Ledesma v Nobule

COUNSEL : Mr. C.D. Freeman (First, Fourth, Fifth and Sixth Defendants) SOLICITORS : Mr. T.P. Orlizki of Barnetts (Plaintiffs) LW Williams & Associates (First, Fourth, Fifth and Sixth Defendants) CATCHWORDS : APPEAL from Master's decision - valuation of shares - oppression - appeal dismissed DECISION : Appeal dismissed with costs

1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3231/89 JUAN CARLOS LEDESMA & ANOR v NOBULE PTY LIMITED & ORS

JUDGMENT Outline 1 This is an appeal from a decision of Master McLaughlin. The plaintiffs are shareholders in Nobule Pty. Limited (Nobule) and brought proceedings for oppression under s320(2) of the Companies (New South Wales) Code seeking an order that the company be wound up or that the other shareholders purchase their shares. The proceedings commenced by summons filed on 30 June 1989. On 4 October 1991 an order was made that the action proceeding on pleadings. On 7 February 1994 consent orders were made as follows: 1. Order that the fourth, fifth and sixth defendants purchase the plaintiffs' shares in Nobule Pty Ltd on the basis that each of the plaintiffs held a one sixth shareholding in that company at a value (determined on that basis) and date to be determined by a Master (or referee as hereinafter provided).

2. Order that the balance of the proceedings be referred to a Master (or, if the parties agree a referee appointed pursuant to Part 72 of the Supreme Court Rules) to enquire into and determine a fair value of the plaintiffs' two shares at 16 July, 1986, 30 June, 1989 or such other date as may be notified by either party, whichever the Master (or referee as the case may be) considers appropriate.

4. Proceedings against the second and third defendants be otherwise dismissed with no order as to costs.

5. The Master shall be entitled in determining a fair value of the plaintiffs' shares to take into account any conduct, act or omission of any of the parties as pleaded which in his opinion comes within the meaning of section 320(2)(a) or (b) of the Companies (NSW) Code.

6. Note that apart from the issue of 24,000 shares pleaded in paragraph 21 of the Statement of Claim, the defendants do not admit any act or omission or conduct which was oppressive or unfairly prejudicial to or unfairly discriminatory against the plaintiffs or that was contrary to the interests of the members as a whole. 2 An inquiry was conducted by Master McLaughlin. He decided that the appropriate valuation date was 16 July 1986 which was the date the plaintiffs were removed as directors. More significantly, however, the Master decided that the shares had no value as the company had no value at that date. The plaintiffs have appealed against that decision. 3 If ever there were an action which was unfortunate then this must be it. The inquiry before the Master occupied twenty one days spread over various times in 1996. Voluminous written submissions were filed in November and December 1996 and January 1997 and judgment was finally delivered on 11 December 1997. Prior to the inquiry even being commenced, there appear to have been twenty-eight occasions when the action was listed before the Registrar and a further five or even more occasions when it was listed before a Judge or a Master. On any basis the shares in the company were not of great value. The figure contended for by the plaintiffs as to the value of all shares in the company was $231,516. On that basis each plaintiff would have received $38,586. That is the figure they continue to seek. Without endeavouring to lay or apportion blame, it is obvious there must have been some failure to consider what might be described as the proportionality between the claim and cost of putting it forward. The difficulty was I think caused by trying to do too much at the one time, namely to establish oppressive action and work out a valuation at the same time. Experts cannot value shares in a company without having figures on which to work. On any basis as the plaintiffs wished to establish the published accounts were incorrect yet they did not know for what figures they contended. They needed to establish the latter before any sensible figure could be put forward as the share value. That put forward by Mr Fehon was really just a guess. Facts 4 The facts giving rise to action can be shortly stated. Mr Ledesma was a shoemaker who came to Australia in 1972. He traded under the name of Gaucho Shoes. Mr Robert Zagame Senior was a shoe retailer with shops at Lakemba and Cabramatta, trading under the name of Boulevarde Shoe Stores. He and Mr Ledesma decided to go into business together with Mr Ledesma making the shoes and Mr Zagame selling them. In 1982, Nobule was formed in which Mr & Mrs Ledesma each held one share and Boulevarde Pty. Limited held two shares. In 1985 the two sons of Mr Robert Zagame, namely Phillip and Robert Junior, were appointed directors of Nobule and each allotted one share. I will refer to Mr Robert Zagame (Snr) as Mr Zagame and the sons as Phillip and Robert. Towards the end of that year problems arose between Mr Ledesma and Mr Zagame. Mr Ledesma was injured at work in May 1986. On 16 July 1986 the Zagame interests purported to hold a general meeting of Nobule removing Mr & Mrs Ledesma as directors and increasing the share capital to $24,000, or perhaps by $24,000. On 18 November 1986 allotments of shares were made of 6,000 to each of Phillip and Robert and 12,000 to Boulevarde Shoe Stores Pty. Limited (Boulevarde). 5 These proceedings were commenced, as I have said, by summons filed on 30 June 1989, seeking the winding up of Nobule or a compulsory buy-out order. 6 In coming to his determination the shares had no value, the Master determined that 16 July 1986 was the appropriate valuation date and accepted the valuation of Mr Bryant, with one agreed change which made no real difference to the conclusion. This meant that he accepted the company must be valued on a net assets basis, the valuation being based upon the assets and liabilities of Nobule at 30 June 1986. It was accepted that there was no difference between that date and 16 July 1986. There could be no appeal against the decision of the Master if the figures upon which the valuation was based were proper figures. The parties accept that the appropriate date was 16 July 1986 and there is no appeal about that. 7 The case of the appellants before the Master was that the accounts of Nobule did not reveal the true assets and liabilities of the company or the true profits of the business. There were three grounds put forward for this claim for inaccuracy. They were: (a) that sales of shoes of Nobule to Boulevarde were not recorded or paid for; (b) the closing stock was understated; (c) that loans shown in the books, from Boulevarde to Nobule, were not bona fide loans but (at least for the most part) represented payment for shoes purchased by Boulevarde from Nobule. 8 As this was the claim of the appellants the onus was on them to establish it. However, from then on confusion seems to have reigned supreme. That may have been because, while the plaintiffs had stated on directions hearings that they did not allege fraud, on the hearing before the Master they clearly did so, the evidence of their expert going to this. The Master allowed the evidence in (a lot of it going to matters after July 1986), granting the appropriate adjournments to deal with it when necessary. It is in any event necessary to point out that paragraph 23 of the statement of claim which was the general claim for oppressive conduct gave particulars of this alleged conduct which included claims of exclusion from the business, and more significantly, included claims of sale of goods to Boulevarde at an undervalue, of sales to Boulevard for cash not accounted for (whatever that might mean), of sales not properly reported, and that records and financial statements did not truly reflect the financial affairs of the company. These were, of course, rather general claims which had to be made out, but they were the conduct acts or omissions referred to in Order 5 of the consent orders of 7 February 1994, which I have set out. It is obvious enough the intention of order 5 was that if oppression was proved, the shares were to be valued at their value had the oppression not taken place. It seems that the allegation of fraud was withdrawn towards the end of the hearing and the word "oppression" used instead, based on the same factual allegations. As far as I can ascertain this made no difference to the decision and I do not understand how it could have. 9 The inquiry before the Master was to determine the value of the shares. To do that it was necessary to have evidence of the assets and liabilities of the company and its profits or losses over a period. There was no order that the defendants be the accounting parties. The appellants therefore had to show what those assets and liabilities and profits and losses were, or perhaps to show how those differed from the published figures and to show the value of the shares which flowed from that. In other words they had to establish the oppression and then establish what the shares would have been worth had it not been for the oppression. Considerable time seems to have been spent before the Master, and considerable time was spent before me, in discussion of what was needed to establish the plaintiffs' case of fraud or oppression. It is perfectly clear the Master understood the requirements as is shown from the following passage from his judgment under the heading of "Legal Principles", although the strictures about pleading may not have been necessary as it was clear enough what was alleged, at least in general terms. However, the references may have been in response to continued complaints by counsel for the defendant. The Master said: Legal Principles

It will be appreciated that the plaintiffs by their statement of claim advanced what can compendiously be described as an oppression suit against the defendants other than Nobule, concerning the conduct and affairs of that company. It is in the context of that oppression suit that the valuation of the shares in Nobule has been calculated by the plaintiffs. It is basic to the valuation advanced by the plaintiffs that they can establish the oppression suit alleged in the statement of claim.

In regard to that oppression, it will be recalled that by O5 of the consent orders made on 7 February, 1994, I was specifically authorised, in performing the valuation, to take into account any conduct, act or omission of any of the parties as pleaded which in my opinion comes within the meaning of s320(2)(a) or s320(2)(b) of the Companies (New South Wales) Code. That subsection provides, relevantly, If the Court is of opinion --

(a) that affairs of a company are being conducted in a manner oppressive to one or more of the members; or (b) that directors of a company have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that is unfair or unjust to other members, ...

