Garraway v Territory Realty Pty Ltd

1. The appeal be dismissed.
2. The appellants pay the respondent's costs of the appeal.
3. The cross appeal be dismissed.
4. There be no order as to the costs of the cross appeal. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

AND: TERRITORY REALTY PTY LTD (ACN 009 644 339)

REASONS FOR JUDGMENT THE COURT: 1 The appellants are the majority shareholders in a land development company, Dundee Beach Pty Limited. The primary judge held that the appellants had conducted the affairs of the company in a way that was oppressive to, or unfairly discriminatory against, the minority shareholder, Territory Realty Pty Ltd. He found that this oppression had taken two forms and had resulted from the appellants' use of their control of the board of the company on which Territory Realty was not represented. 2 The principal finding of oppression was based on the composite decisions of the majority in early 2007, through the board, to issue a further 150 shares at a price of $50,000 per share to raise $7,500,000 and to offer to buy Territory Realty's one-third holding of 16 existing shares at the same price of $50,000 per share. That offer was made to Territory Realty at the same time as it was informed of the new issue. His Honour found that these proposals, particularly the new issue, were contrived and such that no reasonable board could then have considered them to be in the best interests of the company as a whole. He found that the majority, through its control of the board, had sought to procure a buyout of Territory Realty or put pressure on it to sell its shares at a grossly unfair price. The grossness of the under value was highlighted when, on the opening day of the trial, the appellants offered to buy Territory Realty's shares for about $156,000 each. Initially, the appellants sought to challenge his Honour's finding that the offer to acquire the shares at $50,000 had been at a gross under value. That ground of appeal was abandoned after this Full Court suggested it was nothing more than an abuse of process, which it plainly was. 3 The second form of oppression which his Honour found was that unjustifiable management and consulting fees had been charged by the majority over the preceding six years as a means of diverting profits from the company. He adopted the colloquial, but fitting, phrase of Owen J in Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd (2001) 19 ACLC 517 at [30], that these fees were "ripping off" the company and, therefore, Territory Realty as the other shareholder. 4 His Honour arrived at a value for each share in the company of $309,312, giving the 16 shares held by Territory Realty a value of about $5 million. He concluded that the appropriate relief was to order a buy out by one faction of the other's interest in the company. He gave the majority shareholders the first opportunity to give written notice to Territory Realty of their intention to acquire its 16 shares at the value he had fixed. If the majority declined to make such an offer, his Honour's order provided that Territory Realty could make an offer to acquire the majority's 32 shares for the same price per share. His Honour further directed that, in the event that neither the majority nor the minority should offer to purchase the shares of the other, Territory Realty should apply for further directions. 5 The appellants challenged a number of steps in his Honour's approach to valuation of the shares and his grant of final relief. Territory Realty cross-appealed to argue that his Honour had undervalued the company because of a failure to take account of the unjustified management and consulting fees. The orders for the making of the offers have been stayed pending the determination of this appeal.

The Shareholders' Early Relationships 6 It is not necessary to describe in detail the parties' relationships leading to the primary judge's findings on the questions of oppression and excessive management and consultancy fees. The following summary is based on his Honour's careful history. 7 The company was incorporated to purchase and develop, in a quasi partnership, a large section of coastal land at Dundee Beach. The company had a constitution containing articles of association with a pre-emptive rights clause. This required any member who desired to transfer his shares to a person who was not a member to first offer to sell the shares on the same terms to the existing members in accordance with the procedures usually found in pre-emptive rights provisions. A number of persons and their corporate vehicles had participated in the conduct of the quasi partnership over the years leading up to the shareholding position in June 1998. At that time there were 48 issued shares in the company. Territory Realty held 16 shares, H & K Earthmoving Pty Limited 16 and two individuals who controlled H & K Earthmoving, Peter Hassall and Robert Kendray, jointly held 16 in their own right. Thus, the interests of Mr Kendray and Mr Hassall, between them jointly held 32 shares. 8 During 1998 Mr Kendray and Mr Hassall fell out with each other. Those behind Territory Realty joined with Mr Kendray in seeking to purchase Mr Hassall's interests in the company. They offered to pay $1,129,500 to Mr Hassall for his beneficial interest in 16 shares, held either jointly with Mr Kendray or through his investment in H & K Earthmoving. 9 Mr Hassall's brother-in-law was a prominent Northern Territory businessman, Neville Walker. Mr Walker died in February 2005. Mr Walker put Mr Hassall in touch with his accountant, Andrew Garraway. Mr Garraway responded to the offer to purchase Mr Hassall's interests with a counter offer to buy Mr Kendray's shares for $2,000,000, less the amount owing in respect of the loan accounts of Mr Kendray and his interests. The negotiations proceeded between these parties. Ultimately, Mr Kendray decided to sell his interest. Mr Garraway devised a scheme to evade the pre-emptive rights provisions in the company's constitution. The scheme involved a sale that was ostensibly one in which Mr Hassall's interests would acquire those of Mr Kendray. But in reality there was a sale by Mr Kendray's interests to Mr Garraway's and Mr Walker's interests. 10 The primary judge found that Mr Garraway and Mr Hassall had informed Territory Realty's corporators that Mr Kendray had sold out to Mr Hassall. The transaction for the purchase was quite sophisticated. It was intended to get around the pre-emptive rights provisions of the company's constitution and, as his Honour found, conceal that fact from Territory Realty. The true nature of the transaction was that Mr Kendray would sell to H & K Earthmoving his interest in 8 shares that were to be held on trust for Mr Garraway's corporate vehicle, Bishop Estate Pty Limited, and his other 8 shares would be transferred to H & K Earthmoving on trust for Mr Walker's corporate vehicle, Excess Pty Limited. The existence of the two trusts was not stated on the transfer forms. It was also arranged for Mr Hassall to transfer to H & K Earthmoving an interest in two other shares to be held on trust for Excess and Bishop Estate, again on the basis that the trust was not to be disclosed. 11 The judge found that the subterfuge succeeded. Mr Garraway was appointed as a director in place of Mr Kendray and the transfers were approved at a meeting of the board of the company on 4 May 1999. Accordingly, the company's share register recorded that, immediately after that meeting, Territory Realty held 16 shares, Mr Hassall held 7 shares solely in his own name and H & K Earthmoving held 25 shares. The share transfers recorded a value for each share of approximately $76,250. The primary judge found that Territory Realty remained unaware until 2003 of the reality underlying these transactions.

