Remedy under s 233
291 Grounds under s 232 having been established I turn to consider what, if any, orders should be made under s 233. By that section the Court may make any order that it considers appropriate in relation to the company.
292 There is no right to obtain a remedy even where grounds under s 232 have been established: Shelton v National Roads & Motorists' Association Ltd [2004] FCA 1393; (2004) 51 ACSR 278.
293 Before turning to this matter in any detail I consider the evidence and the parties' submissions as to the assets of Bonython Metals and their value since those matters went to remedy.
294 Ample Source submitted that the relevant task was to value the 64% of Bonython Metals owned by what it referred to as the Hillam interests. Its answer, based on the valuation of Bonython Metals prepared by Mr Rudenno, which was based on a valuation of Bonython Metals' assets by Mr McKibben, was that their shares were worth approximately $15.5 million, excluding the Redan lease. This value took into account "the likely effect of the Hillam interests' oppressive conduct on [Bonython Metals]" as likely to be factored into the value of those shares. On this approach the value of the whole was about $24 million and no more than $24.4 million.
295 It was submitted that the experts called by Ample Source applied the test in Spencer v Commonwealth (1907) 5 CLR 418 but that the expert called by the defendants had not undertaken that task. This material was adduced to support the order for which Ample Source contended, that is, that the Court should order that the second and fourth defendants, Mr Hillam and Ms Teeranukul, sell their shares in Bonython Metals to Ample Source for $15.5 million.
296 Ample Source submitted that the valuations of the expert called by the defendants, Mr Pyper, should be rejected because he had not sought to express an opinion as to what a willing but not anxious purchaser would have to pay a willing but not anxious vendor to buy the shares in Bonython Metals or on the market value of the tenements. I consider that Mr Pyper not only did not address those issues but, insofar as I could follow it, he used an idiosyncratic methodology. He seemed to proceed by reference to what the projects could be worth in saying in his oral evidence:
"These valuations were done … for John Hillam to show what this project could be valued at in his hands. Do you want to sell them for cash? … you couldn't get those figures for it in cash. But that is what they are to a company that wants its development".
297 Ample Source advanced a number of other reasons for rejecting Mr Pyper's report.
298 MFI 7, apparently incomplete annual technical reports on three exploration licences, was served the evening before the proposed tender. Counsel for Ample Source could not cross-examine on that material. In addition, it was not a complete set of the material on which Mr Pyper relied. I reject the tender of MFI 7 as having been served so late as to cause substantial prejudice to Ample Source if it was admitted. It is not sufficient that one of the experts called by Ample Source had been given some or all of the material by Mr Pyper some days earlier.
299 As to MFI 8, a late affidavit of Mr Pyper sworn on 27 July 2011, I deferred ruling on it but invited submissions on why it should not be admitted into evidence. In the absence of submissions to the contrary I shall admit that affidavit.
300 However I give Mr Pyper's evidence very little weight both because of his idiosyncratic methodology and also because neither in his reports nor otherwise did he state his assumptions and his reasoning was not adequately disclosed: see Dasreef Pty Ltd v Hawchar (2011) 277 ALR 611.
301 Ample Source accepted that it was not possible for Mr Rudenno, in conducting his valuation, to take into account the liabilities of Bonython Metals. For that reason, Ample Source submitted that should the Court order that Ample Source buy out the shares of Mr Hillam and Ms Teeranukul in Bonython Metals the valuation ought to be expressed as subject to deductions representing the liabilities of Bonython Metals. Ample Source submitted that the extent of any such liabilities, including any significant contingent liabilities, ought to be the subject of evidence at a short hearing following the making of any buyout order.
302 The defendants contended that the value of the Hawsons joint venture interest was approximately $100 million, excluding the Redan lease. If the Redan lease were included, the lowest valuation that could be ascribed to Hawsons as an exploration target was $200 million. In addition, as I understood it, the defendants contended for a technical value of the South Australian assets of no less than $21.66 million. As I have indicated, Mr Pyper gave evidence of considerably higher values for all of the assets.
303 As to the Redan lease, EL 6979, the defendants contended that the Redan lease was an asset of Bonython Metals because Bonython Metals had an agreement that it form part of the Hawsons joint venture or had a cause of action for its inclusion.
