- Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd

Supreme Court of NSW|2020-04-30|Before: Black J, Re AJ

Solicitors: Watson Mangioni (Plaintiff/Cross-Defendant) Brown Wright Stein Lawyers (Second Defendant/Cross-Claimant) File Number(s): 2019/71348

Nature of the proceedings

By his Second Further Amended Statement of Claim filed on 23 April 2020, the Plaintiff, Mr Pellarini seeks a range of relief in respect of the affairs of the First Defendant, Bicher & Son Pty Ltd ("Company"), including relief for oppression under s 232 of the Corporations Act 2001 (Cth) or winding up orders under s 461 of the Act. The Second Defendant, Mr Bicher, is the sole director and the majority shareholder in the Company. The Company operates a well-known restaurant under the name Machiavelli Ristorante Italiano in the Sydney central business district.

Chronology

I now turn to the material facts pleaded by Mr Pellarini and the chronology of events, which I have drawn from Mr Pellarini's chronology, the affidavit and documentary evidence. At least some events are common ground, although many of the circumstances surrounding those events are disputed.
In around July 2015, Mr Bicher was introduced to Mr Pellarini at the time he was seeking to purchase a restaurant (Pellarini 5.3.19 [8]; Bicher 19.12.19 [24]) and, in July or August 2015, Mr Bicher agreed that the Company would purchase the Machiavelli restaurant for $850,000 (Pellarini 5.3.19 [12]; Bicher 19.12.19 [33]-[34]). Mr Pellarini claims that, in August 2015, he offered to lend $100,000 to Mr Bicher for part of the purchase price and that he was to receive 20% of the shares in the Company in exchange for arranging the purchase of the restaurant (including vendor finance arrangements) and paying a further $100,000 to the Company (Pellarini 5.3.19 [14]; Pellarini 13.3.20 [11)). Mr Bicher provided a deed of guarantee and indemnity in favour of PFPT Management Pty Ltd (Ex P1, 101) in relation to money lent by the Pellarini interests to purchase the restaurant. Mr Pellarini also claims that, in August or September 2015, Mr Bicher gave $100,000 cash to Mr Pellarini to hold as security for that $100,000 loan (Pellarini 13.3.20 [8], [11]). I pause to note the lack of apparent commercial logic in Mr Bicher borrowing $100,000 if he already had that amount to secure a loan of that amount, where it is not suggested that he was seeking a tax deduction for interest on the loan. Mr Bicher takes issue with the terms of that arrangement (Bicher 19.12.19 [36], but it is not necessary to resolve that dispute, nor possible to do so given the issues as to Mr Pellarini's credit, the weakness of Mr Bicher's recollection and the lack of corroborating evidence for either account.
The Company was incorporated on 1 September 2015 to be the vehicle to purchase the restaurant with Mr Bicher as its sole director and, at the time of purchase, its 80% shareholder (SFASC [2]; Pellarini 5.3.19 [4], [17]; Bicher 19.12.19 [35]). The Contract for Sale of the restaurant dated 30 October 2015, between Machiavelli Holdings Pty Ltd and the Company, provided for a completion date of 1 November 2015 at a price of $400,000, which understated the purchase price of the restaurant by $450,000 (Ex P1, 66). As I have noted above, Mr Bicher paid a person associated with the vendor of the restaurant $450,000 cash as part of the purchase price of the restaurant (Pellarini 1.8.19 [21], Jivani 12.3.20 [6]). As I also noted above, Mr Bicher claims that cash was sourced from gambling winnings and borrowings from other gamblers and it is not necessary to determine the truth of that account to determine these proceedings. The understatement of the purchase price allowed a stamp duty benefit, but that matter has since been disclosed to Revenue NSW and the amount involved has been repaid with interest (Mullins [3.4.2(d)].
Clause 31.4 of the Sale Contract provided for an adjustment on completion in respect of employee entitlements, a matter which later generated some controversy between people associated with the vendor, Mr Pellarini and Mr Bicher. Special condition 6 provided for vendor finance of $200,000 of the stated $400,000 purchase price to be paid in instalments of $50,000 per month starting on 1 February 2016. Special condition 7 provided that the sale price did not include stock which was to be counted on 1 November 2015 and paid at cost value on that date. There is a dispute, which it is not necessary to resolve, as to how that stock was paid for. Mr Pellarini's evidence is that, in September or October 2015, Mr Bicher contributed $90,000 and Mr Pellarini contributed $22,500 to working capital for the Company in proportion to their 80/20 shareholdings (Pellarini 13.3.20 [16]-[17]).
On 1 November 2015, the Company completed the purchase of the restaurant and Mr Pellarini's evidence is that his company then paid $200,000 toward the purchase price of the restaurant (SFASC [3]); Pellarini 5.3.19 [20]-[21]). Mr Bicher takes issue with the nature of that payment (Bicher 19.12.19 [44]) but it is again not necessary to resolve that dispute, nor possible to do so given the issues as to Mr Pellarini's credit and the weakness of Mr Bicher's recollection. Mr Pellarini and Mr Bicher, through their companies, then had a 20% and 80% interest respectively in the Company. Mr Pellarini pleads that he was then given access to the Company's financial and banking records, the necessary passwords and authorities from the Company to monitor various matters and prepared or instructed CAAA in preparation of financial accounts and other documents (SFASC [6]-[7]). That is a matter of some significance, given the substantial deficiencies in those accounts.
Mr Pellarini's evidence is that, from November 2015, Mr Bicher contributed cash each week for the payment of staff wages (Pellarini 13.3.20 [29]; to similar effect Tindal 12.3.20 [10]). Mr Bicher's evidence was initially that Mr Pellarini handled those matters (Bicher 19.12.19 [138G]) although he later qualified that evidence to accept that he had a greater role in the payment of these wages (Ex D5). On balance, I think it likely that Mr Bicher did make cash contributions to wages and possibly other costs of the restaurant on a regular basis, at least in the earlier period. As noted above, Mr Pellarini's evidence is that he then suggested that a new company, Machiavelli TM, be formed to own the Machiavelli trade mark with shares to be held by Mr Bicher (Pellarini 5.3.19 [22]) and he then commenced recording financial transactions concerning the Company in a spreadsheet (Pellarini 13.3.20 [19]).
Mr Pellarini pleads (SFASC [13]) that, also in November 2015 and in connection with an investment in Bar Machiavelli, he and Mr Bicher agreed that Mr Pellarini would pay $300,000 to Mr Bicher to purchase another 30% of shares in the Company so that he and Mr Bicher would become equal partners and each own 50% of the Company. Mr Bicher pleads that, and his evidence is that, the agreement then reached was that the shares in the Company would be held 51% by him and 49% by Mr Pellarini (Defence [13]; Bicher 19.12.19 [62]-[63]). Mr Pellarini also pleads an arrangement that companies associated with him and Mr Bicher would together acquire a 50% interest in the Bar Machiavelli business between them, although that venture ultimately resulted in litigation with the other participants. Mr Pellarini's evidence is that Mr Bicher had then suggested they become involved in the new Bar Machiavelli restaurant which was to be established by the former owners of the Machiavelli restaurant; that he and Mr Bicher agreed to take up equal interests in Bar Machiavelli; that Mr Bicher agreed that Mr Pellarini would hold an equal shareholding in the Company and in Machiavelli TM for a payment of $300,000; and their respective companies, Pelltruco and Bicher Truco each took up a 25% interest in BMPL, the company operating the Bar Machiavelli business (Pellarini 5.3.19 [23], [26], [28]).
Mr Pellarini refers to several cash payments that Mr Bicher made, or claimed to have made, in relation to the Machiavelli restaurant, including paying the seller of the restaurant cash for stock, paying cash to employees and paying a builder $13,400 in cash for building work at the restaurant (Pellarini 13.3.20 [30]). Mr Bicher generally denies making those payments (Bicher 19.12.19 [138G], [187], [206]).
In May 2016, Machiavelli TM was incorporated, with Mr Bicher as its sole shareholder and sole director and, on 21 June 2016, Machiavelli TM applied for registration of several trade marks linked with the restaurant. I will refer to aspects of that transaction in dealing with Mr Pellarini's claim in that respect below.
Mr Pellarini also pleads (SFASC [8]-[12B]) dealings between him and Mr Bicher in respect of personal loans. His evidence is that, in June 2016, Mr Bicher exhausted the cash resources on which he had previously drawn to pay part of the restaurant's wages and Mr Pellarini began lending him cash to pay those wages, and those loans were recorded in records maintained by Mr Pellarini (Pellarini 13.3.20 [37]). The fact of loans made by Mr Pellarini to Mr Bicher is common ground (Bicher 19.12.19 [36], [44], [140], [143]-[145]) although their quantum is not. I will address those matters in dealing with Mr Pellarini's claim in that respect below.
Mr Pellarini's evidence is that, in July 2016, the Company began to pay $1,000 per week to each of the Messrs Pellarini and Bicher (Pellarini 1.8.19 [15]). In August 2016, Mr Pellarini paid $300,000 to increase his shareholding in the Company to just under a 50% interest, although there is a dispute as to the particular percentage that was agreed (Pellarini 5.3.19 [33], 13.3.20 [44]). Mr Bicher takes issue with the nature of that payment (Bicher 19.12.19 [140]). It is again not necessary to resolve that dispute, nor possible to do so given the issues as to Mr Pellarini's credit and the weakness of Mr Bicher's recollections. Mr Pellarini's evidence is that, in August 2016, he and Mr Bicher also agreed that they would each receive half of the Company's profit and no wages (Pellarini 5.3.19 [34]) and they also agreed that Mr Bicher's son and Mr Pellarini's wife would each be paid $1,000 per week (Pellarini 13.3.20 [46]).
It appears the payments made to Mr Bicher's son and Mr Pellarini's wife later ceased around July 2018. I bear in mind that, although the payments to Mr Bicher's son and Mr Pellarini's wife were later disclosed to Mr Ross, the Company's new accountant, he was not advised they had not worked in the business (T356). That omission is plainly regrettable. I do not understand Mr Pellarini to contend that it supports the relief he claims, where he was as culpable as Mr Bicher in respect of the underlying conduct, and I do not consider that it would do so.
A dispute subsequently arose between Mr Pellarini and a person who was associated with the vendor of the restaurant business (Ex P10, 65). By an email dated 11 November 2016 (Ex P10, 63), Mr Pellarini responded to allegations made by that person, including of conflict of interest on his part, claiming that: "I got her much more than [the restaurant] was worth and, what's more [Mr Bicher] made it clear to me that he was paying at least $200,000 more than he should have. It is for that reason that after the deal was struck I felt morally bound to help him as much as I could. When he then asked me to be his accountant I then had a professional duty as well as a moral obligation to help him … Yes he has passed over some of his holding in [BMPL] to me but I think it's a stretch for [Ms Tarchi] to snidely refer to him as 'my partner'. The reason he made me a very good offer for me to get involved is that he realises he needs me to help him make that business work. And the reason I accepted getting involved in something that my better judgment told me to keep away from, was, again, because I feel responsible for the mess he's in with what he basically regards as a big fiasco." Mr Pellarini also there commented on the reasons in which Mr Bicher had become involved in BMPL.
Mr Pellarini accepted in cross-examination that this email was self-serving and untruthful and that Mr Bicher had never said that he paid $200,000 too much for the restaurant; that this involved his lying to a longstanding friend and client in the email; and that he was prepared to tell lies if the circumstances were such that it suited him to do so (T155). This concession seemed to me to reflect his recognition of the inevitability that such findings would be made, rather than frankness for its own sake. Plainly, that admission has significant implications for Mr Pellarini's credit, although he then asserted that he was not telling lies in this case (T155-156).
