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[2025] NSWSC 1064
General information, not legal advice.
Supreme Court of NSW
2025-09-18
Nixon J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Azzurri Group Holdings Pty Ltd (No 2) [2025] NSWSC 1064
Hearing dates: 22-24, 29 and 31 July 2025
Date of orders: 18 September 2025
Decision date: 18 September 2025
Jurisdiction: Equity - Corporations List
Before: Nixon J
Decision: 1. Direct that the parties are to bring in short minutes of order by 5pm on 1 October 2025 to give effect to the reasons for judgment.
2. Direct that, in the event the parties are unable to agree on orders to give effect to the reasons for judgment (including orders as to interest and costs), the parties are to exchange and provide to the Associate to Nixon J, by 5pm on 1 October 2025, the orders which each party proposes, submissions (limited to 5 pages) on those orders, and any evidence in respect of interest and costs, indicating whether, and if so why, an oral hearing is requested to deal with the matters in dispute.
Catchwords: CORPORATIONS – Members’ rights and remedies – Oppression – where breakdown in relationship between shareholders – where first plaintiff received a notice alleging breaches of shareholders agreement – where shareholders agreement provided that if, following receipt of such notice, breaches were not remedied, the shareholder was deemed to have issued a transfer notice, triggering a compulsory sale process – whether first plaintiff breached shareholders agreement – whether breach notice was valid – whether first plaintiff remedied any such breaches – whether first plaintiff issued a dispute notice – whether a valuer was validly appointed in accordance with the shareholders agreement – whether the valuer’s valuation complied with the terms of the shareholders agreement – whether compulsory sale of first plaintiff’s shares was in breach of the shareholders agreement – whether there was oppressive conduct – whether the price paid to the first plaintiff was less than the fair value, or market value, for his shares.
Legislation Cited: Corporations Act 2001 (Cth) ss 232, 233
Cases Cited: AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173
Australian Vintage Ltd v Belvino Investments (No 2) Pty Ltd (2015) 90 NSWLR 367; [2015] NSWCA 275
B. & G. Properties Pty Limited v Fayad [2021] NSWSC 1382
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25
Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55
Earl Cadogan v Pitts [2010] 1 AC 226
Fayad v B & G Properties Pty Ltd [2022] NSWCA 129
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46
In the matter of Mobius Distilling Pty Ltd (in liq) [2025] NSWSC 539
Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd [2002] NSWCA 180
Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314
MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451
Northern Territory v Mr A. Griffiths (deceased) and Lorraine Jones on behalf of the Ngaliwurru and Nungali Peoples (2019) 269 CLR 1; [2019] HCA 7
Re Global Mortgage Equity Corporation Pty Ltd [2013] NSWSC 1586
Re North Coast Transit Pty Ltd [2013] NSWSC 1119
Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279
Spence v Rigging Rentals WA Pty Ltd [2015] FCA 1158
Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303
Strike Australia Pty Ltd v Data Base Corporate Pty Ltd [2019] NSWCA 205
Category: Principal judgment
Parties: Peter Martino (First Plaintiff)
2B6 Enterprises Pty Ltd (Second Plaintiff)
Azzurri Group Holdings Pty Ltd (First Defendant)
Azzurri Concrete Group Pty Ltd (Second Defendant)
MPD Developments Pty Ltd (Third Defendant)
Mr Donato D’Angola (Fourth Defendant)
Sogase Pty Ltd (Fifth Defendant)
Mr Mario D’Angola (Sixth Defendant)
Balli Constructions Pty Ltd (Seventh Defendant)
Azzurri Concrete Enterprises Pty Ltd (Eighth Defendant)
Azzurri Concrete Pty Ltd (Ninth Defendant)
Representation: Counsel:
A P Cheshire SC / J Cook (Plaintiffs/Cross Defendants)
E A J Hyde (Defendants/Cross Claimants)
Solicitors:
AJL Legal (Plaintiffs)
Paradise Charnock Hing (Defendants)
File Number(s): 2023/00151182
Publication restriction: Nil
This proceeding concerns a dispute between shareholders in the Azzurri Group of companies.
The Azzurri Group comprises:
the First Defendant, Azzurri Group Holdings Pty Ltd (AGH);
the Second Defendant, Azzurri Concrete Group Pty Ltd;
the Third Defendant, MPD Developments Pty Ltd;
the Seventh Defendant, Balli Constructions Pty Ltd;
the Eighth Defendant, Azzurri Concrete Enterprises Pty Ltd; and
the Ninth Defendant, Azzurri Concrete Pty Ltd (ACPL).
Azzurri Concrete is the main operating entity in the Azzurri Group, and carries on a business of providing concreting services.
The First Plaintiff, Mr Peter Martino, previously owned approximately 13.89% of the shares in Azzurri Concrete.
On 9 August 2023, Mr Martino’s shares in Azzurri Concrete were transferred to, and split equally between, two other existing shareholders, namely, the Fourth Defendant, Mr Donato D’Angola and the Sixth Defendant, Mr Mario D’Angola. Mr Donato D’Angola and Mr Mario D’Angola are brothers and are the founders of the business of the Azzurri Group.
As a result of this transaction, the shareholding of each of Mr Donato D’Angola and Mr Mario D’Angola in Azzurri Concrete increased from around 33.33% to around 40.28%.
The remaining 19.44% of the shares in Azzurri Concrete are held by AGH. The shares in AGH are owned:
as to 41%, by Mr Mario D’Angola;
as to 41%, by the Fifth Defendant, Sogas****e Pty Ltd (which is wholly owned by Mr Donato D’Angola); and
as to 18%, by the Second Plaintiff, 2B6 Enterprises Pty Ltd as trustee for the 2B6 Enterprises Trust. Mr Martino holds 100% of the shares in 2B6 Enterprises and 100% of the units in the 2B6 Enterprises Trust.
As regards the other corporate defendants:
ACPL is wholly owned by Azzurri Concrete and is the trustee of a unit trust which owns the plant and equipment used by the business;
Concrete Enterprises is a special purpose vehicle established for the purpose of receiving rebates paid by concrete suppliers; and
MPD Developments and Balli Constructions are investment vehicles, and do not operate any part of the Azzurri Group’s business.
Each of Mr Martino, Mr Donato D’Angola and Mr Mario D’Angola gave evidence and was cross-examined at length. Submissions were made by each set of parties regarding the credit of the other’s witnesses.
However, the number of factual issues to which this lay evidence is relevant, and which need to be determined in order to resolve the real issues in dispute in the proceeding, is relatively limited. That is because various issues fell away during the course of the hearing (such as the issues raised by the cross claim) and also because, as explained below, the Plaintiffs’ case focussed primarily on whether the compulsory sale process complied with the Shareholders Agreement and whether the sale price was below the fair value (or market value) of the shares.
Some of the key aspects of the lay evidence which were relevant to those issues, and which were a focus of cross-examination, concerned whether Mr Martino was authorised to use the credit cards of Azzurri Concrete for personal expenses, and the extent of any such authority; whether Mr Donato D’Angola and Mr Mario D’Angola were acting in good faith when issuing the breach notice and subsequently taking steps to effect the compulsory sale process; and whether certain financial records, which were referred to as the Bespoke Document****s, contain accurate and reliable information regarding Azzurri Concrete’s financial position and performance.
I deal with those particular matters of contention, and the associated issues of credit, when considering whether the Plaintiffs’ claims of breach of contract and oppression are established. In addressing those and other disputed issues of fact, the Court is to reason to its conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31] per Gleeson CJ, Gummow and Kirby JJ. This does not eliminate the established principles about witness credibility, but it tends to reduce the occasions where those principles are seen as critical: ibid.
Before addressing those matters, I have set out a summary of the factual background, drawn primarily from the contemporaneous documents of the Azzurri Group (and also, as noted below, from matters which were conceded in cross-examination).
Azzurri Concrete was incorporated on 15 August 2008. At that time, the shares were equally held by Mr Mario D’Angola, Mr Donato D’Angola and Mr Gaetano (Gary) Lamanna, with each holding 12 of the 36 shares on issue. In addition, each of those shareholders was appointed as a director.
In around 2009, Mr Martino was employed as a business consultant by Azzurri Concrete.
In June 2013, Mr Martino became a shareholder in Azzurri Concrete. This occurred by means of Mr Lamanna transferring 5 of his 12 shares to Mr Martino, such that Mr Lamanna subsequently held 7/36 (or 19.44%), and Mr Martino 5/36 (or 13.89%), of the shares in Azzurri Concrete, with each of Mr Donato D’Angola and Mr Mario D’Angola maintaining his 12/36 (or 33.33%) shareholding.
In around April 2014, Mr Martino was appointed Chief Executive Officer (CEO) of the business.
On 20 October 2015, the Shareholders Agreement was executed by Azzurri Concrete, Mr Mario D’Angola, Mr Donato D’Angola, Mr Lamanna and Mr Martino. (An issue was raised in Mr Martino’s affidavit regarding the circumstances in which, and purpose for which, this agreement was executed. It is unnecessary to address this issue, as Mr Martino accepted, in opening submissions, that the Shareholders Agreement was validly executed and was binding on the shareholders of Azzurri Concrete.)
I will deal with particular terms of the Shareholders Agreement when considering the complaints raised by Mr Martino in respect of the compulsory sale process that led to the transfer of his shares to Mr Donato D’Angola and Mr Mario D’Angola. At this stage, it is sufficient to note the following matters:
clause 4.2 imposed various obligations on the shareholders in respect of their dealings with each other, including obligations to co-operate and use the shareholder’s best endeavours to ensure that Azzurri Concrete successfully carries on its business, and to be just and faithful, and act honestly and fairly, in their dealings with each other in relation to Azzurri Concrete;
clauses 12 and 13 set out the procedure to be adopted where a transfer notice was issued (or deemed to be issued), including making provision for the valuation of the shares by an independent valuer; and
clause 19.1.1 provided that, if a shareholder breached the agreement and failed to rectify that breach within 30 days of receiving a breach notice from another shareholder, the defaulting shareholder will have “all rights attaching” to his shares suspended and will be deemed to have issued a transfer notice in respect of his shares.
From around September 2019, Mr Mario D’Angola, Mr Donato D’Angola and Mr Martino had discussions with Mr Lamanna about buying him out as a shareholder in Azzurri Concrete.
In November 2019, Mr Donato D’Angola and Mr Mario D’Angola offered to buy Mr Lamanna’s 19.44% shareholding in Azzurri Concrete for $1.4m. This offer was based on a valuation which had been obtained from a valuer, Mr Peter Rayner, in August 2019. Mr Rayner valued the whole of the business at $7.2m (the First Rayner Valuation). Mr Lamanna did not accept this offer.
In January 2020, Mr Lamanna’s employment with the Azzurri Group was terminated.
In May 2020, following the departure of Mr Lamanna, there was a restructure of the Azzurri Group which resulted in Mr Martino assuming the role of Director of Finance and Commercial at Azzurri Concrete.
In August 2020, Mr Lamanna commenced proceedings in this Court against Mr Mario D’Angola, Mr Donato D’Angola, Mr Martino, Azzurri Concrete and other companies in the Azzurri Group, claiming oppression and breach of his employment contract (the Lamanna Proceeding).
In November 2020, Mr Lamanna obtained a valuation from Ms Jacqueline Woods of BRI Ferrier. Ms Woods valued the equity of Azzurri Concrete in the range of $16.9m to $20.5m, such that Mr Lamanna’s 19.44% interest was valued at between $3.3m and $4.0m.
In April 2021, Mr Rayner provided a further valuation of the Azzurri Concrete Group, which increased its value to be $16.5m (the Second Rayner Valuation).
In June 2021, the Lamanna Proceeding was resolved on the basis that Mr Lamanna agreed to sell all of his shares in Azzurri Concrete and the whole of his interest in the Azzurri Group for $3.725m.
In June 2021, Mr Lamanna’s shares in Azzurri Concrete were transferred to AGH, which was established for the purpose of holding those shares. (As noted at paragraph [7] above, each of Mr Donato D’Angola and Mr Mario D’Angola beneficially owns 41% of the shares in AGH, with Mr Martino holding the other 18% through 2B6 Enterprises.)
In 2022, the Azzurri Group retained KPMG to prepare an information memorandum with a view to seeking interest from potential purchasers of Azzurri Concrete.
A document headed “Project Fusion – Information Memorandum” was produced by KPMG in July 2022. The Information Memorandum contained:
historical financial information for the financial years ending 30 June 2019 (FY19), 30 June 2020 (FY20) and 30 June 2021 (FY21), recording:
(a) revenue of $48.4m and Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) of $3.4m for FY19; (b) revenue of $78.2m and EBITDA of $3.6m for FY20; and (c) revenue of $103.2m and EBITDA of $7.7m for FY21;
(a) revenue of $75.7m and EBITDA of $6.1m; and (b) on a “weather-adjusted” basis, revenue of $110.1m and EBITDA of $8.7m;
(a) for FY23, revenue of $154.3m and EBITDA of $11.7m (or, on a “weather-adjusted” basis, revenue of $119.9m and EBITDA of $9.1m); and (b) for FY24, revenue of $161.8m and EBITDA of $12.5m.
The reason for the “weather-adjusted” figures was that “extraordinary weather events” in FY22 had meant that various projects which would otherwise have been completed in FY22 had been delayed and completed in FY23.
The Information Memorandum expressed the view, based on this material, that the business had “demonstrated a strong historical revenue growth”, which was supported by “robust gross profit (GP) margins”, and had a “robust project pipeline”.
When Mr Donato D’Angola was taken to the Information Memorandum in cross-examination, he accepted that by July 2022 the business had, with Mr Martino’s involvement, developed from humble beginnings into one of the main concreting companies in Australia. He also agreed that the forecast figures for FY23 and FY24 in the Information Memorandum represented, at that time, the best estimates of both the directors and KPMG for those financial years.
On 11 July 2022, Mr Donato D’Angola sent a letter to KPMG, on behalf of Azzurri Concrete, confirming that, “to the best of our knowledge”, the financial information in the Information Memorandum was “materially true, complete and accurate” and that “there are no further material matters or information which we know of that should be in the [Information Memorandum]”.
On 26 August 2022, the Azzurri Group received a “non-binding indicative offer” from Hanson Holdings Australia Pty Ltd for the purchase of a 50.1% interest in the Azzurri Group for an amount of $17.535m (implying a valuation for the Azzurri Group of $35m). The proposed transaction was subject to various conditions, including “Hanson completing satisfactory financial, commercial, technical, legal and general due diligence on the Business to its satisfaction, prior to execution of the transaction documents”.
On 30 August 2022, KPMG prepared an agenda and discussion points for a meeting with Hanson, which were provided to Mr Mario D’Angola, Mr Donato D’Angola and Mr Martino. This email stated that the “messaging conveyed to Hanson … to date” included the following points:
“• Azzurri shareholders disappointed with offer
• Significantly below shareholders price expectations / borderline offensive
• Don’t understand valuation given growth historical and future growth profile and quantum of work-in-hand plus order book.”
“• FY20 is no[t] relevant when assessing maintainable EBITDA, as the business has fundamentally changed in scale, operations, corporate governance, size of projects, (OTHERS)
• At a minimum, historical EBITDA should be limited to FY21-FY22 actuals when assessing historical EBITDA performance.”
This email also appears to indicate that the figures for FY22 had improved since the issue of the Information Memorandum. In particular, this email indicated that while the “FY22(IM)” figure for EBITDA was $6.1m, the “FY22 (Stat)” figure was $7.4m.
On 31 August 2022, Mr Donato D’Angola replied to this email, stating that the shareholders “as a collective want you and Hanson to understand that unless we are talking over the 53 million mark”, then the shareholders “won’t be proceeding” (emphasis in original).
On 1 September 2022, KPMG sent Mr Donato D’Angola, Mr Mario D’Angola and Mr Martino a list of “key action items”, including the following:
“Operational changes between FY20 and FY21 … - critical to remove FY20 from the EBITDA calculations.”
On 5 September 2022, there was a meeting between the shareholders of Azzurri Concrete, Hanson and KPMG, at which there was discussion of the “Valuation methodology applied” and “Future maintainable EBITDA”. Mr Donato D’Angola agreed in cross-examination that the purpose of the meeting was to persuade Hanson to exclude the FY20 figures when valuing the business, with a view to persuading Hanson to increase its offer.
In October 2022, the Azzurri Group received a revised non-binding indicative offer from Hanson to purchase a 50.1% interest in the Azzurri Group for $19.996m (implying a valuation for the Azzurri Group of approximately $40m). This offer was subject to the same conditions as the previous offer.
The revised offer figure was described by KPMG on 10 October 2022 as representing “5.3x the average of FY21 and FY22 EBITDA of $7.55m”. It therefore appears that Hanson accepted the contention that FY20 should be excluded in determining the sale price, or at least framed its increased offer on that basis.
Mr Donato D’Angola remained of the view that this increased offer was “not realistic”.
On 1 November 2022, Mr Donato D’Angola sent an email to Mr Mario D’Angola, Mr Martino and KPMG, reporting that he had received a call from the Hanson representative who had indicated that Hanson had “decided to put this on hold till after the first quarter of next year”. Accordingly, it appears that negotiations did not proceed further at that point in time.
In September 2022, Mr Donato D’Angola and Mr Mario D’Angola hired a new Chief Financial Officer for the business. Mr Donato D’Angola accepted in cross-examination that he was aware that Mr Martino was unhappy about this appointment, and that he and Mr Mario D’Angola effectively “pushed through this idea over the objection of Mr Martino”. Mr Donato D’Angola also agreed that around this time, he formed the view that he and Mr Mario D’Angola would decide on the future of Azzurri Concrete, and that “Mr Martino either got on board and did what [they] said, or left”.
It was common ground that Mr Martino’s relationship with Mr Donato D’Angola and Mr Mario D’Angola deteriorated from that point in time.
There was unchallenged affidavit evidence from Mr Antonio Sassano, who is an employee of Azzurri Concrete, that Mr Martino said on a number of occasions in October 2022 that he was “finishing up” with Azzurri Concrete and “moving on”, and that he did not “see eye to eye on a number of issues” with Mr Donato D’Angola and Mr Mario D’Angola. On 7 November 2022, Mr Martino sent an email to his solicitor, Mr Stefano Laface, asking to meet “to discuss closure and progression to leaving this business”. Mr Martino stated in cross-examination that, as at November 2022: “I wanted to work a strategy to remove myself from the business”. It appears that steps were subsequently taken by Mr Laface to assist with progressing Mr Martino’s departure from the business as, on 6 January 2023, Mr Martino sent a further email to Mr Laface, asking “if the letter is ready to review as I would like to proceed and leave”.
On 25 January 2023, Mr Martino met with Mr Donato D’Angola and Mr Mario D’Angola. On the previous day, Mr Martino had sent them a draft email which he proposed sending to all staff after their meeting, which commenced as follows: “I am writing to inform you that I have decided to step down as the Director Finance and Commercial in our business”. The subject line of this email stated that Mr Martino was seeking their “thoughts” on this email, “as I would like to do (i.e. send) something before I leave tomorrow”.
It is clear, from the draft letter, that Mr Martino intended to leave his position with the business on 25 January 2023. That is reinforced by the following matters:
Mr Martino sent out an invitation for the “Shareholder Meeting” on 25 January 2023, with the subject line stating “Peter Martino last day 25.1.23”;
on 24 January 2023, Mr Martino sent an email to a manager at KPMG, Ms Nadia Saad, stating that: “Tomorrow is my last day at azzurri”; and
Mr Sassano gave unchallenged evidence that, on the morning of 25 January 2023, Mr Martino said to him: “Today is my last day. I won’t be coming back here.”
Mr Martino deposed that, at the meeting on 25 January 2023, he indicated that he wanted to cease being a shareholder, and Mr Donato D’Angola replied that they did not have the funds available, but “when we sell to Hanson, you can take your funds”. The understanding at this time appears to have been that, if the sale of a 50.1% interest in the Azzurri Group to Hanson sale went through, Mr Martino would transfer all of his shares in Azzurri Concrete to Hanson and would be paid the price per share that was agreed with Hanson. However, no sale to Hanson subsequently proceeded.
“You fine if I move this to the black card as I would like to use my position of the 20K, and you can both use your 20K each.
Let me know if I have your blessing to do this as it take three days to roll onto the card?”
By this email, Mr Martino was seeking the consent of his fellow shareholders to take one-third of Azzurri Concrete’s reward points, with Mr Donato D’Angola and Mr Mario D’Angola also receiving one-third each.
There appears to have been a discussion on the same day, at which Mr Donato D’Angola rejected this request. On the following day, 8 February 2023, Mr Donato D’Angola sent an email to Mr Martino, stating as follows:
“Peter,
As discussed yesterday.
This facility will remain as is untouched until such time it is closed out. We’ll advise you.”
On 5 May 2023, a letter was sent to Mr Martino which was headed “Clause 19.1.1(b) Breach Notice – Shareholders Agreement of Azzurri Concrete Group Pty Limited (Company)” (Breach Notice). The Breach Notice was signed by each of Mr Donato D’Angola and Mr Mario D’Angola as a “Company Shareholder”.
The Breach Notice stated that Mr Martino had breached various provisions of the Shareholders Agreement, including clauses 4.2.1 and 4.2.6. The matters relied upon included the following:
“(a) the Company has identified a total of $398,286.39 that you incurred on Company credit cards and accounts since 6 May 2021 without the approval or authorisation of the Company for personal expenses. These expenses are annexed to this letter, for which the Company has made due enquiries to determine that they are not related to, or authorised by, the Company;
…
(e) on 14 March 2023, you redeemed 19,643,078 points from the Company's bank reward redeemer scheme without the authorisation or approval from the Company…”
In relation to item (a) above, the Breach Notice attached a schedule detailing the 292 individual transactions which were said to comprise unauthorised personal expenditure totalling $398,286.39.
The Breach Notice concluded as follows:
“We request that you provide us with full details of any remedy for the breaches outlined in this letter, and supporting evidence of any steps taken to remedy your breaches, by 5:00pm on 5 June 2023. If all breaches are not remedied by that time, a transfer notice is deemed to be issued to the Board of the Company to commence the process to acquire your shares in the Company in accordance with clause 12 of the Shareholders Agreement.”
