydan and Angus were discussing the fact that it appeared that Martin van Zeeland was now refusing to invest. Aydan attributed Mr van Zeeland’s unwillingness to proceed to the delays in getting the shareholders agreement finalised. One of Angus’ messages, concerning Mr van Zeeland’s reluctance to proceed with the investment, is as follows: ‘Why because we want our shares in our name? What did he think was going on?’ The substance of Aydan’s response was to say that Mr van Zeeland’s concern was the delay, not the fact that Angus and Leah wanted their shares in their own name. Once again, that exchange is inconsistent with Aydan’s contention that he bought the business outright. This exchange of messages is consistent with Angus and Leah’s contention that, for practical reasons, Aydan held Angus and Leah’s shares as well as his own.
[82]Trial Bundle doc 2.212.
For all those reasons, the court rejects Aydan’s contention that there was an agreement reached in March 2020 whereby Aydan purchased the business. It is true that the business was transferred from MSH to 323, but the objective was to transfer the business, not to affect the underlying interests.
Aydan’s counsel argues that Ayden’s conduct in undertaking renovations during the Covid-19 shutdown period indicates that it was Aydan’s understanding that he alone owned the business.[83] It is difficult to attribute any significance to that conduct. The Public Health Directions issued by the Chief Health Officer on 23 March 2020 meant that the business could not operate. These were extraordinary times. Angus was unable to secure ‘Jobseeker’ support.[84] He needed to support his family and so obtained employment within an essential business (building industry- roofing). That decision hardly meant that he abandoned the business. Similarly, Aydan’s decision to effect improvements whilst the business was closed pursuant to the Health Directions, and whilst he was receiving ‘Jobseeker’ support,[85] does not appear to me to be conduct only consistent with Aydan having sole beneficial ownership of the business.
[83]Plaintiff’s submissions at [139].
[84]Statement of Angus Cattanach (ex 25) at [80].
[85]Statement of Angus Cattanach (ex 25) at [81].
It is difficult to attach any particular significance to the parties’ conduct during the period in which the business was closed by reason of the Covid-19 pandemic. The directions of the Chief Health Officer were made in accordance with emergency powers arising from the declared public health emergency. Those directions required the closure of non-essential businesses. During that time the parties here, as with many in the community, were forced to do the best they could to get through the emergency. In those circumstances, I am unable to attribute Aydan’s work effecting improvements on the premises as an exercise of dominion over the business. That is especially so given that:
(a) During the shutdown period Aydan and Angus corresponded about the terms of an expression of interest designed to attract investors;[86]
(b) Shortly before the shutdown ended, Angus left his employment as a roofer and came back to work at X-Cargo full-time to organise compliance with the Chief Health Officer’s social distancing regulations and otherwise arrange the re-opening, including the re-hiring of staff, ordering stock etc.
(c) After the resumption of the business, each of Aydan, Angus, and Leah participated in the management of the business. The evidence of Mr Newberry, X-Cargo’s business development manager, is that after the resumption of the business, he observed that the owners of the business were Aydan, Angus, and Leah.[87]
[86]Statement of Angus Cattanach (ex 25) at [86] and AC-1.
[87]Mr Newberry’s statement (ex 28) at [24].
It is true that for personal reasons Leah’s involvement in the business was less from the time of the shutdown. However, as explained, she was still treated as a co-owner.
What Was the Re-structure Agreement?
For the reasons explained above, there was no agreement to transfer the business to Aydan, or to his company. However, the question remains: Who are the beneficial owners of the new 323 business, and in what proportions?
The resolution of this issue depends upon the context and what the parties agreed in March 2020 and whether they agreed on an apportionment between March 2020 and November 2020. An examination of this issue traverses similar territory to that canvassed above, although with a different focus.
As explained, the context was that the shareholdings in the existing MSH business were held in these proportions:
·Angus and Leah – 20%;
·Aydan – 20%;
·Todeschino – 20%; and
·Jamie – 40%
There are wildly divergent views about what was agreed about the shareholding in the new 323 business. Aydan, as explained, contends that Angus and Leah agreed that he was to be the sole shareholder. Angus and Leah argue that they are each entitled to one-third of the shares in 323 and 323 Services.
For the reasons explained above, I reject Aydan’s contention that there was an agreement whereby he purchased the business or whereby he became entitled to 100% of the shares in the new business.