Events after 4 May 1999 12 Immediately after the board meeting of 4 May 1999, Mr Garraway asserted his influence. He combined with Mr Hassall to remove from the board Territory Realty's two nominees as directors and to preclude any involvement by it in the management of the company. Territory Realty has remained in this position, having no board representation, up to the present time. Mr Hassall continued as a director until October 2003. Mr Walker and one of his associates became directors in August 1999. Following Mr Walker's death, his son and another of his associates were appointed as directors of the company in April 2005. 13 On 10 May 1999, Mr Garraway wrote on behalf of the company to Territory Realty suggesting the sale of its 16 shares for $500,000. Territory Realty made a counter offer to accept $1.5 million which was rejected. The primary judge found that, since May 1999, Territory Realty had received from the company only its annual financial statements and some additional information provided at shareholders' meetings in 2003, 2005 and 2006. He found that Territory Realty had not received any other information about the operations of the company, its strategic plans or changes in them, its substantive position regarding any revaluation of its real estate assets or any investigations, any feasibility studies or any costings undertaken by the company. His Honour found that Territory Realty was in a difficult position and was not able to determine the true value of its interest in the company, because its extensive requests, both directly and through solicitors, for more information had not been met by those controlling the company. 14 Territory Realty was aware that the new board in May 1999 had "put on hold" the sales of further land or further development pending a review of the status of the company and the development of a long term strategic plan. The directors of Territory Realty attended the shareholders' meeting held on 29 May 2003 and became aware that Bishop Estate and Excess had somehow an interest in the company. However, there was no disclosure at the meeting of how that had come about. 15 Sometime before late November 2003 David Booth and John Sanders, who were the directors of Territory Realty, had become uneasy about the obviously dominant role that Mr Garraway had taken in running the affairs of the company. Mr Hassall's role was not nearly as assertive as Mr Garraway's. His Honour found that both Mr Walker and Mr Garraway were perceived by Mr Booth and Mr Sanders as significant and powerful men whom it would be difficult and unhelpful to confront. It was important for Mr Booth and Mr Sanders to keep relations as amicable as they could if they were to achieve a satisfactory price at which Territory Realty could be bought out of the company. 16 Mr Garraway wrote to Territory Realty on 12 February 2004 informing it that Mr Hassall's interests had sold 16 shares in the company to Bishop Estate and Excess (J 103, 142, 144) and that the new shareholding of the 48 issued shares in the company was: No of Shares

17 As the primary judge found, this letter made Territory Realty aware that Excess and Bishop Estate had acquired a joint controlling interest in the company of just over 52% of the issued shares. Mr Garraway's letter offered to purchase Territory Realty's 16 shares for $800,000 conditional on repayment of its loan account to the company. On 11 March 2004, Territory Realty acknowledged, without any adverse comment, the notice of change in shareholding, but declined to accept the offer. Subsequently, on 29 July 2004, Mr Garraway wrote to Territory Realty notifying it that Mr Hassall's interests had transferred the remaining 7 shares held in their names to Excess and Bishop Estate so that each of those companies and Territory Realty were the company's only shareholders, each holding 16 shares. The letter made a further offer to acquire Territory Realty's shares for $800,000. On 27 August 2004 that offer was also rejected in a letter from Territory Realty that, again, acknowledged the change in shareholding. 18 His Honour found that, because Territory Realty was aware of each of the transfers in November 2003 and mid 2004 to previous non-members, Bishop Estate and Excess, it had acquiesced in the breaches of its rights of pre-emption. He also held that Territory Realty could no longer complain of those transactions or the original one in May 1999 that had been effected as a subterfuge. 19 Thus, his Honour did not accept all of Territory Realty's claim that it had been oppressed from 1999 until 2007. He upheld it only in two limited respects related to the 2007 proposed share issue and offer, together with the misuse, from about 2001, of the power to charge consultancy and management fees. On the other hand, it is evident from his Honour's findings that, ever since the acquisition of their concealed beneficial shareholding, Bishop Estate and Excess had been seeking to obtain ownership of Territory Realty's shares and thus complete control of the company.

The 2007 Conduct 20 On 14 February 2007, the directors of the company informed the shareholders of a share issue which they had finalised earlier that day at a directors' meeting. The proposed issue was to fund $7.5 million of an estimated development cost of $10 million with the balance coming from cash reserves and further borrowing. As the primary judge observed "[t]he die by then was well and truly cast". 21 The company's notice to shareholders of 30 April 2007 offered 50 shares at $50,000 per share to be taken up by 1 June 2007 stating that: "The background of the company is not disclosed herein given your status as a shareholder and nor is this offer document in any way a prospectus or information memorandum or other formal disclosure document made under the Corporations Act 2001 (Cth)." (emphasis added) 22 The notice followed a letter written by Territory Realty's solicitors to the directors of the company requesting information regarding its operations. The letter asserted that the directors had acted in their own interests rather than the interests of the members as a whole, including by paying excessive management and consultancy fees to the majority shareholders and had improperly excluded Territory Realty from participation in the management of the company. The letter sought extensive information. A follow up letter sent the next day requested further information and responses to a number of questions concerning the operations of the company. The company responded directly to Territory Realty in a letter denying the solicitors' allegations and refusing to provide further information. It also provided a proposed agenda for a shareholders' meeting in February 2007 that included consideration of a possible new share issue. 23 No information as to the nature and extent of the development or the directors' plans for the company was provided to the members and, in particular to Territory Realty, by the directors. That was a breach of their fiduciary duty; Bulfin v Berbarfald's Ltd (1938) 38 SR (NSW) 423 at 440 per Long Innes CJ in Eq who said in a passage approved many times including by Black CJ, von Doussa and Cooper JJ in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 465-466: "... when directors are advising or urging a particular action or course of conduct upon the members, or a particular class of members, of the company, … they are under a duty to make a full disclosure of all facts within their knowledge which are material to enable the members, or class of members, to determine upon their action." (see J 280) 24 The directors' resolution to make the share issue was passed after consideration of a report prepared by Mr Garraway in January 2007 entitled "Scope and Requirements of Further Land Development at Dundee Beach". An earlier board meeting in November 2006 had received a report from Mr Garraway and Mr Mooney, a valuer, of their understanding after their consultations with the government of what would be required for further subdivision. They reported that the subdivision would need to be to the same standard as in Darwin, with potable water to be supplied to the development by the developer. 25 The January 2007 report referred to Territory Realty having expressed a position in May 2001 and again at a shareholders' meeting on 29 May 2003 that new shares in the company should not be issued without the consent and approval of all shareholders and that it, Territory Realty, would take action to veto any further issues of shares. The report also noted that Territory Realty would not subscribe to any further issue of shares to raise additional capital. The report contained an assertion that the company was experiencing uncertainty causing lack of commitment to, and confidence in, making and being able to deliver on major financial undertakings to the Northern Territory government and other parties. It continued: "This uncertainty is caused by one shareholder's opposition to a share issue to raise adequate funding and needs to be resolved one way or another to enable Dundee Beach Pty Ltd to move forward." His Honour found that there was nothing in the evidence to justify that comment. 26 By January 2007, electric power supply and some other services were available at Dundee Beach. A sealed access road had also been constructed. The January 2007 report noted that further development would require sealed internal roads, gutters, water supply and telephone connections. It provided costings based on a comparison with similar developments being carried out elsewhere by Excess. The report discussed the cost of providing water to Dundee Beach which it estimated would be about $5 million. It also estimated that the cost of providing the other full services required for development would be a further $5 million. Thus, total costs for the 50 blocks would be $10 million. The report proceeded on the basis that development of the 50 blocks would enable only a limited and controlled release of some of the presently undeveloped land for sale. This was in the context of earlier discussions about developing a total of further 250 blocks in addition to the 700-750 that had been developed before that report had been prepared. 27 The January 2007 report noted that the company's cash reserves as at December 2006 were, after taxation about $1.7 million and these were estimated to increase to $2 million by 30 June 2007. It contemplated that the proposed development would be funded by using cash reserves, borrowing $500,000 from the bank and raising the balance of $7.5 million from share issues. The report explained that the cash reserves and owners' equity should be used in order to ensure that the company could service borrowings in the light of the possibility that a substantial portion of the developed land would not be readily saleable. It also commented on the need for creating confidence and certainty in dealings with the Northern Territory government. 28 The company had engaged Sinclair Knight Merz, an engineering firm, to prepare studies for water supply options for Dundee Beach on the basis that there would be 1,000 blocks, a number Mr Garraway had provided. That number was consistent with the existing 700-750 blocks at Dundee Beach being supplemented by the release of about 250 new blocks. 29 His Honour found that Mr Garraway's presentation in his report for the directors' meeting of 14 February 2007 had been contrived for the purpose of securing agreement from the directors to the proposed share issue. This had been done for the purpose, in part, of diluting Territory Realty's shareholding in the company. He found that the directors had discussed the possibility that Territory Realty might not take up its additional shareholding, as it had previously said it would not, so that the issue would substantially dilute its interest. The primary judge did not accept the appellants' case that from 2006 the Minister had conveyed to Mr Garraway that any future subdivision of Dundee Beach would only be approved if quality potable water were supplied to the proposed further subdivision by a pipeline from the Finnis River. 30 At about the same time as the notice of the proposed share issue had been circulated to shareholders, Bishop Estate and Excess made a further offer to buy Territory Realty's shares for $50,000 a share. That offer was expressed to expire on 31 May 2007 immediately before the closing time for the new share issue. His Honour found that Territory Realty's shares were worth substantially more than that other price. 31 The primary judge found that the selection of the figure of $50,000 per share had been unscientific and that there was no apparent justification for it. He found the price for which the proposed shares were to be issued was artificial and unrelated to the likely real value of the shares in the company at the time. 32 After Territory Realty had become, in February 2007, aware of the proposal to make the further share issue there was further correspondence between its solicitors and the directors concerning the basis upon which the directors had resolved to proceed with the share issue. The primary judge found that the company's responses had obviously been dictated by Mr Garraway. He found the subsequent responses by the directors to have been uninformative. The solicitors for Territory Realty persisted and, in a letter of 19 April 2007, asked for full details of the proposed development of the company's remaining land and of the intended method of raising capital to fund that development. The letter sought details of the capital expenditure program, its timing and benefits and suggested that the company should undertake due diligence before proceeding with a development involving a cost of $10 million. The letter suggested a need for a feasibility study that had regard to a number of topics and for a marketing program of orderly realisation of the lots to ensure the best economic yield. 33 The primary judge found that the matters adverted to in that letter had not been canvassed in Mr Garraway's paper of January 2007 and had not been properly considered by the directors. Nevertheless, on 26 April 2007, the January 2007 report was provided by the company to Territory Realty. His Honour observed that the reluctance to provide even that information in a timely manner was unexplained and not consistent with a desire on the part of the board to treat the members of the company equally or to inform them properly about the proposed capital raising. In any event, his Honour found, Territory Realty had not received the related Sinclair Knight Merz's report. 34 The appellants did not challenge the primary judge's finding that the timing of the proposed share issue and its apparent justification had been contrived. His Honour found that, in all the circumstances, the proposed new share issue was oppressive and unfair.

Management and Consultancy Fees 35 In the financial years ended 30 June 2001 to 2005, each of Bishop Estate and Excess received $30,000 per year for "business managerial and operational input". These amounts increased to $48,000 in the financial year ended 30 June 2006 and to $72,000 each for the financial year ended 30 June 2007. Thereafter, each received $6,000 per month. Additionally, over the whole of that period, Excess received $3,000 per year for secretarial fees, which his Honour found was for preparing the minutes. And, Mr Garraway received $12,000 per year for accounting fees until these increased to $21,000 per year for the year ended 30 June 2006 and thereafter. 36 His Honour accepted that the directors, especially Mr Garraway, had done some work. He found that, over the years the board had decided not to promote further sales of the land, using, as would be expected, the knowledge of the directors of the economic situation in the Northern Territory at the time, including, in particular, its real estate market. He found that the level of management fees was not justifiable which added to the picture of oppressive conduct and could be taken into account to determine the appropriate relief. However, he said that it would be difficult to determine what relief would be appropriate were that the only element of the oppressive or discriminatory conduct.

The Relief granted by the Primary Judge 37 His Honour found that the appropriate remedy would be one which regulated the affairs of the company in a way that avoided further oppression or unfair conduct. He concluded that the least intrusive and most appropriate relief, given the relationship between the shareholders and the fact that there were only three, was for one faction to buy out the other, giving the majority the first opportunity to purchase the interest of the minority. 38 He then proceeded to determine the value of the shares in the company as at 30 June 2007. There is no challenge to his Honour's selection of that date. A number of complaints have been made about his Honour's valuation methodology in arriving at a final valuation of $309,312 per share. It is agreed that, in arriving at that figure, his Honour made a minor mathematical mistake, by wrongly adding a column of figures. The result is that the value of shares, using his Honour's methodology, was in fact $309,104. Obviously, nothing turns on this minor error. 39 His Honour valued the shareholders' equity, after allowing for what was agreed to be the small mathematical error of $10,000, at $14,836,998. The mathematical error will require a slight adjustment to the value of each of the shares fixed by his Honour of $309,312. He arrived at that valuation as at 31 December 2007 on the following broad basis (J 361): "Cash including money on deposit $ 2,077,554

40 In arriving at the value of the company's interest in real estate his Honour assessed three parcels of land, again at the common date of 31 December 2007 as follows: "Subdivided 22 lots held for re-sale $ 6,344,400

41 The appellants argued that his Honour had erred in failing to find that: (1) the 22 lots of subdivided land should have been valued on the bases that they would be sold within 12 months, their selling costs would be as high as Mr Mooney asserted and there should have been a discount for a sale "in one line" (Ground 4); (2) the value of the stage four land should have been reduced because insufficient allowance for goods and services tax had been made by the respondent's valuer, Mr Phippen (Ground 5); (3) use of a value per square metre was not appropriate for valuing tourist and commercial land (Ground 6); (4) the global financial crisis occurring after judgment had been reserved required consideration (Ground 7); (5) income tax and goods and services tax payable on the realisation of the land being valued should have been taken into account in reduction of the value of the net assets of the company (Ground 8); (6) an expert valuation of shares in the company was necessary before a value could be fixed for them (Ground 9); (7) there was a less intrusive and more appropriate remedy other than a buy out by one faction of the other and the conduct of Territory Realty should have affected the relief granted (Grounds 10 and 11).

The Valuation of the 22 Lots (Ground 4) 42 In arriving at the value of $6,344,400 for the subdivided land his Honour had regard to the competing expert valuations of Mr Phippen, the expert for Territory Realty, and Mr Mooney, the expert called by the appellants. Mr Phippen valued 23 lots whereas Mr Mooney valued 22. Before Mr Mooney made a reduction for a sale in one line to $4,530,000, their valuations were very close, Mr Phippen's (for 23 lots) being $6,905,000 and Mr Mooney's (22 lots) being $6,694,000. His Honour accepted the suggestion of the parties to adopt an average of those two valuations of $6,800,000. 43 His Honour then considered whether or not to reduce that average valuation figure by reason of holding and realisation costs. Mr Mooney had added a further reduction based on the notional sale of the lots in a one line sale on the same day to the same purchaser. His Honour rejected that methodology. He found that the purpose of the valuation was to assess the value of the company at 31 December 2007, being the date the parties had agreed to use. Each of the two valuers had used a comparable sales analysis that assumed the blocks would be sold progressively over a period of a year or so. His Honour accepted Mr Phippen's evidence that stamp duty and legal costs on the purchase were not appropriate reductions. That finding was correct and has not been challenged. The primary judge also declined to make any deduction for holding costs because such costs had not been incurred. He found that Mr Mooney, during his cross-examination was uncomfortable in trying to justify his reasoning process on these deductions and was endeavouring in some degree "to reduce the valuation of these allotments by putting forward barely tenable deductions". 44 The appellants argued that, because the valuation was to be made as at a fixed point in time, it would be necessary to treat the realisation of the 22 or 23 lots as a sale in one line on the same day to the same purchaser. Territory Realty referred to the evidence given by Mr Pollard, a land agent. He had specifically recommended that the company not offer new blocks for sale during the period after June 2007 because of the very active secondary market at the time. He said that there had been 27 sales up to 24 July 2007. 45 The appellants' methodology was not appropriate in the context of a case such as the present. His Honour was required to find a value appropriate to use for the purchase of the company's shares. The company had a long history of orderly realisation of its land holdings. Each valuer had approached his task on the basis that the lots were to be realised over 12 months. The gains from the sale of the lots would come to the company in an orderly way. The significant discount applied by Mr Mooney was directed to reducing value rather than arriving at an appropriate figure for the purpose of assessing a value of the interests of shareholders in a land development company that had been conducted as this one had been. His Honour has not been shown to be in error in rejecting a further reduction because the shares in the company were being valued as at a particular day. 46 The appellants argued that the primary judge had not allowed for the risk that the retail value of the land might not be realised and that this risk would be addressed appropriately by using the "one line sale" method of Mr Mooney. 47 The appellants' argument should be rejected. It contradicts the methodology which the two valuers actually employed and which his Honour used to arrive at a value. He reduced the agreed valuation of $6,800,000 by 6.7% to take account of likely costs and contingencies. Those were commissions that would be paid to selling agents, promotional costs and an allowance for the possibility that the sale period for the allotments might extend beyond 12 months. He observed that the market could change over time, but that the evidence before him suggested that the market had, if anything, strengthened so that the allowance for adverse market movements which he made was a small one. No error has been shown in his Honour's approach or findings.

The Stage Four Land (Ground 5) 48 One area of the company's land was known as "Stage Four". His Honour valued this at $2,225,000. He accepted Mr Phippen's evidence that this land should be valued using a hypothetical development analysis approach. He found that it would be subdivided and developed into 56 allotments. Mr Phippen had arrived at his valuation of $3,222,000 after making adjustments for costs of development and realisation from a gross sales value of $14,855,000. In the course of that exercise Mr Phippen made an allowance of 23% for a profit and risk factor. His Honour considered that this was not sufficient and concluded that an allowance in the order of 30% should be made for the profit and risk factor, thus reducing the value arrived at by Mr Phippen to the amount ascribed by his Honour of $2,225,000. 49 The appellants argued that Mr Phippen, in arriving at his valuation, had made an insufficient reduction for "non recoverable GST". For this item, he had deducted $169,634 from the gross sales value. The appellants argued that this figure grossly understated the amount of goods and services tax that would be payable by the company on sale of the 56 lots. They argued that the net goods and services tax that would be payable was in the order of $830,000 and that this should have further reduced Mr Phippen's valuation by about an additional $660,000. It followed from this premise that, had Mr Phippen's ultimate valuation been reduced by this sum, his Honour's finding would have been reduced. 50 This argument should be rejected. There was no evidence led at the trial by the appellants of how appropriate adjustments for goods and services tax ought to be made in valuing the Stage Four land on the hypothetical development analysis approach. The appellants asserted calculations leading to their figure of $830,000 were not put to Mr Phippen or supported by any evidence. The deduction asserted by the appellants is not self-evident. It was a matter for expert evidence as to how much ought to be allowed in this calculation. Mr Phippen explained that the figure was an approximation of tax input credits and debits that the developer would be able to net off to arrive at a calculation of value. 51 During the course of argument in the appeal, the appellants sought to rely on a table setting out what, they said, were calculations of goods and services tax that supported this ground. The appellants' contentions and these calculations were not proved by any evidence at the trial. In addition, these asserted values could have been explored in evidence at the trial. It would not be appropriate to allow them to be raised on appeal: Coulton v Holcombe (1986) 162 CLR 1 at 7-8 per Gibbs CJ, Wilson, Brennan and Dawson JJ. His Honour's use of Mr Phippen's calculations in valuing the Stage Four land has not been shown to be in error.

Tourist Commercial Land (Ground 6) 52 The third part of the valuation process in controversy related to two areas within the tourist / commercial zoning of the land at Dundee Beach. The primary judge accepted the approach of Mr Phippen to the valuation of this part of the land. He valued it for sale to a developer for its potential as a tourist resort, especially in the beach front area which would include a high quality hotel, a motel, a caravan park, a shopping centre, a pub and a community centre. Such a development would require full service facilities including a reliable water source, which was somewhat problematic. The airstrip section of the land would be suitable for a resort development. 53 However, his Honour considered that Mr Phippen had not been conservative enough in his selection of a price per square metre for the 40 hectares of the northern portion of the land and 100 hectares of the eastern, airstrip portion. His Honour considered that Mr Mooney had demonstrated considerable knowledge of resort developments in the Northern Territory and their relative lack of success. The primary judge accepted that it was not self-evident that the northern 40 hectares had any appeal to international resort chains in the present market. Another factor that contributed to his Honour's more cautious approach was that it was not clear whether the present lack of basic facilities, other than power, within a reasonable distance, would inhibit potential developers or make the area less attractive to them. He found that a comparable property nearby, the Lodge at Dundee, had presently satisfactory access to potable water and carried an existing business and hotel licence. 54 He found that a developer capable of carrying out a development of the kind envisaged by Mr Phippen would need the resources and experience to acquire and develop such an area of land. Crucially, the primary judge took into account that, on the evidence, no such developer had emerged for land in the Northern Territory. So his Honour considered that he should discount the rates per square metre that Mr Phippen had used. He substituted $6 per square metre for the $15 per square metre adopted by Mr Phippen for the northern portion of the land, which had a beach front aspect. He also substituted $2 per square metre for the $5 per square metre which Mr Phippen had adopted for the 100 hectares in the airstrip portion. 55 This resulted in his Honour's valuation of $4,400,000. That represented a considerable discount from Mr Phippen's $11 million valuation for the whole of these two portions. His Honour arrived at these figures conscious of Mr Phippen's use of a comparable sale of the Lodge at Dundee in October 2006 for $3,500,000 and its subsequent resale in November 2007 for about $5,200,000. That land was nearby and had a beach front location. However, it had been developed and now had existing buildings. 56 The appellants criticised the primary judge's adjustment of Mr Phippen's valuation rates per square metre. They noted that his Honour had reduced Mr Phippen's rates by more than half and had rejected the evidence of Mr Mooney that produced a much smaller result using the direct sales comparison method. The appellants did not seek to argue that Mr Mooney's valuation should have been accepted by his Honour, but rather contended that his Honour could not properly have valued the land on the evidence because of the significant adjustments he had thought it necessary to make. They argued that his Honour had not identified any basis in the evidence sufficient to warrant departing to the extent he had, from the experts' assessments. In support of this argument they relied on observations of Branson J and Bennett J in Tyler v Thomas (2006) 150 FCR 357 at 369-370 [52]-[56] and 379 [107]. There, Branson J said, with the agreement of Bennett J, that a court is not obliged to accept the evidence of a particular valuer, even in a case where only one expert opinion as to value is adduced. She said that, in making adjustments to a valuation, the Court must find support for the adjustment in the evidence, applying proper principles and must not cast itself in the role of an additional expert. She referred to Pullen J's remarks in Arcus Shopfitters Pty Ltd v Planning Commission (WA) (2002) 125 LGERA 180 at 197 [76]. 57 In our opinion, his Honour's valuation was undertaken in accordance with proper principles. In Commonwealth v Milledge (1953) 90 CLR 157 at 162 Dixon CJ and Kitto J said that the judicial task in arriving at a valuation is a jury question in the sense that it would be decided: "… not by a strict adherence to precise arithmetical calculations, but by a commonsense endeavour, after consideration of all the material before the Court, to fix a sum satisfactory to the mind of the Court as representing the value contained in the land [on the date for valuation]. … The problem was not to eliminate idiosyncracies of the individual [valuer's] opinions; it was to form an estimate which really satisfied his Honour's mind as being the value of the property to the plaintiff on the material date." That is what the primary judge did. 58 The appellants argued that his Honour should have taken into account two reports suggesting that development of the land as a resort might be inhibited by limited natural access to water on the land. However, the primary judge adverted to this issue. He remarked that the Lodge at Dundee had satisfactory potable water at present, albeit that it was a smaller and less complex development. The significant discount applied by his Honour recognised that a hypothetical purchaser would require the resources and experience to acquire and develop such an area of land. Before so observing, his Honour had already said that it was not clear whether the present lack of basic facilities other than power (by which he must have included his earlier appreciation of the limited access to water) would inhibit developers or make the area less attractive. Immediately after that he referred to the water supply enjoyed by the Lodge at Dundee. It follows that his Honour did have regard to this matter in making an overall estimate that really satisfied his mind as representing the value of the property, arrived at in a commonsense endeavour after consideration of all the material before the Court: Milledge 90 CLR at 162. There is no error in his Honour's approach. This ground should be rejected.

