FEDERAL COURT OF AUSTRALIA

Stapp v Surge Holdings Pty Ltd

[1999] FCA 545 

CORPORATIONS LAW - application to wind up company - whether just and equitable that the company be wound up - whether breakdown of a quasi-partnership - significance of facts that company neither successful nor prosperous and not presently engaged in activities.  

Corporations Law (Cth) ss 459A, 459P(2)(b), 461(1)(f), 461(1)(g), 461(1)(k), 462(2)(c)

Federal Commissioner of Taxation v Coppleson (1981) 57 FLR 234, cited

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, followed

Dynasty Pty Ltd v Coombs (1995) 59 FCR 122, cited

Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294, applied

Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478, applied

Loch v John Blackwood Ltd [1924] AC 783, applied

McMillan v Toledo Enterprises (1995) 18 ACSR 603, cited

ROBERT LOUIS STAPP v SURGE HOLDINGS PTY LTD

NG 3158 OF 1998

KATZ J

SYDNEY

5 MAY 1999

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.                  Surge Holdings Pty Limited be wound up by this Court under the provisions of the Corporations Law.

2.                  Martin Green of Grant Thornton Chartered Accountants, an official liquidator, be appointed the liquidator of the corporation.

3.                  The Applicant’s costs (including reserved costs, if any) be taxed and reimbursed out of the property of the corporation in accordance with s466(2) of the Corporations Law.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     Mr Robert Louis Stapp is a contributory and director of Surge Holdings Pty Limited (“the company”).  He has applied for an order for the company’s winding up.

2                     In an affidavit sworn and filed by him concurrently with his winding up application, Mr Stapp identified four grounds upon which he sought the company’s winding up: first, that the company was insolvent (see s 459A of the Corporations Law (“the Law”)); secondly, that affairs of the company were being conducted in a manner that was oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that was contrary to the interests of the members as a whole (par 461(1)(f) of the Law); thirdly, that an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, had been or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or had been or would be contrary to the interests of the members as a whole (par 461(1)(g) of the Law); and, fourthly, that it was just and equitable that the company be wound up (par 461(1)(k) of the Law).

3                     (In order that Mr Stapp could apply to the Court for the company’s winding up on the insolvency ground, it was necessary that he have the leave of the Court (see pars 459P(2)(b) and (c) of the Law).  (Such leave was not necessary so far as concerned the other three grounds on which Mr Stapp applied for the company’s winding up: see par 462(2)(c) of the Law.)  Although he did not initially seek such leave, he did so subsequently and I granted it to him nunc pro tunc.)

4                     Mr Stapp’s application for the company’s winding up was opposed by Ms Charlotte Morison, who, like Mr Stapp, is a contributory of the company.

5                     Early in the history of the present proceeding, Ms Morison gave notice of the grounds on which she opposed Mr Stapp’s application, those grounds being that Mr Stapp had not made out a case for relief under any of pars 461(1)(f), (g) and (k) of the Law and that he had not established the company’s insolvency.

6                     Evidence before me, both of company searches and of a company minute from 26 March 1992, discloses the following fundamental information about the company: first, that it was registered in late 1991; secondly, that its shares are held equally by Mr Stapp and Ms Morison; thirdly, that Mr Stapp and Mr Graham Morison (who is Ms Morison’s husband) are the only two directors of the company, having been appointed simultaneously in early 1992; and, fourthly, that Mr Morison has a proxy for all of his wife’s shares at meetings of the company which she does not attend.

7                     In addition to the affidavit of Mr Stapp to which I have referred in par 2 above, Mr Stapp swore a further affidavit.  In those parts of his two affidavits which were read before me, Mr Stapp deposed to certain matters about the company’s affairs to which it is convenient to refer now, supplementing that account, where necessary, by reference both to oral evidence given before me by Mr Stapp (both in chief and in cross-examination) and to various documents in evidence before me (some tendered by Mr Stapp and some by Ms Morison).  (It is appropriate to record now that, although Ms Morison did tender some documents before me, no affidavit or oral evidence was given in the proceeding either by her or on her behalf.)  Those matters can be divided into three topics: first, there are the events leading up to and involving the sale of a house by the company in March 1998; secondly, there are the company’s present and future plans; and, thirdly, there is the company’s solvency.

8                     Dealing first, then, with the events leading up to and involving the sale of a house by the company in March 1998, the company has, since 1992, been involved in property development.