Mr Pellarini claims that, in December 2016, Mr Bicher agreed to make no further cash contributions to the business and to bank all cash received by the business other than the $1,000 per week that was then still being paid to Mr Bicher's son and Mr Pellarini's wife (Pellarini 13.3.20 [50]).
In March 2017, additional shares in the Company were issued so that Mr Pellarini had 9999 and Mr Bicher had 10,001 shares (Pellarini 5.3.19 [27], 3.6.19 [8]. On 11 May 2017, Mr Bicher repaid $320,000 to Mr Pellarini in respect of personal loans (Pellarini 5.3.19 [39]; Bicher 19.12.19 [143]). Mr Pellarini claims that, from 24 July 2017, he made further loans eventually totalling $130,000 to Mr Bicher (Pellarini 5.3.19 [40]).
Mr Bicher's evidence is that, in late 2017, he began to have doubts about the accounting records that Mr Pellarini was maintaining for the Company (Bicher 19.12.19 [87]-[90]). By email dated 26 December 2017 (Ex D2, 2048; Bicher 19.12.19 [138M]), Mr Pellarini set out a suggested process for treatment of cash payments, which contemplated that all cash would be banked except for $2,000 each week, and that a cash cheque be drawn every week for the full amount of tips and a cash cheque also drawn every week for cash wages, and suggested that "next week we might work out a better system for the wages including paying everybody their official wages and only the extra shifts paid in cash".
Mr Pellarini's evidence is that, on 26 March 2018, he lent a further $35,000 to Mr Bicher, bringing the net amount owed by Mr Bicher as at March 2019 to $203,200 (Pellarini 5.3.19 [46], 3.6.19 [22]) and that, since May 2019, Mr Bicher repaid $150,000 to Mr Pellarini (Pellarini 3.6.19 [27]).
In August 2018 an unidentified person corresponded with a solicitor who offered legal advice by an internet site (Ex P10, 66) and stated, inter alia: "We have just sent a file with the new share distribution which was manipulated by [Mr Pellarini] (the second beneficiary added himself on the company after issuing new shares and allocating them without respecting the agreement with [Mr Bicher] to allocate 51% to [Mr Bicher] which meant 10,200 and not 10,001 as currently was manipulated by [Mr Pellarini] who is the current accountant and NOT an at arm's length considering he is a beneficiary). [Mr Bicher] wants to buy him out, to give him his money back plus half of the profit, since last year when he joined. Anyway to force him out considering he is only a beneficiary and the director & beneficiary is [Mr Bicher]?"
By a further email, after the solicitor had misunderstood the nature of the dispute, that person advised that solicitor that: "I appreciate very much your support … it's a 5 star Italian restaurant business, not a construction business though. The problem is the Director/Shareholder does not have in writing any agreement, he is old fashioned and not having a good English, so the reason [Mr Pellarini] the other shareholder and accountant has enforced his ways in and gets away with murder taking advantage on [Mr Bicher's] poor English understanding. Would it be any way for us to mention in Court that [Mr Bicher] was mislead due to language barriers and [Mr Pellarini] has taken all the advantages?"
The solicitor then noted that the matter may raise questions of oppression, on the part of Mr Pellarini as distinct from Mr Bicher (Ex P10, 66-67) and the correspondence seems to have gone no further. Mr Bicher denied that he had written these communications, and it seems to me more likely that they were written by someone close to him than by him. They suggest that Mr Bicher, by that time, was at least considering either buying out Mr Pellarini or excluding him from a management role in the Company or from the Company itself. I address the question of justification for that course below.
Mr Pellarini pleads (SFASC [27]-[30]) that, on about 3 September 2018, he told Mr Bicher that he wished to terminate their joint ownership of the Company and that Mr Bicher would purchase his shares or he would purchase Mr Bicher's shares in the Company. It appears to be common ground in the evidence that Mr Pellarini then suggested that he or Mr Bicher should buy out the shares of the other (Pellarini 5.3.19 [48], Bicher 19.12.19 [154]). By email dated 8 September 2018 (Ex D7, 1; Pellarini 5.3.19 [50]) Mr Pellarini forwarded Mr Bicher a draft heads of agreement which provided for Mr Bicher to buy out Mr Pellarini for an amount of $600,000 and that, after the business had been sold to a new entity, the Company would be liquidated by a voluntary liquidation. Mr Pellarini's evidence is that, on 13 September 2018, Mr Bicher said that he may be happy to sell his shares to Mr Pellarini instead, who prepared a second heads of agreement for that transaction (Pellarini 5.3.19 [51]) and, on 15 September 2018, the Messrs Pellarini and Bicher meet to discuss one purchasing the shares of the other (Pellarini 5.3.19 [52]). Mr Bicher's evidence is that, at this time, he had serious concerns about the Company's tax compliance (Bicher 19.12.19 [102A]) and he then sought legal advice and engaged a new accounting firm, Walker Wayland, to prepare the Company's accounts (Bicher 19.12.19 [105]).
After Mr Pellarini left for an overseas holiday on 16 September 2018, Mr Bicher instructed restaurant staff not to take instructions from him and instructed CAAA to cease acting for the Company, and removed his access to the Company's documents (Bicher 19.12.19 [103], [138U]). By an email dated 17 September 2018 to CAAA (Ex D7, 3), Mr Bicher raised a concern that Mr Pellarini had a conflict of interest arising from his position as one of the Company's main shareholders and as CAAA's allocated accountant for the business and the Company, who "handl[ed] all our books/accounting at all times with his personal bookkeeper's help … performing the full financial work for the Machiavelli business". He also observed, likely referring to the proceedings concerning Bar Machiavelli, that: "Since realising the matters, after discovering various concerning situations along the way, also very recently during our legal procedures it's been highlighted other legal claims from other parties legally stating facts and raising deep complaints concerning [Mr Pellarini's] accounting activity and behaviour under signed affidavits, I've got to the stage of being highly concerned of [Mr Pellarini's] accuracy and fairness as the accountant for a business where he is one of the main shareholders".
By letter dated 26 September 2018, the solicitors for Mr Pellarini (Ex P1, 113) recorded the position for which he contended as follows: "It was agreed by the shareholders that Mr Pellarini would have primary carriage of the Company's financial affairs, and as such Mr Pellarini would always have equal operational authority as well as unfettered access to the Company's books and records." That letter asserted a breach of that agreement by Mr Bicher's instruction to the Company's bookkeeper to cease taking instruction or direction from Mr Pellarini without Mr Bicher's prior approval and the removal of Mr Pellarini's access to the Company's bank accounts and accounting system. That letter demanded that Mr Bicher withdraw that direction, confirm that the bookkeeper may continue to deal with Mr Pellarini "in the ordinary course of his ongoing role as the financial controller of the Company" and restore his access to the Company's bank accounts and accounting system.
An exchange of emails on 27 September 2018 provides contemporaneous support for Mr Bicher's claim that he was concerned by Mr Pellarini's proposal that the Company be wound up. By email dated 27 September 2018 (Ex P1, 115), Mr Bicher wrote: "Based on our conversation before you left regarding the heads of agreement that you had prepared for me to sign, it raised issues which caused me to worry on your recommendation that I should liquidate [the Company] … Since you have had control of all financial matters both in XERO and bank accounts I took the decision to investigate the state of the Company and I notified you of my intention and you confirmed in an email, and this was one of the actions I took. I received a threatening letter from your lawyer, however at this stage I think it's wise to wait until we have finished with the [Bar Machiavelli] matter. In order to re-instate to view only for both bank and XERO I will need a confirmation from your lawyer to withdraw the letter."
Mr Pellarini responded in strong terms on the same date (Ex P1, 115), accusing Mr Bicher of "an act of treachery" and contending that: "Re liquidating the Company and your contention that 'I had control of all financial matters …'. It was not me that was paying cash wages. I don't have access to XERO to know for sure, but I'd say that you paid may be as much as $1m that way. If I'd been guilty of doing that I'd regard getting rid of that problem [as] a good idea but maybe you can blame [Ms Riccio] for paying the cash wages and let her do the jail time for you because if that isn't your plan then only a fool would pass up the opportunity of getting rid of the problem once a ready-made solution presented itself." It is apparent from that email, first, that Mr Pellarini then knew that liquidation could potentially avoid an unpaid tax liability and considered it foolish not to take that approach, notwithstanding its obvious impropriety. I note, for completeness, that the allegation in that email that Mr Bicher had paid out amounts of that size in cash wages was not established in these proceedings.
By letter dated 5 October 2018 (Ex D7, 36), the solicitors acting for Mr Bicher advised the solicitors acting for Mr Pellarini that: "[Mr Bicher] has a number of concerns about the contents of the Heads of Agreement, including the proposal that [the Company] be liquidated. Whilst [Mr Bicher] is open to acquiring Mr Pellarini's shares in [the Company] and accepts that it is the only way forward in light of the breakdown in their relationship, he does not accept the terms proposed in the Head[s] of Agreement."
The Company ultimately made disclosures to revenue authorities of the deficiencies in its financial records and tax returns, although it did so only after a significant delay. Walker Wayland commenced work on restating earlier financial accounts in August 2019. By letter dated 2 August 2019 (Ex D6, 1) the Company's solicitors advised the Commissioner of Taxation that: "The Company has recently engaged Walker Wayland Services Pty Ltd to conduct a review of its taxation affairs following a change of accountants. The Company is concerned that it may not have fully complied with its taxation obligations. Following the completion of the review, if non-compliance is identified the Company will make a full and frank voluntary disclosure. The Company confirms that it is committed to complying with its taxation obligations." That letter fell short of communicating the then certainty of substantial non-compliance with the Company's taxation obligations, but went some way to putting the Commission of Taxation on notice of the relevant issues, and more substantive disclosure was later made.
By a further letter dated 3 October 2019 (Ex D6, 79) the Company's solicitors advised the Commissioner of Taxation that, between 1 November 2015 and 30 June 2019, the Company made payments of wages in cash to employees which it did not fully report in its activity statements to the Commissioner. It accepted that it had not complied with a range of statutory obligations, including in respect of withholding tax from salary and wages and superannuation guarantee shortfall requirements, had likely not reported all supplies for goods and services tax in its activity statements and had likely not reported all sales in its taxable income in at least parts of those periods. By a letter dated 23 October 2019 (Ex D6, 82) the Company made further disclosure and confirmed shortfalls for the year ended 30 June 2016. By letter dated 13 November 2019 (Ex D6, 199), Walker Wayland Services advised Revenue NSW of under reporting of taxable wages for payroll tax purposes, from 1 November 2015 to 30 June 2019, again by reason of cash payments to employees. Mr Pellarini criticises the delays in making these disclosures. I give limited weight to that criticism, where the Company and Mr Bicher and their advisers have not placed the Company in liquidation, so potentially to defeat the claim to unpaid tax, but have instead assumed a significant level of debt in the Company referable to that unpaid tax.

