Negotiations for settlement of the dispute between Alan and Bruce; the requisitioned meeting
59 The dispute between Alan and Bruce with respect to management of the business continued during 1997. However, they had a common interest in defending themselves in the 1997 proceeding. It appears that they took the view that David and Marilyn, in prosecuting the 1997 proceeding as the directors of Bajco, were representing a minority interest in the company. They were advised that because they together held a majority of the shares in Bajco, they could requisition a meeting of the members of Bajco to replace the board, and then, as the new directors of Bajco, take advice as to whether the 1997 proceeding should be continued.
60 On 21 May 1997 Alan's solicitor submitted a draft Deed of Agreement to Bruce's solicitor. The draft is not in evidence but, according to Alan's solicitor's covering letter of that day, it dealt with the sale of the assets of the business and the appointment of an agent to do so. There was a meeting between Alan and his solicitor, and Bruce and his solicitor, on 29 May 1997. According to a letter written by Bruce's solicitor on 2 June 1997, arrangements were agreed for the appointment of a reviewing accountant and for settlement of disputes between Alan and Bruce on the basis of that accountant's review, the appointment of a bookkeeper pending sale of the business, and for Alan's solicitor to approach Madgwicks to attempt to negotiate a settlement with Bajco. Under the proposed settlement, the six siblings would receive equal 1/6 shares of the proceeds of sale of the Property, control and ownership of Bajco would be given to Alan and Bruce, and the other siblings would have no claims against Alan, Bruce, Bajco or Cadwallader Engineering (NSW). One infers that the approach (if any) to Madgwicks was unsuccessful.
61 By 1 September 1997, it appeared to Alan's solicitor, according to a letter he wrote to Bruce's solicitor on that day, that neither Alan nor Bruce was in a position to buy the business, and therefore the business should be sold to an outsider. Alan believed that the Gosford operation should be sold separately from the Concord West operation, though he was prepared to take expert advice. The letter of 1 September 1997 sets out other aspects of the proposed settlement of all disputes, including some tentative ideas for sale of the Property and distribution of the proceeds in equal 1/6 shares to each sibling.
62 According to a letter dated 4 September 1997 from Bruce's solicitor to Alan's solicitor, there was another meeting of Alan and Bruce and their solicitors on 28 August 1997, in which it was agreed that Alan's solicitor would make an offer of settlement to Madgwicks, and that each sibling would receive a 1/6 share of the Property as per a valuation. It was agreed that if Madgwicks did not accept the offer, an extraordinary general meeting of the shareholders of Bajco would be called and Bruce and Alan would be appointed as directors; Madgwicks' instructions would be withdrawn; and a demand would be made on David and Marilyn to refund to Bajco the money it spent on the 1997 proceeding. It was also agreed that an agent be instructed to value and sell the business, and that the business would be sold as a whole unit rather than as separate operations. Again, one infers that the approach (if any) to Madgwicks was unsuccessful.
63 On 18 September 1997 Alan's solicitor wrote to Madgwicks communicating a request by Alan and Bruce that the current board of Bajco call a general meeting of shareholders for the removal of the current directors and their replacement by Alan and Bruce. The letter said: "we also advise that it is the intention of the new Board, if elected, to consider at its first meeting discontinuance of the action of the Plaintiff". A draft of this letter, submitted by Alan's solicitor to Bruce's solicitor on the previous day, had contained a different version of this sentence, thus: "we also advise you that it is the intent of the new Board to dismiss your firm as solicitors for the Plaintiff [in the 1997 proceeding] and to discontinue the action of the Plaintiff". The letter noted that the minority shareholders could commence a proceeding in their own names.
64 At about this time David and Marilyn changed Bajco's solicitors from Madgwicks to McCabes. According to David's evidence, Madgwicks informed him that they could no longer act because they had given advice to Bruce in his capacity as a director of Bajco some years earlier.
65 On 18 September 1997 the new solicitors for Bajco, McCabes, wrote to Alan's solicitor asking as a matter of urgency whether Alan's intention was to discontinue the 1997 proceeding if he was appointed a director at the meeting of members scheduled for 11 December 1997. Alan's solicitor replied on 25 November, saying that Alan's intention, if he were to be appointed to the board of Bajco, was to seek legal advice regarding the 1997 proceeding and his duty to administer the company, and to act in accordance with that advice.
