Dr Leo Shanahan v Jatese Pty Ltd

TABLE OF CONTENTS INTRODUCTION THE CRUX THE PROCEEDINGS THE FACTS THE EARLY TIMES THE TROUBLE BEGINS THE 2009 PROCEEDINGS THE DEED OF SETTLEMENT AND RELEASE, AND SHAREHOLDERS' AGREEMENT ESTABLISHMENT OF CANBERRA MICRO-SURGERY THE APPOINTMENT OF TEGEN AND CHYNOWETH AS DIRECTORS TEGEN AND CHYNOWETH TAKE CHARGE DR FRUMAR OPPRESSION THE LEGAL PRINCIPLES FINDINGS RELIEF VALUATION USING MODIFIED CME METHOD VALUATION USING NRA METHOD CONCLUSIONS

INTRODUCTION

1. HIS HONOUR: Section 232 of the Corporations Act 2001 (Cth) (the Act) gives the Court power to make an order under s 233 if the conduct of a company's affairs is contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
2. References to sections are references to the Act.
3. Under s 233 the Court can make any order that it considers appropriate in relation to the company, including requiring a person to do a specific act.
4. An application under s 233 in relation to a company may be made by a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member. [1]
5. Dr Leo Shanahan and Dr Stuart Saunders, the first and fourth plaintiffs (the minority), are ophthalmologists. The second, third and fifth plaintiffs are associated with them.
6. Dr Iain Dunlop, Dr Martin Duncan and Dr Gagan Khannah, the fourth, fifth and sixth defendants (the majority), are also ophthalmologists. They are cataract specialists. The first, second and third defendants are respectively associated with them.
7. Where I refer to the minority or the majority, I include those plaintiffs or defendants respectively associated with them.
8. The minority and the majority were, until 11 June 2015 when the majority bought out the minority, shareholders in, and members of, Canberra Eye Hospital Pty Ltd (CEH or the Company), which operated an ophthalmic medical facility.
9. The minority complain that the conduct of CEH's affairs was contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against them.
10. They say that this conduct induced them to sell their shares in CEH to the majority for less than what they were worth.
11. They move the Court for an order that the majority compensate them for the difference between what they their shares were worth and what the majority paid for them.

THE CRUX

1. This dispute arises out of a complex course of dealings over a number of years. The crux of it can, however, be briefly stated.
2. The minority and the majority together owned a company which operated an eye hospital. The minority held 43% and the majority 57% of the shares. The most profitable activity for the hospital was cataract surgery. At some point, the minority stopped doing cataract surgery and then retired from practice altogether, so that they ceased to contribute to the revenue of the hospital.
3. The majority continued on doing surgery, mostly cataract. The minority continued to hold their shares and consequently earn revenue (described as a passive income) from the exertions of the majority.
4. The majority resented this situation. They wanted a succession plan, under which the minority's shares would be transmitted to them or to other active surgeons who might come to work at the hospital.
5. The minority opposed any such plan, taking the position that they were entitled to keep their shares and to earn the attendant revenue.
6. The majority decided to do their surgery elsewhere. They established their own hospital. CEH was, as a result, put under financial strain.
7. The majority procured the appointment, as supposedly independent directors, of Mr Phillip Chynoweth and Ms Susanne (Susi) Tegen. Mr Chynoweth was Dr Dunlop's erstwhile brother-in-law. Dr Dunlop was in a sexual relationship with Ms Tegen. Dr Saunders was the third director.
8. The only way forward for CEH to be profitable was to find new surgeons to work there. Dr Saunders identified Dr Kim Frumar as such a candidate. Remarkably, Dr Frumar (and Dr Saunders who was a keen supporter) encountered significant resistance over a period of nine months in trying to achieve Dr Frumar's accreditation at the hospital.
9. Dr Frumar finally achieved accreditation on 29 October 2014. He planned to start operating at the hospital on 31 January 2015 or 7 February 2015.
10. On 27 January 2015, that is just before Dr Frumar was to start and at a time when CEH was clearly not insolvent, Mr Chynoweth and Ms Tegen used their power as directors to pass a resolution placing CEH into voluntary administration.
11. Dr Frumar passed away unexpectedly and apparently tragically on 10 April 2016.
12. The minority complain that the conduct of CEH's affairs was contrary to the interests of the members as a whole or oppressive to them because:

• Mr Chynoweth and Ms Tegen preferred the interests of the majority, who appointed them, over the interests of the members as whole;
• Mr Chynoweth, Ms Tegen and the majority unfairly and unjustifiably undermined CEH's prospects of returning to profitability by obstructing Dr Frumar's accreditation; and
• Mr Chynoweth and Ms Tegen placed CEH into voluntary administration, when it was not insolvent or likely to become insolvent, for the collateral purpose of bringing about a sale of the minority's share in the hospital to the majority.

1. For the reasons which I follow, I find that: 1. the complaint that CEH's affairs were conducted contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to and unfairly discriminatory against the minority has been made out; 2. the minority were induced to sell their shares in CEH to the majority as a consequence of this; 3. the minority did not, however, receive less than what the shares, valued as if the conduct complained of had not occurred, were worth. In fact, they received more than what the shares were worth; 4. relief must be refused.

THE PROCEEDINGS

1. The trial occupied eleven hearing days.
2. Mr I. Jackman SC and Mr S. Goodman SC appeared for the minority. Mr M. Ashhurst SC together with Mr D. Villa of counsel appeared for the majority.
3. The Court Book of evidentiary material comprises 19 volumes containing over 5,000 documents. The Court was taken to a significant amount of evidentiary material. The affidavits approach 700 pages.
4. There was significant cross-examination, especially of the majority, Ms Tegen and Mr Chynoweth.
5. The Court received written and oral submissions.
6. I have had regard to all the arguments, but have not re-stated them.

THE FACTS

1. The case is fact heavy.
2. I have of course had regard to all of the evidence. I observed the witnesses under cross-examination. I have recounted only those facts which I consider necessary to facilitate an understanding of why I have made the findings I have made.
3. I have ordered the facts into two chronologies. The first chronology deals with the general history of the matter, excluding the detailed history of the accreditation of Dr Frumar and other doctors. The accreditation history is more readily understood in a discreet chronology, rather than interspersed with the general history. The general history is of course the context in which the Dr Frumar issue played out. I have included in the general history a few important events relevant to the Dr Frumar issue to assist in relating the two.

THE EARLY TIMES

1. In about 1974, Dr Shanahan and Dr Saunders started practising in association with one another in Canberra, Australian Capital Territory. In about 1985, they established a day surgery. From about 1988, they worked from a house at 13 Theodore Street, Curtin, which Dr Shanahan owned. They had consulting practices and performed ocular surgery.
2. In about 1990, Dr Dunlop started assisting them in their consulting practices and later with surgery. In about 1992, Dr Dunlop was invited to join them. Dr Saunders and Dr Dunlop each bought a one third interest in the Theodore Street house from Dr Shanahan.
3. In 1996, the day surgery was accredited by the Australian Council on Healthcare Standards. By all accounts, Dr Dunlop's efforts in achieving this were significant.
4. In 1999, it was decided that the day surgery should be incorporated and named Canberra Eye Hospital. The establishment of a separate corporate entity facilitated contracts with private health funds.
5. To this end, the Company was formed in May 1999. Each doctor became a director and was issued one share.
6. In about 2001, Dr Shanahan stopped performing surgery. He continued to consult until about 2005.
7. In December 2001, Dr Saunders stopped performing surgery. He continued to consult until December 2015, when he too retired from practice.
8. In about 2002, with the assistance of builders and a real estate agent, Drs Shanahan, Saunders and Dunlop started developing a block of land at 14 Wormald Street, North Symonston, Canberra, as an eye surgery hospital and consulting rooms.
9. At about this time, Dr Duncan and Dr Khannah started working at the existing day surgery. They were studying for their higher medical degrees. They assisted Drs Shanahan, Saunders and Dunlop with surgical operations.
10. On 30 October 2002, Dr Khannah bought 19% of CEH. On 1 July 2003, Dr Duncan bought 19% of CEH. Each paid $285,000.
11. In 2003, a shelf company, Canberra Eye Hospital Management (CEHM), was acquired to be CEH's management company.
12. In May 2003, Dr Shanahan's son Michael Shanahan (who rendered accountancy services for the benefit of CEH) and Dr Khannah were appointed directors of CEH.
13. In October 2003, the building of the hospital at the North Symonston premises began.
14. On 1 July 2004, the shareholding structure of CEH was altered so as to consist of an issued share capital of 300 shares, held as follows:

• Dr Shanahan and his wife, Joan - 57 shares
• Michael Shanahan - 15 shares
• Dr Saunders and his wife, Christine - 57 shares
• Dr Dunlop and his company, the third defendant, Canberra Eye Services Pty Ltd (CES) - 57 shares
• Dr Khannah's company, Optident Pty Ltd, the second defendant - 57 shares
• Dr Duncan's company, Jatese Pty Ltd, the first defendant - 57 shares.

1. Shares were apparently issued to Michael Shanahan in recognition of the accounting services he provided without being remunerated.
2. In mid-2005, CEH moved from the Theodore Street premises and started functioning as 'Canberra Eye Hospital' (the hospital) at the North Symonston premises. The hospital consisted of a day surgery, consulting rooms and a laser centre. The laser centre was formally owned by another entity, CEH Laser.
3. On 18 July 2005, CEH (as tenant) took a lease [2] of the hospital (a strata scheme). There was a variation of lease in November 2007. CEH had options to extend the lease, which, if exercised, would have had its tenancy ending not earlier than 2027. About 60% of the leased area of the hospital was taken up by consulting rooms, 30% by the day surgery and 10% by the laser centre. There was also a small one bedroom caretaker's flat, which was occasionally occupied by Dr Saunders when he needed to stay overnight in Canberra.
4. The hospital was officially opened by the Chief Minister of the ACT on 19 August 2005. By this time, Drs Shanahan and Saunders had practiced in Canberra for about 30 years. Dr Shanahan had ceased consulting and Dr Saunders was not consulting every day of the week.
5. CEH derived its income from charging patients for services associated with the preparation of patients for surgery, from provision of an operating theatre and nursing and support staff during the surgery, and from providing after surgery care and medications.
6. Surgery performed at the hospital fell broadly into three categories:

• cataract surgery;
• ocular plastic surgery, which includes surgical procedures on the eyelids, tear ducts and the eye itself; and
• intravitreal injections. [3]

1. In addition to the shareholder doctors, other ophthalmologists used the consulting space and the hospital. Over time, these included Dr Rohan Essex, Dr Phil Larkin, Dr Salim Okera, Dr Christiane Lawin-Bruessel and Dr Andrew Chang.
2. CEHM provided rooms, office staff, orthoptists, a practice manager, furniture and some equipment to doctors who consulted and performed surgery at the hospital. CEHM and CEH shared certain costs including internet services, electricity and cleaning.
3. CEHM paid rent monthly in arrears to CEH for the use of the consulting rooms under an undocumented arrangement.

THE TROUBLE BEGINS

1. When the hospital opened, Dr Shanahan was no longer practising and Dr Saunders was no longer doing surgery and had reduced his consulting times significantly. Although the minority were contributing little to the income of the hospital, their entitlement as shareholders to share in the profits remained unchanged.
2. This was a source of discontent for the majority. It is something which has rankled them throughout and has driven their dealings with the minority.
3. In September 2006, Drs Dunlop, Duncan and Khannah broached with Dr Saunders and Michael Shanahan the subject of an exit strategy for CEH. They suggested that if shareholders in the hospital did not continue to refer patients to the hospital, their shares should be bought back by CEH or sold to existing or future shareholders in CEH.
4. An exit strategy set out in two reports by CEH's accountant was circulated in late 2006. It did not find favour with Drs Shanahan and Saunders. They took the position that the shareholders were the owners of the business and were entitled to receive a dividend for so long as it was carried on.
5. An exit strategy was again proposed by Dr Dunlop in early 2007. It too did not find favour with Drs Shanahan and Saunders.
6. Dr Dunlop recounted a conversation with Dr Shanahan, in which Dr Shanahan said he was not obliged to sell his shares, to which Dr Dunlop protested that this would mean that the active shareholders would fund Dr Shanahan indefinitely and when he died would continue to fund his heirs. Dr Shanahan did not demur to the proposition.

THE 2009 PROCEEDINGS

1. Drs Dunlop, Duncan and Khannah then purported, by notice, to convene an Extraordinary General Meeting of CEH to be held on 21 February 2008 for the purposes of passing a resolution for a quarterly performance fee be paid to 'Executive Directors', who were described in the notice as registered practising specialist ophthalmologists who either performed at least 15 surgical procedures in a financial year or referred at least 30 surgical cases to another Executive Director to be performed at the hospital. Self-evidently, this was intended to benefit the majority.
2. The minority engaged lawyers who demanded that the notice be withdrawn. The meeting did not go ahead.
3. On 7 August 2008, Dr Dunlop convened an Extraordinary General Meeting for 4 September 2008 to pass resolutions that: 1. Michael Shanahan and Dr Shanahan be removed as directors; 2. Michael Shanahan be removed as secretary; and 3. Dr Dunlop be appointed in his place as secretary.
4. The meeting was held and the resolutions were passed.
5. The directors of CEH were then Drs Saunders, Dunlop, Duncan and Khannah.
6. Dr Saunders says that at the meeting Dr Dunlop said: This is about succession planning. We will get a valuation of the shares and make you an offer for your shares.
7. On 21 October 2009, the directors of CEH (Dr Saunders abstaining) purported to pass a resolution that directors be paid a quarterly performance fee derived from 50% of the gross income billed by CEH from the surgical activity of the directors, to be divided equally between the directors. This resolution (which was also clearly intended to favour the majority) was apparently not implemented.
8. On 19 November 2009, Dr Dunlop purported to convene an Extraordinary General Meeting to pass as ordinary resolutions the following resolutions: 1. That Directors be paid a fee described as a 'Quarterly Performance Fee' 2. The Quarterly Performance Fee is to be determined at the end of each quarter by dividing the Directors Quarterly Revenue equally between the Directors. 3. The 'Directors Quarterly Revenue' is 50% of the quarterly gross income billed by the Company for the surgical activity of the Directors. 4. The balance of the quarterly gross income billed by the Company for the surgical activity of the Directors is to be retained, along with income derived from the surgical activity of non-Directors, and taken into account when determining any dividends to be distributed. 5. Dividends are to be distributed to shareholders in proportion to the number of shares held by each shareholder.
9. These resolutions were clearly intended to favour the majority.
10. On 10 December 2009, the minority brought proceedings against the majority in the Federal Court of Australia. Amongst others, they sought a declaration that the proposed resolutions required special resolutions and claimed that the resolutions were oppressive to, unfairly prejudicial to, or unfairly discriminatory against them within the meaning of s 232.
11. On 15 December 2009, at an Extraordinary General Meeting of CEH the proposed resolutions were purportedly passed as ordinary resolutions.
12. Dr Saunders says that sometime in 2010 he discovered that Drs Dunlop and Khannah had sold a refractive laser machine owned by CEH Laser to a new company formed by them and had commenced billing patients through the new entity using the Laser Centre name.
13. On 28 September 2010, Dr Dunlop resigned as a director and secretary of CEH.

THE DEED OF SETTLEMENT AND RELEASE, AND SHAREHOLDERS' AGREEMENT

1. On 25 October 2010, after a mediation, the Federal Court proceedings were settled by the parties entering into a Deed of Settlement and Release, and a Shareholders' Agreement.
2. Drs Dunlop and Khannah agreed to pay $90,000.00 to Drs Shanahan and Saunders, in instalments as a settlement in connection with the laser machine.
3. The Shareholders' Agreement contains the following relevant provisions: 1 DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Agreement: Founder Directors are those Directors appointed by the Founders under clause 4. Founders means any of Dr Shanahan, Dr Saunders, Mrs Saunders, Mrs Shanahan and Mr Shanahan and any of their heirs, beneficiaries, trustees, Related Entities or Related Parties; Supermajority Resolution means in relation to meetings of the Shareholders, a resolution passed by Shareholders that together hold more than 90% of the total voting rights of all Shareholders. 4 DIRECTORS 4.1 Appointment of Founder Directors For so long as they hold any Shares, the Founders will jointly be entitled to appoint one Director to the Board as a Founder Director, and may remove that Director and appoint another Director by written notice to the Company. 4.2 Remuneration of Directors The parties agree that, from 1 January 2010, Directors will receive no remuneration from the Company for acting in their capacity as Directors. 5 DISTRIBUTION POLICY 5.1 Net Profit of the Company The parties agree that, from 1 January 2010, 50% of the net profits of the Company generated from: (a) the surgical operations performed-by Shareholders; and/or (b) referrals for surgery made by Shareholders, will be paid to those Shareholders, apportioned according to the fees generated by their surgical activity and/or their referrals for surgery. 5.2 Distribution The Shareholders will procure that, to the extent permitted by law, the Company distribute the remaining net profits of the Company, on a quarterly basis, to the Shareholders as fully franked dividends. 6 DECISION MAKING 6.1 Matters Requiring Supermajority Approval The Company must not, and each Shareholder must, by exercise of its Shareholder Control, ensure that, except by Supermajority Resolution, the Company may not: (a) remuneration: save as provided in clause 5 above, pay any remuneration, commission, fee, distribution, compensation or any other payment whatsoever to the Directors, Shareholders or any of their Related Parties, Related Bodies Corporate or Related Entities; (b) Equity Securities: issue, allot, redeem, purchase, buy-back or grant options over any Equity Securities or re-organise the share capital of the Company in any way, including by way of capital reduction; (c) liquidate, etc: voluntarily liquidate, wind up, merge its operations or Dispose of all or a substantial part of its Business or assets; or (d) approve any change to dividend policy: approve any amendment to the distribution policy referred to in clauses 5.1 or 5.2.

ESTABLISHMENT OF CANBERRA MICRO-SURGERY

1. The Federal Court litigation had concluded. But the underlying grievance of the majority that profits of the hospital continued to be distributed to the minority remained.
2. Dr Dunlop's view (which was apparently shared by Drs Duncan and Khannah) was that the dispute was intractable and the only way forward was to establish a new hospital where the profits generated by carrying out ophthalmic surgery would be shared amongst those shareholding doctors who generated the work.
3. The majority agreed amongst themselves to establish a new hospital. They established Canberra Micro-Surgery Pty Ltd (CMS), of which they became shareholders and directors.
4. In early November 2010 Drs Duncan and Khannah resigned as directors of CEH. On 16 February 2011, Michael Shanahan was appointed a director of CEH.
5. By the end of 2012, it was anticipated that CMS would be ready to start in July 2013. Dr Dunlop approached CEH's hospital manager and undoubtedly a valued employee, Ms Gabby Moreland, to come over to CMS.
6. On 14 November 2012, the majority made a written offer of employment to Ms Moreland. She accepted with a start date of 4 February 2013. On 25 November 2012 she resigned from CEH with effect from 21 December 2012.
7. An issue arising out of Ms Moreland's moving to CMS arose with respect to her continued access to emails directed to CEH. There was correspondence between lawyers.
8. At or about this time, Kate Symon, an accountant working for CEH, also resigned. She too joined CMS.
9. On 6 February 2013, the majority gave written notice to CEH that from 1 July 2013 they intended performing the majority of their cataract surgery at CMS and that they expected that their other surgery and intravitreal injections would be performed for the foreseeable future at both CEH and CMS. Cataract surgery was the most profitable for the hospital.
10. From about this time, Dr Saunders started trying to find new doctors to perform cataract surgery at the hospital. He spoke to Drs David Tridgell, David Dickson and Kate Reid but they declined. He also spoke to Dr Maciek Kuzniarz who was working at the Calvary Clinic in the ACT. Ultimately, Dr Kuzniarz did operations at CMS. Dr Saunders spoke to Dr Kerrie Meades, but this went no further. He had conversations with Drs Okera, Lawin-Bruessel, Larkin and Essex, all of whom ultimately moved to CMS or Calvary hospital.
11. On 16 May 2013, Denise Nichols, CEH's Director of Nursing, resigned. She too went over to CMS.
12. On 3 June 2013, CEH appointed Ms Fiona Carruthers as hospital manager.

THE APPOINTMENT OF TEGEN AND CHYNOWETH AS DIRECTORS

1. Dr Dunlop says that towards the end of June 2013, he formed the view that the then current directors of CEH were unable to bring an independent mind to the best interests of CEH and that the shareholders were conflicted by their own self-interest and were incapable of putting the past history of disputes between shareholders behind them. He believed that the long-term interests of CEH and its shareholders meant it was necessary to appoint independent directors to the CEH board.
2. He therefore proposed the appointment of Ms Tegen and Mr Chynoweth to the CEH board.
3. Ms Tegen and Mr Chynoweth were, however, anything but independent. I do not accept Dr Dunlop's evidence that he thought they were. He is far too intelligent a man to have thought so. To the contrary, in my view, his true motivation for selecting them was that he anticipated they would favour the interests of the majority over the minority. I also do not believe that he was motivated by CEH's long term interests.
4. Dr Dunlop had been the President of the Royal Australian and New Zealand College of Ophthalmologists. In that capacity, he had interviewed Ms Tegen for the position of CEO of that organisation, a position to which she was appointed. In his lengthy principal affidavit, [4] Dr Dunlop explained why he thought Ms Tegen was appropriate to be appointed a director of CEH. His affidavit, however, did not disclose that they were then in a sexual relationship. In his evidence, Dr Dunlop described their relationship as 'romantic.' Ms Tegen described it as a 'nice distraction.' She 'slept with him a few times', she found him 'interesting and nice' but would only see him 'now and then' and she was not interested in any long-term relationship. Either way, these are not the hallmarks of independence. Ms Tegen gave unconvincing evidence that she never discussed CEH business affairs with Dr Dunlop.
5. Dr Dunlop and Mr Chynoweth had known each other since the early 1980s. They would see each other socially and occasionally played golf together. Mr Chynoweth's wife was the sister of Dr Dunlop's ex-wife.
6. Dr Dunlop says that he explained to Ms Tegen, amongst others, that she would not be remunerated and that he gave a similar explanation to Mr Chynoweth.
7. It should be observed that there was no legal requirement for them to be independent. They could never properly be said to have been independent because they had associations with Dr Dunlop. I take Dr Dunlop, in his use of the term 'independent', to have meant impartial.
8. Their duty was to act in the interests, and for the benefit, of CEH. What they did, however, was to take sides with the majority against the minority rather than act in the interests of CEH.
9. As appears below, Mr Chynoweth ultimately asked the majority for money and was, without the minority ever being told, paid a not insignificant sum by the majority. This is a hallmark of partiality.
10. On 28 June 2013, Dr Dunlop convened an Extraordinary General Meeting of CEH to be held on 24 July 2013 at the offices of Snedden Hall & Gallop, the solicitors who have, in these proceedings, acted for the majority. The Notice of Meeting identified the following as proposed resolutions: 1. That the directors of the Company, Stuart Hunt Saunders and Michael John Shanahan be removed as directors with effect from the close of the meeting. 2. That Susanne Tegen of PMB 38 Fox Lane, Furner SA 5280 and Philip James Chynoweth of 91 Buxton St, Deakin 2600 be appointed as directors of the Company with effect from the close of the meeting.
11. The financial statements for CEH as at 30 June 2013 [5] show that for the year the hospital earned income of $5,489,418 and incurred expenses of $3,743,603 resulting in an operating profit of $1,745,815. It had retained profits at the end of that year of $1,650,145 and net assets of $1,650,742.
12. Between 5 July and 24 July 2013, the majority and the minority corresponded through their respective lawyers about the validity of the proposed resolution removing Dr Saunders.
13. The meeting took place as scheduled. On the votes of the majority, resolutions were passed removing Dr Saunders and Michael Shanahan as directors of CEH and appointing Ms Tegen and Mr Chynoweth.
14. Under clause 4.1 of the Shareholders' Agreement, the minority (as Founders) had the right to appoint a director.
15. On 25 July 2013, the minority, through their solicitors, gave notice that Dr Saunders was appointed as a director and that he appointed Michael Shanahan as his alternative. It is difficult to discern a rational or legitimate reason for the removal of Dr Saunders.

TEGEN AND CHYNOWETH TAKE CHARGE

1. From the outset, Ms Tegen and Mr Chynoweth deliberately excluded Dr Saunders and his alternate from participation as a director in the affairs of CEH. They purported to act as the Board of CEH, without his participation or that of his alternate. Where I refer to Dr Saunders not being included (or being excluded) this includes Michael Shanahan as his alternate unless otherwise stated.
2. An early example of this is that on 8 August 2013 they directed a letter to the solicitor then acting for CEH, Mr Werksman of Holding Redlich, purportedly on behalf of the Board of CEH, in the following terms: The Board of The Canberra Eye Hospital Pty Ltd wishes to inform you that any past discussions with and instructions to you re the IT, emails and/or property previously under Ms Gabby Moreland's jurisdiction as Manager of the Hospital are no longer of concern. The issues identified have been unfounded and are of no relevance to the future of The Canberra Eye Hospital. We therefore advise you to close the case. Kind regards The board of Directors Mr Phillip Chynoweth Mr Michael Shanahan for Dr Stuart Saunders (on leave until end August 2013) Susanne Tegen Canberra Eye Hospital Pty Ltd
3. Dr Saunders was away at the time. On his return, he wrote to Ms Tegen complaining that he had not been informed of any resolution to send the letter and had not been consulted about it. He added that he was looking forward to working with her in the interests of all the shareholders.
4. The letter purports to be under the hand of the board of directors, but Michael Shanahan was not shown a copy of it before it was sent. He says if it had been shown to him, he would have disagreed with the statement that the issues were unfounded or of no relevance to the future of CEH.
5. Other examples of exclusion are described later.
6. The approach to Ms Moreland reflects the partiality of Ms Tegen and Mr Chynoweth to the interests of the majority. There is no evidence that Ms Tegen or Mr Chynoweth sought to obtain from Mr Werksman the results of his investigations concerning Ms Moreland.
7. On 13 December 2013, Mr Werksman wrote to the majority copied to Ms Tegen and Mr Chynoweth, amongst others, that the minority had email correspondence in which it was clear that during Ms Moreland's employment with CMS she diverted potential employees of CEH to the service of CMS.
8. In my view, Ms Tegen and Mr Chynoweth's desire was to exonerate Ms Moreland, irrespective of the merits of the complaint, for the benefit and convenience of the majority as the owners of CMS. Ms Moreland was clearly a valued employee first of CEH and then of CMS.
9. In August 2013, Drs Dunlop, Duncan and Khannah ceased cataract surgery at CEH. At the same time Drs Okera, Lawin-Bruessel, Larkin and Essex also stopped surgery at the hospital and started doing it at CMS or Calvary Clinic.
10. In early September, Ms Tegen and Mr Chynoweth, without the participation of Dr Saunders (and clearly without his knowledge), retained a solicitor, Mr Della Marta of Aitken Lawyers, to advise them and CEH on various matters. This included advising CEH in relation to obligations owed by directors and in relation to legal and commercial aspects as they arose.
11. Mr Della Marta provided a six-page advice addressed to them as directors of CEH on 9 September 2013. There is no suggestion that Dr Saunders was ever made privy to it or given the benefit of it.
12. An informal meeting of shareholders was planned for 10 September 2013, but had to be cancelled because of fog in Canberra. Nevertheless, Ms Tegen and Mr Chynoweth had an impromptu meeting with Dr Duncan during which, amongst others, they gave him an overview of what had been going on over the past few months. Dr Saunders was never favoured with any such overview.
13. CMS officially opened on 20 September 2013.
14. On 24 September 2013, after speaking with Dr Saunders, Mr Chynoweth wrote to Ms Tegen including the following: I do not think we should be exerting ourselves to find options to make the CEH stay afloat when the answer lies, and in control with, the current shareholders. They should deliver the 'break even case' then we can work on the upside. What do you think?
15. She responded, on the same day, including the following: I tend to agree with you. I can also understand why those doctors working are not happy about the way those who don't work are receiving an income - so while some of the doctors are willing to work for break even, they will also say why should we when the other shareholders are doing nothing to work towards it.
16. On 15 October 2013, Ms Tegen and Mr Chynoweth had a telephone conference with Mr Della Marta during which they discussed the financial position of CEH and possible options to be set out in a briefing document for shareholders. Dr Saunders was not included.
17. On 17 October 2013, Mr Della Marta had a telephone conversation with an insolvency specialist, Mr Jamieson Louttit. They discussed aspects of a members' voluntary liquidation and voluntary administration. In this context, Mr Della Marta obtained from Mr Chynoweth or Ms Tegen a copy of CEH's lease of the hospital.
18. Mr Della Marta rendered his account to CEH for the attention of Ms Tegen and Mr Chynoweth. Dr Saunders was not included in these dealings.
19. A shareholders' meeting was scheduled for 13 November 2013.
20. On 2 November 2013, Mr Chynoweth wrote to Ms Tegen (but not to Dr Saunders) providing 'an outline for our report for the shareholders (sic) meeting'. The headings included Financial Position and Outlook, Hospital Accreditation, Governance and Human Resources. Under Governance, the following item appeared: Changes required to shareholders agreement (sic) and arrangements in the interests of the development of the Hospital
21. On 7 November 2013, Dr Saunders wrote to the majority, Ms Tegen and Mr Chynoweth setting out matters which the minority wished to discuss at the meeting with a view to obtaining agreement between all the shareholders as to the future direction of CEH. The subjects were entirely appropriate for a shareholder and director to raise and the tenor of the letter was unobjectionable. The subjects included what Dr Saunders considered might be done to ensure that the business carried on in a profitable manner to the benefit of all shareholders. He remarked that the new directors did not appear to have made any serious attempt to identify new surgeons who would be willing to conduct their practices at CEH. He asked whether the majority were prepared to return to operating at CEH.
22. Ms Tegen's reaction was swift. It is difficult to justify as befitting a director in her position. She wrote to Mr Della Marta that she could no longer work with Dr Saunders on the board and that there was a clear breach in governance. It emerged during her evidence that she took offence that Dr Saunders appeared to have written the letter with legal help. This was despite the fact that she and Mr Chynoweth were throughout taking advice from a lawyer without Dr Saunders' knowledge.
23. There was a board meeting on 13 November 2013. Before this meeting, Ms Tegen and Mr Chynoweth obtained written advice on a series of issues from Mr Della Marta. No doubt on their instructions, he produced an Executive Summary for the shareholders' meeting. The advice runs to nine pages, the Executive Summary to ten pages. The Executive Summary deals in some detail with the financial position of CEH, fundamental issues facing it, and possible ways forward. It also deals with governance issues and a revised strategic direction for the hospital. These instruments were brought into existence without the participation or knowledge of Dr Saunders. They were presented to him at the directors' meeting. The benefit of his input was not obtained. Dr Saunders says that Mr Chynoweth read quickly through the points contained in the Executive Summary and he did not have an opportunity to read the documents during the directors' meeting.
24. The shareholders' meeting took place immediately after the directors' meeting. There was a professional note-taker apparently arranged by Ms Tegen and Mr Chynoweth. The notes taken were sub-standard.
25. As at 22 November 2013, CEH's Medical Advisory Credential Committee (MAC) consisted of Dr Dunlop, Dr Duncan, Ms Carruthers and Dr Thomas Lo (Dr Lo became ill and was unavailable for the credentialing committee meeting on 4 September 2014 referred to later. He subsequently passed away).
26. On about 29 November 2013, Dr Benjamin Burt, an ophthalmologist based in Bendigo, Victoria, specialising in ocular plastic surgery, applied to CEH for accreditation. Dr Burt did have experience in cataract surgery but proposed to practice predominately in extraocular surgery at CEH. Dr Burt was identified by Dr Saunders.
27. On 3 December 2013, Mr Chynoweth wrote to Ms Tegen (but not to Dr Saunders): Here's what I think we should do: 1. we send a draft of the new shareholders agreement terms to the "active" [6] shareholders for comment prior to a meeting before Christmas. 2. We send the same to the "inactive" [7] shareholders for reference and with a request for what their contribution will be to the future income and profitability of the hospital. 3. The changes to the shareholders agreement (sic) will include the percentages that will encourage more work through the hospital as well as succession rights and the need for insurance covers in the event that existing active shareholders cannot operate due to illness or death. We can get simon [8] (sic) to help put this together. For the minutes.. Fiona [9] is asking Joan for her "statement". I can make the changes to my statements, you should do the same for yours. Send a draft to lain, Martin and ? (sic) To update the accuracy of their record before we send on to the others to do the same. After this we can file the minutes.
28. On 3 December 2013, Mr Chynoweth wrote to Ms Tegen (but not to Dr Saunders): I am flying out tomorrow and will be back later next week. I am thinking about having a session with Iain (and others) maybe thursday evening next week in Canberra? I will send out an email to Iain, Martin and Khannah in the coming days when I have had a chance to work through the shareholders agreement. I will send through my workings to you before we send them out. Sound workable? Can you send through a copy of the shareholders (sic) agreement? I am assuming that it will be a scanned version. We should develop some options and present these in spreadsheet form so that everyone can work out the impact of the proposed changes. I expect that the "inactive" shareholders will not agree to the changes but I think it is important that we get their 'lock back' (sic) at the same time we get their 'null response' on assistance with the business of the hospital. That then releases us to justify decisions in the Hospitals interest down the track.
29. On 9 December 2013, Ms Tegen wrote to Mr Chynoweth (but not to Dr Saunders) relevantly: Hi Phil We will need to work on the following as well; - meeting with surgeon shareholders to discuss options - meeting with board - meeting with all shareholders
30. On 10 December 2013, Dr Dunlop circulated comments on draft minutes for the 13 November 2013 meeting amongst the majority.
31. On 11 December 2013, Ms Tegen wrote to the majority and Mr Chynoweth (but not the minority): As feedback to the comment made by lain, we agree and are also not happy with the type of minutes we received, despite brief. That being said we have what we have, and the outcomes we took away from the meetings are; 1. That we hold another meeting with the surgeon shareholders to discuss their involvement in the business moving ahead ie what are people to do in terms of work 2. That we discuss with the shareholder surgeons what would be workable in terms of a shareholders (sic) agreement 3. That we discuss with the non doctor (sic) and non operating (sic) or working surgeons what contribution they will make to bring funding into the CEH business 4. That we bring to te (sic) table of all shareholders any offer that migt (sic) be made by one of the two groups i.e. Buy out, review of shareholder's (sic) agreement etc We are in the process of following up on these now. Salim [10] adn (sic) Martin, please could you just check your areas and add to the document that you have been forwarded from Iain. Phil is waiting for feedback from the non surgeon (sic) shareholders and they will be added when he receives them. We are aiming to send the minutes out prior to the end of the year.
32. On 14 December 2013, Mr Chynoweth wrote to Dr Dunlop, copied to Ms Tegen (but not to the minority): lain, I have attached a copy of the first iteration of the business model for CEH. I have not been able to refine the model to calculate casual staff requirements as case loads increase, but this can be developed later. Changes to the shareholder percentage allocation in CEH Shareholders Agreement • The attached model is a tool to work out the impact in changes in profit distribution, case load mix and revenue break even requirements. • Please have a look. My recommendation is that the 'active shareholder' allocation should be increased from 50% to 80% or 100%. Please talk with the other majority shareholders to determine what % you would accept to encourage further work at the hospital. • The current break-even level (based on current cost assumptions and procedures) is $82,729 per month which means (for example) 20 plastics, 94 Injections and 7 cataracts. • At current revenue levels, the distribution of profit is so small to render the discussion as of little interest. So we need to reach a balance between percentage profit allocation and increase in the level of income to motivate more activity at the hospital. Other changes to shareholders agreement • We would like to recommend 'succession rights' or arrangements that provide for the transfer of shares when shareholders no longer provide work for the hospital - for what ever reason. This ideally should be similar to arrangements present in other shareholders agreements used by other hospitals. It would be reasonable for CEH to accept arrangements that are already in use by the profession 'at large'. • We would like to include insurance arrangements to protect the hospital and shareholders in the event of illness, physical impairment or death. • We would like to include arrangements which define the share price when shareholders want to sell their shares and who may purchase these shares. Future development of the CEH • It is the view of two of the directors of the hospital (S Tegen and myself) that there is a role for CEH as a specialist hospital that is equipped for procedures that complement and 'work with' the Canberra Microsurgery and other hospitals in Canberra. There is more than enough demand for opthalmic (sic) health care in the ACT region and the current business plan review will allow us to reposition the hospital to fit a revised niche in a changing health environment. We would like to work with the majority shareholders to define this role in the coming months. • An example we discussed is the growing demand for retinal specialists and a facility based in canberra (sic) for them to operate. Shareholders meeting minutes • We intend to send out a copy of the transcription of the shareholders (sic) meeting. It has taken us some time as the quality of the record was not as good as we had hoped and it is taking time to get feedback from all people present. We will send out a summary (as you suggest) included with the transcript with attachments when it is ready. • This is an important record of the current status of the business as well as a clear identification of issues that are currently in dispute. We will be working with everyone to review remedies and will rely on a reasonable compromise that is in the best interest of CEH and its stakeholders. Phil
33. In late 2013, Mr Chynoweth asked the majority to compensate him for his time and effort as a director of CEH. He approached Dr Dunlop who talked to Drs Duncan and Khannah. Drs Dunlop, Duncan and Khannah agreed to pay Mr Chynoweth and bear that burden equally. Details of the payments are set out below.
34. None of this was disclosed to the minority. Mr Chynoweth and the majority did not disclose it in their affidavit evidence.
35. More than this, cl 4.2 of the Shareholders' Agreement is an agreement between the minority and the majority that directors of CEH were to receive no remuneration for acting in that capacity.
36. The payments were made through Canberra Eye Laser Eye Services Pty Ltd, which is owned by the majority, to Mr Chynoweth's company Kizmet Consulting Group Pty Ltd (Kizmet). The evidentiary material concerning these payments is incomplete. Revealingly, it includes tax invoices rendered by Kizmet for consulting services 'for Canberra Micro-Surgery.'
37. At least $84,000 was paid by the majority for Kizmet as follows: 17 December 2013 $16,000 1 January 2014 $16,000 32 January 2014 $8,000 20 March 2014 $8,000 26 June 2014 [11] $16,000 5 August 2014 $8,000 19 November 2014 $12,000

