Beconwood Securities Pty Ltd v Australian and New Zealand Banking Group

Supreme Court of NSW|2018-07-20|Before: Kunc J

ACN 607 358 887 Ltd (formerly known as Carzapp Pty Ltd ACN 607 358 887) (First Defendant) ACN 613 155 561 Pty Ltd (formerly known as Carzapp Trading (Aus) Pty Ltd ACN 613 155 561) (Second Defendant) ACN 612 819 548 Pty Ltd (formerly known as Carzapp Holdings Pty Ltd ACN 612 819 548) (Third Defendant) Graham Meyerowitz (Fourth Defendant) Mark Lasarow (Fifth Defendant) Anthony Resnick in his capacity as joint administrator of Carzapp Pty Ltd, Carzapp Trading (Aus) Pty Ltd and Carzapp Holdings Pty Ltd (Sixth Defendant) David Solomons in his capacity as joint administrator of Carzapp Pty Ltd, Carzapp Trading (Aus) Pty Ltd and Carzapp Holdings Pty Ltd (Seventh Defendant) Representation: Counsel: T J Morahan (First and Second Plaintiffs) G O'Mahoney (Fourth and Fifth Defendants)

Solicitors: Chen Shen Lawyers (First and Second Plaintiffs) Wotton & Kearney (Fourth and Fifth Defendants) Somerset Ryckmans (Sixth and Seventh Defendants) File Number(s): 2017/271980 Publication restriction: No

The parties and others

Domenic is the sole director and shareholder of the first plaintiff, Twinkledom Pty Ltd ACN 606 702 16 ("Twinkledom"). He is also the owner of a used car company, Better Car Company.
The second plaintiff, Busy Traveller Pty Ltd ACN 097 668 221 ("Busy Traveller"), is the corporate trustee for Dr Richard O'Connor's family trust. Introduced to CZA by Domenic, Dr O'Connor invested $200,000 through Busy Traveller in May 2016.
The first defendant is a company formerly known as Carzapp Pty Ltd ("CZAPL"). CZAPL was the main vehicle for the development of CZA and owned the intellectual property in CZA.
The second defendant is a company formerly known as Carzapp Trading (Aus) Pty Ltd ("CZAT"). CZAT was formed to sell CZA under a licence agreement from CZAPL.
The third defendant is a company formerly known as Carzapp Holdings Pty Ltd ("CZAH"). CZAH is the trustee of the Carzapp Holdings Unit Trust ("CZAUT") through which Dr O'Connor and another investor, Ms Suzanne Berlandier, invested in CZA.
The fourth defendant is Graham.
The fifth defendant is Marcus (also referred to as Mark).
The sixth defendant, Mr Anthony Resnick, is one of the joint administrators of CZAPL, CZAT and CZAH.
The seventh defendant, Mr David Solomons, is the other joint administrator of CZAPL, CZAT and CZAH.
Marcus and Graham are directors of Blade Media Pty Ltd ("Blade Media"). The shares in Blade Media are held equally by Marcus, and by Graham through his and his wife's company Meylex Pty Ltd ("Meylex"). Blade Media owns a subsidiary company Media Tag Pty Ltd ("Media Tag") of which Marcus and Graham are both directors.
For simplicity, "CZA Companies" collectively refers to CZAPL, CZAT and CZAH, and "CZA Entities" includes additionally the CZAUT. In these reasons, reference to a person includes their corporate entity unless specifically stated otherwise: e.g. a reference to Domenic incorporates Twinkledom. Furthermore, reference to the defendants refers to Graham and Marcus, and reference to the administrators refers to Messrs Resnick and Solomons, unless otherwise stated.

