Foody v Horewood [2003] VSC 347

5. During 1990 the relationship between Foody and Horewood deteriorated. On 8 October 1990 the board of directors resolved to rescind its earlier resolution on 7 September 1990 appointing Foody as a director, and on 23 October 1990 Foody received written notice of termination of his employment. Irrespective of whether there was good cause for dealing with Foody in this way, very unwisely his employment was terminated without an agreement for the repayment of the $90,000 (whether with interest or some other appropriate allowance) or the purchase of his shares. And still no agreement has been reached. The result is that Horewood (as the effective owner of Musashi) has retained the benefit of Foody's borrowed money. But that is not all. Foody has never received a dividend in respect of his shares, or any other sum or benefit in respect of the $90,000 or the shares. Regrettably, but perhaps not surprisingly, the intervening years have been marked by considerable vexation between Foody on the one hand and Horewood and Musashi on the other hand.

8. In the end litigation was inevitable and necessary as a means of resolving the differences and disputes between the parties. On 9 May 1997 Foody filed an application in the Federal Court of Australia. Initially, the application had the appearance of being a derivative claim on behalf of Musashi. It was soon clarified by amendments made pursuant to an order of Finkelstein J as being, or as also being, a claim by Foody as a minority shareholder under the oppression provisions of the Corporations Law ("the Law").[1] The defendants were Horewood, his father Edward Frederick Hore and Musashi.

11. The case was to be heard in the Federal Court on 17 June 1999, but before then was adjourned until midday on 18 June 1999. The decision of the High Court in Re Wakim,[2] delivered on 17 June 1999, brought an end to the case in the Federal Court.

14. Pursuant to the procedure adopted by this Court for such cases,[3] on 15 October 1999 Foody commenced a fresh proceeding in this Court by filing a notice of motion which set out the relief sought. The defendants remained Horewood, Hore and Musashi. With the exception of some additional orders for costs and for protection from GST, the relief sought was identical to that in the amended application in the Federal Court. In accordance with the approach taken in such matters, at the first directions hearing on 12 November 1999, Gillard J ordered that copies of the documents filed in the Federal Court be filed in the proceeding and stand as documents filed in the proceeding as at the date of their filing. Gillard J also gave directions for further discovery, and ordered Foody to file a list of alleged breaches of s 246AA of the Law.

17. After further interlocutory work and the provision of further particulars of Foody's claim, the case was fixed for trial in March 2002. In February 2002 I gave leave to Foody to add to his claim a derivative claim by Musashi, Foody and his advisers having previously overlooked the need for that leave. There are thus two plaintiffs, Foody and Musashi. To clarify their respective claims I required an amended statement of claim, which was duly filed and pleaded to.

21. Musashi was registered in Victoria on 2 July 1987. It appears that the founding shareholders and directors were Horewood and Sean Goss together with one G. Probert. Probert's shares were held by P.G.R. Enterprises Pty Ltd ("P.G.R"). There were 18 issued $1 shares held by the shareholders as to six shares each. The shares held by Horewood and Goss were fully paid. Those held by P.G.R. were only partly paid. The business of the company was to be, and is, that of a distributor of health food products in Australia and overseas.

24. Probert left the company not having paid the balance of the par value of the P.G.R. shares. In mid 1988 Probert was repaid his deposit, Horewood and Goss took over the P.G.R. shares and P.G.R.'s liability to Musashi, and Probert left the company. To facilitate the purchase it was resolved at an extraordinary general meeting of members of the company on 15 July 1988, that Musashi lend $100,000 to each of Horewood and Goss, and that interest be payable on the loan annually in arrears at a rate to be determined by the directors from time to time. The result of this transaction was that Horewood and Goss held nine shares each, six being fully paid and three being partly paid.

27. In 1989, difficulties having arisen between Horewood and Goss, Horewood agreed to buy Goss's 50% shareholding for $450,000, payable as to $200,000 by the end of February 1990 and the balance of $250,000 by the end of September 1990. The terms of the transaction are set out in a memorandum of understanding prepared, it seems, on 8 January 1990. Among the terms were the following: the sale was conditional on Horewood obtaining finance for the payment; while title to the shares was not to pass until payment in full of the purchase price, Goss agreed to assign voting rights to the shares to Horewood from the date of execution of the formal agreement relating to the shares, such assignment to be unconditional and only for the period up to the date of full payment of the purchase price or such time that Horewood advised Goss that he was unable to complete the sale; Goss would resign as an employee of Musashi on payment of the first instalment of $200,000; and Horewood undertook that until the final payment of the purchase price and without the consent of Goss no new share capital would be issued, no dividend would be declared, no additional directors would be appointed, and the business affairs of Musashi would be conducted with reasonable care and diligence. As to the remaining provisions, it is sufficient to note that Horewood agreed that, on completion of the sale, he would procure Goss's release from liability to repay any amount owing by him to Musashi. Having agreed to terms of sale, Goss ceased to act as a director and officer of Musashi. There were other provisions designed to protect Goss's position until payment in full. The transaction was settled on 7 February 1990. The documents executed included the agreement for the sale of the shares, a mortgage of the shares as security for payment of the $250,000, and an instrument of transfer by Goss of his nine shares to Horewood, dated 7 February 1990.

30. The question was, how was Horewood to pay the initial $200,000? The company was in its infancy and Horewood lacked the funds to make the payments. He either had to "attract a new equity shareholder" or he could buy the shares himself, which would require finance.[4]

33. Horewood decided to seek a new shareholder. This explains his approach to Foody. The offer to Foody would produce $90,000. That left a balance of $110,000. The question was, from whom could Horewood source that money? The answer was, his father.

36. Horewood told Foody that he had agreed to pay Goss $450,000 for his shareholding. He also told Foody that the $450,000 was payable by three instalments, namely $110,000 which was paid by Hore for a 5% shareholding, $90,000 in late March 1990 and $250,000 on 1 October 1990. I refer below to the matter of Hore's payment. The $90,000 paid by Foody was used by Horewood to pay the second instalment. Horewood thus overcame his funding shortfall.

39. The provision of $90,000 by Foody was fortuitous for Horewood. It enabled him to continue on the path of acquiring Goss's 50% shareholding and thus to cement his position as controlling owner of the company. The significance of this is not to be overestimated. Moreover, in borrowing and advancing the $90,000 there was, on Foody's part, a significant element of trust in Horewood and his confidence for the future. Horewood did not provide Foody with financial statements of the business whether up to date or as at 30 June 1989. He told Foody, and Foody accepted, that the business was expanding and was highly profitable. There is an issue as to whether he offered Foody full time employment and a position as a director. Foody said that he did. Horewood denied having done so. They also differ on a third issue, namely, whether Horewood said that he wanted Foody to sign a shareholder agreement. I deal with each point in turn.

42. I find that Horewood did offer Foody full time employment. That was understandable. Foody was not providing equity as a passive investor, he was a current employee and was to be a working shareholder. However, the wider context cannot be overlooked. Foody would require a visa to work in Australia, and for that purpose would need a sponsor, which would be Musashi. Such visas operated for a limited time. As I understand it, the visa under which Foody returned to Australia in January 1990 was for a period of six months. In order to renew the visa, in August 1990, in the absence of Horewood, who was overseas, and without Horewood's approval, Foody procured Hore's signature upon a letter to the Department of Immigration whereby Musashi, as sponsor, approved the renewal of Foody's visa for a further six months. It followed that if, for whatever reason, Foody could no longer work in Australia for Musashi, and Musashi had no position for him overseas, his employment would cease subject to whatever other arrangement might be able to be made. However, Musashi was a small company and, as such, there may have been no position for him. Further, Horewood's statement as to Foody's employment could not have been in the nature of a guarantee of permanent employment. If Foody's evidence was intended to go that far, I reject it as wholly implausible. Horewood was in the situation of having parted with two founding shareholder/directors in the space of only a few years and was struggling to establish a new business. It is not likely, in my view, that he would have guaranteed permanency of employment. A factor in this must be that he had known Foody for only a relatively short time and that Foody's abilities remained to be tested. In summary, I find as far as employment was concerned that Foody's continued employment was subject to the directors of Musashi being prepared, from time to time, to sponsor visa renewal and, in a general sense, to all things being equal.

45. The second point is whether Horewood offered Foody a position as a director. In cross-examination Horewood denied that he had promised Foody a directorship. At the time Horewood's view was that a shareholder was entitled to be a director. In addition, Foody was to be employed in the business. I find that he represented to Foody that he would be appointed a director.

48. The third point is whether Horewood said that a shareholder agreement was required. In cross-examination Horewood said that he did. As to when he did so, he said "[p]robably at the same time I was talking to him in regard to the purchase". When he gave this evidence, there was clearly uncertainty in his use of the word "probably". I find that Horewood did not have an accurate memory of stating the requirement prior to payment of the $90,000. I accept Foody's evidence that he was not advised of this requirement prior to that time, and indeed that he was not so advised until much later.

51. There is another point related to the last. I do not accept that prior to payment of the $90,000 Horewood said to Foody that his shares would have to come out of Goss's shares. Regarded overall, Horewood's statements to Foody are to be understood in light of his overriding need for finance and that in Foody he saw his opportunity and drew him in with representations appropriate for the purpose.

54. Foody said in evidence that he was appointed a director at a meeting in April 1990. I do not accept that evidence. It was an unfounded attempt to bolster his case. The appointment is not recorded in minutes of a directors' meeting or otherwise. The appointment was denied by Horewood. Further, Foody's erroneous assertion in this respect is like the false assertion that he was appointed a director at a meeting of directors on 11 July 1990.[5]

(a) The annual return for the year ended 30 June 1990 records Horewood and Hore as the sole directors of Musashi, Hore having been appointed a director and secretary on 8 February 1990. The return also states that there were 18 issued shares the nominal value of which was $1, and that they were held as follows - by Horewood as to 11 fully paid and six partly paid shares, and Hore as to one fully paid share. The partly paid shares had been issued in connection with P.G.R.'s holding, it seems because of Probert's limited financial ability. It is to be noted that on 8 February 1990 the directors (Horewood and Hore) approved the transfer of four shares from Horewood to Hore. The four shares were to come from Horewood's holding. There is a question as to whether or when such a transfer occurred. In cross-examination Horewood agreed that the four shares were transferred to Hore and that Hore owned the shares. Then, in re-examination two days later Horewood said that he believed a transfer of the four shares had not taken place. (b) Minutes of a directors' meeting on 7 September 1990 record the appointment of Foody as a director. (c) Minutes of a directors' meeting on 8 October 1990 record the acceptance of the resignation of Goss as a director. The same minutes record a resolution that Bryan Thomas Woodford and Hore be appointed as directors, and the rescission of the resolution on 7 September 1990 to appoint Foody a director. (d) Woodford was employed by Musashi as general manager from early June 1990[6] to November 1992. It seems that he was a director until 23 December 1991. (e) Matthew Raymond Patrick Stewart was employed by Musashi in financial administration in, it seems, the years 1991 to 1998/1999. It is stated in the annual return for 1994 that Stewart was a director and company secretary from 29 May 1992 until 1 July 1992. He is also noted in minutes of directors' meetings in May and September 1992 as an alternate director. (f) Horewood and Hore have continued as directors and employees of Musashi. (g) Following completion of the purchase of the Goss shares and the splitting of the shares into shares of a par value of 10 cents in 1991, the shareholding in the company was, and remains, as follows: * Horewood - 92 fully paid and 60 partly paid shares. * Hore - 10 fully paid shares. * Foody - 18 fully paid shares.

61. The evidence indicates that Musashi struggled until about 1994, when business improved. For several years following the establishment of the business, including the relatively short period of Foody's employment, the business struggled financially. The economy was in recession and there were business competitors. Musashi's financial position was parlous. In the 1991/1992 period there were daily meetings to decide which creditor to pay. They were early, formative years, and Horewood personally, and the business itself, lacked capital. However, by the time of the trial, and well previously, it was established and profitable. In this respect I note the following evidence of Horewood.

64. In an affidavit sworn on 25 July 1997, only two months after Foody filed his application in the Federal Court, Horewood stated that Musashi employed 41 people and had an annual turnover of approximately $7 million. It sold product to Japan, New Zealand, USA, Germany, England, Argentina, South Africa and Hong Kong worth $1.5 million per year. In March 1997 the company moved from its previous rented premises at 32 Miles Street, Mulgrave (where Foody had worked), to a purpose-built factory with production facilities at 16 Howleys Road, Notting Hill, which Musashi occupied under a 15 year lease commencing in March 1997. Horewood said that Musashi was "in a healthy financial position with products which are being readily accepted in the market place".

67. In a subsequent affidavit, sworn on 23 December 1998, Horewood said that Musashi employed 49 people and had an annual turnover of approximately $12 million. It sold products to the overseas countries referred to above, except for South Africa and Hong Kong, worth $2.5 million per year.

70. When he gave evidence on 7 March 2002 Horewood said that Musashi currently employed approximately 50 people and that the annual turnover was between $12 and $13 million. Approximately $3 million was sold overseas to Japan (the "largest account"), New Zealand, the U.S., Germany ("a little bit"), England ("a little bit"), Argentina ("looking pretty shaky at the moment"), South Africa and Hong Kong. The export markets in Asia were growing, primed by the Beijing Olympics. Horewood's cryptic comments about sales to Germany, England and Argentina were not supported by a considered analysis. If the purpose of the comments was to indicate that Musashi was suffering a significant decline in sales that was relevant to the value of the business, I reject it. The comments could not justify such a conclusion. The objective evidence is that Musashi's business was achieving steadily increasing sales, in Australia and overseas, and was likely to continue to do so.

73. These references reflect the steady increase in the size and turnover of the business which has occurred since approximately 1994, following the early parlous and difficult establishment years.

Facts - an overview of the parties relationship

77. Foody commenced employment as a sales and marketing manager on 31 July 1989. There was an issue as to whether he was employed as a consultant responsible for his own tax or as an employee on a group certificate basis. Foody said that he commenced on the latter basis at a weekly salary of $400 plus the use of a company car. In April 1990, at the request of Horewood and Hore, the company commenced to pay Foody as though he was a consultant, and for that purpose he provided invoices with the name and address of a United States company. As Foody did not have a company he used a fictitious name "FCE - Foody Consulting Ent". Hore told him that he had to proceed in that way if he wanted to be paid. In being remunerated as a consultant, Foody was not singled out, for over the years others were also engaged on a consultancy basis. Doubtless, employees were treated in this way because it was to the financial advantage of Musashi.

80. Foody said in evidence that his position required him to work closely with Horewood and Hore. He said that he worked in a variety of managerial roles with increasing responsibility. There was an issue as to whether Foody's evidence regarding the closeness of the working relationship was exaggerated, but if there was any substance in the criticism (and Horewood's evidence as to it) it was minor and is not of critical importance. Musashi was a small company, and by the nature of the operation, the roles they occupied, and the fact that Foody had to learn the business, it was inevitable that Horewood and Foody were closely involved with one another, and with other employees to the extent circumstances required.

83. In its business Musashi manufactured and distributed a variety of ingestible foods and drinks fortified by the addition of specific amino acid formulations. The products were predominantly sold in health food stores, gymnasiums and fitness clubs. In 1989 Musashi had not yet broken into the mass market to promote sales in supermarkets. The products were sold in Australia and penetration had begun in Asian and European markets.

86. Horewood had the idea of selling products in North America. As referred to below, he gave Foody the task of promoting Musashi's sales in the United States. Foody was thoroughly trained and educated in all aspects of Musashi's products, including their manufacture and marketing. Horewood proposed that one day Foody would become the North American distributor for Musashi's products.

89. Foody returned to the United States in November 1989. On 22 November 1989 Horewood wrote to the Australian Department of Immigration in the United States in support of an application by Foody for a visa to enable him to re-enter Australia for work purposes. The letter referred to Foody as a person who Musashi wished to appoint as an American agent. He was described as having appropriate credentials and contacts in the areas of U.S. sport, manufacturing and distribution. He needed to spend time in the Melbourne office to learn the strategy being used in Musashi's Australian and New Zealand markets.

92. Foody was granted a visa. The visa required him to work for Musashi. He returned to Australia on 19 January 1990. On his arrival at Melbourne Airport a search of his baggage was undertaken by Customs, during which Foody admitted that he was carrying a quantity of cannabis leaf. It was in his luggage. He had not disclosed this on his customs declaration; thus, in that respect, the declaration was false. On being interviewed Foody made full admissions and was taken to the Magistrates' Court at Broadmeadows where he pleaded guilty to one count of importing a prohibited import. He was convicted and discharged on a $500 bond to be of good behaviour for 18 months, with a payment of $200 to the Court Fund and costs of $150. He was allowed six weeks in which to pay. A second charge of possession was withdrawn. While this was happening, Horewood, who had gone to the airport to collect Foody, was cooling his heels unaware of what was going on. Foody did not appear, as he was busy elsewhere. After a time, Horewood left. Later that day Foody arrived at work and spoke to Horewood; he explained his non-appearance in the arrival hall on the basis that he had been detained by Customs because he was found to have a prohibited food with him, and had been searched. He said that the food was salami. That, like the customs declaration, was a deliberate lie. Foody's evidence is that he told Horewood the truth a few days later. Horewood denies that. I accept Horewood's denial as the truth. I deal with the evidence pertaining to this matter further, and make findings concerning it at [58].

95. On returning to work Foody was appointed Musashi's export marketing manager. Horewood said that the appointment was in connection with the United States. That is, Foody was employed to develop the U.S. market. While I accept that Foody's role was more directly concerned with the development of the United States market I also find that Foody's role, and the work that he did, was not as narrowly confined to matters concerning the United States as Horewood's evidence would have it. At the same time, from mid 1990 Horewood was expressing concern to Foody at Foody's involvement in matters other than the U.S. market. On 10 September 1990 Horewood directed that Foody work exclusively in relation to the United States market.

98. In February 1990 Foody accompanied Horewood to Tokyo to represent Musashi at the Japanese Export and Trade Organisations "Sports and Leisure Trade Show". It was on that trip that Horewood raised the matter of Foody buying 10% of the shares in Musashi, and gave him the written option. Foody travelled to the United States from Japan with a view to procuring a loan of the $90,000. Foody raised the money from a relative and, as already noted, exercised the option.

101. Altogether, in the relatively short period of his employment, Foody made a number of interstate and overseas trips for Musashi. He travelled:

(a) To the United States between 26 November 1989 and 17 January 1990;

(b) To Japan and the United States in February and March 1990;

(e) To Spain, England and the United States between 15 July 1990 and 23 August 1990;

110. Before Foody departed overseas in November 1989 Horewood gave him a company credit card to use in place of cash. It was a Visa card. Foody used the card on the above trips. Whilst it is not clear in relation to the Adelaide trip, Foody's evidence is that following the earlier trips he reconciled the credit card expenses with Hore and where an item was personal he reimbursed Musashi accordingly. As to the Adelaide trip, Foody said that the only credit card expense was $200, being the cost of returning to Melbourne with his car by train as requested by Horewood; otherwise he had personally paid $90 for which he was entitled to reimbursement. Foody said in evidence that overall he did not owe Musashi any amount in respect of his use of the credit card. I refer later to a case brought by Musashi against Foody following the termination of his employment to recover amounts allegedly owed on account of his use of the credit card, and to subsequent events concerning and arising out of that case.

113. On the 15 July to 23 August 1990 trip Foody went to the United Kingdom for the purpose of promoting the company's products to an English rugby team. In the United Kingdom he met Laurence Reddy, a distributor for Musashi in the United Kingdom. Horewood was also overseas at this time but travelling separately from Foody. Horewood arrived home on or about 5 September 1990. Prior to that, in late August, Horewood had visited Reddy in the United Kingdom. Reddy complained to him that Foody had asked a lot of questions and been extremely inquisitive and invasive about matters that were not relevant to Foody. This concerned Horewood as he did not want Musashi's United Kingdom distributor to lose interest in the product. Horewood was upset and angry with Foody and telephoned him from overseas. It is Foody's evidence that when he saw Reddy, and for some time before he went on that trip, he was concerned as to impropriety in Musashi's Export Market Development Grant ("EMDG") application for 1989/1990. He sought information from Reddy as to this matter. Foody said that Horewood assured him, when he rang, that he had no need to worry about the application because Reddy had agreed to lend him the money to pay Goss in return for Reddy's appointment as a distributor. Foody said that he understood the effect of the loan as being that there was no longer a need to artificially increase the amount of Musashi's eligible export expenses. Foody said that as a result of information obtained from Robert Dyring the next day, he doubted Horewood's statements to him.

116. Foody prepared a report on his trip. The report was addressed to Horewood and dated 30 August 1990. The report dealt with each country he had visited - Spain, the United Kingdom and the United States. He concluded the report with the following comments:

"I will be working to create the format from which operations in the U.S. can be run in tandem with the Australian and European organizations. Given my uncomfortability with the uniqueness of your management style and viewpoints on business issues I feel our working relationship would be far greater served with my prompt relocation in the U.S. upon achieving F.D.A. approval and working capital reserves. Keep kicking those goals! Respectfully submitted, Andrew Emmett Director."

120. Horewood said that he had had a good working, and at times close friendly relationship with Foody. He further said that Foody's statement as to being uncomfortable with his management style was the first express notice of any discontent on Foody's part. I incline to the view that in these respects Horewood underplayed the situation and I conclude that tensions and differences had been developing in the relationship between Foody and Horewood. It is apparent that the relationship deteriorated significantly from August. In his evidence Woodford referred to a "significantly deteriorated relationship" between Foody and Horewood and, he supposed, between Foody and Hore. This he thought lay at the heart of Foody's employment being terminated.

123. On his return from overseas on or about 5 September 1990 Horewood spoke to Foody. In his affidavit sworn 29 October 1998 Foody said that Horewood accused him of turning Reddy against him, and that they argued after Foody accused him of lying to him about Reddy's loan, and the fact that he was not listed as a director or registered as a shareholder. In his affidavit in response, Horewood said that he raised the following issues and matters:

* His belief that, prior to him leaving in mid July 1990, Foody had spent too much time on domestic issues and not enough time on his main role of promoting Musashi overseas.

* Musashi's Thailand distributor had told Horewood, following a visit by Foody, that he no longer wished to continue with Musashi.

* Reddy had complained vigorously about Foody's invasive and inquisitive questions about Reddy's business.

* Horewood had real concerns as to whether Foody was able to produce a result overseas.

* In the circumstances he was concerned as to Musashi's ongoing involvement and the extension of Foody's visa.

Horewood said that there was no discussion of Foody being a director. He did not deny that the issue of shares was discussed but said that it could not have been finalised pending completion of the Goss transaction. Horewood further pointed to the minutes of the meeting of directors held on 7 September 1990, at which it was resolved that Foody be appointed a director of Musashi.

132. Foody further said in his affidavit sworn 29 October 1998 that "over the next few days" Horewood worked in his office "behind a closed door". Foody said that he observed on Horewood's desk letters from associated offshore companies and sports organisations, and photocopies "in various stages of text removal" and some copies of letters with only the company's logo and the receiver's address and the closing signature. There was also a handwritten list by Horewood outlining in draft form the desired text for some of the letters. In view of Horewood's previously stated intentions regarding the export grant application and Foody's knowledge that Austrade would not require original documents, but copies, Foody "believed that Horewood was creating forged documents to falsely maximise Musashi's eligible export grant expenditure". He said that "[a]t that moment I decided to protect my own and Musashi's interests".

135. In his affidavit in reply Horewood denied that he was creating forged documents or cutting up letters to maximise export grant expenditure or for any other purpose.

138. Foody provided other evidence on this matter of Horewood including ineligible expenditure in EMDG applications. Horewood denied the claim. Foody linked Horewood's actions to his need to raise $250,000 to complete the Goss contract.[7] Horewood agreed that he had trouble raising the money to complete the Goss transaction. Foody went further and claimed, again by reference to alleged discussions with Horewood, that Horewood planned to raise the funds by Musashi sending its profits offshore via invoicing through a network of companies, and Musashi then lending the money to Horewood. The loan (which was made) was in effect tainted by the EMDG claims because they deliberately included ineligible expenditure. Foody added in cross-examination that he was outraged by Horewood's conduct. Foody had invested $90,000 to acquire his shares, and he then found that his partners were moving money off-shore and bringing it back as a means of obtaining funds with which to purchase their shares. This is the substance of Foody's evidence. I summarise it to avoid undue length, although I have regard to all that he and the other witnesses said.

141. Foody said in evidence that on 10 September 1990 Horewood, stating that he needed every dollar to pay Goss, asked Foody to amend the dates from his recent overseas travel itinerary so that the costs could be included as an eligible export expense for the 1989/1990 year rather than the 1990/1991 year. Foody said that he refused and that Horewood became angry, saying that he should keep his mouth shut or words to that effect. Horewood denied these allegations. Horewood also said that Foody's work was to be restricted to overseas matters and that he was to have no further involvement with Australian matters. Horewood did not dispute saying something along these lines. Indeed a note of Horewood's dated 10 September 1990 stated that Foody was to work exclusively in relation to the United States.

144. Foody referred to Musashi's 1989/1990 EMDG application and stated that it wrongly recorded his overseas travel as having taken place between 15 June and 19 July 1990. Horewood said that the application form was substantially, if not completely, completed by Foody in conjunction with Dyring. Horewood denied that he or Hore had altered Foody's travel record. He further said that the application was granted only after an extensive audit by Austrade.

147. Foody asserted that in late September 1990 Horewood used Musashi's expected EMDG cheque as part collateral for a loan from the ANZ bank for $250,000, which was lent by Musashi to Horewood who then paid Goss. Foody said that when he complained to Horewood about this use of company funds, Horewood replied that he could do what he liked as the company was his. In his evidence Horewood said that the loan arrangement was put in place by the company's accountant, John McInnes.

150. Moving to that part of Foody's affidavit headed "Removal As Director", Foody referred to advice from his solicitor that "my formal appointment on 11 July 1990 as a director of Musashi" had not been registered at ASIC. Foody said that his solicitor advised him to convene a meeting of Musashi's directors to voice his objections about Horewood's conduct, Foody being concerned as to his possible criminal liability as a director of Musashi. The first point to note about this is that Foody was not appointed a director on 11 July 1990. That appointment occurred at a meeting on 7 September 1990. In attempting to establish an appointment at the earlier meeting, Foody relied on a set of minutes which contained the first page of the minutes of a meeting held on 11 July 1990, and the second (and third) pages of the meeting held on 7 September on which appeared the resolution to appoint Foody. In other words, Foody put forward, and relied on, a false document. These were not Musashi's minutes. In an affidavit Foody sought to explain this, and his repeated evidence that he had been appointed at the meeting on 11 July, on the basis that the minutes had been discovered by the defendants in this form. In cross-examination he explained that the discovery occurred in the Magistrates' Court case, saying that "these minutes" were provided to him "as discovery documents as the July 11, 1990 minutes." He had not had them until then. So, he said, he had not "patched" the minutes together, as Horewood asserted in an affidavit. Even accepting this evidence of Foody as to the manner of production of the minutes, appropriate regard to discovery and the evidence of the defendants which included the correct minutes, must have made it apparent that Foody was wrong in his assertion of an appointment on 11 July 1990. I find that Foody was aware that he had not been appointed a director on 11 July, but let his assertion run in an attempt to bolster his case of oppression and to better explain his concern as a director about Horewood's alleged misdoings.

153. The second point is that the minutes of the meetings of directors on 11 July and 7 September 1990 do not support Foody's evidence that he outlined what he believed Horewood was doing in relation to the EMDG grant and the misuse of company assets, that he and Horewood argued, and that Woodford left the meeting. Horewood denied that the meeting was called at Foody's request and that there was a dispute or argument.

156. Proceeding on, Foody said that on 2 October 1990 he quarrelled with Horewood about Horewood's management of Musashi and his failure to transfer shares to him. According to Foody, Horewood said that Foody should get used to his management style or get out. Horewood said in evidence that there had not been a quarrel, and that he prepared a memorandum which reflected his concern with Foody. He circulated the memorandum dated 2 October 1990 to Hore, Foody and Woodford. It stated:

"Due to management difficulties and time restraints I will be handing responsibility for Andrew Emmett over to the Board on Friday 5th October, 1990. From that date Andrew shall report solely and wholly to the Board and each of it's members. I shall be preparing a full report to place to the board so that Andrew's activities may be reviewed. This of course may lead to his duties being redefined. Andrew has been requested to prepare a two page report on his U.S.A. Export activities and this will address the issues of: Where are we now? What are our Options? What is the time scale of these options? This move should clarify the U.S.A. situation for not only ourselves but for Andrew as well."

160. In respect of this memorandum Horewood referred, in his evidence, to Foody's memorandum dated 30 August 1990 in which Foody had said that he was uncomfortable with Horewood's management style. Horewood considered it would be better for the board to assess Foody's activities. In fairness to Foody, and as a matter of completeness, it is clear enough on the evidence, and I find, that from time to time Foody raised with Horewood the matter of the issue to him of his shares.

163. Later on 2 October 1990 Horewood sent a memorandum to Hore and Foody on the matter of the delayed issue of shares to them. The memorandum stated:

"At the moment there seems to be some concern about future share issue and me meeting my obligation to you two gentlemen. Rest assured the committed share issues shall be made. However, there are several issues which I must address and unfortunately they are time consuming. So the situation is as follows: a). Sean Goss has lost a document and therefore my full acquisition of his shares has been delayed. b). Once these shares are purchased I have to address a problem we have with unpaid shares. These were created to deal with a difficulty we had with Geoff Probert. It was expedient at the time but now it has some tax implications as well as exposing the future holder of these shares to major expense. c). Once this problem is addressed I have to have my advisors split the shares up so that your respective issues may be carried out. This also has some tax implications especially around paid up capital and the capital gains associated with different shares. This entire area is a minefield and I am stepping through it as carefully as possible and as quickly as possible. The last thing I won't to do is issue shares that may expose either of you tax wise, premium wise or ownership wise. Please bear with me."

167. Horewood gave evidence explaining the matters in the memorandum. Essentially, shares could only be transferred to Hore and Foody when the Goss transaction was completed and, following completion there was a share split to enable the transfer of the appropriate number or percentage of shares. Horewood said that he expected that a shareholder's agreement would need to be signed.

170. Horewood was cross-examined about the document which Goss is stated in the above memorandum to have lost. It is possible, in the scheme of things, that Goss did lose some unidentified document, but considered overall, and at several points, I found Horewood's evidence on this issue unsatisfactory. It was vague, lacked persuasion and was also given in a manner that impressed me as evasive. I do not accept it. It is also to be noted that Horewood settled the Goss purchase on 2 October 1990, the day he sent the memorandum. The finding on the matter of the lost document does not mean that the other points made in the memorandum were without substance. In that respect it is to be noted that on 11 September 1990 Horewood raised with Musashi's accountant, John McInnes, that he needed to allocate "some shares", that he would need the existing 18 shares to be converted to 200, and he requested advice as to what needed to be done. He could then make the share issue. I find that the idea of splitting the shares did not come to Horewood until well after March 1990, and that his awareness of the associated tax implications arose after speaking to McInnes following the September memorandum. Neither these matters nor a requirement of a shareholder agreement had been advised to Foody when he paid his $90,000. This, together with Horewood's delay in giving Foody his shares, or any document indicating his right or title to the shares, understandably aggravated Foody.

173. Foody said that following the memorandum he again insisted on immediately receiving his shareholding whereupon Horewood said he would have to first sign a shareholder's agreement. Foody refused to do so as that requirement had not previously been advised. I accept Foody's evidence in that respect. I also accept his evidence that Horewood did not inform him when he gave the option and when Foody paid the $90,000, that his shares were part of Goss's holding and that he would not receive his shares until the Goss purchase was completed. I find that Horewood put to Foody an unconditional offer of 10% for $90,000. The memorandum dated 2 October 1990 was the first advice of the matters in it.

176. Foody said that on 5 October 1990 he met with Horewood, Hore and Woodford. According to him, they insisted that he "stop making waves" in the office. Foody said that he refused and that Horewood told him he was no longer a director of Musashi. Horewood said that he had no recollection of the meeting and that he would not have used that expression.

179. A meeting of the Board was held on 8 October 1990. Foody was not invited. It was resolved that Foody's appointment as a director be rescinded. It was also resolved that Woodford be appointed a director. The minutes do not state reasons for either resolution. According to Horewood, Foody was removed as a director because of issues such as -

* The difficulties Foody had had with the Thailand distributor.

* Lack of progress in penetrating the U.S.A. market.

* The continued requirement that Musashi support the working visa.

* The amount of money being paid to Foody, compared to others, and the return to Musashi.

189. On 9 October 1990 Foody met with the directors, Horewood, Hore and Woodford. He was given a copy of the minutes of the previous day's meeting. According to Foody, Horewood advised that he had received a telephone call from an official in the Department of Immigration, Local Government and Ethnic Affairs ("DILGEA") informing him that Foody's Australian immigration work visa renewal application had been rejected and that he had seven days within which to leave Australia. In his evidence, Horewood said he believed that he had told Foody at that stage that Musashi would not sponsor an extension of his work visa and that he should contact the Immigration Department. Minutes of the 9 October meeting were prepared which record and refer to the matters discussed. Among other things, they refer to Foody returning to the U.S. on 16 October 1990 to pursue Musashi's operations there. The minutes stated:

"1. AEF was provided with a copy of the minutes of the meeting held on 8th October, 1990. 2. It was confirmed by TFH that AEF will no longer be answerable to himself directly but will respond to the Board and probably BTW on day-to-day basis. TFH also stated that Andrew should return to the U.S.A. on 16th October, 1990 for purposes of pursuing Musashi's operations there. 3. Questions were raised as to the purpose behind these moves, the speed with which they are being executed and the status of AEF's share issue. 4. TFH stated his wish that issues be considered on three planes - AEF as a Shareholder - AEF as an Employee - AEF as a Director TFH guaranteed that the equity issue would be resolved before AEF's departure to the U.S.A. He stated that, because of recent conversations, the Board had considered it advisable for AEF to be a U.S.A. based employee rather than an Australian Based employee. This should be achieved as soon as possible. TFH confirmed that the subject of AEF's Directorship had been discussed with him in private. 5. Some historical matters and AEF's visa status were discussed. 6. AEF confirmed his willingness to return to the U.S.A. and that he would sign a notice of disposal on his vehicle. It was agreed that further meetings could and probably would take place before the 16th October. AEF advised of his intention to seek independent, external advice as to his position and options."

193. After the meeting Foody telephoned DILGEA and queried the status of his visa renewal application.

196. On 12 October 1990 Horewood send a facsimile to DILGEA stating that Musashi no longer wished Foody's stay in Australia to be extended. There were several unresolved issues with Foody which "promise to drag out for some time and threaten to severely strain our relationship", and until they were settled "his time would be best spent back in America".

199. It appears from an affidavit sworn by Horewood in Musashi's bankruptcy application against Foody (to which I refer below), that the "unresolved issues" related to Foody's conviction on 19 January 1990. Horewood stated that while Foody was overseas in July and August 1990 the Federal Police had visited him at Musashi and advised him that Musashi had been under surveillance "because of Foody's activities". Horewood said that he "was then advised by the Federal Police that Foody had been apprehended by them" at the airport on 19 January 1990 and that he had been convicted at the Broadmeadows Court. Horewood said that he took this up with Foody on his return to Australia and that Foody admitted the matter. Confusion and uncertainty was brought to this evidence by other evidence of Horewood that the visit by the Federal Police was later in October/early November 1990. In that respect there is a memorandum from Horewood to an officer in the Department of Immigration dated 19 October 1990 in which he refers to a visit "yesterday" by the Federal Police regarding Foody, who suggested that police records around January/February be checked as it "would appear that a drug conviction has been registered against Mr Foody". Horewood's evidence was not supported by independent evidence of the police. Regarding the evidence overall, however, the probability is that Horewood learned of the conviction in the period prior to termination of Foody's employment. That is consistent with the progressive deterioration in the relationship between Foody and Horewood from August, and Horewood's determination in October to be rid of Foody. There is also a consistency with the placing of a recording device in Foody's office in October 1990 prior to termination of his employment. It is not possible to make a precise finding as to when Horewood was first informed of the conviction, but I accept his evidence that he was visited by the police, that the police, not Foody, first informed him of the conviction, and that Foody admitted it to him later. I find that these events occurred prior to the termination of Foody's employment.

202. Foody said that Horwood gave him a one-way Qantas ticket to the U.S. departing on 16 October 1990. Horewood said he could not recall presenting Foody with a ticket. I accept Foody's evidence. The presentation of a ticket is consistent with the evident desire of Horewood to be rid of Foody from Australia, if not completely from Musashi.

205. Foody did not leave on 16 October. He determined not to leave until he received his 10% shareholding. From later in 1990 Horewood was prepared to repay the $90,000 with interest, but Foody insisted on receiving and retaining the shares. In a letter to Musashi's solicitors dated 30 November 1990 Foody's solicitors, Chambers & Company, described a refund of the $90,000 as a "farcically low price" at which to purchase the beneficial title to the shares.

208. On 23 October 1990 Foody received a letter from Musashi terminating his employment. The letter stated:

"As a result of your failure to perform as befits a Consultant to this Company, and because of certain actions of yours seen to be prejudicial to this Company's interests (eg, denigrating senior staff and family members of the Musashi organisation), you are deemed to have resigned from this Company and are hereby advised that such resignation has been accepted, effective 19th October 1990. On 10th October 1990 you received a cheque for $3000.00 being Consultancy fees until the end of October 1990. Your resignation being effective 19th October 1990, we require the repayment of $840.00. Additionally you are required to immediately return your Mazda RX7 motor vehicle, since this was provided as part of the conditions of your Consultancy. Finally, you are reminded that personal expenses were incurred during your recent overseas trip and that these amounts are required to be reimbursed to the Company."

212. Foody expressed the view in evidence that his employment was terminated because he would not co-operate with certain devious or dishonest business practices and because he refused to return to the U.S. as instructed. He also said in evidence that he was sacked as a director and as an employee because of his gradual discovery of, and objections to, the fraudulent manipulation of records and documents for the purpose of obtaining the Austrade grant. Horewood denied the allegations. I do not doubt, however, that Foody's refusal to leave Australia on 16 October was sufficient to precipitate Horewood to terminate Foody's engagement in this way. I am in no doubt, and I find as a fact, that Horewood had intended to terminate Foody's employment (or engagement as a consultant, whether the position was one of employment or consultancy is, for this purpose, beside the point) after his return to the U.S.

215. I referred earlier to evidence of Horewood as to him being visited by the Federal Police in late October/early November 1990.[8] I find that a factor affecting Horewood's attitude towards Foody was the information provided by the Police.

218. On the matter of Foody's visa, the following occurred. In December 1990 his renewal application was rejected. On review, his application was again rejected. An appeal to the Immigration Review Tribunal was successful in July 1991 and, as a result, he was issued with a temporary residence visa.

221. On the matter of his shareholding in Musashi, and in relation to other matters concerning Musashi, he instructed solicitors to act for him. Initially he instructed Chambers and Company. That firm commenced advising Foody in early September 1990 and acted until December 1990. Subsequently Minter Ellison acted for Foody. The accounts from these firms total $5,725.98 for Chambers and Company, and $4,436.50 for Minter Ellison.

224. On 1 July 1991 Foody executed a share sale agreement with Hore, Horewood and Musashi. The agreement referred, in recitals, to the issued share capital to be divided into 10 cent shares prior to completion with Horewood then holding 170 shares and Hore then holding 10 shares. The agreement provided that Horewood thereby sold, and Foody thereby purchased, 18 fully paid shares numbered 61 to 78 inclusive for $90,000, which was paid on 19 March 1990, the sale and purchase to be completed on signing the agreement. On completion, Horewood shall hand to Foody the share certificates and executed transfers of the shares, the transfers to be then registered. The agreement contained a number of warranties and conditions which it is not necessary to refer to, at least at this stage. I note only that each party agreed to pay his own costs of the agreement and that Foody agreed to pay stamp duty relating to the agreement. I find that inaction and design on Horewood's part caused the delay in completion of the share transfer to Foody. For his part, Foody was entitled to negotiate the terms of the share sale agreement once it was required, and he cannot be criticised in relation to time taken in that process.

227. Pending obtaining his shares, and as a form of security to ensure receiving them, Foody retained the car which had been provided to him by Musashi. He placed it in a car park and did not use it. Musashi reported the non-return of the car to the police who interviewed Foody but took no action. The car was registered in Foody's name but was under finance to Esanda. On completion of the share transaction he advised Esanda of the location of the car and handed the keys to a representative of Esanda at his solicitor's office. A mobile telephone was taken from the car in the car park and the police interviewed Foody in connection with the loss of that telephone but took no action.

230. I now refer to further events, but as briefly as possible.

233. A significant matter is a claim by Musashi that Foody owed the company amounts of a personal nature incurred by him on the company supplied Visa card. In a letter from Musashi's solicitors, Slater & Gordon, dated 29 November 1990, it was stated that Musashi was finalising a claim in excess of $80,000. Then, by letter to Foody dated 7 December 1990, Musashi demanded $14,404.46 and advised that other claims were being formulated. In September 1991 Musashi commenced a proceeding against Foody in the Magistrates' Court to recover that sum as unauthorised expenditure on the credit card. Foody instructed solicitors to defend the claim. During the discovery process it became evident that the claim included amounts which Musashi had claimed in EMDG applications or other items of business expense, and the claim was accordingly reduced to $11,304.82. The case was due for a pre-hearing conference on a date that did not suit Foody as he was to attend his brother's wedding in the U.S. An adjournment was requested but Musashi would only agree on terms that Foody agreed to a default judgment against him if he failed to return from the U.S. for the adjourned pre-hearing conference. This unusual term was agreed to by Foody on the advice of his solicitors, Gaden Ridgeways. The case was adjourned to 1 September 1992 on the agreed basis. I accept Foody's evidence that the underlying premise of his agreement was a belief that he would be able to re-enter Australia without difficulty, and then to put his defence.

236. Foody returned to the U.S. in July 1992 and lodged an application for an Australian visa with DILGEA officials at the Australian Consulate in Chicago. In late August 1992 his application was refused. Foody said that an officer of the Consulate informed him that he was no longer a suitable person, the Consulate having been informed that he was stealing money from the company he had worked for. I find that Horewood placed adverse information before DILGEA for the purpose of preventing Foody from obtaining a visa.

239. Foody telephoned his solicitors and requested an adjournment of the Magistrates' Court case until he could obtain a visa. They advised that they could do nothing, and nothing was done. As a result, on 1 September 1992 judgment in default was obtained against Foody in the sum of $11, 304.82 with interest of $1,510.82 and costs of $2,020.70.

242. In November 1993, after what Foody described as a lengthy and expensive investigation and interview process which required him to travel to Washington DC, Foody was granted a permanent residency visa, and returned to Australia. He is now an Australian and U.S. citizen.

245. In late 1993 Foody asked his solicitors to have the order in the Magistrates' Court set aside. He was advised that as the order was made by consent it could not be set aside.