Mr Pellarini's claim for oppression

Mr Pellarini pleads that several matters, which I address below, were oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Pellarini or contrary to the interests of the members of the Company as a whole within the meaning of s 232(d) and (e) and s 461(1)(f)-(g) of the Corporations Act (SFASC [44]). Alternatively, Mr Pellarini pleads that he has lost trust and confidence in Mr Bicher (SFASC [45]). He also seeks a declaration that the Company's affairs have been conducted in a manner that is oppressive to the interests of its members as a whole and/or oppressive to or unfairly prejudicial to, or unfairly discriminatory against him within the meaning of s 232 of the Corporations Act.
I should first refer to the applicable legal principles, as to which I have drawn upon Counsels' submissions and my summary of the relevant principles in Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914 and Re ICB Medical Distributors Pty Ltd [2018] NSWSC 1315 at [65]ff. Section 233(1)(d) of the Corporations Act relevantly provides that the Court may make an order for the purchase of shares by a member of a company and s 233(1)(j) allows the Court to make an order requiring a person to do a specified act. Such an order may be made where the matters specified in s 232 of the Corporations Act are established.
Section 232 of the Corporations Act in turn provides that the Court may make an order under s 233 if: "(a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity."
Section 232 of the Corporations Act and its predecessors extend to conduct involving "commercial unfairness" or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459. In Morgan v 45 Flers Avenue Pty Ltd above at 704, Young J observed that the phrases "oppressive, unfairly prejudicial or unfairly discriminatory" in a predecessor to s 232 of the Corporations Act should be construed as "a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness". His Honour also there noted that whether oppression was established was to be determined by reference to the nature of the business carried on by the company and the nature of the relations between its participants and: "whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair."
The principles applicable to a claim for oppression were also summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [39], and the Court of Appeal noted the parties did not challenge that summary of the applicable principles in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121 at [140]. His Honour observed that: "(a) consistent with the principle that the purpose of relief is to terminate the effects of oppression, relief will generally be inappropriate as a matter of discretion if there is no continuing oppression: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, at [182]; [2009] HCA 25; (b) unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair": eg, Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, per Basten JA at [181]; [2008] NSWCA 95; (c) while it is recognised that conduct may be oppressive if inconsistent with the "legitimate expectations" of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, at [85], [86], [175]; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, at [96]; [2009] NSWSC 342 per Barrett J; (d) "it is important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower": Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, Young J at 739; [1998] NSWSC 413; (e) a particular matter which will be taken in account in assessing the gravity of any allegation of oppression, is the extent to which the minority shareholder has "baited" the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, at 741; [1998] NSWSC 413 …"
In Munstermann v Rayward [2017] NSWSC 133 at [22], Stevenson J summarised the applicable principles as follows (omitting citations): "(1) The test of oppression is an objective one of unfairness ... (2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly … (3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director ... (4) Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful ... (5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole … (6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used … (7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing … (8) The discretion under s 233 is wide as to the appropriate remedy … (9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive …. (10) The aim of any order under s 233 must be to put an end to the oppression … (11) The court should only look to wind up an otherwise solvent company as a "last resort" … (12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party …. (13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances." [citations omitted]
I have also borne in mind the observation in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above that each case has to be considered on its own facts and circumstances, and by reference to the conduct as a whole.

