Caysand No 64 Pty Ltd, Re [1994] QSC 265

IN THE SUPREME COURT OF QUEENSLAND No. 648 of 1994 Brisbane Before Mr Justice Ambrose [CAYSAND NO. 64 PTY LTD] IN THE MATTER of the Corporations Law - and - IN THE MATTER of CAYSAND NO. 64 PTY LTD (ACN 010 776 413) REASONS FOR JUDGMENT - AMBROSE J. Judgment delivered : 07/10/1994 CATCHWORDS: CIVIL LAW - Chambers - application for winding up - joint venture in shelf company - auditor previously appointed - report alleged unauthorised actions - other actions relating to parties conduct - whether to deal with application in Cairns with other matters. Counsel: P. E. Hack for the Applicant P. M. Wolfe for the Respondent Solicitors: Feez Ruthning for the Applicant Barry Johnson for the Respondent Hearing Date: 28 September 1994 -- 1 of 10 -- IN THE SUPREME COURT OF QUEENSLAND No. 648 of 1994 Brisbane Before Mr Justice Ambrose [CAYSAND NO. 64 PTY LTD] IN THE MATTER of the Corporations Law - and - IN THE MATTER of CAYSAND NO. 64 PTY LTD (ACN 010 776 413) REASONS FOR JUDGMENT - AMBROSE J. Judgment delivered : 07/10/1994 These are two applications under the Corporations Law which were heard together in Chambers on 28 September 1994. Both applications in my view must be considered in the context of events leading to the institution of two actions in this Court in Cairns and another action instituted in this Court in Brisbane which has been transferred to Cairns. A significant amount in legal costs has obviously been incurred by the parties involved in the disputes leading to the institution of the action and also the application by one company to wind up another company of which it is a contributory. There is a great deal of material relied upon by the parties to the applications which and I have had the opportunity of considering. I have come to the conclusion that it would be unprofitable to attempt to do more than briefly -- 2 of 10 -- 2 outline the events considered in that material so that the present applications may be dealt with in the context of the events outlined. In about 1988 Gino Pucci met Silvano Cinelli when Cinelli, who lived in Italy, visited Australia. They met socially. Mr Pucci was resident in Australia and was involved apparently in some way with the building industry in Cairns. Mr Cinelli visited the Cairns area and became enthusiastic in investing money in the Cairns area. Mr Pucci and Mr Cinelli inspected land etc and it was eventually agreed that they would enter into a joint venture arrangement in which essentially Mr Cinelli contributed funds and Mr Pucci contributed his skills in building construction in the Cairns area. It would not be helpful to trace matters that occurred prior to the acquisition of a shelf company Caysand No 64 (ACN 010 776 413) for the purposes of the joint venture agreement. The company was acquired and Mr Pucci with his family company Nortrad Pty Ltd took 50 per cent of the shareholding in Caysand and Mr Cinelli took the other 50 per cent. The joint venture appears to have had success initially. However, in about August 1992 Mr Pucci advised Mr Cinelli that he no longer wished to participate in this venture. At that time the venture was having significant financial problems. An understanding was reached as to what steps ought be taken so that shares in Caysand No 64 Pty Ltd owned by Pucci might be transferred to Cinelli interests. It is unnecessary to specify precisely what the "arrangements" were. I find it quite -- 3 of 10 -- 3 difficult to discover what they were from the affidavit material placed before me. They are an issue in one of the actions between the Pucci interests and the Cinelli interests in Cairns. In any event, eventually Mr Pucci and his company Nortrad Pty Ltd issued a writ against Caysand No 64 Pty Ltd and Cinelli seeking specific performance of "an agreement made 21 August 1992." Apparently this was the third writ of summons issued by Mr Pucci claiming relief for matters arising out of the joint venture arrangement he had with Mr Cinelli. On 3 September 1993 the Cinelli interests then in control of Caysand No 64 Pty Ltd appointed Messrs Hall Chadwick as auditors of the company. Nortrad Pty Ltd then applied to the Supreme Court in Brisbane for a declaration that the purported appointment of the auditor was void. This matter was heard by Thomas J and is reported as re Caysand No 64 Pty Ltd (1993) 11 ACLC 1191. The facts set forth in that judgment indicate, in my view, that Nortrad adopted very technical objections to the appointment of the independent auditor. It failed in its application and