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[2024] VSC 244
Supreme Court of Victoria
2024-05-17
Matthews J
Original judgment source is linked above.
CORPORATIONS - Oppression proceeding - Twelve instances of oppression alleged by plaintiff, seven of which were made out - Four of five alleged breaches of director's duties constitute oppressive conduct - Two instances of oppression alleged by second defendant, none of which were made out - Corporations Act 2001 (Cth) ss 232, 233.
PRACTICE AND PROCEDURE - Pleadings - Whether required to plead matters going to valuation of the company's business in an oppression proceeding - Whether required to plead matters relied upon to give rise to adjustments in value to remedy the effects of oppression - Wain & Ors v Drapac & Ors (No 2) [2013] VSC 381 considered.
CORPORATIONS - Oppression proceeding - Relief - Company with two equal shareholders, each wanting to buy the other out - Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136, [518] - Millsave Holdings Pty Ltd v Connective Group Pty Ltd [2023] VSCA 326.
CORPORATIONS - Oppression proceeding - Valuation of shares in the face of competing expert reports - Court determines fair value and is not constrained by traditional valuation methods - Relevance of open offers made by the parties to determining value - Adjustments to remediate effects of oppression - Wain & Ors v Drapac & Ors (No 2) [2013] VSC 381 - Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153; (2004) 207 ALR 136 - Re SRW Nominees Pty Ltd (No 2) [2020] VSC 323.
1 The plaintiff, Create Environment Pty Ltd ('Create') and the second defendant, MSA Renex Corp Pty Ltd ('MSA') each hold one of the two issued shares in the first defendant, Renex Founder Hold Co Pty Ltd ('Founder'). One of Create's directors, Domenic Pulitano ('Pulitano'), and MSA's sole director, Marinos Angelodemou ('Angelodemou'), are the directors of Founder.
2 This proceeding concerns a claim by Create that it has been oppressed as a shareholder of Founder. By originating motion dated 19 August 2021, as amended on 3 May 2022, Create seeks:
(a) a declaration pursuant to s 232 of the Corporations Act 2001 (Cth) ('Act') that the conduct of the affairs of Founder was: (a) contrary to the interests of its members as a whole; and/or (b) oppressive to, unfairly prejudicial to or unduly discriminatory against the plaintiff as a member;
(b) orders pursuant to s 233 of the Act: (a) for the purchase by Create of MSA's share in Founder; (b) alternatively, that Founder be wound up; or (c) such other order as the Court sees fit; or
(c) alternatively, an order that Founder be wound up by the Court under the provisions of the Act on the grounds set out in paragraphs (e), (f) or (k) of sub‑s 461(1) of the Act.
(a) declarations that Create has committed certain breaches and events of default under the shareholders agreement in respect of Founder entered into by MSA, Create and Angelodemou on 18 December 2018 ('Founder SHA') and that Pulitano must immediately resign as a director of Founder;
(b) a declaration that MSA may purchase, and Create must sell to MSA, Create's share in Founder at the price determined by the Court, alternatively that Founder may buy-back Create's share in Founder at the price determined by the Court, and that Angelodemou may, in the name of Create and on its behalf, do everything necessary or expedient to complete the sale or buy-back of Create's share in Founder;
(c) alternatively, a declaration that Create's conduct of Founder's affairs is contrary to the interests of the members of Founder as a whole and/or is oppressive to, unfairly prejudicial to, and unfairly discriminatory against MSA; and
(d) an order pursuant to s 233 of the Act that MSA purchase Create's share in Founder at the price determined by the Court.
4 Create is the second defendant by counterclaim, and Founder is the first defendant by counterclaim.
5 Founder did not play an active role in the proceeding: the real contest is between Create and MSA.
6 As will be seen, much of the factual matrix is not in dispute, however, whether a party's conduct constitutes oppression or a breach of the Founder SHA is hotly disputed (save for one instance of oppression alleged by Create which is admitted by MSA). The other key matters in dispute are the appropriate remedy if oppression or breach is found, with each party wanting to buy the other out, and the price at which any buyout should be ordered.
B.1 History of the Renex business and corporate structure
7 In around 2008, Angelodemou founded the business associated with the Renex Integrated Waste Treatment and Resource Recovery Facility ('Waste Treatment Facility') located in Dandenong South ('Dandenong Site'), the business being to operate and commercialise the Waste Treatment Facility. The business was originally operated by Renex Holdings (Dandenong) 1 Pty Ltd, Renex Operations (Dandenong) Pty Ltd, Renex Technology Pty Ltd and Renex Land (Dandenong) Pty Ltd (together, 'Old Renex Entities'). As at October 2015, entities controlled and owned by Angelodemou held about 47% of the shares in the Old Renex Entities.
8 Construction of the Waste Treatment Facility at the Dandenong Site commenced in 2012.
9 In around 2014, Pulitano was approached by Angelodemou about the possibility of Create investing in the Renex business.
10 In June 2015, Create and MSA entered into a share sale and option agreement in relation to the Old Renex Entities. Create advanced $1.498 million to MSA that year as a non-refundable option fee ('2015 Share Sale Debt'). It is common ground that this share sale and option agreement was never fully implemented, as it was overtaken by the subsequent appointment of administrators to the Old Renex Entities.
11 By 9 October 2015, administrators were appointed to the Old Renex Entities and the companies were eventually wound up. At that time, the Waste Treatment Facility at the Dandenong Site was not yet operational. By the end of 2015, as part of the administration of the Old Renex Entities, a raft of agreements were entered into providing for (1) the sale of the assets of the Old Renex Entities, including the Dandenong Site and (2) the creation of new companies to purchase those assets, together with the funding and issuing of shares so as to carry on the Renex business.
12 The new entities which were formed for this purpose were as follows:
(a) Founder;
(b) Renex Hold Co Pty Ltd ('Hold Co');
(c) Renex Op Co Pty Ltd ('Op Co');
(d) Renex Land Co Pty Ltd ('Land Co'); and
(e) Renex IP Co Pty Ltd ('IP Co').
13 Op Co, Land Co and IP Co are each wholly owned subsidiaries of Hold Co (together, Hold Co, Op Co, Land Co and IP Co are referred to as the 'Renex Operating Entities'). The Renex Operating Entities and Founder are referred to as the 'Renex Group of Companies'.
14 The assets of the Old Renex Entities were sold to Op Co pursuant to an asset share sale agreement with a purchase price of $11.63 million. The Dandenong Site was purchased by Land Co pursuant to a contract of sale with a purchase price of $6.37 million. The acquisition was funded through a senior debt facility of $18 million which Hold Co obtained from A.R.E.O. SARL, a company incorporated in Luxembourg ('Areo'), with Areo acquiring 25% of the shares in Hold Co. The other 75% of the shares in Hold Co were owned by Founder. At that time, Angelodemou was Founder's sole nominee director on the board of Hold Co (pursuant to the Founder SHA), and Mr Bing Hang Allan So ('Mr So') was Areo's nominated director.
15 At the time of its incorporation and since then, Founder's directors were Angelodemou and Pulitano. Create acquired its share in Founder for the price of $1.
16 Angelodemou has been the sole director of each of Op Co, Land Co and IP Co since their incorporation.
17 On or about 15 December 2015, the following documents were executed as part of the corporate restructure and change in ownership:
(a) the Founder SHA, which annexes the Founder constitution;
(b) a shareholders' agreement in respect of Hold Co, between Hold Co's then shareholders Founder and Areo ('Hold Co SHA'), which annexes the Hold Co constitution;
(c) an investor loan agreement between Founder, Create and MSA, ('Investor Loan Agreement'). Founder was the borrower under this agreement and Create and MSA each agreed to advance $5 million to Founder. Ultimately, Create advanced $5 million and MSA advanced $4.67 million pursuant to the Investor Loan Agreement; and
(d) a shareholder loan between Founder and Hold Co ('Shareholder Loan Agreement'). The $9.67 million advanced by Create and MSA to Founder pursuant to the Investor Loan Agreement was on-lent by Founder to Hold Co pursuant to the Shareholder Loan Agreement for the purpose of funding the Renex business.
18 Hold Co's business is the business of operating and commercialising the Waste Treatment Facility carried on by Hold Co and each of its subsidiaries. Founder's business is to hold shares in Hold Co.
19 Mr Anish Chandy ('Chandy') is the chief financial officer of Hold Co and has been the company secretary of each of the Renex Operating Entities since 21 March 2016. He also controls a company called Artis Parra Pty Ltd ('Artis Parra'). Artis Parra currently holds 4,480 ordinary fully paid shares in Hold Co: it acquired 1,120 shares on 20 April 2016 and a further 3,360 shares between 3 March 2017 and 13 September 2018. Artis Parra acquired its shares in Hold Co pursuant to the Renex senior management equity plan ('Management Equity Plan'), which was implemented in April 2016. To accommodate the Management Equity Plan, a share split occurred on 11 April 2016 to increase the shares in Hold Co from 100 to 100,000 with Founder then holding 75,000 shares and Areo holding 25,000 shares. On 20 April 2016, resolutions were passed by the directors of Hold Co confirming that Hold Co had passed the Management Equity Plan and resolved to offer 1,1200 ordinary shares and a total of 3,360 shares with performance hurdles to Chandy. A resolution of the members of Hold Co was passed approving the issue of those shares.
20 On 13 September 2018, resolutions were passed by the shareholders of Hold Co and by the members of Founder, pursuant to which performance hurdles were waived and the performance shares were vested in Artis Parra.
21 On 14 September 2018, Areo ceased to be a shareholder in Hold Co and Mr So resigned as a director of Hold Co, following the repayment and discharge of the loan which Areo had advanced to Hold Co. Areo agreed to accept repayment of its senior debt facility for less than its face value and it agreed to transfer its shares in Hold Co to Founder for consideration of $1.
(a) Founder has held 95.7% of the shares in Hold Co and Artis Parra has held 4.3% of the shares in Hold Co; and
(b) Angelodemou has been the sole director of Hold Co.
23 The Renex business is a waste treatment operation that uses pyrolysis technology to remediate hazardous industrial waste and enable it to be re-used in commercial and industrial applications instead of being sent to landfill. The waste which is treated includes contaminated soil, bricks, rubble, concrete, steel, solid industrial waste, liquid waste, sludge, activated carbon, timber, drilling muds and wash waters. The business operates under a licence from the Environmental Protection Agency ('EPA') which allows it to treat contaminants including PFAS, hydrocarbons and metal contaminants.
24 The Dandenong Site comprises approximately four hectares including an enclosed building of approximately 11,000 square metres. It houses purpose-built plant and equipment including a pyrolysis rotary kiln through which waste is thermally treated and cleaned to remove contaminants.
25 The Renex business employs between 20 and 30 individuals at any one time. In addition to Angelodemou and Chandy, the senior employees of the Renex business are: Brad de Clase ('de Clase'), the business development manager; Paul Nield ('Nield'), the senior process engineer; and John Panayi ('Panayi'), the facility manager.
26 Create has never been involved in the day-to-day operations and management of the Renex Business. The day-to-day operations of the Renex business have been left to Angelodemou.
27 The Renex business is currently underpinned by two finance facilities with Judo Bank which are secured (inter alia) by personal guarantees and indemnities given by Angelodemou. As at September 2022, the finance facilities with Judo Bank had an outstanding balance of approximately $9.6 million. Angelodemou has also given a personal guarantee and indemnity to secure the services of a landfill operator and supplier of the Renex business. In each instance, the personal guarantees given by Angelodemou were a condition of the provision of services or finance. Pulitano never provided any personal guarantees or indemnities for Founder or any of the Renex Operating Entities.
28 In 2018, Angelodemou decided that it would be necessary to acquire and establish a second waste treatment facility in the west of Melbourne, where the majority of contaminated soil and hazardous waste is generated. This was considered to be for the benefit of the Renex business in remaining competitive, better servicing its existing customers, and attracting a larger customer base. The decision was supported by Pulitano at that time. In about July 2018, Angelodemou identified adjacent parcels of land at 157-167 and 169-179 Dohertys Road, Laverton ('Laverton Properties') as a suitable site for the second facility. On 11 September 2018, Land Co entered into contracts to purchase the Laverton Properties for a total purchase price of $17 million, with settlement due on 10 September 2020.
29 In August 2020, the Renex Group of Companies procured an offer from Judo Bank to provide a facility in the amount of $10.2 million, which left a shortfall of approximately $6.1 million in respect of the purchase of the Laverton Properties. The settlement of the contracts was extended to 16 November 2020.
30 The circumstances surrounding the lead-up to the completion of the purchase of the Laverton Properties are in dispute and will be ventilated later in these reasons, however, it is sufficient at this point to note that by late 2020, the relationship between Angelodemou and Pulitano broke down over the planned acquisition by the Renex Group of Companies of the Laverton Properties. By that time Pulitano's position on the Laverton Properties had changed. Angelodemou wanted to use the Laverton Properties to develop a second waste treatment facility and expand the Renex business, as originally intended, while Pulitano's position was that the Laverton Properties should be on-sold to generate profit.
B.4 Disputes between Angelodemou and Create/Pulitano
31 The breakdown in the relationship between Angelodemou and Pulitano led to a number of disputes between them and/or their entities. Most of the disputes also involved one or more of the companies which made up the Renex Group of Companies.
32 On 27 October 2020, Angelodemou caused Land Co to nominate a separate company, Renex Land Holdings Pty Ltd ('Land Holdings'), as the purchaser of the Laverton Properties. Land Holdings is a company solely controlled and owned by Angelodemou and, somewhat paradoxically given its name, is not part of the Renex Group of Companies. Land Holdings was the trustee of the Renex Property Holdings Trust, the beneficiaries of which were Angelodemou and members of his family.
33 Around this time, in October and November 2020, Pulitano sought information from Angelodemou regarding the completion of the purchase of the Laverton Properties.
34 On 13 November 2020, Create commenced a proceeding in this court against Land Co so as to gain access to the books and records of Land Co ('s 247A Proceeding'). Later that day, orders were made by Justice Lyons for the provision of the nomination form, the contract of sale, and any term sheets or offers in respect of the Laverton Properties.
35 On 16 November 2020, orders were made by Justice Almond joining Angelodemou to the s 247A Proceeding as the second defendant and Land Holdings as the third defendant. An interlocutory injunction was granted against Angelodemou and Land Holdings, restraining them from completing the purchase of the Laverton Properties until 4:00pm on 23 November 2020 or further order.
36 On 20 November 2020, Angelodemou, Land Co and Land Holdings provided undertakings that, inter alia, they would give Create access to their books and records relevant to the purchase of the Laverton Properties and would not on-sell, further encumber or otherwise deal with the Laverton Property without giving at least 30 days' prior notice to Create for the period ending six months from the settlement of the purchase of the Laverton Properties ('s 247A Undertakings').
39 On 5 February 2021, Angelodemou unilaterally purported to pass a resolution of the Founder board removing Pulitano as a director of Founder in circumstances where the removal is said by Create not to be authorised by the Founder SHA. The same day, Angelodemou authorised the lodgement of a Form 484 with the Australian Securities and Investments Commission ('ASIC') recording the removal of Pulitano as a director of Founder. The following day, Create requested that Angelodemou withdraw the Form 484.
40 On 8 February 2021, Angelodemou engaged Value ADE Pty Ltd ('Value ADE') to conduct a valuation of Create's share in Founder. Later that month, Value ADE provided that valuation in the amount of $3.2 million ('February 2021 Valuation').
41 On 8 February 2021, Create commenced a proceeding in this court under s 237 of the Act seeking leave to issue proceedings on behalf of Land Co for it to pursue relief against Land Holdings and Angelodemou for breaches of duty in respect of the transactions concerning the Laverton Properties ('s 237 Proceeding').
42 On 12 February 2021, Create commenced a proceeding in this court under s 1322 of the Act against Founder and Angelodemou to rectify the ASIC register and reinstate Pulitano as a director of Founder ('s 1322 Proceeding'). On 24 February 2021, orders were made by consent in the s 1322 Proceeding to reinstate Pulitano as a director of Founder.
43 On 13 April 2021, judgment was handed down in the s 459G Proceeding and MSA's application to set aside Create's statutory demand was dismissed. MSA subsequently sought leave to appeal this decision but was ultimately unsuccessful; the Court of Appeal dismissed it on 24 June 2021.
44 On 26 May 2021, Justice Delany published reasons in the s 237 Proceeding, stating that unless Angelodemou gave certain undertakings, Create would have leave to commence a proceeding in the name of Land Co.
45 On 10 June 2021, Angelodemou and Land Co provided undertakings ('s 237 Undertakings') that:
(a) Angelodemou would procure Land Holdings to sell the Laverton Properties in accordance with the orders made on 10 June 2021; and
(b) Angelodemou would provide a full accounting to Create in relation to the proceeds of sale of the land within 14 days of the settlement of such sale; and
(c) no tax will be paid or deducted from the proceeds of sale of the land at settlement directly or indirectly that relates to or is attributable to the beneficial interest of any person in the Renex Property Holdings Trust.
46 Upon the s 237 Undertakings being proffered to the Court, orders were made by Delany J on 10 June 2021 for the sale of the Laverton Properties (which sale was not to be to a related entity of Angelodemou or Land Holdings), and Angelodemou was ordered to pay Create's costs of the proceeding to date.
47 On the very next day, 11 June 2021, Angelodemou's request for a loan of $3.75 million from Secured Lending 1 Pty Ltd ('Secured Lending') to Land Holdings was approved by Secured Lending ('Secured Lending Loan'), with the Laverton Properties (inter alia) used as security for the Secured Lending Loan. On 15 June 2021, Secured Lending lodged a caveat over the Laverton Properties in respect of its secured interest.
48 On 17 June 2021, orders were made by Delany J by consent in the s 237 Proceeding in regard to the Laverton Properties, which included orders that Angelodemou not procure or allow Land Holdings to encumber the Laverton Properties further without Create's consent or a court order, that he produce documents regarding the Secured Lending Loan and Secured Lending's caveat, and that he provide an accounting of the proceeds of the Secured Lending Loan.[1]
49 On 9 July 2021, Delany J made orders in the s 237 Proceeding permitting the sale of the Laverton Properties. Angelodemou was required to undertake that he pay the amount of $3,750,000, representing the funds to be repaid for the Secured Lending Loan, to Land Co within three months of settlement.
50 On or about 15 July 2021, the sale of the Laverton Properties was completed for $35 million of which the net proceeds of $12,510,577.44 were paid to Land Co. On or about 14 September 2021, Angelodemou caused Renex Group Pty Ltd ('RG', a company of which MSA was the sole shareholder and Angelodemou its sole director, which was not part of the Renex Group of Companies) to pay $3.75 million to Land Co. It is common ground that the sale of the Laverton Properties resulted in a windfall profit to Land Co of $16,260,577.44.
51 On 3 August 2021, orders were made by Delany J dismissing the s 1322 Proceeding, and requiring Angelodemou to pay Create's costs up to and including 24 February 2021 on an indemnity basis and thereafter on a standard basis.
52 As already noted, this proceeding was commenced on 19 August 2021. On 11 October 2021, orders were made by Delany J in this proceeding appointing an independent valuer to provide an expert report as to the value of the shares in Founder ('Court-Ordered Valuation'). Those orders included detailed orders as to the process to be used for the Court-Ordered Valuation. Pursuant to those orders, John Rundell was appointed to conduct the Court-Ordered Valuation, which report was subsequently provided on 7 March 2022 ('Rundell Report').
53 On 29 October 2021, orders were made by Delany J dismissing the s 237 Proceeding.
54 As part of the preparation for trial, the parties were directed to prepare a joint list of issues. The list of issues was helpful in identifying most of the issues, but unfortunately it did not address all issues.
55 The pleadings current at the time of trial are as follows:
(a) Create's amended originating process filed on 3 May 2022 ('AOP');
(b) Create's further amended points of claim filed on 18 October 2023 ('POC');
(c) MSA's points of defence to the POC and counterclaim, filed on 25 October 2023 ('D & CC'); and
(d) Create's further amended points of Reply and amended defence to counterclaim filed 25 October 2023 ('R & D to CC').
56 Set out below is a summary of the key aspects of the pleadings. Where it is necessary to go into further detail, I do so later when considering each of the claims.
57 Create pleads 12 acts of alleged oppressive conduct by MSA. Seven of these claims relate (in some ways) to the Laverton Properties and are alleged to be the:
(a) diversion of opportunity and refusal to provide information (which gave rise to the s 247A Proceeding);[2]
(b) removal of Pulitano as a director of Founder (which gave rise to the s 1322 Proceeding);
(c) purported valuation of Create's shares in Founder by Value ADE;
(d) use of the Laverton Properties by Angelodemou for his personal benefit;
(e) failure of Land Co to exercise its rights against Angelodemou and Land Holdings (which gave rise to the s 237 Proceeding); and
(f) failure to pay certain debts of Op Co and failure to provide information to Create.
58 The other five acts of oppressive conduct pleaded by Create are the alleged:
(a) refusal by MSA to pay the 2015 Share Sale Debt (which gave rise to the s 459G Proceeding);
(b) reliance by MSA on the Hold Co SHA in its D & CC, in a manner which is against the interests of Founder;
(c) failure by the Renex Group of Companies to prepare financial projections for use by the companies or to assist in the preparation of the Rundell Report;
(d) failure to disclose to Create the EPA's involvement in the affairs of Op Co;
(e) payment by Op Co of certain legal fees incurred by or on behalf of Angelodemou, companies controlled by him which are not part of the Renex Group of Companies, Chandy, and Artis Parra ('Impugned Legal Fee Payments').
59 On the first day of trial, Create stated that it no longer relied on the failure to pay the 2015 Share Sale Debt and the s 459G Proceeding as an act of oppression, as it accepts that it is not conduct in the affairs of Founder. However, Create stated that it still relies on this conduct as giving 'colour to all of the other conduct'.
60 MSA now admits that one of the pleaded acts of oppression, being the removal of Pulitano as a director of Founder on 5 February 2021, does constitute oppressive conduct against Create. MSA also now admits that some of the Impugned Legal Fee Payments ought not to have been paid by Op Co. However, MSA does not concede that these payments amount to oppressive conduct. Apart from the removal of Pulitano as a director of Founder, MSA denies that the conduct complained of by Create constitute acts of oppression.
61 Create also pleads that Angelodemou owes fiduciary duties and statutory obligations to each company in the Renex Group of Companies in his capacity as a director of each of those entities, and that he has breached those duties and obligations by the alleged acts referred to at paragraphs 57(a) to 57(d) above. MSA denies that Angelodemou breached his directors' duties to the Renex Group of Companies.
62 MSA brings a counterclaim against Create, alleging that Create has committed two separate events of default under the Founder SHA. These are alleged to be:
(a) Create's commencement of this proceeding in August 2021 in which it sought orders that Founder be wound up, alleged to be a breach of Create's obligation under the Founder SHA to use all reasonable endeavours to procure that Founder carries on the business of holding shares in Hold Co and to procure that Founder not take any steps to dissolve or wind up Founder without the approval of all shareholders;
(b) Create's discussions, via Pulitano and his brother Alexander ('Alexander Pulitano'), who is also a director of Create, with some customers, potential customers and competitors of the Renex business about business opportunities on the condition that Angelodemou and/or MSA are not involved in the business.
63 MSA's allegations concerning Create's conduct are said to be both breaches of the Founder SHA and to be conduct in the affairs of Founder by Create that is oppressive.
64 Create denies that it has committed events of default under the Founder SHA, as alleged by MSA.
65 During closing submissions, MSA stated that in light of the evidence which emerged during cross-examination of Pulitano, it no longer pressed the allegation described in paragraph 62(b) above. Accordingly, these reasons do not address that allegation.
66 MSA also alleges that by commencing this proceeding in August 2021 and seeking the winding up of Founder, Create caused Founder to commit an event of default under the Hold Co SHA, giving rise to Artis Parra having a right to purchase Founder's shares in Hold Co and if it does not so purchase them, Hold Co must buy-back Founder's shares in Hold Co. Alternatively, if Create purchases MSA's share in Founder (whether as a result of a court order in this proceeding or otherwise) without the written consent of Artis Parra (to which it does not consent), a change of control will have occurred in respect of Founder that will be an event of default under the Hold Co SHA.
67 As set out above, the primary relief sought by Create and MSA in the current pleadings is that one buy the other's shares in Founder. Each party wants to be the purchaser and neither wants to be the seller. Alternatively, Create seeks an order that Founder be wound up. MSA's alternative relief to it purchasing Create's share in Founder is that Create's share be bought-back by Founder.
68 By the time of its written closing submissions, the relief sought by Create was an order that:
(a) it purchase MSA's share in Founder for $14 million;
(b) alternatively, it purchase MSA's share in Founder for the current value as assessed by a valuation to be conducted by an independent valuer; or
(c) alternatively, the parties have 21 days in which to negotiate the sale and purchase of MSA's share and, failing agreement, Founder be wound up.