248. On 12 November 1994 Foody was served with a bankruptcy notice issued by Musashi. The notice relied on the judgment debt. This resulted in litigation in the Federal Court in which J M Smith and Emmerton (now Gadens) acted for Foody. Foody made an unsuccessful application to set aside the bankruptcy notice. The application was initially heard by a Registrar who, on 5 December 1994, refused the application. Then, on review of that decision on 17 October 1995, Ryan J dismissed the application with costs in favour of Musashi. The costs were taxed at $7,725.72 on 26 February 1997. Finally, in the Federal Court, Jenkinson J heard Musashi's creditor's petition based on the Magistrates' Court judgment. On 16 May 1996 Jenkinson J dismissed the application with costs. Essentially Jenkinson J concluded, having heard witnesses including Horewood, Foody and Hore, that Foody's account was the more substantially correct and, accordingly, that nothing was owed except perhaps those items of personal expenses contained on cards not received until after Foody had severed his relationship with Musashi. Prior to that time the parties had struck an agreement setting off amounts owed by one to the other. As to the amounts which had arisen since the parties relationship terminated, even if they could be said to be debts, and even if they added to a little more than $1,500, Jenkinson J was satisfied that there was other cause why a sequestration order ought not be made. That is a sufficient reference to the judgment, at least at this point.

251. Undeterred by the decision and findings of Jenkinson J, Musashi sought to press its rights under the Magistrates' Court order. This led to Foody applying to the Magistrates' Court to set aside the order under s 110 of the Magistrates' Court Act 1989. The application was filed on 28 October 1998. Following a contested hearing, on 19 November 1998 a Magistrate, Mr Coburn M, allowed the application and ordered that the order made on 1 September 1992 be set aside and that a defence be filed within 21 days. Musashi appealed from this decision to the Supreme Court. The appeal was heard by Hedigan J on 22 February 1999. In a judgment delivered on 26 February 1999 Hedigan J allowed the appeal on the ground that s 110 did not apply in the circumstances of the case to permit the setting aside of the order. In short, that was because Foody had appeared in the proceeding. Furthermore there was a consent to the order. In view of this conclusion the order of Mr Coburn M was quashed and the order made on 1 September 1992 was restored. In concluding his reasons Hedigan J stated:

"That the plaintiffs are entitled to pursue the debt by lawful means, notwithstanding the dismissal of the bankruptcy petition, cannot be denied, although one can only really express some amazement at that in view of the findings of Jenkinson J, which were hardly flattering of the plaintiff's directors. However, my task is a judicial one, to be exercised in respect of the matters raised by this proceeding. I do not sit to pronounce generally on the past rights or wrongs of these parties, nor even on their other litigation. In my view, the magistrate was in error perceivable on his reasons and in addition on looking at the other material. He seems to have acted on the basis of Jenkinson J's comments, and possibly just the decision itself. Notwithstanding that I have a discretion with respect to orders in the nature of certiorari, it would be an improper exercise of my discretion to refuse to correct a perceived error of law on the ground that my overall impression is that Mr Foody has been something of a victim. One can sympathise with the defendant Mr Foody whose position is that he has always denied the debt, wanted to defend the case, had agreed to go along with an arrangement that led to a consent order to the contrary of his own case, because, according to him, his solicitor told him that he could get it overturned and start again. He successfully opposed the consequent petition for his bankruptcy, the Federal Court concluding on the oral evidence that it heard from the witnesses that there was no debt. The matter did not then die because the plaintiff did not accept those findings and started a fresh pursuit, but subpoenaed instead Foody's friends, all leading him to endeavour, doubtless to his own great inconvenience, to have the matter reactivated, to knock out the order of September 1992. He is perhaps a victim, although I emphasise that his former lawyers have not been heard. I say 'victim' perhaps of poor advice, subject to that caveat, and also perhaps some events beyond his control and of the existence of different jurisdiction - distinct courts in a federation. As I said to the defendant in the course of the hearing, courts strive to make the application of the law and the attainment of a fair and just result coincide. This is not always possible in the administration of the law."

255. Musashi's claim led to other litigation. In 1997 Foody's former solicitors J M Smith and Emmerton sued him to recover unpaid costs of approximately $17,000. Foody filed a cross-claim for damages for negligent performance. The cases were settled on written terms dated 4 May 1999. The essential term of the settlement was that J M Smith and Emmerton pay Foody $30,000 by 30 May 1999 in full settlement of his claims. No amount was payable by Foody who otherwise released J M Smith and Emmerton from all claims. In effect J M Smith and Emmerton gave up their claim. It was specifically provided that Foody be entitled to retain the benefit of the order for costs made against Musashi by Jenkinson J on 16 May 1996.

258. The cases were before the Magistrates' Court for hearing on 5 May 1999 when the settlement was mentioned. Horewood and Hore were present.

261. On 10 May 1999 Musashi applied for a garnishee order in respect of the payment due under the terms of settlement, in satisfaction of the amount due to Musashi under the order of the Magistrates' Court made on 1 September 1992. On 13 May 1999 it was ordered that Gadens Lawyers (as J M Smith & Emmerton had become) pay Musashi $29,676.37 being the amount due under the judgment and that a further sum of $76 costs of the application be added to the judgment debt. That was a total of $29,752.37 and that amount was duly paid by Gadens Lawyers to Musashi pursuant to the Magistrates' Court order. That left a balance of $247.63 which Gadens Lawyers paid to Foody. It is to be noted that there was also an order that Foody pay Musashi's costs of the application fixed at $1,967.00. In the absence of the calculation of the sum of $29,752.37 I assume that it included the costs of $1,967.00.

264. I refer later to the matter of Foody not receiving notices of meetings and related information to which he was entitled as a member of Musashi.

268. The initial application filed in the Federal Court named the applicant as Foody "derivatively on behalf of Musashi", and Horewood, Hore and Musashi as respondents.

271. It is important to note the relief initially sought as, in part, it indicated that an object of Foody in bringing the litigation was to acquire control of Musashi, and to have Horewood and Hore make good financial loss caused to Musashi by their actions. The relief claimed was:

(a) That Horewood and Hore be restrained from acting as directors of the company. (b) That Horewood, Hore and Stewart be restrained from having any further involvement in the company. (c) That the company be directed to prosecute Horewood and Hore. (d) That Horewood and Hore remit to the company all of their salaries and other compensation received by them "during the period when they breached their duties". (e) That Horewood and Hore pay Musashi the amounts by which it has been, or will be, damaged by reason of their conduct complained of in the accompanying affidavit of Foody. (f) Compensation to Foody for oppression by the directors. (g) The appointment of an interim manager to protect the business and property of the company. (h) An order appointing Foody a director of Musashi for life. (i) An order that the company purchase Horewood and Hore's shares "thereby removing them from any future involvement with the company".

275. Foody also filed a notice of motion for the above orders (a), (b) and (g) pending trial and for an order concerning his costs.

278. The case was managed by Finklestein J who, on 29 July 1997, granted leave to amend the application. An amended application, dated 4 August 1997, was duly filed. The amended application deleted orders (g) and (h) above and added paras (j) to (r) which, in summary, sought the following relief:

(a) Under the oppression provisions, that the company be wound up or, alternatively, that Horewood and Hore purchase Foody's shares. (b) Alternatively, that the company be wound up on the just and equitable ground.

282. Foody provided points of claim dated 8 May 1998. The title to this document named Foody as an applicant personally, which is consistent with the relief sought. The defendants filed points of defence dated 28 May 1998.

285. In the points of claim it was alleged that Musashi was entitled to recover from Horewood and Hore an amount equal to:

(a) the profit made by them wrongfully and in misuse of their duty to Musashi, and (b) the loss or damage suffered by Musashi as a result of their contraventions of duty.

It is not necessary at this point to set out the allegations of wrongful conduct made against Horewood and Hore. It was also alleged that Foody had suffered loss and damage and continued to suffer loss in the value of his shares and as a result of the termination of his position as director and consultant with Musashi (para 41). The points of claim included particulars of his loss and damage as follows. It was stated that the current value of the shares was unable to be determined accurately until accounts had been taken and all transactions falsely entered in Musashi's books had been written back into the accounts. It was further stated that Foody had lost the benefit of his future salary and expenses. The particulars concluded with a statement that further particulars would be provided prior to trial.

290. Foody provided further particulars of his loss and damage by written particulars dated 15 June 1999. They were provided under para 41 of the points of claim. The particulars identified the loss and damage as follows:

(a) Loss of use of the sum of $90,000 between March 1990 and July 1991 (when Foody received certificates for the shares) plus interest at 17%. (b) As a result of the time involved in combating Horewood, Foody had only been able to work part time since 1992 and had had to borrow money to get by - he thus claimed loss of income, expenses, superannuation scheme benefits from permanent employment based on a gross salary in excess of $40,000 per annum, plus the use of a motor car, and any other benefits the Court deemed appropriate. (c) $1,155,246 as loss of income in respect of the years 1990/1991 to 1998/1999 inclusive.

294. The final point to note about the history of the case in the Federal Court is that Finkelstein J made pre-trial rulings on objections to the admissibility of a number of passages in some of Foody's affidavits. In the instances in which Finkelstein J ruled against admissibility, a line was drawn through the relevant passage. Those rulings stood at the trial. I also ruled on objections to admissibility.

297. I referred at [5] to the proceeding commenced in this Court. Pursuant to an order of Gillard J, Foody filed a list of alleged breaches of s 246AA of the Law dated 30 November 2001. The list ran to 10 pages.

300. On 12 December 2001 the defendants requested further particulars of the alleged breaches and these were provided by written particulars dated 8 February 2002. The further particulars ran to 50 pages.

303. On 21 December 2001, with the trial due to commence in March 2002, Foody filed a summons seeking leave pursuant to s 236 of the Corporations Act ("the Act") to bring the proceeding on behalf of Musashi. The requirement for such leave had previously been overlooked. For the purpose of identifying the claims that were thus sought to be brought, I required amended points of claim to be filed which separated the derivative claim and Foody's personal claim. Amended points of claim were filed on 13 February 2002. On 15 February 2002 I granted leave to Foody to bring the claim on behalf of Musashi set out in paras 8 to 12 inclusive of the amended points of claim.

306. Points of defence were filed on 1 March 2003 and points of reply on 4 March 2003.

309. The amended points of claim run to 49 pages. There are many allegations of improper conduct in the management of Musashi. There are manifold allegations of breach of duty (fiduciary and otherwise), contraventions of the law, misuse of funds, conspiracy, and oppression of Foody. The allegations, and consequent areas of inquiry, are numerous and wide. Under their cover the trial was conducted by Foody as something like a roving commission of inquiry to see what could be established by way of loss to Musashi caused by the impugned acts of Horewood and Hore. The exercise was treated as being relevant to the oppression case because, to the extent to which it succeeded, it showed a respect in which Foody had been oppressed.

312. I now summarise the amended points of claim in order to indicate the nature and breadth of the allegations. I do so as briefly as possible, following the structure of the points of claim.

316. The following allegations are made, supported by extensive particulars. The allegations are, in summary:

(i) Inflated Musashi's eligible export expenditure for the 1989/1990 to 1993/1994 and 1989/1990 years in relation to Musashi's EMDG claim.

(ii) Paid inflated consultancy fees to Mark Burnicle in the United States, who then transferred some of the money back to Horewood and Hore as part of a loan, and the monies were then used by Horewood and Hore to reduce their personal debts to Musashi.

(iii) Falsified or forged documents and correspondence relating to Musashi's participation in the EMDG scheme to increase Musashi's grant claims.

(iv) Failed, in contravention of s 251A of the Law and art 4.6.21 of the articles of association, to properly call annual general meetings of the company, and to cause minutes to be prepared:

* which recorded the appointment of officers and the directors present at the meeting;

* of all meetings of Musashi, and of directors, and to enter the minutes in books kept for that purpose.

(v) Failed to keep accounting records as required by s 286, in particular:

* there was a lack of documentation concerning the issuing of credit notes.

* failing to prepare an audited financial report and directors' report for the years 1996/1997 to 1999/2000 inclusive, notwithstanding a direction to do so by Foody pursuant to s 293(1) of the Law.

* delaying the preparation of an audited financial report for the Australian Securities and Investments Commission ("ASIC") for the 1999/2000 year when requested to do so by ASIC pursuant to s 294 of the Law (and s 292 of the Act).

* failing to provide audited financial statements to the ANZ bank for several years resulting in the issue of notices of default.

* failing to provide the New Zealand companies office with required documents in the years 1994/1995 to 1999/2000 in breach of a relevant legislative requirement.

(vi) Failed to apply accounting standards such as that concerning "Related Party Transactions" notwithstanding notices given by Foody under s 283 of the Law and then s 293 of the Act requiring the company to be a reporting entity.

(vii) Endangered the financial position of Musashi, and thereby compromised its growth, by excessive unauthorised drawings from Musashi, and despite advice not to do so.

(i) Failed to declare any interest in a contract or proposed contract with Musashi in breach of s 231(1) of the Law and s 191 of the Act, and art 4.2.7, in particular, but not limited to:

and improperly used their position, or information acquired by virtue of their position, to cause detriment to Musashi in contravention of s 232(5) and (6) of the Law and s 182 of the Act.

(ii) In relation to these matters it is alleged (with supporting particulars) that Horewood and Hore did the following things:

* The acts and matters alleged in para 8(i) - (iii) above.

* Disguised company funds as eligible export grant expenditure and transferred this offshore to companies associated with them from where it was credited back to personal bank accounts in Australia.

* Improperly used company funds for personal use for their personal interests. In particulars, in summary, the personal use complained of is stated to be the acquisition of shares in Musashi by Horewood and Hore, the use of company funds to relieve Goss of a debt, making uncommercial loans, the purchase of vintage U.S. cars, and conducting unreported cash transactions.

* Diverted funds and business opportunities from Musashi to overseas entities in which they held an interest, in direct conflict with their position as directors of Musashi.

(c) In para 10, that Horewood and Hore breached fiduciary duties owed to Musashi to act in good faith, and to exercise their power as directors for a proper purpose. They are bold allegations, and the particulars refer to paras 8 and 9.

(d) In para 11, that in breach of s 246AA of the Law and s 232 of the Act, Horewood and Hore conducted the affairs of Musashi in a manner that was oppressive or unfairly prejudicial to Foody or otherwise contrary to the interests of the members as a whole. The allegation is, by particulars, based on the matters referred to in paras 8, 9 and 10.

(e) In para 12, that Horewood and Hore profited or gained personal advantage, to the detriment of Musashi, in breach of the corporations legislation and fiduciary duties. I set out the particulars to this paragraph at [124].

360. The points of claim then address Foody's personal claim of oppression as a shareholder. The allegations in paras 8, 9 and 10 are relied on, and in para 14 the earlier allegation of oppressive conduct is repeated. The conduct of the affairs of Musashi is alleged to have been oppressive of Foody in the following way:

(b) In bad faith he was slandered in communications to the Australian Immigration Department.

(c) No dividend was paid to him although dividends were paid to other shareholders.

(e) He was prevented from performing his duties as a director.

(f) He was refused access to the business and financial records of Musashi.

(g) In various other respects referred to in particulars, including Musashi pursuing Foody for money he did not owe, pressing the claim notwithstanding the decision of the Federal Court in relation to it, removing from Foody $29,752.37 in an attempt to prevent Foody from continuing the present claim, and accusing Foody of drug offences and of disclosing confidential information.

370. The points of claim conclude with a string of paragraphs many of which duplicate earlier matters. In para 19 it is alleged that Musashi is entitled to recover from Horewood and Hore as a debt due to it:

(b) an amount equal to the loss and damage suffered by Musashi as a result of their contraventions, and

376. Returning to Foody's claim, in para 20 it is alleged that from April 1990 Horewood and Hore conspired to defraud and injure Foody by depriving Musashi of its business, in favour of other entities, thus rendering Foody's shares worthless or of minimal value and depriving him of his livelihood and his just entitlements as a shareholder. The result of all the matters alleged is said in para 22 to be that Foody has suffered loss of the value of his shares, and loss and damage as a result of the termination of his position as a director and consultant with Musashi. This para 22 is, save for one aspect concerning the particulars, in the same terms as para 41 in the former points of claim[9] of which particulars had been provided on 15 June 1999.[10] The difference is that the particulars to the present para 22 omit the statement that "[f]urther particulars will be provided prior to trial". It is also to be noted that the particulars to para 22 do not refer to the particulars of loss and damage delivered under the earlier points of claim. It thus appears that Foody abandoned reliance on those earlier particulars. This means that, as particularised in para 22, Foody's claimed loss is:

(a) loss of the value of his shares, the current value of which is unable to be determined until accounts have been taken and there has been a writeback of transactions falsely entered in Musashi's books, and

(b) loss of the benefit of his future salary and expenses.

In final address, however, Foody sought wider relief than that.[11]

382. The points of defence contain some admissions but otherwise deny or put in issue the allegations in the amended points of claim. In doing so the points of defence include some positive assertions as to the facts. It is best to postpone reference to matters arising from the defence until dealing with the particular matters in issue.

385. Subject to that, the following admissions are made in the points of defence:

(a) That Foody was not given notice of meetings of members of Musashi in 1991, 1992, 1993 and 1995.

(b) That from time to time the defendants excluded Foody from the management and financial affairs of Musashi.

The points of defence further stated that the defendants agree to an order that they purchase Foody's shares at fair market value. The defendants deny that Foody is entitled to any other relief.

391. A reply was filed, dated 4 March 2002. While I have regard to it, it is not necessary at this stage to refer to it.

395. At the outset of the trial I asked Foody's counsel to state the relief sought. I was told that Foody sought the appointment of an independent board of directors. That was on the basis that the directors had been running the company for their private benefit without taking into consideration the views of the oppressed shareholder, Foody. To assess the effect of this conduct on the financial position of Musashi there should be an independent valuation of the company. The valuation should be conducted on the basis of reconstructed accounts. Money removed from the company by Horewood and Hore for their personal benefit was to be written back into the accounts. The same applied to business opportunities of Musashi which Horewood and Hore had turned to their personal benefit. Foody did not intend to call accounting evidence, his approach being that I should appoint "an independent referee" to value the company.

398. It was said that if this relief is not granted, the company should be wound up. When I asked whose interest that would serve, it was conceded, correctly, that it would not serve anyone's interest. That being the case, Foody's counsel said that Foody sought a valuation of the company and the purchase of his shares.

401. A specific aspect of loss, in addition to the $90,000 paid for the shares and the lack of any dividend or interest in relation to that amount, was the amount paid to Musashi under the garnishee order. More precisely, that is the amount of $29,752.37 referred to at [78].

404. Following this explanation, counsel for the defendants stated that the defendants' primary position was that there had been no relevant oppression of Foody and that his case should be dismissed. Nevertheless, it was conceded that there had been failure to give notice of meetings "and that sort of thing". The defendants' position was that an order should be made for the purchase of Foody's shares at fair value. These statements of counsel were consistent with the defence.[12]

407. At the commencement of the second day of the trial counsel for the defendants announced an open offer. The offer was to pay Foody $481,523 which represented the $90,000 plus compound interest, plus the costs of the proceeding in this Court and the proceeding in the Federal Court. The amount would be paid within a reasonable time, and 14 days was stated. After a short adjournment to consider the offer, the hearing resumed. I should perhaps add that on 24 May 1999 the respondents made a with prejudice offer of compromise pursuant to O23 of the Federal Court Rules. The offer was to pay Foody $200,000 for his shares, plus costs. There is other evidence of offers and approaches from one side to the other during the history of the dispute.

410. This having been said in opening, how did the case unfold? In large part, Foody's case was conducted on the basis of raising a number of matters, in great part by reference to discovered documents, and alleging that they showed, or provided a sufficient basis to infer, wrongdoing. Much of what Foody pointed to occurred after he left Musashi and therefore he had no personal knowledge of the matter. Accounting evidence was not called to establish his allegations or aid in their establishment. The approach taken by Foody and his counsel during the trial was to trawl through documents, to raise a raft of matters and allege or suggest wrongdoing concerning them, and on those materials, and in light of all of the evidence, to contend that an order should be made, among other orders, referring the case to an independent accountant to investigate and value the company.

414. With the exception of Stewart, the witnesses had made an affidavit or affidavits or a witness statement, with supplementary oral evidence as necessary. The affidavits and witness statements are included in the court book together with many other documents. The court book was culled of many pages, and a revised index was provided, when it was tendered at the end of the trial.

417. For the plaintiffs only two persons gave evidence, Foody and Stewart. Foody had sworn a number of affidavits in the course of the proceedings; seven went into evidence. Stewart had not sworn an affidavit or provided a witness statement. He has had no connection with Musashi since leaving that employment in 1998/1999.

420. The defendants called the following witnesses:

(a) Horewood and Hore, who continue to be the shareholders and directors, and employees, of Musashi.

(b) Woodford, who was an employee and director of Musashi as referred to at [19].

(c) Robert Dyring, who was engaged by Musashi to advise and generally assist in relation to the EMDG applications for 1989/1990 and subsequent years.

(d) Michelle Jennifer Erbacher, who commenced work for Musashi in September 1995 and who remains in that employ as assistant sales manager. In about July 1997, when she was in a relationship with Horewood, she incorporated M.E. MR Pty Ltd for the purpose of enabling her to work as a consultant via that company for Musashi and other persons. In view of the relationship, she made Horewood a director and shareholder of the company. Her evidence was concerned with M.E. MR Pty Ltd and Horewood's involvement in relation to it, and a house property at 19A Beaver Street, East Malvern purchased by the company (and now held in her name) with some financial support from Horewood.