On 11 May 2023, the Plaintiffs commenced this proceeding.
The Statement of Claim sought various relief, including declarations as to oppressive conduct, orders for Mr Martino’s shares in Azzurri Concrete to be purchased by Mr Donato D’Angola and Mr Mario D’Angola “at their fair value”, and an order “that the Purported Breach Notice dated 5 May 2023 is void and of no effect”.
On 30 May 2023, Mr Martino’s solicitor sent a response to the Breach Notice, which was addressed to Mr Donato D’Angola and Mr Mario D’Angola, care of their solicitors, Paradise Charnock O’Brien (Breach Notice Response).
The Breach Notice Response stated that Mr Martino “disputes the assertions made in the Purported Breach Notice” and, specifically, “disputed having acted in breach of” the clauses specified in the Breach Notice, including clauses 4.2.1 and 4.2.6 of the Shareholders Agreement.
The Breach Notice Response included the following responses regarding the allegations made in the Breach Notice concerning unauthorised personal expenditure on Azzurri Concrete’s credit cards and the misappropriation of reward points from Azzurri Concrete’s account:
“Specifically in response to paragraph 2.1 (a) - Mr Martino denies the assertion that he has incurred a total of $398,286.39 on Company credit cards and accounts since 6 May 2021 without the approval or authorisation of the Company for personal expenses. Each of the expenses set out in the annexure to the Purported Breach Notice was authorised by the Company either as an ordinary business related expense or otherwise approved by the directors.
…
Specifically in response to paragraph 2.1 (e) – We are instructed that all of Mr Martino's bank access and cards were cancelled by Donato D'Angola. The card in question was in the name of Mr Martino, and he transferred the points from that card to his QANTAS card. This was with the express authorisation of Mario D'Angola and Donato D'Angola, and in accordance with establish[ed] practice of the Company.”
In the period up to the start of June 2023, Mr Donato D’Angola was the sole director of Azzurri Concrete.
Clause 5 of the Shareholders Agreement provided as follows:
“5. Board of Directors
5.1 The number of Directors (excluding alternate directors) must be equal to the number of Shareholders, unless the Shareholders unanimously determine otherwise.
5.2 The Company must procure that, on the date this Agreement takes effect, the Board comprises the Shareholders or their nominees.
5.3 The Company and each Shareholder shall on a continuing basis ensure the due and proper appointment of each Shareholder's nominated Director.
…
5.5 Every appointment and removal of a Director takes effect when the written notice of appointment or removal is received at the office or, in the case of an appointment, when the written consent to act as a Director is received at the office if that is later than the receipt of the notice of appointment.
…
5.8 A quorum for Board meetings is constituted by the attendance (in person or by alternate) of a Director appointed by each Shareholder that is entitled to appoint a Director under clause 5.2).”
On 22 May 2023, Mr Donato D’Angola sent an email to Mr Martino and Mr Mario D’Angola which referred to clause 5 of the Shareholders Agreement and asked whether each of them wished to appoint a director to the board of Azzurri Concrete.
Mr Martino subsequently indicated that he did wish to be appointed as a director.
On 2 June 2023, Mr Donato D’Angola, as sole director of Azzurri Concrete, passed a resolution appointing each of Mr Mario D’Angola and Mr Martino as an additional director of Azzurri Concrete.
In the Breach Notice Response, Mr Martino had demanded that Mr Donato D’Angola and Mr Mario D’Angola provide a written undertaking, by 1 June 2023, that they “will not take any steps under clause 12 or 13 of the Shareholders Agreement [that is, the clauses regarding the transfer of shares] in reliance on the Purported Breach notice in relation to [Mr Martino’s] shares”.
On 2 June 2023, Mr Martino commenced another proceeding against Mr Donato D’Angola and Mr Mario D’Angola, in which he sought the following interlocutory relief:
“Upon the plaintiff, by counsel, giving to the Court the usual undertaking as to damages, the Court Orders that:
6 Each of the defendants by themselves, their servants and agents be restrained until further order from taking any steps purportedly in reliance on the notice styled ‘Clause 19.1.1(b) Breach Notice Shareholders Agreement of Azzurri Concrete Group Pty Ltd (Company)’ dated 5 May 2023 and signed by the Defendants (Breach Notice), including but not limited to:
a. making any entry in any register of the Company to reflect any transfer or sale of the plaintiff’s shares in the Company;
b. effecting any notification to the Australian Securities and Investments Commission which reflects any transfer or sale of the plaintiff’s shares in the Company;
c. purporting to exclude the plaintiff from exercising his rights to the office of director and his rights as a director of the Company;
d. instructing any valuer pursuant to clause 13.1 in respect of any transfer or sale of the plaintiff’s shares in the Company; and
e. taking any steps purporting to have the effect of suspending any of the rights attaching to the plaintiff’s shares in the Company.”
On 5 June 2023, this proceeding was listed before Hammerschlag CJ in Eq for the hearing of Mr Martino’s application for an interlocutory injunction.
The application was dismissed on the basis of certain undertakings being given, as recorded in the Court’s orders of 5 June 2023 (the June 2023 Orders):
“upon the plaintiff to the Court giving the usual undertaking as to damages and upon the defendants, through their counsel, giving an undertaking to the Court that if the plaintiff establishes, whether by reason of any breach of the Shareholder's Agreement, any entitlement in equity, any entitlement arising out of the voidness of any provision of the Shareholder's Agreement or any finding by the Court of oppression, resulting in the plaintiff having or having had an entitlement to receive in excess of any amount paid by the defendants or the company to him for the acquisition of his shares, the defendants will pay the plaintiff any shortfall (plus interest at the Court's rate), the application for interlocutory relief in accordance with paragraph 6 of Summons filed 2 June 2023 is dismissed.”
“A meeting of the Board of the Company will be held at 11:30 am on Thursday, 8 June 2023, via audiovisual link, the details of which are provided in the calendar invitation sent in conjunction with this notice.
The purpose of the meeting is to consider the following business:
- a resolution dispensing with the 10-Business Day notice of Board meeting required by clause 5.7.3 of the Shareholders Agreement;
- a resolution removing Peter Martino as a director of the Company with immediate effect pursuant to clauses 19.1.1, 11.5, 12 and 13 of the Shareholders Agreement; and
- any other business agreed between the directors which is incidental and ancillary to the business.”
On 8 June 2023, Mr Martino attempted, without success, to attend this meeting via the audiovisual link provided to him. He sent an email to his solicitor on that day, in which he stated that he had “tried to log on” and that “know body [sic] [nobody] was there at 11.30am”.
The minutes of the meeting of the Board on 8 June 2023 record that this meeting proceeded with Mr Donato D’Angola and Mr Mario D’Angola present, and Mr Martino absent. The minutes record that Mr Donato D’Angola and Mr Mario D’Angola were satisfied that they comprised a quorum and that they:
“resolved to dispense with the 10-Business Day notice period for the Board meeting and to accept delivery of the Notice of Board Meeting dated 7 June 2023 to all Directors as sufficient notice”; and
“resolved that Mr Peter Martino is removed as a Director of the Company with immediate effect”.
On 8 June 2023, Mr Martino’s solicitor wrote to Paradise Charnock O’Brien (the solicitors for the Defendants), asking for details of the person appointed to value Mr Martino’s shares and “details of all documents to be provided to the appointed valuer, including copies of the [Information Memorandum] and offers made by Hanson Group”.
On the same day, Paradise Charnock O’Brien responded that their clients were not required to provide this information, in particular, because the following matters flowed from Mr Martino being a Defaulting Shareholder:
“3. Under the Shareholders Agreement, upon the Event occurring and the issue of a transfer notice: (a) the transfer notice appointed the Board as your client's agent for the sale (clause 12.2); and (b) all of your client's rights attaching to his shares were suspended, and remain suspended until the defaults have been remedied (clause 19 .1.1 (a)).
- Your client's rights as shareholder have been suspended since 5:00 pm on Monday 5 June 2023. This includes the right to appoint a Director of the company.
- Consequently, the quorum for Board meetings provided for in clause 5.8 is constituted by the attendance of the Directors appointed by our clients, being the only Directors appointed by shareholders who remain entitled to appoint Directors.”
“It is resolved that the fee proposal of BizVal Pty Ltd be accepted and that the Board engages BizVal Pty Ltd to value Mr Peter Martino’s shares in accordance with clause 13.1 of the Shareholders Agreement.”
On 18 July 2023, Mr Martino’s solicitor sent a further letter in response to the Breach Notice, which attached a schedule setting out an “Explanation of Expenses” in respect of each of the 292 transactions (totalling $398,286.39) that had been itemised in the Annexure to the Breach Notice. Some $395,138.94 (or 99.2%) of those expenses were said by Mr Martino to be “Business Expenses”, with an amount of only $3,147.45 being “Personal Expenses”.
Also on 18 July 2023, Mr Martino issued breach notices to each of Mr Donato D’Angola and Mr Mario D’Angola, alleging various breaches of the Shareholders Agreement.
On 23 July 2023, Mr Donato D’Angola signed the consolidated annual financial report for Azzurri Concrete and its subsidiaries for FY22. This financial report was accompanied by a compilation report signed by KPMG and dated 22 July 2023. Whereas the Information Memorandum had included figures for FY22 (based on nine months of management accounts plus three months forecast), showing EBITDA of $6.1m (see paragraph [39] above), the finalised financial report for FY22 recorded actual EBITDA of $1.778m.
On 27 July 2023, Mr Martino’s solicitor sent a further letter to Mr Donato D’Angola and Mr Mario D’Angola, stating that “a dispute notice was issued dated 30 May 2023, which precludes your client from undertaking any deemed transfer unless that [sic] dispute mechanisms are resolved in accordance with the terms of the Shareholders Agreement”. No steps were taken pursuant to the “Dispute Resolution” procedure in clause 16 of the Shareholders Agreement after this letter was sent.
On 31 July 2023, Bizval Pty Ltd issued its valuation of Mr Martino’s shares. This valuation was stated to be prepared on the basis of “fair market value”.
Bizval concluded that the value of 100% of the equity in Azzurri Concrete was $2,900,000. This resulted in Mr Martino’s 13.89% shareholding having a value of $402,778 on a “simple pro-rata basis”. Bizval then applied two further discounts, being a discount of 20% for “Lack of Control”, and a further discount of 20% for “Lack of Marketability”. The application of these discounts resulted in a valuation of $260,000 for “13.89% of the company on an illiquid non-controlling basis” (the Bizval Valuation).
Bizval noted that it had not included “the 10% discount which may be applicable under clause 13.6 of the Shareholders Agreement”. This clause provides for a discount of 10% to be applied to the sale price determined by the Valuer appointed pursuant to clause 13, in circumstances where the sale is triggered by clause 19 of the Shareholders Agreement.
On 1 August 2023, Mr Donato D’Angola and Mr Mario D’Angola resolved to adopt the Bizval Valuation for Mr Martino’s shares ($260,000) and to apply the further 10% discount referred to in clause 13.6 of the Shareholders Agreement ($26,000), resulting in a sale price of $234,000.
On 20 September 2023, Azzurri Concrete, Mr Donato D’Angola and Mr Mario D’Angola brought a cross claim against Mr Martino.
The Amended Cross Claim, which was filed on 8 February 2024, alleges that Mr Martino breached his duties to Azzurri Concrete by, inter alia, purchasing goods and services totalling $398,286.39 using Azzurri Concrete’s credit cards (being those personal expenses referred to in the Annexure to the Breach Notice) and by redeeming some 19.643m reward points from Azzurri Concrete’s ANZ account for approximately 9.82m Qantas frequent flyer points, which were credited to Mr Martino’s personal account.
In the Second Further Amended Statement of Claim (which, as noted at paragraph [207] below, was filed in Court on the first day of the hearing), the Plaintiffs pleaded a number of causes of action, including various breaches of the Shareholders Agreement, oppressive conduct, and relief against forfeiture.
In opening written submissions, the Plaintiffs stated as follows (emphasis added):
“The defendants have acquired [Mr Martino’s] shares in [Azzurri Concrete]. The real dispute is whether the process under the Shareholders Agreement was followed.”
“The Plaintiffs contend that:
(a) Mario and Donato were not entitled to engage the process under the Shareholders Agreement to acquire those shares since [Mr Martino] was not in breach of the Shareholders Agreement as alleged;
(b) The sale process was not validly undertaken, including:
(i) The Breach Notice was invalid;
(ii) If [Mr Martino] was in breach (which is denied), those breaches were remedied during the relevant notice period;
(iii) The steps that were then required to be taken by the Board of [Azzurri Concrete] (including the appointment of Bizval and the subsequent offer of [Mr Martino’s] shares) were not valid since they were effected by circular resolution of Mario and Donato alone and [Mr Martino], who was also a director, was excluded from that process. The Defendants’ assertion that [Mr Martino’s] rights under the Shareholders Agreement were suspended (even if correct) did not affect his position as a director;
(iv) Bizval was not instructed in accordance with the Shareholders Agreement;
(v) The Bizval Valuation is not a valid valuation for the purposes of the Shareholders Agreement.
If the process for purchasing [Mr Martino’s] shares under the Shareholders Agreement was not strictly followed, then he has been unjustly deprived of those shares and he is now entitled to their fair value.”
Having regard to the manner in which the Plaintiffs’ case was put, it is necessary, in order to resolve the Plaintiffs’ claims, to address two main issues:
first, whether the compulsory transfer of Mr Martino’s shares was in breach of the Shareholders Agreement, or was otherwise oppressive, and, in particular:
(a) whether the Breach Notice was valid; (b) whether any breaches by Mr Martino were remedied; (c) whether there was a failure by the Defendants to comply with the dispute resolution procedure set out in the Shareholders Agreement; (d) whether Bizval was validly appointed as Valuer pursuant to the Shareholders Agreement; (e) whether the Bizval Valuation complied with the terms of the Shareholders Agreement; and
The Plaintiffs contended that the Breach Notice was invalid because Mr Martino was not in breach of the Shareholders Agreement when the Breach Notice was issued and, further or alternatively, because the Breach Notice did not provide sufficient particulars of any alleged breach so as to enable Mr Martino to respond to the Breach Notice or to remedy any breach.
Clause 19.1 of the Shareholders Agreement relevantly provided as follows:
“19.1 If any of the events specified in clause 19.1.1 (b) occurs in relation to a Shareholder (Defaulting Shareholder), then the Defaulting Shareholder;
19.1.1 is deemed to have issued a transfer notice in accordance with clause 11.5 for all its shares, and clause 12 applies to the sale of those shares; and
(a) will have all rights attaching to the shares held by the defaulting Shareholder suspended until the difference is remedied.
(b) The events referred to in clause 19.1.1 are:
(i) if a Shareholder breaches any provision of this Agreement and fails to rectify that breach within 30 days after a notice of that beach from another Shareholder requesting that breach be remedied…”
The Breach Notice was issued on 5 May 2023. It alleged, inter alia, that Mr Martino had breached clauses 4.2.1 and 4.2.6 of the Shareholders Agreement.
Clauses 4.1 and 4.2 of the Shareholders Agreement relevantly provided as follows:
“4.1 The objectives of the Shareholders in establishing the Company is to have the Company carry on the Business in accordance with the terms of this Agreement.
4.2 In order to fulfil the objectives listed in clause 4.1, each Shareholder must:
4.2.1 cooperate and use the Shareholder's best endeavours to ensure that the Company successfully carries on the Business;
…
4.2.6 act honestly and fairly in relation to each other in relation to the affairs of the Company…”
As outlined at paragraph [69] above, the Breach Notice alleged that these clauses had been breached by, inter alia, Mr Martino’s use of Azzurri Concrete’s credit cards for unauthorised personal expenses and Mr Martino’s misappropriation of reward points which belonged to Azzurri Concrete.
Mr Martino submitted that he did not, in fact, breach the Shareholders Agreement in the manner alleged in the Breach Notice, and that the Breach Notice was “a contrivance” by Mr Donato D’Angola and Mr Mario D’Angola “to facilitate [Mr Martino’s] exit from the business”. This conclusion was said to flow, in particular, from the fact that complaints were raised about Mr Martino’s use of Azzurri Concrete’s credit cards for personal expenses in circumstances where each of the shareholders had, to the others’ knowledge, been engaging in similar behaviour.
“6. COMPANY CREDIT CARDS
6.1 The Employee may be provided with a Company credit card. This credit card is strictly to be used for work related purchases only. You are prohibited from utilising the Company credit card to purchase personal goods or services.
…
7. EXPENSES
The Company will reimburse the Employee for any prior approved and reasonable out of pocket expenses. The Employee must provide receipts for all such out of pocket expenses to the Company within seven days of the expense being incurred.”
I am not satisfied that this Contract of Employment governed Mr Martino’s use of a corporate credit card throughout the relevant period, for two main reasons.
First, this contract related to Mr Martino’s position as CEO, which he subsequently ceased to hold. Mr Martino gave evidence that when he was appointed Director of Finance of Azzurri Concrete, the terms of his employment were not reduced to writing.
Secondly, on 20 October 2016, there was a meeting of the shareholders of Azzurri Concrete (including Mr Martino), at which there was discussion and agreement between the shareholders regarding their use of corporate credit cards. In particular, the minutes record that “Actions arising from meeting”, include the following item:
“Credit Cards: Can be used personally as long [as] its for good use and is not excessive. If you think it is an excessive amount but you have no option but to use your card please let Peter [Martino] Know about it.”
When taken to this document in cross-examination, Mr Donato D’Angola accepted that the shareholders agreed that each of them could use the company credit card for personal expenses so long as it was “not excessive”.
He explained that the “intention behind the agreement about ‘excessive amounts’ was that we would discuss the payment and agree how it would be dealt with in the Azzurri Concrete Group’s accounts”. Mr Donato D’Angola acknowledged in cross-examination that he charged significant personal expenses to the corporate credit cards. These included, by way of example, substantial expenses relating to his personal residence (including furniture, a barbecue, landscaping, and an interior designer), tickets to an Elton John concert, and a family trip to Singapore.
Mr Mario D’Angola acknowledged, in cross-examination that each of the shareholders “used the company credit card for personal items that were of maybe up to a few hundred dollars, on a very regular occasion”. He also acknowledged that he had used company funds to pay his personal tax assessment.
There was in evidence a document headed “Shareholding Disbursements Rec[onciliatio]n”, which was dated 12 December 2022 (the Reconciliation Document). This document recorded substantial expenses of each of Mr Martino, Mr Donato D’Angola and Mr Mario D’Angola (including a number of the expenses which, as noted above, Mr Donato D’Angola accepted to be personal expenses). The Reconciliation Document appears to have been prepared in order to keep track of the comparative level of personal spending by shareholders, so that any disparity could be addressed. However, it appears to have been a matter for individual shareholders as to whether they included items of personal expenditure on the Reconciliation Document. Each of Mr Donato D’Angola, Mr Mario D’Angola and Mr Martino accepted that the Reconciliation Document did not record all items of personal expenditure.
Mr Donato D’Angola agreed in cross-examination that, if there was an item of personal expenditure which he did not regard as a “large” item, he would use the corporate credit cards to pay for that item, without notifying the other shareholders. He also agreed that, “as to whether something was a large item or not”, it was up to each of the shareholders “to use their judgment as to what they thought was fair”.
In addition, he agreed that only those expenses which appeared on the Reconciliation Document were discussed with the other shareholders, and that there was never any reconciliation of those expenses which did not appear on the Reconciliation Document.
Mr Donato D’Angola agreed that he had not reimbursed Azzurri Concrete for the personal expenses which he had paid using company funds, and also agreed with the following propositions:
“Q. And you understood that in the same way as you had incurred personal expenses, so had Mr Mario D’Angola and so had Peter; correct?
A. Yes.
Q. And that wasn't a matter, that at least up until the beginning of 2023, of any concern to you; correct?
A. No.
Q. You agree with me.
A. That wasn't a concern to‑‑
Q. Yes.
A. Well, if we ‑ no, it wasn't a concern.”
Given those matters, there is some force in Mr Martino’s submission that the allegations raised against him in the Breach Notice regarding the use of company funds for personal expenses were complaints regarding conduct of a type that was engaged in, and approved by, the same shareholders who issued the Breach Notice.
However, this does not answer the Defendants’ complaint that Mr Martino’s use of company funds was excessive and that numerous large items of expenditure had been made using company funds without any knowledge or approval of the other shareholders.
I do not need to determine those matters given:
the parties’ agreement that, in respect of the Amended Cross Claim which seeks (inter alia) recovery of the expenses specified in the Annexure to the Breach Notice, there should be judgment for the Cross Claimants in the amount of $300,000; and
the findings I have made below regarding other allegations in the Breach Notice.
The Breach Notice alleged that Mr Martino breached his duties to his fellow shareholders under clause 4.2 of the Shareholders Agreement by his redemption, on 14 March 2023, of 19,643,078 reward points from Azzurri Concrete’s credit card account with ANZ, without Azzurri Concrete’s authorisation or approval.
Mr Martino was, in cross-examination, taken to the documents concerning the redemption of Azzurri Concrete’s reward points, which are set out at paragraphs [64]-[67] above. (It should be noted that, in those documents, Mr Martino had valued 15m reward points as being worth $60,000. It follows that 19.643m reward points were likely worth around $80,000.)
Mr Martino accepted that he understood, at the time of this transfer, that he was entitled to only a third of those reward points, and he also understood that Mr Donato D’Angola and Mr Mario D’Angola had not given him any authority to redeem any points, but that he nonetheless proceeded to redeem the whole balance of those points for his own benefit. In this regard, he made a number of significant concessions in the course of cross-examination, including as follows:
“Q. And notwithstanding your view at 7 February that at its highest you're entitled to a third, and notwithstanding over the page, at 2590, that Donato didn't agree to redeeming the points, or any of them‑‑
A. I agree, yep.
Q. ‑‑you unilaterally redeemed what were then close to 19 and a half million points on 14 March, didn't you?
A. Correct.
Q. And insofar as it's suggested in the response to the breach notice that that transfer was with the express authority of Mario and Donato, that's just a lie isn't it?
