From the mid-1980s the late Lorenzo Pastrello ("the deceased") and his family built a thriving hotel and holiday park businesses at Eagle Hawk on the Federal Highway just outside the Australian Capital Territory. His son Robert ran and was the licensee of the hotel business, and his son Eddy and daughter Luisa were involved in running the holiday park business. Most of the parties to these proceedings are members of the Pastrello family who referred to another by their first names. Without intending disrespect to any party the Court will adopt the same convention.
At the time of his death in 2020, the deceased held one share in Gratory Pty Ltd ("Gratory"), the entity conducting the hotel business, and one share in Eagle Hawk Pty Ltd, the entity running the Holiday Park business.
Due to disagreements about the administration of Lorenzo's estate Ms Tamara Goodwin was appointed administrator of his estate ("the administrator") on 31 May 2023 in proceedings brought by Eddy and Luisa in the Probate and Succession List (proceedings 2022/329340).
On 2 August 2023 Lindsay J made detailed orders in proceedings brought by Eddy and Luisa (proceedings 2023/229489), appointing Mr Andrew Hayes of Hayes Advisory to "supervise" Gratory's hotel business operations. These orders did not authorise Mr Hayes to conduct the hotel business directly and not in the formal role of receiver. The day-to-day management of the hotel business was left in the hands of Mr Damon Townsend, an existing senior employee of the business.
The 2 August 2023 appointment of Mr Hayes was a compromise following the execution of an Anton Piller search order, issued because of demonstrated cash deficiencies in the operations of the hotel business. The Anton Piller order revealed cash in a safe at Robert's residence. Robert has not yet adequately explained the source of these funds, or the other cash deficiencies although he says he cannot do so because of the seizure of Gratory's books and records.
On 5 March 2024 a report from Hayes Advisory revealed cash "unaccounted for" of $420,041 between 31 July 2023 and 26 February 2024. The unaccounted for cash was in the cash banked from and held on the premises of the hotel, contrasted with the cash that would be expected to have been generated from the hotel's ordinary trading operations. The administrator, Ms Goodwin, sought by notice of motion dated 16 May 2024 to have Mr Hayes and his partner at Hayes Advisory, Mr Wayne Marshall, appointed as receivers of Gratory's hotel business operations. Prayers for relief 1 and 2 of the motion sought the following orders:
1. An order pursuant to section 67 of the Supreme Court Act 2005 (NSW), rule 54.3 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and/or the inherent jurisdiction of the Court that Alan Hayes and Wayne Marshall of Hayes Advisory, or such other persons as the Court may decide, be appointed as the joint and several receivers and managers (Receivers and Managers) of the business of the "Eagle Hawk Hotel" (Hotel), being a hotel business conducted at 1226 Federal Highway Service Road, Sutton, New South Wales 2620, and which is owned by Gratory Pty Limited (Gratory).
2. An order that the Receivers and Managers have, in respect of the Hotel, all the powers set out in section 420 of the Corporations Act (other than those referred to in sub-paragraphs (b), (c), (d), (g), (n), (r), (s), (t), (u) and (w)) and as if the reference in that section to "the corporation" were a reference to the Hotel.
3. An order that the need for Receivers and Managers to file security under rule 26.3 of the UCPR be dispensed with.
4. An order that the Receivers and Managers are entitled to be indemnified out of the assets of Gratory for:
a. any debts or liabilities properly incurred by the Receivers and Managers in the performance or exercise, or purported performance or exercise, of any of their functions or powers as Receiver and Managers; and
b. their remuneration as fixed by the Court.
5. An order that the Receivers and Managers have liberty to apply to the Court for further orders, directors and/or advice, including in relation to the remuneration of the Receivers and Managers.
6. An order that the administrator's costs of this application be paid out of the estate of the late Lorenzo Pastrello on the indemnity basis.
7. Such further or other orders as the Court considers appropriate.
Robert does not oppose the appointment of receivers to Gratory's hotel business operations. But he contends for a different appointment. He contends that (a) the receivers to be appointed should not be Mr Hayes and Mr Marshall, as he claims Mr Hayes is not impartial and Hayes Advisory will be too expensive, and (b) any receivership should extend to the business operations of the holiday park operated by Eaglehawk Pty Ltd.
