Bessounian v Australian Wholesale Mortgages Pty Ltd

LEGISLATION CITED : Corporations Act 2001 (Cth) ss 232, 233

D Davis Co Ltd v Brunswick (Australia) Ltd (1936) 36 SR (NSW) 215 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 In re Fildes Bros Ltd [1970] 1 WLR 592 In re Lundie Brothers Ltd [1965] 1 WLR 1051 CASES CITED : In re Westbourne Galleries Ltd [1971] Ch 799 Jenkins v Supscaf Ltd [2006] 3 NZLR 264 John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Re Richard Pitt & Sons Pty Ltd (1979) 4 ACLR 459 Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459

George Bessounian (P) Australian Wholesale Mortgages Pty Ltd (D1) PARTIES : Ibrahim Sengoz (D2) Domarina Pireh (D3) AWM Pty Ltd (D4)

COUNSEL : T J Hancock and J P Donohoe (P) J J E Fernon SC (Ds)

SOLICITORS : Gaitanis Lawyers (P) Breene & Breene Solicitors (Ds)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1254/03 GEORGE BESSOUNIAN v AUSTRALIAN WHOLESALE MORTGAGES PTY LTD & ORS JUDGMENT 1 HIS HONOUR: These are proceedings for an order under s 233 of the Corporations Act 2001 (Cth) ("the CA"). They arise out of the association of the plaintiff, Mr Bessounian, the second defendant, Mr Sengoz, and the third defendant, Ms Pireh, in a mortgage origination business. The first defendant, Australian Wholesale Mortgages Pty Ltd, of which all three are shareholders, at one time conducted such a business. The allegation is that the conduct of the affairs of the first defendant was oppressive to, unfairly prejudicial to or unfairly discriminatory against Mr Bessounian within the meaning of s 232 of the CA. The relevant conduct was the cessation of the conduct of the business in the first defendant and its resumption in AWM Pty Ltd, the fourth defendant, a company in which only Mr Sengoz and Ms Pireh were shareholders and Mr Bessounian was not a shareholder. The order sought is that Mr Sengoz and Ms Pireh buy Mr Bessounian's shares in the first defendant at a fair value, to be assessed on the basis that the business of the fourth defendant is owned by the first defendant. 2 The issues that arise are:

(1) Was the conduct of the affairs of the first defendant oppressive to, unfairly prejudicial to or unfairly discriminatory against Mr Bessounian within the meaning of s 232?

(2) If so, is it appropriate to make an order that Mr Sengoz and Ms Pireh buy Mr Bessounian's shares at a fair value?

(3) If so, what is the fair value of Mr Bessounian's shares? THE LAW 3 The law as to the test to be met to satisfy s 232 of the CA is not really in controversy. In the High Court, Brennan J said of its predecessor section in Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459 at 472 - 473: "Nevertheless, if the directors exercise a power -- albeit in good faith and for a purpose within the power -- so as to impose a disadvantage, disability or burden on a member that, according to ordinary standards of reasonableness and fair dealing is unfair, the court may intervene under s 320. The question of unfairness is one of fact and degree which s 320 requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. 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 and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. 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 will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision."

See also per the majority at 467 - 468. 4 In this Court, the situation was summarised by Young J (as his Honour then was) in three decisions. In Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 his Honour said at 704: "It was first put by counsel for the plaintiff that the section involves four elements and that the plaintiff can succeed if he shows that the company's affairs are being conducted (a) oppressively, (b) unfairly, (c) in a discriminatory way and (d) in a manner that is contrary to the interests of the members as a whole. I again over-simplify the submission. Later, I think properly, this particular analysis was abandoned. I say properly because in my view as a result of the decisions in New Zealand in Thomas v H W Thomas Ltd [1984] 1 NZLR 686 ; 2 ACLC 610; in England in Re Bovey Hotel Ventures Ltd (Chancery Division, Slade J 31 July 1981 unreported); Re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273 at 290; and Re London School of Electronics Ltd [1985] 3 WLR 474 and in Australia in Wayde v NSW Rugby League Ltd (1985) 10 ACLR 87; 61 ALR 225 [180 CLR 459], it has been accepted that one no longer looks at the word "oppressive" in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair: see Wayde's case per Brennan J at ACLR 94 and at ALR 235 [and at CLR 472]; per majority at ACLR 91 and at ALR 231 [and CLR at 467 - 468]. In my view a court now looks at sub-s 2(a) 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."

And in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63 his Honour said at 67: "Courts must be slow to interfere with the responsibility of management of a company committed to its board of directors. The mere fact that decisions made adversely affect the applicant is insufficient. It should normally be shown that there is a lack of good faith or that no reasonable board could have come to the decision reached: Re Broadcasting Station 2GB [Pty Ltd [1964-5] NSWR 1648] at 1662; Wayde v NSW Rugby League Ltd (1985) 61 ALR 225 [; 180 CLR 459]."