A. No, we discussed it verbally. You can laugh at me, but that email is there, and - sorry, yeah, I agree. Let's move on.
Q. You agree that it's absolute false and a lie‑‑
A. To take the whole amount.
Q. Yes.
A. That's a mistake on my behalf, correct.
Q. Well it's more than a mistake, isn't it?
A. Well, yes.
Q. It's complete fabrication.
A. I agree.
Q. And you've kept, and no doubt used the Qantas frequent flyer points.
A. I have.
Q. And you failed to return them when asked.
A. I did.
Q. Why?
A. I believe that was - I was just frustrated. Being removed from my business and so I took the wrong stance. I made that mistake.”
I am satisfied that the conduct of Mr Martino in relation to the reward points which is outlined above constituted a breach of his obligations under clause 4.2 of the Shareholders Agreement and, in particular, his obligation to cooperate and use his best endeavours to ensure that Azzurri Concrete successfully carried on the business and his obligation to act honestly and fairly in relation to the other shareholders regarding the affairs of Azzurri Concrete.
I am also satisfied that the Breach Notice provided sufficient particulars for Mr Martino in order to understand the allegations of breach made in respect of the reward points, and in order to respond to (or remedy), this breach. The Breach Notice specifically referred to the amount of points redeemed, the account from which they had been redeemed, and the date of redemption. Mr Martino could not have been in any doubt about the transaction to which reference was made, or the basis on which it was impugned (namely, the absence of authority).
Mr Donato D’Angola accepted, in cross-examination, that he was seeking, by the issue of the Breach Notice, to find a way for Mr Martino’s shares to be compulsorily acquired. However, he rejected any suggestion that the complaints in the Breach Notice were “invented” for this purpose.
Given the matters outlined above, I reject any contention that the complaint regarding the unauthorised redemption of reward points was “invented” or that Mr Donato D’Angola and Mr Mario D’Angola did not have proper grounds for making this complaint.
By this transaction, Mr Martino took property of Azzurri Concrete worth around $80,000 for his own benefit, in circumstances where he was aware that he did not have any entitlement or authority to do so, and where the other shareholders had expressly told him that the reward points should be left “untouched”. Irrespective of any issue raised regarding the complaints made about personal expenses, I am satisfied that this conduct on the part of Mr Martino constituted a sufficient and proper basis upon which to issue the Breach Notice.
The Breach Notice Response stated as follows: “Each of the expenses set out in the Annexure to the Purported Breach Notice was authorised by the Company either as an ordinary business expense or otherwise approved by the directors.”
The Breach Notice Response did not include any detailed response to the itemised list of transactions which was set out in the Annexure to the Breach Notice. The Breach Notice Response did not, for example, identify which of those transactions were said to be “ordinary business expenses” (or the basis on which they were said to be such), or identify the basis on which it was alleged that the remaining expenses had been “approved by the directors”.
A detailed response of that type was only provided on 18 July 2023, when Mr Martino provided an “Explanation of Expenses”, which addressed each of the transactions set out in the Annexure to the Breach Notice. In this document, Mr Martino claimed that, of the hundreds of transactions listed in that Annexure totalling $398,286.39, the vast majority ($395,138.94, or 99.2% of the total amount) were “Business Expenses”, with the “Personal Expenses” only amounting to $3,147.45.
In cross-examination, Mr Martino was taken to various entries in the schedule to the letter of 18 July 2023 which were designated as “Business Expenses”, and acknowledged, when presented with the relevant documentation for those transactions, that they were in fact personal expenses. By way of example only:
an expense of $190.00 which was described by him as a “Client gift” was, in fact, a purchase for his wife;
an expense of $643.50 which was described by him as “Safety Clothing require[d] for sites – approved by Directors” was, in fact, a purchase of lingerie; and
a purchase of $298.00 which was described by him as “Clothing Required for Work – staff” was, in fact, a purchase of swimwear.
As noted above, Mr Martino accepted, at the conclusion of the hearing, that the Cross Claimants are entitled to judgment against him in the amount of $300,000. That amounts, in substance, to an acceptance that the majority of the expenses which he claimed, in the Breach Notice Response, to be “ordinary business expenses” of Azzurri Concrete were, in fact, personal expenses for which he is liable to reimburse Azzurri Concrete.
Having regard to those matters, Mr Martino’s assertions, in response to the Breach Notice, that more than 99% of the transactions in the Annexure to the Breach Notice were “ordinary business expenses” appear to have been made without any sound foundation.
“The card in question was in the name of Mr Martino, and he transferred the points from that card to his QANTAS card. This was with the express authorisation of Mario D’Angola and Donato D’Angola, and in accordance with established practice of [Azzurri Concrete].”
These statements were false. Mr Martino acknowledged in cross-examination that the account in question was “owned by the business”, and that Mr Donato D’Angola and Mr Mario D’Angola did not expressly authorise the transfer of the reward points to his Qantas frequent flyer account. In fact, as outlined above, Mr Martino had been expressly instructed by Mr Donato D’Angola to leave the reward points account “untouched until such time it is closed out” (see paragraph [66] above).
Further, Mr Martino acknowledged in cross-examination that he still, as at the time of the hearing of this proceeding, had not remedied this matter (see paragraph [132] above).
In his defence to the Amended Cross Claim, Mr Martino (despite being aware of the matters outlined above) denied the following allegations:
“On or about 14 March 2023, Peter Martino … caused 19,643,078 Reward Points held in the [Azzurri Concrete account with ANZ] to be redeemed and/or transferred to his personal Qantas Frequent Flyer account (‘the Points Transfer’)”; and
“The Points Transfer was made without the knowledge, authorisation or approval of [Azzurri Concrete] and the other shareholders of [Azzurri Concrete]”.
Mr Martino was taken, in cross-examination, to his denial of each of these allegations:
“Q. [In the defence to the cross-claim] that you verified as being true and accurate … you deny the transfer, … and you deny it was made without express authority. …
[Mr Martino was taken to the relevant paragraphs of the pleading]
… you deny that it was done without authority or approval. That’s just wrong isn’t it?
A. They’re well aware I – yeah, that’s wrong. That’s an error on my behalf.
Q. It’s just wrong, isn’t it?
A. It’s just wrong. It’s an error, yes.”
The Plaintiffs relied on Mr Donato D’Angola’s acknowledgement, in cross-examination, that he did not read the Breach Notice Response at the time, and did not think that he had ever read it. Mr Donato D’Angola accepted that the “fair thing” to do would have been, first, to read what Mr Martino said and, secondly, to consider it, in order to see whether he raised matters which caused Mr Donato D’Angola and Mr Mario D’Angola to decide not to continue with the compulsory sale process under the Shareholders Agreement.
However, Mr Donato D’Angola did provide the Breach Notice Response to his lawyers for their consideration and advice.
Further, in the circumstances of this case, any failure on the part of Mr Donato D’Angola to read the Breach Notice Response is of limited significance. Mr Martino can hardly complain that Mr Donato D’Angola did not have regard to the contents of his Breach Notice Response, in circumstances where that document contained false statements regarding Mr Martino’s unauthorised transfer of Azzurri Concrete’s reward points, and did not indicate that Mr Martino had any intention to remedy this breach.
Mr Martino submitted that, by the Breach Notice Response, he had given notice to the other shareholders of a dispute under clause 16 of the Shareholders Agreement, and that, accordingly, “Mario and Donato were required to engage in the dispute resolution process under the Shareholders Agreement before they could progress the compulsory acquisition process”.
The Breach Notice Response included the following statement:
“This letter also constitutes a dispute notice within clause 16.2 of the Shareholders Agreement.”
“16. Dispute Resolution
16.1 The parties must seek to resolve disputes arising out of this Agreement (Disputes) and must not start arbitration or court proceedings (except proceedings seeking interlocutory relief) in respect of such Disputes other than in accordance with the remainder of this clause.
16.2 A party claiming that a Dispute has arisen must notify the other party, giving details of the Dispute, and the parties will in good faith negotiate settlement of the Dispute for a period of 5 Business Days (initial period).”
Clause 16 provided, in summary, for a process of mediation to be undertaken after a dispute notice was issued.
Clause 16.9 provided that:
“For the avoidance of doubt, the existence of a Dispute does not alter either party’s respective other obligations under this Agreement.”
Mr Martino contended that Mr Donato D’Angola and Mr Mario D’Angola breached the Shareholders Agreement by failing to undertake the dispute resolution procedure set out in clause 16, prior to proceeding with the compulsory sale procedure under the Shareholders Agreement.
As a preliminary point, it should be noted that the Breach Notice Response was addressed to Mr Mario D’Angola and Mr Donato D’Angola, care of Paradise Charnock O’Brien. In correspondence in 2023, the Defendants disputed that this letter to their solicitors constituted a notice to Mr Mario D’Angola and Mr Donato D’Angola for the purposes of the Shareholder Agreement.
Clause 26.1 of the Shareholders Agreement provided as follows:
“Any notice given by a Shareholder under this Agreement must be in writing and addressed to the recipient at its address specified below or as otherwise notified to the other Shareholders in writing from time to time.”
“We would be grateful if you and your client would direct any further communication whether orally or in writing with respect to Azzurri Concrete Pty Ltd, Azzurri Concrete Group Pty Ltd or Azzurri Group Holdings Pty Ltd to our firm.”
I accept Mr Martino’s submission that, having regard to the terms of this letter, an address for the service of any notice under the Shareholder Agreement had been “otherwise notified to” Mr Martino, within the meaning of clause 26.1 of the Shareholders Agreement. It follows that any notice under the Shareholders Agreement that was sent by Mr Martino to Mr Donato D’Angola and Mr Mario D'Angola care of Paradise Charnock O’Brien was thereby given to Mr Donato D’Angola and Mr Mario D’Angola in accordance with the terms of the Shareholders Agreement.
The Defendants submitted that the Breach Notice Response did not, in any case, identify a “dispute”, as opposed to merely asserting that there was one. However, any reasonable reader would understand that the “dispute” referred to in the Breach Notice Response was a dispute, as outlined in that document, as to whether in fact Mr Martino had breached the Shareholders Agreement in the manner alleged in the Breach Notice.
Mr Donato D’Angola accepted, in cross-examination, that he became aware, soon after 30 May 2023, that Mr Martino had purported to serve a dispute notice; that, regardless of whether that notice was valid, he was not prepared to meet and attempt to resolve the dispute with Mr Martino; and that he intended to continue with the process of the compulsory sale of Mr Martino’s interest in Azzurri Concrete.
In the Second Further Amended Statement of Claim, the Plaintiffs pleaded that the failure of Mr Donato D’Angola and Mr Mario D’Angola to participate in the Dispute Resolution process required in clause 16 of the Shareholders Agreement meant that “any steps taken by Mario D’Angola and Donato D’Angola after 30 May 2023 or alternatively 10 August 2023 in relation to the dispute are invalid”.
The date 10 August 2023 can be put to one side since, by this date, Mr Martino’s shares in Azzurri Concrete had already been transferred to Mr Donato D’Angola and Mr Mario D’Angola. Focussing on 30 May 2023, the Plaintiffs did not, in their written or oral submissions, explain, by reference to the relevant provisions of the Shareholders Agreement, how any failure to comply with the dispute procedure in clause 16 meant that any steps taken after that date pursuant to clauses 12 and 13 were invalid.
Clause 16.1 provides that the parties must seek to resolve disputes arising out of the Shareholders Agreement “and must not start arbitration or court proceedings (except proceedings seeking interlocutory relief) in respect of such disputes other than in accordance with clause 16”.
Mr Donato D’Angola and Mr Mario D’Angola did not commence any proceedings in relation to the dispute notified by Mr Martino. Instead, it was Mr Martino who commenced proceedings on 11 May 2023, after the Breach Notice was served on 5 May 2023, and before his Breach Notice Response (including the dispute notice) was sent on 30 May 2023. The Statement of Claim filed on 11 May 2023 sought, as part of the relief claimed, “an order that the Purported Breach Notice dated 5 May 2023 is void and of no effect”.
Mr Martino failed to remedy the breaches specified in the Breach Notice within 30 days after 5 May 2023 (that is, by 4 June 2023). It follows that he was, as at 5 June 2023, a “Defaulting Shareholder” within the meaning of clause 19.1.1 of the Shareholders Agreement, and was deemed to have issued a transfer notice in accordance with clause 11.5 for all of his shares.
Clause 11.5 of the Shareholders Agreement provided as follows:
“A deemed transfer of shares arises, and a transfer notice is deemed to be issued, by operation of clause 19, and clause 12 will apply to the sale of those shares and each Shareholder waives any rights it may have against the other Shareholder to claim relief from forfeiture or to claim that the operation of this clause or clause 19 is a penalty.”
“A transfer notice:
12.1.1 is deemed to be issued, by operation of clause … 19, on the first date that a Director is aware of the circumstances that clause … 19 to operate [sic] in respect of a Shareholder …”
The first step in the sale process set out in clauses 12 and 13 of the Shareholders Agreement was the appointment of the “Valuer”, who was responsible for determining the sale price.
Clause 13.1 provided that, within five business days of a transfer notice being issued or being deemed to be issued, “the Board must agree on a person (Valuer) to value the sale shares, or failing Agreement, procure that the President of the Institute of Chartered Accountants of Australia nominates a valuer”.
The issue that arises for determination is whether, as required by clause 13, there was “Agreement” by “the Board” to the appointment of Bizval.
The Defendants contended that Bizval was appointed pursuant to a circulating resolution which Mr Donato D’Angola and Mr Mario D’Angola signed on 9 June 2023 (see paragraph [92] above).
The Plaintiffs contended that this resolution was invalid and of no effect.
Article 42(a) of the Constitution of Azzurri Concrete provided as follows:
“If all the directors have signed a document containing a statement that they are in favour of a resolution of the directors in terms set out in the document, a resolution in those terms is taken to have been passed at a meeting of the directors held on the day on which the document was signed and at the time at which the document was last signed by a director or, if the directors signed the document on different days, on the day on which, and at the time at which, the document was last signed by a director.”
It follows that, in order for a circulating resolution to be valid and effective, it had to be signed by “all the directors” of Azzurri Concrete.
The circulating resolution which purported to appoint Bizval was not signed by Mr Martino, who was a director at the time.
The Defendants relied on clause 19.1.1(a) of the Shareholders Agreement, which provided that a Defaulting Shareholder “will have all rights attaching to the shares held by the Defaulting Shareholder suspended until the difference is remedied”. (It is plain, having regard to the context, that the reference to “the difference” is to be read as a reference to “the default”.)
This clause cannot cure the deficiency in the circulating resolution. A suspension of the rights which Mr Martino had as a shareholder of Azzurri Concrete, pursuant to clause 19.1 of the Shareholders Agreement, could not operate as a suspension of the powers and duties that Mr Martino had as a director of Azzurri Concrete.
The Defendants further submitted that Mr Martino had been removed as a director of Azzurri Concrete at the meeting held on 8 June 2023, being the day before the circulating resolution was signed.
I do not accept this submission, for the following reasons.
First, the Constitution of Azzurri Concrete provided that the “company may, by resolution, remove any director from office” (article 25). The resolution by which the Defendants allege that Mr Martino was removed as a director was not a resolution of the company, but was a resolution of the directors. The document calling the meeting was headed “Clause 6 Notice of Board Meeting”, and stated that a “meeting of the Board of the Company will be held at 11:30am on Thursday, 8 June 2023”. The document recording the resolution is headed “Extract of Minutes of a Meeting of Directors”, and refers to the notice and quorum requirements for a meeting of the board.
Secondly, the meeting of the directors at which this resolution was passed was not validly convened. Clause 5.7.3 of the Shareholders Agreement provided that “a Board meeting will require at least 10 Business days' prior written notice to be given to all Directors unless otherwise agreed by all Directors” (emphasis added). Mr Donato D’Angola and Mr Mario D’Angola purported to convene a Board meeting on 8 June 2023 on one day’s notice. Mr Martino did not agree to this shortening of the notice period. Instead, a resolution to shorten the period was purportedly passed by Mr Donato D’Angola and Mr Mario D’Angola at the 8 June 2023 meeting, which Mr Martino was unable to attend.
Thirdly, Mr Donato D’Angola and Mr Mario D’Angola purported to hold the meeting of the Board on 8 June 2023 “via audiovisual link”. Article 34(a) of the Constitution provided that: “If all of the directors consent, the directors may participate in a meeting of the directors by means of any technology allowing all persons participating in the meeting to hear each other at the same time”. There is no evidence that Mr Martino consented to the meeting being held via audiovisual link, and in any case, the technology used did not permit all persons participating in the meeting to hear each other at the same time, as Mr Martino, on attempting to access the link, was unable to hear his fellow directors or to be heard by them.
Clause 13 of the Shareholders Agreement provided that the valuer must be instructed “to value the sale shares, adopting the method of valuation that the valuer considers appropriate”, but that “the valuer must”:
“assume that a reasonable time is available in which to obtain a sale of the sale shares in the open market and for that purpose 90 days will be deemed a reasonable time” (cl 13.1.1);
“have regard to the following factors (in addition to any other factors which the valuer believes should properly be taken into account) based on the best information available at the time” (cl 13.1.2):
“(a) prospects of the Business;
(b) the value, at a specified capitalisation rate appropriate to the Business, of the estimated future maintainable earnings of the Company;
(c) the yield which an open market investor would reasonably require in an acquisition of the sale shares;
(d) the net tangible assets of the Company as disclosed in the audited accounts for the last preceding financial year, or if no audited accounts of the Company are available, as disclosed in the latest management accounts of the Company…”
“act as an expert and not as an arbitrator” (clause 13.1.2(e)).
Clause 13.2 provides that: “The sale price will be final and binding upon the seller and the transferee.”
Bizval considered, as required by clause 13.1.2(b) of the Shareholders Agreement, the future maintainable earnings of Azzurri Concrete.
Bizval noted that the financial information for Azzurri Concrete, with which it had been briefed for the purposes of the valuation, indicated that, after various adjustments were made:
the business had actual revenue of some $73.60m in FY22, and made a loss of $1.164m; and
(based on “annualised” figures) would receive revenue of around $127.50m in FY23, and make a loss of $2.147m.
Bizval concluded that, when these figures were taken into account, the “Future Maintainable Earnings calculation returned a negative value”, such that it was “not appropriate to value the business under the capitalisation of earnings method”. Accordingly, Bizval concluded that the business should instead be valued “on a net asset basis”.
For the purposes of valuing the business on a net asset basis, Bizval referred to the Statement of Financial Position as at 31 March 2023 which had been prepared for Azzurri Concrete. This indicated that the value of the business’ Plant & Equipment was $7,933,467. Bizval noted that it had asked Azzurri Concrete whether there was any independent valuation of these assets and had been told that none existed; and that it had “not conducted a review or physical inspection of these assets".
It was this net asset value shown in the Statement of Financial Position which was the primary determinant of Bizval’s assessment of the enterprise value of the business (of $8.8m), which was then used to determine the equity value of $2.9m.
“While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.”
This statement of principle has been frequently applied in intermediate appellate courts: see, for example, Holt v Cox (1997) 23 ACSR 590 at 597 per Mason P (Priestley JA agreeing); ; Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd [2002] NSWCA 180 at [71] per Giles JA; AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173 at [51]-[54] per Nettle JA (Maxwell P and Bongiorno AJA agreeing); and Australian Vintage Ltd v Belvino Investments (No 2) Pty Ltd (2015) 90 NSWLR 367; [2015] NSWCA 275 at [74] per Bathurst CJ (Beazley P and McColl JA agreeing).
Mr Martino alleged various respects in which the valuation by Bizval was “not a valid valuation for the purposes of cl 13 of the Shareholders Agreement” (Second Further Amended Statement of Claim, [30J]). Given that I have determined that Bizval was not validly appointed pursuant to the Shareholders Agreement, it is unnecessary to address each of the contentions advanced by Mr Martino. It is sufficient to refer to the three issues which were a particular focus of the evidence and submissions, namely, that the Bizval Valuation was not “based on the best information available at the time” (as required by clause 13 of the Shareholders Agreement), because:
Bizval was not provided with the financial information contained in a consolidated financial report for Azzurri Concrete and its subsidiaries for FY23, which is referred to below as the Bespoke FY23 Report;
Bizval proceeded on the basis of the book value of Azzurri Concrete’s plant and equipment; and
Bizval was not informed of the offers made by Hanson in 2022.
Of these issues, the most significant was the question of the provenance and accuracy of the Bespoke FY23 Report. This document was attached to an email from Mr Allan Shenouda of Bespoke Financial Advisory, which was forwarded to the Plaintiffs’ solicitor in the circumstances described below. Bespoke was a broker, who had been retained by Azzurri Concrete in 2024 to assist in obtaining finance.
As outlined below, the financial performance of Azzurri Concrete for FY22 and FY23 as recorded in the Bespoke FY23 Report was significantly better than the financial performance as recorded in the finalised accounts of Azzurri Concrete for those financial years. According to the Plaintiffs’ expert evidence, the effect of assessing the fair value of shares in Azzurri Concrete on the basis of the figures in the Bespoke FY23 Report, rather than the figures in the finalised accounts, was to increase the fair value by around 50%.
“The valuation was not based on the best information available at the time in that the Special Purpose Financial Report for the financial year ending 30 June 2022 (CB Supp 54), recording a loss of $145,944, and the Management Accounts for the period 1 July 2022 to 31 May 2023 (CB Supp 48), recording a loss [of] $2,306,784 (annualised to a loss of $2,513,362), did not accurately reflect the financial performance of Azzurri Concrete Group, which was rather as recorded in the Consolidated Annual Financial Report for the year ended 30 June 2023 (CB5179), being a profit of $7,334,402 for the financial year 2022 and a profit of $8,439,238 for the financial year 2023.”
The figures which were alleged, in this pleading, to be the “best information available” were those contained in the Bespoke FY23 Report.
I granted leave to amend in circumstances where the Plaintiffs had already filed all of the lay and expert evidence on which they relied regarding the documents produced by Bespoke, and where Mr Donato D’Angola had already filed evidence denying that he had signed, or been involved in the preparation of, the Bespoke FY23 Report.