The facts

The Court finds the facts to be as follows. It is not necessary for the Court to resolve every allegation and counter-allegation. With very few exceptions, the primary facts were not in dispute or were established by contemporaneous written records. The written record alone provides unequivocal and irrefutable evidence of how deeply dysfunctional the relationship between the parties became.
During 2011, Domenic and Tim Clark (an employee of Better Car Company) began developing the concept of a technological application to sell and purchase used cars. This application was called Carzapp.
In late 2012 or early 2013, Graham purchased a car from Marcus. Graham began working with Marcus and Media Tag through the purchase of shares in Blade Media towards the end of 2013.
In late 2013, Domenic first met and purchased a used car from Marcus. It became apparent that Marcus was interested in the information technology industry and they discussed the CZA concept.
In about mid-2013, Marcus introduced Domenic to Graham.
In late 2014, Marcus and Graham proposed joining together with Domenic to work on developing CZA, although there was no formal arrangement as to who would own the intellectual property in CZA (the "IP").
Domenic, Marcus and Graham began tangible development work on CZA in about December 2014. At this stage, Media Tag was the entity through which CZA was being developed. Domenic invested about $100,000 in the project.
In about August 2015, Tim Clark left Better Car Company and the CZA project. Marcus and Graham subsequently agreed with Domenic to develop CZA with their interest in the project to be held in equal thirds.
Throughout this period, CZA was being developed with a prototype design produced midway through 2015. Media Tag held the IP in CZA and any third-party employed to work on the app was required to execute an intellectual property assignment deed in favour of Media Tag.
The directors began courting investors in CZA and, in mid-2015, meetings were held with A.P. Eagers Ltd ("APE"), including an initial meeting with its Chief Operating Officer Mr Keith Thornton.
On 26 June 2015, Twinkledom was incorporated with Domenic as sole director and shareholder.
On 30 July 2015, CZAPL was incorporated with Domenic, Marcus and Graham as equal directors and shareholders. Graham's shares are held by Meylex. Domenic's shares were held by Twinkledom.
By about September 2015, CZA was ready to be demonstrated to potential investors. An email sent on 9 September 2015 at 1:59 pm from Domenic to Marcus and copied to Graham reads: "Mark Johnson is Tony McCulloch's I.T guy… that's all (and in my opinion not a very good IT guy at that) I don't know if he has or hasn't got money… I would suspect not so ALSO…once we give these fuckers the app, that's it… we've given them the idea in a fucking nutshell I know I've driven this to happen to this point… but I'm just trying to say that there's NO time to waste or fuck around with developers/problems/issues or excuses We need to act fast or someone else Will steal this from us!!!! we need to put as many "irons in fire as possible"!!! That means… nurture Easy Cars and get Dealer Solutions on board in a secure fashion and work on the large players such as Eagers and AHG Group Please call me when you can to discuss… I'm of the mind set to just pick up the phone and speak to the people at the very top of Eagers and AHG… I can make the call, I have no problem SELLING the app!! Timing is EVERYTHING NOW"
During this time, development work on CZA's functionality and features continued. An email of 19 October 2015 at 3:50 pm from Graham to Domenic and Marcus listed the new features of version 1.0.37 of CZA.
In early November 2015, according to the defendants, the directors of CZAPL resolved to acquire the IP from Media Tag for $300,000 plus GST. This resolution proved to be the subject of great debate amongst the parties. It was conceded by the defendants that there was no formal meeting on 4 November 2015 at which this resolution was adopted. Instead, they said there was an informal meeting at which all directors were present and it was agreed amongst all of the directors to sell the IP to CZAPL for $300,000. The minutes of this resolution were subsequently backdated and presented at a formal meeting on 23 March 2016. This was conceded during cross-examination (T325:27-326:12): "Q. Is it the case then that that document we saw dated 4 November 2015, that no meeting occurred on that day at all? A. As I say, those were informal meetings in November and there was a mistake on that minute, I've mentioned that before. Q. They weren't directors' meetings? A. Well, it's the three of us. I mean, it was three directors. Q. But I mean, you were chatting about these things every day of the week, weren't you? A Well, that's right. Q. What, you decided to make one of those discussions? A. I didn't decide to make anything, that - that was what came about from our discussions and that was ratified on 23 March, all were present. Q. Are you saying that back in December 2015, at one of these discussions, part of the agreement in that discussion was that this would be a directors meeting? A. Yes, we did - we did do that. We did do ad hoc meetings where we said, "This will be a directors meeting." … Q. But are you making this up on the run about the directors' meeting in November 2015? A. Okay, sorry, Mr Morahan, I'll be clear. There wasn't an official directors' meeting with minutes held in November 2015 but we had many informal meetings where we discussed this topic. Q. Why was the document produced that had as its only item on the agenda the sale of the IP from Media Tag to Carzapp Pty Ltd? A. Because we wanted to ratify that at a meeting of the directors and shareholders at a meeting."
Domenic denied being part of any arrangement whereby Media Tag sold the IP to CZAPL. It was also put for Domenic in final submissions that any such acquisition by CZAPL would have been in breach of the Shareholders' Agreement between the parties (see paragraph [43] below). However, while the circumstances in which CZAPL came to own the IP was explored at length in the evidence, those matters were not pleaded anywhere in the plaintiffs' case as having any legal significance for the purposes of these proceedings. I therefore do not give them any such significance. Nor do I accept the plaintiffs' submission that the history of how the IP was dealt with "shows an attitude of mind" on the part of Graham and Marcus to exclude Domenic from the affairs of CZAPL which is relevant to analysing subsequent events. Those events must be analysed in the circumstances in which they arose.
In about November 2015, APE agreed to invest $300,000 in CZA in return for a 10% equity stake in CZAPL.
The IP was subsequently transferred from Media Tag to CZAPL in about February 2016.
On 8 February 2016, the Carzapp Shareholders' Agreement was entered into initially between CZAPL, Media Tag, Blade Media and Twinkledom (the "Shareholders' Agreement"). As a consequence, Media Tag, Blade Media, Twinkledom each held 30% of the shares in CZAPL (54 shares each), and APE held the remaining 10% (18 shares).
The Shareholders' Agreement included: "Recitals A The Initial Shareholders incorporated the Company. B The Company carries on the Business. C AP wishes to subscribe for 18 Shares in the Company on the terms of this Agreement. D The Shareholders wish to enter into this Agreement in order to regulate their rights and obligations as members of the Company. E The Company has agreed with the Shareholders to be bound by and to comply with all of the provisions of this Agreement which relate to the Company. It is agreed as follows. 1 Definitions and interpretation 1.1 Definitions The following definitions apply unless the context requires otherwise. … Business means the Company's business; CarZapp is the No 1 App for Car Dealers with a fast growing dealer network with thousands of cars to buy and sell at wholesale prices. As a dealer on the CarZapp network, you will be able to grow your network enabling you to share your inventory with each other, as well as, buy, sell at wholesale prices. CarZapp is for licensed dealers only. By joining CarZapp, you will enjoy many features like real-time instant chat and Flicka, and be able to move cars fast. ... Dispose or Disposal in relation to any property means to sell, transfer, assign, create a Security over, declare oneself a trustee of, part with the benefit of or otherwise dispose of that property (or any interest in it or any part of it) including, in relation to a Share, to enter into a transaction in relation to the Share (or any interest in the Share) (other than a transaction permitted by this Agreement and the Constitution or conditional on each other Shareholder consenting to it or waiving certain of its rights under this Agreement or the Constitution or as otherwise agreed by each Party) which results in a person other than the registered holder of the Share: (a) acquiring any equitable interest in the Share, including an equitable interest arising under a declaration of trust, an agreement for sale and purchase, an option agreement or an agreement creating a charge or other Security over the Share; or (b) acquiring any right to receive directly or indirectly any Dividends payable in respect of the Share: or (c) acquiring any rights of pre-emption, first refusal or other control over the disposal of the Share; or (d) acquiring any rights of control over the exercise of any voting rights or rights to appoint Directors attaching to the Share; or (e) otherwise acquiring legal or equitable rights against the registered holder of the Share which have the effect of placing the person in the same position as if the person had acquired a legal or equitable interest in the Share itself. Dividend includes a bonus or other distribution in kind or in cash. … Group means; (a) the Company; and (b) each Subsidiary of the Company (if any). Group Entity means each entity which is a member of the Group. … Initial Shareholders means Blade, Media Tag and Twinkle. … Related Body Corporate has the meaning given to related body corporate in the Corporations Act, but on the basis that Subsidiary has the meaning given in this Agreement. … Required Majority means; (a) in the case of Shareholders. Shareholders that together hold more than 75% of the total voting rights of Shareholders present at the meeting of Shareholders and entitled to vote on the resolution concerned; (b) in the case of Directors, Directors that together hold more than 50% of the total voting rights of all Directors who attend the relevant Board meeting or sign the relevant written resolution (as the case may be) and who are entitled to vote on the relevant resolution. … Rules means the rules set out in the Constitution, as amended. … Subsidiary has the meaning given in the Corporations Act but so that: (a) an entity will also be considered to be a Subsidiary of a company if it is controlled by that company within the meaning of section 50AA of the Corporations Act; (b) a trust may be a Subsidiary, for the purposes of which a unit or other beneficial interest will be regarded as a share; and (c) a corporation or trust may be a Subsidiary of a trust if it would have been a Subsidiary if that trust were a corporation. … 3 Business and management of Company 3.1 Conduct of Company's Business Each Shareholder (in so far as it lawfully can do so) must exercise its powers in relation to the Company to ensure that: (a) the Company carries on and conducts the Business in a proper and efficient manner in accordance with sound business practice and for its own benefit and so as to give effect to any business plan of the Company; and (b) the Company performs and complies with all obligations on its part under this Agreement and complies with the restrictions imposed on it by the Constitution. 3.2 Scope of Company Business Unless the Shareholders otherwise agree, the business of the Group will be limited to the conduct, maintenance, improvement and extension of the Business in accordance with any business plans (as amended by agreement between the Shareholders) and budgets approved under clause 4.2. 3.3 General policy determined by Directors Subject to clause 3.12, the Board will be responsible for: (a) the overall direction and control of the management of the Company; and (b) the formulation of the policies to be applied in the conduct of the Business. … 3.8 Voting and regard to Shareholders' interests Each Director is entitled to one vote. … 3.10 Board meetings (a) The Directors must meet quarterly or more frequently as requested by any two Directors. Unless otherwise agreed by the Required Majority of Directors: (i) any Director may cancel or postpone any meeting convened by that Director by written notice to all persons who were entitled to receive notice of that meeting, except where the cancellation or postponement would be contrary to the Corporations Act. Any failure to give notice of cancellation or postponement does not invalidate the cancellation or postponement or any resolution passed at a postponed meeting; and (ii) subject to any protocols adopted by the Board on the holding of meetings, each meeting of the Board must be held at a reasonably convenient location determined by the Directors requesting the meeting. Reasonable notice must be given to each Director of all meetings of the Board, although a Director may agree, as regards notice to be given to that Director, that a shorter period is acceptable. (b) Subject to any protocols adopted by the Board on the holding of meetings: (i) the Directors may meet together for the despatch of business and adjourn and otherwise regulate their meetings as they think fit; (ii) the Directors may meet in person or by any means which allows the participating Directors to hear and be heard by other participating Directors; (iii) where the Directors are not all in attendance at one place and are holding a meeting through a system of communication and each of the Directors can hear and be heard by one another at the same time; (A) the participating Directors will be taken to be assembled together at a meeting and to be present at that meeting: and (B) the meeting will be taken to be held at the place agreed to by the participating Directors so long as at least one participating Director is physically present at that place; and (C) all proceedings of those Directors conducted in that manner will be as valid and effective as if conducted at a meeting at which all of them were present. (c) Each notice of meeting must contain, among other things, an agenda specifying in reasonable detail the matters to be discussed at the relevant meeting and must be accompanied by any relevant papers for discussion at that meeting. Unless otherwise agreed by each of the Directors, a Board meeting may only resolve matters specifically described in the agenda. (d) The Company must bear all travelling and other expenses incurred by any Director appointed by it in attending and returning from Board meetings and performing that Director's duties as a Director. (e) A quorum for a Board meeting is constituted by the attendance (in person or by alternate) of at least two directors. No business is to be transacted at a Board meeting unless a quorum is present, except for the adjournment of the meeting. If a quorum is not present within one hour after the time appointed for the meeting, the scheduled Board meeting will be adjourned until a later date. If a quorum is not present at the rescheduled Board meeting within one hour after the time appointed for the adjourned meeting, the meeting shall be postponed to such date that a quorum can be formed. (f) All resolutions of the Board will be decided by either: (i) the Required Majority of all Directors present and entitled to vote at a meeting of the Board; or (ii) the unanimous written approval of all Directors, except to the extent otherwise required by law. (g) Subject to clause 3.12 and any law which requires any decisions to be determined by Shareholders, all business of the Company will be decided by the Board. The Board may by resolution delegate decision-making to a committee of the Board comprised of any one or more Directors or any other person or persons as the Board thinks fit. … 3.12 Shareholder reserved matters The Company may not take any action or pass any resolution in respect of any of the following matters unless the action or resolution has been approved by the Required Majority of Shareholders present and entitled to vote at a meeting of the Company except to the extent otherwise required by law: … (i) (assets) arranging for any Group Entity to sell or buy any assets (or more than one asset in a series of transactions), either tangible or intangible, having a value of more than $20,000; (j) (winding up) taking any step to dissolve or wind up the Company, appoint a receiver or receiver and manager (or any similar officer) of the whole or any part of the business or assets of any Group Entity; … The Company may not take any action or pass any resolution in respect of any of the following matters unless the action or resolution has been approved by the Required Majority of Shareholders present and entitled to vote at a meeting of the Company (which Required Majority must include AP) except to the extent otherwise required by law: … (v) (change in nature of business) ceasing, or materially altering the scale of operations of, the Business or commencing any material new business or operational activities other than the Business at the date of this Agreement except in accordance with any business plan of the Company as approved by the Directors (including the Director appointed by AP). Subject to any relevant law, any action or resolution in respect of any matter other than the matters set out in this clause 3.12 which is to be decided by the Shareholders will be made by the affirmative vote of the Required Majority of Shareholders. … 4 Budgets and financial information … 4.3 Financial information The Company must provide to each Director and Shareholder: (a) (unaudited management accounts) as soon as practicable (and in any event not later than 21 days) after the end of each calendar month, unaudited management accounts which must include a detailed statement of financial performance, statement of financial position and cash-flow statement, and such other financial information as the Board may determine from time to time; (b) (annual financial statements) as soon as practicable (and in any event not later than 60 days) after the end of each of its financial years, copies of the statement of financial position, statement of financial performance and a statement of cash flows of the Company (on a consolidated basis if required by any law having application in Australia); and (c) (additional information) any other information the Shareholders may at any time reasonably require as to any matter relating to the business or financial condition of the Company or of any other Group Entity, including Board minutes. … 4.6 Remedies of a Shareholder (a) If there is a material failure to provide any of the access, records or information referred to in this clause 4, for so long as it holds any Shares, each Shareholder has the additional right to appoint a representative to enter the premises occupied by the Company during normal office hours to search for, inspect and take copies of the records and accounts. (b) A Shareholder exercising its right under clause 4.6(a) must provide at least three Business Days' prior written notice to the Company of its intention to exercise such right and the identity of its representative. (c) To the extent that any information obtained by a Shareholder exercising its right under clause 4.6(a) is Confidential Information, the Shareholder must comply with, and procure its representative to comply with, the provisions of clause 13 in relation to that information. (d) Nothing in this clause 4.6 limits the remedies otherwise available to a Shareholder for the failure of the Company to provide the access, reports and information specified in clause 4. … 15 Operation of Agreement 15.1 Shareholders' Agreement to override the Constitution If there is any inconsistency between the provisions of this Agreement and the provisions of the Constitution, then the provisions of this Agreement prevail amongst the Shareholders to the extent of the inconsistency and the Constitution must be read and construed accordingly. … 15.3 Shareholders to observe and implement Agreement Each Shareholder undertakes with each other Shareholder and the Company to: (a) exercise all its votes, powers and rights under the Constitution so as to give full force and effect to the provisions and intentions of this Agreement; (b) observe and comply fully and promptly with the provisions of the Constitution so that each provision of the Constitution is enforceable by the parties among themselves and in whatever capacity; and (c) exercise all its votes, powers and rights in relation to the Company so as to ensure that the Company fully and promptly observes, complies with and gives effect to the requirements and intentions of this Agreement and the Constitution. The obligations in this clause 15.3 include an obligation to exercise its powers both as a Shareholder and (where applicable and to the extent permitted by law) through any Director appointed by it and (to the extent permitted by law, subject to any rights it may have under clause 3.9) to ensure that any Director appointed by it (whether alone or jointly with any other person) obtains that matter or thing. 16 Relationship of the Shareholders Neither this Agreement nor the Constitution is to be interpreted as constituting: (a) the relationship of the Shareholders as a partnership, quasi-partnership, fiduciary, association or any other relationship in which one or more of the Shareholders may (except as specifically provided for in this Agreement) be liable generally for the acts or omissions of any other Shareholder; or (b) any Shareholder as the general agent or representative of any other Shareholder or of the Company with the exception of any powers of attorney specifically granted or contemplated by this Agreement. In particular, but without limitation, no Shareholder has the authority to pledge or purport to pledge the credit of any other Shareholder or the Company or to make or give (or purport to make or give) any representations, warranties or undertakings for or on behalf of any other Shareholder or the Company."
On 10 February 2016, Mr Stephen Best of APE was appointed a director of CZAPL.
A directors' meeting was held on 23 March 2016 at which minutes were passed confirming the meeting purportedly held on 4 November 2015 and the resolution in respect of the sale of the IP from Media Tag to CZAPL.
In around late April, Domenic and Marcus met with Mr Philip Rofe (CEO of PBR Capital Pty Ltd). Mr Rofe had been Dr O'Connor's stockbroker since 2012. The meeting was to discuss raising capital to fund the CZA project. Dr O'Connor also attended the meeting. Subsequently, CZAPL retained Mr Rofe to find prospective investors and raise funds for the company.
In early June 2016, in order to source further capital, the directors and the solicitor for CZAPL, Mr Eric Shmilovits, met with Dr O'Connor and Ms Berlandier to discuss investing in CZA.
Further companies were established to facilitate the process of attracting investment without diluting existing shareholdings. On 5 June 2016, CZAH was incorporated with Domenic, Marcus and Graham as directors and Media Tag, Blade Media and Twinkledom each one-third shareholders.
On 15 June 2016, a deed of trust was executed establishing the CZAUT with Marcus, Graham through Meylex, and Domenic through Twinkledom as initial unitholders (the "Trust Deed"). Subsequently, Dr O'Connor and Ms Berlandier, through their respective corporate entities Busy Traveller and Flobert Pty Ltd ("Flobert"), each invested $200,000 in the CZAUT and received 37 units in the CZAUT (3.69% of the units). CZAH was the trustee of the CZAUT.
On 22 June 2016, CZAT was incorporated with Domenic, Marcus and Graham as directors. The shares were held as to 90% by CZAH (as trustee for the CZAUT) and the remaining 10% divided between Marcus, Meylex and Twinkledom.
There was no dispute that not long after these events, relations between Domenic, of the one part, and Marcus and Graham, of the other part, began to deteriorate. Graham particularly was dedicating significant time to the application's development and administration, and Marcus and Domenic were handling the sales aspects of the business. Graham's affidavit evidence is that CZAPL was "running out of working capital" by mid-2016 and that he had been working on the application "three days a week for over 18 months without drawing a wage."
In early September 2016, Domenic, Marcus and Graham launched CZA at the 2016 Australian Automotive Dealers Association (AADA) National Dealer Convention in Melbourne.
On 13 September 2016, the directors attended a meeting with Mr Best and Mr Thornton of APE in Brisbane about the development of an iPad version of CZA in return for support from APE with expanding the customer base.
By this stage, Graham was being paid for the time spent working on CZA. Graham's evidence is that, in response to a request that Marcus and Domenic dedicate more time to the application, Domenic indicated that he could "only spend one hour a week on the app". Domenic denied he ever said this.
On 31 October 2016, following an email exchange between Marcus and Mr Tony Roberts of Pickles Auctions Pty Ltd ("Pickles"), Domenic and Marcus met with Mr Simon Meyrick of Pickles and presented the CZA concept. Domenic was not copied into the follow-up email Marcus sent to Pickles the next day, although Graham was. Marcus' evidence - which Domenic did not challenge and the Court accepts - was that Domenic was not optimistic about Pickles investing in CZA. After their presentation to Mr Meyrick, Domenic said to Marcus, "You will never do a deal with Pickles, it will never happen, you are wasting your time." Marcus' follow up email to Pickles began "In summary, Carzapp is at the point where we are focussing on monetising the platform".
On 24 November 2016, the directors met with Mr John Bailey, a senior representative of Cox Automotive (an international car sales company). Graham gave evidence - denied by Domenic - that Domenic said words to the effect of "I have been a car dealer for 30 years. The industry is fucked", and although there was another meeting with Cox Automotive, no deal eventuated.
On 29 November 2016 at 11:11 am, Graham sent an email to Mr Roberts (copied to Marcus but not to Domenic) asking for a meeting to follow up on their earlier meeting (see paragraph [55] above). That follow up meeting occurred the following week.
On 29 November 2016 at 11:35 am, Graham sent an email titled "Development Update" which provided an overview of work completed and ongoing on CZA and requested any "updates on sales calls to dealerships as we have discussed, especially if you have more inventory to add." Domenic's reply email later that day states: "Graham STOP asking me to call dealers. I will call dealers when I am satisfied that the app is in the right place. There are still far too many glitches."
By early December 2016, relations between the directors had disintegrated further and by mid-December 2016, Dr O'Connor was acting in a facilitative role, mediating relations and communication between the directors. It appears from the correspondence between the directors that by this point Domenic was particularly dissatisfied with the development and progress of the CZA. Marcus' evidence - which Domenic did not deny and the Court accepts - is that by about December 2016, Domenic would say things at meetings such as "This app is fucked. This app doesn't work. No dealers want to use it. We can't work like this."
An email chain commencing on 12 December 2016 between the directors, in which Domenic was requesting information regarding the location of CZA's source code and archives, is notably hostile. Graham gave evidence that he was increasingly concerned about why Domenic wanted access to the source code and recalled a phone conversation where Domenic said, "If I was you I would walk away from this - the App is mine and I want the code. If you don't give it to me I will make your life a misery." Domenic did not deny saying this.
The correspondence makes plain that the working relationship between the directors was continuing to break down, especially between Domenic and Graham. The Court finds that Domenic was being intentionally obstructive and critical of CZA's marketability.
In an email chain on 13 December 2016 commencing at 10:08 am, Domenic stated "The very simple reason I'm not calling dealers to sell the app to them is that I'm not satisfied that it's ready. We, as a business are certainly not ready."
At 10:26 am Domenic stated: "I've read the notes … in my opinion the demonstration of the app should have been done by me."
Graham's reply email of 10:43 am, points to the contradiction in Domenic's assertion, says: "Please help me here. You say you will demo the app confidently to the largest companies in Australia, like Eagers and Pickles, yet you are not satisfied that it's ready. Please clarify this, as I am missing something from your explanation of "ready"."
At 11:29 am, Domenic replied that demonstrating CZA to APE was different than demonstrating "a flawed app" to car dealers. He continued: "I understand you and Marcus are unable to hear me on this sticking point but dealers WILL NOT PAY for the app as it is now. Dealers will not pay if they don't have value. I have solutions to this but I'm not being heard so I cannot continue to "beat my head against a bring [sic] wall" silence may be a far easier option for me at this point. … I welcome some openness, transparency and clarity around the development spend and methods of communication with the developers."
At 12:26 pm, Graham replied to Domenic's request by setting out CZA's various modules or screen names, and asked Domenic to "indicate which of these you are not happy with" or considered problematic. Domenic did not respond to this email or provide further detail of his concerns about CZA. The Court notes that Domenic's tone in these emails was often aggressive and created the impression that he was difficult to work with and to please.
The overall effect these emails convey is that Domenic was dissatisfied with CZA and very critical of its progress ("I'm sure you know my greatest issues are around the development and cost") and he blamed Graham and Marcus for trying to sell what he perceived to be "a flawed app".
Domenic was firmly of the view that CZA needed to be "demoed by a car dealer to let them understand the concept so that they can either buy or invest" and was immovable from this position. This was confirmed in cross-examination (T196:40-48): "Q. It was a source of frustration, wasn't it, expressed to you that both Mr Lasarow and Mr Meyerowitz couldn't get your engagement to promote the app to dealers? A. It was a source of frustration to? Q. They were expressing frustration to you that they just couldn't get your buy‑in to promote this app to dealers? A. I guess they were but just no - no - no different to my frustration with the app not functioning properly and not in a position to be selling it to dealers."
Graham and Marcus on the other hand considered CZA to be marketable and Graham told Domenic in his email on 13 December 2016 at 12:26 pm "we can't keep building unless we start selling, so the time is now."
When asked why he did not respond to this email which was put to him as an opportunity to specifically identify the technical issues he had with CZA, Domenic eventually said that he thought responding would have been a pointless exercise because "they would have paid no attention whatsoever to any reply that I would have made to this" (T200:27-28). This is an excellent example of what became a pattern of Domenic refusing to engage with entirely reasonable requests from his co-directors.
It is clear that by this time, the distrust and resentment between Domenic on the one hand, and Graham and Marcus on the other, had led to what was almost a complete breakdown in their relationship. For instance, Graham's suspicion of Domenic's requests for the source code information was confirmed in an email to Dr O'Connor on 19 December 2016 at 8:27 pm titled "Protocol": "Hi Geoff Thank you for your time on the phone. Please explain to Dom that the protocol in companies is for Boards to make decisions relating to the getting in external parties. So any attempt to send company sensitive information outside of the company needs a vote of the board, and very good reason. I am not going to be the person to allow this unless I have a unanimous board decision. Also, please note that the timing is very bad to rock the boat, as we are negotiating with new and existing parties. Nothing should be done until we have a new structure in place, because it could jeopardise everything if it is discovered that outside parties have our source code!! Please explain this to Dom, he is being dangerously irrational here. Best regards Graham Meyerowitz"
Dr O'Connor agreed in cross-examination that by this point he was increasingly concerned that the communication issues and hostility between the directors (their inability "to sit around a table together") was interfering with and negatively impacting "the ability to develop, market and sell the app" (T96:5-12).
Dr O'Connor also confirmed that he had discussions with Graham and Marcus about Domenic (T129:28-129:38). He further agreed that he had suggested to Domenic that "it might be a good idea to defer to the technical expertise of Messrs Lasarow and Meyerowitz" (T133:8-11).
By January 2017 the CZA Companies had nearly run out of cash. On 10 January 2017 at 4:32 pm Domenic emailed Graham and Marcus under the subject title "State of the bank accounts": "I understand that Carzapp now has minimal funds in its bank accounts. That is; #365842 - $4288.27 #353534 - $246.69 #366060 - $10.14 Given this situation, I believe it is necessary to exercise fiscal responsibility and NOT incur any further expenses until such time that there are sufficient funds to incur any expenses. Moving forward, naturally a clear path would need to be agreed upon regarding expenditure should funding be raised. I urge cessation to all spending at this point in time. Specifically I ask Graham to immediately make arrangement to cease any work with the programmers that may incur further ongoing charges. I wish to make it absolutely clear that I do not want Carzapp to engage in any activity that incurs expense until relevant directors meetings are had."
Later that day Graham replied by email to Domenic (copied to Marcus) which included: "Yes I have been watching this and managing this as well as I can The accounts are: CarZapp: $246 + $243 = $489.00 CarZapp Holding: $4,288 + $449.98 = $4,738.00 CarZapp Trading: $10.14 Total = $5,217 I have just received the payment receipt for last week from the developers, $2K, which I have paid via Media tag credit card, so this needs to be repaid. I have already reduced their hours substantially. I have asked the developers to stop work today, and I will chat to Oliver again today to understand the possibility of the team dis-banding, I hope at least the main people stay as they know the code well, and there is a lot to know and understand of the inner workings of it. This week, we are in the middle of testing with Eagers, and if they would hurry up and send the test inventory file rough [sic], we may actually get somewhere, but they remain a very cumbersome group to work with, and all tasks drag on and on. I am pushing them, with daily calls and emails to Dave Phillips and to Dealer Solutions. I expect to see inventory on the test app from Eagers this week. However without the dev team, I am unsure of whether this will happen now. … I am doing everything I can to keep this all going. Marcus has been trying to get in touch with Steve Best, I hope we hear from him this week. Ideally we get Eagers to start using the app on ipads, with Zooper cars, it's the lowest hanging fruit to get income. If you have any good ideas, I'm all ears. Thank you for your assistance."
The strained relations between the directors did not improve. A file note of a telephone conversation between Graham and Domenic on 16 February 2017, the conduct and contents of which Domenic conceded in cross-examination probably occurred and which the Court finds did occur, records: "Phone call to Domenic Ruberto, On 16-Feb, 08:57:49 AM I, (Graham Meyerowitz), called Dom to discuss some current issues of the business, regarding software and accounting matters, especially I needed to know why he wanted the source code information as it was trusted to the developers. He became very abusive and angry and said it was none of my business. I explained that it was my business as my responsibility as a director and technical COO was to maintain the confidential and privacy of all things technical. And that if he wanted certain details, I should at least know what he intended to do with it. He repeated that it was none of my business and that I should shut up and listen to him. He went on to scream at me that I never listen to him, and that I am an idiot and need a psychiatrist. I then said that that as a director I was not prepared to allow sensitive information out of the company without good reason and agreement from all directors. He then started to scream and rant how he did not trust me. I then said that I was sorry he did not trust me, and I asked him how I could regain this trust. He continued to scream at me that I was an idiot and that I don't listen to him. I the, offered to send him an update of all account as and come over to him to go through the accounts. I offered to meet with him immediately if that was convenient. He jeered in an angry snarling way that I dare not come to see him, and in a warming threatening way, he said "If I were you I would not come here (to him) now." I continued to offer any assistance, I then said that I had to go to a meeting and said goodbye. Side note: The call left me feeling extremely concerned for the future of the business as I was not able to conduct a reasonable conversation with Domenic."
In early February 2017, Graham and Marcus began substantive negotiations with Pickles. They did not involve Domenic. Dr O'Connor's evidence is that he received a phone call on about 16 February 2017 from Marcus explaining the contact with Pickles.
On Sunday, 19 February 2017 at 2:26 pm Marcus emailed Messrs Roberts and Meyrick of Pickles in anticipation of a meeting the following Tuesday, 21 February 2017. That email included: "Pickles meeting agenda, • The key asset held by CarZapp today sits within its Intellectual property (CarZapp Code summary below) • The intellectual property can be sold/licensed/contracted to Pickles • Discuss the opportunities with specific regard to the alignment/sale/licensing of the IP with/to Pickles • The IP sale/license opportunities allow CarZapp to continue to focus on building and supporting further IP if required by Pickles • Cost of build to date AUD3.2 million, completed platforms ios, android, web and ipad • Last investment valued the platform at AUD6 million"
On 21 February 2017, Mr Best of APE resigned as a director of CZAPL.
Additionally on 21 February 2017, Graham and Marcus met with Mr Meyrick of Pickles to demonstrate CZA.
On 2 March 2017 there was an email exchange between Marcus and Mr Meyrick (copied to Graham but not Domenic), with Marcus telling Mr Meyrick "we will revert back to you with indicative numbers/deal terms".
On or around 7 March 2017, Marcus and Graham met with Pickles to discuss selling the IP to Pickles. Graham's evidence was that a tentative agreement was reached to sell the IP for $2 million.
On or around 8 March 2017, Marcus and Graham met with Dr O'Connor to discuss progress with Pickles and the sale of CZA. They explained to Dr O'Connor that there was no official offer to purchase at this stage but they expected further clarity from Pickles by 10 March 2017.
Both Marcus and Graham requested Dr O'Connor not tell Domenic until a formal offer had been provided by Pickles.
In an email of 13 March 2017 at 9:37 pm to Marcus (copying Graham and Domenic), Dr O'Connor wrote, in part, under the subject heading "ongoing issues": "Starting last Dec I made proposals for a cooling off period over Xmas to allow the main shareholders in Carzapp (yourselves) to step back from interpersonal conflicts. The plan was that all return to the business on or about the 20th of January with fresh ideas and a co-operative frame of mind. It is now 7 weeks since that date without a meeting occurring… The last few days has been an issue for me. There is information from yourself, Marcus, re an offer of purchase for CarZapp … this was to be confirmed by the end of last week. Again by phone this was postponed till the end of the week. I conveyed this information to Domenic at your request; there was however no written evidence of negotiations. I would assume that there would be written communication of a proposed deal involving $2,000,000."
The meaning of "at your request" was debated in cross-examination. Dr O'Connor asserted that Marcus and Graham had requested he delay communicating information to Domenic until Pickles had provided a formal offer. This was because of Marcus' concerns Domenic might "upset the deal". Dr O'Connor said (T120:23-24; 121:10-14) "That's not something I would do lightly. … I was in a situation where I was trying to be fair to both sides, I had difficulty not telling Domenic, I restricted that period till the Friday because I didn't want to withhold that information any longer. But I was specifically asked, and I'll state that again, I was specifically asked to withhold the information till Friday because there was no written confirmation of the deal."
His answer remained unchanged to the Court's enquiry (T122:13-27): "Q. Just so again in fairness to you and so I can understand your evidence, your email of 13 March 2017 at 9.36 pm where you say "I conveyed this information to Domenic at your request", what am I to make of that? A. I think in the context it does seem weird but the actual fact of the situation is that I am probably saying in my own mind there, I don't - that I was withholding the information at their request, that was the implication of that. It's if you like a structural error in a sense but - well I was withholding the information at their request until the Friday. That's the meaning of that sentence in my mind. Q. So you're saying that I should read the statement "I conveyed this information to Domenic at your request", this is in response to, you're writing to "Dear Marcus" so that's Mr Lasarow, you are saying "I conveyed this information to Domenic at your request", I should understand that to actually mean "I withheld this information at your request"? A. That's correct sir."
In the same email of 13 March 2017, Dr O'Connor resigned as mediator stating: "I believe that my presence [as mediator] is no longer useful and you all have the opportunity to meet and discuss your imminent offer. …I hope you do meet and make an appropriate response in the interests of your minority unitholders in Carzapp."
It became apparent in cross-examination that part of his reason for leaving was he "no longer wanted to put up with the rantings and ravings of Mr Ruberto and other displays of his anger and aggression" (T87:36-39). He also stated that he was "tiring of both parties. If you like I was the punching bag in the middle and it wasn't unique to one side" (T89:28).
Though he had formally resigned as mediator, Dr O'Connor continued to facilitate communications with Domenic.
On 14 March 2017 Marcus replied to Dr O'Connor's email in paragraph [85] above (copied to Graham, Domenic and Mr Shmilovits) interpolating his responses in a different colour: "Dear Marcus Starting last Dec I made proposals for a cooling off period over Xmas to allow the main shareholders in Carzapp (yourselves) to step back from interpersonal conflicts. The plan was that all would return to the business on or about the 20th of January with fresh ideas and a co-operative frame of mind. It is now 7 weeks since that date without a meeting occurring. Marcus: This is correct, however both Graham and I have explained the reasons to you step by step as to why a meeting has not taken place. The last few days has been an issue for me. There is information from yourself Marcus re an offer of purchase for Carzapp from Pickles. This was to be confirmed by the end of last week, again by phone this was postponed till the end of this week. I conveyed this information to Domenic at your request; there was however no written evidence of negotiations. I would assume that there would be written communication of a proposed deal involving $2,000,000. Marcus: For clarity, Graham and I held a meeting with you face to face last week highlighting the following points: • Pickles have displayed strong consideration towards CarZapp receiving an offer, there is no official offer of Purchase from Pickles to CarZapp as of today. • Pickles indicated in providing clarity towards the consideration of an offer by COB Friday 10th March • Both Graham, Geoff and Marcus agreed to verbally connect on the 10th March by 4pm • Marcus called Geoff at 4pm on the agreed Friday to explain that there has been no correspondence from Pickles as yet, communication from Pickles was received at around 530pm to request a further 7 days, Marcus immediately called Geoff and communicated the same message. Once again for clarity, there is no formal written offer from Pickles to CarZapp as of today. I have been receiving copies of Domenic's responses to the information that you've asked me to give him but there have either been no replies or I have not received copies. If there is an offer imminent I believe it would normal [sic] for the shareholders in Carzapp to meet and prepare a response to such an offer knowing that it is forthcoming. I broached this with you in our phone call this afternoon and it was agreed that you would email the other shareholders of Carzapp with the intent of planning an answer to an offer from Pickles. Marcus: Domenic's request below, AP Eagers sent us an email from Denis Stark requesting the resignation of Stephen Best, we sent to Eric (our company Lawyer) to circulate to all shareholders, this was done and completed. Has Stephen Best resigned and; Yes, Domenic was sent the same correspondence we received from Eric and Denis -A. We are waiting for AP Eagers to complete the paperwork relinquishing their shares? No, They are currently shareholders. -B. We are we waiting for AP Eagers to assign another director? We have not received correspondence from them. -C. Since his resignation have they now informed us who that new director will be and/or when? We have not received correspondence from them. Geoff: If there is an offer imminent I believe it would normal for the shareholders in Carzapp to meet and prepare a response to such an offer knowing that it is forthcoming. Marcus: A meeting held between Marcus, Geoff and Graham was for the exact purpose of the above statement by Geoff. Failing this offer you indicated discussions with Anthony Klok's organisation could proceed as soon as Wednesday. Marcus: Anthony Klok is meeting Greg Roebuck on Wednesday, thereafter, Anthony may communicate his intentions of potential opportunities with CarZapp. I would suggest that all concerned now have the opportunity to conclude your difficulties. I also spoke and indicated that I would withdraw from any role as mediator or communicator. I believe that my presence is no longer useful and you all have the opportunity to meet and discuss your imminent offer. Marcus: Thank you Geoff, after our phone call yesterday you indicated you would be available until this coming Friday. I wish to pursue my own interests, as you're aware I am not a shareholder in the company which you gentlemen are involved and my presence would not be appropriate at your forthcoming meeting. l hope you do meet and make an appropriate response in the interests of your minority unitholders in Carzapp. As of this email I will not participate in mediation I would wish that you communicate directly and fully with each other and your minority unitholders. Regards Geoff O'Connor"
On 17 March 2017, Dr O'Connor replied (copied to Domenic and Graham): "Marcus In whatever colour you like re my comment "that it would be normal for shareholders in Carzapp to meet and prepare a response to such an offer knowing that it is forthcoming" Your reply is erroneous you asked me to meet "to bring me up to date". I was told the meeting was just for me: I found myself talking to both Graham and yourself in Danny's café in Bondi Junction. lt was explained to me that you had an offer from Pickles for $2,000,000 for Carzapp in its entirety. Furthermore you did not wish this information to be imparted to Domenic.I undertook at your request to do this until last Friday afternoon when we spoke on the phone twice. At this time in the second phone call I was informed that Pickle's requested a further delay till Friday (today) before written confirmation would be given. As per my undertaking I refrained from discussing the Pickles offer with Dom until 5pm last Friday at which time I related the details you had given me to him. It is now one week later and l have not heard from yourself or anyone else as to the outcome . Does this imply: 1. There is no offer from Pickles if so why not. 2. Was there any information from Anthony Kloks meeting last Wednesday. 3. Did the shareholders of Carzapp have a meeting to discuss a reply to an offer from Pickles."
On 20 March 2017, Graham emailed Dr O'Connor, Marcus, Domenic and Ms Berlandier under the subject heading "Finding resolution": "Dear Geoff Thank you for your email and for meeting at Dannys. At our meeting at Dannys, Marcus and I explained that Pickles are very keen to proceed, and have verbally indicated they will offer a sum to purchase 100% of the IP. It's all positive, but due to the fact that we are dealing with a large company, there are many people for them to cover off before an official written offer can be made. Without a firm written offer, concrete decisions are a challenge to make. As always Marcus and I have been working tirelessly in finding a solution and resolution. We are currently focussing on getting this deal to the point that we receive a written offer, and we anticipate this to eventuate on 27th March. We have already spent much time, and incurred our own personal cost on this deal. We sincerely hope that this deal happens and brings a resolution to all, as right now CarZapp has no alternative that we are aware of. Rest assured that as soon as a written offer is tabled, you and all shareholders will be notified. All shareholders need to be working to find a solution that will move the business forward, and bring concrete deals forward. In this regard, if any other shareholders have a concrete written offer then please forward this news. Failing any positive input from other shareholders, all we ask is your patience while we continue to provide solutions to move forward and remove the current impasse. We do not have any positive outcome as yet from Anthony Klok."
On about 23 March 2017, Marcus and Graham met again with Mr Meyrick to discuss Pickles' purchase of CZA. Domenic was not informed of the meeting and was not present. It appears that Marcus and Graham agreed to sell the IP and CZAT to Pickles for the negotiated price of $2 million. Graham's evidence is that at this meeting, Mr Meyrick proposed to Graham and Marcus that Pickles was interested in employing them as consultants for CZA on an annual salary of $70,000 and a 25% equity stake in CZAT after Pickles' purchase (the "Consultancy Agreement").
On 24 March 2017, Marcus emailed Mr Meyrick (copied to Graham) stating: "Morning Simon, Just thinking this through to help in the short term to facilitate and disclose the potential purchase re internal shareholders excluding Eagers and without holding you/Pickles to any commitment for the purpose of internal circulation/reporting only. Would you be able to send through a one liner. Perhaps "We are seriously interested in acquiring 100% of CarZapp's IP and we are continuing to follow Pickles/our procedures in delivering/achieving this result. Thank you for your patience", or whatever you're comfortable saying, not too much detail. Let me know if ok"
Mr Meyrick replied to Graham on 27 March 2017 saying: "I will be in a position to send you something along those lines on Tuesday evening."
On 26 March 2017, Domenic emailed Marcus and Graham (copying Dr O'Connor and Ms Berlandier) expressing his dissatisfaction about not being included in discussions. This included a covering email and then his response to Graham's email of 20 March 2017 by Domenic interpolating his comments (which for ease of reading have been reproduced in what follows in italics - otherwise all bolding and underlining is in the original): "Graham and Marcus, What little correspondence you have provided lacks substance, specifics and is convoluted at best, it continues to highlight your lack of credibility and your defiance to act in good faith. You claim Pickles "are very keen to proceed"... this clearly indicates that there has been a process and or series of communications to which I have not been party to. In regard to any meeting held with Pickles which I was not present at... please table all/any of these (times and dates) and what was discussed both verbal and written and who where the participants present. For the sake of clarity…. TABLE ALL THE DETAILS. Now see below my response to your previous email. … Dear Geoff Thank you for your email and for meeting at Dannys. At our meeting at Dannys, Marcus and I explained that Pickles are very keen to proceed, and have verbally indicated they will offer a sum to purchase 100% of the IP. Clarify sum, What was the specific sum offered/discussed? and table all the correspondence ... written and verbal that you've had with Pickles. It's all positive, but due to the fact that we are dealing with a large company, there are many people for them to cover off before an official written offer can be made. The message I received was that the offer was set to come on Wednesday 8th ... which then became Friday 10th, and then you claim Pickles asked for a further 7 day period of "grace" was the use of the word "grace" your choice of word or specifically the word they used? Without a firm written offer, concrete decisions are a challenge to make. Clarify exactly what you mean by this, what concrete decisions are you refening to? Why is it a challenge for you to not have information in writing yet you expect me to make concrete decisions without information. How on earth can you justify this double standard? As always Marcus and I have been working tirelessly in finding a solution and resolution. We're currently focussing on getting this deal to the point that we receive a written offer, and we anticipate this to eventuate on 27th March. Your claim of "working tirelessly" is melodramatic and meaningless. We have already spent much time, and incurred our own personal cost on this deal. No one has asked you to spend ANY time or money/expenses so don't even think for one moment that you will be putting forward an invoice to Carzapp for renumeration [sic] or compensation in anyway shape of form. Let us be totally clear, I instructed you in January on 2 occasions to NOT incur any expenses on behalf of Carzapp and this still stands. I also instructed you to NOT have any meetings/contact with investors, i.e. Pickles! UNTIL we sorted out our internal affairs first BUT You go ahead and recklessly act independently yet again, Putting Carzapp and its stake holders at great risk. Further to your., "working tirelessly" comment, to date, this hasn't at all held you in good stead there is a clear difference between working had [sic] (tirelessly) and working smart. We sincerely hope that this deal happens and brings a resolution to all, as right now CarZapp has no alternative that we are aware of. This is contradictory to your opening remarks, "they are very keen to proceed, and have verbally indicated they will offer a sum to purchase" and also in your second sentence, "it's all positive"... Why are you now relying on "hope"?!! Hope is not a strategy or a plan. What is your plan(s) should the offer not come tomorrow? 27/March. Rest assured that as soon as a written offer is tabled, you and all shareholders will be notified. Based on your poor history of communication (or lack there of) I certainly cannot rest assured in any way shape of form whilst you are acting independently and withholding information. All shareholders need to be working to find a solution that will move the business forward, and bring concrete deals forward. Graham and Marcus, once again another perfect example of how you both "put the horse before the cart". To date, I lack statutory information about the business. How can you expect me to formulate a plan/solution of any kind without the information to make meaningful and informed decisions. I do not believe that it would be prudent to approach investors without knowing the true position of the business. Once again I remind you that I have been asking you to provide information for an extended length of time. So in your very own words, "all shareholders need to be working to find a solution", how about you begin by taking your own advice and supply me all the information I have asked for. In this regard, if any other shareholders have a concrete written offer then please forward this news. Failing any positive input from other shareholders, all we ask is your patience while we continue to provide solutions to move forward and remove the current impasse. No patience or authority has been nor will given for you to act independently or without my knowledge. You are NOT to speak on my behalf. At this point in time, the only solution to even begin moving beyond this "impasse" is for you to supply me with all the information that I have asked for in full context and precise detail. This also means no omissions. If you choose to ignore or disregard this solution, then provide a detailed response as to why. Graham and Marcus, your tone implies that you just don't get it! you plainly fail to comprehend that YOU are on notice, and have been since before Christmas. Failing any positive response to my correspondence, please refrain from sending your irrelevant, non specific and time wasting emails. Simply provide me with the statutory information which I have been asking for. Based on your behaviour to date I would go so far as to put it to you that there is no offer coming on Monday or that any offer even exists from Pickles. Regard Domenic Ruberto Director and FOUNDER of the Carzapp concept"
Domenic's signing himself as "FOUNDER of the Carzapp concept" and his final barb "…I would go so far as to put it to you that there is no offer coming on Monday or that any offer even exists from Pickles" demonstrates how completely dysfunctional the relationship between Domenic and his fellow directors had become.
On 28 March 2017 at 4:57 pm Mr Meyrick emailed Graham and Marcus (as requested): "Hi Marcus/Graham, We are seriously interested in acquiring 100% of CarZapp's IP and we are working through our procedures in achieving this result. Thanks for your patience."
On 28 March 2017, Graham sent an email at 10:43 pm to Marcus and Domenic (copied to Mr Shmilovits) with the subject line "Notice of Directors meeting to be held at 12:00 pm 29 March 2019". The email reads: "Notice to all Directors of CarZapp Pty Ltd and CarZapp Trading Pty Ltd Please find attached minutes to be passed at a meeting of Directors, to be held at 12:00 PM 29 March 2019. Please reply with your intent to meet in person, by phone, or by voting by email. Based on receiving the following email below from Simon Meyrick from Pickles Auctions dated 28th March 2017 [this is the email reproduced in the preceding paragraph of this judgment], CarZapp Pty Ltd and CarZapp Trading Pty Ltd note the following summary board meeting requests. 1. GM, ML and DR intend to note and confirm that the company is progressing to sell 100% of the Intellectual Property of CarZapp Pty Ltd and the trading of CarZapp Trading Pty Ltd to Pickles Auctions for the total sum of AUD$2,000,000 (Two Million Dollars) 2. GM, ML and DR intend to note and confirm that the company is progressing to sell 100% of the Intellectual Property of CarZapp Pty Ltd and the trading of CarZapp Trading Pty Ltd to Pickles Auctions for the total sum of AUD$2,000,000 (Two Million Dollars). The directors intend to note a % of the sale consideration is to be realised for consideration to both Geoff and Suzanne and/or their respected [sic] entities."
On 29 March 2017 in an email at 5:39 pm to Graham, copying Marcus and Mr Shmilovits, Domenic confirmed he would be attending the meeting (which was ultimately rescheduled to 3 April 2017) with his "financial controller". The email included: "Following from my earlier email and given the gravity of what is to be discussed, I will be bringing my financial controller with me to provide advice. We can make ourselves available on Friday at 11.00am at Bondi Junction, Marcus and Graham, I would like to add that it was at 10.43pm last night that I was informed of the board meeting that was called for today at 12.30pm, I do not consider this to be a reasonable amount of notice. As is standard practice, circulate (what you will be tabling) all knowledge on the topics to be discussed including any verbal or written correspondence prior to any/this board meeting. You are also to circulate and provide the most current company financials, any and all correspondence with AP Eagers from 1/12/2016 (written and verbal), and all correspondence with Pickles from 1/12/2016 (written and verbal) as well as any and all correspondence you have had with Anthony Klok. (written and verbal) and the same for any other person or entity that we have not been informed of over the same time period. Further to this you are to provide any and all correspondence that you have had with Geoff and/or Kerri O'Connor and Suzanne Berlandier, both (written and verbal) from the 1/11/2016, you have claimed that everyone has been kept up to date so I'm sure that all the information being asked for in this email will be readily available to you to provide. Needless to say, I have repeatedly been asking you for this information over the past few weeks in preparation for a board meeting and to date your response(s) has been unsatisfactory. Again given the magnitude of the situation we request all this information immediately today and whatever information is further available by 10.00am tomorrow. This is for the review by my Legal representative Philip Beazley and forensic accountant Al (Achilles) Constantinidis throughout tomorrow and therefore having at least some time to process the information and contribute as productively as possible. We look forward to receiving the information. We will see you on Friday 31/3/17 at 11.00am at Eric's Bondi Junction Office. (Eric could you please provide us you Bondi Junction address)."
On 30 March 2017 at 6:11 pm, Graham sent an email to Domenic's accountant (referred to by Domenic in his email as his "financial controller"), Mr Achilles Constantinidis, (copied to Marcus): "Great chatting. Please find attached headline number in the PnL of both companies aggregated, namely: CarZapp Trading PL and CarZapp PL. The detail journal entries are being checked and reconciled by Carron at AFYF. For the sake of clarity, disclosure and information flow, the following is the timeline of events with specific regard to information flow. 1. Geoff O'Connor was appointed and agreed to be appointed on the 12th December 2016 as a mediator on behalf of the company. This was agreed to by Domenic, Graham and Marcus. 2. Geoff O'Connor resigned as mediator from CarZapp on the 13th March 2017 3. During his time as mediator, Geoff received a full overview as to the status of CarZapp from Marcus, Domenic and Marcus [sic], Geoff's roll [sic] was to inform Domenic, Marcus and Graham of all activity as well as to seek resolutions, this included but not limited to all information relating to AP Eagers, Pickles, Anthony Klok and general activity. 4. The only information Geoff did not receive directly was the resignation of Stephen Best as director and an email from Keith Thornton, both these emails and relevant information were provided/emailed directly to Domenic. 5. On Geoff's resignation, from the 13th March to date, the only new/relevant/material information was an email from Pickles Auctions confirming their intent to purchase 100% of CarZapp's IP, this was received on the 28th March 2017 and subsequently an immediate board meeting minute/s was/were initiated. We have emails with Geoff confirming the above."
The profit and loss summary attached to that email was to the effect that through the various entities, $700,000 had been raised and $719,729.57 had been spent.
On 2 April 2017, Mr Meyrick sent an email at 5:12 pm to Graham and Marcus attaching a draft "Letter of Intent" which outlined the terms of Pickles' offer to purchase CZA's IP and business of CZAT for $2 million. The email states: "Hi Graham/Marcus - attached Letter of Intent in line with discussions. This is not considered to be an official offer without a signature and a signature will not be applied without doing so in conjunction with the other agreement. I would expect the agreement being prepared on your side, for the most part, to mirror the content of the document sent to you on Friday."
The "other agreement" referred to the Consultancy Agreement, see paragraph [94] above. At 7:28 pm, Marcus replied to Mr Meyrick (copying Graham and Chris Avramis of Pickles) attaching an amended draft version of the Letter of Intent. Notably, this version removed reference to the meeting and discussions of 23 March 2017, where the Consultancy Agreement was discussed. Marcus' email included "Can you also kindly remove the first sentence "We refer to our recent meeting…that"..". The Consultancy Agreement was not disclosed to Domenic until after the settlement of the sale to Pickles on 24 May 2017.
On 3 April 2017, directors' meetings for CZAPL and CZAT were held at which it was resolved to sell the IP to Pickles. The circulating resolution of directors for CZAPL was signed and dated by all three directors: "All directors of the company unanimously confirm they are in favour of the resolutions set out in this document: DOCUMENTS TABLED: NOTED the Company has received and reviewed the following tabled documents: (a) Letter of offer by Pickles Auctions offering to buy 100% of the Intellectual Property of the Company and the trading activity of the Carzapp Trading (Aus) Pty Ltd. SALE OF BUSINESS : RESOLVED the Company proceed with the proposed sale of business to Pickles Auctions and obtain a detailed final agreement to be presented to the board."
The "letter of offer" referred to is accepted by the parties to be the unsigned 2 April 2017 version, and which was subsequently sent in a signed version on 5 April 2017: "RE: SALE AND PURCHASE OF INTELLECTUAL PROPERTY AND IMPROVEMENTS OWNED BY CARZAPP PTY LTD AND SALE OF SHARES OF CARZAPP TRADING PTY LTD (AUS). Carzapp Pty Ltd ("CPL") will sell all of the global Intellectual Property necessary to carry on the business of Carzapp Trading Pty Ltd (AUS) ("Carzapp") to Pickles Auctions Pty Limited ("Pickles") together with the shares of Carzapp. 1. The purchasing entity is Pickles Auctions Pty Limited ACN 003 417 650. Stakeholders: Peter Pickles, Tim Pickles and Jenny Austin, Directors of Pickles Auctions Pty Limited. 2. Amount of Consideration: $2,000,000 (Two Million Dollars) (a) The distribution of the Consideration will be in accordance with the commercial reality of the transactions. (b) The Intellectual Property and improvements are defined as: Intellectual Property means any and all intellectual property, proprietary rights and industrial property rights (whether registered or unregistered) throughout the world including, without limitation, copyright (including future copyright and rights in the nature of or analogous to copyright), moral rights, performers' protection, trade marks, logos, service marks, designs and circuit layouts, software, business methods and methods of practice, existing now or in the future and whether or not registered or registrable that are owned or held by CPL, Carzapp and/or any related entity or associated person or used in or necessary for the conduct of the Business including: (i) all trade marks; (ii) all software, apps and all related documentation; (iii) trade secrets, patents, inventions, product names, patents, designs, copyright, trademarks, know how, brand name, domain names and any other rights whether or not registered or capable of registration; (iv) any application or right to register these rights; and (v) all renewals, and extension of these rights is defined as being the software source code; trademarks (registered arid pending) globally, business names, domain names globally, patents, trade secrets, current and future enhancements Improvements means all technical information, enhancements, updates, modifications or improvements (including any patents, discoveries, patentable inventions and know-how, trade secrets or confidential information developed or acquired relating to the use, development, marketing and promoting of any of the Intellectual Property and for the conduct of the Business, whether undertaken at the request of CPL, Carzapp or any related entity or associated person or not created between the date of this offer and settlement of the sale agreement. (c) We assume the Business is being sold as a going concern therefore no GST is payable; (d) The consideration amount includes all plant, equipment and stock deemed as being necessary in the continued operation of Carzapp to be determined during the due diligence period. 3. This offer is subject to Board and finance approval and a satisfactory due diligence. 4. The due diligence process will take approximately 4 weeks from acceptance of our offer and CPL, Carzapp and all related entities and associated persons will provide all necessary assistance (including information and documentation) for Pickles (and its advisors) to complete the due diligence within this period. 5. The completion date will be 14 days after Pickles notifies CPL and Carzapp that it has completed its satisfactory findings in its due diligence process. 6. This offer is non-binding until the parties execute a contract or contracts of sale/purchase for the Intellectual Property and Improvement and the shares in Carzapp."
On 5 April 2017 at 8:48 am Mr Meyrick sent to Marcus and Graham the offer for the Consultancy Agreement described as "the second offer in draft". It appears that he assumed both offers (for the purchase of the IP and for the Consultancy Agreement) would be shown to the "other shareholders" which relevantly includes Domenic: "Morning - attached is the second offer in draft. Please advise if you are agreeable to it or have any questions? The main point to stress here is that these offers and subsequent acceptance and executions are dependent on each other and both are void without the other. I'm in meetings all day in KL today but if we are all in agreeance I will find an opportunity to accept the changes and put signatures on each to send over to you for you to present to the other shareholders."
On 8 April 2017 by an email of 8:06 pm titled "Media Tag Pty Ltd - Letter of Offer", Pickles sent to Graham and Marcus, as directors of Media Tag, a signed letter of offer for the Consultancy Agreement titled "change in shareholding of Carzapp Trading Pty Ltd (Aus)": "RE: CHANGE IN SHAREHOLDING OF CARZAPP TRADING PTY LTD (AUS). Subject to Carzapp Pty Ltd ("CPL") selling all of the global Intellectual Property and all Improvements necessary to carry on the business of Carzapp Trading Pty Ltd (AUS) ("Carzapp") to Pickles Auctions Pty Limited ("Pickles"), Pickles will issue to Media Tag Pty Ltd ("Media Tag") shareholding of Carzapp to the equivalent of 25%. This will result in Carzapp being 75% majority owned by Pickles and 25% minority I owned by Media Tag. 1. The issuing entity will be Pickles Auctions Pty Limited ACN 003 417 650. Stakeholders: Peter Pickles, Tim Pickles and Jenny Austin, Directors of Pickles Auctions Pty Limited. The purchasing entity will be Media Tag Pty Ltd ACN 128 358 270. Stakeholders: Graham Meyerowitz and Marcus Lasarow, Directors of Media Tag Pty Ltd. The 75% shareholder of Carzapp will be Pickles. The 25% shareholder of Carzapp will be Media Tag Pty Ltd. Pickles will grant a non-exclusive royalty free license to use the Intellectual Property and Improvements for the purposes of conducting business activities as defined under clause 9 below. 2. Amount of Consideration: $25 (Twenty Five Dollars) (a) The distribution of the Consideration will be at the discretion of Pickles. (b) The Intellectual Property and Improvements which are subject to the non-exclusive royalty free license are those that will be owned by Pickles but are necessary to carry on the business of Carzapp and are defined as: Intellectual Property means any and all intellectual property, proprietary rights and industrial property rights (whether registered or unregistered) throughout the world including, without limitation, copyright (including future copyright and rights in the nature of or analogous to copyright), moral rights, performers' protection, trade marks, logos, service marks, designs and circuit layouts, software, business methods and methods of practice, existing now or in the future and whether or not registered or registrable that are owned or held by CPL, Carzapp and/or any related entity or associated person or used in or necessary for the conduct of the Business including: (i) all trade marks; (ii) all software, apps and all related documentation; (iii) trade secrets, patents, inventions, product names, patents, designs, copyright, trademarks, know how, brand name, domain names and any other rights whether or not registered or capable of registration; (iv) any application or right to register these rights; and (v) all renewals and extension of these rights is defined as being the software source code, trademarks (registered and pending) globally, business names, domain names globally, patents, trade secrets, current and future enhancements Improvements means all technical information, enhancements, updates, modifications or improvements (including any patents, discoveries, patentable inventions and know how, trade secrets or confidential information developed or acquired relating to the use, development, marketing and promoting of any of the Intellectual Property and for the conduct of the Business, whether undertaken at the request of CPL, Carzapp or any related entity or associated person or not. 3. Carzapp will retain the services of Media Tag for the purposes of ongoing business and software development and any other services deemed necessary by Carzapp in furthering its interests in both Carzapp and that of Pickles which includes any other development of any of the Intellectual Property for other Pickles opportunities, subject to the terms of a services agreement on terms acceptable to Pickles. The services agreement between Media Tag and Carzapp will define the terms of the engagement (including that all intellectual property created will vest in Pickles on and from creation) and Media Tag will receive the sum of $25,000 + GST per calendar month for a minimum period of one year from the execution date of the sale agreement. The authorized representatives of Media Tag are Graham Meyerowitz and Marcus Lasarow. It is assumed unless otherwise agreed that the services being provided by Media Tag will be provided by the authorized representatives and that the authorized representatives will commit their services for a minimum of 200 hours per calendar month for the duration of the services agreement unless otherwise agreed by the parties. 4. For every additional significant new instance to be developed for the sole use by Pickles for its opportunities and for Pickles sole benefit (to be defined in the services agreement), Pickles and Carzapp will enter into a separate services agreement outlining each parties' obligations (including that all intellectual property created will vest in Pickles on and from creation). The fee payable by Pickles to Carzapp for each such instance is estimated to be AU$10,000 + GST per calendar month or as otherwise defined and agreed to in each such service agreement. For the avoidance of doubt, all revenue derived from any new significant instances shall be for the benefit of Pickles only. 5. The new shareholder agreement for Carzapp, board members, share class and distribution of shares shall be such that Media Tag Pty Ltd will be issued with one board seat to represent its interests. 6. This offer is subject to Board approval. The offer is further subject to the successful sale of and purchase by Pickles of the Intellectual Property and Improvements of CPL and shares of Carzapp. For the avoidance of doubt, the acceptance of both the offer to purchase the Intellectual Property and Improvements of CPL and the shares of Carzapp as well as the issuance of 25% shareholding of Carzapp to Media Tag are dependent on each other and cannot be executed together with all and any service agreements, shareholder agreements and contracts relating to what has been proposed and agreed to between Pickles and Media Tag. 7. The issuance of Carzapp shares from Pickles to Media Tag will be completed within 14 days of settlement of the sales agreement of the Intellectual Property and Improvements of CPL along with the shares of Carzapp. 8. Pickles is in the business of connecting sellers and buyers of new and used motor vehicles, plant & equipment, trucks & machinery, boats, motorcycles, industrial equipment, general chattels and insurance salvage of the same class of asset together with ancillary services including but not limited to the brokerage, sale and or provision of services such as insurance, finance, warranty, aftermarket accessories, transport, valuations and advisory services. The sale agreement and new shareholder agreement will contain competitive restrictions to be imposed upon Media Tag Pty Ltd and its authorized representatives in relation to all Pickles' business activities with the exception of general chattels. 9. The current and proposed business activities of Carzapp (ie the Business) are automotive dealer to dealer and dealer to private consumer sales of motor vehicles globally. 10. This offer is non-binding until the parties execute a contract or contracts of sale/purchase for the Intellectual Property and Improvements of CPL and the shares in Carzapp, a services agreement (as per 3 above) and new shareholder agreement of Carzapp."
On 10 May 2017, Mr Shmilovits emailed draft contracts to Marcus, Graham and Domenic (copied to Mr Constantinidis) that had been prepared by Pickles' solicitors. The email states: "Pickles offers to buy the entire activity for $2m. It offers $1.9 for the IP held by Carzapp Pty Ltd (namely this is an asset deal), and $100k for the shares of Carzapp Trading Pty Ltd (namely this is a share deal). We understand that this split is set by Pickles. This split is disadvantageous to your two investors who does [sic] not have any shareholding in Carzapp Pty Ltd. In this scenario, they will lose practically all of their investment. Our understanding is that at least two of the founders (Graham and Marcus) are willing to offer to the investors a more balanced distribution, based on each of them receiving 3.3% of the entire purchase price. This will require entering into a Distribution Deed between all relevant entities of the 6 stakeholders. We therefore attach a draft resolution, to be considered and signed by the directors, whereby resolutions are passed along the above lines."
There is no evidence that Domenic took any steps to obtain his own legal advice in relation to the draft agreements at any time before the sale of the IP to Pickles was entered into. As will be apparent from what follows, he did not attempt to take any part in the sale process that he was now clearly on notice was under way. Domenic sought to explain this on the basis that he did not have a "fully formed intention of selling the IP" to Pickles and that he intended to obtain independent legal advice about whatever the final form of any sale document would be. However, he gave no evidence of ever communicating this state of mind to Marcus or Domenic and I find it to be a disingenuous response.
The draft resolution referred to in that email was signed on 11 May 2017 by both Graham and Marcus. Graham emailed the signed version to Domenic on that day (copied to Mr Constantinidis): "NOTED the Company has received and reviewed the following tabled documents: a) Draft Asset Sale Agreement by Pickles Auctions offering to buy 100% of the Intellectual Property of the Company for a total of $1,900,000.00; b) Draft Share Sale Agreement by Pickles Auctions offering to buy 100% of the shares of Carzapp Trading (Aus) Pty Ltd ("Carzapp Trading") for a total of $100,000.00; and c) Corresponding draft director's resolution by the board of Carzapp Trading. Sale of Business: RESOLVED the Company proceed with the proposed sale of assets to Pickles Auctions and obtain a detailed final agreement to be presented to the board. Allocation of Purchase Price: RESOLVED a) in order to facilitate the sale process and to ensure consent by all relevant stakeholders in both companies, the directors will negotiate the allocation of the purchase price (after payment of liabilities) with all as follows: Entity Relevant proportion AP Eagers 10% Meylex Pty Ltd (CAN 079 400 392) atf Amalex Family Trust 27.8% Mark Lasarow atf Jeth Family Trust 27.8% Twinkledom Pty Ltd (CAN 606 702 416) 27.8% Flobert Pty Ltd (CAN 612 949 336) atf Berison Cmb Trust 3.3% Busy Traveller Pty Ltd (CAN 097 668 221) atf R.G. O'Connor Family Trust 3.3%

