In the matter of Crow Inn Pty Limited (No 2) [2020] NSWSC 1749 - NSWSC 2020 case summary — Zoe

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In the matter of Crow Inn Pty Limited (No 2) [2020] NSWSC 1749

[2020] NSWSC 1749

Supreme Court of NSW|2020-08-25|Before: Rees J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2020-08-25

Before

Rees J

Source

Original judgment source is linked above.

Judgment (55 paragraphs)

[1]

CSR 566; [2016] NSWCA 347 Australian Securities and Investments Commission, Re Richstar Enterprises Pty Ltd v Carey (No 6) (2006) 153 FCR 509; [2006] FCA 814 Bailey (Liq) v Rock Solid Rendering Pty Ltd (in liq) ATF Rock Solid Trust [2020] FCA 600 Bell v Lever Brothers Ltd [1931] All ER Rep 1; [1932] AC 161 Boardman v Phipps [1966] 3 All ER 721; [1967] 2 AC 46 Boyd v Feeney [2017] NSWSC 1595 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 Canberra Residential Developments Pty Ltd v Brendas (2010) 188 FCR 140; [2010] FCAFC 125 Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62 Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37 Corbett v Corbett Court Pty Ltd (2015) 109 ACSR 296; [2015] FCA 1176 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; (1978) 19 ALR 223 Dulhunty v Dulhunty [2010] NSWSC 1465 Elders Trustee & Executor Co Ltd v Higgins [1964] ALR 408; (1963) 113 CLR 426 Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 Gartside v Inland Revenue Commissioners [1968] AC 553 Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 Grocon Constructions Pty Ltd v Kimberley Securities Ltd [2009] NSWSC 572 Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230; [2015] VSC 519 IceTV Pty Ltd v Ross [2008] NSWSC 1321 In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568 In the matter of Austral Alloys Pty Limited [2017] NSWSC 1833 In the matter of Bicher & Son Pty Ltd (2020) 147 ACSR 108; [2020] NSWSC 711 In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775 In the matter of Crow Inn Pty Limited [2020] NSWSC 601 In the matter of Denham Constructions Pty Limited [2016] NSWSC 1425 In the matter of El Zorro Transport Pty Ltd [2013] NSWSC 1082 In the matter of Glenvine Pty Limited (in liq) [2020] NSWSC 866 In the matter of Hayes Steel Framing Systems Pty Ltd (Administrators Appointed) [2017] NSWSC 385 In the matter of Motasea Pty Ltd (2014) 97 ACSR 589; [2014] NSWSC 69 In the matter of Pure Nature Sydney Pty Limited [2018] NSWSC 914 In the matter of Richardson & Wrench Holdings (2013) 97 ACSR 351; [2013] NSWSC 1990 International Hospitality Concepts Pty Limited v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 at 135; [2007] HCA 61 Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623 Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; [2012] FCA 634 Love v Williams [2019] NSWSC 555 Mann v Paterson Constructions Pty Ltd [2019] HCA 32 Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 71 ACSR 395; [2007] NSWSC 153 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222 Mudgee Dolomite & Lime Pty Limited v Murdoch [2020] NSWSC 1510 Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59 Re a company (No 00709 of 1992); O'Neill v Phillips [1999] 2 All ER 961; [1999] UKHL 24 Re Dernacourt Investments Pty Ltd (1990) 2 ACSR 553; (1990) 20 NSWLR 588 Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364 Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364 Re Indoor Climate Technologies Pty Ltd [2019] NSWSC 35 Re Knight, Second ICO Pty Ltd (in liq) (2020) 144 ACSR 329; [2020] FCA 608 Re London School of Electronics Ltd [1986] Ch 211 at 222; [1985] BCLC 273 at 279 Re Mogul Stud Pty Ltd [2012] NSWSC 1639 Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279; (1987) 5 ACLC 184 Re Polyresins Pty Limited [1999] 1 Qd R 599; (1998) 12 ACLC 1674 Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17 Ryder v Frohlich [2004] NSWCA 472 Shelton v National Roads and Motorists Association Ltd (NRMA Ltd) (2004) 51 ACSR 278; [2004] FCA 1393 Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 Snell v Glatis (No 2) [2020] NSWCA 166 Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 84 ACSR 121; [2011] NSWCA 104 Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 Watson v Foxman (1995) 49 NSWLR 315 Watson v James [1999] NSWSC 600 Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459; [1985] HCA 68 Workers Compensation Nominal Insurer v Denny Earthmoving & Bulk Haulage Pty Ltd [2008] NSWSC 1167 Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380 Texts Cited: Michael Lambiris in The Historical Context of Roman Law (William Gaunt & Sons 1997) JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (LexisNexis, 2016 Category: Principal judgment Parties: Netjay Pty Ltd (First Plaintiff) Basil Berrigan (Second Plaintiff) Crow Inn Pty Ltd (First Defendant) Phatso Investments Pty Ltd (Second Defendant) Joel Berrigan (Third Defendant) Puddy Pty Ltd (Fourth Defendant) Representation: Counsel: Mr LT Livingston (Plaintiffs) Mr GA Sirtes SC / Mr J Adamopoulos (Defendants)

[3]

Judgment

HER HONOUR: Basil Berrigan and his family company, Netjay Pty Ltd, seek an order that the first defendant, Crow Inn Pty Ltd, and the fourth defendant, Puddy Pty Ltd, be wound up on just and equitable grounds under section 461(1)(k) of the Corporations Act 2001 (Cth) and that a receiver and manager be appointed to the assets of The Puddy Trust. Crow Inn operates the business of the International Hotel Wagga Wagga and leases the land on which that business operates. Puddy owns the land in its capacity as trustee of The Puddy Trust. Basil and his nephew Joel Berrigan, the third defendant, are the two directors of Crow Inn and Puddy. Without intending any disrespect, I have generally referred to members of the Berrigan family by their first name.
The plaintiffs are the majority shareholders of Puddy and Crow Inn, owning 60% of the issued shares while, Joel and his family company, Phatso Investments Pty Ltd, own 40%. I will generally refer to Basil and Netjay as the plaintiffs and to Joel and Phatso as the defendants. A deadlock has arisen as the constitutions of Puddy and Crow Inn require both shareholders to attend meeting of members, and both directors to attend a directors' meeting. Joel will likely not attend a meeting at which a resolution is proposed to remove him as a director or to sell the land or business. Thus, whilst Basil is the majority shareholder, he does not have control of the companies.
Basil and Joel accept that their relationship has irretrievably broken down, for which each blames the other. Each accuse the other of engaging in oppressive conduct contrary to section 232 of the Corporations Act by reason of which Basil seeks an order that the share register of Crow Inn be rectified to record that Netjay owns 70, and Phatso owns 30, of the 100 issued shares of Crow Inn. In turn, Joel seeks a declaration that Phatso is entitled to 40 shares in Crow Inn. Both seek share buy-out orders. Joel also seeks a declaration that he is entitled to $1,269,334 standing in his loan account with Puddy, although I did not understand Basil to suggest otherwise. Joel also seeks damages from Basil for misleading or deceptive conduct or unconscionable conduct. In the result, Basil is entitled to succeed entirely. The factual premise of Joel's oppression suit and related claims has not been established. Joel thus accepts that the appointment of a liquidator is appropriate, at least to Crow Inn. Joel's reasons as to why Puddy should be treated differently cannot be sustained.
The defendants suggested that the Berrigan family resembled an ancient Roman family as described by Michael Lambiris in The Historical Context of Roman Law (William Gaunt & Sons 1997) and Emmett AJA In Love v Williams [2019] NSWSC 555 at [50] and [51], where Thomas Berrigan - Basil's father and Joel's grandfather - was a "paterfamilias" vested with overwhelming power over family and property. The reality was more and ordinary. The business enterprise was established with the generous support of Thomas and wife Helen to Basil and Joel, and the hard work of each which the other does not now recognise. In 2018, Joel, apparently with the support of his grandfather, bought land nearby to build another hotel, without telling Basil. Basil sought to end their business arrangement by buying out Joel under a Shareholders Agreement. Joel has thrown every obstacle in Basil's path. Thomas did his best to help his grandson, even swearing an affidavit shortly before he died. Thomas' affidavit was, unsurprisingly in the circumstances, materially inaccurate. Armed with this, Joel's behaviour towards his uncle hardened and could be described as taunting. Basil did not take to this kindly. It is clear from the struggle which ensued that a liquidator must now be appointed to both companies, and a receiver be appointed to The Puddy Trust, to make decisions for these corporate entities which Basil and Joel cannot make together.

[5]

Basil Berrigan

Basil Berrigan was not an entirely satisfactory witness. Basil's early affidavits omitted his worst behaviour in his battle with Joel. These omissions, partly corrected by subsequent affidavits, did not serve him well and were exploited during cross examination. He was cross examined at length. He generally answered questions fairly and clearly. He made reasonable concessions including in respect of uncomfortable and embarrassing matters. Basil bridled at matters of significant emotional intensity concerning events soon after his father's death and when dealing with his nephew in respect of accessing his father's unit to take some items of sentimental value where, as Basil understood it, other family members had been permitted to do so. Basil's evidence on events at this time was not always consistent, for example, Basil initially denied that he wished to access his father's unit in order to remove some items but later agreed that he did take some possessions when he was in the room, see also at [198] and [203]. The questions canvassed emotional issues that appeared raw and I am prepared to give Basil a bit of latitude in respect of his conduct at the time and the answers which he gave about them. Basil spoke fondly of his father and I expect he was genuinely distressed at the time.
More relevantly, Basil's early affidavits sworn before service of his father's affidavit understated his father's interest in the hotel development (see [31]) and mischaracterised Basil's contributions to the development as self-funded when, on closer inspection, his contributions were largely gifts to him by his parents. Basil explained this as due to a wish to prevent controversy with his siblings, which appeared a reasonable explanation having regard to the evidence overall. To some extent, Basil's evidence about his involvement in the construction and management of the hotel was overstated. That said, Basil's role was far greater than that for which Joel gave him credit.
On occasion, Basil changed his answers when more information was brought to light which suggested his earlier answers were incorrect. Basil tended to say he did not recall when he got into difficulty, which he did from time to time. Sometimes, Basil said what he thought he could get away with, and generally perceived that line well, with some notable exceptions. Whilst I did not accept everything which Basil said, a substantial portion of his evidence was correct. On points of great controversy, I have put Basil's evidence to one side and relied on contemporaneous documents and evidence of more reliable witnesses.

[7]

Joel Berrigan

Joel was a most unsatisfactory witness. Before giving his evidence, Joel was present during the evidence of Basil and Andrew Teece. Joel was initially charming and affable but took every opportunity - whether in his affidavits or during cross-examination - to make gratuitous, disparaging remarks about Basil. This was in stark contrast to Joel's abiding suggestion that he was deserving of pity, compassion and understanding. Joel persistently dismissed or diminished any contribution made by Basil to the construction or management of the hotel. Joel consistently over-stated his own contribution. See, for example, [28]-[29], [63], [75], [82].
Joel sought to portray himself as naïve and passive in respect of his dealings with Basil when negotiating a Shareholders Agreement - "I'm pretty simple" - or, in relation to Basil's efforts to buy him out in accordance with the agreement, "Yeah, so I took this letter to my solicitors because I didn't really understand it, to be honest." Similarly in respect of his solicitor's letter disavowing the agreement, "My very broad understanding of this letter was that the agreement was poorly written, a joke and that I had rights and it was clear to me that I didn't even understand what those were, and to be perfectly honest I still don't to this day. This letter … is full of a lot of things that I just don't understand." However, Joel displayed detailed knowledge when it mattered to his case, such as in respect of a Wagga Wagga Development Control Plan (2010), micro and macroeconomics and the local accommodation market. When asked about his presentation at a Wagga Wagga Council meeting, Joel said, "They need to understand that these projects can be managed, that men like me know what we're doing".
Joel was often evasive and non-responsive, for example at [104], [170], [176], or inconsistent, at [165], [173]. Joel volunteered remarks which he thought would advance his case. Joel made gratuitous references to what his grandfather had said to give credence to Joel's evidence; such conversations were often not referred to in his affidavits. Joel had excellent recall when it suited him and not otherwise. His answers on many occasions were unlikely: for example, at [102]; [104], [109], [113], [128], [174], [209]. He appeared to make things up: see [133], [140], [160]. I conclude that Joel would say whatever he thought would advance his case regardless of whether it was true or not. I ultimately did not believe him. That is not to say that everything Joel said was untrue, but I have no confidence in what he said unless it is corroborated by contemporaneous documents, the evidence of another reliable witness, inherently likely or adverse to Joel's own interest.
Mr Churcher seemed an honest fellow. He was friends with Joel, having known him since he was a baby and played a significant role in developing Joel's skills as a builder. Mr Churcher remembered Thomas fondly. I accept his evidence.

[8]

Thomas Berrigan

The defendants relied on an affidavit by Thomas Berrigan sworn on 17 October 2019, twenty days before Thomas died of leukaemia, aged 85. Basil and his son visited Thomas that morning. Basil says that his father appeared extremely weak, fragile and exhausted. His body was emaciated and he appeared to be half his usual body weight, was very gaunt in the face with long black circles around his eyes. Thomas had sores all over his legs and required assistance when he moved. He needed pillows to support his body and legs. At times, his father drifted off to sleep whilst they sat with him. He laboured at times with talking. He took small nibbles of watermelon and had difficulty swallowing. He was medicated for pain.
Dr Antoun was asked by Joel's solicitor to confirm Thomas' cognitive ability before giving instructions for the affidavit. Dr Antoun understood that he was tasked with assessing Thomas' ability to make decisions for and about himself as some legal documents were required to be signed by him. Dr Antoun administered a Standardised Mini-Mental State Examination (SMMSE) test. According to "Standardised Mini-Mental State Examination (SMMSE) - Guidelines for administration and scoring instructions, Independent Hospital Pricing Authority (IHPA) on behalf of the Commonwealth of Australia (2014), the test was first developed in 1975 and has become widely used as a screening test for cognitive impairment in older individuals, where early signs of dementia are often missed. The test covers a variety of cognitive domains, including orientation to time and place, short and long-term memory, registration, recall, constructional ability, language and the ability to understand and follow commands. Thomas achieved the highest possible score (although Basil notes Thomas actually got one question wrong). Based on the results of the test, Dr Antoun was of the opinion that Thomas possessed the cognitive ability to make his own decisions, his mind was still sharp and he could recall everything without hesitation.
Ms Tan explains how instructions for the affidavit were taken, beginning at about 9.45 am. It is apparent from Ms Tan's affidavit that Thomas was coming to the end of his life and family members were visiting him during the day. Ms Tan and a barrister completed the exercise at 5.00 pm. Whilst they were not with Thomas throughout the day, leaving and returning to his room as the document was prepared, it was likely a very long day for a man in his condition. I infer from Dr Antoun's evidence that he apprehended that Thomas was going to be asked to sign a legal document - perhaps a Will - which had already been prepared. Dr Antoun may not have appreciated the nature of the task ahead of Thomas that day. This is not to criticise Ms Tan, counsel nor Dr Antoun but to recognise that the circumstances in which Thomas' affidavit was prepared were difficult indeed.
Further, notwithstanding Dr Antoun's observations, there are a number of inaccuracies in Thomas' affidavit which suggest, unsurprisingly, that his recollection was not particularly accurate. 1. Thomas says he was diagnosed with leukaemia in May 2017 whilst Dr Antoun said he was diagnosed in March 2018. 2. Thomas appears to have confused two hotels in Sydney: a hotel bought in the 1980s called the Airport Sydney International Hotel and another hotel owned by Basil in Arncliffe where Joel had worked in 2010: at [33]-[34]. 3. Thomas appears to have been a decade "out" when he recalled the sale of the Airport Sydney International Hotel in 2002, and accounting advice said to have been received in 2003 in respect of the proceeds of sale. The evidence of Andrew Teece and contemporaneous documents indicate that the accounting advice, at least, was given in the 2012 and 2013 financial years. 4. Most importantly, in recalling critical conversations and events, Thomas appears to have conflated events which happened over several years. See further at [181]-[192].
This is not to criticise Thomas but simply to observe that his affidavit was incorrect in places and, as he was not available for cross-examination and did not have the benefit of reviewing additional contemporaneous documents which no doubt became available during the course of these legal proceedings, just because Thomas said it does not necessarily make it so.
Both Joel and Basil relied on what Thomas had said to them, in respect of which I have borne in mind that, in a claim based on communications with a deceased person, the Court will treat uncorroborated evidence of such communications with considerable caution and will regard as of particular significance any failure of a party to bring forward corroborative evidence which was, or ought to have been, available: Plunkett v Bull (1915) 19 CLR 544; [1915] HCA 14.

[9]

FACTS

Thomas and Helen Berrigan hailed from Wagga Wagga, where they had five children, including son Basil and daughter Marianne. In 1984, they began managing hotels. The first venture appears to have been the Blakehurst Motor Inn. Basil, then in his early 20s, worked with his father at the motel for five years. Thomas and Helen bought a house in Sydney. Basil set up home in Blakehurst.
In about 1985 or 1986, Thomas retained BJC Constructions Pty Limited to carry out alterations and additions to the motel. Barry Churcher was the builder and his son, Mark Churcher, was a carpenter. Mark Churcher met Basil and Joel, then a baby. Barry and Mark Churcher worked closely with Thomas and his companies over the years which followed. According to Mark Churcher, Thomas' pattern was to be heavily involved in the preliminary stages of development such as the scope of works, structural design, costing, procurement and engaging contractors. Having involved himself in major decisions and financial aspects, Thomas left construction to the builder.
In 1987, Thomas and Helen Berrigan established Bryzer Pty Limited. Bryzer purchased land in Mascot to develop a hotel which became the Airport Sydney International Hotel. BJC Constructions was the builder. Mark Churcher was site manager. The completed hotel had 60 guest rooms, a restaurant and bar and offices. Basil worked with his father for 12 years at the Airport Sydney International Hotel.
In about 1990, Marianne became a single parent. Marianne and her children went to live with Thomas and Helen for a time. Joel developed a close relationship with his grandfather. In 1991, Basil became a director of Bryzer. In 1999, Bryzer engaged BJC Constructions to construct a second hotel behind the Airport Sydney International Hotel. Mark Churcher was site manager. Joel was then 13 and took a keen interest in what was going on; Mark Churcher was happy to answer Joel's questions.
In 2003, Joel's mother contacted Mark Churcher and asked whether he could give Joel, then aged 17, some work, "Joel's not doing too well at school. He doesn't like it very much … Are you able to help him out with some work …?". Mr Churcher helped Joel get work as a labourer with a construction company; BJC Constructions also hired Joel as a labourer from time to time. Joel wanted to learn how to manage a large construction site and Mark Churcher was happy to teach Joel, who he described as a hard worker.
From June 2006 to November 2008, Basil worked with his father at the Coffs Harbour International Motel. In 2006, Joel undertook a personal training course for a year while continuing to work part-time as a builder's labourer. In 2007, Joel says that his grandfather encouraged him to pursue a career in hospitality so that he could help the family. Joel got a job at the St George Rowing Club, where he worked for about a year undertaking a traineeship to become a bar manager. In 2008, Joel went to work at a hotel in Maitland, which his mother and grandmother owned.
In 2010, according to Basil, Thomas asked him to give Joel a job at an Arncliffe hotel in which Basil had an interest and which was undergoing renovations. Basil agreed. Joel, then aged 24, is recorded in the wages book as having worked on site in 2010 and 2011. Basil paid Joel almost double what he paid the other labourer. Joel's higher wage may have been referable to the fact he was family, or because he was doing more than labouring: Basil says it was the former.
According to Joel, he returned to Sydney when Thomas asked him to assist Basil to construct and fit out the Arncliffe hotel. Thomas told Joel that he had visited the site and there were "some alarming things that are happening there. There are no licensed trades on site. Could you please go there and get started and use some of your connections to help Basil get going? Using your connection with Churcher and [a colleague who ran a construction company] would be very helpful". Joel described his duties as engaging tradesmen and obtaining quotes for works to be completed, arranging all prime cost items such as bathroom and kitchen fittings; undertaking timber framing, tiling, fitting windows, gyprocking, insulation and ventilation, painting, demolition and roofing. He addressed design issues together with his colleague in respect of the removal of weight-bearing walls and implementing a strategy with the help of an engineering to rectify these issues.
The contemporaneous documents include invoices rendered by various trades, some addressed to Basil and none addressed to Joel. Mr Churcher says Joel was contracted by BJC Constructions from 2007 to 2012 to assist on various building projects as a labourer and undertook general labour tasks such as sweeping, jackhammering, concrete, breaking down walls and cleaning bricks. The absence of any reference to Joel in the contemporaneous documents concerning the Arncliffe hotel, other than the wages book, and Mr Churcher's description of the tasks on Joel was generally engaged over this period, suggests that Joel overstated his role on this project.

