Mopeke Pty Ltd & Ors v Airport Fine Foods Pty Lts & Ors
[2007] NSWSC 153
(2007) 61 ACSR 395
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
O’Neill v Phillips [1999] UKHL 24
[1999] 1 WLR 1092
R & H Electrical Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC
280
Re Cy Jeffery (Mens Store) P/L (1984) 2 ACLC 421
Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247
Re Duomatic [1969] 2 Ch 365
Re Five Minute Car Wash Service Ltd [1966] 1 WLR 745
Re London School of Electronics Ltd [1986] 1 Ch 211
Re Lowes Park
Headlam v Lowes Park P/L (1994) 62 FCR 535
Re Polyresins Pty Ltd [1999] 1 Qd R 599, 604
Re Spargos
Mining NL (1990) 3 WAR 166
Re Tivoli Freeholds Ltd [1972] VicRp 51
[1972] VR 445
Re Warrick Howard (Australia) Pty Ltd (1982) 7 ACLR 441
Spargo’s case (1873) 8 Ch App 407
Tan v St George Bank Ltd [2005] WASC 143
(2005) 192 FLR 315
Thomas v H W Thomas Ltd (1984) 2 ACLC 610
Wayde v New
South Wales Rugby League Limited [1985] HCA 68
(1985) 180 CLR 459
Judgment (411 paragraphs)
[1]
CORPORATIONS - OPPRESSION - whether conduct oppressive to, unfairly prejudicial to, or unfairly discriminatory - whether contrary to interests of the members as a whole - whether relief should be ordered - nature of relief
Mr J Bell QC with Mr D O'Sullivan for the respondents
[33]
[1] The present proceedings are brought by the applicant, Wayne Kenneth Dick, pursuant to Part 2F of the Corporations Act 2001 (Cth), alleging oppressive conduct of the affairs of the first respondent, Alan Powell Holdings Pty Ltd ("APH").
[34]
[2] Mr Dick owns 15 per cent of the issued capital in APH, with the remaining 85 per cent being owned by the second respondent, AL Powell Holdings Pty Ltd ("AL Powell") and the third respondent, Trekmere Pty Ltd ("Trekmere"). AL Powell holds 75 per cent and is controlled by Mr Alan Powell. Trekmere holds 10 per cent and is controlled by Mr Tom Smith.
[35]
[3] APH was formerly in the business of owning and operating car dealerships in Bundaberg, but had ceased trading by the time of the trial. Most of its assets have been sold. It presently has an excess of assets over liabilities. The intention of the current directors of APH, Mr Powell and Mr Smith, is to wind the company up.
[36]
[4] The primary relief sought by Mr Dick is an order pursuant to s 233Corporations Act that AL Powell and/or Trekmere (the respondent shareholders[1]) purchase his shares in APH at a price determined by the Court.
[37]
[5] In July 1980 Mr Powell incorporated a company, Alan Powell Ford Pty Ltd, for the purpose of carrying on a Ford car dealership business in Bundaberg. The Ford dealership was known as Alan Powell Ford. In 1982 Alan Powell Ford Pty Ltd purchased six adjoining parcels of land, which collectively formed the property known as 26 Bourbong Street, Bundaberg. In 1984 a commercial building was erected on that land for the purposes of housing the Ford dealership. At that time dealership agreements were entered into with Suzuki and Land Rover. Those dealerships also operated from 26 Bourbong Street.
[38]
[6] Alan Powell Ford Pty Ltd proved to be a successful venture and by 1987 had about 45 employees. In 1987 APH was incorporated to purchase the Ford dealership and the property at 26 Bourbong Street from Alan Powell Ford Pty Ltd. A further purpose was to provide for an employee incentive scheme; that is, to allow key employees to own shares in the business and provide them with an incentive for better performance by enabling them to share in APH's profits.
[39]
[7] At the time of its incorporation, the shares in APH were owned by Mr Powell (70 per cent) and by three of the then managers of Alan Powell Ford Pty Ltd, each of whom held a 10 per cent shareholding. In addition, each held a non-cumulative preference share. Mr Powell held an "A" class preference share which entitled him to a voting power equal to 76 per cent of the total votes of the members of the company. The other classes of preference shares ("B", "C", "D" and "E") were held by the remaining members and each entitled the holders to six per cent of the total votes of members of the company. Some time after the incorporation of AL Powell in 1992, Mr Powell transferred all of his shares in APH into that company.
[40]
[8] In addition to conducting the business of Alan Powell Ford, APH carried on business under the name Bundaberg Prestige. That business comprised a Mercedes car dealership which was transferred to APH in 2001 at no cost by another entity owned by Mr Powell. Chrysler and Jeep dealerships were later added to the Bundaberg Prestige business. Bundaberg Prestige carried on business at 26 Bourbong Street until 2004 when premises at 15-17 Bourbong Street were leased.
[41]
[9] Between 1998 and 2002, APH also acquired four adjoining parcels of land in Walker Street, Bundaberg, which were amalgamated to form the property referred to in these proceedings as the "Walker Street property".
[42]
[10] Mr Smith was appointed a director of APH in 1994 and became General Manager of Bundaberg Prestige. He was also the Dealer Principal of Bundaberg Prestige. His company, Trekmere, held one "D" class preference share and 1085 ordinary shares (a 10 per cent stake).
[43]
[11] Mr Dick commenced employment as a salesman with Alan Powell Ford in 1984. In 1996 he was promoted to the position of General Sales Manager, in which role he was in charge of new Ford sales. It was common ground that Mr Dick was involved solely in the operation of the Ford dealership - he was not concerned with the business of Bundaberg Prestige. At the time of his promotion, Mr Dick purchased a parcel of APH shares from a retiring employee. He also purchased further parcels in the period up to 2002. In total, Mr Dick's investment in APH amounted to approximately $260,000, representing a shareholding of 1,628 ordinary shares (a 15 per cent stake) and one "E" class preference share.
[44]
[12] On 29 June 2005, APH sold the Bourbong Street property to the Powell Superannuation Fund for $3,400,000. To facilitate that transaction, an amount of $340,000 was advanced to the Powell Superannuation Fund to fund its GST liability and repaid on 2 August 2005. Concurrently with that sale, the Superannuation Fund entered into a lease with APH at a gross annual rental of $380,000 for that property and a holding yard which the Fund owned and had previously separately leased to APH. Also on 29 June 2005, interim dividends were declared at a meeting of the board of directors.
[45]
[13] On 3 October 2005, APH signed a contract of sale for the Ford dealership business to DPH Ford Pty Ltd for $2,250,000. The contract of sale was completed on 1 November 2005. From that date, DPH Ford took over the lease of Bourbong Street and the holding yard at the same rental of $380,000 per annum. As a consequence of the sale of the Ford dealership, Mr Dick was made redundant and ceased employment on 31 October 2005.
[46]
[14] It was understood by both Mr Dick and Mr Powell that upon Mr Dick's resignation his shares in APH would be purchased by Mr Powell and that for that purpose APH's accountants, Ulton, would prepare financial statements as at the date of Mr Dick's redundancy, that is, 31 October 2005. The general understanding was that Mr Dick's shares would be purchased at a price equivalent to 15 per cent of the net assets of the company as disclosed in the financial statements.
[47]
[15] On the sale of the Ford dealership, Mr Dick purchased three vehicles and although he offered to pay for them at the time, it was arranged that payment be deferred until finalisation of the sale of his shares.
[48]
[16] On 1 November 2005, upon the termination of Mr Dick's employment with APH, Mr Powell approached Mr Dick with a draft loan agreement for $150,000 and a form for him to resign as a director. Mr Powell's evidence was that the loan was to assist Mr Dick pending finalisation of the sale of his shares. Mr Dick declined the offer of a loan and refused to resign as a director of APH.
[49]
[17] The Articles of Association made provision for the sale of the shares of an employee of APH upon ceasing to be an employee. Article 15 provided the holder of "E" class preference shares "shall, should they cease to be employed as an employee of [APH] offer for sale all of their shares in the company to the members as provided for in article 14 herein".
[50]
[18] Article 14 provided that the price payable for the shares be the sum specified as the fair value by the member seeking to sell his shares, or if the other members did not accept that price and required the shares to be valued, then the fair value as certified by the auditor of the company (or a chartered accountant appointed by the directors) if it be a lesser amount.
[51]
[19] Neither party appears to have averted to these provisions during the period when negotiations were being undertaken.
[52]
[20] As mentioned, it was understood that the accounts to 31 October 2005 would be prepared by Ulton and would form the basis of an offer to purchase Mr Dick's shares. Mr Powell gave evidence that he told Mr Dick he would pay him "15 per cent of what the net worth or net value of the company was at that time" and added, "I probably went a bit further than that, and said it would probably be in the vicinity of $300,000. That figure was mentioned a couple of times to Mr Dick". There was an informal oral arrangement that settlement would occur in December 2005, in order to allow enough time for the accounts to be prepared, cars to be sold, and the value fairly determined.
[53]
[21] On 20 December 2005, draft accounts for the period to 31 October 2005 were provided to Mr Dick's accountant, Mr Shorten. On the basis of those accounts, Mr Dick's 15 per cent shareholding in the net assets of APH was valued at approximately $318,000. Mr Dick understood that that was the figure that Mr Powell was proposing to pay for the shares. However, after speaking to his accountant, Mr Shorten, Mr Dick was not willing to sell his shares on the basis of figures set out in the accounts.
[54]
[22] By letters dated 21 and 22 December 2005, Mr Shorten raised a number of issues with Mr Corpe, an accountant with Ulton. One matter he raised was the failure to pay superannuation on Mr Dick's commissions. He also queried the valuation of the Walker Street property and sought a copy of the valuation of the property which was shown in the draft accounts as having a value of $680,000. That value was derived from a valuation provided by Mr Browning of Browning Valuers dated 22 June 2005. Ulton provided a copy of the summary page of the valuation by Mr Browning which recorded a valuation of $685,000.
[55]
[23] On 22 December 2005, Mr Dick telephoned Mr Powell and also raised both issues. In respect of the matter of superannuation on Mr Dick's commissions, Mr Powell told Mr Dick that he did not believe that Mr Dick was owed anything but indicated that, if he was, he would be paid. He arranged for Ulton to investigate the matter. As to the valuation of the Walker Street property, Mr Dick's evidence was that he told Mr Powell that he considered the Walker Street property was undervalued in the company accounts. He said that Mr Powell indicated that he believed the property was properly valued and that, Mr Dick was free to obtain his own valuation at his own cost, but "that it could be of no value" to Mr Powell. Mr Dick also gave evidence that Mr Powell told him that it was not going to alter the value, stating "that's all I'm going to pay for [it]" (meaning the value set by Mr Browning). Something was sought to be made of the unreliability of this additional evidence. I note, however, that when cross-examined about Mr Dick's recollection Mr Powell indicated: "I don't know that it would have changed my position whether I said it or not because I think that the value that was put on it by Browning for the bank was the only value that we could work on."
[56]
[24] Mr Dick proceeded to obtain his own valuation of the Walker Street property from Shelton & Co, Property Consultants and Real Estate Valuers. Mr Shelton's valuation dated 3 January 2005 valued the property at $1,142,400.
[57]
[25] The dispute as to the valuation of Walker Street marked a souring in the relationship between Mr Powell and Mr Dick, as is apparent from the following cross-examination of Mr Powell:
[58]
"So, is this the position, that after you were told by Dick that he didn't want to accept the figures set out in the financials, you then determined that you weren't interested in purchasing his shares at all?-- Well, I still would have but I told him I wasn't, or told Darryl I wasn't.
[59]
You told Corpe that you weren't interested in doing that at all?-- Yes.
[60]
And the reason for that was that you apprehended that Mr Dick was of the view that because of the valuation aspect, his shares, in fact, might be worth more than what had been set out in the financials of December of '05?-- On those figures, possibly, yes.
[61]
Yes. So the sequence is the financials are sent to him, which have a valuation of the land as part - a component of it; correct?-- Mmmm-hmm.
[62]
Right. Mr Dick, you say, gets back to you and tells you he's not interested in that figure or doesn't want to accept that figure?-- Mmm.
[63]
And you understood that one of the reasons for that was that he had a view about the value of the land?-- Yes.
[64]
... So when Dick tells you in this conversation in December that he thinks the land is worth more than that, your response is to tell Corpe to pass on to Shorten that you are no longer interested in purchasing his shares?-- This was spoken about over that January period, but, yes.
[65]
Yes?-- That was basically the time - I said to Darryl, 'Did I have to buy his shares? I am obliged to buy them?', and he said, 'No'.
[66]
Thank you. That is Mr Corpe told you, what, that there was no mechanism whereby you could be obliged to purchase these shares?-- That's basically it, yeah.
[67]
Thank you. Now, continuing on with this discussion between you and Corpe and what you told him to tell Shorten, you told Corpe to pass on to Shorten that the company was establishing a new brand in Bundaberg in the form of a Mercedes and Chrysler dealership or Mercedes and Chrysler, and that it was not expected to make a profit?-- At that stage, yes.
[68]
... Just listen to my question. That's what I'm suggesting you told Mr Corpe to pass on to Shorten; is that right or not?-- Oh, look, it probably was something like that. I mean, I wouldn't say it's word for word, but-----
[69]
Right. Because you were attempting through Corpe to make Shorten understand that you weren't interested any more in purchasing his shares?-- Well, yes.
[70]
And because of that you were telling Corpe what to say to Shorten to buttress your position?-- Um-----
[71]
HER HONOUR: That's not really an answer. Perhaps you should answer the question.
[72]
Yeah. You told Corpe to say to Shorten that you were no longer willing to buy the applicant's shares on the basis of the draft accounts of 31 October?-- Yes, I did.
[73]
I am just asking you some questions. Please respond.
[74]
HER HONOUR: I think he should have the opportunity to explain his answer.
[75]
WITNESS: I think what you have got to understand is we're all car dealers. We're used to wheeling and dealing, and it is a you-give-a-bit, I-take-a-bit, and I would have been quite happy to sit down with Wayne at that stage ourselves without any accountants or solicitors or anyone else involved and reach an agreement. But, I mean, it wouldn't happen because he got Shorten involved and from that moment on it was a disaster.
[76]
MR PERRY: So once he got his accountant involved you considered the negotiations no longer tenable, possible?-- Well, once his accountant started to make demands.
[77]
As I understood you earlier, what seemed to be, from your perspective, the real reason that you had formed the view that you wouldn't purchase the shares was Mr Dick's assertion that the value was in fact higher than what was set out in the accounts, but do I take it that-----?-- No, that's not quite correct.
[78]
That's not quite correct, all right?-- No. It was never meant that way. If that's how it come out, that's not how I meant to say it but that's probably your words and I've-----
[79]
You told Corpe that your position was that you would be only willing to buy his shares for $150,000, didn't you?-- I said to Darryl that's all the shares are worth to me. If I buy the shares as a purchase because I am not going to get the franking credits on them, it is going to be a capital gains problem down the track if I pay more than that. And that's why we started at that figure.
[80]
So your position to Corpe was that the shares would only be purchased by you for the amount of $150,000?-- That's where we started, yes.
[81]
And you told Mr Corpe to pass on that that figure was your definite position?-- I don't remember saying that but.
[82]
That was the thrust of it, wasn't it?-- I do believe that that's in Shorten's statement. I don't remember telling Darryl that but-----
[83]
That certainly would represent your position at that time, wouldn't it?-- Oh, not necessarily. I would have been prepared to negotiate. I mean, I was for many months or years afterwards but no-one was interested.
[84]
And you also told Mr Corpe to pass on that any further discussion about the value of the applicant's shares was to be held with Corpe?-- At that time yes.
[85]
Now, the $150,000 figure that you do recall was curiously, of course, the amount in what's described as the loan agreement, wasn't it?-- Yeah, but it had nothing to do with that.
[86]
Wasn't the $150,000 figure the figure that you settled on when this issue of purchase of shares first even arose back at the end of October when Mr Dick's employment was terminated?-- No. That was a loan agreement that I had with him.
[87]
But the amount. The amount. Where did the amount come from, the 150?-- Well-----
[88]
How did you come to that figure to-----?-- Well-----
[89]
-----'loan' to Mr Dick?-- I will tell you how I come to the figure. I assumed it was about half of what he'd get but that was, you know, fair enough to give him some upfront.
[90]
Well, that position changed quickly because that's about the 1st of November. A couple of months later you are telling Corpe what your stance is, weren't you?-- Uh-huh.
[91]
And the reason that position seems to have changed, if you are right, was because Mr Dick had the temerity to suggest to you that he, Dick, did not accept the value of the property as set out in the accounts?-- Well, you might say that. I wouldn't.
[92]
You would say that, wouldn't you?-- I wouldn't say it was temerity.
[93]
What would you say it was?-- I would say it is just a lack of any thanks for what's been done for him over the years."
[94]
"You see, the sequence in December is this, isn't it: about the 22nd there is this conversation about the value of the land, correct?-- Uh-huh.
[95]
On about the 28th, the $195,000 loan is being transacted by APH to AL Powell without Mr Dick ever being made aware of that purpose at all. About the 20th of January you and Corpe were having a discussion about what Corpe should tell Shorten about your position, and then on the 23rd of January the resolution is framed till you get rid of Mr Dick as a director. That encapsulates that month, doesn't it?-- Pretty well.
[96]
And you'd formed the view that you certainly weren't going to offer him any greater amount than that sent out in the accounts by reason of any squabble about the value of the land, and in fact had formed the view, passed on to Corpe to go through Shorten, that you'd only offer him 150.
[97]
That reflects your position at that time, too, doesn't it?-- Yeah."
[98]
[27] The concessions made by Mr Powell in the above excerpts accorded with Mr Shorten's evidence about the events of 20 January 2006. Mr Shorten stated that on 20 January 2006 he received a telephone call from Mr Corpe, who told him that he was, at Mr Powell's request, returning an earlier telephone call to Mr Powell. Mr Corpe said that Mr Powell "did not have a requirement" to buy Mr Dick's shares at any price. Mr Corpe said that the value of the shares was going down since the company no longer had the Ford dealership and was unlikely to pay dividends. He said that the company was establishing a new brand in Bundaberg in the form of Mercedes and Chrysler and that it was not expected to make a profit. Mr Shorten's response was to point out to Mr Corpe that the asset values in the draft financial statements were not values of intangible assets and profitability had little impact on their value. Mr Corpe replied that he understood this proposition but that Mr Powell was no longer willing to buy Mr Dick's shares on the basis of net tangible assets reported in the draft accounts as at 31 October 2005. Mr Corpe said that Mr Powell was only willing to buy Mr Dick's shares for $150,000. Mr Corpe said that this was Mr Powell's definite position and that any further discussion about the value of the shares was to be held with Mr Corpe on Mr Powell's behalf. I accept Mr Shorten's evidence, which was not seriously disputed.
[99]
[28] On 23 January 2006, a Notice of General Meeting was issued convening a meeting of APH on 16 February 2006 to consider a motion for the removal of Mr Dick as a director. On 16 February 2006, Mr Dick was removed as director by resolution of the board.
[100]
[29] Prior to his ceasing to be a director, Mr Dick sought access to various books and records of APH, some of which was denied to him.
[101]
[30] On 23 February 2006, Mr Dick commenced these proceedings, seeking an order for the compulsory purchase of his shares.
[102]
[31] At the time proceedings were commenced, APH had sold the Ford dealership and the Bourbong Street property, but still operated Bundaberg Prestige and owned the Walker Street property. It was considering whether to develop Bundaberg Prestige by constructing a new site at the Walker Street property, but ultimately that did not proceed. APH continued the business of Bundaberg Prestige until 13 December 2006, when that business was sold for $550,000. Mr Smith was then made redundant. The Walker Street property was also sold on that date for $1,300,000.
[103]
[32] The sale of APH's assets has led to significant dividends being declared and paid. Between 1996 and 2007, Mr Dick received a total of $816,126.58 in dividends payments from APH.
[104]
[33] Mr Dick alleges that various conduct on the part of Mr Powell and/or Mr Smith in their capacity as directors of APH was contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Dick.
[105]
[34] The alleged incidents of oppression as set out in paragraphs 12 to 16 of the second further amended Statement of Claim ("the statement of claim") are that Mr Powell and/or Mr Smith:
[106]
o Caused APH to tender to Mr Dick what was said to be a loan agreement for the amount of $150,000, but which conferred on APH an option directing Mr Dick to sell his shares to AL Powell and/or Trekmere in circumstances where the value of those shares exceeded the value of the loan agreement (para 12(a));
[107]
o Caused APH to retain McCullough Robertson Lawyers ("McCullough Robertson") on two separate occasions, in February 2005 and February 2006, without convening a meeting of directors of APH (paras 12(b), 12(c));
[108]
o Instructed McCullough Robertson on various dates in February 2006 to refuse Mr Dick permission to inspect APH's books and records contrary to his entitlement to do so as conferred by s 198FCorporations Act and article 85 of the Articles of Association (paras 12(d), 12(e), 12(f));
[109]
o Caused APH on 7 June 2006 to refuse Mr Dick inspection of certain of APH's books and records contrary to s 198FCorporations Act (para 12(i));
[110]
o Caused AL Powell and Trekmere to exercise their votes as shareholders of APH to terminate Mr Dick's appointment as a director of the company (para 12(g));
[111]
o Caused APH to fail to pay superannuation contributions due to Mr Dick pursuant to the Superannuation Guarantee (Administration) Act 1992 (Cth) in the sum of $28,915 for the period 1995 to 2000 (para 12(h));
[112]
o Caused APH to advance unsecured interest free loans to Mr Powell, his son and the Powell Superannuation Fund for their benefit, in circumstances where there was no meeting of the directors of APH (of which Mr Dick had notice) to authorise the loans, the making of those loans was of no commercial benefit to APH, and APH lost the benefit of earning interest on those monies, being:
[113]
▪ an advance of $7,500 to Matthew Powell (para 12(j));
[114]
▪ an advance of $340,000 to the Powell Superannuation Fund (para 12(l));
[115]
▪ three advances of $15,000 to Mr Powell (para 12(m));
[116]
▪ an advance of $195,000 to Mr Powell (para 12(q));
[117]
o Caused APH to pay rates payable on land owned by Alan Powell Ford Pty Ltd (para 12(n));
[118]
o Caused APH to expend $33,000 on capital works to 26 Bourbong Street in circumstances where the board of directors had not approved the expenditure and the works were of no commercial benefit to APH (para 12(o));
[119]
o Held directors' meetings of APH on 25 February, 18 May, 29 June and 16 August 2005 in respect of which Mr Dick was excluded for the initial part of each meeting (para 12(p));
[120]
o Caused APH to declare interim dividends on 29 June 2005 in circumstances:
[121]
▪ where Mr Dick had not been invited to be present at the meeting authorising the payment (para 12(r));
[122]
▪ where a declaration of a dividend was made in favour of AL Powell to be credited against sums due by Mr Powell to APH (para 12(s));
[123]
▪ which was contrary to the Articles of Association (para 12(t));
[124]
o Caused set-offs to be made against dividends payable to Mr Dick (paras 12(k), 12(dd));
[125]
o Caused APH to pay professional fees to lawyers and accountants for work undertaken for and advice provided to AL Powell and Trekmere in respect of the current proceedings (paras 12(u), 12(v), 12 (w));
[126]
o Caused APH to make redundancy payments to Mr Smith and Mr Matthew Powell which APH was under no legal obligation to make (paras 12(x), 12(z));
[127]
o Caused APH to make payments to the Powell Superannuation Fund totalling $22,489.26 which APH was under no legal obligation to make (para 12(y));
[128]
o Caused APH to sell a motor vehicle to Mr Smith at a trading loss (para 12(aa));
[129]
o Caused APH to pay for a motor vehicle for Mr Powell (paras 12(bb), 12(cc));
[130]
o Caused APH to enter into a sale contract for 26 Bourbong Street to the Powell Superannuation Fund in circumstances where the transaction was not for any bona fide business or commercial purpose benefiting APH or its shareholders, was at a undervalue, and was made in contravention of s 183(1) Corporations Act (paras 13,16);
[131]
o Exercised their powers in undertaking the conduct referred to in paras 8, 12(j), 12(l), 12(m), 12(n), 12(o), 12(q), 12(r), 12(s), 12(t), 12(u), 12(dd) in contravention of s 181(1) and s 182Corporations Act (paras 15, 16).
"The Court may make an order under section 233 if:
[134]
(b) an actual or proposed act or omission by or on behalf of a company; or
[135]
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
[136]
(d) contrary to the interests of the members as a whole; or
[137]
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity."
[138]
[36] In Wayde v New South Wales Rugby League Limited[2] Brennan J (as he then was), referring to the predecessor to s 232Corporations Act, observed:
[139]
"In earlier times, the statutory precursors of s.320 empowered the court to grant a remedy when the affairs of the company were being conducted 'in a manner oppressive to one or more of the members' (see, for example, s.186 of the Companies Act 1961 (N.S.W.)). In that context, Viscount Simonds defined oppressive to be 'burdensome, harsh and wrongful' (Scottish Co-operative Wholesale Society Ltd. v. Meyer(1959) AC 324, at p 342). The strength of those epithets confined the grounds on which the court might intervene, but s.320 (both in its original 1981 form and in its amended 1983 form) broadens the grounds of intervention. Clearly the legislature intends to provide a greater measure of curial protection to members of a company, especially if they be in a minority, than the protection afforded under earlier Companies Acts. In Thomas v. H.W. Thomas Ltd.(1984) 2 ACLC 610, the Court of Appeal of New Zealand held that under a similar but not identical provision (s.209 of the Companies Act 1955 (N.Z.)) it was not necessary for a complainant to point 'to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company': per Richardson J., at p.617."
[140]
[37] In the decision of Thomas v H W Thomas Ltd, to which Brennan J referred, Richardson J noted that there was an overlap between the various concepts identified by the terms "oppressive, unfairly prejudicial and unfairly discriminatory":[3]
[141]
"The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the [provision] that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint ... The statutory concern is directed to instances or courses of conduct amounting to unjust detriment to the interests of a member or members of the company_._"
[142]
[38] In Morgan v 45 Flers Avenue Pty Ltd [4] Young J (as he then was) stated that the individual elements "should be considered as different aspects of the essential criterion, namely commercial unfairness". Chesterman J took a similar view in Re Polyresins Pty Ltd.[5] I note, however, that in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd [6] Young J qualified his statement in Morgan v 45 Flers Avenue Pty Ltd[7] that the question the court should ask is "whether objectively, in the eyes of a commercial bystander, there had been unfairness", observing that circumstances could arise where unfairness might result from conduct which was not of a commercial nature. And in Campbell v Backoffice Investments Pty Ltd [8] Basten JA remarked that there was a danger in reducing the statutory language to a criterion of "commercial unfairness", given the textual separation of paras (d) and (e) in s 233, and the potential for ignoring important distinctions between different kinds of complaint.
[143]
[39] Clearly, however, the focus of the oppression provision is on objective unfairness as emphasised in Wayde v New South Wales Rugby League Limited by Brennan J:[9]
[144]
"The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The Court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision."
[145]
[40] It follows that the mere fact that a member of a company has lost confidence in the manner in which a company's affairs are conducted is insufficient to amount to oppression; nor can resentment at being outvoted; nor mere dissatisfaction with or disapproval of the conduct of the company's affairs, whether on grounds relating to policy or to efficiency, however well founded: Re Five Minute Car Wash Service Ltd;[10] Latimer Holdings Ltd v SEA Holdings NZ Ltd.[11]
[146]
[41] Unfairness may occur even though all members of a company are treated equally. The unfairness may arise, for example, by reason of an advantage to a parent company: Re Tivoli Freeholds Ltd.[12]
[147]
[42] The content of fairness in an oppression application will be informed by the context. In this regard, all the relevant circumstances are to be considered in the assessment, including the history and type of company involved. As was observed in Thomas v HW Thomas:[13]
[148]
"Fairness cannot be assessed in a vacuum or simply from one member's point of view. It will often depend on weighing conflicting interests of different groups within the company. It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and [the oppression provision] in particular: thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that [the oppression provision] is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member's interests arising from the acts or conduct of the company in that way is justifiable."
[149]
[43] The conduct of the applicant may be relevant to the assessment of fairness. In Re London School of Electronics Ltd[14] Nourse J pointed out that an applicant's conduct may be relevant in two ways: it might render the conduct of the other side, even if prejudicial, not unfair; and even if the conduct of the other side were unfair, it might nevertheless affect the relief that the court thinks fit to grant. An example of the first of these considerations is conduct amounting to acquiescence. It may thus be relevant that an applicant has not complained of the matters on which the claim of oppression is made until the institution of proceedings, although the affairs of the company have been conducted in the same manner for years: Re Lowes Park; Headlam v Lowes Park P/L;[15] Re Cy Jeffery (Mens Store) P/L.[16] In this regard, I note the observations in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd:[17]
[150]
"Oppression is something done against a person's will and in his despite. It is not something done with [his] acquiescence or consent, and still less is something done with his cooperation."
[151]
[44] Where matters of business judgment are concerned, the courts are reluctant to intervene on the basis of a finding of oppression, unless it can be shown that there is a lack of good faith or that no reasonable board could have come to the decision reached: Wayde v New South Wales Rugby League Ltd;[18] John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd.[19] In Latimer Holdings Ltd v SEA Holdings NZ Ltd, the New Zealand Court of Appeal referring to this well established principle noted:[20]
[152]
"Judges are ill-equipped to evaluate business strategies, and have accordingly exercised self-restraint ... See Howard Smith Ltd v Ampol Petroleum [1974] UKPC 3; [1974] AC 821 per Lord Wilberforce, ... it would be wrong for the court to substitute its opinion for that of management, or indeed to question the correctness of management's decision ... if bona fide arrived at (at p832) ... This is sometimes called the 'business judgment' rule. Judges, on the other hand, do have training and expertise in dealing, for instance, with fraud, illegality, or conflicts of interest."
[153]
Exclusion from board meetings on 25 February, 18 May, 29 June and 16 August 2005 (para 12(p) of the statement of claim)
[154]
[45] The complaint was made that Mr Powell and Mr Smith caused meetings of the board of directors of APH to be held on 25 February, 18 May, 29 June and 16 August 2005, which they commenced without Mr Dick being present and "thereby excluded [him] from attendance at the initial part of each meeting and only invited him to attend ... after they had commenced the meeting".
[155]
[46] The respondents denied that Mr Dick was excluded from board meetings of APH. It was contended that APH held many management meetings as well as board meetings and that the meetings that occurred on 25 February 2005, 18 May 2005 and 16 August 2005 were in fact management meetings rather than meetings of the board of directors of APH.
[156]
[47] However, it was submitted by Mr Dick's counsel that Mr Dick was in fact never treated as a director, but simply as an employee. Mr Dick described the conduct of the monthly meetings as follows. Mr Powell would attend at the dealership once a month for a couple of days, during which time he and Mr Smith spent most of their time together, interviewing each manager. Mr Dick would be called in towards the end to discuss his side of the business, being the sale of new Ford motor vehicles.
[157]
[48] The allegations of exclusion must be considered against the general background of the circumstances that pertained over the relevant period. It is apparent from the evidence, particularly that given by Mr Dick, that he was content to leave the overall direction and the financial management of the affairs of the company to Mr Powell and, to a lesser extent, Mr Smith. From the outset, Mr Dick appreciated that the purpose of operating the Ford dealership business through APH was to "provide an incentive through some sort of structure for senior employees" and that his participation was as a result of that incentive arrangement. At the time Mr Dick also understood that Mr Powell was effectively in control of APH. That understanding was based on his knowledge that AL Powell owned 75 per cent of the shares of APH, rather than his being aware that the articles gave AL Powell effective control through the "A" class share carrying 76 per cent of the voting power (however, he was not surprised to learn of that).
[158]
[49] Mr Dick's evidence was that Mr Powell was "very much the employer" and "very much in control of the bigger decisions involving policy ... and the direction of the business". This occurred against the historical backdrop of Mr Powell being the principal who established the business, having held the dealership with Ford and purchased the land at Bourbong Street, where he built the showroom. Mr Dick understood that his directorship and shareholding were "very much linked with [his] role as sales manager." His involvement in APH was, as he stated in evidence, focussed on vehicle sales, not the running of the business as a whole.
[159]
[50] The evidence clearly indicated that Mr Dick took a passive role as director and was unaware of important aspects of APH's affairs. He did not, for example, know that the holding yard APH used did not belong to APH but to the Powell Superannuation Fund. An example of Mr Powell being very much the boss, with Mr Dick's acquiescence to his management style, can be seen in respect of the decision in about 2003 to relocate the Prestige Business in respect of which Mr Dick had no input.
[160]
[51] Mr Dick was not as a rule involved in dealing with APH's accountants and lawyers - Mr Powell and Mr Smith did that. Mr Dick "was reliant on Mr Corpe and others to handle that side of things". Mr Dick accepted that he did not become involved in discussions concerning "movement of money", stating: "I wasn't even involved in signing cheques or any of that sort of thing, so I was never involved in the authorisation of money". As Mr Dick also volunteered, he "was asked to sign a lot of things over the years that [he] just signed". In giving evidence, Mr Dick accepted that his role in the company was such that he did not take an interest in the way in which the accountants dealt with the transactions, so long as it was in the best interests of the company as a whole.
[161]
[52] I do not consider on the evidence that Mr Dick was excluded from any of the meetings of directors as alleged. The manner in which the meetings were conducted as a matter of practice was generally to schedule a management meeting to coincide with the directors' meeting and to be held before the directors' meeting. That did not amount to excluding Mr Dick from directors' meetings. The meetings the subject of the oppression allegations were conducted in the manner that had been adopted over many years after Mr Dick became a director and occurred without complaint by him. In the circumstances, there is no basis to this ground of complaint.
[162]
Loan to Matthew Powell in April 2005 (para 12(j) of the statement of claim)
[163]
[53] A further complaint concerns the advancing of a loan by APH of $7,500 in April 2005 to Mr Powell's son, Matthew (who was then an employee of APH) which was made on an unsecured and interest free basis.
[164]
[54] The loan was advanced on the basis that it was to be repaid by 12 monthly payments of $625 through deductions from commission earned by Matthew. The loan was accounted for by being debited to AL Powell's loan account on 30 June 2005, thereby increasing the sum owed by AL Powell to APH by $7,500. Four loan repayments were made by Matthew Powell from July 2005 to October 2005 totalling $2,500 and a corresponding credit to the AL Powell loan account was made. The remaining amount of $5,000 was accounted for by making a deduction in that amount from director's fees payable on 1 January 2006 to AL Powell in respect of Mr Powell's services as director. The maintaining of loan accounts is dealt with further below in relation to the complaints concerning the dividends declared on 29 June 2005.
[165]
[55] Mr Powell's evidence was that the giving of interest free unsecured loans to employees was not an uncommon practice within APH's business and one of which Mr Dick was aware. Mr Powell's evidence was that a number of employees were provided with such loans, in addition to Matthew Powell. The agreements to provide loans were usually made orally following a request from an employee, and were repaid by deduction from commission on sales due to the relevant employee. There was evidence of such loans being provided to two former employees in sums of up to $2,000. While somewhat larger than loans offered to other employees, the loan to Matthew Powell did not place APH at risk and was accounted for in the accounts of APH. In the circumstances, I do not consider that the making of the loan was contrary to the interests of the members of APH as a whole, commercially unfair to Mr Dick or otherwise oppressive.
[166]
Sale of 26 Bourbong Street to the Powell Superannuation Fund in June 2005 (paras 8, 13, 16 of the statement of claim)
[167]
[56] The complaints about the sale of 26 Bourbong Street are that:
[168]
(a) It was undertaken by APH "not for any bona-fide business or commercial purpose" which benefited APH or its shareholders, but rather was a disposition of property to an entity related to Mr Powell, namely the Powell Superannuation Fund, and made for the benefit of the beneficiaries of the Fund (paras 13(a), 13(b));
[169]
(b) It was made at an undervalue, in that it was made in reliance upon a valuation:
[170]
(i) "for internal accounting use rather than for the purpose of determining the fair market value of the company land" (para 13(c));
[171]
(ii) which utilised an annual net market rental for the property of $323,350 in determining the value of the property when Mr Powell and Mr Smith knew that APH was going to execute a loan which obliged APH to pay annual lease rental of $380,000 (para 13(d));
[172]
(c) Mr Powell and/or Mr Smith acted in contravention of s 183(1) Corporations Act, by using the knowledge that the valuation was not calculated on the basis of the proposed new annual rental of $380,000, to gain an advantage for the beneficiaries of the Powell Superannuation Fund by allowing the Fund to purchase the land for less than its true market value and thereby causing a corresponding detriment to APH (para 16).
[173]
[57] By way of background to the sale of the property, it appears that from about November 2004, Mr Powell had begun to have concerns about the Ford dealership's performance. He wrote to Mr Smith and Mr Dick in April 2005 addressing those concerns. Mr Powell's evidence was that at about this time, he indicated to the other directors that if the performance of the Ford dealership did not improve, he would consider voting in favour of selling it.
[174]
[58] Also at around this time, Mr Powell had discussions with Mr Corpe, about restructuring APH's assets by splitting the ownership of Bourbong Street from that of the Ford dealership. He discussed the option that the Powell Superannuation Fund purchase Bourbong Street and lease it back to APH. The reasoning behind this was that disposing of Bourbong Street separately would make it easier to sell the Ford business, as the price of the business standing alone would be lower. Additionally, APH would be able to eliminate debt (save for a small overdraft to Westpac) and make a significant dividend distribution. Mr Powell also had discussions with Mr Browning about the valuation of the property and an indication was given that the valuation was likely to be about $3,400,000. By letter dated 12 May 2005, Mr Corpe provided advice to Mr Powell on the most tax effective means for the Powell Superannuation Fund to purchase the property, assuming a valuation of $3,400,000. The letter also set out the dividends that would be payable to each shareholder on that basis.
[175]
[59] The evidence indicates that at a meeting of the directors on 19 May 2005, Mr Powell discussed the proposed sale of Bourbong Street with Mr Dick and Mr Smith. According to Mr Powell's statement, there was discussion "that in order to ensure that the transaction was for full value, APH would obtain a valuation from Browning Valuers". Also discussed was "the fact that, as the proposed sale would leave the company with substantial cash assets, once the purchase had settled it would be in a position to issue a substantial dividend to the shareholders in proportion to their shareholding interests."
[176]
[60] Mr Dick's evidence about the May 2005 discussions was as follows:
[177]
"... Do you recall having a discussion with Mr Powell in or about May of 2005 concerning the sale of the property at 26 Bourbong Street to the Powell Superannuation Fund?-- Yes.
[178]
Right. Can you detail or can you describe, better, what occurred in that conversation, that is what Powell told you and what you said, if anything, in response?-- Yes. I went to work one day and Alan Powell said to me, 'Oh, Wayne, I'm buying the building back for my superannuation fund.' That was the - that was basically the conversation, and he said, 'You should receive about $450,000 for your shares.'
[179]
Mmm-hmm. Was that the sum of the discussion?-- Yes.
[180]
Was there any discussion at that time about a valuation that had been obtained with respect to the building?-- Yes. We - we had a meeting and it was said that he had - had or was going to get a valuation from Col Browning.
[181]
Was that meeting the one of June 2005, 29 June?-- No, no, no, because that valuation would have had to have been done before then.
[182]
Yes. Were you given a copy of the valuation?-- No."
