Supreme Court of WA|2007-05-10|Before: Hasluck J

CHARLES PHILIPPE LOUIS NILANT as Trustee of the property of RAMON THEODORE OSBORNE, a Bankrupt -v- R L & K W NOMINEES PTY LTD & ANOR [2007] WASC 105 (10 May 2007)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CHARLES PHILIPPE LOUIS NILANT as Trustee of the property of RAMON THEODORE OSBORNE, a Bankrupt -v- R L & K W NOMINEES PTY LTD & ANOR

MATTER : Section 233 and Section 461 of the Corporations Act 2001 (Cth)

BETWEEN : CHARLES PHILIPPE LOUIS NILANT as Trustee of the property of RAMON THEODORE OSBORNE, a Bankrupt

Corporations Act 2001 (Cth) - Application for winding up - Just and equitable ground - Allegations of unfair and oppressive conduct - Application by principal shareholder's trustee in bankruptcy - Family company holding valuable properties - Findings of mismanagement - Application for winding up order allowed

First Defendant : Mr M J McCusker QC & Mr C P Stokes

Second Defendant : Mr M J McCusker QC & Mr C P Stokes

Coombs v Dynasty Pty Ltd [1994] FCA 1193; (1994) 12 ACLC 915

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413

Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145

Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539

Loch v John Blackwood Ltd [1924] AC 783

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692

Official Trustee in Bankruptcy v Buffier [2005] NSWSC 839

Re Dalkeith Investments Pty Ltd (1984) 3 ACLC 74

Re Five Minute Car Wash Service Ltd [1966] 1 WLR 745

Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042

Re Wondoflex Textiles Pty Ltd [1951] VicLawRp 65; [1951] VLR 458

Stapp v Surge Holdings Pty Ltd [1999] FCA 545; (1999) 17 ACLC 896

Thomas v HW Thomas Ltd [1984] 1 NZLR 686

Wayde v New South Wales Rugby League Ltd (Western Suburbs case) [1985] HCA 68; (1985) 3 ACLC 799

1 The plaintiff in this matter is Charles Philippe Louis Nilant as trustee of the property of Ramon Theodore Osborne, a bankrupt. The plaintiff seeks orders that the first defendant, R L & K W Nominees Pty Ltd, be wound up by the Court and that Martin Bruce Jones be appointed as liquidator of the defendant company.

2 The relief sought by the plaintiffs is claimed on the grounds that the affairs of the defendant company have been and are being conducted by the second defendant, Beryl Norma Osborne, as the sole director of the company, in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members of the company or in a manner that is contrary to the interests of members as a whole. In that respect, the plaintiff relies on s 232(e) or, alternatively, on s 461(1)(f) of the Corporations Act 2001 (Cth).

3 The plaintiff claims in the further alternative that it is just and equitable that the defendant company be wound up pursuant to s 461(1)(k) of the Corporations Act.

4 The plaintiff's application for relief was filed on 8 August 2005. In support of his application the plaintiff relies upon the affidavits of Charles Philippe Louis Nilant sworn 18 July, 2 September 2005 and 16 June 2006. He relies also upon the affidavits of his solicitor, Alan Francois Carles sworn 29 November 2005 and 27 February 2006.

5 The plaintiff's application is opposed by the defendants. The defendants rely upon the affidavits of Beryl Norma Osborne sworn 29 November 2005 and the affidavit of Gerard Francis Clifford sworn 7 December 2005.

6 Orders were made prior to the hearing before me which allowed for the deponents Nilant, Osborne and Clifford to be cross-examined on their affidavits.

7 It emerges from the plaintiff's affidavits that the plaintiff is the trustee in bankruptcy of Ramon Theodore Osborne who became bankrupt on 27 October 2003. The Official Trustee in Bankruptcy was appointed as his trustee in bankruptcy on that date. The Official Trustee remained the trustee of the estate of the bankrupt until 25 February 2004 when the plaintiff was appointed as Trustee in Bankruptcy. He has held that office at all times since then. Mrs Osborne (the second defendant) is the wife of the bankrupt and has been married to him for some 41 years.

8 It seems that Mr Osborne had become bankrupt on a previous occasion. He was declared bankrupt in 1985 and this led to the loss of all joint marital assets including the family home and joint savings. I will look at this phase of his life in more detail later.

9 The evidentiary materials, including a company extract search for the defendant company exhibited to the plaintiff's first affidavit, establish that the defendant company was acquired by Mr and Mrs Osborne in November 1990. The initial directors of the company were Mr Osborne and his son Paul. Mrs Osborne became a director as of 1 November 1990. There were two $1 shares issued in the company, such shares being held by Mr and Mrs Osborne respectively.

10 Mr Osborne ceased to be a director of the defendant company on 27 October 2003 being the date of his second bankruptcy. The company extract search shows that the two shareholders of the company are Mr Osborne and Mrs Osborne who each beneficially hold one of the two issued shares. Mr Osborne's share in the company has vested in the plaintiff as his trustee in bankruptcy.

11 The Official Trustee in Bankruptcy arranged for an examination of Mr Osborne to be conducted on 22 January 2004. Mr Osborne confirmed that he and his wife reside at Suite 4/6 Bellevue Terrace, West Perth being the land comprised in Certificate of Title Volume 1571 Folio 170 ("the West Perth property"). A title search pertaining to the West Perth property shows that the defendant company and Mrs Osborne own the property as tenants in common in equal shares.

12 I pause here to say that it follows from this that the plaintiff, as the holder of Mr Osborne's share in the defendant company, has an interest in ascertaining the value of the West Perth property and in ensuring that the property is turned to account.

13 I digress to say that if the matter is looked at simplistically it might be thought that Mrs Osborne has an interest in the property to the extent of three one-fourth parts in that she owns half the property and holds one of two issued shares in the company that owns the other half of the property. However, in strict analysis, it is immediately obvious that in the event of the West Perth property being occupied by a tenant the defendant company would be entitled to one-half of the net income derived from the tenancy. Questions have arisen in this case as to whether the company has been receiving its proper entitlements and as to whether amounts received by way of rental income have been properly accounted for.

14 A copy of Transfer H422533 obtained from the Land Titles Office shows that the defendant company and Mrs Osborne purchased the West Perth property for a consideration of $1,275,000 on 17 April 2000. A further search shows that at the same time a mortgage to Westpac Banking Corporation was registered against the property, such mortgage being stamped to secure $450,000.

15 There is evidence before me that in 2001 the defendant company acquired a property known as 26/7 Waterway Court, Churchlands comprised in Certificate of Title Volume 1720 Folio 642 for a consideration of $172,500 ("the Churchlands property"). A mortgage affecting the Churchlands property was taken by the ANZ Banking Group, such mortgage being stamped to secure $110,000.

The plaintiff's affidavit of 18 July 2005 - First part

16 The plaintiff's first affidavit asserts that Mr Osborne is an accountant who was a registered tax agent until he lost that registration as a result of becoming bankrupt. He carried on an accountancy practice known as "McMillan Partners" as a sole trader.

17 On or about 2 April 2004 the plaintiff was provided with financial statements and taxation returns for the defendant company for the years ending 30 June 2001, 2002 and 2003. These showed that the company received rental income of $15,000 ($288.46 per week) for 2000 and then $10,400 per annum ($200 per week) for 2002 and 2003. The plaintiff understands that since 1 July 2003 the defendant company has charged $100 per week by way of rental for each of its two properties; that is, the West Perth property and the Churchlands property.