Personal loans

The first head of oppression on which Mr Pellarini relies relates to personal loans that Mr Pellarini made to Mr Bicher. Mr Pellarini pleads (SFASC [8]-[12B]) that, between November 2015 and March 2017, he lent Mr Bicher the sum of $317,201 and that loan was interest free and repayable on demand; that Mr Bicher repaid him $320,000 on 11 May 2017, including an overpayment of $2,799; that Mr Pellarini made further loans after 11 May 2017, so that Mr Bicher owed him $203,200 as at 1 April 2018; and, about 20 May 2019, Mr Bicher repaid $150,000 to Mr Pellarini. Mr Pellarini pleads that, despite a demand being made, the amount of $53,200 is still owing to him by Mr Bicher. Mr Pellarini (SFASC [31]-[32]) seeks to establish oppression by reference to these matters and also seeks an order that Mr Bicher repay him the amount of $53,200 plus interest and costs and pay him interest and costs on the sum of $150,000. Mr Bicher responds that Mr Pellarini made further loans to him in the amount of $150,000 on an interest free basis and that he repaid that amount on 20 May 2019 (Defence [11]-[12A]).
I first deal with Mr Pellarini's claim in respect of several amounts that he claims to have lent directly to Mr Bicher. Mr Harris submits that, although Mr Bicher repaid that part of the alleged loan of $203,200 that had been advanced by cheque, he did not pay the amount of $53,200 that Mr Pellarini contends had been advanced in cash. Mr Harris points to the fact that Mr Pellarini recorded those loans in his spreadsheet of the financial dealings between Mr Pellarini and Mr Bicher. Mr Harris also refers to evidence of withdrawals of cash amounts on the same day of three of the alleged cash loans to Mr Bicher, but that does not establish how the cash amounts withdrawn were applied by Mr Pellarini. Mr Newlinds responds that there is no objective evidence of these amounts being paid to Mr Bicher other than Mr Pellarini's spreadsheet, and that this claim depends on acceptance of Mr Pellarini's evidence. It seems to me that Mr Pellarini's evidence of these cash loans, and the spreadsheet on which he relies, both ultimately depend upon his credit, where the loans are denied by Mr Bicher. The findings that I have reached above as to his credit are such that these loans are not established, since Mr Pellarini as the plaintiff failed to discharge his burden of proof, although I have also recognised the limits of Mr Bicher's recollection and deficiencies in his evidence.
One of the items claimed by Mr Pellarini, an amount of $50,000, has a different character since it was an amount paid by the Company not Mr Pellarini to Mr Bicher. Mr Pellarini claims that he did not take an equivalent amount because it would deplete the Company's bank account and that he and Mr Bicher agreed they would treat that withdrawal as creating a debt owed by Mr Bicher to Mr Pellarini. The description of this item in Mr Pellarini's speadsheet leaves its character open in a way that is inconsistent with the existence of a debt presently due by Mr Bicher to Mr Pellarini, describing it as: "Being half of the $50K paid to [Mr Bicher] from the Machiavelli Bank account on 15/12/17. Either [Mr Bicher] pays [Mr Pellarini] $25K or Machiavelli gives [Mr Pellarini] $50K." (Ex D7, 258) This claim is also inconsistent with the treatment of this amount in the Company's accounts, which recorded it as a loan owing by Mr Bicher to the Company (Ex P7, 253).
Mr Newlinds submits that this item treats money paid by the Company to Mr Bicher as giving rise to a personal debt owed by Mr Bicher to Mr Pellarini. This item may or may not give rise to a claim by Mr Pellarini against the Company, which he has not brought, but I do not accept Mr Pellarini's evidence of an oral agreement giving rise to a claim against Mr Bicher. I recognise, in that respect, that Mr Bicher's evidence was that he could not recall the agreement, rather than that he denied it (T309-310) but the lack of a firm denial does not substitute for acceptable affirmative evidence to establish the suggested oral agreement.
The claims in respect of these loans are not established and no question of oppression arises in this respect.

Removal of Mr Pellarini's access to information on 17 or 18 December 2018

The second head of oppression on which Mr Pellarini relies relates to Mr Bicher's initial removal and subsequent restriction of Mr Pellarini's access to the Company's information on 17 or 18 September 2018 (SFASC [33]-[36]). Mr Bicher admits (Defence [33]-[34]) that he directed the Company's employees and bookkeeper to take no further instructions or directions from Mr Pellarini, terminated his day-to-day access to the Company's bank accounts and its accounting software, but pleads that Mr Pellarini now has read-only access to those accounts and software and is able to monitor the Company's day-to-day financial affairs.
In opening submissions, Mr Harris submitted that Mr Bicher, without notice or warning to Mr Pellarini, excluded him from involvement in the Company's management and that breached the parties' agreement that Mr Pellarini would have financial oversight and supervision of the restaurant. It is plain enough that Mr Bicher excluded Mr Pellarini from management at that time and gave instructions to the Company's bookkeeper and accountant not to take further direction from him, although limited access to financial information relating to the restaurant was subsequently provided to Mr Pellarini.
There is a contest as to Mr Bicher's reasons for taking these steps, which Mr Bicher attributes to his concerns about the Company's tax compliance problems, and which Mr Pellarini attributes to his having raised concerns regarding the Company's tax compliance, or more precisely the non-compliance in which Mr Pellarini had previously been closely involved. I accept that Mr Pellarini belatedly urged some steps to limit cash payments to employees which would likely have reduced the extent of the Company's non-compliance with its financial reporting and tax obligations. There is a contest whether Mr Pellarini also gave instructions in December 2016 that there were to be no more cash injections by Mr Bicher into the business (Pellarini 13.3.20 [50]). It seems to me likely that Mr Pellarini did give that instruction, although I recognise the possibility that it was directed to preserving Mr Pellarini's claim to a near half interest in the business, which could be weakened by Mr Bicher's further investment in the business, rather than any real concern as to tax compliance. Mr Pellarini gave a written instruction in December 2017 that all cash should be banked, other than $2,000 per week to be divided between him and Mr Bicher, and that wages and tips were to be paid by cheques drawn to cash. That instruction would have brought about some improvement in the Company's compliance, but left the process of cash payments to Mr Pellarini and Mr Bicher in place. It is common ground that Mr Pellarini also expressed a view that the payments to Mr Bicher's son and Mr Pellarini's wife should stop, although there is a dispute as to when that occurred.
Each version of the heads of agreement prepared by Mr Pellarini provided not only for Mr Bicher or Mr Pellarini to purchase the other's shares, but also for the Company to be wound up and a new company to be incorporated to operate the restaurant. Mr Bicher identified the advice to liquidate the Company as the reason for the steps he took to limit Mr Pellarini's involvement in mid-September 2018 (T317). I recognise that Mr Bicher's evidence in cross-examination makes clear that he knew of "cheating" and non-payment of tax prior to mid-September 2018 (T323) and I doubt that he has been forthcoming as to the extent of his knowledge of those matters. However, it seems to me likely that Mr Bicher's dealing with legal advisers, and then with Walker Wayland, in mid-September 2018 in respect of the proposed separation of his and Mr Pellarini's interests would inevitably have highlighted the significance of these matters. It would not have been surprising if Mr Bicher, or at least his advisers, had then perceived the liquidation of the Company as having the possible intent or effect of leaving the Company's tax liabilities behind in the Company while transferring its business to a new entity, in a manner that is sometimes described as a "phoenix" transaction, and leaving Mr Bicher as the Company's sole director exposed to potential claims by a liquidator. It is ultimately not necessary to determine Mr Bicher's subjective motivation for initially excluding Mr Pellarini from access to information and from management in September 2018, and later limiting his access to read only access to financial information, where I will find below that those steps do not rise to the level of oppression.
I recognise that Mr Harris draws attention to the absence of reference to "tax cheating" in earlier correspondence between the parties' legal representatives in respect of Mr Pellarini's "exclusion" from the business, and to the fact that concerns as to tax compliance were only mentioned in general terms in Mr Bicher's affidavit of 19 December 2019 (Bicher 19.12.19 [102A]). I give little weight to that matter, which is readily explicable by the fact that each of Mr Pellarini, Mr Bicher and their advisers were plainly cautious in exposing these issues, which were only fully exposed by Mr Pellarini's later affidavits filed shortly before the commencement of this hearing. There can be no suggestion that the issues did not exist.
Mr Harris submits, in closing submissions, that Mr Pellarini should not be "blamed or criticised" for his "exclusion" from the business. It seems to me that, where Mr Pellarini was a professional accountant, bound by professional standards, who was duty bound to assist the Company in its compliance with its financial obligations, then his previous conduct is relevant to that exclusion. Irrespective of the extent to which Mr Bicher was aware of that previous conduct, it is common ground that Mr Pellarini was primarily responsible for the management of the Company's financial affairs, and he and not Mr Bicher had the professional qualifications and experience which should have emphasised the need for proper financial reporting and tax compliance.
It seems to me that the restriction on Mr Pellarini's access to information and of his involvement in management in this period do not rise to the level of oppression, alone or together with other matters, given Mr Pellarini's previous conduct and the fact that read-only access to the Company's financial information was subsequently restored, although he was not given any further role in its management. If Mr Bicher were to deny Mr Pellarini read-only access to financial information in the future, a further question of winding up on the basis of oppression or on the just and equitable ground might then arise, but that possibility would not justify now granting the relief sought by Mr Pellarini.

Complaint that Mr Pellarini was not appointed a director

The third head of oppression on which Mr Pellarini relies relates to Mr Bicher voting against a resolution for the appointment of Mr Pellarini as a director at a shareholders meeting on 7 January 2019 (SFASC [37]-[39]). Mr Newlinds, perhaps unkindly, characterises Mr Pellarini's allegation of oppression based on the failure to appoint him as a director in January 2019 as "ridiculous". He points out that any trust and confidence between the parties had clearly ceased to exist by that time and submits that it would have been entirely inappropriate for Mr Pellarini and Mr Bicher to become co-directors of the Company, where that would have produced a deadlock between directors and a further basis on which Mr Pellarini could pursue a liquidation of the Company.
It seems to me that, having regard to Mr Pellarini's conduct in respect of the Company's accounts, involving plainly false entries and the deception of taxation authorities, and irrespective of whether Mr Bicher had tolerated or permitted that conduct, Mr Bicher could rationally form the view that it was not in the Company's best interests to appoint Mr Pellarini as a director of the Company in January 2019. This matter does not rise to the level of oppression, alone or taken together with other matters.

Loans to BMPL

The fourth head of oppression on which Mr Pellarini relies relates to loans to BMPL in respect of the Bar Machiavelli business. Mr Pellarini pleads (SFASC [15]) that Pelltruco lent $510,188.70 to assist BMPL to establish the Bar Machiavelli restaurant business, and that Mr Bicher claims that he or companies associated with him lent $318,421.80 to BMPL. Mr Pellarini also pleads the circumstances in which a dispute arose in respect of the Bar Machiavelli business, resulting in subsequent proceedings, and refers to a settlement deed which stated that the amounts owed by BMPL to Pelltruco were $417,804 and to Bicher Truco, a company associated with Mr Bicher, $417,461 (SFASC [24]). Mr Pellarini pleads that each of he and Mr Bicher knew those amounts were incorrect (SFASC [25]). Mr Pellarini pleads (SFASC [43A]) that, on 28 June 2019, to resolve the proceedings in respect of BMPL, he provided an authority to solicitors that allowed Bicher Truco to receive $417,461 from funds held on trust by the solicitors, notwithstanding that it had outlaid no more than the amount of $318,421.80.
There is no reference to a material inequality of contributions in contemporaneous correspondence concerning the settlement of the Bar Machiavelli proceedings which recorded contributions in precise terms. By a without prejudice letter dated 24 September 2018, the solicitors acting for the other interests in BMPL made an offer of settlement, including that they would purchase the loan accounts of Pelltruco and Bicher Truco for $1 million (Ex D7, 9A). The solicitors acting for Mr Bicher and Mr Pellarini and their associated interests responded that they agreed, in principle, to that aspect of the offer, but advised the relevant loan account balances were $417,461 for Bicher Truco and $417,804 for Pelltruco (Ex D8, 9D), inconsistent with the position now put by Mr Pellarini. A settlement deed in respect of the Bar Machiavelli proceedings dated 28 September 2018, to which Bicher Truco and Pelltruco were party, also recited that Bicher Truco and Pelltruco made loans to BMPL as working capital for the Bar Machiavelli business; the term "Loans" was defined by reference to the "Bicher Truco Loan" and the "Pelltruco Loan", and the Bicher Truco Loan was stated to have a balance owning of $417,461 and the Pelltruco Loan to have a balance owing of $417,804 as at the settlement date (Ex P1, 181; Ex D8, 10). Clause 3.2 in turn provided that the other parties would pay Bicher Truco $417,461 for the purchase of the Bicher Truco Loan and $417,804 for the purchase of the Pelltruco Loan. As Mr Newlinds points out, this claim is also inconsistent with Mr Pellarini's signature on a further settlement deed dated 28 June 2019, in resolution of proceedings in the Commercial List of this Court, which again confirms the amounts of the loans that he now disputes (Ex D1, 1864).
Mr Harris contended, in opening (T8) that the correct amounts of the loans by Bicher Truco and Pelltruco were not recorded in the deed of settlement to suit the other party to the settlement, Ms Toppi. It was not apparent why Ms Toppi would have any interest in the question of the amount attributed to Bicher Truco or Pelltruco in the components of the loans that she was to purchase, and it was in any event apparent that those figures were determined by the solicitors acting for Mr Pellarini and Mr Bicher, not by Ms Toppi. Mr Harris also contended in opening (T8) that this matter was one of the matters that caused Mr Pellarini to start to lose trust and confidence in Mr Bicher. That proposition is undermined by the evidence as to how those figures came about. In cross-examination, Mr Pellarini did not accept that he had instructed Mr Harris or his solicitors to open the proceedings on the basis that Ms Toppi had wanted the loan accounts to be set at those figures (T130-131). I do not accept that experienced solicitors and counsel would have opened on that basis without instructions from Mr Pellarini that supported that course. Mr Pellarini ultimately accepted that, if he had given such instructions, they would have been false (T131). He also accepted that the proposition put by Mr Harris in opening, that the apportioning of the loan accounts in those amounts had caused him to lose trust and confidence in Mr Bicher was nonsense (T131) and developed an alternative explanation, apparently for the first time, that the solicitors acting for his and Mr Bicher's interests in the Bar Machiavelli dispute had disregarded his instructions in respect of the split of the loan accounts (T131-132).
This claim rests on Mr Pellarini's evidence and on his spreadsheet recording the relevant transactions, which I do not accept given my findings as to his credit; is inconsistent with the contemporaneous documents; and is undermined by Mr Pellarini's cross-examination to which I referred above. It has not been established that Mr Pellarini or Pelltruco paid $90,000 more than Mr Bicher or Bicher Truco, quite apart from any estoppel that would arise from the recitals to the contrary in the settlement deeds in respect of the Bar Machiavelli proceedings. This claim is not established.

Dealings with cash receipts in the restaurant

Fifth, Mr Pellarini pleads (SFASC [43C]-[43D]) that, between 2 November 2015 and 23 December 2016, Mr Bicher did not record the Company's receipt of approximately $24,000 in cash, but retained that money for his own purposes without Mr Pellarini's knowledge or consent and, since 23 December 2016, has failed to record the receipt by the Company of other cash received during that period.
In closing submissions, Mr Harris submits that Mr Bicher took significant amounts of cash from the Company's income, which was not disclosed to Mr Pellarini or in the Company's accounts or tax returns. Mr Harris refers to Mr Pellarini's affidavit evidence contending that approximately $24,000 in cash was unaccounted for in the period to December 2016 (Pellarini 1.8.19 [17]-[18]). Mr Bicher denied taking that cash in cross-examination (T331). It is apparent from the Company's bank statements that cash deposits were also not made between mid-July 2017 and late September 2017, or between late October and mid-December 2017, or in November and December 2018 or between March and June 2019. As I have noted above, $54,709 was banked in August 2019, after Mr Pellarini had obtained access to information about cash takings recorded by Mr Mano. These matters are largely unexplained, beyond Mr Bicher's claim that these amounts were used to pay suppliers, cash wages and tips and his denial that he had taken the cash. Mr Bicher's evidence in cross-examination was that Ms Riccio could explain them (T332-333) but she, as I noted above, was not called.
I recognise that Mr Pellarini's allegation that Mr Bicher had diverted cash takings of the restaurant to himself (as distinct from not banking them) is weakened by his concession in cross-examination (T171-172) that Annexure "C" to his affidavit dated 8 November 2019, which identified the amount of cash that had not been accounted for, had not taken account of cash wages and that could explain, or partly explain, the suggested discrepancy. Mr Newlinds also attacks the reliability of records retained by Mr Mano on which Mr Pellarini relied to prepare that schedule, given a subsequent issue in respect of Mr Mano. I do not accept that there is any reason to think that those documents would have overstated, as distinct from understating, the amount of cash receipts of the restaurant given that issue.
It is plain that cash was not deposited to the Company's bank account for significant periods, although I recognise that a portion of that cash likely related to tips which could potentially be treated as the employees' rather than the Company's property. The difficulties with Mr Bicher's recollection and the fact that Ms Riccio was not called mean that I cannot find that the amounts not deposited were wholly made up of tips, or accept Mr Bicher's bare assertion that it was otherwise applied to cash payments of suppliers and other business expenses. However, I am not persuaded that these matters warrant the relief sought by Mr Pellarini, alone or together with other matters, where a practice of depositing cash receipts to the Company's bank account has now been in place for some time, pursuant to undertakings given to the Court, and that relief would have the adverse consequences that I address in paragraphs 116ff below. Mr Bicher would also now be well aware of the prospect, or likelihood, that a provisional liquidator or receiver could be appointed and a winding up order made on the just and equitable ground, if the Company were to return to its earlier practices as to dealings with cash after these proceedings are complete.

Payment of expenses

Mr Pellarini pleads matters relating to a practice of paying the Company's expenses, in substantial amounts, using an American Express credit card from November 2018. He pleads that the use of that card to make payments, rather than using the Company's funds to do so, caused the Company to suffer loss by paying the merchant fee charged by American Express on each transaction and the annual fee payable for the card. Mr Harris in turn submits that this practice caused the Company to pay more than would be required if it made payment by cheque or electronic funds transfer, because of that merchant fee payable to American Express and provided a benefit to Mr Bicher in respect of membership reward points.
Mr Pellarini accepted in cross-examination that the practice of using American Express cards for payments of the restaurants' expenses had been established by him (T137) and he had undertaken some analysis of when the benefit of doing so outweighed the cost of doing so (T143). Mr Bicher in turn referred in evidence to the benefit of a repayment period of up to 55 days available on the use of that card, and to the capping of the margin which the Company achieved by using a third party provider, B2PAY (T194-195).
It seems to me that the practice of payment of expenses from an American Express card was initiated in the period that Mr Pellarini had primary responsibility for the Company's financial management, although it is plain that the level of payments in that manner increased from late 2018 onwards, when Mr Bicher was in control of the restaurant's operation. Mr Pellarini did not seek to lead evidence to support the premise of this allegation, that the Company suffered loss from this practice, which would need to take into account not only the cost in merchant fees but also the cashflow and cost of funding benefits for the Company in a long interest free period. Where it is not established that this practice was financially disadvantageous to the Company, the allegation of oppression founded on this matter is not established.
Mr Pellarini also advances an unpleaded allegation relating to payments of rent by the Company on a city residential apartment occupied by Mr Bicher for a period and the mortgage on a Woollahra apartment that was purchased and subsequently sold by Mr Bicher. It appears that Mr Pellarini was closely involved in the arrangements relating to the city apartment and the payment of rent on that apartment ceased in June 2017. It appears that mortgage payments in respect of the Woollahra property ceased in August 2018, and, as I noted above, that property had since been sold. Mr Ross's evidence on cross-examination was that he had been told about the mortgage payments made on the Woollahra property, and considered, perhaps generously, that they were a proper business expense of the Company where restaurant items were said to be stored at that property (T358). These matters are not ongoing and I am not satisfied that they, alone or together with other matters, warrant the relief claimed by Mr Pellarini.

Mr Pellarini's claim for declaration as to trust over shares in Machiavelli TM

Mr Pellarini also seeks a declaration that Mr Bicher holds his shares in Machiavelli TM on trust for Mr Pellarini or on trust for Mr Bicher and him equally. Mr Pellarini pleads that, in about September 2015, Bicher and Pellarini agreed to establish Machiavelli TM to obtain registration of trade marks relating to the "Machiavelli" name under the Trade Marks Act 1995 (Cth) and to hold those marks on behalf of the Company, and for Mr Bicher to be the sole shareholder of Machiavelli TM. Mr Pellarini pleads that it was an express term of that agreement that he would be entitled to an equal share with Mr Bicher in Machiavelli TM (SFASC [26B]); that Machiavelli TM was incorporated with one share issued to Bicher and obtained registration of several trade marks (SFASC [26C]); and that Mr Bicher holds a share in Machiavelli TM on trust for the Company or on trust for Mr Bicher and Mr Pellarini equally (SFASC [26D]).
Mr Pellarini relies on an oral agreement to support this claim, formed about the time the Company acquired the restaurant, as set out in paragraph 22 of his affidavit dated 5 March 2019 as follows: "I suggested to Mr Bicher that we trademark the name Machiavelli Ristorante Italiano, pointing out it is worth a lot of money and that even though I have many times told [the previous owner] to do it she never had. A new company was incorporated, Machiavelli TM Pty Ltd … for this purpose and we agreed that it would be set up with Mr Bicher as the sole director and shareholder because, at that time, I accepted that the 20% shares I received in the Company that owned the restaurant was full consideration for what I had provided."
Mr Bicher's evidence, on cross-examination, was that he did not recall such a conversation (T272-276). A conversation at that time cannot have involved any specific reference to Machiavelli TM which had not then been incorporated, although I recognise that the form of Mr Pellarini's evidence, in indirect speech, leaves unclear the extent to which he was giving evidence of what was said, or what he contends was agreed at that time, or possibly stating what was later done.
Machiavelli TM was later incorporated and then appointed as trustee of a unit trust on 9 May 2016, long after the pleaded oral agreement to which I referred above, and 96 units in the unit trust were issued to Bicher Truco and 24 units were issued to Pelltruco, so that the interests of Mr Bicher and Mr Pellarini in the unit trust reflected their then percentage shareholdings in the Company. The Unit Trust Deed for the Machiavelli TM Unit Trust, prepared by a firm of solicitors for CAAA, was dated 9 May 2016 (Ex D7, 165). By email dated 9 May 2016 (Ex D7, 156), Mr Pellarini summarised the structure for holding the Machiavelli trademark as follows: "An entity is being set up today that will own the Trademark: Machiavelli TM Pty Ltd atf the Machiavelli Unit Trust."
Mr Pellarini denied in cross-examination that he understood that the Machiavelli trade mark was beneficially owned by unitholders in the unit trust of which Machiavelli TM was trustee (T49). I do not accept that evidence, which seems to me to be plainly inconsistent with the structure which Mr Pellarini himself established by which that trade mark was held.
Mr Pellarini also relies on a draft heads of agreement which he prepared for the possible share purchase in September 2018, which treated the Machiavelli TM as owned equally by Mr Pellarini and Mr Bicher. The draft heads of agreement, which was not accepted by Mr Bicher, does not establish the fact of the position which Mr Pellarini there sought to advance. Mr Pellarini's further proposition that all of the costs associated with the registration of the trademarks have been paid by the Company, where Machiavelli TM does not have a bank account, also does not advance the position in that regard.
Mr Harris submits that it should be found that the conversation to which I referred aside in paragraph 107 above, expressly or by implication, created an agreement under which Mr Bicher holds his share in Machiavelli TM on trust for the Company or for the parties equally. I put aside whether that submission went beyond the basis on which Mr Pellarini was permitted to amend the proceedings to introduce this claim, which was limited to an express trust based on that conversation. Mr Harris also submits that, where Mr Pellarini and Mr Bicher agreed that Mr Pellarini would increase his shareholding in the Company to 50%, there was an express agreement between them that the acquisition would include Mr Bicher's interest in Machiavelli TM. No such agreement was established by the evidence
In closing submissions, Mr Newlinds, again somewhat unkindly, submits that Mr Pellarini's claim for a trust in respect of shares in Machiavelli TM "shows the hallmarks of its recent but dangerously rickety construction". He submits that the conversation on which Mr Pellarini relies refers to Machiavelli TM, which had not been incorporated at the time it occurred, by name, although I have noted the ambiguity arising from the form of that evidence above; that that conversation, in its terms, did not create an express trust; and that the existence of such a trust is inconsistent with the structure of Machiavelli TM and the unit trust which was established by CAAA, under Mr Pellarini's supervision. Mr Newlinds also submits that it is highly unlikely that an accountant with Mr Pellarini's experience would have sought to reach agreement that there be a trust over the shares of a trustee company which did not trade, which was the trustee of a unit trust which held the relevant asset, where that trustee could readily be replaced as trustee under cl 6.4 of the trust deed. It seems to me that that submission has substantial force, and does not depend upon Mr Pellarini having closely reviewed that trust deed, since provisions for the replacement of a trustee are commonplace in such arrangements.
The agreement for which Mr Pellarini contends depends on his account of the conversation, which I do not accept given my findings as to his credit; is inconsistent with the unit trust that was established to hold the trademark; and would, as Mr Newlinds points out, have been of no utility where Machiavelli TM could have been replaced as trustee of the trust. The alleged trust of the share or shares in Machiavelli TM is not established.