[11]

Buying the land, setting up Puddy and the trust

On 8 December 2010, Thomas, Helen, Basil and Joel attended the auction. Basil did the bidding. Basil signed the contract, buying the land for $1.4 million. The deposit of $140,000 was initially paid by Netbas Trust, being a trust associated with Basil. Basil immediately called Andrew Teece from the auction and told him to go ahead and register a company - Puddy Pty Ltd - where Puddy was Thomas' pet name for Helen. When Andrew Teece asked how Basil wanted the shares allocated, Basil put his father on the phone. Thomas said the shares should be allocated 50% to Basil, 20% each to Helen and himself, and 10% to Joel. Basil let his father dictate the shareholdings out of respect for Thomas as the head of the family. Joel says that he and Helen stayed outside until after the auction was complete, and "however [Puddy] was set up was never revealed to me". It is more likely that Thomas informed his grandson at the time that Joel was a 10% shareholder in this exciting new project.
According to Thomas' affidavit, he allocated the shares in this manner to reward Basil and Joel for their assistance to that point and their intended involvement in the new venture, being Basil's capital contributions and Joel's contribution to the construction of the hotel as a builder. Furthermore, in relation to the former hotel at Mascot, I felt at the time that Joel's contributions had not been adequately rewarded.
Thomas was referring to the Airport Sydney International Hotel. There is no suggestion that Joel made any particular contribution to that hotel. It may be that Thomas was referring to the Arncliffe hotel, in which case Thomas' recollection at the time of giving his affidavit was a little confused. If Thomas did mean to refer to the Arncliffe hotel, then it is also not obvious why Thomas thought that Joel's contributions had not been adequately rewarded where Joel had been paid wages. Joel was then living with his grandparents in Sydney. It may be that Joel described his work at the Arncliffe hotel to his grandfather in similar terms to that described in these proceedings and his grandfather accepted this description as, obviously, more than that of a labourer. It may simply be - and I think this is likely - that Thomas' recollection, shortly before his death, as to precisely why he had given Joel a 10% shareholding in Puddy nine years earlier was not accurate.
Thus, of 200 ordinary shares issued by Puddy, Basil held 98, Thomas and Helen held 41 shares each and Joel held 20 shares. Thomas, Helen and Basil Berrigan were appointed directors. The fact that Joel was not appointed a director suggests that, at this point in time, Joel was very much a junior partner in this new venture. The constitution of Puddy adopted the replaceable rules except to the extent modified by the constitution. In particular, section 248F and section 249T of the Corporations Act applied such that the quorum for a meeting of the company's members was two members, the quorum for a meeting of directors was two directors, and the quorum must be present at all times during the meeting.
The Puddy Trust was also established. Philip Teece was the settlor. Thomas was the appointor. Puddy was appointed trustee. The trust deed was signed by Basil, Thomas, Helen and Joel (so presumably Joel had some idea he was involved with The Puddy Trust, at least). The Puddy Trust is a discretionary trust. The beneficiaries were Basil, Thomas, Helen and Joel together with spouses, child or other relatives. As trustee, Puddy has "absolute discretion" to accumulate or distribute income as it thinks fit: clauses 3, 5 and 15(a). Puddy does not carry on any other business nor own any assets in its personal capacity. All assets are owned in its capacity as trustee of the Puddy Trust.
As completion of the purchase approached, Thomas made a handwritten note on 13 January 2011 adding up the cost of the land, tax, duty and expenses to some $1.475 million. According to the note, these funds were to be provided by Basil as to $1 million and Thomas and Helen as to $500,000. Basil provided his portion; $1 million was deposited to Puddy's bank account that day. A further $500,000 was deposited on 21 January 2011. On 21 January 2011, the purchase was completed using funds from Puddy Trust's bank account. A letter confirming settlement was sent by Puddy's solicitor, Gordon Bryant, to Thomas. The total cost, including stamp duty and legal costs, was $1,498,804.19 and recorded in the balance sheet of The Puddy Trust.
According to Thomas, Bryzer had sold the Airport Sydney International Hotel in 2002 for $10 million, although it likely occurred some years later. In any event, in March 2011 a term deposit in the name of Bryzer matured. On 18 March 2011, Thomas and Helen Berrigan sent a handwritten note to the bank instructing that the monies be transferred to Puddy's bank account.

[14]

Getting ready to build

Thomas called Mark Churcher and asked if he could help build another hotel in Wagga Wagga. Thomas said he wanted to keep costs down so did not want to contract BJC Constructions as the builder, but wanted to use Mr Churcher's expertise. Thomas said that Puddy would be the builder and Joel and Basil would help out too. Mr Churcher agreed to help as construction manager, although he did not think that Thomas, Basil or Joel had the requisite experience to build a hotel on their own. Mr Churcher met with Thomas, Basil and Joel on numerous occasions from May to September 2011 to discuss the costs of construction. Whilst Mr Churcher did not recall how many meetings Basil attended, it was fewer than those which Thomas and Joel attended. Thomas, Joel and Mark Churcher were friends of long-standing and, I expect, communicated frequently in respect of the project. I also expect that Thomas wished to share this project with his grandson, with a view to supporting Joel's keen interest in construction.
On 15 September 2011, Puddy entered into a construction management contract with BJC Constructions. The contract was signed by Thomas and Basil. Thomas was nominated as the contact person for Puddy and prepared, in handwriting, special conditions to be included in the contract. The conditions were duly included, which recorded the dual importance of Thomas and Basil to the project. Both were to agree before the appointment of any consultants, legal or other professionals. Both were to be consulted before advance ordering of materials and goods or entry into trade contracts.
Although only contracted by Puddy to be a construction manager, Mr Churcher says he undertook a long list of tasks to help the construction process due to Thomas, Basil and Joel's inexperience. Mr Churcher directed and discussed the construction project with sub-contractors, following which Mr Churcher provided his recommendations as to which sub-contractors should be engaged and what further work was required. Mr Churcher provided his recommendations at meetings with Thomas and Joel and sometimes Basil. By April 2012, Mr Churcher had completed a Budget Estimate Report.
Given the size of the building project, there are surprisingly few records of communications with or by Basil, Thomas or Joel. This is consistent with the fact that a construction manager had been retained, who was presumably taking care of the vast bulk of organisational tasks associated with the build. Communications with Basil by and large concerned more significant matters such as design, fit out and liquor licencing. Communications involving Thomas generally concerned the payment of invoices. Communications with Joel generally concerned smaller trade-related matters, such as obtaining a quote for a kitchen benchtop or arranging the shipment of tiles from Sydney to Wagga Wagga. Overall, the bulk of the correspondence with consultants and suppliers - so far as it was not dealt with by Mr Churcher - was addressed to Basil. The first email also addressed to Joel is dated 26 August 2011, and Mr Churcher usually copied both Basil and Joel to emails thereafter. There is no doubt that Thomas, who did not have an email address, was also involved in the development.
Joel came to use an email address "tbjdevelopment", being a reference to Thomas, Basil and Joel. The fact that Joel formulated this email address indicates that he regarded Thomas, Basil and himself as together being involved in the development. Joel says he was grateful to be given the opportunity by Thomas and Basil to be included in the project. He considered that Thomas and Basil had provided him with an opportunity to set himself and his young family up financially. That appears to have been a fair assessment.
Basil says that Thomas attended to the payment of creditors and the signing of cheques, which Basil considered to be Thomas' primary role during the construction phase. "My father was meticulous and kept detailed of accounts he had paid on different projects. Everything was done by pen and paper". Puddy also had a bookkeeper who was employed by Netbas and thus paid by Basil. Thomas' role as described by Basil is supported by the contemporaneous documents. Various invoices from the hotel development are in evidence and refer to Basil and Thomas. In November 2011, Thomas obtained insurance for the contract works. On 1 December 2011, Thomas advised the Council that Puddy surrendered the consent granted under the development application.

[15]

Trying to tidy up Bryzer

In June 2012, Philip and Andrew Teece met with Thomas and Helen Berrigan to discuss the winding up of Bryzer. As Andrew Teece understood it, the funds were to be withdrawn from Bryzer for the purchase and construction of a motel. Andrew Teece had several discussions with Thomas about the winding up of Bryzer, "There was a clear understanding that the money was to be firstly gifted to Basil prior to going into the new entity"; Thomas was looking to divest himself of assets for estate planning reasons.
On 21 June 2012, Philip Teece wrote to Thomas and Helen Berrigan setting out the steps to take place before 30 June 2012 to wind up Bryzer "as discussed with you on previous occasions". The term deposits in Puddy's name were to be transferred back into Bryzer's name. Bryzer was to pay two dividends of $1.5 million each to Thomas and Helen. 3. Tom and Helen Berrigan can obviously do as they please with this money, and it has been discussed that this $3,000,000 will be transferred to Basil Berrigan. This needs to be a physical transfer from Tom and Helen's bank account(s) to a bank account in Basil's name. 4. As per discussions, Basil Berrigan is to transfer the same $3,000,000 to Puddy Trust as a loan from Basil.
The accountant's instructions appear to have been directed to recognising the separate entities of Bryzer, its shareholders Thomas and Helen Berrigan, Puddy and Basil, which appears to have been overlooked in the gifts referred to earlier. The funds transfers had to be reversed and done properly. Andrew Teece says that Thomas did not follow this advice and, instead, closed several bank accounts and term deposits directly into the Puddy Trust. Whether these are the transactions referred to at [38] and [42] or further transactions was not clear.
The financial statements for the Puddy Trust as at 30 June 2012 recorded loans owed to the Berrigan Trading Trust of $2,030,403.64 and to Basil Berrigan of $3,191,573.35. According to Andrew Teece, the loan from the Berrigan Trading Trust of $6,273,040.90 recorded in the 2011 financial statements (see [45]) had, by Thomas' closing of terms deposits and paying money directly to the Puddy Trust, effectively become the loans recorded in the 2012 balance sheet by the Berrigan Trading Trust and Basil. Andrew Teece also said that he expected that the loan by Basil to the Puddy Trust of $3,191,573.35 was related to the $3 million dividend declared by Bryzer, referred to in the letter of 21 June 2012.

[16]

Construction begins

In June 2012, construction began. Given his years of working with Thomas, Mr Churcher understood that Thomas trusted Mr Churcher's decisions but he nonetheless continued to seek Thomas' approval in relation to more substantial matters. Thomas often asked for Mr Churcher's opinion on these issues and followed his recommendation. Joel worked with Mr Churcher, including attending morning site meetings and, at Mr Churcher's direction, attended to various building, supervision and administrative tasks.
Thomas, Helen, Joel and Mr Churcher shared a house in Wagga during construction; Puddy paid the rent. On 29 July 2012, Thomas added a further special condition to Mr Churcher's contract, providing that Mr Churcher was responsible for his transport and living away from home expenses. Basil says that he also stayed at the house when he was in Wagga. Basil says between August 2012 and June 2013, he went to Wagga every three to four weeks and stayed at the house. Joel disputed this.
On 15 June 2012, Thomas made some notes calculating Joel's cost of living in Sydney, what Joel would save if he moved to Wagga and the rent he could earn on his Sydney home. Joel did some calculations too: Joel needed to earn $62,000 a year to cover his expenses. Both notes are consistent with Thomas and Joel discussing how much money Joel needed to receive while working on site in order to get by. Consistently with this, from 1 July 2012, Joel began to make regular drawings from Puddy of some $1,500 a week. According to Joel: it was insinuated to me by Tomo as a business lesson that I would have to repay that money to the business. So, I said to Tomo that I can't live off this money and repay the money that has been forwarded to me, so he proceeded to fix that up.
According to Joel, Thomas did not ultimately ask for the money to be repaid. Thomas also assured Joel that when the hotel began operating, things would be different. Joel says he was not aware at the time that he held shares in Puddy nor how he would be remunerated for his work; he just knew that Thomas would look after him. At one point, Joel told Mr Churcher that he was quite strapped for money, which prompted Mr Churcher to ask Thomas whether Joel was being properly remunerated. Thomas said, "Mark, don't worry about Joel, he will be looked after".
In September 2012, Basil obtained legal advice from a solicitor regarding application for a liquor licence for the hotel. Joel obtained quotations for televisions, mattresses and window pelmets.

[18]

Moving towards fit out

On 8 October 2012, Basil flew to Hong Kong to buy suitable products for fit out. Basil was assisted by his brother Tony. In response to a supplier's suggestion that they could save the project $1 million on fit out, Thomas replied in a handwritten letter, Basil was always responsible and was appointed to attend to fit out. Examine his record on fit outs. [After listing seven fit-outs done by Basil and awards received]… Why would we look to you for fit out when Basil achieved outstanding results shown above and always under budget? Joel suggests that Thomas and he "redrew" Basil's designs and their revised drawings formed the basis of the order. The drawings do not indicate their authors. Mr Churcher recalled that Basil handled the procurement of fit out material while Joel and Mr Churcher handled the physical placement of the fit out materials. I think it is more likely that Joel over-stated his role and diminished Basil's contribution to the project.
In October 2012, Mr Churcher and Joel obtained a quotation for the installation of partition wall and ceiling linings for the project, totalling some $700,000. In November 2012, Basil obtained another quotation for plasterboard for some $600,000. It appears that Basil's cheaper quotation was accepted and, on an invoice rendered in February 2013, Joel is mentioned as the contact person. Basil says that he negotiated the best available prices with tradespeople to carry out the construction of the hotel. Basil pointed to five contractors in particular where he considered that he had achieved savings in trade costs. Certainly, it seems that Basil was involved in obtaining quotations but, overall, it seems more likely that Mr Churcher bore the brunt of this task: see [49].
In November 2012, Thomas obtained insurance for the contract works. In December 2012, Basil obtained quotations for air conditioning. Joel obtained a quote from painters and accepted the quote for air conditioning. In January 2013, Basil obtained further legal advice in respect of the liquor licence. Joel obtained a quote for tiles and tiling. Thomas continued to pay and dispute invoices. In February 2013, Basil obtained a quotation for curtains and soft furnishings. Basil refined the furniture order, modifying quantities and clarifying descriptions. Mr Churcher recalled that Basil handled the procurement of the lift, while Joel and Mr Churcher handled oversight of the contractors on site.

[20]

Thomas steps down

On 18 April 2013, Thomas and Helen ceased to be directors of Puddy. Thomas says they did this to reflect that they were handing over the family business to Basil and Joel. Thomas said in his affidavit, After ceasing to be a director I had very little involvement in the management and decision making concerning the Hotel. Consistent with this, communications involving Thomas do 'drop off' as construction drew to a close and the hotel began to operate, consistent with Thomas having some involvement with construction but little involvement with hotel operations. On 10 May 2013, a liquidator was finally appointed to Bryzer in a members' voluntary winding up.
On 1 May 2013, the Commonwealth Bank approved $3.5 million construction finance for Puddy. The letter of offer was addressed to Basil, Thomas and Helen and accepted by Basil. Basil executed a mortgage on behalf of Puddy in respect of the loan. Basil also gave a personal guarantee. On 30 May 2013, Joel accepted a quotation in respect of doors. Joel obtained a quote for benchtops, which he forwarded to Basil. Joel accepted a quote for beds. Joel obtained a quote for stairs, which he accepted. Joel pressed the plasterers to finish.
By 30 June 2013, the balance sheet for the Puddy Trust recorded that Netbas had lent $981,295 to Puddy. The construction finance had also been drawn down by $958,701. In addition, Basil's loan account stood at $5,924,932 while Joel's stood at $414,900. According to Andrew Teece: … this relates to the remaining dividends declared by [Bryzer]. As mentioned before, the transactions were not [e]ffected as we would have ideally liked, and we have prepared accounting journal entries to reflect Tom and Helen's wishes.
As I understood this evidence, notwithstanding that Thomas did not take the steps recommended by the accountants, the accountants recorded the transactions as if he had. In any event, according to Andrew Teece the loan from Basil to the Puddy Trust was effectively the money paid by Bryzer into the bank account of the Puddy Trust. The same could be said, I gather, for the loan from Joel to the Puddy Trust.

[21]

Opening the hotel

Until May or June 2013, Mr Churcher was at the site most of the time. According to Mr Churcher, Basil was not often on site and, on occasion, his presence caused difficulty such as when Basil asked employees to "bundy on bundy off". The contractors were unhappy with the introduction of this system and were not happy taking direction from Basil. Some of the contractors complained to Mr Churcher that Basil had "no idea". Basil defends introduction of this procedure as there was then nothing in place to monitor the days and hours worked by contractors. Wages were being paid from the bank account of the Arncliffe hotel and Basil was keen to keep control of finances. According to Basil, his father approved of this system as it made wages easier; none of the contractors complained to Basil about it.
In June 2013, Mr Churcher went to hospital for a medical condition. In July 2013, products for the fit out of the hotel arrived from overseas and Joel dealt with a supplier of granite for the reception. On 2 July 2013, Joel had a seizure and was admitted to hospital for about eight days. After discharge, Joel rested for some ten days before returning to the site on 18 July 2013. Basil says that, from June 2013, he lived at the International Hotel full time during the working week, returning to home in Sydney for weekends. Whilst at the hotel, he opened the site, closed the site and acted as security. For about a month, Basil supervised workers on site and, due to Joel's health, Joel did not participate other than in a minor way with fit out and final preparations for opening. Basil says he interviewed and hired staff with the assistance of Joel's wife, who had worked as an event and business development manager for a Sydney hotel reception venue. Accommodation management software was arranged: Basil says he purchased this and other software for the hotel to commence operations; Joel says that he came across the software when working with his mother and Helen in Maitland and recommended it to Basil, who adopted it at the Arncliffe hotel. I think it more likely that Basil was across these aspects of hotel management at the time, if it matters.
In the months before the opening of the hotel, Thomas told Helen and Basil that he wanted Joel to be the operations manager for the hotel and each agreed. The hotel had a "soft opening" on 16 September 2013. According to Basil, all rooms were not complete and the bar was not operational; the purpose of the soft opening was to identify and eliminate "bugs" in the system. A local attraction, Henty Machinery Field Day, was also on from 17 to 19 September 2013. Joel says that Thomas chose that date for the soft opening and Basil was not there. However, according to Basil's mobile phone records, he was in Wagga from 9 to 19 September 2013 and it is inherently likely that Basil, as the major shareholder and an experienced hotelier, was there for the opening.
As completed, the International Hotel has 80 guest rooms with en suites and is rated 4 ½ stars. It has conference and function rooms for hire, a restaurant and bar and an alfresco area. There is parking for 120 cars. Joel holds the liquor licence. The customers of the hotel are mainly corporate, including medical staff for the local hospital, visitors to a university and military base. The leisure market is usually for weekend accommodation. According to Andrew Teece, total construction costs were $6,890,356.84 plus plant and fit out of $1,556,380.91. Of this, $6 million was effectively funded by Bryzer, while the balance of the funds came from construction finance.
According to Thomas' affidavit, Joel took on the key responsibilities for the building works. Joel engaged contractors, supervised their work, ordered materials and managed the budget (excellently). Whilst Thomas was no doubt proud of his grandson's involvement in the project, Thomas' description of Joel's role exceeds what the contemporaneous documents reveal and Mr Churcher's description.
After the soft opening, Basil sent an accountant employed by the Arncliffe hotel to Wagga to train the bookkeeper. Staff rosters commenced from 9 October 2013. Joel's wife was rostered on for five days a week until the end of the year. Joel did not appear in the rosters. Joel and his family lived on-site. Thomas and Helen lived in a granny flat house on the grounds of the hotel. Joel was then 27 years old.
Joel agreed that, before the hotel opened, he had never managed a hotel. Basil believed that, due to Joel's relative inexperience, Joel needed mentoring from Basil and Thomas on the finer points of operating and managing a hotel. Basil says that he dedicated considerable time to teaching Joel how to manage the business of a hotel and introducing Joel to his network of consultants, suppliers and professional advisers. Basil regarded himself as Joel's mentor. Basil had no doubt that Thomas and Helen also provided mentoring assistance to their grandson, for whom they held great affection. Joel denied that Basil provided him with any mentoring at all.

[22]

Crow Inn

Andrew Teece advised that a separate entity be incorporated to run the hotel business and lease the land from Puddy. In about December 2013, Basil told his father this and Thomas suggested that they call the company "Crow Inn" as Wagga Wagga is known as the place of many crows. Basil told his father that Joel and he would be the directors of the company. Joel says he had no direct involvement in the incorporation of Crow Inn, and I accept this. While the defendants suggested that the incorporation of Crow Inn was a contrivance by Basil, it was not suggested to Andrew Teece during cross-examination that the incorporation of Crow Inn was Basil's idea and it appears to have been an unremarkable event.
On 13 December 2013, Crow Inn was incorporated. Basil and Joel were appointed directors. The 100 ordinary shares were issued to Basil (70 shares) and Joel (30 shares). Basil says he agreed to the allotment of 30% of the share capital to Joel in recognition of Joel's role as general manager. The constitution of Crow Inn, again, adopted the replaceable rules in respect of the quorum required for both a meeting of shareholders and directors' meetings.
In May 2014, Joel received an award at the Wagga Business Chamber's Awards evening. A newspaper article, "International Hotel owner humbled by Crow Award win" reported: Mr [Joel] Berrigan paid tribute to his uncle, mentor and business partner, Basil Berrigan, for his guidance and support in getting the hotel up and running … In his affidavit and during the hearing, Joel agreed he said this at the time but disclaimed the accuracy of his statement. However, it seems from a review of the contemporaneous documents that Basil played a large part in getting the hotel up and running when Joel had little or no relevant business experience. Basil said that Joel was a deserving recipient of the Crow Award but also said that his contribution was correctly acknowledged by his nephew at the time. I agree.
In 2014, Joel's wife was rostered to work for the first two weeks of the year only, then three days for a function in July and four days "on call". Joel was rostered on for a wedding expo in August. They were rostered "on call" for seven days between them in August and September.

