Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness

The factual background and affidavit evidence

1. There is a substantial degree of common ground between the parties as to relevant facts, as pleaded by Ms Chae's Amended Statement of Claim filed on 1 December 2017 and admitted by the Amended Defence filed on 12 December 2017. There is also a degree of common ground as to the facts alleged in a Points of Cross-Claim subsequently filed by the Second and Third Defendants. At the commencement of the hearing, the parties also agreed two additional agreed facts (Ex J1) as follows: "[Mr Chae] is, and has been at all times since the company's incorporation, the beneficial owner of the share in the Company which [Ms Chae] holds and has held at all times since the Company's incorporation; and [Mr Moon] is, and has been at all times since the Company's incorporation, the beneficial owner of the share in the Company which [Ms Hong] holds and has held at all times since the Company's incorporation."
2. The Company was incorporated on 6 September 2012, and was formed by Mr Chae and Mr Moon, although their respective family members became its shareholders and directors, to take over a health food products business previously operated by Mr Moon through another company, Aussie Health International Pty Limited ("Aussie Health") from premises in Alexandria. Mr Chae paid an amount of $215,000 to acquire, in the name of Ms Chae, a 50% interest in the Company for Ms Chae, of which $165,000 was attributed to goodwill and assets of the business and $50,000 was for working capital (Chae 30.3.18 [12]-[15]). The Company then operated and still operates a business that sells Australian natural health supplements and products to Korean tourists visiting Australia, who were brought to its shop by tour agents by arrangement with it. The Company prepays commission to those tour agents, from which amounts of commissions payable when tourists attended its shop are then deducted (Chae 30.3.18 [22]-[24], T85-88, 91-92), leaving a balance recorded either in favour of the tour agent or the Company (Chae 30.3.18 [25]). I will address the question whether that balance was properly treated as owing to the Company from time to time, or on termination of the relationship with a tour agent, or as an asset of the Company below.
3. The parties each read several affidavits, and Mr Chae, Ms Kim and Mr Moon were cross-examined. Ms Chae relied on her affidavit dated 7 June 2017 which referred to correspondence requesting financial information concerning the Company which had not then been provided to her, and also indicated that she was unable to work with Ms Hong in relation to the Company's operations. In fact, neither Ms Chae nor Ms Hong have had any substantive role in the Company's affairs.
4. Ms Chae also relied on Mr Chae's affidavit dated 30 March 2018. Mr Chae's evidence was that the directors and shareholders of the Company were determined by him and Mr Moon (Chae 30.3.18 [18]). Mr Chae also addressed the manner in which the Company operated, its arrangements for commissions payable to tour agents which brought in tour groups and for prepayment of such commission. I will address several other aspects of Mr Chae's evidence below. By a further affidavit dated 11 May 2018, filed in the course of the hearing, Mr Chae led evidence to seek to support a claim in his first affidavit that he had made payments from his own funds for the purpose of marketing expenses of the Company and received reimbursement of those payments to an associated entity, Suri Trading Pty Limited ("Suri Trading"). I will address that matter further below.
5. Mr Livingston, who appears for Ms Chae. submits that, where there is a conflict in the evidence of Mr Chae and Mr Moon, Mr Chae's evidence should be preferred to Mr Moon's evidence, to which I refer below. Mr Livingston submits that Mr Chae gave evidence in a careful manner, answered questions directly and made concessions where appropriate. I accept that Mr Chae was more direct in his answers to questions in cross-examination than Mr Moon, and at least made concessions where matters adverse to his evidence were evident from documents were put to him in cross-examination. Significant aspects of Mr Chae's affidavit evidence, particularly in respect of dealings with Suri Trading to which I refer below, were falsified in cross-examination. I recognise the possibility that, as Mr Livingston points out, this may at least partly have arisen from difficulties with the translation of his affidavit evidence or his oral evidence. Nonetheless, I consider that Mr Chae's evidence should be approached with caution unless it is corroborated by documents or adverse to his interests.
6. Ms Chae also relied on the affidavits of Ms Kim dated 8 June, 2 August and 6 October 2017. The first of those affidavits related to matters which are now largely uncontroversial, in respect of the exclusion of Ms Kim from access to information concerning the Company. The second of those affidavits related to further requests for Company records, clarified information as to payments made by the Company to Ms Kim and dealt with the relocation of the Company's business to premises also occupied by another company associated with Mr Moon, Aussie Nature Pty Limited ("Aussie Nature"). Ms Kim's third affidavit responded to evidence led by the Second and Third Defendants and also addressed issues in respect of the Company's financial statements and its premises. Ms Chae also relied on the affidavits of Mr Chae dated 10 July 2017 and 20 October 2017, relating to the notifications and other steps required to be taken prior to making a winding up order.
7. The Second and Third Defendants, Ms Moon and Ms Hong, relied on Mr Moon's affidavit dated 25 August 2017, and I will refer to aspects of Mr Moon's evidence in that affidavit below. Ms Moon and Ms Hong also relied on a second affidavit of Mr Moon dated 27 November 2017 which dealt with the nature of the business conducted by another entity associated with Mr Moon, Sydney Duty Free Pty Limited ("Sydney Duty Free"), the Company's move to new premises shared with Aussie Nature, and the treatment of prepayments to tour agents. Ms Moon and Ms Hong also relied on Mr Moon's further affidavit dated 27 April 2018 which also dealt with the practice in respect of pre-paid commissions to tour agents and the circumstances in which Mr Moon traded through Aussie Nature. Mr Moon also acknowledged, in that affidavit, that it had been inappropriate for him to arrange for other persons to be named as directors of the Company, when he intended that he would be the person who would manage the Company jointly with Mr Chae, and for Mr Chae to take a similar approach. His evidence was that he would ensure that, in future, he was correctly recorded as a director of a company where he managed the company's affairs, alone or with someone else, and that he would also ensure that that other person was recorded as a director where that other person managed the company with him (Moon 27.4.18 [38]). He also indicated that he would ensure that, in future, the records of the Australian Securities and Investments Commission ("ASIC") showed a person who held a share for him did not hold that share beneficially (Moon 27.4.18 [39]). I ultimately give little weight to these matters, where I find below that other matters warrant a winding up order in respect of the Company.
8. Mr Livingston submits that Mr Moon was not a reliable witness and rightly points to Mr Moon's reluctance to answer questions in a responsive way, to inconsistencies in his evidence and his reluctance frankly to concede matters that were adverse to his case, including the extent to which Aussie Nature had relied on employees paid by the Company, increasing the Company's wage costs and reducing Aussie Nature's costs. I largely accept Mr Livingston's criticisms of Mr Moon's evidence and I consider his evidence, like Mr Chae's evidence, should be approached with caution unless it is corroborated by documents or adverse to his interests.
9. The Second and Third Defendants also relied on the affidavit of Mr Seung Lee dated 25 August 2017. Mr Lee worked as an accounts manager at the Company and described the nature of the Company's operations. Mr Lee was cross-examined at some length and he seemed to me to be an honest witness who was doing his best to provide a truthful account of events to the Court. I accept his evidence, and prefer his evidence to Mr Chae's evidence in respect of a significant conflict of evidence between them as to the Company's dealings with Suri Trading.