Jamie’s Version
Jamie says that he agreed with Aydan’s proposal to sell the business to Aydan’s company. He says that Aydan proposed to him that he would be offered an equal share in the business with Aydan as consideration for repayment of the loan. He says he told Aydan that he did not want to be further involved in the business if Angus or Leah were still officeholders or shareholders. He says he told Aydan that he did not intend to accept shares as consideration for repayment of his loan until such time as the new company was trading successfully, and Angus and Leah were no longer involved.[88]
[88]Affidavit of Jamie Tully (ex 16) at [41]-[46].
However, those were discussions between Aydan and Jamie. Neither Jamie or Aydan gave evidence that those were requirements or discussions that were communicated to Angus and Leah.
Jamie also says that, at about the time the business was required to cease by reason of the Chief Health Officer’s directions, he told Aydan that he would refrain from taking any further action to recover his loan until 323 had been provided with an opportunity to recommence trading.
Jamie says that in early October 2020 he told Aydan that he was satisfied that the business had been performing well financially since the re-opening and that he would be willing to accept a shareholding of 40% in 323. However, he says he attached conditions, namely the transfer of the lease and Silver Chef, and other obligations to 323, as well as the exit of Angus and Leah.[89]
[89]Affidavit of Jamie Tully (ex 16) at [50].
It is difficult to attach any contractual or other legal significance to what were, in reality, private discussions between Aydan and Jamie. On any view Angus and Leah were participating as co-owners. An agreement as to the shareholding in the new business was required to be agreed by the co-owners.
Nevertheless, it is worth noting that in March 2020, Jamie himself said that he was not willing to accept shares in return for his loan – at least until the new company was trading successfully and Angus and Leah had made their exit. However, it will be recalled that under the MSH structure Jamie had two different interests. He had paid $500,000 for a 40% interest in the project. He had also loaned $500,000 via loans to Dosdos Pty Ltd and Funk Corporation Pty Ltd, entities controlled by Aydan and Angus respectively. As explained, for that reason, he had some leverage but he did not seek to exploit that leverage until November 2020.
Angus and Leah’s Version
Leah gives this account of the agreement in February and March 2020:
Eventually, in about February and March 2020, it was agreed between Angus, Aydan and I that Aydan would be the sole director of the new entity, and that Aydan's company would hold the shares in that new entity on behalf of all owners. Angus, Aydan and I all agreed that Aydan would hold our shares on our behalf. This occurred in continuous conversations between Aydan, Angus and I in conjunction with our discussions regarding the restructure. Most of those conversations were face-to-face at the venue or at Angus and my house. It was Aydan's suggestion that this occur because of the debt associated with Angus and my names. Angus and I also agreed to this due to our debt levels.[90]
[90]Leah Cattanach’s statement (ex 27) at [94].
Angus’s version of what happened is as follows:
In late February or early March 2020, before the business was sold, Aydan, Leah and I discussed the new entity and verbally agreed that Aydan's credit was the best of the three of us. During that discussion, Aydan volunteered to be the director of the new entity, and for him to hold the shares in the new entity on behalf of Leah and me. Leah and I agreed that that sounded like the safest course moving forward, in light of the liquidation of X Cargo Operations Pty Ltd in September 2019 (which I was a director of), and the problems of McLachlan Street Holdings Pty Ltd.
At this time, there were also discussions between Aydan, Leah and I about Jamie being a director too, but it came to light that Jamie had been inappropriate towards staff and in regards to his bar tab, so we decided against that appointment. Documents 2.111, 2.114, 2.115, 2.116, 2.118, 2.139, 2.140 and 2.146 are true and correct copies of communications between Aydan, Leah and me where we discuss that.[91]
[91]Angus Cattanach’s statement (ex 25) at [69], [70].
The allegations about Jamie’s conduct with staff and his bar tab are not relevant. The discussion about his suitability as a director is separate from his role as a shareholder. On that issue, the cross-examination of Angus was important. In his evidence Angus acknowledged that the existing MSH shareholdings was part of the assumptions that underpinned the discussions:
Now, were you surprised, given your case, that you would have a 60 – between you and Leah, a two-thirds interest in Three Two Three, or 66 per cent, that Aydan was only offering you 20 per cent? No. I didn’t think that was strange. I think he was just assuming we’d take over the same – same standing as McLachlan Street Holdings.
And that ? But we put it forward to them that we didn’t accept that. We thought that we deserved more.
Now, I’ll take you to your affidavit, paragraph 73. Now, to put it at its highest, you say the agreement was that you would receive 20 per cent and Leah would receive 20 per cent; that’s correct? Yes.
