Judgment
1The Plaintiff, Mr Ian Byrne (to whom I will refer, without disrespect, as "Ian") seeks orders under s 233(1)(d) of the Corporations Act 2001 (Cth) requiring the remaining members of A.J. Byrne Pty Limited ("AJBPL") and Loka Pastoral Co Pty Ltd ("Loka") to purchase his shares in those companies at a price equal to the market value of the shares as a whole without discount for the fact that the shareholding is a minority shareholding. The members of those companies include his late father, Mr Allan Byrne (to whom I will refer, without disrespect, as "Allan"), his mother Frances Byrne (to whom I will refer, without disrespect, as "Frances") and his brother, Mr Stuart Byrne (to whom I will refer, without disrespect, as "Stuart"). Ian is the eldest son of Allan and Frances and Stuart is Ian's younger brother. Allan passed away after the hearing was concluded in these proceedings and prior to the delivery of judgment. Ian's cause of action survives in this situation by reason of Uniform Civil Procedure Rules 2005 (NSW) r 6.30 ("UCPR"). In the alternative, Ian seeks orders under s 233(1)(a), s 461(1)(f) or s 461(1)(k) of the Corporations Act that those companies be wound up.
2Ian also sought relief in respect of a partnership ("Partnership") between Ian, Allan, Frances and Stuart. In a judgment delivered on 25 November 2011 ([2011] NSWSC 1437), Barrett J declared that the Partnership was dissolved on 31 January 2011 and ordered that its business be wound up under the Court's direction, declared the respective interests of the parties in the Partnership and ordered that a receiver and manager be appointed to the assets of the Partnership and that an account be taken in respect of the dealings, transactions, assets and liabilities of the Partnership.
Factual background
3The relevant facts were largely undisputed. From about 1948, various members of the Byrne family have conducted a business in the name of "A.J. Byrne & Co" which undertook pastoral operations on lands leased from Mirridong Pastoral Co Pty Ltd ("MPC"), and subsequently also from Loka, at Gerogery in New South Wales.
4Loka was incorporated in early 1967 and acquired part of the land previously held by MPC. Loka has issued capital of 6,402 ordinary shares of which Ian and Stuart each hold 3,200 ordinary shares and Allan and Frances each hold 1 ordinary share. Ian and Stuart each subscribed for their 3,200 ordinary shares in Loka on 8 June 1967; Ian was then aged 18 and Allan loaned him the money for the purchase of his shares in Loka (Ex J2/62-63, 67, T46). Allan and Frances are the directors of Loka and Ian is not a director of that company. The Articles of Association of Loka permit the transfer of shares to persons other than members subject to rights of pre-emption (Ex J2/57, cl 7).
5AJBPL was incorporated in November 1967 and owns 8700 shares in MPC. Ian holds 5 ordinary shares, Stuart holds 5 ordinary shares, Loka holds 20 ordinary shares and Allan holds 1,786 preference shares. Ian applied for his 5 ordinary shares in AJBPL in 1968 and was provided with the funds to subscribe for them (Ex J2/110, T52). Ian and Allan are the directors of AJBPL. The Articles of Association of AJBPL permit the directors to refuse to register a transfer of shares in the company in their discretion (Ex J2/90, cl 38).
6Ian left his employment in a veterinary practice and began to assist his father in running the Mirridong property from 1975 (Ian 31.10.11 [17]) and Stuart also began to work on the property from 1984. Ian acquired his grandmother's shares in the Partnership in 1977 (Ian 31.10.11 [28]). It appears that, when the administration of the estate of Ian's and Stuart's grandfather was finalised in 1980, his shares in the Partnership were distributed equally to Ian and Stuart (Ian 21.6.2011 [14]).
7Proceedings were brought by Ian's uncle seeking the winding up of MPC in 1980 and ultimately settled (Ian 31.10.11 [32]). Allan, Frances, Ian and Stuart agreed, on 30 June 1980, that from 1 July 1980 the capital shares in the Partnership would remain the same but that profits and losses would be shared equally; however, if any partner was unable to devote his full time to the business, remaining partners would be entitled to a salary before the distribution of profits as may be mutually agreed (Ex J2/131)
8By letter dated 29 November 2007, Allan, Frances, Ian and Stuart received advice concerning a possible transfer of land out of MPC and Loka into Ian and Stuart's personal names as tenants in common in equal shares. That transfer did not proceed. Although Ian relies on this advice as reflecting the parties' understanding of the real beneficial interest in the land, I cannot accept that proposition where the transfer of the land to Ian and Stuart was not implemented.
9In December 2009, Ian suffered severe burns while fighting a bushfire which threatened the Mirridong property. He was in hospital in Melbourne throughout the second half of December 2009 and early January 2010 and returned to Mirridong in late January 2010. It appears that Ian's family members did not visit him in hospital in Melbourne and this upset him. Stuart and Mrs Jennifer Adamson (who is the daughter of Allan and Frances, and Ian's and Stuart's sister, and to whom I will refer, without disrespect, as "Jennifer") explain this by the fact that fires were continuing in the district, Stuart was engaged with the local fire brigade in fighting the fires and there was also substantial work to be done on the farm during that period. Ian's evidence is that, after his return to the property following being in hospital in Melbourne, Allan and Stuart were initially "quite sympathetic" to him because of his injuries but he observed less sympathy towards him over time and felt there was increasing tension between him and Allan and Stuart. Ian was largely unable to do physical work on the farm from this time, although he made attempts to do so, by reason of his injuries from the fire. Ian's evidence is that Allan and Stuart were critical of a lack of progress in resolving an insurance claim in respect of fire damage.
10A dispute arose in October 2010, when Stuart proposed, and Allan and Frances agreed, that Stuart and his wife would move into the home previously occupied by Allan and Frances and Allan and Frances would move to the cottage previously occupied by Stuart and his wife. Ian was not consulted when this proposal was initially raised; he was advised of it before it was implemented and strongly objected to it; and his views were ultimately not disregarded, since the proposed swap did not proceed over his objection.
11Ian gave evidence, in somewhat incomplete terms, of a conversation with Stuart on the morning of 21 October 2011, which concluded with Stuart saying to Ian "You're a scumbag Ian" and leaving. Ian's account of that conversation did not refer to prior comments that Ian had made in that conversation concerning Stuart's disabled son which, as Ian accepted in cross-examination, would have been offensive (T61-63). To the extent that the relationship between Ian and Stuart deteriorated after the conversation on 21 October 2011, it is likely that Ian's conduct in this conversation significantly contributed to that deterioration.
12On 25 October 2010, Ian handed Allan, Frances and Stuart a document headed "Future of Mirridong" (Ian 31.10.11 [57]-[58], Ex J2/195). In the "Future of Mirridong" document:
- Ian identified a "current issue" being the relocation of Allan and Frances to the cottage and underlying and long term issues.
- Ian recorded his objection to the fact that the decision that Allan and Frances move to the cottage had not been discussed with him before being finalised, and contended that this matter was of relevance to him and he should have been consulted before any decision was made. He suggested that the welfare of Stuart's son, while a consideration, was not the "main reason" for that move and that Stuart using his son's disability to convince Allan and Frances that they should agree to move was "emotional blackmail" and "morally reprehensible". Ian essentially repeated that view in cross-examination (T62).
- Ian expressed the view that he saw "no future in a long term partnership or working relationship" with Stuart; that he was no longer confident that Stuart would act honourably towards Ian's wife and children if anything were to happen to Ian; and that his lack of trust in Stuart led him to the conclusion that "there is no future for me at Mirridong" (Ex J2/198-199).
- Ian noted that Stuart had previously "reluctantly agreed to stay in the cottage" and he had agreed with Allan and Frances that he would "try to continue on Mirridong with them in the main house" but expressed the view that steps would need to be taken in that regard which were not a financially viable proposition and that "in the long run both Stuart and [Ian] would benefit by the winding up of Mirridong as soon as possible" (Ex J2/203).
- Ian suggested that other partners document their feelings on the situation and put forward any alternative solutions; that there be a meeting between the partners to discuss their proposals and make a final decision on the future of Mirridong.
Ian's evidence is that he intended the "Future of Mirridong" document as a discussion paper, and that document invites the other parties to document their thoughts. Nonetheless, that document indicates in plain terms that Ian did not consider that he could remain on Mirridong and that he regarded the appropriate outcome of the discussion to be the "winding up" or sale of Mirridong.
13Further discussions took place between Ian, Allan, Frances and Jennifer in the period after 25 October 2010. The relationships between the parties remain tense and difficult in that period. Jennifer gives evidence of a conversation with Ian on 4 November 2010 where he insisted that "I'm leaving and it all has to be sold" because the other family members could not afford to buy him out; Ian said he wanted to do something with his son and wanted his portion of the sheep stud conducted on Mirridong and was not prepared to wait; and Ian also acknowledged that he was prepared for other family members to buy him out "if they could afford to buy me out" and expressed the view that they could not afford to do so. Jennifer also gives evidence of Ian saying, on 5 November 2010, that he was a minority shareholder and, if he had to, would bring Court proceedings to force the result which he sought and would not consider any proposal in relation to the Partnership without the companies also being addressed.
14On 11 November 2010, a meeting took place between Allan, Frances, Ian and Stuart in the presence of a representative of the family's bank who had mediation training. Ian distributed notes prepared in advance of that meeting at that meeting (Ian 31.10.11 [63]). Those notes recorded that:
"Over the past 10 days, I have outlined my belief that Mirridong is no longer a viable business and that the only solution is to dissolve the partnership and sell Mirridong." (Ex J2/207)
Ian's notes stated that he would like to work through his concerns with the other partners "to see if any other alternatives exist". He identified financial concerns as to the property and expressed the view that the potential for value of equity was likely to decrease over time and that:
"Mirridong is no longer financially sustainable as it is currently operating and therefore [Ian] would like to realise current equity investment in the near term." (Ex J2/209)
Ian's notes also identified personal considerations including lack of trust and current working hours and lack of empathy or understanding of his position which he indicated made it "impossible for me to remain in partnership as it is currently operating".
15Ian's affidavit records his having stated at that meeting that:
"I don't believe the business can go on the way it is. I think selling the farm would be the best way for everyone to realise their share." (Ian Byrne 31.10.11 [63]).
Jennifer's notes of the meeting (Ex J2/215) also record Ian having stated that:
"Ian considers the business overall to be financially unviable and wishes to dissolve the partnership and sell 'Mirridong'."
Jennifer's notes also indicate that Ian noted that extra expenses would be required including for labour as he "no longer wishes to be part of the partnership" and observed that the property was deteriorating and his net equity over time was diminishing. Allan requested "Ian's overall plans and how this related to extricating himself from the partnership and property". Jennifer's notes record Stuart proposing a vote to determine whether there was an agreement for Mirridong to be sold with Allan, Frances and Stuart voting against and Ian for. The notes record Ian "reiterated his wish to leave the partnership". The meeting records further discussion of plans which were being made for the following months for matters such as labour, harvest and shearing.
16There is a dispute, which it is not necessary for me to resolve, whether Ian had then informed Allan, Frances or Stuart that a loan from the Rural Assistance Authority had been approved. By letter dated 15 November 2010, Ian wrote to the NSW Rural Assistance Authority requesting an extension of the settlement date for accessing a disaster loan which had been approved for the Partnership. By letter dated 23 November 2010, the Authority responded extending the settlement date to 21 January 2011 and indicating that the application would be withdrawn if the Authority did not receive confirmation that the loan was proceeding on or prior to that date. Ian's evidence is that he was advised to defer the Rural Assistance Authority loan by a representative of the family's bank.
17With the assistance of his solicitor, Ian wrote a letter dated 8 December 2010 to Allan, Frances and Stuart (Ex J2/218), which he handed to them on the evening of 8 December 2010. That letter refers to the recent meetings regarding the future of Mirridong and his "subsequent conclusion that [he] should discontinue [his] involvement in Mirridong." That letter also referred to legal advice that Ian had received that under the Partnership Act 1892 (NSW) and the Corporations Act "all parties have rights to their share of the assets of both the partnership and the companies" and the ability to bring proceedings to protect those rights. Ian also expressed the view that the option of "stay as we are" did "not seem practical nor sustainable". He referred to other options identified by his solicitors of each having the option to buy out the others on the basis of a valuation of the net assets of the companies and Partnership, sale of the farmlands and assets of the farming business and division of the proceeds, appointment of an administrator/receiver to the company and Partnership. The letter raised the possibility of litigation if "satisfactory progress" had not been made by February 2011.
18Ian's evidence is that he was not consulted by Allan, Frances or Stuart or involved in the organisation of the harvest in December 2010.
19A second meeting took place on 22 December 2010 attended by Allan, Frances, Stuart, Ian, Jennifer (by invitation) and a representative of the family's bank. Ian was handed a letter dated 21 December 2010 (Ex J2/224) signed by Allan, Frances and Stuart which was written with legal advice. The letter referred to Ian's letter dated 8 December 2010 and stated that:
"It would seem to be in the best interests of all parties that the partnership be dissolved by mutual consent and that an arrangement which is fair and reasonable be reached in relation to the farming property".
The letter expressed the view that it might initially be easier to consider the Partnership and suggested, in a somewhat tentative way, that "you might consider the partnership as effectively coming to an end on 31 December next" and discussed the process of valuation of assets and calculation of respective entitlements and noted that it would then fall to Allan, Frances and Stuart "to arrange payment of a sum equal to your entitlement". The letter referred to different views as to percentage entitlements and observed that "[n]o doubt the [a]ccountants will be able to confirm the existing entitlement of each of the partners". The letter expressed the view that the finalisation of the business relationship as regards the farming lands "will no doubt be a little more involved" and suggested that:
"Steps, we suggest, should be taken to determine the value of the lands and the total value ascertained will have to be reduced by the total present liabilities affecting the properties. Once a net value is determined it will be necessary for all [of] us to agree as to how your entitlement is to be paid to you. Whilst it is not a happy thought it would seem that there may be no alternative than for part of the property to be sold".
The letter also suggested that meetings and discussions seemed unlikely to achieve a positive result and "[p]erhaps first we should agree as to the steps to be taken in relation to the general matters abovementioned."
20Ian relied on this letter as amounting to notice of termination of the Partnership and a step in his exclusion from AJBPL and Loka. I do not read the letter in that way. In my view, the "Future of Mirridong" document and Ian's letter dated 8 December 2010 had expressed a clear intent on Ian's part that he should discontinue his involvement in Mirridong. The letter dated 21 December 2010 seems to me to be a sensible and constructive attempt by Allan, Frances and Stuart to accommodate the wish Ian had expressed, contemplating a potential purchase of his interest in the Partnership and the companies.