Mr R Notley of counsel (instructed by Glass Goodwin Lawyers) appeared for the applicant, the interim administrator, on the motion. Mr D Cook SC with Mr B Koch of counsel (instructed by Assured Legal) appeared on behalf of the second and third respondents: Eddy and Luisa Pastrello. Mr D Lloyd SC with Ms A Avery-Williams (instructed by Colquhoun Murphy Lawyers) appeared on behalf of the fourth to seventh respondents: Robert, Carl, Christian and Massimo Pastrello.
The Court dealt with this matter in the Friday probate motions list at 2 PM and made orders on that day. To assist the parties in any argument concerning costs the Court has decided to publish the following short reasons for those orders.
This was an interlocutory, not a final hearing. These reasons include some more facts relevant to the interlocutory issues in the course of the analysis below of the arguments Robert advanced. In such a hearing, the Court's reasons cannot encompass all the relevant facts. Except where the facts are uncontentious, the Court's analysis below should only be understood as a limited summary of the relevant facts, and is mostly expressed, as a forecast of the kind of evidence that each party proposes to adduce at a final hearing. First it is useful to state some applicable legal principles.
[2]
Applicable Legal Principles
Under Supreme Court Act 1970, s 67, the Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. Alternatively, the Court may appoint receivers and managers under its inherent jurisdiction.
In exercising its power to appoint a receiver pursuant to s 67, the Court is wary that it is a remedy that ought to be exercised with care and caution and as a last resort: Sengthong v Lao Buddhist Society of NSW Incorporated [2016] NSWSC 1408 at [185] - [187]; National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386, at 539, 541, 549-551 ("Bond"). The Court has a wide discretion in applications such as this (while required to be exercised with caution) which allows it to weigh the balance of convenience: In the matter of Glenvine Pty Limited (in liq) [2020] NSWSC 866 at [2].
All parties accepted that the appointment of receivers and managers to the hotel business was required.
[3]
Analysis
Robert's case developed three main contentions. The first two contentions opposed the appointment of Mr Hayes and Mr Marshall as receivers. The third contention was that the scope of any further receivership should extend to the holiday park business of Eagle Hawk Pty Ltd.
Robert's first main contention against the appointment of Mr Hayes and Mr Marshall as the receivers of Gratory's assets and undertaking was that Mr Hayes was neither impartial nor appeared to be impartial in the discharge of his duties to date.
This contention was based upon two pillars. The first pillar was certain email correspondence after Lindsay J's orders of 2 August in which it was said that Mr Hayes had given a misleading negative reply to a question from Robert's solicitors about what "information or instructions" had come from Eddy and Luisa's solicitors before Mr Hayes' appointment.
This first pillar of Robert's argument is not persuasive. The email correspondence in question, which took place between 18 and 24 August 2023, is mostly explicable on the basis that in their pre-appointment communications with Mr Hayes, the solicitors for Eddy and Luisa were giving Mr Hayes basic information about the progress in the courtroom of the steps being taken towards the making of his appointment. It is not surprising that when a few weeks later he was asked by Robert's solicitors whether communications had taken place with Eddy and Luisa's solicitors before his appointment that he replied in the negative. Mr Hayes's reply was a reasonable and understandable interpretation of what he had been asked. The reply was crisp and was sent late in the evening. He said in his email "instructions given to me by the plaintiffs - none". The pre-appointment correspondence does not contain any "instructions" to him from Eddy and Luisa's solicitors so his statement was correct as to "instructions". The pre-appointment correspondence does contain "information" but such information is innocuous and generally related to the mechanics of making his appointment.
The second pillar of Robert's contention that Mr Hayes was not impartial was founded upon an argument that Mr Hayes was investigating Robert for alleged misapplication of funds from the hotel business and not investigating Eddy for management of funds at the Holiday Park. The contention was that Mr Hayes appeared to have made up his mind that Robert and only Robert was the risk to the security of cash in the business. Robert firmly denies involvement in any misapplication of funds.
