Aqua-Max Pty Ltd & Ors v MT Associates Pty Ltd & Ors [2001] VSCA 104

APPEAL - Judge's findings after evaluation of oral evidence - Appellate interference.

INTEREST - Recoverable by statute where debt payable at date or time certain - Sufficient if date or time becomes certain.

Supreme Court Act 1986, s.58.

2. These two appeals concern a judgment and orders given and made by Gillard, J. in a very heavy case. There were two related proceedings. In the first (5966 of 1993), Aqua-Max Pty. Ltd. ("Aqua-Max") and Sietel Ltd. ("Sietel") sued M.T. Associates Pty. Ltd. ("MTA"), Malz Nominees Pty. Ltd. ("Malz") and John Massey Trihey ("Trihey"). They sought injunctions against a threatened application to wind up Aqua-Max. They also alleged, among other things, negligent misrepresentations, misleading and deceptive conduct and breaches of fiduciary duty in connection with a joint venture between Sietel and MTA for the development, manufacture and sale of gas and electric water heaters. Aqua-Max was the vehicle by which that joint venture was to be carried on, with Sietel and MTA holding shares in the ratio 80/20.

5. In the first proceeding, the defendants made a number of successful counterclaims. The plaintiffs have appealed, but the appeal is now only in respect of the decision given on the counterclaim by Malz against Aqua-Max for bonus payments pursuant to a consultancy agreement entered into for the purposes of the joint venture. That appeal originally raised many other issues.

8. The second proceeding, 8017 of 1994, was brought by MTA against Aqua-Max and Sietel, alleging oppression by Sietel as majority shareholder in Aqua-Max and seeking relief under s.260 of the Corporations Law. It was commenced in the Federal Court of Australia soon after the commencement of the first proceeding and later cross-vested to the Supreme Court. A third defendant, Cook's Body Works Pty. Ltd. ("Cook's"), was added after the hearing, but the appeal does not raise discrete issues concerning it.

11. The two proceedings were heard together by Gillard, J. for 53 sitting days. By a remarkable feat, on 19 June 1998, only a few weeks after the hearing concluded, his Honour gave very comprehensive reasons for decision. These were in favour of the respondents, the judge determining that two share issues made by Aqua-Max to Sietel, and a related issue made to Cook's, had been oppressive, unfairly prejudicial and unfairly discriminatory within the meaning of s.260. His Honour pronounced a final judgment in proceeding 5966 of 1993 on 14 July 1998. By orders made on 17 July 1998 in proceeding 8017 of 1994, he set aside the share issues and directed Sietel to purchase the 400 shares in Aqua-Max held by MTA. The defendants in the second proceeding have appealed against those orders.

14. The orders of 17 July 1998 provided for the appointment of a special referee pursuant to Order 50 of the Supreme Court Rules if, as occurred, the parties could not agree on the price of the shares held by MTA. As a result, on 24 July 1998 Gillard, J. appointed an accountant, Mr C.T. Daly, as special referee to value them. Mr Daly delivered his report on 9 October 1998. The appellants sought an order that the report be adopted pursuant to r.50.04, and MTA sought an order that it be not adopted. Gillard, J. heard this matter over another four days and gave judgment on 20 August 1999, adopting the report in part only. The proceeding was further adjourned for the hearing and determination of matters of valuation outstanding as a result of that decision. Judgment on the question of valuation was given on 14 March 2000. That judgment was later revised in significant respects after additional submissions. Further reasons for decision were given in a ruling on costs on 3 May 2000. Final orders, including orders as to costs, were made on that day.

18. The appeals call in question decisions of the judge contained in five sets of reasons for decision:

(a) The decision given on 19 June 1998 on whether the application under s.260 should succeed and the decision given the same day concerning one of the counterclaims upheld in the first proceeding;

(b) The decision given on 20 August 1999 to adopt in part the special referee's report;

(c) The decision of 14 March 2000 determining how much should be paid for MTA's shares;

(d) The revised decision determining how much should be paid for those shares;

(e) The decision of 3 May 2000, dealing with costs.

24. These five sets of reasons comprise 500 pages. The principal decision, that of 19 June 1998, occupies 164 pages. There seem to have been about 70 sitting days in relation to all five decisions, leaving aside the time spent on interlocutory questions by the judge. There are 61 volumes of appeal books and some eight volumes of documents said to be of particular importance and extracted from the appeal books. The index to the appeal books itself occupies a volume. We have six volumes of written submissions and several volumes of copies of authorities, not to mention other things handed up in the course of argument. The relative brevity of our own reasons for decision will give no idea of the number of questions of fact that have been debated before us (often by written submissions) or of the degree of detail into which counsel have gone on questions of fact and questions of credibility.

27. There are applications for leave to appeal as regards the matter of costs. One or more members of the Court have sat on four occasions to monitor the progress of the appeals. The actual hearing of the appeals to date has occupied seven sitting days, even with the aid of extensive written submissions before, during and after the hearing, and in addition we found it necessary to reconvene once after the conclusion of argument. The costs of the proceedings taken to date must be enormous.

31. The issues which arise on these appeals are said by the parties to be, in broad terms, whether the judge erred in:

(a) holding that the making of the two share issues by Aqua-Max to Sietel amounted to oppressive conduct or conduct unfairly prejudicial to or unfairly discriminatory against MTA as a shareholder of Aqua-Max for the purposes of s.260 of the Corporations Law;

(b) declining to adopt parts of the special referee's report, rather than adopting the whole report;

(c) attributing the valuation he did to the Aqua-Max shares which Sietel was ordered to purchase from MTA;

(d) adjusting that valuation on compensatory grounds favouring MTA and failing to adjust it on compensatory grounds favouring Sietel;

(e) allowing the claim by Malz against Aqua-Max for bonus payments in proceeding 5966 of 1993 and awarding interest in relation to that claim; and

(f) awarding solicitor-client costs against the appellants in respect of part of both proceedings.

37. The respondents have given a notice of contention in relation to the decision of 19 June 1998 on the s.260 application and the decisions of 20 August 1999, 14 March 2000 and 3 May 2000. The notice of appeal in the second proceeding, 8017 of 1994, contained 324 grounds, and on 20 and again on 27 October 2000 Callaway, J.A. made animadversions upon this. On 23 March 2001 his Honour gave leave to amend that notice of appeal and as a result the number of grounds was reduced, but only to 92. The notice as amended ran to 30 pages. Some of the grounds each fill a page.

41. Both sides were busily getting up the appeals in the expectation that the Court would hear argument on all the numerous questions at the same time, and no less than three weeks were allocated to the hearing of the appeals on that basis. At a hastily arranged mention of the appeals on 10 May, at a time when our knowledge of the case was very limited, we raised with counsel the question whether the case did not lend itself into a division into two parts (loosely called for convenience "liability" and "quantum") and suggested that it was unwise to embark upon the contemplated full hearing when success of the appeals on "liability" would decapitate the respondents' case. It seemed to us that the argument on "quantum" might take even longer than the argument on "liability". Both sides readily agreed that we should in the first instance hear argument only on the question whether an order should have been made in the proceeding invoking s.260 and the question whether the impugned judgment in favour of the respondents on the counterclaim should have been given, on the basis that we would if necessary later deal with "quantum". It is of course appreciated by counsel that views expressed in our reasons for decision on "liability" will not disqualify us from later dealing with "quantum".

45. Much more must now be said about the circumstances out of which this litigation arose. But before we turn to the facts in detail we should direct attention to certain important issues resolved by the judge for the purposes of the application under s.260. We have said that his Honour set aside two issues of shares in Aqua-Max made to Sietel. The capital of Aqua-Max was small; plainly it would need far greater funds than its exiguous capital could provide. Sietel had considerable assets: MTA did not. It was agreed between them - we now speak very generally - that Sietel should lend Aqua-Max $1m. by instalments and that if additional funds were needed Sietel and MTA would contribute them in proportion to their shareholdings in Aqua-Max (80/20). They agreed that, if either of them contributed a greater proportion of loan funds because the other failed to contribute its due proportion, their shareholdings in Aqua-Max should be adjusted in accordance with a formula. Sietel in fact lent Aqua-Max far more than the initial $1m. and the additional amount which it lent was many times larger than the total amount lent by MTA. One of the major disputes concerns the issue - the litigants call it "the formula issue" - by Aqua-Max to Sietel on 6 April 1993 of 1,062 shares, supposedly pursuant to the formula. His Honour set it aside. Another major dispute concerns the issue by Aqua-Max, on 3 November 1993, of 521,556 shares to Sietel and 196 shares to Cook's. The parties call this "the pro rata issue". His Honour set that aside also. The result of the April and November share issues was to reduce MTA's shareholding in Aqua-Max from 20 per cent to 0.076 per cent.

48. We turn now to the facts in detail. What follows will be in part a statement of the facts (either indisputable or common ground), in part a summary of the evidence and in part a summary of the judge's findings. All three are incomplete. We shall of course endeavour to keep these three things distinct.

52. On 24 April 1987 Trihey approached Richard Rees, managing director of Sietel, with a proposal to develop a storage water heating unit using a stainless steel tank. Sietel had previously owned a business manufacturing domestic heating appliances, and importing a hot water unit, under the Pyrox name. After long negotiations, on 21 November 1988 Sietel on the one hand and MTA, Malz and Trihey on the other entered into a joint venture agreement ("the JVA") to develop and manufacture gas and electric water heaters. Sietel took 1,600 shares in Aqua-Max, the joint venture company incorporated for the purpose, and MTA took 400.

55. Trihey and Richard Rees were appointed the two directors of Aqua-Max on 21 November 1988. Its articles of association provided that there were to be no less than two and no more than ten directors and that the quorum at a directors' meeting was the chairman representing the majority shareholder and one other director. The quorum at a general meeting was the majority shareholder plus one other member. The chairman representing the majority shareholder had a casting vote at meetings of shareholders and of directors.

58. On the same day, 21 November 1988, Malz and Trihey entered into a consultancy agreement with Aqua-Max. Also on the same day, MTA, Trihey, Bernard Croxford ("Croxford"), Millard Patton ("Patton") and Maurice Fiddler ("Fiddler") on the one hand and Aqua-Max on the other entered into a second consultancy agreement. These agreements provided that Aqua-Max was to pay the parties through MTA and Malz for services rendered on the project.

61. The JVA provided that the issued share capital of Aqua-Max should consist of 2,000 fully paid shares, held as to 80 per cent by Sietel and as to 20 per cent by MTA. It also provided that MTA and Malz would furnish research and development expertise and management services to Aqua-Max in accordance with the respective consultancy agreements. Sietel undertook to procure premises on suitable terms for the initial production of prototype products and for initial limited production.

Additional loan contributions to be proportionate to shareholding

65. By clause 7 of the JVA, Sietel agreed to provide Aqua-Max with loan funds of up to $1,000,000, secured by a first ranking mortgage debenture at commercial rates. The parties agreed that the loan funds would be provided in three stages, subject to achievement of specified minimum performance and financial criteria. If either of the first two stages (stage A and stage B) required funding beyond $50,000, Sietel and MTA would contribute the funds required in amounts proportionate to their shareholdings. Stage A was the production of sufficient prototypes to obtain necessary regulatory approvals, and the obtaining of those approvals. Stage B was limited production of the prototype in accordance with specific financial criteria. Additional loan funds above $1,000,000 were to be sought by way of loan or other external sources of finance, failing which the parties would again contribute in proportion to their shareholdings. The important clause 7(5) of the JVA provided for the adjustment of the shareholdings of the parties, in accordance with a formula set out in a schedule, if either party "contributes a greater proportion of loan funds than it is required to contribute because the other of them fails to contribute its due proportion". The terms of that formula will be dealt with in due course.

68. By the JVA, if the directors of Aqua-Max determined that it was reasonably practicable for it to fund payment, Aqua-Max was to pay MTA royalties based on 3 per cent of sales and Sietel a management fee based on 12 per cent of sales (to be adjusted proportionately if the proportions of issued shares changed). The JVA also provided for the share capital in MTA to be held as to 77.5 per cent by Trihey or his nominee (in the event, Malz), 5 per cent each by Croxford, Fiddler and Patton, and 7.5 per cent by nominees of Sietel (in the event, Sietel itself).

71. On 22 November 1988 Trihey began work on the project as a consultant for MTA. Croxford started working on the project for MTA on 21 December 1988. Patton began work on 10 July 1989 as an employee of Aqua-Max, having worked on the project as an employee of Cook's since March 1989. Cook's was a wholly-owned subsidiary of Sietel. On 17 September 1989 Fiddler joined the project on behalf of Malz as consultant to MTA. Sietel made factory space available to Aqua-Max by way of lease.

75. Soon after the JVA was entered into it became apparent that further funds would be required. MTA contributed 20 per cent of the additional funds required each month to pay its own accounts until 12 September 1990. By December 1990 Sietel had lent $576,113 to Aqua-Max (calculated as including accrued compound interest but excluding lease commitments to Sietel). MTA had lent $84,729 (calculated on the same basis). By June 1991, Stages A and B had not been reached. Sietel had lent $916,274, while MTA had lent $91,340.

78. Final approval of the gas heater unit was obtained from the Australian Gas Association in November 1991. The first production of 50 units for field tests started in that month. On 18 November 1991, shortly after the first production of 50 units for field tests had begun, Aqua-Max stopped paying MTA and Malz invoices in full.

82. In December 1991 Aqua-Max failed to pay in full the MTA invoice for November 1991. On 31 December 1991 Richard Rees told Trihey that an adjustment to MTA's shareholding was required if Sietel was to continue to contribute loan funds, since MTA had not contributed its required proportion of loan funds since September 1990.

85. In February 1992 Trihey and Richard Rees signed the Aqua-Max accounts for the year to 30 September 1991. The figures in them had been in dispute between Sietel and MTA. The judge found that Trihey signed the accounts under duress. On 11 February 1992 Richard Rees wrote to Trihey requiring an adjustment to the shareholding in Aqua-Max and referring to the formula mentioned in clause 7 of the JVA. On 14 February 1992 Trihey's solicitor, Ian Bult ("Bult"), of Abbott Tout Russell Kennedy, had a telephone conversation with Richard Rees, in which Bult told Rees he had advised Trihey he had a different view on the interpretation of clause 7. On 17 February 1992 Aqua-Max stopped paying MTA's monthly invoices.

88. In March 1992 production of the first 50 units was completed and production of the next 200 commenced. That production was completed by June 1992, and thereafter the project went into full production at the rate of 8-10 per day.

91. In a letter dated 13 March 1992 Bult informed Richard Rees that the non-payment of the consultancy fees to MTA, Malz and Trihey personally by Aqua-Max had left them in a very serious financial position.

94. On 24 March 1992 the brother of Richard Rees, Geoffrey Rees, a solicitor, of Brian Ward and Partners, acting on behalf of Sietel, wrote to Bult stating that Sietel would "pursue a claim for loss and damage resulting from breaches of representations made by" Trihey. This was the first mention of any complaint about the conduct of Trihey in relation to the project. On 25 March 1992 Trihey told Richard Rees he would not be attending further Aqua-Max directors' meetings. The following day, Trihey, Croxford, Fiddler and Patton did not go to the factory. Trihey, Croxford and Fiddler, who were the then representatives of MTA, temporarily stopped work on the project by way of protest over the dispute between the parties, including the non-payment of consultancy fees to MTA. But they returned to work soon after this. From 26 March 1992 until about October 1992 Bult ceased to act for Trihey, who had told him he would try to speak to Richard Rees directly in an effort to resolve their differences.

98. On 27 March 1992 there was a meeting of shareholders of MTA, attended by Trihey, Patton, Croxford, Fiddler and (on behalf of Sietel) Richard Rees. The judge accepted Trihey's account of that meeting and rejected the evidence of the other four participants to the effect that the parties agreed that Aqua-Max would issue $2,000,000 worth of options to Sietel and MTA in the 80/20 ratio because Sietel's loans would reach $3,000,000. Richard Rees instructed Sietel's solicitor, Geoffrey Rees, to prepare a formal agreement following the meeting. By the end of March 1992, Sietel's loan to Aqua-Max (again calculated with compound interest and excluding lease commitments) had reached $1,807,447, while MTA's loan was $100,687. Manufacture of the Aqua-Max 200 commenced and final approval was given by the Australian Gas Association in June 1992. On 27 August 1992 Richard Rees gave Trihey the draft agreements prepared by Geoffrey Rees, which Trihey refused to sign. They allowed the options to be exercised by 1 February 1993.

102. In August and September 1992 Aqua-Max received its first income from the project, in cheques totalling $494,547. Trihey and Richard Rees endorsed them to Sietel as part repayment of its loans. The net effect was to reduce Sietel's total loan account from $2,921,463 at the end of July 1992 to $2,819,582 at the end of September 1992 (a reduction of $101,881). On 10 September 1992 Sietel on behalf of Aqua-Max paid MTA $12,000. The Aqua-Max accounts for the year to 30 September 1992 (signed in March 1993) revealed an operating loss of $387,822 and a deficiency in shareholders' funds of $385,822.

105. In December 1992 Richard Rees reduced his annual salary from $72,000 to $18,000 as a result of the financial difficulties of the Sietel group in connection with the Aqua-Max project. Richard Rees unsuccessfully sought additional funding from Sietel's existing bankers, Westpac Banking Corporation, but successfully sought extra funding from the National Australia Bank in December 1992 to enable Sietel to continue to fund the Aqua-Max project. On 15 December 1992 Sietel was suspended from the Australian Stock Exchange for failure to report group financial results for the six months ending 30 September 1992.

108. On 14 January 1993 Croxford tendered his resignation to MTA and Richard Rees suggested to Trihey that he, Croxford and Fiddler become employees of Sietel rather than contractors of MTA. The judge found that Trihey refused to agree on his own account but reluctantly agreed that Croxford and Fiddler should become Sietel employees. On 1 February 1993 Croxford and Fiddler began working as employees of Sietel pursuant to their service agreements, which were dated 15 October 1993. By each agreement Sietel agreed to pay each man $35,000 "in consideration of the grant by the Employee of the restrictions and restraints included within this Agreement". It was admitted by Richard Rees in evidence that this amount did not represent a payment for a restraint of trade covenant given by the employee as appeared on the face of these agreements. Instead it represented consultancy fees due to them from their employment with MTA, which payment had not been made by MTA, which itself had not been paid by Sietel in full since November 1991.

The auditor's role and the proposed $480,000 pro rata issue

112. On 12 February 1993 the then Aqua-Max auditor, Yves Tawil, raised with Richard Rees the problem that Aqua-Max had a deficiency in shareholders' funds and was trading while technically insolvent. On the same day Trihey and Richard Rees met. Rees claimed that this was a directors' meeting of Aqua-Max and that he and Trihey agreed to proceed with a pro rata share issue of 480,000 shares in accordance with Tawil's recommendation. But the judge rejected that evidence. On 12 February 1993 Richard Rees also provided Trihey with a copy of the draft September 1992 accounts. Within these was a statement that an issue of 480,000 ordinary shares at $1.00 each had already taken place. In February 1993 Trihey's accountant, Michael Priester, examined the draft Aqua-Max accounts. On 26 February 1993, Trihey refused to sign the draft accounts; there were amounts in dispute in them.

115. On 1 March 1993 Trihey's solicitor, Bult, informed Richard Rees that he had advised Trihey in October or November 1992 not to sign the option agreement. On 9 March 1993 Trihey and Richard Rees met. The judge rejected the evidence of Rees that Trihey agreed that the pro rata share issue could proceed. The two men met with their solicitors on 11 March 1993 and agreement was not reached.

118. On 10 March 1993 Bult had another conversation with Richard Rees, who said he did not intend to respond to a letter from Bult dated 19 February 1992 which set out Trihey's objections to the September 1992 accounts and to the interpretation of the JVA put forward by the Rees brothers. On 11 March 1993 Bult attended a meeting at the offices of Aqua-Max with Trihey, at which Richard Rees, Geoffrey Rees and Tawil were also present. Richard Rees stated at this meeting that the consultancy arrears owing to MTA and Malz would have to wait but that the persons concerned would receive priority as employees of Sietel if they agreed to become its employees. At this meeting Bult also referred to Note 9 to the draft accounts of March 1993, which stated that there had been an issue of 480,000 shares at $1.00 each to existing Aqua-Max shareholders. Richard Rees said to Bult that this had not occurred yet and that he would not want it to happen on an 80/20 basis "unless there was some documentation". Bult said to Richard Rees that Trihey might not be prepared to sign the documentation on Rees's terms and Rees said that if MTA adopted this attitude he would issue the additional shares anyway. Bult told Rees that he could not do this, as Trihey was one of two shareholders and directors of Aqua-Max. At the 11 March 1993 meeting Bult said that Sietel should fund Aqua-Max to allow the arrears of the consultancy fees to be paid to Trihey and his associates because of the desperate financial position they were in. He also told those present that Trihey was about to lose his house.

122. On 15 March 1993 Delwyn Rees (Richard's father) was appointed a director of Aqua-Max, on the casting vote of Richard Rees, at a directors' meeting attended by Rees and Trihey. The trial judge found that, although Trihey was deceived into attending the meeting and "ambushed", the meeting was valid and the appointment was not made in breach of any fiduciary duty or for an improper purpose. The respondents' case was that Richard Rees had tricked Trihey into entering a room, and the judge found that Rees had lied in his evidence when he said he had told Trihey that there was to be a director's meeting there.

125. On 16 March 1993 Bult wrote to Geoffrey Rees, taking issue with aspects of the draft accounts, noting that Richard Rees had indicated that a share issue was desirable in view of the "deficiency in shareholders equity" as disclosed in those accounts and stating that, if a share issue was to proceed (the need for which he queried), it had to be to existing shareholders in proportion to their existing shareholdings. On 17 March 1993 Bult wrote again to Geoffrey Rees, requesting further information on the accounts of the company. Bult further questioned whether a pro rata share issue was necessary in view of the express statement contained within the draft accounts of March 1993 that Sietel was to continue its financial support of Aqua-Max. On 18 March 1993 Bult wrote yet again to Geoffrey Rees and stated that he was instructed by Trihey that Richard and Delwyn Rees had put considerable pressure on him to participate in a directors' meeting. Bult stated that Trihey had raised bona fide concerns about specific issues relating to the accounts and that Trihey was under a duty as a director to ensure the accounts were correct before he signed them.

128. On 24 March 1993 the auditor, Tawil, sent Geoffrey Rees a draft letter of subordination of Sietel's loan to Aqua-Max. This draft was sent to Geoffrey Rees for the purpose of his settling it on behalf of Sietel and he stated that he did in fact settle it before forwarding it on to Sietel. The draft letter of subordination sent to Geoffrey Rees by Tawil and the letter eventually settled by Geoffrey Rees were not referred to in any of the affidavits of Richard Rees, Geoffrey Rees or Tawil. Furthermore these letters were not discovered before the trial. They emerged only after a call was made by counsel for the respondents for the production of Geoffrey Rees' legal file.