66 By 20 October 1997 David and Marilyn knew it was likely that they would receive a requisition to convene a meeting of the members of Bajco, to vote on a proposal to remove them from office. At their board meeting on that day, they resolved to pay themselves directors' fees of $2,000 per quarter (equivalent to $153 per week for each director), backdated to July 1997, on the advice of McCabes. The directors' fees were substantially in excess of the amounts paid as directors' fees for the years ended 30 June 1996 and 30 June 1997. Apart from activities associated with the 1997 proceeding, the directorships of Bajco involved very little work, as only about 10 cheques per annum were drawn and the only business of the company was to receive rental income and some interest. In my view, the new fees were excessive, even allowing for the work involved in conducting the 1997 proceeding.
67 The minutes of the meeting of 20 October 1997 also record a resolution to accept a loan from Marilyn of $10,000, to be paid back with interest at the current rate plus 2%, as soon as possible.
68 In October 1997 Bruce obtained a valuation of the business. He wrote to his solicitor on 13 October 1997 setting out a strategy under which he would offer to buy the business, and he said "while I do not particularly want to stay on in the business, it would be a good commercial decision and would stop Alan in his tracks". Clearly there was still bad blood between Alan and Bruce, though they were co-operating to an extent vis-a-vis Bajco.
69 On 14 October 1997 Alan's solicitor submitted a further draft Deed of Agreement to Bruce's solicitor. The parties to the Deed of Agreement were to be Alan and Bruce and Cadwallader Engineering (NSW). The draft provided for the sale of the business, to be conducted by an agent. It also provided (in clause 6) for Alan and Bruce to serve a requisition on the directors of Bajco under s 246 of the Corporations Law for the convening of a meeting of members to remove David and Marilyn as directors and replace them with Alan and Bruce. According to the draft, in the event that Alan and Bruce were appointed directors, they would consider discontinuance of the 1997 proceeding, on the strict basis of what was fair and proper for all the shareholders of Bajco, including the minority shareholders. The draft also provided for the sale of the Property after Alan and Bruce became directors of Bajco, and for the distribution of the net proceeds of sale (apparently sale of the Property was intended, although the draft refers to sale of the business) in equal 1/6 shares amongst the six siblings.
70 The draft Deed of Agreement was returned by Bruce's solicitor to Alan's solicitor, unsigned, by facsimile of 22 October 1997, with some handwritten amendments not material for present purposes. It was accompanied by a form of notice of requisition for a meeting of members, dated 15 October 1997 and signed by Bruce's solicitor on his behalf.
71 Later a further copy of the notice of requisition was signed personally by Alan and Bruce. Although the notice was dated 15 October 1997, it was served on Bajco on about 24 October 1997. David and Marilyn sought advice from McCabes, who briefed Mr Gullotta of counsel. On 29 October 1997 Mr Gullotta advised that the directors of Bajco were required to convene the requisitioned meeting, and that if Alan and Bruce succeeded in obtaining control of Bajco and having it discontinue the 1997 proceeding, David and Marilyn would be given leave to continue the suit in the company's name.
72 On 31 October 1997 David, as a director and the secretary of Bajco, gave notice of an extraordinary general meeting of Bajco to be held in Goulburn at 9:30am on 11 December 1997, to consider, and if thought fit, pass resolutions as to the matters in the notice of requisition. The decision to hold the meeting in Goulburn was extraordinary and unjustifiable, in my opinion. The only connection with Goulburn was the fact that Marilyn lived there. Every other consideration pointed to holding the meeting in Sydney.
73 Although arrangements for the meeting of members had been made, Alan and Bruce still had not finalised their proposed Deed of Agreement. On 11 November 1997 Bruce wrote to his solicitor setting out some amendments he wanted to make to the draft Deed. One amendment was to delete clause 6. He said that since David and Marilyn as directors of Bajco had convened a meeting for 11 December 1997, "this (i.e. Bruce & Alan being appointed Directors) cannot happen", and he added that "this also means that subsequent clauses of this deed become invalid until after the 11th December meeting". He concluded by saying it would be in his best interests if the appointment of Ronald Cardwell as administrator for both Cadwallader Engineering (NSW) and Bajco formed an essential part of the final negotiations at the proposed round table meeting. This letter is not easy to interpret. David, Marilyn and Mr Cardwell have given some controverted evidence that Bruce changed his mind about replacing David and Marilyn as the directors of Bajco, and told David he would vote against the resolutions. I shall consider this question in detail later.
74 Early in November 1997 there were some negotiations between the solicitors for David and Marilyn, and Bruce's solicitor, with a view to settling their dispute. On 7 November 1997 David and Marilyn's solicitor wrote to Bruce's solicitor proposing a meeting of the family members to discuss settlement. The proposed meeting was arranged for 18 November 1997 at the offices of Deloittes. However, on 8 November 1997, David and Marilyn as directors of Bajco resolved to engage an estate agent and place the Property on the market, and to inform Alan and Bruce that they were doing so. According to David, he and Marilyn decided to place the property on the market again because finance was needed to fund the day-to-day operations of Bajco and also to fund the ongoing litigation. I shall deal with this evidence of intention later.
75 On 12 November David and Marilyn's solicitor wrote to Bruce's solicitor informing him of their decision to sell the Property. It appears that Bruce was upset by this decision. On 17 November 1997 his solicitor wrote to David and Marilyn's solicitor saying that the intention to sell "the business" (presumably meaning to refer to the Property) was "highly inflammatory", and threatening an application for injunctions unless action to sell the Property immediately ceased. Although the evidence is not entirely clear, it appears that the round table meeting proposed for the following day was cancelled.
76 Bruce's solicitor wrote to David and Marilyn's solicitor again on 18 November 1997, objecting to the proposed sale and asserting that David and Marilyn, being minority shareholders of Bajco, would be replaced as directors at the meeting to be held on 11 December 1997. The letter claimed that it would cost a minimum of $50,000 to move equipment out of the Property, and the sale would diminish the value of the goodwill of the business, which was at that time being valued for sale. The letter sought an undertaking not to proceed with the sale and threatened an application for injunctions. On 19 November David and Marilyn's solicitor replied, saying that Bajco would continue to market the Property.
77 Alan Cadwallader says he first became aware of the proposal to sell the Property on 17 November 1997. His solicitor wrote to Bajco's solicitor on 25 November 2001. Alan says that on 28 November 1997 he found out that signs advertising the sale had been erected on the building.
78 Progress in the negotiations between Alan and Bruce seems to have been inversely proportional to progress in the negotiations between Bruce and the directors of Bajco. On 17 November 1997 Bruce's solicitor wrote to Alan's solicitor proposing amendments to the draft Deed of Agreement, in accordance with Bruce's written instructions on 11 November. The letter required, without explanation, that clause 6 be deleted.
79 On 21 November 1997 David and Marilyn as directors of Bajco terminated the retainer of McCabes. David's notes say this was because "Bajco directors had agreed to enter into voluntary administration", although this explanation is questionable because the decision to appoint administrators was taken later, on 27 November, and David wrongly dates the decision to terminate McCabes' services as 29 November 1997. No solicitor appears to have been appointed in their place.
80 Alan contends that David and Marilyn terminated the retainer of McCabes with the intention and effect that there would be no legal practitioner representing Bajco to answer any requests for information as to Bajco's status made by him during the period leading up to the appointment of the administrators. I shall return to this contention later.
81 On the same date, Bruce's solicitor informed Mr Blake of counsel that all negotiations between Alan and Bruce had broken down, and instructed him to prepare the documents necessary to place Cadwallader Engineering (NSW) into the hands of an administrator or receiver. Referring to the proposed meeting of 11 December 1997, the letter anticipated that the current directors of Bajco would be replaced by Alan and Bruce, who would terminate the retainer of McCabes and place Bajco into administration.
82 On 25 November 1997 Alan's solicitor wrote to McCabes querying why the meeting of members had been convened to be held in Goulburn, given the inconvenience of that venue. The letter also questioned why the directors of Bajco had resolved to sell the Property, how the property would be sold, and whether a contract had been issued. The letter recorded that Alan's solicitor had been informed (prematurely, as it turned out) that the directors had resolved on the previous day to appoint an administrator, and queried how the directors could reach the view that the company was insolvent or likely to become so, given that the principal asset of the company was the Property which was worth about $400,000 and was unencumbered. McCabes replied simply by saying that their retainer had been terminated.