9                     It was the usual practice of Messrs Stapp and Morison, when completion of the sale of one of the properties so developed was imminent, to discuss the application of the proceeds of such sale.

10                  In about December 1995, the company purchased some land. It built three houses on the land.  Two of those houses were sold thereafter and, I infer, the usual practice to which I have referred in the preceding paragraph was followed in respect of them.

11                  Completion of the sale of the last of the three houses was due on 3 March 1998.  At that time, the company owned no other land and its only business activity was the disposition of the house. Further, it had no office or employees.

12                  Shortly before 3 March 1998, Mr Morison told Mr Stapp that there had been some delay in the settlement of the sale of the house and that it had been postponed until about the end of March.

13                  Then, on 10 March 1998, Mr Morison had a conversation with both Mr Stapp and Mr Alan Clarke.  Mr Clarke was the manager of the relevant branch of the National Australia Bank, with which bank the company had, at that time, (what was described in evidence by Mr Stapp as) an “overdraft” of about $185,000.00.  In that conversation, Mr Morison reiterated that the settlement of the sale of the house would take place at about the end of March. He also said, “The proceeds will be paid to the Bank, which will finalise the overdraft and the company will be able to settle other creditors”.

14                  The application of the proceeds of the sale of the house to the repayment of the company’s “overdraft” was a matter of significance to Mr Stapp, not only in his capacity as a shareholder of the company, but otherwise, since he had personally guaranteed repayment of the company’s indebtedness to the bank, a guarantee which was further supported by a mortgage over his family home.

15                  (I interpolate here that I understand the references to the company’s “overdraft” to which I have referred above to include, not only what the bank formally called the company’s overdraft, but also a fixed rate short term interest only loan of $180,000.00 from the bank.  In March of 1998, those two company obligations to the bank together totalled about $185,000.00, the same sum referred to by Mr Stapp (and by certain draft balance sheets prepared for the company to which I will refer later) as being the amount of the “overdraft”.)

16                  At the time of the conversation involving Messrs Stapp, Clarke and Morrison referred to in par 13 above, the company had a number of creditors, including Ms Morison, Mr John and Ms Nina Morison (they being Mr Morison’s parents (“the parents”)) and Raviso Pty Limited (“Raviso”). Raviso is a company of which Mr Stapp and his wife are the sole shareholders.

17                  In spite of Mr Morison’s two statements, including one as late as 10 March 1998, that the expected date of settlement of the sale of the house was about the end of March, settlement actually took place on 13 March 1998, a fact of which Mr Stapp did not become aware until some time later.  Further, in spite of Mr Morison’s statement that the proceeds of the sale would be paid to the National Australia Bank, which payment would pay off the company’s debt to the bank (as well as permitting the company to settle with other creditors), the proceeds were not applied to the paying off of any part of the company’s debt to the bank.

18                  Mr Stapp subsequently obtained a settlement statement from the solicitor who had acted for the company on the sale of the house.  That statement showed that, after payment out of the sale proceeds of $828,665.63 of over $400,000.00 to the Metway Bank (which bank had, I assume, financed the development of the house) and of some small sums to a water utility and the local council, the balance of the sale proceeds had been applied as follows: $253,817.00 was paid to Ms Morison; $158,800.00 was paid to the parents; and $12,018.46 was paid to the company.  (As is apparent from the fact that Mr Stapp knew nothing of the settlement at the time it occurred, none of the proceeds were paid to Raviso.)

19                  According to Mr Stapp, the company’s solicitor had at first refused to supply him with a copy of the settlement statement referred to in the preceding paragraph, but had later told Mr Stapp that he would be supplied with a copy of the statement (as he ultimately was) if Mr Morison agreed to its being supplied to him.

20                  Apart from Mr Morison’s statement to Messrs Stapp and Clarke referred to in par 13 above, the application of the proceeds of the sale of the house had (contrary to the usual practice) not been discussed beforehand by Messrs Stapp and Morison and the former had therefore not authorised the payments either to Ms Morison or to the parents.  While (as I understood him) Mr Stapp did not suggest that those payments had exceeded the amounts then owing to those persons by the company, he was of the opinion that those payments had been made “unfairly”, in the sense, I assume, that no part of the proceeds of the sale had been paid either to the bank or to Raviso.

