The facts
9I find the facts to be as follows. Most were not in dispute. If I have had to resolve a contest on the facts I refer to where in this judgment the reasons for a particular finding are set out. Quotations from documents are exact. In order to avoid excessive repetition, the expression "sic" has not been used.
10Geoff started in the car windscreen industry in 1974. An old school friend, Mr Carl Moller, was also in that industry.
11On 22 January 2004 Nielsen and Moller Autoglass (NSW) Pty Ltd ("NMA") was incorporated with Mr Moller as its sole director and secretary. From around April 2004 Geoff was employed as NMA's manager. About a year later Karin also began working for NMA.
12NMA traded from premises at Peakhurst (the "Peakhurst Premises"). NMA was the lessee of the Peakhurst Premises for a term of three years commencing 17 March 2004 and expiring on 16 March 2007, with an option to renew for a further three years. The lease expired and NMA did not exercise the option to renew. NMA continued in occupation as a month to month tenant.
13Between 2004 and 2006, Karin and Geoff made loans to NMA.
14In order to secure their past and future loans to NMA, on 20 October 2006 Geoff and Karin, in their capacity as joint trustees of the Rankine Family Superannuation Fund (the "Fund"), entered into a Deed of Loan with NMA (the "Loan") and NMA granted to Geoff and Karin, as trustees of the Fund, a fixed and floating charge over NMA's assets (the "Charge"). The Loan and Charge were subsequently stamped for duty and the Charge was registered with ASIC. As at the date of the Loan the principal sum due was $558,692.68.
15In September 2007 Mr Moller, while remaining a shareholder of NMA, ceased his active involvement with NMA, other than to continue as a commission agent for the supply of stock. Geoff became NMA's sole director and secretary and continued to manage NMA's business.
16In October 2007 Asko contacted Geoff to arrange a meeting which took place sometime later that month. At that meeting Asko raised with Geoff and Karin the possibility of a joint venture between them and PGI.
17On 26 October 2007 Ms Maggie Yeung Lo ("Ms Lo") obtained a judgment for $31,000 against NMA in the Federal Court of Australia (National Autoglass Suppliers (Australia) Pty Limited v Nielsen and Moller Autoglass (NSW) Pty Limited (No 8) [2007] FCA 1625). Ms Lo's company National Autoglass Suppliers (Aust) Pty Ltd ("NAGS") was a competitor of both PGI and NMA.
18On 19 December 2007 Karin and Geoff, as trustees of the Fund, issued a written demand to NMA for repayment of the Loan, which was then said to be $649,692.68. NMA did not repay the Loan or any part of it. (It was not an issue in these proceedings, and I make no finding, as to whether or not Geoff and Karin were entitled to make that demand.)
19Southern Cross was incorporated on 21 December 2007, with Geoff as its sole shareholder and director.
20Also on 21 December 2007, another creditor of NMA commenced winding up proceedings against NMA in this Court for failure to comply with a statutory demand which had been served on 22 October 2007. The statutory demand had been issued in reliance on a Local Court judgment against NMA delivered on 6 June 2007 for $34,466.18.
21In exercise of their power under the Charge, on 31 December 2007 Geoff and Karin appointed Geoff as controller of the assets of NMA. (It was not an issue in these proceedings, and I make no finding, as to the validity of Geoff's appointment as controller of NMA.)
22In his capacity as controller of NMA, Geoff decided that all of the assets of NMA should be transferred to Southern Cross in partial satisfaction of the debt which NMA owed to Karin and Geoff as trustees of the Fund under the Loan. No written agreements were prepared to transfer NMA's assets, including such rights as it had to occupy the Peakhurst Premises, to Southern Cross. However, from about 31 December 2007 Southern Cross commenced to operate from the Peakhurst Premises and to use all of the assets of NMA that had been the subject of the Charge. From that date Southern Cross paid rent to the landlord of the Peakhurst Premises.
23On 31 January 2008 Mr Christopher Wykes was appointed as voluntary administrator of NMA.
24On 6 February 2008 Asko reported to Aarne that he was continuing discussions with Geoff and Karin about a joint venture in Sydney.
25On 27 February 2008, in accordance with a resolution of NMA's creditors, Mr Wykes was appointed liquidator of NMA.
26In March 2008 Ms Kiernan left NAGS to join Geoff and Karin.
27On 2 May 2008, on the application of Ms Lo, this Court appointed two special purpose liquidators to NMA (Lo v Nielsen & Moller Autoglass (NSW) Pty Ltd [2008] NSWSC 407; (2008) 26 ACLC 497). The investigation of the circumstances surrounding the loan and the charge was foremost among the special powers given to the special purpose liquidators by the Court. The reason for their appointment was summarised by the Court:
The overall thesis is, in summary, that all assets of value and some favoured creditors were, as it were, shifted out of [NMA] and into Southern Cross, leaving non-favoured creditors with [NMA] which was then subjected to voluntary administration in circumstances where no return for those remaining creditors could be expected. Part of the means of achieving this appears to have been actioned by the Rankines as holders of the charge affecting the whole of the company's property.
28The appointment of the special purpose liquidators was the subject of an article in the Australian Financial Review on 12 May 2008. On 30 May 2008 Mr Robertson forwarded a copy of that article to Karin under cover of an email saying "Have a fabulous weekend".
29Between May and November 2008 negotiations continued between the Rankines and PGI. Key features of those negotiations were:
(1)Geoff and Karin attended meetings on behalf of Southern Cross.
(2)Some or all of Aarne, Asko, Messrs Lindell and Robertson attended meetings on behalf of PGI.
(3)PGI was aware of the special purpose liquidators and Ms Lo's determination that the Loan, Charge and transfer of NMA's assets to Southern Cross should be investigated (see paragraph [105] below). On various occasions Geoff and Karin themselves and through their lawyer, Mr Farshad Amirbeaggi, told Aarne, Asko, Messrs Lindell and Robertson that the transfer of NMA's assets to Southern Cross was legitimate and would survive any challenge. These conversations included a discussion devoted to the topic of the special purpose liquidators between Mr Amirbeaggi and PGI's solicitor, Mr Charles Sweeney.
30On 12 September 2008 Mr Robertson emailed to Mr Lindell a copy of the Australian Financial Review's May 2008 article about the appointment of the special purpose liquidators to NMA (see paragraph [28] above).
31On 13 October 2008 Geoff and Asko inspected potential new premises at Arndell Park in Sydney (the "Arndell Park Premises").
32On 20 October 2008 the Rankines received a two page facsimile from Aarne. The first page contained this message:
Dear Geoff and Karin, Please find enclosed my proposal considering your discussions with Asko on last Thursday in Sydney. I trust that you will be pleased for the offer in these troubled times. I regard this proposition as "winn winn" deal. It is essential that I would retain your unqualified enthusiasm for this joint venture.
Best regards
SGD (Aarne)
PS Ring me to my mobile: [....] when ready.
33The second page was a document headed "Rankines Proposal (3 years)" (reproduced as Schedule 1 to these reasons). The proposal provided for PGI to buy all of Southern Cross' stock for $468,000, for Geoff and Karin to be employed by PGI for at least three years, for each of them to receive a 20% share of profit for three years as well as a buy-out bonus after three years. Making certain assumptions about the profitability of Southern Cross over the three year period, the proposal showed overall consideration to the Rankines for their participation in the transaction of $1,508,000.
34On 27 October 2008 the Rankines responded by email to Aarne:
Dear Aarne, We thankyou for your proposal dated the 20th October 2008. Both Karin and I have read the document you have sent, and agree to the terms of this business venture. As I have mentioned previous all of the Rankines including James Rankine will give all the efforts and energy required to make this venture succeed. We all must put the effort in for this business to be successful so we can be the benchmarks of this competitive industry. In the future Karin and I will look into purchasing shared in the business.
Best regards Karin and Geoff Rankine
35On 27 October 2008 Asko emailed Geoff:
Geoff I am writing and sending Aarne's handwritten note of this morning as follows 'Dear Geoff and Karin, thank you of your acceptance of my offer 20/10/08 for a joint business venture in NSW. With commitment from both of us will no doubt make this venture exiting and profitable.
We are now moving forward drafting the stock purchase document and employment contracts. Asko will be in Sydney on Friday to inspect with you the premesis available in Arndell Park.
Everything is now just on fast track for earliest possible opening for business. I will be following closely the progress from overseas and are ready at any time to give my full support as required.
Kind regards Aarne Valkama
Good work and I am personally glad that we will be able to work together and make some good money.