Breakdown of parties' relationship and exclusion of Chae family from the Company's business

1. As I noted above, the fact of a breakdown of relationships between the parties and the Company's shareholders and directors is common ground between the parties. It is common ground that, since 17 December 2015, Ms Kim and Ms Moon have been the Company's only directors and that the directors cannot pass a resolution if they are in disagreement, by reason of cl 21.9 of the Company's constitution which provides that a resolution is lost on an equality of votes and the chair does not have a second or casting vote (Amended Statement of Claim [10]-[11]; Amended Defence [10]-[11]). There is no written shareholders agreement that would allow resolution of a deadlock. In any event, Ms Kim and Ms Moon do not meet or seek to make decisions as directors and have largely left the management of the Company to Mr Chae and Mr Moon, whose relationship has also broken down, and Mr Chae has now withdrawn from or been excluded from the Company's business or both.
2. It is also common ground that Mr Chae's employment was terminated by the Company on 24 March 2017 without Ms Kim's knowledge or consent as a director of the Company (Amended Statement of Claim [22], Amended Defence [22]). There is some evidence that Mr Chae had previously ceased working with the Company in November 2016, although the Company continued to pay him wages, prior to termination of his employment from 24 March 2017; at least that was the position advanced by the Company in its letter terminating Mr Chae's employment (Ex J2, 500). Mr Moon accepts, in his affidavit dated 25 August 2017, that he arranged for the termination of Mr Chae's employment with the Company, after he became aware that Mr Chae had established another company, Bio Pharma Tech Pty Limited ("Bio Pharma"), which was operating the same kind of business as the Company; that the Company then stopped paying wages to Mr Chae and continued paying wages to Ms Moon; and that Mr Chae has had no involvement with the Company since March 2017. The termination of Mr Chae's employment took place without the authority of a resolution of the directors of the Company, which likely could not have been passed by reason of the deadlock that would have existed had the directors in fact managed the Company, rather than Mr Chae and Mr Moon, and later only Mr Moon, doing so.
3. It is also common ground that, from at least late March 2017 until May 2017, Ms Moon and Mr Moon did not permit Ms Kim or Mr or Ms Chae access to the Company's operational and financial records (Amended Statement of Claim [24], Amended Defence [24]) and, since March 2017, Ms Kim has not been given access to the Company's internet banking facility (Amended Statement of Claim [25], Amended Defence [25]). Other financial records and director's reports have not been provided to Ms Chae, Ms Kim or Mr Chae (Amended Statement of Claim [30]-[34], Amended Defence [30]-[34]). On or about 3 April 2017, Ms Chae requested that the Company prepare a director's report for the financial year entered 30 June 2016 under s 293 of the Corporations Act, which permits shareholders with at least 5% of the votes in a small proprietary company to give that company a direction to prepare a financial report and directors report for a financial year but that also was not done. The Company defended proceedings brought against it by Ms Chae without authority of its directors acting as a board and without Ms Kim's agreement (Amended Statement of Claim [41], Amended Defence [41]). The Company also paid legal fees to the solicitor who now appears for the Second and Third Defendants, in respect of the dispute between the Company and Mr Moon, also without the authority of its board. It is also common ground that Ms Moon does not now consult Ms Kim in relation to the Company's affairs, although neither of them have any real involvement in the Company's affairs; Mr Moon does not consult Mr Chae in respect of the Company's affairs; and members of the Chae family do not now have any involvement in the Company's affairs.
4. Mr Carnovale fairly accepted, in his written closing submissions, that the Second and Third Defendants' conduct in respect of the termination of Mr Chae's employment, the failure to pay remuneration to Mr Chae while wages were paid to Mr Moon's wife, the denial of access to the Company's premises, bank facility and records, the failure to consult with Ms Kim in respect of the conduct of the Company's affairs including the defence of the proceedings brought by Mr Chae, and the move of the Company's business to other premises would entitle Ms Chae to relief, but for the conduct alleged by the Second and Third Defendants against Mr Chae and Ms Kim. I am satisfied that these matters would ordinarily establish a claim in oppression or for winding up of the Company on the just and equitable ground, by reference to the principles to which I refer below. I am also satisfied that, although Mr Chae's conduct also amounted to oppression, it did not deprive Mr Moon's conduct of its otherwise oppressive character. I address below the question whether an order should be made requiring the sale of the share held by Ms Hong to Ms Chae, or requiring the sale of the share held by Ms Hong Chae to Ms Hong, or winding up the Company.