This second pillar of Robert's contention is also not persuasive. From the time of his appointment there were good reasons for Mr Hayes to investigate Robert in relation to cash missing from the hotel business. That may have looked biased to Robert but to a reasonable observer, the investigation was merely Mr Hayes doing what he reasonably perceived was his duty pursuant to the 2 August 2023 orders and a more formal 26 October 2023 Deed of Appointment, based on the evidence available to him. Robert has not yet explained the cash found at his residential premises from the Anton Piller search order in July 2023, or the cash shortfall in the premises up to the time of the Anton Piller search order. Robert says, and it may be accepted to an extent, that he did not have the materials available to him to give a fulsome explanation. But Robert was the manager and the licensee during this early period, he was a reasonable subject of investigative interest, and the shortfall remains unexplained.
Moreover, since Mr Hayes's appointment a further cash shortfall of $420,041 has become evident in the hotel business from the Hayes Advisory report of 5 March 2024. Robert's legal representatives criticised this conclusion as involving double counting. But the Court is satisfied that Hayes Advisory used proper methodology to calculate the figure of $420,041 for the period 31 July 2023 to 26 February 2024. The Hayes Advisory report reaching this figure (a) commences with an objectively verifiable cash balance, (b) calculates from actual hotel business turnover figures the cash likely to have been generated and either banked or found on the premises and (c) contrasts that prediction with the cash found on the premises at the relevant balance date to reach the calculated shortfall of $420,041.
Robert argues that the terms of Mr Hayes's appointment in August 2023 gave him sufficient oversight of the cash handling within the business for the current cash shortfall to be Mr Hayes's responsibility rather than Robert's. But this is too simplistic. The 2 August orders required Robert to undertake to the Court to give much information to Mr Hayes. There is evidence of a substantial cash shortfall since Mr Hayes's appointment. There is no evidence that an employee of Hayes Advisory is responsible for the cash shortfall. Under his appointment Mr Hayes only has "oversight" of the business which is run on a day-to-day basis by employees of Gratory under the management of a continuing employee of Gratory, Mr Damon Townsend. Employees of the hotel who are well known to Robert, such as Mr Townsend, are still engaged in the hotel business. There is evidence that some hotel business employees have been evading the scrutiny of the surveillance cameras when conducting their ordinary cash handling operations, and that Robert has contact with these employees and has been seen on the hotel premises before ordinary working hours. As there is a reasonable basis for Mr Hayes's investigations, they are not grounds for an inference of partiality, nor do they give a reasonable person an apprehension that Mr Hayes might not be bringing in impartial mind to bear upon his duties as a receiver.
Robert's second main contention against the appointment of Mr Hayes as a receiver was that it would be far more cost-effective in the administration of the receivership for a more local, Canberra based, receiver to be appointed instead of Mr Hayes. This contention was based upon figures that the Hayes Advisory appointment so far had cost $295,276.76, including $81,932 by way of reimbursement of expenses including travel costs.
But the contention that a Sydney-based receiver is unnecessarily and prohibitively expensive was answered effectively by an analysis showing that of the $81,932 in reimbursable expenses no more than $10,543.82 was spent in travelling expenses between Sydney and Canberra for Hayes Advisory staff. This is less than 4% of the Hayes Advisory total charges. On current expenditure patterns the distance between Sydney and Eagle Hawk does not appear to be adding significantly to the overall costs of the receivership.
Robert's case is intuitively correct at one level: there are undoubtedly likely to be some savings from using a Canberra based receiver rather than Hayes Advisory. But the extent of the likely savings is presently unclear. Other than in the general terms stated here, Robert's case did not seek to quantify the likely savings from a Canberra-based appointment. And there are likely to be real cost advantages in continuing to use the accumulated knowledge of this business possessed by Hayes Advisory.