And, in fact, nowhere in your affidavit do you mention that you would receive one-third interest in Three Two Three and Leah would receive one-third interest in Three Two Three? No.
And that’s because that was never the case; that’s correct? That we wanted one-third of Three Two Three?
No. That it had been agreed that you would each get one-third of Three Two Three? Well, as – we had plenty of options but this was not one of them. No.
So, on your evidence, the best, in your mind, that you thought you were entitled to was 20 per cent each; is that correct? That’s – well, that’s what we asked for. Yep.
Okay. But that was never agreed to, was it? Not – not entirely. It – that caused a fair bit of rift between the parties – the team.
So no? Mmm.
You’d agree no? No. [emphasis added]
That passage defeats the argument that each of Aydan, Angus and Leah agreed to take a one-third interest in 323. The passage also deals a body blow to the argument that between March and November 2020 it was agreed that each of Angus and Leah were to take 20%. The doubt, though, is whether the lack of agreement Angus conceded was a lack of agreement of the whole ‘team’, namely Aydan, Angus, Leah and Jamie. Of course, Jamie was not at the meeting with Mr Farhat on 14 February 2020. At that meeting on 14 February 2020, according to Mr Farhat, each of Aydan, Angus and Leah agreed that the four of them were to take a beneficial interest in the new business.
Leah’s evidence-in-chief on the point, it will be recalled, was to this effect:
Eventually, in about February and March 2020, it was agreed between Angus, Aydan and I that Aydan would be the sole director of the new entity, and that Aydan's company would hold the shares in that new entity on behalf of all owners. Angus, Aydan and I all agreed that Aydan would hold our shares on our behalf. This occurred in continuous conversations between Aydan, Angus and I in conjunction with our discussions regarding the restructure. Most of those conversations were face-to-face at the venue or at Angus and my house. It was Aydan's suggestion that this occur because of the debt associated with Angus and my names. Angus and I also agreed to this due to our debt levels.[92]
[92]Leah Cattanach’s statement (ex 27) at [94].
Two points can be noted here. The first is that this is an alleged agreement that does not involve Jamie. He was not formally a director but he was being consulted on at least some management and ownership issues.[93] Angus took the view that Aydan was assuming that the new ownership structure would be based on the pre-existing ownership structure. The second is that Leah does not identify the percentage that Aydan was to hold on her behalf and on behalf of Angus.
[93]It was clear, for example, that Jamie had a role in attracting potential investors.
Leah’s testimony regarding the December 2019 discussions of her shareholding was to this effect:
Now, isn’t it the case – so when you talk about all being treated equally, you mean yourself, Angus, Jamie Tully, Aydan Sturgess?‑‑‑In that conversation in – well, in that particular meeting it meant that I was only talking about myself and it meant that no matter what happened moving forward I needed to be recognised for the debt that I had incurred in my name, that everything that I had done for the business, and I needed to be moving forward however that looked equally, correct.
I see. So do you mean that you would each have 25 per cent? Is that what you mean?‑‑‑At that stage it was – well, at that stage moving forward it was Aydan, Angus and myself. The investors, or however that looked afterwards, I mean, that was always a discussion that was coming. That was discussed as far up as – I think September, October last year we were still discussing what Jamie’s percentage would be if and how that looked with his loan. So at that stage it was my understanding that it would be a third, a third, a third but Jamie was always an investor coming in and we had to work that out. That’s why those discussions continued.
Well, I put it to you at this stage Jamie Tully, on whose words you rely upon, was a 40 per cent owner of the business; that’s correct?‑‑‑Jamie was a 40 per cent owner of MSH.[94]
[94]Transcript T3-10 line 26.
The absence of an agreed position became clear later in Leah’s evidence:
So in relation to the interest in MSH, your position is that at this point in – sorry, as far as your interest in the business is concerned, at this meeting your evidence is that everybody will be treated equally and that would be you, Angus, Aydan and Tully? My indication in that meeting was that I would be treated equally, not everyone else, but treated equally as an incoming shareholder. So for what had happened I guess for the last however many years, as you know, was – is that I was not represented on any shareholdings or anything for the purpose of assets versus – safe assets versus non – risky and so moving forward I wanted to be recognised. So how that looked – we did not discuss that any further in that meeting but how that looked was is that I wanted to be recognised because of everything that I had done because of the debt that I was carrying and because of everything that I had previously put into that business. So it was my understanding that moving forward I would want to be – I would want to be treated like a shareholder. I hope that makes sense, sorry.[95] [emphasis added].