[24]

Shareholders Agreement

According to Joel, Thomas raised the idea of entering into a shareholders agreement. Some litigation had ensued after the sale of the Maitland hotel, "so Basil suggested that it wasn't a good idea that we have another Maitland situation. So, that was kind of concurred between them two …" Joel also agreed that he was becoming concerned about the amount of work he and his wife were doing as opposed to Basil, and their living conditions on site, and Thomas "said that he would attend to it." Thus, on Joel's evidence, a shareholders agreement was suggested by Thomas, either due to past experience or Joel's concerns raised with his grandfather.
According to Basil, in about February 2015 Joel said he was not happy with their current arrangement as he was not making enough money and needed to be compensated appropriately for his role as manager. While Basil said that Joel received dividends from profits, he agreed to talk about it and asked what Joel wanted. Joel said he wanted an agreement to be prepared to document their rights and obligations as directors and shareholders. Basil agreed to have a meeting and to speak to Andrew Teece and Gordon Bryant to prepare a draft agreement. Joel disclaimed he had financial concerns, I had no reason to be concerned about money. I never had been. … my main concern was my family, nothing to do with money.
In about April 2015, according to Andrew Teece, Thomas was removing himself from decision-making. Until then, Thomas was effectively "calling the shots" in respect of trust distributions; Andrew Teece said loan account transactions probably took place with Thomas' oversight as Thomas had effective control of the structure until the end of the 2015 financial year.
On 20 April 2015, Andrew Teece met with Basil and Joel. Andrew Teece described it as an open discussion with both Basil and Joel stating their requirements of each other. Following the meeting, Andrew Teece forwarded a file note, "Puddy & Crow Inn profit share and split", which recorded: BB and JB were in to discuss a number of things in relation to the operation at Wagga. Items discussed and agreed upon were as follows: • Need to prepare a Heads of Agreement relating to the operation, including the following clauses: • Exit strategy • First right of refusal • Valuation method • Action if one party passes away or becomes incapacitated • Profit share of Trust is in line with the shareholding of Puddy Pty Ltd - but BB and JB decide which of their entities the relevant % is to go to • There should be a general tidy up of Puddy Trust, including • Repay Loan from Netbas Trust which is ̴ $1m • Transfer further 10% shares in Crow Inn Pty Ltd from BB to JB, taking share split to BB 60% and JB 40% • BB to advise what date the share transfer is to take place • Transfer $1m of BB's loan to Puddy Trust across to JB - thereby reducing how much Puddy owes BB, and increasing how much Puddy owes JB • Operational matters were raised: • Managers residence allocation to be taken up in Puddy for 2015 and allocated to JB's loan account • Nursery staff member to be reconsidered • Appointment of an external manager should JB and RB [Joel's wife] decide they need the assistance or a break. BB & JB to determine how this is treated at a later date • The following commitments were made by JB in relation to the motel in the upcoming years • JB will stay in Wagga running the motel for 5 years • Prior to JB making any final decision relating to moving off-site to live he will consult BB • JB indicated that he is happy to assist in the training of Tom Jnr and Will
Andrew Teece was cross-examined extensively about his file note. Mr Teece said that the reason why the transfer of a further 10% of Crow Inn shares from Basil to Joel and transfer of the $1 million loan balance were recorded in separate bullet points from that concerning a heads of agreement was "because it was a separate issue that was discussed at the meeting". Andrew Teece says that Basil raised both the share transfer and the transfer of the $1 million loan account, without any explanation as to the reason for either. The fact that Mr Teece remembered this so clearly five years later is a little surprising. Andrew Teece's evidence is also inconsistent with Joel's understanding of what was agreed at the meeting. Q. - … you understood from what Basil told you that your commitment to him to manage the hotel for five years was necessary in order for you to become entitled to the $1 million transfer. A. At that meeting, yes.
I am reluctant to place too much weight on Mr Teece's evidence in respect of the precise manner in which this meeting unfolded, or the separation between particular items discussed. The meeting occurred five years ago. However separate these issues may have been in an initial discussion, this was not the end of the matter but the starting point in the documentation of an agreement between the parties. In ascertaining what was agreed, regard must be had to the Shareholders Agreement as executed and, if it is necessary to do so, the pre-contractual documents which led up to it. See further at [99].
Basil was also cross-examined at length on the file note, being someone else's file note. This cross-examination did not advance matters. Basil said his purpose in making the $1 million payment conditional on remaining general manager for five years was to create certainty for hotel operations. Basil denied telling Joel that this was what Thomas wanted, "It was what I was prepared to do as part of a commercial arrangement with Joel". Basil denied any pre-existing agreement with Thomas to pay Joel $1 million without condition, "This was my agreement with Joel and was not influenced by my father".
After the meeting, Andrew Teece discussed the matter with his father, Philip Teece, who suggested that Joel also be appointed a director of Puddy. Basil took Andrew Teece's file note to Gordon Bryant and instructed him to prepare a draft agreement incorporating the matters contained in the file note. On 19 May 2015, Gordon Bryant sent a draft Shareholders Agreement to Andrew Teece and Basil, noting: We enclose a copy of a draft agreement prepared on Basil's instructions … We note that the agreement essentially involves a payment by Basil to Joel pursuant to which Joel will remain in the position of Manager and will continue to run the business; plus a transfer of 10% of Basil's shareholding in Crow Inn to Joel, presumably as part of the same arrangement. Andrew Teece's input was sought.
On 21 May 2015, Puddy repaid the loan from Netbas, being one of the matters discussed on 20 April 2015. On 24 May 2015, Basil flew to Wagga. He met with his parents and gave his father a copy of the draft Shareholders Agreement for him to look at for discussion the next day, when Basil and his father met again over coffee. Thomas gave Basil a copy of the agreement with handwritten notations. The recitals to the draft agreement noted the current shareholdings of Basil and Joel in Puddy and Crow Inn and the different roles performed by each company. Thomas says in his affidavit that he did not become aware of the existence of Crow Inn until 2018. However, on reviewing the draft Shareholders Agreement, Thomas would have been aware of Crow Inn and the differing shareholdings of Basil and Joel in Puddy and Crow Inn by, at least, May 2015. To that extent, his affidavit is incorrect.
The proposed operative clauses of the agreement provided (with Thomas' handwritten comments [marked]): 1. BB shall sign all documents and do all things necessary to transfer 10% of his current shareholding in Crow Inn to JB upon the execution of this agreement. 2. BB will pay from his loan account with Puddy an amount of $1,000,000.00 to JB's loan account in the same companies 3. In consideration of such transfer and payment JB shall:- (a) remain as Manager of the business in Wagga Wagga for a minimum period of 5 years from the date of this agreement; (b) assume full personal responsibility for all fringe benefits tax in relation to his management of the business and in particular shall pay any nursery expenses incurred for his children and such expenses shall not be paid by either Puddy or Crow Inn; (c) take all steps necessary to arrange a Relief Manager and to pay from his own funds any fees or wages to such Manager if JB takes leave; [out] (d) not take leave from his Managerial role without prior consultation with BB; [the usual periods of leave and/or rest apply] (e) provide to Thomas Joseph Berrigan and William Robert Berrigan any tuition or training required for them to participate in the business during the 5 year period following the signing of this agreement. [Provided [they] follow instructions of [Joel] and meet accepted standards of performance and do nothing to harm the business]
Basil says he told his father that he did not have a problem with deleting clause 3(c) but did not agree to the proposed addition to clause 3(e). Basil says he drew his father's attention to the clauses which made the transfer of the $1 million loan account to Joel conditional on him remaining general manager for five years and abiding by the other conditions. Thomas is said to have agreed with this proposal, including because, if Basil gave Joel $1 million all at once, Joel may waste it. According to Basil, Thomas said Joel should have enough money to live on with dividends and trust distributions, particularly as he would be saving money on rent and food by living at the hotel, and, at the end of the five years, Joel would have a "nest egg" to invest.
Whilst I do not necessarily accept that Thomas said all of this, the conditionality of the share transfer and transfer of the $1 million loan account balance was clearly stated in the draft agreement which Thomas reviewed. Thomas appears to have had his grandson's interests firmly in mind and suggested some amendments, but made no amendment to the opening words of clause 3. It is likely, therefore, that Thomas considered that the proposed agreement was appropriate.
Thomas spoke to Joel about the draft agreement. According to Joel: Q. You had in fact spoken to Tomo about the terms of the agreement before you signed it, didn't you? A. No. He did mention to me that he thought it was a bit ludicrous that I would work and then if I went away that I would have to pay for relief managers. He did mention to me that it was grossly unfair, but … we never discussed anything in detail. Of course, Thomas struck out the "grossly unfair" clause 3(c) but not the opening words of clause 3.
On 25 May 2015, Andrew Teece separately provided his comments on the draft agreement to Basil and Joel. In respect of clause 3, Andrew Teece suggested a further sub-clause be added, should Joel wish to move his residence off-site. Various other suggestions were made, including that Joel be appointed as a director of Puddy. Andrew Teece concluded, "From my perspective, that is all I can see". If Andrew Teece's recollection on the meeting of 20 April 2015 is correct, it is unclear why he did not raise it when he reviewed the agreement with the benefit of Mr Bryant's cover letter (at [93]). The agreement was short. It was simply drafted. The conditionality of the share transfer and transfer of loan account balances was not hidden in the detail or a footnote. It was front and centre. There are two possibilities: either Andrew Teece did not notice the obvious at the time and failed, despite several opportunities, to point it out, which I doubt; or Andrew Teece's evidence given five years later is less accurate than documents created at the time and the inherent likelihood which these documents suggest.
On 29 May 2015, Mr Bryant provided a second draft to Andrew Teece and Basil. On 4 June 2015, following a further meeting with Basil, Andrew Teece requested further amendments, including to delete clause 3(c) - consistent with the notation made by Thomas - together with several amendments concerning the right to buy-out Joel in the event of non-cooperation. Thomas' proposed amendments to clause 3(d) and (e) were not adopted. On 11 June 2015, Mr Bryant circulated a third draft to Andrew Teece. On 12 June 2015, Andrew Teece met with Basil and Joel and, on 15 June 2015 requested further changes, "That is about [all] Basil and Joel came up with in our meeting last week …". On 17 June 2015, Mr Bryant send a fourth draft to Andrew Teece. On 25 June 2015, Crow Inn paid a dividend of $150,000 to Joel, commensurate with his 30% shareholding. Basil received a dividend of $350,000.
On 7 August 2015, Andrew Teece sent a fifth draft to Basil and Joel, asking them to sign if they were in agreement so that the share and loan account transfers could be effected. Andrew Teece says no further amendments to the agreement were requested; no amendments were requested by Joel at all. Joel denied that he understood that he was free to propose any amendments to the Shareholders Agreement that he wished, "No, it was not in family protocol for me to get involved in matters that were above my pay rate in the family." On more than one occasion before the agreement was signed, Andrew Teece told Joel that he should obtain independent legal advice before signing the agreement, which Joel says he "took as an act against the honesty of Basil and my grandfather which I didn't appreciate". Joel says that he did not get legal advice as he thought that his uncle was acting in his best interests and Joel would not need to question his integrity. I expect that Joel knew that his grandfather had reviewed the document and sought amendments where appropriate and that was good enough for Joel.
Whilst Joel agreed that Thomas knew of the draft Shareholders Agreement, he denied seeking Thomas' view on the document before signing it. I never seek Tomo's views about the agreement because his distaste to matters that'd happened in Maitland which were of a very sensitive nature to him because of how it affected his wife, so I just let a dead dog lie, and just leave it up to Basil and Tomo to [nut] out what they thought was appropriate which I have no doubt would of happened. This answer was improbable and I do not accept it. I think it is more likely that Joel left it to his grandfather to review the draft agreement and negotiate whatever changes were thought necessary to protect Joel's interest. Thomas did so and, likely, told Joel that he had done so. I have no doubt that Joel spoke to his grandfather before signing the final document.
The Shareholders Agreement in final form exhibited a degree of informality and imprecision consistent with family dealings. Notwithstanding a range of amendments which had been made to the recitals and operative clauses, the core bargain remained as originally stated and reviewed by Thomas: Basil would transfer 10% of his shares in Crow Inn to Joel and pay $1 million from his loan account in The Puddy Trust to Joel's loan account and, "in consideration of such transfer and payment", Joel was obliged to remain as manager at the hotel for a minimum of five years from the date of agreement. Further, Basil agreed to do all things and sign all documents necessary to appoint Joel as a director of Puddy; clause 11.
It was suggested to Joel that this was a very good deal for him, then aged 29 with no previous experience in managing a hotel, to be guaranteed $1 million and 40% ownership of the business in exchange for agreeing to work as general manager for five years. Joel's response to this proposition was non-responsive and evasive, being ultimately that he had no choice in the matter. Joel disclaimed any particular interest in the $1 million, and maintained his motives were altruistic. It was nothing that I sought to get. It's nothing that I asked for. … money was never a motivation for me. I moved to Wagga because my grandfather asked me to build a hotel for him. Joel's suggested disinterest in money, when viewed against the evidence as a whole, was unlikely.
It was suggested to Basil that, under the Shareholders Agreement, Joel was not going to receive any wages or salary for five years, Well, no, that's not correct because he received dividends and profits from the operation of the business. … It's a family business and the structure of the family business is that you're rewarded by the profits. The family culture appears to have been that family members with an interest in a hotel development were not paid wages as employees but made drawings against their loan account and, in due course, received dividends and trust distributions. Thomas and Helen had worked this way, which Joel agreed he knew, and Basil and his wife told Joel that they had done so as well, although Joel denied any knowledge about Basil's financial arrangements. The structure of the Shareholders Agreement, thus, appeared to follow something of a family tradition and recognised that Joel's role at the International Hotel Wagga Wagga was not just an employed general manager but a co-owner.
Andrew Teece witnessed Basil's signature of the agreement. Basil took the signed agreement and gave it to Joel to sign but Joel did not sign it straight away. As to the circumstances in which Joel signed the Shareholders Agreement, Basil said that in late August 2015, Basil was at the hotel and met with Joel in the back office and discussed hotel operations generally. During the meeting, Joel said that he had the agreement upstairs but would get it and sign it. Joel signed the agreement in the presence of an employee who worked in the office. Basil was also present. Basil took the signed agreement back to Sydney and gave it to Mr Bryant.
In his first affidavit, Joel said that in 2015 Basil presented him with the document and told him that Crow Inn was to keep separate the operating business from Puddy as asset owner; shares in the company were split between them 30:70 in Basil's favour; and, if Joel signed the document and agreed to work for another five years at the hotel, Basil would transfer $1 million to his loan account and give him an extra 10% shares in Crow Inn. "He told me this is what Tom wanted. On this basis, I signed the document". Obviously enough, Joel's initial version of events was inaccurate, no doubt in part due to the urgent circumstances in which that affidavit was sworn.
In later evidence, Joel said that Basil called him a number of times and "demanded" that he execute the Shareholders Agreement. Basil came to the hotel when Joel was working behind the bar and said, "You now need to stop being so ungrateful and just shut up and sign the document. You haven't put a dollar into this hotel and you are getting all this for nothing. You have just come along, and Thomas and I have let you in, you need to be grateful for what you have here - you have only contributed sweat equity and now part-own a hotel". Whilst Joel's evidence is likely an exaggeration, I expect there is an element of truth: the preparation of a Shareholders Agreement had begun in April 2015 and it was now four months later. Following the initial meeting, five drafts of the document had been circulated, comments sought from Philip Teece and Thomas, and a further meeting held with Basil and Joel. Basil was probably impatient to finalise the matter.
Joel said he signed the Shareholders Agreement as he thought that was what his grandfather wanted. "I signed that document and I threw it in a file, never looked at it again". Joel denied that he understood that, once he signed the Shareholders Agreement, it would be legally binding. This seems unlikely, given the involvement of a solicitor in the drafting process and the protracted series of amendments to the document.
On 11 September 2015, Mr Bryant advised Basil that he now held the original Shareholders Agreement executed by Joel. Basil then transferred 10 shares in Crow Inn to Joel, and Joel transferred one share in Puddy to Basil. Joel asked Andrew Teece why he was transferring one share to Basil and was told that this represented a true 60:40 split. It is thus apparent that Joel was able to, and did, seek accounting advice when he thought he needed it. Joel was also appointed a director of Puddy. Basil's shares in Crow Inn were later transferred to Basil's family company, Netjay as trustee for the Wiltom Trust, whilst Joel's shares in Crow Inn and Puddy were transferred to his family company, Phatso as trustee for the Tizou Trust.
Although the share transfers were dated 1 July 2015, and Joel's appointment as director was effective from 1 July 2015, these events did not happen until much later, likely April 2016. On 17 April 2016, Andrew Teece made a journal entry dated 1 July 2015, transferring $1 million from Basil's loan account with Puddy to Joel's loan account. Mr Teece explained that the share transfer was recorded as having taken place on 1 July 2015 so that the retained profit balance in Crow Inn as at 30 June 2015 could be determined and a dividend declared in the previous share split of 70:30 to reduce the retained profits to nil and then commence on 1 July 2015 with the new share split.
Basil and Joel also executed a lease of the hotel by Puddy to Crow Inn at an annual rent of $500,000 plus GST for five years plus four options of five years each. Although the lease commenced on 1 January 2014, Joel signed as a director of Puddy. As he did not become a director of Puddy until late 2015 or early 2016, it seems likely that the lease was not executed until then.

[25]

Running the hotel

By the end of 2015, Basil considered that Joel understood how the business ran. Until then, Basil says that Joel relied heavily on the experienced staff recruited to work at the hotel. Joel says that Basil had little or no involvement in the management and operation of the hotel; Thomas and Helen answered Joel and his wife's questions about management and operations. He and his wife had monthly business meetings with Thomas which Basil did not attend. According to Joel, "Thomas taught me … how to prepare and assess data spreadsheets", which seems unlikely as Thomas was strictly a pen and paper man.
According to Andrew Teece, Thomas was not involved in day to day operations, "That was generally done by Joel with the oversight of Basil". I prefer to accept Andrew Teece's description of how the hotel was run. I do not doubt that Joel asked his grandparents for guidance from time to time, and they were no doubt happy to assist him, but Thomas' own description of his role should not be forgotten: after ceasing to be a director of Puddy in 2013, "I had very little involvement in the management and decision-making concerning the Hotel". Thomas' description of his role is consistent with the contemporaneous documents. Joel's wife appears to have had considerable experience in the hospitality industry and was no doubt also an asset to the business.
In 2015, Joel's wife assisted with a three day function in July. Joel assisted with the opening day for an expo for a day in August. Joel's wife was on call for seven days and Joel was 'on call' for four days. Joel and his wife worked together in the evening for seven days in December. In 2016, Joel and his wife were rostered on for one day for an expo in January, then for a total of five days over the period from February to March, then another night in October. On Christmas Day 2015 and Christmas Day 2016, Basil says he worked behind the bar to save wages. Joel denies this.
In 2016, Basil says he had a meeting with Thomas and Joel. Joel asked that his wife be paid wages. Basil replied that Joel was receiving generous benefits by way of dividend in addition to the $1 million, free rent and food and, notwithstanding that the Shareholders Agreement specifically stated that Joel would not be paid nursery expenses for a nanny, he had taken these expenses nonetheless. Basil said that he did not think that Joel's wife was entitled to wages as well. Joel objected, "[My wife] doesn't get paid so we either have to pay [my wife] or pay for the nanny because [it] is unfair on us". No agreement was reached. Joel says that Basil later sought repayment of the nanny's wages from Joel, who thought that Thomas and Basil were sorting that out.

[26]

Thomas' note of November 2016

According to Joel, in August 2016 he provided a copy of the Shareholders Agreement to Thomas in connection with discussions then on foot with Basil about buying another hotel in Wagga. The next day, according to Joel, Thomas asked why Joel had signed the Shareholders Agreement saying, "You should have checked it with me first". According to Joel, Thomas said: I did not know what was in it. The $1 million was a gift to you and was without condition. ... That $1 million was your right for all of the sacrifices that you have made and as for this 10% rubbish … you can leave whenever you want, you don't have to stay for five years to get what you're entitled to. We have always had an agreement that it would be a [60/40] split between you and Basil. … In respect of the 10%, Basil has out-manoeuvred you. If Thomas said this, then he had forgotten having reviewed the draft agreement 15 months earlier. In any event, according to Joel, Thomas said that he would sort it out with Basil.
On 19 November 2016, Thomas wrote a handwritten letter addressed to Basil regarding the Share Agreement. Whether Thomas sent the letter to Basil was not stated in Thomas' affidavit and should not be assumed. Dear Basil You will recall I spoke to you Re Agreement Joel and Basil and "OPERATIVE PARTS", 2. and 3. The transfer of $1 million from Basil to Joel's loan account should be without condition. We agreed between Tom and Basil that I would pay the $1.5 million Tax Payable by Bryzer and you in turn would transfer $1 million to [Joel's] loan account in Puddy. No conditions against JB were discussed. The fact is you were to return the whole [?] $1.5 million the amount Paid in Tax Acc (Bryzer P/L) but I allowed you $500,000 waiver. Any agreement between yourself and Joel should not rely on the above Transfer of $1,000,000. The transfer was Joel's RIGHT. I was disappointed to read conditions placed on JB in relation to the $1 m transfer when it was to be an unconditional Transfer to Joel. Having reviewed each of Thomas' handwritten letters - to Council, consultants, suppliers and banks - none have portions struck out. The fact that the first line of this letter is crossed out may indicate that it was a draft.
As to the substance of the letter, it will be noted, first, Thomas had seen the draft Shareholders Agreement 18 months earlier, which stated that transfer of the $1 million loan account to Joel was conditional. Presumably, he no longer recalled this. Second, the $1.5 million tax was paid in 2013, some two years before the Shareholders Agreement was negotiated. Third, there are no contemporaneous records in 2013 which suggest that it was proposed that Basil establish a $1 million loan account in Joel's name, nor is it clear what "waiver" Thomas is referring to.
Joel says that Thomas gave him a copy of the 19 November 2016 letter, and he left the issue to be handled by Thomas. Joel says he did not feel that he was able to be involved in decisions in respect of the share structure or what funds were to be given to him as those decisions had all previously been made without his involvement. To the extent that Thomas was referring to matters which occurred in 2013, I accept Joel would have taken such a view.
According to Joel, in late 2016 or early 2017, Thomas reported that he had been unable to reason with Basil in respect of the Shareholders Agreement. If Thomas had raised such a matter with Basil, then I would not be surprised if Basil had rejected the propositions contained in the letter of 19 November 2016. More likely, Basil says he did not see the handwritten letter until it was provided to him on March 2019 after a without prejudice meeting and, as considered further at [144], this is likely true.

[27]

Wages too high

In January 2017, Helen Berrigan passed away. Joel says that he had been splitting his time between managing the hotel and taking care of his grandmother during a serious illness. As a result, Joel says he placed greater reliance on employees and could not work as many hours as before.
In April 2017, Basil met with Joel and suggested that wages were too high. Basil said that Joel needed to be 'hands on' and present in the business and to manage staff more effectively. Basil noted that the turnover from the restaurant was only breaking even and he believed there was potential for the kitchen to operate more effectively. Basil also expressed concern about the sales figures for liquor and beverages compared with the cost of goods sold. The margin enjoyed in 2016 had dropped in 2017 by some $43,000; Basil appears to have been concerned that some of the revenue was not being accounted for.
On 12 April 2017, Andrew Teece sent Joel a spreadsheet to review for discussion. Joel expressed concern that Basil was raising matters with Mr Teece without him. After setting out his thoughts on wages and profitability, Joel asked: Please file this email as in the agreement if for any reason the two parties cannot work together basil can opt to sell or buy out JB. Sorry but I fear he may try to remove me on grounds that I am not performing my duties which is far from the case. [N]o more meetings … [c]an take place without me present as our agreement puts me in a place of conflict if I get pulled into meeting with no info which he has Joel was obviously aware of the provisions of the Shareholders Agreement. His working relationship with Basil was also exhibiting signs of tension.
On 20 April 2017, Joel sent an email to Basil noting he had sat down with a staff member and come up with ways to cut costs in the kitchen; Basil's thoughts were requested. Joel did not respond regarding the drop in liquor sales as he considered this was potentially attributable to promotions being run at the hotel and he had previously told Basil about these promotions. Basil agreed that Joel acted on his suggestions and the profit of the business increased accordingly. It appears from Joel's email to his uncle and actions then taken that Joel was responding to the oversight of his more experienced director.
Joel says that he was able to bring wages down by his wife and himself working long hours unpaid. Andrew Teece says that the problem with high wages was resolved by an increase of turnover such that the level of wages as a proportion of sales decreased significantly. Certainly, from October 2017, Joel and his wife's rostered shifts became more regular. They were rostered for over the next seven weeks. In 2018, Joel and his wife were regularly rostered to work at the hotel, generally for six to seven days (sometimes being "on call") then a week or more off. This continued until March 2020, after which Joel and his wife were mostly rostered "on call".
In June 2017, Crow Inn paid a dividend to Basil of $300,000 and, to Joel, $200,000, reflecting their new 60:40 shareholding.