Mr Pellarini's claims under s 461(e)-(f) of the Corporations Act

Mr Pellarini also seeks a declaration that Mr Bicher is and has been conducting the Company's affairs in his own interests, rather than in the interests of the members as a whole, or in a manner which appears to be unfair or unjust to Mr Pellarini, within the meaning of s 461(1)(e) of the Corporations Act. Mr Pellarini also seeks declarations that the Company's affairs have been conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against him or contrary to the interests of members as a whole within the meaning of s 461(1)(f) of the Act. In opening, Mr Harris made no additional submissions in respect of ss 461(1)(e) and (f) of the Act to those made in respect of s 232 of the Act, and it seems to me that the relief sought under that section does not add anything to Mr Pellarini's claim for relief under s 232 of the Act.

Mr Pellarini's and Mr Bicher's claims for relief by way of buy-out orders

Mr Pellarini in turn seeks an order under s 233(1)(d) of the Act that he purchase Mr Bicher's shares in the Company for $250,000. Mr Harris points out that Mr Pellarini has since made an alternative offer to pay $450,000, less the costs of the proceedings, which extends to a purchase of assets other than shares in the Company. Mr Pellarini accepted in cross-examination that the costs of the proceedings that would be deducted from that offer are many hundreds of thousands of dollars and that offer is worth less than the offer he had previously made (T46-47). In his oral opening, Mr Harris made clear that Mr Pellarini's preferred position is that he buy out Mr Bicher's shares in the Company rather than that a winding up order be made.
Mr Harris submits that an order should be made for Mr Pellarini to purchase Mr Bicher's shares in the Company because he was not responsible for the breakdown in the relationship between them; Mr Bicher has been the oppressor; he is only a minority shareholder by a small margin; Mr Bicher's conduct in respect of the payment of the mortgage on the Woollahra property and payment of expenses using the American Express card (to which I referred above) has continued; and Mr Bicher has used cash in dealings in the business, including for the purchase of the business and should not be left in control of the business. I have dealt with the factual basis of those allegations above.
In opening submissions, Mr Newlinds responds that a buy-out order in favour of Mr Pellarini would leave him free then to wind up the Company as he had originally proposed and to complete a "scheme to not pay [the Company's] taxation obligations and, consequentially, expose Mr Bicher as the sole director of [the Company] to a personal liability for particular taxation shortfalls". It is not necessary to go as far as that to recognise that there is a public interest in the Company meeting its taxation obligations, rather than those obligations being left unsatisfied in a liquidation.
It seems to me that Mr Pellarini's conduct in respect of the Company's financial affairs substantially contributed to the breakdown in the parties' relationship, his exclusion from the business for a period, and the subsequent restriction to allowing him read-only access to financial information concerning the business. I am not persuaded that, where both Mr Pellarini and Mr Bicher were prepared to deal with cash in a way that led to substantial non-compliance with the Company's tax obligations, an order for the compulsory purchase of shares should be made in favour of either of them, and Mr Pellarini is plainly in no stronger position than Mr Bicher in that respect given the findings that I have reached above in respect of his falsification of the Company's financial records.
Conversely, by his Amended Cross-Claim, Mr Bicher seeks an order that, if Mr Pellarini establishes any part of his claim, then Mr Pellarini should transfer his shares in the Company to Mr Bicher, or alternatively that Mr Bicher should buy out Mr Pellarini's shares in the Company for an amount determined by the Court. That Cross-Claim replicates relief that was initially sought by Mr Pellarini but subsequently abandoned by him. Mr Bicher contends that that buy-out should be for no consideration, relying on Mr Mullins' evidence that the shares have no value, to which I also referred above.
As I noted above, I am not persuaded that, where it is apparent that both Mr Pellarini and Mr Bicher were prepared to deal with cash in a way that led to non-compliance with the Company's tax obligations, and probably also with employees' tax obligations, an order for the compulsory purchase of shares should be made in favour of either of them. I also recognise that, if the Company can discharge its tax debts over time, its equity may acquire some value. It does not seem to me that an order that Mr Bicher buy Mr Pellarini's shares for no consideration would be fair to Mr Pellarini, where both parties were involved in the relevant conduct and it would deprive Mr Pellarini of any future benefit from an increase in the value of those shares.