132. On 25 March 1993 Tawil wrote to Richard Rees, noting the deficiency in shareholders' funds of $385,822 and indicating that Aqua-Max needed to address its "technical insolvency" in one of three ways: issuing shares to cover the deficiency and envisaged further losses; arranging for subordination of the Sietel loan; or obtaining a letter from Sietel undertaking to support its operations for the next year. The judge found that this letter was written at the suggestion of Richard Rees, based on a draft prepared by Geoffrey Rees. Richard Rees swore that on 24 March 1993 he contacted Tawil at least twice to discuss the pro rata issue of shares. Tawil gave evidence that the letter of 25 March was the idea of Richard Rees, although the three options mentioned in it were his. The judge rejected much of Tawil's evidence about the pro rata share issue. Tawil swore that his preference for a share issue was based essentially on an ASC Directive, which had (he said) expressed concern about directors' trading in a company which showed a deficiency of shareholders' funds. Although both Tawil and counsel for the appellants were invited by his Honour to produce this directive, it was not produced.

135. On 26 March 1993 the directors of Aqua-Max, other than Trihey (who refused to be present), held a meeting attended by Geoffrey Rees and Tawil. The directors resolved to issue shares in accordance with the formula in the JVA. They signed the accounts for Aqua-Max for the year ending 30 September 1992. These differed from the draft accounts for that year. The "Statement by Directors" in the draft said that the company would be able to pay its debts as and when they fell due "given the continuing financial support of the holding company, Sietel Limited", whereas the statement signed by the directors on 26 March 1993 contained no such words.

139. On 6 April 1993 the directors of Aqua-Max (again in Trihey's absence, but after he had received notice that a directors' meeting was to take place) resolved to issue 1,062 shares to Sietel, supposedly in accordance with the formula in the JVA. The meeting also resolved to make a pro rata issue of 598,938 shares based on the new shareholding proportions, acceptance to be notified with payment by 14 May 1993. The resolution noted that payment for the pro rata issue could be made from existing loan accounts. Copies of the Aqua-Max minutes were not forwarded to Trihey and generally were never circulated to directors.

142. On 8 April 1993 Malz and MTA sent letters of demand to Aqua-Max for fees ($137,702.61 and $18,688.77 respectively) under their consultancy agreements. These were statutory demands under the Corporations Law.

146. On 20 April 1993 the directors of Aqua-Max resolved that the pro rata share issue be deferred. No reason was recorded in the minutes.

149. On the morning of 28 April 1993 Malz and MTA served on Aqua-Max notice of rescission of their consultancy agreements. At about this time Trihey stopped working at the Aqua-Max premises. On 29 April 1993 Aqua-Max brought proceeding 5966 of 1993 in the Supreme Court to prevent a winding-up application.

152. On 27 May 1993 Sietel transferred one share in Aqua-Max to Cook's; Trihey was not told of this. Next day Trihey's solicitors, Abbott Tout Russell Kennedy, sent a facsimile addressed to Richard Rees and Aqua-Max about the annual general meeting proposed for 2 June 1993. This reiterated Trihey's objection to the pro rata share issue or the authorisation of the directors of Aqua-Max in relation to the issue of shares. On 1 June 1993 Trihey's solicitors again sent a facsimile to Brian Ward & Partners, alleging that the meeting of directors of 15 March 1993 was invalid and in any event oppressive and prejudicial, as was the proposed issue of further shares. The letter also said that Trihey would not attend the meeting on 2 June and thus there would not be a quorum. On 2 June 1993 the annual general meeting of shareholders of Aqua-Max, attended by Sietel and Cook's but not by MTA, ratified the "formula" issue of 1,062 shares and resolved that the directors might issue further shares to cover the deficiency in shareholders' funds and anticipated losses over the next year.

155. On 17 August 1993, Sietel's directors resolved to pass a credit in favour of Aqua-Max, the amount being subsequently determined at $600,000.

159. On 28 September 1993 the directors of Aqua-Max declared that Trihey was deemed to have vacated office by not attending directors' meetings for six months. They appointed James Lillie to replace him. The directors resolved to recommend to shareholders a pro rata issue of 600,152 shares, being 521,556 to Sietel, 196 to Cook's and 78,400 to MTA. A general meeting, held on 15 October 1993, no representative from MTA attending, resolved that the directors might offer 600,152 shares of $1 each on a pro rata basis, being 521,556 to Sietel, 196 to Cook's and 78,400 to MTA. There is no reference in the minutes to permitting subscribers to use loan accounts to pay for the shares. On 27 October 1993 the directors of Aqua-Max decided to issue shares as the general meeting had authorised. Richard Rees wrote to shareholders informing them of the decision. The letter to MTA stated that its entitlement was 78,400 shares and that the offer could be accepted with payment up to 4.00 p.m. on 10 November 1993, otherwise it was deemed to be declined. Again there was no reference in the minutes to permitting subscribers to use their loan accounts, and there was no reference to this in the letter to MTA. On 1 November 1993, MTA's solicitors wrote to Aqua-Max's solicitors seeking an undertaking not to proceed with the share issue and describing it as "unauthorised conduct".

162. On 3 November 1993 Sietel and Cook's took up the share issue and paid cheques to Aqua-Max in the amounts of $521,556 and $196 respectively. At a meeting of Aqua-Max directors on 4 November 1993 Richard Rees reported that $521,752 had been banked in the Aqua-Max account on 3 November 1993 and that the company was in a position to repay part of its loan from Sietel. It was then resolved that a payment of $520,000 be made to Sietel. On 5 November 1993, Aqua-Max repaid Sietel $520,000, part of its outstanding loan. These events led to the judge's description of a round robin of cheques.

165. On 8 November 1993 MTA commenced Federal Court proceedings against Sietel, alleging oppression and seeking the winding up of Aqua-Max. On 10 November 1993 shares were allotted to Sietel and Cook's. MTA did not accept the share offer. Notwithstanding the undertaking given by Sietel at the meeting of the directors of Aqua-Max on 26 March 1993 (with which compare the undertaking in Note 18 to the March 1993 final accounts) that it would take up any shares not taken up by a minority shareholder, Sietel never took up any of the 78,400 shares offered to MTA. On 11 January 1994 the directors of Aqua-Max adopted the September 1993 accounts. According to a note to these, "the chief entity has agreed to continue providing the budgeted level of support which meets the projected day to day requirements of the company provided the company meet the requirements of the chief entity's bankers."

168. On 3 June 1994 the Federal Court ordered that Aqua-Max be joined as a respondent in the oppression proceeding. That proceeding was cross-vested to the Supreme Court on 15 September 1994 and became proceeding 8017 of 1994.

171. On 8 June 1995 Trihey became a bankrupt. On 16 May 1997 a meeting of MTA shareholders was requested by Richard Rees on behalf of Sietel, which held a 7.5 per cent interest in MTA, and by other shareholders, namely Patton, Fiddler and Croxford. At this meeting, which was also attended by Delwyn Rees and the solicitor Wayne Jonas (as legal adviser to Sietel), an attempt was made to remove the incumbent directors, Albert Trihey and Zara Trihey, which failed. The litigation was discussed and Richard Rees, on behalf of Sietel, offered $50,000 in settlement. This offer was rejected. Richard Rees then sought to have himself appointed as a director of MTA, but this motion was defeated. Rees told the meeting that he would "restore MT & Associates to the real world and do what it was originally was set up for, rather than fund court cases. ... I would reconsider the offer of $50,000."

175. It is helpful to summarise some of the findings made for the purposes of the second proceeding. In broad terms, his Honour found that, since about 1992, Richard Rees had set out to destroy MTA's interest in the joint venture in the sense that he had sought to "re-write" the JVA so as to give Sietel a greater proportion of the shares in Aqua-Max, which would reflect the greater financial contributions of Sietel to the venture and redress the relatively poor return it was to receive by way of royalties under the JVA. In order to achieve that end, Rees applied a "financial squeeze" to MTA from early 1992 (in order to pressure Trihey into agreeing to the 90/10 ratio and to dissuade him from questioning Rees's conduct of the affairs of Aqua-Max) and caused shares to be issued to Sietel for the purpose of effectively destroying MTA's interest in the joint venture and Aqua-Max and otherwise used his position to advance the interests of Sietel at the expense of MTA. The particular findings included the following:

(a) Richard Rees unilaterally caused Aqua-Max not to pay MTA accounts in full from November 1991, notwithstanding that Sietel had sufficient assets to support the venture. (Although Westpac did not support the venture as at the end of 1991, NBA provided further funds to Sietel in 1992). This led to severe financial pressure on MTA members**.** On 11 March 1993 Rees again refused Trihey's request that MTA accounts be paid although told that Trihey was in "dire financial trouble".

(b) Richard Rees persisted (at least until late March 1992) in claiming that MTA had to provide extra funding beyond the 20 per cent required by the JVA. Rees threatened that otherwise the shareholding ratio would have to be changed to 90/10. He made the demands notwithstanding that he was told that there was no obligation on MTA to provide more than 20 per cent of extra funds. The threats were made, for example, in December 1991, on 11 February 1992 and on 25 March 1992. There was no basis for a 90/10 share adjustment.

(c) As at late March 1992 Richard Rees was seeking to persuade Trihey to agree to a pro rata share issue. (His Honour rejected Rees's claims that Trihey agreed on 9 March 1993 to the then proposed pro rata issue and that at the MTA shareholders' meeting on 27 March 1992 Trihey agreed that, when Sietel funding reached $3m, options to take up 2m. shares would be issued pro rata. His Honour found that this proposal was contrary to the JVA. Moreover, the loan account of Sietel exceeded $1.9m. at the end of August 1992 and therefore it would have had no difficulty in converting its loans to shares. But MTA would have been short by $380,000 had it sought to take up its proportion of the pro rata share issue.)

(d) Richard Rees threatened that Sietel would withdraw financial support for the project (which would have brought to an end Trihey's investment), although he had no intention that Sietel should withdraw support.

(e) Richard Rees inflated the Sietel loan account with Aqua-Max by unilaterally charging Aqua-Max:

(i) "substantial" amounts for

- office and administrative work supplied to Aqua-Max by Sietel

- rental

- insurance and leasing charges.

Although Trihey knew of the charges, he was not consulted about them and later disputed many of them.

(ii) compound interest on the loans. There was no agreement to that effect by MTA. The interest credited to Sietel by September 1992 was $400,000.

(f) Richard Rees caused Aqua-Max to repay the Sietel loan account in preference to the MTA loan account. His Honour found that there was an implied agreement that loans of Sietel and MTA would be repaid when Aqua-Max was in a financial position to do so and that this position was reached only in about October 1993. Rees, however, caused Aqua-Max to reduce the Sietel loan account from August 1992, that is, before it could properly do so, but in any event the loan account of MTA was not reduced. The following steps were taken by Rees:

- He caused in August 1992 two cheques received by Aqua-Max from the sale of units to be endorsed in favour of Sietel in reduction of its loan account, but nothing was paid to MTA.

- The project reached the stage of self-funding after September 1993, at which stage the loan account of Sietel was $4.2m.; it was reduced to $1.5m. by 30 September 1997, whereas the MTA loan account was not but should have been reduced.

- On 31 October 1993 Sietel paid $521,500 for its pro rata shares by means of a "round robin" transaction.

(g) Richard Rees sought to persuade Trihey to sign certain agreements (which would have destroyed MTA's interest in the venture). It was part of his attempt to destroy MTA's interest in the venture at a time when all the indications were that the project would be successful.

(h) On 12 February 1993 Richard Rees sought to pressure Trihey into signing false 1992 accounts (prepared under the supervision of Rees), which sought to make the issue of pro rata shares (480,000) a fait accompli.

(i) Richard Rees procured the appointment on 15 March 1993 of a third director to Aqua-Max (in order to be in a position to effect the share issue). He had been told on 11 March 1993 that Trihey opposed the issue of the 480,000 shares and that he (Rees) could not issue them on his own vote.

(j) Richard Rees procured two issues of shares by Aqua-Max to Sietel which amounted to oppressive or unfair behaviour as against MTA. That conduct began in about March 1993.

(i) In early 1993 Richard Rees effectively laid the ground work for the pro rata share issue on the pretext that it was being done to overcome the problem arising from the draft 1992 accounts, which showed that Aqua-Max was trading at a loss and had a shareholders' funds deficiency.

On 26 March 1993 the Sietel board (at the behest of Rees) resolved, in effect, to protect its proportionate interest in Aqua-Max in accordance with the JVA in view of its disproportionate provision of funds to the venture. Later that day, at the Aqua-Max board meeting which Trihey did not attend, Richard Rees reported that Sietel would not accept a subordination of its loan but would agree to a pro rata share issue provided that Sietel received its formula share entitlement before any pro rata issue. The Aqua-Max board then resolved to issue formula shares.

(ii) The Aqua-Max board meeting on 6 April 1993 which Trihey did not attend resolved to issue 1,062 formula shares purportedly in accordance with clause 7(5) of the JVA, but Richard Rees misapplied the formula. This changed the shareholding ratio to 87/13 in favour of Sietel. It was entitled to a lesser number of shares and "the issue of those shares was oppressive and unfairly discriminatory and prejudicial to MTA". His Honour re-calculated the entitlement of Sietel as 219 shares.

(iii) Richard Rees procured the issue of about 600,000 shares in Aqua-Max to Sietel. (Rees knew that MTA could not afford to take up its proportion of the issue and that therefore, upon Sietel's taking up both entitlements, the shareholding of MTA in Aqua-Max would be minimal.) The shares were eventually issued in November 1993, but the process commenced early in 1993. The shares were issued for the sole purpose of benefiting Sietel at the expense of MTA and for the purpose of destroying its interest in Aqua-Max. It was in breach of the JVA (and the expectations of the parties to the JVA), and the resolution of the Aqua-Max directors to issue those shares was for an improper purpose and not for the benefit of Aqua-Max. The improper purpose was to benefit Sietel and to destroy MTA's interest in Aqua-Max. Moreover, Sietel and Cook's used their voting power as shareholders of Aqua-Max, in resolving on 15 October 1993 to ratify the offer, for an improper purpose and contrary to the JVA and the expectations of the parties to it. "Their" conduct "in achieving what they did through board resolutions and shareholders' resolutions was oppressive, (etc.)". His Honour rejected the claim of Richard Rees that the shares were issued to avoid the 1992 accounts being qualified. The auditor had told the directors at the meeting of 26 March 1993 (as recorded in the Foo memorandum) that he would certify the accounts if Sietel supported Aqua-Max for the next 12 months. The draft accounts of February 1993 showed that Sietel was providing and continuing to provide financial support and Sietel in fact continued to do so. Hence there was no need to issue those shares for that purpose. The delay in implementing the pro rata share issue pursuant to the resolution of 6 April 1993 until November 1993 was tactical, that is, because of the presence of litigation and the parties' discussing settlement. Discussions broke down in August 1993 and Rees gave instructions to implement the pro rata share issue. This also contradicted the case of Sietel that the share issue was necessary because of the auditor's concern over the 1992 accounts.

(k) Richard Rees procured the transfer of one share in Aqua-Max from Sietel to Cook's in order to have a quorum at the shareholders' meetings since MTA refused to attend and Sietel was the only other shareholder. (Unless there was a quorum, Richard Rees could not procure the relevant resolutions for the purpose of issuing the shares.)

(l) Richard Rees procured the Aqua-Max board on 28 September 1993 to resolve that Trihey had vacated the office of director of Aqua-Max and that Lillie be appointed in his place.

(m) Richard Rees dealt with Sietel and Aqua-Max as if he owned them beneficially and could do with them what he liked. He was responsible for the decisions of the board of each company with little regard for minority shareholders. Thus (in addition to the above actions of Rees, which demonstrated his use of his dominance and control over the affairs of Sietel and Aqua-Max in order to achieve his ends), he:

(i) unilaterally procured Sietel to forego a debt of $600,000 owed by Aqua-Max to it in 1993;

(ii) unilaterally procured Sietel to reduce the rent payable by Aqua-Max;

(iii) did what he liked with respect to records, minutes and accounts; for example, the draft accounts for the 1992 year were false;

(iv) caused resolutions that were passed to be ignored, for example, the resolution of 6 April 1993 for the issue of pro rata shares was not implemented until November 1993; the delay in the implementation of that resolution was tactical;

(v) coerced Trihey into signing the 1991 accounts of Aqua-Max; he told him if he did not sign he would not be paid.

The judge's views on credibility

181. There was considerable conflict of evidence. This was resolved by his Honour essentially in favour of the respondents. The same may be said of witnesses. The main protagonists were Trihey and Richard Rees. The judge said of Trihey, an inventor, "Whilst I accept that he was guarded in his answers and to some extent prevaricated, I am satisfied that generally he was doing his best to tell the truth as he saw it and I found him an honest witness." Of Richard Rees the judge formed a most unfavourable view, which he expressed carefully and at considerable length, and which we shall briefly summarise. In his Honour's opinion, Rees, an accountant and experienced businessman, was a meticulous man with an eye for detail, and Trihey was in some respects no match for him. Rees, the judge thought, had for years chosen to keep accounts, minutes and other records in a deliberately incomplete, vague and disorderly way, to give himself room to manoeuvre subsequently and "to change the facts if the occasion required it"; he treated Sietel and Aqua-Max as if the companies were his own property; he obstructed the conduct of the case by failing to disclose properly documents which were clearly relevant; as a witness he was evasive and argumentative and prevaricated; his evidence had to be viewed with suspicion and scrutinised very carefully; on a considerable number of occasions he told deliberate lies. The judge said, in fine, "I formed a very unfavourable view of the credibility of R. Rees". For reasons which he again gave at considerable length, and which we do not summarise, the judge formed an unfavourable view of both Delwyn Rees and Geoffrey Rees; each of them had tried to mislead the court. The auditor, Tawil, was another important witness. Again for reasons which he gave, the judge rejected his evidence on a number of important points. A good deal more will be said of this later.

The judge's conclusions on the two principal issues

185. Section 260(1) and (2) of the Corporations Law provides -

" (1) An application to the Court for an order under this section in relation to a company may be made: (a) by a member who believes: (i) that affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members, or in a manner that is contrary to the interests of the members as a whole; or (ii) that an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interest of the members as a whole; or (b) ... " " (2) If the Court is of the opinion: (a) that affairs of a company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members (in this section called the `oppressed member or members') or in a manner that is contrary to the interests of the members as a whole; or (b) that an act or omission, or a proposed act or omission, by or on behalf of a company, or a resolution, or a proposed resolution, of a class of members of a company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members (in this section also called the `oppressed member or members') or was or would be contrary to the interests of the members as a whole ... "

190. During the trial the respondents relied upon both paragraphs of sub-s.(2). The trial judge made a detailed examination of the law relating to s.260, and the cases bearing upon a shareholder's statutory right to relief against conduct which is oppressive. After noting that s.260(1) and (2) had been in its present form since 1983, his Honour said that the cases established the following propositions applicable to the present matter -

(i) The court must proceed with caution in exercising the jurisdiction under s.260 in order to avoid any unwarranted assumption of responsibility by the court for the management of the company. (ii) In determining whether the conduct complained of falls within the section, it will be necessary for the court to undertake an exercise balancing the competing considerations of the interested parties. It is a question of fact and degree. (iii) It is not necessary that the conduct complained of is continuing at the date of the application. (iv) Whether the conduct falls within s.260 is to be determined objectively, that is, by the standard of reasonable directors possessed of the skills, knowledge and acumen of the actual directors. (v) The applicant must prove oppression or unfairness. (vi) But the applicant does not have to prove any actual irregularity, invasion of a legal right or lack of probity or want of good faith, although proof of any will be some evidence of oppression or unfairness. (vii) The applicant does not have to prove dishonest intent, purpose or motive: it is the effect of the acts and omissions which is relevant. (viii) However, if the directors are empowered to discriminate against members and to prejudice their interests, a decision to that effect made in good faith and for a purpose within power without more will not fall within s.260. (ix) The applicant may prove that the conduct complained of although in accordance with the constitution of the corporation nevertheless is unfair because it is contrary to the legitimate expectations of the members of the corporations.

194. The judge placed particular weight on what was called the "expectation principle". His Honour said that the JVA and the parties' interests in Aqua-Max created expectations which were superimposed on their rights under the constitution of the company. His Honour said that the failure to give effect to the expectations and understandings in the operation of the company as the joint venture vehicle might be contrary to s.260 even though there was no wrongful act. The second matter on which the judge placed particular emphasis was the fiduciary duty owed by a director to the company. His Honour then examined at considerable length the facts of the case, placing particular emphasis on the formula issue in April 1993 and the pro rata issue in November 1993, the consequence of these allotments being that the 20% shareholding held by MTA in Aqua-Max was reduced to 13.07% by the first allotment and to 0.076% in November 1993.

197. The judge found that the formula issue was miscalculated and was determined in breach of the JVA. His Honour found that Richard Rees was responsible for the error and that he and Delwyn Rees in resolving to issue the shares acted in breach of their fiduciary duties as directors to perform their duties for the benefit of the company as a whole. His Honour found that the formula issue of shares amounted to conduct which was oppressive and unfairly prejudicial to and unfairly discriminatory against MTA as a member of Aqua-Max.

200. The judge also found that the pro rata issue benefited Sietel and Cook's at the expense of MTA in Aqua-Max, was oppressive, unfairly prejudicial to and discriminatory against MTA as a shareholder in Aqua-Max, was not made for the purpose of raising capital in Aqua-Max or for any purpose to benefit the company or its shareholders as a whole; and was made for the dominant purpose of diluting the interest of MTA in Aqua-Max to benefit the financial interests of the Rees companies Sietel and Cook's. MTA was accordingly entitled to relief.

204. The appellants did not, either in their notice of appeal or in submissions, take serious issue with the legal propositions upon which the judge had relied. In the notice of appeal, however, the appellants claimed that the judge had erred in holding that the relationship between Sietel and the respondents was governed in whole or in part by the expectations and understandings of the parties not circumscribed by legal or equitable rights and obligations and not supported by the JVA. The appellants contended that the judge had erred in identifying certain expectations and understandings of the parties which were inconsistent with the terms of the JVA. The appellants' written and oral submissions focused on two principal findings of the trial judge as to specific conduct in which Sietel and its representatives had engaged, first the formula issue and secondly the pro rata issue. The appellants submitted that the judge erred in finding that these two share issues had amounted to conduct which was oppressive, unfairly prejudicial to or unfairly discriminatory against MTA. As to the formula issue the appellants submitted that, on its proper construction and using the figures adopted by the trial judge, the formula in the JVA entitles Sietel to at least the number of shares issued to it pursuant to the formula issue. The submission continued that even if his Honour's construction of the formula was correct, allowance should nonetheless have been made for accrued but unpaid interest, being compound interest. A third submission as to the formula issue was that in any event, even if there had been error in construing and applying the JVA formula, any such error was incapable of constituting oppression. It was submitted that Richard Rees construed and applied the formula in a way that a reasonable director could readily have done; and that on an objective test the approach adopted was not oppressive or unfair and therefore that the findings of the judge that the formula issue was motivated by self-interest and involved a breach of the fiduciary duties of Richard and Delwyn Rees and was thereby vitiated was not open on the evidence. As to the pro rata issue the appellants submitted that the finding that it was motivated by an improper purpose was not reasonably open. In respect of the judge's treatment of oppression and unfairness generally the appellants submitted that the judge had given too wide an operation to the concepts of legitimate expectations and understandings of the parties, had identified expectations and understandings which were inconsistent with the terms of the JVA and to the extent that either or both of the findings of oppression and unfairness drew support from other findings as to the credit of witnesses these also were tainted by error and should be set aside.

207. In this Court, the respondents supported the judge's conclusions and submitted further that the appellants' arguments concerning oppression or unfair conduct failed to take into account the requirement that the whole of the conduct of the oppressor should be assessed cumulatively. The respondents submitted that in determining whether there has been oppression the Court does not look separately at individual incidents which of themselves may not amount to oppression or unfair prejudice or unfair discrimination against a particular member, but rather looks to the cumulative effect of the whole of the actions and conduct in the circumstances of the case. It was submitted that s.260 invites attention not to events considered in isolation but rather as part of a consecutive story. The respondent relied on specific findings of conduct made by the trial judge quite apart from the findings concerning the two share issues, which it was submitted had been found by the judge to be conduct which was oppressive against MTA. His Honour, it was argued, had found that Sietel, by its representatives, had embarked upon a pattern of conduct determined to destroy the interest of MTA as a shareholder of Aqua-Max. In particular, the respondents relied on the principle that conduct may be lawful, but still be oppressive or unfairly prejudicial.

Oppression arising through the consequences of one party's conduct

211. From the foregoing it may be seen that the dispute between the parties is not so much as to the law but rather as to the judge's conclusions of fact. It is nonetheless necessary in this judgment for us to consider some of the cases which demonstrate that conduct may still be oppressive or unfairly prejudicial, notwithstanding that the conduct is lawful, or accords with the company's constitution, having regard to its effect upon the minority shareholder. Some of the cases to which we refer relate to the concept of "just and equitable" as a ground for winding up, but there is high authority for applying the same reasoning to the concept of oppression in s.260; see O'Neill v. Phillips[1]. In Re Wondoflex Textiles Pty. Ltd.[2] was a case where the company was held to resemble a partnership. Smith, J. said -

"It is also true, I think, that, generally speaking, a petition for winding-up, based upon the partnership analogy, cannot succeed if what is complained of is merely a valid exercise of powers conferred in terms by the articles; ... to hold otherwise would enable a member to be relieved from the consequences of a bargain knowingly entered into by him; ... but this, I think, is subject to an important qualification. Acts which, in law, are a valid exercise of powers conferred by the articles may nevertheless be entirely outside what can fairly be regarded as having been in the contemplation of the parties when they became members of the company; and in such cases the fact that what has been done is not in excess of power will not necessarily be an answer to a claim for winding-up. Indeed, it may be said that one purpose of [the just and equitable provision] is to enable the court to relieve a party from his bargain in such cases."

This passage was quoted by Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd.[3], in a passage which described the whole judgment of Smith, J. in Wondoflex as being of value. In Re M. Dalley & Co. Pty. Ltd.[4] Lush, J. said -

"In my opinion want of probity is only one of the ways in which oppression can manifest itself, ... One person may `subject another to continual injustice' by insisting, however honestly, on a proposition that is wrong or by using his strength to maintain, however honestly, a position unjustified in law. ... Section 186 [the predecessor in the Companies Act 1961 of s.260] is, upon the authorities, a wide remedial section not to be narrowed in the manner contended for by an interpretation of the first judicial observations made upon it. It is to be observed that it speaks of oppression in terms of its impact on the oppressed, not in terms of the intention of the oppressor, except to the extent that the word itself has some moral or emotional content."

217. Section 260 of the Corporations Law resulted from a series of amendments made to its precursors, which included s.186 of the 1961 legislation and s.320 of the Companies Code 1981. In 1983, s.320 had been broadened to include conduct which is "unfairly prejudicial to or unfairly discriminatory against a member or members" rather than merely oppressive, and to include discrimination against a member other than as a member. In Wayde v. New South Wales Rugby League Ltd.[5] Brennan, J. said that s.320 -

"... broadens the grounds of intervention. Clearly the legislature intends to provide a greater measure of curial protection to members of a company, especially if they be in a minority, than the protection afforded under earlier Companies Acts."

"The operation of s.320 may be attracted to a decision made by directors which is made in good faith for a purpose within the directors' power but which reasonable directors would think to be unfair. The test of unfairness is objective ... the test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision would impose, and address their minds to the question whether a proposed decision is unfair."

In Thomas v. H.W. Thomas Ltd.[6] Richardson, J. said of the New Zealand equivalent of s.260 that -

"I do not read the sub-section as referring to three distinct alternatives which are to be considered separately in watertight compartments. The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the sub-section that the conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint under s.209. The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company. It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company."

There are numerous cases which look to the effect (including the cumulative effect of all the various pieces of unfairness) independently of the question whether the alleged oppressor's actions are legal or comply with the articles of association; see In re H.R. Harmer Ltd.[7]; Re Norvabron Pty. Ltd.[8]; Morgan v. 45 Flers Avenue Pty. Ltd[9].; Residues Treatment and Trading Co. Ltd. v. Southern Resources Ltd. (No. 2)[10]; McWilliam & Anor v. L.J.R. McWilliam Estates Pty. Ltd. & Ors[11]; Reid v. Bagot Well Pastoral Co. Pty. Ltd.[12]; Fexuto v. Bosnjak Holdings Pty. Ltd.[13]; Re Quest Exploration Pty. Ltd.[14]; Popovic v. Tanasijevic[15]. See also Jennifer Hill, "Protecting Minority Shareholders and Reasonable Expectations"[16]; G.P. Stapledon, "Use of the Oppression Provision in Listed Companies in Australia and the United Kingdom"[17]; Robson's Annotated Corporations Law[18]; Ford's Principles of Corporations Law[19].

226. From what has already been said, it can be seen that the appellants' arguments, which were very well and succinctly made, focused first on the issue of the credibility of witnesses, secondly on the formula share issue, and thirdly on the pro rata share issue, notwithstanding that the judge's conclusions as to oppression and unfairness had been founded on a whole course of conduct and events stretching from November 1993 back to November 1991, when Aqua-Max stopped paying MTA and Malz invoices in full. It is to these three principal issues that we now turn.

230. The judge's conclusions as to the credit of witnesses were of particular importance in the resolution of this case. It has been said many times that where, as in the present case, the judge has had the advantage of seeing and hearing witnesses on contested questions of fact, the appellants' task is a difficult one: Abalos v. Australian Postal Commission[20]; Devries v. Australian National Railways Commission[21]; Mobilio v. Balliotis[22]. A clear statement of why this must be so was given by Lord Sumner in S.S. Hontestroom v. S.S. Sagaporack[23] in the following terms -

"not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it. If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact should, as I understand the decisions, be let alone."

In Abalos this passage was quoted by McHugh, J. in the passage previously referred to in his leading judgment with which Mason, C.J., Deane, Dawson and Gaudron, JJ. all agreed. His Honour went on to point out that -

"Consequently where a trial judge has made a finding of fact contrary to the evidence of a witness but has made no reference to that evidence, an appellate court cannot act on that evidence to reverse the finding unless it is satisfied `that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge's conclusion'": Watt or Thomas v. Thomas[24].

236. In Walsh v. Law Society of New South Wales[25] the issue was put in the following way by McHugh, Kirby and Callinan, JJ. in a passage in which their Honours again referred to Abalos and Devries -

"the appellate court will be bound generally to defer to any conclusions on the question of credibility formed by the Court or tribunal from whom the appeal is brought where the latter has seen and heard the witnesses. In particular circumstances, it will be open to an appellate court to reach conclusions contrary to those of the Court or tribunal below, notwithstanding a credibility finding. Sometimes it will be authorised to reject those findings where they are `glaringly improbable' or `contrary to compelling inferences' of the case. But the caution required of all appellate courts in such matters has long been recognised and frequently upheld in decisions of this Court."

See also Bedek v. Brown[26]; FEO v. Pioneer Concrete (Vic.) Pty. Ltd.[27]; Rosenberg v. Percival[28]. Cf. State Rail Authority of N.S.W. v. Earthline Constructions Pty. Ltd.[29].

241. The appellants submitted that in so far as the findings of oppression and unfairness drawn by the judge against it drew support from other findings as to the credibility of witnesses, they should be set aside because of errors in respect of those findings. It was submitted that the judge's fact-finding process had been tainted by the making of inconsistent findings regarding the respective credit of Trihey and Richard Rees, and that the treatment of the credit of witnesses for the appellants had been infected by incorrect and irrelevant considerations and findings which were not reasonably open. We will deal briefly with criticisms of each of these witnesses in turn, but before doing so we observe that the principal witnesses called for the appellants were Richard Rees, Geoffrey Rees, Delwyn Rees and Tawil. Each of these witnesses gave lengthy evidence before his Honour, Richard Rees having given evidence in the witness box on no less than fifteen days, Geoffrey Rees on six days, Delwyn Rees on five days and Tawil on four days. Three additional witnesses of the appellants upon whom the trial judge commented unfavourably were Fiddler, Croxford and Patton, each of whom gave lengthy evidence before his Honour on two days. The respondents' principal witness, Trihey, gave evidence for four days.

245. It is necessary now to set out some of the specific findings made by the judge in relation to these witnesses. We have referred to them in passing in stating various of his Honour's findings. His Honour found that the evidence was littered with examples of Richard Rees doing what he liked with respect to records, minutes and accounts. His Honour was satisfied that Richard Rees together with the appellants' solicitor had obstructed the conduct of the case by failing properly to disclose documents which were clearly relevant and that the events of the first two weeks of the trial had shown that "a campaign was waged by the Rees' side to obstruct the other side from gathering information". His Honour found that Richard Rees had prevaricated in answering questions concerning the importance of Trihey to the project in 1992 and had sought to minimise the contribution made by Trihey to the project. The judge said that Rees had scant regard for the obligations that rested upon him as a director of Sietel and Aqua-Max, the interests of the minority shareholders in the two companies or legal formalities, and had treated both Sietel and Aqua-Max as his empires to do what he wished with them. His Honour said that as a witness, Rees "became progressively evasive, prevaricated and sought to put forward arguments rather than answer the questions". His Honour said that in certain respects Rees had been less than frank and with respect to some parts of his evidence had told deliberate lies. In general his Honour said that he had "formed a very unfavourable view of the credibility of Mr Rees".

248. The judge said that he also had formed an unfavourable view of Delwyn Rees, and said of him that he had been less than frank with the Court, seeking to hide behind a bad memory and advancing age. In particular his Honour said that in so far as Delwyn Rees had sought to distance himself from the events of 1993 he had deliberately misled the Court. The judge said that Rees had a central involvement in the events of 1993, and that his hand had been on many of the documents produced during that year. To the contrary of the impression sought to be given, Delwyn Rees, the judge said, was deeply involved in the planning of procedures for the pro rata allotment of shares in October-November 1993 and had been involved in the strategy and tactics which were employed by the Rees' side and Sietel during that year. In relation to four sets of minutes of directors' meetings of Sietel which Delwyn Rees had signed as correct, and which recorded the presence of Lillie, his Honour said that Lillie was in fact overseas at the time and Delwyn Rees's evidence on these issues was rejected.

251. The judge also found Geoffrey Rees to be an unsatisfactory witness. In particular, in so far as Geoffrey Rees sought to distance himself from the plans that were followed during 1993, and which had the effect of diluting MTA's shareholding in Aqua-Max, his Honour said that there had been a delay in the implementation of the pro rata issue because the Reeses were following a plan and had to ensure that everything was done properly, and that Geoffrey Rees had been heavily involved in discussions and the implementation of these plans.

254. The judge also made reference to James Lillie, who, his Honour said, presented as a very vague, confused and elderly man, who had an appalling memory of events, and who obviously had not given any thought to preparing himself before he got in the witness box. His Honour placed very little reliance upon the evidence of Lillie.

257. The judge also found Tawil an unsatisfactory witness, saying that Tawil had shown a bias in favour of Sietel and Richard Rees, that Sietel and its related entities had been good and valued clients whom Tawil did not wish to lose, and that he had not adopted an impartial position as between Sietel and Richard Rees on the one hand and MTA and Trihey on the other. Tawil's credit was an important aspect of the appellants' case, Richard Rees in particular having sworn that Tawil had required Aqua-Max to make the pro rata share issue. Tawil, for his part, swore that the letter of 25 March 1993 which set out his concerns as to Aqua-Max's financial statements for 30 September 1992 and stated a concern that the company was technically insolvent, followed by his suggesting three possible courses of action, was all his work, assisted by somebody else in his office. His Honour found -

"The sequence of events clearly show that R. Rees received the draft subordination letter prepared by his brother on about 25 March, there was a discussion with his brother G. Rees and also Mr Tawil and the clear inference is that the letter of 25 March, signed by Mr Tawil, was as a result of suggestions made by R. Rees."

261. His Honour, as we have said, also commented unfavourably on the evidence given by Patton, Fiddler and Croxford.

264. The appellants principally attacked the submissions made by his Honour in relation to Richard Rees and Tawil. In so far as Rees was concerned, it was submitted that there was no evidence whatever to support the view that Tawil's letter of 25 March 1993 was prepared by Rees, and that the conclusion was insupportable and wrong. This finding was then said to be the principal basis for the judge's incorrect conclusion that the pro rata issue of shares made on 3 November 1993 was not made for the purpose of raising capital in Aqua-Max or for any purpose to benefit the company or its shareholders as a whole, but rather was made for the dominant purpose of diluting the interest of MTA in Aqua-Max.

268. The judge noted that Tawil had made an agreement with Richard Rees under which Sietel was to forego a claim against Duesburys (the company's auditors) for rent, if Duesburys reduced the audit fee to $9,500. His Honour said that the making of this deal compromised Tawil's independence when it came to dealing with Sietel and Aqua-Max. The appellants' first complaint in relation to his Honour's findings as to the credit of Tawil was that the arrangement was merely a commercial set-off which could not reasonably have been regarded as affecting Tawil's independence. The rent obligation had been incurred by a different Duesburys partner acting as receiver for the company. It was submitted that there was nothing sinister in the arrangement and nothing improper about the making of it. Secondly, complaint was made that his Honour had found that Tawil was "very close to the Rees side", because he had taken instructions from Richard Rees regarding the accounts and had spoken to Geoffrey Rees, who was advising Sietel. Thirdly, his Honour had found that Tawil lacked independence because he "showed a bias in favour of Sietel" and Richard Rees and "did not adopt an impartial position". The appellants submitted that the evidence showed that Tawil did no more than agree with the evidence called on behalf of Sietel regarding the circumstances surrounding the pro rata issue, which fell far short of bias or lack of impartiality. It was also submitted that he had no reason for being biased or partial to Sietel, and that by the time he gave evidence he had ceased to be auditor for the Sietel group.

271. In our view the judge's conclusion that Tawil was close to the "Rees side" and had not adopted an impartial position was well supported in the evidence. Tawil had been the auditor of Aqua-Max for five years and in that period had had frequent discussions with Richard Rees. He said in evidence that in that time he had never interviewed Trihey. Notwithstanding the variety of disputes about matters such as rental and interest payable by Aqua-Max to Sietel Tawil had not found it necessary even to speak to Trihey about these matters. It was Tawil who suggested to Richard Rees that another director of Aqua-Max be appointed after Trihey had refused to sign the accounts of Aqua-Max for the year ended 30 September 1992. Tawil was well aware of the existence of the various disputes as to the accounts between Trihey and Richard Rees, which led to Trihey's refusal to accept the accounts by signing them. In these circumstances the making of the suggestion to Richard Rees that a further director be appointed to Aqua-Max, thus enabling the new Aqua-Max board to bypass Trihey's refusal to sign the accounts, seems to us quite inconsistent with his claim to be independent of the shareholders. We would not ourselves have placed particular weight upon the fact that Tawil had confirmed the arrangement with Richard Rees whereby Sietel was to forego its claim against Duesburys for rent. But it is in our view perfectly clear that the judge's unfavourable view of Tawil as a witness was based on a proper assessment of his evidence as a whole. On no view could those findings be said to be "glaringly improbable" or "contrary to compelling inferences"[30]. As to the real authorship of Tawil's letter to the directors of Aqua-Max dated 25 March 1993, the judge had said that -

"The sequence of events clearly show that R. Rees received the draft subordination letter prepared by his brother on about 25 March, there was a discussion with his brother G. Rees and also Mr Tawil and the clear inference is that the letter of 25 March, signed by Mr Tawil, was as a result of suggestions made by R. Rees."

Richard Rees and Tawil were both cross-examined at length about the authorship of this letter. Tawil admitted under cross-examination that he had spoken to both Geoffrey and Richard Rees before writing the letter. The evidence supported the view that there had been a discussion on 24 March with Geoffrey Rees in which Tawil said that he would accept a subordination of that amount of the debt which would cover the deficiency in shareholders' funds, and discussed sending a copy of a proposed subordination letter, and Tawil in fact sent Geoffrey Rees such a letter. It was in response to a request by Richard Rees that the letter of 25 March to the Aqua-Max directors was written by Tawil. In our view, the judge was perfectly entitled to draw the inference from the evidence before the Court that Richard Rees, rather than Tawil, was the actual sponsor of the letter of 25 March. Indeed at one point in cross-examination Tawil was asked why he had prepared the letter of 25 March, to which he replied, "I was asked by Richard Rees." The question was repeated, "You were asked by Richard Rees to write that letter?" and answered "Yes".

277. We refer first to the judge's findings as to the credit of Richard Rees. The appellants criticise the findings in relation to Rees on the ground that his Honour did not apply the same standard to the witnesses of the respective parties. An instance of this is said to be the notes of meetings and appointments kept by each of them which, so it is said, in Rees's case substantially supported his evidence, whereas Trihey in contrast kept very few notes and on one occasion his notes were found to have contradicted his oral evidence in material respects. His Honour said that both Trihey and Rees were emotionally involved in the litigation but viewed the antipathy towards Trihey which he identified in Rees as going to his credit, whilst finding that Trihey was an honest witness, despite several admissions made by Trihey about false statements he had made in the past. Thirdly, the judge regarded as telling that certain witnesses for the appellants had financial interests in the proceeding, whilst apparently not treating as significant the same consideration on the part of Trihey. Next, those witnesses whose evidence was treated as confirmatory of Trihey were accepted as truthful, whilst others, whose evidence agreed with Rees, were seen as taking the side of Sietel and as being suspect on that account alone. In addition to these submissions, the judge's credit findings were then challenged on a number of specific points.

280. We should say at once that we do not regard any of these matters as seriously undermining the judge's views as to the credit of the various witnesses, or as suggestive of such error that any of the findings cannot stand. His Honour gave a large number of instances, in our view well supported by the evidence, for finding Richard Rees, Geoffrey Rees and Delwyn Rees to be unsatisfactory witnesses. In so far as Richard Rees is concerned occasions when the judge rejected or was unable to accept his evidence included the evidence as to a meeting of shareholders of MTA called on 16 May 1997, which he attended representing Sietel as a minority shareholder, at which he was nominated as a director of the company and at which there was substantial discussion of the topic; his evidence as to the attendance of Lillie at meetings of the board of Sietel; his evidence as to the resignation of Croxford from MTA in January 1993; his evidence as to the giving of a $600,000 credit in favour of Aqua-Max by Sietel; his evidence that he warned Trihey that Lillie and Delwyn Rees would be present at a meeting on 15 March 1993 and that it was to be a directors' meeting; his evidence that Tawil had told him in March 1993 that Aqua-Max must issue pro rata shares; and his evidence that Trihey had agreed to the issue of 480,000 shares in Aqua-Max at a directors' meeting on 12 February 1993.

283. The difference in the approach of the judge to the various witnesses is, of course, in part to be explained by their respective qualifications and experience. As we have already noted in paragraph [52] above the judge found that Trihey was no match for Richard Rees. Trihey had been an inventor for many years and his Honour said of him that whilst he accepted that he was "not entirely naive when it comes to business matters, he is hardly experienced in the ways of accountancy, law, finance or the commercial world". Richard Rees on the other hand was described by his Honour as an accountant and businessman, who had graduated with a university degree in commerce and qualified as a chartered accountant. He had worked for seven years with a leading accountancy firm, performing audit work, and throughout the relevant period had been managing director and secretary of Sietel and Pyrox Ltd., the previous persona of Sietel. The minutes of board meetings both for Sietel and Aqua-Max maintained by Richard Rees entirely justify the judge's unfavourable views of Rees's method of keeping records. The first specific finding with which the appellants take issue is the subject of the complaint that Richard Rees was not heavily involved in preparing the affidavits of other witnesses for the appellants. The submission was that the suggestion that he had assisted with the preparation of affidavits had been consistently rejected by witnesses.

286. The judge's statement that Richard Rees had been heavily involved in the preparation of the affidavits of other witnesses was, it must be said, very much at the periphery of the detailed reasons given by his Honour for largely accepting the evidence of Trihey, and for repeatedly rejecting the evidence of Rees. A substantial number of passages in the evidence of various witnesses were referred to by the appellants in support of this submission, but, upon examination, they do not support the appellants' contention. For example, the witness Tuininga recalled having a meeting with Rees, and accepted that exhibits to his affidavit had come from Rees, and that some of it would have been prompted by things that Rees produced at a meeting with him. Geoffrey Rees accepted that he had discussed the case with both Delwyn and Richard Rees. Robert Collister did not reject the suggestion that he had discussed the matter with Richard Rees, his evidence being simply that he had had discussions "mostly" with Mr Jonas, the appellants' solicitor. Fiddler, having first said that he prepared his affidavit mainly at home, later said that he had prepared his affidavit after a very long meeting with Jonas in the boardroom at Sietel. Croxford said that his affidavit was prepared with Jonas at the premises of Aqua-Max, and that Richard Rees was present the whole time. Lillie gave evidence that Richard Rees was present while his affidavit was being prepared. Tawil said his affidavit was prepared in conjunction with Jonas and, when asked, "Did anyone else assist you?", said that Richard Rees was in the room. To the question, "And Mr Richard Rees and Mr Jonas came up to see you and interview you about facts and events?" Tawil replied, "That's correct". The judge was, we think, plainly correct in saying that Richard Rees had been heavily involved in preparing the affidavits of other witnesses for the appellants.

289. The second matter of specific error upon which the appellants relied was the statement made by the judge that the "round robin" cheques paid between Sietel and Aqua-Max in November 1993 had been revealed only in cross-examination and only after records were subpoenaed from the National Bank. His Honour did indeed say that these events had not been revealed by Richard Rees in his evidence-in-chief and that the evidence only emerged when bank records were subpoenaed from the National Bank. These statements were, with respect, not correct. Rees did indeed give brief evidence-in-chief about this subject, in answer to one question. Rees had however produced a very lengthy affidavit for the purposes of the trial, which had taken some two weeks to prepare. The fact that the money paid to Aqua-Max by Sietel for the shares taken up in the pro rata issue in November 1993 had almost immediately been repaid nearly in full by way of the round robin was not mentioned at all in Rees's affidavit, a matter of significance on which his Honour would have been perfectly entitled to make adverse comment. The Aqua-Max board minute of 4 November 1993 relating to the repayment was not discovered and had not been produced until after the trial began. Rees was cross-examined in relation to these matters and as to his failure to depose in his affidavit to the fact that Aqua-Max had paid $520,000 to Sietel on 5 November. In our view his Honour may well have found Rees's evidence on these issues less than persuasive.

292. The third specific error upon which the appellants relied in this regard was the judge's statement that it was extraordinary for Richard Rees to have decided after September 1993 on behalf of Sietel to forgive $600,000 of the debt owed by Aqua-Max, without reference to Sietel's shareholders. The submission was that the internal operations of Sietel were irrelevant to the matters falling for decision in the trial, but that in any event the finding was in error because it was evidently for the benefit of Sietel that the financial position of Aqua-Max be improved, Aqua-Max then being "Sietel's wholly-owned subsidiary". Accordingly, it was submitted that it was not in the interests of Sietel for Aqua-Max to be in a financially precarious state.

295. This criticism of the judge's findings mistakes, we think, the purport of his Honour's reasoning. Richard Rees's decision that Sietel forgo this debt owed by Aqua-Max in 1993 was mentioned by his Honour in the context of Rees's failure to refer that decision to the shareholders of Sietel. The respondents had submitted at trial that the decision to credit the sum of $600,000 in favour of Aqua-Max was actually made in August, or backdated to before 31 August partly to meet promises which had been made by the directors of Aqua-Max in March to Tawil, to ensure that Tawil as auditor would pass Aqua-Max's accounts without qualification. The evidence given by Richard Rees on this issue was in several respects open to question, not least because, in his very lengthy affidavit of 10 February 1998, he had sworn that in August 1993 amounts totalling $600,000 were credited by Sietel in Aqua-Max's favour, "i.e. were deleted from the loan account because Aqua-Max was doing so badly it appeared it would not be able to ever pay the debt." His Honour would have been given cause to question this evidence in light of the fact that as far back as 1991 approval in principle had been given by all relevant authorities for a five-star energy rating gas hot water storage unit, and that by 30 November 1991 in the operations of Aqua-Max, as his Honour found, "all systems were go". The production line had been installed and was then in use. His Honour found that the project was then proceeding efficiently and as expeditiously as possible with every confidence that it would be successful. In August and September 1992, Aqua-Max received its first income from the project, in cheques totalling $494,547. Trihey and Richard Rees endorsed these cheques to Sietel as part repayment of its loans. Counsel for the appellants put to us during oral submissions that, by late in 1993, Aqua-Max was becoming profitable. In any event, even if Aqua-Max could have been described as being in a precarious state late in 1993, his Honour was, we think, perfectly entitled to express surprise at Rees's evidence, and to use this event as an example of his being responsible for decisions made by the board of Sietel with little regard for minority shareholders.

298. Other criticisms of the judge's findings as to credibility were made by the appellants from time to time. None of these was in our view a matter of substance and, it follows that the appellants' attack on his Honour's findings as to credit must fail.

302. On 15 March 1993 there took place, so the appellants contend, a board meeting of Aqua-Max at which Delwyn Rees was appointed a director. The respondents challenge the validity of that meeting and hence that appointment. The board meeting of Aqua-Max of 6 April 1993, which resolved to allot 1062 shares to Sietel, and the board meeting of Aqua-Max of 3 November 1993, which resolved to allot shares of the pro rata issue, were both constituted by Richard and Delwyn Rees. For the meeting of 15 March 1993 - we shall call it a meeting while leaving open the question of its validity - was the last board meeting of Aqua-Max attended by Trihey.

305. By article 73 of the articles of association of Aqua-Max, the number of directors whose presence was necessary to constitute a quorum was such number as was determined by the directors and, unless so determined, was two. There is no suggestion that the directors had ever fixed a number other than two under this article. By article 70(2), at board meetings the chairman of the meeting had a casting as well as a deliberative vote. Article 61(1) authorised the directors to appoint at any time any person to be a director as an addition to the existing directors. This is the power that was supposedly exercised on 15 March 1993.

308. Section 251 of the Corporations Law as in force at the relevant time empowered the Court to convene a general meeting of a company if for any reason it was impracticable to do so. The power of the Court under the section included power to give a direction that one member should be deemed to constitute a meeting. But Sietel never attempted to invoke this power.

311. The main attack made at the trial on the validity of the meeting of 15 March was based on the contention that Trihey had been given no notice of it and had never agreed to the holding of a meeting. It was clear on the evidence that he had been given no notice of the meeting and the judge found that he had been "ambushed" by Richard Rees in that he had walked into the room in which the supposed meeting took place without realising that Rees intended to spring a meeting on him. The judge took the view (which was, with respect, plainly correct) that, if Trihey had simply walked out of the room once Rees tried to convert the encounter into a board meeting, that would have put an end to the matter, but that Trihey had so conducted himself as to give rise to the inference that he agreed that a directors' meeting should be held on the spot. By their notice of contention the respondents challenge that finding.

314. It is necessary now to deal in some detail with the evidence of what took place on 15 March. It must be said at the outset that the events of that day, and the attempts of Richard Rees and his father to uphold by their evidence the validity of what had been done, reflect no credit on them. Four people gave evidence, both affidavit and oral, about the doings of that day: Trihey, Richard Rees, Delwyn Rees and James Lillie. Of the last the judge said:

"He presented as a very vague, confused, elderly man, whose memory of the events was appalling and who obviously did not give any thought to preparing himself before he got in the witness box. I indicated to counsel in the course of final addresses that I placed very little reliance upon his evidence."

A reading of the transcript makes his Honour's observations come as no surprise, and the judge's criticisms of Lillie's evidence have not been attacked by appellants' counsel. That leaves three witnesses. As earlier mentioned, his Honour was critical of the evidence of Delwyn Rees, saying, among other things, with ample justification, that he sought to portray himself during his evidence as an elderly person, confused and suffering from memory lapses. His Honour regarded this as a deliberate attempt to distance himself from events in which he had been deeply implicated. A reading of the evidence of this witness, coupled with the material as a whole, shows no basis for challenging his Honour's assessment. The real protagonists, on the question what took place at the supposed meeting of 15 March, were Trihey and Richard Rees. We do not think it necessary to summarise the affidavit or oral evidence either of Lillie or of Delwyn Rees about the events of that day; we have considered the whole of it.

319. By 15 March 1993 Sietel was embarrassed by Trihey's refusal to sign the Aqua-Max accounts for the year ended 30 September 1992. We deal with this refusal elsewhere in these reasons. It was clear to Sietel that Trihey was unwilling to attend Aqua-Max directors' meetings. He had told Richard Rees on 25 March 1992 that he would not be attending future directors' meetings. On the morning of 15 March Delwyn Rees and Lillie came to the Aqua-Max factory by arrangement with Richard Rees and there held a Sietel board meeting. This took place in a meeting room used for both formal and informal meetings, which adjoined what was called the tearoom. According to the remarkably scrappy set of minutes of this meeting, it discussed the situation concerning the outstanding accounts - meaning the accounts for the year ended 30 September 1992 - and the National Bank and resolved "that Aqua-Max should proceed with change despite J.T. opposition". This was a reference to the proposal that Sietel and Aqua-Max should both change their banker, the proposed new bank being the National Australia Bank, and to the opposition of Trihey.

322. The uncontradicted evidence was that, as one would expect, informal meetings took place from time to time between Trihey, Richard Rees and other persons concerned in managing the affairs of Aqua-Max.

325. The account of the impugned meeting given by Trihey in his affidavit is as follows:

"25. On 15 March, 1993 matters came to a head. I was eating morning tea in the tearoom which was one of the three rooms at the end of the Aqua Max area at the western end of the building. About half a dozen people were also there who were involved in the Aqua Max project. Richard Rees came into the room and said words to the effect of `John, I would like to have a meeting'. I then followed Richard through to the meeting room which was through another room nearby, to discover that in that room were Delwyn Rees (Richard's father) and a Mr Lillie. Both those gentlemen are directors of Sietel Ltd. 26. As I walked into the room with Richard Rees, Delwyn Rees looked at me and said words to the effect of `John, this is a directors' meeting of Aqua Max'. Delwyn Rees was not a director of Aqua Max. I replied that I did not agree. I believe I also said that there had been no notice or no sufficient notice. Delwyn Rees then said to Richard Rees that he wanted Richard to nominate him to be a director of Aqua Max. Richard Rees then said that he nominated Delwyn Rees as a director. This was immediately put to the vote despite my protests against this. Delwyn Rees said that Richard, being the representative of the major shareholder (Sietel) had a casting vote and Richard said that he would vote for Delwyn to become a director. Delwyn then said `I am a director' and declared that the meeting was over. I then immediately went to see my solicitors."

329. Trihey was cross-examined at some length about the meeting and in particular about a note he had made of what had taken place at it. He said in cross-examination that when he was having morning tea he was approached by Richard Rees, who said, "John, can we have a meeting?", that he and Rees then went into the room and that, having entered the room, he saw Delwyn Rees and Lillie, who were round the corner. When he walked into the room Delwyn Rees said, "John, this is a directors' meeting". The whole meeting took only about one and a half minutes. It was Delwyn Rees who said "Put it to the vote, Richard". Richard Rees then voted for the appointment of Delwyn Rees as a director but he himself did not vote against it: he said, "No, this is not correct". Delwyn Rees then said, "Richard, as you are the majority shareholder, you cast the deciding vote". After Richard Rees did so, Delwyn Rees said to him, Trihey, that now that he, Delwyn, was a director he, Delwyn, could sign the accounts and the bank accounts.

332. Trihey was cross-examined about his note of the meeting, which we do not reproduce in full here. Again in the interests of brevity, we do not reproduce the minutes of the meeting, prepared by Richard Rees. Trihey swore that his own note was made immediately after he had left the meeting and returned to the tea table, and that the whole of this note was made at the same time. Trihey's note includes the following:

"PUT TO VOTE RR SAID YES J.T. " NO *I WOULD HAVE TO TALK TO MY SOLICITOR"

"Although I am satisfied that J. Trihey was ambushed and secondly that he protested about the meeting, he did stay at the meeting and voted against the motion that D. Rees be appointed a director."

His Honour then referred to the note made by Trihey after the meeting, which was headed "Aqua Board Meeting", and said that by staying in the room Trihey "accepted that it was a directors' meeting despite the ambush". Trihey gave evidence that "it wasn't meant to be a voting process" and that he was "very wound up at this time".

341. The evidence of Richard Rees about the meeting conflicted in important respects with that of Trihey. According to the affidavit of Rees, he told Trihey that Delwyn Rees and Lillie would be at the meeting when he asked Trihey to come to it. He also swore that when he and Trihey entered the room he himself said that it was a meeting of Aqua-Max directors and that they then had an amicable discussion in which Trihey did not protest that a directors' meeting had not been properly convened. Cross-examined, Richard Rees said, "I explained before we got into the meeting what the meeting was for". Later he said "as we walked into the room I told him there'd be a - there's a meeting of directors". Later again he said, "On walking into the room, we've got the room there, we decided to have the meeting in the room." Still later he reiterated that, when Trihey was at the tea table, he asked him if he would come for a meeting at which "Dad and Jim" would be present and said that they were going to have a directors' meeting to try and solve the accounts thing. All this happened before they walked into the meeting room. At no stage did Trihey complain about the holding of a meeting.

344. His Honour found - and that this finding was open to him has not been challenged in argument - that "the plan was to get J. Trihey into a room, hold a meeting before he could leave and have D. Rees appointed as a director on the casting vote of R. Rees as Chairman". (Our emphasis.) This is a finding most damaging to the appellants. It is a finding that the intention was to provide a simulacrum of a meeting. This is not to say that, as events turned out, nothing but a simulacrum was created - that is a different question. The discreditable intention has a relevancy of its own, regardless of the actual consequences, for it bears on credibility, oppression and - as will become apparent in a moment - the application of principles of equity.

"I accept J. Trihey's version as to what happened. That he was deceived into going into the room on the basis that there was to be a meeting between he and R. Rees, that when he was told it was a directors' meeting he stated that he did not agree and that he had received no notice. I am satisfied that the meeting took a short period of time. I have no doubt that the course of action was pre-planned by R. Rees, D. Rees and Lillie and it was part of the plan to catch J. Trihey by surprise. I am satisfied that he was caught by surprise."

The finding of surprise - another finding not challenged in argument before us - is also of importance when one comes to consider oppression and in addition the principles of equity.

352. It is accepted by the appellants that the judge is to be taken as having accepted the evidence of Trihey about what took place shortly before and at the meeting and his evidence about his making of a note.

355. Ever since the unsuccessful attempt to waylay Canon Barron at Paddington Station[31] it has been recognised that the kind of conduct engaged in by Richard Rees on this occasion will not result in a directors' meeting if the victim does not expressly or by implication agree that a directors' meeting shall take place. Here there is a finding of agreement. We do not conceal our dislike of the trick practised in this case, and if the only avenue of escape for the respondents lay in their attack on this finding of the judge we should wish to consider very seriously whether the finding should stand. But for two reasons we need not decide this question. In the first place, a finding that the meeting was good at law does not necessarily mean that it can successfully withstand the scrutiny of equity. The principles of equity were not relied upon before the judge and were understandably not mentioned by him. Nor were they put forward by the respondents on appeal. But they seem to us to clamour for attention. On the findings made, one has the instinctive reaction that the stage may well be set for equitable intervention. Richard Rees and his father, together with Lillie, set out to entrap Trihey. They trick him into attending a meeting. ("The plan was to get J. Trihey into a room, hold a meeting before he could leave ...".) They think so little of the rights of others that they imagine that a charade of a meeting will do - a few words quickly uttered before Trihey realises what is going on and is able to leave the room. Trihey, having been tricked, is taken by surprise. He becomes "very wound up". The supposed meeting is conducted with a fine disregard for procedure. Two strangers are present - Delwyn Rees and the compliant Lillie - and it cannot be said that they are there simply as possible candidates for election as directors. For Delwyn Rees assumes, or does his best to assume, control of the meeting at which he has no right to be present.

358. Then there are the personal circumstances of the four persons present. One of them, Lillie, may not unfairly be regarded as the tool of Richard Rees and his father. The second is Richard Rees, described by the judge as intelligent, educated and an experienced businessman. He had been secretary, finance manager and managing director for many years of a public listed company. He was a chartered accountant and had worked for seven years with a leading accountancy firm. The third man present, Delwyn Rees, was the chairman of the listed public company and the head of the family which controlled it. He was a most experienced businessman. Trihey was, as the judge found, hardly experienced in the ways of accountancy, law, finance or the commercial world. He was described by the judge as no match for Richard Rees. By the artifice of the father and son, aided by Lillie, he was placed in a position where, without any opportunity for reflection, let alone the taking of advice, he had to decide whether to walk out of the meeting before its convenors could force through their resolution or stay and either vote against or at least register his protest against the motion to appoint a further director.

361. His Honour found that Trihey was caught by surprise. "Surprise" is a word not much used nowadays[32] in discussions of equitable principle. Formerly it was otherwise.[33] So in Evans v. Llewellin[34] the Master of the Rolls (afterwards Lord Kenyon) said:

"However, here, I say, the party was taken by surprise; he had not sufficient time to act with caution; and therefore though there was no actual fraud, it is something like fraud, for an undue advantage was taken of his situation. The cases of infants dealing with guardians, of sons with fathers, all proceed on the same general principle, and establish this, that if the party is in a situation, in which he is not a free agent, and is not equal to protecting himself, this Court will protect him. I do not know that the Court has drawn any line in this case, or said thus far we will go and no further; it is sufficient for me to see that the party had not the protection he ought to have had, and therefore the Court will harrow up the agreement. I am of opinion, in this case, the party was not competent to protect himself, and therefore this Court is bound to afford him such protection; and therefore these deeds ought to be set aside, as being improvidently obtained."

Story[35] discusses the meaning of the word "surprise" as used in courts of equity and says[36]:

"When a Court of Equity relieves on the ground of surprise, it does so upon the ground that the party has been taken unawares; that he has acted without due deliberation, and under confused and sudden impressions. ... There may be cases where the word `surprise' is used in a more lax sense, and where it is deemed presumptive of, or approaching to, fraud. But it will always be found that the true use of it is where something has been done which was unexpected, and operated to mislead or confuse the parties on the sudden, and on that account has been deemed a fraud."

Story returns to the matter in a passage[37] in which he warns against too wide and loose notions of which can constitute "surprise":[38]

"Cases of surprise and sudden action without due deliberation may properly be referred to the same head of fraud or imposition. An undue advantage is taken of the party under circumstances which mislead, confuse, or disturb the just result of his judgment, and thus expose him to be the victim of the artful, the importunate, and the cunning. It has been very justly remarked by an eminent writer that it is not every surprise which will avoid a deed duly made. Nor is it fitting; for it would occasion great uncertainty, and it would be impossible to fix what is meant by surprise; for a man may be said to be surprised in every action which is not done with so much discretion as it ought to be. The surprise here intended must be accompanied with fraud and circumvention, or at least by such circumstances as demonstrate that the party had no opportunity to use suitable deliberation, or that there was some influence or management to mislead him. If proper time is not allowed to the party and he acts improvidently, if he is importunately pressed, if those in whom he places confidence make use of strong persuasions, if he is not fully aware of the consequences but is suddenly drawn in to act, if he is not permitted to consult disinterested friends or counsel before he is called upon to act in circumstances of sudden emergency or unexpected right or acquisition, - in these and many like cases, if there has been great inequality in the bargain, Courts of Equity will assist the party upon the ground of fraud, imposition, or unconscionable advantage." (Footnotes omitted, although fn.2, citing important passages from Earl of Bath and Montague's Case (1693) 3 Chan. Case 55; [1685] EngR 4120; 22 E.R. 963, should be referred to.)

369. Most cases of unconscionable conduct concern contracts or dispositions of property. But there is no reason for confining equitable principles to such cases, and they are not so confined. There are more ways than one in which the present case might be analysed from the standpoint of a dealing or transaction. So one might enquire whether the consent or agreement - good at law - which the judge found Trihey to have given to the holding of a directors' meeting was not to be recognised in equity in all the circumstances. If it was not to be recognised, then the meeting would of course fall. Alternatively, one might say that the enquiry was whether the meeting, or the resolution, ought to be allowed to stand in all the circumstances. We think it strongly arguable that in all the circumstances of this case a court of equity would conclude that the meeting and resolution should not be allowed to stand and would set the resolution aside. It is enough perhaps to refer to Blomley v. Ryan[39], Commercial Bank of Australia Ltd. v. Amadio[40] and Garcia v. National Australia Bank Ltd.[41], to mention again Legione v. Hateley[42] and to draw attention to Clark v. Malpas[43], where old Josiah Gallimore was the victim of "surprise" in Story's sense, although the report does not use that word. We, however, express no final opinion on the question of equitable relief and do not rest our judgment in any way upon the possible intervention of equity. For, as already mentioned, the question has not been argued, either at first instance or before us, although the relevant facts would seem to have been thoroughly investigated.

372. We earlier said that the possibility of equitable relief was one reason which made it unnecessary to determine whether the respondents' attack on the judge's finding that the meeting was valid should succeed. The second reason - and it is really the determining one, since we do not found ourselves on the possibility of equitable relief - is that in any event the holding of the meeting forms part of the oppressive conduct complained of and established, which conduct will itself entitle the respondents to all the relief which they seek.

376. We now turn to consider the appellants' challenge to his Honour's determination that Richard Rees' calculations pursuant to which 1,062 formula shares in Aqua-Max were allotted to Sietel in April 1993 were wrong as contrary to the provisions of the JVA and that, in the circumstances, the allotment of those shares to Sietel amounted to conduct which was oppressive, unfairly prejudicial to or unfairly discriminatory against MTA contrary to s.260 of the Corporations Law. It will be recalled that his Honour found that, on the proper construction of clause 7 of the JVA, Sietel was entitled only to 219 additional formula shares. Consequently, he effectively set aside the issue other than in respect of the 219 shares. The analysis of the appellants' case on these issues will necessarily involve a consideration of Richard Rees' calculations, the appellants' argument in support of them and his Honour's reasons for rejecting them and a consideration of the proper construction of clause 7, and in particular, clause 7(5).

379. Although reference has already been made to some parts of clause 7, it is convenient, at the risk of some repetition, to summarise here all of its provisions.

(a) Sub-clauses (1) and (2) of clause 7 require Sietel to provide loans of up to $1m to Aqua-Max secured by a first ranking mortgage debenture in favour of Sietel or its nominees at commercial lending rates. The loans are to be made in three stages. $50,000 is to be provided for each of stages A and B and the balance is to be made available thereafter subject to certain progress being made in the development of the venture.

(b) Sub-clause (3) provides that, if $50,000 proves to be insufficient funding for the purposes of stage A or stage B, additional funds (not exceeding $50,000 per stage) "shall be provided" by Sietel and MTA by way of loans in proportion to their respective shareholdings in the company. It seems, given the events that have occurred, that the parties rolled together stages A and B and, in the circumstances, treated Sietel and MTA as being required to contribute $80,000 and $20,000 respectively.

(c) Sub-clause (4) deals with the provision of yet further loan funds to Aqua-Max. It provides that such additional funds will be sought from external sources but, should they not be forthcoming from them, they "will be contributed by the parties in proportion to their [respective] shareholdings ...".

(d) Sub-clause (5) provides that, where either of the parties has contributed "a greater proportion of loan funds than it is required to contribute because the other of them fails to contribute its due proportion, their respective shareholdings in [Aqua-Max] shall be adjusted in accordance with the formula set out in the schedule."

The schedule is in the following terms:

"FORMULA

Sn = St x X

Y

where:

Sn = additional shares to be offered at par to shareholder following injection of funds.

St = total number of shares of Aqua on issue at the commencement date.

X = additional loan funds provided by shareholder in excess of his commitment under Clause 7(2), (3) and (4).

Y = total loan funds advanced by share holder under the agreement at the date when this formula is applied."

385. It is convenient to mention at this point that neither party contended before his Honour or on appeal that clause 7 was void for uncertainty. Moreover, the respondent did not argue that any entitlement that Sietel might have had to formula shares did not crystallise in April 1993. The arguments by the parties in relation to Sietel's entitlement to formula shares were centred essentially on the proper interpretation of clause 7 for the purpose of determining what were the respective amounts that constituted the relevant parts of the formula and, in particular, what amount constituted "X" for the purpose of the formula.

389. Before dealing with Richard Rees' 1993 calculations of Sietel's formula share entitlement we should mention that, in March 1992, he also made calculations for the purpose of establishing Sietel's entitlement to formula shares and that, on the basis of those calculations, he insisted to Trihey in March 1992 that Sietel was entitled to at least 90 per cent of the shares in Aqua-Max. He complained that Sietel's funding of the project to the extent of $3m had not been appropriately matched by MTA contributions and that this was contrary to its obligations under the JVA, so that, in the circumstances, there had to be an adjustment in the parties' shareholdings in Aqua-Max so as to give Sietel 90 per cent of the shares.

392. The calculations were apparently made shortly after the directors' meeting of 25 March 1992 and were based on the assumption that Sietel's loan account with Aqua-Max was or was soon to be in the order of $3m. They were tendered in evidence as Exhibit RR93 to his affidavit which was sworn 10 February 1998. The first page of that exhibit reproduces the formula in typed form; it also contains his handwritten notations and calculations. For reasons which will become apparent shortly, they demonstrate that, in making his calculations, Richard Rees had scant regard to the terms of clause 7, and in particular, to the terms of clause 7(5) and the formula. It is not surprising that the appellants did not seek to defend these calculations before his Honour or on appeal. It is apparent from Sietel's loan account with Aqua-Max as at 26 February 1992, which was tabled at the directors' meeting of 25 March 1992 (part of Exhibit RR 93) and which Richard Rees used to determine the amount of Sietel's contributions to Aqua-Max, that leasing charges incurred by Sietel relating to equipment used by Aqua-Max were treated as loans by Sietel to Aqua-Max. It is relevant to note that Rees took those charges into account as part of Sietel's contributions under clause 7 notwithstanding that, as he well knew, they were challenged by Trihey. For some reason which has not been explained by Rees in his evidence and which is not apparent from his notes, notwithstanding that he took Sietel's total contributions under clause 7 as totalling some $3m, he assumed for the purposes of his calculations that the total funds advanced by Sietel, namely, "Y" in the formula, amounted only to $1m. He also seems to have assumed that "X" was $2.1m (presumably being the sum of $0.1m which he apparently took to be the amount contributed by Sietel and MTA in respect of stages A and B and the $2m which was contributed by Sietel as additional funds). On that basis he applied the formula to reach the conclusion that Sietel was entitled to 4,200 formula shares (2,000x Click here for Picture ), which would bring its total shareholding in Aqua-Max to 5,800 shares, although in his notes he incorrectly showed that total as 6,800 shares (being 91.9 per cent of the total). It is obvious that the calculations are riddled with serious and blatant errors which invalidated his conclusion as to Sietel's formula share entitlement and which demonstrate that, in making his calculations, he effectively disregarded the provisions of clause 7, including the wording of the formula.

395. But Richard Rees went on to make other errors in his calculations which further highlight his effective disregard of the provisions of clause 7. It is plain that clause 7(5) contemplates that the formula would be applied only in relation to the contributions of one party, namely, the party that has made the greater contribution and has assumed the burden of contributing the amount which the other has "failed" to contribute. It is not envisaged that in such a situation the formula will operate in respect of both sets of contributions. In his calculations, however, Rees not only sought to determine Sietel's entitlements to extra formula shares, as we have already mentioned, but also purported to calculate MTA's entitlement to such shares on the basis of its loan account with Aqua-Max, which, at the relevant time, stood at approximately $100,000. Moreover, his calculations of MTA's so-called formula share entitlement are incomprehensible inasmuch as they assume that, for the purposes of the formula, "Y" was $1m, "X" was $100,000 and "St" was 2,000. On this false basis he concluded that MTA would be entitled to 200 additional formula shares, giving it a total share holding in Aqua-Max of 600 shares.

398. It is obvious, therefore, that it was on the basis of his erroneous calculations that Rees concluded that the entitlement of Sietel to Aqua-Max shares would rise from 80 per cent to 91.9 per cent. By another set of calculations he effectively rounded off that alleged entitlement to 90 per cent. None of these calculations, however, were shown to Trihey, but they were the premise on which Rees pressed Trihey, particularly at the MTA shareholders' meeting of 27 March 1992, to agree to a shareholding adjustment such as to give Sietel 90 per cent of the Aqua-Max shares. His notes of the figures which he wrote down at the shareholders' meeting, and which were seen by Trihey, do not reproduce his earlier calculations, but they do show that he took into consideration that a total funding of $3m was required from Sietel as distinct from the $1m called for by clause 7(1), (2) and (3). As we have already mentioned, Rees pressed for this increase in Sietel's shareholding in Aqua-Max on the ground that it was entitled to such an adjustment having regard to its contribution of $3m to the project and on the ground that MTA had failed to meet its obligations under the JVA to make proportional loan contributions. He also threatened to cut off funding by Sietel if agreement was not reached on this issue.

401. Not surprisingly, Trihey opposed the share adjustment that was called for by Rees. In response, Rees offered, as a "possible compromise", that Sietel be given an option to take up 2 million shares in satisfaction of its additional loans of $2m and that MTA be entitled to take up 400,000 shares "if it wished". He made that offer knowing, as his Honour found, that MTA had no funds which it could use to pay for such shares, particularly since Rees had caused Aqua-Max not to pay all the consultancy fees claimed by MTA and Malz. It was the appellants' case at trial that Trihey accepted Rees' proposal for the share option issue, but his Honour rejected that claim and in our view, it was well open to him to do so. It will be recalled that, shortly after the meeting of the MTA shareholders on 27 March 1992, Rees instructed his solicitor brother, Geoffrey, to prepare agreements for the issue of the share options with the view to their being signed by Trihey. It was not until August 1992, however, that these agreements were given to him for his signature, but, as we have already mentioned, Trihey refused to sign them. In the interim, however, Richard Rees maintained the position that, because of Sietel's substantial loans to Aqua-Max and because of MTA's failure to provide loans in accordance with its obligations under the JVA, Sietel was entitled to a significant increase in its shareholding in Aqua-Max. This was the pattern of behaviour in which Rees engaged consequent upon the view he formed in early 1992 that the JVA did not operate fairly towards Sietel given its substantial financial commitment and exposure to Aqua-Max and that the position should be brought back into balance by an appropriate re-arrangement of the parties' respective shareholdings in Aqua-Max.

404. It was argued for the respondents that it was oppressive and unfair to and discriminatory against MTA for Richard Rees to seek to pressure Trihey into agreeing to such a substantial adjustment of the parties' shareholdings. The fact that the August 1992 option agreements were not signed by Trihey, it was said, was not to the point. It was claimed that Sietel was not entitled to formula shares which would take its shareholding in Aqua-Max to 90 per cent and that Richard Rees well knew that MTA was unable to provide any further substantial loan moneys or to raise the funds to subscribe to the $400,000 share options which Rees sought to press on Trihey. Rees also knew, as his Honour found, that Trihey was opposed to any such share re-arrangement, but nevertheless he sought to use Sietel's financial dominance, including his disingenuous threat to cut off funding from Sietel and his own misreading of the JVA, to pressure Trihey into agreeing effectively to re-write the JVA. In our view, it is plain that this conduct amounted to oppressive and unfair and discriminatory conduct for the purposes of s.260.

408. We now turn to analyse Richard Rees's 1993 calculations which led to the resolution of 6 April 1993 by the Aqua-Max directors that 1,062 formula shares be allotted to Sietel. As his Honour said, the decision to issue formula shares to Sietel was made at the meeting of Aqua-Max directors held on 26 March 1993 (from which Trihey was absent) in the context of their consideration of the deficiency that was exposed in February 1993 in the draft 1992 accounts. At the same meeting, the directors discussed the issue of pro rata shares. The directors did not determine what number of shares in each category was to be allotted.

411. At the following meeting of the Aqua-Max directors, held on 6 April 1993, from which Trihey was also absent, Richard Rees presented his calculations, which he claimed were made pursuant to the formula in the JVA. They showed that Sietel was entitled to 1,062 formula shares. Accordingly, it was resolved that that number of shares be allotted to Sietel at par value on or before 27 April 1993.

414. It is apparent from these calculations that Richard Rees assumed that "X" in the formula (or the "excess" in the definition of "X") represented the amount by which Sietel's actual contributions to Aqua-Max under clause 7(4) exceeded its obligations to make such advances pursuant to that sub-clause. For the purposes of his calculations, he took the balance in Sietel's loan account in Aqua-Max at the end of March 1993 as representing the actual contributions made by Sietel under clause 7. That amount included not only moneys lent by Sietel to Aqua-Max but other charges which it debited to the company such as rent, although, unlike the position with the 1992 calculations, he did not include in that total the contested leasing charges for equipment. The loan account also included, as it did in relation to MTA loans, compound interest. For the purpose of determining the amount of Sietel's obligations under clause 7(4) (a calculation necessary to enable him to establish by how much its actual advances exceeded its total obligations) Rees worked out the amount which MTA had contributed by way of additional funds under that clause and then multiplied that amount by five because he considered that, under clause 7(4), Sietel was obligated to contribute five times the amount advanced by MTA under that clause (but no more). He then subtracted this product (and the other contributions it was obliged to make under clause 7(2) and (3) - $1.08m) from Sietel's total contributions, thereby arriving at what he considered to be additional loan funds provided by Sietel in "excess" of its commitment under clause 7(2), (3) and (4) for the purposes of "X" in the formula.

417. It has already been mentioned that the appellants' case before us and below was that, subject to the concession that Rees was wrong in selecting the factor of 5 rather than 4, his methodology accorded with the proper construction of clause 7. We will come back to this contention later. For the moment, however, we will continue with the description of Rees's calculations. We have already mentioned that he assumed that the amount Sietel was required to contribute under clause 7(4) was five times the contributions that MTA made under that provision. It seems that there were two alternative ways of calculating MTA's relevant contributions, one which included an amount of $82,190, being the contested consultancy fees due by Aqua-Max to MTA and Malz, and the other which did not include that amount. In light of that, Rees made two alternative calculations in relation to MTA's contributions and he did likewise in relation to consequential calculations. The first alternative calculation which, as we have said, assumed that MTA's contributions included the outstanding but contested consultancy fees, resulted in the conclusion that Sietel was entitled to 814 formula shares (which, according to Rees, would have given it 86 per cent of the issued capital of Aqua-Max). The alternative calculation resulted in Sietel's being entitled to 1,062 formula shares (giving it 87 per cent of the issued capital of Aqua-Max). Notwithstanding that the calculations produced these alternative results, Rees successfully pressed for the higher number of shares - 1,062 - to be allotted to Sietel. He did so on the claimed basis that, since he excluded from Sietel's loan account with Aqua-Max the contested leasing charges relating to the equipment, the contested outstanding consultancy fees should similarly be excluded from the calculation of MTA's loan account.

421. The judge found, however, that Richard Rees's calculations were wrong in the sense that the formula did not work as he had assumed and that, therefore, Sietel was not entitled to 1,062 shares. His Honour re-calculated Sietel's entitlement to shares in a way which made clear his preferred construction of clause 7. First, he concluded that the relevant amounts in the formula do not include interest, either compound or simple. The clause speaks in various parts of "funds" being provided to Aqua-Max and it would be an unnatural reading of that term to include within it interest charged by the provider of those funds. Interest is the charge payable for the use of another sum (the principal), here the "funds" provided, and, unless there is agreement to the contrary (and that was not the case here), interest does not form part of the principal or, here, the "funds". In the calculations on which the allotment to Sietel of 1,062 shares was based allowance was made for interest - in fact, compound interest - in arriving at both X ("additional loan funds provided by shareholder in excess of his commitment under Clause 7(2), (3) and (4)") and Y ("total loan funds advanced by share holder under the agreement at the date when this formula is applied"). The appellants say this is the correct approach; the respondents say the judge was right in ignoring interest for this purpose.

424. We entertain no doubt that the judge was right on this point. Clause 7(1) spoke of the provision by Sietel of loan funds of up to $1m. by way of loan secured by a debenture at commercial lending rates. There is a dispute between the parties about whether Sietel was entitled to compound interest, but that question need not be considered for present purposes, since we think it clear that interest was not to be taken into account in arriving at either X or Y in the application of the formula. The appellants argue that accrued but unpaid interest "fits readily within the definition of a loan". But the question is whether interest forms part of "loan funds" within the meaning of that expression in the formula where X and Y are defined. Those definitions throw one back to the expression "loan funds" which appears in several places in clause 7 itself. Clause 7 speaks of the provision of loan funds and it is, as we have said, an unnatural use of language to treat as part of the loan funds provided the interest payable in respect of the loan. Especially is it unnatural to speak of the accruing of interest as the provision of loan funds "in stages", to use the words of clause 7(2). Moreover, clause 7, in fixing its limit of $1m. and in dealing with the provision of that amount in stages, shows that the interest at commercial lending rates which is to be paid is not to be taken into account in calculating how much has been provided in loan funds. If the view put forward by the appellants were to be accepted, the situation could readily arise in which it would be difficult to say whether the initial advance provided for by clause 7(2)(a), the further advance provided for by clause 7(2)(b) and the advance of the balance provided for by clause 7(2)(c) had already been made. If Sietel advanced initially $40,000, would it be able to say that, notwithstanding that stage A in fact required more money, it was not obliged to advance an additional $10,000 because of the probability or certainty that, as a result of the accruing of interest, the amount of the "loan funds" already provided by it would grow from $40,000 to $50,000? It seems to be the consequence of the appellants' submission that at a given point of time it will be able to resist a request for the provision of further loan funds on the ground that what it has already done will, or will probably, at some time in the future discharge its obligation to advance a specified sum. Such an approach does not make commercial sense and we entertain no doubt that clause 7, in speaking of "loan funds", "funding" and "additional funds", is concerned with actual advances.

427. For the purpose of determining the actual contributions made by the parties, his Honour reduced Sietel's loan account figure used by Rees in his calculations ($3,306,352) to $2,840,247 and he similarly reduced the MTA loan account balance to $72,318, in each case excluding interest from the sum. The parties accepted his Honour's quantification of interest and his arithmetic calculations in that regard.

431. It is implicit in his Honour's calculations that he considered that the share entitlement of Sietel should be calculated having regard, for the purposes of determining "X" in the formula, to the extent to which Sietel assumed the burden of providing the shortfall which resulted from MTA's failure to contribute its "due proportion" as is contemplated by clause 7(5). His Honour rejected the appellants' contention that the "excess" for the purposes of "X" was to be calculated by deducting from the actual advances made by Sietel under clause 7(4) an amount which was four times MTA's contribution under that provision. The extent of Sietel's "greater proportion" of contributions and the extent of the shortfall were calculated by the judge by applying to the parties' total contributions, the proportions in which the parties were required to provide additional funds under clause 7(4), namely, the ratio of 80/20.

434. Having found that Sietel and MTA were required by clause 7(1), (2) and (3) to contribute by way of loans $1.08m and $20,000 respectively, his Honour worked out that the total "additional" funds contributed by them under clause 7(4) was the sum of $1,760,247 and $52,318, namely, $1,812,565. His Honour reasoned that, if the parties had contributed to this total in proportion to their shareholdings in Aqua-Max (80/20), Sietel would have advanced only $1,450,052 whereas MTA would have contributed a greater sum than it did, namely, $362,513. It followed that, since MTA's net additional loans amounted only to $52,318, the relevant shortfall was $310,194. The judge thus concluded that the additional funds contributed by Sietel because of the "failure" by MTA to make its due contribution, was $310,194, which constituted the "excess" over Sietel's "commitment" for the purposes of "X". This amount translated, by the application of the formula, to an entitlement of 219 shares. In our view, for reasons which become apparent later, his Honour made no error in the construction and application of clause 7 and the formula to the facts before him.

438. The essential difference between the parties concerned the method of determining the "excess" over Sietel's "contribution" under clause 7(2), (3) and (4) for the purposes of the definition of "X" in the formula. Since the amount which each party was required to provide under clause 7(1), (2) and (3) was known - $1.08m by Sietel and $20,000 by MTA - the only contributions that had to be established were those made pursuant to clause 7(4) (the "additional funds"). It was submitted for the appellants that there was no "commitment" by Sietel to lend by way of "additional funds" 80 per cent (or by MTA 20 per cent) of an unlimited sum that might be required by Aqua-Max. It was further said on their behalf that the obligation of the parties to provide additional funding pursuant to clause 7(4) was a mutual obligation of "the parties", so that, in the case of Sietel, its maximum obligation or "commitment" was to match proportionately any contribution of MTA, namely, four times the amount lent by MTA.[44] The amount so calculated, it was put, represented the extent of Sietel's "commitment" for the purposes of the definition of "X", so that any additional funds provided by it beyond the maximum would constitute the "excess" for the purposes of the definition of "X" and Sietel would, therefore, be entitled to shares in accordance with the formula in respect of that "excess". Thus, it was claimed on behalf of the appellants, Sietel's "commitment" in this case for the purposes of "X" was four times the $52,318 contributed by MTA under clause 7(4), namely, $209,274. The appellants went on to argue that, if that amount and the other amounts that were used by the trial judge in his calculation of Sietel's entitlement to formula shares were inserted into the formula, the number of shares to which Sietel would be entitled was 1,092 shares which would give it 87 per cent of the share capital of Aqua-Max.[45]

The appellants' intimated that they were, however, content with the allotment of 1,062 shares. As we have said, his Honour rejected the appellants' submissions to this effect. He considered that this approach "[started] at the end and not the beginning, and [was] contrary to the wording of clause 7 and the formula".

The attack on the judge's construction of clause 7

444. The appellants attacked the judge's interpretation of clause 7 on a number of grounds. First, it was put that his Honour's analysis assumed that Sietel was obliged by clause 7 to provide 80 per cent of whatever additional loan funds were needed by Aqua-Max (without there being a corresponding obligation on MTA to provide such funding). We see nothing in the judge's interpretation of clause 7 that suggests that he took the view that Sietel was bound to provide Aqua-Max with 80 per cent of whatever loan funds it might require. His Honour's reference in his calculations to 80 per cent (and 20 per cent) was made only for the purpose of calculating what proportion of the total funds that were actually advanced by the parties should have been contributed by each of them.

447. Secondly, it was said for the appellants that the judge's approach did not or did not sufficiently take into account the amount that MTA had "failed" to contribute for the purposes of clause 7(5). In our view, however, his Honour did not disregard MTA's "failure" to contribute its due proportion of loan funds as is contended for by the appellants. On the contrary, he specifically calculated what proportion of the funds that were advanced should have been but were not lent by MTA, thereby establishing the amount of additional funds that Sietel contributed because of MTA's "failure".

450. We also consider that there is no basis in the appellants' third complaint, namely, that the judge failed to recognise that the obligation of Sietel to provide loan funds was limited to advancing $1.08m and matching MTA's contributions on an 80/20 basis under clause 7(4). It is obvious from the judge's calculations that he was well aware that the limit of Sietel's exposure under clause 7(1), (2) and (3), was $1.08m. We are also of the view that his Honour did not reject the appellants' claim that the extent of Sietel's contractual obligation to advance funds under clause 7(4) was to match proportionately the contribution made by MTA under that provision. His Honour was not concerned to determine that issue as such. The relevant task that confronted him was to determine by reference to the "proportions" referred to in clause 7(4), what part of the "greater" contribution that was in fact made by Sietel represented its assumption of the amount that MTA "failed" to contribute for the purposes of 7(5) and it is that issue that he addressed in his judgment.

453. The appellants next argued that the judge's interpretation of clause 7 would work substantial injustice on Sietel and that this could not have been intended by the parties and, therefore, his Honour's construction of that clause should be rejected. It was said for the appellants that, on his Honour's construction, no matter how much Sietel lent Aqua-Max under clause 7 - say, $9m - it would never receive more than 400 additional formula shares. We should say that, on our calculations, the appellants' contention is arithmetically correct. Moreover, the respondent also accepted this calculation but argued that such a result would not be inconsistent with the intention of the parties. It was submitted for the respondents that it was part of the scheme of the JVA that Sietel should not be in a position substantially to increase its shareholding in Aqua-Max by the mere use of its capacity to advance loan funds to Aqua-Max. In our view, there is much force in that submission. In order to highlight the argument that the judge's construction would lead to unintended results and that, therefore, his interpretation of clause 7 should be rejected, the appellants provided the following examples.

(a) Where Sietel contributed an additional $1m but MTA contributed nothing, on his Honour's calculations, Sietel would only be entitled to 200 shares.[46]

(b) Where Sietel contributed an additional $9m but MTA contributed nothing, on his Honour's calculations, Sietel would only be entitled to a further 360 shares.[47]

(c) On the other hand, if Sietel contributed nothing but MTA contributed $1m, on his Honour's calculations, MTA would become entitled to an additional 1,600 shares.[48]

467. In our view these examples do not demonstrate that his Honour's construction of clause 7 would work substantial injustice on Sietel. In the case of the first two examples, Sietel would become entitled to almost 82 per cent and over 83 per cent respectively of all the shares in Aqua-Max and MTA's entitlement would correspondingly decline. They are not insubstantial increases in relative terms and they would have a flow on effect in Sietel's favour for the purposes of clause 9. Moreover, Sietel would claim interest on those loans and would retain its increased shareholding even if the loans were wholly or partially repaid within a period of a few years. The unrealistic third example should be viewed in the context of Sietel's significant failure to make a corresponding contribution of $4m. In the circumstances, therefore, we do not consider that his Honour's construction of clause 7 would work relevant injustice on Sietel. On the other hand, the appellants' interpretation of clause 7 would produce unintended injustice. Thus, in the case of the first two examples, on the appellants' construction of clause 7, Sietel would become entitled to 1,000 and 1,800 extra shares and, therefore, a total shareholding in Aqua-Max of 86.6 per cent and 89 per cent respectively. In our view, this would produce a result which is inconsistent with the underlying basis of the JVA to which we will refer shortly.

471. It is apparent that, since the formula has been effectively incorporated into clause 7, the meaning of its relevant provisions must be determined having regard to the terms and operation of the substantive clause. Clause 7 reflects the recognition by the parties that Aqua-Max will require loan funds for the purpose of financing the development phase of the joint venture and that such funding will come, at least in large part, from the parties. It also reflects their recognition of the inequality of their respective abilities to provide loan funds for the venture. It seems clear enough that it was assumed that Sietel had by far the greater ability to provide such funding either from its own resources or indirectly. Thus, the broad scheme of the clause is to require the parties (by clause 7(1), (2) and (3)) to provide a minimum amount by way of loan funds - whereby Sietel would contribute the lion's share of up to $1.08m and MTA up to $20,000 - and to facilitate (by clause 7(4) and (5)) additional funding beyond the minimum loans either from outside sources or, if it be provided by the parties, in proportion to their shareholdings. But there is also a recognition by the clause that, if the additional funds come from the parties, one of them - more likely MTA - might not be able to match the contribution of the other - Sietel - and that, to the extent that the shortfall assumed by the larger provider - Sietel - that would come at a "price", namely, a dimunition in MTA's shareholding in Aqua-Max and a corresponding increase in Sietel's stake in the company in accordance with a formula. It seems that the parties intentionally did not provide by clause 7 that the extra shares would be issued in respect of all additional funds made by a party in excess of its obligations under clause 7(4). They could have said so in the JVA, but they did not do so. Instead, they limited the entitlement to additional shares to such funds as have been provided by one party because the other did not make its due contribution. It seems likely that such a restriction on the further share issue was imposed to avoid the possibility of Sietel gaining a significantly greater proportion of the shareholdings in Aqua-Max merely by providing substantial loan funding which, in relative terms, it could well afford to do, particularly if it saw that course was advantageous to its interests.

474. Clause 7(5) obviously operates only when the parties have provided additional loan funds to Aqua-Max otherwise than in the proportions contemplated by clause 7(4) in the sense that, out of their total contributions, one party has provided a greater proportion of funds than was strictly required of it under that sub-clause while the other has, necessarily, provided a lesser amount than was required. The reference to "proportion" in clause 7(5) is clearly a reference to the 80/20 ratio referred to in clause 7(4) which is then used by clause 7(5) as a yardstick to determine for the purposes of that sub-clause, the extent of any over-provision or under-provision of additional funds by the respective parties.

477. It may be assumed for present purposes that, as the appellants contend, the parties' obligations to contribute under clause 7(4) are interdependent so that, for example, where MTA makes a contribution pursuant to clause 7(4) of, say, $5, Sietel is not required to contribute an amount greater than $20 under that provision. But it does not follow that, as the appellants contend, clause 7(5) and the formula operate to give Sietel additional shares in respect of all of its contributions over $20. On the appellants' case, if Sietel contributed $60 under clause 7(4) in the above example, it would be entitled to extra shares in respect of its contribution of $40. In our view, however, the appellants' argument does not sufficiently take into account the scheme and the language of clause 7 and in particular, that of clause 7(4) and (5). It seems to disregard the requirement that the interpretation of the definition of "X" in the formula must be undertaken in the context of clause 7. Reverting to the example in which Sietel contributed $60, although $40 of that contribution was in excess of its contractual obligation, the $40 nevertheless formed "additional funds" and, therefore, under clause 7(4) Sietel was required to provide $32 of it in any event (80 per cent of $40) and MTA was obliged to contribute $8. Consequently, for that reason alone, to claim as the appellants do, that they are entitled to formula shares in respect of the $40, is to disregard at least the operation of clause 7(4).

480. Such a claim also fails to give due recognition to the terms and operation of clause 7(5). To say, as the appellants do, that clause 7(5) merely prescribes when an adjustment in the shareholdings is to take place is to overlook that the clause also prescribes the extent of the additional funds in respect of which extra shares may be issued. The formula is only the machinery by which the number of such shares is to be calculated. More specifically, clause 7(5) calls for a share adjustment only in respect of the additional funds which one party has been required to provide because the other party has failed to make its due contribution. It is the taking up of this gap or shortfall by one party as part of its "greater" contribution that gives rise to its entitlement to additional shares in accordance with the formula. Thus, in our view, "excess" in the definition of "X" refers not to the amount contributed by one party under clause 7(4) in addition to its contractual obligation, but to that part of its "greater contribution" that represents the amount by which the other party has "failed" to make its due contribution.

483. These conclusions may be conveniently illustrated by reference to the example referred to earlier, where MTA has contributed $5 under clause 7(4) and Sietel has provided $60 as additional funds. The amount which MTA has "failed" to contribute for the purposes of clause 7(5) can be established in one of two ways to which we will refer in a moment, but on either basis, the answer is $8. It is in respect of that amount that Sietel becomes entitled to additional shares calculated in accordance with the formula. One way of calculating the relevant amount is to say that, as his Honour did, MTA was required to contribute 20 per cent of the total amount that both parties contributed ($65), namely $13. But since MTA has provided $5, the amount which MTA has "failed" to contribute is $8.[49] The other way to calculate the shortfall is to say that MTA should have contributed 20 per cent of the funds which Sietel provided in excess of its contractual obligations ($40), namely, $8.[50] Consequently, the amount of Sietel's contribution which was made because of MTA's relevant failure, was $8.

486. Consequently, in our view, his Honour made no error in his construction of clause 7 or in his rejection of the calculations which the appellants sought to justify for the purpose of determining Sietel's entitlement to formula shares under clause 7(5). It was accepted by the appellants that, if we were to decide as we have done, Sietel was only entitled to 219 shares on that construction of clause 7.

Formula share issue part of oppressive conduct

490. It was contended on behalf of the respondents that the issue of 1,062 formula shares, which increased Sietel's holding in Aqua-Max to 87 per cent of the issued shares and correspondingly reduced that of MTA to 13 per cent, amounted to conduct which was oppressive and unfair and prejudicial to MTA contrary to s.260 of the Law. The appellants say that, even if the judge was right in all respects in the view he took of the effect of clause 7 and the formula, he erred in characterising the making of the formula share issue as oppression or unfair conduct falling within s.260. The question whether the judge erred in this respect will not affect the outcome of the appeal with which we are presently concerned. For in the first place, even if the formula share issue, considered by itself, did not offend against s.260 and was in addition not something that could be used by the respondents together with other matters in support of their case under s.260, that share issue would still have to be set aside as unlawful under the general law, by which we mean the law without regard to s.260. If the judge was right in all respects in his interpretation of clause 7 and the formula, there was no defence to a claim that the share issue should be set aside and the share register rectified. The allegations and the prayer for relief in the statement of claim in the second proceeding are sufficient to found the claim to have the formula share issue set aside independently of s.260. The appellants do not suggest otherwise and do not suggest that there is any defence to such a claim once the view taken by the judge on the questions of construction of clause 7 is accepted. Indeed, the appellants might conceivably turn out to be worse off if the formula share issue was dealt with under the general law as opposed to s.260, since it might perhaps be suggested that the appropriate order under the general law was the setting aside of the share issue without substituting for it another issue - of a smaller number of shares - that might properly have been but was in fact not made.

493. A little earlier we said there were two considerations which together led to the view that the outcome of the appeal would not be affected by whether the judge was right in regarding the formula issue as oppressive or unfair. We have just dealt with the first consideration. The second is this: even if, contrary to our view, the formula share issue was not oppressive and unfair and is not to be taken into account as part of a case of oppression or unfairness, the remaining conduct complained of makes out a case of oppression or unfairness and warrants the relief granted by the judge (leaving aside of course questions of quantum).

496. Since our view on the question will not affect the outcome of the appeal, we deal only briefly with whether the making of the formula share issue fell within s.260. In our opinion it did, even on the assumption that Richard Rees and Sietel were acting in good faith in making the issue in the sense that they believed that they were properly applying the formula to the facts and had no intention to disadvantage MTA. What happened in April 1993 was that, by a misapplication of clause 7 and the formula, Sietel received 1,062 shares instead of the 219 to which it was entitled. This had the effect of reducing MTA's shareholding from 20 per cent to 13.07 per cent. Had the correct number of shares been issued, the reduction would have been only to 18.03 per cent. Such a serious entrenchment upon the rights of MTA should be regarded as falling within s.260 notwithstanding that it was made in good faith, as the authorities cited earlier in these reasons show.

501. The appellants marshalled an impressive array of arguments in support of their submission that the judge erred in various ways in relation to the pro rata issue. We summarise them as follows. The draft accounts for Aqua-Max for the year ending 30 September 1992 showed a deficiency of shareholders' funds of $385,822. Aqua-Max had, by early 1993, begun to trade. The total issued shares of the company were then 2,000, of which Sietel owned 1,600, before the formula issue. On any view this was a totally inadequate shareholding for the company, and it was accordingly inevitable that a substantial share issue would be made. The auditor was concerned that the deficiency in shareholders' funds showed that the company was technically insolvent and in March 1993 he therefore informed Richard Rees that the directors would be trading whilst insolvent unless one of three alternative steps was taken: (a) an issue of shares by Aqua-Max sufficient to cover the deficiency and losses envisaged for the next 12 months; (b) subordination of the loan from Sietel sufficient to enable the company to pay its debts as and when they fell due; or (c) a letter from Sietel advising that its directors were prepared to support the operations of Aqua-Max for at least the next 12 months. Mr Tawil, the auditor, said that if one of these steps was not taken he would qualify the accounts of Aqua-Max.

504. The appellants' case was that of these three alternatives, the auditor preferred the first, an issue of shares. For its part Aqua-Max only had the ability to act by making an issue of shares. The other two alternatives depended on the goodwill of Sietel, Aqua-Max's principal creditor. Unless Sietel was prepared to act in one of these two other ways, the board of Aqua-Max had no alternative but to issue shares. Sietel was under no obligation by virtue of the JVA to continue to provide funding to Aqua-Max. A decision on the part of the Aqua-Max board to make a pro rata allotment was therefore the logical and proper step for the board to take to correct the deficiency in Aqua-Max's balance sheet, to prevent the auditor qualifying the company's accounts, and to prevent any possibility of its being said that the company was trading whilst insolvent. In the consideration of any such decision it was, so the argument ran, essential to keep separate and distinct the rights, duties and responsibilities of Sietel, as a shareholder in Aqua-Max, but also a public company with 40% of its shareholding held by members of the public, on the one hand, and Messrs Richard Rees and Delwyn Rees as directors of Aqua-Max on the other.

507. It was submitted that accordingly the board of Aqua-Max made a proper and entirely reasonable - indeed inevitable - decision to make the pro rata share issue. The decision was made to offer these shares pro rata to existing shareholders and no complaint could be made of unfairness in that course. It was contemplated that shareholders' loan accounts might be used as payment for the shares to be issued, a course which had been contemplated throughout and, so it was said, of which Trihey was well aware. When the allotment was made, an opportunity was then given to Trihey to take up his appropriate shares, which he elected to refuse. He did not seek to make use of his loan account for this purpose because he had made his own decision to prefer the retention of his loan account to the alternative of taking up his share entitlement. Trihey, according to this argument, was not prevented by his parlous financial state from participating in the share allotment. The loan accounts of Sietel and MTA stood as current accounts in the books of Aqua-Max and were thus repayable on demand, and MTA's account was then standing at an amount sufficient to enable it to take up the full share entitlement. There was no suggestion that MTA would have been refused the right to set off the loan account for this purpose.

510. The appellants' argument continued that Trihey had in March 1993 set out to boycott the affairs of Aqua-Max for his own purposes, in the hope of persuading Sietel and Richard Rees to give way on the disputed issues in Aqua-Max's accounts, questions which were irrelevant to the pro rata issue. Trihey's position as a boycotter had been weakened by what occurred at the meeting of 15 March 1993, when Delwyn Rees was appointed a director. Trihey had been ambushed into attending this meeting, as the judge had found, but his Honour had also held the meeting to be legal, Trihey had participated, and Delwyn Rees had been validly appointed a director. Thereafter Trihey made his own decision to abstain from attendance at board meetings, a decision which resulted in his position as a director being vacated under the articles of association six months later. A general meeting of shareholders of Aqua-Max, of which Trihey had been given notice, but which he had chosen not to attend, had approved the pro rata issue before the offer to subscribe on this basis was sent to shareholders.

513. On these foundations it was submitted that it could not be said that the pro rata issue was oppressive or unfair. If Sietel was not prepared either to subordinate its debt, or volunteer a statement of willingness to support the operations of Aqua-Max, the directors of Aqua-Max had no option other than to make a share issue and their subjective motivations, so the argument ran, were irrelevant. If the Court were to say otherwise, it would be sanctioning the directors of Aqua-Max permitting the company to trade whilst insolvent. The appellants submitted that in saying the contrary the judge had failed to differentiate between the position of Richard Rees and Delwyn Rees as directors and Sietel as shareholder and creditor.

516. The appellants also took issue with statements made by the judge on two occasions relating to the effect of the pro rata issue, particularly in the light of the round robin by which payment of the allotment price was immediately followed by payment of a like sum to Sietel. At one point his Honour had referred to the meeting of directors of Aqua-Max held on 6 April 1993 which resolved that a pro rata rights issue be made of 598,938 shares and then proposed that loan accounts with Aqua-Max could be used in the purchase of the shares. His Honour queried how the issue of shares in those circumstances would provide any capital to be used to pay trading creditors. The judge observed that this "would no doubt change the look of the balance sheet but not provide any funds." Shortly afterwards, his Honour stated as to the pro rata issue, followed by the round robin, that -

"If the object was to raise capital then it was not achieved. The money went in and the money went out. It is said that there was a benefit to Aqua-Max because its loan obligation to Sietel was reduced by that sum of money. That moment in time the loan account was in excess of $3,000,000 and on any view, did not provide capital for Aqua-Max or any funds to enable the company to trade."

520. The appellants argued that in making these statements, his Honour cannot have understood the effect brought about by additional share capital. It was submitted that the share allotment had the immediate consequence of substantially removing or at least redressing the balance sheet insolvency of Aqua-Max by reducing the liabilities owed to the company's principal and secured creditor by some $520,000 and replacing them with capital. The immediate result, so it was said, was that the company now had a fund available for the recourse of other creditors.

523. Next the appellants submitted that his Honour had misconstrued the joint venture agreement in various ways. A number of specific errors were asserted. It was argued that the JVA contained no term prohibiting further share issues, rather it provided for the proportionate shareholdings to be maintained, subject to the application of the formula. In so far as his Honour identified a term prohibiting a pro rata share issue until the project no longer required funding, it was submitted there was error. Secondly it was argued that the JVA did not require Sietel to lend more than $1,000,000 (alternatively $1,080,000) to Aqua-Max and his Honour erred in finding otherwise, or in finding that a term was implied that Sietel was obliged to fund the project beyond these limits, irrespective of any contribution by MTA. A related contention was that his Honour erred in concluding that Sietel's obligation to fund the project was subject to no fixed limit, regardless of MTA's contribution. The argument was that the JVA revealed parallel obligations to contribute funds in proportionate amounts. Next it was argued that the JVA did not require Aqua-Max to pay the full amount of disputed claims made by MTA, or require Sietel to fund Aqua-Max to do so. There was, it was submitted, no obligation on Aqua-Max to pay the full amounts claimed by MTA, which were genuinely in dispute. Then it was submitted that the JVA did not contain any term prohibiting or restricting the repayment of loans to a party advanced beyond the required proportion in respect of that party; and that the identification of such a term led the trial judge wrongly to find that in repaying part of its loan to Sietel in August 1992, Aqua-Max had breached the JVA. Next it was argued that the JVA did not prohibit Aqua-Max from granting Sietel security in respect of additional loans. Finally it was said that the JVA contained no term prohibiting the transfer of shares to third persons. His Honour had, it was argued, erred in implying terms in respect of the provision of security or preventing such transfers to third persons. Each of these errors, so it was said, infected the judge's assessment of the expectations and understandings of the parties to the JVA, and therefore the finding that the two share issues were oppressive and unfairly discriminatory.

The construction of the JVA relevant to the pro rata issue

527. We have previously considered the proper interpretation of the JVA relevant to the formula issue with particular reference to clause 7. The appellants' submissions now require an examination of other parts of the JVA. The JVA was, of course, an agreement between two groups of persons who proposed to carry on a business, the development and commercial exploitation of domestic water heaters with a view to profit. As such it was akin to a partnership. It was clearly the expectation of the parties that, whereas Trihey's company, MTA, was to contribute intellectual property and the personal skills of its associates, Sietel was to contribute the lion's share of the funding. The parties were each required by clause 1 of the JVA to use their best endeavours to carry out all things, in effect, necessary to commence production on a commercial scale and marketing of the product (the domestic water heater) as expeditiously as practicable. We have already indicated our view (in paragraph [129] above) that the obligation to contribute funds under clause 7(4) was inter-dependent, so that in circumstances where a stage had been reached when one party was unwilling to contribute further funding, the other party would not have been in breach in also refusing to make further loans to Aqua-Max. If the judge had determined that the JVA required Sietel to lend any more than $1,080,000, his Honour would have been in error.

530. There was certainly no term of the JVA which expressly prohibited further share issues. But the question whether or when a share issue might be made is, we think, a difficult one. Clause 7 of the JVA and the formula itself appear to assume, by reference to the factor "st." that the formula would operate upon the total number of shares on issue at the commencement date, i.e. 2000. Clause 9 of the JVA is in the following terms -

"(1) Subject to sub-clause (3) of this clause, the parties will procure: (a) That Aqua will pay to MTA royalties on sales of Products by Aqua at the rate of three percent (3%) of sales. (b) That Aqua will pay to Sietel a management fee calculated on sales of Products at the rate of twelve percent (12%) of sales of Products. (2) In the event that the proportion of the issued shares in the share capital of Aqua changes from twenty percent (20%) in the case of MTA or eighty percent (80%) in the case of Sietel, the rate of royalty or the rate at which the management fee is calculated shall be proportionately reduced or increased as the case may require. (3) Neither MTA nor Sietel shall be entitled to receive any payment of royalty or of management fee under sub-clause 9(1) until the directors of Aqua determine that it is reasonably practicable for Aqua to fund the payment."

534. The effect of clause 9 is thus that no payment of royalties or management fees would be made until the directors of Aqua-Max determined that it was reasonably practicable for Aqua-Max to fund the payment. It is at that time that any variation in the proportion of issued shares would first become significant in relation to the rate of royalty, management fee, or payment of share dividends. In these circumstances there is, we think, much to be said for the view that the JVA contemplated that any reassessment of a party's shareholding under clause 7 would take place once only, and presumably before the time when the first payment of royalties or management fees would occur. It would also follow that no issue of shares under the articles (article 38 in particular) should have occurred before this time, since any such allotment of shares would for practical purposes make an adjustment of shares under clause 7(5) pointless. We understood counsel for all parties to accept during argument that the JVA contemplated that there would be only one adjustment under the formula in clause 7, and that no allocation of shares under article 38 could have occurred before any such adjustment.

537. We would also accept that the JVA did not require Aqua-Max to pay the full amount of MTA's claims to the extent that these were genuinely disputed, nor was Sietel required to fund Aqua-Max for that purpose. In so far as the judge found that Sietel's mere refusal to provide funds to Aqua-Max to pay MTA was in breach of the JVA, we think his Honour was, with respect, in error. But this was not what we take to be the thrust of the judge's observations in relation to the decision of Aqua-Max not to continue to make further payments to MTA in December 1991. The commercial arrangement between the parties (clause 4 of the JVA) was that MTA would be paid by Aqua-Max for the consultancy services which MTA provided to Aqua-Max. MTA was dependent upon the payments from Aqua-Max to enable it in turn to pay its employees. There were, as we follow it, no disputed claims preventing the payment of such consultancy fees, and the decision of Aqua-Max to cease paying these invoices from MTA was made by Richard Rees alone, without reference to his co-director Trihey. The financial consequences of cutting off payment were, as his Honour said, dramatic and caused great financial stress, as Richard Rees was well aware, to MTA, Trihey, Croxford and Fiddler. Aqua-Max's failure to pay was, as his Honour found, in breach of the two consultancy agreements made by MTA and Malz with Aqua-Max.

540. In our view there was no provision of the JVA which prevented any loans by Sietel beyond $1,000,000 being secured. But the giving of any such security would, in our view, have required a resolution by the board of Aqua-Max. There had been no such resolution passed.

543. As to the decision to transfer a share in Aqua-Max from Sietel to Cook's, considerations akin to those we have already mentioned suggest that the parties to the JVA would have contemplated that no such transfer would occur before the time under clause 9(3) of the JVA, when it was found to be practicable for Aqua-Max to fund the payment of royalties and management fees, in the absence of consent of all parties to the JVA. Furthermore the transfer of such a share would in any event have required a decision of the board and what we have already said as to the meeting of 15 March 1993 raises the question whether any such decision could properly be taken.

546. A further question arose during oral argument as to whether the parties to the JVA were entitled to use their loan accounts to pay for further shares. The respondents' argument was that loan accounts should not have been used as payment for shares unless all parties to the JVA consented to this course. There is, we think, much to be said for this submission. It was the expectation of all parties that Sietel would contribute the much larger proportion of the funding necessary for the development of the product, and Sietel was obviously the party in much the stronger financial position. Had Sietel been entitled, without the consent of MTA and Trihey, to convert its loan accounts into an increased shareholding, there would have been little or no point to the presence in the JVA of clause 7 and the formula governing the allocation of further shares in response to the additional funding provided by one party.

549. It will be seen from the foregoing comments, particularly in paragraphs [144] and [147] above, that we differ at several points from the trial judge as to the effect of the JVA, the most important of these being, we think, that his Honour took the view that Sietel came under a continuing obligation to fund the development of the Aqua-Max product, beyond the first contributions making up $1,080,000. But we do not see his Honour's conclusions that Sietel was thus in breach of the JVA in various ways as critical to the conclusion of oppression, or as necessarily leading to error in that conclusion. In the first place the judge's comments about Sietel's being in breach of the JVA seem to us to be in all the circumstances quite peripheral to the finding of oppression; and secondly his Honour was, in our view, for the reasons we have already given, correct in concluding that the formula issue had been wrongly calculated by Richard Rees. Accordingly only 219 additional shares should have been issued to Sietel, not 1,062. Since the pro rata issue was based upon the shareholding of Sietel increased by the figure of 1,062, it also was incorrectly made. Counsel for the appellants conceded during argument that if his Honour's method of calculation was, contrary to his submission, found to be correct, then it would be necessary for this Court to set aside both the formula issue and the pro rata issue on general contractual or company law principles (upon which the respondents had also relied in their statement of claim). The formula issue thus was made in breach of the JVA, and the pro rata issue in breach at least of article 38, and, in our view, also of an implied term of the JVA.

553. The appellants' argument that Trihey had set out in March 1993 to boycott the board of Aqua-Max for his own purposes in the hope of persuading Sietel and Richard Rees to give way on disputed issues was plainly not accepted by the judge as an answer to the claim of oppression. Certainly Trihey refused to participate in board meetings after 11 March 1993, although he was tricked into being present for the "meeting" of 15 March 1993. He doubtless hoped to rely on any leverage his position might have given him to reach a resolution of the disputed issues. But Richard Rees likewise had for many months by then been exerting great pressure in financial and other ways on Trihey. The respondents' submission was, however, that Trihey was not engaged in a boycott. Rather he was acting on legal advice designed to protect his position in relation to the disputed accounts, and to shield him against being overborne or ambushed in circumstances where this had already occurred in relation to the signing of the 1991 accounts and the circumstances of the meeting of 15 March 1993. In the respondents' submission Trihey was seeking simply to maintain his position whilst attempts were being made to resolve the disputes arising from the accounts and consequential matters in relation to the formula issue and the pro rata issue, and the appointment of Delwyn Rees as a director of Aqua-Max. These events, it was said, were to be considered against a back-drop of conduct by Richard, Delwyn and Geoffrey Rees, in which information had been withheld from Trihey, other information had been provided which was less than frank, and there had been attempts to manipulate Trihey into attending meetings of the board in circumstances where the Reeses were aware that the appointment of Delwyn Rees and the validity of any resolution in which he participated were the subject of challenge.