[95]Transcript T3-12 line 6.
That falls a little short of proof that there was an agreement in December 2019, in the sense of a legally binding agreement, that Leah was to receive a shareholding that was equivalent to Aydan’s shareholding. Of course, if Leah was to be allocated a greater share, then the others had to agree to receive less. Indeed, even on 11 February 2020 Leah was asking for a discussion about her ‘coming on as a unit holder’.[96] That, of course, was three days before the meeting with Mr Farhat on 14 February 2020.
[96]Trial Bundle doc 2.125. N
During the cross-examination of Leah it became clear that the level of each person’s proportionate shareholdings was an open question:
But there’s no document that says, “On establishment of Three Two Three Leah Cattanach will have one-third, Angus Cattanach will have one-third, Sturgess will have one-third”? No, we hadn’t got to the signing of any type of shareholder agreement at that stage purely because of how manic everything was in the wind up and subsequent pop up of the new entity.[97]
[97]Transcript T3-20 line 14.
That testimony is instructive. It demonstrates that, from Leah’s standpoint, there was not yet a concluded agreement and that Leah anticipated that a concluded agreement would be recorded in a shareholder agreement. To some extent that is consistent with Mr Farhat’s evidence that the temporary arrangement arrived at on 14 February 2020 was that Aydan would hold 100% of the shares in the new entity on behalf of Angus, Leah, Jamie and himself, but that the parties were to agree on a shareholders agreement that recorded their shares and the interests of new investors.
One piece of evidence that demonstrates that the ‘team’ did not agree on the percentages, or at least had not agreed to vary the percentage interests held previously, in the period from March to September 2020, is Aydan’s email of 8 September 2020[98] – soon after the business resumed. In that email Aydan sought details in relation to a proposed shareholders agreement that involves a percentage allocation of 20% to himself, 20% to Angus and Leah together, 40% to Jamie and 20% reserved for the proposed new investor. Interestingly, he only sent that email to Angus and Jamie.
[98]Trial Bundle doc. 2.203.
On 21 September 2020, Mr Farhat sent an email to Aydan, Angus, and Leah enclosing a draft of the shareholders agreement which he noted had been ‘updated in accordance with your instructions’.[99] That draft provided for DosDos (Aydan’s company) to have a 60% shareholding, Jamie to have 20% and a further 20% for the proposed new shareholder/investor. Based on the court’s earlier findings, it is reasonable to assume that the DosDos 60% comprised 20% held for each of Aydan, Angus and Leah.
[99]Trial Bundle doc 2.206. Note that it is not clear precisely who gave the instructions or that all parties agreed.
The shareholders agreement was never concluded. On 2 October 2020, Aydan spoke of ‘one last change to the unit holder agreement’ but it is not known what that last change was. And, in October 2020, the new investor/shareholder declined to commit which would have required a further change to the agreement.
Thus, the communications between the parties are littered with uncertainties. The parties obviously contemplated that a shareholders’ agreement would record their relationship, but they failed to actually arrive at an agreement. But for the evidence of Mr Farhat, it would be impossible to find any agreement.
The evidence of Mr Farhat was not without its problems. As discussed above, Mr Farhat gave evidence of a meeting at his office on 14 February 2020 – before 323 was incorporated.[100] In evidence he was asked specifically about the shareholdings:
How did you – was there a discussion about how the shares would be divided up post the incorporation? My understanding was that – so with 100 – with 100 shares, the – and this was a unitholding structure that they were looking at doing, I believe, and the – Leah had indicated that she and Angus were – wanted to hold 20 per cent each. Leah was concerned that that would give her – her dues for, you know, the work with the – at that – up to that stage and her putting her financial – with all the financial risk that she had put – because of the securities and the guarantees she gave in her investment to the business. Aydan was to have a shareholding himself and – and Jamie himself. So the understanding was that moving forward the shares were going to be allocated at that – on that basis.[101]
[100]See above at [45].
[101]Transcript T3-46 line 15. There was no objection to the evidence in this form.
