17 Staff J further found that:
[180] Subject to any acquisition by Landmark of Ms Deng's shareholding in Dengs Investments, or vice versa, the business would be managed by Ms Deng, who would be employed by Dengs Investments. She would receive a salary of $35,000 per annum (or such other sum as may be agreed by Landmark) and would devote herself fulltime to the interest of Dengs Investments and use her best endeavours to promote the interests and welfare of Dengs Investments. The profits of the business would then, subject to any contrary agreement between Landmark and Dengs Investments, be paid to Ms Deng and Landmark by way of dividends on the shares in Dengs Investments, such payments to be made every two months.
18 As to the question of whether it was a term of the alleged prior oral agreement that Landmark would not have to make any payment for its 49 per cent shareholding in Dengs Investments, Staff J found it was not. His Honour stated (at [181]):
[A]t the time of the sale of part of the business by Mr Lieu to Ms Deng in 1996, Mr Lieu owned 100 per cent of the business (through his company Lieu Investments). Ms Deng and Mr Lieu agreed that she would pay him $85,000 for the 51 per cent share in the business. It is inconceivable that Mr Lieu would have to pay any money to retain his 49 per cent interest in the business which he already owned. In my view, this part of the claim does not establish any basis for unfairness.
19 The trial judge then proceeded to deal with the remaining issues raised by the claims. First, was payment for stock. The applicants had contended Dengs Investments would be liable to pay any amounts outstanding as at 8 March 1996 in respect of any stock of the business supplied to the business prior to 8 March 1996 and from which the business derived rental income on or after 8 March 1996. His Honour found that the parties' prior oral agreement was that Dengs Investments would own and be entitled to derive rental income from the business stock after 8 March 1996, because it had purchased (and therefore owned) it. At [187] his Honour stated:
[187] In my view, there is nothing unfair about Lieu Investments being required to discharge all debts and liabilities prior to the sale of the business. It is an entirely routine and usual term, which appeared in the then current standard Sale of Business Agreement form for New South Wales and accords with the general principle that a vendor of a business should discharge debts of the business it has previously incurred before selling the business to a purchaser. I find that Lieu Investments sold the stock to Dengs Investments. No unfairness arises in respect of this part of the claim.
20 The next issue was cl 30 of the Sale of Business Agreement, which concerned the balance of the purchase price of $81,600. It was claimed that it was a term of the prior oral agreement that the balance of the purchase price would not in fact be payable by Dengs Investments. Landmark, of course, had a 49 per cent stake in Dengs Investments. Further, cl 30 was inconsistent with cl 4 of the Sale of Business Agreement, which required payment on completion. Staff J found in respect of this issue as follows:
[191] The respondents contend that the adverse consequences of cl 30 being included in the Sale of Business Agreement have been that Dengs Investments, of which Mr Lieu, through Landmark, is a 49 per cent shareholder, had to pay the liquidator the sum of $38,000, as a result of Mr Marsden, the liquidator, seeking the payment of $81,600, as representing a debt to Lieu Investments (in liquidation). Dengs Investments paid the amount claimed, less allowances for the amount of $26,942.59 paid by Ms Deng on behalf of the creditor (Lieu Investments) and $6,056.40, being legal costs, leaving a balance of $48,601. A settlement was reached with the liquidator whereby Dengs Investments paid $38,000. The applicants' contention is that as this amount was never intended to be paid by Dengs Investments, its payment has reduced the dividends or profit of Dengs Investments by $38,000.
[192] The uncontested evidence is that Ms Deng and Dengs Investments paid the sum of $38,000 (less accounts paid by the debtor (Ms Deng) on behalf of the creditor (Lieu Investments)) to Mr Marsden, the liquidator, in good faith and on the basis that cl 30 was enforceable in accordance with its terms. Neither Mr Lieu nor Landmark made any complaint at the time about the payment. Assuming that cl 30 was enforceable, it was to Mr Lieu's benefit that Dengs Investments paid the claim pressed by the liquidator.
[193] It was submitted on behalf of the applicants that the solicitor who drafted the agreements made an error in their drafting of the arrangements. Instead of providing for the consideration for the 49 per cent of the business to be paid by the issue of 49 per cent of the shares in Dengs Investments to Landmark, they provided instead for Dengs Investments, having paid $85,000, to have to pay a further $81,600 for the business. That was not the intention of either party. The error on the part of the solicitor for Ms Deng had adverse consequences for the respondents because Lieu Investments subsequently went into liquidation and the liquidator, no doubt, relying on the terms of the agreement drafted by Ms Deng's solicitor made a demand for the payment of the $81,600.
[194] In my view, to vary cl 30 now would be unfair to Ms Deng and Dengs Investments for a commercial decision taken on 5 February 1999 in the face of a claim from the liquidator on behalf of Lieu Investments (in liquidation). As will emerge later in these reasons, in light of Ms Deng reimbursing herself $85,000 from Dengs Investments, the final result of the transaction was that Dengs Investments paid $81,600 for the purchase of 51 per cent of the shares in Dengs Investments.
[195] I therefore decline to exercise my discretion under s 106 to vary cl 30 of the agreement. Nor do I find any unfairness through its operation.
21 A further issue concerned the $85,000 repaid to Ms Deng by Dengs Investments. The applicants claimed that the contract or arrangements between the parties became subsequently unfair by reason of the conduct of the respondents since 8 March 1996. The applicants contend that the payment of $85,000 from the bank account of Dengs Investments into Ms Deng's personal account is an example of how the arrangement operated unfairly. At [202] and [207] Staff J stated:
[202] The evidence that the $85,000 was a loan is directly inconsistent with the evidence given, on four separate occasions, by Ms Deng in cross-examination, that she did not expect to have the $85,000 repaid to her unless she sold her part of the business. Notwithstanding the fact that Ms Deng still owns 51 per cent of the business, she has used her powers under the Shareholders' Agreement to repay the $85,000 purchase price to herself and kept the fact from Mr Lieu until this hearing. 49 per cent of this amount belonged Landmark.
…
[207] I find the contract or arrangement has therefore operated unfairly in respect to the repayment of the purchase price to Ms Deng. The contract is varied accordingly to provide that in circumstances where Ms Deng is paid $85,000 from the business, Landmark will be paid 49 per cent of this amount. Furthermore, the consequence of the repayment of the purchase price means that Dengs Investments paid only $81,600 for 51 per cent of the business. The agreement was that 51 per cent would cost $85,000. Lieu Investments is entitled to the balance of $3,400. I find that the arrangements have operated unfairly to the extent that Lieu Investments did not receive the agreed purchase price for 51 per cent of the business. The contract is varied to provide that Dengs Investments pay Lieu Investments the sum of $3,400, representing the balance of the purchase price.
22 A further ground of unfairness considered by the trial judge was that there was a reduction in the value of Landmark's shareholding in Dengs Investments. His Honour noted that the basis for the contention appeared to be that if the purchase price of 51 per cent of the shares was treated as a loan in Dengs Investments accounts, this increased the liabilities of Dengs Investments in the period 8 March 1996 to 30 June 1996 which, in turn, diluted the value of Landmark's 49 per cent shareholding in Dengs Investments from $81,600 to $2,218.
23 At [209] Staff J held that:
[209] The accounting evidence was that the value of Landmark and Ms Deng's shareholding in Dengs Investments have declined in value over the nine year period from 1996 to 2005. Increased rentals have affected the business which has contributed to a decline in the value of a share in the business. Both shareholders have suffered a decline in the value of their shareholdings. I do not find that the decline in the value of the shares in Dengs Investments gives rise to an unfairness that requires the Court to further vary the arrangements in light of the variations that I propose to make.
24 As to the issue of Ms Deng's remuneration, the trial judge determined this at [216]:
[216] Both parties were in agreement that remuneration of $35,000 to Ms Deng as the Manager of the business was reasonable remuneration in 1996. It would seem to me to be unfair, regardless of the provisions of the agreement to find that Ms Deng's remuneration could never be increased. However, the increases in remuneration that Ms Deng awarded herself range from between 28 per cent to 63 per cent above her agreed salary of $35,000. I have decided that it would have been appropriate to allow an average of a four per cent increase per annum. On Ms Deng's remuneration, this results in Ms Deng receiving approximately $71,900 on top of such increase in salary. 49 per cent of $71,900 is $35,231, which I find should have been distributed to Landmark as profit. I find that the arrangement has operated unfairly in such profit not being distributed to Landmark. I propose to vary the arrangement to reflect this finding.
25 The issue of Ms Deng's motor vehicle expenses was dealt with at [217]:
[217] Ms Deng was also remunerated by the business with the use of a motor vehicle for her personal use at a cost of in excess of $22,000 per annum. Her evidence was that five to 10 per cent of her use of the motor vehicle was for personal activities and 90 to 95 per cent was for business activities. Mr Dolman, in his report, set out the motor vehicle expenses for the years 1997 through to 2005. In respect of the 2006 year, the applicants claim an average of the previous three years, being $8,900. The total motor vehicle expenses between 1997 and 2006 amount to $114,759. The personal component calculated on the basis of 10 per cent, amounts to $11,475.90. 49 per cent entitlement of Landmark is $5,623.19. For the reasons stated earlier, I propose to rely upon the evidence of Mr Dolman. I find that the arrangement has operated unfairly to the extent that Landmark has not been distributed profits amounting to $5,623.19.