18 The plaintiff contends that the rental income being paid is grossly inadequate having regard to certain evidence referred to in his first affidavit which suggests that the weekly rental value of the West Perth property is $800 to $1000 (being $400 to $500 for the company's half interest) and $120 to $160 for the Churchlands property. The plaintiff's contention is that Mrs Osborne, as the wife of the bankrupt, as sole director and 50 per cent shareholder in the defendant company, is receiving the benefit of occupying the company's half share in the West Perth property to the detriment of the plaintiff as the other shareholder.

19 The plaintiff's solicitors wrote to Mrs Osborne about this matter by letters dated 1 April and 10 May 2004. It was said that the plaintiff wished to realise his shareholding in the company for the benefit of the creditors. This could be done either by Mrs Osborne purchasing the plaintiff's share for market value or alternatively by the two shareholders agreeing to place the company into voluntary liquidation.

20 It was said that, based on investigations to date, the estimated value of the plaintiff's share of the company would be not less than $300,000. Mrs Osborne was invited to purchase the plaintiff's share in the company or to agree to place the company into voluntary liquidation. The plaintiff understands from his solicitor that no response was received to these letters.

21 On 6 December 2004 the plaintiff's solicitors conducted a public examination of Mrs Osborne at the Federal Magistrates Court pursuant to s 81 of the Bankruptcy Act 1966 (Cth). The evidence she gave on that occasion is reflected in a transcript of proceedings. I will call this the "December 2004 transcript".

22 Mrs Osborne confirmed that she resided at the West Perth property. The plaintiff's first affidavit contains these passages concerning that matter:

"30. At page 22 of the December 2004 transcript the second defendant indicated that about $350,000 was still owing under the original housing loan secured against the West Perth property.

31. At page 32 of the December 2004 transcript the second defendant confirmed that the West Perth Property was occupied by herself and the Bankrupt and that the Bankrupt paid rent to the Company in order to live at the property. When asked how much rent he paid she replied 'I think it's a couple of hundred dollars a week'. When asked whether he paid this to the Company she replied 'Yes, I think so but I'm not sure. He's the accountant'. When asked whether the $200 per week went into a bank account of the Company she replied 'There's no bank account of the Company, so it would come in cash and I would bank it and pay it off the house - pay it off the mortgage'. When asked whether the Bankrupt gave her $200 in cash every week she replied 'No, periodically an amount of money'."

23 As to the Churchlands property, Mrs Osborne indicated that the property was occupied solely by her son who paid rental of $150 per week. She said that this was paid into her account and she paid from that account into the mortgage account. She said that $90,000 was owing under the mortgage secured over the Churchlands property.

24 The public examination of Mrs Osborne on 6 December 2004 gave rise to various exchanges between the solicitors for the parties. These exchanges were directed to documents bearing upon various factual issues addressed in the course of the public examination and to some broader issues.

25 A letter dated 10 December 2004 written by the plaintiff's solicitors included this passage ("the plaintiff's 10 December letter"):

"We refer to your letter of 7 December 2004 addressed to our client Mr Nilant.

We do not agree with the suggestion that the public examination simply confirmed that the beneficial interest held by the bankrupt estate in the property at Bellevue Terrace is minimal and likely to be less than $100,000.00. The following points need to be noted:

1. The documentation at the examination confirmed that the mortgage payments are in excess of $5,000.00 per month and Mrs Osborne's tax returns and tax assessments confirmed that she has earned no income whatsoever in each of the financial years from 30 June 1999 to 30 June 2003. She further indicated at the examination that the mortgage repayments were made out of a bank account of Osborne & Associates with the deposits into that account being made from McMillan Partners. Accordingly, the evidence indicates that the mortgage repayments have been made by the bankrupt. Repayments of $5,000.00 per month over the four year period since the property was acquired equates to $60,000.00 per annum or in excess of $240,000.00 in total.

2. In addition, the company R L and K W Nominees Pty Ltd has a 50% interest in Bellevue Terrace. The equity in that property is some $1,150,000.00 ($1.5 million value less $350,000.00 mortgage). The company's interest would therefore be worth some $575,000.00. In addition to this, the company also owns the Churchlands property so that the net worth of the company is likely to be in excess of $600,000.00.

3. We consider that there would be good grounds for having the company wound up on just and equitable grounds for various reasons including the fact that Mrs Osborne had allowed family members to occupy company property at well below market value rentals to the detriment of our client as the other 50% shareholder. Furthermore, she has breached her duties as director by banking company funds into her own bank account with the company having no bank account of its own. If the company is wound up then the liquidator can apply under section 126 of the Property Law Act to have Bellevue Terrace sold."

26 By letter dated 14 December 2004 the defendants' solicitors responded in these terms ("the defendants' 14 December letter"):

"In relation to the three points made on page 1 of your letter, it is briefly noted at this stage as follows:

1. The fact that Mrs Osborne's tax returns and tax assessments confirmed she earnt no income whatsoever in the financial years 30 June 1999 to 30 June 2003, is no answer to whether or not the mortgage payments were made by her. She in fact disposed of a large number of personal items that generated large cash sums. As you will appreciate, there was no obligation on her to disclose the proceeds of sale of those items in her tax returns.

2. The observation regarding the net worth of the company fails to take account of the company's liabilities which include the loan account to Mrs Osborne of a sum exceeding $600,000.00. Of that sum $460,000.00 was the subject of an audit by the Australian Taxation Office and approved.

3. It is respectfully suggested that there would only be grounds to wind up the company in the event that there are substantial assets that would be realised. It is also unclear from your letter as to how she has breached her duty as a director. The transcript will certainly clarify her evidence but I have no note stating that Mrs Osborne gave evidence that she received company funds which she has deposited into her own account and thereby failed to deposit into the company's bank account."

27 I pause here to observe that these exchanges outlined the nature of the controversy between the parties. In particular, it was a matter of acute controversy at the hearing before me as to whether the liabilities of the defendant company included advances to the company by Mrs Osborne over many years which amounted to $600,000 (as at 14 December 2004) and which had the effect of diminishing the value of the two shares in the company held by the plaintiff (as trustee of Mr Osborne's estate) and Mrs Osborne respectively.

28 I note in passing that a central plank of the defendants' case was that the amount attributed to the loan account as at 1 July 1998 by Mrs Osborne and the accountant she engaged to give evidence in these proceedings, Mr Clifford, was assumed to be correct because of an Australian Taxation Office audit done at that time (Mr Clifford confirmed this under cross-examination at transcript page 104). This explains the reference to an ATO audit in par 2 of the defendants' 24 December letter.

29 Mrs Osborne said at par 30 of her affidavit that her loan account with the defendant company as at 30 June 2005 stands at $977,312.38. She said at par 102 of her affidavit that by reason of her loan account with the company, any winding up and realisation of assets will only result in a repayment of her loan account.

30 There is, therefore, a central issue to be resolved as to whether Mrs Osborne's loan account can be characterised as a valid liability of the company. This made it necessary for the parties to inquire into various financial transactions bearing upon the loan account issue over many years.

The plaintiff's affidavit of 18 July 2005 - Second part

31 The public examination of the second defendant which was adjourned on 6 December 2004, continued on 25 May 2005. A copy of the May 2005 transcript is exhibited to the plaintiff's affidavit.

32 At page 11 of the transcript Mrs Osborne confirmed that she had refused to allow the plaintiff's valuer access to the West Perth property and Churchlands property on the grounds that she valued her privacy. At page 12 of the May 2005 transcript she confirmed that the contents of a draft statutory declaration were true in which she stated her belief that the West Perth property was worth between $1.45 million and $1.55 million and that the Churchlands property was worth between $210,000 and $240,000.