69 By the time of its written closing submissions, the relief sought by MSA was:
(a) an order that it purchase Create's share in Founder pursuant to s 233 of the Act, alternatively under the Founder SHA; and
(b) the price to be paid by MSA for Create's share in Founder should be within the range of $610,421 to $789,859, subject to any adjustments determined by the Court as necessary to remove the effects of pleaded and proven oppression, along with repayment of Create's investor loan to Founder.
70 This was further refined by MSA during its oral closing address, where it submitted that the relief should be:
(a) an order that MSA buy Create's share in Founder within a certain period of time;
(b) if MSA does not do so, Create buy MSA's share in Founder within a certain period of time; and
(c) if Create does not do so, then the proceeding should come back before the Court for further orders.
71 Create called two lay witnesses in support of its case: Pulitano and Alexander Pulitano. Both had filed affidavits; Pulitano was cross-examined; and Alexander Pulitano was not cross-examined. The lay witness affidavits relied upon by Create were:
(i) 18 August 2021 ('First Pulitano Affidavit');
(ii) 14 September 2022 ('Second Pulitano Affidavit');
(iii) 24 November 2022 ('Third Pulitano Affidavit');
(iv) 20 December 2022 ('Fourth Pulitano Affidavit');
(v) 5 October 2023 ('Fifth Pulitano Affidavit'); and
(vi) 30 October 2023 ('Sixth Pulitano Affidavit').
(b) An affidavit of Alexander Pulitano affirmed 5 October 2023 ('Alexander Pulitano Affidavit').
72 MSA called seven lay witnesses: Angelodemou; Chandy; de Clase, Nield and Panayi, described as the senior employees of the Renex business, who are employed by Op Co and respectively are the business development manager, the head of technology and senior process engineer, and the facility manager/process engineer; and Paul Morey ('Morey'), a manager of projects employed by Lycopodium Process Industries Pty Ltd ('Lycopodium'). All of these witnesses provided affidavits and were cross-examined. The lay witness affidavits relied on by MSA were:
(i) 6 October 2022 ('Third Angelodemou Affidavit');
(ii) 3 November 2022 ('Fifth Angelodemou Affidavit');
(iii) 13 December 2022 ('Eighth Angelodemou Affidavit');
(iv) 3 February 2023 ('Ninth Angelodemou Affidavit');
(v) 24 October 2023 ('Eleventh Angelodemou Affidavit'); and
(vi) 3 November 2023 ('Twelfth Angelodemou Affidavit').
(i) 6 October 2022 ('First Chandy Affidavit');
(ii) 3 November 2022 ('Second Chandy Affidavit'); and
(iii) 1 February 2023 ('Third Chandy Affidavit').
(c) Affidavit of Bradley de Clase affirmed 3 February 2023 ('de Clase Affidavit').
(d) Affidavits of John Panayi sworn 3 February 2023 and 10 November 2023 (respectively, 'First Panayi Affidavit' and 'Second Panayi Affidavit').
(e) Affidavit of Paul Nield affirmed 3 February 2023 ('Nield Affidavit').
(f) Affidavit of Paul Morey sworn 24 October 2023 ('Morey Affidavit').
73 I will have more to say in the course of this judgment about my assessment of the evidence in the context of the particular claims under discussion. At this point, I make some high level observations about the lay witnesses.
74 On a number of occasions during cross-examination, Pulitano gave answers which were inconsistent with contemporaneous documents or his affidavits, only conceding as such when he was taken to those documents or affidavits. The following examples, and these are but a few, illustrate Pulitano's tendency to overstate matters in his affidavits, deliberately giving certain impressions in them which were not borne out by the facts:
(a) First, in paragraph 62 of the Second Pulitano Affidavit, Pulitano sets out a number of items which he says he has not received from Angelodemou (such as monthly CFO reports, financial reports, CEO reports). Initially he stood by this contention when cross-examined. He was subsequently taken to examples of each of these items which he had received and which contradicted what was in his affidavit. Eventually, Pulitano conceded that his affidavit was incorrect in a number of respects. At paragraph 62(h) of the Second Pulitano Affidavit, he deposes that "As far as I am aware, there has been no financial statements prepared for [Founder] and no accountant is appointed for the entity, and no tax returns have been lodged". He was asked if he contended that these things should have occurred, to which he responded "I'm not saying they should've been, I'm just saying ... there aren't any." He says he wasn't complaining about it by including it in his affidavit, he was just "stating a fact". That may well be, but it reads as a complaint that something hadn't been done which he thought should have been done, thus creating a misleading impression by his evidence. At paragraph 62(o) of the Second Pulitano Affidavit, Pulitano deposes that he had not received any opportunity as a shareholder of Create to acquire a legal or beneficial interest in any shares when other shareholders had left Hold Co. He agreed that Areo was the only such shareholder who had exited. He cavilled with the proposition that Create never had any entitlement to acquire any of Areo's shares in Hold Co, saying that Founder had an opportunity to do so and Create is a part of Founder. This culminated in me asking Pulitano what was the point of him telling the Court this in the Second Pulitano Affidavit, to which he responded:
Throughout the um, I guess there's been a long period of time from where this started to where it is today, and I guess it's through multiple affidavits in terms of lots of stuff has been (indistinct) out in terms of the flavour of the things that were happening. But ultimately, in - lots of the things we were trying to do was just explain I guess where we came from and what our position was in terms of wholly, not just a legal position, but the - like the - the ah, the - the understanding between the two parties, my version of the understanding. So there's lots of bits in this - in both affidavits - on both sides' affidavits that ultimately, ah, um, are there for context and other bits and pieces.
With respect, this is nothing more than self-serving 'word salad'.
(b) Second, Pulitano has repeatedly contended that after Areo exited it was harder for Create to get financial information from Angelodemou and Chandy. During cross-examination, he was asked about information his brother Alexander Pulitano had requested from Chandy in May 2019, where in an email he requested copies of the financial statements for FYE 2018 and FYE 2017. Chandy provided those via return email the same day. This exchange ensued:
Mr Slattery: But you can see the date on which the request was made, this was after AREO Sarl had left the business, wasn't it?
Pulitano: Correct.
Mr Slattery: So, even after AREO Sarl left the business, based - and I accept that this email didn't go to you, it went to your brother, there wasn't any problem getting information from Mr Chandy at this point, was there?
Pulitano: The - the dates are very specific here.
....
Mr Slattery: 16 May 2019?
Pulitano: Yeah. We were not given up to date accounts that day, no, we were given accounts from months prior when AREO Sarl were still there, so that is my answer.
Her Honour: Mr Pulitano, is that seriously your answer?
Pulitano: I - I'm - I apologise, Your Honour. I just I'm - I'm frustrated at the questioning because - - -
Her Honour: Well, your answer was we weren't given up to date information at that date, but - - - ?
Pulitano: Yep.
Her Honour: - - - have a look at the request?
Pulitano: Yeah, okay. Well, yes.
Her Honour: What's being requested by your brother in this email?
Pulitano: Is this information, I agree with that.
Her Honour: It's the information for financial year - - - ?
Pulitano: Yeah, correct.
Her Honour: - - - 2018 and the previous year, it's not asking for up to date, is it?
Pulitano: It isn't, no, but it also wasn't a request by me, I apologise.
(c) Third, Pulitano said that he had only recently learned, since the breakdown of the relationship in late 2020 over the Laverton Properties, that MSA had not put in the full $5 million under the Investor Loan Agreement but the lesser amount of $4.675 million. Pressed, he said that he couldn't recall knowing this earlier than that, but when confronted with documents from January 2018 which contained this information, he had to concede that he had been given information showing this, and that he never raised any complaint about it at the time.
(d) Fourth, Pulitano demonstrated on a number of occasions in the course of cross-examination a tendency to downplay Angelodemou's founding of the Renex business and his ongoing role in it, to an extent which appeared somewhat churlish at times and not supported by actual evidence. For example, he denied that Angelodemou was a 'key man' in the management of the business and denied that this was the reason for obtaining 'key man' insurance in respect of Angelodemou and a put option in the Founder SHA whereby Create could, if Angelodemou ceased to be involved in the day-to-day management of the Renex Group of Companies, require MSA to purchase its share in Founder. Questioned on this a few times in a way which forced him to give a direct answer, he had to concede that he understood in December 2015 when entering into the suite of agreements that Angelodemou was important to the value of the Renex business.
75 While Pulitano did not appear untruthful, the manner in which he gave his evidence, and his tendency to present matters in an exaggerated and self-serving way, served to reduce his credibility and I consider that his evidence must be approached with some caution. That said, his evidence did not really detract from the main elements of Create's case.
76 Create submits that Angelodemou was not a credible or believable witness, saying that he:
(a) actively misled Pulitano in October 2020 regarding the Laverton Properties;
(b) purported to exercise contractual rights which did not exist;
(c) diverted the benefit of the Laverton Properties away from the Renex Group of Companies and into his own family trust;
(d) signed affidavits which suggested he had witnessed things he did not;
(e) obfuscated in answering questions during his evidence; and
(f) made fine distinctions between legal and beneficial ownership of the Laverton Properties.
I accept these criticisms of Angelodemou as a witness.
77 Angelodemou's understanding of documents, in particular their legal effect, was frequently shown to be wrong. Angelodemou gave evidence that he had a law degree and had commenced but not completed his articles of clerkship, but had never been admitted as a lawyer or practised as one. One might expect that he would have a better understanding of legal documents than he seemed to display. Given that he has a law degree, his repeated mistakes about legal documents was quite surprising. In light of the many instances in which he was wrong on such matters, any time his evidence was that he was permitted to do something has to be checked. In addition, it presents a credit issue: was his understanding of such matters really what he thought, or did it simply suit him to adopt erroneous understandings as a means of justifying his conduct? I think the latter is far more likely.
78 Angelodemou frequently took quite a bit of time before answering questions, however I did not think he was obfuscating in this regard or had any nefarious purpose in answering this way. It did not come across as taking time to make up answers; rather, since he took time with almost all his answers, even to some quite innocuous questions, I formed the impression that he was thinking carefully about the question and his answer.
79 Some of Angelodemou's evidence was so implausible that it affected his credibility and was ultimately unhelpful to MSA's case. Examples of this were his insistence that the Renex Group of Companies was going to get the benefit of the Laverton Properties even though he nominated Land Holdings as the purchaser (which held the land on trust for his own trust), thus putting legal and beneficial ownership outside the Renex Group of Companies; the circumstances of the Secured Lending Loan; and using the Laverton Properties as security for that loan which was for his own personal benefit.[3] His attempted justifications for withholding information from Create, including resisting subpoenas issued in this proceeding to the Renex Operating Entities, were self-serving nonsense. For example, his excuse for causing Op Co to resist a subpoena seeking invoices for legal costs paid by it (which ultimately led to Create amending its claim to include the Impugned Legal Fee Payments as an act of oppression) included that he thought certain matters should be kept confidential and he was worried that Op Co could be unreasonably criticised for engaging legal advisers and spending money on certain matters.
80 I will deal with other aspects of Create's submission about Angelodemou in due course, but overall his evidence must be approached with extreme care and caution.
81 Chandy appeared to me to give his evidence truthfully, however he did seem to be trying to put the best light on things. There were some aspects of his evidence which were confusing and seemed incorrect: the licence fees for use of intellectual property and how these were treated in the accounts being a prime example; and the accounting treatment of employee bonuses being another.
82 It seemed to be generally accepted by the parties that whoever's share was purchased would no longer be involved in the Renex Group of Companies or the Renex business.
83 In their affidavits, de Clase, Panayi and Nield all gave evidence as to their own importance to the conduct of the Renex business, as to Angelodemou being indispensable to it, and as to them either leaving or being likely to leave if Angelodemou was no longer running the Renex business. This evidence all seemed directed to MSA's resistance to Create buying its share in Founder. My impression of this affidavit evidence was that it was overstated and was at times incredulous. This impression in respect of de Clase's and Panayi's affidavits was reinforced by their oral evidence. Panayi's evidence about definitely and immediately leaving the Renex business if Angelodemou left for any reason (that is, not just if Pulitano took over) was preposterous. He denied a friendship with Angelodemou outside of work but was supposedly so loyal he would automatically leave his employment, which was not credible. De Clase's oral evidence was even more emphatic than his affidavit evidence: according to him, he would leave if Angelodemou left, he himself was completely indispensable to the Renex business, and all his customers would follow him if he went to a competitor.[4] On the other hand, Nield came across as straightforward and honest, and did not present as giving evidence as part of an Angelodemou cheer squad, which is the impression de Clase and Panayi had made.
84 Morey gave evidence about Lycopodium's historic involvement in the Renex business (both before and after the restructure of late 2015), by conducting feasibility and costs studies for the engineering, procurement and construction of the Waste Treatment Facility, assisting with the coordination and introduction of technology with the utilities and building works at the facility, assisting with the commissioning of the facility once it had been constructed, some technical support on about four occasions, and designing kiln support. Lycopodium's last assistance to the Renex business was in about June 2018. It made a pitch to do some plant improvements at the Waste Treatment Facility in 2023, however it was not awarded the job. Morey also gave evidence about its lack of operational expertise in the day-to-day running of a facility once it is operational. Morey was a straightforward and honest witness.
85 As noted above, on 11 October 2021, the Court made orders for the Court-Ordered Valuation, which resulted in the Rundell Report. Each party subsequently retained experts, both of whom provided two reports each:
(a) Create retained Dennis Lee, who provided reports dated 5 October 2022 ('First Lee Report') and 10 May 2022 ('Second Lee Report'). Lee is a certified forensic accounting specialist at PKF Melbourne Advisory Pty Ltd.
(b) MSA retained Dawna Wright, who provided reports dated 14 December 2022 ('First Wright Report') and 24 January 2023 ('Second Wright Report'). Wright is a qualified chartered and forensic accountant at FTI Consulting.
86 At trial, neither party relied upon the Rundell Report or called Rundell as a witness. However, the Rundell Report was in evidence. I will have more to say about this later.
87 Lee and Wright were both called as witnesses and were cross-examined. They each conducted themselves in a professional manner, doing their best to answer questions and to assist the Court.
88 Lee answered questions truthfully and carefully, readily making concessions where appropriate.
89 Wright's approach was straightforward, honest and knowledgeable. She took care to stay within her areas of expertise but if went outside those areas, readily acknowledged as much. Wright explained things clearly, in particular the issue of depreciation and amortisation, and how to treat the intellectual property payments and licence fees.
91 The Court's jurisdiction is enlivened if s 232 is met. That section relevantly provides:
The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
(b) an actual or proposed act or omission on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
(a) that the company be wound up;
...
(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e) for the purchase of shares with an appropriate reduction of the company's share capital;
(h) appointing a receiver or a receiver and manager of any or all of the company's property;
(i) restraining a person from engaging in specified conduct or from doing a specified act;
E.1.2 Key applicable principles - s 232 of the Act
Oppressive conduct
Turning to the case law, for there to be oppressive conduct for the purposes of s 232(e) of the Corporations Act, there must be commercial unfairness to a member or members of the company.
The phrase 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' is a compound expression. The words should be 'considered merely as different aspects of the essential criterion, namely commercial unfairness'.
In Re Companies (Western Australia) Code, Murray J of the Supreme Court of Western Australia said the concept of 'unfairness' takes many forms and may include:
the harm suffered as a result of the conduct of management, the prejudice caused, the lack of reasonable commercial justification for the course taken, or simply in the decision making processes within the company.
In Re Ledir Enterprises Pty Ltd, Black J of the Supreme Court of New South Wales noted that s 232(e) is concerned with conduct that involves 'commercial unfairness' or 'a departure from the standards of fair dealing, or where a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair'.
The test for commercial unfairness has an objective standard. It requires an assessment of whether objectively, in the eyes of a commercial bystander, there has been unfairness. As Brennan J stated in Wayde v New South Wales Rugby League Ltd:
The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.
Evidence of conduct having been engaged in deliberately, knowing it to be unfair or not in good faith is persuasive, but not necessary. As Sackar J of the Supreme Court of New South Wales stated: 'although proof of some improper purpose or ulterior motive may well make the finding of oppression irresistible, the absence of such motivation will not and cannot in and of itself defeat [sic] charge of oppression'.
If the directors or a majority membership conduct the affairs of a company such that they advance their own interests or the interests of others of their choice, to the detriment of a minority shareholder, that conduct will ordinarily fall within the ambit of the oppression section.
Therefore the court is required to determine whether, on the balance of probabilities, an objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly. This inquiry is not assessed in a vacuum: the context is relevant to assess the fairness of the conduct.
Contrary to the interests of the members as a whole
Subsection (d) of s 232 of the Corporations Act empowers the court to make an order under s 233 if the conduct of the companies' affairs is 'contrary to the interests of the members as a whole'.
In Turnbull v National Roads and Motorists' Association Ltd, Campbell J of the Supreme Court of New South Wales opined that subsections (d) and (e) are distinct grounds of relief. Although Australian judgments have differed in their approach, Campbell J's approach has been widely adopted and is the preferred view. I adopt this view.
There has been comparatively little judicial consideration of the phrase in s 232(d). In Sandy v Yindjibarndi Aboriginal Corporation RNTBC (No 4), Pritchard J of the Supreme Court of Western Australia said:
Conduct by a board of directors will be contrary to the interests of the members as a whole if no board, acting reasonably, could have engaged in that conduct. It is not necessary to show bad faith on the part of the directors. In other words, conduct may be contrary to the interests of the members as a whole even though the board of directors does not act in bad faith.
Although they are separate grounds, there may be conduct which falls within both subsections (d) and (e). ...
94 In the Connective Trial Judgment, Robson J went on to say that to that summary, 'some further germane points of principle should be added':[8]
Conduct of a company's affairs may be oppressive pursuant to s 232, although the conduct is lawful and not in breach of any fiduciary or other duty.
In deciding whether there has been conduct which is oppressive, unfairly prejudicial or unfairly discriminatory, the court is required to undertake 'an evaluative exercise in which potentially competing considerations are brought to account'. The conduct of a minority shareholder, for example, and whether they have baited the majority, is also relevant in assessing the gravity of any allegation of oppressive conduct.
Individual acts that do not meet the description laid down by s 232 might collectively meet that description, and there may be conduct which is relevantly part of the overall story but which does not independently justify a finding of oppression under the section.
In determining whether there is oppressive conduct in any particular case, an exposition of the case law by reference to common instances of oppression can be helpful but should not replace the 'application of the statutory test directly to the fact of the case in issue'.
The statutory test and available relief contained in ss 232 and 233 'are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution'.
The remedy is available in respect of conduct of both shareholders and directors. The test is whether, objectively, in the eyes of a commercial bystander, there has been unfairness. Where the conduct is that of a director, the bystander is taken to be a director.
... the better view is that s 232(d) is separate and distinct from s 232(e) and that a breach may not necessarily involve commercial unfairness. The court is required to examine all of the relevant facts and circumstances in order to determine whether the conduct under scrutiny is in the best interests of the company as a whole, apart from its members. In this context breaches of duty (whether statutory or fiduciary) by directors and officers may well be conduct that is not in the best interests of the company as a whole. ...[10]
96 In respect of s 232(e) of the Act, in the same case Sifris J summarised similar authorities to those referred to by Robson J, before concluding that:
... the critical issue is commercial unfairness, judged objectively. It usually results in some harm or prejudice by such conduct that is not reasonably or commercially justifiable. Of course all of the facts and circumstances and context needs to be examined in order to determine whether such conduct alleged is oppressive. Further, upon such examination conduct that may appear unfair may be fully justified. ... Each case must depend on its own facts and circumstances. [11]
97 MSA's closing submission conveniently summarised the key principles around pleading requirements in oppression cases, which I adopt:
(a) Where the affairs of a subsidiary are to be relied upon, 'there ought to be pleaded some conduct of the holding company which gives rise to those affairs'.[12]
(b) It is 'necessary for each single allegation in an oppression case to be pleaded clearly in order to assess whether the totality may amount to oppression.'[13]
(c) A pleading 'should spell out the respects in which it is said that the conduct is contrary to interests of members as a whole pursuant to s 232(d), and should also precisely delineate the basis on which s 232(e) is relied on.'[14]
(d) Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded in the pleadings.[15]
(e) The pleading of an oppression claim needs to specify how the relief sought would have the effect of remedying the conduct complained of or the consequences of the conduct.[16]
98 There are other principles applicable to matters such as remedy and valuation of shares, however it is more convenient to deal with these when considering those matters in this particular case.
99 Alternatively to its oppression claims, Create relies on s 461(1)(e), (f) or (k) of the Act to seek an order that Founder be wound up.
100 Section 461(1) of the Act relevantly provides that the Court may order the winding up of a company if:
(e) directors 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 appears to be unfair or unjust to other members; or
(f) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
(k) the Court is of opinion that it is just and equitable that the company be wound up.
102 Section 467(4) provides as follows where the application is made by a member as a contributory:
Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
103 The applicable principles in respect of winding up a company on the just and equitable ground (s 461(1)(k)) have been set out in numerous cases. These were recently conveniently summarised by Jackman J in Read-Zorn v Origin Distillers Group Pty Ltd.[18] In that case, his Honour stated:[19]
Winding up on the just and equitable ground has been recognised as applicable in a number of conventional categories, such as where the substratum of the company has failed, where management of the company's affairs is in deadlock or disagreement, where the company's formation involved fraud, where there has been misconduct on behalf of the company's directors, where there is a constitutional or administrative vacuum in the company's management, and where there is a lack of fairness, confidence and commercial morality in the company's affairs: Catombal Investments Proprietary Limited [2012] NSWSC 775 at [19] (Brereton J).
In that case, Brereton J said at [20] that the Court is not restricted to those scenarios, as the term "just and equitable" is broad and a party may seek an order under s 461(1)(k) of the Corporations Act whenever there is something:
[affecting] him or her in [their] relations with the company or shareholdings, at least so long as those circumstances have a direct and immediate relationship to, or bearing upon, the management or administration of the affairs of the subject company, or the conduct of its business.
His Honour also pointed out that whether winding up is just and equitable is a question of fact, in respect of which each case will depend on its own circumstances. A well-established circumstance is where mutual cooperation and a level of trust are essential for the smooth running of the company's day-to-day management. As Barrett J said in Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343:
Winding up is the characteristic remedy in circumstances where a working relationship predicated on mutual cooperation, trust and confidence has broken down.
Similarly, the New South Wales Court of Appeal in Fexuto Proprietary Limited v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ASCR 672 at [89] said that the jurisdiction to order winding up on the just and equitable ground may be exercised in circumstances that do not amount to oppression, unfair prejudice or unfair discrimination, particularly so where "irreconcilable differences" between shareholders have led to an irretrievable breakdown in a "personal relationship involving mutual confidence".
Similarly, in Mudgee Dolomite & Lime Pty Ltd v Murdoch [2020] NSWSC 1510, the company which was established on the basis of a relationship of mutual confidence suffered irreconcilable differences emerging between the members. In that case, the personal relationship between the parties failed and, ultimately, actions such as unwillingness to sign documents or attend meetings caused the disintegration of the relationship and, subsequently, a reason for the court to wind up the company on the just and equitable ground.
104 It is convenient at this point to identify the key issues for consideration and determination of the oppression claims made by the parties. When referring to oppression claims in this general way, I am referring to both s 232(d) and (e) of the Act.
(a) The enlivening of the Court's discretion to make orders under s 233 of the Act (section G below).
(b) The meaning of the 'affairs of the company' in this case (section H below).
(c) How allegations of breach of director's duties can be relied upon when the director is not a party to the proceeding and no derivative leave has been sought or given in respect of those allegations (section I below).
(d) The 12 acts of oppression alleged by Create - whether they each or together constitute conduct which is contrary to the interests of members as a whole and/or oppressive conduct (sections J to U below).
(e) Whether Create has engaged in conduct which is contrary to the interests of members as a whole and/or oppressive to MSA, or has breached the Founder SHA (section V below).
(f) Whether Create can rely on certain 'un-pleaded' issues (section W below).
(g) The appropriate remedy - whether there should be a buyout, a winding up, or some other remedy (section X below).
(h) If the appropriate remedy is a buyout, which party should be the buyer (section Y below).
(i) Previous agreements to purchase shares and open offers made by the parties in respect of one buying out the other (section Z below).
(j) If the appropriate remedy is a buyout, what is the valuation and the price to be paid (section AA below).
106 These key issues will each be dealt with in turn, setting out where necessary matters specific to that issue such as the evidence, the authorities, the parties' submissions, and then my consideration and analysis.
G. Enlivening the Court's jurisdiction under s 233 of the Act
107 Create pleads 12 acts of oppressive conduct by MSA. As already noted, one of these, the removal of Pulitano as a director of Founder on 5 February 2021, is admitted by MSA as constituting oppressive conduct.
108 MSA submits that one act of oppression having been admitted, the Court's jurisdiction to make an order under s 233 of the Act is enlivened. It says that the remaining allegations, including the other alleged acts of oppression, are relevant only insofar as they go to remedy (that is, whether to order a buyout of one party's share and if so who, or whether to wind up Founder) or to value (including adjustments to the price of the share).