At the time of granting leave to the Plaintiffs to amend their pleading in order to raise this issue, I granted leave to the Defendants to issue a subpoena to KPMG (the KPMG Subpoena) and to file any further affidavit evidence in relation to this issue. The Defendants subsequently filed an affidavit of the Finance Director of Azzurri Concrete, Mr Alex Karpouzis, and tendered material that was produced in response to the KPMG Subpoena. I refer to this material below.
The Plaintiffs’ solicitor received the Bespoke FY23 Report from Mr Norm Cerreto. He is a project manager for property developments, and in that role consults with short and long term financiers to put deals together and frequently refers work to loan brokers and lenders.
In around February 2025, Mr Cerreto had a telephone conversation with Mr Shenouda, in which Mr Shenouda said that he had “some guys looking for a short-term loan, they are desperate for funds and need to get money ASAP”. Mr Cerreto asked Mr Shenouda to send him “the details and financials”.
On 25 February 2025, Mr Cerreto received an email from Mr Shenouda, which forwarded an internal email between various persons at Bespoke. This email was dated 13 May 2024 and referred to “Updated FY23 Financials”. The attachments to this email included the Bespoke FY23 Report.
Mr Cerreto forwarded this email to his solicitor, Mr Laface, for his review.
Mr Cerreto deposed that Mr Laface (who is the Plaintiffs’ solicitor) subsequently said that he could not review those documents, or act for Mr Cerreto in relation to this matter, as he was engaged in litigation concerning the Azzurri Group.
On 14 March 2025, the Plaintiffs issued a subpoena to Bespoke (Bespoke Subpoena). The documents which were required to be produced in response to the Bespoke Subpoena included:
“Copy of all financial documents provided by [companies within the Azzurri Group] and Mr Donato D’Angola and Mario D’Angola … to [Bespoke] …
…
Copy of the Consolidated Annual Financial Reports for the Financial Year ended 30 June 2023 for [Azzurri Concrete] and its subsidiaries provided by Azzurri Group Pty Limited to [Bespoke].”
Bespoke produced documents in answer to the Bespoke Subpoena on 1 April 2025, but did not produce the Bespoke FY23 Report.
On 5 June 2025, the Plaintiffs’ solicitor contacted Mr Cerreto and asked if he still had a copy of Mr Shenouda’s email of 25 February 2025. Mr Cerreto forwarded the email on the same day.
“Mario called me and didn’t want to produce the documents to you, he said to me ignore the subpoena and not respond to it, they are not happy that you served the subpoena on me. I said that I will comply with it and send a copy to the Court and also send one to you.”
The Defendants issued a subpoena to Mr Shenouda to attend the hearing in person to give evidence. At 5.57pm on Monday, 28 July 2025, being the evening before Mr Shenouda was initially scheduled to give evidence, the Defendants’ solicitors received an email sent from a Ms Rose Shenouda, stating that Mr Shenouda was undergoing treatment from Monday, 28 July 2025, to Wednesday, 30 July 2025, and attaching a “Medical Certificate” which stated that he would be “unfit to continue usual duty” in this period. As a result, Mr Shenouda’s evidence was rescheduled for Thursday, 31 July 2025, being the last day of the hearing. However, once again the Defendants’ solicitors received an email from Ms Shenouda, on the evening prior to Mr Shenouda’s scheduled appearance. Ms Shenouda stated that she had “no access to Allan right now”, that he was “medically unwell and not fit to attend”, and that he had “left for rehab treatment out of state”.
Senior Counsel for the Plaintiffs accepted that the Defendants had taken reasonable measures to secure Mr Shenouda’s attendance at Court, to no avail. Mr Shenouda’s affidavit was read, on the basis that I would treat his unavailability as a matter going to the weight that could be given to his evidence.
In any event, the Defendants did not, in their closing written and oral submissions, place any particular reliance on Mr Shenouda’s evidence. Insofar as the evidence was read for Mr Shenouda’s version of the conversation with Mr Laface (which Mr Cerreto overheard), I do not consider any weight can be placed on Mr Shenouda’s untested evidence, particularly where his version of the conversation was not put to Mr Cerreto in cross-examination.
For those reasons, I accept Mr Cerreto’s evidence that Mr Shenouda said to Mr Laface that “Mario called me and didn’t want to produce the documents to you, he said to me ignore the subpoena and not respond to it, they are not happy that you served the subpoena on me”.
However, I am not satisfied that any instruction was in fact given to Mr Shenouda by Mr Mario D’Angola, having regard to the following matters.
First, there is reason to doubt the reliability of Mr Shenouda’s statements to Mr Laface regarding the Bespoke Subpoena. In the same conversation, Mr Shenouda stated that he “will comply with [the Bespoke Subpoena] and send a copy to the Court and also send one to you”. However, Mr Shenouda did not, in fact, send any documents to the Court after the date of this conversation. (Bespoke had produced documents to the Court in response to the Bespoke Subpoena around six weeks before this conversation, but those documents did not include the Bespoke FY23 Report.)
Secondly, Mr Mario D’Angola deposed that he had not had a conversation with Mr Shenouda regarding the Bespoke Subpoena, and that the last time that he talked to Mr Shenouda, on the phone or in person, was some time in around August to October 2024. Mr Mario D’Angola maintained this evidence under cross-examination.
There is an alternative explanation as to why Mr Shenouda did not produce the Bespoke FY23 Report, namely, that Mr Shenouda may have formed the view that this document did not fall within the scope of the Bespoke Subpoena.
As set out above, the Bespoke Subpoena sought copies of “all financial documents provided by [the Azzurri Group] and Mr Donato D’Angola and Mario D’Angola … to Bespoke”, and a copy of “the Consolidated Annual Financial Reports for the Financial Year ended 30 June 2023 for [Azzurri Group] and its subsidiaries provided by Azzurri Group … to [Bespoke]” (emphasis added).
If the Bespoke FY23 Report was not, in fact, a document that was “provided by” the Azzurri Group to Bespoke, then it did not fall within the scope of the Bespoke Subpoena.
In that regard, there was no affidavit or documentary evidence that the Bespoke FY23 Report was provided by anyone within the Azzurri Group to Bespoke.
The email of 13 May 2024 which attached the Bespoke FY23 Report (which was, in turn, forwarded to Mr Cerreto in February 2025) was not an email from anyone within the Azzurri Group to Bespoke, but was instead an internal email between employees of Bespoke. That email did not contain any reference to the source or provenance of the “Updated FY23 Financials”.
The Bespoke FY23 Report included:
a “Director’s Report”, which was dated 23 September 2023 and appeared to be signed by Mr Donato D’Angola; and
a “Compilation Report”, which was dated 19 September 2023 and bore an electronic signature of KPMG.
Mr Donato D’Angola gave unchallenged evidence that he does not know who prepared the Bespoke FY23 Report, that he did not sign the Bespoke FY23 Report, and that the FY23 report for Azzurri Concrete was not completed and signed by him until July 2024.
Further, KPMG did not produce any documents in response to those paragraphs of the KPMG Subpoena which sought:
a copy of the financial report of Azzurri Concrete which was signed by KPMG on 19 September 2023;
the DocuSign certificate confirming that KPMG signed any such report; and
any documents recording the affixing of KPMG’s signature to any such report.
Having regard to those matters, I find that the Bespoke FY23 Report was not, in fact, signed by either Mr Donato D’Angola or KPMG. It follows that, insofar as the Bespoke FY23 Report conveys that each of KPMG and Mr Donato D’Angola reviewed the report, signed it, and thereby gave various confirmations regarding the information in that report, it is false and misleading.
There was, in evidence, a copy of the financial report of Azzurri Concrete for FY23 which was signed by KPMG on 22 July 2024 and by each of Mr Donato D’Angola and Mr Mario D’Angola on, respectively, 19 and 22 July 2024 (the Signed FY23 Report). (DocuSign records which were produced in response to the KPMG Subpoena confirm that the Signed FY23 Report was in fact signed by each of those persons on the date recorded.)
The figures for revenue and EBITDA in FY22 and FY23 that are contained in the Bespoke FY23 Report are significantly different from those contained in the Signed FY23 Report:
| | Bespoke FY23 Report | Signed FY23 Report | | FY22 Revenue | 119,613,588 | 74,613,588 | | FY22 EBITDA | 9,258,303 | 1,777,581 | | FY23 Revenue | 132,661,418 | 130,265,562 | | FY23 EBITDA | 9,930,596 | (4,284,506) |
The Plaintiffs submitted that the figures in the Bespoke FY23 Report were true and accurate, while those in the Signed FY23 Report were not.
In this regard, the Plaintiffs pointed out that the figure for FY22 EBITDA in the Bespoke FY23 Report was, after excluding “Other income” of some $1.875m (which was mostly comprised of Jobseeker payments), around $7.383m, and that this figure was close to the figure of $7.4m which had been recorded as the “FY22 (Stat)” figure in KPMG’s email of 30 August 2022 (see paragraphs [45]-[47] above). The suggestion appeared to be that the Court should infer that the FY22 figures in the Bespoke FY23 Report were derived from, or related to, the figures which KPMG described as “FY22 (Stat)” figures (which, it should be inferred, was a reference to “statutory” accounts for FY22 that had been prepared as at August 2022).
I do not consider that these matters provide a sufficient basis to draw any such inference. The Plaintiffs could have, but did not, subpoena KPMG to produce the “FY22(Stat)” document referred to in KPMG’s email of 30 August 2022, or any document recording the “FY22(Stat)” figures referred to in this email, or any communications with the Defendants regarding the “FY22(Stat)” figures.
On the evidence before the Court, there was no annual financial report of Azzurri Concrete for FY22 which had been finalised as at the date of KPMG’s email.
The consolidated financial report for Azzurri Concrete and its subsidiaries for FY22 was not signed by Mr Donato D’Angola and KPMG until 23 and 24 July 2023 respectively (the Signed FY22 Report).
The figures for FY22 in the Signed FY22 Report match the figures for FY22 in the Signed FY23 Report (including, in particular, an EBITDA figure of around $1.778m for FY22). This EBITDA figure included the Jobkeeper income and, if this income were excluded, the EBITDA for FY22 would have been a small loss.
On the available evidence, it is likely that the reference in KPMG’s email to “FY22(Stat)” figures was a reference to figures in some draft accounts for FY22 which were in existence as at 30 August 2022, and that there were changes made to these draft accounts prior to the FY22 accounts being finalised in July 2023.
Any apparent correspondence between the EBITDA figure for FY22 in the Bespoke FY23 Report and the EBITDA figure that appears to have been contained in a draft financial report for FY22 (which is not in evidence) does not provide a sound basis for concluding that the information in the Bespoke FY23 Report provides a true and fair view of Azzurri Concrete’s financial position and performance for FY22 and FY23, particularly where there is a significant difference between the figures in the Bespoke FY23 Report and the finalised financial reports for FY22 and FY23 that were compiled by KPMG and signed by the directors of Azzurri Concrete.
Mr Karpouzis gave evidence that he retained Bespoke in early 2024 to assist the Azzurri Group in obtaining finance and, as part of this process, Bespoke had requested financial documentation of Azzurri Concrete.
On 22 February 2024, Mr Karpouzis sent an email to Mr Shenouda attaching copies of the financial statements for FY21 and FY22, and stated as follows (emphasis in original):
“We are still working with KPMG to finalise FY23 report. Will keep you updated on the progress.”
On 5 March 2024, each of Mr Karpouzis and Mr Donato D’Angola separately sent emails to Bespoke, stating that the financial statements for FY23 had still not been completed. In particular:
Mr Karpouzis stated that: “We are in the process of finalising FY23 which is taking up a considerable amount of the team’s time”; and
Mr Donato D’Angola stated that “Mario and I don’t have our FY23 done yet”.
These March 2024 emails are inconsistent with either Bespoke or Azzurri Concrete being of the view that there existed, at this time, a financial report of Azzurri Concrete for FY23 which had been finalised and signed by Mr Donato D’Angola and KPMG in September 2023 (being the date recorded on the Bespoke FY23 Report).
The internal Bespoke email attaching the Bespoke FY23 Report was sent by Mr John Huie of Bespoke to Mr Shenouda and “Michelle” of Bespoke on 13 May 2024.
On 6 June 2024 at 11:53am, Mr Huie sent an email to Mr Karpouzis, which was copied to Mr Donato D’Angola and Mr Mario D’Angola. In this email, Mr Huie stated that, in order for NAB to assess Azzurri Concrete, Bespoke needed the Azzurri Group to provide, inter alia:
“FY23 Financials for ACG [Azzurri Concrete] (attached) to include PP&E value in line with YTD March accounts (attached) – Noting we would need to see a value close to $14.5m as in the YTD Accounts as a minimum security value for the bank guarantee and business loan.”
There was an attachment to this email with a file name “FY23 FINS Azzurri Concrete Group Pty Ltd.pdf”, which Mr Karpouzis was unable to open (this attachment was tendered in its native format). Mr Karpouzis deposed that he was unaware of the contents of that attachment.
On 21 June 2024, Ms Karanikas of Bespoke sent:
an email to Mr Donato D’Angola, asking: “can you please send me FY23 financials for Azzurri Concrete Group Pty Ltd and its subsidiaries and I will then start to put together the application for the below home loans”; and
an email to Mr Karpouzis, stating: “I understand that you have been chasing KPMG for the financials for FY23 which was requested below, can you please continue to follow this up …”.
Those emails would not make sense if Bespoke understood that Azzurri Concrete had already provided, by 13 May 2024 (being the date of Mr Huie’s email attaching the Bespoke FY23 Report), a copy of Azzurri Concrete’s FY23 financial report, which had been finalised by the company and KPMG.
Those emails do, however, make sense if Bespoke understood that it had not, as at late June 2024, received any such report from Azzurri Concrete, despite numerous requests (which is consistent with the fact that, as noted above, the Signed FY23 Report was only finalised in July 2024).
Mr Karpouzis was the Finance Director of Azzurri Concrete from August 2023 (that is, from around one month before the date on which the Bespoke FY23 Report was purportedly signed by KPMG and Mr Donato D’Angola). He gave unchallenged evidence that he did not prepare the Bespoke FY23 Report; that he did not send that document to Bespoke; that, to his knowledge, no one at Azzurri Concrete was involved in the preparation of that document; and that the consolidated annual financial report for Azzurri Concrete for FY23 was completed on 22 July 2024 (being the Signed FY23 Report).
Mr Karpouzis was cross-examined regarding what steps he took upon receiving, on 6 June 2024, an email from Bespoke with an attachment which he could not open and which appeared, from its file name, to be the FY23 financial statements of Azzurri Concrete. He explained that, at the time, he thought that it was “a fictitious document”. This was a view formed without being able to see its contents.
Mr Karpouzis gave evidence that he relayed to Mr Donato D’Angola and Mr Mario D’Angola his view that this document was “fictitious”, and that he was prompted to do so by a conversation which he had with Mr Shenouda, as follows:
“The conversation with Alan was that he could provide documents, to get a lending through, which I said we would not accept.”
“The conversation we had at that time was, we would not rely on a document that someone else had prepared. We would only prepare our own documents, and would see the process through with the correct documents.”
The Plaintiffs provided a copy of the Bespoke FY23 Report to their expert, Mr Clifford, but did not ask him to express any view regarding its contents, or to express any view regarding any discrepancy between the figures in the Bespoke FY23 Report and the corresponding figures in the Signed FY23 Report. For example, Mr Clifford was not asked to identify the main variances between the two reports or, having done so, to assess those variances against the underlying financial records of Azzurri Concrete, or, on that basis, to express any opinion as to the accuracy or reliability of either set of accounts.
Instead, Mr Clifford was asked to assume that the Bespoke FY23 Report was a document which “the Defendants have provided to a mortgage broker” and was instructed “to value the Azzurri Business based on the loan financials provided to this broker”.
Having regard to those matters, I am not satisfied that, as pleaded in the Second Further Amended Statement of Claim, the financial performance of Azzurri Concrete for FY23 is “accurately” recorded in the Bespoke FY23 Report.
The Plaintiffs did not, ultimately, submit that the Bespoke FY23 Report provides a true and fair view of Azzurri Concrete’s financial performance for FY23. Instead, Senior Counsel for the Plaintiffs submitted, in closing address, that there was “an obvious inference that [the Bespoke FY23 Report] was manufactured in the sense of altered from the statutory [ac]counts”.
The Plaintiffs submitted that the Court was left with “two different documents” (being the Bespoke FY23 Report and the Signed FY23 Report) “being prepared for different purposes”, namely, “you minimise income for tax, you maximise it in terms of trying to get refinance”. The Plaintiffs contended that the Court was “not left in a binary position” and “wouldn’t necessarily have to accept one [set of accounts] or the other”, but would be entitled to conclude that “maybe the truth was somewhere in between”, and accordingly “adopt” figures for FY22 and FY23 EBITDA which were between those shown in the Bespoke FY23 Report and the Signed FY23 Report.
There are a number of difficulties with these submissions.
First, there is no evidence that any member of the management of Azzurri Concrete had any role in the preparation of the Bespoke FY23 Report.
Secondly, it follows that there is no basis to conclude that these documents were prepared by Azzurri Concrete “for different purposes” and, in particular, no basis to conclude that the Signed FY23 Report was prepared to “minimise income for tax” and the Bespoke FY23 Report was prepared to “maximise it in terms of trying to get refinance”. It was not put to Mr Donato D’Angola or Mr Mario D’Angola or Mr Karpouzis in cross-examination that they had acted for those particular purposes or that the documents had been prepared for these purposes.
Thirdly, the Plaintiffs’ submission that the Court could select figures for the financial performance of Azzurri Concrete which are “somewhere in between” the position in the Bespoke FY23 Report and the position in the Signed FY23 Report presumes that the Court is left with two equally probative sets of accounts, such that there is no basis to prefer one set over the other.
However, as outlined above, the evidence establishes that the Signed FY23 Report is a business record of Azzurri Concrete, which was compiled by KPMG and approved by each of the directors of Azzurri Concrete (Mr Donato D’Angola and Mr Mario D’Angola). In contrast, the Bespoke FY23 Report was, on the Plaintiffs’ own submission, “manufactured in the sense of altered from the statutory [ac]counts”. Further, it appears to have been “manufactured” by a third party without the involvement of either the management or the external accountants of Azzurri Concrete. (It is unnecessary for present purposes to make any finding as to the identity of the individual or individuals who manufactured this document, particularly in circumstances where Bespoke was not a party to this proceeding and Mr Shenouda was not available to give evidence.)
Another of the criticisms levelled at the Bizval Valuation was that it was not “based on the best available information at the time”, insofar as it proceeded on the basis of the value of Azzurri Concrete’s plant and equipment that was recorded in the financial records provided to Bizval.
In this regard, the Plaintiffs referred to statements in the Information Memorandum that Azzurri Concrete had “an extensive fleet of concreting equipment, with an insured value of $17.9m and a net asset value (NAV) of $7.7 at FY21A” (the reference to “FY21A” being a reference to the “actual” figures in Azzurri Concrete’s FY21 financial report).
The relevant policies of insurance were not in evidence. The disparity between the insured figure and the reported figure for the value of the equipment may be due to the former representing a new-for-old replacement value, rather than the current value of the existing equipment.
Senior Counsel for the Plaintiffs stated in closing address that he did not say that the insured value was “the correct value”, but instead put the position as follows:
“… if one takes simply the accounting value, that is always likely to be an underestimate and that demonstrates, in my submission, if it's insured at that value that it is likely to be significant[ly] in excess of A$8,000,000 and it's a deficiency in the report … it's demonstrating effectively an error in the valuation because he was not provided with any information as to what the actual value of the plant and equipment was in circumstances where that is the key fundamental for the valuation.”
I am not satisfied that any failure by Bizval to conduct further enquiries regarding the value of the assets is a matter that, consistently with the principles in Legal & General, would provide a basis for concluding that the Bizval Valuation was not conducted in accordance with clause 13 of the Shareholders Agreement and therefore was not binding on the parties.
It is difficult to reconcile the Plaintiffs’ contention (namely, that Bizval was required, in performing a valuation under clause 13 of the Shareholders Agreement, to look beyond the value of the assets as stated in Azzurri Concrete’s financial records) with the terms of clause 13.1.2(d) of the Shareholders Agreement, which provides that “the valuer must … have regard to”:
“the net tangible assets of the Company as disclosed in the audited accounts for the last preceding financial year, or if no audited accounts of the Company are available, as disclosed in the latest management accounts of the Company.”
Finally, neither of the valuation experts called by the parties expressed any view regarding the value of the assets of Azzurri Concrete as at June 2023 and there is, accordingly, no basis to conclude that the true value or fair value of those assets as at that date was different, let alone materially different, to the value of those assets in the financial records of Azzurri Concrete.
Having regard to those matters, I am not satisfied that, if Bizval had been validly appointed, the fact that the Bizval Valuation was based on the value of the assets of Azzurri Concrete as recorded in its accounts would have provided a basis for setting aside this valuation.
The Plaintiffs submitted that the Bizval Valuation was not “based on the best available information at the time”, as required by clause 13 of the Shareholders Agreement, because Bizval was not informed of the offers made by Hanson in August and October 2022 (see paragraphs [44] and [51] above).
Mr Donato D’Angola completed a “Valuation Order Form” for Bizval, which named himself as the primary contact at Azzurri Concrete. This form consisted of a series of questions which he answered, including the following (which was marked with an asterisk as a “required field”):
“Estimated value of business or asking price?
[Answer:] Estimated at 6.5m. The minority shareholder believes his shares are worth over $6.5m.”
Mr Donato D’Angola was unable, in cross-examination, to explain the basis on which he had provided an estimated value of $6.5m.
He acknowledged that he did not inform Bizval of the offer of $40m made by Hanson in October 2022, or that the shareholders had been of the view that this offer undervalued the business, or that he was still of this view at the time that he was instructing Bizval:
“Q. You have said, ‘Estimated at $6.5 million’. Do you see that?
A. Yes.
Q. How had you arrived at that figure?
A. I don't know.
Q. Right up until January of 2023, your view was that the Hanson offer valuing the business at about $40 million was too low; correct?