556. This was, we think, plainly the view taken by the judge, and it was supported by an abundance of evidence, most of which was unchallenged. There were no directors' meetings of Aqua-Max between March 1992 and 12 February 1993. Trihey's solicitor, Ian Bult, had written to Richard Rees on 19 February 1992 raising a number of issues for resolution and seeking a meeting to discuss them. Rees responded that he was not prepared to meet to discuss these matters but instead proposed to call a directors' meeting, to discuss the financial position of the company and possible sources of further funds. Rees had also stated his intention to appoint a receiver under Sietel's debenture if the matter could not be resolved. Bult repeated his invitation that the parties and/or their legal advisers should meet to discuss these issues outside the context of a directors' meeting. Bult also told Geoffrey Rees at about this time that he had advised Trihey not to attend further directors' meetings of Aqua-Max. In early February 1992 Richard Rees demanded that Trihey sign the 1991 accounts of Aqua-Max dated 20 January 1992. The judge found that Trihey had signed the 1991 accounts under duress and that finding was not challenged. In August 1992 Richard Rees handed a bundle of agreements and attachments to Trihey at the premises of Aqua-Max in Warrigal Road. The judge said of these documents -

"The documents are breathtaking. What they sought to do was to resolve any point of dispute between J Trihey, MTA, Sietel and Aqua-Max in favour of the Sietel interest and sought to rewrite the JVA to favour Sietel. If they had been signed by MTA, Malz and J Trihey the inevitable consequence would have been that the interest of MTA in the joint venture would have been effectively destroyed within a very short time. They are breathtaking in their brazenness, but more importantly, in that either G Rees or R Rees could believe that J Trihey, assuming him to be of sound mind, would have signed them. Yet they were given to him at work, five months after the meeting of 27 March, at a time when J Trihey's solicitor was not actively engaged in the dispute."

560. On 12 February 1993 there was a meeting between Richard Rees and Trihey at which Rees handed Trihey a copy of the draft accounts for 1992. These accounts referred to 480,000 shares to be issued by Aqua-Max, and Richard Rees deposed in evidence to a directors' meeting of 9 March 1993 at which he said that Trihey had agreed to the issue of 480,000 shares. The judge rejected Richard Rees's evidence.

563. On 11 March 1993 a meeting took place between Richard Rees, Geoffrey Rees, Bult and Trihey. It was not suggested that before this time there had been any blanket refusal by Trihey to attend directors' meetings. Indeed, it is obvious that the parties met frequently, albeit informally, during this period to discuss various matters concerning the venture. The evidence of Bult was that there was no resolution of the matters in dispute at this meeting, but he said that Geoffrey Rees threatened that Sietel would appoint a receiver under its debenture. Bult's evidence was that the question of issuing 480,000 shares was mentioned, but that Trihey would not be prepared to sign documentation supporting such an issue. Richard Rees replied that if Trihey adopted that attitude "he would issue the shares anyway". Bult told him that he could not, because MTA was one of two shareholders and there were only two directors, one of whom was Trihey. The evidence of Bult was accepted by the judge, in a finding which was not challenged, and the contrary evidence of Rees was rejected. At that meeting Trihey requested that MTA's accounts be paid, because he was in "dire financial trouble". Richard Rees replied that the accounts would not be paid at that point. The question of minutes of directors' and shareholders' meetings of Aqua-Max was also raised, the response from either Geoffrey or Richard Rees being that there were none. Bult requested that Richard Rees's notes of discussions he had had with Trihey be produced, so that he could see whether there was any evidence of agreements which Richard Rees alleged had been made from time to time concerning the charges made by Sietel to Aqua-Max. These notes were never produced to Bult.

566. Then, on 15 March 1993, there followed the meeting in respect of which there stands the judge's finding that Trihey was "ambushed".

569. On 18 March 1993 Bult wrote to Geoffrey Rees referring to pressure being placed on Trihey to take part in a directors' meeting on 17 March 1993 and to threats to Trihey made as a consequence of his refusal to participate. Bult said he had advised Trihey not to attend any directors' or shareholders' meetings of Aqua-Max for the time being, because of "the extraordinary lengths the Rees appeared to be prepared to go to have the accounts of the company signed in their present form", and added that Trihey had raised bona fide issues in relation to the accounts and that as a director he was under a duty to make sure they were correct before he signed them. In his evidence to the Court Bult referred to his advice to Trihey that he should not attend directors' meetings until the issue of the accounts had been resolved, particularly because of his fears that Trihey would be overborne if he did attend.

572. In all these circumstances the respondents' submissions on the question of Trihey's supposed boycott should, we think, be accepted. The appellants ultimately contended that Trihey's boycott did not begin until after the meeting of 15 March 1993. After that meeting the Rees interests maintained that they had gained control of the board by the appointment of Delwyn Rees and no longer needed the presence of Trihey at board meetings or to sign the company's accounts. Indeed, in a letter dated 23 March 1993, Geoffrey Rees wrote to Bult that it was "now too late for Mr Trihey to question the terms and conditions for the provision of the equipment, premises, administration and finance facilities". Thereafter it was made very plain in correspondence between Trihey's solicitors and Geoffrey Rees's firm, Ward & Partners, that Trihey's legal advisers regarded the supposed meeting of 15 March 1993 as invalid and considered that any step taken or decision made by the newly constituted board of Aqua-Max would therefore be invalid, and that the proposed annual general meeting of 2 June 1993 would be invalid. In these circumstances, Aqua-Max, if the appointment of Delwyn Rees was valid, no longer required the presence of Trihey at board meetings or to sign the company's accounts. On the other hand, had Trihey attended board meetings thereafter, he would have run the risk that his presence and co-operation in the conduct of board meetings would have destroyed any prospects he might otherwise have had of a successful challenge to the appointment of Delwyn Rees as a director, the formula issue which was about to occur, the acceptance of the 1992 accounts of Aqua-Max or the resolution in these accounts of MTA's disputes with Sietel. The judge's findings of fact, which we think are impregnable on these issues, provide an adequate justification for Trihey's refusal from 15 March 1993 onwards to attend board meetings of Aqua-Max and for his refusal to participate in the conduct of Aqua-Max's affairs, to the extent to which this occurred.

576. Aqua-Max paid for the shares issued to it under the pro rata issue by a cheque for $521,752, which was banked on 3 November 1993. On 5 November a cheque was drawn for $520,000 payable to Sietel from Aqua-Max's account. The appellants' principal argument in relation to these payments was that the judge had simply failed to understand the significance of the correction of the balance sheet that had been brought about by the allotment of the shares to Sietel and the payment of the sum of $521,752 for these shares. We accept that the balance sheet insolvency of Aqua-Max was considerably improved - if not rectified - by the allotment of the shares to Sietel. But we do not think that this escaped the trial judge. As his Honour said of the issue in one of the passages of his reasons already quoted, the issue of shares "would no doubt change the look of the balance sheet". His Honour, however, had accepted evidence that the principal concern of the auditor was the ability of Aqua-Max to pay its trading creditors, rather than the problem of balance sheet insolvency, and the risk that trading creditors would not be paid, a conclusion amply supported by an examination of the oral evidence of Tawil.

579. Richard Rees's oral evidence as to the repayment to Sietel on 5 November was difficult to understand. The meeting of directors of Aqua-Max on 6 April 1993 had indeed authorized the shareholders to use their loan accounts for the purpose of subscribing for the shares to be offered in the pro rata issue. At one point in the appellants' oral argument in this Court it seemed that this was the appellants' contention as to what had occurred in the "round robin". But when Richard Rees was cross-examined about the round robin, he said as to Tawil's concerns that the company needed a cash injection to repay its creditors. Then, Sietel having paid for the shares by a temporary accommodation it had reached with its bankers, the National Australia Bank, in answer to the question that because it controlled the situation, "Sietel chose to take the money back didn't it?", he replied -

"No. Aqua-Max had spare money which it repaid to its largest creditor, because that creditor would repay it, loan it back to it if it needed it in the future." "What about its other creditors? Who were the other creditors at that stage? --- There would be various creditors that were getting paid. "What about MTA? Was it a creditor? --- I think there was a disputed amount within MTA at this point in time."

583. The issue of the round robin must, we think, be seen in the context of the judge's findings as to the letter from Tawil dated 25 March 1993 to the board of Aqua-Max and his Honour's conclusion that the real authorship of this letter was with Richard Rees. Ms Foo's notes of the meeting at Aqua-Max dated 26 March 1993 attended by Delwyn, Richard and Geoffrey Rees and Tawil included a reference to the auditor's opinion that the company was technically insolvent owing to the deficiency in shareholders' funds, mentioned the three suggested principal and alternative courses of action and included the following further statements -

"The chairman noted that Sietel was converting its secured loan to shares. The question was how much shares would have to be issued in order to capitalise the loan. The figure of 1 million, 1½ million and 2 million were suggested. The chairman suggested that Aqua-Max offer 1½ million shares to its shareholders. Sietel would then undertake its entitlements plus any shares not taken by the other shareholders. It was noted by the chairman that the minimum loss was $400,000. That means the minimum number of shares that had to be issued was 400,000 shares.

...

The auditor noted that he was now happy to certify the accounts. This would be subject to one qualification, that is, that in his opinion, the company would be able to meet its debts as and when they fall due if Sietel was prepared to support the operations of Aqua-Max for the next 12 months. The chairman noted that Aqua-Max should be making a profit within the next 12 months."

587. There are various matters which arise from the extracts from Ms Foo's notes of the meeting in the context of the appellants' arguments. In the first place, if Sietel was converting its secured loan to shares, there would, of course, have been no need for any round robin. A second point is the variation in amounts suggested for a possible issue of shares. A third matter of relevance is the auditor's statement of his willingness to certify the accounts, provided that Sietel was still prepared to support the operations of Aqua-Max for the next 12 months.

590. A further difficulty with the appellants' contentions would arise if it were to be assumed that the board of Aqua-Max was accepting and acting upon the concern of its auditor as to the balance sheet deficiency and his supposedly principal anxiety that Aqua-Max should not trade whilst it was insolvent. If this concern did indeed lead the board to make the pro rata issue, it should have been acted upon without delay. No step was however taken to issue the additional shares for some six months, indeed not until after the close of the financial year in question, and it was then followed by the immediate repayment of the moneys raised in that allotment. By the time the allotment came to be made Sietel had, as at or about 31 August 1993, credited Aqua-Max with $600,000, in the various ways already mentioned, and by so doing reduced the loan account as at August 1993 from $4.216 million to $3.616 million. The 12 February 1993 draft accounts for Aqua-Max included a statement of support from Sietel for Aqua-Max, although the later signed accounts did not. The accounts for the following year also included a statement of support from Sietel for Aqua-Max. No evidence was given by Sietel's directors in relation to the giving of a statement of support in April 1993 as to any basis on which they would not have been prepared to do so. Sietel, as it happened, did continue to support Aqua-Max financially throughout the relevant period. In relation to the second point mentioned in paragraph [162] above, no evidence was given in the appellants' case of any calculations produced to or made by the board of Aqua-Max leading to the decision to allot 600,000 shares to shareholders, as against 1 million, 1½ million, 2 million or merely 400,000. Nor was any explanation given as to why Sietel subscribed only for 521,000 shares and failed to take up MTA's allotment of 78,000 when MTA failed to do so, if the full allotment of 600,000 shares was thought to be necessary to cure the balance sheet insolvency.

593. In all these circumstances in our view his Honour was perfectly entitled to place reliance on the round robin as a supporting consideration leading to the finding of oppression.

The use of loan accounts to pay for shares in the pro rata issue

597. One of the appellants' principal submissions was that the pro rata issue was not unfair or oppressive because it was made proportionately to all existing shareholders, MTA and Trihey were entitled to pay and perfectly capable of paying for their pro rata allotment by using the loan account standing in MTA's name with Aqua-Max, and Trihey had simply elected to preserve his loan account rather than pay for these shares. The appellants relied on the fact that early in 1992 there had been discussions between Trihey, Croxford, Fiddler and Patton as to the possibility of using MTA's loan account as a source of funds for the purchase of shares in Aqua-Max, to protect the interests of Croxford, Fiddler and Patton; and secondly that in an affidavit sworn on 11 November 1993 Trihey said that he was most concerned as to the proposed -

"unauthorized purported share issue. Apart from the issue of the unfair dilution of the shareholding of MTA, from the past experience ... I believe that Sietel Ltd is likely to ensure that Aqua-Max Pty Ltd treats the price of Sietel Ltd's share allotment as having been paid by an accounting entry against some claimed Sietel Ltd debt".

We think there is no substance in these arguments. We have already indicated our view that there may well be found an implication in the JVA that loan accounts should not be used to purchase shares in Aqua-Max without the consent of all parties to the JVA. That indeed seems to have been the very point being made by Trihey in the passage from his November 1993 affidavit quoted above, that Sietel was wrongly seeking to use its loan account for this purpose. The reference in early 1992 to the possibility of using the loan accounts to purchase shares in Aqua-Max was in a context in which the Sietel interests were applying a "financial squeeze" to Trihey and MTA and seeking already to reduce MTA's interest in Aqua-Max from 20 to 10%. When the board of Aqua-Max passed its resolution on 6 April 1993 permitting the shareholders to use their loan accounts to pay for the pro rata issue then contemplated, Trihey was not sent the minutes of this meeting and was given no notice of the contents of the resolution. The first draft of the notice which was to be sent from Aqua-Max to MTA offering shares under the pro rata issue included a reference to the right of shareholders to use their loan accounts to pay for these shares. But the notice that was actually sent to MTA made no reference to any such entitlement. No notice was, it seems, given to MTA that it was entitled to use the loan account to pay for the shares in the pro rata issue. Furthermore the evidence was that, by the time the pro rata issue came to be made, Aqua-Max was refusing to pay MTA's accounts and had already made a counter-claim against MTA for damages. The evidence of Richard Rees was that by this time the loan account of MTA had become a disputed account and, accordingly, any attempt by MTA to use its loan account would have been disputed by the board of Aqua-Max and the Sietel interests. In these circumstances it could not have been said on all the evidence that MTA had the wherewithal to take up its allotment under the pro rata issue, but had simply elected not to do so. MTA at the time had no available funds to pay for such an allotment. On all the evidence before the judge if MTA had sought to use its loan accounts to pay for the shares, the board or the Sietel interests would not have permitted MTA to do so. The Rees interests were well aware that MTA had no money, and Richard Rees had repeatedly refused to allow Aqua-Max to make the consultancy payments owing to MTA. Any right of MTA to use its loan account in payment for shares was entirely dependent upon the goodwill of the Rees interests. The judge several times in his judgment had commented upon the very poor financial situation of MTA and Trihey which plainly arose as the result of the failure of Aqua-Max to pay MTA and Trihey and the "financial squeeze" which had been applied, a situation which was part, as his Honour found, of the attempt by Delwyn and Richard Rees to destroy MTA. Furthermore MTA could not have subscribed for shares in the pro rata issue without in effect acknowledging the validity of the formula issue of shares.

603. The judge made a number of findings as to the pro rata issue of 3 November 1993, two of which we should mention immediately. His Honour found in conclusion (ii)(d) that the pro rata issue was "not done for a purpose of raising capital in Aqua-Max" and in (ii) (j) "was done for the sole purpose of benefiting the interests of the three Rees through Sietel and was motivated purely and simply by self-interest."

606. We doubt, with respect, whether, on all the evidence, it was open to the judge to conclude that no part of the purpose of the pro rata issue was to raise capital for Aqua-Max, or that it was made for the sole purpose of benefiting the interests of the three Rees through Sietel. There is no question but that Aqua-Max had a capital deficiency and that the auditor had drawn this fact to the attention of the board, with an indication that he would qualify the accounts unless some step was taken by the board. It seems to us that one purpose of the pro rata issue was to raise capital for Aqua-Max, and in that way to benefit the company. But the totality of the facts found wholly justified his Honour's conclusion that the pro rata issue benefited Sietel and Cook's at the expense of MTA in Aqua-Max, and (his conclusion (ii) (e)) "was done for the dominant purpose of diluting the interest of MTA in Aqua-Max to benefit the financial interests of the Rees's companies Sietel and Cook's". We take his Honour in arriving at this conclusion to have used the expression "the dominant purpose" in the sense in which it was used by Mason, Deane and Dawson, JJ. in their judgment in Whitehouse v. Carlton (1987) 162 C.L.R. 286 at 294 (to which express reference had previously been made in the judgment), namely that -

"As a matter of logic and principle, the preferable view would seem to be that, regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, `the power would not have been exercised': per Dixon, J., Mills v. Mills [1938] HCA 4; (1938) 60 C.L.R. 150 at 186."

The judge had also made extensive reference to the judgment of Dixon J. in Mills.

611. The facts supporting the judge's finding of oppression included the following. Aqua-Max had not paid MTA and Malz's accounts since December 1991. In early 1992, having reached the view that the JVA worked against the interests of Sietel, Richard Rees had sought to change Sietel's percentage of the shares in Aqua-Max from 80 to 90%, had threatened to cut funding by Sietel to Aqua-Max, and had pressured Trihey to accept the proposal for the issue of 2,000,000 share options, knowing that Trihey was opposed to the proposals, and also that MTA could not afford to subscribe for 400,000 share options. Richard Rees had then pressured Trihey to sign the 1992 accounts of Aqua-Max which Trihey regarded as false and which claimed, inter alia, that 480,000 pro rata shares had been issued. In August or September of 1992, Rees had pressured Trihey into endorsing a cheque for $494,500 to Sietel, without using any of it to pay MTA's accounts. In August 1992 Rees had pressured Trihey to sign agreements for the purpose of destroying MTA's interest in the joint venture. By February 1993 the consequences of the financial pressure applied by the Rees interests to MTA had been that Croxford and Fiddler had left MTA and begun working as employees of Sietel in circumstances in which the consultancy fees due to them from their employment with MTA were paid in lump sums of $35,000 direct by Sietel to them. This was followed shortly afterwards by the 15 March 1993 meeting at which Delwyn Rees was appointed as a director. Then in April 1993 the formula issue was made under which Sietel received 1,062 shares in Aqua-Max, thus wrongfully increasing Sietel's percentage of the shareholding in Aqua-Max from 83% to 87%. Throughout 1993, Richard Rees had substantially excluded Trihey and his solicitors from participation in the affairs of Aqua-Max and had failed to provide information both as to board minutes and notes of meetings said to have occurred between Richard Rees and Trihey. Thereafter the deficiency in shareholders' funds had been used as an excuse to issue pro rata shares in Aqua-Max, knowing that MTA had no funds available itself to pay for such shares and in circumstances where MTA was not informed that it might be entitled to use its loan account with Aqua-Max to pay for such shares. In consequence MTA's shareholding in Aqua-Max had been reduced to 0.076 per cent of the total shareholding of the company.

614. In all these circumstances there can, we think, be no question that the judge's conclusion of oppression was justified and must stand, either because of his Honour's findings as to the formula issue and the pro rata issue, or his conclusions as to the whole pattern of conduct engaged in by Sietel and the Rees interests, or, having regard to the authorities to which we have referred in paras.[143] to [145] above, because of the cumulative effects of this whole course of conduct. His Honour found, as we mentioned in paragraph [51], that Richard Rees and Sietel had engaged in this pattern of conduct for the purpose of effectively destroying MTA's interest in the joint venture and Aqua-Max and that Richard Rees had used his position to advance the interests of Sietel at the expense of MTA. By November 1993 the effect of all these actions was indeed that MTA's shareholding in Aqua-Max had been reduced from 20 percent to 0.076 percent. As the judge said, "Richard Rees had got what he set out to do in August 1992".

617. There followed attempts by Richard Rees and Sietel to prevent MTA proceeding with the application it had filed in the Federal Court on 8 November 1993, the most significant of which involved the meeting of members of MTA on 16 May 1997. The meeting was actually called by Patton and Croxford, but the judge found that Rees, Patton, Croxford and Fiddler planned to try to take over MTA and bring the present proceedings to a conclusion. His Honour accepted the evidence of Albert Trihey as to what happened at this meeting, at which Rees tried to take over the meeting by demanding co-chairmanship. Rees said at the meeting that Sietel would offer MTA $50,000 in cash for settlement of the litigation, an offer which was, of course, rejected. His Honour stated that what happened at this meeting clearly indicated the measures to which Delwyn and Richard Rees would go to further their ends and destroy MTA.

620. The inevitable conclusion from all the foregoing is, in our judgment, that the judge's findings in proceeding no. 8017 of 1994, that MTA is entitled to relief under s.260 in relation to the formula issue of 6 April 1993 and the pro rata issue of 3 November 1993, on the ground that these issues amounted to conduct which was oppressive and unfairly prejudicial to and unfairly discriminatory against MTA as a member of Aqua-Max must stand, and the appeal against liability in this action therefore fails.

624. It will be recalled that the first proceeding, No. 5966 of 1993, was taken by Aqua-Max and Sietel against MTA, Malz and Trihey, in order to prevent the making of an application to wind-up Aqua-Max. There was in addition a farrago of allegations of misrepresentation, misleading and deceptive conduct and breach of fiduciary duty in relation to the joint venture; all these claims failed. The defendants made a number of counterclaims, most of which succeeded. Aqua-Max and Sietel appealed against the dismissal of their claims for misrepresentation and other wrongful conduct and against other determinations on a large number of grounds, almost all of which have been abandoned. The only survivors are those which attack the judge's decision upholding one of the defendants' claims made by way of counterclaim. This was the claim by Malz against Aqua-Max for bonus payments pursuant to the consultancy agreement entered into between them for the purposes of the joint venture. Judgment was given for Malz against Aqua-Max in the sum of $176,431. Aqua-Max makes two complaints. In the first place, it says that the judge was wrong in holding that, in the events which had happened, there was any liability on its part to make bonus payments. In the second place, it says that, if it was rightly adjudged liable, the judge nevertheless erred in determining that it should pay interest on the amount awarded in respect of the period before payment was demanded. (In deciding, shortly before the hearing of the appeals commenced, to deal at the outset only with liability rather than amount, we indicated that we would dispose of both questions in relation to the bonus payments in order completely to dispose of what remains of the appeal in this proceeding save for one point about the order for costs.)

Whether Malz succeeded in terminating the consultancy agreement

628. Clause 3 of the consultancy agreement required payment of a fee by Aqua-Max to Malz and gave effect to a schedule which itself provided:

"The fee shall be paid monthly in advance, commencing on the commencement date and shall be a sum sufficient to cover the following expenses of [Malz]: the remuneration of John Massey Trihey consisting of:- (i) a salary, initially, at the rate of $12,000.00 per annum; (ii) as from the date (the Appointed Date) when the directors of [Aqua-Max] decide, in good faith, that [Aqua-Max] has the requisite financial resources from sources other than Sietel loan funds:- (a) a salary at the rate of $48,000.00 per annum; (b) a bonus calculated by multiplying $3,000.00 by the number of months from the date of this agreement to the Appointed Date; (iii) in the event of the termination of this agreement prior to the Appointed Date, otherwise than pursuant to clause 8.1.1, 8.1.2, 8.1.3 or 8.2 a bonus calculated by multiplying $3,000.00 by the number of whole months from the date of this agreement to the date of its termination. All amounts of money referred to in sub-paragraphs (i), (ii) and (iii) above shall be adjusted annually from the date of this agreement to reflect variations in the Consumer Price Index Number (All Groups) Melbourne."

