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[2008] VSCA 210
Court of Appeal (Vic)
2008-11-21
NETTLE, ASHLEY and NEAVE JJA
Original judgment source is linked above.
Companies - Oppression - Oppressive conduct of affairs of company - Quasi-partnership - Dissension between principal shareholders - Member of company deprived of directorship and benefits of membership - Dispute relating to management fees charged to company by related companies - Offer by minority shareholder to purchase majority's shares - Subsequent dismissal of minority shareholder by majority - Relief - Compulsory purchase of minority shareholder's share - Value of company - Appropriate date for valuation of minority shareholding - Corporations Act 2001 (C'th) s 233 - Wayde v New South Wales Rugby League [1985] HCA 68; (1985) 180 CLR 459, Morgan v Flers Avenue Pty Ltd referred to.
1 This is an appeal against a judgment given in the Commercial and Equity Division. The appellant's claim below was for relief under s 233 of the Corporations Act 2001 (C'th) in relation to the conduct of the affairs of Program IT Pty Ltd ('Program IT') or alternatively for an order that Program IT be wound up under s 461(1)(k) of the Act on the just and equitable ground.
2 Before the formation of Program IT, the appellant had eight years' experience running a small computer sales, desktop publishing software development and deployment business called Joint Computer Marketing (JCM). It grew to a turnover of several hundred thousand dollars a year and employed a total of four people. In 1998 he closed down JCM and began working as the principal Customer Relationship Manager (CRM) consultant at an organisation called AIPC, and he remained there until 2000. CRM is also a methodology for retaining customers and ensuring repeat business. It includes a significant computer and software component and its implementation requires a high degree of technical and business experience.
3 The respondent was an entrepreneur whose object was to develop businesses for sale. From June 2000, he and a chartered accountant named John Tan (Tan) worked together in a company called ReImage Pty Ltd which provided on-site refurbishment and maintenance of service stations for oil companies and the refurbishment and maintenance of physical assets for other organisations. From time to time, the respondent also owned and operated several other companies. He established Octopus Pty Ltd, which was an advertising company, and it operated for about three years. He had another company, called Builders' Choice Pty Ltd, which imported kitchen appliances. He was a director of further company, Program Development Pty Ltd, although at relevant times it did not carry on any business. He also owned a company, called Spray Mobile Franchise Pty Ltd, which was a franchisor company; a landholding company, called Yarnock Developments Pty Ltd; a development company called Sanquest Properties Pty Ltd; a company interested in sculpture, called Art of Aiden McLeod Pty Ltd; and a superannuation company, called Jason Stevens Superannuation Pty Ltd. The respondent called all of those companies the Program Group, although they were a group only in the sense that he owned the shares in each of them. As will be seen, he also adopted a practice of raising 'management fees' and 'administration charges' between the several companies in order to minimise taxable income and thus tax for the group as a whole.
4 Tan was the appellant's sometime accountant and advisor. During June 2000, the appellant fell out with AIPC and sought Tan's advice. That led to discussions between the appellant, Tan and the respondent and the formation of Program IT. The company was incorporated with 100 issued shares held by the respondent on trust as to 51 shares for himself and Tan and as to 49 shares for the appellant. The appellant provided the IT related impetus for the project.
5 The business of Program IT was to assist other companies to manage call centres and CRM. A call centre may consist of a large group of people answering telephone calls or emails from customers requiring assistance or a large group of people making outbound calls in order to solicit business or request the repayment of loans. Program IT implemented new CRM methodologies and oversaw the automation of existing methodologies through computer software deployment. Program IT was also involved in the distribution in Australia and Asia of two Business Intelligence applications and one CRM software application. Business Intelligence applications are software programmes which consolidate large quantities of transactional information and provide visual and textual analysis of trends, patterns and unusual company performance. Program IT trained staff in the applications and was responsible for the implementation, training, and marketing of the applications. It sold the software in Asia through 'partner' organisations.
6 At the outset, it was proposed that the appellant and the respondent and Tan would run the business of Program IT as a joint effort. The appellant was to be concerned with the technical and sales aspects of the company's business. The respondent's intended role was to be in the marketing and financial aspects of the company's activities. Tan's intended role was to oversee the company's accounts. It was agreed that the appellant should be employed by the company until he concluded his dispute with AIPC and that he then be appointed a director. It was also intended that the 49 shares held in trust for the appellant would be transferred to him at that point.
7 In order to begin operations, the respondent provided $10,000 seed capital through Spray Mobile Franchise Pty Ltd. Administrative and clerical services were provided by employees of Spray Mobile Franchise Pty Ltd, in particular by Di Trucano and Paul Crapper of Spray Mobile Franchise Pty Ltd, and charged for by way of administration charges which were recorded in the books of account as company loans. The accounts of Program IT were kept by Di Trucano and Paul Crapper under the instructions of the respondent and Tan, and the company's annual accounts and tax returns were prepared by the respondent's personal and business accountant, Stephen Murphy of GNS Group Pty Ltd Accountants. The appellant was not involved in any of the administrative tasks during the initial phase of the company's operations.
8 Some time after operations began, Program IT arranged a $100,000 overdraft facility with the National Australia Bank. To begin with, the respondent was the sole guarantor. That changed in 2002 when Tan, as a director, also became a guarantor and then again, on 31 October 2002, when the appellant became a director and the managing director. At that point, he became a guarantor and the respondent's liability as guarantor was discharged. At much the same time, the initial seed capital of $10,000 was repaid to Spray Mobile Franchise Pty Ltd and the 49 shares in the capital of Program IT which had been held on trust for the appellant were transferred to him.
9 Program IT began business with one client, Kistend Travel, which was introduced by Tan, and a number of the appellant's contacts from businesses before his association with AIPC. Kistend Travel generated approximately $13,000 in revenue in the first few months. The company was also approached by several of AIPC's clients but refused their work because of the litigation with AIPC. Over time, Program IT developed both local and overseas customers. Among others, they included the Commonwealth Department of Defence, Olex Cables Ltd and the Australian and New Zealand Banking Group Ltd. By September 2000, Program IT was rendering services to Siemens for which it was charging tens of thousands of dollars per week.
10 According to undisputed evidence, the appellant provided 'great service to [Program IT]'. From the start, he worked more than 60 hours a week on automation, streamlining and other activities and some weeks he worked in excess of 100 hours. He assessed project risks, and was responsible for ensuring that quotations to customers had a solid business case ensuring profitability of the company. He had input into every tender and contract the company entered into. Throughout the four and a half years he was with Program IT, he had no more than eight weeks' holiday and even then when on holidays he always took his laptop computer and accessed company email daily, filtering between 80 and 150 emails per day and keeping watch on every customer support enquiry. During the early years of the company, he was directly involved in all project work and conducted the company training and customer training for CRM applications, as well as the Business Intelligence Applications, and he was responsible for all employee management, including hiring, dispute resolution and company social events.
11 The evidence was less clear as to what the respondent or Tan contributed to the operations of the company. According to the respondent, he worked with Program IT for years without drawing a salary and made 'substantial contributions to the operations of the business'. According to the appellant, however, the respondent's input was minimal and his only apparent involvement was during the time of one marketing exercise, for which he attempted to charge the company through one of his companies for 18 weeks (at 30% of his time). The respondent deposed that Tan 'worked long hours on matters relating to the Company and his input both into management and marketing to clients and potential clients greatly assisted the Company'. The appellant deposed that Tan's direct input was also limited. He said that Tan was involved in another company, EProgram Asia, which was incorporated in Hong Kong and the shares in which were supposed to be held on trust for Program IT. But on average, the appellant and Tan exchanged only one or two emails a day.
12 The appellant gave evidence that Program IT was continually generating profits but that the cash flow was always a problem. He said that he did not believe that work on the company's books was competently done. Eventually, after more than three years of the books being kept by Di Trucano, he appointed a new bookkeeper, Sue Hammond, to replace Trucano and a CPA, Ulla Lonnqvist, as her supervisor.
13 The appellant's evidence as to the unsatisfactory state of the company's books was corroborated by Ulla Lonnqvist. She deposed that she was a Certified Practising Accountant who commenced work with the company as a contractor on 8 June 2004 and was appointed to the salaried position of Chief Finance Officer in September 2004. Within five days of commencing work, she prepared a draft report on the company's accounts containing her initial observations on their inadequacies and seeking to address a number of issues that had become apparent:
One of those was the reporting for, and payment of GST. The company had been paying invoices that were not addressed to it but to other entities of Jason Stephens such as Reimage [sic], Spray Mobile and Builders' Choice. The company paid the bills eg to Optus and Telstra, among others and claimed the GST credit but the invoices should have been entered in Program IT's books through loan accounts. Another concern was management fees paid by the company which included GST. I recall seeing a letter from the company's accountants, GNS Group, advising that the refund of the GST resulting from these fees should be paid directly to other companies even though it belonged to Program IT.
... I recall seeing invoices for personal tax returns for Jason Stephens' Family Trust and other individuals. These services were rendered by GNS Group. I checked whether Program IT had paid the invoice and found that it had been incorporated into the company's accounting fees. In addition to this, at around the same time, August/September 2004, the company received an invoice from GNS Group for their services rendered. As I was not aware of any services having been requested from GNS at the time, I queried this invoice. Their accounts receivable person advised me, that the invoice actually related to services rendered to another Jason Stephens' entity. I requested a credit note. As at the time of my dismissal [on 22 October 2004], no credit note had been received.
When I commenced at the company, Program IT paid all rent and outgoings for the premises and had been doing so since they moved to the premises at Arthur Street even though parts of the premises were used by other companies [belonging to Stephens]. Invoices were not rendered to the other companies using the premises and I believed they should have been paying around 50%. I attempted to implement a procedure for that to occur.
...
At the end of the June 2004 quarter it was clear to me the accounts of the company contained many discrepancies needing clarification...
Disputes about management fees and administration charges
14 There was also a dispute about the amounts of 'administration charges' and 'management fees' that were charged by companies in the respondent's Program Group, and as to whether the respondent was taking amounts of money out of Program IT which resulted in it being short of cash. The appellant's evidence was that, although Program IT earned good income, he became concerned about accounting practices from the outset. He said that during the first two years of operation, there were many management fees charged by the respondent to the company and that when the appellant questioned them he was told that he was not in a position to dispute the charges.
15 Ulla Lonnqvist corroborated the appellant's concerns about the level of administration charges and management fees. She deposed that, in addition to the ordinary duties of a CFO:
[I] was working on a report in relation the company's loan accounts. I had been analysing transactions through these for the financial years ended 30 June 2003 and 30 June 2004. My focus was particularly on the directors' personal loan accounts and loan accounts of entities owned by Jason Stephens. My report was in the form of Excel work sheets and contained data retrieved from the company's books of account. I delivered this report to Peter Joint, Jason Stephens and John Tan on 13 October 2004. I offered no opinion or interpretation as to the contents of the report.
After this had been done I attended a meeting with Jason Stephens, Stephen Murphy of GNS Group and Di Trucano in the Program IT boardroom [on 19 October 2004] three days before I was dismissed. At the meeting I was given a handwritten summary by Stephen Murphy of the end of year management fees charges from 2001 onwards. I was not at any time asked whether I approved of the fees being paid or whether they were fair and reasonable...
16 She was cross-examined on that evidence and said this:
It was a 19 page spreadsheet, was it not? - - - Yes.
Do you know what's happened to that report? - - - No.
They were account queries and transaction queries, were they not? - - - Yes.
And have you seen Mr Murphy's comments about it? - - - Seen his comments on that day or ---
No, subsequent to that? - - - No.
So you had a discussion with Mr Murphy on the day? - - - Yes.
And would it be fair to say that some items he agreed with, others he disagreed with? - - - Di Trucano had also gone through them and ticked them all off from - also through the same - to verify that all the information I had on those sheets had actually been retrieved from the books of account...
...
And then you've had a - was she at the discussion with Mr Murphy? - - - She was at the same meeting, yes.
And there was no further meeting after that, is that right? - - - No, no. I was dismissed.
17 The respondent denied that the accounts were inadequate or that he or any of his companies had acted improperly in using Program IT to pay personal expenses or the expenses of companies in the Program Group, and he denied that he or any of his companies took excessive amounts out of the company by way of loan. As he saw the position, Program IT was one of the companies in his Program Group and therefore it was permissible to move money into it and out of it according to what he perceived to be the best interests of that group as a whole. As he put it in his affidavit of 15 December 2004:
For the first 12-18 months of operation of Program IT, the overhead expenses were paid for and met by Spray Mobile Franchise Pty Ltd. Other businesses developed or grew out of the same premises at Main Road Eltham. My view with the shared accommodation was that there were times when other companies needed financial support and accordingly, borrowings between the group companies would occur which were then entered into the books of accounts and repaid where possible. In May 2003 we moved to Arthur Street in Eltham.
...
...Program IT was a start up company. It had no clients when we began and relied upon my $10,000.00 capital injection and then later the $100,000.00 overdraft. Program IT was one of a number of companies within the group known as the Program Group and shared overheads and expenses such as rental, accounting services and provision of administrative support. Program IT was not in a position to become financially viable from day one and within the Program Group, Program IT had its fixed and variable overhead costs subsidised by other companies. For instance, Program IT paid little if any fees for accounting services provided to it. These were all met by Spray Mobile Franchise Pty Ltd. This continued until Program IT was in a position to be cash positive and generate income to pay for these sorts of administrative expenses. The provision of these administrative services are recorded in the books of Program IT as company loans, and [the appellant] is incorrect when he describes these as disputed inter company management fees. I have sought and obtained from Mr Steven Murphy, our accountant at GNS Group Pty Ltd, Accountants, a report as to the trading results of Program IT for the period from June 2000 through to the end of 2003. I have also asked Mr Murphy to comment upon some of the allegations regarding intercompany management fees and the tax position of Program IT.
18 Mr Murphy's response to Ulla Lonnqvist's 19 page spreadsheet was tendered below. In fact, as it emerged from that report and Mr Murphys' cross-examination, the administration charges and loan accounts were to a large extent a work of fiction contrived to reduce the apparent taxable income of the Program Group as a whole.
19 Thus, for example, Mr Murphy stated in his report that in the year ended 30 June 2001 Program IT achieved a turnover of $620,418 but, after allowing for expenses and 'management fees' of $22,833.22 (representing three point six percent of turnover) which were credited in favour of one or more of the respondent's other companies, Program IT was left with a net profit of $197,178. Taxable income was then purportedly reduced to nil by the transfer of $197,178 tax losses from Spraymobile. Additionally, although it was not disclosed in the accountant's report, but emerged in the course of the respondent's cross-examination, a further $66,500 went out of the company to Spraymobile by way of loan.
20 For the year of income ended 30 June 2002, the report stated that Program IT generated a turnover of $1,121,295 which was then reduced to a loss of $224,850 after paying 'administration charges' of $195,581.55 and 'management fees' of $1,977.92 to companies in the respondent's Program Group. That result was then improved to a loss of $8,628,05 by 'journalising' in 'management fees' of $225,000 as income received from other companies in the respondent's Program Group. In the result, companies in the respondent's Program Group were enabled to receive tax free income of $195,581.55 at the expense of depriving Program IT of the benefit of tax losses of almost $220,000.
21 As appeared for the year end accounts of Program IT for the year of income ended 30 June 2003, the company generated a turnover of $2,293,750 from which were extracted 'administration charges' of $74,346.47, apparently paid to other of the respondent's companies, and 'management fees' of $222,634.55 apparently paid to other of the respondent's companies, yielding an operating profit of $236,586.76 and taxable income of $227,375.48. According to the report:
Management fees totalling $221, 634 were journalised out of Program IT into 2 companies in the Group at year end to take advantage of losses in the Group. This adjustment reverses the transaction in the 2001/02 year with a differential balance of $13,366.'
22 Mr Murphy conceded in cross-examination that the so-called 'management fees' were solely for the purpose of avoiding the tax burden of the Program Group as a whole:
... you were the accountant for a number of companies in what's been called the Program Group? - - - Yes.
And your job was to move money in the accounts between the companies in order to maximise the position of the group as a whole, do you agree with that proposition? - - - I provided advice on how they could possibly reduce tax within the group, but I had no involvement in transferring of moneys.
One of the devices was to raise entries against management fees from time to time? - - - Correct, yes.
...
Was the sole purpose of that to reduce tax? - - - Yes.
23 Mr Murphy sought for a while to maintain that there was a distinction between 'administration charges' and 'management fees'. Thus, when it was first put to him that the two were fairly interchangeable, he said this:
...no, the administration charges are purely for the overheads and wages of the group, management fees were to cover a reduction in tax from one company to the next.
Then, however, he was taken to a letter which he had written concerning the 30 June 2002 administration charges, in which he had stated that: 'This amount was put through to minimise the amount of tax payable between the group entities', and he agreed that the administration charges were simply what the respondent said they should be and that there was no verification of them:
As far as attributing various amounts to various companies are concerned by way of expenses, do you act on the instructions that are given to you by Mr Stephens? - - - Yes.
You don't claim to do any sort of verification work do you? - - - No.
24 The respondent also gave evidence in cross-examination which implied that, at least on some occasions, there was little difference in principle between the two categories:
Can you explain the logic behind having management fees as income and administration costs as expense, which almost cancel each other out" - - - Can I explain - sorry, can you say that again.
Can you explain why there is management fees as an income item and administration fees as an expense item, which are within $30,000 of each other? - - - I can't explain that , no.
Well I put it to you it was done for the purposes of adjusting the different accounts between the different companies to minimise taxation for other companies? - - - Yes.
25 The appellant deposed that in January 2004 the respondent told him that he required a loan from the company of between $50,000 and $75,000 for one of his other companies. The appellant said that he was pressured into agreeing but made it clear that the loan was only to be for two weeks, and that the respondent assured him that that time frame would be met. In fact, the loan was not repaid at any time before the appellant was dismissed as managing director and locked out of the company on 22 October 2004.
26 The respondent did not dispute that evidence apart from the suggestion that the appellant acted under pressure. Once again, he made it plain that he regarded Program IT as one of the companies within his Program Group and thus that he and Tan were at liberty to direct funds into it and out of it to his other companies as he chose. As he put it in his affidavit of 15 December 2004:
The interest free loans [were] payments made between companies inside the Program Group for management fees and at times for repayment of loans to or from Program IT depending on whether it was in a position to lend monies to other companies within the Program Group. Program IT was one company inside the Program Group and, to the best of my ability and that of John Tan, we tried to ensure any peaks or troughs in financial positions of any of the companies were covered by other companies within the Program Group.
27 In April 2004, the appellant found that the company did not have sufficient funds on hand to pay an urgent invoice from a key supplier and, when he queried how that could be, he ascertained that a management fee of approximately $66,000 including GST had been invoiced and paid to one of the respondent's companies on the authority of the respondent (even though the real value of the transaction should have been at least $50,000 less than that). The appellant then demanded that the respondent return the moneys immediately and the respondent replied that he was not in a position to do so. Tan refused to take any action to recover the moneys, so the appellant was forced into borrowing $40,000 at high interest to cover the deficit.
28 The respondent did not dispute that except to say that the appellant should have called on one of the company's debtors rather than borrowing at high interest and that one of the respondent's companies repaid the $40,000 and interest within seven days, although the debt of $66,000 remain unpaid.
29 According to the appellant, such was the dispute about administration charges and management fees that, by May 2004, it had become apparent that the relationship between himself and the respondent and Tan was virtually unworkable. He therefore spoke to the respondent and told him that he was prepared to buy his shares in the company. They reached a handshake agreement that the appellant would purchase the respondent's shares under an arrangement which valued the company at $4,000,000. Thereafter, the respondent had a memorandum of understanding drawn up by his solicitors which was intended to incorporate the terms of the handshake agreement. It provided that the appellant should purchase the respondent's shares in the company for $2,000,000 by a deposit of $200,000 payable on the signing of formal documentation of sale and thereafter by 36 equal monthly instalments of $20,000 payable on the first day of each month commencing on the first day of the month following the deposit, with the balance of $1,280,000 in the event of a sale of a major asset or undertaking of the company, the sale or disposal by the respondent of a substantial shareholding in the company or entry into a joint venture.[1] That amount of $1,280,000 was called 'the retirement fund', and as will be seen, the appellant did not agree with it.[2]
30 As events transpired, the appellant was not prepared to commit to the purchase until the books of account of Program IT had been investigated and disputes about loan accounts, management fees and administration charges had been resolved. To that end, he engaged the new bookkeeper, Sue Hammond, in April 2004, to review the company's accounts and maintain the company's books, and Ulla Lonnqvist, in June 2004, in effect to audit the accounts. He instructed Ms Lonnqvist to prepare a complete summary of all transactions she could find in the previous two years that she considered might be irregular. As he deposed in his affidavit of 7 February 2006:
I made it clear at the time that I intended to independently audit the books prior to completing the deal. It was expected that should the books have been maintained in a tidy and orderly manner that it should be completed within three weeks. However many of the entries in the accounting system did not make sense, and much paperwork was missing, including a huge mess with international payments and foreign currencies.
31 On 30 June 2004, the appellant emailed to Di Trucano, who until then had been the bookkeeper for Program IT, with a copy to the respondent, explaining the position thus:
I understand your discomfort and the distaste that the introduction of Sue (and Ulla), and frankly the way I have handled it. For this I truly apologise. You have been in the most awkward of positions for a very long time, and the fact that you've not run out of the building screaming on numerous occasions is a credit to you...
...
We will still need some guidance from you from time to time as we continue to Audit the eProgam accounts in relation to company cross charging.
Again, this is not a process that is directed at yourself, as you were simply doing your job, and I admire it. I understand you not wanting to deal with the eProgram accounts at all anymore - and I am fine with that - if I could please ask that you help out until we can get the banking sorted out with NAB, which, if Graeme was not away should have been done by now.
Once that's sorted, the only assistance we'll need is in helping to dig up some of the reasons behind some of the more obscure transactions in the books and Steve Murphy will be part of the explanation trail.
Finally, just to re-iterate, the reason for the audit and Ulla's current involvement is not a witch hunt (I had a long heart-to-heart with [the respondent] about this yesterday as well). It's purely because through ignorance, naivety, or stupidity, I really just don't understand the various accounts and transactions in the system. Once these are understood, I can place an appropriate valuation on the company and get eProgram more takeover friendly as at the moment - it is anything but...
32 Tensions remained high. On 22 July 2004, Tan emailed to the appellant and the respondent as follows:
It is not secret that the 3 of us are not tracking well as a team. [The appellant] is going to be away for a month and issues are bound to come up that give rise to misunderstanding in the current climate. I suggest we have an eProg board meeting tomorrow to ensure protocols are in place and we and the staff have a clear understanding. The aim is to create an acceptable equilibrium/working environment. To this end I suggest we put our individual concerns on the table with care and consideration so as not to escalate; put forward ideas on how to resolve the concerns at this meeting.
33 Later that day, the appellant responded by email to Tan, making plain that his principal concern remained the state of the accounts and that he still intended to buy out the respondent once the audit was complete:
This makes it look worse than it is mate. This is so way out of proportion. Like I said to you over coffee, and sms'd you on the phone tonight, when the audit is concluded, and discrepancies cleared up, monies paid back in what ever direction they are owed, I'll buy Jason as per our original handshake. This audit should have been over months ago - it is only because of the state of the books that this is taking too long - this is the single biggest reason that everyone is getting antsy - I'm getting just as impatient as Jason and probably you. If the books and tax situation was clean, I could have concluded the deal with Jase months ago. There is no need to run around fanning flames mate - at the end of the day I want the company to succeed - I've put a lot of effort into it. I want to support the exit strategy from Rob, but it is not my main focus, nor will it ever be. An all out war is a lose - lose for everyone here - and you should know me better than to think it's going to be my first move. I've sat on my arse for the first 4 years on this company only to have its cashflow drained and the books unauditable. If I hadn't said fuck this and bulldozed my way into the control booth, I'd still be still on my arse, politely asking for Di [Trucano] to be sacked and begging Jason to put money back. I'm not going to see me, my friends and the company suffer through negligence. If it all blows up, then at least I'll have learnt something and I can finally move on with my life and get back to a salary that I'm happy with.
Anyhow, this meeting should be over in 10 minutes - I've got a lot of stuff to get done tomorrow before I go.
34 That was followed over the next few weeks by a number of emails concerning the mechanics for Tan to transfer the shares which he held in eProgram Asia to the company and further emails as to the manner in which Tan's salary should be accounted for.
35 At some point, the respondent withdrew his offer to sell his shares in Program IT to the appellant. When asked in cross-examination why he had done so, he said that that business was in no position to buy him out at that time. But as appears from what follows, it is more likely that it was to do with the audit and the time which it was taking to complete. As the appellant deposed in his affidavit of 7 February 2006:
It was expected that should the books have been maintained in a tidy and orderly manner that it should be completed within three weeks. However many of the entries in the accounting system did not make sense, and much paperwork was missing, including a huge mess with international payments and foreign currencies...before the audit was complete, Jason advised me that he was taking the offer off the table.
36 At all events, the sense of frustration over the state of the accounts was significant. On 12 August 2004, the appellant emailed to the respondent as follows:
His [Tan's] loan account has continued to accrue for the last 9 months. It was at his request that he stopped being paid, and it was at his request that we started frigging around with crap in Hong Kong. We can't run the ship like this anymore - not with the turnover we are doing, not with the vast numbers of people we employ, and if we are going to sell this company, it's gotta stop. I know you and John don't like the way I'm doing this, but frankly, if I don't jump up and carry on like a pork chop, fuck all gets done. Like it has done for the last 3 years.
He's not been paid because we don't know how to pay him, nor how much to pay him, and he continues to ignore simple details like where to send the money, and from what account he expects. As directors of the company, we both are responsible for fiscal decisions - as a director, I'm sorry, but I will not allow myself to face the wrath of the family court. He's avoiding his duties here - rightly, wrongly, don't give a shitly. But I'm not going to [be] a party to it, and nor will I allow the company to be brought down by it. If his Ex decides to ask the family court to audit eProgram - we're screwed.