That testimony suggests that each of Aydan, Angus, Leah, and Jamie were to hold 20% of the shares in the new company. However, there were 100 shares, and that both the shareholding in the pre-existing business and the subsequent documents (with one exception[102]) recorded Jamie as holding a 40% interest. That makes it likely that the parties assumed that Jamie would continue to hold 40%. Certainly, there is no evidence that at the time of the 14 February 2020 meeting, or even subsequently, Aydan, Angus, or Leah said to Jamie that he was entitled to nothing or that he was entitled to less than he previously held. The absence of any discussion of that type, and his continued involvement, and his standing and leverage as both an investor and a lender, makes it likely that the 14 February 2020 meeting assumed that his shareholding would be the same. If the meeting had decided to reduce his proportionate shareholding from that which he previously held, one would expect that one or other of Aydan, Angus, or Leah would have told him of that reduction. There is no suggestion that they did so.
[102]See Trial Bundle doc 2.206 discussed above.
As Mr Farhat explained, the agreement reached was a temporary agreement, that is an agreement of the parties pending a further agreement to be recorded in a shareholders’ agreement. That further agreement never eventuated, partly because shares needed to be allocated to the proposed new investor, and because the parties fell out.
Of course, Mr Farhat was the parties’ solicitor. He was subpoenaed to give evidence. In that sense he was independent. However, curiously, Mr Farhat did not refer to, or refresh his memory from, any diary notes he made of the meeting on 14 February 2020. Neither counsel asked him if he had made notes. Further, when asked about conversations, Mr Farhat tended to give evidence in terms of what he understood from what was said, rather than direct evidence of what was said. Neither counsel objected to his evidence on that basis. Nevertheless, it is appropriate to accept that Mr Farhat was doing his best to recall what was discussed.
Findings
It follows that the court makes these findings of fact:
(a) There was no agreement whereby Aydan, or his company, purchased the business;
(b) There was no binding agreement reached in December 2019 to the effect that Leah was entitled to a separate shareholding;
(c) On 14 February 2020, each of Aydan, Angus, and Leah temporarily agreed that Aydan would hold all 100 shares in the new business on behalf of the three of them (20 shares each) and on behalf of Jamie (as to 40 shares);
(d) That temporary agreement was to be superseded by a further agreement, intended to be recorded in a shareholders’ agreement, but the parties never reached a further agreement;
(e) Aydan’s conduct in attempting to secure the lease of the premises, and in removing Angus as an account operating authority on three of 323’s bank accounts, and in terminating Angus’ employment was conduct designed to exclude Angus and Leah from the business and its management; and
(f) Angus and Leah retaliated by taking possession of the premises but that attempt was unsuccessful when the court ordered that possession be given back to 323 and Aydan.
Angus’ Claim for Wrongful Termination of Employment
Angus claims his salary from the date of termination of his employment, 26 November 2020, to the date of judgment. The claim is made on the basis of a salary of $80,000 pa which translates to $219.18 per day.
First, Angus does not contend that the termination was void or of no effect. The parties concede that his employment was in fact terminated as at 26 November 2020.
Second, the termination was wrongful. The termination has been pleaded as justified because Angus ‘did not make any material contribution to the operation of the business.’[103] That justification is so vague as to be meaningless.[104] The duties that Angus failed to perform are not identified. Or the extent to which he failed to perform his duties is not identified. No dates or other particulars are mentioned. There is no evidence that supports the allegation. More likely than not Angus was terminated because Aydan wished to exclude him from the business. That was the point of Aydan contemporaneous steps to remove Angus as an account operating authority on three of 323’s bank accounts.
[103]Reply at [65]. See the similar statement made in Aydan’s affidavit (ex 14) at [132].
[104]In particular, the expression ‘material contribution’ is exceedingly vague. It leaves open the question of what the contributions of each person should have been and what they were.
There is an allegation that Angus took money from the business. That, however, seems to have been a common practice amongst the owners of the business.[105]
[105]See, for example, the evidence of Mr Hawkins at Transcript T2-49 line 15.
Third, the measure of damages for wrongful termination of employment is not the daily rate of the employee’s salary ad infinitum. The normal measure of damages for wrongful dismissal is the amount that the employee would have earned had the employment continued subject to a deduction for any amount accruing from any other employment which the employee either obtained or should reasonably have obtained.[106] All that the employee needs to show is the contract price (i.e. his or her salary) and that the employment was wrongfully terminated. The onus is on the employer to show that the employee has or should have obtained alternative employment.[107]
[106]McGregor on Damages, 20th edition, at 33-005.