Mr Chae's competition with the Company

1. Each party alleges the other improperly competed with the Company, and each party has established this allegation against the other. It is convenient first to address Mr Chae's competition with the Company and then Mr Moon's competition with the Company.
2. The Second and Third Defendants allege that, about mid-March 2017, Mr Chae caused Bio Pharma to commence operating a health foods business from premises in Alexandria, which was the same kind of business that the Company had been conducting since September 2012; that Bio Pharma has been competing with the Company from March 2017; and that Mr Chae, or alternatively Mr Chae and Ms Kim, had caused Bio Pharma to do so. Those matters were not admitted by Ms Chae.
3. I now turn to Mr Chae's evidence in respect of this allegation. He refers, in his affidavit dated 30 March 2018, to the circumstances in which the Company was established and to Mr Moon's involvements with other businesses at that time, including Sydney Duty Free and Aussie Health. Mr Chae also refers to discussions and draft documentation in relation to the formation of the Company, which was then proposed to be established under a different name. Mr Chae also refers to his involvement in another company, MDW Sydney Pty Ltd ("MDW Sydney"), which he claimed operated separately to the Company, although in a similar way, selling health food supplements to incoming Korean tourists under arrangements with tour agents to bring those tourists to its shop. Mr Chae's evidence is that he had made Mr Moon aware of his involvement in MDW Sydney and Mr Moon did not object to that involvement (Chae 30.3.18 [38]).
4. Mr Chae also refers to his subsequent involvement in another duty free health food supplement business operated by Golden Tree Australia Pty Ltd ("GTA"), which operated similarly to MDW Sydney and the Company but which Mr Chae said was completely separate to the Company (Chae 30.3.18 [46]). Mr Chae's evidence is that he had also made Mr Moon aware of GTA, and its business, and Mr Moon did not have any objection to his being involved in GTA (Chae 30.3.18 [54]). Mr Chae's evidence is that he ceased involvement with GTA in November 2016 (Chae 30.3.18 [56]); advised Mr Moon that he wished to open a health food shop to provide services to the tour agents he had previously dealt with in GTA, and Mr Moon having responded that, if Mr Chae opened in the same line of business, Mr Moon would have no choice but to become his competitor; and to Mr Chae then advised Mr Moon that: "The health food store I am going to open, is simply a continuation of the MDW Sydney business I operated previously. It has nothing to do with [the Company] or you. It will not be in competition with [the Company]. However, if you think like this, then let's stop trading [the Company]. Let's divide all of the company assets of [the Company], including the goodwill, the tour agents and the tour agent pre-payments, on a 50/50 business, and let's open our own separate businesses." Mr Chae's evidence is that Mr Moon indicated he was "not happy about this".
5. Mr Chae's evidence in cross-examination was contrary to his affidavit evidence as to this conversation, since he denied having discussed the Company with Mr Moon in November 2016 in cross-examination. This was a significant departure from his affidavit evidence as to a significant matter and contributes to my lack of confidence in his evidence. It seems to me that Mr Chae's evidence of this conversation, taken at its highest, did not establish Mr Moon's or the Company's consent to Mr Chae's competing with the Company through BioPharma, which he then established, still less fully informed consent where Mr Chae's statement that that business would not be in competition with the Company was plainly not correct and where Mr Moon did not acquiesce in Mr Chae's proposal in any event.
6. Mr Chae's evidence is also that he became aware through these proceedings that the Company continued to trade after this conversation and that he did not previously know that the Company continued to trade after that date (Chae 30.3.18 [61]). It is difficult to accept that Mr Chae would not have anticipated that the Company would continue to trade, since Mr Moon had not acquiesced in his suggestion that the Company cease trading in that conversation. Mr Chae's evidence (Chae 30.3.18 [57]) is that he did not have any further material conversations with Mr Moon about the Company's financial affairs after that conversation, and he does not lead evidence of any further conversation which might amount to consent by Mr Moon, or any other person associated with the Company, to his conducting that competing business.
7. Mr Chae caused the incorporation of Bio Pharma on 2 December 2016, with his son as its sole shareholder and director, and that company commenced trading in March 2017 and operated a health foods business in Alexandria, using tour agents who were also used, or previously used, by Pure Nature. Tour agents used by the Company, and subsequently by Bio Pharma, included Sunjin Tour Pty Ltd, OA International Pty Ltd and WIN Tours Group Pty Ltd, and Bio Pharma also used another tour agent, World Wide Tours Pty Ltd, apparently without objection by the Company or Mr Moon. Mr Chae's evidence as to this matter is that he formed Bio Pharma, which continued his business with three tour agents from GTA (Chae 30.3.18 [72]) and that: "Bio Pharma continues operating a similar business to that operated by GTA, MDW Sydney and the Company, selling health food supplements to incoming tourists from Korea, arranged through tour agents." (Chae 30.3.18 [74])
8. Mr Moon also gives evidence (Moon 25.8.17 [35]) of steps taken by Mr Chae to open a tax-free souvenir shop in Pyrmont, which appears to have competed with Mr Moon's separate business, Sydney Duty Free, rather than with the Company. Mr Moon also refers to a conversation with Mr Chae, in December 2016, in which Mr Chae acknowledged that he was opening a tax-free health foods product shop, which would use tour agents from the Company, and Mr Moon protested that course, and indicated that he wished to close the Company and for each of Mr Moon and Mr Chae to have their own separate businesses. Mr Moon's evidence is that Mr Chae did not tell him that MDW Sydney or GTA would use, or had used or was going to use, tour agents that were being used by the Company (Moon 27.4.18 [24]). Mr Moon's evidence is that he had a conversation with Mr Chae in November 2016, after GTA ceased operating, in which Mr Chae declined to bring tour agents previously used by GTA to the Company, indicated his wish to open a new health food shop for himself, and Mr Moon responded that he did not mind if Mr Chae used the same tour agents that he had used in GTA, but that he could not use the Company's tour agents, and Mr Chae proposed the Company stop trading and its assets be divided equally so that the parties could each open their own separate health food shops. Mr Moon's evidence is that he declined that proposal (Moon 27.4.18 [28]).
9. It is common ground that there is an overlap in the tour agents used by the Company and tour agents now used by Mr Moon's company, Aussie Nature, and Mr Chae's company, Bio Pharma. Mr Chae's evidence (Chae 30.3.18 [103]) is that WIN Tours Group Pty Ltd was originally used by the Company and is now used by Aussie Nature and the "Keyworld" branch of that company is now used by Bio Pharma. Two tour operators, Harbour City International Pty Ltd and Lee's Travel Pty Ltd were originally used by the Company and are now used by Aussie Nature. World Wide Tour Pty Ltd and OA International Pty Ltd were originally used by the Company and, since March 2017, have been used by Bio Pharma.
10. Turning now to the parties' submissions, Mr Livingston submits that the Second and Third Defendants' allegation that Bio Pharma was established by Mr Chae in competition with the Company should not be accepted. Mr Livingston submits that both Mr Chae and Mr Moon, without objection from the other, have conducted separate businesses which catered to inbound Korean tourists. Mr Livingston refers to the evidence concerning Mr Chae and Ms Kim's involvement in MDW Sydney and Mr Chae's involvement in GTA and to Mr Moon's involvement in Sydney Duty Free and Mr Chae's involvement in Australian Souvenir Duty Free Pty Ltd. Mr Livingston submits that Bio Pharma was formed by Mr Chae in December 2016 to conduct his business with three tour agents previously used with GTA, and submits that the evidence indicates that Bio Pharma operates a similar business to that operated by GTA, MDW Sydney and the Company, selling health food products to incoming tourists from Korea, arranged through tour agents.
11. Mr Livingston referred to several concessions made by Mr Moon in cross-examination, which do not seem to me to be to the point. Mr Moon accepted in cross-examination that he did not object to a tour agent moving to a different business, if the tour agent first paid back the amount of the balance of any pre-paid commission due to the Company (T94). It is difficult to see how Mr Moon could have objected to such conduct by a tour agent, and a lack of objection to that conduct says nothing as to the position of Mr Chae or Bio Pharma. Mr Moon also fairly accepted that neither he nor Mr Chae had an agreement they would not operate businesses, other than the Company, which sold products to Korean tourists (T135). It is apparent that both of them operated such businesses, but it does not follow that that conduct was not in breach of duty to the Company.
12. Mr Moon also accepted in cross-examination that he had told Mr Chae that, providing Mr Chae did not take the tour agents with which the Company was dealing, Mr Moon had no objection to his operating businesses selling health products to Korean tourists (T135). That does not assist Mr Chae, where Mr Chae and his companies did deal with those tour agents to the Company's exclusion. Mr Moon also accepted in cross-examination that he knew of businesses conducted by Mr Chae, and that Mr Chae had told him about aspects of the conduct of those businesses, and that he had not objected to aspects of the conduct of those businesses. That evidence does not, however, extend to fully informed consent to the conduct of a competing business, still less where that competing business used tour agents which the Company was using. Mr Moon also accepted in cross-examination that he could not recall an occasion where a tour agent moved to GTA or Bio Pharma without repaying the outstanding balance owing (T136-138). Consistent with Mr Moon's prior evidence, that may have the consequence that he had no objection to the tour agent's conduct, but does not constitute fully informed consent for Mr Chae's conduct, and Mr Moon did not accept that he had ever consented either to Bio Pharma's competing business, or to its using the tour agents previously used by the Company.
13. Mr Livingstone paid limited attention, in submissions, to the identification of the basis on which Mr Moon's suggested consent to the conduct of a competing business by Mr Chae could avoid a breach of duty or oppression by his conduct. It seems to me that each of Mr Chae (and Mr Moon) was a de facto director of the Company within the statutory definition of the term "director" in s 9 of the Corporations Act; and Mr Chae (and Mr Moon) owed a duty to avoid a material conflict of interest with the Company and broadly corresponding statutory duties under ss 182 or 183 of the Corporations Act. The parties had structured their affairs so that Mr Chae (and Mr Moon) was not a shareholder in the Company, although members of their families were its shareholders. Mr Moon and Mr Chae could not then, separately or together, give unanimous consent so as to limit the scope of the duties that each owed to the Company as a de facto director or ratify any breach of those duties, since they were not the Company's shareholders. In reaching that conclusion, I have not neglected the fact that the parties now agree, between themselves, that Ms Chae and Ms Hong held their shares in the Company on trust for Mr Chae and Mr Moon respectively, although neither party has tendered any contemporaneous evidence of the creation of such trusts. The parties also did not disclose the existence of such trusts to third parties, since the information provided to the ASIC in respect of the Company recorded each of Ms Chae and Ms Hong as beneficial owners of those shares.
14. Mr Livingston also submits that, viewed in its commercial context, and having regard to the history of dealings and communications between Mr Moon and Mr Chae, Mr Chae's conduct in establishing and conducting the Bio Pharma business, to which I have referred above, was not oppressive within the meaning of s 232 of the Corporations Act, the scope of which I will address further below. I do not accept that submission. It seems to me that that conduct was inconsistent with Mr Chae's duties to the Company, so far as he was a de facto director of the Company; and it was damaging to the Company, at least so far as it diverted business from the Company and took advantage of tour agent relationships which had previously existed within the Company, although Mr Chae (unlike Mr Moon) had not directly used the Company's resources to advance the interests of that competing business.