Clause 8 of the agreement provided for its termination by Aqua-Max in the event of certain breaches by Malz and also for its termination if commercial production of the heaters was not practicable.

633. The first question raised by the appeal is whether the judge was right in holding that the consultancy agreement had been terminated within the meaning of sub-paragraph (iii) of the schedule. Malz said that it had terminated the agreement by the acceptance of a repudiation of the agreement by Aqua-Max. By the time of the supposed termination Aqua-Max was in arrears in respect of about seventeen monthly payments it was required to make under the agreement. It is not contended that the judge was wrong in determining that this failure to pay amounted to a repudiation or that - subject to the one point about to be mentioned - the repudiation was not accepted by Malz so as to terminate the agreement within the meaning of the schedule provision. What is said by Aqua-Max is that Malz was not entitled to terminate the agreement on the morning of 28 April 1993, as it purported to do, because it had on 19 April 1993 written to Aqua-Max demanding payment of the sum outstanding - $18,688.77 - and stating that it would rescind the agreement if payment was not received on or before 28 April 1993. The argument is that in these circumstances Malz was not at liberty to terminate the agreement, as it purported to do, at about 11.30 a.m. on 28 April, when it communicated to Aqua-Max its decision to terminate the agreement.

636. Notwithstanding the points taken in the appellants' written submissions, counsel for Aqua-Max chose to advance only a single submission against the validity of the purported termination. This was that the giving of the notice threatening to rescind the agreement if payment was not made on or before 28 April precluded Malz from terminating the agreement until that day had come and gone. This argument was put to the judge, although without citation of any authority. It was rejected by him as without substance.

639. Before us, the appellants at first argued only that the case was governed by the doctrine of election. A little later they advanced also the alternative submission that Malz was estopped. Their primary submission was that the case was one of election. They described the letter of 19 April 1993 as the communication of an election "not to rescind at this time" or alternatively an election not to make a decision whether to terminate the agreement until after 28 April. The difficulty which counsel for Aqua-Max experienced in identifying the inconsistent rights as between which Malz was said to have elected is significant. In our view it reflects the circumstance that what Malz did cannot properly be characterised as an election to exercise one of two alternative and inconsistent rights. The second variant of election put forward by Aqua-Max - an election not to make a decision whether to rescind until after 28 April - itself points up the difficulty of analysing what took place in terms of the determination of an election. The first variant - an election not to rescind "at this time" - as advanced in argument did not mean an election not to terminate by reason of the repudiation that had occurred down to the time of the supposed election: this would have been a submission - albeit untenable on the facts - that an election had been determined. "At this time" had in the submission only a temporal signification.

642. The fact of the matter is that what was done by Malz on 19 April was not the determination of an election. The alternative and inconsistent rights which Malz had available to it were a right to terminate the agreement and a right to insist on its performance. Neither of the variants formulated by counsel for Aqua-Max could be regarded as identifying inconsistent rights for the doctrine of election.

645. The appellants cited two decisions. The first is Holland v. Wiltshire[51]. There a contract for the sale of land required payment of the balance of the price on 14 January 1952 and provided that, if default was made in due payment of it, the vendor might without notice sell the land and rescind the contract and any moneys paid on account of the purchase should be forfeited to the vendor as liquidated damages. The purchasers paid the deposit stipulated for - the modest sum of two pounds - but, before 14 January 1952, they asked for an extension of time for payment of the balance of the price, which was agreed to by the vendor. In about the second week in March 1952 their solicitor told the vendor that they would not proceed with the purchase, and the vendor, on 17 March 1952, gave the purchasers notice requiring them to settle by 28 March and informing them that, if settlement was not made by that date, he would sue them for breach of contract. The purchasers failed to complete the purchase and on 10 June 1952 the vendor resold the land. He sought to recover as damages the difference between the contract price (less the two pound deposit) and the price achieved on resale; the purchasers contended that he was entitled only to forfeiture of the deposit. The High Court held that the resale had been effected, not under the rescission clause of the contract, but independently of it, and that the vendor was entitled to recover the damages claimed.

648. It is important to realise that Holland v. Wiltshire, unlike the present case, was not an example of service of a notice threatening rescission if payment is not made by a certain date, followed by what is then said to be premature rescission, that is, rescission before that date has come and gone. The question was whether the vendor had rescinded the contract under the rescission clause or independently of it. The Court was in no way concerned with what the effect would have been of a purported rescission during the currency of the notice of 17 March 1952. Dixon, C.J. observed, at 415, "This was not an unconditional affirmance of the contract notwithstanding the renunciation. It was a demand for performance coupled with an intimation that refusal or failure to perform would result in proceedings for damages. That is to say it kept the contract open for a limited time and conditionally upon compliance." Taylor, J., at 423, said of the notice that it was a clear intimation that if the purchaser continued in default after 28 March 1952 the vendor would elect to treat the contract as at an end and sue to recover damages. Counsel for Aqua-Max relied only on what was said by Kitto, J. at 420:

"A second opportunity for the vendor to determine the contract arose when the purchasers' solicitor informed him that Mr Holland (implying Mrs Holland also) would not go on with the contract. But the next step he took was to give the purchasers the notice of 17th March. This notice did not accept the repudiation; it ignored it and insisted upon the contract being performed. Beyond a peremptory demand for completion by 28th March, there was nothing in it but a warning that failure by the purchasers to complete by that date would be treated as a breach of contract for which a legal remedy would be sought. After this clear election, the right of the vendor to end the contract because of the repudiation conveyed by the solicitor was plainly gone."

652. Of this passage two things may be said. In the first place, his Honour's view of the effect of the notice differed from that of the other two members of the Court, both of whom held that the notice was not an election to require performance of the contract. In the second place, what Kitto, J. was concerned with was the question (which the present case in no way raises) whether a notice had been given which elected to affirm the contract. In other words, Kitto, J. was not concerned with what has since been described as suspension of the exercise of a right of rescission; and in any event his Honour's view of the effect of the notice was a minority one.

655. The only other decision relied on by the appellants on this point is Tropical Traders Ltd. v. Goonan[52]. Like Holland v. Wiltshire, that was a case in which a vendor of real estate gave the purchaser an extension of the time for completion, but it too was a case in which there was no purported termination of the contract by the vendor within that extended time. The balance of the purchase price was due on 6 January 1963. On the following day the purchasers told the vendor that they were unable to make the final payment and asked for an extension of up to three months. Next day, 8 January, the vendor's solicitors told the purchasers of the vendor's power to rescind, but added that in order to give the purchasers a further opportunity of finding and paying the money it would not exercise its powers under the contract until 14 January. On 9 January the vendor's solicitors wrote to the purchasers confirming the telephone conversation and describing what the vendor was doing as an act of grace and without prejudice to its right to the strict enforcement of the contract. Payment of the balance was not made on 14 January and on the following day the vendor's solicitors wrote to the purchasers stating that their client had rescinded the contract. The contract was held to have been validly rescinded. The leading judgment is that of Kitto, J. At 55 his Honour rejected the purchasers' contention that by granting the extension of time the vendor had elected to affirm the contract:

"Time being of the essence the appellant became entitled, as soon as 6th January 1963 had passed, to elect for or against rescinding the contract. Any act done by it and consistent only with the continuance of the contract on foot the law would hold to constitute an election against rescinding; and an election once made could not be retracted. But the appellant was not bound to elect at once. It might keep the question open, so long as it did nothing to affirm the contract and so long as the respondents' position was not prejudiced in consequence of the delay: Clough v. London & North Western Railway Co.[53]; Scarf v. Jardine[54]. By telling the respondents it would not rescind before Monday, 14th January, and that they would have to pay £50 for the additional accommodation to cover interest, costs and expenses, the appellant did no more than promise that it would not elect to rescind the contract before 14th January and that if the £17,500 and the additional £50 should be paid before that date the contract would stand affirmed. In the language of Fry L.J. in Howe v. Smith[55], `this was not a stipulation postponing the time for completion generally, but merely limiting the exercise of a consequential power'[56]. The granting of the extension of time, therefore, far from constituting an election by the appellant to affirm the contract, was the announcement of an intention to refrain from electing either way until either the £17,500 should have been paid or 14th January should have arrived."

Among the brief additional observations made by Menzies, J. was this, at 60-61:

"Upon the main point, it appears to me on principle that a vendor becoming entitled to rescind for non-payment of purchase money upon the stipulated date for payment, who does no more than give the purchaser the opportunity to pay within a limited time thereafter, is not thereby electing not to rescind for non-payment on the due date nor is he representing that time is not of the essence; rather he is intimating that he intends to exercise his right to rescind unless payment is made within the time of grace."

661. It was on the passage from the judgment of Kitto, J. already cited that the appellants mainly relied for their contention that there had been an election in the present case. In our opinion the passage does not support this contention. At the end of it Kitto, J. used the words of Fry, L.J. in Howe v. Smith[57] to describe the vendor's grant of an extension of time: "This was not a stipulation postponing the time for completion generally, but merely limiting the exercise of a consequential power." But neither Fry, L.J. in using, nor Kitto, J. in adopting, this description was concerning himself with the question whether the grant of the extension prevented rescission while the extension was current; no such question arose on the facts of either case. Kitto, J. was concerned to distinguish between acts which were properly to be regarded as elections and acts which were not, since they did no more than keep open the question of termination of the contract. The word "limiting" in the phrase "limiting the exercise of a consequential power" is not to be taken as conveying that the vendor is obliged to keep the contract on foot until the expiration of the extended period. The true rule in such cases is that (leaving aside facts giving rise to an estoppel) the only limitation on the vendor's power resulting from the grant of the extension is that if the breach is cured within the extended period the right to rescind is gone. This is made clear by the following instructive passage in Carter, Breach of Contract, 2nd ed., pp.427-8, on the effect of Tropical Traders:

"However, the vendor's notice overcame this difficulty by going further and stating a specific date for payment. In other words, the vendors' election was a conditional election which would only become absolute (final) if the purchasers complied with the notice. Had the purchasers so complied there is no doubt that the vendors would have been precluded from relying on the earlier default as a ground for termination. No doubt, also, if the purchasers had relied on the extension to such an extent that it would have been inequitable to permit termination, the vendors would have been estopped during the currency of the notice. However, once the notice expired there was no impediment to termination and the vendors' election was justifiable by reference to the purchasers' breach of contract, rather than their failure to comply with the notice." (Footnote omitted.)

665. That this is the correct approach is supported by the decision of Wootten, J. in Wilson v. Kingsgate Mining Industries Pty. Ltd.[58], where the facts bear some resemblance to those of the present case. In the events which had happened a contract for the sale of land required completion within two months after 5 April 1973. On 17 May the purchaser's solicitor wrote to the vendor's solicitor enclosing requisitions on title and stating that on receiving answers to requisitions he would be in a position to settle the matter. On 22 May the vendor's solicitor wrote a letter answering the requisitions. On 13 June, having heard nothing further, he telephoned the purchaser's solicitor's office and left a message for the solicitor (who was away ill) that unless the contract was settled by 15 June he would have to rescind it. He emphasised that this message was "without prejudice". The purchaser's solicitor did not read this message until he came to his office on Friday 15 June. On that day a letter from the vendor's solicitor was delivered by hand to the purchaser's solicitor's office rescinding the contract.

668. In an action by the purchaser for specific performance the vendor was held to have validly rescinded the contract on 15 June. What was said by its solicitor on 13 June did not stand in the way of rescission two days later. In the first place, Wootten, J. considered that the vendor's solicitor had not on 13 June granted an extension of time at all. He had simply said that unless the contract was settled by 15 June he would have to rescind; he had not said that he would not rescind before. We shall not add to the length of this judgment by setting out the letter of 19 April from Malz which is said by Aqua-Max to have granted an extension until 28 April. Without expressing any opinion on the point, we shall assume, in favour of Aqua-Max, that the letter does intimate that the contract will not be rescinded until after 28 April. Even on this assumption, it did not in our view give rise to any impediment to rescission on 28 April.

671. Wootten, J. went on to hold that, even if an extension of time had been granted on 13 June, there was nothing to prevent the vendor rescinding on 15 June. At 728-730 his Honour, after considering Tropical Traders and other authorities, concluded that even if an extension of time had been granted the vendor was free to rescind during the period of the extension unless something had happened which made it inequitable to do so. As to this, on the assumption that a promise could be spelt out from what the vendor's solicitor had said, two essential elements of a promissory estoppel were missing: the message had not induced any belief in the mind of the purchaser or those acting for him (since it did not come to the knowledge of anyone who had capacity to act on behalf of the purchaser until after the notice of rescission had been delivered), and the purchaser had not acted on the faith of or altered his position as a result of the promise. Wootten, J. then went on to hold that the case was not one of election. (His Honour dealt also with "waiver", something not invoked in the present case.) Wootten, J. held, at 730-732, that there had been no election. His Honour discussed whether there was any requirement in the case of an election that the other party should have committed himself to a particular course of action. (He did not have the benefit of the decision of the High Court in Sargent v. ASL Developments Ltd.[59] on this question.) Wootten, J. held that there had been no determination of an election, the inconsistent alternative rights being the right to rescind the contract and the right to insist on its performance.

674. Thus Gillard, J. was right in holding that Malz had terminated the consultancy agreement.

677. We turn to the second point raised by the appeal, namely, whether the judge was correct in his view that the case fell within s.58 of the Supreme Court Act 1986 as one in which the debt or sum recovered was payable by virtue of a written instrument and at a date or time certain. It is with the phrase "and at a date or time certain" that we are concerned. By s.58(3), a date or time is to be taken to be certain if it has become certain. Sub-section (3) is a simplified version of sub-s.(2) of the substituted s.78 which was introduced into the Supreme Court Act 1958 in 1962 by Act No. 6874, s.2. The substituted section was based on the recommendations of the Chief Justice's Law Reform Committee, which criticised, among other things, restricted interpretations of the phrase "time certain". The old law will also be found discussed by Ellicott, J. in Commonwealth of Australia v. Crothall Hospital Services (Aust.) Ltd.[60].

680. Malz contended that the bonus was, by virtue of the consultancy agreement, payable at a date which had become certain and so was to be taken to be certain, that being the date of termination of the agreement, 30 April 1993. Aqua-Max said that the amount recovered was not payable at a date certain and that interest should therefore run, not from 30 April 1993, as Malz contended, but from the time when demand of payment was made, that being the date on which the claim was made by the amendment of the pleadings. The judge accepted Malz's contention, taking the view that it was enough that date or time could be ascertained from the written instrument "without reference to any other criteria or indicia". We entertain no doubt about the correctness of the judge's view that the case fell within the section.

683. The submission to us on behalf of Aqua-Max was that the date on which the bonus was payable by virtue of the consultancy agreement was not certain because it was difficult to ascertain the date, a dispute having arisen about whether the bonus was payable and the decision of the court being necessary in order to determine whether, on the law as applied to the facts, Malz had terminated the consultancy agreement. But the circumstance that, a dispute having arisen, questions of fact or law or both may have to be determined by a court does not mean that the written instrument does not make the sum payable at a date or time which has become certain. The facts are the facts and the law is the law: there may be difficulty in finding the one or in stating the other, but, unless it is impossible in a given case to find the facts which have to be determined, the necessary certainty exists. In other words, it is not difficulty but impossibility which will prevent its being said that the date or time at which the sum was payable has become certain.

686. This view makes it unnecessary to rule upon the application by Malz for leave to amend the counterclaim so as to include alternative allegations concerning repudiation and acceptance of repudiation.

689. The appeal in the first proceeding, in so far as it challenges the decision on the counterclaim by Malz, must fail. There will remain for subsequent determination a question about an order for costs made by the judge.

692. Finally we should mention that Malz is in liquidation. It is being wound up by the Court, and was placed in liquidation on 18 March 1996. At some stage before or during the trial his Honour intimated that he would be willing to grant leave pursuant to s.471B of the Corporations Law to proceed with the first proceeding against Malz. But it seems that no application for leave was ever formally made and that leave was never granted. In addition, the title to the proceedings has never been amended to reflect the fact that Malz has gone into liquidation. Aqua-Max has filed a summons seeking leave under paragraph (a) of s.471B to proceed with the appeal against Malz if leave is required. The grant of leave is not opposed by Malz. On the question whether leave is necessary, we were referred by counsel for Malz to what was said by the Court of Appeal of New South Wales in Skinner v. Jeogla Pty. Ltd.[61]. Without expressing any opinion on whether leave is necessary, we will grant leave, if needed.

[1] [1999] UKHL 24; [1999] 2 All E.R. 961 per Lord Hoffman (with whom Lord Jauncey of Tullichettle, Lord Clyde, Lord Hutton and Lord Hobhouse of Woodborough agreed) at 967.

[2] [1951] VicLawRp 65; [1951] V.L.R. 458, at 467.

[3] [1973] A.C. 360 at 378.

[4] [1968] HCA 82; [1968] 1 A.C.L.R. 489, at 492. (Reversed on other grounds: [1968] HCA 82; (1968) 120 C.L.R. 603.)

[5] [1985] HCA 68; (1982) 180 C.L.R. 459, at 470-471, 472.

[6] [1984] 1 N.Z.L.R. 686 at 693.

[7] [1959] 1 W.L.R. 62 per Jenkins, L.J. at 84.

[8] [1987] 5 A.C.L.C. 184 per Derrington, J. at 212.

[9] (1987) 5 A.C.L.C. 222 per Young, J. at 233.

[10] (1989) 7 A.C.L.C. 1,130 at 1,153 per Perry, J.

[11] (1990) 8 A.C.L.C. 1097 per Young, J. at 1101.

[12] [1993] SASC 4323; (1993) 61 S.A.S.R. 165 per Debelle, J. at 181.

[13] [1998] NSWSC 413; (1998) 28 A.C.S.R. 688 per Young, J. at 703.

[14] (1993) 6 A.C.S.R. 659 per McKenzie, J. at 669-670.

[15] [2000] SASC 87; (2000) 34 A.C.S.R. 1 per Olsson, J. at 71.

[16] (1992) 10 Company & Securities Law Journal 86, 94.

[17] (1993) 67 A.L.J. 575, 579.

[20] [1990] HCA 47; (1990) 171 C.L.R. 167, at 178-179.

[22] [1998] 3 V.R. 833, at 836.

[23] [1927] A.C. 37 at 47.

[24] [1947] A.C. 484 at 488.

[25] [1999] HCA 33; (1999) 73 A.L.J.R. 1138 at 1148.

[26] [2000] F.C.A. 880 at [13] to [14].

[27] [1999] VSCA 180; [1999] 3 V.R. 417, at 424.

[28] [2001] HCA 18; (2000) 75 A.L.J.R. 734.

[29] [1999] HCA 3; [1999] 73 A.L.J.R. 306, at 322, per Kirby, J.

[30] See Walsh v. Law Society of New South Wales at [54].

[31] Barron v. Potter [1914] 1 Ch. 895, a decision anticipated in British Columbia in Harris v. English Canadian Co. (1905) Western Law Reporter 5.

[32] Surprise is coupled with fraud, mistake and accident by Mason and Deane, JJ. in Legione v. Hateley [1983] HCA 11; (1983) 152 C.L.R. 406 at 444 in a passage cited by Davies, J. in Federal Airports Corporation v. Makucha Developments Pty. Ltd. [1993] FCA 315; (1993) 115 A.L.R. 679 at 698.

[33] See, for example, Lord Irnham v. Child [1781] EngR 8; (1781) 1 Bro. C.C. 92 at 94; [1781] EngR 8; 28 E.R. 1006; Marquis Townsend v. Stangroom [1801] EngR 397; (1801) 6 Ves. Jun. 334; 31 E.R. 1076; Pickett v. Loggon [1807] EngR 449; (1807) 14 Ves. Jun. 215; 33 E.R. 503; Willan v. Willan [1810] EngR 196; (1809) 16 Ves. Jun. 72 at 86; [1810] EngR 196; 33 E.R. 911; Haberdashers' Co. v. Isaac (1857) 3 Jur. NS. 611; affd 29 L.T.O.S. 350; Rawlings v. Hislop [1883] VicLawRp 7; (1883) 9 V.L.R. (E.) 25 at 27 ("a contract snatched by surprise"); Pomeroy's Equity Jurisprudence, 5th ed., vol. 2, Section 451.

[34] (1787) 1 Cox. 333 at 340-1; 29 E.R. 1191.

[35] Commentaries on Equity Jurisprudence, 13th ed. (1886).

[38] The latter part of this second passage cited from Story is echoed in Smith's Manual of Equity, 13th ed. (1880), Section 123, which is not surprising, in view of the learned author's acknowledged indebtedness to him (Preface to the Second edition of the Manual). It may be that Story would not have approved of Molesworth, J.'s use of "surprise" in Rawlings v. Hislop [1883] VicLawRp 7; (1883) 9 V.L.R. (E.) 25 at 27.

[39] [1956] HCA 81; (1956) 99 C.L.R. 362 at 405 per Fullagar, J. and at 415 per Kitto, J.

[40] [1983] HCA 14; (1983) 151 C.L.R. 447.

[41] [1998] HCA 48; (1998) 194 C.L.R. 395.

[42] [1983] HCA 11; (1983) 152 C.L.R. 406 at 444 per Mason and Deane, JJ.

[43] [1862] EngR 604; (1862) 31 Beav. 80; 54 E.R. 1067.

[44] On that analysis, it has to follow that MTA's corresponding obligation was to contribute one quarter of Sietel's additional funding.

[45] The appellants' calculations were as follows:

* "Y" = total loan funds provided by Sietel under clause 7(2),

* "X" = additional loan funds provided by Sietel under clause 7(4)

(being the total funds provided under that clause - $1,760,247

less the amount of its commitment under clause 7(4) ($52,318 x 4)

Therefore, additional formula shares = 2,000 x = 1,092 shares.

[49] The corresponding figures in his Honour's calculations were $1,812,565, $362,513, $52,318 and $310,195.

[50] The corresponding figures taken from his Honour's calculations would have been $1,550,975 (being the amount which Sietel contributed beyond its contractual obligations - $1,760,247 less $209,272) and $310,195.

[51] [1954] HCA 42; (1954) 90 C.L.R. 409.

[52] [1964] HCA 20; (1964) 111 C.L.R. 41.

[53] (1871) L.R. 7 Exch. 26, at pp.34, 35.

[54] (1882) 7 App. Cas. 345, at p.360.

[55] (1884) 27 Ch.D. 89.

[57] (1884) 27 Ch.D. 89 at 103-4.

[58] [1973] 2 N.S.W.L.R. 713.

[59] [1974] HCA 40; (1974) 131 C.L.R. 634.

[60] [1981] FCA 117; (1981) 36 A.L.R. 567 at 583.

[61] [2001] N.S.W.C.A. 15; (2001) 37 A.C.S.R. 106.