(e) Kristina Mary Horewood, who was divorced from Horewood in about 1994. Subsequently she completed a graduate diploma in applied psychology, and developed an amicable relationship with Horewood. She did consulting work and, for the purpose of providing consulting and change management services to Musashi, she registered Scoop Nominees (Australasia) Pty Ltd ("Scoop"). Horewood was and remains the sole director and shareholder. There were two reasons for organising the company in this way. First, the company was trustee of a family trust. Secondly, her then employer objected to its employees or consultants being directors of other companies. Mrs Horewood also referred to a house property she purchased through Scoop in 1997, and in which she resides. Scoop has a permanent retainer from Musashi and at the time of the trial received $4,275 per month. She also provides consulting services for other clients.

(f) Peter Graham Brierley, a chartered accountant and principal of the firm Peter Brierley and Partners. He was appointed as accountant for Musashi in about June 2000. He had previously performed accounting work for Musashi whilst employed by McInnes Graham and Gibbs in 1997 and 1998. Musashi had engaged him to get their accounting records up to date and provide them with a system of producing annual statutory financial statements and accurate management reports. They had caught up with the backlog of annual financial requirements and were now concentrating on the production of management reports. He referred to the appointment of BDO to complete the audit of the financial statements for the years ended 30 June 1998 to 30 June 2001 at the request of Foody and to the qualifications in their audit reports. He and an employee had assisted the audit by responding to directions of BDO. In his view Musashi's source financial documents had been kept in a relatively manageable form. However, the accounting packages used from time to time had not been able to easily produce management accounts.

(g) Robert Donald Duncan Collie, who is an audit partner in the firm BDO, chartered accountants. In August 2001 BDO was appointed to undertake an audit of Musashi for the financial years ending 30 June 1998 to 30 June 2000. In February 2002 he was provided with the General Purpose Financial Statements of Musashi completed by the company and executed by Horewood. Having completed the audit procedures required to form an opinion on the financial statements, he signed the audit reports attached to the statements. The reports were qualified.

430. It is convenient at this point to record some observations about the witnesses. The principal witnesses as to the facts were Foody, Horewood and Hore. Before dealing with them I will say something about the other witnesses.

433. Stewart and Woodford gave evidence of matters that occurred during their employ by Musashi. They impressed me as honest witnesses who sought to give the best evidence, but to varying degrees, and not surprisingly having regard to the elapse of time, their evidence suffered from a lack of accurate memory. Their evidence was also, I consider, somewhat muted in relation to the issues between Foody and Horewood, because they had continued working with Horewood when Foody was on the outer and then removed.

436. Dyring, who was concerned with the EMDG applications, impressed me as having evident expertise in the area and as being an honest witness.

439. I also consider that Collie and Brierley were honest witnesses. Indeed, their credit was not attacked in cross-examination. The accuracy of their work depended on information provided by others, particularly as to the accounting years prior to their engagement. I am, however, satisfied that they acted reasonably and with proper endeavour in the performance of their tasks.

442. While the evidence of Erbacher and Mrs Horewood must be assessed in light of their interest with Horewood derived from their financial connection and the relationship in each case, I consider that each was an honest witness.

445. With those observations I return to Foody, Horewood and Hore.

448. Foody is a complex person. He is possessed of intelligence, but his own considered cleverness in relation to matters and other people has not been tempered by sound judgment and a sense of due proportion. He has a natural charm and courtesy, but under pressure it can be affected by superciliousness, an over-bearing manner and unpleasantness. At times he addressed people in writing, and doubtless orally, in an unpleasant way, in terms that were bullying and might have frightened the recipient. That has been for the purpose of advantaging himself and it revealed an aspect of his character. At the same time, it must be acknowledged that in this matter he has been placed under considerable stress and he has shown fortitude in persevering in the fight. However, in a sense, the prolongation of the disputation has resulted from his own actions, for he has used the case as a means of acquiring either control of Musashi or a larger portion of the equity in the company. In my view, having built the case up, he has not genuinely tried to reach a compromise in order to get on with his life. He had, in my view, become obsessed with the case. That was reflected in his taking over cross-examination. Another way of regarding the situation is that Foody has used the case to take the main chance, as he has thought it existed. He has brought the derivative claim, with a florid raft of claims and orders sought. To enhance his return he seeks to increase his equity, although he has not worked in the business since October 1990. He has trawled through documents obtained on discovery and under subpoena and raised every possible issue in the derivative claim. All this has led to him giving evidence to bolster or establish a case which in some respects was false or which I do not otherwise accept. That is not to say that there are not parts of his evidence which I accept. It is in the nature of a case such as this, with many issues, that that would be so.

451. Considered overall I conclude that Foody's credit was severely dented. He gave evidence as a person obsessed by his case. His obsession and lack of balance, or proportion, led him to seek relief which was misconceived, or, as the defendants' counsel described it, unrealistic. It is sufficient in that respect to note the application to replace the board of directors and the application to vary the shareholding. He devised a scheme of attack, or relief to be obtained from the Court, then sought, often in an argumentative way, to support it by evidence. He demonstrated a propensity to falsehood in the false customs declaration, the false statement to Horewood concerning that event, the false assertion as to being appointed a director in April 1990, in continuing to rely on his evidence of appointment as a director in July 1990 when he was aware that he had not been so appointed, and in the false evidence that he had learned of the investigation by the Australian National Audit office from the amended points of defence when he had known of the investigation in 1995. Foody also gave false evidence in seeking to downplay his role in preparing the 1989/1990 EMDG application and in relation to the establishment of Musashi North America. Other matters could be pointed to as bearing on the reliability of Foody. His letter of loyalty to Horewood dated 26 August 1990[13] is odd and reflective of a strange mind, and in that regard there are Foody's letters to Burnicle (exhibit H), Reddy (exhibit J), Horewood dated 28 October 1994,[14] and to Horewood and Hore and to Mrs Woodford (exhibit O), with their unpleasant and threatening aspect.

454. There is also Foody's preparedness to continue at Musashi when wrongful, indeed fraudulent, acts were being perpetrated. I come later to deal with particular allegations, but for present purposes it is instructive to note one very serious allegation of wrongdoing by Horewood and Hore that was not put to them in cross-examination. The allegation, made in para 27 of Foody's affidavit sworn 29 October 1998, was of a "covert cash arrangement" by which Horewood and Hore were extracting money from Musashi when they were also drawing a salary. Foody said that when he confronted Horewood and Hore about this they suggested that he participate in it and that Horewood offered him cash of $200 per week to do so. Foody refused to participate and thereafter their good working relationship declined. This allegation was relied on in the amended points of claim (para 14(e)). It was a most serious allegation. Yet it was not put in cross-examination and it was not relied on by Foody in final address. I reject that evidence of Foody as false.

457. Due apparently to a lack of financial resources, Foody did not always have legal assistance or (when he did) legal assistance that was able to bring a reasonable measure of proportion to bear upon the litigation. Perhaps that was due to his own nature which has an over-bearing and opportunistic side to it. Perhaps too the defendants and their advisers have been much at fault. The case should have been resolved years ago, and one suspects that it could have been even before it was commenced in the Federal Court if reasonable minds on both sides had been applied to its resolution. Regrettably, but foreseeably, the longer the issue went unresolved, the more frustrated and bitter did Foody become and the more wide-reaching did his claims become in his attempt to achieve justice as he saw it.

460. Horewood and Foody are different types and in the end, in a relatively brief time, they fell out. Horewood was the principal and guiding hand at Musashi. In effect, he was the company. He is a quieter person and had his ways. It is evident that Foody involved himself in the company, and with others dealing with the company, in a way and to an extent that annoyed Horewood more and more, particularly as he was not achieving as well as he had hoped in developing the U.S. market. I accept as honest and correct the variety of reasons which Horewood gave for being concerned with Foody and that these led to his dismissal. I find too that the matter of the drug conviction was a relevant factor. I find that Horewood came to the view that he wanted to get Foody out of the company. That was not so easy because of his opportunistic obtaining of the $90,000 and the related representations he had made to Foody. In that, and some other respects, I do not accept Horewood's evidence. However, I accept his evidence on many matters. I should say that Horewood's evidence suffered from a lack of memory. This is not necessarily a criticism of Horewood. Other witnesses also suffered from a lack of memory. That was understandable by reason of the long time that had elapsed since the occurrence of the discussions and events being enquired into. The delay was attributable to Foody, who waited until 9 May 1997 to commence his case, and the fact that the trial did not commence until March 2002 in the 12th year after Foody was dismissed. I generally make allowance for the disadvantage the witnesses were thus under when they gave their evidence. I should say, and this is a significant finding adverse to Horewood and Hore, that I conclude that Foody did not owe Musashi the money claimed by it in the Magistrates' Court. I accept Foody's evidence on that matter. I find that Musashi's actions in that matter were driven by Horewood (with the support of Hore) with the object of forcing Foody to give up his shares with no or little recompense for his investment. The achievement of this object would be aided by financially disadvantaging, and harassing, Foody.

463. As far as Hore is concerned, at times his evidence was vague and suffered from a loss of memory. Overall he had a strong interest in supporting his son.

466. It is remarkable that a period of employment of less than a year, during which Foody was away from the office on trips, could produce such bitter, protracted and expensive disputation. Once Foody was dismissed without receiving repayment of the $90,000 with interest or otherwise, two strong willed people - Foody and Horewood - became set against each other. As long as Foody was a shareholder he had rights as such. He was also a difficult and persistent person, which Horewood may have failed to appreciate fully, at least initially. Having not initially agreed on financial terms, and no settlement being reached subsequently, Horewood sought to deal with Foody by a combination of ignoring him as a shareholder and engaging in litigation to cause him to go away. The result was that the differences and disputes expanded in nature and became increasingly bitter.

470. In final address Foody's counsel took an approach in relation to the figures that was unsatisfactory but consistent with the tactical position taken at the outset. That was the decision not to call accounting evidence, and to seek an order for an out of court investigation by a "forensic accountant".

473. I refer back to the amended points of claim and, in particular, to the section concerning the derivative claim. At [94] I identify the allegations in paras 10 and 11. The final paragraph in that section is para 12, which alleged that Horewood and Hore had profited or gained a personal advantage to the detriment of Musashi in breach of the Law and the Act, fiduciary duties and equity. The following particulars were provided to para 12:

" Particulars (i) Refer to paragraph 8, 9, 10 and 11 above and their respective particulars. (ii) As part of the purchase of Mr Goss' shares agreed to write off a debt owed by Mr Goss to the Company in the sum of $100,000 without the consent of the company and/or its shareholders. (iii) Established businesses in competition with Musashi Pty Ltd's retailers knowing that action could damage Musashi Pty Ltd's relationship with its supplier and its customer base. (iv) Continued to remove excessive funds for personal use from Musashi Pty Ltd while the company was trading unprofitably and did so against the written advice of both internal and external accountants and in contravention of an agreement the directors made with the ANZ Bank not to remove further funds. (v) Made unnecessary, unjustified and unauthorised payments to trust companies and businesses related to the First and Second Respondents including ME MR Pty Ltd, Scoop Nominees (Australia) Pty Ltd, Harrison Clocks Pty Ltd, MNJ Concepts, Ozimer Trading and Athletes Advisory in USA and Prahran, International Cadence, Musashi North America, and other entities both in Australia and offshore for personal benefit to the detriment of Musashi Pty Ltd. (vi) Incorporated the companies known as 32Q Pty Ltd-Singapore, Musashi Asia Pty Ltd-Malaysia, Musashi North America-USA, Musashi New Zealand with themselves as directors and shareholders using Musashi Pty Ltd funds and leaving the debts of those companies with Musashi Pty Ltd when the companies failed to be profitable and were liquidated. (vii) Sold products for cash sales without proper invoicing or accounting for their sale. (ix) Did not declare the cash sales for taxation purposes of the company or thereunder. (x) Musashi did not record the profits from the cash sales and the profits were not distributed to shareholders as dividends; and (xi) Uncooperative and vague discovery on the part of the defendants has made it impossible to include in this list all of the gains made by the first and second defendants and the losses sustained by Musashi Pty Ltd due to the defendants actions and/or in-actions. Particulars of these losses that are currently available through discovery are as listed in the attached spreadsheets, calculated by the first plaintiff (refer to schedule 1) showing the loss is $7,080,531.00 as at 30/3/2002."

477. Schedule 1 comprised three pages which are attached to this judgment as Annexure A. The first page is entitled "Plaintiff's and Musashi Pty Ltd Loss Due To Unnecessary Consultancy Fees and Credit Notes" and contains the figures and calculation which produced the loss of $7,080,531 as at 30 March 2002. It is seen from para (xi) of the particulars that this is a calculation of the losses resulting from the matters referred to in paras (i) to (x) of the particulars.

480. On the first page of the schedule the first item refers to "Kenfield's Rates". This a reference to an accountant who had prepared reports for the defendants but who did not give evidence.

483. It is important that the schedule be understood for what it is. It is a list of the losses "currently available through discovery".

486. As to that claim the following should be noted. The case had a long period of gestation in the Federal Court and in this Court. Much effort, including a number of applications, was devoted to the discovery of documents. The case has then come on for trial on the basis that interlocutory work was complete and the case was ready for trial. Moreover, it came on for trial on all issues. The trial commenced and concluded with no further application for discovery, and on the basis of the amended points of claim which included the above particulars. The plaintiffs did not bring further particulars forward.

489. What were the defendants to do other than to meet the case thus particularised? Indeed, that is what the defendants sought to do. In conducting their case they addressed the items in the schedule, and other matters that were not in the schedule but were otherwise referred to in the amended points of claim, or arose during the trial.

492. The failure of Foody to supplement the particulars with particulars of other losses, together with a failure to call any accounting evidence had several consequences. First, the claim which Foody set out to establish was not developed by an expert. Secondly, Foody's evidence on the impugned matters was limited in that, by reason of his period of employment having finished in October 1990, he lacked personal knowledge of many matters. Much of the case was based on references to documents obtained on discovery and assertions concerning them. Thirdly, if I upheld what was a heavy attack on Foody's credit, the plaintiffs' case must suffer significantly. In that respect it is to be noted that Stewart's evidence did not appreciably advance the plaintiffs' case.

495. None of these matters would have been a surprise at the end of the case, and it is thus that the attitude of Foody's counsel in opening the case comes to be understood. That is in respect of the statement at the outset of the trial that the case should be referred to an independent accountant for investigation and report. This was for an investigation as to facts, not merely, as it seemed to be suggested at one point, for a report as to the proper basis of a valuation. In other words, Foody had travelled the journey to Court with all of the pre-trial discovery and affidavits, but wanted to have another hearing before a referee to ascertain facts. One could only wonder at the point at which, and when, the litigation would end.

498. Consistently with this approach, in final address Foody's counsel made the following submissions. While her submissions on particular matters used figures provided in evidence by the witnesses or contained in the audited accounts of Musashi for the years 1988/2000 (provided on 8 February 2002) and 2001 (provided during the trial), the documents substantiating the figures have "never" been discovered despite orders and requests and, as a consequence of inconsistencies and omissions in the figures provided by the defendants and the evidence of the witnesses, the plaintiffs, it was submitted, did not have to provide a definitive or accurate representation of Musashi. Accordingly, the plaintiffs used the figures by way of example only for the purposes of the submission. The plaintiffs did not accept or represent that the figures were accurate, acceptable or provided a holistic picture for the purposes of the Court awarding relief in the case. For that reason the plaintiffs did not provide a submission at this time with regard to the method of determining the fair value of Foody's shares. That should be deferred until such time as a forensic accountant, appointed by the Court, had completed an investigation and reported to the Court. Only after accurate figures are available and any further discrepancies are considered and determined by the Court, can a method of valuation be determined without prejudice to Foody.

501. There are some difficulties with this submission. In the first place, there is substance in the defendants' submission that it is a belated attempt to avoid the consequence of the failure to call accounting evidence. I also accept the defendant's submission and reject the generalised claim that documents substantiating the figures had never been discovered. Documents have also been obtained from third parties. In my view any relevant deficiency in the provision of documents was not such that a competent plaintiff assisted by lawyers, and with appropriate witnesses prepared for the trial, could not have coped with. Moreover, as the defendants point out, in cross-examination Collie and Brierley were not attacked on their credit and, as I have found, they were honest witnesses. Of course, they relied on information provided by others but, as to that, the case has been through the discovery process and I have heard the defendants' witnesses.

504. The next point to note is the relief sought by Foody at the end of the trial. Foody's written submission handed up in final address set out the orders sought. They are a most extensive set of orders, and do not seek merely a reference to a special referee for an investigation and report to the Court. The written submission stated:

"Outline of Orders sought: The Plaintiff requests that the Honourable Court make the following declarations and orders based on the submissions above and the evidence in general: 1. A declaration that insufficient information is available to determine fair value for the purposes of the repurchase of Mr Foody's shareholding; 2. A declaration that Foody has been oppressed pursuant to section 232 of the Corporations Act 2001 (Cth) by Musashi Pty Ltd and the First and Second Defendants as Directors of Musashi Pty Ltd. 3(a) A declaration that the following matters constitute a breach of fiduciary duty owed by the first and Second Defendants to Musashi Pty Ltd as Directors of Musashi Pty Ltd; (b) A declaration that the conduct of the Defendants constitutes various breaches of the provisions of the Companies and Securities Code (Repealed), the Corporations Law (Repealed) and the Corporations Act 2001 (Cth); (c) An order that the First and Second Defendants account to Musashi Pty Ltd for any loss caused to Musashi Pty Ltd and for any personal benefits obtained as a consequence of the following matters; and (d) A declaration that all benefits derived from a breach of fiduciary duty from the following matters are held on constructive trust for Musashi Pty Ltd until such time as these benefits are accounted for to Musashi Pty Ltd; the following matters being: i. Uncommercial loans; ii. Loans to related parties on uncommercial terms; iii. Personal use of the property of Musashi Pty Ltd; iv. Dealing with the property of Musashi Pty Ltd for personal purposes; v. Excessive remuneration; vi. Writing off Musashi Pty Ltd debts for personal benefit; vii. Use of company monies to discharge personal and unrelated debts and liabilities; and viii. Failing to utilise business opportunities of Musashi Pty Ltd and subsequently diverting and using the same opportunities for personal advantage or the advantage of parties unrelated to Musashi Pty Ltd in which they held an interest; 4. In regard to the 'round robin' consultancy fee payments to Burnicle and the related loans from Burnicle to Mr Horewood and Mr Hore: (a) A declaration that the amounts were obtained for personal benefit in breach of fiduciary duty, and (b) An order that the monies be returned to Musashi Pty Ltd, or noted in the books of the company as loans due by Mr Horewood and Mr Hore on commercial terms; and (c) An order that interest be awarded on these amounts from the date of their receipt by the First and Second Defendants, pursuant to the Penalty Interest Rates Act 1986 (Vic). 5. In regard to monies paid to International Cadence from Musashi Pty Ltd: (a) A declaration that the amounts sent to International Cadence by First Defendant were obtained for personal benefit in breach of fiduciary duty; (b) An order that the monies be returned to Musashi Pty Ltd, or noted in the books of the company as loans due by Mr Horewood on commercial terms; and (c) An order that interest be awarded on these amounts from the date of their receipt by the First and Second Defendants, pursuant to the Penalty Interest Rates Act 1986 (Vic). 6. In regard to loans made by Musashi Pty Ltd to Bruce Hore (a related party) and Ozimer Trading Pty Ltd (a related party) in 1994 and 2000 respectively: (a) A declaration that the amounts lent to Bruce Hore and Ozimer Trading by Musashi Pty Ltd were granted on an uncommercial basis in breach of the First and Second Defendant's duties as Directors; (b) A declaration that the amounts lent to Bruce Hore and Ozimer Trading by Musashi Pty Ltd were granted for the personal benefit of the First and Second Defendant and Bruce Hore in breach of fiduciary duty; (c) An order that interest be awarded on these loans from the date of their receipt by Bruce Hore and Ozimer Trading Pty Ltd respectively, pursuant to the Penalty Interest Rates Act 1986 (Vic). 7. A declaration that the First Defendant failed to act in good faith and in the best interest of Musashi Pty Ltd and for proper purpose; 8. A declaration that the Second Defendant failed to act in good faith and in the best interests of Musashi Pty Ltd and for proper purpose; 9. A declaration that the First Defendant has acted in a manner unbefitting of a Director and specifically in breach of his duties as a Director of Musashi Pty Ltd; 10. A declaration that the Second Defendant has acted in a manner unbefitting of a Director and specifically in breach of his duties as a Director of Musashi Pty Ltd; 11. In reference to all outstanding uncommercial loans, an order that these loans be subject to interest at a commercial rate determined by the court from the date of the loan being granted, with interest compounded annually up to the present date; 12. A declaration that all shares of the First and Second Defendants which were purchased with monies lent from Musashi Pty Ltd and which were not repaid as at the date of this proceeding were acquired by the First and Second Defendants in breach of the fiduciary duty owed to Musashi Pty Ltd in their capacity as directors of Musashi Pty Ltd and therefore must be accounted for to Musashi Pty Ltd. 13. An order that a share restructure be performed which: i. excludes all shares paid for with Musashi Pty Ltd monies by the First and Second Defendants which were not repaid as at the date of the commencement of this proceeding; and ii. that the remaining shares paid for using monies independent of Musashi Pty Ltd by all parties be deemed to constitute the totality of the shares in Musashi Pty Ltd for the purposes of the said restructure; 14. An order that a new independent forensic audit be carried out to determine the value of the company (after the First and Second Defendant's account for benefits obtained in breach of their fiduciary duty and after the share restructure has been completed); 15. An order directing the repurchase of Foody's shareholding at fair value as at the date of the order, based on the independent forensic audit and accounting for the value of his restructured shareholding in Musashi Pty Ltd; 16. An order that Musashi Pty Ltd repay to Foody the sum of $29,676.37 being the amount garnisheed from Foody on 28 May 1999 together with interest from that date pursuant to the Penalty Interest Rates Act 1986 (Vic). 17. An order directing that Musashi Pty Ltd repay to Foody the sum of $9,164.48 being legal costs incurred by Foody to obtain his share transfer, together with interest pursuant to the Penalty Interest Rates Act 1986 (Vic). 18. An order that damages to be paid to Foody for miscellaneous acts of oppression as the court thinks fit or appropriate. 19. An order prohibiting the First and Second Defendant from using Musashi Pty Ltd funds for the purposes of costs for this oppression proceeding. 20. An order that Musashi Pty Ltd pay Foody's costs for this proceeding on an indemnity basis."

508. The following should be noted about these orders. First, there is a connection between the orders that relate to the oppression claim and the derivative claim, in that matters raised under the latter are relied on to establish the former. Hence, while oppression may be established and the derivative claim may not, I have to decide the latter claim as the conclusions I reach on the matters raised under it are relevant to the oppression claim.

511. Secondly, the orders sought in paras 3-12 are premised on a decision on the matters alleged against Horewood and Hore in the derivative claim, which takes one directly to the matters the subject of the particulars to para 12 of the amended points of claim. In other words, to establish a right to the relief sought, or whether it is appropriate that the relief be granted, Foody has to establish his case. It is not that he must establish the exact dollar amount of a claim to obtain relief, but that he must establish a case of substance. In the context of the present case, including its laboured history, lengthy trial, and the fact that there has been a trial on liability and quantum of the case which Foody has brought against the defendants, the Court should not, without good reason, defer from a consideration of the claim from the point of view of the figures put before me. Indeed, I do not consider that the case could be fairly and properly decided unless I did so. Foody has no right of veto in relation to my forming views concerning the figures, and the use that may properly be made of them, in resolving the case. The trial having been had, it is a matter for me to decide on the appropriate disposition of the case, including the use of the figures.

514. The third point is that the matter of the appropriate basis on which to value Foody's shares is an issue upon which I would hear counsel, if necessary, subsequent to delivery of this judgment. A decision on that issue would not require a prior investigation by an accountant.

517. Finally, counsel for the plaintiffs did not put a submission, in writing or orally, on every claim or contention in the amended points of claim and particulars. Effectively, but without necessarily saying as much, the plaintiffs gave up some claims, including allegations of serious wrongdoing and fraudulent conduct.

520. I now turn to the particular matters relied on by Foody to establish the derivative claim. These are the matters which are dealt with in the written submission of the plaintiffs to which counsel spoke. That written and oral submission confined the breadth or generality of many of the orders sought.

524. I now deal with the various matters under this head that were relied on by the plaintiffs in final address. In their submissions the parties referred to a number of authorities dealing with the duties of directors to the company and the shareholders.[15] I have regard to all of the authorities to which I was referred. The present case does not raise a point of principle. The resolution of the issues raised turns on the application of established principle to the facts, as they are found to be. First, however, I can clear away a bundle of failed claims. I will then refer to the matter of dividends. Finally, I will deal in turn with the matters relied on in final address.

528. Certain matters, each based on allegations by Foody of fraudulent or other serious misconduct by Horewood and Hore, can be dealt with immediately as they fell to the ground because of a lack of credible or any evidence to support them. Indeed, the reality concerning them was such that, notwithstanding the seriousness of the allegations, they were not pressed in final address. The seriousness of the allegations requires, as a matter of fairness, that findings be made concerning them.

531. It will be recalled that one of the most significant matters in Foody's armoury of claimed wrongdoings was the making of false EMDG claims.[16] This extended to claiming that documents and correspondence relating to Musashi's participation in the EMDG scheme was altered, falsified or forged so that greater export grant claims could be made.[17] The allegations were based on evidence of Foody. Foody, of course, had only been present at Musashi in the period of the first EMDG application, 1989/1990. Moreover, as the evidence made clear, Foody had a significant role in the preparation of that application. His attempt to distance himself from it did not reflect the true position. Then, Foody had no involvement in the applications in subsequent years. As against Foody's evidence, and the allegations he raised concerning the EMDG claims, stands the evidence of other witnesses relating to them and, generally, as to regularity in the conduct of the business. In the face of all of that evidence, in particular that of Dyring, a persuasive and honest witness, Foody's case evaporated. I was satisfied on the totality of the evidence that Foody's case on this matter is without substance. As to his claim of falsification of documents and forgery, I reject it as false.

534. It is significant that in final address counsel for Foody did not make a submission in support of Foody's claim. Indeed, Foody's counsel said very little about the matter of EMDG grants, and what was said was relegated to almost the very end of the written submission. Significantly, rather than seeking a positive acceptance of Foody's evidence and claims, the submission was merely that the manner in which the books and records had been kept by the directors led to the "inference" that the amounts of money claimed by Musashi under the export grant scheme were incorrect. To support the drawing of this inference, four specific amounts or matters were referred to. In other words, Foody pulled the case back from one of observed fraud to one of inference based on a failure to keep proper books and records and which failure was said to be evident from four matters. That was not the case alleged. The shift is understandable because, from the point of view of the evidence as to the care taken in preparing EMDG applications, including the important role of Foody in the first application, and the audit of each application, the claim as put by Foody was entirely without substance. Indeed, as put, I conclude that the claim was false, made up for the purpose of floating a case.

537. However, the question is whether an inference of incorrect claims should be drawn. I now deal with the amounts and matters relied on.

(a) It was submitted that the amounts paid to Action Advertising were not paid for work carried out by Reddy's company but, rather, were a method by which Horewood transferred money overseas. Consequently, the money should not have been claimed as part of the export grant scheme. The submission was based on some evidence of Foody in re-examination. In that evidence he referred to $154,000 having been sent over to Action Advertising. That is the amount referred to in Annexure A for 1990. It is convenient to note that the plaintiffs' counsel stated in final address that this Action Advertising item was dealt with only as part of the EMDG issue. It was not dealt with separately. In his evidence Foody said that the payment to Action Advertising was bogus in that Action Advertising was not truly owed money. The transfer was a means of moving money overseas for Horewood's benefit. Foody added that the amount claimed for Action Advertising in the 1989/1990 EMDG application was $116,600. He believed that the balance of $38,000 was used by Horewood to purchase Algivit. It is sufficient to say of all this that I do not accept the claims in Foody's evidence. I reject the submission.

(b) The next contention was based on Horewood's request to Jeff Fenech to change the date of a letter to bring the claim in respect of him into the previous grant year. There is no substance in the point. Fenech had provided services in the earlier period and the purpose of the request was to have appropriate supporting evidence for the correct EMDG claim for that period.

(c) The third matter is the evidence of Dyring that if he had been informed of the loans made by Burnicle to Hore and Horewood he would have asked further questions. So he might have but, as Dyring said, it may have made no difference and I do not find that it would have.

(d) The fourth point was the gift made by Infinity Enterprises to Horewood. It was submitted that Austrade should have been informed of that amount. It was not stated why that was so. The point has no substance.

(e) I add this further contention. In her oral address, after dealing with the above matters, counsel for the plaintiffs returned to the Action Advertising monies, to Horewood's need to pay Goss $250,000, and to certain transactions in the cheque account of Horewood and his wife about which they had been cross-examined. At the end of the references to evidence counsel submitted that Horewood did not know how certain monies came into the account and that Mrs Horewood had not explained it credibly. It was submitted that the monies had come from overseas to benefit Horewood. It was the time when he needed $250,000. Horewood had no proper explanation, and the whole story lacked credibility. It was not clear to me how this provided additional ground to the EMDG submission. However that may be, the fact is that I accept Mrs Horewood's evidence as to finding amounts mistakenly in the account, and of correcting the mistake by repayment.

545. Another allegation was that of covert cash sales conducted without proper invoicing or accounting and involving the avoidance of tax.[18] This was not established by evidence, indeed there was an absence of credible evidence to support it. Further, the evidence of other witnesses specifically as to the absence of unrecorded cash transactions, and generally as to propriety in conducting the business, is against the allegation.

548. Another allegation that had no substance was that based on Foody's evidence of a $200 per week cash bribe. I have already dealt with and rejected the evidence as false.[19]

551. The next allegation to mention is that in para 20 of the amended points of claim. The allegation is that from April 1990 Horewood and Hore wrongfully and maliciously conspired and combined to defraud and injure Foody by depriving Musashi of its business, in favour of associated companies, thus rendering Foody's shares in Musashi worthless or of minimal value and depriving him of his livelihood and his just entitlements as a shareholder. I did not understand this allegation of conspiracy to be pressed in final address, but even it is to be discerned in the submission, I am of the view that it fails for want of an evidentiary foundation. I reject the allegation of conspiracy. It is unnecessary to deal further with the allegation, including what might have been required to establish it.

555. I now refer to a different matter to clarify the position concerning it as part of the derivative claim. It is the matter of dividends. In para 14(c) of the amended points of claim, in relation to the oppression claim, it is alleged that since April 1990 the defendants have, without explanation, failed to pay dividends to Foody although dividends have been paid to the other shareholders. Particulars of the allegation refer to several earlier paragraphs relating to the derivative claim which refer to various payments for the benefit of Horewood and Hore. None of these payments were dividends in the true sense of the law. Hence, while it is true that Foody has not been paid a dividend, the fact is that no dividend has been declared and paid to any shareholder. The matter of the impugned payments to Horewood and Hore is a matter which is dealt with later.

558. I now deal with the matters relied on by Foody in final address.

Shares purchased from Probert and Goss - held on trust for Musashi?

562. The first matter with which I deal, and the first matter relied on by Foody in his final written submission in a section entitled "Directors' benefits in breach of fiduciary duty", concerns the purchase of Probert's shares and the purchase of Goss's shares. The submission was the foundation for proposed orders 12 and 13, in particular 13 that a "share re-structure be performed" the net result of which would be to increase Foody's equity interest in Musashi.

565. The first step in the submission is the acquisition of the Probert shares in 1988. Musashi lent Horewood and Goss $100,000 to facilitate the purchase. Musashi's financial statements record shareholders' loans at 30 June 1989 of $100,945 for Goss and $105,433 for Horewood. It was submitted that the loan had not been repaid. "Consequently", the written submission stated, "Horewood holds those shares he purchased from Probert on trust for the company". The shares should be returned to the company and "a share restructure take place".

568. The second step is a similar submission concerning the acquisition of the Goss shares in 1990. The transaction required Horewood to pay Goss $450,000 for the shares and to take over his liability to the company. Horewood completed the transaction. The financial statements of the company show that at 30 June 1990 shareholders' loans were nil for Goss and $227,371 for Horewood. In accordance with the purchase agreement, the balance of Goss's loan had been transferred to Horewood's account. Further, as with Probert, while Musashi has released Goss from liability, the debt remains an asset of the company.

571. The submission then focused on the means by which Horewood financed the payments to Goss. The $90,000 from Foody was not in question. What was in question was the balance of $340,000. The first contribution was $110,000 lent by Hore. It was submitted that this was repaid by Musashi from its funds, and that Musashi had not been repaid. The second contribution was $250,000 lent by Hore, who had borrowed the money from Musashi (which had borrowed the money from the ANZ bank on the basis of receiving the EMDG grant). A financial document of Musashi records an unsecured advance to Hore of $227,431 at 30 June 1991, somewhat less than the $250,000 which indicates that there had been a payment or offset in reduction of the loan. The same document records a reduced balance of $184,760 at 30 June 1992, and a preliminary figure of $30,806 for 30 June 1993.

574. The next step in the submission referred to loans from Mark Burnicle of the United States to Hore and Horewood. Counsel for the defendants made an admission that Burnicle lent approximately $220,000 to Hore in 1993. Counsel for the defendants further stated, describing the statement as an admission, that Burnicle lent the money in consideration of Burnicle getting sole distribution rights in the U.S. I accept that the amount lent was at least approximately $220,000. I say at least, because the tenor of the evidence was that $250,000 was lent. I find that Hore used the Burnicle loan to repay his debt to Musashi. There is an undated letter to Horewood from Burnicle which confirms a loan of $53,628 but otherwise gives no details, including the date of the loan. Horewood could not recall how he used this loan.

577. The next step was to focus on the matter of repayment of the Burnicle loans. In cross-examination Horewood said that $10,000 was repaid to Burnicle. He also said that Burnicle forgave payment of the balance. A factor suggested by the defendants as explaining such forgiveness, or even that the loan was in effect repaid, was the time that Horewood spent in the United States during which he worked, in part helping Burnicle.

580. It was submitted by the plaintiffs that the only beneficiaries of Horewood's work in the United States were Horewood and Hore because their personal loans were "paid off". Horewood's time in the United States was paid by Musashi (for whom he also worked), which was also paying Burnicle consultancy fees. It was submitted that the consultancy fees were inflated and that Burnicle's loans were a contrived way of siphoning money from Musashi for the benefit of Horewood personally by enabling him to pay Goss. That meant that Musashi repaid to Burnicle a personal loan of Horewood and Hore.

583. Another factor to which the plaintiffs referred is the debt Burnicle owed to Musashi. The plaintiffs suggested that there was a relationship between the two debts, with one not being paid when the other was not being paid. Horewood denied a connection between the two matters, pointing to the time which had elapsed between Burnicle's loan to Hore in 1993 and 1998/1999 when Musashi wrote off the debt. The elapse of that time supports Horewood's evidence. I find that Musashi's decision to write off the then debt was a normal commercial decision to write off a bad debt. The decision can hardly be criticised in view of the efforts which had been undertaken to collect the debt. Stewart deposed to efforts in that regard, and I accept his evidence.

586. The conclusion to all of this was that the money which Hore had borrowed from Musashi to aid Horewood in making the final payment to Goss was repaid "by Musashi to Musashi". "Consequently", it was submitted, Hore still owed Musashi $250,000. Further, Horewood still owed the amount of the Goss debt he took over in 1990. "Therefore", it was submitted, the shares acquired from Goss are held on trust by Horewood for the company and should be "returned" to the company and "a share restructure take place".

589. According to this submission the restructure would be on the basis that the only shares that Horewood had paid for in full were his original six, and the shares he paid $200,000 for by using Foody's $90,000 and the $110,000 borrowed from his father. Of course that payment of $200,000 was only part of the total amount due for the acquisition of Goss's shares; the shares were not allocated between the instalments of purchase price. Nevertheless, and in an attempt to extract every advantage out of the point, the total purchase price should be regarded as being $550,000, not $450,000. That was on the basis that the price of the acquisition of the shares was the stipulated price of $450,000 plus the amount of the Goss debt taken over and remaining unpaid, which was at least $100,000. This meant that Horewood had only paid $200,000 out of a total of $550,000. On that basis, a calculation was required of the number of Goss shares that should be allowed as paid for by Horewood. In other words, the calculation was the number of shares purchased represented by the proportion that $200,000 bore to $550,000. That number having been ascertained, "the other shares just disappear" according to counsel for the plaintiff.

592. Counsel submitted that, having regard to these matters, a declaration and order should be made as sought in orders 12 and 13.

595. In my view the submissions must fail. I reach that conclusion without relying on a primary submission made generally by counsel for the defendants that Foody cannot succeed in the derivative or oppression claim in relation to events which arose prior to his becoming a shareholder in Musashi on 1 July 1991 when the share purchase agreement was made. I do not find it necessary to consider that submission.

598. The immediate answer to the submission concerning the Probert shares is that all of the shareholders and directors agreed to the loan by Musashi. The minutes of the extraordinary general meeting even refer to relevant provisions of the Companies (Victoria) Code. The transaction was undertaken by Musashi on the informed decision of all shareholders and directors. The transaction was intended to, and did, create an asset which was properly recorded in the books of Musashi.

601. When Goss agreed to sell his shares to Horewood in February 1990 they were the only shareholders and directors. Lawyers were involved and the terms were negotiated. It was a transaction between informed shareholders and directors, with no loss to Musashi as Horewood took over Goss's debt. Indeed there was a benefit to Musashi in that Goss released Musashi from a liability to him of $3,500.

604. As to Hore's payments, the plaintiffs' submission accepts that the first payment of $110,000 was lent by Hore to Horewood. It is not altogether clear that, as submitted by the plaintiffs, the loan was repaid by Musashi from its funds so as to suggest a benefit to Horewood that should be brought to account. However, whether or not it was so repaid is not the point of the present submission. The present submission concedes that Horewood paid the first $200,000 and is directed to establishing a trust of the Goss shares to the extent that Horewood did not pay the balance of $250,000. Hence, the real argument is about the $250,000. In that regard, it was open to Hore to borrow the money from Musashi for the purpose of providing it to Horewood's solicitors to use to pay Goss. The transaction was one entered into with full knowledge of the directors and shareholders. It was also open to Hore to borrow money from Burnicle and to apply the proceeds in repayment of the loan. He repaid the loan with interest over three years and there is no suggestion that the terms were not commercial. Commerciality is further shown by Horewood assuming responsibility for Goss's debt, by the charging of interest to the directors/shareholders loan balances in Musashi's books, and, since 1997, by the application of Horewood's director's fees in reduction of his balances in Musashi's accounts.

607. The submission concerning Burnicle is flawed in several respects. First, Musashi North America was Burnicle's company and not that of the defendants, as Foody suggested. Secondly, consultancy fees paid to Burnicle were not inflated for the purpose of siphoning off Musashi money for the benefit of Horewood. Thirdly, I find that Burnicle lent money to Hore, and Horewood, for his own commercial reasons. He was entitled to deal with his money in that way. I accept Horewood's evidence as to his working in the United States. That work was of benefit both to Musashi and Burnicle's business. In the course of the commercial relationship debts built up on both sides. I find that Burnicle was repaid $10,000, and that he forgave the balance of the loans. It was open to Burnicle to do that. The fact that he did so cannot produce the conclusion in law that Musashi repaid the loans. The fact is that Hore repaid his debt to Musashi with money he borrowed from Burnicle. I am not satisfied of any lack of commerciality as between Hore and Musashi in this respect; as to that I have already referred to the charging of interest. For completeness, I reject the submission that Horewood has not paid in full for his shares.

610. For these reasons I reject the submission that shares acquired by Horewood from PGR and Goss are held on trust and liable to be "returned" to the company. It is not necessary to consider the submission, or the relief sought in respect of it, further.

614. Horewood owned Harrisons Clocks Pty Ltd. He used it as a vehicle by which to provide consultancy services to Musashi. The next section deals with matters in the area of remuneration. The present section is concerned with money lent by Musashi to Harrisons Clocks.

617. In 1998 Musashi lent $65,000 to Harrisons Clocks to enable finalisation of completion of a property at Moama. That was Horewood's description of the purpose of the loan. Musashi had no interest in the property. The loan was for the benefit of Horewood or his interest. The title to the property was not produced in evidence. Accordingly, I do not know the identity of the registered owner of the property at the time of the loan or subsequently. I was provided with no documentation concerning the property or the way in which the loan was applied, that is to say, whether the loan was used to pay the purchase price, finance works on the property, or otherwise.

620. The loan is recorded at $66,896 in Musashi's financial statements for the year ended 30 June 1998. At 30 June 1999 the loan had reduced to $58,339. At 30 June 2000 the loan had increased to $171,828 but had reduced to $83,203 at 30 June 2001.

623. The directors did not formally resolve to approve the loan or its terms. Nor did the shareholders who, of course, included Foody. The reality is that Horewood and Hore, but principally Horewood, had the conduct of the company and made decisions on such matters informally. Horewood said in evidence that the loan was to be repaid as quickly as possible. He also said that he thought interest had accrued on the loan, but he added that he was not sure. He thought interest had been capitalised, but he said that he was not sure what the auditor had done with it. Counsel for the plaintiffs submitted that it was not clear from the accounts if interest had been charged. In my view, the amount outstanding at 30 June 1998, being more than $65,000, tends to indicate that interest was charged.

626. The plaintiff submitted that "the property" is a personal benefit obtained in breach of fiduciary duty and must be accounted for accordingly. It was submitted that if a forensic accountant found that interest had not been paid, a commercial rate should be struck and charged to Horewood and a commercial repayment schedule should be set. Further, "the property" should be held on constructive trust for Musashi.

629. The first question is whether interest has been charged or paid. I tend to the view that interest was charged. I am influenced in that by the amount outstanding at 30 June 1998, being more than $65,000, and by Horewood's evidence. It is a question of fact as to which, in the particular circumstances, I consider it appropriate to hear from the parties further on this aspect for the purpose of clarifying the evidence. I will then decide the issue. I will not refer it to a special referee. In these circumstances I say nothing further about the claim of a trust in respect of the property. Not only do I know nothing as to the identity of the party or parties having an interest in the property at any relevant time, but the plaintiffs cannot have both restoration in money and the property itself. The former would seem sufficient.

633. In addition to consultancy fees, Musashi paid Harrisons Clocks fees for the rental of two vehicles and a photocopier. The amounts paid to Harrisons Clocks and to Horewood as salary and director's fees in the years 1996 to 2001 inclusive are set out in Exhibits Z and AA. I find that the contents of those exhibits are correct. It is sufficient to refer to Exhibit Z which contains the following table of Horewood's remuneration.

The consulting fees were paid by Musashi to Harrisons Clocks. The directors' fees and salary were paid by Musashi to Horewood. The fee of $543,744 in 2000 included $170,000 paid in advance for Horewood's services in the year ended 30 June 2001. Horewood said in evidence that his salary in the 2002 year was $60,000.