21                  There was evidence before me of two mortgage documents signed by Mr Stapp on behalf of the company, one in favour of Ms Morison and one in favour of the parents.  Each was dated 1996 and stamped in 1997, although neither had been registered.  Although there was no evidence directly relating the property referred to in those documents to the house sold in March of 1998, some at least of the questions put to Mr Stapp in cross-examination regarding those documents were predicated on the assumption that the property referred to in them was that house and some of Mr Stapp’s answers seemed likewise predicated.  Mr Stapp gave evidence that he had signed the document in favour of Ms Morison at the request of Mr Morison and that Mr Morison had told him at the time that it was to be neither dated or stamped and was needed (and, I infer, was only needed) in case an application then being made to wind the company up succeeded, in which case it would be relied on in the winding up to evidence the existence of a liability in the company to Ms Morison.  I infer that the circumstances of the signing of the document in favour of the parents were similar.  Mr Stapp was asked in cross-examination whether the sums paid to Ms Morison and the parents at settlement represented the principal sum shown in each mortgage document, together with interest thereon at the rate shown in the relevant document.  He did not give a responsive answer.  Certainly, the sums paid in each case exceeded the principal sum shown.

22                  Turning now to the second of the topics to which I referred in par 7 above, namely, the company’s present and future plans, at the time of the hearing before me, the company was neither undertaking any business nor was any proposed.  It was Mr Stapp’s opinion that, in any event, the company would be unable to undertake any business in the future because it had neither “funds” nor “credibility”.  (I took Mr Stapp’s reference in the context to an absence of credibility in the company to be a reference to an inability in it to obtain further financing.)

23                  As to the third of the topics to which I referred in par 7 above, namely, the company’s solvency, of significance in that respect were two documents relating to the company, one a three page document and the other a one page document.

24                  As to the three page document, the first page was headed “DRAFT FINANCIAL STATEMENTS 1 JULY 1996 - MARCH 1998”, the second page was headed “DRAFT BALANCE SHEET AT MARCH 1998” and the third page was headed “DISCLAIMER” and was intended to be signed by the chartered accountant who, I infer, had prepared the first two pages.  The document was the only document of its type produced by the company in response to a subpoena which required it to produce, among other things, all balance sheets prepared on its behalf since July 1997.

25                  As to the one page document, it was, I infer, an earlier version of the second page of the three page document and was annexed to the first of Mr Stapp’s two affidavits, being described by him therein as a draft balance sheet for the company as of March 1998.

26                  As to the second page of the three page document and the only page of the one page document, there were some differences between them.

27                  Under the heading “CURRENT ASSETS”, each showed cash at bank and on hand of $101,092.33, $100,000.00 of which consisted of an interest bearing deposit with the bank. However, (what I have taken to be) the earlier draft balance sheet also showed a suspense account totalling $87,268.46, which sum was absent from the later draft balance sheet. (No non-current assets were shown in either document.)

28                  Under the heading “CREDITORS & BORROWINGS”, each showed a (so-called) bank overdraft of $185,058.07, trade creditors of $70,000.00 and three loans, one from Raviso for $44,361.76, one from the parents (to be mentioned again in a moment) and one from Ms Morison for $69,181.75.  The differences between the two draft balance sheets under the “CREDITORS & BORROWINGS” heading were as follows: first, the earlier document showed as a creditor “Metway Bank (Secured)”, but with no amount shown, whereas that item was absent from the later balance sheet; and, secondly, the earlier document showed that the parents were owed $442,455.37, whereas the later document showed that they were owed $355,186.91.  The difference between those two sums is $87,268.46, the same amount as had been shown in the earlier document as a current asset under the suspense account category. (No liabilities other than creditors and borrowings were shown in either document.)

29                  Thus each document showed that the company’s liabilities exceeded its assets by $622,696.16.

30                  I should note that Mr Stapp did not accept the accuracy of the two draft balance sheets in a particular respect, namely, the amounts owing for loans.  According to him, the amount shown as owing to Raviso was understated in them, while the amounts owing to Ms Morison and to the parents were overstated.  According to Mr Stapp, the amount owing to Raviso included not only the $44,361.76 shown, but also a further $62,292.00 recorded in the company minute already referred to in par 6 above.  Further, according to Mr Stapp, after the payments made to them following the settlement of the sale of the house, Ms Morison was actually owed about nil by the company, while the parents were actually owed about $20,000.00.  (Mr Stapp said that he was unable to be more precise about any debts to Ms Morison and to the parents, because he did not have access to the company’s books and records.)

