FEDERAL COURT OF AUSTRALIA

Valuestream Investment Management Ltd v Richmond Management Pty Ltd (No 2) [2012] FCA 914

IN THE MATTER OF RICHMOND EQUITY FUND

THE COURT ORDERS THAT:

1.    The ex parte orders made by McKerracher J on 17 August 2012 be discharged.

2.    The matter be listed for final hearing before McKerracher J on 25 and 26 September 2012.

3.    The parties by counsel confer and bring forward as soon as practicable a minute of proposed programming orders to facilitate the final hearing.

4.    Subject to order 5 on the undertaking of the plaintiff in the usual terms, pending trial the defendant be and is hereby restrained from disposing of or dealing with any assets of the Richmond Equity Fund without approval of the Court.

5.    Order 4 does not apply in respect of the defendant’s partnership in the Cottesloe Beach Hotel.

6.    The receivers and managers appointed under the ex parte orders of 17 August 2012 be entitled to their costs, if any, incurred since their appointment to be charged against the assets of the Richmond Equity Fund.

7.    The costs of this application be in the cause.

8.    There be liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF RICHMOND EQUITY FUND

REASONS FOR JUDGMENT

1    On Friday 17 August 2012, on the ex parte application of the plaintiff (Valuestream), McKerracher J made an order, until the determination of this proceeding, pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and s 1323(1)(h) and (3) of the Corporations Act 2001 (Cth) appointing joint and several receivers and managers of all the assets of the defendant (Richmond) as trustee of the Richmond Equity Fund (REF) with the object of ascertaining, protecting and administering the assets of the REF for the benefit of all unit holders of the REF: see Valuestream Investment Management Ltd v Richmond Management Pty Ltd [2012] FCA 898.

2    The primary order made to this end reflected the wording of s 1323(3) of the Corporations Act. However, McKerracher J further ordered that each party, the receivers, Dennis Tannenbaum and any other person affected by the orders have a liberty to apply.

3    Pursuant to the terms of the order, the order was then served by Valuestream on each of Richmond, Wesley Medford, Jennifer Medford, David Price and Dennis Tannenbaum.

4    The order was made on an undertaking by Valuestream as to damages in the usual form.

5    Pursuant to the liberty to apply, Richmond applied to dissolve or discharge the ex parte order made by his Honour, both on the basis there had been material non-disclosure of information in the proceeding before his Honour and in any event because that the order should not be made. The application of Richmond came before me as a matter of urgency on Thursday 23 August 2012. Following a hearing at which the parties by counsel presented oral submissions, and counsel for the Australian Securities and Investments Commission (ASIC) was permitted, as amicus curiae to make a statement about the interests of ASIC in Valuestream and counsel for the Court appointed receivers appeared, I reserved my decision to be delivered at 2:30pm Friday 24 August 2012.

6    In the course of the hearing before me I indicated to the parties that, whatever the outcome of Richmond’s application, I would list the primary proceeding for final hearing over two days on 25 and 26 September 2012. As I will explain below, the early listing of the primary proceeding for final hearing and determination is relevant in part to the consideration of the present application of Richmond and the orders that I will make.

7    Due to urgency of the matter and the fact that the primary proceeding will be listed for final hearing and determination on 25 and 26 September 2012, these reasons for decision will be kept as brief and to the point as possible, alluding in places to the evidence and the submissions rather than setting them out in any detail.

8    What might be said at the outset is that the dispute, a commercial dispute, between Valuestream and Richmond has been festering for some time. The commercial relationship between the parties has been recounted in the reasons of McKerracher J at [5]-[8]. Valuestream is the responsible entity of a registered management investment scheme known as Addwealth Achiever Fund (AAF). Almost exclusively, retail investors hold the issued units in AAF, constituting 85 million units. Richmond is the trustee of a trust (or unregistered management investment scheme as alleged by Valuestream) known as Richmond Equity Fund or REF.

9    REF was established to provide investment opportunities to and for AAF and was promoted to Valuestream and AAF by Mr Paul Foster, the Chief Executive Officer (CEO) of Addwealth Pty Ltd (Addwealth). Mr Foster is also CEO of Addwealth Financial Services (Addwealth FS).

10    Addwealth manages investments on behalf of equity funds and has management agreements with Valuestream regarding AAF, as well as with Richmond, regarding REF. In other words, Mr Foster and Addwealth have connections to both parties.

11    Addwealth FS is a subsidiary of Addwealth and provides financial and investment advice to clients including retail and wholesale investors. Mr Foster states that Addwealth FS is the holder of an Australian Financial Services Licence (AFSL) and he is the responsible manager of the AFSL.

12    As appears from the affidavit of Mr Christopher Chandran, filed on behalf of Valuestream, Mr Chandran being a partner of Moore Stephens Sydney, the appointed auditor of Valuestream, AAF has invested funds in a number of funds and, so far as REF is concerned, holds about 97% of issued units in that trust. REF in turn, holds interests in a number of entities including, for present purposes, Garret Holdings, as to 100%, and Pivod Group Limited, as to 10%.

13    Garret Holdings is represented in Mr Chandran’s flow chart as jointly owning, with Prendiville Group, the Cottesloe Beach Hotel and the evidence is that the hotel is run as a partnership with the Prendiville Group and has been since about May 2010.

14    Valuestream currently complains about a number of investments apparently made by Richmond as trustee of REF, which it considers, as McKerracher J noted, “imprudent if not improper”. Mr Marie details his concerns in his affidavit filed 9 August 2012 at [89]-[158]. Those complained of include the provision of a $10.5 m facility to Pivod Group which at June 2011 was drawn to $5.7 m. Valuestream says that this facility and these funds have been provided without Richmond obtaining any security in circumstances where Pivod Group directors were (or included) Mr Wesley Medford and Mr David Price, who at material times were or had been directors of Richmond. Valuestream complains that the value and recoverability of the loan to Pivod Group are doubtful.

15    Valuestream also complains about investments made in Decimal Pty Ltd, a company of which Mr Foster is a director, as well as an investment in Sentiens Pty Ltd, a company apparently owned as to 24% by Mr Foster and of which he is a director. Attention is also drawn to investment made by Richmond in “Ardent Growth Fund” a fund apparently controlled by companies with each of Mr Foster and Mr Wesley Medford is or has been associated. In the case of all these “related” investments, as alleged by Valuestream, Valuestream considers the value of the investment to be doubtful in each case.

16    As the reasons of McKerracher J show, Valuestream also considers that the value of the investment made by Richmond in the Cottesloe Beach Hotel is uncertain. Although as his Honour noted, at [26], the hotel itself is “well known”.

17    Justice McKerracher notes other investments apparently made by Richmond that are the subject of particular identification in the outline of submissions filed on behalf of Valuestream on the ex parte application and referred to by Mr Marie in his affidavit.

18    The circumstances that led to the commercial disputation between the parties is recounted in the affidavits of Mr Chandran and Mr Robert Patrick Marie, who is the managing director of Valuestream. Mr Chandran for the purposes of completing an audit of Valuestream, in March 2011 raised with Mr Marie questions to be addressed in relation to a number of investments of AAF including in REF. In July 2011 he emailed to Ms Bronwen Parsons of Addwealth a list of the “preliminary audit requirements” for REF so that he could ascertain what the underlying investments were and to ensure that a meeting he had proposed with Mr Foster and Ms Parsons would be “productive”. At that stage he intended to do what he described as a “look-through” audit of REF to assist him with the audit of AAF. On 13 July 2011, he then met with Mr Foster, Ms Parsons and Mr John Sciortino of Addwealth at their offices. He understood that he would then be provided with information he needed for the look-through audit of REF. On 22 July 2011, he emailed Ms Parsons a document showing the structure of AAF and its investments as well as a spreadsheet detailing documents required and further questions. He expected to receive a trial balance and detailed general ledger from Richmond from which any unusual balances and transactions could be identified. He expected it would take no longer than two months for the information to be provided, based on his experience.

19    Mr Chandran says that from about August 2011, Ms Parsons and Mr Foster began to provide some of the information requested by him but not all of it. What was received was unsatisfactory and inadequate for the audit of AAF.

20    By early November 2011, Mr Chandran considered he was not being provided with information that was necessary to conduct an audit of REF and on 4 November 2011, he emailed Ms Parsons a template document to demonstrate what information he required in relation to each underlying asset of REF. By this document he sought to make it as easy as possible for Addwealth and Richmond to provide information in relation to REF so that he could complete his audit.

21    In late November, Ms Parsons provided some information. After that Mr Chandran did not have an opportunity to review the information provided until January. On 24 January 2012, Mr Chandran attended a meeting with, amongst others, Mr Marie with Mr Foster and others attending by telephone. He says the purpose of the meeting was to receive an update from Mr Foster in relation to each underlying investment of REF. At the meeting Mr Marie indicated that if the outstanding information was not provided by Mr Foster on a timely basis a “qualified audit report will have to be issued”. He believes Mr Foster said words to the effect that he was “confident that I can provide the information you have requested”.

22    Prior to this meeting Mr Chandran says he was contacted by an officer of ASIC and asked in effect when the audit of AAF would be completed. He indicated to her that qualified accounts would likely be prepared for AAF as Richmond had not yet provided sufficient information to enable him, and his staff, to verify the values attributed to the assets of REF.

23    In early February 2012, Mr Chandran again pressed Ms Parsons and Mr Foster for the information he required. On 15 March 2012, he sent an email to Mr Foster, Ms Parsons and Mr Sciortino stating that Moore Stephens could not continue to wait for the audited financial statements and that it would be qualifying the audit report, specifically including a disclaimer opinion for the investments held by REF.

24    Subsequently, no further information was received and on 5 April 2012, Mr Chandran signed the independent auditors report in respect of the financial report for the year ending 30 June 2011 produced for AAF, which report reflected the conclusions he had reached at that time, which were that Moore Stephens was unable to obtain sufficient appropriate audit evidence:

(1)    to provide a basis for an audit opinion;

(2)    of the impairment, if any, of $21,418,905 of REF investments and the appropriateness of the fair value, together with the associated interest receivable of $2,272,075; and

(3)    to satisfy Moore Stephens as to the existence of $1,215,644 of investments.

25    Mr Chandran says that as a result of being unable to obtain sufficient appropriate audit evidence, the audit report reflected his conclusion that, due to the nature and uncertainty of REF assets it was not possible to form a true and fair view as to the value of a number of investments, including those mentioned above, Pivod Group Ltd, Sentiens Pty Ltd and Cottesloe Beach Hotel Pty Ltd. Also, he could not form a true and fair view as to the value and existence of the investments in Ardent Growth Fund and Decimal Group Pty Ltd, mentioned above.

26    Both before and after the qualified audit report was provided by Moore Stephens to AAF correspondence passed between the parties, particularly between their respective solicitors. On 28 November 2011, Mr Marie for Valuestream advised the directors of Addwealth that Valuestream had no alternative to a unit price freeze of the AAF due to materiality, noting that:

(1)    Based on the preliminary material provided for the 30 June 2011 audit, Valuestream is not confident the current value of REF is accurate.

(2)    REF has not submitted its final annual accounts for audit and based on his discussion with Mr Chandran, this is not likely to occur in the short term.

(3)    In addition Valuestream as arranger of the REF, has formed the view that it cannot issue any new units in REF as the unit price has not been updated since August 2011, which is when Valuestream took up the arranging role.

27    In this letter, Mr Marie also noted that Valuestream was aware that there is “considerable dislocation to the fund and the unit holders when a unit price freeze is in place” but he noted this was not a step that Valuestream had had to take for any of the other funds they issue, it was not a step that they took lightly in relation to AAF.

28    That advice from Valuestream to Addwealth was responded to by a letter from Gadens Lawyers for Richmond advising that the position taken in the letter “indicates that you intend to breach these requirements” the requirements referred to being identified as those specified in cl 4 of the Intermediary Authorisation Agreement (agreement) between Valuestream and Richmond, which provided as follows:

Valuestream must:

i.    make offers to arrange for the issue, variation or disposal of financial products by Richmond to people specified by Richmond from time to time (and solely to those persons);

ii.    make offers to people to arrange for the issue, variation or disposal of financial products by Richmond solely on the terms and in the manner and using any documents supplied or authorised by Richmond from time to time;

29    Gadens in this letter also stated that under cl 10 of the Intermediary Authorisation Agreement, Valuestream indemnified Richmond against all claims, liabilities, costs and expenses which Richmond may suffer as a result of or arising from any breach of the agreement, or the wilful misconduct or negligence of Valuestream of its representatives in the performance of the agreement or any act or transaction contemplated by it.

30    In short, by this letter, Gadens on behalf of Richmond, challenged the entitlement of Valuestream to impose a unit price freeze of the AAF.

31    By letter dated 22 December 2011, Baker & McKenzie, solicitors on behalf of Valuestream responded to the Gadens letter giving formal notice of Valuestream’s termination of that agreement effective immediately, pursuant to cl 12 of it, alleging that cl 6(b) of the agreement had been breached. The breach stated was the obligation of Richmond “to provide Valuestream with information it reasonably requires to comply with Applicable Laws”.

32    The point made in the letter was that despite numerous and repeated requests Richmond had failed to provide Valuestream with information about the value of units in the REF.

33    As noted above, discussions between Valuestream and Richmond involving Mr Chandran continued up to the point at which Mr Chandran, on behalf of Moore Stephens signed the qualified audit report on 5 April 2012.

34    Nonetheless, in the meantime, correspondence continued to fly between the solicitors. On 5 January 2012, Gadens responded to the notice of termination letter from Baker & McKenzie in which it was suggested that any purported termination would need to be under cl 12.3(a) of the agreement and a denial of an entitlement to terminate was issued.

35    Gadens, in particular, denied that Richmond had failed to provide information reasonably required and indeed that it had provided Valuestream “with all valuation information that our client is required to obtain and maintain under the Fund’s constitution”. Gadens added that nothing in s 912A of the Corporations Act requires Valuestream to have regard to a current asset valuation in order to be able to act as arranger for the issue of units in REF. Thus, the purported immediate termination of the agreement was considered to be “wrongful”.

36    Finally, however, Gadens on behalf of Richmond purported to accept Richmond’s “purported termination of the Agreement” but otherwise reserved its rights.

37    Then, by letter dated 28 February 2012, Gadens wrote directly to Mr Marie of Valuestream confirming that they acted for Richmond as trustee for REF and adverted to an apparent recent dealing between Mr Marie and Mr Garry Prendiville (associated with the Cottesloe Beach Hotel) and what Mr Marie had apparently told Mr Prendiville, including that AAF would not be providing further monies to REF and as a result REF would not be able to meet its funding commitments in respect of the Cottesloe Beach Hotel; that Mr Wesley Medford had been banned and disqualified as a director, which would impact the liquor licence in respect of the Cottesloe Beach Hotel; and Valuestream would shortly replace Richmond as trustee for the REF.

38    Gadens, on behalf of Richmond, put Mr Marie and Valuestream on notice that it reserved its rights against them for these statements.

39    On 29 February 2012, Baker & McKenzie responded to that letter, making the following points:

(1)    REF is not a subsidiary of AAF and their client did not make statements to that effect.

(2)    AAF would not invest in REF for so long as the value of REF assets cannot be determined to the satisfaction of Valuestream.

(3)    Their client did not make statement 3 as alleged (concerning REF not being able to meet its funding commitments on the Cottesloe Beach Hotel).

(4)    They were instructed that Mr Wesley Medford was discussed and that in relation to the liquor licence, Mr Prendiville volunteered the information that a banned director was an issue for the Hotel’s licence, not Valuestream.

(5)    Mr Prendiville on behalf of Garrett Hotels requested Valuestream replace Richmond, by letter dated 21 February 2012, as per previous advice from Mr Paul Foster and that their client explained to Mr Prendiville that Valuestream would only be able to replace Richmond if a duly held unit holder meeting decided so.

40    In this letter Baker & McKenzie demanded further information concerning Richmond, the unit holders apart from AAF in REF and copies of all historical quarterly reports for the past 24 months for REF.

41    That letter went on to emphasise that AAF’s auditors still could not fully verify the value of REF units as a 30 June 2011. Demands were made, amongst others, for Richmond to confirm that it would cooperate with Valuestream and any valuers appointed by Valuestream to value the REF assets.

42    The letter concluded by stating that Valuestream might feel obliged to make an application to the Court to have a new trustee appointed to REF.

43    By letter dated 8 March 2012, Gadens replied to Baker & McKenzie indicating, amongst other things, that the REF Constitution provided for their client to determine valuation methods and policies for each category of asset and change them from time-to-time and that they had been doing so, but notwithstanding this would make a fresh determination of net asset value and for that purpose would appoint independent valuers to value the investments and was happy to share the results of these valuations once they had been obtained.

44    The point was further made that Richmond would endeavour to ensure that the REF investment manager cooperates with Valuestream “within the terms of REF Constitution”. It rejected the proposition that it was appropriate for Valuestream’s valuers to value to the assets of REF.

45    The letter also stated that Richmond could not confirm that it would not issue new units and that it may “need to raise further capital in order to comply with REF’s contractual commitments to those entities in which REF has invested”.

46    Baker & McKenzie responded by letter dated 9 March 2012, noting that on 8 March 2012 Valuestream had received a notice from ASIC to produce documents and Valuestream requested provision of a range of documents in order to comply with that notice. The ASIC notice was attached.

47    Gadens replied by letter dated 14 March 2012, providing a range of information.

48    On 22 March 2012, Baker & McKenzie communicated with Gadens by email confirming that Valuestream requested Richmond to provide a proposed scope of works/briefing paper in relation to REF asset valuation to be sought and dealing with related issues. On 30 March 2012, Baker & McKenzie, by email, attached a letter of Baker & McKenzie, dated 29 March 2012, to Gadens and Mr Foster concerning the valuation of REF.

49    By email on 4 April 2012, Baker & McKenzie wrote to Gadens and related officers indicating they did not consider it appropriate that Richmond should deal directly with AAF auditors in any substantive way, pointing out that any further delays in the provision of information are “unacceptable”. This email also indicated that Valuestream would proceed to appoint one of the “Nominated Valuers” during the afternoon of 5 April 2012.

50    As noted above, on 5 April 2012, Mr Chandran signed the qualified audit report.

51    On 10 April 2012, Baker & McKenzie advised Gadens that Valuestream had appointed PKF as valuer to value the assets of REF.

52    On 11 April 2012, Baker & McKenzie, by email, requested Gadens to provide information set out in a list to enable PKF to commence the valuation process.

53    It seems that in late April 2012, about 26 April 2012, Mr Foster indicated that there would be a change of trustee for REF, which Baker & McKenzie, by email of 26 April 2012, to Mr Foster and others suggested was a “positive step forward”. By that email Baker & McKenzie also indicated that Valuestream was also intending on calling a unit holder meeting to pass the following resolution:

Resolution 1: ‘That the unit holders direct the Trustee of the Richmond Equity Fund to at all times cooperate with valuation requests (and anything in connection with said requests) made by Valuestream Investment Management Limited as trustee of the Addwealth Achiever Fund or their reasonably appointed representatives, so long as the Addwealth Achiever Fund remains the holder of 75% or more of the units issued in the Richmond Equity Fund’.

54    That email also made references to provisions of the Corporations Act which required the calling of a meeting where the responsible entity of a trust retires and then inquired when Richmond proposed to call the unit holder meeting.

55    The email also indicated that Valuestream wished the PKF valuation process to continue “independent of the change of the trustee”. Richmond were again asked to provide preliminary information sought by PKF to enable the valuations to be conducted.

56    The email also responded to Gadens email dated 13 April 2012 dealing with historic issues concerning the valuation exercise and the provision of information.

57    That email from Baker & McKenzie was preceded by the email of Mr Foster to Mr Marie on 26 April 2012 indicating that “We have agreed final terms and the proposed Trustee is preparing his version of an IMA now”. Mr Marie responded later concerning the process for changing the trustee of REF.

58    By email on 1 May 2012, Baker & McKenzie provided Gadens with a notice of meeting in relation to REF, noting that the REF trust deed “does not contain a specific clause allowing unit holders to call a meeting” and were considering that a meeting can and should be called for the following reasons:

    while the trust deed does not permit a unit holder to call a meeting it does not prohibit it;

    the trust deed is drafted as a registered scheme deed (as it was intended the scheme be registered) and accordingly the Corporations Act meeting provisions should apply; and

    given Valuestream holds about 98% of the units in REF “general equitable principles would support the meeting being convened to give voice to unit holders”.

59    That email indicated that should the unit holder meeting not be convened, Valuestream reserves the right to approach the Supreme Court of Western Australia for such relief in relation to the administration of REF that it may be advised.

60    On 3 May 2012, Gadens advised Baker & McKenzie that the notice of meeting would not be sent and that the REF trust deed does not allowed members to call a meeting and that Richmond did not see that it should be required to go to any great lengths to assist Valuestream to procure a valuation for Valuestream’s purposes and that it had already provided Valuestream with all relevant existing information for the purposes of the valuation.

61    By letter dated 15 May 2012, Baker & McKenzie advised Gadens in formal terms that the situation was wholly unsatisfactory and that Valuestream regarded Richmond as having “failed to perform its obligations as trustee of the trust”.

62    In this letter, Baker & McKenzie asserted the following rights as beneficiary on behalf of Valuestream:

    The duty of Richmond as trustee of REF to render the trust accounts when demanded.

    To inspect and copy trust documents such as accounts, vouchers and other documents.

    To have reviewed in the Supreme Court of Western Australia the determination or omission by Richmond to value certain assets of the trust as detailed in the letter dated 29 February 2012.

63    The letter concluded with demands that Richmond confirm that it would provide access to all documents relevant to the trust and exercise its power to value all of the assets, failing which proceedings would be commenced in the Supreme Court of Western Australia without further notice.

64    On 16 May 2012, Gadens wrote to Mr Chandran concerning an engagement letter from PKF to Valuestream which made reference to Moore Stephens’ audit concerns and inviting Mr Chandran to communicate those concerns to them.

65    By letter dated 17 May 2012, Gadens responded to Baker & McKenzie’s letter of 15 May 2012 disagreeing with the summary of the situation and specifying its view in some 20 paragraphs. By large it told the history of events and correspondence set out above. Gadens advised that Richmond did not consider that Valuestream’s demands were “reasonable or warranted” and that if there were other existing documents that PKF required for the purpose of the valuation of REF assets being sought by Valuestream to let them know what they were.

66    At that point the exchange of letters and emails and other communications between the parties and their representatives seems to have to come to a halt.

67    On Thursday 9 August 2012, Valuestream filed the originating process in this proceeding. The primary relief that Valuestream seeks is a declaration that REF is a managed investment scheme required to be registered under s 601ED of the Corporations Act and an order that REF be wound up and that joint liquidators be appointed to REF.

68    Alternatively, relief is sought that under the Trustees Act 1962 (WA) Richmond be removed as trustee of REF and that another entity be appointed as trustee in substitution.

69    Interlocutory relief was also sought by way of an order, pursuant to s 57(1) of the FCA Act, alternatively s 1323(1)(h) and (3) of the Corporations Act that receivers and managers be appointed to all assets of Richmond as trustee of REF until further order.

70    As recounted in the reasons of McKerracher J, on Friday 10 August 2012, an attempt was made to serve the originating process on Richmond at its registered office in Olive Street, Subiaco. That attempt was abandoned because the registered office appeared to be abandoned.

71    Then on Monday 13 August 2012 a further visit was made to the registered office whereupon:

(1)    The registered office was found to be unlocked but apparently abandoned.

(2)    The paper shredder in the office appeared to have been used and left turned on.

(3)    The originating process and related documents were served on Richmond by leaving them at the registered office.

72    Additionally, on 13 August 2012, a solicitor from Baker & McKenzie contacted the solicitor at Gadens who, at material times, had had the carriage of the matter when communications were being exchanged as outlined above, who said he would seek instructions in respect of the originating process and other documents which had in fact been delivered to his office.

73    On Tuesday 14 August 2012, attempts were made by Valuestream to contact Richmond by telephone whereupon it was discovered its telephone had been disconnected.

74    On Tuesday 14 August 2012, Mr Marie visited Richmond’s registered office and as it transpires spoke to Mr Price, who apparently occupied the office.

75    Since those facts were recounted by McKerracher J in his reasons, Mr Price has put on an affidavit on behalf of Richmond indicating that he generally works out of the office at Olive Street, Subiaco, pursuant to an arrangement with Mr Wesley Medford and that he knows the premises are occupied by Pivod Group through an arrangement with the owners of the premises and that it currently houses Pivod Group’s computer servers, communications and other equipment. Until recently Mr Medford had also occupied an office at the premises but Mr Price understood he was now working from his own office. On instructions from Mr Medford he would open his mail and scan it to him electronically so that he would receive it on the day of delivery. Mr Price said that on 13 August 2012 he found the box at reception after returning from buying coffee and shopping. He informed Mr Medford about those materials.

76    Mr Price says a day or two later a man came seeking to speak to Mr Medford. He told him he was not there. He eventually introduced himself as Mr Marie from Valuestream and asked if there was someone from Richmond Management. Mr Price said “that would be Wes Medford”. Mr Marie asked him what his connection to Richmond was. He indicated he was not currently involved and he should contact Mr Medford. Mr Price confirmed that he received the box of materials and that it was put in the office next door. He indicated he would contact Mr Medford about that. He telephoned Mr Medford, who told him not to worry and it was in respect of an action that Valuestream had started against Richmond.

77    Mr Price adds that he did not know why he was subsequently served with the orders made by the Federal Court as his “only involvement with Richmond Management was when I was a director of the company, most recently for a period of 8 to ten weeks in March to May 2012”.

78    It should also be noted that apparently Mr Wesley Dalton Medford was appointed a director of Richmond on 16 August 2012 and form 484 change to company details under the Corporations Act was thereafter filed with ASIC.

79    By affidavit of Ms Fei Fei Xue, filed on behalf of Richmond, Ms Xue says that she has been informed by Mr Wesley Medford (Mr Medford then being in the course of travel) to the effect that:

(1)    The registered office at Olive Street, Subiaco is not abandoned.

(2)    Whilst he works mostly from home, David Price is usually at the address.

(3)    Richmond is the trustee and Addwealth manages the fund, therefore no other staff is required for Richmond.

(4)    He intends to respond to all of the allegations contained in Mr Marie’s first affidavit so far as those allegations concerned him or matters that he can directly respond to.

80    Mr Medford in the affidavit referred to earlier, confirmed that he had no notice of the ex parte application of Valuestream for the interlocutory orders.

81    As McKerracher J noted in his reasons, on the materials before him on 17 August 2012, it appeared the only director of Richmond was Mr Kenneth Medford, whose address was recorded in the United States of America. Further, Richmond did not appear to have any company secretary and its holding company, Richmond Capital Group Pty Ltd, had no current company offices.

82    Further, the up-to-date historical company extract for Richmond showed Mr Wesley Medford as having resigned as a director on 16 June 2011 (having been banned by ASIC from acting as a company director) and Mr Price as having resigned as a director of Richmond on 31 May 2012. As a result, it did not appear to have any director ordinarily resident in Australia.

83    It appears that, as a matter of fact it was incorrect to say that as of 17 August 2012 there was no resident direct as it appears that Mr Wesley Medford was reappointed as a director of Richmond on 16 August 2012.

84    Justice McKerracher was taken by counsel for Valuestream to relevant principles governing the appointment of a receiver and manager generally in equity and under s 1323(1)(h) of the Corporations Act including Beach Petroleum NL v Johnson (1992) 9 ACSR 404; Australian Securities and Investments Commission v Marshall Bell Hawkins Ltd [2002] FCA 1511; (2002) 43 ACSR 340; Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504; Re Allco Securities Pty Ltd [2011] NSWSC 1113 (Allco Securities) (which refer to National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386; Australian Securities and Investments Commission v Letten [2010] FCA 140 (Letten).

85    His Honour accepted that the appointment of a receiver is a drastic remedy and that any appointment must be made cautiously and only when it is absolutely necessary.

86    Justice McKerracher, applying the authorities and based on the evidence before him, considered that Richmond had shown an “underdeveloped sense of trusteeship” in relation to REF. He considered that it was necessary to protect the unit holders and preserve the status quo by making the orders. He accepted that, on the face of matters, not only had there been serious breaches but also there appeared to be no active management of Richmond. His Honour cited the lack of any residential director, the apparent vacation of the company office and the lack of response to requests for information as all being matters of concern “having regard to the very significant investment apparently at risk”.

87    His Honour then added, at [48] of his reasons, that if the picture painted on the urgent ex parte application was inaccurate, there would be opportunity to the defendant to promptly rectify the impression created by the evidence. His Honour considered that there was a greater risk of injustice by allowing time to march on without limited intervention at short notice.

88    On the application of Richmond to dissolve or discharge the ex parte order made by McKerracher J, attention is drawn to the fact that certain materials were not put in evidence before his Honour, when they could and should have been. In particular, attention is drawn to letters of “complaint” that some unit holders in Valuestream had made in response to the threat of legal proceedings by Valuestream against Richmond. The concern stated is that, put in broad terms, litigation of this sort would be to no one’s advantage.

89    Attention is also drawn to the failure of Valuestream to put into evidence, together with the other communications between the parties identified by Mr Marie in his affidavit, the letter from Gadens to Baker & McKenzie dated 17 May 2012.

90    Richmond also draw attention to the fact that, as a matter of fact, Mr Wes Medford had been appointed a residential director at material times, a fact that could reasonably have been discovered upon a search of ASIC.

91    Richmond also suggest the ASIC investigatory interest was not disclosed.

92    Dealing with the last point first, plainly, in all the circumstances, a search might have discovered the information concerning Mr Wes Medford’s appointment as of 17 August 2012, but even if the information were discoverable upon a search of ASIC’s records, I do not consider in the circumstances that is a failure on the part of the applicant for interim relief that should lead to the automatic dissolution of the order made. Apart from anything else, there was nothing in the circumstances to suggest that such an appointment had been or was about to be made. It would seem to have occurred once Mr Medford became aware of the proceedings having been commenced. And there were a number of other factors, in any event, that McKerracher J took into account when making the order.

93    As to the so called letters of complaint by certain unit holders of AAF, I accept the submission of Valuestream that they were not available to Mr Marie at material times when the ex parte application was made having been received by him at about 5pm on 17 August 2012 from Ms Parsons.

94    Most attention was focussed on the failure of Valuestream to provide to the Court the letter of 17 May 2012. In my view, as submitted by counsel for Valuestream, this letter, while detailed, is but a summarised account of the position of Richmond, albeit the final and most complete account of Richmond’s position prior to the commencement of the primary proceedings. It may have been useful for his Honour to have that document before him, because it comprehensively summarises the position of Richmond. But, all the other materials, including all the correspondence between the parties and their solicitors was provided, from which the summarised position in Gadens’ letter of 17 May 2012 was drawn. I do not consider there was any material nondisclosure by the failure to put this letter in. It would not have added anything material to the information already before his Honour. At most it might be said that the letter of 17 May 2012 made it amply clear exactly what the issues were upon which the parties disagreed.

95    As to the ASIC issue, I accept Valuestream disclosed ASIC’s interest at material times. Other matters set out in Mr Wheatley’s affidavit of 22 August 2012 concerning ASIC’s contact with Richmond, were, I accept, not known to Mr Marie at materials times.

96    The parties agree that the relevant principles concerning the circumstances in which an order may be discharged for material nondisclosure are those stated in Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1357. Applying the principles there stated I am not satisfied that the nondisclosures complained of are of sufficient materiality to justify or require immediate discharge without examination of the merits or the importance of the fact to the issues which were to be decided by the judge on the application.

97    The question which then remains is whether, now, having regard to the facts as they have been either elucidated or explained on the submissions made on behalf of Richmond, it is appropriate that the order appointing receivers should be maintained, pending the determination of the proceeding.

98    In that regard, I consider that on further consideration of the facts and the authorities it is not appropriate that the order appointing the receivers should remain in place, pending the determination of the proceeding. I have already set out the particular concerns expressed by his Honour at [47] of his reasons.

99    Like his Honour, I accept the principles set out in some detail in his Honour’s reasons, which were pressed also on the application before me by counsel for Valuestream.

100    It is no doubt correct to observe that the appointment of a receiver is a drastic step, for all the reasons mentioned in the authorities and that ordinarily the appointment of a receiver will only be made where there is something the nature of an “emergency” and justice requiring the order. The demands of justice for the appointment of receivers should, in my view, be insistent. At the same time, each set of circumstances will dictate the demands of justice. Counsel for Valuestream draws attention to the circumstances of a number of the authorities cited, particularly Allco Securities and Letten, as well as the decision of French J (as his Honour then was) in Australian Securities and Investments Commission; In the matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 4) [2006] FCA 644 (Carey).

101    I have little doubt, having regard to the long series of exchanges between the parties and their representatives since at least November 2011 right through to the middle of May 2012, that Valuestream is seriously concerned about the valuation of the assets that underlie the investments it has made in REF. However, an order appointing receivers should not be made lightly. I can understand how, in the circumstances that were urgently presented to his Honour, where it appeared that the business of Richmond had been abandoned, which appeared to be the case following the visit of the process servers and later Mr Marie to the registered office of Richmond in Olive Street, Subiaco on 10 and then 13 August 2012, that the trustee may well have, in effect, absconded. That view no doubt was fortified by the understanding that the only director was based in the United States and that there was no secretary of the company. Prudence, at the very least, would suggest it was appropriate to ensure the nearly $30 m investment in REF was not at risk. When one considers the issues raised about the nature of some of the investment, as set out above, the fear of some risk arising from those derivative investments was given weight.

102    However, on reflection having heard both sides of the argument and considering the evidence put on, on behalf of Richmond, it seems to me that the appointment of a receiver is not currently called for and that there are other, more appropriate, means of maintaining something akin to the status quo in relation to the investment of Valuestream in REF pending a final hearing of the proceeding.

103    In my view, while the neglect or refusal of Richmond to provide materials to the auditor and Valuestream concerning the investments made in REF raise serious issues, and it is arguable that the neglect or refusal concerned may constitute some breach of the trust deed vis-à-vis the parties, it may not be so. The question whether the reluctance of Richmond to call a meeting of unit holders is justifiable as a matter of law, is again an arguable proposition. Whether or not REF should have been registered as a managed investment scheme, is a primary issue in the proceeding. Whether or not, alternatively, Richmond should be replaced as trustee of REF remains to be determined. While the case advanced by Valuestream has strength, it should not be considered so strong at this point that the appointment of receivers should be considered the only way forward in order to protect the interests of the parties, including the unit holders in AAF. In that regard, this case is quite unlike of Carey above.

104    It is also not by any means a conclusive proposition that there is “no active management” of Richmond at the present time. While it appeared to his Honour that there was no residential director, Mr Wesley Medford is now re-appointed. While it also appears that the company only uses the Olive Street, Subiaco premises, where the registered office is, on a temporary or infrequent basis, that to my view is not a conclusive indication that there is no active management. As Mr Medford points out, through Ms Xue, and the materials clearly indicate in any event, the trusteeship of Richmond in respect of REF is effectively being carried on through Mr Foster and Addwealth. There really appears to me to be nothing different so far as the active management of Richmond is concerned at material times, when compared earlier times when the lawyers for the parties were actively exchanging views.

105    The lack of response to requests for information, including valuation of assets is no doubt a very important issue in the proceeding. But that is not, in my view, of itself, a sufficiently compelling reason for the drastic step of appointing a receiver to be taken.

106    There is little evidence of imminent dissipation of assets by Richmond of the assets in REF. His Honour did not rely directly on any evidence to that effect in making the orders. What is said, having regard to the materials and particularly Mr Marie’s overview of the REF investments at [89]-[158], is that there are real reasons to consider that Richmond has used the assets of REF to invest in businesses which have proved not to be wise investments and, in some cases, in investments in entities in which Mr Medford or Mr Foster have had or some or all the interests and so a conflict. There may well be proper grounds for conflict concerns in relation to those matters and no doubt they are matters that will be raised at a final hearing of the primary proceedings, particularly if the alternative relief for replacement of the trustee is agitated. It is difficult, however, for the Court to form any final views about those matters enumerated by his Honour in his reasons and drawn to the Court’s attention on behalf of Valuestream, and of themselves they do not, in my view, justify the interim appointment of a receiver, although they may be sufficient to support the grant of interim injunctive relief.

107    In all of these circumstances, I consider that the most appropriate way forward is for the primary proceeding to be listed for final hearing. I have ascertained that the matter can be heard by McKerracher J on 25 and 26 September 2012. It appears to me presently that two days would be appropriate and when I put that proposition to counsel they did not dissent from it.

108    I will make an order listing the proceedings for final hearing on those dates and require the parties, through their legal representatives, to bring forward a minute of orders programming the proceeding to that hearing.

109    I will also, in the circumstances, discharge the order appointing the receivers, but without prejudice to the right of the receivers, having been appointed and having undertaken certain activities, pursuant to the Court’s order, to recover their costs for work already done on an appropriate basis. I will hear from counsel for the receivers as to the appropriate order that should be made.

110    I am also prepared to grant an injunction to protect against the dissipation of assets, if Valuestream is prepared to offer an undertaking as to damages in the usual form. While I have indicated there is no evidence of imminent dissipation, there is evidence that the Pivod Group may be entitled to further advances under the $10.5 m facility, in respect of which some $5.7 m appears already to have been advanced. Counsel for Richmond indicated, without having full instructions as to exactly what or when, that further advances may be imminent.

111    Counsel for Richmond opposes any injunction but submit that no order should be made in any event that has the effect of restricting the ability of Richmond to meet its current contractual obligations, to Pivod Group or any other party. While I may accept that as a general proposition, it seems to me that in all the circumstances of this case, particularly on the basis of concerns identified in the affidavit of Mr Marie about the relationship of Richmond and its directors with the Pivod Group and other identified apparently conflict situations, there should be a general order made that protects against the disposition of assets of REF without the approval of the Court.

112    Most assets are in the nature of passive assets, apart from the partnership in relation to the Cottesloe Beach Hotel. It seems to me that the order designed to prevent dissipation of assets without approval of the Court should not affect the continued operation and application of funds by Richmond in respect of its obligations in relation to the operation of that hotel.

113    I would propose to order, subject to refinement following further submissions from counsel:

1.    The ex parte orders made by McKerracher J on 17 August 2012 be discharged.

2.    The matter be listed for final hearing before McKerracher J on 25 and 26 September 2012.

3.    The parties by counsel confer and bring forward as soon as practicable a minute of proposed programming orders to facilitate the final hearing.

4.    Subject to order 5 on the undertaking of the plaintiff in the usual terms, pending trial the defendant be and is hereby restrained from disposing of or dealing with any assets of the Richmond Equity Fund without approval of the Court.

5.    Order 4 does not apply in respect of the defendant’s partnership in the Cottesloe Beach Hotel.

6.    The receivers and managers appointed under the ex parte orders of 17 August 2012 be entitled to their costs, if any, incurred since their appointment to be charged against the assets of the Richmond Equity Fund.

7.    The costs of this application be in the cause.

8.    There be liberty to apply.

Associate:

Dated:    24 August 2012