33 The May 2005 transcript reveals that Mrs Osborne was cross-examined at some length about her habits in regard to the keeping of bank statements. On the plaintiff's case, admissions were made that she did not keep bank statements recording rent received on behalf of the company in a systematic manner. She was cross-examined also as to an alleged inadequacy on her part in regard to the preparation of financial statements. On the plaintiff's case she admitted under oath that she had made no attempt to ascertain the market rental value for the West Perth property and Churchlands property.

Mrs Osborne's affidavit of 29 November 2005

34 Mrs Osborne's affidavit sworn 29 November 2005 was presented in opposition to the plaintiff's application to wind up the defendant company. She said that she was born on 27 December 1939 and went on to describe her background. It seems that she completed her Junior Certificate. In her early adult years she worked in various jobs, including secretarial positions, until her second child was born on 4 August 1968. Between 1968 and 1976 she was studying and raising two children. In 1977 she re-entered the workforce in the educational sector and, after obtaining further qualifications, was eventually employed as a secondary school teacher at Greenwood Senior High School. She worked there for nine years until 1992.

35 Mrs Osborne said that following her husband's first bankruptcy in 1985 when all the joint marital assets were lost, she separated from her husband. However, she was reconciled with him in mid-1988. In 1993 she worked at the City Beach High School but then resigned from the Department of Education in order to help her husband set up and operate his new accounting practice know as McMillan Partners. This firm operated from an address in Victoria Park from 1994 until her husband's second bankruptcy on 27 October 2003. She worked in various capacities for the business whenever assistance was required.

36 She confirmed that the defendant company was acquired in 1990 with two $1 shares being held by her husband and herself. She said that at that time she was looking at purchasing a property in City Beach and was advised by her husband to do so in the name of the defendant company as a form of financial and succession planning.

37 Mrs Osborne said that the defendant company's only assets when it was acquired was the initial share capital of $2 and its only activities has been as a family company for her husband and herself. The only income from the company has been property rental. She said at par 28 of her affidavit that all of the company's property purchases have been made from funds borrowed from either the bank or herself. The company's records, including her loan account, were maintained by her husband and various employees of McMillan Partners.

38 Annual returns and tax returns for the company and other financial records from 1990 to 2005 were exhibited to Mrs Osborne's affidavit. The financial records were said to show an increase in the amount due under the subject loan account commencing with an opening balance of $187,950 in 1992 and concluding with a balance due in 2005 of $955,718.

39 Mrs Osborne then proceeded (commencing at par 34 of her affidavit) to set out "my principal loans to the company, the source of the moneys to make those loans, and the main purpose for which the funds were used". For present purposes, it will be sufficient to summarise the main points that emerged from the lengthy particulars provided in her affidavit.

40 I note in passing that it was a live issue at the hearing before me as to how it came about that Mrs Osborne was in a position to advance substantial funds to the defendant company, bearing in mind that she and her husband lost their joint marital assets following his bankruptcy in 1985 and that she herself had only re-entered the workforce in 1977 (initially as a primary school teacher and for nine years after 1992 as a high school teacher).

41 Mrs Osborne's first loan was said to be $250,000 in November 1990 to assist the defendant company in the purchase of 12 Windarra Drive, City Beach.

42 Mrs Osborne said that she had always been interested in antiques and artworks. Between 1985 and 1990 she began selling a number of these and put the sale proceeds into bank bills with the Commonwealth Bank. The total of the assets sold by her during the period between 1985 and 1990 was approximately $260,000. Exhibited to her affidavit were various documents which were said to evidence the relevant transactions including receipts for $60,780.35 and $50,351.30 in respect of bills of exchange with an aggregate face value of $65,000 (due on 12 September 1985 with an interest rate of 14 per cent) and $51,000 (due on 5 July 1985 with an interest rate of 14.25 per cent) respectively. She said that she continued to reinvest these moneys in Commonwealth Bank bills until she decided to invest in real estate. However, she did not keep all of her records of the Commonwealth Bank bills.

43 In 1990 the defendant company acquired the City Beach property using $150,000 advanced to it by Mrs Osborne and $100,000 borrowed from the Commonwealth Bank, City Beach Branch.

44 Mrs Osborne said that the bank loan of $100,000 was repaid from her income as a secondary school teacher in the period between December 1990 and February 1993 (with bank statements being exhibited to her affidavit in that regard). The loan was discharged on 16 February 1993. She said that as at 30 June 1992 her loan account with the company was $187,950 which is reflected in the company's tax return for the year ending 30 June 1992 with the company's balance sheet attached.

45 The second loan of $240,000 was allegedly made by Mrs Osborne between March 1993 and January 1994 to enable the company to make various renovations and improvements to the City Beach property.

46 Mrs Osborne referred to engaging the West Australian Renovation Company to carry out the improvements at an original contract value of $134,650 which was ultimately increased by variations to a total figure of approximately $180,000. Exhibited to her affidavit are various documents bearing upon this matter including copies of three progress claims in the sum of $28,750 each, the last of which was dated 17 March 1993. She said that she had been unable to locate the other progress claims, or the further variations to the building work.

47 Mrs Osborne said also that the company was receiving no income other than rent during these capital improvements. All of the moneys for the improvements came from loans by her. In the period from 1984 to 1994 she was receiving a salary of approximately $687 per fortnight, which (over the ten year period) amounted to approximately $330,000. She was also receiving a regular tax refund of approximately $10,000 per annum as a consequence of being a half owner of the Clearview Stud and being able to offset against her teacher's salary primary production losses. The property was sold during 1985 as a consequence of her husband's bankruptcy but she was able to carry losses forward until they ran out around 1998.

48 According to Mrs Osborne, as a result of her teaching salary, her tax refunds, and her share investments, she had approximately $100,000 in her Commonwealth Bank, Floreat bank account which she was able to use to pay for the capital improvements. She also carried out a number of other improvements which were detailed in her affidavit. It was said that documentation relating to this matter was delivered to the Tax Office so that an audit could be carried out to verify expenses for the purpose of assessing capital gains tax. She said that no capital gains tax assessment was raised against the company. It was she who contributed all of the funds for the improvements effected at the City Beach property.

49 The third loan of $108,889 in 1999 was allegedly made to enable the company to purchase shares.

50 Mrs Osborne said that in March 1995 she took out a loan of $100,000 with Westpac to make some share investments. This loan was secured by a mortgage registered against a property known as 41 Tilton Terrace, City Beach. A copy of the certificate of title was exhibited to her affidavit and shows that the Tilton property was transferred into the name of Mrs Osborne on 13 November 1989 (BNO 56 at page 243).

51 Mrs Osborne described the payments made in relation to this matter. She said that in the financial statements of the company for the year ending 30 June 1999 the shares were shown as an asset of the company with a value of $121,075. The company sold the shares between June 1999 and June 2000 with the result that the financial statements for the year ending 30 June 2000 do not show the shares being held by the company.

52 The fourth loan was said to be of $150,000 in April 2000 to assist the company in its purchase of a 50 per cent interest in the West Perth property; that is, 4/6 Bellevue Terrace, West Perth, being the property now occupied as a residence by Mrs Osborne and her husband.

53 Mrs Osborne said that in 1999 she suggested to her husband that it might be a good idea at their age to try living in a smaller unit. She decided to put both the City Beach property and the Tilton property on the market for sale so as to be in a position to make a cash offer on a suitable property. The City Beach property was sold on 12 December 1999 for $650,000 with settlement being effected on 10 March 2000. Exhibited to her affidavit is a settlement statement showing that the net sum of $642,908.07 was deposited into the company's Commonwealth Bank account.

54 She said that on 8 or 9 March 2000 the Tilton property was sold for $450,000 with a net amount of $437,089.30 being received as reflected in a settlement statement dated 10 April 2000.