[183]
[61] The minutes of the 19 May 2005 meeting record:
[184]
"Alan met with the fellow directors outlining the future plans for the property of the main dealership site, and the effect on the future of the Company and those of the directors regarding these changes. Tom advised that Col Browning had been in contact regarding his request to issue a letter regarding the current valuations, Col is to fulfil this request in the next week. Alan advised that settlement was planned to occur on June 29th."
[185]
[62] When cross-examined about the May 2005 meeting, Mr Dick accepted that Mr Powell had raised his concerns about the declining performance of the business and the view that they should proceed to try to sell the dealership if the price was right. Mr Dick also stated that, "It was said to me it will be easier to sell the business separate, have the land as a separate issue". In addition, he gave evidence as follows concerning the meeting:
[186]
"... With that idea in mind, Alan said to you that the idea was to sell the land to Powell superannuation [fund] and lease it back to the business, the company?-- Yes
[187]
You understood from what he told you that the idea was that the land would be sold out to he and his wife's superannuation and leased back to the company?-- Yes, that's right.
[188]
And he told you - can you recall him telling you that he'd spoken to Mr Browning or a valuer already about the indicative figure but he'd get him to do a valuation?-- Oh, I couldn't comment on that. I just know he said we were going to do a valuation on it.
[189]
Then I suggest to you that there was suggestion about the leaseback and the rental that would be calculated on the industry standard basis?-- No, it was told to me it was going to be $380,000 a year. ... The figure was discussed of $380,000 a year but that was all that was discussed. There was no mention of Mr Rich or any way of calculating what the rental was going to be.
[190]
Okay. I suggest to you that he mentioned to you that the lease would also include his land, which was used as the holding yard as well?-- Oh, I don't know. I don't know.
[191]
In any event, it is also the case, isn't it, there was discussion about a large dividend going to you and Tom and to him by way of the transaction?-- Yes.
[192]
Well, see, I am suggesting to you that it was six to eight weeks before you went to that meeting at the accountant's office to sign up documents that this was on the table, that he'd get a valuation, that the superannuation company was buying the land, it was because of Mr Corpe's advice and there would be a leaseback arrangement to the company?-- Yes, it was probably a month or so, I don't know exactly, but before the settlement was, yes.
[193]
... So the situation was that when you were asked to go to Ulton's office in Bundaberg on the 29th of June to sign documents, you were well aware that it was in relation to the sale of the land?-- Oh, yes, yes, yes."
[194]
[63] It seems that no valuation figure was mentioned at the May 2005 meeting and that, while an indication was given to Mr Dick as to what his dividend resulting from the sale was likely to be, he sought no clarification as to its calculation.
[195]
[64] At the 29 June 2005 meeting, Mr Corpe and Mr Marles (a solicitor from MRH Lawyers who acted in the transaction) met with Mr Smith, Mr Dick and Mr and Mrs Powell at the offices of Ulton. There was some conflict as to the extent to which the valuation was discussed at that meeting. Mr Dick conceded in cross-examination that "there was talk about Browning's valuation". In his affidavit sworn 10 September 2006, Mr Powell stated that Mr Browning's valuation of Bourbong Street was discussed and that Mr Dick did not raise any objection to the valuation. He also stated that it was tabled, but I note that the minutes of the meeting do not indicate any valuation was tabled. Mr Dick denies that he was given any valuation.
[196]
[65] At the meeting on 29 June 2005, the directors signed the transfer and lease documents necessary to effect the sale of Bourbong Street to the Powell Superannuation Fund for $3,400,000 and the lease to APH for a rental of $380,000 per annum. As it turned out, APH only rented the premises for some four months (until the end of October 2005) when the Ford business was sold. Shortly after the settlement of the sale of Bourbong Street, APH paid the sum of $610,000 which was owing to General Electric Finance. The balance of the sale proceeds together with some profit which APH had accumulated, totalling $3,000,000, was then paid as a dividend to shareholders as follows: $300,000 (10 per cent) to Trekmere, $450,00 (15 per cent) to Mr Dick and $2,250,000 (75 per cent) to AL Powell.
[197]
[66] The argument advanced by counsel for Mr Dick was that the sale was simply designed for the purpose of channelling the Bourbong Street property into the Powell Superannuation Fund and was thus entered into solely for the benefit of the Powells and was not in the interests of APH. In advancing this submission, counsel seized, in particular, upon the following cross-examination of Mr Powell concerning the sale:
[198]
"And the true position is that it was structured in the way it was, not because it necessarily made the on-sale of the Ford dealership any more or less attractive [to] a potential purchaser, but that if a purchase of that kind might at some stage in the future go ahead, the superannuation fund would be left with a very significant income earning asset?-- Yes."
[199]
[67] However, as Mr Powell went on to add by reference to Mr Corpe's letter of 12 May 2005:
[200]
"I mean, there is mention in that letter about the benefits for Alan Powell Holdings.
[201]
Mmm?-- It shows that there would be an after tax profit of $3.3 million.
[202]
Yes, of course?-- And the dividend payable to the shareholders of 3. - well, it's got 3.2, but it was actually more than that we paid.
[203]
Yes. That, you see, what was being looked at was a means whereby one of the principal assets of the company would be disposed of to your superannuation fund so that - and I rather understood you agreed with this proposition in the last question - so that your super fund would retain a significant ongoing income earning asset?-- Well, I guess so, but, I mean, we had to sell it somewhere if we were going to sell the property and it was quite easy to do it that way." (emphasis added)
[204]
[68] That the Powell's Superannuation Fund was proposed as the buyer no doubt played a role influencing the timing of the sale so as to coincide with the end of the 2005 financial year. But it does not lead to an inevitable conclusion that the sale transaction was not for a bona fide commercial purpose. The separation of the ownership of the business from that of the land on which it was conducted was a commercial objective discussed and agreed to by the directors and shareholders and undertaken to facilitate the ultimate purpose of selling the business as a stand alone enterprise. It is apparent from the evidence that Mr Powell discussed the sale to the Superannuation Fund with the other directors in terms of assisting in the ultimate sale of the Ford dealership and allowing for substantial dividends to be distributed, after reducing debt. I note that Mr Dick was aware of the relevant details of the transaction and that not only did he not raise any objection to the course proposed, he cooperated to achieve that result by signing all documentation required for the sale to proceed. Indeed, at no time until approximately February 2006, after relations between Mr Powell and Mr Dick deteriorated over the valuation and sale of his shares, did Mr Dick seek any further details of or raise any question about the sale of Bourbong Street. In the circumstances, I am not persuaded that the transaction was not for a bona fide business or commercial purpose.
[205]
[69] As mentioned previously, the valuation of Bourbong Street provided by Browning Valuers dated 28 June 2005 valued the property at $3,400,000. The valuation was determined using a capitalisation rate of 9.5 per cent and taking as the rack rental the sum of $323,350 used for a previous valuation report of 5 September 2003. The previous valuation had proceeded on a 10 per cent capitalisation rate and valued the property at $3,230,000.
[206]
[70] The basis of the allegation that the sale of Bourbong Street was at an undervalue centres on the fact that, in reaching the valuation using a capitalisation method, Mr Browning proceeded on the basis of the rack rental of $323,350. It is contended that had Mr Browning been appraised of the proposed new rental of $380,000, a higher valuation would have resulted.
[207]
[71] As counsel for the respondent noted, echoing the point made by Mr Browning in his evidence, a difficulty with the submission made on behalf of Mr Dick is that the rental of $380,000 also included rental for the holding yard owned by the Powell Superannuation Fund. APH had rented the holding yard over many years at $2,000 per month (and although the lease executed on 29 June 2005 did not identify the holding yard as being included in the property leased, that omission was subsequently realised and corrected). In his affidavit, Mr Powell stated how the new rental figure of $380,000 had been calculated, explaining:
[208]
"I calculated what is called a 'planning volume' of cars, which is the number of cars sold per annum, and multiplied it by what is called the rental factor, which is a industry-wide accepted guideline for determining rental. In this case, I calculated the planning volume at 520 new cars and 240 used cars (a total of 760 cars) and multiplied that by the rental factor of $500 and came up with a figure of $380,000 for rental including the holding yard. ... I have subsequently been advised by Mr Ken Rich, who at the time was a partner at BDO Kendalls and is a recognised industry expert, and I verily believe that the figure of $500 per new and used vehicle as a rental factor is reasonable for a regional city." (emphasis added)
[209]
[72] Mr Dick did not call any valuation expert to contradict Mr Browning's valuation. Reliance was placed on the expert report prepared by his expert accountant, Mr Benjamin, who in his report of 16 October 2008 took the approach of recalculating the valuation by using a 9.5 per cent capitalisation rate based on a rental of $380,000. However, in utilising this method Mr Benjamin, acknowledged in para 6.45 of the report:
[210]
"I do not have expertise in, nor am I qualified to prepare, valuations of real property. Accordingly, I have merely recalculated the valuation using the base rent of $380,000 and that recalculation does not represent an opinion by me as to the market value of Bourbong Street."
[211]
In the joint report of the expert accountants of 27 February 2009, the Mr Benjamin modified his calculation by making allowance for land tax.
[212]
[73] An alternate approach was noted in the joint experts' report of recalculating the valuation of the property by deducting the rental of the holding yard and land tax from the figure of $380,000. That recalculation was made by the respondents' expert accountant, Mr Hill, in his supplementary report of 23 February 2009, in the event that, contrary to his instructions, Mr Browning's valuation was not to be relied upon. However, that adjustment proceeds on the premise that the rental that had been paid over many years for the holding yard represented a fair market rental and not a lesser amount. Mr Browning was not prepared to accept that proposition.
[213]
[74] Although Mr Browning accepted that in reaching his valuation he did not consider the proposed rental of $380,000 of which he was not aware, he did not alter his valuation in cross-examination when the circumstances of the proposed new rental were put to him. Curiously, the applicant's own expert valuer, Mr Shelton, who gave valuation evidence in respect of the Walker Street property, did not give valuation evidence in respect of the Bourbong Street property as at June 2005. Nor did he give evidence contradicting Mr Browning's evidence as to the valuation of the property and, in those circumstances, one may infer that his evidence would not have assisted Mr Dick. In my view, the allegation that the sale at an undervalue is not made out, nor is the allegation that there was a breach of s 183(1)Corporations Act.
[214]
Loan of $340,000 for GST in respect of sale of 26 Bourbong Street (para 12(l) of the statement of claim)
[215]
[75] On the settlement of the sale of Bourbong Street, the Powell Superannuation Fund became liable for GST in the amount of $340,000. A loan in that amount was advanced by APH by way of "vendor finance" so that this liability could be met. The loan from APH was recorded in an acknowledgment of debt and was signed by the Powells on 29 June 2005 at Ulton's office. The loan was for a period of one month, being the time required to claim back the GST, and was repaid on receipt of the BAS refund by the Superannuation Fund on 2 August 2005.
[216]
[76] The circumstances leading to the loan being advanced are in dispute. Mr Dick's position was that he was not aware of any issue concerning the payment of the GST, that it was not discussed with him and that he did not agree to any loan by way of vendor finance.
[217]
[77] It appears that the prospect of GST being payable was known to both Mr Marles and Mr Corpe (who then held a power of attorney for Mr Powell who was overseas) by 8 June 2005 and the need for an acknowledgement of debt had been raised some days previously. On 21 June 2005, Mr Marles sent Mr Corpe an email with the instruction "there will be vendor finance for the GST". Mr Marles' evidence about this was:
[218]
"Subsequent to the preparation of the contract which drew out the issue of GST, and also my letter to Ulton that specifically identified the amount of GST that was required for settlement, I spoke with Daryl Corpe, the accountant from Ulton, and he had forgotten about GST and hadn't realised that it was not a going concern and that GST would be payable. ... He then instructed me that there was to be vendor finance for the GST as a method of dealing with that."
[219]
[78] Mr Marles was subsequently emailed by Mr Corpe to the effect that the loan was to be for a month and interest free. Mr Corpe conceded that he made no attempt to contact the directors before those instructions were given. His evidence was that he "was putting in place the facilities to enable the [sale] to be completed so they would be available" at the meeting on 29 June 2005 where they would be discussed.
[220]
[79] The evidence of Mr Dick that the GST issue was not discussed is contradicted by that of Mr Powell, Mr Smith, Mr Corpe and Mr Marles. Mr Powell's evidence when asked about the matter was as follows:
[221]
"Can you recall at or before the meeting anything arising about GST?-- At the meeting, not before. At the meeting Peter Marles and Darryl realised that Darryl had neglected to organise the GST to be in the money arranged and they'd come to an agreement between themselves to make out a loan agreement or a loan - well, loan agreement to cover the GST until it was refunded from the tax office."
[222]
[80] Mr Dick's own evidence about the matter is somewhat equivocal. He asserted that there was no discussion about GST, but then volunteered that "there may have been a discussion of it", but "no discussion about the money coming out of the company to pay it". Mr Dick also appeared to accept that there was a discussion about an acknowledgement of debt needing to be signed by the Powells. But in the final analysis, I do not consider that what occurred amounted to oppressive conduct in any event, even if Mr Dick's specific agreement was not obtained. As mentioned, Mr Dick had agreed to the transaction in respect of which the loan was an incident. Mr Dick had never been involved in the financial arrangements necessary to implement transactions undertaken by APH. The evidence was that the Powell Superannuation Fund would most likely have not been in a position to complete the transaction without the loan. The acknowledgement of debt provided that interest was not payable for one month only (being the time needed to claim back the GST) and that thereafter interest was payable at the rate charged by NAB on overdraft accounts. The loan arrangement ensured that the sale transaction, to which all directors and shareholders had agreed, was able to proceed. In the circumstances, I do not consider that the short term interest free loan advanced to facilitate the sale of Bourbong Street was contrary to the interests of the members of APH as a whole, commercially unfair to Mr Dick or otherwise oppressive
[223]
Interim dividend declared on 29 June 2005 (paras 12(r), (s), (t) of the statement of claim)
[224]
[81] The applicant makes three complaints of oppression in respect of the meeting of the board of directors on 29 June 2005 at which an interim dividend to the shareholders was declared. The complaints are that Mr Powell and Mr Smith caused APH to declare an interim dividend:
[225]
(a) in circumstances where Mr Dick had not been invited to be present at the meeting authorising the payment (para 12(r));
[226]
(b) which included the declaration of a dividend in favour of AL Powell to be credited against sums due by Mr Powell to APH (para 12(s));
[227]
(c) including an interim dividend in the sum of $198,603.76 in favour of AL Powell as an "A" class shareholder contrary to clauses 3.01.01 and 90 of the Articles of Association (that is, by reference to preference shares rather than the ordinary shares of the member) (para 12(t)).
[228]
[82] As to the first complaint, Mr Dick was clearly present at the meeting of the board of directors on 29 June 2005. However, he disputes the period during which he was present and the extent of his participation. Mr Dick denies that he was present when resolutions were made concerning the payment of dividends. Mr Dick's evidence as to his not being present when the matter of the declaring of dividends was discussed was somewhat inconsistent. In evidence-in-chief he stated that there was a discussion as to that matter at the meeting at Ulton but that it extended to what each shareholder's percentage of the sale of the land would be and that the matter was agreed upon. When cross-examined, Mr Dick disputed that there had been any discussions concerning the disbursement of dividends. Although he later indicated that the only dividend he was aware he was receiving was in relation to the sale of Bourbong Street. I note that the minutes record Mr Dick as being present and assenting to the resolutions passed at the meeting concerning the dividends declared.
[229]
[83] My impression of Mr Dick's evidence on this issue was that he was content to leave such financial matters to others, as had been his approach in the past, and that the details of the passing of resolutions concerning dividends were not matters to which he was likely to have paid particular regard. There is no evidence that Mr Dick ever queried the dividends that were declared at the meeting and paid to the members. I prefer the evidence of the witnesses called by the respondents on this matter. I am satisfied that contrary to Mr Dick's case, he was in attendance at the meeting when the matter of interim dividends was discussed and resolved, as stated by the others who were present, and that he did not oppose the resolution.
[230]
[84] The dividends that were resolved as payable to each shareholder were in the amounts recorded in the loan accounts for the three directors and shareholders. In the case of AL Powell, the amount paid was $198,603.76, which included, inter alia:
[231]
(a) payments made in lieu of salary in the amount of $150,000;
[232]
(b) life insurance premiums paid on his behalf in the amount of $40,929.75;
[233]
(c) a reduction of Matthew's loan of $7,500 in the amount of $5,000.
[234]
[85] In his affidavit, Mr Powell explained that APH maintained "loan accounts" for AL Powell, Trekmere and Mr Dick which were accounting entries recording sums due to or from AL Powell, Trekmere or Mr Dick by APH from time to time. These accounting entries formed part of APH's general ledger and were reflected in monthly management accounts. Mr Powell stated that Mr Dick was aware of the loan accounts for APH. He stated that dividends were ultimately issued by APH to shareholders with the aim of clearing the shareholder loan accounts on the balance sheet at the end of each financial year, as determined by Ulton. His evidence was that this method of accounting was adopted in accordance with Ford's accounting guidelines so as not to distort the dealership expenses; Mr Powell indicated that Ford compared the reported results for each dealer and wished to have the accounts prepared in a way that would permit a comparison.
[235]
[86] Mr Powell's evidence that the declaration of the dividend to clear the loan accounts was reflective of the past practice of the company was supported by evidence given by Mr Whebell, APH's auditor. As I have mentioned, it was done with the agreement of all directors and shareholders. Furthermore, I accept the submission made on behalf of the respondents, that the crediting of shareholder's loan account is to be regarded as a valid and effective method of paying the dividend declared: Jarrett v Perpetual Trustee Co;[21] see also FCT v Stevens Agnew & Co (Vict) Pty Ltd; [22] Spargo's case.[23]
[236]
[87] The issue of payments made in lieu of salary is dealt with further below in relation to paragraph 12 (m) of the statement of claim, while the matter of the loan to Matthew Powell has already been mentioned in relation to paragraph 12 (j) of the statement of claim.
[237]
[88] I note that in respect of the issue of life insurance premiums, Mr Powell stated in his supplementary statement that all of the directors agreed that APH should pay insurance premiums on their behalf, which would be recorded against shareholder loan accounts. He gave evidence to like effect. Mr Dick's evidence was that he was told by Mr Smith that APH was to pay for the premiums, but that he did not know that the premiums were to be credited to the shareholder's loan accounts and then set-off against dividends at the end of each financial year. I consider this was a reflection of Mr Dick's lack of understanding of the accounting procedures adopted by APH, which were matters he did not inquire into or seek clarification about. He simply left such matters of finance and accounting to others, accepting the account records as presented.
[238]
[89] An additional issue raised on behalf of Mr Dick, was that the dividends were incorrectly declared in relation to each shareholder's preference or voting shares (including those held by Mr Dick and Smith), when they should have been declared in relation to their ordinary shares. On behalf of the respondents, it was conceded that, insofar as it might be said that had the dividends been declared in respect of the member's ordinary shares, the sums declared did not represent the member's pro-rata interest in APH. It was argued, however, that Mr Dick agreed to the practice of declaring dividends in the amount needed to clear the shareholder loan accounts and agreed to the declaration of dividends as recorded in the minutes. The fact that the declaration was unwittingly contrary to the articles did not necessarily make the declaring of the dividend an act of oppression.
[239]
[90] In the circumstances of this case, where Mr Dick participated in the meeting resulting in the declaration of the dividends, I do not consider that a case of oppression is made out. As counsel for the respondents submitted, insofar as the declaration was made in breach of the articles, it was a mistake that was shared by all the directors and shareholders. I accept the submission made by the respondents' counsel, citing Re Duomatic[24] and Jarrett v Perpetual Trustee Co[25] that, because all of the directors and shareholders agreed to payment of dividends in the amounts in question and all of the shareholders ratified and confirmed the payment of the dividends, the declaration of the dividends is to be regarded as a valid act of the company, notwithstanding non-compliance with clauses 3.01.01 and 90 of the Articles of Association of APH. I do not consider that a case of oppression is made out .
[240]
The loans of $15,000 in 2005 to Mr Powell (para 12(m) of the statement of claim)
[241]
[91] I note that in para 12(m) of the statement of claim a single advance of $15,000 is alleged to have been made to Mr Powell, although three payments to AL Powell are particularised (on 1 July 2005, 1 August 2005 and 1 September 2005). Mr Dick maintained that he was not given notice of and nor was he present at any meeting of the board of directors of APH at which the making of advances by APH to either Mr Powell or AL Powell were approved.
[242]
[92] The respondents admitted the payments were made, but denied any oppression. The respondents contended that the complaint proceeded on a misunderstanding as to the function of the member's loan accounts. During the financial period 2002 to 2005, in lieu of salary, payments made by way of Mr Powell's remuneration were recorded in AL Powell's loan account as sums due by him. At the end of the financial period, those payments recorded in the loan account were set-off against a dividend. Mr Powell's salary was debited to AL Powell's loan account and then off-set against dividends. It was accepted by the respondents that, while the arrangement resulted in a saving to APH (in not having to pay superannuation and other amounts incidental to the payment of wages), it also had taxation advantages for Mr Powell and disadvantages for APH. Counsel for the respondents observed that the evidence of Mr Powell and Mr Corpe was that this method of paying Mr Powell was approved by the accountants for APH, who audited the accounts at the end of each financial year.
[243]
[93] It was contended on behalf of the respondents that the arrangements regarding the payment of dividends in lieu of salary were discussed with Mr Dick at a meeting in or about June 2002 and that he did not object to the arrangement. Mr Dick gave evidence that he recalled being told in about 2002 by Mr Powell, that Mr Powell would no longer be drawing a wage, explaining, "I'm just going to draw a dividend." Mr Dick claimed that he responded by telling Mr Powell that, if he did this, the company would save "on holiday pay, superannuation and wages." Mr Dick's evidence was that he understood that Mr Powell was forgoing his salary entirely.
[244]
[94] I am satisfied that Mr Dick was advised in general terms that Mr Powell would be taking his salary by way of dividends. However, I do not consider that it was intended to convey that Mr Powell would be forgoing all remuneration. It appears that Mr Dick misunderstood what was being proposed, and while there was an taxation advantage to Mr Powell from that arrangement, Mr Dick accepted the accounts as prepared and did not challenge them. I cannot in those circumstances conclude that a basis for complaint is made out in terms of s 232.
[245]
Refurbishment of Ford dealership premises prior to the sale of the Ford business on 1 November 2005 (para 12(o) of the statement of claim)
[246]
[95] It is alleged that Mr Powell and/or Mr Dick caused APH to expend $33,000 on capital works at 26 Bourbong Street which were not authorised by the board of directors of APH and which were of no commercial benefit to APH because of the sale of the property to the Powell Superannuation Fund. This allegation relates to expenses of refurbishment undertaken by APH in complying with Ford's Brand@Retail program prior to the sale of the Ford business to Mr Hillier's company, DHP Ford Pty Ltd.
[247]
[96] The evidence indicates that in 2002 Ford launched a retail campaign called "Brand@Retail", requiring all Ford dealers to refurbish their premises by December 2007 to ensure similar branding, including lights and signage. Mr Dick was aware of the program and compliance issues as the General Sales Manager for the Ford business. When the Ford business was sold to DHP Ford Pty Ltd, it was a term of the contract of sale (special condition 5) that the refurbishment required by Ford's Brand@Retail program be carried out by APH.
[248]
[97] Prior to the contract for sale to DHP Ford Pty Ltd being signed by the directors of APH on 3 October 2005, Mr King, a solicitor with Tobin King Lateef, who acted as solicitors for APH, explained to the directors the terms of the contract, including special condition 5. Mr Dick was thus aware of APH's obligation to pay for the work, but raised no objection. Indeed, Mr Dick's evidence in respect of clause 5 was that he "never ever said anything against it. I said that I knew it had to be done".
[249]
[98] Given Mr Dick's agreement to the inclusion of the clause obliging APH to undertake the refurbishment, no oppression is made out in respect of this matter. But in any event, both Mr Powell and Mr Hillier gave evidence that Mr Hillier paid some $250,000 more for the business because of APH undertaking the refurbishment required by the Brand@Retail program. There was thus a clear commercial advantage to APH, in the course adopted in respect of the refurbishment. Apparently Mr Dick had not been aware of the increased price that was negotiated. There is no substance to this ground of complaint.
[250]
Loan agreement offered on 1 November 2005 (para 12(a) of the statement of claim)
[251]
[99] As to the allegation of oppressive conduct concerning the loan agreement offered to Mr Dick on 1 November 2005, Mr Powell gave evidence that the loan of $150,000 was offered for a short period on interest free terms to assist Mr Dick following his redundancy, as he knew it would take some time for the final accounts to be completed. He said he gave instructions to Ulton to prepare the documentation concerning the loan. It appears that neither Mr Powell nor Mr Smith played any role in drafting the clauses for the loan agreement.
[252]
[100] I note that the loan document provided for an advance of $150,000 which was to be satisfied upon demand being made by APH as lender. By cl 4.1 it was provided that "APH, may in its unqualified discretion, demand" that the loan be satisfied in any one of a number of ways, including that Mr Dick repay the loan upon demand or that all or part of his shares be sold at market value (the value agreed by the parties or determined by an independent valuer (cl 1.1)) to APH or other shareholders with the price of the shares being set-off against the loan. Further, if Mr Dick elected to satisfy the loan before APH made demand for satisfaction of the loan, APH remained entitled to exercise its rights in cl 4.1 to decide how the loan was to be satisfied (cl 4.2). In addition, where a transfer of shares was required, Mr Dick was obliged to do all acts and execute all documents necessary to transfer the shares and APH was entitled to exercise its power of attorney in cl 8 in that regard.
[253]
[101] Mr Dick's evidence was that he refused the loan because he "did not need the money". It seems that Mr Dick was concerned that if he signed the loan agreement he would be squeezed into selling his shares for $150,000 when he considered that they were worth more than that. Also, he did not want to resign as a director until the settlement of his shares had been finalised. When cross-examined about the document, Mr Dick seemed to accept that the provisions of cl 4.1 no longer caused him concern. But in any event, Mr Dick did not sign the loan agreement, having received legal advice not to do so, because of the implications of the power of attorney clause and the view he formed, on the basis of advice, that if he took the loan he "had to hand over his directorship". I cannot therefore see that any basis for complaint is made out.