21Ian also contends that the letter dated 21 December 2010 accepted that his interest in AJBPL and Loka should be bought out at fair value and without a minority discount. I do not read the letter in that way since, first, the position which it adopts is plainly tentative and, second, it contemplates the possibility of further involvement by "the [a]ccountants" and does not seem to me to express any informed view as to the basis on which the relevant interests should be valued. I accept Stuart's evidence in cross-examination that he had no understanding of issues as to valuation of minority interests at that time. I do not consider that the subsequent conduct of Frances, Allan and Stuart in offering to buy Ian out of the companies at the value determined by an independent accountant as a matter which, as Ian contended, involved resiling from any previous offer made in the letter dated 21 December 2010.
22Jennifer prepared minutes of the meeting held on 22 December 2010, which are somewhat more expansive than her handwritten notes of the meeting, which recorded that:
"Letter from Allan, Frances and Stuart Byrne given to Ian indicating that they had considered his repeated desire to leave the partnership and Mirridong. They indicated that they accepted his wish and considered 31 December an appropriate time to draw the line in the sand for the Accountants to calculate his entitlement. Ian refused to consider the letter until Mirridong discussed. Jen [Adamson] pointed out to Ian that they are two separate entities and a line had to be drawn at some stage." (Ex J2/228)
I accept that these minutes accurately reflected the position of Allan, Frances and Stuart that they were approaching the matter on the basis that Ian had indicated that he wished to leave the Partnership and they were seeking to implement that request, albeit in a manner that would not give effect to Ian's preference for a sale of the property. Those minutes also record Stuart's suggestion that he, Allan and Frances would use Mr Noel Willis of WHK Albury as an independent accountant to undertake relevant valuations.
23Ian's evidence is that his father, Allan said, after he was handed the letter dated 21 December 2010, that:
"Ian, we've had a meeting and we've decided you are out of the partnership from 31 December 2010 and Jennifer will be taking over the partnership books."
Ian's evidence is that he was "shocked that my family would ever consider this". However, the position adopted by Allan, Frances and Stuart needs to be understood in the context that Ian had raised the prospect of dissolution of the Partnership in the "Future of Mirridong" document and thereafter repeatedly referred to his wish to exit the Partnership. It is also difficult to accept Ian's evidence that he was shocked with the family's position when his exit from the Partnership had been squarely contemplated by the earlier discussions.
24By letter dated 23 December 2010 (Ex J2/234), Ian's solicitors responded to the letter dated 21 December 2010 noting that Ian is:
"pleased that all parties have now acknowledged the need to dissolve the current business relationships in regard to both the partnership and farming land".
This response is also not consistent with Ian's evidence as to his shock at the position that Allan, Frances and Stuart had adopted. Ian's solicitors noted that Ian did not agree with the proposed dissolution of the Partnership as at 31 December 2010 and suggested a date for dissolution of 30 June 2011 and contended that dissolution of the Partnership would require agreement between the partners in relation to the farm lands. That letter requested a reply by 4 January 2011 and, if a reply was not provided by that time, foreshadowed the commencement of proceedings under the Partnership Act and the Corporations Act and noted that Ian's solicitors would:
"Contact the Bank, all creditors, suppliers and debtors to confirm that there is a dispute, all accounts should be frozen and as communication has broken down a liquidator and/or receiver will be appointed".
25The solicitors acting for Allan, Frances and Stuart responded on 2 January 2011 (Ex J2/243) making clear that their letter dated 21 December 2010 was a response to Ian's indication that he considered there was no future for him at Mirridong and to his suggestion of the winding up of Mirridong and was intended to invite consideration of the termination of the Partnership and was not a notification of determination of the Partnership. That letter also, with justification, took issue with the "provocative and threatening tone" of the letter dated 23 December 2010 from Ian's solicitors.
26Allan, Frances and Stuart opened a bank account in their names trading as "AJ Byrne & Co" (Ex J2/255A-256) on 5 January 2011.
27By letter dated 6 January 2011 (Ex J2/280), Ian's solicitors referred to the possibility that Mr Willis should be jointly instructed as an independent consultant and to conduct a review and provide a recommendation as to the Partnership and company structures, each parties' interest in the various entities and the dissolution of those entities, and indicated that Ian was agreeable to instructing Mr Willis on that basis while retaining the right to obtain a review of his report and recommendations. By letter dated 12 January 2011 (Ex J2/282), the solicitors for Allan, Frances and Stuart indicated that their clients would raise no objection to Mr Willis' appointment.
28On 24 January 2011, Allan, Frances and Stuart removed the sum of $50,000 from the Partnership account without Ian's knowledge or consent. The transfer of funds from that account was inappropriate and unwise, but occurred in the context of the threat in the letter dated 23 December 2010 from Ian's solicitors (to which I have referred above) to request the bank to freeze access to those funds in circumstances which would presumably have left the Partnership and companies unable to meet ongoing liabilities. Further correspondence between the parties' solicitors as to this issue followed, to which I will refer below.
29By notice dated 27 January 2011 (Ex J2/286), Alan, Frances and Stuart gave notice to Ian of termination of the Partnership with effect from 31 January 2011. By letter dated 27 January 2011, the solicitors for Allan, Frances and Stuart also noted that:
"It is in the best interests of all parties that steps be taken to determine the respective interests of the partners. Our clients certainly do not wish to occasion your client [Ian] any inconvenience or financial difficulty. Equally so, our clients do not wish to be place[d] in a position that they have no access to funds. For that purpose they have taken steps to arrange for the opening of a separate account and have withdrawn monies from the partnership account for payment to the credit of that separate account."
That letter noted that Ian was also at liberty to continue to draw funds from the Partnership account and that the drawings of each party would be reflected in their respective capital accounts in the books of the Partnership. The letter also noted that, given that the working account was overdrawn, the determination of the respective values of each partner would have regard to the interest attributed to the drawings of each partner.
30By letter dated 28 January 2011 (which was marked "without prejudice" but tendered without objection in the proceedings), Ian's solicitors protested the withdrawal of $50,000 from the Partnership account and the use of the partnership trading name AJ Byrne & Co by Allan, Frances and Stuart, except in connection with finalising transactions prior to the date of dissolution or facilitating the dissolution. Further correspondence followed between the parties' solicitors. Ian ultimately accepted in cross-examination that the withdrawal of funds from the Partnership account was not a material matter. In my view, that concession was properly made, given the context of the threat made in Ian's solicitors' letter dated 23 December 2010 and the fact that Allan, Frances and Stuart had acknowledged in their solicitors' letter dated 27 January 2011 that Ian could also draw on the Partnership account and that the drawings of all parties should be reflected in the accounts of the Partnership.
31The parties appear to have accepted from 4 February 2011, not surprisingly in the circumstances, that communication between Ian and Allan, Frances and Stuart was best undertaken through their respective solicitors (Ex J2/301). Ian's complaints as to lack of communication with him in 2011 need to be understood in that context.
32Allan, Frances and Stuart registered the new partnership as a family partnership and obtained an allocation of a tax file number from the Australian Tax Office by 3 March 2011 (Ex J2/415). This took place in the context of the notice of dissolution of the Partnership which Allan, Frances and Stuart had served, as they were entitled to do under the Partnership Act, on 31 January 2011 and the evidence indicates that the Australian Tax Office's preference was that, when the constitution of a partnership changed, a new tax file number should be allocated.
33The Mirridong properties were valued by Herron Todd White as at 18 February 2011. Mirridong was valued at $3 million and Loka at $985,000 (exclusive of GST), excluding livestock, growing crops, stored produce and plant and equipment. That valuation was prepared to be relied upon by the Byrne family and Mr Willis to provide the basis for dissolution of the Partnership.
34By email from Allan, Frances and Stuart's solicitors to Ian's solicitors dated 19 April 2011, they offered to return the amount withdrawn from the Partnership account to that account, and by email from Ian's solicitors dated 21 April 2011, he agreed to that sum remaining in the account of the new partnership provided that it was accounted for as part of the winding up of the Partnership.
35On 2 May 2011, Ian offered to sell his interests in the Partnership, MPC and Loka for an amount of $2,213,175.22.
36Mr Willis prepared a valuation dated 19 May 2011 of shares in AJBPL. He concluded that the value of 100% of the shares in AJBPL would be $1,226,504 at 31 January 2011. He expressed the view that the valuation of Ian's shares in AJBPL should be discounted to reflect the fact that it is a minority interest and its lack of marketability by 50%-60%, and applied a mid-range discount of 55% to value Ian's minority interest at $91,508. Mr Willis valued shares in Loka on the same basis, and valued 100% of the shares in Loka as $2,634,279 at 31 January 2011 and Ian's minority interest at $592,528, discounted by 55% for the minority interest.
37Mr Willis' valuations were tendered in evidence by Allan, Frances and Stuart and it initially appeared they were accepted by both parties, subject to the question of law as to whether a minority discount was properly applicable and a question as to the treatment of sale costs which I will determine below. Ian did not lead expert accounting evidence to challenge Mr Willis' valuations, although he unsuccessfully sought a limiting order in respect of their tender. It follows that Mr Willis' evidence as to the percentage which should be applied as a minority discount is uncontested, if such a discount is properly applied.
38By letter dated 22 July 2011 from their solicitors to the solicitors acting for Ian, Allan, Frances and Stuart offered to purchase Ian's shares in AJBPL and Loka on the basis of the valuation in Mr Willis' reports, incorporating the discount for marketability and because those shares were a minority shareholding.
39By letter dated 16 September 2011, Allan, Frances and Stuart acknowledged that they wished to continue to operate the partnership under the name A.J. Byrne & Co. and confirmed their wish to buy out Ian's interests (Ex J2/571-573).
40On 26 September 2011, the Court made orders appointing a referee to determine the value of the Partnership. On 23 November 2011, Allan, Frances and Stuart applied to have a receiver appointed and to expand the terms of the reference and, by judgment delivered on 25 November 2011, Barrett J appointed a receiver to the Partnership and expanded the referee's powers: Byrne v Byrne [2011] NSWSC 1437.
The oral evidence
41There were some difficulties in Ian's evidence in cross-examination. Ian's evidence was, in effect, that Allan, Frances and Stuart responded to his request for a discussion in the "Future of Mirridong" document by excluding him from the Partnership (T73). On balance, I accept that Ian genuinely perceives events in that manner, although the contrary was put to him in cross-examination; however, I do not consider that the events that I have set out above are properly characterised in that way. Ian advanced a suggestion in cross-examination that Allan, Frances and Stuart were seeking to expel him from the Partnership without acquiring his interests at a fair price as a means of ensuring the Partnership's financial viability (T75, T77). While that evidence again indicates the extent to which Ian feels strongly about the relevant events, I do not consider that any basis for that suggestion was established by the evidence and I do not accept it. Ian also suggested in cross-examination that Allan had agreed that Mirridong should be sold on 29 October 2010, although his affidavit evidence did not refer to that agreement which, if it existed, would have been an important matter. I have formed the view that Ian's recollection is coloured by the strength of his feelings and his evidence needs to be treated with a degree of scepticism for that reason.
42I generally accept Stuart's and Jennifer's evidence. Allan and Frances were not made available for cross-examination given their age and issues as to their health. No basis has been established for any adverse inference to be drawn from their absence.
Claim for relief under ss 232-233 of the Corporations Act
43Section 232 of the Corporations Act provides that the Court may make an order under s 233 if:
(a) the conduct of a company's affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
Section 53 of the Corporations Act in turn identifies the "affairs of a body corporate" for several provisions of the Act, including s 232, as including the "promotion, formation, membership, control, business, trading, transactions and dealings of the body" (s 53(a)) and "the internal management and proceedings of the body" (s 53(c)). The orders which may be made include, relevantly, an order for the purchase of any shares by any member (s 233(1)(d)) and an order that the company be wound up (s 233(1)(a)).
44These sections and their predecessors extend to conduct involving "commercial unfairness" or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; Dynasty Pty Ltd v Coombs (1995) 59 FCR 122; 138 ALR 64 at 72; Liosatos v Kefalinian Brotherhood "O Kefalos" of NSW [2000] NSWSC 1138. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; 19 ACLC 856, Spigelman CJ observed that the statutory formulation of "oppression" confers a wide-ranging remedial jurisdiction on the court and that jurisdiction should not be confined by technical distinctions. His Honour noted that the individual elements of oppression, unfair prejudice and unfair discrimination referred to in the statutory formulation illuminate each other and each reflect the essential criterion of commercial fairness.
45Unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair" and can be established by wrongful exclusion from participation in a company's management or by conduct in breach of a shareholders or services agreement even if the person undertaking that conduct thinks he or she is acting properly: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [176]; Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd (No 2) [2011] FCA 567; (2011) 282 ALR 229 at [10].
46Whether the treatment of Ian was fair also needs to be assessed against the background of the fair treatment of the whole body of shareholders, including Allan, Frances and Stuart: Re HW Thomas Ltd (1983) 1 ACLC 1256 at 1262, appeal dismissed Thomas v HW Thomas Ltd [1984] 1 NZLR 686; (1984) 2 ACLC 610; McWilliam v LJR McWilliam Estates Pty Ltd (1990) 20 NSWLR 703; at 708. In Re Lowes Park Pty Ltd; Headlam v Lowes Park Pty Ltd (1994) 62 FCR 535, Burchett J noted that fairness cannot be considered in a vaccum, and in relation to a family company can only be considered in the light of the history of the company and the family and the purpose for which the company was formed. This emphasises the relevance that, in the present case, the companies hold, directly or indirectly, interests in land which was acquired by other family members; both Ian and Stuart were funded to acquire their interests in those companies; and that Allan has been resident on the land throughout his life and Frances since her marriage to Allan. As Burchett J observed in Re Lowes Park, a person who receives the gift of an interest in a company in a situation of this kind is in a somewhat different position from one who has invested his own funds in a company from which he cannot extract himself. At the same time, I recognise that both Ian and Stuart have substantially contributed to the enterprise by working upon it.
47In the ordinary course, a refusal by majority shareholders to accommodate a minority shareholder in extracting his money out of companies by purchasing his shares does not amount to conduct which is prejudicial or discriminatory against that shareholder or to oppressive conduct: Re A Company [1983] Ch 178; Re G Jeffery (Mens Store) Pty Ltd (1984) 9 ACLR 193 at 199; McWilliam v LJR McWilliam Estates Pty Ltd above at 707; Re Lowes Park above at 553. The fact that there is no evidence that other shareholders would not buy out the plaintiff, in accordance with a transfer made under the company's articles of association, or would refuse to register a transfer in favour of a transferee is a matter which tends against an oppression application: Thomas v HW Thomas Ltd above at 693, 696-697; Morgan v 45 Flers Avenue above at 708.
48The emergence of irreconcilable differences between shareholders does not on its own necessarily establish oppression: McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 at 614; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above at [89]; Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) ACSR 121 at [199]. Exclusion from a legitimate expectation of participation in a company's management may be oppressive, when combined with a failure to make a reasonable offer to buy the plaintiff's shares: O'Neill v Phillips [1999] 1 WLR 1092 at 1104; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [109]-[110]; Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 per Austin J at [42]. On the other hand, in Tomanovic v Global Mortgage Equity Corporation above, the Court of Appeal held that oppression was established where the parties had agreed but failed to implement an arrangement for separation of their respective interests so that the value of one party's equity was locked in the companies, the income attributable to that equity had ceased, there was no ready prospect that that party could sell that equity to anyone else for fair value and the resumption of cooperation between the parties was not possible.
49The principles applicable to a claim for oppression were summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd above at [39], and the Court of Appeal noted the parties did not challenge that summary of the applicable principles in Tomanovic v Global Mortgage Equity Corporation above at [140]. His Honour observed that:
(a) consistent with the principle that the purpose of relief is to terminate the effects of oppression, relief will generally be inappropriate as a matter of discretion if there is no continuing oppression: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, at [182]; [2009] HCA 25;
(b) unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair": eg, Campbell v Backoffice Investments Pty Ltd (2008 66 ACSR 359, per Basten JA at [181]; [2008] NSWCA 95;
(c) while it is recognised that conduct may be oppressive if inconsistent with the "legitimate expectations" of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, at [85], [86], [175]; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, at [96]; [2009] NSWSC 342 per Barrett J;
(d) "it is important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower": Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, Young J at 739; [1998] NSWSC 413;
(e) a particular matter which will be taken in account in assessing the gravity of any allegation of oppression, is the extent to which the minority shareholder has "baited" the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, at 741; [1998] NSWSC 413 ...
50I have also borne in mind the observation in Tomanovic v Global Mortgage Equity Corporation Pty Ltd that each case has to be considered on its own facts and circumstances, and by reference to the conduct as a whole; and that, as French CJ noted in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [72], the language and history of the sections indicate that they should be read broadly and the imposition of judge-made limitations on their scope should be approached with caution.
51The substance of Ian's oppression case is that he was excluded from the Partnership and from the management of AJBPL and Loka from at least December 2010 and Allan, Frances and Stuart thereafter failed to offer to purchase his shares at their full value, as distinct from offering to purchase those shares with a discount reflecting his status as a minority shareholder. Ian's case was that his exclusion from the Partnership and/or AJBPL and Loka without a reasonable offer for his shares was the relevant oppression and that the Court could, by reason of that conduct, order the purchase of his shares under s 233(1)(d) of the Corporations Act on the basis that those shares are purchased at a price reflecting the companies' net asset value rather than for a price which includes a minority discount. That case was opened on oral submissions on the basis that
"there was an intention to just dismiss [Ian] from the partnership and to continue on running the partnership and what has happened is that they [Allan, Frances and Stuart] proposed to use [Ian's] capital, in effect, to do this transformation" (T6-7).
Mr Robinson, who appears for Ian, accepted in closing submissions that, absent another act or acts of oppression, a failure to make an offer to purchase Ian's shares other than with a minority discount would not itself give rise to an oppression claim. Mr Robinson also accepted that the steps subsequently taken by Allan, Frances and Stuart to continue the business in a new partnership were not wrongful, unless forced exclusion of Ian from the Partnership and failure to buy out Ian's share at a fair value was established.
52On the other hand, Allan, Frances and Stuart characterise the events to which I have referred as having the effect that, in November 2010, Ian no longer wished to be a partner in the Partnership or a shareholder in AJBPL or Loka and sought their agreement to the realisation of his interest in those entities and that, from about that time, he elected not to participate in the day-to-day conduct of the business.
53In my view, the events which I have summarised above do not amount, as Ian contends, to Allan, Frances and Stuart having "excluded [Ian] from participating in the [P]artnership that controlled the companies and that controlled the companies' conduct of the property". I do not accept that events prior to November 2010 involve any oppression or commercial unfairness, although I accept that there were plainly personal tensions, particularly in the latter part of 2010. The conduct of Allan, Frances and Stuart from November 2010 seems to me to have been directed to implementing Ian's indication that he wished to end his involvement with Mirridong, a position which was made apparent in the "Future of Mirridong" document, the conversations with Jennifer to which I have referred above and the letter dated 8 December 2010. I do not consider that, particularly after the threats that were made in the letter dated 23 December 2010, there was commercial unfairness in Allan, Frances and Stuart taking steps to dissolve the Partnership in a manner permitted by the Partnership Act. In my view, that process did not involve conduct on their part that was commercially unfair in respect of AJBPL and Loka where they recognised, at least from the time of the letter dated 21 December 2008, that Ian's exit would have had to involve some form of buy-out of his interest in those companies. Unlike Tomanovic v Global Mortgage Equity Corporation Pty Ltd above, this is not a case where Allan, Frances and Stuart sought to keep Ian's capital within the company without allowing any return on it, although an issue as to valuation arose that I will address below.
54Ian contends that Allan, Frances and Stuart "tried to take from Ian the bookkeeping responsibilities of the [P]artnership". In my view, that contention was also not established, so far as it is intended to convey a unilateral exclusion of Ian from the Partnership. It appears that, in early January 2011, Ian provided at least some accounting and financial information concerning the Partnership to Jennifer at her request, although Jennifer's evidence is that that information was incomplete. Jennifer contends that her involvement with the Partnership accounts reflects an agreement that she would do those accounts and that agreement is denied by Ian. On balance, I find that there was at least a degree of agreement, albeit that Ian may have reached it reluctantly, that Jennifer would take over those accounts in circumstances that, initially, Ian had indicated his wish to exit the Partnership and, subsequently, the Notice of Dissolution of the Partnership had been given.
55Ian also complains that meetings of the companies have been conducted in a formal manner since these events occurred. The evidence establishes that there was little formality in the conduct of the affairs of MPC, AJBPL and Loka prior to 2010, with most decisions being made in an informal way, although a meeting would be held once a year to approve the respective company's accounts. However, I do not accept that a complaint that the companies' affairs were subsequently conducted more formally is justified. While directors and shareholders can, within limits, conduct their affairs in a relatively informal manner within a closely held company, I cannot see a basis for objection to the affairs of such companies being conducted by directors' meetings, shareholders' meetings and the other formal mechanisms which the Corporations Act contemplates and it may well be appropriate to take that course where disputes have arisen between shareholders in the companies.
