Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2022] NSWSC 100 | Case summary

Supreme Court of NSW|2020-12-17|Before: Henry J

Solicitors: Luminous Legal (Plaintiff/First Cross-Defendant) Brighton Lawyers (Second Defendant/Cross-Claimant) File Number(s): 2020/246596 Publication restriction: Nil

Judgment

The plaintiff, Mr Bo Yu, and the second defendant, Mr Lei Ding, are the directors and equal shareholders of the first defendant, L&B Seafood Pty Limited (L&B Seafood), which operates a retail business selling fresh seafood and fish and chips in Burwood (Business).
Mr Yu and Mr Ding's relationship has irretrievably broken down. They each blame the other for that breakdown and make allegations of impropriety against the other.
Mr Yu contends that a deadlock between the directors arose due to concerns about Mr Ding's conduct in relation to cash takings and how they have been recorded, Mr Ding's borrowings from third parties and the solvency of L&B Seafood.
Mr Yu commenced this proceeding by originating process filed on 24 August 2020 and seeks an order that L&B Seafood be wound up on just and equitable grounds under s 461 of the Corporations Act 2001 (Cth). Mr Yu does not assert oppression but contends that a winding up order and the appointment of a liquidator is the most just outcome in circumstances where the parties can no longer work together and have been unable to sell the Business or agree on an appropriate value for a share buyout and Mr Yu has concerns about financial matters.
Mr Ding says that Mr Yu caused the breakdown by deciding to give priority to his other business and alleges oppressive conduct by Mr Yu. By his cross-summons and points of claim filed on 25 November 2020, Mr Ding seeks a declaration that Mr Yu has engaged in conduct that is oppressive, unfairly prejudicial or unfairly discriminatory to Mr Ding contrary to s 233 of the Corporations Act and an order that Mr Yu sell his shares in L&B Seafood to Mr Ding at their fair market value as determined by the Court. Mr Ding's oppression claim is based on allegations that Mr Yu diverted fish deliveries from L&B Seafood's business for Mr Yu's own benefit and made payments and statements to suppliers and trade creditors with the object, or likely effect, of forcing L&B Seafood's business to cease trading.

The evidence and witnesses

Mr Yu relied on his affidavits affirmed on 24 August 2020 (Yu 1), 27 October 2020 (Yu 2), 29 October 2020 (Yu 3) and 9 December 2020 (Yu 4). He has also filed evidence of a consent to act by the proposed liquidator, Mr Grahame Robert Ward.
Mr Ding relied on his affidavit affirmed on 23 October 2020 (Ding 1) and two affidavits affirmed on 26 November 2020. One of Mr Ding's 26 November affidavits addresses the arrangements between him and Mr Yu, the operations of L&B Seafood and its Business and the matters that led to these proceedings (Ding 2). The other exhibits documents relating to L&B Seafood that were provided to an expert for the purposes of valuing L&B Seafood (Ding 3).
Mr Ding also relied on the affidavit of Mr Matthew Gwynne affirmed on 2 December 2020, which attaches an expert report of the valuation of L&B Seafood. Mr Gwynne is a Chartered Accountant at PKF (NS) Forensic Accountants Pty Ltd.
Mr Gwynne's report was the subject of an objection. The parties were content for the hearing to proceed on the basis that it be admitted provisionally, for Mr Gwynne to be cross-examined and for these reasons to deal with the submissions as to Mr Gwynne's evidence. While Mr Gwynne was a reliable and impressive witness, I have concluded that I can place no weight on his report and reject his evidence for the reasons set out at [131] - [140] below.
The parties also relied on written closing submissions which have been of assistance to the Court.
As will become apparent, there are numerous conflicts between Mr Yu's and Mr Ding's evidence about factual matters. Many of them do not need to be resolved for the purposes of these proceedings. Determining what happened has also been impacted by the lack of contemporaneous documents in relation to the operation and management of L&B Seafood and its Business.
Mr Yu and Mr Ding were both cross-examined and submissions were made concerning their credit. I refer to key aspects of their evidence later but set out below some general observations that, in my view, raise doubts about the reliability of some of their evidence. I should record that in assessing their evidence, I have had regard to my notes made at the time they gave their evidence and a rereading of the transcript.
Mr Yu submits that his evidence should be accepted and preferred to the extent that it is inconsistent with Mr Ding's as Mr Yu's evidence was cogent and consistent with his affidavits and the documentary evidence. It was also submitted that any inconsistency in Mr Yu's oral evidence was the result of him being confused about or misapprehending the questions asked. I am not persuaded by those submissions.
Mr Yu gave inconsistent evidence about a number of matters, such as in relation to the Long Quan Seafood business (at [28]), the number of suppliers he paid and spoke to in mid-2020 (at [115]), the mistakes he made about the delivery of seafood (at [100]) and when his involvement in the Business ceased (at [77]). Mr Yu did not appear to be confused or under any misapprehension when he gave that evidence. He asked for clarifications before giving answers (see, for example, T16.38) and the questions put to him in respect of which he gave inconsistent evidence were not unclear (see, for example, T17.5-T17.8).
I also do not accept Mr Yu's submission that his evidence was always cogently and candidly given. While acknowledging that Mr Yu gave direct and succinct answers to many questions put to him, there were occasions when Mr Yu gave non-responsive answers and evidence that appeared to be evasive (see, for example, T16.15-17, T16.34-35, T21.15-35). Some of his evidence did not accord with documents in evidence (such as WeChat and text messages) and I prefer them where available.
Mr Ding, who gave evidence through a translator, was also non-responsive at times and had to be asked to answer questions (see, for example, at T52.2). There were aspects of his evidence that were not also inconsistent with the facts. For example, his evidence in cross-examination that he just worked in the shop "as one of the staff" and that Mr Yu "would be in charge of managing the cash register and do more [in that regard] than [Mr Ding]" (T49.40-T50.3) was implausible in the context where it is common ground that Mr Ding was primarily responsible for retail sales in the shop, he accepted in cross-examination that he responsible for reconciling the cash takings each day (T50.25) and was an equal shareholder and director in L&B Seafood. Mr Ding's evidence in cross-examination that, as time went by, he forgot about the payment of $1500 to Mr Yu as part of his explanation for why an additional amount of $43,000 had been repaid to Mr Yu (over and above the $95,000 he was owed) (T68.50-T69.6) was also unpersuasive given the amount involved and the evidence that the Business had cash flow issues from late 2018.
Mr Ding's failure to produce the handwritten records of the income and expenses of the Business in response to Mr Yu's notice to produce dated 30 November 2020 and his explanations for why were also unsatisfactory and seemingly contradictory. Initially he said that he asked his lawyer which paragraph he should provide, and they "didn't answer" (T52.24). He then said that he only received the notice "last week" and was too busy to produce them but "If you want them, I can provide them" (T52.46, T52.47-T52.48). Mr Ding's credit and the reliability of his evidence regarding financial matters (and the financial statements themselves) was also undermined by his execution of director declarations regarding L&B Seafood's financial statements when he was aware they were not accurate and his failure to give his accountant handwritten notes of cash transactions and details regarding the third party loans and alleged dividend payments (T65.11).
A further difficulty with Mr Ding's evidence is that some of the documents on which he relies in support of his claim that he paid Mr Yu dividends and oppression are not fully explained in his affidavit evidence and some are not fully translated or dated (see, for example, Court Book (CB) 572, CB574, CB575, CB580-CB582 and CB623). This has made it hard to determine precisely what Mr Ding alleges happened and when, and raises doubts about whether the documents he relies on support the contentions he advances in his affidavits.
As Hodgson JA (with whom Beazley JA agreed) said in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14], [15]: [I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision … In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so …

Factual background

L&B Seafood was incorporated on 28 May 2015 for the purpose of operating a fishmonger business. Mr Yu and Mr Ding were the two shareholders, each holding 500 of the 1000 shares on issue. They were also the only directors.
In March or April 2016, the Business commenced trading from a ground floor shop at 157 Burwood Road, Burwood under the name "Fish Haus".
The shop and a car space are subject to a 10-year lease to L&B Seafood that commenced on 14 December 2015 at rent of $145,200 per annum (Lease). Mr Yu and Mr Ding are guarantors of the Lease. The shop was fitted out with plant and equipment at a cost of around $350,000 (CB550).
Mr Yu and Mr Ding each contributed $225,000 to start up the Business. Mr Ding's points of claim (POC) refers to the amount of $450,000 as the "initial capital" of the Business although Mr Yu takes issue with this description. Mr Yu says that the capital contributed to L&B Seafood was only $1,000, being the share capital, and the balance of the amount of $450,000 consisted of loans to L&B Seafood from its directors. I prefer Mr Yu's characterisation of the funds (other than the share capital) as loans from L&B Seafood's directors as it is supported by the financial statements in evidence which record a liability described as "Directors Current Account" with a balance of $437,665 since 30 June 2017.
Mr Ding's $225,000 contribution was made up of $130,000 of his own capital and a personal loan of $95,000 from Mr Yu. Mr Yu borrowed $250,000 from his mother to help fund his contribution and the loan to Mr Ding. Mr Ding claims that he has repaid the personal loan of $95,000 by the payment of dividends and the loan was interest free. Mr Yu says he has not been repaid and interest was payable. It is not necessary to resolve that dispute although I say more about Mr Ding's claim that dividends were paid below.
Prior to trading commencing, Mr Yu and Mr Ding agreed that they would work in the Business and on a division of responsibilities. The agreement was oral. There is no shareholders agreement or other document in evidence that records the terms on which L&B Seafood was to be managed or how the Business was to be operated.
It is common ground that it was agreed that Mr Yu would attend the fish market auctions, be responsible for the wholesale purchase of seafood and deliveries to the shop and to restaurants and would also assist in the shop, and that Mr Ding would primarily be responsible for retail sales in the shop and to restaurants. Mr Ding was also responsible for reconciling the cash takings each day and deposes to keeping handwritten records of the income and expenses of the Business in the shop (T50.27, T52.38 and Ding 2 at [24]).
Mr Yu was given responsibility for attending the fish market auctions and purchasing seafood as he had knowledge of the seafood industry from his involvement in another retail seafood business in Ashfield, called Long Quan Seafood.
Mr Yu deposed that his mother has operated Long Quan Seafood for about 15 years and that he had been involved for most of that period. In contrast, Mr Yu gave evidence in cross-examination that his mother did not currently operate Long Quan Seafood and had not at any time and that Mr Yu operated the business and owned the shares (T19.46-T20.26). Irrespective of who owned Long Quan Seafood, I am satisfied that Mr Ding was aware of Mr Yu's involvement in that business prior to L&B Seafood's incorporation and that Mr Yu and his mother were both involved in it.
According to Mr Yu's evidence, he attended the seafood auctions at 5:00 or 5:30 am, made deliveries to the shop and to restaurants until around 3:00 pm, and, on most days, returned to assist in the shop until around 6:30 pm.
The process of purchasing seafood for the Business involved Mr Ding notifying Mr Yu of the amount of seafood required for the following day and Mr Yu attending markets and auctions to make the required purchases (T20.14-T20.17, T21.3-T21.11). When purchasing seafood for the L&B Seafood Business, Mr Yu would also purchase seafood for Long Quan Seafood. His mother would also help with attending auctions for both businesses (T20.2-T20.6, T20.14-T20.26, T20.46-T20.48; Ding 2 at [18]; Yu 4 at [11(c)]).
Mr Ding gives evidence that there were many occasions on which the seafood ordered by L&B Seafood did not correspond to the seafood delivered by Mr Yu (in terms of weight and type) and that Mr Yu did not deal with the issue or pay for the shortages. That allegation, which is rejected by Mr Yu, forms part of Mr Yu's oppression claim and is referred to in more detail below.
In addition to Mr Yu and Mr Ding, other staff were employed on a casual basis to assist with retail sales and cleaning. According to Mr Ding's evidence, Ms Yunxia Liu (also referred to by the parties as Sarah) was an employee of L&B Seafood from when it commenced operations and assisted with bookkeeping.
Mr Yu and Mr Ding disagree about the other terms of their arrangement and the ongoing management and operation of the Business, such as what wages and dividends were paid, who was responsible for the preparation of L&B Seafood's accounts and how often Mr Yu worked in the shop.

Salary and dividends

Mr Yu deposes that he and Mr Ding initially agreed that they would each be paid a wage of about $500 per week but, as the Business was losing money from when it commenced trading, Mr Yu agreed to Mr Ding's request to postpone the payment of wages. Mr Yu's evidence is that in 2017, he and Mr Ding agreed to begin paying wages to Mr Ding of about $150 to $200 per week, which gradually increased to $500 per week.
Mr Ding's evidence is that it was initially agreed that each of Mr Yu and Mr Ding were to have a salary of around $150 to $200 per working day, and gives evidence that his wages were increased to $200 per day in April 2016 by agreement with Mr Yu (which Mr Yu denies).
Mr Ding also gives evidence that, after L&B Seafood started trading, he and Mr Yu agreed that Mr Yu would be paid a dividend of $1,500 per week from the company's account. Mr Ding deposes that Mr Yu was paid $1,500 per week in cash from April 2016 to 20 July 2019, with the amount of the weekly dividend to Mr Yu decreasing as their relationship broke down to $1,000 per week from 21 July 2019 and then to $500 per week from 18 February 2020. Mr Ding asserts that between 1 April 2016 and 17 May 2020 Mr Yu received $138,000 by way of cash dividend payments, with the payments made to Mr Yu representing 50% of Mr Ding's entitlement to dividends as repayment of Mr Ding's personal loan of $95,000 from Mr Yu and that Mr Ding did not receive any dividend payments at all.
Mr Yu denies any agreement was reached between he and Mr Ding for the Business to pay $1,500 each week for dividends. He also denies receiving any dividend payments and that he has been repaid the $95,000 loan, through company dividends or otherwise. Mr Yu's evidence is that no dividends were payable between 2016 and 2018 as L&B Seafood was not making any profit and there were no dividends to be paid.
It is not necessary to resolve the factual disputes about what was agreed or paid as salary and dividends (if any) and whether Mr Ding's $95,000 personal loan has been repaid to Mr Yu. The lack of corroborating evidence that fully supports either account and issues regarding the reliability of his and Mr Yu's, particularly Mr Ding's evidence regarding L&B Seafood's financial statements, also makes it difficult to do so. However, I make the following observations.
The PAYG records for L&B Seafood for the financial years ending 30 June 2016 (FY 2016) and 30 June 2017 (FY 2017) record payment of salary and wages of $9,750 to Mr Ding in FY 2017, no payments to Mr Ding for FY 2016 and no payments to Mr Yu for either year, which accords with Mr Yu's evidence that Mr Ding was paid a wage from sometime in 2017 and Mr Yu was not paid any wage during those years.
The financial statements for L&B Seafood for the financial years ending 30 June 2018 (FY 2018) and 30 June 2019 (FY 2019) record Salaries for Associated Persons of $24,750 (FY 2019) and $25,000 (FY 2018), Wages of $44,292 (FY 2019) and $45,140 (FY 2018), nil for Salaries and Wages in FY 2017, and nothing in respect of dividends paid for the FY 2017 to FY 2019 periods. While Mr Ding accepts that the statements are inaccurate as they do not record the payment of cash dividends to Mr Yu, the financial statements for FY 2018 and FY 2019 are generally more consistent with Mr Yu's evidence about what was paid and not paid by way of salary to Mr Ding and dividends to Mr Yu.
Mr Ding's three text messages and ten handwritten notes (CB570-586, Exhibit LD-2 to Ding 2), which he says confirm the arrangements relating to dividends paid to Mr Yu, satisfy me that cash payments were made to Mr Yu of various amounts ranging from $500 to $1,500 over the period from 14 November 2016 to 22 August 2019 from the daily takings and that other cash payments were likely made to Mr Yu from the Business during that period. However, in my view, that limited material is not a sufficient basis on which to conclude that Mr Yu was paid dividends each week or has received in total the amount of $138,000 or the full $95,000, as asserted by Mr Ding. This is primarily because the amounts referable to "Bo" in the handwritten notes total only $11,110; one of the notes refers to "Fish M Bo" and could be explained as a payment for fish; Mr Yu's evidence that he received reimbursements from L& B Seafood for payments made on behalf of the Business using his own money and needed funds at Christmas 2019 is not inconsistent with the content of the documents; some of the handwritten notes are partially in Chinese and have not been translated; none of the notes or text messages refers to "dividends"; and it was within the power of Mr Ding to adduce further evidence to prove the regularity and amount of the payments (in the form of the handwritten notes of the income and expenses of the Business) which he failed to do.

Late 2018/early 2019: Change in the working arrangements, cash flow issues and loans

It is common ground that Mr Yu's involvement in the Business decreased sometime in 2018. The evidence also indicates that, by late 2018, the Business was experiencing cash flow problems, Mr Ding had borrowed money from Ms Liu to alleviate that issue and Mr Yu has raised the possibility of selling the shop.
Mr Yu deposes that, from late 2018, he ceased working in the shop after a conversation with Mr Ding in which Mr Ding indicated that L&B Seafood did not have sufficient income to pay a wage to Mr Yu. Mr Yu's evidence is that he believed it was unfair for him to be working without pay while Mr Ding was being paid. He says that they agreed for Mr Yu to continue attending fish auctions and making deliveries. Mr Yu also deposes that, up until May 2020, he continued to attend fish auctions almost every weekday and delivered seafood to the Business and to restaurants on behalf of the Business.
Mr Ding's evidence is that his relationship with Mr Yu turned sour from 2018 as Mr Yu began to work more hours at his mother's shop. Mr Ding says that, from November 2018, Mr Yu stopped coming into the shop entirely and only occasionally assisted L&B Seafood with sourcing seafood, whereas Mr Ding was working in the Business seven days a week.
On 12 December 2018, Mr Ding and Mr Yu exchanged WeChat messages in which Mr Ding stated that Ms Liu had already lent $25,000 to Mr Ding for cash flow and referred to the need to borrow a further $30,000 from her. In his reply, Mr Yu indicated that he did not object and to "please sell off the shop quickly" when the new year was over. Mr Yu's message also referred to payments that he needed to make on his mortgage and to his mother, that "it does not make any sense for me if things keep going on like this" and that he guessed "the accountant will finish the work this week".
On 8 March 2019, Mr Yu and Mr Ding exchanged text messages in which Mr Yu referred to a bank statement and deposits of $15,000. Mr Yu deposes that, in about January 2019, he had attended the shop when Mr Ding was not there and was given a letter addressed to the Business that contained a bank statement for a person named Guirong Yang that identified a number of cash deposits amounting to $15,000 over October and November 2018. In the 8 March 2019 text messages, Mr Yu requested that the accounts of shop be done more transparently in the future and said he needed to know where the money from the shop had gone every day.
The 8 March 2019 text messages also refer to the following: losses in the Business which Mr Ding explained by reference to wages to "you, me" and six other people and the opening of a shop next door which was making sales "go lower"; Mr Yu would ask the accountant about the taxes that day and would have to get someone else to do it if she couldn't fix it "next week"; Mr Ding had borrowed money from Ms Liu; Mr Yu asserting that Mr Ding had agreed to "manage the accounts" and that Mr Ding had asked Ms Liu to manage them without telling Mr Yu; Mr Yu wanted a safe in the shop with all cash to be placed in the safe or deposited into the bank the next day; Mr Yu was not assisting in the shop; that Mr Ding managed to keep things going as Ms Liu was willing to help and Mr Ding wanted to quit; and Mr Yu saying "just sell off the shop" if the current situation could not be changed, which Mr Ding said he wanted to do.
Mr Yu's evidence is that he was not aware that Ms Liu had made loans to the Business until he received the WeChat message on 12 December 2018 referred to at [45] above and that he did not know anyone by the name of Guirong Yang, as referred to in the bank statement at [49]. Mr Yu's evidence is difficult to accept having regard to translated text messages in evidence that Mr Yu did not dispute were sent to him by Ms Liu (CB661) and bank statements that record credits to Mrs Guirong Yang's account from Mr Yu in 2016 (CB637).
The translated text messages were sent on 14 August 2018 and 17 September 2018 and refer to the transfer of money borrowed from Ms Liu so that Mr Yu could pay rent and to the transfer of "another $10,000". A text message sent on 26 February 2019 to Mr Yu also refers to him being aware that "the business started borrowing money from me since August last year". The bank statements, which relate to an account in the name of Mrs Guirong Yang (some of which are addressed to the Business' address) identify that seventeen deposits of $1,000 each were made into the account by Mr Yu between 2 December 2016 and 4 January 2017. They also refer to some deposits (of less than $1,000) made by L&B Seafood in July, August and September 2018, and a number of deposits (totalling more than $15,000) made at an ANZ branch in Burwood in October and November 2018 although they do not identify whether they are cash deposits or who made them. According to Mr Ding's evidence, Mrs Yang is Ms Liu's mother and some of the bank statements record amounts that Ms Liu loaned to L&B Seafood.
On 18 March 2019, Mr Yu and Mr Ding exchanged WeChat messages in which Mr Ding refers to borrowing $10,000 from friends (with repayment of $1,000 per week) and $5,000 from Ms Liu. He also states that he expects "tax money" and other money to come in with which he can repay those borrowings and that he paid the Great Oceans account that day. Mr Yu replied with an "okay" emoji.

Accounting for L&B Seafood

On 21 May 2019, the Australian Tax Office notified L&B Seafood that the lodgement of its tax returns for 1 July 2016 to 30 June 2017 and 1 July 2017 to 30 June 2018 and its quarterly activity statements for the period from 1 October 2016 to 30 June 2017 were overdue.
Mr Ding's evidence is that Mr Yu was responsible for L&B Seafood's accounts and lodging tax returns and that it was taken care of by Mr Yu's accountant of many years, Ms Lucia Hong, from 2016 (Ding 2 at [4(d)], T49.9, T19.8). Mr Ding says that he took over and changed L&B Seafood's accountant from Ms Hong to Mr William Hu (at H&G Wilkinson) as Mr Yu had stopped preparing accounts for L&B Seafood from 2019. Mr Ding says he was surprised that the tax had not been done properly, that there were outstanding BAS statements, financial statements and superannuation guarantee payments and that since he took over the accounts, L&B Seafood has met its tax obligations.
Mr Yu's evidence is that he did not know that BAS statements and tax returns had not been lodged on time as he trusted Mr Ding to manage those matters. He says that it was agreed that Mr Ding would be responsible for being in charge of keeping L&B Seafood's accounts and that Mr Ding proposed changing accountant to Mr Hu in about 2017, which Mr Yu did not oppose and left Mr Ding to deal with. Mr Yu refers to Mr Ding's training and work as an accountant in China and Australia and the difficulty for Mr Yu to prepare accounts for the Business without day-to-day access to the full records of cash and SuperPay takings or experience in accounting.
I prefer the evidence of Mr Ding on this issue. The PAYG records for both FY 2016 and FY 2017 refer to Mr Yu as the payer contact person and the FY 2016 records and PAYG payment summary for FY 2017 refers to Ms Hong as the supplier contact person with an AUSkey signature date of 4 July 2019. The 8 March 2019 text messages (at [46] above) refer to Mr Yu dealing with the accountant about tax. It seems unlikely that Mr Yu would have been identified in those ways if Mr Ding had been solely responsible for the accounts and financial statements of L&B Seafood during those periods.
I also note that an ATO Income Tax and Activity Statement for L&B Seafood as at 24 November 2020 indicates that the current balance for tax and GST is $0 and that tax returns for the financial years ending 30 June 2017, 2018 and 2019 and Activity Statements for the periods ending 30 September 2016 through to 30 June 2020 had been lodged.

2019/2020: Attempts to sell the Business

Mr Yu deposes that, after a discussion in late 2018, he and Mr Ding tried to sell the Business. Mr Yu says that he was contacted by five interested buyers, each of whom asked to see the daily sales books and records of the Business, and that Mr Ding did not send Mr Yu any wholesale or retail records of the Business despite Mr Yu requesting them on multiple occasions and Mr Ding having initially agreed to provide them.
Mr Yu gives evidence that, in April 2020, he formed the view that he and Mr Ding would not be able to sell the Business due to the COVID-19 pandemic. Mr Yu says that he raised with Mr Ding the possibility of one of them buying out the other and offered Mr Ding the opportunity to buy his share. Mr Yu gave evidence that during his discussions with Mr Ding about selling the shop, Mr Ding indicated that L&B Seafood had over $200,000 in debt, of which almost $100,000 was owed to Ms Liu and there were suppliers and other people owed money, and that the corona virus was causing business to fall further. He also gives evidence that Mr Ding said he could not afford to buy out Mr Yu or repay the loan that L&B Seafood owed Mr Yu, and said that he did not want to sell his share to Mr Yu unless Mr Yu first paid him $95,000 so that he could pay off the personal loan owed to Mr Yu.
Mr Ding did not dispute Mr Yu's evidence about these matters and gave evidence that in April 2020, suppliers were tightening their credit terms and have been chasing for payments. According to Mr Ding, he was unaware of the reason for this but contends it was a consequence of statements made to suppliers by Mr Yu which are the subject of his oppression claim.

Cash Takings

Mr Yu gives evidence, which is not disputed by Mr Ding, that the Business makes significant cash sales.
Mr Yu deposed that he did not have access to the point of sale system to confirm whether cash receipts have been deposited into L&B Seafood's bank accounts, that he has asked Mr Ding to give him records of the SuperPay account, which were not provided, and that no safe has been installed on the premises despite his request on 8 March 2019. Mr Ding's affidavit evidence did not dispute these matters.
Mr Yu also gives evidence that he reviewed L&B Seafood's bank account and identified significant cash withdrawals and that he did not make any of those withdrawals. He asserts that the cash takings of the Business have not been deposited into a bank account on a daily basis.
Mr Ding's evidence is that most of the withdrawals were for the purpose of sourcing seafood from wholesalers and from the fish market. He says that as suppliers would mostly only accept cash as payment, L&B Seafood has been at the limit of its credit for most of the time it has been trading.
The banks statements for L&B Seafood in evidence identify that, between 25 January 2018 and 22 May 2020, numerous cash withdrawals ranging from $600 to $5,000 were made from L&B Seafood's account. I pause to observe that the documents exhibited to Mr Yu's affidavit in the Court Book do not contain highlighting of any specific withdrawals as referred to in Mr Yu's affidavit. Consistent with Mr Ding's evidence, they also identify that the account balances have rarely reached a negative balance.

May 2020: The lawyers get involved

On 27 May 2020, Mr Yu's lawyers (Luminous Legal) wrote to Mr Ding about Mr Ding's management of L&B Seafood. According to Mr Yu, he perceived that he could not resolve the company and business issues with Mr Ding directly and instructed his solicitor to write to Mr Ding about the matter.
The letter from Luminous Legal alleges that Mr Ding had engaged in wrongful conduct in breach of his fiduciary duties as a director by converting the company's cash income to his personal benefit and other serious (but unspecified) breaches of his obligations in respect of his management of the Business and running of L&B Seafood. The letter also asserts that a deadlock had arisen due to Mr Ding's wrongful conduct, that court action would be necessary if a resolution could not be reached, and requests a reply within seven days as to how Mr Ding proposed to resolve the situation.
On 29 May 2020, Mr Yu caused three payments to be made from L&B Seafood's bank account to seafood suppliers of the Business as follows: $4,750 to Tai Kwan Seafood, $8,000 to Lepus Seafood and $2,615 to Seamar. According to Mr Ding's records, the effect of these payments was to reduce the balance of L&B Seafood's bank account to a negative balance of -$14,915.48. However, the bank statements indicate that deposits were made on 29 May 2020 into L&B Seafood's bank account of $14,186 (which is described as a payment relating to the ATO) and $739.36 which earlier that day kept the account at a positive balance (CB395).
On 4 June 2020, Ms Liu's lawyers (JC Legal Practice) sent a letter to Mr Ding's lawyers (Brighton Lawyers) that referred to payments advanced by Ms Liu to L&B Seafood since 2018 for payment of trading stock, rent and other business expenses, asserted that Ms Liu was owed $114,500 and threatened legal action if the amount was not paid within 14 days. There is no reply to that letter in evidence. Mr Ding gave evidence in cross-examination that some amounts have been repaid to Ms Liu and around $100,000 remains outstanding.
On 11 June 2020, Brighton Lawyers responded to Luminous Legal's letter to Mr Ding (referred to at [64] above). Brighton Lawyers rejected that Mr Ding had misappropriated funds and contended that the dispute should be resolved by putting the Business on the market for sale at a mutually agreed price, with any proceeds of sale to be held in a solicitors trust account pending resolution of the disputes about what payments had been made. The letter also asserted that Mr Yu had been paid dividends (along the lines outlined at [36] above), that Mr Ding had repaid the $95,000 personal loan, that Mr Yu had contacted suppliers saying that the company was going to shut down and that Mr Yu had paid those suppliers before payments fell due.
On 15 June 2020, Brighton Lawyers sent an email to Luminous Legal advising that Mr Ding was unable to pay rent due to Mr Yu's action of transferring funds to suppliers on debts that had not fallen due and that Mr Ding would negotiate with the landlord in relation to a deferral of rent.
Luminous Legal responded to Brighton Lawyers' 11 June letter and 15 June email by letter dated 24 June 2020. Luminous Legal's letter denied that Mr Yu had been paid dividends or repaid the personal loan and asserted that Mr Yu made the payments to suppliers due to various calls from them complaining about late payment. The letter also requested Mr Ding to provide daily accounting records for the Business and to account for cash previously withdrawn from company accounts, the latter being requested on the basis of instructions that significant cash takings and withdrawals of the Business had not been accounted for. Concerns were also raised about the solvency of L&B Seafood, by reference to a $100,000 loan from a staff member and calls from creditors regarding overdue debts, and asserted that liquidation or administration was the only practical option to resolve the dispute as the Business had been on the market since 2018 with no purchaser identified.
On 1 July 2020, Brighton Lawyers advised that Mr Ding did not consent to the appointment of an administrator or liquidator.
On 14 August 2020, Luminous Legal wrote to Brighton Lawyers advising that they had instructions to commence proceedings to wind up L&B Seafood, which they did on 24 August 2020.
On 24 September 2020, Luminous Legal wrote to Brighton Lawyers and requested Mr Ding to urgently account for the cash takings of the Business and deposit all cash takings into the company's bank accounts.
By letter dated 8 October 2020 from Brighton Lawyers to Luminous Legal, Mr Ding made an open offer to buy out Mr Yu's shares in L&B Seafood for $35,880 on terms that included seeking the landlord's consent to remove Mr Yu as a guarantor of the lease and a release from any obligations owed by L&B Seafood in relation to debts. The amount of $35,880 was said to equate to 50% of the book value of the plant and equipment and the letter referred to the "notable assets" of L&B Seafood as amounting to $44,786.84 (which comprised, in the main, a bank guarantee in the amount of $26,620 and a Renault car to the value of $18,000) and liabilities totalling $241,863.65 (the bulk of which was money owed to suppliers in the amount of $51,791.38 and loans from third parties, including $128,000 from Ms Liu). The letter also noted that L&B Seafood was trading at a loss but asserted that it was able to meet its debts and also attached copies of financial statements and other documents relating to L&B Seafood's financial position. The offer was expressed to remain open until 14 October 2020.
On 26 October 2020, Luminous Legal wrote to Brighton Lawyers and gave reasons why Mr Ding's offer had not been accepted, which included that the Business had a greater value than the book value of its assets (noting that the tax returns recorded a slight profit in 2019), concerns about significant liabilities which had not been approved by Mr Yu or recorded in the company's 2019 financial statements, and continuing concerns about the impropriety with respect to cash transactions. The letter noted that Luminous Legal had not received a substantive response to the request for an account of transactions or confirmation that cash takings had been deposited into the company's bank accounts, asserted that a valuation would be expensive and time consuming and, given the financial concerns, the appointment of a liquidator was the only realistic alternative.
On 26 November 2020, Luminous Legal sent a letter of demand to L&B Seafood and Brighton Lawyers calling on Mr Yu's director/shareholder loan made at the time of incorporation of the Company of $224,000 to be repaid by 6 December 2020. The letter threatens legal action to recover the amount if it is not paid. There is no evidence of any reply to that letter or that the loan is to be repaid.

Other matters

According to Mr Yu's affidavit evidence, he stopped working personally in the shop in or about late 2018 but attended the fish market auctions until May 2020. In cross-examination, Mr Yu was asked when his involvement in L&B Seafood came to an end. Initially, he could not recall the date (T17.24-T17.42) and then gave evidence that he thought he stopped working in the shop around August 2020 (T30.32-T30.33), but continued in his role in going to fish markets and buying fish and was currently doing so (T30.44-T31.3). I do not accept Mr Yu's evidence in cross-examination and find it more likely that Mr Yu ceased working in the Burwood shop entirely sometime in 2018 and attended fish auctions for L&B Seafood until sometime in the period of May to August 2020. This is consistent with Mr Yu's affidavit evidence, the evidence given by Mr Ding and the text message referred to at [47] above.
Mr Ding's evidence is that, as at 26 November 2020, a total of $173,921.97 had been advanced to L&B Seafood by way of loans from third parties. This amount comprises the following: $113,000 from Ms Liu; $31,922.27 from Mr Ding's family; $27,000 from Fang Sun; and $2,000 from Haihe Xu (Ding 2 at [27]). In cross-examination, Mr Ding accepted that he did not enter into any loan agreements when he borrowed that money (T57.19-21). He also accepts that the loans are not referred to as liabilities in L&B Seafood's financial statements.
Mr Yu disputes the existence of these loans and denies that he authorised L&B Seafood's entry into any of them (Yu 4 at [13]). His evidence is that he does not recognise the names of Fang Sun and Haihe Xu and does not know which members of Mr Ding's family are the individuals referred to by Mr Ding and to whom L&B Seafood allegedly owed money to (Yu 4 at [13]).
I am satisfied that Mr Yu was aware that Mr Ding was borrowing money from third parties, such as Ms Liu, for the purposes of the Business, and that Mr Ding did so. The text messages in evidence (referred to at [45], [47], [49] and [50]) corroborate that Mr Yu was informed about and approved or ratified the borrowings of funds for those purposes in some cases. It follows that I do not accept that Mr Yu was not aware of the existence of some of the loans to Mr Ding on behalf of L&B Seafood and did not authorise any of them, and I am satisfied that there is evidence to establish that L&B Seafood borrowed money from third parties. That said, in the absence of any loan documentation or other evidence about the circumstances and terms concerning the borrowings, I make no finding that L&B Seafood is a party to loans to each of the third parties identified by Mr Ding or in the amounts referred to.

Mr Ding's claims of oppression

It is appropriate to first consider Mr Ding's oppression claim. He accepts that the Court has no power to make a buyout order if oppression is not made out. A determination of that claim is also relevant to whether the relief sought by Mr Yu should be granted.
Mr Ding pleads that three types of conduct were engaged in by Mr Yu that were oppressive to, unfairly discriminatory against or unfairly prejudicial to Mr Ding in breach of s 232 of the Corporations Act (POC at [15], [19] and [23]). Mr Ding only presses his claim for oppression in respect of two of those matters, which relate to the alleged diversion by Mr Yu of fish deliveries from L&B Seafood's business to Mr Yu and his mother's shop, and statements to suppliers and trade creditors which Mr Ding alleges were for the object, or likely effect, of forcing L&B Seafood's business to cease trading. He did not press his pleaded claim that Mr Yu's refusal to properly engage in discussions with Mr Ding about the conduct of the Business and Mr Ding's offer to acquire Mr Yu's shares amounted to a breach of his director's duties (POC at [23]).
In submissions, Mr Ding also contended that, in addition to being oppressive to, unfairly prejudicial to or discriminatory against Mr Ding under s 232(e) of the Corporations Act, Mr Yu's conduct was contrary to the interests of members of L&B Seafood as a whole under s 232(d) of the Corporations Act, although the latter claim was not pleaded.
The primary relief sought by Mr Ding is an order that Mr Yu sell his shares in L&B Seafood to Mr Ding at a fair market value. He relies on Mr Gwynne's valuation evidence in support of that buy-out order.
Mr Yu denies that he has engaged in oppressive conduct (Points of Defence at [15] and [19]). He also contends that even if oppression was established, no buy-out order should be made because there is no basis on which to value L&B Seafood and there are other discretionary factors that weigh against such an order.

Legal principles

Section 233 of the Corporations Act provides that the court may make orders for the purchase of shares by a member of a company and requiring a person to do a specified act: ss 233(1)(d) and (j).
Section 232 of the Corporations Act provides that the Court may make orders under s 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
Section 232 of the Corporations Act extends to conduct involving "commercial unfairness" or where the conduct involves a visible departure from the standards of fair dealing and violation of the conditions of fair play, or a decision made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 472; [1985] HCA 68; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 (Morgan v 45 Flers Avenue) at 704.
In Morgan v 45 Flers Avenue, Young J at 704 also stated (in respect of a statutory predecessor to s 232 of the Corporations Act) that: ….it has been accepted that one no longer looks at the word "oppressive" in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair. In my view the court now looks at subsec. (2)(a) as a composite whole and the individual elements mentioned in the section would be considered as different aspects of the essential criterion, namely commercial unfairness. (citations omitted)
The parties accepted that the applicable principles were summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [39] (which was not challenged in the subsequent appeal in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [140]), as follows: (a) consistent with the principle that the purpose of relief is to terminate the effects of oppression, relief will generally be inappropriate as a matter of discretion if there is no continuing oppression: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, at [182]; [2009] HCA 25. (b) unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair": eg, Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, per Basten JA at [181]; [2008] NSWCA 95. (c) while it is recognised that conduct may be oppressive if inconsistent with the "legitimate expectations" of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, at [85], [86], [175]; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, at [96]; [2009] NSWSC 342 per Barrett J; (d) "it is important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower": Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, Young J at 739; [1998] NSWSC 413; (e) a particular matter which will be taken in account in assessing the gravity of any allegation of oppression, is the extent to which the minority shareholder has "baited" the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, at 741; [1998] NSWSC 413; (f) there is no basis for an oppression claim in relation to conduct undertaken with the "acquiescence, or consent" of the applicant: John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63, at 66 per Young J at 66.
The relevant principles were also summarised by Stevenson J in Munstermann v Rayward [2017] NSWSC 133 at [22] in the following terms (citations omitted): (1) The test of oppression is an objective one of unfairness. (2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly. (3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director. (4) Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful. (5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole. (6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used. (7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing. (8) The discretion under s 233 is wide as to the appropriate remedy. (9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive. (10) The aim of any order under s 233 must be to put an end to the oppression. (11) The court should only look to wind up an otherwise solvent company as a "last resort". (12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party. (13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances.
In Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332, Black J at [182] cited Joint v Stephens [2008] VSCA 210 as authority for the proposition that commercial unfairness is "to be assessed in the context of the particular relationship in issue, and would not infrequently involve a balancing exercise between competing considerations". In In the matter of Bicher & Son Pty Ltd [2020] NSWSC 711 at [136] (Re Bicher), his Honour also noted, at [79], that each case is to be considered on its own facts and circumstances and by reference to the conduct as a whole.
As to the principles relating to whether conduct is contrary to the interests of members as a whole, I was referred to Sackar J's observations in Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639, where he said at [82]-[84]: The concept of "contrary to the interests of the members as a whole" is independent of the "oppressive, unfairly prejudicial or unfairly discriminatory" ground: Turnbull v National Roads and Motorists' Association Ltd (2004) 50 ACSR 44 (Turnbull v NRMA) at [32] per Campbell J. The section is of broad compass and "should not be hedged about by implied limitations": Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 per Gummow, Hayne, Heydon and Kiefel JJ at [178]. This element of s 232 has not been subject to extensive judicial exegesis. It is, however, clear that such conduct will not necessarily involve commercial unfairness. Campbell J, in Turnbull v NRMA at [32], observed: An action is capable of being "contrary to the interests of the members as a whole" in ways other than by being commercially unfair. Being pointlessly wasteful is one example. The test is objective: see Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534 at [42]-[44] (Goozee v Graphic World Group Holdings). It is to be determined by reference to whether the conduct adheres to accepted standards of corporate behaviour or is in accordance with how reasonable directors would act in attending to the affairs of the company: Goozee v Graphic World Group Holdings at [41]. The decision of what is contrary to the interests of the members as a whole directs attention not to the interests of the persons who are, in fact, the members for the time being, but rather on the interests of an individual hypothetical member: Goozee v Graphic World Group Holdings at [42].

Seafood purchases and deliveries

The fist ground of oppression relates to the deliveries of seafood by Mr Yu.
Mr Ding pleads that, in the period from April 2016 until November 2018, Mr Yu failed to ensure that all of the wholesale seafood purchased by Mr Yu at the fish market auctions on behalf of L&B Seafood was delivered to L&B Seafood and that he retained some of that seafood for his own benefit or the other seafood business with which he was associated: POC at [15]. The particulars assert that the wholesale seafood purchased and paid for by L&B Seafood did not correspond to the seafood delivered by Mr Yu to L&B Seafood. Mr Ding also pleads that this conduct caused loss to L&B Seafood and a further deterioration of the relationship between Mr Ding and Mr Yu, was a breach of Mr Yu's fiduciary duty and was oppressive or unfairly prejudicial to Mr Ding: POC at [16].
Mr Ding's evidence is that there were numerus occasions on which the seafood ordered did not correspond with the seafood delivered, in terms of weight or type of seafood. He says that each time he noticed that seafood appeared on L&B Seafood's invoice which had not been delivered, he raised the issue with Mr Yu who would tell Mr Ding that there shouldn't be any problems and that Mr Yu would look into it and get back to Mr Ding. Mr Ding deposes that there were never any verifications of the error, response from Mr Yu, delivery of further stock so that the delivery matched the invoiced amount or payment for the shortage in seafood. He also says that Mr Yu never verified or rectified them (Ding 2 at [19]-[20]; T20.28-T20.30; T21.50-T22.6).
In support of these claims, Mr Ding relies on a bundle of documents exhibited to Ding 2 which Mr Ding referred to as extracts of SMS between Mr Yu and Mr Ding and some photos showing that seafood delivered to the Business did not correspond to order invoice (CB 598-630).
The documents comprise SMS messages, photos of seafood and a photo of a two-page handwritten document. They are in Chinese and translations are in evidence. The messages are identified as being sent to various recipients denoted as "Ming's mother", "Ming" and "Bo", and range in date from 17 October 2018 to 19 May 2020. Some of the messages and photos do not have date or timestamps. The two page handwritten document is dated 4 May 2020, is headed "Long Quan" and comprises four columns that contain a list of dates, a list of types of seafood and dollar amounts under the heading "Long Quan pick up", a list of types of seafood and a question mark next to them under the heading "Burwood pick up", and some dollar figures under the heading "Total balance due".
Mr Yu deposed that, as he purchased seafood almost every day for the Business, it was possible that occasional mistakes occurred because the vendor provided the incorrect weight or wrong seafood, or a mistake was made in separating seafood for delivery (Yu 4 at [11(f)]). He also says that it was not always the case that the Business received less fish than ordered as there were times when the vendors packaged fish paid for by Long Quan Seafood for delivery for the Business, and referred to one of the SMS messages in LD-2 (CB607) that his mother sent him about a mix-up of seafood. When asked about the SMS in cross-examination, Mr Yu's evidence was that the message, which is headed "Ming's mother", was not sent by Mr Ding and identified that Mr Ding (referred to as Ray) took the wrong seafood as Mr Ding had mixed up the "flounder" (T25.19-T25.45).
Mr Yu was cross-examined about mistakes made in relation to the delivery of fish and taken to other documents from the bundle. Mr Ding submits that Mr Yu was evasive and gave unhelpful answers, including in relation to the 4 May 2020 document (referred to at [98]). While I accept that Mr Yu was initially evasive (see, for example, T21.15-T21.35), I do not accept that he gave unhelpful answers. He acknowledged that mistakes were made involving the separation of seafood between the Burwood and Long Quan Seafood shops which resulted in L&B Seafood receiving the wrong quantity on occasion and that this occurred because he failed to check the deliveries (T21.37-T21.41, T21.50-T22.6, T27.50-T28.2). In my view, he also adequately explained how mistakes could arise, by reference to the weighing process at the fish market, his deliveries of 20-30 boxes of fish a day and not weighing each one to confirm the accuracy of each box (T21.21-T21.25, T32.33-T32.35, T32.45-T32.50).
When asked about the fish market application message and the circled "TILEFISH" (SMS at CB598), Mr Yu's explanation that the circles on the message around two types of seafood identified the "two fish that [Mr Ding] needs to be separated between the two shops" (T24.9-T24.12) was plausible given the message did not refer to any "mis-delivery" of fish or incorrect weight. He also clarified that the message on 19 May 2020, which refers to "not collecting any ribbon fish" and the "tile fish was for An Jing and he has not sent me the weight yet" (CB603 and CB609), was sent by him and not Mr Ding (T26.45-T46.50).
As for the 4 May 2020 document (referred to at [98]), I do not consider that Mr Yu's evidence in cross-examination was unhelpful or unreasonable when he could not recall seeing it and there is no suggestion that he prepared it. He rejected that the document indicated that blue swimmer crab had been delivered to Long Quan Seafood when it should have been delivered to Burwood, gave evidence that it was "missing the weight of the fish" and also accepted that the document was an attempt to reconcile the fish delivered to the Burwood shop and the Long Quan Seafood shop (T27.34-T27.44). The difficulty with that document is that Mr Ding did not give any evidence to explain its provenance or what it identifies but included it as part of the bundle of documents with an assertion that they showed that seafood delivered to the Business did not correspond to the "order invoice". Leaving to one side that there are no references to order invoices on the document, in the absence of any explanation from Mr Ding, it is not possible to draw any meaningful conclusions from the 4 May 2020 document and it is of limited assistance.
Mr Ding submits that, based on the evidence, the Court should make a finding that Mr Yu engaged in a pattern of conduct resulting in short delivery to the Business by him of seafood paid for by the Business. Mr Ding contends that even if Mr Yu under delivered fish to L&B Seafood by oversight, that was part of his job in circumstances where he was in a position of conflict and the failings amount to oppression.
In response, Mr Yu submits that the Court could not specifically find that there were any mistakes with the seafood delivered, beyond the broad proposition that some weights may be incorrect. He says that the documents purportedly evidencing mistakes do not do so and that even if the Court was to find that there were several mistakes made that had led to the incorrect amount of seafood being delivered, it could not possibly be said that any such mistakes rose to the level of oppression.
I accept that the translated text messages evidence that mistakes were made with deliveries of seafood to L&B Seafood on certain occasions, and that seafood ordered for L&B Seafood was at Mr Yu's other shop. For example, the message on 10 March 2020 message refers to two boxes of salmon being ordered and paid for but only one was delivered (CB608), the message on 14 June 2019 refers to being short one box of mullet (CB625), a 28 June 2019 text refers to "you [having] my sea cucumber" (CB627), an 8 August 2019 message refers to the weight of the crabs being incorrect (CB628), and a 12 August 2019 message refers to ordering 40 salmon and only receiving 20 (CB630). But, contrary to Mr Ding's evidence, the text messages also demonstrate that some form of response was provided by Mr Yu soon after, which responses seemingly addressed the mistake or issue raised, such as by offering to collect or bring the fish over (CB627) or advising there was a lack of stock (CB630).
It is also unclear whether some of the messages raise any delivery issue at all and, if so, who the message was sent by and to whom. See, for example, the following: the message sent to Mr Yu on 13 May 2020 that asks for care to be taken when carrying the crabs as the box was a little bit broken, with later messages on the same day referring to numbers of "big and small buckets" (CB611); the message sent to Mr Yu on 19 May 2020 that asks "your mum to weigh them" with a photo (CB610); and the text message with "Ming's mother" to which I have already referred at [98].
From the outset of their working relationship, Mr Ding was aware and accepted that Mr Yu and his mother would be attending the fish auctions on behalf of both businesses. In that context, and given the volume of seafood that was purchased on a daily basis (much of which was purchased by weight), there is some force to Mr Yu's contention that occasional mistakes in deliveries could not be characterised as anything other than mistakes that occurred in the ordinary course of business.
Mr Ding has not established that any delivery mistakes led to cashflow issues for L&B Seafood or quantified what, if any, financial impact the conduct has had on the Business. The evidence also makes plain that the asserted conduct did not have the effect of paralysing the Business. While Mr Yu had stepped back from his role in the shop, he continued to assist with seafood purchases and deliveries, and L&B Seafood continued to trade. The content of the messages also indicate that Mr Ding had no difficulty in raising mistakes when they occurred and, as I have noted, they also evidence that responses were provided in a timely manner.
Further, the content of the text messages does not, in my view, support Mr Ding's claim that Mr Yu's pleaded conduct exacerbated the breakdown of relations between them. Based on Mr Ding's evidence and the content of the text messages exchanged between he and Mr Yu in early 2019, it seems that Mr Yu's decision to spend more time at his other business was more likely a catalyst for the breakdown. In that regard, and while not at all determinative, I note that Mr Yu's conduct of diverting deliveries to Long Quan Seafood was not raised as a matter of concern in Brighton Lawyers' 11 June letter. Rather, it was asserted that Mr Yu assisted in "getting fishes" until November 2018 and would occasionally "assist on delivery" until March 2019 (CB263).
In those circumstances, and having reviewed the totality of the evidence, I am not persuaded that the evidence establishes a pattern of conduct of the nature alleged by Mr Ding that rises to the level of oppression or unfair prejudice to Mr Ding or a breach of Mr Yu's fiduciary duties owed to L&B Seafood. While accepting that Mr Yu's role in L&B Seafood involved him undertaking purchasing and deliveries, and that he owed duties to L&B Seafood not to use his position for his own advantage and to avoid any potential or actual conflict between his interests and that of the company, the fact that there were occasional discrepancies in the amount and weight of the seafood delivered to L&B Seafood by Mr Yu would not, in my view, be sufficient for an objective commercial bystander to conclude that the affairs of L&B Seafood were being conducted unfairly to Mr Ding. Nor do I consider that the evidence demonstrates that Mr Yu was pursuing a course of conduct designed by him to advance his own interests or the interests of Long Quan Seafood to the detriment of L&B Seafood: Jenkins v Enterprise Gold Mines NL (1992) ACSR 539 at 553.
For these reasons, I am not satisfied that this ground of complaint amounts to oppression and warrants the relief sought by Mr Ding, alone or together with the other ground of complaint raised.

Dealings with suppliers

The other ground in oppression relates to conduct that Mr Ding asserts that Mr Yu engaged in with the object, or likely effect, of forcing L&B Seafood to cease trading (POC at [19]). He alleges that Mr Yu contacted suppliers and informed them that he and Mr Ding were in dispute and that the Business was going to be closed down, which caused suppliers to alter their terms of trade and seek immediate repayment on outstanding invoices. He alleges that this placed severe pressure on cash flow of the Business (POC particulars at [19]). He also pleads that this conduct was in breach of Mr Yu's fiduciary duty to L&B Seafood and was oppressive or unfairly prejudicial to Mr Ding (POC at [20]).
Mr Ding and Mr Yu both give evidence that L&B Seafood purchased seafood from suppliers on credit terms of around one month (T26.16-T26.17; T48.10-T48.16; T47.6-T47.24). Mr Ding's evidence was that suppliers were not strict with repayment terms (T48.13-T48.16) but, in or around April 2020, several suppliers tightened their terms of credit with the company (Ding 2 at [30]). He says that some suppliers informed him that they did so because they had been made aware of a dispute between him and Mr Yu. Mr Ding exhibits some text messages with "Lobster World" which refers to being "told from outside once again that you guys gonna [sic] close", asking for Mr Ding to pay some bills and to sign up the "credit form" (CB667 and CB669). He gives evidence of being told on 25 November 2020 by David from Australian Seafood Express that Mr Yu had said he was seeking an order to liquidate the company and not to continue to give L&B Seafood trading credits, and also exhibits some translated text messages with suppliers, including "James" on 29 May, 1 June and 16 June in which Mr Ding refers, amongst other things, to Mr Yu transferring the money in the company account, not having enough cash, that Mr Yu is "saying something again" and "currently made things very messy", and whether James wanted accounts to be settled by cash (Ding 2 at [33], [34] and [37], CB672-CB674).
As noted above at [66], on 29 May 2020, Mr Yu caused L&B Seafood to make payments from its bank account to three of its suppliers. Mr Yu's evidence is that he did so after the suppliers approached him and sought payment for money owed, including by sending statements (T18.1-T18.16). He says that he spoke to the suppliers frequently prior to 29 May 2020 in the course of purchasing seafood for the Business (T34.9-T34.11, T35.47-T35.49, T36.21). Mr Yu denied telling James from Lepus Foods, David from Australian Seafood Express or other suppliers that he was in dispute with Mr Ding or that he was trying to shut down L&B Seafood's business by telling them of those matters, although he accepted that he told a representative of one supplier (from Tai Kwan) that "there's no money in the bank" (T29.1-T29.47, T36.41-T36.42).
I did not find Mr Yu's evidence about his dealings with suppliers to be convincing. He evidence changed over the course of the cross-examination about the number of suppliers he spoke with and made payments to (initially he said only one and later said three (T16.29-T16.32; T28.41, T29.6-T29.9 and T37.2-T37.24)), and I am not persuaded by his submission that it was simply due to some confusion.
I accept Mr Yu's evidence that suppliers raised the issue of payment with him based on evidence that there were invoices which were outstanding (for example with Lobster World and Lepus Foods) and acknowledge that the message from Lobster World does not specifically refer to Mr Yu. However, the terms of that message, together with the coincidence in the timing of the first Luminous Legal letter which formally notified Mr Ding of Mr Yu's concerns and Mr Yu's contact with and payments to suppliers, lead me to doubt that Mr Yu has been forthcoming about the terms of his discussions with suppliers. I find it likely that Mr Yu mentioned his dispute with Mr Ding with one or more suppliers of L&B Seafood, most likely to someone at Lobster World in late May 2020. I also consider it likely that he told other suppliers, and not just Tai Kwan, that there was not much money in the bank. It is not necessary for me to determine whether Mr Yu was lying, simply mistaken as to his recollection or conflating matters. The issue is whether, in the circumstances, Mr Yu's conduct was oppressive.
Mr Ding submits that such conduct is oppressive because it was plainly not in the interests of L&B Seafood and is a breach of his fiduciary duty. He also submits that, in any event, it is not in the interests of L&B Seafood and is contrary to the interests of members as a whole to have suppliers place L&B Seafood on more onerous credit terms.
Mr Yu's primary submission was that the court should not find that the alleged improper communications between Mr Yu and the suppliers occurred. But he also submitted that any consideration of the conversations as a ground of oppression is moot as any oppression that the discussions could arguably have caused is not continuing, which was said to be a pre-requisite for Court intervention.
I do not accept Mr Yu's submission that continuing oppression is a pre-requisite for intervention. Whether or not oppressive conduct is continuing is a relevant consideration as to whether any relief should be grant and, as Young JA observed in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [329] in relation to a case where the conduct has ceased because of changed circumstances: The plurality in the High Court in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at 362 strongly suggested, though did not decide, that the Court had power to make an order under s 233 in respect of past conduct, but it was a matter of discretion. A wise judge follows such strong hints.
I also accept that oppression might be established if it were demonstrated that Mr Yu made statements that asked suppliers to change their credit terms over a significant period which caused them to do so to the ongoing financial disadvantage of L&B Seafood. However, I have concluded that Mr Yu's conduct was not oppressive and does not warrant the relief claimed by Mr Ding.
Whether or not conduct is oppressive will depend upon the effect of the conduct rather than the motives for what was done: Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55 at [19] per Siopis, Rares and Davies JJ; Corbett v Corbett Court Pty Ltd [2015] FCA 1176 at [130]. As the principles make clear, the test of commercial unfairness is objective, namely whether the conduct was so unfair that reasonable directors who consider the matter would not have thought the decision fair (see [90]-[92]).
The fact is that, by late May 2020, the relationship between the directors had broken down and they were in deadlock as to how they would dispose of the Business. The attempts to sell the Business had failed and Mr Ding and Mr Yu were at odds about the terms on which any buy-out could proceed, as referred to at [63] and [64] above. There is evidence that payments to suppliers were outstanding and they would usually only accept cash as payment as L&B Seafood has been at the limit of its credit for most of the time it had been trading. And there is no dispute that the payments made by Mr Yu to the three suppliers on 29 May 2020 was in respect of money owed to them, save perhaps for a small overpayment of about $228 to Lepus Seafood. It seems to me that irrespective of what the position was between Mr Yu and Mr Ding, Mr Yu could rationally have formed the view that it was in the best interests of L&B Seafood to pay suppliers outstanding accounts and proffer some explanation for why payment had not been made.
While I cannot be certain precisely what Mr Yu said and to whom, the evidence does not satisfy me that I can infer that Mr Yu's conduct was widespread or ongoing. Nor am I satisfied that Mr Ding has established that it had any real detrimental financial impact on L&B Seafood's position. While accepting that being placed on credit terms could be financially disadvantageous to a company, Mr Ding's evidence identified only one supplier (Lobster World) in respect of which a demand for immediate payment was made and a credit application required. As noted above, it was not unusual for L&B Seafood to be at the limit of its credit with suppliers and required to pay cash. The contents of Mr Ding's messages with Lobster World and James at Lepus Foods, which refer to paying "with cash" and settling "tomorrow… all of [the invoices] in full", suggests that the company was in a position to do so.
Further, as Mr Ding's evidence identified, his good relationship with suppliers enabled him to control the situation, with a credit application no longer required and payment terms back to how they were previously, with 30 days to pay from the invoice (Ding 2 at [36]).
For these reasons, I am not persuaded that the disclosure by Mr Yu of his dispute with Mr Ding or the lack of cash in L&B Seafood's bank account to one or more suppliers rises to the level of conduct that is objectively commercially unfair and oppressive, whether by itself or with other matters.

Buy-out order

On the conclusions I have come to, the question of whether to make a buy-out order under s 233 of the Corporations Act and, if so, on what terms, does not arise. Mr Ding accepts that, unless his claim for oppression is made out, a buy-out order cannot be made by the Court. The court's power to grant the relief he seeks depended upon proof of oppressive or unfairly prejudicial conduct. Where irreconcilable differences arise but no oppression, the appropriate relief is an application for winding up on the just and equitable ground on the basis of a deadlock: Ford, Austin & Ramsay's Principles of Corporations Law (Looseleaf, LexisNexis, October 2021) at [10.450.36].
However, as the question of whether buy-out order could be made was the subject of submissions, I have set out below, in summary form, my reasoning in relation to the key issues.
There was no dispute, and I accept, that the Court has the power to order Mr Yu (the oppressor) to sell his shares to Mr Ding (the oppressed person), even though they are equal shareholders: Corporations Act s 233(1)(d).
I also accept Mr Ding's submission that there is evidence in this case on which the Court can be satisfied that Mr Yu is not willing to buy Mr Ding's shares. The terms of the correspondence from Luminous Legal (referred to at [72] and [74] above) and Mr Ding's position in this case make that plain.
The main dispute between the parties was whether Mr Gwynne's report provided a proper evidentiary foundation on which the court could determine a fair value of Mr Yu's shares for the purposes of fashioning a buy-out order.

Mr Gwynne's report

Mr Ding submitted that the Court could rely on Mr Gwynne's evidence in cross-examination to make a finding of fact as to the value of L&B Seafood and proposed adopting a mid-point that would value Mr Yu's shares in the amount of $34,375. Mr Ding's submissions acknowledged that the financial statements on which Mr Gwynne relied for his valuation of L&B Seafood omitted any references to the payment of dividends and loans from third parties and that the approach he advanced was based on the Court making certain assumptions about those matters. It was submitted that the suggested approach should be adopted as it was open to the Court to do the best it can with the evidence it had. Reference was made to the decision in MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451 as providing guidance to a court in having to arrive at a fair market value in such circumstances.
Mr Yu contended that Mr Gwynne's report could not be relied on at all as it was objectionable for three reasons. First, on the ground of relevance, having regard to the lack of contemporaneous (or close to contemporaneous) evidence upon which the Gwynne Report was apparently based. Second, because Mr Ding had failed to prove the basis upon which the opinions in the Gwynne Report were based, relying on Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [85]. Third, Mr Ding submitted that the Gwynne Report failed to disclose both the chain of reasoning that connects Mr Gwynne's opinion with his specialised knowledge, and that opinions expressed within that chain of reasoning were within Mr Gwynne's training, study or experience, relying on Dasreef Pty Limited v Hawchar (2011) 243 CLR 588; [2011] HCA 21; at [41] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.
As a matter of principle, I accept that the court should endeavour to do the best it can on the evidence available to it. But, in this case, had I been satisfied that oppression had been established, I would have rejected the approach proposed by Mr Ding and concluded that Mr Gwynne's report was of no weight and should be rejected (without any criticism whatsoever of Mr Gwynne). This is for the following reasons.
First, Mr Gwynne's report identifies that the non-provision of information impacted the scope of his valuation engagement and the ability to choose and apply valuation approaches, methods and procedures that he might otherwise apply: Gwynne Report at [2.26]. The non-provision of information was material and went beyond the financial statements failing to disclose the payment of the asserted dividends and loans to third parties. Amongst other things, Mr Gwynne identified that the reported wages costs were significantly greater than those disclosed in the financial statements, the 2020 financial statements and income tax returns were not available, access to L&B Seafood's accounting data for 2017-2020 was not provided, no explanation had been provided for how wages and dividends were paid and the extent of those payments nor for the timing and use of the alleged third party loans, and he was given limited information to assist in assessing the maintainable EBITDA of the Business: Gwynne Report at [2.6], [2.25.1], [2.25.2], [2.25.3], [2.25.4], and [6.40]. Mr Gwynne's EBITDA calculations were also based on instructions from Mr Ding that dividends had been paid to Mr Yu, an assumption that has not been proved by Mr Ding in this case: Gwynne Report at [2.19]-[2.21].
Second, I do not accept Mr Ding's submission that, consistent with the presumption of regularity and s 1305(1) of the Corporations Act, the Court should find that other than in respect of the payment of dividends and third party loans, the financial statements on which Mr Gwynne's report was based were accurate. In Re Owies Family Trust [2020] VSC 716, Moore J observed at [195]-[196] that the presumption of regularity and s 1305 of the Corporations Act, when applied, each supported the same conclusion that the relevant financial statements and tax returns were prima facie evidence of their contents, absent some evidence which suggested that they were incorrect. In ASIC v Rich (2009) 236 FLR 1; [2009] NSWSC 1229, Austin J explained at [396]-[397] that s 1305(1) does no more than make a company's books the "starting point to proof or a 'first view'" and the weight of that evidence "is to be measured in accordance with the common sense of the tribunal of fact".
In my view, any prima facie presumption has been rebutted by reason of the limitations identified by Mr Gwynne (such as the discrepancies in the wages and salary costs), Mr Ding's evidence that he did not give any handwritten notes of cash transactions to the accountant and knew that the financial statements were not full and accurate when he signed them (T65.7-T65.19).
I reject Mr Ding's submission that the evidence given by Mr Yu in cross-examination that he considered that the profits referred to in the financial statements were accurate (T31.35-T31.38) is consistent with the presumption of regularity applying. To my mind, all Mr Yu did was acknowledge that L&B Seafood has not been particularly profitable, as recorded in the financial statements for FY 2018 and FY 2019 and upon which Mr Gwynne's report was based. Relevantly, they disclose that L&B Seafood operated at a loss for FY 2017 and FY 2018 and, in FY 2019, made a net profit of $6,461.26 (CB50-CB51, CB60-CB61 and CB78-CB79).
Third, Mr Gwynne's report provides a valuation as at 30 June 2019. In cross-examination, Mr Gwynne accepted (appropriately) that he could not express an opinion about whether the value he arrived at in his report, which valued the equity in L&B Seafood at between $0 and $5,000, (or $5.00 per share) and the enterprise value of the Business at between $250,000 and $350,000 inclusive of assets, was true and current at the time of the hearing without seeing the additional information that had not been disclosed. He also accepted that if the information was provided the results of his analysis and conclusions may have been different, and that 18 months is quite a long time and financial situations can change dramatically (T82.3-T82.10).
Fourth, in the light of the above, Mr Gwynne's evidence to the effect that borrowings would reduce and dividends may increase the value of L&B Seafood do not satisfy me that the Court can proceed to assess a fair and current market value of the company and Mr Yu's share by assuming that the effect of the asserted third party borrowings were ignored and dividends were paid, and adopting the adjusted figures in Table 3 of Mr Gwynne's report he calculated during the course of cross-examination based on those assumptions. Adopting that approach does not take account of the other limitations and discrepancies identified above, or the fact that the valuation was nearly 18 months out of date by the time of the hearing.
I should record that Mr Ding accepted that if the Court rejected Mr Gwynne's report, there would be no evidentiary basis for valuing the shares for a buy out and sought a referral of the matter. Mr Yu submitted that a referral out was not appropriate in this case and relied on other discretionary factors in response to Mr Ding's application for a buy-out order which are not necessary to deal with.

Mr Yu's claim for winding up on just and equitable grounds

Mr Yu's summons seeks an order under s 461 of the Corporations Act winding up L&B Seafood. Although his claim is not pleaded, the case advanced is for winding up on just and equitable grounds under s 461(1)(k).

Legal principles

Section 461(1)(k) of the Corporations Act provides that the Court may order that a company be wound up if it is of the opinion that it is just and equitable to do so.
Whether it is just and equitable to make the order turns on the facts of each case: Re Catombal Investments Pty Ltd [2012] NSWSC 775 (Re Catombal) at [20], Re Crow Inn Pty Ltd (No 2) [2020] NSWSC 1749 (Re Crow Inn (No 2)) at [277].
The class of cases in which winding up orders are made under s 461(1)(k) of the Corporations Act have been identified as falling into a number of categories, which include those described by Brereton J in Re Catombal at [19] as follows: (1) failure of the substratum of the company; (2) deadlock or disagreement in the management of the company's affairs; (3) fraud in the formation of the company; (4) misconduct by the directors of the company; (5) constitutional and administrative vacuum in the management of the company; and (6) lack of confidence, fairness and public interest and commercial morality.
A deadlock as to the management of a company includes the situation where a company is formed on the basis of a relationship of mutual confidence and cooperation and that relationship has broken down due to irreconcilable differences: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 at [89] (Fexuto v Bosnjak Holdings). While the breakdown of a personal relationship may not of itself establish oppression, it may nevertheless establish a basis for winding up a company: Fexuto Bosnjak Holdings at [89].
An order for winding up is a characteristic remedy in circumstances where a relationship based on mutual trust and confidence has broken down: Mudgee Dolomite & Lime Pty Ltd v Murdoch; In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510 (Mudgee Dolomite) at [293]. In Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, Dodds-Streeton JA explained at [119] that the courts of equity generally recognise the "undesirability, as a matter of policy, that unwilling persons should, despite their opposition, be obliged to maintain confidential and intimate relationships". In Re Crow Inn (No 2), Rees J identified at [277] that this ground applies more readily where the company has been formed in the nature of a "quasi-partnership" and there has been a loss of trust and confidence; see also Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 (Re Amazon Pest Control) at [18].
In Mudgee Dolomite, Black J identified a series of elements that are relevant where winding up on just and equitable grounds is sought in the context of the breakdown in the parties' business relationship at [293]: At least where a company was established on the basis of relationships of mutual confidence, a winding up order may be made on the just and equitable basis under s461(1)(k) of the Corporations Act where irreconcilable differences emerge between its members. The Court may make a winding up order on that basis in circumstances that do not amount to oppression, although a person who is responsible for the breakdown of the relationship is less likely to be afforded relief… A winding up is a characteristic remedy in circumstances that a working relationship predicated on mutual cooperation, trust and confidence has broken down, and that there is no absolute rule that the Court will not wind up a solvent company, although winding up is a last resort. I bear in mind that s 467(4) of the Corporations Act applies where a winding up order is sought on the just and equitable ground, and I must have regard to the matters identified in that section, including the availability of some other remedy and whether the applicant is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. (citations omitted)
A breakdown or loss of confidence between directors and shareholders does not necessarily provide a sufficient foundation for winding up on the just and equitable ground. It is generally necessary to show that the breakdown is of such a nature and degree that it materially frustrates the commercially viable and sensible operations of the company in accordance with the shareholders' expectations, that the loss of confidence is justified, and that there is a restriction on the transferability of the shares of the party seeking to wind up the company: Re Austral Alloys Pty Ltd [2017] NSWSC 1833 at [24]-[30]; In the matter of Pure Nature Sydney Pty Ltd [2018] NSWSC 914 (Pure Nature Sydney) at [70].
While a Court may make a winding up order under s 461(1)(k) of the Corporations Act in circumstances that do not amount to oppression, it is less likely to grant relief to the party that is responsible for the breakdown of the relationship. A court may withhold a winding up order where the plaintiff lacks clean hands although such conduct is not a bar to relief as, otherwise, neither party could obtain a winding up order where both are at fault: Fexuto v Bosnjak Holdings at [90]; Re Amazon Pest Control at [19] and [22].
In Pure Nature Sydney, Black J considered that the conduct of both parties reinforced, rather than undermined, the strength of the case for a winding up. His Honour did not postpone a winding up order to provide the parties with an opportunity to negotiate a buy-out as the parties had already had ample opportunity to do so, although he stayed the orders for 14 days to give the parties one last chance to avoid the closure of their business: [74], [77].
Winding up has also been described as an "extreme step", particularly where the company in question is solvent, although there is no absolute rule against winding up a solvent company: Re Crow Inn (No 2) at [279]. In Re Amazon Pest Control, Black J at [31] observed that the principle that winding up is an "extreme step" and a "last resort" was articulated in Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd (1977) 13 ALR 561 at 567 by reference to a "successful and prosperous" company that was "properly managed".

Consideration and determination

Mr Yu submits that a winding up order on just and equitable grounds is appropriate as L&B Seafood is a quasi-partnership or business that required a level of mutual trust, confidence and dependence. He contends that there has been a breakdown in that trust relationship by reason of a range of matters that were caused by Mr Ding, such that it is no longer possible for Mr Yu and Mr Ding to work together as the directors are in deadlock.
Mr Ding rejects that he was the cause of any relationship breakdown. He submits that the breakdown was caused by Mr Yu's decision in 2018 to put greater priority on Long Quan Seafood, his (or his mother's) other business. Mr Ding submits that Mr Yu's evidence (referred to at [43] above) suggests that the low profitability of the Business in mid to late 2018 may have driven Mr Yu's decision to focus his time elsewhere.
Mr Yu contends that there is no proper basis for that submission. While accepting that he spent less time at the Business, Mr Yu says there is no evidence of what he did instead and submits that he should not have been expected to continue to work unpaid in an unprofitable business. I disagree. Mr Ding gave evidence, that was not challenged by Mr Yu, that from 2018 Mr Yu was spending more time at his mother's shop than he was at L&B Seafood's business. In my view, some of the text messages relied on by Mr Ding in support of his claim of oppression are also consistent with Mr Ding's evidence that Mr Yu was working in his other seafood business as they refer to him having certain quantities of seafood available, which he could bring over to Mr Ding or that Mr Ding could come and get them.
Whether Mr Yu was concerned about a lack of profitability or wages, his decision to absent himself from aspects of the Business from 2018 was a cause of concern to Mr Ding, as evidenced by the tenor of the text messages exchanged between them in March 2019, and I am satisfied that it was a factor that contributed to the breakdown of their relationship.
That said, I do not accept that Mr Yu was to blame in the sense that his conduct was the sole cause of the relationship breakdown and current deadlock. There are aspects of Mr Ding's conduct about which Mr Yu complains which I consider to be legitimate sources of discontent and have led to Mr Yu's decline in his trust and confidence in Mr Ding and the consequent deadlock.
Mr Yu referred to a number of matters in submissions which he says have contributed to the breakdown in his relationship with Mr Ding and led to the current deadlock. He also submits that they are factors that warrant the Court winding L&B Seafood up on just and equitable grounds.
The first are concerns about the lack of transparency in respect of cash transactions and information in relation to the Business. In my view, there is some merit to this concern.
I have already referred to Mr Yu's uncontested evidence regarding the attempts to sell the Business and Mr Ding's refusal to provide sales records to the prospective purchasers at [56] above. Mr Ding also failed to provide daily cash transaction records to his accountant, to Mr Yu in response to the request by Luminous Legal, to Mr Gwynne or in response to the notice to produce in these proceedings, save for what was referred to in Mr Yu's submissions as "some limited and incomplete records provided after the formal call following an exchange in cross examination". I accept that Mr Ding's conduct in this regard was likely a contributing factor to the present position of the parties. Mr Ding was the person responsible for reconciling, banking and keeping records of the daily takings. Having raised the issue with Mr Ding that clear records of transactions needed to be kept as early as March 2019, it seems to me that Mr Yu had a legitimate expectation that Mr Ding would provide him with such information (whether cash transactions or SuperPay deposits) when requested.
I should record that no submission was advanced, correctly, in my view, that Mr Yu had been misappropriating cash from L&B Seafood. The evidence I have seen does not support any such submission and I make no finding to that effect.
Mr Yu also raises concerns about loans, both the $95,000 personal loan he gave to Mr Ding and the third-party loans allegedly entered into by Mr Ding on behalf of L&B Seafood without, according to Mr Yu, his knowledge or assent.
As to the first matter, Mr Yu and Mr Ding are clearly in dispute about the $95,000 loan. I have already said that it is not necessary to resolve that dispute. It is not part of L&B Seafood's affairs and I make no finding as to whether it was repaid or not or whether it was interest free. The existence of the dispute has, nonetheless, likely exacerbated the souring of their relationship and the deadlock, although it cannot be solely attributed to Mr Ding.
In my view, there is more substance to the concerns raised by Mr Yu about the lack of transparency surrounding the third-party loans. The absence of any documents recording the loans and their terms, the fact that Mr Yu was not aware of some of them or how much had been allegedly borrowed and with whom (this evidence was not challenged by Mr Ding), and Mr Ding's failure to ensure they were included in the company's financial statements suggests that there has been some deficiency in the management of L&B Seafood's affairs on the part of Mr Ding which has contributed to the breakdown in his relationship with Mr Yu. I accept they are a factor that has led to a decline in Mr Yu's trust and confidence in Mr Ding and the current deadlock.
The next matters raised by Mr Yu are said to be concerns that L&B Seafood may be trading while insolvent, including that it owes Mr Yu a director's loan of over $220,000, and concerns that L&B Seafood is not compliant with taxation and other legal obligations.
Mr Yu submits that L&B Seafood is likely insolvent on several bases, referring to having numerous unpaid creditors, incomplete financial statements, an inability to access alternative finance and outstanding tax and superannuation contributions. Detailed submissions were advanced by Mr Yu on these matters.
Mr Yu referred to the relevant indicia of solvency as summarised by Mandie J in Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123 at [386] and in Lewis v VI SA Australia Pty Ltd [2008] FCA 1801 at [16]. It was submitted that, of the 14 points summarised, almost all appear present and the remaining indicia are not applicable. Reliance was also placed on Mr Gwynne's refusal in cross-examination to opine of the issue of L&B Seafood's solvency (T81.2-T81.4, T81.44-T81.48). It was submitted that a suspicion on the part of Mr Yu that L&B Seafood is insolvent is well founded and the Court ought to find that this is a reasonable factor contributing to the deadlock, and is also a critical factor in why a winding up order is appropriate, rather than any alternative relief that would see the Company continuing to trade.
In opening submissions, Mr Ding's counsel accepted that a finding of solvency may influence the exercise of the Court's discretion to wind up on just and equitable grounds. However, he urged the court not to make any finding of insolvency as it was a serious allegation, it had not been put in issue by Mr Yu and Mr Ding had not come to court to meet that case. Mr Ding submits that if Mr Yu had put on points of claim to allege that L&B Seafood was insolvent, he would have led evidence to prove access to finance, cash flow forecasts and any arrangement or compromise that it had reached with creditors. It was also confirmed in oral submissions that Mr Ding did not make a submission that L&B Seafood was solvent and submitted that this meant that the issue of solvency was not a relevant issue.
While the question of the solvency of a company may be taken into account in determining whether to order winding-up on just and equitable grounds, I accept that it is not necessary to make a finding on the solvency of L&B Seafood for the purposes of this application: Sassine v Ray & Sons Construction Pty Ltd [2012] NSWSC 1307 at [21]; Re Glen Elgin Retreat Pty Ltd [2019] NSWSC 1395 at [6] - [7] (per Gleeson J); Re Bromesley Pty Ltd (Receiver and Manager Appointed) [2017] NSWSC 295 at [11] (per Gleeson JA).
I have proceeded on the basis that Mr Ding does not advance a submission that the company is solvent. I should record that I do not accept that almost all of the 14 indicia of insolvency are present in this case, as asserted in Mr Yu's submissions. Relevantly, the company has continued to trade and, as noted above, Mr Ding was able to reinstate the 30-day trading terms with suppliers. However, I accept that there are aspects of L&B Seafood's financial position and management that may give rise to legitimate concerns on the part of Mr Yu about the solvency of L&B Seafood and the management of its financial position, such as the inaccuracy of the financial statements, the past losses, lack of cash reserves and low liquidity ratios.
Mr Yu also contended that he may be exposed to personal liability from what he asserts were L&B Seafood's non-compliance with legal and taxation obligations caused by Mr Ding. This was said to arise from the absence of a PAYG system, the likely underpayment of staff and the failure to make adequate superannuation contributions. Submissions were made that there are concerns that L&B Seafood is not compliant with the Fair Work Act 2009 (Cth), Taxation Administration Act 1953 (Cth) and Superannuation Guarantee (Administration) Act 1992 (Cth).
I express no views nor make any findings in relation to the reasonableness of the asserted non-compliance with legal and taxation obligations. As Mr Ding submits, they involve serious matters that may have personal consequences and they were not pleaded. The issues relating to the adequacy of superannuation and any failures to comply with the Fair Work Act or Taxation Administration Act were also not put to Mr Ding during cross-examination.
The final matter raised by Mr Yu is the inability to either sell the shares to any prospective purchaser, or otherwise agree on an appropriate value for any share buyout. It was submitted that Mr Ding's 8 October 2020 offer (at [74] above) was plainly not reasonable as given the concerns with the accuracy of the books and records of the company and since it required releases from all liabilities, which include Mr Yu's director's loan and the personal loan. I accept that these matters would have contributed to the current deadlock.
In summary, Mr Yu submits that in light of the above matters, there is no prospect of the parties coming to work together, that a winding up order is the just and equitable way to resolve what is an insurmountable deadlock and there is no reason to refuse to grant the relief he seeks.
In closing submissions, Mr Ding accepted, appropriately in my view, that the Business was set up as a quasi-partnership, the proper functioning of L&B Seafood depends upon the working relationship between he and Mr Yu and their relationship has irretrievably broken down. He also accepted that these circumstances are sufficient to enliven the Court's power under s 461(1)(k) of the Corporations Act.
I am also satisfied that the evidence establishes that the breakdown of the relationship was precipitated by Mr Yu stepping back from the Business in 2018 and that aspects of Mr Ding's conduct has warranted a lack of trust and confidence in the management of L&B Seafood's affairs. That said, I do not consider that Mr Yu has been the primary contributor to the breakdown in the relationship such that he should be barred from obtaining relief by way of a winding up order. To my mind, there has been fault on both sides, albeit not at the level of oppression in respect of the complaints made about Mr Yu's conduct.
Mr Ding submits that the court would be reluctant to make use of the just and equitable ground to order the winding up of the company when L&B Seafood continues to trade, although no other alternate remedy was sought by Mr Ding in the event the court finds, as it has, that there is no oppression. Rather, Mr Ding submits that the court should not make a winding up order but should leave the parties within their existing relationship, relying on the approach of Black J in Re Bicher. Mr Yu submitted that, depending on the findings the Court makes and in the event the Gwynne report was not accepted or given no weight (which it has), it may well be that this case is factually dissimilar to Re Bicher.
In Re Bicher, Black J held that the plaintiff's alleged grounds of oppression had not been established and refused to grant the alternate relief sought, which included the winding up of the company on just and equitable grounds. This had the effect that the parties were left to continue working together.
Mr Yu submits, and I accept, that His Honour's sound reasons for doing so, distinguish Re Bicher from this case. As Mr Yu submits: 1. Bicher did not involve a quasi-partnership - the plaintiff held only 20% of the shares and was not a director (at [126]); 2. winding-up would have adversely impacted only one of the parties (who was a director) due to outstanding taxation liabilities (at [134]); 3. Black J accepted that the plaintiff had deliberately perpetrated a serious and long term tax fraud in the management of the Company's financial affairs with at least the general knowledge of the second defendant - a finding that went against the relief sought by both parties (at [20]); 4. the cross-claim sought a buyout order for zero consideration, a figure that did not reflect the value of the company in the medium term (at [120]-[121]); and 5. the company had self-reported taxation non-compliance and had taken steps to address it (at [135]).
Relevantly, Black J also found that the deficiencies in the management of the company's financial affairs, for which the plaintiff was primarily responsible and to which he had the primary expertise, had been the primary contributor to the present situation (at [129]), noted that the company was solvent (at [132]), and there was a limited risk of continuance of the conduct which was in issue in the proceedings (at [135]).
I have carefully considered whether to adopt the approach of Black J in this case given that Mr Ding wishes to acquire Mr Yu's shares and continue operating the Business (Ding I at [14]). However, none of the factors referred to at [178]-[179] are present in this case. This position here is, in my view, very different. Most significantly, this case involves a company formed in the nature of a "quasi-partnership". There has also been conduct on the part of both parties which has led to the breakdown in their relationship and there are legitimate continuing concerns about the management of the financial affairs of L&B Seafood by Mr Ding and some doubts as to its ongoing solvency.
I have also considered whether Mr Yu has acted unreasonably in pursuing a winding up remedy, as part of my consideration of whether some other remedy is available to him. The allegations of impropriety raised by Mr Yu might have formed the basis for an oppression claim against Mr Ding, such as in respect of the failures to provide information: Scientific Management Associates Pty Ltd [2019] NSWSC 1643 at [209]. However, similar to the approach of Black J in Amazon Pest Control at [27], I do not consider that it was unreasonable for him to pursue a winding up order given the difficulties that would have been involved in undertaking a valuation of his shares based on the inaccurate and incomplete financial records of the company and the challenges in establishing an oppression action. In practical terms, there is no other remedy for available to Mr Yu given the parties have been unable to sell the Business or reach agreement themselves on a buy-out figure.
In my view, the bases for making a winding up order on just and equitable grounds have been established. As there is no alternate remedy proposed by Mr Ding or other remedy reasonably available to Mr Yu, then given the loss of trust and confidence and irretrievable breakdown of their relationship impacting the ongoing operations and management of L&B Seafood, it is appropriate for the Court to make the winding up order.

Orders

For the above reasons, I am satisfied that a winding up order in relation to L&B Seafood should be made as sought by Mr Yu.
While the parties have had ample opportunity to negotiate between themselves, particularly while judgment has been reserved, I will stay the winding up order for 7 days to allow the parties a last opportunity to seek to resolve their differences and confirm Mr Ward's continuing availability.
As to costs, Mr Yu submitted that if a winding up order was made, the Court should order Mr Ding to pay Mr Yu's costs of his application as well as the costs of the cross-summons. However, as Mr Ding wished to be heard on costs, including whether the costs ought to follow the usual priority order in a winding up, I will make directions to enable a determination of costs on the papers after considering short written submissions from the parties.
For these reasons, I make the following orders: 1. Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), the first defendant, L&B Seafood Pty Ltd be wound up. 2. That Mr Grahame Robert Ward be appointed as the liquidator of the first defendant. 3. The orders made in paragraphs 1 and 2 above be stayed to 10 am on 18 February 2022. 4. Dismiss the Cross-summons filed on 26 November 2020. 5. Direct the parties to file and serve any written submissions on costs by 4 pm on 18 February 2022. 6. Direct the parties to file and serve any written submissions in reply on the issue of costs by 4 pm on 25 February 2022. 7. Note that the issue of costs is to be determined on the papers.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 February 2022

(Cth), Taxation Administration Act 1953(Cth)

Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd

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