In the matter of Optimisation Australia Pty Limited [2018] NSWSC 31

In the matter of Optimisation Australia Pty Limited [2018] NSWSC 31 | Case summary | Zoe

Establishment of Optimisation

Brian, whose background and skills were in sales, had worked for Yellow Pages and in the online sales and marketing industry, including in his own company Xpand Enterprises Pty Limited, which sold websites. In 2003, he commenced a business selling spas, through a trading entity called "Affordable Aussie Spas Direct". Having first met his brother-in-law Gary in 2002, he used Orchard's offices after hours, for telemarketing. He did not pay rent, although according to Gary he was supposed to log calls and reimburse Orchard for them.
In 2004, Brian's employment with Sensis (Yellow Pages) was terminated, by reason that Brian was placing advertisements for his side business (Aussie Spas) for which he did not pay.
In late 2005, Brian and Gary discussed commencing their own business of selling websites. Brian and Gary agreed that they would together establish such a business through a company, in which Brian would hold 51% and Gary 49%. Gary recognised that such sales could only be effected face-to-face, and that Brian was a good salesperson. That Brian would be employed in the business, as a salesperson, was a fundamental assumption from the outset: Gary gave the following evidence: Q. And so between the two of you, you agreed that you would set up this new venture, a new venture that had Brian running the front office, being the man going out, had to close the deals, and that you being the back office, basically being responsible ultimately for insuring that the deal that had been closed was performed. Correct? A. Correct. Q. On that basis, on that fundamental basis, you decided to enter into a business relationship with Mr Kearney. Correct? A. Correct.
And so the company was incorporated, initially under the name Web4site Pty Limited, on 31 October 2005, through the services of Kidmans Chartered Accountants, an accounting firm with which Gary had a prior relationship, where the principal contact was Mr Rex Miller. Brian and Gary were the only directors and secretaries. Initially, there were 100 issued shares, of which Brian held 51, and 49 were held by Sharmark as trustee of Gary's family trust; the trust structure was apparently adopted by Gary on the advice of Mr Miller for tax effectiveness, and Sharmark had earlier been constituted the trustee of Susan's family trust. According to Gary, he agreed that Brian would be the majority shareholder because he would be making the business work and bringing in the sales.
In January 2006, Gary and Brian agreed to open a bank account for the company, and on 18 January 2006, they attended at the Coogee branch of Westpac to open a trading account. The circumstances surrounding the opening and subsequent operation of that account are a matter of controversy, to which it will be necessary to return.
During this period, Brian did some work for Pink Pages (Dawson Media), who were selling "pay per click" services.

[3]

Operations commence

The company began trading in March 2006, operating (with Gary and Susan's agreement) from Orchard's Coogee premises. There was no suggestion at that point of Orchard making any charge for the use of its facilities. The company initially sold editable websites, then added Google AdWords (a service that enabled an advertisement for the client's business to appear on the results page when a Google search using specified keywords was generated), and then online video productions (to advertise clients' businesses online to customers and potential customers). In mid to late 2007, the company trialled and then introduced a new product, called search engine optimisation (SEO), which enhances a website so that it will be promoted to a higher (more prominent) position on the results of a search using particular keywords.
From the commencement of operations on 1 March 2006, both Gary and Brian were employed by the company. Gary was the operations manager, responsible for financial and administrative management, and was employed on an annual salary of $100,000 fulltime equivalent (FTE), to be prorated according to the actual hours he worked as a proportion of full-time employment (given that he continued to also work for Orchard). Brian was responsible for sales, and was remunerated with a 20% commission, plus a 2% bonus commission for monthly sales in excess of $60,000.
When operations commenced in March 2006, Brian initially endeavoured to arrange his own appointments, by "cold-calling" from the Coogee office to make appointments with prospective customers. However, he did not enjoy this, and Susan agreed to use Orchard telesales staff for this purpose, at least until Optimisation was in a position to retain its own telemarketers. As a result Susan, whose expertise was in telemarketing and drafting scripts, was employed by the company from March 2006, to oversee the telemarketers. She also continued to work for Orchard. The arrangements in respect of her remuneration, from the outset and subsequently, are a matter of controversy, and are considered below.
Under these arrangements, telemarketers employed by Orchard would telephone potential customers (including from Orchard's client base of over 6000 clients) to arrange appointments for Optimisation's sales representatives - including in particular Brian - to make presentations to those potential customers and secure sales. There is a significant dispute about the commercial arrangements by which Orchard's telemarketers were used by Optimisation: Brian contends that it was agreed that Orchard would be paid $15 per hour for such telemarketing services, being the wage cost to Orchard of hiring such telemarketers; whereas Gary and Susan say that a rate of $50 per hour for telemarketing costs was agreed. In any event, from mid-2006, Orchard invoiced, and was paid, at the rate of $50 an hour, and this is the subject of complaint by Brian, who says that he was unaware of it, and that it was contrary to the agreed arrangements and uncommercial.
Also in March 2006, Gary and Brian agreed that Gary's personal credit card would be used to pay for company expenses when a credit card was required, at least until Optimisation was in a position to procure its own. Brian now raises as an issue the personal benefit Gary derived from the reward points earned from the use of his credit card for the purposes of the company.

[4]

Share restructure

In May 2006, the company retained a second on-road sales consultant, Kelly Hyde. With this, from 15 May 2006, Susan's role expanded, so that in addition to managing the telemarketing team, there was also a second salesperson to manage, and with it a requirement to double the number of appointments generated by the telemarketing team.
At about this time, Gary, Susan and Brian agreed to a share restructure, at least in part on account of Susan's increased role. Gary says that when at the outset he agreed to Brian having a 51% shareholding, he did not know how much of his time Optimisation would require, or whether it would be successful. Brian says that Gary and Susan threatened that if he did not agree, use of Orchard's premises and personnel might be withdrawn. This need not be resolved, as there was no challenge to the consequent restructure, the outcome of which was that, with effect from 30 June 2006, there were 1000 ordinary shares and 100 D Class shares, of which Brian held 350 ordinary shares and 35 D Class shares; Gary owned or controlled 330 ordinary shares and 33 D Class shares (281 ordinary shares were held in his own name, and 49 ordinary shares and 33 D Class shares were held by Sharmark as trustee for his family trust); while Susan owned or controlled 320 ordinary shares and 32 D Class shares (320 ordinary shares being held in her own name, and 32 D Class shares held by Sharmark as trustee for her family trust). That remains the shareholding structure to today. The rights attached to the ordinary and D Class shares differ only in respect of the right to receive notice of and vote at meetings of members; D Class shares carry no such rights. Otherwise, they enjoy the same rights as ordinary shares to receive dividends and return on capital. In substance, therefore, Brian owned (and continues to own) 35%, Gary 33% and Susan 32% of the company.
The directorships did not formally change at this time, and Brian and Gary remained the only formally appointed directors until April 2013. However, whether or not this was, as the defendants contend, an "oversight", Susan was thereafter treated as if she were a director, and Brian regarded her as such.
From July 2007, the company employed a telemarketer of its own, but continued also to use Orchard's services. In November 2008, Orchard and the company moved offices; since December 2008 both have operated from premises in the Westfield Centre at Eastgardens. At the same time, the hourly rate at which Orchard invoiced Optimisation for telemarketers decreased from $50 to $30.
In August 2010, the company hired Paul McElroy as general manager. He was succeeded, from February 2011, by Paul Pearson, whose responsibilities as general manager included management of Optimisation's day-to-day operations. Mr Pearson remained until December 2011.
In February 2011, Brian had spinal fusion surgery, which resulted in him being able to work only on a limited basis for approximately six months. After he recovered, he continued to work for the company as an on-the-road sales representative. From about 1 June 2011, in circumstances described later, his remuneration changed from commission, to a salary of $100,000 - the same as the remuneration package for each of Gary and Susan at that time.
The company, which changed its name from Web4site to Optimisation Australia on 12 May 2011, was increasingly profitable, and progressively expanded: Year Turnover Turnover Change Profit 2006 $120,934 N/A $36,126 2007 $559,493 +362.64% $10,477 2008 $774,983 +38.52% $53,578 2009 $1,123,305 +44.94% $225,792 2010 $1,270,330 +13.09% $331,431 2011 $1,501,035 +18.16% $474,603

[8]

The relationship breaks down

From about early 2013, prior to Gary and Susan returning from England to Australia, difficulties in the relationship between Brian on the one hand and Gary and Susan on the other became manifest. There were multiple facets to this. In particular, Brian claims to have sought for several years to have on-line access to Optimisation's bank accounts with Westpac, in order to be able to review transactions, but such access was resisted, or at least not facilitated, by Gary and Susan. Next, in early 2013, Gary and Susan sought to appoint Mosaic Financial in place of Altus Financial (Rex Miller) as Optimisation's external accountants, as well as acting as their personal accountants; Brian opposed this, proposing the appointment of an independent accountant for Optimisation. Thirdly, Brian did not have a happy working relationship with the general manager Ms Hewitson. On the other hand, Gary and Susan claim that his role as an on-the-road sales consultant was becoming redundant, and that he refused to undergo necessary training to perform his role, or to re-role.
Susan returned to Australia from England on 15 February 2013, and on 21 February or thereabouts, Susan and Brian met; Susan says that they discussed Brian's role, GetCubed and sales; while Brian says that the retainer of Mosaic - and his opposition to it - was the main topic.
Gary returned to Australia from England on 14 March 2013. The following day, 15 March 2013, Gary, Susan and Brian had a meeting at a restaurant in Brighton Le Sands. Three main issues were discussed: first, whether Brian would be coming into the office more regularly (as distinct from being "on-the-road"), as Gary and Susan were seeking; secondly, the signing of the requisite authority for Brian to access the Westpac account; and thirdly, who would be the accountants (in particular, whether it would be Mosaic, as Gary and Susan proposed). Gary signed the Westpac authority, although there is some dispute as to how willingly this was done. Although there is dispute as to whether (as Brian says) it was agreed that Mosaic would not be engaged as accountants, it is common ground that there was agreement that alternatives would be considered. As to Brian's working from the office, Gary and Susan say that Brian agreed that he would work from the office; and Brian accepts that he agreed that he would at least occasionally come into the office, but says that all agreed that, given his difficult relationship with Ms Hewitson, it would not be sensible for him to be there fulltime.
Despite this, the very next day - Saturday 16 March - Gary and Susan demanded an "exit strategy" as they said they no longer wished to be associated with Brian. On 17 March 2013, Ms Hewitson resigned as general manager - although she continued to work, casually and remotely, until 19 September 2013, to assist where required.

[9]

Brian is terminated

Brian did not do any significant work in February, March or April, due to the dispute. On 4 April 2013, Gary and Susan caused to be issued a notice of a meeting of members of Optimisation, to be held on 29 April 2013, to remove Brian as a director of Optimisation and to appoint Susan in his place. On 24 April, Yates Beaggi (then acting for Brian) wrote to Diamond Conway (for Optimisation), foreshadowing an oppression suit and requesting withdrawal of the notice of meeting.
Given the then hostile relationship, Brian did not attend the meeting on 29 April 2013, which was held at 09.00am. Gary and Susan did not remove Brian as a director, but they voted to appoint Susan as a director, and thereafter Gary and Susan controlled the board of Optimisation. At 10.30am the same day, 29 April 2013, Susan sent an email to Brian, informing him that a directors' meeting had been called "for tomorrow morning, to discuss HR and operational issues that need urgent attention". Although Gary and Susan admit that their purpose and intention was to dismiss Brian as an employee, the notice did not include any proposed resolution to that effect, nor any direct allusion to Brian's dismissal or redundancy.
Again, due to the tension between the parties and the likelihood that things may have become heated in the small meeting room, Brian did not attend the directors meeting on 30 April 2013. Gary and Susan resolved to dismiss Brian as an employee, on the basis that his position as sales consultant was redundant. At the same meeting, Gary was appointed as managing director, and Mosaic Financial Group were appointed as accountants. At 4.16pm that day, Susan sent Brian, by email, notice of his termination for redundancy. Brian disputes that the role of an on-road sales representative was redundant, and contends that the pretence of redundancy was a sham to justify his removal. On 19 June, Brian was paid $9,526.90 termination pay (less PAYG withholding of $2,665), calculated as $1,834.59 annual leave, $7,692.31 pay in lieu of notice, and $857.42 superannuation guarantee.
Having been appointed Managing Director on 30 April, Gary then resigned from his employment with Optimisation on 6 May 2013, with effect from 31 May, although he claims to have continued to work thereafter, unpaid. Susan's was thereupon appointed general manager, and her salary increased from $100,000 to $150,000 per annum.

[14]

Gary

Gary's evidence was replete with departures from or inconsistencies with his earlier (affidavit or oral) evidence, reversals, inconsistencies with contemporaneous documents, and avoidance of directly answering questions. Many instances are referred to below, in the context of particular issues; it suffices to refer to a few examples here.
First, the version Gary gave orally as to whether he was paid for annual leave so differed from that which he had given on affidavit that he conceded that the latter was completely wrong. This was not the only occasion on which he would acknowledge or assert that his affidavit evidence was incorrect: another instance was the explanation he proffered for Susan's salary increasing to $80 per hour from 1 July 2006.
Secondly, he misleadingly said that he "now" knew that Brian had not attended 70% of a full load of appointments, when in fact he knew from the outset that he had not done so for June 2011.
Thirdly, his evidence as to the times their child Mia was in day care fluctuated to suit the circumstances.
Fourthly, he variously denied and asserted that he had any conversation with Brian in relation to the opportunity cost to Orchard of providing telemarketing services to Optimisation.
Fifthly, he quite falsely suggested that Brian had "just copy and pasted from Steve Hickey's mail" to secure a sale to Pool & Spa, when there was no such "cut and paste", and in fact the sale in question was negotiated in a conversation by Brian.
Sixthly, he could not bring himself to allow Brian the credit for achieving the superior results for FY2012/13, in particular through signing Tile Megamart as a GetCubed client.
Seventhly, he evaded responsibility for appointing Susan as managing director notwithstanding her alcoholism, by asserting that it was not his role, but that of a doctor, to form an opinion as to her capacity.
Eighthly, although he had written to a social worker on 7 May 2014 that Susan's alcohol issues had impacted on the business, financially and legally, for two and a half years, he first said that he did not recall saying that; next, that Susan felt that her alcoholism had been a catalyst for the dispute and felt guilty; and then, that he did not necessarily mean that it had had a detrimental impact on the business - which in its context is unbelievable.
Ninthly, he at first denied that he had told Brian in December 2014 that Sophie was performing the role of an on-the-road salesperson, but then said that what he said was misinterpreted, and eventually accepted "absolutely" that he told him that she was meeting with clients face-to-face - although he denied that she was "on-the-road", as she was office-based.
Tenthly, although in the course of seeking an opinion as to Susan's fitness he had told Dr Montebello that her duties included training and managing the on-road sales staff, he first did not recall it, then said that it was incorrect, and "I don't know why I put that in there. That's a mistake".
Eleventhly, he denied that Susan was attending work drunk and that this was commented on by staff, until shown his own letter to Dr Montebello on 28 April 2014, in which he had written just that.

[15]

Susan

It was noticeable that, in her oral evidence, Susan could not bring herself to refer to her brother by name; she consistently referred to him as "the plaintiff", and although that might be strictly correct, in the context that she referred to Gary (strictly, "the second defendant") by name, this is illustrative of her animus towards Brian. Her evidence, too, was peppered with inconsistencies and reversals, examples only of which are referred to below.
Susan verified a defence in which she pleaded that her salary for the period 1 March 2006 to 31 May 2006 was $50,000 prorated, but in oral evidence said that this was not correct, and that the instructions for it did not come from her. When asked from whom else those instructions could have come, she first said that she took responsibility for it; but then that the solicitors would have information, and that she would not have signed the affidavit verifying had she picked it up.
She asserted that it was agreed from early 2011 that Brian would work based from the office, although still go out "on-the-road". She said that this was to commence when he returned from his injury in June 2011. However, despite her protestation that there was some reference to this in her affidavit evidence, there was none.
She maintained, with certainty, that the notice of meeting of 4 April 2013 to remove Brian as a director was given when it appeared that Brian had removed $1000 from the bank account, and she and Gary formed the opinion that Brian was not acting in the interests of the company. As that withdrawal was not made until 1 May, that evidence could not have been correct. When documentary evidence to that effect was shown to her, her explanation was "this is the first time I've seen this email". This is a matter of considerable significance, because it involves the invocation of a patently false basis for the decision to launch steps for Brian's removal.
She repeatedly and unresponsively made the point that Brian had spent 59 minutes on the phone to her complaining about Sharmark, and alleging that Gary had established it to "rip him off" when in fact she had established before meeting Gary - a complaint which was abandoned on behalf of the plaintiff before the hearing (although Brian did say that he abandoned it on advice, and for himself still considered it serious).
When shown an email with the financial results for December 2012, she at first said that she was on the plane coming back to Australia at the time of this email, but she was compelled to retract this. While not much turns on this of itself, it is illustrative of her tendency to seek a means to avoid being implicated in communications, and to shift responsibility to Gary - of which other instances are referred to below.
Frequently, Susan did not attend to the questions asked of her, but focussed on giving her point of view. She appeared to avoid the point of questions directed to her. Her responses were often over-inclusive, and manifested not merely a need to explain, but a determination to convey her position. She tended to put her own gloss or interpretation on any communication about which she was asked. She did not give direct answers to questions, and avoided making admissions when they were plainly called for, at least without being taken to and checking documents. She seemed incapable of appreciating the possibility that there might be an alternative perspective.

[18]

Oppression

Under (CTH) Corporations Act 2001, s 232, the Court may make an order under s 233 if the conduct of a company's affairs, or an actual or proposed act or omission by or on behalf of a company, or a resolution (or a proposed resolution) of members or a class of members of a company, is either contrary to the interests of the members as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members, whether in that capacity or in any other capacity. The phrase "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" is a compound expression, [7] and I will use "oppressive" as shorthand for that expression. It refers to conduct that involves commercial unfairness, which is to be assessed in the context of the particular corporation and relationship in issue. The question is whether it can be said, in the light of the nature of the company's business and affairs and the relations between its participants, that the impugned conduct is, "objectively in the eyes of a commercial bystander … so unfair that reasonable directors who consider the matter would not have thought the decision fair", [8] or in other words, whether that conduct, considered in light of all of the relevant circumstances, is "inequitable or unjust". [9] A decision to impose a disadvantage, disability or burden on the member affected that, according to ordinary standards of reasonableness and fair dealing, is unfair, amounts to oppression. [10]
One common species of oppression is the removal of a shareholder from a salaried position, even though it might be a valid exercise of the legal powers of the majority of the directors, where participation in the company was on such a basis that the shareholder/employee had a legitimate expectation that he or she would be employed by the company - particularly where the shareholders derive economic benefits from the company exclusively or substantially via salaries rather than by dividends. [11] Another species of oppression is where the directors or majority shareholders conduct the affairs of a company in a way that advances their own interests or the interests of others, to the detriment of a minority shareholder. [12]

[20]

Issues

At the forefront of Brian's oppression case is the termination of his employment, in the absence of a reasonable offer to acquire his shareholding, and upon a pretence that his position had become redundant, in response to his legitimate requests for more information concerning the ongoing financial position of Optimisation and its management (including access to the Westpac account), and seeking to avoid a potential for conflict of interest on the part of Optimisation's accountant (by opposing the appointment of Mosaic).
Additional matters ultimately relied upon by Brian as constituting oppression [16] relate to the receipt by Gary and Susan, directly and indirectly through Orchard, without Brian's knowledge or approval, of excessive and uncommercial emoluments and benefits from Optimisation, in particular: 1. Gary's salary. Brian contends that whereas Gary, while working part time for Optimisation (and continuing to work for Orchard) from March 2006 to about June 2008 (when he commenced working full time for Optimisation), was to receive a pro rata salary based on a $100,000 FTE salary, he worked only between 40%-70% of his time for Optimisation during that period, yet drew $101,667 and $101,150 respectively for the financial years 2007 and 2008, and thereby overpaid himself for these years a total of approximately $90,000. Further, while overseas until his return on 14 March 2013 he was entitled to a half salary only, becoming entitled to a full-time salary of $100,000 only following his return, yet paid himself for the month of March 2013 a first payment of $4,166.67 and a further payment of $8,333.33, an overpayment of approximately $6,250; 2. Susan's salary. Brian contends that during the period 1 July 2007 to 30 June 2011, Gary paid Susan remuneration at rates which exceeded those that had been agreed with Brian, and that during the periods while she was in England between June 2011 and January 2012, and between July 2012 and February 2013, he paid her a half salary, notwithstanding that it had been agreed that she would not work and would receive no pay; 3. Gary's credit card. Brian contends that by using his own credit card to pay for Optimisation's expenses, Gary received the personal benefit of the reward points, which ought to have been for the benefit of Optimisation; 4. Orchard's fees. Brian contends that whereas he and Gary agreed, prior to Optimisation commencing operations in March 2006, that Orchard would provide telemarketing services to Optimisation at the rate of $15 per hour per telemarketer, Gary without his knowledge or approval caused Orchard to charge Optimisation for telemarketing services at the rate of $50 per hour from March 2006 to 31 December 2008, and at the rate of $30 per hour from 1 January 2009 to 30 June 2011, and that those rates unfairly and unreasonably benefitted Orchard to the detriment of Optimisation, to the extent of $207,708.75; 5. Gary's reinstatement and back pay. Brian contends that the resolutions of 16 September 2014 to reinstate Gary, who had resigned with effect from 31 May 2013, as an employee, and to pay him $136,128.66 back pay for the periods 14 March 2006 to 31 May 2006 and 1 June 2013 to 16 August 2014, would have authorised paying him for a period in respect of which he was not entitled to recover such moneys, and for a period when he was not employed by Optimisation (after his resignation); 6. Payment of defence costs. Brian contends that the resolution of 16 September 2014 to pay $150,000 in advance to the defendants' solicitors in respect of these proceedings, would have authorised the application of the company's resources to fund the majority to resist Brian's claim; 7. Susan's sick leave. Brian contends that Susan has received paid sick leave in excess of her entitlements; and 8. Gary and Susan's annual leave. Brian contends that, even if an agreement that as directors, Gary, Susan and Brian would not receive annual leave entitlements, is not enforceable given statutory entitlements to annual leave, the amounts provided in the September 2014 resolutions ($29,999.60 for 78 days allegedly unpaid leave based on an annual salary of $100,000 for Gary, and $22,730.65 for 39.4 days allegedly unpaid leave based on an annual salary of $150,000 for Susan), were substantially in excess of their true unpaid entitlements.
Several of those matters also found the derivative claim for breach of directors' duties. In particular: 1. Gary's salary. Brian contends that in overpaying himself, Gary failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used his position to gain an advantage for himself; 2. Susan's salary. Brian contends that in overpaying Susan, Gary failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used his position to gain an advantage for himself; and that Susan received the overpayments knowing that they were made in breach of Gary's duties and was thereby involved in Gary's contravention; 3. Gary's credit card. Brian contends that in using his personal credit card to meet the expenses of Optimisation and consequently receiving the personal benefit of the reward points, Gary used his position to gain an advantage for himself; 4. Orchard's fees. Brian contends that in overpaying Orchard, Gary failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used his position to gain an advantage for himself; and that Orchard received the overpayments with knowledge that they were made in breach of Gary's duties and was thereby involved in Gary's contravention; 5. Gary and Susan's annual leave. Brian contends that in authorising the overpayment of annual leave entitlements to themselves, Gary and Susan as directors failed to act with reasonable care and diligence, or in good faith in the best interests of the corporation and for a proper purpose, and used their positions to gain advantages for themselves.
It is convenient to address these issues more or less chronologically, commencing with those which preceded the breakdown of the relationship, then those associated with the breakdown and the termination of Brian's employment, and finally those which followed his termination.

[23]

Gary's salary at Optimisation

It is common ground that until June 2008, it was agreed between Brian and Gary that Gary was entitled to draw a salary calculated as a proportion of an annual salary of $100,000 FTE, according to the hours he worked for Optimisation. For the period March to May 2006, Gary drew one-third of an FTE salary. Then, until August 2006, he drew 40% of an FTE salary. Thereafter, until June 2008, he paid himself 100% of an FTE salary. Brian accepts that Gary worked full-time for Optimisation from about July 2008, and it is not in dispute that - apart from the periods during which he was in England, which are discussed separately below - he was thereafter entitled to a flat $100,000 per annum. However, Brian contends that between March 2006 and June 2008, Gary (who was still also drawing his $95,000 per annum from Orchard) worked only between 40% and 70% of a full-time load for Optimisation, yet drew $101,667 and $101,150 respectively for the financial years 2007 and 2008, and thereby overpaid himself a total of approximately $90,000. The issue is whether Gary was in fact working full-time for Optimisation during the period from July 2006 to June 2008, or whether, as Brian says, he was working only part-time for Optimisation, at between 40 and 70% of a full-time load, while he continued also to work for Orchard.
Gary disputed that he worked only part time for Optimisation until July 2008. He said that he did not know at the outset how much of his time Optimisation would take, and that as things turned out he was fulltime from the beginning. To the proposition that until 30 June 2006 he spent only about 40% of a full-time workload on Optimisation, he responded that it was "more like 140%".
There is no probative evidence that directly contradicts Gary's assertion that he was working full-time for Optimisation. Brian did not work from the office, as Gary did, and was not in a position to observe the hours that Gary was working; accordingly, his assertion that Gary was working between 40% and 70% of a fulltime load cannot have been based on personal observation.
There are two matters which might support an inference that Gary was not working fulltime for Optimisation during this period. The first is that despite his claim to have worked fulltime from the outset, he drew salary at only one-third of a fulltime rate during the period March to May 2006. Gary said that he deferred his remuneration for that period until Optimisation was in a position to fund it, drawing his deferred remuneration on 4 July 2006 at the rate of 33% for the period to then, followed by a payment on a fulltime (100%) basis on 13 July 2006. At the highest, this might indicate that he was not working full-time before July 2006, and affect his claim for the alleged arrears in respect of the period March to May 2006, which emerged only in September 2014, in circumstances referred to later.
The second is that Gary's commencement on a fixed $100,000 salary from Optimisation in July 2008 coincided with his ceasing to draw salary from Orchard, until when he was drawing a salary of $95,000 from Orchard. The change in Gary's status with effect from 1 July 2008 to a fixed salary of $100,000, coupled with the circumstance that he was drawing a substantial salary from Orchard until that point which then ceased, might support an inference that he was not working fulltime for Optimisation until then. However, as he and Susan exclusively owned and controlled Orchard, they were able to draw salaries from Orchard based on profitability and tax effectiveness, as distinct from time worked.
In my judgment, in the absence of direct evidence contrary to Gary's as to his hours of work, the inferences which might be drawn from the matters to which I have referred are insufficiently strong to establish, more probably than not, that Gary was not working fulltime for Optimisation, at least from July 2006. I am therefore unpersuaded that he drew excessive emoluments during the period prior to his departure for England in mid-2011. [17]

[24]

Susan's salary at Optimisation

Up to mid-2011, Susan received remuneration from Optimisation on the following bases: 1. for the period March to May 2006, at the rate of $31.50 per hour; 2. for the month of June 2006, at the rate of $40 per hour; 3. for the period July 2006 to July 2008, at the rate of $80 per hour; 4. for the period September 2008 to May 2011, a flat $80,000 per annum.
Brian contends that this was substantially in excess of what it had been agreed that Susan would receive; he says that it was agreed (between him and Gary): 1. in about March 2006, that Susan would draw a pro-rata salary for the hours she worked for Optimisation (as she continued to work for Orchard), based on a FTE salary of $50,000; 2. in August 2007, that her salary would be a flat $50,000 per annum; 3. in April 2009, that her salary would be increased to $70,000; and 4. in May 2011, that her salary would be increased to $100,000.
Gary and Susan say that there was never any agreement based on a $50,000 FTE salary, and that - until she went onto a flat $80,000 per annum in 2008 - she and Brian had agreed that she would be paid at an hourly rate of $80 for hours worked, and that this was based on the annual salary of $125,000 which she said she was being paid by Orchard. Susan says that the negotiations in respect of her remuneration were conducted between her and Brian, and did not involve Gary; and Gary says that he had no discussions with Brian about Susan's remuneration before 2011, but that Susan informed him that she had agreed her salary with Brian, based on $80 per hour - equivalent to what she was being paid by Orchard, based on a 30-hour week.
This invites a number of observations.
First, an hourly rate of $80 reflects an annual salary of $125,000 per annum only if it is calculated on a 30-hour week. Gary said that it was calculated on that basis, reflecting the hours that Susan was working at Orchard; however, Susan said that she assumed that the hourly rate of $80 as calculated on a 40-hour week, and on her own evidence the hours she was working for Orchard (8.30am to 5.00pm, five days a week) were well in excess of a 30-hour week, and indeed more than 40 hours per week. When it was pointed out to her that mathematically the amount reflected a 30-hour week, she said that she did not know, and that she left it up to Gary, and what she received was completely up to him, who could and did change their salaries at his discretion. The fact that, as appears to have been the case, Susan's hourly rate was derived on the basis of a 30-hour week emerged only in the course of Gary's cross-examination; Susan did not know that it was derived in that way; there is no hint that it was ever mentioned to Brian that it was calculated on that basis; and it does not in fact reflect the hours that Susan claims to have worked for Orchard. Use of a 30-hour divisor was an undisclosed and artificial device, which surreptitiously inflated Susan's remuneration from Optimisation.
Secondly, Susan was not in fact on a salary of $125,000 at Orchard; she was being paid $95,000 (which, for a 30-hour week, would be an hourly rate of $60.90, or, for a 40-hour week, $45.67). When this was pointed out to Gary, he maintained that she believed that she was being paid $125,000, even though he knew that she was not, and (quite implausibly) that he may have told her that she was on $95,000, contrary to her belief. Susan eventually conceded that she had never been on a fixed salary of $125,000, although she said that in previous employment she had earned commission in excess of that amount.
Thirdly, although Susan disputes that there was any agreement that she would be remunerated on the basis of a $50,000 FTE salary, and maintains that $31.50 - or for that matter $40 per hour - would have been "ridiculous", the amounts actually paid to Susan (which were calculated and paid by Gary) during the period March to May 2006 appear to be at the rate of $31.50 per hour, which corresponds to $49,140 FTE (if based on a 30-hour week). Although $31.50 per hour thus reflects the alleged $50,000 agreement - if (as Gary says) it was based on a 30-hour week - Gary denied that $31.50 was used initially because he had agreed with Brian that Susan was to receive $50,000, pro-rated. His explanation was: I've been reflecting on this in that break and I'm thinking what I've done there is I have worked out that rate, 31.50, based on 95,000 and divided by 52 and 30. It comes out to around about 30.5 or something like that but what I've done - okay, and that's how I've paid Sue. I think what may have happened is that's what I did and that's what I told her I paid her and she said, "No, that's not right. It was based on 125,000.
He went on to explain that during this period there were two telemarketers working for Optimisation under Susan's supervision, so to calculate her time he took the total of their telemarketing hours (32 for April, 63 for May and 78 for June) and divided by 2, so that Susan was taken to have worked for a total 86.5 hours, which at $80 per hour generated $6,920 - the amount Susan was actually paid for that period ($2992.50 in May, and $3,927.50 in June, the latter said to include a "bonus" of $807.50, which reflects the difference between $31.50 and $40 for the 95 hours attributable to April and May). However, Susan denied that the hours charged were the total telemarketing hours, maintaining that they were her hours only, and that her rate was halved (to $40) because her remuneration would otherwise have been excessive - although on what basis that was so was not explained. She denied any knowledge of having initially been paid at a rate of $31.50. Gary's explanation, while capable of justifying the ultimate total amount of $6,920, does not explain why Susan was initially paid $2992.50, which is 95 hours at $31.50: a $95,000 FTE on a 30-hour week basis produces not $31.50 but $30.45 (after dividing by 2 to account for there being two telemarketers). On the other hand, $50,000, without dividing by 2, equates to $32.05, so neither corresponds precisely to the $31.50 which was actually paid, and ultimately, this consideration is equivocal.
Fourthly, to an allegation in the amended statement of claim of 11 March 2014 that Susan was entitled to remuneration on a pro rata basis calculated on a maximum of $50,000 per annum for FY07 and FY08, the defence thereto, filed on 23 May 2014 and verified by Gary and Susan, pleaded that for the period March to May 2006 Susan was entitled to a $50,000 salary on a pro-rata basis, and for June 2006 to $40 per hour, then from July 2006 to August 2008 to $80 per hour, and from September 2008 to May 2011, to $80,000 per annum. Susan accepted that she read those pleadings, was aware of the allegation, and verified the defence, but now denies that it was in that respect accurate. Admittedly, it was not the form of the pleading by the time of the trial; but as Susan accepted, only she or Gary could have provided the information on which that defence was prepared. Gary denied that the amended defence of May 2014 was constructed to accommodate the payroll records, and in answer to the proposition that whereas the original agreement was $50,000, he and Susan just varied it without telling Brian, said (rather unconvincingly): "I don't believe that to be true, no".
Fifthly, in relation to the move to an annual salary of $80,000, Susan said that it was in response to Brian saying that a sales manager with similar responsibilities at Yellow Pages was paid only $75,000, that she reluctantly agreed to $80,000. If it is right that Susan was on a FTE salary of $125,000 - or even $95,000 - that begs the question, why would she take what was in effect a pay cut to $80,000 in 2008?
Moreover, there is a high degree of improbability that in circumstances where Gary managed the finances and payroll - and where according even to Susan he had total discretion with salaries - she told him what her remuneration should be. The circumstance that she was not aware that her hourly rate was based on a 30-hour week, though he was, tends to confirm this, as does her professed ignorance of the basis on which her various pays were calculated. It is more likely that her remuneration was agreed between Gary and Brian, and that would explain why she was initially paid at the rate of $31.50. Such an agreement, to the effect that she would be paid on the basis of a $50,000 FTE salary, also accords with what the defendants pleaded in their defence of 23 May 2014. There is also a high degree of improbability that Susan would have agreed to a salary of $80,000 in 2008, if she was already being compensated on the basis of an FTE salary of $125,000. These considerations, together with my general preference for Brian's evidence, persuade me that more probably than not it was agreed between Brian and Gary that Susan would be remunerated initially at an hourly rate based on an FTE salary of $50,000; then from August 2007 on a salary of $50,000 per annum; and then from April 2009 on an increased salary of $70,000; but that Gary engineered her receipt of amounts in excess of that agreement, by increasing her salary without consulting Brian - and also by calculating the hourly rate on a 30-hour, instead of a 40-hour, week.
For the year ended 30 June 2008, Susan was paid $60,020, which exceeded the $50,000 to which she was entitled by $10,020. For the year ended 30 June 2009, she was paid $73,793, which exceeded the $53,333 to which she was entitled (at the rate of $50,000 per annum for July 2008 to April 2009, and then $70,000 per annum from May to June 2009) by $20,460. For the year ended 30 June 2010, she received $90,565, which exceeded the $70,000 to which she was entitled by $20,565. For the year ended 30 June 2011, she received $83,527, which exceed the $70,000 to which she was entitled by $13,527. The overpayments total $64,572.

[25]

The first English episode: May 2011 to January 2012

As has been mentioned, Susan and Gary resided in England from 29 May 2011 until 18 January 2012, although Susan returned to Australia for a period from the end of August until early October. According to Brian, it was originally contemplated that Gary and Susan would be away from Australia only for a period of three months. While Gary said that he initially flagged a year's absence when they went to England in 2011, Susan said that it was Gary who wanted to go to England for a year, and that she was prepared to commit to three months and see after that. In any event, in anticipation of their absence, Paul Pearson was employed from 23 February 2011 as Optimisation's general manager, with a view to his undertaking the roles they had until then performed.
Until May 2011, Brian was remunerated by commission. Gary and Susan were dissatisfied that Brian's commission-based earnings exceeded their salaries, and considered the level of his commission unsustainable. Prior to their departure to England on 29 May 2011 (and as Brian was resuming work following his back surgery), it was agreed between the three that from 1 June 2011, each would receive a fixed salary of $100,000 per annum, while they were working fulltime. Brian's salary was to be prorated until he returned to work fulltime (which was defined initially as a minimum of four appointments per day, but this was later reduced to three); and while Susan and Gary were overseas, she would not be paid as she would not be working, while Gary would be paid pro-rata, for hours actually worked, on the basis of $100,000 FTE. This arrangement was referred to in an email from Susan to Brian, which was copied to Gary, on 18 May 2011: Moving forward I propose the following that we all get an equal salary $100K each, based on the hours we work IE: Gary will pay himself hours worked while he is away, Susan no work no pay, when I am back I will be paid for hours worked if I sell anything as previously goes into the kitty to be shared. Until you are back full time min 4 x meetings per day we will prorate your salary per appointment serviced IE: $100k divided by 52 weeks, divided by 5 days, divided by 4 appointments = quarter day's pay = $96.15 per appointment completed any sales into the company for profit share.
Subsequently, in July 2011, it was further agreed that Gary would simply draw 50% of his FTE salary, that is to say at the rate of $50,000 per annum. In an email of 6 July, Brian provided particulars of the appointments he serviced during June - while asserting that it was not a full reflection of his work, which was "much more" - and asked to be updated on Gary's pay, explaining that he wanted to be "kept in the loop with stuff like this from now": I want to be more involved with our expenses/costings, product profit margins & the overall picture of how we are tracking … it should be doable moving forward.
Gary responded on the same day: I work every morning for 2-3 hours and most nights deal with urgent stuff. I also consult with Sue and she makes calls etc, so this goes to contributing to my hours, as she is not getting paid. I was thinking of paying myself half, trust you think this is fair also? In regards to you, I think just work out a percentage of time that you think fair also and let me know.
Brian replied: OK fair enough re pay at your end. I would have been working at least 70% June. July will blow out & I will monitor. Even though my time will be required doing other stuff too, my focus will still be to bring in $$$ for us, some good stuff building from going through existing [clients].
Brian was paid 70% of a monthly instalment of $100,000 per annum for June 2011, and 100% for July 2011 and thereafter until his termination in April 2013. Gary was paid 50% of a monthly instalment of $100,000 per annum (that is, $4,166.66 per month), for the duration of his absence. This is not the subject of complaint. However, despite these arrangements, while she was in England, Susan was paid a total of $8,333.34 during the period 29 May 2011 to 31 August 2011, and $17,666.67 during the period 8 October 2011 to 18 January 2012, equivalent to a half salary for those periods.
There is no doubt that the initial understanding was that Susan would not be paid while she was in England. So much is clearly enough stated in the email of 18 May 2011 set out above, sent a week or so before their departure, in which Susan informed Brian of the arrangements, namely "Susan no work no pay", while Gary would pay himself for hours worked while away. Susan accepted that it was initially her intention to "step back"; to the proposition that it was anticipated that she would not be working and would not be paid, she answered that this was not indefinite, but that she was anticipating that she would not be working for at least three months. However, the email of 18 May contained no such qualification.
Susan claimed that shortly after their arrival in England, she had a telephone conversation with Brian in which she stated: Gary is working pretty much full time, he is liaising with me, sometimes I do more than Gary, sometimes less, so we will split a salary of $100,000 and pay ourselves $50,000 each.
She claims that Brian responded: Yep that is fine, I'm working full time so this doesn't apply to me.
Susan said that she commenced working immediately on arriving in England; that this conversation occurred within a month of their arrival, and certainly before 6 July; that she had several similar conversations with Brian while they were in England; and that she spoke to Gary before speaking to Brian about the proposal that they each draw a half-salary, and Gary agreed. She disputed that the agreement was that only Gary and not she would draw a half salary. Brian disputes that there was any such conversation, and says that he believed that, consistent with the 18 May email, Susan was not being paid while in England.
There is no hint in the email exchange of 6 July, set out above, that Susan was to be paid; quite the contrary - Gary wrote that Susan was not being paid. Confronted with the emails of 6 July 2011, Susan's evidence changed, and she said that the conversation which she had previously said definitely occurred before 6 July must have occurred later. Then, she said that the arrangement referred to in the 6 July email operated until her return to Australia at the end of August 2011. Ultimately, Susan accepted that prior to her return to Australia for seven weeks from 31 August 2011, the only arrangement about her pay was that recorded in the email of 6 July. Yet she was paid a half salary.
When it was suggested that the arrangement remained on foot after she returned to England in October, until she returned to Australia in January 2012, she at first responded that she did not know when they started paying themselves $50,000 each. Then, when it was again put that the email of 6 July was the only arrangement between them in respect of her remuneration when in England, for the period May to August 2011, and that it continued for October 2011 to January 2012, she said: I can't say for sure whether that is correct. My recollection is that between 9 October and 18 January 2012 we were splitting $100,000. … There was an arrangement because that is what we were working. … We all agreed we would prorate $100,000. … Gary and I were never asked to log it, it was a guestimate of what we did; fair and reasonable that we were doing at least one fulltime role between us.
Gary said that the 6 July email related only to the month of July. However, that is not evident from the terms of the correspondence. Nor was there any further email about subsequent months. Indeed, there was no further written communication with Brian about Susan or Gary's pay: although many emails passed between them, not one touched on any half salary arrangement for Susan. Susan and Gary now assert that there were subsequent telephone conversations with Brian about their remuneration; however, those conversations were not put to Brian in cross-examination. Gary admitted that he never subsequently told Brian that he was going to pay Susan; when asked why, he said he thought that it was obvious that she was working, as she was in touch with him. If this was really his belief, which for reasons advanced below I do not accept, nonetheless particularly in the light of Brian's request to be kept informed of such matters, it was an unreasonable unilateral decision. Brian's assumption that the arrangement was enduring, and not limited to June 2011, or to three months, was entirely reasonable.
Having regard in particular to the terms of the email correspondence, the absence of any further relevant email or other correspondence, and the admission that Brian was not informed by Gary of his intention to pay Susan, and also to the variability of Susan's evidence about the alleged telephone call, and my general preference for Brian's evidence, I do not accept that there was ever any oral variation to the arrangements recorded in the email of 6 July.
Nor do I accept that in fact, Gary and Susan between them were working anything approaching the equivalent of one full time role. Gary's email, referred to above, does not suggest as much; it refers to two to three hours each morning, and urgent matters in the evening. Susan's evidence was more or less to similar effect; she said that while in England, Gary would work two or three hours every morning, though she then suggested that he worked more than that: though she did not log his hours, he would open his laptop and start work about 7.00am, and perhaps finish by lunch. She sought to equate their combined efforts to one fulltime role. However, they lived in a village in Shropshire, and had no printer or scanner in their home. Paul Pearson had been employed in Australia to fulfil the role of managing the staff and office, which Susan had previously performed; any remaining function of Susan was merely proprietary or directorial in nature. An endeavour was made to establish that Susan was working by tendering emails from her email account; however, it emerged that this was an account which Susan did not use while in England, and the emails related to the period during which she had returned to Australia.
Moreover, Susan became affected by alcoholism from late 2011, though more seriously in 2012. Her medical records note that she "started feeling low" in December 2011, and attended a counselling session in England in November of that year. An entry in the South Sydney Area Health Service notes for February 2013 described her presenting concern as "alcohol problem for about 2 years" - which would date it from 2011; although she said that it was "very sporadic then", the notes record that it was "triggered by moving to UK to support husband" - which she said was "part of the truth". A discharge summary in respect of an admission between 7 and 12 May 2014 states: "The alcohol drinking started two years ago when she moved to England with her husband and was not working while living in an English village". The medical records also note that she had "suddenly stopped very demanding stressful business, found herself bored and useless, missing house and life here". When asked whether she told the doctors that she did not like living in England and had ceased running a demanding business, she dissembled that while she preferred living in Australia and it was stressful running the business from England, it was not correct that she told them that she did not like the place at all, but rather that she found it stressful living there. She said that she would not have told the doctor that she felt "bored and useless": "They're not words that I would use … they're his medical notes, not mine"; and that it was not true that she was not doing much work in England: "Not at the capacity I was used to working at. I didn't have the control that I had when I was in Sydney, working in the capacity I was". In my view the more or less contemporaneous medical notes provide a much more reliable source than Susan's attempts to explain them away. Gary denied that there was any drinking problem before Susan returned to Australia in January 2012 - when she had a 2-day episode - but the medical notes contain, under "Details of past treatment", reference to a "J6 session" in November 2011; Gary did not know what this was, but Susan admitted that she had a counselling session in December 2011, following a suggestion by a doctor that she see a counsellor. On 20 February 2013, she presented for assessment at a hospital with "Alcohol problem for about 2 years. Triggered by moving to UK to support husband". Moreover, on 7 May 2014, Gary told Susan's social worker that her alcohol issues had impacted on the business, financially and legally, for the last 2½ years - a relatively precise period, which would date it from late 2011.
Notably, the medical notes recorded that Susan had done some voluntary work while in England, and was quite happy in it; Susan said that this was in a homeless shelter, one morning per week. If, as appears to be the case, that was intended to alleviate her sense of boredom, it is hardly consistent with her consistently working for Optimisation. Thus, the picture that emerges from the medical records is very inconsistent with her working anything like half-time for Optimisation.
There is no acceptable justification for Susan's receipt of a half salary - $8,333.34 during the period 29 May 2011 to 31 August 2011, and $17,666.67 during the period 8 October 2011 to 18 January 2012 - while she was in England. It savours of an attempt to extract maximum benefit for Susan from Optimisation, for no proper commercial justification or corporate purpose, contrary to the arrangements that had been made with Brian, and without his knowledge.

[26]

The second English episode: July 2012 to February 2013

Susan returned to England with Gary on 18 July 2012; she remained there until 15 February 2013, and he until 14 March 2013. Brian says that Susan once again agreed to "no work no pay" while overseas, and that she effectively resigned in 2012 prior to leaving, and did not intend to resume employment. Brian contends that, contrary to arrangements that while in England she would not be working and would not draw a salary, and although she was not in fact working, Susan was paid a half salary from August 2012 to March 2013, although she was not working - a total of $29,166.62 - and in addition was paid a full salary of $8,333.33 - based on $100,000 per annum - for March 2013. Brian further contends that although Gary was entitled while in England to draw a half salary, he did not return until 14 March 2013, but overpaid himself for the month of March 2013 - a first payment of $4,166.67, and a further payment of $8,333.33, resulting in an overpayment to him of approximately $6,250.
Prior to and in contemplation of Gary and Susan leaving to go to England in May 2012, Ms Hewitson had replaced Paul Pearson as general manager. To the proposition that she was hired because they knew they would not be around to perform their duties, Gary responded that they knew they were going overseas, but would still be working; that Ms Hewitson would be responsible for the running of the company, which had been his and Susan's role before they went overseas; and that it was their intention to take a step back from the business, although they did not know to what extent. He accepted that they told Brian that they intended to "step back". However, neither Gary nor Susan accepted that Ms Hewitson's duties covered all those they were otherwise undertaking prior to her being retained: while Gary agreed that he did not communicate with clients (except by email) from England, he said that he remained responsible for accounts; and Susan said that Ms Hewitson did not do finance (which was Gary's role), and was not a sales manager (which was Brian's function).
Gary agrees that he told Brian in mid-2012, before departing for England, that he would again be pro-rating his salary while overseas. Although Susan denied that she told Brian that once Ms Hewitson had been hired, she was resigning as an employee, she admitted that she said that she would like to step back and, while keeping an eye on things as a "director", not return as an employee. Susan agreed that the intention was that her role while in England was simply to "keep an eye on things as a director" - as she considered herself to have been a director from when she had become a shareholder. She at first said that she told Brian that she would like to step back, to remain a director, "ideally" just to oversee, and that "ideally" she would like to do voluntary work; however, when pressed she could not recall whether she used the word "ideally" in her conversation with Brian, and I do not accept that her statements to him were qualified in that way.
Susan disputed that in England in 2012 she did little work other than exercising a directorial oversight. However, while she was a party to some email correspondence during this period, and there are emails which indicate that she was communicating from time to time, only ten at most of 59 email chains tendered from this period evidence work of a more than an inconsequential kind, and these communications illustrate her performing the oversight functions of an owner/director, rather than performing work as an employee.
Moreover, there are powerful additional reasons for concluding that Susan was not working in any substantial way as an employee during that period. The episodes of alcohol abuse, which had first manifested themselves in 2011, became exacerbated. Susan had a significant alcohol-related incident on 21 August 2012, and during the latter half of 2012 there were several such events. In an email to her family, including Brian, of 10 December 2012, Susan wrote that she was "struggling since leaving work with mixed feelings of lack of purpose, a huge life style change, not knowing where home is, missing friends, family …". She described her activities one morning: Last week I got up felt fine dropped Mia to school went to the gym and when I came out had the most overwhelming feeling of despair …
There is not a hint that she was going to work at any stage. This email not only confirms that she was not working, but is consistent with her having told her doctors that she had felt "bored and useless"; despite her protestations that those were the doctor's and not her own words, they express the same sentiment. On 10 April 2013, Susan told her treating doctor, Dr Montebello, in a consultation at which Gary was present, that her drinking increased when she became depressed when "living in the UK, not working, often home alone, dark cold winters". She tried to escape this by saying that she was no longer working "full-time". On another occasion she had stated that "last year" - being 2012 - she was not working; she protested that this meant that she "wasn't working at the capacity I was used to working at". A discharge referral of 12 May 2014 attributes to her "alcohol drinking started 2 years ago when she moved to England with husband and was not working while living in an English village"; she endeavoured - unconvincingly - to explain this as meaning that she was not working to the capacity to which she had been accustomed. When cross-examined on these matters, Susan repeatedly ignored the main point of the question, endeavouring to explain why or how her alcoholism developed, while avoiding the point that she had repeatedly made statements that she had not been working while in England. Notably, she had also said that she enjoyed the occasional voluntary work when it arose - which does not sit at all well with the proposition that she was performing 50% of a full-time workload, or anything like it, for Optimisation.
Gary agreed that Susan was not doing 50% of a full-time load - he said it was perhaps 25-30% - but claimed that he was doing around 70%, so that it was fair that they drew a fulltime salary between them. He disputed that Susan was feeling isolated throughout 2012, because she was not working; he said that she never voiced such a concern to him, and that she was working, though not in a full-time capacity, "dealing with business, sending emails". However, this is inconsistent with an email sent by Gary to Brian on 3 December 2012, which referred to "blips when she last returned to Australia", and that these had been attributed to, amongst other things, "her not really having a purpose as she was not feeling as though she was contributing at work". Gary agreed that in periods of binge drinking Susan did not perform work, but said that these were perhaps three or four isolated incidents, of periods which lasted between one and three days. He suggested that it was the "situation with Brian, in regards to him not doing the training", that may have occasioned Susan some stress; but this is not reflected in any contemporaneous complaint, nor in the medical records.
Overall, the objective evidence strongly favours the view that Susan had agreed that she would not draw a salary while in England - because everyone understood that she would be "stepping back", and not "working" in any relevant sense. Sara Hewitson had been hired as general manager, and with other employees performed at least most of the functions that Susan had formerly performed. Moreover, Susan accepts that it was her plan to step back, and that she said as much to Brian, and although she claims that this did not eventuate, the medical records refute that, containing many statements to the effect that she was not working in England, which are not satisfactorily explained away by the protestation that this was intended to mean that she was not working "to the same capacity". She was, no doubt, in her capacity as a shareholder and director, having some occasional input, but she was not performing the functions which she formerly had, and was not serving as an employee. I do not accept that she was working in any relevant sense - other than exercising the prerogatives of an owner or de facto director - while in England in 2012. Nor do I accept that there was any commercial or corporate justification for paying her a half salary during that period.
As has been mentioned, Gary returned to Australia on 14 March 2013. It is common ground that Gary was entitled to draw a half-time salary while overseas, and became entitled to a full-time salary of $100,000 following his return. However, for the month of March 2013, he drew an initial payment of $4,166.67 on 28 March, attributed to the period 1 to 28 March, and a further payment of $8,333.33 on 4 April, attributed to the (overlapping) period 5 March to 4 April. Gary says he worked full-time from 14 March (when he returned to Australia), and that the payment of $8,333.33 related to March. Accepting that to be so, Gary was full-time only for the second half of March. There is no suggestion that there was ever any discussion let alone agreement about Gary returning to a full-time basis before he returned to Australia, and insofar as the March payment was referable to the first two weeks of that month it was excessive in remunerating him for that period on a fulltime basis. At the very least, there was an overpayment of $2,084.33.

[27]

Conclusion

As has been observed, one typical form of oppression occurs when directors or majority shareholders conduct the affairs of a company in a way that advances their own interests, or the interests of others, to the detriment of a minority shareholder. [18] Thus in Sanford v Sanford Courier Services Pty Ltd, [19] the high level of salaries and other payments made by a couple who ran the business to themselves were held to be oppressive because the plaintiff, who was an equal shareholder but no longer a director, did not receive any salary and so did not share fairly in the company profits.
In respect of the overpayment of Susan's salary during the period 2007 to 2011, the payment to her of salary while she was not working in England, and the overpayment to Gary in respect of March 2013, that is what has happened here. Importantly, there are multiple facets to this: the excessive payments were uncommercial, for no corresponding benefit for Optimisation; and they were contrary to the arrangements that had been made with Brian. This dual aspect is important, because there are no doubt circumstances in closely held companies where the payment of uncommercial remuneration may not be oppressive - for example, because the shareholders agree that, for fiscal or other reasons, they will draw salaries rather than enjoy larger profits and dividends - as appears to have been the case in Orchard, where the salaries drawn by Gary and Susan are said to have been adjusted according to profits, and at least in Gary's case appear to have born no resemblance to the very little time he says he actually spent on Orchard matters. But in the case of Optimisation, the salaries were intended to reflect work done in an equitable way - the consistent references to prorating salary for hours worked is indicative of that - and were the subject of arrangements between the three participants; and to depart from those arrangements, especially where there was no good commercial purpose for doing so, was commercially unfair and improper. Further, in the absence of commercial justification, those overpayments could not have been made in good faith in the interests of the company as whole; they were motivated by self-interest, not by a proper corporate purpose.
Both Gary, and Susan (at least in respect of the periods while they were in England), knew what arrangements had been made with Brian in respect of their remuneration, and must have known that the overpayments were inconsistent with them, and for no proper corporate purpose. It was Gary who, having negotiated Susan's remuneration with Brian, then caused the excessive payments to be made, and I am satisfied that he did so knowing that the payments exceeded her agreed entitlement, and represented a conferral on her of an advantage, and a detriment to the company as a whole. At the very least, had he exercised reasonable care and diligence, he could not have made those payments. In authorising them, Gary contravened his statutory and fiduciary duties as a director.
Given that it appears that it was Gary who varied Susan's salary from time to time prior to mid-2011, I am not prepared to conclude that she knew that the overpayments of her salary prior to mid-2011 were made in breach of duty. However, in respect of the periods while she was in England, given that she was party to the "no work no pay while in England" agreement, Susan must have received the payments of salary with knowledge that they were made in breach of duty, and was therefore knowingly involved in the contraventions to that extent.

[28]

Gary's credit card

From when Optimisation first commenced trading, Gary's credit card was used to pay for company expenses, and in particular the fees for Google AdWords. Brian contends that by using his own credit card to pay for Optimisation's expenses, Gary improperly obtained for his own personal benefit the associated reward points earned on his credit card, which ought to have been for the benefit of Optimisation.
As at the beginning of March 2006, Optimisation required access to a credit card, if it were to offer Google AdWords services to clients: Google AdWords insisted on either upfront payment by direct debit from Optimisation's bank account, or a credit card, and initially there was insufficient cashflow in Optimisation to permit upfront payment. Brian did not have a credit card, and while Gary had one, it was necessary to increase its limit if it were to be used for Optimisation, which Gary agreed to do. Optimisation was thereby enabled to offer Google AdWords and other services without itself incurring liability to Google, while Gary personally bore the credit risk.
Between 2007 and 2013, Optimisation paid $1,737,115 towards Gary's credit card. Gary used his personal credit card for his personal expenses and for Orchard expenses, as well as for Optimisation expenses. However, he coded each credit card statement, so as to identify and segregate which expenses related to what company, and which expenses were personal. There is no longer any suggestion that Optimisation has, through replenishing Gary's credit card account, paid for any of his personal expenses.
However, Gary has accrued reward points in respect of use of his card for Optimisation expenses, and he has used them, at least predominantly, for personal expenditure - in particular international airfares for himself, Susan and Mia, as they travelled to and from England and other countries for their personal reasons. Gary says that some points were used for Myer Gift Cards for staff Christmas presents and birthday gifts, and some were redeemed for flights back to Australia from England when Paul Pearson left and the dispute with Brian arose; but if reward points were sometimes applied for the benefit of Optimisation, it was the exception and not the rule. There is no evidence as to the value of the relevant reward points.
As Gary points out, Brian agreed to the use of Gary's credit card to pay company expenses. Brian says that Gary's credit card was to be used only until Optimisation was in a position to obtain its own credit card. While Optimisation's turnover grew rapidly, it continued to use Gary's personal card and did not obtain a company card, at least until very recent times. However, Brian did not query the use of Gary's personal credit card to pay company expenses until mid-2013.
It is true that, as Gary admits, there was no express agreement about the reward points. However, the evidence establishes that a company cannot hold a credit card in its own right - a natural person must be named on the card - and the person so named is entitled to the associated reward points, which are not transferable. The reward points accrued by Gary could not be transferred to the company; they are intended as a personal benefit for the cardholder. No complaint about his use of the reward points was made before these proceedings were on foot.
Moreover, by Gary using his personal credit card, he was personally carrying the risk and liability to the creditor, as against whom he was solely responsible for meeting the repayments, regardless of whether Optimisation did so. Thus Gary personally took the commercial risk, and supported Optimisation with his personal credit. Admittedly that risk was slight, and Optimisation always covered the expenditure attributable to it, but risk there was nonetheless.
I do not accept that Gary's retention for his personal benefit of the reward points which accrued to him as a result of the use of his credit card for Optimisation's purchases, was - at least in the circumstances of this case, involving a closely-held company which he was supporting by provision of credit in this way, with the agreement of the other shareholder Brian - commercially unfair, or in breach of his duties. There was benefit in the credit card arrangements for the company, and indirectly for Brian, and risk for Gary, even if it was slight. And in any event, there was no attempt to ascribe a value to the reward points, which would have been necessary if it were to be reflected in a valuation, or if a compensation order were to be made.

[30]

The initial agreement

According to Brian, shortly prior to Optimisation commencing trading in March 2006, he and Gary orally agreed that the company would pay Orchard for telemarketing services provided to Optimisation at the rate of $15 per hour per telemarketer, and (in about April 2006) that once Optimisation required a full-time telemarketer, it would retain its own telemarketing services and cease to engage Orchard: In or around February 2006, Gary said to me at the Coogee premises, "We can use our Orchard telemarketers to book your appointments. Sue manages these for Orchard and I spoke already to her about it. We use English and Irish backpackers with working visas to keep costs down. The rate is only $15 per hour. Are you happy with this?". I said, "Yes, sounds good". Gary said, "There won't be any rent, we can discuss when Optimisation is at a stage to chip in some rent". I said, "No problem".
At first sight, for a start-up family enterprise established in the circumstances which I have described, that is very plausible. Moreover, it is uncontroversial that all the participants contemplated that the company would operate from Orchard's Coogee premises, and that there was initially no suggestion of Orchard charging for the use of its office.
Gary denies having told Brian in February 2006 that Optimisation could use Orchard telemarketers to book appointments; he said that Orchard did not have a system in place for telemarketers to make appointments - because Orchard's business was telesales, and not making appointments for consultants - and maintained that there was originally no contemplation of using telemarketers. Brian agreed that he did not like "cold calling", and conceded that it was possible, though he did not recall it, that he said to Gary in March 2006: "I don't like cold calling, it's not my thing". I accept that the use of Orchard's telemarketers was not originally envisaged, and that it arose in the context that, after Brian had attempted to arrange his own appointments, he expressed a dislike of "cold calling", and it was agreed instead to use Orchard's telesales personnel, under Susan's supervision, for that purpose.
Gary and Susan both maintain that a rate of $50 per hour was agreed between Susan and Brian. According to Susan: I said: "Orchard will contribute to Optimisation for a price which includes phones, rent, electricity, wages, bonuses, superannuation, Orchard's loss of earning, my time and Gary's time". Brian said: "I do not want to cold call and set my own appointments. You are better at this. I'll stick to sales". I said: "Telemarketers will be charged at $50 per hour". Brian said: "Okay, $50 per hour".
However, although there might have been some variability, and some bonuses, it is not in dispute that Orchard remunerated its telesales personnel at the base rate of approximately $15 per hour. While denying that he was involved in the direct negotiation with Brian, Gary admits that he told him that Orchard paid its telemarketers $15 per hour, but says that he added that it would be necessary to work out a fair rate "to cover everything". However, in the context of their mutual understanding that there would be no rent, it is improbable that there would have been any such reference to, or acquiescence in, additional charges.
Susan's claimed reference to rent is inconsistent with the mutually understood position that Orchard would not charge rent. Moreover, it is not rational that Susan would have referred to "my time and Gary's time", as each of them drew salaries directly from Optimisation for their time. Further, the allotment of a substantial shareholding to Susan was compensation for her increased role and the increased use of Orchard's resources; there was no rationale for such a restructure increase if Orchard were to be remunerated at commercial rates for the use of its resources and for Gary and Susan's time.
The suggestion that there was any reference to compensation for Orchard's loss of earnings or opportunity loss is also implausible. During the 14 weeks between March and June 2006, Optimisation was charged for a total of 203.50 hours spent by Orchard telemarketers, while Orchard telemarketers spent 1,738 hours on Orchard's own work, and (according to Susan's evidence that she could manage between eight and ten telemarketers at one time), Orchard's capacity was in the order of at least 3,360 hours, so that Orchard was nowhere near capacity.
Gary says that he set the rate of $50, having regard to the amount Orchard paid its personnel ($15 per hour), to take into account, variously, rent, property maintenance and cleaning, telephone call charges, telephone system usage, electricity, property insurances, in house stationary, printing and office supplies; and/or "computer hardware usage, furniture usage, employee costs, hiring costs, training costs, some staff amenities and opportunity cost". However, many of the expenses referred to by Gary did not exist, or were de minimis. Moreover, $50 per hour was not a fair estimate: it was more than enough to cover all the rent, telephone and electricity attributable to Orchard's premises, without any contribution at all from Orchard, as well as the cost of the telemarketers. Gary conceded that, even for 2006/7, the amount Orchard recovered from Optimisation exceeded the whole of the rent and phone expenses for its premises, as well as the cost of the telemarketers. Gary then invoked the "opportunity cost" to Orchard of the use of its personnel, but conceded that he was not aware of any conversation with Brian about any notion of compensating Orchard for lost opportunity, and indeed could not recall any discussion with Brian about the calculations at all. In any event, as explained above, there is no basis for supposing that there was any opportunity cost to Orchard. Although Gary's evidence was calculated to give the impression that some logical and mathematical rigour had been applied to derive the rate of $50 per hour, it bears the hallmarks of retrospective recreation, and I cannot accept that there was any rational calculation of that rate.
When Optimisation retained its own telemarketer, Elisa Pennant-Hunt, in July 2007, it was at the rate of $15 per hour. She operated from Orchard's premises, using Orchard's telephone. However, Optimisation continued to pay Orchard for telemarketing services until 30 June 2011. It does not make commercial sense that Optimisation should pay Orchard $50 per hour for a service that it could itself engage at $15 per hour. In my view, the notion that Brian would in the circumstances, as Susan suggests, unquestioningly accede to Orchard collecting a margin of $35 per hour on a cost of $15 per hour, including a component for rent and for opportunity cost, approaches the ludicrous.

[33]

Conclusion

The approximate cost to Orchard of the telemarketing services it provided to the company was $15 per hour, and it is uncontroversial that this was mentioned by Gary to Brian. From that, in the absence of more, Brian would reasonably assume that that would be the charge passed on to Optimisation. Having regard in particular to the commercial improbability of Brian agreeing to a charge of $50 per hour for a service that cost Orchard $15 per hour, the objective difficulties (referred to above) with Gary and Susan's version, the circumstance that the May 2011 email weighs in favour of Brian's version, and my general preference for Brian's evidence, I do not accept that Gary told Brian that it would be necessary to work out a rate that was fair and reasonable "to cover everything", nor that Susan stipulated, and Brian agreed to, a rate of $50 per hour. Nor do I accept that any conversation at the time of the move to Eastgardens extended beyond an agreement on Brian's part that Optimisation should contribute to rent - which thereafter it not only did, but bore to the exclusion of Orchard without contribution from Orchard.
The rates charged by Orchard and paid by Optimisation were very greatly in excess of what was contemplated and agreed when the arrangements were established. Moreover, those rates were not commercial in the circumstances, but unfairly and unreasonably benefitted Orchard to the detriment of Optimisation. Although it was put to Brian that he made no complaint about them until years later, his response that he never knew about them until he obtained Optimisation's MYOB records in the course of these proceedings, in August 2014, is - in the absence of any credible evidence that he was informed of them earlier - a complete answer.
Orchard charged, and Optimisation paid, in respect of telemarketing, $10,175 during the 2006 financial year; $94,765 during the 2007 financial year; $100,705 during the 2008 financial year; $41,840 during the 2009 financial year; $42,757.50 during the 2010 financial year; and $29,145 during the 2011 financial year. Optimisation has been overcharged, and Orchard overpaid, $207,708.75, calculated as follows: [20] Year ending 30 June Amount Overcharged 2006 $7,122.50 2007 $66,335.50 2008 $70,493.50 2009 $28,716.00 2010 $21,378.75 2011 $14,572.50 Total $208,618.75

[36]

Restructure in 2011?

The defendants contended that there had been attempts to restructure the business, involving the reduction of Brian's on-the-road role and his increased attendance in the office, from 2011, and that the role of on-the-road salesperson was becoming redundant from that time.
Although she had given no such evidence in any of her affidavits, Susan in the course of her cross-examination said that while Paul Pearson was engaged as general manager in anticipation of Gary and her being absent in England for a protracted period, it was not intended that he take over her role, as distinct from Gary's, and that it was agreed in early 2011 - at about the time of the engagement of Paul Pearson and while Brian was convalescing - that Brian was to assume her role when he returned to work: Q. Paul Pearson's duties were to in essence take over your and Gary's role? A. Not my role. Q. You couldn't, in England, could you, fulfil your duties as a sales manager and the like, correct? A. No, that was what the plaintiff was to do. Q. Do you say that in 2011 Brian was supposed to come into the office and start working as a sales manager, fulfilling your role? A. Brian was to work based from the office, yes.
Asked what she meant by "based from the office", she offered the following explanation: A. Well, what he would do - at that time, we were calling Reach Local leads and we were following their model. We no longer had telemarketers. Brian was to call and train any sales reps in that same model. So we worked based from the office. It was also agreed that Brian would call all the existing OA clients and service those clients as well, based from the office.
However, it was not until the end of 2011 that Optimisation ceased using telemarketers. Moreover, Gary's functions were essentially those of financial controller, and it appears that he never relinquished them. Susan's principal function had been the supervision and coordination of telemarketers, and that role was declining. An expectation that Brian would train sales representatives does not sit well with the role of a sales representative approaching redundancy. The reference to an expectation that he would call all the existing clients and service them appears to be a transposition, from the following year, of what Susan and Gary say was agreed prior to their second departure for England, in 2012. When pressed, Susan conceded that in 2011 Brian was "a sales consultant on the road", though she maintained that there was an agreement that he would work "based from the office, and, of course, he would go out on the road as well". Susan variously said that this agreement was made prior to Paul Pearson commencing, and after he commenced but while Brian was recuperating. However, Susan's 18 May 2011 email to Brian, referred to above, [21] contains no reference to Brian being based in the office; to the contrary, it provides for him to be remunerated as an on-the-road salesperson, with his salary referable to the number of appointments with clients he attended. This is inconsistent with any notion that he would be working mainly from the office, or performing Susan's former role.
On 12 November 2011 - having returned to England after spending six weeks in Australia between 31 August and 9 October 2011 - Susan sent an email to Brian, the subject matter of which included the operations of the office, the training of staff, and the need for a sales manager. It commenced: Ideally I would have liked to talk to you about my concerns it is easier to communicate where I am coming from verbally rather than via email.
The email then set out the expectations of a "Sales Manager", and continued: I am aware you are not keen on working from the office. Clearly you are not comfortable making calls in front of staff and do not like cold calling. You are happy working from home and pulling in what sales you can, I get this and have no problem with you tracking on this way. However I hope you understand until we get Chantal right and get a Sales Manager in place if you are going to take on this role all of the above will needs to be done . … The ball is now in your court if you can bite the bullet, be in the office, put in the extra hours, get the structure in place and get Chantal on track by Christmas, you can then step back and will not have to be in office as much.
Brian responded, on 13 November at 5.22pm: You should've stuck to what we agreed on & had a chat rather than typing an email. … My point being, me sitting the office (ongoing) will never be an option or something I want to do & you are 100% correct, I don't like doing my work/calls in the office. I have my own style & am much more comfortable & productive set up at home doing this. …
Susan said that she followed up this email exchange up with a telephone call, in which she told Brian that she did not agree with him not being in the office, and that he agreed that he would be in office some of the time. She denied the proposition put to her that no such conversation occurred, and professed to remember that there was urgency to speak to Brian on the topic. However, her evidence that she followed up the emails with such a telephone call is utterly inconsistent with her reply to Brian of 13 November, at 6.45pm, in which she wrote: No need to talk you agree that this is the Sales Managers Role (but you don't want to do it this way). Absolutely we need a Sales Manager to do the full role, I was only suggesting you do it short term. … Anyway good luck I have no doubt about your training capability, however let's agree to disagree on the full role not being done. I will do my best to stress to Paul that he will be responsible while she [Chantal] is in the office and can only hope he does not make a mess of it ... I'll call later in the week to get an update.
When questioned about this apparent inconsistency, and repeatedly asked what she took Brian to be saying when he wrote "You should have stuck to what we agreed on & had a chat rather than typing an email" - which was clearly a complaint that she had sent an email rather than making a telephone call - she became very argumentative and evasive. Her evidence of a follow-up telephone call was a fabrication.
Then, on 15 November, Susan sent an email to Paul Pearson, detailing his responsibilities to manage the in-office operations and containing instructions as to the arrangements to be put in place in the office, referring to "my understanding that Brian will do the sales training/presentation/objection handling/sit in on meetings and day to day motivation", and stating "As Brian will not be in the office fulltime …". Confronted with this series of communications, Susan said that in a conversation while she was in Australia during September, Brian had agreed to train the new sales representative (Chantal) and become an in-office sales manager (which closely resembles what she had previously attributed to early 2011), and that her email was a follow up to that conversation. However, the correspondence, far from suggesting that there was already in place an agreement that Brian would work from the office, points to the opposite. There is no reference to any prior conversation in the email, which does not assert that there was any previous agreement or understanding about Brian working from the office. Moreover, Brian clearly did not agree, and Susan "was only suggesting you do it short term"; this is inconsistent with the notion that there was any agreement that Brian would work from the office. Her protest, when taken to her statement "let's agree to disagree", that "I disagreed then and disagree now", in fact confirms that Brian did not agree to work from the office.
There is no email or other written record of or contemporaneous reference to any such agreement as the defendants assert. Moreover, a further and in my view significant objective matter telling against there being any such restructure as alleged in 2011 is that it was in May 2011 that, upon insistence of Gary and Susan, Brian agreed reluctantly to his remuneration being changed from commission to a fixed salary of $100,000. Gary and Susan's enthusiasm for this was founded in a grievance that Brian, on a commission basis, was earning more than they were drawing as salaries. If the role of on-the-road salesperson was becoming redundant, then Brian's commission earnings would shrink with it. If Gary and Susan were genuinely of the view in 2011 that Brian's sales role was approaching redundancy, then it would not have been in their interest to switch him from commission to a fixed salary; and I do not believe that they would have done so.
I therefore do not accept that there was in 2011 any such agreement, arrangement or understanding, as the defendants suggest, that Brian would work from the office as distinct from as an on-the-road sales representative, let alone that his role as on on-the-road sales consultant was becoming redundant.

[37]

2012: GetCubed and Sara Hewitson

As has been mentioned, Sara Hewitson was employed as Optimisation's General Manager from 23 April 2012, and GetCubed, which Gary had conceived between March and May 2012, was launched in or about June 2012. In this context, Gary and Susan considered Brian's future role, and had some discussions with him in respect of it. The defendants say that the introduction of GetCubed involved a restructure - a shift from business based on the sale of products, to one providing an advisory/consultancy service, and a concomitant change in Brian's role to an office-based consultative position, in which he was to consult with all existing clients in order to determine which were appropriate for GetCubed, and otherwise to "add value" to existing clients.
Optimisation had faced increasing competition in the SEO field since about 2009. Although by 2012 Optimisation had ceased selling websites, it continued to sell SEO, AdWords, videos, and call tracking, and as at mid-2012 these extant Optimisation products continued to provide the overwhelming majority of its income; GetCubed was still at an embryonic stage. While Gary said that it was "not quite right" that those products were still to be sold by Optimisation after the launch of GetCubed, it is not at all clear how this was "not quite right"; Gary's explanation was that the industry was changing, and that GetCubed was going to be the future growth, while Optimisation would retain what it could of the existing business (emphasis added): … cause effectively ever since we'd started the business, we'd had a huge, huge attrition rate of clients, and so what we saw is we saw that GetCubed was going to be the growth of the business and we'd try and retain as much as we could and Brian was to service those clients and go out and retain as much as he could and, yes, sell certain products to them and maintain those and manage that transition over.
When it was put to Gary that by 2012 Brian was the only "on the road face-to-face salesperson", Gary sought to describe Brian as an "online consultant", rather than an on-the-road salesperson. It is true that Brian's signature block on the Optimisation email account described him as "Online Marketing Consultant", and if that was intended to convey that he sold online marketing solutions it was not inaccurate. But Brian was never an on-line consultant in the sense that he consulted online as distinct from face-to-face, and attributing the description "online consultant" to him was a transparent attempt to rewrite history to suit the defendant's case. Gary's lengthy answer to the question "What does an online consultant do?", did not answer the question at all. The references in the above-quoted passage from his evidence to Brian "going out" to "sell certain products" provide a much more accurate characterisation of his role.
Until Ms Hewitson's engagement, the technical delivery of the SEO product had been outsourced to suppliers in India. In 2012, with the introduction of Google Penguin, the Google algorithms, upon the exploitation of which SEO depended, were changed. The Indian suppliers were not current with those changes, and as a result the product became suboptimal. Ms Hewitson identified a number of other concerns in connection with the SEO product, including some practices which she considered unethical, and she formed the view that some customers were at risk because of the changes concerning the algorithms. At a meeting with Brian, Gary and Susan in May 2012, Ms Hewitson said that if Optimisation was to provide a quality SEO service, it could not continue to operate in the manner in which it had been, and that the Indian supplier had some very poor SEO practices, which needed urgent attention. She flagged issues with the algorithms, and said that clients were at risk, with several having complained that they were "dropping down the list" (a reference to where they appeared on search results), and that clients needed more attention - or, as she put it - "more love". As Brian said, the main concern was with a number of issues with SEO internally (which Gary's evidence tended to confirm), and how they were addressed with the outsourced Indian operation. At Ms Hewitson's initiative, the delivery of SEO was brought in house during 2012, to align with the new algorithms and Google's requirements, with staff being hired and trained for that purpose. However, while the issues related chiefly to the delivery, as distinct from the selling, of the product, one aspect was the manner in which SEO should in future be explained to clients at the point of sale, which was Brian's function.
The intention was that GetCubed would be a division of Optimisation, which would then have two brands - Optimisation and GetCubed - with GetCubed having a distinct market identity. Gary described GetCubed as not a product, but a "business concept, strategy idea". It was said to involve ongoing review of online marketing and results for clients, and to be a "higher level, more strategic service", providing "bespoke solutions", at a higher cost, and to be more appropriate for larger clients. However, it must be said that while the commercial benefits of AdWords and SEO for a client are obvious, the evidence never really explained the commercial benefit to a client of the more amorphous GetCubed concept.
On 28 June 2012, Gary sent an email to Susan, captioned "Brian Ideas", in which he set out suggestions in respect of Brian's role: Get Cubed If Brian is prepared to educate himself via self sourcing/reading books/watching videos/being in office/doing external or internal training/experimenting himself than there are options to "Consult" - Provided he does all this he could start with doing Networking/prospecting for leads, doing the initial Q&A and then handing over strategy planning to Sara - He would then slowly get introduced to the process and take more of a role. This is not full time. OA - He would have to self source this via existing base etc Sell video Sell mobile - We would need to outsource and he would have to manage Sell AdWords - We would need to outsource (Churn and burn clients) Sell Google+ - Would need to learn this and package Sell Call tracking - Stand alone Anything else????
Thus Gary contemplated two potential roles for Brian: a new role in the GetCubed division which would require training and being in the office (it would require Brian to "educate himself …"); and continuation of his existing Optimisation sales consultant role (in which he would have to self-source via the existing base, but essentially involved selling existing Optimisation product lines; there was no mention of this being office-based, or requiring education or training, except in connection with the suggestion of Google+, which would be new).
In an email to Brian on Monday 2 July 2012, Susan wrote: We will have a meeting tomorrow (you, me and Gary) You can let us know what direction and plan you have come up with moving forward. Following our meeting, I will then brief Sara, so she can process and also plan moving forward. … We will then have a meeting Wednesday with the four of us to discuss your role and agree on how we move forward. …
I accept that the meeting of 3 July 2012 was largely as described by Brian, with the outcome that he would concentrate on selling the extant Optimisation customers and products, while Ms Hewitson was to focus on GetCubed. Brian said: I think you already know I will continue with my face-to-face sales role selling OA products and managing my OA clients, and if I identify a GetCubed client I will work with Sara and she will do the 'strategy'.
Although Susan disputed that Brian said, "I'll continue with a face-to-face role servicing Optimisation clients", she agreed that he said, "If I identify a GetCubed client, I'll work with Sara and Sara will do the strategy". Gary, while otherwise accepting that Brian spoke the words set out above, at first said that the words "face-to-face" were not used. He was pressed: Q. When Brian said to you at this meeting on 3 July 2012 that he would continue with his face-to-face sales role and work with Sara if he identified a GetCubed client, you and Susan both said, "Yes, that's fine", or words to that effect? A. No. What we said was that, "It's important that you come into the office to understand how you're going to consult with these clients, because you can't just go out and just sell something on top. It's not going to work that way".
That bespeaks coming into the office to gain understanding, so that he could more effectively perform his role in selling face-to-face to clients. Whether or not the words "face-to-face" were explicitly uttered, it is plain that that is what Brian conveyed, and Gary and Susan understood that was what he intended.
Gary also volunteered that he and Susan also said, "Let's not make the same mistake again with Sara", referring to problems said to have been occasioned by lack of supervision of Paul Pearson; but when asked why that had not been mentioned in his affidavit then remarkably about-turned, saying "Okay. I didn't make that comment".
Conformably with Brian's evidence, I do not accept that there was any agreement or understanding that he was exclusively to look after existing and new small Optimisation clients, while only Ms Hewitson would attend to GetCubed; rather, although they had those primary areas of responsibility, each was to draw on the skills of the other, and while Brian was primarily to be responsible for Optimisation, and refer GetCubed opportunities to Ms Hewitson, he was not forbidden from selling GetCubed if the opportunity emerged.
Nor do I accept that there was any agreement that Brian was to call the existing Optimisation clients, in priority the 'at risk' clients, going through every single client and identifying those to hand over for a full GetCubed strategy, while also serving and maintaining his existing clients. If Susan told Sara that there was such an arrangement, as Ms Hewitson said, she was stating what she wanted, rather than anything to which Brian had agreed. But as a matter of probability, there was no such expectation, as Susan claimed, that Brian would review every existing client, identify their needs and goals and whether they could be moved over to GetCubed, so that existing Optimisation clients would be treated the same way as GetCubed clients, albeit on a smaller spend. Susan's evidence that "a briefing document was to be completed by the plaintiff with every Optimisation client and handed over to Sara" was not supported by identification or production of any such document; the only scoping document ever created was one for GetCubed alone. Moreover, given the defendants' insistence that only Ms Hewitson was to undertake the analysis and strategies for GetCubed, and Ms Hewitson's desire (supported by Gary and Susan) to maintain the distinction between her management of GetCubed and Brian's role in Optimisation, it does not make sense that Brian would have been given that responsibility.
I also do not accept that the servicing of existing clients became Brian's responsibility - as he said, SEO delivery and servicing was not his job, which was to sell, not to remediate issues with SEO: No, they were not getting serviced properly because Optimisation was using an Indian outsourcing firm and not getting the service.
However, I do accept that Gary and Ms Hewitson expressed an expectation that Brian would undertake some training with Ms Hewitson, in relation to how to explain SEO under the new arrangements. This did not envisage any formal or protracted training; what was contemplated was that Brian should learn, from Ms Hewitson, how she wanted SEO explained to prospective purchasers. As Brian said, the relevant training for him involved how to represent SEO adequately to clients in a meeting.
Brian admittedly had a number of conversations with Ms Hewitson during 2012 about training, probably first in May. It was put to Brian that in July and August 2012, she three times asked him to come into office to be trained, to which he responded: I don't recall three times. I said I was comfortable, I didn't think I needed further training, I didn't have to deliver the after sales service.
On 11 July 2012 at 12.10pm, Brian sent Ms Hewitson an email, captioned "SEO Training / BW Windows", which explained that for various reasons "Friday is no good", and concluded: Any option for SEO training after our meeting tomorrow?
Ms Hewitson responded at 12.43pm, relevantly: Let's try for the first SEO training tomorrow then.
On 12 July at 9.09am, Brian replied that he had had to commit to another sales meeting between 12 and 1pm, but: Maybe we can have a power chat after our 10am meeting re how I should be talking about SEO in sales meetings now, then we will revisit and complete training ASAP.
Brian said that his position remained that he had sufficient training to explain SEO in sales meetings as Ms Hewitson desired: he had had several meetings with her, had listened to her speak about SEO and the Google/Penguin algorithms for several hours (including in their meeting in May), and was fully equipped to explain and represent SEO appropriately in a sales meeting. He said that it was not hard to pick up how to explain the new algorithms; that to do so he only had to listen to Ms Hewitson do it once, but had heard it several times over; and that he had incorporated her manner of speaking about SEO into his presentations. He said that his emails of 12 and 13 July were sent as a matter of courtesy and to appease, while he believed that the issues would be better handled in person when they met: I was going to let her know I was equipped to go out and make the SEO representations with the new algorithms.
Brian said that he told her in their meeting on 13 July that he was sufficiently trained in SEO to make sales. As Brian explained, to be a sales consultant he had to know the basic functions of SEO and the new Google algorithms and how to explain them, but not the detail of how they worked; it was not his job to attend to the technical side, but to represent SEO in a sales meeting, which he was adequately equipped to do, having listened to Ms Hewitson present the product on multiple occasions.
Brian rejected the proposition that by mid-2012, everyone else wanted him to be involved in training about the after-sales delivery of SEO: he maintained that delivery was separate from sales, and that the delivery of SEO was not part of his sales role. The requirement for training to address the internal issues with SEO and the new algorithms was mainly in relation to delivery after-sales service, which was not part of his role. Given his background and skillset as a salesperson, and that he was not (as was evident to all) a "technical person", this makes sense; his role as sales representative was not a technical one. That further training for him was not a large issue is consistent with the circumstance that, as Gary conceded, there was no email or other written communication subsequently referring to it (though he maintains that "it was discussed").
Although Brian was not excluded from selling GetCubed, his occasional endeavour to do so occasioned friction with Ms Hewitson, as he conceded: I did, I think the main issue was Tile MegaMart. I decided as a director to sign Tile MegaMart up. It turned into a valuable client and I don't regret it but it did cause friction.
While Brian was cross-examined and criticised at some length in respect of his role in relation to GetCubed, to the effect that he was intermeddling in an area from which he was excluded, it is difficult to see how anything he did was detrimental to interests of Optimisation, though it may not have accorded with how Ms Hewitson wanted things done. As Gary conceded, Tile MegaMart, having been introduced by Brian in August 2012, was Optimisation's largest GetCubed client in 2012/13, generating revenues of $250,000. Thus, in securing the sale to Tile MegaMart, Brian generated substantial and significant economic benefits for Optimisation. Ms Hewitson's objection seems to have been that Brian was generating sales faster than they could be handled. Moreover, the defendants' proposition that Ms Hewitson forbad him from selling GetCubed, because she wanted to go through a different sales process, is itself illustrative of the problem: Gary and Susan were abroad; Brian was the only shareholder and director on hand; yet the general manager was supposedly forbidding him from pursuing certain opportunities, which turned out to be beneficial for the company.
Although Brian suggested that tension between him and Ms Hewitson was not ongoing, there was undoubtedly friction between him and Ms Hewitson, and word of this was conveyed by a member of staff, Steve Hickey, to Gary and Susan in England. Susan says that she had discussions about this with Brian and Ms Hewitson, but although she attributed the difficulties to Brian's failure to attend the office, in my judgment they were far more complex. Brian was a rather old school sales representative, who might from time to time have engaged in hyperbole and puff to secure a sale. Ms Hewitson was unable to bring herself to regard Brian as a director with authority over her, and had no regard for his skills or experience, and I suspect that Brian was somewhat intimidated by her, lacked confidence in dealing with her, and perhaps felt somewhat embarrassed in doing so. That there was ongoing friction is apparent from the discussion, referred to below, at the 15 March 2013 meeting.
Thus I do not accept that there was any such restructure as involved an expectation that Brian would work from the office, as distinct from continuing in the role of an on-the-road sales consultant. Two alternatives were considered - re-rolling to focus on GetCubed, or remaining responsible for selling the extant Optimisation products as an on-the-road salesperson - and the latter was agreed. Brian continued, throughout 2012, to work as an on-the-road salesperson. There is no credible evidence of any contemporaneous protest that this was contrary to any mutually agreed arrangement: Susan referred only in a general way to telephone conversations, which were not mentioned in her affidavit evidence; and Gary propounded an oral agreement said to have been made between Susan, Ms Hewitson and Brian in August or September 2012 that Brian would come into the office one day a week - a conversation to which he was not a party, and of which no other witness gave evidence. Gary said that Brian had not really started servicing the client base; but his email to Susan of 28 June 2012, set out above, refers in the context of the Optimisation option to selling the various products, albeit to customers that he would source from the existing client base - not to servicing the client base.

[38]

The Westpac bank account

From about early 2013, prior to Gary and Susan returning from England to Australia, the simmering tensions between Brian on the one hand and Gary and Susan on the other escalated. One of the precipitants of this was Brian's insistence on gaining log-in access to view Optimisation's bank account with Westpac.
In January 2006, at the Coogee offices of Orchard, Gary and Brian agreed to open an account at Westpac for the company, and on 18 January 2006, they attended the Coogee branch of Westpac to open a trading account. They dealt with the branch manager, John Levi, who was known to Gary. Brian recalls that he signed some documents; although he says that there was no discussion about who would be the signatories, and that he "basically signed the documents at their direction", assuming that he would be a signatory, this seems unlikely. Gary at first said that Brian did not want to be signatory, but in cross-examination was not certain that Brian had said as much; this was a very convenient answer, as his evidence would otherwise have conflicted with his later position that he was uncertain whether Brian was a signatory. Ultimately, it emerged that Brian was indeed, and had always been, a signatory, but did not have on-line access to the account, which was treated by the bank as connected with Gary and Susan's other accounts - in banking terminology, as one of the accounts of the "Williams connection".
Brian says that he subsequently, over several years, sought to be given access to Optimisation's Westpac bank accounts, in order to be able to review the transactions. Brian said that in seeking such access, he wanted nothing to do with administering them, but only some transparency. However, access was refused by Gary and Susan, for the stated reason that it would give him access to their personal and Orchard accounts.
In his affidavit evidence, Gary said that it was only in February 2013 that Brian first asked to be a signatory on the Westpac account, and that he was unaware that Brian was not a signatory (rather inconsistently with his professed recollection that Brian had said at the outset that he did not want to be a signatory). Brian agreed that he had not previously expressly said that he wanted to be a signatory, but only that he wanted log-in details. As has been noted, in fact he had always been a signatory. On any view, Brian had requested log-in access at least as early as 2007: in an email to Brian on 24 July 2007, Susan responded to a concern expressed by Brian that he did not have on-line access to the bank accounts, in the following terms: To make things simple and allow for transfers on a daily basis Gary's log in details are linked to all our accounts including OOS, Web4Site, mortgage and personal. For this reason you having the login details prove difficult.
Gary said (in cross-examination) that he did not totally agree with what Susan had said in that passage, in that making things simple and allowing for daily transfers was not a reason, only that it was a result of having a personal log-in for a bank account. That qualification is correct, and suggests that Susan was dissembling when she provided her explanation to Brian.
Brian responded to Susan and Gary: I never want anything to do with account that's [not] my game in any way shape or form, that's Gary's expertise. However, as an equal company director I feel this [log-in access] would be a basic business right. This makes me feel I am stuck out on the left wing and not really knowing where the business is at times. When I work in the Shire sometimes I may not be in the office for a month and I feel logging in to view our business account should be available to me. However, given the way you said its set up what can I do?
Gary professed that Brian was asking for his (Gary's) log-in details, but what he was seeking in substance was the ability to view the Optimisation account on-line. Gary prevaricated as to whether he was aware at that time (as was the case) that Brian could have obtained his own log-in from the bank; he conceded, "In retrospect I would have been aware. I don't - can't say if I was aware at that point in time". Susan now says that Brian should have obtained his own log-in from the bank, but she did not suggest that at the time. Gary offered to go through the accounts with him, but did nothing to facilitate him obtaining on-line access. Gary did not see it as his responsibility to assist Brian in this respect: I thought it would be more constructive by sitting down and going through a monthly profit and loss statement or balance sheet to be more productive and more educational for Brian in that respect. So even then, I don't know. It's really what I thought the answer was at the time.
Brian's rhetorical question, "What can I do" begged the answer, "Go to the bank". In my view, Gary and Susan were content for Brian to labour under misapprehension that there was no way he could get online access to the bank accounts.
In about February 2013, Brian approached Westpac to obtain access to the Optimisation accounts, and was given the relevant forms, which required Gary's signature. (Brian observed that in hindsight, he should have obtained the forms in 2007, and not waited until 2013 to do so). He forwarded them to Gary in England, but Gary did not sign and return them, though he said that he would. He ultimately signed them following his return to Australia, on 15 March 2013, in circumstances described below.

[39]

Mosaic

Another precipitant was Brian's opposition to Gary and Susan changing Optimisation's external accountant to Mosaic Financial Services, who also acted as personal accountants to Gary and Susan.
From the outset, Mr Rex Miller of the firm which was originally called Kidmans and later became known as Altus Financial had acted as the external accountants for Optimisation. Brian says that in mid-2012, before departing for England, Gary and Susan suggested that Optimisation might retain Mosaic, and he responded that he would like to meet with Mosaic first, and also with an alternative, which Gary said he would arrange. This evidence was not traversed by Gary or Susan in their affidavits. Gary conceded that he and Susan had met Mosaic before departing for England, and that from that point they were considering moving all their accounting - including Optimisation - to Mosaic. However, in cross-examination, for the first time, he denied that there was any such conversation as Brian alleged in mid-2012 about possibility of changing accountants to Mosaic - although he had never disputed it in his affidavit evidence, nor denied it in any response to Brian's email of 5 March 2013, in which Brian had referred to such a conversation: I brought this up verbally before your left for the UK (wanting input on next person re OA accounts) …
Gary said that he had told Brian that he would organise a meeting with Mosaic, but not about doing the accounts - only to establish a shareholders agreement - which is itself curious, unless he was already contemplating Brian's removal.
Susan said that she had a vague recollection of discussions with Gary, prior to going to England in 2012, about replacing Rex Miller as the accountant. She agreed that she and Gary had a personal relationship with Mosaic, and that she vaguely recalled that in 2012 Mosaic had indicated that they were looking at extending to accounting services, and talking about it (with Gary) as a possibility they were then considering; but she said that she did not think that they had decided to retain Mosaic before they left for England. She acknowledged that they had a meeting with Mosaic about their personal finances. She was adamant that the matter was not discussed with Brian before they left for England. But she accepted that it would have been perfectly reasonable for Brian to adopt the position that if they were going to replace Rex Miller or appoint Mosaic, he wanted to meet Mosaic first and that he would also like to meet an alternative firm.
On 13 February 2013, following discussion with Susan, Gary instructed Mosaic to do all the accounts - including for Optimisation. He informed Brian of this, by email, on 22 February. Susan disputed that Mosaic were appointed without reference to Brian, and said that it was the subject of emails; however, no relevant email was produced, despite the extensive email correspondence in evidence. She agreed that Brian indicated that he wanted to be involved and to explore a second option, and denied that in reality Mosaic had already been appointed; however, Gary had in fact already given Mosaic "the go-ahead" on 13 February. [22] Gary agreed that Brian made it clear that he wanted to be consulted on 23 February, but said that this was after the decision had already been made.
Consistently with the evidence of both Gary and Susan, I find that, since before they left for England in June 2012, they (in particular Gary) had under consideration the transfer of Optimisation's accounting to Mosaic, although they had not yet made a definite decision to do so. In that context, and in light of the fact that Gary had admittedly spoken to Brian about Mosaic at least in connection with a proposal for a shareholders' agreement, that Brian's assertion in his email of 5 March was not traversed, and given the shortcomings to which I have referred in the defendants' evidence, and my general preference for Brian's evidence, I accept that in the course of 2012, the possibility of changing accountants to Mosaic was mentioned to Brian, who expressed to Gary a wish to be involved in any decision about retaining new accountants.
Gary's stated reason for not consulting Brian before instructing Mosaic was that he did not think it was relevant, and did not think that Brian really needed to know. In an email to Brian of 27 February 2013, which is further discussed below, he wrote: Whilst I appreciate 'we' have made the decision to transfer everything to Roy without consulting you, this is my domain, my expertise, and I do not trust your judgment in these matters.
Even if (as Gary claims, but I do not accept) he was unaware that Brian had expressly said that he wanted to be consulted, this is remarkable, given that Brian as a director was entitled to be consulted, that he was consulted about and agreed to the initial engagement of Mr Miller, that he had been consulted about the engagement of Paul Pearson (Susan explained that the interview with him was recorded and played to Brian), and that in her email to Brian of 24 July 2007, Susan responded to Brian's concerns about his participation in decision-making as follows: All three of our opinions are listened to, considered and acted upon only on agreement of all three parties.
To that email, Brian had replied: Yeah, that is the case now, not so much earlier, but that was fair enough.
When asked whether Susan's description of the arrangements accorded with his view, Gary answered: It was pretty much we always came to an agreement on things, yes. It might have taken a while to get there.

[40]

The breakdown

A few days after Susan's return to Australia from England on 15 February 2013, she and Brian met at her Coogee home. According to Susan, Brian kept adverting to signatories and accounts, and she kept reverting to his role; however, she denies that she said anything to the effect: "That's the way it is and if you don't like it there's no role for you". Brian denies that their discussion was about GetCubed and sales, and says that the main subject was the proposed engagement of Mosaic.
On 21 February 2013, Brian sent an email to Gary, copied to Susan: She [Susan] mentioned about flicking Rex & looking at these other guys you have both met, which I definitely agree with. I want to meet with them first though, and also get a second option from the guy I have been introduced to. I have met with him and he is brilliant for the position we are in, very experienced. This is an important business decision in terms of getting us to the next level, so good to get a couple of opinions.
Gary responded by email of 22 February 2013, stating that he had already given Mosaic the go ahead on, inter alia, Optimisation's 2012 financial statements and tax return, commenting "They have been our advisors for 2 years". However, he added: We will want to keep all our other stuff with the new guys as they handle all of our other investments, however I am sure it won't be a problem if you want to look at letting your guy do the OA accounts. However, for this year we need to have them all completed by the end of March, which may not be enough time unless he is geared up to be able to deal with me and access the accounts online via MYOB and Dropbox.
As it emerged, the end of March date related to the due date for Susan's tax return. On 26 February 2013, Brian provided details of a Gary Pounder, as a proposed alternative, stating that he was able to meet the end of March timeframe. Gary responded the same day, that he had done some checks, which he used to discredit Pounder.
Brian then called Gary in England and told him, forcefully, that he wanted Optimisation to have an accountant that was independent of Gary and Susan, and that he did not want Mosaic doing the 2012 financial statements. Gary proposed that Mosaic be used just for the current year, but Brian responded, "We are not going to use them, I don't care what you say". Brian says that Gary's response was "Fine, we'll use someone else for Optimisation". In cross-examination Gary at first categorically and repeatedly denied this, and elaborated: Q. Do you deny at all suggesting to Brian in the conversation in late February on the telephone, that you were happy to use someone else, other than Mosaic? A. I didn't use those words. What I said was that I need to look at it, because we need to get an extension for Sue, I was concerned about that, and Mosaic had started work, or as I understood at the time, I think they'd started work, and I just wanted to make sure that we got in that - got - got it done. Q. So you say you never made a suggestion that you were happy to use someone else, other than Mosaic. Is that what you're saying? A. I said as long as - I didn't use those words. I said that I wanted to make sure that we could get an extension first before we considered anybody else.
The extension referred to was for the lodgement of Susan's FY2012 tax return. However, in his affidavit evidence, Gary had said that he recalled saying "I'm happy to use someone else, organise a meeting with who you propose when I get back", and did not suggest that such agreement was dependent on securing an extension, only that no such meeting was organised. Eventually, he conceded that he did use those words, although he was evasive as to when, until it was made clear his affidavit was in answer to Brian's version of the telephone conversation. Thus ultimately, Gary's evidence substantially confirms Brian's version.
When Susan was taken to Gary's email of 22 February, she commented, "So Gary has done that, not me"; however, she ultimately accepted that Gary had consulted her prior to engaging Mosaic. She said that she was not involved in discussions about the appointment of an accountant between Gary and Brian, while Gary remained in the United Kingdom and she was back in Australia. Then she said that she may have spoken to Brian about Mosaic a few days prior to their late February meeting at her Coogee home. Her evidence became increasingly contradictory and inconsistent.
Thus, I accept that: 1. in the course of their meeting on or about 21 February 2013, Susan told Brian that Gary intended to appoint Mosaic, and Brian said that he wanted to be involved in the selection of any new accountant; 2. if there was discussion about Brian's role, it did not extend to any indication that his on-the-road sales role was at an end; and 3. in a telephone conversation with Brian on or about 26 February, Gary agreed to use accountants other than Mosaic for Optimisation, and that a consultation for that purpose was to be arranged for when he returned to Australia.
However, the very next day - 27 February 2013 - Gary sent Brian a lengthy email about Mosaic and other issues, asserting "There is obviously a trust issue that has developed within you that was not there previously". He insisted that Mosaic, and not other accountants, be retained; that even if there were no problems in having Optimisation's accounts prepared separately, he was "not happy for it to go to your guy", and: While I appreciate "we" have made the decision to transfer everything to Roy [Mosaic], without consulting you, this is my domain, my expertise and I do not trust your judgment in these matters. You have trusted us in the past, in more ways than one, and it has been good enough for you and we ask that you trust us on this, primarily due to the time restraints. If this is something you still want to explore I am more than happy to look at this going forward, however it will be done with full due diligence and not a kneejerk reaction. If trust is still an issue for you then you are more than welcome, at your cost, to get somebody else to check OA concurrently; however I am not comfortable with the guy you proposed. Historically, we have always talked, discussed and negotiated on all business matters, however in this (which is just having OA done by Mosaic for this year only) I am going to insist that this be the case. If this is not agreeable to you then you are of course entitled to explore whatever options are open to you.
While Gary denied that this involved a change in his position from the preceding telephone conversation, it plainly did.
On 1 March 2013, Brian wrote to Mosaic and instructed them not to undertake Optimisation's accounts. He also sent an email to Gary requesting access to the Westpac account, to which Gary responded on 2 March, again raising the issue of trust in response to Brian's requests for access to the bank account and for an independent accountant, and concluding: There is an elephant in the room Brian and everyone can see it. You are the only one that can move it, however what you are doing now is only feeding it.
While Gary said that his reference to the "elephant in the room" related to Brian coming into the office and learning the new business, this was not referred to in the email; moreover, what Brian was seeking was exactly to become more involved in the business. Rather, it was a reference to his perception that there was a breakdown of trust and confidence. Gary suggested that Brian should approach Westpac, but did not otherwise address his requests.
Brian responded in a lengthy email to Gary of 5 March 2013, at 6.27pm, in which Brian maintained his opposition to the retainer of Mosaic, and pressed for access to the Westpac account. He referred to their phone call at the end of February, and asserted that there was agreement to use someone other than Mosaic for Optimisation, from which Gary later reneged. (Gary did not traverse this in his reply email, though he says now that he did not agree with what Brian asserted). Brian indicated that he sought four things to resolve the issues: 1. access to the Westpac accounts (and he attached the requisite forms for signature and return); 2. for the 2012 accounts to be completed by someone other than Mosaic on whom they could agree; 3. for a third party to be involved in the daily accounting in the future, which could be arranged when Gary returned to Australia; and 4. for each of Gary, Susan and Brian to have input in all financial and recruitment decisions.
In cross-examination, Gary accepted that these were proper requests on the part of a director. However, on the same day, approximately 4 hours later, at 10.30pm, Gary sent an email to a solicitor, John Alex D, seeking advice as to how he could overrule his "business partner" - who was described as "pushing his weight around" - in relation to the appointment of accountants, dismiss him from his role as an executive director, "nullify" him to become a "sleeping partner", or dilute his shareholding.
Gary denied that he had decided by 5 March 2013 that he no longer wanted Brian involved in Optimisation, but admitted - as was undeniable in the face of the emails - that he sought legal advice on precisely that topic. He said that he was concerned that if Brian was really "stepping back", then "we wanted to be able to know what the situation in regards to whether we could we make a joint decision". But the terms in which he sought advice are not at all consistent with that proposition, and there had been no indication up to that point of Brian "stepping back"; to the contrary, he was seeking greater involvement in management decisions. Nor was the email to John Alex D some momentary aberration: on 6 March, Gary sent a follow up email to John Alex D, pressing for a response.
On 7 March at 5.52am Gary sent a 4-point response to Brian's email of 5 March. He said that signing the Westpac documents was not in dispute "and we will get this done" (but did not return them), that he needed to review the alternative to Mosaic and was concerned about time, and commented: Our future roles are the big thing here. Nothing else can be sorted until we know where we are at. What each of us wants will affect what the others will want.
Thus Gary now placed their respective "future roles" at the forefront; in circumstances where Brian had made clear that he considered his role to be an on-the-road salesperson, and was uncomfortable in an office-based role. Brian responded the same day, at 06.23, that he did not want to wait for Gary's return to obtain log-in access to the bank account, that he (emphatically) did not want Mosaic, and that their future roles could be discussed on Gary's return.
On 8 March 2013, Gary sent an email to Mosaic confirming instructions to go ahead with all the accounts. He also sent another email to John Alex D, which included statements that "Underperformance may be pushing it …" (in response to a query whether they wanted to remove Brian because of underperformance); and asking "can we force him to become a 'sleeping partner', where he has little or no involvement in the strategy, HR etc?". Gary says he was exploring options, but his email to John Alex D reads as reflecting a formed view to minimise Brian's role and influence.
Susan denied that she had decided, before Gary's return to Australia, that she wanted to remove Brian as an influence and keep total control of operations in the hands of herself and Gary. She said that if Gary had contacted John Alex D, that was entirely without consultation with her, although she later became aware that legal advice had been sought. She maintained that they did not discuss the removal of Brian as a director before the meeting of 15 March 2013. However, on 9 March 2013, Susan sent an email to Gary, which referred to their "need to work out right approach and know legally where we stand". Susan said that she was not concerned as to where they stood "legally", and never used the word "legally" - yet she used precisely that word, in exactly this context, in that email. Although I cannot be satisfied that they specifically discussed removal or dismissal, there is no doubt that they discussed the need to resolve what to do about Brian.
Also on 9 March, Gary told Brian by email that he was "not deliberately ignoring you", but had asked for an extension (for lodgement of Susan's tax return) and was awaiting a reply, and "If we get the extension the time pressure will be off and what you are asking won't be a problem". However, he was concurrently seeking advice from John Alex D about how Brian could be overruled, and it is much more probable that he was awaiting that advice. Brian responded on 11 March: There are some simple options around this which we will discuss in person if required, you be back in a couple of days anyway. As previously stated, I do not want Mosaic doing our OA financials.
On the same day at 9.26pm, Gary sent an email to Mosaic, instructing them to proceed with "everything except OA", which confirms that there was apparent agreement that Brian's request could at least be further considered.
Also on 11 March, Gary received advice from John Alex D, to the effect that they could remove Brian as a director by shareholder vote, although that would create relationship issues, and ultimately look to acquire his shares or dilute his shareholding; in the meantime, "a story should be wrangled" to get Susan's tax return done. Susan acknowledged that she also received this advice, but said that she did not discuss it with Gary.

[41]

Meeting of 15 March 2013, Brighton-le-Sands

Gary returned to Australia from England on 14 March 2013. On 15 March 2013 - the day after his return - Gary, Susan and Brian had a meeting at a restaurant in Brighton Le Sands. There were three main topics of discussion at the meeting: (1) Brian's role and attendance at the office, (2) the signing of the Westpac banking authority, and (3) Mosaic and the accounts. All three participants say that an agreed position was reached on all three matters, although they differ as to what the agreement was.
As to Brian's role and attendance at the office, Gary and Susan contend that there was agreement that he would work from the office, at least two or three days a week, and collaborate with Ms Hewitson, and Brian says that although they were pressing for him to work full-time from the office, and he agreed that they could have a discussion about it, it was ultimately agreed that he would not work fulltime from the office, although he would come in occasionally.
Brian's version - which for reasons which will appear, as well as my general preference for his evidence, I accept - was that he initially he went along with discussion of his role, along the lines "Okay we can discuss that, I'm happy to discuss that", but did not accept that there had been a breakdown in communications or that he would learn more from coming in to the office, or that it was proposed that the days on which he would come into the office would be 'locked in'. Later he asked, "What if I don't agree", and Gary said something about needing an 'exit strategy', to which Brian responded, "That's a bit drastic". Gary denies that there was any mention of an exit strategy, buy-out, or Brian becoming a "silent partner". This denial does not sit well with the preceding email correspondence with John Alex D, nor subsequent emails, referred to below, which indicate that an 'exit strategy' was already well and truly on the agenda. On balance, I accept that Gary did foreshadow a requirement for an exit strategy.
Brian explained that one of his main objectives was to have the Westpac authority signed; that he was trying to avoid a heated argument; and that he believed that if he rejected the proposal that he work from the office at the outset, the meeting would not have progressed. Thus he said that he agreed that a change in his role could be discussed, but there was further conversation about issues with Sara and his being in the office, and: "so initially I agreed, to appease and avoid conflict; we went on to discuss my issues with Sara and agreed it wouldn't be a good idea for me to be in the office, and I did not agree at the end of the meeting to be working in the office", although to placate Gary and Susan he agreed to come into the office on a limited basis, and said: Sara and I clearly have a personality clash; it's a square peg in a round hole for me to be working in the office beside her; it wouldn't be productive or desirable.
Brian said that Gary and Susan agreed that it would not be good for him to be working alongside Sara on a fulltime basis, but they would continue to draw on each other's skills.
My reasons for preferring Brian's version include that both Gary and Susan agreed that there was discussion about Brian being "a square peg in a round hole" and not liking coming into the office, and Susan agreed (although Gary did not) that Brian said that he did not think it was the best idea for him to work side-by-side with Ms Hewitson in the office. There would have been no occasion for a discussion about Brian being "a square peg in a round hole" in the office, or his relationship with Ms Hewitson, if (as both Gary and Susan maintained) it was agreed at the beginning of the meeting that Brian would work from the office, and that agreement remained in place at the end. Further, in denying that it was agreed that it would not be prudent for Brian to work in office while Ms Hewitson was there, Gary said that around this time Ms Hewitson indicated that she was prepared to "give it another go" with Brian; however, as will appear, Ms Hewitson resigned two days later (a Sunday), and so would not likely have given any such indication; she did not recall having done so. Moreover, Gary's email of 16 March, referred to below, which raised an exit strategy before Brian had had any opportunity to attend the office, suggests that there was no such agreement as Gary and Susan assert; had Brian agreed to work full-time from the office, the occasion for an 'exit strategy' would not have existed.
To the suggestion that he was prepared to say anything to get the bank form signed, which he agreed was his main objective, Brian responded, in my view entirely reasonably, "No, I was prepared to keep the meeting as reasonable and amicable as possible". Moreover, all appear to have understood from the outset that Brian was not an "office person", and that his comfort zone was as an on-the-road salesperson working from home. As Brian said, he had never had a hands on internal role in operations; his only role since 2006 had been sales; he had previously made clear that that was his role, and that he was uncomfortable in the office; by this meeting he was forcefully advocating his own position and interests, and on any view there was reference to his being 'a square peg in a round hole' in the office; there is a high degree of improbability that he would have immediately and unequivocally agreed on this occasion that he would work fulltime from the office. The affidavit evidence of both Gary [23] and Susan [24] is to the effect that he agreed to come into the office a couple of days a week, which is consistent with Brian's position.
As to Mosaic, it is common ground that Brian made clear that he did not want Mosaic doing the company accounts for 2012. Gary accepts that Brian never agreed to the engagement of Mosaic, but disputes that it was agreed that Mosaic would not be engaged, although he said that he believed he agreed to meet with Brian's candidate, with a view to him possibly being retained. Brian says that he told Gary that he had spoken to Rex Miller (the original accountant), who had said that it was easy to get an extension (for lodging tax returns). He made it clear that he did not want Mosaic doing the company financial statements, and maintains that it was agreed that Mosaic would not be retained. He denied that he again raised 'the guy I got' (a reference to his earlier proposal of Mr Pounder), saying that he was no longer under consideration after Gary's email pointing out his apparent shortcomings. Susan said that she did not recall any agreement at that meeting that Mosaic would not be involved in preparing the financial statements; she said there was very little discussion about Mosaic, the main topics being, in her recollection, Brian becoming a signatory, and his role.
I accept that Gary agreed that Mosaic would not be retained; not only is that consistent with his previous acceptance of that course, but in his email of 16 March 2013, referred to below, he referred to their "acceding to your requests" the previous day. On any view, it would have been inconsistent with the position reached to go ahead and retain Mosaic without further discussion.
In respect of Westpac, it is common ground that Gary signed the authority which was produced by Brian. Susan said that as soon as Brian agreed to come into the office, Gary signed the Westpac papers. According to Brian, he said "So you've got no problem with me getting on the bank accounts", pulled out the form and placed it in front of Gary; Gary went red in the face, and Susan looked over at Brian, and after a pause Gary signed it, "reluctantly". Gary said that at the end of the meeting Brian aggressively raised why he was not originally made a signatory, and the question of Sharmark, while Susan pressed him about what days he would be coming in, to which he did not commit. "I thought the meeting was a ruse, just to get the documents signed. I walked away". This attitude is consistent with Brian's description of Gary's response to being asked to sign, which I accept.
I do not accept that Brian had, by the time of the meeting on 15 March, eschewed any interest in remaining engaged in the company, and was interested only in an exit strategy. Brian accepts that he did not do much work in February 2013, once the dispute erupted. He had admittedly ceased going into the office, because Susan had returned from abroad; but that was not because he had decided to leave management to Susan - as he said, "Sara was there". When it was put to him that by 15 March his objective was not to mend the relationship, but only to ensure that the business was "protected from Gary", he said that he did not understand this, and attended the meeting to discuss what needed to be discussed, and to get the bank forms so that he could get access to the bank accounts. I accept Brian's evidence that he was not of the view, from the time of his meeting with Susan in February, that the relationship was irretrievable; as he said, "This was my company, my business, by the time this meeting came around I was hoping things would be okay". To the suggestion that the idea of an exit strategy appealed to him, Brian responded: It was something I had to consider, I don't know that it appealed.
Moreover, Brian (and Susan)'s father Brian Manix Kearney gave evidence, which I accept, that in and around March 2013 he had "dozens of phone calls" with Brian, sometimes twice a day, sometimes not, in which his situation with Optimisation was discussed. However he was adamant that they did not discuss ways in which Brian might exit the business, and Brian did not discuss ways he might be able to get out; his recollection of the effect of their conversations was that Gary and Susan were trying to get Brian out.
It was put that Brian unreasonably manufactured the dispute, on the false basis that he was somehow being disadvantaged through the involvement of Sharmark, of which he had not previously known; and that Gary's insistence on Mosaic was entirely reasonable. Brian agreed that his discovery that Sharmark was a shareholder had alarmed him, but I see no artificial manufacturing of a dispute in this respect: although it may not appear important to a lawyer that a trust is interposed, a large lay shareholder in Brian's position in a closely held company may well be surprised and concerned to discover after many years that there is another shareholder of which he had no prior knowledge. The issue concerning Mosaic was the apparent reneging on a previous arrangement, or at the very least disregard of a request, that should Brian be consulted, in circumstances where Brian wanted an independent accountant who was not vulnerable to any conflict of duty.

[42]

16 March 2013 - Repudiation

To a substantial extent, the events of the very next day superseded whatever agreements or arrangements were made on 15 March. On 16 March 2013, at 12.45pm, Gary sent Brian an email: I have carefully considered the situation and the events of yesterday. I initially felt encouraged that you had finally accepted the fact that it is your own responsibility to get more in touch with the business. However, after acceding to your requests, it became abundantly clear that your questioning of me showed a lack of understanding of what we have been saying to you for years and what is required of you as a "director". … Without this understanding and commitment we need to decide and agree on an exit strategy as we have no shareholders agreement in place. This needs to be done quickly and amicably as possible for the benefit of all. In the meantime I consider it fair for all parties that you, Sue and I are placed on a prorated salary of $100k pa, based on time spent in the office or attendance of appointments started 1st March 2013.
Gary's explained this about turn as being "partly to do with the fact that he had sort of fooled us as well in terms of coming into the office". I am unable to accept this. Gary acknowledged that the reference to acceding to Brian's requests was to signing the Westpac authority, and agreeing to see his proposed accountant, which were hardly momentous concessions. However, on the version that Gary and Susan now propound, Brian had agreed to work from the office, at least to some extent - a radical change in the status quo and concession on his part. Yet on a Saturday morning, before there had been any opportunity to see whether Brian would adhere to it, they decided to pursue an exit strategy which was, in reality, a strategy for Brian's removal. In the course of cross-examination, Gary propounded the view that the agreement made on 15 March 2013 was a ruse or a trick on the part of Brian, in particular in relation to his working from the office; however, that is contrary to both Gary and Susan's version of the discussions on 15 March, which is that an agreement that he come into the office was made and remained in place at the end of the meeting. Moreover, there was no contemporary assertion to that effect, nor does it appear in Gary's affidavit evidence. The 16 March email contains no such suggestion. Further, if (as Gary and Susan maintain) agreement was reached at the meeting on 15 March that Brian would work from the office, then this email repudiated that agreement, the very next day, before Brian had had an opportunity to perform it. If there was a ruse on 15 March, it was not on Brian's part.
Gary gave the following evidence: Q. Nevertheless, it was your view, was it not, sir, that as at 16 March 2013 you would not be continuing in business with Brian? Correct? A. I felt as though, yeah, the relationship had now reached breaking point and we needed to find some way to move forward separately, yes. Q. An exit strategy. A. Yes. Q. That was an exit strategy for you as shareholders of the company. Correct? A. Yes. Well, probably. Q. You say an exit strategy as we have no shareholders agreement in place. A. Yes. Q. So the exit strategy in the absence of a shareholders agreement must necessarily involve a complete separation between you and Brian and Susan in relation to the operations of Optimisation. A. Yes. Q. The only way that an exit strategy could be achieved of that nature was for one or other of you to buy the other out. Correct? A. As I understand it, yes, or splitting the company or something along those lines. Q. Or splitting the company. A. Yes. Q. Either split the company in two or perhaps three. A. Yes. Q. Or either Brian buying you and Susan out or you and Susan buying Brian out. A. Yes.
Susan says that the 16 March email was written and sent by Gary without prior consultation with her, but she too said that, after the meeting of 15 March, an exit strategy was required - although she also said that in her view, "it could still be sorted out". However, why an exit strategy was required, if as they say Brian had agreed to their requirement that he "come into the office", is not at all apparent.
Gary said that by 16 March he felt that the position had reached breaking point, and it was necessary to consider an exit strategy; he said, "It didn't seem fair that we were doing all the work and Brian was sitting at home". He says that he thinks he made up his mind they wanted Brian out after the meeting, and that Brian effectively "checked out" of the business after that meeting. Gary says that at that point he was struggling to see how they could reconcile, although he had gone to the meeting with the sole purpose of reconciling everything. But this was only the day after, on his evidence, all had agreed that Brian would work from the office. And it was a Saturday, the meeting having taken place on a Friday. He could not have reached that view in good faith if, as he said, he believed there was an agreement.
On (Sunday) 17 March 2013, Sara resigned as General Manager, citing work, family and personal circumstances - although in her evidence she would attribute her decision to the difficulties she perceived with Brian. Gary says that he had no discussion with Ms Hewitson about her intention to resign, or the meeting of 15 March, before receiving her resignation on 17 March. Despite her resignation, and her more recently stated attribution of it to factors associated with Brian, she continued to work for Optimisation - casually, and remotely - until 19 September 2013, to assist where required. As has been observed, her resignation was only days after, according to Gary, she had allegedly said that she was prepared to "give it another go" with Brian, and Brian had supposedly agreed to "come into the office" on that basis; that evidence of Gary is implausible, and I do not accept it - especially as it emerged that Ms Hewitson had already obtained alternative employment with Westpac before resigning, and had applied for that position about a month earlier.
On 18 March 2013, Mosaic sought confirmation from Mr Miller that it was professionally in order for it to take on the accounts of Optimisation, to which Mr Miller replied in the affirmative.
Also on 18 March 2013, Brian sent an email to Gary seeking to have a further document signed to finalise his on-line access to the Westpac accounts. On 19 March at 6.41am, Gary responded to Brian: We hardly think that this is relevant considering we are discussing the ownership and management of the business. This is obviously now an even bigger priority considering Sara's resignation, as it has a bearing on everything. We have met with Sara first thing yesterday, however we can hardly even think to discuss anything else, let alone her "replacement," until the ownership is resolved as a matter of urgency.
Brian responded at 8.10am, that an online bank registration form needed to be completed and he wanted "this done properly before we discuss the solution moving forward", and again at 9.13 "it's a simple thing again and needs to be done properly. Once this is done I am on the same page of moving forward promptly and amicably. Not going back & forward on this" - which Susan characterised as Brian having "brought it back to the Westpac paperwork again, which was irrelevant", which says more about her attitude to Brian's legitimate interest in securing proper banking access than it does about why an exit strategy was required.
On the same day at 12.41pm, Gary emailed Brian again, pressing for an exit strategy as soon as possible: We have made it clear to you that our minds are made up and we want to go our separate ways ... once again ask that we open a dialogue in regards to this as a matter of urgency. If this is not forthcoming we will have no alternative than to force the issue…
The reference to having "made it clear" is presumably a reference back to Gary's 16 March email, as on no view of the 15 March meeting was it made clear then that it was resolved that the parties would "go their separate ways".
Brian responded to Gary on 19 March at 4.31pm in respect of the demands for an exit strategy, stating that he wanted to work it out and determine a fair thing; that while he had thought the idea of them buying him out was ridiculous when first mentioned, it may now be an option given the fracture in their relationship, and querying "What figure did you have in mind?"; he also referred to previous mention of a "silent partner" option and inquired what that would involve. [25]
On 20 March 2013, Gary requested a meeting, that afternoon or the following day, to discuss the options for the exit strategy. Brian responded the same day, that a meeting would be unproductive until he had some idea what they were thinking, and expressing a preference to avoid a meeting due to anger and emotion, and to advance things by email in the first instance. Gary replied on 21 March 2013, that he would prepare an email explaining the options and their pros and cons, and would try to get it to him the following day. That never eventuated.
On Friday 22 March 2013, Brian sent Gary and Susan an email, stating that he had received some advice and proposing that there be a valuation of the company, by an independent valuer, following which decisions could be made about buy-outs, or break up of clientele between them. One might have thought that this was an obvious and sensible step towards the formulation of an 'exit strategy'. However, Susan responded by an email on 25 March 2013, which she had discussed with Gary and which he had approved, in which she said that she and Gary had considered a value, but would not agree to an independent valuation at that time, and avoided making any alternative proposal, dissembled about the possibilities, and instead asked, "What are the serious options you are considering?". In cross-examination she initially - implausibly - denied that the "serious options" referred to were options for exit strategies, but eventually was compelled to concede that they were.
It is manifest that Gary's position was that the exit strategy was the primary issue to be resolved. Although Gary and Susan's oral evidence was replete with references to requiring Brian to come into the office to work and for training, no specific instance was identified by them, and not a single document supports that position. Susan said that despite what Gary had written on 16 March, she was still open to Brian "coming in", and she denied that there was great urgency to resolve an exit strategy. But although she maintained that daily management and an exit strategy were equally important, and despite her suggestion that she was still open to there being an ongoing role for Brian, there is nothing in the correspondence to that effect, nor any evidence that it was ever put to Brian; indeed, the contemporaneous documents are to the contrary effect. To the proposition that the notion of Brian "coming in" and retraining was not consistent with pursuit of an exit strategy, Susan said that he was going to continue to work until his exit, for $100,000 per annum; but this is not credible in the light of the correspondence, and the by then very poor relations between Brian and Gary and Susan. In truth, despite Susan's claims to the contrary, the issues of Brian working in the office and the resolution of the Mosaic issue were now irrelevant to her and Gary, and the only issue for discussion with Brian, so far as they were concerned, was the finalisation of a strategy for Brian's exit. The protestations that the exit strategy was not their main priority, and that it was still open to Brian to come into the office and work, are specious.
Susan said that at time of the 25 March email, the option of terminating Brian's employment (as distinct from his removal as a director) had not been considered; there is no evidence to the contrary, and I am inclined to accept her evidence in that respect. However, in response to the request for a valuation, the strategy then changed. On 27 March 2013, Yates Beaggi, then acting for Brian, sent a letter to Susan and Gary, again requesting agreement to an independent valuation, proposing that Brian might buy out Gary and Susan, and foreshadowing an approach to the court if necessary. Susan and Gary referred this to their then solicitor, Mr Michael Mazzone of Diamond Conway, on 27 March 2013, commenting: "We were in the process of starting the employee dismissal process as this came through. Also was going to ask you the EGM procedures we would need to follow to dismiss him as a Director." Gary also sought advice as to whether Brian's refusal to agree to Mosaic's appointment could be overridden.
On 2 April 2013, Mr Mazzone responded to Yates Beaggi that Gary and Susan did not understand that Brian had the financial resources to acquire their shareholding, and that there was little value in pursuing a valuation - but offered no alternative exit proposal.
Susan asserted that Brian never suggested that he wanted to buy her and Gary out, but had to accept that the Yates Beaggi letter stated a preference on Brian's part for acquiring their interests, which would require a valuation. She said that she believes that they would have been happy for Brian to buy their interests, and repeatedly maintained "we did respond to that letter". Then, when shown the response to the Yates Beaggi letter, which declined Brian's proposal for a valuation, Susan said that it was open to Brian to pursue his own valuation, and that they were asking for him to disclose his resources, in order to ascertain whether he could afford to purchase their interests. But no such proposal or request - nor any positive suggestion towards an 'exit strategy' - appears in the Mazzone letter of 2 April.
When confronted with Gary's email to Mazzone of 27 March, Susan conceded that it could have been by that time that the decision to terminate him had been made, and that by 27 March, they were in the process of starting the employee dismissal process; and although she suggested that this was after receiving the letter from Yates Beaggi, it is evident that they had embarked on that course before that letter was received.
Susan denied that they did not want an independent accountant reviewing Optimisation's financial affairs, and says that she was prioritising relearning the business consequent on Ms Hewitson's resignation. Similarly, Gary said that he did not want a valuation undertaken because he was very busy at the time and did not want to be interrupted or disrupted - even though he was not aware what the valuation process would involve; moreover, he and Susan were of the view that valuation did not matter, only what someone was prepared to pay. The approach suggested by this evidence is remarkable, in the context of the consistent expressions of urgency in connection with finding an appropriate exit strategy - that is, until Brian proposed a valuation. In my view, Gary and Susan had no genuine interest in being bought out by Brian. Brian had asked for an indication of what they would be prepared to pay for his interest, and for a valuation so that he could make an offer for theirs; they frustrated any exit strategy, by denying both. Although Susan denies that the plan had become dismissing Brian as an employee and removing him as a director, there does not appear to have been any other. Discussions about a buyout, or a division of the company, evaporated.
On 4 April 2013, Gary issued a notice of meeting of members of Optimisation, to be held on 29 April 2013, to remove Brian as a director of Optimisation and to appoint Susan in his place. Susan accepted that by this time it was their intention to remove Brian. She said that this was because he was not acting in Optimisation's best interests, and that the notice was given when they saw that Brian had taken $1,000 out of Optimisation's account (being an amount charged by Westpac for copying historical bank statements for Brian). This evidence was false; as Susan was compelled to concede, that withdrawal had not happened as at 4 April.
Yates Beaggi responded by letter dated 15 April 2013, threatening Court action to prevent Brian's replacement as a director. On 17 April 2013, Mr Mazzone replied that Brian would not be removed, but that Susan would be appointed.
By mid-April 2013, the relationship had broken down, and the situation was not tenable. Despite Susan's denials, by this point Gary and she were sidelining Brian; one manifestation of this was that emails from customers that were intended for Brian were redirected to other staff. Brian did not do any significant work in February, March or April, due to the dispute.
Susan said that in hindsight she wished she had agreed to a valuation and buyout. She said that she did not agree to a valuation, "at that stage". But Brian had also invited them to nominate a price, which they also did not do. And their solicitors later refused to agree to a valuation, for the stated reason that Brian did not have the capacity to buy out Gary and Susan. They maintained that a valuation was premature, because "we didn't know what anyone wanted out of this". But Brian had said what he wanted, and Gary and Susan had effectively rejected that.
Gary and Susan demanded an exit strategy, but did not propose one. They made no offer to buy Brian out, nor did they make an offer to sell their interests to him. There were really four options: that Gary and Susan purchase Brian's interest; that Brian purchase Gary and Susan's interest; that the business of the company be divided; and that the company be wound up. Gary and Susan did nothing to advance any of them. They opposed having a valuation; their response to his request for a joint valuation was to commence action to remove him as an employee and director - although the latter aspect of the proposal ultimately did not proceed. They dissembled and rejected anything Brian raised or proposed, but did not themselves do anything to advance the development of an exit strategy, let alone propose one - beyond the removal of Brian as a director and employee.

[43]

Redundancy

The notion of redundancy emerged very late in the chronology.
On 16 April, Susan and Gary travelled to Cairns, where they remained until 23 April. On 17 April 2013 at 10.54am, Gary sent an email to Mr Mazzone with instructions to reply that day to Yates Beaggi's 15 April letter, in which he mentioned that he had been "reading up on redundancy" and the requirement for consultation, which he wanted covered so as to avoid a successful appeal; attached to the email was an article about redundancy which Gary had found, and which included a number of case studies and referred to the need for prior consultation with the employee, and provided a precedent termination letter which referred to the redundancy as not being a reflection of the employee's performance.
Also on 17 April, Gary sent an email to Brian, which he had agreed with Susan, asserting that there had been a "complete company restructure" involving a move away from the product-based offerings to a service agency, with the result that his position was redundant, and proposing an "office based role" as a "Digital Marketing Strategist", which "would obviously involve some extensive retraining". This of course does not at all reflect the agreement of June/July 2012, which envisaged two divisions, in which the ongoing sale of the extant products was one. Moreover, it contained no statement to the effect that Brian would be terminated if he did not accept; nor did it suggest that this was something which had previously been proposed. Although Susan at first denied that she had been consulted, she conceded that a draft had been sent to her for consideration, when confronted with the email to her; when it was put to Susan that this was prepared for the purposes of meeting the requirement for consultation before redundancy, she answered that it "just states the facts. It is what it is".
The email contained a link to an on-line article, "The Sales Organization of the Future", which Gary said "has given us some good insight of the direction we need to be headed if we are to build on our success. This article apparently referred to the "inefficiencies of the on road sales rep and its eventual demise", and I have no doubt that it was instrumental in Gary's formation of the notion of Brian being redundant.
Gary conceded that he did not expect Brian to accept the proposal. Susan gave evidence to similar effect; although she maintained that she thought Brian could still accept the role, that is incredible in the face of their decisions that they wanted no continuing business relationship with him, and to remove him as a director. The proposal was utterly inconsistent with the emphasis up to that point on an 'exit strategy'. I do not accept that it was a genuine proposal; it was a step towards setting up Brian's ostensible redundancy.
Brian responded on 18 April: I find it extraordinary that you have all of a sudden questioned my productivity whilst you were living in the UK, this is the first time you have done so? There are countless emails between us showing no indication whatsoever of this. Please refer to my sales results from inception of the business right up to the period you were both absent in the UK for 8 months. The results speak for themselves. Where do you think the company would be if we took away my last 12 months sales? It leaves me speechless how you could question my productivity over the last 12 months. It is obvious what I bring to the table in the past & moving forward.
In an email of 21 April 2013, Gary asserted: The whole point we have been trying to get across to you for the last 12 months is that your role has drastically changed, we no longer offer a product based service and are now a service based company. As you are aware the role you were originally employed to do as an on the road sales rep no longer exists. We required you to undertake the offered training in order that you were able to consult with clients from a holistic digital strategy perspective.
But there is no objective support in the extensive correspondence between the parties for that assertion, the only prior references to training having been in the context of learning how to explain SEO and in particular the new algorithms for the purpose of selling them. Again, there was no reference to any intention to terminate Brian's employment.
On 24 April, Yates Beaggi sent a letter to Mr Mazzone, foreshadowing an application for oppression, and demanding that the notice of meeting be withdrawn. [26] At the meeting on 29 April 2013 at 9.00am, Gary and Susan did not remove Brian as a director, but still resolved to appoint Susan as a director, so that thereafter Gary and Susan controlled the board. Given his then fraught relationship with Gary and Susan, Brian did not attend; he did not think it appropriate due to the tension between the parties, and the likelihood that in a small meeting room it would have become heated.
Immediately after her appointment, Susan sent an email to Brian, at 10.31am on 29 April, notifying him that "...a directors meeting has been called for tomorrow morning; to discuss HR and operational issues that need urgent attention". Although Susan admits that their purpose and intention was to dismiss Brian the notice of meeting did not include a proposed resolution to that effect, nor any direct allusion to Brian's dismissal or redundancy. The notice was calculated to convey to Brian that the directors were considering the situation arising from the resignation of Sara Hewitson as general manager, although they deny that it was intentionally so. It was suggested by the defendants that Brian would have known what was afoot from the email traffic with Mr Mazzone emails, but those emails do not refer to this meeting. The fact that the notice contains no reference to termination of itself suffices to reject Susan's assertion that it remained open to Brian to discuss it with them.
On the following day, 30 April 2013, Gary and Susan held a directors' meeting. Again, Brian did not attend. Gary and Susan resolved to dismiss Brian as an employee, on the basis that his position as sales consultant was redundant. At the same meeting, Gary was appointed as managing director, and Mosaic were appointed as Optimisation's accountants. It was noted that a search for a replacement for Ms Hewitson was underway, and that one potentially suitable candidate (Mr Mehdi Mostaghimi) had been identified.
Brian was given notice of his redundancy, by email from Susan at 4.16pm the same day. The letter stated that as a result of a recent review of Optimisation's operational requirements, it had been decided to terminate his employment for redundancy; conformably with the precedent letter in the article to which Gary had referred, it also stated that the decision was "not a reflection on your performance", and he would be paid four weeks' pay in lieu of notice. It was put to Brian that this notice could have come as no surprise, to which he answered that it was a great surprise.
It is true that Optimisation had not sustained three sales representatives for some time, and from January 2012 Brian was the only on-road sales consultant. The evidence of other Optimisation staff provides an impression that Brian was an effective old school sales representative, who had produced good results in that role, but used dubious representations and tactics to secure sales, and whose interpersonal skills with other staff were poor and disruptive. While it may well be that he attended more meetings than were documented in the various recording systems, I do not accept that during in 2011 and 2012 he was attending anything like four (or even three) per day, five days a week. He appears to have been working fairly lightly during July and August 2011, and by his own admission, between July 2012 and April 2013, he rarely attended three client appointments per day.
However, Brian disputed that the role of an on-road sales representative had become redundant. He accepted that there had been some changes in the business between 2006 and 2012, but said they were not major; the most significant being with Ms Hewitson and the introduction of GetCubed. Previously, the products sold had been websites, AdWords, and then SEO, which was introduced in mid-2007. There was no change in the way in which AdWords and SEO were sold, although delivery and after-sales processes changed. Changes implemented by Google affecting AdWords and SEO in 2009/10 did not change Brian's role; and whether in 2006 or 2012 it was always necessary to explain to a customer how the products worked. After-delivery service improved, and there was better reporting, but the products and the selling process remained essentially the same. Gary said that he did not dispute at all that from 2006 to 2011 Brian did a great job, but that by 2013, he could not have sold on the road without increased understanding of how the products worked; even if that were correct, it does not mean that the "on-the-road" position was redundant.
Brian continued to make sales in 2012. Optimisation reported a 40% increase in profit for July-September 2012 over the previous year. Its sales revenue peaked in FY2012/13 at $2.1 million. The results for December 2012 revealed an increase in turnover - which Gary described as "obviously pleasing". Between July 2012 and March 2013 Brian secured new sales of $272,835, out of total new sales of $306,765.
Gary was reluctant to accept Brian's responsibility for these results: he said that the sales process was "internalised", and the reason for the increase was that they were generating "return on investment". Gary attributed the vast majority of those sales to Pool & Spa - however, this was a client for which Brian was responsible. At first Susan denied that Brian had been responsible for negotiating a substantial upgrade with Pool & Spa in September 2012, and then that she did not know whether he had been instrumental in it, but eventually (when shown an email of 6 September 2012 in which she had congratulated Brian, "That's brilliant"), agreed that that was so. Gary also accepted that it was Brian's face-to-face meeting with Tile MegaMart which provided the opportunity for the very lucrative sale to that customer. GetCubed was not responsible for the increase: it was barely up and running by September 2012, and of total revenues of $2.1 million approximately for FY2012/13, GetCubed generated only in the order of $320,000 to $330,000, while Optimisation represented the balance, being about $1.7 million. Susan was very reluctant to accept that inexorable deduction, and would not accept that Brian was responsible for the sales that generated that income.
Thus, the recent financial results did not support the proposition that Brian's role had become redundant, by reason of the alleged restructure or otherwise. In my view, Gary and Susan devalued Brian's role and contribution in the second half of 2012, when he achieved superior results, which bespeaks that his performance as sales representative was more than adequate.
Moreover, in December 2014, Gary told Brian that Sophie was meeting with clients face-to-face (although he denied that she was "on-the-road", as she was office-based, not home-based). And on 26 March 2015, Gary told Susan's treating doctor that her duties included "training and management of on road sales staff". I do not accept Gary's evidence that this was a "mistake"; rather I think Gary was endeavouring to give a full picture of the extent of Susan's responsibilities for the purpose of obtaining advice as to her fitness, and for that purpose listed all the functions that ideally she would be performing, whether or not she was performing them at the moment. The reference is hardly consistent with the role being redundant.
Even if Brian did not entirely satisfy the expectations of Gary and Susan in respect of being in the office and undergoing further training, and although he may not have been attending four, or even three, appointments with customers per day, the results speak for themselves, and based on them the proposition that his role was, or even was becoming, redundant, is untenable. In my view, the notion that Brian was redundant was one conceived by Gary, during April 2012, as a stratagem for terminating Brian's employment and removing him from the business.

[44]

Conclusion

Removal from a salaried position within a company may be unfair, even though it might be a valid exercise of the powers of the majority of the directors, particularly in the context of a closely held company which was established or continued on the basis of a mutual understanding that the shareholders would be engaged in the day-to-day conduct of the business, as well as in its management at the level of directors. While this was first enunciated in connection with the "just and equitable" ground for winding up a company, [27] it also applies in the context of the remedy for oppression. [28]
Relevant unfairness may arise not only from what the parties have positively agreed, but also from the majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree; thus an applicant for relief does not necessarily have to show a breach of promise or breach of undertaking, and the denial of a 'legitimate expectation' arising out of the dealings of the parties may suffice. [29] Such a 'legitimate expectation' is a manifestation of the equitable consequences of circumstances such as shareholders associating on the understanding, albeit unexpressed in the articles or any shareholders agreement, that each who has ventured capital will participate in management, [30] creating an "equitable restraint" in the nature of a condition attaching to the exercise of the majority's legal power, namely that while the majority may if it wishes exercise its legal power to dismiss the minority shareholder from participation, it must afford an opportunity to withdraw his or her investment, because participation in the conduct of the business was an implicit basis on which the investment was made. [31] In the words of Lord Hoffman: [32] It follows that it would have been unfair of Mr Phillips to use his voting powers under the articles to remove Mr O'Neill from participation in the conduct of the business without giving him the opportunity to sell his interest in the company at a fair price.
As Lord Hoffman explained, [33] in a case where the shareholders have entered into association upon an understanding that each who ventured capital would also participate in the management of the company, a member could be said to have had a "legitimate expectation" of either participating in the management or withdrawing from the company, and it would almost always be unfair for the minority shareholder to be excluded without an offer to buy his shares or make some other fair arrangement. The unfairness lies not in the exclusion alone, but in exclusion without a reasonable offer. Observing that it was therefore very important that participants in such companies should be able to know what counts as a reasonable offer, his Lordship provided guidance that the offer must be to purchase the shares at a fair value, to be determined (if not agreed) by a competent expert, and providing to all parties the same right of access to information about the company which bears upon the value of the shares, and the same right to make submissions to the expert.
Similarly, in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd, [34] Priestley JA doubted the proposition (which had been enunciated by Young J, as he then was, at first instance) [35] that a legitimate expectation may be lost if it is no longer practicable for the right to the expectation to continue, observing that there will be cases where even if it is no longer practicable for the expectation of continuation in management to continue, that will not bring the considerations leading to that legitimate expectation to an end, so that the party enjoying the legitimate expectation would in some such circumstances be entitled to be bought out.
Thus in a case of a closely held company, formed or continued on the basis of a personal relationship involving mutual confidence, in which shareholders have entered into association upon the understanding that each of them who has ventured capital will also participate in the management of the company, and there are legal or practical restrictions on the transfer of shares, so that a member cannot take out his or her stake and go elsewhere, it is usual, rather than exceptional, for equitable considerations to constrain the legal powers of the majority, such that it would usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in management, without giving him the opportunity to remove his capital upon reasonable terms.
There may be an exclusion from participation in management for these purposes in the dismissal of a shareholder from a salaried position, even though he or she remains a director. The reasons for that include that in such cases the investment of capital is typically on the basis that employment in the company would provide a living for the shareholder, and remuneration of shareholders as employees forms a significant if not exclusive means of their extracting economic benefits from the company's operations, so that dismissal as an employee deprives that shareholder of the capacity to derive benefits comparable to the other shareholders in that way.
Optimisation was plainly a company to which these principles apply. It was a closely held company, established by Brian and Gary, and soon afterwards embraced by Susan, against the background of their familiar relationship, and on the assumption that each of the shareholders would be employed by the company, and would be remunerated for their work as employees. Brian had been instrumental in the establishment of Optimisation and its business; was a founding and original majority shareholder; had been, with Gary, one of the only two formally appointed directors of the company throughout (and one of three if Susan be regarded as a de facto director); and remained the largest single shareholder with a 35% shareholding, as well as a director and an employee, with an entitlement to salary equivalent to that of the other two director/employees. Although the consistent references to prorating salary indicate that remuneration was intended to reflect equitably the contribution made, from the outset it was envisaged that Brian - initially the majority shareholder and always the largest single shareholder - would derive his living from employment with the company, in the role of an on-the-road sales representative. The May 2012 arrangement that each would draw a salary of $100,000 reflects the understanding that their salaries would be a primary means of obtaining economic benefit from the company's operations. In 2012, Brian had agreed, reluctantly, to Gary and Sue's proposal to restructure their remuneration packages, so that each drew a base salary of $100,000, prorated for those working less than fulltime. This (rather than dividend) was the principal means by which the shareholders obtained economic benefits from the company. Brian had a 'legitimate expectation' that he would continue to be engaged in the company's business, and earn a salary on a commensurate basis with Gary and Susan, and as a result derive economic benefit from the company via his employment. His termination denied that expectation. Not only was it unaccompanied by any offer to purchase his shareholding, but his attempt to position himself to make an offer was frustrated by refusal of his request for a valuation. It can fairly and reasonably be said that Brian never agreed to be associated with Gary and Susan in the company in circumstances in which he was not also an employee. It was unfair for him to be dismissed from employment without giving him the opportunity to sell his interest in the company at a fair price.
This would be so, even if his position had become redundant. It was a fundamental assumption in the establishment of the company that Brian would be employed in sales, as befitted his skillset and experience. Consistently with Priestley JA's dictum referred to above, even if it were no longer practical and reasonable for Brian to expect continued employment, the considerations which had created that expectation remained relevant, and while he might not have been entitled to insist on remaining in the company's employment, he was at least entitled to withdraw his capital on reasonable terms if he were no longer to be employed.
However, I do not accept that his position was redundant. I do not accept that there was in 2011 any such agreement, arrangement or understanding, as the defendants suggest, that Brian would work from the office as distinct from as an on-the-road sales representative. Nor do I accept that his role changed, by agreement or otherwise, in any significant way in 2012. During 2012, Brian continued to work from home, as an on-the-road salesperson, without overt objection, and achieved superior results during this period, with Optimisation's sales revenue peaking in FY2013 at $2.1 million. Even if he did not entirely satisfy the expectations of Gary and Susan in respect of attending the office and undergoing further training, and although he may not have been attending three appointments per day, those results speak for themselves, and based on them the proposition that his role was, or even was becoming, redundant, is untenable.
It was Brian's entirely reasonable insistence on gaining log-in access to view Optimisation's bank account with Westpac, and his equally reasonable opposition to Gary and Susan changing Optimisation's external accountant to Mosaic, who also acted as their personal accountants, that provoked Gary to consider and explore means of reducing Brian's influence, which culminated in his dismissal. Gary and Susan decided that they wanted no ongoing business association with Brian, if not before, at least immediately after the meeting of 15 March, and demanded an exit strategy, before there was any opportunity for Brian to perform his part of the arrangements agreed at that meeting, namely that he would come into the office, if only on a limited basis. However, they did not themselves do anything to advance the development of one (neither naming a price at which they would sell their shareholdings, nor one at which they would purchase Brian's), and their refusal to permit a valuation frustrated any attempt by Brian to do so. Instead, they switched their strategy towards achieving his removal, took control of the board, and terminated his employment, thereby effectively removing him from day-to-day participation and depriving him of employment in the business of which he was a founder and long-term employee, and on which he was reliant for his livelihood. For that purpose, during April 2013, and seizing on the ideas presented in the on-line article to which reference has been made, Gary conceived the notion that Brian was redundant, as a stratagem to justify termination of Brian's employment. The notice of meeting at which he was dismissed omitted any reference to any such proposal and must have been intended to minimise the risk of him talking any precautionary action. Those circumstances exacerbate the oppressive nature and effect of the decision to dismiss him, purportedly for "redundancy".

[45]

Appointment of Susan as general manager

Having been appointed managing director on 30 April, Gary then resigned from his employment with Optimisation on 6 May 2013, with effect from 31 May 2013; any "work" he did thereafter was as a non-executive owner-director. At a directors' meeting on 7 May, Susan and Gary noted Gary's resignation, appointed Susan as general manager, and increased her remuneration from $100,000 per annum to $150,000 per annum. Although Susan denied that the increase was for assuming Gary's role, as distinct from replacing Ms Hewitson as general manager, both the timing of the increase (which was coincidental with Gary's, not Ms Hewitson's resignation), and the circumstance that Ms Hewitson had originally been employed to perform functions which had previously been performed by Susan and Gary, on account of which they respectively forwent or prorated their $100,000 salaries, tell against this. Moreover, the minutes of the meeting plainly state that Susan was appointed to take on Gary's duties: Appoint Susan to take on Gary's duties and increase Susan's salary to $150k pa, in line with the effective GM role she is undertaking. This would be more cost effective and efficient than appointing a new person.
Susan accepted that by December 2012, she recognised that she had a difficulty with alcohol, to which life stressors contributed, and which she was seeking to address; but she did not then realise how long it would take, and she did not consider that it would her affect ability to work in and manage the business of Optimisation, or impact on her performance. She did not accept that if she needed treatment or hospitalisation, she would be unable to attend to the affairs of Optimisation; she said that the staff would help.
However, Susan's alcohol abuse continued following her return to Australia. She has frequently been admitted for emergency medical care, and occasionally for lengthier periods of rehabilitation, as well as receiving ongoing treatment on a regular basis. While many of her attendances for ongoing treatment were relatively short, there were many more substantial admissions: she was in hospital, or a clinic, from 18 July to 8 August 2013; from 20 to 23 December 2013, and again on 24 December; from 30 December 2013 to 14 January 2014; on 24 February 2014, and then from 26 February until 3 March; from 7 to 12 May 2014; from 6 to 10 November, and again 12 to 13 November 2014; from 25 to 28 November, and then 30 November to 22 December 2014; from 29 to 30 December 2014; from 19 to 24 March 2015; from 7 April to 15 May 2015; from 9 to 15 June 2015; from 9 to 10 October 2015; from 30 October to 6 November 2015; and on 25, 26, 29, 30 April and 1 May 2016. This last episode, which occurred while the hearing of these proceedings was adjourned part heard, followed admission with a blood alcohol level of 0.57. During 2014 alone, she took in excess of four months sick leave, including the whole of January and February and half of March.
Susan said that her alcoholism did not make her unsuitable for appointment as general manager, as she was receiving treatment, and Gary performed her duties while she was hospitalised. Gary also denied that it was inappropriate to appoint Susan as general manager on account of concerns about her alcoholism. In answer to the proposition that in July 2013 she was not fit to perform the duties of general manager, he said that it was not his decision; he was not a doctor. However, he must have had concerns in this respect, as on 26 March 2015 he wrote to Dr Montebello on behalf of Optimisation seeking a report as to "whether Mrs Williams is or will be fit to return to work and, if she is, how this can be facilitated by Optimisation to ensure her health and welfare in the workplace", observing that she had 59 days leave between 1 January and 31 October 2014 was absent from work over the period 31 October 2014 to 1 February 2015, and was currently absent from work since 18 February 2015.
When asked whether he had expressed the view to Susan's social worker on 7 May 2014 that Susan's alcohol issues had impacted on the business, financially and legally, for the last 2½ years, he at first said "I don't recall saying that", and when confronted with his written statement to that effect dissembled that it was "not ongoing", and that they thought that her alcoholism was a catalyst for the dispute, that she felt guilty, that the Kearney family blamed him for pouring alcohol down her throat, that "she felt guilty because she was the one drinking, and the fact that she was drinking was the catalyst for this", and "Susan felt guilty because her drinking had impacted on the business, that's what I was saying". He astutely sought to evade the obvious implication that the impact was detrimental, rather than beneficial.
The appointment of Susan as general manager in circumstances where she was obviously unwell and would require extensive sick leave, and her absences from work implicit in that leave, are relevant to the valuation of Optimisation, as explained below. [36]

[46]

Resolutions of 16 September 2014

On 23 August 2014, Susan gave notice of meetings of members and directors, to be held on 16 September 2014, to consider a number of resolutions, including relevantly to the following effect: 1. that Gary be reinstated as an employee of Optimisation; 2. that Gary be paid $128,340.50 remuneration for the period 14 March 2006 to 31 May 2006, and 1 June 2013 to 16 August 2014. On 14 September 2014, this was increased to $136,128.86; 3. that Gary be paid $29,999.60 as leave entitlements; 4. that Susan's leave entitlement of 59.4 days, amounting to $34,269.05, be confirmed, and that her request to cash-out $22,730.65 of it be ratified; 5. that Brian's employment entitlements of $53,526.74 be ratified; 6. that Australian Business Lawyers and Advisers (ABLA) be appointed to act for the company in defending the claim brought by Brian against Gary, Susan and the Company, and the cross-claim against Brian, and that their fees be paid in advance in the sum of $150,000.
The meeting proceeded on 16 September 2014. Brian did not attend. The proposed resolutions were passed, as they would have been regardless of whether or not he attended. The prima facie effect of the resolutions secondly referred to above was that Optimisation would pay back pay to Gary for a period (14 March 2006 to 31 May 2006) in respect of which - even assuming that he was not paid in 2006 - recovery was barred by operation of (NSW) Limitations Act 1969; and for a period when he was not employed by Optimisation (1 June 2013 to 16 August 2014), he having resigned with effect from 31 May 2013. The prima facie effect of the resolutions sixthly referred to above was that Optimisation would use its funds to meet legal costs of proceedings against Brian as a minority shareholder, in advance and without qualification. By interlocutory orders made on 22 September 2014, Optimisation, Gary and Susan were restrained from giving effect to those resolutions, and also the resolution to reinstate Gary in employment. The resolutions in respect of the leave entitlements of Gary, Susan and Brian were not the subject of injunctive relief.

[47]

Gary's back pay

Gary says that although he commenced working for Optimisation from March 2006 at the latest, he did not receive his first salary payment until 4 July 2006, that he paid himself on a part-time basis for July and August 2006 (in order to conserve the company's resources while it was starting-up), and that he forgot to pay himself the deferred pay in respect of the period 14 March to 31 May 2006 - until he reviewed the records to calculate the entitlements to be submitted to the 16 September 2014 meeting. Susan said that Gary told her, when the resolutions for 16 September 2014 were being prepared, that he had not been paid for the period 14 March to 31 May 2006.
In fact, Gary was paid $8,333.33 for the period 1 March to 31 May 2006. That is consistent with a 33% prorata of his $100,000 FTE salary. Gary and Susan maintain that he was working fulltime during that period. This seems improbable, given his parental responsibilities for Mia (born 2002), and his concurrent responsibilities at Orchard, for which he was still being handsomely rewarded. In any event, I do not accept that even if he was working fulltime, Gary had 'deferred' paying himself in respect of the period March through May 2006. The concept of it being deferred and forgotten is a recent invention, and in truth he never had any intention of claiming more than he was in fact paid; as he said at one point in his cross-examination, "I suppose in my head I sort of forwent it really". Moreover, any claim in respect of it was statute-barred by mid-2012. The claim was created in 2014 for the purpose of maximising what Gary could extract from the company for his personal benefit, and not as genuine compensation for work done eight years earlier. In circumstances where Gary had long since foregone any claim for pay in excess of what he actually received in respect of the period March to May 2006, and it was statute barred, the decision to pay it could not have been made genuinely in the interests of Optimisation as a whole.
As for the period 1 June 2013 to 16 August 2014, Gary had resigned with effect from 31 May 2013. He said that he thought that he had never really resigned, that he had underestimated the work that would be required of him, that he did not feel as though he had resigned, and that he did not step away, so that his resignation was not fulfilled. He even claimed [37] that he received an email from Brian requesting that he continue working for Optimisation for a period of 8 to 12 weeks, and that after the 12 week period passed he continued to work for Optimisation. This was a very self-serving and distorted representation of the position: Brian's email expressed surprise that "after 4 weeks of returning to the business, you have created absolute havoc, and now tender your resignation", and continued: I welcome your resignation, and hope for yours and Sue's departure from the business entirely, however I am sure that my desire will require the intervention of a Court. Given I have been ousted from my own business now for over a week I am not aware of what the requirements are or will be, or what state of disarray you are leaving the business in. Quite frankly, I do not even know the true financial position of the company given your denial of access to its records for a good 8 years. In view of the matters noted above, I do not believe a sudden departure by you from the company is in its best interests. What it requires in my opinion is firstly my reinstatement to take control of the company's affairs, without any hindrance from either of you, and thereafter a controlled transition over a 8 to 12 week period before either of you cease engagement. …
That notion, of a handover period, of course, did not eventuate. The suggestion that Gary's resignation was "not fulfilled" is specious; he plainly had resigned, as the minutes recorded; he was not paid throughout that period because he had resigned; and Susan received an increase in remuneration because of the commensurate increase in her responsibilities. How in those circumstances it could be genuinely in the interests of the company to retrospectively reinstate him and compensate him for work done as a non-executive director, during the period of his resignation, defies explanation.
Accordingly, the proposed payment of back pay to Gary would have been in contravention of the duties of the directors, contrary to the interests of the company as a whole, and oppressive of Brian.

[48]

Payment to lawyers

As has been noted, the prima facie effect of the resolutions sixthly referred to above was that Optimisation would use its resources to meet legal costs of proceedings against Brian as a minority shareholder, in advance and without qualification. Had that been implemented, it would have involved the company to that extent funding the litigation for the benefit of the majority.
While it is not necessarily improper or inappropriate for a company to defend an oppression suit at its own expense, it may be oppressive for a company to do so if its defence goes beyond merely protecting the discrete interests of the company, so as to amount to support of the majority, with the consequence that the majority get at least some of their legal work done at the expense of the company, and resources of the company are expended on the support of the majority. [38]
In the 16 September 2014 resolution, there was no limitation or qualification as to the use of the proposed payment to ABL. Nor was it to be merely a deposit into ABL's trust account, but an outright payment in advance. The company may well have had a legitimate interest of its own in the defence of Brian's employment entitlements claim, and in its cross-claim, but otherwise (and overwhelmingly) the defence of the proceedings was a defence of the majority, not of the interests of the company as a whole.
In Fexuto v Bosnjak Holdings, Young J explained that where company resources were inappropriately expended in the defence of the majority interest in oppression proceedings, the remedy was for the majority to compensate the company for the unauthorised expenditure; and where the minority was to be bought ought, the valuation should bring to account an actual or notional accounting for the moneys which should be returned by the majority to the company, including so much of the costs incurred in the company's defence as were attributable to support of the majority rather than defence of the company. On the application for injunctive relief, I was satisfied that there was a significant risk that company resources would be inappropriately expended in the defence of the interests of the majority, and that the observation of Young J in Fexuto, that the remedy is merely that the majority compensate the company for the unauthorised expenditure, which can be taken into account in any buy-out order, was no reason why the majority should be permitted to have recourse to the company assets in the meantime, on the basis that if it can later be shown to be inappropriate it could then be recovered.
That was at a relatively early stage of the proceedings. The defendants have more recently allocated the total costs incurred by them in connection with the proceedings between those properly incurred for the company, and those attributable to Gary and Susan, as a result of which they have determined that a total of $134,617.74 is attributable to the company. [39] Gary and Susan borrowed $67,308.87 each from Optimisation, on director's loan account, to fund those costs. Although the plaintiff submitted that this was a benefit to them to the exclusion of Brian, I do not agree: it is a loan which is repayable, and does not unfairly prejudice Brian. [40]

[49]

Leave entitlements

The payments in respect of annual leave and Susan's sick leave - and also Brian's contractual claim for termination pay - require consideration of the relevant terms of employment of Brian, Gary and Susan.
Brian said that in late 2006 or early 2007, Gary told him that, in order to accumulate profits, as directors Brian, Gary and Susan would not receive holiday pay or sick pay. Gary and Susan (who was herself not a party to the conversation) deny that there was any such agreement, asserting that it was confined to Brian who agreed to accept a higher rate of commission in lieu of holiday or sick pay. However, Gary's own account of the conversation about Brian's remuneration includes the following: I said: "Your commission would need to be around 15%". Brian said: "Hang on a minute, you've got to remember that this will be my only income I have and I will have no guarantees of income on commission only. There will be quiet times, especially over Christmas when everyone shuts down for the holidays. I'm going to need at least 20% to cover me if I don't get paid for holidays. Sue said: "That actually works out to 22% by the time we pay your Super". I said: "As we are building a business, I believe there should be no holiday or sickness entitlements". Brian said: "OK. Agreed".
Gary's statement "As we are building a business, I believe there should be no holiday or sickness entitlements" appears to be of general application, not limited to Brian. As a matter of commercial logic and reason, it is as applicable to his and Susan's entitlements as it is to Brian's. Further, Gary gives evidence of a conversation with Brian in December 2007: Brian said: "I am going to be short [in money] over Christmas". I said: "Brian, none of us get leave in addition to our current wages".
Moreover, no annual or sick leave entitlements were recorded in Optimisation's records in respect of any of Brian, Gary and Susan, from 2006 until 2013. This is telling, because such entitlements were recorded in respect of other employees. In Gary's resignation email of 6 May 2013 he said that he felt that he was owed "quite a bit of holiday pay. I have never documented this, all you will see is that I have never been paid it". In an email of 13 June 2013 to Gary and Susan, Brian said "we use to take holidays without pay as directors". This was not disputed by Gary or Susan in any response.
Those matters weigh heavily in favour of there being an agreement such as Brian asserts. Moreover, it seems commercially illogical that Brian would agree that he would not be entitled to pay for annual leave or sick leave, while Gary and Susan would. Accordingly, I accept that it was agreed that Brian, Gary and Susan would not be entitled to holiday pay and sick pay.
However, it was ultimately accepted for the plaintiff that the statutory annual and sick leave entitlements of Brian, Gary and Susan as employees, provided by the National Employment Standards, [41] could not be excluded by any such agreement. Thus, although I accept that there was an agreement that Gary, Susan and Brian would not receive annual leave entitlements, such an agreement is not enforceable given Optimisation's statutory obligations.
It was on that basis that, on 23 April 2014, Brian made a demand for payment of his accrued unpaid annual leave, personal leave and long service leave, and payment in lieu of reasonable notice (in addition to that which had been made at the time of termination). Gary and Susan instructed their solicitors to calculate the entitlements of all three directors, which led to the resolutions of 16 September 2014.

[51]

At first sight that is a surprising result, because it would require 8 years fulltime service to accrue 16 weeks of personal leave, and on any view there were significant periods when Susan was not working fulltime. However, I have used the defendants' calculations as a starting point, and have erred in their favour in any case of doubt in this respect. [42]
The defendants have credited Susan with 3.166 hours leave in respect of the period 1 to 27 March 2006, which implies 83 hours work over a period of about four weeks. Although this may not be precisely correct, it is sufficiently close, and any discrepancy of so little significance in the overall calculation, that for present purposes I accept it.
According to the defendants' table, from 27 March 2006 until 1 September 2008 (2.43 years), Susan worked part-time for Optimisation (she was also working for Orchard). The defendants say that she worked 2188.66 hours during that period, which represents about 45% of a fulltime load, and for present purposes I accept it, notwithstanding Brian's estimate that she was working only approximately 37.5% of a full-time load. However, 2188.66 hours generates a personal leave entitlement of 83.17 hours - not the 183.57 claimed by the defendants.
From 2 September 2008 to 1 October 2010 (2.08 years), Susan worked fulltime for Optimisation, accruing 158.08 hours personal leave (which closely corresponds with the defendants' calculation of 158.42).
According to the defendants, Susan worked part-time from 2 October to 2 November 2010, rendering 120 hours. That generated a leave accrual of 4.56 hours - not 5.06 as claimed by the defendants.
Susan worked fulltime from 3 November 2010 until 2 June 2011 (0.41 years), accruing leave of 31.28 hours - not 44.32 as claimed by the defendants.
From then until 18 January 2012, Susan was not working and did not accrue personal leave, save during her return to Australia between 1 September 2011 to 8 October 2011 (0.1 years). Assuming in her favour that she worked fulltime during that period, she accrued 7.6 hours (1 day) of personal leave.
From her return from England on 18 January 2012, Susan worked fulltime until she left for England again on 17 July 2012 (0.5 years), accruing personal leave of 38 hours (5 days).
During the period 17 July 2012 to 15 February 2013, Susan was not working and did not accrue personal leave.
From 16 February 2013 until 30 October 2014 (1.62 years), Susan was working fulltime, which accrued leave of 123.26 hours (which closely corresponds with the 126.13 claimed by the defendants).
Susan's proper personal leave entitlements were therefore as follows: Period Status Hours worked Leave accrued 01/03/06-27/03/06 PT 3.166 27/03/06-01/09/08 PT 2188.66 83.17 02/09/08-01/10/10 FT 158.08 02/10/10-02/11/10 PT 120.00 4.56 03/11/10-02/06/11 FT 31.28 05/06/11-30/08/11 NW 0.00 01/09/11-08/10/11 FT 7.6 09/10/11-18/01/12 NW 0.00 18/01/12-17/07/12 FT 38.00 17/07/12-15/02/13 NW 0.00 16/02/13-30/10/14 FT 123.26 Total 449.116

[52]

Thus, up to 30 October 2014, Susan accrued a total personal leave entitlement of 449.12 hours (equivalent to 59 days), not the 607 hours calculated by the defendants. Thereafter, until 20 June 2016 (1.63 years), Susan continued to work fulltime, and accrued a further 124.52 hours of personal leave, bringing the total to 573.64 hours (or 75 days).
The defendants have calculated that up to 30 October 2014, Susan has taken 478.81 hours (63 days) of personal leave - all of it during 2014. The plaintiff contends that during 2014 alone, Susan was paid sick leave totalling $36,923.14 in respect of 72 days, as follows: 1. $2,884.62 on 31 January 2014 (for the period 6-10 January 2014), 2. $1,730.77 on 31 January 2014 (for the period 13-17 January 2014), 3. $1,153.85 on 31 January 2014 (for the period 20-21 January 2014), 4. $2,884.62 on 31 January 2014 (for the period 27-31 January 2014), 5. $2,307.70 on 6 February 2014 (for the period 2-6 February 2014), 6. $2,884.62 on 13 February 2014 (for the period 7-13 February 2014), 7. $2,884.62 on 20 February 2014 (for the period 14-20 February 2014), 8. $2,884.62 on 27 February 2014 (for the period 21-27 February 2014), 9. $2,884.62 on 6 March 2014 (for the period 28 February - 6 March 2014), 10. $2,884.62 on 13 March 2014 (for the period 7-13 March 2014), 11. $2,884.62 on 20 March 2014 (for the period 14-20 March 2014), 12. $2,307.70 on 1 May 2014 (for the period 25 April-1 May 2014), and 13. $2,884.62 on 8 May 2014 (for the period 2-8 May 2014); 14. $1,730.77 on 4 September 2014 (for the period 29 August-4September 2014), and 15. $1,730.77 on 10 October 2014 (for the period 4 October-10 October 2014).
Since then, Susan has been paid a further $10,402.94 sick leave for 25 days, as follows: 1. $2,391.19 on 31 July 2015 (for the period 17-23 July 2015); 2. $2,884.61 on 31 July 2015 (for the period 24-30 July 2015); 3. $2,884.61 on 12 August 2015 (for the period 31 July-5 August 2015); 4. $708.37 on 12 August 2015 (for the period 6-13 August 2015); and 5. $1,534.16 on 5 May 2016 (for the period 22-28 April 2016).
That would amount to a total of 97 days - nearly 20 weeks - of sick leave, over a period of two and a half years. However, it will be observed that the amounts paid to Susan are sometimes $2,884.61 in respect of a week, but sometimes less than that. $2,884.61 represents 1/52 of Susan's salary of $150,000. Thus, although a salary advice may refer to an entire week, it does not follow that paid leave was taken for the whole week. Susan's drawing of paid sick leave can be deduced from the amounts she was paid, using the weekly rate of $2,884.61, and the corresponding daily rate of $576.92. The $36,923.14 received during 2014 equates to 64, not 72, days, and closely correlates with the defendants' calculation. The $10,402.94 paid subsequently corresponds to 18 days - not the 25 days suggested by the plaintiff. Thus, Susan has received paid personal leave for a total of 82, not 97, days.
That still exceeds her accrued leave, as at 20 June 2016, of 75 days - by 7 days. Thus, she has overdrawn her sick leave by that amount. However, I am unpersuaded that permitting Susan to overdraw her sick leave entitlement to that extent would of itself be in breach of the directors' duties, or oppressive. The statutory sick leave entitlement is a minimum standard, and an employer may be more generous than the minimum. The excess is not so great that no reasonable director could have thought it an appropriate provision in the circumstances. In any event, it can be recouped out of leave entitlements subsequently accrued.

[54]

Susan's annual leave

Pursuant to the 16 September 2014 resolution, Susan was paid $22,730.65 in respect of 39.4 days allegedly unpaid leave, based on an annual salary of $150,000. The defendants maintained that she had accrued unpaid annual leave of 59.4 days, so that after the payment she retained a balance of 20 days. The plaintiff's complaint is that in those calculations, Susan (1) was credited with more annual leave than she was entitled to accrue, and (2) was debited less leave than she actually took, with the result that the payment exceeded her entitlement.
Susan was aware that an amount was paid to her in 2014 as unpaid annual leave, and said that this was on advice from employment lawyers, in respect of entitlements which had been overlooked. She said that those lawyers would have obtained instructions from Gary, not from her. She maintains that the employment lawyers would have obtained records from Gary as to whether she was fulltime or part-time, and that she trusted the employment lawyers and Gary to categorise it correctly: "I just left it to the employment lawyers to calculate what was correct".
Originally, Susan's claimed entitlement of 59.4 days leave was calculated as follows: Leave accrued Dates Period PT/FT Days accrued 14/03/06-31/05/11 5y78d FT 104.30 01/06/11-31/08/11 3m PT 2.50 01/09/11-31/07/12 11m FT 18.30 01/08/12-16/02/13 4.5m PT 3.75 17/02/13-17/08/13 6m FT 10.00 18/08/13-18/08/14 1y FT 20.00 Total 158.85 Less, leave taken Dates Period Days taken Every Christmas 2.5 weeks (in addition to public holidays) 87.50 18/08/13-18/08/14 12 days over the 12-month period 12.00 Total 99.50

[55]

In the course of the proceedings, the defendants conceded that this required amendment, to reflect that: 1. Susan had admittedly taken 14 work days annual leave between 18 July and 8 August 2013; and 2. she was not working full-time during at least part of the period 1 September 2011 to 31 July 2012. When confronted with the claim in respect of this period, and asked whether she maintained that she worked fulltime between 1 September 2011 and 2 July 2012, she said "I'd have to look at that". Even on the defendants' case, she was plainly not fulltime between returning to the UK in October 2011 and her return to Australia on 18 January 2012.
These admitted adjustments reduced her leave balance as at September 2014 to 36.2 days - less than the amount for which she was paid pursuant to the resolution of 16 September 2014. However, a number of additional issues remained.
The first was in respect of the period from 14 March 2006 until 31 May 2011 (5 years 78 days), in respect of which 104.3 days leave was claimed on the basis of fulltime employment. On the defendants' own case, reflected in the table produced by them in connection with Susan's personal leave entitlements (as set out at [330] above), she worked part-time (approximately 45% of a FTE workload) until 1 September 2008 (2 years and 169 days, which accounts for 49.26 days of the claimed leave accrual on a fulltime basis). [44] The defendants did not explain how she was entitled to claim annual leave on a fulltime basis in respect of that period. Thus, during that period she accrued only 22.26 days, rather than the 49.26 included in the claim - which requires a further reduction of 27 days from her claim, reducing the balance to 9.2 days.
Secondly, between 31 May 2011 and 31 August 2011, and from 9 October 2011 to 18 January 2012, Susan did not work at all, and accrued no annual leave. Allowing that she worked fulltime for about 5 weeks in September/October 2011, and for 6 months from 18 January 2012 until again departing for England in June, her entitlement in respect of the period 31 May 2011 to 31 July 2012 was 12 days (which closely corresponds with her amended claim of 11.65 days, although on somewhat different assumptions, so that no further adjustment to the ultimate balance is required on this account).
Thirdly, the plaintiff submitted that during a period of 3 weeks from 17 February 2013 to approximately 10 March 2013, Susan did not work at all and accrued no annual leave, rather than the 1.2 days claimed. I do not accept this submission; this was the period immediately following her return to Australia in 2013, when she resumed working in the business, and the evidence does not sufficiently establish the contrary.
Fourthly, the plaintiff submitted that during the period 1 to 31 July 2013, Susan did not work for Optimisation at all, and accrued no annual leave, rather than the 1.7 days claimed. As has been noted, the defendants conceded that Susan took annual leave from 18 July to 8 August 2013. However, annual leave continues to accrue during periods of paid annual leave. I therefore do not accept this submission.
Finally, it was contended that Susan's leave actually taken has been understated. In the calculation of annual leave upon which the payment was based, she was debited with 2.5 weeks of annual leave for each Christmas/New Year vacation. However, it was her own evidence that she always took annual leave from 22 December to 22 January, every year, and had been under the (as it turns out, correct) impression that she was paid for it; she said that she "apparently" was not, which surprised her - this presumably being a reference to the position adopted in 2014. In cross-examination she sought to resile from this to some extent, suggesting that Optimisation did not close down over the holiday period but retained a skeleton staff, and that she would return to run the telemarketers, two weeks before they resumed. When it was put to her that she was taking annual leave for a month each year right up to 2013/2014, she replied "I would have to have a look at that".
The allowance of 2.5 weeks was an estimate, made not by Susan but apparently by lawyers, presumably instructed by Gary. Susan's admission that she took a month each year is to be preferred. Accordingly, she exhausted her leave entitlement each year, as it accrued. It follows that she had no outstanding balance in 2014, and the payment made to her in respect of 39.4 days (and provision for a further 20 days) was unjustified.

[57]

This resulted in a balance of 71 days, to which was added 7 days' sick leave said to have been taken but not paid during the period of employment.
As to the leave credits, it is said that Gary did not work fulltime until 30 June 2008, and worked only part-time - say a 50% workload on average - during the period 14 March 2006 to 30 June 2008, and so was entitled to accrue only 23 days annual leave, not the 45.9 included in the claim in respect of that period. For reasons already explained (in connection with the issue of alleged overpayment of Gary's salary), [45] I am unable to be satisfied that Gary worked less than full-time during this period (at least from 30 June 2006), and thus I do not accept that it has been established that he was not entitled to accrue leave on the basis of fulltime employment during that period.
However, in respect of the claim for 7 days unpaid personal leave, the evidence was that Gary was paid $100,000 per annum, by fortnightly instalments, regardless of whether he was working or on leave. There is nothing to indicate or even faintly suggest that his pay was docked if he was absent sick. The evidence contains no detail as to when he might have taken unpaid sick leave, and I do not accept that he did. Accordingly, his balance must be reduced by 7 days.
As to the debits, the contention that Gary has understated his leave actually taken is put on two bases: the first is that it should be found that Gary took leave, with Susan, for four weeks each year, thus exhausting whatever entitlement accrued. Alternatively, it is said that, assuming that Gary has correctly recorded the only vacations he took, he has still understated his leave taken by at least 14 days, in the following respects: 1. the holidays taken from 24 December 2008 to 9 January 2009 involved 11 working days, not 10 as allowed by Gary; 2. the holidays taken from 22 December 2009 to 4 January 2010 involved 7 working days, not 6 as allowed by Gary; 3. the holidays taken from 23 December 2010 to 10 January 2011 involved 11 working days, not 7 as allowed by Gary; and 4. his two trips to England were during the periods 15 August to 1 September 2007, and 11 to 29 August 2008. This amounts to 28 working days (or 26 working days if Gary is correct that he worked 1 day on each trip). Gary's allowance of only 18 days is understated.
As to the more particular objections, Gary responded: 1. In respect of the period 24 December 2008 to 9 January 2009, Gary responded that the period 26 December 2008 to 12 January 2009 involved 10 working days, and he took his laptop and recalls working most days. Whichever period is considered, I agree that 10 working days were involved. In the context of a director of a closely-held company with the authority and responsibility of Gary - effectively, a managing director with responsibility inter alia for financial control and payroll functions, who has it in his own power to determine when he is and is not on leave - courts should be cautious in evaluating claims for years of allegedly unpaid leave made only upon termination of employment. The fact is that for practical purposes he was on leave for (at least) a period of 10 days, and if of his own volition he took his laptop with him and may have chosen to attend to his emails and other business matters, that does not alter the fact that he was taking leave. 2. In respect of the period 22 December 2009 to 4 January 2010, Gary did not respond. On my calculations, 7 days were involved, requiring deduction of a further day from Gary's claimed balance. 3. In respect of the period 23 December 2010 to 10 January 2011, Gary responded that the period 27 December 2010 to 10 January 2011 involved 8 working days - one more than the 7 originally allowed by Gary. This requires deduction of a further day from the balance. 4. In respect of the period 15 August to 1 September 2007, Gary said that 12 working days were involved, and that he worked most days during this trip. However, it emerged that the "work" referred to amounted to speaking to the office and Susan each day. According to my count, 13 working days were involved, and for practical purposes he was on leave; as mentioned above, I do not regard the fact that he may of his own volition have chosen to keep in touch with his wife and the office, and attend to his emails and other business matters while on leave, as affecting his on-leave status. In respect of the period 11 to 29 August 2008, Gary said that this involved 15 working days, and that he worked most days during this trip; again, this "work" involved speaking to the office and Susan. I accept that 15 working days were involved; again, the fact that he might of his own volition have performed some work while on leave does not negate that he was taking leave. These periods together thus amount to 28 days, not the 18 days allowed by the defendants, so requiring a further deduction of 10 days from the balance.
These adjustments reduce Gary's leave balance by a total of 12 days, to 59 days. Accordingly, he was overpaid by at least 19 days, or $7,307.59.
There is no contemporaneous record of leave accrued and taken by Gary. The periods of leave allowed by Gary have largely been calculated by reference to dates on which it can be shown (from immigration records) that he was abroad. It seems unlikely that it was only when abroad that he took leave, and likely that he took leave before departing and after returning, at least for a few days. Moreover, when he took leave was entirely in his control, and he was paid his full annual salary on the basis that he could take four weeks leave per year. It was Gary who was responsible for documenting leave accrued and taken. In those circumstances the Court should be slow to accept, years after the event, an undocumented estimate by a managing director of leave not taken by him, propounded only when the corporate relationship breaks down. As I have said, I do not regard the circumstance that a managing director while on leave may voluntarily chose to attend to some business affairs somehow means that he is no longer on leave, particularly in the context of a closely-held company. (It would be otherwise if he or she were recalled to work by an arms-length employer).
But despite the caution with which I approach a claim for accrued leave in these circumstances, the plaintiff bears the onus of showing that Gary has taken more leave than he admits. The evidence is insufficient to persuade me that Gary took more leave than he conceded, save in the particular respects to which I have referred above. It follows that the payment to Gary in respect of unpaid annual leave exceeded his entitlements, to the extent of $7,307.59.

[59]

Relief and valuation

Brian seeks an order that the other shareholders purchase his shareholding, at valuation. In circumstances where he has been excluded from management, deprived of his employment, and otherwise oppressed in the respects referred to above, and where if his interest not be purchased he will remain a minority shareholder in an untenable situation, that is plainly the appropriate relief. While other aspects of the oppression might be addressed by pecuniary relief - including the compensation which would be available in respect of the breaches of duty established in the derivative claims - only a compulsory purchase order directly addresses the chief head of oppression and remediates its consequences - namely, the dismissal from employment without a fair offer to acquire his shares.
As to the price, when the court determines the price to be paid under a compulsory purchase order of this kind, the price fixed must be "fair''. Fairness must be assessed in all the circumstances of the particular case, and does not necessarily mean "market value" in a valuation sense. The assessment of ''fair value" involves compensating the oppressed party for the oppression that has occurred, and so any adverse impact on value of that conduct is to be disregarded; this was expressed by Young J (as he then was) in ES Gordon Pty Ltd v ldameneo (No 123) Pty Ltd in the following terms: [46] The flavour of the judgments in the company oppression cases is that in looking to the fair value one must look at all the circumstances of the case and seek to put the oppressed in the same position as nearly as can be as if there had been no oppression, erring, if there is to be any erring, on the side of the oppressed.
The Court appointed an accountant, Mr Mullins of Axiom Forensic Accounting, as Court expert to inquire into and report on the valuation of Optimisation and Brian's shareholding. Mr Mullins in due course produced a report on 15 April 2015. Somewhat belatedly, the defendants filed a notice of motion, on 27 October 2015, seeking leave to adduce expert evidence of one Mr Toscan of Lonergan Edwards, whose report analysed certain sections of Mr Mullins' report, and disputed the EBIT multiplier adopted by Mr Mullins, and Mr Mullins' assessment of surplus assets. Such leave was granted, on 16 November 2015. [47] Mr Mullins produced a further report dated 24 February 2016, in which he concluded that the value of Brian's 35% shareholding was: 1. as at 31 December 2012, $658,617 before adjustments to reverse the impact of various alleged acts of oppression, and $836,563 after such adjustments; 2. as at 6 May 2013, $705,167 before adjustments to reverse the impact of various alleged acts of oppression, and $885,154 after such adjustments; 3. as at 1 March 2015, $417,038 before adjustments to reverse the impact of various alleged acts of oppression, and $562,546 after such adjustments; and 4. as at 31 January 2016, $335,979 before adjustments to reverse the impact of various alleged acts of oppression, and $481,487 after such adjustments.
Although originally there was a dispute in relation to surplus assets, that fell away. Other than the date of valuation, the only matters that remained in dispute between the valuers were the calculation of EBIT (but only in respect of valuation as at 31 January 2016); and the applicable capitalisation rate. In addition, while the mathematics were agreed, there was necessarily a dispute as to which if any of the adjustments in respect of oppression proposed on behalf of the plaintiff should in fact be made.

[60]

Date of valuation

The first valuation issue is in respect of the date at which the value of Brian's shareholding should be determined: Brian contends that the date of valuation should be 6 April 2013, being approximately the time when his employment was terminated and he was practically excluded from management, and shortly prior to the institution of these proceedings on 17 May 2013; while the defendants contend that the valuation as at 31 January 2016, closest to the hearing, should be preferred.
The date of the valuation is selected having regard inter alia to the principles, referred to above, that the purpose of the exercise is to fix a fair price in all the circumstances, which compensates the plaintiff for any impact on value which the oppressive conduct may have had. In Joint v Stephens, the Victorian Court of Appeal suggested that prima facie the date of application was the starting point, and explained why a plaintiff should not be disadvantaged by a decline in value after being excluded: [48] [155] In deciding that fair value should be determined as at the date of the order rather than as the date of institution of proceedings, the judge below held that there was no evidence that the respondent had been responsible for the decline in the value of the company between 22 October 2004 and the present and indeed that there was some evidence that the decline in value was attributable to the appellant's management prior to his dismissal. With respect, however, we think that there is good reason to conclude that the respondent is responsible for the decline in value. He has had the exclusive management of the company since he cast out the appellant, and we are not aware of any evidence sufficient to conclude what the appellant may have done before departure was in any way responsible for the decline. On the contrary, the respondent stated in his affidavit of 15 December 2004 that the company was doing well when he took over and that the business had continued without any interruption and without loss of clients since the appellant's departure. That being so, the prima facie date for the valuation of shares for a compulsory purchase is the date of application - by no stretch of the imagination could this company any longer be regarded as a going concern - and counsel for the respondent was unable to identify any reason why the date of application should not be the date of valuation in this case.
However, it has been said that the date of the filing of the originating process does not provide any "usual starting point", the question being simply, what is the fair time to adopt as the time for valuation of the plaintiffs' shares? [49] Variously, the date immediately before the oppression, [50] the date of the commencement of the proceedings, [51] and the date of the order [52] have been adopted.
In this case, valuation at the date of hearing would produce a significantly lower price than valuation in April 2013, due to decreasing revenues and profits in 2014 and subsequently. Essentially, the issue is whether the price to which Brian is entitled for his shareholding should be immunised from the later deterioration in the company's fortunes. In this respect, one relevant consideration is the reason for the deterioration.
Between 2006 and 2013, Optimisation's sales and profits consistently grew: Year Turnover Turnover Change Profit 2006 $120,934 N/A $36,126 2007 $559,493 +362.64% $10,477 2008 $774,983 +38.52% $53,578 2009 $1,123,305 +44.94% $225,792 2010 $1,270,330 +13.09% $331,431 2011 $1,501,035 +18.16% $474,603 2012 $1,780,791 +18.64% $560,620 2013 $2,111,456 +18.57% $459,150 [53]

[62]

It is an objective fact, which the defendants could not dispute, that in 2013, with Brian performing the role of sales representative, Optimisation achieved its highest ever sales revenue, and that following his dismissal, while Susan has fulfilled the role of general manager, the business has declined substantially. However, the defendants dispute that the decline is attributable to Susan's management, and essentially seek to blame it, if not on Brian, then on the pendency of this suit which he has prosecuted. In re-examination, Susan was asked to state all the reasons for the business' decline in 2014, and her answer warrants a verbatim quote, to illustrate its tenor: The reason I would say, that we had no client information on customers, clients, existing clients, at all, in our company records. We were dealing with relentless accusations and threats from the plaintiff. There was roadblocks put in every areas when we were trying to get inhouse staff. There was - it was a very unsettling environment in the office when the plaintiff brought teams of a forensic - forensic accountants in, when he met with his solicitors there on more than one occasion, when he made numerous requests for information - sorry, financial information, defending ongoing claims that the defendant [sic, plaintiff] put before us. Finding information for the defendant [sic, plaintiff] … Defending accusations which were later withdrawn, access to the Google platform. The list goes on. … At times I've also had to take time out with Mr Hickey as a witness to photocopy the company register for him, including all Sharmark documents. Later an allegation was made that those signatures were not his and not mine, later withdrawn. We were accused of embezzling $60,000 from the business, that Mr Koutzoumis forensic accountant found, only to defend and prove that that in fact was a loan to the plaintiff for a gambling debt. … It was relentless requests from the plaintiff that stopped us from working in the business. I think I've covered it.
To the same question in respect of 2015, she responded: Again, there was very little time to actually work on the business itself. There was relentless demands from the plaintiff for information. It then started to repeat itself. Information that we had previously supplied to the plaintiff would have to be supplied again. There was numerous motions that we had to defend. Really, the same as previous. It was just new allegations after new - we would spend time collating, finding information that was demanded from the plaintiff, put it forward. This went on till the - coming up to 1st of March, when most of those defences [sic, allegations] were all withdrawn. … The only people in the office [besides herself and Gary] were Steve and Sophie.
She said that the plaintiff "road-blocked" decisions to employ new staff, but when asked, Susan could not give a specific example.
No doubt to some extent the litigation distracted from the business, but it was litigation that was justified by the oppressive behaviour of the defendants. Moreover, the pendency of the litigation was not the only factor. Susan's frequent absences for emergency medical care, occasional rehabilitation, and regular ongoing treatment must have detracted from her supervision and managements of the business. Her protestations that Gary, or staff, would effectively cover her absence stand in contrast with her complaints, referred to above, that with only two staff the demands of the litigation meant that very little attention could be given to the business. Although she said that she did not attend at work affected by alcohol, Gary wrote to Dr Montebello on 28 April 2014: She has attended work when drunk and it has been noticed, and commented on, by staff.
Gary said that he did not recall this, and Susan denied it; but the letter - which described Susan as having "deteriorated further" - is hardly one he would have written had she been performing adequately.
The fact is that under Susan's management, business and revenue has fallen, and very markedly so. As those with management during that period, Susan and Gary must bear responsibility for those results. In my judgment, Susan's protracted absences, and the impact of alcohol on her functioning, must have contributed to a lack of supervision of and attention to the business, at least as much as the litigation was also a distraction.
Another and to my mind decisive reason, which would suffice of itself, for selecting the April 2013 valuation date is that, consistent with the principles to which I have referred, to the effect that there was oppression in dismissing Brian without affording him a fair opportunity to sell his shareholding, there should have been a fair offer made to Brian at the time of his dismissal. A plaintiff should not be prejudiced by the oppressive act itself, namely the failure to make a timely fair offer. In O'Neill v Phillips, Lord Hoffman observed: [54] Fifthly, there is the question of costs. In the present case, when the offer was made after nearly three years of litigation, it could not serve as an independent ground for dismissing the petition, on the assumption that it was otherwise well founded, without an offer of costs. But this does not mean that payment of costs need always be offered. If there is a breakdown in relations between the parties, the majority shareholder should be given a reasonable opportunity to make an offer (which may include time to explore the question of how to raise finance) before he becomes obliged to pay costs. As I have said, the unfairness does not usually consist merely in the fact of the breakdown but in failure to make a suitable offer. And the majority shareholder should have a reasonable time to make the offer before his conduct is treated as unfair. The mere fact that the petitioner has presented his petition before the offer does not mean that the respondent must offer to pay the costs if he was not given a reasonable time.
While those observations related to the question of costs, their present relevance is to the timing of the offer. In the context that the defendants were pressing for an "exit strategy", the time for them to make an offer was in, or very soon after, April 2013. Moreover, even in the absence of an offer by the defendants, the litigation may have been avoided had they permitted the valuation then sought by Brian.
Brian should not have to bear the consequences of a decline in the company's fortunes, after his exclusion, which would not have been visited on him had a fair offer been made when it ought to have been made, all the more so when Brian endeavored to take steps to enable one to be made, but was frustrated by the defendants. The price to which Brian is entitled should not be affected by a decline in company's fortunes which took place after he was excluded without any offer, after the defendants had frustrated any attempt to develop an "exit strategy" at the time, and while the company was under the management of the defendants - in particular of Susan whose capacity to be an effective manager was, to the knowledge of Gary and herself, compromised by her alcoholism. Accordingly, I adopt the April 2013 valuation date.

[66]

Mr Toscan points out that the 11.65 for category 10z is for an average-sized company within the category, and that companies at the very low end of the category are likely to attract a premium that exceeds 11.65%.
Mr Mullins' response was that, while he agreed that the premium for small companies increases as companies decrease in size, the only available published data was that set out above, which shows a premium of 11.65% for the smallest category, and that it would be speculation to infer a different rate; that while it was possibly higher, one would not know how much higher. Mr Toscan replied that one could easily extrapolate from the provided data and infer an appropriate premium for a company the size of Optimisation. He offered to do so, but as this arose in the context of concurrent evidence, when he had eschewed expressing any such opinion in any of his reports (which were limited in this respect to criticism of Mr Mullins, without proffering his own position), I refused to allow him to do so. Nonetheless, I am satisfied that it is erroneous to treat Optimisation as if it were an average company in category 10z, when in fact it falls close to the bottom of the range in size, and accordingly that the small company premium of 11.65% is significantly too low.
The other parameter on which there was disagreement was the control premium of 10% applied by Mr Mullins. In his initial report, Mr Mullins provided for a control premium of 35%, which he reduced to 10% in his supplementary report, on the basis that persons pay a premium not merely for access to 100% of the cash flow, but also for the ability to influence (or dictate) the decisions and direction of the business. However, the ultimate question is the value of Brian's 35%, which is a minority, not a controlling, interest. While, in the context of an oppression suit, no discount is to be applied on account of its being a minority interest, that provides no reason to apply a control premium. Moreover, Gary and Susan together already have control. Ultimately, Mr Mullins justified a control premium on two bases: first, that a hypothetical purchaser of Optimisation would be a competitor, or someone with a complementary business or with existing skills in the industry, who would potentially identify economies or opportunities not currently available to Optimisation in its current ownership; and secondly, that the data used to inform the components of the CAPM was from minority interests.
As to the first, and although Mr Toscan accepted that as at April 2013 (though not at the later valuation dates) some control premium may be appropriate on account of potential synergies and economies for a purchaser, in the present context of an oppression suit, I would give less significance to potential synergies and economies that might be achieved by a purchaser of the company as a whole, and more to the company as it was operating at the valuation date, on the hypothesis that it will continue to be operated by the majority. As to the second, while it is true that the stock market data from which the data is derived is provided by trades in minority interests, they are minority interests in listed companies which are freely tradeable on market, and as Mr Toscan observed, citing Pratt: [57] Some analysts believe that the income approach always produces a publicly traded minority basis evaluation because the capital asset pricing model and the build-up model developed discount in capitalization rates from minority interest transaction data in the public markets, this is a very common and highly flawed conclusion. There is little or no difference in the rate of return that investors require for investing in public freely tradeable minority interest versus a controlling interest.
For those reasons, in my view no control premium should be applied.
It follows that I am persuaded that Mr Mullins' multiplier of 3.48 derived from the CAPM is too high. Removal of the control premium alone would reduce it to 3.16. Increasing the small company premium alone, by only 2.0%, would reduce it to 3.19; an increase by 3% would reduce it to 3.06.
As a cross-check, Mr Mullins used BizExchange data of multiples for medium-sized businesses that operated in the "Property Services and Business Services" sector, with turnover between $1 million and $5 million. [58] The median was an EBIT multiple of 2.9 as at February 2013. As Mr Toscan pointed out, with a turnover of $1.7 million to $2 million, Optimisation would be positioned around or just below the median; yet Mr Mullins adopted 3.5, well above the median. While Mr Mullins sought to justify this by reference to a median multiple of 3.36, as Mr Toscan demonstrated out this was derived from data for the period September 2013 to June 2015, in respect of which the multiples had increased from the period before April 2013. In my view, this cross-check confirms that Mr Mullins' multiple of 3.5 is too high.
Mr Toscan proffered a range of 2.5 to 3.0. He referred to Hayes, [59] as illustrating that the average range of earnings multiples for a small to medium-sized enterprise was between 2 and 5, averaging 3.5 (after tax), which translates to about 2.5 before tax; and that many have multiples in the range 2 to 3.5 (before tax). (Mr Mullins also relied on Hayes, for the view that entities with multiples above 3.5 would be expected to show recurring income streams, annuity income and a history of stable earnings). It seems that the range or distribution of businesses that fall within Hayes' categorization of "small to medium" ranges from "micro businesses" with up to four employees, small businesses with 5 to 19 employees, and medium businesses with 20 to 200 employees. [60]
Mr Toscan identified a number of risks associated with Optimisation, which he considered made it riskier than average: in particular, that it had little contracted long term revenue; that it was highly dependent on one key customer, whose contract had only two months to run; that it had no unique intellectual property or product or services; that it operated in a crowded industry with low entry barriers; that it was vulnerable to changes by Google; and that it had only two employees - one of whom predominantly managed client relationships - and so was significantly reliant on retaining those employees. However, most of those considerations were more pertinent to the later valuation dates, than to April 2013. Moreover, Mr Toscan conceded that in respect of the earlier valuation dates, at least some of the risks in respect of future maintainable earnings (in particular, in respect of revenue attributable to Pool & Spa) had been provided for by Mr Mullins by reducing his assessment of EBIT. Further, Mr Toscan conceded that as at April 2013 (though not at later valuation dates), some control premium might be appropriate.
The upper end of Mr Toscan's range was 3.0. My above consideration of Mr Mullins' evidence supports a reduction of his multiple at least to 3.0. I therefore adopt 3.0. This results in the following: Before adjustments After adjustments Assessed FME (EBIT) 517,000 552,000 Multiplied by EBIT multiple 3.0 3.0 Equals value of future earnings 1,551,000 1,656,000 Plus, net surplus assets 205,263 597,012 Equals value of company 1,756,263 2,253,012 Brian's 35% 614,692 788,554

[75]

Reasonable Notice

In the absence of any relevant written or oral term of Brian's employment in respect of notice, Brian was entitled to reasonable notice. The defendants submit that in all the circumstances, four weeks was reasonable. The plaintiff submits that reasonable notice was at least 6 months, being $50,000 in lieu of that notice.
What is reasonable is a question of fact, to be determined as at the date of termination with regard to the facts then existing, bearing in mind that the primary purpose of notice is to enable the employee to obtain new employment of a similar nature, which will be influenced by the nature of the employment, the seniority and importance of the position, the size of the business and the amount of the salary; the employee's qualifications, experience, length of service, age and mobility; and the period the employee was likely to have remained in the employment but for the termination. [61]
I do not accept the plaintiff's submission that, for this purpose, Brian's employment cannot be separated from his position as shareholder and director, such that finding employment of a similar nature would involve employment by an entity in which he is also a shareholder and director. His complaint about exclusion from the benefits of membership of the company is addressed by his oppression case. When it comes to his employment, he was employed, as befitted his skillset, as an on-the-road sales consultant. Although he was a director, he was not employed in a managerial or supervisory role. The replacement role, to find which he is entitled to reasonable notice, is one as a sales consultant.
Brian was 39 years of age at the time of the termination of his employment in April 2013. He had been employed since 2006, as a sales representative, with responsibility for meeting clients and securing sales agreements. For much of his seven years' service, he had been remunerated on a commission basis. At the time of his termination in 2013, Brian was the only remaining sales representative, and was in receipt of a salary of $100,000 per annum. Because he was also a 35% shareholder and a director, he had a reasonable expectation of his employment continuing indefinitely, and it would likely have done so but for his termination.
Brian has remained unemployed since the termination of his employment, at least until the trial. However, there is no evidence that he has taken any steps since his termination to find alternative employment; it seems likely that he has focussed on the conduct of the litigation, in which for a substantial time he was unrepresented.
The defendants invoked the National Employment Standard for notice of termination, [62] which for employees with five or more years' service is four weeks. (Somewhat ironically, they did not refer to the standard for redundancy, which for an employee with seven years' continuous service, is 13 weeks. [63] However, it may not be directly applicable, because it does not apply to a "small business employer", being one with less than 15 employees). [64] No expert or industry evidence was adduced to support the proposition that some different standard should apply. In my view, Brian's skillset in sales would appeal to a wide range of employers, not limited to the products which he had been selling for Optimisation, and finding alternative employment should not be especially difficult. However, his legitimate expectation of indefinite employment with Optimisation, the nature of his employment as a sales consultant in a specialised field for seven years, and his salary, weigh in favour of a somewhat longer than standard period: I do not think that he would likely find employment at a commensurate salary in four weeks.
For those reasons, in my view, four weeks was less than reasonable notice for the termination of Brian's employment as a sales consultant. Two months would have been reasonable. Brian is entitled to the difference, being one month's salary at $100,000 per annum, which is $8,333.33.

[77]

Unpaid annual leave

Brian was also entitled to 20 days per annum annual leave. [66] Between 1 March 2006 and 30 April 2013 (7.17 years; annual leave continues to accrue during periods of paid personal leave, and so the period of his convalescence in 2011 is not excluded), he accumulated 143.4 days of annual leave.
He was paid a total of $32,300.18 on account of annual leave: $1,834.59 on 19 June 2013, said to be in respect of his entitlement accrued between 1 July 2011 and 30 April 2013; and a further $30,465.59 pursuant to the 16 September 2014 resolutions, following his demand for his unpaid employment entitlements in respect of the period between March 2006 and 1 July 2011.
The defendants calculated this further payment as the amount due on the assumption that, despite their position that he had negotiated a higher commission rate in lieu of leave entitlements, his statutory leave entitlements could not be excluded. The period between March 2006 and 1 July 2011 represents 4 years and 10 months (4.83 years) of service, in respect of which annual leave of 96.67 days would have accrued. However, the defendants deducted from this the leave attributable to periods during which Brian was said to be absent - he was said to have been absent for 1,726 normal working hours during this period, requiring a reduction of his accrued leave by 133 hours (17.5 days) - on the basis that he: 1. took 16 days off work in April and May 2009. This appears to have been in the nature of annual leave, which (for reasons explained below) ought to have been paid leave, and annual leave continues to accrue in respect of periods of paid annual leave; 2. did not work more than 3 hours per day, 4 days per week between June 2010 and 17 February 2011. The evidentiary basis for this assumption - that Brian was effectively working part-time between June 2010 and February 2011 - is not apparent. He was a fulltime employee, albeit remunerated by commission, throughout that period; 3. in addition, took 2 full weeks off work between June 2010 and February 2011. This too appears to have been in the nature of annual leave, which ought to have been paid, and in respect of which annual leave continues to accrue; and 4. performed no work between 17 February 2011 and 30 April 2011. However, this was the period of his convalescence, which ought to have been paid sick leave, during which annual leave continues to accrue.
If the assumptions were accurate and relevant, the calculation appears to be correct (1,726 hours equates to 0.87 of a year (1,976 working hours), and 0.87 of 20 days is 17.4 days). However, for the reasons stated above, there is no warrant for treating him as ineligible to accrue leave during the periods in question. Moreover, the fact that he was remunerated on a commission basis does not mean that he was not entitled to paid leave, in addition to his commission, in respect of leave actually taken. When he took accrued leave, he was entitled to payment of his base rate of pay for the period of the leave. During the periods in question, he was remunerated by commission; as such he was an "award/agreement free employee … paid a rate set by reference to a quantifiable output or task, and … not paid a rate set by reference to a period of time worked", and so was a "pieceworker", [67] and his "base rate of pay" for the purpose of annual leave entitlements was an hourly rate worked out using the formula "total amount earned during the relevant period" divided by "total hours worked during the relevant period", the relevant period being the 12 months before the rate is to be worked out. [68] In other words, when he took leave, he was entitled to be paid on that basis for the period of leave, in addition to his commission earnings.
As he received no paid leave, Brian was therefore entitled upon termination of his employment to payment for 143.4 days annual leave, which (at $384.61 per day) equates to $55,153.07. He received, on account of annual leave, a total of $32,300.18. Accordingly, he was underpaid by $22,852.89. [69]

[78]

Jurisdiction

The total amount payable for sick leave and annual leave upon termination of his employment was therefore $74,095.11, of which Brian received only $43,415.18, leaving $30,679.93 as the unpaid balance of his entitlements. However, there is a question as to whether this Court has jurisdiction to entertain claims, founded on the national employment standards, for annual leave and personal leave.
The entitlement to such leave is created by the (CTH) Fair Work Act 2009 (FWA), Part 2-2 of which prescribes the National Employment Standards as minimum standards that apply to the employment of employees which cannot be displaced, [70] including an entitlement to annual leave [71] and to personal leave. [72] FWA s 44(1) provides that an employer must not contravene a provision of the National Employment Standards, and notes that it is a civil remedy provision. In FWA Part 4‑1, s 539(2) relevantly provides that, for s 44(1), an employee may apply to the Federal Court of Australia, the Federal Circuit Court of Australia, or an eligible State or Territory court, for orders in relation to a contravention or proposed contravention. Under s 545(1), each of the two federal Courts is authorised to make any order it considers appropriate if the Court is satisfied that a person has contravened a civil remedy provision (including an injunction, reinstatement, and compensation). Under s 545(3), an eligible State or Territory court may order an employer to pay an amount to an employee if the court is satisfied that the employer was required to pay the amount under the Act, and that the employer has contravened a civil remedy provision by failing to pay the amount.
An "eligible State or Territory court" is defined, by FWA s 12, to be one of the following Courts: (a) a District, County or Local Court; (b) a Magistrates Court; (c) the Industrial Relations Court of South Australia; (d) the Industrial Court of New South Wales; and (e) any other State or Territory court that is prescribed by the regulations. The Supreme Court of New South Wales is not an eligible State or Territory Court within (a) to (d), and as there are currently no State or Territory courts prescribed by regulation under the Fair Work Act, it is not eligible under (e); nor is any other State Supreme Court.
The courts referred to in FWA constitute an exhaustive list of the forums in which an employee may choose to commence relevant proceedings against current and former employers. [73] This Court does not have jurisdiction in respect of an employee's claim for accrued annual leave under FWA, as Ball J observed in Woodland Home Products Pty Ltd v Alex Picalovski, [74] in relation to a claim brought by an employee for unpaid annual leave in the Industrial Court, which the employer sought to have removed into the Supreme Court and transferred to the Federal Court to be heard with other related proceedings: 7 As to the first matter, Mr Picalovski's claim for annual leave undoubtedly arises under the Fair Work Act 2009. Even if the claim originally arose under New South Wales legislation, schedule 3 item 6 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 provides that, where an employee has accrued annual leave during the period before 1 January 2010, the provisions of the Fair Work Act relating to annual leave apply as if the leave had been accrued under that Act. This Court does not have jurisdiction to hear that claim but the Federal Court undoubtedly does. There may be a question whether the Federal Court would have jurisdiction to hear the claim in respect of long service leave alone, but whether or not it does, it would clearly have accrued jurisdiction to hear that claim: see, for example, Carr v Blade Repairs Australia Pty Ltd (2009) FCA 764. 8 As to the second factor, the claim under the Fair Work Act clearly arises under Commonwealth legislation and is not within the jurisdiction of this Court.
Similarly, Brian's claim for unpaid annual leave and personal leave are for amounts said to be payable under FWA, which Optimisation is said to have failed to pay, thereby contravening FWA s 44. His claim is not for breach of implied terms of the employment contract, but for statutory entitlements, the right to which and the remedy in respect of which is created and provided by FWA.
Although the issue has not been argued (since it arose after judgment was reserved), in my view the position is unaffected by the abolition of the Industrial Court of New South Wales, with effect from 7 December 2016, [75] and the transfer of some of its functions relating to the recovery of unpaid remuneration (including annual leave and long service leave) to the Supreme Court. [76] The reference in the definition of "eligible state court" to the Industrial Court of New South Wales cannot be read as a reference to the Supreme Court, especially given that the Commonwealth Parliament appears to have intended to give jurisdiction only to a specialist industrial court, not a superior court of general jurisdiction, and has not otherwise invested jurisdiction under FWA in the State Supreme Courts.
Accordingly, because it is not an "eligible State court", this Court does not have jurisdiction in respect of Brian's claims for unpaid annual and personal leave.
It was submitted for Brian that, if I were to come to that conclusion, I should transfer that part of the proceedings to the Local Court. (NSW) Civil Procedure Act 2005, s 146(1), provides that if the Supreme Court is satisfied, in relation to proceedings before it, that the proceedings could properly have been commenced in the District Court or the Local Court, and that any cross-claim in the proceedings could properly have been brought as a cross-claim in the District Court or the Local Court, it may order that the proceedings, including any such cross-claim, be transferred to the District Court or to the Local Court, as the case requires.
CPA s 146 is concerned with the transfer of the whole of proceedings, before they are finally heard, and not with the transfer of part only of proceedings, let alone after they have proceeded to hearing and determination. That the provision is concerned with the transfer of the whole of proceedings appears from the references to cross-claims, and the requirement that it appear that any cross-claim could also properly have been brought in the lower court. These proceedings, as a whole, could not properly have been brought in the Local Court. The requirements of s 146 for a transfer are not satisfied. Moreover, it would be inappropriate as a matter of discretion to transfer the balance of the proceedings now, when they have been pursued to trial in this court.

[80]

CONCLUSION

My conclusions may be summarised as follows:
The affairs of Optimisation have been conducted in a manner oppressive of and/or unfairly prejudicial to Brian, and/or contrary to the interests of the members as a whole, in the following respects: 1. the payment to Gary of salary, for the month of March 2013, on a fulltime basis, which included a fortnight while he was in England and was entitled only to a half-salary, involving at least an overpayment of $2,084.33; 2. the payment to Susan of salary, in excess of and/or contrary to the arrangements that had been made with Brian, for which there was no commercial justification or proper corporate purpose: 1. to the extent of $64,572 during the period 2007 to 2011, in excess of her entitlements as agreed with Brian; 2. totalling $26,000 in respect of the periods while she was in England between 29 May 2011 and 31 August 2011, and between 8 October 2011 and 18 January 2012, for which there was no commercial justification or proper corporate purpose, as she was not working in any meaningful sense, as distinct from exercising the prerogatives of an owner or de facto director, and she had agreed that she would not draw a salary; 3. of $29,166.62 during the period while she was in England from July 2012 until February 2013, for which there was no commercial justification or proper corporate purpose, as she was not working in any meaningful sense, as distinct from exercising the prerogatives of an owner or de facto director, and she had agreed that she would not draw a salary; 1. the overpayment to Orchard of $208,618.75 in respect of telemarketing costs, at rates which were very greatly in excess of that which was contemplated and agreed when the arrangements were established, and which were not commercial in the circumstances, but unfairly and unreasonably benefitted Orchard, and indirectly Gary and Susan, to the detriment of Optimisation; 2. the dismissal of Brian from employment, when he had a legitimate expectation of ongoing employment and participating in earnings on an equivalent basis with Gary and Susan, without giving him the opportunity to sell his interest in the company at a fair price. While this would be so, even if his position had become redundant, he was not in truth redundant, and the manner in which his dismissal was orchestrated exacerbates the oppressive nature and effect of the decision to dismiss him: Gary and Susan decided that they wanted to be rid of Brian but, while purporting to demand an "exit strategy", effectively obstructed one by declining to make an offer to buy him out, and by refusing a valuation which would have enabled him to make an offer for their interests; 3. the proposed payment of backpay to Gary, which was uncommercial and for which there was no proper commercial purpose, and which would have been contrary to the interests of the company as a whole; 4. the proposed payment in advance of ABL, which resolution would have involved the expenditure of company resources on the defence of the interests of the majority; 5. the cashing out to Susan of annual leave in the amount of $22,730.65 to which she was not entitled, and the payment to Gary of annual leave which exceeded his entitlements to the extent of $7,307.59, totalling $30,038.24.
Brian is entitled to an order that Gary and Susan acquire his interest at its fair value as at the date when they ought to have offered to acquire it, to which the April 2013 valuation date is the most proximate. That value is $725,000. To the extent that Brian is indebted to Optimisation on loan account, the price may be satisfied by release of the loan; to the extent that Brian is owed money on loan account, that should be added to the price.
Gary contravened his duties as a director in authorising the excessive payments of salary to Susan, and in authorising the excessive payments for telemarketing services to Orchard, and is liable to compensate Optimisation for the loss which resulted. Orchard was knowingly concerned in the contravention constituted by the overpayments to it, and is liable to Optimisation, jointly and severally with Gary, for the resultant loss. Susan was knowingly concerned in the contravention constituted by the overpayments of salary to her in respect of the periods while she was in England.
Gary and Susan contravened their duties as directors in authorising the excessive payments to themselves of annual leave, and are liable to compensate Optimisation for the loss which resulted.
In respect of Brian's entitlements on termination of employment: 1. four weeks was less than reasonable notice for the termination of Brian's employment as a sales consultant. Two months would have been reasonable. Brian is entitled to the difference, being one month's salary at $100,000 per annum, which is $8,333.33; 2. Brian was entitled to receive paid personal leave for the period of ten weeks, or 50 working days, for which he was absent convalescing between 17 February and 30 April 2011. As he had accrued leave of 49.25 days, he was entitled to exhaust it. He was underpaid by 20.25 days, which (at $384.61 per day) amounts to $7,788.35; 3. Brian was entitled upon termination of his employment to payment for 143.4 days annual leave, which (at $384.61 per day) equates to $55,153.07. He was underpaid by $22,852.89; 4. however, because it is not an "eligible State court", this Court does not have jurisdiction in respect of Brian's claims for unpaid annual and personal leave. The requirements of CPA s 146 for a transfer to the Local Court are not satisfied. Moreover, it would be inappropriate as a matter of discretion to transfer the balance of the proceedings now, when they have been pursued to trial in this Court.
There should be judgment that Optimisation pay Brian $8,333.33.
As to the cross-claim, although I have accepted that Brian agreed with Susan that he would receive commission of 20% in lieu of any salary including employee entitlements, the entitlement to annual leave created by the National Employment Standards is a minimum standard which cannot be displaced; the agreement was therefore ineffective to exclude Brian's entitlement to paid annual leave and personal leave, and he was not therefore paid by mistake pursuant to the resolutions of 16 September 2014.
Subject to what follows, there should be orders to the effect that: 1. Pursuant to Corporations Law s 233, Gary, Susan and Sharmark purchase Brian's shareholding in Optimisation, for a price of $725,000, adjusted for the balance of his loan account, and the loan account discharged; 2. Pursuant to Corporations Law s 1317H: 1. Gary pay compensation to Optimisation in the sum of $66,656.33 (being the amount of $2,084.33 overpaid to him, and $64,572 overpaid to Susan during the period 2007 to 2011); 2. Gary and Susan pay compensation to Optimisation in the sum of $85,204.86 (being the amounts of $26,000 and $29,166.62 overpaid to Susan while in England, and $30,038.24 overpaid annual leave); and 3. Gary and Orchard pay compensation to Optimisation in the sum of $208,618.75 (being the amount of the overpayments to Orchard); 1. Optimisation pay Brian $8,333.33 (being the additional notice to which Brian was entitled).
Particularly in the context of valuation, and in the treatment of the loan accounts, while I have endeavoured to minimise the scope for further dispute by undertaking all such adjustments and calculations as has been practicable, it is conceivable that there are matters which I have overlooked, and/or to which the parties may wish to draw attention; and it is also conceivable that I have mathematically erred. Further, as the compulsory purchase order will fully compensate Brian, and he will thereafter have no further interest in Optimisation, it may be appropriate to stay indefinitely the operation of the orders to be made on the derivative claim. Accordingly, counsel should have an opportunity to consider these reasons before formal orders are made. The Court directs that the plaintiff bring in short minutes on a date to be fixed to give effect to this judgment, at which time any such matters, the question of costs, and any other consequential issues, may also be addressed.

[81]

Endnotes

The company was originally known as Web4site Pty Limited. It changed its name to Optimisation Australia Pty Limited on 15 May 2011. In this judgment it is referred to as "the company" or "Optimisation".
Given the familial relationship between them, and without intending the slightest disrespect, I shall for convenience refer to the protagonists by their first names.
By his Second Further Amended Statement of Claim filed on 18 November 2015.
Brian's alternative claim for an order that Optimisation be wound up on the just and equitable ground was ultimately not opposed.
For which leave pursuant to Corporations Act, s 237 was granted, by consent, on 19 December 2014
By way of damages, equitable compensation and/or statutory compensation under Corporations Act, s 1317H.
Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639 at [86] (Sackar J).
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 (Young J).
Thomas v H W Thomas Ltd [1984] 1 NZLR 686 at 693; Wayde v NSW Rugby League Ltd (1985) 180 CLR 459.
Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1 at [178] (Black J).
See Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 378-9 per Lord Wilberforce, further discussed below, where it is explained that while that case involved winding-up on the just and equitable ground, the same considerations apply in connection with the remedy for oppression.
Re Bright Pine Mills Pty Ltd [1969] VR 1002 at [108].
Corporations Act, ss 1317DA and 1317E.
Corporations Act, s 181(2), s 182(2).
Corporations Act, s 79.
A complaint founded on the undisclosed status of Sharmark as a shareholder was abandoned before the hearing commenced, and another in respect of a failure fully to pay a dividend declared on 26 September 2014 was not pressed at the conclusion of the hearing.
The position from mid-2011 onwards will be dealt with below, as it is intertwined with the arrangements that pertained while Susan and Gary were in England.
Re Bright Pine Mills Pty Ltd [1969] VR 1002; Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639 at [108] (Sackar J).
(1986) 10 ACLR 549; 5 ACLC 394.
The amounts overcharged for 2006 to 31 December 2008 are calculated as 70% of the amount actually charged during that period, being the difference between $15 and $50. The amounts overcharged for 1 January 2009 to 30 June 2011 are calculated as 50% of the amount actually charged during that period, being the difference between $15 and $30. The amount charged for 1 July 2008 to 31 December 2008 (at $50 per hour) was $35,730, resulting in an overcharge of $25,011; and the amount charged for 1 January 2009 to 30 June 2009 (at $30 per hour) was $7,410, resulting in an overcharge of $3,705.
See [97] above.
According to his email to Mosaic of 8 March 2013 [DX02].
Gary's affidavit of 18 February 2015, [503].
Susan's affidavit of 18 February 2015, [187].
Although it is possible that, as Brian says, these possibilities were raised at the 15 March meeting, it is also possible that Brian had learned of them from the John Alex D email chain, which he had by then accessed via the Optimisation server. However, it makes no real difference.
In a response of 30 April, Mr Mazzone maintained that that letter was not seen until after the meeting had taken place on the morning of 29 April.
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 378-9 (Lord Wilberforce).
O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 at 967 (Lord Hoffman (with whom Lords Jauncey, Clyde, Hutton and Hobhouse agreed)); see also Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 at 723-4 [323] (Priestley JA); Diligenti v RWMD Operations Kelowna Ltd (1976) 1 BCLR 36; Hogg v Dymock (1993) 11 ACSR 14 at 20; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [43].
O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 at 967; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [45].
O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 at 970; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [46].
O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 at 970-1; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [46], [48].
O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 at 971; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [48].
O'Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961 at 974-976. This summary draws heavily on that by Priestley JA in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 at 742-3 [416]. See also Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [46], [50].
(2001) 37 ACSR 672 at 743 [423]. See also Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 at [52].
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688.
See [380]-[385] below.
Gary's affidavit of 20 February 2015 at [34].
Re D G Brims and Sons Pty Ltd (1995) 16 ACSR 559 (Byrne J); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, 732-4 (Young J); Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; 61 ACSR 395 at [27].
It seems that this was up to 18 February 2016.
The defendants contend that Brian should be a co-contributor to the company's costs and that his loan account should be increased (and theirs decreased) commensurately. This will have to be addressed, if it remains a live issue, in the context of the final orders and/or costs.
(CTH) Fair Work Act 2009, ss 5, 61, 87, 90, 96, 99.
The defendants' calculations are tabulated in annexure D to the Defendants' Final Submissions of 21 June 2016. Consistently with the defendants' approach, my calculations treat a week as comprising 38 hours; thus, each year's fulltime service accrues two weeks (76 hours) personal leave.
See [427]-[434] below.
The plaintiff contended that Susan worked only part time and not full time for Optimisation until 30 April 2009 (3 years and 47 days, which accounts for 62.6 days of this claimed leave accrual), and that during this period, she worked only approximately 60 hours per month - or approximately 37.5% of the hours of a full-time employee - for Optimisation, and that her annual leave entitlement for this period was 23.5 days, not 62.6 days. However, given that this is an imprecise and impressionistic estimate, I prefer to err in favour of the defendants' conceded position.
See [83] above.
(1994) 15 ACSR 536 at 540.
In the matter of Optimisation Australia Pty Ltd [2015] NSWSC 2072.
Joint v Stephens [2008] VSCA 210; (2008) 26 ACLC 1,467 at 1,500 [155].
Short v Crawley (No 30) [2007] NSWSC 1322 at [1237]-[1246] (White J).
Dynasty Pty Ltd v Coombs (1995) 13 ACLC 1290.
Scottish Co-operative Society v Meyer {1959] AC 324 at 369; Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 at 562; Reid v Bagot Well Pastoral Co Pty Ltd (1992) 9 ACSR 129; Joint v Stephens [2008] VSCA 210; (2008) 26 ACLC 1,467.
Roberts v Walter Developments Pty ltd (1997) 15 ACLC 882; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 61 ACSR 254.
In the original MYOB records provided to Brian by Gary and Susan, the 2013 profit was recorded as $728,596, but was altered to the stated figure in a later version.
O'Neill v Phillips [1999] 2 All ER 961 at 974-976.
Ibbotson SBBI 2013 Valuation Yearbook.
Duff & Phelps 2014 Valuation Yearbook.
Pratt S, Business Valuation Discounts and Premiums.
BizEchange provides quarterly evidence on the EBIT multiples relating to transaction in private companies in Australia, by sector.
Hayes G (2008), A Practical Guide to Business Valuations for SMEs, 2nd ed.
Hayes G (2008), A Practical Guide to Business Valuations for SMEs, 2nd ed, p5 (quoted by Mr Toscan, DX11, p15).
Sappideen C, O'Grady P, Warburton G & Eastman K, Macken's Law of Employment, 6th ed, p 270-271; Quinn v Jack Chia (Australia) td [1992] 1 VR 567; Rankin v Marine Power International Pty Ltd (2001) 107 IR 117; (2001) VSC 150; Rogan-Gardiner v Woolworths Ltd (No 2) [2010] WASC 290; Susanna Ma v Expeditors International Pty Ltd [2014] NSWSC 859.
Fair Work Act, s 117(3).
Fair Work Act, s 119(2).
Fair Work Act, s 121(1)(b), s 23.
Fair Work Act 2009, s 96.
Fair Work Act 2009, s 86.
(CTH) Fair Work Act 2009, s 21(1)(c); Fair Work Regulations 2009, reg 1.12.
(CTH) Fair Work Act 2009, s 16(2)(c); Fair Work Regulations 2009, reg 1.09.
In an annexure to the defendants' written submissions, a revised calculation of Brian's leave was proffered, which was said to demonstrate that Brian has been overpaid $6,258.55 in relation to annual leave, but how it does so is not apparent; nor is the evidentiary basis for the assumptions on which it is founded.
(CTH) Fair Work Act 2009, s 61.
(CTH) Fair Work Act 2009, s 87.
(CTH) Fair Work Act 2009, s 96.
Ervin v Smipat Pty Ltd t/as LJ Hooker Burleigh Heads [2013] QCATA 153 at [29] (Wilson J).
[2010] NSWSC 629.
By the (NSW) Industrial Relations Amendment (Industrial Court) Act 2016.
(NSW) Industrial Relations Act 1996, Chap 7 Pt 2; Sch 4 Pt 18.
(CTH) Fair Work Act 2009, s 61.
As to which see [428]-[432] above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 February 2018

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