Cheers Asko.
36On 31 October 2008 Mr Lindell emailed to Geoff and Karin drafts of the ASA and their respective employment agreements for them "to review and discuss with Asko". While the plaintiffs had called in Mr Amirbeaggi to offer an explanation to PGI concerning the special purpose liquidators, in order to minimise their costs they did not retain Mr Amirbeaggi (or any other lawyer) to advise them about the terms of the ASA or their employment agreements.
37On 11 November 2008 Aarne emailed Mr Lindell with copies to Asko and Mr Robertson:
Following our phone-discussion today I wish to confirm that the dedline for the completion of Rankin Purchase Contract ought to be this coming friday 14 November. Only minor amendments without lawyers involvement are allowed in our proposed contract.
You will proceed with maximum urgency for signing the rental contract with the lessor who has accepted our offer for the spacious warehouse in Arndel Park. Asko will move to Sydney for a period required for the development our warehouse, the full range of products and the operations to well functioning level.
PGI must issue a written notice to Rankins that the PGI owned truck in their temporary use must be returned to PGI by monday 17 November unless the purchase contract has been fully signed as stated above.
Best regards Aarne
38On 14 November 2008 Mr Lindell emailed Aarne:
Rankines Deal
Geoff and Karin have accepted the agreement for Asset Sale as it was originally written without major changes. The only minor changes were to ensure all legal costs are pooled together (i.e. both parties pay 50/50 of all legal costs) and that PGI takes care of assigning leases (i.e. van leases) to ourselves. These are reasonable in light of us buying the assets. I will get them the latest copies tonight and get them to put their signatures on paper. Hopefully we will have original copies with his and Karin's signature next week. I believe this is very positive news.
The warehouse in Arndell Park has been secured with a deposit and application for lease. Lease should be prepared next week and we can then hopefully proceed to move in quickly.
39On 15 November 2008 Mr Lindell emailed Geoff and Karin:
Geoff, Karin
as promised in my earlier email, please find attached the latest versions of the Asset Sale Agreement and Offers of Employment.
As discussed and agreed with Geoff earlier today, can you please:
a) Print 3 copies of each document and sign these 3 as originals?
b) Can you please send these originals in an Express Overnight Bag to us at Beenleigh as soon as signed and as soon as possible?
Any questions, please let me know.
40On 16 November 2008 Geoff executed the ASA on behalf of Southern Cross. Each of Geoff and Karin also executed the ASA on that day as covenantors as well as executing the offers of employment made to them by PGI. All of these documents were returned to PGI.
41On 19 November 2008 Mr Robertson and Asko executed the ASA on behalf of PGI in the presence of Mr Lindell. On the same day Asko emailed the Rankines (via their son James), Aarne, Mr Lindell and Mr Robertston:
Having received signed contractual documentation from Geoff and Karin, we together, need to develop the single page 'spiel' document clarifying the new cooperation between the Rankin and Valkama families in the area of NSW for all employees, joint customer bases and competitors.
We have identified that an extensive range of product, personalized and professional service, domestic manufacturing capability and the can do attitude of the only independent national distributor of ARG, (Automotive Replacement Glass) products will continue to offer a reliable and cost effective supply source.
The sooner we announce our 'Family cooperation' the market will accept and respect our joint efforts to offer an alternative supply source.
As we all have vested interests in this doc lets get the message right. Geoff and I think you need to develop the first draft, perhaps Greg you have the next go.
Hopefully we have a doc for Friday.
Asko.
42The relevant provisions of the ASA are set out in Schedule 2 to these reasons.
43The relevant terms of Geoff's employment with PGI are set out in Schedule 3 to these reasons.
44The relevant terms of Karin's employment with PGI are set out in Schedule 4 to these reasons. I shall refer to these together as the "November Employment Contracts".
45After the execution of the ASA and the November Employment Contracts, the parties continued to move towards the integration of the PGI and Southern Cross businesses. These included Geoff providing PGI with Southern Cross' customer price lists and details of Southern Cross' delivery runs.
46On 10 December 2008 Mr Lindell sent to Karin and Geoff draft copies of offers of employment for a number of Southern Cross employees, including Ms Kiernan. This was a step towards satisfaction of the condition precedent to completion of the ASA set out in Clause 4.1(b) of the ASA.
47On 18 and 19 December 2008 Geoff was examined by the special purpose liquidators.
48On 19 December 2008 the ACCC announced that it would not oppose the proposed acquisition of Southern Cross by PGI. This satisfied the first of the three conditions precedent to completion of the ASA set out in Clause 4.1(a) of that document.
49On 24 December 2008 the solicitors for the special purpose liquidators sent a facsimile to PGI copied to Mr Amirbeaggi (who was retained by Southern Cross, Geoff and Karin in relation to NMA):
We act for the Liquidators of the above-named Company. Our clients originally were appointed Special Purpose Liquidators, and under the terms of orders made on 2 May 2008 by His Honour Barrett J, our clients were mandated to investigate specified matters. The terms of His Honour's orders can be seen at Lo v Nielsen & Moller (Autoglass) (NSW) Pty Ltd [2008] NSWSC 407.
His Honour's judgment notes that, from public and other documentation made available to the Court in those proceedings, the former business of Nielsen and Moller had been substantially assumed by Southern Cross Autoglass Pty Ltd ("Southern Cross"), pursuant to the purported exercise of powers under a Deed of Charge dated 20 October 2006 ("The Charge") given by Nielsen & Moller in favour of the Trustees of The Rankine Family Superannuation Fund ("The Fund"). It appears that the business, before and after the purported exercise of powers under the Charge, continued at all times to operate from the same premises, with the same staff, and dealing substantially in the same products and with the same customers.
According to evidence obtained by our client, Mr Geoffrey Rankine is and at all relevant times was a Trustee of the Fund. He is also a Director and sole principal of Southern Cross. He was also a Director of Nielsen and Moller, and was a principal controller of Nielsen & Moller at other relevant times.
In Examination proceedings undertaken by our clients pursuant to Sections 596A and 596B of the Corporations Act 2001, conducted on Thursday and Friday, 18th and 19th December 2008, Mr Geoffrey Rankine, gave evidence that an arrangement in writing had been concluded, involving your Company or an Associate, for the sale, disposition or other dealing with certain assets. Mr Rankine's evidence specified those assets as being the customer base of the business.
The purpose of this letter is to advise you that your Company has been mentioned in evidence in circumstances outlined above.
Our clients' investigations are continuing, but from the evidence so far obtained, we are prepared to advise our clients that there now appears to exist substantial evidence that would enable our client to take action seeking to set aside the Charge on a variety of grounds. If that action is successful, it would have the consequence that we would advise our client each or any of the Fund, Southern Cross or Mr Rankine are, and at all relevant times have remained, to the extent of their involvement, Trustees for Nielsen & Moller of the former assets of that Company, including for present purposes its customer base and all profits derived from trading in that business.
50On 5 January 2009 Mr Lindell sent a copy of the 24 December 2008 letter to Geoff with a letter to him from PGI. The email asked if Geoff could "please review this information and respond to our concerns as quickly as possible". PGI's letter to Geoff said:
PGI has received from McInnes Attorneys the attached letter. It refers to the investigations into the Nielsen & Moller (NSW) Pty Ltd liquidation proceedings.
The concerning part of the letter is the last paragraph which refers to the advice McInnes Attorneys plans to provide to its client. It mainly mentions the fact that they are prepared to advise their clients that there now appears to exist substantial evidence that would enable their client to take action seeking to set aside the Charge on a variety of grounds.
As we understood from conversations with you, the investigations were winding down. However, this now appears not to be the case.
We believe this truly is a matter for you to sort out with your lawyers but at the same time it has an impact on our combined efforts. As you may recall, the main thing for PGI has been that we would in no way become involved or implicated in this legal matter. Thus, it would be the position of PGI at the moment that we cannot move forward with the deal until this legal matter is resolved or we receive full assurance that we will not be drawn into legal actions between Southern Cross, Nielsen & Moller and any other third party. What is the latest status and when and how can PGI be assured they cannot be drawn into this conflict?
In the mean time, we want to continue to work in harmony with Southern Cross, both helping each other until any encumbrances that may exist as a result of legal action are satisfactorily resolved.
Thus, can you please ask your lawyers to provide us a full written briefing on what is the latest status and what are the next steps that will be taken to resolve this investigation? If you have any questions, please do not hesitate to contact us.