had to bear four-fifths of the costs incurred by Caysand No 64. It is clear that the auditor appointed had great difficulty in making determinations of the activities of Caysand No 64 because of the failure by the persons responsible for running the company to do so according to law and to keep proper books of account and company records. It is the contention of Caysand No 64 that the application by Nortrad to wind it up and indeed to appoint a provisional -- 4 of 10 -- 4 liquidator was based to no small extent on a desire to hinder the proper auditing of the account of Caysand No 64 which Mr Pucci must have known would disclose improper conduct on his part while actively engaged in that company's affairs. As it would happen, the auditor's report was presented to Caysand No 64 on 27 September 1994 the day before Nortrad's application to have a provisional liquidator appointed came on for hearing. According to the auditor, the financial statements of the company from date of incorporation to June 1992 do not present a true and fair view of the state of affairs of the company. One of the reasons for this is that various transactions involving directly or indirectly companies related to Messrs Pucci and Cinelli have not been correctly recorded in the books and records of that company. Indeed, reference to the books by the auditor (to the extent that this was possible) indicate that some financial matters which should have been recorded as appertaining to Caysand No 64 have been recorded as appertaining to Caysand No 5. The view was expressed in the Hall Chadwick report that the conduct of the directors of the company and in particular the resident directors in Australia was questionable. One of the matters contained in the auditor's report is headed: "11. PUCCI'S PURCHASE OF PROPERTY IN PORT DOUGLAS". That report proceeds: "G. Pucci purchased using Company funds, a property at Murphy and Grant Streets, Port Douglas, totalling -- 5 of 10 -- 5 $345,240. The funds were paid without authority and without proper security. This property was subsequently transferred into Mrs Pucci's name. This property has since been sold. There has been no repayment of monies to the company. The application of these monies is unauthorised and represents a misappropriation of company assets." In the concluding words of the auditor's report: "The report details concerns we have as auditors. Subsequent events may also bring to contention other matters not specifically addressed during the course of the audit. Our report is limited to the information supplied to us by the company at our request. Refusal by certain past directors or secretaries of the company to answer audit queries raised leaves us with no option but to form our opinions on available information gathered during audit. We are therefore of the opinion that the accounts are not true and fair, the directors have not acted correctly and company funds appear to have been misappropriated in an unauthorised manner. The audit has revealed serious breaches of the Corporation Law, misappropriation of company assets and a total lack of concern by the directors of the company at the time to conduct the business of the company in a proper manner and in the interests of its members. We recommend to the company that it refer whatever matters it considers necessary to the Australian Securities Commission, the Queensland Police and other regulatory bodies to cause the offending parties to explain their actions." Not surprisingly it was contended on behalf of Caysand 64 that Nortrad or at least Mr Pucci as its director was aware of the probable result of a proper auditing of the company's accounts being carried out and it was for this reason that the Pucci interests sought to have the appointment of the auditors declared invalid in September 1993 and it also indicates why Nortrad was so keen on having a provisional liquidator -- 6 of 10 -- 6 appointed before as it hoped the auditor's report would be submitted to Caysand No 64. It is interesting to note that the terms of the auditor's report are consistent with allegations by Caysand No 64 in its amended statement of claim delivered to the defendants in Action No 663 of 1991 in Cairns. In fact that amended statement of claim was put before the court in an affidavit by Gino Pucci sworn on 22 September 1994 - a few days before the auditor's report was received by Caysand No 64. In para.47 of his affidavit sworn on 22 September 1994, Mr Pucci referred to "the latest statement of claim in this action" and then swore: "My wife