[28]

Another hotel for Joel

On 22 November 2017, Joel agreed to buy a commercial site in Forsyth Street, Wagga Wagga. Two days later, HTZ Investments Pty Ltd was incorporated: Joel was sole director and Phatso was sole shareholder. Basil was not aware of this at the time. Joel said he did not tell Basil "on the advice of my grandfather … Tomo didn't want to upset the family harmony which we hadn't enjoyed for a couple of years …". Although Joel spent Christmas with Basil and his wife, Joel did not tell Basil about the purchase of the hotel, "Tomo instructed me not to". Joel denied that he did not tell Basil about the purchase because he believed Basil would be opposed to him purchasing the Forsyth Street property; this evidence was unlikely.
In February 2018, Thomas Berrigan was diagnosed with leukaemia. In March 2018, completion of the purchase of the Forsyth Street property drew near. On 9 March 2018, Joel had brought Thomas to Sydney to see a doctor; Basil and Joel met for coffee. According to Basil, Joel said he had found a site on Forsyth Street and was going to buy it, "I have made an offer and I think I will get it. I am waiting on them to agree. I am going to build a hotel there". Basil told Joel that he could not do that as it would be in direct competition with the International Hotel and create a conflict of interest. Basil told Joel to withdraw his offer. Joel denied this conversation.
On 12 March 2018, Basil sent Joel a text message attaching a photograph of the Forsyth Street property as shown in local real estate advertisements, enquiring: Joel is this the property you have made the offer on or have you already bought it? Let me know either way.
The local real estate advertisement also displayed the date when the property was sold, being 22 November 2017. It would thus have been apparent to Basil that, not only had Joel made an offer to purchase the property but that offer had been accepted and, further, accepted four months earlier. Joel replied, Yeah they excepted [sic] the offer but they wanted a delayed settlement till the 20th of March, for some reason god knows what could happen
On 15 March 2018, a cheque for $300,000 and a further cheque for $185,000 were presented on Thomas and Helen's Commonwealth Bank account. On 21 March 2018, the Forsyth Street property was transferred to HTZ Investments in consideration for $935,000. Registered on title was a mortgage to National Australia Bank. The amount secured by the mortgage is not known. Joel denied that the cheques drawn on his grandparents' account were used to contribute to completing the purchase of the Forsyth Street property. Joel said the cheques were for term deposits and the money now formed part of his grandfather's estate. Q. Can I suggest to you that those payments were payments that Tomo made to you which you used to partly fund the completion of the purchase of the Forsyth Street development? A. You can suggest that all you like but that's not where that money is. I think that money's sitting in an CBA account now. I would have been more confident to accept Joel's evidence if supported by bank records. Joel said he paid for the Forsyth Street property out of his savings from the International Hotel. If he did so, then it would suggest that the financial and living arrangements in place were such as to enable him to accumulate funds to embark on a new venture.
Joel understated his intention to develop the site, saying that he was initially attracted to the property because of the rental return but agreed that the location for a hotel was "quite good" and he proposed to purchase the property for the purpose of developing a hotel "in due course". It was a long term vision, "It wasn't going to be done in the next five minutes. It was - was a tenanted investment. Tomo always told me that a young bloke with a lot of money in the bank is a waste of time, so I just chose to invest my money. … [Tomo] thought it was a great thing. … We were kind of kicking the can down the road, to be honest. There was no intent to build a hotel immediately.
Joel agreed that, soon after completing the purchase, he took steps to prepare the development application but denied that he intended to pursue the development as quickly as he could. (For simplicity, I will refer to actions by HTZ Investments to pursue a hotel development on this site as Joel's actions.) Q. You were intending to lodge the development application as quickly as you reasonably could after you settled on the purchase. A. Well, it's not a matter of urgency. It's just something I enjoy to do so I did it, yes. Q. You did it because you wanted to make money out of developing and running a hotel on this site. Correct? A. I did it cause DA's are hard to get.
This is at odds with Mr Churcher's evidence, which I prefer. Q. When did you first start doing work on this application? A. To the best of my knowledge, almost straight after [Joel] secured the property. Q. Did Joel express to you that he was eager for the application to be lodged quickly? A. Yes, he had. Yes. Q. Did he express to you that he was eager for you to start work on the application quickly? A. Yes. Q. He wanted the hotel to be approved as quickly as reasonably possible. A. Yes. Q. He wanted the construction of the hotel to commence as quickly as reasonably possible. A. As practically possible, yes. Q. He wanted the construction of the hotel to be completed as quickly as reasonably possible. A. Yes.
Basil came to learn of Joel's purchase of the Forsyth Street property and, it appears, was furious. Basil says this soured his relationship with Joel and he lost trust and faith in him.

[29]

Buy-out notice

On 20 April 2018, Basil issued a notice under clause 6 of the Shareholders Agreement on the basis that Basil and Joel were unable to cooperate in operating the business together. Clause 6 of the Shareholders Agreement provided: If the parties are unable to co-operate in operating the business together then BB may: (i) elect to sell either the freehold and/or the business; (ii) purchase from JB the share of JB in Puddy or Crow Inn. If BB takes action pursuant to this clause he shall obtain valuations for the freehold and/or the business in accordance with the procedure for valuations set out in clause 4(e) above to arrive at a sale price at which the business or freehold is to be offered either to a third party, purchaser or to JB. Clause 4(e) required Basil to obtain three valuations and take the median value.
Basil accepted in cross-examination that the reason for issuing the notice was Joel's purchase of the Forsyth Street property rather than lack of co-operation in the hotel per se. Basil obtained three valuations of the land and business for the purpose of determining the value of Joel's interest in Puddy, the Puddy Trust and Crow Inn. The median valuation was $10.5 million and, pursuant to clause 6, Basil elected to purchase Joel's interest in Puddy and Crow Inn. Given that the end of the financial year was imminent, Basil suggested that the sale take effect on 30 June 2018. Joel vividly recalled receiving this letter, "This is what I was fearful of, yes".
On 29 May 2018, Mr Bryant wrote to Joel more formally, setting out the three valuations obtained and advising, "based on your 40% shareholding in both companies, Basil will pay you $4.16 million as consideration for you to transfer your shareholding in both companies". Joel was encouraged to obtain independent legal advice and accounting advice and to indicate whether he agreed with what was proposed. Joel appears to have heeded this advice and retained his present solicitors.
Joel agreed that he did not want to sell his interest in Puddy or Crow Inn and wanted to stop the sale process. "I was alarmed that Tommo [was] receiving chemotherapy at this stage … I tried to stop it because my grandfather and my two young children would be homeless, yes. … Me and my grandfather were under a tremendous lot of duress at this stage", and Tommo said "it's ridiculous to sell the hotel for that amount of money. …" Basil's notice and buy-out offer did not suggest his father and Joel move out of the hotel, but simply that Basil wished to buy Joel's shares by 30 June 2018 for some $4.16 million. Joel ultimately agreed that there was no risk that he would be left homeless as he owned a house in Sydney: A. Yes, but my thought process at that time - which still is now, that I believe that I would have been homeless because that house was an investment and a crash pad and was never really our family home. We would spend maybe 20 times a year at that house, maximum. Q. Were there any tenants living in that house in 2018? A. No.
In May 2018, Sewell Design issued drawings in respect of a proposed hotel at Forsyth Street. On 7 June 2018, a demolition site plan was issued for client approval. On 12 June 2018, Mr Churcher lodged a development application on behalf of HTZ Investments with Wagga Wagga City Council to build a four storey, 43 room hotel on the Forsyth Street property at a cost of some $5.3 million.

[30]

Rescission of Shareholders Agreement

On 18 June 2018, Joel's new solicitors wrote to Mr Bryant suggesting that the Shareholders Agreement was void for uncertainty, liable to be rescinded by Joel for misrepresentation and that Basil's notice was void and of no effect. Joel demanded that the notice be withdrawn, that Basil instead propose three independent valuers to value the land and business separately and that a different process for valuing the land and business be followed, at the conclusion of which Joel would sell his interest in the land and business on terms reasonably acceptable to him. Legal proceedings were threatened. Joel's solicitor also advised that Mr Bryant should no longer act in the matter. The plaintiffs aptly described this lengthy letter as "a full frontal attack" on the Shareholders Agreement. Joel now seeks to retract his asserted rescission of the Shareholders Agreement: at [251]-[252].
The letter also stated how the Shareholders Agreement had come about, being very different to the events already described at [86]-[110]: We are instructed that the Agreement was initiated by Basil and that an earlier form of agreement ('Initial Draft') was pressed upon our client by Basil, but our client refused to sign the Initial Draft because its terms were manifestly prejudicial and detrimental to our client's interests. We are further instructed that Basil subsequently had another form of document prepared and brought it to the hotel on a day, and at a time, when our client was working at the hotel and again pressed our client to sign the document. On this occasion, Basil represented to our client, among other things, that: (a) Basil had already treated our client very generously in the past; (b) Basil was reducing his percentage interest in Puddy Pty Ltd and the hotel business by 10%, and that 10% equity would be transferred to our client, at Basil's expense; (c) Basil had already paid our client the sum of $1.0m, for which the document provided; and (d) Our client was being mean, by refusing to sign the document. …Our client was not given any opportunity to closely read the document, or to take it away and take independent legal or financial advice regarding its terms … Our client did not obtain any independent legal or financial advice regarding the terms of the Agreement. He should have been directed to do so. … Our client did not have any opportunity to take any advice, or to even read the document, given the circumstances in which it was pressed upon him by Basil and Basil was insistent that our client sign it 'on the spot'.
A portion of the letter clearly drew upon Thomas' handwritten letter to Basil of 19 November 2016 set out at [118]. However, Thomas' letter was neither identified nor attached. This might reflect an appreciation on Joel's part that Basil did not have a copy of the letter and nor did Joel wish to provide it to Basil at that time. Further, whilst the letter from Joel's solicitor of 18 June 2018 prompted Basil and his son to attend at Andrew Teece's offices to ascertain precisely when the $1 million loan account was transferred to Joel, there is nothing in the emails between Basil and Andrew Teece at that time which suggests that Basil was aware of Thomas' letter of 19 November 2016 or, indeed, apprehended what Joel may have been referring to.
Joel said, "this letter was sent in desperation … this letter … is full of a lot of things that I just don't understand … this was the first time that I was aware of the gravity … and weight that [the] agreement held. I didn't know it had such power". Joel agreed that one of the reasons he instructed his solicitors to send the letter was because he wanted to stop the sale process under the Shareholders Agreement, "That was one of the reasons. The other reason was, I think we'd been given two weeks to get out, [an] 86 year old grandfather and two kids under 6 …": see [140].
On 3 July 2018, Mr Churcher stayed at International Hotel Wagga Wagga in connection with HTZ Investments' development application. On August 2018, a traffic study and noise assessment were obtained. In cross-examination, Joel spoke knowledgably about the Development Control Plan and the traffic study supplied in support of the development application. He denied providing the traffic engineer with occupancy rates and car parking utilisation at the International Hotel, "No, I was very conscious not to supply any third party with privileged information." On 24 August 2018, a roof plan and elevations were issued.
On 5 August 2018, Basil and his wife met with Joel and Thomas. On 15 August 2018, Basil's present solicitors advised, "Basil wishes to resolve the matters in dispute amicably and without incurring unnecessary legal costs or the cost and delay of obtaining further valuations". Whilst the legal and factual allegations made in the letter of 18 June 2018 were denied, Basil accepted Joel's rescission of the Shareholders Agreement. Basil proposed that the land be sold with vacant possession and that the lease between Puddy and Crow Inn be terminated on completion of the sale. Basil suggested that the parties mediate before commencement of any legal proceedings and suggested two mediators.
On 18 September 2018, Joel's solicitor rejected Basil's proposal, noting that he had no interest in disposing of the land to a third party, nor disposing of or extinguishing the lease and had no other proposal to put to Basil. Mediation was said to be premature. A series of explanations was sought from Basil in respect of his proposal. On 8 October 2018, Basil's solicitors explained that his proposal was intended to achieve the highest possible sales price and to bring the relationship between the parties to an end. If sale of the land was to take place subject to the lease, then the parties would be obliged to perform that lease and continue to maintain a relationship which had irretrievably broken down. Noting that Joel declined to mediate, Basil proposed calling a general meeting of Puddy and Crow Inn to resolve to sell the land with vacant possession and vest the trusts.
On 18 October 2018, Joel's solicitors replied, observing that whilst the personal relationships between Basil and Joel may have broken down, Joel was able to continue the existing business relationship that was said to have provided workable outcomes for the benefit of Puddy and Crow Inn. Basil's proposed sale was opposed; termination of the lease on sale was opposed; valuation and accounting advice said to support Basil's proposal was requested. On 19 October 2018, Basil's solicitors served a notice of general meeting for Crow Inn and Puddy, to be held on 16 November 2018.

[33]

Going nowhere fast

According to later correspondence, on 9 January 2019, Basil sent an email to Joel inviting him to suggest a solicitor to act on the sale. Joel suggested a particular firm. Basil asked Joel to obtain a fee proposal. No fee proposal was provided. Basil obtained fee proposals from three firms, which were provided to Joel for his consideration. Joel did not respond. Basil said he got the impression that Joel had changed his mind as the process slowed down and Joel took a long time to respond to correspondence. I share that impression.
Following the meeting on 6 December 2018, Basil was to put his argument as to why the company share register was not reflective of the true shareholding position. On 4 February 2019, Basil's solicitors advised that, as the Shareholders Agreement had been rescinded, the parties should be restored to the position they were in before the agreement such that the transfer of shares and loan account should be reversed. On 11 February 2019, Joel's solicitors advised that Joel had received emails from Basil which disclosed communications between Basil and third parties in relation to the sale of the land and business. This appears to have been a reference to Basil's emails to law firms seeking a fee proposal. Joel's solicitor proposed to write directly to the third parties to inform them that Joel was to be involved in all such contact and his agreement was required to engage any third party.
On 12 February 2019, Joel sought to enlist the support of Destination NSW for the new Forsyth Street hotel, sending his request sent from his International Hotel email account.
On 15 February 2019, a technician arrived at the International Hotel at Basil's instructions to fix the CCTV feed. According to the technician's invoice, Found cut cable to DVR, advised by Joel to not fix. The suggestion that the cable was "cut" is concerning. Joel preferred to refer to the cable as "broken". There is an obvious difference between "cut" and "broken"; one suggests steps were taken to sever the cable whilst the other suggests wear and tear. The technician can be presumed to appreciate the distinction and to have referred to the cable as "cut" because that is what appeared to have happened.
Joel denied telling the technician not to fix the CCTV. Joel said he told the technician, "You can do whatever you want". Joel's explanation as to why his evidence was at odds with the narration in the invoice was unpersuasive: Dion's a nonsense to me, to be honest. … I just don't think he wanted to get involved and it could of been the little girl in the office. He could of walked in and said, "Joel said don't worry about fixing it". She's just punched it in the computer and sent it out. I highly doubt Dion does his own invoicing.
Joel eventually said "I didn't deem it necessary for it to be fixed". Whilst Joel understood that Basil wished to be able to access the CCTV remotely, Joel did not agree that the CCTV should be used to enable Basil "to watch us" or "for surveillance", suggesting his grandmother supported this. So, it wasn't my distain of Basil to not have access. It was just it would fall in and out. It would work sometimes. It wouldn't work other times. I - I didn't care much for - do I now care much for it, so. I do not accept Joel's evidence. According to Joel at the hearing, "The CCTV is still down now."
On 20 February 2019, Basil's solicitors noted that it had now been more than 10 weeks since the 6 December 2018 resolutions and no steps had been taken by Joel to progress the sale, in particular, no solicitor had yet been engaged to act on the sale. Joel's solicitor was asked to advise which of the three fee proposals obtained by Basil was acceptable to Joel.
On 28 February 2019, the plans for the new hotel on Forsyth Street were completed in the form later approved by Council.
On 1 March 2019, Basil's solicitors wrote again, asking Joel to advise which of the three solicitors put forward by Basil were acceptable so that the sale could be progressed. Further, a copy of the technician's invoice was supplied and confirmation was sought that Joel would allow the CCTV equipment to be repaired so that Basil could make arrangements for this to occur.
On 10 March 2019, a revised statement of environment affects was issued for the Forsyth Street hotel. The statement attached an analysis of occupancy rates and car parking utilisation at the International Hotel in support of the contention that the proposed number of parking spaces would adequately service the new hotel. Reference was also made to the laundry and linen service at the International Hotel for the past seven years, to demonstrate the types of vehicles, and the frequency of their deliveries. Joel ultimately accepted that the author of the statement of environmental effects obtained information about the International Hotel's linen deliveries from Joel, then denied it, then said he didn't know.
On 18 March 2019, Basil attended a without prejudice meeting with the defendants' solicitors following which he was provided with a copy of Thomas' handwritten letter dated 19 November 2016. Most likely, this was the first time Basil had seen the letter. On 25 March 2019, Joel's solicitors contended that, notwithstanding rescission of the Shareholders Agreement, Joel was entitled to retain both the $1 million loan account and the 10% shares in Crow Inn. A copy of Thomas' handwritten letter of 19 November 2016 was provided, together with Andrew Teece's file note of 20 April 2015 which was said to record the agreement reached rather than that recorded in the Shareholders Agreement. Basil was asked to respond as soon as possible regarding the share split in Crow Inn and the loan account and, if Basil did not agree with Joel, then he was asked to attend an "early mediation" with Thomas and Andrew Teece or otherwise agree to commercial arbitration. Joel's solicitors advised that one of the fee proposals for a lawyer was acceptable to him and the CCTV was now operating "appropriately".
On 5 April 2019, Destination NSW sent a letter of support to Joel for the Forsyth Street hotel development, which he forwarded to the Council, again, from Joel's International Hotel email address.
On 26 April 2019, Basil's solicitors advised that his position remained that the shareholdings in Crow Inn and Joel's loan account with Puddy should be returned to the position before the Shareholders Agreement was entered into.

[34]

Council meeting

On 29 April 2019, the Council met to consider Joel's development application for Forsyth Street. Mr Churcher was to speak to the proposal. A reservation was made for Mr Churcher at the International Hotel. According to the reservation record, Joel made the reservation. Joel denied this and said the reservation was made by another member of staff on his instruction. An additional note was made in the reservation entry: council meeting tonight for new hotel guest stays free of charge - Joel
In cross-examination, Joel said "I didn't know that Churcher actually stayed on the 29th for free. That was an honest mistake …" In an example of the problems affecting Joel's evidence, the cross examination proceeded as follows: Q. You instructed Tiffany that there would be no charge for this guest, didn't you? A. That was common practice, when even Basil would say some of the staff wouldn't know who Basil was, and when people checked in we would have to get pres(?) off credit cards. So, if a guest of ours was to stay, whether it was Mark Churcher or Basil family members, then we'd request that they don't hassle that guest for payment. Q. Mr Berrigan, I'll put the question again, and I would like you to answer it. A. Yep. Q. You instructed Tiffany that this guest, Mr Churcher, was to stay for free, didn't you? A. I instructed Tiffany that I would be paying for Mr Churcher's night's stay, yes. Q. No: Mr Berrigan, you instructed Tiffany that this guest would be staying for free, didn't you? A. Yeah. That he wasn't to be charged, yes. Q. If I can take you to the reservation note at the foot of the page, which reads, "Council meeting tonight for new hotel. Guest stays free of charge. Joel." Do you see that? A. Yes, I do. Q. That was an instruction that you entered into the computer system, correct? A. No, that would have been Tiff's interpretation of what I've said to her. Q. Her interpretation was correct, wasn't it, because you had said to her that there was a council meeting tonight for the new hotel and this guest was to stay free of charge, correct? A. Everyone knew the council meeting was that night. Everyone knew that Mark was participating in that meeting, and I told Tiff that I would, like I have done in the past, fix Mark's room up. Q. You told Tiffany that, because Mark was staying for the council meeting tonight, he would stay free of charge, correct? A. I can't recall saying it in those exact words, no. Q. You don't deny, do you, that the most likely explanation for this reservation note is that you gave an express instruction to your staff that Mr Churcher was to stay free of charge on this night, correct? A. That they weren't to charge him, yes. Q. You didn't tell Basil that you were planning to do that, did you? A. No, I didn't. … … Q. … you were well aware that Mr Churcher had stayed on 29 April 2019 for free? A. There was - I knew that I had to pay the bill. I wasn't suggesting that Mark stay for free. There's a note there, if I was to allude to anything colluded, or - I wouldn't have mentioned it to Tiff that that's the reason why he was staying. It was always my intention for me to pay for that. That's why "HTZ" is in that booking. That's a note for me to pay that, which I have done in the past. I wasn't out to deceive anyone. It was put to Joel that the evidence given on this subject was false, "Can you just repeat the question? Sorry, that threw me". Joel's evidence was unlikely.
At the Council meeting, an issue under discussion was whether an exemption should be given from the Development Control Plan by approving a proposal with less than the required car parking spaces. Joel addressed the meeting, referring repeatedly to his experience at the International Hotel. … the parking ratio is our main concern because I have been a hotelier in Wagga for six years and been quite successful at it. At the International Hotel we don't meet parking requirements at all. … Our data with International Hotel is how people travel. …They pick guys up from the airport, drop them off at the International Hotel to me, I look after them. … With the International Hotel we've got three car movements a day … I'm not a 9am to 5pm business. People check in at 2pm, they are out by 10am, before 10am because I get the business men that's why. They look out, they want to go and invest, they want to spend. There will be three blokes that come running down to my hotel tomorrow asking me if they can borrow my tie for Wagga Gold Cup, or I can say, go down the shop and buy one, go see Millen, go see Myers and that's what I'll be doing at my CBD. … In regards to management of the hotel, it will be no different to the International Hotel. There's been no backlog to Lake Albert Road in regards to the way I manage the property. This one will be managed no different. … we do have one of the highest occupan[cy] … … So my customers are gone by 10am, well before 10am and don't check in until well after 5pm. … I have not spun the globe and landed my finger and gone that's where I'm going to build a hotel. This site in my professional opinion lends itself to it and you are crazy to pass this up. … If I get a yes tonight, we've gone through a construction management plan with Mark already. … This gentleman has built six hotels for our family in the past. … Again I don't want to sound like I know everything here but we built a few high rise things before and there will be disruption … I will not take long - I know you all witnessed the International Hotel's, I was the leading hand there in that job with Mark … The impression a councillor may well have gleaned from Joel's presentation was that the Forsyth Street hotel was an expansion of the International Hotel.
Council resolved to approve the development. Joel did not tell Basil that he was attending the Council meeting, "Me and Basil weren't on the best of terms at this stage …". As it happened, Basil was also in Wagga that evening and came to hear of it. On 6 May 2019, the local newspaper reported on the Council meeting. Joel was said to be in talks with major hotel chains that could lend their brand to the project ahead of construction. Joel was reported to be expecting customers from the tourist and business markets and to have signed contracts with corporations and government agencies that regularly sent staff to Wagga.
Joel gave inconsistent evidence in respect of comments attributed to him in a newspaper article. He initially said that the journalist suggested the comment to him, then ascribed ill-motive to the journalist who "suggested a lot of tabloid rubbish where he wanted me to engage Basil in a public argument that I also didn't entertain", then when pressed said, "I can't recall the conversation" and "It was a very vague interview". Joel denied that he sought to emphasise to the journalist that his plans for the hotel were well advanced, or that he wished to proceed the development with expedition. We had a DA. We weren't well advanced, no. … Q. You were confident that you would have the Forsyth Street hotel open and operating within five years, weren't you? A. We would have to start construction within that five‑year period. So I didn't think it would be operating inside the five years, no, but I would have to get started in the five years, yes. This was at odds with the evidence of Mr Churcher, whose evidence I prefer.
Basil read the newspaper article and was alarmed as it reinforced his view that the Forsyth Street hotel would compete with the International Hotel. He spoke to Joel in person, suggesting that Joel was breaching his duties as a director of the company as well as general manager of the business. According to Basil, Joel said, "This is a smart business decision. It shows strength. I don't know what your problem is". Basil said, "You just don't get it. There is no point talking to you any more". Basil is concerned that the Forsyth Street hotel will impact adversely on the business of the International Hotel and that Joel is in possession of commercially sensitive information about the International Hotel which may provide him with a competitive advantage when he opens a hotel nearby.
Joel says his proposed hotel will not have a function centre, restaurant and bar and will not be able to cater for much of the International Hotel's trade. When it was pointed out that the plans for the Forsyth Street hotel included a minibar store on each floor, and thus indicated that he planned to have a minibar in each room, Joel denied this in an explanation which was unlikely: We might have called it a mini bar storeroom due to sometimes being sub‑boards are stored in storerooms with sheets and towels. They can create fire hazards. So we try to create other storerooms, and instead of just calling them storeroom, storeroom, storeroom, repairs and maintenance, staff storerooms, we probably just called it a mini bar storeroom, yes. But it wasn't my intention to store mini bars. We also have vending machines allocation as well there, so we don't intend to have mini bars in those rooms as I suggested. We would go to the pubs. It wasn't my intention to increase revenue inside the room.
I consider that Joel thereby sought to minimise the suggestion that the Forsyth Street hotel would pose any real competition to the International Hotel. Joel said that he understood that he would need to get a liquor licence if he wished to include minibars in each room "and that's not something I was interested in doing". Given that Joel already held a liquor licence for the International Hotel, it is not obvious why obtaining a second liquor licence would have been of no interest to him. Joel denied that he understood at the time that the new Forsyth Street hotel would potentially divert customers from the International Hotel. Further, "I don't think anyone would build a new hotel now. I don't think I understand your question".

