In the matter of A.C.N. 607 358 887 (formerly known as Carzapp Pty Ltd)

A basic outline of the facts of these proceedings belies the detailed factual analysis which the case has required.

Reduced to essentials, these proceedings concern a dispute between three company directors, Domenic Ruberto, Marcus Lasarow and Graham Meyerowitz, regarding the sale of a smartphone application known as Carzapp (CZA), which provides a sales platform for car dealers to trade used cars. Without any disrespect, I will refer to these parties by their given names.

Carzapp Pty Ltd was the corporate vehicle the three directors used. Their relationship was governed by a Shareholders’ Agreement. They also obtained other investors in the CZA project, in particular Dr Richard O’Connor and Ms Suzanne Berlandier, by issuing units in a unit trust.

As a result of Domenic’s unreasonable and obstructive behaviour, the relationship between him and his two co-directors Marcus and Graham became completely unworkable. The CZA project found itself stalled and with virtually no money in the bank. Marcus and Graham – without Domenic – negotiated a sale of CZA to Pickles Auctions Pty Ltd for $2 million. Domenic was made aware of the sale but declined to approve it when it was presented for consideration in purported board meetings.

Notwithstanding Domenic’s opposition, the sale went ahead. Two features of the sale should be noted. First, Carzapp Pty Ltd was required to hold a members’ meeting to change its name to something other than “Carzapp”. Second, Marcus and Graham accepted a consultancy role from Pickles Auctions Pty Ltd in relation to CZA which they did not disclose to Domenic until after the sale of CZA had been completed.

Once the $2 million had been received, Marcus and Graham then set about in effect winding up Carzapp Pty Ltd and other companies that were part of the CZA project. After paying all liabilities they proposed dividing what was left between the shareholders in accordance with their shareholdings, but reducing what they and Domenic might otherwise receive to enable ex gratia payments to be made to Dr O’Connor and Ms Berlandier (who would otherwise have completely lost their investments). A similar approach was taken to making some part of the payments through the unit trust. Acting on legal advice, they insisted that everyone involved should sign deeds of release as a prerequisite to receiving those payments.

Everyone involved except Domenic and Dr O’Connor signed deeds of release and received their payments. In addition to refusing to sign (or even negotiate about the terms of) a deed of release, Domenic also refused to vote to approve the name change. Concerned by threats from Pickles Auctions Pty Ltd and claims by Domenic, Marcus and Graham voted to put Carzapp Pty Ltd and two related companies into administration. Messrs Anthony Resnick and David Solomons were appointed administrators.

In these proceedings, Domenic has alleged that Marcus and Graham conducted the affairs of Carzapp Pty Ltd in a way that was oppressive to him and in breach of the Shareholders’ Agreement. He has also challenged the validity of the appointment of the administrators and alleges that the costs of the administration are damages for which Marcus and Graham are liable to Carzapp Pty Ltd. Domenic and Dr O’Connor also seek orders that they be paid the money which they would otherwise have received from Carzapp Pty Ltd and the unit trust if they had signed a deed of release.

From the beginning of the hearing, and somewhat unsatisfactorily, the utility of these proceedings and the precise relief sought by Domenic was very much “a work in progress” (to quote Domenic’s counsel). In large part this was because two things were not in dispute. First, notwithstanding all of his complaints about what had occurred, Domenic did not challenge the sale of CZA for $2 million. Second, the parties came to agree that the companies now in administration should be wound up on the just and equitable ground, although they could not agree on who should be the liquidator. Marcus and Graham proposed it should be the administrators; Domenic argued it should be someone else with no previous involvement in the matter.

The Court’s conclusions may be summarised as:

Mr T J Morahan of Counsel appeared for the first and second plaintiff. Mr G O’Mahoney of Counsel appeared for the fourth and fifth defendants.

Mr M Rosenblatt, Solicitor, appeared on the first and eighth days of hearing for the sixth and seventh defendants and Mr M Ryckmans, Solicitor, appeared for them on the final day for closing submissions. The sixth and seventh defendants played an essentially neutral role in the proceedings, but relied on an amended cross-claim to formalise a claim for a declaration as to the validity of their appointment and for consequential relief if their appointment was found to be invalid. There was no dispute that they would be entitled to their remuneration on a quantum meruit basis if the Court concluded that they had been invalidly appointed.

Domenic is the sole director and shareholder of the first plaintiff, Twinkledom Pty Ltd ACN 606 702 16 (“Twinkledom”). He is also the owner of a used car company, Better Car Company.

The second plaintiff, Busy Traveller Pty Ltd ACN 097 668 221 (“Busy Traveller”), is the corporate trustee for Dr Richard O’Connor’s family trust. Introduced to CZA by Domenic, Dr O’Connor invested $200,000 through Busy Traveller in May 2016.

The first defendant is a company formerly known as Carzapp Pty Ltd (“CZAPL”). CZAPL was the main vehicle for the development of CZA and owned the intellectual property in CZA.

The second defendant is a company formerly known as Carzapp Trading (Aus) Pty Ltd (“CZAT”). CZAT was formed to sell CZA under a licence agreement from CZAPL.

The third defendant is a company formerly known as Carzapp Holdings Pty Ltd (“CZAH”). CZAH is the trustee of the Carzapp Holdings Unit Trust (“CZAUT”) through which Dr O’Connor and another investor, Ms Suzanne Berlandier, invested in CZA.

The fourth defendant is Graham.

The fifth defendant is Marcus (also referred to as Mark).

The sixth defendant, Mr Anthony Resnick, is one of the joint administrators of CZAPL, CZAT and CZAH.

The seventh defendant, Mr David Solomons, is the other joint administrator of CZAPL, CZAT and CZAH.

Marcus and Graham are directors of Blade Media Pty Ltd (“Blade Media”). The shares in Blade Media are held equally by Marcus, and by Graham through his and his wife’s company Meylex Pty Ltd (“Meylex”). Blade Media owns a subsidiary company Media Tag Pty Ltd (“Media Tag”) of which Marcus and Graham are both directors.

For simplicity, “CZA Companies” collectively refers to CZAPL, CZAT and CZAH, and “CZA Entities” includes additionally the CZAUT. In these reasons, reference to a person includes their corporate entity unless specifically stated otherwise: e.g. a reference to Domenic incorporates Twinkledom. Furthermore, reference to the defendants refers to Graham and Marcus, and reference to the administrators refers to Messrs Resnick and Solomons, unless otherwise stated.

The Court finds the facts to be as follows. It is not necessary for the Court to resolve every allegation and counter-allegation. With very few exceptions, the primary facts were not in dispute or were established by contemporaneous written records. The written record alone provides unequivocal and irrefutable evidence of how deeply dysfunctional the relationship between the parties became.

During 2011, Domenic and Tim Clark (an employee of Better Car Company) began developing the concept of a technological application to sell and purchase used cars. This application was called Carzapp.

In late 2012 or early 2013, Graham purchased a car from Marcus. Graham began working with Marcus and Media Tag through the purchase of shares in Blade Media towards the end of 2013.

In late 2013, Domenic first met and purchased a used car from Marcus. It became apparent that Marcus was interested in the information technology industry and they discussed the CZA concept.

In about mid-2013, Marcus introduced Domenic to Graham.

In late 2014, Marcus and Graham proposed joining together with Domenic to work on developing CZA, although there was no formal arrangement as to who would own the intellectual property in CZA (the “IP”).

Domenic, Marcus and Graham began tangible development work on CZA in about December 2014. At this stage, Media Tag was the entity through which CZA was being developed. Domenic invested about $100,000 in the project.

In about August 2015, Tim Clark left Better Car Company and the CZA project. Marcus and Graham subsequently agreed with Domenic to develop CZA with their interest in the project to be held in equal thirds.

Throughout this period, CZA was being developed with a prototype design produced midway through 2015. Media Tag held the IP in CZA and any third-party employed to work on the app was required to execute an intellectual property assignment deed in favour of Media Tag.

The directors began courting investors in CZA and, in mid-2015, meetings were held with A.P. Eagers Ltd (“APE”), including an initial meeting with its Chief Operating Officer Mr Keith Thornton.

On 26 June 2015, Twinkledom was incorporated with Domenic as sole director and shareholder.

On 30 July 2015, CZAPL was incorporated with Domenic, Marcus and Graham as equal directors and shareholders. Graham’s shares are held by Meylex. Domenic’s shares were held by Twinkledom.

By about September 2015, CZA was ready to be demonstrated to potential investors. An email sent on 9 September 2015 at 1:59 pm from Domenic to Marcus and copied to Graham reads:

During this time, development work on CZA’s functionality and features continued. An email of 19 October 2015 at 3:50 pm from Graham to Domenic and Marcus listed the new features of version 1.0.37 of CZA.

In early November 2015, according to the defendants, the directors of CZAPL resolved to acquire the IP from Media Tag for $300,000 plus GST. This resolution proved to be the subject of great debate amongst the parties. It was conceded by the defendants that there was no formal meeting on 4 November 2015 at which this resolution was adopted. Instead, they said there was an informal meeting at which all directors were present and it was agreed amongst all of the directors to sell the IP to CZAPL for $300,000. The minutes of this resolution were subsequently backdated and presented at a formal meeting on 23 March 2016. This was conceded during cross-examination (T325:27-326:12):

Domenic denied being part of any arrangement whereby Media Tag sold the IP to CZAPL. It was also put for Domenic in final submissions that any such acquisition by CZAPL would have been in breach of the Shareholders’ Agreement between the parties (see paragraph [43] below). However, while the circumstances in which CZAPL came to own the IP was explored at length in the evidence, those matters were not pleaded anywhere in the plaintiffs’ case as having any legal significance for the purposes of these proceedings. I therefore do not give them any such significance. Nor do I accept the plaintiffs’ submission that the history of how the IP was dealt with “shows an attitude of mind” on the part of Graham and Marcus to exclude Domenic from the affairs of CZAPL which is relevant to analysing subsequent events. Those events must be analysed in the circumstances in which they arose.

In about November 2015, APE agreed to invest $300,000 in CZA in return for a 10% equity stake in CZAPL.

The IP was subsequently transferred from Media Tag to CZAPL in about February 2016.

On 8 February 2016, the Carzapp Shareholders’ Agreement was entered into initially between CZAPL, Media Tag, Blade Media and Twinkledom (the “Shareholders’ Agreement”). As a consequence, Media Tag, Blade Media, Twinkledom each held 30% of the shares in CZAPL (54 shares each), and APE held the remaining 10% (18 shares).

The Shareholders’ Agreement included:

On 10 February 2016, Mr Stephen Best of APE was appointed a director of CZAPL.

A directors’ meeting was held on 23 March 2016 at which minutes were passed confirming the meeting purportedly held on 4 November 2015 and the resolution in respect of the sale of the IP from Media Tag to CZAPL.

In around late April, Domenic and Marcus met with Mr Philip Rofe (CEO of PBR Capital Pty Ltd). Mr Rofe had been Dr O’Connor’s stockbroker since 2012. The meeting was to discuss raising capital to fund the CZA project. Dr O’Connor also attended the meeting. Subsequently, CZAPL retained Mr Rofe to find prospective investors and raise funds for the company.

In early June 2016, in order to source further capital, the directors and the solicitor for CZAPL, Mr Eric Shmilovits, met with Dr O’Connor and Ms Berlandier to discuss investing in CZA.

Further companies were established to facilitate the process of attracting investment without diluting existing shareholdings. On 5 June 2016, CZAH was incorporated with Domenic, Marcus and Graham as directors and Media Tag, Blade Media and Twinkledom each one-third shareholders.

On 15 June 2016, a deed of trust was executed establishing the CZAUT with Marcus, Graham through Meylex, and Domenic through Twinkledom as initial unitholders (the “Trust Deed”). Subsequently, Dr O’Connor and Ms Berlandier, through their respective corporate entities Busy Traveller and Flobert Pty Ltd (“Flobert”), each invested $200,000 in the CZAUT and received 37 units in the CZAUT (3.69% of the units). CZAH was the trustee of the CZAUT.

On 22 June 2016, CZAT was incorporated with Domenic, Marcus and Graham as directors. The shares were held as to 90% by CZAH (as trustee for the CZAUT) and the remaining 10% divided between Marcus, Meylex and Twinkledom.

There was no dispute that not long after these events, relations between Domenic, of the one part, and Marcus and Graham, of the other part, began to deteriorate. Graham particularly was dedicating significant time to the application’s development and administration, and Marcus and Domenic were handling the sales aspects of the business. Graham’s affidavit evidence is that CZAPL was “running out of working capital” by mid-2016 and that he had been working on the application “three days a week for over 18 months without drawing a wage.”

