Christopher Murray & Anor v RentWorks Limited & Ors

Industrial Relations Commission of New South Wales in Court Session

CITATION : Christopher Murray & Anor v RentWorks Limited & Ors [2003] NSWIRComm 407 APPLICANT Christopher Murray & Anor PARTIES : RESPONDENT Rentworks Limited & Ors FILE NUMBER: IRC 2105 of 1999 CORAM: Glynn J CATCHWORDS : Section 106 - unfair contract - shareholders agreement - company not listed on Stock Exchange - resignation from employment of applicant who was one of the shareholders - allegedly unfair provisions in agreement - provision for calculation of fair market value - provision for appointment of specified valuers - conduct of respondents rendered contract unfair in that they either failed to supply valuer with all relevant information or provided misleading information - non-supply of 5 year forecasts by respondents to valuers - company undervalued - competing experts' reports tendered - credit of applicant, personal respondent, chairman of board (not a personal respondent) and respondents' group treasurer (not a personal respondent) attacked. Held: contract not unfair - information supplied as requested - forecasts not credible - credit considered where relevant to issues, not generally - Relief refused. LEGISLATION CITED : Evidence Act 1995 s 59 Industrial Relations Act 1996 s 105 s 106 A & M Thompson Pty Ltd v Total Australia Ltd 1980 AR 399 Briginshaw v Briginshaw (1938) 60 CLR 336 Browne v Dunn [1894] 6 R (HL) 67 Davies v General Transport Development Pty Limited 1967 AR 371 CASES CITED : Holt v Cox 23 ACSR 590 Jones v Dunkel (1958) 101 CLR 298 Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 Makita (Aust) Pty Ltd v Sprowles (2001 52 NSWLR 705 Saliba v John Hearder Pty Limited (1985) 15 IR 36 HEARING DATES: 12/05/2001; 12/06/2001; 12/07/2001; 12/10/2001; 12/11/2001; 12/12/2001; 12/13/2001; 12/14/2001; 02/04/2002; 02/05/2002; 02/06/2002; 02/07/2002; 02/08/2002; 02/11/2002; 02/12/2002; 02/13/2002; 02/14/2002; 02/15/2002; 02/18/2002; 02/19/2002; 02/20/2002; 02/21/2002; 02/22/2002; 03/14/2002; 03/20/2002; 03/21/2002; 04/17/2002; 06/12/2002; 06/13/2002; 06/14/2002; 06/18/2002; 06/19/2002; 06/20/2002; 06/21/2002; 06/27/2002; 06/28/2002; 07/10/2002; 07/11/2002; 07/12/2002; 09/17/2002; 09/18/2002; 09/19/2002; 09/20/2002; 09/24/2002; 09/25/2002; 09/26/2002; 09/27/2002; 12/03/2002; 12/04/2002; 12/06/2002; 12/10/2002; 12/11/2002; 12/12/2002; 12/13/2002; 12/16/2002; 12/17/2002; 12/18/2002; 12/19/2002; 02/13/2003; 02/14/2003; 02/17/2003; 02/18/2003; 02/19/2003; 02/20/2003; 02/21/2003; 02/24/2003; 02/25/2003; 02/26/2003; 02/27/2003; 02/28/2003; 03/03/2003; 03/04/2003; 03/05/2003; 03/06/2003; 03/07/2003; 03/10/2003; 03/11/2003; 03/12/2003; 03/13/2003; 03/14/2003; 05/05/2003; 05/06/2003; 05/07/2003; 05/08/2003; 05/09/2003; 05/12/2003; 06/04/2003; 06/05/2003; 06/06/2003; 06/10/2003; 06/11/2003; 07/09/2003; 07/10/2003; 07/14/2003; 07/15/2003; 07/16/2003; 07/17/2003; 07/18/2003; 07/28/2003; 07/30/2003 DATE OF JUDGMENT: 12/08/2003

APPLICANT: Mr M J Slattery QC with Mr J Fernon of counsel SOLICITORS Harmers Workplace Lawyers Ms S Marks LEGAL REPRESENTATIVES: RESPONDENT: Mr L G Foster SC with Mr M Steele of counsel SOLICITORS Baker & McKenzie Mr A Salgo

JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: GLYNN J

CHRISTOPHER MURRAY & ANOR v RENTWORKS LIMITED & ORS Application under section 106 of the Industrial Relations Act 1996

1 Christopher Raymond Murray (the first applicant) and his family company, MacDome Limited (the second applicant) (referred to collectively in this judgment as "the applicants") filed a summons for relief pursuant to s 106 of the Industrial Relations Act 1996 (the Act) on 11 May 1999 seeking declarations and orders, in relation to an alleged unfair contract, against RentWorks Limited (the first respondent), J A Kinghorn & Co Pty Limited (the second respondent), Thumdart Pty Limited (the third respondent) (the personal company of the fourth respondent) and Robert Warwick Medway (the fourth respondent) referred to collectively as the respondents. 2 In the course of this judgment when reference is made to the "applicant" that reference is to the personal applicant, Mr Murray. Reference to "the applicants" encompasses both the first and second applicants. 3 Mr M J Slattery QC with Mr J Fernon of counsel (later senior counsel) appeared on behalf of the applicants. Mr L G Foster SC with Mr M Steele of counsel appeared on behalf of RentWorks. 4 Originally 20 hearing days were set to hear the application, but as a matter of greater caution, the parties then sought an additional 5 days. Ultimately the hearing occupied 100 days, resulting in 6,011 pages of transcript and 198 exhibits (one of which alone consisted of 4,528 pages in 15 lever arch files). There were eleven files of written submissions (excluding authorities and copies of affidavits referred to). There were thirteen days of final oral submissions (included in the transcript mentioned above). Additional written submissions directed to one point were filed after the decision was reserved and I had entered on final leave. 5 I have not attempted to deal with every item in this huge mass of material, particularly in relation to the individual particulars as set out in the Summons. They present a compendium of every type of allegation of unfairness advanced in s 106 cases and in relation to some of the "conduct" claims were ones from which Mr Murray, it appeared, in cross-examination and through his counsel's final submissions, would like to have distanced himself. I instance the allegation in the letter from Harmers dated 17 February 1999 that Mr Murray participated in the valuation process "under duress". 6 I have dealt with this application by considering the major issues raised - the alleged unfairness of the Shareholders Agreement (the SHA), the five year plan figures, the alleged non-supply of relevant information to PwC particularly the 5 year figures, and/or the supply of misinformation to PwC by the respondents, the integrity of PwC and the valuation of Mr Banks. Background 7 As described by the applicants' counsel, the applicant commenced employment as a district manager in about August 1988 with Multilease Limited, the predecessor company of RentWorks. In 1991 he became a partner in the first of a number of joint venture arrangements. There was a service agreement between MacDome, the applicant and RentWorks pursuant to which MacDome agreed to provide Mr Murray's services to RentWorks. From 1 July 1996 MacDome's profit share was 12.75%. 8 For the purposes of its submissions, the applicant assumed that the Fourth JV Agreement of 7 December 1995 was applicable in 1996. It was said Mr Kinghorn asserted that it was the July 1995 JV Agreement, but the applicants did not consider that issue to be material as the relevant provisions of each of the agreements were largely identical. The applicant contended that had he resigned from RentWorks whilst either of those Agreements were still applicable he would have received the sum of approximately $14,204,486 pursuant to the provisions of those agreements. 9 The existing joint venture arrangement was restructured at the instigation of Mr Kinghorn to that of a limited company and on 1 July 1997 MacDome and Thumdart were issued with shares in RentWorks which equated to a 12.75% shareholding. The remaining 74.5% shareholding was held by J A Kinghorn & Co Pty Limited. 10 The applicant and Mr Medway were joint CEOs of RentWorks. 11 From late 1997 until July 1998 the applicant was involved in the day-to-day management of Sports Screen, a UK business in which RentWorks had purchased a stakeholding. The Sports Screen business was not profitable due to difficulties with the technology. Mr Murray acknowledged that he could have run the Sports Screen business from less of a sales and marketing perspective, and with a greater focus on the financial and technical side. 12 From about November/December 1997, Mr Murray began to feel that he was being undermined in front of staff and excluded from business by Mr Medway. 13 In March 1998 the applicant relocated with his family to the UK on assignment from RentWorks to Sports Screen. 14 Between April and May 1998 the applicant decided he no longer wished to continue his business relationship with Mr Medway. 15 On 25 May 1998 he advised Mr Kinghorn of his intention to resign. [Mr Kinghorn does not remember that advice being as specific as claimed.] 16 The applicant executed the Shareholders' Agreement (the SHA) in June 1998. 17 On 28 July 1998 the applicant tendered his resignation as from 30 June 1998 and a transfer notice under cl 2.4 of the SHA to Mr Kinghorn. (The latter claim is in issue.) Witnesses 18 The applicant gave both oral and affidavit evidence and was extensively cross-examined. Other witnesses called by him were: Ranald Murray McDonald, Managing Director, employed by RentWorks from September 1997 to March 2000. From January 1998 he had been General Manager of the Remarketing Division. He later brought an application pursuant to s 106 against RentWorks. That was settled. Allan Edmund Sierakowski, company director, employed by RentWorks from January 1998 to September 1999 as Director Operations and later a director of RentWorks. (Summons) Lloyd Leopold Bickerton, company director, employed, with one break, by RentWorks from late 1994 until February 1999, at first as manager of the Melbourne office and, as at May/June 1998 a director of RentWorks and Australian National Sales Manager. John Henry Banks, chartered accountant, consultant (formerly partner) KPMG. KPMG retained by applicants to prepare a report which undertook a valuation of partly paid shares held by MacDome in RentWorks. 19 The following witnesses were called by the respondents: Tony Alan Getley, director and shareholder, Quadrant Ltd, director and employee of RentWorks (NZ) from February 1997 to August 2002. Robert Warwick Medway, Managing Director, Group CEO, RentWorks. Brian William Holmes, company director of RentWorks since 1988. Served on a number of boards with John Kinghorn. Glenn Keith Goodall, was managing director of RentWorks NZ from January 1994 to December 1997. Remains a director of RentWorks NZ. In January 1998 set up South African subsidiary of RentWorks (RentWorks SA). Director of RentWorks since 30 June 1999. Anthony John Dunlop, Global Risk Manager, RentWorks. Ian Alexander Armstrong, chartered accountant. Consultant and former partner, PricewaterhouseCoopers (PwC) (affidavit, not required for cross-examination). John Alan Kinghorn, director of J A Kinghorn & Co Pty Ltd (Kinghorn & Co) (the second respondent). Director and Chairman of RentWorks (the first respondent) since 1988. Stuart Robertson partner in Ernst & Young since May 2002 and previously of Arthur Anderson as at 30 March 2001 when the independent expert's report and a supplementary report by himself and Mark Bryant in relation to RentWorks Limited & ors ats Christopher Murray & Anor were provided. Guy James Villiers Sanderson, partner of Baker & McKenzie's Australian practice, working in their Corporate Department. During the period 1993 to 2001, he had been involved in a substantial amount of work on an estimated 20 to 30 shareholders agreements, most of which had been between shareholders of private companies. He was not required for cross-examination on his affidavit filed in these proceedings. Hugh Lander, employed by RentWorks since April 1996 in various roles, but latterly as Group Treasurer and Director of the business unit Corporate and Government. Ian Gordon Pope, chartered accountant, director in the Financial Advisory Service department of PwC. Alan Van Niekirk, employed by RentWorks since May 1996, originally the Divisional Manager and then General Manager (change of title only) of its Residuary Management Division. He later became Chief Executive Officer of the Indian operations of RentWorks. Diane Elizabeth Jungmann solicitor, Baker & McKenzie (affidavit evidence re her work on the SHA. Not required for cross-examination). 20 A major part of the submissions made by the respondents as to the conduct of Mr Murray and of Harmers solicitors in relation to the initiation and continuation of these proceedings was based on solicitor/client records in respect of which the Court found privilege had been waived for reasons set out in its judgment Murray v RentWorks Limited [2002] NSWIRComm 97. 21 There were quite substantial submissions made by both sides as to the credit of witnesses. I do not intend to deal with those submissions in detail, but will do so when credit is relevant to specific issues raised. 22 The submissions as to the applicability of the principles in Browne v Dunn [1894] 6R (HL) 67 and Jones v Dunkel (1958) 101 CLR 298 have been taken account of where applicable, but have not been reproduced. RentWorks Shareholders Agreement (SHA) SHA - Terms 23 Clauses 2, 4 and 6 of the Shareholders Agreement (the SHA) are relevant. Clauses 2 and 4 and the proposed variations are set out below, but cl 6 is later considered separately: 2.4 Pre-emptive right (a) A Shareholder other than JAK Co may sell, transfer, assign or dispose of the entire legal and beneficial interest (but not a lesser interest) in come or all of its Shares if it follows the procedures in this clause 2.4. (b) A Shareholder ("Seller") wishing to sell, transfer, assign or dispose of an interest in Shares referred to in paragraph (a) ("Sale Shares") must give a notice ("Transfer Notice") to the Company which specifies: (i) the number of and other details of the Sale Shares; (ii) the cash price per Sale Share at which the Sale Shares may be sold ("Price"); and (iii) whether the Seller requires that all of the Sale Shares be sold (such a requirement being a "Full Sale Condition"). (c) Receipt of a Transfer Notice will irrevocably constitute the Company the Seller's attorney for the purposes of this clause 2.4. (d) Within 5 Business Days after receiving a Transfer Notice, or within 5 business Days after the Company becomes aware of a deemed Transfer Notice under clause 2.6 and has determined the Fair Market Value for the Sale Shares, the Company must send a copy of the Transfer Notice to each Shareholder other than the Seller ("Offerees") together with an offer on behalf of the Seller to sell to each Offeree: ... (e) If immediately after the Acceptance Date some but not all of the Sale Shares have been accepted by Offerees, then the Company must within 5 Business Days again offer the remaining Sale Shares on behalf of the Seller to each of the Offerees who accepted the previous offer and must do so on the terms set out in paragraph (d), which applies as if: ... (f) An offer made under paragraph (d) or (e) which is accepted in accordance with its terms is binding on the Offeree and the Seller. The Company must immediately notify the Seller of the details of any such binding obligation. If the Seller fails to complete the sale of the relevant Sale Shares to an accepting Offeree in accordance with the agreement, the Company may do so as the Seller's attorney and may execute any documents required for that purpose. (g) If no acceptances are received in respect of the initial offer made under paragraph (d), or if acceptances have not been received in respect of all Sale Shares after the procedures in paragraph (e) have been exhausted, the Seller is permitted to sell the remaining Sale Shares (or, where the Seller imposed a Full Sale Condition, all of the Sale Shares): [conditions not reproduced] ... 4 Sale of Shares on termination of employment 4.1 Requirement to offer shares - MacDome or Thumdart (a) CRM and RWM each acknowledge that Shares have been issued to each of MacDome or Thumdart for the reasons set out in Recital B. Accordingly, if at any time CRM or RWM ceases to be employed by the Company or its nominee for any reason, then MacDome or Thumdart, as the case may be, ("Seller") will be deemed to irrevocably appoint the Company its attorney for the purpose of offering and selling all of its Shares ("Sale Shares") in accordance with this clause 4.1. (b) The Company must determine the Fair Market Value of the Sale Shares and then offer the Sale Shares to the Shareholders other than the Seller ("Offerees") on the following terms: ... (c) If immediately after the Acceptance Date some but not all of the Sale Shares have been accepted by Offerees, then the Company must within 5 Business Days again offer the remaining Sale Shares on behalf of the Seller to each of the Offerees who accepted the previous offer and must do so on the terms set out in paragraph (b), which applies as if: ... (d) An offer made under paragraph (b) or (c) which is accepted in accordance with its terms is binding on the Offeree and the Seller. The Company must immediately notify the Seller of the details of any such acceptance. If the Seller fails to complete the sale of the relevant Sale Shares to an accepting Offeree, the Company may do so as the Seller's attorney and may execute any documents required for that purpose. ... Variations proposed by applicants to be made pursuant to s 106 to make unfair contract, arrangement fair 24 The variations of the Agreement proposed by the applicants retained cl 2.4(a) in almost exactly the same terms but renumbered it as cl 2.4(a)(i). The additional sub-clause to be added was in the following terms: (a)(ii) If CRM or RWM provide written notice of their resignation from the Company, then MacDome or Thumdart (as the case may be) may at the same time sell, transfer, assign or dispose of the entire legal and beneficial interest (but not a lesser interest) in all of its Shares by following the procedures in this clause 2.4 irrespective of the date on which the resignation is stated to take effect. Once clause 2.4 has been activated by MacDome or Thumdart by following the procedures in clause 2.4(b), clause 4 of the Agreement does not apply until the process outlined in clause 2.4 has been completed. 25 In relation to cl 4, the applicants sought that cl 4.1(a) and cl 4.1(b) be replaced as follows: (a) MacDome or Thumdart, as the case may be, ("Seller") may at any stage (regardless of whether CRM or RWM continue to be employees of the Company or its nominee) activate a sale of its shares in the Company under this clause 4.1. (b) The Fair Market Value of the Sale Shares must be determined and then the Company must offer the Sale Shares to the Shareholders other than the Seller ("Offerees") on the following terms: (The terms were the same as in the original Agreement.) 26 Clause 4.1(d) was to be replaced by a new sub-clause: (d) Nothing in this Agreement will limit the ability of CRM or RWM to leave the employ of the Company or its nominee. 27 The Agreement was sought to be varied by the inclusion of the following new provision: E The parties to this Agreement shall comply with all representations (made by authorised officers of such parties) to the effect that such parties will purchase the Seller's shares. 28 In the applicant's final written submissions, a quite different alternative to that proposed new provision was advanced: However, there is probably a simpler way of achieving an equally just and certain result. That is to vary the Shareholders' Agreement so that it contains a promise by existing non-selling shareholders to acquire the shares of a departing executive under clause 4 at the price reached in the valuation process contemplated by clause 6. SHA - Submissions - Applicants 29 In his opening submissions Mr Slattery described the Shareholders Agreement (SHA) as the principal document in these proceedings. 30 The terms of the shareholders agreement are unfair, harsh or unconscionable and/or against the public interest. It is put two ways: the terms of the shareholders' agreement are unfair, harsh or unconscionable, that is in itself; alternatively, what is put is that if they were fair at the commencement, the conduct of the respondents as set out in the affidavit of Mr Murray filed in the proceedings has rendered them unfair. 31 There are some 25 or so particulars which have been relied upon of the unfair conduct which is the subject of complaint in these proceedings. 32 The particulars fall into at least two kinds of categories. Particulars (i) to (v) are all events which precede the making of the shareholders agreement, or relate to the moment of making the shareholders' agreement. They are all concerned with the inherent unfairness in the shareholders' agreement and are dealt with together in a group entitled "Early conduct with respect to the execution of the Shareholders' Agreement - conduct up to 15 June 1998". 33 The next group of particulars (vi) to (ix), relate to the circumstances in which the valuation process was activated under clause 4 of the shareholders' agreement and are grouped under the heading "Activating Clauses 4 and 6 of the Shareholders' Agreement - conduct between 15 June and 14 August 1998". 34 The next group is "The Information For The Valuation" dealing with particulars (x) to (xiii), which are all particulars which relate to the nature and quality of information given to PwC for the purposes of the valuation and the conduct of PwC when that information was received. 35 The next group of particulars nos (xiv) to (xvi) is grouped under the heading "Finalisation of the Valuation - Conduct Between 22 December 1998 and 5 January 1999". That corresponds to, because the particulars deal with this chronologically, various things that occurred between the date the valuation was finalised, 22 December, and the letter and meeting between Mr Murray and Mr Kinghorn on 5 January. 36 The next group of (xvii) to (xx) covers "the transfer of the shares - conduct between 5 January 1999 and 2 March 1999". That is the period between when it became clear that there was no final arrangement able to be made between Mr Kinghorn and Mr Murray about the valuing process. A course of conduct was set in train to have the shares transferred under clause 4, come what may, over Mr Murray's protests, in the period between 5 January and 2 March 1999. That is what occurred at the end of that process. 37 Particular 22, "Acting upon, and giving effect to, a valuation which, in the event, erroneously and unfairly undervalued the shares." 38 Particular 20 is: "The imposition of unfair conditions upon the payment of the purchase price to the second applicant for its shares." 39 In relation to the valuation process it is submitted that, wilfully wrong and false evidence has been given to the Court by witnesses on behalf of the respondents. That has been put to those witnesses. 40 Particulars (xxi), (xxiv) and (xxv) all relate to the issue of the minority shareholder discount factor used in the Shareholders' Agreement or otherwise relate to valuation methodology and matters with respect to valuation methodology. 41 There has also been a threat made to Mr Murray, and that was the subject of some evidence. 42 Even then, with those steps, there was no assurance that any person would buy the shares. They did buy the shares, but what this shows is that the background to all of what was happening after the valuation finished is that there was a continuing withholding of this commitment, and that everything that Mr Murray did at that period is to be judged in light of the fact that he was not being given that commitment. He may have been prepared to settle for a lesser sum than he is now claiming in these proceedings. 43 Clause 2.4 was theoretically available to be used throughout the clause 4 valuation process, but it was practically unavailable, and that explains why Mr Murray felt duress in participating in the valuation process. 44 There are a lot of things said about the meeting of 28 July. There are really only two ultimate differences at the end of everyone's cross-examination; one was the question of whether the clause 2.4 notice was produced, offered and rejected, the applicants' version, or whether it was not produced or offered at all, which is Mr Kinghorn's version. 45 The other issue is this one: Whether Mr Kinghorn gave an undertaking to purchase the shares in the course of that meeting. It became clear that he agreed he did do the latter. He did make that undertaking by the time his cross-examination finished, but there was still an issue about the first one. 46 Mr Murray said that at the time he signed the shareholders' letter of 4 September he was not being legally advised, and he had not engaged Harmers. 47 Mr Kinghorn was prepared on 28 July 1998 to give Mr Murray an undertaking that Mr Medway would not be involved in the process. That undertaking was in connection, clearly, with Mr Murray agreeing to be involved in the process. He then went back on that undertaking and Mr Medway did become involved. SHA - Submissions - Respondents 48 The process or task in relation to the SHA/Valuation was not unusual in commercial transactions of this type; it has a solid and well-understood foundation in commercial law; parties of the maturity and standing of the parties involved in this case commonly make agreements of this kind in relation to this sort of topic because it serves their interests well to do so. 49 The applicants' complaints as to alleged unfairness "on the face of the Shareholders' Agreement" are without foundation and far from being inherently unfair, such provisions are commonplace and sensible provisions which were freely negotiated and agreed to by Mr Murray without any basis to suggest that he was in the least misled as to their meaning or effect. 50 It was an Agreement that Mr Murray understood and discerned it to be very much in his favour. There were two very important respects in which it was in his favour; one was it gave him access to equity, which, apparently, in a 12-month period, led to an increment in the share value of over $5 million, for him. 51 The second thing is that it spelt out, very advantageously to him, a procedure for exiting the company upon resignation, which included within it a low discount factor for the minority shareholding, a very low one having regard to what would have happened had it not been spelt out. 52 If PwC had applied a discount of 40 per cent instead of the 15 per cent mandated by the Shareholders' Agreement, MacDome shares would have been valued at approximately $4.5 million rather than $6.4 million, which was determined by PwC. In other words, this one change from the draft Shareholders' Agreement alone added almost $2m to Mr Murray's take. 53 Ultimately, the earlier profit share arrangement was converted into the shareholding because Mr Murray wanted more security and needed access to the goodwill of this business, which he would not get through a profit share. Mr Kinghorn was quite happy to allocate that to Mr Murray. 54 Mr Kinghorn did that by dint of this shareholding which was paid for on the basis of a valuation which did not include the goodwill of the business, and that is why, what it was supposed to cost Mr Murray to buy these shares in June 1997 was $1.1m - $470,000 by way of putting in as a purchase price of the shares the loans he had lent back to the business out of his profit share. In a sense it was cash, although he did not have to outlay it; it was money already in the business. 55 In addition to that, because the shares were partly paid, he had an obligation, if called upon, to pay the call on the difference between the agreed price and the amount that he had actually paid, and that was another $640,000-odd. He did not have to pay that at all until later on when the shares went across under the compulsory process that is the subject of complaint here. 56 So he got shares for which he had actually to pay $1.1m-odd. He did not pay any cash for them. There was no financial pressure on him. He converted his loans into the purchase price for the shares and had an obligation to pay the difference. Then, 12 months later, they are valued at $6.2m-odd, out of which he gets $5.148m in cash. Those are the bare bones of that transaction. 57 Mr Murray accepted these facts, and he agreed that Mr Kinghorn's agreement to proceed to issue shares to him and Mr Medway exhibited generosity, and was a far more secure arrangement from his point of view which gave him, for the first time, true equity in the business and which was a change economically from what he had been given before. 58 Mr Murray conceded that in essence he understood that clauses such as clauses 2 and 4 were in everybody's interests, including his and Mr Medway's, and just as much as his interests as those of Mr Medway. 59 In relation to the operation of the agreement, far from coming to the Court as a litigant deserving of assistance under s 106, Mr Murray has callously and dishonestly sought to use the jurisdiction of the Court as an integral part of the plan to extort money from Mr Kinghorn principally and the other respondents. 60 The reason the parties have this case is that they were always going to have this case because Mr Murray decided quite early in the piece that he would bring about a state of affairs where he secured the cash, whatever it was, and then would sue in an endeavour hopefully to settle with Mr Kinghorn and get more money, but, failing that, to press on and utilise the jurisdiction of this Court to squeeze more money out of Mr Kinghorn. SHA - Consideration 61 The SHA was an arrangement which in its very terms related to a contract of employment, and thus may be considered by the Court pursuant to s 105 and s 106 of the Act. 62 It seems that the concept of a Shareholders Agreement (the SHA/Agreement) had been under discussion for up to two years. 63 RentWorks formally retained Baker & McKenzie to draft the SHA in November 1997. The applicant did not have any contact with Baker & McKenzie in relation to the drafting of that Agreement. The SHA was not signed by Mr Murray until 16 June 1998 and he left RentWorks in July 1998, with a resignation date of 30 June 1998. 64 The applicant said he had advised Mr Kinghorn on 25 May 1998 of his intention to resign, although Mr Kinghorn said he did recall that the intention had been so specifically stated. 65 Despite the fact that the SHA signed on 15 June 1998 was intended to provide "an inducement to CRM and RWM respectively to continue as joint chief executive officer and to provide their full time services to the Company ... in order to provide stable leadership and assist in the growth and development of the Business" and "to reward certain executives of the Company", the first applicant resigned one month later. No obstacles were placed in his way. The execution of the Agreement in June certainly accommodated the applicant's wish to leave the company. 66 On 28 July 1998 the applicant approached Mr Kinghorn and tendered his resignation together with a transfer notice under cl 2.4 of the SHA. (There is an issue as to whether Mr Kinghorn actually accepted that notice or refused it or even whether it was ever given to him.) The notice (unsigned) in evidence constituted an offer by MacDome to sell its shares for $16.62 million (i.e. 12 ½% of $140 million). That price seems to have been arrived at because, on 25 May 1998, Mr Kinghorn, it is said, told Mr Murray that he had advised Newcourt Capital that the Australian and New Zealand businesses were worth $140 million. The PwC valuation was about one third of that amount. 67 The applicant's own understanding of the SHA can be inferred from the draft letter of resignation he sent to Mr Chalmers, solicitor of Cutler Hughes Harris for vetting. In that letter he refered to cl 4. The letter actually handed by him to Mr Kinghorn, on 28 July 1998, referring to cl 2, followed the input of Mr Chalmers. 68 Unless Mr Murray had a potential buyer for his shares, other than the other shareholders, proffering a notice under cl 2 was a waste of time. He had no such buyer. 69 The variations proposed by the applicants to cl 2 appear to be trying to turn it into another cl 4. 70 In cross-examination the applicant accepted that he understood and accepted the terms of the Agreement when he signed it. 71 I reject the claim that it was unfair of the respondents not to advise the applicants to obtain legal advice prior to executing the Shareholders' Agreement. The personal applicant was a very experienced businessman, not some naive truckie or franchisee. He had previously entered into other kinds of agreements with RentWorks/Multilease. The applicant and Mr Medway had discussed the Agreement between them and had not only talked to Mr Pope in February 1998 as to the valuation provisions but entered into a series of correspondence as to the methodology and basis for such a valuation. One consequence of those events was that the minor shareholder reduction was specified at 15% in cl 6.1(b) instead of being left at large with the possibility that a valuer could set it a much higher amount, 40% or even 70% being mentioned. 72 Thus, the applicant agreed to the inclusion in the SHA of a clause providing for a minority shareholder discount of 15% when the fair market value was being determined. 73 The applicants also complain that all contact as to SHA with Baker & McKenzie went through Mr Kinghorn. No disadvantage to the applicants has been shown. Mr Murray and Mr Medway had their own discussions both between themselves and with PwC, and as a result changes were made to the SHA. Mr Kinghorn does not seem to have rejected any of them. 74 Amongst the various alleged failures by the respondents as to conduct, was para no B.3(iv): Mr Kinghorn's erroneous explanation to the first applicant of the effect of the Shareholders' Agreement. 75 In cross-examination Mr Murray asserted that Mr Kinghorn had explained the SHA to him in such a way that led him to believe that if he or Mr Medway left, the other parties would buy the shares and, relying on that statement, he had signed the SHA. 76 The Harmer interview (Ms Cooper/Mr Murray) notes on this matter record that it was unclear whether Mr Kinghorn made any representations of a misleading nature which encouraged Mr Murray to enter the SHA, that the basis of Mr Murray's impression that the SHA meant his shares would be bought out if he left the company was "unclear" and he told Ms Cooper he could not recall who gave him such an explanation, nor when, nor what, was said. 77 The claim that was eventually made as contained in the particular set out above was demolished in very short order in cross-examination. 78 This claim was one that justifiably came in for severe criticism by the respondents as to the conduct of Mr Murray. 79 Overall the evidence is that he was comfortable that the intent and obligations of all parties were clearly documented. He was someone who did not hesitate to seek legal advice when he believed it was in his interests to do so. Although Mr Murray said in his affidavit dated 6 May 1999 that he trusted Mr Kinghorn and believed he would act in Mr Murray's best interests, he had sought legal advice from Mr Chalmers, in respect of his letter of resignation. 80 The variation sought under s 106 originally included a new provision to the SHA, that being that all representations to purchase the seller's shares will be complied with. In final written submissions an alternative to that proposal was that the SHA be varied to contain a promise by the existing non-selling shareholders to acquire the shares of a departing executive. 81 That alternative demands, in effect, the compulsory purchase by the other shareholders of the applicants' shares irrespective of those other shareholders' financial or any other circumstances, or of their own desires to take up the offer made. 82 However, the type of organisation this SHA is concerned with must be kept in mind: a small private company with a limited number of shareholders. To force the other shareholders to buy out another shareholder could have the effect that, even if they wanted to but did not have access to sufficient funds, the whole enterprise would go to the wall. 83 The sale of MacDome's shares was one initiated by the personal applicant at a time of his choosing. It was not a time that would have been chosen by Mr Kinghorn whose cash liquidity situation at the time was not, as was known to Mr Murray, as fluid as it usually was. From the evidence, Mr Medway would not have been in a position to take up any offer by MacDome, and was only able to do so after Mr Kinghorn's assistance to make the necessary financial arrangements. 84 The applicant was alive to the fact that if the other shareholders did not take up his offer to sell his shares, he could be left with a minority shareholding in a private company for which he no longer worked and so would be unable to influence the results of that company. That would have been the outcome of an Agreement he had signed in full knowledge of that being a possibility. 85 The applicant fully understood and agreed to the terms of the Agreement, including cl 4.1(b), cl 6.1(a) and (b) and cl 6.2. On the basis of Mr Murray's own evidence, I am satisfied that he knew as at 28 July 1998 that there was no obligation on Mr Kinghorn or any other shareholder to purchase his shares. 86 I note that the variation sought by the applicants also seeks to have those variations apply to RWM (Robert Warwick Medway) and Thumdart (Mr Medway's company). Neither has joined in the application to vary and, as the third and fourth respondents to the application, neither has indicated any support for it. 87 I shall deal with the applicants' proposed variations to cl 6 separately. Clause 6 - Calculation of Fair Market Value 88 Clause 6 as it is stands, and the variations proposed by the applicants are set out below: 6 Calculation of Fair Market Value 6.1 Valuation principles The following principles must be observed when determining the Fair Market Value of a Share: (a) the Fair Market Value of a Share is, subject to the following paragraphs, equal to the fair value of the Company as a going concern in an open and unrestricted market between knowledgeable and willing parties dealing at arm's length who are fully informed and under no compulsion to buy or sell, divided by the number of Shares on issue; and (b) the value determined under paragraph (a) will be reduced by 15% if the parcel of Shares the subject of the valuation represents less than 50% of the Shares on issue. 6.2 Valuer If the Parties who will be affected by a determination of the Fair Market Value of particular Shares cannot agree on what that value should be for a particular purpose, then the Company is to instruct Price Waterhouse (or its successor firm) to provide a valuation in accordance with this Agreement of the relevant Shares for the relevant purpose. Price Waterhouse (or its successor firm) will act as an expert and not as an arbitrator, and its determination of Fair Market Value will be binding in the absence of manifest error. The fees for Price Waterhouse's determination are to be paid equally by each purchaser of the Shares and the Seller. 89 Clause 6.1(b) was to be extended: (b) The value determined under paragraph (a) will be reduced by 15% if the parcel of Shares the subject of the valuation represents less than 50% of the Shares on issue unless: (i) the seller of the Shares has activated, or attempted to activate, a sale under clause 2.4 of this Agreement; or (ii) the Shares are being sold by MacDome or Thumdart in circumstances where CRM (in the case of MacDome being the seller) or RWM (in the case of Thumdart being the seller) have been dismissed by the Company (for reasons other than serious and wilful misconduct) or have been effectively forced to resign from the Company; or (iii) by reason of the proposed sale, a remaining shareholder will be provided with the opportunity to hold 75% or more of the shares in the Company; or (iv) it is otherwise unfair in the circumstances for a 15% reduction to apply; in which case, there will be no reduction in the value determined under paragraph (a). 90 The proposed cl 6.2 was as follows: Clause 6.2 is to be amended as follows: (a) If the Parties who will be affected by a determination of the Fair Market Value of particular shares cannot agree on what that value should be, then such parties are to instruct an accounting firm (the "Firm") which is independent of the Seller and the Company to provide a valuation in accordance with this Agreement of the relevant Shares for the relevant purpose, such valuation to be made within, and as at, a date that is just in the circumstances of the case. (b) If the Company and Seller cannot agree on the selection of the Firm, the Firm will be selected by the President of the Institute of Chartered Accountants. (c) The Firm will act as an expert and not as an arbitrator. (d) The Company will provide all information to the Firm that is necessary for it to make a proper valuation. (e) The Seller may at any time request from the Company, and will be provided with, any such information. (f) Any party affected by the valuation may require a second valuation to be obtained from another accounting firm which is selected jointly by the Seller and the Company (the "Second Firm"). Subclauses (a) to (e) will apply in respect of the Second Firm in the same manner as those subclauses apply to the Firm. In the absence of an error in either valuation, the average of the two valuations will be deemed to be the Fair Market Value of the Shares. (g) The valuation fees of the First and Second Firms are to be paid equally by each purchaser of the Shares and the Seller. (h) The valuation given by PwCCoopers on 22 December 1998 shall not be a valuation for the purposes of this provision. (i) If the Commission considers that it is just in the circumstances of the case to nominate a valuation for the purpose of sub-clause (a) (not being the valuation referred to in sub-clause (h), but being a valuation set out in the table on page 32 of Annexure A to the affidavit made by John Henry Banks on 12 September 2000 ("the Table"), then the valuation so nominated shall thereupon constitute the valuation required by sub-clause (a), sub-clause (f) shall thereupon cease to have any application, and the reference to the "Second Firm" shall be deleted from sub-clause (g). (j) In any event, notwithstanding any other provisions of this clause, a Fair Market Value for a parcel of 941,276 shares in the Company shall not be less than $19.24 million, or in the alternative, a sum calculated by the formula (a x 12.75%) - b, together with interest on any unpaid portion of this sum, where a = such sum identified as the "Corporate value" in the Table that the Commission considers just in the circumstances of the case, b = $1.22 million being the "calls payable" identified as such in the Table. 91 I do not set out the alternative proposed variation to those already set out above. 92 The applicants' proposed variation to cl 6.1(b) is a straightforward attempt to reverse the applicants' informed acceptance, after discussion and consultation with PwC and Mr Medway, of a provision in the SHA for a reduction by 15% in the price to be paid for his shares as a minority shareholder. Because the proposed sub cl 6.1(b)(iv) refers to "otherwise unfair", I take it that claimed unfairness to the applicant comprises his trying unsuccessfully to sell the shares to the respondents under cl 2.4, the opportunity for John Kinghorn or Robert Medway to hold more than 75% of the company's shares and that the applicant had been dismissed or effectively forced to resign. The first two items as comprising "unfairness" to the applicants are nonsensical and, as to the third, Mr Murray was neither dismissed nor forced to resign. 93 There was nothing unfair in reducing the value of the applicants' shares in accordance with cl 6.1(b) of the SHA. 94 A major attack by the applicants against the SHA goes to cl 6.2 and the appointment of Price Waterhouse (or its successor firm), which "will act as an expert and not as arbitrator", to provide a determination of Fair Market Value which "will be binding in the absence of manifest error". One basis for that attack was that a different arm of PwC audited RentWorks, and the applicants' interests could be adversely affected in the event of some dispute between RentWorks and PwC, as the applicants allege occurred here, as to information RentWorks refused to supply although it was requested by PwC, but PwC did not press for that information for fear of damaging its relationship with RentWorks. 95 The second basis was the one most seriously pressed. That was the SHA was rendered unfair by the conduct of RentWorks in that it either refused to provide information, and the 5 year figures in particular, or it provided misleading information, for instance, by Mr Medway, to PwC with the intention of depressing PwC's ultimate valuation. 96 The attack on cl 6.2 cuts across a number of issues, firstly, the five year figures as such; secondly, the allegation that Mr Kinghorn ensured that PwC did not receive them; thirdly, the misinformation allegedly given to PwC by Mr Medway; fourthly, the resulting tainted valuation by PwC, and fifthly, whether PwC, in the persons of Mr Pope and Mr Alexander, were so incompetent, that they, though their honesty was not attacked, failed to realise they were being misled. 97 These are all major issues in these proceedings and are considered separately.

SHA - Clause 6 - Submissions - Respondents 98 Mr Pope and Mr Armstrong made an honest, competent, fair and well-balanced effort at valuing these shares, as they were required to do under the Agreement. If there is a problem here which should attract the Court's interest, it cannot be with Messrs Pope and Armstrong. That is to say, it cannot be that they got anything wrong on what they had. It cannot be that they were dishonest or lacked integrity or independence or competence. That if there is something that should attract the Court's interest here, it can only be, when one now looks at the case for what it is, in the area that either something was withheld or they were misled in some respect in a way in which they were not complicit in any respect whatsoever, but which led to a result which was wrong. If it did not do that, then that is the end of the matter. 99 The courts have for a very long time supported a commonsense approach by enforcing agreements made between parties to abide by the determination of an expert. The approach that has always been taken by the courts is that it is both just and good public policy that parties are held to their bargain if they agree to such a clause. The appointment of a party as an expert and not as an arbitrator, as in the present case, is a common formula used in such cases. 100 Ignoring the Court's jurisdiction under s 106, the mere fact that a valuer has come up with a figure which 10 other valuers think is outside the range is not enough under the general law for these results to be challenged because it does not constitute manifest error or fraud on the part of the valuer. 101 This clause was agreed. It is quintessentially a commercial arrangement designed to protect all parties in a sensible and balanced way; well understood as such by Mr Murray and agreed to him by him and he knew that it would be activated the moment when he resigned, which he had in mind to do so shortly after signing this agreement.

SHA - Clause 6 - Calculation of Fair Market Value - General Principles 102 Mr Sanderson did some work in relation to the draft SHA, making comments as a matter of technical review. In relation to shareholders agreements generally he deposed as follows: 10 I say in relation to my experience of negotiating, reviewing and advising in relation to shareholders' agreements, and my observation of other shareholders' agreements I have read that: (a) It is common practice in such agreements to have a valuation machinery to determine the value of shares to be sold under the shareholders' agreement. Commonly a single valuer is appointed. I have not seen any shareholders' agreement in which a discontented shareholder is entitled to take an initial valuation and then appoint a further valuer to provide an opinion to be averaged with the initial valuation. (b) I have seen a number of shareholders' agreements in which there is a provision for a percentage discount to be applied to a minority parcel of shares. These provisions differ as to the level of shareholding to which a discount is to be applied and to the level of discount to be applied. (c) I have seen many shareholders' agreements in which the auditor of the company, the shares of which are being valued, is appointed as the valuer for the purposes of determining value under a shareholders' agreement. 103 I would see the proposed variation to cl 6.2 as one which would be a fruitful source of litigation and one that certainly could not be described as it was by the applicants as "relatively uncomplicated". That variation provides that the "Firm" to be chosen as the valuer "will act as an expert and not as an arbitrator", but then goes on to make the further provision that any party affected by the valuation (presumably a dissatisfied one) may require a second valuation to be obtained from another accounting firm "selected jointly by the Seller and the Company". That proposition does not, it seems to me, take into account the authorities on expert determination. 104 In relation to the valuer "acting as an expert and not as an arbitrator", McHugh JA stated in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (Legal & General Life) (1985) 1 NSWLR 314 at 336 that: ... those words which have been commonly used in agreements since the Common Law Procedure Act 1854 serve the purpose of excluding the provisions of the Arbitration Act 1902. They avoid the necessity for the valuer to hear evidence and the parties and to determine judicially between them. They enable him to rely on his own investigations, skill and judgment: Re Dawdy (1885) 15 QBD 426, 430. Indeed they reinforce the view that the parties, as between themselves, rely on the honest and impartial skill and judgment of the valuer. 105 In Legal & General Life, McHugh JA (at p 331) stated that the law concerning the court's power to refuse to enforce a valuation, made for two or more parties, has undergone considerable change, not to mention uncertainty in recent years. He reviewed authorities since 1754 and in the course of that review stated: As long ago as 1754 the Court of Chancery stated that if parties put their confidence in the skill and judgment of a valuer they must abide by it unless it plainly appear "that he had been guilty of some gross fraud or partiality": Belchier v Reynolds (1754) 3 Keny 87 at 91; 96 EF 1318 at 1319. ... In Weeks v Gallard (1869) 21 LT 655 Lord Romilly MR took the view that it was the duty of the courts to enforce specific performance of agreements to be bound by the valuations of other persons. He said that the "only defence to such a suit would be fraud or collusion" (at 655). No mention was made of mistake. ... In Arenson v Arenson [1973] CH 346 at 362 Lord Denning MR departed from the views which he had expressed in Dean v Prince . His Lordship said (at 362): "... Whenever two persons agree together to refer a matter to a third person for decision, and further agree that his decision is to be final and binding upon them, then, so long as he arrives at his decision honestly and in good faith, the two parties are bound by it. They cannot reopen it for mistake or error on his part or for any reason other than for fraud or collusion." 106 At the end of that review, McHugh JA expressed a number of opinions: In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied. This was pointed out by Sir David Cairns in the Court of Appeal in Baber v Kenwood Manufacturing Co Ltd (at 181). A valuation obtained by fraud or collusion can usually be disregarded even in an action at law. ... It will be difficult, and usually impossible, however, to imply a term that a valuation can be set aside on the ground of the valuer's mistake or because the valuation is unreasonable. The terms of the contract usually provide, as the lease in the present case does, that the decision of the valuer is "final and binding on the partes". By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision. ... But as between the parties to the main agreement the valuation can stand even though it was made negligently. While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. ... But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract. 107 Particularly of interest in these proceedings, where the Court is determining, in the terms of s 105(a) whether a contract is "unfair", was the statement of legal concepts by Cole JA in Holt v Cox 23 ACSR 590 at 607: The parties were in agreement that Mr Adam had acted honestly and impartially in valuing the shares as an expert. His task in accordance with the terms of the agreement between the parties contained in the articles was, upon termination of Mr Cox's employment on 13 November 1990, to determine "a fair price" for the five A class shares ... ... The contract did not provide that Mr Cox was obliged to offer his shares to the Holts at a price determined as fair by a party other than the auditor. It did not permit a court to determine on some supposed empirical basis what was fair and to compare that determined value with the valuation achieved by Mr Adams as auditor, and to strike down as unfair his valuation if it did not accord with that of the court. Once it is accepted that Mr Adams acted both honestly and impartially, it cannot be said that he was not acting fairly as between the parties in fixing his valuation or that the price he determined was not a "fair price". In my view there is no room for the court to determine in those circumstances that failure to take into account any particular factor destroys between the parties the contractual integrity of Mr Adams valuation. ... Here the contract required the determination of a valuation which was, in the honest and impartial view of the auditor, a fair valuation of the shares having the characteristics mentioned. The use of he [sic] expression "fair" does not, in my view, permit a third party, here the court, to substitute its view for the view of the valuer, or to say that the auditor's valuation is unfair, and therefore not in accordance with the contract, because the court takes the view that the valuer has disregarded what the court considers to be a material factor in the valuation. The parties have entrusted the determination of a fair valuation to the auditor, not to the court. ... Similarly, here "a fair value" means a value which the valuer, Mr Adams, considers is fair having regard to all the circumstances which the valuer considers are relevant. ... To my mind these statements of principle can not be circumvented by a court by emphasising or relying upon qualifying words such as "fair" or "reasonable" to then hold that omission properly to consider, in the court's view, a factor, or taking into account, in the court's view, an irrelevant factor vitiates the valuation honestly and impartially made by the person to whom the contracting parties have entrusted that task. To do so is in truth to substitute the valuation of the court for the impartial valuation of the person to whom the parties have, by their contract, entrusted the valuation task. The contract between the parties was not that the auditor should determine a price for the shares which a court must be satisfied was fair. The contract was that the auditor should, impartially and honestly, determine what in his opinion was a fair price, and the parties agreed to accept that valuation. 108 Of course, the above case has to be considered in the light of the Court's jurisdiction under ss 105 and 106. If this Court finds that either the SHA or the RentWorks/PwC contract to value RentWorks, is either unfair in its terms, or becomes unfair because of the conduct of one of the parties, relief, which includes varying the contract, can be granted pursuant to s 106. 109 In the present case, the applicants do not say that PwC did not act honestly and impartially, but say that Mr Pope was misled both as to information supplied to him for instance by Mr Medway and as to information not supplied by RentWorks that should have been, i.e. by the conduct of the respondents. 110 Elsewhere in this judgment, I do find that PwC, and in particular Mr Pope and Mr Anderson, were acting both honestly and impartially and were not misled. Five (5) Year Plan 111 The term "Five (5) Year Plan" is shorthand for the documents presented to the Board on 22 September 1998 related to the "RentWorks Limited/Strategic Plan/Draft version 21/9/98". 112 The 5 year plan was developed after a meeting of senior RentWorks management at the Formosa Country Club in New Zealand over 4 days from 23 to 26 August 1998. In this judgment, reference to "Formosa" is to that meeting. 113 In this case it is almost a case of "all roads lead to the 5 year plan figures". The applicants submit that the fact that they were sent to St George Bank and West Bank showed that they were an official and considered view of the directors and senior management of the likely [positive] future performance of the business which was in contrast to the more negative views they presented to PwC. 114 The applicants also submit that the valuation by PwC resulted in an undervaluation of RentWorks because RentWorks deliberately withheld the 5 year plan figures with their positive views as to growth from PwC. 115 It was further submitted that the 5 year plan filled the gap in evidence relating to proof of assumptions in a report by Mr Banks as to growth which gap had been left when certain ABS statistics were not admitted. Five (5) Year Plan - Submissions - Applicant 116 In opening, Mr Slattery described the Five Year Plan (5 year plan) as a significant document. The 5 year plan contained significantly greater growth estimates for RentWorks than the ones that were given by Mr Medway to PwC, the difference effectively being ten-fold. 117 The principal issue in this case is really about the status of a particular document within RentWorks, and whether or not that document, if it had that status, should have been given to PwC in the course of the valuation process. That document is the, in either of its forms, 5 year figures which are attached to the St George Bank proposal or the BankWest finance proposals. The differences between them are relatively minor. 118 It is most important to see where that document fits into the applicants' case in these proceedings, and where, in a practical sense, the need to explain that document, and what inferences can be drawn from that document, arise. 119 Firstly that document, by the last week of October 1998, represented an official and considered view of, at least, senior management, some of whom were directors of RentWorks, as to the likely future performance of the RentWorks business. That is the first proposition. 120 The second proposition really arises out of the expert evidence, which is that if it had that status it should have been disclosed to PwC in the course of the valuation process. 121 The first part of the case the applicants make is, in effect, a statement about the status of the 5 year figures document. It is conceded if the applicants' are wrong about that, if it does not attain the status contended for, if it does not represent the views of senior management in some official or considered way, then there is no obligation to give it to PwC. The applicants say the respondents do not displace the inference that arises from sending it off to St George. There is an obligation to give it to PwC. 122 If the Court accepts that the respondents' account of what happened is to be accepted and that what that shows is that that document had no official or considered status within the company, then it is difficult to make out a case that there was an obligation to give it to PwC. So the second contention the applicants make is dependent on the first and counsel acknowledged that. 123 And the third proposition is that despite the obligation to do so, the document having the status that it did, it was not disclosed to PwC in the course of the valuation process, despite the fact there were many, many, many opportunities to do so. The respondents were in breach of their obligation to disclose it. 124 But the argument, to a large degree, has been fought around the first of those propositions in this case; that is, what is the status of the document within the RentWorks organisation at the relevant time. 125 Ultimately, the plan attained the status of an official and considered view of management at approximately the same time that the 1998/99 budgets did, the budgets being forwarded to PwC with a memorandum on 4 November and they, and the 5 year plans, were attached to BankWest and St George proposals. 126 The applicants' submit that the case should be approached in the following way: That a reasonable inference which one, in fact, almost could call a presumption, arises from the fact that this document has been attached to the St George Bank finance proposal and to the BankWest finance proposal and has been sent by a senior executive and directors of RentWorks to both of those financial institutions in support of a finance application. 127 A commonsense inference arises from those facts, that that document set out the genuine views of senior management at RentWorks. 128 Mr Pope agreed to essentially the very same commonsense submission that the mere fact of the sending of that document to each of those financial institutions brings with it the prima facie assumption, before further inquiry, that the document does represent an official and considered view of directors or senior management of RentWorks. 129 What the respondents have done is to call three witnesses, in particular Mr Kinghorn, Mr Medway and Mr Lander, who have sought to explain how it is that that normal inference does not arise. Now, the applicants submit that their evidence is, at best, simply faulty, at worst, at times, deliberately misleading. 130 If it was not an official and considered view of directors or senior management, they did not deal with St George unethically, or inappropriately. But the alternative submission is this, and that is, in the absence of a satisfactory explanation from the respondents displacing the prima facie inference, the status of the document is that it does represent an official and considered view of directors and senior management of RentWorks as to future prospects, as to the future performance of the business. 131 The real contest of the evidence is of a different character. It is between some witnesses that the applicants have called in relation to the 5 year plan, Mr Sierakowski, Mr Bickerton and Mr McDonald, who have no interest in the outcome of these proceedings. Mr Sierakowski and Mr Bickerton are witnesses who fall into what would be described as an independent category. Mr McDonald is in exactly the same category as well, although his evidence is of less fundamental importance to the proceedings than Mr Bickerton and Mr Sierakowski, who were closely involved in the process. They are persons not currently employed either by RentWorks or by MacDome, or any of their interests. 132 On the other side of the case Mr Medway, Mr Lander and Mr Kinghorn. In the case of Mr Kinghorn and Mr Medway, they are representatives of, or parties to the proceedings, and Mr Lander is employed by RentWorks and was intimately involved in supply of or non-supply of information in the course of the valuation process to PWC, that being the period from, in effect, late August 1998 through until mid to late December 1998. There are probably, though, only three, major testing events in that period upon which principal focus needs to be placed, and they are these three: 10 September 1998, the second is 22 September 1998, and the third is at a date that cannot be precisely defined, but probably the last week of October 1998. 133 Each of these events are important testing points for the validity of the case being put by the respondents. They are all points where one would expect that if the respondents' case was not correct, then it would fall apart. They are three key points where the conflict of evidence is significant. They are all points where the Court should find a common problem; incredible and inconsistent evidence on the part of the respondents. 134 As submitted by the applicants, the first decisive event in the history of the 5 year plan on 10 September and it probably started on the evening of the 9th is the moment when Mr Kinghorn, appreciated for the first time certainly expressly, but most probably the first time that PwC were asking for the 5 year plan, and that he appreciated that when Mr Bickerton and Mr Sierakowski completed their work some 12 days later on the scheduled board meeting of 22 September, that document would have to be given to PwC. 135 The 5 year plan was not given to Mr Pope. The reason it was not was because of intervention in the process principally by Mr Kinghorn. That stopped the 5 year plan getting to PwC. That occurred in a communication somewhere between the 10th and 14th September 1998 between Mr Lander and Mr Pope, and Mr Pope was dissuaded from proceeding with that request. 136 What the applicants submit happened is this: That a communication took place between 9 and 14 September, and as a result of that Mr Pope changed his mind and took it out of the email, and that is the only truly rational explanation when one looks at the content of the email and the events that occurred. 5 year plan - Submissions - Respondent 137 There is a very substantial air of unreality about this whole area of debate. The applicants and Mr Banks made so much of this material and of the mere fact it was sent to BankWest and St George, without ever really attempting to evaluate the true worth of the material having regard to what it was, how it was prepared, in what time frame, for what purpose and in what circumstances. 138 First and foremost among the complaints of the applicants is the proposition that there was operative unfairness against Mr Murray and MacDome because the valuation of PwC was depressed by PwC's failure to take into account the 5 year figures document in arriving at their expert determination of the fair market value of MacDome's shares. Now, it is, of course, the figures they are talking about; they ignore the other documents. 139 This complaint consumed the great bulk of the hearing time, a large portion of the applicant's written submissions, and almost all of the applicant's oral submissions. Indeed, one might be forgiven for thinking that it was really all they had. 140 In a nutshell, they say that between 26 August and 22 September 1998, RentWorks' senior management created a 5 year plan for the business which included a set of 5 year figures. Those 5 year figures, according to the applicants, represented an official and considered view of the board or senior management, without specifying who, of RentWorks of its likely future financial prospects. They then say that the 5 year figures were approved by Mr Kinghorn and Mr Medway in late October 1998, notwithstanding each of them saying that is not so and that Mr Bickerton and Mr Sierakowski say that is not so. 141 They then say in early September 1998 Mr Kinghorn, Mr Lander and Mr Medway conspired together to successfully pressure Mr Pope to change his mind about wanting to see the 5 year figures document. Mr Pope did no such thing. He said it was his decision. 142 Then they say that if Mr Pope and Mr Armstrong had behaved independently and professionally, they would have taken the 5 year figures document into account in arriving at their valuation and, in doing so, come to a materially higher valuation than the one which was actually arrived at. They have to rely on Mr Banks to quantify that. 143 At the heart of the applicants' case is a fraudulent conspiracy. Now, they say that they are not alleging that at all. But they are. They are saying that Mr Kinghorn improperly and dishonestly prevailed upon Mr Lander to prevail upon Mr Pope to withdraw his request for the 5 year figures, and, then, for Mr Lander thereafter at all times to deal with PwC with Mr Kinghorn's wishes in mind, dishonestly with a view to depressing the valuation. That is the allegation. 144 The fundamental basis of the applicants' case in relation to the 5 year figures is that they represent an official and considered view of the board or senior management of RentWorks as to the likely future financial performance of the business. 145 It is conceded by the applicants that if this is not correct then the applicants accept that there would have been no obligation on the respondents to give the document to PwC. If the applicants do not make out their primary contention that the document is a record of senior management's actual expectations as to the future, then it is conceded that there was no logical ground for the second contention that there was an obligation to give the 5 year plan to PwC. 146 The applicants' submissions relied heavily on the fact that the five year figures document had been appended by Mr Lander and Mr Sierakowski to financing proposals sent by them in October and November 1998 to BankWest and St George Bank. These facts alone, so it was submitted, gave rise to a "prima facie inference" that the document represented "an official or considered view of the directors or senior management of RentWorks as to the likely future performance of the business". 147 The nature and the extent of the difference which the provision of the five year plan to PwC would have made is measured by the second Banks report, Exhibit 54. In other words, it was the applicants' case at all times until Mr Banks' evidence was discredited that they intended to discharge the burden which counsel had identified by relying upon the Banks' reports. 148 By their closing submissions, however, the applicants sought to persuade the Court that rather than inquiring into the actual facts as to whether or not the 5 year figures represented a sufficiently reliable view, the Court should act on the prima facie inference to that effect said to arrive from the mere fact that the document was appended to the financial proposals sent by Mr Lander and Mr Sierakowski to the St George Bank, unless the respondents could positively satisfy the Court that the 5 year figures were other than what they were asserted to be by the applicants. 149 The question is what did the evidence show overall. 150 The respondents did not accept the applicants' claim that the practical burden of adducing a credible explanation to displace the prima facie inference arising from the inference of the 5 year figures lies to the respondents. Even if it did the evidence is there. 151 Firstly, they have failed to establish at that time the 5 year figures document was an official or considered view of the directors, so that the whole case on the 5 year figures now turns on the mere fact that the document is appended to the financing proposals; secondly they failed to adduce any evidence from Mr Sierakowski, either in chief or in reply as to how the 5 year figures document came to be appended to the proposal. 152 The real issue is what was the worth of the 5 year figures as they emerged from this project, measured against what the applicants asserted in their opening was the appropriate bench mark. 153 The allegation that the respondents have withheld from PwC the so-called 5 year plan and that document would have altered the outcome of the valuation process flies in the face of the clear evidence that far from being a reliable indication of management's expectation as to the future prospects of the business argued for by the applicants, the so-called 5 year plan is in fact nothing more than a simple mathematical extrapolation forward from the 1998/1999 budget which was thrown together at the last minute before a preliminary presentation to the Board and which had no real basis in strategy or careful formulation of assumptions. That is what Mr Kinghorn received after his request, or "officially initiated project", from Mr Bickerton and Mr Sierakowski. They never improved on it. 154 What Mr Bickerton thought that he needed to do, if nothing else, when he got to the presentation of 22 September, was to make sure that he was in a position to persuade Mr Kinghorn to keep this business going. It is, therefore, not surprising to see some of these general optimistic statements in the presentation document talking about "the business has got a good future" and all that sort of thing. 155 The Minutes of the Formosa meeting are minutes which are a summary of the more complete and verbatim account of what occurred at the meeting prepared by some transcript service in New Zealand. That more detailed account is not available. All of the witnesses say in broad terms that this is an accurate summary of matters discussed and dealt with at the meeting. 156 According to those minutes, Mr Kinghorn said each business should come back with a three-year plan presentation. That is very important. Everybody ignores that word. It is a plan presentation. Mr Kinghorn was not expecting the plan to be done in a few weeks; he wanted somebody to present something about the plan, and he describes it as a three-year plan here. Mr Gama, the South African RentWorks representative, asked for clear directions on the 5 year plan. Somehow or other it has gone from three to five, perhaps because on the prior page there is mention of a one-year budget along with a three-year and a 5 year plan. 157 Mr Sierakowski and Mr Coutts were to work together on a template for the 5 year plan. Mr Kinghorn said he would like to look at years three to five in the plan to see the required capital structure and dividend policies. That was never done. That was never even attempted to be done. Then, Mr Sierakowski would look at components: capital structure; dividend policy; listing issues; succession plans; funding policy; earning policy and performance measure goals. None of that was addressed in what was produced. 158 Now, when one comes, of course, later to measure what these people produce against what was being requested, one can see why there was some dissatisfaction with that. 159 Some very crude and preliminary thinking about structural matters were reflected in the appendices to the Plan. They are no more than apparently transcriptions of what was on a whiteboard at various stages. They show that the thinking at this stage was very preliminary in all of the areas of the business that they were looking at. 160 With the exception of Mr Sierakowski, the witnesses were also agreed that the context in which the plan came to be discussed was, as appears from the minutes, a long-term plan for the listing of the RentWorks businesses in Australia, New Zealand and South Africa. It was not being prepared to get finance from the banks. 161 It is simply incorrect to assert as to the applicants in their written submissions that the Minutes do not record the 5 year plan being discussed in the context of a float of the company. The prospect of floating was discussed between Mr Bickerton and Mr Kinghorn back in May/June 1998. 162 The principal focus of Mr Medway and of Mr Kinghorn was not on figures but on the development of a strategy for the future of RentWorks. That was a matter that Mr Bickerton was interested in back in May/June. 163 It is very important, even at the level of looking at what was produced, to remark upon the fact that the 5 year figures document was not the focus of what was presented to the Board on 22 September by Mr Sierakowski and Mr Bickerton. The focus, as is clear from the presentation document, the landscape one with text on it, was on the general environment in which RentWorks was operating. 164 The one thing that is very clear about this material is that there was no strategy that connected even what was written in the IBIS-based document to the projections. There is no enunciation of the assumptions made in that document to produce those projections. There is no connector whatsoever. 165 The applicants' submissions completely misunderstand the purpose of the 5 year plan. Mr Kinghorn and Mr Medway wanted a plan which would provide some strategy for RentWorks to grow its profits over the next three to five years, not some sort of forecast or accurate forecast of what would happen to the business if it made no fundamental change to the way it operated. 166 In other words, the object of the exercise was not to forecast what growth RentWorks might realistically expect from its existing business, but the very opposite - to indicate what changes would need to be made to the existing business in order to produce substantial growth, everyone recognising that the business was under pressure in its then form. That is why Mr Kinghorn was disappointed. 167 It was ultimately neither a plan nor a forecast. The strategy part of the plan was never really developed, and not developed at all. The figures which were presented simply took the budget for '98/'99 and extrapolated it forward based on simple arithmetic. The authors of the documents presented to the board on 22 September 1998 really had no ideas of any moment as to how they could meet Mr Kinghorn's directive. 168 Rather than looking at the evidence as a whole, the applicants keep wanting to say to the Court: the 5 year figures went to the banks, that is all the applicants have to show. 169 It is true, and the respondents do not resile from it, that a fact relevant in that process is the fact that the figures were sent to BankWest and St George. It is a fact, and the circumstances in which it happened and the purpose for which it was done are also facts which need to be weighed up in assessing what worth the original fact, that is that it was sent, really has in this matter. 170 This whole case, really, in the applicants' mind, is about the 5 year figures. The respondents have always approached this case from the basis that it was about Mr Popes' valuation; was it done without fraud and without obvious error, and if it was, is there some way whereby he was not given information which he should have been given that would have made a difference, or was he misled in some way, and that made a difference? That is the case in reality. The applicants tried to move the case, constantly, into an unreal area. 171 The only reason the 5 year plan receives any prominence at all is because the applicants have to pin their case on it. Mr Pope said: I recall that in early September 1998, I was told that the five year plan was not then available because it had not then been created or finalised. I was also told at this time that such a plan would represent a target for the RentWorks business rather than an official and considered view of the directors or senior management of the likely future performance of the business. I have no recollection of being told at this time when it was expected by RentWorks that a completed final five year plan would become available. 172 What is clear is that what was expected by Mr Kinghorn was that there would be a strategy designed to keep this business going forward with a sensible level of profitability. That was what had been asked for. These 5 year figures, was not a matter discussed or called for; it happened. But the real issue for the governing minds of this organisation was, well, what is the plan? How are we going to maintain our profits? And that is why what they produced and presented to the board on 22 September was dismissed, because it did not meet what had been asked for. Five Year Plan - Background to its development 173 Prior to Formosa there had been discussions between members of management in relation to concerns as to the way the business of RentWorks was going or even if it should continue. Mr Bickerton had a meeting with Mr Kinghorn in May 1998. Around the same time Mr Medway had spoken to Mr Sierakowski and Mr Bickerton at the Terrey Hills Golf Club. 174 Mr Bickerton said that as at May/June 1998, it was fair to say that Rob Medway and himself had discussed quite a few times the fact that RentWorks was not doing as well as it should and as best it could how it could do more business with its existing client base. He had had a specific meeting with John Kinghorn at RAMS around April/May 1998 advising him that he did not think there was enough direction at RentWorks, in that the business was going forward on a month to month basis, and not on a one, two, three, four, five year plan type basis. A proper plan or strategy was needed to go forward to the next level, whatever that was sought to be: cash in the bank, buying new businesses, paying off debt, floating the company. Mr Bickerton's recollection was that Mr Kinghorn said he wanted to float the company. He said that the issue was not taken further at that time by either of them. The next time it was mentioned was at Formosa, when it was raised by Mr Kinghorn. Mr Kinghorn had announced it in the context that RentWorks would be looking to float the business. 175 Mr Kinghorn said that Mr Sierakowski and Mr Bickerton had not come to him in April/May 1998 with the idea of a 3/5 year plan strategy, the first mention of that being at Formosa. Mr Bickerton had certainly seen him in late May or early June concerning the future of the company and Mr Bickerton had said that RentWorks was lacking in strategy. 176 Mr Kinghorn said that in his 3 hour discussion with Mr Medway on the plane travelling to Auckland, a 5 year plan, though he did not recall it, may have been mentioned as one very small element of the strategy being discussed. At Formosa the 5 year plan was raised on Monday as a small element in getting to a float. 177 Mr Medway said the concept of the 5 year plan discussed at Formosa was not his idea but he supported the Chairman, Mr Kinghorn. Mr Medway was more concerned to have the Strategic Plan in place at the end of 1998 - the financial plan would follow. 178 Mr Bickerton's evidence was that Formosa was the first time that either Mr Kinghorn or Mr Medway had said that they were looking to have a 5 year plan, or perhaps a 3 year plan. No template had been drawn up at that time. At Formosa the Minutes showed that Mr Kinghorn had said each business should come back with a 3 year plan presentation in one month. However, the initial and later references and directions were to a 5 year plan. 179 I consider that Mr McDonald's evidence that a 5 year plan had been considered before Formosa was incorrect. Mr Sierakowski said that before the Formosa meeting he had discussed the issue of a 5 year plan with Mr Bickerton and possibly Mr Cootes from New Zealand. He said that there had also been a general discussion, but at what date the evidence is not clear, with Mr Kinghorn and Mr Medway. 180 I am of the view that the concept of the 5 year plan as such was first brought to the fore at Formosa by Mr Kinghorn. 181 To describe, as the applicants did that, Mr Kinghorn's evidence that he and Mr Meday first discussed the specific idea of a 5 year plan on the plane trip to New Zealand as "farcical" is not, in my view, a contention that is supported by the evidence overall. 182 In my view, it does not matter what were the differing recollections as to the stage of the Formosa meeting at which the subject of a 5 year plan was first raised. The fact is it was raised at that meeting and there were discussions of such a plan and about the follow up necessary to present it at nominated Board meetings. Five year plan 183 What then was the "five year plan"? 184 In its physical form, the "five year plan" consisted of three documents - the Powerpoint presentation to the Board meeting on 22 September 1998 in documentary form, the narrative section and the 5 year financials handed out in typed landscape format. The focus of interest in these proceedings was on the five year financials. 185 Mr Bickerton was taken in detail through the RentWorks Limited Strategic Plan Draft version 21/9/98. As described by him the bulk of the 40 page narrative document involved a cut and paste exercise from other internal company documents e.g. as to its history, structure and also from general background material handed out at an IBIS business seminar attended by Mr Bickerton. 186 There were obvious gaps where work needed to be done, there being blank spaces under "Remarketing" and "EDIT 21". 187 The financial figures in the narrative document were, in the main, taken from known actual figures in the balance sheets for the financial years ended '96, '97 and '98. There were some added comments by Mr Bickerton after some headings that were pertinent to RentWorks at the time. In other instances, there were notes that "AES" was to answer (but not always did answer) or simply a line of dots against the name "RentWorks". 188 The 5 year financials document, the only part of the plan in which any interest was evinced in these proceedings, consisted of 12 typed landscape pages, each one headed "RentWorks five year Plan". the first page was headed "Consolidated". The following pages each dealt with a separate division of RentWorks: Sales (core rental); residuary; remarketing; EDIT 21; operations; accounting; human resources; administration; group corporate; head office and IT. 189 Horizontally at the top of each page, there were five headings: 1998/99, 1999/00, 2000/01, 2001/02 and 2002/03. 190 The line items as listed vertically on the left hand side of each page related, from top to bottom, to: income; direct expenses; gross profit; % of income; personnel; occupancy; services other; total indirect [expenses]; % of income; % of gross profit; profit (loss) before allocations; % of income; less allocations; % of income; profit (loss); % of income; target % of income; capital expenditure; and profit after capital expenditure. 191 There were some additional items for some divisions. Sales (core rental) had other line items leading all the rest: Amount financed - Non D & E Cash investment Amount financed D & E Total amount financed New business income Rewrites/Val Income 192 On the Remarketing page, a new division, the words (20% growth) were placed alongside "Income" and the "Head Office" page had 2 items above "direct expenses": KPL interest and bank interest. 193 Each of the division pages was populated as to figures, and the "Consolidated" page brought those figures together. 194 As accurately described by the respondents: The following matters emerge from a consideration of the document in the light of the evidence: firstly, the column for '98/'99 is simply taken from the '98/'99 budget, which, as at 22 September '98 was in an advanced state of preparation, although it was not finally approved until the end of October 1998. None of the other years, ended 2000, 2001, 2002 or 2003, are supported by any detailed consideration of the character that 1999 was. 195 The document appears to show growth in the business and profits thereafter: profit before tax increases from $5.58 million in 1998/1999 to $28.3 million (or $27.587 million in another slightly changed version) in 2002/2003. 196 This growth was apparently to be achieved primarily from an increase in the fortunes of the Remarketing division from a modest profit of $786,000 in 1998/99 to $3.2m in 2002/2003, a four-fold increase - this was notwithstanding that in late 1998 the remarketing division was 25 per cent behind budget, and, of course, ultimately was shut down; an even more phenomenal development of the EDIT 21 business, which had not yet started trading in late 1998, from a forecast loss in 1998/99 of $483,000 to a profit in 2002/2003, of $6.45m. 197 Growth in the amount of non-D&E business financed by the Sales Core Rental division goes from $130m in 1998/99 to an astronomical $285m in 2002/2003. It is a compounding effect of the simple arithmetical increase. This 119 per cent increase in the amount financed was to be accomplished with an increase in personnel expenses of only 42 per cent and an increase in occupancy expenses of only 8 per cent. 198 The figures are unaccompanied by any narrative or notes identifying or explaining the assumptions which underlie the figures. Compilation of the 5 year plan financials 199 At Formosa, the managers of the three businesses (Australia, New Zealand and South Africa) were asked by John Kinghorn to prepare a 5 year plan going forward for the next Board meeting. In the case of Australia that was to be held on 22 September 1998. 200 After Formosa Mr Sierakowski was the co-ordinator for putting together the 5 year plan for the Australian business for its ultimate presentation to the Board meeting on 22 September 1998. 201 Mr Sierakowski said that as an ex-banker he had suggested RentWorks should have a 5 year plan. In response to a suggestion from senior counsel for the applicant that "a five year plan is not necessarily a financial figure" he said, amongst other things that "a five year plan is about where you believe your business to be ... did we believe rental had a future in Australia ... Did we believe we had a good track record. Did we believe we had a good infrastructure. We were building it and it was with a road map for everyone to follow ...". It also fitted in with the vision of John Kinghorn and Robert Medway to float the company at some stage. 202 Mr Sierakowski said that Mr Kinghorn's instructions at Formosa as to the 5 year plan was that the assumptions would have to be valid, i.e. as to profits, a sustainable process, strong growth cover, also procedures, systems and people would have to be in place to get the best opportunity to obtaining strong growth. Those systems and procedures would range from the strategic decisions to be made down to the simplest customer service such as answering the phone. 203 Mr Sierakowski said he had to create the environment in the company in relation to a 5 year plan. Previously the company had a one year plan or even used to deal with 90 day plans as to where they were heading for sales. The 5 year plan was put together fairly quickly between August and October 1998. 204 He had practically put that document together with Mr Bickerton's help. 205 Mr Sierakowski described what he did to produce the 5 year plan after Formosa. He spoke to other managers: Mr Bickerton (sales), Mr Lander, Alan Van Niekerk (denied by Mr Niekerk), Ran McDonald and Anthony Dunlop. 206 He said: This was done in a very short period of time so the managers' involvement was one of me sitting down and interviewing them and getting as much information I could about them, where in the following year we actually did workshops with other management. With Mr Kinghorn and Mr Medway involved with each of the divisions. (Transcript p 369) 207 The financials were an appendix to that 5 year plan, "but the fundamentals of understanding those figures must be in the financial plan written in English". 208 Mr Sierakowski's template for all managers was similar to that he adopted with Mr Bickerton: Lloyd, I need sales figures for the next five years, et cetera, tell me what are the expenditures, what staff you require is, how much you are going to spend here, whatever, and where do you think you are going with this, which falls in line with what you have written in English, which is the business plan. If it does not follow those lines then the figures and the business plan does not correlate. (Transcript p 371) 209 In his opinion all business units believed there was an opportunity to grow the business of RentWorks. 210 Mr Sierakowski gave Mr Bickerton a copy of the 1998/99 budget, the figures for that year already included, to use as a format for preparing future budgets. As at September 1998 Mr Bickerton's recollection was that his figures for the core rental division for the 1998/99 budget were "pretty final". In relation to the ultimate projections that he produced for his division; for 1998/99 he simply adopted the fairly firm figures he already had for the 1998/99 year. The figures were his own, not those of Mr Sierakowski, because he was the one who was going to have to achieve them and be responsible for them. All the figures he provided to Mr Sierakowski were done in the month after Formosa. 211 Mr Bickerton understood from the Formosa meeting that his job in respect of the 5 year plan would be to provide the sales figures, the cash flow, the personnel now necessary to deliver those figures and the reasoning behind the figures as to where the business could come from. He did it primarily on his own, with some assistance from Mr Sierakowski. The first year was "pretty easy" in that he used the budgets already approved by the Board for the 1997/98 year. He then used a similar format for the next two years. For 1998/99 he looked at the existing list of clients and how much business he would expect to get from them. For 1999/2000 he looked at the history of past growth, looking at new introducers where the business was going to come from, looking at the number of sales staff needed to achieve those figures, working out a rough average of sales per sales staff and then coming up with a figure for the following year (1999/2000). The year 2000 was taken pretty seriously and worked on the basis of the 1998/99 budget. From then on he extrapolated to get the figures for the fourth and fifth years. Those figures much less precise. Figures for 2000 had come out rather high and had been put back a bit. 212 Mr Bickerton said his view then and now, on 5 year plans, was that he did not believe one can actually forecast one's business three years in advance. As for the first three years, he believed that if the projections could be achieved each year, the next year was realistic. The reason one would be confident for 1998/99 and 1999/2000 is that they were done on the same parameters. After that it is a crystal ball. One could more confidently predict two years than three in relation to RentWorks because after 12 years work they had a fair idea of how much business they could get out of customers. Certainly in that industry one would not do a two year budget and not look at it again for two years. 213 Taken to the different figures in the BankWest document and the 22 September plan, Mr Bickerton said that the figure input for which he was responsible were basically just the sales figures in the core rental. He was not involved in the costs side of the 5 year plan. 214 Asked as to whether he saw it as any part of his role to exercise any judgment of his own as to the figures presented to him, Mr Sierakowski said: A We are a sales [sic]. As part of sales organisation we looked at things in a positive note. We looked at things in an optimistic way. I think that some of the things that we - we weren't a whole group of credit analysts looking at reasons why you shouldn't do business, and we look at reasons why we should do the business and how to do the business. So I believe we had a positive way of presenting the figures and the business plan. I also believe that it would have been detrimental [sic] of me to actually betray any, or image, I believe in presenting to the bankers to get the money I would be a little bit naive to put in a negative or not a very positive approach to the company. (Transcript p 372) 215 As to Mr Bickerton's figures: Q ... do you recollect whether your own judgment was also applied to Mr Bickerton's origination of sales figures before they went forward? A I agreed with his - what was being presented. I supported what he presented but on the basis it was a positive presentation, that it met the guidelines as to the growth of the business - the business was going to grow. To prove that could be sustained. But, again, when you are going out fourth and fifth year I am a bit hesitant to say I am willing to commit to those sorts of situations. I am saying such being the case and we got the right people in place and everything in the economy was all right and everything else was okay. Even with competition we should do that sort of business. (Transcript p 373) 216 One of the assumptions built into Mr Sierakowski's discussions, for instance with Mr McDonald, that were written up on the whiteboard, was that the gross revenue put on the board for each of the years ended '99 up to 2003 would grow by 20% per annum. 217 Mr Sierakowski said he interviewed Mr Van Niekerk, General Manager of the Residuary Division in the course of compiling the Draft Strategic Plan. Mr Van Niekerk denied that claim. 218 Mr Van Niekerk said that the process of trying to work out what cash or cash and profit one would derive from the existing portfolio involved a detailed analysis by each of the asset managers of that asset, (and each manager dealt with hundreds of them), analysis of the asset, the client, the relationship between the client and the asset and the experience that that asset manager has had with that client. 219 In relation to figures that appeared in the BankWest document as to residual recoveries for the financial years commencing "expired 30/6/98" to "expiring post 2004" and the following columns which set out % (increase), Net Residual Value (RV) expiring in dollar terms; Gross RV Expiring @ 22% (Management Hurdle) and column 5, "Anticipated clear cash flows", Mr Van Niekerk said that the computer system would not have provided the information contained in column 5. It was a derived number and Mr Van Niekerk did not know the basis for the assumptions on which the numbers in column 5 had been presented. 220 He said that a person who had the information in columns 1 to 4 could not calculate column 5 by using historical ratios and exercising a judgment about whether or not those ratios would persist into the future. He said that unless that person was familiar with the portfolio, using the historical ratio may or may not have any relevance to the past. It would be a huge assumption to make that there would be no material difference in quality and make up of the portfolio in the future from what it had been in the past. Also the historical ratio was only one of many variables that the division would look at to determine the coming year's forecast revenue, i.e. secondary income within the budget. 221 Mr Dunlop, who had the senior executive responsibility for EDIT 21 until about mid-2000, had a meeting with Mr Sierakowski around August/September 1999. EDIT 21 was a new division which had not commenced operations at that time. A template for forecasting out to five years and some assumptions around the business were discussed. A printout off a whiteboard record of that meeting was in evidence. Mr Dunlop said the numbers on it were not his, but he thought were Mr Sierakowski's. 222 Horizontally at the top, Year 1 (98/99) to Year 5 was noted. The vertical line entries commenced at the top with Income (net fees), followed by Direct Expenses, Gross Profit %, Personnel, Occupancy, Services/Other, Total Indirect [Expenses], % of Income, % of Gross Profit, Profit before Allocations, (Less) Allocations, C/o [sic], Profit, % of Income, TARGET % of Income. There were no figures against the bottom five headings. 223 Mr Dunlop said that the figures under Year 1 (98/99) came from rough calculations based on assumptions about customer numbers (there were no customers at the time) and personnel costs to fulfil the operational requirements of the business. He said he had done a similar exercise for the purposes of the 1998/99 budget at around the same time. He did not remember how long the meeting had lasted. 224 Mr Dunlop agreed with counsel for the applicants that he was attempting to come up with realistic figures, as Mr Sierakowski was encouraging him to do. The revenue figures were based on some assumptions about the timing of certain operational elements e.g. the availability of technology to process transactions. The subject of costs was also raised and Mr Sierakowski questioned him about the make up of the operational costs Mr Dunlop put forward. 225 Against the item "Profit before Allocations" a loss was shown for Year 1 but profits for Year 2 and rising in the following years. The final figures on the whiteboard were reached after discussion. The figures for Year 2 were based on discussion of assumptions of figures he advanced, but the amount of discussion and level of detail was not the same as for Year 1. In relation to Year 2, Mr Dunlop said "Well, it was so difficult, because once again I was relying on the completion of further operational capabilities to write higher volumes, so it was really more of a guesstimate". (Transcript p 3502) He agreed with the proposition put by Mr Slattery that although it was difficult, it appeared to him that Mr Sierakowski did want Mr Dunlop to come up with a view and Mr Dunlop did his best to come up with realistic figures. 226 Years 3, 4 and 5 were not dealt with individually as were Years 1 and 2: Well, we really treated years 3, 4 and 5 as just so far out in terms of projectability, we really worked off keeping the ratios consistent in terms of margin per customer and remuneration package for employees. So it was really more of an exercise in continuing the ratios based on higher volumes and more people. (Transcript p 3503) and also ... maintaining a similar ratio for the rest of the costs. (Transcript p 3504) 227 In their discussions they thought that the margin per customer did not really matter a great deal, and just assumed that they were going to remain the same. In relation to years 3 to 5, they did not really spend much time on the matter of changing or not changing the ratios: Well, it was so far out in the future - considering it was a new business that hadn't really started trading yet at that stage, years 3, 4 and 5 were so far out in the distance that we just assumed the ratios would remain the same, volumes would go up and that was it. (Transcript p 3506) 228 There was only the one meeting about those figures. Five (5) Year Plan financials - Consideration 229 According to the applicants as recorded in counsel's opening submissions "the five year plan was developed on the basis of detailed analyses (my emphasis) of each division conducted by the divisional heads in accordance with a template prepared by Mr Sierakowski". 230 None of the evidence, including that of Mr Sierakowski, supports that claim of "detailed analyses" of each division. 231 The discussions between Mr Sierakowski and the various managers, even if Mr Van Niekerk was also included, only took some hours. Figures were placed on a whiteboard and electronically reproduced. The managers were busy on other matters and those discussions were fitted in. 232 The lack of depth of those discussions is pointed up by evidence as to what was done in April - May 1999, formal workshops being one of the means adopted to progress the plan, which was meant to be updated each year. 233 All the managers were slow in responding to Mr Sierakowski's requests. He said it was correct to say for all of them that assisting him with his task was not their number one priority. They all had their own priorities as well as the company's priorities: meeting their budgets, monthly reports to the Board and reviewing their weekly sales figures. There would have been additional pressure if they were behind budget at the time. 234 Putting together the Plan was also in addition to Mr Sierakowski's own normal duties. He also had been, because Mr Medway was away a lot, involved much more in assisting the setting up of the new remarketing division. 235 Between 26 August and 22 September, Mr Bickerton was still very busy as General Manager of Core Rental (Origination). Putting together the plan was given a fairly high degree of importance by Mr Sierakowski and himself, but Mr Bickerton only spoke to Mr Sierakowski on a few occasions during that period. One meeting was certainly an interview, basically for Mr Bickerton to give a background to what he perceived the market in Australia to be at the time. He thought that one question from Mr Kinghorn might be as to why they should keep RentWorks going. It was for that reason that the questions and answers from Mr Sierakowski went to the economic background of the rental business in Australia. 236 EDIT 21 had not started trading as a division when Mr Sierakowski was putting the 5 year plan together. EDIT 21's start date kept getting moved back but Mr Sierakowski thought it would start trading in January or February 1999. The financial data he said he got from Mr Van Niekerk or his staff was a moving target. 237 Mr Sierakowski did not vet or validate the figures given to him for inclusion in the 5 year plan. His attitude to those figures is perhaps best indicated in his response as to Mr Bickerton's figures, as set out earlier "I supported what he presented but on the basis it was a positive presentation" (Transcript p 373). (My emphasis) 238 The evidence was that the preparation of a 5 year plan usually commenced in conjunction with budget preparation in April or May. Here it was commenced well after the time the budget should have been finalised and at a time pressure for the budget's finalisation was particularly acute because of the valuation in progress. 239 It was the constant refrain of counsel for the applicants that the 5 year figures were put together by senior managers of the business as realistic estimates. The figures were claimed to be a reliable guide in relation to senior management's view of the likely future performance of the business. It was submitted, for instance, that if Mr Pope had made further inquiries he would have found the 5 year figures were good quality. 240 Other than for the first year, 1998/99 the figures in the five year financials had no value in formulating any strategy to achieve those figures. A proper reading of Mr Bickerton's evidence shows that even the second year out for this Division is "iffy": if the budget for 1998/99 were achieved, he would feel more confident of the next year. 241 Mr Bickerton's vague recollection was that the "3 year Forecast" under the heading "Projections" in the narrative section of the Draft Strategic Plan (21/9/98), which actually covered five years from 1996/97 to 2000/01, came before the landscape 5 year plan financials contained in the Bank West proposal. In relation to the "Projections" figures he said: Can't actually be sure of this, but I think now having two years of actuals and three years of future might have been a cheeky attempt to get through a five year plan when we didn't have much time to do it, so that was our first attempt. (Transcript p 227) 242 As at September 1998, the preparation of the 1998/99 budget had been underway for some months and was running late. It was not completed until some time in October. That months' long preparation had been for one year only, the financial year 1998/99. Yet in the three week period between Formosa and the Board meeting on 22 September, the claim is advanced by the applicants that the 5 year financials put together by Mr Sierakowski, after relevantly short interviews with some, but not all of the division managers, could present an indepth accurate forecast of the financial position of RentWorks for the next four years after 1998/99. 243 Mr Sierakowski said that the sales origination and residuary divisions had a track record "but you had no track record for EDIT 21 and remarketing and when you consolidated you had to understand it was a bit of guessing, gesture, [sic] I suppose is the word, what we would like to have via the divisional managers". 244 The applicants' lack of realism as to what could be achieved as to the 5 year plan in that Formosa/22 September period is made clear by Mr Kinghorn's evidence as to his expectations as at 10 September: A Yes. I was expecting to receive something 12 days later. I believe it highly unlikely that it would be anywhere near as advanced or complete as would be required for PwC. (Transcript p 3822) ... Q Based upon no inquiry whatsoever of Mr Bickerton? A Based on absolute logical commonsense. The amount of work involved in doing a 5 year plan is months and months of work of a whole range of senior executives. There is no physical way even a genius could do a 5 year plan in the time from Formosa to 22 September. All I was expecting was the first draft, the template of the 5 year plan. It is inconceivable to expect any more from management. (Transcript pp 3822, 3823) ... A What I'm saying is that on 10 September, the only thing of which I was certain of or was comfortable with was any estimates of forward cash flows resulting from residuals because those were hard numbers. Anything else had not - had not been submitted to me, had not been submitted to the board. I had no idea, as you point out, of its stage of development, but it was highly unlikely in my view that it would be at all complete. (Transcript p 3823) 245 The 20% to 30% arithmetic growth extrapolated in the 5 year plan figures appears to have had its origin in earlier discussions with Mr Medway. Mr Medway said he had put some challenges to Mr Bickerton and Mr Sierokowski in May 1998 in relation to the future of RentWorks. He had spoken about 20% or 30% growth in the context of his description then of mediocre performance by RentWorks and its need to get growth in its profits going forward as the alternative to getting rid of or downsizing the business. At that time Mr Bickerton told him he thought it would be difficult to achieve such growth. In August 1998 he had said to RentWorks' executives, including Mr Bickerton and Mr Sierakowski: "I want to get a five year plan together and see if we can get 20% to 30% growth per year". Mr Medway could not recall if he had specified "growth" in any particular area e.g. profits or revenue. 246 References to growth targets of 20% and 30% by Mr Medway, in the context of the 5 year plan, would have to be seen, in my view, as saying to those preparing the plans, "show us what we have to do to achieve that growth". It would have had to have reference beyond mere figures - figures could always be drawn up to present such growth. 247 Mr Sierakowski said he had interviewed Mr Van Niekerk, General Manager of the Residuary Division, in relation to putting together the 5 year plan presentation. Mr Van Niekerk denied that. Counsel for the applicants contended that even if that denial was accepted, it did not affect the outcome because Mr Sierakowski could access the computer records of the total portfolio of the Residuary Management division and complete that part of the 5 year figures. 248 He may have been able to do that, to some extent, but, in the first place that is not the same as a detailed analysis or discussion with the department's manager to gain a proper understanding of those figures and their implications for the future, and, in the second place, Mr Van Niekerk said that the computer system could not have provided the information as to "anticipated clear cash flows" in the BankWest document. 249 Mr Van Niekerk's Residuary Division was one of what I would describe as the "bookend" operations of RentWorks. The other was the Core Sales Rental Division of which Mr Bickerton was the General Manager at that time. Any forecast that sought to be taken seriously or figures advanced as authoritative would have had to be based on in depth studies of those Divisions. 250 On the basis of Mr Van Niekerk's evidence, I do not accept that Mr Sierakowski did interview him, though he may have spoken to him about the project. 251 I do not think that the reference, signed by Mr Kinghorn, and given to Mr Sierakowski goes beyond the purpose for which it was given to Mr Sierakowski. It does not lend any support to the worth of the 5 year plan figures. 252 The figures in the 5 year financials are arithmetic extrapolations going forward from the budget figures for 1998/99. Mr Kinghorn checked those. But the operative word in the title of that plan was "strategic". There was nothing in it that presented even a skeleton of the practical steps needed to achieve the huge increase in profits and business volumes embodied in the 5 year figures. 253 The applicants submit that the whole of the evidence shows that Mr Sierakowski's long term plan was the attachment of a quality document to the bank proposals which expressed management's genuine view of the future. The problem was that no part of the 5 year plan, other than the 1998/99 budget figures, was a "quality document". Mr Sierakowski may have genuinely believed the figures were realistic, but he accepted that the draft was a preliminary one. 254 Furthermore, the genuiness of Mr Sierakowski's belief in them is not a test of the actual validity of the figures in the 5 year financials. The defects of the 5 year financials were set out by Mr Pope in his second affidavit (Exhibit 163), when asked to assume that those figures represented a genuine and considered indication of the views of senior management as to the likely future financial prospects of the Australian business of RentWorks as it existed at 30 June 1998: (a) First, that the figures assumed very significant increases in gross business volumes going forward, with assumed growth rates in non-DSE business [ranging from 25%] in 1999/2000 of 25% to 20% in 2002/2003 in addition to the increases in gross business volume underpinning the 1998/99 final budget. These increases are of an order of magnitude which would have caused me to have significant doubt about whether they were realistic; (b) Secondly, that those figures appeared to be unsupported by any detailed assumptions which would allow a reader of them to understand whether or not they were able to be reasonably substantiated ... (c) Thirdly, that the assumed increases in new business were to be achieved in the context of assumptions of significant deteriorations in other key business value drivers such as cash investment, residual recovery rates and indirect costs. ... the IBIS based document appeared to assume a decrease in residual recovery rates over time to 2.2 times (versus the 2.37 times assumed in my indicative DCF analysis); (d) Fourthly, that the picture presented of increasing cash investment and falling residual recovery rates was consistent with the views as to RentWork's likely future operating environment which were given to us by Mr Medway at our meeting on 30 September 1998 and with the assumption as to 2.5% cash investment which was made in the final 1998/99 budget for the RentWorks Australian business. 255 He concluded by saying: Having noted and thought about the above matters, I would have formed the view that the Five Year figures implied that senior management believed that RentWorks was facing an increasingly competitive operating environment in which significant increases in new business volume were going to be required if increasing cash investment, falling residuary recovery rates and increasing indirect costs were not to lead to a deterioration in the value of the business over time. For the purposes of the Valuation, I would not have regarded growth rates in new business volumes of the order of those assumed in the Five Year Figures to be a definitive set of figures for the purpose of DCF analysis. 256 Mr Pope also said: I would generally agree with the observations of the learned authors of the text Valuing a Business... [that] ...it is not as uncommon as one might think to see 'projections' that are nothing more than a statistical extrapolation of past results, with no analysis as to the extent to which the future generating forces will or will not duplicate the recent past. Usually they will not. (Exhibit 163, par 21) 257 As I have already noted, the key word in the description of the Five (5) Year is "strategic". Mr Bickerton in the second part of the narrative document given to the Board on 22 September had provided, in staccato fashion, a detailed and wide ranging review of the Australian market, together with his views as to how RentWorks was situated and areas where it could move to improve its position. However, understandably, in such a preliminary and hastily compiled document, it had not moved to strategies to identify and focus on particular areas, new or old, or provide the blue print as to how those strategies were to be implemented. 258 In relation to the Projections page of the narrative section of the 5 year plan, Mr Bickerton agreed that from the time the Draft Version 21/9/98 was left in that form, there had been no further development of the figures shown there nor had the gaps been completed. 259 The fact that the 5 year figures were progressed in some form around April/May 1999 does not say anything as to Board approval of those figures in October/November 1998. The idea of a strategic plan had been originally raised by John Kinghorn. It apparently was not quite the "whimsy" of Mr Kinghorn Mr Goodall thought and was progressed in 1999. 260 Examination of how the 5 year plan figures were compiled and the reaction to them on 22 September and later, does not support the applicants' submission that "whatever the finally differing and variegated views about RentWorks' competitive environment held by the different individuals within senior management, and whatever their differing views about how precisely and by what particular strategies RentWorks would respond to that environment, the only consensus resulting from that process as to how RentWorks would actually perform in this environment is the 5 year figures." 5 year plan - Board meeting 22 September 1998 - Submissions - Applicants 261 The applicants submitted that the second decisive event in the history of the 5 year plan was the board meeting of 22 September 1998. The reason that that is an important testing point is this: if one accepts the applicants' case about what happened on 10 September, (considered later in this judgment) that is, that there was some intentional interference in the process on the 10 September, then, 12 days later, at the board meeting of 22 September there loomed a complete collision of expectations. Remember at Formosa, on any view, Mr Kinghorn clearly said, "Go out and prepare a 5 year plan ". 262 What happened at the meeting of the 22nd was that Mr Kinghorn and Mr Medway attend and they do not want the 5 year plan developed as a plan particularly any further at all at that stage. They wanted it to run into the sand, in effect, except for one small thing, that they needed a small part of it to ultimately be attached to the St George Bank and BankWest finance proposal. 263 The applicants submit that that is indeed what occurred, that the presentation was received in the way that Mr Sierakowski and Mr Bickerton say it was and that it was not cut short. They thought that Mr Kinghorn, who had wanted to review and consider the figures, was otherwise happy with what they had done and was taking the 5 year plan figures away to be considered. The impression that Mr Medway and Mr Kinghorn tried to give is that all the efforts were just rejected on the spot and that an inadequate document, which was not worthy of consideration, was put up; a mere pakapoo ticket unworthy of further attention. 264 Ultimately, unlike the New Zealand 5 year plan, as a concept, the Australian 5 year plan actually did not go anywhere as a plan in the short-term after the meeting of 22 September. The document that was called the "draft strategic plan" dated 21 September 1998 was not physically developed as a document again until some time in 1999. Five Year Plan - Board Meeting 22 September 1998 - Submissions - Respondent 265 Mr Sierakowski made a presentation covering the ground set out in the presentation document, with Mr Bickerton contributing from time to time. 266 Some witnesses recalled the presentation document being put up on the wall as slides or as a PowerPoint presentation; others that there was no such presentation, but that the presentation document was probably used for the purpose. Neither this nor the fact that Mr Lander's recollection that there was no slide presentation was consistent with the evidence of Mr Sierakowski, Mr Bickerton and Mr Van Niekerk prevented the other side from putting to Mr Lander that his evidence that he did not recall a slide presentation was deliberately false. That is absurd and quite wrong. 267 As Mr Kinghorn described it: The PowerPoint presentation was very general, it was not specific to RentWorks or its customers or its market or its product, as you will see. And we started to talk about the 5 year plan had to start - had to start with: What is our product? What is our market? Who are our customers? And we started talking about what is our product. And we actually got bogged down in discussion about what is our product. 268 There really no substantive consideration at all at the board meeting of 22 September of any of the documents which might conceivably be described as "the plan". It was obviously premature to do so. Indeed, there really was no document in existence that merited being described as a 5 year plan. Five Year Plan - Board Meeting 22 September 1998 - Consideration 269 The main document presented to the Board on 22 September was entitled "RentWorks Limited/Strategic Plan/Draft version 21/9/98". The sources for it were stated to be "IBIS business Information Services. Blewjae Consulting, Australian Stats." Mr Sierakowski said that he would describe that document as an incomplete and preliminary draft. The overheads that were given at that meeting summarised the large wordy document. At the meeting the document was not gone through in detail, as those present went through overheads: "The idea was to get feedback on this document so we could finish it off as quickly as possible". It was "first draft, go away, give me some feedback". There was a short discussion about the financial projections, which had been handed out at the very end of the meeting. 270 Mr Sierakowski said that the figures in the financial projections were not presented at that Board meeting for the Board's approval, but were there for them to evaluate and to come back and give feedback. 271 Mr Bickerton also said that the five year financial figures were not approved by the Board at that meeting nor were they meant to be. It was a 5 year plan. 272 The seminar material used by Mr Bickerton and Mr Sierakowski was basically a copy of an IBIS presentation at which Mr Bickerton had been present. Mr Bickerton had used it because one of the comments the presenter had made was that there was a future for RentWorks in Australia. Mr Bickerton described IBIS as basically a firm of economists that major corporations hire to try to ascertain such matters as future market strategies to be pursued and whether they are heading in the right direction. He agreed with Mr Foster that what is undertaken is a very high level of economic analysis having regard to the entire economy, both nationally and internationally. 273 Apart from the Powerpoint material and possibly the IBIS material (Mr Sierakowski may already have had a copy), Mr Bickerton had not given Mr Sierakowski any other documents, as opposed to the actual sales budgets, in the month after Formosa. The rest of the narrative was a cut and paste exercise from existing company documents. 274 In relation to the Board presentation, Mr Bickerton was responsible for the sales figures for the core rental but had no involvement with the residuary and remarketing figures, and EDIT 21. He did not recall being involved in relation to the figures in the following month. 275 I think the applicants' submission that Mr Kinghorn, Mr Medway, Mr Bickerton and Mr Sierakowski came to the Board meeting of 22 September 1998 with different expectations is correct. Mr Kinghorn and Mr Medway came with the expectation of being presented with the draft of a plan that would chart a course to achieve sustainable growth over the following five years. What they received was a generalised presentation, taken from IBIS and existing company documents, at a very basic level. 276 Mr Bickerton said he did not recall Mr Kinghorn saying "fantasy" as Mr Kinghorn in his affidavit had said he had, but he did recall the words that Mr Kinghorn said: ... I want to know how many people we will need to employ, what sort of market we will operate in, what sort of products we will be dealing in and what sort of customers we will have. 277 Those words were similar in meaning with what Mr Bickerton said had been requested at the end of the Board meeting on 22 September. The meaning was also in line with what was recorded in the Minutes of the Board meeting as being part of the discussion of the presentation. 278 The call was made (from whom Mr Bickerton could not recall but in Mr Kinghorn's presence) basically to substantiate what had been put in the financials document and to put more meat behind the figures, with explanations, to come up with more defined financials, because all that the documents had were sales targets, income targets, no expenses, no net profit. 279 In my view, there was constructive and amicable discussion arising from the Powerpoint slide presentation on 22 September, but as to the depth of it, Mr Sierakowski said he found it hard to think that those present could actually comment on the document in its entirety at that stage because they had not read the entire document. 280 What Mr Kinghorn was seeking from the Plan can be seen from the Minutes of that meeting. Without changing one word of the relevant section, but altering the punctuation and format, that section reads: The RentWorks strategic plan was then discussed by LLB and AES. It was noted that the document was a dynamic document and was to be revised as part of each quarterly review. It was noted that rental was becoming increasingly popular in Australia with a change in mind set away from ownership. JAK suggested that we focus on one word in the RentWorks business and that is RENTAL. Rental means paying for use not ownership. JAK suggested that RentWorks should consider a cancellable Operating Lease, something that was not as flexible as a car rental, but would have minimum rental periods combined with flexible return options. If we continue to amortise most of the value of the equipment, the banks will be able to come into our market and compete with us head on. RentWorks should move its product as close to rental as possible by combining our residuary and remarketing expertise. Flexibility in product offering may involve minimum terms such as 18 month term then return any time with 3 months notice. JAK stated that a true rental business requires two things, firstly cash to be used up front. e.g. Kennards Hire Model, and secondly risk management RWM noted the current trend in the Australian operating lease market is to increasing residual risk. It was suggested that the sales division become know [sic] the origination business of the RentWorks group. JAK noted that as rental becomes more popular, RentWorks will need to remain focussed on our target market. RentWorks should focus on the high tech rapid obsolescence equipment rather than try and expand into yellow goods, aircraft and housing. It was noted that while these markets would be profitable they require an enormous amount of cash investment and an extraordinary amount of skill. One needs to know the type of equipment inside out and the cycles associated with that market. RentWorks needs a value proposition before it enters and remains in any market. It was noted that while RentWorks wants to focus on the high tech, high obsolescence market this does not mean IT. Other items of equipment which fall into this category include printing equipment, warehouse distribution systems etc. In order for us to continue to grow we must continue to identify high tech sections of the market and identify and develop funding techniques to enable us to increase flexibility and short term cancelability nature of our agreements. AES & LLB presented the draft five year financial budgets which were then discussed by the board. 281 Mr Medway's reaction was that there was nothing tangible presented to know how the figures advanced would be achieved. He did not think that the managers had put forward genuine views as to what was achievable. He could see no link between strategy and the numbers projected forward. The numbers were mere multiples of each other. There was no logic to back up the numbers. He thought that Mr Sierakowski and Mr Bickerton were just going through the exercise to get it out of the way. 282 What Mr Medway said about what he was looking for in the 5 year plan was that the plan would not necessarily even include financial figures, but would contain "Strategy in terms of some vision in terms of where we were heading into the future and how we were going to try and attain these goals. That is, a plan of a vision of where we're going to go and an articulation of how we're going to get there." "I mean, that is the logical process to actually working forward in terms of any budget or plan. One sets some goals and one tries to clearly debate and work through how those goals will be achieved; what we have got to keep doing in our business, what we have got to change in our business and do differently." 283 Mr Medway did not expect that Mr Sierakowski would necessarily come up with any figures for the presentation on 22 September, but rather that some numbers would fall out of the strategy put forward. That is exactly what Mr Sierakowski said: he was not really concerned about the financial side, "Because I thought that the strategy issue had to be sorted out before the financial aspects." He said that his primary goal was to have the strategic plan sorted out and then the financial plan would fall from that. Mr Medway's concern was to find a way to achieve high levels of growth in the future and, "How are we going to do it?", rather than numbers. 284 Mr Kinghorn's reaction to it when he read it at home later was: I read the document. I scan read the document. I had no interest whatsoever in infotronic ages, Ice Ages and all that nonsense. ... I would be most surprised if I even finished reading the document. I certainly didn't give it any credence whatsoever. I flipped through it - and it does not take very long when it says 'AES to answer' 'AES to answer' 'LLB to answer'; a whole series of these there 'RentWorks, dot dot dot, no answer'. This is clearly - and it says on the front that it was IBIS Business Information Services. It was clearly some sort of template they pull out of some economic guru and hadn't sought to attempt to start answering the questions. It was clearly - it was not yet anywhere near in the form that it was worthy of reading. 285 He did not recall asking Mr Sierakowski to adjust the figures. He had asked him to explain the strategy and, although Mr Sierakowski said he would address it had not done so in 1998. Mr Medway did not recall an email to Mr Sierakowski. (He was recalled to give evidence on that issue as is discussed later.) 286 Mr Medway said his focus then moved from the 5 year plan to the 1998/99 budget specifically. 287 Mr Sierakowski said that they needed the feedback to also help them with the bank presentation, but he accepted that there was no discussion at the Board meeting of 22 September about any application for finance to St George Bank or Bank West. 288 I accept that the discussion that addressed the above matters took up some 2 hours or so of the meeting. 289 Although witnesses had different recollections, I believe that the "draft five year financial budgets" were handed out towards the end of the meeting but that discussion of them was minimal in comparison with the discussion of the overall plan. 290 There were differing recollections as to what was handed out and when and what was said as to the presentation. I do not attribute to any of those witnesses, including Mr Lander, that, because of those different recollections, their evidence should be branded, as the applicants claimed Mr Landers' should be, as an "important, convenient and deliberately false claim". 291 Mr Bickerton's vague recollection was that the 5 year plan landscape document, as an expanded version of the "Projections" figures, had been presented at a following meeting about one month later. He accepted that he had done no further work on his part of the Strategic Plan between September 1998 and the end of 1998. Upon examination of the evidence as a whole, I do not think his recollection as to a later meeting was correct. 292 In relation to the presentation on 22 September, Mr Bickerton believed in the figures he had provided for his department (core sales rental) and he also believed strongly that RentWorks should just stick to a core rental business and not have so much diversity. I do not accept the applicant's contention that he said he believed strongly in everything in the presentation documents. 293 As to the landscape document, Mr Bickerton could remember Mr Kinghorn commenting that the numbers needed more work on them, but could not remember if that comment went to the numbers generally or only to some of them such as EDIT 21. 294 Taken to the 3 - 5 year plan handouts (the overheads presented at the 22 September meeting) with the 5 year plan figures attached, Mr Sierakowski said: I thought there was a few pages of each decision [sic] [division] of as sales, where the sales going, residuary going, the objectives, and from that came the next section which was finance , finances are not by themselves - they are part of the write up of the report. Them, by themselves, mean nothing . (My emphasis) 295 Although Mr Dunlop was not shown in the Minutes of 22 September as being present, he had a specific recollection of being called in to sit through Mr Sierakowski's presentation on the 5 year plan and was there at least "a couple of hours". That was the first time that Mr Dunlop had seen the typed up version of the whiteboard figures of his discussion with Mr Sierakowski. He said the discussion was as much of process and logic as of the figures. There was not much discussion of EDIT 21 as it was a new division. Mr Sierakowski took them though the figures in summary form. He remembered the general reaction as being that all the figures, not just EDIT 21, were fairly optimistic and needed fine tuning. 296 Although he could not remember exactly Mr Dunlop thought that the 22 September Board meeting was at a maximum two weeks after his whiteboard discussion with Mr Sierakowski. 297 In his affidavit, Mr Dunlop said that the following comment was made in respect of the revenue and bottom line of the Remarketing Division: Q And the comment was, "These figures are higher than realistically achievable", and another comment, "It's back to the drawing board for these numbers." A Yes, that's right. (Transcript p 3515) 298 Mr Dunlop said Mr Sierakowski: A Well, he presented the figures and at the time the business had been - hadn't been trading very well, hadn't really been performing and out came this projection, particularly year 1, for Remarketing and the general consensus was, you know, it's pie in the sky stuff. (Transcript p 3515) 299 In oral evidence, Mr Dunlop further described the reaction to the presentation by Mr Sierakowski and Mr Bickerton: Q And the only part of the meeting that you remember that anyone was tasked to go back and specifically redo particular numbers was the Remarketing part of the presentation: A No. ... Q Well, in what other parts did it occur? A From memory, I think it was the whole thing. some needed more work than others, but the overall, I guess, takeout from the presentation was we really need to go back and look at, first of all, getting a bit more reality into year 1. It would be nice to have years 2, 3, 4 and 5 looking more acceptable, but we needed to get year 1 right before we can hope to get years 2, 3, 4 and 5 right. I remember a distinct discussion about: across-the-board we have got to get year 1 right and it's not right, and I just remember Ran's got-attracted - you know, got more attention than the others and, yes, because of - not just the numbers, but the way in which the division had been trading to date. (Transcript p 3516) ... Q Well, what do you recall him [Mr Sierakowski] saying? I want you to be as specific as you can with these. A Well, I can't - I can't remember specific words, but he had overviews and he got up and went through the projections, spoke quite a lot about the process, and I can't recall him actually speaking a great deal about specific numbers and the results. (Transcript p 3517) ... WITNESS: I remember there being a fair amount of frustration expressed about the presentation about the numbers. And, see, Allan Sierakowski had put a lot of focus on the process. And the fact that now we've got a template and put all these numbers together, he had interacted with different members, different executives, that belonged to certain divisions, like my experience, ran through the numbers, and I remember a lot of discussion on the Remarketing numbers. I can't remember if that was the specific reason, but I remember Rob Medway and others expressing a fair amount of frustration at not so much the process but the reality of the numbers in year 1. So the general consensus was, you know, we've got to get year 1 right before we even consider years 2, 3, 4 and 5 and that's our problem. Doesn't matter if year 3 is really accurate, if year 1 isn't, we're nowhere. So I can't remember specifically if Rob Medway cut the meeting short, but I do remember a lot of frustration being expressed about the actual numbers in year 1. (Transcript p 3517-3518) ... Q Well, you have agreed that he [Mr Bickerton] said something [about the origination division] like that. What's your best recollection of the response? A My recollection of the response is that we still didn't really - we really needed to get year 1 right, and I don't think it was even accepted that, you know, Lloyd saying if we get year 1 right then we get year 2 right and year 3 right, but year 4 and 5 aren't relevant. The consensus was that years 2 and 3 - years 2 and 3 are irrelevant if year 1 isn't right and we don't think that year 1 is right. So that was the reaction. (Transcript p 3519) ... A I can tell you what Rob Medway and John Kinghorn thought, the revenue figures were too optimisitc. Q In origination? A Yes. (Transcript p 3520) ... Q Well, what if Mr Bickerton was being instructed to go back to the drawing board? What specifically were they saying was wrong with the figures that he had to rework? A Well, the revenue figures were too high so the sales team were projecting to write more business than we really thought they were going to write. Q But what guidance was Mr Bickerton given at the meeting that you can recall about how and by what quantity he was to rewrite the numbers to a more realistic level? A He wasn't given direction about numbers, it was - you know, in terms of - it wasn't a case of, "We don't like that number, put that number in", it was, "We've never achieved sales growth, new business like this in origination, you're projecting this, go back and get some reality into the projections". (Transcript p 3520) Q And he sought to explain the figures in response to this, did he not? A I think so. And I think, from memory, they equated to a certain percentage growth and, from memory, I don't think we had ever achieved that growth before and so it was a case of, "Why are we suddenly going to write this much new business when traditionally we've written this? We think you should go back and put in more reality in it". (Transcript p 3521) ... Q I suggest to you that what he [Mr Sierakowski] was asked to do and what Mr Bickerton was asked to do was not to come back with a different set of figures, but to provide examples of how the sales could be supported with more underlying reasoning about staffing figures and how the numbers could be achieved; isn't that what happened? A I don't think so, no. (Transcript p 3521) Q Didn't Mr Medway and Mr Kinghorn say to them, to Mr Bickerton and Mr Sierakowski, that the numbers had to be proved up a bit more? A Sorry, I'm not quite sure. The numbers that were presented or the numbers -- Q The numbers that were presented, specifically, in the documents starting at 1706 that I took you to. A I can't remember exactly, but I think if that was said, they would have been referring to the numbers in general, not the numbers - not the specific number in the group, you know, the consolidated, or the origination revenue or bottom line. (Transcript p 3522) ... Q You answered a question earlier, as my learned friend said, by using the words, "If that was said". Are you really saying that you just don't remember one way or the other whether that was said; is that right? A What I don't remember is whether or not that comment was in addition to the comment - the overall summary of the presentation. I don't know if that comment was made in relation to the numbers - not the specific numbers of origination, 1707, but the numbers as a generalisation being too optimistic. But there were comments made that there needed to be more logic and more reality put into the numbers across the board, for all of the components in the five-year plan. (Transcript p 3523) 300 Mr Dunlop's next conversations with Mr Sierakowski as to the EDIT 21 figures were at some time after April 1999 but before June 1999. 301 I place some emphasis on Mr Dunlop's evidence. As I understand his situation, at that time he did not attend board meetings as a matter of course. He was called to the one on 22 September. I think the possibility is that the impression the events made on him was somewhat enhanced by the unusual circumstances of his being present. 302 Mr Sierakowski said that Mr Kinghorn at the 22 September meeting may have said the word "fantasy" about a particular area but he did not recall him saying that about the total figures as such. His recollection was that the adjustments required at the 22 September meeting to the report that were done got down to "prove it up a bit more please". He did recall that adjustments both in words and figures were made to the report and it was issued a month later to take into consideration queries from both Mr Medway and Mr Kinghorn. 303 There are ways of telling people, including senior executives, that "they got it wrong". One way is by discussion. The Minutes of the 22 September Board meeting demonstrate that approach by Mr Kinghorn. 304 Mr Sierakowski described Mr Kinghorn's approach as chairman as listening and encouraging people to state what they felt, then making a comment in relation to the issue, but "he was never personally critical of anybody that I remember in regard to a Board meeting. He treated everyone very friendly and he encouraged people". He felt that Mr Medway had good management skills, but one would not get totally close with him. 305 Mr Sierakowski's recollection was that on 22 September, Mr Kinghorn certainly, and he thought Mr Medway, had thanked him for the documents and said he would get feedback. 306 I do not accept Mr Medway's version of his cutting short Mr Sierakowski's and Mr Bickerton's presentation on 22 September. As was said by counsel for the respondents, his description was really "inapt". 307 Contrary to the submissions of the applicants, the Board meeting of 22 September did not present a real opportunity for Mr Kinghorn and Mr Medway to put alternative views to the growth figures of 20% and 25% in the 5 year figures. The Powerpoint presentation was general and it did spark discussion, but it did not extend to the figures in any detail. Mr Sierakowski accepts that those present would not have time to have read the long narrative document which had been handed out at the meeting. The 5 year figures were only handed out at the end with no time then to make the mathematical checks which would have shown up those large percentage increases. 308 Whether or not the word "fantasy" was applied by Mr Kinghorn to the 5 year plan figures at the Board meeting on 22 September 1998, and that word was not recalled by either Mr Bickerton or Mr Sierakowski, they were indeed "fantasy" in the absence of being accompanied by any strategic plan to achieve those figures. 309 Once again I repeat that the key word in the description of the 5 year plan is "strategic". The material presented to the Board was preliminary and had been hastily compiled, and did not move to strategies to identify and focus on particular areas, new or old, or provide a blue print to implement strategies. The figures in the "Projections" and in the landscape document had no value in relation to a "strategic plan". 310 One thing that is very clear in these proceedings, and I believe was not in dispute, is the genuineness of Mr Bickerton and Mr Sierakowski in the quality of their evidence, that they were trying to give their best account before the Court and had been trying to do their best for this company at this time. 311 They understood that the task they were embarked upon was a serious and genuine one. Mr Kinghorn and Mr Medway were also serious as to its intended outcome - to provide a constructive strategic plan which formed a blue print as to strategies that would deliver development of RentWorks that would achieve sustainable growth. Mr Kinghorn and Mr Medway were not looking to see the figures that would result from such growth but for the strategy of what was required to achieve that growth and plot the path for that result. 312 While Mr Bickerton and Mr Sierakowski may have had some understanding of what the ultimate objective was, neither of them had the practical expertise as to the research and process necessary to formulate the practical means for the people in the company to implement the plan. Development of the 5 year plan post 22 September 1998 313 Mr Bickerton said it would be a fair assumption to say that insofar as the draft strategic plan (the IBIS based narrative section) presented to the Board meeting on 22 September was concerned, nothing was done to change it in any way between its presentation to the Board meeting and the end of 1998. The only change to the sales (core rentals) page in the landscape typed projection document that formed part of the BankWest and St George Bank proposals, as against what was presented on 22 September was to the figure for "direct expenses" from $32,500 to $28,000 and some consequential arithmetical changes. 314 Mr Bickerton said that he had not done any further work on that document in 1998, nor, as far as he was aware, had anybody else. 315 Although Mr Bickerton believed that he had been involved in another meeting at which the typed landscape financial projections were discussed in 1998, he accepted, looking at the relevant documentation, that he had not done any extra work on it in 1998 after 22 September. Mr Bickerton knew of no other document that might even conceivably be considered another version of Draft version 21/9/98 being created in 1998 other than the 2 submissions that were made to St George. 316 Mr Sierakowski did not remember a meeting or discussions with Mr Kinghorn about the financial projections after 22 September 1998 and before April 1999. Apart from some contact by email with Mr Medway, he had no meeting or discussion with Mr Medway in that same period. 317 Mr Sierakowsi remembered receiving an email from Mr Medway as feedback on the 5 year business plan in the period September to November 1998 seeking clarification, amongst other matters, as to the relationship between staffing and quantum of sales in the 5 year plan documents. Though confident other matters were raised, he could not recollect what they were. Mr Sierakowski said that he believed such feedback was appropriate after the meeting, otherwise "its gone into a void". He remembered having taken up the staff/sales matter with Mr Bickerton, the relevant divisional manager. On that issue, he personally had not provided Mr Medway with any further information. 318 Mr Sierakowski was unsure whether, as a result of the email the minor changes that were made to the financial projections were made, or whether it had involved a lot of questions for clarification. He agreed that apart from two minor changes to the financial figures there was no difference of substance between the financial document put before the Board meeting on 22 September and the document that went to St George Bank. They were the only revisions that were made to the financial projections between 22 September 1998 and 31 December 1998. 319 On my understanding of his evidence, Mr Sierakowski's view was that, insofar as the 5 year plan was concerned, the feedback he had received from Mr Medway "reached its objective in most of the situations, because it then gave me a base to do summaries for the next stage, which was the bank presentation" (Transcript p 674). 320 In further cross-examination, Mr Sierakowski said it was correct that as far as this task he had been performing after 22 September 1998 as to the 5 year plan was concerned, it had received no action of substance from him until April 1999. 321 He believed he had sent to Mr Kinghorn in late October or November a revised document which was not of substantial difference to the previous one. It was just an updated version. He could not say with precision that that document was the version that was in the St George Bank proposal. 322 Later in cross-examination Mr Sierakowski said that what he believed he had supplied to Mr Kinghorn at the end of October or September was a revised plan with minor adjustments with the financials attached. He could not recall whether those financials were the exact ones presented on 22 September or whether they were the ones with the slight adjustments. 323 Cross-examination of Mr Sierakowski was along the lines that his memory as to receiving an email or emails from Mr Medway was not correct. Email chain October (Exhibit 152) - Submissions - Applicants 324 Exhibit 152 says much about the intention of Mr Medway, and Mr Kinghorn, in relation to the 5 year plan. Even a preliminary analysis of the document shows a real determination on Mr Medway's part, and Mr Kinghorn's, to obtain the 5 year figures, a relationship of the request for the 5 year figures and the loan application to BankWest. 325 That is demonstrative of an interest in the figures that is completely inconsistent with the respondents' case that after the board meeting of the 22nd, Mr Kinghorn took it home and there was no other request or communication, feedback, discussion or work done on it. Exhibit 152 is wholly inconsistent with that case. 326 There is a connection with the BankWest application, which makes the email of such powerful significance. What Exhibit 152 shows is an interest by Mr Kinghorn at the front-end of the loan application process, in its detail, and it also shows something which is consistent with another event; that is, Mr Kinghorn had a real interest in this loan application being successful, and it is more likely that he had knowledge of the detail of what was being put to BankWest and St George. 327 The clear and simple inference from that is Mr Kinghorn and Mr Medway wanted to look at the 5 year figures in connection with the BankWest loan and that that indeed is what happened at some stage before the BankWest proposal was sent off. That email from Mr Bickerton refers to a loan. Mr Medway agreed that the only loan that was then under consideration was the one from BankWest.

Exhibit 152 - email chain - Submissions - Respondents 328 Importantly, as at 21 October, Mr Lander is telling PwC that the 1998/99 budgets are going to be finalised next week, RWM and JAK are going to finalise them next week. 329 Exhibit 152, those emails, look as if they are being talked about as the 5 year plan, but the evidence that was given, it was clear enough, was that it was a package being talked about. The budget package at that stage, consistently with Mr Sierakowski's propensity to put things together in this way, included the 5 year figures, but Mr Medway said what he was chasing was the budget. Mr Kinghorn said he was unhappy that the budget had not been finished. 330 What actually happened is quite simple: when Mr Medway told Mr Pope on 14 October, that the board had a session planned for 26 October to review the budgets, that was true. There was a board meeting scheduled for that day, but prior to that day, and in order to accommodate the fact Mr Kinghorn was going to be away, Mr Kinghorn put pressure on Mr Medway to get the final budget figures. Mr Medway pressured Mr Sierakowski and Mr Bickerton to get it done. 331 These emails were created, interestingly, on Friday, the 16th, through to Wednesday, 21 October, and they were supplied to Mr Kinghorn and to Mr Medway, one would infer, after the 21st, as Mr Lander thought was going to happen when he wrote the memo that is "1998/99 budgets, RWM and JWK to finalise next week." 332 What happened is Mr Kinghorn and Mr Medway approved those budgets in the week after the 21st, which is in the week beginning 26 October, or at the end of the week beginning the 19th. 333 Now, this is one of those areas where all sorts of things are said about Mr Medway and Mr Kinghorn, and their evidence. If there was any real substance in the suggestion not only that Mr Kinghorn and Mr Medway have got this evidence wrong, but they came to the Court and told lies on this point, then there should have been evidence from Mr Sierakowski and Mr Bickerton about it. Why wasn't there? That is where Jones v Dunkel helps. The answer is they had nothing to say about the versions given to the Court. It is wrong for the applicants to submit to the Court, in the light of that fact, that Mr Medway and Mr Kinghorn should not be accepted on this. 334 The emails came late into the evidence and the applicants may not have been able to deal with it in the evidence-in-chief. That is quintessentially a matter for reply. Evidence in reply stands in the same position as evidence-in-chief on this principle: it is a very powerful inference to be drawn against a party who does not adduce evidence-in-chief or in reply if it was under challenge. Email chain 16-21 October (Exhibit 152) - Consideration 335 Mr Sierakowski's recollection of an email sent from Mr Medway was confirmed later in the proceedings when such an email belatedly was produced on 28 February 2002 with other documents produced on that day, and when tendered became Exhibit 152. 336 Exhibit 152 set out a chain of four emails (the email chain) the first of which was dated Friday 16 October 1998 with Mr Medway contacting Mr Sierakowski and the fourth on Wednesday 21 October being an email from Mr Medway to Mr Bickerton. The subject matter of each email was stated to be "5 year plan". The message in the first one in the chain was: "can you see doug [Kinghorn] to have 5 yr plan forwarded to jak prior to his going away. i understand he may be away most of next week". The terms of the last email was "i find the timing of this unacceptable. i was promised it last friday". 337 Mr Medway accepted that he had sent the email dated 16 October 1998 with the subject "5 yr plan". He said he had no recollection of actually participating in the email chain nor if they were the only emails in regards to that communication. He did not have a recollection of putting in the words "5 yr plan". 338 The email chain did bring to Mr Medway's mind an incident that occurred at that time, but it related to Mr Kinghorn's displeasure and anger, made known to, and including, Mr Medway, at the fact that the 1998/99 budget had not been completed, but it was not related to the 5 year plan. Mr Medway had passed on the fact of Mr Kinghorn's displeasure, and his own anger, to Mr Sierakowski and Mr Bickerton. 339 Mr Medway said it was not his recollection that he wanted the 5 year plan completed at that time because he wanted it to go into a finance proposal to BankWest and St George. 340 Mr Kinghorn said he had a recollection in mid-October 1998 of asking for the 1998/99 budget figures which he had been pressing to be finalised and he recalled his son bringing it to him. The budget was supposed to have been completed at the end of June, early July. Mr Kinghorn said he recalled letting the chief executive become aware that he was displeased that the budgets had not been presented to the September board meeting and his presumption was that Mr Medway then went down the line to Mr Sierakowski and whoever else was holding things up and caused the completion of the budget to be expedited. As Mr Kinghorn said: "So I'm sure he [Medway] would have been following it up, yes". (Transcript p 4122) 341 Mr Kinghorn said he knew the difference between the budget and the 5 year plan and categorically denied having asked for the latter to be delivered to him in mid-October. He also denied being the source of Mr Medway's request for the 5 year plan. He said his "absolute recollection" that the documents he received in that period was the final 1998/1999 budget. 342 Mr Kinghorn denied wanting a revised version of the 5 year plan in the third week of October 1998 to include with a finance application to BankWest. In the third email in the chain, Mr Bickerton had told Mr Medway on 21 October that he "will get figures to him [jak] this week with an update on loan". Mr Kinghorn said he thought it "extremely unlikely" that Mr Bickerton would have given him such an update, because the loan applications was a matter for Mr Sierakowski and he was the only person to whom Mr Kinghorn made mention of the loans at one or two board meetings. 343 The applicants submitted that Mr Medway's evidence in relation to this email chain was incredible in claiming that it was a request for the budgets, not the 5 year plan. 344 In my view, it is quite clear on the face of the emails as to what Mr Medway was seeking from Mr Bickerton and Mr Sierakowski. 345 I note that Mr Medway said he could not tell from the email as to whether he was the instigator of the communication. I accept that on the face of the document (all four emails are set out on the one page, the earliest at the bottom), that there is nothing to show whether the chain is complete or only part of a series. 346 Mr Medway suggested that if the email chain was not the full communication, the originator of it may have put "5 yr plan" as the subject of it, and that heading had been automatically carried forward. 347 In response to a suggestion from counsel for the applicants that he would appear to have made a mistake in the reference in the text and in the subject to the 5 year plan when he meant the 1998/99 budget, Mr Medway said that, in his best recollection, that would be the case, adding "I actually don't think typically I would make those sort of mistakes". (Transcript p 4301) 348 The most damaging aspect of the "5 yr plan" emails of 16 to 21 October 1998 in relation to the evidence of the respondents was not that they existed but Mr Medway's reaction to them in saying that they did not relate to the 5 year plan but were related to the budget. 349 That evidence flies in the face of the fact that not only was "5 yr plan" the subject of each email but the "5 yr plan" was specifically requested in the email from him dated 16 October 1998. 350 However, there is nothing on the face of the email chain to suggest that Mr Kinghorn had any direct involvement or knowledge as to the terms of what was being sought. I have no doubt he was pressing for the budget 1998/99 to be finalised. 351 The applicants saw the email chain as supporting their claim that the 5 year plan represented by the last week of October 1998 an official and considered view of senior management as to the likely future performance of RentWorks. 352 I accept that the 5 year plan financials were supplied to Mr Kinghorn, and Mr Medway in October 1998 as part of the 1998/99 budget package put together by Mr Sierakowski. I do not accept that that fact of itself is sufficient to find that those financials had been approved by the Board as part of the 1998/99 package. I shall however, in the course of this judgment consider what effect such approval might have had if the 5 year financials document had been given to PwC. Supply of information to PwC - Submissions - Applicants 353 In the applicants' Opening Submissions the following statement was made: 4.1.2 There is no doubt on the evidence that the 5 year Plan was not given by RentWorks to PWC. The issue is whether or not the failure of RentWorks to give the Plan and the other information to PWC was unfair in such a way as would ground relief under Section 106 of the Act. In order to establish operative unfairness first, with respect to the 5 year plan, the applicants need to establish three matters. 4.1.3 First, the applicants must show that the 5 year Plan if it had been given to PWC would have been material to PWC's consideration of an appropriate valuation figure. 4.1.4 Second, the applicants must demonstrate that the 5 year Plan represents a sufficiently reliable indication of management's expectations as to the future prospects of the business such that it should have been taken into account by PWC. 4.1.5 Third, the applicants need to establish that if the 5 year Plan had been taken into account by PWC or a reasonable valuer in the position of PWC, that it is likely to have produced a different and higher valuation from the one in fact produced. ... 354 In final submissions, a different position was put by the applicants: The second issue is ... the question of what the applicants have to prove, if anything, that PwC would have done if they had been given the five year figures in order to establish that the Shareholders' Agreement was an unfair contract. It is submitted that the applicants need only prove, ... that full and proper information was not given to PwC so that PwC did not ever have the opportunity to value the Shares accurately. The applicants submit that on the evidence, the giving of the five year figures to PwC would have made a difference to the result, but that it is not necessary in fact for the applicants to establish this to be entitled to relief. An unfair process should be replaced by an entirely fair process. 355 According to the applicants, the financial information provided to PwC by RentWorks differed substantially to the financial information provided by RentWorks to St George and BankWest. In particular, the St George and BankWest proposals forecast growth over the next five years of between 20% and 25% per annum, whereas the PwC report assumes growth of only 2.5% per annum. 356 PwC prepared their valuation of the Shares on a maintainable earnings basis. In order to establish a value under this method, the maintainable level of future earnings is estimated and capitalised by the application of a suitably chosen multiple. One of the key issues in determining the appropriate multiple is the forecast growth of the company. The assumption of PwC of growth of only 2.5% per annum had a significant negative impact on the multiple chosen by PwC in determining the value of the Shares. 357 The applicants' position was that the respondents' original attitude to the valuation was fair and correct in that Mr Lander had been told to give Mr Pope/PwC all the information they asked for. The respondents had correctly told Mr Pope of the 5 year plan. However, in between the time of that conversation, probably on 8 September 1998, and 14 September, the respondents' attitude had changed. Whereas in the email of 9 September the 5 year plan had been asked for by Mr Pope, he no longer asked for it in the email of 14 September. 358 The applicants submitted that information given to Mr Pope by Mr Lander in that period had caused that change of mind. 359 The submission was made that Mr Kinghorn, having seen a copy of the request for the 5 year plan had realised that it could lead the valuer to come to a higher valuation of RentWorks than otherwise might be the case. That was because he anticipated that the 5 year plan would reflect the optimistic views of the Board and senior management as to the future growth of RentWorks. Those optimistic views had already been expressed by Mr Kinghorn to Mr Bickerton in May 1998, to the Commonwealth Bank [considered later] around early September and at Formosa in August. 360 Having seen the 5 year plan on the list of material sought, Mr Kinghorn in a discussion with Mr Lander on 10 September had given him a clue, hint, direction that that document should not be provided to Mr Pope. 361 Mr Kinghorn denied that. Mr Medway, a man with a masters degree in business, rejected the suggestion that he realised in reading the email that the 5 year plan could increase the valuation result for the shares and deliver more consideration to Mr Murray. 362 PwC were given the accrual budgets but they were not given the information which is contained in a letter of 17 November 1998 to St George Bank from Mr Lander, that they were the minimum achievable result and had been prepared on the worst case cash basis. 363 The applicants submitted that when the PwC valuation was underway, only very negative growth assumptions were given to PwC by Mr Medway and Mr Lander, i.e. growth that would reflect inflation but nothing more. Mr Murray regarded that approach as wrong and advised PwC of that belief before the valuation was produced. It was said that PwC were in effect put in a position where they could make a decision between the two views. PwC should have called for more information to try to determine which view was right. It was the applicants' submission that such information, which was readily available, would have shown that the directors of RentWorks in fact held views as shown in the 5 year plan that there would be continuing future growth of a significant kind and far more than the 2.6% [sic] eventually expressed in the valuation report. Supply of Information to PwC - Allegations of Misconduct - Submissions - Respondents 364 The applicants allege, in effect, very serious misconduct against some of, if not all, the respondents and some of the witnesses in this case, allegations which are unfounded but which are fundamentally at the highest level of seriousness. 365 In particular, what seems to be suggested is that at an early point in the process Mr Kinghorn decided that he would control the information flow that went between Mr Lander and Mr Pope in a way directed to improperly and artificially depressing the value that Mr Pope and Mr Armstrong were seeking to determine of MacDome's shares in RentWorks. Although the word "conspiracy" does not get much of a go in the applicants' submissions, the fact is that is the allegation, and it does not stop at Mr Kinghorn, it squarely involves Mr Lander, and it may also involve Mr Medway, although that is not clear. 366 There is nothing before the Court that would cause it to go with the applicants on this point. Mr Lander, in particular, who on the applicants' case must be implicated in all of this, was a witness of impeccable honesty. The submission that Mr Lander was a witness who told lies to the Court and a man who was capable of dishonesty during the course of the process, which without putting too fine a point on it, is what the applicants suggest that happened, will not be accepted by the Court. 367 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd 110 ALR 449 is authority for the proposition that if a party chooses to make serious allegations of the level of fraud, which is what is occurring here in this case, or that a witness deliberately lied to the Court, then they must meet the exigencies of this principle, that is, that it must be clear, cogent and satisfactorily take into account the seriousness of the allegation. The applicants have fallen dreadfully short of meeting that appropriate exigency. 368 One of the things that comes out of a close consideration of what happened is that one cannot find Mr Kinghorn's hand on anything. Mr Kinghorn did not speak to PwC, did not write to PwC and they did not speak to him. What the applicants are inevitably driven to in the end is that somehow or another Mr Kinghorn, and really it has to be at every turn, had his hand up the back of Mr Lander like a puppeteer instructing him as to what could and could not be given to PwC. There is just no basis in the evidence for making that assertion. 369 There is no evidence that Mr Kinghorn was ever told that Mr Medway was going to PwC on 30 September. Secondly, the suggestion that he may have been or was told that was never put to anyone. 370 The Court ought to find that Mr Kinghorn did not know about that meeting; had nothing to do with that meeting; and, more importantly, did not give anybody any instructions about that meeting. 371 What the applicants have actually put about this, is that Mr Kinghorn in some way, which is so subtle that one cannot see it, and there is no evidence about it, has managed to produce a result which has undervalued this company by controlling the provision of information. 372 It was ridiculous for the applicants to submit that because of Mr Kinghorn's actions, Mr Lander had told Mr Pope something about the 5 year plan between 9 and 14 September that persuaded Mr Pope that he would not require it for the valuation. That was at a time when, as a consequence of Mr Kinghorn's request at Formosa, Mr Sierakowski was obtaining from senior managers information to be used to compile a plan to be presented at the Board meeting on 22 September 1998. There was no secret about it in the company, someone even advising Mr Murray about it. Mr Kinghorn did not need the plan for the banks as submitted by the applicant. They had not asked for it. He did not know it would go to them. Supply of information to PwC - Submissions - Respondents 373 One may ask, in the end, of what value to Mr Pope and his very senior and experienced reviewing partner would the arithmetic, unsupportable, first draft, unrealistic, silly 5 year figures have been? 374 The second thing is the applicants say the cash investment detail, post-1 July 1998, should have been given to PwC. All of the cash investment figures for the nine years before 30 June 1998 were given, and a budget was given and the budget had a 2.5 per cent figure across the board, and historically it had been less, and that was a matter known to PwC and considered by them. Interestingly enough, as Mr Pope comments in exhibit 163, the 5 year figures document has 2.5 per cent rising to 3 per cent as cash investment, and he observed that that told him that whoever supported that figure in that document thought that there was a need to dramatically increase cash investment going forward in this business if they were to maintain any sort of position. 375 The third matter is: they did not have the full figures for October. 376 There was a fourth matter at some stage advanced by the applicants: the deed. 377 Their whole case depends upon the need to have given the 5 year figures to Mr Pope, because that is really the way the case was run; they were prepared to stand and fall on that. 378 The respondents say that it would not have made any difference. 379 For all years after the first year dealt with in the 5 year figures document they are mere statistical or arithmetic extrapolations going forward yearly to absurd results, massive increases in profit. The applicants now recognise that they cannot actually ask the Court to take the figures as such. They now have to say it tells a picture that management had a view that strong growth in the core business could be achieved going forward and therefore the Court should, in effect, not only disbelieve Mr Medway but find that he misled PwC. 380 The simple difficulty with all of that is that there is a glaring hole in all of the 5 year figures material. The only year that is supported by any detailed workings, either said to have been or in fact so supported, is the 1998-1999 year which is the budget. There are some printouts from white boards, and so on, which are people's workings to construct the extrapolation, but there is not any considered build-up of how it would be that these figures at the top could be achieved and if they were what it would cost to achieve them. 381 The 1998-1999 budget is left as being the only year which had detailed support. There is a budget package, and there are many integers going into that package in terms of how much it could cost to produce the revenue they thought they could earn. That constituted management's best effort as to what 1998-1999 would reveal for the business. PwC had that document and they took it into account. 382 Mr Banks was astute to know that if the 1998-1999 budget was, as it were, management's best effort, a solid document from that point of view, then it had two problems for the applicants. One is it had 2.5% cash investment in there whereas he had put into his DCF, 0.54%. It produces millions of dollars difference in the valuation. Secondly, he had built into his DCF massive growth leading to an increase in profits which was not sustained in the 1998-99 budget, notwithstanding that the new business volume figure is higher than the 1998 figure. He just simply had not taken into account what the budget truly said that although business volumes might go up, there was going to be a decline in profit, in the margins. His assumptions that he made in his DCF were that there was no decline in profitability in relation to the business being written. The budget says otherwise, as do the 5 year figures actually, for what it is worth, beyond 1998-1999. The applicants do not make submissions about what the document is. They concentrate on what was done with it i.e. it went to the banks. It is clear that St George was lending on Mr Kinghorn's wealth. That is why they wanted the personal guarantee. 383 The question of build-up or substantiation for assumptions made in the kind of exercise that would ordinarily be described as a forecast, not the one done here because it was not done, is a matter which Mr Pope turned his mind to when considering the proposition of the applicants' case at its highest in paragraph 40(b) of Exhibit 163. What he says is that those 5 year figures appeared to be unsupported by any detailed assumptions which would help to understand whether or not they were able to be reasonably substantiated or whether they assumed growth from significant acquisitions or new business activities that had yet to be established as at 30 June 1998, both of which would be important matters which he would need to consider. There is nothing to tell him how they were put together or what the assumptions were and, secondly, whether they were reasonable. 384 Mr Pope's affidavit dealt in large measure in relation to the 5 year figures and the bank proposals, with various "what-if? scenarios of evidence" leading to assumptions of what Mr Pope would have done in each case. The applicants did not do that when Mr Pope was in the witness box. The respondents did, in chief. Mr Pope's affidavit was provided in advance, rather than having his evidence come forward orally, with the almost certain need for time to be granted to the applicants for consideration of that evidence. There were no objections notified to that affidavit.

Supply of information to PwC - Consideration 385 In my view, the position as to what the applicants had to prove was correctly put by counsel in his opening submissions. I set it out again: 4.1.2 There is no doubt on the evidence that the 5 year Plan was not given by RentWorks to PWC. The issue is whether or not the failure of RentWorks to give the Plan and the other information to PWC was unfair in such a way as would ground relief under Section 106 of the Act. In order to establish operative unfairness first, with respect to the 5 year plan, the applicants need to establish three matters. 4.1.3 First, the applicants must show that the 5 year Plan if it had been given to PWC would have been material to PWC's consideration of an appropriate valuation figure. 4.1.4 Second, the applicants must demonstrate that the 5 year Plan represents a sufficiently reliable indication of management's expectations as to the future prospects of the business such that it should have been taken into account by PWC. 4.1.5 Third, the applicants need to establish that if the 5 year Plan had been taken into account by PWC or a reasonable valuer in the position of PWC, that it is likely to have produced a different and higher valuation from the one in fact produced. ... Allegations against respondents by applicants - Submissions - Applicants 386 The applicants disclaimed an allegation by them against Mr Kinghorn of "conspiracy" to frustrate a fair valuation, saying that description was that of the respondents. The applicants alleged that interference by Mr Kinghorn in the achievement of a fair valuation occurred when Mr Kinghorn saw the email from Mr Pope on 9 September requesting the 5 year plan and he realised the optimistic projections it would contain could, if provided to PwC, inflate the valuation and he decided it should not be provided. He persuaded or directed or cued Mr Lander at a meeting on 10 September to ensure that Mr Lander would persuade Mr Pope no longer to ask for the 5 year plan as he had in his email dated 9 September. In respect of that meeting on 10 September, the evidence of Mr Lander and Mr Medway was at variance with that of Mr Kinghorn. 387 What happened had important implications to the case because Mr Kinghorn decided the relevance of any possible 5 year plan for PwC's work, and attempted to foreclose its use by them, rather than giving PwC the opportunity to examine it and decide for themselves when it was produced. What PwC were after was management's expectations. Mr Bickerton and Mr Sierakowski were the appropriate source of views, but they were not asked. 388 The other alleged non-supply of information and supply of misleading information to PwC encompassed: 1) the information supplied by Mr Medway to PwC on 30 September coupled with his "Devaluation case" list; 2) the non-supply of the October 1998 figures; and 3) The management accounts up to 30 September were supplied, but with misleading commentary by Mr Lander. That is, in relation to abnormals, was the fact that they were ahead of budget accounted for by abnormal circumstances or not? In the statement to the St George Bank there is no reference to the performance up to 30 September being in effect explained by abnormal factors, whereas PwC are told there are abnormal factors. Mr Lander says the difference between the two is that he was specifically asked by PwC what the factors were, but the bank did not specifically ask him. 389 The applicants say that what is expressed to the bank is correct and that there were no abnormals, that in effect there was nothing particularly remarkable in his opinion about this performance against budget. 390 Mr Lander confessed an untruth to St George Bank but the applicants submit that really what the Court should accept is that what he said to St George Bank was correct, given the circumstances in which it was being asked, and that that is what he believed, and that the Court should not accept his confession to having misled the bank. He did not accept it was deliberate and misleading and the applicants are not putting that it was deliberately misleading, "some kind of inexplicable accident or misadventure are the logical alternatives." 391 He was not able to come up with any explanation as to that. If it was not deliberate, and the applicants do not say it was, the better view is that he was giving genuine views and not ones that were not genuine. 392 The applicants' submission is that the various conflicts of evidence among the respondents are so substantial, as for instance on 10 September, that the Court would assess the respondents' version as incredible. No suggestion has been made that the respondents have somehow got together to invent a convenient version to the Court. Rather, quite the reverse has happened. Rather what has happened in these proceedings is that at critical points in the respondents' account, gross inconsistencies arise between the witnesses because that account was false. The accounts are so different they are simply not reliable and it is not necessary for the applicants to allege any concoction of evidence. Alleged interference by Mr Kinghorn - Consideration 393 Exhibit 140 (the 9 September email) is one of the documents described as "significant" by the applicant in opening submissions. 394 Mr Lander sent Mr Kinghorn a copy of the 2 page email dated 9 September 1998 (the 9 September email) that he had received from Ian Pope, the objective of the email being, "to clarify the information that will be required to undertake the valuation of the interest in RentWorks". Reference was made to a conversation with Mr Lander the previous day. Mr Kinghorn noted the document, using highlighter and pencil, at home that night, and, on 10 September 1998, in the course of conversations at RentWorks with Mr Lander and Mr Medway made notes in red biro at the back of the last page, as to alternative valuation methods. The further note "x not future profits likely to be earned post CRM. These should accrue to the people who create those future profits", was a response to Mr Medway's concern that Mr Murray had lost millions in the BIB venture but would share as to future maintainable earnings. The original of that document marked by Mr Kinghorn was tendered and became Exhibit 140. 395 The following paragraphs from the 9 September email were the subject of particular attention on more bases than one during these proceedings: At the aggregate level, our report will need to disclose consolidated performance for the three years to 30 June 1998 and the budget for the year to 30 June 1999 . This will be based on audited accounts and the 1998/99 budget. It would be helpful to obtain the full 98/99 budget document to understand the basis of preparation, key business issues and assumptions utilised in the budget . ... To consider value by reference to future cashflows , we propose to utilise the five year plan currently being prepared by the group. We understand that this plan reflects both the run off of existing transactions and assumptions in relation to new business written together with ongoing expenses to support the business. We understand that the five year plan may not currently incorporate tax and it will be necessary for us to estimate the post tax cashflows for the purposes of performing discounted cashflow analysis. 396 The words emphasised in those two paragraphs were those highlighted by Mr Kinghorn. 397 The Board approved 1998/99 budget was eventually supplied to PwC on 4 November 1998, although Mr Pope's evidence was that he was supplied with drafts of it in the interim period. 398 There were some differences between the 9 September email and that sent by Mr Pope on 14 September (the 14 September email). In the first place, the reference to the five year plan had been deleted and the following paragraphs added: To the extent that we review the 98/99 budget, it will be essential to understand the philosophy of the budget. In particular, if company policy is to develop "target" or "stretch" budgets, we would wish to understand this and the level of adjustment required to bring the budget down to the "expected outcome" of management. ... To consider value by reference to future cashflows, the objective is to identify the future cashflows that are anticipated to be generated by the current business (not just the current portfolio). This will have several components: cashflows generated by the run off of the current portfolio over the next three years; cashflows generated by new business that is expected to be written in the future (comprising initial investment and the cashflows arising from the residuary positions); cashflows associated with ongoing overheads of the business; payments of taxation In considering cashflows associated with new business, it is necessary to make an assumption in relation to the levels of new business written in future. This is a subjective assessment of the potential of the current business and would not assume significant acquisitions, changes or innovations occur. Therefore, it would probably be reasonable to assume - in the absence of evidence to the contrary - that future levels of business written are stable or show moderate growth on the actual level achieved in 1997/98. For us to model cashflows in this way, we will need to obtain data showing the cashflows expected to be generated by the run off of the current portfolio, the cashflows that would be expected to arise from business assumed to be written in the future (based on anticipated parameters for investment and amounts generated by residuary interests), cash overheads and the taxation payments consistent with the above assumptions. 399 Specific reference is made in the paragraphs set out above to "cashflows generated by the run off of the current portfolio over the next three years". That is the only reference to a particular time period and was possibly because the rental periods were generally for three years. 400 It is clear from reading the 9 September email that PwC knew that the 5 year plan that they "proposed to utilise", was not then available but was "currently being prepared". 401 Mr Lander sent the email of 9 September with its requests for material from Mr Pope to Mr Kinghorn with the added note "John. For discussion tomorrow Regards. HL". 402 On 10 September, Mr Kinghorn visited the RentWorks office and talked to Mr Medway and to Mr Lander. According to the applicants it was at that meeting a course was set in relation to supplying information to PwC. Mr Medway had no recollection at all of a conversation with Mr Kinghorn that day nor of Mr Kinghorn writing the words on the back of Exhibit 140 as to alternative valuation methods as an explanation to him. 403 Mr Kinghorn said that he wrote the words "budget" against one paragraph and the words "other than PV of residuals??" against the 5 year plan paragraph as notes for his own information and they were matters he raised with Mr Lander the next day as both of those requests would be difficult to fulfil, the first because the 1998/99 budget had not been finalised and the second one because the only items of any certainty in the 5 year plan were those of cash flow forecasts from the future residuals. 404 Counsel for the applicant spent some time in cross-examination of Mr Kinghorn in relation to his consideration and noting up of the 9 September email and his discussion of it with Mr Lander on 10 September and in particular about the following evidence: Q What did you say to him when you saw him on the 10th about that matter that you had noted? [on the 9 September email] A "Hugh, how could you give them the 5 year plan? The only thing we - the only numbers that we are at all certain of are the cash flow forecasts from the future residuals". I just queried that. (Transcript p 3775) 405 In relation to that answer, Mr Kinghorn said later that he did not know that he would have used those specific words, but he certainly would have used words to that effect. He did not recall he had any response from Mr Lander on that point. He accepted that "other than just normal common sense", he was not in a position on 10 September to know what was going to be or not be in the 5 year plan to be produced to the Board on 22 September. 406 He denied that he was suggesting to Mr Lander that PwC did not need to get the 5 year plan when it was produced on 22 September. He said he did not give any thought as to whether the 5 year plan should be given to PwC, either on 10 September or 22 September. Having ascertained the status of the 1998/99 budget from Mr Lander he had not expected him to do anything. In respect of the 5 year plan request, he did not expect Mr Lander to act on it in any way saying: A I expected that PwC would ask for all the information they required to do their valuation and I expected that Hugh Lander would provide to PwC all the information they required. I was intrigued as to how he could comply with that request in that second-last paragraph when there were no such numbers available. The only numbers we had of any realism were our cash flows from future residuals. (Transcript p 3777) 407 That issue continued to be explored: Q It was your perception, was it not, on the 10th after he did not respond to your comment other than by expressing concurrence, that he was unlikely to give the documents to PwC thereafter; isn't that right? A No, I do not believe that was my perception. Q What was your perception as to what he was going to do, if you had one? A My perception was he concurred with my observation and he would have, I don't know, presumably discussed with PwC the status of what we did have and what were realistic numbers and what were not. I just presumed he would discuss this with PwC. It was a PwC decision on the information they wanted, not a company decision. (Transcript p 3828) 408 When it was put to him that he full expected the comments he made to Mr Lander on 10 September to be acted upon, Mr Kinghorn said "I am used to my thoughts being taken notice of, yes". 409 I see nothing untoward in the fact that Mr Lander had given Mr Kinghorn the email of 9 September to look at, or that Mr Kinghorn had made notes on it. Mr Lander had sent it to him to check items such as Tocur of which Mr Lander had no knowledge. Mr Kinghorn noted with ticks the material that could be supplied immediately, and that which could not, that being the 1998/99 Budget and the 5 year plan. The first was in progress but not yet approved by the Board. The second did not even exist, being in preparation for presentation to the Board on 22 September. 410 In relation to the "Hugh, how could you etc" question to Mr Lander from Mr Kinghorn on the 5 year plan issue, the applicants' submissions were that the intonation of that question was conveying a detailed message to Mr Lander: how could he possibly give that 5 year plan when it became available to PwC because the optimistic forecasts it would contain would inevitably cause PwC to come to a higher valuation of RentWorks than it would otherwise, that such an outcome was not desired by Mr Kinghorn and that Mr Lander was to make sure Mr Pope was diverted from his request for that document. 411 I think that the applicants' submission that the fact that Mr Lander did not give the 5 year figures to PwC after that was said is some evidence that it was said a particular way, i.e. a way that did not ask for a response because it was in effect an instruction, was a huge leap in logic. 412 The applicants' closing submissions make it clear that the writing on the back of Exhibit 140 is one means by which they say the instruction was conveyed to Mr Lander, but it is equally clear from the applicants' closing submissions that they say that an equally effective and probably even simpler way of Mr Kinghorn communicating to Mr Lander his desire that PwC was not to have the 5 year plan was the conversation Mr Kinghorn had in Mr Medway's office. 413 I do not accept their submissions that this conversation is a quite independent basis for the Court to find that there was an instruction given by Mr Kinghorn, or a strong expression of view, or a big hint, however one calls it, that that was what he did not want to happen, to Mr Lander, nor do I accept the writing on the back of Exhibit 140 as an instruction. Mr Kinghorn accepted he wrote the words but I certainly do not accept the submission that the verbal "instruction" was effectively admitted by Mr Kinghorn on his own evidence. 414 It was common ground that Mr Kinghorn was a very successful businessman. However, the applicants' submissions as to his instruction to Mr Lander to keep the 5 year plan from PwC would endow him with an almost supernatural degree of prescience and clairvoyance in relation to the yet to be produced 5 year strategic plan. 415 I reject that submission. 416 The applicants said it was odd of Mr Kinghorn on 10 September to make an enquiry about the status of the 1998/99 budget of Mr Lander, rather than of Mr Sierakowski. I do not see it as odd. Mr Kinghorn had specifically gone to RentWorks to see Mr Lander who had sent him the email of 9 September "for discussion tomorrow". The issue was how could Mr Lander, who was the designated point of contact between PwC and RentWorks as to the valuation process, give to Mr Pope two unavailable documents, the 5 year plan and the 1998/99 budget, nominated in a long list of other documents. Mr Kinghorn's question to Mr Lander as to the budget, was not what was its status, but how could RentWorks comply with Mr Pope's request. 417 Mr Lander's discussions with PwC in the period between 9 and 14 September did not have to, as was asserted by the applicants, "misleadingly assume the outcome of Mr Sierakowski's work on the 5 year plan, which had not even been presented to the Board yet" and advise Mr Pope of that assumption, with the result that Mr Pope decided not to pursue that plan. I accept, as was submitted by the applicants, that some communication to Mr Pope between 9 and 14 September caused him to revise his request for the 5 year plan. I do not accept that there is not "some consistent, logically compelling, credible explanation" other than the intervention of Mr Kinghorn in the process, to explain Mr Pope's decision to revise his request. There seem to be quite logical reasons why Mr Pope would change his mind about his request to be supplied with the 5 year plan between 9 and 14 September. For one thing, all Mr Lander had to do was to tell Mr Pope that the 5 year plan would incorporate a degree of targeting and it was not anticipated that it would be the final document. Also, taking into account the fact that in early September the aim was to have the valuation completed by 31 October, it seems to me quite reasonable that Mr Pope would not press for a copy of it. It seems to me sufficient that, having learned the nature of the document (draft, target), Mr Pope decided not to ask for it. It was not up to Mr Lander to follow it up. Mr Pope was quite capable of doing that if he wanted to. 418 The point to be made in relation to the valuation is that it was the valuer, PwC, who would call for the material it needed from RentWorks. When one thinks of it, that must be the proper approach. Otherwise there could be scope for the situation to arise that the applicants allege arose in these proceedings i.e. RentWorks deliberately ensured that PwC either did not get relevant material such as the 5 year plan or the October 1998 figures, or PwC was misled by RentWorks, and Mr Medway in particular, as to the growth prospects of the company. 419 However, PwC had been seeking the 5 year plan in order to consider "value by reference to future cashflows". In the light of the information given to him Mr Pope instead set out in the 14 September email in the four detailed paragraphs that replaced the original paragraph, what data PwC would need, why it was needed and what use PwC would make of it in relation to that aspect of the valuation. 420 In relation to the applicants' claim that Mr Kinghorn and Mr Medway were trying to undermine the valuation process, in order to purchase the applicants' shares more cheaply, it must be kept in mind that they had not initiated the process and there was no compulsion on either of them to buy those shares, whatever the price might have been. The lack of such compulsion was one of the applicants' complaints as to the unfairness of the Shareholders Agreement. 421 In any event if the valuation of the shares was too high, what was the practical effect for John Kinghorn? He did not have to buy them. MacDome remained as a shareholder. John Kinghorn still retained almost 75% of the shares that being a majority interest in RentWorks. What he wanted done in the company would inevitably occur in any event. Mr Medway's meeting with PwC on 30 September - Submissions - Applicants 422 In final submissions, the applicants said it was accepted that there were more competitors in the markets as Mr Medway had said. That, however, was not the point of conflict with Mr Medway's evidence. The real point of conflict between what Mr Medway said to PwC on the one hand and management's actual view (including that of Mr Medway) on the other, is the point at which Mr Medway said to PwC at the meeting on 30 September that "Existing portfolio and existing residuals [arrow] get cash out comfortably but growth hard to estimate unless we want to change infrastructure [arrow] need capital". It was said that that statement was misleading because the true view as to growth of the respondents, including Mr Medway, but not told to PwC, was the view quantified in the 5 year figures given to the Board eight days before, that, despite competition, RentWorks could experience growth to the extent there set out. 423 The applicants submitted that because Mr Kinghorn, supported by Mr Medway, had asked for a 3 or 5 year plan and to provide a draft, that that request implicitly incorporated the view as to what he and Mr Medway thought could be predicted about the future with a degree of certainty, certainly as to the short to medium term future. That was said to contrast with what was said by Mr Medway on 30 September. He basically said that RentWorks could get the cash out of residuals, but all the rest is unpredictable. Mr Medway's meeting with PwC on 30 September - Submissions - Respondents 424 When Mr Medway went to the meeting, he did not go along there with carte blanche to talk to PwC, it was a question and answer session that they had instigated to unearth or get information that they wanted from him. So they ran the meeting, they asked the questions and he gave the answers. That much is very clear from the notes. 425 It was to do with a competitive environment in which the company was then operating. Although of course that has something to do with the prospects of the business, there were no specific questions addressed to the word "growth". There was no information conveyed about that. 426 There is no suggestion that Mr Medway gave answers which were not his true beliefs. There is no suggestion they were not reasonably based. There is no suggestion he had a chat to Mr Kinghorn beforehand to work out how they were going to get their point of view across. 427 When one looks at the evidence, all that happens is Mr Lander nominated Mr Medway, Mr Medway went along and gave the answers. PwC took the information and then interpreted it and wrote what they wrote in the report about it. They then circulated what they wrote to everybody who was interested. It is, on its face, perfectly appropriate and reasonable behaviour. 428 There is nothing to indicate interference of any kind by anybody in what PwC were told and how they used the information. This allegation has been made, because Mr Murray has come to the position by November, if not before, that he cannot attack PwC, so he has to attack the quality of what they were told. He was going to say it whether it was true or not. Mr Medway's meeting with PwC on 30 September - Consideration 429 The view of Mr Medway for 1998/99 was that whether or not the volume of business written went up, as forecast in the 1998/99 budget, there was going to be a squeeze on profits, views held also by Mr Bickerton, Mr Sierakowski and the Board. 430 At the meeting on 30 September, Mr Medway answered questions about problems with competition but was very positive as to the strategies in place to deal with those problems. 431 Any financial success that RentWorks enjoyed had not been a case of "the rise and rise" of RentWorks. It had lost considerable money around 1990 and that was when Mr Medway and Mr Murray had been given the opportunity to profit share. There was not a straight trend of increasing profits in the years after that but results were up and down each year. 432 In 1998 the continued growth of RentWorks was not a foregone conclusion and there seemed to be real problems, Mr Medway saying that there was a potential cashflow shortfall on the horizon in the second half of 1998. As related earlier, Mr Medway had had discussions with Mr Sierakowski and with Mr Bickerton around April/May 1998, well before any question of a valuation arose, and in the course of those discussions real concerns as to RentWork's continued existence were mooted. 433 One of the assumptions Mr Pope proposed to adopt as at 14 September was that "future levels of business written are stable or show moderate growth on the actual level achieved in 1997/98". 434 Mr Medway's contact with PwC was in my view quite appropriate. Apart from the initial meeting on 28 August, when Mr Murray was present, the two meetings he had with PwC, on 30 September 1998 and 14 October 1998, were at their request. Raising the matter of the GST, as he did in a telephone call on 17 December, was a prudent measure in view of its unknown quantities. 435 This once again is a submission that falls back on the 5 year figures as the basis for accepting it. The particular reliance is that on 22 September, the Board agreed that the 5 year figures did embody its views as to growth over the next five years. All the evidence is to the contrary. There was therefore not only no conflict in views expressed by Mr Medway to PwC as to growth, but also no reason why he should have thought even to mention the 5 year plan. 436 This submission has not been made out. 437 Although he was not really convincing in his evidence that he did not know his views given on 30 September would be taken into account by PwC in the valuation, those views were, in any event, in tune with other evidence. Devaluation Note (Exhibit 104) - Submissions - Applicants 438 The "devaluation note" was written in a personal notebook belonging to Mr Medway. It was in the following terms: DEVALUATION CASE FOR PW'S - Unpredictability - Historical Trend Analysis - Auction value - No Deals - Keyman leaving - - [scribble] Historical Trends - PW's Business Valuation BOOK" [Ex 104]. 439 The applicants submit that the document demonstrates that that was a devaluation case for PwC and is a record among other things of intention of Mr Medway to reduce the value from what it otherwise would have been. It further demonstrates that some preparatory steps were taken to act upon that purpose in planning the context of the communications which Mr Medway had with PwC. 440 What Mr Medway was doing was spending time contemplating a subject which could only be described from the note as the construction of a case. There can be no reasonable innocent explanation of this document. 441 The devaluation document, in effect, colours any and all of the communications during the course of this valuation process. That was Mr Medway's intention. Devaluation Note - Consideration 442 Mr Medway said he did not put a devaluation case to PwC despite the heading of the note. He had no present recollection of when he wrote the note or even that he wrote it. Taken back to that statement later he said that was not a false statement. 443 The matter of substance in relation to that note is not so much the heading, which may or may not indicate an attitude, or even the items set out beneath it, but just what information was actually given to PwC by Mr Medway. What was said by him can be seen in Mr Lander's note of the meeting with PwC on 30 September. I have already rejected the applicants' submission that Mr Medway gave misleading information on that day. 444 Mr Murray's concerns about the involvement of Mr Medway in the valuation process, whether or not a commitment was given by Mr Kinghorn that he would not be involved, fall into the same category as the "devaluation note" for assessment. That is did Mr Medway either withhold pertinent information from PwC or did he provide inaccurate or misleading information to them? Did he have inappropriate contact with PwC? Based on what I have discussed earlier, I find that the applicants' concerns in that regard were not borne out. 445 I only refer to two additional matters as to this issue. Firstly, the applicant did not raise this issue with Harmers in his on-going discussions with them in 1998. Secondly, Mr Murray complained that Mr Medway had a meeting with PwC without Mr Murray being present. However, for his own "informal discussions" with Mr Pope on 1 December, Mr Murray advised Mr Pope that there would not be any need for anyone from RentWorks to attend that discussion. Information supplied to PwC by Mr Lander - Consideration 446 PwC were sent the actuals, the P & L position, for July, August and September on 5 November. I accept the assumption that it takes time to prepare such material and that it is not likely that the October management accounts had been checked and approved by that date. In sending those documents, Mr Lander pointed out the consolidated Australian profit for that period was $2.9 million as against a budget for the period to 30 September of $1.5 million. Mr Lander also explained the variations. 447 The actuals for July to September were supplied to PwC on 5 November, some 5/6 weeks after the last closure date. It could be expected then that the October figures might therefore be available to be supplied early in December. This was in the context of the preparation of a valuation that had had an anticipated supply date of 31 October. 448 Concerning Mr Lander's explanation of abnormals, I do not believe that the actual items were shown to be incorrect. Mr Bickerton agreed that such transactions that were described by Mr Lander were consistent in his experience with the occurrence of such transactions in the ordinary business of RentWorks. He said that over a 12 month period there would be some months with some outstanding results, but one could not really justify or budget what months they were coming in. One person might call it "abnormal". He called it the "result of hard work". 449 At par 49 of Exhibit 163, Mr Pope said that if he had been given the October management accounts prior to completing the valuation he would have queried one aspect, that being the analysis of direct income, and, in particular, whether any amount had been budgeted for future income recovery, but he doubted that his review of those accounts would have caused any significant revision to the valuation, because those management accounts showed performance marginally below budget for that month. 450 The final valuation was provided on 22 December 1998. 451 Mr Pope said that by the time he came to finalise the valuation, he had received from Mr Lander all of the information he considered he needed in order to complete it. He did not have the 5 year plan figures which he did not know of, other than an earlier mention of the proposal. He knew he did not have the cash investment actuals and the October actuals, though asked for, but said that did not matter. In cross-examination Mr Pope accepted it would have been useful to have them but not necessary. 452 Mr Pope's request for the 5 year plan in the email of 9 September had been in the context of considering value by reference to future cashflows (the DCF approach) as against an earnings based approach, the approach to the valuation PwC eventually adopted. The 5 year plan had not been requested in respect of the latter approach. (The DCF was eventually used as a cross-check by PwC.) 453 Examination of the documentation shows that the material PwC requested from time to time from RentWorks prior to the first draft valuation being supplied in November, was meticulously forwarded from 14 September onwards by Mr Lander, either immediately or, as it became available, and checked off from his lists. That information was not copied to either Mr Kinghorn or Mr Medway. 454 Copies of the draft 1998/99 budgets had been supplied to PwC along the way but it was not until 4 November that Mr Lander was able to advise Mr Pope that the 1998/99 budgets, ex and inc Remarketing and EDIT 21 had been approved by the Board. 455 To get to the position of sending the draft valuation of 20 November to the parties who had commissioned the process, Mr Pope must have believed that he had all the information he needed to reach that stage. Most of the later information he asked for was at the behest of Mr Murray, not all information that he had felt he needed before being content to finalise the draft to that point. 456 The October figures were not ones that PwC had originally thought necessary to have before completing their draft valuation. They were ones requested after Mr Armstrong and Mr Pope met Mr Murray on 1 December 1998. Looked at on its own, October was worse than budget. Added to the first three months it pulled down performance. However, the applicants complain that the October figures were not supplied. One would not anticipate that a worse than budget performance when and if seen by Mr Pope would have caused him to move his valuation upwards. 457 Although PwC were not supplied with all they requested on 2 December, in respect of what they did receive, in one important respect they actually changed their view about the valuation. That is in the relationship between recoveries and net residuals they changed the multiplier from 2.2 to 2.37, and that had the effect of almost $1m coming to Mr Murray and some larger figure going to the overall value. Conflicting opinions as to growth provided to St George Bank and PwC by Mr Lander 458 A letter dated 17 November 1998 was described by the applicants as a very important document. That three page letter was sent by Hugh Lander to Fiona Milligan, St George Bank and a note on the bottom of page three states "This document and its attachments are provided to St George Bank Limited in confidence for the purpose of assessing the proposed debt raising by RentWorks Limited ...". Ms Milligan was advised that the $8 million loan sought was to repay $4 million of existing KPL debt, $4 million to fund RentWorks working capital and systems requirements and a portion (as yet undetermined) may be used to buy back a parcel of shares from the existing shareholder (Christopher Murray). 459 Under the heading "Budgets" it was stated that: The accrual budgets for the year to 30/6/99 have been based on a minimum achievable result. You will note that the RentWorks business is well ahead of the budgeted profit for the year to September 1998. The cash flow budgets have been prepared on a worst case cash basis. You will note that new business cash requirements were approx $1m less than budget for the 3 months to September 1998. Secondary cash inflows were also $600k more than budget for the corresponding period. 460 On that same day, 17 November 1998, Hugh Lander, in response to the draft valuation sent by PwC to RentWorks, wrote to Mr Pope, raising a number of matters as points of factual correctness and also to clarify his understanding on the treatment of specific items. In the course of that letter, in relation to par 5.3 of the draft which set out the assumptions adopted by PwC in assessing maintainable earnings, Mr Lander made the following statements: 5) 5.3. I believe that Rentworks Australian can continue (based upon its current structure) to write $130m in new business volume, however, it is unreasonable to suggest that the level of earnings to be generated out of this volume are maintainable. Current market trends highlight that competition is increasing and as a result the level of cash investment and residual risk required to win business is increasing. I note that in your discounted cash flow model you assume that the level of cash investment remains at 2% and the net RV at 8%. The 1998/99 budgets have been prepared on the basis that RentWorks will be required to invest 2.5% in cash in new business with a net residual of 8%. While I cannot say with any level of certainty how much investment and net Rvs will increase post 30/6/99 I do expect that that they will increase. [In this statement it was said that the term "earnings" meant "profits"] 6) 5.6. In order to maintain its level of 1998 earnings RentWorks Australia is going to have to borrow approx $4m to fund investment in residuals and meet operational and capital investment requirements. These funds will either come from bank borrowing or RentWorks will require the repayment of the JA Kinghorn and Co $4m at call loan. As a result I feel that the JA Kinghorn and Co loan should not be regarded as a surplus asset. I note that if RentWorks volume of new business is $130,000,000 we will be required to borrow $3.6m. (see attached analysis) 461 Taken to the "minimum achievable result" in his letter of 17 November to St George Bank, Mr Lander said that, particularly looking at it now (10 March 2003), he believed that statement to be incorrect and wrong. He said he chose the words used, but did not choose them consciously to deceive or to mislead. He was responding to a question put by St George "and he was responding in order to put the best light on the financial affairs of the business for the year ended 30/6/99 in the context of trying to raise debt funds for the business". He said to counsel now "I agree that that is, that that could be - it is an untruth". He had not written it to tell an untruth to St George. 462 Mr Lander believed that at the meeting with Mr Pope and Mr Doyle on 30 September 1998 he reaffirmed that draft 1998/99 budget, as was given to PwC was management's expectation as to the result for the year ended 30 June 1999. 463 As he accepted, Mr Lander's words to St George Bank may have been ill chosen. However, in the light overall of the evidence as to the information supplied to PwC and the approach of PwC to the evaluating of such information in its task of valuation as described by Mr Pope and by Mr Armstrong, I do not see that the different description given by Mr Lander to PwC affected the outcome of the valuation. That is especially so in the light of the fact that Mr Lander's letter to PwC was sent after, and was in response to, the draft valuation was issued by PwC. I also take into account the context of the letter to the St George Bank, that being an approach for loan funds. As was said by Mr Sierakowski, he thought he would be "a little bit naive" to put a not very positive approach in making a presentation to the bankers to get money. CBA proposal - Submissions - Applicants 464 A meeting on 1 September between Commonwealth Bank of Australia (CBA) representatives and RentWorks management was significant in that the Bank's two page file note of that meeting presented an accurate contemporaneous record of what, in the presence of Mr Lander and Mr Medway, or by them, was said to the Commonwealth Bank representative on that occasion at a time prior to the 5 year plan being mentioned to PwC. There are two components to it: a forecast of aggressive growth and there is a statement about a three-year plan, currently under preparation, being made available to the bank in the future. 465 In the first contact between Mr Lander and Mr Pope only a week later, on 8 September, Mr Lander told Mr Pope that there was a 5 year plan and gave a description of it. What then happened after 8 September, after Mr Kinghorn's interference in the process, was that a description was given to Mr Pope which ultimately caused him to change his mind to ask for the 5 year plan, that description being that the document was, in effect, unworthy of being used in the valuation process because it was not going to be a considered view of management at all. 466 There was other significance for Mr Pope, whose evidence was that: If he had been informed that RentWorks representatives had made a forecast of aggressive growth to the Commonwealth Bank he would have sought to understand the extent to which it represented the genuine views of management. 467 If the 5 year figures had been given to PwC, they would have presented a quite different and inconsistent picture to PwC, than the one they actually got. 468 Mr Lander acknowledged that he had a discussion with Mr Pope on the afternoon of Tuesday, the 8th, about information about the forthcoming evaluation. In that conversation Mr Lander informed Mr Pope that a 5 year plan was being prepared. There is a fundamental assumption behind that communication that needs to be commented on. It shows Mr Lander's then appreciation of the expected product of Mr Sierakowski's work was that it was worthy of being given to PwC. That is consistent with what was said to the Commonwealth Bank on 1 September. 469 The point of all of this is when the 5 year plan was first mentioned, it was not mentioned as being a target or speculative or something that required adjustment downward as occurred in the email of 14 September; it was mentioned in simple terms; it was consistent with what the executive had said to the Commonwealth Bank a week before. That was then what changed between 8 and 14 September. CBA document - Submissions - Respondents 470 It is submitted that the suggestion in the applicant's submissions that there was a version of the 5 year figures which existed prior to September 1998 in the form of a table of three-year projections appearing in a draft financing proposal of the Commonwealth Bank is not correct. 471 The applicants suggest that these figures were put in the document significantly prior to 21 September '98, so that they represent the first version of the 5 year figures. That as a theory was never put to anyone and it is certainly not one that sits with the evidence of Messrs Sierakowski and Bickerton who were called by the applicants. This appears to be put on the basis of Mr Lander's evidence that he started to put together the Commonwealth Bank draft in April/May 1998 and that the draft was likely to be prepared in the form of exhibit 155 before 21 September 1998. 472 Mr Lander, however, made clear in his evidence that he began the draft in April and May but that he added to it over time. He was not asked to try to place when the three-year figures were added to the draft and he could not recall where he got them from. He was not asked how long before 21 September 1998 he thought that Exhibit 155 had been prepared in that form and the figures in the document are the same as those in the IBIS-based document. By far the most likely explanation for this is that Mr Lander obtained the figures from the draft of the IBIS-based document, and certainly there was no basis to say that it is clear that the figures came from any other source or that they represent a first version of the 5 year figures which were somehow put together by Mr Lander and then given to Mr Bickerton and Mr Sierakowski. 473 Around April or May 1998 Mr Lander brought to the attention of the Board that RentWorks would need additional working capital in 1998/99 and was instructed to set about obtaining a debt facility from a bank. These plans came to fruition in late 1998 when RentWorks initiated discussions with BankWest and St George banks about putting in place such a facility. 474 The fact that this requirement for a loan had been raised long before Mr Murray's resignation and the activation of the mechanisms of the Shareholders Agreement puts the lie to the applicants' proposition that the only reasons the loan was obtained from St George was to finance the purchase of the shares from Mr Murray. CBA proposal - Consideration 475 The applicants submitted that a loan proposal made by RentWorks to the Commonwealth Bank of Australia (CBA) supported their submissions that RentWorks were making forecasts of "aggressive" growth to other parties, while downplaying the future prospects of RentWorks to PwC. 476 Mr Lander had a general recollection that he had met representatives from the Commonwealth Bank on 1 September 1998 with Mr Sierakowski and Mr Medway. He could not recall anyone from RentWorks forecasting aggressive growth for the company. 477 Mr Lander had the feeling that the draft CBA document was commenced around April or May 1998 and he was adding to it from time to time. He had done some analysis in April 1998 which highlighted that there was a need for additional debt facilities for RentWorks. He was taken to the "Projections" page of the 5 year plan narrative and the comparison was made with the three items: Amount financed, new business income (a) and secondary income (2) in the CBA draft. Although a number of the figures in both were identical or very similar, the original figures for secondary income in the CBA draft were considerably in advance for the 1998/99, 1999/00 and 2000/01 years. They had been amended to lower figures in handwriting which Mr Lander thought was his. Mr Lander could not recall where those numbers came from. Although Mr Sierakowski may have been aware of the draft proposal, Mr Lander could not remember giving it to him. 478 The applicants submitted that the file note on which this submission was based had been written by a banker and therefore was likely to be highly reliable as being a contemporaneous business record. No witness from the bank was called to inform the Court as to who it was who had made such forecasts. 479 The CBA note of a visit to RentWorks with its reference to forecasts of "aggressive growth" does not assist the applicants. Mr Lander's draft and incomplete proposal were not presented to the Board for approval and were certainly never presented to the CBA. St George Bank proposal - Submissions - Applicants 480 The third testing point in the case is the events surrounding the attachment of the 5 year plan figures to the St George Bank and the BankWest finance proposal. In order to displace the prima facie presumptions about what arises from sending the document attached to the St George Bank proposal and the BankWest proposal to those financial institutions in pursuit of an application for finance, the respondents need to give a rational and compelling and coherent account of how it came about that a mistake or error was made whereby this document did get attached to those finance proposals. 481 The difference in thrust between the valuers having and not having a 5 year plan is that what the 5 year plan does, if it is an official considered view of senior management or directors, is to show an expectation of profit growth in the short to medium term as exemplified by at least what is happening in the second year. 482 That is a core difference between what RentWorks gave PwC and what they gave the St George Bank and BankWest, which was what the applicant submits was their true view, that is, that they were expecting growth in business volumes, or as recorded on another page, in profit, and they omitted to give these figures to PwC because they wanted to create the impression that growth was uncertain and simply could not be predicted either way. 483 There is nothing, no board minute of any sort between 14 October and 4 November indicating that a budget was approved. At the very least the lack of any evidence of any formal approval of the 1998/99 budgets basically means that there is no substance in any argument by the respondents that the lack of any evidence of "approval" of the 5 year figures is in any way to be held against the applicants. 484 By 4 November Mr Lander was saying to PwC the budgets were approved and, indeed, budgets described as approved budgets were being attached to a submission to St George along with the 5 year plan figures being attached about 8 or 9 November. 485 The issue there is this: the applicants submit that what Mr Lander told PwC was that the budget was, in effect, a maximum achievable result, that is, the bottom line profit was the most they would get. That was in fact a little bit less than 1998/99, whereas what they were saying to the banks, and they had to say this to make it fit with what they were saying in the 5 year plan about years two, three and four, they had to say to the banks that was a minimum achievable result, and they did. 486 When the same budget is the subject of description to the PwC, the spin is quite different. What happened was they took away years two to five, because PwC did not get the 5 year plan, and the budget for 1998/99 contained a bottom line number which was no higher than 1997/98, and it became a maximum achievable result. That was effectively what was communicated to PwC and, in particular, emphasised after all the budgets are given in Mr Lander's facsimile of 17 November in which it was effectively said, "Yes, we may give business volumes of more than $130m, but we cannot maintain greater earnings than 97/98 out of that". 487 If the applicants' inferences about what happened are right, then really PwC should have been informed that the 5 year plan had gone to St George, after apparently being considered by senior management, most probably Mr Kinghorn and Mr Medway, in the last week of October. 488 There were some differences between the two proposals. On Exhibit 156 Mr Lander had been involved in some discussion of the document that was sent to BankWest, and put notes all over the section that included the 5 year plan figures. What Mr Lander was doing was circling that very same number, which changed in the BankWest proposal, and putting the number "$5m" next to it, and it then got changed in the St George document to reconcile correctly with the budget as approved. It was a step being taken, in effect, to improve the consistency of the budget and the 5 year plan figures for the purpose of their submission to St George. 489 What it shows is that there must have been some executive arrangement, to put it at its simplest, to change the content of the 5 year plan, by somebody, between the BankWest and the St George attachments, and Mr Lander made those changes. What it means, at the very least, is that he has been involved in a process which is designed to render more accurate, more consistent and more likely to be accepted by St George, the document which had been attached in this form to the BankWest proposal. 490 In other documents there were in Mr Kinghorn's writing, instructions to Mr Lander; there was a connection between the RentWorks money going to KPL and the KPL money then coming back to buy these shares. 491 There were changes in relation to some bank interest in subsequent years. 492 The only other note on this document from Mr Kinghorn is the words "KPL interest?", and that was the very line that got changed between the BankWest and the St George version. No-one had any memory of this, but that was what happened. It shows a reasonable inference of Mr Kinghorn's interest in that subject, which was the subject of the change between the two. At least this much can be inferred: In the absence of a recollection, that change after Mr Kinghorn's note is an indication of some knowing involvement on his part in the fact that that change occurred. 493 In fact, Mr Lander's alteration of the BankWest proposal 5 year figures, to the form that he did in the St George proposal, or the alteration occurring after Mr Lander puts the "$5m" note on the BankWest version, is some indication that they were being considered. 494 It is known that the version of the 5 year figures was attached to the BankWest proposal, that the BankWest proposal was sent out in the last week of October of 1998, and they are unaltered from the 22 September meeting. The only change that then seems to occur is between the BankWest and St George proposal. That evidence is perfectly consistent with Exhibit 152, the email chain that there was a request to send figures. It fits perfectly. It is likely that the figures that were sent to Mr Kinghorn were the ones that were in the BankWest proposal, and they happened not to be different from the ones at the meeting of the 22nd. 495 It is not necessary for the applicants to show that there has been actual alteration to the figures to justify the fact that work was done on them. Work was done on them to prove that they were good figures, or to add whatever justification or clarification was required.

St George Bank loan facility proposal - Submissions - Respondents 496 Mr Lander and Mr Sierakowski were trying to get $8m from St George. They had put forward detailed and accurate information in terms of what had actually been achieved. At the heel of the hunt they threw in at Mr Sierakowski's instigation these figures and said nothing about them. Mr Sierakowski came to a view about it, Mr Lander did not agree with it, and there it was, it was done. 497 Both Mr Kinghorn and Mr Medway denied quite specifically that they knew that these things had gone in to the bank. There is no evidence at all from which such a conclusion could be drawn. They each deny it. The mere fact they deny it, whether the Court accepts the denial or not, does not prove anything other than the denial. There is no evidence they did know. 498 In the cross-examination of Mr Medway he was asked about when he found out about the figures being included. Mr Medway ultimately said he did think about whether he should say anything to St George whenever it was that he did find out about matter and he thought the facility had been paid out so there was not any point. 499 The PowerPoint presentation to BankWest was made by Mr Sierakowski and Mr Bickerton in October 1998. The PowerPoint presentation to St George was made by Mr Sierakowski and Mr Bickerton and Mr Lander in November. 500 Mr Medway attended for part of the St George Bank presentation to meet and greet and wave the RentWorks flag, but he had no recollection of attending any meeting with BankWest. Neither Mr Bickerton nor Mr Lander recalled him being at that presentation, although Mr Sierakowski thought that he might have been. So, on the one hand Mr Sierakowski says he might have been, he was not sure; Mr Medway said he was not; Mr Bickerton and Mr Lander do not recall him being there. The respondents ask the Court to find he was not there. 501 There was no subsequent discussion with anyone from BankWest or St George about the figures. That is clear. There is no basis in the evidence to suggest that anyone at RentWorks other than Mr Sierakowski and Mr Lander had any knowledge at the time that these figures had been sent either to BankWest or St George. 502 The fact that the 5 year figures were sent to BankWest and St George in these circumstances adds nothing to the assessment of whether or not they represented, as the applicants would have it, an official and considered view of the directors or senior management of RentWorks as to its likely future financial performance. 503 Mr Lander's evidence that he did not want to attach the 5 year figures to the proposal is said to be inconsistent with the fact that the draft proposal to the Commonwealth Bank includes some three-year projections. The applicants never said to Mr Lander anything to the effect of the submission they are now putting. He never had a chance to deal with it (see Browne v Dunn). St George Bank Loan facility proposal - Board approval of 5 year plan - Consideration 504 The significance of the loan facility proposals to the banks in these proceedings lies in the fact that the annexures to the proposals included a copy of the "5 year Divisional Budget RENTWORKS Australia". 505 The applicants submitted that sending the 5 year financials to the banks allowed an inference to be drawn that the figures represented an official and considered view of the Board or senior management of RentWorks as to its likely future financial prospects. 506 The applicants emphasised that a letter dated 17 November 1998 to St George Bank, RentWorks had said that "the accrual budgets for the year to 30/6/99 have been based on a minimum achievable result" whereas in a second letter, sent on the same day to PwC, RentWorks had advised that "it is unreasonable to suggest that the level of earnings to be generated out of this volume [$130m in new business volume] are maintainable". 507 The St George Bank loan proposal was put together by Hugh Lander in conjunction with Mr Sierakowski. Mr Bickerton was not involved, and recollected that after the bank had asked for more information after the presentation to it, Mr Kinghorn had instructed that the only person to provide such information was Hugh Lander. 508 In relation to his approach to the banks, Mr Sierakowski said that "talking to bankers, we talked in a positive mode in regards to sales and the future of the company". 509 Mr Sierakowski explained what the banks would do with the information sent to them: They are after an understanding do we understand where our business is going? So they would look at the story and say yes, they have a business a viable business, and their thought processes are right in regards to growing the business. As far as the financial figures are concerned you would take the first few years and understand that is where the business notionally would go from the documentation, but, and that it is you would look at serviceability because you are taking out a facility over a period of time so you would like to hope that the Rentworks could prove that they could service that over a period of time. Whether or not they agreed with the fourth and fifth year et cetera was never discussed, and it is not really part of the banking submission you just don't. They look at the next two years and say yes, it is around about right the same as we would do. (my emphasis) ... A Yes, my belief is that I had general discussion with regards to the bank management, I apologise I don't know the person that we were dealing with. Q Fiona Milligan? A Yes, as to what she needed for us to get across the line to get the money if she wanted, she wanted strategic plan which we discussed , and the figures going out, projections going out in the future which are just part of a normal loan submission. We were going to supply that, that is all. (my emphasis) (Transcript p 387) 510 In the St George Bank proposal one can see material taken from the IBIS document under headings that include "environmental review", "understanding the New Age/The Infotronics (Services) Age 1965-2040", "New Age" society/enterprises/growth industries", and "new business rules in the Infotronics Age 1965-2040". 511 The presentation given by Mr Sierakowski and Mr Bickerton to St George Bank in November 1998 was basically a carbon copy of what they had given to BankWest earlier. 512 The St George Bank's internal document "Advance Application" in relation to RentWorks' application for a loan facility of $8 million was prepared on 7 December 1998. The purpose of the facility was to repay $4m of an existing loan to Kalomo Pacific Leasing Limited (KPL) (an offshore financier) and $4m for working capital purposes. The Borrower was to be RentWorks Limited. 513 In the Branch Analysis of the company it was noted under "weaknesses" that it "relies upon the generation of secondary income", and under "opportunities" to capture the substantial cash deposits that are generated". 514 The St George Bank analyst was someone else who could not find a perfect fit with an industry category in relation to RentWorks' risk grading, the closest being deemed to be Computer Wholesaler. It was noted that the balance sheet gearing was 1.56x, however 2.67x had been used. 515 Under "security" one item recorded was a guarantee and indemnity limited to $10 million from J Kinghorn. Mr Kinghorn's personal guarantee of $10 million was for the full amount of the loan, plus interest, and some coverage for the Bank in the event of default. A condition on the proposal was for John Kinghorn, described by the analyst to be believed to be "a high net worth individual", to provide a signed assets and liability statement, confirmed by his Accountant, showing a net asset position not less than $10 million. 516 In the St George Bank's internal analysis of the proposal, the major competitors listed match those named by Mr Medway to PwC. 517 The 5 year financials document was sent to St George as an annexure, but the strategy document was not. (The information in that document may have been part of the earlier presentation to St George as part of the IBIS document was referred to in the St George proposal.) 518 The St George Bank analysis reproduced one page of the "RentWorks 5 year plan" (there being in it one change to "total expenses" in St George Bank document from the 5 year plan financials handed out on 22 September). The note below it said: The above 5 year plan is based on consolidated results and reflects that the strong profitability trend is expected to continue. 519 St George had the actuals until October 1998. 520 Mr Sierakowski believed that the 5 year plan had value. He had the understanding that the 5 year plan was to be prepared to get finance from the banks. That understanding was not confirmed by the evidence, for instance of the Formosa minutes, but it explains why he had no diffidence in directing Mr Lander to attach the 5 year financials to the finance proposals to BankWest and St George Bank. He was in a position in the company where he could direct Mr Lander to include the 5 year financial calculations in the presentation to BankWest and St George Bank. He did so. 521 Mr Lander, who had been present at the 22 September meeting had no recollection that the financials had been rejected. 522 Mr Lander said he prepared the bulk of the content of the report/financing proposal to St George Bank in November 1998 then gave it to Mr Sierakowski for discussion and his input. Mr Lander said that what went into the final report was determined by Alan Sierakowski. Mr Lander had an actual recollection that in the draft proposal he gave to Mr Sierakowski item 4 in the Summary of Annexures, "5 year Divisional budget RENTWORKS Australia" (item 4), was not included. He discussed the draft with Mr Sierakowski and Mr Sierakowski wanted the 5 year divisional budget to be included in the bank report. Mr Lander believed that earlier he had not actively considered whether item 4 should go in the draft, but he did not think it should go in in that form. 523 What ultimately caused Mr Lander to include item 4 was the fact that Mr Sierakowski "told me to include it" and "I was instructed to put the document in the proposal" (Transcript p 4386). He inserted it at the most relevant position within the summary, but noted that he had not drawn attention to it at all in the narrative. 524 Mr Lander's personal view was that item 4 should not be attached to the proposal because he did not believe it had gone through sufficient testing or that it was a rigid enough document. By "testing" Mr Lander meant the 5 year plan financials had not gone through the necessary hard core analysis with people questioning the numbers within it. 525 I accept that that view was genuinely held by Mr Lander. 526 I do not accept the applicants' criticisms of Mr Lander in relation to his attaching the 5 year figures to St George despite any doubts he may have had. The doubts were simply that the figures had not been sufficiently tested. His supervisor, a director, instructed him to attach them. Although the applicants' place great weight on them in these proceedings, there was nothing at the time to indicate that they had any particular importance. Why take such a minor issue to Mr Medway or Mr Kinghorn? 527 Mr Bickerton's evidence, in relation to the figures for which he was responsible in the 1998/99 budget, that he obtained information from a number of sources and gave the number to Mr Sierakowski, who took the number Mr Bickerton gave him, showed that Mr Lander's belief that the 5 year financial figures had not been sufficiently tested was well founded. 528 It was the responsibility of Mr Sierakowski to bring the 1998/99 Budget to the Board. It was also Mr Sierakowski who had been responsible for co-ordinating the 5 year strategic plan including the financials. I do not accept that the impression that Mr Sierakowski said he took away from the Board meeting of 22 September 1998, that neither the plan nor the figures had been condemned by the Board, but that both needed to be worked up more was not his genuine belief. It seems to me that with that background it would not have occurred to Mr Sierakowski (he was not asked about it) that it would not be appropriate for him to attach the 5 year financials either to the bank proposals or to the Budget sent forward for the Board's consideration at a later date. I think the financials and the Budget were bound together, but I do not infer from that that whereas the Budget was later approved at some unknown date, that the 5 year financials were similarly approved. They remained in that budget package as the 22 September version. They had needed more work after 22 September, and they still needed more work. Mr Kinghorn's and Mr Medway's views on those figures as at 22 September have been set out earlier. 529 Mr Sierakowski and Mr Bickerton said they were not approved. 530 Mr Sierakowski said that the 5 year strategic plan with the financial figures were supplied to Mr Kinghorn and Mr Medway probably in late October as finalising it for the bank submission. He did not recall Mr Kinghorn making any request about the information to be supplied to the banks. Mr Medway had asked to be informed at all stages of the bank submissions so Mr Sierakowski "would say" Mr Medway was well aware of the submissions going to the banks. 531 Mr Medway said he knew that Mr Sierakowski and Mr Lander were seeking funds from BankWest and St George Bank. He did not recollect seeing the funds applications. 532 Mr Bickerton accepted that no mention was made in the Board minutes for September and October 1998 to funding proposals being made to either BankWest or St George Bank. Although mention was made of them in the November minutes, the funding proposals documents were not given out at the time. 533 Mr Sierakowski's responsibilities were to upgrade the accounting, secretarial and corporate governance support functions of the business, to start to report better to the Board and help improve those reports to the Board to look more at the details of the budget to show why there were variations and more commentary on differences in achievements to expectations. 534 The need for such upgrading was demonstrated by the lack of documentation of approval by the Board of the1998/99 budget and of further consideration by the Board of the 5 year plan financial figures. That situation was advanced by the applicants as supporting their claim of Mr Kinghorn's malign involvement in the process and that those 5 year plan figures had been accepted at the same time by the Board as an official and considered view of management. 535 In the applicants' final submissions, it was stressed that it had not been asserted in the applicants' claim that there was a formal Board approval of the 5 year figures. What has been asserted is that there was sufficient, by inference, knowledge or assent, on the part of Mr Medway or Mr Kinghorn, from the circumstantial evidence of it being sent to them after it had been the subject of inquiries by way of clarification from Mr Sierakowski, for that inference to be drawn. 536 To me, that whole process was part of the way RentWorks had been run generally and, indeed, was one of the areas Mr Sierakowski had been brought in to fix as part of a long term possibility of floating the company. 537 It is not relevant that no evidence was called from St George Bank to explain what value had been placed on that document in its overall consideration of the proposal put to it by RentWorks. The applicants' submissions were directed to the value that the respondents had placed on them. 538 I accept the respondents' contention that the process to be undertaken by the Court in relation to the 5 year figures and their usage by the respondents, in particular in their being sent to the banks, is a fact finding exercise. The applicants have made a submission that because the 5 year figures were sent to the banks the inference arose that they represented managements' considered view as to growth. 539 That submissions is one like any other submission, that has to be examined in the light of all the evidence. 540 I accept that a version of the 5 year plan financial figures were sent to Mr Kinghorn and Mr Medway in mid October 1998. That version was the same one presented to the Board on 22 September. The Board had not approved it in September, nor according to Mr Bickerton or Mr Sierakowski was it intended that it should be approved. The changes shown to have occurred in the version sent to St George were not, in my view, such as to make it likely that the Board would, in any event change its original views on the worth of that document. 541 Of course, as was asserted by the applicants, Mr Kinghorn was interested in the St George Bank loan, interested enough eventually to provide a personal guarantee for $10 million in relation to a loan for $8 million. That interest of itself does not necessarily translate into approval of the 5 year plan, even if it was looked at when bound, as I believe it was, with the 1998/99 budget sent to Mr Kinghorn and Mr Medway in October. 542 The fact remained that as at the time in October Mr Kinghorn and Mr Medway were seeking to finalise the budget, the 5 year plan had not progressed, other than there having been some minor changes to the figures, after 22 September. It had not been helpful or constructive as at 22 September as providing either positive planning or a blue print to achieve growth in profits and it remained that way. 543 One cannot come to a conclusion, nor even an inference, that because Mr Medway had asked on 2 November to be included in all the initial (my emphasis) presentations to the banks and, according to Mr Sierakowski, asked to be informed at all stages (my emphasis) of the bank submissions, that he was therefore aware in detail of the contents of the documentation that supported those submissions. 544 There was some disbelief expressed by the applicants' counsel that the senior executives would not know what information was going to the banks. Mr Kinghorn and Mr Medway did know the banks were being approached to try to obtain a loan facility, and that those approaches were being co-ordinated by a senior director. Why would they need to be provided with the "nitty gritty" of the submissions being made by Mr Sierakowski? 545 Mr Sierakowski said Mr Medway had a "hands off" approach to a certain degree in certain parts of the business. Because Mr Medway travelled a lot, a lot of directions from him at different stages was via email or telephone. Mr Kinghorn, though he undoubtedly kept in touch with RentWorks management, did not have an office there, only a car space, and, in any event, in 1998 was heavily involved in his endeavours to keep RAMS from going under. 546 Even if Mr Kinghorn and Mr Medway had seen, or were aware, that the five year plan figures had been attached to the BankWest and St George Bank funding applications, the question comes back to what detriment was suffered by the applicants because those same figures were not given to PwC for their consideration in the valuation? 547 The short answer is "none" because, in the first place, the 5 year figures did not have the value asserted by the applicants, and, in the second place, that fact would have been recognised by Mr Pope once he made any serious inquiry in relation to them. 548 Asked in these proceedings as to what he would have done if he had been given a copy of a so-called 5 year plan document during the valuation, he said: I would most likely have asked Mr Lander to inform me of the circumstances in which and the purposes for which each of the documents was created; to explain to me the processes by which each had been created; to inform me of the use, or uses, to which each had been put; and to inform me of the status of the documents in the sense of whether or not they were the final and considered views of senior management which have been reviewed, considered and accepted by the Board of Directors of RentWorks as a reliable indication of senior management's views as to the future financial aspects prospects of the business. 549 He said in cross-examination as to the significance to him of the fact that the 5 year figures document had been given to BankWest and St George - "I think my review of the document was not primarily focussed on what they had been used for, but more what lay behind their preparation". 550 I would expect that PwC would have no less reason to cast a critical eye across management forecasts that were being prepared at a time co-incident with a valuation. 551 Mr Banks also said that a valuer would seriously consider the information contained in the document in the sense that he would study it, attempt to understand it, and attempt to see how the information had been compiled. 552 Mr Pope said the 5 year figures would not have led to a change in the valuation. 553 In par 33 of his affidavit Exhibit 163, Mr Pope first listed five documents (the three 5 year plan documents and the BankWest/St George Bank financing proposals) which he had not previously seen and then listed 28 facts and matters that he was asked to assume in relation to those documents. He said that if he had seen those documents prior to finalising his valuation, he would have made enquiries of Mr Lander and if, as a result of those enquiries learned the matters he was asked to assume, "I would not have regarded the Five Year Figures as a reliable management forecast other than in respect of the financial year ending 1999". 554 In the course of final submissions, the respondents handed up a document which provided references to the evidence and submissions of the respondents which they said made good the 28 assumptions set out in par 33. 555 Leave was granted for the filing of further written submissions limited to that matter only. The applicants submitted that many of the 28 assumptions were fundamentally wrong or omitted significant relevant facts. In their earlier submissions, the applicants had accepted, and said the case was not being put, that if Mr Pope had been given the 5 year figures, he would have simply incorporated them without questioning in his valuation. 556 I do not consider that the later submissions advanced by the applicants detract from Mr Pope's assessment of the 5 year figures. The Court's reasons for rejecting the 5 year figures are set out earlier and encompass some of the matters raised in those submissions. That rejection did not depend upon the view expressed by Mr Pope, although regard was paid to it. 557 I find that the attachment of the 5 year figures to the BankWest and St George Bank proposals do not allow an inference to be drawn that those figures represented an official and considered view of the Board or senior management of RentWorks as to the likely future financial prospects of RentWorks. Mr Murray's knowledge of 5 year plan - Submissions - Applicants 558 On 20 November, when Mr Murray received a list of the documents that had been sent to PwC, the narrow view was taken by Mr Lander that what he was going to get was what was referred to in the valuation report, as if to say that the only things which could influence Mr Murray's position in this process adversely were things which were referred to in the PwC report expressly. 559 What he never got before 24 December, and which he did not get until these proceedings, were the two emails of 9 and 14 September, and an understanding that these two communications had even taken place. The fact that he did not get the emails means he never has the opportunity of putting a case to PwC. 560 There was at a time very early in the process, very close to when the letter of engagement was being signed by all the parties with PwC, that there was an expression of view acted upon by Mr Lander, which showed a desire on the part of Mr Kinghorn and others acting upon that desire for the 5 year plan not to go to PwC. 561 Now, it would be extraordinary that even if Mr Murray did raise that subject in November with PwC, when he found out some facts about the 5 year plan, that things would have been different because Mr Kinghorn was showing a determined course on 10 September to communicate to Mr Lander early in the process the fact that this document should not be used. 562 Mr Murray was cross-examined about this and his main difficulty, which must have been genuine, is that he did not want to reveal to Mr Kinghorn or Mr Medway that there had been another employee who had been giving him this information. That was a genuine concern on his part because the Court has the evidence in this case of the bankruptcy threat to Mr Murray and has seen Mr McDonald cross-examined about how he came by plans and information from being an employee of RentWorks. 563 Another non-revealing question could have been asked. Firstly, Mr Murray said he did not think about it, but secondly, if that question had been asked, that is by PwC, "Do you have every forecast document available?", given the determination shown on 10 September to keep the document away from PwC at such an early stage, it is the applicants' submission that that question would not have produced the document. Asking that question would not have made any difference because of the attitude being displayed by RentWorks as early as this in the process and, again, at the end after 2 December. 564 In reply, the applicants said there is just one simple answer to the plan to sue allegations by the respondents. There is one commonsense answer sitting there right at the front and the simple answer is this: how could it possibly be assumed that if Mr Murray got a fair valuation which produced a just result that he would have simply sued to get more money over and above that? The whole nature of the allegations in these proceedings, the whole of the valuation evidence which has been called has been based upon the fact that the valuation which was produced was too low and it effectively did what Mr Medway's devaluation note said that it came in at an undervalued figure. 565 The plan to sue allegations cover a period of October, November, December, in particular, 1998. There are two important things to remember. One is that it is a mask for what was really going on at the time and that was what the respondents were doing and what Mr Murray did not know about, such as the misleading correspondence sent by Mr Lander to PwC on 17 November. 566 Mr Murray, if he was plotting against these individuals, did not have a chance. What happened when Mr Murray tried to do something after 1 December was that RentWorks refused to supply the information requested by PwC. 567 Even if it were true that out of defensiveness, out of caution, out of lack of information, out of suspicion, all of which would be justified on what the applicants now know, Mr Murray took some preparatory steps to defend his position in the event that the valuation was adverse that is not to be held against him. Applicants' knowledge of 5 year plan - Submissions - Respondents 568 The applicants' complaints were not complaints which were genuinely made. These complaints were, in effect, held back and created by the very conduct of the applicant, based upon an intention to sue no matter what. Whatever the merits, whatever would have happened to this valuation Mr Murray was going to sue. 569 It goes to the heart of the case because the complaints which now come down to what information was given to PwC, or not given to PwC, are all matters which Mr Murray could have brought to the attention of PwC at the time. The 5 year plan he did not bring to their attention. The abnormals was a matter he could have raised, but chose not to. 570 That was in a context where, from September onwards, he had been talking to Harmers, Harmers who were perceived by him to be experts in s 106 cases, and in circumstances where he had advice from Mr Pye as to what he should have done. 571 Exhibits 83 and 84 are notes made by Mr Harmer and Ms Cooper. These notes are pretty clear and no-one from Harmers was brought to court to say to gainsay, one, what is in the notes and, two, what sensibly follows from them, and that is Jones v Dunkel working appropriately in this case. 572 This is a meeting between Mr Harmer, Ms Cooper and Mr Murray held on 18 November 1998. This is just before he gets the draft 20 November valuation from Mr Lander, but after the one of the 11th has gone to Mr Lander and, Mr Murray was told about that by someone at RentWorks and he was told that Mr Lander had deduced a figure from it. 573 The reference in the note to "crossroad" was them trying to think up a reason why he can take the money and still sue under s 106. They had always planned to sue here. They were going to allege that there was a manipulation of information because that is the easiest way, so they think, to attack a valuation like this. They were going to do that come what may without any proper basis. If that is not the construction to put on that, then perhaps Mr Harmer could come along and tell the Court. He has not. They did not have a complaint; they were looking for one. 574 According to the notes, Mr Murray will say he disagrees with a valuation due to X, Y and Z. The note went on: "JK first quoted. (Put in writing - leave paper trail.)" 575 Now, "put in writing, leave paper trail". A paper trail for this case. These people are plotting this case without any basis for bringing it whatsoever and it is a disgrace. They are cowboys of the worst kind. It should not have happened. That note tells the Court that every single thing that came out of Harmers or Mr Murray in this period has to be looked at very carefully indeed. Things cannot be taken on their face. 576 In submissions in rejoinder to the applicants' submissions on this issue, the respondents said that if there is any doubt about the meaning of the solicitors' notes, the Court will construe them the respondents' way because nobody came to explain them. The second point is Mr Murray was cross-examined extensively about all of this and he either agreed with the interpretation the respondents were putting on them, or he said he could not remember. That was where his evidence went. It went nowhere else. 577 What is being written from the applicants, are suggestions of all sorts of theories and explanations as to what the solicitors' notes mean, which are beside the point because Mr Murray never gave that evidence or those explanations. He was not denied the opportunity to do so because the documents were in the ring. 578 There is the problem about the false allegation of concerns as to the independence of PwC. That is a matter Mr Murray knows full well, he should not allege. He reveals his concern about allowing it to his solicitors and yet, nonetheless, does so because he thinks it might actually be a pressure point; and he has sworn to the fact that he held such a concern when he plainly did not. Applicants' knowledge of 5 year plan - Consideration 579 The letter of engagement for PwC included the understanding of PwC that "information provided to PwC will also be provided to Christopher R Murray". 580 Mr Kinghorn did not specifically recall discussing with Mr Lander whether or not Mr Murray should get copies of whatever documents were going from RentWorks to PwC, or at what stage he should get them, though he was generally aware that Mr Murray wanted such copies. He had had no discussions with Mr Lander as to sending either draft of the valuation to Mr Murray. 581 The decision not to send to Mr Murray a copy of the draft valuation of 11 November that had mistakenly retained one number was made by Mr Pope not by Mr Lander. In any event, Mr Murray had been given from someone in RentWorks, the figure that Mr Lander had guessed by working back from the one figure in the draft of 11 November. 582 The second draft was sent by Mr Pope for the directors of RentWorks to comment on it for factual accuracy, but he accepted the comment made to him the day before by Mr Lander that it was probably appropriate for Mr Lander to provide a copy of that draft to Mr Murray. 583 It was Mr Lander's decision, based on an incorrect understanding that the applicant was working for a rival company, to ask PwC not to supply post 30 June 1998 information to Mr Murray. The information was not withheld from PwC and indeed some post June material was supplied to the applicant after the copy of the draft valuation was sent to him. It was also Mr Lander's decision not to supply the October figures requested, although the applicants' submitted that it was perfectly evident Mr Lander had spoken to Mr Medway before replying. In fact there is no evidence that either Mr Kinghorn or Mr Medway in any way were involved with that decision that Mr Lander said he made. 584 It was submitted by the applicants that an important component of the information that was not provided by RentWorks to PwC was the growth estimates for the five years commencing on 1 July 1998 (i.e. the 5 year plan). Mr Slattery, in opening, had this to say about that issue: ... that information wasn't provided and what we say is that if it had been provided, it would have also, under the PwCCoopers' conditions, to have gone to Mr Murray. That would have in fact put him in a very good position to go to PwCCoopers. He did go to PwCCoopers, but without much information going back. (Transcript p 84) 585 The point to be made in respect of that submission as to the 5 year plan is that Mr Murray, independently of formal advice from either RentWorks or PwC, revealed in cross-examination that he did have prior knowledge of the 5 year plan but he did not take that information back to PwC before the valuation was produced. 586 A draft of the factual matters and matters of information obtained by PwC and upon which they were going to rely was provided to Mr Murray. Mr Murray had a meeting with Mr Armstrong and Mr Pope on 1 December. That meeting was the opportunity for Mr Murray to raise his concerns as to the 5 year plan. He raised other matters, but not that one. 587 He said he did not bring it to the attention of Mr Armstrong or Mr Pope because he did not want the position of the person inside RentWorks who told him of it, to be compromised. 588 If the applicant had confided in Mr Pope and Mr Armstrong as to his knowledge of the 5 year plan and to the concerns he had for the RentWorks employee, Mr Pope may have recalled the outcome of his earlier enquiries for that document and so have been able to follow it up without revealing any advice from the applicant. 589 Having talked to Mr Murray on 1 December, Mr Armstrong contacted Rentworks about matters raised by Mr Murray: residual recovery, actual performance figures until 30 October as the trend in business volumes could show the management forecast for 1998/99 was very conservative; the special purpose transactions and cash investment figures for new leasing business (a matter requested by Mr Armstrong, not Mr Murray). Mr Armstrong asked for material additional to that sought by Mr Murray, not all of which was supplied by Mr Lander: the P & L for October. On the evidence of Mr Pope that would have made no difference to the final result of the valuation. 590 It is not clear if the cash investment figures for new leasing business were supplied. In any event Mr Pope later said that getting those figures would not have made any difference. 591 It was submitted on behalf of the applicants that there would have been no point in Mr Murray's raising the matter of the 5 year plan with PwC, because RentWorks had refused to supply other information requested by PwC. Most of the material was supplied. One can only speculate as to whether the 5 year plan would have been made available to PwC if requested. 592 One consequence of Mr Murray's discussion on 1 December 1998 of the draft valuation with PwC was that the assumption that "there is a marginal decline in the level of residual recoveries" in PwC's assessing maintainable earnings was re-examined. PwC wrote to RentWorks and having considered the reply, increased an earlier figure of 2.25 to 2.37, in relation to the assumed recovery rate on residual positions used in the report, a change that increased Mr Murray's share by $400,000. 593 As was stated in the solicitors' notes of his discussions with them, Mr Murray came to a "crossroads" as to what his future actions would be after he received the valuation. He saw Mr Pye and discussed it with Harmers. 594 Mr Murray accepted in cross-examination that at his meeting with Mr Kinghorn and Mr Medway on 15 December 1998 he made no complaints to them about the valuation, the lack of independence of PwC, that they together with Mr Lander had dishonestly and improperly manipulated the information that went to PwC, accepting the position put to him by counsel that he had quite consciously and carefully concealed from them every concern he had at the time, answering a question as to whether he thought that was fair behaviour, by saying "I would say I was holding my cards to myself". 595 The applicants complain that the respondents were deliberately misleading PwC in order to depress the valuation result and had treated Mr Murray's interests with contempt as exampled by the delay in sending him a copy of the valuation. That complaint was made by a person who had enjoyed Mr Kinghorn's confidences as to his concerns on the litigation he was currently involved with and then used those confidences in the planning of his own litigation against RentWorks. 596 There is a difference between preparing for the eventuality of a court case in the future to laying the groundwork for such a case. In my view, Mr Murray's own evidence, even without reference to the records of his discussions with Harmers, makes it clear that that, in fact, was the course he had adopted as to the 5 year figures. 597 In relation to what may be termed the "clean hands" issue, (Mr Murray's failure to take up the opportunity to voice to PwC his concerns as to the 5 year plan), the applicants' counsel relied on Saliba v John Hearder Pty Limited (Saliba) ( (1985 )15 IR 36) (an authority relied upon by the respondents for a different reason) and Davies v General Transport Development Pty Limited (Davies) (1967 AR 371). 598 In Saliba (at p 38) Macken J stated that "there is a wealth of authority that one should not sleep on one's rights and that one should come before the Industrial Commission under s 88F with clean hands". Nevertheless while acknowledging that the employees' conduct was dishonourable, Macken J was not satisfied that the employee's conduct should altogether defeat his claim. The respondent's relied upon the principle as enunciated by Macken J, while the applicants stressed that he had directed his attention to the unfairness of the arrangement concerned in awarding compensation to the applicant. 599 In Davies, Sheldon J (at p 385) said that while the applicant could be criticised as to some of his actions, the issue was not "whether Davies was foolish or negligent but whether he was overborne or defrauded". The findings I have made in this decision do not support a description of Mr Murray as being either "overborne or defrauded". 600 I accept the principle as set out in Saliba but in the application of the principle the Court will take into account the circumstances of the case before it. 601 Whether or not Mr Murray's stated reason for not mentioning the 5 year plan to Mr Pope, that he would expose his source, is true, or an ex post facto explanation conjured up by Mr Murray as submitted by the respondents, is not particularly important. The important facts are that Mr Murray knew of the 5 year plan; he had a specific opportunity to raise that matter with Mr Pope when he raised other concerns; by his own decision he did not do so. He allowed Mr Pope and Mr Armstrong to go forward on the basis that he had brought to their attention all of his concerns. He made no complaints to Mr Kinghorn and Mr Medway when he met them on 15 December. 602 He cannot say that he did not receive independent advice to take the concern up with PwC prior to the finalisation of the valuation. Mr Pye had advised (on 23 November 1998) the applicant to bring any concerns he had to the attention of PwC. Mr Nichols of counsel when consulted on 23 November had given similar advice. 603 The only person who was not completely candid with PwC was Mr Murray. He had raised some of his concerns with Mr Pope and Mr Armstrong. They were followed up. 604 The applicant chose not to raise his concerns about the 5 year plan to PwC on 1 December, instead storing up that knowledge for later use. It was the 5 year plan that was the cornerstone of his attack on RentWorks in these proceedings. However, having made that decision, he cannot now turn around and rely upon that knowledge to attack RentWorks in these proceedings. The time has passed. 605 If the applicant had brought the 5 year plan to the attention of Mr Armstrong and Mr Pope on 1 December 1998, and RentWorks had not provided it when requested to do so, then in these proceedings the applicants might have been operating from the high moral ground. As a matter of practicality, however, the outcome would not be any different, because the 5 year plan lacks the substance to support the applicants' submissions that it could have caused PwC to come to a different view on the valuation. 606 In response to one final submission that was made, two wrongs do not make a right. If it was wrong for the applicants to deliberately hold back information from PwC for whatever reason, then such conduct remained wrong no matter what they said the respondents might have been doing. The conduct of both parties, in the light of all the evidence, would be a matter to be considered by the Court in the exercise of its discretion. Independence of PwC - Submissions - Applicants 607 The applicants did not attack the credibility of Mr Pope or Mr Armstrong, but submitted that in coming to their valuation they had been either misled by RentWorks or had not been supplied by RentWorks with the information necessary for them to come to a proper valuation. Mr Pope did not press for information requested after 2 December because it might have soured the relationship of PwC with RentWorks. 608 It would have been better, in fact, so that such a factor was unlikely to have such sway, for a firm other than PwC to be doing this work. That was an example of how PwC's involvement in effect could lead to a possibility of that sort of escalation occurring and being influential upon the valuer. One of the things sought as relief is that someone other than PwC would be appointed as the valuer. 609 In his final submissions, Mr Slattery stressed that it was not submitted that Mr Pope had been prevailed on between 9 and 14 September not to request the 5 year plan. The applicants accepted that it had been Mr Pope's own decision not to request it then or later. What was submitted was that whatever was advised to him by Mr Lander that advice was misleading and that such advice had been given at the instigation of Mr Kinghorn. Independence of PwC - Submissions - Respondents 610 There does not appear to be any allegation of impropriety against Mr Pope or Mr Armstrong. 611 What seems to be, in the end, suggested is that either Messrs Pope and Armstrong were honest, competent and diligent but were induced into error by reason of the withholding of information or the conveying of misleading information, that is one view of it, or that Mr Pope, as the representative of the two of them who did the valuation, was a weak man who was prevailed upon to take a particular view of matters which was not one he would have taken had he not been prevailed upon. 612 It seems that there is no suggestion, however, whatever is said about Mr Pope, that he was involved in any dishonesty or any impropriety, falling short of outright fraud or dishonesty, of a character which meant that he had, in effect, produced a valuation which was not his true effort. 613 The respondents' submit Mr Pope was an honest man who dealt honestly with all concerned during the valuation process and in preparing his valuation. He was also a truthful witness, and presented as a careful, competent and intelligent man who knew what he was doing, and his work speaks for itself in this regard. 614 Referring to documents produced by the applicants' solicitors following a ruling as to waiver of privilege (10 May 2002) Mr Foster submitted that the true position as to the whole matter of alleging, as a particular of unfair conduct, that PwC were not independent when they undertook the valuation of RentWorks was the idea of Mr Harmer to be used as a point to put pressure on the respondents. That allegation had not foundation and should not have been pressed but was persisted with even in final submissions. 615 It was submitted by the respondents that one of the reasons the applicant did not bring the 5 year plan to the attention of PwC was because he appreciated that PwC were independent and Mr Pope would have followed up his concerns. If that had been done, the applicant would have lost one of the grounds of complaint he was conjuring up against RentWorks. 616 The actual PE multiple changed during the course of consideration by Messrs Pope and Armstrong. It began as consideration of the appropriate multiple with the preliminary figure in early November of four times. Mr Pope then reassessed this figure to 4.5 by 11 November, the time the first draft went out. Then, after further consideration and discussion with Mr Armstrong, he finally settled on a multiple of five. 617 All that occurred without the slightest suggestion of any discussion with anyone at RentWorks about what Mr Pope was thinking, or about the fact that there was any particular figure, or, indeed, about the matter at all. 618 There was then a movement from four to five and that ultimately increased the valuation of the Australian leasing business by $7.286 million, and thus the valuation of MacDome's 12.75% shareholding by $929,000. 619 The assumptions in this PwC report, as set out in the Appendix are not a no-growth scenario at all; it is a scenario that assumes the same level of profitability notwithstanding the squeeze on margins that might otherwise exist. 620 PwC make the obvious point in par 5.21 of the final valuation: We would stress that the assumptions used in the indicative discounted cashflow valuation [which was the cross check to their earnings based valuation] are subject to significant uncertainty. In particular, the assumption of maintaining average investment at 2% and net residual at 8% may be difficult to achieve in an environment of increasing competition. Intuitively, the optimism of this assumption may be offset by the low level of growth in business volumes assumed. PwC valuation 621 Extracts from the draft valuation show the approach of PwC (comments in round brackets are submissions by the respondents): In performing the valuation, we have been provided with management forecasts of financial performance in the year to 30 June 1999. The forecasts are the responsibility of management and our reference to the forecasts should not be construed as an expression of opinion on the forecasts. To the extent that we have prepared an indicative future cashflow model to consider the value of the Australian business utilising a discounted cashflow analysis, we note that the model is heavily reliant on the assumptions made, some of which will inevitably not materialise. ... In assessing maintainable earnings, we have had regard to the current earnings streams adjusted to reflect the lags in receiving secondary income on leasing business. While the business has historically achieved growth in business volumes -- Increasing competition in the leasing of computer equipment suggests that the earnings impact of further growth is likely to be offset by the reduced profitability of business written. 