The Global Financial Crisis (Ground 7) 59 Next, the appellants asserted that the primary judge had erred by adopting 30 June 2007 as his date of valuation. They put this argument despite the fact that this had been the date agreed upon by the parties in the course of conducting the case below as the appropriate one to use. The appellants then made the remarkable and specious submission that his Honour had erred in failing to have regard to the occurrence of the global financial crisis in and from September 2008. This had occurred following his reserving judgment in May 2008. The appellants did not seek to have the matter re-listed at any time between reservation of judgment and delivery of reasons. This fact demonstrates the lack of substance in this ground. It was not for his Honour to change the controversy between the parties or the agreed basis on which the case had been conducted. His Honour had been asked to fix a value at the particular point in time nominated by the parties in order to resolve their controversy. The risk of gain or loss after that point in time fell on whichever party retained an interest in the shares in the company. 60 Moreover, an appellate Court should not normally, at the instance of one party, change the basis on which the parties have argued at first instance that their rights should be determined. To do so would be contrary to the judicial process. It would deny both parties natural justice. This submission made by the appellants is without merit. 61 It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. The appellants' decision to refrain from seeking to re-list the matter to take account of subsequent changes in global financial markets was not an error by the primary judge: see also Coulton (1986) 162 CLR at 7. This ground should be dismissed.

Failure to take into account Income Tax and GoodS and Services Tax (Ground 8) 62 The appellants argued that, when arriving at his valuation of the shares in the company on the basis of a hypothetical realisation of its assets his Honour erred by not taking into account income tax payable on the assumed realisation of the company's real estate assets and the goods and services tax that it would attract. The appellants did not at trial adduce evidence directed to these issues. That forensic election, we infer, was made with full knowledge of the existence of the issues. During the course of his opening at the trial, senior counsel for the appellants informed his Honour that his clients were making an open offer of about $156,000 per share. This was a radical change from their previous offer of $50,000 per share. The open offer, itself, demonstrated the gross inadequacy of the offers and issue prices proposed in around May 2007. That open offer placed a value on Territory Realty's shares of about $2.5 million. That value, according to senior counsel for the appellants had, in turn, been based on Mr Mooney's valuation. 63 When cross-examined about how he and his associates had arrived at the open offer of about $156,000 per share, Mr Garraway admitted that it had been put on his instructions as the fair value based on Mr Mooney's valuation of the company's land assets. Mr Garraway was asked whether, in arriving at this offer, he had made a net asset calculation based on a hypothetical balance sheet of assets and liabilities. He replied: "No, you've got to take into account goods and services tax, income tax, these sorts of issues". And he said that they had just signed off on the final 2007 accounts. However, those accounts did not reveal any significant sums for income tax or goods and services tax. 64 In re-examination, Mr Garraway was asked to explain what he had meant by the above answer. He asserted that the impact of goods and services tax and income tax on the proceeds of realisation of the land had to be taken into account in valuing shares. He stated that one-eleventh of the sale price would represent goods and services tax. He mentioned that the company was entitled to use the margin scheme in respect of its holdings of the land and then said: "So you would have to do those calculations, and that's one of the things that I also, in August, asked Mr Mooney to address the - so that all parties were aware of the value of the stock of land." 65 It was contended for the appellants that this evidence then allowed them to rely on calculations as to how the treatment for income tax, capital gains tax or goods and services tax would apply to the different transactions involved in realising the company's assets for the purposes of a valuation exercise. There was no evidence from expert accountants on these matters. Instead, in written submissions made before final address at the trial, counsel for the appellants provided his Honour with an asserted calculation of what these sums would be which was later varied by small adjustments in further submissions in reply. 66 In submissions on this appeal, the appellants put forward new figures based on his Honour's valuations in the reasons below, asserting that it was a matter for the Full Court simply to refer to the legislation, do a calculation and apply the results of the calculation to determine the amounts of goods and services tax, capital gains tax and income tax that would be payable by the company were it to have realised all of its relevant assets as at 30 June 2007. The appellants argued that this would result in amounts to use in determining what a hypothetical willing, but not anxious, fully informed vendor and purchaser would have agreed was the value of the shares. 67 This submission cannot be accepted. First, Mr Garraway's evidence demonstrated that he considered it to be an essential part of the appellants' case that these allowances had to be made to arrive at a valuation. If these questions were truly issues in the trial, the correctness of each accounting step in this process of valuation would be, as Mr Garraway appropriately asserted, part of the valuation process. There was no attempt to address these matters as real issues at the trial despite Mr Garraway's assertion that Mr Mooney had been instructed on them. We were not taken to any material to suggest that Mr Mooney ever provided an expert opinion in evidence dealing with the impact of any taxes the subject of ground 8. 68 His Honour found that these questions of the impact of goods and services tax and income tax had not been addressed in the evidence and emerged only in final submissions. At the trial, Territory Realty accepted that the liability of $206,804 for income tax provided for in the 2007 accounts of the company should be taken into account for the purposes of arriving at a valuation. His Honour refused to make any further adjustments as sought by the appellants. As he noted, the realisation of much of the real estate of the company would depend on questions of timing and expenditure involved in that disposition. He said: "I consider it is too speculative to make such a deduction, particularly in the absence of clear evidence from the valuers that such an allowance was an appropriate one or how it would be calculated. It appears to depend upon the particular valuation method chosen." 69 The primary judge observed that he had adopted 30 June 2007 as the date of valuation of the shares in the company and used the values for its assets and liabilities disclosed in the June 2007 accounts, apart from those for its real estate. Those figures had included provision for income tax, although how it was arrived at had not been made clear in the evidence. He said that the appellants' submission seeking a further adjustment for potential income tax liability was not sufficiently founded in the evidence to be accepted. He found that similar considerations applied to the submissions on goods and services tax. He said that the evidence was not clear enough to make any deduction in fact. He found, among other things, that it was unclear whether ultimately such a liability or deduction would be passed on to a purchaser or purchasers. Again, he noted that the way in which it should be treated would depend upon the valuation method chosen. As he said, he was not prepared to make the deduction suggested on a hypothetical basis without it having been explored sufficiently in the evidence and without being satisfied that it was appropriate to do so. 70 We see no error in his Honour's approach. Indeed, as was apparent during the course of argument before us, a developer who purchased the real estate held by the company would be purchasing it with a view to re-sale. The goods and services tax liability which that purchaser would ultimately incur would be the net liability, if any, after the purchaser deducted what it had paid to the company for the land from what it received from its purchasers, netting that liability to goods and services tax off against any credits and debits that arose in the course of developing the land. 71 The appellants' argument involved the specious contention that a developer would be affected in the amount for which it would purchase the land because it would have to pay an additional 10% goods and services tax. The argument conveniently overlooked that, when selling the land, in some, if not all cases, the developer might receive a price that included goods and services tax. Any detriment suffered by the developer in paying goods and services tax in the initial acquisition could be offset on resale. But there was no evidence whether, and to what extent, that receipt on resale would be realised. Any assessment of the appropriate amount, if any, to allow for these contingencies required the appellants to adduce evidence before his Honour which they deliberately chose not to do. 72 Calculations of liabilities for goods and services tax, capital gains tax and income tax necessarily depend upon the assumptions that are employed. It would be unrealistic for a developer to buy land from the company for the purposes of re-sale without factoring in that it could afford to pay the goods and services tax component of the price, since it would, or might, recover that tax on any resale it planned to make at a profit. Hence, no deduction in value would be appropriate for that purpose if no evidence had been directed to the issue at trial. The primary judge was correct to have refused to make the hypothetical and unproven adjustments for which the appellants argued.