In early September 2016, Domenic, Marcus and Graham launched CZA at the 2016 Australian Automotive Dealers Association (AADA) National Dealer Convention in Melbourne.

On 13 September 2016, the directors attended a meeting with Mr Best and Mr Thornton of APE in Brisbane about the development of an iPad version of CZA in return for support from APE with expanding the customer base.

By this stage, Graham was being paid for the time spent working on CZA. Graham’s evidence is that, in response to a request that Marcus and Domenic dedicate more time to the application, Domenic indicated that he could “only spend one hour a week on the app”. Domenic denied he ever said this.

On 31 October 2016, following an email exchange between Marcus and Mr Tony Roberts of Pickles Auctions Pty Ltd (“Pickles”), Domenic and Marcus met with Mr Simon Meyrick of Pickles and presented the CZA concept. Domenic was not copied into the follow-up email Marcus sent to Pickles the next day, although Graham was. Marcus’ evidence – which Domenic did not challenge and the Court accepts – was that Domenic was not optimistic about Pickles investing in CZA. After their presentation to Mr Meyrick, Domenic said to Marcus, “You will never do a deal with Pickles, it will never happen, you are wasting your time.” Marcus’ follow up email to Pickles began “In summary, Carzapp is at the point where we are focussing on monetising the platform”.

On 24 November 2016, the directors met with Mr John Bailey, a senior representative of Cox Automotive (an international car sales company). Graham gave evidence – denied by Domenic – that Domenic said words to the effect of “I have been a car dealer for 30 years. The industry is fucked”, and although there was another meeting with Cox Automotive, no deal eventuated.

On 29 November 2016 at 11:11 am, Graham sent an email to Mr Roberts (copied to Marcus but not to Domenic) asking for a meeting to follow up on their earlier meeting (see paragraph [55] above). That follow up meeting occurred the following week.

On 29 November 2016 at 11:35 am, Graham sent an email titled “Development Update” which provided an overview of work completed and ongoing on CZA and requested any “updates on sales calls to dealerships as we have discussed, especially if you have more inventory to add.” Domenic’s reply email later that day states:

By early December 2016, relations between the directors had disintegrated further and by mid-December 2016, Dr O’Connor was acting in a facilitative role, mediating relations and communication between the directors. It appears from the correspondence between the directors that by this point Domenic was particularly dissatisfied with the development and progress of the CZA. Marcus’ evidence – which Domenic did not deny and the Court accepts – is that by about December 2016, Domenic would say things at meetings such as “This app is fucked. This app doesn’t work. No dealers want to use it. We can’t work like this.”

An email chain commencing on 12 December 2016 between the directors, in which Domenic was requesting information regarding the location of CZA’s source code and archives, is notably hostile. Graham gave evidence that he was increasingly concerned about why Domenic wanted access to the source code and recalled a phone conversation where Domenic said, “If I was you I would walk away from this – the App is mine and I want the code. If you don’t give it to me I will make your life a misery.” Domenic did not deny saying this.

The correspondence makes plain that the working relationship between the directors was continuing to break down, especially between Domenic and Graham. The Court finds that Domenic was being intentionally obstructive and critical of CZA’s marketability.

In an email chain on 13 December 2016 commencing at 10:08 am, Domenic stated “The very simple reason I’m not calling dealers to sell the app to them is that I’m not satisfied that it’s ready. We, as a business are certainly not ready.”

At 10:26 am Domenic stated: “I’ve read the notes … in my opinion the demonstration of the app should have been done by me.”

Graham’s reply email of 10:43 am, points to the contradiction in Domenic’s assertion, says:

At 11:29 am, Domenic replied that demonstrating CZA to APE was different than demonstrating “a flawed app” to car dealers. He continued:

At 12:26 pm, Graham replied to Domenic’s request by setting out CZA’s various modules or screen names, and asked Domenic to “indicate which of these you are not happy with” or considered problematic. Domenic did not respond to this email or provide further detail of his concerns about CZA. The Court notes that Domenic’s tone in these emails was often aggressive and created the impression that he was difficult to work with and to please.

The overall effect these emails convey is that Domenic was dissatisfied with CZA and very critical of its progress (“I’m sure you know my greatest issues are around the development and cost”) and he blamed Graham and Marcus for trying to sell what he perceived to be “a flawed app”.

Domenic was firmly of the view that CZA needed to be “demoed by a car dealer to let them understand the concept so that they can either buy or invest” and was immovable from this position. This was confirmed in cross-examination (T196:40-48):

Graham and Marcus on the other hand considered CZA to be marketable and Graham told Domenic in his email on 13 December 2016 at 12:26 pm “we can’t keep building unless we start selling, so the time is now.”

When asked why he did not respond to this email which was put to him as an opportunity to specifically identify the technical issues he had with CZA, Domenic eventually said that he thought responding would have been a pointless exercise because “they would have paid no attention whatsoever to any reply that I would have made to this” (T200:27-28). This is an excellent example of what became a pattern of Domenic refusing to engage with entirely reasonable requests from his co-directors.

It is clear that by this time, the distrust and resentment between Domenic on the one hand, and Graham and Marcus on the other, had led to what was almost a complete breakdown in their relationship. For instance, Graham’s suspicion of Domenic‘s requests for the source code information was confirmed in an email to Dr O’Connor on 19 December 2016 at 8:27 pm titled “Protocol”:

Dr O’Connor agreed in cross-examination that by this point he was increasingly concerned that the communication issues and hostility between the directors (their inability “to sit around a table together”) was interfering with and negatively impacting “the ability to develop, market and sell the app” (T96:5-12).

Dr O’Connor also confirmed that he had discussions with Graham and Marcus about Domenic (T129:28-129:38). He further agreed that he had suggested to Domenic that “it might be a good idea to defer to the technical expertise of Messrs Lasarow and Meyerowitz” (T133:8-11).

By January 2017 the CZA Companies had nearly run out of cash. On 10 January 2017 at 4:32 pm Domenic emailed Graham and Marcus under the subject title “State of the bank accounts”:

Later that day Graham replied by email to Domenic (copied to Marcus) which included:

The strained relations between the directors did not improve. A file note of a telephone conversation between Graham and Domenic on 16 February 2017, the conduct and contents of which Domenic conceded in cross-examination probably occurred and which the Court finds did occur, records:

In early February 2017, Graham and Marcus began substantive negotiations with Pickles. They did not involve Domenic. Dr O’Connor’s evidence is that he received a phone call on about 16 February 2017 from Marcus explaining the contact with Pickles.

On Sunday, 19 February 2017 at 2:26 pm Marcus emailed Messrs Roberts and Meyrick of Pickles in anticipation of a meeting the following Tuesday, 21 February 2017. That email included:

On 21 February 2017, Mr Best of APE resigned as a director of CZAPL.

Additionally on 21 February 2017, Graham and Marcus met with Mr Meyrick of Pickles to demonstrate CZA.

On 2 March 2017 there was an email exchange between Marcus and Mr Meyrick (copied to Graham but not Domenic), with Marcus telling Mr Meyrick “we will revert back to you with indicative numbers/deal terms”.

On or around 7 March 2017, Marcus and Graham met with Pickles to discuss selling the IP to Pickles. Graham’s evidence was that a tentative agreement was reached to sell the IP for $2 million.

On or around 8 March 2017, Marcus and Graham met with Dr O’Connor to discuss progress with Pickles and the sale of CZA. They explained to Dr O’Connor that there was no official offer to purchase at this stage but they expected further clarity from Pickles by 10 March 2017.

Both Marcus and Graham requested Dr O’Connor not tell Domenic until a formal offer had been provided by Pickles.

In an email of 13 March 2017 at 9:37 pm to Marcus (copying Graham and Domenic), Dr O’Connor wrote, in part, under the subject heading “ongoing issues”:

The meaning of “at your request” was debated in cross-examination. Dr O’Connor asserted that Marcus and Graham had requested he delay communicating information to Domenic until Pickles had provided a formal offer. This was because of Marcus’ concerns Domenic might “upset the deal”. Dr O’Connor said (T120:23-24; 121:10-14)

His answer remained unchanged to the Court’s enquiry (T122:13-27):

In the same email of 13 March 2017, Dr O’Connor resigned as mediator stating:

It became apparent in cross-examination that part of his reason for leaving was he “no longer wanted to put up with the rantings and ravings of Mr Ruberto and other displays of his anger and aggression” (T87:36-39). He also stated that he was “tiring of both parties. If you like I was the punching bag in the middle and it wasn't unique to one side” (T89:28).

Though he had formally resigned as mediator, Dr O’Connor continued to facilitate communications with Domenic.

On 14 March 2017 Marcus replied to Dr O’Connor’s email in paragraph [85] above (copied to Graham, Domenic and Mr Shmilovits) interpolating his responses in a different colour:

On 17 March 2017, Dr O’Connor replied (copied to Domenic and Graham):

On 20 March 2017, Graham emailed Dr O’Connor, Marcus, Domenic and Ms Berlandier under the subject heading “Finding resolution”:

On about 23 March 2017, Marcus and Graham met again with Mr Meyrick to discuss Pickles’ purchase of CZA. Domenic was not informed of the meeting and was not present. It appears that Marcus and Graham agreed to sell the IP and CZAT to Pickles for the negotiated price of $2 million. Graham’s evidence is that at this meeting, Mr Meyrick proposed to Graham and Marcus that Pickles was interested in employing them as consultants for CZA on an annual salary of $70,000 and a 25% equity stake in CZAT after Pickles’ purchase (the “Consultancy Agreement”).

On 24 March 2017, Marcus emailed Mr Meyrick (copied to Graham) stating:

Mr Meyrick replied to Graham on 27 March 2017 saying: “I will be in a position to send you something along those lines on Tuesday evening.”

On 26 March 2017, Domenic emailed Marcus and Graham (copying Dr O’Connor and Ms Berlandier) expressing his dissatisfaction about not being included in discussions. This included a covering email and then his response to Graham’s email of 20 March 2017 by Domenic interpolating his comments (which for ease of reading have been reproduced in what follows in italics – otherwise all bolding and underlining is in the original):

Domenic’s signing himself as “FOUNDER of the Carzapp concept” and his final barb “…I would go so far as to put it to you that there is no offer coming on Monday or that any offer even exists from Pickles” demonstrates how completely dysfunctional the relationship between Domenic and his fellow directors had become.

On 28 March 2017 at 4:57 pm Mr Meyrick emailed Graham and Marcus (as requested):

On 28 March 2017, Graham sent an email at 10:43 pm to Marcus and Domenic (copied to Mr Shmilovits) with the subject line “Notice of Directors meeting to be held at 12:00 pm 29 March 2019”. The email reads:

On 29 March 2017 in an email at 5:39 pm to Graham, copying Marcus and Mr Shmilovits, Domenic confirmed he would be attending the meeting (which was ultimately rescheduled to 3 April 2017) with his “financial controller”. The email included:

On 30 March 2017 at 6:11 pm, Graham sent an email to Domenic’s accountant (referred to by Domenic in his email as his “financial controller”), Mr Achilles Constantinidis, (copied to Marcus):

The profit and loss summary attached to that email was to the effect that through the various entities, $700,000 had been raised and $719,729.57 had been spent.

On 2 April 2017, Mr Meyrick sent an email at 5:12 pm to Graham and Marcus attaching a draft “Letter of Intent” which outlined the terms of Pickles’ offer to purchase CZA’s IP and business of CZAT for $2 million. The email states:

The “other agreement” referred to the Consultancy Agreement, see paragraph [94] above. At 7:28 pm, Marcus replied to Mr Meyrick (copying Graham and Chris Avramis of Pickles) attaching an amended draft version of the Letter of Intent. Notably, this version removed reference to the meeting and discussions of 23 March 2017, where the Consultancy Agreement was discussed. Marcus’ email included “Can you also kindly remove the first sentence “We refer to our recent meeting…that”..”. The Consultancy Agreement was not disclosed to Domenic until after the settlement of the sale to Pickles on 24 May 2017.