1. These circumstances, on their own, warrant a finding of oppressive conduct. Mr Chynoweth used his position as a director of CEH to ask for and obtain, secretly, money from one faction contrary to the Shareholders' Agreement governing the relationship between the two factions. It was symptomatic of his conscious alignment with the majority and his lack of integrity when it came to dealing fairly with the minority. The making of the payments by the majority displaces any suggestion on their part that they believed that Mr Chynoweth was independent or that he would act in any way other than to benefit their interests.
2. On 1 February 2014, Dr Frumar submitted his accreditation application to CEH for appointment as a Visiting Medical Officer (VMO).
3. The MAC (Dr Duncan, Dr Lo and Ms Carruthers - there were apologies from Dr Dunlop) met on 5 February 2014. They accepted Dr Burt's credentials, but requested additional information and clarification from Dr Frumar.
4. Dr Burt's appointment was confirmed in writing on 6 February 2014.
5. On or about 21 February 2014, Dr Angelo Tsirbas applied to CEH for accreditation as a VMO. Dr Tsirbas is not a cataract surgeon. His predominant interest is ocular plastic surgery.
6. The financial statements of CEH for the year ended 30 June 2014 disclose that its total income was $1,167,802 [12] and its total expenses $1,356,625 [13] resulting in an operating loss of $188,823. [14] Its retained profits at the end of the financial year were $978,974. [15]
7. On 18 August 2014, the majority gave notice to CEH of their intention to re-locate their intravitreal injection procedures to CMS with effect from 20 October 2014.
8. On 25 August 2014, without the knowledge of Dr Saunders, Mr Chynoweth and Mr Della Marta met with Mr Louttit. Mr Louttit's file note shows that, amongst others, voluntary administration was discussed.
9. On 26 August 2014, Ms Tegen and Mr Chynoweth had a telephone conference with Mr Della Marta and Mr Louttit. Dr Saunders was not included.
10. On the same day, Mr Louttit sent Mr Della Marta a letter addressed to Ms Tegan, Mr Chynoweth and Dr Saunders enclosing documents for the appointment of an administrator. The evidence suggests that this was on-sent by Mr Della Marta to Ms Tegen and Mr Chynoweth but not to Dr Saunders.
11. On 29 August 2014, Mr Della Marta spoke to Mr Louttit on the phone. Mr Della Marta's fee note records that Mr Louttit advised that '[there] probably should not be appointment of administrator just yet, perhaps orderly winding up of the business.'
12. A meeting between Ms Tegen, Mr Chynoweth and the majority was arranged for 2 September 2014. The minority were not invited.
13. On that day, Ms Tegen wrote at length to the majority and Mr Chynoweth (but not the minority) about the options which they 'as Directors' (apparently to the exclusion of Dr Saunders) believed they had for the majority to consider. The letter included the following: Dear All, As you are aware, both Phil and I as Directors of the CEH will be providing Michael Shanahan a financial update and the options that we believe we need to consider for the CEH. He will intern (sic) pass this information on to the remainder of the shareholders so that they can consider the situation and the business's future. We provide you with the options that we believe we have for you to consider, including the cash flow projections until the end of October. As mentioned, we still believe that you remaining at the CEH until the end of the year would assist us with the options we have open to us as Directors. Following are points outlining the situation and options we have available to us as Directors. 10. The options available to the hospital include: (a) Continue the business in an attempt to make it financially viable by engaging additional doctors to replace the work provided by Drs Dunlop, Duncan and Khannah to get back to the financial state CEH is currently. This would involve a review of the current composition of the credentialing committee and a focus on hiring 3 to-4 new doctors by the end of the year (to replace the cash-flow required beyond the replacement of the resigned doctors and make a considerable profit) and sign the head lease over to the 70% lessee. (b) Sale - The CEH seeks a sale of the business or a 3rd party take over the 30% lease obligations current held by CEH, with the head lease moved to 70% lessee. The CEH winds up current operations in preparation for re-lease/sale. (c) Close down the business - The shareholders of CEH seek a voluntary members liquidation and the CEH operations are wound up and obligations paid out and the head lease signed over to the CEH Consulting rooms (70%) lessee. 11. If the shareholders cannot agree on a path, the Directors will eventually be forced to place CEH into voluntary administration. This will occur once the directors come to the view that CEH is insolvent (i.e. unable to pay its debts when and as they fall due) or likely to become insolvent. Before CEH ceases to be in a position to pay its debts when they fall due the company should be placed in the hands of an administrator. In the interim, we believe that we need to move the head lease liability (the largest risk and ongoing expense) from the CEH to the majority tenant (70%) and as such will make a strong recommendation that the lease be taken over by the CEH consulting rooms, seeing that CEH only have 30% of the rental costs. We look forward to your considerations and assistance with a path forward. kind regards (sic) Susi Tegen Director
14. On 3 September 2014, Dr Duncan wrote to Ms Tegen, Mr Chynoweth and the majority: Hi Susi and Phil Thank you for all of this and for your counsel on the situation last night. Sorry I don't have a better idea about what should happen to CEH, as was evident when you asked me to start the discussion! Here are some more thoughts on the matter. It's a possibility that one of the public hospitals would be keen to relocate some of their day case ophthalmology lists to CEH, as they could just walk in and start. Calvary would be the main contender, but even TCH might be interested for their VR cases. I presume they would bring their own nurses and doctors. We could supply machinery and disposables for a desirable basic price. Perhaps Fiona could estimate an appropriate fee, if others agree. At least 2 Calvary public surgeons (Dr Okera and myself) are familiar with CEH and would be happy to do public lists there. I will discuss with Calvary admin tomorrow. It has to be a cost saving for them and we could make a little bit to keep things going. Another option is that we could rent the space out to someone else, non-ophthalmic. It would be a good dental surgery, or even a GP's rooms, but the lease is only 3 more years. I'm not sure about Drs Tsirbis and Burt being there, it could introduce more complexities. I think any private ophthalmic use is unpalatable for any of the CEHM doctors. With the transfer of the Head lease to CEHM we would need to have permission from all the Directors of CEHM, including Drs Lawin Bruessel and Okera. I don't think ID GK and I can decide for them on this potential liability. It would help to have an ironclad agreement upfront (trust fund or joint account) for CEH to cover the rent, as discussed last night. I am the designated liaison for the landlord for discussions on transfer of this Head Lease and I wouldn't be keen to go ahead without an agreement in place either. Can we work on this asap? I am aware of your nervousness as Directors in this situation and your eagerness to depart. I would urge you to please hold on for a bit longer, we are not yet insolvent, (I think?). Also Susi could you please note the comment in red below and amend? Once again thank you both very much, Martin Duncan.
15. There is no evidence that Ms Tegen and Mr Chynoweth gave the benefit of their counsel to the minority, as they apparently did to the majority, as recorded by Dr Duncan.
16. There was a directors' meeting on 3 September 2014 attended by Ms Tegen, Mr Chynoweth and Michael Shanahan. Ms Carruthers was also in attendance. At the meeting, Ms Tegen and Mr Chynoweth presented to Michael Shanahan a document entitled 'Following are points outlining the situation and options we have available to us as directors.' The document, it seems, was an extract of the document which Ms Tegen had sent to the majority (but not the minority) on 2 September 2014. Michael Shanahan was not shown the document before the meeting and did not have the opportunity to read it until after the meeting.
17. According to Michael Shanahan's notes, a significant part of the meeting was devoted to the issue of credentialing and Dr Frumar. The minutes of the meeting do not reflect this.
18. Michael Shanahan's notes, but not the minutes, record that Mr Chynoweth said that if an administrator was appointed the Shareholders' Agreement was not applicable.
19. It will be observed that both in Ms Tegen's 2 September 2014 letter and Dr Duncan's 3 September 2014 letter, there is reference to the transfer of the Head Lease from CEH to CEHM. This is clearly a matter which was the subject of discussion between Ms Tegen, Mr Chynoweth and the majority before the 3 September 2014 directors' meeting.
20. After the meeting, Michael Shanahan was presented with minutes which falsely record that there had been a decision to move the Head Lease from CEH to CEHM. According to Michael Shanahan (whose evidence I believe), there was no discussion of this subject at the meeting. He wrote saying this and objecting to any assignment of the Head Lease. [16] It is clear that there was no agreement to it from the minority side. This was understood by Ms Carruthers, who was at the meeting. On 4 September 2014, she wrote to Ms Tegen and Mr Chynoweth: I'm happy with minutes, all though somewhat concerned about the "agreement to move the lease" I had a very broad conversation with Lisa this morning in the presence of Rina and felt that the transfer of the lease arrangements was not an arrangement the consulting side were prepared to take on. I did send the txt (sic) through this morning requesting clarification and Suzi confirmed it was still at the discussion stage, so is right to minute that we have an agreement?
21. On 4 September 2014, Ms Tegen wrote to the majority (but not the minority): Dear Martin, Gagan and lain Thank you for speaking with Fiona over the last day. We had a large list of items to follow ip (sic) so that we can move ahead ina (sic) positive manner, including speaking with the land agent re the change of head lease. I will be sending you the agreement between the entities also for you to review. Considering we have been using this for many years now between the entities, may I suggest you look at the document and then once the swap notes of the entities are on the paper, Fiona can send back to the lawyer to execute. Phil will need to sign he (sic) transfer of head lease document and the agreement between the entities on behalf of the Board, as it was in the special meeting notes last night that we recommended we transfer the head lease. I will be away for several weeks, but if neded (sic) He (sic) can sign, scan and email me for a second signature. Thank you for assisting Fiona re bringing the overflow into the Canberra Eye Hospital
22. On 5 September 2014, Mr Chynoweth responded to Ms Carruthers' 4 September 2014 email: The 'agreement' is between the directors of CEH .. at the board level we need to agree to this and approach the 'other side'. We feel we have director cover for CEH Management as we have discussed the need with them. Lisa may not like it .. but she will have no choice if their board directs her to make the change. Let's keep it at board level for the moment,
23. There was no agreement between the directors of CEH. The reference to the 'other side' is apparently to the minority. It is one more reflection of Mr Chynoweth's partiality.
24. On 5 September 2014, Ms Tegen wrote to Mr Chynoweth and Ms Carruthers (but not the minority) relevantly: I agree with Phil. This is a very strategic negotiation. Stay with us, its (sic) working out.
25. On 5 September 2014, Dr Tsirbas received his accreditation for CEH.
26. On 12 September 2014, Mr Chynoweth wrote to Dr Saunders and Michael Shanahan (Ms Tegen and Ms Carruthers were also copied into the email): I have noted the correspondence from Michael and Stuart. Before we discuss this decision at the next board meeting, here are my comments. There were four people at the meeting (Fiona, Rina, Susi and I) that recall the matter of the head lease being discussed and the decision being made. It was clearly outlined in the document tabled and discussed at the meeting - that was it's (sic) purpose, to ensure that all matters of importance were covered. Maybe it was the case that Michael was so preoccupied about the discussion about the Credentialing Committee, as briefed by Stuart, that he paid no attention to other matters discussed. I am surprised that he has no recollection of the decision as everyone else at the meeting recalls the discussion and decision. For a decision to be made at the board, a majority of directors - 2 out of 3, need to agree. Michael standing for Stuart, did not disagree at the meeting, but we now understand that he and you do not agree to the lease being transferred. The reason for the transfer is simple - it does not make sense for CEH to have the head lease when it is responsible for only 30% of the lease charges. The decision was made on that basis. Susi, Fiona and I are becoming very frustrated with agreements made at board level which are then withdrawn by emails and correspondence afterwards without reason.
27. On 16 September 2014, Michael Shanahan responded re-iterating that there had been no resolution passed to move the Head Lease and pointing out that under the Shareholders' Agreement CEH could not dispose of a substantial part of its assets without a supermajority resolution and that the Head Lease was the major asset of CEH.
28. On 18 September 2014, Holding Redlich, on behalf of the minority, wrote to Ms Tegen and Chynoweth objecting to any transfer of the Head Lease. They drew attention to the provisions of the Shareholders' Agreement and asserted that the conduct of Ms Tegan and Mr Chynoweth appeared to be deliberately designed to prefer the interests of the majority by attempting to transfer the major asset of CEH to a company controlled by the majority. An application for an injunction was foreshadowed.
29. That day, Mr Chynoweth met with Mr Della Marta. Ms Tegen wrote to each of them, relevantly: Is there any way we can close down the shareholders (sic) agreement?
30. There was an exchange of correspondence on the subject between Mr Della Marta, who asserted that he was acting for CEH and two of its directors Ms Tegen and Mr Chynoweth, and Holding Redlich. Ultimately, the transfer did not take place.
31. In my view, the proposed transfer of the lease was intended to benefit the majority by protecting their tenure of the consulting room space against voluntary administration.
32. On 26 September 2014, Mr Chynoweth wrote to Ms Tegen (but not to Dr Saunders): Susi, It is going to be a busy weekend but I will be happy for a reason to break from moving and unpacking. My thoughts are (so you know how I am thinking) .. Process from here.. we need to have a plan. here (sic) are my thoughts before we convene together and then clear with Simon. Confirm the financial viability of the business by getting input from Fiona, then getting independent people to verify and endorse the assumptions and conclusions. We will need this for the expected complaints from the minority shareholders. There will be a shortfall.. we need to send a letter to shareholders requesting funding to support the development of the hospital. My assumption here is that while we can limp along while not being insolvent but (sic) the reality is that we do not have the reserves in the bank to build and support the hospital for a profitable and sustainable institution. The additional funds can come in in equal proportions from shareholders (therefore no alteration in the shareholding %) or if only a few shareholders are willing to fund - we need to set a share value and that will materially alter the percentages. For example, if current shares are @ $1 and there are 100 shares split up in the majority / founder proportions.. we can offer 5c a share for new money which could dilute the other shareholders to a very minor percentage. We could also put it to shareholders that we go outside to other doctors to buy in at that rate. Of course we need to look at the shareholders agreement and see what wriggle room we have and how we can use any blocks by the shareholders to drive an outcome. If none of the shareholders want to fund, we then have the option to opt for voluntary members liquidation or other 'business sale' or 'replacement lease options' (it would seem inane for shareholders to reject funding the hospital and not wanting to wind the business down in my view. If they ARE inane.. then we have to opt for voluntary administration.) The challenge is while we know what the shareholders will do or won't do. We HAVE to go through a process (despite knowing the outcome) as this is our protection from litigation from the founding shareholders. We need to agree with the majority shareholders a fee for us to complete the plan - it should be significant and make their eyes water. Our plan and exit from the board will then be clear. Phil
33. One, but not the only, noteworthy feature of this letter revealing Mr Chynoweth's lack of independence and predilection to support the majority (but not the minority) is the suggestion of a need to agree with the majority (but not the minority) a 'significant and make their eyes water' fee to 'complete the plan.'
34. On 29 September 2014, Dr Dunlop wrote to Ms Tegen that he intended to refer his intravitreal injections to CEH and Dr Khannah would refer 50% of his. Dr Duncan sent his elsewhere. It is difficult to reconcile this with any genuine intention, on the part of the majority, to keep CEH alive long term.
35. On 16 October 2014, the MAC wrote to the directors of CEH recommending delaying Dr Frumar's appointment because of current workforce shortages at the hospital.
36. On 19 October 2014, Dr Frumar wrote to Ms Carruthers and the majority requesting his application be dealt with as a matter of urgency.
37. On 21 October 2014, Dr Saunders wrote to Ms Tegen and Mr Chynoweth calling for an immediate meeting of the board to approve the credentialing of Dr Frumar.
38. On 28 October 2014, the minority commenced these proceedings.
39. There was a board meeting on 29 October 2014. The minutes record that Dr Frumar proposed to come to CEH two days per week as a medium term plan.
40. On 30 October 2014, Dr Frumar was informed that he had been appointed a VMO to CEH.
41. On 31 October 2014, Ms Tegen and Mr Chynoweth (but not Dr Saunders) spoke with Mr Della Marta concerning the appointment of a voluntary administrator to CEH. Mr Della Marta also spoke with Mr Louttit, who provided him with appointment documents. They were not shown to Dr Saunders.
42. On 4 November 2014, Ms Tegen wrote to Ms Carruthers that she would be proposing that Dr Frumar's credentialing be taken away.
43. Meetings of the directors and shareholders of CEH were to take place on 5 November 2014, but were cancelled due to the closure of Canberra airport on account of poor weather.
44. On 11 November 2014, Dr Saunders, on behalf of the minority, wrote to Ms Tegen and Mr Chynoweth indicating that the minority were willing to provide CEH with funds to enable it to continue operations until it became profitable again. He also stated that he was strongly opposed to the assignment of the Head Lease.
45. On 20 November 2014, Dr Saunders wrote Ms Tegen and Mr Chynoweth asking whether they had pursued the minority's suggestion of additional funding and asking what the reaction of the majority was to it.
46. On 27 November 2014, Mr Chynoweth provided Ms Tegen and Dr Saunders with a draft letter to be sent out to all shareholders requesting funding support.
47. On 2 December 2014, Dr Saunders responded to Mr Chynoweth with comments on the draft letter.
48. On 4 December 2014, according to one of Mr Della Marta's fee notes, Mr Chynoweth told him on the telephone that a shareholder loan was not attractive to the majority and they were suggesting mediation.
49. Nevertheless, on 5 December 2014, Mr Chynoweth responded to Dr Saunders' letter and provided an updated draft of the letter and Ms Carruthers distributed the proposal for funding CEH by shareholders.
50. On 12 December 2014, Holding Redlich wrote to Snedden Hall & Gallop setting out a proposal for the injection of further working capital into CEH. The letter referred to an understanding by the minority that Ms Tegen and Mr Chynoweth had threatened to appoint an administrator in the event that CEH did not obtain further funding from the shareholders.
51. Snedden Hall & Gallop replied on 19 December 2014 saying that they had not been provided with any correspondence from Ms Tegen or Mr Chynoweth referring to threatened administration and requesting Holding Redlich to forward any such correspondence. They suggested that the proposal for further funding should be discussed in more detail in the New Year.
52. On 19 December 2014, Holding Redlich wrote to Mr Della Marta requesting that if Ms Tegen and Mr Chynoweth proposed to pass any resolution for the appointment of an administrator twenty one days' notice be given so that an appropriate application could be made to the Court.
53. On 13 January 2015, Mr Della Marta responded, relevantly: We acknowledge receipt of your letter dated 19 December 2014. Our client is not prepared to engage in discussion on your clients' perceptions of the obligations that our client has in relation to whether or not to appoint an administrator. Of course if the funding arrangements are put in place there will be no need for the Board of the Company to consider appointing an administrator. The directors will not be hampered by your clients' perceptions in relation of their r (sic) obligations and duties as directors. Please keep us informed as to the proposed funding arrangements agreed with the majority shareholders.
54. On 20 January 2015, Mr Della Marta and Mr Chynoweth again spoke with Mr Louttit about the appointment of a voluntary administrator. Dr Saunders was not included in the communication. Later that day, Mr Louttit again forwarded appointment documents. They were copies of the documents prepared in October 2014.
55. On 22 January 2015, Holding Redlich wrote to Mr Della Marta that they assumed that Ms Tegen and Mr Chynoweth were not taking any steps to place CEH into administration and that they trusted that Ms Tegen and Mr Chynoweth would not take any such steps whilst a response from the majority, in relation to the funding proposal, was outstanding and further that Ms Tegen and Mr Chynoweth would allow the minority adequate time to consider any response if any counter proposal was required to be made.
56. Aitken Lawyers responded the following day that their 'client had made no representation(s) in relation to its rights in respect of the Company's financial viability nor has it agreed to fetter its capacity to take whatever action it considers necessary in relation to the financial viability of the Company and its business.' They stated that although their 'client accep[ted] that if a funding arrangement is put in place there may be no need for the Board of the Company to consider appointing an administrator, until that occurs, our client must have regard to the Company's current financial circumstances and act accordingly.'
57. On about 23 January 2015, Dr Saunders called a directors' meeting for 27 January 2015, for the purposes of discussing the replacement of Ms Carruthers and the commencement of surgery by Dr Frumar. The agenda for the meeting is in evidence. It makes no reference to a proposal or resolution for the appointment of a voluntary administrator.
58. On 23 January 2015, My Chynoweth wrote to Mr Louttit, copied to Ms Tegen and Mr Della Marta (but not Dr Saunders), relevantly: 5. Meeting has been scheduled for 3pm on Tuesday. I will get your contact details for when we need to call you in. 6. Susi will not be at the meeting in person. I am thinking of getting her signature on the document beforehand (on the weekend) and for me to sign during the meeting. I would prefer not to have an interim period where injunctions can be brought against the majority of directors - where we have made the decision but caught waiting for a director's signature. Is this as big an issue as I think, is a verbal good enough?
59. Dr Saunders says that the meeting began by Mr Chynoweth saying words to the effect: the situation is so dysfunctional the company needs to be put into administration. and that Ms Tegen responded by agreeing.
60. He says that he was taken completely by surprise by this because he had been given no notice of any proposal that such a decision would be made at the meeting. He was unaware that advice had been taken concerning the appointment of an Administrator or that Ms Tegen and Mr Chynoweth had met with Mr Louttit.
61. He says that he said words to the following effect: l completely disagree. The reason for the trouble is the removal of surgery from the Hospital and delay in credentialing new surgeons. In any event, the company has money and is not insolvent.
62. He says that despite his protestations, Ms Tegen and Mr Chynoweth refused to discuss any further matters and that he does not recall any formal vote being taken.
63. He says that one or the other of Ms Tegen or Mr Chynoweth said words to the following effect: Mr Jamieson Louttit had been appointed as a Voluntary Administrator and has been briefed by Aitken Lawyers.
64. On 30 January 2015, Ms Carruthers ceased to be the hospital manager of CEH.
65. On 5 February 2015, Ms Tegen wrote the following illuminating email to Mr Chynoweth: Phil, I have been reading through the Jamieson documents and would really appreciate your interpretation. As far as I remember we went into voluntary liquidation and yet, the documents all say adminaitration (sic). I dont (sic) understanding the nuance of this, and yet know is makes a big difference in terms of our reputation Susi
66. She was cross-examined on this email and as to her understanding, at the time, of the difference between voluntary administration and liquidation. She gave somewhat adamant evidence that, notwithstanding what she wrote, she clearly understood the difference. Her explanation for having written the email, which I do not accept, was that she had 'had a few wines.'
67. On 23 February 2015, the Administrator published its Report to Creditors. The Report reveals that CEH had assets of $682,193 and an estimated surplus of $359,625. Its largest creditor was reflected as the landlord of the premises Blackwall Property Trust for $293,384 in respect of future rental payments. The then expiry date of the lease was 31 October 2017. There were no arrears as at the date of the administration. The Administrator indicated that he intended to sell the business as a going concern.
68. There then commenced a process whereby the Administrator obtained bids from the majority and the minority respectively for the purchase of the assets of CEH.
69. On 29 April 2015, the majority advised that they had purchased the CEH business for $3.55 million, being $50,000 more than the final offer made by the minority.
70. Between 7 May 2015 and 11 June 2015 the majority and minority negotiated a sale of shares.
71. Dr Saunders says (and I accept) that the minority were essentially forced into this action on the basis that they had received no clarification from either the Administrator or the majority as to how the proceeds of the sale of the assets would be distributed to the shareholders of CEH, there was no certainty that the minority would receive any of the sale proceeds and the minority had an obligation to mitigate their loss.
72. On 11 June 2015, the minority entered into a Share Sale Agreement under which they sold their shares in CEH to the majority for $1,776,000 plus 43% of the value of the Stock. [17]
73. The Share Sale Agreement records that these proceedings are on foot and that notwithstanding the agreement the minority intend to prosecute the proceedings. It records that nothing in the agreement constitutes an admission or waiver by the minority in respect of these proceedings. It records that any party may tender the agreement in these proceedings and that the majority are not prevented by it from contending that the value of the shares is a fair value or from raising any other argument that they wish to raise arising out of the agreement. [18]
74. The Share Sale Agreement was completed on 24 June 2015.
75. Dr Saunders resigned as a director of CEH on that date.
76. I was informed from the bar table that CEH ceased operations and the lease of the hospital was not extended beyond 31 October 2017.

DR FRUMAR

1. Dr Frumar was an eminent and accomplished ophthalmic surgeon.
2. At various times he was Chairman of the Departments of Ophthalmology at Royal North Shore Hospital, Sydney Adventist Hospital and Castlecrag Private Hospital. He was a VMO or consultant at various other institutions. When Dr Shanahan needed a cataract operation, Dr Duncan suggested Dr Frumar. One of the references in evidence described Dr Frumar as a 'highly ethical medical practitioner devoted and dedicated to his patients.'
3. Dr Frumar died on 10 April 2016.
4. To the extent that it is relevant, and I do not think it is, the evidence indicates that Dr Frumar was not an easy person to deal with. My distinct impression, from their evidence, was that the majority did not have much time for him on a personal level. This, amongst other things, clouded their judgment when it came to his accreditation.
5. Dr Frumar directed his application of 1 February 2014 for accreditation at CEH to Dr Saunders.
6. Dr Saunders considered him to be a very experienced and well qualified surgeon. Dr Saunders asked Dr Frumar to send the original application to Ms Carruthers so that it could be provided to the credentialing committee for consideration.
7. The CEH accreditation application form had space for the insertion of an 'alternative contact in case of emergency.' Dr Frumar inserted the name and telephone number of his brother Dr A M Frumar a gynaecologist and an obstetrician.
8. On 6 February 2014, Ms Carruthers wrote to Dr Frumar that the emergency contact had to be credentialed at CEH.
9. There is no doubt that Dr Frumar gave his brother as an emergency contact in the event of Dr Frumar's own indisposition, not as clinical back-up. Dr Frumar wrote as much to Ms Carruthers on 1 April 2014. The heading above the box for insertion of a contact for a clinical emergency is Alternative Contact in case of Emergency. It would have been obvious to any genuine reader that Dr Frumar would not have nominated a gynaecologist or obstetrician as an alternative for an ophthalmic emergency. This obvious mistake, however, drew irrational ire.
10. In his 1 April 2014 letter, Dr Frumar gave as his emergency contacts Drs Kate Reid (Canberra), Dr Peter Macken (Bowral) and Dr Saunders. Dr Saunders, as it happens, was unsurprisingly accredited at CEH.
11. Dr Frumar gave as his ophthalmologist referees Dr Bill Glasson and Dr Con Moshegov. Dr Glasson practices in Queensland. He wrote that he understood Dr Frumar to have the respect of his colleagues who work with him and is considered to be a very able ophthalmologist. Dr Moshegov, a Macquarie Street specialist, was contacted and provided his written reference on 24 February 2014. He wrote that he was privileged to be able to act as a referee to Dr Frumar who had at one point been one of Dr Moshegov's superiors.
12. One might have thought that, if the majority were at all interested in the hospital returning to profitability, they would have welcomed someone such as Dr Frumar with open arms. But, this is not what happened. Obstacles, including imaginary ones, were placed in his path. He was treated discourteously for no good reason.
13. This was not the case with respect to other applicants, who were not expected to do predominately cataract surgery. It is no coincidence that the majority were cataract surgeons and the most profitable activity at CEH was (and no doubt at CMS is) cataract surgery.
14. Dr Burt, who was expected to do mainly ocular plastic surgery, applied for accreditation at CEH on 29 November 2013 and was swiftly accredited on 16 December 2013. The only documentary evidence of his application is a copy of his curriculum vitae.
15. Dr Frumar apparently had plans to have some sort of residence in Canberra because his children were proposing to study there. He told Michael Shanahan that he had put down a deposit on an apartment in Canberra. There is a suggestion in the evidence that Dr Frumar had some interest in purchasing Dr Saunders' practice and his shares in CEH.
16. When Ms Carruthers joined CEH, the CEH By-Laws were a March 2012 edition. The By-Laws were updated and revised by Ms Carruthers in September 2013. As part of the update, CEH produced a Policy Statement for the accreditation process.
17. Ms Carruthers also amended the MAC's Terms of Reference.
18. The active clinician decision makers on the MAC were Drs Dunlop and Duncan. Ms Carruthers had a secretarial role. But, Dr Dunlop and Dr Duncan did not read the By-Laws. Dr Dunlop also did not read the MAC Terms of Reference.
19. The Policy Statement records that: Credentialing is a formal process to verify the qualifications, experience, professional standing and other professional attributes for the purpose of forming a view about an individual's competence, performance and professional suitability within specific organisational environments.
20. Business and profitability aspects do not properly intrude into the process of VMO credentialing. So much was accepted (as it had to be) by Drs Dunlop and Duncan, as well as by Ms Tegen and Mr Chynoweth.
21. None of CEH's instruments required an applicant to nominate two referees with direct experience of the applicant's professional work.
22. The By-Laws provided that a practitioner seeking initial accreditation needed '[r]eferences with at least two individuals being within the [p]ractitioner's specialty or a related specialty', at least one of which was to be 'from an individual who [could] verify, preferably for at least a 12 month period within the previous three years, the approximate number, type and location of patients, clinical services, procedures or other interventions performed; and diagnoses treated; and provide evaluator comments on the [p]ractitioner's technical performance, communication skills and teamwork'.
23. None of CEH's accreditation instruments current at the time of Dr Frumar's application imposed a requirement upon an applicant to nominate an emergency back-up. CEH's accreditation application form, however, does make provision for such information to be supplied. Even less, do those instruments require a nominated emergency contact to be credentialed at CEH or be in Canberra when the surgical operation by the proposed VMO was carried out.
24. Despite Dr Frumar's eminence as a surgeon, there was sought to be imposed on him a requirement that two of his referees have direct experience of his professional work.
25. At a MAC meeting on 5 February 2014, it was determined that Dr Frumar needed an emergency back-up credentialed at CEH and that his referees should be contacted. Ms Carruthers was directed to follow this up with Dr Frumar.
26. Dr Burt nominated Dr Okera as his emergency contact. Dr Okera withdrew, for personal reasons, as Dr Burt's emergency contact. No requirement was imposed on Dr Burt to nominate another one.
27. More importantly, none of the majority had formally nominated any emergency back-up for himself. For them, collegiate understanding and courtesy sufficed. They were not prepared to extend the equivalent to Dr Frumar.
28. Dr Saunders asked Dr Okera whether he would be prepared to be emergency back-up for Dr Frumar. He declined.
29. On 23 March 2014, Dr Saunders wrote to Ms Tegen and Mr Chynoweth, amongst others: … l am informed by Dr Frumar that his application for credentialing has been pending for some 3 to 4 weeks. It is apparent that the credentialing committee has deliberately delayed in processing his application. Dr Frumar is well known to the Majority Shareholders and indeed to the members of the credentialing committee. I am unaware of any valid reason for delaying his credentialing. I seek your urgent intervention to ensure that Dr Frumar's credentialing is approved without further delay. As you are also aware, Dr Frumar wishes to consult at the premises of CEH and to perform cataract surgery in its operating theatre. It is imperative that we proceed to secure him as an ophthalmic surgeon starting at CEH without delay. Please can you let me have an urgent response to this letter.
30. On 30 March 2014, Mr Chynoweth wrote to Dr Saunders: I have spoken with Susi and Fiona about the letter you sent through last Sunday night. Fiona subsequently mentioned that you have already spoken with her this week and she has had a chance to address some of the misunderstandings in your letter. I do not propose to go through these again in this email. We are all agreed that the best forum to discuss the operations of the Hospital is in the board meetings and since the next meeting is planned in a couple of weeks we should cover any questions with Fiona and when she has a chance to provide her Manager's report. We request that you do not contact any of the doctors that Fiona has qualified and have shown interest in joining the staff at CEH. While your contact may be well meaning, it is important that the Credentialing Committee can operate without unnecessary interference and distractions. Phil (with and on behalf of Susi Tegan and Fiona Carruthers)
31. Nothing in the evidence reflects Dr Saunders as interfering, unnecessarily or at all, with, or distracting the MAC from, operating. To the contrary, Dr Saunders was the only person making any effort to identify and bring to CEH surgeons who would operate there. His efforts were, however, neither welcomed nor appreciated.
32. On 2 April 2014, Ms Carruthers wrote to the MAC stating that all documents for Drs Frumar and Tsirbas had been received.
33. On 3 April 2014, Dr Frumar wrote to Ms Carruthers: I spoke to Stuart and we think for the first list we should do a Saturday to give us time to do An (sic) inventory and theatre set up check. That way we can get up and running in the shortest time frame. This will give us time to make up for whatever instrument and other items are deficient in the OR. For subsequent lists we can discuss which would mutually be the better week days for surgical lists. Please would you have a chat with Stuart as to which Saturday will be the initial introductory list.
34. On 8 April 2014, Ms Carruthers provided the further information supporting the application of Dr Frumar she had received to Drs Dunlop, Duncan and Lo, ahead of a MAC meeting on 15 April 2014.
35. On 11 April 2014, Dr Saunders wrote to Ms Tegen and Mr Chynoweth pointing out that the credentialing of Dr Frumar had still not occurred and that it was vital that the hospital received fees from the cataract surgery which Dr Frumar intended to perform. Dr Saunders asked them to confirm that they would communicate with the credentialing committee to ensure that Dr Frumar's application was approved without further delay.
36. Mr Chynoweth apparently construed Dr Saunders' communication as an attempt to interfere with the credentialing process and suggested to Ms Tegen that they send a letter to Dr Saunders with strong wording about interfering with the process.
37. On 14 April 2014, Ms Carruthers sent a letter (drafted by Ms Tegen) on behalf of Ms Tegen and Mr Chynoweth to Dr Saunders in which, amongst others, they said: We have discussed the process and the current doctor's applications at board meetings and do not understand why you would also need further correspondence. The aim of the board should remain to run a safe and profitable CEH, following due process and Governance without interference.
38. On 15 April 2014, Dr Frumar informed Ms Carruthers that post-operative management of patients would be undertaken by both Dr Saunders and himself. The emergency contact issue appeared to be, and for that matter should have been, solved. However, it would later be resurrected.
39. The MAC met on 15 April 2014. Dr Frumar's application was tabled.
40. On 16 April 2014, Ms Carruthers conveyed to Dr Frumar that the MAC requested that another referee be nominated because Dr Glasson had not worked with Dr Frumar. She added that once received she could pass it on to the MAC and finalise the 'credential process.' Dr Frumar responded that this would be attended to promptly.
41. On 16 April 2014, Ms Carruthers reported to the MAC that she had contacted Dr Reid who confirmed that Dr Frumar had contacted her and she had agreed to accept patients for follow up treatment at The Canberra Hospital. Dr Reid had not agreed, however, to be available to respond and assist with an emergency on site at CEH.
42. On 17 April 2014, Dr Lisa Belle Cottee, a Lismore ophthalmologist, provided a reference for Dr Frumar. The reference disclosed that she had worked with Dr Frumar. She described Dr Frumar as a highly ethical medical practitioner devoted and dedicated to his patients. Ms Carruthers passed this reference on to the MAC on 30 April 2014. Dr Cottee's reference was acceptable to Dr Dunlop, who described it as 'glowing.' Yet, the MAC still did not credential Dr Frumar.
43. Ms Carruthers wrote to the MAC on 1 May 2014, saying that she was still awaiting confirmation as to who would attend in the event Dr Frumar required assistance onsite. It is to be remembered, that Dr Saunders had already agreed to do this.
44. On 5 May 2014, Dr Saunders wrote the following email to Ms Tegen and Mr Chynoweth, copied to Ms Carruthers who on sent it to the MAC: Dear Susi and Phil, I note that the credentialing of Dr Frumar has still not occurred despite his application now being outstanding for three months. Dr Frumar is well known to the majority shareholders. In particular Dr Duncan, who is on the Credentialing Committee, was Dr Frumar's Registrar at the Royal North Shore Hospital as, incidentally was Dr Khannah, a shareholder in CEH. There can be no doubt as to Dr Frumar's surgical competence and he should be Credentialed (sic) immediately to carry out surgery at CEH. There seems to be an inordinate delay in dealing with this application. As you are well aware, the hospital is operating at a loss and needs to generate additional revenue from the facility fees which will be received as a result of his operating at CEH. There are patients awaiting surgery who are being frustrated by this delay. I do not accept the comments made in Fiona Carruthers' letter of 14th April 2014 which clearly has been prepared by you. I wish this matter to be raised at the next meeting of directors and at the next Board Meeting. As directors we are entitled to an explanation from the Credentialing Committee as to the delay which has occurred. If there is a reasonable explanation then the directors can be satisfied that the committee is doing its job properly. If, however, the committee is not operating effectively, it is the duty of the directors, given the current circumstances of the company, to establish the true position and to do everything we can to conclude the credentialing process as quickly as possible. With kind regards, Stuart
45. On 9 May 2014, Dr Dunlop wrote to Ms Carruthers, Dr Duncan and Dr Lo: Dear Fiona, Thank you for forwarding the extraordinary letter from Dr S Saunders which, in part, raises the function of the credentialing committee. I reply from the credentialing committee to those comments. Credentialing is a serious and formal process required by accreditation agencies and the departments of health to protect the public. The days of the casual appointment of friendly chaps are long gone. Credentialing is one of the key aspects examined in ACHS surveys. As an appointee to the National Council of ACHS, I review and vote on numerous accreditation surveys each year from the ACHS surveyors' work from major hospitals to stand alone day surgery facilities. I sit on this credentialing committee and another within Sydney Eye Hospital. I see the process from above and from below. There is nothing amiss in the function of the CEH credentialing committee. Working with the CEH committee, I have been surprised by the casual incompetence of some applications. One applicant for a specialist ophthalmic appointment initially provided two unsuitable refers. The first was his brother, a Sydney based gynaecologist and the second, a Brisbane based ophthalmologist whose knowledge of the applicant was limited to brief greetings en passant at ophthalmic meetings. Not surprisingly, the committee asked for more suitable referees. The same applicant provided names of three emergency clinical back-up surgeons. One was two hours away in country ophthalmic practices, the other two were non-surgeons. I understand that the applicant is still arranging direct emergency clinical back-up. Other applicants have had basic documentation missing (which is not unusual - just time delaying) and incomplete references. Committee work is time consuming and responsible. None of us wish to waste time or create extra work for the hospital administration. We do it because it is the correct and transparent way to ensure public safety and hospital integrity. There is process and due diligence. If any individual sought to circumvent the process or apply inappropriate pressure to achieve an unsupported outcome, I would expect that the Board would identify the actions, censure the individual and remove that individual from a position of influence at a minimum. I will take the opportunity here to recognise and thank you Fiona for your patience and skill with the deliberations of the committee. regards (sic) Iain Dunlop
46. This letter merits a number of observations:

• Dr Saunders' letter was hardly extraordinary. Indeed, it was well warranted and appropriate in the circumstances.
• The manner in which Dr Frumar's application was treated was hardly motivated by any desire to protect the public. There was consensus before me on one thing: medical emergencies resulting from ocular surgery are extremely rare and are not life threatening.
• Ironically, while Dr Dunlop states that 'the days of the casual appointment of friendly chaps are long gone', the manner in which the majority dealt with each other reflects exactly the ethos said to be gone. Dr Frumar was certainly not a friendly chap.
• The detailed reference to casual incompetence of some applications is clearly a reference to Dr Frumar. Mention has already been made of the obvious error in the nomination of his brother, which no rational reader would have understood to be a clinical back-up. By 9 May 2014, the MAC was in possession of a written reference from Dr Moshegov as well as the reference from Dr Cottee.
• It raises, once again, the question of direct emergency clinical back-up. There had been no formal nominations by any of the majority.