A. Yes.
Q. And yet here you are in 9 June 2023, and you're putting an estimate on the value of the business at $6.5 million.
A. Yes.
Q. It's a lot less than the figures you'd been talking to each other about Hanson; correct?
A. Yes.
Q. In the light of that, can you provide any explanation as to how you arrived at this figure of $6.5 million?
A. I can't.
Q. I want to suggest to you that your view, as at 9 June, was what it had been in January of 2023, namely that the value of the business was in excess of $40 million; correct?
A. Correct.
…
Q. Relevant to valuing your business was the amount that somebody would be prepared to pay for it; correct?
A. Correct. But they didn't.
….
Q. No, but the fact that somebody had made offers‑‑
A. Yes.
Q. ‑‑before would be relevant. Do you accept that?
A. I suppose so. Yes.
Q. But you didn't tell Bizval about any of the negotiations with Hanson, did you?
A. No.
…
Q. You engaged Bizval in June 2023; correct?
A. Correct.
Q. And the Bizval valuation was dated 31 July 2023.
A. Yes.
Q. At no time in that period, did you tell Bizval that you had the view in 2022, and at the beginning of 2023, that the value of the business was in excess of $40 million. Correct?
A. Correct.
Q. You didn't tell them that your view was still that the value was in excess of $40 million; correct?
A. Correct.
Q. And you didn't provide them with a copy of the information memorandum; correct?
A. Correct.
Q. And all of that was because you hoped that Bizval would come back with a low valuation; correct?
A. No.”
I do not accept Mr Donato D’Angola’s denial in response to the final question in the passage set out above. The only plausible explanation as to why Mr Donato D’Angola informed Bizval that the business had an estimated value of $6.5m, at a time when he in fact believed the business to be worth more than the $40m that had been offered by Hanson, was that he was hoping that Bizval would arrive at a valuation of Mr Martino’s shares which was below their market value.
The valuation experts retained by the parties agreed that the offers made by Hanson in late 2022 were relevant and material information when performing a valuation of Azzurri Concrete as at June 2023. In particular, the Defendants’ expert, Ms Conoulty, derived the multiple which she used in valuing the business by having regard to Hanson’s offer of $40m (which, according to Ms Conoulty, “reflected an EBITDA multiple of between 4.9x and 5.8x”).
Ms Conoulty elaborated as follows regarding her approach to determining the multiple used in her valuation (emphasis added):
“I don't start with a market multiple and apply discounts et cetera. I'm looking at all of it together. I'm placing probably most weight on the offer and sale for this company itself, but having regard to the movement in the market, and what's happening in the market, as well as the transactions. So ‑ but I place ‑ I think I've placed most weight on the offer, the Hanson offer, and the sale offer.”
Clause 13 of the Shareholders Agreement required the Valuer to assume “a sale of the sale shares in the open market” and to “have regard”, “based on the best information available at the time”, to both “the value, at a specified capitalisation rate appropriate to the Business, of the estimated future maintainable earnings of the Company” and “the yield which an open market investor would reasonably require in an acquisition of the sale shares”.
If I had determined (contrary to the findings above) that Bizval had been appointed in accordance with clause 13 of the Shareholders Agreement, I would have concluded that the Bizval Valuation was not a valuation in accordance with that clause because its assessment of these matters was not “based on the best information available at the time”, by reason that Bizval was not informed of the offers made by Hanson. It would have followed that the Bizval Valuation was not binding on the parties.
It follows from the findings which I have made regarding the compulsory sale process that Mr Martino has established his claim that Mr Donato D’Angola and Mr Mario D’Angola breached the Shareholders Agreement by compulsorily acquiring Mr Martino’s shares in Azzurri Concrete for a sale price which was not determined in accordance with clause 13 of that agreement (Second Further Amended Statement of Claim, [46]-[47]).
In order to be awarded more than nominal damages for that breach, Mr Martino must establish that the price which he was paid (namely, $234,000) was less than the amount which he would have received if the shares had been valued in accordance with clause 13 of the Shareholders Agreement (which required his shares to be valued based on “a sale … in the open market”).
This issue of valuation is addressed below. The parties agreed that the relevant date for valuing the shares is 5 June 2023, this being 31 days after the Breach Notice was issued (and therefore the point in time at which Mr Martino was, pursuant to clause 19.1, deemed to have issued a transfer notice in respect of his shares).
Given that the only remedy sought by Mr Martino for any breach of the Shareholders Agreement was the difference between the price he was paid and their “fair market value”, it is unnecessary to consider the various other breaches which were pleaded, a number of which were not the subject of any written or oral submissions.
Further, it is unnecessary to determine the Plaintiffs’ claim that the provisions of the Shareholder Agreement, which provided for shares to be compulsorily acquired from a shareholder who was in breach of that agreement, were “void and wholly unenforceable as a penalty at general law” (Second Further Amended Statement of Claim, [36]-[41]). The Plaintiffs do not seek to have any shares in Azzurri Concrete transferred back to Mr Martino, and there would be obvious difficulties in such a course. The effect of the June 2023 Orders was that Mr Martino did not pursue his application to restrain the compulsory sale of his shares in Azzurri Concrete, on the basis of the Defendants’ undertaking to pay any monetary amount to which Mr Martino was found to be entitled (see paragraph [86] above). Having regard to that regime, and the steps taken consequent upon that regime, I accept the Defendants’ submission that it would be unjust and inequitable “to try and undo the egg”, by unwinding the acquisition of Mr Martino’s shares.
It is, however, necessary to address the Plaintiffs’ contention that clause 13.6 of the Shareholders Agreement was “void and wholly unenforceable as a penalty at general law” (Second Further Amended Statement of Claim, [39] and [41]).
Clause 13.6 provides that: “In the case of a sale triggered by clause 19, the sale price will be discounted by 10%.”
The Defendants applied clause 13.6 when determining the sale price for Mr Martino’s shares, and in particular, calculated the sale price by applying a 10% discount to Bizval’s assessment of the market value of those shares (see paragraphs [98]-[100] above).
The relevant principles were set out by Ball J in B. & G. Properties Pty Limited v Fayad [2021] NSWSC 1382 at [28]-[29]:
“A contractual stipulation the essence of which is to punish the other party for a breach of contract will be unenforceable as a penalty: see Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525 (Paciocco); Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231 (Arab Bank). The impugned stipulation must solely (Paciocco at para [166] per Gageler J) or predominantly (ibid at para [221] per Keane J) be punitive in nature. The question whether a contractual stipulation is penal in nature directs attention to whether the sum stipulated is extravagant and unconscionable (see Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79 at 87 per Lord Dunedin; Paciocco at para [29] per Kiefel J; Arab Bank at para [74] per McDougall J (citations omitted)). The party who impugns a contractual stipulation as a penalty bears the evidentiary and persuasive onus of proving that that stipulation meets the relevant requirements: see Paciocco at para [167] per Gageler J; Arab Bank at para [75] per McDougall J). Whether a contractual stipulation for the payment of a sum of money on breach of contract is so extravagant and unconscionable as to amount to a penalty is to be judged by reference to the circumstances that existed at the time the contract was made: see Paciocco at para [62] per Kiefel J, para [169] per Gageler J*; Arab Bank* at para [74] per McDougall J. See also Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd [2017] NSWCA 99 at [329]–[330] per Ward JA).
The penalty doctrine operates as an exception to freedom of contract: see Arab Bank at [105] per McDougall J). Accordingly, when applying the doctrine, ‘courts will not lightly invalidate a contractual provision for an agreed payment on the ground that it has the character of a punishment’ (Paciocco at para [220] per Keane J).”
This passage was, on appeal, quoted with approval by Leeming JA: Fayad v B & G Properties Pty Ltd [2022] NSWCA 129 at [33].
I am satisfied that clause 13.6 is wholly or predominantly punitive in nature. It applies in circumstances where a shareholder has breached, and failed to remedy their breach of, the Shareholders Agreement, and purports to operate so that the market value of the shares, as determined by an independent Valuer, is discounted by 10%. No such discount is applied where the shareholder chooses to sell in circumstances where clause 19 does not apply. Further, the extent of the discount is extravagant and unconscionable. It does not represent any genuine pre-estimate of the damage that may be caused to by a party’s breach of the Shareholders Agreement.
These matters were raised with Counsel for the Defendants in closing address:
“[COUNSEL FOR DEFENDANTS]: … if there has been a deemed transfer notice issued, the shareholders agreement requires a further 10% to be deducted with respect to Mr Martino's shares.
HIS HONOUR: I don't know if the argument's been put that way, but isn't that in effect a penalty? Of course, that's saying that in all circumstances of transfer, you get the market value, but if you breach the shareholders agreement, irrespective of what the breach was, you lose 10% of your interest in the company?
[COUNSEL FOR DEFENDANTS]: Your Honour, I'm not going to make a submission adverse to that. That's not how our case has been framed, but I can accept what your Honour puts. I could not point to.
HIS HONOUR: It couldn't be said to be the reasonable costs of dealing with the process.
[COUNSEL FOR DEFENDANTS]: Or a genuine [pre-]estimate of the costs.”
It is also necessary to address the Plaintiffs’ oppression claim. That is because there may be a difference between the monetary remedy available for the breach of the Shareholders Agreement and the monetary remedy available for oppression. In particular, there is an issue, which I address below, as to whether certain discounts should be applied to the “fair value” of the shares when arriving at the award for either or both of those causes of action.
Section 232 of the 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 232 of the Act and its 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; [1985] HCA 68. Conduct may be oppressive even when a defendant believes that he or she is acting for proper purposes: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [176] (‘Backoffice’).
The principles applicable to a claim for oppression were summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 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 Pty Ltd (2011) 288 ALR 310; (2011) 84 ACSR 121; [2011] NSWCA 104 at [140]. Austin J there 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: [Backoffice] at [182];
(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 …’”
Much of the conduct which is said to be oppressive in the present case is also said to be in breach of the Shareholders Agreement. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [176], Gummow, Hayne, Heydon and Kiefel JJ observed that:
it is not the case that the only conduct of a company’s affairs that is to be classified as “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member” is conduct of the company’s affairs that is otherwise lawful; and
in particular, the fact that conduct is said to constitute a breach of contractual obligations under a shareholders agreement “does not preclude engagement of the oppression provisions”.
Their Honours added that it should not “be supposed that there cannot be oppression on the part of one who thinks that he or she is acting rightly” (ibid).
In Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55 at [9], the Full Court of the Federal Court (Siopis, Rares and Davies JJ) referred to this passage from Campbell in making the following observations:
“The test of unfairness requires an objective assessment of the conduct in question with regard to the particular context in which the conduct occurs. The question is whether objectively in the eyes of the commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair. As the test is objective, whether or not the conduct is oppressive will not depend upon the motives for what was done. It is the effect of the acts that is material”.
A single instance of oppression is sufficient to constitute a basis for relief: Spence v Rigging Rentals WA Pty Ltd [2015] FCA 1158 at [137] (Gilmour J). Further, it is not necessary that the oppressive conduct continue to exist at the time of the trial: Strategic Management Australia A**FL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303 at [147] (Sifris J). However, in order to invoke the exercise of the court's discretion, the single past act would need to be so serious as to equate to a continuing present state of affairs: Re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279 at 289 (Derrington J).
The pleaded case of oppression was broad-ranging, including allegations that, before Mr Martino announced his intention to leave the business, he was excluded from participating in management decisions and that, after having announced this intention, he was shut out of accessing emails and from speaking to staff and clients.
In opening address, Senior Counsel for the Plaintiffs explained that although these other events remained part of how the oppression case was put, “the very simple oppression case” which was advanced by the Plaintiffs was “about the process … which [Mr Donato D’Angola and Mr Mario D’Angola] purported to go through under the shareholders agreement”:
“If that process wasn’t strictly followed, and we say it wasn’t, then effectively having taken [Mr Martino’s] shares, other than through a proper process, then we say that’s oppression and he’s entitled to have his value of the shares, whatever that may be. So that’s the simple route home.”
“3. The plaintiff’s primary relief is for an order requiring the defendants to pay the plaintiffs fair market value in respect of their interests in the Group. That relief is justified and appropriate in circumstances where [Mr Martino’s] shares in [Azzurri Concrete] has been acquired by the defendants and where the method by which the defendants compulsorily acquired [Mr Martino’s] interest in [Azzurri Concrete] was not valid for the purpose of the Shareholders Agreement, including because:
a. [Mr Martino] was not in breach of the Shareholders Agreement at the relevant time;
b. The Breach Notice is not valid in that it does not set out fulsome particulars of the asserted breaches;
c. Donato and Mario did not consider or respond to [Mr Martino’s] response to the notice (including the Dispute Notice);
d. The manner in which Bizval was appointed to value the shares was not valid;
e. The Bizval Valuation is not a valid valuation for the purposes of the Shareholders Agreement.
- Including the manner in which [Mr Martino’s] shares in [Azzurri Concrete] have been acquired, the conduct of Mr Mario D’Angola and Mr Donato D’Angola amount to an oppression on the plaintiffs, which provides justification for the relief sought.”
“Jumping ahead to oppression, we then say that, in effect, the process and virtually every aspect of it that led to the shares being taken away as they were was oppressive in all the circumstances.”
I have found that:
Mr Donato D’Angola and Mr Mario D’Angola were justified in issuing a Breach Notice as at 5 May 2023, in particular, having regard to Mr Martino’s conduct in respect of the transfer of reward points from the Azzurri Concrete account to his personal account;
this breach was not remedied by Mr Martino within 30 days (or thereafter); and
by reason of those matters, Mr Martino was deemed, pursuant to clause 19.1 of the Shareholders Agreement, to have issued a transfer notice.
Given those findings, I do not accept the Plaintiffs’ contention that Mr Donato D’Angola and Mr Mario D’Angola engaged in oppressive conduct by issuing the Breach Notice and embarking on the compulsory sale process under clauses 11.5 and 12 of the Shareholders Agreement.
However, there are a number of issues regarding the manner in which this compulsory sale process was undertaken. In particular, Mr Donato D’Angola and Mr Mario D’Angola:
called a meeting of directors at short notice;
proceeded with this meeting in Mr Martino’s absence, in circumstances where he was unable to participate via the audiovisual link that was provided in the notice of meeting;
resolved, at this meeting, to abridge the notice period for the convening of the meeting and to remove Mr Martino as a director;
signed a circulating resolution on the following day (which was not provided to Mr Martino), purporting to appoint Bizval;
did not inform Bizval of the Hanson offers and instead informed Bizval that the estimated value of the business was $6.5m (in circumstances where Mr Donato D’Angola gave evidence that he in fact still believed that the Hanson offers had undervalued the business); and
proceeded to transfer Mr Martino’s shares on the basis of the price determined by Bizval, to which a further 10% discount was then applied.
Having regard to those matters, I am satisfied that there was, as determined objectively in the eyes of a commercial bystander, commercial unfairness in the compulsory sale process, namely, “conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair”: Catalano at [9]. Accordingly, I am satisfied that this conduct involved a departure from the standards of fair dealing, such as to amount to oppressive conduct.
If it is established that Mr Martino’s shares were transferred at an undervalue (which is addressed below), then it will be the case that this oppressive conduct, although confined to a limited period in the past, has had serious consequences which represent a continuing state of affairs.
Each of the parties relied upon expert valuation evidence. The Plaintiffs called Mr Andrew Clifford of RSM Australia Pty Ltd, and the Defendants called Ms Rebecca Conoulty of Sapere Forensic.
The experts expressed opinions, in their respective reports and in a J****oint R****eport dated 22 July 2025, regarding the valuation of Mr Martino’s shares in Azzurri Concrete at two different valuation dates, namely, 17 February 2023 and 5 June 2023. At the hearing, it was common ground that the value of those shares should be determined as at 5 June 2023. Although this was described in the Joint Report as the “Second Valuation Date”, I will, to avoid confusion, refer to 5 June 2023 simply as the Valuation Date. (As I have noted above at [298], this was the date which fell 31 days after the issue of the Breach Notice and was therefore the point in time at which Mr Martino was deemed, pursuant to clause 19.1 of the Shareholders Agreement, to have issued a transfer notice in respect of his shares in Azzurri Concrete.)
In the Joint Report, the experts agreed that the capitalisation of future maintainable earnings (FME) is an appropriate method to assess the enterprise value of Azzurri Concrete, and that this value should be adjusted for net debt in order to determine the equity value of Azzurri Concrete.
The experts agreed that FME should be assessed based on the following methodology:
first, future maintainable revenue is determined;
secondly, the future gross profit percentage is determined;
thirdly, the future gross profit margin is determined (by multiplying the future maintainable revenue by the future gross profit percentage);
fourthly, future maintainable expenses (excluding interest, depreciation and amortisation) are determined; and
fifthly, FME is calculated by deducting future maintainable expenses from future gross profit margin.
The experts also agreed that FME should be determined after making normalisation adjustments. Following the expert conclave, Mr Clifford agreed that the normalisation adjustments made by Ms Conoulty were reasonable, and he adopted those adjustments in his own analysis in the Joint Report.
The experts agreed that the future maintainable gross profit margin percentage of Azzurri Concrete as at the Valuation Date was 9.5%.
As regards the assessment of the multiple to be applied to FME, the experts agreed that:
it is appropriate to assess the earnings multiples at the level of EBITDA; and
the considerations in determining the EBITDA multiple commonly include the following matters:
“i) multiples of comparable company transactions;
ii) transactions and negotiations for shares in Azzurri Concrete Group Pty Limited;
iii) comparable company trading multiples;
iv) control premiums; and
v) the application of discounts to the observed trading and comparable company multiples to allow for the size of the company being valued compared to the size of the comparable companies and the private versus public nature of the company…”
In addition, the experts agreed on the amount of the debt adjustment to be applied to the enterprise value as at the Valuation Date, in order to arrive at an equity value for Azzurri Concrete.
There were three main areas of disagreement between the experts, relating to the assessment of:
future maintainable revenue;
future maintainable expenses; and
the EBITDA multiple.
Each of these areas of difference is addressed in the Joint Report and was also addressed in the course of the experts’ concurrent oral evidence.
There are two further important points of difference between the approaches adopted by the experts, as a result of their instructions.
First, Mr Clifford (but not Ms Conoulty) provided an alternative valuation of Mr Martino’s shareholding in Azzurri Concrete, which was based on the figures in the Bespoke FY23 Report. Mr Clifford was instructed to assume that this document had been provided by the Defendants to Bespoke. For reasons given above, this assumption has not been established, and I am not satisfied that any reliance can be placed on the figures in the Bespoke FY23 Report. Accordingly, I have disregarded any opinions of Mr Clifford regarding the valuation of the shares in Azzurri Concrete which are based on the figures in the Bespoke FY23 Report. (In addressing the expert evidence below, I focus on Mr Clifford’s analysis in the Joint Report, which does not rely on the figures in the Bespoke FY23 Report, but instead relies on the figures in the Signed FY23 Report.)
Secondly, whereas each of Ms Conoulty and Mr Clifford expressed an opinion, in the Joint Report, regarding the “fair value” of Mr Martino’s 13.89% shareholding in Azzurri Concrete as at the Valuation Date, Ms Conoulty (but not Mr Clifford) proceeded to determine the “market value” of Mr Martino’s 13.89% interest, by applying, to the fair value of his shares:
a 23% discount for lack of control; and
a 30% discount for lack of marketability.
Mr Clifford was not instructed to determine a “market value” of Mr Martino’s shares as at the Valuation Date. However, he agreed that “it is appropriate to apply discounts for lack of control and lack of marketability when calculating a market value of a minority interests as Ms Conoulty has done”.
It was common ground between the parties that the question of whether value should be assessed on the basis of “fair value” or “market value” (and the application of the discounts described above) was not a matter for the experts, but a matter for the Court. I address the question of discounts below, after dealing with the critical points of difference between the experts.
| | FY20 Actual | FY21 Actual | FY22 Actual | FY23 Actual | FY24****F Forecast | | Revenue | 78,242,691 | 103,119,822 | 74,613,588 | 130,265,562 | 111,200,744 |
It should be noted that the figures for actual revenue for FY22 and FY23 match those recorded in the Signed FY23 Report (not those in the Bespoke FY23 Report).
Ms Conoulty determined future maintainable revenue by:
averaging the actual revenue figures for FY20 to FY23 ($96,560,416);
averaging the actual revenue figures for FY20 to FY23 and the forecast revenue for FY24 ($99,488,481);
adopting, as a result, a range of $97,000,000 to $100,000,000 for revenue; and
taking the midpoint of that range ($98,500,000).
Mr Clifford disagreed with Ms Conoulty’s approach. In particular, he disagreed with her view that the average historical revenue from FY20 to FY23 should be treated as a proxy for future maintainable revenue, on the basis that:
Azzurri Concrete was on a “growth path” in terms of its revenue in the period up to and including FY21, with its revenue growth in this period outperforming its peers in the Australian concrete industry;
delayed projects and the COVID-19 pandemic had a negative impact on this “revenue trend” in FY22 and, accordingly, the revenue achieved in that year should be regarded as “an outlier”.
By excluding the revenue figure for FY22, and by looking at the “revenue trend” for the other financial years (namely, $78.243m in FY20, $103.120m in FY21 and $130.266m in FY23), Mr Clifford concluded that the future maintainable revenue as at the Valuation Date was in the range of $115m to $120m, with a midpoint of $117.5m.
Mr Clifford, unlike Ms Conoulty, did not take into account the FY24 forecast revenue figure in determining future maintainable revenue. He explained that this was because the FY24 forecast was not available until September 2023 (which was several months after the Valuation Date) and was prepared after Mr Martino had left the business (and Mr Clifford could not determine its reliability).
Neither party advanced any submissions regarding the reliability of the FY24 forecast. It is not necessary to determine any such issue, given that:
on Ms Conoulty’s analysis, the effect of taking the FY24 Forecast into account is to increase the future maintainable revenue (which is in the Plaintiffs’ favour); and
on Mr Clifford’s analysis, “his concluded FME was not [inconsistent] with management’s expectations within the FY24 Forecasts”.
It is important to note that, although Mr Clifford determined a figure for future maintainable revenue of $117.5m, he, unlike Ms Conoulty, applied a discount to the figure for FME as at the Valuation Date, in order to allow “for some uncertainty that existed at the [Valuation Date]”. In contrast, Ms Conoulty does not make any such discount because she has sought to take uncertainty into account in determining future maintainable revenue and future maintainable expenses.
“[COUNSEL FOR DEFENDANTS]: But you would accept, wouldn't you, that a willing but not anxious purchaser is likely to have more regard to past performance than future performance?
WITNESS CLIFFORD: Yes.
[COUNSEL FOR DEFENDANTS]: So, it would be more appropriate to have more regard to the past three, four or five financial years than looking at the forecast for 2024?
WITNESS CLIFFORD: I can accept that, yes.
[COUNSEL FOR DEFENDANTS]: But nevertheless, you've come up with a figure which is higher than not just historic average, but higher than the company's own forecast for 2024. Do you accept that your figure might be overstated, Mr Clifford?
WITNESS CLIFFORD: I can accept that, yes. Yep, having heard what you've said.
[COUNSEL FOR DEFENDANTS]: And that perhaps in light of the questions that have been asked of you today that a more appropriate figure would be less than the figure that you have provided in the joint report.
WITNESS CLIFFORD: Yeah, I can see that point, yep.
[COUNSEL FOR DEFENDANTS]: And that perhaps a figure closer to what Ms [Conoulty] had come up with would be a more appropriate yardstick as to what the future financial performance of the company might be in terms of a willing but not anxious purchaser?
WITNESS CLIFFORD: With the exception of including 2021 in that analysis and including the budget, I can accept that, yes.”
Mr Clifford was, in re-examination on this topic, asked, in light of the matters put to him in cross-examination, what figure he would now use for revenue and responded as follows: “If I look at FY21, the average of FY22, 23, so we're around 105/107 million.”
As a result, Mr Clifford essentially abandoned the opinions which he had expressed based on a trend of revenue increasing over time, and instead accepted that future maintainable revenue should be determined by averaging actual revenue over “the past three, four or five financial years”. However, he then excluded FY20 from his analysis, and focused only on FY21 to FY23 in determining the average (and also overstates the average of those figures, which is in fact $102.666m, not $105-107m).
Mr Clifford did not provide a reason for excluding FY20 from this analysis. As set out above, Ms Conoulty maintained, in cross-examination, her opinion that ”some regard” should be paid to FY20 figures and provided cogent reasons as to why this was the case. However, she did concede that the FY20 revenue figure “may be less relevant” than the more recent years.
Given this concession, I have increased Ms Conoulty’s figure for future maintainable revenue from $98.5m to $100m. The basis for this adjustment is as follows:
I accept that, consistently with Ms Conoulty’s analysis, the assessment of future maintainable revenue should take into account the revenue figure for FY20 and the forecast revenue figure for FY24;
I have had regard to Ms Conoulty’s calculation of the average of the revenue figures for FY20, FY21, FY22, FY23 and FY24F (being around $99.48m); and
I have adopted a figure of $100m, so as to reflect the fact that the revenue figure for FY20 may be “less relevant” than the revenue figures for other years.
This figure of $100m is at the top of, but still within, Ms Conoulty’s range for future maintainable revenue.
The experts agreed on the future gross profit percentage (9.5%). Applying this percentage to the future maintainable revenue produces a future maintainable gross profit margin of $9.5m.
In order to determine FME, it is necessary to deduct future maintainable expenses from the future maintainable gross profit margin. There was, as outlined below, a dispute between the experts as to the manner in which future maintainable expenses should be determined.
| | FY20 Actual | FY21 Actual | FY22 Actual | FY23 Actual | FY24****F Forecast | | Revenue | 78,242,691 | 103,119,822 | 74,613,588 | 130,265,562 | 111,200,744 | | Normalised Expenses | (6,226,504) | (7,564,400) | (5,142,472) | (4,534,942) | (5,171,811) | | Normalised Expenses (as % of Revenue) | (8.0%) | (7.3%) | (6.9%) | (3.5%) | (4.7%) |
Ms Conoulty determined future maintainable expenses by:
averaging the normalised expenses (as a percentage of revenue) for FY20, FY21 and FY22 (being 7.4%);
averaging the normalised expenses (as a percentage of revenue) for FY20, FY21, FY22 and FY24F (being 6.7%), and
adopting a figure of 6.5% for future maintainable expenses as a percentage of revenue, in order to take into account the fact that the FY24 forecast for normalised expenses as a percentage of revenue (4.7%) was lower than each of these two averages.
This approach involved excluding FY23 as an outlier (for reasons which are addressed below).
In contrast, Mr Clifford determined future maintainable expenses to be $5.2m, based on the normalised expenses figures for FY22 ($5.142m) and FY23 ($4.535m) “adjusted for an appropriate level of cost escalation”. Mr Clifford explained that he had determined future maintainable expenses based on the dollar figures for FY22 and FY23, because the level of expenses had trended downwards since FY20, despite there being an increase in revenue in that period, which indicated that:
the overhead structure of the business had become leaner after the COVID-19 pandemic; and
the business’ “overheads are a fixed cost in nature, rather than being fully variable in nature”.
In cross-examination, Mr Clifford conceded that he was unable to “get comfortable” that the savings achieved in respect of expenses in FY23 were capable of being carried forward, and that it might be “more prudent” to use an average of percentage of expenses over the preceding period to determine future maintainable expenses:
“[COUNSEL FOR DEFENDANTS]: And so you're really in no position to tell his Honour that the saving expenses which you say are illustrated in the 2023 financial year are capable of being carried forward?
WITNESS CLIFFORD: Hand on heart, no.
[COUNSEL FOR DEFENDANTS]: And a willing but not anxious purchaser would have regard to more than those two years, if they weren't able to look at how the expenses had been reduced, wouldn't they?
WITNESS CLIFFORD: If they weren't able to get comfortable with that level, yes, they would.
[COUNSEL FOR DEFENDANTS]: And how were you able to get comfortable with that level?
WITNESS CLIFFORD: I'm not.
[COUNSEL FOR DEFENDANTS]: You're not comfortable with that level?
WITNESS CLIFFORD: Well not with the level of access I've had to the books and records of the company, no.
[COUNSEL FOR DEFENDANTS]: So does that mean you're not comfortable telling his Honour that your opinion is that the future maintainable expenses will be $5.2 million?
WITNESS CLIFFORD: I still think that's a reasonable position, having looked at the overheads of the company over two years, over which they've delivered $200 million worth of revenue. And then we have a budget from the director saying overhead's at 5.1.
[COUNSEL FOR DEFENDANTS]: Are you comfortable or not?
WITNESS CLIFFORD: I'm comfortable with that conclusion, based on the information I've got.
[COUNSEL FOR DEFENDANTS]: But you accept that you're in no position to offer an opinion as to whether the savings which were achieved from the 2023 financial year are capable of being carried forward?
WITNESS CLIFFORD: No.
[COUNSEL FOR DEFENDANTS]: And in light of that limitation on the information you had regard to, you would accept it would be more prudent, wouldn't you, to use an average or a percentage to try and work out what the future maintainable expenses would be, wouldn't you?
WITNESS CLIFFORD: That may be more prudent. But whether that's what a willing seller would accept.”
Having regard to those concessions, I accept Ms Conoulty’s view that, in assessing future maintainable expenses, it is necessary to take into account not only the expenses for FY22 and FY23, but also the expenses for FY20 and FY21.
However, it does not follow that I accept Ms Conoulty’s assessment of future maintainable expenses, particularly having regard to the following matters.
First, instead of proceeding on the basis of an average of expenses over the preceding several financial years, Ms Conoulty excluded FY23 from her assessment. This was on the basis that the expenses figure for that year was “far too low” and was likely “a reflection of working capital issues”.
There is, however, a difficulty with considering the expenses in FY23 in percentage, rather than dollar, terms: namely, the level of revenue in FY23 was (as agreed by the experts) increased as a result of delays in completion of projects in FY22. If, as the experts agreed, the revenue for FY22 and FY23 is averaged between those two years (with each of those financial years being allocated revenue of $102,439,575), then:
the normalised expenses of $5,142,472 for FY22 would represent 5.0% (not 6.9%) of revenue;
the normalised expenses of $4,534,942 for FY23 would represent 4.4% (not 3.5%) of revenue; and
the normalised expenses for FY23 (4.4%) would not be more in line with the normalised expenses for FY22 (5.0%) and for FY24F (4.7%).
Secondly, I am not satisfied that future maintainable expenses should be assessed in percentage rather than dollar terms. Mr Clifford explained that overhead expenses are mostly fixed in nature, and comprise items such as administrative costs, rent and staff costs.
Thirdly, while expressing the view that the expenses figure in FY23 might have been affected by “working capital issues”, Ms Conoulty agreed in cross-examination that a dividend was declared in FY23 and that it appeared, on the available evidence, that while there were some cashflow pressures, Azzurri Concrete was able to pay its various creditors in FY23.
Fourthly, Ms Conoulty accepted in cross-examination that, in FY22, some $1.702m of costs in FY21 in relation to fuel, repairs and maintenance were reallocated from “Cost of Sales” and put into “Expenses”.
The difference between the figures for FY21 as shown in the FY21 report and the figures for FY21 as shown in the FY22 report are set out below:
| | FY21 Figures (in FY21 report) | FY21 Figures (in FY22 report) | Difference | | Cost of Sales | 91,114,336 | 89,412,522 | (1,701,814) | | Expenses | 7,789,648 | 9,491,462 | 1,701,814 |
Included in the “Expenses” figures for FY21 as shown in the FY22 report are amounts of $625,827 for “Fuel & Oil” and $1,142,140 for “Repairs & Maintenance” (together totalling $1,767,967). In contrast, the amounts included for these items in the “Expenses” for FY21 as shown in the FY21 report are $29,949 for “Fuel & Oil” and $42,830 for “Repairs & Maintenance” (together totalling $72,779).
Ms Conoulty accepted that the reallocation (in the FY21 figures in the FY22 Report) of around $1.7m of expenses relating to “Fuel & Oil” and “Repairs & Maintenance” from “Cost of Sales” to “Expenses” explains the difference between the “Expenses” figures for FY21 recorded in the two sets of accounts.
In the other financial years under consideration, it appears that the same treatment was adopted as had originally been adopted in respect of the FY21 expenses in the FY21 report, with Fuel & Oil and Repairs & Maintenance being predominantly allocated to “Cost of Sales” rather than “Expenses”. For example, in FY22, there are only minimal amounts recorded in “Expenses” for Fuel & Oil ($1,752) and for Repairs & Maintenance ($11,237).
Ms Conoulty adopted the “Expenses” figures for FY21 as shown in the FY22 report, rather than the “Expenses” figures for FY21 as shown in the FY21 report. If like is to be compared with like, Ms Conoulty should have adopted the latter rather than the former. If she had done so, then the expenses for FY21 would have been reduced by around $1.7m, which would have resulted in the normalised expenses being reduced to around $5.86m (representing approximately 5.7% of revenue in that year).
The adjustments set out above should be adopted before any assessment of future maintainable expenses is made based on an average of normalised expenses. This has the following result:
| | FY20 Actual | FY21 (Adjusted to use figures in FY21 report) | FY22 Actual (Revenue shared with FY23) | FY23 Actual (Revenue shared with FY22) | FY24****F Forecast | | Revenue | 78,242,691 | 103,119,822 | 102,439,575 | 102,439,575 | 111,200,744 | | Normalised Expenses | (6,226,504) | (5,860,000) | (5,142,472) | (4,534,942) | (5,171,811) | | Normalised Expenses (as % of Revenue) | (8.0%) | (5.7%) | (5.0%) | (4.4%) | (4.7%) |
Those adjusted figures support the conclusion that the expenses figure for FY23 is not an outlier and that it should be taken into account.
If FY23 is included when determining the average expenses, the result is as follows:
average expenses FY20 to FY23: $5.44m;
average expenses FY20 to FY23 plus FY24F: $5.38m;
average expenses FY20 to FY23 (as percentage of revenue): 5.78%; and
average expenses FY20 to FY23 plus FY24F (as percentage of revenue): 5.56%.
I have determined that future maintainable expenses should be determined on the basis of the average of the actual figures for FY20 to FY23 and the forecast figures for FY24, consistently with the approach adopted by Ms Conoulty. She explained that “general inflationary pressures” are taken into account by including the FY24 figures, because “the forecast would have inflation in it”.
Further, I accept Mr Clifford’s opinion that, given the nature of the overhead expenses, it is appropriate to assess future maintainable expenses in dollar terms rather than percentage terms.
Given that I have determined that the future maintainable revenue at the Valuation Date is $100m, the average dollar figure ($5.38m) is, in any case, only $180,000, or 3%, lower than the figure that would result from applying the average percentage (namely, $5.56m).
Finally, the figure of $5.38m is almost the same as the figure which would result if the expenses figure for each of FY20 and FY23 was excluded as an outlier, with the remaining figures for FY21, FY22 and FY24F being averaged (namely, $5.39m).
For those reasons, I have determined that the future maintainable expenses of Azzurri Concrete as at the Valuation Date were $5.38m.
When questioned about the adjustments referred to above (and in particular, the $1.7m adjustment to the expenses figure for FY21, in order to move Fuel & Oil and Repairs & Maintenance into Cost of Sales, consistently with the accounting approach adopted in other financial years), Ms Conoulty suggested that this adjustment might, in turn, affect the figure which she and Mr Clifford had agreed for the future maintainable gross profit margin percentage of Azzurri Concrete as at the Valuation Date (namely, 9.5%).
However, on further questioning, Ms Conoulty accepted that any such difference would not be significant:
“[SENIOR COUNSEL FOR PLAINTIFFS]: Gross margin is based on cost of sales versus the revenue; correct?
WITNESS [CONOULTY]: It's ‑ we looked at it based on what's recorded in cost of sales.
[SENIOR COUNSEL FOR PLAINTIFFS]: Yes.
WITNESS [CONOULTY]: Yes, in each year.
[SENIOR COUNSEL FOR PLAINTIFFS]: My point being a variation of 1.7 million in cost of sales in one year when it's against a revenue of up around $105 million will not make a particularly significant difference; correct?
WITNESS [CONOULTY]: Agreed. Yep.”
Having regard to this evidence, I do not consider that there is a basis for making any adjustment to the future gross profit percentage of 9.5% which was agreed by Ms Conoulty and Mr Clifford (and which results, when applied to the future maintainable revenue of $100m, in a future maintainable gross profit margin of $9.50m).
Deducting future maintainable expenses of $5.38m from the future maintainable gross profit margin of $9.50m results in a figure for FME (EBITDA) of $4.12m.
In order to determine the equity value of the business, it is necessary to determine the EBITDA multiple that is to be applied to this FME (EBITDA) figure.
Mr Clifford’s opinion was that the appropriate EBITDA multiple as at the Valuation Date was in the range of 6.75x to 7.25x. He adopted the midpoint of 7.00x in his calculations in the Joint Report.
Mr Clifford explained that he had identified “only two (2) Comparable Listed Companies in Australia (i.e. James Hardie Industries Plc and MAAS Group Holdings Limited) operating in the concreting services industry” and that these companies “demonstrated mean LTM [Last Twelve Months] EBITDA multiple of 11.8x as at 17 February 2023 increasing to 13.6x as at 5 June 2023”.
Based on this information, Mr Clifford:
“assessed an EBITDA multiple range … based on the Comparable Listed Companies Trading Multiples observed of 11.50x to 12.50x for the … Valuation Date”;
applied the following adjustments to this EBITDA multiple range:
(a) a “control premium” of 30%, (b) a “size discount” of 35% “to reflect the difference in the size of Azzurri Concrete … and the Comparable Listed Companies”; (c) a further discount of 20% for “business specific risks” (including the reliance on Mr Donato D’Angola and Mr Mario D’Angola as key persons and the “high level of volatility in earnings at an EBITDA level over the historical period assessed”); and
as a result of applying the adjustments in paragraph (2) to the range in paragraph (1), arrived at a range of 6.75x to 7.25x which he considered to be “reasonable for the valuation of [Azzurri Concrete] at the … Valuation Date”.
It is unnecessary to engage with the detail of these calculations, including the justification for the various adjustments set out above, because Mr Clifford, in cross-examination, conceded that the “Comparable Listed Companies” which he had identified (and which supplied the figures which form the starting point for these calculations) were not, in fact, comparable to Azzurri Concrete.
In particular, Mr Clifford made the following concessions:
as regards James Hardie:
(a) its turnover is “[n]ot in the same ballpark” as that of the Azzurri Group, and “has no relevance to the turnover of the Azzurri Group”; (b) it is “very difficult to say that the James Hardie group of companies is comparable to Azzurri”; (c) “only around 10% of [James Hardie’s] sales occur in the Australian marketplace”; and
(a) it is a “diverse” and “multiple service” business, including infrastructure, mining, construction, and residential real estate development; (b) its construction and materials business is only around 30% of total revenue; and (c) its market capitalisation is “not in the same ballpark” as Azzurri Concrete.
“[COUNSEL FOR DEFENDANTS]: Do you still maintain your opinion that the James Hardie group of companies and the [MAAS] Group are comparable companies to the Azzurri company?
WITNESS CLIFFORD: They're not ideal comparable companies, no. But as valuers, we have to do the best we can with what's in the administered markets.
[COUNSEL FOR DEFENDANTS]: Is that another way of saying that they're just not comparable?
WITNESS CLIFFORD: Not value good comparables, no. Yeah.
[COUNSEL FOR DEFENDANTS]: They're just not in the right market, are they? They're not comparable companies, are they?
WITNESS CLIFFORD: They're not directly comparable, no.
…
[COUNSEL FOR DEFENDANTS]: Just stepping back then, looking at paragraph 98 of your joint report. Would you accept that perhaps you've overstated the position with respect to James Hardie?
WITNESS CLIFFORD: Having listened to you, yes.
[COUNSEL FOR DEFENDANTS]: And you accept now, don't you, that it wouldn't be an accurate statement to say that James Hardie and the [MAAS] Group are directly comparable or comparable at all to my client, would you?
WITNESS CLIFFORD: Yeah, I accept that.
[COUNSEL FOR DEFENDANTS]: And doesn't that mean that the multiplier you have adopted is too high?
WITNESS CLIFFORD: Not when I step back and then look at the discounts I've applied and where I've landed, and then look at other information, such as Hanson offer, even discounted back in their market movements.”
The final answer in this exchange outlined a means by which Mr Clifford sought to maintain the EBITDA multiple of 7.0x which he had selected in the Joint Report, while at the same time acknowledging that the starting point for the selection of that multiple (namely, choosing James Hardie and MAAS Group as comparable companies) was flawed.
This alternative approach involved determining the EBITDA multiple that was implied by the Hanson offer, decreasing that multiple for the fact that there had been a deterioration in Azzurri Concrete’s position since the Hanson offer (meaning that it was “more risky”), and then increasing the multiple to reflect market movements in EBITDA multiples since the Hanson offer.
This was substantially similar to the approach adopted by Ms Conoulty. However, while Ms Conoulty’s application of this approach was set out in the Joint Report and maintained in cross-examination, Mr Clifford’s reasoning was not exposed and appeared to shift during the course of his cross-examination, which meant that it was difficult to place any significant weight on his opinions.
Ms Conoulty explained that, whereas Mr Clifford looked at market multiples for comparable companies and made adjustments to them, she placed most weight on the offer made by Hanson (of $40m) and the counter-offer made by Azzurri Concrete (of $53m). She calculated that the midpoint for the EBITDA multiple, as based on the Hanson offer and implied by the counter-offer, was around 6.2x.
In the Joint Report, Ms Conoulty stated that she had:
determined the EBITDA multiple implied by the Hanson offer;
taken into account the volatility in the earnings of Azzurri Concrete since the time of the Hanson offer, with there being “two years of losses at a normalised EBITDA level in FY2022 (approximately $0.6 million) and FY2023 (approximately $3.1 million)”;
taken into account the increase in the multiples of the Benchmark Listed Companies in the period from the beginning of 2023 through to the Valuation Date; and
on the basis of those matters, determined that the appropriate EBITDA multiple as at the Valuation Date was 5.5x to 6.0x, with a midpoint of 5.75x.
Ms Conoulty explained in cross-examination that she had selected 5.75x as the EBITDA multiple in order “to allow for both the decrease for risk” (referred to in subparagraph (2) above) and “also an increase for the market movement” (referred to in subparagraph (3) above). She described the change in risk from the time of the Hanson negotiations as follows:
“It is now daily cash flow management, negative working capital, negative net assets, two years of lossmaking. It’s very, very different and so I think that would result in a significant decrease to the multiple.”
In cross-examination, Mr Clifford agreed that:
the EBITDA multiple that would be inferred from the Hanson offer and Azzurri Concrete’s counter-offer was around 6.2x;
between the time of the Hanson negotiations and the Valuation Date, the actual performance of the business in terms of EBITDA had deviated significantly from the forecast performance, which had resulted in the business becoming loss-making, but for a devaluation of assets; and
accordingly, Azzurri Concrete was a “significant[ly] more risky acquisition if one was looking at it at the [Valuation Date] [than] as at the date of the Hanson offers”.
Mr Clifford was then asked the following questions:
“[COUNSEL FOR DEFENDANTS]: When you have regard to the significantly riskier transaction as at the valuation date, that would result in a change to that inferred multiplier?
WITNESS CLIFFORD : It would, yes, to the extent of not taking it into account in earnings.
[COUNSEL FOR DEFENDANTS]: I'll just focus on the multiplier.
WITNESS CLIFFORD : Mm‑hmm.
[COUNSEL FOR DEFENDANTS]: That would result in a decrease in the multiplier.
WITNESS CLIFFORD: It would, yes.
[COUNSEL FOR DEFENDANTS]: By how much?
WITNESS CLIFFORD: I'd say 20, 25%.
[COUNSEL FOR DEFENDANTS]: You're obviously better at maths than I am because I'm a lawyer. What does 6.2 change into?
WITNESS CLIFFORD: Maybe 5.8, 5.75, somewhere around there.”