b) The Company and Carzapp Trading will act to obtain appropriate releases from all shareholders to the above effect."

As the resolution notes, there were two contracts. The first was a Business Sale and Purchase Agreement to which the parties were CZAPL (vendor), Pickles (purchaser), and Graham and Mark (covenantors) (the "BSPA"). This was the contract to sell Pickles the IP and related assets. The second contract was a Share Sale and Purchase Agreement (the "SSPA") to which the parties were four vendors (Marcus, Meylex, Twinkledom and CZAPL - the shareholders in CZAT), CZAT and Pickles (as purchaser). This was the contract to sell all of the issued shares in CZAT to Pickles. Graham also sent a copy of the signed resolution directly to Mr Constantinidis (copied to Marcus but not Domenic) under cover of an email which said the later resolution superseded the resolution of 3 April 2017.
I accept Graham and Marcus' evidence that the need "to obtain appropriate releases from all shareholders" for a deed of resolution had not been solicited by them but had been proposed by Mr Shmilovits.
APE gave informal consent to the transaction sometime around 15 May 2017.
On 18 May 2017 at 12:30 pm, Marcus emailed Mr Thornton copies of the Directors' resolutions set out in paragraph [112] above, the BSPA and the SSPA and requested "the following response from AP Eagers … "we have reviewed the attached directors' resolution and provided our irrevocable consent to the subject matter of the resolution"."
Mr Thornton replied at 4:06 pm, stating: "Marcus this has been passed onto Denis for comment and execution. As discussed this appears to be the best possible outcome for shareholders but will ensure no adverse conditions before written confirmation. Well done."
During this period, Domenic was being kept at a distance and was not copied into emails with Pickles regarding the sale. For instance, an email of 21 May 2017 from Pickles' lawyers was sent to Graham, Mr Meyrick, and Mr Shmilovits. However, nor did Domenic respond to such emails as were sent to him, including those requesting that he sign the resolution set out in paragraph [112] above.
On Sunday, 21 May 2017 at 4:47 pm, Graham sent an email titled "Sale to Pickles" to Marcus, Domenic at CZA and Better Car Company (copied to Mr Shmilovits and Mr Constantinidis). The email forwarded Mr Shmilovits' email of 10 May 2017 referred to at paragraph [110] above which included the 11 May resolution executed by Marcus and Graham. The email also outlined the timetable for the sale completion (with the resolution to which it refers being the resolution already signed by Marcus and Graham set out in paragraph [112] above): "Please note that the timeline to the deal completing is as follows: 1. Monday 22nd May, 12:00 PM: Deadline for the attached resolution needs to be signed by: Graham; Marcus and Domenic, and returned to Eric. Note: Eric is waiting for this resolution so that he can continue his work. Eric then needs 2 days to complete the sale documents, by Wednesday, which is the deadline given by Pickles to have all documents ready. 2. Wednesday 24th May, 2 PM: Deadline to submit all signed documents to Pickles. Payment is expected within 7 days of Wednesday 24th May. Please respond by signing this resolution today, 21st May or latest tomorrow 22nd May before 12 PM, and distributing to Eric by return email. Marcus and Graham will be available tomorrow, 22nd May from 10:00 am to discuss any questions."
Neither Domenic nor Mr Constantinidis responded to the email set out in the preceding paragraph.
On 22 May 2017 at 5:41 pm, in an attempt to bring matters to a head, Graham emailed Marcus and Domenic attaching notice of a directors' meeting for CZAH on 23 May 2017 at 5:00 pm and attaching the SSPA. The business of the meeting was described as "authority to enter into share shale agreement for" CZAT. It is typical of some of the confusion that seemed to characterise the parties' dealings that this was purportedly to be a meeting of CZAH, which was not a vendor under the SSPA. In any event, there was no response from Domenic and the meeting did not take place.
On 23 May 2017, Pickles' solicitors sent a revised BSPA to Mr Shmilovits. In response, Mr Shmilovits noted that there would now only be one agreement - the BSPA - and suggested that completion would need to be pushed back and further negotiations could occur at a meeting scheduled for 24 May 2017.
Notwithstanding Ms Shmilovits' concern that more time would be required, on 24 May 2017, the BSPA was executed by Pickles, and by Marcus and Graham for CZAPL. They also entered into the Consultancy Agreement.
The BSPA included: "7 Change of name and contact details (a) Before Completion, the Vendor must do all acts, matters and things required to convene a meeting of its members at which the members approve (by way of special resolution) the change of name of the Vendor to a name that complies with clause 7(b). (b) On and after Completion, the Vendor must not use, and must ensure that none of its Related Bodies Corporate uses (either on its own or in combination with other material) the words Carzapp, Zapp Chat or any words expressions, letters, names, logos or marks substantially identical to, similar to, or likely to be confused with, any of those words as part of its business, company or domain name, trade mark, logo, or get up. (c) The Vendor must do all things reasonably necessary to assist the Purchaser to become the registered owner of each of the Business Names. (d) The Vendor must do all things reasonably necessary, including executing any document, to assist the Purchaser to obtain the use and benefit of the existing telephone and fax numbers of the Business with effect from the Completion Date. 8 Vendor Warranties 8.1 Vendor Warranties Except as set out in this agreement, or consented to by the Purchaser, each of the Vendor and each Covenantor separately warrants and represents to the Purchaser that each Vendor Warranty is true, accurate and not misleading or deceptive or likely to mislead or deceive in any respect on the date of this agreement and at Completion. 8.2 Application of Vendor Warranties The Vendor and each Covenantor separately acknowledges and agrees that each Vendor Warranty is given as at the date of this agreement and as at Completion, except where a Vendor Warranty is expressed to be given as at a specific date, in which case that Vendor Warranty is given as at that date only. 8.3 Application of Covenantors Warranties The Covenantors are severally liable to the Purchaser rather than jointly and severally. Each of the Covenantors is liable to 50% of any Claim raised by the Purchaser. 8.4 Interpretation of Vendor Warranties Each Vendor Warranty is to be construed separately and the meaning of each Vendor Warranty is in no way limited by reference to any other covenant, warranty or representation in this agreement. 8.5 Duration of Vendor Warranties Subject to clauses 8.6, each Vendor Warranty remains in full force and effect until the Warranty Expiry Date. 8.6 Continuation of Vendor Warranties If the Purchaser gives the Vendor and each Covenantor notice of a Claim under clause 8.14(a) for a breach of a Vendor Warranty, that Vendor Warranty does not cease to have force and effect on the Warranty Expiry Date to the extent of any cause created prior to the Warranty Expiry Date and included in the said notice, but will continue in full force and effect to the extent required to enable the Purchaser to prosecute a Claim for breach of that Vendor Warranty occurring prior to the Warranty Expiry Date and included in the said notice. For clarity, this clause does not allow the Purchaser to bring a Claim under clause 8.14(a) for a breach of a Vendor Warranty for cause created after the Warranty Expiry Date. 8.7 No Claims after Warranty Expiry Date No Claim may be brought for breach of a Vendor Warranty after the Warranty Expiry Date, and any Claim that is brought after the relevant Warranty Expiry Date will, for the purposes of this agreement, be deemed to be out of time, invalid and unenforceable. 8.8 Vendor's and Covenantors' Indemnity Subject to the provisions of this agreement, the Vendor indemnifies and each Covenantor separately indemnifies the Purchaser in relation to any Claim against the Purchaser and for any Liability incurred by the Purchaser arising from any breach of a Vendor Warranty. 8.9 Continuing obligation The indemnity in clause 8.8 is a continuing obligation. 8.10 Thresholds for Claims for breach Despite any other provision in this agreement, the Vendor and each Covenantor are not liable for any breach of a Vendor Warranty unless and until: (a) the Purchaser has given notice under clause 8.14(a); (b) a Claim made about a breach or series of breaches of a single Vendor Warranty exceeds $20,000 in value; and (c) the aggregate amount of all Claims for all breaches of Vendor Warranties is more than $50,000. 8.11 Maximum Liability In addition to any other provision of this agreement, the Vendor's maximum aggregate Liability for all breaches of Vendor Warranties will not exceed $800,000."
At the time of execution of the BSPA on 24 May 2017 Marcus and Graham also gave personal, signed undertakings to Pickles handwritten on Pickles' solicitors' notepaper which included an obligation within 14 days "to provide a signed copy of the resolution and associated ASIC form 205 recording the change of name of Carzapp Pty Ltd to a name that does not include the name 'Carzapp' or any other name that is similar".
At 11:24 pm, Mr Shmilovits emailed Domenic, Marcus and Graham and APE confirming that CZAPL "has signed an agreement of sale with relation to the business and assets of the company" and issuing board and shareholder meeting notices for CZAPL and CZAT with accompanying draft resolutions "to be considered and passed in all three meetings" including to change the names of the companies. The meetings were scheduled for the following day at 3:00 pm.
On 25 May 2017 at 12:49 pm, Domenic replied to Mr Shmilovits, copying Graham and Marcus: "Thank you for your email of 11.23pm last night calling for a board meeting today at 1500. Due to the short notice, I wish to cancel this proposed meeting and will be proposing an alternative time and venue. In order to consider any resolution, I require information pertaining to the company financials, which I have asked for on numerous occasions. Please provide that information immediately. Please refer to Clause 3.12 of the Shareholders Agreement which clearly outlines that any action proposed must be approved by a members meeting. Please advise me immediately that the directors meeting for this afternoon has been cancelled. If I do not hear from you by 2pm this afternoon, 25 MAY 2017, acknowledging cancellation of the directors meeting I will consider further urgent legal action."
At 2:48 pm, Graham replied: "Thank you for your emal to Eric received at 12:49 PM advising of your unavailability to attend the board meeting scheduled for 3 PM this afternoon. To accommodate you, the other directors of CarZapp would be happy to postpone the meeting until tomorrow (Friday 26 May) at a time during business hours that is convenient to you, except between 1 PM and 3:30 PM. So the meeting may be held anytime between 8:00 AM and 1:00 PM tomorrow or between 3:30 PM and 6:30 PM tomorrow. As regards a location of the meeting, myself and Marcus other [sic] for you to attend by telephone, as it may be difficult for all Directors to meet at the location at the agreed time. Please let us know what time works for you. If I don't hear from you by the end of the day, I'll reconvene the meeting for 4 PM tomorrow, and confirm the location with the telephone option, and send out additional notice to that effect. As regards your request for financials, I attach the financials we have (in some cases draft only as that's what are available) and I'm copying in Carron Johnston from our accountants who can confirm if there are any other financials that I've missed out. In short though, the financials indicate that CarZapp continues to be a loss-making enterprise which is relying on continued funding from its owners to avoid insolvency. It is on this basis that we all agreed to sell the company's intellectual property to Pickles in early April, which sale was concluded yesterday. Obviously the financials for CarZapp are now out of date, given the intellectual property (which had a book value of $300,000) was sold for $2 million. It is on this basis that the board meeting has been called. Look forward to your confirmation of a convenient time for the board meeting tomorrow/your attendance at the meeting such that CarZapp can proceed to wind up its business undertaking efficiently and without delay."
On Friday, 26 May 2017, $2 million was paid into CZAPL's bank account by Pickles, in accordance with the BSPA.
On the same day at 4:00 pm, the CZAPL directors' meeting was held with Domenic attending by phone. On each of the resolutions to confirm the sale of the IP to Pickles, Domenic either abstained from voting, or voted against the resolution. The meeting minutes were "signed as a true record and correct record" by Graham as chairperson on 29 May 2017 and included: "1. The Company do all things required to satisfy the conditions subsequent required under the Agreement for the sale of the assets and business of Carzapp Pty Ltd to Pickles Auctions dated 24 May; Vote: Yes (2) No (1) 2. The Company settle a schedule of payments, debtors, creditors and any other obligations of the Company; Vote: Yes (2) No (1) 3. The Company pay all amounts owing by the Company (including taxation for the 2016/17 year) and make loans to Carzapp Trading Pty Ltd to allow it to pay its creditors (including but not limited to any claims from minority unitholders of the Carzapp Holdings Unit Trust which are expected to be 6.6% of the surplus of assets over liabilities payable as follows): • Flobert Pty Ltd (ACN 612 949 336) atf Berison Cmb Trust - 3.3% • Busy Traveller Pty Ltd (ACN 097 668 221) atf R.G. O'Connor Family Trust - 3.3% Vote: Yes (2) Abstain (1) 4. The Company realise all other assets (if there are any) and write off assets as irrecoverable (including but not limited to the loan to Carzapp Trading to be made in 3 above); Vote: Yes (2) Abstain (1) 5. The directors wind up/deregister the Company once all assets have been realised and creditors/claims have been paid, with any surplus to be declared as a dividend/distributed as a return of capital to shareholders on receipt from each shareholder of a deed of release against any claims by each shareholder against the Company in the future. The surplus will be distributed to shareholders in proportion to their shareholding as confirmed below. Shareholder Relevant proportion AP Eagers 10% Meylex Pty Ltd (ACN 079 400 392) atf Amalex Family Trust 30% Mark Lasarow atf Jeth Family Trust 30% Twinkledom Pty Ltd (ACN 606 702 416) 30%