John's carrying on like a pork chop too - he's dragged Rob and Andrew into all this bullshit unnecessarily and has said some unbelievably stupid things that has done more damage to his reputation than I could have possibly done.
37 Further frustrations over Tan's financial arrangements appear in an exchange of emails on Friday 11 and Saturday 12 September 2004. On Friday 11 September 2004 at 3.51 pm Tan emailed to Sue Hammond (cc to the appellant):
Sue,
Did the funds get deposited? I am having problems with withdrawing funds in BKK?
She replied to Tan (cc to the appellant) at 5.38pm:
What funds? I gave you $5000 in cash and paid $3000 into your Commonwealth bank account when Linda asked me to. As this was NOT what we had discussed (you had instructed me to transfer money to your HK account) I decided you must have changed you mind without telling me and left it at that. As far as your expense claims are concerned, they are with Pete.
Do you reckon he's getting Alzheimers? Serious question.
38 The next day, Saturday 12 September 2004 at 6.18 pm, Hammond replied to the appellant with what was later called the smiley face email, as follows:
Ulla reckons, it's a short circuit which requires a frontal lobotomy☺ Can I watch☺
You can be anithesist [sic], Ulla can [be] head nurse. I'll hold the scalpel.
I'll install a cd player in his head...make him more useful.
39 On 11 August 2004, when the appellant was still away on leave in Thailand, Warren Cowcher, who was the manager of ReImage,[3] emailed to the appellant, as follows:
While you have been away there has been a triple fatality on a railway crossing. The people were stuck on the crossing in the car...Even when the train driver may see a car on the crossing, usually he cannot pull up in time.
...
I was thinking about this and can this be seriously considered? How about having weight insert pads laid in the crossing with a sensor that when a train is say a ½ kilometre away from the crossing it automatically receives a signal that governs the engine down to 5/10 klm so when he has a visual he can stop in time or continue on if the crossing is clear.
These weight pads would need to act when say ½ a tonne is on it, send by remote to a radius area of say ½ - 1 klm to a devoted receiver either to a signal on the line to a sensor or a warning lamp on to the train engine?
40 The appellant replied by email on 12 August 2004:
Hi Warren,
I read about the accident on the online newspapers...
Sounds like a bloody good idea to me - how much do these weight pads cost?
Might be worth trying to patent the idea... How does one progress this sort of thing?
41 A week later on 20 August 2004, Mr Cowcher emailed again to the appellant as follows:
Hi Pete,
How's it going? Hope you are having some R & R.
I have made some enquiries re weight inserts and these can be made to size say, 3m x 3m around $10k including customizing and provision for weight to activate and light a remote lamp. If it can send to a lamp it could send to an alternative sensor?
If this could be considered I am sure that you could get a non disclosure /confidentiality agreement with the scale/weight company.
So the up shot is at this stage without giving anything away to these companies is that the idea does have merit and could work or at least be explored.
What do you think? I put this idea to you because you have nouse on getting a system to work, enthusiasm and readiness to take it further as you can see what I can see. Realizing you are busy with eprogram[4] do you think you could talk further to me on this with a view that you provide a nondisclosure to the weight company, we patent the idea, seek further consulting etc with an end view of proposing to government and getting funding to develop it? How do you patent an idea?
At the end of the day; are you (I hope) interested enough to take it further with me?
42 During the course of the same day, there was a further exchange of emails between the appellant and Mr Cowcher about various technical difficulties and as to how they might be resolved. The appellant deposed in his affidavit of 7 February 2006 that:
Warren Cowcher and I [were] in discussions for many months on two business ventures. I arranged a technical presentation with a Mr Mike Cole [a technical consultant] of a possible solution for the railway crossing project, and explained to Mike Cole that it was not an eProgram project if it was to go ahead.
43 The appellant was not cross-examined on that part of his affidavit and it was not otherwise put to him that the proposal was an eProgram project, although according to evidence later given by the respondent in the course of his cross-examination, Mr Cowcher originally brought the idea of the railway crossing to the respondent and it was then explored for a period of time 'throughout the technical people', including Mike Cole. The respondent added that quite a few people in Program IT knew about the proposal and that the appellant had asked employees of Program IT to look into the matter. When, however, he was asked who were the people who had examined the proposal, he referred only to Mike Cole. Although Mr Cowcher was still a consultant with ReImage, he did not give evidence.
The appellant's attempts to buy shares before completion of the audit
44 While the appellant was still on leave, on 16 August 2004 he emailed to the respondent asking him to revive the respondent's offer to sell his shares in Program IT and offering to pay for some of the shares before the audit was complete:
Jase,
I would still like to you to consider our original deal. The Audit is still going to take months to complete, but given the mess we are creating here, I would like to at least set some more cohesive directions, in particular for you to reconsider withdrawing your offer. I can have the first 3 payments made upfront if you still consider it - I have that sort of cash without involving other shareholders.
45 Two days later, on 18 August 2004, the appellant emailed to Rob Williams, who was one of the employees of the company, explaining his objective:
Hi Rob,
Cool. That sounds good.
'Got some cash' means that I have easy access to about $60k, which covers three payments to Jason. Yes there are people interested, but I'm keeping them well away because I know, like you do, that given the right time, we can get a lot more than what the company is worth at the moment (which is bugger all).
I want to end this bullshit - and if this is what it'll take, I'll do it even before the audit is complete ... which I really didn't want to do, and it's far from complete, but I would rather do this than give up....
46 We interpolate that the apparent inconsistency between the appellant's wish to buy the shares at $20,000 per share and the observation in the email that the company was worth 'bugger all' was explained by the appellant in cross-examination in terms that 'bugger all':
[W]as a reference to the state of the accounts and ... the fact that without control of the company the funds would continue to be borrowed and taken out of the company [by Stephens] without my agreement.
47 On 23 August 2004 the respondent emailed to the appellant in response to Joint's email of 16 August 2004:
Hi Pete,
I have been to the snow for a week. When are you back.
Cool lets wait till then, hope everything is going well over there.
48 On 23 September 2004, the appellant emailed to the respondent offering again to buy some of his shares for cash:
Jase,
Do you want to offload some of your shares to me for some cash in addition to the move? It can be put through as management fees, or as cash in your pocket thing.
I can raise a fair bit at the moment.
We need to treat that separately at the moment but I am sure ready to listen to what you have to say when you get back.
49 Twenty minutes later, the appellant sent an email back to the respondent offering:
$100k for 5 shares. Can have the money by Friday next week.
50 So far as the evidence goes, matters thus remained until a meeting a fortnight later at the Alta Vita coffee shop in Eltham. According to the respondent's affidavit of 15 December 2004, the meeting (which was on 6 October 2004) proceeded as follows:
In early October 2004 [the appellant] and I met at Alta Vita Café in Eltham. Peter said to me that if he did not get total control of the shares in Program IT that he would take a job offer elsewhere and that there would be no company left and that he would take the key technical employees and contractors and the intellectual property of Program IT. [He] said he had $100,000 to buy my shares in Program IT and he might be able to raise some more money but not much more than $100,000 to buy me out. I did not accept this proposal and this negotiation did not go any further.
51 The appellant gave a different version of what occurred. In his affidavit of 7 February 2006, he said that:
I did not say that I would take the employees or the customers. I also never requested a complete buyout for $100,000. The offer was for 5 shares only, which valued the company at approximately $2,000,000. I had always maintained a line of $20,000 per share, and many people in the company were aware of this.
52 The respondent replied in his affidavit of 30 March 2006 reiterating his version of events:
I reject the Plaintiff's assertions contained in this paragraph and confirm the statements made by me at paragraph 28 of my First Affidavit. Evidence of the fact that the Plaintiff was threatening to 'take the employees and the customers' is contained in the Plaintiff's email to John Tan dated 8 October 2004...
53 We shall come later to the email of 8 October 2004, but we note at this point that it did not in terms constitute a threat that the appellant would take the employees or the customers and, in cross-examination, the appellant denied that he ever threatened to solicit staff or customers of the company:
And at that coffee shop meeting, you had made like comments as set out in this email transmission of 8 October hadn't you" - - - I don't recall the exact comments of that meeting.
Mr Stevens [sic] will say that you threatened to walk away and take all the clients and staff with you, what do you say about that? - - - I never made any threat ever to do that.
But you've made threats in the email of 8 October haven't you? - - - No.
So you don't consider what's here as threatening? - - - No.
54 We also note that when the respondent was cross-examined about the meeting of 6 October 2004 he did not appear to have a clear recollection of what was said. So far from confirming his earlier allegation that the appellant had demanded all the respondent's shares in Program IT for just $100,000, he suggested that the appellant had said that he would settle for just two shares for that amount:
I put it to you that in the meeting in early October 2004 he [Joint] repeated that proposal to buy five shares for $100,000? - - - It was a fairly short meeting and abrupt and on the way up from that meeting, walking back, he did offer me - he said anything. Just two shares will do for that amount.[5]
55 Two days after the Alta Vita coffee shop meeting, on 8 October 2004 the appellant emailed to Tan apparently following up on his offer:
So what have you and Jason decided to do? Who's pocketing the cash?
Hi Peter,
When the environment was 'rather tense' I spoke to Jason and agreed to a strategy of stability, ie not breaking off into factions. I agreed that if there was to be a decision to sell it would have to be 'sell one sell all'. The corollary to that is that each was not to sell without consulting the other.
Jason is taking it all in yesterday and seeking advice. My decision is 'secondary' due [to] the facts and circumstances. I can voice an opinion but it needs to be 'persuasive in its own right' to carry through.
My preferences:
57 Two hours after that, the appellant emailed back to Tan as follows:
John,
Option One is not an option. I won't wait for some fictional sale [of the company to a third party] in the future, as it is well more than 12 months away - I can't and won't stomach this for that long. I can sell myself for $200k a year or more elsewhere.
Option Two is possible, but both of you can forget a retirement fund. If I left the company, the consultants and vendors would follow. Rob would have nothing to sell, so you'd see his arse out the door as well. The company is worthless without me, I know it, and I'm being constantly reminded of it, by everyone, including people whom you might think would not remind me of that. Everyone knows what's going on.
As you've just stated - you and Jason are one in [sic] the same. This is the hoodwink I feel I've been sucked into because you've spent a lot of time convincing me that Jason was shafting you in the past.... Now you are best buddies. The whole stopping him from throwing you out feels like a charade. I've no issue in paying you a fair price for some or all of the shares but the choice is yours ultimately. I can't force you to sell worthless shares to me.
I find it interesting that you see this as an all or nothing game. Given the chance in the past, I could have shafted you, and Jason waived 1% of the company for free under my nose for it. But I refused that because it was the wrong thing to do. As I said to you in the meeting the other day - this is a control thing. I want control of the company - and I'm not ashamed in stating that - I'm not interested in being controlled by you or Jason. Psycho analyse it all you want. I would be happy with buying anything from 2 percent upwards - at the moment, given the state of play, I feel that the company is worthless to me with a minority share holding, so there's little to keep me interested.
Lastly, you said to me a long time ago that when I was ready to take over, you would walk away from the company. That was a lie. Don't pretend that it wasn't. Lets just get it out in the open and be honest in saying that there is no trust relationship between the shareholders anymore, and find a way to go our separate ways.
Pete
58 Less than week later, on 14 October 2004, the appellant emailed to the respondent seeking documents with which to advance the possibility of attracting an investor in the company or alternatively the purchase by the appellant of the respondent's shares:
Not good my lawyer is away could you give me the copy I gave you.
59 The appellant explained that exchange of emails, in his oral evidence in chief (which on this point too was not contradicted), as follows:
Can you tell her Honour what that subject has to do with?- - - That was concerning a discussion I'd had with Jason where he'd said that he would be agreeable to an investment, or for me to buy him out, and Jason was going to solicit the copies of the original documentation, which have turned up in the court books, for me to look at again.
Does it end with an email from Jason to yourself on 15 October at 8.29 in the morning? - - - Yes, he said that his lawyer wasn't around at the time, but he'll get back to me later, or for me to dig up the copy that I had.[6]
60 Meanwhile, the company's business appears to have continued on successfully. Space does not permit reference to the detail, but there were in evidence a plethora of emails between the appellant and the respondent and the appellant and other persons associated with the company dealing with normal company business. There was no indication of the appellant stopping or slowing or otherwise altering the business of the company.
61 In the days following the email of 14 October 2004, the appellant made arrangements for a meeting with a Mr Tony Joyce and Mr Mike Novis. Joyce was an old friend of the appellant's father and a prospective investor in the company. At 12.23pm on 19 October 2004 the appellant emailed to Andrew Harris, who was one of the employees of the company, asking whether he knew of anywhere in the Camberwell area with reasonable parking facilities where they could have a meeting with Tony Joyce and Mike Novis:
Can you identify a place near/in Camberwell that we can meet with Tony and Mike that has reasonable parking facilities.
