ARGYLE CONCRETE & QUARRY SUPPLIES PTY LTD (ACN 009 453 294)

Companies - Winding up - Just and equitable ground - Two companies - Whether a breakdown in the relationship of mutual trust and confidence between members and directors of companies - Whether difficulties due to misconduct of applicant - One of companies a trustee company holding assets of business operated by a related trustee company - Effect of winding up on related companies and trusts - Dismissal of applications to wind up companies upheld

Coates v McInerney (1992) 10 ACLC 616

Re a Company [1983] BCLC 151

Re a Company (No 003843 of 1986) [1987] BCLC 562

Re Dalkeith Investments Pty Ltd (1985) 3 ACLC 74

Re Dernacourt Investments Pty Ltd (1990) 8 ACLC 900

Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1

Hackett v Hackett [1922] NZLR 242

Re G Jeffery (Mens Store) Pty Ltd (1984) 2 ACLC 421

John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 9 ACLC 1372

Re Norvabron Pty Ltd (1987) 5 ACLC 184

Stapp v Surge Holdings Pty Ltd [1999] FCA 545; (1999) 31 ACSR 35

State Rail Authority of New South Wales v Earthline Constructions Pty Ltd [1999] HCA 3; (1999) 73 ALJR 306

Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294

Re Wondoflex Textiles Pty Ltd [1951] VicLawRp 65; [1951] VLR 458

1 MALCOLM CJ: In my opinion, the reasons to be published by Kennedy J adequately express the reasons for the dismissal of these appeals. I am in complete agreement with those reasons and there is nothing I wish to add.

2 KENNEDY J: By notices of motion dated 24 December 1998, the appellant sought orders for the winding up of Argyle Concrete & Quarry Supplies Pty Ltd ("Argyle") and Guerinoni Investments Pty Ltd ("Investments") on the just and equitable ground under s 461(1)(k) of the Corporations Law. His applications were dismissed by a Master of this Court and he appealed against these decisions. At the conclusion of argument, the Court dismissed each of the appeals and indicated that it would provide its reasons at a later date. These are my reasons for joining in the orders dismissing the appeals.

3 Argyle and Investments, as the learned Master indicated, are two of three companies which are inter-related, and whose businesses are intertwined. Initially, the appellant had sought to have the third of the companies, Guerinoni Nominees Pty Ltd ("Nominees"), wound up, but this application was dismissed by consent, it being conceded by the appellant that, as he was not a contributory in respect of Nominees, he had no standing to make the application.

4 In the 1960s, Camillo Guerinoni, who has been described in these proceedings as Charlie ("Charlie"), and his wife Maria, who has been described in these proceedings as Mary ("Mary"), established, in partnership, an earthmoving contracting business in the North West of this State. Their business was based in Kununurra. At the time of the hearing below, Charlie was still alive, but he was rather frail and he was living in a nursing home in Perth. Mary had died on 15 March 1996. There were three children of their marriage, the appellant ("Michael") who is the eldest of the children, Steven Charles Guerinoni ("Steven") and Eliza Guerinoni ("Lisa"). Michael, who is the "Son" referred to in the business name, is married to Rhonda Guerinoni ("Rhonda").

5 In the early 1970s, the partnership acquired a quarry and an ore crushing unit. It supplied crushed metal aggregate for road construction and for pre-mixed concrete. On 14 October 1980, Nominees was incorporated, with Charlie and Mary initially being the sole shareholders and directors of that company. As from 1 January 1981, Nominees (as trustee of the Guerinoni Family Trust, which had been created on that day) took over the family business. On 23 September 1982, the company registered the business name, Charlie Guerinoni and Son, under which it has since traded. It acquired additional plant and equipment and other fixed assets to enable it to expand the activities of the business. Under the trust deed creating the Guerinoni Family Trust, in the events which have happened, Charlie (or his appointee or, if he makes no appointment, his personal representative) is empowered to remove and appoint trustees of the Trust. The Guerinoni Family Trust is a discretionary trust, with Michael, Steven and Lisa being the primary beneficiaries, and Charlie being an additional member of the class of general beneficiaries. The trustees of the various Guerinoni trusts, together with Argyle, come within the definition of general beneficiaries in the trust deed. Since Mary's death, Charlie, as trustee of the C & M Guerinoni Trust, and in his personal capacity, has been the only shareholder in Nominees. At the time of the hearing before the Master, the directors of Nominees were Charlie, Michael and Steven.