There being no further business, the Chairman declared the Meeting Closed at 4:15 pm."
Graham kept a detailed file note of the meeting: "Call to Dom, On 26th May at 4 PM Note: The purpose of this resolution was to pay confirm [sic] the $'s to be paid to Geoff and Suzanne and that both you and I agreed to this, we were just awaiting Dom. The deal had already been completed. First few minutes we exchanged greetings and pleasantries. Dom asked to have reasonable and calm conversion. Graham: I then introduced the meeting and read the headlines of the Meeting notice and mentioned there were 5 clauses, and I said that I would read each clause and that we needed to vote for each one. Graham: I said that Marcus and Graham would be voting in favour of all 5 clauses Graham: I started reading resolution 1.1 read the entire clause and on completing reading clause 1, I asked Dom which way his vote went. Dom: "I vote NO" Graham: I said that resolution 1 was passed 2 votes to 1. Graham: I started reading resolution 2. As I was completing reading clause 2, Dom started jeering at me, and said "Graham why are you getting aggressive?". (Side note: I don't believe I was getting aggressive, I was merely trying to read the resolution with [sic] any interjections during the resolution. At no time did I raise my voice or become aggressive.) Dom continued to talk over me and say words like "Graham you need your head read", "Graham you need a psychiatrist." "Graham you don't listen." Graham: I continue to talk in a calm manner. Dom continued to speak in a derogatory manner directed at me throughout. Graham: I completed resolution 2 and asked Dom which way he voted, which he replied I vote "No." I said that the resolution was passed 2 votes to 1. Graham: I continued to read Clause 3. Dom continued to talk over me, he called me an "idiot" and told me to "shut up." He was clearly trying to derail the meeting and turn it into a fight. When I asked which way Dom wanted to vote for clause 3, Dom said he did not want to vote. I asked him if wanted to abstain and he replied "no." I said that the board would note down his abstention. Graham: I said that resolution 3 was passed 2 votes to 1 abstention. Graham: I continued to read Clause 4. Dom continued to talk over me. I asked which way Dom wanted to vote for clause 4, Dom said I [sic] that he wouldn't vote. I asked him if [sic] wanted to abstain and he said no. I said that the board would note down his abstention of voting for clause 4 in absence of a yes or a no. Dom said "I won't vote and don't tell me what to do." Graham: I said that resolution 4 was passed 2 votes to 1 abstention. Dom then started complaining about the meeting, Graham: I continued to read Clause 5. Dom continued to talk over me, saying that I was "an idiot," and telling me to "shut up." On completing to read the resolution 5, I asked Dom to vote. Dom said that he would not vote. Graham: I said that I'll take that as abstaining, so clause 5 has 2 votes YES on 1 abstention. Graham: I then moved to close the meeting as all clauses had been read and voted on I thanked everyone for the time and ended the meeting"
Later the same day Domenic sent this email to Graham and Marcus: "Dear Sirs, I wish to put on record the disgraceful way the Directors Meeting of today was conducted by Graham Meyerowitz and Marcus Lasarow. A Board Meeting of Carzapp Pty Ltd which has on its Agenda (apparently) the sale of a major (and only) asset of the company should discuss the matter in a reasonable and fair way which would be for the benefit of shareholders. I have not been provided with a draft of the sale agreement or any relevant documentation about the sale. I made it clear at the meeting that I wished to postpone the Board Meeting to enable a sane and rational discussion of the subject. The meeting took 11 minutes and you both refused to let me speak. I also reminded you both that under the Shareholder Agreement executed on 9 February 2016, a transaction such as this will require a vote of 75% of the shareholders at a meeting at which 75% of the shareholders' [sic] attend. This Members' Meeting has not occurred. Any action which you two take to further this alleged sale of this asset of the Company will be outside of your power and may be in breach of your fiduciary duties as directors. Be aware, that despite your railroading through the resolutions in today's farcical Board Meeting, I presently do not agree with the Company taking any steps to complete this alleged sale. I am taking legal advice on behalf of the Company."
On 29 May 2017, Graham and Marcus replied: "We acknowledge receipt of your letter to the Directors of CarZapp Pty Ltd dated 26 May 2017 and received by email. Your letter is not surprising, given the personal animosity you have towards us, and the resulting dysfunctional nature of Board proceedings. Put simply, your letter is a distorted representation of the actual events relating to the meeting of the CarZapp Board on 26 May 2017. I do not believe it productive to engage in "mudslinging" regarding the assertions you make in your letter, however we would point out the following inaccuracies in your letter: (Notice of Meeting) A meeting of directors was held on Friday the 26th of May 2017 at 4pm Sydney time, the meeting was held telephonically, with all 3 directors present. The meeting agenda was sent to all members prior to the meeting within a reasonable time frame and received by all members within a reasonable time. We attach the Minutes of the Meeting, certified by the chairman as a correct record of proceedings at the meeting. (Conduct of meeting) The meeting was conducted in a fair and reasonable manner and the Chairman remained calm and respectful throughout. This was despite the abusive comments you made towards the Chairman (contemporaneous notes indicate you shouted "You an idiot" [sic], "You need psychological help", "Shut up", " You have mental issues" at various times). (Sale Agreement) The draft sale agreement was sent to you and your accountant (Achilles Constantinidis) on the 11th May 2017 from CarZapp's solicitor Eric Shmilovits. Eric has confirmed that the final sale agreement was consistent with the offer from Pickles Auctions which we each approved in writing on 3 April 2017. (Request to postpone meeting) We did accommodate your request to postpone the meeting. The new meeting time was not objected to by you and in fact you attended the meeting. (Prior consent to sale) We all signed a unanimous resolution dated the 3rd April 2017 consenting to sell 100% of CarZapp Pty Ltd to Pickles Auctions. As indicated above, CarZapp's Company Lawyer has confirmed the sale agreement was consistent with the original offer. (Completion of Sale) As has been previously communicated, the sale of IP by a CarZapp to Pickles Auctions was completed on Wednesday 24 May and CarZapp has received full payment. Given the breakdown in confidence and communications between the board/shareholders, there would seem to be no prospect of CarZapp utilising the sales proceeds for any future joint endeavour. It is for this reason, that Fridays Board Meeting was called to resolve to pay off all liabilities and distribute the surplus to shareholders in accordance with their shareholding percentages. You have previously indicated that you "deserve a higher percentage shareholding" in the company, which assertion we continue to resist. Similarly, any attempt to derail distribution of the proceeds out of CarZapp in this regard will be resisted. (Additional legal advice) You have previously been involved in the retention of the Company's corporate lawyer (Eric Shmilovits). Eric has acted for CarZapp in the Pickles Auctions transaction and corporate matters generally. He is aware of the company's background and constitutional regulations. Any decision to appoint an additional lawyer for the Company (and incur additional expense) would need to be passed by the Board. Individual directors [sic] not authorised to appoint additional lawyers on behalf of the Company. To the extent you wish to suggest an additional lawyer be appointed, please send the reasons for your suggestion, the credentials of the lawyer and the estimated charges to us for consideration. Please Note: you may take advice in relation to your obligations as a director of CarZapp, but CarZapp will not in any case be responsible for any legal advice you take in your capacity as shareholder."
On 29 May 2017 at 1:37 pm, Ms Sinne Li, Domenic's solicitor in these proceedings, emailed Mr Shmilovits confirming that she acted "for Mr Domenic Ruberto, Director of Carzapp Pty Limited" and requested "any and all documents relating to the Sale Agreement for the Company's IP asset and/or business to Pickles." The email continues "…I am instructed that despite my client requesting these documents from you on numerous occasions, you have previously refused to provide them. We expect those documents to be provided to us by 5 pm today." The allegation made in the passage just quoted is not supported in any way by the facts as the Court has found them in the preceding paragraphs.
At 4:20 pm, Ms Li forwarded to Graham and Marcus a letter from Domenic: "Graham and Marcus Further to my correspondence dated 26/5/17, it is imperative that it be made clear and put on the record, that the reason I was prevented from participating in the resolutions at the board meeting (being the very first board meeting of our existence) was because the Chair put the resolutions straight to a vote without any discussion of them whatsoever. The bottom line is, I cannot in good conscience vote for or against, or even make an informed conscious decision to abstain on something I don't have clarity or transparency on, it would not be fair to Suzanne Berlandier, Geoff and Kerrie O'Conner [sic], AP Eagers, Pickles or myself. You provided draft accounts, which in your own words are "out of date", full of anomalies, lack essential detail and furthermore supplied to me the day after you claim to have already signed the paperwork which would have required these resolutions to have been passed prior. I hasten to add; you sent them to me on late Thursday afternoon being for the following day's meeting on Friday, hardly enough time to process the information. I hereby formally ask you for the most up-to-date financials (not a draft copy) signed off by you, including a detailed list of creditors AND amounts owed (which you claim exists but have not provided, which in itself is nothing short of disgraceful and a clear indictment of how you operate) I also want all the source documents (clear, signed photo copies by yourselves will suffice) by 12.00pm Tuesday 30/5/17. As standard business practice dictates you will naturally have these on hand. Under these circumstances, if you proceed as though those resolutions were carried, you are in breach of the company constitution and I will have no hesitation to pursue legal remedy. The agenda, as worded by you, was that we were to "discuss and if thought appropriate…" but there was no discussion or exchange of any kind other than your insistence in an aggressive and bullying manner that you NEED me to vote yes or no. I must reiterate and refer back to the correspondence I have had with you both written and verbal that without information I cannot make informed decisions. To date, the information requested still having not been made available to me as a Director let alone a shareholder. The facts are very simple; I was the sole creator of the concept well and truly before having met Marcus. I have the proof of this without question however I ask you here and now Marcus to reply as a SIMPLE yes or no is this a true and accurate statement? Note: your lack of reply to this most basic of facts will not only speak volumes but will be taken as a yes. In order for you to think carefully about your reply I will expect an answer from you by 3.00pm 29/5/17. The history of how the both of you are in the positions within the company is questionable; You offered me a part of Ship2 in trade for a greater percentage of shares in CarZapp and that hasn't been concluded so the fact that you are trying to use technicalities to out-vote me is laughable in the first place. In a SIMPLE yes or no, after you offered this and then failed to deliver, was your intention always to manoeuver and manipulate the situation in order to defraud me? I have been asking tirelessly for transparency and clarity on your corporate governance of the business and your business procedures, practices and the quality of your work as I have and am well within my rights to do so, at the very least to ensure you aren't ripping off me, the company, shareholders or any other related parties, and that has not been forth coming. I continually questioned the lack of transparency and unnecessary use of your personal company's [sic], Media Tag and Blade Media to pay the CarZapp expenses, for all I know, you could have been misappropriating funds to feed a gambling addiction or something of the like. Marcus you said that you would bring to the table your abilities as an accountant and corporate governance for your shares. On that note, Graham, you were brought in by Marcus saying that you would bring programming skills as part of his shares as you are supposedly a programming genius and in your own words "this code is your finest piece of work in 30 years". This is laughable. Still though to date you have not allowed the code to be independently scrutinised to verify the quality of this work. Let alone even provided me with an un-encrypted copy of the code. Unless you bring what you say you will bring to the company table, then what is the point of me sharing ANY percentage with you. What have you value added or contributed to my project and what makes you think that you are beyond accountability or scrutiny or beyond the law. I do, and perhaps at my own detriment, admit that I am not a "Mr Corporate governance expert", having worked as a sole trader and never in a corporate environment, but since things became uncomfortably murky (approx. Aug/Sept 2016) I began better informing myself on these matters and it became very clear that you owed us all an explanation to legitimate fiduciary enquiry. You haven't proven to us that you have not acted in an illegal manner. It is certainly obvious that you have treated myself and the shareholders with little to no regard. I am the car dealer with close to 40 years' experience in the industry. It seems like you're trying to sell your way out of the mess you have created, without regard for any people associated and without regard for corporate governance and without regards for my dream and vision for my future before you even came along. I expect a reply to the above and for all the above issues and then some, to be satisfactorily addressed before I can in good conscience and in good faith consider any of the resolutions that have already been put forward whether that is for, against or in good conscious [sic] to abstain."
In cross-examination, Marcus stated that he perceived the above italicised passage as a threat against CZAPL, not against him and Graham personally (T514:35-37).
At 4:55 pm, Mr Shmilovits replied to Ms Li attaching the BSPA in final draft and an undertaking signed by Graham and Marcus dated 24 May 2017 (referred to in paragraph [125] above). His email states: "…we have not yet received signed documents from the purchaser's solicitor. …In the meantime, we attach the "final draft", being the one that has been signed. …We intend to send you further documents (earlier drafts, due diligence material etc) tomorrow. We have never refused to provide material to your client. If you have any evidence supporting this allegation please send it to us and we will respond to it. Further, in a telephone conversation today, I said to your client that I do not have a signed copy but I am happy to send him the draft agreement immediately, following by the signed copy as soon as I receive it. I am sorry to say that your client was abusive and disrespectful. As a result I had to ask him to terminate the conversation."
There was no response from Domenic or his solicitors and no evidence was ever provided to support Domenic's allegation.
On 30 May 2017 Mr Shmilovits emailed Ms Li with further documents, including a deed of release. In this email Mr Shmilovits said "We also attach a release form, that we were instructed to draft, by two directors of the company. Our understanding is that the purchase price has cleared, and that the company is about to send an offer to your client, and to the investors, to receive a share in the purchase price".
On 31 May and 1 June 2017, Graham emailed all shareholders/unitholders setting out the proposed distributions and attaching balance sheet and profit and loss summaries for the CZA Entities and the required release to be signed and returned before funds could be distributed. An example of the emails is this one sent to Dr O'Connor (copied to Marcus, Domenic and Mr Shmilovits): "100% of CarZapp Pty Ltd assets/intellectual property has been sold on the 24th May 2017 for the total amount of AUD$2 Million, the trading license provided by CarZapp Pty Ltd to CarZapp Trading Pty Ltd has been cancelled. This follows that the value of CarZapp Trading Pty Ltd has been completely eroded. The company has no value and has creditors to pay. Given the sale of the IP from CarZapp Pty Ltd and subsequent eroded value in CarZapp Trading Pty Ltd, we [sic] offering in good faith a payment of 3.3% (your current holding %) of the proceeds received from the IP sale less liabilities and claims. Please find attached the following Final accounts for all companies, namely: CZ Trading PL, CZ PL, CZ Unit Trust. Including PnL, Balance sheets and expenses Payable. Final calculations as drawn up by Carron Johnston of AFYF, which includes the proceeds for the sale of the assets and all expenses and liabilities to be paid and final dividends to be distributed. In order for the company to release these funds in line to shareholders and unitholders, please sign and return the attached release document to Eric Shmilovits . Distributions to all shareholders from CarZapp PL, as follows: A. P. Eagers $140,322.80 Media Tag Pty Ltd $390,097.39 Blade Media Pty Ltd $390,097.39 Twinkeldom Pty Ltd $390,097.39 We have made a provision within the calculations of the distributions from CarZapp PL, to allow for an additional payment to unitholders of CarZapp Unit Trust, being Florbert and Busy Traveller, to the total value of $92,613.05. After CarZapp Trading PL has paid its expenses and liabilities the CarZapp Unit trust will make the following distributions to unitholders of the CZ Trust Meylex Pty Ltd ATF Amalex Trust $68,200.00 Mark Lasarow ATF Jeth Family trust $68,200.00 Twinkeldom Pty Ltd $68,200.00 Flobert PL ATF Berison CMB trust $7,260.00 Busy Traveller ATF RG O'Connor Family Trust $7,260.00"
The accounts attached to the email showed (as at 31 May 2017): 1. CZAT having negative assets of $229,551.24, comprising largely of a loan of $220,005 to CZAUT; 2. CZAUT having assets of $220,255.31 being the receivable of the loan from CZAT; and 3. CZAPL having net assets of $2,271,179.75, comprising largely the payment of $2,000,000 for the IP from Pickles.
The requested deeds of release were relevantly identical (the "Release"). Again by way of example, this is what was sent to Dr O'Connor: "Deed of Release THIS DEED is made Today ………………….2017. BY 1. Busy Traveller Pty ltd (ACN 097 668 221) as trustee for R.G. O'Connor Family Trust; and 2. RICHARD GEOFFREY O'CONNOR, and 3. KERRIE ANNE O'CONNOR jointly and severally (Releaser) AND CARZAPP PTY LTD (ACN 607 358 887) of C/- Accounting for your Future, Suite 17, 110 -126 Botany Road, Alexandria, NSW 2015 (Company) Terms and Conditions 1 Definitions and Interpretation 1.1 Definitions The following definitions apply in this deed unless the context otherwise requires: Claims means actions, allegations, appeals, complaints, rights of action, causes of action, arbitrations, debts, liabilities, dues, costs, claims, demands, verdicts, loss of any kind whatsoever and judgments either at law or in equity or arising under a statute, howsoever arising. Released Parties means all of the following: (a) the Company; (b) Carzapp Trading (Aus) Pty Ltd (ACN 613 155 561); (c) Carzapp Holdings Unit Trust; (d) Carzapp Holdings Pty Ltd (ACN 612 819 548); (e) Graham Meyerowitz (Graham); (f) Mark Lasarow (Mark) (g) Domenic Ruberto (Domenic); and (h) In respect of any of Graham, Domenic and Mark, the release applies also to trusts and companies in which Graham or Mark are trustees, or officers. Settlement Sum means an amount of $53,566.62 2 Settlement Amount 2.1 The parties hereby agree that the Company must cause the payment of the Settlement Sum to the Releaser within 7 days of Today. 2.2 Payment under clause 2.1 will be made by EFT to the Releaser's nominated account. 3 Release 3.1 The Releaser agrees and acknowledges that: (a) the payment of the Settlement Sum in clause 2.1 represents the full and final discharge of all money or services owed or potentially owed to it by any of the Released Parties, and the Releaser is entitled to no further money or services by any of the Released Parties; (b) it has no Claim against any of the Released Parties in respect of any conduct or events occurring prior to Today; (c) to the extent that any such Claim or right of action referred to in subclause (b) exists or may exist against any of the Released Parties, the Releaser; (i) irrevocably waives such Claim or right of action; (ii) releases and forever discharges all of the Released Parties from all and any liability in respect thereof; and (iii) indemnifies, jointly and severally, the Released Parties against any such Claims; (d) it must take all necessary action (including using any voting power or practical influence it may have in relation to any of the Released Parties) in favour of the Released Parties and to give effect to these releases in clause 3.1. (e) The Releaser grants this release in his personal capacity and also in his capacity as shareholder and/or trustee. For avoidance of doubt, the release covers any right to receive any distribution, dividend or capital return, as well as any payments for goods or services. (f) The Company holds the benefit of this release for each of the Released Parties (other than the Company) on trust. 4 Effect of this deed 4.1 This deed shall bind each party and any executor, administrator, transferee, assignee, receiver, liquidator or trustee in bankruptcy appointed in respect thereof. 4.2 This deed may be pleaded as a full and complete defence by any of the Released Parties to any Claims, actions, suits or proceedings commenced, including arbitration proceedings, continued or taken by the Releaser or on the Releaser's behalf in connection with any of the matters referred to in this deed, except insofar as is necessary to enforce the terms of this deed. If the Releaser commences or continues an action it will indemnify the Released Parties for any loss or expense (including costs) incurred by them resulting from the breach. 5 Power of Attorney 5.1 The Releaser hereby irrevocably appoints Graham Meyerowitz and Mark Lasarow (Attorneys) as its attorneys in accordance with this clause 5. 5.2 The Attorneys jointly and severally have the power to make any decision, cast any vote, amend or execute any document in relation to any matter (of any kind) in connection with any of the Released Parties. This also constitutes the appointment of the Attorneys as the proxy of the Releaser in relation to the Releaser's right and entitlements over any shares or units it may hold in any of the Released Parties, instead of the Releaser, who will not deal with any such units or shares and will not use any power associated with them without the written consent of an attorney. 5.3 The powers and authorities given by this deed and will remain in full force until the relevant Released Parties (other than natural persons) are wound up or dissolved, and ASIC records are updated. 5.4 The Releaser hereby acknowledges: (a) the appointment of the ATTORNEYS under this deed is made for valuable consideration; and (b) this power of attorney is an "irrevocable power of attorney" for the purposes of the Powers of Attorney Act 2003 (NSW). 6 Third-Party Claims 6.1 If any of the Released Parties notify the Releaser in writing of a Third-Party Claim, then; (a) the Releaser must return the Settlement Amount to the Company for the purpose of resolving the Third-Party Claim only. The relevant Released Party is entitled to resolve the Third-Party Claim at its sole discretion. (b) The Releaser is entitled to receive the balance of the Settlement Amount after conclusion of the Third-Party Claim. 6.2 Nothing in this clause 6 affects the releases provided in clause 3."
Somewhat curiously in the light of subsequent events, on 31 May 2017 at 9:23 pm, Domenic forwarded Graham's email of 31 May 2017 setting out the proposed arrangements to his solicitor, Ms Li, and to Mr Morahan of Counsel. Domenic's email said: "This email just came in from the other side. On first view, it seems things aren't so bad. Please explore carefully for me and advice [sic] if it is safe for me to execute." His reference to "the other side" demonstrates, if further evidence is required, how adversarial his relationship with Marcus and Graham had become.
Releases were signed by all shareholders and unitholders except for Domenic and Dr O'Connor. Those who signed a Release received their promised share of the proceeds. With the exception of APE, those who signed the Release made no amendment it. Notably, Graham (on behalf of CZAPL) agreed to amendments to the Release proposed by APE. These included the power of attorney in clause 5 of the Release being limited to matters "necessary for the purpose of winding up on liquidation of the Company" and the deletion of clause 6 relating to "Third-Party Claims".
On 5 June 2017, Domenic's solicitor, Ms Li, sent a letter by email addressed personally to Graham and Marcus care of Mr Shmilovits regarding the distribution of the sale proceeds to Domenic. The letter states: "It is expected that the following payments are to be made in accordance with the distribution to all shareholders and unitholders: 1. Twinkledom Pty Ltd in the amount of $458,297.39 We note that in the final calculations drawn up by Carron Johnston of AFYF, and dated May 2017, an amount of $300,000 was allocated for the purchase of the Carzapp IP asset from Media Tag. The Carzapp IP, at all times, belonged to Carzapp Pty Limited and there would no reason for this deduction. Could you please inform us, as a matter of urgency, if the intellectual property of Carzapp Pty Ltd was at any time, sold, encumbered or dealt with in any way and please supply to us a resolution of a General Meeting recording the agreement of 75% of the shareholders for any such dealing. As it appears that payments have already been made in accordance with the distribution to Media Tag and Blade Media on 2 June 2017, we expect that the above payments to Twinkledom Pty Ltd will be made by end of Business Tuesday 6 June 2017."
In cross-examination, Marcus stated that he perceived this letter as Domenic threatening to commence legal action against him personally (T515:45).
On 6 June 2017, Mr Shmilovits provided Ms Li with signed copies of the transaction documents from Pickles including the BSPA and the Consultancy Agreement.
On 8 June 2017 at 11:51 am, Ms Li sent a letter by email to Graham and Marcus. It reads: "We do not think it is appropriate or necessary for our client and Twinkledom Pty Ltd to execute any form of release. Twinkledom Pty Ltd is merely a shareholder of Carzapp Pty Ltd and is receiving a dividend from the company. We have advised our client that under no circumstances should he or his company sign such a release. … Please make the dividend payment by close of business Friday 9 June 2017. Please also be advised that if payment is not made by that time or any attempt is made to make the payment contingent on the execution of any form of release and indemnity, our client has instructed us to commence proceedings for relief in the Supreme Court of New South Wales."
At 8 June 2017 at 5:02 pm, Dr O'Connor emailed Graham and Marcus regarding the distribution of the sale proceeds. He stated: "I have never been asked previously for a deed of release for payment of monies dividends or otherwise owed to me, I have no intention of signing such a document. As per your accounts please pay the amount of $53,512.52 to [Busy Traveller's] account. Please make the payment by close of business Friday 9 June 2017. Please be advised that if the payment is not made by that time or any attempt is made to make the payment contingent on the execution of any form of release and indemnity, I will issue instructions to my lawyers to commence proceedings for relief in the Supreme Court of New South Wales."
Dr O'Connor's email was in a chain replying to Graham's email of 1 June 2017 at 10:49 am (see paragraph [140] above) which was appended to the bottom of his email and which states: "In order for the company to release these funds in line to shareholders and unitholders, please sign and return the attached release documents to ES (Mr Shmilovits)".
On 9 June 2017 at 2:07 pm, Graham replied to Ms Li by email stating: "Under the circumstances where Domenic Ruberto has made threats against the company, the Directors cannot proceed without a signed release. Please provide advance notice of any intention to approach the court on this matter such that the Company can be represented at the hearing."
At 4:49 pm, Ms Li emailed a letter to Graham and Marcus in reply. It reads: "We are instructed to object to your allegation that our client made threats against the company. Furthermore, we note that you have no legal grounds or any legal bearing upon which to withhold the dividend payment to our client and to have that payment contingent on the execution of a Deed of Release. In that event, we expect that payment will be made… Should that payment not be made, our client and his company reserves [sic] their rights to commence proceedings & seek damages including but not limited to injunctive reliefs [sic] and costs on an indemnity basis without prior notice."
On 24 June 2017 at 2:07 pm, Pickles' solicitors emailed Mr Shmilovits regarding the name change of the CZA Entities to remove reference to "Carzapp" pursuant to the BSPA. The email attached various documents Pickles had prepared to "assist your clients to progress" the name changes. The email states: "We note that the change of the name of the above companies were part of the requirements under the Undertaking and the Settlement Deed. Accordingly, please urgently arrange for your clients to approve and sign the attached documents and arrange for lodgement with ASIC."
On 26 June 2017 at 10:53 am, Marcus emailed Graham, Domenic and APE (copying Mr Shmilovits and Domenic's Better Car Company email address) attaching a notices of general meeting for the CZA Entities to be held on 17 July 2018 at 3:00 pm "for the purpose of considering and, if thought fit, passing" special resolutions to change the company names. This would remove any reference to "Carzapp" in the company name, and replace such references with ACNs.
The meeting would also consider whether to voluntarily deregister the companies pursuant to s 601AA of the Corporations Act 2001 (Cth) (the "Act") and lodge the relevant forms with ASIC (the "name change resolutions"). In relation to CZAPL and CZAH, the notice specified a further resolution that "any director of the company is authorised to do all things necessary to give effect to the above resolutions". Curiously, these resolutions were all dated 8 March 2018.
At 5:48 pm on 26 June 2017, Mr Shmilovits replied to Pickles' email of 24 June 2017 explaining that: "Since completion, Graham and Marcus are in the process of obtaining the majority required in order to pass the resolutions referred to in your email. Apparently, Domenic Ruberto has not yet given his consent which is required for passing a circulating resolution. Today, members meetings have been called with relation to all three companies, for changing their names and the name of the trust. Unfortunately, the notice period for such meetings (under the constitution of the trading company) is 21 days. Our understanding is that by then the issue may be resolved. In any event, all three companies (and the trust) are no longer trading (and cannot trade without the consent of Marcus and Graham), and are making no use of the name."
On 7 July 2017 at 10:22 am, Pickles' solicitors emailed Mr Shmilovits requesting an update on the name changes and stating "We confirm that our client requires that the names of the companies be changed even if they are no longer trading". Mr Shmilovits replied at 11:57 am advising that a "members' meeting of all the relevant entities, with the agenda to change the names, have been called for 17 July 2017. Our client hopes that by this the names will be changed and the issue will be resolved."
On 17 July 2017 at 9:45 am, Pickles sent an email request for confirmation of the name changes: "We note that the meetings to record the change of names of the companies are due to take place today. Please provide us with confirmation once the meetings have taken place and please also provide us with a copy of the ASIC change of name certificate for each of the entities. Please also confirm that the names of each of the trusts that use Carzapp in their name have been changed."
On 17 July 2017 at 3:00 pm, the general meetings to pass the name change resolutions were held with Graham and Marcus in attendance. Domenic did not attend. The name change resolutions were passed for CZAH, CZAT and CZAUT. However, without Domenic's presence, the meeting for CZAPL did not have a quorum and was dissolved.
Graham gave evidence that following the meetings he and Marcus consulted Mr Shmilovits about what to do. Mr Shmilovits stated: "Graham, the company has a threat of legal action hanging over it because it promised the name change. If this is not done it is a clear breach of contract. So you need to hold an urgent board meeting to resolve the name change issue. If you can't change the name at that meeting you need to think about administration, because a claim will come from Pickles and the company is likely to be insolvent."
On 18 July 2017 at 9:00 pm, Mr Shmilovits emailed Graham, Marcus and Ms Li noting that CZAPL had been unable to effect a change of name because of a lack of quorum. The email continued: "In our view, this exposes the company to a significant damages claim from Pickles. Pickles has already indicated that it insists on the name being changed, and demanded a report about yesterday's meetings. We believe that the likelihood of Pickles pressing its rights is high, and that the likelihood of success of any damages claim brought against the company is also high. It is difficult to quantify, at this point, how much Pickles might claim or will be awarded. The maximum risk, however, pursuant to the limitation of liability clause, is $800,000. In any event, the legal costs of defending such a claim will be more than $200,000. All in all, the directors should consider the future of the company, in light of the exposure to a likely significant damages claim. The two obvious alternatives are: 1. reaching agreement with Domenic about changing the name, in which case the company will hopefully be able to avoid the above claim; or 2. putting the company in administration, in which case the administration fees (let alone legal costs of defending and claim, and payment of claims as decided by the administrators) will be paid by use the company's assets, in particular the cash in its bank account."
At around this time, Graham and Marcus sought independent legal advice from Mr Russell Lyons of K&L Gates who Marcus says they had previously retained on or around 24 May 2017. Their evidence is that Mr Lyons' advice to them during a telephone conference was to the effect that they should consider putting the company into voluntary administration.
On 20 July 2017 at 10:25 am, Pickles' solicitor emailed Mr Shmilovits stating: "We confirm that our client requires that the required quorum be achieved and that the resolutions pass within the next seven days. If this is not possible, our client requires that steps be taken immediately to voluntary wind up or de-register CarZapp Pty Ltd."
The next day, Mr Shmilovits forwarded this email to Graham, Marcus and Ms Li noting: "As a result of "clause 3.12(j) of the Shareholders Agreement and of s 157 of the Corporations Act, the company cannot comply with the demand unless either: Domenic agrees to it; or the company is put in voluntary administration (which resolution can be passed by simple majority), and the administrator agrees to change the name."
In cross-examination, Marcus agreed that one the reasons the CZA Companies were put into voluntary administration was because they had been unable to bring about the name change as per the BSPA and he perceived Pickles' email as a threat of litigation. In response to the Court, Marcus said that although there was no threat immediately apparent in Pickles' email, "with the correct background, at that time, this was most certainly a threat [of litigation]…Pickles only work one way" (T512:21-27).
On 21 July 2017, a directors' meeting for CZAPL was held at which it was resolved by simple majority to place the company into voluntary administration. The meeting minutes read: "5. Discussion Graham: the company is likely to [be] sued for not changing its name, which change cannot be done without the consent of the three directors. I vote yes to put it in voluntary administration. Marcus: I believe that the company is likely to become insolvent. We have received a 7 days demand to change the name. I vote yes to put it in voluntary administration. Domenic: The company is solvent; the information before us does not indicate that the problem is imminent. We have time on our hands; I believe that there is no quorum; I vote NO, for putting the company into voluntary administration. 6. Resolutions The Company hereby passes (2 votes against 1) the following resolutions 1. The company is likely to become insolvent, and will be placed under voluntary administration immediately."
On 24 July 2017, Ms Li emailed a letter to Marcus, Graham and Mr Shmilovits requesting payment of distributions to Twinkledom ($390,097.93 and $68,200) and Busy Traveller ($46,306.52 and $7,260) by 12:00 pm on 25 July 2017. The letter continued: "Once these funds have been paid and received, accordingly, our client, Domenic Ruberto agrees to hold and attend another general meeting to pass a special resolution for CarZapp Pty Ltd to change its name. … I was told by Eric that putting the company into voluntary administration was only a suggestion made by Jacquie Barrett in her capacity as solicitor for Pickles Auctions Pty Ltd in the recent communications to solve the problem in relation to the difficulties regarding the changing of the company's name. … We note that in this current letter, we have put to you the solution to which your obligations under the Business Sale and Purchase Agreement can be fulfilled in relation to change of the company's name. Also during the Directions Meeting held on 21 July 2017, our client has expressed his opposition to this resolution as the company is not insolvent or likely to become insolvent and no evidence has been provided of any imminent claim from Pickles to substantiate that it is the case. Furthermore, we note that Part 5.3A of the Corporations Act for the purposes of the Voluntary Administration process was "not introduced as a mechanism to resolve shareholder disputes and it's use of that purpose would tend to expose the company, its creditors and its contributories to a risk, that substantial costs would be incurred and no benefit would be achieved if shareholders could not in fact resolve their differences, or indeed if the costs incurred by the administrator then become an obstacle to such a resolution" as per the Supreme Court in Australian Blue Mountain International Cultural & Tourist Group Pty Ltd [2015] NSWSC 937. We are instructed that our client maintains his objection to the appointment of an Administrator and if an Administrator is appointed, our client reserves his rights to apply to the Supreme Court of New South Wales to set aside the appointment and seek costs against you."
On 26 July 2017 at 12:14 pm, Marcus responded to Ms Li in an email titled "Company Position CarZapp" which attached the 17 July 2017 resolution. The email (to which no response is in evidence) stated: "The company's position is likely to become insolvent. The company's position is to minute the appointment of an administrator, based on this, the company can agree to the following points below as an immediate interim solution: 1. The company's position is Domenic (TW) (Twinkledom) signs and agrees in favour of the attached resolution, if yes, the company will at the same time pay Domenic $390,097.39 and $68,200 in full and final settlement in respect to his claims. 2. The company's position is Geoff (BT) (Busy Traveller) will receive his trust dividend of $7,260 in full, the company requires a deed of release from Geoff to activate an ex gratia distribution. In the event the deed of release is not received, the company reserves its rights to protect the companies likelihood of insolvency."
On 3 August 2017, CZAPL entered into voluntary administration and Graham and Marcus appointed Anthony Resnick and David Solomons as joint administrators of CZAPL.
On 7 August 2017, the administrators issued the first report to creditors of CZAPL.
On 8 August 2017, the administrators changed CZAPL's name to its ACN number.
On 15 August 2017, meetings of the directors of CZAH and CZAT were held, at which Graham and Marcus voted in favour of placing those companies into voluntary administration. The meeting minutes were in the same terms for each company and included the following: "4. Resolutions The Company hereby passes (2 votes against 1) the following resolutions 1. The Company is likely to become insolvent as a result of legal actions threatened against it; 2. The Company be put under voluntary administration and Anthony Resnick and David Solomons be appointed as joint administrators of the Company. 3. That Graham Meyerowitz be authorized to sign all documents to give effect to point 2 above."
On 17 August 2017, CZAH and CZAT were placed into voluntary administration with Messrs Resnick and Solomons being appointed administrators.
On 31 August 2017, the administrators issued their joint report recommending the companies be wound up and giving notice of a second creditors' meeting on 8 September 2017 at 2:30 pm.
The plaintiffs filed an originating process commencing these proceedings on 7 September 2017. At Ms Li's request, the administrators met with Ms Li and Mr Morahan who gave notice that proceedings were being brought on behalf of Domenic and Dr O'Connor. Ms Li requested that the second creditors' meeting scheduled for 8 September 2017 be cancelled. This was refused.
On 8 September 2017, just before the second creditors' meeting was to be held, the plaintiffs approached the Corporations List Judge seeking to have the meeting restrained. Black J dismissed the application but suggested the administrators put a resolution to the creditors to adjourn the meeting. Such a resolution was passed and the meeting was rescheduled to 18 November 2018.
On 13 December 2017, the plaintiffs filed a Statement of Claim, which was subsequently amended on 3 August 2018.
The administrators filed an amended cross-claim on 16 July 2018 seeking a determination and declaration of the validity of their appointment under the Act and orders that the administrators have a lien over the CZA Entities to indemnify them for their costs and remuneration. The administrators took a submitting position and asserted only that their remuneration and costs should be paid, making no comment on by whom.