51Sometime in January 2009 after receiving this letter Geoff and Karin spoke to Mr Lindell. They said they would be responding after they had consulted Mr Amirbeaggi, who was then on holiday. There never was a formal response from Geoff, Karin or Mr Amirbeaggi. It was PGI that pushed matters along.
52On 21 January 2009 PGI entered into a lease of the Arndell Park Premises for a three year term commencing on 1 January 2009 with an option to renew for a further three years (the "Arndell Park Lease").
53On 23 January 2009 Mr Robertson wrote to Southern Cross, Geoff and Karin on behalf of PGI (the "23 January Letter"):
This is a formal letter to inform you personally and Southern Cross Autoglass Pty Ltd ("Southern Cross") that as a result of recent evidence in terms of the legal matter which you have going on and its potential impact on the business assets of Southern Cross, Protector-Glass Industries Pty Ltd ('PGI') has no other choice than to issue you with a notice period to try to resolve the legal matter before we decide whether the Asset Sale Agreement is capable of completion.
The basis for this decision is legal as the evidence our lawyers have been able to gather indicates a level of uncertainty over the title and ownership of Southern Cross' assets and in particular the inventory. Effectively, PGI believes it is caught in the middle because on one hand your lawyers are saying that everything is alright whilst on the other hand, court documents express uncertainty about the validity of the Fixed and Floating Charge. Further, no details have been provided to us to explain the transactions under which the Fixed and Floating Charge was used to convey the assets from Nielsen & Moller to Southern Cross. Thus, there are serious concerns that PGI may eventually face litigation after proceeding with the deal as PGI has no certainty over ownership of the assets.
All of the above means that currently there is no other choice except to provide a notice period of thirty (30) days from the date of this letter during which you need to resolve the legal matter that is causing uncertainty over the fact that Southern Cross does not seem to have an unqualified right to sell its assets to PGI. This is the legal advice we have received and we must stand by it. This is based on the stance that PGI has clearly stated from the outset that if there was any hint of us being drawn into the legal matter, we would not be able to proceed with our commercial arrangement.
We have been advised that the best ways for you to resolve the legal matter within the notice period would be either:
(a) Obtaining a declaration of a Court that Southern Cross has good title to the business assets it is planning to sell to PGI as stated in the Asset Sale Agreement; or
(b) Conclude a 3-way deal between you, PGI and the Special Purpose Liquidator. This 3-way deal would involve all parties getting together prior to any deal being completed between us and ensuring that the legal matter is settled. This could be achieved by getting a release from the Special Purpose Liquidator that you and PGI would not face litigation in the future as Southern Cross has obtained what PGI deems unqualified ownership of its business assets.
If either one of the above is obtained within the notice period, PGI would then be happy to proceed with the Asset Sale Agreement because PGI still views that a potential business opportunity exists. Hopefully you understand and feel the same way that any potential business opportunity should not be hindered by a legal matter which could paralyse both parties if we join together without the assurance that you and PGI have been released from any further litigation. PGI views that such a scenario can only be achieved once you have settled your legal matter. We hope the prospect of a good business opportunity will now drive you to settle all of the legal matters as appropriate so that we can create value for you and PGI in the future.
Naturally, in the mean time PGI is ready to fully co-operate with you so that the business assets will be saved for mutual benefit. As you know, currently we have in place a temporary arrangement to support specified aspects of the Southern Cross business, which includes inventory. However, PGI believes that if at the end of the thirty (30) days your legal matter has not been resolved, we will need to review the support arrangements with you.
Further, if at the end of the notice period you have been unable to resolve the legal matter and PGI is still unclear over the ownership of the Southern Cross business assets, we will have to terminate the Asset Sale Agreement. This is based on the fact that you have been unable to provide to PGI evidence that Southern Cross has good title to the business assets.
This has not been an easy decision and we have considered many different solutions before taking this course of action. Crucially though, the communication that has been directly aimed at PGI has reduced our confidence in the fact that we would not be drawn into your legal matter. Thus, this left us with the only option of issuing this letter. We hope that you can resolve the legal matter within the notice period.
54Mr Robertson gave evidence that in early February 2009 he had a telephone conversation with Geoff where the latter had said that he (Geoff) felt that the NAGS claim would potentially affect the arrangement that was being made between Geoff and PGI. I do not accept such a conversation took place (see paragraph [106] below).
55Within days after sending the 23 January Letter, PGI personnel adopted a mindset that some arrangement other than that contemplated by the ASA would be entered into. There was a clear assumption on their part that Southern Cross would almost certainly not be able to satisfy the requirements set out in the January 23 letter.
56So it was that on 3 February 2009 Aarne emailed Mr Lindell with copies to Mr Robertson and Asko:
I suggest that an action plan will be drawn up in written format for PA NSW development. The plan should be updated weekly after reviewed in PGI Sales Meetings and faxed and/or e-mailed to above mentioned executives plus AMV.
Few suggested inclusions for the plan:
1. Recommended winding-up of Southern Cross by end February.
2. Southern Cross stops trading by end February
- sells stocks how, when, to whom
- close Peakhurst or continue partially as store facility, when?
3. Arndell Park start trading 15 February
- Kathy employed from 9 February
- start-up staff, who doing what
- southern run start-up 15 Mach
4. Asko stay in Sydney until 15 March
- tasks in addition to setting-up racking and stocks
5. Geoff's engagement when legal case allows
- perhaps selling on commission until fully employed
- when employed by PGI will manage PA NSW, continue selling visit throughout the state, salary & profit share as already agreed
6. Karin's engagement to be reconsidered depending on productive role
7. Profitability Statements and Budgets prepared on various, progressive, stages of development
The above is a starter for a living plan with constant omissions and insertions. Perhaps Greg could consider something similar for the remainder of the network in addition to plans that each branch manager should prepare for their own branch.
...
57On 4 February 2009 Mr Lindell replied to Aarne saying that he (Mr Lindell) and Mr Robertson would be in Sydney the next day and, after discussions with Asko, would prepare an action plan. This drew a response from Aarne to Mr Lindell, copied to Mr Robertson and Asko, on 9 February 2009:
Niko,
You did not mention Rankins, Kathy or Southern Cross for your visit to Sydney. It is shortsighted if you did not plan to see our JV partners and the key sales person while in Sydney. The most important party in our plans for NSW is Southern Cross and indeed for the future of PGI is Southern Cross. It is easy to invest into a new facility but to make it pay, get the sales, is another matter. I am more interested in information and latest news conserning Rankins current state of operation than Arndell Park which is known to us.
Would it be possible that our JV partners could be upset and feel suspision after learning that you have been in town and did not wish to see them and let them know about our latestplans. I just hope that this episode does not endanger our efforts in NWS which are sop vital to us.
These are my views as I see them from here. I hope there is something that I do not know related to this matter. I am looking forward to hear both of your views. As a last note we must not let Asko alone being in charge of the good relations with Rankins and Kathy.
58On the same day Mr Lindell responded to Aarne, copied to Mr Robertson:
My email below may not have directly mentioned the Rankines but most certainly our plan was to meet them and Kathy if they were all available. As it turned out, when I rang Geoff Rankine as the main contact in relation to this deal, he was unavailable on Thursday as he was out delivering until late in the evening. I also believe it would not have made sense to just meet with Karin and Kathy as they could have miss-communicated information back to Geoff keeping in mind what Greg alluded to in his earlier email about Karin.
I also did speak with Karin on the phone on Thursday when we were down in Sydney. I discussed with her mainly the fact that PGI was still waiting for a formal response from them to the letter we had sent them. Karin said they were going to see their lawyer the next day, being Friday. They would then get in touch with me about what their lawyer had told them. Karin contacted me on Friday and said that their lawyer would be sending through a written response on Friday afternoon. It is now Monday afternoon and I have received nothing from them.
I believe we have kept in touch with them as much as we can given the current situation of the deal. As far as I can see it, we do not yet have an Asset Sale Agreement deal and this is the key decision for any other deal we may finalise with Rankines. Thus, we have kept Rankines in the loop as to what we are doing at Arndell Park and even Geoff has seen this first hand as he visited the branch. They know we are setting everything up that is required to operate out of Arndell Park. However, the Rankines keep asking about the opening date which we can only finalize now with Asko after seeing last Thursday at what stage the warehouse setup was and we cannot give any firm commitment to Rankines until we have clarification on the legal issue. They keep pressuring PGI to say what exactly are the plans (i.e. how we plan to service their customers) and we keep telling them that we are setting up. This is complicated by the fact that they have not resolved the legal matter as they firmly believe it is all fine but this really needs to be the case before we can take any other completion steps on the Asset Sale Agreement.