6 Michael first commenced working in the business in 1980. Between 1980 and 1989, the involvement of Charlie and Mary in the business progressively reduced, while Michael's responsibilities increased. By 1989, he had, for all practical purposes, become responsible for all aspects of the business, including, in particular, pricing, tendering, quoting, supervising the work undertaken by Nominees and purchasing equipment, parts and consumables. He also handled all the financial affairs of the business. He was made a director of Nominees on 2 October 1989.

7 In 1990, Mary, Charlie and Michael decided to restructure the business, one of the primary aims being expressed to be the separation of the risks of the business from its assets. There were also, quite obviously, certain taxation advantages, such as income splitting, to be gained from the proposed restructuring. The decision appears to have been made in accordance with advice provided by Mr John Chegwidden ("Chegwidden") who had been involved for some years in providing accounting services to the family. In his view, the diverse activities and assets of the family business were inappropriately concentrated in Nominees. Chegwidden was a close friend of Michael, with whom he had been at school, and with whom he has shared a financial interest in at least one business. His evidence was that the restructuring of the business which took place under his guidance was effective. It involved the incorporation or acquisition of two new companies and the creation of an additional discretionary trust.

8 The evidence before the learned Master left him in some doubt as to how far the individual family members had been involved in the restructuring process. Michael himself was aware of what was intended to be effected, but he appears not to have played any significant role in the mechanics of the restructuring. While the family largely followed Chegwidden's advice, Mary had obviously played an important role in determining the manner in which the restructuring was to be effected. She had insisted that both Steven and Lisa should become involved in the business, as well as Michael. It is apparent that at no time had Michael wished to have Steven involved in the business. Although Chegwidden had expressed concern about all the family members becoming involved, and about the difficulties which, as a consequence, might (and did) ensue, Mary was insistent that each of her three children should participate in the running of the business and that they should each benefit equally from it. Her wish was that it should be held tightly within the immediate family. In particular, she was anxious to protect the assets of the family business in the event of any of her children experiencing a matrimonial breakup. Michael had already suffered from a broken marriage. Mary firmly maintained her views until her death.

9 Following the restructuring, the family business was conducted through three companies, Nominees, Investments and Argyle. Nominees remained as the operating company and it was responsible, as trustee of the Guerinoni Family Trust, for carrying on the road construction and earthmoving business.

10 The Guerinoni Investment Trust was created on 10 April 1992. The primary beneficiaries of the Trust were, once again, Michael, Steven and Lisa. The general beneficiaries included the primary beneficiaries, their children and remoter issue, the spouse of any of the primary beneficiaries and of their children or remoter issue, Charlie, the trustee for the time being of the Guerinoni Family Trust, and Argyle. The power to remove and appoint trustees is vested in Charlie as appointor (or any person whom he may appoint as appointor under the trust deed and, failing appointment, his legal personal representative). The present directors of Investments are Charlie, Michael and Steven, Charlie and Michael having been appointed on 6 April 1992, and Steven on 10 February 1996. There are five shareholders, each holding one share, Charlie in his personal capacity, Charlie as trustee of the C & M Guerinoni Trust, and Michael, Steven and Lisa. Investments is presently the trustee of the Guerinoni Investment Trust and as such holds the investments of the business and a number of the properties owned by the business.

11 Argyle was intended to conduct the concrete products and plant-hiring operation, together with the aggregate and sand supplying arm of the business. It had been proposed that it should own all the plant and equipment necessary for those operations. As it turned out, Argyle seems never to have operated as a trading entity but instead has become simply the owner of the plant and equipment of the business. The directors of Argyle are Charlie, Michael and Steven, each of whom was appointed on 8 June 1990. Michael is the secretary. The shareholders in Argyle are the same as those in Investments.

12 Under his present will, in addition to appointing Steven as his executor, Charlie has appointed Michael, Steven and Lisa as the joint guardians and appointors in the Guerinoni Investment Trust and in the Guerinoni Family Trust, and he has directed that all decisions which are to be made and all discretions which are to be exercised by them in their capacities as joint guardians or appointors are to be made at all times on the basis of the decision and discretion of at least two of the children.

13 Steven had spent 1980 working in the family business, but subsequently he attended university and, between 1987 and 1988, he completed a Master's Degree in Resource Management in Canberra. Between 1989 and January 1992, he worked as a planner with the Conservation Commission of the Northern Territory. He was appointed a director of Nominees on 31 May 1990 and then, in or about February 1992, he commenced working in the family business on a full-time basis.

14 During the period between her finishing her schooling and her leaving Kununurra in 1989, Lisa worked for the Commonwealth Bank for about three and a half years and then for about four years in the family business on a full-time basis. She did not return to work in the business again until January 1998. During the previous time she had worked in the family business, she had been involved in looking after its accounts and in its office management. In 1998, she once more took up these roles. It is apparent that she works closely with Steven.

15 On 31 August 1995, the C & M Guerinoni Trust ("the Guerinoni Trust") was created. It is a discretionary trust, of which the primary beneficiaries are Steven, Michael and Lisa, with an expanded category of second beneficiaries, consisting broadly of the present and future members of the family, trusts in which a beneficiary has an interest and companies in which a beneficiary has a shareholding. The original trustees were Charlie and Mary and they were the joint guardians, in whom the power to appoint new trustees was vested. On Mary's death, Charlie became the sole guardian. On his death, Michael, Steven and Lisa will become joint guardians. The guardians have the power to remove and appoint trustees. The decisions of the guardians may be made by a majority of at least two of them. Under the terms of Mary's will, her single shares in Nominees, in Investments and in Argyle passed to Charlie as trustee of the Guerinoni Trust. Charlie's will is presently in the same form as that of Mary and, unless it is changed, his single share in each of the companies will also pass to the trustee of the Guerinoni Trust.

16 In recent times, Charlie has taken little or no interest in the affairs of the family business. It appears that in all business matters he acts in accordance with Steven's wishes. In August 1995, at a time when Mary was seriously ill, he gave Steven an enduring power of attorney, of which Michael was not informed, although Michael recollected Mary saying to him that she wanted Steven to be Charlie's attorney to ensure that Steven remained with the business. On Charlie's death, Steven and Lisa will clearly be able to exercise effective control of the trusts and of the companies. That will have obvious implications for Michael's position, having regard to the conflict between Michael on the one hand and Steven and Lisa on the other. Since the hearing before the Master, Michael has been suspended, and he was later dismissed, both as a director and as an employee of Nominees, although details of the circumstances surrounding his suspension and dismissal are not in evidence before us.

17 It was common ground that Michael and Steven have not enjoyed a good relationship. Even as children they had never got on together. Michael claimed that his relationship with Steven has deteriorated to the point where the only possible option is for the three siblings to go their separate ways. No reference was made by him as to what he contemplated would be the position with respect to Charlie. On this basis, he claimed that it would be just and equitable that Argyle and Investments be wound up. He did not seek any relief under s 461(1)(f) of the Corporations Law on the ground that the affairs of the companies were being conducted in a manner that was oppressive or unfairly prejudicial to, or unfairly discriminatory against him, or in a manner that was contrary to the interests of the members as a whole and, as the learned Master indicated in his reasons, there was no suggestion that the affairs of any of the three companies were being conducted in a manner which was oppressive to Michael. But although the Master was unable to find evidence of a deadlock within any of the companies, it is quite clear that there exists the potential for Michael to be marginalised.

18 In view of the animosity which exists between Michael and Steven, the learned Master regarded it as "perhaps surprising" that Michael had countenanced the extensive restructuring which took place in 1992 and which led to the appointment of Steven as a director of each of the three companies. The Master concluded that Michael's acquiescence in the restructuring could be explained in two ways. First, that he was aware that his parents, and particularly his mother, wished all three children to be involved in the family business. Secondly, that he did not anticipate that Steven's presence would in any way affect his day to day control of the family business. Michael's evidence made it plain, and the Master accepted, that, from the beginning, he had endeavoured to marginalise Steven. It had not been the case that Steven had endeavoured to exclude Michael. Michael did not involve Steven in the day to day activities of the business and he did not consult him on any aspect of the business. He was no doubt aware that Steven himself, after some time, had begun to take responsibility for the financial side of the family business, but he had been able to put this largely to one side and he had simply continued to run the business as he had prior to 1989. Gradually, however, the position changed, and Steven came to influence the conduct of the business to such an extent that Michael could no longer ignore his presence. Michael came to have little involvement in the financial side of the family business, although in his evidence he denied that this was his own wish.

19 Chegwidden recognised the difficulties arising out of the unhappy relationship between Michael and Steven soon after the 1992 restructuring, and he attempted to bring them together. From time to time, when he was in Kununurra, he tried to arrange meetings between them with a view to discussing all aspects of the business and settling upon some arrangement which would enable the brothers to co-operate. In his opinion, they had their own particular skills in discrete areas. He accepted that Steven had very good skills in management. Michael held a different view. In his affidavit sworn on 19 February 1999, he deposed:

"I do not believe that Steven and I are capable of working together. I place no trust in his business judgment and do not respect his decision making. I do not and never have wished to be part of a business involving my brother. The reason that I am uncompromising towards Steven's involvement in the Family Business is because I do not believe that he is entitled to a part of something that I have built and that he has had little or very little part in creating. I have always been derogatory towards Steven and have never got along with him even as a child. I do not believe that our relationship can ever change."

20 Steven's evidence was that he had tried and tried to have regular meetings with Michael to discuss the financial fortunes of the company. There is no reason to doubt the truth of this claim. On the occasions when Michael did attend meetings, he was usually late, he was unco-operative while he was there, and he generally found some excuse to leave the meeting after a short period of time. A proposal advanced by Chegwidden that Michael should attend to the operational functions of the business while Steven should attend to marketing and development, including assisting in the preparation of tenders, was not acceptable to Michael. Strategic planning and quality assurance accreditation were not accepted by Michael as objectives, and he continued to make it clear that he did not want Steven and Lisa to be directors and shareholders of Argyle and Investments. On practically every occasion on which Michael met Chegwidden, he made derogatory remarks concerning Steven. Of the meetings, Chegwidden said that he himself would have "whacked" Michael if he had spoken to him in the way he spoke to Steven. Chegwidden was found by the Master to have a very clear view of the damage which was being caused to the family business by the conflict between the brothers. Not surprisingly, he became frustrated because little or nothing was being achieved to remedy the position. He pointed out in his cross-examination that, while the family business had grown considerably and, by the time his services as its accountant had been terminated by Steven and Lisa in 1997, it was turning over approximately $2 million a year, he believed that if Steven and Michael had co-operated, with Michael working on the ground and getting things done and Steven working at a higher management level, it could have been turning over $10 million a year.

21 The learned Master accepted Chegwidden's evidence as indicating the depth of the problem which had been occasioned by the two brothers not being able to arrive at a reasonable working relationship. The learned Master found, however, that it was Michael's intransigence which had prevented any effective working relationship from being developed between himself and Steven. There was no question but that each of the brothers had an intense dislike of the other. Nor was there any doubt that there was always likely to be some tension between them on a personal level. However, Steven was accepted by the Master as having been willing to forge a working relationship with Michael. There was ample evidence to support these findings. Steven had always attended the meetings arranged by Chegwidden and his evidence was that he could, and would, work with Michael on a day to day basis. Michael, on the other hand, did not appear to have made any attempt to improve their relationship.

22 A further effort by Mr K Geers and Mr Z Kenny of Geers & Pusey, who had been appointed as acountants in succession to Chegwidden, to bring the parties together was unsuccessful. They also had suggested making a clear division of responsibilities between Michael, Steven and Lisa. But a meeting with the parties held over two days was unsuccessful in resolving the brothers' difficulties.

23 There were a number of problems which exacerbated the position. The first was a major dispute concerning a house in Casuarina Way, Kununurra. In or about October 1992, Michael had acquired a vacant block of land on which a house was ultimately built. The purchase price for the land was advanced to Michael by Nominees, from funds which it had itself borrowed for the purpose from the Commonwealth Bank of Australia. The bank's security for the loan to Nominees was a term deposit in the name of the Guerinoni Investment Trust and guarantees from Charlie and Mary. Subsequently, Michael obtained a further loan from Nominees for the construction of a house on the land. The house was completed in January 1994 and ever since that time it has been occupied by Michael and Rhonda. Mary had been unhappy about the property being registered in Michael's name. She discussed the position with Chegwidden who, in turn, discussed the position with Michael. As a result, in April 1994, the Casuarina Way property was transferred to Nominees, it would seem, in consideration of the release of the debt owing to that company. Rhonda and Michael occupied the property rent free. Furthermore, all the outgoings in respect of the property were met by Nominees. These amounted annually to some $36,000. Steven and Lisa complained that this gave rise to an inequality in the distribution of income from the family business. Steven, through Nominees, then attempted to sell the property; but Michael countered that move by having a five year tenancy agreement signed in June 1998 by Charlie in favour of Rhonda, with an option of a further five year term. Although Rhonda was named in the tenancy agreement as the tenant, the rental was expressed to be "in lieu of unpaid overtime and public holidays worked by Michael". All outgoings were to be paid by Nominees. There is nothing to indicate that Charlie had been authorised by Nominees to sign the lease, a somewhat curious document which had been prepared by Michael himself.

24 The second cause of dissension arose out of the purchase of a major piece of equipment, an excavator. In or about 1995, Michael came to the conclusion that it would assist the family business if an earthmoving machine were to be acquired. It was his opinion that the business was losing contracts because it did not have suitable equipment to excavate and shift the required volume of sand. He discussed the proposed acquisition of an excavator both with Chegwidden and with Steven. Steven did not agree to the purchase, taking the view that it was too expensive a piece of equipment, the acquisition of which would place undue strain on the financial resources of the family business. He also contended that there were other logistical reasons why the excavator should not be acquired. Michael and Steven discussed the acquisition of an excavator from time to time during a period of more than two years, but they could not reach any agreement.

25 Eventually, in February 1997, Michael himself, through a new business known as JAB Industries, acquired a secondhand excavator. The structure of that business is not entirely clear, being described as a partnership between Rhonda and Michael, with the partnership being said to be the trustee of the JAB Family Trust, which had been created in 1996. In any event, having acquired the excavator, JAB Industries commenced to hire it out. From time to time the family business itself hired the excavator and JAB Industries rendered accounts to the business accordingly. A second excavator was acquired by Michael for JAB Industries prior to the hearing. Following the acquisition of the first excavator, there developed a dispute as to the amount of time which Michael was spending on matters relating to JAB Industries, as against the affairs of the family business. Michael claimed that the time which he was spending on the affairs of JAB Industries was minimal; but Steven claimed that Michael was spending a considerable amount of time in organising work for the excavator and in supervising that work. He also complained that, from time to time, Michael utilised employees of the family business and its assets in work which had been undertaken by JAB Industries. The learned Master found it unnecessary finally to resolve which of the two versions presented to him was correct, although he accepted that there was clearly some basis for the complaints of Steven and Lisa.

26 The third major source of concern on the part of Steven and Lisa was that, on at least three occasions, JAB Industries had tendered for work in opposition to the family business. On one of these occasions, Michael had prepared the quotations both for JAB Industries and for the family business, with the price tendered by JAB Industries being less than that in the tender submitted by him on behalf of the family business. In none of these cases does it appear that either the family business or JAB Industries was successful. In acting as he did, the learned Master concluded, Michael was clearly in breach of his fiduciary duty as a director of all three companies and he noted that Michael's counsel did not seek to argue otherwise, although Michael himself maintained in cross-examination that he did not think that there was a conflict of interest, simply regarding it as a conflict between himself and his brother. What was of concern to the Master was that there was no indication by Michael that he would not in the future tender in competition with the family business.

27 There were other matters of complaint by Michael on the one hand and Steven and Lisa on the other, but they are of little significance in the resolution of this matter and the Master, reasonably, did not attempt to make findings in relation to them.

28 There were six significant factors which led to the learned Master's decision to dismiss both applications. The first was that Michael entered into the corporate structure well knowing that he would find it difficult to work with Steven. He may have been motivated by a desire to satisfy his mother's wishes, but he had the advantage of competent accounting advice and he was acutely aware of the problems that were likely to arise. This was not a case in which a partnership between the parties had been converted into a company structure and, in the Master's view, the quasi-partnership cases on the just and equitable ground were of no relevance. There had been a partnership between Charlie and Mary, but none of the children had been a member of it. Of the four individuals having an interest in the business, Charlie, Steven and Lisa opposed the winding up of Investments and Argyle.

29 The second factor was that Michael knew the advantages of a corporate structure and he was prepared to take the benefit of those advantages. Chegwidden referred to Mary's strong desire to protect the assets of the family business from claims by any estranged spouses of her children. In addition, Chegwidden had set up the present structure of the family business to minimise tax. Michael was undoubtedly aware of the taxation advantages of the structure and he had entered into the present arrangements conscious of the advantages it had to offer. In this respect, nothing had changed. The learned Master did not suggest, as one of the grounds of appeal contends, that the mere fact that one of the objectives of the restructuring was to minimise tax precluded Argyle and Investments from being wound up.