55 On 24 March 2000 the vendor of the West Perth property accepted an offer from the defendant company and herself for $1,275,000. A settlement statement dated 10 April 2000 shows that the total moneys required for settlement were $1,334,630.26. Mrs Osborne's affidavit contains the following passage concerning that matter ("the details of the West Perth property purchase price"):

"88. The purchase price sum of $1,334,630.26 was paid from the following sources:

(a) the deposit of $100,000 (paid on 24 March 2000) came from the sale proceeds of 12 Windarra Drive City Beach.

(b) the further deposit of $495,000.00 was paid from the proceeds of sale of 12 Windarra Drive City Beach.

(c) the stamp duty of $56,642.50 was paid from the proceeds of sale from 12 Windarra Drive City Beach.

(d) the final balance of $682,987.76 was comprised of two sums:

i) $450,000.00 in a personal loan taken out by Ray and myself from the Challenge Bank Victoria Park branch.

ii) $232,987.76 from the sale proceeds of 41 Tilton Terrace City Beach, that had been put on term deposit with Challenge Bank."

56 I pause here to remind myself by reference to documents exhibited to the plaintiff's first affidavit that the transfer of land for the West Perth property is dated 17 April 2000. The related mortgage to Westpac stamped to secure $450,000 is dated 12 April 2000. The title to the Tilton property mentioned earlier shows that the land in question was transferred to a third party on 11 April 2000.

57 I understand that the reference in par 88(d)i) of Mrs Osborne's affidavit to a personal loan of $450,000 from the Challenge Bank is linked to the security in that amount taken by Westpac against the subject title. Indeed, in the subject loan agreement Challenge Bank is described as a division of Westpac Banking Corporation. I note that the loan agreement dated 12 April 2000 is signed by Mr and Mrs Osborne as borrowers (BNO 65 at page 256 of the affidavit).

58 The fifth loan of $72,000 was allegedly made in 2002 to assist the defendant company in its purchase of the Churchlands property. (I note in passing that at par 90 of Mrs Osborne's affidavit this is mistakenly described as the fourth loan, but I will continue to refer to it as the fifth loan).

59 Mrs Osborne said as to this loan that in 2001 she was looking for another investment property for the company and a home for her son Paul to rent. Her son is on a permanent disability pension. She caused the company to put in an offer to purchase the Churchlands property for the sum of $172,500. The company became the registered proprietor of the property on 17 January 2001.

60 Mrs Osborne said that the purchase price for the Churchlands property (plus stamp duty) consisted of $71,292 from her personal ANZ Bank account and $110,000 by way of a loan taken out by the company with the ANZ Bank secured by a first mortgage over the property.

61 The sixth loan of $87,000 was allegedly made by Mrs Osborne in 2003 to reduce the company's mortgage with the ANZ Bank. (At par 95 of the affidavit this is mistakenly described as the fifth loan, but I will refer to it as the sixth loan).

62 As to this matter, Mrs Osborne said in her affidavit that on July 2003 her daughter, Natalie Fulcher, repaid to her a loan of $50,000 that had been made in 2002. On 17 July 2003 Mrs Osborne paid $48,000 of the amount in question directly into the company's ANZ mortgage account number 3444-80722. Exhibited to her affidavit is a true copy of the ANZ interim statement of account showing such a deposit on 17 July 2003.

63 She went on to say (as at 29 November 2005 being the date on which the affidavit was sworn) that her son, Paul Osborne, was paying $150 per week to the company to rent the Churchlands property. That rent was paid directly into Mrs Osborne's Bankwest, Floreat bank account, as part of her son's disability pension. She then added $325 from her own moneys to make total payment of $625 per fortnight reduction of the company's loan with the ANZ Bank. The fortnightly payment was being automatically transferred to the ANZ account. A bank account statement to that effect was exhibited to her affidavit.

64 Mrs Osborne went on to say at par 98 and par 99 of her affidavit that apart from the advances mentioned above she regularly paid the difference between the amount required by the company to meet the outgoings and expenses of the company's properties, and the income received from those properties. The total of these expenses was calculated at the end of each financial year by the company's accountant.

65 She said further that she had reviewed the loan account schedule prepared by Gerry Clifford for the 1999 to 2005 inclusive financial years and the schedules of property expenses paid by her on behalf of the company. She said that these were true and correct records of those expenses and the amounts incurred.

66 Mrs Osborne concluded her affidavit by saying that since she and her husband had purchased the defendant company in November 1990 its sole activity had been that of a private family company. It had carried out no activities other than the purchase and maintenance of assets from funds provided either by way of loans by herself or rental income.

67 She said further that the financial records of the company had been regularly maintained, but from time to time financial statements and income tax records had not been lodged in a timely fashion. She did not believe that this was unusual with private family companies.

68 As I indicated in earlier discussion, Mrs Osborne said finally at par 102 of her affidavit that by reason of her loan account with the company, any winding up of the company and realisation of company assets will only result in a repayment to her of her loan account.

69 Gerard Francis Clifford in his affidavit sworn 7 December 2005 said that he was an accountant and registered tax agent and a principal of the tax accounting firm of Clifford Partners Pty Ltd. In September 2005 he accepted instructions from Mrs Osborne to conduct a detailed investigative special purpose financial report of her loan account with the defendant company. As part of her instructions he was advised that the current proceedings had been commenced and that Mr Osborne's trustee was seeking to wind up the company on the grounds, inter alia, that the affairs of the company were not being properly managed and that Mrs Osborne's loan account had not been verified.

70 Mr Clifford said further that for the purposes of compiling the financial report Mrs Osborne provided him with a number of her personal financial records and a large number of financial records of the company. Exhibited to his affidavit was a true copy of the "special purpose financial report" compiled by him ("Mr Clifford's first report"). It was prepared on the basis that the opening balance for the loan account as at 1 July 1998 was correct and had been the subject of a detailed tax audit by the Australian Taxation Office.

71 Mr Clifford went on to say that following the submission of his first report he was requested by solicitors for Mrs Osborne to prepare a further report verifying the loan account for the period from its inception to 1 July 1998 and to identify the source documents from which the loan account was verified for the period from 1 July 1998 to 30 June 2005. Exhibited to his affidavit was a true copy of his "further compilation report" prepared by him identifying the source documents and information used to verify the loans made by Mrs Osborne between 1 July 1998 and 30 June 2005 (Mr Clifford's second report).

72 I pause here to say that Mr Clifford was cross-examined by counsel for the plaintiff about his first report and second report. I will look at the details in that regard later. However, speaking in general terms at this stage, I note that one line of challenge to the validity of his first report was that mentioned by me in earlier discussion, namely, Mr Clifford's assumption that everything prior to 1 July 1998 was correct because of the capital gains tax audit done by the Tax Department (TS 104). Thus, the amount allegedly due to Mrs Osborne on the loan account as at 1 July 1998 of $503,273 had not been checked out by him but was assumed to be correct. He accepted that the tax audit was being done for the capital gains purpose in relation to funds and expenses provided to purchase and carry out work in respect of the City Beach property.

73 As to his second report, being the compilation report aimed at verifying the loan account from its inception, Mr Clifford was cross-examined at length about the sufficiency of the evidentiary materials provided to him. For example, as to the first loan of $250,000 allegedly made by Mrs Osborne in 1990 as funds paid to acquire the City Beach property, Mr Clifford was asked what proof he had seen of where the funds came from. He said that the proof was made up of "various documents as far as proceeds of sales of paintings, proceeds of sales of various paintings, and also proceeds of sales of shares and proceeds of sale of horses" (TS 107).

