Denis Cassegrain & Ors v Gerard Cassegrain & Co. Pty Ltd & Ors

CTK was formed in March 1966 by Gerard Rene Jean Francois Cassegrain, Joseph Roy Terp and Nedo Kundicevic. It became their successor in a business of carrying timber in the Wauchope area. The name of the company was derived from the first letter of each surname. The initial share capital consisted of three fully paid A class voting shares, one held by each of the founders. B class non-voting shares were later issued to members of the founders' families. Certain of these shares were afterwards transferred to other persons. Further B class shares were subsequently issued in circumstances which it is not relevant to relate. ...

After its formation, CTK carried on a logging business for several years. It then became involved in civil engineering works, sand mining and restoration works. CTK no longer pursues any of these activities but is the owner of several parcels of land in the Sancrox area lying between Port Macquarie to the east and Wauchope to the west. GC&Co has land holdings in the same locality. All relevant land carries a rural zoning under the planning scheme administered by Hastings Council. In about 1988, a proposal was conceived under which the land of both CTK and GC&Co might become the subject of a major development. Steps were taken in that direction and expenditures were incurred by GC&Co. In the end, the plans came to nothing. CTK has sold two parcels of land in recent years to produce funds required for particular purposes. At this stage, its assets consist virtually exclusively of the residue of the land and the balance of the sale proceeds. 14CTK operated the tea tree plantation at a time after the Projects were terminated. A provisional liquidator was appointed to CTK on 12 November 2004: Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2004] NSWSC 1068. Expressway Spares Pty Ltd 15Expressway Spares Pty Limited (Expressway) was registered in New South Wales on 10 December 1964. Its main business is acquiring machinery and selling it off as spare parts. 16Claude holds 15 (13.89%) of the ordinary shares in Expressway. Denis holds 15 shares (13.89%); Catherine holds 20 shares (18.52%); John holds 3 shares (2.8%); Patrick holds 20 shares (18.52%); and of Anne-Marie holds 35 shares (32.4%). 17Expressway is the sole beneficial owner of Cassegrain Vineyards Pty Limited (now Wines) and Tradition. The Tea Tree Project 18From 1995 Claude and others developed two Projects to establish a tea tree plantation on the Wynne Property that would be financed by public investment (the Scheme). Shortly described TTO leased the Wynne Property to the Project Trustee, Australian Rural Group Limited (ARG). ARG subleased the Wynne Property to OAL. OAL licensed identified portions of the Wynne Property to investors. OAL acted as manager of the Scheme and was responsible for planting, maintaining and harvesting tea trees on the Wynne Property. ARF offered investors a loan to pay for part of the initial licence and management fees. ARF in turn borrowed from OAL in order to lend to the investors. OAL entered into Indemnity Agreements with investors who borrowed from ARF under which, in certain circumstances, OAL agreed to indemnify investors against any amount owing to ARF on the investor's loan. 19On 1 April 1997 TTO, as landowner, entered into a Project Deed for the Port Macquarie Tea Tree Plantation to be operated on the Wynne Property. OAL also entered into this Deed, as manager of the Tea Tree Plantation. TTO was obliged to use its best endeavours to register a lease to ARG as Trustee of the Project Deeds and also a sublease to OAL. The Project Deed also provided that if the Trustees' office became vacant and a new Trustee was not appointed within 60 days the Projects would terminate. 20On 27 May 1997 OAL and ARF entered into an agreement pursuant to which OAL would loan funds to ARF who would in turn make loans to investors, referred to as "Farmers". On 30 June 1997 TTO, as lessor, entered into a lease with ARG, as lessee, of the Wynne Property. It also consented to a sublease to OAL. A second Project Deed was entered into on 11 February 1998 between TTO as landowner and OAL as manager. 21Between April 1997 and June 1999 ARF entered into loan agreements with approximately 230 investors for $24,000 per farm allotment. Each of the investors entered into an Indemnity Agreement with OAL at the same time that they entered into the loan agreement with ARF. As at 30 June 2000 ARF was indebted to OAL in the amount of $9,875,000. 22In the Prospectus for the Projects of 1 June 1999 a price of $45-$55 per kilo of tea tree oil had been anticipated. By May 2001, the market price had fallen to between $12 and $20 per kilo. On 20 June 2001 OAL sent a letter to the investors advising that OAL and ARG believed that there was no alternative but to wind up the Projects. At this time most of the tea tree plantation had not been harvested, although it was bearing a crop that was ready to be harvested. 23In September 2002, one of the investors, John Atkinson, commenced proceedings against ARG, OAL and ARF seeking a declaration that no grounds had arisen to justify termination of the Projects. Mr Atkinson also sought a declaration that the Indemnity given by OAL remained effective. 24On 27 September 2002 ARG was placed into voluntary administration. On 5 November 2002 the administrators advised OAL that ARG had retired as Project Trustee of the Projects with effect from 27 October 2002. 25On 12 November 2002 OAL wrote to the investors informing them that the effect of the retirement and non-replacement of ARG was that the Projects would terminate on 26 December 2002. 26By 4 January 2003 the amount payable to ARF from the investors in the Project was $11,605,832.33. On 6 January 2003 ARF made written demands on the investors for repayment of their loans. In early 2003 many of the investors in the Projects who had received a demand from ARF claimed an indemnity from OAL pursuant to the terms of the Indemnity Agreements for the amount demanded by ARF. 27On 17 February 2003 Claude received a letter of advice from his solicitors that the Indemnity Agreements were not enforceable by the investors. On 24 May 2003 Claude received advice from Senior Counsel that the Indemnity Agreements were enforceable so long as the investors had made payments punctually in accordance with the Indemnity Agreements. 28In mid-2003 Claude developed a proposal for CTK to harvest the tea tree crop by leasing machinery from OAL. On 20 July 2003 Claude sent a handwritten proposal to his co-director Troy Terp for CTK to harvest the crop. Mr Terp agreed to this proposal and CTK began harvesting the tea tree crop in early November 2003. Mr Terp resigned as a director of CTK in February 2004 after which Claude remained as sole director. 29In August 2004 two of Claude's cousins (Thomas Jean Cassegrain and Emilie Cassegrain) who were shareholders of CTK, commenced proceedings against CTK and Claude seeking a declaration that the affairs of CTK were being conducted in a manner oppressive to them and also seeking an order that CTK be wound up (the CTK proceedings). The evidence that the plaintiffs relied upon in those proceedings relevantly included that of an expert accountant, Robin Geoffrey Humphreys, who expressed the view that the tea tree oil business was not viable. 30Claude received correspondence from the solicitors for the plaintiffs in the CTK proceedings advising him that the plaintiffs would seek leave to bring proceedings in the name of CTK against him personally. The letter advised that there would be allegations that included: (a) that the tea tree business was highly speculative and had potential to incur substantial losses for CTK; (b) that OAL had made substantial losses from conducting the tea tree business on TTO's land; and (c) the tea tree business had resulted in CTK incurring losses. 31A provisional liquidator was appointed to CTK on 12 November 2004. Although harvesting was continued until around 13 December 2004 it ceased by direction of the provisional liquidator who concluded that its continuation would be to the detriment of shareholders. The provisional liquidator determined that CTK should cease trading and at around this time Claude decided to drop his opposition to the winding up of CTK. The Tea Tree Litigation 32In about June 2003 Claude, on behalf of OAL, decided that ARF should commence proceedings against the investors. On 18 June 2003 ARF, with the consent of OAL, commenced proceedings in this Court against 206 investors seeking to recover outstanding amounts under loans of approximately $10 million. On 19 March 2004 an order was made that the issues raised by ARF's claims against one of the defendants, Bruce Gardiner, be determined separately to all other investors claims subject to undertakings by the investors to be bound on common questions arising in those proceedings (the Gardiner proceedings). 33On 26 November 2004 Mr Gardiner filed an Amended Cross Claim against OAL claiming an indemnity from OAL pursuant to the Indemnity Agreement in relation to the amount being claimed by ARF. OAL filed a Defence to the Cross Claim in which it relied on the defaults in punctual payment by Mr Gardiner to invalidate the Indemnity Agreement. 34As at late 2004 the Gardiner proceedings included a serious question as to whether the Indemnity Agreements were enforceable, and if so whether OAL would be liable to indemnify the investors for their debts to ARF of approximately $10 million. The Impugned Share Transactions 35On 7 September 2004 the receivers and managers of GCC (the Receivers) wrote to Claude referring to their recent discussions regarding his "proposed refinance of the remaining debts" due to the CBA at the time of completion of the sale of the property of Claude's late mother, Francois Cassegrain, on 15 October 2004. The Receivers advised Claude that the CBA would require payment in full of all outstanding debts including their costs, legal costs and any other expenses incurred or expected to be incurred until the date of completion of the sale. The estimate of the outstanding debt provided at that time was $357,492.11. The Receivers had previously advised that if Claude could not refinance the residual debt then the CBA would expect them to commence the sale of "any residual assets" under their control, "the most valuable of which is the tea tree land". 36On 9 September 2004 Claude's solicitor, Christopher McCarron of Priest McCarron, Solicitors, wrote to the Receivers confirming that he was instructed that simultaneously with the settlement of the late Mrs Cassegrain's property Claude would provide the balance of the moneys required to discharge the obligations to the CBA and to retire the Receivers. 37On 15 September 2004 Mr Humphreys' affidavit was filed in the CTK proceedings. It included his opinion that the tea tree business was incurring such losses that it could not reasonably be considered a beneficial investment opportunity for the shareholders. Mr Humphreys expressed the view that the losses to which he referred in his affidavit could only have the effect of dissipating shareholder value. 38On 17 September 2004 Claude had a discussion with Mr McCarron whose note of the conversation included instructions from Claude that he had engaged in discussions with the Receivers about paying them out. Mr McCarron noted "through LAW FUND - Felicity lends money and GC & Co and gets a MTGE and company charge". 39As at 22 September 2004 the Cassegrain Family Trust (CFT) was indebted to GCC in the amount of $721,892. On 22 September 2004 Claude wrote to Mr McCarron in terms that included the following: