Pitcher Partners’ Andrew Yeo has lost an enterprising bid to have a deed of settlement involving architect to the affluent Nicholas Day set aside as a voidable transaction after a voluminous ruling by Victorian Supreme Court judge Melanie Sloss.
Day’s work is regularly snapped up by Melbourne’s wealthiest but according to Shot One Pty Ltd (in liq.) & Anor v Day & Anor  VSC 741 (7 December 2017) there was a time when the doyen of Toorak’s grandest designs was so down on his luck that Peter Goodin of Brooke Bird was appointed Day’s trustee in bankruptcy late in 2001.
His brother Richard Day however came to the rescue, buying Nicholas Day Architects from Goodin for $16,000 and employing Nicholas as lead architect through Shot One Pty Ltd, which the brothers had formed in early 2001 to design and develop prestige property projects.
“I would not be inclined to accede to the plaintiffs’ submission that the Court should effectively ‘rewrite’ the accounts and reverse the journal entries.” Justice Melanie Sloss.
When Nick Day became bankrupt he had to resign as a director of Shot One but because Nicholas Day Architects couldn’t exist without him brother Richard drafted up an employment contract, which Justice Sloss discussed in convenient detail.
“Richard said that his goal was to ensure that Nicholas was satisfied with its terms so that he would stay and work with Nicholas Day Architects,” Justice Sloss said.
“Richard explained that this ‘was crucial to ensure the success of the business’ because without Nicholas there was probably no business. However, given Nicholas’s ‘expensive lifestyle’, Richard said that he also ‘did not want Shot One to pay Nicholas too much’ and because ‘Nicholas was used to living an expensive lifestyle’ it made sense to him ‘to agree to pay Nicholas’ rental expenses, and other expenses such as school fees directly, rather than pay him income in cash.’
“Accordingly, under this employment arrangement, Shot One agreed to pay Nicholas Day a relatively modest salary of $5,000 per month, and pay his business expenditure and certain living and other expenses, as well as providing him with suitable accommodation and a motor vehicle.”
From late 2001 until March 2009, Richard directed Shot One to pay the school fees for Nicholas’s two sons, and their dental fees. Among the other expenses picked up were Nick’s rental payments in relation to a premises of Nick’s own design at 5/2 Rockley Road, South Yarra, which had been purchased by Rising Rocket, a company controlled by Richard in its capacity as trustee of the Rising Rocket Trust.
Nick was discharged from bankruptcy in 2006 and in 2009 took over from Richard as sole director and shareholder of Shot One. It seems however that the arrangements in regards to paying the rent on Rockley Road – which in effect were mortgage payments to Commonwealth Bank – got a bit sloppy and in time the brothers fell out.
In 2010 Nick sued his brother, arguing that Richard had breached his fiduciary duties to Shot One and and improperly used his position as a director to gain an advantage for himself or third parties to the detriment of Shot One.
Shot One claimed that Rising Rocket effectively held the Rockley Road property on trust for Shot One and sought, amongst other things, a declaration that the Rockley Road property (registered in the name of Rising Rocket) was held on trust for Shot One by virtue of payments made by it to and for the benefit of Rising Rocket which were traceable to the Rockley Road property.
Eventually the proceedings were settled at mediation in 2012, with the judgment outlining how the threat that Goodin may otherwise have rights to claw back 5/2 Rockley Road exerting some influence.
By this time the ATO had already commenced winding up proceedings against Shot One and barely five months after the brothers settled all claims against each other Yeo was appointed liquidator.
He and his staff then undertook a mountain of forensic work analysing the books and records. Losing this week will be a bitter Christmas pill. But the judgment’s a terrific reference source for voidable transactions.