30 The third factor was that the difficulties associated with running the family business were largely of Michael's making. It was he who had refused to attend many meetings and he who had disrupted those meetings which he had attended. It was clear that Michael trusted Chegwidden and relied on his advice. However, not even the urging of Chegwidden could persuade Michael to develop a working relationship with Steven. Michael claimed that he had entered into the business structure as it was because his parents wanted him to do so. He said he did not anticipate that Steven would interfere with his day to day running of the business. From the beginning, Michael had consciously excluded Steven from the management of the family business and he had made no attempt to utilise Steven's expertise. But as time went on, Steven and Lisa assumed much more important roles in the running of the business.

31 The fourth factor was that neither Steven nor Lisa had done anything which, in the opinion of the Master, could be seen as unreasonable in the context of the running of the family business. Steven had, on the evidence, always been willing to attend meetings with his brother. It is true, as the Master pointed out, that a number of actions had been taken by Steven and Lisa which had caused Michael disquiet. His pay had been docked at a time when he was indebted to the family business and invoices had been rendered to JAB Industries in circumstances where it was questionable whether there had in fact been any indebtedness. Perhaps most significantly, Steven had moved to sell the Casuarina Way property which had been occupied by Michael and his wife. Nevertheless, the learned Master indicated that, taking the evidence as a whole, he was of the view that neither Steven nor Lisa had acted unreasonably. Although they might have exhibited a level of frustration, that was not surprising. They had certainly not attempted to exclude Michael from the management of the family business. Nor had they ignored his interests.

32 The fifth factor was the matter of Michael's breach of his fiduciary duty in his competing with the family business. It was clear from his evidence that he would continue to compete with the business, and that he did not accept that he was doing anything wrong in his so competing. The learned Master regarded this breach of fiduciary duty as being of some significance, and a factor militating against the granting of the relief sought.

33 The final factor was what the Master termed the collateral purpose of the application. It appeared to him that the effect of winding up Investments and Argyle would be severely to impact upon the family business. Quite what the result would be was unclear, but it would undoubtedly be negative. Such damage to Nominees ought, the Master considered, be avoided, if possible.

34 The learned Master's findings of fact were entirely justified on the evidence before him. He arrived at those findings having had the benefit of hearing Michael, Steven, Lisa and Chegwidden cross-examined on their affidavits.

35 As Mann CJ pointed out in In re Straw Products Pty Ltd [1942] VicLawRp 52; [1942] VLR 222 at 223:

"Facts rendering it just and equitable that companies should be wound up cannot be resolved into categories. Cases upon the subject are to be read with this always in mind. They merely illustrate the diversity of the circumstances calling for an exercise of the Court's discretion in winding up a company because it is just and equitable so to do."

And see also Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, per Lord Wilberforce at 374 - 375.

36 Nevertheless, we are not left in a wilderness of single instances and certain principles have emerged in relation to the just and equitable ground for winding up a company. In Re a Company (No 00709 of 1992); O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, although the House of Lords was concerned with an application under s 459(1) of the Companies Act 1985 (UK), a section which is broadly comparable to our s 461(1)(f) of the Corporations Law, Lord Hoffman regarded his approach to the concept of "unfairness" in s 459 to run parallel to that which had been adopted in Ebrahimi v Westbourne Galleries Ltd (supra) in giving content to the concept of "just and equitable" as a ground for winding up. At 1098 - 1099, his Lordship said:

"In section 459 Parliament has chosen fairness as the criterion by which the court must decide whether it has jurisdiction to grant relief. It is clear from the legislative history (which I discussed in In re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at 17-20) that it chose this concept to free the court from technical considerations of legal right and to confer a wide power to do what appeared just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles. As Warner J said in In re J E Cade & Son Ltd [1992] BCLC 213 at 227:

'The court ... has a very wide discretion, but it does not sit under a palm tree.' "

37 Lord Hoffman pointed out that "fairness" is a notion which can be applied to all kinds of activities, but its extent will depend upon the context in which it is being used and the context and background are therefore very important. He said, at 1098 - 1099:

"In the case of s 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.

The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.

This approach to the concept of unfairness in s 459 runs parallel to that which your Lordships' House, in In re Westbourne Galleries Ltd [1973] AC 360, adopted in giving content to the concept of 'just and equitable' as a ground for winding up. After referring to cases on the equitable jurisdiction to require partners to exercise their powers in good faith, Lord Wilberforce said, at p379:

'The words ["just and equitable"] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act [1948] and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The 'just and equitable' provision does not, as the respondents [the company] suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.'