109 This submission is clearly correct. The acknowledgment that the Court's jurisdiction under s 233 has been enlivened does not, however, mean that it is not required to deal with all of the other allegations of oppressive conduct given their potential impact on remedy and price.
H. Meaning of the 'affairs of the company' in this case
110 It is necessary to address this issue before discussing each of the alleged acts of oppression, as it will inform most, if not all, of those matters. The importance of this issue is that for the relevant conduct to be contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity, it must pertain to the conduct of the company's affairs. In this case, the company is Founder.
111 The key issue here is whether the affairs of Founder includes the conduct of the Renex business by the Renex Operating Entities being Hold Co, Op Co, Land Co and IP Co, such that the affairs of Founder also includes conduct in the affairs of one or more of the Renex Operating Entities. Create contends that it does; whereas MSA contends that it does not.
112 In respect of this issue, both parties relied on certain provisions of the Founder SHA. In that document:
Business means the business of holding shares in [Hold Co] which, together with its associated entities, will operate and commercialise the [Waste Treatment Facility], located at [the Dandenong Site] on and from the Effective Date (as varied from time to time in accordance with this agreement).
2.2 Nature of the Business
The Company has been established to carry on the Business and may only carry on any other business apart from the Business if authorised to do so in accordance with this agreement.
113 'Affairs' has a non-exhaustive definition in s 53 of the Act to include "control, business, trading, transactions and dealings ... of the body".[20] The definition provides "an expanded identification"[21] of affairs, which includes the power of persons to exercise, or control the exercise of, the rights to vote attached to shares in the body.[22]
114 The question of when conduct of a company may be conduct in another company's affairs has been the subject of a number of cases, particularly insofar as conduct of a holding company can be conduct in a subsidiary's affairs (and vice versa) is concerned. An exploration of such cases usually begins with the House of Lords decision in Scottish Co-operative Wholesale Society Ltd v Meyer,[23] which considered the conduct of a parent company after it had failed to reach agreement to buy out the minority shareholders of its subsidiary. In Meyer, two approaches to consideration of the question are articulated: the broader approach of Viscount Simonds and the narrower approach taken by Lord Morton. In Ubertini v SAECO International Group SpA (No 4),[24] Elliott J extensively reviewed the House of Lords' decision before describing the two approaches as follows:
(a) The broader approach 'may permit a court to treat the conduct of a parent company to be the affairs of a subsidiary company if the conduct affects the subsidiary's affairs, regardless of whether the parent company's conduct is being engaged in by its nominee directors on the board of the subsidiary.'[25]
(b) The narrower approach is that 'the conduct of the parent company, even if oppressive towards its subsidiary, would not, per se, be in the subsidiary's affairs.' It requires wrongful conduct (which could be action or inaction) by the nominee directors before the parent company's conduct could be characterised as of the subsidiary's affairs.[26]
115 Elliott J's reading of Meyer was that the majority of the law lords did not decide the case on the narrower basis, therefore they did not reject the broader approach.[27]
116 In Ubertini, Elliott J then went on to review Australian cases so as to discern which approach was followed, concluding that:
I do not read any of the subsequent decisions, referring to Scottish Co-operative Wholesale Society Ltd v Meyer when considering conduct of parent companies and subsidiaries, as necessarily confining the meaning of "'affairs' of a company" in this context to conduct that is performed by the nominee or common directors on the board of the other company (ie the company whose affairs are not the subject of the application).[28]
...[the authorities do not] limit a court's approach, when considering whether conduct is 'conduct of a company's affairs' in the context of a relationship of a holding company and a subsidiary, to the narrower approach taken by Lord Morton in Scottish Co-operative Wholesale Society v Meyer. As has been noted, the issue as to the extent of the meaning of 'affairs' in this context is not settled.[29]
117 His Honour's survey of those authorities can be found at paragraphs 518 to 528 of Ubertini. I have found that survey helpful and have taken all of it into account, noting in particular the following matters which seem particularly relevant to the case before me:
(a) Re Norvabron Pty Ltd (No 2)[30] was decided on the narrower approach, which was sufficient in that instance for there to be a finding of oppressive conduct in the affairs of the subject company, but this did not involve a rejection of the broader approach.[31] Interestingly, it was successfully established there that conduct in the subsidiary was conduct in the affairs of the parent company.
(b) As Elliott J noted, Re Norvabron (No 2) was heard after the defendants had successfully argued a demurrer, both at first instance and on appeal. The Queensland Full Court canvassed the approaches in Meyer, before ruling that:[32]
[I]f a case is to be made of oppressive inactivity within the affairs of the [parent] company, it cannot be effectively pleaded solely by a statement, however extended, of the activities in the affairs of the subsidiaries. It requires as well to be accompanied by a statement of activity in the affairs of [the parent company] (or it seems that a correlative "inactivity" may be relied on) because this is the basis for relief in the jurisdiction concerned with oppression.
(Emphasis added).
(c) Elliott J states that that ruling stands for no wider proposition than that which is stated.[33] In my view, the Queensland Full Court was not, by this ruling, adopting the narrower approach: rather, it was stating what was required by way of pleading if more than the narrower approach was relied upon. In other words, it is a pleading point and not a matter of substance.
(d) Re Dernacourt Investments Pty Ltd[34] stands for the proposition that conduct of a holding company may be in the affairs of its subsidiary and, conversely, conduct of a subsidiary may be in the affairs of its holding company. In that case, Powell J stated:[35]
... although the relevant plaintiff must demonstrate that it is the relevant company's affairs which are being so conducted, I am prepared to proceed upon the bases, first, that, in an appropriate case, the conduct of a holding company, or of such of its directors who happen to be directors of the relevant subsidiary, towards a subsidiary, may constitute conduct in the affairs of that subsidiary, and, secondly, that, in an appropriate case, the conduct of a subsidiary, or of some or all of its directors who happen as well to be directors of the holding company, may be regarded as part of the conduct of the affairs of the holding company.
(e) In both Meyer and Ubertini, the relevant subsidiary was not wholly owned (but was majority owned) by the parent company.
118 As noted above, Create contends that the affairs of Founder include the conduct of the Renex business by the Renex Operating Entities, relying on the following matters.
119 First, Create submits that MSA admits in its D & CC that Hold Co, Op Co, IP Co and Land Co are each subsidiaries of Founder within the meaning of s 46 of the Act; that Hold Co and its subsidiaries constitute a group of companies known as the Renex group which operates on a consolidated basis for accounting and taxation purposes; and that the affairs of Founder includes the conduct of the Renex business by the Renex Operating Entities.
120 Create contends that MSA now seems to want to depart from these express admissions by its assertion that many of Create's allegations, even if proved, do not afford the Court jurisdiction to grant the relief it seeks under s 233 of Act because of the allegation that its claim fails to identify the particular conduct in the affairs of Founder said to give rise to the affairs of Hold Co, or its subsidiaries. Create submits that MSA cannot now resile from the admissions in its pleadings.
121 Second, Create submits that it is plainly discernible from each of the complained acts of oppression the affairs of precisely in which subsidiary Angelodemou has acted oppressively, and it is an admitted fact, that the affairs of a subsidiary constitute the affairs of Founder.
122 Third, it is a pleaded assertion of Create that it is by Angelodemou's control of the subsidiaries, and his actions in relation to the subsidiaries being the sole business of Founder, that he has acted in his own interests rather than the interest of the members of Founder as a whole or Create. In this regard, Angelodemou is, and has been at all relevant times, the sole director of Hold Co and its subsidiaries.[36] For these reasons, the Court ought find that Angelodemou has engaged in conduct of Founder's affairs in so acting in the conduct of Hold Co and its subsidiaries.
123 Fourth, Create submits that the provisions of the Founder SHA extracted at paragraph 112 above make plain that the 'business' of the Renex group includes the subsidiary entities.
124 Fifth, Create submits that the evidence of Angelodemou in relation to the collective operation of the Renex Group of Companies is:
(a) when asked whether Pulitano may have been concerned if a company outside the Renex Group of Companies might have the benefit of the Laverton Properties, he said "he may have been concerned, but ah, there was no reason to give specific concern given ah, the Renex Group ah, is controlled and ah, run by me um, in the ordinary course";
(b) when explaining his (wrong) belief about the beneficiaries of the Renex Property Holdings Trust, he said "the Renex Group of Companies, ah, captured, ah, as potential beneficiaries, given the discretionary nature of the trust";
(c) when discussing the nomination of Land Holdings (instead of Land Co), that "it was new from Hold Co's perspective, or the Hold Co - the Renex Group of Companies' perspective;" and
(d) he deposed that "At the time Land Co received the net proceeds of sale from the Laverton Properties, the Renex Group was in desperate need of funds."
125 By its POC, Create alleges 12 instances of oppression in the affairs of Founder. MSA says that it does so primarily by alleging various 'circumstances' or conduct occurring at the level of the Renex Operating Entities, rather than at the Founder level, and then making a rolled-up allegation that 'in the circumstances described in these points of claim' Angelodemou 'has acted in the affairs of Founder through control of its subsidiaries' in his own interests rather than the interests of the members of Founder as a whole, in a manner that was unfair and unjust to Create, and has acted in a manner that is oppressive, or prejudicial to, or contrary to the interests of Create and the members of Founder as a whole. It is on that basis that Create alleges the Court may, pursuant to s 233 of the Act, make orders it considers appropriate (including an order that Create purchase MSA's share in Founder).
126 However, MSA submits that the vast majority of the conduct or 'circumstances' upon which Create relies relates not to the affairs of Founder, but to the affairs of the Renex Operating Entities. Indeed, MSA says that each of the circumstances, apart from the removal of Pulitano as a director of Founder, do not concern the conduct of Founder's affairs.
127 MSA submits that the POC reveals no pleaded factual nexus between the affairs of Founder and any of the conduct complained of. In particular, Create fails to:
(a) identify the particular conduct in the affairs of Founder said to give rise to the conduct in the affairs of Hold Co, or Hold Co's subsidiaries;
(b) identify conduct by Angelodemou, either by way of action or inaction, at the Founder level;
(c) identify how Angelodemou's conduct is said to be contrary to the interests of Founder's members as a whole, or otherwise oppressive, unfairly prejudicial or unduly discriminatory to Create; and
(d) delineate whether it relies on section 232(d) or 232(e) of the Act.
128 MSA refutes Create's contention that it has admitted that all of the conduct alleged by Create is conduct in the affairs of Founder for the purposes of s 232 of the Act. Rather, it says that it admits as a generalised notion that the affairs of Founder involve to some extent the conduct of its subsidiaries. Create's plea at paragraph 15 of its POC is in the nature of a generalised preliminary averment. It makes no specific reference to s 232 of the Act. It does not use the phraseology of that section. Importantly, it fails to specifically allege that the 12 instances of oppression pleaded thereafter constitute conduct of Founder's affairs within the meaning of s 232 of the Act. Rather, by using the words at the start of the paragraph 'in the premises', paragraph 15 of the POC directs attention to the matters that precede it, rather than the 12 instances of oppression that follow it. Also importantly, paragraph 15 of the POC, and MSA's response to it, pre-date the oppression allegations that were not introduced by Create until May 2022.
129 MSA also submits that the 'business' of Founder is the holding of shares in Hold Co, and that this does not extend to the business of Hold Co or the other Renex Operating Entities.
130 MSA concedes that the affairs of a holding company may include the affairs of a wholly owned subsidiary but the issue as to the extent of the meaning of affairs in this context is not settled.[37]
131 MSA submits that there appear to be no Australian cases considering where, as is in this proceeding, the affairs of a company include the affairs of wholly owned subsidiaries of its subsidiary. It submits that the issue is further complicated by the fact that Hold Co is not wholly owned; it being common ground that Artis Parra is a shareholder in that company and makes no complaint of oppression in Hold Co's affairs. MSA says that there appear to be no Australian cases where oppression has been found in similar circumstances.
132 As set out in section H.1 above, conduct in respect of a subsidiary can be conduct in the affairs of the holding company. However, in their submissions it seems to me that the parties have not always accurately encapsulated what is actually alleged in this proceeding. For example, MSA says that Create has failed to "identify the particular conduct in the affairs of Founder said to give rise to the conduct in the affairs of" the Renex Operating Entities. But that is not the right way of looking at the situation. Founder being the subject company, the question is whether conduct in the affairs of the subsidiaries (ie the Renex Operating Entities) gives rise to conduct in the affairs of the holding company (ie Founder). Thus the question here is whether Angelodemou's conduct, there being no real contest that his conduct does not amount to MSA's conduct,[38] of the business and operation of the Renex Operating Entities constitutes conduct in the affairs of Founder.
133 In my view, Create's position on this issue is more consistent with the relevant provisions of the Founder SHA than is that of MSA. If it was intended that Founder's business be confined to the holding of shares in Hold Co, then it seems to me that there is little utility in the definition of 'business' in the Founder SHA going on to describe the operation and commercialisation of the Waste Treatment Facility at the Dandenong Site. Further, there would be little, if any, purpose for clause 2.2 of the Founder SHA.
134 More importantly, however, is the way that the Renex Group of Companies has been run and the totality of the parties' conduct.
135 Structurally as well as operationally, the Renex Group of Companies was designed to, and did, operate as just that, a group. Apart from external financing, capital for the operation of the group was funded by Founder's shareholders: MSA and Create. Both lent money to Founder, who on-lent it to Hold Co where it was used for the purposes of the Renex business. It is extremely artificial to regard major expenditure by one of the Renex Operating Entities, such as the purchase of the Laverton Properties, as being completely separate from Founder or not something which concerned the affairs of Founder.
136 The evidence discloses that where it suited MSA's interests, it took a broad view of what constituted the affairs of Founder. In this regard, the content of the letter dated 15 January 2021 from MSA's solicitors (Clayton Utz) to Create's solicitors (then, Russell Kennedy) alleging breaches of the Founder SHA by Create ('15 January 2021 Letter') is instructive. In that letter, Clayton Utz on behalf of MSA stated:
(a) Pursuant to clause 2.4(c) of the Founder SHA, Create is "required to 'use all reasonable endeavours to procure that the Company carries on the Business'. The Company is [Founder] and the 'Business' is defined as 'the business of holding shares in [Hold Co]'. ... The Business of [Founder] therefore encompasses the business of [Hold Co]."
(b) The Hold Co SHA defines 'business' as 'the business of operating and commercialising the [Waste Treatment Facility] located at [the Dandenong Site] carried on by the Group Companies as varied from time to time in accordance with this agreement'. The board of Hold Co resolved to purchase the Laverton Properties to establish a second facility. "The business of [Hold Co] and therefore [Founder] includes the development of this second facility."
(c) Pursuant to clause 2.5 of the Founder SHA, Create is required to 'act in good faith and with honesty in all of its dealings with each other party in relation to the conduct of the Business and the Company and the implementation of each Transaction Document.'
(d) Create breached clause 2.4(c) of the Founder SHA by commencing the s 247A Proceeding to prevent the settlement of the purchase of the Laverton Properties and by giving notice of its intention to commence the s 237 Proceeding, knowing that this would constitute an event of default under the facility agreement for the purchase of the Laverton Properties.
(e) Those breaches, along with the following, amount to a breach of clause 2.5 of the Founder SHA. The following matters being:
(i) Create not withdrawing its intention to bring the s 237 Proceeding, despite Global Credit Investments Pty Ltd ('GCI'), which was the financier, issuing a default notice under the facility agreement for the Laverton Properties purchase as a consequence of that threat;
(ii) Create issuing a letter of demand to MSA for payment of the 2015 Share Sale Debt on 7 December 2020 and subsequently issuing a statutory demand for that debt on 4 January 2021, knowing that MSA's officer and advisors were likely to be on annual leave; and
(iii) Create's stated unwillingness to negotiate its exit from Founder until the defaults in GCI's default notice were remedied, when those defaults were caused by Create's own conduct.
137 MSA relied on Pulitano's conduct in allegedly preventing completion of the purchase of the Laverton Properties, as well as other matters, as a basis for removing him as a director of Founder. The purported resolution of Founder dated 5 February 2021 removing Pulitano as a director of Founder referred specifically to the 15 January 2021 Letter and the matters raised therein. The resolution stated that Create had failed to remedy the alleged breaches of the Founder SHA and that this gave rise to an event of default within the meaning of the Founder SHA, thereby causing Pulitano's removal as a director of Founder. The stated foundation for the conclusion reached in the resolution will be explained later in these reasons.
138 MSA's position, as described in the previous two paragraphs, can hardly stand in starker contrast to what it now contends in this proceeding. Pulitano's conduct in respect of the purchase of the Laverton Properties, where that purchase was by Land Co for use in the business of the Renex Operating Entities, is conduct in the affairs of Founder;[39] yet Angelodemou's conduct in respect of various of the Renex Operating Entities (including conduct going to the very same matters, such as the purchase of the Laverton Properties) is said not to be conduct in the affairs of Founder.
139 MSA's position on this issue is inconsistent with Angelodemou's own evidence in this proceeding. The matters referred to in paragraph 250 below serve as an illustration of this.
140 Angelodemou is Founder's nominated director on the board of Hold Co, and is also its chief executive officer, as specifically provided for in the Hold Co SHA. It is a term of the Hold Co SHA that unless the shareholders otherwise agree in writing, the board of any subsidiary of Hold Co is the same as the board of Hold Co. Angelodemou has been the sole director of Hold Co and its subsidiaries since Areo's exit as a shareholder of Hold Co in 2018. At the time the Hold Co SHA was entered into, the parties to it were Founder and Areo.
141 The circumstances here fall squarely within the range of circumstances described in the authorities for when conduct in respect of a subsidiary also constitutes conduct in the affairs of the holding company, particularly given that Angelodemou is the holding company's nominee director on the board of Hold Co and its subsidiaries. Given the structure and control of the Renex Group of Companies, I consider it irrelevant that Hold Co is not a wholly-owned subsidiary of Founder. Artis Parra's shareholding in Hold Co is very small in comparison to Founder's and it is abundantly clear that Angelodemou, who is Founder's nominee director of Hold Co and now Hold Co's only director, is in control of all of the companies. Until the disputes with Pulitano arose, Angelodemou conducted the Renex Group of Companies as a group and without any significant distinction between them, regarding them all as being concerned in operating the Renex business.
142 Further, I accept Create's submission that MSA cannot now resile from its admissions in its pleadings. I reject MSA's submission that it did not make the admissions Create says it did and I also reject MSA's attempt to effectively walk back those admissions. In this regard:
(a) The POC alleges that each of the Renex Operating Entities[40] is a subsidiary of Founder within the meaning of s 46 of the Act [paragraph 13]. This paragraph is admitted in the D & CC.
(b) The POC alleges that each of Hold Co, Op Co, IP Co and Land Co constitute a group of companies known as the Renex Operating Entities which operates on a consolidated basis for accounting and taxation purposes [paragraph 14]. This paragraph is admitted in the D & CC.
(c) Paragraph 15 of the POC alleges that "In the premises the affairs of [Founder] includes the conduct of the Renex business by the companies constituting the [Renex Operating Entities]." This paragraph is admitted in the D & CC.
(d) The POC alleges that the Renex Operating Entities carries on a commercial waste processing and recycling business (defined therein as 'the Renex business') at premises including the Dandenong Site [paragraph 16]. This paragraph is admitted in the D & CC.
(e) By its pleading, MSA has admitted that the conduct of the Renex business by the companies constituting the Renex Operating Entities is included in the affairs of Founder. I do not accept the submission that this is merely the admission of some generalised notion that the affairs of Founder involve to some extent the conduct of its subsidiaries. Nor do I accept that paragraph 15 of the POC is merely a generalised preliminary averment. It does not matter, for these purposes, that it does not specifically refer to s 232 of the Act or use the phraseology of that section.
(f) I do not accept MSA's attempt to narrow the meaning of paragraph 15 of the POC and MSA's admission of it by its reliance on the words 'in the premises'.
(g) That paragraph 15 of the POC and MSA's response to it pre-dates the amendments to the POC to include the oppression claim is not to the point. If MSA believed that the addition of the oppression claim required some amendment to paragraph 15 of the D & CC so as to clarify this issue, then it could have amended its pleading at that time. It did not relevantly do so.
143 Whether or not the specific acts of oppression are sufficiently pleaded as being in the affairs of Founder will, where necessary, be addressed when considering those acts later in these reasons.
I. Use of alleged breaches of director's duties in this case
144 As noted above, Create pleads that five of the matters it relies upon in respect of s 232(d) and (e) of the Act involve breaches by Angelodemou of his statutory and fiduciary duties as a director to Founder and to the Renex Operating Entities. These are the diversion of opportunity; refusal to provide information regarding the Laverton Properties; removal of Pulitano as a director of Founder; the purported valuation of Create's share in Founder by Value ADE; and Angelodemou's use of the Laverton Properties for his personal benefit.
(a) to exercise his powers and discharge his duties as director of each company with the degree of care and diligence that a reasonable person would exercise if he:
(i) were a director of a company in each company's circumstances; and
(ii) occupied the office of and had the same responsibilities as Angelodemou;
(b) to exercise his powers and discharge his duties as director of each company:
(i) in good faith in the best interests of the company; and
(ii) for a proper purpose;
(c) not to improperly use his position as director of each company to:
(i) gain an advantage for himself or someone else; or
(ii) cause detriment to the company;
(d) not to improperly use information obtained because he was a director of each company to:
(i) gain an advantage for himself or someone else; or
(ii) cause detriment to the relevant company.
146 Create also pleads that as a director of Founder and the director of each of the Renex Operating Entities, Angelodemou owed fiduciary duties to each of those companies:
(a) to avoid conflicts of interest between his own interests and those of the Renex Group of Companies;
(b) to avoid conflicts of duties owed to the Renex Group of Companies and his own interests;
(c) not to divert any property or rights away from the Renex Group of Companies in favour of himself or others; and
(d) not to obtain for himself or another a benefit or profit from his position as a director of any of the Renex Group of Companies.
147 In effect, MSA admits that as a director, Angelodemou has these statutory and fiduciary duties to the each of the companies in the Renex Group of Companies.
148 The parties differ on how alleged breaches of director's duties can be used in this case.
149 Create submits that breaches of statutory and fiduciary duties are relevant in determining whether a person, being a director or officer of a company, has engaged in conduct that is contrary to the interests of members as a whole.
I proceed on the basis that the applicant in an oppression claim can bring a claim for breach of general law and statutory duties owed to a company, without necessarily seeking a separate order for leave to bring a statutory derivative action under s 237 of the Corporations Act, although such a claim could only extend to loss which the company had suffered and not loss that the shareholder had suffered personally.[42]
151 Create submits that this proceeding is not a derivative action against Angelodemou, and this proceeding is not predicated on Create's standing to bring such an action against Angelodemou for breaches of statutory and fiduciary duty. It is said to be relevant in having regard to the proper facts and circumstances of whether Angelodemou's conduct was contrary to the interests of Create.
152 It is convenient to set out here Create's general submissions about the content of the relevant duties.
153 Create submits that at the heart of its complaint against Angelodemou is his nomination of an unrelated corporate entity as the purchaser of the Laverton Properties to the active concealment from Pulitano. This conduct, together with using the Laverton Properties as security for a personal loan one day after an undertaking by Angelodemou to this Court was varied, as well as the removal of Pulitano as a director in the context of this breakdown, and obtaining an inadequate valuation of Create's share in Founder, is conduct of Angelodemou in contravention of his statutory and fiduciary duties owed to each company in the Renex Group of Companies. Each is dealt with in detail later in these reasons.
154 Create refers to the succinct summary of the statutory and fiduciary duties by Le Miere J of the Western Australian Supreme Court in Patterson v Humfrey,[43] adopting the five rules expounded by Austin, Ford and Ramsay, as follows:
In the work by R P Austin, H A J Ford and I M Ramsay, Company Directors, Principles of Law and Corporate Governance, LexisNexis, Sydney, 2005, the authors identify five closely related rules administered by equity and which have an application to conflicts of interest on the part of company directors. They can overlap extensively with one another. The five rules are:
(a) the conflict of interest rule: the director or officer must not, in any matter falling within the scope of his or her office, have an interest that conflicts or may possibly conflict with his or her duty to the company, except with the company's fully informed consent;
(b) the conflict of duties rule: the director or officer must not, in any matter falling within the scope of his or her office, have an inconsistent engagement with a third party except with the company's fully informed consent;
(c) the misappropriation rule: the director or officer must not misappropriate the company's property for their own, or for a third party's benefit;
(d) the profit rule: the director or officer must not misuse his or her position for personal or a third party's possible advantage, except with the company's fully informed consent and, therefore, he or she must account to the company for any gain which they make in connection with the fiduciary office; and
(e) the business opportunity rule: the director or officer (at least if engaged full time in the service of the company) must not divert any profit making opportunity in the same line of business as the company's present or prospective business, to himself or herself or to some other person, except with the company's fully informed consent.
A director also has a duty to exercise his powers and discharge his duties with care and diligence, a duty to act in good faith in the best interests of the corporation and the duty to act for a proper purpose. These duties are contained in Corporations Act 2001 (Cth) s.180 and s.181 and also by the general law.[44]
155 Create also submits that no evidence has been adduced that at any relevant time Angelodemou's conduct was ratified, authorised or acquiesced to by Create.[45] It is not a small family company,[46] the parties are independent third parties who entered into a number of governing agreements that reflect their interest in Founder, and by way of investment of substantial funds.
156 MSA submits that Create's allegations in respect of these four matters are said to arise solely on the basis of alleged breaches of statutory and fiduciary duties owed by Angelodemou to Hold Co or its subsidiaries. In this regard, MSA submits that:
(a) the duties of a director are owed to the company. According to the proper plaintiff rule,[47] the company is the proper plaintiff to take proceedings to enforce its rights or seek relief in respect of any wrong done to it, and a shareholder of a company has no standing to do so absent leave of the Court pursuant to s 236 of the Act;[48] and
(b) a shareholder may not recover for a loss which is merely consequential upon or derivative from loss suffered by the company.[49] Here, Create is not even a shareholder in Hold Co or any of its subsidiaries and does not have standing to bring these claims.
157 MSA's recitation of the law regarding a shareholder's standing to bring an action against a director for breach of duties owed by the director to the company is correct, as far as it goes.
158 However, MSA's submission does not grapple with the fact that here, Create is not attempting to bring an action against Angelodemou for breach of duties he owes to Founder or any of the Renex Operating Entities. Rather, Create alleges that in Angelodemou allegedly breaching his duties, MSA has conducted the affairs of Founder in a manner contrary to the interests of members as a whole and/or oppressive to Create as a member of Founder.
159 In this case, Create is not attempting to do what was described by Black J in Lukaszewicz.[50] It is not seeking to bring a claim for breach of duties by Angelodemou without seeking derivative leave under s 237. Rather, it is relying on Angelodemou's alleged breaches of duty as part of the facts and circumstances relied upon to determine whether the conduct of Founder's affairs has been contrary to the interests of its members as a whole. In this way, it is seeking to do what was described by Sifris J in Exton v Extons Pty Ltd. It is worth reiterating the last portion of his Honour's comments: in this context, "breaches of duty (whether statutory or fiduciary) by directors and officers may well be conduct that is not in the best interests of the company as a whole."[51]
160 Accordingly, allegations that Angelodemou breached his duties as a director of Founder or any of the Renex Operating Entities are able to be relied upon by Create in this case in order to establish whether the conduct complained of falls within s 232 of the Act. Obviously, the specific instances of each alleged breach of duty and whether that is conduct in the affairs of Founder will need to be analysed, which will be done in the next several sections of these reasons.
161 The allegations and evidence in respect of these two matters are closely inter-linked and it is convenient to consider them together.
163 As noted earlier, Land Co had entered into contracts in 2018 to purchase the Laverton Properties for $18 million, with settlement due on those contracts in September 2020. In August 2020, the Renex Group of Companies had a financing offer from Judo Bank to provide a facility in the amount of $10.2 million, leaving a shortfall of approximately $6.1 million. By agreement with the vendors, settlement was extended to 16 November 2020.
164 It was common ground between the parties that at the time Land Co entered into the sale contracts for the purchase of the Laverton Properties in 2018, it was for the benefit of the Renex Group of Companies as it would allow the Renex business to be expanded into a growth area, being the western suburbs of Melbourne.
165 Pulitano's evidence is that he agreed with this in 2018, but that he had come to believe in 2020 that it was better to sell the Laverton Properties, at a profit, rather than complete the purchase. It is unclear when Pulitano first came to this view; whether it was after he learned there had been an increase in its value since 2018 or when it became clear that Land Co had a funding shortfall preventing it from completing, at least without an injection of capital or personal guarantees (which Pulitano and Chandy were not prepared to provide).
166 Pulitano procured a conditional offer from Charter Hall to purchase the Laverton Properties for $21.5 million which he sent to Angelodemou on 15 October 2020. Angelodemou thought this was too low and also that the offer was not capable of acceptance. He discussed this with Pulitano and reiterated the previously agreed strategy of acquiring the Laverton Properties to develop a second waste treatment facility.
167 On 21 October 2020, a further term sheet for finance from GCI was received by Angelodemou ('GCI Term Sheet').[52] In its covering letter, GCI stated it required $40,000 to be deposited into the trust account for Arnold Bloch Leibler which funds were to cover GCI's expected professional and legal fees associated with the transaction. It was paid by Op Co on 22 October 2020.
168 The GCI Term Sheet identified the 'Borrower' as Laverton SPV. The following exchange occurred in cross-examination of Angelodemou:
Mr Northrop: ...why didn't you insert Renex Land Co as the borrower?
Angelodemou: I didn't insert anything. This was provided to me by GCI.
Mr Northrop: I see. At this stage I take it that it was your intention for Renex Land Co to be the purchaser?
Angelodemou: Um, it was always my intention for Renex Land Co to be the purchaser for it.
Mr Northrop: Had you decided at an earlier stage that you were going to nominate Renex Land Holdings as the purchaser?
Angelodemou: Sorry, say again please.
Mr Northrop: Had you by this stage formed the view or the intention to nominate Renex Land Holdings as the purchaser?
Angelodemou: No.
169 On 23 October 2020, Angelodemou sent an email to Chandy and Pulitano confirming the shortfall in funding to complete the purchase and seeking their urgent support, requesting they confirm whether they were willing and able to inject capital into the Renex Group of Companies, provide personal guarantees to any new loan facilities or provide security to support a new debt facility. On 26 October 2020, Chandy confirmed that neither he nor Artis Parra were in a position to provide guarantees or personal security to assist with the settlement process. On the same day, Pulitano confirmed that neither he nor Create were prepared to provide guarantees or funds to assist with the settlement process and stated that he wanted the Laverton Properties sold.
170 On 27 October 2020 at 11:45am, Angelodemou sent Pulitano and Chandy an email ('27 October Email') stating that:
1. [Land Co] is obliged to settle the property on 16 November 2020;
The acquisition will be considered a 'complex duty transaction' and may take a month to be approved by the SRO;
Based on your advice and the advice in [Chandy's] email below (the absence of guarantees and further capital injection and/or additional collateral as security), [Land Co] will not be in a position to settle the property in its own capacity (a standard debt facility alone will not be sufficient);
The [Hold Co] Board will resolve that the contract be nominated to an SPV to complete settlement;
The structure of the SPV will be determined by and established to satisfy the requirements of any senior lender and ensure that settlement can be completed;
The SPV will be a related party.
I will communicate debt finance arrangements to you once they have been approved.
171 Pulitano replied to this email at 11:58am on 27 October 2020, stating that:
I am fully aware of the responsibility for [Land Co] to settle the property, we just have an opportunity to resell it at a premium without the need to fund it. A concept I am very much in favour of.
172 In response just under an hour later, Angelodemou wrote:
I understand your desire to sell the property. [Land Co] always has the option to sell at any time under a competitive process in the future to optimise any realisable value if it chooses to. Even if we were to entertain a sale now (ahead of settlement), stamp duty will still be payable. Regardless, we have an obligation to settlement.
(a) accepted that by the time of the 27 October Email he had formed in his own mind a desire to nominate Land Holdings as the purchaser;
(b) said that Land Holdings was not an "SPV" because it was an existing entity that had been around for some time, and that had previously owned land (in the context of the Old Renex Entities); and
(c) stood by the bare assertion that Land Holdings was a related party of Land Co because of common directorship.
174 On 27 October 2020, Angelodemou authorised resolutions of Land Co for it to nominate any third party entity related to Angelodemou to be substituted as purchaser, and that the deposit of $1.7 million previously paid by Land Co be applied as the deposit payable by the nominee. The resolution was prepared by legal advisors.
175 That day, Angelodemou in his capacity as sole director of Land Co executed a sale of real estate nomination form for the Laverton Properties nominating Land Holdings. Chandy signed the document as well.
176 Angelodemou's evidence was that he had been advised by lender GCI that it would only be possible to secure finance for the Laverton Properties if the purchaser was a nominated entity outside the Renex Group of Companies so as not to interfere with its existing security arrangements with Judo Bank and the nominee was fully controlled by Angelodemou. There is no documentary evidence to this effect. Land Holdings ultimately obtained a facility with GCI ('GCI Facility') which provided sufficient finance to settle the Laverton Properties. That facility was secured in part by personal indemnities given by Angelodemou and an unregistered mortgage over his family home.
177 On 28 October 2020, the Renex Property Holdings Trust deed was executed. Its trustee was Land Holdings and the named beneficiaries were Angelodemou and his wife. Angelodemou eventually accepted in cross-examination that the beneficiaries of the trust did not include any of the Renex Group of Companies.
178 On 28 October 2020 at 11:08am, Chandy sent an email to Angelodemou and Pulitano ('Chandy 28 October Email') stating:
Hi Marinos/Dom
Can we please have a meeting at your earliest convenience to discuss the plan of attack for the settlement of the [Laverton Properties]:
Dom - as discussed just now, a nomination process has just commenced with a SPV
Marinos - as foreshadowed, we are keen to understand the deal structure being proposed to settle [the Laverton Properties].
Thanks
Anish
179 Angelodemou sent a reply to this email to Chandy and Pulitano ('Angelodemou 28 October Email'), stating:
Hi Anish,
Happy to have a meeting at the appropriate time, when further information comes to hand.
Thanks,
Marinos
180 Angelodemou was asked in cross-examination why he did not tell Pulitano of the nomination of Land Holdings in the Angelodemou 28 October Email. His reason was "I was just going about my business".
181 On 4 November 2020 at 5:15pm, Pulitano sent an email to Angelodemou and Chandy ('Pulitano 4 November Email') stating:[53]
Hi Gentlemen,
As i am differently on the outer and find it extremely difficult to get information on business and its decisions i find myself again lost to the next move you have planned. I would like to know what is planned for settling Laverton.
Settlement is scheduled for the 16th of this month, i have not seen a single term sheet or letter of offer for the funds needed. This is particularly distressing as we are 12 days out and already in an extended settlement agreement.
Can you please confirm if any offers are currently at play, if so what the terms are?
Will we be in a position to settle on time?
Thanks
182 Angelodemou replied to this email at 9:53pm that day ('Angelodemou 4 November Email'), stating:
Hi Domenic,
You shouldn't feel lost.
There is nothing new to report.
We are in discussions with a few financiers and hope to formalise arrangements soon.
I don't see any settlement risk at this stage.
Best regards,
Marinos
183 Angelodemou was taken to these two emails in cross-examination. He was asked why he had not told Pulitano at this stage of the nomination, the creation of the Renex Property Holdings Trust, the use of the $1.7 million deposit paid by Land Co being applied to Land Holdings, and the funding arrangements and the $40,000 payment to GCI, all of which had occurred before 4 November 2020. His answer was "I had provided certain information to um, Mr Pulitano and Create, and I considered the remainder of the matter to be ah, within the affairs of Hold Co."
184 On 11 November 2020, the vendors of the Laverton Properties made an offer to Land Co to rescind the sale contracts, refund the deposit paid by Land Co, and to pay Land Co $1.5 million ('Vendors' Offer'). The Vendors' Offer was not accepted.
185 On 12 November 2020 at 10:24am, Pulitano sent an email to Angelodemou and Chandy, again requesting information including details of the nominated entity and a term sheet from any of the potential funders.
186 On 12 November 2020 at 1:46pm, Create's lawyers sent a letter by email to MSA's lawyers requesting copies, by 5pm that day, of the contract of sale for the Laverton Properties, the nomination, the terms sheet from the nominee's financier, and any offers or terms sheets made to or received from any third party including any subsequent contract of sale for the properties executed by a third party (if there has been any agreement to on-sell the land). The letter also stated that if the documents were not received by then, an application would be made under s 247A of the Act for inspection of those documents.
187 Email correspondence between the solicitors then ensued, without achieving any resolution.
188 On 13 November 2020, Create commenced the s 247A Proceeding against Land Co. An urgent hearing occurred and late in the day orders were made by Lyons J (as his Honour then was) ordering the provision of the nomination form, contract of sale, and any term sheets or offers.
189 On 16 November 2020, the orders described in paragraph 35 above were made.
190 As set out in paragraph 36 above, the s 247A Undertakings were given by Angelodemou, Land Co and Land Holdings on 20 November 2020, which allowed the completion of the sale of the Laverton Properties to Land Holdings to occur on 23 November 2020, with the s 247A Proceeding being subsequently dismissed.
191 Create pleads that in October and November 2020 it sought information about the completion of the Laverton Properties, that Angelodemou and Land Co failed to provide it, that it commenced the s 247A Proceeding, and that Land Holdings was nominated by Land Co as purchaser. MSA admits these allegations.
192 Create pleads that Land Holdings is not a member of the Renex Group of Companies and its nomination as purchaser was not for the Renex Group of Companies or the Renex business.
193 In its D & CC, MSA admits that Land Holdings is not a member of the Renex Group of Companies but denies that the nomination of Land Holdings was not for the benefit of the Renex Group of Companies or the Renex business. It further says that:
(a) the nomination of Land Holdings prevented the Renex Group of Companies from losing its deposit of $1.7 million under the Laverton contracts and the vendors rescinding those contracts;
(b) the nomination of Land Holdings allowed the Renex Group of Companies to receive the benefit of the substantial increase in value of the Laverton Properties; and
(c) the substantial increase in the value of the Laverton Properties has benefitted the Renex Group of Companies and the Renex business. The particulars to this allegation include that had Land Holdings not purchased the Laverton Properties, the net proceeds of the July 2021 sale of those properties of $16,260,577.44 would not have been received by Land Co.
194 Create also pleads that by procuring Land Co to nominate Land Holdings as purchaser of the Laverton Properties, Angelodemou breached his duties to Land Co, Hold Co and Founder. MSA denies this allegation and says that the net effect of the nomination was a benefit to Land Co and the Renex Group of Companies.
195 Create submits that information was deliberately withheld from Pulitano. Angelodemou finally conceded in cross-examination that he did not simply 'forget' to tell Pulitano of the matters referred to in paragraph 183 above, just that he did not tell him.
196 Create submits that it was only through its positive efforts in litigating first the s 247A Proceeding and later ensuring court oversight of the July 2021 sale, that the net proceeds of sale were paid to the Renex Group of Companies rather than an entity outside of the group. When the Laverton Properties were eventually re-sold, at a time when the Renex Group of Companies was in desperate need of funds in excess of $10 million, it was sold to the same purchaser as Pulitano had obtained an offer from in October 2020, Charter Hall, using the same real estate agent, Matt Ellis, for $35 million.
197 Create submits that in the circumstances Land Holdings (as trustee for the Renex Property Holdings Trust, of which no Renex Group of Companies entity was a beneficiary) being nominated as the purchaser for a Renex Group of Companies opportunity, being the Laverton Properties, where the deposit of $1.7 million paid by Land Co and stamp duty of $1 million paid by Op Co was applied to Land Holdings' purchase, $40,000 of Op Co funds were advanced to the payment of legal and professional fees for Land Holdings' financier (GCI), and where Angelodemou on a number of occasions throughout October and November 2020 deliberately withheld this information from Create and Pulitano, and where legal proceedings were required to be issued to ascertain this information and to oversee the completion of the purchase and subsequent sale of the Laverton Properties, Angelodemou:
(a) acted in breach of his duties as a director of Land Co, and as a director of each company in the Renex Group of Companies, where this was a Renex group opportunity; and
(b) engaged in commercially unfair conduct.
198 Create submits that self-serving assertions by Angelodemou that he intended the Laverton Properties to be for the benefit of the Renex Group of Companies are inconsistent with the objective facts and his conduct, including the instructions he gave to Value ADE.
199 In relation to Create's allegations regarding its requests for information, MSA denies any breach of duties or oppression in the conduct of the affairs of Founder for a number of reasons.
200 First, MSA submits that the POC does not identify how the alleged conduct of Angelodemou was conduct in Founder's affairs and Create impermissibly seeks to rely upon conduct in the affairs of Land Co, without pleading any conduct of Founder which gives rise to those affairs in breach of the principle deriving from Re Norvabron Appeal.[54]
201 Second, MSA submits that Create does not identify which of the various 'statutory obligations and fiduciary duties' Angelodemou owes as a director he is said to have breached.
202 Third, MSA submits that Create is not a shareholder in Hold Co or Land Co and does not have standing to bring claims for breach of duties owed to those companies. MSA accepts that conduct that amounts to a breach of directors' statutory or fiduciary duties may in certain circumstances constitute oppressive conduct. However, it says that Create's pleaded case fails to establish this.
203 Fourth, MSA submits that Angelodemou's conduct does not rise to the level of oppression in any event. The documentary evidence establishes that, while Pulitano made some general requests for information concerning 'any offers ... currently at play' on 4 November 2020, after being told that the contracts of sale for the Laverton Properties would be nominated to a 'related party' on 27 October 2020, Create did not formally and directly request information concerning the nomination on the sale of the Laverton Properties until 12 November 2020. Create did not have a right to inspect that information under the Founder SHA or an automatic right to be provided with it. It was only on 13 November 2020 that Create sought to exercise its statutory right and commence an application under s 247A(1) of the Act. Angelodemou and Land Co consented to production of the information pursuant to s 247A(1) of the Act that day.
204 MSA submits that it is a principle of company law that a shareholder does not have a general right to inspect the books of the company at will.[55] Create's right of inspection as a shareholder was limited by clause 13.5(c)(i) of the Founder SHA to 'reports (including financial reports, monthly reports and board/management reports).'
205 MSA submits that the evidence is that Create did not formally and directly request information regarding completion of the sale of the Laverton Properties until 12 November 2020. Angelodemou did not comply with Create's request that day, and MSA says he appropriately accepted during cross-examination that he made a conscious decision not to respond to the request because he was determined to ensure that the Laverton Properties settled. However, Angelodemou was not obliged under clause 13.5(c)(ii) of the Founder SHA to provide the information requested by Create. The information requested by Create, being information concerning the completion of the sale of the Laverton Properties, was not a 'report'.
206 MSA submits that s 247A(1) of the Act provides that on application by a shareholder, the Court may make an order authorising an applicant to inspect books of a company if it is satisfied that the applicant is 'acting in good faith' and the inspection is made 'for a proper purpose'. Section 247A of the Act requires a member to demonstrate more than dissatisfaction with management decisions: the member must satisfy the Court that it is entitled to inspect the books because the information sought relates to matters that it as a shareholder ought be informed of by the company.[56] Section 247A operates where a member seeks to protect a specific or personal right by the making of an order, such as where a shareholder contemplates proceedings under s 233 of the Act or where it reasonably takes the view that a transaction could adversely affect his investment and he seeks to investigate the transaction for the purpose of determining what action he should take.[57] Once the application was made, Angelodemou and Land Co accepted that Create had a statutory right of inspection pursuant to s 247A and properly consented to orders being made for the production of the information sought by Create that day.
207 MSA says that it is not in contest that a refusal to provide appropriate access to a company's books and records may amount to oppression. However, as Black J observed in In the matter of QB Foods Pty Limited:[58]
... that proposition turns on the question what is "appropriate access" and it does not follow that even a substantial shareholder in a closely held proprietary company is entitled to access to all financial records of the company on a continuing basis or that it would generally be oppressive to decline to provide such access on that basis.
208 MSA submits that in circumstances where Create was not entitled under the Founder SHA to inspect the information it sought, and where Create was granted a right of inspection on the same day it exercised its statutory right of inspection pursuant to s 247A(1), Angelodemou's conduct does not amount to oppression.
209 In relation to the allegations of diversion of opportunity relating to the Laverton Properties, MSA denies any breach of duties or oppression in the conduct of the affairs of Founder for a number of reasons.
211 In addition, MSA submits that Angelodemou's conduct in procuring the nomination does not give rise to any breach of duties or oppression.
212 MSA submits that the evidence establishes that Angelodemou consulted with Pulitano about what approach should be adopted concerning the settlement of the Laverton Properties as he was required to do under clause 13.5(c)(i) of the Founder SHA. The emails between Angelodemou, Pulitano and Chandy in the lead up to the nomination of Land Holdings demonstrate the extent of disagreement between Angelodemou and Pulitano as to the approach that should be taken, the shortfall of $6 million in finance and Pulitano's reluctance to provide the further capital or personal guarantees required to make up that shortfall in funds required to settle the Laverton Properties within the Renex Group of Companies and proceed with the previously agreed strategy of acquiring the Laverton Properties for the purpose of building a second waste treatment facility in Melbourne's west.
213 MSA submits that the content of the 27 October 2020 Email was accurate. The description of the nominee entity as a 'related party' of the Renex Group of Companies is consistent with the meaning of that term under s 9 of the Act by virtue of the common directorship and control of Angelodemou. The following day, Chandy informed Pulitano that the nomination process had commenced.
214 MSA submits that Angelodemou nominated Land Holdings because Land Co was unable to obtain sufficient finance to acquire the Laverton Properties and it was a condition of the finance that Angelodemou was able to secure that the purchaser sit outside the Renex Group of Companies. It says that Angelodemou procured the nomination to ensure the Renex Group of Companies did not lose the valuable opportunity of the Laverton Properties.
215 MSA submits that there is no evidence that Angelodemou sought to use the nomination for any other purpose. Had he not done so, the valuable opportunity for the Renex Group of Companies to use the Laverton Properties for the purposes of developing a second waste treatment facility would have been lost. He consulted with Pulitano prior to making the nomination but decided that Pulitano's proposal to pursue a sale of the Laverton Properties to Charter Hall was not in the best interests of the Renex Group of Companies. It submits that during cross-examination, Angelodemou gave evidence that the Laverton Properties were always held for the benefit of the Renex Group of Companies.
216 MSA also submits that further and in any event, no harm has been suffered by the Renex Group of Companies or Create as a result of this alleged breach. It says that quite the opposite has occurred: the Laverton Properties ended up generating net proceeds of $16,260,577.44 which were paid to Op Co.
217 It is convenient to deal with the diversion of opportunity allegation first.
218 It was not contested that the Renex Group of Companies faced a shortfall in settling the purchase of the Laverton Properties of approximately $6 million,[59] or that the shortfall was not able to be filled by injections of capital or provision of guarantees/securities by Chandy, Artis Parra, Pulitano or Create. The shortfall was also unable to be breached by Angelodemou providing additional security himself. I accept Angelodemou's evidence that in those circumstances he had to come up with another plan for completing the purchase.
219 Angelodemou was adamant in his oral evidence that his actions were for the benefit of the Renex Group of Companies and not his personal benefit, and that it was Renex's interests which was his motivation for taking the action he did. However, the firmness of his belief in this regard is not determinative. There is no evidence, apart from Angelodemou's assertions, as to what other arrangements were possible or were considered, or as to why he chose the structure that he eventually did. There is no documentary evidence to support his assertion that GCI required that the borrower be outside the Renex Group of Companies, and nor were any witnesses called to back up this assertion.
220 This is important, because it goes to Angelodemou's purpose in structuring the transaction the way that he did. Having Land Co nominate Land Holdings as the purchaser, where Land Holdings was not part of the Renex Group of Companies and was to hold the Laverton Properties as trustee of the Renex Property Holdings Trust, in circumstances where the beneficiaries of that trust were Angelodemou and his wife (and possibly other family members or entities) and not any of the Renex Group of Companies, had the effect of placing the Laverton Properties beyond the reach (legal or beneficial) of the Renex Group of Companies. Angelodemou's spurious attempts to claim otherwise, by again apparently mis-reading legal documents (in this case, the trust deed), cannot be accepted.
221 This begs the question: did he do this because it was the only way to complete the purchase without him losing control of it altogether, or did he do it this way so as to obtain the benefit of the Laverton Properties for himself?
222 I do not accept that the actual structure used was the only way Angelodemou could complete the purchase and retain control, as the only evidence for that is his own assertions (see paragraph 219 above). In my view, Angelodemou's credit on this issue was undermined by his preposterous insistence that the Renex business retained the benefit of the Laverton Properties. In cross-examination he said that the beneficiaries of the Renex Property Holdings Trust were himself, his family members, and the Renex Group of Companies. When asked where in the trust deed it referred to the Renex Group of Companies as beneficiaries, he said it was within the definition of 'beneficiaries'. He was then taken to schedule 2 of the trust deed which defined 'beneficiaries'. This schedule has Angelodemou and his wife Danielle as named beneficiaries, then lists other beneficiaries as the spouse, child, grandchild and relative of a named beneficiary, any person who is a spouse or child of a beneficiary, and "any company or incorporated entity in which a share is held for the time being by any Beneficiary or the Trustee". Upon reading that definition, Angelodemou had to concede that none of the Renex Group of Companies were beneficiaries of the Renex Property Holdings Trust.
223 Chandy gave evidence that Angelodemou had told him, at the time he co-signed the nomination form for Land Holdings to be the purchaser and of the resolutions regarding the nomination, that arrangements would be put in place to ensure that the Renex Group of Companies had the benefit of the Laverton Properties. There was no specificity about these arrangements given in evidence and there is no evidence about any such arrangements being entered into or put in place.
224 If Angelodemou truly intended that the Laverton Properties be for the benefit of the Renex Group of Companies, then he surely would have put such arrangements in place. Even if that was his intention, his failure to do it was a breach of duty as it meant that his own interests were preferred above those of the Renex Group of Companies. It was also conduct which was oppressive to Create and contrary to the interests of the members of Founder as a whole.
225 It follows that I do not accept MSA's submission that Angelodemou procured the nomination of Land Holdings to ensure the Renex Group of Companies did not lose the valuable opportunity of the Laverton Properties.
226 I find that Angelodemou procured Land Co's nomination of Land Holdings as the purchaser so as to obtain a benefit for himself. Angelodemou's own evidence and MSA's submissions regard the Laverton Properties as a valuable opportunity. At the same time as executing the nomination, he was in the process of setting up the Renex Property Holdings Trust, with himself and his wife as beneficiaries, which was to have beneficial ownership (via Land Holdings as trustee) of the Laverton Properties. There was no evidence whatsoever as to whether consideration was given to making one or more of the Renex Group of Companies the beneficiary of the trust, which clearly would have retained the benefit of the Laverton Properties for the Renex Group of Companies.
227 Not only did Land Holdings obtain the opportunity to settle the Laverton Properties, it did so without having to reimburse Land Co for the $1.7 million deposit the latter had paid and with Op Co paying the $40,000 fee for GCI setting up the loan for Land Holdings and $1 million for stamp duty. Thus, the benefit of those amounts passed to Land Holdings (and eventually Angelodemou), without any recompense for Land Co or Op Co.
228 I do not accept MSA's submission that Create has not identified which duties Angelodemou is said to have breached in regard to the allegation regarding diversion of opportunity. At paragraph 19, the POC pleads the statutory obligations relied upon, being ss 180-183 of the Act, which it defines as 'statutory obligations'. It goes on to plead at paragraph 20 four duties which are defined as 'fiduciary duties'. In paragraph 33, the POC pleads that in procuring the nomination by Land Co of Land Holdings, Angelodemou breached the statutory obligations and fiduciary duties owed to Land Co as a director of Land Co, and to Hold Co and Founder as director of those companies. Therefore, the POC relies on each of the defined 'statutory obligations' and 'fiduciary duties' in respect of the allegation of diversion of opportunity. While it may have been more helpful for Create's submissions to have identified with more specificity how it was said that the duties and obligations had been breached, not doing so is not fatal to its case. The relevant duties and obligations are pleaded, and the conduct said to constitute breaches of them is also pleaded.
229 I am satisfied that Angelodemou's conduct in procuring the nomination of Land Holdings as purchaser of the Laverton Properties, in the circumstances of this case, is a breach of the duties he owes to Land Co, Hold Co and Founder. He has used his position as a director of Land Co to obtain a benefit for himself at the expense of the Renex Group of Companies, that benefit being legal and beneficial ownership of the Laverton Properties. In so doing, he has not exercised his powers and discharged his duties in good faith in the best interests of the companies or for a proper purpose, thus contravening s 181 of the Act. He has also improperly used his position and information obtained through it to gain an advantage for himself, thus contravening ss 182 and 183 of the Act. In terms of his fiduciary duties, he has breached the conflict of interest and duties rules, the misappropriation rule (specifically, in relation to the $1.7 million deposit and the $40,000 GCI fee), and the business opportunity rule.
230 For the reasons set out in section H.4 above, in particular paragraphs 136 to 138, I do not accept that Angelodemou's conduct in the affairs of Land Co in respect of the Laverton Properties was not also conduct in the affairs of Founder. On Angelodemou's own evidence, the Laverton Properties were intended to be an important acquisition for the Renex Group of Companies and for the future prosperity of the Renex business. It is difficult to see how conduct which had the effect of diverting that opportunity to benefit from the Renex Group of Companies could not be conduct in the affairs of Founder, particularly given the potential impact on the value of shares in Founder. There was no contest that the value of the Renex Operating Entities, including the Renex business, had a significant effect on the value of Founder. The POC pleads breach of duty to Land Co, Hold Co and Founder which means that a 'statement of activity in the affairs' of Founder has been made, and I do not accept MSA's position that the pleading does not meet the statement[60]n Re Norvabron Appeal.60
231 On this last issue, MSA's submission as described in paragraph 200 above appears to ignore paragraph 71 of the POC. In that paragraph, Create alleges that in the circumstances described in the POC:
(a) Angelodemou has repeatedly acted in the affairs of Founder through his control of its subsidiaries in his own interests rather than the interests of the members of Founder as a whole;
(b) Angelodemou has acted in the affairs of Founder through his control of its subsidiaries in a manner that was and is unfair and unjust to Create; and
(c) the affairs of Founder, through Angelodemou's control of its subsidiaries, have been and are being conducted in a manner that is oppressive or prejudicial to or contrary to the interests of Create and the members of Founder as a whole.
232 In my view, Create has sufficiently pleaded a nexus between Angelodemou's control of and conduct in the subsidiaries and the affairs of Founder. That pleading may not be particularly detailed or perfect, but it does the job.
233 It follows from all of the above that I am satisfied that Angelodemou's conduct in procuring the nomination of Land Holdings in the circumstances of this case is also conduct which is oppressive to the interests of Create and contrary to the interests of the members of Founder as a whole, for the same reasons as set out above.
234 Again, I do not accept that no harm has been suffered by the Renex Group of Companies or Create as a result of Angelodemou's conduct, or that the ultimate outcome (being a net gain of some $16 million to the Renex Group of Companies) somehow excuses or ameliorates the conduct, for these reasons:
(a) As will be seen in section M below, it was Create's commencement and pursuit of the s 237 Proceeding that ensured judicial oversight of how the Laverton Properties were to be dealt with, in particular the subsequent on-sale of them in July 2021 and the disbursement of the net proceeds. Who can say what may have happened if Create had not pursued action to protect its interests and, indirectly, those of the Renex Group of Companies?
(b) Create's commencement and pursuit of the s 237 Proceeding clearly came at some cost and inconvenience to Create.
235 Create's allegation about the failure to provide information must be assessed in the context that the information sought but not provided would have revealed that Angelodemou was seeking to divert the opportunity arising from the Laverton Properties away from Land Co to himself. As stated in Re SRW Nominees, the inquiry as to whether conduct is fair is not to be assessed in a vacuum but in its context.[61]
236 MSA's submissions regarding the alleged failure to provide Create with the information it requested regarding the completion of the purchase of the Laverton Properties fail to grapple with the fact that not only did Angelodemou fail to provide that information, he actively sought to conceal the true situation from Create. His responses were either incomplete or inaccurate. So too with some of Chandy's emails. Angelodemou and Chandy were each unable to satisfactorily explain or justify the content of their emails when questioned about them. In this regard:
(a) items 1 to 3 of the 27 October Email appear to be accurate;
(b) a SPV is a special purpose vehicle, generally used for a specific purpose and not for other purposes. While the SPV is not named in the 27 October Email, Land Holdings is not an SPV, it having existed for some time and been involved in the business when conducted by the Old Renex Entities;
(c) while Land Holdings is technically a related party to the Renex Group of Companies due to the common directorship in Angelodemou, it seems to me that items 4 and 5 of the 27 October Email do not convey that the SPV will be outside the group;
(d) by the time of the 27 October Email, Angelodemou already had the GCI Term Sheet and had procured Op Co to pay GCI's $40,000 establishment fee. Yet in the email, he simply says that he will communicate debt finance arrangements once they have been approved. True it is that those arrangements may not have been approved at that point, but again, the email is significant in that it does not mention the GCI Term Sheet or the fee. Given that one of Pulitano's main concerns was whether financing would be in place by 16 November 2020, one would have thought that if Angelodemou was truly desirous of assuaging Pulitano's concerns, he would have revealed this;
(e) the statement in the Chandy 28 October Email "Dom - as discussed just now, a nomination process has just commenced with a SPV" is disingenuous: by then, Land Co had resolved to nominate the SPV and a nomination form had been executed by Land Co nominating Land Holdings as the purchaser, which form Angelodemou and Chandy had signed. Again, the email is important in what it does not reveal: that the nomination had actually been made, and the identity of the SPV;
(f) the Angelodemou 28 October Email is even more disingenuous: it conveys the impression that there's nothing further to say to answer both aspects of the Chandy 28 October Email. By then, not only had Land Holdings been nominated, the Renex Property Holdings Trust had been created and Land Holdings was its trustee. Clearly, that is the "deal structure" which Chandy was asking about; and
(g) the Angelodemou 4 November Email perpetuates the disingenuity. To say that there was nothing new to report is only accurate if one ignores what was not reported in either of the 28 October emails! Angelodemou's explanation for the content of the Angelodemou 4 November Email is set out at paragraph 183 above. Create's submission that this explanation was unbelievable must be accepted.
237 The evidence establishes that Pulitano made multiple requests for information regarding the completion of the purchase of the Laverton Property and that each time he asked for this information, he was either not responded to, given a snippet of information, or told not to worry. The only substantive response was in the 27 October Email, and I have already found that the information in that email was not entirely accurate or complete.
238 I do not accept that Angelodemou actually limited the information he provided to Pulitano because he believed he was not required to provide it, either under the Founder SHA, the Act, or otherwise. Rather, I find that he limited the information he gave to Pulitano so as to conceal the arrangements for as long as possible. He virtually admitted this, saying that he didn't tell Pulitano the details because he wanted to make sure the transaction went through. I infer from this that he anticipated that if Pulitano knew the true situation, he would object to it and may try to prevent it.
239 This begs the question: why would Pulitano object if he knew? It was not just because his preference by then was to on-sell the Laverton Properties: his emails with Angelodemou and Chandy, particularly the Pulitano 4 November Email, read as if he knew that ship had sailed. Rather, knowledge of the true situation would have revealed to Pulitano that the Laverton Properties were being put beyond the reach of the Renex Group of Companies.
240 In this way, Angelodemou's conduct in refusing to provide the information sought to Pulitano is conduct that is oppressive. As to whether it is conduct in the affairs of Founder (as opposed to Land Co and/or Hold Co) I refer to and repeat paragraph 230 above.
241 The question of whether Pulitano was entitled to that information, under the Founder SHA or otherwise, is therefore irrelevant to whether the conduct was oppressive. Angelodemou's conduct is clearly conduct which is commercially unfair: an objective commercial bystander would be satisfied that withholding information which would reveal the diversion of the opportunity from Land Co (and therefore Founder) to Land Holdings was unfair. Further, given that conduct undertaken in compliance with a company's constitution can still be oppressive,[62] it follows that conduct undertaken in accordance with a shareholders' agreement in respect of the company can also still be oppressive. Therefore, even if Angelodemou was not required by the Founder SHA to provide the information (or put another way, Pulitano was not entitled under the Founder SHA to access to the information), not providing it can still be oppressive. It all comes down to the facts and circumstances of the case and whether it is conduct that is commercially unfair.
242 I do not accept MSA's attempts to minimise Angelodemou's conduct in respect of this allegation. The emphasis on Pulitano not making a formal request until 12 November 2020 is not accurate: he was requesting information since at least mid-October and it is irrelevant as to whether the request was 'formal' or not. In any event, who is to say what is formal in this regard? Even if his earlier requests can be described as informal, which I do not accept anyway, failing to meet them and concealing the true situation is still oppressive conduct.
243 In the same vein, I do not accept MSA's submission that it was only with the commencement of the s 247A Proceeding that Pulitano's right to the information was adequately invoked and that Angelodemou and Land Co accepted this on the same day. In all the circumstances of this case, it ought not have been necessary for Create to have to institute the s 247A Proceeding in order to obtain the requested information, which I emphasise is information which would have revealed Angelodemou's diversion of opportunity away from Land Co and the other entities in the Renex Group of Companies, including Founder.
244 To the extent that the failure to provide information is connected with the diversion of opportunity, which I consider it to be, I regard it as a breach of Angelodemou's statutory obligations and fiduciary duties in the same way as the diversion of opportunity was. Divorced from that context, however, I am not satisfied that a breach of duty/obligation has been made out. Either way, it does not matter since I have found it to be oppressive conduct in any event.
245 For the sake of completeness, I also do not accept MSA's other submissions as to the pleadings regarding the failure to provide the requested information, for the same reasons as when considering the diversion of opportunity.
246 On 5 February 2021, Angelodemou passed a resolution removing Pulitano as a director of Founder ('Removal Resolution'). The following matters are referred to in the Removal Resolution:
(a) it is said to have been made pursuant to clause 11.11 of the Founder SHA;
(b) Angelodemou is described as "the sole director of the Company being entitled to vote on this resolution";
(c) it notes, inter alia, that:
(i) as stated in the 15 January 2021 Letter, Create has committed several material breaches of the Founder SHA;
(ii) Create has failed to remedy those breaches to the reasonable satisfaction of MSA within 10 business days (as defined in the Founder SHA) of the 15 January 2021 Letter;
(iii) due to clause 7.1(a) of the Founder SHA, the above two matters gave rise to an event of default on 2 February 2021;
(iv) clauses 7.5(b), 7.5(c) and 9.4(a) of the Founder SHA have the effect that Pulitano must resign as a director and will be automatically removed if he becomes ineligible to be a director;
(v) as Pulitano has not resigned as a director, under clause 9.5(b) of the Founder SHA MSA has given notice of his removal as a director; and
(vi) Founder wishes to formalise Pulitano's resignation and removal as a director.
(i) in accordance with clause 9.4(a) of the Founder SHA, Pulitano be removed as a director of the company with immediate effect; and
(ii) the "sole director" of Founder be authorised to do all acts necessary to give effect to the subject matter of the resolution.
247 Clause 7.5 of the Founder SHA relevantly provides as follows:
If an Event of Default occurs, unless the Board resolves otherwise:
(a) ...
(b) any Nominee Director appointed by the Defaulting Shareholder must resign as a Director of the Company;
(c) any right of the Defaulting Shareholder under clause 9.3 to appoint a Director is suspended;
248 Clause 9.4 of the Founder SHA relevantly provides as follows:
A person will be automatically and immediately removed as a Director:
(a) if the person is, or becomes, ineligible to be a Director under the provisions of this agreement, the Constitution, the Corporations Act or any other applicable law;
249 Clause 9.5(b) of the Founder SHA relevantly provides as follows:
Notice of any appointment, removal or replacement of a Director or the Chairperson must be given to the Company and:
(i) in the case of the removal of a Director, must specify the identity of the person to be removed;
250 Angelodemou authorised the lodgement of a Form 484 dated 5 February 2021 with ASIC recording Pulitano's removal as a director of Founder.
251 In his third affidavit, Angelodemou deposed that he believed that Founder, himself and the Renex business would suffer serious prejudice if Pulitano remained a director of Founder, for the following reasons:
(a) Pulitano's and Create's ongoing conduct caused serious difficulties in operating the Renex business. By way of example, this included the real risk that GCI would take enforcement action regarding the Laverton Properties, which would have caused significant loss to the Renex business;
(b) Hold Co was likely to have needed further capital in the near future to enable it to continue conducting the Waste Treatment Facility at the Dandenong Site. He did not believe Hold Co would be able to obtain debt finance to fulfil the need for capital and instead a further issue of shares in Hold Co would be needed. Issuing shares in Hold Co requires a special majority vote of shareholders and since Founder holds approximately 95.7% of the shares in Hold Co, a special majority was not possible without Founder's vote. While Pulitano was a director of Founder, his approval was necessary to obtain Founder's vote. Based on his dealings with Pulitano since September 2019, he did not believe Pulitano would approve Founder voting in favour of Hold Co issuing further shares or agree to Create injecting further capital.
252 As noted above, Create and Pulitano commenced the s 1322 Proceeding on 12 February 2021 against Founder and Angelodemou to rectify the ASIC register and reinstate Pulitano as a director of Founder. At a hearing on 16 February 2021, Almond J made orders including that until the final hearing and determination of the proceeding or further order:
(a) Angelodemou must not, on behalf of Founder, cause the lodgement with ASIC of any notification of the appointment of a person to the office of director or secretary of Founder; and
(b) Angelodemou must not act or hold himself out as if he were the sole director of Founder; deal in any way with the assets or affairs of Founder without the express written consent of Pulitano or giving five business days prior written notice to the plaintiffs' solicitors; purport to exercise any rights or powers which Founder has as a shareholder in any subsidiary without the express written consent of Pulitano or giving five business days prior written notice to the plaintiffs' solicitors.
253 On 24 February 2021, Almond J made orders by consent in the s 1322 Proceeding that the Form 484 recording Pulitano's removal as a director be withdrawn from the ASIC register and not appear on the public view. This followed a letter from MSA's and Angelodemou's solicitors to Create's solicitors that under protest and without admission of liability, MSA and Angelodemou acknowledged that Pulitano is a director of Founder and Angelodemou agreed to submit a Form 484 to ASIC recording this, with that acknowledgment said to have been given only until the earlier of the final determination of the s 1322 Proceeding or it being withdrawn by Angelodemou and MSA upon five business days written notice.
254 As previously noted, on 3 August 2021, orders were made by Delany J dismissing the s 1322 Proceeding and ordering that Angelodemou pay Create's and Pulitano's costs of the proceeding up to and including 24 February 2021 on an indemnity basis and thereafter on a standard basis.
255 In the POC, Create alleges inter alia that the Removal Resolution was void and of no effect and that Pulitano had not ceased to be a director of Founder.
256 In the D & CC, MSA admits elements of these allegations but not others. Given the acknowledgement by MSA that the removal of Pulitano as a director of Founder was an act of oppression, it is not necessary for me to detail the response.
257 Create also alleges that by purporting to pass the Removal Resolution and lodging the Form 484, Angelodemou breached the statutory and fiduciary duties he owed to Founder as a director of Founder. This allegation is particularised as "the attempt to remove Pulitano as a director of [Founder] was intended to confer on Angelodemou, and if not challenged would have conferred on him, exclusive management and control of Founder as its sole director."
258 In the D & CC, MSA denies this allegation of breach of duties and says that Pulitano had been automatically and immediately removed as a director of Founder as a consequence of Create's events of default under the Founder SHA.
259 I do not apprehend that by now admitting that Pulitano's removal was an act of oppression that MSA was also admitting that Angelodemou's conduct in respect of that removal was a breach of his duties to Founder.
260 Create disputes MSA's opening submission that the removal of Pulitano was motivated by a genuine belief that he was entitled to take this course.
261 In this regard, Create points to Angelodemou's third affidavit where he deposes that the Renex business would "suffer serious prejudice if Mr Pulitano remained as a director". Create submits that this suggests reasons unconnected with any alleged breach of the Founder SHA were motivating factors for Pulitano's removal. One of the reasons given was the desire to issue further shares in Hold Co which he believed Pulitano would not approve.
262 Create submits that despite this concession, in cross-examination, Angelodemou:
(a) maintained that the removal of Pulitano was based on an event of default;
(b) decided not to take legal proceedings to determine the alleged event of default;
(c) maintained his agreement to unwind the removal of Pulitano was done under protest even after orders were made (by consent) for the reinstatement of Pulitano; and
(d) could not point to any provision of the Founder SHA that stated that a nominee director's right to vote was suspended upon the occurrence of an event of default.
263 Create submits that there was no such 'genuine, albeit erroneous belief' of Angelodemou in removing Pulitano, and in any event, it is not a relevant consideration in determining whether oppressive conduct has occurred.[63]
264 MSA submits that it appropriately conceded that Angelodemou unilaterally purporting to pass a resolution of the Founder board removing Pulitano as a director of Founder in circumstances where the removal was not authorised by the Founder SHA was an instance of oppression.
265 MSA submits that the "temporary removal" of Pulitano as a director of Founder in early February 2021 must be considered in context. It was motivated by Angelodemou's genuine, albeit erroneous, belief that the actions of Create in seeking to prevent the settlement of the Laverton Properties, and to bring derivative proceedings in relation to that transaction, constituted an Event of Default under the Founder SHA which then enabled Pulitano to be immediately and unilaterally removed as a director of Founder. Angelodemou believed at the time that he was permitted to take such a step and that it was in the best interests of Founder and the Renex Group of Companies that he do so. In this regard, MSA relies on the evidence which I have set out above.
266 While accepting that this wrongful removal of Pulitano as a director of Founder constituted conduct in the affairs of Founder that was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Create within the meaning of s 232 of the Act, MSA emphasises that it consented to orders reinstating him 19 days after his purported removal.
267 MSA submits that furthermore, and in any event, no harm has been suffered by Create or the Renex Group of Companies.
268 Although MSA now admits that the removal of Pulitano as a director of Founder is an act of oppression for the purposes of s 232 of the Act, I have set out the evidence and the submissions at some length because I consider that the facts and circumstances of this matter are important to understanding many of the other disputed elements in this case. That it is now admitted does not detract from the steps taken against Pulitano.
269 While strictly speaking I do not need to decide the question of whether Pulitano's removal was an act of oppression, I am satisfied that it was. As can be seen from the relevant terms of the Founder SHA which I have set out above, Pulitano's removal was not authorised by the terms of the Founder SHA, and Angelodemou's insistence that it was is clearly wrong. Angelodemou's approach conflated an obligation of a director to resign if an event of default had occurred with a person being ineligible to be a director and thus subject to automatic removal. It was either yet another instance of his erroneous and mistaken understanding of important documents, or was an instance of him interpreting them in a manner which suited his purposes at the time whether or not that was correct. That Angelodemou may have had a genuine belief that he was entitled to remove Pulitano as a director is not to the point. It is clear from the authorities that an intention to do wrong or to oppress is not a requirement for conduct to be oppressive: it is the effect of the conduct that determines whether it is oppressive.[64]
270 Further, I do not accept the attempts made by MSA to downplay this act of oppression and minimise its consequences. The repeated description by MSA during the hearing of Pulitano's removal as 'temporary' and to Angelodemou consenting to orders being made that effectively reinstated him ignores the fact that Angelodemou wrongfully purported to remove Pulitano as a director of Founder and that it took the initiation of the s 1322 Proceeding, a hearing and two sets of orders before that resolution was achieved. Even then, this did not conclude the s 1322 Proceeding and Angelodemou continued to maintain that he was entitled to remove Pulitano, filing a statement of claim to that effect in that proceeding, up until orders were made dismissing the s 1322 Proceeding in August 2021. The costs order made at that time speaks volumes about the matter; Angelodemou being ordered to pay Create's and Pulitano's costs of the proceeding, including on an indemnity basis for the period up to and including 24 February 2021.
271 This begs the rhetorical question: who is to say how 'temporary' Pulitano's removal may have been had he and Create not taken steps to undo what Angelodemou had done?
272 It does not lie well in MSA's mouth to effectively rely on the adage 'no harm, no foul' by submitting that no harm has been suffered by Create or the Renex Group of Companies in respect of Pulitano's removal as director of Founder. It is not even true: Create and Pulitano have incurred legal costs and the inconvenience of having to take legal proceedings to remedy the wrong done to them. Being successful in the proceeding and having costs awarded in their favour, even partially on an indemnity basis, does not mean that no harm was done.
273 However, I am not satisfied that the removal of Pulitano as a director of Founder and the lodgement of the Form 484 constitutes a breach of Angelodemou's statutory or fiduciary duties as a director of Founder. My reasons are as follows:
(a) in this regard, the POC does not make it clear how it is said that this conduct is a breach of duty. So much is clear from the description of this plea at paragraph 257. The particulars to the relevant paragraph do not assist;
(b) nor does the POC make it clear which particular duties are said to have been breached by this conduct;
(c) Create's submissions do not clearly address this issue either; and
(d) there is a suggestion in Create's submissions that Angelodemou removed Pulitano for purposes other than the events of default set out in the 15 January 2021 Letter. Even if that is correct, there is no submission that the purposes which Create refers to, being those deposed to by Angelodemou in his third affidavit as set out at paragraph 251 above, are improper.
274 On the same day as he passed the Removal Resolution, Angelodemou also passed a resolution appointing Value ADE as independent valuer to determine the fair market value of Create's share in Founder ('Valuation Resolution'). The following matters are referred to in the Valuation Resolution:
(a) it is said to have been made pursuant to clause 11.11 of the Founder SHA;
(b) Angelodemou has voted on the resolution as "the sole director of the Company" and as the attorney for Create as appointed by clause 16.3 of the Founder SHA;
(c) it notes, inter alia, that:
(i) the same matters as referred to in paragraph 246(c) above;
(ii) clause 7.3 of the Founder SHA provides that if an event of default occurs, the defaulting shareholder will be taken to have given a transfer notice in relation to its share in Founder;
(iii) the transfer notice must specify a price for the Create share equal to its fair market value as at the date of the event of default;
(iv) under the Founder SHA, Founder's board and Create must agree on and instruct an independent valuer to accept submissions from each of Create and MSA, determine the fair market value of the Create share, and prepare a report on its determination of the fair market value of the Create share; and
(v) the transfer notice cannot be given until the fair market value is determined by the independent valuer. The sole director of Founder acting as the representative of Founder's board and as attorney for Create wishes to appoint the independent valuer and issue the instructions as soon as possible.
275 On 8 February 2021, Angelodemou engaged Value ADE to assess the fair market value of Create's share in Founder. Later in February, Value ADE provided the February 2021 Valuation, stating that the fair market value of Create's share in Founder was $3.2 million.
276 Clause 7.3 of the Founder SHA provides as follows:
If an Event of Default occurs in relation to a Shareholder (Defaulting Shareholder) that Shareholder is taken to have given a Transfer Notice in relation to all of its Shares which:
(a) specifies a price for each Sale Security equal to the Fair Market Value of each Sale Security as at the date of the Event of Default; and
(b) is dated the date on which the Fair Market Value of the Defaulting Shareholder's Shares is determined.
277 Where the Founder SHA specifies that the price of any share is equal to or is to be set by reference to the fair market value of the share, schedule 4 of the Founder SHA sets out the process for determining that value. That process is as described in paragraph 274(c)(iv) above.
278 In the POC, Create refers to the Valuation Resolution and the February 2021 Valuation and alleges that the February 2021 Valuation was "manifestly inadequate, as Angelodemou knew or ought to have known". The particulars to this allegation state that:
(a) the valuation was prepared solely on the basis of information provided by Angelodemou;
(b) the valuation did not include the Laverton Properties; and
(c) the inadequacy of the valuation and Angelodemou's knowledge of this is to be inferred from the fact that in September 2019 MSA agreed to purchase Create's share for $18.5 million and in December 2020 MSA again offered to purchase Create's share for $18.5 million.
279 Create alleges that by obtaining the February 2021 Valuation, Angelodemou breached his duties as a director of Founder. This allegation is particularised as follows:
The [February 2021 Valuation] was obtained with the intention of using it to advance the interests of Angelodemou and [MSA] and to facilitate [MSA's] acquisition of Create's share in [Founder] for an amount much less than its value.
280 In the D & CC, MSA admits the Valuation Resolution and the February 2021 Valuation, but alleges that Angelodemou was able to pass the resolution and obtain the valuation by reason of the events of default committed by Create under the Founder SHA. MSA denies the allegation that the February 2021 Valuation was manifestly inadequate, saying that it was prepared on the basis of information provided to Value ADE which included:
(a) the financial statements for each of the Renex Operating Entities for years up to and including 30 June 2019;
(b) the management accounts for each of the Renex Operating Entities for years up to and including 30 June 2020 and the half year to 31 January 2020;[65]
(c) a property valuation for the Dandenong Site (including the buildings) conducted by Charter Keck Cramer dated 28 May 2019;
(d) a plant and equipment valuation conducted by Compass Valuation & Asset Services dated 28 August 2019;
(e) EPA licence and amendments;
(f) deed of priority of securities between Judo Bank, EPA and the Renex Operating Entities;
(g) the Shareholder Loan Agreement;
(h) the Investor Loan Agreement; and
(i) the Founder SHA.
281 In effect, MSA admits that Value ADE was engaged to determine the fair market value of Create's share in Founder and that Value ADE produced a valuation, but otherwise denies the allegations.
282 MSA also denies that Angelodemou breached his duties as a director of Founder by obtaining the February 2021 Valuation, alleging that it was a commercial valuation of the fair market value of Create's share.
283 Create submits that the appointment of Value ADE through the Valuation Resolution to provide the February 2021 Valuation was not permitted under the Founder SHA. Pulitano received the February 2021 Valuation, addressed to the directors of Founder. Create submits that it was an attempt to coerce Create under the guise of the purported rights exercised by Founder (at Angelodemou's direction) under the Founder SHA.
284 Create submits that in relation to the construction of commercial contracts, the majority of the High Court held in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd[66] that:
It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.[67]
285 Create submits that other general principles as to the approach to issues of construction include that:
(a) it is not legitimate to use as an aid in the construction of a contract anything which the parties said or did after it was made;[68]
(b) words in question should be given their natural and ordinary meaning as understood objectively by a reasonable business person, rather than any subjective intentions;[69] and
(c) in construing a contract, all parts of it must be given effect where possible, and no parts should be treated as inoperative or surplus.[70]
286 Create submits that in MSA's amended statement of claim filed in the s 1322 Proceeding, MSA alleges that Create breached clauses 2.4(c) and 2.5 of the Founder SHA insofar as it gave notice of its intention to seek leave to bring a derivative action in the name of Land Co against Angelodemou and Land Holdings, failed to retract that notice, and issued that proceeding.
287 Clause 2.4(c) of the Founder SHA falls under the heading 'Exercise of power'. It states a number of things each shareholder must do. Clause 2.4(c) provides that "Each Shareholder must use all reasonable endeavour to procure that the Company carries on the Business." The chaussette to clause 2.4 provides that, "[F]or the purposes of this clause 2.4, a Shareholder's reasonable endeavours include the exercise of its voting rights at general meetings of the Company and, to the extent permitted by law, the exercise of voting rights ..."
288 Clause 2.5 of the Founder SHA provides as follows:
To the maximum extent permitted by law, no party owes any other party any duty or obligation in relation to the Business or the Company whether implied by law or otherwise, other than as set out in this agreement.
Each party undertakes to each other party that it will act in good faith and with honesty in all of its dealings with each other party in relation to the conduct of the Business and the Company and the implementation of each Transaction Document.
289 Create submits that nothing in the Founder SHA states that a party may not exercise its lawful rights. Indeed, clause 2.5 provides to the maximum extent permitted by law that no party owes any other party any duty or obligation. It is submitted that the underlying factual matrix includes breaches by Angelodemou of duties owed as a director of Land Co and that Land Co's affairs, being an associated entity of Hold Co, fall within the definition of 'Business'.
290 Create submits that its notice of its intention to commence derivative proceedings and its failure to withdraw such notice do not fall foul of either of clauses 2.4(c) or 2.5 of the Founder SHA. On the contrary, the notices were to ensure that Land Holdings accounted to Land Co and the Renex Group of Companies for all monies appropriated by Land Holdings by its nomination as the purchaser.
291 Create submits that ultimately it was the orders made in the s 237 Proceeding that ensured proper judicial oversight in relation to the on-sale of the Laverton Properties and the accounting of its proceeds back to Land Co. It is said that there is no reason to think that Land Holdings would have paid the proceeds of sale to Land Co absent the s 237 Proceeding.
292 Create submits that even if an event of default under the Founder SHA were made out, the procedures set out in schedule 4 of the Founder SHA were not followed in the appointment of Value ADE. Create submits that after some hesitancy Angelodemou accepted in part that he did not speak to Pulitano about appointing Value ADE and that it was him that engaged Value ADE. He later accepted that it was an 'overreach'.
293 Create's second complaint about the February 2021 Valuation is that its valuation of Create's share at $3.2 million was manifestly inadequate. This is due to the inadequate information provided by Angelodemou (or Chandy). In this regard, Create submits that:
(a) the Laverton Properties were excluded from the February 2021 Valuation. Whilst Angelodemou claimed that he has always maintained that they were for the benefit of the Renex Group of Companies, he did not regard them as part of the Renex group assets because of the legal ownership of the Laverton Properties at that time. The Court should not accept this explanation from a CEO and director, with a law degree, who must understand that a valuation ought reflect beneficial ownership; and
(b) the balance sheet included as an appendix to the February 2021 Valuation had adjusted an amount of $3,120,900 to zero under 'non-current assets'. Create submits that this "loan" comprised the $1.7 million deposit for the Laverton Properties paid by Land Co and stamp duty of $1 million paid by Op Co. At item G, the report goes on to say:
Our adjustments are explained as follows:
Other [non-current assets] included capitalised borrowings costs ($0.42 million) and a loan to a related entity of Mr Angelodemou ($2.7 million).
We consider the borrowings costs are a legacy item and have no commercial value to HoldCo.
We have been advised by Management that the loan has been assigned and will not be repaid or recovered.
In relation to this item, Create refers to the following exchange in cross-examination of Angelodemou:
Mr Northrop: So, that means that it was a gift to Land Holdings, does it?
Angelodemou: I'm not sure what you'd characterise it as.
Mr Northrop: Well, if the lender isn't seeking to get repayment - isn't seeking repayment or recovery, then it stays with the recipient, doesn't it?
Angelodemou: Yes.
Mr Northrop: And what benefit did Land Co get from allowing Land Holdings to retain the $2.7m?
Angelodemou: Well, ah, it didn't get any benefit at that time.
(a) in circumstances where there was no legal basis to appoint Value ADE to provide a valuation of Create's share, Angelodemou engaged in commercially unfair conduct; and
(b) in view of the wholly inadequate information provided to Value ADE, including the writing off of 'loans' for the Laverton Properties and the exclusion of the value of the Laverton Properties,
Angelodemou breached his duties owed to the members of Founder.
295 MSA submits that the February 2021 Valuation was a consequence of the event of default upon which MSA relied to unilaterally remove Pulitano as a director of Founder and the transfer provisions contained in the Founder SHA.
296 However, MSA contends that the conduct does not constitute a breach of duty or oppression, for two reasons:
(a) First, Create's suggestion that the February 2021 Valuation is inadequate because it did not include the Laverton Properties is misconceived insofar as it overlooks the ownership of the properties at that time. The Laverton Properties were not a legal asset of Land Co and the Renex Group of Companies, with Land Holdings being the legal owner.
(b) Second, and in any event, no harm was suffered by Create or the Renex Group of Companies.
297 It is clear that the procedure used by Angelodemou to appoint Value ADE to determine the fair market value of Create's share in Founder is not the procedure mandated by the Founder SHA. Angelodemou effectively and impermissibly cut Create out of the process, giving it no opportunity to provide any input or information to the valuer or to have a say in what information Founder provided to the valuer. His attempts during cross-examination to create the impression he had consulted Pulitano about which valuer to appoint were disingenuous and serve to diminish his credit as a witness. Eventually, he was forced to concede that he had not involved Pulitano at all in the process.
298 In my view, such conduct is oppressive to Create as a member of Founder, since it goes directly to the value of its share in the company in the context of a compulsory acquisition of that share by MSA due to the consequences of the alleged event of default. If matters had progressed beyond the obtaining of the February 2021 Valuation, then presumably MSA would have acquired Create's share in Founder at the price of $3.2 million, without Create having had any say in determining that price. It goes without saying that this was conduct in the affairs of Founder.
299 I consider it probable that the price of $3.2 million did not reflect the fair market value of Create's share in Founder as at February 2021, for three main reasons:
(a) The fact that only two months earlier MSA was prepared to pay $18.5 million for that share provides, at the very least, pause for thought. Regardless of Angelodemou's rationale for the higher amount or the possibly different valuation methodologies employed, it defies common sense to think that the value of the share had declined so much in such a short space of time.
(b) I can have no confidence in the adequacy of the information provided to Value ADE by Angelodemou or others at his behest. For example, there is no transparency about the discussions Value ADE had with Angelodemou or Chandy and so the accuracy of those discussions cannot be adequately tested.
(c) It did not include the Laverton Properties. In this regard:
(i) MSA's reasons for not including the Laverton Properties as an asset of the Renex Group of Companies in the February 2021 Valuation is that legal ownership of them was outside the group - Land Holdings being the legal owner of the Laverton Properties at the time.
(ii) If Angelodemou's contention that the nomination and purchase of the Laverton Properties by Land Holdings was for the benefit of the Renex Group of Companies, then one would expect to see them reflected as assets in the balance sheets for the Renex Group of Companies. This is because beneficial ownership of an asset would normally be recorded in that way. Angelodemou conceded as much in cross-examination. But the reality is that beneficial ownership of the Laverton Properties was not with the Renex Group of Companies, it was outside the group as the properties were held on trust by Land Holdings as trustee of the Renex Property Holdings Trust, the beneficiaries of which did not include any of the Renex Group of Companies (as Angelodemou was ultimately forced to concede).
(iii) While it might have met the legal niceties, failure to include the Laverton Properties in the information given to Value ADE had the effect of significantly lowering the assets of the Renex Group of Companies, which would have had a corresponding effect on the value of Create's share in Founder.
300 I have not placed any reliance on Create's submissions as set out at paragraph 293(b) above, as the submission is confusing. However, nothing turns on that.
301 I accept Create's position that in providing inadequate information to Value ADE, Angelodemou breached his duties as a director of Founder. As already stated, if the process adopted by Angelodemou had progressed to its conclusion, he would have succeeded in obtaining (via MSA) Create's share at an undervalue. He used his position as a director of Founder to commission a valuation in a manner contrary to the Founder SHA and then ensured that it produced a price much lower than he had been prepared to pay only two months earlier. He has clearly used his position as a director to obtain, or attempt to obtain, a benefit for himself.
302 I do not accept MSA's submission that Angelodemou's conduct was not oppressive because the February 2021 Valuation was ultimately not deployed and so no harm was done to Create or the Renex Group of Companies. Again, this may be more due to Create's actions in commencing the s 1322 Proceeding and defending the claims made against it in that proceeding than anything else.
303 It follows from paragraphs 297 to 302 above that I have found oppressive conduct and a breach of director's duties by Angelodemou based on the fact that Value ADE was appointed in a manner contrary to the Founder SHA, in particular in a manner which shut Create out of the process, and on the February 2021 Valuation resulting in the undervaluing of Create's share due to the information provided to Value ADE by Angelodemou.
304 This is the case whether or not Create had committed an event of default which Angelodemou or MSA could rely upon as a basis for requiring Create to transfer its share in Founder. If Create had not committed an event of default under the Founder SHA, then this is another reason for finding that Angelodemou's conduct in respect of obtaining the February 2021 Valuation was oppressive to Create. I am not satisfied that Create did commit the event/s of default complained of by MSA and relied upon for removing Pulitano as a director and invoking clause 7.3 of the Founder SHA, for the reasons submitted by Create. My reasons in respect of this aspect are set out later in these reasons.
306 Create provided a proposed statement of claim in the course of the s 237 Proceeding which it intended to file if granted derivative leave to bring proceedings on behalf of Land Co against Angelodemou and Land Holdings. In that proposed statement of claim, it was alleged, inter alia, that:
(a) Angelodemou had breached his statutory and fiduciary duties owed to Land Co as a director of Land Co, by procuring the nomination of Land Holdings as purchaser of the Laverton Properties;
(b) Land Holdings had knowledge of Angelodemou's breach of duty and knowingly participated in them;
(c) Angelodemou and Land Holdings were liable to pay compensation to Land Co pursuant to s 1317H of the Act, including any profits made by any person resulting from the contravention; and
(d) Land Holdings held the Laverton Properties on constructive trust for Land Co.
307 In the POC, Create pleads that by reason of Angelodemou's breach of his statutory obligations and fiduciary duties in procuring Land Co to nominate Land Holdings as the purchaser of the Laverton Properties, Land Co was entitled to bring and ought to have brought proceedings against Angelodemou and Land Holdings based on those breaches. Create alleges that it was probable that Angelodemou, as sole director of Land Co, would not authorise such proceedings and that in the s 237 Proceeding, Angelodemou opposed the granting of derivative leave to Create. Create also alleges that on 10 June 2021 the Court made orders in the s 237 Proceeding for the sale of the Laverton Properties by Land Holdings and the payment of the net proceeds of sale to Land Co. Create alleges that Angelodemou's failure to procure Land Co to bring proceedings against himself and Land Holdings was conduct oppressive to Create and contrary to the interests of the members of Founder as a whole.
308 MSA admits that Angelodemou opposed leave being granted to Create and that the Court made the orders on 10 June 2021 as pleaded by Create. MSA denies that Angelodemou's conduct was conduct in the affairs of Founder and that it rose to the level of oppression.
309 Create describes this allegation as a corollary to the oppressive conduct in diverting the opportunity and failing to provide requested information regarding the Laverton Properties.
310 Create refers to Ford, Austin & Ramsay's Principles of Corporations Law,[71] where the authors state:
Failure to prosecute an action may amount to unfair conduct sufficient to invoke the application of Pt 2F.1 in certain circumstances. If the conduct of the directors in refusing to prosecute an action is seen by the court to be oppressive, unfairly prejudicial, or unfairly discriminatory, based on the objective fairness test of whether a reasonable commercial bystander would have prosecuted such a cause of action, then the court may make an order under Pt 2F.1.
311 Create submits that Angelodemou's failure to prosecute a proceeding in the name of Land Co so that the Laverton Properties and their net proceeds could be properly accounted for to the Renex Group of Companies was conduct which was oppressive to Create and contrary to the interests of the members of Founder as a whole.
312 Create submits that it cannot be properly put that Angelodemou reasonably believed that he was acting in the best interests of the Renex Group of Companies by nominating Land Holdings as purchaser, or in opposing derivative leave. Create submits that in any event, such subjective beliefs are irrelevant to the Court's assessment of oppressive conduct. Rather, it is submitted that it was through the active steps taken by Create that the net sale proceeds of the Laverton Properties were eventually properly accounted for to Land Co and used for the benefit of the Renex Group of Companies.
314 MSA submits that Angelodemou's conduct in opposing derivative leave was not oppressive. Angelodemou opposed leave because, amongst other things:
(a) he reasonably believed that he was acting in Land Co's best interests in nominating Land Holdings as the purchaser to ensure that the Renex business did not lose the valuable opportunity the Laverton Properties represented;
(b) he had made offers to Create to sell the Laverton Properties and account for the proceeds to the Renex Group of Companies:
(i) the first such offer was made on 1 December 2020, the very next day after Create foreshadowed an application for leave to bring a derivative proceeding; and
(ii) another offer was made on 23 April 2021 shortly before the application was heard.
(c) he consented to orders being made for the sale of the Laverton Properties with the net proceeds of sale to be paid to the Renex business (which were largely in the form of orders Angelodemou proposed) such that the derivative leave application was ultimately resolved without leave being granted.
315 MSA submits that in any event, no harm has been suffered by Create or the Renex Group of Companies. The net proceeds of sale have been paid to Op Co; in fact, there was a windfall to Land Co of $16,260,577.44. This money was then used by the Renex business to pay creditors, many of whom had overdue debts owing to them.
317 Again, MSA's attempts to minimise Angelodemou's conduct and its effect is rejected. To effectively contend that there's nothing to see here, because he ultimately did the right thing and that led to the Renex Group of Companies receiving the net proceeds of the July sale of the Laverton Properties, is to ignore all that had gone before it.
318 True it is that Angelodemou/MSA had made an offer prior to the s 237 Proceeding being commenced, but that was after it was threatened. More importantly, as Create submitted, that offer contained terms which were unfavourable to the Renex Group of Companies in that the net proceeds were to be used to discharge taxes, duties, costs, fees and other charges associated with the sale owed by Land Holdings or any beneficiary of the Renex Property Holdings Trust. There was also no finality associated with that offer: the remaining net proceeds were then to be held in an account until 22 May 2021, with nothing stated as to what was to occur after that point.
319 It is instructive to note what occurred with the s 237 Proceeding. The application for derivative leave was heard by Delany J on 12 and 14 May 2021 and judgment was subsequently delivered on 26 May 2021.[72] As noted in that judgment, on 17 May 2021 Angelodemou offered to provide undertakings and to consent to orders for the sale of the Laverton Properties and the application of the net proceeds of sale to Land Co, which undertakings and orders were further modified in reply submissions filed on his behalf on 19 May 2021.[73]
320 Delany J stated that the critical question for determination was whether those modified proposed orders and undertakings provided a better alternative in the interests of Land Co than the grant of derivative leave for which Create contended.[74] His Honour then stated that he considered that the undertakings and orders offered on behalf of Angelodemou, but in a modified form from those ultimately put forward, provide an appropriate outcome in the interests of Land Co. His Honour set out the form of undertakings and orders required, stating that if Angelodemou did not signify his agreement to those within five business days, he would grant derivative leave to Create to bring a proceeding against Angelodemou and Land Holdings substantially in accordance with the draft statement of claim relied on in the application for leave.[75]
321 The balance of the s 237 Proceeding Reasons set out Delany J's reasons for concluding that derivative leave ought to be granted if undertakings and orders as stipulated by his Honour were not agreed to. As already noted, the form of those undertakings (these were the s 237 Undertakings, as set out in paragraph 45 above), which were agreed to by Angelodemou, were different to those he had proposed. The s 237 Proceeding Reasons also explain why Delany J viewed Angelodemou's offered undertakings as inadequate.
322 It was as a result of that judgment that the s 237 Undertakings were given and the orders for sale, with judicial oversight, were made on 10 June 2021.
323 One could be forgiven for forming the impression, from Angelodemou's evidence and particularly MSA's submissions, that he readily agreed to provide undertakings so that the Laverton Properties could be sold in a manner that preserved their value and saw the net proceeds go to Land Co. But this was clearly not the case. The s 237 Proceeding ran to judgment, and even though Angelodemou had made offers, those were determined by the Court to be inadequate. He avoided derivative leave being granted only by agreeing to undertakings and orders in a form which the Court determined would be adequate and in the best interests of Land Co.
324 In the s 237 Proceeding, the Court decided that, absent the s 237 Undertakings and the orders for sale, it was in the best interests for Create to be granted derivative leave. It was therefore in the best interests of Land Co for proceedings to be initiated against Angelodemou and Land Holdings as contended for by Create. It is not a long bow, then, to conclude that as a director of Land Co who is required to act in Land Co's best interests, Angelodemou ought to have caused Land Co to take proceedings against Land Holdings and himself. His failure to do so is both oppressive conduct towards Create and conduct which is contrary to the interests of the members of Founder as a whole, for the same reasons as were the diversion of opportunity. In this regard, I agree with Create's submission that this allegation is correlative to that concerning diversion of opportunity and failure to provide the requested information.
325 It is reasonable for the Court to infer, and I do so infer, that it was unlikely that the net proceeds of the sale of the Laverton Properties would have been paid to Land Co without Create having taken the s 237 Proceeding or some other action to achieve that result. That inference arises from Angelodemou's conduct and the fact that it was only after the application for derivative leave had been heard that an appropriate outcome was achieved for Land Co.
326 For these reasons, I find that Angelodemou's conduct in respect of this allegation was conduct in the affairs of Founder that was oppressive to Create and contrary to the interests of the members of Founder as a whole.
328 Create alleges that Angelodemou allowed the Laverton Properties to be used as security for a loan to Land Holdings (ie the Secured Lending Loan) and that by doing so he breached his statutory obligations and fiduciary duties to Land Co, Hold Co and Founder, and that he engaged in oppressive conduct.
329 MSA admits that Angelodemou allowed the Laverton Properties to be used as security for a personal loan, however it denies that it was a breach of duty, or that it was conduct in the affairs of Founder, or that it was oppressive.
(a) Angelodemou was less than frank on 10 June 2021 (when he gave the s 237 Undertakings to the Court) by failing to disclose his intention to borrow funds in the name of Land Holdings to pay a personal debt and then, on 11 June 2021, permitting the Laverton Properties to be used to secure the Secured Lending Loan for the benefit of himself; and
(b) Angelodemou's conduct constitutes a breach by him of his duties as director of each of the companies in the Renex Group of Companies (the Laverton properties being for the benefit and beneficially held by the Renex group), and was otherwise conduct that was commercially unfair.
331 Create submits that the timeline is critical, relying on the following matters and making the following submissions about them:
(a) The s 247A Undertakings were given by Angelodemou, and on that basis Almond J dismissed the s 247A Proceeding with costs.
(b) On 10 June 2021, in the s 237 Proceeding, orders were made for the sale of the Laverton properties and accounting of its net proceeds to Land Co. The s 237 Undertakings were given by Angelodemou and Land Co to the Court at that time to procure the sale of the Laverton Properties and to provide a full accounting to Create.
(c) At the time of giving the s 237 Undertakings, Angelodemou did not tell the Court that he was looking to borrow money to pay a personal debt, nor that Land Holdings was intending to borrow money. He asserts, and it ought not be accepted, that "it wasn't intending at that time." He further says that it was not until after he provided the undertaking to the Court that "I knew ah that it was possible to do that" - that is, encumber the Laverton Properties.
(d) Angelodemou has given evidence about these events by way of two affidavits: his third affidavit filed in this proceeding; and his affidavit sworn 23 June 2021 filed in the s 237 Proceeding. When questioned about the Third Angelodemou Affidavit (filed in this proceeding) Angelodemou gave evidence that prior to 6:30pm on 11 June there may have been some verbal discussions, but there were no emails that passed back and forth. Yet his affidavit filed in the s 237 Proceeding refers, in fact, to an earlier email at 11:22am from Secured Lending to his finance broker, forwarded to him at 11:40am, about the proposed inclusion of a number of additional securities, including a second unregistered mortgage over one parcel of the Laverton Properties.
(e) Angelodemou's explanation that the first time he communicated with Secured Lending about security over the Laverton Properties (and indeed the Dandenong Site), being after he gave the s 237 Undertakings to the Court on 10 June 2021, is just not credible for the following reasons:
(i) Angelodemou first discussed the possibility a short-term loan during a telephone call with Mark Murray ('Murray'), a finance broker with Bowery Capital, on 7 June 2021. Angelodemou deposes that during this phone call he proposed to Murray that any loan be secured by mortgages over his personal property and beach house, personal guarantees from he and his wife, and a receivable due from the ATO. He says that he did not propose or offer that the loan be secured by anything else. He also says that prior to 11 June 2021 he did not propose to Murray or discuss with him that a loan would be secured over one or more of the Laverton Properties. There is of course no documentation to substantiate what was discussed in that telephone call.
(ii) Secured Lending prepared substantial financial documentation for "review and execution", almost purportedly contemporaneously with a discussion about additional securities over a parcel of the Laverton Properties, on 11 June 2021, which included three mortgages and five guarantees.
(f) On 15 June 2021, Secured Lending lodged a caveat over the Laverton Properties to protect its unregistered mortgage.
332 These events gave rise to further orders being made by Delany J on 17 June 2021.[76] Those orders required, inter alia, provision to Create of the mortgage and loan agreement from Secured Lending, all correspondence and documents relating to the facility, and an accounting of the proceeds of the facility. Eventually, by orders of 9 July 2021 (and an undertaking given by Angelodemou), the $3.75 million necessary to repay the Secured Lending Loan was ordered to be repaid by Angelodemou to Land Co within three months of settlement of the sale of the Laverton Properties.
333 Create submits that having accepted that the Secured Lending Loan was for his own personal benefit, that is to secure short-term finance in order to meet a settlement in an unrelated Court proceeding,[77] and having (in Create's submission) misled the Court on 10 June 2021, it is submitted that this conduct is both commercially unfair to Create (the Laverton Properties being an asset for the benefit of the Renex group), and a breach of duties owed to Founder, Land Co, IP Co and Hold Co. Create submits that it shows yet another determination of Angelodemou to proceed in defiance of the interests of Create.
336 MSA submits that Angelodemou's conduct in allowing the Laverton Properties to be used as security for a personal loan did not give rise to any breach of duties owed to Land Co (or any other company within the Renex Group of Companies) nor caused it to suffer any loss. This is said to be so for the following reasons:
(a) the Laverton Properties were legally owned by Land Holdings;
(b) at the time security was given on 12 June 2021, Angelodemou was not bound by undertakings not to encumber the Laverton Properties at the time he used one of the parcels of land as security:
(i) the undertaking given by him on 20 November 2020 had expired on 22 May 2021, being six months from the settlement of the Laverton Properties on 23 November 2023;
(ii) the undertakings given by him referred to in orders made 21 May 2021 had been discharged pursuant to orders made on 10 June 2021;
(c) the Court made no declaration that the Laverton Properties were held on trust for Land Co or anyone else;
(d) Angelodemou's conduct did not prevent Land Co from being paid the entirety of the net proceeds of sale of the Laverton Properties or put the payment of such net proceeds at any real risk; and
(e) Angelodemou's evidence at trial was that the primary security for the Secured Lending Loan was the Australian Tax Office ('ATO') receivable of between $3.6 million and $3.9 million which he expected to receive in approximately July or August 2021 - prior to the expiration of the Secured Lending facility term on about 12 September 2021.
337 MSA also submits that the Secured Lending Loan (inclusive of an interest component) was repaid and the full net proceeds from the sale of the Laverton Properties paid to Land Co.
338 Finally, MSA submits that in any event, no harm was suffered by Create or the Renex Group of Companies.
339 In my view, Angelodemou's conduct in respect of the Secured Lending Loan was conduct in the affairs of Land Co and of Founder. As already found above, I am satisfied that his conduct in respect of the Laverton Properties was conduct in the affairs of Founder, and using one of those properties as security for his personal loan with Secured Lending is sufficiently connected with the affairs of Founder.
340 There is no dispute that the purpose for the Secured Lending Loan was a personal one to Angelodemou and had nothing to do with the Renex Group of Companies or the Renex business. There is also no dispute that one of the securities given to Secured Lending to secure that loan was a parcel of the Laverton Properties, in the form of an unregistered mortgage.
341 On Angelodemou's own evidence, Secured Lending required more security for the loan than he initially offered, such that the security ultimately given extended to a parcel of the Laverton Properties. Presumably, that was because Secured Lending found the security initially offered by Angelodemou to be inadequate.
342 It is beyond argument that in using a parcel of the Laverton Properties as security for a personal loan, Angelodemou obtained a benefit for himself. The question is whether that amounted to a breach of director's duties and/or oppressive conduct.
343 Angelodemou's evidence may well have been that he intended that the other security provided be called upon before the parcel of the Laverton Properties the subject of the unregistered mortgage, but absent an express provision in the loan documents as to a priority waterfall for the various securities,[78] it is usually a matter for the lender as to what security they seek to enforce if there is a default on the loan.
344 However, Angelodemou's evidence in that regard is inconsistent with one of the special conditions in the finance offer schedule dated 11 June 2021 forming part of the Secured Lending Loan documentation, which provides as follows:
You [ie Land Holdings] have told us that you intend to pay the secured money by the last date of the loan term from the sale of 157-167 Dohertys Road Laverton North VIC 3026 (11111/922) (the Laverton Property).
You must list the Laverton Property for sale within 30 days of the first drawdown (the listing date).
Prior to entering into a contract for sale for the Laverton Property you must obtain our written consent to the proposed sale.
You must provide evidence of an unconditional contract for sale for Laverton Property that has been consented by us within 2 months of the first drawdown of the facility.
If you fail to list the Laverton Property by the listing date an event of default has occurred.
If you fail to exchange contracts for the Laverton Property on or before the exchange date an event of default has occurred.
If you fail to pay the secured money by the last day of the facility term you acknowledge that an event of default has occurred and that the grantor must immediately list the land for auction and after obtaining our consent dispose of the land by the last day of the facility term plus 8 weeks.
This special condition does not prevent us from taking any recovery action that we consider necessary in our sole discretion.
345 Another special condition in the finance offer schedule dated 11 June 2021 forming part of the Secured Lending Loan documentation provided as follows:
You [ie Land Holdings] have told us that you intend to pay part of the secured money through an anticipated GST refund from Australian Taxation Office (the GST Refund) owed to Renex Group Pty Ltd.
You give us irrevocable authority to allow the GST refund to be paid directly to us.
You must pay us the GST refund amount of $3,600,000.00 once received within 2 months of the first drawdown.
If you fail to pay us the GST refund within 2 months of the first drawdown an event of default has occurred.
346 This finance offer schedule was signed by Angelodemou as sole director and sole company secretary of Land Holdings, on 12 June 2021. He also signed it on behalf of various guarantors of the Secured Lending Loan, including Hold Co, IP Co, RG and in his personal capacity.
347 Apart from anything else, allowing part of the Laverton Properties to be used as security for the Secured Lending Loan put the property at risk of being called upon by Secured Lending. In engaging in this conduct, Angelodemou obtained a benefit for himself (being the personal loan) to the detriment of the Renex Group of Companies (given the risk that the security may be enforced by Secured Lending).
348 I consider MSA's position that there were no concerns with this conduct as Land Holdings was the legal owner of the Laverton Properties to be disingenuous. It defends Angelodemou from allegations of breach of duty or oppressive conduct by saying that the net sale proceeds were going to go to Land Co, but then effectively contends that he can do what he likes with the properties as they are owned by Land Holdings. It is obvious that upon a sale of the Laverton Properties, if the Secured Lending Loan had not already been repaid then Secured Lending would be entitled to be paid out of the sale proceeds pursuant to its unregistered mortgage. In that instance, the net sale proceeds would not include the amount required to pay out Secured Lending, which is a clear detriment to Land Co. True it is that Angelodemou's conduct did not prevent Land Co from being paid the entirety of the net sale proceeds, but it did not ensure that outcome. I do not accept that such payment was not put at any real risk.
349 MSA's position also fails to take into account that the net effect of all of these dealings, which saw Land Co receive an amount equivalent to the net sale proceeds without deduction of the amount owing to Secured Lending, was achieved through the supervision of the sale by the Court pursuant to orders that the Court had made.
350 For all of these reasons, Angelodemou's conduct in respect of allowing a parcel of the Laverton Properties to be used as security for his personal Secured Lending Loan was both a breach of his statutory obligations and fiduciary duties as a director of Land Co and of Founder, and oppressive conduct in the affairs of Founder. Obtaining a personal benefit to the detriment of the company is a breach of duty, is conduct contrary to the interests of members as a whole, and conduct which is oppressive to Create.
351 This is so, regardless of the legal ownership of the Laverton Properties at the time and whether or not Angelodemou was subject to an undertaking that prohibited the encumbrance of the Laverton Properties.
352 I am sceptical about Angelodemou's evidence that he did not know at the time of the Court hearing on 10 June 2021 that the Laverton Properties were going to be used as security for the Secured Lending Loan. I consider it unlikely that he had not been told about this before receiving an email to that effect around 11:40am on 11 June 2021 (as he deposes in one of his affidavits filed in the s 237 Proceeding), particularly given that later that day he received an emailed letter enclosing all of the loan and security documents, including the unregistered mortgage for the Laverton parcel of land and the finance offer schedule. It is difficult to accept that a large number of security documents would have been prepared and sent within such a very short space of time. However, Angelodemou's conduct in using the Laverton Properties as security for his personal loan is oppressive and a breach of duty, irrespective of this aspect of his conduct and there is no need for me to make a finding as to whether he was less than frank on 10 June 2021 when giving the s 237 Undertakings to the Court.
353 On 9 July 2021, Delany J made orders in the s 237 Proceeding permitting Angelodemou to procure and allow Land Holdings to enter into the proposed sale contract for the Laverton Properties and, inter alia, that the net proceeds of sale were to be paid into a bank account in the name of Land Co for which Angelodemou and Pulitano were jointly authorised signatories and from which no withdrawal could be made unless they both agree or otherwise by Court order ('Joint Account').
354 On 23 July 2021, this order was varied to provide that Angelodemou have sole authority to manage the Joint Account and authorise the withdrawal of any amount from it without the authorisation or signature of Pulitano, and that Angelodemou may remove Pulitano as a signatory of the Joint Account.
355 That variation to control of the Joint Account was made upon application by Angelodemou, supported by an affidavit by Chandy sworn 22 July 2021 filed in the s 237 Proceeding ('Chandy s 237 Affidavit'). Angelodemou sought sole control of the Joint Account so as to use the funds in it to pay debts owing by Op Co and for working capital in Op Co.
356 Relevantly for this proceeding, Chandy deposed in the Chandy s 237 Affidavit that:
(a) Op Co had cash in the bank of approximately $900,000;
(b) Op Co had significant debts, and that $11,147,953.33 of the $12.5 million paid into the Joint Account was required to pay creditors ($9,522,593.95 of which was overdue), with the balance to be used for working capital in Op Co;
(c) he had received an email from Calleja Group demanding immediate payment of all outstanding amounts equating to $8,054,754.15; and
(d) the Renex group urgently needed to remove additional material from the Dandenong Site to ensure full compliance with its EPA licence.
357 The Chandy s 237 Affidavit exhibited schedules setting out Op Co's debts.
358 On 6 and 22 September 2021, letters were sent by Create's solicitors to Chandy, requesting information about the payment of a number of debts which had been identified in the Chandy s 237 Affidavit. MSA's solicitors responded to these letters on 27 September 2021, advising that payment plans had been entered into in respect of the debts owed to the ATO, State Revenue Office ('SRO') and City of Greater Dandenong.
359 In his affidavit sworn 6 October 2022 filed in this proceeding, Chandy deposes that following the orders made on 23 July 2021 varying the arrangements for the Joint Account:
(a) the amount of $12,510,577.44 which had been paid into the Joint Account was paid into Op Co's account;
(b) in the 3-month period ending 30 September 2021, that amount was applied approximately as follows:
(i) Calleja Civil - $1 million;
(ii) ITAC Services - $8.3 million;
(iii) ATO - $310,000;
(iv) SRO - $2,000;
(v) City of Greater Dandenong - $115,000; and
(vi) the balance of approximately $2.78 million was used as working capital and paid to various suppliers.
(c) Chandy deposes that some of these amounts paid were different to the amounts set out in the Chandy s 237 Affidavit for the following reasons:
(i) Calleja Civil and ITAC Services are part of the same group, being the Calleja Group. Chandy deposes that the reason this is more than the combined amount of $8,156,126.20 (the approximate amount stated in the Chandy s 237 Affidavit) is that Op Co incurred further debts to that group in the months following the Chandy s 237 Affidavit which needed to be paid.
(ii) The amounts paid to the ATO and SRO were less because Op Co entered into payment plans with both of these entities.
(iii) The amount paid to the City of Greater Dandenong was greater because Op Co incurred further debts to the City of Greater Dandenong in the months following the Chandy s 237 Affidavit which needed to be paid.
(a) Angelodemou procured Chandy to swear the Chandy s 237 Affidavit in which he deposed that the funds in the Joint Account were needed urgently to pay debts owed to creditors of Op Co including to Calleja Civil, ITAC Services, the ATO, the SRO and the City of Greater Dandenong;
(b) on 23 July 2021 the Court made an order in the s 237 Proceeding giving Angelodemou sole authority to manage the Joint Account;
(c) by letters dated 6 and 22 September 2021, its solicitors sought information from Chandy in respect of the payment of the debts described in the Chandy s 237 Affidavit;
(d) by letter dated 22 September 2021 to Angelodemou's solicitors, Create's solicitors requested that Angelodemou authorise Chandy to provide the information sought;
(e) by letter dated 27 September 2021, Angelodemou's solicitors wrote to Create's solicitors stating that Angelodemou was not required to provide an answer to the questions raised in the letters to Chandy and that the ATO, SRO and City of Greater Dandenong had not been paid because they had entered into payment plans; and
(f) the funds that were paid out of the Joint Account were not applied to pay the debts identified in the Chandy s 237 Affidavit.
361 MSA admits that Chandy swore the Chandy s 237 Affidavit which was filed in the s 237 Proceeding and that it included statements as to the Renex Group of Companies' debts and working capital needs, and the importance of Op Co paying its outstanding debts. It also admits the letters referred to in the preceding paragraph. In relation to the allegation described in paragraph 360(f) above, MSA pleads that the funds paid out of the Joint Account were applied to the debts identified in the Chandy s 237 Affidavit or otherwise used or retained by the Renex Group of Companies for working capital needs and otherwise denies the allegation.
362 Create submits that the circumstances in which the CFO of Hold Co and its subsidiaries, Chandy, swore an affidavit in the s 237 Proceeding as to the application of certain funds held in the Joint Account, means that Chandy represented to the Court and to Create that these funds (being a Renex group asset, and the net proceeds of the sale of the Laverton Properties) were desperately needed to pay urgent Op Co debts.
363 In the context of Op Co's desperate need of funds, in cross-examination Chandy claimed he was not aware of an amount of $300,000 that had been paid to RG from Op Co's account on the same day as swearing the Chandy s 237 Affidavit (which if not paid would have kept the balance of that account at $1,242,983.01). He said "I did not pay that amount" and accepted that those funds could have been used to pay creditors.
364 Create submits that having deposed that there were urgent creditors, Chandy gave an inadequate explanation in cross-examination that whilst there might have been a batch payment of approximately $5 million to creditors on 27 July 2021, being the same date that funds were received into the Op Co account from the Joint Account, that the balance was paid over the subsequent weeks. This was in circumstances where Calleja Group had requested immediate payment of $8,054,000, of which he was not sure if payment was made on 27 July 2021. In any event, it is clear that the full amount, which was so urgently required, was not paid on that day. In this regard, Chandy admitted that there was "nothing explicit [in his affidavit] that suggests that it could be paid over a few weeks."
365 As to the existence of any payment plans at the time of swearing the Chandy s 237 Affidavit, which Create says would have undermined the urgency of the payments required and the release of the full amount from the Joint Account, Create submits Chandy said during cross-examination that:
(a) first, he was not aware of any;
(b) then, he sought to clarify his answer and said 'there was a couple of payment plans in place um, around the same time that this affidavit was ah, submitted. It could have happened after';
(c) then, he was not sure of the dates; and
(d) later he said that payment plans were introduced which alleviated the working capital requirements.
366 Create says that in this context, on Chandy's evidence in cross-examination, a further payment was made from Op Co's account by Angelodemou to RG, of $500,000 on 15 September 2021.
367 Create submits that the debts identified in the Chandy s 237 Affidavit were not paid as asserted by Chandy where the evidence establishes that:
(a) the Calleja debt of approximately $8 million was not paid immediately upon receipt of the Joint Account funds;
(b) payment plans had in fact been entered into in respect of the ATO, SRO and the City of Greater Dandenong, and therefore the amount was not paid in full in the urgent manner described on oath; and
(c) the assertion in correspondence from Angelodemou's solicitors that because those entities were willing to accept payment plans, that 'these debts are no longer as great a priority as the other debts and the need for working capital'.
368 Create further submits that, in the context of there being active litigation about the use of the Joint Account funds from the sale of the Laverton Properties as well as the Chandy s 237 Affidavit deposing to the urgency of the use of those funds by Op Co, it was oppressive conduct insofar as it was commercially unfair to withhold from Create information about the payment of debts from the sale proceeds once Angelodemou (and Chandy at Angelodemou's direction) had obtained sole control over the Op Co account and the Joint Account funds.
369 Create submits that the request for information about the financial accounting of Op Co explicitly fell within the scope of clause 13.5(c)(ii) of the Founder SHA which required Angelodemou as a Hold Co director to:
promptly provide to the Shareholders any reports (including annual financial reports, monthly financial reports and board / management reports) that he received in respect of Renex Hold CO or any of its Related Entities, unless such provision would cause MA to breach any obligation of confidence or law.
370 Create submits that the failure to provide information about the payment of debts from the sale proceeds of the Laverton Properties was conduct in the affairs of Founder Co insofar that it was Renex group funds and an obligation of Angelodemou under the Founder SHA, and the failure to provide such information was commercially unfair to Create.
371 MSA denies these allegations, saying that they are factually incorrect and contrary to the evidence.
372 MSA submits that further and in any event, there are no pleaded facts to support a finding that the conduct complained of was conduct in the affairs of Founder nor does the conduct constitute oppressive conduct.
373 MSA submits that Chandy's evidence in this proceeding is that the proceeds were used to pay Op Co's creditors and meet the working capital requirements of the Renex business, and that there is no evidence to support a finding to the contrary.
374 MSA also submits that at trial it was not put to Angelodemou that he procured Chandy to depose that the proceeds of the sale of the Laverton Properties were needed to pay creditors of Op Co but were not used to pay those debts.
375 The pleading by Create in respect of this allegation is not clear.
376 The heading to the section of the POC dealing with this allegation is 'failure to pay debts of Op Co and failure to provide information'. Apart from pleading the correspondence, there is no pleaded allegation as to the 'failure to provide information'. Rather, the only allegation pleaded is that the funds that were paid out of the Joint Account were not applied to pay the debts identified in the Chandy s 237 Affidavit. There is then the general allegation at paragraph 71 of the POC that in the circumstances described in the POC, Founder's affairs have been and are being conducted in a manner oppressive or prejudicial or contrary to the interests of Create and the members of Founder as a whole.
377 Thus, there is no pleaded allegation of oppressive conduct relying on the failure to provide information. This is to be contrasted with Create's submissions, which focus heavily on the failure to provide information about the payment of these debts.
378 Even if Create had properly pleaded such an allegation, I do not accept that the information sought was something that fell within clause 13.5(c)(ii) of the Founder SHA. However, I would say that, if the allegation as to failure to provide information had been pleaded, then in the context in which Angelodemou gained control of the net sale proceeds of the Laverton Properties, through gaining sole control of the Joint Account, it was commercially unfair to Create to not provide the information sought.
379 Create has failed to establish its pleaded allegation that Angelodemou failed to use the funds paid out of the Joint Account to pay the debts identified in the Chandy s 237 Affidavit and that this was oppressive to Create or contrary to the interests of the members of Founder as a whole. My reasons for this are as follows:
(a) given that the relevant funds were the net proceeds from the sale of the Laverton Properties, their use is conduct in the affairs of Founder, for the same reasons as given in respect of the other allegations concerning the Laverton Properties;
(b) Chandy's evidence in this proceeding, in the First Chandy Affidavit, is clear and was not successfully impugned in cross-examination;
(c) Chandy's evidence in this proceeding establishes that the funds paid out of the Joint Account to Op Co were used to pay Op Co's debts and for working capital for the Renex business. That some of the debts may have changed or become the subject of payment plans does not diminish that evidence or mean that the funds were not used for the purposes deposed to by Chandy;
(d) Angelodemou was given sole control of the Joint Account by the orders made on 23 July 2021 and there was no restriction placed by the Court on the use of the funds in that account;
(e) provided that the funds transferred to Op Co from the Joint Account were used to pay Op Co's debts, or for its working capital, or were otherwise used for the benefit of the Renex Group of Companies, any alleged failure to pay the ATO, SRO and/or City of Greater Dandenong is not oppressive conduct. There was no requirement in the orders made on 23 July 2021 that those debts be paid from the net sale proceeds, and any failure to do so is not oppressive conduct; and
(f) Create bears the burden of establishing that those funds were used in a manner which was oppressive to Create or contrary to the interests of Founder as a whole. Create has not done so.
P. Create's allegations regarding MSA's refusal to pay the 2015 Share Sale Debt
380 Create pleads as material facts the matters referred to in paragraphs 10, 38 and 43 above and alleges that by commencing the s 459G Proceeding and the subsequent appeal, MSA and Angelodemou disputed that MSA was indebted to Create for the amount of the 2015 Share Sale Debt in circumstances where that debt was acknowled[79]d in the 2019 Share Sale Agreement79 and there was no genuine dispute regarding the existence of the debt. This is alleged to be oppressive conduct towards Create.
381 MSA admits the material facts as pleaded. It admits that it disputed the existence of the 2015 Share Sale Debt but pleads that it believed there was a genuine dispute as to the existence of that debt and denies that it was oppressive conduct.
382 As set out, Create no longer relies on MSA's refusal to pay the 2015 Share Sale Debt and commencing the s 459G Proceeding as an act of oppression. Create now accepts that Angelodemou's conduct in his capacity as director of MSA in first commencing the s 459G Proceeding to set aside Create's statutory demand issued on 4 January 2021, and then later after the dismissal of that proceeding making an application for leave to appeal to the Court of Appeal, is not oppressive conduct in the affairs of Founder. However, Create contends that this is nonetheless relevant context for the Court's determination of whether oppressive conduct has in fact occurred in the instances complained.
383 In this regard, Create submits that there had been a clear record of MSA's indebtedness to Create in respect of the 2015 Share Sale Debt, as acknowledged in the written agreement dated 16 September 2019 between Create, MSA, Hold Co, Pulitano and Angelodemou whereby Create agreed to sell its share in Founder to MSA ('2019 Share Sale Agreement').[80] Create submits that despite this clear record of indebtedness, Angelodemou elected to proceed to litigation in any event, where there was no genuine dispute as to the existence of the debt, even stating he received verbal advice about a special leave application to the High Court.
384 Create contends that it discovered, after the records of Op Co were subpoenaed in this proceeding (and resisted by Angelodemou), that the cost of the s 459G Proceeding was paid by Op Co. This is dealt with further below.
385 Create submits that from around the end of 2020 the relations between the parties and their directors, Angelodemou and Pulitano, have deteriorated. The complained oppressive conduct perpetrated by Angelodemou has been ongoing, protracted and enduring. The failure to pay the 2015 Share Sale Debt and the instigation and prolongation of the s 459G Proceeding are said to provide relevant context and facts and circumstances to which this Court ought to have regard in determining each instance of oppressive conduct now relied upon.
386 MSA submits that the conduct is not conduct by Angelodemou in the affairs of Founder, and nor does it constitute oppression. MSA gives four reasons for this position:
(a) First**,** Angelodemou's decision to commence the s 459G Proceeding was made in his capacity as a director of MSA, not in the conduct of the affairs of Founder.
(b) Second**,** the debt was entirely unrelated to Founder. It concerned a share sale and option agreement dated 19 June 2015 that related to the sale of MSA's shares in Renex Holdings (Dandenong) 1 Pty Ltd. That entity was never part of the Renex Group of Companies, it being one of the Old Renex Entities.
(c) Third, MSA challenged the statutory demand on the basis of Angelodemou's belief that there was a genuine dispute as to the debt. MSA ultimately failed in its challenge, and paid the debt to Create, after the Court of Appeal upheld by a 2-1 majority a decision of Associate Justice Efthim dismissing MSA's application to set aside the statutory demand. That MSA's challenge to the statutory demand was reasonable is evident from the fact that MSA's challenge was accepted by Justice Kyrou on appeal.
(d) Fourth, and in any event, no harm has been suffered by Create or the Renex Group of Companies.
387 Create's concession that MSA's refusal to pay the 2015 Share Sale Debt, along with the s 459G Proceeding and the appeal, was not oppressive conduct in the affairs of Founder was appropriate. It is not, and never was, conduct in the affairs of Founder. I note that the timing of this acknowledgement has not been explained by Create, although whether anything turns on this is another question.
388 Create's allegations in this regard amount to nothing more than one example of the deteriorating relationship between Pulitano and Angelodemou and their related entities. I do not consider that those allegations, even if established, are facts and circumstances relevant to determining whether Founder's affairs have been conducted in a manner which is oppressive to Create or contrary to the interests of Founder's members as a whole.