638. The plaintiffs attacked the above amounts paid as consultancy fees, salary and directors' fees as "large", "too high", "unreasonable and inappropriate", and unjustified. It was submitted that the onus was on the directors to show otherwise, that the amounts paid were commensurate with the work undertaken. A critical factor in this submission was that the plaintiffs led no evidence to establish an appropriate rate for Horewood's services in light of the circumstances, as they were from time to time, or to otherwise support these sweeping allegations. As for Foody, he had not worked at Musashi since October 1990 and thus had no personal knowledge of the actual working circumstances of Horewood since then. Hence, as he said in cross-examination, he could not evaluate the benefit of the consultancy. He agreed that it was a matter of judgment. He expressed the view that Horewood's salary should be in proportion to the profit of the company. In that respect, it is perhaps useful to note the relative level of remuneration paid to Horewood in the earlier years when the company struggled and liquidity was tight. I accept Horewood's evidence as to his salary, namely, $40,000 in 1988, $20,000 in 1989 and between $12,000 and $16,000 in 1990 to 1994. He did receive directors' loans of $2,550 per week in 1992-1994 to enable payments due to his wife under orders of the Family Court. But no management fee was received in those years.

641. In their points of defence the defendants took the position that the amounts paid by Musashi did not exceed a reasonable level of remuneration payable to executives and directors with an equivalent level of responsibility. Counsel for the plaintiffs said that the defendants had not led evidence to justify that statement. Thus, the defendants had failed to discharge the onus of proving that any benefit obtained from Musashi was reasonable and proper in light of their fiduciary duty. Counsel asserted that the remuneration obtained was "excessive, uncommercial, in breach of fiduciary duty", and had not been approved by the shareholders or an independent source. Accordingly, counsel submitted that all remuneration in excess of a reasonable level should be repaid to Musashi with interest. As I have observed, the plaintiffs led no evidence as to a reasonable rate or range of remuneration in the circumstances, let alone to establish the amount that exceeded a reasonable level.

644. While the plaintiffs' submission under this head was cast in terms that referred to both Horewood and Hore, the submission concerns only Horewood, as Hore had nothing to do with Harrisons Clocks.

647. Horewood's role in Musashi was pivotal, not just in the last year or so, but at all times prior to and following Foody's involvement in the company. Horewood described himself as the technical manager, marketing manager, and managing director. I accept that evidence, but he was more than that. Stewart described him as "the driving force behind the company as well as the creativity behind new product development". I accept that evidence. Horewood was an originating, and the driving, force in the company. It was a small, ambitious company, and it depended on him for its drive and on his courage in keeping the company together in the financially difficult years.

650. There was no fixed way, or formula, by reference to which Horewood's remuneration had to be set. It was open to Musashi to remunerate him on a consultancy basis. It is a commonplace basis of remuneration. It was a benefit to Musashi and Horewood. It relieved Musashi of the salary on costs such as payroll tax, workcover and the like, payable in respect of employees and which Brierley estimated at up to approximately 16% of the cost of employing people. From Horewood's point of view the consultancy arrangement apparently was tax effective. As we have seen, Horewood was not always remunerated on a consultancy basis. There were years in which it was salary only. And, as mentioned, there were also loans which Horewood explained as being necessary to enable him to keep going in the light of the personal pressure he was then under. The amount of the remuneration, and the balance of the package, was a matter for the directors. They were alive to the financial position of the company. Horewood's remuneration, as it was from time to time, was determined in light of that financial position and all of the circumstances affecting the company, which included the need to keep Horewood going which was a relevant consideration.

653. Counsel for the plaintiffs referred to Kizquari Pty Ltd v Prestoo Pty Ltd[20] in which Young J referred to the device of managers inflating their remuneration packages to the disadvantage of non-executive shareholders. Young J said that while allowing for this a court should not overly censure directors who make a bona fide attempt to estimate proper remuneration according to the information available to them. In that case Young J was provided with evidence as to the proper remuneration. He observed that the evidence made it easier for him to conclude as to the proper remuneration than it would have been for the directors.

656. The plaintiffs submit that the remuneration paid in respect of Horewood was inflated above that which was reasonable or proper. This is alleged to be in respect of the years 1996 to 2001 in which the remuneration varied in amount and make-up. Yet the plaintiffs called no evidence to establish, by reference to the actual circumstances, the level of remuneration that was reasonable or proper in each or any of those years, or evidence as to the reasonable or proper make-up of the remuneration package in each or any of those years, let alone the amount or range of the alleged inflated portion.

659. In truth, the plaintiffs' case on this matter proceeds on an assertion that in each year the remuneration paid, whatever it was, exceeded a reasonable or proper amount. It gives no credit for the lower amounts paid in earlier years, and it does not allow that the time might have come when Horewood might be paid on a basis that reflected factors such as the earlier sacrifice of low remuneration, and the improved fortunes of the company. It was a sweeping assertion which did not discriminate between the different amounts paid in the different years. That may not be surprising, having regard to the failure of the plaintiffs to call evidence in support. I conclude, without a shadow of a doubt, that the omission to call evidence was an advised decision taken for perceived tactical advantage.

662. The defendants did not call independent evidence as to the reasonable or proper level of the remuneration. They relied on their own evidence. That amounted to this, that what Horewood was paid was what he and Hore, as the directors, had considered appropriate in the circumstances as they were from time to time, including the vital importance of Horewood. I reject the plaintiffs' submission that the remuneration was decided on a haphazard basis and as the maximum payment that the company could bear. It is not a case of milking the company for all it would bear. I find that the directors were aware of, and considered the need for, the company to have liquidity, and at all times they were aware of the presence of Foody as a minority shareholder. Further, it is clear that in this small company in which pragmatic decisions were made from time to time on remuneration and other matters, there was input and comment from employees and the company's accountants on financial matters, including the impact of remuneration, which Horewood, and Hore, took into account.

665. In the end, considering the evidence overall, I am satisfied and find that the remuneration was reasonable and appropriate in the circumstances. Even if I were not of that view I would have concluded that the claim failed for want of an evidentiary foundation to support it. I add that on no basis would I have referred the issue to a special referee. The parties have had a trial and every opportunity to put their case.

669. This claim is not referred to in the amended points of claim. It appears as an unsecured loan of $340,696 in Musashi's financial statements for the year ended 30 June 2001.

672. According to Hore, 4T's was a company owned by Horewood and himself which invested in a couple of properties, one at 901/201 Collins Street, Melbourne, and the other in Union Street, East Brighton. Hore lives at the Collins Street property.

675. The purpose of the loan was to enable 4T's to cover "a short term deficit" on the Collins Street purchase. As with Harrisons Clocks there was no formal resolution of directors approving the loan or its terms. The lending was decided informally by the directors. Horewood said that the loan was to be repaid "in a matter of weeks". He said that the loan was incurred at the end of June and that it was repaid at the start of July. It was "a couple of weeks". No interest was paid because of the short period of time.

678. The plaintiffs submitted that interest should be paid for the period of the loan. I agree. On any basis the amount is modest. I will hear the parties as to the rate and amount, although I expect it to be agreed. The amount can then be written back into the accounts for the purpose of valuing Foody's shares.

682. This claim is not referred to in the amended points of claim. It arises in the following way. The company Campaspe Consulting Pty Ltd was owned by Hore. He described it as "now closed". Exhibit Z records that in 1998 he was remunerated as to $32,000 by way of consultant's fees paid to Campaspe. That was the only year in which a consultant's fee was paid. In the other years his remuneration was in the form of a wage. It is to be noted that in 1998 the amount he received in wages was $13,278, a significant reduction from $37,760 in 1997. It is apparent from Exhibit Z that Hore was not remunerated at a high level, and that from 1998 his remuneration was appreciably less than that received by Horewood. The aggregate paid to Hore over the six years to and including 2001 was $200,532, including the $32,000 in consultant's fees.

685. The plaintiffs' counsel submitted that it was not known what consultancy work Hore did for the $32,000, as he also received a salary. It is a sufficient answer to that query to note the significant reduction in the salary component. The evidence clearly suggests that for financial reasons it was decided, at that time, to split the remuneration between a consultancy fee and wages. As noted above, there was a financial benefit for Musashi in paying remuneration on a consultancy basis. Moreover, if the plaintiffs were concerned to establish that Hore did no work, or an amount of work that could not have justified payment of the $32,000, their counsel could have pressed Hore and Horewood for more detail. As it was, Hore did his best in giving evidence and did make references to the work he performed

688. Then the plaintiffs submitted that the consultancy fees, director's fees and remuneration received by Hore were "well outside a reasonable market remuneration for a director of a company the size of Musashi". It is to be noted that Exhibit Z does not disclose any director's fees paid to Hore. It is true that the defendants led no evidence to establish that the amount was reasonable. However, the more immediate, and perhaps more fundamental, point is that the plaintiffs did not call evidence to support their submission. That is, as was the case with Harrisons Clocks, the plaintiffs led no evidence as to the reasonable and proper level of remuneration for Hore in all the circumstances, let alone evidence as to the extent to which his remuneration exceeded that which was reasonable or proper.

691. Throughout the period Hore worked for Musashi and was entitled to be remunerated. There is no basis on which to suppose that his remuneration was not reasonable or proper in the circumstances as they were over the years.

694. To merely assert that the amounts paid to Hore exceeded a reasonable market remuneration for him does not establish the point. In my view the contention fails at the threshold. In addition to the lack of any evidentiary support, there is no basis on which to suppose that Hore's remuneration was not reasonable or proper.

698. First registered as a business name in Victoria in November 1993, Horewood and Hore became the proprietors of the name Athletes Advisory on 1 May 1994. An extract of the name generated on 15 June 1999 records the date of commencement of business as 3 September 1993 and the nature of the business as "Mail Order - Health Food Products - W/Sale/Retail Market Place". The current business address was stated to be 135 Williams Road, Prahran, which was also stated to be the address of the proprietors of the business name, Horewood and Hore. They resided at that address. An undated ANZ diary note in the court book refers to a request by Horewood for funding for a proposal. It was proposed that an activity, referred to as "Mail Order" would be mainly run by Horewood from a residential property (to be purchased for occupation by Horewood) fitted out with a fax and answering machine. The note stated that the likely vehicle was a partnership between Horewood and Hore trading as Athletes Advisory and that the products would be clothes and health products. The bank is recorded as having advised that it would require an equity contribution, a mortgage over the property, and a guarantee from Musashi. I interpolate that I do not know if such a guarantee was provided; at least no reference to it featured in the plaintiffs' submissions. I add too that the ANZ diary note would appear to pre-date the registration of the name, and I refer to it as part of the historical record and not as indicating that the Athletes Advisory business was implemented completely in accordance with what was indicated in the diary note.

701. In his evidence Horewood described the purpose of Athletes Advisory and the benefit derived from it by Musashi. In essence, it was a means by which market research could be, and was, undertaken. Musashi could not have done what was done under Athletes Advisory for the reason that Musashi operated as a wholesaler and, as such, could not be seen to compete with retailers to whom it supplied, whereas Athletes Advisory was apparently a new business and could operate at both levels. It was used to trial products not handled by Musashi. It also explored the operation and effect on Musashi of discounting stores. A mail order system was implemented as part of the exercise in order to gain information with which to assess the level of that market and thus the effect of it on Musashi. The testing of the market in this way, and in particular the establishment of the associated mail order business, was not an activity that Musashi engaged in.

704. The plaintiffs' submission refers to a document of Musashi called a creditor account inquiry which states that terms are 60 days and refers to "Consultancies". It lists a series of transactions between February 1997 and January 1998. The items include invoices and payments.

707. The plaintiffs pointed to a memorandum from Kenfield to Horewood dated 9 December 1998 in which he enquired as to Athletes Advisory, noting that Horewood and Hore were paid $2,000 and $1,000 per week respectively under R and D costs in 1995/1996. That produced the figure of $156,000 claimed in Annexure A for Athletes Advisory for 1996. The amount of $75,603 for 1997 is said to be derived from the creditor account inquiry, and the $11,657 for 1998 from other information. It should be noted that in Annexure A the amounts recorded against Ozimer Trading of $43,000 for 1999 and $42,000 for 2000 apply to Athletes Advisory.

710. The plaintiffs submitted that until evidence is produced to show otherwise, the Court should find that consultancy fees were paid to Athletes Advisory which benefited Hore and Horewood, and that these fees are not reported in the annual accounts of Musashi for the 1997 and 1998 financial years. That is correct.

713. The plaintiffs further submitted that the work carried out by Athletes Advisory as described by Horewood could have been done by Musashi. It was submitted that Horewood gave no evidence as to why it was necessary to set up a separate business that he privately owned to do the work. I reject this part of the plaintiffs' submission. Contrary to the plaintiffs submission, Horewood did give evidence as to why it was appropriate to conduct the activity under a separate name. It was, as previously stated, both to avoid conflict with Musashi's retailers and to research the market and learn about the selling practices of retailers. I accept Horewood's evidence in this regard. Hence, I do not accept that the Athletes Advisory venture represented a business opportunity wrongly diverted from Musashi. I accept that Musashi had the benefit of the knowledge gained from the exercise. At the least, that advantage was the development of an encapsulated product range.

716. The Court Book includes an ANZ document dated 3 July 1997 which is an application by Ozimer Trading in relation to a mail order business. Ozimer Trading was owned by Hore's son, Bruce Hore. The application stated that Ozimer Trading is taking over all Athletes Advisory accounts. Hore said that the accounts were direct mail and that Ozimer Trading took over the direct mail side of Athletes Advisory.

719. Horewood explained in cross-examination that the exercise with Athletes Advisory had been completed, and that an understanding of the market place had been developed so that decisions could be made. Encapsulated products had been trialled. They had done what they had set out to do. Accordingly, the project was stopped. It was no longer needed. Horewood said that the few accounts that remained were transferred to Ozimer Trading with the intent of running them down, with the exception of a few remote clients living in the bush who had nowhere else from which to buy their products. Horewood said that Musashi no longer has a mail order business.

722. The essence of the plaintiffs submission was that the exercise could have been carried out by Musashi. In effect, the business opportunity was wrongly diverted. I have rejected that submission. Nevertheless, it was on the basis of the submission that the plaintiffs further submitted that the business and any profit should be returned to Musashi. The plaintiffs claimed that Bruce Hore holds the business on trust for Musashi and should account for any profit made.

725. In relation the submission concerning Bruce Hore, it need hardly be pointed out that he is not a party to the proceeding and has not been heard.

728. On the basis that the work could have been carried out by Musashi, Foody said in evidence that it was unnecessary for Horewood and Hore to have been paid consultancy fees. He did not know if Musashi received good value for the consultancy services, his point was that the payment of fees amounted to "double dipping". Although the premise of the plaintiffs submission has been rejected, I will rule on the matter of the consultancy fees.

731. It is to be noted that counsel for the defendants proceeded on the basis that the figures mentioned represented amounts paid as consultancy fees. In the conduct of the defendants' case they did not seek to analyse the figures to identify that which was a consultancy fee and that which may have been incurred on another account. Rather, the defendants' approach was that the total amounts were consultancy fees and were properly incurred.

734. In my view the plaintiffs' submission must fail for the following reasons.

737. Athletes Advisory was not set up to compete with Musashi, and did not do so. At one point Foody said that Musashi engaged in some retail selling but, while there may have been an element of that, it was in nature a wholesale supplier of products. More particularly, the purpose of the activity was to engage in market research and product development, and the mail order aspect was conducted in aid of that. Furthermore, the result was beneficial to Musashi, as demonstrated by the new encapsulated line of products, and as must also be evident from the increased knowledge of how retailers conducted business. That is say, Athletes Advisory was a means by which Musashi increased its knowledge of the operation of the market, and as a result was able to make more informed business decisions. I find, and on the evidence I do not think it can doubted, that Athletes Advisory was an appropriate commercial exercise for Horewood and Hore to undertake in the best interests of Musashi.

740. Further, there was no evidence that Horewood and Hore received any personal benefit other than the receipt of consultancy fees for their work. The fees were paid by Musashi in respect of actual activity for which Musashi received a commercial and ongoing value. Moreover there is no evidence of loss or detriment to Musashi by reason of having paid the consultancy fees, other than the fact of the payments themselves. As against the fact of incurring those payments, Musashi has benefited from the research and development work.

743. Furthermore, the plaintiffs led no evidence to establish that the amounts paid as consultancy fees were beyond that which was reasonable or appropriate in the circumstances. Overall, there was a failure to relate the gross amounts to the nitty gritty of what was done and to call evidence as to the propriety of the fees in the particular circumstances as they were from time to time.

746. The concentration in the plaintiffs' case was upon the fact of the payments, that the work could have been done by Musashi, and a submission that "the business and any profit should be returned to" Musashi. It was also submitted that the business had been "given" to Bruce Hore, meaning, as I understood it, without any consideration or sufficient commercial explanation.

749. I accept Horewood's evidence as to the business when it was passed to Ozimer Trading. Athletes Advisory had served its purpose and was being run down. The defendants were not pressed hard in cross-examination for figures and documents that bore on, or showed the extent of, the business and the costs and revenues relating to it. It is possible there was so little left of it, and that Musashi had already achieved intended benefits from it, that it was a commercially open and reasonable decision for Musashi to pass what remained of it to Bruce Hore. It may have had no value, or negligible value. I do not know. There is no evidence as to the value of what passed to Bruce Hore. I assume in this regard that the evidence as to the business being passed to Bruce Hore meant that it was given to him for no consideration. There again the plaintiffs did not really press the witnesses to establish the detail of the dealing. At the same time, of course, one expects an explanation from a fiduciary. Unfortunately, and I think because of the bitterness of the litigation, at times both parties failed to keep their eye on the ball, and became too tactical and overly concerned with who had established what and who bore the relevant onus. In the end the evidence was skimpy on this issue. Regarding the evidence in its entirety, it is not established that what was passed to Bruce Hore was of appreciable value in terms of a saleable commodity. However, even if it were to be assumed to the contrary, there are other difficulties which the plaintiffs' submission must confront.

752. Having regard to the state of the business at that time, to the fact that the business had served its purpose, to the intention to run down the few remaining accounts, and to the fact it was acquired by a person who is not a party and has not been heard, the suggestion that the business be returned is inappropriate if not misconceived. Further, I am not satisfied that the business, as it was, continues to exist. What no longer exists cannot be returned.

755. The second aspect of relief is that any profit be returned by Horewood and Hore, and that Bruce Hore should account for any profit he made. There is no evidence that Athletes Advisory made a profit in the period in which it was owned by Horewood and Hore. Indeed, the plaintiffs quite failed to establish, even to seek to establish, with the witnesses, whether any and if so what profit was earned. They could readily have pressed the matter and, if they considered discovery to be insufficient, have asked questions and pressed for the production of relevant information. The plaintiffs have left it as speculation as to whether any profit was earned by the business activity of Athletes Advisory conducted by Horewood and Hore. The situation is the same with Bruce Hore. He is neither a party, nor was he called to give evidence with a view to identifying what he acquired, what became of it, and the profit, if any, made from or in relation to it.

762. Infinity Enterprises is the Japanese distributor for Musashi products. It is Musashi's largest single account. A person called David Chamberlain owns or is associated with Infinity Enterprises. He gave Horewood US$45,000. Horewood deposited the money in an account which he opened with a bank on the Isle of Man in or about October 1999. It was a personal gift, the reasons for the making of which were explained by Horewood, and the bank account was a personal account of Horewood's. In a way, the gift may arouse curiosity and suspicion, for it is a substantial sum of money, and it arises in the context of commercial dealings between Musashi and Infinity Enterprises. I have regard to that when considering the plaintiffs' submission.

765. When first asked, Horewood said that Musashi had not written off an Infinity Enterprises debt. When, a moment later, he was referred to a memorandum to Kenfield from Andrea Darke of Musashi, dated 9 June 1999, which referred to the write-off of an Infinity Enterprises debt of $54,348, Horewood said that there had been debt write-offs in the past. He said that the account is often adjusted one way or the other to bring it into line with what Musashi or Infinity Enterprises believe is owed. It was usually a reconciliation between the companies, rather than a write-off. In my view this evidence describes common and sensible business practice between companies with ongoing trading accounts.

768. The plaintiffs submitted that Horewood had not explained the write-off of $54,348. According to the plaintiffs, Musashi made the write-off so that Horewood could obtain a gift in his own bank account for US$45,000. That being so, the "gift" should be written back into Musashi's accounts from the date it was received by Horewood with interest. The plaintiffs further submitted that the amount is held on constructive trust for Musashi.

771. The premise of the plaintiffs' submission is that there is a link between the write-off and the gift. The write-off occurred in the period 1 July 1998 to 31 March 1999 and the gift occurred in or about October 1999. That is not sufficient to establish the link. In that regard it is to be borne in mind that the plaintiffs' submission involves an allegation of serious wrongdoing by Horewood. It is writing off an asset of Musashi in return for a sum of money to be placed in his own pocket. Such a serious allegation is not established on the skimpy facts relied on by the plaintiffs. Indeed the submission is really speculation.

774. I accept Horewood's evidence that the money was paid to him as a gift. I find that the write-off occurred in the ordinary and regular conduct of Musashi's business. I reject the assertion of a link between the two for the purpose of Horewood wrongfully diverting money from Musashi to himself.

778. This Singapore registered company is referred to in the amended points of claim but not in Annexure A. Another Singapore registered company, Musashi Asia Pte Ltd, is referred to in the amended points of claim and also in Annexure A in relation to $32,637 in 1991. In substantiation of that amount, Annexure A refers to certain documents in the court book. They are three written requests by Musashi to the ANZ bank to transfer funds to the credit of named persons in Singapore. The requests were dated 2 and 4 October and 28 November 1990 respectively. Presumably the amounts total $32,637. The plaintiffs used the opportunity of the trial to cross-examine as to both companies.