I would apply the same reasoning to the concept of unfairness in s 459."

See also Ebrahimi v Westbourne Galleries Ltd (supra), per Lord Wilberforce at 374, 379 - 380.

38 In Ebrahimi v Westbourne Galleries Ltd (supra), at 387, Lord Cross of Chelsea said:

"A petitioner who relies on the 'just and equitable' clause must come to court with clean hands, and if the breakdown in confidence between him and the other parties to the dispute appears to have been due to his misconduct, he cannot insist on the company being wound up if they wish it to continue."

39 Lord Oliver, in Vujnovich v Vujnovich [1990] BCLC 227, at 231, in delivering the advice of the Privy Council, indicated that it was quite clear that Lord Cross was there considering the position in which the petitioner's misconduct was causative of the breakdown in confidence on which the petition was based. And in Morgan v 45 Flers Avenue Pty Ltd (1987) 5 ACLC 222 and in Ruut v Head (1996) 20 ACSR 160 (a partnership case), a lack of clean hands was regarded as simply a factor pointing against a winding up being ordered.

40 It is important to appreciate that the two companies which Michael was seeking to wind up form part of a complex business structure comprising three companies and four trusts. Both companies, quite clearly, are solvent. Of the two companies, Investments is merely a trustee and it has no beneficial interest in the assets which it holds. Those assets are held by it on the trusts set out in the trust deed. If a winding up order were to be made, whilst it would be necessary to have a new trustee appointed, it would not otherwise have any impact upon the trust, which would continue as before, although with a new trustee. An order for winding up would not lead to any distribution of assets to the shareholders or to any beneficiaries in the Investment Trust. As already indicated, the attempt by Michael to wind up Nominees had previously to be abandoned, so that the Guerinoni Family Trust, with its assets, would be unaffected, whatever the outcome of these proceedings. As to the winding up of a trustee company which has no assets of its own, see Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 11 ACLC 568 per Young J at 573. And see also Re Bellador Silk Ltd [1965] 1 All ER 667 per Plowman J at 672, a case in which the contributory petitioning for a winding-up had no tangible interest in a liquidation. In the circumstances, the winding up of Investments would achieve nothing and, for this reason alone, the application with respect to that company had to fail. It would not, in the circumstances, have been just and equitable to order that it be wound up.

41 The second company which is the subject of these proceedings, Argyle, is not a trustee company. It is, in fact, a beneficiary of the trusts, having received in the year ended 30 June 1998, by way of distribution, $44,526 from the Investment Trust and $494,472 from the Guerinoni Family Trust. The shareholders' equity as at 30 June 1998 was $479,304. If the company were to be wound up, the appellant's entitlement would be to only 20 per cent of the surplus assets. Although the impact of the winding up of Argyle on the family business was not closely examined, it would appear to be most likely that it would have some adverse consequences for Nominees, as the trading company, although, if it were to be wound up, at the end of the process, the greater part of the family business would remain intact, as, no doubt, would Michael's attitude towards Steven.

42 It is quite apparent that the appellant resented the intrusion of Steven and Lisa into the family business, but that was the basis upon which the restructuring of the business was undertaken and the basis upon which Michael participated in the arrangement. It is clear on the evidence, and the Master so found, that it was Michael's conduct in declining to co-operate with his brother and sister in the joint management of the business which has created the present problems within it. If he has been deprived of financial information, which appears unlikely, as he has had full access to the family accountants, it was due to his declining to participate fully in the meetings which Steven and Lisa have endeavoured to call. The position in this case is quite different from that in Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426, where there was a deadlock due to a mutual failure on the part of both parties to endeavour to make the relationship work.

43 Michael accepted his position in the corporate and trust structure of the business with a longstanding antipathy towards Steven, and thereafter he disregarded the obligations he assumed by accepting that position. It appears that at no time did he want Steven to participate in the business. If the relationship between Michael on the one hand, and Steven and Lisa on the other, deteriorated, it was, as the Master found, largely of Michael's making. He was not willing to co-operate with his brother and sister. Based on the evidence, I do not accept that Charlie, Steven and Lisa have exercised their legal rights and powers unjustly or inequitably.

44 In my opinion, the Master was entirely correct in declining to accede to the application to order that Investments and Argyle be wound up.

45 PIDGEON J: I agree with the reasons of Kennedy J.