[35]

Still going nowhere

On 17 May 2019, Basil's solicitor wrote, agreeing to participate in a mediation but only after the sale of the land and business. Basil expressed concern that the CCTV continued to be inoperative, said to be connected with a drop in the hotel's bar and restaurant earnings. Basil's position in respect of the rescission of the agreement remained unchanged. Further, given development approval obtained for the Forsyth Street hotel, Basil expressed concern that Joel had breached his duties to Puddy and Crow Inn by placing himself in a position of conflict of interest in advancing that business opportunity at a time when the International Hotel was to be sold. The new hotel was said to likely impact adversely on the sale price of the International Hotel because of its proximity to the new hotel and increased competition in the immediate vicinity. Any purchaser was likely to require restraint of trade clauses and Joel was asked to advise how he proposed to deal with such a request.
On 6 June 2019, Joel's solicitor replied, requesting an informal settlement conference in advance of the sale, to be attended by Thomas. The suggestion that Basil could not access the CCTV feed was denied. Any suggestion of theft was denied. There was no response to the suggestion that Joel had breached his duties as a director. As Basil was then heading overseas until mid-July 2019, Basil's solicitors advised that instructions would be obtained on his return. On 17 June 2019, Joel sent an executed copy of the Jones Lang LaSalle agency agreement. On 22 July 2019, Basil's solicitors, advised that, given the parties had already participated in informal settlement conferences without resolution, Basil proposed a mediation instead. A mediator and her available dates were put forward. On 31 July 2019, Basil's solicitors sent a follow up letter.
On 16 August 2019, Basil stayed at the hotel. Basil says that he was told of a possible breach of the Responsible Service of Alcohol (RSA) provisions and spoke to the employee concerned. Joel says Basil confronted the employee in an aggressive manner and accused him of supplying alcohol whilst being a minor. On 18 August 2019, Joel sent an email to Basil, objecting in the strongest terms to Basil's approach to the staff member including, "You are a director and have nothing to do with management of the hotel and licencing". On 22 August 2019, Basil's solicitor wrote noting that, notwithstanding Joel's assurances, Basil could not access the CCTV system at the hotel. Joel's agreement was sought to allow Basil to arrange for a technician to attend the hotel to repair it. There appears to have been no reply.
Basil says that, after these events, Joel did not keep him informed of important matters impacting on the management of the business; what little communication there was between them ceased and they only communicated through their lawyers. Due to his deteriorating relationship with Joel, Basil has only stayed at the International Hotel on about 15 occasions in the last two years. On each occasion Basil felt hostility and animosity in his interactions with Joel. As a consequence, Basil stayed at other hotels in Wagga Wagga when visiting as he found staying at the International Hotel to be unpleasant.

[36]

Thomas' affidavit

On 14 October 2019, Dr Antoun visited Thomas at the request of the palliative team. On 16 October 2019, Dr Antoun administered a SMMSE test, as already described at [16]. On 17 October 2019, Dr Antoun visited Thomas again and began to administer the same test, although did not complete it as he was satisfied from his observations that Thomas' position remained unchanged. An affidavit was sworn by Thomas.
In a section entitled "Purchase of the Land", Thomas describes his interest in purchasing the hotel site and setting up Puddy and The Puddy Trust with the assistance of Philip and Andrew Teece. Thomas says he wanted to use Bryzer's capital of some $9.5 million to fund purchase of the land and construction. Thomas says that he had been advised by Philip Teece "in about 2003" that Bryzer should be wound up, this would trigger approximately $1.6 million tax liability for Bryzer (defined as Tax Debt) and, in order to distribute the capital of Bryzer, the Tax Debt had to be paid. Rather than causing Bryzer to pay the Tax Debt itself, I wanted to gift the whole of the $9.5m to Puddy and the tax debt would be paid from my separate funds.
Thomas appears to have conflated a number of events. Putting to one side that the tax debts arose and accounting advice was received a decade after Thomas suggested, the important point is that the tax debt and accounting advice occurred two years after the land was acquired. Thomas' recollection of the accounting advice received is also inaccurate, in particular, that winding up Bryzer would trigger a $1.6 million tax debt when Thomas and Helen had tax debts for the 2012 and 2013 years which do not appear to have been related to the winding up of the company per se. In any event, Thomas says he spoke to Helen and Basil - apparently in late 2010 when the land was acquired - saying, I am going to set up a new company and a new trust. I will transfer $9.5 million from Bryzer to buy land in Wagga and we will build a new hotel on it.
Thomas says he proceeded to say who would hold shares in the company and how many shares they would hold - thus pinning this conversation to December 2010 when Puddy was incorporated - and continued, Bryzer has to pay $1.6 million in tax before any distribution. I will pay the tax from my own money so Puddy can receive all of the $9.5 million from Bryzer. Rather than giving me any equity in the Trust, I want Puddy to record a loan payable to Joel for $1 million and I will forgive the balance. Basil is said to have agreed to this. Again, Thomas appears to have conflated a number of events in his recollection of this conversation, being the purchase of the land in 2010 and accounting advice and tax paid in 2013.
Thomas' affidavit continues, "At about the same time as this conversation" he met with Basil, Philip and Andrew Teece and discussed how the Tax Debt would be paid. Basil offered to pay the tax. Ultimately, Thomas decided that he would pay it and did so. Thomas says he cannot recall the exact date when he paid the tax, "but I recall that it was prior to the purchase of the Land". Thomas says he did not tell Joel at the time that he intended to create a loan payable to him in the Trust for $1 million. Thomas' recollection, given nine years after the purchase of the land, is not accurate.
Assuming, for the moment, that Thomas was referring to a conversation had with Basil in 2013, the question is whether on the balance of probabilities Thomas told Basil that, having paid the tax debt himself, a $1 million loan account should be established in Joel's name in The Puddy Trust. The Netbas offer of finance was made in March 2013. By 30 June 2013, the Netbas loan had been drawn down by almost $1 million. Presumably, Basil used the Netbas loan to pay construction costs because he was then aware that his parents no longer required him to pay their tax. Construction was moving towards fit-out. Thomas, Basil and Joel appear to have been working together harmoniously. There does not appear to have been any reason why, if Thomas had asked Basil to create a loan account in Joel's name for $1 million at the time, Basil would not have done so. The plaintiffs noted - and it is noteworthy - that the defendants did not cross-examine Andrew Teece about Thomas' instructions, if any, concerning the creation of such a loan account.
Andrew Teece said that Thomas continued to maintain oversight of the trust, including trust distributions and loan accounts, until the end of the 2015 financial year: see [88]. If Thomas had instructed Basil in March 2013 to set up a loan account in Joel's name for $1 million, then it is likely that the absence of such a loan account would have come to Thomas' notice at the end of the 2013, 2014 or 2015 financial years and, presumably, Thomas would have done something about it if his wishes had not been followed. There is no suggestion that Thomas and Basil's relationship was such that Thomas could not, or would not, have raised such a matter with his son; indeed, the evidence suggests quite the opposite. The first suggestion of disquiet is Thomas' handwritten letter of 19 November 2016 which, most likely, was not sent to Basil at the time, perhaps because it was a draft. Having regard to these matters, I consider it unlikely that there was an agreement in the terms set out in Thomas' affidavit: see [184]. On the balance of probabilities, I find that there was no such agreement. I have not placed any weight on Basil's evidence in this regard, but simply the inherent likelihood emerging from the contemporaneous documents, and a reliable witness.
As to why Joel was said to be entitled to a 40% stake in Crow Inn, Thomas said Joel was not paid for his work on construction, although paid himself a small amount from his capital account in the Puddy Trust. According to Thomas, he said to Joel at the time, "If you help out ensuring the hotel gets built, you will get 40% from the freehold and the business". Thomas says he felt this was a fair split between Basil and Joel in light of Basil's contribution of capital and the efforts Joel "had made and was continuing to make towards the Hotel and in operating it". Thomas says he discussed this with Helen and Basil at the time, and they agreed. As best can be told from Thomas' affidavit, this conversation took place before June 2011. As such, it took place a year before construction began. Again, Thomas has conflated events over a number of years.
Further, in the months before the opening of the hotel, Thomas says he realised "how much of a great job Joel had [done] in managing the build of the Hotel, including keeping construction costs down". As mentioned at [77], there are no contemporaneous documents which suggest Joel performed this role, as opposed to Mr Churcher or Thomas himself. Nonetheless, Thomas says that, due to this, he decided Joel should be rewarded for that hard work over more than 18 months, and so told Joel that he had earlier created a loan in the business payable to Joel for $1 million. I note that, on Joel's evidence, he became aware of the $1 million gift from his grandfather in August 2016, being three years after Thomas says he told his grandson.
Thomas said he did not want to give Joel the $1 million in cash or in a form which he could immediately access as, until the land was purchased in Wagga Wagga, Joel had been a builder's labourer and then a builder and so did not have experience in financial matters. After discussing it with Helen, Thomas and Helen wished to help Joel manage his finances and so the $1 million was not transferred to Joel immediately, nor did Thomas take steps to immediately transfer shares into Joel's name to achieve the 60:40 split which had been discussed with Helen, Basil and Joel, apparently in 2011. Thomas could not recall seeing the financial statements for Puddy whilst he was a director of the company and was not concerned when the share transfer was done or the transfer of the loan account was recorded as he considered the 60:40 split "was solid all along" and the loan to Joel "to be a done deal".
Thomas says he was not consulted in relation to the incorporation of Crow Inn or the allocation of shares in the company. If he had been involved, Thomas says he would have wanted the share split to be 60:40 in conformity with the share allocation in Puddy, which he considered to be a fair balance. Thomas says he did not become aware of the existence of Crow Inn until 2018 and, until then, had understood that Puddy owned the land and business and operated the hotel. This does not accord with Thomas' review of the draft Shareholders Agreement in 2015, which revealed these details, even if Thomas did not already know them: see [94].
It is difficult to make sense of Thomas' affidavit when viewed against events as they had actually unfolded, as established by contemporaneous documents and reliable witnesses. This is not to criticise Thomas but to recognise that an affidavit given whilst receiving palliative care and 20 days before passing away, reflecting back on events over the preceding decade which involved several corporate entities and trusts, a number of substantial transactions and important meetings, and in the context of a dispute between himself, his son and his grandson, Thomas' affidavit was not accurate. As McLelland CJ in Eq observed in Watson v Foxman (1995) 49 NSWLR 315 at 319: … human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. When referring to the $1 million gift which he says he made to Joel in 2010 with 'no strings attached', Thomas was most likely referring to the $1 million loan account transfer referred to in the Shareholders Agreement, which was subject to conditions which Thomas had seen and approved at the time.
On 6 November 2019, Thomas died. A funeral was held on 11 November 2019. Joel was appointed as executor of Thomas' estate. Basil is not a beneficiary of his father's Will, presumably because Basil had already received his inheritance in the form of his parents' contribution to his loan account in Puddy.

[37]

The aftermath

On 19 December 2019, Basil and Joel met with Andrew Teece to discuss distributions from The Puddy Trust, performance of the hotel, bank account balances and the possibility of building a further 40 rooms at the International Hotel or refurbishment. Joel said he could start the Forsyth Street hotel at the end of January or February 2020 and would like to build this hotel first before considering the additional 40 rooms for the International Hotel. Andrew Teece suggested that a resolution approving a dividend to be paid by Crow Inn be framed in the same terms as the December 2016 resolutions so that the dividend could be declared and paid on a 60:40 basis, but if it was later determined or agreed that Basil was entitled to 70% of the shares, then the dividend split would be adjusted. Basil agreed, whilst Joel did not. Andrew Teece later asked Basil and Joel to reply to an email setting out the events of the meeting, indicating whether they agreed to the proposed minute to enable payment of dividends. Although there is no minute declaring a dividend in the form suggested by Andrew Teece, it appears that a dividend was nonetheless paid, being $360,000 to Basil's family trust and $240,000 to Joel's family trust, that is, a 60:40 split.
According to Basil, after Thomas' funeral Joel said that there was nothing of value left in Thomas' unit and Basil could take what he liked. "Joel … informed me … that everybody - all my other siblings have been round. And Joel had said, "There's nothing left, everybody's taken everything". Joel denies this although agreed that, by the start of January 2020, there was nothing of monetary value in his grandfather's unit. Basil wished to retrieve two sports jerseys which he had given to his father and were of sentimental value.
On 1 January 2020, Basil stayed at the International Hotel. Joel says he found Basil in Thomas' unit looking through the bedside drawers. Basil said he was there to get some of his father's belongings. Joel told him he could not do this and should leave. Joel later saw Basil leaving the room carrying two bags. Joel went back to the unit and saw that some clothing had been removed. Joel removed the batteries from the door lock so that no one else could gain entry. Joel agreed that he had not cleaned his grandfather's unit since the funeral as he was struggling with his grief.
On 2 January 2020, Basil went to Thomas' unit again but was unable to gain access as his card for the door would not work. He asked to use another staff member's card, but their card did not work either. Basil called Joel and said he could not get into Thomas' room. Joel said he had taken the batteries out of the lock. Harsh words were spoken. Basil hung up. Basil asked a staff member for the name of a local locksmith, who he called and explained the situation. The locksmith said that, with these type of locks, it would be easier to 'pop' a window; Basil called a local glazier. Basil deposed that he told the glazier, "I have locked a key in a unit at the International Hotel. I need to get access to retrieve it. The key card lock is not operating". It was suggested to Basil in cross-examination that this was a lie, but Basil said he had bought his father a Mustang car and Thomas had given it back to Basil when he became too sick and frail; Basil had lost the first key and believed that the other key was in the unit.
I think it is more likely that Basil told the glazier a white lie, which I note Basil volunteered in his affidavit. Rather than simply accept this in the witness box, Basil told another. This does not mean, however, that Basil was lying more generally or in respect of key factual matters in the case. Basil's actions shortly after his father's death appear to have been emotionally fraught and, on reflection, Basil may have been embarrassed with how he acted. Further, I doubt whether Basil actually told the glazier the "white lie" in the first place. According to the glazier, Basil called to ask me to remove a panel of glass at the Hotel to get a door unlocked. I asked him why he didn't just get a locksmith and he said that he just needed to replace some batteries in the auto lock. That, of course, was true. A tradesman was sent directly and the work done. Basil replaced the batteries in the doorlock. The glazier re-installed the window.
Basil then received a call from Joel and sent a text message to his solicitor, "Just had a call from Joel saying to leave the hotel immediately or he will call the police as he is in charge of the estate". Basil left. Basil agreed that his dispute with Joel at the time was in respect of Joel in his role as executor rather than a broader business dispute; whilst Joel refused Basil access to his father's unit, Basil agreed that Joel did not exclude Basil from the hotel at large. Basil says his relationship with Joel continued to deteriorate, particularly after January 2020. That seems clear. Joel admits that since December 2019, he and Basil have not spoken to each other directly except in the presence of their accountants or lawyers.
On 6 January 2020, Basil provided his comments on Andrew Teece's minutes of the meeting on 19 December 2019, noting that his preference was for the additional 40 rooms to be built for the International Hotel using the funds in the bank account, rather than Joel's project being progressed first. Basil repeated that he considered that Joel was pursuing the Forsyth Street project in conflict with duties owed to Puddy and Crow Inn, and also noted that the CCTV camera footage remained inoperative. Basil noted that Joel had stated at the meeting that Samantha Wade had been trained as manageress of the hotel and advised that he was agreeable to Ms Wade "immediately assuming the role as Relief Manager of the International Hotel while the position is advertised, with Joel relinquishing management control. Samantha can apply for the role of Manager on a permanent basis, however, in the interests of fairness and transparency, the role should be advertised on the open market".
On 3 February 2020, Joel placed a job advertisement for a hotel general manager but did not tell Basil that he had done so. Applications were received from 42 people but Joel did not progress the applications as he was then in settlement discussions with Basil. On 13 March 2020, Basil sent a signed copy of the Jones Lang LaSalle agency agreement to Joel. Basil said he did not return it earlier as he was in settlement discussions with Joel. Further correspondence was exchanged on 26 March 2020 and 30 March 2020, which are not in evidence. According to later correspondence, Joel's solicitors thereby advised that Joel did not consent to the sale of the land or business.