Mr Moon's competition with the Company

1. I now turn to the allegations made by Ms Chae, in the Amended Statement of Claim, in respect of Mr Moon's conduct of Aussie Nature's business. Ms Chae initially pleaded that the Moon interests had caused the trading name of the Company's business to be changed to "Aussie Nature", without Ms Kim's or Ms Chae's prior knowledge or consent, and thereby wrongfully appropriated the Company's business. The Second and Third Defendant denied that allegation. It emerged, in the course of the hearing, that that denial was maintained on the basis that there has been no change in the name of the Company and it continued to conduct business, albeit on a smaller scale, under the name "Pure Nature". The Second and Third Defendants do not deny that Aussie Nature now trades in competition with the Company, as does Bio Pharma.
2. Mr Moon's evidence (Moon 25.8.17 [10]) is that he operated both Sydney Duty Free and Aussie Health as separate businesses. Mr Moon referred to discussions with Mr Chae in 2012 concerning establishing a new company to "take over Aussie Health's business" and he refers to the incorporation of the Company. Mr Moon's evidence was that Aussie Health stopped operating in September 2012 and that the Company commenced operating, and continued to operate, the same kind of business as Aussie Health (Moon 25.8.17 [18]).
3. Mr Moon's evidence is that, in May 2016, a third party indicated that he could bring customers from tour agents that did not want those customers to be brought to the Company, if they were brought to a new company. Mr Moon referred to a conversation with Mr Chae in late May or early June 2016 (Moon 25.8.17 [25]) with the effect that: Moon: "There is a man who can bring customers but he says he cannot bring them to Pure Nature. We should form a new company for that. Chae: "OK."
4. It appears that an agreement was reached and signed by Mr Chae, Mr Moon and a third party relating to the operation of that new company, Aussie Nature, in early September 2016 (Ex J1, 495-498). That agreement contemplated that the third party would establish a separate independent company which would jointly use Mr Chae's and Mr and Mr Moon's store at Alexandria and, on 1 November 2016, the shares and managing director position of that company would be transferred to that third party, and that third party would compensate Mr Chae and Mr Moon for the cost involved in establishing that company. That agreement also provided for sharing of costs, fairness of allocation of sales and the conduct of marketing and provided for the agreement to continue until the parties terminated it. Mr Moon's evidence is that the third party terminated that agreement in November 2016. That agreement did not authorise the subsequent operation of Aussie Nature, by Mr Moon, in competition with the Company.
5. Mr Moon also referred to the circumstances in which, after the third party ceased to trade through Aussie Nature, Mr Moon started using that company in late March or early April 2017 to operate a duty free health food supplement business from the same shop as the Company (Moon 27.4.18 [19]). Mr Moon's evidence is that Aussie Nature moved its business to other premises in late August or early September 2017, and the Company moved its shop to the first floor of the same building at that time (Moon 27.4.18 [22]). I have addressed above the overlap in the tour agents used by the Company and tour agents now used by Aussie Nature.
6. Mr Livingston submits that Mr Moon has wrongfully appropriated the Company's business for the benefit of Aussie Nature. He submits that the relocation of the Company's premises to premises also occupied by Aussie Nature, without the consent of Mr Chae, Ms Kim or Ms Chae, facilitated the diversion of business from the Company to Aussie Nature and the use of staff paid for by the Company in Aussie Nature's business. Aussie Nature has used a travel agent previously used by the Company, Lee's Travel, without prepaid commissions which were paid to Lee's Travel by the Company being repaid to it (T108). As Mr Livingston points out in submissions, the Company incurred substantial employee expenses, amounting to between 7% and 10% of its sale income in the 2016 and 2017 years, and advertising and marketing expenses amounting to approximately 2%-3% of sales income in those years, and achieved substantially lower sales in 2018 while continuing to incur substantial wages and salary expenses, now increasing to almost 20% of the Company's sales in that period (T118). The size of these expenses, by contrast with lower employee expenses incurred by Aussie Nature, reflects the use of employees paid by the Company in Aussie Nature's business, amounting to a cross-subsidy by the Company (and the Chae interests as shareholders) of Aussie Nature. While Mr Moon sought to explain that matter as involving, in part, errors in recording wage expenses to the Company rather than Aussie Nature, those errors operated to Aussie Nature's advantage and the Company's disadvantage, even if they were not intentional. Mr Moon also accepted in cross-examination that he preferred the interests of Aussie Nature over the interests of the Company (T131), although it is possible that that concession may have reflected difficulties of translation, and Mr Moon also sought to emphasise his wish to assist tour agents dealing with Aussie Nature, where the Company had not paid the extra commission (which, I find below, was diverted to Suri Trading) to the disadvantage of those tour agents.
7. In closing submissions, Mr Livingston also submitted that Ms Chae had demonstrated misconduct by Mr Moon which amounted to breaches of his duties owed as a de facto director to the Company, although it was unnecessary for the Court to find that there had been such a breach in order to find oppressive conduct by Mr Moon within the meaning of s 232 of the Corporations Act. Although I accept that submission, I note that the same can be said of Mr Chae's conduct of Bio Pharma's business, which I have addressed above, and Mr Chae's conduct in respect of payments to Suri Trading, which I address below. In response, Mr Carnovale fairly accepted that Mr Moon's operation of Aussie Nature from about April 2017 was "inappropriate"; contended, by way of explanation, that Aussie Nature dealt only with tour agents who refused to deal with the Company because of Mr Chae's conduct, a proposition that I have not accepted; and submitted that wages for staff of Aussie Nature for May and June 2017 were "mistakenly" paid by the Company instead of by Aussie Nature.
8. It is apparent, from the documentary evidence and Mr Chae's cross-examination, that the significantly lower employee expenses incurred by Aussie Nature, by contrast with the Company, reflect Aussie Nature's use of the Company's employees in its business. At least for a substantial period, and possibly on a continuing basis, the Company incurred significant expenses of employing staff while Aussie Nature obtained revenue attributable to the work performed by those staff. Although I recognise that Mr Moon sought to attribute aspects of these matters to human error, and to suggest that each of the Company and Aussie Nature used the other's employees, the differences in employee expenses between the two entities are so substantial that this conduct amounts to oppression in any event. It is not necessary to find that Mr Moon deliberately caused expenses to be incurred in the Company while revenue was obtained by Aussie Nature, so as to increase the profitability of Aussie Nature at the Company's expense, although that inference may be available on the evidence. It seems to me that it is sufficient to establish oppression that, at the least, Mr Moon permitted that position to continue, over a significant period, while in a position of conflict as between the Company and Aussie Nature, and to the advantage of Aussie Nature and the disadvantage of the Company.
9. It seems to me that Mr Moon's conduct, like Mr Chae's conduct, was inconsistent with his duties to the Company, so far as he was a de facto director of the Company; it (like Mr Chae's conduct) was damaging to the Company, so far as it diverted business from the Company and took advantage of tour agent relationships which had previously existed within the Company; and it was exacerbated by Mr Moon's use of the Company's resources to advance the interests and support the profitability of Aussie Nature. I have noted above that Mr Moon and Mr Chae could not, separately or together, give unanimous consent so as to limit the scope of the duties that each owed to the Company as a de facto director or ratify any breach of those duties, since they were not the Company's shareholders.