Expert Share Valuation (Ground 9) 73 The appellants argued that his Honour had erred in failing to require an expert share valuer to give evidence. That argument proceeded from the premise that Territory Realty bore the onus of establishing the fair value of its shares in the company. Accordingly, the failure of Territory Realty to adduce evidence on the value of the shares, rather than the underlying real property assets, meant that it had not established what an appropriate valuation was. The appellants also argued that there were, in substance, only two possible methods of valuation, one based on net assets on a notional liquidation and the other on future maintainable earnings. These arguments should be rejected. 74 The parties conducted the case adducing the evidence that they considered appropriate. His Honour had to decide the controversy on that evidence. It was not his role to direct either side on what evidence it should tender. Counsel for the appellants argued that Mr Garraway was qualified as an expert in valuation, although he had not made any expert valuation himself. The parties did not suggest at the trial or on appeal that a future maintainable earnings valuation was appropriate. No doubt this was because the business of the company was the development and sale of land that had been held over the long term and would be released for sale gradually. A net assets valuation based on a notional liquidation was equally inappropriate. His Honour did not value the shares on such a basis. The company was not being liquidated. 75 Control of the company, and thus the ability to realise the real estate assets in the most advantageous way, had a value in itself. The appellants argued that a number of authorities, in which other judges had been confronted with competing valuations, somehow erected a principle of law as to how shares should be valued for the purposes of making a buy out order under s 233(1) of the Corporations Act. 76 That argument cannot be accepted. As Gummow, Hayne, Heydon and Kiefel JJ said in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 361 [178]; "… the power given to the Court by s 233(1)(d) should not be hedged about by implied limitations." (footnote omitted) They also said that, if a buy out order is to be made, the Act does not identify the basis on which the price for the shares is to be fixed. They held that the Act should not be given a narrow construction in respect of the various criteria to which the Court may have regard in fixing a price in a buy out order: Campbell 238 CLR at 360-361 [178]. 77 Here, the primary judge had to act on the evidence before him. That did not include any expert accounting evidence of the kind necessary to make the valuation on the basis for which the appellants now argued. He identified the task to be undertaken as determining a value of the shares in the company at 30 June 2007. He noted that the assets were largely real estate and that evidence about the valuation of the company's interest in that real estate spanned a period of time at, and soon after, 30 June 2007. His Honour considered that it was appropriate to make a buy out order, once the valuation had been arrived at, which allowed either side to buy the other side's shares at the same price. 78 Although his Honour did not expressly advert to this, it is evident that he had in mind selecting a value which would be fair for either side to pay to acquire complete control of the company that then would continue in existence to carry on its business of selling the land. His Honour carefully crafted an order to provide a remedy for the oppression that he considered appropriate, in accordance with the broad power in s 233(1). Having valued the land in the way he did, his Honour simply added that to the cash on deposit (after excluding moneys raised in the oppressive capital raising) and then reduced the total by the amount of liabilities in the 2007 accounts so as to produce shareholders' equity of $14,836,998. Thus, he notionally rewrote the balance sheet of the company. As Mason J said in Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Limited (1981) 146 CLR 336, at 383: "Essentially valuations are estimations involving findings of fact and discretionary judgment made on the evidence given in the individual case and by reference to the circumstances of that case." Mason J deprecated the slavish application by judges and valuers of approaches taken by other judges in other cases involving other facts and discretionary judgments. Such an application would incorrectly treat those other approaches as propositions of law. 79 During the course of argument, senior counsel for the appellants was asked why, having regard to the many complaints he was making about the excessiveness of the primary judge's valuation, his client did not simply allow Territory Realty to exercise the second option of buying the appellants out at the supposedly excessive value per share fixed by his Honour. He replied that his clients had plans and dreams for the company. That reply demonstrated that the appellants' arguments on valuation methodology had no substance, since they ignored the value of the very control which the appellants wished to retain. 80 His Honour was entitled to form a view as to what the value of the land was and to fix a fair value for the shares, taking that into account with the other assets and liabilities in the balance sheet of the company at 30 June 2007. He did not err.