62 At 15.37 pm Harris emailed through a map showing where they could park in Camberwell and meet in front of the McDonald's restaurant in Bourke Road. The appellant then sent that on by email to Ulla Lonnqvist who responded by email that she would be at the meeting with Joyce 'with bells on'.
63 The meeting with Joyce took place the next day, 20 October 2004, at 10.00 am. It was attended by appellant, Ulla Lonnqvist, Sue Hammond, Kevin Lee (who was and remains an employee of the company and senior sales consultant with the company), Andrew Harris (who was and remains an employee of the company) and Tony Joyce and Mike Novis. As the appellant explained in his affidavit of 5 November 2004, the purpose of the meeting was to solicit advice on how to raise capital to purchase the respondent's shares and, hopefully, by showing the core team of the company, to induce Joyce to offer capital of his own. The appellant said it was also intended to gain advice on how to recall the debts owed to Program IT by companies in the respondent's Program Group.
64 That evidence was not directly disputed. Counsel for the respondent indeed put to the appellant that the purpose of that meeting was to look at investment by Tony Joyce. But counsel for the respondent suggested that the purpose of the meeting was also to look at ways of exploiting the railway crossing idea suggested by Mr Cowcher without Program IT being involved. The appellant rejected that notion:
The purpose of that meeting was to look at investment by Tony wasn't it? - - - Yes.
...
Was not part of the discussion to look at ways of exploiting the level crossing idea without Program IT being involved? - - - What discussion are you referring to sorry?
The 19 [sic, 20] October discussion? - - - At the coffee shop no, that wasn't discussed at all.
Was it also - sorry I withdraw that. Was it discussed that the level crossing idea should not be part of ReImage? - - - The level crossing project wasn't discussed at that meeting at all.
So can I take it that on 19 [sic, 20] October the discussion was about how to reorganise Program IT with Tony coming into it? - - - That was one of the things we explored at that meeting, yes.
...
If you turn to p. 74 you've said to Warren in the email transmission at 12.25 that 'We shouldn't be putting it on the ReImage letterhead...I can arrange a new company name and letterhead if you want'. Now Mr Joint wasn't that because of your meeting on 19 [20] October you were already looking at ways to get rid of Mr Tan and Mr Stevens [sic] and invest with Tony? - - - Sorry you're drawing two completely separate arguments.
The answer's yes or no Mr Joint? - - No, the answer is no.
65 The appellant's evidence on that point was corroborated by Andrew Harris and Ulla Lonnqvist. Harris, deposed in an affidavit filed on behalf of the respondent that:
At approximately 10.00am on the morning of Wednesday 20 October 2004 we all met as planned outside McDonalds in Camberwell. We then moved across the road to a café (I cannot recall its name). The meeting started with Peter [Joint] introducing Tony Joyce and Mike Novis. He described the events that had taken place with respect to his interactions with John Tan and Jason Stephens over the last couple of months in relation to the business. He stated that the purpose of the meeting was to investigate options for him to move forward and continue to operate a business in the manner he wished.
Peter said that he was a 49% shareholder of the Company and that he had been having problems with the other shareholders. Peter said that he had offered to buy 2% upwards of the shares owned by John or Jason but could not come to an agreement.
Tony and Mike responded by suggesting a number of real world options such as:
All these options were discussed, and some short discussion took place, the meeting was called to an end. I do not remember Kevin Lee, Sue Hammond or myself having much to say. My input was limited to answering questions that were raised to fill in gaps in terms of dates, times and exchanges that had taken place between Jason, John and Peter.
I recall that Ulla made some statements that related to intercompany transactions.
The meeting went for approximately one hour.
66 Similarly, Ulla Lonnqvist said in her affidavit that:
By October 2004 a number of things had become clear. First, Program IT was growing at a very fast rate and secondly, there was a 'deadlock' between the directors of the company. In mid-October a meeting was held between Peter Joint, Sue Hammond, Kevin Lee, Andrew Harris, and myself with a potential investor called Tony, who was a long-term friend of Peter Joint's father. Tony was an experienced businessman and who was not only considering becoming an investor in the company but who also offered business advice on how to recall the debts owed to the company. In short the meeting was held to seek solutions for the benefit of the whole company.
67 Ms Lonnqvist was cross-examined on her affidavit, but it was not sought to contradict her evidence about what happened at the meeting with Tony Joyce, and it was not suggested to her there was any discussion at the meeting concerning the level crossing idea. The majority of the her cross-examination on what occurred at the meeting was directed to confirming that it was about the possibility of Tony Joyce buying shares in Program IT:
The purpose of the meeting was to meet with Tony? - - Yes.
The purpose of the meeting was to organise a restructure of Program IT wasn't it? - - - No.
I put it to you that Tony was looking at ways of refinancing the company or coming into it, what do you say about that? - - - The way I understood it at the time was that he was look - he was a potential investor.
To inject funds? - - - Yes.
Did you also understand it that Peter Joint wished to go forward by himself without Jason Stephens or John Tan? - - - No.
...
He [Tony Joyce] was to be an investor, you agree with that? - - - That was being investigated, and - - -
Yes, and no amount was spoken about? - - - No.
...
No discussion of whether he would lend funds or not? - - - No.
Do you agree with that? - - - Yes.
On what basis then was he to be an investor? - - - Can I use more words than 'Yes' or 'No'?
Yes, please? - - - I understood that Mr Joint wanted to get Tony to introduce the team at the program to Tony Joyce so that he could consider to become a shareholder. It was investigated whether he would be interested.
...
Were you to provide reports to him about it? - - - Yes. Peter Joint, that's what I understood, that he would be getting a complete - completed accounts for 2004 and these discussions would continue.
When were you to get the accounts for 30 June 2004 to him? - - - When the directors had agreed on the disputed items.
Did you explain to him that there was a dispute about some items? - - - Yes.
Did you take your work in progress along to that meeting? - - - No.
Did you take any financial information along to that meeting? - - - No.
Was it a case that you relied upon you memory of the accounts at that stage at that meeting? - - - Yes, and Mr Peter Joint was there present himself, and he had a very good understanding of the company's financial position.
...
Yes? - - - this was a very informal meeting that took place with Tony Joyce. There were no presentations. I understood that those financials would be provided when they were completed.
...
Ms Lonnqvist, the discussions at the meeting of 19 October 2004 [sic, 20 October 2004] related to a new shareholder coming on board. You agree with that, don't you? - - - It was - I keep saying the same thing. This is a very casual round table meeting with potentially this person - person being interested in becoming a shareholder.
68 There was some emphasis put on the question of whether the respondent and Tan knew of the meeting with Joyce. Ms Lonnqvist said that she assumed that they did know:
Yes, and you had not consulted with Mr Stephens before attending that meeting, had you? - - - No.
You had not consulted with Mr Tan before attending that meeting, had you? - - - No.
As far as you were aware, either of - or each of those two persons knew nothing about the meeting, did they? - - - I didn't know whether they knew or - I assumed that they did know.
69 Apparently, those questions were based on the respondent's assertion, in his affidavit of December 2004, that one of 'the matters, which pertain to [the appellant's] management style and his control of the accounts section which...cause concern is...the calling of a meeting with third parties with most of [the appellant's] management team to attend including Ulla Lonnqvist, Sue Hammond, Kevin Lee (an employee and senior sales consultant with Program IT) and Andrew Harris, without the knowledge of John Tan or myself'.
70 Having said that, however, it is not clear why that should have caused 'concern'; given that its object was to discuss an investment of the kind about which the appellant and the respondent had exchanged emails only days before. In addition, as later emerged in the respondent's cross-examination, the respondent did know about the meeting. He was told about it by Rob Williams either before or as it was occurring.
71 As already noted, Tan did not give evidence about his 'concerns' or otherwise.
72 On 20 October 2004 at 12.13pm. Warren Cowcher emailed to the appellant for his consideration a draft letter to the Transport Accident Commission, on the letterhead of ReImage, explaining the idea of the level crossing proposal. It stated that 'we have developed a software program to deal with the problem', and requested a meeting to discuss the concept with the Commission.
73 At 12.25pm, the appellant emailed back to Cowcher:
Hi Warren,
I like it, but we shouldn't be putting that on ReImage letterhead - at this time, I'm also reluctant to put it on eProgram letterhead. I can arrange a new company name and letterhead if you want.
At 2.56 pm the appellant emailed to Ulla Lonnqvist instructions to purchase or ascertain the cost of purchasing a shelf-company. In his affidavit of 7 February 2006 the appellant deposed:
When I received the letter from Warren, given his limited computer skills, I had assumed that he had put the ReImage logo on the letter as a way of it looking more formal not because he had intended to put the project through ReImage. The technology and solution was nothing that eProgram [scil. Program IT] or ReImage had been involved in previously.
I...asked Ulla Lonnqvist [to get] another company for the project with Warren. As far as I am aware, Jason Stephens is the shareholder and director of many companies and I do not believe my having shares in another company would be a conflict of interest'.
74 The appellant was not cross-examined on that part of his affidavit and it was not otherwise suggested to him that the technology or solution referred to were anything like that which Program IT or ReImage had been involved in before. Nor was it suggested that it was an opportunity of which the appellant had learned in his capacity as managing director of Program IT. Then, when counsel for the appellant sought to cross-examine the respondent to the effect that the Program IT's business was such that the proposal could not be regarded as an opportunity which should properly have flowed to the Program IT, he was stopped upon the judge upholding the defence counsel's objection that such questions were irrelevant.
75 At some time on 20 October 2004 the respondent spoke to his solicitors to obtain advice as to how he could achieve the dismissal of the appellant from the company. According to the solicitors' bill of costs, which was in evidence, on the same day the respondent and Tan and Rob Williams consulted the solicitors and the solicitors drew and settled a draft 'letter of demand' to Peter Joint. According to the bill of costs, throughout the next day the solicitors perused emails sent by Tan, considered issues before meeting with Tan, considered the Corporations Act re calling of member and directors meetings (of which there were none at the time); drafting termination letters to employees (they being Hammond and Lonnqvist) and attending on counsel concerning an application for injunctive relief (it is not clear whether what was being considered was an application for injunction or defence of one which it was feared that the appellant might make once dismissed, although the latter presents as more likely). The next day, being 22 October 2004, they made a telephone attendance on the respondent, perused an email from Tan, drew and settled letters to Andrew Harris and the appellant re delivery of access codes, passwords, etc, and travelled to and from the premises of the company so as to be present for the dismissal. Evidently, it was a well planned operation.
76 The details of the dismissal itself were given in the appellant's affidavit of 5 November 2004, which in relevant respects was not contradicted:
On 22 October 2004 [the respondent] asked me to meet him at a coffee shop in Eltham at 2:00pm. When I arrived [the respondent] introduce me to a lawyer who started to tell me they were sacking me. I said I was not aware lawyers would be present and that I would leave. I got up to leave and as I did so [the respondent's] lawyer attempted to hand a letter to me.
After leaving the coffee shop I returned to the company's office to collect some of my items, including my laptop computer. At the office I was confronted by two large security guards who stood over me demanding that I leave my laptop and depart from the premises. One of the employees who saw what was going on tried to stand between me and the guard. The guard continued to stand over me in a way that I felt was threatening and attempted to snatch my laptop from me. After collecting a few items from my office I left the premises, escorted by the guards. During these events, Ulla Lonnqvist asked [the respondent]: 'Are you the instigator of this?' He replied you bet.'
...
During the afternoon of 22 October a letter from Rigby Cooke solicitors was delivered to my house by a courier. I assume this was the letter they tried to give me at the coffee shop. The letter, purportedly written on behalf of the company, stated that my employment with the company had been summarily terminated. At no time had there been a directors' meeting or a shareholder's meeting authorising the company to terminate my own or anybody elses' employment with the company or to retain lawyers to act on the company's behalf.
Dear Mr Joint,
On behalf of Program IT Pty Ltd, we confirm the company's verbal advice to you of this day that your employment has been terminated on a summary basis due to serious and wilful misconduct and is effective immediately.
Your threats to damage the business is [sic] recorded in your e-mail to me of 8 October 2004 and clearly indicates you are not prepared to act in the best interests of the company but only yourself. Further, your divisive conduct in seeking to solicit the support of the company's employed consultants evidenced by recent activities which have affected the operations and governance of the company is wilful and reprehensible and designed to undermine the position of the company. As a consequence, you have breached your obligations to act in good faith and in the best interests of the company.
[the letter then went on to refer to section 183 of the Corporations Act 2001 and warned the appellant that 'as a former employee of the company, we would like to remind you of the duty you have under the Corporations Act and at common law, which duty continues despite the termination of your employment.']
The purported justification for the dismissal
78 No particulars were ever given of the several allegations made in the letter of dismissal. But in his affidavit of 15 December 2004, the respondent deposed that:
Whilst John Tan and I had put up with the rather divisive actions that Peter had undertaken with the appointment of Sue Hammond, the appointment of Ulla Lonnqvist, his management style with mobile telephones in meetings, his attitude with the staff, the exclusion of other management (including John Tan and myself) from the accounting system and records of Program IT, [the] 8 October 2004 e-mail caused me real concerns about the future of Program IT and Peter's intentions...
Just after the exchange of emails in October and with the ongoing inability to get access to the accounting system, human resource records, etc. I was provided with a copy of correspondence to be sent to the Transport Accident Commission by Warren Cowcher ... It seems that Warren emailed this letter asking for Peter's thought's to Peter on 20 October 2004 and Peter responded to that email suggesting that the letter should not be put on ReImage letterhead and that he was also reluctant to put it on the eProgram letterhead...
...
...the decision to determine the employment of Peter was done after serious consultation between myself and John Tan and our lawyers. Faced with the prospect of the 8 October email and then the information on 20 October which seemed to suggest that Peter was directing work outside the Program Group[7] and seemingly for his own benefit, and with the history of the divisive nature of running Program IT, the decision was made to determine Peter's employment.
79 In light of what later emerged, there are several things to be observed about that statement. First, although the respondent there alleged that the appellant's appointment of Ms Hammond and Ms Lonnqvist were 'divisive actions', it later emerged that that was not so. In his affidavit of 7 February 2006, the appellant deposed that:
...Sue Hammond told John Tan during her interview with him that she was not the most skilled bookkeeper, and payment of her MYOB course was agreed to by John Tan. Her employment met with John Tan's approval, and it was his handshake with Sue that was the last step towards her employment. Sue Hammond's role was to incorporate far more than basic bookkeeping, and her salary reflected that - she was also responsible for getting a lot of corporate governance in order.
Ulla Lonnqvist was in the past a CPA, but at the time of her engagement was not a financial member...Her employment was also approved by John Tan, and Jason Stephens appeared to be very happy to have her aboard. Jason requested if she would be willing to look at the operations of his other companies...I was unaware of any other complaints about the structure of the accounting department.
80 Thereafter, in his affidavit of 30 March 2006, the respondent conceded that at the time of their appointment he was:
[S]upportive of the [appellant] in respect to such matters. The [appellant] was the Managing Director of the Company from 31 October 2002 and the appointment and control of the accounting staff was, as far as I was concerned, his responsibility.
81 Secondly, in his affidavit of 15 December 2004, the respondent alleged that his consternation over the appointment of Hammond and Lonnqvist was that they had the keys to the office which contained the accounts and that upon any of them leaving the building for work related reasons, the 'accounts room' was locked, and that he had an 'ongoing inability to get access to the accounting system, human resource records, etc'. He also complained in that affidavit that, when he raised any issues concerning the accounts with Sue Hamilton, she would generally refer to Ulla Lonnqvist or the appellant to answer. It later turned out that there was really no substance in that allegation. In his affidavit in response of 7 February 2006, the appellant deposed that:
[I] am unaware of who arranged for the locks on the accounting room door, but it is common practice for a room to be locked where personal records of employees are kept - particularly as there are other unrelated companies sharing the office space. Di Trucano's office also had locks installed at the same time as the accounting office. I myself did not have a key to any of the accounting offices, and I am unaware of John [Tan] ever requesting a key. I believe it might have been [the respondent's] personal assistant and eProgram receptionist who arranged the locks.
I am unaware of any request made by John Tan (other than requests for irregular personal payments) that were not met or answered by Sue Hammond or Ulla Lonnqvist at the time of the request. I do not recall 'approving' any request for information by Jason or John. Neither Ulla or Sue were given any instruction to ignore, or seek my approval for accounting information requests from Jason or John. Payment of any invoice or demand for cash was agreed that it be run through me.
Jason never requested access to the accounting system or the office, although he had free access to ask for figures from Ulla or Sue at any time they were in the office.
82 Thereafter, in his affidavit of 30 March 2006, the respondent conceded that he did 'not dispute what the appellant said about that' and as has been noted, Tan did not give evidence.
83 Thirdly, and consequently, the only apparent remaining sources of the respondent's alleged 'real concerns' were the emails of 8 October 2004, the smiley face emails (which he suggested in his affidavit of 30 March 2006 were an instance of the appellant trying to 'turn the accounting staff against John Tan'), and the exchange of emails between Mr Cowcher and the appellant which, according to the respondent's affidavit of 15 December 2004, 'seemed to suggest' that Peter was directing work outside the Program Group. As to the last of those points, it is to be noted that both the letter of dismissal and the affidavit of 15 December 2004 referred to the Program Group as opposed to Program IT, and it is apparent that the distinction was intended.
84 The appellant was never formally removed as a director of the company or as a shareholder but, as from 22 October 2004, he was locked out of the company's premises and wholly excluded from any role in the management of the company. He was denied access to the accounts of the company otherwise than upon a restricted basis, in effect document at a time upon request in the company's reception area, and later at the offices of the company's accountant. He was not paid any dividends or other return upon his investment in the company and, as a result of the respondent's management of the company, by the time that this proceeding came to trial, the company (which had been worth $2 million dollars at the time of the dismissal)[8] had a nil or negative value. As it was put by counsel for the appellant on this appeal, the effect of the exclusion was that the majority shareholder appropriated to himself the entire worth of the company without paying anything to the appellant for his half share.
85 On 16 November 2004 the appellant instituted this proceeding in the Commercial List of the Commercial and Equity Division alleging as against the respondent that the conduct of the company's affairs and actions of the company in purporting to terminate his employment, excluding him from the premises and paying excessive amounts to entities associated with the respondent and Tan were contrary to the interests of the members of the company as a whole and oppressive, unfairly prejudicial to or unfairly discriminatory against the appellant as a member of the company; and seeking an order that the respondent purchase the appellant's shares in the company at valuation determined as a 1 October 2004 or, alternatively, an order that the company be wound up on the just and equitable ground.
86 The proceeding ultimately came on for hearing before the judge on 1 March 2007, and after a trial lasting five days, on 14 May 2007 her Honour in effect dismissed most of the appellant's claim. In brief substance, she held that:
(a) 'most significantly, the sending of the email dated 8 October 2004';
(b) 'more accurately demands, to purchase [the respondent's] shares at a price greatly reduced from that initially discussed or informally agreed';
(c) 'the arrangement of the 20 November 2004 [sic, 20 October 2004] meeting with company staff to present financial details to third parties, without the knowledge or consent of the other director or shareholders;
(d) 'the steps towards the incorporation of a new company'; and
(e) 'the instruction to Mr Cowcher not to put correspondence about the potentially patentable idea of the railway-crossing software on the company's letterhead, indicating that instead, a new company might be incorporated'.
87 In the events which occurred, the judge was thereafter unable to continue with the hearing of the matter and another judge was appointed to determine the value of the company. Contrary no doubt to the first judge's expectation, the second judge found that the value of the company as at the date of the hearing was nil or negative. But his Honour refused to wind up the company on the just and equitable ground because, in his view, there would be no detriment to the appellant in remaining a shareholder of a worthless company.
88 In effect, by appealing against the second judge's orders [which assumed the rectitude of the first judge's conclusion that the respondent had not engaged in unfairly oppressive conduct], the appellant appeals against the first judge's findings of fact and also her interpretation of uncontested facts. He submits that properly understood the facts permit of no other conclusion than that a reasonable commercial bystander would regard the total exclusion of the appellant as unfair; a step by the majority to obtain absolute control of the company. In the alternative he contends that it is just and equitable that the company be wound up.
89 It is convenient to begin with the judge's findings of fact. As appears from her Honour's reasons, she viewed the email of 8 October 2004 as a threat to strip the company of staff, supplies and intellectual property and to transfer them into a new corporate vehicle.
90 With respect, we take a different view of the document. We allow that it could well be construed as a threat to leave the company if the appellant were unable to purchase a controlling stake in the company. But there is nothing in it, nor in any of the correspondence which preceded it or followed it, about stripping the company of staff or supplies or intellectual property. The furthest it goes is a prediction that if the appellant were to leave the company, the suppliers and staff would be likely to follow him. And even that was something of a brutum fulmen, given that, as a former managing director, he would be barred from soliciting clients or employees. Effectively, the threat was not much more than a boast that he was vital to the company, given that he had been instrumental in building up its operations from scratch.
91 Nor does it seem to us that there was any direct evidence that either the respondent or Tan took the document to have the meaning which the judge attributed to it. All that the respondent said in his affidavit of 8 October 2004 was that: 'this 8 October 2004 email caused me real concerns[10] about the future of Program IT and Peter's intentions'. The same is true of the answers which the respondent gave when cross-examined on the point:
So you find out about the email that was sent to Mr Tan on 8 October, when did you say you found out about that email? - - - It could have been the same day or the next day.
But you didn't then speak to Mr Joint about it? - - - No we were very concerned at this point.
Concerned enough to go and see a solicitor? - - - I think that followed a couple of weeks later, or not quite that long.
Why didn't you go on 8 October, if you were concerned? - - - We were very concerned but we - we weren't concerned enough to see a solicitor at this stage.
Well, if you were really concerned about this, why didn't you do something immediately? - - - We were considering our options.
But, did you read this as a threat by Mr Joint to wreck the company? - - - it certainly had - it was tainted that way, yes.
92 To our way of thinking, it speaks volumes against the conclusion that the respondent construed the email of 8 October 2004 as a serious threat to strip the company that the furthest he was prepared to go in any of his three affidavits or in the witness box was a platitudinous asseveration of real 'concerns' and an apparently artful observation as to the email being 'tainted that way'. And to that may be added that Tan chose not to give evidence,[11] from which we infer that anything which he might have said on the subject would not have assisted the respondent's cause.[12]
93 We do not overlook that the respondent swore in his affidavit of December 2004 that the appellant said at the meeting at the Alta Vita café on 6 October 2004 that, if he did not get control of the company, he would take a job offer elsewhere and take the key employees and contractors and that there would then be no company left. But, as we earlier observed, when the respondent was tested on his recollection of that meeting it was found to be wanting. Therefore, we consider that the email of 8 October 2004 is likely to be a more accurate reflex of what was said on 6 October 2004 than any of the respondent's several stated recollections of that event. We are strengthened in that view of the matter by the thought that, if in truth the respondent had 'concerns' that the company property was about to be misappropriated, it is inherently improbable that he would not have spoken to the appellant to clarify the appellant's intentions or, if he conceived the company to be in imminent danger of being denuded of its undertaking, gone immediately to his solicitors, in the way he did not hesitate to do after Ulla Lonnqvist's presentation of the 19 page spreadsheet on 19 October 2004. So far from taking such action or advice, however, as the following further passage from the respondent's cross-examination makes clear, for the 12 days which separated 8 October 2004 and 20 October 2004, the respondent continued to deal and communicate with the appellant on an apparently normal basis concerning any number of matters to do with the company's business and the possibility of the appellant purchasing his shares:
You didn't speak to him about it? - - - Did we speak to him about it?
You didn't speak to him about it you've said? - - - He didn't want to speak about if any further.
You let him come to the company on 9 October, 10 October? - - - Yes.
You let him continue to operate the company, from 8 October until 22 October? - - - Yes.
You had emails passing between you and him during that time? - - - Yes.
He had access to all books, access to all employees? - - - Yes.
See I suggest to you that you recognised this email as nothing more than something that he was writing in anger? - - - No, I don't believe so.
And I suggest to you, you realised that he wasn't really going to go through with anything that might have been suggested in this email? - - - I don't believe so.
Well you didn't do anything to try and stop him, did you? - - To try and stop him from?
Doing anything that you might have read into this email? - - - Not at that stage, no.
In fact when was it that you first engaged, Rigby Cooke? - - - I think we first saw them on the 19th.
I put it to you it was in fact 20 October - - - ? I think we first saw them on the 19th.
I put it to you it was in fact 20 October - - - ? - - - The 20th. - - - that you first engaged Rigby Cooke, do you agree with that? - - - That's correct, yes, that's correct.
94 We acknowledge that the judge had the advantage of seeing both the appellant and the respondent in the witness box, and that her Honour said that she took an unfavourable view of the appellant and saw the respondent in a much more favourable light. We note too that her Honour said that, to the extent of any inconsistency between their testimony, she preferred the respondent's evidence. But for present purposes, it is unnecessary for us to transgress upon that part of her Honour's reasoning. We are concerned here with whether there is evidence sufficient to support an objective conclusion that the email would have been taken as a threat to denude the company. It is, therefore, not a matter of comparing the appellant's evidence with the respondent's evidence but rather of comparing the respondent's evidence with the known facts.[13] And when they are compared, it strikes us that there is very little by way of objective fact to support his several contentions.
95 This was a negotiation between two seasoned businessmen over which of them was to have control of an enterprise that was becoming increasingly and seriously valuable. Each side was striving for an objective - the respondent to retain control until he was bought out at a price sufficiently to his liking; and the appellant to have control until that occurred - and each of them was manoeuvring for advantage. For so long as Tan continued to side with the respondent, as he appears to have done, the appellant's only real negotiating leverage was to threaten to take his bat and leave. In the scheme of things, it can hardly have come as much of a surprise when he did just that.
96 Judged by the standards of an objective commercial bystander, having the skill, knowledge and acumen of the appellant and the respondent, we do not consider that there was anything in the email of 8 October 2004 which was improper or unfair, or otherwise a sufficient justification for the respondent's subsequent conduct.
Demands to purchase shares at a price greatly reduced from that initially discussed or informally agreed
97 We have already referred to the handshake deal for the appellant to purchase the respondent's shares in the company at a price of $20,000 per share and the memorandum of understanding which was drawn up to reflect it. It will also be recalled that the respondent withdrew his offer to sell after the appellant instituted the audit of the company's financial affairs. Then on 16 August 2004 the appellant requested the respondent to put the deal 'back on the table' and on 14 October 2004 he requested the respondent to obtain a copy of the memorandum of understanding from the respondent's solicitors so that the matter could be advanced.
98 Notwithstanding that sequence of events, the judge found that, in addition to being a threat to 'strip' the company of staff, suppliers and intellectual property, the email of 8 October 2004:
[I]ndicates that Mr Joint had adopted the position that the company was virtually worthless, or was worthless without him. It is clear that he no longer intended to pay the amounts discussed under the original deal. While he specifically rejected only the 'retirement fund', it is unclear from the email what, if anything, he remained willing to pay. His reference to the lack of worth in the company, both pre-dating the email and included in it, indicated that he would not be prepared to pay a significant sum.
99 Her Honour started her analysis of this point with reference to the appellant's email to the respondent of 16 August 2004, in which he asked that the original deal of $20,000 per share be put back on the table and said that he could have the first three payments totalling $60,000 in advance. She moved next to the appellant's email to Rob Williams of 18 August 2004, in which the appellant confirmed that he had easy access to about $60k 'which covers three payments to Jason.' That led to the first email of 23 September 2004 in which the appellant asked the respondent whether he wanted to offload some of his shares for cash, and then to second email of that date, in which the appellant offered $100,000 for five shares. Her Honour mistook that email as stating: 'look for 5 shares. Can have the money by next Friday'[14] rather than as: '$100,000 for 5 shares. Can have the money by next Friday'. Her Honour appears then to have combined her construction of the second email of 23 September 2004 with the respondent's statement in his first affidavit as to what was said at the Alta Vita café meeting on 6 October 2004, in order to conclude that:
I am satisfied that at the early October meeting [scil. the 6 October 2004 meeting], Mr Joint sought to buy out [as in buy all his shares] Mr Stephens for approximately $100,000, and threatened that he would leave the company taking key staff and intellectual property, if Mr Stephens did not comply with his demands.[15]
100 With respect, there are several things to be noted about that analysis. The first is the slip as to what was stated in the second email of 23 September 2004. Contrary to the suggestion that the appellant was going back on the 'original deal' of $20,000 per share, the second email of 23 September 2004 confirmed, as the appellant stated in his oral evidence, that he was prepared throughout to pay $20,000 per share in accordance with the original deal.
101 Secondly, the judge seems to have accepted the statement in the respondent's first affidavit that at the Alta Vita café meeting the appellant offered only $100,000 for all of the respondent's shares in the company.[16] Contrary to that version of events, it was apparent from the passages of the respondent's cross-examination to which we have already referred that the respondent did not have the recollection to which he had deposed in that affidavit. Thus:
Well but on 23 September [2004] you'd agree that he had offered $100,000 for just five shares? - - - Yes.
I put it to you that in the meeting in early October 2004 he [Joint] repeated that proposal to buy five shares for $100,000? - - - It was a fairly short meeting and abrupt and on the way up from that meeting, walking back, he did offer me - he said anything. Just two shares will do for that amount.
But the $100,000 was not for the whole company, was it? - - - I presumed so at the time.
Pardon? - - - I did presume it was at the time, yes.[17]
102 Thirdly, the judge's conclusion as to what was said at the meeting of 6 October 2004 makes no apparent allowance for the appellant's clear statement in his affidavit of 7 February 2006 that he offered $100,000 for just five shares, or to the fact that it was not put to him in cross-examination that he had offered only $100,000 for all of the shares in the company, or even all of the respondent's shares, or to the respondent's concession in cross-examination that the applicant said that he would take just two shares for $100,000. Thus, contrary to the judge's conclusion, in our view the objective probability is that what was offered on 6 September 2004 was $20,000 per share, since that is what was offered in the emails of 16 August 2004, 18 August 2004 and 23 September 2004, and because that offer was implicit in the applicant's request of 14 October 2004 to provide a copy of the original deal memorandum of understanding in which the price was set out as $20,000 per share.
[the appellant's] reference to the lack of worth in the company, both pre-dating the email and included in it, indicated that he would not be prepared to pay a significant sum,
the appellant's email of 16 August 2004 to the respondent strongly implies that, whatever his view of the value of the company, he was prepared to pay $20,000 per share; his email of 18 August 2004 to Rob Williams (who, it is to be noted, went with the respondent and Tan to the respondent's solicitors on 20 October 2004) showed that the appellant regarded the company as potentially worth a lot of money and only 'bugger all' if he could not get control; his email of 8 October 2004 showed that he regarded the company as 'worthless' only if he left; and his email of 14 October 2004 and the uncontradicted evidence which he gave about it showed that, even as at 14 October 2004, he was willing to pay in accordance with the original deal.
104 Based upon an objective assessment of all the correspondence and the known circumstances at the time, we consider that the probable conclusion is that the appellant remained prepared at relevant times to purchase at least some of the respondent's shares in the company and to pay not less than $20,000 per share for each share so purchased and that, subject to audit, he remained ready to pay the amounts spoken of in the memorandum of understanding (except for the retirement fund of $1.28 million, for reasons that he gave in his second email of 8 October 2004).
105 We add, however, that even if the correct construction to put on the correspondence is a threat by the appellant to leave the company unless the respondent would sell his shares at a price significantly less than recorded in the memorandum of understanding, we would still not accept that a reasonable commercial bystander having the skill knowledge and acumen of the appellant and the respondent would consider such a demand to be improper or unfair, or sufficient justification for what was done. At the risk of repetition, the appellant and the respondent were businessmen engaged in a negotiation over how much of a company in which they both had a considerable financial stake each of them was to own and control. They were both bidding for high stakes. In such circumstances, an objective commercial bystander would surely realise that there might well be some tough talking and, regrettably perhaps, some degree of incivility, without the slightest thought of disloyalty or impropriety on either side's part.
106 Perhaps, if the appellant had not been able to get what he wanted, and had decided to leave, it might then have been fair to exclude him from the management of the company; although even then not from his rights as a member of the company. He was the owner of 49% of the issued share capital and he had been instrumental in making the company the success that it was. But, so long as the negotiation continued, as upon the evidence it did until the purported dismissal, it was for each man according to his own interests to demand what he would of the other and to seek to get it, making sure, as the appellant did all the while, that the work of the company continued.
107 Earlier in these reasons we referred to the evidence given by the appellant about the purpose and events of the meeting with Tony Joyce on 20 October 2004 and to the corroboration of his evidence by the testimony of Ulla Lonnqvist and the affidavit of Andrew Harris that was filed on behalf of the respondent.
108 After referring to some of the appellant's and Ms Lonnqvist's evidence the judge held this:
I am satisfied that Mr Joint arranged the meeting without the consent or knowledge of his co-director or co-participants. At the meeting, he caused the CFO to reveal details of the company's financial performance to third parties on the basis that he would have exclusive control and ownership of the company, and the other shareholders interest would be terminated. His conduct could reasonably be perceived as inconsistent with his duty of loyalty and designed to carry out the threats expressed in his email of 8 October 2004.[18]
109 With respect, there are also several things about that finding with which we take leave to differ. To begin with, there was no evidence that the appellant caused Ms Lonnqvist to reveal details of the company's financial performance at the meeting. Nor was it suggested to him or to her that he or she did so. Her evidence, which on this point was not contested, was that Mr Joyce was told that the 2004 accounts would be provided to him after the directors had agreed on disputed items. The only other evidence about the disclosure of anything to do with the finances was Andrew Harris' statement that 'Ulla made some statements that related to intercompany transactions'. It is not clear what that related to. Possibly, it had something to do with the appellant's recitation of 'the events that had taken place with respect to his interactions with John Tan and Jason Stephens over the last couple of months in relation to the business'.
110 Next, according to the evidence, whatever was said at the meeting was not put on the basis that the appellant 'would have exclusive control and ownership of the company, and the other shareholders interest would be terminated'. The evidence was that the appellant explained to the meeting that he had difficulties with the respondent and had attempted unsuccessfully to reach an agreement with him to purchase control of the company, and that there was then some discussion of three possible options: to reach an agreement with the other shareholders to buy them out; to leave and start another company (in which case it was noted, he would not be permitted to solicit the clients or staff of the company); or to sell his shares to the respondent and Tan. Upon the evidence, direct and inferential, there was no suggestion that 'the other shareholders' interest would be terminated' (assuming that by 'terminated' her Honour had in mind an expropriation of the kind by which the respondent 'terminated' the appellant's interest in the company on 22 October 2004), still less of carrying out the threats, which the judge perceived to be expressed the email of 8 October 2004, 'to establish a new company and appropriate the intellectual property of Program IT ... in breach of his fiduciary duty'.
111 Furthermore, although it is true to say that the appellant arranged the meeting without informing the respondent or Tan of his intention to do so, it could not have come as a surprise to the appellant or Tan that the appellant was seeking an investor to purchase their shares; and there was no evidence that they had any legitimate reason to oppose such a meeting. After all, it was not the first investor that the appellant had approached without prior consultation with the respondent. So much appears from this evidence, which the respondent gave in cross-examination, concerning the original proposal for the appellant to purchase the respondent's shares for $2 million:
And that would put value the company at something in the order of $4m? - - - Yes, because at the time there was a prospective purchase on the table which Peter brought to me. He said that there was a company looking to pay $4m - looked to pay $4m with a $4m earn out. So based on those calculations we c[a]me up with and made an agreement on a $1m payment over a two year period and the with earn outs over - - -
Was this discussion with Mr Joint referred to in any of your affidavits? - - - I don't believe so.
You don't believe so. Don't you think it's of some significance? - - - Sorry?
Don't you thing it's of some significance that Mr Joint came to you and said this? - - - Yes, it is.[19]
There was no suggestion then of the respondent being 'concerned' about the appellant having approached a prospective purchaser or of having disclosed sufficient information about the financial affairs of the company to enable the prospective purchaser to value the company at $4 million. It seems that the respondent was only too pleased to use the exercise as the basis for the memorandum of understanding. There is also the uncontested evidence in chief of the appellant that, at the time of his request for a copy of the memorandum of understanding on 14 October 2004, the appellant had said 'that he would be agreeable to an investment, or for me to buy him out'.
112 In those circumstances, why should not the appellant have approached Joyce to ascertain whether he was interested in becoming an investor and made such disclosures to him about the financial affairs of the company as might be necessary to evaluate the investment; and why would the appellant be expected to tell the appellant or Tan in advance of such an approach?
113 It is true that, on the evidence, there was also discussion at the meeting of other exit strategies, namely, of the appellant selling out his shareholding to the respondent and Tan or leaving to go elsewhere (without the solicitation of clients or employees). It is also true that the appellant was seeking advice from Tony Joyce on those options. Yet he could hardly have been expected to invite the respondent or Tan to a meeting with a trusted advisor to hear advice given as to how best he should go about buying them out or being bought out by them, and in our view no right thinking reasonable commercial bystander would expect that he should. He had the right to seek advice where and when he chose, so long as it was not detrimental to the company, and there is no evidence that it was detrimental to the company.
114 In the result, therefore, we do not consider that the appellant's conduct in arranging and attending the meeting on 20 October 2004 could reasonably be perceived as inconsistent with his duty of loyalty to the company or as designed to establish a new company with which to appropriate the intellectual property of Program IT in breach of his fiduciary duty Program IT.
The steps towards the incorporation of a new company
I considered that the evidence of Mr Joyce [sic, Mr Joint] and Ms Lonnqvist on the issue of incorporation was unconvincing. I do not accept it. I am satisfied that on or about 20 October 2004, Mr Joint requested Ms Lonnqvist to take steps towards the incorporation of a new company.[20]
116 With respect, that may well have been so. There is direct evidence that the appellant gave Ms Lonnqvist instructions to look into the matter. He deposed in his affidavit of 7 February 2006 that:
I had asked Ulla Lonnqvist [about] setting up another company for the project with Warren. As far as I am aware, Jason Stephens is the shareholder and director of many companies and I do not believe my having shares in another company would be a conflict of interest.
117 Consistently with that evidence, when asked in cross-examination how he explained an exchange of emails with Ulla Lonnqvist about the incorporation of a new company, he answered that he had spoken to her about the incorporation of a company. He was then pressed as to whether he had in fact instructed her to go ahead and incorporate the new company, and only then said that he had not:
If you look at [the email of] 20 October 2004 at 2.56 subject incorporation and she asks for, or I'll read it exactly 'I need your place of birth, please confirm date of birth 17 August 1969'. See that? - - - Yes.
And that's written in a response you've made to her, hasn't it? - - - Yes.
Your response to that is up the top of the page? - - - Yes.
20 October 2004 at 4.22, Melbourne Dandenong confirmed? - - - Yes.
So you go back, you had asked Ulla Lonnqvist to incorporate a company prior to 2.56 on 20 October 2004 hadn't you? - - - No, I asked her to explore it, I didn't actually ask her to incorporate something.
Well you'd spoken to Ulla prior to 2.56 about the incorporation of the company hadn't you? - - - I had spoken to her about doing that yes.
And that's her response, needs your date of birth, your place of birth. You agree with that, that's the only response isn't it? - - - No, I walked into her office afterwards and I said 'You need to hold off, we're still exploring this.'
Hold off to after Tan and Ste[ph]ens are gone? - - - It had nothing to do with Jason and John.
118 Whether the appellant asked Ms Lonnqvist to go any further than that is more problematical and, looking at the matter objectively, which is to say, without the benefit of having seen the appellant in the witness box, it may be doubted that he would have.
119 Evidently, the judge regarded it as improbable that, after asking Ulla Lonnqvist to make inquiries about incorporating a new company, to the point of providing place and date of birth for the purposes of the exercise, the appellant would then have instructed her to 'hold off' because they were still exploring the railway crossing proposal. But looked at objectively (without the benefit of seeing the appellant in the witness box), that does not seem as unlikely as might first appear. If Ms Lonnqvist had incorporated a company or acquired a shelf company, it would have been apparent from an ASIC search. If she had done anything else towards incorporation of acquisition there would almost certainly have been some kind of documentary trail from which was apparent. But as it was, the respondent did not produce one document or other piece of objective evidence to suggest that Lonnqvist had proceeded any further with incorporation or acquisition than the appellant stated.
120 Ms Lonnqvist's evidence was to the same effect as the appellant's:
Thank you, first of all the bottom email at 2.56 you've responded to Peter Joint 'Need you place of birth, please confirm date of birth'? - - - Yes.
Now that is, is it not in response to a request to incorporate a company? - - - No.
Look at the subject of it? - - - Pardon?
Look at the subject of it? - - - What is the subject, of?
Yes, re incorporation, do you see that? - - - Yes.
Now is that, is it not an incorporation of a new company? - - - Mr Joint had asked me to - - -
Please answer the question, is that with respect to the incorporation of a new company? - - -
Yes, and was that request made on the 20th, or was it an earlier date? - - - At a?
Earlier date? - - - At that - it could have been that date or a week or two prior?[21]
121 Assuming, however, that the appellant did request Ms Lonnquist to incorporate a new company, in our view there was nothing in the request which of itself would constitute a breach of duty or other improper conduct. For like the respondent, the appellant was free to explore incorporation or to incorporate as many new companies as he pleased. The real significance of the judge's finding as to incorporation was her Honour's conclusion that use of the new company to appropriate the intellectual property of Program IT or other Program Group entities would have been a beach of fiduciary duty. But contrary to the assumption implicit in that finding, the appellant's instructions to Ms Lonnqvist with respect to the incorporation of a new company did not form part of the basis on which the respondent and Tan decided to dismiss the appellant from the company and exclude him from participation in it.
122 The judge held that the instruction to Ms Lonnqvist concerning the new company was something which the respondent construed as consistent with and a step to implement stripping the company of its intellectual property and transferring it to a new company. In fact, it was not until after the appellant's dismissal that the respondent and Tan accessed the email exchange between the appellant and Ms Lonnqvist concerning the new company and learned of its contents for the first time.
123 The judge's reasoning about the email to Mr Cowcher was as follows:
The letter of Mr Cowcher of Re Image to the Transport Accident Commission ('TAC') dated 20 October 2004 referred to a software programme in relation to the railway crossing idea and asked to meet with the TAC to discuss it. The letter stated: 'This information is given to you in good faith and is considered to be the property of Eprogram Pty Ltd'.
The email of Mr Cowcher to Mr Joint dated 20 October 2004 asked him for his thoughts about the above letter to the TAC. Mr Joint's email to Mr Cowcher, in response, dated 20 October 2004, stated:
'Hi Warrren, I like it but we shouldn't be putting that on Re Image letterhead - at this time, I'm also reluctant to put it on eprogram letter head. I can arrange a new company name and letter head if you want.
... I am satisfied that the email to Mr Cowcher, when taken in context, would reasonably indicate to an objective commercial bystander that Mr Joint intended to establish a new company and appropriate the intellectual property of Program IT or other Program Group entities, in breach of his fiduciary duty.[22]
124 With respect, we disagree with that conclusion, for several reasons. First, the letter to TAC was a draft letter, and it will be recalled that, according to the appellant's evidence (to which the judge did not refer), 'the technology and solution was nothing that eProgram or ReImage had been involved in previously' and the appellant assumed that Mr Cowcher had put the draft on the letterhead of ReImage because his computer skills were poor and he thought it would look more formal. That evidence was not contradicted. The appellant was not cross-examined on it, and Mr Cowcher (who, the evidence disclosed, was still employed by ReImage) was not called: thus implying that anything which he might have said about the matter would not have assisted the respondent.
125 Secondly, it is apparent from the evidence to which we earlier referred that the business of ReImage was the refurbishment and maintenance of the physical assets of petrol stations. Hence, it appears as a matter of objective fact, as well as from the appellant's evidence, that the railway crossing proposal had nothing to do with the business of ReImage.
126 Thirdly, there was no suggestion, still less evidence, that Mr Cowcher had a research function at ReImage. As far as the evidence goes, he was in a management position and the proposal came about not as a result of his management function but as a result of reading in the press about a level crossing accident. He did not develop the proposal within the course and scope of his employment as manager for ReImage and there was nothing to show that he had a duty beyond management to invent products for ReImage. Other things being equal, Mr Cowcher was entitled to conceive of and develop the railway crossing proposal for his own use and benefit.[23]
127 Fourthly, even if the proposal were to be conceived of as in some way the 'property' of ReImage, the appellant had nothing to do with ReImage, or indeed any other company in the respondent's so-called Program Group, and he did not owe ReImage or any of those other companies any duties whatsoever. Whatever he may have done in relation to ReImage, right or wrong, was not a breach of any duty that he owed to Program IT.
128 Fifthly, when counsel for the appellant put it to the respondent that it was not within the scope of Program IT's business, the respondent said only this:
The proposal - you would agree that the proposal was different from the kind of business that Program IT was involved in, wouldn't you? - - - No, not particularly. Well - - -
Program IT is involved in call centres, is that right? - - - Yes.
And CRM - - - Software writing in different aspects. One of the consultants [Mike Cole] that were working for us was very, very good in this area.
129 There was no evidence that Program IT was in the business of writing the sort of software involved in the railway crossing nor that writing that sort of software was an opportunity in which Program IT might reasonably be expected to be interested given its current line of business.[24] The fact that one of the consultants doing some work for Program IT might have been good at writing that sort of software is not evidence that Program IT was in the business of writing that sort of software or had any interest in writing that sort of software. And we repeat that, when counsel for the appellant sought to cross-examine the respondent further on the point, he was stopped upon the objection of counsel for the respondent.
130 Sixthly, as has been noted, the appellant gave evidence that, when he requested Mike Cole to look at the proposal, he asked him to do so on the basis that it was not to be a Program IT project. The appellant was not cross-examined on that evidence and Mr Cole was not called as a witness. Hence, we draw the inference that anything which Mr Cole might have said on the point would not have assisted the respondent. There is also no evidence that Mr Cole was an employee of Program IT - the evidence was that some consultants were employees and others were contractors, and nothing was said about the category he was in - or that any other resources of Program IT were devoted to the development of the proposal. As far as appears, Mr Cole worked on his own time as he would have done on any other consulting project for a third party client.
131 Seventhly, it is apparent from Mr Cowcher's email to the appellant of 20 August 2004 that he put the proposal to the appellant because he considered the appellant to have 'nouse on getting a system to work, enthusiasm and readiness to take it further', and despite his understanding that the appellant was 'busy with eprogram'. There was no evidence that the proposal was presented to the appellant in his capacity as managing director of Program IT or that he undertook the development of the proposal in his capacity as managing director of Program IT.[25] His own evidence and the implication to be derived from Mr Cowcher's emails to him was to the contrary.
132 Eighthly, although as managing director of Program IT the appellant was under a duty to advance the interests of Program IT generally, and therefore may have been under an implied duty of good faith and subject to an implied term to hold for the benefit of Program IT any invention relevant to Program IT's business (even if developed outside working hours),[26] the evidence does not establish that the railway proposal was sufficiently if at all relevant to the Program IT business to fall within that category.
133 In reasoning to the conclusion that the appellant failed in his application for relief against oppression, the judge said this:
While exclusion from management in the context of a quasi-partnership is a classic hallmark of oppression, it does not constitute oppression in every case. Whether oppression is made out will depend on whether an objective commercial bystander would reasonably conclude that the relevant conduct was unfair. As Nourse, J acknowledged in Re London School of Electronics,[27] the conduct of the petitioner may 'render the conduct on the other side, even if it is prejudicial, not unfair'.[28]
134 With respect, we agree with her Honour's summation of the law. Section 232 of the Corporations Act confers jurisdiction to give relief if the court is of opinion that the conduct of a company's affairs, or an actual or proposed act or omission by or on behalf of the company or a resolution or a proposed resolution of a member of a class or members of the 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 any other capacity. The expression 'oppressive or unfairly prejudicial or unfairly discriminatory against' is considered to be a compound expression. It is concerned with 'commercial unfairness'. As Brennan J explained in Wayde v New South Wales Rugby League:[29]
Section [320] requires proof of oppression or proof of unfairness: proof of mere prejudice to or discrimination against a member is insufficient to attract the court's jurisdiction to intervene.... At a minimum, oppression imports unfairness and that is the critical question in the present case.
...
...The question of unfairness is one of fact and degree which [s 320] requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of [s 320] may be attracted to a decision made by directors which is made in good faith for a purpose within the directors' power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.
135 More precisely, as Young J put it in Morgan v 45 Flers Avenue Pty Ltd:[30]
... as a result of the decisions in New Zealand in Thomas v H W Thomas Ltd;[31] in England in Re Bovey Hotel Ventures Ltd;[32] Re R A Noble & Sons (Clothing) Ltd;[33] and Re London School of Electronics Ltd[34] and in Australia in Wayde v NSW Rugby League Ltd,[35] it has been accepted that one no longer looks at the word 'oppressive' in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair: see Wayde's case per Brennan J;[36] per majority.[37] In my view a court now looks at [the expression] as a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely, commercial unfairness.
136 Consequently, the task of deciding whether there has been commercial unfairness is to be undertaken in the context of the particular relationship which is in issue.[38] As is observed in Ford,[39] the assessment of commercial unfairness will not infrequently involve a balancing exercise between competing considerations. In turn that may involve an examination of the conduct of the applicant. Thus, as Nourse J said in Re London School of Electronics Ltd[40] in relation to the English oppression provision:
The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First it may render the conduct of the other side, even if it is prejudicial, not unfair: cf. In re R.A. Noble & Sons (Clothing) Ltd.[41] Secondly, even if the conduct on the other side is both prejudicial and unfair, the petitioner's conduct may nevertheless affect the relief which the court thinks fit to grant under subsection (3). In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands.
137 In Noble the prejudicial conduct consisted in one director running a quasi-partnership company virtually as his own, and it was held that that conduct was not unfair because the applicant had not shown any interest in being involved in management or decision making. It is not clear whether Nourse J also had in mind the sort of case in which a respondent reacts with prejudice to an applicant because of prejudicial conduct by the applicant. But in Morgan v 45 Flers Avenue Pty Ltd, which did involve that sort of reactive prejudicial conduct, Young J said in considered obiter that it does:
I should indicate that in my view the approach taken by Nourse J in Re London School of Electronics Ltd is the correct one, that is that such conduct may either render the conduct on the other side not unfair or may affect the relief which the court thinks fit to grant and that there is no overriding requirement in a case under [the oppression section]that the plaintiff should come to the court with clean hands.[42]
138 Finally, because the test of commercial fairness is an objective test, it is unnecessary for an applicant to prove that the respondent knew or believed that the impugned conduct was unfair.[43] Nevertheless, it has been said that the question of whether a respondent's conduct was unfairly prejudicial is to be assessed by reference to what is known by a respondent at the time of the conduct. So, therefore, it has been held that to take a step on the basis of an honest belief of fact may not amount to acting unfairly even though it is subsequently discovered that the belief was mistaken.[44] Conversely, logic would tend to imply that conduct which would be adjudged unfair by reference to what is known by a respondent at the time of the conduct could be viewed as fair in light of facts which are in existence at the time of the conduct but only later discovered.[45] But it is unnecessary for the purposes of this case finally to decide that point.
139 As the judge found the facts to be, a reasonable commercial bystander would have viewed the email of 8 October 2004 as a threat to strip the company of its staff, supplies and intellectual property. For the reasons we have given, however, we do not consider that an objective commercial bystander knowing the facts which were known to the respondent as at 22 October 2004, and assessing the matter in the whole of the commercial context in which the email was sent, could reasonably have adopted that view. As it seems to us, the furthest it went was a prediction that if the appellant did leave the company, the suppliers and staff would be likely to follow him.
140 The judge also found that a reasonable commercial bystander would have viewed the McDonald's meeting of 20 October 2004, the email to Mr Cowcher of 20 October 2004 concerning the railway crossing proposal, and the instructions given by the appellant to Ms Lonnqvist to incorporate a new company as steps to implement the threat of 8 October 2004 to strip the company of its staff, supplies and intellectual property. For the reasons we have given, we take a different view. Once it is seen that an objective commercial bystander would not have adopted the view that the email of 8 October 2004 was a threat to threat to strip the company of its staff, supplies and intellectual property, it follows that such an observer could not have seen subsequent events as steps to implement the threat. On the facts which were known, the threat was non-existent.
141 Over and above that, we do not consider that an objective commercial bystander knowing the facts which were known to the respondent as at 22 October 2004 and assessing the matter in the whole of the commercial context could without more have come reasonably to the conclusion that the McDonald's meeting of 20 October 2004 was for the purposes of stripping the company of its staff, supplies and intellectual property. On the evidence, all that the respondent knew was that the appellant had gone to the meeting with the staff who attended. As the evidence stands, the respondent knew nothing about what was discussed, and so the most he could have done would be to speculate about possibilities (which, given that there had been so much discussion about the appellant buying out the respondent, are not unlikely to have included a meeting directed to that end). Judged by the standards of an objective commercial bystander, it would not have been open on the basis of mere speculation to infer that the purposes of the meeting were to strip the company of staff, supplies and intellectual property.
142 It should also be remembered that it was always open to the respondent to make further inquiries as to what occurred at the meeting. One is entitled to ask whether, if he were really concerned about it, why would that not have been the first thing to be done? The respondent had been in business with the appellant for more than four years and, as the emails show, he had never before hesitated to clarify doubts when they arose. Why not this time? He could have asked the appellant or Ms Lonnqvist or Mr Harris or Mr Lee (who did not give evidence) about what happened at the meeting. So too could have Tan (who did not give evidence). And presumably if either of them had asked, he would have been told, as was the fact, that the meeting was devoted to discussing the possibility of Mr Joyce investing in the company; that Mr Joyce was not to be provided with the accounts until the directors had agreed upon the disputed items; that there was some consideration given to the possibility of the appellant leaving the company, but upon the basis that he could not solicit clients or staff, and that there was to be a further meeting at some time in the future. There would have been nothing in any of that which could have led an objective commercial bystander reasonably to conclude that the purpose of the meeting was to strip the company.
143 Thirdly, an objective commercial bystander knowing the facts which were known to the respondent as at 22 October 2004 would have known that the railway proposal was not intellectual property of Program IT. Possibly, such an observer would have had an honest belief that the railway crossing proposal was the intellectual property of ReImage. Possibly, the appellant honestly believed that it was; indeed the allegation in his affidavit of December 2004 that the exchange of emails with Mr Cowcher suggested that the appellant was directing work 'outside the Programme Group' - as opposed Program IT - rather implies that he did. But, as has been explained, for present purposes that would be irrelevant.
144 Fourthly, the instructions to Ulla Lonnqvist concerning incorporation of a new company may in our view be excluded from consideration. As has been seen, they were not a fact which was known to the respondent at the time of dismissal on 22 October 2004 and, although we allow for the possibility of apparently unfair conduct being justified by reference to subsequently discovered events, in this case what has since been learned of the instructions concerning incorporation or acquisition of a shelf company shows them to have been innocuous. As the evidence now appears, the company was for the purposes of exploitation of the railway crossing proposal; which (so far as the evidence goes) was not the intellectual property of Program IT.
145 The judge concluded on the basis of her findings of fact that an objective commercial bystander would not have viewed the termination of the appellant and his subsequent exclusion from management as unfair, but as a necessary response to safeguard the interests of the company from the destructive consequences of the appellant's actual or threatened breaches of duty of loyalty and his repudiation of the existing arrangements for shared control.
146 For the reasons which we have given, however, we do not consider that an objective commercial bystander knowing the facts which were known to the respondent as at 22 October 2004 could reasonably have regarded the appellant as having committed any actual or threatened breaches of his duty of loyalty to Program IT. To the contrary, it seems to us that, upon an objective analysis, the purported justifications for the dismissal were thin indeed. And if and insofar as subjective considerations may be thought to be relevant, we repeat that it is remarkable that, knowing the matters which were said to cause 'real concerns', the respondent made no inquiry of the kind which, if made, could have so easily allayed his fears.
No repudiation of existing arrangements for shared control
147 It is necessary to deal separately with what the judge apparently regarded as the appellant's repudiation of exiting arrangements for shared control.
148 There is no question that the appellant wanted control of the company and had threatened that if he did not get it he would leave. If he had left, his act of leaving may have constituted a repudiation of the existing arrangements for shared control. Although, even then, that would have depended among other things upon whether what he said in the email to Tan of 8 October 2004 about Tan having agreed to depart once the company was established was the truth.[46] But merely to seek to persuade the respondent and Tan to change the existing arrangements could not be regarded as repudiatory of those arrangements.[47] Nor could his threat to leave unless it became clear that they would not agree and he intended to carry out the threat. As matters stood, the negotiation continued and the appellant was devoting himself assiduously and effectively to his duties as managing director of the company while at the same time seeking an investor to buy out the respondent at a price which was acceptable to the respondent.
149 The judge at one point in her reasons observed that the respondent had a number of complaints about the appellant's management.[48] But her Honour made no finding about whether the complaints were justified, and we do not understand her to have considered anything the subject of such complaints to have been repudiatory of the existing management arrangements. If it matters, we do not consider that the evidence established that they were.
150 Her Honour did remark upon the smiley face emails:
By his emails on 11 September 2004 [the smiley face emails], Mr Joint inappropriately initiated and participated in the disparagement and belittling of his fellow director, Mr Tan, to and by members of staff. While Mr Joint described the emails as a joke, when taken in the context of the deteriorating relationship of the principals of the business, they encouraged disrespect towards Mr Tan and represented a failure by Mr Joint, as managing director, to observe decorum in the workplace.[49]
151 But we cannot conceive of the smiley face emails as repudiatory of existing management or arrangements or as a sufficient basis to exclude the appellant from management and otherwise from the company. We have explained already the circumstances in which they were sent. At best they were an understandable reaction to the frustrations occasioned by Tan's attempts to avoid Family Court obligations and at worst they were a joke in questionable taste. But whichever way they are to be described, to our way of thinking they surely did not evince an intention to throw up existing management obligations and no longer be bound thereby.
152 It follows from what we have said about the purported justification for the dismissal and exclusion of the appellant from the company that we do not consider that an objective commercial bystander knowing the facts which were known to the respondent as at 22 October 2004 would regard it as being fair. Rather, as we see it, such an observer would think what was done to the appellant was most unfair. As counsel for the appellant compendiously put it, the respondent expropriated the appellant's 49% shareholding in an enterprise, which he had been instrumental in creating, and left him with nothing.
153 It is unnecessary to consider whether the respondent honestly believed that he was justified in what he did. As the judge rightly said, the test is objective. What matters is that an honest and reasonable commercial bystander would not have regarded his actions as warranted. But if and insofar as the respondent's subjective motivations may be to the point, we take leave to doubt them.
154 It follows, in our view, that the appellant is entitled to a declaration that the conduct of the respondent in purporting to dismiss him and in thereafter excluding him from the management of the company was unfairly prejudicial. We also consider that in all the circumstances that he is entitled to an order that the respondent purchase his shares in the company at fair value, and that fair value for those purposes is the value of the shares as at the date of institution of proceedings.
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[50] - 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.
156 The experts called below were agreed that, if the administration fees included in the accounts as at 30 June 2004 were invalid, the company's value as at October 2004 was $2,222,500 and the appellant's shares were consequently valued at $979,022 (after allowing for the amount of his loan account); and that if the administration fees were valid, the company's value as at October 2004 was $1,709,000 and the appellant's shares were valued at $732,307 (after allowing for the amount of his loan account). As appears from the evidence to which we have referred, there is good reason to doubt at least some part of the administration fees. But the appellant has not sought to quantify the amount by which they should be reduced and, in the circumstances, we think that all we can do is to accept that the administration charges are valid for the purposes of the exercise.
157 In the result, we would declare that the respondent engaged in oppressive conduct by procuring the exclusion of the appellant from the management of the company and otherwise denying him an role in or benefit from the company with effect from 22 October 2004. We would order that the respondent purchase the appellant's shares in the company at a price of $732,307 plus interest calculated at a commercial rate and computed from 22 October 2004 until judgment. In the absence of any submissions to the contrary, we would fix as the rate of interest to be applied the Commonwealth long term bond rate of 5.72%. As so calculated,[51] the interest as at this date is $187,768.97.
[1] It is apparent that the total provided for in the agreement ($2.2m) was slightly more than half the $4m value mentioned.
[3] The respondent's company which was in the business of maintaining and renovating service stations for oil companies.
[4] eProgram was a name sometimes used by Program IT.
[8] As determined by subsequent valuation.
[9] Understandably, the judge was proceeding on the basis that the company still had substantial value. In fact, as was later disclosed in valuations prepared after the judge had handed down judgment, under the respondent's and Tan's control the company had been reduced to a nil or negative value.
[11] Counsel for the respondent suggested in cross-examination of the appellant that Tan was ill with cancer. But the appellant knew nothing of it and there was no evidence of it.
[12] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 308; Davies v Pyke [2004] VSCA 124; (2004) 10 VR 339, 334 [16].
[13] Cf Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, 127 [27]-[31].
[22] Reasons [173]-[174], emphasis added.
[23] Harris' Patent [1985] RPC 19, 29; Spencer Industries Pty Ltd v Collins (2003) 58 IPR 425, [2003] FCA 542 [79]-[85] (Branson J); University of Western Australia v Gray (No 20) [2008] FCA 498; (2008) 246 ALR 603, 646 [130] (French J).
[24] See and compare S E A Food Internation Pty Ltd v Lam (1998) 16 ACLC 552, 557.
[25] Cf. Cranleigh Precision Engineering Ltd v Bryan_t [1966] RPC 81, 93; Dwyer v Lippatt [2004] QSC 281; (2004) 50 ACSR 333; Austin and Ramsay, Ford's Principles of Corporations Law,_ 13th ed [9.230].
[26] Fine Industrial Commodities Ltd v Powling (1954) 71 RPC 253; Re Staeng Ltd's Patents [1996] RPC 183; University of Western Australia v Gray (No 20) [2008] FCA 498; (2008) 246 ALR 603, 647 (7).
[27] [1986] Ch 211, 222.
[29] Wayde & Anor v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, 472 (Brennan J).
[30] (1986) 10 ACLR 692, 704; 5 ACLC 222; see also Dynasty Pty Ltd v Coombs [1995] FCA 1447; (1995) 59 FCR 122, (1994) 13 ACLC 1290, 1296.
[32] Chancery Division, Slade J 31 July 1981 unreported.
[33] [1983] BCLC 273, 290.
[38] O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, 1098 (Lord Hoffman).
[39] Austin and Ramsay, Ford's Principles of Corporations Law, 13th Ed. [11.450].
[40] [1986] Ch D 211, 222.
[42] (1986) 10 ACLR 692, 707.
[43] Austin and Ramsay, Ford's Principles of Corporations Law, 13th ed [11.450].
[44] Chase Corporation (Aust) Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1, 26.
[45] See and compare analogous contexts in which the law treats that as being so: Nund v McWaters [1982] VicRp 60; [1982] VR 575, 585.
[46] Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, 396-7 (Mason CJ) and 417 (Brennan J).
[47] Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594, 611; Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, 633.
[50] Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324, 364 (Lord Keith of Avonholm); In re Jermyn Street Turkish Baths Ltd [1970] 1 WLR 1194 (Pennycuick J), reversed on other grounds, [1971] 1 WLR 1042; In re A Company (No. 002567 of 1982) [1983] 1 WLR 927, 938; cf. In re London School of Engineering [1986] Ch 211, 224; Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882, 907 (Wheeler J) Foody v Horwood [2007] VSCA 130, [34]-[37] (Chernov JA) and [93] (Ashley JA); Ford's Principles of Corporations Law, [11-943].
[51] Calculation based on the 10 year Treasury Bond yield rate averaged monthly over the period November 2004 to October 2008.
Joint
Stephens [2008] VSCA 210
(1985) 180 CLR 459
(1959) 101 CLR 298
(2004) 10 VR 339
(2003) 214 CLR 118
(2003) 58 IPR 425
(2008) 246 ALR 603
(1995) 59 FCR 122
(1994) 35 NSWLR 1
(1989) 168 CLR 385
(1979) 141 CLR 594
(1982) 149 CLR 620