Depending upon the course of the administration of this receivership, if it can be demonstrated that the same task can be done significantly more cheaply from Canberra then the appointment of a Canberra-based receiver may yet be contemplated in the future. But it would also have to be demonstrated that the cost savings of such an appointment would clearly outweigh the additional change over costs of new receivers familiarising themselves with this business.
Robert's third main contention was as to the scope of the appointment of a receiver. Robert contended that if a receiver were to be appointed to the hotel business undertaking of Gratory that the appointment should extend to the holiday park business undertaking of Eagle Hawk Pty Ltd. The basis of this was said to be difficulty in separating out the financial affairs of Gratory and Eagle Hawk Pty Ltd, which use a common bank account.
But this contention is also not persuasive for several reasons. There is no evidence of a cash leakage or cash deficiency within the holiday park business or of any misapplication of the funds of Eagle Hawk Pty Ltd. Appointing a receiver is expensive and is a last resort remedy. Extending a receivership to the holiday park business should not be lightly undertaken.
And Eagle Hawk Pty Ltd's holiday park business is profitable, although Gratory's hotel business is more profitable. The intermingling of finances between the hotel business and the holiday park business should not be so great as to create difficulties in separating the accounting for the two. There have been recent advances to Eagle Hawk Pty Ltd's holiday park business from the common bank account maintained for the two businesses. But this has been for expenditure on capital items. Infrequent capital outlays should be able to be clearly earmarked in the common bank statements and the accounts of these business, so there will be no difficulty in separating out the expenditures of the two. This problem is likely to be less challenging than trying to separate out the costs of a receivership across the two businesses were it to be extended to both of them.
For these reasons the Court will appoint Mr Hayes and Mr Marshall upon the terms requested in the motion and will not add Eagle Hawk Pty Ltd's holiday park business to the receivership.
Directions will also be made with the appointment to mark out for all parties how the receivers will separate the expenses of the hotel and holiday park businesses. It is also desirable for the Court to have a short concise report of information, if any, that comes to the attention of the receivers as a result of their appointment. Also the receivers may need to expend more than Mr Hayes has so far on securing the cash at the hotel business to avoid further leakage. They should have liberty to approach the Court to authorise such expenditure if it is reasonably required. And they may need to seek directions urgently if their appointment has any impact on the hotel's liquor licence. It is desirable for Eagle Hawk Pty Ltd's tax returns to be completed as soon as possible. Orders have been made to facilitate these outcomes.
[4]
Conclusions and Orders
Robert has been unsuccessful in opposing the relief sought in the plaintiffs' motion. Ordinarily Robert should have to pay the costs of that lack of success on the basis that costs follow the event. But the Court will not make that order without further hearing from Robert or hearing whether any party seeks a special costs order.
For these reasons the Court makes the following orders and directions:
1. Make orders in accordance with orders 1,2,3 and 4 of the administrator's notice of motion filed on 16 May 2024 (the motion).
2. Order the Receivers within seven days to disclose in writing to the parties to the motion the methodology they will employ to separate out the affairs of Gratory from the affairs of Eagle Hawk Pty Ltd (Eagle Hawk) in the course of the Receivers administration under this appointment.
3. Order the Receivers to provide to the parties to the motion a concise written interim report to the Court within 28 days as to any significant additional findings made by the receivers upon this appointment.
4. Grant leave to the receivers to approach the probate list judge for (a) directions (b) to seek any necessary orders to incur any additional capital or recurrent expenditure in the course of their receivership to ensure the security and integrity of cash handling in the hotel business and (c) for the making of orders for production of documents by any party to these proceedings.
5. Order Eddy and Luisa Pastrello to take all reasonable steps to prepare tax returns on behalf of Eagle Hawk within 90 days.
6. Order Robert Pastrello to provide access to Xero software or other necessary accounting databases under his control to assist the production of Eagle Hawk's tax returns.
7. Grant liberty to the parties to apply.
8. Order Robert Pastrello to show cause in written submissions to be filed within seven days to show cause why he should not pay the costs of the motion.
[5]
Amendments
27 June 2024 - Typographical errors corrected in [4] and [5].
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Decision last updated: 27 June 2024