74 Finally, Mr Clifford went on to say in his affidavit at par 9 that on Friday, 2 December 2005 he received further instructions from Mrs Osborne to prepare a further report addressing certain matters, being first, the consequence of a sale of the Churchlands property and the West Perth property and the final assets position of the company after all liabilities were paid out as at 30 June 2005; second, the value of the shares of the company in the event of a realisation of assets and a discharge of liabilities as at 30 June 2005.

75 Exhibited to his affidavit is a copy of the further report prepared on 6 December 2005 ("Mr Clifford's third report"). In this report, he concluded that the surplus of assets over liabilities of the company, if no interest was charged on Mrs Osborne's loan account, was $10,971.

76 The plaintiff filed and served certain responsive affidavits. I have before me the plaintiff's second affidavit sworn 16 June 2006 and the second affidavit of the plaintiff's solicitor, Alan Francois Carles sworn 27 February 2006.

77 Exhibited to the second affidavit of the plaintiff is a copy of a restricted valuation dated 12 June 2006 conducted by Hegney Property Valuations indicating in respect of the West Perth property a valuation in the range of $1,650,000 to $1,900,000.

78 Exhibited to this affidavit also is a copy of a restricted valuation dated 26 May 2006 conducted by Hegney Property Valuations indicating in respect of the Churchlands property a valuation in the range of $275,000 to $300,000.

79 The second Carles affidavit refers to exchanges of correspondence between the parties and their solicitors. Copies of the relevant letters are exhibited to his affidavit.

80 Mrs Osborne wrote to the plaintiff on 22 February 2006 referring to the plaintiff's offer to purchase her shares in the defendant company for the sum of $10,000. She said that the offer was not accepted. She said that as at 30 June 2005 her loan account with the company was $955,718. The calculation of the loan account was set out in detail in her affidavit of 29 November 2005. Since then her loan account with the company had continued to increase as a consequence of outgoings in respect of the two properties being met by her on behalf of the company. She expected that by 30 June 2006 her loan account with the company will have increased by a further $25,000 to approximately $980,000. This calculation takes no account of interest which she could have charged the company on the loan.

81 Mrs Osborne said that in an attempt to settle the action and avoid incurring further legal costs she offered to purchase the share held by the plaintiff as trustee of the estate of Mr Osborne for $11,000 on certain terms intended to deal with the costs of the proceedings and related matters. The offer was open until 4 pm on Monday, 27 February 2006.

82 In a letter dated 22 February 2006 from the defendant's solicitors (Chris Stokes & Associates) to Mr Carles, as solicitor for the plaintiff, reference was made to Mrs Osborne's offer to settle the matter. The letter in question included this passage:

"It is clear that the only real issue in these proceedings is whether my client has a loan account with RL & KW Nominees Pty Ltd for $955,718 as she claims. That claim is supported by her November 2005 affidavit, and the documentation annexed. The validity of her claim is, in our view and that of senior counsel, beyond dispute. You are, of course, welcome to have access to, and examine, all of the documentation which verifies the loan account, and its existence since 1990 - well before the bankruptcy of Mr Osborne."

83 It appears from the second Carles affidavit that by letter dated 23 February 2006 from the plaintiff's solicitors to Mrs Osborne's solicitor, a response was provided by the plaintiff. The letter in question reads in part as follows:

"We refer to your letter of 22 February 2006 and to your client's letter of the same date offering $11,000 for our client's share in the company plus $1,000 costs. That offer is not accepted by our client.

The Plaintiff hereby offers to purchase the second defendant's shareholding in RL & KW Nominees Pty Ltd for the sum of $15,000 on the following terms:

1. The current proceedings are to be dismissed with no order as to costs (save for the costs order which has already been made in favour of our client on 30 November 2005);

2. The second defendant execute and deliver a transfer of her entire shareholding in RL & KW Nominees Pty Ltd to the plaintiff as settlement in exchange for a bank cheque for $15,000;

3. Settlement take place within 7 days of acceptance.

Please note that if your client responds with a slightly higher offer to purchase our client's share then our client intends to do likewise. Accordingly, there appears to be little point in having each party continue to make slightly higher offers to purchase the other party's share. If your client genuinely intends to resolve this matter then a substantially increased offer will be required.

Our client's position has always been that he disputes the loan account position as suggested by Mrs Osborne. That remains his position."

84 It will now be useful to stand back from the narrative with the view to identifying the matters brought into issue by the plaintiff's application.

85 The plaintiff's case is that the conduct of Mrs Osborne as a director and substantial shareholder in the defendant company has been oppressive and contrary to the interests of the members of the company as a whole. It has been prejudicial and unfair to the plaintiff in that she has allowed family members to occupy company property at well below market value rentals to the detriment of the plaintiff as a 50 per cent shareholder in the company. She has breached duties as director by banking company funds in her own bank account as it seems the company has no bank account of its own.

86 Further, Mrs Osborne as director and 50 per cent shareholder of the company receives the benefit of occupying the company's half share in the West Perth property to the detriment of the plaintiff as the other shareholder. She has not made any or any sufficient attempts as a director to ascertain rental that could be achieved on the open market. She has not kept proper records reflecting the business activities of the company.

87 The plaintiffs say that the underlying assets of the company exceed $1 million, the existence of the disputed loan account is dubious, and the various advances contended for by Mrs Osborne have not been adequately substantiated. After discharge of the verifiable debts of the company such as the balance due under the mortgage against the Churchlands property and the company's share of the mortgage registered against the West Perth property, there is a prospect that the 50 per cent shareholding of the plaintiff in the company is of significant value.

88 It is said further that the plaintiff's reasonable attempt to purchase Mrs Osborne's share has been refused. It is said, in effect, that if the presence of the loan account had truly reduced the value of the plaintiff's share to $11,000, as Mrs Osborne contended, then the plaintiff's offer to acquire her share for $15,000 should be acceptable to her. In the absence of any agreement about these matters, the company should be wound up so that an independent investigator could investigate and unravel the affairs of the company, including the disputed loan account.

89 On the other hand, the defendants say that if the disputed loan account is upheld there will be no surplus funds available for distribution to the shareholders. It follows that Mrs Osborne's attempt to purchase the plaintiff's share for the sum of $11,000 was reasonable. Likewise, her refusal to sell her share to the plaintiff was reasonable because the amount offered did not reflect the realities of the situation. She has not been acting unfairly or oppressively because the presence of the loan account means that the plaintiff is not being deprived of anything of value. The plaintiff's share is of negligible value.

90 The defendant says further that the plaintiff's application for a winding up order is being brought for a collateral purpose, namely, to pressure Mrs Osborne to increase her offer for the plaintiff's share. A winding up order should not be made in circumstances where the Court, by upholding the validity of the loan account and the figures contended for by Mrs Osborne, can determine what is a fair price for the plaintiff's share, and make orders for the sale of that share to Mrs Osborne; or, alternatively, orders for an account can be made (with a view to verifying the disputed loan account), but without winding up the company.

91 Let me now turn to the legal principles bearing upon an application of this kind.

92 The plaintiff's application is made pursuant to provisions of the Corporations Act concerning the winding up of a company in circumstances where a shareholder is found to have a justifiable grievance as to the manner in which the affairs of the company are being conducted. Before turning to the statutory provisions specified in the originating process, it will be useful to set the application for relief in context by making some preliminary observations. In dealing with the law concerning the protection of minority rights, I will draw principally upon Ford's Principles of Corporations Law (13th ed) at par 11.010 to par 11.510.

93 The learned author observes that every member of a company has certain rights by virtue of membership. These include rights conferred by the company's constitution and statute. Additionally, company law confers rights on members to protect them from abuse at the hands of the controllers of the company. In this context "controllers" includes both the directors who are subject to fiduciary duties, and the controlling shareholders, who do not occupy a fiduciary position. It is said that the existence of these remedies operates as a deterrent against mismanagement, since managers and controlling parties should be aware that if they do not act properly, with due regard to shareholders' interests, they are exposing themselves to the possibility of litigation.

94 Generally speaking, the statutory remedies have been framed very broadly, overcoming some of the limitations which had developed over time with the equitable remedy. In particular, standing is generally more easily satisfied and the Court has power to order an indemnity for costs. Furthermore, the courts have shown a willingness to interpret some of the statutory remedies in a liberal fashion,

95 Part 2F.1 of the Corporations Act deals with oppressive conduct of affairs. By s 232 of the Act the Court can make any order under s 233 of the Act that it considers appropriate including that the company be wound up if the elements of oppressive conduct specified in the earlier provision are made out.

96 Section 461 of the Act provides various circumstances in which a contributor may petition the Court to compulsorily wind up a company including on the ground that it is just and equitable to do so.

97 It follows from this brief overview that it will be useful at the outset to consider the relationship between the oppression remedy and the other avenue of relief allowed for under s 461 of the Act, bearing in mind that both avenues are relied upon by the plaintiff in the present case.

98 The author of Ford's Principles of Corporations Law (supra) observes at par 11.386 that winding up a company on the just and equitable ground has existed as a member's remedy for a significant period of time. However, since the introduction of the oppression remedy there has been a substantial reduction in the number of cases relying solely on this cause of action. Generally speaking, this cause of action is argued alongside the oppression remedy.

99 The reasons for favouring the oppression remedy are two-fold. First, Pt 2F.1 and the matters referred to in s 232 and s 233 of the Act are being interpreted widely by the Court. Second, judges have a wide discretion under Pt 2F.1 to make appropriate orders. Compulsory winding up is a drastic remedy and judges are extremely reluctant to wind up a solvent company. Part 2F.1 allows judges flexibility to select from a broad range of remedies.

100 It has been said that where there are irreconcilable differences between members of a company the appropriate relief is for an application for winding up on the just and equitable ground under s 461(1)(k) rather than under Pt 2F.1 of the Act.

101 However, s 467(4) provides that where an application is made by a contributory on the ground that it is just and equitable that the company should be wound up, or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court is not permitted to make a winding up order where it is of the opinion that some other remedy is available to the applicant and that the applicant is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

Specific provisions concerning the oppression remedy

102 Let me now turn to the specific provisions relied on by the plaintiff in the present case, being the provisions mentioned in the originating process dated 8 August 2005.

103 Section 232 of the Corporations Act reads as follows:

"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;

(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."

104 The conditions of s 232 concerning oppressive conduct must be fulfilled. Depending upon the facts, and the exercise of discretion by the Court, s 233 allows for ten alternatives in remedying the oppression or injustice. Thus, the Court can make any order that it considers appropriate in relation to the company including an order that the company be wound up (s 233(1)(a)) or for the purchase of any shares by any member (s 233(1)(d)) or for the appointment of a receiver or a receiver and manager of any or all of the company's property (s 233(1)(h)). By s 233(2) if an order that a company be wound up is made, the provisions of the Act relating to the winding up of companies apply.

105 Section 234 of the Corporations Act specifically provides that an application for an order under s 233 in relation to a company may be made by a member of the company. The conduct complained of does not have to be unlawful. There is no overriding requirement that the applicant for relief must have clean hands but an attempt to achieve a collateral purpose by exerting pressure may lead to the application being dismissed as an abuse of process.

106 The Court must keep in mind that the investment in the company by the majority shareholders is by definition larger than that of the minority. They should not be prevented by minority obstruction from taking steps which in their reasonable opinion will enhance the value of the company for the benefit of all members.

107 The content of fairness in an oppression application will depend upon the context. Conduct which may be considered to be fair between competing business people may not be fair between members of a family company. The concept of fairness was designed to free the Court from technical considerations of legal rights and to confer a wide power upon the Court to do what is just and equitable. It follows that a valid exercise of a legal power may nevertheless be entirely outside what can fairly be regarded as having been in the contemplation of the parties when they became members of the company: Re Wondoflex Textiles Pty Ltd [1951] VicLawRp 65; [1951] VLR 458 at 467.

108 It appears from Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413 that unfairness can arise from the breach of a collateral agreement or understanding as to how the company is to be managed, especially in the case of small companies. It appears from that case also that because the specific orders listed in s 233 are only examples, it is open to the Court to make any other orders it thinks appropriate. Such an order can be an account of profits earned in breach of fiduciary duty where this constitutes oppression. There is a principle of proportionality between the act of oppression and the remedy.

109 Fexuto's case and other cases suggest that the remedy that is the least intrusive and which will eliminate the oppression should be considered first by the Court. One order that may be sought is the compulsory purchase of the applicant's shares by either the company or the member whose conduct amounted to unfair prejudice. The basic requirement is that a valuation of the subject shares must be fair on the facts of the particular case.

110 Whether conduct complained of is oppressive, unfairly prejudicial or unfairly discriminatory is determined objectively, from the position of the hypothetical, reasonable person/director: Wayde v New South Wales Rugby League Ltd (Western Suburbs case) [1985] HCA 68; (1985) 3 ACLC 799 at 804; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Coombs v Dynasty Pty Ltd [1994] FCA 1193; (1994) 12 ACLC 915. Oppression includes conduct which lacks the degree of probity which the members are entitled to expect in the conduct of the company's affairs: Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042 at 1059.

111 Conduct that is unwise, inefficient and careless will not by itself amount to oppression: Re Five Minute Car Wash Service Ltd [1966] 1 WLR 745 at 753. A commercially unreasonable approach to the making of profits might not amount to oppression, in the absence of any suggestion of wilful mismanagement or of any impropriety in the conduct of the company's affairs: Thomas v HW Thomas Ltd [1984] 1 NZLR 686.

112 In Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539 the Full Court in this State was concerned with the concept of oppression as defined by the Companies (WA) Code s 320, being an earlier version of the present provision. The Full Court in this State held that the key issue in the application of the statutory test is fairness. It is for the Court to decide whether, in balancing the interests of the company as a whole against minority interests, the directors of the company have acted so as to unfairly prejudice the interests of the minority. The Court decides whether the directors have acted in this matter according to ordinary standards of reasonableness and fair dealings. Whether the conduct is unfairly discriminatory will be judged on standards which reasonable directors with such skills as directors should have, acting bona fide, would think to be fair.

113 The Full Court said further that where the facts established by the applicant demonstrate that a company entered into a transaction for no apparent commercial benefit, and there is an apparent conflict of interest on the part of the directors of the company, the evidentiary burden shifts to the company to establish the commercial reality of the transaction and the commercial basis and benefits to the company and the manner in which the directors resolved the conflict of interest. If the company does not adduce satisfactory evidence on these matters, unfairness may be inferred for the purposes of the statutory provisions.

Specific provisions concerning the just and equitable ground

114 The plaintiff also seeks to rely upon certain of the general grounds specified in s 461 of the Corporations Act on which a company may be wound up by the Court. In this case, the plaintiff places reliance upon s 461(1)(f) or, alternatively s 461(1)(k) of the Corporations Act.

115 Section 461(1)(f) provides that the Court may order the winding up of a company if the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole.

116 Section 461(1)(k) provides that the Court may order the winding up of a company if the Court is of the opinion that it is just and equitable that the company be wound up.

117 The classes of conduct which justify a winding up order on the just and equitable ground are not closed and each application will depend on the circumstances of the particular case. It is open to the Court to order the winding up of a company on the just and equitable ground because of a complete breakdown of the relationship between shareholders: Malos v Malos [2003] NSWSC 118; (2003) 44 ACSR 511.