My view of the matter is that we are supporting Rankines as they need with stock and through this they can keep supplying their customers. At the same time, before we can take any other specific steps with Rankines, we need the legal matter clarified as we requested in the letter. PGI has received nothing concrete in writing yet and only verbal indications that actually everything is alright and that there may be other options. I strongly believe that before we can incorporate Rankines into any next specific steps, PGI needs to know where we stand on the deal.
...
59Aarne replied to Mr Lindell on the same day, copied to Mr Robertson and Asko:
Please refer to my e-mail today to Greg. Yes we can give commitments to Rankins which will ensure that JV will take place in some format.
We already a committed to sell SC glas at special price. The JV will take place sooner than later and this we need to express to Geoff. We shall meet and discuss to find a way dispite the legal letter. The stock issue is already almost obsolete as there is very little stock left by now. We must make Geoff and Kathy feel that we are building a new home for them in Arndell Park.
60On 12 February 2009 Mr Robertson emailed to Asko:
In approximately one weeks time, the 30 day notice period to the Rankines will have lapsed.
It is a remote possibility that the Rankines may be able to satisfy the legal requirements that PGI have requested by then.
I doubt it.
I am of the strongest belief that we must have an option #2 to fall back onto if they cannot satisfy the legal requirements.
If we do not have a second plausible option, this could become very messy.
...
61After some further observations, Mr Robertson's email of 12 February 2009 then attached what he described as "a second option in a bid to capture Southern Cross key personnel and customer base". This came to be referred to within PGI as "Option 2":
Protector Autoglass NSW - Option 2 alias 'The Agreed Arrangement' (TAA)
Introduction:
This draft option is intended to fast track an agreed business arrangement between the Valkama and Rankin family to deliver beneficial outcomes to both families.
This simplistic draft may form the basis for improved enhancements by NL, AV, AMV and GR to deliver a version of the original intended outcome. That being the transfer to PGI of the Southern Cross customer base and identified key personnel from Southern Cross. The cornerstone of this proposal is to deliver on the above whilst eliminating any exposure to potential future claims by NAGS on existing ex Nielson & Muller / Southern Cross assets.
An option such as this, acknowledges that the lack of any financial contribution to the significant investment at Arndell Park should be reflected in reduced incentive participation by Geoff (unless Geoff is prepared to make an upfront monetary contribution to cover his 49% share of the costs to date in setting up Arndell Park). This option delivers the Rankine Family an exit plan from Southern Cross Autoglass Pty Ltd that they have been seeking and negotiating for some time. The benefits of our offer to the Rankines include:
● Elimination of Financial stress
● A career path for young James Rankin
● Lifestyle improvement for Karin & Geoff Rankine
● Continuity of supply to all primary and casual customers of Southern Cross
● Ongoing employment of Kathy Kiernan
The 'Agreed Arrangement' (TAA)
1. The business entity named Southern Cross Autoglass will cease trading as at March 1 2009.
2. With the exception of identified staff, there will be no asset contribution to the new venture from SCA (specifically any asset that any other party may deem to have any current or future claim on)
3. Peakhurst location will not remain open as part of Protector Autoglass NSW (PA-NSW) unless conclusive documentation can be provided that it can deliver consistent profitable results immediately without affecting existing sales opps and potential profit of the Arndell Park 'super branch'.
4. Identified Key personnel from that business entity will be offered employment by (PA-NSW), under new contracts.
5. Kathy Kiernan will be offered employment as Sales representative for PA-NSW to promote overall Autoglass and accessory sales for PA Arndell Park & PA Newcastle, commencing February 23 2009 based out of the new site at Arndell Park. Kathy will participate in a similar incentive scheme currently enjoyed by all other PGI sales staff throughout Australia. At this time, Kathy would agreed to promote PA-NSW exclusively.
6. James Rankin will be offered a permanent position within the new Arndell Park super branch on a career path potentially leading to a management position within PA-NSW, commencing February 23 2009. At that time, James would agree to promote PA-NSW exclusively.
7. Geoff Rankin will be offered a two year contract* inclusive of a profit share incentive, based on the end of financial year trading result of PA-NSW (ie Arndell Park & Newcastle) but which better reflects the heavily reduced investment level of SCA into the Arndell Park business venture. His commencement date will be negotiated by AV, AMV and Geoff given that he may be required to assist Karin in finalizing the trading activities and liquidation of assets in relation to the permanent closure of SCA.
Geoff's role in the new venture will carry the title of NSW Regional Manager reporting to Greg Robertson. Geoff will be expected to be intrinsically involved in the successful transition of northern NSW customers, (including the implementation of the 'northern-run'). However, David Hartcher, Newcastle manager will continue to report directly to Greg Robertson (pending further discussion, Glenn Kelly who used to manage our Sydney operation at Auburn, will be appointed as Arndell Park Branch Manager, directly reporting to Geoff Rankine)
8. Kathy and Geoff upon appointment to PA-NSW will immediately promote Protector Autoglass to all potential customers throughout NSW, regardless of who are the principal or casual current Autoglass suppliers to the NSW customer base.
9. Based on the significant investment made solely by AMV in establishing Arndell Park, and all the benefits that the Rankines will receive (outlined in the introduction to this proposal), Karin Rankine will receive (outlined in the introduction to this proposal), Karin Rankine will agree to exclusively promote PA-NSW during and after the winding up of SCA.
At the discretion of AMV and AV, Karin may be offered a short term contract of say 3 months at Arndell Park to assist in transitioning customers over to PA-NSW.
7. It is recommended that within Geoff's appointment contract there be will be a carefully worded clause designed to protect PA-NSW from behavioural distractions - related to his previous business activities, that may have detrimental repercussions to his commitment to the new business entity. (such as a vendetta against any individuals or organizations; or lengthy absences from work due to the pursuance of court actions, etc)
Further, and more importantly is the need for a clause to ensure that the Rankine family, for an agreed period, will not engage, or be an interested party, in any alternative automotive glass business in competition with PGI.
62Option 2 became the subject of an email on 16 February 2009 from Mr Lindell to Aarne, copied to Asko, Mr Robertson and others:
The 30 day notice period for the Rankines Deal as an Asset Sale Agreement is coming to an end within the next week. From the verbal feedback and discussions with Geoff and Karin, it is unlikely that they will be able to provide the proof of ownership PGI is attempting to obtain.
However, based on comments from Rankines and Asko's report from his visit to Peakhurst last week, it would appear that the Rankines are quite willing to entertain another, simple option. I have attached a draft document of the proposal put together by Greg. This is the draft overview of the proposal and naturally we would sit down with the Rankines to figure out the details.
If you could please review this proposal and provide your instructions on this deal. I am sure you, just like everyone else, are getting very anxious to sort this matter out and get on with doing quality business. Kathy also at the moment is looking for answers and I have promised to call her tomorrow to explain the latest. I am sure, if we can agree with Rankines to mutually cancel the Asset Sale Agreement and set another deal, then Kathy could start to work in Arndell Park as soon as possible. I would think this could be in the next few weeks.
I eagerly await your instructions in relation to the above to get this matter moving forward and becoming beneficial for all concerned.
63The "draft document of the proposal put together by Greg" is the document reproduced at paragraph [61] above.
64On 16 and 17 February 2009 Aarne emailed further comments about Option 2 to Mr Lindell, copied to Mr Robertson and Asko. On 17 February 2009 Aarne emailed Mr Lindell, copied to Asko and Greg:
Rankins deal no. 2 must not take weeks to be concluded. I have given Asko a deadline 1 March. Kathy is to start even sooner on the original contract proposal which has as I understand been already agreed on. I am not comfortable with the Greg's proposal. Perhaps it is better that we put the ball first on Rankin's court. If you give Asko a short list of topics to be considered with your and Greg's points of views and let Asko to meet Geoff for seeking Geoff's wishes for engagement. Asko and Geoff should then prepare a simple draft and acknowledge it. After this we could draw up ouir proposal.
65On 18 February 2009 Asko and his then partner Ari met with Geoff and Karin at the Arndell Park Premises. After the meeting he prepared minutes which he circulated to Mr Lindell and Mr Robertson the next day. I accept those minutes as an accurate record of what occurred:
Internal draft only
Niko, Greg
Here are my minutes from yesterdays meeting with G&K R, I was pleased with the spirit of the meeting and Ari could not find fault in their sincerity.
Minutes of meeting 18/2/09 GR, KR, AV, AS Arndell Park NSW.
