Australian Marble Pty Ltd and Battstone Australia Pty Ltd
30 In support of its case in these proceedings, the plaintiff relied upon the first defendant's conduct in relation to Battstone Australia Pty Ltd (Battstone) between 3 March 2003 and 3 June 2003 and Australian Marble Pty Ltd (Australian Marble) between 1 February 2003 and 14 July 2003.
31 In 1964 Mr Leone Battista commenced business as a concreter and terrazzo layer. The business was carried on under the name of 'L & R Battista'. Gradually, the focus of the business changed and, by 1982, the business was importing granite and marble which was being cut and polished. Mr Battista was joined in partnership by his son Frank in 1988 and then by his youngest son, John in 1990. When John joined the firm the partnership name was changed to 'L & R & J & F Battista'. Leone Battista retained the responsibility for the day-to-day management of the affairs of the partnership. Frank worked in the factory. Until 2001 the business premises were at Blair Athol. In 2001 the partnership agreed to purchase the plant and equipment of W H Martin Pty Ltd and to lease its premises at 9-17 London Road, Mile End. As a consequence, Battstone was incorporated. From October 2001 it conducted the business previously carried on by the partnership. The Blair Athol property was sold and the proceeds of sale were injected into Battstone. A further $140,000 was provided by the shareholders in cash.
32 From about the middle of 2002, Quentin Blunden acted as general manager, Alby Trosi as accountant and Gina Battista as sales manager. Leone Battista assumed the role of quoting on kitchens and vanities, purchasing materials and consumables, and supervising individual jobs. Frank remained as factory manager.
33 In early 2003, Mr Blunden and Mr Trosi told Leone Battista that Battstone was in financial difficulties. As a consequence, in January 2003 Joseph Cecere was retained as Battstone's external accounting adviser. At the time of his appointment it was his view that the company was insolvent. It was unable to pay its debts as and when they fell due, in particular, it could not pay a debt owing to the Australian Tax Office (ATO) or WorkCover instalments. Mr Trosi said that Battstone was financially not in a good way.
34 Mr Hyland worked for Mr and Mrs Reid who operated a business in partnership called 'Gemstone Exploration'. Some time during 2002, Mr Reid requested the second defendant, Mr Smith, to incorporate five companies; one of which was known as 'Opal Sales Vic Pty Ltd' which changed its name to 'Australian Marble Pty Ltd'. Originally, Mr Smith was the sole director of Australian Marble but, on 6 February 2003, Mr Hyland was also appointed director at Mr Reid's instigation.
35 Pay Now Pty Ltd (Pay Now), a Sydney based financier was in the business of providing debt factoring facilities by purchasing a business' debtors at a discount and thereafter recovering payment from those debtors. On or about 5 February 2003 Mr Reid contacted Pay Now seeking debt factoring facilities.
36 Pay Now provided Mr Reid with a standard application for finance form which was completed on 7 February 2003. It is not entirely clear who completed the application form, but I accept Mr Hyland's evidence that he did not. Further inquiry need not be undertaken. These proceedings are not about Mr Reid's dealings with Pay Now, except to the extent that Pay Now effectively, but unknowingly, became Mr Reid's financier.
37 Mr Reid, Mr Hyland and Mr Smith travelled to Sydney to meet with the representatives of Pay Now on 10 February 2003. The purpose of the meeting was to acquaint Pay Now with Australian Marble's business so that Australian Marble could obtain a debt factoring facility of $1 million. In fact, at the time of this meeting, Australian Marble had no business and had never traded.
38 In a second meeting on 11 February 2003, Mr Reid, Mr Hyland and Mr Smith met with Mr Cunnington, managing director of Pay Now. It was Mr Cunnington's evidence:
'Reid was the negotiator for Australian Marble, he did most of the talking and answered my questions. He was the one with ideas and the knowledge. He was the person going through the conditions and seeing if they were fair and reasonable. He played the lead role. He talked about a previous business he operated in Coober Pedy and he talked about the sales that Australian Marble planned to make to a company called Battstone Pty Ltd ("Battstone") and to other customers.'
39 Pay Now agreed to provide Australian Marble with a debt factoring facility of $1 million.
40 Mr Blunden said that in February 2003 Mr Reid, in the company of another man whose name he could not recall, met with him. Mr Blunden understood the purpose of the meeting was to discuss Battstone purchasing blocks of granite from Australian Marble.
41 During the meeting, Mr Reid enquired of Mr Blunden whether the proprietors of Battstone would be interested in selling Battstone. Mr Reid, Mr Blunden said, wanted to meet with the owners as soon as possible to discuss the question of a sale.