56Ian also gave evidence of other events after the termination of the Partnership on which he relied to support a claim for oppression, although little weight was placed on these matters in closing submissions. Ian contends that he was not invited to perform his usual duties in relation to the triticale harvest in early February 2011. Ian refers to the fact that sheep were mated without his consent and that the proceeds of wool sales had not been placed into the Partnership account, although the evidence indicated that the latter reflected the fact that the wool brokers would not deposit those funds without instructions as to their disposition agreed by all the partners. Ian refers to shearing of sheep having occurred without consultation with him. He refers to the fact that sales of wool were made by the new partnership and to spraying and burning of paddocks containing crop belonging to the Partnership and the use of equipment and fuel belonging to the Partnership for sowing the previously burnt paddocks and the use of seed oats owned by the Partnership. In my view, these issues relate to the process for dissolution of the Partnership and are appropriately addressed by the orders made by Barrett J in respect of the dissolution of the Partnership. These matters do not seem to me to relate to the affairs of AJBPL and Loka.
57Ian's submissions also referred to subsequent conduct of Allan, Frances and Stuart in incorporating a company, A.A. Byrne & Co Pty Ltd, as trustee for the A.J. Byrne Family Trust, which has subsequently purchased assets of the Partnership from the receiver and livestock sold by the receiver at auction. I see no impropriety in that course and, ultimately, Ian did not rely on those matters as evidence of any act of oppression on the part of Allan, Frances or Stuart.
58I should add, for completeness, that, before the Court's jurisdiction under s 233(1)(d) is established, it must be shown that any oppressive or unfair conduct has occurred in the conduct of a company's affairs as defined in s 53 of the Corporations Act. Allan, Frances and Stuart contend that any oppressive conduct was not in respect of the affairs of AJBPL and Loka. I have referred in paragraph 56 above to conduct in the period after the dissolution of the Partnership which seems to me to relate to the Partnership rather than to the affairs of AJBPL and Loka. Had I found that oppression was established, I would have accepted that, with the exception of the conduct referred to in paragraph 56 above, the other conduct to which I have referred occurred in relation to both AJBPL and Loka and also the Partnership, given the extent to which their activities were intertwined.
Paragraph 68 of the Defence
59By paragraph 68(d) of their Defence, Allan, Frances and Stuart consented to a compulsory buy-out order under s 233(1)(e) of the Corporations Act in respect of Ian's shares in AJBPL and Loka on terms that they pay fair value for those shares as determined by a registrar or a referee. At the same time, the Defence denied that there was jurisdiction or basis for the Court to order the winding up of AJBPL or Loka and, in the alternative, contended there was no reason for the Court to exercise its discretion to order the winding up of those entities having regard to their consent to a buy-out order. The position set out in the Defence was broadly consistent with Stuart's affidavit evidence that the other shareholders in Loka and AJBPL were prepared to buy Ian's shares for the amount set out in Mr Willis' valuation "which represent fair market value and include a minority discount" or alternatively:
"are prepared to consent to a compulsory buy-out under section 233 of the Corporations Act 2001 (Cth) on terms that a referee or a registrar of the Court determine the fair market of these shares, including the minority discount."
In one respect, that evidence is more qualified than the position set out in the Defence, since it seeks to make it express that the consent to a buy-out under s 233 of the Corporations Act is on terms that include a minority discount.
60Ian contended that the terms of paragraph 68(d)-(e) of the Defence were sufficient to establish the Court's jurisdiction to grant relief for oppression, but Mr Robinson accepted that those paragraphs did not require the valuation of Ian's shares be undertaken on a particular basis or exclude the application of a minority discount (T16, T110). In some circumstances, consent to such an order will amount to an implied admission that the basis exists for such an order: Lord v Dernacourt Investments Pty Ltd (unreported, McLelland CJ in Eq, 14 March 1994). His Honour also noted that:
"Acceptance that one or other of the various states of fact referred to in para (a) and para (b) of s 260(2) [a predecessor section to ss 232-233] existed carries no necessary consequence in relation to the mode of determination of the price to be paid for the shares ordered to be purchased notwithstanding that in many cases of this kind it may be appropriate to apply a pro rata non discount approach ...".
In that case, his Honour upheld a determination of the value of the shares made by a Master, in accordance with the basis of a reference to him, on the basis of the market value of the shares determined in accordance with generally accepted valuation principles.
61I am not satisfied, in the context of the correspondence between the parties to which I have referred above, the evidence and the terms of the Defence as a whole, that such an admission was either intended or made by paragraph 68(d)-(e) of the Defence. In particular, I do not consider that the Defence contains, as Ian contended, any implied admission that there has been "commercial unfairness" as that expression is used in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above at [140]. It seems to me that that paragraph of the Defence should be read as no more than an indication that Allan, Frances and Stuart agreed to the determination of the valuation by a referee, if Ian also agreed to that course. That has not occurred and the matter has proceeded to a contested hearing. It was also apparent from the Defence as a whole, and in particular from the denial of a basis for winding up in paragraph 68 of the Defence, and from the evidence filed by Allan, Frances and Stuart, that they did not in fact admit that their conduct amounted to oppression.
Whether the application of a minority discount gives rise to unfairness
62As I have noted above, Ian accepted in closing submissions that, absent an act of oppression by Allan, Frances and Stuart which was independent of the offer to buy out Ian's shares, the failure to offer to buy out Ian's shares without a minority discount would not establish oppression. In my view, that concession was properly made. I have not found that any act of oppression by Allan, Frances and Stuart is established, independent of the offer to buy out Ian's shares, and also not found that the Defence gave rise to an admission of such an act. I will nonetheless deal with the question of valuation at some length since it was the subject of detailed submission before me. In doing so, it is important to recognise that there is a distinction between the question whether oppression is established, on the one hand, and valuation issues which arise when a remedy for oppression is to be ordered in terms that require one shareholder to buy out another.
63On the one hand, there are several cases in which oppression has not been established where a party was willing to buy out the other party for fair value. In Tainsh v Barber (1997) 23 ACSR 158 at 177, where the exclusion of a partner was necessitated by her failure to cooperate in the business, Foster J appears to have accepted that a willingness to buy that partner's share in accordance with a valuation arrived at by an expert was sufficient to avoid oppression. (It is not clear from the report of that decision whether the valuation undertaken by the accountants in that case had applied a minority discount). In Belgiorno-Zegna v Exben Pty Ltd [2000] NSWSC 884; (2000) 35 ACSR 305, Hodgson CJ in Eq referred to the entitlement of a minority shareholder "to expect a reasonable approach to a negotiated exit" (at [139]) and observed that it was not necessary for the defendants' offer to buy out a minority shareholder to satisfy the tests laid down in O'Neill v Phillips [1999] 1 WLR 1092 (to which I will refer below), where oppression was not otherwise established (at [150]). In Nassar v Innovative Precasters Group Pty Ltd above at [108], Barrett J observed that oppression was not established where parties showed a willingness to seek in good faith an agreed basis for buying out the remaining shareholder. This approach is consistent with the fact that the oppression remedy will often be directed to a situation where a person has "his or her capital locked up in a corporate enterprise under unfair conditions": Crawley v Short [2009] NSWCA 410; (2009) 76 ACSR 286 at [158].