304 This was put on five bases: the agreement in a terms sheet; an oral agreement for its inclusion; an agreement which was partly oral and partly in writing; an agreement by estoppel because Carpentaria would be estopped from denying the existence of a right to inclusion of the Redan lease by reason of the existence of the facts which constituted the oral and written agreements and the fact that substantial payments were made from joint venture funds provided by Bonython Metals for drilling and exploration on the Redan lease; and the fact that the Redan lease was included in the joint venture formed the conventional basis of the relationship between Carpentaria and Bonython Metals.
305 On this basis it was contended on behalf of the defendants that it would be manifestly unfair to allow Ample Source to purchase the shares in Bonython Metals without including the value of the Redan lease or an assessment of the likelihood of its value. The shares in Bonython Metals carried with them a right to have the Redan lease included in the Carpentaria joint venture. Were the Court to permit Ample Source to buy out the shares without taking into account the value of the Redan lease it would deprive Mr Hillam of the value of the opportunity to enforce the right for its inclusion, giving Ample Source the resultant benefit of that right at no cost.
306 It is to be noted that Carpentaria was not a party to the present litigation.
307 Ample Source submitted that the evidence with respect to the Redan lease was that it was not in the current joint venture agreement. This was because the existing joint venture between Bonython Metals and Carpentaria did not include EL 6979. There was a variation to that agreement which purported to include that tenement but it was subject to a condition precedent and the condition precedent had not been satisfied because there was not the money in Bonython Metals to satisfy the condition precedent.
308 The variation deed, of June or July 2011, was an agreement to amend the exploration joint venture and farm in agreement (Hawsons Iron Project) between Carpentaria and Bonython Metals executed on 15 April 2010. Clause 2.1(b) provided:
clause 3.2 of this deed of variation and the amendment to the JVA contemplated by it, with the exception of clauses 4 to 17 inclusive, is subject to and will have no force or effect until:
(a) . . . ; and
(b) [Carpentaria] notifying [Bonython Metals] in writing that [Carpentaria] has been reimbursed from the Cash Calls payments for all Expenditure associated with the Phase 1 Drilling Activities and Phase 2 Drilling Activities incurred by [Carpentaria] associated with Exploration and the EL6979 on and from 15 April 2010 up to and including the date of execution of this deed by both parties in accordance with the procedure set out in clause [sic] of this deed.
309 The evidence of Mr Sheard, CEO of Carpentaria, was that the relevant expenditure was a total of $9,251,547 and that the cash calls had been insufficient to reimburse Carpentaria by the amount of $348,313 up to 30 June 2011. After that date but up to the date of the variation deed the cash calls were about $570,000 short of fully reimbursing Carpentaria for its exploration expenditure. Carpentaria had not given written notification to Bonython Metals that it had been reimbursed for all expenditure, in terms of cl 2.1(b) because reimbursement for that expenditure had not then occurred.
310 Mr Sheard was cross-examined on these matters, both as to the accuracy of the figures and the contractual or other basis for the obligations to which he referred.
311 However I accept that if the variation had taken effect Bonython Metals would get a 40% interest in EL 6979. The valuers put the highest figure of all on EL 6979 such that, if Bonython Metals had a 40% interest in EL 6979, there was a difference of approximately an additional $44 million over all the tenements in which Bonython Metals had an interest.
312 In my view, even if it were the case that the condition precedent had not been satisfied because there was not the money in the company to satisfy the condition precedent, this "snapshot" approach has no attraction where the Court is being asked to determine value of a substantial actual or potential asset to found a buyout order of the kind propounded by Ample Source.
313 In short, the material formed an unsatisfactory basis on which the Court could determine value with sufficient certainty to make orders which expressly or implicitly involved a specific value. This was not only because the range of values on each side was large in relation to the general worth of Bonython Metals but more importantly because the interests upon which the valuations were based, particularly whether the Redan lease was included or excluded, varied widely and the evidence to resolve that issue was slight. An additional problem was the absence as a party of Carpentaria.
314 Returning to the question of remedy, Ample Source submitted that a buyout order, or a receivership order to the same effect, was the appropriate relief to end the oppression. It was submitted that the Court should order that the majority sell to the oppressed minority and that the order should be that Mr Hillam and Ms Teeranukul should sell to Ample Source at market value, less an allowance for the effect of their oppressive conduct. This was said to be the appropriate order for four reasons.
315 First, Ample Source submitted that the value in Bonython Metals had been created by Ample Source's investment: without the investment of $16.5 million by Ample Source Mr Hillam's efforts would have been without benefit to Bonython Metals and Bonython Metals would not have been able to fund its obligations.
316 Second, Ample Source submitted that Mr Hillam and Ms Teeranukul did not have the financial ability to buy Ample Source's shares. I understood it to be common ground that Mr Hillam and Ms Teeranukul did not have that ability as their assets stood.
317 Third, Ample Source submitted that it was Mr Hillam's and Ms Teeranukul's blameworthy conduct which created the current situation.
318 Fourth, it was submitted that Bonython Metals would have almost no cash and it required further money which Mr Hillam was unable to raise.
319 If the receiver order was made, Ample Source sought an order that the CFM service contract be terminated.
320 In the alternative to the receiver order, Ample Source sought a winding up of Bonython Metals.
321 Ample Source submitted that winding up had the advantage that all the assets of the company would be put to the market to arrive at the true value and the net proceeds of all of those assets could then be rateably distributed amongst all shareholders. It also had the virtue, in the submission of Ample Source, that the liquidator would certainly terminate the CFM contract. It was also the case that there was no goodwill in the company which might be harmed by winding up and the sale by the liquidator could be on the basis that any shareholder could buy, that is, there would be no restriction on who might be buyers for any of the assets of the company.
322 Against these considerations was the general disadvantage that the interests of Bonython Metals in the joint venture agreements were subject to restriction on assignment clauses. In particular winding up would trigger a right for Carpentaria to buy back the 40% interest in the Hawsons joint venture at a 10% discount to market, inflicting loss on Ample Source and damaging the value of the company.
323 Ample Source submitted that the Court should not appoint a receiver to sell the Ample Source shares on the market and pay the proceeds to Ample Source. This would involve a buyer being offered a minority interest in Bonython Metals knowing that the previous holder of that minority interest had suffered the conduct of the company's affairs which was within s 232(e). The oppressive conduct would inevitably depress the price the buyer would pay. Further that buyer would not have the benefit of the shareholders agreement and thus the effect of the oppressive conduct would be entrenched in the price Ample Source might receive. Ample Source submitted the only fair remedy would be that the oppressors' shares be sold and any financial disadvantage in value be visited upon the oppressors.
324 Further Ample Source submitted that there was no evidence on which the Court could find that Bonython Metals could make a selective buyback without harming the creditors.
325 The defendants submitted that no order should be made. It was submitted that the company was not insolvent and that it could raise money to continue.
326 Next it was submitted that if any orders for a buyout were to be made, Mr Hillam should be given the opportunity to buy the shares of Ample Source.
327 Ample Source should not be given a benefit, it was submitted, by bringing the proceedings in the pursuit of a strategy to control Bonython Metals. Ample Source should not be permitted to gain the remedy of control which it could not gain under the shareholders agreement.
328 In the further alternative it was submitted that the Court should order sale or transfer of the assets. This was the position put by Mr Hillam in a letter of offer dated 15 July 2011. It was submitted that the making of a reasonable offer was a significant consideration in an oppression case. The offer was in the following terms:
Firstly:
(a) Bonython's interest in the Hawsons Iron Project be sold on the open market; and
(b) the funds received by Bonython from such sale be used to fund the purchase by Bonython of [Ample Source's] shares, being its 25% shareholding;
Alternatively:
(a) Bonython transfer to [Ample Source] 10% of the Carpentaria joint venture in consideration of the transfer by [Ample Source] to Bonython of [Ample Source's] 25% shareholding (where the 10% share in the joint venture is equal to 25% of Bonython 40% interest in the joint venture); and
(b) each of the defendants do all things necessary to transfer to [Ample Source] Exploration licence EL 4728, ELA 340/10 and ELA 341/10;
Alternatively:
(a) the court determines the value of Bonython's assets;
(b) orders be made for the transfer of assets to [Ample Source] equal to 25% of the total value of Bonython assets.
329 The defendants also submitted that liquidation, although an option for the Court, was not an attractive one.
330 I am not persuaded that Ample Source's preferred remedy for a buyout order or a receivership order to the same effect, with the minority buying out the majority, an unusual order, is appropriate in the circumstances of the present case. In my view it is overstating the position to say that the value in Bonython Metals had been created by Ample Source's investment: by virtue of Mr Hillam's work there was a lot more to it than that. There must be proportionality between the conduct and the remedy with the aim of putting an end to the oppression. The primary remedy sought by Ample Source would not be consistent with those principles.
331 In addition, the evidence of the financial capacity of Ample Source to purchase the shares was less than satisfactory. Mr Cheung gave some evidence of discussions with bankers but this evidence was entitled to very little weight as it was unsupported by documentary evidence. Further, Mr Cheung gave evidence of his ownership of listed securities but that evidence also lacked cogency. Further still, the valuations of the properties to which Mr Cheung referred were not in evidence.
332 I accept, as submitted by Ample Source, that the Court should not appoint a receiver to sell the Ample Source shares on the market and pay the proceeds to Ample Source as this would involve a buyer being offered a minority interest where the previous holder had suffered oppressive conduct and this would depress the price.
333 The defendants' first submission, that there be no order, does not respond to the conduct of the company's affairs which I have found to be within s 232(e). It has the added problem that it would not bring to an end the state of affairs which I have found to exist.
334 As to the submission that Mr Hillam should be given the opportunity to buy the shares of Ample Source, again that is not responsive to the conduct of the company's affairs which I have found to be within s 232(e) and, indeed, would tend to give the oppressing parties the benefit of their oppression.
335 I turn to the defendants' submission that the Court should order the sale or transfer of assets.
336 The first alternative was that Bonython Metals' interest in the Hawsons project be sold on the open market and the funds received by Bonython Metals from such sale be used to fund the purchase by Bonython Metals of Ample Source's 25% shareholding.
337 Under this alternative it was submitted that Ample Source could purchase the Hawsons project on the market should it wish to do so and an open market sale would remove any difficulties with valuation. As I have already noted, it was submitted that the sale of the Hawsons project would remove any uncertainty over the status of the Redan lease and thereby avoid great unfairness that would result to Mr Hillam were it not to be included and it would realise the true market price of the asset, rather than relying on assessment from vastly differing expert evidence. Such sale would give Bonython Metals sufficient moneys to buy back the shares of Ample Source at a price which satisfied the value placed on the assets by Ample Source.
338 In my view, this alternative was in substance only a slight variant of the submission that Mr Hillam should be given the opportunity to buy the shares of Ample Source. It therefore has within it the difficulties to which I have already referred. It would also appear to involve the later determination of the value of the 25% minority shareholding of Ample Source and be unattractive on that account as well. I accept however that the Redan lease has an uncertain status.
339 The second alternative was that Bonython Metals transfer to Ample Source 10% of the Carpentaria joint venture in consideration of the transfer by Ample Source to Bonython Metals of Ample Source's 25% shareholding (where the 10% share in the joint venture is equal to 25% of Bonython Metals' 40% interest in the joint venture) and each of the defendants do all things necessary to transfer EL 4728, ELA 340/10 and ELA 341/10 to Ample Source. This would require clear and precise evidence of the matter in parenthesis at least. The evidence before me is not of that quality and on that ground I would not make an order in those terms.
340 The third alternative was that the Court determine the value of Bonython Metals' assets and orders be made for the transfer of assets to Ample Source equal to 25% of the total value of Bonython Metals' assets. This alternative seems to me theoretical only in that it assumed that Bonython Metals has or will have the capacity to make a payment of such a size. It would also involve, on Bonython Metals' case, the protracting of the present proceedings. In light of the conduct which I have found and the need to provide a solution to the parties' continuous quarrelling and an end to the litigation between them, I would not adopt this alternative.
341 In relation to the offer, I have considered its contents on their merits but, although relevant, I do not regard it as mitigating the conduct of the affairs of Bonython Metals which I have found to be within s 232(e). It does not deal directly with that conduct and the timing of the offer, the Friday before the commencement of the final hearing on Monday 18 July 2011, shows that it was temporally unrelated to the substance of the matters of which Ample Source complained: see generally Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, (2011) 84 ACSR 121 at [226] and following.
342 For the reasons I have indicated, none of these proposed orders is, in the exercise of my discretion under s 233, appropriate.
343 In my view the appropriate order under s 233 is that Bonython Metals be wound up.
344 I accept that an order that a solvent company be wound up is an extreme step and it is a less than perfect remedy: the full value of the company with its present interests may not be obtained. But there is no offer to buy the shares of the minority or of the majority at a fair price while the liquidator can sell the assets on the open market and divide the proceeds, absent a sale of the company's assets to one of the disputing parties.