[254]
Payments of rates of $715.75 on 7 December 2005 (para 12(n) of the statement of claim)
[255]
[102] An allegation of oppressive conduct is made in respect of the payment on 7 December 2005 by APH of $715.75 for rates payable on land owned by Alan Powell Ford Pty Ltd. I accept that the payment was made mistakenly in respect of rates which should have been paid by another company owned by Mr Powell and that when the mistake came to light, $628.78 was refunded to APH, being the amount paid to the Council less the interest of about $87 applied against the account by the Council. No oppressive conduct is made out.
[256]
$195,000 loan to Mr Powell on 28 December 2005 (para 12(q) of the statement of claim)
[257]
[103] It is not disputed that on 28 December 2005, APH made an interest free loan to Mr Powell in the amount of $195,000. Mr Powell sought the loan because, at the time, he intended to invest the money into another business interest: a water tank venture to be pursued by one of Mr Powell's companies. As it turned out, Mr Powell did not proceed with the other business interest. The amount of $195,000 was repaid to APH by set-off against a dividend declared on 21 April 2006.
[258]
[104] The loan was undocumented, unsecured and not for any specified duration. Mr Smith's evidence was that he was aware of the loan and agreed to it. But Mr Dick was not consulted and was not present at any meeting of directors to approve the loan.
[259]
[105] The respondents sought to counter Mr Dick's complaint concerning the loan by likening it to the $150,000 loan offered to Mr Dick and the interest free loan of $63,480 advanced to him for the purchase of three vehicles. However, I do not accept that the loan advanced to Mr Powell can be put on the same footing as those loans. The unsolicited $150,000 loan offer to Mr Dick was made in the context of the sale of the Ford business and Mr Dick's consequent redundancy and was made pending finalisation of the sale of his shares. I note that that loan agreement also included a mechanism enabling APH to require the transfer of Mr Dick's shares, thereby according APH some security. Nor was the loan to Mr Powell in the same category as the loan given to Mr Dick in relation to the purchase of the three cars, which also arose out of the sale of the Ford dealership.
[260]
[106] The loan to Mr Powell was a substantial one which was entirely unrelated to the affairs of APH and made in circumstances where there was a deliberate failure to notify Mr Dick and seek his approval, although he was then still both a director and shareholder of APH. In truth, bypassing Mr Dick in this manner was reflective of Mr Powell's attitude at the time that Mr Dick only remained as a director "under sufferance". That was made apparent by the following evidence of Mr Powell:
[261]
"You didn't speak to Mr Dick, though, did you?-- No, but he wasn't there.
[262]
And he was still a shareholder, wasn't he?-- Well, he was at that stage. It was only.
[263]
What, because he hadn't - he disagreed with you about how much the land might be worth. That's the sufferance you are speaking of, isn't it?-- No, because he was supposed to resign on the 1st of November.
[264]
You mean he didn't sign the document you peremptorily gave to him?-- Mmm.
[265]
So that's how you describe sufferance, is it?-- He was there when he wasn't wanted there, yes.
[266]
Precisely. Now, he was, however a director?-- Well, he still was then, yeah.
[267]
Yes, it didn't even occur to you, did it, to contact all directors of the company before the company loaned AL Powell $195,000 in respect of a fibreglass water tank proposal?-- It wasn't - anyway, well, why should I have contacted Wayne?
[268]
Because he was a director. Did you think that his position that stage was irrelevant?-- Well, I wasn't robbing the place, it was - it was all above board, it was there for everyone to see. I mean, I didn't try and hide the fact.
[269]
So because you describe it as 'not robbing the place', is that why you didn't think it at all appropriate to contact one of the three directors to see what the directors might think about this proposal?-- Well, what if he said no I still would have done it, wouldn't I?
[270]
Yes, you would have because you had the 75 per cent controlling interest?-- I would have called a meeting and I would have voted on it so what was the point of ringing him anyway."
[271]
[107] That Mr Powell and Mr Smith acted without any due regard to Mr Dick is evident from the exchange above. In cross-examination, Mr Powell for the first time revealed that he chose the approach of obtaining a loan over seeking the declaration of a further dividend because he claimed the latter approach might have raised difficulties given the ongoing negotiations for the sale of Mr Dick's shares. He gave evidence as follows:
[272]
"But from the perspective of APH, that was your thinking?-- Yes, that it wouldn't create problems down the track with declaring a dividend when the negotiations were still underway.
[273]
Right. So, the position was, do you tell the Court, that as at December '05 you thought it's okay for APH to loan this money, to take it out of the company, because if it doesn't, it might declare a dividend and that might cause Mr Dick to take, what, a harder line with respect to these pay-out negotiations?-- I don't know whether it would have caused him to take a harder line, but I would have imagined that we would have had more of Mr Shorten and him complaining about doing that, so----
[274]
Then tell me how it was that you thought the declaration of a dividend would cause an issue with respect to the negotiations between you and Mr Dick as at that time, December '05?-- Well, probably because if it was paid as a dividend, he would have to pay some tax on it. If it was paid as a purchase of the shares, he wouldn't.
[275]
...The explanation you now put forward for considering it was appropriate to advance this money, an explanation, I should add, which has appeared nowhere in your pleadings or in your statements or in your affidavits heretofore, is that if you didn't pull this money out of the company, the company might have to declare a dividend. That's your position, isn't it?-- Yes.
[276]
And, therefore, by pulling the money out of the company and stopping the company declaring a dividend, you are telling the Court that that was acting in the interests of APH?-- I think it did, yes.
[277]
The question, as I recall it, I hope, was that you say that you considered it appropriate as a director of APH to pull this money out of the company because otherwise a dividend will be declared and that would cause issues in the negotiations between you and Dick. We agree that far, correct?-- Yep, yep.
[278]
If indeed you were thinking that way in December of '05, you were acting in a quite inappropriate way by seeking to gain a negotiating advantage by pulling funds out of the company, weren't you?-- Look, I told you why I wanted the money. That was the prime reason why we did it."
[279]
[108] While it is within the rights of the majority to rule, they must do so in a manner that also recognises the rights of the minority: Mopeke Pty Ltd & Ors v Airport Fine Foods Pty Lts & Ors.[26] Although Mr Powell considered he was likely to have prevailed at a meeting of directors, it did not excuse the utter disregard of Mr Dick (who, as I have mentioned, remained a director and shareholder) by failing to observe proper process in notifying him, as director, of what was being proposed and giving him the requisite opportunity to form and express a view at a properly convened meeting. The advancing of an unsecured interest free loan for an indeterminate period, unrelated to APH's business was devoid of any commercial benefit to APH and was simply one directed to the interests of Mr Powell and to his advantage only. The conduct in advancing the loan was unfair and oppressive to Mr Dick as a member and contrary to the interests of the members as a whole.
[280]
Inspection of books and records in 2006 (paras 12(d), 12(e), 12(f) and 12(i) of the statement of claim)
[281]
[109] It is alleged in paragraphs 12(d), 12(e) and 12(f) that on several occasions in February 2006, Mr Dick and Mr Smith engaged in oppressive conduct by refusing, or instructing McCullough Robertson to refuse, Mr Dick permission to inspect various documents contrary to s 198FCorporations Act and also article 85 of the Articles of Association in that they did so without convening a meeting of the board of directors of the company. These allegations concern the period during which Mr Dick was still a director. There is a further similar allegation made in respect of a failure to provide inspection of APH's books and records on 7 June 2006 after Mr Dick ceased to be a director.
[282]
[110] The factual background to the February 2006 allegations is as follows. On 1 February 2006, Mr Dick's solicitors Lynch & Company sent a request to Ulton for access to APH's financial records and company books. Ulton referred the matter to McCullough Robertson. Mr Dick's evidence was that he considered it likely that Mr Powell and Mr Smith would vote to remove him as a director on 16 February 2006 and wanted to inspect and obtain copies of financial records for the purpose of taking advice about the value of his shares in the company. He instructed his solicitors to request access prior to the holding of the meeting on 16 February 2006. On 6 February 2006, Lynch & Company advised McCullough Robertson that they had instructions to issue oppression proceedings against APH, AL Powell and Trekmere. The following day Lynch & Company provided a list of the 32 documents in respect of which inspection and copies were sought.
[283]
[111] By letter dated 7 February 2006 McCullough Robertson wrote to Lynch & Company stating that insofar as the relief being sought by Mr Dick was for oppression, s 198F(1)Corporations Act was limited in its application to legal proceedings that a person intended to bring in his own name, and did not include proceedings intended to be brought in a company's name. It was also asserted that insufficient evidence had been provided as to the basis or nature of the proposed proceedings, other than it was related to "the sale of land owned by the company to Mr and Mrs Powell at a gross undervalue, the refusal by the company directors Mr Powell and Mr Smith, to pay any dividend and the attempts by Mr Powell to procure the purchase of the shares in the company owned by our client at a gross undervalue."
[284]
[112] Nevertheless, by letter dated 8 February 2006 McCullough Robertson instructed Ulton to make available all items on the list, except for item 3 ("share certificates or other ownership documents re investments in listed corporations", item 31 ("valuation report(s) supporting freehold land revaluation(s) for Walker Street and for showroom land") and item 32 (the file of MRH Lawyers, concerning the sale of Bourbong Street to the Powell Superannuation Fund). On 10 February 2006, Mr Dick and Mr Shorten attended the office of Ulton for the purpose of inspecting and copying the financial records of the company. Items 30 to 32 were not provided.
[285]
[113] The basis of the complaint centres on 198F Corporations Act. Section 198F(1) provides that a director of a company may inspect the books of the company (other than its financial records) at all reasonable times for the purposes of a legal proceeding in which the director is a party, or proposes in good faith to bring, or has reason to believe will be brought against him or her. Section 198F(2) gives a similar right of inspection to a person who has ceased to be a director which continues for seven years.
[286]
[114] It was submitted by the respondents, citing Tan v St George Bank Ltd,[27] that s 198F could not be availed upon in the circumstances because the oppression proceedings were not brought in Mr Dick's capacity as a director but rather in his capacity as a shareholder. It was held in Tan v St George Bank Ltd that s 198F did not have the effect of extending the right of a director or former director to inspect the books of a company in proceedings unconnected with a liability or claim arising out of his or her capacity as a director. The court stated in that case:
[287]
"... the effect of s 198F has received very little judicial attention in that respect. However, in Hardcastle v Advanced Mining Technologies Pty Ltd[2001] FCA 1846, Emmett J, having referred to the Explanatory Memorandum for the Corporate Law Economic Reform Bill pursuant to which s 198F was inserted into the (then) Corporations Law, said by way of obiter in relation to s 198F(2) - relating to comparable access to company books by former directors (at [25]):
[288]
'A second possible limitation on the operation of s 188F(2) [sic, s 198F(2)] is that the proceeding must be a proceeding to which the former director is a party or believes might be brought against him or her or which he or she proposes to bring in his or her capacity as a director of the company. It would be curious if a person who, fortuitously, happened to have been a director of a company in the past would be entitled to access to books of the company that might be material to proceedings brought by that former director or which might be brought against the former director in a capacity totally unconnected with the capacity of the former director as a director. I do not express any firm or final view on that question at this stage because it does not arise in the application before me.'
[289]
The curious result referred to by Emmett J applies, in my view, with equal force to s 198F(1). It tends strongly to point to the conclusion that no such right was intended and when regard is also had to the Explanatory Memorandum is, I think, sufficiently clear that the purpose of s 198F was not to give access to directors or former directors for purposes unconnected with a liability or claim arising out of their capacity as a director."
[290]
[115] I accept this statement of the effect of s 198F.
[291]
[116] Oppression proceedings may of course be brought in respect of conduct affecting a member in another capacity other than as a shareholder and the oppression proceedings foreshadowed by Mr Dick solicitors were also to be seen in the context of the impending meeting called for on 16 February 2006 at which it was proposed to remove Mr Dick as a director. The removal of Mr Dick as director concerned one of the grounds of complaint of oppression. The documents in question, however, did not relate to any claim concerning the removal of Mr Dick as a director but other went to other aspects of the oppression proceeding relating to Mr Dick's capacity as a member. I do not consider that s 198F (which was the only provision pleaded) operated to extend to Mr Dick an entitlement to inspect documents for those purposes. In the circumstances, I do not consider that the complaint concerning the failure to provide inspection is made out.
[292]
[117] There is a separate complaint made concerning the failure to provide inspection of books and records on 7 June 2006. Applying the reasons I have outlined, I do not consider s 198F applied to provide an entitlement to inspect the documents in question which also concerned the action relating to claimed oppression of Mr Dick as a member of a company.
[293]
[118] Nor do I consider that there is any substance to the allegation concerning article 85. I do not consider that APH was required to call a board meeting to consider the matter of inspection of the documents, which APH left to its solicitors to advise on.
[294]
Removal of Mr Dick as a director of APH on 16 February 2006 (para 12(g) of the statement of claim)
[295]
[119] A further ground of complaint concerns the conduct of Mr Powell and Mr Smith in resolving to terminate Mr Powell's directorship at the meeting on 16 February 2006.
[296]
[120] Mr Dick attended the meeting on 16 February 2006 which was held in Ulton's offices. He sought an explanation as to why Mr Powell and Mr Smith did not want him to remain a director. Mr Powell gave the explanation that Mr Dick was a "hostile director", no longer employed by APH and was working for another car dealership in Bundaberg.
[297]
[121] Mr Powell's evidence was that on 10 February 2006, he received a telephone call from Mr Hillier, who informed him that Mr Dick had applied for a job at Bundaberg Toyota - a business operated by Hillier and a competitor of APH. In fact, Mr Dick commenced employment as Fleet Manager of Bundaberg Toyota on 20 February 2006. Counsel for Mr Dick placed some emphasis on the fact that as at 23 January 2006 when the notice for the convening of the meeting was issued, Mr Dick had not yet commenced employment with Mr Hillier.
[298]
[122] However, the removal of Mr Dick as a director of APH must be seen in the context of all of the surrounding circumstances. Mr Dick appreciated that his directorship was associated with his employment as Sales Manager of the Ford dealership, which had been sold, and, as the respondents' counsel observed, it was not in anyone's contemplation that Mr Dick had an interest in the future operation of the remaining business of APH, namely Bundaberg Prestige. By 23 January 2005 the relationship between Mr Dick and Mr Powell had deteriorated significantly. And by the time of the meeting of 16 February 2006, Mr Dick had, to Mr Powell's knowledge, pursued employment with a competitor. I accept that Mr Powell had genuine concerns about Mr Dick remaining a director in those circumstances.
[299]
[123] A removal of a director by his co-directors because they genuinely formed the belief that he would set himself up in opposition to the company has been held not to be oppressive: Re Warrick Howard (Australia) Pty Ltd.[28] The resolution terminating Mr Dick's directorship was made on proper notice and due process was observed with Mr Powell and Mr Smith exercising their voting power as conferred by the articles. The fact that Mr Dick ceased to be a director did not preclude his entitlement or ability to realise the value of his shareholding in APH. In the circumstances, I do not consider this claim of oppression is made out.
[300]
Failure to pay superannuation payable on Mr Dick's commission (para 12(h) of the statement of claim)
[301]
[124] After Mr Dick's query as to the position concerning superannuation payable on his commission, APH received advice from Ulton that Mr Dick, as a sales manager was entitled to be paid superannuation on commission. APH had not until that time been aware that under the relevant provisions of the superannuation legislation "sales managers" were entitled to superannuation on commission. Because of this mistake, all sales managers employed by APH had not been paid superannuation on their commission. APH subsequently corrected its error with respect to the period from early 2000 to 2006. It did not correct the error beyond 2000 on the basis of advice from Ulton that the Australian Tax Office would not pursue superannuation underpayments with respect to the period prior to 2000. APH's failure to correct the situation for the period prior to 2000, was said to be an approach taken generally and not confined to Mr Dick.
[302]
[125] It was argued by the respondents that Mr Dick's claim for superannuation entitlements for the period prior to 2000 did not arise in his capacity, as a member or director, or "other capacity" within s 232 Corporations Act. In Campbell v Backoffice Investments Pty Ltd,[29] Young CJ in Eq observed, referring to Gamlestaden Fastigheter AB v Baltic Partners Ltd,[30] that while the court may look at the interests of a member in another capacity, "it normally expects that other capacity will have a close nexus with the membership". See also John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd & Ors.[31] In R & H Electrical Ltd v Haden Bill Electrical Ltd,[32] it was held that the oppression remedy was wide enough to include a member affected in their capacity as a creditor, even where the loan in question was not made by the member directly but through a company under their control.
[303]
[126] In this case, Mr Dick's entitlement to superannuation arose as an incident of his employment as a sales manager and independently and irrespective of his being a member. I do not consider that the claim for past superannuation payments which arose as a result of Mr Dick's capacity as an employee has a sufficiently close nexus with his membership such that the provision of s 232 is engaged. It is a matter to be pursued against APH separately.
[304]
Termination payments to Mr Smith and Matthew Powell in 2007 (paras 12 (x), (z) of the statement of claim)
[305]
[127] A further complaint concerns the conduct of Mr Powell and Mr Smith, in causing APH to make redundancy payments to Mr Smith and Mr Matthew Powell totalling $130,000 in March and April 2007, which APH was under no legal obligation to make.
[306]
[128] I note that an argument was made on behalf of Mr Dick, that there was no "legal obligation" to make the payments and that there were other influences at play such as, for example, rewarding Mr Smith's "loyalty". The contract for the sale of the Bundaberg Prestige business contained (in cl 20) restraint of trade provisions which had consequences for Mr Smith and Matthew Powell. Mr Powell's evidence was that APH sought advice from Mr Rich, relying on his expertise in the industry, as to what would be a reasonable payment to Mr Smith and Matthew Powell for the effects of the restraint of trade clauses. Mr Rich's advice provided by letter dated 2 April 2007 was that in respect of Mr Smith, up to two years market salary of $110,000 per annum might reasonably be paid as a termination payment, and in respect of Mr Matthew Powell no more than one year's salary could reasonable be paid (his salary at the time was $36,400 per annum). On the strength of Mr Rich's advice, APH made termination payments of $100,000 to Mr Smith and $30,000 to Matthew Powell.
[307]
[129] I consider that such matters were appropriately within the realm of management decisions in respect of which the courts are slow to intervene unless they are shown not to be reasonably made or not made bona fide.[33] There was no expert opinion to counter that of Mr Rich who gave evidence as to the reasonableness of the payments. I can see no oppression in the conduct in question, which concerned a management decision and which I am satisfied the directors addressed in good faith on the basis of expert advice.
[308]
Legal fees incurred and paid by APH (paras 12 (b), 12(c), 12(u) and 12(w) of the statement of claim)
[309]
[130] Counsel for Mr Dick indicated in submissions that the ambit of the alleged oppression referred to in paragraphs 12 (b) and 12(c) was that fees were incurred without any resolution being passed. I can see no substance in the allegations in those paragraphs. However, the real complaint concerning the incurring of legal expenses was that APH's funds were used to pay for the respondents' legal expenses in the within proceedings, as opposed to those of APH.
[310]
[131] In Mopeke v Airport Fine Foods Pty Ltd & Ors[34], Brereton J observed:
[311]
"There is nothing necessarily improper or inappropriate in a company defending an oppression suit at its own expense, but it may be oppressive for a company to do so if its defence goes beyond merely protecting the discrete interests of the company, so as to amount to support of the majority, with the consequence that the majority get at least some of their legal work done at the expense of the companies: Re DG Brims and Sons Pty Ltd[1995] QSC 53; (1995) 16 ACSR 559 (Byrne J); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd[1998] NSWSC 413; (1998) 28 ACSR 688 at 732-4; [1998] NSWSC 413 (Young J). Where there is such oppression, as Young J explained in Fexuto v Bosnjak Holdings, the remedy is for the majority to compensate the company for the unauthorised expenditure; and where the minority is to be bought ought, the valuation should bring to account an actual or notional accounting for the moneys which should be returned by the majority to the company, including so much of the costs incurred in the company's defence as were attributable to support of the majority rather than defence of the company."
[312]
[132] It appears that the sums that were paid by APH by way of legal expenses are in fact greater than stated in the pleadings. As at 13 March 2009, APH had paid a total of $317,286.80 in legal fees to McCullough Robertson. In addition, as at the date of the trial an amount of $215,137.32 remained payable. In respect of the amount of $317,286 paid by APH, the respondents repaid to APH on 17 September 2008 a total of $102,139.48: $77,757.93 for McCullough Robertson's fees in connection with these proceedings and $792 for counsel's fees with the remaining $23,589.55 being reimbursed to APH for money paid to McCullough Robertson in connection with other unrelated matters. The reimbursement to APH was made upon the respondents coming to appreciate after advice from their solicitors in August 2008, that APH could not lawfully pay the legal expenses of all three respondents. At the hearing of the trial, an undertaking was given to repay the $215,137.32 in fees which remained outstanding, with the respondents indicating that they would seek to recover from the APH its proper share of those fees.
[313]
[133] The dispute the subject of the within proceedings was one between shareholders. It is apparent that Mr Powell and Mr Smith used their position as directors to cause APH to fund the defence of the respondents' own interests in the oppression action, as opposed to the discrete interests of APH. That conduct occurred over a very significant period and in respect of considerable legal expenses. It gave the respondents a distinct advantage over Mr Dick and was clearly objectively unfair to him. It was beside the point that Mr Powell and Mr Smith did not, until August 2008, appreciate their responsibilities in respect of the use of company funds for the payment of such legal expenses.
[314]
[134] It was contended that where shareholders accept that they are liable to reimburse the company for money spent on their own defence of oppression proceedings, the court may refuse to order the relief sought by the applicant: Re Polyresins Pty Limited.[35] While relevant to the question of what relief is appropriate, it nevertheless remains that the mere reimbursement of legal expenses or giving of an undertaking to do so does not negate the oppressive conduct engaged in by the respondents insofar as APH's funds were used to meet the legal fees relating to the respondents' defence of the proceedings.
[315]
Accounting fees of APH (para 12 (v) of the statement of claim)
[316]
[135] A complaint is made concerning the payment of professional fees to Ulton. The respondents' evidence is that since the sale of the Ford dealership, APH has not had any internal administration or accounts department. Mr Corpe's evidence was that the money paid to Ulton was for work in relation to these proceedings and was for services performed on behalf of APH alone. There was no evidence to the contrary. Accordingly, I do not consider the payment of these fees to be oppressive.
[317]
Payments made to Powell Superannuation Fund in 2007 (para 12(y) of the statement of claim)
[318]
[136] A further allegation of oppression concerned payments made by APH to the Powell Superannuation Fund on 29 January 2007, 19 April 2007 and 29 June 2007 totalling $22,489.26 in circumstances in which it was said not to be legally obliged to make the payments.
[319]
[137] It is admitted that $590.86 was inadvertently overpaid to Mr Powell (because insurance paid for Mr Dick was added to Mr Powell's loan account in error). The affidavit of Mr Powell recorded that the payments otherwise comprise:
[320]
(a) $14,780.88: being superannuation of nine per cent payable on director's fees of $164,232 standing to the credit of AL Powell's loan account, paid on 29 January 2007;
[321]
(b) $2,308.38: being a repayment of rates in respect of the holding yard and another property. These rates had been inadvertently overpaid and were refunded in error by the Bundaberg City Council to APH instead of to the Powell Superannuation Fund. They were paid on 19 April 2007;
[322]
(c) $5,400: being superannuation of nine per cent payable on director's fees of $60,000, paid on 29 June 2007.
[323]
[138] I do not consider that the claim of oppression in respect of the payments has been made out.
[324]
Vehicle sale to Mr Smith (para 12(aa) of the statement of claim)
[325]
[139] As to the allegation that Mr Powell and Mr Smith knowingly caused APH to sell a motor vehicle to Mr Smith at a trading loss, it was alleged that on 29 March 2007 APH sold Mr Smith a Mercedez Benz vehicle for $52,274 knowing that the market value was $94,000 and thereby incurring a trading loss of $42,000.
[326]
[140] The purchase of the vehicle by Mr Smith is recorded in several documents. The evidence indicates that Mr Smith paid a total of $77,274 for the purchase of the vehicle. Finance of $52,274 was obtained by Mr Smith through GE Automotive Finance, on a "deposit" of $25,000. I note that Mr Smith in fact paid the deposit from funds he obtained by way of dividends from APH, which occurred only after he took possession of the vehicle. A trading loss was sustained on the transaction; the vehicle had a compliance date of May 2005, some 1,000 km on the odometer, and had been in stock for almost two years by the date of its sale to Mr Smith. I note that trading losses were similarly sustained on the three vehicles sold to Mr Dick.
[327]
[141] Mr Smith's evidence was that the price he paid was equal to the best price arrived at by Brad Solomon of Bundaberg New Cars, and wholesalers Rick Kelly, Adrian Robinson and Mike Kelly. Two of these wholesalers provided statements that they had been involved in giving valuations over a period of time, but not surprisingly were unable to recall valuing any particular vehicle. No evidence was adduced to contradict Mr Smith's evidence as to value. I do not find that oppression is made out in respect of this matter.
[328]
Alleged purchase by APH of a vehicle for Mr Powell using company money (paras 12(bb) and 12(cc) of the statement of claim)
[329]
[142] As to the allegation that Mr Powell caused APH to purchase a vehicle for him in the sum of $154,251 on 4 April 2007, that allegation is not made out. I accept that the purchase price was paid by a cheque for $230,000, which comprised payment of $157,225 for the Mercedes vehicle the subject of the allegation and $72,775 for another vehicle. Mr Powell's evidence was that the purchase price of $157,225 paid for the vehicle (which had a compliance date of September 2006) was equal to the best price offered for the vehicle by wholesalers. No contrary evidence was adduced.
[330]
Set-off of $63,489 against April 2006 dividends in respect of vehicles purchased by Mr Dick (para12(k) of the statement of claim)
[331]
[143] An allegation of oppressive conduct is made in respect of the conduct of Mr Smith and Mr Powell in causing APH to declare a dividend on 21 April 2006 in favour of the shareholders including Mr Dick, and to set-off the sum of $63,480 against Mr Dick's payment in respect of a debt owing to APH by him for the price of three motor vehicles purchased on 31 October 2005. That conduct is alleged to be contrary to article 90(2) of the Articles of Association, which states, inter alia, that "all dividends should be apportioned and paid proportionality to the amounts paid or credited as paid on the shares". While the pleading referred to article 90(2), the submissions on behalf of Mr Dick were directed to article 90(1).
[332]
[144] At the time of the sale of the Ford dealership, Mr Dick entered into contracts for the purchase of three vehicles at dealer prices for a total of $63,480. Mr Dick's evidence was that it was agreed that he would pay for these vehicles when he received his "final dividend" from the company. Mr Dick said that he offered at the time to pay for the vehicles, but that Mr Powell said "leave it until settlement". There was no mention of any interest being charged.
[333]
[145] After the present litigation was commenced, APH demanded repayment of the sum of $63,480 from Mr Dick, by letter dated 31 March 2006 from McCullough Robertson to Lynch & Company. There was no response and by letter dated 11 April 2006, McCullough Robertson advised that the directors were considering whether to issue a dividend to shareholders and were contemplating setting off the debt against the proposed dividend. They asked for any objection to be provided by 18 April 2008. At a meeting on 21 April 2006, a dividend of $69.0608 per ordinary share was declared and it was resolved to offset against that any moneys owed to APH by the shareholders or directors personally. Mr Dick was entitled to receive $112,500, against which the amount of $63,480 was offset, resulting in a payment to him of $49,020 in respect of his dividend. An objection to this course was notified by Lynch & Company on 24 April 2006 - some eight days after the date specified in McCullough Robertson's letter.
[334]
[146] Counsel for Mr Dick accepted that the vehicles could not be obtained for free, but argued that the proper course, consistent with what had been discussed, was for payment to be effected by the debt being deducted from the amount otherwise payable for Mr Dick's shares. While it is true that the understanding at the time the vehicles were purchased was that payment would be deferred until the purchase price for Mr Dick's share was finalised, it was expected that settlement would occur by December 2005. It was certainly not anticipated that payment would be delayed for a prolonged period until finalisation of litigation, which was not even in contemplation at the time. In reality, Mr Dick was given a longer period to pay than had initially been envisaged.
[335]
[147] In essence, the complaint made on behalf of Mr Dick was not in respect of his ultimate indebtedness for the $63,480, but that the mechanism utilised by APH of setting off that debt against Mr Dick's dividend was precluded when regard was had to articles 90 and 91. The argument, as it was made in written submissions, was that the Articles of Association allowed for limited circumstances in which a dividend otherwise payable could be reduced and that "by necessary inference and by reference to article 90(1) a dividend was required to be payed in full." I am unable to accept this argument.
[336]
[148] There is no express prohibition in the articles against the setting-off of debts due by members against dividends payable to them. Article 91 gives the directors power to "deduct from any dividend payable to a member all sums of money (if any) presently payable by him to the company on account of calls or otherwise in relation to shares in the company". Counsel for the respondents submitted that the provision was merely permissive in effect, conferring a right to "deduct" certain sums from dividends, and therefore to appropriate those particular assets as payment (in the nature of the rule in Cherry v Boultbee[36]) rather than to set-off sums due.
[337]
[149] In order to exclude the right to set-off clear words or at least a clear implication is required: Derham, The law of Set-off, 3rd edn, 5.79. I do not read anything in articles 90 and 91, either separately or in combination, as leading to this result. Nor, for example, do I accept that the use of the word "deduct" in article 91 is to be seen as apt to amount to such a clear implication: see Connaught Restaurants Ltd v Indoor Leisure Ltd.[37] I do not consider the conduct in respect of the set-off to be oppressive or otherwise unfairly prejudicial to or discriminatory against Mr Dick.
[338]
Set-off of $52,000 for the costs judgment in December 2008 (para 12(dd) of the statement of claim)
[339]
[150] It is alleged that Mr Powell and Mr Smith engaged in oppressive conduct by declaring a dividend in favour of Mr Dick but setting-off against the dividend a sum in respect of a fixed costs order made on 23 September 2008.
[340]
[151] The background concerning this matter is that on 23 September 2008 Daubney J ordered Mr Dick to pay the costs of all three respondents, fixed in the amount of $52,500. On 24 September 2008, McCullough Robertson sought payment and advised that enforcement proceedings would be brought if payment was not made by 1 October 2008. On 11 November 2008, Mr Lynch wrote to McCullough Robertson, observing that Mr Dick was not in breach of the order because an appeal had been lodged. I note that in seeking leave to appeal the costs order before Daubney J, Mr Lynch expressly indicated that a stay of the order was not being sought. Of course the bringing of an appeal did not operate as a stay. By letter dated 9 December 2008, McCullough Robertson provided Mr Lynch with copies of the enforcement hearing summons issued by the court on 26 November 2008.
[341]
[152] On 12 December 2008, Mr Powell wrote to Mr Dick giving notice that APH proposed to declare a dividend to shareholders on 18 December 2008 and giving notice that AL Powell and Trekmere had assigned their interest in the costs order to APH. Notice was also given that APH intended to deduct the amount owing with respect to the costs order from Mr Dick's proposed dividend. By letter dated 18 December 2008, Ulton forwarded a cheque to Mr Dick in the amount of $21,276.56 in respect of the dividend declared on 18 December 2008. It advised that from a dividend of $74,999.16 declared in favour of Mr Dick the amount of the costs order and interest had been deducted. On 22 December 2008 Mr Lynch wrote to McCullough Robertson as follows:
[342]
"You will note that your client has purported to satisfy the Fixed Costs Order by deduction from a dividend declared in favour of our client.
[343]
We also note that your firm has filed and served an Enforcement Summons on our client requiring him to complete a Financial Statement and to appear in Court in January 2009.
[344]
Given that the debt the subject of the Enforcement Summons has now been paid please confirm the following as a matter of urgency:
[345]
You will not require our client to complete his financial statement
You will immediately dismiss the Enforcement Summons and you will not require our client's appearance on the return date."
[346]
[153] On 23 December 2008, McCullough Robertson advised Mr Lynch that, "as the amount of the fixed costs order of 23 September 2008 has now been fully satisfied", Mr Dick was no longer required to complete and return a statement of financial position and that they would attend to the dismissal of the enforcement summons. On 7 January 2009 McCullough Robertson advised the Registrar of the Supreme Court that as the money order the subject of the summons had been satisfied, the summons was to be dismissed. The Registrar in turn notified that an order to discharge the Enforcement Summons had been made. Mr Lynch was advised accordingly on 9 January 2009. On the same date, Mr Lynch wrote to McCullough Robertson noting:
[347]
"...it appears that the directors [APH] have purported to declare certain dividends from the monies held by the company. We note that [APH] has purported to set-off against dividends apparently payable to our client an amount of legal costs which your clients assert are owing to them by [Mr Dick].
[348]
The Articles of Association [of APH] do not permit any such set off and our client will be relying upon these actions as further evidence of oppression...."
[349]
[154] No argument was raised on behalf of Mr Dick as to the effectiveness of the assignment. The submissions made by counsel were directed to whether a set off was permitted by the articles. As I have already stated, I do not consider that the articles precluded the making of a set-off against dividends. I find no oppression in respect of the set-off. There is no need, in the circumstances, to consider the additional issue of waiver and estoppel raised by the respondents.
[350]
[155] Given the finding that there has been conduct coming within the meaning of s 232 Corporations Act, the question then arises as to what, if any, order is appropriate. The powers conferred on the court pursuant to s 233 are extensive.
[351]
[156] On behalf of the applicant, it was contended that the appropriate relief was an order for the compulsory purchase of Mr Dick's shares, with the valuation date being as at 31 October 2005 when he ceased employment.
[352]
[157] Counsel for the respondents argued that if oppression was found to have taken place, and the Court was minded to make an order in Mr Dick's favour, the appropriate order was one that APH be wound up rather than a compulsory buy out. But, it was also contended on behalf of the respondents that, in the circumstances of this case, there were three matters that weighed against any relief being granted even if a finding of oppression was made. The contentions raised in this regard were:
[353]
• Firstly, Mr Dick's refusal to offer his shares for sale in accordance with the Articles of Association;
[354]
• Secondly, Mr Dick's refusal to accept two reasonable offers to buy his shares;
[355]
• Thirdly, Mr Dick having known since at least October 2007 that the remaining directors of APH intend to wind the company up, and to distribute the assets to the shareholders in proportion to their entitlements.
[356]
[158] As to the first matter, it was said that before instituting proceedings Mr Dick made no offer to sell his shares to the respondents, in circumstances where he had an obligation to do so by virtue of article 15 on his ceasing to be an employee of APH. It was contended that, given under article 14, Mr Dick had an entitlement to have the shares valued by an independent expert and purchased at fair value, no relief should be ordered in Mr Dick's favour.
[357]
[159] The existence of a mechanism in the articles for the purchase of a member's shares does not necessarily preclude an order for relief being made in favour of an oppressed member: Re Dalkeith Investments Pty Lt;[38] Dynasty Pty Ltd v Coombs.[39] It seems that the procedure provided for in article 14 was not one that was averted to by any of the parties at the time and was indeed only raised by the respondents quite late in the proceedings. While Mr Dick did not formally offer his shares for purchase in accordance with the articles, it was nonetheless perfectly clear that the discussions in October 2005 proceeded on the basis that he was seeking to sell his shares. It is also pertinent to observe that although article 14 provided for the purchase of a member's shares at fair value, it did not compel the purchase of the shares. In the circumstances, I do not consider that it ought to be counted against Mr Dick that he did not formally offer to sell the shares in accordance with the provisions in the Articles of Association.
[358]
[160] Regarding the second matter, counsel for the respondents submitted that the making of a reasonable offer to purchase militates against relief being given, either in the form of a winding up order or a compulsory purchase order : O'Neill v Phillips;[40] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd;[41] John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd.[42] Indeed, it was said that it may well be an abuse of process to continue with oppression proceedings after such an offer: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd.[43]
[359]
[161] As to the submission that there had been an "offer" by Mr Powell to purchase Mr Dick's shares on the basis of the draft accounts as at 31 October 2005, I note that, in his affidavit sworn 2 March 2006, Mr Powell stated that the "provision of the draft accounts was not intended to, and did not, constitute an offer" by him or AL Powell to purchase Mr Dick's shares. And while there was an understanding that Mr Powell was prepared to purchase the shares at a price equivalent to 15 per cent of the net assets of the company as disclosed in the draft accounts, it was only an informal arrangement, and one from which Mr Powell himself resiled after the dispute concerning the valuation of Walker Street. Indeed, Mr Powell's position in January 2006 was that he was only prepared to pay $150,000 for Mr Dick's shares. In the circumstances, I do not consider that it can be said that Mr Dick's attitude to the so called "offer" based on the draft accounts, weighs against relief being granted in Mr Dick's favour.
[360]
[162] As to the arguments that Mr Dick unreasonably refused the offers contained in the letter of 8 October 2007 and that he unreasonably pursued the oppression proceedings after the sale of much of APH's assets and the indication by the Mr Powell and Mr Smith of their intention to wind up APH, I note that all of this occurred against the background of ongoing oppression through the use of APH's funds to pay for legal fees for the respondents' defence of the proceedings. The funds of APH so utilised have only recently been brought into account in their entirety (by reimbursement or an undertaking to do so) and were not taken into account in the letter of 8 October 2007 and the offers made therein.
[361]
[163] As to the question of what relief ought to be ordered, I note that it has been observed that, while it is not necessary that the unfair conduct the subject of complaint be continuing at the time the oppression proceedings are brought or the Court comes to consider the matter, that question may well be relevant as to whether relief is granted at all or what the appropriate relief is: Re Spargos Mining NL.[44] See also the varying views expressed in Campbell v Backoffice[45] as to this matter and as to whether a buy out is appropriate where the oppression has ceased.
[362]
[164] Accepting that a winding up order is not to be made lightly, nevertheless, there are attractions in such an order over a compulsory purchase order in the present case. There have been significant transactions since 31 October 2005, primarily the sale of Walker Street and sale of Bundaberg Prestige, which have resulted in large distributions being made to members. Since 31 October 2005, Mr Dick has received dividends totalling $233,240. As was submitted on behalf of the respondents, relief in the form of a winding up order would permit Mr Dick to benefit from the windfall gained from the sale of Walker Street, which was sold at a higher price ($1,300,000) than the value Mr Dick's own expert gave the property as at 31 October 2005 ($1,142,400).
[363]
[165] In addition, although Mr Dick's accounting expert, Mr Benjamin, assessed the value of Bundaberg Prestige as at 31 October 2005 at $550,000, he conceded that the valuation was problematical because the business was operating at a loss at the time and that his valuation was influenced by the sale price of the business achieved some considerable time later. A winding up order permits Mr Dick to benefit from the full price achieved for the sale of Bundaberg Prestige without qualification.
[364]
[166] Although a winding up order is an option to be approached with caution, it would work no prejudice in the circumstances of the present case since APH is no longer a going concern; APH is a dormant entity, holding only cash and a small parcel of shares, and the current directors wish to wind up the company. In the circumstances of the present case, it is appropriate to order the winding up of APH.
[365]
[167] I note that the respondents indicate that they will seek to claim a component of the legal expenses repaid to APH. I note that the respondents contend for at least 30 per cent to be allowed, while Mr Dick's counsel argued for only five per cent to be allowed. On the material before me, I am unable to make an assessment of what would be an appropriate contribution by APH in relation to its legal expenses but it would seem likely to be more in the order contended for by Mr Dick's counsel. Nevertheless, the respondents remain able to make a claim in respect of what is properly attributable to APH's legal fees in the liquidation.
[366]
[168] I shall hear submissions from the parties as to the formal orders to be made and as to costs.
[367]
[1] Subsequent references to "the respondents" is a reference to the second and third respondents.