On 3 April 2017, directors’ meetings for CZAPL and CZAT were held at which it was resolved to sell the IP to Pickles. The circulating resolution of directors for CZAPL was signed and dated by all three directors:

The “letter of offer” referred to is accepted by the parties to be the unsigned 2 April 2017 version, and which was subsequently sent in a signed version on 5 April 2017:

On 5 April 2017 at 8:48 am Mr Meyrick sent to Marcus and Graham the offer for the Consultancy Agreement described as “the second offer in draft”. It appears that he assumed both offers (for the purchase of the IP and for the Consultancy Agreement) would be shown to the “other shareholders” which relevantly includes Domenic:

On 8 April 2017 by an email of 8:06 pm titled “Media Tag Pty Ltd – Letter of Offer”, Pickles sent to Graham and Marcus, as directors of Media Tag, a signed letter of offer for the Consultancy Agreement titled “change in shareholding of Carzapp Trading Pty Ltd (Aus)”:

On 10 May 2017, Mr Shmilovits emailed draft contracts to Marcus, Graham and Domenic (copied to Mr Constantinidis) that had been prepared by Pickles’ solicitors. The email states:

There is no evidence that Domenic took any steps to obtain his own legal advice in relation to the draft agreements at any time before the sale of the IP to Pickles was entered into. As will be apparent from what follows, he did not attempt to take any part in the sale process that he was now clearly on notice was under way. Domenic sought to explain this on the basis that he did not have a “fully formed intention of selling the IP” to Pickles and that he intended to obtain independent legal advice about whatever the final form of any sale document would be. However, he gave no evidence of ever communicating this state of mind to Marcus or Domenic and I find it to be a disingenuous response.

The draft resolution referred to in that email was signed on 11 May 2017 by both Graham and Marcus. Graham emailed the signed version to Domenic on that day (copied to Mr Constantinidis):

As the resolution notes, there were two contracts. The first was a Business Sale and Purchase Agreement to which the parties were CZAPL (vendor), Pickles (purchaser), and Graham and Mark (covenantors) (the “BSPA”). This was the contract to sell Pickles the IP and related assets. The second contract was a Share Sale and Purchase Agreement (the “SSPA”) to which the parties were four vendors (Marcus, Meylex, Twinkledom and CZAPL – the shareholders in CZAT), CZAT and Pickles (as purchaser). This was the contract to sell all of the issued shares in CZAT to Pickles. Graham also sent a copy of the signed resolution directly to Mr Constantinidis (copied to Marcus but not Domenic) under cover of an email which said the later resolution superseded the resolution of 3 April 2017.

I accept Graham and Marcus’ evidence that the need “to obtain appropriate releases from all shareholders” for a deed of resolution had not been solicited by them but had been proposed by Mr Shmilovits.

APE gave informal consent to the transaction sometime around 15 May 2017.

On 18 May 2017 at 12:30 pm, Marcus emailed Mr Thornton copies of the Directors’ resolutions set out in paragraph [112] above, the BSPA and the SSPA and requested “the following response from AP Eagers … “we have reviewed the attached directors’ resolution and provided our irrevocable consent to the subject matter of the resolution”.”

Mr Thornton replied at 4:06 pm, stating:

During this period, Domenic was being kept at a distance and was not copied into emails with Pickles regarding the sale. For instance, an email of 21 May 2017 from Pickles’ lawyers was sent to Graham, Mr Meyrick, and Mr Shmilovits. However, nor did Domenic respond to such emails as were sent to him, including those requesting that he sign the resolution set out in paragraph [112] above.

On Sunday, 21 May 2017 at 4:47 pm, Graham sent an email titled “Sale to Pickles” to Marcus, Domenic at CZA and Better Car Company (copied to Mr Shmilovits and Mr Constantinidis). The email forwarded Mr Shmilovits’ email of 10 May 2017 referred to at paragraph [110] above which included the 11 May resolution executed by Marcus and Graham. The email also outlined the timetable for the sale completion (with the resolution to which it refers being the resolution already signed by Marcus and Graham set out in paragraph [112] above):

Neither Domenic nor Mr Constantinidis responded to the email set out in the preceding paragraph.

On 22 May 2017 at 5:41 pm, in an attempt to bring matters to a head, Graham emailed Marcus and Domenic attaching notice of a directors’ meeting for CZAH on 23 May 2017 at 5:00 pm and attaching the SSPA. The business of the meeting was described as “authority to enter into share shale agreement for” CZAT. It is typical of some of the confusion that seemed to characterise the parties’ dealings that this was purportedly to be a meeting of CZAH, which was not a vendor under the SSPA. In any event, there was no response from Domenic and the meeting did not take place.

On 23 May 2017, Pickles’ solicitors sent a revised BSPA to Mr Shmilovits. In response, Mr Shmilovits noted that there would now only be one agreement – the BSPA – and suggested that completion would need to be pushed back and further negotiations could occur at a meeting scheduled for 24 May 2017.

Notwithstanding Ms Shmilovits’ concern that more time would be required, on 24 May 2017, the BSPA was executed by Pickles, and by Marcus and Graham for CZAPL. They also entered into the Consultancy Agreement.

The BSPA included:

At the time of execution of the BSPA on 24 May 2017 Marcus and Graham also gave personal, signed undertakings to Pickles handwritten on Pickles’ solicitors’ notepaper which included an obligation within 14 days “to provide a signed copy of the resolution and associated ASIC form 205 recording the change of name of Carzapp Pty Ltd to a name that does not include the name ‘Carzapp’ or any other name that is similar”.

At 11:24 pm, Mr Shmilovits emailed Domenic, Marcus and Graham and APE confirming that CZAPL “has signed an agreement of sale with relation to the business and assets of the company” and issuing board and shareholder meeting notices for CZAPL and CZAT with accompanying draft resolutions “to be considered and passed in all three meetings” including to change the names of the companies. The meetings were scheduled for the following day at 3:00 pm.

On 25 May 2017 at 12:49 pm, Domenic replied to Mr Shmilovits, copying Graham and Marcus:

At 2:48 pm, Graham replied:

On Friday, 26 May 2017, $2 million was paid into CZAPL’s bank account by Pickles, in accordance with the BSPA.

On the same day at 4:00 pm, the CZAPL directors’ meeting was held with Domenic attending by phone. On each of the resolutions to confirm the sale of the IP to Pickles, Domenic either abstained from voting, or voted against the resolution. The meeting minutes were “signed as a true record and correct record” by Graham as chairperson on 29 May 2017 and included:

Graham kept a detailed file note of the meeting:

Later the same day Domenic sent this email to Graham and Marcus:

On 29 May 2017, Graham and Marcus replied:

On 29 May 2017 at 1:37 pm, Ms Sinne Li, Domenic’s solicitor in these proceedings, emailed Mr Shmilovits confirming that she acted “for Mr Domenic Ruberto, Director of Carzapp Pty Limited” and requested “any and all documents relating to the Sale Agreement for the Company’s IP asset and/or business to Pickles.” The email continues “…I am instructed that despite my client requesting these documents from you on numerous occasions, you have previously refused to provide them. We expect those documents to be provided to us by 5 pm today.” The allegation made in the passage just quoted is not supported in any way by the facts as the Court has found them in the preceding paragraphs.

At 4:20 pm, Ms Li forwarded to Graham and Marcus a letter from Domenic:

In cross-examination, Marcus stated that he perceived the above italicised passage as a threat against CZAPL, not against him and Graham personally (T514:35-37).

At 4:55 pm, Mr Shmilovits replied to Ms Li attaching the BSPA in final draft and an undertaking signed by Graham and Marcus dated 24 May 2017 (referred to in paragraph [125] above). His email states:

There was no response from Domenic or his solicitors and no evidence was ever provided to support Domenic’s allegation.

On 30 May 2017 Mr Shmilovits emailed Ms Li with further documents, including a deed of release. In this email Mr Shmilovits said “We also attach a release form, that we were instructed to draft, by two directors of the company. Our understanding is that the purchase price has cleared, and that the company is about to send an offer to your client, and to the investors, to receive a share in the purchase price”.

On 31 May and 1 June 2017, Graham emailed all shareholders/unitholders setting out the proposed distributions and attaching balance sheet and profit and loss summaries for the CZA Entities and the required release to be signed and returned before funds could be distributed. An example of the emails is this one sent to Dr O’Connor (copied to Marcus, Domenic and Mr Shmilovits):

The accounts attached to the email showed (as at 31 May 2017):

The requested deeds of release were relevantly identical (the “Release”). Again by way of example, this is what was sent to Dr O’Connor:

Somewhat curiously in the light of subsequent events, on 31 May 2017 at 9:23 pm, Domenic forwarded Graham’s email of 31 May 2017 setting out the proposed arrangements to his solicitor, Ms Li, and to Mr Morahan of Counsel. Domenic’s email said:

Releases were signed by all shareholders and unitholders except for Domenic and Dr O’Connor. Those who signed a Release received their promised share of the proceeds. With the exception of APE, those who signed the Release made no amendment it. Notably, Graham (on behalf of CZAPL) agreed to amendments to the Release proposed by APE. These included the power of attorney in clause 5 of the Release being limited to matters “necessary for the purpose of winding up on liquidation of the Company” and the deletion of clause 6 relating to “Third-Party Claims”.

On 5 June 2017, Domenic’s solicitor, Ms Li, sent a letter by email addressed personally to Graham and Marcus care of Mr Shmilovits regarding the distribution of the sale proceeds to Domenic. The letter states:

In cross-examination, Marcus stated that he perceived this letter as Domenic threatening to commence legal action against him personally (T515:45).

On 6 June 2017, Mr Shmilovits provided Ms Li with signed copies of the transaction documents from Pickles including the BSPA and the Consultancy Agreement.

On 8 June 2017 at 11:51 am, Ms Li sent a letter by email to Graham and Marcus. It reads:

At 8 June 2017 at 5:02 pm, Dr O’Connor emailed Graham and Marcus regarding the distribution of the sale proceeds. He stated:

Dr O’Connor’s email was in a chain replying to Graham’s email of 1 June 2017 at 10:49 am (see paragraph [140] above) which was appended to the bottom of his email and which states: “In order for the company to release these funds in line to shareholders and unitholders, please sign and return the attached release documents to ES (Mr Shmilovits)”.

On 9 June 2017 at 2:07 pm, Graham replied to Ms Li by email stating:

At 4:49 pm, Ms Li emailed a letter to Graham and Marcus in reply. It reads:

On 24 June 2017 at 2:07 pm, Pickles’ solicitors emailed Mr Shmilovits regarding the name change of the CZA Entities to remove reference to “Carzapp” pursuant to the BSPA. The email attached various documents Pickles had prepared to “assist your clients to progress” the name changes. The email states:

On 26 June 2017 at 10:53 am, Marcus emailed Graham, Domenic and APE (copying Mr Shmilovits and Domenic’s Better Car Company email address) attaching a notices of general meeting for the CZA Entities to be held on 17 July 2018 at 3:00 pm “for the purpose of considering and, if thought fit, passing” special resolutions to change the company names. This would remove any reference to “Carzapp” in the company name, and replace such references with ACNs.

The meeting would also consider whether to voluntarily deregister the companies pursuant to s 601AA of the Corporations Act 2001 (Cth) (the “Act”) and lodge the relevant forms with ASIC (the “name change resolutions”). In relation to CZAPL and CZAH, the notice specified a further resolution that “any director of the company is authorised to do all things necessary to give effect to the above resolutions”. Curiously, these resolutions were all dated 8 March 2018.

At 5:48 pm on 26 June 2017, Mr Shmilovits replied to Pickles’ email of 24 June 2017 explaining that:

On 7 July 2017 at 10:22 am, Pickles’ solicitors emailed Mr Shmilovits requesting an update on the name changes and stating “We confirm that our client requires that the names of the companies be changed even if they are no longer trading”. Mr Shmilovits replied at 11:57 am advising that a “members’ meeting of all the relevant entities, with the agenda to change the names, have been called for 17 July 2017. Our client hopes that by this the names will be changed and the issue will be resolved.”

On 17 July 2017 at 9:45 am, Pickles sent an email request for confirmation of the name changes:

On 17 July 2017 at 3:00 pm, the general meetings to pass the name change resolutions were held with Graham and Marcus in attendance. Domenic did not attend. The name change resolutions were passed for CZAH, CZAT and CZAUT. However, without Domenic’s presence, the meeting for CZAPL did not have a quorum and was dissolved.

Graham gave evidence that following the meetings he and Marcus consulted Mr Shmilovits about what to do. Mr Shmilovits stated:

On 18 July 2017 at 9:00 pm, Mr Shmilovits emailed Graham, Marcus and Ms Li noting that CZAPL had been unable to effect a change of name because of a lack of quorum. The email continued:

At around this time, Graham and Marcus sought independent legal advice from Mr Russell Lyons of K&L Gates who Marcus says they had previously retained on or around 24 May 2017. Their evidence is that Mr Lyons’ advice to them during a telephone conference was to the effect that they should consider putting the company into voluntary administration.

On 20 July 2017 at 10:25 am, Pickles’ solicitor emailed Mr Shmilovits stating:

The next day, Mr Shmilovits forwarded this email to Graham, Marcus and Ms Li noting:

In cross-examination, Marcus agreed that one the reasons the CZA Companies were put into voluntary administration was because they had been unable to bring about the name change as per the BSPA and he perceived Pickles’ email as a threat of litigation. In response to the Court, Marcus said that although there was no threat immediately apparent in Pickles’ email, “with the correct background, at that time, this was most certainly a threat [of litigation]…Pickles only work one way” (T512:21-27).