Asko scheduled a meeting with GR&KR (SCA) to discuss the details of 'option B' presuming that no acceptable assurances are forthcoming regarding the asset sale agreement.
G&K R are passionate to continue servicing "their customer base" as employees of PGI in the region of "NSW". They are also extremely hellbent on 'taking the bitch down', and will continue to pursue their legal rights until they do so. Their estimate was twelve to fourteen months of legal action.
It was agreed that Peakhurst will cease trading on 1/3/09 and that the Rankines will never go into business again. They made an offer to give us a fridge, lounge, table and chairs ... anything we needed for Arndell Park as they will not be needing them anymore. I have suggested that we will be there on Saturday with our truck, as we need many items they they no longer have use for.
SCA have approx: 6000 units of non PGI stock on hand and I suggested that we may assist Geoff in finding non PGI/SCA customers for that stock i.e., Dave Spiteri, John Wilson, Economy Bob .... in order to not disturb any potential sales from Arndell P.
Will we continue to supply product until 1/5/09 for SCA to liquidate stock in prepackaged box lots? AV said yes, only if sales are to non PGII/SCA customer base.
Kathy will commence employment with PGI 23/2/09 and we must determine a suitable vehicle for her before then as she cannot drive a manual (apparently).
Karin would start 1/3/09 and drive the Falcon ute ?, as we agreed that MERCEDES company cars are inappropriate at our new branch.
$50K per annum, etag, fleet card and phone. Not interested in % bonus.
Geoff would potentially start 1/5/09 @ $65k +++ after stock liquidation that does not impact detrimentally to PGI sales, on a performance incentive (% of nett profit) as agreed with Aarne.
A pricing meeting has been scheduled for 7.30am Monday 23 to determine if the new PGI pricing is accepted / rejected by the SCA group, GR, KR, KK, i.e., do they want a job.
AV and SW will visit Jennigns and Campsie on Friday to initiate new pricing, product and delivery terms and commitments.
66At the 18 February meeting, Asko made clear that PGI would not complete the ASA if Southern Cross failed to satisfy the requirements set out in the 2013 January letter. However, the concept of "termination" of the ASA was not expressly discussed. The reasons for this finding are set out in paragraph [107] below.
67On 19 February 2009 Aarne sent an email to Mr Lindell, copied to Mr Robertson, commencing "As Asko and Geoff are getting near to completion of initial agreement for Deal No. 2 it is time to prepare drafts of Employment Contracts for Geoff, Karin and Kathy. It seems to me that the drafts already prepared in relation to original Deal No. 1 will apply in most parts" ... Aarne then goes on to make some further suggestions before concluding that "there may be further amendments once the initial overall agreements proposals have been considered between Asko and Geoff".
68On 20 February 2009 Geoff and Karin sent a communication on Southern Cross letterhead to all of their customers:
20/02/09
TO ALL OUR VALUED CUSTOMERS ....
Unfortunately the time has come that we can no longer sustain our position within the wholesale market.
Due to circumstances beyond our control we are now in a position that we can no longer keep trading.
We have put all we can into the fight to keep Southern Cross Autoglass in the wholesale market.
But unfortunately we have not been able to see our way clear of the obstacles that have been put in our way.
Our service to you will continue in the same way you have always been used to.
As from MONDAY 23/February/2009 Kathy will take up a position with PROTECTOR AUTOGLASS INDUSTRIES.
Following Kathy will be Geoff and Karin the following week MONDAY 2nd/MARCH 2009.
Our phone lines will be diverting to Protector Autoglass's new branch at Arndell Park
The Arndell Park branch is well equipped with stock and consumables.
Please be assured we will keep all deliveries and service levels the same.
Our Customers have always been our first priority and will remain so.
We have truly appreciated your loyalty and continued support and friendship throughout what have been extremely stressful and trying times for us all.
We hope that you will all stay with us in our new venture as we all move forward into the future, and what we hope will bring better times for all of us.
Once again a big THANKYOU to all of you for supporting us in the Market
Fondest Regards
Geoff and Karin Rankine
69When PGI became aware of Geoff and Karin's circular letter to their customers, it came as a considerable surprise to PGI. Meanwhile, on the same day (20 February 2009) Asko emailed Aarne, Mr Lindell and Mr Robertson:
Hey Guys here is the current status and my thoughts on our strategy going forward with option 2.
I spoke with Geoff 1.47pm today as he rang me to inform me that he has informed his staff that SCA will cease trading as of the 28/2/09, and that new arrangements have been made with PGI.
The Arndell Park branch is ready to service our existing Sydney account customers from Monday 23/2 and SCA customers from 1/3/09 when Karin joins us.
Karin is not interested in 'Profit Share' and I suggest we offer her $50K, ute, etag and phone.
Geoff could be offerd $55K, etc and also a handsome 15% nett profit share for him to ensure Karin, Kathy and himself do their best to bring the customers home. To drive this home I believe the third year profit should increase to 20% and then we renegotiate.
This will spurr Geoff on as they can really see some $$$$$ by then. Then retire to Perth (Karin's dream)
I also suggested to Geoff that we could offer support to assist him in liquidating the SCA stocks, utilizing PGI market knowledge by indicating potential NAGS customers on a National basis.
No Mercedes Benz company cars but one Falcon ute (Karin) and one Hilux Canopy Ute (Geoff). Both ex SCA.
James Rankine could be offered a driving position after he has helped Geoff move the stock with our assistance / guidance.
Food for thought, look forward to suggestions.
70Also on 20 February 2009 Mr Amirbeaggi, as solicitor for NMA, Geoff and Karin, sent an email to the special purpose liquidators' solicitor which included:
We note that in your letter to Protector Glass Industries Pty Limited dated 24 December 2008, you state:
Our clients' investigations are continuing, but from the evidence so far obtained, we are prepared to advise our clients that there now appears to exist substantial evidence that would enable our client to take action seeking to set aside the Charge on a variety of grounds."
Our clients' have now suffered significant loss in the trade of their enterprise by reason of your clients' interference in their commercial affairs, and we are in the process of preparing a Statement of Claim seeking Orders against your clients for damages. As earlier requested of you, might we kindly have you provide particulars of the evidence available to you and your clients at the time of writing of the 24 December letter that satisfied you there were a variety of grounds upon which your clients could have the Charge set aside. Might we have any such particulars from you within 7 days of this correspondence.
This is an "open" communication. Should our client receive the particulars from you after the time stipulation given, and once proceedings are on foot, they will tender a copy of this, and earlier correspondence on this issue, before the Court in support of their application for Order and without limitation for costs.
71During the day of 20 February 2009 Mr Lindell sent an email to Aarne, Asko and Mr Robertson which commenced:
All,
Please find attached a summary document of the key points I believe need to still be agreed with Rankines if the proposal no.2 will work for all parties concerned. If you can please review this document and provide your views, that would be great. Also, please let me know if there are key points I have missed and we can incorporate these.
Asko - I believe that at Monday's meeting it will be imperative that you discuss each of these points and then get Rankines to sign this document so that they indicate their understanding.
72Mr Lindell's summary of key points was:
The key points that need to be agreed by all parties involved are:
(1) The previously signed, yet not completed, Asset Sale Agreement will be mutually cancelled by PGI, Southern Cross and the Rankines and all parties release each other from any further and future obligations. All parties agree this agreement is no longer valid.
(2) As already indicated, Southern Cross will be ceasing to trade on 28 February 2009. PGI will be taking on any appropriate ex-Southern Cross employees at its own independent branch in Arndell Park. Some ex-Southern Cross employees (i.e. Geoff, Karin, Kathy) will be offered employment contracts on the basis that they will be trying to entice as many ex-Southern Cross Customers to be serviced by PGI.
(3) The Rankines will not be required to make any financial contribution to setting up Arndell Park. They will be renumerated as appropriate through employment contracts with PGI.
(4) The employment contracts for Geoff and Karin will still include restraints of trade clauses. This is still appropriate because as PGI employees they will still be able to maintain contract with the customers and PGI needs some assurances that the customers that they are able to entice to be serviced by PGI will remain with PGI.
(5) The customer base from Southern Cross will need to be serviced at PGI set prices. As the branch at Arndell Park is likely to initially be top-heavy in terms of senior personnel, it would be detrimental to be providing ex-Southern Cross customers lower prices than loyal PGI customers (i.e. PH Jennings)
(6) Rankines acknowledge the fact that they have an on-going legal case that is related to Nielsen & Moller. If the impact of this legal matter becomes too severe and impacts productivity of Geoff or Karin as employees, the parties will mutually agree to review the employment contracts in light of what is best for all concerned.