64On the other hand, at least where oppression or unilateral exclusion of the minority by the majority is established, it will generally not be appropriate to apply a discount to the value of a minority shareholder's shares where shares are ordered to be purchased as a result of oppression. In Re Bird Precision Bellows Ltd [1984] Ch 419 at 430 (upheld by the Court of Appeal in Re Bird Precision Bellows Ltd [1986] Ch 658), Nourse J observed that:
"On the assumption that the unfair prejudice has made it no longer tolerable for [a minority shareholder] to retain his interest in the company, a sale of his shares will invariably be his only practical way out short of a winding up. In that kind of case it seems to me that it would not merely not be fair, but most unfair, that he should be bought on the fictional basis applicable to a free election to sell his shares in accordance with the company's articles of association, or indeed on any other basis which involved a discounted price. In my judgment the correct course would be to fix the price pro rata according to the value of the shares as a whole and without any discount, as being the only fair method of compensating an unwilling vendor of the equivalent of a partnership share."
65In Dynasty Pty Ltd v Coombs above at ALR 87, the Full Court of the Federal Court held that a minority shareholder should not be bound by the company's articles of association or a discount factor in value when he or she was not a willing seller but had been forced into instituting legal proceedings because he had been oppressed. In Re DG Brims & Sons Pty Ltd (1995) 16 ACSR 559 at 595, Byrne J similarly observed that there was little to commend a minority discount like a minority parcel "compulsorily changes hands because of unfairness"; although adding that the reasons for a minority discount had less reason where a purchaser was already a shareholder. So far as the latter factor is concerned, I would treat it as a matter for expert valuation evidence, which was not contested in these proceedings, rather than a matter of law.
66In O'Neill v Phillips [1999] 1 WLR 1092 at 1107, Lord Hoffmann noted that, where a majority shareholder wants to
"put an end to the association ... it will almost always be unfair for the minority shareholder to be excluded without an offer to buy his shares or make some other fair arrangement".
67His Lordship identified characteristics of a reasonable offer as being to purchase the shares at "fair value" which, if not agreed, should be determined by a competent expert, and noted that a fair offer would be at "a value representing an equivalent proportion of the total issued share capital, that is, without a discount for its being a minority holding". The matter giving rise to unfairness was there identified as exclusion from the management of the company without a reasonable offer for the plaintiff's shares; and that analysis treated the majority's decision to exclude the minority as the source of the obligation to make a reasonable offer for the shares. The position is obviously different where a minority seeks to exit the company, rather than being unilaterally excluded from it. In Tomanovic v Global Mortgage Equity Corporation Pty Ltd above, Campbell JA noted that Lord Hoffmann's remarks about the effect of a buy-out offer in oppression proceedings were dicta and, although they might provide some assistance to a judge in seeking to apply s 232 of the Corporations Act, should not be treated as an addition to or substitute for the statutory text (at [231]) and also emphasised that the observations of Lord Hoffmann in O'Neill v Phillips concerned a situation where there was exclusion from management (at [237]).
68Similarly, in CVC/Opportunity Equity Partners Ltd v Demarco Almeida [2002] UKPC 16; [2002] 2 BCLC 108, Lord Millett observed that, in the case of a quasi-partnership company, it is "unfair for the majority to insist on their legal right to exclude the petitioner without making a reasonable offer for his shares". That analysis is premised on the majority's exclusion of the plaintiff, and Lord Millett reached that result by distinguishing it from the more common position which he described as follows:
"If the going concern value is adopted, a further question arises: whether a discount should be applied to reflect the fact that the holding is a minority one. An outsider would normally be unwilling to pay a significant price for a minority holding in a private company, and a fair price as between a willing seller and a willing purchaser might be expected to reflect this fact. It would seem to be unreasonable for the seller to demand a higher price from an unwilling purchaser that he could obtain from a willing one. Small private companies commonly have articles which restrict the transfer of shares by requiring a shareholder who is desirous of disposing of his shares to offer them first to the other shareholders at a price fixed by the company's auditors. It is the common practice of auditors in such circumstances to value the shares as between a willing seller and a willing buyer and to apply a substantial discount to reflect the fact that the shares represent a minority holding."
69In Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [109], Brereton J also observed that it is "ordinarily inappropriate" to apply a discount for a non-negotiable or minority interest in the context of an oppression suit, again in a case in which oppression was established.
70The observations to which I have referred above seem to me to be directed to the situation where a minority shareholder is an unwilling seller in the sense that the sale of his or her shares has been forced upon him or her by the majority's conduct. Similarly, in GFS Management Services Pty Ltd v Ground & Foundation Supports Pty Ltd [2001] WASC 143 at [67], Scott J treated Re Bird Precision as at least consistent with the application of a minority discount where a party was not interested in continuing in office with a company. (This decision was reversed on other grounds at [2002] WASCA 306). On my findings above, the sale of Ian's shares has not been forced upon him in the relevant sense. The policy underlying a refusal to apply a minority discount is obvious enough where a shareholder has been unilaterally excluded from management and the majority would then benefit from then being permitted to acquire the minority's shares at the lower value contemplated by a minority discount. I cannot see a basis for extending the application of that policy to circumstances where a person seeks to leave the business rather than being unilaterally excluded from it.
71Another rationale for the exclusion of a minority discount may be that, in the case of a forced sale, a valuation should be based on a notional sale of the business as a whole to an outside purchaser rather than the sale of the outgoing partners' share: CVC/Opportunity Equity Partners v Demarco Almedia above at [40]. In my view, that rationale is also not readily applied where the substance of the transaction is the purchase of the minority's interest at the minority's request. In Short v Crawley (No 30) [2007] NSWSC 1322 at [1289]-[1290], White J noted another rationale for excluding a minority discount, that the valuation must exclude the depreciating effect on the plaintiff's shares of the defendant's oppressive conduct. Again, that rationale is not readily applied where oppressive conduct is not established or where there is no suggestion that any such conduct had any effect on the value of the relevant shares.
72Ian also contends that the approach that there should be no minority discount reflects the fact that, upon a winding up of the companies, he would realise the net value of the assets without discount. However, as Mr Robinson accepted in submissions, a minority shareholder cannot require a winding up of the company, absent oppression, so as to realise the asset backing of his or her shares: Re G Jeffrey (Mens Store) Pty Ltd above. Where Ian has no right to the winding up of the relevant companies, absent oppression, there is no unfairness in a sale which proceeds on a different basis to the outcome of a winding up. The proposition put in Ian's written submissions that "to apply a discount would be commercially unfair where [Ian] has an entitlement to wind up the company without discount" cannot be accepted, because Ian has no such entitlement.
73In summary, had oppression otherwise been established, the case law indicates that a minority discount would generally not be applicable to the purchase of Ian's shares. However, for the reasons I have set out above, I do not consider that oppression was established where Allan, Frances and Stuart offered to acquire Ian's shares in AJBPL and Loka to give effect to Ian's expressed wish to exit the Partnership and Mirridong, or by the other events to which I have referred above. In the absence of another act or acts of oppression, I do not consider that an offer to buy out Ian's shares at a value determined by an independent accountant, and ultimately consistent with the nature of Ian's minority holding and the price at which it would likely be sold in a voluntary transaction, itself gives rise to oppressive conduct. The contrary approach, in the absence of oppressive conduct, would allow a minority holder such as Ian to force a purchase of his shares on the majority at a value different to that which was likely to be reached in a negotiated transaction and would be inconsistent with the fact that there was, at best, only a "distant possibility" that Ian could realise his shares at such a value from an arm's length purchaser: Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 at 563.