622 (That last sentence refutes the claim that PwC said there was no growth in this business, and shows how baseless was Mr Banks' approach that because the PwC valuation shows no growth, it must be wrong.) 623 The valuation referred to technical obsolescence as a risk. Evidence on this point was given by Mr Pope in cross-examination: Q. Before I go to the next one you want to refer to, can I ask you about this one: all you mention in the fourth bullet point in relation to this, it could relate to volatility of the industry sector, that is recoveries may be affected by technical obsolescence of equipment or increasing competition putting pressure on the company to write business at higher residuals. A. You say "all", but I think technical obsolescence is a serious matter in the industry where you are talking about the whole profitability of the business is allied to the business to sell three or four year old computers in the market, so I think technical obsolescence is a feature in the market. Q. But technical obsolescence of computer equipment was not a new item, a new idea as at 1998... 624 Mr Pope said that: ...it is not something that happens necessarily at a constant rate. Q. Technical obsolescence is not something which has resulted in observable industry volatility to you prior to this point of time in that industry, was it? A. Well, I'm aware of in London, probably in the main frame era in the 80s, and I think a very large number of companies in the UK in the computer leasing sector went bankrupt, exactly because of these issues, that they were writing operating leases on, you know, the computers that became obsolete. (Transcript p 4862) The valuation continued: ... management believe there is a pricing pressure and a trend towards increasing residual periods which may ultimately reduce the scope to achieve historic returns on residual positions for computer equipment; While these adverse trends have been identified, we note that the budget for 1998/99 projects continuing growth in business. ... Not all 'value-adding' initiatives have been successful, and, for example, as at 30 June 1998, a decision had been taken to terminate Intraworks and BIB businesses following the incurrence of significant losses. Consistent with this experience, we have not applied any value to the newly established remarketing function or the EDIT 21 business. 625 (It is to be noted that Mr Banks took the same position on those businesses.) * the amount of recoveries is inherently uncertain; ... As the primary technique for evaluating the leasing business, we have capitalised estimated future maintainable earnings. (Mr Banks in his first report agreed that that was appropriate in valuing this business.) In applying the capitalisation of maintainable earnings technique, we have reflected the following commercial factors: * the RentWorks business has been in growth phase. * however, there is uncertainty in relation to the extent of future growth, based on the competitive nature of the computer leasing sector. * management perceive the market for leasing computer equipment in Australia is close to maturity and a substantial number of large competitors with links to financiers or equipment manufacturers have entered the Australian market. Competition may require increased residuals and potentially reduce secondary income. Management identify a similar trend in New Zealand. * most income and cash flow is generated towards the end of a lease cycle. As a consequence, secondary income is subject to technological and market risk; * there is a lagging of income and hence where a business is growing secondary income associated with current business volumes will not be achieved for up to three years. To reflect the considerations in assessing maintainable earnings we have referred to the earnings for the year to 30 June 1998 -- [which is at the top end of the growth cycle] and adopted the following assumptions: * levels of new leasing business and packaging fees achieved in the year to June 1998 are maintained. (The respondents submitted that to make that assumption was a big assumption in favour of the business.) In practice, there may be some increase in business levels offset by a decline in the percentage packaging fees achieved on new business. No incremental element is ascribed to new business activities, such as remarketing and EDIT 21, reflecting the early stage of these activities. Revenue is adjusted to remove the lag in recognising secondary income. The reported earnings in 1998 have been adjusted to reflect the expected secondary income that would be generated on the net residual of the business written in that year. We have been provided with the following information on historical returns on net residuals achieved ... i.e. In 1997 it was 2.79 times net, 1998 - 2.52; Management analysis estimates net recoveries after broker share on the current Australian portfolio of residual positions of 2.37 times net residual. Reflecting the trend of declining recoveries, we have used an estimated recovery of 2.25 times (implying secondary income is equal to 1.25 net residual positions realised). This generates an estimate of maintainable secondary income (based on net residual positions of $10.33 million written in 1998) of $12,915,000. 626 That last figure was changed in the final valuation: expected secondary income went up from $12.915 million to $14.152 million, which translated through to an adjusted profit before profit share up from $11.351 million to $12.588 million, and an estimated maintainable profit after tax of $7.286 million, up from $6.58 million. 627 In the final valuation this is said: Based on the two above adjustments, RentWorks management estimate the total recovery (after broker share) on the portfolio of residual positions at 30 June 1998 would be 2.37 times net residual. To estimate the secondary income applicable to business written in the year to 30 June 1998, we have applied the estimated recovery rate of 2.37 (implying secondary income is equal to 1.37 times net residual positions realised). This generates an estimate of maintainable secondary income (based on net residual positions of $10.33 million written in 1998) of $14,152, 000. To the extent that these may be a decline in recoveries on residual positions in future resulting from competition forcing RentWorks to take higher residual positions, we have considered this in the context of selecting appropriate earnings multiples. Secondary income reported in the 1998 results relates to lease agreements written in prior years. To avoid double counting, this secondary income is eliminated. 628 (As emphasised by the respondents, the effect of that change was that it increased the expected secondary income taken into account by PwC to derive future maintainable earnings, quite significantly, and it was a result of changing the figure of 2.25 up to 2.37. That was a matter that Mr Murray raised on 1 December.) The assumption of business stabilising at $130 million per annum implies that it will be necessary to fund a larger portfolio of residual positions in future. We have not included any incremental expense in relation to additional interest costs as, we are advised, the net funding requirements over the next year will be met by calling for repayment of an interest free loan (or part of that loan) due from the controlling shareholder. We estimate, therefore, $6.58 million, [which went up to $7.286 in the final valuation]. ... 629 At paragraph 5.13, there are extracted historic and prospective PE multiples. PwC differentiated RentWorks from the banks, because they considered the banks did not provide an appropriate benchmark, and they raised other matters which included: * the small size and specialist nature of RentWorks leasing business and its reliance on key employees. Listed companies will have significantly lower risk inherent in earnings streams as a result of diversification and greater absolute size. ... * our analysis of maintainable earnings adjusts actual reported earnings to derive an estimate of future maintainable earnings based on current business performance. RentWorks is not currently achieving normalised earnings (and would not be expected to do so for approximately two years) and hence the multiple to be applied is prospective rather than a historic multiple. 630 That statement was carried forward into the final valuation: * while the Australian leasing business is generating profits, the business is not currently cash-positive and does not have a capacity to pay dividends. Independence of PwC - Consideration 631 On 8 September 1998, the PwC engagement letter was sent to each of the shareholders. On 18 September the signed copies were sent to Mr Pope. 632 Asked in cross-examination when he first thought it possible that PwC was not independent Mr Murray answered "that thought was ostensibly without substance, but it was an intuitive feel". (Transcript p 1638) He had started to get that intuitive feeling during the course of the valuation because RentWorks had had prior knowledge of the value of the business before the draft valuation came out and the position taken in the draft had extremely downplayed the future prospects of the business. He had known prior to receiving the draft valuation the figure indicated for his shares. His further evidence was that by 24 November 1998, he "felt that [PwC] had been instructed to downplay the value of the company, in effect to decrease the value of the company for the benefit of the other shareholders". He felt that as at 24 November, PwC had complied with that "instruction", those persons doing the instructing including Mr Medway, Mr Kinghorn and Mr Lander. He accepted he had absolutely no basis for believing that, giving answers such as the following on a number of occasions in cross-examination, "No, I said that earlier. I said I had no substance for it. It was an intuitive feel". (Transcript p 1639) Knowing what the company was being valued at he was concerned, on the basis of that, "about Pricewaterhouse's independence and propriety in regard to the valuation because of the extensive links" between PwC and Mr Kinghorn. 633 Still in cross-examination, Mr Murray said the attack on the valuation "was all on intuition". Mr Pye had told him that PwC and Mr Pope, whom Mr Pye knew personally, were honest and reputable. 634 (Mr Murray appeared to rely on intuition in some important matters. He had had a "gut feel" about Mr Medway.) 635 His evidence on that point is probably summed up in the following extract from transcript: Q Wasn't this the position, Mr Murray: that by 1 December 1998 you had no basis whatsoever to think that there was any impropriety on the part of RentWorks or Pricewaterhouse or Kinghorn, Medway or Lander, that had taken place up to that point in time concerning this valuation? A I had no substance to that thought, that is correct. It was an intuitive feeling. (Transcript p 1651) 636 Mr Murray had already had dealings with PwC in relation to an earlier valuation (one not conducted on the same basis as the one conducted as an outcome of cl 4 of the SHA). On 23 April 1997, PwC had conducted a valuation of RentWorks on a pure net cash basis (not including goodwill). The valuation was used for the purpose of determining the initial share purchase price for Mr Murray and Mr Medway. The applicants advised that there is no issue in these proceedings about the appropriateness of that valuation. That valuation was described by Mr Slattery as being the gateway, so to speak, between the old trust structure and the new shareholding structure. 637 On the basis of the applicant's evidence I find that the applicant's view was that PwC were acceptable to him as a valuer. He knew that its valuation department was a different department from whence RentWorks' auditors came. He had had a meeting in February 1998 with Mr Pope, Mr Clarke and Mr Medway as to how the valuation would be undertaken. He had been advised that the minority shareholder discount could be up to 70% if not otherwise specified in the SHA. In the light of that advice, he had agreed, reluctantly, with Mr Medway's proposal that a minority discount of 15% should be specified in the SHA. There is no evidence that Mr Kinghorn expressed a view that a larger discount would be more appropriate. 638 The applicant had been told by his friend Mr Pye, that based on the latter's experience with PwC and Mr Pope personally, PwC were not only honest and reputable, but likely to arrive at a higher valuation than other reputable valuers might come to. 639 At the first meeting with the valuers on 28 August, at which meeting Mr Murray was present, it was envisaged that the valuation could be completed in four to six weeks, by 31 October. (That meeting was held the day after Mr Murray had had lunch with Mr Kinghorn, and two days after the return from Formosa.) Mr Lander was delegated as the contact point with RentWorks to provide PwC with the documentation/information requested by them. 640 The background of Mr Pope and of Mr Armstrong are set out below. 641 Both Mr Armstrong and Mr Pope are members and/or fellows of their respective professional institutes. 642 Ian Gordon Pope is a chartered accountant and is a director in the Financial Advisory Services department (the FAS department) of PwC. He has worked for PwC and its predecessor firms since 1982 both in London and Sydney. Since 1990 he has worked in the FAS department where he specialises in corporate value consulting. He has performed over 20 valuations involving unlisted companies or entities during the course of his career. 643 Ian Alexander Armstrong is a chartered accountant and retired as a partner in the FAS department of PwC on 1 January 2001. He was with PwC, and before that PW, for over 40 years and was a partner for 23 years. He had been in the FAS department for 15 years and estimated that he had carried out more than 100 valuations of unlisted companies. 644 Mr Armstrong said he knew John Kinghorn personally albeit on a limited basis. He corrected a statement by Mr Murray that Mr Kinghorn was once a partner in PW (as it then was). Mr Kinghorn was employed by PW over 30 years ago. 645 Mr Armstrong described the processes of the valuation undertaken by PwC. He had signed the letter of engagement on 4 September 1998. He recalled discussing technical issues relating to the valuation as they arose with Ian Pope but was not actively involved with the Rentworks valuation on a day-to-day basis, the majority of the technical and report drafting work being carried out by Mr Pope with John Doyle's assistance. He reviewed numerous drafts of the report throughout this process. He attended at least two meetings with Hugh Lander, but did not have personal contact with either Robert Medway or John Kinghorn. 646 The meetings with Mr Lander were not only to receive information provided by RentWorks to PwC but also to obtain a good understanding of the current and future prospects for the business. PwC did not audit that information but performed an analytical review of the data provided. 647 Mr Armstrong recalled discussing the multiple and future maintainable earnings aspects of the RentWorks valuation with Ian Pope at length and on several occasions. Those are key factors in an earnings based valuation. 648 Issues he recalled discussing also included the difficulty of benchmarking comparisons to apply to RentWorks, trends from historical earnings data, such forecasts as were available and any actuals as far up to date as possible. That was an ongoing process and as more and better information became available, they used it to determine their estimate of the future maintainable earnings. Mr Armstrong said that that process also involved discussions with management. 649 Mr Armstrong reviewed the draft report, made changes to it and discussed various points with Ian Pope, before sending the draft report to RentWorks for factual verification on 11 November 1998. A second draft report was sent on 19 November 1998. 650 Mr Armstrong described the meeting of himself and Mr Pope on 1 December with Mr Murray. (Details of the concerns raised by Mr Murray with him, and Mr Armstrong's response were set out earlier.) 651 In final submissions the applicants accepted that it had been Mr Pope's own decision as at 14 September and continued to be his own decision after that date, not to call for the 5 year plan. The applicants continued to press their submission that it had been misleading information from Mr Lander that led him to make that decision. 652 The corollary to the applicants' claim that Mr Pope and Mr Armstrong had been misled and did not realise they had been so misled was that Mr Edwards had been similarly misled. 653 Rather than being a disadvantage to the applicants for different divisions of PwC to be both responsible for auditing RentWorks and for valuing it, there was one distinct advantage. Mr Pope ran his draft valuation past Mr Edwards who had audited RentWorks' accounts for some years. If there had been any discordance between the factual situation presented in it, including that advised by management, and the knowledge Mr Edwards had of RentWorks after several years, then Mr Pope would have been quickly made aware of that fact. Mr Edwards obviously saw nothing there that was contrary to his knowledge of the Rentworks business and its prospects. 654 Mr Pope in the witness box, was completely straightforward, to the point, and almost painfully honest. 655 When it was put to Mr Pope by counsel for the applicants that he had been influenced from pressing for the further information requested by Mr Murray, but refused by Rentworks, because to do so might upset the relationship between PwC and RentWorks, he did not give a glib reply in the negative. He took time to consider that question before he firmly denied it. 656 Even taken at its highest, Mr Armstrong's evidence as to his contacts with Mr Kinghorn, showed that the so-called "extensive links" between Mr Kinghorn and PwC were in fact minimal. 657 A major part of the answer to the applicants' submissions that PwC were either misled by RentWorks, or were refused information that they needed to complete the valuation, lies, in my view, in the evidence of Mr Pope. First of all, before he sent out the first draft to Rentworks for checking as to factual accuracy, he said he was satisfied he had had all the information he needed to finalise the draft. The further information that Mr Murray wanted obtained was for the most part obtained. At the time, and from further matters put to him in these proceedings, Mr Pope was satisfied that that additional information would not have caused him to revise the valuation. 658 To support the submissions that the 5 year figures would have made a difference to the result, the applicants relied on Mr Robertson's evidence as to the potential effect of those figures in the selection of the PE multiple, the respondents' "vigorous attempts" to keep those figures from PwC, the work that Mr Bickerton and Mr Sierakowski had put into the figures "to produce what was indeed the only collective management view of the future performance of RentWorks" and the evidence of Mr Banks as to the effect of those figures on the assessment of a PE multiple. 659 Only one assumption was put to Mr Robertson. He was asked if, instead of the 11 assumptions he had been asked to assume in par 132 of his report of 30 March 2001 (Exhibit 57), he made a different assumption: that [the 5 year figures] document represents an official and considered view of the directors or senior management of the likely future performance of the business of RentWorks and that that was an official or considered view reached in October of 1998, that in the selection of a PE multiple that assumption was likely to cause him to reach a higher PE multiple than the one he did reach in Exhibit 57. His answer was: A If I was instructed to assume that what we call the St George Bank five-year plan represented management/the board's best estimate of performance over that five-year period, then, yes, it would serve to increase the multiple that I would apply to maintainable earnings. (Transcript p 4955) 660 After some further questions and objections, he said: ... If the question is if I was in PwC's shoes at the time and I got that document with the description that attaches to it, then, yes, I would want to find out the story behind the documents. (Transcript p 4957) 661 Mr Robertson's evidence on that point did not support the applicants' ultimate submissions. 662 The allegations made by the applicants against Mr Kinghorn, Mr Lander and Mr Medway as to active interference in ensuring that certain information was either not given to PwC and/or misrepresenting information that was given were not sustained. 663 In my consideration of the 5 year plan I reject the applicants' claim that the respondents attempted to keep those figures from PwC and I have found that the work of Mr Sierakowski and Mr Bickerton ultimately produced a document of no worth as support for the future growth of RentWorks to the extent set out in the 5 year plan. 664 Insofar as the applicants' claim is that PwC were not provided with relevant information as to the management's considered views as to the prospects of growth for RentWorks, in that the 5 year figures were not supplied, I have found that those figures were not figures of substance, and if supplied to PwC, Mr Pope would have come to that conclusion. 665 There is no evidence to sustain a submission that Mr Pope and Mr Armstrong were either misled by information supplied, did not recognise that they were being misled by RentWorks, or did not press for information that they believed was necessary to come to a proper valuation of RentWorks. Conduct of RentWorks after 25 February 1999 - Submissions - Applicants 666 The point being made there is that when one looks closely at the correspondence that takes place, particularly in March and early April of 1999, that a series of demands are made and pressure was being placed on Mr Murray. 667 One example of that is that: Immediately after the sending of the letter on 25 February 1999 and before the settlement of 1 March 1999, during the working day of Friday, 26 February 1999, the letter of demand was sent by Baker & McKenzie on behalf of Copeswell to Mr Murray. This is the letter that Mr Kinghorn agreed he probably saw on 26 February 1999. He also agreed that he gave some instructions about its subject matter. The letter was designed to apply pressure to Mr Murray to accept money in accordance with the clause 4 process because he was showing signs of not doing so. Although Mr Kinghorn also denied it, the timing of these letters was clearly designed to minimise the amount of time Mr Murray might have to commence proceedings to stop any settlement of the share sale transaction. 668 What could be construed as a threat of bankruptcy was made outside the Court in 2002 by Mr Kinghorn to Mr Murray. Mr Kinghorn denied that this was a threat and that he used those words in order to attempt to intimidate Mr Murray. Conduct of RentWorks after 25 February - Submissions - Respondents 669 What happened in the period after the sale of the shares under attorney in January and the money being offered to MacDome, until 2 July 1999, was just a device in order to postpone the receipt of this cash until the next financial year for the express purpose of giving Mr Murray and MacDome some time to think about how to deal with the rather unfortunate matters of capital gains tax. He knew before the end of that financial year that if those shares were transferred, there was a capital gains tax liability falling on MacDome as at the date of transfer, irrespective of when the proceeds of sale came in and that the liability fell on the consideration paid or the true value, whichever was the higher. 670 The applicants said nothing to the Commissioner of Taxation at all for years. Then they originally came to this Court and made an application to the Court that the Court should adjust the transfer date of these shares from 1999 to the date when judgment is given, a date much later than 1999 so that they could say to the Commissioner of Taxation "Look, this was transferred much later by order of the Court. The value is as determined by the Court and the ATO cannot charge penalties because the transaction has just only recently taken place." That application was made in this proceeding until eventually, after cross-examination and an application by the respondents to get hold of his advice, they dropped it. 671 That is the quality of the applicant who comes here. That is the person who writes hundreds and hundreds of pages of submissions about the credit of the respondents' witnesses. It is certainly a matter that goes to Mr Murray's credit, but it is much more than that. It demonstrated a propensity here to deal with matters in a way which is at the worst end of dishonesty and impropriety. The Court will view everything that this man has done in this case against that background. This is uncontroverted. 672 The respondents rely on that unfortunate and sorry episode because it cannot be swept away by the device of the last minute, and under the pressure of full exposure to the Commissioner of Taxation, abandonment. Conduct of RentWorks after 25 February - Consideration 673 As for the applicants' complaints as to the conduct of the respondents in the period after 25 February, the sale of the shares had gone forward in accordance with the terms of SHA. The delays in the payment of the moneys to the applicants had been at the instance of the applicants. 674 The applicants did not deny the Copeswell loan, but sought to use the timing of the request for its repayment as evidence of the respondents' conduct going to making the contract unfair. Mr Kinghorn's explanation of that timing seemed quite reasonable in all the circumstances. 675 I take note of the parties' submissions on the taxation issue. As stated earlier, I consider questions of credit in relation to specific issues. The claim for adjustment was not proceeded with, and one would expect that it will eventually be finalised elsewhere. 676 I find that nothing in the respondents' conduct in that period rendered the SHA an unfair contract in terms of s 105(a). J H Banks Valuation - Submissions - Applicants 677 Mr Slattery conceded that the ruling about the ABS figures created a gap in Mr Banks' reasoning, that is, there is one assumption in relation to growth that is not established; the others are. That goes to one part of the reasoning only. Mr Banks relies upon some other assumptions he makes that he feeds into his model. The Court can in effect deal with confidence with those assumptions. 678 The Court can be satisfied upon another basis, by in effect finding that that 5 year plan is as the applicants say it is, so that finding is an independent factual basis upon which the Court can in effect find that Mr Banks' growth assumptions are reasonable. How it could be done is this: in relation to the 20%, 17. 5% and the other growth assumptions that Mr Banks made in that section, the Court can find on the evidence that the collective view of management was that RentWorks would perform in accordance with the 5 year figures, be it the BankWest or St George version. Mr Banks' assumptions are way, way below that in terms of aggressiveness and he made a comment about his conservatism in light of those. 679 The PE multiple 9 to 9.5 was reached through the reasoning process. With later access to the St George figures, Mr Banks thought that 11.5 to 12 is an appropriate PE multiple. The Court does not have to accept that completely, but if the Court regards the growth assumptions which are set out in paragraph 40.56 as reasonable, the reasoning is there for the Court to find, in effect, the appropriate multiple is either 11.5 to 12 as at the proposed valuation dates, or in the alternative, at least 9 to 9.5. 680 Mr Robertson set out in his table, in effect, that the views of the parties about future maintainable earnings are identical and that the only difference in the valuation is on the issue of the selection of the PE multiple. He indicated that if the St George material were given to him with the description that the applicants say it should have, that that would tend to increase the price earnings multiple that he would select. 681 The Court has guidance here from Mr Banks as to what, in his judgment, with the St George figures, an appropriate PE multiple should be. If the Court were to make a finding as to what a reasonable growth assumption was that, in light of the 5 year figures, the Court has, in effect, got the components of the reasoning process to get the Court to this final table, which is the result of Mr Banks' reasoning processes, applying a PE multiple of 11.5 to 12. 682 If the Court thought that a lesser PE multiple was appropriate, no doubt it was one of the ones mentioned by Mr Banks in 9 to 9.5 in his first report, the material is available for that. If the Court were to come to the view that some intermediate figure was appropriate, no doubt the parties could do a calculation. Banks Valuation - Submissions - Respondents 683 Mr Banks does not have expertise in the operating lease industry in Australia or anywhere else. 684 Mr Banks would not be accepted by the Court unless otherwise corroborated. 685 Mr Banks misconceived his role. 686 In particular, it is clear that Mr Banks' clearly failed to appreciate that his role was to offer opinions based solely on assumed facts and not on the basis of his own underlying assumptions. This misconception has irremediably tainted his evidence, which is, as a result, permeated with assumptions made by him which are simply inconsistent with the evidence as it emerged before the Court and which are not supported by other evidence, and in particular in relation to the prospects of this business and of the leasing market generally. 687 The assumptions which he made are now acknowledged by the applicants to be unsupported, except in so far as the Court can get support for them from the 5 year figures. 688 Mr Banks, in the end, told the Court that his process was that in August 1999 he did a DCF as at June 30, 1998. He built into that assumptions about growth, which were very high. There was a loading up of growth in the early years, and the effect of that, arithmetically, is to load up the valuation. 689 He wanted to support those assumptions by his own assertions about the leasing industry, and that material was not allowed in as proof of the fact through him, but rather as an assumption. The applicants were compelled to go down the path trying otherwise to prove those assumptions, and they failed. 690 There was no attempt to bring forward an expert, someone who could have, even a competitor, assisted the Court with this type of material. In the end the fact is that the evidence that came from the respondents on this ought to be accepted by the Court because it was unchallenged in circumstances where no attempt was made to take it on, and if it were to be challenged or challengeable, then one would expect that it would have been challenged. 691 The respondents attacked Mr Banks as a credit-worthy witness, submitting that he was biased, unprofessional, and quite capable of distorting matters in order to present a particular point of view. He was an advocate, a player in the exercise of bringing this case to the Court. 692 Mr Banks conceded in cross-examination that his cash investment assumption was an important assumption underlying his DCF valuation, second only to his growth assumption in terms of its impact on the ultimate value so that if his cash investment assumption could not be supported by appropriate evidence then the result of his DCF valuation was 'wrong'. 693 They were the assumptions which in the end the applicant said were to be supported by the ABS material and the black book material which was not admitted. Those assumptions are unsupported. He said in paragraph 40.46(iii), that any effect on RentWorks competition in the operating lease market in Australia would be substantially offset by growth in that market. That is a presumption he makes. He cannot prove it and there is no evidence whatsoever to support that. 694 The applicants rely upon the 5 year figures. Even if the 5 year figures are what the applicants say they are, they do not support Mr Banks' growth figures because there is no reasoned or rational support for the 5 year figures as such coming from anybody. 695 If the 5 year figures do not support what is in par 40.52, as to his growth projections, then it is accepted by the applicants that those assumptions in par 40.52 are not proven. 696 If that is right, Mr Banks' DCF valuation, which is the core foundation platform for everything he did, is wrong, or cannot be supported, and in one sense that is the end of Mr Banks. 697 The growth and the cash investment assumptions are the most substantial contributors to the difference between Mr Banks' DCF result and other people's valuation of this business. 698 Yet it emerged only in cross-examination that Mr Banks' selection of the average historical figures over the preceding two years or so as the basis for this very important assumption as to cash investment, without any adjustment, carried with it the critical but completely undisclosed assumptions that: (a) nothing had changed which would make history a poor guide to what was likely to happen in the future and, in particular, that he was assuming that "going forward for 10 years there will be no competitive pressures on this business which will require a greater cash investment in transactions than has historically been so". It is common ground they were competitive pressures on this business and that assumption could not possibly be one that was validated by the evidence. Then: (b) that management's own estimates as to what was likely to happen in the future in relation to cash investment, as embodied in the board-approved budget for 1998/99, were to be 'ignored'. This was because the budget had in his view been prepared to present a knowingly false picture of the affairs of the business. 699 The fundamental assumptions not proven were the assumptions on growth and the assumptions on cash recoveries. Mr Banks agreed that his 'assumptions' as to the future growth of RentWorks' Australian business were absolutely fundamental to the difference between his opinion as to the value of RentWorks and that of PwC and Mr Robertson. In particular he agreed that: (a) If he adopted a view as to expectation of future growth consistent with that taken by PwC, then he would lower his price earnings multiple by three or four times: taking the second figure, this would reduce Mr Banks multiple from 9 to 9.5 to between 5 and 5.5 which is totally in line with PwC and Mr Robertson, and: (b) If he made the same assumption as PwC as to growth, cash investment and competition then his valuation of RentWorks' business would be substantially the same as theirs. 700 That was an inevitable concession he had to make, given the assumptions leading to it. 701 These assumptions are, in truth, totally arbitrary. They are the product, not of any rational consideration of the actual facts that prevailed at 30 June 1998, but are the product of nothing more than Mr Banks' speculation as to a matter on which he has no qualifications to express an admissible opinion. They run completely counter to the overwhelming weight of evidence before the Commission as to the market and competitive environment facing RentWorks as at 30 June 1998, including not just the evidence of Mr Medway, but also the evidence of Mr Kinghorn, Mr Lander, Mr Getley, Mr Van Niekerk and Mr Bickerton and a large number of contemporaneous documents. 702 Mr Banks' assumptions as to growth in non-DSE business volumes were not, as one might think, based on his assumption of growth in the operating lease market, i.e. simply increase that business by the 6 to 7.5 per cent rate per annum which he assumes will be the rate of growth of the entire market. Again, an assumption not ultimately proven. Instead, on the basis of that assumption, Mr Banks' assumption for 1999-2000, of 17.5 per cent growth is growth of more than two to three times the rate of growth of the entire market. 703 Mr Banks' assumptions as to RentWorks' competitive environment is reflected in his DCF model in its: (a) Assumption that RentWorks would continue to earn on non-DSE business the 0.6% positive cash fee that it had earned, on average, in recent times, as opposed to the 2.5% cash investment being forecast by management as its benchmark figure in the 1998/99 budget and the 2% cash investment figure utilised by PWC in its indicative DCF crosscheck; and: (b) otherwise making no variation over that period to the same assumed residual recovery rate of 2.37 times net residual and residual investment of 8% as were utilised by PWC in their indicative DCF crosscheck." 704 Mr Banks' DCF calculation, however, assumes historically constant levels of cash investment and margins, but grows business volumes at the rates for DSE and non-DSE business assumed above. In other words, PWC assumed more or less constant levels of real profits going forward on the basis that any business growth would be offset by the effects of competition on margins and Mr Banks assumed continuing growth in business volumes with no impact of competition on margins. Of course the differences produced dramatic effects. By 2002/03 (i.e. half way through the ten year period of the DCF calculation) Mr Banks' model is assuming new business written of $194 million and profit after interest and tax of $18 million whereas PwC's model is assuming new business written of $147 million and profit after interest and tax of $14 million. In other words, Mr Banks' model is assuming 32 per cent new business written and 29 per cent more profits. 705 There was no evidence to support Mr Banks' assumptions re competition, and evidence against it, including that of Mr Bickerton 706 If Mr Banks' reports were to have any evidentiary weight, it was necessary for the applicants to prove the truth of the assumptions (see Ramsay v Watson (1961) 108 CLR 642) ). Notwithstanding this, a fundamental problem with Mr Banks' reports is that the applicants have ultimately failed to prove many of the important assumptions which he says formed the basis of his opinions. 707 It is therefore submitted that the applicants have failed to make good assumptions going to the very core of Mr Banks' report, in particular, the issue of the likely future growth and profit performance of the RentWorks business. On that basis alone, Mr Banks' reports could not be adopted by the Court as of any significant weight as giving the value of RentWorks at the relevant dates. 708 The third and perhaps most telling revelation which came to light in the process of obliging Mr Banks to fully explain his reasoning process, was that the whole basis of Mr Banks' reasoning process for his earnings multiples at all dates covered by his reports was in fact his DCF calculation as at 30 June 1998, a fact which was not mentioned at all in his earlier reports. Indeed, his first report suggested that he had done no such thing but had only utilised the earnings-based method. 709 In section 5 of Mr Banks' first report he expressed the view that the theoretically most appropriate method of valuing RentWorks was using the DCF method, but that he was 'unable to conduct a DCF valuation' as at 30 March 1999 because he lacked information to do so. He therefore 'elected to use a maintainable earnings based method'. 710 He never mentioned the existence of his DCF work. 711 Mr Banks actively mislead the Court. Not only did he fail to disclose through his first two sets of reports that he had relied on his 30 June 1998 DCF analysis in coming to his views as to the appropriate multiple to apply to the valuation of RentWorks at 31 March 1999, he actively sought (by suggesting that in his final report that it was only a 'cross-check' and stating in paragraph 50 of his second explanatory supplement - Exhibit 116 - that he arrived at his valuation at 30 June 1998 by working backwards from his valuation as at 31 March 1999 when he actually did the exact opposite) to conceal from the Commission the fact that this analysis was, not merely 'a factor' in his valuation of views, but was the decisive consideration in his valuation opinions at all of the dates at which he expressed a view. 712 The applicants' nominated primary position is that if the Court finds relevant unfairness, it would give them money. But when one comes to look at how they seek to support that, there is very little said to rely upon the evidence of Mr Banks. Banks Valuation - Further Submissions - Respondents 713 The applicants advanced Mr Banks to contest Mr Pope's valuation. 714 Mr Banks said in his report: PwC have had significant regard to the forecasts and views provided by RentWorks management. These forecasts are overly pessimistic and do not accord with the historical performance of the business. The views put forward by RentWorks in respect of the likely prospects of the business which were relied upon by PWC in preparing their report, contradict the views of management in their communications with lending institutions at the same time. PwC were provided with inappropriate information upon which to formulate a realistic view. 715 They were the only points of criticism he made. 716 PwC took an earnings-based method approach and did the two cross-checks. No criticism was made by Mr Banks or Mr Robertson of this approach by PwC in terms of valuation methodology. Nor was any such criticism put to Mr Pope in cross-examination. Nor were any submissions made by the applicants that PwC had erred in their methodology in any way. The Commission may therefore safely conclude that there was no flaw in PwC's methodology. 717 In short, as Mr Pope said in his evidence, the earnings multiple used needed to reflect the sustainability of earnings, the potential growth in earnings, and the risks inherent in the business. 718 These matters are ultimately taken into account by the valuer in an exercise of judgment which considers and weighs the various, sometimes competing, considerations. Despite appearances to the contrary in Mr Banks' final set of explanatory supplementary reports, this is not a mathematical exercise in which the valuer makes precise mathematical adjustments to a putative multiple in order to reflect each relevant consideration. 719 That is a matter which, in the end, is not the subject of any dispute. As Mr Robertson explained in his evidence, the reasoning process is not nearly so precise. Nor, as it ultimately emerged in cross-examination, was this, in fact, the way in which even Mr Banks approached that task. As he admitted, his "mathematical" exposition of the process was more a reconstruction and attempt to explain the relevance of the various considerations than an accurate representation of the way he actually proceeded. 720 In relation to the DCF used by Mr Banks the respondents submitted that an important feature of the method, however, is that its apparent mathematical precision in fact disguises much the same sorts of judgments which are involved in the earnings-based method but which tend to be 'sort of swept up in the multiple'. 721 All the valuers agreed that a DCF really was not the appropriate way to value this business, even though in truth, Mr Banks had done a DCF in August 1999 and had used that really as the basis of everything he did thereafter. Even though he himself said that it was not the appropriate method to use as the primary method. 722 One consequence of the apparent mathematical nature of the DCF analysis is that relatively marginal changes in the parameters as the assumed rate of growth in earnings or the discount rate can produce enormous variations in value produced by the calculation. 723 The two big drivers in Mr Banks' DCF which make the difference are the growth he assumes in the new business volumes in the first three years, which is massive, compared with less in the DCF done by Mr Pope and the cash investment figure. They produce most of them many millions of dollars of difference. 724 Valuers do look at long term forecasts of earnings with extreme caution. Mr Pope says this: ...in my opinion and experience the achievability of the results embodied in forecasts may be subject to very significant uncertainty... ...particularly if those forecasts cover periods of time beyond the next financial year, except perhaps in relation to particular businesses the earnings of which are inherently stable and thus able to be reliable predicted. This is particularly so of smaller businesses operating in relatively volatile industry sectors. From what I knew of RW and its businesses in 1998, it would be appropriate to classify it as operating within the class of business referred to in the last sentence. 725 That is "smaller businesses operating in a relatively volatile industry sector". That is a finding which the respondents ask the Court to make based upon the evidence. Banks' Valuation - Consideration 726 Three sets of reports from Mr Banks were tendered. The necessity for that series of reports arose because the respondents' objections to the first and second sets on a number of bases, but, particularly, that they failed the tests in Makita (Aust) Pty Ltd v Sprowles (Makita) (2001) 52 NSWLR 705 were upheld by the Court. Leave to file those additional reports was not opposed by the respondents. 727 As a consequence of the Court's rulings and concessions by the applicants, a substantial number of Mr Banks' assumptions were admitted on the basis that they were assumptions only, which would have to be proven by other evidence. 728 The respondents made in depth closing submissions as to the Banks' reports in support of their contention that the Court would not accept Mr Banks' opinions where those opinions differed materially from those expressed by Mr Robertson and PwC for the following reasons: (1) Mr Banks fundamentally misconceived his role as an expert witness in a way which had irremediably tainted his evidence by intermingling his opinions with "findings" and unstated assumptions as to the facts of the matter; (2) Mr Banks' opinions were crucially based on assumptions as to the likely future financial performance of RentWorks which were not merely unsupported by evidence but are contrary to the overwhelming weight of evidence before the Court; and (3) Mr Banks' opinions are thoroughly tainted by bias, lack of objectivity and willingness to act as an advocate in his clients' cause. 729 I accept the general thrust of those submissions by the respondents, but do not attempt to deal with them in detail because to do so would inordinately bulk out this judgment. What I do though is to refer to various parts of Mr Banks' evidence as being indicative of the bases on which I do not accept that his reports support the applicants' submissions that Mr Banks' ultimate valuation of RentWorks should be accepted instead of that of PwC. 730 Mr Banks agreed that in the DCF most of the difference in the end value between his valuation and those by PwC and Arthur Anderson was driven by the growth assumptions made and the cash investment assumptions made. (Transcript p 2908) 731 The evidence of Mr Banks was that his view when he first read the PwC document was that the value seemed to be very low and he could not understand how it was so low. He said that "my simple belief or honest belief is that management were trying to pay a minimum amount for the value of the shares at the date to Mr Murray". (Transcript p 2952) Having quickly looked through it, Mr Banks came to a number of views about the PwC valuation on 8 April: the 2.5% growth was "just silly", at least 8 as a multiple could be justified and 15% (the minority discount?) was wrong. Of course, when Mr Banks first read the PwC valuation, he did so in a taxi on the way to his first meeting with Harmers on 8 April. As at that date Mr Banks had only very recently returned from holidays and had spent not much more than an hour before the meeting looking at the material sent by Harmers. (By way of contrast, Mr Pye had told Mr Murray that PwC had the reputation of coming in with higher valuations.) 732 According to the evidence, on 29 March 1999, Harmers had prepared a letter and some supporting information and had sent it to Ms D'Ambra at KPMG. That letter had with it the shareholders agreement, the draft valuation, a bundle of documents provided to PwC by RentWorks for the purpose of the valuation, the December 1998 letter from PwC to RentWorks, with the letter from RentWorks in response to the actual 1998-99 figures and the final valuation of 22 December. 733 Mr Banks' brief was in the following terms: We have been instructed by MacDome to retain you initially for the purpose of providing your general views regarding: (a) Whether the methodology utilised by PWC in determining the value of MacDome's shares was appropriate. In particular whether: . PWC should have sought additional information from RentWorks prior to finalising the valuation. . appropriate valuation principles were utilised. . a correct Price Earnings Multiple was utilised; and. . there were any other deficiencies in the PWC valuation or the process utilised by PWC. (b) Whether, based on the information that is being provided to you, the value which was ultimately attributed to MacDome's shares was appropriate and if not, a 'ball park' estimate of the appropriate value." We would like to meet with you to discuss your initial views...on 8 April 1999 at our offices. Could you please confirm that you will be in a position to formulate your views regarding the above by this date and that the appointment is suitable for you. After receiving your initial views, our clients will make an assessment regarding whether they intend to proceed with this matter. If a decision is made in the affirmative, we would like to retain you to: . assist in drafting a subpoena seeking all documents which will be required by you to prepare your own valuation of RentWorks;. . following receipt of such documentation, prepare a valuation of RentWorks to be used as an expert's report; and. . if necessary, attend as an expert witness at any hearing. 734 In relation to the meeting with Harmers on 8 April, which Mr Banks did not think was very long, the following extracts from transcript were, to me, enlightening as to Mr Banks' starting point for his valuation: Q What did you tell them? A I told them, I think, basically I didn't spend much time looking at it [the valuation], but that Diana had looked at it and that the PE that was used, on the basis of being used, seemed to be way out of court. I thought it had to be at least 8, and Diana might have made a suggestion as high as 11, but I don't recollect exactly. It was more than 8 on a preliminary view. Q And you had arrived at this view, had you, by a quick read of the letter, a look at the valuation but no reading of the documents? A No, I had had that advice from Diana. She had actually worked on one of their competitors not long before, I believe, FlexyRent and got information on that. She had other information on the files from somewhere in the market. I can't recollect exactly what it was, but she had actually seen it and gave some information to me as well. Q So something she had done led you to think that the Pricewaterhouse result was wrong? A Well, my own reading of it, plus having been told by her of other information, the answer is yes. Q Would you describe the information you had available to you at the time you expressed those views on 8 April to those present as information that could be fitted on the back of a postage stamp, Mr Banks? A I had had the valuation report in front of me and I have had Diana D'Ambra who was in senior management in the corporate finance business at the time, experienced in finance, experienced in valuations, who is now a director of the company, and who had looked at it as well and came up with her view. Q But she had had no opportunity to do any research or to consider the matter fully at all, had she, by the time of the 8 April conference? A I don't think she had done any research apart from looked at the files she had already from previous jobs. Q Previous jobs from some other business? A Some other leasing company that sold its rental stream to financiers. Q But no work had been done at all, I suggest to you, by 8 April, either by you or by her or by anybody else at KPMG, that could be dignified with the word research? A No work had been done in respect of the specific job. We had only had the material given to us, and she had looked at what she had from before, but we had done no specific work on this job until after we had our brief confirmed. ... (Transcript pp 3144-3145) 735 Mr Banks agreed in cross-examination, that anybody who formed the view that PwC were wrong, simply by reading the valuation, would be doing so without any proper foundation. 736 In their valuation, PwC noted that the two year prospective price earnings ratios for mid size US leasing companies in September 1998, following some market decline, were in the range of 5 to 10. 737 It was common ground that in valuation practice if one is looking at earnings to be coming in the future, one should apply a prospective multiple. However, if one is valuing a business by reference to historical earnings (in this case up to June 1998) then one would use an historical multiple. In textbook terms, to apply a prospective multiple to historical earnings, or a historical multiple to prospective earnings, is "a common error". 738 A historic multiple would be higher than a prospective multiple, and applying the historic multiple inappropriately as Mr Banks did in the course of his valuation to prospective earnings, had the effect of wrongly inflating his valuation. That was an error in relation to which Mr Banks had said "using a historic PE versus a prospective earnings as such, is a basic error in valuation". Both Mr Pope and Mr Robertson had correctly used prospective multiples. 739 When Mr Banks set out for the Court in his second explanatory supplement (Exhibit 115 par 41) the reductions for various factors that had led him to reduce his earnings multiple, at that point, from 20.25 to 12.1, he had deducted 8.15 points, (a huge deduction in comparison with the other deductions he made) to take account of "differences in size and lack of diversity and vulnerability to the departure of key employees". 740 However in Exhibit 54 at par 2.2.2. Mr Banks had said that in assessing the price earnings multiple, PwC had had regard to factors that he would consider "only marginally, if at all, affect the assessment of an appropriate price earnings multiple". The factors he specified included "relatively small company" and "reliance on key employees". 741 Taken to what he had stated, he said "the mistake is that there is a reduction - a significant reduction required for a company the size of RentWorks, and so those words are incorrectly stated". (Transcript p 3321) Therefore: In the current form, the words 'relatively small company' are incorrect and misleading, those words in that paragraph, and I would like to have those three works struck out. 742 He said the words had been included by the mistake of someone else assembling the report. 743 In my view, Mr Banks' description of his criticism of PwC, that they had taken into account the relatively small size of RentWorks, when this was a marginal or irrelevant factor, as a "mistake" was another instance of Mr Banks' determination that the PE multiple he arrived at would be above the "8" he had decided in the taxi would be appropriate. Cash investment - Mr Banks' assumptions - Consideration 744 The assumptions as to cash investment was an area of major difference between Mr Banks and PwC. 745 Mr Banks' assumption of the cash investment required by RentWorks going forward for 10 years, was 0.54% for 1998/99 as against the 2.5% in the 1998/99 budget. PwC's assumption for 1998/99 was 2%. 746 One basis for Mr Banks' assumption of 0.54% cash investment was, as emerged only in cross-examination, his assumption that nothing had changed that would make history a poor guide to the future and, in particular, that "going forward for 10 years there will be no competitive pressures on this business which will require a greater cash investment in transactions than has historically been so". That assumption was quite contrary to the evidence and to the common ground that were such pressures on the business. 747 Taken to the 5 year figures, Mr Bickerton had said in relation to cash investment, that because of the position taken on the volume of business written he had increased it by that same (5 ½) percentage increase "and that is basically my understanding or being conservative that I thought going forward that there may have been more competition, we may have to invest more in the deals that we are writing and that would reflect on your business income going forward". (Transcript p 495) He accepted Mr Fosters' summary of "more cash in the business, lower margins". 748 A second basis was Mr Banks' astonishing evidence, raised for the first time during the course of cross-examination (and later dealt with in re-examination) given when answering questions directed to his reasons for choosing 0.54% as cash investment in his DCF, when he knew that the figure in the 1998/99 budget as approved by the Board was 2.5%. He said that he thought that the budget was prepared quite late in the piece, though he did not know when, going on to say "and whether it was prepared to help this event or otherwise, I mean the valuation". (Transcript p 2827) 749 He accepted that his point was that the Board had knowingly painted in the 1998/99 budget a general picture of the business that was unduly low, an artificial depressing of its profits, with an eye to influencing the PwC valuation downwards. 750 As to the 1998/99 budget not being normal, he said "I guess I jump to conclusions, incorrectly or correctly" when the ratios did not look logical, cash investment did not agree with anything in the past and at October 1998 the profit figures were significantly above budget". (Transcript p 2827) 751 In re-examination, Mr Banks was taken to the landscaped document headed: "Total RentWorks Australia Budget (includes remarketing and EDIT 21/Budgeted Profit and Loss (after Consolidation Adjustments)/For the year ending 30 June 1999), and asked to identify the ratios he had said did not look logical. 752 The ratios he identified really came down to those between "broker shares" and "secondary income", "services & others" to "new business", and "investment" to "new business" of 2.5%. 753 Mr Banks had noted that "broker shares" (a direct expense) had increased from $305,000 (actuals, P & L accounts for 1997/98) to a budgeted forecast in 1998/99 of $1,375,454, i.e. increased by a ratio of more than 400%. The ratio "broker shares/secondary income" on that same basis was less than 5%, "secondary income" (actual) in 1997/98 being $7,330,000. 754 In evidence in chief Mr Lander was taken to the document: RentWorks Consolidated Profit and Loss for the month ending 30 June 1998 and his attention directed to all the items raised by Mr Banks as illogical ratios. He dealt with them comprehensively, but, in the interests of comparative brevity, I discuss only the "broker shares/secondary income" ratio. 755 In relation to the entry "Broker Shares", he noted that there were dollar amounts listed for the months April, May, June 1998, totalling some $305,000 but $0 in each of the July 1997 to March 1998 columns. He explained that prior to April 1998, broker shares expenses were netted off against the secondary income figures which appeared in the direct income section of the P&L. From April 1998, the Board requested that they be shown separately, i.e. not netted off but displayed separately in the direct expenses line item. 756 On the basis of brokers shares for 3 months to June 1998 being $305,000, Mr Lander assumed an amount of $100,000 per month for that financial year for those expenses. On the assumption that the brokers share total for 1997/98 was $1.2 million, he had calculated the ratio of brokers share over the entire secondary income as depicted in the 1998/99 budget, referred to by Mr Banks, as being around 15%. For 1998/99 he put the ratio as 16% whereas Mr Banks said about 20%. In any event all ratios were well above the less than 5% Mr Banks thought not logical. 757 As can be seen, Mr Banks' original comparison was a comparison of twelve months expenses against three months. When the three months comparison was properly made the broker shares expenses were $305,000 (April - June 1998) (1997/98) against $343,765 (April - June 1999) (1998/99). 758 That basis for labelling the 1998/99 budget fraudulent because of a 400% increase fell by the wayside, as did the other allegations upon investigation. 759 That allegation by Mr Banks, of course, not only encompassed Mr Kinghorn and Mr Medway, but was also that all Board members including Mr Hughes and Mr Bickerton had connived to artificially depress the value of the business. It also was an indictment of PwC in not seeing something that was so obvious to Mr Banks. However, in other parts of his evidence, Mr Banks relied upon that 1998/99 budget, despite its allegedly artificially depressed figures, to support others of his submissions to the opposite effect. For instance, Mr Banks said that in arriving at his 20 per cent growth assumptions for 1998-99 he also took into account the projected growth in non-DSE business in the 1998-99 budget from $90m to $130m. 760 Mr Bickerton was responsible for the final determination of 2.5% cash investment in the 1998/99 budget. Mr Lander had been involved in the decision to budget for that 2.5%. His thinking in relation to it was that it was a reasonable cash investment which was consistent with RentWorks being able to acquire high quality residual investments. Asked if he had particular investments in mind that were either expected or might be undertaken in 1998/99, he answered: A RentWorks was targeting some tender business and also some government business which typically had a requirement for a larger cash investment than ordinarily was required. For example, the Department of Education transaction initially requires to invest up to 8 per cent in cash in the deals until we managed to sell half the equity to Textron which brought the cash investment back down to about 2.5 percent. There was other deals that I was directly involved like in the Crown in the right of Tasmania which was a hypobaric chamber which required us to also put in a cash investment around 4 per cent. It was my view too that in order for us to increase the non-DSE volume from 90 million, which was the actual to the year ended 30 June '98, to the 130 million in the budget to 30 June 1999, that we were going to have to win some significant tender business which would then require us to invest a higher percentage than we had in the past in deals. Also we were aggressively trying to target new equipment types such as health care and telecommunications equipment which typically required larger cash investments because they were longer term assets than IT equipment. (Transcript p 4335, 4336) 761 I do note that that claim as to the 1998/99 budget being fraudulent was not taken up by the applicants, but I have placed substantial weight on it as indicating the approach of Mr Banks to justify, in the exercise of his valuer's judgment, what assumptions he chose to rely on. 762 It was not only on the cash investment issue that Mr Banks made adverse assumptions, on a matter not within his prerogative but that of the Court, in relation to the integrity of the management of RentWorks. In evidence he said that if the 5 year figures did not correctly reflect management's belief as to future growth, then the supply of them to the banks, showed a lack of integrity, whereas if the 5 year figures did correctly reflect management's belief as to growth, the non-supply of those figures to PwC also showed a lack of integrity. 763 On that point, Mr Banks had said: A valuer who had been given the [5 year] figures would seriously consider that information examine the foundation of it with the directors and satisfy themselves as to the overall veracity of the figures. (Exhibit 54 par 7.2.1) 764 He did not do that but, on the basis that the 5 year figures were sent to the banks he also disbelieved what Mr Medway had said about anything to do with the prospects of the company. Banks' Valuation - Approach to Growth 765 Mr Banks said that by the time of the second report, when he was aware of the St George proposal, he had formed the view "very strongly that really the biggest problem with the PwC report, and it still stands, is the lack of information given to them, that sent them to the view that they believed there was no real growth in that business. That is really the foundation of our differences - there is no real growth in the business. Everything else they have done is a workmanlike job". (Transcript p 3172) As he accepted in cross-examination, he had held the belief that PwC had made a mistake about the matter of growth, from his first quick look at the report. 766 I also note that the letter from Harmers which accompanied that report asserted that PwC had assumed no further growth in the business. 767 The applicants sought on three occasions, on different grounds, on each occasion opposed by the respondents, to tender certain ABS figures in support of Mr Banks' assumptions as to growth in par 46 of Ex 115, those assumptions being: (i) demand for computers and other high technology equipment in Australia in the foreseeable future will increase at a rate greater than the nominal Gross Domestic Product (being real GDP plus inflation); (ii) the whole operating leasing market in Australia will grow in the foreseeable future at least at the rate of growth of demand for computers and other high technology equipment; There was a third assumption but the tender was not directed to support it: (iii) that any effect on RentWorks of competition in Australia would be substantially offset by growth in that market. There was no evidence to support that third assumption. 768 In par 40.47, Mr Banks said that "making those further assumptions and having regard to RentWorks past earnings growth trend ... I concluded that it was possible for me to make reasonable projections about the future growth in RentWorks' gross business volumes". One problem with that conclusion is that the figures show that there was no past earnings growth trend because of the way those figures in previous years went up and down from year to year. 769 The third occasion the applicants sought to tender the ABS documents, (though a lesser number than on the previous occasions) was during the course of final submissions, submissions on the point occupying a little over a day. 770 Mr Slattery sought to show that they were what is called at common law a public record and that they were admissible as such, both at common law, and the common law fitting into the Evidence Act provisions. They were admissible as a public record, which is an exception to the hearsay rule itself, and it is a basis of admissibility, quite apart from it being a business record. 771 The respondents opposed the tender on a number of bases: applicants' application really one to reopen case; the Evidence Act 1995 covers the field as to "public document"; the various elements of the common law exception to the common law rule against hearsay had not been made out, and the documents should be excluded under s 135 as causing the respondents prejudice. 772 The parties were advised on 11 June 2003 that the documents were rejected but no reasons were published. 773 I can be very brief as to the reasons for rejecting the tender of those ABS documents. 774 My tentative view is that the ABS documents do not fall within s 59 as an exception to the rule against hearsay evidence. That view takes into account the legislative/LRC history in relation to the public documents exception. In my view, s 9(1) of the Evidence Act 1995 would be rarely available, and would more likely to be so in relation to exceptions that had not been so well considered prior to the enactment of the Evidence Act. 775 In any event, even if they were, as "public documents" or "public records", an exception to the hearsay evidence rule, that would merely have the facilitative effect of other sections relied upon by the applicants: s 155, s 156, s 182 and/or s 159. They would still need to satisfy the requirement of s 69. 776 There was no explanation as to the methodology behind the collection of the information which was the basis of the figures or as to its presentation. 777 On the face of the figures presented, questions remained unanswered. For instance, as a matter of judicial knowledge, I am aware that the Statistician from time to time issues corrected figures or changes the basis on which information is collected or presented. In the case of these particular ABS figures, the way they were presented changed. That may simply have been a change from recording the figures in millions, rather than hundreds of thousands, but it may not. 778 Without evidence from some appropriate person from the ABS, the Court would not be assisted by simple tables of figures. Even if the ABS documents were admissible on the same basis as those issued by or of the Reserve Bank, they would not, without further evidence, have assisted the Court in terms of Makita to follow Mr Banks' chain of reasoning. 779 Finally, even if I had accepted the substantive submissions of the applicants on that point, I would have, because of the stage of the proceedings at which they were again tendered, refused to admit them under s 135(a) on the basis of prejudice to the respondents. 780 Mr Slattery conceded that the Court's ruling rejecting the tender of those documents had left a gap in the evidence to prove those assumptions. He then submitted that the 5 year figures filled that gap, a submission I have dealt with elsewhere in this judgment and rejected. Banks Valuation - Conclusions 781 Mr Banks in his first report (Exhibit 53) expressed the view that theoretically the most appropriate method of valuing RentWorks was the DCF (discounted cash flow) method but that he was "unable to conduct a DCF valuation" as at 31 March 1999 (par 5.2.9) because he lacked the information to do so. He said he therefore "elected to use a maintainable earnings based method", i.e. the same primary valuation methodology used by PwC. 782 In his second report (Exhibit 54) he said he had undertaken a DCF calculation as at 30 June 1998 "for the purpose of comparison with PwC's report" (par 1.1.2). In his second explanatory supplement (Exhibit 115) he stated that in arriving at his earnings multiple as at 31 March 1999, he had utilised a DCF analysis as at 30 June 1998 (see par 41(i)) which had in fact determined, as was admitted in cross-examination, his price earnings multiple of 9.00 to 9.5 times. (Transcript p 3111.19) The result of his earnings based calculation had been 10 times. 783 Mr Banks had therefore used the implicit PE multiple he had derived from his DCF analysis performed as at 30 June 1998 to derive a PE multiple appropriate to be used for a valuation as at 31 March 1999, saying that the difference in dates should not make any difference. The following extract from transcript was illuminating: Q Would you agree, Mr Banks, that what you really did when you came to do your valuation as at 31 March 1999 and your first report, is that you started with a proposition that you had to get to 9.5 as a PEM for RentWorks' Australian business and reasoned backwards from there? A No, I don't think I did exactly that. I think I just - it went though the general steps you do with a PEM, started at the front end and worked down, but I do agree that there would always have been a tendency that 9.5 was what I, you know, probably should have finished up with. Q And, in substance, you presumed the validity of the 9.44 you had derived [from your DCF analysis as at 30 June 1998] and were merely running through these other factors said to be relevant to deriving the PEM as a rough check against that 9.44 you derived? A I think that is probably true, yes. (Transcript pp 3111-3112) 784 How can the requirements of Makita be said to be complied with when there is revealed such a lack of openness as to how the expert's "opinion" was arrived at? In Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Heydon JA said: … 64 The basal principle is that what an expert gives is an opinion based on facts. Because of that, the expert must either prove by admissible means the facts on which the opinion is based, or state explicitly the assumptions as to fact on which the opinion is based. If other admissible evidence establishes that the matters assumed are "sufficiently like" the matters established "to render the opinion of the expert of any value", even though they may not correspond "with complete precision", the opinion will be admissible and material: see generally Paric v John Holland Constructions Pty Ltd [1984] 2 NSWLR 505 at 509-510; Paric v John Holland (Constructions) Pty Ltd (at 846; 87). One of the reasons why the facts proved must correlate to some degree with those assumed is that the expert's conclusion must have some rational relationship with the facts proved. ... 85 In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v R (1999) 197 CLR 414, on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise" (at [41]). ... 87 There is no doubt about Professor Morton's authority, experience, qualifications and skill. It is also the case that Professor Morton's report is quite lengthy and detailed. But, given that the court is not obliged to take the opinion of an expert as conclusive even though no other expert is called to contradict it, can it be said that Professor Morton's report goes beyond a series of oracular pronouncements? Does it usurp the function of the trier of fact? More vitally, did it furnish the trial judge with the necessary scientific criteria for testing the accuracy of its conclusions? Did it enable him to form his own independent judgment by applying the criteria furnished to the facts proved? Was it intelligible, convincing and tested? Did it go beyond a bare ipse dixit? Did it contain within itself materials which could have convinced the trial judge of its fundamental soundness? 785 In terms of Makita, the reports of Mr Banks did not enable the Court to form its own independent judgment as to his valuation of RentWorks, firstly by not supplying the necessary criteria that could be applied to the facts proved, because, in important respects, the "facts" remained assumptions and had not been independently proven, and secondly, the Court was not convinced, upon examination of it, of its fundamental soundness. 786 The valuation by Mr Banks did not demonstrate to the Court that the valuation undertaken by PwC was deficient either as to the calculation of fair market value arrived at in accordance with cl 6 of the SHA or as to the process undertaken by them. RNZAF - Special Purpose Transaction - Submissions - Applicants 787 As described by the applicants, the "NZ Airforce Transaction" consisted of two lease transactions with the NZ Airforce. The first involved a lease of three Beechcraft aircraft and the second involved the lease of thirteen CT-4E Airtrainer aircraft. 788 Agreements relating to the first of RentWorks NZ's two lease transactions with the NZ Airforce, the lease of three Beechcraft aircraft, were executed on 13 March 1998. The second of the transactions was executed in August 1998. 789 In the Further Amended Summons for Relief, the applicants sought declarations that two Multilease Joint Venture Agreements dated 7 December 1995 (Fourth JV Agreement) and 1 July 1995 (the July JV Agreement) were unfair contracts. They sought orders that either those Agreements be varied to include a provision that "The Royal New Zealand Airforce Transaction identified in paragraph 93 of the Affidavit is a "special transaction" within the meaning of paragraph 4 of the Fourth JV Agreement and paragraph 4 of the July JV Agreement" or alternatively the payment of money. 790 (The applicants explained that there was a question as to which of the July and December JV Agreements was applicable in 1996, and so sought orders in respect of both of them. However, insofar as "special transactions" were concerned, the differences between them were not material.) 791 The applicants contended that the NZ Airforce Transaction fell within the description of a "special transaction" in terms of cl 4 of the July JV Agreement and should have been designated as such. The failure of the respondents to so designate it resulted in the applicants being deprived of the sum of $124,950 (12.75% of the "book value" of the NZ Airforce Transaction in the RentWorks NZ Annual Report for the year ended 30 June 1999). That was because PwC did not take account of the NZ Airforce Transaction in its determination of the value of the shares. That failure meant that MacDome received a lower price for those shares, while simultaneously being denied the benefit it would have received had the NZ Airforce Transaction been treated as special purpose under the JV Agreements. 792 Mr Murray ought to have been consulted by the other shareholders as a matter of fairness about the decision not to nominate the NZ Airforce Transaction as a special transaction. Much of the work in relation to it had occurred prior to the formal execution of the leasing documents in March and August 1998. In March 1998 Mr Murray was still a director of the company and in August MacDome was still a shareholder. 793 The unilateral decision by RentWorks not to classify the NZ Airforce Transaction as a special purpose transaction was unfair conduct and rendered the terms of the JV Agreements unfair. Special Transaction - RNZAF - Submissions - Respondents 794 There is no basis to treat the New Zealand Aircraft transactions as special purpose transactions under the terms of the old joint venture agreement to which MacDome was a party before becoming a shareholder in RentWorks, because the transactions in question were entered into after the effective date of Mr Murray's resignation from Rentworks, and the joint venture agreements to which MacDome was a party ceased to operate when Mr Murray and Mr Medway converted their joint venture interests to shareholdings in RentWorks in 1997. 795 Those joint venture agreements, in any event, do not require that any transaction ever be treated as a special purpose transaction, but merely contain a mechanism by which a transaction might come to be treated as a special purpose transaction by agreement between all of the parties to the joint venture, and there is no basis for finding that there was or ever would have been such an agreement reached between those parties. They are not the parties of this litigation. There is some commonality, but not completely. 796 The fact is that if this is a transaction that properly belonged to the corporation in New Zealand, it would have been improper to channel it off into some other entity unless all the shareholders of the New Zealand entity agreed. 797 If the transactions had been treated as special purpose transactions, Mr Murray would have been required to contribute pro rata to the very substantial cash investment involved in the transactions and to assume the risk which was, in fact, assumed by RentWorks New Zealand as to whether the transaction would ultimately produce a profit or not. 798 That risk is still being borne by RentWorks New Zealand and the final profits, if any, on the transactions, will only be realised when the lease is terminated in 2008 or 2018. There is no evidence or undertaking from Mr Murray to suggest that he would ever have agreed to put up the money, or that he is prepared to do so now. There is no attempt to deal with any of these matters in the submissions made by the applicants. 799 Finally, the applicants say nothing about who the proper parties to the special purpose transaction are, or what the percentage of those parties should be declared to be. The declaration, therefore, is too vague to be ever properly made. This problem is exacerbated by the fact that some of the parties to the joint venture are not parties to the proceeding. 800 Secondly, as a matter of fact, it is not correct to assert that PwC did not take these transactions into account in their expert determination of a fair market value of shares. 801 On the contrary, the evidence is clear that the transactions were included in the 1998/99 budget for RentWorks New Zealand, which was taken into account by PwC in arriving at the valuation. 802 Moreover, this alleged complaint is not pleaded, nor is it the subject of any application for leave to amend the further amended summons, and any such leave as sought ought not be given at this late date. It is not sought. The Court does not need to worry about that. 803 It is also noteworthy that Mr Pope was not cross-examined to suggest these transactions had not been incorporated into PwC's valuation. 804 Finally, the applicants have made no real attempt to put before the Court any proper evidence as to 'loss' if any Mr Murray is alleged to have suffered as to the non-participation in these transactions. The Court does not know even whether they are now expected to be profitable. At most, on the applicants' case, what Mr Murray lost was the chance to persuade the other shareholders, some of whom are the parties, to treat these aircraft leases as special purpose transactions. 805 On the evidence, this chance was of no value because there is no suggestion that Mr Kinghorn or Mr Medway or Mr Goodall or Mr Getley would ever have agreed to such a proposal. The value of the chance was, in any event, included in the RentWorks' valuation, so to compensate MacDome again for losing it would be to double count it. 806 Even if this was not the position, there is no evidence which would enable the Court to quantify what benefit would be expected to apply to MacDome or Mr Murray as a result of treating the leases as a special purpose transaction. 807 The applicants never mentioned this transaction in their oral submissions. RNZAF - Special Purpose Transaction - Consideration 808 Mr Goodall had been involved since the latter part of 1997 in RentWorks (NZ) in the leasing of aircraft to the RNZAF. He did not want it as a "special purpose deal". He said that RentWorks (NZ) never had any cash profits to transmit to Australia while he was there. There was investment in RentWorks (NZ) from RentWorks Australia. 809 The NZ Airforce Transaction was ultimately dealt with by being treated as a transaction on the books of RentWorks NZ. PwC in the course of their valuation, were supplied with the budgets for the Australian and New Zealand business for the year to 30 June 1999, analysis of historical results for the Australian and New Zealand leasing business, estimates of the secondary cash (after broker shares) that would be generated by the net residual positions of the Australian and New Zealand businesses at 30 June 1998, advice in relation to profit share arrangements with certain employees in Australia and New Zealand and management accounts for the Australian and New Zealand business for the three months to 30 September 1998. 810 I would expect that the July JV Agreement would persist in relation to special purpose transactions that were already operative in accordance with the terms of that Agreement prior to April 1997, that being the date of the issue of shares in RentWorks to MacDome. 811 Even if I accepted the applicants' contention that the terms of the Fourth JV Agreement (described by Mr Kinghorn as "the Amended Multilease Australia Joint Venture") persisted in relation to special purpose transactions, in the absence of any specific provision in the SHA, and against the evidence of Mr Kinghorn that that Amended Agreement terminated on 20 September 1997, its business then being owned 100% by RentWorks, the terms of cl 4 of the Fourth JV Agreement as to Special Transactions were not utilised to declare the NZ Airforce Transaction a "special transaction". 812 Furthermore, the July JV Agreement provides in cl 3.8 that each participant will have the number of votes equal to the percentage of their interest in the venture and a "majority vote" shall mean a voting majority of the participants together with a vote of not less than 2 of the participants. From 30 June 1996 those percentages were MacDome 11.25%, Spokane (Medway) 11.25%, Adelante (deBono) 7.5% and RentWorks 70%. If that Agreement was still in force in 1998, the combined votes of two of the participants, Robert Medway and RentWorks, would have been sufficient to validly decide that the NZ Airforce Transaction would not be pursued as a "special transaction" in accordance with cl 4. The evidence is clear that that was their view. No matter what Mr Murray's views on the issue were the practicality is that they would have made no difference to the outcome. In any event it was a New Zealand transaction and Mr Goodall did not want it as a "special purpose deal". 813 Also contrary to the applicants' submissions, the NZ Airforce Transaction, as an item on RentWorks NZ books, was available to PwC to take into account in their valuation. 814 I have dealt with the July JV Agreement on the assumption that it may be, but without deciding the issue, a contract or arrangement in terms of s 105 or s 106(a). It may be that the applicants' remedy is elsewhere in relation to MacDome's status as a shareholder. 815 On the basis of that assumption, I find that the terms of the Fourth JV Agreement and of the July JV Agreement were not unfair at their commencement, nor did they become unfair as a result of the conduct of the respondents. Legislation 816 The relevant legislation is set out below: Division 1 Definitions 105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. Note. The jurisdiction of the Commission under this Part is exercisable only by the Commission in Court Session. Division 2 Unfair contracts may be declared void or varied 106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. Unfairness of the Contract, Arrangement etc 817 The applicants submitted that the Court was not required to make a finding of "serious impropriety", the term used by the respondents in their heading "Findings of serious impropriety and the principle in Briginshaw v Briginshaw (Briginshaw) (1938) 60 CLR 336, in determining a claim under s 106. 818 I accept that the appropriate standard of proof to apply is that stated in Briginshaw i.e. on the balance of probabilities, a principle now embodied in s 140 of the Evidence Act 1995. 819 As long ago as 1980 it was said in A & M Thompson Pty Ltd v Total Australia Ltd (Thompson) [1980] AR 399 at 419 that "the absence of fraud, deceit or cheating is not in itself an answer to a claim of unfairness. ... In a proper case, in which fraud is not present and in which the complaining party fully understood the bargain, an order may be based on unfairness". 820 For relief to be granted, the Court must first be satisfied that the impugned contract is unfair etc in terms of s 105(a). It is only then that it would turn to consider the question of relief. In this case the applicants allege that the respondents' conduct has caused detriment to the applicant, that detriment in this case alleged to be the undervaluation of RentWorks. If there is no detriment, there is no basis for orders to be made under s 106, either for variation of the contract, arrangement etc or for orders for money to remedy the alleged unfairness. Relief 821 The applicants submitted that very clearly this is a case in which the Court should with respect seek to reach, so far as it is possible, complete finality between the parties in the judgment and determination given. What the applicants say is if the Court is otherwise of the view the relief should be granted, and the way it should be granted is by way of a money order under s 106(5), if the Court accepts Mr Banks' reasoning and the Court were to make this finding, the Court should in effect apply the rest of Mr Banks' reasoning and find multiples of the kind that he says should be found in respect of the future maintainable earnings of this business. 822 The applicants made detailed submissions in relation to a number of alternative orders that the Court might make in the event of its finding in favour of the applicants. The respondents made similarly detailed submissions as to why the orders sought either could not be, as a matter of jurisdiction and also lack of quantification, or should not be, as a matter of discretion, made. In the light of my decision as to this application, I do not set out those submissions, nor consider them further. Valuation Date - Submissions - Applicant 823 The only dates that the applicants contend for are either 8 February when the offer made to sell the shares was accepted or 31 March 1999, when the shares were actually transferred, or, alternatively, 30 June 1998, as the relevant valuation dates. 824 The best construction on the SHA and the ordinary legal concepts would tend to compel to the conclusion that, in accordance with cl 4, the valuation should be dated as at the date of the agreement to sell the shares and that date is in fact 8 February 1999. Date of Valuation - Submissions - Respondents 825 Clause 4 does not say in terms what date these shares are to be valued, nor does it set out in terms a formula for determining that date, but it is clear that what is contemplated by the valuation exercise set out or activated under clauses 4 and 6 is that the shares will be valued as at the date of the termination of employment. 826 There has to be, as a matter of commonsense a date as at which the valuation is to be performed because the valuer has to have a bench mark or a point in time at which all has to be considered. It cannot be a moving feast right up to the point he signs off, because he is forever investigating the matter up to that point and it becomes completely circular and it lacks commonsense and commercial credibility. 827 What the clause actually means as presently drawn is that the date as at which the shares are to be valued is the date of the cessation of employment of the selling party, be it Mr Murray or Mr Medway; in this case, 30 June 1998. Of course Mr Murray agreed to that date anyway, fully appreciating and knowing the implications of his agreement. Valuation Date - Consideration 828 During the course of proceedings a number of dates had been raised by the applicants as being the appropriate valuation date, but in final submissions it was only those dates mentioned above that were pressed. 829 The date stipulated in the PwC engagement letter was for a valuation date of 30 June 1998. There must be a fixed reference point against which the valuers can consider the factors to be taken into account in their valuation exercise. 830 That is especially so with a company such as RentWorks. It is not listed on the Stock Exchange. 831 A valuation had to be completed before the other shareholders could decide whether they wished to purchase the vendor's shares at the price determined. 832 Mr Murray deposed in his affidavit (Exhibit 19) that in early July 1998, with the assistance of Cutler Hughes and Harris, solicitors, he drafted a letter of resignation to RentWorks. He had drafted his written resignation so that it would be effective from 30 June 1998, the reason being to save RentWorks additional expenses. RentWorks' financial records were always completed up to 30 June each year, and if his resignation date was anytime after 30 June another audit would have had to be completed under the terms of the Shareholders Agreement (pars 68 and 69). That resignation letter was handed to Mr Kinghorn on 28 July 1998. 833 In his affidavit dated 19 March 2001 Mr Kinghorn said that at the meeting with Mr Murray on 28 July 1998, he had suggested the valuation date of 30 June 1998, and that Mr Murray had agreed. 834 There is nothing in either the SHA or in the circumstances of Mr Murray's resignation from RentWorks that would justify either of the 1999 dates contended for by the applicants. 835 I find that 30 June 1998 is the appropriate date as at which MacDome's shares in RentWorks should be valued. Conclusions 836 I find that Mr Murray's deliberate withholding from PwC his knowledge of, and his concerns about, the 5 year plan, that plan being the core of his current claim as to the SHA being an unfair contract, would be sufficient, as a matter of discretion, to come to an adverse finding as to this application. However, the Court's rejection of that application is not based on that finding, but on its findings that: 1 The Shareholders Agreement signed on 15 June 1998, was a contract or arrangement etc in connection with a contract or arrangement whereby a person performed work in an industry; 2 The Shareholders Agreement signed on 15 June 1998, to which the applicants were parties, was not an unfair contract or arrangement as to any of its terms, and, in particular, cl 4.1(b), cl 6.1(a) and (b) and cl 6.2, in terms of s 105(a); 3 There was no unfair conduct by the respondents, as to the circumstances of the applicants entering into that Agreement. They did not withhold information, or provide information that would mislead, to PwC in their task of valuing the shares in RentWorks in accordance with the Shareholders Agreement; 4 The valuation reached by PwC in accordance with the Shareholders Agreement by PwC was carried out with competence and integrity by PwC, and in particular by Mr Pope and Mr Armstrong. They had received from RentWorks all the information they felt was needed to come to a proper valuation. That information was not misleading. To the extent that information was sought, but not supplied after 2 December, that information would not have affected the valuation, or at least would not have led to it being revised upwards. The integrity of their final valuation was not breached by the evidence of Mr Banks. 5 Assuming that the Multilease Joint Venture Agreements of July and December 1995 were contracts or arrangements etc that fell within the terms of s 105(a), the failure to designate the NZ Airforce transaction as a "special transaction" did not render those Agreements unfair. 837 In the light of those findings of the Court that there is no contract or arrangement etc that is unfair in terms of s 105(a), or has become unfair in terms of s 106(2), the Court does not have the jurisdictional basis to make any orders in accordance with s 106. 838 The application is dismissed. Costs 839 It was common ground that the issue of costs should await the judgment. 840 If the parties are unable to agree as to costs they have leave to approach the Court on that issue. **************************

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