And see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 739 - 741. 5 It appears from the above authorities that the effective criterion posed by the section is commercial unfairness. In this case, that was not in controversy. 6 As to the time at which oppression must be established, is this the time of the commencement of the proceedings or the time of the making of the order? This has not been much discussed in either Australian or English authority. However, in Re Richard Pitt & Sons Pty Ltd (1979) 4 ACLR 459 in the Full Court of the Supreme Court of Tasmania Crawford J said at 465 - 466 that certainly the oppression must be found to persist up to the time of the making of the order. His Honour relied on decisions of Plowman J in In re Lundie Brothers Ltd [1965] 1 WLR 1051 (overruled by the Court of Appeal but on another point in In re Westbourne Galleries Ltd [1971] Ch 799) and of Megarry J in In re Fildes Bros Ltd [1970] 1 WLR 592, although it should be said that the proceedings in both those cases were applications to wind up on the just and equitable ground rather than proceedings on the oppression ground. Crawford J's view receives some support from the recent decision of the High Court of New Zealand in Jenkins v Supscaf Ltd [2006] 3 NZLR 264 (noted (2006) 80 ALJ 813), although that case also relates to an application to wind up on the just and equitable ground. There Heath J declined to follow the decision of the Privy Council in D Davis Co Ltd v Brunswick (Australia) Ltd (1936) 36 SR (NSW) 215 and followed subsequent English authority. 7 In any event, Crawford J's view is in my opinion correct. Section 232 of the CA provides that "the Court may make an order under section 233 if … the conduct of a company's affairs … is oppressive to … a member …". The language of the provisions considered in Richard Pitt was even more explicit in requiring a state of affairs existent at the time of order. But, in my view, the sense of contemporaneity in the language I have quoted is sufficient to lead to the conclusion. Furthermore, it would make little sense if an order could be made if the oppression were established to exist at the time of the commencement of proceedings, but had ceased to exist when the order came to be made. The logicality of this view was commented on by Heath J in Supscaf at [103]. It is not necessary to decide in this case whether the oppression must be established to have existed also at the commencement of the proceedings, although I rather incline to the view that that is not necessary, if oppression at the time of order is established. No submission was made to the contrary of the propositions that I have accepted. THE EVIDENCE 8 The principal witnesses were Mr Bessounian, Mr Sengoz and Ms Pireh. They are all parties. They all gave oral as well as affidavit evidence. They were all unsatisfactory witnesses. I do not believe that any of them set out to give deliberately untrue evidence. However, they are all subject to the observation that the human mind has an enormous power of rationalisation, which leads people to believe what it is necessary for them to believe to support their version of contested facts and disputed conversations. Mr Sengoz was even less satisfactory as a witness than Mr Bessounian and Ms Pireh. In a number of instances, he gave at different times conflicting evidence about particular subject matters. At one stage, asked why he had done so, he replied that he was guessing. These matters cast grave doubts on his powers of recollection and the accuracy of his evidence. In short, I do not feel that I can rely on the version given by any of the three to establish the content of conversations among them or other relevant matters that are in contest, except where the evidence of Mr Bessounian and at least one of Mr Sengoz and Ms Pireh substantially coincides or the version given is contrary to interest. 9 In this case, as in most others, one turns where possible to contemporaneous documents to assess the probabilities of oral versions. In this case, such documents do establish such matters as the registration of business names, the incorporation of companies, applications for Australian Business Numbers, GST registrations and the like and the opening of bank accounts. Beyond this formal documentation, documentary assistance is almost nonexistent. Directors' meetings were not held or directors' minutes were simply not kept. The few "agendas" or "minutes" of meetings are informal and skimpy. 10 Mr Bessounian, Mr Sengoz and Ms Pireh were not people of great sophistication in business matters or in their understanding of legal entities and their incidents. Thus, Mr Sengoz and Ms Pireh claim to have had a belief that resignation as a company director led either to that person's removal or to his liability to be removed as a shareholder of the company. Whether or not as a result of their lack of sophistication, many of the documents that do exist were botched. For example, Ms Pireh filed with ASIC a document which removed both Mr Bessounian and Mr Sengoz as shareholders of the first defendant and reduced the number of issued shares in that company from 300 to 100, without the slightest justification for those changes. 11 There are some partnership and company accounting documents, including ledgers kept on MYOB computer systems, annual accounts and tax returns. But to a large extent even the accounting documents, for reasons that appear below, cannot be regarded as reliable contemporaneous documents. 12 One more impressive witness who gave evidence, both by affidavit and orally, was Mr Bessounian's brother, Raphael Bessounian. His evidence went only to very limited matters. But he showed a much greater ability than the others to distinguish between what he remembered and what he did not remember. He was much more convincing both in the content and the manner of giving of his evidence. I accept his account of what he said he did remember. THE FACTUAL BACKGROUND 13 The facts set out under this heading are undisputed or easily found, except where it appears that they are disputed. 14 The business of a mortgage originator is interposed between the lender and the mortgage broker. A mortgage broker deals with the borrower and sends the borrower's application to the originator, who evaluates it and submits it to a lender. The originator receives a one-off application fee from the borrower and, if the loan is settled, becomes entitled to a one-off up-front commission and "trail" commissions for the life of the loan. The income stream generated by the trail commissions of the business in which Mr Bessounian, Mr Sengoz and Ms Pireh were involved plays a considerable part in these proceedings. 15 Mr Bessounian, Mr Sengoz and Ms Pireh had all worked in mortgage origination businesses prior to July 2000. They met in about 1998 when they were all working for a company called Mortgage House Australia ("MHA"). Subsequently, Mr Bessounian and Ms Pireh went to work for Yes Home Loans. 16 In about May 2000, Mr Sengoz and Ms Pireh formed a company called The Willow Group Pty Ltd ("the Willow Group"). Mr Sengoz and Ms Pireh both had real estate licences, and they intended to provide housing developers with a combined sales and finance service through the Willow Group. 17 Mr Bessounian resigned his position at MHA on 7 July 2000 and on about 11 July 2000 went to work in a mortgage origination business associated with the Willow Group. There is a dispute as to the terms on which he did that work. 18 Mr Bessounian's evidence was that in June 2000 Mr Sengoz telephoned him and said: "As you know, Domi, William and I have started the Willow Group. We got rid of William, we want you to join us as a partner. You will be in charge of the finance origination arm of the Willow Group. Come and meet with Domi and me to talk it over. You have got nothing to lose." 19 Mr Bessounian further said that about the middle of June 2000 he met Mr Sengoz and Ms Pireh at the offices of the Willow Group in Parramatta. Mr Sengoz said: "You will be a full partner in the Willow Group and you will develop the mortgage arm of the business through your contacts with referring brokers and mortgage sales people. We need someone like you with your knowledge of the lenders and contacts in the industry." 20 Mr Sengoz's account of the initial conversations is that, about two months after the incorporation of the Willow Group, he received a phone call from Mr Bessounian and the following conversation took place: "George: 'Abe, I have left Mortgage House of Australia. Can I come over and start with you guys.'

