Ehsman v Nutectime International Pty Ltd

Corporations Act 2001 (Cth) LEGISLATION CITED : Fair Trading Act 1987 Limitation Act 1969

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 257 ALR 610 Re Enterprise Gold Mines NL (1991) 3 ACSR 531 CASES CITED : Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 Barnes v Addy (1874) LR 9 Ch App 244 Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22; (2006-2007) 230 CLR 89 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1995-1997) 188 CLR 241 Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515

Patricia Mary Ehsman (Plaintiff) Nutectime International Pty Ltd (First Defendant) PARTIES : David Neilan Brady (Second Defendant) Francis Joseph Frasca (Third Defendant) David Bruce Paix (Fourth Defendant) Timental Pty Limited (Fifth Defendant)

COUNSEL : R Harper SC and S Docker (Plaintiff) F Corsaro SC and B Bradley (1st, 2nd and 4th Defendants)

SOLICITORS : McDonald Johnson Lawyers (Plaintiff) Mason Lawyers (1st, 2nd and 4th Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5189/05 PATRICIA MARY EHSMAN v NUTECTIME INTERNATIONAL PTY LTD & ORS (NO 2) JUDGMENT

The initial plans 1 The plaintiff, Patricia Mary Ehsman, invented a wristwatch with its face split in two. She held patents registered in Australia and in the United States of America for her split-faced watch display. 2 Mr and Mrs Ehsman met the second defendant, David Neilan Brady, and they agreed to work together to exploit the invention. Mr Brady travelled to Europe to find persons interested in the design. A Swiss company, Conseilray SA, agreed to attempt the development of the watch. 3 Mr Brady said that in late March 1998 he telephoned Mrs Ehsman from Switzerland and informed her that Conseilray wanted a development agreement signed with a 60% advance payment of CHF540,000. He said that Mrs Ehsman told him to go ahead and she and Mr Ehsman would contribute to the venture with him on a 50/50 basis. Mrs Ehsman had no recollection of the conversation. 4 On 17 April 1998, Conseilray entered into an agreement to provide development services including the construction of five working prototypes of the split-faced watch design for a fee of CHF900,000 of which it acknowledged receipt of CHF540,000. Introduction of other parties 5 The third defendant, Francis Joseph Frasca, conducted a restaurant. Mr and Mrs Ehsman had dinner at the restaurant with the fourth defendant, David Bruce Paix, his wife, their son and daughter-in-law to discuss possible investment in the project. Following the dinner Mr Frasca sought information about investing in the project. 6 The fifth defendant, Timentel Pty Limited, was incorporated in October 1998. Mr Brady held 50% of the shares and Mr and Mrs Ehsman owned the other 50%. At a later meeting of Timentel, Mr Frasca was allotted 5% of its shares for $75,000 as was Mr and Mrs Paix and the shareholding of Mr Brady and the shareholding of Mr and Mrs Ehsman was reduced to 45%. 7 In November 1998 Mrs Ehsman executed a deed with Timentel under which she granted the company an exclusive royalty free licence to commercialise and exploit her patents. 8 In February 1999, Conseilray lodged two patent applications in France for the split-faced watch. One had a hinge between the two faces: the other did not. Further development occurred with respect to the former alone. 9 At a meeting on 16 March 1999, it was noted that the $150,000 contributed by Mr and Mrs Paix and Mr Frasca had almost gone. It was resolved that Mr Brady continue his practice of paying invoices and seeking reimbursement from the shareholders. It was resolved that all shareholders must guarantee payment of their respective payment amounts as and when bills occurred. It was noted that Mr and Mrs Ehsman were having difficulty in raising their share and it was proposed that this matter be considered at a subsequent meeting. 10 That meeting was held on 28 March 1999 when it was resolved that all funding requirements be paid by each shareholder group at 25% as a means of assisting Mr and Mrs Ehsman through their tight financial situation. It was resolved that all moneys paid previously and thereafter would be treated as shareholder loans ranking preferentially in front of any distribution of commissions or dividends. 11 In April 2000 at the Basel Trade Fair in Switzerland, the prototype broke. Mr Brady received favourable market research, however, in December 2000 and on 20 February 2001 it was resolved to extend the patent beyond France to incorporate the European block including Great Britain and Ireland. It was noted that the continued development of the split-faced watch would be expensive. It was also noted that the finances of Mr and Mrs Ehsman had improved and contributions to expenses should revert to the shareholding proportions. 12 On 18 October 2001 Claude Ray advised Mr Brady that Conseilray and UF Microtechnique SA had been sold and he had stood down as chairman of Conseilray. He had become chairman of another company Technotime SA. 13 Mr Brady responded to Mr Ray on the letterhead of a company DNB Global Corporation. It was a company incorporated in the Philippines. Mr Brady was one of five of its directors. Renaissance Management Pty Limited had an interest in DNB. Mr Brady owned shares in Renaissance.

The breakdown in relationships 14 Mr Brady said that DNB paid Timentel's expenses on evidence of the expense, usually an invoice from the relevant provider of goods or services, and issued an invoice to Timentel for reimbursement. 15 It was about this time that relationship between Mr and Mrs Ehsman and Mr Brady began to break down. 16 Mr Ehsman ceased to be a director in 2002. In March 2002 Mr Brady commenced negotiations with Manuel Spöde, project manager of Technotime. 17 On 9 June 2002, Mrs Ehsman was removed as secretary of Timentel over her opposition. Mr Paix was appointed in her place. 18 On 30 June 2002, Mr Brady tabled his costs for his trip to Switzerland. Mr Ehsman asked to look at receipts. Mr Paix said Mr Brady was upset at this. Mr Frasca tabled a motion to increase his shareholding and that of Mr and Mrs Paix to 15%. The meeting was adjourned. 19 At the adjourned meeting on 4 July 2002 it was resolved to pay Mr Brady's expenses and to increase the 5% shareholders to 15% with the reduction of the shareholding of Mr and Mrs Ehsman and Mr Brady to 35%. 20 In July 2002, the shareholders were asked to provide a figure for their contributions to the expenses of Timentel in order that they be recorded as loans to the company. Mr and Mrs Ehsman provided a list totalling in excess of $511,500 but that figure was reduced to $312,000 to exclude payments made before the incorporation of Timentel. 21 About 20 July 2002 a draft shareholders' agreement was prepared but Mrs Ehsman refused to sign it. 22 On 20 July 2002, Mr Brady wrote to Mr and Mrs Ehsman confirming that he had received instructions to dispose of the shares of Mr and Mrs Paix and Mr Frasca and he had decided to join them. The shares were not sold. 23 After receipt of this letter, Mrs Ehsman went to Switzerland in July 2002 and met briefly with Mr Spöde at Technotime, notwithstanding that the company had resolved that Mr Brady was to be the only point of contact with that company. Mrs Ehsman said she had doubts about everything going on in Timentel and wanted to confirm that there was a prototype. Mr Spöde showed her one. 24 On 29 July 2002, Mr Brady wrote to Mr and Mrs Ehsman seeking their contribution of $3,818.10 to a payment to the patent attorneys, Gresset Laesser, and a payment to Rankin Nathan. An invoice on the letterhead of DNB for $5,626.12 as payment to Gresset Laesser was enclosed, but no invoice to Timentel or to DNB from Gresset Laesser was enclosed. 25 On 1 August 2002, Mr Ehsman attended a meeting of directors and shareholders of Timentel. Mrs Ehsman did not. A letter from their solicitors seeking information with respect to certain happenings was tabled. The chairman tabled a letter in response seeking clarification of an assertion that Mr Ehsman did not own shares in Timentel jointly with Mrs Ehsman. The Chairman stated he could not respond on behalf of the company as Mr Ehsman would have no rights and the solicitors could not claim to represent his interests in the company. Mr Ehsman left the meeting. 26 On 29 January 2003, Mr Ehsman moved that he be given exclusive control of the watch for 12 months to try to sell it overseas. There was no seconder of the motion. A motion to wind up the company was not put to a vote. The meeting was adjourned. At the adjourned meeting on 31 January 2003 it was resolved that a statutory notice of demand for repayment of shareholder loan accounts be implemented forthwith. 27 On 11 February 2003 formal notices of demand by Mr and Mrs Paix, Mr Frasca and Mr Brady were served. 28 The financial accounts of Timentel for the year ended 30 June 2002 were signed on 18 February 2003. They showed shareholder loan accounts of $1,604,911 of which the loan account of Mr and Mrs Ehsman was recorded at $312,349. 29 Requests had been made in writing to Mr and Mrs Ehsman to pay accounts. On 15 June 2003, Mrs Ehsman sighted and signed invoices from Timentel's solicitors, ASIC and Micheli & Cie of Switzerland. The minutes record that Mrs Ehsman had been waiting for clarification as Mr Micheli was on leave. 30 On 3 August 2004, an estimate of CHF285,000 to bring the watch to a shock resistant and for guarantee stage, essential to commercialisation, was discussed. On 4 August 2004 it was agreed that Timentel should proceed to overhaul the watch. 31 An invoice from Technotime to DNB of 6 August 2004 for toolings participation for the split-faced watch together with a DNB invoice in like amount to Timentel were in evidence. 32 On 24 August 2004, Mr Brady announced that additional cost estimates had been received that increased the contribution of Mr Brady and Mr and Mrs Ehsman from $75,000 to $97,000. From that date Mr and Mrs Ehsman made no further contribution. 33 Thereafter letters passed between the solicitors for Mr and Mrs Ehsman and the solicitors for Timentel dealing with requests to sight company records including invoices from service providers and minutes of meetings. 