Conclusion as to Mr Chae's and Mr Moon's competition with the Company

1. I find that the Mr Chae (and his interests) and Mr Moon (and his interests) have each competed with the Company, in the same field of business and using tour agents previously used by the Company, without the consent of the Company or the fully informed consent of its shareholders. Mr Moon's competition with the Company is exacerbated by the use of the Company's employees to staff the Aussie Nature business. Both parties' conduct is oppressive of the other. These matters do not support either an order that Ms Hong should be able to buy out Ms Chae's share of the Company or that Ms Chae should be able to buy out Ms Hong's share of the Company, but support an order for the winding up of the Company.

Other matters relied on by Ms Chae to support an order for the sale of Ms Hong's share to Ms Chae

1. Ms Chae also relies on several other matters to support an order that Ms Hong should be required to sell her share to Ms Chae. There is a dispute whether, in early September 2017, the Company ceased trading at its former business premises in Alexandria without Mr Chae's knowledge. Mr Moon's evidence (Moon 25.8.17 [41]) was that he advised Mr Chae of the termination notice from the landlord of the Company's former premises at social occasions in early 2017, in the presence of Ms Kim, and his evidence in cross-examination is consistent with that account. Mr Chae did not deny Mr Moon's evidence in cross-examination, although he denied other aspects of Mr Moon's evidence. Ms Kim's evidence, by her affidavits and in cross-examination, was that she first learnt of notice given by the Company's lessor terminating its occupancy of the Company's initial premises in May 2017. I am not satisfied that it has been established that Mr Moon did not inform Mr Chae, and possibly Ms Kim, of this matter at about the time it arose. It appears at least to be common ground that Mr Moon then caused the Company's business to be relocated to new premises in Rosebery without the consent of Ms Kim as a director or Mr or Ms Chae (Amended Statement of Claim [48C], Amended Defence [48C].
2. Ms Chae also alleges, and the Second and Third Defendants deny, that the Company's financial statements for the financial years ended 30 June 2016 and 30 June 2017 provided to Ms Chae on or about 25 August 2017 failed to disclose all of the Company's assets, including pre-payments of commissions to tour agents. Mr Moon's evidence was that the Company's auditors had not required it to show prepaid tour agent's commissions on its balance sheets as at 30 June 2016 or 30 June 2017 (Moon 27.11.17 [11]). I recognise that the relevant audit reports were qualified, but that qualification appears to relate to the absence of a director's report and director's declaration, where Ms Kim had not been prepared to sign such a declaration. Mr Moon's further affidavit dated 27 April 2018 dealt with the practice in respect of prepaid commissions to tour agents and referred to Mr Moon's experience that a tour agent who terminated his association with a shop, while still holding prepaid commissions, was not sued by that shop, and that Mr Moon's experience was that tour agents would generally be reluctant to deal with a shop that had sued an agent. Mr Moon's evidence was also that there were substantial prepaid commissions in each of the financial years ending 30 June 2013-30 June 2017, which each year were included as expenses in the Company's financial statements, and not as an asset, and that Mr Chae, Ms Kim and Ms Chae had never addressed that subject, prior to the documents served by Ms Chae in these proceedings (Moon 27.4.18 [12]-[13]). Mr Moon also gave evidence, in cross-examination, of a market practice that amounts prepaid to tour agents would only be repaid, on the cessation of the relationship, if the tour agent voluntarily made that payment, and pointed to commercial difficulties in bringing claims for such repayment.
3. Mr Livingston submits that oppression is established because the Company's financial statements failed to disclose all its assets, and in particular failed to disclose the amounts owed by tour agents to the Company in respect of prepaid commissions. Mr Carnovale responds that the treatment of prepaid commission paid to tour agents in the Company's accounts did not amount to a relevant failure, where the auditors in the relevant years did not seek to have those amounts shown as assets in the financial statements (Moon 27.11.17 [11]); the amounts were shown as expenses in those accounts, consistent with the practice adopted in previous years without objection by Ms Kim or Mr Chae (Moon 27.4.18 [12]-[13], Ex J2, [246]-[304]); the characterisation of pre-paid commissions in the financial statements as expenses rather than assets is not shown to be incorrect, in the absence of expert accounting evidence; and that matter did not contribute to the breakdown in the relationship between the Moon and Chae interests in any event. Mr Carnovale also submits that there are commercial reasons why the Company would not treat pre-paid commission balances as recoverable assets, including at least the difficulty and commercial disadvantages of undertaking recovery proceedings against tour agents (Moon 27.4.18 [10]-[11], Moon T91-92).
4. No evidence was led as to any contractual arrangements between the Company and the tour agents and, in particular, there is no evidence that any expectation of the Company that amounts of prepaid commission paid to tour agents would be repaid, at least on termination of the arrangement with a particular tour agent, reflected any binding agreement with tour agents to that effect. Although Mr Livingston pointed out that the arrangement between the Company and a tour agent had some of the elements of a "running account", so far as the balance of the account would change from time to time and may be in favour of the Company or the tour agent at any particular point, it does not follow that the balance owing by the tour agent to the Company was payable on demand, either on an ongoing basis or on termination of the relationship, absent any agreement to that effect. Even if that amount would be repaid on termination of the arrangement, there would then be a question as to whether it could properly have been recorded as an asset at the end of a financial year when that arrangement was ongoing and there was no obligation to repay it.
5. I am not satisfied that these amounts were not properly treated in the Company's accounts, as expenses rather than as assets capable of recovery, given the lack of evidence that the Company had any contractual or other legal right to recover those amounts; the commercial difficulties in undertaking recovery to which Mr Moon referred, which do not depend upon any acceptance of his credit; the fact that the treatment of those amounts in the Company's accounts appears to have been accepted by Mr Chae prior to the commencement of these proceedings, and by its auditors; and, perhaps most importantly, the absence of any expert accounting evidence to support the correctness of the approach for which Ms Chae contends.

Other matters relied on by the Second and Third Defendants to support a sale of Ms Chae's share to Ms Hong