(7) The stock from Peakhurst, which will remain property of Southern Cross, will be liquidated in such fashion as to cause minimal disruption to the Arndell Park operation.
73On the evening of 20 February 2009 Mr Lindell circulated by email to Aarne, Asko and Mr Robertson further draft employment contracts for Geoff, Karin and Ms Kiernan and invited comments.
74On 22 February 2009 (a Sunday), the deadline given by PGI in the 23 January Letter expired. At no time thereafter did PGI purport to terminate the ASA by reference to the 23 January Letter or for any other reason.
75On 23 February 2009 Ms Kiernan commenced work with PGI.
76On the morning of 23 February 2009 Asko met with Geoff and Ms Keirnan at the Arndell Park Premises. He prepared a set of minutes, which I accept as accurate save that they are dated "22/2/09", which included:
AV met with GR at 7.15am to reconfirm the timeline agreed last week for employment and the transition of customer service operations. Followed by discussions regarding the primary terms of his and KR's employment contracts.
It was agreed that KR would commence employment with PGI on 1, 3, 09 on a normal employment contract of $50k as operations manager, focussing on accurate administration, inventory management and customer service.
GR would commence employment on 1/5/09 on a normal contract of $60k and an incentive bonus of 15% of nett profit to be paid biannually. GR will liquidate his stock to non PGI or current SCA customers and PGI would assist him in doing this, not only in NSW but interstate. I had suggested that PGI could continue to supply GR untill 1/5 but AMV thought not. AMV suggested that after the 1/5 we may purchase remaining saleable products.
GR offered PGI a similar rental agreement for his small truck come Monday 1/3 and has allowed Kathy to drive the Falcon ute until PGI come up with a four door sedan.
Discussions were held between Kathy, GR and AV regarding pricing, service levels and operational requirements to successfully transition the SCA customer base. Detailed listings of all the individual runs and Metro delivery opportunities were drawn up commensurate with the operational detailed plan and timeline.
Pricing is the most significant point of conjecture with GR and KK suggesting that we do not change the current SCA price to the Sydney Metro customers. ...
77Mr Lindell's suggestion that his "key points" document be discussed and then signed at the meeting was not taken up. Termination of the ASA was not discussed at the meeting, the bulk of which after dealing with the matters set out in the preceding paragraph was devoted to discussing pricing issues. The reasons for this finding are set out in paragraph [109] below.
78Early on the afternoon of 23 February 2009 Mr Amirbeaggi spoke to PGI's solicitor, Mr Sweeney. Shortly after their conversation, Mr Amirbeaggi sent an email to Mr Sweeney under the subject "Southern Cross Autoglass Pty Limited and Protector Glass Industries Pty Limited - Asset Sale Agreement":
Further to our telephone conversation earlier this afternoon, might we firstly have your advice as to whether your client will allow ours a further period of say 7 days in which to consider and respond to the letter dated 23 January 2009 (noting that the writer has been away for most part of the 30 day period, and the lack of attention given to it may in no way be attributed to our client).
Secondly, might we have your advice as to whether your client is prepared to adopt a status quo whilst our client brings an application before the Court to clarify the concern over the threats made by the Liquidator (whilst may consume a period of up to 6 months, even with expedition).
In the absence of some response today, noting it is the last day under the notice issued by your client, we will seek our client's instructions to prosecute an application for Specific Performance of the Asset Sale Agreement (noting that the threat alone by a Liquidator to bring an action does not materially effect title to the Assets, and moreover that your client was on notice of the concern it now complains of prior to entering into the Asset Sale Agreement).
79Later on the evening of 23 February 2009, Mr Lindell sent an email to Geoff attaching Mr Amirbeaggi's email to Mr Sweeney:
As promised and discussed, below is the email that Farshad had sent to our lawyers.
Please can you clarify this email and explain to PGI what it is alluding to given that it was our understanding that we were looking to move on from this deal and are well advanced with Option 2 as you have been discussing in detail with Asko.
Just give me a call tomorrow once you have had clarification from Farshad and let me know what kind of communication PGI should have with Farshad.
80Geoff did speak to Mr Lindell (on the afternoon of 25 February 2009) and confirmed the plaintiffs had legal advice that they could compel PGI to complete the ASA (see Mr Lindell's email set out in paragraph [84] below).
81On 24 February 2009 Aarne emailed Mr Lindell:
Asko hasnot been very clear on the new details after the last discussions with Rankins and Kathy. However, Kathy's contract is as previously and can be confirmed'
Karin is on Doll 50,000, duties as Asko defined plus some from my suggestions. Let me have a look at the final contract.
Geoff's contract can be drawn somewhat later. He will be on Doll 60,000 plus profit share on 15% per annum for first two years and thereafter 5% and negotiable. Other terms as suggested in my previous proposals and perhaps other considerations. I like to see a draft.
Other key points related to Rankins Deal you could plainly confirm or advice by letter to SC and Geoff as appropriate and as we see them.
Let me have a look at the contract and letters before sending them out.
82On the same day Mr Lindell responded to Aarne:
In relation to your email below, since Asko has now taken over the negotiations and leading this deal, I am also not clear on all the new details. As discussed with Asko, there is nothing substantial on paper yet, especially related to any new "deal or arrangement" with Rankines. The latest document I have seen was Asko's minutes this morning.
I have attached Kathy's contract and Karin's as per you instructions below. Any comments, please let me know.
In terms of the key points going out in a letter to Southern Cross and Rankines about new arrangements, I view the situation as such that Asko is in the best position to complete these. I am still very much involved in getting rid of the Asset Sale Agreement as it is unlikely to be completed. However, as I understand, Asko, as per your instructions, is responsible for finalising this Option 2 deal and the majority of the details that go into the deal. Naturally, I can assist in all ways possible if Asko provides drafts and all of the information he has discussed face-to-face with Rankines and Kathy to ensure that all information is in the best business interest of PGI.
Additionally, there has been indications that PGI will be trying to service any ex-Southern Cross customers that wish to buy from PGI starting Monday, 2 March 2009 with Karin's and Kathy's help as they will be PGI employees then. Since I have not been part of the detailed discussions with Rankines and have not had all of the information (but have been privy to significant amounts), I have not been in control of this deal going through in the proposed Option 2 format. From this position, I see that there is a significant amount of detail that still needs to be finalized in the proper manner before PGI could start to service any ex-Southern Cross customers. Just as an example, my understanding is that we are still negotiating the details on other employees who would be required to do deliveries. I know Asko has mentioned a driver but I believe no package has yet been detailed under this new arrangement. Also, since only now we are getting any sensible detail on this Option 2 deal, we may struggle to have vehicles and other things properly arranged by Monday (i.e. properly in PGI's name for insurance purposes, etc). I just want to make a note of these points as naturally all the management team members can assist as required in any way to ensure we get things moving with Rankines but without proper communication and direction from Asko (as he knows what is truly being said between Rankines and him), we cannot simply guess what needs to be done by other PGI staff if things are to get going in an effective and quick manner. ...
83On 25 February 2009 Aarne responded to Mr Lindell's latest email, copied to Mr Robertson and Asko. Before giving some specific instructions about the terms of new employment contracts, Aarne wrote:
I am not either clear on the new deal with Rankins. Thanks haven that we have Asko on the spot in Sydney to drive this through. I do not think anyone else could do it for us considering the ways Rankins are doing business. We just need to keep in close touch with Asko and assist him to drive this through. The Deal No. 2 with Rankins is really no deal at all. We merely attempt to employ them utilising their talents to get all their previous customers and built up the vitally important volume of sales for PGI. The original Asset Sale Agreement is now lapsed and canselled and we should not waste any more time for it.
84On 26 February 2009 Mr Lindell forwarded further drafts of the proposed employment contracts to Aarne as attachments to an email which included:
I understand and hopefully that has been coming through in my previous emails that Option 2 is not really a 'deal' but as part of Rankines and Kathy becoming employed, we specify certain goals that they need to achieve when they become PGI employees. However, I believe even in this case at the very least the new employment contracts should be signed to ensure Rankines are on board with Option 2.