Claim for a winding up under

Alternatively, Mr Pellarini seeks an order that the Company be wound up under s 233(1)(a) of the Corporations Act or on the just and equitable ground under s 461(1)(k) of the Corporations Act. In dealing with this claim, I bear in mind that s 467(4) of the Corporations Act applies where a winding up order is sought on the just and equitable ground, and the matters identified in that section, including the availability of some other remedy and whether the applicant is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy, are also applicable where a winding up order is sought under s 233 of the Act. I also bear in mind McMurdo JA's observation in Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] QCA 048; (2018) 125 ACSR 227 at [46]-[47], [62] that: "In my view, the reasonableness of the applicant's position is to be assessed by reference to the consequences of the events and circumstances upon which the application is founded and what is necessary to redress them. If they could be redressed only by a winding up, then the pursuit of a winding up order would not be unreasonable in the relevant sense. On the other hand, if there is an alternative remedy which would equally redress those consequences, then an applicant's preference for a winding up order would usually be considered to be unreasonable, because ordinarily the winding up of a solvent company will have far reaching effects. It will not only deprive the other shareholders of their investment in a solvent enterprise, but it will also be likely to affect the interest of others, such as the company's employees and third parties whose interests from transacting business with the company would be affected. It is the likelihood of substantial and wide ranging prejudice of this kind which would cause judges to describe a winding up of a solvent company in this context as an extreme step."
At least where a company was established on the basis of relationships of mutual confidence, a winding up order may be made on the just and equitable basis under s 461(1)(k) of the Corporations Act where irreconcilable differences emerge between its members: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [89]; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [97]-[98]. The Court may make a winding up order on that basis in circumstances that do not amount to oppression, although a person who is responsible for the breakdown of the relationship is less likely to be afforded relief: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above; Nassar v Innovative Precasters Group Pty Ltd above at [90], [96], [117]. In opening, Mr Harris also referred to my summary of the applicable principles in Re AJ Roberts Removals and Storage Pty Ltd [2017] NSWSC 1054 and Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914.
Mr Harris submits that, in the alternative to the allegation that the Company's affairs have been conducted in a way which is oppressive to or unfairly prejudicial to Mr Pellarini (which has not been established), the Company is a quasi-partnership or a business requiring mutual cooperation and a level of trust and the trust and confidence required in such a relationship has irretrievably broken down so that an order should be made for the Company to be wound up under s 461(1)(k) of the Act. Mr Harris also submits that winding up is the characteristic remedy in circumstances that a working relationship predicated on mutual cooperation, trust and confidence has broken down, and that there is no absolute rule that the Court will not wind up a solvent company, while accepting that winding up is a last resort: Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325 at [119]; Re Pure Nature Sydney Pty Ltd above at [76]; Asia Pacific Joint Mining v Allways Resources Holdings Pty Ltd above at [52].
Mr Harris submits that it is not in dispute that the Company was formed on the basis of the trust and confidence that each of Mr Pellarini and Mr Bicher had in each other. While it is common ground that the parties contemplated that Mr Bicher would be primarily involved in the operation of the restaurant and that Mr Pellarini would be responsible for financial management and supervision, Mr Bicher disputes that contention, as I note below. Mr Harris also refers to Mr Bicher's exclusion of Mr Pellarini from financial management and supervision in mid-September 2018, which I have addressed above, and submits that the trust and confidence between the parties has broken down.
Mr Newlinds responds, and I accept, that the strength of Mr Pellarini's claim that the Company is in the nature of a quasi-partnership is undermined by the fact that the initial allocation of a 20% interest in the Company to him appears to have arisen, at least in part, from the making of a secured loan to the Company, which was personally guaranteed by Mr Bicher, and Mr Pellarini's further monetary contribution in August 2016 was made on the basis that Mr Bicher would retain control, although there is a dispute as to the precise shareholding level that would give him that control. Mr Pellarini was also not a director of the Company at any relevant time and did not seek to become a director until after the relationship between the parties had broken down.
While it is plain enough that Mr Bicher no longer trusts Mr Pellarini, the evidence to which I have referred above indicates that there is good reason for him to take that view and, as Mr Newlinds points out, it is not apparent that Mr Pellarini placed any particular trust in Mr Bicher in their earlier dealings. Mr Newlinds also submits, and I accept, that the fact that it was contemplated that Mr Pellarini would have a role in the Company's financial management did not involve a commitment or proper expectation that he could retain that role, or irrespective of his conduct in that role. In closing submissions, Mr Newlinds also submits that while it would be unworkable for Mr Pellarini and Mr Bicher to be in business arrangements which involved them having to make decisions cooperatively, collaboratively or jointly, that is not required where Mr Pellarini is a minority shareholder in the Company, has been and is not a director but would have the rights afforded to minority shareholders under the Corporations Act.
Mr Harris submits that none of the factors which led the Court to refuse to make a winding up order in Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd [2000] WASCA 170; (2000) 34 ACSR 469 at [28]ff are present. One of those factors was that the difficulties associated with running a business were largely of the plaintiff's making, a matter that is plainly relevant so far as Mr Pellarini's maintenance of the company's financial records is concerned. Mr Harris also submits that there are no circumstances that would justify withholding the remedy of the kind recognised in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above at [89]-[90], where Spigelman CJ observed that: "It may be accepted that the existence of irreconcilable differences amongst persons involved in what is, in effect, a partnership, will destroy the personal relationship involving mutual confidence, that lies at the heart of the partnership analogy. This analogy has been applied both to applications for winding up on the just and equitable ground and also to oppression suits. … Irreconcilable differences may establish a basis for winding up, they do not of themselves constitute oppression or unfair prejudice. … Nevertheless, the destruction of the personal relationship establishes a basis for granting relief in the usual case, not for concluding that the partnership analogy has ceased to be pertinent. ... There will be circumstances in which the emergence of irreconcilable differences will cause the court to conclude that an understanding or expectation as to participation in management should be taken to have ceased, in a manner not entitling the person excluded from such participation to relief under the statutory provisions. That would be so where the Court decides that it is the person excluded who is responsible for the breakdown in the relationship. This appears to have been the case in Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd (2000) 34 ACSR 469. See also Belgiorno-Zegna v Exben Pty Ltd (2000) 35 ACSR 305 esp at [142], [151]." [emphasis added]
Mr Harris submits that Mr Pellarini was not responsible for the breakdown in the relationship between the parties. Mr Harris also submits that it was Mr Pellarini's suggestion that the Company should be put in liquidation that prompted Mr Bicher to exclude Mr Pellarini from management and it should be inferred that the reason for Mr Bicher's exclusion of Mr Pellarini was the fact that: "Mr Pellarini had slowly been shutting down the payments which were either not being recorded, or being recorded inaccurately, by the Company". It does not seem to me that that accurately records Mr Pellarini's role in the relevant matters, although I have referred above to Mr Pellarini's later correspondence suggesting that particular activities should be restricted. Mr Newlinds responds that Mr Pellarini has caused the breakdown in the trust and confidence and I accept that the deficiencies in the management of the Company's financial affairs, for which Mr Pellarini was primarily responsible and as to which he had the primary expertise, have been the primary contributor to the present position.
Mr Harris also submits that the Company should be wound up because Mr Bicher clearly intends to operate it for his benefit, and at Mr Pellarini's cost, in the future, and refers to the transactions involving payments on the American Express card to which I have referred above. The premise of that submission, that those payments were financially disadvantageous to the Company, was not established as I have noted above.
It is also well established that the Court can make a winding up order under s 461(1)(k) on the just and equitable ground by reason of, inter alia, lack of confidence in the conduct and management of a company's affairs, or if a company has not carried on its business candidly and in a straightforward manner with the public, or has failed to comply with the requirements of the Corporations Act with respect to financial records and reports. The authorities include at least Australian Securities and Investments Commission v ABC Funds Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 at [119], where Warren J observed that a winding up on just and equitable grounds could take place where there was "a lack of confidence in the conduct and management of the affairs of the company" and "a risk to the public interest that warrants protection", and also noted that the Court would be reluctant to wind up a solvent company. Those principles have subsequently been applied in Australian Securities and Investments Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506; Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 90 ACSR 523 at [46] and Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234 at [19]ff, where Gordon J summarised those principles as permitting a company to be wound up where there is a justifiable lack of confidence in the conduct and management of its affairs and a risk to the public interest that warrants protection, and noted that that could be established where the Court could not have confidence that the company's controllers would comply with their obligations, including keeping books, records and documents and looking after the company's affairs.
Mr Harris also submits that an order for winding up should be made on this basis, and the Company's tax history plainly raises the possibility that such an order would be warranted. Mr Newlinds responds that the Court should not wind up the Company on the basis of any continuing risk to the public interest that warrants protection arising from its past tax history. He points to several matters that tend against a winding up order, including that the Company is solvent, subject to any present impact of the COVID-19 pandemic. He points out that the Company has now retained competent accounting and taxation advisers, and that Mr Bicher's apparent lack of accounting knowledge does not support a winding up order, where Mr Ross presents as a committed and capable practitioner, with particular expertise in the restaurant industry. I recognise that Mr Bicher has engaged new accountants and advisers who have been seeking to regularise the Company's financial affairs and he has ended the process of paying cash wages (Bicher 19.12.19 [138S]-[138T]).
Mr Newlinds also points out that Mr Bicher has taken steps to rectify the position in respect of the Company's taxation affairs and the Company has entered into repayment arrangements with the Australian Taxation Office and Revenue NSW to discharge its tax liabilities; and the Company's continuing operation of its business provides a better prospect for recovery of outstanding tax by the Commonwealth and State Revenue authorities than a liquidation. He also points to the position of employees and trade creditors which benefit from the continued operation of the Company. It seems to me that these are significant matters that tend strongly against a winding up of the Company.
Mr Newlinds also submits, and I accept, that Courts will be reluctant to grant a winding up order so as to further a plaintiff's personal or other interests at the company's expense and in a manner that would be adverse to third parties: Re ICB Medical Distributors & Ors [2018] NSWSC 1315 at [221]. He also submits that, as a matter of discretion, Mr Pellarini should not be allowed a liquidation of the Company where his conduct has been a primary contributor to the present situation, and that would leave Mr Bicher exposed to a liquidation of the Company and the risks attached to unmet tax liabilities in that situation. Mr Newlinds also points out that a winding up order would potentially enable Mr Pellarini (or indeed Mr Bicher) to purchase the business from a liquidator without meeting the Company's existing tax liabilities, and Mr Pellarini seems to have recognised at least the possibility of purchasing the business in that manner in cross-examination (T126-127).
It seems to me that it would not be in the public interest that the Company now be wound up, where it has self-reported the issues relating to taxation non-compliance to revenue authorities and assumed the consequential liability, and a liquidation would reduce the prospects that that liability will be met over time. It would plainly not be in the interests of employees of the Company that it now be wound up. There seems to me to be limited risk of the continuance of the conduct which was in issue in these proceedings, where the Company's affairs have been exposed to the Australian Taxation Office by self-reporting and in this Judgment, and where Mr Bicher would need to bear in mind the risk of a further winding up application by Mr Pellarini if such conduct were to recur. For all these reasons, I am not satisfied that a winding up order should be made.

Conclusion

In the result, the parties will be left within their existing relationship. Neither party has had had substantial success in the proceedings and my preliminary view is that there should be no order as to costs of the proceedings. I direct the parties to bring in agreed short minutes of order including as to costs within 7 days or, if there is no agreement, their respective short minutes of order and submissions not exceeding 6 pages in one and a half spacing as to the differences between them.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 June 2020

At a glance

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