781. In their final written submissions and address, the plaintiffs did not press for any relief in resect of Musashi Asia Pte Limited. That claim was in effect abandoned, like so many other of the claims or allegations. However, relief was sought in respect of 32Q Pte Ltd. What was sought was that a forensic accountant make further inquiries as to the reasons for the establishment of 32Q Pte Ltd, and the use to which that company was put by Horewood.

784. Having regard to the effort applied to, and the cost associated with, the pre-trial work and the trial itself, this seemed a surprising and unsatisfactory approach. I asked counsel what inquiry the accountant could make, observing that a trial had been had with the power of subpoena. I was told that he could make inquiries in Singapore by telephone and by obtaining bank statements of the company. Based on my observation of Foody and the history of this litigation I am in no doubt that if I took the course requested by the plaintiffs and directed a reference to an accountant, the reference would become another arena of disputation which would probably return to the court for determination.

787. I will not take the course sought by the plaintiffs. That is not merely because of the legitimate private and public interest in the finality of litigation. It is because the plaintiffs have not established that course as the appropriate disposition of this particular matter.

790. The Singapore companies, and a Malaysian company, Musashi Amino Products SDN BHD,[21] were registered in the 1990/1991 period for the purpose of Musashi developing a market for its products in those countries. Horewood and Hore were the directors and shareholders of each company. The establishment expenses were paid by Musashi and they were treated as loans between the companies.

793. Musashi Asia Pte Ltd was set up to market the products. 32Q Pte Ltd was established to hold funds produced from sales. Rather than leaving funds in the marketing company, which had local cheque signatories, funds could be transferred to 32Q Pte Ltd where they would be quarantined for future use.

796. The Singapore venture did not succeed. Losses were incurred and, as a result, no excess funds or profits were placed with 32Q Pte Ltd.

799. Woodford was given responsibility for the marketing company after it had commenced. He had heard of 32Q Pte Ltd, but had had nothing to do with it. That seems understandable. As excess funds were never transferred to 32Q Pte Ltd there was no reason for it to come to his attention, or (if it had) for him to have particular cause to remember it. Woodford also said that he did not know who owned 32Q Pte Ltd or that it was related to Musashi. I do not question Woodford's honesty in giving that evidence, but his recollection in that respect may have been affected by the passage of time, as it was in other respects. At the same time, his evidence may be correct. Whatever the case may be, the point is not critical.

802. The venture in Singapore being unsuccessful, the companies were closed down and have remained dormant. Woodford went to Singapore to close down the marketing company, he thought in 1992. 32Q Pte Ltd was closed down subsequently, Horewood expressing the belief in cross-examination that that took place maybe five or six years ago. Any amounts owed by the companies to Musashi were written off.

805. In setting out these matters I have accepted the evidence of Horewood and the evidence of the defendants' other witnesses consistent with it.

808. What, then, was the basis on which the matter of 32Q Pte Ltd should be referred to an accountant for further inquiry? The specific matters relied on are an undated facsimile from Horewood to Reddy, and an undated page of handwritten notes of Horewood. The letter to Reddy set out "a brief outline of the letter I need to keep my affairs in Singapore company 32Q". Underneath that was written "Dear Tim, This letter is to confirm that the recent money transfer of £7,477.50 was a personal loan from me to your company. Best Regards. L Reddy".[22] The page of notes is headed "32Q", underneath that the word "Need", underneath which was written "Documentation on" and under that in separate bullet points "Loans to Stables", and under that "Heartland and Reddy" and some handwritten notes relating to Stables, and Heartland and Reddy.[23]

811. In cross-examination Horewood said that he did not remember the facsimile, could not recall to what it referred, and could not recall if he had borrowed £7,477.50 from Reddy. He did not know if the letter had been sent to Reddy. He said, in answer to the specific question, that he had not borrowed any money from Reddy. This cross-examination occurred on 13 March 2002. Earlier in his cross-examination, on 7 March 2002, Horewood several times denied having borrowed money from Reddy. On that earlier occasion he had been questioned about the handwritten note. He could not explain the contents of the note.

814. The plaintiffs' submission was that this evidence of Horewood was not credible given the establishment of the Musashi office run by Woodford. That being so, a forensic accountant should be appointed to make inquiries.

817. I do not find that these impugned aspects of Horewood's evidence are "not credible". I find that Horewood's evidence on the matter generally is credible, and I accept it, as I have previously stated. I do not find his lack of memory all that surprising, having regard to the elapse of many years following the events in question. While the documents are not dated, and their date of writing was not established, it is probable that they were written within a few years of the establishment of 32Q Pte Ltd in 1990. Further, there are no external indicators that the letter was sent to Reddy. I am not satisfied that it was sent. Even if the letter was sent, there is no reply from Reddy, and no other evidence of the matters referred to in the letter and notes.

820. In my view, these matters do not provide a sufficient basis on which to conclude that Horewood's evidence is "not credible", let alone to justify, as a matter of justice between the parties, an order referring the dispute to an accountant to conduct an inquiry. There is, in any event, no room for an inquiry as to the reasons for the establishment of 32Q Pte Ltd. I have made a finding as to that, and that concludes the issue.

823. As to an inquiry into the use to which Horewood put the company, I am of the view that such an inquiry would be used by Foody as something akin to a commission of inquiry. In truth, the difficulty, and the unsatisfied thirst for agitation, springs from Foody's mind. He said in evidence that he was suspicious of the Singapore set-up, with Hore and Horewood being the directors and shareholders, and he could not believe it had a benign explanation. In his view, the companies were set up so that Horewood and Hore could siphon into their own pockets money that really belonged to Musashi. It had never occurred to Foody that he might be wrong.

826. For these reasons I will not order a reference to an accountant for further inquiry.

830. It is common ground, or at least it was not disputed by the defendants, that in the financial year ended 30 June 1994 Bruce Hore borrowed $50,000 from Musashi. Counsel for the plaintiff said in final address that the money was borrowed to buy a house in Williams Road, the owners of which are Horewood, Hore and Bruce Hore. It was submitted that the loan benefited Horewood and Hore and should have been included in Exhibit Z as a related party loan.

833. It is not as clear as it might be that the money was borrowed for the purpose of buying that house. As I have noted, Hore is not a party and did not give evidence. Horewood was asked a few questions about the loan in cross-examination. He said that the house is in the name of himself, his father, and his brother Bruce, that he lives in the house, but that his brother normally does not. He was asked if he had borrowed money from Musashi to buy the house. He answered, "No, I think my brother did". He was then asked whether that would be the $50,000 loan to Hore made some time ago, and he answered, "I think so, I am not sure". Counsel for the defendants did not agree or concede that Hore had used the borrowed funds to assist in the purchase of the house, and pointed out that Hore had not been heard.

836. The point is important because the use of the borrowed funds to purchase the house is the foundation of the relief sought by the plaintiff. It was submitted that "the property" is a personal benefit obtained in breach of fiduciary duty and must be accounted for. It was further submitted that the property should be held on constructive trust for Musashi. It is axiomatic that the plaintiffs must establish a nexus between the loan and the property for relief of that nature to be available. Such relief is not lightly to be granted and certainly not on inadequate proof. In my view, the evidence of Horewood referred to above, which is the evidence the plaintiffs rely upon, is not sufficient to establish the connection.

839. It is to be noted in this regard that the plaintiffs did not place before me a copy of the title at relevant times, and documents pertaining to the acquisition by Horewood, Hore, and Bruce Hore, of their respective interests in the property and their respective financial contribution. For all I know there may be a third party such as a mortgagee with an interest in the property.

842. In addition, or as an alternative, to the relief in the nature of a trust, the plaintiff submitted that "the property is a personal benefit obtained in breach of fiduciary duty and must be accounted for accordingly".

845. I do not know when or in what circumstances Horewood and Hore acquired their interest in the property and apparently went on title. Who came first? I do not know. I do not know if Bruce Hore purchased the property as sole purchaser, whether Horewood and Hore contributed, and if so when, and the circumstances in which Horewood and Hore acquired their interest. Without knowing the facts, what is the asserted "personal benefit"? As the plaintiffs did not pursue the matter, there are insufficient facts on which to base the finding for which they contend. However, this is not the only difficulty confronting the plaintiffs' submission.

848. Musashi's financial statements record that at 30 June 2001 (and at 30 June 1998, 1999 and 2000) the amount owing by Bruce Hore was $26,379. At 30 June 1997 the amount was $46,378. I note that in 1997 and 1998 the item appeared in the accounts as "Bruce Hore T/as Ozimer Trading", and that in 1999 loans were recorded separately to Bruce Hore and Ozimer Trading.

851. It seems likely, having regard to the evidence in the case generally, that the terms of the loan to Bruce Hore were not reduced to writing. The plaintiffs' submitted that the terms of the loan are unknown. That is correct. The evidence did not inform me of the terms. That may be as much due to the failure of the plaintiffs to ask appropriate questions in cross-examination and even to subpoena Bruce Hore, as it is to the defendants not volunteering the evidence. For their part, the defendants said that the onus was on the plaintiffs to establish facts to support the claim. As a result of the way the case was conducted, all I know is that $50,000 was lent in the 1993/1994 year and that $26,379 was owing at 30 June 1998 to 2001 inclusive.

854. Counsel for the defendants submitted that this evidence was insufficient to establish that the loan transaction was not on commercial terms. As to commerciality, the reduction in the amount owed between 1994 and 1998 perhaps implied that the loan was being paid off on a commercial basis. However, the difficulty confronting the defendants' submission is that the debt had not been reduced since 1998, which indicates uncommercial dealing. It is possible that no further payments were made due to circumstances concerning Bruce Hore which, reasonably, led Musashi not to enforce payment, but that is speculation. In the absence of evidence explaining the situation, it was not surprising that counsel for the defendants submitted that as the terms of the loan were not known the plaintiffs had not established that it was uncommercial. Further, it cannot be assumed that the loan was uncommercial.

857. Overall, the evidence on this matter suffers from such inadequacies that the relief sought must be refused. It seems to me, however, that the matter may be approached in another way. Whatever the terms as to repayment and interest may have been, it is established that for several years no payment has been made on any account. In the context of lending by a business, and in the absence of any explanation as to the non-payment, it is a reasonable inference that the family relationship led to Musashi granting Bruce Hore a loan on uncommercial terms. That is, the directors of Musashi have exercised their power in relation to the loan in the interests of Bruce Hore, rather than in the interests of the company. The appropriate course, for the purpose of valuing Foody's shares, is that the loan and interest thereon be treated as written back into the accounts. If it is necessary I will hear the parties as to the rate and amount of interest.

861. This claim concerns a loan of $95,000 made by Musashi to Ozimer Trading in the 1999/2000 financial year. The plaintiffs submit that Horewood and Hore were related parties and that the loan should have been included in Exhibit Z as a loan to a director related entity.

864. It should be noted at the outset that Annexure A includes Ozimer Trading. The claim is for $84,534 in 1998. I have already pointed out that the amounts relating to Ozimer Trading for 1999 and 2000 relate to Athletes Advisory. The amount of $84,534 was in respect of consultancy fees and was addressed as such by counsel for the defendants in final address. That address was followed by the address of counsel for the plaintiffs. In that address counsel for the plaintiffs did not press the claim in Annexure A. It was abandoned, in effect. In its place, the plaintiffs raised and relied on the loan of $95,000.

867. The loan of $95,000 appears in that amount in Musashi's financial statements for the years ended 30 June 2000 and 2001. In his evidence Hore said that he did not recall the loan. Horewood stated that he thought the loan was made in regard to the Growling Dog Bar and Bistro for the purchase of stock, equipment and running costs. He described the loan as "open ended". There was no written agreement of loan and there was no board minute. He did not know if interest was payable. He did not know how Ozimer Trading was going to repay the loan. He expected the loan to be repaid.

870. The business name Ozimer Trading was registered on 11 June 1997. On 21 July 1997 Bruce Hore signed a request to the ANZ bank to open an account for him in the name of Ozimer Trading. Documents were also signed for Bruce Hore and his father to be signatories on the account, Bruce Hore providing his signature as director, and his father as secretary. I find that Bruce Hore was the proprietor of the name Ozimer Trading.

873. I referred above to Athletes Advisory being taken over by Ozimer Trading in 1997.

876. It appears from Exhibit S that the business name Growling Dog Bar and Bistro was registered on 17 March 2000 and that the business commenced on 1 April 2000. The initial proprietors were Hore, Bruce Hore and Horewood, until 4 April 2001 when Musashi became the sole proprietor. That was the state of affairs as at 21 February 2002, being the date of the historical extract which constitutes Exhibit S.

879. Horewood and Hore gave confused and somewhat contradictory accounts of the historical ownership of the Growling Dog Bar and Bistro. The events in question were relatively recent in time as compared to many other matters they were asked about and I concluded, observing them closely, that the vagueness and uncertainty in their accounts was due in part to an element of evasion and non-responsiveness. Regarding the evidence overall, I conclude that the historical extract correctly records the ownership of the name and business Growling Dog Bar and Bistro.

882. Thus far then, the position is that (a) Musashi lent $95,000 to Ozimer Trading, and (b) Ozimer Trading was not the proprietor of the Growling Dog Bar and Bistro.

885. Consistent with the historical extract showing a change of proprietorship to Musashi, Hore said that "we" sold the Growling Dog Bar and Bistro business to Musashi. Hore further said that he and Horewood thought it was a lucrative business. It seems that their expectations were not fulfilled. Musashi lost money and the business was closed. I note that Horewood denied that Musashi bought the business. I do not know whether the critical word in the answer was the word "bought" in the sense of referring to a purchase for money. Whatever the position be, I find as a fact that Musashi acquired the business.

888. I should mention that in his evidence Collie said that he had not heard of the Growling Dog Bar and Bistro business. As a result the business had not been brought to account in the financial statements of the company.

891. It was submitted by the plaintiffs that the explanation of Horewood and Hore as to the purchase of the Growling Dog Bar and Bistro was not credible, and that they and Bruce Hore were the only beneficiaries of the loan. I do not accept that submission. The only evidence linking the loan to the Growling Dog Bar and Bistro is the tentative, and in my view inconclusive, evidence of Horewood. Hore could not recall the loan. The real link is with Bruce Hore as the proprietor of Ozimer Trading. The fact that Hore was a proprietor of the Growling Dog Bar and Bistro does not establish that the loan was to that business as distinct from being a loan to Bruce Hore (or Ozimer Trading) for him to use as he determined. He might have applied the loan funds to or in connection with the business, but the evidence is not sufficient or credible to enable that conclusion.

894. It is, however, clear that a loan was made. That is not disputed. The defendants' point is that it is not established that the loan was not on commercial terms.

897. Horewood's evidence as to the lack of agreed terms accords with the position on other matters, and I accept that part of his evidence as a correct statement of the position. In the absence of an explanation by Horewood and Hore, I conclude that they determined to advance funds of Musashi without specifying terms as to repayment and interest and, indeed, on the basis of leaving those matters at large, because of the family relationship with Bruce Hore. The defendants provided no explanation as to how or in what way lending on such terms was in the best interests of Musashi. No facts and figures as to the lending arrangement (or as to the Growling Dog Bar and Bistro) were put forward. In these circumstances there are two consequences. First, for the purpose of valuing Foody's shares, the loan and interest on it must be written back into the accounts. Secondly, the accounts should include the Growling Dog Bar and Bistro. I will hear counsel on these matters, as may be necessary, including as to the rate of interest.

901. This claim for $89,000 in 1993 is contained in Annexure A. It was the total of several telegraphic transfers of monies overseas. Early in the trial counsel for the defendants stated that the defendants had "lost track of that one". Counsel conceded that the $89,000 should be written back into Musashi's accounts for the purpose of valuing Foody's shares. There should be an allowance for interest.

905. Here the plaintiffs stated that Horewood and Hore had "admitted to uncommercial loans" from Musashi for their personal benefit. Two things should be said about this. First, Horewood and Hore did not make that admission. Even International Cadence was not admitted in that sense. Secondly, the plaintiffs' counsel told me that the uncommercial loans referred to were those in the preceding part of the written submission which I have dealt with above.

908. The submission drew attention to evidence of Collie and Brierley as to not seeing documentation for loans to Horewood and related parties, and to evidence of Collie that no interest payments had been received from Horewood and Hore on loans from Musashi. It is correct, as already mentioned, that there was a lack of documentation for loans. Collie's evidence related to the period after 4 December 1997. The financial statements for the year ended 30 June 1999 record, in relation to Horewood's then shareholder loan balance of $698,647, that it was an unsecured interest free loan made before 4 December 1997, and that repayment terms had been set for the loan. In re-examination Collie said that he was not aware whether interest had been charged on the loan prior to 4 December 1997. In fact, interest had been charged on the loan according to Stewart, whose evidence I accept. Of course, Stewart was not employed throughout the whole period to December 1997. Since December 1997 interest has not been charged. The repayment terms referred to in the financial statements are that about $40,000 be paid off the loan each year. In the 2001/2002 financial year Horewood was remunerated via a salary of $60,000 and a consultancy fee of $250,000. He believed he would be able to reduce the debt "at a good rate".

911. The plaintiffs' counsel criticised this situation on the basis that the annual repayment was too low, there was no schedule of payments, and that Horewood was being allowed to take as long as he wanted. It was submitted that Horewood had not provided "any evidence that that is of benefit to the company", and it was submitted that it clearly was not.

914. In my view there is an air of unreality about this submission. I accept Horewood's evidence as to repayment. The balance at 30 June 2001 had reduced to $647,947. The loan is not to an independent third party. It is to the person who is the central and driving force in the company, and it was necessary to enable him to keep going in the circumstances previously obtaining. He is the managing director and fulfils other roles within the company. He is essential to its operation and success. He is the person, above all, who is staking himself and his assets on the company succeeding. He has had to stake assets as security for financial accommodation for the company. Foody has not done that. Foody has put in $90,000, but has not otherwise put any asset at risk for the benefit of Musashi. It is Horewood and Hore who have borne the burden, and continue to do so. Foody, of course, stands to benefit from their efforts as a result of any increase in the value of his shares. It would be wrong in my view not to have regard to these realities in considering the propriety and reasonableness of Horewood's loan arrangement. In effect, the arrangement is part of his overall remuneration package. In my view the arrangement is one that was open to be made and was reasonable in the circumstances. I conclude, contrary to the plaintiffs' submission, that the arrangement may properly be regarded as one that is of benefit to the company.

Use, purchase and sale of imported luxury vehicles

918. The plaintiffs' submission commenced with the statement that Horewood had admitted using Musashi owned vehicles for personal benefit. I do not accept the correctness of that statement. I find, on the evidence, that the vehicles were used for Musashi purposes.

921. The submission then asserted that there is a question whether the vehicles were sold to directors or third parties at depreciated value, and that Horewood's evidence had not answered the question. In my view no such question arises on the evidence. The evidence is that Musashi received the proceeds of sale of the cars. Horewood said that the cars were not sold at their depreciated value, they were sold for the sum that could be obtained for them. Horewood's evidence indicates that they were sold for market value, not at their "depreciated value". Horewood was not pressed further on the sale price of the cars in his evidence, and the plaintiffs led no evidence as to the market value of the cars and the price at which they were sold. The plaintiffs' submission fails.

925. To this point I have dealt with the claims put by the plaintiffs in their written and oral submissions. Some further matters should be mentioned, lest a claim intended to be relied on by the plaintiffs is thought to have been overlooked.

These fees are referred to in order 4 sought by the plaintiffs. It seems therefore that the plaintiffs are claiming that the amount of these fees be treated as returned to Musashi with interest. The contention is that the fees and the loans back were an arrangement by which Horewood moved Musashi funds overseas and back for his personal benefit. This was the subject of a substantial submission by the defendants which counsel for the plaintiffs did not clearly meet in their submissions relating to the Goss shares. It is sufficient for me to say that I accept the defendants' submission. I find that the consultancy fee was reasonable and justified.

I have not dealt with some items in Annexure A. That is because they were not pressed by the plaintiffs in final address. In this category are Scoop Nominees Pty Ltd, M.E. MR Pty Ltd, Algivit and Stables. The Singapore and Malaysian companies were mentioned in dealing with 32Q Pte Ltd, but the claims concerning them in Annexure A were not then dealt with because the plaintiffs did not press those claims. And when dealing with Ozimer Trading I noted that the claim in Annexure A was not pressed. As counsel for the defendants had not known the course the plaintiffs' submission would take, they addressed the claims in Annexure A, among other things. The claim in Annexure A concerning Algivit is for $28,036 alleged to have been unnecessarily written off. Having considered the evidence, I accept the defendants' submission that the debt was properly written off. I have already rejected Foody's evidence concerning Action Advertising and bogus invoicing, in the course of which he referred to Algivit. The other claims concerned consultancy fees and Foody's attack upon them as unnecessarily incurred and unreasonable in amount. In each case I accept the defendants' submission as correct on the facts. Apart from anything else, the plaintiffs led no evidence as to the reasonableness or otherwise of the fees. There is no basis on which it could be found that any of the fees were improperly charged or unreasonable in amount. Each claim fails.

933. The present is a clear case of oppression or unfairness to a minority shareholder within the meaning of the present s 232 of the Act and its predecessor provisions in the corporations legislation. I was referred to numerous authorities concerned with the interpretation and application of those provisions, particularly by the plaintiff. I have regard to them all and to the authorities referred to by counsel. The authorities are referred to, in my view sufficiently for the purpose of this case, in the judgment of the Court of Appeal in Aqua-Max Pty Ltd v MT Associates Pty Ltd.[24] I referred to cases which indicate the approach to the section in Foxwell v Westbury Joinery Co Pty Ltd.[25]

936. Prior to the trial the defendants were astute to the strength of the case on oppression. The points of defence admitted that Foody was not given notice of the meetings of members of Musashi in 1991, 1992, 1993 and 1995. It also admitted that from time to time Foody was excluded from the management and financial affairs of Musashi. Those admissions were correct. Although the points of defence put many other matters in issue, those admissions provided the basis for the statement in the last paragraph of the points of defence that the defendants agreed to an order that they purchase Foody's shares at fair market value. It was denied that Foody was entitled to any other relief.