and I strenuously deny the allegations contained in this statement of claim and are fully prepared to refute these allegations to an independent qualified person such as a liquidator." Interestingly, Mr Pucci in para.48 of that affidavit, makes assertions against the character and reputation of Mr Cinelli by reference to action allegedly taken against Mr Cinelli in Italy in February 1994. Objection was taken to this material on the grounds that it was scandalous hearsay with no relevance to the applications being argued. The only effect that this material has is to suggest that Mr Pucci is anxious to blacken the character of his former joint venturer. Naturally enough on the applications before me it was contended on Mr Cinelli's behalf that the report of the independent auditor upon the affairs of the company strongly supported his contention that in the course of performing his duties as director of Caysand No 64 Pty Ltd Mr Pucci did indeed -- 7 of 10 -- 7 misappropriate funds from the company and with his wife then invest them for the benefit of himself and/or his wife. In my view, reference to the auditor's report which was placed before me clearly reveals that it would be very desirable if some person independent of the Pucci and Cinelli interests had the opportunity to thoroughly investigate the financial dealings of Caysand No 64 and its officers from the time when it was first used as a vehicle for the operations of the joint venture between Mr Pucci and Mr Cinelli. It is my view upon the evidence that the relationship between the Pucci interests and the Cinelli interests are such that it is quite unlikely that they will be able to cooperate in the way necessary for the continued efficient operations of that company. In essence, the application by the Pucci/Nortrad interests to have Caysand No 64 wound up is based upon grounds to be found in s.260 of the Corporation Law. The evidence to which I have referred suggests that the company may have grounds supporting its allegations of improper conduct made against Mr Pucci and Nortrad. Some support for those assertions is to be found in the auditor's report, to which I have already referred. In the circumstances of this case it is my view that it would be in the interests of the innocent party in the current litigation between the Pucci interests and the Cinelli interests (on the assumption that one of the parties may properly be described as "innocent") that the action in Supreme -- 8 of 10 -- 8 Court writ No 48 of 1993 Cairns (formerly writ No 484 of 1993 Brisbane) be litigated in Cairns, together with the Queensland Supreme Court action in the Cairns District Registry No 63 of 1994. In my view both actions should be heard together and if any further application need be made to achieve that result then it should be made. It seems to me that the nature of the issues raised in those two actions can more properly and readily be resolved by action than by embarking upon investigations within the ambit of a liquidation conducted should an order be made in application 648 of 1994 to wind up Caysand No. 64. I have in mind in particular the availability, if the circumstances so warrant, of an order made under s.260(2)(c) to (k). In my view, the best way to resolve the disputed issues in the various Supreme Court actions pending in Cairns and this application to wind up Caysand No 64 is to transfer the winding up proceedings to Cairns with a direction that such proceedings be heard with action No 63 of 1994 with Caysand No 64 as plaintiff and Gino Pucci and A A Pucci as defendants, which ought also be heard with No 484 of 1993 between Pucci and Nortrad Pty Ltd as plaintiffs and Caysand No 64 Pty Ltd and Silvano Cinelli as defendants. To ensure that the issues in all three matters - which appear to me to be if not identical then almost so - are determined in the one hearing in Cairns, I stay the further -- 9 of 10 -- 9 proceedings upon application No 648 of 1994 by Nortrad as a contributory of Caysand No 64 to have Caysand No 64 wound up until that application may be heard with Action No 63 of 1994 (Cairns) and Action No 48 of 1993 (Cairns) and I transfer it to the Cairns Registry to enable that course to be followed. In the circumstances of this case it is appropriate to reserve the costs of the applications which have been brought before me to the Court which ultimately determines application Nos 648 of 1994 (Brisbane), 63 of 1994 (Cairns) and 484 of 1993 (Brisbane) which is 48 of 1993 in Cairns. I give the parties liberty to apply. -- 10 of 10 --