1. By their Points of Cross-Claim, the Second and Third Defendants allege that, in September 2016 to November 2016, Mr Chae transferred $86,810 to a company associated with him, Suri Trading, with the knowledge of Ms Kim. They allege that occurred without the knowledge or consent of Mr Moon and without the Company's authority and that Suri Trading, Mr Chae and Ms Kim had no entitlement to those monies. Ms Chae did not admit those allegations, although there was ultimately no controversy as to the fact of the payment of those monies to Suri Trading, and no suggestion that that payment was made in accordance with any decision made by the Company by its directors. Ms Chae sought to establish, by Mr Chae's evidence, that that payment was a reimbursement of monies paid out by Mr Moon for the Company's purposes, and that it was made with Mr Moon's consent, although that would not have answered the lack of corporate authority for that payment. The Second and Third Defendants contested each aspect of that claim.
2. Six invoices were issued by Suri Trading, in which Mr Chae and his wife are the sole shareholders and of which his wife is the sole director, to the Company between late September 2016 and early November 2016 totalling $86,810.23, which are said to relate to administration and marketing fees. Mr Chae's evidence was that, in September 2016, he said to Mr Moon (Chae 30.3.18 [89]): "I am paying some of the Company's marketing expenses from my own personal money, as you have not given me a Company credit card for expenses. I am going to reimburse myself from the Company when it has money to pay me." Mr Chae's evidence is that Mr Moon said: "Yes, that is fine."
3. Mr Chae's evidence was also that he caused Suri Trading to issue tax invoices for "marketing fees", which he claimed (in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as submission) that he had paid from his own monies. The evidence later led by Mr Chae identifying those expenditures indicated that those monies were not limited to marketing fees, and had largely not been paid from his own monies, at the time they were invoiced to the Company. Mr Chae's evidence was that Mr Moon did not question him or raise any issues about those invoices or payments until these proceedings. That matter does not assist Mr Chae, where the payments were neither authorised nor the subject of prior consent by Mr Moon or any person with authority to give such consent on behalf of the Company.
4. The Second and Third Defendants alleged that commissions that should have been paid to tour agents were diverted by these payments to Suri Trading. There was a conflict in the evidence as to whether extra commission was paid to tour agents to assist them with their operating expenses, or could be used for the Company's expenses. Mr Chae accepted in cross-examination that tour agents received both a standard commission, calculated as a percentage of sales and an extra commission, and that, in September 2016, he instructed the Company's accountant, Mr Lee, to pay the amounts of the extra commission to Suri Trading and that Mr Chae or Suri Trading would take care of paying the tour agents the commissions to which they were entitled (T67). Mr Chae also claimed in cross-examination that he had told Mr Lee that the extra commission needed to be traded to Suri Trading, that he would later decide how much to pay to tour agents and that Mr Moon agreed to that course (T68). I do not accept Mr Chae's evidence in cross-examination that Mr Moon had consented to that course. It seems to me highly unlikely, where Mr Chae and Mr Moon were business competitors in other areas, Mr Moon would have so readily have consented to the payment of a substantial amount, that would otherwise be payable to tour agents, to Suri Trading without any real control or accounting for how it was spent. It is apparent that Mr Chae did not cause those amounts to be paid to tour agents, because they were expended by him or Suri Trading for other purposes, and that is consistent with Mr Moon's evidence as to the tour agents' discontent that they were not paid those amounts.
5. Mr Moon's evidence (Moon 25.8.17 [33]) was that Mr Chae sought to have commissions payable to tour agents paid to Suri Trading, and leave Suri Trading to pay the commissions to tour agents, and that Mr Moon objected to that course and insisted that the Company must make direct payment to tour agents. Mr Lee's evidence was that he was instructed by Mr Chae to pay extra commissions to a bank account nominated by Mr Chae and that Mr Chae would decide when he would pay tour agents and how much. Mr Lee's evidence was also that Mr Chae provided Mr Lee with bank account details for Suri Trading, and that he made six payments to Suri Trading as directed by Mr Chae (Lee 25.8.17 [8]-[11]). In his affidavit dated 30 March 2018, Mr Chae denied saying the words attributed to him by Mr Lee in paragraph 9 of Mr Lee's affidavit dated 25 August 2017. I prefer Mr Lee's evidence to Mr Chae's evidence in that respect. On balance, I also find, consistent with Mr Lee's evidence, that that amount was a commission payable to tour agents, and was not to be applied for the Company's internal purposes, although it was treated as a marketing expense in the Company's accounts. It follows that the use to which Suri Trading, and Mr Chae, applied those funds was inconsistent with their intended purpose.
6. By his further affidavit dated 11 May 2018, Mr Chae referred to several payments made from a Korean bank account, which totalled approximately $78,001 plus GST of $7,800, equalling approximately $85,801. Mr Chae identified two of those payments as a "marketing fee" paid to a contact in Korea who could obtain customers for the Company and two of those payments as advertisement fee support for television commercials played on Korean television stations. The identification of those payments was not supported by any documentary evidence but was also not falsified on cross-examination. A fifth amount of $23,123.90 was said to relate to travel and accommodation for Mr Chae in Seoul, Korea, and Mr Chae's evidence was (Chae 11.5.18 [3]): "The purpose of this trip was so I could meet with key personnel and directors of the Tour Agents in Korea to discuss terms of trade and contracts between those agents and the Company, and also to discuss with those Tour Agents how to entice more customers to visit Australia."
7. Mr Chae also referred to a transaction record for Suri Trading, with credits said to total that amount "for items incurred in association with [his] trip to Korea". It was not possible from the face of the descriptions contained in the relevant accounts, including multiple entries for Korean restaurants and taxis, to identify whether those matters in fact related to the Company's business, and that identification depended on Mr Chae's evidence. It emerged on cross-examination that several other of those expenses did not relate to costs incurred in Korea, and included registration of vehicles and traffic infringement notices in Australia, insurance costs, charges at a local hotel, and a hardware charge. Mr Chae's evidence in cross-examination was that those matters also related to the Company's marketing business.
8. Mr Livingston submits that the allegation of unauthorised payments to Suri Trading, in the amount of $86,810.23, should not be accepted. Mr Livingston submits that the amounts to Suri Trading were paid, with Mr Moon's knowledge and consent, by way of reimbursement of amounts paid, or on account of amounts to be paid, by Mr Chae for marketing expenses of the Company which Mr Chae, as marketing manager, ultimately paid using his own funds. An immediate difficulty with that contention is that Mr Chae's evidence went no further than to his having sought, and on his account having obtained, consent to his "reimburs[ing]" himself from the Company for marketing expenses paid for the Company. The documentary evidence established that Mr Chae did not reimburse himself for expenditures previously made, but instead invoiced the Company for substantial funds prior to incurring some expenses which he now claims were attributable to the Company's business. The consent he claims to have obtained did not extend to that conduct.
9. Mr Livingston responds that the use of the term "reimbursement" in Mr Chae's evidence may have reflected translation difficulties, and there did seem to be difficulties in translation in the course of Mr Chae's cross-examination as to the character of these payments. Mr Livingston also submits that the question whether the payments were a reimbursement "raises only a question of timing" and does not determine the substance or true character of the payments. I do not accept that submission, where any consent given by Mr Moon to the payments is only put, on Mr Chae's evidence, as a consent to a reimbursement, and not payments in advance.
10. It seems to me that these payments to Suri Trading also support the claim for oppression brought by the Second and Third Defendants relying on Mr Chae's conduct. As I noted above, Mr Chae's evidence goes no further than to establish Mr Moon's consent to a reimbursement of amounts paid, and Mr Livingston's reference to translation difficulties cannot substitute for evidence of any wider consent by Mr Moon to these payments. The amounts were not in fact paid by way of reimbursement, but in advance, of expenses which could only be attributed as marketing expenses of the Company if Mr Chae's evidence to that effect were accepted. I noted above that his evidence should be approached with caution unless it is supported by documents or against his interests. I do not accept Mr Livingston's submission that those amounts did not reflect commissions that were properly payable, by way of extra commissions, to tour agents rather than Suri Trading, and I prefer Mr Lee's evidence in that respect.
11. But for the conduct of Mr Moon in respect of other aspects of the Company's affairs, to which I refer below, this matter may have supported an order for the transfer of Ms Chae's shares in the Company, in which Mr Chae has the beneficial interest, to Ms Hong. I do not consider that order is appropriate given the findings that I have reached in respect of Mr Moon's conduct above.