42 As I have already said, Leone Battista knew that Battstone was in financial difficulties. So also did Frank Battista. There was an immediate obligation to pay an amount in excess of $60,000 to the Australian Tax Office and to WorkCover and, at this time, they were considering borrowing that sum from a third party. Mr Blunden advised them that he had spoken to Mr Reid who had expressed an interest in buying the business. He told both Leone and Frank Battista that the company may have been trading whilst insolvent and that the business of the company had no value. A few days later, Mr Reid arrived at Battstone's premises unannounced. Mr Blunden introduced Mr Reid to Leone Battista and later, whilst walking through the factory, to Frank Battista. Mr Reid told Leone Battista that he owned several quarries and that he had made $11 million in the previous year. Mr Reid told him that money was no problem to Mr Reid. Near the end of the meeting he told Leone and Frank Battista that he wanted to purchase the business. They told him that they would only sell half.
43 One or two days later, Mr Reid again attended Battstone's premises and spoke with Leone Battista. When Mr Reid arrived, Leone Battista approached him immediately and said: 'Either 50, 50 if you want to buy half, otherwise I am not interested'.
44 It was Mr Leone Battista's evidence that he was not prepared to part with more than 50 per cent of the business because otherwise he would have no say in the running of the business. He thought he had spent 45 years in the business 'so why would we give away control of it to this guy who just comes along?'.
45 Mr Battista said that Mr Reid accepted the 50 per cent offer. No price for the 50 per cent was ever discussed. Instead, there was a discussion about Mr Reid paying all of Battstone's debts although Mr Reid did not ask what the debts were. Mr Battista did not inform him because he thought that Mr Reid had got that information from Mr Blunden.
46 On 3 March 2003 Mr Reid returned with a document which purported to be an agreement between Australian Marble and Battstone where Australian Marble 'agree to enter into a contract with (Battstone) where it purchase fifty (50%) percent of the business enumerated in Recital A'. The business in Recital A was:
'BA is the registered owner of the marble and granite business at 9-17 London Road, Mile End, Adelaide, South Australia.'
47 Clause 2 of the agreement provided:
'2. That the contract will be that [Australian Marble] will pay out all accounts owed by BA to date for its half share in the total business. AM will also finance purchases of imported marble and granite products required for building of [Battstone] business until [Battstone] can pay for its own purchases.'
48 The agreement contemplated that Australian Marble and Battstone would each appoint one person to be directors of Battstone but that Australian Marble would control the management of Battstone 'with the help of the director from Battstone'.
49 The agreement is, of course, a nonsense. It confuses the sale of a business with the sale of shares in a company. The agreement purports to have Battstone sell 50 per cent of its business to Australian Marble in return for Australian Marble paying all of the accounts owed by Battstone. That would be a simple enough deal. However, the agreement also provides that Australian Marble will appoint a director to Battstone and control the management of Battstone. Australian Marble, at least under this agreement, did not become a shareholder of Battstone. In those circumstances, it is difficult to understand why the agreement would have provided for Australian Marble to appoint a director to Battstone.
50 Perhaps, more importantly, it was Mr Leone Battista's evidence that when he read this agreement he learned for the first time of the existence of Australian Marble. He said, in his evidence that he asked Mr Reid: 'Is this the name of your company?' and Mr Reid said: 'Yes'.
51 When the agreement was presented to Mr Battista it had already been signed by Australian Marble. He could not read the signature but assumed that it had been signed by Mr Reid. There was no discussion about the consideration passing. Mr Leone Battista did not raise that matter because he knew that Mr Reid was well aware that the business needed money.
52 I find that the negotiations which led to the agreement of 3 March 2003 were conducted on behalf of Australian Marble by Mr Smith alone. I accept Mr Hyland's evidence that Mr Hyland gave Mr Reid no instructions in relation to the negotiations, nor was he aware of the terms and conditions of the agreement reached.
53 I find that Mr Reid was solely responsible for Australian Marble entering into the agreement of 3 March 2003.
54 Mr Reid commenced work within one or two days of the signing of the agreement of 3 March 2003. He took up occupancy of Mr Blunden's office who, in turn, moved into the office occupied with Mr Trosi which they then shared. Mr Blunden introduced him to the Battstone employees 'as a new partner of Battstone'. Mr Reid requested Mr Blunden to explain to him how Battstone operated and who performed what tasks.
55 Mr Blunden said in his evidence:
'(a) Reid told me that although he was not a director of Australian Marble Pty Ltd all instructions would come from him and that I was not to consult with the directors of Australian Marble whom he identified to me as Joy Aronsen and Noel Smith;
(b) I was not to concern myself with the accounting and that Alby Trosi would forthwith report directly to Reid.'
56 Mr Blunden's evidence was that he was told by Mr Reid that Joy Aronsen would be taking over Gina Battista's job as receptionist and typist and that Mr Noel Smith and Greg Hyland would be undertaking maintenance work.