Mr Bessounian came over to see him and the following further conversation ensued: "Abe: 'We can't employ you George. Dom and I have just started business and neither of us are drawing a wage. We can't afford to pay you anything. If you want to come and work as a broker on a sub-contract basis then we will pay you a percentage of the fees we receive on the loans which settle that you introduce to us.'

George: 'That's ok.'" 21 Ms Pireh did not give an account of these initial conversations. On the versions of both Mr Bessounian and Mr Sengoz she did not participate in them. 22 The registration of the business name Australian Wholesale Mortgages was effected by Ms Pireh on 26 July 2000 in the names of herself and Mr Sengoz alone. Mr Bessounian said that he was aware of this fact, but did not comment on it "as the arrangement was only temporary". 23 The next round of relevant conversations on the evidence of all participants took place in about September 2000. Mr Bessounian said the following conversation took place at a meeting between him, Mr Sengoz and Ms Pireh: "I said:

'As the Willow Group is marketing properties and the mortgage arm is also called the Willow Group it seems to be causing a conflict. We should separate the two businesses and set up a new entity.'

'I can see the benefit in that. We will set up a company with all three of us as directors to solely write the finance business.'

'Good idea. However the costs of setting up the company would be about $1,200 and we just don't have the money at the moment so why don't we just set up a business with all of us as partners. We will register a business name and see how it goes. Once we have built it up we will be able to afford to incorporate.'" 24 The conversation deposed to by Mr Sengoz as occurring in September 2000 was said to be at a meeting in a coffee shop between Mr Bessounian and him alone and is said to have been in the following terms. "Abe: 'George, Dommy and I have registered a business, Australian Wholesale Mortgages. Dommy and I have received accreditation with Mortgage Management Corps for loans and have already submitted some loans with Mortgage Management Corp. We want to try and build that part of the business up. You were in finance with Mortgage House of Australia. Dom and I would like you to build this part of the business up. Do you think you are up to it George?'

Abe: 'George, we need to build the business up to a figure that is sustainable. Dommy and I have looked at it and we think a sustainable level is a minimum $5,000,000 in settled loans per month.'

George: 'That sounds right to me Abe.'" 25 Ms Pireh said that in about September 2000 a meeting occurred between Mr Bessounian, Mr Sengoz and herself at which the following conversation took place: "Abe: 'George, Dom and I have registered a new business, Australian Wholesale Mortgages which we want to run the finance part of our business operations. Dom and I want you to build it up. Dom and I have looked at the figures and we think the business needs to pull in about $5,000,000 in settled loans per month. Are you up to it George?'