Whether orders should be made in respect of oppression

1. I should first refer to the applicable legal principles. I have drawn upon Counsels' submissions and my summary of those principles in Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1, Victory Projects Pty Ltd v AAA Self Storage Pty Ltd [2016] NSWSC 1758 and AJ Roberts Removals & Storage Pty Limited [2017] NSWSC 1054 in that respect.
2. Section 233(1)(d) of the Corporations Act relevantly provides that the Court may make an order for the purchase of shares by a member of a company and s 233(1)(j) allows the Court to make an order requiring a person to do a specified act. Such an order may be made where the matters specified in s 232 of the Corporations Act are established. Section 232 of the Corporations Act provides that the Court may make an order under s 233 if: "(a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity."
3. Section 232 of the Corporations Act and its predecessors extend to conduct involving "commercial unfairness" or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459. In Morgan v 45 Flers Avenue Pty Ltd above at 704, Young J observed that the phrases "oppressive, unfairly prejudicial or unfairly discriminatory" in a predecessor to s 232 of the Corporations Act should be construed as "a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness". His Honour also there noted that whether oppression was established was to be determined by reference to the nature of the business carried on by the company and the nature of the relations between its participants and: "whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair."
4. The principles applicable to a claim for oppression were summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [39], and the Court of Appeal noted the parties did not challenge that summary of the applicable principles in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121 at [140]. His Honour observed that: "(a) consistent with the principle that the purpose of relief is to terminate the effects of oppression, relief will generally be inappropriate as a matter of discretion if there is no continuing oppression: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, at [182]; [2009] HCA 25; (b) unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair": eg, Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, per Basten JA at [181]; [2008] NSWCA 95; (c) while it is recognised that conduct may be oppressive if inconsistent with the "legitimate expectations" of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, at [85], [86], [175]; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, at [96]; [2009] NSWSC 342 per Barrett J; (d) "it is important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower": Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, Young J at 739; [1998] NSWSC 413; (e) a particular matter which will be taken in account in assessing the gravity of any allegation of oppression, is the extent to which the minority shareholder has "baited" the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, at 741; [1998] NSWSC 413 …"
5. In Munstermann v Rayward [2017] NSWSC 133 at [22], Stevenson J summarised the applicable principles as follows (omitting citations): "(1) The test of oppression is an objective one of unfairness ... (2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly … (3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director ... (4) Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful ... (5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole … (6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used … (7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing … (8) The discretion under s 233 is wide as to the appropriate remedy … (9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive …. (10) The aim of any order under s 233 must be to put an end to the oppression … (11) The court should only look to wind up an otherwise solvent company as a "last resort" … (12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party …. (13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances."
6. I have also borne in mind the observation in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above that each case has to be considered on its own facts and circumstances, and by reference to the conduct as a whole.
7. I am satisfied that each of Ms Chae and Ms Hong have established oppression by the interests associated with Mr Moon and Mr Chae respectively. Each of Mr Moon's and Mr Chae's conduct in competition with the Company has so undermined its business as to constitute oppression, and that conduct extended beyond the scope of any consent, which was not given by a director or all shareholders with authority to approve that conduct. Mr Chae's transfer of substantial funds to Suri Trading, before and not in reimbursement of expenses, and without adequate documentation of the particular expenses, was oppressive of the Moon interests. The Moon interests' exclusion of the Chae interests from the Company's business, and the refusal to allow access to corporate records, was oppressive of the Chae interests.
8. Mr Livingston submits that where oppression is established, the Court may order the oppressor to sell its shares to the oppressed party; that, if such an order is made, the Court's task is to fix a price that represents a fair value in all the circumstances; and that that price will ordinarily be the value of the shareholding as it would have been but for the oppressive conduct. I broadly accept that submission, although its application raises issues of greater difficulty where, as here, both parties have engaged in oppressive and wrongful conduct, in respect of the other.
9. Ms Chae, as noted above, seeks an order allowing her to purchase Ms Hong's share. Mr Livingston submits that Mr Moon's conduct is the primary cause of the present deadlock and refers to evidence that Ms Kim was prevented from accessing records and information to the Company prior to the termination of Mr Chae's employment with the Company, and about the same time as Bio Pharma was incorporated, and shortly before it appears to have commenced trading. I am not persuaded that the question which of the relevant conduct was first in time provides any real assistance in determining the cause of the present deadlock, where I have found that the conduct of both Mr Moon and Mr Chae contributed to that deadlock, and was inconsistent with their duties to the Company, so far as they were both de facto directors of it, in material respects. Mr Carnovale responds that the Court should deny Ms Chae the relief sought because it was Mr Chae's misconduct up to March 2017, in respect of invoices from Suri Trading and the establishment of the Bio Pharma business, that caused the irretrievable breakdown in the relationship between the Moon interests and the Chae interests, and led to the conduct by Mr Moon or the Company on which Ms Chae has relied in the proceedings.
10. Conversely, Ms Hong originally sought an order for Ms Hong to buy Ms Chae's share. However, in closing submissions, Mr Carnovale recognised an additional difficulty if the relief sought by Ms Chae or Ms Hong was granted. Mr Carnovale observed that an order is commonly sought that an oppressor buy out an innocent party's shares, and those shares can then be bought at a value that takes into account any profits or assets that had been diverted to the oppressor. Mr Carnovale recognised that the position was more complex where an "innocent party" seeks to buy out an oppressor's shares, and that innocent party could be disadvantaged unless an order is also made requiring the oppressor to compensate the Company for any profit or assets diverted by the oppressor. The Court has jurisdiction to make such an order, in an oppression case, but this case did not go to hearing on the basis that such an order was sought. (I have not neglected the fact that Ms Chae had brought an unsuccessful application to amend her pleading and vacated the hearing date, shortly before it commenced, which largely failed because of deficiencies in the proposed amended pleading). The complexities arising from this issue would have been exacerbated where each party identifies conduct of persons associated with that other party which might be the subject of such claims. In oral submissions, Mr Carnovale raised the possibility that these complexities could be addressed by making an order for a buy-back by the Company of Ms Chae's shares. However, that form of relief that was not pleaded and Mr Carnovale did not press an amendment application so as to seek such an order (T201-202). It is not necessary further to address these complexities where that relief was not sought and I have held that the Company should be wound up on other grounds.
11. I am satisfied that I should not order a buy-out of one party by the other, where that will benefit one party engaged in oppression at the expense of another party also engaged in oppression. There is no basis on which to find that either of the Chae interests or the Moon interests are significantly less culpable than the other, where the both Mr Chae and Mr Moon have engaged in material conduct that is adverse to the Company's interests. Such an order would also allow the party that obtained control of the Company, in practical terms, to prevent action against that party or her family members while pursuing action against the other party or that party's family members. The preferable order, for the reasons set out below, is an order to wind up the Company.