939. The defendants maintained that position during the trial. It was realistic that they did so. In the ordinary case the defendants' approach would most likely have been enough to produce a resolution before trial, but not in this case, due to Foody's desire to press the derivative claim and other grounds in the oppression claim.

942. In their written submissions counsel for the defendants made express reference to further omissions in the conduct of Musashi's affairs with respect to Foody. In addition to the omissions admitted in the points of defence, it was acknowledged that in an affidavit sworn on 23 December 1998 Horewood had admitted conduct which might establish a factual basis for a finding of oppression,[26] including failing to invite Foody to attend meetings for the years ended 30 June 1997 and 1998[27], which extended the admission in the points of defence. Counsel's written submission stated, correctly, that there had been "no contest by the defendants in respect of these allegations". That reference to allegations included the admission in the points of defence that the defendants had from time to time excluded Foody from the management and financial affairs of Musashi.

945. It was plain throughout the trial, and it is only emphasised by the closing submissions, that the defendants' conceded oppression on the above basis for the purpose of attracting the Court's power to grant relief. It was in the interests of the defendants to approach the case in this way, as an order for the purchase of Foody's shares was a desirable step in achieving finality in the litigation and the relations between the parties.

948. Thus, oppression being established, the defendants submitted that there should be an order for the purchase of Foody's shares at a value to be determined by a special referee. For that purpose the amount of $89,000 plus interest relating to International Cadence must be written back to the accounts. It was submitted that the basis of the valuation should be future maintainable earnings, and that the valuation should be conducted on the basis of the accounts audited by Brierley to avoid reagitation of matters argued at the trial.

951. In my view the matters conceded by the defendants are sufficient to constitute oppression, unfairness or discriminatory conduct within the meaning of s 232(e) of the Act and its predecessor provisions as they were in force from time to time. These matters were not isolated incidents or accidental occurrences. They were deliberate acts done with the intent of keeping Foody away and in the dark. They reflect an attitude of disdain towards Foody's rights as a minority shareholder and amounted to a denial of his rights as such. In addition, they constituted a knowing breach by the directors of their duty, and the law, to duly convene and conduct meetings of members.

954. I should add, as a matter of fairness, that Foody's case also relied on other irregularities or omissions in connection with meetings and the provision of information. One complaint was that minutes of meetings of members stated that Foody was present when he had not been and, indeed, when he had not even been aware that the meeting was held. It is unnecessary to elaborate on these further matters.

957. Foody was not content to succeed on the basis conceded by the defendants. His amended points of claim contained other grounds of oppression which he persisted in pressing for several reasons: apparently to vindicate himself, but also, and most importantly, as a way of attacking the credit of Horewood and Hore, and further, as a means of achieving more comprehensive relief than a mere order for the purchase of his shares.

960. It is relevant at this point to refer to the Court's powers if oppression is established. Section 233(1) provides that the Court may make any order it considers appropriate in relation to the company, including an order of the type referred to in para (a) to (j) of that sub-section. The section confers a discretion on the Court to determine the relief that is appropriate and just, as between the parties, in all the circumstances of the case. Of course the discretion must be exercised judicially. The power extends to granting compensation additional to the amount to be paid or allowed for the purchase of Foody's shares. Gillard J referred to the power to make a compensatory order in MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 2).[28] As Gillard J pointed out, compensation is not an open ended concept to be granted in the manner of palm tree justice. It must have a sound and cogent basis in the facts, and be appropriate and just as between the parties.

963. I refer to the matter of compensation having regard to paras 16, 17 and 18 of the orders sought by the plaintiffs. Paragraph 16 seeks payment to Foody of the amount garnisheed ($29,676.37) with interest. Paragraph 17 seeks payment of the legal costs Foody paid his solicitors to obtain his share transfer ($9,164.48) with interest. Paragraph 18 seeks damages for miscellaneous acts of oppression as the Court thinks fit or appropriate. As expressed, the claim for damages is at large. Subject to the actual relief sought in that respect by counsel for Foody in final submissions, the damages must be limited to the matters referred to in the particulars.

966. It is now convenient to refer to the other grounds of oppression relied on by the plaintiff. It is useful to identify them, although in view of the above finding of oppression it is not necessary to reach a concluded view on each of them and I do not do so. A reason for referring to them is that they lead on to the relief sought in paras, 16, 17 and 18 of the orders sought by Foody. I deal with the grounds in the order in which they appear in the amended points of claim, commencing with para 14.

969. The first ground is that Horewood and Hore wrongly terminated Foody's position as an employee and director of Musashi without prior warning. Particulars of the allegation referred to paras 2 and 3 of Foody's further and better particulars dated 15 June 1999. Those paragraphs provided particulars of loss and damage. They were not particulars of the allegation of wrongful termination of employment and directorship. In other words, no particulars were provided of the allegation. Nevertheless, the issues were agitated during the trial and counsel for the plaintiffs made a submission in support of the allegation.

972. The plaintiffs' submission commenced with the proposition that Foody was a director long before the official appointment on 7 September 1990. I have already concluded to the contrary. I repeat, the board first resolved to appoint Foody on 7 September 1990 and the board rescinded that resolution on 8 October 1990.

975. The plaintiffs' submission then referred to Foody's role in the company, as to which I have already made findings.

978. It was then submitted that Foody was dismissed because Horewood was concerned about Foody's questioning of Musashi's distributors concerning the movement of monies overseas. In addition, it was submitted that Foody's dismissal was due to the fact that he raised concerns about Horewood's use of the export grant cheque as collateral for a loan of $250,000 from the ANZ bank for the purpose of paying that sum to Goss as the final payment for the purchase of his shares. According to the plaintiffs' submission, Foody was not dismissed because he had failed to carry out the obligations and duties of his employment.

981. I accept that Horewood was concerned and upset at Foody's questioning of Reddy and the Thailand distributor. I accept Horewood's evidence as to these matters. I find that Foody's manner in dealing with the distributors was reasonable cause for Horewood to be concerned with Foody both in the short term and as to his future role and employment in the company. I also accept Horewood's evidence as to the other issues which led to Foody's removal as a director.[29] I find that these matters, the drug importation matter, his refusal to leave Australia, and the fact that he had become an increasingly disruptive presence, led to Foody's dismissal on 23 October 1990. I find that the decision to dismiss Foody was made in the context of, and having regard to, these matters. I reject the plaintiffs' submission as to the reasons for Foody's dismissal. Quite simply, I prefer the defendants' evidence to that of Foody.

984. In dealing with this issue I have not found it necessary to refer to the defendants' submission as to the consequence of Foody not having become a shareholder until 1 July 1991 when the share sale agreement was signed. The consequence was that as Foody was not a member until then, any preceding conduct of Horewood and Hore was irrelevant. That is because s 232 is concerned with the person as a member of the company, as distinct from the capacity of an employee or officer of the company. Counsel for the plaintiffs sought to meet this submission by relying on a passage in Re Spargos Mining NL[30] concerned with the legislative expression "the interests of members as a whole". The defendants submitted that the plaintiffs' reliance on Re Spargos was misplaced, as the plaintiffs' submission did not allow for the different situation of the plaintiffs in Re Spargos. In view of my findings on the present and other issues it is not necessary for me to deal with the plaintiffs' submission. If it were necessary, an issue would arise as to whether the payment of $90,000 to acquire a 10% shareholding had the result that oppressive conduct in relation to Foody might properly be able to be taken into account as such from that time, particularly in the context of Horewood's statement as to employment and being a director.

987. The next ground is that Horewood and Hore, in bad faith, slandered Foody's name and reputation to officials of DILGEA. Whereas the particulars in the amended points of claim relied on a range of matters, the plaintiffs' final submission relied on a letter Horewood wrote to the Department on 11 February 1992. Horewood was cross-examined on this letter and Foody essentially denied the allegations. Horewood wrote the letter a long time after Foody's employment was terminated, and at a time when Foody was in the U.S. attempting to obtain a return visa. By writing the letter Horewood was seeking to ensure that that Foody was not granted a visa. He did not want him back in Australia. The Magistrates' Court litigation was on foot and Foody had not been prepared to give up his shareholding. I formed the view that the letter engaged in some embellishment and mis-statement of the actual position.

990. Subject only to the matter that I am about to mention, the prior finding of oppression means that it is not necessary to reach a concluded view on this matter. The further matter concerns the use of the word "slander" in the amended points of claim. This provoked the defendants in their points of defence to deny that any defamatory words were spoken by Horewood and, if they were, to allege that the occasion of the publication was one of qualified privilege. The plaintiff filed a reply, but said nothing in response to this defence. There was no plea of malice. The plaintiffs did not run the issue of "slander" as one would in a defamation case. It was run as one of the grounds of oppression. As oppression has been found on other grounds it is not necessary to rule on the defences, or to consider the defendants' submission that the slander did not relate to Foody as a member of the company.

993. The next ground concerns dividends. The ground alleged is that since April 1990 the defendants failed to pay dividends to Foody although they had been paid to other shareholders. I referred to this allegation at [148] where I pointed out that it was wrong. No dividends were paid.

996. Not surprisingly, in final address the plaintiffs dealt with the matter of dividends in a totally different way. While accepting, correctly, that a failure of the directors to declare a dividend or to strike a dividend at as high a rate as profits might allow did not, in itself, constitute unfairness,[31] the plaintiffs submitted that the failure of the directors to consider paying a dividend in respect of the capital profits, or to formulate a policy as to dividends, particularly in light of the increase in remuneration and other personal benefits received by the directors, was unfair to and oppressive of Foody.

999. At one point in his evidence Horewood said that a dividend was not paid because it was desired to retain as much capital as possible in the company because, as he said, "we are an unprotected industry ... we are quite fragile". That evidence is to be understood in the context of the years in which the company was financially troubled. Also it is commonplace for owners of private companies to keep as much capital in the company as possible. It is also to be remembered that Foody was remunerated at a rate above Horewood and Hore during his employment. Nevertheless, while Foody received his fair share at the time of his employment, and perhaps more, such evidence is but part of the entire context and does not provide an answer to the present issue. In the same way, the mere fact that in more recent years Horewood's remuneration increased, and I do not overlook the benefit of loans, does not establish the plaintiffs' submission. Hore's remuneration was not large. In relation to Horewood, the benefits he receives must be considered in light of his role in and importance to the company. He is the person whose assets are at risk (and so are Hore's) and the person with overall responsibility for the company. It must be accepted that he is entitled to fair remuneration for undertaking those risks and the time and effort that he provides to the company. At the same time, there can be little doubt that irrespective of the extent to which the financial circumstances of the company improved, Horewood and Hore would not have declared a dividend. In the years of struggle and conflict since 1990 Horewood and Hore were not going to carry out an act of kindness that put money in Foody's pocket. I would and do find that Horewood and Hore were aware of their power to declare a dividend. There are, for instance, references to the matter of a dividend in minutes of annual meetings, and Horewood and Hore would not grant one for that simple, but discriminatory, reason, regardless of the company's financial circumstances. Yet, as I have said, they also wished to keep as much money in the business as possible, and that is an accepted reason for not declaring a dividend. However, when in more recent years the financial position of the company improved and Horewood's remuneration was increased, the failure (as I find it to be) to consider the payment of a dividend on proper grounds, having regard to Foody's position as a shareholder who had never received a return on his shares, amounted to unfairness and discriminatory treatment.

1002. The next grounds are delay in issuing Foody with his shares, preventing Foody from properly performing his duties as a director, refusing him access to the business and financial records of Musashi and withholding information from him, and in para 14(g) a miscellany of matters. I do not overlook any of these matters, or the evidence and submissions concerning them, but the findings of oppression already made are more than sufficient to dispose of the case. For this reason I will not deal with these grounds, with the following exception.

1005. The exception is the matter of the Magistrates' Court claim and the loss to Foody under the garnishee order of $29,752.37. I stated my conclusions on this matter at [120]. I reached those conclusions having carefully considered the evidence given by Foody, Horewood and Hore. Each gave evidence for a sustained period, Horewood in particular, and the benefit of observing them and noticing the hesitations and other matters that do not appear in the transcript was significant. On this aspect, I accept Foody's evidence, appreciating that on other matters I have not accepted his evidence and have indeed, been very critical of him. Here, however, I find there was a system of checking through the card items, agreeing on what was personal or business, and settling the matter. That happened in this case. I am satisfied, and find, that no amount was owing. I find too, as stated at [120], that the object of Musashi's actions was to force Foody to give up his shares with little or no recompense for his investment. This clearly constitutes oppression of Foody.

1008. There are also the derivative claims on which the plaintiffs have succeeded. They constitute additional grounds for the ultimate finding of oppression. They require no further consideration to establish that conclusion. The consequence of the actions was unfairness to the minority shareholder.

1012. At this point I am concerned with paras 16, 17 and 18 of the orders sought by the plaintiffs.

1015. In light of my conclusions on the garnishee matter it is appropriate and just that Musashi repay the sum of $29,752.37 to Foody. I will hear counsel as to the appropriate rate of interest.

1018. I should say that having regard to the prior conduct of Musashi in relation to the matter of the Magistrates' Court and the alleged debt, it is appropriate that Musashi be restrained from taking any step to enforce the order of the Magistrates' Court, any order for costs in its favour made by the Federal Court in the bankruptcy proceedings, and the order for costs made by Hedigan J.

1021. Order 17 seeks recovery of the costs Foody paid to Chambers & Company and Minter Ellison to which I referred at [65]. Order 17 states that the costs were incurred by Foody to obtain his share transfer. That understates by $1,000 the amount charged by Minter Ellison. Perusal of the solicitor's accounts discloses that their work extended to other matters. It would appear that those other matters arise out of or concern the differences that had arisen between the parties as a consequence of the termination of Foody's employment and the matter of a visa. There is no way, on the face of the accounts, of apportioning the charges between the work done on the matter of the shares and the other matters. That is one difficulty. A greater difficulty is, in my view, that it would be wrong for Foody to recoup the costs incurred in respect of those other matters. Foody must bear a deal of responsibility for the actions that led to the costs being incurred. As for the costs incurred in relation to the share sale agreement, I do not think it is sufficient to say that the agreement was not originally required by Horewood. As a step in the process of acquisition, and in the overall circumstances, it was not unreasonable to require the agreement, and the agreement itself provided that Foody bear his own costs. That was the negotiated position and, in my view, regarding the matter in its entirety, including the findings at [66], it is the position that should continue to obtain. These conclusions represent the just and equitable disposition of this aspect of the matter.

1024. Order 18 seeks damages for miscellaneous acts of oppression as the Court thinks fit. What did Foody put forward for this purpose? In final submissions his counsel sought an order for damages as the Court thinks fit or appropriate in light of Horewood's 11 February 1992 letter to DILGEA and the general on-going oppression of Foody. These were the only matters counsel referred to, and the submission was not developed at all. Counsel did not refer to the claim of loss and damage in para 22 of the amended points of claim in which, in addition to the value of his shares, Foody claimed the loss of his future salary and expenses.[32]

1027. In my view Foody should not receive compensation in respect of these matters.

1030. The claim for loss of earnings stands, really, as a claim for damages for wrongful dismissal. Not only did Foody never bring such a claim, but the time in which to do so had expired prior to the time he commenced his application in the Federal Court. Further, the present oppression case is a claim by an aggrieved member under the oppression provisions. A claim for damages for wrongful dismissal would be brought by Foody in his capacity as an employee. Although Foody had rights against Horewood at the time he was dismissed in relation to his shareholding, which equity would have recognised, the two kinds of claim, and the two capacities, are different and distinct. That is not to say that there may not be, in an appropriate case, such a link between the position of a person as a member and as an employee that relief of the type sought may not be granted. Be that as it may, and considering the claim in this context, I do not regard it as appropriate or just to award compensation to cover Foody's earnings for some indefinite time after his employment was terminated. I reach this conclusion without having to consider the difficulties confronting Foody by reason of him requiring a visa to work in Australia, dealing with the bureaucratic process in that regard, and a host of other matters particular to his situation. Moreover, I would reject a submission that the cause of a loss of earnings could indefinitely be attributed to Musashi.

1033. As far as general oppression is concerned, this is adequately and appropriately dealt with by a requirement that Foody's shares be purchased at fair value, allowing for the writing back of the sums mentioned in the derivative claim and repayment of the amount garnisheed with interest. The mere fact that many years have passed since the dismissal in 1990 is not in itself a reason for awarding compensation. After all, Foody did not commence the litigation until 1997 and the case did not come to trial until 2002. Further, the evidence as to offers and indications of preparedness to settle, and the breadth of the relief sought, reveals Foody as arguably failing to bring a reasonable mind to the problem, and thus being a cause of the prolongation of the dispute. The reference of Foody's counsel to ongoing oppression is to be understood in that context.

1036. The matter of the alleged "slander" was not tried as a cause of action in defamation, and damages could not be awarded as though it had been. The issue was run as a ground of oppression. In that respect I have not found it necessary to reach a conclusion. If I had it could only have added a further ground of oppression to the claim. While the letter in question contains embellishments, Foody overcame any effect they had. Not only did Foody obtain a visa, but he is now an Australian citizen. Those achievements indicate that he rose above, and was accepted by DILGEA as answering, the extravagance in the letter. That is sufficient.

1039. Apart from costs, upon which I will hear counsel, the final order sought is that Musashi funds not be used to pay the costs of the oppression proceeding. I agree. That part of the case is a contest between shareholders. It has been said before that in such cases the costs should be borne by the shareholders, not the company.[33] There is no evidence that Musashi has been paying the costs of the oppression proceeding. The appropriate course is that the valuation of Foody's shares be on the basis that any amount paid by Musashi for the costs of the oppression proceeding in this Court and in the Federal Court be written back into Musashi's accounts with interest. If there is an issue as to the amount it will be resolved by the Court prior to the valuation.

1043. In outline, the relief is as follows. Foody's shares are to be purchased at their fair value. For this purpose the items referred to in the derivative claim are to be written back into Musashi's accounts with interest as appropriate. Those items are the matters concerning the lending to 4T's Pty Ltd, Bruce Hore and Ozimer Trading, and the conceded $89,000 of International Cadence. I will hear counsel as to those matters as may be necessary. I will also hear counsel on the matter of interest on the loan to Harrisons Clocks. I will determine the amount and timing of the write back. The accounts to be used are those audited by Brierley. Those accounts are not to be reopened save only to the extent that I may permit by order. Of course, if the parties can agree on the fair value there will be no need to refer the matter to a special referee for a valuation. Accordingly, once the matter of the write back has been resolved, I will allow the parties an opportunity to consider their position. The identity of the transferee and the manner of the acquisition of Foody's shares is a matter for the defendants in the first instance. In addition to payment of the fair value of the shares there will be an order for payment of the garnisheed sum with interest at a rate to be determined. There will be injunctions restraining Musashi from enforcing the order of the Magistrates' Court, the order for costs made by Hedigan J, and any orders for costs made against Foody in the Federal Court bankruptcy matter. The further hearing of the proceeding will be stood over to allow the parties time in which to consider these reasons and then to submit minutes of orders and address such submissions, including as to costs, as they may be advised.

PLAINTIFF'S AND MUSASHI PTY LTD LOSS DUE TO UNNECESSARY CONSULTANCY FEES AND CREDIT

THE FIRST DEFENDANTS ACTUAL LOAN BALANCES FROM 30/6/90 TO 30/3/02

THE SECOND DEFENDANTS ACTUAL LOAN BALANCES FROM 30/6/90 TO 30/3/02

[2] Re Wakim; ex parte McNally [1999] HCA 27; (1999) 198 CLR 511.

[3] See the Notice to Corporations Practitioners dated 18 June 1999 in Williams Civil Procedure - Victoria vol 3 [12, 545], p 25, 123.

[4] See Horewood's letter to Mr J McInnes dated 10 January 1990 at court book 2396.

[6] That was the approximate time of commencement; see Woodford's memorandum dated 13 June 1990 at court book 761. There is other evidence pointing to in or about April 1990 as the approximate time of commencement. Nothing turns on the actual time of commencement.

[15] The authorities are referred to in the written submissions.

[16] Paras 8(a), 9(a) and 12 of the amended points of claim.

[17] Paras 8(c), 9(c) and 12 of the amended points of claim.

[18] Paras 8(e) (i), 9(e)(vii) and 12 particulars paras (vii), (ix) and (x) of the amended particulars of claim.

[20] (1993) 10 ACSR 606 at 611.

[21] Although the Malaysian company is referred to in the amended points of claim and in Annexure A, the plaintiffs did not press the claim concerning it in final address. Like so many other claims and allegations it was in effect abandoned.

[24] [2001] VSCA 104; (2001) 3 VR 473.

[25] [1998] VSC 94 at 15-17.

[26] Para 97 which refers to not giving Foody information regarding meetings and the presentation of accounts for certain financial years, and paras 102, 103 and 104 relating to notification of annual meetings.

[28] [2000] VSC 78 at [613] - [649].

[30] (19990) 3 ACSR 1 at 41.

[31] See, as examples in this area, Re City Meat Co Pty Ltd (1983) 8 ACLR 673; Re G Jeffery (Mens Store) Pty Ltd (1984) 9 ACLR 193.

[33] Re D G Brims & Sons Pty Ltd (1995) 16 ACSR 559; Coombs v Dynasty [1994] FCA 1193; (1994) 14 ACSR 60.