34 On 29 November 2004 at a meeting attended by Mrs Ehsman, a resolution was passed that having regard to the inability of Mr and Mrs Ehsman to agree on the further development of the company's intellectual property and Mr and Mrs Ehsman's refusal to contribute further necessary working capital an impasse had been reached that could best be resolved by the company selling its assets, paying its creditors and distributing the remaining funds among shareholders. Mrs Ehsman voted against the resolution, but it was passed. 35 At about this time Mr Brady had prepared a position paper. In one part of it he identified a number of outstanding tasks with an estimated cost of completing them at CHF600,000. 36 On 7 December 2004 Mrs Ehsman and her solicitor attended a meeting. The solicitor noted that source invoices requested by Mr and Mrs Ehsman had not been provided. Mr Brady stated that there was clear contract between Timentel and DNB and there was no requirement under Timentel's constitution, nor under the Corporations Act 2001 (Cth), nor in trade or commerce for source invoices to be provided. Mr Brady said he found the claims of Mr and Mrs Ehsman and their solicitors to be totally fruitless and vexatious. The motion was passed over the objection of Mrs Ehsman that the company instruct Micheli & Cie to proceed with invalidation action against Mrs Ehsman's patent in Australia and the US. 37 Mrs Ehsman did not attend a meeting of directors of Timentel on 12 January 2005. It was resolved that PricewaterhouseCoopers be instructed to conduct a valuation of the company's assets and, subject to the board being satisfied with the valuation, the company's assets would be offered for sale and that might include a first offer to company members provided that the assets not be sold for less than the valuation. 38 On 28 January 2005, the financial statements of Timentel for the year ended 30 June 2003 were signed. They recorded all but $71,748 of the loan accounts of Mr Brady, Mr and Mrs Paix and Mr Frasca as current liabilities totalling $1,300,927. The $71,748 was recorded as non-current liabilities as was the entirety of the loan of Mr and Mrs Ehsman of $330,494. 39 Mrs Ehsman did not attend a meeting of directors on 21 February 2005. It was resolved not to proceed with the PricewaterhouseCoopers valuation due to cost but to engage someone from Switzerland. On 28 February 2005, Mrs Ehsman not attending, the directors resolved to appoint Les Artesans Horlogers to value the assets of Timentel. The secured loans 40 On 29 April 2005 a meeting of the board of directors of Timentel, that Mrs Ehsman did not attend, was advised by Mr Brady that DNB was no longer prepared to carry debts on behalf of Timentel. It was resolved that the chairman and the secretary seek to borrow $120,000 needed to cover payments for patents and outstanding amounts due to Williamson Chaseling, the company's accountants, and Sparke Helmore, the company's solicitors, offering a first registered charge over the company's assets. 41 On 29 April 2005 Les Artesans Horlogers issued a technical and commercial analysis report valuing the split-faced watch at CHF220,000 stating that the estimate did not consider the value of any patents and the tooling that had currently been constructed for production. 42 A copy of the report was sent to Mr and Mrs Ehsman who were informed that Mr Brady, Mr Paix and Mr Frasca were prepared to lend the company $200,000 on condition that it was secured by a fixed and floating charge. 43 On 6 May 2005, DNB sought $216,746.15 from Timentel asserting outstanding contributions from Mr and Mrs Ehsman of $86,507.69 and amounts owed with respect to European Block patents of $130,238.46. 44 On 9 May 2005, Mr and Mrs Ehsman's solicitors informed the company's solicitors that the Mr and Mrs Ehsman might also be prepared to lend money on a secured basis depending on the proposed terms of the loan. 45 On 9 May 2005, at a directors' meeting that Mrs Ehsman did not attend, it was resolved to execute a loan facility agreement and a deed of fixed and floating charge and the documents were executed at the meeting. 46 Under the loan facility agreement Mr Brady, Mr Frasca and Mr Paix granted Timentel the right, at any time, to request them to lend money, the facility being available for drawdown so long as the loan amount outstanding did not exceed a facility limit of $246,000. 47 The loan amount outstanding was defined to mean the aggregate of the initial loan, all loans made by the lenders to the borrower, all capitalised and accrued interest and any other amounts payable by the borrower to the lenders under the agreement. The initial loan was defined as follows: " Initial Loan means the amount specified in Item 4 of Schedule 1, being the amount (including interest) owed by the Borrower to the Lenders as at the day before the Commencement Date." 48 Item 4 specified $216,746.15 in payment of outstanding contributions to 18 March 2005 of Ehsman moneys not paid of $86,507.69 and European Block patents of $130,238.46, that is, the amount claimed from Timentel by DNB on 6 May 2005. 