Vinci v Imperial Bourke Noms Pty Ltd [2000] VSC 172

Supreme Court of Victoria|2000-04-27|Before: Mandie J

TRUSTS - disputes between unit-holders - deadlock affecting corporate trustees conducting hotel business and holding hotel property - appointment of receiver and manager of trust property with power of sale. CORPORATIONS - appointment of receiver and manager of corporate trustees.

The plaintiffs commenced this proceeding by originating motion just over two years ago seeking the removal of the first defendant as trustee of the Imperial Business Unit Trust,("the Business trust"), and the removal of the second defendant as trustee of the Imperial Property Trust, (the "Property trust"), the appointment of an interim receiver and manager to the assets and undertakings of both trusts and accounts and inquiries.

The Property trust owns the land at 2-8 Bourke Street, Melbourne upon which stands the Imperial Hotel, in which is carried on the business conducted by the Business trust. The plaintiffs contended then and still contend that one or other of the plaintiffs is entitled to 10 per cent of the units in each of the said unit trusts.

I think that it is common ground at least that the property and hotel business were purchased in or about March 1994 pursuant to an arrangement between the Pellegrino/Ursini interests - now the third, fourth and fifth defendants - and the Castelli interests - now the sixth and seventh defendants - if not the plaintiffs as well. The Pellegrino/Ursini interests say the trust units are held as to 50 per cent by them and as to 50 per cent by the Castelli interests. They deny that the plaintiffs have any entitlement to units, but if they do, they say the breakup is 50 per cent, 40 per cent and 10 per cent, or they may say that.

The Castelli interests, as I understand it, say, as do the plaintiffs, that the plaintiffs have a 10 per cent interest and that the other two groups hold 45 per cent each. To some extent only, these questions turn on whether the plaintiffs advanced moneys on their own behalf or for the Castelli interests.

For present purposes it is unnecessary to detail the somewhat tortuous interlocutory processes over the past two years except to mention a few salient matters. By consent points of claim and points of defence and counterclaim were ordered. Amended points of claim were later delivered, and even later points of defence. There was an abortive attempt to have preliminary questions tried and determined. By order of Byrne J made on 22 December 1998 a special referee was appointed pursuant to rule 50.01(1)(b) of the rules of the Supreme Court to determine certain fact questions of a financial and accounting nature scheduled to the Order. These questions were heavily disputed not only with the plaintiff but also between the now two warring camps of defendants.

In December 1999 the special referee's report was received by the parties and the court and recently an addendum in part confirming and in part qualifying or modifying that report, again supplied pursuant to court order, was received by the parties and the court.

An interlocutory application has now been made dated 10 March 2000 by the Pellegrino/Ursini interests. The orders sought were at first that Mr Castelli be restrained from acting as manager of the hotel and that another manager be appointed by the court in his place. Mr Castelli has been in charge of the day-to-day management of the hotel since certain renovations were completed in November 1994. It does not seem to be disputed that the hotel business has a good and increasing cash flow, and it may well be quite a profitable business. If so, how profitable is hard to say due to the absence of proper accounts and financial statements. Where the fault lies for this absence, the court cannot say at this stage and on this application.

At the same time as the orders for the special referee were made, the parties and certain others executed a deed dated 22 December 1998. This deed provided that pending the determination of this proceeding Mr Castelli was confirmed as manager of the hotel business and that one Kingsley would be retained as representative of the Pellegrino/Ursini interests for three days per week at the rate of $500 a week. Kingsley is no longer in that position so there is no oversight of the management. Mr Pellegrino says in his affidavit of 10 March 2000 that it was agreed that directorships and banking authorities would be restructured to ensure equality of representation between the Pellegrino/Ursini interests and the Castelli interests. It is unnecessary to investigate whether there is a complete deadlock in the technical sense at every level of ownership and control because the parties agree that there is now in substance a commercial deadlock in the conduct of the trustee companies. Whatever the relationship was between the parties in 1998 - and it was certainly far from amicable - I think it is now common ground, and it is abundantly supported by the affidavit material, that all elements of cooperation and trust between the two camps of defendants, insofar as they continued at all after litigation had ensued, have completely broken down. The breakdown is such that the parties are all in furious agreement that the land and business must be sold, although there is a significant disagreement about timing and method.

The applicants in the present application, the Pellegrino/Ursini defendants, now seek orders that Andrew McLellan, an accountant, official liquidator, and a person with experience in the hotel industry, be appointed as receiver and manager of the assets of both trusts, including the hotel business, with a view to providing the control which the trustees are presently unable to exercise, with a view to preparing proper future if not past accounts of the business and putting it in a fit state for sale, say in six months time. This approach is supported by the plaintiffs, so that at least 50 per cent of the unit holders, if not 55 per cent, seek this interlocutory relief. I note that the plaintiffs propose that a different individual be appointed.

The Castelli interests totally oppose the application. They say that the land and business must be sold but that this should be done immediately by appointing an estate agent and leaving Mr Castelli in charge. They stress the heavy fees and costs which will be incurred by the appointment of a receiver and manager and which costs they fear will be highly detrimental to the business. Further, they stress the likely detriment to the sale price if a receiver is conducting the sale.

The applicants in support of the orders sought placed great stress upon the alleged mismanagement of the hotel business by Mr Castelli. Serious allegations are made that Mr Castelli has failed to provide relevant financial information to the applicants in many respects, made excessive drawings for his own benefit and unauthorised drawings for his daughter, failed to explain discrepancies between cash takings and banking and various other matters. Most if not all of these matters are either firmly denied or explained by Mr Castelli. The court cannot on this hearing determine these disputed questions of fact. It is conceded that serious questions are raised but they cannot be determined unless either at trial or at a full hearing for this purpose, there is an opportunity for witnesses to be cross-examined and experts and other witnesses called as appropriate. I therefore put all of these allegations to one side. I will assume that Mr Castelli's conduct of the hotel management is not a justifiable basis for the appointment of a receiver and manager. I disregard also what the special referee has said in this regard, which is not evidence on this application.

Nevertheless, it seems to me that the balance of convenience is very strongly in favour of the appointment of a receiver and manager to both trustees and both trusts. At the moment the trustees are incapable of performing their proper or any functions. It is in the interests of all beneficiaries that the trustees' powers therefore be exercisable and exercised by a qualified person who is impartial and not hamstrung by the deadlock existing between those controlling the trustees. I consider on the evidence that Mr McLellan is so qualified and has no connection with any of the parties.

The delay before a trial is had and all outstanding issues are determined is going to be too great to permit the status quo of deadlock, conflict and unsupervised and unchecked management to continue. The day-to-day manager may be Mr Castelli or someone else. That is for the receiver and manager to decide. The costs involved, regretfully, cannot be avoided because the parties are at complete loggerheads and apparently irreconcilable. I add that the material before the court does not in any way justify an order for a sale at this stage, and indeed no feasible alternative has been formulated. In any event, it is abundantly clear that a potential purchaser at this stage would be unable to obtain proper financial information. I attribute no blame to any party for this fact, but it is a fact admitted on all sides. However, there must be a sale as soon as is reasonable in all the circumstances in order to avoid the continuing heavy costs of a long receivership.

The court will order subject to the usual undertaking as to damages by the third, fourth and fifth defendants that until after the hearing and determination of this proceeding or further order Mr McLellan be appointed as receiver and manager of both trustee companies and of the assets and undertakings of both trusts with all the powers possessed by the trustees and their Boards of directors, including the power to sell the assets and undertaking of the trusts subject to notice herein after mentioned and save and except such other powers as the parties may wish to exclude.

I will direct that the receiver and manager proceed as speedily as possible to put both the land and the business into the position that they can be sold for the best price as is reasonably obtainable in the interests of all beneficiaries, but that no actual advertising or sale process be initiated without giving 7 working days' prior written notice to the parties specifying the proposed sale process with reasonable particularity. Liberty to apply will be reserved generally. I will now state in detail the proposed orders and will then hear submissions about them.

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties