Plaintiff v Defendants [2021] VSC 416 | Case summary

Plaintiff v Defendants [2021] VSC 416 | Case summary | Zoe

[37]

(a) The first to fifth defendants are the Plus Entities, and the second, third and fourth defendants and are the Principal Plus Entities, in respect of which YSPL's shares were transferred.

(b) YSPL alleges oppression in respect of the first defendant Plus International, and seeks orders, pursuant to s 233 of the Act, that Briggs Nominees (the sixth defendant, a company controlled by Briggs) and Strunz Nominees (the seventh defendant, a company controlled by Strunz), who are, together, the other shareholders of Plus International, purchase YSPL's shares in Plus International, and that Plus Melbourne, Plus Sydney, Strunz Nominees and Briggs Nominees (together, the other unitholders in the Plus International Trust) purchase YSPL's units in the Plus International Trust;

(c) YSPL alleges oppression in respect of the second defendant, Plus Melbourne, and seeks orders, pursuant to s 233 of the Act, that certain other holders of ordinary shares in Plus Melbourne, namely, Briggs Nominees,[13] Strunz Nominees,[14] Family Clep Pty Ltd (a company controlled by Justin)[15] and Monster Architecture Pty Ltd (a company controlled by Liew)[16] purchase its shares in Plus Melbourne at a value to be determined by the Court;[17]

(d) YSPL alleges oppression in respect of the third defendant, Plus Sydney, and seeks orders, pursuant to s 233 of the Act, that the holders of ordinary shares in Plus Sydney, namely Briggs Nominees, Ormond SSFM Pty Ltd (a company controlled by Strunz),[18] Julka Nominee Pty Ltd (a company controlled by Julka)[19] and Pin Design Pty Ltd (a company controlled by Pin) purchase YSPL's shares in Plus Sydney at a value to be determined by the Court;

(e) YSPL alleges oppression in respect of the fourth defendant, Plus Brisbane, and seeks orders, pursuant to s 233 of the Act, that certain other shareholders of Plus Brisbane, namely Briggs Nominees, Ormond SSFM Pty Ltd and Bright Young Things Projects Pty Ltd (a company controlled by Juric) purchase YSPL's shares in Plus Brisbane.[20]

[49]

(b) At a minimum, the statutory phrase 'oppressive to, unfairly prejudicial or unfairly discriminatory against' imports a standard of unfairness to the evaluative determination whether conduct is oppressive.[26] Whether conduct is relevantly unfair is a question of fact and degree, and is to be judged objectively.[27]

(c) Commercial unfairness may assume many forms. It might inhere in the harm suffered by the conduct, the lack of reasonable commercial justification for the course taken, or in the character of the decision making process itself.[28] That is not say that any decision by directors which might affect the interests of a shareholder adversely is to be considered oppressive, unless it was one that no reasonable directors could have made.[29]

(d) Sections 232 and 233 are to be read broadly. Reference to decided cases may helpfully expose how the statutory concept of oppression is to be understood, but as French CJ said in Campbell v Backoffice Investments Pty Ltd (Campbell v Backoffice), '[t]he imposition of judge-made limitations on their scope is to be approached with caution'.[30]

(e) The conduct of a company's affairs may be unfair notwithstanding that the relevant directors did not hold any particular state of mind or intent and the operation of s 232 may be attracted to a decision made in good faith and for a purpose within power, but which reasonable directors would think unfair.[31] Nor is it to be supposed that there cannot be oppression 'on the part of one who thinks that he or she is acting rightly'.[32]

(f) YSPL relied upon the decision of Byrne J in Re George Raymond Pty Ltd; Salter v Gilbertson, for the proposition that the fact that the conduct in question was engaged in bona fide and even on legal or other advice, is no defence to an allegation of oppression.[33] While that statement of principle is undoubtedly correct, taken out of context it tends to obscure the nature of the relevant inquiry. A finding of oppression involves an evaluative judgment, taking into account all the circumstances of the particular case. Indeed as Byrne J also said, '[t]his does not mean that the honesty or probity of the majority is to be ignored'.[34] While the absence of dishonesty is no answer by itself, to a claim of oppression, it may also be a factor to take into consideration. Proof of intent on behalf of the alleged oppressor is neither required, nor necessarily irrelevant, to the inquiry.

(g) In analysing the conduct the subject of a claim, it is relevant to consider the course of conduct taken by the parties, including any relevant conduct of the plaintiff.[35]

(h) The Court will not lightly interfere with the traditional roles of directors and shareholders in the management of a company;[36] the Court must avoid an unwarranted assumption of the responsibility for management of the company.[37]

(i) The defendants submitted that, 'actions taken by a corporation in accordance with a company's constitution would rarely support an oppression claim, save where some improper or objectionable exercise of discretion occurred' relying upon the decision of Beach J of the Federal Court in Donaldson v Natural Springs Australia Limited (Donaldson).[38] Further, relying on the reasoning of Ferguson J in Arhanghelschi v Ussher (Arhanghelschi),[39] the defendants said that that principle also applied to any action taken by a corporation in compliance with a shareholders agreement. That submission was put too highly. In Donaldson, Beach J did not set down a general proposition. Rather, his Honour distinguished between those cases in which an action was taken by a corporation pursuant to a discretionary power exercisable under the constitution, and a power that was required to be exercised by the corporation under the constitution; in the former scenario Beach J found that 'its exercise (or failure to exercise) in a particular way may enliven s 232', but in the latter scenario, where there was no discretion and the company was obliged by its constitution to act in a certain manner, Beach J said that it was difficult to see how the conduct could enliven s 232.[40] This case is one in which actions were taken by directors of each of the Plus entities pursuant to discretionary powers found in each of the shareholders agreements. As such (and if it be the submission advanced), it is inappropriate to approach the inquiry required by s 232 from the presumptive position that any action taken in accordance with the terms of the shareholders agreements regulating the exercise of the discretionary power will be taken not to be oppressive, unless there is some degree of impropriety in the exercise of that power.

(j) However, as the reasoning of Arhanghelschi illustrates, the existence of terms in a shareholders agreement, voluntarily agreed upon by all parties, empowering certain shareholders or directors to take action, is a relevant factor to take into account when assessing the commercial unfairness of the impugned conduct.[41] In that case, the fact that the aggrieved party had agreed to the terms of the unitholders deed (which included provisions which regulated the manner in which a unitholder's interest would be acquired upon their exit, voluntary or otherwise, from the business) was found to be factor to which a reasonable director would have regard when assessing whether the conduct was commercially unfair. Indeed, Ferguson J found that the plaintiff was relevantly aware that pursuant to terms of the deed the 'majority would govern' in the event the relevant clauses were invoked.[42] The existence of a discretionary power pursuant to a shareholders agreement to engage in conduct is not, on its own, an answer to the question whether that conduct is oppressive; but, as the reasoning in Arhanghelschi elucidates, it is a highly relevant circumstance, in the matrix of circumstances, that informs how a reasonable commercial bystander would assess commercial unfairness.

(k) YSPL submitted that the factors, as outlined in s 387 of the Fair Work Act 2009 (Cth), to which regard must be had by the Fair Work Commission when determining whether a dismissal was an unfair dismissal, could usefully inform the understanding of commercial unfairness where a claim of oppression involves the dismissal of a plaintiff or plaintiff shareholder's principal, because those standards are the expectations set down by Parliament to govern workplaces in Australia. Accordingly, YSPL submitted, they form part of the factual landscape in which to assess what a reasonable director would find fair. I accept that the factors to be considered by the Fair Work Commission when determining whether a dismissal was unfair might be relevant to determining the standard of commercial unfairness that constitutes oppressive conduct in some contexts, but analogy to unfair dismissal principles in the current case is inapt. This claim was not brought by Yelland in his personal capacity as an employee of Plus, but through his company YSPL. The conduct complained of was not the fact of Yelland's exit from Plus Architecture but rather the manner in which YSPL's shares were acquired upon Yelland's exit from Plus Architecture. Indeed, YSPL was at pains to stress that Yelland resigned voluntarily, both as a director and then as an employee. Unfair dismissal laws are designed to provide redress to employees who would otherwise have little bargaining power, and few avenues to challenge the termination of their employment. In this case Yelland, while technically an employee, was one of the senior directors of the companies, whose relationship with each company was governed by a voluntarily negotiated shareholders agreement.

(l) If a court determines that the grounds for making an order pursuant to s 233 (as set out in s 232) have been satisfied, s 233 confers on the court broad powers to fashion orders that cure or terminate the oppressive conduct, or compensate the wronged party for any loss occasioned by that conduct.

(m) In assessing whether orders should be made pursuant to s 233(1)(e) requiring the purchase of shares from a member (and, relatedly, in determining the price to be paid for any such shares) the Court must be guided by the principle that the price to be paid is compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct).[43] The purpose of granting relief pursuant to s 233 is to remedy, or compensate for loss occasioned by, the conduct considered oppressive for the purposes of s 232(e). As such, it is permissible that the price to be paid for an aggrieved party's shares pursuant to such an order does not reflect their real or actual worth and that the price to be paid may be adjusted to reflect the value the shares would have had but for the oppressive conduct.[44]

(n) Consistently with the compensatory principle, if the aggrieved party has not suffered any loss as a result of the oppressive conduct, the Court may exercise its discretion not to make any award at all.[45]

(o) While the Court's power to order relief is not conditional on the existence of ongoing oppressive conduct, the absence of continuing oppression may indicate that the awarding of relief is not an appropriate exercise of discretion.[46]

[151]

(a) On a question of existential import for a professional services business that had been run as a quasi-partnership - namely who was to be brought into the business and on what basis - the key players were irretrievably divided.

(b) That question was not academic. The rancorous dispute over Liew exemplified its importance. All players regarded it as of the utmost importance.

(c) On this issue Yelland had departed from an agreed position in respect of Liew, to which Plus Melbourne and its directors, including Yelland, had committed.

(d) I accept that Yelland changed his mind about Liew and that by 2016 he believed that Liew's abilities to manage staff were sub-standard. I accept that Yelland held that belief and that he preferred other candidates for equity participation. Yelland's criticisms of Liew, however, were exaggerated at the time and admitted by Yelland in evidence to have been exaggerated in some important respects including on the question of Liew's ability to win work and her contribution as a board member. Yelland's vociferous opposition to Liew was strongly tied to, and likely driven by, his vision of the business's future, which was one in which he (and Strunz and Briggs) would maintain significant shareholdings until retirement, with aspirants to equity like Liew, held at a low percentage for years. Regardless of what motivated Yelland, the fact was that Briggs and Strunz regarded his change of position a serious betrayal, and they, reasonably in my view, were concerned about the impact that the dispute was having on Liew, who was on any objective measure, a significant contributor to the Plus Melbourne business.

(e) Yelland's falling out with Liew had in fact adversely affected Liew personally, to the extent that she had had sought professional help and had contemplated resigning from Plus.

(f) Justin had been a trusted adviser to Briggs, Strunz and Yelland for a long period but had been sidelined from the business by Yelland. Yelland's falling out with Justin, in turn, seriously damaged his relationship with Strunz.

(g) Both Strunz and Justin considered that Yelland had bullied them and behaved aggressively and inappropriately towards them and they each expressed their views to that effect in contemporaneous communications with Yelland.

(h) By the second half of 2017, Strunz and Yelland were no longer speaking and Strunz had physically positioned his desk away from Yelland in order not to be near him. He wished not to speak to Yelland without another person being present.

(i) Yelland had demonstrated a willingness to aggressively pursue his agenda in relation to business decisions in relation to which he was not in agreement with the other directors. It was not contested that Yelland had his own commercial and articulated reasons for the positions he advanced. It was not put that Yelland's business positions were irrational or inherently unsound. But the manner in which he advanced his preferences was, on a number of significant matters, aggressive, abrasive and dogged. Yelland's actions, and the evidence he gave about his actions (for example, in relation to his attempt to persuade Justin that Liew should not take up more shares; his efforts to rein in the brand refresh project; his communications with Liew; and his removal of Justin from participation in directors and company meetings) revealed that he was prepared to advance his agendas regardless of the impact that his actions had on the relationships between himself and Briggs, Strunz, Justin or Liew. He did not appear to stop and reflect on how that mode of operating might affect the ability of the business that had functioned as a quasi-partnership to work effectively and without hostility.

(j) Yelland had strong relationships with many younger staff within Plus. He did, however, behave towards McArthur in a way that was bullying and intimidatory. He casually threatened another member of staff with 'sacking'. Yelland's evidence about his communication with Liew, Shilton and McArthur revealed that at times, he lacked insight into, or alternatively lacked a preparedness to take into account, how his behaviour would be received by and impact on those around him, including staff who were junior to him. Strunz, Briggs and Liew had concerns about Yelland's relationships with staff, which I consider they genuinely and reasonably held.

(k) By September 2017 the relationship between Briggs, Strunz and Yelland had irretrievably broken down. Yelland had substantially contributed to the breakdown.

(l) Yelland's evidence was that in his opinion the business was unaffected despite the 'horrible' behind-closed-doors negotiations between the partners. That opinion, taken at face value, may have reflected his preparedness to engage in a conflict, and serious conflict if need be, in order to reach outcomes and make decisions. As that perspective would have it, a significant breakdown in central relationships and the repeated occurrence of conflict over matters of importance was not a reason to conclude that the business was anything other than perfectly functional. Briggs and Strunz did not share that assessment. In my view, although Yelland was evidently prepared to engage in and tolerate ongoing and escalating levels of conflict, his evidence that the business was unaffected by the disputes between the partners was superficial and unrealistic, at best. In fact, although the business was continuing to operate, the ability of its leaders to genuinely plan for the future was stymied, and on some important practical and structural issues (staff promotion, expansion, premises for Plus Melbourne) decisions were impeded. Yelland's characterisation of the dispute between the senior partners ignored the obvious problem that where there were differences of view, there was no properly functioning path for decision making. If Yelland genuinely held the view that the business could continue to operate unaffected, where the relationship between the senior partners was toxic and no longer functional, it was a distinctly uncommercial view, and focused on his own interests.

[203]

153 As noted earlier, Briggs considered that by September 2017 his relationship with Yelland had broken down. That position had not changed by 2 November. On his evidence, his decision to propose and then vote in favour of the Termination Resolutions was informed by several factors. There had been over a year of unsuccessful negotiations in relation to which his perception was that Yelland rebuffed positions put by Briggs and Strunz, or moved the goalposts. Briggs and Strunz had significant strategic goals for the company that he considered were not being realised. Briggs also considered that Yelland's presence was becoming detrimental to staff members, especially McArthur. He observed that Strunz began to feel bullied himself, to the point where he was no longer able to have a conversation with Yelland unless Briggs or Liew was present. Briggs had understood on 15 September 2017 that Yelland had wanted them to tell the other directors that he was leaving. However, they received Yelland's 16 September email, 'complaining that we had told the other directors that he had left and he proposed that he wasn't leaving'. This led, eventually, to the meeting at which, as Briggs perceived it, Yelland was proposing an unaffordable resolution to his share purchase price. Briggs considered that there was no way they could reach agreement as to the terms of Yelland's exit. I accept that Briggs held the view that an agreement on the financial terms of Yelland's exit was not realistically achievable. That conclusion, regarding Brigg's perception, is readily open notwithstanding that it cannot be concluded what Yelland might have accepted for his shares had different events transpired, whatever those events might have been. It was not put to Briggs (or to Strunz or Liew) that he ought to have considered Yelland's position in respect of the price for his shares, reasonable. No facts regarding Yelland's position concerning the price for his shares were put to Briggs (or to Strunz or to Liew).

[233]

180 Julka's evidence about his reasoning process was that he voted to support the resolutions because he considered that the exit of Liew, Briggs and Strunz would have a much bigger negative impact on Plus Sydney than Yelland's departure. In relation to the possible exit of the other partners, Julka considered that Strunz was integral to the furthering of their reputation in relation to the quality of their work and Briggs had already been part of the design team for a couple of projects based in Sydney. Briggs' value to Sydney was in design, and Strunz's was in the delivery and quality of documentation. Liew had been helpful in approaching Chinese and Asian clients and establishing introductions with them. Strunz had won a big project for Sydney in conjunction with Julka. The Sydney partners were securing projects for Sydney (the contribution of the legacy partners should not be overstated). Julka considered that Plus Melbourne would have been very significantly impacted by Liew, Strunz or Briggs leaving, and his opinion was that it would have been a fatal blow to Plus Melbourne which would have had a ripple effect to each of the other offices. National clients worked across States, and a severe impact on the Melbourne office would have affected the overall reputation of the Plus Architecture business. Julka considered that national clients were quite risk averse and would probably have thought twice about giving work to Plus Sydney in the event of the Melbourne practice being severely impacted or folding. Although he respected Yelland's mentorship and had known him for a long time, he considered that losing Strunz and Briggs would be a material and unrecoverable loss for Plus Melbourne, which would potentially lead to it ceasing to operate and destabilising the viability of the other entities operating under the Plus brand, in particular Plus Sydney. His appreciation for Yelland's mentorship was reflected in a text message about Yelland's leaving the company in which he said he was saddened and shocked. Julka's evidence about his reasoning process in this respect was not challenged.

[312]

Robins QC: Do you recollect going to Ms McArthur's workstation, leaning over her, and saying in a threatening manner, 'I'm going to sue you too.', or words to that effect?

Witness (Yelland): No.

Robins QC: And did you add, 'As a friend, I advise you to drop the word "director" from your title, because I'd hate to have to sue you.' Do you remember saying something along those lines to Ms McArthur?

Witness (Yelland): Sorry, your first question was whether I did something, and my answer was, no. Your second question was then to extend on that, which I'd already said no to. So you would have to rephrase your question, Mr Robbins.

Robins QC: Answer the question, Mr Yelland. Did you say to Ms McArthur, in or about early November 2017, 'As a friend, I advise you to drop the word "director" from your title, because I'd hate to have to sue you too.'?

Witness (Yelland): Um, they're not my exact words.

Robins QC: So you said something very similar to that effect?

Witness (Yelland): I said to her that I didn't want her - I wanted her to drop the title. I recommended that she drop the title. At the time, I thought that she might get stuck up. Not that I would sue her; that she might in some way, um, be implicated in this proceeding. That was my understanding, because she was calling herself a director. She might be referred to as a de facto director, and that I didn't want her to get involved in any of this, and I calmly went to Ms McArthur, sat down next to her, and told her that I suggest she - you drop the title of director. I don't want you to be caught up in all of this. It was a friendly recommendation.

Robins QC: That was friendly, was it?

Witness (Yelland): Yes. To sit down calmly next to somebody and recommend that they change their title so that they don't get wrapped up in something inadvertently is a friendly thing to do.

...

Robins QC: Your point at that time was to try and terrify Ms McArthur, wasn't it, Mr Yelland?

Witness (Yelland): No.

Robins QC: As you'd indeed terrified Ms McArthur in the final months leading to the resolutions on 2 November 2017, didn't you, Mr Yelland?

Witness (Yelland): No.

[350]

(a) Clause 10(c) provides that where a director resigns, is required to resign, is terminated as a director of the company, dies or suffers a total and permanent disability, their nominated shareholder shall be deemed to have served a transfer notice in respect of their shares, which cannot be withdrawn. Accordingly, whether the correct conclusion was that Yelland resigned with effect from 12 October 2017 or that he was terminated on 2 November 2017, YSPL was in either case deemed to have served a notice of transfer.

(b) Clause 11(c) provides that if a transfer notice is given or deemed to have been given, the value of the shares (for a transfer to another party or a buy-back of shares by the company) is to be determined in accordance with schedule 2A or schedule 2B. The schedules also apply where a shareholder has served a transfer notice because it wishes to sell some or all of its shares, and not just where a notice is deemed to have been served because a shareholder's associated director has resigned, died or is terminated.

(c) Schedule 2A applies where a director has died or is totally and permanently disabled and also where a director's resignation 'arises due to clause 10(a)' or 'satisfies the requirements of clause 10(a) and ... does not arise due to clause 10(b), or any other default or non-compliance with [the shareholders agreement]'[53] and accordingly, a shareholder 'does not have an associated director'.[54]

(d) Where a director dies or is totally and permanently disabled, the value of the shareholder's shares is the value of the amount payable under an insurance policy maintained by the company. Where the director's resignation has arisen under clause 10(a), the value of the shares is to be an amount 'determined annually by unanimous resolution of the shareholders'. Failing a unanimous resolution the relevant amount is to be determined by a suitable firm of independent accountants agreed to by a unanimous shareholders' resolution, or, failing that, by a suitable independent expert nominated by the Institute of Arbitrators and Mediators, and in accordance with the Institute of Arbitrators and Mediators Australia expert determination rules.

(e) Schedule 2B applies in all cases where schedule 2A does not. The value of the shares in that case is to be 70% of the value 'as determined by unanimous resolution of the shareholders' (or by the other methods as noted above).

[395]

309 I accept that in some contexts, for some purposes, it might be appropriate to distinguish between a power to make a decision by circular resolution (in writing, unanimously agreed) and a power to make a decision by resolution at a meeting of shareholders. However, in this context, if the description in clause 77, of the powers required to be exercised by the company ('in general meeting') is read as distinguishing between powers exercised by the members passing a resolution at a general meeting and powers exercised by the members passing a written resolution in accordance with clause 44, the effect of clause 77 would be to create two classes of powers exercisable by the members. On that reading, unless a power was required to be exercised at a general meeting and not permitted to be made by written resolution, it may be exercised by the directors. I can see no support in the constitution as a whole for drawing that distinction between members resolutions made in writing and those made at a general meeting. Reading clauses 77 and 44 together in that way is also, in this context, inconsistent with the purpose of clause 44, which is facilitative. It supplies a procedure by which a resolution may be passed by members without a meeting, by requiring instead that the resolution be in writing, signed and unanimous. By operation of s 249A(6) of the Act the passage of such a resolution satisfies any requirement of a company's constitution or the Act that the resolution be passed at a general meeting. The effect of clause 44 then, is to facilitate the passing of resolutions by the company's members in writing, which are to take effect as though they had been passed at a general meeting. That being so, it is difficult to discern in clause 77 an intention to treat differently members resolutions passed at a general meeting and members resolutions passed by the procedure provided in clause 44. Read contextually, the purpose of clause 77 (which substantively reflects s 198A(2) of the Act) is to recognise that the directors may exercise all of the powers of the company but to exclude those powers conferred by the constitution on members of the company.

[417]

(a) No unanimous resolutions were made at the relevant AGMs, at least not for the purposes of the schedules. The contention drew on both a process point (the process for making shareholder resolutions was not followed) and a purpose point (that circumstances would have to demonstrate that the valuation was accepted for the purposes of the schedules, and that the values agreed were intended to be used for that purpose, and they did not). Those points need to be understood together.

(b) Valuations were agreed at the AGMs but they were for a different purpose, namely obtaining insurance to facilitate the maintenance of insurance against the death or total and permanent disability of the directors (as required by clause 2(c)(ii)(A) of the SHA. In substance that clause required that insurance be obtained each year for a sum nominated by the company by way of ordinary resolution, which sum was to take into account the company's profit in the preceding year. Whilst it would be possible for a valuation to agreed or obtained for multiple purposes, it was necessary in order to fulfil the requirements set out in the schedules that the value of the shares be intentionally determined by the shareholders for the purposes of the schedules. While any resolution would not necessarily be required to make explicit reference to the schedules, the circumstances would have to demonstrate that the valuation was accepted for the purposes of the schedule. In fact, the valuations agreed at the AGMs were not within the contemplation of the meetings at the time for the purposes of determining the amount payable to a departing shareholder. There was no evidence that the agreed amounts were intended to be used for the purposes of valuing a departing shareholder's shares, or that they had ever been used in that way.

(c) Because, by the process contemplated by clause 10(c), a shareholder's property (a director's life's work) was being effectively expropriated, the schedules required a genuine commercial valuation**.** Although a commercial valuation was not expressly specified by the language of the schedules, the context required that the obligation to determine the value of the shares must be read in that way and it would be 'commercially unfair' not to do so. YSPL expressed this requirement variously - that the valuation be commercial; that it be an assessment of market value; that it be genuine; that it not be arbitrary. In his evidence, Yelland characterised the valuation exercises that had been undertaken as 'stabs in the dark', lay-person assessments undertaken to fulfil the companies' insurance related obligations. While YSPL did not contend that it was necessary for the shareholders to obtain an expert opinion as to value (unless they were relying on that part of the schedules that required an expert opinion failing a unanimous resolution, which they were not) it said that a genuine valuation process by the shareholders might have been evidenced by the provision of such material to the shareholders for their consideration in advance of the AGM. In fact, the agreed figures were simply rudimentary estimates of the companies' value, calculated by reference to 'un-normalised management accounts and an arbitrary multiplier'.

(d) Separately, YSPL said that the amounts agreed upon at the AGMs were artificially low values, that had been fixed that way for the purposes of purchasing insurance, and could not be regarded as genuine valuations for the purposes of the schedules.

(e) Although the circumstances relevant to each of Plus Melbourne, Sydney and Brisbane were slightly different, the same problems bedevilled the process in each case.

[418]

(a) For each AGM there was sufficient evidence that the shareholders had determined the value of the shares by unanimous resolution (in accordance with clause 1(i) sub-clause (i) of the schedule 2A or clause 1(a) of schedule 2B). A fair reading of the minutes, coupled with the unchallenged evidence of those present, was that each of the persons present expressed approval of the valuations and recorded that in the minutes. On the question of what process was necessary, as Mr Robins QC put it, the matter needs to be before the AGM and there needs to be, at the very least, an expression of adoption and approval by each of those present. That is a sufficient approval process to constitute a 'resolution' within the broad commercial meaning of schedules 2A and 2B of the shareholders agreement, and however the process occurred at the AGMs, it was sufficient for the purposes of schedules 2A and 2B when they are read in a commercial and businesslike fashion.

(b) They accepted that the valuations agreed at the Plus Melbourne, Sydney and Brisbane 2017 AGMs were undertaken, at least for Brisbane and Sydney, in part 'for the purposes of insurance', but it did not follow and nor was it the case that those valuations did not also appropriately and validly value the companies, including for the very purposes of the shareholders agreements. They were 'hybrid' or 'multipurpose' resolutions, which met the minimum requirements of clause 2(c)(ii)(A) and of schedules 2A and 2B. Save for bare references to 'insurance purposes' in the Brisbane and Sydney minutes, which references were not replicated in the valuations so adopted, there is no evidence that suggests the valuations adopted were agreed to on any basis other than they sought to appropriately value the companies, even if for several purposes, one of which included obtaining insurance.

(c) The 2017 determinations were in each case undertaken carefully in and keeping with a methodology that was understood and accepted within Plus Architecture. There was no documentary evidence suggesting that they purported to do anything other than appropriately value the company. They each occurred subsequent to Plus obtaining a valuation prepared by the Plus entities' accountant Marzano (in June 2017) and each adopted a higher multiple than the Marzano valuations.

(d) There was no basis to read the determinations as artificially low 'insurance valuations', because they were intended to fulfil the requirements of clause 2(c)(ii)(A). The purpose of the company obtaining insurance was to fairly compensate a director's family in the event that they died, and there was no reason to conclude that the directors or their nominated shareholders would seek to undervalue the amount of insurance cover that was obtained.

[420]

(a) First, the requirement is that an amount is to be determined annually. On the face of things there might be thought to be a disconnect between the requirement that an amount in respect of the value of share be determined annually, and the fact that the determination of the value of the departing shareholder's shares (i.e. a particular parcel of shares) will occur only once, when clause 10(c) has been engaged by the service of a notice of transfer. The defendants submitted that it was not necessary for the company to reach a value as to individual shareholders' shares, annually, and that from a determination of the value of the company as a whole, the value of the shares could be ascertained. YSPL did not contend that because an individual valuation of each shareholder's shares had not occurred, the requirements of schedules 2A and 2B had not been met.

(b) Secondly, the determination of a value of the shares, by the shareholders determining the 'amount' of the value of the shares, was required. Only in the alternative, failing a unanimous shareholders resolution as to the value of the shares, was the relevant amount to be determined by a suitable independent firm of accountants, selected by a unanimous shareholders resolution, or failing that, by a suitable independent expert nominated by the Institute of Arbitrators and Mediators, and then in accordance with the Institute of Arbitrators and Mediators Australia expert determination rules.

(c) Thirdly, the amount was to be determined by unanimous resolution of the shareholders. The question of resolutions is considered below.

(d) Fourthly, the purpose of a resolution made under schedule 2A clause 1(i) sub-clause (i)[82] (the relevant clause in this case), was to provide a mechanism for the shareholders to fix on a value for the purposes of the company acquiring, by transfer or buy-back, a shareholder's shares. As YSPL emphasised, and as discussed earlier, once a director resigned or was terminated, his or her entity's shares were deemed to have been the subject of an irrevocable transfer notice, and the mechanisms prescribed by the schedules applied automatically. That could occur in circumstances like the present, where a director was leaving the company having invested a long period of his career into building the business of the company. However, by clause 11(c) the valuation mechanisms in the schedules applied in any circumstance in which a transfer notice was served or deemed to have been served, including where any shareholder wished to sell some of its shares back to the company.

(e) Fifthly, it is relevant to note that schedule 2A applied not only to the valuation of the shares of a shareholder whose associated director had resigned, but where a director dies or is permanently disabled. In that case, the value of the amount payable in respect of those shares was to be the value of the amount payable under an insurance policy maintained by the company pursuant to clause 2(c)(ii)(A) of the SHA in respect of the relevant director, and where the policy had not been maintained the value was to be determined in the same way as the value of the shares of a director resigning under clause 10(a). Clause 2(c)(ii)(A) required that the company use its best endeavours to ensure that it kept insured each of the directors against death and permanent disablement, each year 'for a sum nominated by the company by way of ordinary resolution and which takes into account the company's profit in the preceding year'.

[433]

(a) Strunz's evidence was that annual valuations had been prepared for the purposes of obtaining adequate insurance and that such valuations had, since about 2013 to 2014, been approved at each AGM. In cross-examination, Strunz conceded that the minutes of the earlier AGMs did not establish that agreed valuations had been approved at earlier AGMs, and that his evidence about the earlier practice was mistaken.

(b) Briggs' evidence was that, at the 2017 AGMs (for each entity) all directors agreed upon the mechanism of company valuation for insurance purposes. He also said that valuations agreed at the AGMs were used for the purposes of insurance and 'for new directors buying into the company'; and that valuations using the same methodology as that adopted in the AGMs had been regularly used in the company's life including for the sale and purchase of shares by existing and incoming directors. Briggs accepted in cross-examination that he could not identify any transaction in which a valuation agreed at an AGM in that way had been used for setting a price for a new director buying into the company, or an existing director leaving. He accepted that the prices for other transactions had been agreed on a case-by-case basis.

(c) Liew's evidence was that her understanding was that one of the purposes of the valuations was to ensure that the company obtained insurance at the right amount to protect the directors' families because the insurance was to be paid if a director died or suffered total and permanent disability, and the insurance payout would be used by the company to buy back the shares from the director's family. Although Liew gave that positive evidence, she did not say what, if anything, she understood as to any other purpose for such valuation.

(d) Yelland's evidence was that at the AGMs for the Plus Architecture entities, an agreed value of the company was adopted for the purposes of insurance, and that at the 2017 AGMs for each entity, the discussion about the company values occurred in the context of determining a sum for the purposes of obtaining life insurance policies. Yelland said he had never discussed with the other directors obtaining annual valuations of the companies for the purposes of buying out departing shareholders. Yelland was challenged in cross- examination but did not concede that the valuation was agreed for any purpose other than the procuring of insurance. He said, further, that he would never have agreed to approve such a valuation. Evidence about how a witness would have behaved in a different, counterfactual situation is to be treated with significant caution because of its self-serving nature.[88] That notwithstanding, I accept that evidence as an accurate assessment by Yelland of how he would have behaved if asked to agree the valuations presented at the 2017 AGMs for the purposes of valuing any share transfer. While the subjective evidence is inherently self-serving it is entirely consistent with the objective evidence concerning Yelland's behaviour when in fact dealing with the transfer of his shares. Had a valuation for the purposes of schedules 2A and 2B been specifically raised (including by it being crystallised by the proposing of a resolution) it would have been apparent that such a valuation would, by operation of the shareholders agreements, bind all shareholders, including Yelland, should he depart. As discussed earlier, when actually dealing with the price for his shares when he did depart, Yelland was significantly invested in obtaining a price for his shares that he determined was adequate, formulating his own assessment.

(e) The witness evidence, then, was that Briggs, Strunz and Liew each positively said that the adoption of a value for the company at the 2017 AGM was for the purpose of obtaining adequate insurance; Liew said that was one of the purposes but identified no other purpose. Briggs and Strunz's evidence that AGM-agreed valuations had been used in the past to facilitate the transfer of shares fell away.

(f) There had never been a contested buy-out in the history of Plus Melbourne and an AGM-agreed value had not been employed in that way before. Other share transactions had been determined on a case by case basis.

(g) The text of Item 2.6 recorded in the minutes is not free from ambiguity because it records what was discussed in a truncated fashion. But its references to death insurance, Yelland's agreement to have the same coverage and structure as other directors, the agreement to add step insurance and the agreement to 'move forward with Petro' (an insurance broker) are consistent with the evidence of the witnesses that a value for the company was agreed for the purposes of obtaining insurance. It is true that the method by which the value was arrived at (discussed below) goes beyond the requirements of clause 2(c)(ii)(A) of the SHA, but that is of no import, given the text of the minute and the witness evidence as to the purpose of the valuation.

(h) The defendants accepted that the valuation in this case was undertaken for the purposes of obtaining insurance but they sought to characterise the decision as a 'dual purpose resolution'. Having regard to what is set out above on the question of the intention of the shareholders, I conclude that Briggs, Strunz and Liew consciously agreed the valuation for insurance purposes. As is discussed below, in doing that they considered that they were agreeing a genuine valuation of the company. The evidence does not support a finding that they also agreed upon the valuation for the purpose of valuing the shares in the company to facilitate the admission of a new director or the exit of an existing director. Briggs and Strunz each stated a belief that the valuations had been used that way in the past (the basis of which they could not establish) but such a belief does not amount to a state of mind concerning what they were doing when they agreed the valuation in 2017. Yelland positively denied agreeing with the valuation for the purposes of valuing shares. What was agreed by all shareholders, then, was the value of the company for the purpose of insuring the directors. There was no agreement between all shareholders as to the value of the company for any other purpose, in particular a valuation for the purposes of schedules 2A and 2B or more generally in order to facilitate the transfer of shares from one shareholder to another or to buy out a departing shareholder.

(i) It may be that on close analysis the defendants' case was (at least in the alternative) that if the valuation was a genuine one (discussed below) and that value was unanimously agreed for any purpose, that that was sufficient for the agreement to be regarded as a unanimous resolution for the purposes of schedules 2A and 2B. That issue is considered below.

[434]

(a) At the Plus Melbourne AGM (as was also the case also for Brisbane and Sydney) a spreadsheet was displayed setting out the company's turnover and profit for the two previous years and the current year, projected turnover and profit for the following year, a maintainable earnings calculation which was an average of past figures, a 2.5% multiple, and a valuation amount which was reached by applying the multiple to the maintainable earnings. McArthur prepared the spreadsheets. The earnings and profit figures were obtained from the company's bookkeepers. The multiplier had been used historically. According to Briggs, the Plus entities had 'always' adopted a multiplier of 2.5.

(b) Before 2015 Plus Melbourne had retained Pitcher Partners to prepare valuations, but after that time, because the fees for that work were considered to be too high, an agreed value for the company was adopted for the purposes of obtaining insurance at the annual general meetings, following discussion amongst the directors as to what multiple should be applied to the profits of the company.

(c) YSPL submitted that the process of agreeing valuations was one of throwing figures around and making a stab in the dark.

(d) Against that proposition, the defendants said, first, the values arrived at were not reached by throwing numbers around but by the application of an appropriate multiple to the assessment of future maintainable earnings. Although YSPL correctly submitted that the process by which the valuations were agreed was rudimentary compared with the process that an expert valuer would adopt, the evidence supports the conclusion that the directors (for their shareholders) applied a multiple that they considered to be appropriate to the historical earnings and profit of each entity.

(e) Next, the defendants said that the fact that the values had been arrived at in the context of the need to agree an amount for the purposes of obtaining appropriate insurance established an understanding among the shareholders that the agreed value should be genuine. The evidence supported that submission. Strunz's unchallenged evidence was that the spouses of the directors had to sign a document to the effect that if a director dies, they must sell their shares back to the company and accept the payment for those shares that would come from the insurance company, and that he would never have voted in favour of artificially lowering the company's value with the effect of underinsuring that risk. Briggs and Liew gave evidence to similar effect. It was important to them that the company be valued properly in order to protect their families. None of that evidence was challenged. Yelland himself did not say in evidence that he understood the values to have been made unofficially lower than they otherwise would have been, for the purposes of reducing insurance premiums. He did not say that he had accepted any agreed valuation on that basis, although through his counsel he made that submission.

(f) The defendants also submitted that the accuracy and genuineness of the Plus Melbourne valuation could be assessed against a commercial valuation obtained from Plus's accountant Marzano in the months prior to the AGM, which was itself substantially lower than the valuation adopted at the AGM. In fact, Marzano had prepared a valuation of Plus Melbourne for the Plus directors, principally on Yelland's instruction, in June 2017. The valuation was said to have been prepared to support a sale from an existing shareholder to another shareholder (new or existing) - it was for succession planning purposes, but not in respect of any particular shareholder. Whilst neither party provided a precise reconciliation of the Marzano valuation and the figures supporting the Plus Melbourne AGM value calculation (for which the final spreadsheet was not in evidence), it is likely that difference in the amounts is substantially accounted for by the reduction of the multiple in Marzano's valuation from 2.5 to 1.7. Marzano explained that the multiple was discounted by 30% 'in accordance with the shareholders agreement'; which I infer is a reference to the 30% discount that would be applied under schedule 2B on a transfer of shares between shareholders. Save for the application of that discount, the Marzano valuation adopted the same multiple as the agreed AGM valuations. The Marzano valuation was also prepared on a zero assets basis, excluding the entitlements of current shareholders to retained profits.

(g) Having regard to the above, I consider that although the process adopted by the directors at the Plus Melbourne AGM to reach the agreed value was much simpler than the process that would have been undertaken by a professional valuer, it was a genuine valuation of the company on the basis of historical earnings and a multiple that the directors, including Yelland, had long considered to be appropriate, including on the advice of the company's accountant. It was neither arbitrary, nor artificially low. It was a valuation prepared by lay people, albeit lay people who had intimate knowledge of the business, for a purpose that they considered warranted an adequate valuation in order to properly provide for their families.

[472]

(a) Jaski assessed the market value of the relevant entities which he defined as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion. Hockley assessed the 'fair market value' of the relevant entities but the experts agreed that there was no material difference between the concepts for the purposes of their reports.

(b) They agreed that the valuations should be conducted by employing the capitalisation of future maintainable earnings (CFME) methodology, which requires the valuer to estimate the future maintainable earnings (FME) of the business; capitalise the FME by an appropriate earnings multiple to determine the value (enterprise value) of the business and adjust the enterprise value for non-operating assets and liabilities to determine the equity value of the entity. It was agreed (and I accept) that the CFME methodology is a widely used valuation methodology to value an established profitable private business of the nature and scale of the Plus entities and ought result in a value consistent with the concept of market value. The experts disagreed on the appropriate valuation methodology to be applied in respect of Plus International. Because of the conclusion I have reached in respect of the claim regarding Plus International it is unnecessary to consider its value (although the arrangements between Plus International and the Principal Plus Entities are considered in relation to the value of those entities).

(c) Hockley used earnings before interest and tax (EBIT) as the appropriate measure of earnings and Jaski used earnings before interest tax depreciation and amortisation (EBITDA) but they agreed that the use of EBITDA or EBIT as the appropriate measure of FME will not have any impact on the overall valuation provided the appropriate FME was applied to the corresponding multiple. A multiple of EBITDA will necessarily be higher than its corresponding EBIT multiple, but the resulting valuation will not be different. In his third report Hockley adjusted his assessment from EBIT to EBITDA for comparative purposes.

(d) Each accepted that in order to value shares in a company or units in a trust it is first necessary to value the company or trust in question before determining the value of the share or unit or group of shares.

[484]

(a) Expert evidence upon which parties rely should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of litigation. An expert should then provide independent assistance to the Court and should not assume the role of the advocate.[97] As Lord Wilberforce said in Whitehouse v Jordan, to the extent that expert evidence is not or is not seen to be the uninfluenced product of the expert, it may be not only incorrect but 'self-defeating'.[98]

(b) In order that the Court may assess the evidence the expert witness must disclose any relationship between themselves and the party calling them.[99]

(c) Whether or not an expert report is the product of an independent exercise of judgment is obviously a factual question; but as Brooking J said in Phosphate Cooperative, while it is impossible to lay down specific rules dealing with communications between the expert and the instructing party, 'the guiding principle must be that care should be taken to avoid any communication which may undermine, or appear to undermine, the independence of the expert'.[100]

(d) The expert witness code reinforces these principles and explicitly provides that an expert witness is not an advocate for a party and has a paramount duty, overriding any duty to the party to the proceedings or other person retaining the witness, to assist the Court impartially on matters relevant to the area of expertise of the witness.

(e) A lack of independence goes to the weight of a witness's evidence and will bear on the assessment of its probative value. It does not go to its admissibility. Provided that evidence is of some relevance, it will be admissible, and there is no exclusionary rule preventing the reception of expert evidence on the grounds of lack of independence or bias. As Ormiston JA said for the Court of Appeal in FGT Custodians v Fagenblat, questions of matters of competence (testimonial capacity) must be 'firmly distinguished from those matters which may go to impeach the reliability of a witness's testimony, namely those that are based on cross-examination or other evidence to show inadequate expertise or bias or interest by reason of conduct or other circumstances'.[101]

[540]

427 It was apparent that Jaski paid little attention to the documents with which he was briefed. His evidence in relation to that issue did not engender confidence in the robustness of his opinion. His brief was relatively modest, comprising the financial statements, management accounts, AGM reports, shareholders agreements and management agreements for each of the Plus entities and the licenced service agreements in respect of Plus International. He could not recall whether he had looked at the financial statements in great detail. He stated that he had first learnt that Plus International was the trustee of a unit trust in the weeks prior to his giving evidence and that he had proceeded on the assumption that it was a trading entity. He accepted that had he given even a cursory glance at the unitholders agreement for Plus International Pty Ltd (with which he had been briefed), it would have alerted him to the fact that he was being asked to value shares in a company which was a trustee of a unit trust. He also accepted that that might have had a significant impact on his task. He did not seek further instructions from Sladen Legal or Yelland in relation to that matter because it did not occur to him to do so. In reality, he had not properly read the documents. He asserted that he had not drawn the connection because he was looking at 'hundreds and hundreds of documents', then accepted that was a stretch, saying he was probably looking at 'thousands' of pages of documents (which in fact may itself have been a stretch). He fairly conceded that had he seen the unitholders agreement in relation to Plus International it would have been a red flag. He was being asked to value shares (as instructed in the Sladen Legal briefing letter) but the correct task was to look at the value of the units in the unit trust. He also accepted that had he understood that matter at the time he would have included a limitation in his report and sought clarification of his instructions.

[554]

(a) In respect of Plus Melbourne, each of YSPL and Strunz's and Briggs' nominated shareholders[105] held 30% of the issued shares and each of Justin's and Liew's nominated entities[106] held 5% of the issued shares;

(b) In respect of Plus Brisbane, each of YSPL, Briggs' and Strunz's entities held 25% of the issued shares, and Juric[107] held the remaining 25%;

(c) In respect of Plus Sydney, Julka's nominated shareholder[108] held 25% of the issued shares, each of YSPL, Briggs' and Strunz's entities held 20% of the issued shares, and Pin's nominated entity[109] held the remaining 15%;

(d) In respect of Plus WA, Patrick Przeradzki's nominated shareholder held 25% of the issued shares; William Schofield's nominated shareholder held 25%; each of YSPL, Briggs', Strunz's and Juric's entities held 12.5% of the issued shares;

(e) YSPL, Briggs Nominees (Vic) Pty Ltd and Strunz Nominees Pty Ltd each held 30%, and Plus Melbourne and Plus Sydney 5% each, of the units in the Plus International Trust, of which Plus Architecture International Pty Ltd[110] was the trustee;

(f) In respect of Plus Architecture New Zealand LLP, according to the plaintiff's aide memoire produced in opening, it was Yelland NZ Pty Ltd (as trustee for the Yelland NZ Family Trust) and not YSPL, that held an interest in the relevant entity. Each of Yelland NZ Pty Ltd, Briggs Nominees (Vic) Pty Ltd (as trustee for the Briggs NZ Trust), Strunz Nominees Pty Ltd[111] (as trustee for the Strunz NZ Trust), Monster Architecture Pty Ltd[112] (as trustee for the NZ Monster Trust) and the trustees of the Atkins Family Trust, each held a 20% interest. On the subject of Plus NZ, Jaski was instructed that 'Yelland' held a 20% interest in 'Plus New Zealand Management', and asked to value the entire Plus Group inclusive of 'Plus NZ'. Nowhere in the materials comprising Jaski's brief that were produced at trial, was the entity through whom the Yelland interest was held, defined. Jaski's report calculated YSPL's interests in the 'group' to include a 20% interest in Plus NZ, but it does not appear, at least from any material before me, that Jaski interrogated that issue. I need say no more about it, given that it is necessary only to value Plus Melbourne, Plus Sydney and Plus Brisbane, and the relevance of Plus NZ is that it was said by YSPL to have formed part of the Plus Group.

[561]

(a) As set out above, each entity had a different ownership structure. There were some common shareholders and directors.

(b) Each entity had its own governing arrangements. Plus Melbourne, Plus Sydney and Plus Brisbane had constitutions in similar but not identical terms, and shareholders agreements in substantially identical terms. No shareholders agreement was in place for Plus WA. There was no evidence as to the terms of the governing documents for the Plus NZ partnership. There was no overarching framework or agreement to which all of the entities were party. Nothing bound the members of any entity to participate in a sale of that entity or shares in it, for the purposes of effecting a joint sale.

(c) The entities had commenced operating at different times (for example, Plus Melbourne had been operating for more than a decade and Plus WA had been in existence for less than two years, at the relevant time); each had experienced different profit growth. As Hockley put it (in un-contradicted evidence), the entities had significant differences in overall size and scale including revenue levels and performance.

(d) Each entity operated in a different geographical market (i.e., in its own state).

(e) Financially, the entities functioned individually: there were no consolidated budgets and individual budgets were not prepared on a consistent basis across the group, no consolidated accounts and no consolidated financial reporting. The structure of remuneration for directors differed between entities.

(f) Operationally, the entities functioned individually. Decision-making responsibility, whether for financial, marketing, operational, legal or design and project related decisions, rested with the directors of the entity in question, and not with the 'group'.

(g) Staff from various offices worked in other offices from time to time, but a charge was levied between entities when that occurred.

(h) The 'Plus Group' was marketed as a national business. All offices used the name and logo 'Plus Architecture'. Email signatures (presenting promotional information to clients and other third parties) referred to projects that had been performed by various Plus offices and not just to projects completed by the entity in question; the Plus entities used a single website. The intent of the marketing in this way was to present to clients or potential clients that Plus was a single cohesive group with both an Australian and New Zealand presence.

(i) The individual Plus entities had entered into agreements with Plus International for the provision of services including labour hire, recruitment, expense payments, equipment hire, information technology hardware and website management. There was no obligation on the individual entities to use the services of Plus International to any particular extent. The Plus International 'mission' was described as including the provision of shared corporate services, to be a 'guardian' of the Plus brand, to facilitate collaboration and the sharing of skills and knowledge, and to drive 'strategy'. The ability to co-ordinate and share services was one factor that Briggs considered would enable the attraction of people who could ensure the success of the Plus entities.

(j) The service agreements were terminable on 7 days' notice by either side and did not clearly require any entity to actually use services from Plus International.

(k) Strunz and Briggs in particular had a vision to grow Plus Melbourne into a national practice, in order to strengthen Plus Melbourne's position and to create a group that could win larger projects and attract national clients.

(l) Strunz, Briggs and Yelland had agreed that they needed to develop a common platform and set of standards to control the quality and output of all Plus entities. To that end, Plus International was established. That was their aspiration but the evidence did not establish that the output of individual Plus entities was in fact controlled centrally or required to be delivered in accordance with group templates or standards.

(m) As discussed below (in the context of the notional franchise royalty fee adjustment made by Jaski), Plus International owned intellectual property comprising a folio of work created by Plus Melbourne, and entered into licensing agreements with Plus Melbourne, Sydney and Brisbane, to allow them to use that work, for example in tendering for future work or in new designs. There was no obligation to use the work in the folio. Strunz said that the offices would not have wanted to lose access to the folio of work but there was no evidence about the extent to which it was used. Moreover, the licensing agreements were due to expire in December 2017 and there was no evidence of any steps having taken to extend them.

(n) In May 2017 Yelland obtained advice from lawyers Duffy & Simon concerning the risks faced by the directors and shareholders of Plus, having regard to the right of minority shareholders. The solicitors said, in very general terms, that because Plus International licences services and intellectual property to the other Plus entities there was a risk that 'the corporate structure on the face of it may fall within the definition of a franchise'. The advice was unelaborated by any consideration of detail, and was said to be relevant to the risk that a disgruntled shareholder or director might seek to bring a derivative action for failure to comply with Franchising Code.

[569]

(a) Jaski determined the FME (with relevant normalisation adjustments) for each of the individual Plus Entities (including Plus NZ) and added them together to reach a 'consolidated' FME figure of the 'group'.

(b) He then determined an earnings multiple - that is, a single multiple to be applied to the consolidated FME for the 'group', by identifying comparable transactions and cross checking by using a capital asset pricing model (CAPM) assessment of the appropriate discount rate for the asset. Jaski made those assessments in respect of the 'Plus group' as a whole. His analysis of risk profile and asset discount rates addressed all of the Plus entities together, characterised as a group, operating as a single business. His selection of comparable transactions were determined by comparisons with the size and characteristics of the 'Plus Group'. In identifying what he considered comparable transactions in listed companies he applied a 'control premium' to the value of those companies to enable comparisons, because the enterprise value of the listed companies he considered was based on trades in minority parcels of shares, whereas he was valuing the 'Plus Group' 'on a 100% basis'. It can be seen then, at least conceptually, how the adoption of the 'Plus Group' construct led to the adoption of a higher multiple than would otherwise have been the case. The selected multiple was 4.5 to 5.5 times EBITDA. The enterprise value of the group was accordingly expressed as a range, as result of applying a multiple of 4.5 to 5.5 times EBITDA to the assessed consolidated FME for the group. For the balance of the valuation assessment, the midpoint of the enterprise value for the group was adopted.

(c) Having reached an enterprise value for the group, Jaski then worked backwards to arrive at a value for YSPL's interests in each of the Plus entities, by allocating to each entity a share of the 'group FME' by reference to its individually assessed FME in proportion to the whole, then making various adjustments to the assessed share of enterprise value for each entity, on an entity by entity basis.

(d) Because the exercise proceeded in this way (aggregating FME, applying a multiple selected for the group and then apportioning the enterprise value between the entities), in respect of each entity, the ultimate result of the exercise was that its value had been assessed in effect, by applying a capitalisation multiple that was on Jaski's view applicable to a larger entity (the consolidated 'Plus Group'), to the FME for that smaller entity.

(e) Jaski adjusted reported net assets by deducting non-operating assets and liabilities, undistributed profits,[113] formation costs and related-party loans. He also adjusted the FME for each entity to allow a notional royalty payment to Plus International for provision of services and the use of intellectual property (that adjustment is discussed separately below).

(f) Jaski then calculated YSPL's interest by reference to its percentage of shares or units held in each entity, describing the interest as 'YSPL interest in Plus Group Shares'.[114]

(g) On instructions, Jaski did not make any adjustment to allow for the fact that YSPL held minority interests in the relevant entities.

[576]

Witness (Jaski): On the basis that we're looking at it a - as a group ... We start off at the - at the highest level ... you may have ... an onerous shareholder agreement or other things, but you don't take those things into account when you value the - the head entity ... that does not matter if I buy the shareholdings because those - those agreements no longer apply to me. I buy the company, the company is worth whatever it is.

...

Robins QC: You're saying the constituent documents that repose the directors and shareholders agreement by which you say a group exists are irrelevant to your consideration?

Witness (Jaski): I'm saying it would be sold on the basis of a group, and I come back to the same federation model where you have a practice in each state and consider every - every group hypothetically considers selling. .... When they ... decide to sell the business, do they decide to all go it on their own or do they decide to say, 'Hey, we're better off coming together and let's do this as one package because we're going to be better off', and that that's - that's the basis that I've looked at it on and it's a pretty fundamental valuation basis ... There may be shareholders ... who don't want to sell, but we disregard that from a valuation point of view and we say, 'hypothetically they will sell'

...

Robins QC: where do you make that leap of faith from the fact that it's a sale of interests in all of the companies ipso facto it's a group valuation sale?

Witness (Jaski): Yes, okay, so I guess, at that juncture there's - there's a decision. Do you value these as individual entities knowing that you get less for them in a hypothetical sale, or do you value them as a group in a hypothetical sale? For me, there's nothing stopping - there's absolutely no issue from a valuation perspective in valuing them as a group ... If I was a participant or I was looking at the highest and best use, and I take it back to the real estate, you could sell the block of flats one by one or as a whole, ... but again, if I was the owner, if I was the participant, I would be doing it as a group because there is a higher value as a group. ... I'm not necessarily advocating a hundred percent this is a group, it operates as a group, there's certainly group structures in there, um, but as I said it's - it's a continuum from a valuation perspective, I don't see any issue in treating it as a group sale...

...Consistent with highest and best use, you could either form the view of, 'okay, how do I get the lowest valuation? Does that seem right? Or how do I get the highest valuation? Does that seem right?' And again, in valuation, we always look to maximise the value of the assets, so we don't - we don't normally take the assumption, 'what would a seller do? Would a seller try and lose money on his business?' No, he doesn't try and lose money on his business. When a seller goes to sell, he tries to maximise the value of the business. So, we look at it on the maximised value.

Plaintiff v Defendants

At a glance

Court

Decision date

Before

Source

Judgment (886 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (24)