I was taken to a number of authorities relevant to the foregoing statutory provision, or relevant to what might be described as oppression in a somewhat broader sense. Those authorities included Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324; Re Golden Bread Pty Ltd, The Queensland Co-Operative Milling Association v Hutchison [1977] Qd R 44; Re Bagot Well Pastoral Company Pty Ltd; Shannon v Reid [1992] 9 ACSR 129 (Cox J); (1993) 12 ACSR 197 (Full Court of the Supreme Court of South Australia).

The various acts of oppression raised in the statement of claim included the following 1. Phillip and Robert Zagame were each allotted shares in Nobule without consideration (para13)

2. Mr Ledesma's authority as manager was reduced: in that he was (a) prohibited access to certain parts of Nobule's premises; (b) prohibited access to certain parts of Nobule's cheque books and other books of account; (c) refused access to Nobule's books of account and other records of its dealings with Boulevarde; (para14).

3. Mr Ledesma's employment was terminated (para15) (this was an error. The paragraph referred to Mrs Ledesma) .

4. The plaintiffs were given only two days' notice of an extraordinary general meeting (para16, para17, and para18).

5. Since 16 July, 1986 the plaintiffs have been excluded from the business of Nobule (para20). (a) Nobule has sold goods to Boulevards for less then their true market value. (b) The second to sixth defendants have sold goods to Nobule for cash and have not properly accounted for them. (c) The sales of goods from Nobule to Boulevards have not been reported or accurately been reported. (d) The financial records and statements of Nobule do not truly and accurately reflect its financial affairs. (para23) The share issue was conceded as an act of oppression by the defendants (see O6 made by consent on 7 February, 1994).

The evidence in the present enquiry, and, in particular, the evidence of the expert witnesses adduced on behalf of the plaintiffs and of the defendants can be properly considered only in the context of the allegations made by the plaintiffs concerning the conduct of the defendants in relation to Nobule.

The substance of the complaint by the plaintiffs concerning oppression was that the plaintiffs had been locked out of the business of Nobule. By implication that locking out also gave rise to the assertions on the part of the plaintiffs that stock from Nobule had been transferred to Boulevarde without Nobule receiving any payment for such undocumented transfers, and that alleged loans by the Zagames to Nobule were not genuine or bona fide transactions; with the consequence that such conduct constituted fraud perpetrated by the Zagarnes upon Mr and Mrs Ledesma.

It will be appreciated, firstly, that the burden of establishing the various matters asserted by the plaintiffs to constitute oppression against them by the defendants, and, in particular, to constitute the various instances of fraud which they allege, lies upon the plaintiffs.

Further, that fraud is a most serious matter. No allegation of fraud should ever be made unless the party alleging fraud is satisfied that it has a proper basis for the allegation (Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 347-349 per Mahoney JA (with whom in this regard Clarke JA expressly agreed); see Ritchie, Supreme Court Procedure, [15.13.5], and cases there cited).

The Court wi1 not find fraud unless it has been properly pleaded. An allegation of fraud must be pleaded with both specificity and particularity (Banque Commerciale SA v Akhil Holdings (1990) 169 CLR 279 at 285 per Mason CJ and Gaudron J; Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 at 700). This attitude of the Court to an allegation of fraud is reflected in the requirements of the Supreme Court Rules that fraud must be specifically pleaded (Pt15 r13), and that particulars of any fraud must be given by the party alleging the fraud (Pt16 r2).

Not only must the party alleging fraud plead it with particularity, but it also necessary for that party to establish the alleged fraud with clarity (Admont Holdings v Lowe (Court of Appeal, 17 October, 1989, unreported).) The party alleging fraud must establish that fraud on the civil standard of proof, but the strength of the evidence required to meet that standard is commensurate with the gravity of the allegation (Briginshaw v Briginshaw (1938) 60 CLR 336; Rejfek v McElroy (1965) 112 CLR 517; Chamberlain v The Queen (No 2) (1984) 153 CLR 521 at 524-529 per Gibbs CJ and Mason J; Commonwealth Bank of Australia v Hacide Pty Ltd (Sully J, 28 November, 1989, unreported); Shepherd v The Queen (1990) 170 CLR 579 at 580 per Dawson J; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450; see also Evidence Act 1995, s140(2)).

The evidence advanced on behalf of the plaintiffs and the manner in which the case for the plaintiffs was presented clearly constituted a hearing in the nature of an oppression suit grounded upon assertions of fraud perpetrated by the defendants against the plaintiffs.

Nevertheless, at the conclusion of the evidence, the plaintiffs, in the submissions of Counsel, attempted largely to withdraw from allegations of fraud, whilst still relying upon instances of oppression.

However, the expert evidence of Mr Fehon presented on behalf of the plaintiffs, upon which the plaintiffs relied as the basis of their calculation of the value of the shares in Nobule, was that fraud had been perpetrated by the Zagames against the Ledesmas.

Where, as here, the valuation asserted by the plaintiffs depends upon findings that the plaintiffs had been the subject of oppression of the nature which I have earlier herein described, and that acts of fraud had been perpetrated against them, it is for the plaintiffs to establish that conduct and those acts of fraud. It is not for the defendants to disprove such alleged conduct or such alleged acts for fraud. If the plaintiffs can not positively establish the factual basis upon which Mr Fehon reached his conclusions as to the value of the shares, then the Court is not justified in accepting the value advanced by the plaintiffs.

It is not sufficient that the Court may entertain some suspicions in the matter. It is essential that the Court be satisfied on the balance of probabilities of the allegations made by the plaintiffs. Otherwise the Court is not entitled to accept the valuations grounded upon those allegations. 10 There can be no complaint about this passage. The fact that Mr Ledesma was locked out - and the Master found that he was not until July 1996 - does not seem to have any bearing on the share valuation unless stock was shown to have been removed in his absence. The only relevance it had was that the plaintiffs' expert concluded that the 1986 figures should not be used in the valuation because Mr Ledesma had been excluded. The exclusion was however dealt with as a separate ground of oppression and obviously took some time. The written submissions of both sides concentrate on fraud and oppression, both making emotional and perjurative comments which do little to assist the outcome. The defendants, naturally enough I suppose, have not filed any cross appeal. It is too late for them to complain about pleading defects. 11 The Master's decision depended upon his finding on the claims of the plaintiff that sales were not accounted for, that liabilities in the loan account of Boulevarde were not bona fide and the closing stock was understated. The Master found that the plaintiffs had not made out any of these claims. He also found that the claim of exclusion from the business was not made out. There is no appeal from that finding. As the plaintiffs' expert's valuation on a capitalisation of profits basis depended on that allegation being made out to exclude the 1996 figures, his valuation would have to fall to the ground in any event. The grounds of appeal are framed in a way which tends to indicate the reversal of the onus for grounds 3, 4, 5 and 6, but that is not significant. I will set out the grounds of appeal as this may help in the further understanding. GROUNDS 1. The Master erred in finding that the shares of the plaintiffs in Nobule Pty Limited had no value as at 16 July 1986. 2. The Master erred in finding that there was no objective or documentary evidence to support suspicions which were aroused by the cross-examination of Phillip Zagame and Robert Zagame. 3. The Master erred in finding that there were no unrecorded sales made by Nobule Pty Ltd to Boulevard Shoe Store Pty Ltd from 1983 to 1990. 4. The Master erred in finding that Boulevarde Shoe Store Pty Ltd paid for all shoes it purchased from Nobule Pty Ltd from 1983 to 1990. 5. The Master erred in finding (as the Master apparently did) that the financial statements of Nobule Pty Ltd from 1983 to 1990 accurately reflected its financial affairs over that period. 6. The Master erred in finding (as the Master apparently did) that all loans made by Boulevarde Shoe Store Pty Ltd to Nobule Pty Ltd from 1983 to 1990 were legitimate loans and not payments for stock. 7. The Master failed to consider or give any weight to the evidence that the stock transactions and loan transactions between the companies were not put before a general meeting or disclosed to all the members of Nobule Pty Ltd. 8. The Master erred in failing to draw any adverse inference against the defendants from the fact that invoice books which recorded the sales by Nobule Pty Ltd to Boulevarde Shoe Store Pty Ltd were lost or otherwise not available to the Court. 9. The Master, in reaching his conclusions, failed to consider or give any weight to evidence that: (a) separate invoice books were kept in relation to the sales made by Nobule Pty Ltd to Boulevard Shoe Store Pty Ltd; (b) most of the invoice books which recorded sales by Nobule Pty Ltd to the Boulevard Shoe Store were "lost"; (c) in the year ended 30 June 1984 Nobule Pty Ltd's sales as shown on its tax return are $25,916.52 less than the total of invoices issued in that year, an understatement of sales of 15%; (d) in the year ended 30 June 1987 Nobule Pty Ltd's sales as shown on its tax return are $17,469.23 less than the total of invoices issued in that year, an understatement of sales of 16%; (e) in the year ended 30 June 1989 Nobule Pty Ltd's sales as shown on its tax return are $28,033.20 less than the total of invoices issued in that year, an understatement of sales of 14%; (f) the sales by Nobule Pty Ltd to Boulevarde Shoe Store Pty Ltd recorded in the books of the companies, both in actual and percentage terms, fluctuated wildly from year to year. 10. The Master failed to consider or give any weight to the conflict between the evidence of Phillip Zagame that:- (a) as production increased over the years, more shoes were taken every year by Boulevarde Shoe Store Pty Ltd; and (b) there were no wild fluctuations in the proportion of Nobule Pty Ltd's production taken by Boulevarde Shoe Store Pty Ltd each year from 1985 to 1990 and the objective documentary evidence that the recorded sales of shoes by Nobule Pty Limited to Boulevarde Shoe Store Pty Ltd between 1983 and 1990 fluctuated between 0.3% and 63% of Nobule Pty Ltd's total sales. 11. In light of the evidence, the Master should have found that:- (a) the financial statements of Nobule Pty Ltd from 1983 to 1990 did not accurately reflect its financial affairs over that period; (b) there were sales made by Nobule Pty Ltd to Boulevarde Shoe Store Pty Ltd from 1983 to 1990 which were not recorded in the books and records of Nobule Pty Ltd; (c) Boulevarde Shoe Store Pty Ltd did not pay for all shoes it purchased from Nobule Pty Ltd from 1983 to 1990; and (d) loans made by Boulevarde Shoe Store Pty Ltd to Nobule Pty Ltd from 1983 to 1990 were not legitimate loans but were payments for stock. 12. The Master erred in adopting the methodology and calculations of the defendants' expert in circumstances where the financial statements upon which the methodology and calculations were based did not accurately reflect Nobule Pty Limited's financial affairs over the relevant period. 13. In the circumstances, the Master should have adopted the methodology and calculations of the plaintiff's expert, whose valuation proceeded on assumptions as to oppression established by the evidence. 14. The Master, in coming to his conclusion that the value of the plaintiff's shares in Nobule Pty Ltd as at 16 July 1986 was nil, did not have regard to the uncontradicted evidence that in July 1986 Robert Zagame (Snr) offered to purchase the plaintiffs' shares in Nobule Pty Ltd for $30,000.00.