57 Mr Hyland said that when he started work at Battstone he was sent to the factory by Mr Reid to look after the maintenance side of things. He said, and I find, that he had nothing to do with the management of Battstone during the period in which he was involved. He had nothing to do with any decision-making involving hiring or firing of staff in relation to the company's finances.
58 Mr Hyland said that when he commenced work Mr and Mrs Smith had already commenced work. Mr Smith was mainly doing construction and maintenance type work, and Mrs Smith was working as a cleaner.
59 Mr Blunden said in paragraph 34 of his affidavit:
'I also recall that soon after he started he explained to me that he, Craig Hyland and Noel Smith and their partners had several companies and that they shared costs and directorships, usually with the company having one of the mates and another mate's partner as directors. Whilst it was never stated directly to me, I took this explanation as the reason why Reid was not a director of Australian Marble.'
60 Within a few days of commencing, Mr Reid requested Mr Frank Battista to sign an invoice from Australian Marble to Battstone for materials supplied to Battstone by Australian Marble. Mr Battista initially refused to sign the invoice because no marble had been delivered. However, he was told by Mr Reid that if anyone did ask where the marble was he should tell them that it was for the blocks of Coober Pedy granite stored at the factory. These invoices were subsequently faxed to Pay Now and the 'debts' factored.
61 Mr Peter Martin, who was Battstone's landlord, attended Battstone's premises in March 2003 when he met Mr Reid for the first time. Mr Martin's evidence was that Mr Reid introduced himself to him and, during the conversation, said: 'I have been banned from running a company but really I run it. I just can't say that I run it. I am a salesman here'. Mr Martin said that Mr Reid told him that he (Mr Reid) was the person to be contacted for rent in the future. Mr Martin had a number of subsequent contacts with Mr Reid when he attempted to collect the rent. The rent was often late and Mr Reid would offer excuses as to why a cheque could not be given on a particular day.
62 Shortly after Mr Reid commenced, he gave Mr Blunden a document entitled 'QUENTIN THINGS TO BE DONE AS SOON AS POSSIBLE:'. I set that document out because it indicates the degree of control which was being exercised by Mr Reid:
'1. Please change locks today on all doors and gates, office doors to be different to the rest.
2. I want a meeting with all factory staff excluding Battista's as soon as possible.
3. Alby is to be shifted out to back office to work with Edna, you may require a new desk for one of them.
4. Maybe the desk beside the round table in back room can replace the one in Eric's office, the one that John was using, the computer in back room can be shifted onto that table.
5. You can keep your place where you are and the new salesperson can table [sic] Alby's place.
6. At present I want to use the one I am using.
7. Full concentration needs to be placed on finishing jobs that are unfinished and not paid for, and concentrate heavily on getting more kitchens out and paid for.
8. We need to have Frank work on making kitchens full time along with who can help him, there is no excuses for Frank to not be working on kitchens.
9. Maybe Scotty can look after the saws as well as doing his own job.
10. It is important now to introduce job cards.
11. We need to sit down with Frank, Johnny and Vince to discuss their pay and conditions; this has to be done once I have given Alby the form 304 to be handed into the ASIC.
12. The Battista's can use a truck to go home but only for this week.
13. There is to be no keys given to the Battista's.
14. Craig and Noel is to remove all the junk that they have been working on then they can go on cleaning rubbish away.
15. Quentin we need urgently a temporary shed not too far away, to put all good rubbish that is to be sold into it, then we will have a garage sale.
16. I suggest that we use Craig to go and buy a vehicle for Leone to use both at work and to go home.
17. Mother does not do the cleaning anymore, at present Barbara is to be used to clean the offices say three times per week, I have told her that she is not to remove or clean the office desks.'
63 First, it demonstrates that Mr Reid exercised power over the general manager, Mr Blunden. Secondly, paragraphs 14 and 16 of the document shows the power which Mr Reid exercised over the directors of Australian Marble.
64 Mr Trosi went overseas in February 2003 and returned to work some time in March 2003 when he learned from a conversation with Mr Blunden and Mr Reid that Australian Marble had taken a 50 per cent interest in Battstone. He knew that Mr Reid was not a director. However, he said that Mr Reid was clearly 'the boss' and appeared to make all the decisions on the running of Battstone. He observed that Mr Reid instructed staff as to their duties; chaired production meetings which set the order of production; negotiated with suppliers for the ordering of goods; negotiated with potential customers; collected payments from any substantial debtors which would have been greater than $10,000; interviewed and employed staff including determining their pay and conditions; and dealt with the bank, financiers and with creditors.
65 On his return to work, Mr Trosi began reporting solely to Mr Reid. Previously, he had reported either to Leone or Frank Battista, or Mr Blunden.
66 Whilst it was Mr Trosi's understanding that Ms Arosen and Mr Smith were the directors of Battstone, he did not ever observe them performing any of the duties that he would have considered to be those of a director. He did not see them instruct staff as to their duties; chair any meetings; negotiate with suppliers for the ordering of goods; interview or employ staff; or deal with the bank or financiers.