On 21 July 2017, a directors’ meeting for CZAPL was held at which it was resolved by simple majority to place the company into voluntary administration. The meeting minutes read:

On 24 July 2017, Ms Li emailed a letter to Marcus, Graham and Mr Shmilovits requesting payment of distributions to Twinkledom ($390,097.93 and $68,200) and Busy Traveller ($46,306.52 and $7,260) by 12:00 pm on 25 July 2017. The letter continued:

On 26 July 2017 at 12:14 pm, Marcus responded to Ms Li in an email titled “Company Position CarZapp” which attached the 17 July 2017 resolution. The email (to which no response is in evidence) stated:

On 3 August 2017, CZAPL entered into voluntary administration and Graham and Marcus appointed Anthony Resnick and David Solomons as joint administrators of CZAPL.

On 7 August 2017, the administrators issued the first report to creditors of CZAPL.

On 8 August 2017, the administrators changed CZAPL’s name to its ACN number.

On 15 August 2017, meetings of the directors of CZAH and CZAT were held, at which Graham and Marcus voted in favour of placing those companies into voluntary administration. The meeting minutes were in the same terms for each company and included the following:

On 17 August 2017, CZAH and CZAT were placed into voluntary administration with Messrs Resnick and Solomons being appointed administrators.

On 31 August 2017, the administrators issued their joint report recommending the companies be wound up and giving notice of a second creditors’ meeting on 8 September 2017 at 2:30 pm.

The plaintiffs filed an originating process commencing these proceedings on 7 September 2017. At Ms Li’s request, the administrators met with Ms Li and Mr Morahan who gave notice that proceedings were being brought on behalf of Domenic and Dr O’Connor. Ms Li requested that the second creditors’ meeting scheduled for 8 September 2017 be cancelled. This was refused.

On 8 September 2017, just before the second creditors’ meeting was to be held, the plaintiffs approached the Corporations List Judge seeking to have the meeting restrained. Black J dismissed the application but suggested the administrators put a resolution to the creditors to adjourn the meeting. Such a resolution was passed and the meeting was rescheduled to 18 November 2018.

On 13 December 2017, the plaintiffs filed a Statement of Claim, which was subsequently amended on 3 August 2018.

The administrators filed an amended cross-claim on 16 July 2018 seeking a determination and declaration of the validity of their appointment under the Act and orders that the administrators have a lien over the CZA Entities to indemnify them for their costs and remuneration. The administrators took a submitting position and asserted only that their remuneration and costs should be paid, making no comment on by whom.

On the morning of the fifth day of the hearing the plaintiffs sought to amend their Statement of Claim to introduce causes of action based upon Marcus and Graham having entered into what was referred to as the “side deal” with Pickles. This is what I have referred to as the Consultancy Agreement. I rejected that application. Before turning to the plaintiffs’ case as it was finally advanced, it is convenient to set out my reasons for that decision.

At the risk of some repetition, it is necessary to set out a short chronology to put the application in context:

Mr Morahan’s submissions in support of the amendment may be summarised as:

Mr O’Mahoney’s submissions opposing the application may be summarised as:

I considered the principles applicable to an amendment application in Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd [2013] NSWSC 764:

Applying those principles, for the reasons given by Mr O’Mahoney I was satisfied this was not a case in which the Court should exercise its discretion to allow the amendment. As I shall next develop, the proposed amendments lacked utility, were sought too late, were not accompanied by any adequate explanation for the delay, would have prejudiced the defendants by bringing about delay and extra cost and would have added further time to an already extended hearing. To allow the amendment would have been to act contrary to the achievement of the overriding objective set out in s 56 of the Civil Procedure Act 2005 (NSW).

There were five reasons for my refusal of the application.

First, two of the three aspects pressed by Mr Morahan (see paragraph [181] above) in relation to the proposed amendment lacked any utility. First, so far as a claim of the breach of fiduciary duty was concerned, I could see no reason why the amendment should be permitted in circumstances where no consequential relief, whether by way of damages or otherwise, was sought.

Insofar as the plaintiffs’ case was concerned that the appointment of the administrators had not been undertaken bona fide, I indicated my view to the parties that no amendment was required to enable the Consultancy Agreement to be relied upon for that purpose. Paragraph 58 of the Statement of Claim pleaded that Marcus and Graham’s opinion that CZA was likely to become insolvent “was not held bona fide and was not genuinely held as the company was not likely to become insolvent”. No particulars had ever been sought of that allegation. Mr O’Mahoney accepted that he could not properly make any complaint if the plaintiffs sought to rely on the Consultancy Agreement (the fact of which was in evidence) as one of the bases for alleging lack of good faith on the part of Marcus and Graham in concluding that there was a risk of insolvency sufficient to justify the appointment of the administrators.

Second, Mr Morahan’s third basis (see paragraph [181] above) falls into a slightly differently category. He submitted that reliance upon the Consultancy Agreement would “bolster” his client’s claim of oppression. That is true, as far as it goes. However, an important feature of this litigation is that the plaintiffs have never sought (by reference to oppression or any other legal basis) to set aside the sale of the IP to Pickles or to suggest that the sale had been at an undervalue. In the circumstances of this case, any benefit to the plaintiffs of being able to “bolster” their oppression case was far outweighed by the prejudice that would be occasioned to the defendants by allowing the amendments. I refer to that prejudice in paragraphs [190] to [193] below.

Third, the delay in making the application is unexplained and inexplicable. Domenic was aware of the Consultancy Agreement from 6 June 2017. Moreover, so were his solicitors at the time, who continued to represent him in this litigation. Other correspondence in evidence from around late May and early June 2017 also makes it clear that Mr Morahan was retained at the time and had been provided with the relevant documents. I have no hesitation in finding that Domenic, his solicitor and counsel were all aware of the Consultancy Agreement from on or shortly after 6 June 2017. The Statement of Claim is a considered document in which (unsurprisingly, given the rancour between the parties) every point is sought to be taken. No reason has been suggested as to why the Consultancy Agreement could not have been relied upon in the original pleading and no, or no persuasive, explanation has been proffered on oath or by counsel to explain why that was not done.

Fourth, the lateness of the application in the course of the proceeding counts against it. It was made after the two main witnesses for the plaintiffs had been cross-examined. I accept Mr O’Mahoney’s submission that he would have explored other issues of the kind identified in paragraph [182(4)] above with Dr O’Connor and Domenic had the Consultancy Agreement always been part of the plaintiffs’ case. If the amendment were to be allowed, those witnesses would have to be recalled and inquiries of the kind identified in paragraph [182(4)] above undertaken. This would result in further extending the length of a hearing that had already exceeded its allocated estimate of five days.

Finally, Mr Morahan sought to take advantage of the fact that because the proceedings had already exceeded their allocated estimate, there was going to have to be an adjournment in any event. He submitted that it might be possible during that adjournment for the defendants to make their preparations to meet the case based on the Consultancy Agreement. I rejected that submission for two reasons.

First, just because there was going to be an adjournment in any case was not, in and of itself, a sufficient reason to allow the amendment. The fact that there might be time for the defendants to meet the new case did not mean that, applying the principles in relation to amendment, the plaintiffs should be put to the additional cost and effort of meeting that case (including a longer hearing when the matter did in fact resume). In the circumstances of this case, the fact that there was going to be an adjournment anyway meant that there was only a marginal reduction in the prejudice to the plaintiffs which would otherwise have to be taken into account.

Second, at the time the application was argued no one (including the Court) knew how long any adjournment was going to be. There was, therefore, no certainty that any adjournment would be long enough to give the plaintiffs adequate time to meet the new case. The impact of the fact that there was going to be an adjournment was thereafter more theoretical than real. In the events which happened, as a result of a settlement of which I had been notified of only that morning, the Court was able to resume the hearing of this case only two weeks later. On any view that would not have been sufficient to enable the plaintiffs to prepare to meet the new case. If the matter had to be adjourned because of the amendment being granted, the state of my diary would have meant that the hearing could not have resumed until the last weeks of 2018 at the earliest.

A significant difficulty with this litigation has been a fundamental lack of clarity about the relief sought by the plaintiffs. I have no doubt that has made the case much longer and more complex than it needed to have been. Perhaps counterintuitively, that difficulty was compounded by what were otherwise two undisputed matters.

First, the plaintiffs did not seek to challenge the ultimate sale of the IP to Pickles. For example, the plaintiffs made clear from the outset of the hearing that it was no part of their case to seek to set the sale aside or to suggest that it was at an undervalue.

Second, as the hearing progressed, the parties reached the common position that the CZA Companies should be wound up on the just and equitable ground. That is clearly the correct outcome given that the entire CZA project was, in truth, an incorporated partnership or joint venture where the parties fell into intractable disagreement. The only dispute between the parties was about who the liquidator should be.

On the eighth day of the hearing the plaintiffs again sought to file an Amended Statement of Claim. That application led to this exchange between me and Mr Morahan (T492:1-17):

The Amended Statement of Claim that was ultimately allowed to be filed on 7 August 2018 sought this relief:

The plaintiffs’ closing written submissions concluded on pages 56 and 57:

During final address I then had this exchange with Mr Morahan in relation to those closing submissions (T540:42-541:7):

The reference to payment and relief to Dr O’Connor’s entity was a reference to orders for Twinkledom and Busy Traveller to be paid the amounts allocated to them as set out in paragraph [140] above, although orders to this effect appeared to be comprehended in both the Amended Statement of Claim and the plaintiffs’ closing submissions.

I propose to consider only those claims for relief set out in the Amended Statement of Claim. In practical terms this means I will not consider the claim made in paragraph [227] of the plaintiffs’ closing submissions. That claim had not been pleaded, formed no part of the case and, in any event, the plaintiffs do not have standing to seek that relief in relation to deeds of release to which they are not a party.

The plaintiffs assert that the defendants engaged in oppressive conduct, pursuant to Part 2F.1 of the Act. The relevant sections of the legislation are:

When determining whether oppressive conduct has occurred, the expression “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” of s 232 must be looked at together as a whole, and not as separate elements which constitute an act of oppression (Morgan v 45 Fleurs Avenue Pty Ltd (1986) 10 ACLR 692 at 704).

Furthermore, the test for oppressive conduct is objective. Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95 at [181]; (2008) 66 ACSR 359, cited Young J with approval in Morgan v 45 Fleurs Avenue Pty Ltd (1986) 10 ACLR 692 at 704 that one must look and determine whether “objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair.”

The Court will not readily find that oppression is made out. To determine whether a director has acted in a manner which amounts to oppression, “such a finding requires consideration of all the circumstances, viewed cumulatively, but not with a hypercritical approach, as the measure is the standard of reasonable directors” (Territory Realty Pty Ltd v Garraway [2009] FCA 292 at [312]).

Moreover, Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459 at 472 held “[a]t a minimum, oppression imports unfairness and that is the critical question in the present case.”

However, it must be noted that fairness does not exist in a vacuum, and one must consider the broader context, including the behaviour of the person making the allegation of oppression.

In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [90], Spigelman CJ said:

This broader context was also applied by Dalton J in Hunter v Organic & Natural Enterprise Group Pty Ltd [2012] QSC 383 at [105]; (2012) 92 ACSR 183.

The plaintiffs submitted that both Marcus and Graham conducted the affairs of the CZA Companies in a manner which was oppressive, unfairly prejudicial, or unfairly discriminatory against Domenic (Twinkledom) and contrary to the provisions of s 232 of the Act.

The claim in relation to oppression by Marcus and Graham against Domenic was particularised in the Amended Statement of Claim as:

It was submitted that these actions as listed above showed the calculated intent of both Marcus and Graham to conceal information from Domenic. It can be inferred that Marcus and Graham knew Domenic would not agree to sell the IP with a contingent Consultancy Agreement which benefited Marcus and Graham personally. As such, they sought to ensure Domenic was not involved in the BSPA, and actively limited his involvement in the sale.

Both Marcus and Graham knew about the importance of the Shareholders’ Agreement and their failure to adhere to it was not mere sloppy corporate governance, but a deliberate attempt to ignore CZAPL’s Constitution. At a directors’ meeting, where a simple majority was required, both Marcus and Graham could have outvoted Domenic. However, at a shareholders’ meeting, where a 75% majority was required to pass a resolution, even with the support of APE, Marcus and Graham would only have 70% of the support of the shareholders. Without Twinkledom’s vote, they would not have met the required proportion of support from the shareholders.