Allowance for cost of liquidating the assets
74There is, however, one difficulty with Mr Willis' reports which made an allowance for the costs of liquidating the relevant assets. I am satisfied that that allowance was incorrect both as a matter of logic and as a matter of authority, where the relevant assets were not to be liquidated but instead to be retained by Allan, Frances and Stuart within the new business entities: United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910; (2003) 47 ACSR 514; Crawley v Short above per Allsop P at [3] and Macfarlan JA at [6], to the contrary per Young JA at [370]. So far as a voluntary buy-out proceeds, it would be open to Allan's executor, Frances and Stuart to revise the price of their offer to acquire Ian's shares to correct that error. If they are not prepared to do so, then it may be necessary for issues as to oppression to be reconsidered by the Court.
Claim for winding up
75The Court may make an order that a company be wound up where oppression is established (Corporations Act s 233(1)(a)). The Court may order the winding up of a company where the company's affairs are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole under (Corporations Act s 461(1)(f)). Ian's claim under s 233(1)(a) or s 461(1)(f) of the Corporations Act also relies on his exclusion from the Partnership or the companies without a reasonable offer having been made for his shares. I have addressed that claim above.
76Alternatively, Ian seeks relief under s 461(1)(k) of the Corporations Act. The Court may make an order under Corporations Act s 461(1)(k) where it is of the opinion that it is just and equitable that the company be wound up. The Court may make such an order in circumstances that do not amount to oppression, unfair prejudice or unfair discrimination and may have regard to legitimate expectations of minority shareholders as to the manner in which the majority shareholders exercise voting power, although a person who is themselves responsible for the breakdown of the relationship is less likely to be afforded relief: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above; Nassar v Innovative Precasters Group Pty Ltd above at [90], [96], [117]. Ian contends that the Partnership and companies were a quasi-partnership and there has been a loss of trust and confidence in respect of the entities: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. The terminology of "quasi-partnership" is often misleading and this issue is better approached by reference to whether AJPL and Loka were "a majority controlled business requiring material cooperation and a level of trust": MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167 at [71]; Nassar v Innovative Precasters Group Pty Ltd above at [77]-[79].
77Allan, Frances and Stuart contend that AJBPL and Loka are not quasi-partnerships in that they do not display the characteristics described in Ebrahimi v Wesbourne Galleries Ltd above. On the one hand, those companies were not incorporated in circumstances that there was a pre-existing partnership in which each member was actively participating in management and, indeed, Ian and Stuart acquired their shares when they were at school and prior to taking an active role in the Partnership. I do not think that there was any necessary expectation that the shareholders would participate in the conduct of the business of AJBPL and Loka; Ian and Stuart did not do so when they first acquired their shares, nor does there seem to have been any expectation that Ian would do so until he chose to leave his veterinary practice and return to the farm; Allan did so to a lesser extent with age, prior to his death; and the terms of the 30 June 1980 agreement in respect of the Partnership contemplated that a partner may be unable to work full-time in the business. The companies themselves undertook very limited business, holding only real property and shares in MPC, by contrast with the trading business that was conducted in, for example, Ebrahimi v Westbourne Galleries Ltd above.
78On the other hand, Ian and Stuart were provided with their shares in AJBPL and Loka as family members and in connection with the family's conduct of the farm at Mirridong and the companies have always been conducted together with the Partnership. There were at least practical restrictions on the transfer of the members' interest in the companies, in that there would be considerable difficulty in finding a purchaser for a minority interest within a family company. On balance, I would accept Ian's submission that AJBPL and Loka should be treated as "quasi-partnership" entities, at least in the sense that they, with the Partnership, were a majority controlled business in which mutual cooperation and trust was required, having a similar character to the Partnership itself.
79However, the fact that winding up is a remedy of last resort has been frequently recognised in the case law: Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd (1977) 2 ACLR 307; Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 at 252; Short v Crawley (No 30) above at [1222]; Re Hollen Australia Pty Ltd; Holt v Burnside [2009] VSC 95 at [78]-[81]; Tomanovic v Global Mortgage Equity Corporation Pty Ltd at [289], [294], [337]. Section 467(4) of the Corporations Act provides that:
"(4) Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."
In Belgiorno-Zegna v Exben above, Hodgson CJ in Eq noted that this section did not detract from the Court's reluctance to wind up a solvent company, particularly where that could lead, relevantly, to disruption of business.
80I am not satisfied that it is just and equitable that AJBPL and Loka should be wound up. There is no suggestion that the companies are insolvent. I am not satisfied that the matters which I have referred to above either prevent the functioning of AJBPL or Loka, as companies which do no more than directly or indirectly hold an interest in Mirridong, or that the loss of confidence on which Ian relies is justified. To the extent that there has been a loss of confidence between Ian on the one hand and Allan, Frances and Stuart on the other, Ian has not established that that loss of confidence resulted from any blameworthy conduct on the part of the majority. Ian appears to bear more than his fair share of responsibility for the dispute in relation to the swapping of the houses; the other parties had sought to accommodate his concern by abandoning that plan; and the comments made by Ian as to Stuart's son and his statements of his lack of trust in Stuart were plainly destructive of the overall relationship. The extent to which Ian has contributed to the breakdown of the relationship is a factor tending against the exercise of the Court's discretion in favour of a winding up of the relevant companies: Morgan v 45 Flers Avenue Pty Ltd above at 708; Ruut v Head (1996) 20 ACSR 160 at 162. In Tomanovic v Argyle HQ Pty Ltd at [49]-[51], Austin J also observed that a breakdown of relations or loss of confidence between the members of a company will not necessarily support a winding up on the just and equitable ground under s 461(1)(k) of the Corporations Act unless it frustrates the commercially sensible operations of the company in accordance with the incorporators' expectations and any "loss of confidence" is justified.
81There is also another factor tending against a winding up order. In Re G Jeffrey (Mens Store) Pty Ltd above at 426, Crockett J pointed out that an order for winding up is not "lightly made" and such an order must be "just and equitable not just for the applicant but for all". A consequence of a winding up order would be that Frances, who is elderly, would have to leave Mirridong where she has lived since her marriage (see Ian's cross-examination at T71-72). Ian has sought to exit the Partnership and the relevant companies; Allan, Frances and Stuart have throughout proceeded on the basis that, in order to implement his exit, they would need to buy out his interest in the Partnership and his interest in the companies; and I can see nothing in that conduct which makes it "just and equitable" to wind up the companies, even if the outcome of that course would be to deliver Ian a more favourable result than would arise if that course is not adopted. These factors also tend against the making of such an order.
Orders
82In these circumstances, and subject to the error in Mr Willis' approach to the cost of liquidating the assets to which I have referred above, I do not consider Ian has established his oppression case where an offer to purchase his interests at the valuation made by Mr Willis remains open. It follows that the jurisdiction to make orders for the Defendants to acquire Ian's shares is not presently established nor is the jurisdiction for a winding up. Mr Stoljar, who appears for the Defendants, rightly recognised, in the course of his closing submissions, that that position might well change, and orders for oppression or winding up might well be made if the offer previously made by Allan, Frances and Stuart was withdrawn.
83I will hear the parties as to the form of orders. One possibility is to defer making orders at this point, and allow an opportunity for the offer previously made by Allan, Frances and Stuart to acquire Ian's shares to be adjusted to address the matter to which I have referred in paragraph 74 above. If that issue cannot be resolved, then it may be necessary to hear further argument as to whether Ian should succeed on that basis. It will also be necessary to hear the parties as to costs.