118 A lack of confidence in the conduct and management of the company's affairs must be grounded on the conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. The lack of confidence cannot spring from being out voted on the company policy or on what is called the domestic policy of the company. The lack of confidence can be based on lack of probity in the conduct of the affairs of the company: Loch v John Blackwood Ltd [1924] AC 783. See also Stapp v Surge Holdings Pty Ltd [1999] FCA 545; (1999) 17 ACLC 896.

119 The Courts have emphasised that winding up is a remedy of last resort and ought not to be granted if some other less drastic form of relief is available and appropriate: Re Dalkeith Investments Pty Ltd (1984) 3 ACLC 74 at 79.

120 By s 467(4) of the Act the Court must consider whether some other remedy is available to the applicants and whether they are acting unreasonably in seeking the company to be wound up instead of pursuing that other remedy. A rejection of an offer to have the members' shares purchased at a fair value as an alternative to winding up may be considered unreasonable: Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145.

121 In Official Trustee in Bankruptcy v Buffier [2005] NSWSC 839 Campbell J observed at [40] what while one can identify categories of case which the Court has regarded as one suitable for the winding up of a company on the just and equitable ground, the full scope of the power is not confined to particular pre-existing categories. He went on to make these observations at [65]:

"Winding up on the just and equitable ground can occur when there are serious grounds for lack of confidence in the directors of companies in the conduct and management of the affairs of the company (Australian Securities Commission v AS Nominees Ltd (1995) 18 ACSR 459 at 519), or when there is a lack of straightforward dealings between the company and the public (Re Producers Real Estate and Finance Co Ltd [1936] VicLawRp 39; [1936] VLR 235) or its clientele (Macquarie Bank Ltd v TM Investments Pty Ltd [2005] NSWSC 608 at [13] per Barrett J), or its shareholders. In the present case, I cannot conceive of a proper reason why Mr Service (even if he had been validly appointed) should seek to remain as a director of the company, in direct opposition to the wishes of the totality of the shareholder body. He presents none in evidence. The dealings of the company, though the medium of the Bankrupt and notwithstanding both his bankruptcy and his disqualification, are not ones that seem calculated to advance the interests of the Official Trustee, who is now the sole shareholder, and has had the right to become the sole shareholder since the bankruptcy occurred. This is an appropriate case to wind the company up."

122 Let me now return to the circumstances of the present case.

123 It was apparent from the opening addresses of counsel on both sides at the commencement of the hearing before me that the validity of the loan account was a central issue in the case. Counsel for the plaintiff said that the objective of his client as a trustee in bankruptcy was to realise his shareholding in the defendant company for the benefit of Mr Osborne's creditors.

124 Counsel said that Mrs Osborne was the sole director of a company which stood in a complicated relationship to the assets owned by the company including the West Perth property (occupied by Mrs Osborne and her husband) and the Churchlands property. The loan account figures were questionable. These features of the company had given rise to the plaintiff's justifiable loss of confidence in the second defendant's conduct of the affairs of the company which meant that the only way forward was for a court appointed liquidator to unravel the facts and matters bearing upon the validity of the disputed loan account. It was for these reasons that orders had been made for cross-examination of Mrs Osborne and Mr Clifford upon their affidavits.

125 Counsel for the defendants agreed that the main issue was whether the loan account was valid and whether it in fact stood at "about $980,000" as alleged by the defendants (TS 6). Counsel said that the recent valuations obtained by the plaintiff could only be regarded as "qualified" valuations because Mrs Osborne had refused to give the valuer access to the properties.

126 However, even if those values were taken into account, the net result of a liquidator's sale of the properties (being the company's half interest in the West Perth property and the entirety of the Churchlands property) would be that the company was still indebted to Mrs Osborne and the proceeds of the sale would have to be applied in reduction of the disputed loan account. Hence, there was no utility in ordering a winding up of the company.

127 Counsel for the defendants went on to submit that if the disputed loan account was found to be of the order contended for by Mrs Osborne that might resolve matters between the parties, for this would have a bearing upon whether the plaintiff was precluded from realising a share having no real value.

128 Counsel referred also to some "subsidiary" issues including the question of whether the rental being paid for the West Perth property was below market rental. Mrs Osborne's position was said to be that she had mistakenly thought that because she was a half owner of the property and a half shareholder in the company, the company would only be entitled to a quarter of the current market rental. Counsel conceded that such an assumption was incorrect. She was now prepared to ensure that a half share of market rental went to the company. It was said that in addition to payments made to her by her husband for his share of the rental she herself had been paying the outgoings in respect of that property. Further, she had been meeting all the mortgage payments due in respect of the Churchlands property.

129 Counsel submitted that if the main issue and other issues between the parties could be determined then this might result in an acquisition of the share held by the plaintiff as trustee.

130 Counsel for Mrs Osborne adduced evidence-in-chief from his client which was related to the matters in issue and events dealt with in her affidavit. Mrs Osborne reiterated that after her husband's first bankruptcy in 1985, and their brief separation, she began building up assets again by selling art works. She also had a horse that her husband had given her for a Mother's Day present. She sold the horse called Orange Royale for $40,000 and had some winnings from that as well. She said that she ended up with about $230,000 in cash and started putting it into bank bills at a time when the interest rates were very high. Her money mounted up to about $400,000 by 1990. An offer was then made in respect to the City Beach property which was put in the company's name as she did not want to run the risk again of losing her house.

131 Mrs Osborne went on to speak of other matters mentioned in her affidavit including the renovation and eventual sale of the City Beach property owned by the company and the sale of another property (the Tilton property) which had been acquired her in 1989. The sale of the Tilton property meant that funds could be provided to the defendant company by her for the purchase of its interest in the West Perth property. She purported to verify the validity of the loan account.

132 Under cross-examination, Mrs Osborne agreed that her salary as a teacher of $687 per fortnight over a ten year period would give rise to a total income of about $178,000 rather than the total of $330,000 mentioned in her affidavit. However, she said that as the years went by her salary went up to $800 per fortnight. She agreed that perhaps she could have taken more care in making the calculation. She denied that there was any absence of a reference to the horse in her affidavit because at page 164 of her affidavit, amongst the documents evidencing the sale of art works and other assets, there was a reference to the sale of Orange Royale on a cheque stub. There was also a photograph showing that she was the owner of the horse.

133 Mrs Osborne agreed that at the time of her husband's bankruptcy she was liable as a guarantor of his debts. She had to make payments in that regard but the creditors did not take all her assets. As at 1985 she had by way of assets, certain antiques, paintings and the horse, Orange Royale. Her interest in the Clearview Stud, which was acquired in about 1975 as a consequence of her husband's interest in such matters, had been sold in 1984 or 1985. She got no funds from the sale of that asset, but tax losses were carried forward for a few years.

134 She was questioned about the sale of a Drysdale painting for $100,000. She said that she used the proceeds to acquire bank bills. Reference was made to a so-called receipt dated 15 May 1987 from Greenhill Galleries which spoke of the painting being sent to Sydney. It was put to her that this was only a consignment note and did not evidence the sale of the painting. She answered this by referring to a bank deposit slip of 15 May 1987 concerning a deposit of $100,000.

135 Mrs Osborne was then asked why in 1987 she was minded to deposit $100,000 of her own funds into a company in which she did not acquire an interest until 1990. She said that this was because the company was owned by her two brothers. She did not know why she put the money in, she just did. She denied that the deposit of $100,000 was not her money. She could not remember whether she had authority to use the bank account. She said that she accumulated about $220,000 from the sale of the antiques, paintings and the horse.