49 There was no evidence of payment of this amount on 8 May 2005 or at all. There was no evidence that Mr Brady, Mr Frasca and Mr Paix paid funds to Timentel and Timentel discharged its indebtedness to DNB. There was no evidence that their loan accounts increased by $216,746.15. On the contrary, the loan account balances of Mr Frasca and Mr and Mrs Paix remained the same in the financial accounts of Timentel for the years ended 30 June 2004 and 30 June 2005. 50 Nor was there any evidence of a drawdown request by Timentel nor the payment of any money by Mr Brady, Mr Frasca or Mr Paix under the loan facility agreement. That supports the plain meaning of the definition of initial loan as moneys already advanced to Timentel when the loan facility agreement was executed. 51 The loan facility agreement provided that Timentel give a fixed and floating charge over all its assets and undertaking in favour of Mr Brady, Mr Frasca and Mr Paix and a deed of fixed and floating charge in their favour was executed. 52 It was submitted that Mrs Ehsman had suggested that Mr Brady continue to fund the operations of Timentel on a secured basis and the loan facility agreement gave effect to that proposal. An analysis of invoices met by loan funds was attached to submissions on behalf of Nutectime International Pty Limited, the first defendant, Mr Brady and Mr Paix. There was no mention of the DNB invoice of 6 May 2005. The analysis served to highlight the fact that funds lent preceded the execution of the loan facility agreement as all the identified invoices preceded 9 May 2005. 53 It was submitted that there is no requirement that real money be lent or transferred to give rise to a loan. Reference was made to Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at 486. But that case does not bear upon the issue that securing past debts of only some creditors is discriminatory against the other creditors. 54 The loan accounts of Mr Brady, Mr Frasca and Mr and Mrs Paix were in excess of $216,746.15 at 30 June 2004 and there was no evidence of any repayment before 9 May 2005. If that amount was not advanced to Timentel on 8 May 2005, there were still amounts that answered the definition of initial loan in the loan facility agreement. If the loan facility agreement and the deed of fixed and floating charge were otherwise effective, they had the effect of preferring $216,746.15 of the past loans of Mr Brady, Mr Frasca and Mr and Mrs Paix to the loans of Mr and Mrs Ehsman and thereby to discriminate against them. Instead of all shareholder loans being unsecured, the loans of Mr and Mrs Ehsman remained unsecured but portion of the existing loans of Mr Brady, Mr Frasca and Mr and Mrs Paix became secured. 55 The loan facility agreement provided for the payment of interest at 17% per annum compounding monthly. That constituted a further form of discrimination against Mr and Mrs Ehsman as their shareholder loan account did not bear interest. 56 Any loan was to be repaid by the termination date, which was 60 days after the commencement date. In the absence of any additional moneys flowing to Timentel under the loan facility agreement, Mr Brady, Mr Frasca and Mr Paix must have realised that there was no capacity in Timentel to pay the loan amount outstanding. 57 The effect of a failure to repay $216,746.15 was to enable Mr Brady, Mr Frasca and Mr Paix to exercise their charge in preference to the discharge of Mr and Mrs Ehsman's loans and in preference to the discharge of the debts of any other creditors. 58 Mr Brady said in cross-examination that the decision to obtain money on the basis of security was made for the purpose of giving him, Mr Frasca and Mr Paix a priority or advantage over Mrs Ehsman. 59 The 60 period under the loan facility agreement expired on 9 July 2005. On 11 July 2005 Mr Brady, Mr Frasca and Mr Paix demanded repayment of the loan. 60 On 27 July 2005, an offer was made to Mr and Mrs Ehsman's solicitors to purchase their shares for $10,000 with a release of all liabilities owed to DNB; the determination of the amount owed by Timentel to Mr and Mrs Ehsman under their shareholder loan accounts; that amount to be paid by an annual payment of 10% of its future profits after tax; and that, on settlement, Mr and Mrs Ehsman were to pay in excess $6,300 for outstanding legal fees together with undetermined amounts for work in progress and for attending to the settlement of the matter. The offer was rejected. The sale of Timentel's assets 61 An alternative offer was put to Mr and Mrs Ehsman that Mr Brady, Mr Frasca and Mr Paix would make a formal offer to Timentel to purchase its intellectual property assets and all other assets for $268,000 which, if accepted, would mean that on settlement Timentel would be in funds. That offer was rejected. 62 Mr and Mrs Ehsman did not react to a suggestion that if they believed the valuation of Timentel's assets was not fair or reasonable they should submit evidence of an alternative or a higher value. Nor did they react to the suggestion that they might make a written counter-offer to purchase the assets. 63 On 3 August 2005, Mr and Mrs Ehsman's solicitors reiterated concerns about access to information, especially financial information. 