As a point of clarification, the Asset Sale Agreement has not lapsed. It is still awaiting formal completion or cancellation. In terms of the latest information that you should know is that I spoke with Geoff yesterday afternoon and he indicated that he was still discussing the options with his lawyer. He feels that Option 2 is the way forward but at the same time he made it very clear to me that the advice Rankines have received from their lawyer is that they can make PGI go through with the Asset Sale Agreement. Thus, this agreement still needs a formal cancellation letter to be signed by both sides to ensure there are no further complications in the future. In the last few conversations, Geoff has been very non-committal about getting the Asset Sale Agreement cancelled. I believe it is absolutely vital that we get Geoff and Karin to sign this document in the next few days to ensure we are all clear. Please let me know your comments.
85On 27 February 2009 Mr Lindell emailed Geoff (copied to Mr Robertson and Mr Amirbeaggi) what he described as "a document in relation to cancelling the Asset Sale Agreement as part of going ahead with the plans you have discussed in detail with Asko. The operative parts of the attached "Deed of Termination of Agreement" (the "Termination Deed") were:
2. TERMINATION OF EMPLOYMENT
2.1 The parties agree that the Asset Sale Agreement is terminated with effect from the date of this document.
2.2 The parties acknowledge that termination of the Asset Sale Agreement discharges all liabilities and obligations of the parties in relation to the Asset Sale Agreement.
3. EMPLOYMENT
3.1 The parties acknowledge that PGI intends to enter into employment agreements with Karin and Geoffrey.
86On 27 February 2009 Mr Lindell wrote to Aarne, copied to Asko and Mr Robertson, giving what he described as a "detailed report about where I perceive the Rankine deal currently deals". The acuity of this email warrants its reproduction in full:
Attached is a detailed report about where I perceive the Rankine deal currently stands. I have raised my concerns with you earlier in the week, and received your response. I understand that you have probably been discussing this matter with Asko and its likely that his interpretation of this matter differs from my viewpoint.
I am sure you are as frustrated by this matter as me. I am letting you know my thoughts and concerns as a course of action to look after PGI's interests and future. I may be wrong and thinking too far but at the same time I am strong believer of getting all thoughts/concerns out and then deciding on the next best course of action.
The 30 day notice letter alluded to the fact that if we get no resolution in that time period, we would then assess if we still want to complete the agreement. As everyone realized that this is too risky and complicated from a legal perspective, we have already been working on an alternative arrangement (Proposal No.2). As long as this is suitable to all, we would then as I have noted previously sign a document which officially and legally cancels the Asset Sale Agreement. Thus, the Asset Sale Agreement is still awaiting completion or cancellation.
The problem which has arisen in the conversations with Rankines in the days after the notice period ended has been that Geoff is clearly adamant that if we cancel without his consent, he can still make us go through with the Asset Sale Agreement. The view I have on the matter is that if we had now after the 24th February sent out a letter cancelling the agreement, he would probably instruct his lawyer to sue PGI for not going through with the Asset Sale Agreement. Geoff is very firm in his belief that there is nothing wrong with his charges and that this will be proven to be the case and thus he can still make us complete the original agreement. This is even alluded to in an email our lawyer, Charles Sweeney, had received from Geoff's lawyer earlier in the week. This has been noted in the management meeting minutes.
From analyzing Geoff's comments and his stance, he fears that he will be screwed over and that he will get nothing for his business. I would take his comment that he fears he will not be employed by PGI as the indication as to why he is still so strongly saying that he is discussing with his lawyers whether or not to make PGI go through with the Asset Sale Agreement. He did say he does not want to cause any harm to PGI and thus he views that if we can avoid being dragged into any legal matters by not completing the Asst Sale Agreement, then this is better for all and he views that Rankines being just employees of PGI is a better option.
To me, Geoff's comments are somewhat confusing and I am not sure where he is going with all of this at the moment. I get the sense that he is trying to keep PGI on the ropes by saying he has been advised that everything is ok with his legal matters and this will be proven in time. Thus, he has good grounds to enforce the agreement and then even sue PGI if we just cancel the agreement. At the same time though, he speaks about not wanting to drag PGI into this mess and let's just do it the simple way. I must say these sorts of mixed messages from Geoff leave me unsure about what he is actually thinking about doing in terms of his legal matter with NAGS and intentions with PGI.
I then asked Geoff straight up that what is he now expecting in terms of the arrangements going forward. Thus, I have attached new employment contracts for Karin and George after speaking with Geoff today. They are based on the fact that Geoff noted that:
● They both want $55k (up to now it has been Goeff = $60k & Karin = $50k) and no profit share for either one.
● Both to start employment on Monday, 2 March 2009. Geoff feels he should not be disadvantage because he has to close Southern Cross in the mean time and should being paid by PGI starting Monday.
● They want company cars but this has already been discussed in previous meetings.
My assessment would be that Geoff and Karin are likely to sign the attached cancellation deed and their employment contracts if it is all in front of them and ready to be executed. I believe they are getting quite stressed and annoyed with all the legal matter they have to deal with in relation to Maggie. Please let me know your comments. I have also attached the deed of cancellation to this email.
Additionally, I may not have been clear enough in relation to my concerns with the current arrangements as well. As noted, I have not been in control nor had the responsibility in terms of what is going on in Arndell Park at the moment in relation to this arrangement to try to get as many ex-Southern Cross customers to use PGI as their supplier. To be frank, I am not sure in what position PGI currently stands as we have the Asset Sale Agreement still going on yet at the same time all these plans are being made to start servicing ex-southern Cross customers next week. On the face of it, this is simply PGI realizing that Southern Cross has closed their business, we have taken on some employees and potentially if possible, take over some operating leases for trucks to be able to fill a gap in service left by Southern Cross leaving the market place. However, for an outside observer, they could see that PGI has taken all key employees, some equipment and customer info provided by Southern Cross employees to enable PGI to service those customers.
This is a significant advantage and I must honestly say I am not sure how this would be viewed by a 3rd party to the arrangement. It could be seen as a takeover still without anything formally exchanging hands other than employment contracts.
My point is that I am not sure and without professional advice/assistance, if PGI has now caused some other issue by not clearly separating itself from Southern Cross and as a separate company trying to capture some of the gap left by Southern Cross leaving the market place. I am merely raising this as a concern as I do not have the answer without asking someone more knowledgeable than myself in such matters. I am very aware of the fact that we should not be scared of NAGS or Maggie Lo and what she may do but at the same time I would say this is a very valid consideration given that Rankines are in a legal battle with her and she may now associate PGI as supporting Rankines side of the battle when in fact we have taken no side in their argument and have no idea who is right or wrong from those two parties. Also, given that all these new arrangements have been happening even before the 30 day notice period was over and the Asset Sale Agreement still stands, Geoff may look for another angle to get something out of PGI if he feels we have taken his business for nothing.
87On 28 February 2009 Aarne emailed Mr Lindell:
I have learned from Asko that Rankins have acknowledged that the Asset Sale Agreement is now canselled. Geoff and Karin want to be employed by PGI as previously agreed except that the contract should be for 12 months and renewable annually, salaries for both $55K, no profit-share bonus at all and termination clause omitted entirely. I accept all except that there should be a modified termination clause perhaps stating that if the duties as listed are not performed satisfactorily, the sales targets are not fullfilled substansially and PA NSW operates at loss, in these circumstances the employment may be terminated by an advance notice of three months.
I am somewhat conserned [sic] that the Rankins have lost their feith in the success of PA NSW when they have given up the profit-share opportunity.
We need some written obligations from them as we are investing in them quite heavily.
88For the reasons set out in paragraph [110] below, I am unable to determine what the nature of this "acknowledgement" was.
89On the morning of 2 March 2009 Mr Lindell (who was in PGI's Brisbane office) emailed to Asko and Greg (who were in Sydney) the Termination Deed and what he described as "the Rankines' latest employment contracts". He did so "as per Aarne's instructions". In his email Mr Lindell requested that at least two original copies of the various agreements should be signed by the Rankines.
90Late in the afternoon on 2 March 2009 Mr Lindell emailed PGI's solicitor, Mr Sweeney, copied to Mr Robertson. Despite Geoff's denial of what is attributed to him in the first paragraph (he says he told Mr Lindell he needed the letter referred to in the email to give to Mr Amirbeaggi), I accept it as an accurate contemporaneous record of the conversation between Geoff and Mr Lindell:
Geoff Rankine rang me a short while ago about the Deed of Termination of Agreement. Geoff told me that he had spoken with Farshad and that they would be happy to sign the Deed provided that PGI issues a letter stating why we wish to cancel the agreement.
As I understood from Geoff, this is to their benefit as I guess if they instigate some kind of legal action against the Special Purpose Liquidator and Maggie, such a letter would show that their business interests were also hindered by the actions taken by the Special Purpose Liquidator and the various parties involved.