31                  (Mr Stapp also referred in his evidence to the fact that the company owned two motor vehicles (of very little value) and might have certain causes of action which could be revealed on an examination of the company’s affairs.  (I took the latter reference to be one to possible claims against one or more of the Morisons.)  Not surprisingly, neither of those matters appeared on either draft balance sheet and I ignore them for present purposes.)

32                  If one were to amend notionally the two draft balance sheets to take account of Mr Stapp’s belief as to the extent of the company’s borrowings as of March 1998, then the sum by which its liabilities exceeded its assets at that time would have been reduced from $622,696.16 to $280,619.50.

33                  I should also make brief reference to the contents of the first page of the three page document, the page headed “DRAFT FINANCIAL STATEMENTS 1 JULY 1996 - MARCH 1998”.  It showed that the company had made a loss over the relevant period of $130,564.72 and also showed that there was no work-in-progress at the end of that period.

34                  Mr Stapp gave evidence that the company had no funds with which to meet its creditors and no reasonable means of obtaining funds.  He also gave evidence that the bank was pressing Mr Morison and himself for payment by the company of its debt to the bank; other creditors whose debts were overdue (trade creditors, I assume, were meant) were also pressing for payment.

35                  So far as concerns the bank, there was before me considerable documentary evidence from its records relating to the company’s indebtedness to it.  It appears to me to be unnecessary to summarise that evidence beyond saying: first, that it covered a period between April and November 1998; secondly, that it showed that the company’s indebtedness to the bank had become payable at the end of March 1998; thirdly, that it confirmed the evidence of Mr Stapp regarding the bank to which I have referred in the preceding paragraph; fourthly, that it showed that, in July 1998, the bank had prepaid the $100,000.00 interest bearing deposit to which I referred in par 27 above and credited that amount to the company’s fixed rate short term interest only loan, leaving a balance owing under that loan of $80,000.00 plus interest; and, fifthly, that it showed that, on 2 November 1998, the company’s overdraft account was $13,495.25 in debit.  At the same time, I should record that Mr Stapp did acknowledge in cross-examination that he knew of no legal proceedings yet commenced against the company by the bank in respect of the company’s indebtedness.

36                  Having now summarised the evidence before me, it is convenient to turn to the grounds upon which Mr Stapp relied for winding up the company.  I begin with the just and equitable ground.

37                  Mr Stapp put his case on this ground on the basis that the company involved an association between him and Mr Morison which was founded on a personal relationship involving mutual confidence and on an understanding that he would participate in the conduct of the company’s business.  It was then submitted that Mr Stapp had lost confidence in Mr Morison and had been excluded from participation in the conduct of the company’s business, so that the winding up of the company was just and equitable in the circumstances.

38                  In putting his case in that way, Mr Stapp in effect relied on the “landmark decision” of the House of Lords (so described in Federal Commissioner of Taxation v Coppleson (1981) 57 FLR 234 at 241 (FCA; Bowen CJ and Franki and Fisher JJ)) on the just and equitable ground, Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (and see also Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 138 (FCA; Spender, O’Loughlin and Branson JJ), describing Ebrahimi’s Case as containing “[t]he best known discussion of the concept of quasi-partnership”).

39                  In terms of authority, however, Mr Stapp relied primarily on Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294 (SCWA; Owen J), rather than relying directly on Ebrahimi’s Case.  In Thomas’s Case, Owen J began (relevantly) by pointing out (at 300) that “[t]he classes of conduct which will justify a winding up order on the just and equitable ground are not closed.”  Later (at 302), he said, “It must be recognised that there is no necessary limit to the generality of the words ‘just and equitable’”.  It was for that reason that his Honour rejected in that case as irrelevant a submission on behalf of those opposing the winding up application that the case before him did not fall within any of the recognised areas in which the just and equitable ground was usually employed (see at 302).  (A similar approach had earlier been taken in Ebrahimi’s Case (at 374).) There were, however, said Owen J, “typical examples of when an order will be made” (see at 300).  Those included: first, “the failure of the corporate substratum”; and, secondly, “the breakdown of a quasi-partnership”.

40                  Having set out both of those examples, Owen J then referred to some of the learning on each of them.

41                  As to “the failure of the corporate substratum”, he said (at 300),

“A company may be wound up where it has become impossible for it to achieve its main objects.  If the company engages in conduct which is outside the scope of that which was within the general intention or common understanding of the members when they became members then the company can be wound up:  Re Wondoflex Textiles Pty Ltd [1951] VR 458; ALR 1005. There must be more than a mere discontinuance of the business activities of the company and even a lengthy discontinuance will not suffice.  There must be a ‘final and conclusive abandonment of the business’: per Moncrieff LJC Galbraith v Merito Shipping Co [1947] SC 446 at 456.”