[38]

The end

Over the Easter long weekend, Basil went to the International Hotel. Basil says he telephoned the COVID-19 hotline and obtained a clearance to travel to Wagga Wagga for business before doing so. Joel said: At this stage, me and Basil weren't communicating at all. I wouldn't know when Basil would arrive or when he would leave.
On 8 April 2020, Basil was seen taking photographs of Joel's computer screen. According to a letter sent by Joel's solicitor the next day, Joel arrived in the office but Basil continued to use Joel's computer, which had Joel's personal email account open at the time; Basil said it was a company computer and he had just as much right to use it as Joel. Joel asked to access the computer in order to sign out of his personal email account and Basil eventually agreed. There was an undignified struggle between them for the computer mouse. Joel conducted a search history of Basil's access to the computer, which indicated that various searches had been made, including of privileged communications. In cross-examination, Basil readily conceded what he had done, that his conduct was alarming and extraordinary but inexplicably adhered to the denial in his affidavit that he had done anything wrong.
On 9 April 2020, a series of significant correspondence was exchanged. First, Basil's solicitor - apparently then unaware of events of the previous day - replied to a letter from Joel's solicitor of 30 March 2020, answering a suggestion that Basil had not been progressing the sale of the land and business. Basil's solicitor noted that the contract for sale was only finalised in October 2019, when matters were put on hold whilst Thomas was terminally ill. Before Thomas' death, the parties were said to have been attempting to negotiate resolution of the dispute in order to alleviate undue stress for Thomas; those negotiations only came to an end in late January 2020. However, in light of the COVID-19 pandemic and the dramatic decline in trading figures for the business, Basil believed that the employment contracts for all staff should be terminated immediately and efforts made to sell the land and business given the impending decline in business revenue together with ongoing overhead expenses. Further, Basil understood that Joel had purchased a new residential property and was no longer living at the hotel, nor did Joel appear to be taking an active role in managing the business. Basil enquired who was responsible for managing the business.
Second (although it is unclear which order the following letters were sent), Joel's solicitors wrote concerning the computer incident, demanding that the photographs taken be produced and, following production, the photographs and other information obtained be destroyed failing which an application would be made to this Court for an Anton Piller order. A report to the police was said to be in contemplation.
Third, Joel's wife signed a letter of resignation, suggesting she had been working at the International Hotel on a casual basis since 22 August 2012 and full time since 1 August 2013. Rebecca said she had worked, on average, 60 hours a week. Rebecca said that she had not been paid, should have been paid more than $100,000 a year and claimed past gross earnings of $695,269.23. Rebecca advised that her last day of employment would be 7 May 2020. Fourth, Joel sent a letter of resignation as general manager, giving 4 weeks' notice, with his last day of employment said to be 28 April 2020. (Either the author of the letter did not correctly calculate the 4 weeks' notice or the letter had been prepared a week earlier and the date not updated when the letter was issued.)
Basil does not accept that Joel or his wife are entitled to the wages claimed, nor that they were employed by Crow Inn. Joel agreed that the payroll records of Crow Inn do not record him or his wife as employees of the company; that Crow Inn has never remitted PAYG withholding amounts to the Australian Taxation Office in respect of amounts owed either to him or to his wife; and that neither he nor his wife had any written contract of employment with Crow Inn.
Finally, Joel's solicitors responded to the letter from Basil's solicitor early that day, advising that Joel did not consent to the sale of the land or business nor to termination of staff although noting that Joel had already stood down 27 staff members, thereby reducing the level of staff from 35 to 8. Joel's living arrangements were said to be of no concern to Basil. Joel said he would continue to manage the business until the end of his notice period when staff, who he had already trained, could take over as managers. Joel agreed that, before resigning, he did not discuss arrangements for appointing a replacement general manager with Basil. Nor did he consult Basil about the decision to stand down staff or, later, to close a floor of the hotel.
On 10 April 2020, Basil went to his father's unit again. Joel called the police. Three police officers went to the father's unit and told Basil that he may be breaching COVID-19 rules and, if he did not leave the premises immediately, would be fined $5,000. Basil says he was escorted off the premises by police. When leaving, Basil attempted to speak to Joel, who turned his back and walked away. As to why Joel called the police, he said: No, I called the police because in the back office Basil became quite aggressive and he shoved me away from the mouse … This evidence was unlikely and I do not accept it. This was the last time that Basil stayed at the hotel.
On 13 April 2020, Basil's solicitors provided the photographs and information sought and confirmed that the copies had been destroyed. Basil's solicitors acknowledged that privilege in the material had not been waived.
On 27 April 2020, Joel's solicitors made a claim for wages for Joel from 1 July 2014 being $849,613.63 and superannuation of $80,713.29. Joel was said to be entitled to a wage at the top end of the range as Joel had been the general manager, bar and restaurant manager and licensee. Joel was said to have worked in excess of 60 hours a week. Joel proposed that, by 29 May 2020, the directors of Crow Inn pass a resolution resolving that the company pay Joel's wages, failing which proceedings would be commenced. If a favourable response to this suggestion was not received by 30 April 2020, that is, two days hence, legal proceedings would be commenced. Joel agreed that he knew that Crow Inn did not have sufficient cash reserves to pay his or his wife's claim for wages. Whilst Basil's actions on 8 and 10 April 2020 were ill-judged and inflammatory, Joel's response was likewise.
On 1 May 2020, Andrew Teece heroically met with Basil and Joel again. Andrew Teece sent an email setting out the "broad parameters that were agreed verbally" and sought confirmation before getting lawyers to reduce it to writing. Essentially, Joel's $1 million loan account would remain, the 60:40 share split would remain, loans owed to Basil and Joel would be evened up to accord with the 60:40 ownership split, the wages claims would be dropped, Basil would take over the management of the International Hotel and Joel would proceed to develop the Forsyth Street property as he saw fit. All legal action would cease. Two hours later, Joel responded that, although the matters had been discussed, no agreement was actually reached. He wished to consider what was proposed and would come back to everyone with his position.
Joel then endeavoured to progress discussions with Basil's son, Will, who spoke in favour of the deal proposed by Andrew Teece, noting that it allowed Joel the opportunity to go out on his own with the Forsyth Street development, "which was Tomo's plan all along - he would want this 110%. Tomo told me a few times that he wanted you to have something of your own and this is the opportunity". Joel forwarded Will's email to his solicitor with the subject heading, "William Berrigan confirming truth". On 5 May 2020, Joel advised that, as long as Basil reimbursed Joel's legal fees incurred to date of some $143,000, then he would agree.
On 7 May 2020, Joel and his wife's notice period came to an end. On 12 May 2020, Basil commenced these proceedings seeking, initially, the appointment of a provisional liquidator to Puddy and Crow Inn. Between 12 and 15 May 2020, Basil and Joel were unable to agree upon the terms of any interim regime for the day-to-day management of the International Hotel. Joel offered undertakings which would have permitted Joel, as a minority shareholder, to continue, for practical purposes, to manage the International Hotel and to supervise its staff, notwithstanding his resignation as general manager, while continuing to exclude Basil from any management role and with no mechanism to resolve any inevitable disagreement or deadlock between them. On 15 May 2020, I declined to appoint a provisional liquidator to Crow Inn or Puddy or to appoint a receiver and manager to the assets of the Puddy Trust but, on the usual undertaking as to damages being given by Basil, appointed a receiver and manager to the assets, property and undertaking of Crow Inn with powers to be exercised in the ordinary course of Crow Inn's business and not for the purposes of disposing of that business: In the matter of Crow Inn Pty Limited [2020] NSWSC 601. Basil and Joel have not spoken since.
Basil believes that, if he exercises his power as a director to convene a meeting of members of Puddy and Crow Inn for the purpose of considering a motion to remove Joel as a director, Joel will not attend and, in the absence of a quorum, the meeting will have to be dissolved. In circumstances where Basil and Joel cannot resolve their differences, the boards of Puddy and Crow Inn are deadlocked. Basil says the relationship with Joel has irretrievably broken down and Basil no longer has trust or faith in Joel. They can no longer conduct a cordial conversation. They cannot discuss decisions which need to be made in relation to the management of the business. Joel does not return Basil's phone calls. Although Joel has resigned as general manager, they are unable to agree on new management arrangements. That does appear to be the case.

[39]

OPPRESSION

It is convenient to first deal with the parties' claims of oppressive conduct. When asked to wind up a company on just and equitable grounds, section 467(4) of the Corporations Act requires the Court to consider the availability of some other remedy and whether the applicant was acting unreasonably in seeking to have the company wound up instead of pursing that other remedy: Mudgee Dolomite & Lime Pty Limited v Murdoch [2020] NSWSC 1510 at [293]. Even if the Court is satisfied of circumstances which justify winding up a company on just and equitable grounds, section 467(4) makes clear that the Court must consider whether an alternative and less drastic form of relief is available: Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364 at [24]-[25]. The parties also rely on the oppressive conduct of the other in support of their respective applications, in Basil's case, for the share register of Crow Inn to be amended to record Basil as owning 70% of Crow Inn's shares and, in Joel's primary case and in Basil's alternative case, for orders enabling each to buy the other's shares, albeit in Joel's case, limited to buying out Basil's shares in Crow Inn.
As to what is oppressive conduct, section 232 of the Corporations Act provides that the Court may make orders under section 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
As Brennan J noted in Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459; [1985] HCA 68, in respect of the statutory predecessor to section 232, it is not oppressive for the directors of a company to make a decision which is manifestly prejudicial to and discriminatory against a member. To amount to oppression, it must also be unfair, that is, so unfair that reasonable directors who considered the disability the decision placed on the member would not have thought it fair to impose it: at 472. In an oft-cited passage of Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222, Young J explained the position post-Wayde as follows, at ACLR 704; ACLC 233 (some citations omitted): … in my view as a result of the decisions … in Australia in Wayde & Anor v. N.S.W. Rugby League Ltd it has been accepted that one no longer looks at the word "oppressive" in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair. In my view the court now looks at [the section] as a composite whole and the individual elements mentioned in the section would be considered as different aspects of the essential criterion, namely commercial unfairness.
More recently, the High Court has continued to extol a broad approach to the words of the statute. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, French CJ said of the present oppression provisions, at [72]: Their language and history indicate that ss 232 and 233 are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution. The majority (Gummow, Hayne, Heydon and Kiefel JJ) took a similar approach at [174]-[176] and [178]-[182].
In Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 84 ACSR 121; [2011] NSWCA 104, Young JA observed that "the maxims that have come into use in this area of the law are of limited assistance" and "every case has to be looked at on its own facts and circumstances and that, while the proposition in each of the maxims is correct, cumulative conduct may produce a different result": at [331]. However, the case law does recognise that a closely-held company or "quasi-partnership" has features that form a species of oppression claims. In Re a company (No 00709 of 1992); O'Neill v Phillips [1999] 2 All ER 961; [1999] UKHL 24, Lord Hoffman, with whom Lords Jauncey of Tullichettle, Clyde, Hutton and Hobhouse of Woodborough agreed, referred to, at 970: … the standard case in which shareholders have entered into association upon the understanding that each of them who has ventured his capital will also participate in the management of the company. In such a case it will usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in the management without giving him the opportunity to remove his capital upon reasonable terms. … His Lordship's exposition has been described as "substantially consistent" with how sections 232 and 233 have come to be understood and applied in Australia: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 per Priestley JA at [418]; Tomanovic at [186]; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 71 ACSR 395; [2007] NSWSC 153 at [55]; Campbell v Backoffice Investments Pty Ltd at [175]-[176].
In Fexuto, Spigelman CJ considered that irreconcilable differences in a quasi-partnership company do not of themselves constitute oppression or unfair prejudice but "the destruction of the personal relationship establishes a basis for granting relief in the usual case" unless the person excluded from participation in management as a consequence of the breakdown was also responsible for it: at [89]-[90], [104]. In Tomanovic, Campbell JA took a similar approach, noting that the emergence of irreconcilable differences may be one of several factors that together lead to a conclusion that oppression is made out: at [199].
It is possible for a minority shareholder to oppress a majority shareholder: Watson v James [1999] NSWSC 600 per Bergin J; International Hospitality Concepts Pty Limited v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368 per Young J cf Re Polyresins Pty Limited [1999] 1 Qd R 599; (1998) 12 ACLC 1674 per Chesterman J. In such cases, Bergin J noted in Watson v James at [59]: The distinction between a majority shareholder per se and one with control of the company is an important one.
Thus, where a minority shareholder is exercising control over the financial affairs of a company, a majority shareholder might bring an oppression suit where "a majority shareholder does not hold the voting control of the company or is unable to exercise such control": at [71]. Bergin J concluded at [72]: I do not agree that the section is only available for the protection of minorities. In my opinion, this interpretation would impose an unwarranted and restrictive gloss on the language … of Part 2F.1 of the Corporations Law. Although one would not expect that a controlling shareholder would need recourse to the section the complexities of shareholders' and/or directors' relationships within corporate structures are such that I am not willing to rule out the possibility of such an event.
In In the matter of Richardson & Wrench Holdings (2013) 97 ACSR 351; [2013] NSWSC 1990, Brereton J followed Watson v James: at [36]-[40]. His Honour considered that an amendment of the articles of association by directors representing a minority shareholder - to require resolutions to be passed by at least 75% of shareholders - would have the effect that the majority shareholder was unable to exercise voting control and may amount to oppressive conduct: at [41].

[40]

Oppression by Basil?

It is convenient to consider Joel's oppression suit first. As pleaded, and essentially repeating Thomas' affidavit, it is said that Basil engaged in oppressive conduct by foisting the Shareholders Agreement upon Joel in circumstances where, to Basil's knowledge, the $1 million and 10% shares in Crow Inn transferred to Joel on the condition that he remain general manager of the International Hotel for five years were, in fact, pre-existing unconditional gifts by Thomas. Basil is said to have set up Crow Inn so as to deprive Joel of an equivalent shareholding to that which he held in Puddy; exerted pressure on Joel to sign the Shareholders Agreement; failed to ensure that Joel obtained independent legal advice before signing the agreement; and deceived Joel by not disclosing the true nature of Thomas' gifts to his grandson. In the defendants' closing submissions (but not pleaded), it was also said that Basil's oppressive conduct included issuing the buy-out notice in breach of the Shareholders Agreement. The plaintiffs submitted that, had it been pleaded, the plaintiffs may have taken a different approach in respect of the evidence which they led in the case. I have no reason to doubt this and, consequently, will not consider this contention further.
The defendants submitted that, before entering into the Shareholders Agreement, Joel was already entitled to the 10% of shares in Crow Inn and the $1 million transferred from Basil's loan account to Joel's loan account. These rights were unconditional and Basil's efforts to make these rights conditional upon Joel entering into the Shareholder's Agreement was said to amount to oppressive conduct by Basil. The money was said to be effectively Thomas' money and for him to choose where it went. There was nothing illogical about a grandparent making an inter-vivos gift to a grandchild. The Shareholder's Agreement was said to be an instrument of oppression and operated unfairly towards Joel as the minority shareholder. There should have been parity between Joel's shareholding in Puddy and Crow Inn. Such parity was said to be a common understanding between Basil and Thomas. Thomas also wanted Joel to receive the $1 million as a gift and not conditional upon Joel's "unpaid servitude" for five years as general manager. It was said to be clear from Andrew Teece's file note and evidence that the $1 million and 10% share transfer discussed at the 20 April 2015 meeting were distinct items from the Shareholders Agreement, not intended to be included in the agreement.
The unfairness within the Shareholder's Agreement was said to be evidenced by the fact that the agreement was silent as to how clause 3 operated after the expiry of five years; clause 3 was silent as to whether Joel was entitled to be paid during the five years, or only at the conclusion of five years, or never; clause 6 operated only to benefit Basil and, upon the belief by Basil that "the parties were unable to co-operate". The Agreement was said to be silent as to the interplay between clause 3 and clause 6. The circumstances in which Joel entered the Agreement were also said to be unfair: Joel was relatively inexperienced in commercial agreements and did not appreciate its legal consequences; he thought that his uncle was acting in his best interests. Basil was said to have demanded that Joel execute the agreement.
The plaintiffs submitted that Joel had no pre-existing or unconditional entitlement to an additional 10% shareholding in Crow Inn or the $1 million credit in his loan account in the Puddy Trust. Thomas' handwriting on the draft agreement put beyond doubt that Thomas was consulted regarding the proposed agreement, raised no objection to clauses 1, 2 or 3(a), suggested changes to other clauses but otherwise supported the agreement. Thomas' affidavit to the contrary was readily explicable as mistaken recollection, more than four years after the event and unaided by the contemporaneous documents now before the Court. The plaintiffs submitted that the terms of the Shareholders Agreement were negotiated over a lengthy period and were understood and voluntarily accepted by Joel. There could be little doubt that Joel understood what he was signing. Joel's repeated denials that he understood that the agreement was legally binding were implausible and should be rejected.
Further, the plaintiffs submitted that the terms of the Shareholders Agreement were fair and reasonable. Basil had provided loan capital of approximately $6 million for the purchase of the land and the construction of the hotel. Basil readily accepted that this capital was sourced from, and gifted to him by, his parents' company. Nonetheless, once gifted to him, this capital was Basil's and he was free to invest that capital as he chose. In his affidavit, Thomas acknowledged the capital contributions made by Basil. In addition, Basil had given a personal guarantee in favour of the Commonwealth Bank in support of the $3.5 million construction loan, of which $3.09 million was drawn down and partly funded construction. Thus, it was Basil and not Joel who outlaid funds and incurred financial risk in order to purchase the land and construct and operate the hotel, while both Basil and Joel contributed their labour, time and energy to design, construction and fit-out. The Shareholders Agreement gave Joel and his young family a substantial measure of long-term economic security. To require, in return, that Joel agree to work as general manager for a minimum term of five years was said to be, objectively viewed, fair and reasonable. Nor could it be said that Joel and his wife "worked for free". Whilst, hypothetically at least, the Shareholders Agreement could operate unfairly, that did not amount to oppression by Basil.

[41]

Conclusion

As considered earlier in these reasons, the factual premise of Joel's oppression suit has not been established. Thomas' affidavit is not accurate. The incorporation of Crow Inn was likely suggested by Andrew Teece rather than Basil and was not established for the purpose asserted by Joel: see [80]. As mentioned at [90]-[91] and [99], I am reluctant to place too much weight on Andrew Teece's evidence that the $1 million and 10% shares were separate matters from the Shareholders Agreement but consider that the agreement between Basil and Joel was as documented in the Shareholders Agreement as executed. The Shareholders Agreement was drafted on the basis of Andrew Teece's file note of 20 April 2015 and several drafts followed, reviewed by Andrew Teece, Thomas, Basil and Joel. The Shareholders Agreement itself provides that the agreement constitutes the entire agreement between the parties and supersedes all prior representations and agreements: clause 16.
Whilst it was Basil who sought to progress the Shareholders Agreement to completion and execution, it does not appear to have been for any improper purpose but rather to finalise the bargain struck between himself and Joel, so that the arrangements in place for the next five years of hotel operations were clear. Whilst Basil did not ensure that Joel obtained independent legal advice - nor was it obviously his obligation to attend to this matter - there is no doubt that Joel was repeatedly told that it would be a good idea to get such advice and decided not to. Whilst Basil may well have pressed Joel to sign the Shareholders Agreement, this must be viewed in the context that several months had passed since the idea was first mooted, five drafts had been circulated, Thomas and the accountants had been consulted and a further meeting held with Basil and Joel, as described at [86]-[110]. I do not think Basil was thereby seeking to secure an illicit bargain.
As to the suggested unfairness of the Shareholders Agreement in terms of the money paid to Joel: uninformed by evidence of industry wages, and given that Joel had never run a hotel before, receiving effectively $200,000 per annum for five years seems at least reasonable. As to the requirement to work at the International Hotel for five years, I expect that this requirement was supported by Thomas, who appears to have wanted to set his grandson up in business. Having completed hotel construction and commenced operations, presumably Thomas was keen to see his grandson continue to work in the business for a reasonable length of time, to 'commit' to this type of business, gain experience and increase his prospects of success going forward. Joel was presumably happy to be given such an opportunity. The bargain appears to have been consistent with the family culture: see [105].
As to the suggested unfairness of the Shareholders Agreement in terms of Basil's ability to buy-out Joel: it is apparent from the contemporaneous documents that Basil was concerned to ensure that, if he and Joel could no longer co-operate in respect of the hotel, then Basil would be in control of the sale process. This may not be surprising where Basil was the majority shareholder of both Puddy and Crow Inn and Joel was relatively new to hotel management and business generally.

[43]

Oppression by Joel?

Basil contended that Joel engaged in oppressive conduct by pursuing a competing hotel development in Wagga Wagga though HTZ Investments, without the knowledge and consent of Puddy or Crow Inn and in breach of his director's duties, by preferring his own interests to the interests of Crow Inn and Puddy. On becoming aware of this endeavour, Basil sought to buy-out Joel's interests in Puddy and Crow Inn in accordance with a Shareholders Agreement but Joel purported to rescind that agreement while retaining the benefits it conferred. Further, notwithstanding resolutions passed by Puddy and Crow Inn in December 2018 to sell the land and business, Joel failed to implement these resolutions over a protracted period during which Joel cut the CCTV cable so that Basil could no longer view the CCTV feed, excluded Basil from management, and, on occasion, called the police. Further, in April 2020 Joel resigned as general manager and, together with his wife, lodged claims for unpaid wages and superannuation totalling some $1.625 million when they were not employees. Notwithstanding his resignation, Joel continued to supervise operations at the hotel, could not agree on the appointment of a new general manager and would not agree to Basil having any role in operations.
The plaintiffs submitted that, by the Forsyth Street development, Joel put his personal interests ahead of the interests of both Puddy and Crow Inn in a way that was potentially detrimental to the businesses of both companies. Joel had pursued this development without the fully informed consent of Puddy or Crow Inn. Joel's conduct in misrepresenting to the world at large that the Forsyth Street property was in some way an expansion of the International Hotel was said to be brazen conduct in circumstances where Joel well knew that Basil had not been consulted and did not consent. Whilst competition alone was not oppressive conduct, Joel's conduct fulfilled this description because Joel embarked upon it without informing Puddy or Crow Inn. While the evidence was insufficient to conclude whether the Forsyth Street hotel would pose a competitive threat to the International Hotel, where the Forsyth Street hotel was a short drive away, it was likely to divert customers.
The plaintiffs submitted that Joel had sought to exclude Basil from participation in the management of the affairs of Crow Inn and Puddy, notwithstanding that Basil is the majority shareholder of both companies. This conduct was said to involve a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or otherwise imposed a disadvantage, disability or burden on the plaintiffs that, according to ordinary standards of reasonableness and fair dealing, was unfair: Morgan v 45 Flers at 704 (Young J); Wayde v New South Wales Rugby League at 472-473 (Brennan J); Boyd v Feeney [2017] NSWSC 1595 at [35]. Objectively viewed, in the eyes of a commercial bystander, it was submitted that there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct to be fair: Morgan v 45 Flers at 704 (Young J); Tomanovic at [140] (Campbell JA, with whom Macfarlan JA and Young JA agreed); Boyd v Feeney at [36]. It was said to be immaterial whether or not the oppressor subjectively believed in the rightness of their conduct or whether or not the conduct was otherwise lawful: Campbell v Backoffice at [176] (Gummow, Hayne, Heydon and Kiefel JJ).
The defendants submitted that Joel was the minority shareholder of Crow Inn and Puddy and oppression of a majority shareholder, while possible, was rare and did not arise on the facts of this case: Watson v James at [72] per Bergin J. Joel's pursuit of a new hotel in Forsyth Street did not qualify as oppressive conduct as it did not concern the 'affairs of the company' of either Puddy or Crow Inn: section 53, Corporations Act. The plaintiffs re-joined: acquisition of the Forsyth Street property did concern the affairs of Puddy and Crow Inn as it potentially diverted customers away from Crow Inn and put Puddy's rental stream at risk, which vitally depended on the financial success of the hotel.
Whilst the defendants accepted that a director must not place themselves in a position where there is a real or substantial possibility of conflict between the director's interests and those of the company (Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557), the defendants submitted that the scope of that duty 'must accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it is consistent with and conforms to the scope and limits of that relationship': Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [34] per French CJ and Keane J; Canberra Residential Developments Pty Ltd v Brendas (2010) 188 FCR 140; [2010] FCAFC 125 at [36]. This was an objective test determined from the standpoint of the objective observer with knowledge of all of the facts and circumstances: Boardman v Phipps [1966] 3 All ER 721; [1967] 2 AC 46 at 124 per Lord Upjohn; Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37 at [109] per Payne JA. The duty of a fiduciary did not attach to every aspect of the fiduciary's conduct: Canberra Residential at [36]. The nature of the relationship between the parties and their understandings and practices would inform the content and scope of the fiduciary duty: Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; [2012] FCA 634 at [481] per Jessup J.
The defendants submitted that there was no conflict of interest in the circumstances of this case. Basil managed other hotels in which Joel had no involvement. Thomas was aware of the purchase of the Forsyth Street property. Joel said (in an unsolicited answer) that there was another uncle in Wagga Wagga who owned a hotel and it was not uncommon for the Berrigans to 'buy hotels in the same town'. This was said to be evident from a plan to buy another hotel in Wagga Wagga in 2016, which did not proceed. Further, the Forsyth Street development would not compete with the International Hotel: the development was still in its infancy, unlikely to pose a competitive threat, and other hotels were opening in Wagga Wagga all the time.
Further, the defendants submitted that it was not a conflict of interest per se for Joel to be a director of, or operating, a competing business provided that he did not use confidential information obtained from Crow Inn or Puddy: Bell v Lever Brothers Ltd [1931] All ER Rep 1; [1932] AC 161 at 195 per Lord Blanesburgh; Southern Real Estate Pty Ltd v Dellow & Arnold [2003] SASC 318; (2003) 87 SASR 1 at [34] per Debelle J; Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 116 ACSR 566; [2016] NSWCA 347 at [4] per Bathurst CJ, and [134] per Sackville AJA. Joel did not exclude Basil from management as Basil did not actively participate in management in the first place.