Mr Clifford’s arithmetic was plainly wrong. As Ms Conoulty pointed out, applying the level of reduction proposed by Mr Clifford (20-25%) would in fact result in a multiple of around 4.65x to 4.95x.
When this was pointed out to Mr Clifford, he changed his evidence, as follows:
“[COUNSEL FOR DEFENDANTS]: Your evidence was it would be reduced by 20 to 25%. Was that my recollection of what you said?
WITNESS CLIFFORD: I think 20% is a bit of a ‑ it would be somewhere between 15 and 20[%]. I think it would come down to about 5.75, so I'm working that way rather than trying to think percentages.
[COUNSEL FOR DEFENDANTS]: Your answer to my question was originally ‑ was it 20 to 25%, and now you're at 15%. Is that right?
WITNESS CLIFFORD: Yeah, about 15[%], yeah.”
Again, the arithmetic was incorrect. A reduction of 15% would in fact bring the EBITDA multiple down to 5.27x. It appears that Mr Clifford worked out that this was the case, because shortly afterwards he stated that: “I think 5.25 is probably a reasonable reduction from that 6.2”.
Mr Clifford expressed the view that there had been “a rising tide” in the market after October 2022, stating that: “all the multiples have increased since October [2022] through to June [2023], so between October [2022] to February [2023], by about 17.5%. And then again about the same [from February to June 2023]”. Mr Clifford said that this meant that: “if we start at 5.25, it would have moved up to 6.25 by February [2023]. And then again up to 7 by June [2023]. Just on market movements.”
By this approach, Mr Clifford reached a conclusion that the appropriate multiple was 7.0x (which corresponded precisely with the conclusion that he had expressed in the Joint Report, on an entirely different approach).
I am not satisfied that I can give any significant weight to the conclusion reached by Mr Clifford on this alternative approach, having regard to the following matters.
First, Mr Clifford did not explain how he determined that the EBITDA multiple implied by the Hanson offers (6.2x) should be reduced, in order to account for risk, to 5.25x, particularly in circumstances where he had expressed the view that a much larger (20-25%) reduction was necessary, shortly before offering this figure.
Secondly, Mr Clifford did not identify any material to support his conclusion that there had been a 17.5% increase in multiples in the market from October 2022 to February 2023, and another 17.5% increase from February 2023 to June 2023. In particular, in the Joint Report:
Mr Clifford did not give any consideration to market movements in the period from October 2022 to February 2023; and
Mr Clifford stated, in respect of the period from February to June 2023, that: “the Comparable Listed Companies EBITDA multiples (excluding outliers) increased from mean and median LTM EBITDA multiple of 9.43x and 9.52x respectively as at 17 February 2023 to 10.2x and 10.1x as at 5 June 2023”. (This represents an increase of around 6-8%.)
Mr Clifford was challenged on the lack of any calculations to support his conclusions, as follows:
“[COUNSEL FOR DEFENDANT]: You also agree that you came up with the number of seven when you've used two alleged comparable companies, which you now accept are wrong, and yet you maintain that the multiplier is seven, based upon calculations you say you did but haven't set out anywhere in your report, and you assessed them for the very first time in the witness box and tell his Honour that you're comfortable with the seven. That's just not credible, is it, Mr Clifford?
WITNESS CLIFFORD: I can see the point of view. Yep.”
The Plaintiffs pointed out in closing submissions that, although Mr Clifford had not set out calculations in the Joint Report to support the extent of the decrease for risk and increase for market movements, neither had Ms Conoulty. That is true. The Plaintiffs submitted that: “That is not to be critical of her on that issue, but rather to point out that a precise scientific analysis is often not possible in valuation and that the criticism of Mr Clifford in this regard was unfair”.
I acknowledge that, as has often been observed, valuation is an art, not a science: Strike Australia Pty Ltd v Data Base Corporate Pty Ltd [2019] NSWCA 205 at [9]-[10].
However, my concern regarding the reliability of Mr Clifford’s opinion concerning the EBITDA multiple is not simply due to an absence of supporting calculations, but rather arises from the following matters:
in the Joint Report, Mr Clifford arrived at an EBITDA multiple by applying a methodology which took, as a starting point, the selection of two “comparable” companies (which he subsequently acknowledged were not comparable to Azzurri Concrete); and
after acknowledging the problems with the “comparables” which he had selected, Mr Clifford moved to a methodology similar to that used by Ms Conoulty, but did so “on the run” in cross-examination, without identifying material to support the extent of the adjustments he proposed, and arrived at a figure which was precisely the same as the figure determined by his original method.
To be clear, I do not make any adverse credit finding against Mr Clifford. I am satisfied that he held the opinions he expressed and did his best to assist the Court by explaining the reasoning for those opinions. However, I accept the Defendants’ submission that, having regard to the matters outlined above, it is difficult to place any reliance on Mr Clifford’s reasoning on this issue.
In contrast, Ms Conoulty gave consistent and coherent explanations in cross-examination for the methodology which she had applied.
Having regard to those matters, I have accepted Ms Conoulty’s opinion that the EBITDA multiple as at the Valuation Date is 5.75x.
Applying the EBITDA multiple of 5.75x to the FME(EBITDA) of $4.12m results in an enterprise value of $23.69m.
The experts agreed that debt in the amount of $13.634m should be deducted from this figure. This results in an equity value (for 100% of the shares in Azzurri Concrete) of $10.056m as at the Valuation Date.
This, in turn, results in what the experts described as a “Fair Value Pro-rata equity value” for Mr Martino’s 13.89% shareholding of $1.397m as at the Valuation Date.
The Plaintiffs submitted that, in determining the equity value of Azzurri Concrete as at the Valuation Date, the Court should have regard to previous valuations and offers. In particular, the Plaintiffs referred to:
the valuations obtained by Azzurri Concrete and by Mr Lamanna, in the amount of around $16.5m to $20.5m, and the fact that Mr Lamanna’s shares were purchased in November 2020 for an amount which implied an equity value of $19m (see paragraphs [30] to [36] above); and
the offers made by Hanson in August and October 2022 (see paragraphs [44] to [52] above), which implied an equity value of $20-25m (on the basis that the enterprise value was $35m-$40m, and the level of debt was around $15m).
I acknowledge that the figure which I have determined as the equity value of Azzurri Concrete as at the Valuation Date (namely, $10.056m) is substantially below those figures.
The Plaintiffs submitted that the Court is not required to choose one expert over the other, and should “adopt a robust approach when calculating the value of the Plaintiffs’ interest in the Group”, taking these other offers into account for that purpose.
In support of these submissions, the Plaintiffs relied on the decision of Black J in Re Global Mortgage Equity Corporation Pty Ltd [2013] NSWSC 1586. His Honour there observed (at [91]) that “the court is not bound to choose between the respective valuations prepared by the accounting experts, adopting one or the other without modification”. It is important to note that his Honour added (at [92]) that:
“However, it seems to me that any adjustments to an expert valuation must be supported by the evidence and must not involve the Court casting itself in the role of an additional expert, because it does not have the expertise to perform that function: Arcus Shop Fitters Pty Ltd v Western Australian Planning Commission [2002] WASC 174; (2002) 125 LGERA 180 at [76]; Tyler v Thomas [2006] FCAFC 6 at [56].”
There was no expert evidence regarding the basis on which, means by which, or extent to which any assessment of the equity value of Azzurri Concrete as at the Valuation Date, which was reached by the valuation methodology described above, might be adjusted in order to take account of offers made at a different point in time.
In submitting that the Court should adopt a “robust approach” to the assessment of the value of Azzurri Concrete, the Plaintiffs referred to Mobius Distilling, where Black J (at [206]) used this phrase. However, his Honour there indicated that, in using this phrase, he was referring to the following observations of Handley JA (with whom Mason P and Beazley JA agreed) in Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 59:
“The defendants, having improved common property without lawful authority, and attempted to effect a fraud on the minority, are wrongdoers, and their failure to keep and produce proper accounts of their actual expenditure on the common property has made it difficult to assess the compensation due to the plaintiff: compare Armory v Delamirie (1722) 1 Stra 505; 93 ER 664. In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party ‘whose actions have made an accurate determination so problematic’: see LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.”
I am not satisfied that there is any basis for applying this principle on the facts of this case. The experts assessed FME by reference to Azzurri Concrete’s financial statements. Neither of them expressed any view to the effect that there had been a failure by Azzurri Concrete to keep and produce proper accounts, or suggested that there was any difficulty in applying the agreed valuation methodology to Azzurri Concrete by reason of any deficiency in its financial records. Further, even if that had been the case, there would have been an issue as to why this should lead to a presumption against Azzurri Concrete, with doubtful questions being resolved in Mr Martino’s favour, in circumstances where Mr Martino had, up until early 2023, been the Director of Finance of Azzurri Concrete.
Finally, there was an explanation, on the evidence, for a significant change in the value of Azzurri Concrete following the dealings with Mr Lamanna and Hanson described above, namely, that there had been a significant deterioration in the financial performance of the business (as shown in the finalised FY22 and FY23 accounts, which were not available at the time of the earlier valuations and offers).
Ms Conoulty gave evidence that there had been a “catastrophic” turnaround in Azzurri Concrete’s financial position, with the company becoming a “significantly riskier” prospect, adding that: “any purchaser looking at a company with negative working capital and negative net assets and two years of losses would approach it with a lens of high risk”.
Ms Conoulty gave the following evidence when asked whether, having regard to the Hanson offers, her valuation of Azzurri Concrete “may have been particular[ly] pessimistic”:
“I don't think so. I think the Hanson offer was at a time when they had the KPMG information memorandum. …
That was back at that date with forecasts presented to them in the information memorandum, very high forecasts, revenue forecasts, going forward, no losses, positive working capital, positive net assets. And move forward to the date that we're valuing [5 June 2023], we now have actual FY22 figures, which was lossmaking, actual FY23 figures, which was significantly lossmaking, negative working capital, negative net assets, working cash flow issues, daily cash flow management, all of this didn't exist at the time those valuations, or at least was not known, was not presented in the information memorandum. That was not present at the values you're talking about.”
Similarly, Mr Clifford agreed that the forecast financial information contained in the Information Memorandum prepared by KPMG, which was provided to Hanson, proved to be “wildly inaccurate”. In particular, he agreed that there had been, between the issue of the Information Memorandum and the Valuation Date, a “significant change” in the “actual and forecast financial performance” of Azzurri Concrete (see paragraph [404] above).
Having regard to those matters, I do not accept that the evidence of valuations or offers at an earlier point in time provides a sufficient basis for the Court to increase (by some undefined amount) the equity value of Azzurri Concrete as at the Valuation Date.
The methodology which I have outlined above was used by the experts to arrive at what they described as the “fair value” of the 13.89% shareholding which was held by Mr Martino as at the Valuation Date.
In order to determine the “market value” of Mr Martino’s minority shareholding at the Valuation Date, Ms Conoulty applied two discounts to the “fair value” of that shareholding, namely, a discount for “lack of control” and a discount for “lack of marketability”.
Ms Conoulty defined “market value” as meaning “the price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm’s length”. Ms Conoulty stated that:
“Such a basis assesses the market value of a business or an asset by reference to a likely sale transaction but does not take into account the particular circumstances of any specific transaction. In particular it does not reflect the strategic benefits or gains from synergies that might be inherent in an acquisition by any one specific party.”
Accordingly, Ms Conoulty did not, in assessing market value, consider any special value which the other shareholders of Azzurri Concrete (and, in particular, Mr Donato D’Angola and Mr Mario D’Angola) might obtain by acquiring Mr Martino’s shares.
Ms Conoulty explained that the discount for “lack of control” was derived by considering the quantum of the control premium (that is, “the amount that a party would be willing to pay to acquire a controlling share in an entity, in contrast to a minority share”), and then applying the following formula:
“Minority discount = 1 – 1 / (1 + control premium).”
Ms Conoulty determined that a control premium of 50% was appropriate, having regard to the circumstances of this case, which resulted, by application of the above formula, in a discount for lack of control of 23%.
In relation to the discount for “lack of marketability”, Ms Conoulty stated that it is “a widely accepted valuation principle that the market value of minority shareholdings in unlisted companies should be discounted compared to listed equivalents, to allow for their relative lack of marketability”. Ms Conoulty considered the range of discounts applied by Australian valuers and resulting from her analysis of the “Stout DLOM [Discount for Lack of Marketability] Calculator” and from her analysis of various studies, and concluded that it was appropriate to apply a discount for lack of marketability of 30% when determining the market value of Mr Martino’s shares.
These discounts were consecutively applied. That is, Ms Conoulty first applied the “lack of control” discount to the fair market value and then applied, to that discounted amount, the “lack of marketability” discount.
Mr Clifford was not asked to express an opinion on the “market value” of Mr Martino’s shareholding as at the Valuation Date. However, the Joint Report recorded that he agreed, as a matter of principle, with Ms Conoulty’s approach. The Joint Report includes the following statement:
“Whilst Mr Clifford has not been instructed to calculate a market value of the Plaintiff’s interest in ACG and does not give an opinion on this issue, the Experts agree that it is appropriate to apply discounts for lack of control and lack of marketability when calculating a market value of a minority interest as Ms Conoulty as done.”
The Defendants submitted that: “Both the proper construction of clause 13 of the Shareholders Agreement and the ultimate relief sought by the [Plaintiffs] supports the conclusion that the valuation ought to be undertaken on a market value basis.”
The Plaintiffs submitted that this was not a case of “a buyout by a third party who is buying a minority shareholding”, but rather the shares were to be offered to Mr Donato D’Angola and Mr Mario D’Angola, allowing them to add to their existing majority interest “by purchasing the remainder”, and that it was “artificial” in that context to apply any discount to the value of Mr Martino’s interest in Azzurri Concrete.
I have determined that Mr Donato D’Angola and Mr Mario D’Angola breached clause 13 of the Shareholders Agreement. In particular, Mr Martino’s shares were not transferred for a sale price determined in accordance with the requirements of that clause, because Bizval was not a valuer whose appointment was agreed by the Board and Bizval’s valuation was not “based on the best information available at the time” (see paragraphs [179]-[192] and [287]-[295] above).
In determining the damages for this breach, it is necessary to consider what “sale price” would have been determined if the process in clause 13 had been followed. Clause 13 requires a valuation to be performed on the assumption of “a sale of the sale shares in the open market”, with the expert taking into account “the yield which an open market investor would reasonably require in an acquisition of the sale shares”.
In the Second Further Amended Statement of Claim, the Plaintiffs pleaded, variously, that the relief for their oppression claim should be determined by reference to the “true market value” of Mr Martino’s shares in Azzurri Concrete (paragraph [77(d)]), or the “fair price” for those shares (paragraph [78]), or the “fair market value” of those shares (Relief, paragraphs [8], [11]-[12]).
In Re North Coast Transit Pty Ltd [2013] NSWSC 1119 at [24], Brereton J made the following observations regarding the remedy for oppressive conduct:
“the fundamental principle in this area is that the remedy under s 233 is one that must be calculated to alleviate the consequences of the oppressive conduct and no more; that is to say, to place the oppressed minority in a position equivalent to that in which it would have been but for the oppression, but not to improve its position over and above that which would have prevailed but for the oppression.”
The appropriate remedy for the oppressive conduct which I have found is coextensive with the remedy for breach of the Shareholders Agreement.
Clause 13 of the Shareholders Agreement provided a mechanism for the determination of the price at which shares were to be offered for sale to the other shareholders. Leaving aside clause 13.6 (which I have found to be a penalty), that regime applied irrespective of whether the sale resulted from a transfer notice which was voluntarily issued by the shareholder or from a deemed transfer notice pursuant to clause 19. Having regard to the “fundamental principle” that the remedy for oppression should not improve the plaintiff’s position “over and above that which would have prevailed but for the oppression”, I consider that the appropriate remedy for the oppressive conduct which I have found is that Mr Martino receive the amount which, but for the oppressive conduct, he would have received under the sale process specified in the Shareholders Agreement.
Accordingly, the issue for determination is what value should be attributed to Mr Martino’s shares on the assumption of “a sale of the sale shares in the open market”.
In MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451, an issue arose regarding the meaning of a contractual term for the acquisition of the shares of a minority shareholder for “fair market value”.
The relevant facts were as follows. Mr Bruning was the managing director of a car rental business trading under the name “Thrifty”. The shares in the company which operated the business (“Kingmill”) were owned, as to 20%, by the United States company, Thrifty Inc, and as to 80%, by MMAL Rentals Pty Ltd. The shares in MMAL were owned, as to 81.25%, by Mitsubishi Motors Australia Ltd and as to 18.75%, by Mr Bruning. Pursuant to the terms of Mr Bruning’s management agreement with Kingmill, Mitsubishi had an option, upon the termination of Mr Bruning’s management agreement, to acquire Mr Bruning’s shares in MMAL for “fair market value”. Mitsubishi exercised this option and a dispute arose as to the “fair market value” of Mr Bruning’s minority shareholding.
Spigelman CJ, with whom Mason P and Hodgson JA agreed, observed (at [55]) that:
“A test of a ‘market value’, whether in a statutory or contractual context, usually invokes the test long established and frequently applied in Spencer v Commonwealth (1907) 5 CLR 418 especially at 432 and 440–441, of a willing but not anxious purchaser and vendor, bargaining with each other. This approach was most recently expressed in a joint judgment of three judges of the High Court in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514 [49]: ‘… the value … is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it’.”
Spigelman CJ referred to this formulation as the “exchange value” test (adopting the expression used by Gleeson CJ in Boland v Yates Property Corporation Pty Ltd [1999] HCA 64 at [79]).
His Honour observed (at [60]) that the addition of the word “fair” to “market value”:
“…suggests that the valuation should proceed on the assumption, which may be contrary to the facts of a particular contractual relationship, that there is no impediment to the process of bargaining, whether in terms of availability of information or restraints arising from the characteristics of a particular vendor or purchaser or otherwise”.
“It is not possible to set out in abstract terms how a fair market value should be computed. It is necessary to focus on the particular issues which arise in order to determine what the formulation requires in a particular case.”
“The minority interest which must be valued in the present case was held by a person with direct involvement in a majority controlled business requiring mutual co-operation and a level of trust. (I avoid the often misleading terminology of quasi partnership.) The sale is triggered, and triggered only, by the termination of that involvement. The majority shareholder has an interest in ensuring that the minority holding is not acquired by someone who has no relationship with the majority holder of mutual co-operation or trust. The ability of the majority holder to get the full advantage from its controlling interest can be considerably attenuated by activities sometimes derogatively referred to as greenmail. In order to avoid the nuisance of such an investor, the majority holder will be prepared to pay more for the minority than another person.”
In MMAL, the appellants submitted that an assessment of “fair market value” did not permit consideration of any special value that the shares may have had to Mitsubishi. Instead, the focus had to be on the nature of the property itself, namely, a minority shareholding in a holding company with restrictive articles.
Spigelman CJ rejected this submission, stating as follows (at [73], citations omitted):
“In such a situation, valuation is not done on the basis of an estimate of what a third party would pay and then allowing the majority holder one more bid. This is because a vendor in a market, including a ‘fair market’, would know that the majority holder was prepared to pay more and is well placed to bargain for a higher price by refusing to sell. The minority holder would not part with the property unless the majority holder offered a price that was substantially closer to the price the latter would be willing to go up to. The ‘one more bid’ approach does not describe a situation of a ‘willing but not anxious vendor’ in the exchange bargain test.”
“In the present case a ‘fair market value’ must take into account the ‘special potentiality’ or ‘special value’ to Mitsubishi of acquiring 100 per cent of Rentals, thereby ensuring that it does not have to deal with a third party investor, with whom it has no relationship relating to the conduct of the business affairs of its partly owned subsidiary Kingmill.”
In the present case, the Defendants argued that, in determining “market value” the discounts identified by Ms Conoulty should be applied.
However, as Ms Conoulty acknowledged, the relevant market included Mr Donato D’Angola and Mr Mario D’Angola.
Mr Martino’s shares held a special value to Mr Donato D’Angola and Mr Mario D’Angola. The acquisition of those shares would consolidate control of the Azzurri Group in the hands of the two brothers, and would prevent this significant minority shareholding falling into the hands of an unrelated third party, with whom they did not have a relationship of mutual trust and confidence.
The valuation of Mr Martino’s shares either on the basis that they were acquired by an unrelated third party who would only pay a price that included a discount for lack of control and lack of marketability, or on the basis that they were acquired by Mr Donato D’Angola and Mr Mario D’Angola for “one more bid” above the amount that such a third party would offer, would not result in a fair market value, because it would fail to take into account the position of “a willing, but not anxious, vendor”. In particular, such an approach would fail to take into account that, in an open market which included Mr Donato D’Angola and Mr Mario D’Angola, “a willing, but not anxious, vendor” would refuse to sell the shares to Mr Donato D’Angola and Mr Mario D’Angola for a price which represented a substantial discount to the value of those shares in their hands.
In MMAL at [74]-[75], Spigelman CJ made the following observations:
“As Cozens-Hardy MR said in Inland Revenue Commissioners v Clay [1914] 3 KB 466 at 472:
‘… To say that a small farm in the middle of a wealthy landowner's estate is to be valued without reference to the fact that he will probably be willing to pay a large price, but solely with reference to its ordinary agricultural value, seems to me absurd. If the landowner does not at the moment buy, landbrokers or speculators will give more than its price agricultural value with a view to reselling it at a profit to the landowner.’
This represents the operation of a market and does so even if called greenmail. This is not an exception to the exchange bargain test established by Spencer. It is an application of the test involving the determination of how a willing vendor of a minority interest would behave.”
In the present case, the Shareholders Agreement did not, as in MMAL, use the term “fair market value”. However, as outlined above, Spigelman CJ regarded the term “fair” as conveying an assumption that “there is no impediment to the process of bargaining, whether in terms of availability of information or restraints arising from the characteristics of a particular vendor or purchaser or otherwise”.
I consider that a similar concept is conveyed by the reference, in clause 13 of the Shareholders Agreement, to the “open market”.