Of these ground 7 can be disregarded and ground 14 does not carry the matter any further, the offer not being accepted and it being clearly an offer made to get rid of the plaintiffs from the company. It will also be appreciated that many grounds extend to factual matters beyond 16 July 1986, which could not be relevant unless they went to show a continuing course of oppression from which an inference of past oppression could somehow be drawn. The case put forward on appeal was that the Master erred in his findings on the matters I have set out in paragraph 7.

Loan Accounts 12 It is convenient to deal with the allegations about the loan accounts and the closing stock first. The balance sheet for 30 June 1986 showed Nobule having liabilities to shareholders of $119,725.19. Mr Fehon identified loans totalling $230,759.33 claimed to have been made presumably since incorporation by Boulevarde or Zagame interests to Nobule. Apart from $20,000 he did not accept any of these. He did not accept there was an offset account so that amounts due for shoes were debited against the loan accounts and he did not accept the loans as genuine. He gave various reasons for this, most of which were no more than matters he thought raised some suspicions. In essence he did not accept the loan account as genuine, because the loans were not proved to be genuine and until they were he thought they should be written out. In fact the evidence of Mr Ross, accepted by the Master, was that there was an offsetting account, so that purchases of shoes were debited to the loan account of Boulevarde with Nobule and that so far as they were challenged, advances were made by Boulevarde to Nobule or payments were made on its behalf, all properly brought to account by way of book entries. It is important to understand that the Master found that Mr Fehon had no credibility whatsoever as an expert witness. There was clearly proper ground for that finding. Once the adding back by Mr Fehon of these liabilities he did not accept is set aside, then his valuation of the company on the basis of net tangible assets falls to the ground. But it does so even more when his adding in a figure of $30,000 being for goodwill of Gaucho Shoes is set aside, the Master quite rightly having rejected that figure or its basis or, more properly, its lack of basis. The simple fact is that there was no evidence that the loan accounts were not genuine, nor was there any evidence which established that adjustments were made to the loan account, not through offsetting sales by Nobule to Boulevarde against Nobule's liability to Boulevarde in that loan account but as a false recording of purchase moneys as loans. Manipulation of closing stock 13 It is not at all clear under what ground of appeal this is brought, but probably it is thought to be covered by the allegation of unrecorded sales by Nobule to Boulevarde. As will have been seen from the notice of appeal, many of the matters referred to and complained about in the Master's findings relate to the period after 1986 which is really irrelevant in view of that having been determined as the valuation date. Nevertheless assuming that this claim is still made, it apparently is made on the basis that if the closing stock is understated then the profit is less than it otherwise would be, and the stock not brought to account can be siphoned off to unrecorded sales. The Master dealt with claims of manipulation of closing stock figures for Boulevarde at 30 June 1991, and Nobule at 30 June 1988. The first figure must be irrelevant unless there was said to show some course of conduct about manipulation of figures and in any event it related to Boulevarde's closing figures. In the same way the 1988 figures were irrelevant. While some careful written submissions were devoted to this to show what could be achieved for taxation purposes by understating closing stock, there is no evidence whatever to support the allegation that manipulation took place, and the two dates which appear to have been relied on were irrelevant to the determination of the question at hand. The findings of the Master were open to him. Indicators of fraud may lead to evidence of fraud. Wild swings in cost of goods produced as against sales do not without more, particularly in the way the evidence was adduced, establish fraud. I consider the Master was correct.

Claims that sales are not brought to account 14 This is the main claim of the plaintiffs. To some extent its strength is reduced after the finding of the existence of the offset account and movements in the loan account of Boulevarde to take into account purchases by Boulevarde. There were some strange submissions before the Master and on appeal as to motive and the attractiveness of unrecorded cash transactions. Evidence of motive is relevant to connect someone with a particular event, it cannot prove an event occurred, namely the event that Boulevarde took shoes which were not brought to account. What is really being alleged under this head is that (a) Nobule sold goods to Boulevarde for less than their market value; (b) that Boulevarde has taken shoes from Nobule without payment. It is not particularly clear from paragraph 23 of the statement of claim that this is the real claim, but that is certainly the claim made before the Master and before me. So far as goods being sold at less than market value is concerned, if that somehow falls within the grounds of appeal then it is not made out. The discounts made available to Boulevarde were not out of kilter with those available to other purchasers. There is no evidence of sales at some unnecessarily low price. I thus turn to the ground of unrecorded sales, which as far as I can see, is no different from an allegation of stolen stock. 15 Mr Fehon in his valuation based on capitalisation of profits as at 16 July 1996, did not work on the basis of unrecorded profits arising from unrecorded sales. All his comments and inferences about unrecorded sales relate to the value in 1989. In fact the appellants in their notice of appeal seek to have the shares valued as Mr Fehon valued them as at I July 1986. While he took an average of the value he arrived at on a capitalisation of profits basis and the figure he arrived at on a net assets valuation, the former accepted the profit and loss account for 1985. All of the evidence of Mr Fehon as to undisclosed sales related to his valuation at 30 June 1989. There was affidavit evidence of Mr Ledesma of shoes being taken by Robert junior and Phillip, sometimes without notes being left as to this, but there is no direct evidence that these matters were not brought to account. In the long run the appellant's case before me as to unrecorded sales was based upon inferences to be drawn from non-production of sales invoice books and cross-examination of Phillip. Grounds of appeal 8, 9 and 10 are relevant. It is claimed that Phillip admitted that Boulevarde took fifty percent of the shoes manufactured by Nobule over a period from 1982 on. Although Phillip had been found by the Master to be a witness whose evidence was totally unreliable, the particular passage relied upon by the appellants will have to be set out. The reason for this is that certain exhibits (P and Q) which contained analyses said to be significant in indicating sources of potential wrongdoing in a company's financial affairs do no more than point out problem areas. An indication that there may be something wrong with company accounts is not evidence that there is something wrong with those accounts without more. The evidence relied upon beginning at TP 419 is as follows: Q: You became even more interested after 1985 in relation to the sales that Nobule would make, for example? A: Yes.

Q: In relation to who it was selling to? A: Not necessarily as long as the sales were achieved. Q: But you certainly knew roughly what sort of number of shoes in dollar terms it was selling each year to the Boulevard, didn't you? A: Yep. Q: From that knowledge of both Nobule's operations and the Boulevard's operations -- A: Yes Q -- you would have been able to roughly estimate what proportion of Nobule's production was being taken by Boulevard each year? A: Yes, I could have. Q: Would it be fair to say that if you just cast your mind back to 1990, that the Boulevard took a certain percentage of Nobule's production that year? A: 1990, yeah. Q: And in 1989 a similar percentage? A: I don't know about a similar percentage but I would - yeah, could have been more, could have been less, I don't know. Q: We are not talking about wild fluctuations -- A: No. Q: -- are we? A: I don't think so. Q: And similarly, 1988? A: Yeah. Q: 1987? A: Yes. Q: 1986? A: Mmm. Q: And 1985? A: Yes. Q: So that during the years, financial years from 1985 through to, say, 1990, the Boulevard Shoe Store would purchase approximately a similar percentage of Nobule's production, is that right? A: It's a bit hard to judge really because there were seasons that you would buy more and seasons that you would buy less. If the goods were selling, you'd buy more; if they weren't selling, you'd by less. Q: That would account for the fluctuation of 10 percent or more, but not less, would you expect? A: Oh, could be more, could be more with any manufacturer. Q: Are you able to give us an estimate in your opinion for the financial year, the year ending 30 June 1995 [sic but mistake for 1985], of the percentage or proportion of Nobule's production of shoes that was taken by the Boulevard? A: No idea. Q: Would it be 0.1 percent? A: No, it would be more than that. Q: Would it be 99 percent? A: No way. Q: Now you must have some idea, being involved with both companies? A: That was the early days, 85, I really don't know what percentage. Q: Let's try the other end, 1990, for example. During the year ended 30 June 1990, are you able to give us a rough estimation as to your opinion of the percentage of Nobule's production purchased by Boulevard? A: No, I don't know. Q: Would it be 1 percent? A: I really don't know. It would be more than 1, have to be. Q: Could it be 50 percent? A: I don't think so. Q: Now I will just show you from the bar table a computer print-out? A: Mmm. Q: Which has as its first page a heading, "The Boulevard Shoe Store Proprietary Limited" and it is dated 11/11/1988. Have you seen that bundle of computer print-outs before? A: Briefly, yes. Q: Are you able to tell the court that this green folder that I am holding that contains the computer print-out contains the Boulevard Shoe Store Proprietary Limited annual trial balances? A: I think it would. Q: Also it's[sic] annual general ledger? A: I think so too. Q: If I was to suggest to you that in the year ended 30 June 1988 that the Boulevard Shoe Store Proprietary Limited purchased a total of $102,767.60 work [sic] of stock from Nobule, would you agree with that? A: In 19?. Q: 1988. A: Off the top of my head I can't remember. Q: (Counsel approach.) I show you page 20 of the computer print-out that I have earlier held up for you? A: Yeah. Q: You see there that is the annual general ledger of the Boulevard Shoe Store Proprietary Limited from 1 July 1987 to 30 June 1988? A: Yes. Q: Do you see there that there is an entry, 30/6/88? A: Yes. Q: And next to that entry is the letter, "J"? A: Yes. Q: You understand that to refer to journal? A: Now I do, yeah. Q: You see there next to the number "62" are the words under the heading, "Nobule Proprietary Limited"? A: Yes. Q: "Purchased from Nobule 102,767.50? A: Yes. Q: You understand that to mean that in the financial year ending 30 June 1988, the Boulevard Shoe Store purchased $102,767.50 worth of stock from Nobule? A: I presume so. Q: If I was to tell you that in 1988 the total sales for the Boulevard Shoe Store were $205,865, would you agree that Nobule supplied about 50 percent of the Boulevard's total sales for that particular financial year? A: Going by that figure, yes. Q: You have no reason to doubt what I have put to you as being correct, do you? A: Well no, not really. Q: I show you another page from that same bundle of computer print-outs. You will see that that page is dated 18/10/91? A: Yes. Q: You will see that that is headed, "The Boulevard Shoe Store Proprietary Limited"? A: Yes. Q: "Page 19 annual general ledger"? A: Mmm. Q: You will that purports to be the annual general ledger from 1 July 1989 to 30 June 1990? A: Yes. Q: Do you tell this court that the figures contained in this document are accurate to the best of your knowledge? A: To the best of my knowledge yes. Q: And they are figures upon which you as a director of the company rely? A: Mmm. Q: Now those figures show, do they not, that for the year ended 30 June 1990, that there were purchases from Nobule of $136,091? A: Yeah, that's what it says. Q: That is true, isn't it? A: I presume it would have to be true. Q: If you can accept from me that the total sales made by Nobule for the year ended 30 June 1990 was $213,712.60 -- A: Mmm. Q: -- do you agree that the Boulevard purchased approximately 63 percent of Nobule's production in that financial year? A: Yes. Q: I am not certain whether when I asked you percentages previously I might have misplaced the various companies. A: Yeah, Mmm. Q: I will put that again to you. If you accept that Nobule's total sales for the year ended 30 June 1988 were $205,865, then do you accept that the purchases made by the Boulevard of $102,767.50 comprise roughly 50 percent of Nobule's production? A: Yes. Q: So it is clear, isn't it, that in the years 1988 and 1990 that the Boulevard Shoe Store was purchasing at least half of Nobule's annual production? A: Yes. Q: That is a situation that had been occurring for some time, wasn't it? A: No. Q: But didn't you tell me before that when I took you back from 1990 through to 1985, you said roughly they purchased the same percentage, that is the Boulevard would purchase the same percentage -- A: Yes. Q: -- of Nobule's production each year from 85 through to 1990? A: I said roughly. Q: That's what you said? A: I said roughly. Q: Now you see that it was as high as 63 percent in 1990, wasn't it? A: It was. Q: It was as high as 50 percent in 1988? A: Yes. 16 The plaintiff/appellants' case as to sales not paid for or recorded or stolen stock really depends upon a finding that this passage contains an admission by Phillip that from 1985 on, the proportion of shoes sold by Nobule to Boulevarde in relation to total sales of Nobule was about 50 percent. I do not think the passage goes so far. It does in some way involve an acceptance of the figures of 1988, 1989 and 1990 which, according to the plaintiff, are incorrect as well. But leaving that aside, this evidence of a totally unreliable witness is in no way sufficiently certain to justify the conclusions the appellants claim from it. 17 I have endeavoured to deal with the matters which were argued by the solicitor for the appellants. In his careful argument I think that he put forward everything that could possibly have been put forward on behalf of the appellants. One cannot help being sympathetic towards them as it was I think never expected that the result the Master came to would be the result. However, it does seem to me that a lot of the argument put forward went to matters which might have been relevant had the valuation been required at the later date; and in fact it should be said that insofar as it relied on "wild fluctuations" to some extent the argument was based upon the later figures of Boulevarde purchases from Nobule as being correct. 18 It would, I think, have been possible to dispose of the appeal in the following way:

The valuation for which the appellants contended before the Master, and before me, was that of Mr Fehon.

On the basis of capitalisation of profits of future maintainable earnings that valuation was flawed, first because it was based on one year only; and second because the basis on which the 1986 figures were disregarded was found to have no foundation. On the basis of valuation by net asset value that valuation was flawed in its deleting the loan accounts from the balance sheet liabilities and including an unestablished figure for goodwill. It followed that on any averaging of those two figures was flawed.

On the basis of the accounts figures these was no fault in the decision of the Master to accept the evidence of Mr Bryant that the shares had no value. In fact I do not think any other conclusion was open to him.

Exhibits P, Q and R did no more than indicate a possibility of fraud through "sales" not brought to account. Without the matters in those exhibits ever having been put to the plaintiffs' witnesses or the defendants' witnesses, other than Mr Ross, they could not establish the fraud alleged without more.

While the evidence of lost invoice books and the obvious error in the sales to Boulevarde for the year ended 30 June 1997, and the variations in the yearly sales figures, could give rise to suspicion, the finding of the Master that the fraud or acts of oppression claimed in respect of sales or removal of stock were not established was clearly open to him.

There is no evidence on which the court could reach a different conclusion as to value. In other words the voluminous schedules put forward in argument would not enable me to reach some conclusion of my own if I considered both Mr Fehon and Mr Bryant to be incorrect and considered that the plaintiffs had established some oppression. Any conclusion could only be arrived at by guesswork. 19 In spite of what is said in the preceding paragraph I have endeavoured to deal with the appellants' argument in more detail. There can be no doubt that there was ground to view the published accounts with suspicion. However, there is no basis to suggest the Master did not consider the evidence properly in arriving at his conclusions. Schedules provided for argument cannot become evidence particularly if the opposing witnesses were given no opportunity to explain them in cross-examination. All that could be said on the appeal was I think said. 20 The appeal should be dismissed with costs.

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