67 Mr Reid was the only person who ever asked him to provide any financial information after March 2003. The directors never sought financial information from him about the company.
68 On 27 March 2003 Mr Blunden was told by Mr Trosi that the company had insufficient funds to meet the employees' wages. Mr Reid met with Mr Frank Battista and then called Mr Blunden and Mr Trosi into his office. Mr Reid told Mr Blunden and Mr Trosi that there was not enough money to pay wages because Mr Frank Battista had failed to complete certain jobs and, as a result, Battstone had not been paid for them. He requested Mr Blunden and Mr Trosi to organise the employees to meet in the lunch room without the attendance of any of the Battista family. Mr Reid told Mr Blunden and Mr Trosi that he was going to send the men home after telling them that there was no money to pay their wages. However, he would see that they were paid for the day. He said that Mr Blunden and Mr Trosi's jobs were secure and that they were the key people. He told them it was his intention 'to buy' the company and have total control. A meeting with the workers did take place in the lunch room. Mr Reid sent the Battstone staff home.
69 On the same day, Mr Blunden telephoned Mr Cecere and asked him to attend the company's premises urgently. Mr Blunden told him of the 50/50 agreement with Australian Marble and that Mr Reid had sent the Battstone employees home. Mr Cecere then met with Mr Leone and Frank Battista. He was shown the agreement of 3 March 2003. He telephoned Mr Reid and was told by Mr Reid 'that he refused to deal with the Battistas and that Australian Marble wanted 100 per cent control of Battstone'.
70 The next day, a meeting took place at Battstone's premises. Present were Leone, Frank and John Battista, Mr Cecere, Mr Trosi, Mr Reid and Mr Noel Smith. Mr Hyland said that he did not attend the meeting because he had been instructed by Mr Reid not to do so. Mr Reid told Mr Hyland that he should stay away in case Mr Reid needed to say that he had to consult with him. Mr Smith was introduced as an associate of Mr Reid's. During the meeting, Mr Reid said words to the effect 'that he wanted 100 per cent control over the shareholdings and directorships'. During the meeting, Mr Leone Battista put to Mr Reid that in addition to the payment of all of the Battstone debts he wanted to have his $125,000 loan to Battstone repaid and the $350,000 the partnership put into Battstone also repaid. Mr Reid refused. Mr Reid said that the Battistas had until the end of the day to make up their mind whether to accept his offer. Mr Cecere said in his evidence that Mr Smith did not contribute anything at the meeting. Mr Cecere's evidence was that Mr Reid did not consult with Mr Smith during the meeting or consult with any other person during the meeting.
71 After Mr Smith left the meeting, Mr Cecere spoke to Mr Leone Battista and his two sons. He was told that their primary concern was their personal debts. He told them that the company would have to be put into voluntary administration or a deal made with Mr Reid. The Battistas said that they wanted their personal debts paid off and $50,000 cash, and they authorised Mr Cecere to ring Mr Reid with that proposal.
72 Mr Cecere rang Mr Reid on his mobile telephone and put the offer which he had been instructed to put by the Battistas. Mr Reid said that he would agree to pay Mr Leone Battista's personal debts but he would not pay the $50,000 cash requested. Mr Cecere's evidence was that Mr Reid did not consult with anyone before he put that further counter-offer. Later that day, Mr Cecere rang Mr Reid asking whether Mr Reid would leave the offer open until Mr Leone Battista had had an opportunity to speak to his wife. Mr Reid refused and required an answer that day. Mr Reid's counter-offer was accepted.
73 On the same day, WorkCover commenced winding-up proceedings against Battstone. Mr Trosi found the advertisement for those proceedings in 'The Advertiser'. He was surprised because when he had returned from holidays and met Mr Reid he presented the WorkCover file to Mr Reid. That file included a proposal that the WorkCover levies be paid over a period of 12 months.
74 On 1 April 2003 a document entitled 'Conditions of Intent to Purchase' was executed which purportedly reflected the agreement reached on 28 March 2003. The parties were again Australian Marble and Battstone. The document identified the purpose of the agreement, which was for Australian Marble to acquire all of the shares in Battstone and for the current directors to resign and for the directors of Australian Marble to be appointed. Australian Marble was to assume all liabilities secured, unsecured and contingent of Battstone excluding any liability to the Battista family or to the partnership. The liabilities were estimated at approximately $125,000.
75 The agreement was executed on behalf of Battstone by Mr Leone Battista and Mr Frank Battista, and on behalf of Australian Marble by Mr Smith and Mr Hyland who were the directors of that company. It was Mr Hyland's evidence that he was not involved in the negotiations leading up to the agreement but signed the agreement because Mr Reid asked him to do so.
76 Some time after the preparation and execution of the 'Conditions of Intent to Purchase' and before a final Deed of Agreement was executed on 17 April 2003, Mr Reid provided Mr Trosi with a document entitled 'ALBY THINGS TO BE DONE AS SOON AS POSSIBLE:'. It is worthwhile setting out that document to show the degree of control that Mr Reid exercised over the Battstone employees, even before the final Deed of Agreement was executed whereby Australian Marble became entitled to all of the shareholding in Battstone:
'1. Change power and water over to Australian Marble Pty Ltd (immediately before they cut the services off)
2. Please try and get share transfer forms.
3. Hand form 304 into ASIC today.
4. Work-cover to be setup under Australian Marble, this has not been setup as yet.
5. New superannuation to be under Australian Marble as of today, this has not been setup.
6. Please take Joy, Noel and Leone to bank to get the signatures changed on cheque book. Leone will have to have Joy and Noel added as signatures (either one to sign) Leone must take all other signature off including himself. Alby you better take a copy of signed form 304 with you to the bank.
7. Telstra to be changed over to Australian Marble.
8. I am getting an agent in to take over the organisation and payment of all past accounts so they will require a list of creditors and addresses.
9. All invoices are to be sent out under Battstone Australia and funds are to be banked in Battstone account and then transferred over to Australian Marble, but leave enough in Battstone account to pay monthly rent and bank transfers for payments.
10. All sales including other state offices that are being set up will be set up under the Battstone name.
11. All purchases will be made under Australian Marble; all staff is to be paid under Australian Marble along with all bills.
12. All Shell cards are to be collected or cancelled if they can not be collected.
13. Battstone mail is to be redirected from it's [sic] present P O Box to P O BOX 186 Salisbury South, South Australia 5106.'
77 On 1 April 2003 the Battistas resigned as directors of Battstone. They were replaced by Mr Smith's wife, Barbara Smith and Ms Aronsen who was Mr Hyland's partner.
78 Mr Frank Battista said that shortly after the document was executed Mr Reid called a meeting of the staff. He said:
'Reid introduced himself to everyone at the meeting and said words to the effect that Australian Marble was merging with Battstone. Reid said words to the effect, "I am your new boss and I am in charge. From now on you listen to me, not to Frank or Leone. If you have something to say you say it to me". Reid told the meeting that there were going to be major changes, that new equipment would be brought in and plenty of material as well.'
79 Mr Eliseo, the State Manager of Castle Tools Tyrolit Pty Ltd (Castle Tools) attended Battstone's premises shortly after 1 April 2003 and spoke to Mr Reid. Mr Eliseo said that Mr Reid told him that he was the man in charge and that he represented Australian Marble, and it was taking over Battstone. Mr Reid offered a verbal guarantee that Australian Marble would pay Battstone's debt.
80 Mr Roger Metcalf of Gosford Quarries (Vic) Pty Ltd (Gosford Quarries) discussed with Mr Reid the purchase of blocks of granite. During that conversation, Mr Reid also said words to the effect that a new entity Australian Marble had been formed over which he had full control.
81 Ms Aronsen said that on or about 8 April Mr Reid met with a chartered accountant, Maris Rudaks and instructed him in relation to negotiating with Battstone's creditors.
82 On 17 April 2003 a Deed of Agreement was executed evidencing the purchase by Australian Marble of all of the shareholding of Battstone from the Battistas. It was prepared by solicitors instructed by Mr Trosi.
83 In my opinion, that Deed of Agreement, like the earlier agreement, confuses the sale of a business and the sale of shares. The Recital to the Deed of Agreement states:
'The parties are desirous of entering into an agreement for the transfer from Battstone and Leone and Francesco, of the one part, to Marble, of the other, of all of their right, title and interest in any and all of the assets and liabilities of Battstone.
The intent of this agreement is to allow Marble to take over the ownership and management of Battstone and for the resignation of the current directors of Battstone, namely Leone and Francesco and for the release from all liabilities of Leone and Francesco.'
84 In the end, nothing much turns on the way in which the transaction was constructed. However, it is an unusual agreement.
85 Mr Trosi said that following upon the sale of Battstone's interest in the business to Australian Marble, his role changed. A number of his responsibilities were taken over by Mr Reid's wife, Mrs Edna Reid. On 21 April 2003 Mr Trosi wrote to Mr Reid expressing his concerns about Mr Trosi's continued role in Battstone. He also questioned to whom he was responsible. He never received a reply.
86 On or about 23 April 2003 Mr Reid presented Mr Blunden with a document entitled 'QUENTIN JOB DESCRIPTION AS OF 23/04/03:'. It has to be remembered that Mr Blunden was ostensibly the general manager at the time and he was receiving instructions from Mr Reid. The document identified the tasks Mr Blunden was to perform:
'1. SALES ON BOTH MONUMENTAL AND KITCHENS.
2. QUOTES ON BOTH MONUMENTAL AND KITCHENS, THESE ARE TO BE KEPT UP TO DATE DAILY.
3. ALBY TO CHECK EVERY QUOTE BEFORE IT IS SENT TO CLIENT.
4. RESPONSIBLE FOR ORDERING PARTS, MAINTENANCE OF EQUIPMENT ETC.
5. ALL PHONE MESSAGES ARE TO BE DEALT WITH IMMEDIATELY.
6. OVERSEE MONUMENTAL JOBS IN CONJUNCTION WITH MICK.
7. ORDERING OF BLOCKS AND SLABS AFTER LIAISING WITH MAX.
8. TO ATTEND A MEETING ON THE FIRST WORKING DAY OF EVERY WEEK AT 7AM WITH ALBY, JASON, MICK, JOHN AND MAX, TO REPORT ON SALES AND PREVIOUS WEEKS JOBS AND PERFORMANCES.
9. TO MAKE SURE THAT OUR ACCOUNTS DEPARTMENT HAS THE CORRECT INFORMATION ON JOBS SO THAT THEY CAN BE BOOKED OUT WITH DISPATCH OF GOODS.
10. OVERSEE THE WHOLE OPERATIONS OF BATTSTONE IN MAX'S ABSENCE BUT AFTER LIAISING WITH MAX.
NOT YOUR RESPONSIBILITY ANYMORE:
1. ADMINISTRATION OF THE BUSINES.
2. ACCOUNT PAYABLE OR RECEIVABLE.
3. NO CONNECTION WITH PETER MARTIN REGARDING THIS BUSINESS OR HIS RENT.
4. NO PASSING THINGS ONTO JOY OR GINA TO DO.
5. BOTH JASON AND MICK ARE TO ORGANISE THEIR OWN WEEK AFTER THE MEETINGS ON THE FIRST WORKING DAY OF EVERY WEEK.'
87 Mr Craghan first met Mr Reid in about April 2003 when Mr Blunden and Mr Reid visited his workplace at Marble House of Australia. Mr Blunden introduced Mr Reid to Mr Craghan. He was also introduced to the other four defendants to these proceedings. The next Saturday Mr Craghan noticed there was an advertisement in the Adelaide 'Advertiser' for two jobs at Battstone and he applied for the job of sales coordinator. His first interview was with Mr Blunden.
88 On Easter Thursday he was asked whether he could meet with Mr Reid for an interview. He was interviewed that afternoon for about an hour by Mr Reid and was offered the job of sales coordinator with a salary of $50,000 a year. He accepted that position on Easter Saturday. He commenced on 1 May 2003. Although his job was to report to Mr Blunden, he said that Mr Reid was clearly 'Quentin's boss'. Mr Reid chaired a weekly 8.00am production meeting each Monday which set out the production for the week ahead. Mr Reid met the key customers and suppliers when they visited the premises. On the other hand, he said the other four defendants seemed to sit around a lot and have lunch together. Mr Craghan never saw Mr Hyland or Mr Smith give any instruction to Mr Reid whatsoever. On the other hand, he did see Mr Reid give instruction to Ms Aronsen who, of course, was apparently a director of Battstone.
89 In April and May 2003, Mr Reid made a number of approaches to Mr Martin (the landlord) to transfer the lease into the names of the new directors. Mr Martin refused because he understood that the sale of Battstone to Australian Marble had not been completed.
90 On 20 May 2003 Mr Reid met with Paul Borgensen, who was the proprietor of ACE Granite. Mr Borgensen's evidence was:
'Early in the conversation I asked him, "So, is Australian Marble just your business?" Reid said, "There are three of us, me, Craig and Noel". I cannot recall the surnames of either Craig or Noel. Whilst I cannot precisely recall the words spoken Reid said either "we are partners" or "we are in partnership".'
91 Mr Reid was asked: 'What happened to the Battistas?' and he replied: 'their time was up there and he was going to take over the business'.
92 Mr Borgensen said that Mr Reid also said during the conversation that 'we own quarries in Western Australia'; 'we are in the process of setting up a supply line to get granite blocks to Adelaide for processing'; and 'our goal is to sell a lot of granite overseas'.
93 ACE Granite agreed to be a supplier of granite to Australian Marble. However, in June 2003, a cheque which was proffered by Australian Marble was dishonoured and payment was never made although Mr Reid told Mr Borgensen that he did not know why it was dishonoured and that he would 'get it taken care of'.
94 On 22 May 2003 Mr Reid terminated Mr Blunden's employment and, in doing so, handed him a letter under the heading of Australian Marble and written by Mr Reid. In that letter he wrote:
'It has come to our attention over the past few weeks that you cannot cope with your position here at Australian Marble Pty Ltd …
Under the circumstances we have no alternative but to terminate your employment with the above company immediately.
Regards
Max Reid.'
95 The next day he told Mr Craghan that he had 'sacked [Blunden] last night'. He also told Mr Metcalf of Gosford Quarries that he had sacked Mr Blunden.
96 On 3 June 2003 an order was made for the winding up of Battstone and Mr Anthony Broome was appointed liquidator. Between the date of his appointment and 19 June, Mr Broome attempted to obtain information as to the assets and liabilities of Battstone. It was not clear to him what assets were owned by Battstone or Australian Marble, or which of those companies had incurred particular liabilities. Mr Broome's evidence was that Mr Reid provided some information to him.
97 On 19 June 2003 Mr Reid met with a solicitor, Mr Neate of Lynch & Meyer Solicitors and advised him that he was a silent partner in Australian Marble. He provided Mr Neate with a letter signed by Mr Hyland authorising Mr Reid to speak on behalf of the company. Mr Reid sought advice regarding Australian Marble's dealing with Battstone's liquidator.
98 Later, Mr Reid prepared a letter which Mr Hyland signed which was sent to Mr Neate. On 23 June 2003 Mr Neate, Mr Hyland and counsel met to discuss a possible claim by Australian Marble to set aside the acquisition of Battstone. Although Mr Hyland was present, it was Mr Reid who answered most of the solicitor's questions.
99 On 24 June 2003 Mr Reid wrote to the solicitor setting out in detail Mr Reid's role in the negotiations with the Battistas. I set out the contents of that letter:
'Further to our discussions yesterday afternoon re: Battstone and the liquidator and the breach of contract.
1. On the 26/02/03 at 1.30pm I met with Quenten [sic] Blunden at Battstone premises at 9-17 London Rd to ask if they would be interested in doing some cutting and polishing of granite for us from our own quarry because Australian Marble had it's own customers. He advised me that Battstone should go into liquidation because it couldn't pay it's creditors and he asked if we would be interested in buying it out if the Battista's would sell it. I said that we are always interested in talking about these things and he asked if I would be interested in talking to Leone Battista one of the directors who was away from work because he had had a slight stroke. Quenten [sic] made an appointment for me to be at the factory the next morning at 8am.
2. On the 27/02/03 I had a meeting with Leone Battista and his general manager Quenten [sic] Blunden at 8.00am at Battstone premises at 9-17 London Rd. One of the first things Leone said to me was do you understand that things take along [sic] time to do in the stone industry and a year goes by before you know where you are. At this meeting Quenten [sic] explained to Leone that he Leone needed to take in a partner to survive or sell out. Leone said that he would speak to his family and get back to me. Later that day Quenten [sic] phoned me and set up a meeting again for the 28/02/03 at 8.30am at Battstone premises.
3. At this meeting with Leone and Quenten [sic], they explained to me that they needed to do something about a partnership because Battstone could no longer survive without an injection of cash and Leone asked if we would be interested in talking with his family and I of course said yes. Later this day Edna my wife and I left for Coober Pedy and we had a phone call from Quenten [sic] Blunden the general Manager asking me when would we be coming back to Adelaide which I told him that we can come back anytime and so we agreed to a meeting with the Battista family on the Sunday 02/03/03 at 10.00am at the Battstone premises.
4. Myself, Noel Smith one of the directors of Australian Marble, Quenten Blunden the general manager for Battstone, Leone Battista and Frank Battista the two directors of Battstone attended this meeting. At this meeting the Battista's [sic] pointed out that they required Australian Marble to take over paying the debts of Battstone and put in stock so that Battstone could operate this would in turn be for a half share in Battstone. All agreed and it was decided that an agreement would be put in place so that work could go on.
5. An agreement was signed by both parties the next day 03/03/03 at 5.30pm.
6. On the 27/03/03 at 11.30am after explaining to all the staff that they were not going to get paid because the Battista's [sic] had not produced any kitchens for a week and after having a meeting with Frank Battista at 8.45am over money for wages and a meeting with the directors of Australian Marble, Australian Marble walked out of Battstone because nothing had changed to the way Battista's [sic] had run Battstone. We received a phone call from Quenten [sic] Blunden later in the day asking if we would come to a meeting at Battstone premises the next morning at 8.30am and we agreed.
7. Myself, Noel Smith, Quenten [sic] Blunden, Leone, Frank and John Battista, Albi, Battstones internal accountant and Battstones external accountant Joe Cecere, attended this meeting. Joe Cecere done [sic] most of the talking for the Battista's but an agreement couldn't be reached over a total purchase of Battstone by Australian Marble because the Battista's [sic] did not want to sell out completely, so Noel and I left the meeting and we took our computer equipment with us never to return again.
8. At 11.30am the same day 28/03/03 we received a phone call from Joe Cecere asking if we would reconsider a total purchase of Battstone and I asked him why and he told me that a friend of the Battista's [sic] had been into Battstone office and told Battista's [sic] that Battstone had a wind-up order placed on it and he said that it would be in our best interest if we came back. All the same people attended as earlier on in the day, it was agreed that Australian Marble would assign the lease on the building, pay out all the debts of Battstone and have all the equipment leases assigned to Australian Marble, it was agreed by all that everything else in the factor such as trucks, equipment, tools, a fork lift and some old stock that L&R Battista partnership owned and moved over to the Battstone premises when they shifted from Blair Athol would remain and we agreed to pay the Battista's [sic] $125,000.00 for those. The Battista's [sic] also agreed to pass over to Australian Marble an insurance claim for $20,000.00 which they had claimed from QBE for tools that had been stolen from their Blair Athol workshop some two years prior. The Battista's [sic] and their external accountant told us that there was an $80,000.00 debt outstanding from a Mr Gaucci for work done by Battstone that we could collect. The Battista's [sic] and their external accountant also told us that any work in progress would remain with Australian Marble; it was Australian Marble stock anyway. The Battista's [sic] and their external accountant also told us that Australian Marble could collect any outstanding debts.
9. Joe Cecere Battstones external accountant put in place an interim contract until a solicitor could draw up a proper contract; a proper contract was eventually signed.
10. We eventually went to visit Mr Gaucci and to try and collect the $80,000.00 and to be told by Mr Gaucci solicitor that the work had in fact been carried out under the L&R Partnership and not Battstone and that his client was not going to pay.
11. The insurance cheque eventually arrived written out on the 02/06/03 to Battstone so the liquidator has taken control of that, this was a claim under L&R Battista Partnership but some how the cheque had been written out to Battstone, we assume because the general manager and the internal accountant had written to the insurance company on numerous occasions on Battstone letter head.
12. The Battista's [sic] started taking tools, old stock and plant from the premises at 9-17 London Road, Mile End on the 05/04/03 at 10am, they took more plant and tools on the 06/04/03 at 9am. The next day 07/04/03 we engaged a security firm to secure the premises at all times and we changed the locks.
James we hope that this is enough information but please contact us if you require more.'
The letter corroborates the evidence of the plaintiff's witnesses. It indicates Mr Reid's involvement in Australian Marble's acquisition of Battstone.
100 On 30 June 2003 Mr Neate spoke to Mr Reid and, during that conversation said: 'In my view, they are potentially assisting a further contempt with the orders in allowing (you) to remain in the management of the company'. Mr Neate told Mr Reid that he would need to clarify these matters with the directors. Mr Reid told Mr Neate that he thought it likely that they would simply refer Mr Neate back to Mr Reid for instructions.
101 On 10 July 2003 Mr Neate wrote to the directors of Australian Marble regarding his concern about Mr Reid's involvement in the management of the company. He wrote:
'I refer to my long telephone conversation with Mr Hyland of 30th June 2003 and write to clarify the terms of retainer arrangements for providing instructions to this firm in respect of this matter.
I note that these issues have arisen because it has come to our attention that Maxwell John Reid, an undischarged bankrupt, has also been convicted of various Corporations Law offences. Importantly and of more concern is that the directors may be allowing Mr Reid to play an active role in the management of the company. The directors should be aware that in February 2002 Mr Reid was sentenced to 12 months imprisonment, suspended for two years on condition that he have no involvement in directing, managing or administering a company. These orders arose following guilty pleas entered by Mr Reid in respect of breaches of an order of the Federal Court made on 10th March 1992 which prohibited Mr Reid from managing a corporation until the year 2036.
We understand from our discussions with Mr Hyland that these matters are all known to the directors of the company. While these are ultimately matters for the directors of the company to consider and factor into the extent of any authority given to Mr Reid, we are nevertheless obliged to warn the company, via you its directors, that Mr Reid's current involvement in the management of the business of the company may be sufficient to amount to further breach of his current sentence conditions.
It is therefore our recommendation that the directors structure affairs so that Mr Reid has no involvement in the administration of company matters and a much more limited role, if any, in the management of the business.
In order that there be no uncertainty, we are obliged to insist that our instructions are from the directors of the company. If you wish to discuss any of the matters we have raised in this letter then please do not hesitate to contact us.'
102 On 14 July 2003 Mr Broome was appointed provisional liquidator of Australian Marble. At or about the same time, Pay Now appointed receivers to Australian Marble.
103 On 17 July 2003 the employees of Battstone and Australian Marble met at Vili's Café where Mr Reid told them that they were 'working on a proposal to be back operating by the middle of next week'. A further meeting of employees took place the next day which Mr Reid again addressed.
104 On 26 August 2003 Mr Reid produced a letter dated 2 June 2003 from Mr Hyland to Mr Reid which included a statement that 'your services are required for the position of export sales and mining'. The date of that letter was false. The letter was created by Mr Reid immediately prior to the other four defendants being examined by the plaintiff.