In Northern Territory v Mr A. Griffiths (deceased) and Lorraine Jones on behalf of the Ngaliwurru and Nungali Peoples (2019) 269 CLR 1; [2019] HCA 7 at [251], Edelman J referred to MMAL at [73]-[75] in observing that the principle enunciated by Cozens-Hardy MR in the passage quoted above is “now well established”. In making this observation, his Honour also referred to Earl Cadogan v Pitts [2010] 1 AC 226 at 266. In the cited passage, Lord Hoffman was considering the Leasehold Reform Act 1967, which provided that the price payable for a house should be the amount which, on certain specified assumptions, it would be expected to realise if sold on the open market. His Lordship made the following observations regarding the meaning of the phrase “the open market”:
“The open market means everyone who could reasonably be expected to be interested in buying. Among these potential purchasers there will sometimes be one or more to whom the property would be worth more than to others. In Inland Revenue Comrs v Clay [1914] 3 KB 466, 472, Sir Herbert Cozens-Hardy MR gave the example of a small farm in the middle of a wealthy landowner’s estate. Such potential purchasers are sometimes called ‘special purchasers’. It is well established that the additional value to a special purchaser must be taken into account in estimating what the property would fetch in the open market. …”
Having regard to the circumstances of this case, and consistently with the reasoning in MMAL and the principles outlined above, a willing, but not anxious, vendor of a 13.89% shareholding in Azzurri Concrete as at the Valuation Date would recognise that this shareholding held special value to Mr Donato D’Angola and Mr Mario D’Angola, above the amount that a third party would pay for a minority shareholding in a privately held company. Such a seller would not part with the shareholding for the price that the unrelated third party would pay, but only for a price closer to the price that the existing shareholders would be prepared to pay in order to avoid the shareholding coming into the hands of an unrelated third party, with whom the existing shareholders did not have any relationship of trust and confidence.
For those reasons, I have determined that, when determining the value of the shares assuming “a sale of the sale shares in the open market”, there should be no discount for lack of control or lack of marketability.
In addition, for reasons given at paragraphs [302]-[309] above, I have determined that no discount should be applied pursuant to clause 13.6 of the Shareholders Agreement, as it is a penalty.
For the reasons set out above, I find that the value of Mr Martino’s 13.89% shareholding in Azzurri Concrete as at the Valuation Date, assuming a sale “in the open market”, was $1.397m.
When the compulsory sale of Mr Martino’s shareholding took place in August 2023, he did not receive this amount, but instead received $234,000.
Mr Martino is entitled, by way of damages for breach of the Shareholders Agreement and by way of relief for the oppressive conduct which I have found, to the difference between the value of his shares as at the Valuation Date and the amount which he received for those shares, being $1.163m.
I will not make any order for judgment at this time. It will be necessary for interest to be calculated from the date when Mr Martino’s shares were transferred to Mr Donato D’Angola and Mr Mario D’Angola (9 August 2023) to the date of judgment. In addition, I will give the parties an opportunity to review the calculations which I have performed above, in order to ensure their accuracy, before any judgment is entered for a particular sum.
As set out at paragraph [7] above:
the Second Plaintiff, 2B6 Enterprises as trustee for the 2B6 Enterprises Trust, holds 18% of the shares in the First Defendant, AGH, which in turn holds 19.44% of the shares in Azzurri Concrete; and
Mr Martino holds 100% of the shares in 2B6 Enterprises and 100% of the units in the 2B6 Enterprises Trust.
Accordingly, Mr Martino has an indirect interest, via 2B6 Enterprises’ shares in AGH, in a further 3.5% of Azzurri Concrete.
AGH’s only significant asset is its shareholding in Azzurri Concrete. Its only significant liability is a loan from Azzurri Concrete in the amount of $3,774,883. (The amount of this liability was the same as at 30 June 2023.)
I have determined that the fair value of 100% of the equity in Azzurri Concrete as at the Valuation Date was $10.056m (see paragraph [422] above). It follows that:
the fair value of the shares held by AGH in Azzurri Concrete as at the Valuation Date was around $1.955m (being 19.44% of $10.056m);
when the liability of AGH to Azzurri Concrete is taken into account ($3.775m), AGH had negative equity as at the end of June 2023; and
therefore, the shares held by 2B6 Enterprises in AGH had no value as at that date.
In closing address, Senior Counsel for the Plaintiffs was asked whether any claim was advanced in respect of the shares held by 2B6 Enterprises in AGH. He indicated that the answer depends on whether those shares have any value, which in turn depends upon the value put on Azzurri Concrete. (He also indicated that he did not disagree with the steps outlined above for determining the value of the shares held by 2B6 Enterprises, once the value of Azzurri Concrete is determined).
The following exchange then took place:
“HIS HONOUR: What relief do you seek in respect of [the shares owned by 2B6 Enterprises in AGH]? Because they're shares that your client still owns.
[SENIOR COUNSEL FOR PLAINTIFFS]: Correct. I say, your Honour, that effectively the appropriate remedy is, if there is any value, for there to be a buyout in relation to those as well.
HIS HONOUR: That depends on establishing an oppression case, does it?
[SENIOR COUNSEL FOR PLAINTIFFS]: It does, but I say that, bearing in mind Mr Martino, who has been effectively removed from all of the affairs of Group, and it's Group that has the value, leaving him in the same rationale for there being a buyout of his shares within Group, the rationale follows that his company should also be bought out of their indirect shareholding in Group that is held via Holdings. The alternative, in my submission, is unattractive. Mr Hyde put in a different context that Mr Martino is left with a minority shareholding in Holdings and therefore an indirect shareholding in Group, which is not a particularly attractive proposition.”
There are two main difficulties with the proposition that the Court should, by way of relief in the oppression case, order that Mr Donato D’Angola and Mr Mario D’Angola buy out the shares held by 2B6 Enterprises in AGH.
First, there is no evidence of the current value of the shares in AGH. That is because there is no evidence of the current value of the shares in Azzurri Concrete. The experts have not considered the value of Azzurri Concrete at any time since the Valuation Date (being 5 June 2023). It follows that there is no basis on which the Court could determine the fair value of the shares in AGH, as at the date of judgment, for the purposes of any buyout order.
Secondly, there is no allegation of oppression in respect of the conduct of the affairs of AGH. I have found oppression in respect of the conduct of the affairs of Azzurri Concrete, but this conduct related to the compulsory sale process adopted in relation to Mr Martino’s shareholding in Azzurri Concrete. This conduct did not affect AGH’s shareholding in Azzurri Concrete and thus did not affect 2B6 Enterprises’ shareholding in AGH. As set out above, Brereton J observed in North Coast Transit at [24] that “the fundamental principle in this area is that the remedy under s 233 is one that must be calculated to alleviate the consequences of the oppressive conduct and no more”. I am not satisfied that an order to buy out 2B6 Enterprises’ shares in AGH (at a price to be determined) would be a remedy that would alleviate the consequences of the oppressive conduct which I have found.
For those reasons, I am not satisfied that any basis has been established for making any buyout order in respect of the shares held by 2B6 Enterprises in AGH.
By the Amended Cross Claim, ACG, Mr Donato D’Angola and Mr Mario D’Angola sought to recover from Mr Martino various amounts, including:
$398,286.39 in respect of personal expenses charged by Mr Martino to Azzurri Concrete’s credit cards (being the expenses set out in the Annexure to the Breach Notice); and
the value of the reward points which were transferred from Azzurri Concrete’s ANZ account to Mr Martino’s personal Qantas frequent flyer account.
On the final day of the hearing, I was informed that the parties had agreed that the cross-claimants should be awarded judgment in the sum of $300,000.
For reasons given above, I will give the parties an opportunity to confer regarding the form of orders to give effect to these reasons for judgment.
The parties also requested that the Court deal separately with the question of costs.
In the event that the parties are unable to agree on the form of orders, including with respect to interest and costs, I will give the parties an opportunity to make submissions on those matters and, unless any party requests an oral hearing, will deal with any such dispute on the papers.
Accordingly, I make the following orders.
Direct that the parties are to bring in short minutes of order by 5pm on 1 October 2025 to give effect to the reasons for judgment.
Direct that, in the event the parties are unable to agree on orders to give effect to the reasons for judgment (including orders as to interest and costs), the parties are to exchange and provide to the Associate to Nixon J, by 5pm on 1 October 2025, the orders which each party proposes, submissions (limited to 5 pages) on those orders, and any evidence in respect of interest and costs, indicating whether, and if so why, an oral hearing is requested to deal with the matters in dispute.
**********
(2015) 90 NSWLR 367
(2009) 238 CLR 304
(2003) 214 CLR 118
(1997) 44 NSWLR 46
(1985) 1 NSWLR 314
(2004) 63 NSWLR 167
(2019) 269 CLR 1
(2016) 258 CLR 525
(2016) 93 NSWLR 231
(1985) 180 CLR 459
(2011) 288 ALR 310
(2002) 125 LGERA 180
(1990) 24 NSWLR 499
(1907) 5 CLR 418
(1998) 196 CLR 494
There are two main disputes to be resolved in this proceeding.
The first dispute concerns the compulsory sale process which led to Mr Martino’s shares in Azzurri Concrete being transferred to Mr Donato D’Angola and Mr Mario D’Angola.
The Defendants contend that this compulsory sale process took place pursuant to, and in accordance with, the terms of a Shareholders Agreement dated 20 October 2015.
The Plaintiffs contend that this compulsory sale process did not comply with the Shareholders Agreement, and that the affairs of Azzurri Concrete (in particular, so far as concerns this process) were conducted in a manner that was oppressive to Mr Martino within the meaning of s 232 of the Corporations Act 2001 (Cth) (the Act).
The second dispute concerns the price for which Mr Martino’s shares were sold to Mr Donato D’Angola and Mr Mario D’Angola.
The Defendants contend that the shares were sold at a price which was determined by an independent valuer appointed under the Shareholders Agreement, and that no basis has been established (in accordance with the principles in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314) for setting aside that determination.
The Plaintiffs contend that the valuer’s appointment did not comply with the terms of the Shareholders Agreement, and that the valuer was provided with incomplete information regarding the financial position of Azzurri Concrete. Further, the Plaintiffs contend that Mr Martino’s shares were transferred at a price significantly below their fair value.
The parties led expert evidence regarding the “fair value” (and the “market value”) of Mr Martino’s shares in Azzurri Concrete as at June 2023. This evidence is central to the determination of Mr Martino’s claim, as the only remedy which is sought in respect of each of his various causes of action is the difference between the price he was paid for his shares and their “fair price” or their “true market value”.
A number of other issues were resolved either prior to, or in the course of, the hearing. In particular:
the Plaintiffs confirmed, in their opening address, that Mr Martino did not press any claim for loss of dividends, salary or superannuation;
the parties agreed that the Plaintiffs were entitled to the sum of $124,292.50 in relation to the sale of certain properties owned by Balli Constructions (the Court was informed, on the last day of the hearing, that this sum was being transferred to the Plaintiffs); and
the parties agreed that Azzurri Concrete, Mr Donato D’Angola and Mr Mario D’Angola were entitled to judgment in the sum of $300,000 in respect of their cross claim against Mr Martino (which is referred to at paragraphs [104]-[105] below).
Although Mr Martino had provided Mr Donato D’Angola and Mr Mario D’Angola with a draft letter which suggested that he would be leaving on 25 January 2023, he appears to have changed his position at the meeting with them on that day. Mr Donato D’Angola agreed in cross-examination that Mr Martino indicated at the meeting that he “wanted to stay a part of the business until the issue of the buyout of his shares had been agreed”.
However, in February 2023, Mr Donato D’Angola instructed Mr Martino that he should not come onto the business’s premises and, from around that time, Mr Donato D’Angola ceased to provide him with any further information in relation to the business. Mr Mario D’Angola agreed that, by this time, he had decided that Mr Martino “had to leave the business”, adding: “I did not want him to be shareholder in our business no more”.
There was a factual dispute as to whether Mr Martino chose to leave the business or was, in effect, pushed out by Mr Donato D’Angola and Mr Mario D’Angola. However, it is unnecessary to resolve this dispute since, in opening written submissions, the Plaintiffs accepted that “probably nothing turns on this”.
On 7 and 8 August 2023, Mr Martino’s solicitor sent letters to the Defendants’ solicitors, raising issues regarding the process which had been adopted in respect of Mr Martino’s shares and regarding the Bizval Valuation.
Clause 12.3 of the Shareholders Agreement provided that, within five days of the sale price being determined pursuant to clause 13, the Board must offer for sale to each shareholder (other than the seller) a number of the sale shares proportionate to their shareholding in Azzurri Concrete. Clause 12.5 provided that if all of the sale shares were not accepted under this “Round 1” offer, then the Board must re-offer the sale shares to those shareholders who accepted the “Round 1” offer (proportionate to the number of the shares held by each accepting shareholder divided by the number of shares held by all accepting shareholders). Mr Donato D’Angola and Mr Mario D’Angola (but not AGH) accepted the sale shares offered to them, resulting in half of the shares that were previously held by Mr Martino being transferred to each of them.
On 9 August 2023, the Defendants’ solicitors wrote to the Plaintiffs’ solicitor, stating that the shares previously held by Mr Martino had been transferred to Mr Donato D’Angola (as to 50%) and Mr Mario D’Angola (as to 50%), with each paying $117,000, and that this amount was being held by their solicitors on trust for Mr Martino.
It is difficult to see how clause 16 could operate to require the parties to undertake a process of negotiation and mediation before commencing any proceeding in respect of the validity of the Breach Notice in circumstances where the party serving the dispute notice had already commenced a proceeding in respect of that same issue.
Further, clause 16.9 provides that: “For the avoidance of doubt, the existence of a Dispute does not alter either party’s respective other obligations under this Agreement.” In circumstances where, as I have found, Mr Martino had in fact breached the Shareholders Agreement and had failed to rectify that breach within 30 days after a notice from another shareholder requesting that breach to be remedied, clause 19.1.1 applied, and Mr Martino was deemed to have issued a transfer notice in accordance with clause 11.5. This in turn gave rise to the procedure in clauses 12 and 13.
There is nothing in clause 16 which indicates an intention that the operation of clause 19.1.1 (or clauses 11.5, 12 and 13) be suspended in circumstances where a dispute notice was issued by Mr Martino.
Further, within one week of Mr Martino issuing his Breach Notice Response (and thereby giving notice of a dispute under the Shareholders Agreement), Mr Martino agreed to the June 2023 Orders, which dismissed his application for an interlocutory injunction restraining the compulsory sale process, on the basis of an undertaking by Mr Donato D’Angola and Mr Mario D’Angola that, if Mr Martino established his claims for breach of the Shareholders Agreement (including the invalidity of the Breach Notice) or for oppression, they would pay him any difference between the amount that was paid to him for his shares and the amount to which he was determined to be entitled for those shares (see paragraph [86] above).
For those reasons, I am not satisfied that the statement in the Breach Notice Response that Mr Martino was, by that document, giving notice of a dispute under clause 16 is of any consequence for the matters in dispute. In particular, given the matters outlined above, I do not consider that the issuing of any dispute notice meant that no steps could be taken under clauses 12 and 13 of the Shareholders Agreement until this dispute was resolved.
Fourthly, according to the ASIC register, Mr Martino only ceased being a director on 21 August 2023.
Fifthly, and consistently with the ASIC register, the financial statements for Azzurri Concrete for FY23, which are signed by each of Mr Donato D’Angola and Mr Mario D’Angola, record that Mr Martino was appointed as a director on 2 June 2023 and “Resigned 21/08/2023”.
For those reasons, I have determined that Mr Martino remained a director of Azzurri Concrete on 9 June 2023. It follows that the circulating resolution appointing Bizval, which was signed by Mr Donato D’Angola and Mr Mario D’Angola on 9 June 2023, was invalid and of no effect, as it was not signed by all of the directors of Azzurri Concrete.
It also follows that there was not, within the meaning of clause 13 of the Shareholders Agreement, any “Agreement” by “the Board” to the appointment of Bizval and, accordingly, the Bizval Valuation was not a valuation that was provided in accordance with the terms of the Shareholders Agreement.
Given those findings, it is unnecessary to resolve, for the purposes of the breach of contract claim, the question as to whether there was some other basis to conclude that the Bizval Valuation did not comply with the Shareholders Agreement. Nonetheless, I address this issue below, in particular, because the oppression claim relied, in part, on the Defendants’ conduct in relation to the Bizval Valuation and also because the Plaintiffs, in addressing this issue, made a number of submissions regarding the financial statements of Azzurri Concrete, which need to be resolved for the purposes of the valuation issues.
Thirdly, Mr Mario D’Angola annexed to his affidavit a copy of his text messages with Mr Shenouda. This string of messages indicates that, after October 2024, there were no texts between Mr Shenouda and Mr Mario D’Angola until 31 March 2025, when the following exchange occurred:
Mr Shenouda sent to Mr Mario D’Angola a copy of the Bespoke Subpoena which he had received from the Plaintiffs, and asked: “Hope you’re well, what’s this nonsense?”; and
Mr Mario D’Angola responded: “Not sure why your being subpoenaed. But that’s from his lawyers not mine”.
There were no further text messages between Mr Mario D’Angola and Mr Shenouda after this exchange. There is nothing in this exchange to suggest that Mr Mario D’Angola had any concern about the Bespoke Subpoena, let alone that he gave Mr Shenouda any instruction in relation to compliance with that subpoena.
Fourthly, Bespoke produced documents to the Court in response to the Bespoke Subpoena on the day after this exchange, namely, 1 April 2025. That is inconsistent with Mr Mario D’Angola having given any instruction to Bespoke not to do so.
Fifthly, Mr Karpouzis gave evidence, in cross-examination, that he was aware that Bespoke had been subpoenaed to produce documents, and that he had a discussion with Mr Donato D’Angola and Mr Mario D’Angola, to the effect that: “we were waiting to see what documents [Mr Shenouda] would produce”. He was not aware of any instruction being given to Mr Shenouda by Mr Mario D’Angola regarding the Bespoke Subpoena.
Having regard to those matters, I accept Mr Mario D’Angola’s denial that he gave any instruction to Mr Shenouda along the lines of Mr Shenouda’s statement to Mr Laface.
Having regard to those matters, I am not persuaded that any reliance can be placed on the figures in the Bespoke FY23 Report, or that any sufficient reason has been established not to accept the figures in the Signed FY23 Report as accurately recording Azzurri Concrete’s financial performance for FY22 and FY23.
Finally, so far as the allegations concerning Bizval are concerned, the Bespoke FY23 Report does not appear to have come into existence until either September 2023 (when it is dated) or May 2024 (when it is attached to Mr Hiue’s email), and therefore was not available at the time Bizval provided its valuation (in July 2023). Accordingly, even if I had been persuaded that the Bespoke FY23 Report accurately recorded the financial performance of Azzurri Concrete for FY23, the information contained in that report could not have been, within the meaning of clause 13 of the Shareholders Agreement, information that was “available … at the time” that the Bizval Valuation was prepared.
For those reasons, I reject the Plaintiffs’ contention that the failure to provide the Bespoke FY23 Report to Bizval meant that its valuation was not “based on the best available information at the time”, as required by the Shareholders Agreement.
The nature of the remedy chosen for oppressive conduct depends upon the conclusions reached as to the nature of the oppressive conduct. The remedy chosen should be the least intrusive, with the “flavour of the section” being “that the court is only to give the remedy which removes the oppression”: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688 at 742; [1998] NSWSC 413 (Young J).
In circumstances where Mr Martino’s shares have already been purchased by Mr Donato D’Angola and Mr Mario D’Angola, the appropriate remedy for the oppressive conduct is to award Mr Martino the difference (if any) between the price at which his shares were purchased and the value of those shares at the relevant time. I deal below with the question of how this value is to be determined, including whether the appropriate measure is “fair value” or “market value”.
In circumstances where I have found that Mr Martino’s “simple oppression case” regarding the process leading to the compulsory sale of his shares has been established, it is unnecessary to consider the broader (and more unspecified) oppression case relating to Mr Martino’s exclusion from the business, both before and after he announced in January 2023 his intention to sell his shares in Azzurri Concrete. That is particularly so where no different or other remedy was sought in respect of such oppression other than the remedy to which I have found that Mr Martino is entitled in respect of the oppression case which has been established.
In cross-examination, the main criticism levelled against Ms Conoulty’s methodology was that it involved giving the same weight to FY20 as to each of FY21, FY22 and FY23. Ms Conoulty was taken to documents in respect of the Hanson offer, indicating that KPMG had expressed the view that FY20 should be excluded from the valuation analysis because the business had changed since that time, and indicating that Hanson appears to have increased its offer on this basis (see paragraphs [44]-[52] above). Ms Conoulty had not previously seen these documents.
It was put to Ms Conoulty that these matters “suggest … that in considering the future maintainable revenue, as at the middle of 2023, the years for you to be looking at would be [FY]21, [FY]22 and [FY]23”, rather than FY20. Ms Conoulty responded that between the time of the dealings with Hanson and the Valuation Date “things had changed quite significantly”, such that she did not accept that “no regard” should be paid to the FY20 results. In particular, Ms Conoulty referred to the fact that, since the Information Memorandum was prepared by KPMG, the business had become “a lot more volatile”, with “actual losses in the last two years” (namely, FY22 and FY23). Ms Conoulty’s views regarding the significant deterioration in Azzurri Concrete’s financial performance since August 2022 were supported by Mr Clifford. He agreed that KPMG had “failed miserably” to predict Azzurri Concrete’s financial performance in FY22 and FY23, with the actual revenue achieved being “significantly less” than had been predicted, such that the forecasts in the Information Memorandum proved “wildly inaccurate”.
Mr Clifford made a number of concessions in cross-examination which diminish the weight that can be placed on his assessment of future maintainable revenue, and his view that there was a trend of increasing revenue. In particular, Mr Clifford:
agreed with Ms Conoulty that (by reason of the impact of the COVID-19 pandemic and extraordinary weather events, which had the effect of delaying projects and pushing revenue from FY22 into FY23) FY22 and FY23 should be taken together, with the revenue achieved over those two years being apportioned equally between them;
agreed that, as a result, the revenue of Azzurri Concrete was around $102m per year for the three financial years prior to the Valuation Date; and
agreed with the following series of propositions: