A South Australian court has rejected allegations that Rochfort Distillery backer Giuliano Ursini “phoenixed” company assets to open Cut Hill Distillery at the same site.
The Supreme Court of SA in May 2023 handed down its preliminary ruling on court proceedings launched by the Rochfort family against Ursini’s landlord company, Distilleria Pty Ltd.
De Bourbel – the Rochfort Distillery company jointly owned by the Rochforts and Ursini – was pursuing up to $7.14 million in damages from Distilleria Pty Ltd, after the Adelaide businessman in March 2020 served a warrant to distrain against all distillery assets for outstanding rent.
This sum comprised amounts of $2.17 million for breaching his director’s duties; up to $3.1 million for unlawfully distraining against the distillery’s assets; $1.35 million in direct expenses of the winding up and $508,000 for conversion of barrels and equipment.
But Justice Laura Stein rejected De Bourbel’s case that Ursini breached corporations law by giving preferential treatment to Distilleria while in a conflicted position as a director of both companies.
“The manner in which Giuliano engaged in his dealings with the Rochforts concerning the issue of invoices, the demand and distraint, his lack of transparency… and the tone of his correspondence are open to criticism,” she said.
“However, the question for me is whether De Bourbel has proved Giuliano breached his duties as a director of De Bourbel on the case it pleaded and to which it is bound.
“It has failed to do so.”
No evidence of illegal phoenix activity
De Bourbel also failed to establish its case that the distraint was designed to phoenix the distillery’s assets into a new entity, Cut Hill Wall Pty Ltd – trading as Cut Hill Distillery – which was incorporated by Ursini in April 2021.
“Cut Hill Wall now runs a distillery from the same premises, using the same equipment… which suggests there may have been some such goal,” observed Justice Laura Stein.
“However, Giuliano consistently denied such a scheme and said he was not a whisky distiller… he did not at his age intend to run a distillery and he distrained on legal advice.”
“Those matters are consistent with the commencement of Cut Hill Wall about a year after the liquidation.”
No formal documentation
However, Justice Stein found Ursini’s distraint was unlawful because De Bourbel did not have a written, executed lease of the Victor Harbour property owned by Distilleria.
“At the time Christopher [Rochfort] and Giuliano engaged in their discussions and then commenced the venture and the business, there was significant trust between them with associated informality,” said Justice Stein.
“The arrangements and understanding upon which the whisky distillery business commenced and proceeded were never formally documented.”
She found there was a “binding oral agreement” between the parties that contained the essential terms required for a lease under SA legislation that had been in place since 1995.
But this legislation was coincidentally superseded in July 2019, meaning there was no lease and De Bourbel occupied the property based on an “interest at will”.
She found Distilleria was entitled to terminate De Bourbel’s occupation, but there was no lease for Distilleria to rely upon when it distrained De Bourbel’s assets.
‘The world’s best whisky’
The court heard that Ursini met family patriarch Christopher Rochfort via Ursini’s association with McLaren Vale Distillery – the Rochforts’ previous joint venture with Jock Harvey of Chalk Hill Wines – as one of its first private barrel owners.
“After difficulties arose in relation to MVD’s operations, Christopher Rochfort and Giuliano Ursini discussed commencing a whisky distillery business to distil, bottle and sell whisky under the name ‘Rochfort Distillery’,” the court heard.
These discussions ultimately led to Ursini and the Rochforts joining forces in January 2018.
Ursini spent more than $2 million getting the distillery off the ground, comprising the $900,000 purchase of the Victor Harbour property, approximately $1 million on building works, plant and equipment, and $130,000 on sundry expenses such as wages.
But he soon became concerned at the business’s failure to generate revenue in keeping with agreed timelines.
“I have not yet added up all I have spent, but it is a scary number,” he wrote to the Rochforts in February 2019.
“I have never questioned any expenditure, but simply took your advice as to what you needed to produce the ‘world’s best whisky.’
“I am now under pressure and cannot inject anymore cash into this project… a bottomless pit approach is bad business even if it is available.”
Ursini’s March 2020 warrant of distraint claimed Distilleria was owed more than $300,000 in rent that had been accruing since November 2018.
Whisky valuation inadequate
Justice Stein said De Bourbel would be entitled to damages for goods that were unlawfully seized by Distilleria, but it was unclear what De Bourbel’s assets were at the date of the distraint.
“I have concluded that plant and equipment purchased by funds provided by Giuliano was owned by Distilleria at the time of the distraint,” she said.
She said it was not in dispute that De Bourbel was the owner of whisky in barrels and demijohns – other than privately owned barrels – in addition to bottles sold at auction by the liquidator in August 2021.
But Justice Stein said the evidence presented was inadequate to establish the value of this whisky.
“De Bourbel did not call evidence from a person with expertise in assessing whisky,” she said.
“If I were to endeavour to place a figure on the whisky, it would amount to no more than pure guesswork or speculation.”
Justice Stein requested further submissions from the parties in relation to the unresolved matters.
Giuliano Ursini told Drinks Adventures in a statement: “I am thoroughly impressed with the punctilious approach of Justice Laura Stein in dealing with these complex matters.”
“I look forward to finalising this matter in the coming weeks.”
Lachlan Rochfort declined to comment due to ongoing legal matters.