Amendment application

On the morning of the fifth day of the hearing the plaintiffs sought to amend their Statement of Claim to introduce causes of action based upon Marcus and Graham having entered into what was referred to as the "side deal" with Pickles. This is what I have referred to as the Consultancy Agreement. I rejected that application. Before turning to the plaintiffs' case as it was finally advanced, it is convenient to set out my reasons for that decision.
At the risk of some repetition, it is necessary to set out a short chronology to put the application in context: 1. On 24 May 2017 Marcus and Graham executed the contract for the sale of the business and assets of CZA to Pickles. On or about the same day they executed the Consultancy Agreement. 2. On 26 May 2017, Pickles paid $2 million into the CZAPL account. 3. On 6 June 2017, Mr Shmilovits sent Domenic's solicitors various transaction documents. There was no dispute that those included the Consultancy Agreement, being a shareholders deed dated 24 May 2017 between CZAT, Carzapp Operations Pty Ltd, Pickles and Marcus and Graham. Nor was there any dispute that Domenic received those documents from his solicitor on or about 6 June 2017. 4. These proceedings were commenced by originating process filed on 7 September 2017. 5. The plaintiffs' statement of claim was filed on 13 December 2017. 6. The Consultancy Agreement was referred to in both the affidavit of Marcus sworn 19 April 2018 and of Graham sworn 27 April 2018. The plaintiffs accepted that they received those affidavits on or about the dates they had been sworn. 7. On 15 June 2018 Black J, sitting as the Corporations List Judge, listed the proceedings for hearing before me on 16 to 20 July 2018. 8. The plaintiffs' written outline of submissions was received by my chambers (and I infer by the other parties) by email copied to the other parties sent at 5:25 pm on Friday, 13 July 2018 (being the Friday before the Monday of the commencement of the hearing). That outline made no reference to the Consultancy Agreement or to the incorporation of Carzapp Operations Pty Ltd. Nor were these matters referred to in the plaintiffs' chronology that was provided to the Court in the Court Book. 9. The hearing commenced on Monday, 16 July 2018. During the course of his opening on behalf of the plaintiffs, Mr Morahan referred to the Consultancy Agreement as a significant matter going to the plaintiffs' oppression case. In the course of his opening later that day, Mr O'Mahoney objected that his clients had been taken by surprise by references to the Consultancy Agreement because it was nowhere referred to in the Statement of Claim and the defendants had not understood it to be any part of the plaintiffs' case. At the end of the first day the matter adjourned to enable the parties to have discussions. 10. The next day (Tuesday, 17 July 2018) was taken up by the parties continuing their negotiations. 11. On the morning of Wednesday, 18 July 2018, negotiations broke down and the hearing resumed. Dr O'Connor and Domenic were cross-examined by Mr O'Mahoney. 12. Late on the afternoon of Thursday, 19 July 2018, Mr O'Mahoney concluded his cross examination of Domenic. Mr Morahan then rose to inform the Court that he had received instructions to amend the Statement of Claim to plead the Consultancy Agreement and said that he was providing that information at that point of the proceedings against the possibility that Mr O'Mahoney might not wish to conclude his cross-examination of Domenic. Not unreasonably, Mr O'Mahoney responded to the effect that he had concluded his cross-examination by reference to the pleaded case. 13. The next morning, what had been intended to be the fifth and final day of the hearing, Mr Morahan formally sought leave to file an Amended Statement of Claim. 14. The proposed amendments were: "32A On or about 24 May 2017, Meyerowitz and Lasarow executed on their own behalf and/or on behalf of Media Tag Pty Ltd and/or Blade Media Pty Ltd, a Consultancy Agreement with Pickles or an entity nominated by Pickles ("Consultancy Agreement") which Consultancy Agreement was contingent upon the execution by Carzapp Pty Ltd of the Sale Agreement. 32B Further, the Sale Agreement was contingent upon the execution of the Consultancy Agreement. 32C Further, on or about 24 May 2017, Meyerowitz and Lasarow caused to be registered or agreed to the registration of a company known as Carzapp Operations Pty Ltd ACN 619 302 340 ("Carzapp Operations"). 32D At the time of incorporation or shortly thereafter, Media Tag Pty Ltd held approximately 25% of the shareholding of Carzapp Operations and Pickles held approximately 75% of the shares of that entity. 32E Prior to the execution of the Consultancy Agreement and the formation of Carzapp Operations, Meyerowitz, Lasarow and/or Media Tag Pty Ltd concealed from the Boards of Carzapp, Carzapp Trading and Carzapp Holdings the intention of Meyerowitz, Lasarow and/or Media Tag Pty Ltd to enter into an agreement of which the Sale Agreement was contingent and form a company with Pickles of which Media Tag retained an interest. 32F The said interest of Media Tag Pty Ltd in the formed company was sold to Pickles in or about June 2018 for profit. 32G In entering into the Consultancy Agreement and forming or agreeing to the formation of Carzapp Operations, and in selling the shares in Carzapp Operations for profit, Meyerowitz, Lasarow and/or Media Tag Pty Ltd obtained financial advantage which was not financial advantage for Carzapp, Carzapp Trading and Carzapp Holdings. 32H In entering into the Consultancy Agreement and forming or agreeing to the formation of Carzapp Operations and/or obtaining financial advantage therefrom, Meyerowitz and Lasarow did not act in the best interests of Carzapp, Carzapp Trading and Carzapp Holdings and did not act in good faith toward those companies and, in the premises, breached their fiduciary duty to those companies. 32I In concealing from the Boards of Carzapp, Carzapp Trading and Carzapp Holdings the Consultancy Agreement and the formation or agreement to the formation of Carzapp Operations, Meyerowitz and Lasarow failed to act in the best interests of those companies and did not act in good faith towards them and, in the premises, breached their fiduciary duties to those companies. .. 36A Further, in concealing from the Board at the May Board Meeting that Meyerowitz and Lasarow and/or Media Tag Pty Ltd had entered into a contingent agreement, namely the Consultancy Agreement and had formed or agreed to the formation of Carzapp Operations, Meyerowitz and Lasarow had misled a Director of the company of Carzapp, namely Domenic Ruberto. ... 72. Meyerowitz and Lasarow have conducted the affairs of Carzapp, Carzapp Holdings and Carzapp Trading in a manner which is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the First Plaintiff and contrary to the provisions of s232 of the Corporations Act 2001. Particulars of Oppressive, Prejudicial and Unfair Conduct (a) Executing the Sale Agreement with Pickles without first presenting a final proposal to the Board of Carzapp as resolved in the April Meeting and failing to disclose to the Boards of Carzapp, Carzapp Trading and Carzapp Holdings that the Sale Agreement was contingent upon the execution of the Consultancy Agreement and/or the formation of Carzapp Operations. ... (d) Misleading and deceiving another Director of Carzapp by representing on or about 26 May 2017 that the Directors of Carzapp could resolve to enter into the Sale Agreement with Pickles when such Sale Agreement had already been executed on or about 24 May 2017 and misleading and deceiving another Director of Carzapp, namely Domenic Ruberto by concealing the fact that a contingent agreement had been entered into, namely the Consultancy Agreement and that Carzapp Operations had been formed in which the Carzapp entities obtained no benefit or advantage and Meyerowitz and Lasarow and/or Media Tag Pty Ltd had obtained a financial advantage."
Mr Morahan's submissions in support of the amendment may be summarised as: 1. The Court should allow the amendment to ensure that all issues in dispute between the parties are resolved. 2. The Consultancy Agreement had been uniquely within the knowledge of Marcus and Graham. The proposed amendment should come as no surprise to them, given that it was they who had referred to it in their affidavits and tendered it into evidence. 3. The significance of the amendment was: 1. It bolstered the plaintiffs' case of oppression by adding another element; 2. The claim for breach of fiduciary duty was consistent with the existing claim for oppression, although Mr Morahan conceded that he would not be suggesting that the breach sounded in damages for the plaintiffs; and 3. The Consultancy Agreement was a matter on which the plaintiffs wish to rely in demonstrating that both Marcus and Graham did not have a good faith basis for their concern that the companies were insolvent and thereby justifying the appointment of the administrators. 1. No affidavit was relied upon to explain the delay in making the application. In response to my question to him about the delay, Mr Morahan indicated that it was due to the legal advisers having their attention fixed elsewhere. Mr Morahan informed the court "we probably didn't focus on it sufficiently and until we really immersed ourselves in the preparation late last weekend" (T253:37-39). 2. There was no prejudice to the defendants caused by the amendment, particularly in circumstances where Dr O'Connor and Domenic could be recalled for cross-examination. Furthermore, there was in any event going to have to be an adjournment of the proceedings to enable the balance of the case to be heard. There would be time during the course of that adjournment for Marcus and Graham to make further inquiries and put on any further evidence that they may wish to rely upon.
Mr O'Mahoney's submissions opposing the application may be summarised as: 1. The proposed amendments were substantial. They invited new and discrete lines of inquiry in circumstances where the defendants had no opportunity to put before the Court evidence (including, possibly, from the relevant officers of Pickles) responsive to the new allegations. 2. There had been an unacceptable delay in bringing the application. Domenic had, in fact, been aware of the Consultancy Agreement from as early as 6 June 2017 and the claim could easily have been made in the original Statement of Claim. Similarly, even if the relevant time for considering this question was when the plaintiffs received Graham's and Marcus' affidavits, the delay had still been too great. 3. There was no sworn evidence in support of the application which explained the delay. There was no adequate or proper explanation for that delay. 4. The application was prejudicial to the defendants because it came virtually at the end of the plaintiffs' evidence. Neither the defendants' affidavit evidence nor the cross-examination that had been undertaken by Mr O'Mahoney had taken into account the matters sought to be relied on in the amendment. There were steps that the defendants would have taken, or would have considered taking including: 1. Presenting detailed evidence from Marcus and Graham in relation to the origin of the Consultancy Agreement and what had in fact occurred in relation to it. 2. Evidence would have been sought from officers of Pickles relating to the circumstances in which the Consultancy Agreement arose, including the fact that Marcus and Graham did not request it, and the purpose and value (if any) of Carzapp Operations Pty Ltd. 3. Domenic would have been cross-examined about the subject matter, including his conversations with various people about the allegations which he now sought to advance. 4. Evidence may have been obtained as to the content of any legal advice which the defendants had received at the time in relation to the Consultancy Agreement. 5. Dr O'Connor could have been cross-examined as to whether his conversations with Domenic had extended to these arrangements and what Domenic may have said about them to Dr O'Connor. 6. Consideration would have been given to obtaining expert evidence concerning any practice in the IT industry of retaining persons of technical proficiency to provide support to a new purchaser who had acquired technology such as the kind which had been sold by CZA to Pickles. 7. There would be delay and increased costs in the proceedings because the defendants would need to amend their defence, prepare additional evidence and it would be necessary for the plaintiffs' witnesses to be recalled and cross-examined. 8. While the proposed amendments included allegations of breaches of fiduciary duty, no consequential relief was sought as a result of the amendments by way of an account of profits, equitable compensation or other such remedy.
I considered the principles applicable to an amendment application in Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd [2013] NSWSC 764: "48 The parties, correctly, agreed that I had power to permit Macquarie's amendment under s 64 of the Civil Procedure Act 2005 (NSW) ("the CP Act"), which provides: (1) At any stage of proceedings, the court may order: (a) that any document in the proceedings be amended, or (b) that leave be granted to a party to amend any document in the proceedings. (2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings. … 49 Section 58 of the CP Act provides: (1) In deciding: (a) whether to make any order or direction for the management of proceedings, including: (i) any order for the amendment of a document, and … (b) the terms in which any such order or direction is to be made, the court must seek to act in accordance with the dictates of justice. (2) For the purpose of determining what are the dictates of justice in a particular case, the court: (a) must have regard to the provisions of sections 56 and 57, and (b) may have regard to the following matters to the extent to which it considers them relevant: (i) the degree of difficulty or complexity to which the issues in the proceedings give rise, … (v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case. 50 Pausing there, I therefore proceed on the basis that the prima facie mandatory requirement for all necessary amendments to be made under s 64(2) is to be exercised subject to the requirements of s 58. In doing so it is mandatory for the Court to have regard to the provisions of ss 56 and 57 of the CP Act and permissible for the Court to have regard to the matters listed in s 58(2)(b). I have reproduced above those permissive matters listed in s 58(2)(b) which I consider to be relevant to the present application and which I have in fact taken into account. 51 Section 56 requires the Court, in an application of this kind, to give effect to the overriding purpose of the CP Act, which is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. 52 Section 57(1) of the CP Act requires the overriding purpose to be effected having regard to the following objects: (a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties. 53 The enactment of the CP Act has meant that the case law developed before that legislation relating to matters such as amendment of pleadings is no longer directly relevant. Nevertheless, that case law can provide a useful guide, particularly as to discretionary considerations of the kind which fall within s 58(2)(b)(vii) of the CP Act."
Applying those principles, for the reasons given by Mr O'Mahoney I was satisfied this was not a case in which the Court should exercise its discretion to allow the amendment. As I shall next develop, the proposed amendments lacked utility, were sought too late, were not accompanied by any adequate explanation for the delay, would have prejudiced the defendants by bringing about delay and extra cost and would have added further time to an already extended hearing. To allow the amendment would have been to act contrary to the achievement of the overriding objective set out in s 56 of the Civil Procedure Act 2005 (NSW).
There were five reasons for my refusal of the application.
First, two of the three aspects pressed by Mr Morahan (see paragraph [181] above) in relation to the proposed amendment lacked any utility. First, so far as a claim of the breach of fiduciary duty was concerned, I could see no reason why the amendment should be permitted in circumstances where no consequential relief, whether by way of damages or otherwise, was sought.
Insofar as the plaintiffs' case was concerned that the appointment of the administrators had not been undertaken bona fide, I indicated my view to the parties that no amendment was required to enable the Consultancy Agreement to be relied upon for that purpose. Paragraph 58 of the Statement of Claim pleaded that Marcus and Graham's opinion that CZA was likely to become insolvent "was not held bona fide and was not genuinely held as the company was not likely to become insolvent". No particulars had ever been sought of that allegation. Mr O'Mahoney accepted that he could not properly make any complaint if the plaintiffs sought to rely on the Consultancy Agreement (the fact of which was in evidence) as one of the bases for alleging lack of good faith on the part of Marcus and Graham in concluding that there was a risk of insolvency sufficient to justify the appointment of the administrators.
Second, Mr Morahan's third basis (see paragraph [181] above) falls into a slightly differently category. He submitted that reliance upon the Consultancy Agreement would "bolster" his client's claim of oppression. That is true, as far as it goes. However, an important feature of this litigation is that the plaintiffs have never sought (by reference to oppression or any other legal basis) to set aside the sale of the IP to Pickles or to suggest that the sale had been at an undervalue. In the circumstances of this case, any benefit to the plaintiffs of being able to "bolster" their oppression case was far outweighed by the prejudice that would be occasioned to the defendants by allowing the amendments. I refer to that prejudice in paragraphs [190] to [193] below.
Third, the delay in making the application is unexplained and inexplicable. Domenic was aware of the Consultancy Agreement from 6 June 2017. Moreover, so were his solicitors at the time, who continued to represent him in this litigation. Other correspondence in evidence from around late May and early June 2017 also makes it clear that Mr Morahan was retained at the time and had been provided with the relevant documents. I have no hesitation in finding that Domenic, his solicitor and counsel were all aware of the Consultancy Agreement from on or shortly after 6 June 2017. The Statement of Claim is a considered document in which (unsurprisingly, given the rancour between the parties) every point is sought to be taken. No reason has been suggested as to why the Consultancy Agreement could not have been relied upon in the original pleading and no, or no persuasive, explanation has been proffered on oath or by counsel to explain why that was not done.
Fourth, the lateness of the application in the course of the proceeding counts against it. It was made after the two main witnesses for the plaintiffs had been cross-examined. I accept Mr O'Mahoney's submission that he would have explored other issues of the kind identified in paragraph [182(4)] above with Dr O'Connor and Domenic had the Consultancy Agreement always been part of the plaintiffs' case. If the amendment were to be allowed, those witnesses would have to be recalled and inquiries of the kind identified in paragraph [182(4)] above undertaken. This would result in further extending the length of a hearing that had already exceeded its allocated estimate of five days.
Finally, Mr Morahan sought to take advantage of the fact that because the proceedings had already exceeded their allocated estimate, there was going to have to be an adjournment in any event. He submitted that it might be possible during that adjournment for the defendants to make their preparations to meet the case based on the Consultancy Agreement. I rejected that submission for two reasons.
First, just because there was going to be an adjournment in any case was not, in and of itself, a sufficient reason to allow the amendment. The fact that there might be time for the defendants to meet the new case did not mean that, applying the principles in relation to amendment, the plaintiffs should be put to the additional cost and effort of meeting that case (including a longer hearing when the matter did in fact resume). In the circumstances of this case, the fact that there was going to be an adjournment anyway meant that there was only a marginal reduction in the prejudice to the plaintiffs which would otherwise have to be taken into account.
Second, at the time the application was argued no one (including the Court) knew how long any adjournment was going to be. There was, therefore, no certainty that any adjournment would be long enough to give the plaintiffs adequate time to meet the new case. The impact of the fact that there was going to be an adjournment was thereafter more theoretical than real. In the events which happened, as a result of a settlement of which I had been notified of only that morning, the Court was able to resume the hearing of this case only two weeks later. On any view that would not have been sufficient to enable the plaintiffs to prepare to meet the new case. If the matter had to be adjourned because of the amendment being granted, the state of my diary would have meant that the hearing could not have resumed until the last weeks of 2018 at the earliest.

The relief sought by the plaintiffs

A significant difficulty with this litigation has been a fundamental lack of clarity about the relief sought by the plaintiffs. I have no doubt that has made the case much longer and more complex than it needed to have been. Perhaps counterintuitively, that difficulty was compounded by what were otherwise two undisputed matters.
First, the plaintiffs did not seek to challenge the ultimate sale of the IP to Pickles. For example, the plaintiffs made clear from the outset of the hearing that it was no part of their case to seek to set the sale aside or to suggest that it was at an undervalue.
Second, as the hearing progressed, the parties reached the common position that the CZA Companies should be wound up on the just and equitable ground. That is clearly the correct outcome given that the entire CZA project was, in truth, an incorporated partnership or joint venture where the parties fell into intractable disagreement. The only dispute between the parties was about who the liquidator should be.
On the eighth day of the hearing the plaintiffs again sought to file an Amended Statement of Claim. That application led to this exchange between me and Mr Morahan (T492:1-17): "HIS HONOUR: What troubles me is, firstly do you have any explanation why the amendment application has been made so late? MORAHAN: Only that we have been struggling, we on this side of the bar table, struggling for the entire period of the case to structure and put forward a set of suggested points of relief that would be suitable for this particular case. I hate to use this expression, work in progress, but I have before. It has been a work in progress since-- HIS HONOUR: Mr Morahan, I'm not being personally critical of you, but how is it possible that a substantial piece of litigation in accordance with s 56 got to day 1 of a trial where the plaintiff says, "My relief is still a work in progress"? I drew this to your attention on day 1. As I say, I'm not being critical of you, but there has to be a price perhaps to be extracted that if suddenly on day 8, you say of the work in progress "achieved is the glorious work", this is actually what we want, please let us amend to do it."
The Amended Statement of Claim that was ultimately allowed to be filed on 7 August 2018 sought this relief: "RELIEF CLAIMED 1 That leave be grant pursuant to the 440D of the Corporation Act 2001, that the First and Second Plaintiffs' commence and continue proceedings against the First, Second and Third Defendants, ("the Companies"). 2 An order pursuant to s 1324(2) that the Anthony Resnick and David Solomons, the Joint Administrators be restrained from taking any further steps in the Administration of the Companies pursuant to their purported appointments made on 3 August 2017, 17 August 2017 and 17 August 2017 in respect of the First, Second and Third Defendants respectively. 3 A declaration pursuant to s447C(2) of the Corporations Act 2001 that the purported appointment of the Sixth Defendant and Seventh Defendant as Joint Administrators of the Companies is invalid. 4 Alternatively, an order, pursuant to s447A(1) of the Corporations Act 2001 that the voluntary administration of the Companies end. 4 A declaration that the Fourth and Fifth Defendants have engaged in conduct in the affairs of the Companies, which was oppressive to unfairly prejudicial to or unfairly discriminatory against a member, being the First Plaintiff. 5 Alternatively, an order that the Sixth Defendant and Seventh Defendant be removed as Joint Administrators of the Companies. 5 The Administration of the Companies be terminated and that the Companies be wound up pursuant to s461 of the Corporations Act and that Thomas Dawson be appointed Liquidator of the Companies. 6 A declaration that the Fourth and Fifth Defendants have engaged in conduct in the affairs of the First and Third Defendants, which was oppressive to, unfairly prejudicial to or unfairly discriminatory against-a member, being the First Plaintiff. 6 An order that the sum of $53,566.52 be paid to the Second Plaintiff by the First and Third Defendants. 7 An order pursuant to s233(1)(C) of the Corporations Act 2001 that the Fourth and Fifth Defendants be removed as directors of the Companies. 7 An order than the sum of $458,297.39 be paid to the First Plaintiff by the First and Third Defendants. 8 An order that the First Defendant, the Third Defendant, the Fourth Defendant and the Fifth Defendant be restrained from taking any action to prevent the payment of $458,297.39 to the First Plaintiff; 9 An order that the First Defendant, the Third Defendant, the Fourth Defendant and the Fifth Defendant be restrained from taking any action to prevent the payment of $53,566.52 to the Second Plaintiff. 10 That Thomas Dawson, Registered Liquidator or such other fit and proper person as the Court sees fit be appointed receiver and manager of the Companies and that the person so appointed report to the Court as to the assets and liabilities of the Companies businesses, ("the Receiver's Report"). 11 An order that the Fourth and Fifth Defendant pay the costs of the Receiver's Report. 12 An order that the Third Defendant be removed as trustee of the Carzapp Holdings Unit Trust. 13 An order that a new trustee be appointed as trustee of the Carzapp Holdings Unit Trust. 14 An order that any property now subject of the Unit Trust vest in the new trustee subject to the terms of the trust. 15 An order that, subject to the Receivers Report, that pursuant to s237 of the Corporations Act 2001, Domenic Ruberto be granted leave to commence proceedings on behalf of the companies against the Fourth and Fifth Defendants. 16 An order that the Fourth and Fifth Defendants pay any costs incurred by the Sixth and Seventh Defendants in respect of the purported administration of the First, Second and Third Defendants. 17 An order that the Fourth and Fifth Defendants pay the Plaintiffs' costs and the Administrators' costs of these proceedings. 18 Such further or other orders that the Court deems appropriate."
The plaintiffs' closing written submissions concluded on pages 56 and 57: "224 Their actions, when viewed objectively, and through the eyes of a fair-minded director, were unfair and therefore constituted oppression. The following submissions are made with utmost respect to the Court. There should be a declaration to the effect that the Fourth and Fifth Defendants have engaged in oppressive conduct. 225 Their appointment of the Joint Administrators should be declared invalid. 226 In wrongfully putting the companies into administration, the Companies have clearly suffered damage, being the costs of the administrations. Pursuant to s598 of the Act, the Fourth and Fifth Defendants should be ordered to pay to the Companies the relevant costs of the administrations. 227 Pursuant to the Deeds of Release, in which the Fourth and Fifth Defendants contracted with the Companies, the Fourth and Fifth Defendants should be ordered to pay back to the Companies the sums of $458,297.39 each until the resolution of the Twinkledom and Busy Traveller claims, which will probably be finalised by an ultimate distribution to the shareholders by the liquidator. 228 Carzapp Holdings (under its new name) should be removed as Trustee of the Unit Trust and the new nominated Trustee should be appointed. 229 Carzapp Holdings should be directed to hand over all trust assets and books and records to the new Trustee. 230 There should be a vesting order, vesting the assets of the Unit Trust in the new Trustee, subject to the terms of the Trust. 231 A direction should be given to the new Trustee to pay to Twinkledom the sum of $68,200 and to Busy Traveller the sum of $7,260 as a debt of the Trust pursuant to the Trust Deed or alternatively in line with the declarations of distributions made by the previous Trustee. 232 There should be an order that Thomas Dawson be appointed liquidator of the Companies. 233 There should be an order that the Fourth and Fifth Defendants pay the costs of the Plaintiffs of these proceedings. 234 There should be an order that the Fourth and Fifth Defendants pay the legal costs of the Administrators in relation to these proceedings."
During final address I then had this exchange with Mr Morahan in relation to those closing submissions (T540:42-541:7): "HIS HONOUR: Yes. All right. Subject to that, I still want to be very clear because this is a question that's often asked in another place, what was the actual relief that you sought. So it's pages 56 and 57 plus repayment of moneys? MORAHAN: Yes. HIS HONOUR: Or plus the payment, not repayment, and plus the relief to Dr O'Connor's entity? MORAHAN: Yes. HIS HONOUR: Is that it? MORAHAN: Well, and then the other procedural things, the appointment of a liquidator, the replacement of a trustee and those payments."
The reference to payment and relief to Dr O'Connor's entity was a reference to orders for Twinkledom and Busy Traveller to be paid the amounts allocated to them as set out in paragraph [140] above, although orders to this effect appeared to be comprehended in both the Amended Statement of Claim and the plaintiffs' closing submissions.
I propose to consider only those claims for relief set out in the Amended Statement of Claim. In practical terms this means I will not consider the claim made in paragraph [227] of the plaintiffs' closing submissions. That claim had not been pleaded, formed no part of the case and, in any event, the plaintiffs do not have standing to seek that relief in relation to deeds of release to which they are not a party.

Did Graham and Marcus engage in oppressive conduct? - Legal principles

The plaintiffs assert that the defendants engaged in oppressive conduct, pursuant to Part 2F.1 of the Act. The relevant sections of the legislation are: "Part 2F.1 - Oppressive conduct of affairs 232 Grounds for Court order The Court may make an order under section 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. For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company. Note: For affairs, see section 53. 233 Orders the Court can make (1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order: (a) that the company be wound up; (b) that the company's existing constitution be modified or repealed; (c) regulating the conduct of the company's affairs in the future; (d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law; (e) for the purchase of shares with an appropriate reduction of the company's share capital; (f) for the company to institute, prosecute, defend or discontinue specified proceedings; (g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company; (h) appointing a receiver or a receiver and manager of any or all of the company's property; (i) restraining a person from engaging in specified conduct or from doing a specified act; (j) requiring a person to do a specified act. Order that the company be wound up (2) If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply: (a) as if the order were made under section 461; and (b) with such changes as are necessary. Order altering constitution (3) If an order made under this section repeals or modifies a company's constitution, or requires the company to adopt a constitution, the company does not have the power under section 136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless: (a) the order states that the company does have the power to make such a change or repeal; or (b) the company first obtains the leave of the Court. 234 Who can apply for order An application for an order under section 233 in relation to a company may be made by: (a) a member of the company, even if the application relates to an act or omission that is against: (i) the member in a capacity other than as a member; or (ii) another member in their capacity as a member; or (b) a person who has been removed from the register of members because of a selective reduction; or (c) a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or (d) a person to whom a share in the company has been transmitted by will or by operation of law; or (e) a person whom ASIC thinks appropriate having regard to investigations it is conducting or has conducted into: (i) the company's affairs; or (ii) matters connected with the company's affairs. Note 1: If an application is made under this section, in certain cases the court may order that the company be wound up in insolvency (see section 459B). Note 2: For selective reduction, see subsection 256B(2). 235 Requirement for person to lodge order (1) If an order is made under section 233, the applicant must lodge a copy of the order with ASIC within 14 days after it is made. (2) An offence based on subsection (1) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code. Company changing its name (1) If a company wants to change its name, it must: (a) pass a special resolution adopting a new name; and (b) lodge an application in the prescribed form with ASIC. Note: The company may reserve a name before the resolution is passed or the application is lodged (see section 152). (2) The company must lodge a copy of the special resolution with ASIC within 14 days after it is passed. (2A) An offence based on subsection (2) is an offence of strict liability. Note: For strict liability , see section 6.1 of the Criminal Code . (3) If the proposed name is available, ASIC must change the company's name by altering the details of the company's registration to reflect the change. The change of name takes effect when ASIC alters the details of the company's registration. Note: For available names, see section 147."
When determining whether oppressive conduct has occurred, the expression "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" of s 232 must be looked at together as a whole, and not as separate elements which constitute an act of oppression (Morgan v 45 Fleurs Avenue Pty Ltd (1986) 10 ACLR 692 at 704).
Furthermore, the test for oppressive conduct is objective. Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95 at [181]; (2008) 66 ACSR 359, cited Young J with approval in Morgan v 45 Fleurs Avenue Pty Ltd (1986) 10 ACLR 692 at 704 that one must look and determine 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 Court will not readily find that oppression is made out. To determine whether a director has acted in a manner which amounts to oppression, "such a finding requires consideration of all the circumstances, viewed cumulatively, but not with a hypercritical approach, as the measure is the standard of reasonable directors" (Territory Realty Pty Ltd v Garraway [2009] FCA 292 at [312]).
Moreover, Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459 at 472 held "[a]t a minimum, oppression imports unfairness and that is the critical question in the present case."
However, it must be noted that fairness does not exist in a vacuum, and one must consider the broader context, including the behaviour of the person making the allegation of oppression.
In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [90], Spigelman CJ said: "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 broader context was also applied by Dalton J in Hunter v Organic & Natural Enterprise Group Pty Ltd [2012] QSC 383 at [105]; (2012) 92 ACSR 183.

Did Graham and Marcus engage in oppressive conduct? - The plaintiffs' submissions

The plaintiffs submitted that both Marcus and Graham conducted the affairs of the CZA Companies in a manner which was oppressive, unfairly prejudicial, or unfairly discriminatory against Domenic (Twinkledom) and contrary to the provisions of s 232 of the Act.
The claim in relation to oppression by Marcus and Graham against Domenic was particularised in the Amended Statement of Claim as: "Particulars of Oppressive, Prejudicial and Unfair Conduct (a) Executing the Sale Agreement with Pickles without first presenting a final proposal to the Board of Carzapp as resolved in the April Meeting. (b) Executing the Sale Agreement with Pickles thereby selling assets of Carzapp without the approval of the required majority of shareholders and contrary to the Shareholders Agreement. (c) Disposing of the business of Carzapp without the approval of the required majority of shareholders and contrary to the Shareholders Agreement. (d) Misleading and deceiving another Director of Carzapp by representing on or about 26 May 2017 that the Directors of Carzapp could resolve to enter into the Sale Agreement with Pickles when such Sale Agreement had already been executed on or about 24 May 2017. (e) Selling the assets of Carzapp without first obtaining a valuation of the true worth of those assets. (f) Failing or neglecting to pay dividend payments to Twinkledom Pty Ltd whilst making dividend payments to other shareholders including shareholders owned and controlled by themselves, thus preferring the interests of those shareholders over the interests of another. (g) Allowing Carzapp to borrow funds from Carzapp Trading in the sum of $230,197 and to enter into such an arrangement without the approval of the required majority of shareholders and contrary to the Shareholders Agreement, (h) Failure or neglecting to pay Distributions from the Unit Trust to Busy Traveller and Twinkledom whilst making Distributions to other unitholders, including unitholders owned and/ or controlled or for the benefit of themselves or their interests. (i) Entering into the Carzapp Expenses Arrangement without the approval of the required majority of shareholders and contrary to the Shareholders Agreement. (j) Appointing Administrators to Carzapp, Carzapp Trading and Carzapp Holdings without the approval of the required majority of shareholders and contrary to the Shareholders Agreement."
It was submitted that these actions as listed above showed the calculated intent of both Marcus and Graham to conceal information from Domenic. It can be inferred that Marcus and Graham knew Domenic would not agree to sell the IP with a contingent Consultancy Agreement which benefited Marcus and Graham personally. As such, they sought to ensure Domenic was not involved in the BSPA, and actively limited his involvement in the sale.
Both Marcus and Graham knew about the importance of the Shareholders' Agreement and their failure to adhere to it was not mere sloppy corporate governance, but a deliberate attempt to ignore CZAPL's Constitution. At a directors' meeting, where a simple majority was required, both Marcus and Graham could have outvoted Domenic. However, at a shareholders' meeting, where a 75% majority was required to pass a resolution, even with the support of APE, Marcus and Graham would only have 70% of the support of the shareholders. Without Twinkledom's vote, they would not have met the required proportion of support from the shareholders.
Domenic had on multiple occasions informed both Marcus and Graham of his desire to be informed of all details when decisions were being made. For example, he requested information about the readiness of CZA for marketing, he wanted details to be tabled about communications with Pickles and he wanted up to date information about the financials of CZAPL. These requests were all expressed in writing.
Marcus and Graham consistently failed to inform Domenic of communications with Pickles and did not provide the financials of CZAPL, despite the numerous requests. The only document tabled as Domenic had requested was the unsigned "unofficial" letter of offer from Pickles, which was not an offer until signed.
At the directors' meeting on 3 April 2017, Marcus and Graham resolved that "the Company proceed with the proposed sale of business to Pickles Auction and obtain a detailed final agreement to be presented to the board." It is impossible to accept that both Marcus and Graham understood this as the approval to proceed to sell the only asset CZAPL had and dismantle the CZA Entities without first presenting to the Board a detailed final agreement. Both Marcus and Graham have conceded that they executed the BSPA without presenting it to the board of CZAPL or the other entities.
Additionally, insisting the plaintiffs sign the deeds of release and failing to pay the dividends to the plaintiffs until those deeds were signed amounted to oppressive conduct. It was submitted that the deeds of release were not required and should not have been insisted upon by Marcus and Graham. The deeds were created to protect both Marcus and Graham personally and were broadly drafted to extend to any claims against any of the Released Parties in respect of any conduct occurring prior to the execution of the deeds and also included the Power of Attorney clauses. Despite the likelihood of there being a further distribution to shareholders, the deed precluded any further distributions occurring after the payment of the sum. The failure to make the dividend payments, when both plaintiffs were entitled to them, was unfair and prejudicial.
It is the accumulation the actions of Marcus and Graham which amounted to behaviour which was oppressive to, unfairly prejudicial to or unfairly discriminatory against Twinkledom.

Did Graham and Marcus engage in oppressive conduct? - The defendants' submissions

The defendants reject any suggestion they engaged in oppressive conduct against Twinkledom. They submitted that the plaintiffs' claims are without principled foundation, and as such, should be rejected in their entirety and dismissed with costs. Furthermore, to a large extent the complaints relied upon by the plaintiffs in support of the oppression claim were said to be allegations which were not pleaded. For example, the extensive final submissions on issues such as ownership of the IP, largely formed no part of the case as pleaded. Moreover, there was no nexus between various claims pleaded by the plaintiff and the final relief sought.
The defendants noted that there was no issue taken by the plaintiff in relation to the IP sold to Pickles, the price at which it was sold, or the entity they were sold to. The defendants submitted that allegedly oppressive conduct should not be seen in a vacuum; rather the relevant behaviour of the directors should be seen in their business context. When this context is examined, it becomes apparent that there was no oppressive or unfair conduct on behalf of Marcus or Graham, and the allegations made by both Domenic and Dr O'Connor are baseless.
In defence of the particularised allegations of oppression, the defendants' submissions can be summarised as follows: 1. CZAPL's entry into the BSPA was supported by a resolution passed unanimously on 3 April 2017. Those present at the meeting represented 90% of the shareholders of CZAPL, and the remaining 10%, which was owned by APE, made no complaint about the sale; 2. Domenic was not misled as to the purpose of the 26 May 2017 Meeting. Correspondence demonstrates that Domenic was aware that CZAPL had entered into the BSPA; 3. It was unnecessary to obtain a valuation prior to the sale to Pickles. At the 3 April 2017 meeting, the letter from Pickles was tabled, which specified the purchase price as being $2 million. It was agreed by the attendees (including Domenic) to proceed with this option; 4. The defendants have not opposed the payment of a dividend to the plaintiffs. They have maintained a consistent approach with all stakeholders that the Release is provided before any payment is made; 5. The repayment of a loan amounting to $230,197 from CZAPL to CZAT was made to enable unitholders of the CZAUT to receive distributions; 6. The payment of expenses by Media Tag on behalf of CZAPL did not breach the Shareholders' Agreement. This agreement had been in place prior to the incorporation of CZAPL, and Media Tag had been paying expenses for the development of CZA. As this arrangement had been in place prior to the Shareholders' Agreement, it was therefore not invalidated by the agreement; and 7. The appointment of administrators was not contrary to the Shareholders' Agreement. There was a bona fide belief from both Marcus and Graham that CZAPL was likely to become insolvent, and such a view was supported by legal advice obtained at the time.

Did Graham and Marcus engage in oppressive conduct? - Resolution

The conclusion which the Court has reached in relation to oppression does not depend upon a detailed resolution of the matters particularised. In deference to the parties' arguments, I will nevertheless deal with them below. Before doing so, I will first set out the Court's conclusions in relation to Domenic's behaviour and then explain why the Court has concluded that Twinkledom's claim in relation to oppression should fail.

Domenic's behaviour

The behaviour of Domenic was extensively considered by the parties, and what role he played personally in the demise of the relationship between the directors and ultimately of the CZA Companies.
I have set out in detail above the evidence that highlighted how Domenic was consistently negative and pessimistic in his dealings with both Marcus and Graham. He was not supportive of his fellow directors attempting to sell CZA in the state it was in, and the manner in which he voiced those concerns was aggressive and confrontational.
Moreover, Domenic's behaviour showed a reluctance to solve problems and he was constantly and rudely critical of the work of his fellow directors. The relationship between Domenic on one hand, and Graham and Marcus on the other, had deteriorated to such an extent that Dr O'Connor was required to act as a mediator between the directors and as a channel for communications. The continued hostilities between the directors were evidenced in the fact that Dr O'Connor resigned acting as the intermediary between the directors, and reported feeling like "a punching bag in the middle."
In addition to the unprofessional and aggressive emails from Domenic which have been set out extensively above, Domenic's poor behaviour was confirmed by Dr O'Connor. Dr O'Connor conceded that he found Domenic "quite volatile and exuberant" (T86:29), and clarified that he meant volatile in a negative sense.
Furthermore, Dr O'Connor's cross-examination in relation to Domenic was revealing (T88:17-42): "Q. So you know better than anyone, courtesy of your relationship with Mr Roberto, that he's prone to fits of rage and anger, don't you? A. He gets annoyed, yes. Q. And you know that when he gets annoyed he raises his voice, don't you? A. Correct. Q. And he uses abusive language, doesn't he? A. Yes. Q. And he speaks at the top of his lungs saying things that are both humiliating and offensive, doesn't he? A. They could be taken as that, yes. Q. You were with Mr Roberto when he arrived at court today, weren't you? A. Unfortunately, yes. Q. And you witnessed an example of that only hours ago, didn't you? A. Yes, I did. Q. He, at the top of his lungs, muttered words or shouted words that were deeply offensive, weren't they? A. Unfortunately, yes. Q. And they were directed at my clients, weren't they? A. Correct."
Additionally, the concessions which Domenic made himself about his own conduct were quite telling. Domenic accepted in cross-examination that he "may have" shouted at Marcus and Graham and may have suggested they "go see a psychiatrist" (T168:50). When asked whether he had made threats and inappropriate comments, Domenic did not deny it, however stated "I do not recall" and eventually accepted "I may have said something along those lines" (T169:35). Occasions were canvassed where Domenic had made threats and demands against Marcus and Graham, with some of these occasions occurring many years ago. This highlighted that the poor nature of the relationship between the directors had been ongoing and was not a recent development.
The continued poor relationship between the directors was also apparent and shown through the actions of Domenic on 18 July 2018. Outside the Court, Domenic, who was unprompted, yelled at Marcus and Graham "look, the two cocksuckers are here, we're going to have fun today" (T171:11-22). When asked about this altercation, Domenic initially denied making such a statement, however eventually conceded "I didn't shout at the top of my lungs. I did say those words." This act of shouting inappropriate comments reveals the continued reality of the relationship between the directors, a relationship characterised by tension and disdain by Dominic towards Marcus and Graham.
When working as co-directors of a company, a productive and collaborative relationship is required. It is evident that this type of productive relationship became non-existent between Marcus, Graham and Domenic, particularly when trying to sell CZA and in dealing with the consequences of that sale. The conduct of Domenic was largely responsible for this.
Domenic submitted that having a breakdown in the relationship between the directors was not uncommon in cases such as this. It was submitted that having a difference of opinion between directors was not exceptional and this case involved a breakdown in the relationship between the directors because of differences of opinion. However, such a submission fails to take into consideration the way in which differences of opinion are expressed and communicated. The consistently aggressive emails, the insults made, and the abusive comments declared, even in the precincts of the Court, all satisfy the Court that Domenic was virtually impossible to work with.
The collective evidence from Marcus, Graham, Dr O'Connor and the concessions made by Domenic himself in cross-examination amply justify the Court's conclusion that it was not uncommon for Domenic to become abusive and difficult to work with. This difficult behaviour ultimately culminated in the total breakdown of the relationship between the directors, and this impacted how Marcus and Graham ran the business and how they approached making decisions for the business.
Domenic's unsatisfactory behaviour includes his complete failure to engage with the opportunities extended to him to participate in negotiating the terms of the BSPA once a draft had been provided to him and his advisers. He seems to have adopted an attitude of sullen non-communication, only springing into action with threats of legal action after the BSPA had been executed. Even once that had occurred, there was no attempt on his part to engage with Marcus and Graham in relation to the requirement for the Release, including failing to suggest any amendments, notwithstanding: 1. Domenic accepted that he knew similar deeds had been provided to APE and Dr O'Connor (T244:19-21); 2. Domenic accepted that he knew APE had negotiated amendments to its deed (T244:23-28); 3. Domenic accepted that he knew Dr O'Connor had been invited to make amendments to the deed if appropriate (T245:5-7); 4. Domenic conceded that Graham and Marcus had told him he could make amendments to the deed if desired (T244:34-50); and 5. Domenic accepted the deed was provided to him in accordance with legal advice (T243:47-50).
The Court concludes that Domenic is solely responsible for the breakdown of the relationship between him and his fellow directors and, to the extent that he has not received his share of the proceeds of what was in effect the winding up of the CZA Entities, he is the author of his own misfortune. To borrow the language of Spigelman CJ in paragraph [209] above, this case is an example of the situation where the Court has concluded "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 [because] it is the person excluded who is responsible for the breakdown in the relationship".

No unfairness in the sale of the IP

The Court's conclusions in relation to the legal consequences of Domenic's behaviour inform, and are a secondary basis for the Court's ultimate conclusion that Domenic has failed to make out his case in oppression. The primary reason for the Court's conclusion is based on Domenic's own concession or forensic decision not to challenge the sale of the IP. In my view, it was this approach that was the source of his lawyers' difficulties in deciding what relief was to be sought from the Court.
It is necessary to look at what occurred in two parts: first, everything that led up to the execution of the BSPA and, second, the parties' dealings in relation to the distribution of the proceeds.
The series of events that began with Marcus and Graham trying to find a buyer for CZA were steps which led to the execution of the BSPA and the receipt by CZAPL of $2 million - a transaction which Domenic does not challenge. Considering all of those events, viewed cumulatively and ending in the BSPA and receipt of $2 million, the Court is not satisfied that Marcus and Graham acted with the requisite degree of unfairness towards Domenic when measured by the standard of reasonable directors (see paragraph [206] above). Domenic is therefore not entitled to any relief under s 233 of the Act.
By the end of 2017 the affairs of the CZA Companies had reached an impasse to the point where the directors had agreed to take a break from each other and rely on the services of an investor (Dr O'Connor) to act as mediator. The venture had almost run out of cash. It would have been clear to any director acting reasonably that an investor or purchaser had to be found. Given Domenic's behaviour, a decision to sell CZA and wind up their association with Domenic was entirely reasonable on the part of Marcus and Graham (rather than seek an investor and remain in a commercial relationship with Domenic). Putting it another way, striking an arm's length deal for the purchase of CZA was a reasonable way to determine the fair value of Domenic's (and everyone else's) interest in the venture. Again, given Domenic's behaviour, it was equally reasonable that Marcus and Graham should not include Domenic in the negotiations of the sale as there was every reason to think he would not play a constructive role in the best interests of CZAPL or the "partners" in what was essentially an incorporated partnership.
The conclusion which I have reached is irrespective of the legality of the various matters particularised as acts of oppression. Putting it another way, to the extent that any or all of those matters are unlawful, in circumstances where the ultimate outcome of those matters is not challenged, the Court is satisfied for the reasons set out in paragraphs [224] to [239] that the conduct viewed as a whole is not oppressive, or in the alternative, if the Court's discretion to make any order under s 233 were enlivened, then for the same reasons the Court would decline to exercise that discretion to make any order.

No unfairness in requiring a deed of release

Turning to the distribution of the proceeds of the sale of the IP, Domenic's complaint is based upon the requirement for the Release. In my view the requirement for a deed of release was commercially entirely sensible and in accordance with the standard or conduct of reasonable directors. The parties were embarking on a de facto winding up. The shareholders in CZAPL were agreeing to receive less than they otherwise might so that an ex gratia payment could be made to Dr O'Connor and Ms Berlandier. Releases between the shareholders themselves in those circumstances are commercially explicable and reasonable. From the point of view of the shareholders and the CZA Entities, it was prudent to require releases from Dr O'Connor and Ms Berlandier in return for the ex gratia payments when it was conceivable the latter would have cause for complaint because their investments had otherwise been lost.
I accept Domenic's submission that the Release as originally propounded (see paragraph [142] above) was unreasonably wide. However, that problem would have been cured if a deed in the form of that provided by APE had been signed by Domenic (see paragraph [144] above). In my opinion, given the matters known to Domenic set out in paragraph [234] above, the other matters relied on by the defendants set out in paragraphs [291] to [294] below and Domenic's failure to even seek any amendment to the draft deed of release provided to him, I conclude that looking at the circumstances of the division of the sale proceeds as a whole, including the requirement for a deed of release, there was no unfairness to Domenic so as to constitute oppression under the Act. Alternatively, even if there were the requisite unfairness so that the Court's discretion under s 233 of the Act were enlivened, the Court would not exercise its discretion to make any order by reason of the same matters.
Other than the allegation of oppression, Domenic has not argued any other basis on which the Court should require payment to him of the proceeds of sale. I will deal with this aspect of Domenic's claim in paragraphs [375] to [381] below.
I will next turn to the specific particulars of alleged oppressive conduct.

(a) Executing the Sale Agreement with Pickles without first presenting a final proposal to the Board of Carzapp as resolved in the April Meeting.

(b) Executing the Sale Agreement with Pickles thereby selling assets of Carzapp without the approval of the required majority of shareholders and contrary to the Shareholders Agreement.

(c) Disposing of the business of Carzapp without the approval of the required majority of shareholders and contrary to the Shareholders Agreement.

Clause 3.12 of the Shareholders' Agreement specifies that CZAPL may not take any action or pass any resolution in respect to certain matters: "The Company may not take any action or pass any resolution in respect of any of the following matters unless the action or resolution has been approved by the Required Majority of Shareholders present and entitled to vote at a meeting of the Company except to the extent otherwise required by law; … (i) (assets) arranging for any Group Entity to sell or buy any assets (or more than one asset in a series of transactions), either tangible or intangible, having a value of more than $20,000"
For the sake of convenience, I will set out again the phrase "Required Majority" as defined in clause 1.1: "(a) In the case of Shareholders, Shareholders that together hold more than 75% of the total voting rights of shareholders present at the meeting of Shareholders and entitled to vote on the resolution concerned; (b) In the case of Directors, Directors that together hold more than 50% of the total voting rights of all Directors who attend the relevant Board meeting or sign the relevant written resolution (as the case may be) and who are entitled to vote on the relevant resolution."
The plaintiffs' case is that the sale of the assets of CZAPL (in effect, the IP) to Pickles was in breach of this Shareholders' Agreement. The defendants reject this.
The defendants submitted that the sale of the IP was supported by the "Required Majority". At the meeting of 3 April 2017, a resolution was unanimously passed by the directors of CZAPL. That resolution included the following: "All directors of the Company unanimously confirm they are in favour of the resolutions set out in this document … DOCUMENTS TABLED NOTED the company has received and reviewed the following tabled documents (a) Letter of offer by Pickles Auctions offering to buy 100% of the Intellectual Property of the Company and the trading activity of Carzapp Trading (Aus) Pty Ltd for a total of $2,000,000.00. SALE OF BUSINESS RESOLVED the Company proceed with the proposed sale of business to Pickles Auction and obtain a detailed final agreement to be presented to the board."
The defendants make seven points in relation to this this.
First, it is agreed by the parties that those in attendance of the meeting of 3 April 2017 represented more than 75% of the voting rights for CZAPL, as required. The document recording the resolution was headed "Circulating Resolution of Directors".
The Court in Re Express Engineering Works Ltd [1920] 1 Ch 466 held that a meeting by a board of directors, who were the only members of the company, constituted a meeting of the members for the requirements of the company's constitution. It was immaterial that the meeting was in the form of a board meeting, and not a members' meeting. This decision was applied by Bowen CJ in Eq in Re Compaction Systems Pty Ltd & the Companies Act [1976] 2 NSWLR 477 at [484]; (1976) 2 ACLR 135 (citations omitted) ("Re Compaction Systems"). Bowen CJ in Eq said: "If all the shareholders of a company are present together in a meeting, and signify their assent to a transaction which is within the powers of the company, their decision will be effective, as if a resolution to that effect had been passed at a properly constituted meeting. This may be so, notwithstanding that those at the meeting thought they were conducting a directors' meeting and the necessary formalities required for the calling of a general meeting had not been observed … This may also be so where those present thought they were conducting a meeting and passed a resolution, but where, in fact, the requirements of the articles or the Companies Act as to notice had not been observed … Indeed, it has been held that, provided the transaction is intra vires and honest, it is valid if all corporators assent, and that it does not matter whether assent is given at a meeting of some kind, or without a meeting, and whether it is given simultaneously or at different times and places …"
Applying the reasoning in those two cases, the fact that the meeting was not expressly convened as a meeting of shareholders does not displace the validity of the approval which was given at the meeting.
Second, any attempt to characterise the resolution of 3 April 2017 as being merely preparatory in nature for an evaluation of the offer from Pickles is incorrect. The language of the resolution, finishing with "RESOLVED the Company proceed with the proposed sale of business to Pickles Auction", makes plain the intent and determination of the directors was more than just preparatory.
Interpreting resolutions this way is consistent with what Greenwood, Middleton and Foster JJ stated in Lewski v Australian Securities and Investments Commission [2016] FCAFC 96; (2016) 337 ALR 1. At [276] they said "It is important to consider the actual terms of both resolutions … giving them a fair and natural meaning in their context …"
Applying this approach, both the actual terms of the resolution, namely "to proceed with the proposed sale of business to Pickles Auction", and the context in which they were made, during the tabling of a letter from Pickles which set out the price and property subject to the sale, suggest the resolution was more than merely preparatory.
Third, APE has made no complaint during these proceedings as to the 3 April 2017 resolution or the subsequent entry into the BSPA. On 19 May 2017, upon learning of the proposed sale to Pickles, Mr Thornton of APE wrote to Mr Lasarow, "Marcus this has been passed onto Denis for comment and execution. As discussed, this appears to be the best possible outcome for shareholders but will ensure no adverse conditions before written confirmation. Well done."
This correspondence, along with APE's executed release, shows their approval of the position of the defendants. APE has failed to make any complaint and has waived any rights that may have accrued to it from any alleged procedural irregularity in the resolution of 3 April 2017.
Fourth, the concessions made by Domenic during his cross-examination show he was content for the sale to Pickles to proceed.
Domenic conceded in cross-examination that he had learned of the proposed sale of CZA to Pickles through Dr O'Connor, as early as February 2017. Moreover, when Domenic was informed via email on 13 March 2018 of the possible sale to Pickles for $2 million, he did not complain about the price or any aspect of the deal. Similarly, when Domenic was informed again on 28 March 2017 about the possibility of the sale to Pickles of all of CZA's assets, there was no objection.
Domenic did not complain about the buyer, the time given for deliberation of the proposal or any other matter relating to the proposed sale of CZA to Pickles. Domenic acknowledged he was aware that the subject matter for the 3 April 2017 meeting was the proposed sale to Pickles, and made no complaint about this meeting, or the fact that the sale was to be for 100% of the assets of CZAPL.
Domenic's knowledge of the sale and his lack of objection to the sale or the price of the sale, suggests he approved of CZAPL selling 100% of its assets to Pickles, despite what he is now asserting.
Fifth, Domenic's acceptance of the sale is shown when he conceded in cross-examination "the oppression came a long time after the sale" (T194:27). Moreover, when asked whether the sale to Pickles should not have gone through, Domenic stated "we're not challenging the sale" (T235:2).
Sixth, in correspondence with his solicitor and barrister on 31 May 2017, Domenic stated "it seems things aren't so bad" (see paragraph [143] above).
Seventh, the plaintiffs have failed to provide any evidence of the value of CZA when it was sold to Pickles. As such, the Court has no basis to determine whether the sale was oppressive or unfair on any stakeholder on the basis that it was sold at an undervalue.
While meritorious in practical terms, the defendants' arguments do not engage with the requirements of the Shareholders' Agreement.
There can be no doubt that the sale of the IP for $2 million engaged clause 3.12(i) of the Shareholders' Agreement. The fair and natural meaning of the 3 April 2017 resolution in its context is clear. That context is receipt of the (unsigned) letter of offer. It authorised the sale to proceed subject to the final form of the agreement for sale being submitted to the directors for their approval before its execution. In my view, because it would otherwise be a very unusual result from the point of view of proper corporate governance, quite specific language - absent from the 3 April 2017 resolution - would be required to bring about the result that all that had to happen was for the final, detailed sale agreement to be presented to the board after it had been executed.
The 3 April 2017 resolution, properly construed, would be unobjectionable if it had been passed at a meeting of the shareholders. It was not. The difficulty for the defendants is that I accept the plaintiffs' argument that the Re Compaction Systems principle does not apply because there was incomplete disclosure of material matters. This is because principle is an example of waiver going to formalities, it requires the attendees at the meeting to have full knowledge and consent: Herrman v Simon (1990) 4 ACSR 81. In my view, the proposal for the Consultancy Agreement was a material matter, not least because Pickles' agreement to the BSPA was conditional upon Graham and Marcus entering into the Consultancy Agreement. It was not disclosed.
The 3 April 2017 resolution is of no effect for being in breach of the Shareholders' Agreement. Even if it were valid, its terms were not complied with because the BSPA was not provided to the board (or shareholders) of CZAPL for approval before being executed.

