South Australia’s Supreme Court has ordered the directors of a prominent Adelaide hotels syndicate to pay $383,000 after they concealed lucrative deals with major breweries from their then-business partners.
- Two publicans were found to have concealed lucrative deals with breweries from their partners
- The four men involved in the case bought the Windmill Hotel in Prospect in 2016
- They later sold the business at a loss of about $425,000
The court found that Brett Viney and Matthew Mitchell did not disclose the deals — negotiated with Carlton and United Breweries (CUB), Asahi and Coopers — for beer taps at the Windmill Hotel with Michael Crouch and son Nicholas.
The deals occurred before the four men bought the hotel, on Main North Road at Prospect, as a joint venture for $1.4 million in 2016.
The alcohol rebates guaranteed that the Windmill Hotel would sell minimum quantities of each brewer’s beer and guaranteed a certain number of taps at the bar, among other conditions.
The court heard the rebates — worth $160,000 from CUB, $30,000 from Asahi and $21,375 from Coopers — were being paid into Mr Viney’s and Mr Mitchell’s corporate entity, the Bloody Mary Group, rather than to the Windmill Hotel.
The Crouches only discovered the detail of those deals more than a year into their co-ownership of the hotel business, which was making significant losses as rebates for its beer taps flowed to the Bloody Mary Group.
In their statement of claim, the plaintiffs wrote the publicans had a duty to “not make any secret profit out of the proposed joint investment in the Windmill Hotel business”.
The publicans argued that Nicholas and Michael Crouch were negligent in their failure to appreciate the existence of the rebates.
But the court found that “this was not a case where the Crouches simply failed to ascertain for themselves the true position in relation to rebates”.
“Mr Viney and Mr Mitchell … concealed and suppressed their intention to enter into the rebate agreements, their intention that the forward rebates be paid to [Bloody Mary Group] and not [the Windmill Hotel], and their communications with CUB, Asahi and Coopers in relation to the rebate agreements.”
The Bloody Mary Group has been a significant owner-operator of hotels in South Australia for years — including the historic Archer Hotel in North Adelaide and the Kincraig Hotel in Naracoorte, which both went into voluntary administration in recent years.
The judge in the Windmill Hotel case found that neither Michael nor Nicholas Crouch, who was a law student at the time, was directly informed of the existence of any of the rebate agreements, let alone the negotiations that preceded them, before signing on to purchase the hotel.
Publican offered ‘incredible or nonsensical’ evidence
The Crouches discovered references to the rebates in financial statements after the first year of new ownership of the hotel.
The court heard that at a meeting in December 2017, Mr Viney did not produce a clear explanation for the rebates when asked.
Mr Viney also did not mention that, earlier that month, he had signed yet another rebate agreement, this time with Treasury Wine Estates, in which the Bloody Mary Group was to be paid $100,000.
The Crouches only became aware of the Treasury deal during the court proceedings.
The hotel never made a profit during the joint venture, and the four men eventually sold it for about $425,000 less than they originally paid.
According to the judgement, Mr Viney’s evidence about the rebates “seemed to evolve”.
Overall, the judge found Mr Viney and Mr Mitchell were “poor [and] evasive” witnesses who sometimes “adhered to evidence that in my view was either incredible or nonsensical”.
“And his preparedness to conceal this agreement from them, even at a time when he knew the Crouches were becoming concerned about the position in relation to rebates, was instructive more generally.”
The judge found that Mr Mitchell “was evasive in his evidence, and in a number of instances refused to make concessions or otherwise adhered to evidence that I consider to have been incredible, implausible, lacking in common sense or inconsistent with other evidence which I consider to be reliable”.
On the other hand, “the evidence of both Nicholas Crouch and Michael Crouch was honest and generally reliable”.
Although the court found the publicans had engaged in misleading and deceptive conduct and breached consumer law, it rejected the plaintiffs’ further claim for breaches of the shareholder agreement in relation to the hotel.
The court awarded $383,609 in damages to the plaintiffs.