Domenic had on multiple occasions informed both Marcus and Graham of his desire to be informed of all details when decisions were being made. For example, he requested information about the readiness of CZA for marketing, he wanted details to be tabled about communications with Pickles and he wanted up to date information about the financials of CZAPL. These requests were all expressed in writing.

Marcus and Graham consistently failed to inform Domenic of communications with Pickles and did not provide the financials of CZAPL, despite the numerous requests. The only document tabled as Domenic had requested was the unsigned “unofficial” letter of offer from Pickles, which was not an offer until signed.

At the directors’ meeting on 3 April 2017, Marcus and Graham resolved that “the Company proceed with the proposed sale of business to Pickles Auction and obtain a detailed final agreement to be presented to the board.” It is impossible to accept that both Marcus and Graham understood this as the approval to proceed to sell the only asset CZAPL had and dismantle the CZA Entities without first presenting to the Board a detailed final agreement. Both Marcus and Graham have conceded that they executed the BSPA without presenting it to the board of CZAPL or the other entities.

Additionally, insisting the plaintiffs sign the deeds of release and failing to pay the dividends to the plaintiffs until those deeds were signed amounted to oppressive conduct. It was submitted that the deeds of release were not required and should not have been insisted upon by Marcus and Graham. The deeds were created to protect both Marcus and Graham personally and were broadly drafted to extend to any claims against any of the Released Parties in respect of any conduct occurring prior to the execution of the deeds and also included the Power of Attorney clauses. Despite the likelihood of there being a further distribution to shareholders, the deed precluded any further distributions occurring after the payment of the sum. The failure to make the dividend payments, when both plaintiffs were entitled to them, was unfair and prejudicial.

It is the accumulation the actions of Marcus and Graham which amounted to behaviour which was oppressive to, unfairly prejudicial to or unfairly discriminatory against Twinkledom.

The defendants reject any suggestion they engaged in oppressive conduct against Twinkledom. They submitted that the plaintiffs’ claims are without principled foundation, and as such, should be rejected in their entirety and dismissed with costs. Furthermore, to a large extent the complaints relied upon by the plaintiffs in support of the oppression claim were said to be allegations which were not pleaded. For example, the extensive final submissions on issues such as ownership of the IP, largely formed no part of the case as pleaded. Moreover, there was no nexus between various claims pleaded by the plaintiff and the final relief sought.

The defendants noted that there was no issue taken by the plaintiff in relation to the IP sold to Pickles, the price at which it was sold, or the entity they were sold to. The defendants submitted that allegedly oppressive conduct should not be seen in a vacuum; rather the relevant behaviour of the directors should be seen in their business context. When this context is examined, it becomes apparent that there was no oppressive or unfair conduct on behalf of Marcus or Graham, and the allegations made by both Domenic and Dr O’Connor are baseless.

In defence of the particularised allegations of oppression, the defendants’ submissions can be summarised as follows:

The conclusion which the Court has reached in relation to oppression does not depend upon a detailed resolution of the matters particularised. In deference to the parties’ arguments, I will nevertheless deal with them below. Before doing so, I will first set out the Court’s conclusions in relation to Domenic’s behaviour and then explain why the Court has concluded that Twinkledom’s claim in relation to oppression should fail.

The behaviour of Domenic was extensively considered by the parties, and what role he played personally in the demise of the relationship between the directors and ultimately of the CZA Companies.

I have set out in detail above the evidence that highlighted how Domenic was consistently negative and pessimistic in his dealings with both Marcus and Graham. He was not supportive of his fellow directors attempting to sell CZA in the state it was in, and the manner in which he voiced those concerns was aggressive and confrontational.

Moreover, Domenic’s behaviour showed a reluctance to solve problems and he was constantly and rudely critical of the work of his fellow directors. The relationship between Domenic on one hand, and Graham and Marcus on the other, had deteriorated to such an extent that Dr O’Connor was required to act as a mediator between the directors and as a channel for communications. The continued hostilities between the directors were evidenced in the fact that Dr O’Connor resigned acting as the intermediary between the directors, and reported feeling like “a punching bag in the middle.”

In addition to the unprofessional and aggressive emails from Domenic which have been set out extensively above, Domenic’s poor behaviour was confirmed by Dr O’Connor. Dr O’Connor conceded that he found Domenic “quite volatile and exuberant” (T86:29), and clarified that he meant volatile in a negative sense.

Furthermore, Dr O’Connor’s cross-examination in relation to Domenic was revealing (T88:17-42):

Additionally, the concessions which Domenic made himself about his own conduct were quite telling. Domenic accepted in cross-examination that he “may have” shouted at Marcus and Graham and may have suggested they “go see a psychiatrist” (T168:50). When asked whether he had made threats and inappropriate comments, Domenic did not deny it, however stated “I do not recall” and eventually accepted “I may have said something along those lines” (T169:35). Occasions were canvassed where Domenic had made threats and demands against Marcus and Graham, with some of these occasions occurring many years ago. This highlighted that the poor nature of the relationship between the directors had been ongoing and was not a recent development.

The continued poor relationship between the directors was also apparent and shown through the actions of Domenic on 18 July 2018. Outside the Court, Domenic, who was unprompted, yelled at Marcus and Graham “look, the two cocksuckers are here, we’re going to have fun today” (T171:11-22). When asked about this altercation, Domenic initially denied making such a statement, however eventually conceded “I didn’t shout at the top of my lungs. I did say those words.” This act of shouting inappropriate comments reveals the continued reality of the relationship between the directors, a relationship characterised by tension and disdain by Dominic towards Marcus and Graham.

When working as co-directors of a company, a productive and collaborative relationship is required. It is evident that this type of productive relationship became non-existent between Marcus, Graham and Domenic, particularly when trying to sell CZA and in dealing with the consequences of that sale. The conduct of Domenic was largely responsible for this.

Domenic submitted that having a breakdown in the relationship between the directors was not uncommon in cases such as this. It was submitted that having a difference of opinion between directors was not exceptional and this case involved a breakdown in the relationship between the directors because of differences of opinion. However, such a submission fails to take into consideration the way in which differences of opinion are expressed and communicated. The consistently aggressive emails, the insults made, and the abusive comments declared, even in the precincts of the Court, all satisfy the Court that Domenic was virtually impossible to work with.

The collective evidence from Marcus, Graham, Dr O’Connor and the concessions made by Domenic himself in cross-examination amply justify the Court’s conclusion that it was not uncommon for Domenic to become abusive and difficult to work with. This difficult behaviour ultimately culminated in the total breakdown of the relationship between the directors, and this impacted how Marcus and Graham ran the business and how they approached making decisions for the business.

Domenic’s unsatisfactory behaviour includes his complete failure to engage with the opportunities extended to him to participate in negotiating the terms of the BSPA once a draft had been provided to him and his advisers. He seems to have adopted an attitude of sullen non-communication, only springing into action with threats of legal action after the BSPA had been executed. Even once that had occurred, there was no attempt on his part to engage with Marcus and Graham in relation to the requirement for the Release, including failing to suggest any amendments, notwithstanding:

The Court concludes that Domenic is solely responsible for the breakdown of the relationship between him and his fellow directors and, to the extent that he has not received his share of the proceeds of what was in effect the winding up of the CZA Entities, he is the author of his own misfortune. To borrow the language of Spigelman CJ in paragraph [209] above, this case is an example of the situation where the Court has concluded “that an understanding or expectation as to participation in management should be taken to have ceased, in a manner not entitling the person excluded from such participation to relief under the statutory provisions [because] it is the person excluded who is responsible for the breakdown in the relationship”.

The Court’s conclusions in relation to the legal consequences of Domenic’s behaviour inform, and are a secondary basis for the Court’s ultimate conclusion that Domenic has failed to make out his case in oppression. The primary reason for the Court’s conclusion is based on Domenic’s own concession or forensic decision not to challenge the sale of the IP. In my view, it was this approach that was the source of his lawyers’ difficulties in deciding what relief was to be sought from the Court.

It is necessary to look at what occurred in two parts: first, everything that led up to the execution of the BSPA and, second, the parties’ dealings in relation to the distribution of the proceeds.

The series of events that began with Marcus and Graham trying to find a buyer for CZA were steps which led to the execution of the BSPA and the receipt by CZAPL of $2 million – a transaction which Domenic does not challenge. Considering all of those events, viewed cumulatively and ending in the BSPA and receipt of $2 million, the Court is not satisfied that Marcus and Graham acted with the requisite degree of unfairness towards Domenic when measured by the standard of reasonable directors (see paragraph [206] above). Domenic is therefore not entitled to any relief under s 233 of the Act.

By the end of 2017 the affairs of the CZA Companies had reached an impasse to the point where the directors had agreed to take a break from each other and rely on the services of an investor (Dr O’Connor) to act as mediator. The venture had almost run out of cash. It would have been clear to any director acting reasonably that an investor or purchaser had to be found. Given Domenic’s behaviour, a decision to sell CZA and wind up their association with Domenic was entirely reasonable on the part of Marcus and Graham (rather than seek an investor and remain in a commercial relationship with Domenic). Putting it another way, striking an arm’s length deal for the purchase of CZA was a reasonable way to determine the fair value of Domenic’s (and everyone else’s) interest in the venture. Again, given Domenic’s behaviour, it was equally reasonable that Marcus and Graham should not include Domenic in the negotiations of the sale as there was every reason to think he would not play a constructive role in the best interests of CZAPL or the “partners” in what was essentially an incorporated partnership.

The conclusion which I have reached is irrespective of the legality of the various matters particularised as acts of oppression. Putting it another way, to the extent that any or all of those matters are unlawful, in circumstances where the ultimate outcome of those matters is not challenged, the Court is satisfied for the reasons set out in paragraphs [224] to [239] that the conduct viewed as a whole is not oppressive, or in the alternative, if the Court’s discretion to make any order under s 233 were enlivened, then for the same reasons the Court would decline to exercise that discretion to make any order.

Turning to the distribution of the proceeds of the sale of the IP, Domenic’s complaint is based upon the requirement for the Release. In my view the requirement for a deed of release was commercially entirely sensible and in accordance with the standard or conduct of reasonable directors. The parties were embarking on a de facto winding up. The shareholders in CZAPL were agreeing to receive less than they otherwise might so that an ex gratia payment could be made to Dr O’Connor and Ms Berlandier. Releases between the shareholders themselves in those circumstances are commercially explicable and reasonable. From the point of view of the shareholders and the CZA Entities, it was prudent to require releases from Dr O’Connor and Ms Berlandier in return for the ex gratia payments when it was conceivable the latter would have cause for complaint because their investments had otherwise been lost.

I accept Domenic’s submission that the Release as originally propounded (see paragraph [142] above) was unreasonably wide. However, that problem would have been cured if a deed in the form of that provided by APE had been signed by Domenic (see paragraph [144] above). In my opinion, given the matters known to Domenic set out in paragraph [234] above, the other matters relied on by the defendants set out in paragraphs [291] to [294] below and Domenic’s failure to even seek any amendment to the draft deed of release provided to him, I conclude that looking at the circumstances of the division of the sale proceeds as a whole, including the requirement for a deed of release, there was no unfairness to Domenic so as to constitute oppression under the Act. Alternatively, even if there were the requisite unfairness so that the Court’s discretion under s 233 of the Act were enlivened, the Court would not exercise its discretion to make any order by reason of the same matters.

Other than the allegation of oppression, Domenic has not argued any other basis on which the Court should require payment to him of the proceeds of sale. I will deal with this aspect of Domenic’s claim in paragraphs [375] to [381] below.

I will next turn to the specific particulars of alleged oppressive conduct.

Clause 3.12 of the Shareholders’ Agreement specifies that CZAPL may not take any action or pass any resolution in respect to certain matters:

For the sake of convenience, I will set out again the phrase “Required Majority” as defined in clause 1.1:

The plaintiffs’ case is that the sale of the assets of CZAPL (in effect, the IP) to Pickles was in breach of this Shareholders’ Agreement. The defendants reject this.

The defendants submitted that the sale of the IP was supported by the “Required Majority”. At the meeting of 3 April 2017, a resolution was unanimously passed by the directors of CZAPL. That resolution included the following:

The defendants make seven points in relation to this this.

First, it is agreed by the parties that those in attendance of the meeting of 3 April 2017 represented more than 75% of the voting rights for CZAPL, as required. The document recording the resolution was headed “Circulating Resolution of Directors”.

The Court in Re Express Engineering Works Ltd [1920] 1 Ch 466 held that a meeting by a board of directors, who were the only members of the company, constituted a meeting of the members for the requirements of the company’s constitution. It was immaterial that the meeting was in the form of a board meeting, and not a members’ meeting. This decision was applied by Bowen CJ in Eq in Re Compaction Systems Pty Ltd & the Companies Act [1976] 2 NSWLR 477 at [484]; (1976) 2 ACLR 135 (citations omitted) (“Re Compaction Systems”). Bowen CJ in Eq said:

Applying the reasoning in those two cases, the fact that the meeting was not expressly convened as a meeting of shareholders does not displace the validity of the approval which was given at the meeting.

Second, any attempt to characterise the resolution of 3 April 2017 as being merely preparatory in nature for an evaluation of the offer from Pickles is incorrect. The language of the resolution, finishing with “RESOLVED the Company proceed with the proposed sale of business to Pickles Auction”, makes plain the intent and determination of the directors was more than just preparatory.

Interpreting resolutions this way is consistent with what Greenwood, Middleton and Foster JJ stated in Lewski v Australian Securities and Investments Commission [2016] FCAFC 96; (2016) 337 ALR 1. At [276] they said “It is important to consider the actual terms of both resolutions … giving them a fair and natural meaning in their context …”

Applying this approach, both the actual terms of the resolution, namely “to proceed with the proposed sale of business to Pickles Auction”, and the context in which they were made, during the tabling of a letter from Pickles which set out the price and property subject to the sale, suggest the resolution was more than merely preparatory.

Third, APE has made no complaint during these proceedings as to the 3 April 2017 resolution or the subsequent entry into the BSPA. On 19 May 2017, upon learning of the proposed sale to Pickles, Mr Thornton of APE wrote to Mr Lasarow,

This correspondence, along with APE’s executed release, shows their approval of the position of the defendants. APE has failed to make any complaint and has waived any rights that may have accrued to it from any alleged procedural irregularity in the resolution of 3 April 2017.

Fourth, the concessions made by Domenic during his cross-examination show he was content for the sale to Pickles to proceed.

Domenic conceded in cross-examination that he had learned of the proposed sale of CZA to Pickles through Dr O’Connor, as early as February 2017. Moreover, when Domenic was informed via email on 13 March 2018 of the possible sale to Pickles for $2 million, he did not complain about the price or any aspect of the deal. Similarly, when Domenic was informed again on 28 March 2017 about the possibility of the sale to Pickles of all of CZA’s assets, there was no objection.

Domenic did not complain about the buyer, the time given for deliberation of the proposal or any other matter relating to the proposed sale of CZA to Pickles. Domenic acknowledged he was aware that the subject matter for the 3 April 2017 meeting was the proposed sale to Pickles, and made no complaint about this meeting, or the fact that the sale was to be for 100% of the assets of CZAPL.

Domenic’s knowledge of the sale and his lack of objection to the sale or the price of the sale, suggests he approved of CZAPL selling 100% of its assets to Pickles, despite what he is now asserting.

Fifth, Domenic’s acceptance of the sale is shown when he conceded in cross-examination “the oppression came a long time after the sale” (T194:27). Moreover, when asked whether the sale to Pickles should not have gone through, Domenic stated “we’re not challenging the sale” (T235:2).

Sixth, in correspondence with his solicitor and barrister on 31 May 2017, Domenic stated “it seems things aren’t so bad” (see paragraph [143] above).

Seventh, the plaintiffs have failed to provide any evidence of the value of CZA when it was sold to Pickles. As such, the Court has no basis to determine whether the sale was oppressive or unfair on any stakeholder on the basis that it was sold at an undervalue.

While meritorious in practical terms, the defendants’ arguments do not engage with the requirements of the Shareholders’ Agreement.

There can be no doubt that the sale of the IP for $2 million engaged clause 3.12(i) of the Shareholders’ Agreement. The fair and natural meaning of the 3 April 2017 resolution in its context is clear. That context is receipt of the (unsigned) letter of offer. It authorised the sale to proceed subject to the final form of the agreement for sale being submitted to the directors for their approval before its execution. In my view, because it would otherwise be a very unusual result from the point of view of proper corporate governance, quite specific language – absent from the 3 April 2017 resolution – would be required to bring about the result that all that had to happen was for the final, detailed sale agreement to be presented to the board after it had been executed.

The 3 April 2017 resolution, properly construed, would be unobjectionable if it had been passed at a meeting of the shareholders. It was not. The difficulty for the defendants is that I accept the plaintiffs’ argument that the Re Compaction Systems principle does not apply because there was incomplete disclosure of material matters. This is because principle is an example of waiver going to formalities, it requires the attendees at the meeting to have full knowledge and consent: Herrman v Simon (1990) 4 ACSR 81. In my view, the proposal for the Consultancy Agreement was a material matter, not least because Pickles’ agreement to the BSPA was conditional upon Graham and Marcus entering into the Consultancy Agreement. It was not disclosed.

The 3 April 2017 resolution is of no effect for being in breach of the Shareholders’ Agreement. Even if it were valid, its terms were not complied with because the BSPA was not provided to the board (or shareholders) of CZAPL for approval before being executed.

Five resolutions were passed at the 26 May 2017 meeting. These resolutions can be summarised as:

The plaintiffs’ complaints about the 26 May 2017 Board Meeting are two-fold.

First, it was submitted that the resolutions passed were not subject to a resolution pursuant to the Shareholders’ Agreement and the directors were acting outside their power. Therefore, the resolution is void.

Second, the first plaintiff states he was misled at the meeting, as Marcus and Graham had already entered into the Sales Agreement with Pickles on 24 May 2017.

The defendants reject both of these propositions.

In relation to the first complaint, the defendants submit that CZAPL had entered the BSPA pursuant to the resolution passed on 3 April 2017. The resolution of 3 April 2017 conferred authority to take the necessary steps to complete the sale. Therefore, the directors were not acting outside their power when the BSPA was executed.

In relation to Domenic being misled, the plaintiffs submit that the purpose of the 26 May 2017 meeting was not “to resolve to enter into the Sale Agreement” as the plaintiff alleges. The resolution of 3 April 2017 had already passed and that resolved to “proceed with the proposed sale.” On 24 May 2017, Mr Shmilovits sent Domenic an email confirming the BSPA had been executed with Pickles. As such, Domenic cannot claim that he was misled about the meeting.

Finally, even if the allegations from the plaintiffs are correct, the plaintiffs have not suffered any adverse consequences as a result of the resolutions being passed. Therefore, there has been no oppressive conduct.

The Court finds Domenic was not misled. He had been informed by Mr Shmilovits (see paragraph [126] above) that the BSPA had been executed.

However, even if the 3 April 2017 resolution was otherwise valid, given the view I have taken as to its proper construction, that resolution did not authorise the execution of the BSPA or the taking of the steps which were purportedly passed on 26 May 2017.

Furthermore, the various resolutions supposedly passed on 26 May 2017 were plainly “shareholder reserved matters” under Clause 3.12 of the Shareholders’ Agreement (see paragraph [43] above) insofar as they were in respect of the sale of CZAPL’s assets having a value of more than $20,000, involving a step to wind up CZAPL and ceasing the “Business” as defined. Because the resolutions did not receive Domenic’s support (even if the meeting were a shareholders’ meeting as opposed to a directors’ meeting) they did not pass and the actions taken by Graham and Marcus pursuant to them were unauthorised.

The plaintiffs have submitted that CZA should have been valued prior to sale to Pickles. The defendants reject this proposition for five reasons:

The Court’s conclusion on this aspect of the matter may be shortly stated. In circumstances where Domenic expressly eschews challenging the sale of the IP, makes no allegation that it was sold at an undervalue and has adduced no evidence that proper corporate practice would have required a valuation or what that valuation might have been, this allegation is unsustainable. The Court rejects it accordingly.

It is convenient to deal with these two allegations together because they both turn on the requirement for a deed of release.

There was a degree of imprecision in the course of argument about the precise nature of the payments, in particular whether they were dividends or a return of capital. Ultimately Domenic said the payments to him from CZAPL were dividends. The defendants said they were a return of capital. The distinction is important insofar as Domenic seeks an order for payment.

The argument is complicated by the equivocation in the terms of resolution 5 purportedly passed on 26 May 2017, which included (emphasis added):

In my opinion the payments from CZAPL directly to its shareholders were a return of capital for two reasons. First, the context was a de facto winding up (as the opening words of the resolution make clear) so that what was being proposed was a return to contributories of the kind a liquidator would make when all creditors have been paid and the expenses of the winding up have been met. Second, I regard it as a strong indication against the conclusion that the payments were a dividend that there was no declaration of a dividend from profits specifying the amount, time and method for payment (see s 254U of the Act).

It is also important to identify that two types of payments were contemplated (see paragraph [140] above) as part of what I have described as a de facto winding up.

First, after the payment of all expenses and other liabilities, the four shareholders in CZAPL were to receive payments in proportion to their shareholdings. However, the payments that would otherwise have been made to Domenic, Marcus and Graham were reduced equally to create a fund of $92,613.05 to be divided equally ($46,306.52) as ex gratia payments to Dr O’Connor and Ms Berlandier, neither of whom was a shareholder in CZAPL. The end result was that APE was to receive $140,322.80 and Domenic, Marcus and Graham $390,097.39 each.

Second, an amount of $219,120 was advanced from CZAPL to CZAUT via CZAT to enable distributions from CZAUT to the unitholders in proportion with their interests. This meant $68,200 to each of Domenic, Marcus and Graham and $7,260 to each of Dr O’Connor and Ms Berlandier.

The plaintiffs have submitted that the defendants have failed to make the payments from CZAPL and unit trust distributions to the plaintiffs unless they signed the deed of release.

One of the resolutions which purportedly passed at the 26 May 2017 meeting was that there would be “a return of capital to shareholders on receipt from each shareholder of a deed of release against any claims by each shareholder against the Company in the future.” This resolution was passed to allow payments to be made to the unitholders who were not shareholders of CZAPL, namely the entities of Dr O’Connor and Ms Berlandier. Although the resolution did not refer to Dr O’Connor and Ms Berlandier, as is apparent from the email set out in paragraph [140] above, receipt by them of the proposed payments was made conditional by Graham on them giving deeds of release.

The sale of the key asset of CZAPL to Pickles meant the units which Dr O’Connor and Ms Berlandier had acquired in CZAUT were worthless. They were not shareholders in CZAPL, and had no entitlement to the proceeds of the sale of the IP.

Therefore, to provide Dr O’Connor and Ms Berlandier with some return on their investment, Marcus and Graham proposed an ex gratia payment be made to them. As neither Dr O’Connor nor Ms Berlandier were entitled to the ex gratia payment, Mr Shmilovits advised that releases should be provided by the shareholders of CZAPL who might otherwise have received those funds.

While the scope of the releases was broad, Marcus and Graham submitted that they should not be criticised for following the reasons:

The defendants submitted that they have never refused to make the payments. However they have insisted that in accordance with the legal advice provided to them, and with the resolutions purportedly passed on 26 May 2017, the Releases are to be signed before any payment is made.

In light of this context, the defendants submitted that there was no relevant unfairness against Domenic to constitute oppression for failing to make the payments and distribution.

Furthermore, the defendants submitted by reference to s 234 of the Act and generally that as he was not a shareholder of CZAPL, Dr O’Connor did not have standing to seek an order under the Act for any alleged oppression in relation to non-payment of the ex gratia payment from CZAPL.

For the reasons set out in paragraphs [241] to [242] above, including accepting the matters set out paragraphs [291] to [294] above, the Court accepts the defendants’ submissions that by requiring a deed of release from Domenic they did not engage in oppressive conduct towards him. As a practical matter, rather than being relevant to any legal issue, it is clear beyond doubt that Marcus and Graham would have accepted a deed of release from Domenic and Dr O’Connor in the form of that executed by APE with the result that the appointment of the administrators and the need for this complex piece of litigation would both have been avoided.

The Court also accepts the defendants’ submission that Dr O’Connor does not have standing to seek relief under the Act in relation to the payment from CZAPL. The question of his entitlement to any relief is considered further in paragraphs [375] to [381] below.

The plaintiffs have done no more than submitted that CZAPL borrowing money from CZAT required the approval of the majority of the shareholders and that without this approval, it was a breach of the Shareholders’ Agreement. In fact, it was CZAPL which made an advance to CZAT and I will read the particular in that way.

The defendants accept, and the Court finds, that the evidence (such as it is) demonstrates:

There can be no doubt that these transfers were made to allow CZAH as trustee of CZAUT to make payments to unitholders. So much appears from resolution 3 purportedly passed on 29 May 2017 (see paragraph [130] above). The defendants submit that there is no suggestion that Domenic was unaware of such a loan, or that he took issue with the transfers.

The defendants contend that it is unclear what the relevance of this allegation is as a means of oppression. Even if the plaintiffs’ argument is accepted, it is unclear what the detrimental impact these payments had on Domenic.

In considering this allegation, the plaintiffs have not particularised which provision of the Shareholders’ Agreement was breached by the making of such a loan. However, clause 3.12(o) makes a shareholder reserved matter “giving a loan, credit or other financial accommodation to a person of more than $5,000 except in the ordinary course of business”. Clause 1.2(d)(iii) defines “person” to include a corporation.

As it has not been the subject of submissions, I will assume without finding that the making of the loan to CZAT for the purposes of paying it on to CZAH was not in the ordinary course of business. On the basis of that assumption, resolution 3 purportedly passed on 29 May 2017 at a directors’ meeting does not satisfy the requirements of the Shareholders’ Agreement such that the making of the loan was unauthorised. The difficulty for the plaintiffs is that they have failed to demonstrate how, even if that be so, there was any relevant unfairness to Domenic so as to constitute oppression on the part of Marcus and Graham. The Court rejects this allegation, even if made out, as constituting oppressive conduct for the purposes of the Act.

In the Amended Statement of Claim the plaintiffs allege:

The plaintiffs did not give this allegation much emphasis in their closing submissions. The Court rejects the allegation, not least because the plaintiffs were unable to point to evidence that such an arrangement existed in the terms alleged. However, even if such an arrangement did exist, the Court accepts the defendants’ submissions for the reasons that follow that this allegation cannot be an indicium of oppressive conduct.

The provisions of the Shareholders’ Agreement to which the plaintiffs refer are clauses 3.12(c), (e), (n) and (s) (see paragraph [43] above). It is alleged that the effect of those provisions is to require approval by a “Required Majority” before CZAPL could enter into the alleged arrangement with Media Tag for the payment of expenses of the business of CZAPL.

Media Tag was incorporated on 7 November 2007. CZAPL was incorporated on 30 July 2015. The Shareholders’ Agreement was entered into in February 2016. Prior to CZAPL’s incorporation, the evidence establishes that Media Tag was the corporate vehicle through which the business of developing CZA was conducted and which held the IP in relation to CZA. Accordingly, when a third party developer was engaged to undertake work on CZA or assist with its development, the third party subsequently entered into a deed assigning the IP in the works to Media Tag. To the same end, from a time that preceded the incorporation of CZAPL, Media Tag paid expenses in relation to the development of CZA, and this remained the case after CZAPL’s incorporation. The Court accepts that the arrangement must have been known to Domenic, because Media Tag issued invoices to Domenic on account of disbursements.

The Court accepts Marcus’ evidence that Media Tag “had the infrastructure to support a business, to support the growth of a business, to enter into potential agreements”. When asked to elaborate, Marcus explained that Media Tag had a corporate identity, credibility, email addresses, telephone numbers, a website, notable achievements from the past, an office, desks and a meeting room.

The Court concludes that, assuming for the sake of the argument that there was any “arrangement” by which Media Tag paid expenses of CZAPL, any such arrangement had been entered into before the Shareholders’ Agreement was executed. Domenic has been unable to point to any provision in the Shareholders’ Agreement that would, on its proper construction, extend to pre-existing arrangements. In any event, and assuming again that there was such an arrangement and that it breached the Shareholders’ Agreement, Domenic has failed to demonstrate how, in all the circumstances, the payment of such expenses was unfair to Domenic so as to constitute oppressive conduct for the purposes of the Act.

This alleged particular of oppression is rejected.

This particular is integrally connected to the plaintiffs’ case that the administrators were improperly appointed and to the issues raised by the administrators’ amended cross-claim. It is therefore convenient to deal with the challenge to the appointment of the administrators both in the context of a particular of alleged oppression and as a substantive issue in its own right.

S 436A of the Act sets out the requirements for appointing an administrator for a company:

In Rapsey (in Their Capacity as Former Administrators of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (Formerly Under Admin) ) v Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244 at [21]–[22], Black J summarised the relevant principles of Pt 5.3A as follows:

The plaintiffs focussed their argument on CZAPL, although ultimately the administrators were also appointed to CZAT and CZAH. They submitted that Graham and Marcus did not have a bona fide belief that CZAPL was insolvent or about to become insolvent when they placed CZAPL into voluntary administration and subsequently appointed the administrators. Instead, the reason they passed the resolution which appointed the administrators was in accordance with obligations they thought they owed to Pickles. As such, the appointment of the administrators was invalid.

In Re Condor Blanco Mines Limited [2016] NSWSC 1196, Barrett AJA noted at [133]:

The plaintiffs submitted that both Graham and Marcus were motivated by self-interest, as opposed to holding a genuine belief that the CZAPL was insolvent, or likely to become insolvent. According to Graham’s affidavit of 27 April 2018, Graham had prepared a schedule of payments to creditors and shareholders. This schedule was being created for the purpose of distributing sale proceeds and “balancing out everything prior to a winding up of the companies”. This would suggest that even before determining the viability of the companies, Graham was preparing to have them wound up.

Graham’s evidence was that he was concerned with how long it was taking to comply with the post-sale obligations. Notices of meetings were circulated “so we could get the ball rolling and keep Pickles happy.” The plaintiffs submitted this showed the real reason for Graham’s actions. Graham was more concerned with maintaining a deal with Pickles, a deal where both Graham and Marcus would benefit from the Consultancy Agreement, as opposed to having a genuine belief that the CZAPL was going to become insolvent.

Pursuant to the BSPA, the change of CZAPL’s name had to be approved by a members’ meeting. The plaintiffs submitted that the likelihood of any litigation from Pickles was minimal and would not have been given much weight when considering whether to place the company into administration. At the time of the execution of the BSPA on 24 May 2017, CZAPL had performed the substantial part of its bargain, namely providing the code for CZA to Pickles. As such, if Pickles were to commence legal action against CZAPL, it would only be in relation to them using the name “Carzapp”. Given the CZA Companies had ceased trading, it is highly unlikely Pickles would have sued CZAPL in relation to using the word “Carzapp” in their company name.

Furthermore, given both Marcus and Graham had entered into the Consultancy Agreement, it is even more unlikely Pickles would have sued CZAPL. As both Marcus and Graham were now consulting for Pickles, it is factually unlikely that legal proceedings against CZAPL would have been commenced.

Consequently, the plaintiffs submitted that it was more probable that Marcus and Graham used the impending threat of litigation from Pickles as an excuse to subvert the Shareholders’ Agreement. The continued behaviour of both Marcus and Graham suggested that the matter at the forefront of their thinking was ensuring the names of the companies were changed, as opposed to determining the solvency of CZAPL. Graham records in his affidavit that:

The plaintiffs placed emphasis on the fact that Domenic even offered to have Twinkledom vote to change the name of CZAPL if he was paid the money that was owed to him. Domenic’s solicitor emailed the following note to both Marcus and Graham:

The note went on to say,

Graham provides four reasons as to why he thought the companies were potentially in trouble and at risk of going into liquidation:

The plaintiffs reject these reasons provided by Graham and submit the following: CZAPL had no upcoming liabilities and had ceased to trade, CZAPL had $800,000 cash at bank, Domenic had offered to change the name of CZAPL if he was paid his money, and as a result of the Consultancy Agreement, CZAPL did have the capacity to generate income.

Moreover, Graham stated the following in his affidavit:

The accumulation of evidence from Graham suggests that placing CZAPL into administration was not based on concerns of solvency. Instead, entering into administration was about resolving a corporate problem, where one shareholder refused to provide the required support to change the name of the companies. As such, there was no bona fide belief that CZAPL was insolvent, or was about to become insolvent, and consequently the placing of the company into administration was invalid.

The defendants refute any suggestion by the plaintiffs that they did not have a bona fide belief that the CZA Companies were insolvent, or likely to become insolvent.

The defendants note the following concessions were made by Domenic during cross-examination:

Additionally, the defendants also highlighted the following to suggest both Marcus and Graham had a bona fide belief as to the insolvency at the time of appointment of the administrators:

It is the accumulation of this information and advice which resulted in Graham giving considerable thought to the financial position of the CZA Companies. Graham was aware of the distributions which needed to be met, the lack of assets, the dispute between the shareholders, the possibility of litigation from Domenic or Pickles and the cost of such litigation, the absence of a means for the companies to generate income, the legal advice from both Mr Shmilovits and Mr Lyons and the desire to avoid insolvent trading.

During cross-examination, Graham stated that “by January 2017 the position of the company” was that it “[had] less than $10,000 in the bank account and [was] on the verge of insolvency” (T328:44-46). Graham went on to explain how the threats of litigation, the lack of assets the company held, and the fact that any money the companies still had had been allocated to either the ATO or various creditors all compounded his belief in the need to place the company into administration. This opinion was solidified by two different lawyers, and Mr Resnick who was an experienced administrator.

Marcus gave similar evidence to Graham and conceded in cross-examination that during the negotiation with Pickles, “[t]he company was desperate for funds and it was on the brink of administration” (T459:42-43). Two key issues informed Marcus’ decision, namely threat of litigation from either Domenic or Pickles, and the financial position the company was in at the time. Marcus said (T520:8-14):

Furthermore, the resolutions themselves expressly stated that both Graham and Marcus thought the companies were at risk of becoming insolvent. As such, they voted to appoint administrators.

Evidence was also provided by Dr O’Connor which confirmed the financial worries both Graham and Marcus had about the companies. Dr O’Connor accepted CZAPL was in a “precarious financial position” and “was running low on working capital” (T112:1-9). The concerns of Graham and Marcus had been ventilated to Dr O’Connor, and he was aware of their stance on the finances of the company.

There were attempts made by the plaintiffs to suggest the appointing of the administrators was motivated by the Consultancy Agreement between Pickles and Graham and Marcus. The defendants submitted this argument should be rejected for the following reasons:

Therefore, the evidence of the broader context reveals how the threats of litigation, the poor financial position of the companies, and the consistent advice to place to CZAPL into administration informed Marcus’ and Graham’s view that the companies were, or were likely to, become insolvent.

In Downey v Crawford [2004] FCA 1264 at [189]; (2004) 51 ACSR 182 Weinberg J, when dealing with a case where it was said administrators had been invalidly appointed to a company that had ceased to trade and was described as a cashbox, said:

Both Marcus and Graham were extensively challenged in cross-examination about the basis of their belief that the CZA Companies were likely to become insolvent in the future. Having had the advantage of seeing them give their evidence, I have no doubt that they were motivated by a genuinely held belief that in August 2017 the CZA Companies were likely to become insolvent at some time in the future. I reject the submission that they acted for extraneous or improper motives such as in relation to the Consultancy Agreement (the plaintiffs drew no logical or plausible link between that agreement and why the administrators were appointed), to satisfy Pickles, to avoid the operation of the Shareholders’ Agreement or to resolve their dispute with Domenic.

However, that they genuinely subjectively held the requisite belief is insufficient. The question then becomes whether that belief was objectively reasonable in the circumstances. The plaintiffs bear the onus of satisfying the Court that it was not a reasonable belief. They have not satisfied that onus. The Court finds Marcus’ and Grahams’ belief was reasonable by reference to the following matters:

In reaching this conclusion I should also record the following two matters.

First, I have not taken into account the solvency concerns in January 2017 which led to the sale of the IP in the first place. The situation had to be considered on the basis that CZAPL had received the sale price and had now ceased to trade.

Second, I have not overlooked Domenic’s offer to approve the change of name for the CZAPL companies if he received his promised share of the proceeds (see paragraph [167] above). However, it is significant that his offer refused to engage with the request that he provide a deed of release. I have already explained that in my view the request for a deed of release was commercially reasonable, albeit not a deed in the wide terms originally propounded by Marcus and Graham. However, notwithstanding the matters referred to in paragraph [234] above, Domenic failed even to attempt to negotiate a more focussed form of release that would have been acceptable to all concerned. That failure, and the long and bitter history of his poor behaviour towards Marcus and Graham, means it was objectively reasonable for Marcus and Graham to give no real weight to the possibility of an agreement being reached with Domenic that would have relieved the threat of action from Pickles and Domenic. I am fortified in that conclusion by the fact that Domenic did not respond to Marcus’ further offer set out in paragraph [168] above.

The Court therefore finds that this aspect of the plaintiffs’ challenge to the validity of the appointment of the administrators fails. Furthermore, for the preceding reasons and those that follow to the effect that the resolution to appoint the administrators was not in breach of the Shareholders’ Agreement, the Court finds that the appointment of the administrators – being valid – cannot be an indicium of oppression as particularised by the plaintiffs. While possible, it would be a rare case, of which this is not an example, where the lawful exercise of a statutory right could constitute oppressive conduct.

The Court’s conclusion means that it is unnecessary to consider the defendants’ alternative submissions based on s 477A of the Act.

The plaintiffs submitted that the resolutions which appointed the administrators were a breach of the Shareholders’ Agreement.

Clause 3.12(j) of the Shareholders’ Agreement states the following as being a reserved matter for the shareholders “except to the extent otherwise required by law”:

The plaintiffs contended that “any similar officer” must also include an administrator.

Similarly, clause 3.12(s) states a “Required Majority” is necessary to

If the Board did not have the power to take such action, then the decision to do so must be invalid (Sutherland v Take Seven Group Pty Ltd [1998] NSWSC 538 per Young J, as his Honour was then).

The plaintiffs submitted that placing the companies into administration was beyond the powers of the directors. Appointing the administrators was a matter which only members were empowered to do, pursuant to clause 3.12(j) and (s) of the Shareholders’ Agreement.

Furthermore, the plaintiffs submitted that the appointment of the administrations was similarly invalid for both CZAH and CZAT.

As the directors did not have the power to appoint the administrators, their decisions were therefore invalid.

The plaintiffs further submitted that invalidly placing the CZA Companies into administration resulted in the companies suffering damages, being the costs associated with the administrators, and the costs of these legal proceedings. If damage has been suffered by the companies, the Court is empowered to make an order pursuant to s 598 of the Act that the person who has caused the damage pay the damages which were suffered.

The defendants had two lines of argument, the first being in relation to both CZAH and CZAT, and the second being in relation to CZAPL.

In relation to CZAH and CZAT, the defendants submitted that neither company was subject to the Shareholders’ Agreement.

Clause 3.12(j) referred to dissolving or winding up CZAPL or the appointment of the “similar officer” to the business or assets of any “Group Entity.”

“Group Entity” is defined in clause 1.1 of the Shareholders’ Agreement as follows:

The term “Group” is defined as follows:

The term “Subsidiary” is defined as follows:

Sections 46 and 50 AA of the Act provide:

The plaintiffs relied on the uncontested evidence of the company searches that were before the Court that:

CZAPL did not hold any shares in CZAH or CZAT nor did it control them for the purposes of s 50AA of the Act. Therefore, the defendants submitted, neither CZAH nor CZAT was a “Group Entity” and subject to the Shareholders’ Agreement. Appointing administrators for both CZAH and CZAT was not invalid as a result of the Shareholders’ Agreement because neither company was subject to that agreement.

The defendants contended there were two reasons why the resolutions appointing the administrators to CZAPL were not invalid for non-compliance with the Shareholders’ Agreement.

First, the entirety of clause 3.12 is qualified with the chapeau (emphasis added):

Section 436A(1) of the Act allows a company to appoint an administrator if the board has resolved that the company is insolvent, or is likely to become insolvent.

The defendants submitted that both Marcus and Graham had numerous reasons to believe CZAPL was likely to become insolvent, and placing CZAPL into administration was a prudent business decision. Given the context of the real possibility of litigation with Pickles and Domenic, and the prohibition in the Act on insolvent trading, the directors were “required by law” to place CZAPL into administration.

Second, the defendants also argued that clause 3.12(j) was not enlivened because it did not, on its proper construction, extend to the appointment of an administrator. Clause 3.12(j) was limited only to the winding up of the CZAPL or the appointment of a receiver or a receiver and manager to any Group Entity. The clause did not capture the appointment of an administrator because an administrator was not “any similar officer” to a receiver or receiver and manager.

In support of this submission the defendants drew attention to two decisions of Finkelstein J. In Beconwood Securities Pty Ltd v Australian and New Zealand Banking Group [2008] FCA 594; (2008) 246 ALR 361 at [60] his Honour distinguished the role of liquidator, receiver and administrator:

Similarly, in Lindholm, Re; Opes Prime Stockbroking Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1425 at [61]; (2008) 171 FCR 473 his Honour said:

The Court concludes that the resolutions appointing administrators to the CZA Companies were not invalid as breaches of the Shareholders’ Agreement. The Court accepts the defendants’ submissions for the reasons advanced by them as to why CZAH and CZAT are not subject to the Shareholders’ Agreement and the second of the two reasons advanced by them in relation to CZAPL. I add the following by way of further and alternative analysis.

I do not accept that the appointment in relation to CZAPL was “otherwise required by law” in the way the defendants contend because the appointment of the administrator was not “required by law”. The defendants could not point to any provision of the Act that required (in the sense of “must”) CZAPL to appoint the administrators. Accordingly, if clause 3.12(j) otherwise applied to the appointment of an administrator (which it does not for the second reason advanced by the defendants), the requirement for a “Required Majority of Shareholders” to approve the action of the Company was not displaced by some requirement of the law otherwise.

Turning to the construction of clause 3.12(j), it may be divided into two parts, both qualified by “taking any step to”:

That division is supported by the use of “Company” in the first part and “Group Entity” in the second part. In my view that use of separate descriptors is deliberate and is an example of where the “context requires otherwise” (see the chapeau to the definition clause 1.1 in the Shareholders’ Agreement) such that “Group Entity” does not, in clause 3.12(j), include CZAPL as part of the “Group” (which is defined as CZAPL and any subsidiary – see paragraph [359] above). It makes no sense to speak of CZAPL appointing a receiver or receiver and manager to its own assets or business, but it does make sense to provide for CZAPL to take that action in respect of a subsidiary. Accordingly, in addition to accepting the defendants’ contention that an administrator is not “any similar officer”, in my respectful view what I have described as the second part of clause 3.12(j) does not extend to CZAPL.

Domenic sought an order that CZAPL pay him the amount he would have received if he had signed the deed of release. The difficulty is that the only basis on which he contended such an order should be made was under the Court’s wide power to make orders where it is satisfied there was oppression. The Court has not found any such oppression.

However, there does not appear to be a dispute that he is entitled to the money from CZAPL, which he would have received if he had signed the Release ($390,097.39). If the Court is correct that is not a matter of dispute, the Court will make a declaration that CZAPL owes Domenic that amount and will afford Domenic and other interested parties (including the soon to be liquidators) an opportunity to be heard as to whether any further order should be made.

Dr O’Connor seeks an order that he be paid what was offered by CZAPL if he had signed the Release ($46,306.52). However, neither the Amended Statement of Claim nor the submissions made on his behalf identify a legal basis for this entitlement given that he was not a shareholder in CZAPL.

There can be no doubt that Dr O’Connor, like the other parties, would have been paid had he signed a deed of release. However, as a matter of law the payment proposed to Dr O’Connor from CZAPL was either a gift or a contractual offer that he would be paid the money on condition and in consideration for him entering into a deed of release. Dr O’Connor has failed to demonstrate any legal basis on which he could enforce such a gift or unaccepted offer. It will be a matter for the soon to be liquidators to determine whether Dr O’Connor should in all the circumstances nevertheless be permitted to prove he is entitled to the payment in the liquidation of CZAPL.

The parties gave no detailed attention to how Domenic and Dr O’Connor had a presently enforceable right to receive what was intended to be paid to them as distributions to unitholders from the CZAUT ($68,200 to Domenic and $7,260 to Dr O’Connor). There is no basis in the evidence to find a formal resolution on the part of CZAH as trustee of the CZAUT to make distributions to anyone. Insofar as it might be said there was somehow an informal resolution, that resolution was for a distribution on condition of the provision of a deed of release. There was no argument addressed as to whether such a condition was an improper exercise of the trustee’s powers (assuming they had in fact been exercised). Assuming the validity of that condition, neither Dr O’Connor nor Domenic has satisfied it, so they are not assisted by the fact that distributions were made to those unitholders who executed deeds of release.

In the Amended Statement of Claim Dr O’Connor claimed he was owed the distribution as a debt, relying on clause 12.1(g) of the Trust Deed, which provided that a “requirement” in the Trust Deed to pay any amount to a unitholder could be effected “by setting the amount aside to a separate account in the books of the Trust in the name of the unitholder whereupon such moneys will constitute a debt due to the unitholder at call and will not bear interest”. However, no such “requirement” was identified. Even more fundamentally, neither Dr O’Connor nor Domenic could point to “a separate account in the books of the” CZAUT referring to the proposed payments to them.

The Court finds that Domenic and Dr O’Connor have not proven a legally enforceable right to the distributions from the CZAUT. There can be no doubt however that they would have received the funds had they signed the deeds of release. Whether they should receive those payments will be a matter for the new trustee (see the following section).

The plaintiffs seek the appointment of a new trustee for the CZAUT. Clause 14.1 of the Trust Deed vests the power to appoint a new trustee in unitholders not holding less than 51% of issued units. Clause 14.5 of the Trust Deed provides:

CZAH, as trustee of CZAUT, ceased trading after May 2017 and had an administrator appointed in August 2017. It was submitted by the plaintiffs that their prayer in these proceedings for a new trustee met the requirement of “immediately acting”. They proposed a solicitor, Mr Mark Peoples, be appointed as trustee of CZAUT, although not all the formalities required for his appointment had been attended to prior to the conclusion of the hearing.

I note in passing that “official manager” is not defined in the Trust Deed. Clause 1.2(g) of the Trust Deed provides “words or phrases defined in the Corporations Act as at the date of this Deed have the corresponding meaning”. By the date of the Trust Deed “official manager” was no longer defined in the Act. However, as the voluntary administration regime succeeded the official management regime, were it necessary to do so I would conclude that “official manager” in the Trust Deed includes an administrator.

Section 70 of the Trustee Act 1925 (NSW) provides:

Given the dispute between the parties and the appointment of the administrators, the Court is satisfied that it is expedient that a new trustee be appointed to the CZAUT and that it is difficult or impracticable to do so without the assistance of the Court. The parties should endeavour to agree on a new trustee, whether it be Mr Peoples or someone else. In default of agreement, and subject to hearing the parties, the Court will appoint the NSW Trustee & Guardian.

It is the agreed position between the plaintiffs and the defendants that a liquidator should be appointed to the CZA Companies.

The plaintiffs submitted that the liquidator should be Mr Thomas Dawson. Mr Dawson has no connection with any of the parties.

The plaintiffs submitted that any suggestion of appointing one of the administrators as the liquidator should be rejected. The plaintiffs contended the core principle in appointing a liquidator is that the person must not only be independent, but be seen to be independent (Commonwealth v Irving & NPC Manufacturing Pty Ltd (1996) 65 FCR 291 (“Irving”)).

It was submitted that the administrators had acted in a partisan way during the proceedings by creating a report which specified that the CZA Companies were insolvent. Furthermore, Mr Solomons had previously been involved with another of Marcus’ companies. During the cross-examination of Marcus, it was established that Marcus first met Mr Solomons in 2010, when Marcus considered appointing a partner at the firm Mr Solomons worked at as the administrator of another of Marcus’ companies. In those circumstances the plaintiffs submitted that it would be inappropriate to appoint the administrators to act as liquidators.

The defendants submitted that the administrators should be appointed as the liquidators for the companies, largely for reasons of efficiency and economy. The administrators have already undertaken the necessary analysis of the CZA Companies and were familiar with the companies as they currently stand.

It is necessary to say something about the role of the administrators. They have played an essentially passive role in this litigation. No claims made by the plaintiffs are made against the administrators. The administrators submitted it would be inappropriate for them to contend for a specific result in relation to the assertion that they were appointed invalidly. Instead, the administrators have filed an amended cross-claim asking the Court to determine the validity of their appointment under s 447C(2) of the Act, or alternatively make an order under s 477A of the Act that Part 5.3A of the Act should operate so that the administrators were validly appointed.

There was no submission that the administrators accepted their appointments in circumstances where there was any basis for the administrators to doubt the authority of the appointing directors or the genuineness of their belief of the insolvency of the company. The administrators issued a Supplementary Report on 28 March 2018 which expressed their view that regardless of the litigation at hand, the CZA Companies were insolvent at some time before they were appointed as administrators. Neither the plaintiff, nor the other defendants, submitted that it was appropriate to deprive the administrators of their remuneration, should the Court find they were appointed invalidly.

The decision of Branson J in Irving is authority for the proposition that mere professional acquaintanceship or prior contact with a company or its directors is not sufficient of itself to give rise to actual bias or a reasonable perception of bias on the part of administrators. In reaching that conclusion, her Honour applied the authorities in relation to liquidators.

I do not accept that the administrators have acted in a partisan way in these proceedings. My impression was that they acted scrupulously to maintain a neutral position but being available to assist the Court if required. Nor does Marcus’ prior involvement with Mr Solomons provide a proper basis to conclude that Mr Solomons should not be appointed one of the liquidators.

The parties have already been put to what must have been very substantial costs by these proceedings. There is a compelling interest in minimising further costs from professionals. I accept the defendants’ submission that economy and efficiency support the appointment of the administrators as liquidators.

The parties will be given an opportunity to bring in short minutes to give effect to these reasons. I will fix a date to determine any disputes over what orders should be made, including as to costs.