1. On 10 May 2014, Dr Duncan wrote to the MAC that they now had the required references but raised the question of emergency clinical back-up.
2. On 13 May 2014, Ms Carruthers wrote to Dr Frumar asking for other emergency contacts, because those nominated on 1 April 2014 were not credentialed at CEH.
3. On the same day, Dr Frumar replied nominating Drs Tsirbas, Burt, David Tridgell, Meades, Dickson and John Smiles. There was apparently some controversy about what, if any, back-up Drs Tridgell and Dickson had agreed to provide for Dr Frumar. Dr Dickson made reference to a failure of clear communication with Dr Frumar and that he was not prepared to be available to care for patients seen or treated by Dr Frumar in Canberra. He commented that he would have thought that such care would have been provided by Dr Frumar's colleagues 'at Symonston.' Dr Tridgell wrote to Dr Frumar referring to the request and stating that he was always willing to see and treat patients in need of ophthalmic care but was not willing to unreservedly provide support for someone else's surgery. These circumstances, including a conversation which Dr Duncan had with Dr Dickson directly on 15 May 2014, prompted Dr Duncan to write to the MAC that he thought they 'need[ed] to seriously consider denying the application of Dr Frumar on the basis of trying to deceive not only our colleagues, but the committee.' Dr Frumar was clearly not welcome as a member of the Canberra cataract surgery community. On occasion, in the evidence, he was described pejoratively as a 'fly-in fly-out' or FIFO surgeon.
4. On 14 May 2014, Ms Carruthers responded to Dr Frumar confirming that Dr Burt (Dr Frumar's back-up nominee) was credentialed.
5. On 16 May 2014, Dr Duncan wrote to Ms Carruthers and the MAC captioned 'on-call cover for Dr Frumar': Have discussed with Iain. It seems unlikely that Dr Frumar will be able to summon an appropriate back up for emergencies. This makes it difficult to accept his application. As far as denying it however, although there have been obvious irregularities in his application it may be wise to seek an outside body to review the process, in case any bias is perceived. When is our next meeting?
6. This letter merits four observations. First, one might have thought that if the majority were keen for cataract surgery to be performed at CEH and if emergency contact was a real issue they would have facilitated Dr Frumar in identifying and providing a back-up rather than stand in his way. Second, and having observed both Drs Duncan and Dunlop, I consider that there was actual, not merely perceived, bias against Dr Frumar on their part. Third, the proposed reference to an outside body did not happen. On the instructions, Ms Carruthers did contact a personal acquaintance, Ms Lyn Davis and took advice. This is referred to later. Fourth, Dr Frumar was not informed of the contents of the letter.
7. The MAC met on 16 June 2014, the minutes of which meeting record that Dr Frumar's credentialing application remained incomplete, with no appropriate emergency contacts nominated. Ms Carruthers was instructed to contact Dr Frumar and request additional nominations of emergency contacts. Ms Carruthers did so.

THE LEGAL PRINCIPLES

1. The essential criterion of conduct that is 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' within s 232 of the Act is commercial unfairness.
2. Commercial unfairness is assessed objectively in the eyes of a commercial bystander: Morgan v 45 Flers Ave Pty Ltd (1986) 10 ACLR 692. The test is whether the conduct is so unfair that reasonable directors would have thought it to be unfair: Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359 at [181].
3. That an action of directors is in breach of fiduciary duty will be relevant to whether there has been unfairness in the context of oppression: Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 84 ACSR 121 at [176]; HNA Irish Nominee Ltd v Kinghorn (No 2) (2012) 88 ACSR 427 at [502]-[503]; Re Cumberland Holdings Ltd (1976) 1 ACLR 361; Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539 at 552.
4. The passing of a resolution to appoint a voluntary administrator may amount to oppressive conduct: Saykan v Elhan [2004] VSC 83 at [33], [40]-[42]; Saykan v Elhan [2006] VSCA 320 at [18]; Ubertini v Saeco International Group SPA Societa A Socio Unico (No 4) (2014) 98 ACSR 138 at 228.
5. Section 233(1) gives the Court a wide discretion with respect to relief. There is no automatic right to obtain a remedy where a breach of s 232 is established: Shelton v NRMA Limited (2004) 51 ACSR 278.

FINDINGS

1. From no later than the time of the appointment of Ms Tegen and Mr Chynoweth as directors of CEH, its affairs were conducted in a sustained and deliberate way both contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to, and unfairly discriminatory against the minority.
2. In the case of Dr Saunders, he was oppressed, prejudiced and discriminated against both as a member and in his capacity as a director.
3. Throughout, Ms Tegen and Mr Chynoweth, in concert with the majority, acted so as to prefer the interests of the majority over those of the minority.
4. The underlying grievance of the majority was the entitlement of the minority to share in the profits of CEH. For so long as this was the case, the majority had no intention of furthering the interests of CEH. Their primary intention was, as the objective material establishes, to achieve a restructure of the shareholding arrangements. As history reveals, if this could not be achieved, they had no intention that CEH should be kept alive. After all, CEH was CMS' competitor in the cataract surgery market. An entitlement on their part to a passive income from CEH was, in my opinion, a minor, if not irrelevant consideration. If it had been important, they would have acted entirely differently. They made no attempt to attract other surgeons. They frustrated Dr Frumar. They took CEH's valuable employees. They failed to provide funding for CEH. They sought to take CEH's Head Lease. After they purchased the minority's shares, CEH closed down. CEH was in fact worth more to them dead than alive.
5. The majority's need and desire for a restructuring was understood by Ms Tegen and Mr Chynoweth from the start, as is revealed from their 24 September 2013 exchange. Changing the Shareholders' Agreement is, amongst others, referred to in Mr Della Marta's Executive Summary of 13 November 2013, Ms Tegen's letter to the majority and Mr Chynoweth on 11 December 2013, Mr Chynoweth's letter to Dr Dunlop on 14 December 2013, Mr Chynoweth's exchanges with Ms Tegen on 3 December 2013 and Ms Tegen's letter to the majority and Mr Chynoweth on 2 September 2014. It is clearly included in the plan referred to in Mr Chynoweth's letter to Ms Tegen on 26 September 2014.
6. Voluntary administration as an alternative was under consideration from an early stage. As early as 17 October 2013 there was contact with Mr Louttit and discussion of voluntary administration. Documents for achieving this objective were prepared, without the knowledge or participation of Dr Saunders, as early as 26 August 2014. Mr Della Marta's fee note of 29 August 2014 reveals that such an appointment was intended but should not be made 'just yet.' Steps were taken, when there was no agreement from the minority, to transfer the Head Lease to CEHM. Mr Chynoweth described the process as part of a 'strategic negotiation'. The most probable explanation for the transfer is, I find, to protect the majority's tenure with respect to the consulting rooms at the hospital.
7. On 31 October 2014, Ms Tegen and Mr Chynoweth spoke with Mr Della Marta concerning the appointment of a voluntary administrator to CEH. Mr Della Marta also spoke with Mr Louttit, who provided him with appointment documents.
8. The proposal to appoint an administrator was kept from, and then sprung on, Dr Saunders, amongst others, to avoid giving the minority an opportunity to make an appropriate injunction application to the court, as foreshadowed in the Holding Redlich letter of 19 December 2014, and in a manner which precluded appropriate discussion on the subject and in the knowledge that Dr Saunders opposed it.
9. The appointment was made after the accreditation of Dr Frumar and just before he intended to commence surgery at CEH, which would have significantly, improved its prospects. The appointment was made at a time when CEH was solvent and understood by Ms Tegen and Mr Chynoweth to be solvent.
10. Voluntary administration was in the interests of the majority but entirely inimical to the interests of the minority.
11. As Mr Chynoweth understood, the supermajority requirement in the Shareholders' Agreement did not apply to voluntary administration. Voluntary administration was a way of bringing CEH to its denouement without complying with that supermajority requirement.
12. I find that the appointment of the administrator was in bad faith and for improper purposes.
13. Ms Tegen and Mr Chynoweth conducted themselves as directors in a manner so unfair to the minority and Dr Saunders, as a director, that no reasonable director would have thought it to be fair and a reasonable director would think it to be unfair.
14. They had private dealings with the majority, which, objectively viewed, reflect an intention to facilitate their interests over those of the minority. Proposals were developed in consultation with the majority to the exclusion of the minority.
15. Mr Chynoweth took secret remuneration from the majority contrary to cl 4.2 of the Shareholders' Agreement and apparently in breach, at least, of his duty under s 182(1)(a) not improperly to use his position to gain an advantage for himself.
16. He proposed to Ms Tegen that they charge the majority a fee of eye watering proportions 'for [them] to complete the plan'. This was not a fee which was to be paid or contributed to by the minority. The 'plan' was one for the majority.
17. Ms Tegen and Mr Chynoweth prevented Dr Saunders from having any real participation, let alone fair participation, in the process which culminated in the appointment of the voluntary administrator, which appointment I find to have been made by them in bad faith. CEH was plainly not insolvent and, having regard to Dr Frumar's recent accreditation and intention to work there, was not likely to become insolvent in the foreseeable future, something which if it was not clear to them (and I think it was), ought to have been.
18. The conduct of the majority in the manner in which they dealt with Dr Frumar was not in the interests of the shareholders as a whole and oppressive and unfairly prejudicial to, and unfairly discriminatory against, the minority.
19. By 17 April 2014, Dr Frumar had nominated Dr Saunders as his emergency back up and had provided the references from Dr Moshegov and Dr Cottee. On the assumption that the requirement for that nomination was a necessary prerequisite for his accreditation, from then, at the latest, there was no legitimate basis to deny or delay Dr Frumar's accreditation. In my view, it is probable that Dr Frumar could and would have started generating revenue for CEH by 1 March 2014.