I would have thought it would be in PGI's best interest that if such a letter was issued that it would be state a mutual understanding in relation to cancelling the agreement. Thus, on that basis I have drafted a letter that could potentially go with the Deed of Termination.
Do you see any particular risk for PGI in this case and issuing such a letter? Any future considerations we need to be wary of in terms of what this letter may be used for? Should the letter have disclosure to say it cannot be shown or provided to any 3rd parties without PGI's prior written consent? I am just trying to think of all scenarios here.
Please can you let me know your thoughts as soon as possible as we will try to meet with Geoff again tomorrow and get all documents finalised. Just me a call on the mobile if that is easiest.
91An hour or so later Mr Lindell emailed Geoff with a copy to Mr Amirbeaggi:
As per my discussion with Geoff earlier, please find attached a letter from PGI in relation to the Deed of Termination of Agreement concerning the Asset Sale Agreement.
Hopefully this letter is alright. PGI will sign the letter at the same time as all other documents are being signed.
92The letter attached to Mr Lindell's email was drafted to be signed by Mr Robertson on behalf of PGI and said:
In relation to the Deed of Termination of Agreement concerning the Asset Sale Agreement, we wish to confirm our mutual understanding about the cancellation.
As you know, Protector-Glass Industries Pty Ltd ("PGI") received a letter dated 24 December 2008 from Greg McInnes at McInnes Attorneys. The main point in this letter as per Greg's words was that they "...are prepared to advise their clients that there now appears to exist substantial evidence that would enable our client to take action to set aside the Charge on a variety of grounds."
PGI quickly obtained legal advice on the above matter and this led to a notice being issued to you and Southern Cross Autoglass Pty Ltd ("Southern Cross") on 23 January 2009. The issue put forward in this notice letter related to the concern that was raised by the letter received by PGI from McInnes Attorneys. To PGI, it seemed that there is still uncertainty over the ownership of the assets and the letter from McInnes Attorneys indicated that if PGI were to complete the Asset Sale Agreement without appropriate evidence to show that Southern Cross held good title over its assets, PGI may have been drawn into this legal matter. As you very well know, this is exactly what PGI has said it would want to avoid at any stage in the deal process.
Thus, based on the fact that PGI is still uncertain as to the ownership of the assets and the potential litigation it could face if the Asset Sale Agreement was completed, it is in the best interest of PGI, you and Southern Cross to execute the Deed of Termination of Agreement in relation to the Asset Sale Agreement.
93Later still in the evening of 2 March 2009 Mr Lindell sent an email to Asko and Mr Robertson copied to Aarne:
Attached are the latest versions of:
a) Deed of Termination of Agreementb) PGI letter to Geoff and Karin about the cancellationc) Geoff's Employment Contract (with only the title changed to NSW Business Development Manager as per your and Greg's suggestion on the phone to reflect Geoff's role and also reporting structure in relation to Dave's position in Newcastle so that Dave reports to Greg)d) Karin's Employment Contract
All of the above should be signed at the same time. Further, the signed letter from PGI (b) should not be given to Rankines and Southern Cross until we have received an original signed copy of the Deed of Termination.
94While Mr Lindell said that PGI's letter should not be given to the plaintiffs until they had signed the Termination Deed (which was in the terms set out in paragraph [92] above), at no time did Mr Lindell or anyone else suggest (whether within PGI or to Geoff and Karin) that Geoff and Karin had to sign the Termination Deed before they would receive their new offers of employment.
95On Tuesday, 3 March 2009 the Arndell Park Premises opened for business. Asko and Mr Robertson met with Geoff at the Peakhurst Premises. Geoff signed his new employment contract, initialled Karin's contract and said she would sign it as well. I shall refer to these as the "March Employment Contracts". However, Geoff declined to sign the Termination Deed. Geoff told Asko and Mr Robertson that he (Geoff) would have to consult his lawyer before signing the Termination Deed. He attempted to call Mr Amirbeaggi from the meeting without success. However, Geoff did not give Asko and Mr Robertson any indication when he might return the executed Termination Deed or whether he would execute it at all. The reasons for this finding are set out in paragraphs [111] to [120] below.
96The relevant provisions of Geoff's and Karin's March Employment Contracts are respectively set out in Schedules 5 and 6 to these reasons.
97After 3 March 2009 Geoff commenced liquidating Southern Cross' stock at discount prices to third parties. PGI personnel knew this was happening.
98PGI never pursued Geoff and Karin to execute the Termination Deed.
99Geoff and Karin both commenced employment under the March Employment Contracts.
100By letter dated 28 April 2009 Mr Robertson, as Managing Director of PGI, terminated Karin's employment with immediate effect:
Dear Karin
Notice of Termination - Effective Immediately
We give notice that your employment is terminated effective immediately and without notice, in accordance with clause 8.1(a) and 8.1(c) of your employment agreement (copy enclosed).
Clause 8.1 (a)
Since you commenced employment on 1 March 2009, you were absent from work without permission or explanation on several occasions. On the 25th March, Asko Valkama, motivated by the best of intent, requested you to return to your previous business premises to prepare a list of windscreens, which potentially could assist Southern Cross Autoglass (NSW) in reducing its debt to PGI. This request realistically should only have taken two to three days to complete. Over two weeks later you had still not returned to your place of employment. We understand that during this two week period you undertook a private trip to Perth without consultation with, or permission of, a senior member of PGI management.
Clause 8.1 (c)
We have reports from PGI staff and customers that during your employment you have:
● Made comments to customers designed to divert business from PGI to Southern Cross;
● Made comments to other staff and customers which are derogatory of PGI, its management and business practices and designed to cause PGI damage in the marketplace.
We consider that these behaviours and complaints constitute misconduct on your part which entitles us to immediately terminate your employment with notice.
We reserve our rights in all respects in relation to these breaches.
101On 13 May 2009 PGI commenced the debt recovery claim against Southern Cross and Geoff in the Local Court which has been transferred to this Court.
102By letter date 25 May 2009, Mr Robertson as Managing Director of PGI terminated Geoff's employment with immediate effect:
Dear Geoff
Nearly three months (3) have lapsed since you have been on the Protector-Glass Industries (PGI) payroll. Since your commencement of employment with PGI on March 2 2009, we have observed several aspects of your management and communication style that are far from conducive to standards of performance and behaviour expected from our employees, let alone that of someone occupying an executive role.
There have been too numerous examples of this behaviour for us to ignore any longer. On April 14 2009, we met to resolve a number of these issues. At that meeting you signed an agreement to contact me every Friday morning at 9.00am to provide an update of your activities. Since then, you have only complied twice, (and neither of those calls were on time).
Another aspect of your performance to date of significant concern to us has been your conflicting versions of recent factual events. After consideration, we have opted not to list examples in this letter, but will say, that the ability to accurately recall and follow through with commitments, particularly made to customers is a substantial element of the role you were to fill at PGI. We no longer have the confidence in your capacity to fulfil this aspect of that role.
Another major concern that PGI has about your performance to date has been your lack of commitment thus far and what we consider is your inability to transition from a business owner-operator to that of being an employee.
Supporting this claim are the following examples:
i) Your choice to not participate in a generous incentive scheme as part of your remuneration package.
ii) Your verbal concerns that PGI is too adherent in managing our business within the law and within guidelines of normal ethical business practices in the Australian market.
iii) At no time have you offered to contribute to any of the many business projects underway at your new place of employment at Arndell Park. In fact, after the public announcement that you had decided to close your windscreen business, a staff member was allocated to you for the sole purpose of compiling your inventory holding so that PGI could review that list to assist you in its swift liquidation. Three weeks later that list was still incomplete because you had been "too busy" finding alternate means of clearing the stock from your trading premises at Peakhurst.
iv) Breaching of clause 10.1a by selling product in competition to your new employer, PGI.
v) Taking leave to conduct private business without seeking approval from the relevant personnel at PGI.
vi) At our meeting on April 14 2009, you expressed feelings of being "hard done by" during your employment thus far with PGI. We however, believe that we have been more than accommodating and tolerant in having paid you three months salary for a zero to low contribution. In that same meeting, on your own admission you stated that you felt there wasn't a role for you at the new PGI Branch at Arndell Park, and it was your opinion that it already was too "top heavy".
These examples of your management style and performance, since being on the PGI payroll we find unacceptable and therefore it is our view that you cannot make the contribution to our company that we were lead to believe at the time of offering you employment. Therefore your employment with PGI is terminated effective immediately.