George: 'I can do it.'" 26 In November 2000 Mr Bessounian was married and went on a honeymoon. There seems to be confusion as to the timing and duration of his absence. Mr Bessounian said that about that time he met with Mr Sengoz and they had a conversation as follows: "I said:

'Abe, I feel that I have proven myself and think its [sic] time for me to be formally made an equal partner in the Willow Group and that I draw a regular salary from Australian Wholesale Mortgages.'

'Look George The Willow Group is only a $2 company and being a property marketing company is really worth nothing. It will stay as is with Domi and me as its only directors and shareholders.'"

He said that at the end of December 2000 he, Mr Sengoz and Ms Pireh had the following conversation at a meeting: "I said:

'Now that we have discussed the agenda and the income of Australian Wholesale Mortgages is at a reasonably respectable level. When can I expect to get a regular salary.'

'Why don't we leave things as they are until the end of June 2001, by then we would have increased the loan book even more and our financial situation will be better. From 1 July 2001 we each will get $1,000 per week.'" 27 Mr Sengoz said that the conversation, apparently at the same meeting, was as follows: "George: 'Abe, Dom, I'm working my heart out trying to build up the business for you two. I think its only fair that I should have an interest in the business.'

Abe: 'George, forget it. You need to average $5,000,000 per month in settled loans. If you can average that much per month, then Dommy and I are prepared to offer you a one third share in the Home Loan business. However, you need to get that average figure of $5,000,000 per month in settled loans and you need to do it fairly quickly. We can't carry you forever.'

George: 'How quickly do I need to achieve those figures Abe?'

Abe: 'Well [sic] give you 12 to 18 months. If you can't do it within that time frame then it's not worth proceeding any further.'

George: 'Alright, that's fine with me.'" 28 Ms Pireh gave a version of the conversation substantially similar to that of Mr Sengoz. 29 There is some documentation of a meeting or meetings among the three of them late in 2000, but the useful information in it is exiguous. One document is an agenda for a meeting on 23 November of all three. Under "Points of Discussion" is the heading "Company Structure". Under this is a diagram showing Australian Wholesale Mortgages as one of the divisions of "The Willow Group P/L". Under that is a note "AWM - When should we make it a company". The other document is headed "Finance Division: (Australian Wholesale Mortgages)" with on the following line "Company Structure The Willow Group & George Bessounian". Halfway down the page is a printed grid with monthly handwritten targets from January to August 2001 ranging from $3 million up to $6 million and over the grid in handwriting is "$10 million settled by 30 April 01". It is uncertain whether the two documents refer to a single or to two meetings. Possibly, two separate meetings seems the more likely answer from an examination of the contents of the documents. Both documents suggest that all three were participating together in making decisions about the mortgage origination business. 30 On 19 January 2001 a current account was opened at the Parramatta Branch of the Commonwealth Bank in the name of The Proprietors Australian Wholesale Mortgages (subsequently specified as Mr Sengoz and Ms Pireh) ("the Commonwealth Bank account"). The banking of the mortgage origination business was thereafter conducted through that account. 31 Mr Sengoz conceded that on more than one occasion during 2001 Mr Bessounian approached both him and Ms Pireh and conversations took place along the following lines: "George: 'I'm working to establish a business for you two and I have no interest in it. I don't think that's fair. I would be a lot happier and try a lot harder if I had an equal share in the business.'

Abe: 'Look George, we are not averaging any where [sic] near $5,000,000 a month in settled loans.'" 32 Mr Bessounian said that in about December 2001 he had a conversation with Mr Sengoz and Ms Pireh in which the following was said: "Abe said:

'Now that the loan book is getting to a respectable level. [sic] We are in a position to get into developments by leveraging off the loan book. As we have not got the money. [sic] Initially, I will do the developments using profits from Australian Wholesale Mortgages in conjunction with others and once the profits of the developments are realised we will then be in a position to do the developments ourselves without having partners.'

'The way it will work is that whatever I make then it will be shared equally between you me and Domi. We will then use those monies to go into other developments on our own.'

'That sounds like a great idea and lets do it.'" 33 During the early part of 2002 there were negotiations for the purchase of development properties at Foster and Terrigal. On 4 March 2002, Mr Bessounian, Mr Sengoz and Ms Pireh signed an agreement relating to these development properties under which the ownership, profits and costs were to be shared by all three equally. Mr Bessounian claimed that the document tendered was not the document he signed, but did not deny that it was his signature on the document. 34 In early 2002 Mr Bessounian said that he had a conversation with Mr Sengoz and Ms Pireh to the following effect: "I said:

'Since our total trail income is in the vicinity of $15,000 per month don't you think it's a good idea to incorporate Australian Wholesale Mortgages because we can now afford it.'