(d) Misleading and deceiving another Director of Carzapp by representing on or about 26 May 2017 that the Directors of Carzapp could resolve to enter into the Sale Agreement with Pickles when such Sale Agreement had already been executed on or about 24 May 2017.

Five resolutions were passed at the 26 May 2017 meeting. These resolutions can be summarised as: 1. The Company do all things required to satisfy the Sales Agreement with Pickles dated 24 May 2017; 2. The Company settle any payments to debtors and creditors and meet any other obligations required; 3. The Company makes loans to CZAT to allow it to pay creditors, including unitholders in the CZAUT; 4. The Company realise all other assets, or write them off as irrecoverable; and 5. The directors wind up the Company once all assets have been realised and claims paid, with any surplus to be declared a dividend or return of capital and returned to shareholders on receipt from each shareholder of a deed of release against any claims by each shareholder against the Company.
The plaintiffs' complaints about the 26 May 2017 Board Meeting are two-fold.
First, it was submitted that the resolutions passed were not subject to a resolution pursuant to the Shareholders' Agreement and the directors were acting outside their power. Therefore, the resolution is void.
Second, the first plaintiff states he was misled at the meeting, as Marcus and Graham had already entered into the Sales Agreement with Pickles on 24 May 2017.
The defendants reject both of these propositions.
In relation to the first complaint, the defendants submit that CZAPL had entered the BSPA pursuant to the resolution passed on 3 April 2017. The resolution of 3 April 2017 conferred authority to take the necessary steps to complete the sale. Therefore, the directors were not acting outside their power when the BSPA was executed.
In relation to Domenic being misled, the plaintiffs submit that the purpose of the 26 May 2017 meeting was not "to resolve to enter into the Sale Agreement" as the plaintiff alleges. The resolution of 3 April 2017 had already passed and that resolved to "proceed with the proposed sale." On 24 May 2017, Mr Shmilovits sent Domenic an email confirming the BSPA had been executed with Pickles. As such, Domenic cannot claim that he was misled about the meeting.
Finally, even if the allegations from the plaintiffs are correct, the plaintiffs have not suffered any adverse consequences as a result of the resolutions being passed. Therefore, there has been no oppressive conduct.
The Court finds Domenic was not misled. He had been informed by Mr Shmilovits (see paragraph [126] above) that the BSPA had been executed.
However, even if the 3 April 2017 resolution was otherwise valid, given the view I have taken as to its proper construction, that resolution did not authorise the execution of the BSPA or the taking of the steps which were purportedly passed on 26 May 2017.
Furthermore, the various resolutions supposedly passed on 26 May 2017 were plainly "shareholder reserved matters" under Clause 3.12 of the Shareholders' Agreement (see paragraph [43] above) insofar as they were in respect of the sale of CZAPL's assets having a value of more than $20,000, involving a step to wind up CZAPL and ceasing the "Business" as defined. Because the resolutions did not receive Domenic's support (even if the meeting were a shareholders' meeting as opposed to a directors' meeting) they did not pass and the actions taken by Graham and Marcus pursuant to them were unauthorised.

(e) Selling the assets of Carzapp without first obtaining a valuation of the true worth of those assets.

The plaintiffs have submitted that CZA should have been valued prior to sale to Pickles. The defendants reject this proposition for five reasons: 1. The meeting of 3 April 2017 saw the letter from Pickles being tabled, which noted the sale price was $2 million. The only resolution at this meeting was in relation to the sale to Pickles. Domenic was present at this meeting and voted in favour of the sale to Pickles for $2 million. Domenic raised no concerns as to the price the asset was being sold for and as such, Domenic should not now be able to complain of the price for which CZA was sold; 2. The plaintiffs have failed to particularise why the lack of valuation prior to the sale has amounted to oppressive conduct. There is no suggestion that the sale amount was not satisfactory, and there is no evidence to support that allegation; 3. The directors of CZAPL were best positioned to determine the price of the concept they had developed themselves; 4. To determine whether the conduct was oppressive, a fuller understanding of the context is required. CZAPL was financially strained. The process of getting a valuation would have further strained already limited financial resources and placed the company in an even worse position; and 5. Twinkledom was treated the same as all other shareholders. Therefore, the conduct was not unfairly discriminatory against the first plaintiff.
The Court's conclusion on this aspect of the matter may be shortly stated. In circumstances where Domenic expressly eschews challenging the sale of the IP, makes no allegation that it was sold at an undervalue and has adduced no evidence that proper corporate practice would have required a valuation or what that valuation might have been, this allegation is unsustainable. The Court rejects it accordingly.

(f) Failing or neglecting to pay dividend payments to Twinkledom whilst making dividend payments to other shareholders including shareholders owned and controlled by themselves, thus preferring the interests of those shareholders over the interests of another.

(h) Failing or neglecting to pay Distributions from the Unit Trust to Busy Traveller and Twinkledom whilst making Distributions to other unitholders, including unitholders owned and/ or controlled or for the benefit of themselves or their interests.

It is convenient to deal with these two allegations together because they both turn on the requirement for a deed of release.
There was a degree of imprecision in the course of argument about the precise nature of the payments, in particular whether they were dividends or a return of capital. Ultimately Domenic said the payments to him from CZAPL were dividends. The defendants said they were a return of capital. The distinction is important insofar as Domenic seeks an order for payment.
The argument is complicated by the equivocation in the terms of resolution 5 purportedly passed on 26 May 2017, which included (emphasis added): "The directors wind up/deregister the Company once all assets have been realised and creditors/claims have been paid, with any surplus to be declared as a dividend/distributed as a return of capital to shareholders on receipt from each shareholder of a deed of release against any claims by each shareholder against the Company in the future. The surplus will be distributed to shareholders in proportion to their shareholding as confirmed below."
In my opinion the payments from CZAPL directly to its shareholders were a return of capital for two reasons. First, the context was a de facto winding up (as the opening words of the resolution make clear) so that what was being proposed was a return to contributories of the kind a liquidator would make when all creditors have been paid and the expenses of the winding up have been met. Second, I regard it as a strong indication against the conclusion that the payments were a dividend that there was no declaration of a dividend from profits specifying the amount, time and method for payment (see s 254U of the Act).
It is also important to identify that two types of payments were contemplated (see paragraph [140] above) as part of what I have described as a de facto winding up.
First, after the payment of all expenses and other liabilities, the four shareholders in CZAPL were to receive payments in proportion to their shareholdings. However, the payments that would otherwise have been made to Domenic, Marcus and Graham were reduced equally to create a fund of $92,613.05 to be divided equally ($46,306.52) as ex gratia payments to Dr O'Connor and Ms Berlandier, neither of whom was a shareholder in CZAPL. The end result was that APE was to receive $140,322.80 and Domenic, Marcus and Graham $390,097.39 each.
Second, an amount of $219,120 was advanced from CZAPL to CZAUT via CZAT to enable distributions from CZAUT to the unitholders in proportion with their interests. This meant $68,200 to each of Domenic, Marcus and Graham and $7,260 to each of Dr O'Connor and Ms Berlandier.
The plaintiffs have submitted that the defendants have failed to make the payments from CZAPL and unit trust distributions to the plaintiffs unless they signed the deed of release.
One of the resolutions which purportedly passed at the 26 May 2017 meeting was that there would be "a return of capital to shareholders on receipt from each shareholder of a deed of release against any claims by each shareholder against the Company in the future." This resolution was passed to allow payments to be made to the unitholders who were not shareholders of CZAPL, namely the entities of Dr O'Connor and Ms Berlandier. Although the resolution did not refer to Dr O'Connor and Ms Berlandier, as is apparent from the email set out in paragraph [140] above, receipt by them of the proposed payments was made conditional by Graham on them giving deeds of release.
The sale of the key asset of CZAPL to Pickles meant the units which Dr O'Connor and Ms Berlandier had acquired in CZAUT were worthless. They were not shareholders in CZAPL, and had no entitlement to the proceeds of the sale of the IP.
Therefore, to provide Dr O'Connor and Ms Berlandier with some return on their investment, Marcus and Graham proposed an ex gratia payment be made to them. As neither Dr O'Connor nor Ms Berlandier were entitled to the ex gratia payment, Mr Shmilovits advised that releases should be provided by the shareholders of CZAPL who might otherwise have received those funds.
While the scope of the releases was broad, Marcus and Graham submitted that they should not be criticised for following the reasons: 1. Dr O'Connor was invited to propose a different form of deed; 2. Domenic accepted that he knew similar deeds had been provided to APE and Dr O'Connor (T244:19-21); 3. Domenic accepted that he knew APE had negotiated amendments to its deed (T244:23-28); 4. Domenic accepted that he knew Dr O'Connor had been invited to make amendments to the deed if appropriate (T245:5-7); 5. Domenic conceded that Graham and Marcus had told him he could make amendments to the deed if desired (T244:34-50); 6. Domenic failed to suggest any amendments; 7. Mr Shmilovits suggested the deed, it was the subject of resolutions of CZAPL and was imposed on all relevant parties equally; 8. Domenic accepted the deed was provided to him in accordance with legal advice (T243:47-50); 9. The shareholders of CZAPL would suffer as a result of any ex gratia payment because they would receive less than they were otherwise entitled to, meaning it was appropriate for the shareholders of CZAPL to sign the release; 10. Domenic had already made multiple legal threats against Marcus and Graham personally; and 11. Except for Domenic, each shareholder of CZAPL had signed the deed prior to receiving the payment from CZAPL and the distribution from CZAUT.
The defendants submitted that they have never refused to make the payments. However they have insisted that in accordance with the legal advice provided to them, and with the resolutions purportedly passed on 26 May 2017, the Releases are to be signed before any payment is made.
In light of this context, the defendants submitted that there was no relevant unfairness against Domenic to constitute oppression for failing to make the payments and distribution.
Furthermore, the defendants submitted by reference to s 234 of the Act and generally that as he was not a shareholder of CZAPL, Dr O'Connor did not have standing to seek an order under the Act for any alleged oppression in relation to non-payment of the ex gratia payment from CZAPL.
For the reasons set out in paragraphs [241] to [242] above, including accepting the matters set out paragraphs [291] to [294] above, the Court accepts the defendants' submissions that by requiring a deed of release from Domenic they did not engage in oppressive conduct towards him. As a practical matter, rather than being relevant to any legal issue, it is clear beyond doubt that Marcus and Graham would have accepted a deed of release from Domenic and Dr O'Connor in the form of that executed by APE with the result that the appointment of the administrators and the need for this complex piece of litigation would both have been avoided.
The Court also accepts the defendants' submission that Dr O'Connor does not have standing to seek relief under the Act in relation to the payment from CZAPL. The question of his entitlement to any relief is considered further in paragraphs [375] to [381] below.

(g) Allowing Carzapp to borrow funds from Carzapp Trading in the sum of $230,197 and to enter into such an arrangement without the approval of the required majority of shareholders and contrary to the Shareholders Agreement.

The plaintiffs have done no more than submitted that CZAPL borrowing money from CZAT required the approval of the majority of the shareholders and that without this approval, it was a breach of the Shareholders' Agreement. In fact, it was CZAPL which made an advance to CZAT and I will read the particular in that way.
The defendants accept, and the Court finds, that the evidence (such as it is) demonstrates: 1. On 1 June 2017, $230,197 was transferred from CZAPL to CZAT described as "Pymt Carzapp Trading Cz Trading Loan"; 2. On 2 June 2017, $200,000 was transferred from CZAT to CZAH described as "Pymt Carzapp Trading CZapp Tradloanrepay"; 3. On 5 June 2017, $20,005.02 was transferred from CZAT to CZAH described as "Pymt Carzapp Trading CZapp Tradloanrepay".
There can be no doubt that these transfers were made to allow CZAH as trustee of CZAUT to make payments to unitholders. So much appears from resolution 3 purportedly passed on 29 May 2017 (see paragraph [130] above). The defendants submit that there is no suggestion that Domenic was unaware of such a loan, or that he took issue with the transfers.
The defendants contend that it is unclear what the relevance of this allegation is as a means of oppression. Even if the plaintiffs' argument is accepted, it is unclear what the detrimental impact these payments had on Domenic.
In considering this allegation, the plaintiffs have not particularised which provision of the Shareholders' Agreement was breached by the making of such a loan. However, clause 3.12(o) makes a shareholder reserved matter "giving a loan, credit or other financial accommodation to a person of more than $5,000 except in the ordinary course of business". Clause 1.2(d)(iii) defines "person" to include a corporation.
As it has not been the subject of submissions, I will assume without finding that the making of the loan to CZAT for the purposes of paying it on to CZAH was not in the ordinary course of business. On the basis of that assumption, resolution 3 purportedly passed on 29 May 2017 at a directors' meeting does not satisfy the requirements of the Shareholders' Agreement such that the making of the loan was unauthorised. The difficulty for the plaintiffs is that they have failed to demonstrate how, even if that be so, there was any relevant unfairness to Domenic so as to constitute oppression on the part of Marcus and Graham. The Court rejects this allegation, even if made out, as constituting oppressive conduct for the purposes of the Act.

(i) Entering into the Carzapp Expenses Arrangement without the approval of the required majority of shareholders and contrary to the Shareholders Agreement.

In the Amended Statement of Claim the plaintiffs allege: "70. At a time after July 2015 which time is known to Meyerowitz and Lasarow, Meyerowitz and Lasarow caused Carzapp to enter into an arrangement whereby Media Tag Pty Ltd would pay certain expenses of the business of Carzapp ("Carzapp Expenses Arrangement"). 71. In obligating Carzapp to the Carzapp Expenses Arrangement, Meyerowitz and Lasarow were acting outside the power invested in the directors of Carzapp as it was contrary to the provisions of the Shareholders Agreement"
The plaintiffs did not give this allegation much emphasis in their closing submissions. The Court rejects the allegation, not least because the plaintiffs were unable to point to evidence that such an arrangement existed in the terms alleged. However, even if such an arrangement did exist, the Court accepts the defendants' submissions for the reasons that follow that this allegation cannot be an indicium of oppressive conduct.
The provisions of the Shareholders' Agreement to which the plaintiffs refer are clauses 3.12(c), (e), (n) and (s) (see paragraph [43] above). It is alleged that the effect of those provisions is to require approval by a "Required Majority" before CZAPL could enter into the alleged arrangement with Media Tag for the payment of expenses of the business of CZAPL.
Media Tag was incorporated on 7 November 2007. CZAPL was incorporated on 30 July 2015. The Shareholders' Agreement was entered into in February 2016. Prior to CZAPL's incorporation, the evidence establishes that Media Tag was the corporate vehicle through which the business of developing CZA was conducted and which held the IP in relation to CZA. Accordingly, when a third party developer was engaged to undertake work on CZA or assist with its development, the third party subsequently entered into a deed assigning the IP in the works to Media Tag. To the same end, from a time that preceded the incorporation of CZAPL, Media Tag paid expenses in relation to the development of CZA, and this remained the case after CZAPL's incorporation. The Court accepts that the arrangement must have been known to Domenic, because Media Tag issued invoices to Domenic on account of disbursements.
The Court accepts Marcus' evidence that Media Tag "had the infrastructure to support a business, to support the growth of a business, to enter into potential agreements". When asked to elaborate, Marcus explained that Media Tag had a corporate identity, credibility, email addresses, telephone numbers, a website, notable achievements from the past, an office, desks and a meeting room.
The Court concludes that, assuming for the sake of the argument that there was any "arrangement" by which Media Tag paid expenses of CZAPL, any such arrangement had been entered into before the Shareholders' Agreement was executed. Domenic has been unable to point to any provision in the Shareholders' Agreement that would, on its proper construction, extend to pre-existing arrangements. In any event, and assuming again that there was such an arrangement and that it breached the Shareholders' Agreement, Domenic has failed to demonstrate how, in all the circumstances, the payment of such expenses was unfair to Domenic so as to constitute oppressive conduct for the purposes of the Act.
This alleged particular of oppression is rejected.

(j) Appointing administrators to Carzapp, Carzapp Trading and Carzapp Holdings without the approval of the required majority of shareholders and contrary to the Shareholders Agreement.

This particular is integrally connected to the plaintiffs' case that the administrators were improperly appointed and to the issues raised by the administrators' amended cross-claim. It is therefore convenient to deal with the challenge to the appointment of the administrators both in the context of a particular of alleged oppression and as a substantive issue in its own right.

Did Marcus and Graham have a bona fide belief that the CZA Companies were insolvent, or likely to become insolvent?

S 436A of the Act sets out the requirements for appointing an administrator for a company: "436A Company may appoint administrator if board thinks it is or will become insolvent (1) A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that: (a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and (b) an administrator of the company should be appointed. (2) Subsection (1) does not apply to a company if a person holds an appointment as liquidator, or provisional liquidator, of the company."'
In Rapsey (in Their Capacity as Former Administrators of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (Formerly Under Admin) ) v Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244 at [21]-[22], Black J summarised the relevant principles of Pt 5.3A as follows: "Section 435A of the Corporations Act in turn sets out the purpose of Pt 5.3A of the Corporations Act, namely to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or, if it is not possible for the company or its business to continue in existence, results in a better return for the company's creditors and members than would result from an immediate winding up of the company. An administrator can be appointed under s 436A of the Corporations Act if the board … held the specified belief that the Companies were insolvent or were likely to become insolvent in the future. … if a director's opinion as to insolvency is not held, or is not held genuinely or in good faith, a resolution passed by the directors to appoint an administrator under s 436A of the Corporations Act is invalid: Kazar v Duus above at 333 - 334; Londish v Sheahan - Re Valofo Pty Ltd [2010] NSWSC 337 at [27]. … [I]n Kazar v Duusabove at 230 - 231, [Merkel J observed] that it is implicit in the statutory requirement under s 436A of the Corporations Act that the relevant director's opinion as to the insolvency, or likely insolvency, of the company that the opinion be bona fide and genuinely formed. Statements of the directors' opinion are relevant to whether they have formed the requisite opinion but the court must approach that question objectively: Kazar v Duus above; Smolarek v McMaster as Administrator of EznutPty Ltd [2008] WASCA 234. … it is not sufficient to support an administrator's appointment that directors are merely uncertain as to a company's solvency: Kazar vDuus above; Wagner v International Health Promotions (1994) 15 ACSR 419 at 421. … [I]n Downey v Crawford [2004] FCA 1264; (2004) 51 ACSR 182 at 218, [Weinberg J observed] that the question whether directors genuinely believed that a company was actually insolvent, or likely to become so at some future time, will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint an administrator."

Likely insolvency - the plaintiffs' submissions

The plaintiffs focussed their argument on CZAPL, although ultimately the administrators were also appointed to CZAT and CZAH. They submitted that Graham and Marcus did not have a bona fide belief that CZAPL was insolvent or about to become insolvent when they placed CZAPL into voluntary administration and subsequently appointed the administrators. Instead, the reason they passed the resolution which appointed the administrators was in accordance with obligations they thought they owed to Pickles. As such, the appointment of the administrators was invalid.
In Re Condor Blanco Mines Limited [2016] NSWSC 1196, Barrett AJA noted at [133]: "If it is found that the directors are motivated by a purpose of self-interest, such as a desire to retain their control of the company or to defeat the legitimate exercise of shareholders' powers inimical to their personal interests, their decision is one that is inconsistent with due performance of their duties. One need not look beyond the decision of the Privy Council in Howard Smith Limited v Ampol Petroleum Ltd [1974] AC 821 for authority on this. And if such an inconsistent purpose is causative, in the sense that, but for its presence the power would not have been exercised, the tainted action is vitiated by the impermissible purpose and is rendered voidable as distinct from void."
The plaintiffs submitted that both Graham and Marcus were motivated by self-interest, as opposed to holding a genuine belief that the CZAPL was insolvent, or likely to become insolvent. According to Graham's affidavit of 27 April 2018, Graham had prepared a schedule of payments to creditors and shareholders. This schedule was being created for the purpose of distributing sale proceeds and "balancing out everything prior to a winding up of the companies". This would suggest that even before determining the viability of the companies, Graham was preparing to have them wound up.
Graham's evidence was that he was concerned with how long it was taking to comply with the post-sale obligations. Notices of meetings were circulated "so we could get the ball rolling and keep Pickles happy." The plaintiffs submitted this showed the real reason for Graham's actions. Graham was more concerned with maintaining a deal with Pickles, a deal where both Graham and Marcus would benefit from the Consultancy Agreement, as opposed to having a genuine belief that the CZAPL was going to become insolvent.
Pursuant to the BSPA, the change of CZAPL's name had to be approved by a members' meeting. The plaintiffs submitted that the likelihood of any litigation from Pickles was minimal and would not have been given much weight when considering whether to place the company into administration. At the time of the execution of the BSPA on 24 May 2017, CZAPL had performed the substantial part of its bargain, namely providing the code for CZA to Pickles. As such, if Pickles were to commence legal action against CZAPL, it would only be in relation to them using the name "Carzapp". Given the CZA Companies had ceased trading, it is highly unlikely Pickles would have sued CZAPL in relation to using the word "Carzapp" in their company name.
Furthermore, given both Marcus and Graham had entered into the Consultancy Agreement, it is even more unlikely Pickles would have sued CZAPL. As both Marcus and Graham were now consulting for Pickles, it is factually unlikely that legal proceedings against CZAPL would have been commenced.
Consequently, the plaintiffs submitted that it was more probable that Marcus and Graham used the impending threat of litigation from Pickles as an excuse to subvert the Shareholders' Agreement. The continued behaviour of both Marcus and Graham suggested that the matter at the forefront of their thinking was ensuring the names of the companies were changed, as opposed to determining the solvency of CZAPL. Graham records in his affidavit that: "Shmilovits stated that the only options we had were to reach agreement with Ruberto about changing the name, or put the company into voluntary administration and have the debts and claim dealt with by administrators."
The plaintiffs placed emphasis on the fact that Domenic even offered to have Twinkledom vote to change the name of CZAPL if he was paid the money that was owed to him. Domenic's solicitor emailed the following note to both Marcus and Graham: "Once these funds have been paid and received accordingly, our client, Domenic Ruberto agrees to hold and attend another General Meeting to pass a Special Resolution for Carzapp Pty Ltd to change its name."
The note went on to say, "We note that in this current letter, we have put to you the solution to which your obligations under the Business Sale and Purchase Agreement can be fulfilled in relation to change of the companies' name. … Further to that, I was told by Eric (Shmilovits) that putting the company into voluntary administration was only a suggestion made by Jacqui Barrett in her capacity as solicitor for Pickles Auctions Pty Ltd in the recent communications to solve the problem in relation to the difficulties regarding the changing of the companies' names."
Graham provides four reasons as to why he thought the companies were potentially in trouble and at risk of going into liquidation: 1. CZAPL had no assets left to trade; 2. CZAPL's shareholders were in dispute and in his view, there was little change of settling the dispute; 3. There was potentially additional costs in litigation to defend claims; and 4. CZAPL could not generate income any longer.
The plaintiffs reject these reasons provided by Graham and submit the following: CZAPL had no upcoming liabilities and had ceased to trade, CZAPL had $800,000 cash at bank, Domenic had offered to change the name of CZAPL if he was paid his money, and as a result of the Consultancy Agreement, CZAPL did have the capacity to generate income.
Moreover, Graham stated the following in his affidavit: "Ruberto had not showed any intent to cooperate in the spirit of the deal and in the spirit of our best intentions of making the ex-gratia payments. Had I received a withdrawal of claims and a favourable response in good faith with good and clear intentions from Ruberto, I would have simply closed the business without the voluntary administration process."
The accumulation of evidence from Graham suggests that placing CZAPL into administration was not based on concerns of solvency. Instead, entering into administration was about resolving a corporate problem, where one shareholder refused to provide the required support to change the name of the companies. As such, there was no bona fide belief that CZAPL was insolvent, or was about to become insolvent, and consequently the placing of the company into administration was invalid.