[44]

Conclusion

As to Joel's conduct in respect of the Forsyth Street development, Joel agreed to buy the property in November 2017 but deliberately did not tell his uncle, presumably because he correctly apprehended that Basil may not have embraced the prospect of the managing director of the International Hotel opening another hotel nearby. Joel's prediction was correct: when Joel informed his uncle of the impending purchase, Basil asked him to withdraw from the transaction as he did not consider it appropriate for his fellow director and shareholder, and the person in operational control of the International Hotel, to do so. Undeterred, Joel pursued a development application for the Forsyth Street property with full knowledge that his fellow director and shareholder did not agree. Joel used his position as general manager of the International Hotel to lend credibility to the project, in particular, when addressing a Council meeting seeking its approval. It is likely that Joel used information about the operations of the International Hotel which was not publicly available, in particular, in relation to car parking spaces and linen deliveries, to support the development application. Joel does appear to have placed himself in a position where there was a real or substantial possibility of conflict between his own interests and those of Crow Inn and Puddy.
I do not think there was anything unique about the Berrigan family and their hotel businesses which regularised Joel's conduct. As I understood the evidence, Basil's other hotels were not in Wagga Wagga and pre-dated the acquisition of the International Hotel. The potential acquisition of another hotel in Wagga Wagga in 2016 was a plan which was disclosed to Joel at the time and in which he was invited to participate. It does appear that Thomas supported Joel's acquisition of the Forsyth Street property, but that is not curative.
As to whether Joel excluded Basil from management, I do not accept the defendants' submission that Basil was not involved in the first place. According to Joel's review of hotel records, Basil has attended the hotel some 50 times over the last three years, that is, every three weeks. Basil regularly monitored what was going on through CCTV feed to his mobile phone, until the CCTV cable was cut. Basil says he monitored and sought to keep control of the hotel finances, studied the finances and reported to Joel where costs saving measures could be introduced. Events described at [123]-[125] in respect of high wages suggest that Basil did so, and it is inherently likely that Basil, as the majority shareholder in Puddy and Crow Inn, maintained interest and oversight in this substantial asset. See also [114] and [125].
The sequence of events since Basil endeavoured to buy-out Joel's interest in Puddy and Crow Inn in accordance with the Shareholders Agreement has been quite remarkable. Joel's initial response, by letter of 18 June 2018, was to rescind the Shareholders Agreement. The CCTV cable was cut soon after and Joel told a technician not to fix it. Joel well knew that the CCTV feed was Basil's means of seeing what was going on at the hotel and appears to have seen fit to deprive his fellow director and majority shareholder of this source of information. This was significant where that director lived some distance away. Notwithstanding the resolutions passed in December 2018 to sell the land and business, Joel has obfuscated and delayed ever since. Having read all the open correspondence, Joel's overall approach was to be obstructive and difficult. Whether that approach reflected Joel's wishes alone - or those of his grandfather - does not matter; the result was the same. In tandem, Joel was progressing his own development application for the Forsyth Street property.
Events this year have deteriorated significantly. Both Berrigan boys behaved badly, Basil better than his nephew. Both fruit fell from the same tree. Basil was an older, more mature and experienced version of Joel, which meant that Basil knew - generally - when to stop. Joel did not enjoy that advantage and was emboldened by the adoration of his grandfather. Joel's willingness to involve the local constabulary in his battle with Basil has been unfortunate. Joel and his wife's resignation and wages claims, accompanied by a refusal to permit Basil to be involved in the management of the hotel going forward, was unreasonable. As the position stood at 15 May 2020, as observed in In the matter of Crow Inn Pty Limited [2020] NSWSC 601 at [59]: The minority shareholder has effectively resigned as General Manager but seeks to continue to run the Hotel through his visits to the Hotel to give guidance or make decisions in respect of its operations through an acting General Manager who he trained. The minority shareholder seeks to do this without the interference of the majority shareholder. Joel Berrigan seems to be trying to "have it both ways" in resigning but, for practical purposes, continuing to manage the Hotel.
Thomas has partly contributed to this difficulty. By Thomas' generosity, Joel was made general manager of a substantial business and a director of two family companies without necessarily having first acquired the skills and experience to discharge these roles. Thomas also endorsed a version of events which was incorrect. However it came about, the result is that the sustained conduct of a minority shareholder with operational control - and the ability to obstruct resolutions with which he did not agree - has had the result of oppressing a majority shareholder. Joel's conduct involved a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or otherwise imposed a disadvantage, disability or burden on the plaintiffs that, according to ordinary standards of reasonableness and fair dealing, was unfair. Joel has excluded Basil from participation in the management of the hotel but thwarted Basil's efforts to remove his capital on reasonable terms.

[45]

RECTIFICATION OF SHARE REGISTER

By reason of Joel's oppressive conduct, the plaintiffs sought an order under section 175, or alternatively section 233, of the Corporations Act to rectify Crow Inn's share register to record that Netjay owns 70% and Phatso owns 30% of its shares. Basil did not seek repayment of the $1 million, nor dividends referable to the additional 10% shares in Crow Inn which Joel had received in the interim.
The plaintiffs submitted that, by his conduct, Joel manifested an intention to no longer to be bound by the Shareholders Agreement or to fulfil the agreement only in a manner that was substantially inconsistent with his obligations. Joel thereby renounced or repudiated the agreement: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 at 135; [2007] HCA 61; Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623 at 634. Basil accepted Joel's repudiation. The Shareholders Agreement was at an end. Power to rectify the register was conferred by section 233(1) of the Corporation Act: Corbett v Corbett Court Pty Ltd (2015) 109 ACSR 296; [2015] FCA 1176 at [207] (Farrell J). Such rectification was appropriate to remedy Joel's oppressive conduct, including in unfairly seeking to retain the benefit, while disavowing the burden, of the Shareholders Agreement. Alternatively, a power of rectification was conferred by section 175(1) of the Corporations Act. Here, the jurisdiction was said to be engaged to adjust the rights and liabilities of the parties consequent upon Joel's wrongful repudiation of the Shareholders Agreement or to give effect to Joel's rescission. As the order to rectify the share register was principally sought under section 233 of the Corporations Act, the remedy did not turn on fine distinctions as to whether the Shareholders Agreement was rescinded, abandoned or repudiated or whether Basil was entitled to contractual damages.
The defendants contended that none of Joel's conduct involved a breach or a repudiation of the Shareholders Agreement. Repudiation was said to be 'a serious matter and not lightly to be found or inferred': Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 633 per Wilson J. Alternatively, the defendants submitted that, if the Court accepted that Basil had terminated the Shareholders Agreement by reason of Joel's repudiation, the effect of termination was to discharge the parties from further performance as at the date of termination: McDonald v Dennys Lascelles Ltd [1933] ALR 381; (1933) 48 CLR 457 at 476-477 per Dixon J; Mann v Paterson Constructions Pty Ltd [2019] HCA 32 at [9]-[11] and at [39]; (2019) 93 ALJR 1164 at 1173-4 and 1179 per Kiefel CJ, Bell and Keane JJ. There were no terms or conditions in the agreement governing what transpired when one party exercised a right to terminate for the breach. Accordingly, the only relief available to the plaintiffs was said to be damages for 'loss of the bargain': Mann v Paterson at 1176 [20]. All accrued rights remained intact. There was no reversal of a transaction nor was there a 'personal equity' giving rise to a right of rectification to the register: In the matter of Motasea Pty Ltd (2014) 97 ACSR 589; [2014] NSWSC 69 at [47] per Black J. The plaintiffs had not sought damages nor was there any evidence of loss. Rather, the plaintiffs were said to have used the alleged termination as an 'occasion for obtaining a windfall or inflicting punishment': Mann v Paterson at 1179 [39]. (The plaintiffs submitted Mann v Paterson at [20] did not concern oppression nor section 233 of the Corporations Act but whether a restitutionary remedy was available where a contract was complete on its face.)
In the alternative, the defendants submitted that if the Shareholders Agreement was rescinded, then Joel had performed the role of general manager for almost five years such that it was impossible to restore the parties to their pre-contractual positions: Alati v Kruger [1955] ALR 1047; (1955) 94 CLR 216 at 223 per Dixon CJ, Webb, Kitto and Taylor JJ. This would result in Basil gaining a windfall of $1 million and 10% of the shares in Crow Inn, in circumstances where the purported rescission of the defendants was said to be premised on Basil's conduct. The defendants submitted that no such order should be made. It was said that the promise in clause 1 of the Shareholders Agreement - to transfer 10% Crow Inn shares - was not supported by consideration as the transfer of shares were given an effective date of 1 July 2015, being before the date on which the Shareholders Agreement was executed. Basil's promise to transfer 10% of his shares was said to be past consideration. However, it is tolerably clear that the shares were not transferred until after Joel signed the Shareholders Agreement and thus the factual premise upon which this submission is made was not present.
The defendants submitted further that the Shareholders Agreement was abandoned as the parties to the agreement were Joel and Basil but each had transferred their shares to Phatso and Netjay respectively. Both parties, by their actions, were said to have indicated that they did not intend to be perform their obligations under the Shareholders Agreement such that they had abandoned it: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; (1978) 19 ALR 223; Ryder v Frohlich [2004] NSWCA 472 at [135]-[137] per McColl JA (with whom Hodgson and Ipp JJA agreed). This submission does not sit well with the facts. On receiving the Shareholders Agreement signed by Joel, Basil transferred his shares in Crow Inn to Joel and an accounting entry was made transferring the loan account balance in Puddy. Basil performed his part of the agreement. It remained for Joel to perform his part of the agreement by serving as general manager for the specified five year period. The fact that Basil and Joel thereafter transferred their shares to other family companies, to be held on trust for their respective family trusts, does not suggest that either abandoned the deal which had been struck but simply that they held the shares in, presumably, a more tax effective way. There does not appear to have been any secret, nor controversy, about transferring the shares to the respective family companies and trusts, nor any suggestion that by doing so the parties were walking away from the Shareholders Agreement; that Basil no longer required Joel to perform his part of the bargain; or that Joel did not think he needed to. Clause 12 of the Shareholders Agreement provided that it was binding on the parties "as well as their heirs, successors and assigns".
The defendants submitted that a proper construction of the Shareholders Agreement, determined by what a reasonable businessperson would have understood the terms to mean (Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]), was that Joel's entitlement to the 10% Crow Inn shares and $1 million was not conditional upon completion of 5 years' service as general manager. Otherwise, why did Basil transfer 10% of his shares in Crow Inn and the $1 million loan account before Joel completed 5 years as general manager? I suppose the answer is that clause 1 and 2 required Basil to transfer the shares "upon the execution of this agreement" and pay the loan account balance. The sequence of obligations specified in the Shareholder Agreement required Basil to perform his obligations but also clearly specified that "In consideration of such transfer and payment JB shall … remain as Manager … for a minimum period of five years from the date of this agreement". The construction contended for by the defendants is at odds with the plain words of the agreement.
I accept the defendants' submission that there is nothing in the Shareholders Agreement requiring Joel to resign as a director. Clause 11 required Basil to sign all documents necessary to appoint Joel as a director of Puddy but did not make Joel's tenure as director conditional upon his performance of his obligations under clause 3. That, of course, does not solve the problem of deadlock, indeed, it ensures that the problem continues.
Further, it was submitted in the defendants' closing submissions that clause 3 was unenforceable as a penalty and that the plaintiffs were estopped from seeking to recover the 10% shares. As neither issue was pleaded, and the plaintiffs submitted that they would have run their case differently if these issues had been pleaded, I do not propose to consider these matters further.

[46]

Conclusion

Section 175 provides: 175 Correction of registers A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected. …
This section does not confer jurisdiction on the Court to rectify the register but assumes the Court's general equitable powers to do so: Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 at 558; HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230; [2015] VSC 519 at [19]; Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62 at [53]. The Court's power to rectify the register is discretionary; the applicant must show a personal equity for the Court to protect, such as where a person's name is wrongly omitted from the register (Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 51) or a register incorrectly records the number of shares attributed to a person: Re Mogul Stud Pty Ltd [2012] NSWSC 1639, Black J at [7]; see also Re Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 per Black J at [2]-[3].
The case at hand does not sit easily with these authorities, where the share register is sought to be corrected on the basis that the shares were validly transferred to Joel in 2015 on conditions specified in a Shareholders Agreements which Joel has since rejected and, at the time of rejection, had only partly performed. The more appropriate source of power is section 233 of the Corporations Act, which confers an extremely wide discretionary power on the Court to make orders, although establishing oppressive conduct does not in itself lead to a right to obtain a remedy: Shelton v National Roads and Motorists Association Ltd (NRMA Ltd) (2004) 51 ACSR 278; [2004] FCA 1393 at [15]. As Barrett J explained in Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342, "The statutory jurisdiction created by sections 232 and 233 … provides a means by which the Court can look beyond legal rights and do what is just and equitable in the particular circumstances": at [85].
In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413, Young J emphasised the need for proportionality in framing relief to eliminate the oppression found. At [742]: Although there is no reported authority on the matter, my view is that the section should be applied by first considering whether orders can be made for regulating the company's affairs in the future so that there is no further oppression or unfair conduct, if that cannot be done, to see if there should be a buy-out by one faction of another: Re Enterprise Gold Mines NL (1991) 3 ACSR 531 at 539. The remedy chosen should be the least intrusive: Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 at 475. Only as a last resort is the court to make a winding up order of an otherwise solvent company under the section. The flavour of the section also is that the court is only to give the remedy which removes the oppression. Note the remedy in fact given in Re H R Harmer Ltd [1959] 1 WLR 62 at 68. Thus it is not enough merely to find oppression and then proceed to find some remedy that might bring peace to the company generally. The court should only grant the remedy that removes the oppression found.
The conduct of each party is relevant to the relief granted. As Nourse J said in Re London School of Electronics Ltd [1986] Ch 211 at 222; [1985] BCLC 273 at 279 in relation to the English oppression provision (footnotes omitted): The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First, it may render the conduct of the other side, even if it is prejudicial, not unfair: cf Re R.A. Noble & Sons (Clothing) Ltd [1983] BCLC 273. Secondly, even if the conduct on the other side is both prejudicial and unfair, the petitioner's conduct may nevertheless affect the relief which the court thinks fit to grant under subsection (3). In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands. This passage was cited with approval by Young J in Morgan v 45 Flers at 706.
What is just and equitable in the circumstances of this case, if anything, to regulate Crow Inn's affairs in the future so that there is no further oppression or unfair conduct? How does the Court remove the oppression in the least obtrusive way? The unfairness here is that the then shareholders of Crow Inn agreed that, if Joel served as general manager for five years, then Joel would be entitled to a greater shareholding and receive $1 million credited to his loan account in another company, Puddy. When the parties fell into dispute - because Joel was pursuing the Forsyth Street development, initially without the knowledge of and, then, in defiance of Basil and where there was a real or substantial possibility of conflict between Joel's own interests and those of Crow Inn - Joel rejected the Shareholders Agreement as governing what should happen next. Joel nonetheless seeks to maintain a greater shareholding in the company, and the benefits which flow from that.
It is correct, as the defendants submitted, that when Joel's letter of 18 June 2018 was sent, Basil had already received the benefit of Joel having served as general manager for some time. Although the agreement was undated, Basil signed it in August 2015 and Joel signed it in September 2015. Joel's obligation to serve five years as general manager ran "from the date of this agreement". By my calculations, Joel had served as general manager for 2 years and 9 months after executing the Shareholders Agreement. That said, it was Joel who then contended that the deal recorded in the Shareholders Agreement was not binding upon him, in an attempt to thwart Basil's efforts to buy him out in accordance with the terms of that agreement. The defendants further submitted that Joel has since effectively performed his obligation under clause 3(a) of the Shareholders Agreement by continuing to be general manager, albeit, by my calculations, his resignation came into effect 4 years and 8 months after he executed the Shareholders Agreement. Whilst there is no doubt that Joel continued to work as the general manager after June 2018, I do not think it can be suggested that he continued to serve in that role in performance of his obligations under the Shareholders Agreement which he had so clearly rejected.
In the circumstances of this case, I consider that it is just and equitable that Joel return the 10% shares in Crow Inn which were transferred to him under the Shareholders Agreement. To the extent that Joel has served as general manager for five years, whether in performance of the Shareholders Agreement or otherwise, Joel has been compensated by the $1 million standing in his loan account with Puddy, which Basil does not seek to recover. In addition, Joel has received over $200,000 in dividends referable to the 10% shares. There is no evidence of the value of Crow Inn shares, however, I note that the net assets of Crow Inn as at 30 June 2019 were some $700,000 and thus the value of a 10% shareholding in Crow Inn is likely to be far less than the $1 million loan account or dividends received. The unfairness which has ensued since Joel's rejection of the Shareholders Agreement can be remedied by returning the 10% shares to Basil whilst leaving the other financial benefits conferred by the agreement with Joel in recognition for services provided to the hotel.

[47]

BUY-OUT

The principal relief sought by Basil was an order to wind up Crow Inn and Puddy on just and equitable grounds. Alternatively, the plaintiffs submitted that a buy-out order should be made under section 233 of the Corporations Act on account of Joel's oppressive conduct, such that Basil would buy-out Joel. The defendants sought a buy-out order in respect of Basil's oppressive conduct (which has not been established) such that Joel buy Basil's share in Crow Inn, with no orders made in relation to Puddy. Thus, Basil does not want a buy-out order and Joel has not established an entitlement to such an order. Nonetheless, by reason of section 467(4) of the Corporations Act, I must consider whether such an order should be made rather than a winding up.
Speaking in favour of a buy-out order in his favour, Joel submitted that, while it may be unusual to order a majority shareholder to sell its shares to the minority, it was appropriate in these circumstances: Ample Source International Ltd v Bonython Metals Group Pty Ltd (No 6) (2011) 285 ALR 488; [2011] FCA 1484 at [330] per Robertson J. Joel was said to have developed a deep familiarity with the business. He and his wife were said to have worked at the hotel without wages for some seven years, only earning income from dividends and trust distributions. Further, the hotel had sentimental value to Joel. Joel's position was said to be contrasted with Basil's. If the Court was to require Crow Inn to be wound up in circumstances where Joel was required to transfer to Basil 10% of the shares in the company, it was submitted that Basil would receive the benefit of seven years' free labour from Joel and his wife. The option of allowing Joel to purchase Basil's shares in the hotel business provided Joel with a vehicle to recoup some of his loss by greater dividends going forward.
As the principal relief sought by Basil was an order to wind up Crow Inn and Puddy, the defendants submitted that Basil would be no worse off from an order requiring Joel to buy Basil's share of the business. A buy-out order would give each party what they wanted: for Basil, his ability to sell his share of the business, and for Joel, the ability to purchase the entire business. The order would avoid the parties from having to continue to deal with each other in relation to the management of the hotel. A wind up during the pandemic would result in the hotel being sold at a much lower value. If a buy-out order was made, the Court would have greater control over the terms by which Joel purchased Basil's shares in the business, including applying a valuation based on what the business was worth before the effect of the COVID-19 pandemic.