64 On 8 August 2005, at a board meeting that Mrs Ehsman did not attend, Mr Brady, Mr Frasca and Mr Paix resolved that Timentel should accept their offer to purchase its assets for $268,000 and the company's solicitors were instructed to draw up an asset sale agreement. 65 On 31 August 2005, Nutectime was incorporated. 60 shares were allotted to Mr Brady, 20 shares to Mr Frasca and 20 shares to Mr and Mrs Paix. 66 On 2 September 2005, an asset sale agreement and a deed of assignment of intellectual property rights from Timental to Nutectime were executed and settled on the same day. The purchase price for the assets of Timentel was increased to $277,000 an amount sufficient to discharge the $216,746.15 plus interest owed to Mr Brady, Mr Frasca and Mr Paix as secured creditors and to pay the account of the company's solicitors. 67 The purchase price under the deed of assignment of intellectual property rights was the purchase price under the asset sale agreement. 68 No moneys were actually paid at settlement. Mr Frasca attended with a bank cheque for $52,187.55 made out to him. Mr Brady attended with a bank cheque for $208,750.08 made out to him. They totalled $260,937.63 and were used, presumably in a round robin, supposedly to discharge portion of Timentel's liabilities to them and to Mr Paix. 69 If effective, the effect of this transaction was to prefer the position of Mr Brady, Mr Frasca and Mr Paix to the position of Mr and Mrs Ehsman. Portion of the shareholder loan accounts of all but Mr and Mrs Ehsman were supposedly paid out. Timentel remained liable to Mr and Mrs Ehsman for their shareholder loan account, which stood at $348,340 in the financial accounts of Timentel as at 30 June 2005. But Timentel was an empty shell, stripped of all its assets and with no prospect of receiving any further funds. Mr Brady accepted that the decision to incorporate a new company to purchase the assets of Timentel was part of achieving priority over Mrs Ehsman. 70 Even if I be wrong in this analysis and Mr Brady, Mr Frasca and Mr Paix lent moneys totalling $216,746.15 to Timentel to enable it to pay out the DNB invoice of 6 May 2005, and even if I be wrong and Nutectime paid the purchase price of $277,000 to Timentel, the transactions remained discriminatory against Mr and Mrs Ehsman. The use of those funds to pay out the secured debts of Mr Brady, Mr Frasca and Mr Paix left Timentel as an empty shell with no capacity to pay out any portion of the shareholder loans of Mr and Mrs Ehsman. Relief from Oppression 71 Mrs Ehsman seeks relief from oppression. She claims that the conduct of the affairs of Timentel are contrary to the interests of the members as a whole or are oppressive to, unfairly prejudicial to, or unfairly discriminatory against, herself as a member. 72 The Corporations Act, s 232 is in the following terms: "The Court may make an order under section 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company." 73 As Young J pointed out in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704, it had been accepted with respect to a forerunner of s 232(e) that one no longer looked at the word "oppressive" in isolation, but rather asked whether objectively, in the eyes of a commercial bystander, there had been unfairness - conduct that was so unfair that reasonable directors who considered the matter would not have thought the decision fair. His Honour referred to Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 467-468, 473. 74 Mrs Ehsman relies upon the conduct of her co-directors in refusing to provide her information, in support of her claim of oppression. It was submitted in her behalf that from at least 9 June 2002 when she was removed as secretary through the consistent denial of information and resolutions by other directors which in effect excluded Mrs Ehsman from the management of the company and its project, its affairs were conducted and resolutions were passed in a manner oppressive or unfairly prejudicial to her and her interests. 75 I do not base my decision upon those matters. There was fault on both sides. Mrs Ehsman saw a prototype of the watch. It was obvious that payments had been made by Timentel or on its behalf to Technotime and before that to Conseilray. Mrs Ehsman did have access to some invoices from Switzerland but she said they were trivial and she had not seen Swiss invoices for large amounts. But source invoices were produced which she initialled and the company solicitors said they had sighted source invoices and offered inspection of them, which she did not take up. 76 The alleged refusal to provide Mrs Ehsman with source invoices was not a proper basis to refuse to make any further contributions to Timentel. 77 But the execution of the loan facility agreement, the deed of fixed and floating charge and, later, the asset sale agreement and the deed of assignment of intellectual property rights were oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mrs Ehsman, if not contrary to the interests of the members of Timentel as a whole. The transactions furthered the interests of some members at the expense of Mr and Mrs Ehsman. Timentel was left with no assets, its obligations to Mr Brady, Mr Frasca and Mr and Mrs Paix had been discharged, leaving Mr and Mrs Ehsman with a debt due to them by the company that had no capacity to pay and would have no capacity to pay in the future. All its assets had been transferred to Nutectime. 78 Mr Brady said they had no choice. But they did. The relationship between Mr and Mrs Ehsman on the one hand and Mr Brady on the other had retrievably broken down. An application to wind up Timentel could have been made, in which event the interests of Mr and Mrs Eshman would have been treated equally with the interests of the other shareholders. 79 It is unnecessary for me to consider whether the price payable under the asset sale agreement was at market value because, whether it was or not, Mr and Mrs Ehsman were discriminated against. 80 Since the valuation specifically excluded the patents, it is doubtful that it represented market value and the addition to the valuation in the purchase price under the asset sale agreement had nothing to do with an attempt to provide for the value of the patents. The increase was so as to pay out portion of the shareholder loan accounts other than those of Mr and Mrs Ehsman by a round robin of cheques. 81 In terms of the Corporations Act, s 232(e), Mrs Ehsman has established a basis for the Court to make an order under s 233. The conduct of Timentel's affairs or its act of entering into the loan facility agreement, the deed of fixed and floating charge and the asset sales agreement and the deed of assignment of intellectual property rights were oppressive to, unfairly prejudicial to, or unfairly discriminatory against, Mrs Ehsman. 82 It is unnecessary for me to consider whether that conduct and those acts were contrary to the interest of the members as a whole in terms of s 232(d) of the Corporations Act. 83 So far as is relevant for present purposes, the Corporations Act, s 233(1) is in the following terms: "(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order: (a) that the company be wound up; (b) … (d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law; (e) … (j) requiring a person to do a specified act." 84 In Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 257 ALR 610 the High Court considered the power of the Court to order the compulsory purchase of a share in a company under the Corporations Act, s 233(1)(d). At 655 [178] the majority said that provision should not be hedged about by implied limitations. A fortiori with respect to s 233(1)(j). A requirement that a person to do a specified act is of the broadest compass and, deliberately so, being the final power in a list of more specific powers. 85 In Campbell the High Court concluded that it was inappropriate for the primary judge to have ordered the first appellant to buy back the one of the two issued shares purchased by the first respondent because, with the concurrence of all parties, a provisional liquidator had been appointed who had sold the whole of the undertaking of the company. It was an empty shell and the oppression had ceased upon the appointment of the provisional liquidator. 86 Timenetal is also an empty shell but that should not prevent an order being made addressing the oppression, the unfair prejudice and the unfair discriminatory conduct by requiring Nutectime to transfer back to Timentel for no consideration the assets acquired by it under the asset sale agreement and the deed of assignment of intellectual property rights and to restore the shareholder loan accounts to the state they were in before DNB issued its 6 May 2005 invoice. That will restore Timentel to its former position. 87 The Court should choose a remedy that is least intrusive: Re Enterprise Gold Mines NL (1991) 3 ACSR 531 at 539. The order for transfer and restoration of the loan account balances is the least intrusive way of remedying the situation. 88 If the transactions had no effect as, for example, if no payment was made to DNB or it was not owed the moneys identified in the 6 May 2005 invoice, the least intrusive remedy would be to restore the position to that which existed before the supposed transactions of secured loan, sale of assets and discharge of the secured loans. 89 Clearly the relationship between the shareholders in Timentel has irretrievably broken down. An order should be made that Timentel be wound up in terms of s 233(1)(a) under the Corporations Act. 90 If it is established that DNB paid the amounts in its 6 May 2005 invoice, that those amounts were owed by Timentel and that Mr Brady, Mr Frasca and Mr Paix lent moneys to Timentel for it to discharge the DNB invoice, the liquidator should adjust the shareholder loan accounts. 91 If it is established that Nutectime paid moneys for the assets of Timentel, the liquidator should admit a proof of debt. 92 There is a conflict in the evidence as to whether Nutectime did anything to enhance the commercialisation of the split-faced watch. Mr Brady said substantial moneys were paid. Mr Paix said that no further contributions had been made with the exception of contributions to patent renewal fees, ASIC fees and other annual recurring expenses. 