Likely insolvency - the defendants' submissions

The defendants refute any suggestion by the plaintiffs that they did not have a bona fide belief that the CZA Companies were insolvent, or likely to become insolvent.
The defendants note the following concessions were made by Domenic during cross-examination: 1. By the middle of 2016, CZAPL was in a "precarious financial position" (T156:45-47); 2. CZAPL did not have "the working capital that it needed to properly sustain the development of the application" (T157:3-8); 3. Both Marcus and Graham "were concerned about the financial position in which Carzapp Pty Ltd found itself" (T216:6-9); 4. By March 2017, Domenic knew CZAPL "was in an extremely precarious financial position" (T230:22-34) and he knew this at the time of the 3 April 2017 meeting; and 5. Domenic's concerns about the financial position of the CZA Companies were "incredibly deep-seated" and "enormously deep-seated" (T241:27-31).
Additionally, the defendants also highlighted the following to suggest both Marcus and Graham had a bona fide belief as to the insolvency at the time of appointment of the administrators: 1. Domenic had made threats of legal action by 29 May 2017. Domenic had retained solicitors and sent a series of correspondence to Marcus and Graham, including threatening "if you proceed as though those resolutions [of 26 May 2017] were carried, you are in breach of the company constitution and I will have no hesitation to pursue legal remedy". This threat was not just in relation to commencing proceedings against Marcus and Graham personally, but as this litigation has shown, has also involved the CZA Companies as defendants. Threats of legal action were made on numerous occasions, including 9 June 2017 where the plaintiffs' solicitor stated Domenic and Twinkledom "reserves their rights to commence proceedings and seek damages including but not limited to injunctive reliefs [sic] and costs on an indemnity basis without prior notice". 2. There were also threats of commencing legal proceedings by Busy Traveller on 8 June 2017. An email was sent on behalf of Busy Traveller stating "I will issue instructions to my lawyers to commence proceedings for relief" if payment was not made to Busy Traveller for certain funds. 3. The solicitors acting for Pickles in the purchase of the IP were demanding the CZA Entities change their names and remove reference to the term "Carzapp". This was in accordance with the BSPA. In the weeks following the sale, there was consistent correspondence from the legal representatives of Pickles inquiring whether this requirement had been met. In one email dated 21 July 2017, the solicitors for Pickles sent the following: "…our client requires that the required quorum be achieved and the resolutions passed within the next seven days. If this is not possible, our client requires that steps be taken immediately to voluntarily wind up or de-register Carzapp Pty Ltd". The defendants submitted that any suggestion by the plaintiffs that Pickles would not have pursued legal action is purely speculative and unrealistic, as shown by numerous emails from them. 1. The view taken by Mr Shmilovits was Pickles posed a real threat at commencing legal proceedings if the name was not changed. Graham gave evidence that the advice given by Mr Shmilovits were words to the following effect: "…the company has a threat of legal action hanging over it because it promised the name change. If this is not done it is a clear breach of contract. So you need to hold an urgent board meeting to resolve the name change issue. If you can't change the name at the meeting you need to think about administration, because a claim will come from Pickles and the company is likely to be insolvent." Similarly, Marcus gave evidence that Mr Shmilovits provided advice to the following effect: "The claims made by Ruberto, O'Connor, and Pickles mean that more money is being claimed against Carzapp than it has. To avoid insolvent trading the prudent thing to do is to put the company into voluntary administration. I can't give you advice as directors and you should seek your own legal advice because I can only act for the company." (5) On 18 July 2017, Mr Shmilovits sent the following email to Marcus, Graham and Domenic's solicitors, noting CZAPL had been unable to change the name: "…In our view, this exposes the company to a significant damages claim from Pickles. Pickles has already indicated that it insists on the name being changed, and demanded a report about yesterday's meetings. We believe that the likelihood of Pickles pressing its rights is high, and that the likelihood of success of any damages claim brought against the company is also high. It is difficult to quantify, at this point, how much Pickles might claim or will be awarded. The maximum risk, however, pursuant to the limitation of liability clause, is $800,000. In any event, the legal costs of defending such a claim will be more than $200,000. All in all, the directors should consider the future of the company, in light of the exposure to a likely significant damages claim. The two obvious alternatives are: 1. Reaching agreement with Domenic about changing the name, in which case the company will hopefully be able to avoid the above claim; or 2. Putting the company into administration …" 1. In July 2017, Graham and Marcus received further legal advice from Mr Lyons, a solicitor from K&L Gates, in relation to what they should do as directors. Mr Lyons gave advice to the following effect: "I think you should speak to an administrator as soon as possible and consider putting the company into administration." Furthermore, in May 2017 Graham and the accountant for the CZA Entities had prepared a schedule of payments to creditors and shareholders. By July 2017, Graham had received that schedule which supported his view that the companies would have no money or assets to deal with legal action by Domenic or Pickles. 1. In around July 2017, Graham explained the situation of the company to Mr Resnick. Mr Resnick gave advice to the following effect: "I think that, based on the financial position and on the claims made against the companies, you need to carefully consider administration."
It is the accumulation of this information and advice which resulted in Graham giving considerable thought to the financial position of the CZA Companies. Graham was aware of the distributions which needed to be met, the lack of assets, the dispute between the shareholders, the possibility of litigation from Domenic or Pickles and the cost of such litigation, the absence of a means for the companies to generate income, the legal advice from both Mr Shmilovits and Mr Lyons and the desire to avoid insolvent trading.
During cross-examination, Graham stated that "by January 2017 the position of the company" was that it "[had] less than $10,000 in the bank account and [was] on the verge of insolvency" (T328:44-46). Graham went on to explain how the threats of litigation, the lack of assets the company held, and the fact that any money the companies still had had been allocated to either the ATO or various creditors all compounded his belief in the need to place the company into administration. This opinion was solidified by two different lawyers, and Mr Resnick who was an experienced administrator.
Marcus gave similar evidence to Graham and conceded in cross-examination that during the negotiation with Pickles, "[t]he company was desperate for funds and it was on the brink of administration" (T459:42-43). Two key issues informed Marcus' decision, namely threat of litigation from either Domenic or Pickles, and the financial position the company was in at the time. Marcus said (T520:8-14): "There were a number of factors. We had legal costs. We had accounting costs. We had a threat, a real threat from Pickles which could amount to $800,000. We had impending legal threats from Domenic Ruberto and Dr Geoff O'Connor not against me alone and Graham alone as directors but against the company as well. And I was of the very firm belief that the company was likely to become insolvent or insolvent, which led me to truly consider firmly administration."
Furthermore, the resolutions themselves expressly stated that both Graham and Marcus thought the companies were at risk of becoming insolvent. As such, they voted to appoint administrators.
Evidence was also provided by Dr O'Connor which confirmed the financial worries both Graham and Marcus had about the companies. Dr O'Connor accepted CZAPL was in a "precarious financial position" and "was running low on working capital" (T112:1-9). The concerns of Graham and Marcus had been ventilated to Dr O'Connor, and he was aware of their stance on the finances of the company.
There were attempts made by the plaintiffs to suggest the appointing of the administrators was motivated by the Consultancy Agreement between Pickles and Graham and Marcus. The defendants submitted this argument should be rejected for the following reasons: 1. The extensive evidence already established in relation to the financial position of CZAPL reveals the purpose of placing the company into administration and appointing the administrators was to ensure the company avoided insolvent trading; 2. The plaintiffs failed to make any connection between the appointment of the administrations and the Consultancy Agreement; and 3. The circumstances of the Consultancy Agreement were fairly standard and normal practice in the industry. Namely, it was not uncommon for individuals with technical expertise and who were involved in the development of a product to provide support after the acquisition of that product. The Consultancy Agreement did not impact the price of the sale and given the broader circumstances of the transaction, was unsurprising.
Therefore, the evidence of the broader context reveals how the threats of litigation, the poor financial position of the companies, and the consistent advice to place to CZAPL into administration informed Marcus' and Graham's view that the companies were, or were likely to, become insolvent.

Appointment of the administrators

In Downey v Crawford [2004] FCA 1264 at [189]; (2004) 51 ACSR 182 Weinberg J, when dealing with a case where it was said administrators had been invalidly appointed to a company that had ceased to trade and was described as a cashbox, said: "[189] However, the question whether the company was insolvent as at 4 August 1999 in one sense presents a red herring. The real issue is whether the defendants, or either of them, acted in breach of duty when they proceeded to put the company into administration. The answer to that question depends largely upon whether they genuinely believed, on reasonable grounds, that the company was insolvent or likely to become so in the future, and not upon whether that was the company's actual position. The reasonableness of any such belief in turn depends, at least in part, upon the adequacy of the steps that they took to satisfy themselves that the preconditions for the appointment of an administrator had been met. … [196] This takes me to my findings in relation to the primary claim. That claim depends upon my being satisfied that the Crawfords, or either of them, acted in breach of their duties to the company when they resolved, on 4 August 1999, to place it into administration. As previously indicated, the question is not whether, as at that date, the company was actually insolvent, or likely to become so at some future time. It is rather whether the directors genuinely believed that this was so, and whether that belief was reasonable in the circumstances. That in turn will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint Mr Downey as administrator. [197] The onus rests upon the plaintiffs to satisfy the Court that the directors acted in breach of their statutory or fiduciary duties…."
Both Marcus and Graham were extensively challenged in cross-examination about the basis of their belief that the CZA Companies were likely to become insolvent in the future. Having had the advantage of seeing them give their evidence, I have no doubt that they were motivated by a genuinely held belief that in August 2017 the CZA Companies were likely to become insolvent at some time in the future. I reject the submission that they acted for extraneous or improper motives such as in relation to the Consultancy Agreement (the plaintiffs drew no logical or plausible link between that agreement and why the administrators were appointed), to satisfy Pickles, to avoid the operation of the Shareholders' Agreement or to resolve their dispute with Domenic.
However, that they genuinely subjectively held the requisite belief is insufficient. The question then becomes whether that belief was objectively reasonable in the circumstances. The plaintiffs bear the onus of satisfying the Court that it was not a reasonable belief. They have not satisfied that onus. The Court finds Marcus' and Grahams' belief was reasonable by reference to the following matters: 1. The CZA Companies had ceased to trade, so no further income was to be generated. 2. Marcus and Graham had received advice from two solicitors (Mr Shmilovits and Mr Lyons) and an accountant (Mr Resnick) that they should seriously consider administration. 3. In my respectful view, the advice tendered by Mr Shmilovits recorded in paragraph [330(5)] above was entirely reasonable, in particular his estimate of possible legal costs if Pickles brought proceedings. While I have taken into account the plaintiffs' submissions to the contrary, I am satisfied that the insistent tone and regularity of Pickles' correspondence in relation to the name change made it entirely reasonable to regard litigation by Pickles as a real possibility in order to protect an asset for which Pickles had paid $2 million. 4. The May 2017 schedule of payments to creditors and shareholders referred to in paragraph [335[6] above was in evidence. It was prepared with the assistance of the CZA Companies' accountant. It showed a zero balance after actual and contingent creditors were allowed for (including the ATO) and the various payments were made to the shareholders and the funds advanced ultimately to CZAH to make the proposed distributions to unitholders. Those distributions were in fact made, other than to Domenic and Dr O'Connor. The Court therefore infers that the only funds that would have been available to CZAPL for litigation (being not otherwise distributed or accounted for to creditors) would have been the amounts earmarked for Domenic and Dr O'Connor to be paid by CZAPL being $385,982.40 and $45,818.05. Given the realistic possibility of litigation from Pickles, from Domenic (given his previous behaviour, his threats and as has in fact occurred) and from Dr O'Connor, it was in my view reasonable for Marcus and Graham to believe that potential litigation costs (both for the CZA Companies' own lawyers and the possibility of liability for other parties' costs) would mean that the CZA Companies were likely to become insolvent at some time in the future.
In reaching this conclusion I should also record the following two matters.
First, I have not taken into account the solvency concerns in January 2017 which led to the sale of the IP in the first place. The situation had to be considered on the basis that CZAPL had received the sale price and had now ceased to trade.
Second, I have not overlooked Domenic's offer to approve the change of name for the CZAPL companies if he received his promised share of the proceeds (see paragraph [167] above). However, it is significant that his offer refused to engage with the request that he provide a deed of release. I have already explained that in my view the request for a deed of release was commercially reasonable, albeit not a deed in the wide terms originally propounded by Marcus and Graham. However, notwithstanding the matters referred to in paragraph [234] above, Domenic failed even to attempt to negotiate a more focussed form of release that would have been acceptable to all concerned. That failure, and the long and bitter history of his poor behaviour towards Marcus and Graham, means it was objectively reasonable for Marcus and Graham to give no real weight to the possibility of an agreement being reached with Domenic that would have relieved the threat of action from Pickles and Domenic. I am fortified in that conclusion by the fact that Domenic did not respond to Marcus' further offer set out in paragraph [168] above.
The Court therefore finds that this aspect of the plaintiffs' challenge to the validity of the appointment of the administrators fails. Furthermore, for the preceding reasons and those that follow to the effect that the resolution to appoint the administrators was not in breach of the Shareholders' Agreement, the Court finds that the appointment of the administrators - being valid - cannot be an indicium of oppression as particularised by the plaintiffs. While possible, it would be a rare case, of which this is not an example, where the lawful exercise of a statutory right could constitute oppressive conduct.
The Court's conclusion means that it is unnecessary to consider the defendants' alternative submissions based on s 477A of the Act.

Were the resolutions appointing the administrators a breach of the Shareholders' Agreement? - The plaintiffs' submissions

The plaintiffs submitted that the resolutions which appointed the administrators were a breach of the Shareholders' Agreement.
Clause 3.12(j) of the Shareholders' Agreement states the following as being a reserved matter for the shareholders "except to the extent otherwise required by law": "(winding up) taking any step to dissolve or wind up the Company, appoint a receiver or receiver and manager (or any similar officer) of the whole or any part of the business or assets of any Group Entity."
The plaintiffs contended that "any similar officer" must also include an administrator.
Similarly, clause 3.12(s) states a "Required Majority" is necessary to "[make] any agreement or arrangement to carry out any of the matters referred to in the foregoing provisions of this clause 3.12."
If the Board did not have the power to take such action, then the decision to do so must be invalid (Sutherland v Take Seven Group Pty Ltd [1998] NSWSC 538 per Young J, as his Honour was then).
The plaintiffs submitted that placing the companies into administration was beyond the powers of the directors. Appointing the administrators was a matter which only members were empowered to do, pursuant to clause 3.12(j) and (s) of the Shareholders' Agreement.
Furthermore, the plaintiffs submitted that the appointment of the administrations was similarly invalid for both CZAH and CZAT.
As the directors did not have the power to appoint the administrators, their decisions were therefore invalid.
The plaintiffs further submitted that invalidly placing the CZA Companies into administration resulted in the companies suffering damages, being the costs associated with the administrators, and the costs of these legal proceedings. If damage has been suffered by the companies, the Court is empowered to make an order pursuant to s 598 of the Act that the person who has caused the damage pay the damages which were suffered.

Were the resolutions appointing the administrators a breach of the Shareholders' Agreement? - The defendants' submissions

The defendants had two lines of argument, the first being in relation to both CZAH and CZAT, and the second being in relation to CZAPL.

CZAH and CZAT

In relation to CZAH and CZAT, the defendants submitted that neither company was subject to the Shareholders' Agreement.
Clause 3.12(j) referred to dissolving or winding up CZAPL or the appointment of the "similar officer" to the business or assets of any "Group Entity."
"Group Entity" is defined in clause 1.1 of the Shareholders' Agreement as follows: "Group Entity" means each entity which is a member of the Group."
The term "Group" is defined as follows: "Group means: (a) the Company; and (b) each Subsidiary of the Company (if any)"
The term "Subsidiary" is defined as follows: "Subsidiary" has the meaning given in the Corporations Act but so that: (a) an entity will also be considered to be a subsidiary of a company if it is controlled by that company within the meaning of section 50AA of the Corporations Act."
Sections 46 and 50 AA of the Act provide: "46. What is a subsidiary A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if: (a) the other body: (i) controls the composition of the first body's board; or (ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or (iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or (b) the first body is a subsidiary of a subsidiary of the other body. … 50AA Control (1) For the purposes of this Act, an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity's financial and operating policies. (2) In determining whether the first entity has this capacity: (a) the practical influence the first entity can exert (rather than the rights it can enforce) is the issue to be considered; and (b) any practice or pattern of behaviour affecting the second entity's financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust). (3) The first entity does not control the second entity merely because the first entity and a third entity jointly have the capacity to determine the outcome of decisions about the second entity's financial and operating policies. (4) If the first entity: (a) has the capacity to influence decisions about the second entity's financial and operating policies; and (b) is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity's members; the first entity is taken not to control the second entity."
The plaintiffs relied on the uncontested evidence of the company searches that were before the Court that: 1. The share capital of CZAH was held equally by Blade Media, Media Tag and Twinkledom; 2. The share capital of CZAT was held by CZAH (as to 90%), Marcus (as to 3.4%), and Twinkledom and Meylex (as to 3.3% each); 3. The share capital of CZAPL was held by Media Tag, Blade Media and Twinkledom (as to 30% each) and APE (as to 10%).
CZAPL did not hold any shares in CZAH or CZAT nor did it control them for the purposes of s 50AA of the Act. Therefore, the defendants submitted, neither CZAH nor CZAT was a "Group Entity" and subject to the Shareholders' Agreement. Appointing administrators for both CZAH and CZAT was not invalid as a result of the Shareholders' Agreement because neither company was subject to that agreement.

CZAPL

The defendants contended there were two reasons why the resolutions appointing the administrators to CZAPL were not invalid for non-compliance with the Shareholders' Agreement.
First, the entirety of clause 3.12 is qualified with the chapeau (emphasis added): "The Company may not take any action or pass any resolution in respect of any of the following matters unless the action or resolution has been approved by the Required Majority of Shareholders present and entitled to vote at a meeting of the Company except to the extent otherwise required by law".
Section 436A(1) of the Act allows a company to appoint an administrator if the board has resolved that the company is insolvent, or is likely to become insolvent.
The defendants submitted that both Marcus and Graham had numerous reasons to believe CZAPL was likely to become insolvent, and placing CZAPL into administration was a prudent business decision. Given the context of the real possibility of litigation with Pickles and Domenic, and the prohibition in the Act on insolvent trading, the directors were "required by law" to place CZAPL into administration.
Second, the defendants also argued that clause 3.12(j) was not enlivened because it did not, on its proper construction, extend to the appointment of an administrator. Clause 3.12(j) was limited only to the winding up of the CZAPL or the appointment of a receiver or a receiver and manager to any Group Entity. The clause did not capture the appointment of an administrator because an administrator was not "any similar officer" to a receiver or receiver and manager.
In support of this submission the defendants drew attention to two decisions of Finkelstein J. In Beconwood Securities Pty Ltd v Australian and New Zealand Banking Group [2008] FCA 594; (2008) 246 ALR 361 at [60] his Honour distinguished the role of liquidator, receiver and administrator: "In my view the role and function of, on the one hand, a party-appointed receiver or an administrator and, on the other hand, a liquidator, are not analogous. The role of a liquidator is to get in the assets of the company that is being wound up, dispose of those assets and out of the proceeds discharge the debts due to creditors (pro rata if there is a deficiency) and pay the balance (if there be a balance) to the contributories. When this task is complete the company is finished. This is in marked contrast to the role of a party-appointed receiver or an administrator. A party-appointed receiver takes control of the company's assets (and sometimes manages its business), but for the single purpose of discharging the debt due to his appointer, the secured creditor. The receiver holds any surplus he has secured for the benefit of the company. On his retirement the company continues in existence. An administrator does little more than take over the running of the company, and then only for a relatively short period. This enables the creditors to decide the company's fate."
Similarly, in Lindholm, Re; Opes Prime Stockbroking Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1425 at [61]; (2008) 171 FCR 473 his Honour said: "In my view, whether the issue of "analogy" is approached from the perspective of the nature of the appointee or from the principal consequence of the appointment, the result must be the same: a liquidator is not analogous to either an administrator or a receiver appointed by a secured creditor. The function of a liquidator - whether called a liquidator, a trustee, a receiver, a curator or a syndic - is to preside over the death of a company. An administrator appointed in rescue proceedings strives for the opposite result (even though the company may yet in the end die). A receiver appointed by a secured creditor does neither of those things, being largely unconcerned about the fate of the company. From any perspective, the offices are poles apart."

Were the resolutions appointing the administrators a breach of the Shareholders' Agreement? - Resolution

The Court concludes that the resolutions appointing administrators to the CZA Companies were not invalid as breaches of the Shareholders' Agreement. The Court accepts the defendants' submissions for the reasons advanced by them as to why CZAH and CZAT are not subject to the Shareholders' Agreement and the second of the two reasons advanced by them in relation to CZAPL. I add the following by way of further and alternative analysis.
I do not accept that the appointment in relation to CZAPL was "otherwise required by law" in the way the defendants contend because the appointment of the administrator was not "required by law". The defendants could not point to any provision of the Act that required (in the sense of "must") CZAPL to appoint the administrators. Accordingly, if clause 3.12(j) otherwise applied to the appointment of an administrator (which it does not for the second reason advanced by the defendants), the requirement for a "Required Majority of Shareholders" to approve the action of the Company was not displaced by some requirement of the law otherwise.
Turning to the construction of clause 3.12(j), it may be divided into two parts, both qualified by "taking any step to": "(winding up) taking any step to [dissolve or wind up the Company], [appoint a receiver or receiver and manager (or any similar officer) of the whole or any part of the business or assets of any Group Entity]."
That division is supported by the use of "Company" in the first part and "Group Entity" in the second part. In my view that use of separate descriptors is deliberate and is an example of where the "context requires otherwise" (see the chapeau to the definition clause 1.1 in the Shareholders' Agreement) such that "Group Entity" does not, in clause 3.12(j), include CZAPL as part of the "Group" (which is defined as CZAPL and any subsidiary - see paragraph [359] above). It makes no sense to speak of CZAPL appointing a receiver or receiver and manager to its own assets or business, but it does make sense to provide for CZAPL to take that action in respect of a subsidiary. Accordingly, in addition to accepting the defendants' contention that an administrator is not "any similar officer", in my respectful view what I have described as the second part of clause 3.12(j) does not extend to CZAPL.

The payments from CZAPL

Domenic sought an order that CZAPL pay him the amount he would have received if he had signed the deed of release. The difficulty is that the only basis on which he contended such an order should be made was under the Court's wide power to make orders where it is satisfied there was oppression. The Court has not found any such oppression.
However, there does not appear to be a dispute that he is entitled to the money from CZAPL, which he would have received if he had signed the Release ($390,097.39). If the Court is correct that is not a matter of dispute, the Court will make a declaration that CZAPL owes Domenic that amount and will afford Domenic and other interested parties (including the soon to be liquidators) an opportunity to be heard as to whether any further order should be made.
Dr O'Connor seeks an order that he be paid what was offered by CZAPL if he had signed the Release ($46,306.52). However, neither the Amended Statement of Claim nor the submissions made on his behalf identify a legal basis for this entitlement given that he was not a shareholder in CZAPL.
There can be no doubt that Dr O'Connor, like the other parties, would have been paid had he signed a deed of release. However, as a matter of law the payment proposed to Dr O'Connor from CZAPL was either a gift or a contractual offer that he would be paid the money on condition and in consideration for him entering into a deed of release. Dr O'Connor has failed to demonstrate any legal basis on which he could enforce such a gift or unaccepted offer. It will be a matter for the soon to be liquidators to determine whether Dr O'Connor should in all the circumstances nevertheless be permitted to prove he is entitled to the payment in the liquidation of CZAPL.

The payments from CZAUT

The parties gave no detailed attention to how Domenic and Dr O'Connor had a presently enforceable right to receive what was intended to be paid to them as distributions to unitholders from the CZAUT ($68,200 to Domenic and $7,260 to Dr O'Connor). There is no basis in the evidence to find a formal resolution on the part of CZAH as trustee of the CZAUT to make distributions to anyone. Insofar as it might be said there was somehow an informal resolution, that resolution was for a distribution on condition of the provision of a deed of release. There was no argument addressed as to whether such a condition was an improper exercise of the trustee's powers (assuming they had in fact been exercised). Assuming the validity of that condition, neither Dr O'Connor nor Domenic has satisfied it, so they are not assisted by the fact that distributions were made to those unitholders who executed deeds of release.
In the Amended Statement of Claim Dr O'Connor claimed he was owed the distribution as a debt, relying on clause 12.1(g) of the Trust Deed, which provided that a "requirement" in the Trust Deed to pay any amount to a unitholder could be effected "by setting the amount aside to a separate account in the books of the Trust in the name of the unitholder whereupon such moneys will constitute a debt due to the unitholder at call and will not bear interest". However, no such "requirement" was identified. Even more fundamentally, neither Dr O'Connor nor Domenic could point to "a separate account in the books of the" CZAUT referring to the proposed payments to them.
The Court finds that Domenic and Dr O'Connor have not proven a legally enforceable right to the distributions from the CZAUT. There can be no doubt however that they would have received the funds had they signed the deeds of release. Whether they should receive those payments will be a matter for the new trustee (see the following section).

Appointment of a new trustee for CZAUT

The plaintiffs seek the appointment of a new trustee for the CZAUT. Clause 14.1 of the Trust Deed vests the power to appoint a new trustee in unitholders not holding less than 51% of issued units. Clause 14.5 of the Trust Deed provides: "14.5 Insolvency of Trustee (a) if the Trustee being a corporate body goes into liquidation, ceases to carry on business or has a receiver or official manager of its assets or undertaking appointed, the Unitholders must immediately act to remove the Trustee and appoint a replacement."
CZAH, as trustee of CZAUT, ceased trading after May 2017 and had an administrator appointed in August 2017. It was submitted by the plaintiffs that their prayer in these proceedings for a new trustee met the requirement of "immediately acting". They proposed a solicitor, Mr Mark Peoples, be appointed as trustee of CZAUT, although not all the formalities required for his appointment had been attended to prior to the conclusion of the hearing.
I note in passing that "official manager" is not defined in the Trust Deed. Clause 1.2(g) of the Trust Deed provides "words or phrases defined in the Corporations Act as at the date of this Deed have the corresponding meaning". By the date of the Trust Deed "official manager" was no longer defined in the Act. However, as the voluntary administration regime succeeded the official management regime, were it necessary to do so I would conclude that "official manager" in the Trust Deed includes an administrator.
Section 70 of the Trustee Act 1925 (NSW) provides: "70 New trustees (1) The Court may make an order for the appointment of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee. (2) The appointment may be made whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient difficult or impracticable so to do without the assistance of the Court. (3) In particular and without prejudice to the generality of any other provision of this section, the Court may make an order for the appointment of a new trustee in substitution for a trustee who is convicted of a serious indictable offence, or is a bankrupt, or being a corporation is in liquidation or is dissolved."
Given the dispute between the parties and the appointment of the administrators, the Court is satisfied that it is expedient that a new trustee be appointed to the CZAUT and that it is difficult or impracticable to do so without the assistance of the Court. The parties should endeavour to agree on a new trustee, whether it be Mr Peoples or someone else. In default of agreement, and subject to hearing the parties, the Court will appoint the NSW Trustee & Guardian.

Who should be liquidator?

It is the agreed position between the plaintiffs and the defendants that a liquidator should be appointed to the CZA Companies.
The plaintiffs submitted that the liquidator should be Mr Thomas Dawson. Mr Dawson has no connection with any of the parties.
The plaintiffs submitted that any suggestion of appointing one of the administrators as the liquidator should be rejected. The plaintiffs contended the core principle in appointing a liquidator is that the person must not only be independent, but be seen to be independent (Commonwealth v Irving & NPC Manufacturing Pty Ltd (1996) 65 FCR 291 ("Irving")).
It was submitted that the administrators had acted in a partisan way during the proceedings by creating a report which specified that the CZA Companies were insolvent. Furthermore, Mr Solomons had previously been involved with another of Marcus' companies. During the cross-examination of Marcus, it was established that Marcus first met Mr Solomons in 2010, when Marcus considered appointing a partner at the firm Mr Solomons worked at as the administrator of another of Marcus' companies. In those circumstances the plaintiffs submitted that it would be inappropriate to appoint the administrators to act as liquidators.
The defendants submitted that the administrators should be appointed as the liquidators for the companies, largely for reasons of efficiency and economy. The administrators have already undertaken the necessary analysis of the CZA Companies and were familiar with the companies as they currently stand.
It is necessary to say something about the role of the administrators. They have played an essentially passive role in this litigation. No claims made by the plaintiffs are made against the administrators. The administrators submitted it would be inappropriate for them to contend for a specific result in relation to the assertion that they were appointed invalidly. Instead, the administrators have filed an amended cross-claim asking the Court to determine the validity of their appointment under s 447C(2) of the Act, or alternatively make an order under s 477A of the Act that Part 5.3A of the Act should operate so that the administrators were validly appointed.
There was no submission that the administrators accepted their appointments in circumstances where there was any basis for the administrators to doubt the authority of the appointing directors or the genuineness of their belief of the insolvency of the company. The administrators issued a Supplementary Report on 28 March 2018 which expressed their view that regardless of the litigation at hand, the CZA Companies were insolvent at some time before they were appointed as administrators. Neither the plaintiff, nor the other defendants, submitted that it was appropriate to deprive the administrators of their remuneration, should the Court find they were appointed invalidly.
The decision of Branson J in Irving is authority for the proposition that mere professional acquaintanceship or prior contact with a company or its directors is not sufficient of itself to give rise to actual bias or a reasonable perception of bias on the part of administrators. In reaching that conclusion, her Honour applied the authorities in relation to liquidators.
I do not accept that the administrators have acted in a partisan way in these proceedings. My impression was that they acted scrupulously to maintain a neutral position but being available to assist the Court if required. Nor does Marcus' prior involvement with Mr Solomons provide a proper basis to conclude that Mr Solomons should not be appointed one of the liquidators.
The parties have already been put to what must have been very substantial costs by these proceedings. There is a compelling interest in minimising further costs from professionals. I accept the defendants' submission that economy and efficiency support the appointment of the administrators as liquidators.

Conclusion

The parties will be given an opportunity to bring in short minutes to give effect to these reasons. I will fix a date to determine any disputes over what orders should be made, including as to costs.

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: 08 November 2019

At a glance

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Judgment (41 paragraphs)

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Legislation Cited (4)

Cases Cited (21)

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