136 Mrs Osborne was referred to certain documents from Leonard Joel Auctioneers dated 25 November 1986 which were said to substantiate her evidence. It was put to her that the invoice in question was directed to the name of Gray, being her mother's name. She said that, nonetheless, the painting belonged to her as her mother did not have any assets. Mrs Osborne was living with her parents at that time.

137 Mrs Osborne said that her only proof that she had sold a Sali Herman painting was that she did buy it and did not have it any more. She was questioned about an alleged incongruity between the dates on which certain paintings were sold, which were said to have financed the purchase of bank bills, when there was evidence that certain of the bank bills had been purchased at an earlier stage in 1985. She said that the bills were acquired with her money. She said that "I don't know how it worked out but that's how it is" (TS 31).

138 Mrs Osborne was asked about a bank bill said to be due on 12 September 1985. This exchange with the cross-examiner then occurred (TS 33):

"So within a period of two months you have deposited separately, you say, 60,000 and 50,000 approximately but you don't know where those moneys came from?---Look, I can't answer that. I just know that was my money. There's no doubt about that.

And you say you continued to invest those moneys in the bank bills until you decided to invest in real estate?---That's right.

Do you have any of the other proof of investments in bank bills, although what you have - - -?---Only what's in here.

Just those two?---That was lucky that I had those."

139 Mrs Osborne said that she purchased the Tilton property for $162,000 in 1989. She said that she could not remember where the money came from. She could not remember whether she put a mortgage on it to start with or whether she paid all cash (TS 35). She thought she had put a mortgage on it later. When she was asked where she got $165,000 from at that time, she responded: "Out of the bank, out of shares. I can't remember" (TS 36). Her attention was then drawn to the title document and an entry which suggested that a mortgage was registered over the property on the same date as the transfer to Mrs Osborne. However, she could not recall how much the mortgage was for.

140 The cross-examiner then took Mrs Osborne to the purchase of the City Beach property in 1990 and the assertion in her affidavit that she lent $150,000 to the company with $100,000 being borrowed by the company from the Commonwealth Bank. The sum of $150,000, she said, came from the sale of her paintings and other assets. Then, in the period between December 1990 and February 1993, she repaid the company's loan of $100,000. She conceded that this was not done simply from her teacher's salary but from other moneys she kept in the bank.

141 Mrs Osborne acknowledged that prior to 1990 she had no loan account with the company. It was this loan of $150,000 in respect of the City Beach property and the $100,000 paid back to the bank on the company's behalf which gave rise to the first loan account entry in Mrs Osborne's favour in the company's books; that is, the so-called first loan of $250,000. When pressed, she agreed that the assertion in her affidavit that the loan of $100,000 was repaid by her from her income as a secondary school teacher was a mistake. She had been paying it off with other moneys as well. She agreed that her husband did not have any money at that time (TS 41). She agreed that she was using part of her salary towards household expenses.

142 It was in this context that Mrs Osborne confirmed (being a matter acknowledged in the December 2004 transcript) that, although in 1990 the company had bank accounts and bank statements, the company did not presently have a bank account (TS 44).

143 The cross-examiner referred her to the bank statements which suggested that in 1992 the company had an overdraft of $97,000. It was put to her that the renovations of the City Beach property were in fact funded by the overdraft, but this was denied by her. She denied that the bank account was being used for some other purpose. She agreed that as at 30 June 1992 her loan account with the company was said to be $187,950. She said that the cost of the house was funded by her through the bank and through her loan. There was no doubt about that, but the dates were possibly a little bit out (TS 50). It was true that the balance sheet referred to the Osborne Family Trust but in fact it should have been to Beryl Norma Osborne. She was a trustee of the Osborne Family Trust.

144 Mrs Osborne was referred to a receipt from the builder which appeared to be directed to Mr and Mrs Osborne. She denied that this signified that both she and her husband had been paying for the renovations. It was simply the builder's practise to issue a receipt to husband and wife. She was challenged about the absence of documentation in respect of the renovation expenses including variations.

145 She was questioned about instructions given to Macquarie to pay funds to exercise share options and the fact that the funds were placed in an account bearing the name of her husband also. She said that the account should not have been in her husband's name. When she was asked whether the company purchased the shares under discussion or whether she purchased the shares, Mrs Osborne responded by saying that she put the money into the company to purchase the shares (TS 56). She borrowed the money to enable the shares to be purchased in the name of the company.

146 Mrs Osborne was cross-examined about the fourth loan being $150,000 allegedly advanced to the company in April 2000 to assist in its purchase of a 50 per cent interest in the West Perth property. She confirmed that at about this time she sold the Tilton property for $450,000 and a net amount of $437,089.30 came to hand from that source. She was cross-examined about the relevant settlement statement dated 10 April 2000 which suggested that the amount just mentioned went towards discharging a mortgage over the property to Challenge Bank. She said that in fact there was no mortgage and that she did receive the net amount mentioned in her affidavit (TS 62).

147 In the course of being cross-examined about the sources and details of the West Perth property purchase price Mrs Osborne confirmed that the mortgage on the property at the moment was "around about $275,000" (TS 64). She thought that the mortgage repayment was about $1100 per week which was paid by her from income from rental properties. Her husband did not contribute towards the mortgage but he paid rent of $200 per week.

148 As to the Churchlands property, Mrs Osborne said that she thought about $8000 was presently outstanding. She agreed that the December 2004 transcript of the bankruptcy examination suggested there was $90,000 owing on the mortgage at that time. She agreed that one month later, by January 2005, it was down to $28,000. She said that she got the $60,000 to reduce the mortgage in that period as a consequence of receiving a cheque for $50,000 from her daughter of which she kept $2000 and transferred $48,000 into the company account.

149 Mrs Osborne was then referred to the company's ANZ Bank statement (page 294) which suggested that a deposit of $48,000 allegedly referable to repayment of the daughter's loan was in fact made on 17 July 2003. However, she continued to assert that, in her belief, the cheque for $50,000 from her daughter Natalie was used to reduce the mortgage at the end of 2004 and "whether the dates are tying up, I don't know, but that's exactly what happened" (TS 73).

150 She added, upon reflection, that she may have been in error in what she said in December 2004 that about $90,000 was due on the mortgage. She must have forgotten that $48,000 had been paid off. She agreed that her son's disability pension went into her personal account automatically. This represented rental and was used to pay off the mortgage.

151 Mrs Osborne acknowledged that the rent income that was due to the company for the West Perth property was not received into any company account. She said that she did not keep an account for that small amount of money because the bank costs made it unnecessary to do so. She said that she had refused to allow the plaintiff's valuers access to the properties as a privacy thing. This was because she owned half the house and owned a half share in the company so that, ostensibly, she owned three-quarters of the property. Her entitlement was underpinned by her loan account with the company. She did not say so directly in her evidence but the clear implication was that she saw herself as being essentially the sole proprietor of the premises.

152 Mrs Osborne said that her inquiries suggested that $800 was a fair rental for the West Perth property. The company's half share was $400 of which $200 was being paid by her husband. She then made these observations (TS 79):

CHARLES PHILIPPE LOUIS NILANT as Trustee of the property of RAMON THEODORE OSBORNE, a Bankrupt -v- R L & K W NOMINEES PTY LTD & ANOR [2007] WASC 105 (10 May 2007)

At a glance

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Judgment (274 paragraphs)

CHARLES PHILIPPE LOUIS NILANT as Trustee of the property of RAMON THEODORE OSBORNE, a Bankrupt -v- R L & K W NOMINEES PTY LTD & ANOR [2007] WASC 105 (10 May 2007)