Should Territory Realty's past conduct be taken into account and was the buy out order justifiable? (Grounds 10 and 11) 81 The appellants' next complaint was that his Honour failed to have regard to the position adopted by Territory Realty in the proceedings and to its previous conduct as a shareholder. They contended that a buy out of one faction by the other was not the most appropriate remedy. The central power in s 233(1) is contained in the chapeau which states: "The court can make any order under this section that it considers appropriate in relation to the company, including an order …

(d) for the purchase of any shares by any member …." (emphasis added)

82 The power should not be read in a way that makes implications or imposes limitations that are not found in the express words of the section: Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 at 421 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ; Campbell 238 CLR at 360-361 [178]. 83 The discretionary judgment exercised by his Honour cannot be set aside unless the appellants show that he acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect him, mistook the facts or did not take into account some material consideration: House v The King 55 CLR 499 at 504-505; Norbis v Norbis (1986) 161 CLR 513. The appellants argued that his Honour should have taken into account Territory Realty's conduct in the proceedings in raising the grounds on which it failed, together with its other conduct in disputes between the shareholders of the company. 84 While those were matters to which his Honour could have had regard, they were not factors which his Honour had to take into account in exercising his discretion to grant relief. At the heart of the conduct of the appellants was their endeavour to acquire Territory Realty's shares by the use of oppressive tactics. These included the making of offers at gross undervalues having given Territory Realty no substantive information about the company, its plans and its potential. Territory Realty's corporators and directors were real estate agents with some local knowledge and understanding of the company generally. However, they had not been given any significant information about the company and its plans as formulated and pursued by the directors for some years. The primary judge also had regard to the oppressive way in which the management and consultancy fees had been "ripped off" the company by the majority. 85 His Honour did not make any error in the exercise at his discretion in concluding that the appropriate order was for one side to buy out the other. This ground is without substance. 86 Counsel for the appellants pointed out that, notwithstanding the personality differences, Mr Garraway had been civil and courteous to Mr Booth and the two had been able to talk and communicate. These matters do not suggest that his Honour's discretion miscarried. He had the advantage of seeing the protagonists give evidence and made his assessment on all of the material in evidence at the trial. He was aware of the relationship between the shareholders and the fact that there were only three of them, and came to the conclusion that the buy out of one faction by the other was the most appropriate remedy. 87 The primary judge considered that the order made for one party to buy the other out where the appellants were given the first option to purchase, was the least intrusive and most appropriate remedy. The appellants had, for many years, sought to use their majority position to exclude Territory Realty, to charge unjustifiable management and consultancy fees for the previous five or six years and to obtain the control of the company by oppressive conduct. In that context it was open to the primary judge to conclude that the parties should not be required to remain in a continuing relationship. There was nothing to say that the majority in the future would not act in exactly the same way as it had in the past: cf Campbell 238 CLR at 362 [182]. The fact that other remedies may have appeared to other persons to be appropriate does not suggest that his Honour erred in the exercise of his discretion in a way that can be challenged. Indeed, although the question is not for us, his Honour's exercise of his discretionary judgment in this matter appears to have been correct.

The Cross Appeal 88 Territory Realty cross appealed. It argued that his Honour failed to add back into the balance sheet, the value of the unjustified management and consultancy fees. 89 The problem with this argument is that his Honour found that it would be a difficult question to determine the appropriate relief if this were the only element of oppressive or discriminatory conduct. So, he held that it was additional conduct that added generally to his findings upon which he determined the appropriate relief. Having found that some of the fees produced a benefit to the company, his Honour could have engaged in an assessment as to its value. But, his Honour did not further address, in his reasons, how the value of the overpaid and unjustified fees should be taken into account. 90 In essence, this is a complaint that, in arriving at a value for the shares, his Honour was bound to add back the whole, or the unjustifiable portion, of the "ripped off" fees. However, his Honour decided to adopt the least intrusive, as well as most appropriate, remedy. The method he chose was to value the shares based on the worth of the real estate and to make appropriate adjustments to the balance sheet. That was the method suggested by the appellants (leaving aside their attempt to reduce those values by claims to deduct goods and services tax and income tax which his Honour rejected). His Honour said that the remedy was designed to avoid further oppression or unfair conduct, as opposed to remedying past oppression or unfair conduct. 91 The primary judge was not bound to include in his valuation a figure for the whole or a portion of the unjustified fees. It would have been better had his Honour adverted expressly to his treatment of the fees in relation to the valuation in his reasons. However, even if this were an error, we are not persuaded that, having regard to the overall result and the various factors which his Honour had to balance in arriving at a valuation of the land, we should interfere with his orders. To the extent that it was an error for his Honour not to have given more detailed reasons explaining why the unjustified portion of the fees had not been factored directly into the valuation, we are not persuaded that it is necessary to correct it in order to do justice between the parties. The amount involved is relatively small. Any benefit that Territory Realty might have received as an allowance for unjustified fees would have been relatively minor and, in our opinion, no such allowance should now be made having regard to his Honour's orders. If the matter goes back to his Honour because neither party wishes to buy the other out at the price fixed, he will no doubt address any issue of making appropriate adjustments when fashioning a further order to provide alternative relief. 92 The second ground of the cross appeal was that his Honour ought to have found that the minority should have had the first right to buy out the majority. This was an exercise of a discretionary judgment, based on all of the circumstances. The selection of the majority as having the first right to make an offer at a proper price was a sound choice of remedy. No appellable error in selecting that remedy has been identified. The majority had remained in control of the company for over eight years before the commencement of the proceedings. Territory Realty had acquiesced in at least a partial interference in the affairs of the company by the outsiders from late in 2003 when it became aware of Bishop Estate and Excess having obtained shares in breach of the pre-emptive rights clauses. There is no reason to interfere with his Honour's exercise of his discretion.

Conclusion 93 The appeal should be dismissed and the cross-appeal should be dismissed. Having regard to the minimal time taken in arguing the issues on the cross-appeal the respondent is entitled to an order that the appellants pay its costs of the appeal and there should be no order as to the costs of the cross-appeal. I certify that the preceding ninety-three (93) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan, Rares and Mckerracher.