[48]

Conclusion

I note the caution expressed by Austin J in Tomanovic in ordering buy-outs at [44]: Although a compulsory buy-out is often ordered, the granting of such relief is properly subject to the broader principle that the Court will seek to craft orders which are the least intrusive to the management of the affairs of the company, consistent with the termination of the oppression: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, at 742 per Young J; [1998] NSWSC 413; John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63. Consequently, a compulsory buy-out should not be ordered, if less drastic remedies are consistent with the termination of oppression. …
In Snell v Glatis (No 2) [2020] NSWCA 166, Leeming JA observed that the purpose to be achieved by a buyout order is to return the value of a shareholding to the shareholder: at [39]. Such an order should only be made if the Court is satisfied that the person ordered to buyout the shares of another can comply with the order and within the time frame specified: at [41]. Where a shareholder will likely need to realise assets in order to satisfy a buyout order, at [47]: … It is quite possible that the values of the assets will have, in the very different economic circumstances of 2020, materially altered. … If the practical reality is that in order to meet the obligation to pay … Mr Snell will have to realise all or some of the value in the companies, then there is much to be said in support of a liquidator doing so independently of the parties and their sharing the price actually realised.
President Bell agreed at [6]: Although statements may be found in the authorities that winding up is a last resort remedy in a case where oppression is found (see, for example, Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; (1998) 28 ACSR 688 at 742; Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [46]; Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133 at [22]), … the context in which the particular company or companies operate together with their structure and history will always be relevant to the fashioning of appropriate discretionary relief and generalised statements as to, for example, the inappropriateness of ordering winding up in cases of oppression other than as a last resort do not mean that that remedy should not be considered, in an appropriate case, even if neither party in fact seeks it. …
There was no valuation evidence to inform a buy-out order. According to the financial statements for Crow Inn for the year ended 30 June 2019, the company had net assets of some $700,000. As at 30 June 2019, The Puddy Trust had total assets of some $9.7 million with roughly equivalent total liabilities including, in particular, the construction facility of some $3.09 million, a loan from Basil of some $4.9 million and a loan from Joel of some $1.27 million. Basil is by far the largest creditor of The Puddy Trust. There was no evidence of the capacity of Basil or Joel to buy-out each other's shares. Joel is only interested in buying out Basil's shares in Crow Inn, I assume, because he does not have the capacity to buy-out Basil's interest in Puddy and The Puddy Trust.
Joel has told Basil, and is willing, to purchase Basil's 60% share of the hotel business at fair market price "less adjustments" once the issues in dispute between them have been resolved. Joel's offer appears to be subject to a number of conditions and, importantly, did not extend to purchasing Basil's 70% share of Crow Inn, nor Basil's interest in Puddy. At the hearing, however, Joel accepted that "it's time to go" in respect of the business. Making a buy-out order that Joel buy Basil's shares in Crow Inn, but not Puddy, is not attractive as it is unlikely to fix the problems experienced over the last two years. The deadlock in respect of Puddy will likely continue. Relations between lessor and lessee are unlikely to be smooth. The oppressive conduct is not thereby cured.
I infer that Basil is a man of means who, if called upon to do so, may well be able acquire Joel's 30% shareholding in Crow Inn and 40% shareholding in Puddy, noting that Basil has previously offered to do so and presumably had the means to make such an offer. Basil does not seek such an order in these proceedings, except in the alternative. That may be because his efforts to buy out Joel's shares in these companies have been opposed and unsuccessful. I do not think it is fair to require Basil to buy Joel's shares on the assumption that Joel's oppressive conduct did not occur; if the consequence of Joel's conduct is that the value of his shares has fallen, for example, by reason of seeking to advance a nearby hotel development, then there is no reason why Basil should pay more than what the shares are now worth as a consequence of that conduct.
According to Andrew Teece, the COVID-19 pandemic has had a significant impact on revenue of the International Hotel and, if the hotel business is sold now, the reduction in revenue will have an impact on the value of the business. It may well be that the value of the land and hotel business, and thus the value of the shares, has fallen by reason of the pandemic. That loss in value presently affects both shareholders. That loss will be realised if the land and hotel business is sold now whilst those values may recover if the land and business is sold sometime hence. If Basil buys-out Joel's shares now, Basil may do better later on, which may not be fair either, or at least not to Joel. That said, the reason that the shareholders are in this position is largely due to Joel's conduct.
Basil and Joel have also been unable to agree upon this, or anything, even with the assistance of legal and accounting advisers, for two years. In the circumstances, I am not minded to make a buy-out order but may stay a winding up order for a short period to allow Basil to buy-out Joel's shares at a value determined with the assistance of Andrew Teece and Mr Hayes, should he wish to avail himself of that opportunity.

[49]

JUST AND EQUITABLE GROUNDS

As to whether it is "just and equitable" that these companies be wound up under section 461(1)(k) of the Corporations Act and a winding up order be made under section 467(4) of that Act, the principles were elegantly summarised by Hetyey AsJ in Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364 at [19] ff. As noted in In the matter of Crow Inn Pty Limited [2020] NSWSC 601 at [53], a deadlock in the management of the company's affairs is a common case for a winding up under section 461(1)(k) of the Corporations Act where the Court is of the opinion that it is just and equitable in all the circumstances to do so, including where a company was formed on the basis of a personal relationship involving mutual confidence, and that confidence has broken down so that continuation of the association would be futile; or there has been oppression in relation to the affairs of the company: In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775 at [19]-[20] per Brereton J; Boyd v Feeney at [50] per Black J; Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325; [2008] VSCA 86 at [119] (Dodds-Streeton JA, with whom Ashley JA and Forrest AJA agreed); Nassar at [90], [96] and [117] (Barrett J); In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568 at [17] per Black J; Docklands Chiropractic Clinic at [22]. There is, of course, significant overlap between the Court's powers under section 233 and section 461 as conduct in the nature of oppression may also make it just and equitable that a company be wound up: Asia Pacific Joint Mining Pty Limited v Allways Resources Holdings Pty Limited (2018) 125 ACSR 227; [2018] QCA 048 at [62]-[63] per McMurdo JA.
Such an order may more readily be made where a company is in the nature of a "quasi partnership", or "a majority controlled business requiring mutual co-operation and a level of trust", and there has been a loss of trust and confidence, or the loss of confidence frustrates the commercially sensible operations of the company in accordance with the incorporator's expectations and such loss of confidence is justified: Nassar at [77]-[79]; Amazon Pest Control at [18]-[19]; Tomanovic at [49]-[51] per Austin J; In the matter of Austral Alloys Pty Limited [2017] NSWSC 1833 at [18]-[30] per Brereton J. However, the Court is not restricted to exercising its discretion to particular categories; the question whether it is just and equitable is a question of fact in respect of which each case must depend on its own circumstances: Re Catombal at [20].
While irreconcilable differences do not, of themselves, constitute oppression, such differences may establish a basis for winding up. However, a Court is less likely to grant such relief if the person excluded from management as a result of irreconcilable differences was responsible for the breakdown of the relationship: Fexuto v Bosnjak Holdings at [89]-[90]. That said, such conduct is not an absolute bar to a winding up order as, otherwise, neither party could obtain a winding up order where both are at fault; In the matter of Pure Nature Sydney Pty Limited [2018] NSWSC 914 at [70], [74]. That was the position in Pure Nature Sydney, where Black J considered that the conduct of both parties reinforced, rather than undermined, the strength of the case for a winding up. Nor was his Honour minded to postpone a winding up order to allow the parties an opportunity to negotiate a buy-out where the parties had already had ample opportunity to do so, albeit stayed his orders for 14 days to give the parties one last opportunity to avert the closure of their business, which would otherwise follow: at [74], [77].
Whilst winding up should be a last resort, there is no absolute rule that the Court will not wind up a solvent company: Mudgee Dolomite at [293]. Solvency does not operate as a complete barrier to a just and equitable winding up, particularly where there have been serious and ongoing breaches of the Corporations Act: Re Docklands Chiropractic at [24]-[25].
The plaintiffs submitted that there is a deadlock between Basil and Joel. Joel was said to have been primarily responsible for the breakdown in the relationship and the deadlock in the management by reason of the events already described, commencing in March 2018 by buying land in Forsyth Street. Any contribution by Basil to the deadlock was said to consequential upon Joel's earlier wrongdoing or was insignificant as to culpability or causation when compared with Joel's conduct. Thus the principles which, in an appropriate case, may operate such that a claimant who was responsible for the breakdown of the relationship should be less likely to be afforded relief under section 461(1)(k) were not engaged: Nassar at [90], [96], [117] per Barrett J; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd at [89]-[90] per Spigelman CJ); In the matter of Bicher & Son Pty Ltd (2020) 147 ACSR 108; [2020] NSWSC 711 at [123], [128] per Black J.
The plaintiffs submitted that the hotel business is substantial; the financial viability of the hotel is at risk by reason of the COVID-19 pandemic and Joel and his wife's substantial and unjustified claims for unpaid wages total some $1.55 million. The plaintiffs submitted that it was in the interests of the creditors, members and employees of Crow Inn and Puddy that a liquidator have maximum control so as to identify and to implement the transaction that will best realise the value of what is, as a matter of commercial reality, a single economic enterprise. The Court does not confine itself to a narrow legalistic view which seeks artificially to differentiate the affairs of one corporate entity from another in respect of what is, in reality, an integrated commercial venture: Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279; (1987) 5 ACLC 184 per Derrington J; Re Dernacourt Investments Pty Ltd (1990) 2 ACSR 553; (1990) 20 NSWLR 588 at 605 per Powell J; IceTV Pty Ltd v Ross [2008] NSWSC 1321 at [13]. It would be for the liquidator, independently of the deadlocked directors, to consider and, if necessary, obtain expert advice relating to the economic, market and tax advantages and disadvantages of particular transactions and to exercise independent professional judgment.
The plaintiffs submitted that winding up orders under sections 461(1)(k) and 467(4) were appropriate here. The current receiver and manager of Crow Inn, Mr Hayes, should be appointed liquidator of both Crow Inn and Puddy. As an independent officer of the Court, he may then take such steps as are in the interests of all members, creditors and employees, directed to the likely joint disposal of the two principal, closely related, assets, namely the hotel business and the land on which it operates. The assets of both entities should be brought under the control of a single liquidator, appointed by and accountable to the Court, who may make decisions independently of the deadlocked directors.
The defendants accept that there has been a breakdown between Basil and Joel as directors of these companies but say this is because of Basil's conduct in forcing Joel to sign the Shareholders Agreement in circumstances where, known to Basil but then unknown to Joel, Thomas had already gifted the 10% shares in Crow Inn and $1 million loan account balance to Joel. Basil was also said to be responsible for the deadlock by attempting to pass resolutions seeking to wind up Crow Inn and thereby foreclosing any ability of other relief being granted by the Court.
The defendants accepted that Basil and Joel's relationship in Crow Inn had irretrievably broken down. However, the defendants submitted that no orders should be made in respect of Puddy. Whilst, if the Court found oppression within Crow Inn, it may extend its relief to Puddy as the Court can look at the economic entity of a corporate group (see Re Dernacourt Investments), it was said that the Court should not wind up Puddy, or appoint receivers and managers in respect of the Puddy Trust as this case concerned a breakdown in the management of the business of the hotel. The scope of the dispute was said to be limited to Crow Inn, not Puddy. There was said to be no basis to migrate the breakdown in relationship between Basil and Joel from Crow Inn to Puddy. Puddy is a passive landholder trust. Given that the lease included five options to renew, Puddy's status as a passive landholder would not change any time soon. Puddy's role is limited to collecting rent from Crow Inn and distributing the rent to the beneficiaries of the Puddy Trust. The trustee has always distributed the income to shareholders of Puddy in proportions with their shareholding. Puddy does not operate a business: In the matter of Crow Inn Pty Limited [2020] NSWSC 601 at [60]. There was no suggestion that Puddy is insolvent. The winding up of a solvent company is 'drastic' and the 'court is extremely reluctant' to do so: International Hospitality Concepts (No. 2) at 372 per Young J.
The plaintiffs submitted that the deadlock was not confined to Crow Inn but extended to Puddy. It was said to be highly artificial to segment or separate the clear loss of mutual trust and confidence and suggest that it only related to Crow Inn. Where mutual trust and confidence has been lost, it was fanciful to expect that the board of Puddy could function. This was said to be vividly illustrated by the fact that, although the resolutions passed by Puddy on 6 December 2018 spelled out the process of sale, the selling agent and the indicative reserve price, Joel and Basil were unable to co-operate in implementing those resolutions by selling the land. Two years have since passed. This was said to amount to an objective failure, over a lengthy period, on the part of the directors to co-operate in the implementation of the most important transaction in the commercial life of Puddy and of the Puddy Trust. This was said to be strong evidence of a fundamental impasse in the management of the affairs of Puddy. I agree.
The plaintiffs submitted that appointing a liquidator to Crow Inn alone would not break the impasse. The parties would be left with no means to resolve the inevitable deadlock between them. The appointment of a liquidator to Crow Inn was likely to be a catalyst for further disagreement. If a liquidator of Crow Inn were to pursue a sale of the hotel business, and thus an assignment of its lease or the grant of a new lease, an immediate question would arise as to whether Puddy, as lessor, would consent to an assignment of the lease or enter into a new lease and on what terms. How is a deadlocked board of directors of Puddy to resolve such questions? If one or other of the directors objected to the sale of Crow Inn's business, the price, the terms, the process or timing of the sale, or the identity of the purchaser, that director could simply oppose the necessary resolution of the board of Puddy approving the assignment or the grant of the lease and, as a practical matter, that would spell the end of the sale. The same intractable deadlock would arise if Joel and Basil could not agree upon whether Puddy should sell the land, at what price, on what terms or to which purchaser? Or whether Puddy should participate in any marketing or expression of interest process by which the land and the hotel business might be offered for sale together? Or whether Puddy should agree to any variation of the lease, including any variation as to the rent or its duration? It was said to be no answer to say that, in the past, Puddy's day-to-day business functions were limited to the receipt of rent and making distributions to beneficiaries of the Berrigan family.

[51]

CHOICE OF LIQUIDATOR

In the event that I decided to appoint a liquidator, the defendants opposed the appointment of Mr Hayes as Mr Hayes was said to have been dealing with Basil and participated in lengthy meetings with him without any notice to or involvement of Joel. Mr Hayes submitted a report as to his activities to the Court, which was not admitted into evidence, but by reference inter alia to submission of this report, the defendants submitted that Mr Hayes was not approaching his appointment in a balanced way.
In the ordinary course of events, and all things being equal, the Court's practice in winding up cases is to appoint the plaintiff's nominated liquidator: Grocon Constructions Pty Ltd v Kimberley Securities Ltd [2009] NSWSC 572 at [21] per Barrett J; Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380 per Barrett J; In the matter of El Zorro Transport Pty Ltd [2013] NSWSC 1082 at [5] per Brereton J, followed by Black J in In the matter of Hayes Steel Framing Systems Pty Ltd (Administrators Appointed) [2017] NSWSC 385 at [46]; In the matter of Denham Constructions Pty Limited [2016] NSWSC 1425 at [32]. To depart from this approach, there must be a reason, such that there is something to be said between competing nominees in relation to their fitness, qualifications or costs: El Zorro Transport at [5] as followed in Hayes Steel Framing at [46]; Boyd v Feeney at [56] per Black J. It is for the defendants to establish grounds to depart from the usual course: Ausino International Pty Ltd v Apex Sports Pty Ltd [2007] NSWSC 360 at [11].
There is some evidence before the Court as to how Mr Hayes has fulfilled his role as receiver. On 16 May 2020, Joel met with Mr Hayes, and provided information about the hotel. In evidence are a number of emails between Joel and Mr Hayes. It appears that Joel has largely co-operated with Mr Hayes, who appears to have conducted himself in a compassionate and professional manner. On 14 June 2020, Mr Hayes sent a letter to Joel confirming his advice to Joel that morning that he was not to attend the company's trading premises without Mr Hayes' written approval. On 6 July 2020, Joel sent an email to Mr Hayes entitled "Vision", apparently explaining his activities recorded on CCTV; the only boxes removed were said to have been checked by Mr Hayes' colleague. There was also evidence that Mr Hayes has met with Basil at the hotel and reviewed various records. There is no evidence that Mr Hayes has approached his task other than in an even-handed manner.
Three guiding principles in respect of the selection of a liquidator were set out by Barrett J in Workers Compensation Nominal Insurer v Denny Earthmoving & Bulk Haulage Pty Ltd [2008] NSWSC 1167: at [10]-[12]. First, the liquidator must be independent and have the appearance of independence. Second, generally, liquidators should not be chosen by the directors or other principals of the company. Third, the Court should select an option that is likely to incur the least costs. Here, Mr Hayes has acted as receiver for seven months. It is likely, as a consequence, that Mr Hayes has gained familiarity with the operations of Crow Inn, its staff and records, its assets and liabilities. Appointing someone else as liquidator of Crow Inn is likely to be more costly, as a new liquidator appointed to the role will have to gain the familiarity which Mr Hayes already enjoys. Such cost savings are a relevant advantage to appointing Mr Hayes to the position: Workers Compensation Nominal Insurer v Perfume Empire at [8]-[10] (Barrett J).
Appointing different liquidators to Crow Inn and Puddy does not appear to be warranted by reason of any particular difference between the operations of these companies. Rather, it appears that distinct advantages of cost and efficiency are attended by having the same person in these roles. The affairs of these companies have been intertwined since inception. Were it otherwise, there would need to be a significant amount of consultation and co-operation between separate liquidators in order to achieve any co-ordinated sale of the land and business, should that be ascertained to be the best way forward.

[52]

APPOINTMENT OF RECEIVER

The plaintiffs submitted that Mr Hayes should also be appointed receiver and manager of the assets of the Puddy Trust. Such an order was said to be appropriate in circumstances where the making of a winding up order in respect of Puddy will bring an automatic termination of Puddy's appointment as trustee; the appointment of a receiver and manager over the trust property will secure Puddy's right, as former trustee, to be indemnified out of the assets of the trust; and this will enable the receiver and manager to realise the assets of the trust so that, as far as possible, liabilities incurred by Puddy in the performance of the trust can be met: see Bailey (Liq) v Rock Solid Rendering Pty Ltd (in liq) ATF Rock Solid Trust [2020] FCA 600 at [19]-[22] per Gleeson J; Re Knight, Second ICO Pty Ltd (in liq) (2020) 144 ACSR 329; [2020] FCA 608 at [16]-[18], [24] per Anderson J; In the matter of Glenvine Pty Limited (in liq) [2020] NSWSC 866 at [43]-[47] per Black J.
The defendants agreed that the winding up of Puddy would cause the position of the trustee of the Puddy Trust to become vacant. A receiver and manager would need to be appointed in respect of the trust assets, including the land: Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17. The defendants proposed that the Court exercise its power under section 70 of the Trustee Act 1925 (NSW) or its inherent jurisdiction to appoint a new trustee on the basis that it is expedient to do so where the dominant consideration is the welfare of the beneficiaries of the trust: Aspinall v Aqua Sports Pty Ltd [2018] NSWSC 706 at [18] per Ward CJ in Eq. The defendants suggested that Simon Cathro or the NSW Trustee and Guardian be so appointed.
The defendants submitted that, while the Puddy Trust is a discretionary trust, each of the beneficiaries have a right in equity to the due administration of the trust, irrespective of whether they have a fixed and transmissible benefit in the trust income or property: Australian Securities and Investments Commission, Re Richstar Enterprises Pty Ltd v Carey (No 6) (2006) 153 FCR 509; [2006] FCA 814 at [26] per French J; Spry v Kennon (2008) 238 CLR 366; [2008] HCA 56 at [125] per Gummow and Hayne JJ. The trustee has a fiduciary duty whether and in what way it exercises its powers: Spry at [125] per Gummow and Hayne JJ. The power of Puddy to sell trust property must be exercised "bona fide having regard to the purpose for which [the power] was established": R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59 at 79 per Owen J. JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (LexisNexis, 2016) [16-08]. The concerns of the directors of a trustee company are not limited to the company's shareholders; they extend to acting in the interests of the beneficiaries of the trust: Elders Trustee & Executor Co Ltd v Higgins [1964] ALR 408; (1963) 113 CLR 426 at 452-3 per Dixon CJ, McTiernan and Windeyer JJ. It was submitted that this power could not be exercised just because Basil considered he could not co-operate with Joel in the running of the business of the hotel.
The defendants submitted that to require a sale of trust property would prevent the trust and its beneficiaries from enjoying the benefit of up 25 years of rental income. On no view would a sale of the freehold be a bona fide exercise of the trustee's power. To this, the plaintiffs noted that it would depend on the circumstances at the time when the power of sale was exercised, noting that the sale price of the land would factor in the rental stream. Further, the defendants submitted that the parties had a conflict of interest in seeking to wind up of the trustee company and dissolve the trust. Basil was said to want to aggregate the freehold with the leasehold to increase his own financial interests. Basil's interests as a shareholder of Crow Inn did not align with the interests of the beneficiaries of the trust, who would be relinquishing an asset and losing the benefit of a potential revenue stream under a long term lease.
Further, the defendants submitted that whilst Puddy was a defendant in this proceeding, it was unrepresented. Whilst the beneficiaries of the Puddy Trust did not have a right to trust income or trust property except as determined by the trustee, they had a right to have their 'interest protected by a court of equity': Gartside v Inland Revenue Commissioners [1968] AC 553 at 617 per Lord Wilberforce, considered by French J in ASIC v Carey at [27]. While it was not necessary for the plaintiffs to join the beneficiaries to the proceedings, the Court needed to consider whether their interests were likely to be adequately represented by the existing parties or whether Joel and Phatso were sufficient contradictors: rule 7.12(2), Uniform Civil Procedure Rules 2005 (NSW); Dulhunty v Dulhunty [2010] NSWSC 1465 at [21] per Slattery J.
The plaintiffs submitted in reply that the very fact that any power of sale to sell trust assets must be exercised for the proper purpose was a good reason for that power to be reposed in an independent liquidator rather than in the hands of deadlocked directors. Nor was the fact that Puddy was unrepresented said to present an obstacle to making a winding up order and appointing a receiver. Rather, the Court would be concerned to ensure that the interests of beneficiaries were adequately protected and this, of itself, would be a reason to so appoint a liquidator and receiver so that the decision-making for Puddy could be placed in the hands of an independent officer of the Court.

[54]

ORDERS

For these reasons, I make the following orders: 1. Pursuant to section 233 of the Corporations Act 2001 (Cth), order that the share register of Crow Inn Pty Limited be amended to record that the first plaintiff, Netjay Pty Limited (ACN 616 556 220) owns 70, and the second defendant, Phatso Investments Pty Limited (ACN 618 226 216) owns 30, of the 100 shares in the issued share capital of Crow Inn Pty Limited (ACN 167 225 498). 2. Pursuant to section 461(1)(k) of the Corporations Act, order that the first defendant, Crow Inn Pty Limited, and the fourth defendant, Puddy Pty Limited (ACN 147 765 017), each be wound up by the Court. 3. Order that Alan John Hayes be appointed liquidator of Crow Inn Pty Limited and of Puddy Pty Limited. 4. Order that Alan John Hayes ("Receiver") be appointed receiver and manager, without security, of the assets, property and undertaking of the Puddy Trust ("Assets"). 5. Order that, as receiver and manager of the Puddy Trust, the Receiver have, with respect to the Assets, the powers that a liquidator has in respect of a company pursuant to section 477(2) of the Corporations Act, including the power to realise the Assets of the Puddy Trust for the purpose of satisfying the indemnity of Puddy Pty Limited under the trust deed of the Puddy Trust. 6. Order that the costs, expenses and remuneration incurred by the Receiver in acting as receiver and manager of the Assets of the Puddy Trust, be paid from the Assets of the Puddy Trust. 7. Stay Orders 2 to 6 for fourteen days to permit the plaintiffs to buy-out Phatso Investments Pty Limited's shares in Crow Inn Pty Limited and Puddy Pty Limited, at share prices to be determined by Andrew Teece and Mr Hayes in consultation, with Mr Teece and Mr Hayes' costs of determining the share prices to be paid by the plaintiffs in the first instance. 8. The interlocutory process filed by the second and third defendants on 3 June 2020, and the points of claim filed by them on 27 July 2020, be dismissed with costs. 9. The second and third defendants are to pay the plaintiffs' costs of the proceedings and half of any costs paid by the plaintiffs under Order 7. 10. Grant liberty for any party wishing to be heard in respect of any errors or omissions, or any variation of Order 7 or Order 9, to apply within 7 days.

In the matter of Crow Inn Pty Limited (No 2) [2020] NSWSC 1749

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