42                  As to “the breakdown of a quasi-partnership”, his Honour said (at 300-01),

“Where there is a breakdown in a relationship of mutual trust and confidence which was the foundation of an understanding by which the operations of the company were to be governed the court can order that the company be wound up.  These have become known as the quasi partnership cases.  The reference to partnership can be misleading.  The company is just that, a corporate structure.  It is not necessary to show that any partnership agreement or deed was entered into before the principle can be invoked.  However there are circumstances in which the relationships between the company members cannot be accurately resolved by the application of strict principles of company law.  In those cases it may be appropriate to superimpose equitable considerations on legal principles to give effect to the agreement or understanding which exists between the parties.  In Ebrahimi v Westbourne Galleries [1973] AC 360 Lord Wilberforce said, at 379:

... The ‘just and equitable’ provision does not ... entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it.  It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. 

It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that the company is a small or private one is not enough.  There are very many of these where the association is purely a commercial one, of which it can safely be said that the basis of the association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which may typically include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an arrangement or understanding, that all, or some (for there may be sleeping members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members interest in the company - so that if confidence is lost, or one member is removed from management he cannot take out his stake and go elsewhere.

An order under s 461(k) of the Law [now par 461(1)(k)] will not be made without a close examination of the relationship between the parties.”

43                  It was argued in Thomas’s Case that each of the two circumstances discussed above was present and, having set out the passages which I have quoted above concerning each of those two circumstances, Owen J then applied them to the facts of the case before him, concluding that each of those two circumstances was indeed present and justified the making of a winding up order on the just and equitable ground.

44                  It was Mr Stapp’s submission that the application to the facts of the present case of what Owen J had said in Thomas’s Case about “the breakdown of a quasi-partnership” would lead to the making of a winding up order against the company on the just and equitable ground.

45                  Further, Mr Stapp drew my attention to the decision of the New South Wales Court of Appeal in Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478 (Kirby ACJ, Priestley and Handley JJA).  That was a case in which an order for a company’s winding up was affirmed on appeal.  In the course of affirming the making of the winding up order, the Court (at 494) referred to the fact that the winding up of a successful and prosperous company (as that company was) was an extreme step which required a strong case, but expressed the view that, among other things, the very limited nature of the company’s then current activities justified the taking of the extreme step.  Mr Stapp relied on the case to support a submission that I would be the more comfortable in ordering the winding up the company in the present matter, given that it was anything but successful and prosperous and that it was not engaged presently in any activities, not even ones of a very limited nature.

46                  In reply to Mr Stapp’s submissions on the just and equitable ground, Ms Morison accepted as accurate Owen J’s statement in Thomas’s Case concerning the law relating to “the breakdown of a quasi-partnership” as a basis for ordering the winding up of a company on the just and equitable ground.  Significantly, she did not submit that I should conclude that it was inappropriate to treat the company as a quasi-partnership.  Instead, she emphasised Owen J’s reference to the need for a close examination of the relationship between the parties before a winding up order will be made on the basis of a breakdown of a quasi-partnership. She then submitted that it was “probably true” that “there were some differences between the parties”, “but that does not necessarily say that the company’s business has completely become unworkable”.

47                  It appears to me that Ms Morison’s reference to a need to establish the complete unworkability of a company’s business before it will be concluded that there has occurred a breakdown of a quasi-partnership may have betrayed some confusion of thought.  In making such a submission, she was in fact conflating the two separate circumstances which Owen J had discussed in Thomas’s Case.  That that was so was apparent from the fact that, immediately after making such submission, she then quoted the passage from Owen J’s reasons on the “the failure of the corporate substratum” circumstance in which his Honour had referred to the requirement for a final and conclusive abandonment of the company’s business before that circumstance existed and submitted that the evidence did not establish that there had been such abandonment in the present case.

48                  In the result, Ms Morison made no submission before me specifically directed to the question whether the matters concerning the company’s affairs which I have described earlier in these reasons for judgment justified a conclusion by me that Mr Stapp had lost confidence in Mr Morison and had been excluded from participation in the conduct of the company’s business.  I do not, however, consider it appropriate that I should reach the conclusion to which I have just referred simply by default and so I have given consideration, although without the assistance of any submissions from Ms Morison on the point, to the question whether I should reach that conclusion.

49                  In considering whether Mr Stapp has lost confidence in Mr Morison for the purpose of the application of the just and equitable ground of winding up, I do so in accordance with the approach taken by Lord Shaw in Loch v John Blackwood Ltd [1924] AC 783 at 788 (JCPC). His Lordship there said,

“It is undoubtedly true that at the foundation of applications for winding up, on the ‘just and equitable’ rule, there must lie a justifiable lack of confidence in the conduct and management of the company’s affairs.  But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company’s business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company.  On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company’s affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up.”

50                  Taking that approach, I am satisfied that Mr Stapp has a justifiable lack of confidence in the conduct and management by Mr Morison of the company’s affairs and that such lack of confidence does not spring from any dissatisfaction at being outvoted on the company’s domestic policy.

51                  There are four matters which justify such lack of confidence.

52                  First, I refer to Mr Morison’s two assertions to Mr Stapp, the second of them only three days before the settlement of the sale of the house took place, that the settlement would not take place until the end of March 1998.  Those assertions were either knowingly false, in which case they demonstrate a lack of probity in the conduct of the company’s affairs on Mr Morison’s part, or unknowingly false, in which case Mr Morison should have corrected them when he first became aware of their falsity.  (I need not choose which is the correct conclusion, although the evidence was suggestive of the former and Ms Morison chose not to seek to repel it.)

53                  Secondly, I refer to Mr Morison’s assertion to both Mr Stapp and a representative of the bank that the company’s indebtedness to the bank would be retired out of the proceeds of the sale.  That assertion was either knowingly false, in which case it demonstrates a lack of probity in the conduct of the company’s affairs on Mr Morison’s part, or correctly stated Mr Morison’s intention at the time.  If the latter was the case, then Mr Morison should have informed Mr Stapp of his altered intention in the matter when he first formed it and then followed the established practice as between them of discussing the application of the approximately $185,000.00 involved.  (Again, I need not choose which is the correct conclusion, although the evidence was suggestive of the former and Ms Morison chose not to seek to repel it.)

54                  Thirdly, there was Mr Morison’s failure to follow the established practice with respect to the balance of the net proceeds of the sale.  (I add that even if there had been no established practice in that regard, for Mr Morison to decide to apply the proceeds of the sale as he did without reference to Mr Stapp would have been to exclude him from decision making on a major matter in the company’s affairs (compare McMillan v Toledo Enterprises (1995) 18 ACSR 603 at 619 (FCA; Beazley J)).

55                  Fourthly, it is apparent that Mr Morison has assumed control of the company’s books and records to the exclusion of Mr Stapp, and that Mr Stapp has not had access to them except when Mr Morison has given permission for Mr Stapp to have such access, as in the case of the settlement statement (again, compare McMillan’s Case).

56                  Given the justifiable lack of confidence by Mr Stapp in Mr Morison as a result of those four matters, I am persuaded that there has occurred in the present case a breakdown of the quasi-partnership underlying the corporate structure.

57                  (I should perhaps add here that I reject an argument made by Ms Morison, in the course of submissions on another of Mr Stapp’s grounds for seeking the company’s winding up, that, because of the existence of the two mortgage documents to which I have referred above, there was nothing for Mr Morison and Mr Stapp to discuss concerning the application of most of the net proceeds of the sale of the house; it was necessary that they be applied to the repayment of the loans to the company from Ms Morison and the parents.  I do so because of the nature of the documents concerned. I refer in that respect to Mr Stapp’s evidence about the documents which I have already set out above, including his evidence that they had been brought into existence at Mr Morison’s request for a particular purpose identified by Mr Morison, which identified purpose was different from that for which they are now being relied on.  I accept that evidence, referring yet again, as I do so, to Ms Morison’s decision to call no evidence in the matter.)

58                  In deference to Mr Stapp’s reliance on the Kokotovich Case, I should add at this point that I am satisfied from the evidence before me that the company is, to say the least, neither successful and prosperous nor presently engaged in any activities, so that I need not hesitate to order its winding up on the just and equitable ground either because of its success and prosperity or because of its present activities.

59                  In all the circumstances, I consider that the company should be wound up on the just and equitable ground and will make orders accordingly.  That being so, I need not deal with the other grounds on which Mr Stapp relied in seeking that it be wound up.

Associate:

Dated:              5 May 1999