Whether the Company should be wound up

1. Sections 461(1)(f) and 461(1)(k) of the Corporations Act relevantly provide that the Court may order the winding up of a company if its affairs 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 if the Court is of the opinion that it is just and equitable that the company be wound up. The circumstances in which a winding up order can be made under these sections are not closed.
2. A winding up order under s 461(1)(k) of the Corporations Act can be made where a company was formed on the basis of a personal relationship involving mutual confidence or requiring material co-operation between the shareholders, and that confidence or co-operation has broken down: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [90], [96], [117]; Re Catombal Investments Pty Ltd [2012] NSWSC 775 at [19]; Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 at [17]-[19]. A breakdown of relations or loss of confidence between a company's members may also support a winding up on the just and equitable ground where it frustrates the commercially sensible operations of the company in accordance with the incorporator's expectations and any loss of confidence is justified: Tomanovic v Argyle HQ Pty Ltd above at [49]-[51], on appeal as Tomanovic v Global Mortgage Equity Corporation Pty Ltd above. The Court may make a winding up order under s 461(1)(k) of the Corporations Act in circumstances that do not amount to oppression, although a person who is themselves responsible for the breakdown of the relationship is less likely to be afforded relief: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above; Nassar v Innovative Precasters Group Pty Ltd above at [90], [96], [117].
3. In the alternative to the primary relief sought by Ms Chae, Mr Livingston submits that an order for the winding up of the Company should be made on the just and equitable ground, where the relationship between shareholders and directors has broken down; it is most unlikely that they will be able to resolve their difficulties, not previously having done so; there is deadlock in the management of the Company; and a loss of confidence of Ms Chae, Ms Kim and Mr Chae in Mr Moon and Ms Moon. I accept each of those submissions, with the qualification that there would also be justification for a loss of confidence by Ms Hong, Mr Moon and Ms Moon in Ms Chae, Ms Kim and Mr Chae, a matter which reinforces the case for an order for the winding up of the Company.
4. I am satisfied that the Company was in the nature of a "quasi-partnership" including that family members of Mr Chae and Mr Moon became its directors and shareholders; each of them acquired an equal interest in the Company; and each was initially involved in the conduct of the business. The evidence establishes a breakdown of cooperation between the parties and the withdrawal or exclusion of Mr Chae from the business, or both. Both parties' competition with the Company, Mr Chae's appropriation of funds to Suri Trading and Mr Moon's using of Company staff in his competing business would frustrate the commercially sensible operations of the Company and would also warrant a lack of confidence in the conduct and management of its affairs. The matters to which I have referred above mean that there can be no expectation that Ms Chae will receive dividends from the Company proportionate to the Chae family's investment in it, both because the Company's profitability would necessarily be affected by the diversion of business to the competing companies and the use of its employees in Mr Moon's business, as well as the likelihood that monies would be paid out as salary to the Chae family rather than as dividends.
5. A winding up order will also allow a liquidator appointed to the Company, funded by the parties or by a third party litigation funder, to investigate and pursue the claims that may be available against each of Mr Chae and Mr Moon and their associated entities. I recognise that any recoveries made by a liquidator may ultimately be distributed to Ms Chae and Ms Hong as the Company's contributories, potentially to the benefit of Mr Chae and Mr Moon so far as each share is held beneficially for them. However, that process can properly vindicate the Company's and its shareholders' rights, without circularity, where the Company's losses arising from Mr Chae's and Mr Moon's conduct are not necessarily be the same, and larger recoveries may be made against a party that has caused greater loss to the Company. I have also not neglected the fact that a winding up order will likely make it more difficult for the Company to benefit from, or recover, prepayments made to tour operators, to the extent that Mr Chae and Mr Moon have not already taken advantage of those prepayments for the competing businesses they have each established. That is, however, not sufficient reason to allow one wrongdoer, or a family member holding a share at his direction, the advantage of buying out the other, as each party had sought to achieve.
6. I recognise that the Court may withhold a winding up order where a plaintiff, relevantly Ms Chae (or, in substance, Mr Chae) or Ms Hong (or, in substance, Mr Moon) lacks clean hands or has himself or herself been the primary contributor to the breakdown of the relationship: Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426 at 430; Re Wondoflex Textiles Ltd [1951] VLR 458 at 465; Ruut v Head (1996) 20 ACSR 160; Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd [2000] WASCA 170; (1999) 34 ACSR 469; Re Amazon Pest Control Pty Ltd above at [22]. However, a lack of clean hands is not an absolute bar to a winding up order, since otherwise neither party could obtain a winding up order where (as here) both were at fault: Ruut v Head above at 162; Duc v PTS Australian Distributor Pty Ltd [2005] NSWSC 98 at [17]. In this case, the conduct on the part of both parties reinforces, rather than undermines, the strength of the case for a winding up.
7. I have also had regard to s 467(4) of the Corporations Act which provides that: "Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that: (a) the applicants are entitled to relief either by winding up the company or by some other means; and (b) in the absence of any other remedy it would be just and equitable that the company should be wound up; must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."
8. Ms Chae has, of course, not pursued a winding up order as the primary relief she seeks, and she is not acting unreasonably in pursuing it where she has not been successful in obtaining the relief she sought and the Company would otherwise be left in a state of deadlock in its board, but under Mr Moon's practical control. I recognise that the fact that an order to wind up an apparently solvent company is an extreme step should be borne in mind in making such an order, and I have had regard to that fact in determining the relief that should be ordered in these proceedings: Belgiorno-Zegna v Exben Pty Ltd [2000] NSWSC 884; (2000) 35 ACSR 305; Tomanovic v Argyle HQ Pty Ltd above per Austin J at [237]. However, the case law also establishes that there is no absolute rule that the Court will not wind up a solvent company in a proper case: Hillam v Ample Source International Ltd (No 2) [2012] FCAFC 73; (2012) 202 FCR 336 at [68]-[70]; Re Amazon Pest Control above at [32]; Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639; (2015) 109 ACSR 369 at [111].

Orders

1. In the circumstances that I have set out above, I am satisfied that an order for the winding up of the Company should be made. Where the Court is otherwise minded to wind up the Company on just and equitable grounds, it will often postpone a winding up order to allow the parties an opportunity to negotiate a buy-out by one party of the other: Ruut v Head above at 163; Tomanovic v Argyle HQ Pty Ltd above at [53]. The parties have already had ample opportunity to agree that result between themselves, before this hearing, during it and while judgment has been reserved. Nonetheless, I will stay a winding up order for no more than 14 days to allow the parties a last opportunity to seek to resolve their differences in a manner that will not bring about the likely closure of the Company's business (to the extent that it has survived Mr Chae's and Mr Moon's competition with it) and any loss of the benefit of prepayments to tour operators that may result from a winding up.
2. Ms Chae has not been successful in seeking the primary relief which she sought, namely an order for the transfer of Ms Hong's share in the Company to her. Ms Hong has also not been successful in seeking the relief she sought, namely the transfer of Ms Chae's share in the Company to her. Ms Chae has been successful in seeking the alternative relief which she sought, namely an order for winding up of the Company, which Ms Hong had fairly also accepted was likely to follow from the failure to obtain the primary relief she sought. Where each party has failed in obtaining the primary relief which she sought, it does not seem to me that it can be said that Ms Chae has been any more successful than Ms Hong in the outcome of the proceedings. Both have failed in their primary relief; Ms Chae expressly sought alternative relief, and Ms Hong acknowledged that that alternative relief that would follow if the parties each failed on their primary relief; and the true position is that both parties have failed in their primary relief and that alternative relief has then followed. In those circumstances, subject to allowing the parties a brief opportunity to be heard, it seems to me that there should be no order as to the costs of the proceedings.
3. Accordingly, I make the following orders:
4. The First Defendant, Pure Nature Sydney Pty Ltd ABN 34 160 246 257 be wound up.
5. Mr Steven Nicols, of Nicols & Brien, be appointed as liquidator of the First Defendant.
6. The orders made in paragraphs 1 and 2 above be stayed to 2pm on 4 July 2018.

Amendments 13 July 2018 - Four typographical errors corrected. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 July 2018