93 If Nutectime establishes that it paid any amounts or is liable to pay any amounts in furtherance of the commercialisation of the split-faced watch, the liquidator should admit a proof of debt. 94 Mrs Ehsman also brought derivative claims for breach of duty against Nutectime and her co-directors, Mr Brady, Mr Frasca and Mr Paix. 95 Directors owe a duty to act in good faith for the benefit of their company. The power conferred on them cannot be exercised in order to obtain some private advantage. A person occupying a fiduciary position may not use it to gain a profit or advantage for himself without the informed consent of the person to whom the duty is owed. These propositions were deduced by Giles JA in Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 at 589 [161]. 96 In entering into the loan facility agreement and the deed of fixed and floating charge and causing Nutectime to enter into the asset sale agreement and the deed of assignment of intellectual property rights, Mr Brady, Mr Frasca and Mr Paix were in breach of their fiduciary duty to Timentel. They exercised their powers to obtain a private advantage. They acted for their benefit and not that of Timentel. It was left as an empty shell and they gained the advantage of the discharge of their secured debts. 97 Nutectime received the assets of Timentel with knowledge of the breach of duty of its directors Mr Brady, Mr Frasca and Mr Paix. The knowledge of its directors was its knowledge. That brings Nutectime within what is called the first limb of Barnes v Addy (1874) LR 9 Ch App 244 at 251-252 (see Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22; (2006-2007) 230 CLR 89 at 140-141 [111]-[112]). 98 In her derivative claims, Mrs Ehsman sought a declaration that Nutectime holds the assets of Timentel on trust for Timentel. 99 In view of my decision that she in her own right is entitled to an order that Nutectime transfer the assets of Timentel back to it, there is no need for the declaration. 100 Nor is it appropriate to order Mr Brady, Mr Frasca and Mr Paix to pay equitable compensation to Timentel for their breach of duty. 101 The Corporations Act, s 1317H(1) empowers the Court to order a person to compensate a corporation for damage suffered if a person has contravened a civil penalty provision in relation to the corporation and the damage resulted from that contravention. Section 181(1) provides that a director must exercise powers and discharge duties in good faith in the best interests of the corporation and for a proper purpose. Mr Brady, Mr Frasca and Mr Paix contravened that provision and it is a civil penalty provision in terms of s 1317E(1)(a). 102 However, much like the position in Campbell, damage to Timentel will cease with the transfer of assets back to it and an order for equitable compensation is inappropriate. The contractual claims in the cross-claim 103 By cross-claim Mr Brady alleged that by oral agreement in March 1998 Mrs Ehsman agreed to pay 50% of the costs incurred in commercialising the split-faced watch. 104 But that agreement was superseded by a written agreement of 30 April 1998 between Mr Brady incorporating Renaissance and Mrs Ehsman and Ehsman International Pty Ltd whereunder Mrs Ehsman agreed to pay a fee to Mr Brady of CHF360,000. The intention of the parties was to discharge the earlier oral agreement and to replace it with a precise agreement as to the contributions to Conseilray's fees of CHF900,000, the receipt of CHF540,000 of which was acknowledged in the agreement between Conseilray and Mr Brady. 105 The cross-claim alleged a second agreement recorded in the minutes of the meeting of shareholders and directors of Timentel on 16 March 1999. The minutes record Mr Frasca stating that all shareholders must guarantee payment of their respective payment amounts as and when bills occurred and that this would be a guarantee as shareholders of the company and as individuals. Mr Frasca asked for agreement on this from all present. Agreement was given. 106 I do not think that the parties to that arrangement intended to create a binding legal agreement. Mr and Mrs Ehsman had said earlier in the meeting that they were concerned how to pay the money they were committed to. Mr Frasca suggested that they all consider that they were a family and when one member of the family was in trouble all should look at ways to help them. He suggested that Mr and Mrs Ehsman seek advice from their accountants and then all of them consider what contributions they should make if any to help, noting that any assistance rendered by the rest would be repaid preferentially. All agreed to consider this and it was resolved to meet on 28 March 1999 to finalise and resolve strategy. It was after this resolution that the resolution relied upon was carried. 