[107]Ibid
Angus stated his present occupation as follows: ‘I’m currently operating bars and nightclubs, setting them up.’[108] However, Angus was not cross-examined as to what, precisely, his present employment was, or as to his present salary. No attempt was made to demonstrate that, in the period between 26 November 2020 to the commencement of the trial, he either had alternative employment or that he should reasonably have obtained alternative employment.[109]
[108]Transcript T2-59 line 46.
[109]The cross-examination of Angus did, however, confirm that he was employed by 323 Services at a salary of $80,000 pa: Transcript T2-70 at line 20.
It follows that the orders the court makes should include judgment in favour of Angus against 323 Services in the sum of $76,275 (i.e. $219.18 x 348 days).
Appropriate Orders
It follows from those findings that it is not appropriate for the court to make the orders sought by Aydan, 323, and 323 Services. Certainly, it is not appropriate to make and order permanently restraining Angus and Leah from participating in the X Cargo business. It is appropriate to discharge the order of this court made on 3 December requiring Angus and Leah to give up possession of the premises to 323.
Angus and Leah seek an order that Aydan and his company (DosDos) specifically perform the ‘Restructuring Agreement’. That agreement is defined in their pleading as an agreement reached in about March 2020 whereby Angus and Leah were each to be allocated one-third of the shares in 323 and 323 Services.[110] For the reasons stated, there is no agreement to that effect. In any event, the lack of precision in what was agreed on 14 February 2020 make it inappropriate to order specific performance.
[110]Paragraph 88 of the Amended Defence/Further Amended Counterclaim
It is, however, appropriate for the court to declare that DosDos holds the 100 shares in 323 and 323 Services in trust for:
(a)Angus as to 20 shares;
(b)Leah as to 20 shares;
(c)Jamie as to 40 shares;
With the remaining 20 shares held beneficially on its own behalf.
As explained above, the four individuals who operated this business did so as a common enterprise with each having a management role. At least two of the individuals had a day-to-day involvement. They fell out and their relationship has broken down irretrievably. Aydan’s conduct in excluding Angus from accessing the bank accounts on 27 November 2020, and then in obtaining a court order relying on the REIQ contract as entitling him to sole ownership, was oppressive or unfairly prejudicial to, or unfairly discriminatory against Angus and Leah. It was conduct that was designed to defeat Angus and Leah’s management role as well as their shareholding.
In HNA Irish Nominee Ltd v Kinghorn (No 2), Emmett J observed:
As a general proposition, the court may intervene to prevent persons in control of the affairs of a company from exercising strict legal rights, where that conduct would be unfair and contrary to matters in the contemplation of the parties when they became members.[111]
[111]HNA Irish Nominee Ltd v Kinghorn (No 2) (2012) 290 ALR 372 at [510].
Despite the corporate structure, the management relationship was similar to a partnership. Trust and confidence was essential, and is essential, to the day-to-day operation of the business. That trust and confidence has broken down and so a winding up order is appropriate.[112]
[112]See McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 at 614 (Beazley J).
I am also conscious of two further aspects. The first is that once the parties fell out each believed that their own conduct was in the interests of the business. The second is that a winding-up order is a remedy of last resort, and in Tomanovic v Global Mortgage Equity Corp Pty Ltd,[113] the NSW Court of Appeal, in acceding to the request of the parties, unanimously held that where grounds of oppression were made out, if faced with a choice between winding up on ‘just and equitable’ grounds and ordering a compulsory buy-out of shares, the latter course would be preferable, provided the parties consented, to avoid causing serious commercial detriment to the company.[114]
[113][2011] NSWCA 104.
[114]The Laws of Australia at [4.7.1380].
Here, neither party seeks a compulsory buy-out order. If the parties were to consent to such an order it would be appropriate to make such an order.
However, in the absence of consent to such an order, it is appropriate to make an order that 323 and 323 Services be wound up pursuant to section 233 of the Corporations Act 2001 (Cth) on the grounds set out in section 232(e) of that Act or alternatively pursuant to section 461(1)(e), (f) and (g).
Angus and Leah also seek an injunction restraining Aydan from seeking a transfer of the lease of the premises from X Cargo Asset Pty Ltd to 323 Assets or to any other entity. However, there is no evidence that Aydan has sought such a transfer during the course of these proceedings and there is no suggestion that he will not abide by the orders of the court. In any event, the declaration of the court will make any attempt to transfer the lease pointless.
As discussed above, it follows that the orders the court makes should include judgment in favour of Angus against 323 Services in the sum of $76,275.
I will hear the parties on the form of the orders and as to costs.
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