He also said that they "then had a further conversation the exact words of which I cannot recall along the lines of": "I agree that Australian Wholesale Mortgages should be incorporated, and the three of us will be directors, equal shareholders and employees in the company. All the assets of Australian Wholesale Mortgages and any trails from loans that have been written by the Willow Group will be transferred to the new company.

'I will make the arrangements to set up the company and obtain the necessary paperwork from St George to open the business accounts.'" 35 Mr Sengoz said that in early 2002 "we decided to offer George a one third interest in the company." The first defendant was incorporated on 8 February 2002 with 100 shares issued to each of Mr Bessounian, Mr Sengoz and Ms Pireh and the three as directors of the company. Also on 8 February 2002 it acquired an Australian Business Number ("ABN"), GST registration and a tax file number ("TFN"). It also applied for PAYG registration. 36 Ms Pireh deposed: "Accordingly, the company AWMPL was incorporated on 8 February, 2002. The shareholders and directors were George, Ibrahim and myself. At that point, the company had not commenced trading. Rather all work under the finance section continued under the business name AWM. We decided that the company should commence trading as from 1 July, 2002 (the commencement of the next financial year)." 37 Ms Pireh went on holiday in March 2002. On her return she reviewed the figures of the mortgage origination business. On 2 April 2002 she called a meeting of Mr Bessounian, Mr Sengoz and herself. Mr Bessounian said it was a meeting of the directors of the first defendant. He said the following conversation took place: "Abe said:

'George we are not happy with the amount of business you are bringing in. Domirina [sic] and I have decided that if you don't achieve $5,000,000 on settled loans for the month of April 2002 then we can't continue the way things are. We'll have to part company.'

'$5,000,000.00 in settled loans is logistically impossible.'

'Alright lets say $5,000,000.00 in approved loans.'

'I'll do my best.'" 38 Mr Bessounian said that this was the first time $5 million per month was ever mentioned to him as a target for him to reach. 39 Mr Sengoz said that the relevant conversation was as follows: "Dom: 'George, Abe, I want to put an end to the finance division. George just isn't doing enough. Since you have been here, you have only brought in one referral. All the other referrers were from Abe and I. AWM is just losing too much money. You have had enough time to build it up and meet your quota and you haven't been able to do it. You are in charge of the division George and you have produced practically nothing.'

Abe: 'Look Dom, lets give George one final chance.'

Dom: 'I'm prepared to give George until the end of April to prove himself, however I have looked at the figures and I just cant [sic] see how George will bring in $5,000,000 in settled loans for this month.'

Abe: 'Alright, to help you out George instead of bringing in $5,000,000 in settled loans for this month, we will be happy if you can achieve $5,000,000 in approved loans by the end of this month. If you can achieve that then we are happy to continue with our business arrangement. If you can't achieve that by the end of April, then we will just part company.'

George: 'Alright, I will do my best.'" 40 Ms Pireh gave a version of the conversation which essentially corroborated Mr Sengoz's version and included additional conversation. 41 Mr Bessounian said that on 26 April 2002 at 5.00 pm a further meeting was called. He said that the following was said: "Domi said:

'The figures for the month are about $4,400,000.00. You can't include a loan to a staff member. George it is not good enough.'

'We said it was to be $5,000,000 or the arrangement was off, therefore the arrangement is off.'

'Domi has already calculated the trails on the existing settled loans only, no allowance for any work in progress. The figure is $15,000.00 gross per month but after paying the referers [sic] and brokers the net amount is $7,500.00 per month in total, which makes your share [sic]. We are willing to pay you $2,500.00 per month for the next thirty months. Secondly as of now you and Domi are out of the Terrigal and Forster developments. I won't get into any discussions on the matter. You can take your time and clean out your desk at your own ease [sic] over the next week.'

'No just finish on Tuesday.'" 42 Mr Sengoz said the following conversation occurred: "Dom: 'George the figures at the end of today are $4.3 million. You haven't achieved your target.'

Abe: 'George, we agreed $5,000,000 in approved loans or the arrangement was off. Even with 3 extra people to help you, you still haven't been able to achieve your target.'

Abe: 'George, I'm sorry but I have to agree with Dom. At no point since you have been here have you come close to achieving your target. Dom and I are just paying money out of our own pockets to keep the business afloat.'

Abe: 'George, Dommy has calculated the trials [sic] on the existing settled loans and it works out at $7,500 per month. We have been friends for a long time and I prefer not to leave on bad terms. We are prepared to pay you out $2,500 per month for the next 30 months. That's more than fair.'" 43 Ms Pireh said that there was the following conversation: "Dom: 'George, Ibraham and I have reviewed the figures to date. The loans approved total only $4.294 million. You have fallen short of the required target.'

George: 'Dom, its only 26 April. Monday is the last day of April and I've got two loans sitting on my desk that I'm waiting for further information on.'

Abe: 'George, we know you wont [sic] be in on Monday, you have already told us that, so you really only have tomorrow to get those loans approved.'

Dom: 'Look George, I have had enough. This just isn't working.'

Dom: 'George, you just can't run the finance section. The business has been running at a huge loss for too long now. I've had enough and it has to end.'

Abe: 'I'm sorry George, I agree with Dom. You haven't been able to reach the target since you have been with us. Your side of the business is just losing too much money.'" 44 All three say in their affidavits simply that Mr Bessounian resigned as a director on 1 May 2002. In fact the evidence shows that it was not until 26 June 2002 that Mr Bessounian signed a return to ASIC recording his resignation as a director as of 2 May 2002. 45 Mr Bessounian's brother, Raphael Bessounian, is a computer network administrator. He also was a friend of and did business with Mr Sengoz. On the day of Mr Bessounian's dismissal Raphael Bessounian deposed that he was telephoned by Mr Sengoz. He heard from Mr Sengoz of the dismissal before he heard of it from his brother. He said that the conversation was to the following effect: "Abe: My partner and I have thrown George out of the business

Abe: We felt that he wasn't pulling enough income in

Abe: Yes, look we've decided. We have offered George a payment (I think the figure may have been $2,500 per month over the next three years). I think you should advise him accept that or we'll throw him out as a shareholder.

Abe: I've spoken to my solicitor and accountant and they both say that it can be done. Look we're majority shareholders therefore we can do it.

Me: Abe, he's a shareholder, you can't throw him out.

Abe: No, I know it can be done, if I was you I'd advise you're [sic] brother to take what we are offering. 46 He and Mr Sengoz spoke together three or four times after that. Mr Sengoz was attempting to arrange through Raphael Bessounian a meeting with Mr Bessounian to negotiate concerning payments to him, but Mr Bessounian declined to meet him. 47 Raphael Bessounian said that he had a clear recollection of his conversation with Mr Sengoz on 26 April 2002, because it made him angry at the time. His recollection of the other conversations with Mr Sengoz was much less clear. He said in cross examination that he did have a distinct recollection that in one conversation the following was said: "I asked Abraham how he could do what he said. He said he would water down the shares. I said, 'What do you mean by that?' He said, 'We will say the company needs more money, then we will end up, for example, we have three shares at the moment. We will offer another 3 million at $1 each which means your brother has to put in $1 million. We will have (?) [sic] shares and your brother will have one share.' I said, 'You cannot do that.' He said, 'Yes, it can be done very easily.'" 48 In the event, there was no agreement as to any payment to Mr Bessounian, nor was any share transfer executed by him. Around 20 June 2002 Mr Bessounian's signature was procured to the document, filed on 26 June 2002, that effected his resignation. And it was on 20 June 2002 that Ms Pireh wrote to Carl Gilmore at the accountants: "Please cancel George from Australian Wholesale Mortgages as a shareholder, the existing shares can be transferred half to Abraham and half to Domarina." 49 This appears to indicate that, as at 20 June 2002, Ms Pireh for one knew that Mr Bessounian was still a shareholder and, so far as she was concerned, needed to be removed as one. 50 In July 2002 operations began in the first defendant. A bank account was opened in its name at the St George Bank ("the St George Bank account"). The first deposit was made on 25 July 2002. Thereafter all receipts in respect of transactions entered into on behalf of the partnership as well as in respect of new transactions on behalf of the company were banked into and expenses paid out of this account. The defendants claimed that despite the use of the one bank account the two businesses were conducted as separate businesses. I should record here some significant pieces of evidence. In cross examination Mr Sengoz said: "Q You have told us before lunch that you were under the impression that he, having resigned as a director, he had also resigned as a shareholder? A Yes.

Q And you thereafter conducted the business in Australian Wholesale Mortgages through the company Australian Wholesale Mortgages Pty Ltd? A Yes.

Q You did that until 11 March …2003 or thereabouts when you incorporated AWM? A I think that company still traded in the sense of it receives income from trail trades carried out previously but we, yeah."

And subsequently: "Q You and Miss Pireh in 2000 registered the business name Australian Wholesale Mortgages? A Yes.

Q Subsequently the business, a finance business, was carried on under that name? A Correct.

Q That finance business ultimately was carried on by the 1st defendant? A That's right." 51 In a fax sent to Carl Gilmore on 18 October 2002 Mr Sengoz asked that he arrange for the first defendant to raise $100,000 by the issue of shares. Without going into further details of the progress of the proposal, it was finally put to a general meeting of the company on 9 January 2003. Mr Bessounian's shares were voted against it, but it was passed. However, after threat of an injunction application, the shares were never issued. It was at this time that the present proceedings were commenced. 52 On 11 March 2003 the fourth defendant was incorporated. There are two important passages in Mr Sengoz's cross examination concerning how this came about. The first was as follows: "Q Where did you quarantine this? A In my understanding, at one stage, both Domi and I thought, when George resigned as director we were under the mistaken assumption he also resigned as a shareholder. So rather than mucking around setting up a whole new company we decided to continue with Australian Wholesale Mortgages company. We consequently went out and obtained further accreditation with different vendors, namely, First Mac, and started to use that account. After George had left we then found that we were mistaken in our assumptions and George remained as a shareholder and, essentially, we opened a new company and started AWM Pty Limited.

Q AWM Pty Limited started on 11 March 2003? A Yes."

The second was: "Q And you realised that Mr Bessounian had a one-third interest in the assets of the company, correct? A Of the first defendant?

Q And you did not want him to have the benefit of the value of those assets, did you? A No, I did not.

Q That is why you decided to quarantine, to use your words a moment ago, the business into the fourth defendant? A No, quarantine the first defendant and start the business of the fourth defendant.

Q Start the business off again in the fourth defendant? A That's correct.

Q You had two starts? A Yes." 53 I should at this stage refer to the accounts of the various entities. Whilst accounts can provide valuable contemporaneous evidence, the problem with these accounts is that the versions available were printed out in 2005, long after this litigation commenced. Furthermore, it is clear that at least some alterations had been made to them. For example, an item was shown as a loan to the fourth defendant at a time when the fourth defendant had not been incorporated. In these circumstances, little reliance can be placed on the accounting records. 54 Subsequently, the business previously conducted by the first defendant was conducted by the fourth defendant. Furthermore, the business of the partnership, whether or not it had been vested in the first defendant, was vested in the fourth defendant. It may be that the businesses were not conducted under the fourth defendant's ABN and TFN until late 2004. However, the accounts were made showing the income as the fourth defendant's and the income was returned for taxation purposes as the fourth defendant's. FINDINGS OF FACT 55 I find that Mr Bessounian never was a member of the Australian Wholesale Mortgages partnership. I do not accept his word that he was in 2000 invited to work with Mr Sengoz and Ms Pireh on the basis that he was a partner. It may be that the possibility of future partnership was mentioned. But they were the sole owners of the business name (as Mr Bessounian knew); they provided the premises in which the business was carried on; and they, not he, bore the losses of the partnership. Certainly in the year ended 30 June 2002 he was treated as an employee of the partnership and a group certificate records the payment to him of wages and allowances of more than $43,000 in that year. Previously cheque butts record various payments to him by the Willow Group, some attributed to commission. All these matters conduce to the conclusion that he was not a partner. 56 I find that in late 2001 there were discussions among the three as to when the business should be incorporated and in early 2002 there was an agreement that a company would be incorporated with the three as directors and equal shareholders and that a mortgage origination business would be conducted in the company. I find that this agreement was reached on the basis that all three, and certainly Mr Bessounian, would work in and devote their time to the business of the company. I find that it was decided that business would commence in the company in the new financial year, that is, in July 2002. Everybody proceeded on this basis, the business continuing to be conducted in the partnership, until the events of April 2002. 57 There is not a great deal of disagreement about what passed in the conversations of 2 and 26 April 2002. The principal disagreement is as to whether a target or requirement of $5,000,000 loans per month had been imposed on Mr Bessounian prior to April 2002. I do accept that in 2000 or 2001 Mr Sengoz and Ms Pireh had calculated $5,000,000 per month as the break even point for the business and had had conversations with each other concerning this. But I find difficult to determine the question of whether this figure had been stipulated to Mr Bessounian prior to the beginning of April 2002 as a target which he must reach for their arrangements to be put in place or to continue. On the one hand it is strange, if no such stipulation had been made, that he did not make a protest to that effect in April 2002 (which on all accounts of those conversations he did not). On the other hand, it is strange that, if there were such a term in the arrangements, Mr Sengoz and Ms Pireh proceeded to put the arrangements including Mr Bessounian concerning the first defendant into effect in February 2002, when it was already clear that Mr Bessounian was not meeting this target. I have already commented on the dubious quality of the evidence of all three participants. I am unable to find on the uncertain evidence before me that $5,000,000 per month had been stipulated to Mr Bessounian prior to the beginning of April 2002 as a target which he must reach for their arrangements to be put in place or to continue. 58 The long and the short of it is that, upon his dismissal, Mr Bessounian left the organisation as it then existed and subsequently set up a mortgage origination business for himself. On 26 June 2002 he resigned as a director of the first defendant as of 1 May 2002, expressing a wish no longer to hold that position in the company. 59 He was offered $75,000, apparently calculated by reference to trail commissions on the transactions he had written. It would seem this offer was made as a gesture of good will towards him and his brother Raphael. It would seem he was expected in return to transfer his shares in the first defendant, but at that stage they were in effect of no commercial value as the company had not commenced operations. DEFENDANTS' CONTENTIONS 60 The defendants contend that for a transaction or a course of conduct to be oppressive it must involve unfairness. The unfairness must be judged in the context of all relevant circumstances. Here the plaintiff had not been a member of the partnership and had no interest in the business of Australian Wholesale Mortgages as conducted by the partnership. When he pressed in late 2001 to be given an interest in the business, this was acceded to by Mr Sengoz and Ms Pireh. However, the interest agreed to be given was by way of a shareholding in the first defendant. Business was not to commence in the company until the following July. Whilst the shares were issued, by the time business commenced in the company the association between Mr Bessounian and Mr Sengoz and Ms Pireh had ended. Mr Bessounian never in any way participated in the business conducted by the first defendant. In those circumstances, there was no unfairness in removing that business from his purview. PLAINTIFF'S CONTENTIONS 61 At first, the main thrust of the plaintiff's case was that he was a member of the partnership which initially conducted the business of Australian Wholesale Mortgages and that this business was from July 2002 conducted and owned by the first defendant. Mr Sengoz and Ms Pireh in late 2002 and early 2003 attempted to devalue his shares by "flooding" the company by the capital raising then entered upon. Although they desisted from the issue of those shares, they thereupon incorporated the fourth defendant and subsequently moved the business or businesses conducted by the first defendant under the name Australian Wholesale Mortgages to the fourth defendant in which the plaintiff had no interest. This was said to be a classically oppressive action. 62 As the case progressed, it became plain that Mr Bessounian's case that he was ever a member of the partnership was very weak. He thereupon shifted the focus of his submissions and submitted that, as Mr Sengoz and Ms Pireh chose from July 2002 to conduct the Australian Wholesale Mortgages business in the first defendant of which Mr Bessounian was undoubtedly a shareholder, from the commencement of the conduct of that business Mr Bessounian had an interest in it through the company. Whatever the previous dealings between the parties, it was oppressive to him for that business to be removed from the first defendant into a company in which he had no interest. CONCLUSIONS 63 Essentially I accept the defendants' contentions. For the Court to make an order under s 233 of the CA, the transactions or the course of conduct proved would need to involve commercial unfairness in the context of all the relevant circumstances, the plaintiff bearing the onus of establishing the unfairness. The circumstances of this case lead me to conclude that he has not established that the defendants' conduct was commercially unfair at any time. 64 The plaintiff was not a member of the partnership and had no interest in the business of Australian Wholesale Mortgages as conducted by the partnership. Although the partnership was still entitled to trail commissions arising from transactions negotiated by the plaintiff, those trail commissions were the property of the partnership. He had no interest in or entitlement to those trail commissions unless through the arrangements for his remuneration, which are not entirely clear. But it does appear that he had in fact been remunerated or was entitled to be remunerated for his work in effecting those transactions by the payment of salary or commission and allowances. However, the plaintiff was never made a partner or given an interest in the business. 65 In late 2001 the plaintiff pressed to be given an interest in the business. Mr Sengoz and Ms Pireh responded by agreeing to the commencement of business in the first defendant, of which Mr Bessounian was to be a director and in which he would hold one third of the shares. The first defendant was incorporated in February 2002, but was not to commence business until July 2002. The company was to embody a partnership among Mr Bessounian, Mr Sengoz and Ms Pireh, on the terms usual in such circumstances that all would work in and contribute to that business and, in particular, that Mr Bessounian would work in and contribute to that business. But, before that business could commence, the relationship between the three broke down. Mr Bessounian ceased working for the partnership. He resigned as a director of the first defendant. He never engaged in or contributed to the business that was subsequently conducted by the first defendant. Whoever was at fault (if anyone) in the termination of the relationship, it simply had ceased to exist before the first defendant commenced in operation. 66 It is no doubt unfortunate that, whatever Mr Sengoz and Ms Pireh's belief as to whether or not Mr Bessounian continued as a shareholder after 20 June 2002, they chose to commence business in a company of which he was in fact a shareholder. It is also unfortunate that they commenced what could be interpreted as a "flooding" operation in a way which is often an instrument of oppression. Nonetheless, I have come to the conclusion that, viewed objectively, their removal from the first defendant of the business ought not be regarded as commercially unfair, because Mr Bessounian did not ever participate in that business and because the relationship which was to operate between Mr Bessounian, Mr Sengoz and Ms Pireh was terminated before it came into operation. 67 The first issue is therefore determined in favour of the defendants. In these circumstances, the second and third issues do not arise for decision. The proceedings must be dismissed.

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