107 On 28 March 1999 there was a further meeting of the directors and shareholders where it was noted that the first item of business of the meeting was to find a mechanism to assist Mr and Mrs Ehsman to fund their share of company expenses. And it was resolved that until further notice all funding requirements would be paid each shareholder group not pro rata to percentage shareholding but at 25% for each shareholder group as a means of assisting Mr and Mrs Ehsman through their tight financial situation. 108 That later event is admissible on the question whether a contract was formed at the earlier meeting (Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at 163-164 [25]) 109 The earlier meeting did not lead to a binding agreement on sharing costs. That was to be determined at the later meeting and at that meeting an arrangement was reached different from the pleaded contract. 110 The contractual claim in the cross-claim fails. The representation claim in the cross-claim 111 Mr Paix alleges that representations were made to him October 1998 that if he invested in Timentel he would at least treble to quadruple his investment in three months. He alleged that Mr and Mrs Ehsman said they would guarantee that any money invested would earn a return which would be equivalent to three and up to four times their investment within three months and grow significantly thereafter. 112 It was alleged that Mr and Mrs Ehsman owed Mr Paix a duty to take reasonable care in making representations and that in reliance upon the representations he invested $75,000 for a 5% shareholding in Timentel. 113 But Mr Paix could have made his own enquiries before investing and, in particular, from Mr Brady. Mr Paix agreed in cross-examination that he was told he should meet Mr Brady and get some more information. Mr Paix understood that everything Mr Ehsman knew about the project came from his partner and he was aware that Mr Brady was probably the key player. He chaired the meeting. He gave all information about the project and the money needed to pay for prototypes. 114 A cause of action for negligent misstatement occasioning economic loss requires the maker of the statement to foresee that the recipient of the misstatement is likely to enter into a transaction in reliance upon the misstatement (Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1995-1997) 188 CLR 241). Mr Ehsman's reference of Mr Paix to Mr Brady denies an inference that he foresaw that Mr Paix would rely upon his statements. Mr Paix to the knowledge of Mr Ehsman had advised his son not to invest in the project because the venture was risky. That is inconsistent with an inference that Mr Ehsman thought that Mr Paix would rely upon his statements in investing in Timentel. 115 Damages for pure economic loss are not recoverable if all that is shown is that the defendant's negligence was a cause of the loss and the loss was reasonably foreseeable. Vulnerability of the plaintiff is an important requirement in such cases (Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at 529-530 [21] - [23]). Mr Paix exhibited no vulnerability. 116 The representation claim in the cross-claim fails.

The misleading conduct case in the cross-claim 117 In the cross-claim, Mr Paix claimed damages for misleading and deceptive conduct under s 68(1) of the Fair Trading Act 1987 with respect to the statements attributed to Mr Ehsman at the dinner. 118 Mr Ehsman probably did make the statements attributed to him. Mr Ehsman was described as being rough around the edges and he and Mr Paix were mates. The statements were made over dinner when details of the development of the split-faced watch were not discussed. The discussion was at a general level and Mr Ehsman lacked first-hand knowledge of the project. 119 The evidence of five witnesses who spoke about the conversation that night varied. But the majority said that an investment would return a number of times the money invested in three months. 120 The statements were exaggerated and in the nature of puffery. They were not meant to be taken at face value. Mr Paix was advised to speak with Mr Brady before he made any investment in the project. Mr Ehsman was merely speculating. 121 Mr Paix did not speak with Mr Brady. Nor did he establish that he would not have invested $75,000 in the project if Mr Ehsman had not made the statements. 122 Mr Paix said he purchased the shares not only because of the promise of a return in three months, but also because he was very good friends with Mr Ehsman and wanted to help him out. Mr Paix gave no evidence about what he would have done if one of those factors was not present. 123 In view of these findings it is unnecessary for me to decide whether this cause of action is time barred under Limitation Act, s 14(1)(b). 124 The claim in the cross-claim under the Fair Trading Act, s 68(1) fails. Proposed orders 125 I will dismiss the cross-claim with costs. I will hear the parties on the appropriate orders to be made under the further amended statement of claim. I direct the parties to bring in short minutes of order reflecting these reasons.

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