RELIEF

1. The minority seek an order that the majority compensate them for the difference between what they say was the true economic value of their shares and the depressed value for which they say they sold them to the majority, because of the conduct complained of.
2. The making of such an order is within the power given to the Court under s 233(1) to make any order which it considers appropriate in relation to the company. Section 233(1)(j) empowers the Court to require a person to do a specified act. That act can be the payment of money.
3. The exercise required here is to ascertain, ignoring the oppressive conduct which I have found, the extent, if any, to which the value of the shares which the minority sold to the majority on 11 June 2015 under the Share Sale Agreement exceeded the amount of $1,776,000 paid for those shares.
4. The oppressive conduct was the unjustified delay in accrediting Dr Frumar and the appointment of the voluntary administrator. The minority's shares are to be valued on the footing that Dr Frumar had started when he could and would have, and the voluntary administrator had not been appointed.
5. Each side called an expert forensic accountant. The minority called Mr Brendan Halligan. The majority called Dr Rodney Ferrier. The accountants produced various valuation reports, including joint reports, which have significantly assisted the Court.
6. The assessment of the value of the shares is to be done on the footing that the oppressive conduct did not occur: Rankine v Rankine (1995) 124 FLR 340.
7. There is consensus as to the appropriate valuation methodology for this case.
8. I consider that the Court must take account of the fact, now known, that the direct benefit of Dr Frumar's exertions would not have extended past 10 April 2016: Kizbeau Pty Ltd v WG&B Pty Ltd (1995) 184 CLR 281 at 293; HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at [40].
9. Relief is discretionary and I would approach the matter in this way as a matter of discretion in any event. It accords with fairness in this case. Had the oppressive conduct not occurred, the minority would not have sold. Their attitude was always that they wanted to hold their shares and earn revenue from them. It would not be fair to compensate them on the footing that they would not have sold their shares, but Dr Frumar would have survived beyond the date of his passing.
10. Shares in CEH are appropriately to be valued by reference to their percentage entitlement to the underlying business of CEH.
11. Conventionally, the business (if it would have been profitable) is to be valued using the capitalised maintainable earnings (or CME) method which entails an assessment, as at the appropriate date, of what the maintainable annual earnings before interest and tax (EBIT) were and applying to the figure a capitalisation multiple. There is added to this the value of surplus net assets, that is, the assets owned but not necessary to generate the maintainable earnings.
12. The application of the CME method requires a determination of the annual maintainable earnings of CEH on the basis that Dr Frumar would have started when he could and would have, in other words, a determination of the profits that would have been earned directly and indirectly as a result of Dr Frumar's work at the hospital. Profits would have been earned directly from his own exertions and, the minority submit, indirectly from his presence which would have attracted other surgeons to work at the hospital.
13. I record that the minority argued that in assessing CEH's maintainable earnings the Court should take the approach, with respect to the potential profit that might have been emanated from other surgeons, which is taken in assessing damages where future or hypothetical events are to be taken into account and proof of them is necessarily unattainable. In such cases, the Court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect that degree of probability. A lost commercial advantage or opportunity is a compensable loss, even where there is a less than 50% likelihood that the commercial advantage will be realised: Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 643; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 125; Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 at 349.
14. This approach would entail taking the full amount of revenue which each notional additional surgeon would earn and discounting it to reflect the degree of probability that the surgeon would have generated it.
15. I do not think that this approach is apposite to this case. The Court is not assessing damages or a lost opportunity, but the value of shares in CEH derived on a maintainable earnings basis. Earnings are not earnings, let alone maintainable earnings, if, on the probabilities, they would not have been made. The capitalisation multiple takes account of the risk to the maintenance of the earnings as assessed.
16. In any event, I am not satisfied that the evidence extends to establishing any meaningful likelihood that Dr Frumar's presence would have attracted any other surgeons who would have contributed to the revenue of the hospital. Efforts to attract other surgeons by Dr Saunders had very limited success. Realistically, the majority were never going to help in this quest. I am not satisfied that Dr Burt, who was an oculoplastic sub-specialist, was likely to start doing any significant cataract work. Even if the oppressive conduct had not occurred, the majority and the minority would still most probably have remained at loggerheads. Drs Burt and Tsirbas were not willing to commit to hospital lists of any type whilst the dispute between shareholders remained. Even if I were to adopt the loss of opportunity analysis, the percentage reduction would be so great as to make the lost benefit of no real value.
17. I do not think that there was any realistic possibility that the non-shareholder surgeons at CEH would have returned.
18. I also think it is unlikely that Drs Dunlop and Khannah would have continued to perform their injection procedures at the hospital for any appreciable length of time.
19. The consequence of this is that I am not satisfied that any revenue equivalent to that which Dr Frumar (or some replacement doctor) would have generated would have continued, in effect, in perpetuity that is maintainable for the conventional application of the CME method.
20. The experts agree that on this basis, the business would become unprofitable after Dr Frumar's death and that the appropriate valuation method is, therefore, to assume that the business would operate for two years until Dr Frumar's death and then be liquidated and the proceeds distributed to shareholders. They produced agreed models based on varying assumptions to reflect this approach.
21. They assumed both a multiple of 4x and Dr Frumar's revenue ceasing after two years. In their opinion, these assumptions were inconsistent because they account for the risk of Dr Frumar's death in both the multiple and the earnings. However, removing the risk of Dr Frumar's death from the multiple would increase it to 5.125x, but the effect of doing this would be to increase the value of the shares by an immaterial amount. Additionally, the multiple of 4x is for an annuity in perpetuity. Given Dr Frumar's death, the experts adjusted it to reflect its application to a limited period which is to a multiple of 1.62x as at 1 March 2014.
22. Ignoring the oppressive conduct, if the business would not have been profitable, the appropriate method is to ascertain the amount of the dividend the shareholders would receive had CEH been placed into liquidation. The dividend would represent the entitlement to share in the company's net realisable assets. This method of valuation is known the Notional Realisation of Assets (or NRA) method.
23. The experts produced a series of valuations resting on different assumptions. Ultimately, they produced a series of joint valuations as at 1 March 2014 and 27 January 2015 respectively.
24. As will be observed later, based on the assumptions which I consider are to be adopted and which follow from the findings which I will now make, the amount which the minority received for their shares well exceeds what those shares were worth on either approach.
25. As to the net revenue that would have directly been earned from Dr Frumar's exertions, this requires findings as to when he would have started, how many operations he would have carried out annually, the fee that would have been charged for each procedure and what increased variable costs would have been incurred in generating the additional revenue. The capitalisation multiple is applied to the figure which is yielded.
26. Discussion between the experts resulted in consensus that 46.9% is the appropriate variable cost rate to be applied to all additional revenue.
27. There was no consensus on whether the value of the minority shares should be discounted because it was a minority holding. I do not consider that a minority discount is appropriate. The control provisions in the Shareholders' Agreement, including the supermajority provision and the embargo on directors being paid, effectively kept the minority on an equal footing with the majority.
28. There was no legitimate reason for delaying Dr Frumar's accreditation beyond 17 April 2014 and maybe, not beyond 1 April 2014. For present purposes, the difference between these dates and 1 March 2014 is immaterial. The valuation should be done on the footing that 1 March 2014, as selected by the experts, should be adopted.
29. The evidence shows that Dr Khannah performed about 9 cataract procedures per day, Dr Duncan about 11 and Dr Dunlop about 8. Dr Frumar was a highly experienced cataract surgeon. I think that 10 should be adopted.
30. By all accounts, Dr Frumar was extremely busy and operated at various places. He spent some weeks of the year operating in Cambodia. I think he would have operated at CEH for no more than 40 weeks per year.
31. There was argument about the fees earned from a cataract procedure. $2,150 was the price charged to insured patients. Uninsured patients may have paid less. I do not see why it should be assumed that Dr Frumar would have taken any less than the price charged to insured patients. This was the figure used in business plans and models prepared for the directors in October 2013 and February 2014.
32. I am satisfied on the evidence that Dr Frumar would have been likely to have had a list once a week in Canberra. The board minutes of 29 October 2014 record an intention on his part to come two days a week. I do not consider that there is a sound evidentiary basis for a finding that he would have operated more than two lists per week. Two (perhaps a little generously) is the number I consider should be adopted.
33. The valuations which follow from these findings are as follows:

VALUATION USING MODIFIED CME METHOD

1. Assumptions (a) Valuation date 1 April 2014 (b) Revenue based on annualised actual revenue for 8 months to Dec 2014 (c) Revenue from associated doctors (Drs Essex, Lawin-Bruessel, Larkin and Okera): ▪ excluded except Okera for plastics ▪ Dr Okera plastics equal to Okera actual annualised revenue for 8 months to Dec 2014 (d) EBIT Multiple 4.0x (e) Dr Frumar: Dies in April 2016 (hence EBIT multiple of 4x) 01-Apr-16 Number of Dr Frumar's surgeries per year: ▪ at 10 surgeries per list and 2 lists per week for 40 weeks 800

Revenue from each of Dr Frumar's surgeries 2,150 (f) Variable expenses as percentage of additional revenue 46.9% (g) Revenue from Dr Burt [19] 12,516 (h) Revenue from Dr Tsirbas [20] 0 (i) Surplus net assets Cash 628,768

• Taxation refund receivable 113,805

• Trade creditors 5,225
• Tax liabilities 6,402 730,900 (j) Minority discount 0% (k) Valuation rounding factor $1,000

2. Valuation Amended EBIT Operating EBIT (Annualised 8 months Mar to Dec 2014) -321,903

• EBIT changes Additional Dr Frumar 1,720,000 Drs Essex, Lawin-Bruessel, Larkin and Okera (associated doctors) [21] -44,381 Dr Okera plastics [22] 43,085 Variable costs associated with above revenue -806,072 Total EBIT changes 912,632

= Amended EBIT [23] 590,729

EBIT multiple 4.0x Implied capitalisation rate [24] (r) 25% Number of years to Dr Frumar's death in April 2016 [25] (n) 2.00 Annuity factor in advance [formula =(1-(1+r)^-n)/r*(1+r) ] 1.800 Annuity factor in arrears [ formula =(1-(1+r)^-n)/r ] 1.440 Annuity factor mid-point (average of above) = Adjusted multiple [26] 1.620

Maintainable EBIT based on amended EBIT 590,729 x Adjusted multiple 1.62x = Business value [27] 956,981

• Surplus net assets 730,900 = Value of 100% interest [28] (A) 1,687,881
• Net assets (other than those in the surplus net assets) in April 2016 Assets Trade debtors 101,619
• Plant and equipment 150,005 = Total other assets 251,624

• Liabilities Blackwall Property Funds - lease liability [29] 293,384

• Blackwall Property Funds - contra for mitigation [30] Unknown = Blackwall Property Funds - net liability 293,384
• Loans payable 3,000
• Employee entitlements including superannuation 0 = Total other liabilities 296,384 = Other net assets in April 2016 (i.e. excluding those in surplus net assets) (rounded) -44,800 x PV factor [31] 0.6400 = PV of other net assets/ (liabilities) (B) -28,672

• Liquidation costs after Dr Frumar's death [32] Cost of realising plant and equipment 30,000

• Cost of liquidator 20,000 = Total liquidation costs 50,000 x PV factor 0.6400 = PV of liquidation costs (C) 32,000

= Value of 100% interest after notional realisation of assets in April 2016 (A+B+C) 1,627,209 x Pro-rata interest 43% = Pro-rata value of 43% interest 699,700

• Minority discount 0 = Value of 43% minority interest (rounded) $700,000

VALUATION USING NRA METHOD Assets Cash 628,768 Trade debtors 101,619 Taxation refund receivable 113,805 Plant and equipment 150,005 Rounding 1 Total Assets 994,198

• Liabilities Blackwall Property Funds - lease liability 293,384 Blackwall Property Funds - contra for mitigation Unknown Blackwall Property Funds - net liability 293,384 Trade creditors 5,225 Tax liabilities 6,402 Loans payable 3,000 Employee entitlements including superannuation Total liabilities 308,011

= 686,187 Net assets

• Liquidation costs Cost of realising plant and equipment 30,000 Cost of liquidator 20,000 Total liquidation costs 50,000

= Value of 100% of shares 636,187 x Pro-rata interest 43% = Pro-rata value of 43% shareholding 273,560

• Minority discount N.A. = Value of 43% minority interest (rounded) $274,000

Notes: (a) Assets realised and liabilities paid before formal members' voluntary liquidation (b) Liquidator returns surplus capital to shareholders (c) Assets and liabilities at 1/3/14 per balance sheet at 30 June 2014 (c) Assets and liabilities at 27/1/15 as per Report as to Affairs (CB 6152 to 6159)

Assumptions (a) Plant and equipment is realised for book value less 20% realisation costs 30,000 (b) Costs of liquidator 20,000 (c) No capital gains tax payable on liquidation

1. Thus, the CME method results in a valuation of the minority shares of $700,000 and the NRA method $274,000.
2. Even if one were to adopt the assumption that Dr Frumar's earnings would have lasted in perpetuity (derived from another practitioner after his passing), the value of CEH based on the CME method, plus the value of surplus net assets, is $3,093,816 of which the minority share would be $1,330,341, still below the amount they were paid. [33]

CONCLUSIONS

1. Whilst the minority have made out their complaint of oppressive conduct, they have failed to establish that, had it not occurred, they would have been in a better position than they are now.
2. It follows that the proceedings must be dismissed.
3. I will hear the parties on costs and on any other issues which are required to be resolved, including the correction of any arithmetical errors which I may be revealed to have made.
4. The exhibits are to be returned.

Endnotes

1. Section 234(c).
2. The landlord was Blackwall Property Funds.
3. Injections into the vitreous, which is the jelly-like fluid that fills the eye.
4. Sworn 16 November 2016.
5. Recorded in the financial statements as at 30 June 2014.
6. This is a reference to the majority.
7. This is a reference to the minority.
8. This is a reference to Mr Della Marta.
9. This is a reference to Ms Carruthers.
10. This is an incorrect reference intended to refer to Dr Khannah.
11. There is evidence consistent with, but not sufficient to establish, payment of an additional $16,000 on this date.
12. Down from $5,489,418 for 2013.
13. Down from $3,743,603 for 2013.
14. Compared with an operating profit for 2013 of $1,745,815.
15. Down from $1,650,145 for 2013.
16. 11 September 2014.
17. Stock is defined in the Share Sale Agreement to 'mean the Raw Materials, work-in progress and finished stock used or to be used or sold in connection with or as part of the Business whether located on the Premises or elsewhere.'
18. Clause 3.9.
19. The assumed revenue from Dr Burt ($12,516 in all scenarios). This has no effect on the calculations because Dr Burt's revenue is already included in the actual annualised operating EBIT.
20. The assumed revenue from Dr Tsirbas ($nil in all scenarios). This has no effect on the calculations because Dr Tsirbas' revenue (at $nil) is already included in the actual annualised operating EBIT.
21. Deducts the revenue from the associated doctors which is included in the actual EBIT ($44,381 in all scenarios).
22. Adds back the "plastics" revenue from Dr Okera which is included in the actual EBIT ($43,085 in all scenarios).
23. Amended EBIT including all hypothetical increases in EBIT arising from additional surgeries undertaken by Dr Frumar and the loss of revenue from associated doctors.
24. The EBIT multiple to an implied capitalisation rate (25% for all scenarios).
25. Two years for the valuation date of 1 March 2014.
26. Adjusted to reflect that the earnings being capitalised are for a limited period rather than in perpetuity.
27. The business value of the operations for the period until Dr Frumar's death.
28. The value of the business operations (adopting the CME method) for the period until Dr Frumar's death after taking into account surplus net assets.
29. Rent for the remaining lease term.
30. Reflects the possibility that the lessor would be able to mitigate its loss by, for example, renting the premises to an alternative lessee. Mr Halligan and Dr Ferrier were unable to determine the amount of any such mitigation, and it is shown as an unknown amount.
31. Present value factor necessary to express the other net assets as at the date of valuation.
32. As derived from NRA method applied below.
33. Maintainable EBIT $590,729 x 4 = $2,362,916 + surplus net assets $730,900 = $3,093,816 x 43%. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 July 2018