389 For the sake of completeness, I will say that I do not accept MSA's submission as set out at paragraph 386(c) above. Angelodemou's subjective belief about there being a genuine dispute about the debt cannot be accepted as justifying his conduct in relation to this issue, given that his views about his legal rights and the legal effect of documents has been exposed as being quite erroneous. Further, I do not think that the outcome of the appeal assists Angelodemou in this regard. However, nothing turns on this given what I have said in paragraph 388 above.
390 In the POC, Create alleges that by its D & CC MSA has engaged in oppressive conduct in the affairs of Founder by alleging that, by Create commencing this proceeding and seeking a winding up order, Founder has committed an event of default under the Hold Co SHA and that such default permits Artis Parra to purchase Founder's shares and if it does not, Hold Co to buy back Founder's shares.
391 Create disputes MSA's contentions in this regard.
(a) MSA's conduct in making these contentions was authorised by Angelodemou to advance his own interests in preference to the interests of Founder and Create;
(b) the reliance on the Hold Co SHA is to the advantage of Hold Co and Angelodemou at the expense of Founder and its members;
(c) Founder, Hold Co and MSA have refused and failed to provide documents and information in respect of the allegations made by MSA; and
(d) the reliance on the Hold Co SHA against the interests of Founder constitutes conduct in the affairs of Founder which is contrary to the interests of its members as a whole, and oppressive to, unfairly prejudicial to or unduly discriminatory against Create as a member of Founder.
393 MSA admits that it alleges that the actions of Create have caused, and may further cause, Founder to be in default under the Hold Co SHA, with the consequences as to purchase of Founder's shares in Hold Co as pleaded, and otherwise denies the allegations.
394 Create submits that MSA's conduct in relying upon the Hold Co SHA is a further instance of Angelodemou conducting the affairs of Founder in a manner which is commercially unfair.
395 Create contends that reliance on the Hold Co SHA seems to be intended to cause confusion. None of the parties to the agreement have taken any steps to enforce it and one of the alleged parties, Artis Parra, has said it will not. In this regard, Create states, in a footnote to its written closing submission, that if Artis Parra took steps under the Hold Co SHA "there would be a live issue concerning whether it was a party to the agreement".
396 Create submits that the conduct of Angelodemou as a whole constitutes conduct in the affairs of Founder that is oppressive conduct.[81]
397 MSA points to Chandy's evidence that Artis Parra will not give consent to Create taking control of Founder and that if Create does take control of Founder in those circumstances then Founder will have committed another event of default under the Hold Co SHA.
398 As noted above, MSA admits that it makes the allegations Create pleads that it has, but submits that making those allegations does not constitute conduct in the affairs of Founder and is not oppressive conduct. MSA submits this for the following reasons:
(a) The point that MSA makes is valid having regard to the clear wording of clause 7.1(b) and Item 1.4(a) and (c) of schedule 3 of the Hold Co SHA.
(b) It cannot be an act of oppression for a defendant in an oppression proceeding to simply point out the legal consequences of the actions that the plaintiff shareholder has taken in the proceeding and of the relief sought by the plaintiff in the proceeding. MSA's pleading in this respect is simply to provide further support for its position that the appropriate remedy is not a winding-up of Founder or an order that Create buyout MSA.
(c) Create's pleadings do not support a claim that the conduct complained of is conduct in the affairs of Founder. The conduct is that of MSA.
(d) In any event, no harm has been suffered by Create or the Renex Group of Companies.
399 Create's submissions regarding this allegation lack detail. Create does not explain how the conduct is said to be oppressive towards it.
400 There was in evidence an accession deed poll dated 21 April 2016 executed by Chandy as sole director of Artis Parra ('Accession Deed Poll'). That document recites that Artis Parra has accepted an offer to be issued with shares in Hold Co and that under the Hold Co SHA it is required to enter into the deed poll before it is registered as a holder of shares. By the Accession Deed Poll, Artis Parra agreed to become party to the Hold Co SHA and covenants with the other parties to the Hold Co SHA to be bound by and comply with all of its provisions as a shareholder.
401 There was a great deal of time spent cross-examining Angelodemou and Chandy about the Accession Deed Poll, particularly as to when it was executed and when it was delivered to MSA/Hold Co, and as to why no original of it had been located. There was also cross-examination of Chandy as to why a later document, being a deed poll dated 30 July 2018 executed by Chandy on behalf of Artis Parra, which refers to Areo's exit from Hold Co and states that Artis Parra has agreed to waive any rights of pre-emption it may have under the Hold Co SHA, does not refer to the Accession Deed Poll. Create seemed to suggest, in opening and by its cross-examination, that this raises doubts as to whether the Accession Deed Poll was actually in existence in July 2018.
402 I do not propose to go into this in any detail, as Create has not made sufficiently clear what this issue is relevant to or what it is that it says I should make of it. The only two things that come close are the somewhat cryptic footnote I have described in paragraph 395 above, and a statement made in opening that if Artis Parra wasn't a party to the Hold Co SHA at the time Areo ceased to be a shareholder (because Artis Parra had allegedly not executed the Accession Deed Poll prior to that time, since the only shareholder of Hold Co was then Founder) the Hold Co SHA would have terminated at that time. This latter submission is consistent with paragraph 36 of the R & D to CC, although it is not made explicit in that document. I do not find the submission that there are doubts about the existence of the Accession Deed Poll in July 2018 by virtue of the wording of the other deed poll referred to above at all convincing. Nor do I think that the evidence establishes that the Accession Deed Poll was not executed and delivered when Angelodemou and Chandy say that it was. In any event, given the finding I express in paragraph 404 below, it is not necessary for me to come to a definitive view about the status of the Accession Deed Poll.
403 I do not accept MSA's submission that the impugned conduct is not conduct in the affairs of Founder. Create's allegation, which in turn is about MSA's own allegation, concerns whether or not Founder has (or may) commit an event of default under the Hold Co SHA giving rise to a compulsory acquisition of Founder's shares in Hold Co. Founder having to divest itself of its shares, possibly against its will, is clearly conduct in the affairs of Founder. While it is conduct in the affairs of Hold Co, that does not mean that it cannot be conduct in the affairs of Founder as well.
404 However, I do not accept Create's allegation that MSA or Angelodemou have conducted the affairs of Founder in this respect in a manner which is oppressive, unfairly prejudicial to or discriminatory against Create, or that is contrary to the interests of the members of Founder as a whole. I accept that all that MSA has done is rely on Create's conduct and the consequences it says flow from that conduct in respect of the Hold Co SHA and then pleaded that in its defence. In this regard, I accept MSA's submission set out at paragraph 398(b) above.
(a) Rundell was appointed to prepare the Court-ordered Valuation;
(b) Rundell sought information from Chandy in relation to each entity in the Renex Group of Companies, including financial projections;
(c) as a director of each entity in the Renex Group of Companies, Angelodemou was in a position to direct Chandy to prepare the financial projections:
(i) for use by the companies and by Create as a shareholder of Founder; and/or
(ii) to assist Rundell in the preparation of his report,
but did not do so;
(d) as a result of the absence of financial projections, Rundell prepared his own projections which showed that the Renex Group of Companies would incur operating losses for each year from 2022 (excluding income from the sale of a property) to 2026; and
(e) the failure by each company within the Renex Group of Companies to prepare financial projections for use by the companies or to assist Rundell constitutes conduct in the affairs of Founder that is contrary to the interests of its members as a whole and oppressive to, unfairly prejudicial to or unduly discriminatory against Create as a member of Founder.
(a) admits the matters referred to in sub-paragraphs (a) and (b) of the preceding paragraph;
(b) admits that Angelodemou did not direct Chandy to prepare financial projections for FY2022 to FY2026 sought by Rundell, which financial projections did not exist;
(c) says that on 17 December 2021, Justice Button (then of this Court) determined not to direct the creation of financial projections that did not exist as business records;
(d) given the cost and utility of the financial projections requested by Rundell, it was inconsistent with Angelodemou's duties as director of each of the Renex Group of Companies to direct Chandy to prepare the financial projections. The particulars to this plea state that Angelodemou did not direct Chandy to prepare five year financial projections because:
(i) he formed the view that such a document would be highly speculative given the nature of the Renex business, particularly in the absence of long-term contracts, the changing environmental regulatory landscape and the ongoing impact of Covid-19 on the business;
(ii) he estimated the cost of preparing such a document was approximately $10,000; and
(iii) Justice Button determined not to direct the creation of financial projections that did not exist as business records;
(e) admits that Rundell prepared his own projections; and
(f) otherwise denies Create's allegations.
407 Create refers to the Rundell Report, where Rundell says the following about the lack of financial projections for the period FY2022 to FY2026 prepared by the Renex group itself:
On a number of occasions when I asked for financial projections, I was advised that none were available. Mr Chandy, the CFO, when interviewed proffered on multiple occasions the view that it was too difficult to do. Whilst I agree that forecasting is always challenging to do and we are never going to be spot on, my experience in such exercises has been that the relevant managers and staff still take a realistic and informed approach at coming up with a reasonable indicative view on the future financial prospects for the business that they are operating.
In the absence of management or director projections, I was required to form a view as to an indicative and reasonable 5-year financial projection for the group, based on the discussions with Mr Chandy, guidance of the high level FY2022 EBITDA forecast provided by the Renex CFO, as well as information from industry peers locally in Australia and internationally. I refer to these projections as a base case or likely case.
408 Create points out that the $10,000 cost referred to by MSA was an internal cost to the Renex group, and not an amount to be paid out.
409 Create refers to Chandy's affidavit evidence, where it is said in the Third Chandy Affidavit that he purports to illustrate the speculative nature of such projections by comparing the Net Profit After Tax (NPAT) amounts as projected by the April 2018 forecast, and the actual figures. Create says that Chandy's illustration was in fact inaccurate itself. The loss as at year end June 2022 was in fact a profit. Create submits that this was a substantial error in that affidavit, which only purported to highlight why Chandy (and Angelodemou) thought the projections were not required.
410 Create accepts that Justice Button did not ultimately order the creation of business records for Rundell, but Create then points to the following comments made by her Honour at the hearing on the topic:
And those are matters for you, but in relation to the creation of business records that don't presently exist, as I've indicated, I'm not going to direct them to create something notwithstanding that it might be usual to have it, it might be a very good idea to have it, but they say - and I take it Ms Jones is on instructions - it simply does not exist now.
411 Create submits that Chandy gave evidence at trial that he had prepared projections in the past and that he was familiar with them. During cross-examination, the following exchange occurred:
Mr Northrop: And you did not - you did not assist with the valuation process by Mr Rundell, by reason of, for example, not preparing projections?
Angelodemou: I wasn't required to prepare projections.
Mr Northrop: Mr Rundell asked for projections, did he not?
Angelodemou: He did.
Mr Northrop: Those projections could have been prepared in-house. Is that correct?
Angelodemou: Um, they could have been prepared.
Mr Northrop: And they could have been prepared at a relatively modest price?
Angelodemou: Yes.
412 Create submits that the effect of the failure to prepare financial projections was to hamper the ability of Rundell and MSA's own valuer, Wright, to prepare valuations of Founder.
413 Create says that its expert, Lee, opined that Rundell was forced to do his own projections and there was an acknowledgment by Rundell's acknowledgment that the reality may exceed that scenario is effectively an acknowledgment by Rundell that the Discounted Cash Flow ('DCF') method was conservative and possibly unrealistic. Wright said that if she had such projections she might have been able to adopt a different methodology such as the DCF methodology.
414 Create submits that in view of these matters, namely that the effect of the failure to provide the financial projections was to effect the validity and reliability of the Rundell valuation (and indeed the Wright valuation), and the fact that the costs of such a valuation would have been borne by the Renex Group of Companies and prepared at a relatively modest price, and in the context of the ongoing litigation between the parties and the shut out of Pulitano from the financial affairs of Renex Group of Companies at the time of the request for these projections, Angelodemou's failure to direct the preparation of financial projections was commercially unfair.
415 MSA submits that Angelodemou's conduct in not directing Chandy to prepare five year financial projections for Rundell was not conduct in the affairs of Founder or conduct that was oppressive for the following reasons:
(a) The pleadings do not support a claim that the conduct complained of was conduct in the affairs of Founder.
(b) Rundell was provided with the only financial projection in existence, being a financial projection prepared in April 2018 for the Renex Group of Companies for the years ending March 2018 to March 2023.
(c) Rundell requested financial projections for the years 2022 to 2026. The evidence of Angelodemou and Chandy is that preparing projections would be highly speculative and of little utility.
(d) Pursuant to orders made by Delany J on 11 October 2021, Rundell had full access to the books and records of the Renex Group of Companies for the purposes of the valuation.
(e) The preparation of the financial projections was raised before Justice Button, with her Honour declining to order that projections be prepared.
(f) In any event, no harm has been suffered by Create or the Renex Group of Companies.
416 I am satisfied that the conduct complained of is conduct in the affairs of Founder, despite MSA's submission to the contrary. It goes to the valuation of the Renex Group of Companies, which in turn affects the value of shares in Founder.
417 However, Angelodemou's conduct in not directing Chandy to prepare financial projections for each of the Renex Group of Companies, whether for their own use or for use by Rundell, was not conduct that was contrary to the interests of members of Founder as a whole or oppressive to Create. The conduct has been explained by Angelodemou and Chandy, and while others may come to a different view about the utility of financial projections, Create has not established that the failure to provide the projections was commercially unfair. Further, Create has not established how it or the members of Founder as a whole suffered any harm as a consequence of it. In other words, Create has not sufficiently established how it was commercially unfair.
S.1 The pleadings
(a) From 14 September 2018 and 15 April 2020, Op Co conducted its affairs in contravention of its licence no. 127068 with the EPA issued 30 June 2016 ('EPA Licence') and also in breach of ss 19A(8) and 19A(1)(a) of the Environmental Protection Act 1970 ('EP Act'). This allegation is particularised by reference to an order made by Magistrate Connellan in Magistrates' Court of Victoria proceeding N10199329 dated 19 August 2022.
(b) From in or about early 2020 to at least 14 October 2022, Angelodemou neglected, failed or otherwise refused to disclose to Create the existence of the EPA charge, prosecution and the court order against Op Co.
(c) On 15 December 2022, Angelodemou and Op Co were each charged with 21 offences under the EP Act ('EPA Charges').
(d) From at least July 2021 until 26 April 2023, Angelodemou failed to disclose to Create:
(i) the EPA's involvement in the affairs of Op Co at 5 Harveys Road Woodside North, Gippsland, in the state of Victoria ('Woodside Quarry'); and
(ii) the EPA Charges;
(e) From as early as 15 April 2020 onwards, Angelodemou caused Op Co to incur costs dealing with:
(i) Magistrates' Court of Victoria proceeding N10199329;
(ii) the affairs of Op Co at the Woodside Quarry;
(iii) the Environmental Action Notice addressed to Op Co dated 18 November 2021 ('First Notice');
(iv) the Amended Environmental Action Notice addressed to Op Co dated 3 December 2021 ('Second Notice'); and/or
(v) the EPA Charges.
(a) admits that Angelodemou did not disclose to Create the existence of the infringement and the order made by the Magistrates' Court of Victoria;
(b) says that Angelodemou was not required, further or alternatively believed he was not required, to disclose the existence of the infringement and the Magistrates' Court order to Create unless Create made a request to discuss the affairs of Op Co. In this regard, MSA relies on clause 13.7(c) of the Hold Co SHA;
(c) admits that Angelodemou and Op Co were each charged with the EPA Charges;
(d) admits that Angelodemou did not disclose to Create the matters referred to in paragraph 418(d) above, but says that Angelodemou was not required, further or alternatively believed he was not required, to disclose the existence of those matters to Create unless Create made a request to discuss the affairs of Op Co. In this regard, MSA again relies on clause 13.7(c) of the Hold Co SHA;
(e) in respect of the allegations set out at paragraph 418(e) above:
(i) admits that Op Co incurred costs dealing with Magistrates' Court of Victoria proceeding N10199329, the Second Notice and the EPA Charges;
(ii) says that the allegations concerning incurring costs dealing with the affairs of Op Co at the Woodside Quarry are vague and embarrassing and denies them on that basis;
(iii) denies that Op Co incurred costs concerning the First Notice; and
(iv) says that Op Co has an insurance policy which indemnifies Op Co and Angelodemou for defence costs and penalties up to the amount of $1 million and that the insurer has indemnified under that policy for some but not all defence costs and penalties in connection with the EPA Charges;
(f) says that in respect of the Environmental Action Notices that:
(i) on about 22 November 2021, Op Co lodged an internal review of the First Notice with the EPA, which resulted in the EPA issuing the Second Notice;
(ii) Op Co did not incur any costs dealing with the First Notice;
(iii) Op Co appealed the Second Notice to the Victorian Civil and Administrative Tribunal ('VCAT');
(iv) on 26 April 2022, VCAT ordered the EPA to amend the Second Notice;
(v) on 4 May 2022, the EPA issued a further Amended Environmental Action Notice ('Third Notice');
(vi) Op Co incurred costs in complying with the Third Notice; and
(vii) on 11 August 2022, the Third Notice was revoked by the EPA because compliance had been achieved;
420 Create submits that in the context of Angelodemou acting to the exclusion of Pulitano and Create in all activities of Founder and the Renex group and business since at least the end of 2020, Angelodemou's failure to advise Create of the EPA's involvement in the Renex business in August 2022 and December 2022 was commercially unfair.
421 Create submits that Angelodemou attested to an excellent working relationship with the EPA, albeit with disagreements. Before Pulitano agitated the issue of the EPA Charges (he says he found out about them in March 2023), Angelodemou had made no mention of:
(a) the infringement notice issued against Op Co on 4 September 2020;
(b) Op Co's contest of the infringement notice, resulting in a fine greater than that stated on the notice and costs of $5,000;
(c) the First Notice;
(d) the review of the Second Notice in VCAT leading to the Third Notice; or
(e) the EPA Charges against each of Angelodemou and Op Co, for contravention of the EPA Licence in respect of the transport of treated materials to the Woodside Quarry.
422 Create says that in cross-examination, in respect of the lack of disclosure, the following exchange occurred:
Mr Northrop: You don't think that a person reading your affidavit from October 2022 . . . in February 2023 wouldn't understand . . . that the relations were such that you had been charged by the EPA?
Angelodemou: The charges happened.
Mr Northrop: And you tried to keep them a secret, didn't you?
Angelodemou: No, they're definitely no secret.
Mr Northrop: . . . but you didn't tell your expert about the charges; is that right?
Angelodemou: Ah, no.
Mr Northrop: You didn't seek her advice about whether they might be relevant to her valuation?
Angelodemou: Ah, no. As I said last week, what was provided to Ms Wright was consistent with whatever had already been provided.
Mr Northrop: You do accept, don't you, that the outcome of those charges might have a bearing on your future relations with the EPA?
Angelodemou: No, I don't think it does.
423 Create submits that Angelodemou's answers were wholly unsatisfactory and without merit as to any legitimate commercial purpose.
424 Create also submits that MSA's reliance on clause 13.5(c)(ii) of the Founder SHA to assert that it was only required to provide Pulitano with financial reports and not reports of an operational nature, and their assertion that Pulitano was a mere passive investor, does not provide a proper commercial purpose to fail to disclose, and indeed consciously and deliberately fail to disclose, in the context of ongoing litigation between the parties and the effective shut-out of Pulitano and Create from the business of Renex, the existence of the EPA Charges.
425 Create submits that Angelodemou admits that Op Co has incurred the following costs:
(a) Legal fees of Hall & Wilcox for defending the EPA Charges against himself and Op Co in the amount of $99,125.21 as at 28 September 2023.
(b) Clean-up costs for the Woodside Quarry, in the amount of $308,833.01.
426 MSA submits that the conduct alleged does not constitute conduct in the affairs of Founder and nor does it constitute oppressive conduct, for the following reasons:
(a) The POC does not plead facts sufficient to sustain an allegation that Angelodemou's conduct was conduct for or on behalf of Founder; Create fails to identify how or why this is the case.
(b) Angelodemou was not obliged to disclose matters concerning the EPA to Create nor has Create identified any basis to support a finding to the contrary. Create's role in the Renex Group of Companies is as a passive investor and there is no evidence to suggest that Create has previously been provided with regular information about the companies' dealings with the EPA, or that Create has ever requested that it be provided with such information. Clause 13.5(c)(ii) of the Founder SHA did not require Angelodemou to provide such operational information to Create.
(c) Create has failed to identify how or why the payment of costs associated with EPA matters (to the extent those costs are not covered by Op Co's policy of insurance) is oppressive or commercially unfair. It would be unreasonable for Op Co not to incur costs that are necessary to respond to charges from the EPA.
427 I do not accept the general proposition that conduct concerning operational matters within Hold Co or its subsidiaries, including Op Co, constitutes conduct in the affairs of Founder. The Renex Group of Companies is structured in such a way as to make Angelodemou the nominee of Founder on the board of Hold Co, the CEO of Hold Co, and the sole director of Hold Co's subsidiaries. It is clear that Angelodemou was to have operational control and that this was agreed to by the shareholders of Founder and of Hold Co.
428 It is clear from both the Founder SHA and the Hold Co SHA that it was expected that there would be limited reporting and access to information about operational matters.
429 Create's allegations in respect of the involvement of the EPA are based on the premise that there was something unusual about the EPA being involved in the Renex business, so as to elevate it to an issue that it says ought to have been reported to Create. However, given that Op Co required a licence from the EPA in order to operate the Waste Treatment Facility and did have such a licence, one would think that there would be ongoing or periodic activity involving the EPA. Some of the EPA matters complained of by Create appear to be relatively minor: an infringement with a $10,000 fine, for example.
430 Even if Angelodemou's non-disclosure of the EPA matters, including the EPA Charges, was conduct in the affairs of Founder, for the above reasons I do not accept that it constitutes oppressive conduct.
431 It is difficult to discern from Create's pleading and submissions what use it seeks to make of Op Co's incurring of costs in respect of the EPA matters. Is it said that the incurring of costs contributes to why Angelodemou ought to have disclosed the EPA matters to Create? Or is it said that the incurring of the costs is itself an instance of oppressive conduct? In my view, neither of these possible uses assists Create. Further, Create's cross-examination of Angelodemou on the EPA matters seemed to hint at other complaints, such as whether the EPA Charges were disclosed to Wright, but it was unclear what the purposes of such questions were.
432 I accept MSA's submission that Create has failed to identify how or why the payment of costs associated with the EPA matters is oppressive or commercially unfair. I also accept MSA's submission that it would be unreasonable for Op Co not to incur costs that are necessary to respond to the EPA, including to defend the EPA Charges. It is reasonable and conventional that, absent more, the company's costs and that of its director are met by the company in such circumstances. Here, there does not seem to be anything more. For example, if the complaint is that the level of the fine from the infringement ended up being higher due to it being challenged in the Magistrates' Court, there is no evidence to suggest that the steps taken by Angelodemou and Op Co in that instance were unreasonable.
433 Accordingly, Create has not established that Angelodemou's failure to disclose to it the EPA's involvement in the affairs of Op Co, including the payment of costs associated with the EPA matters, is conduct in the affairs of Founder or that it is conduct which is oppressive to, unfairly prejudicial to, or unfairly discriminatory against Create or is contrary to the interests of the members of Founder as a whole.
434 Create alleges that from about 1 July 2019 onwards, Angelodemou has procured, authorised or allowed Op Co to pay legal costs under the heading 'Equity/Shareholder'. This allegation is particularised by reference to an Op Co profit and loss statement dated 22 January 2022 which records annual amounts under this heading for FY2020 of $30,343, for FY2021 of $639,514 and for FY2022 of $331,964, totalling $1,001,821. It is also stated that further expenses may have been paid subsequent to 22 January 2022.
435 Create alleges that the legal costs paid by Op Co included costs incurred by and payable by:
(a) Angelodemou personally;
(b) companies controlled by Angelodemou that are not part of the Renex Group of Companies, including MSA, RG and Land Holdings; and
(c) Chandy and Artis Parra.
These are the payments I have defined as the Impugned Legal Fee Payments.
436 Create alleges that Angelodemou causing the payment of these costs by Op Co was conduct that was oppressive to Create or contrary to the interests of members of Founder as a whole.
437 MSA admits the allegation described in paragraph 434 above.
438 MSA admits the allegation described in paragraph 435 above and says further that:
(a) pursuant to the constitutions of each of Op Co, Land Co and Hold Co, those companies indemnified Angelodemou and Chandy, as relevant officers, including in respect of legal costs;
(b) on or about 20 September 2018, Hold Co and Angelodemou entered into a deed of access, indemnity and insurance ('Angelodemou Indemnity Deed') pursuant to which Op Co indemnified Angelodemou for legal costs incurred by him as a director of the Renex Operating Entities and Op Co agreed to pay reasonable costs incurred by Angelodemou for advice obtained in connection with his duties as a director of the Renex Operating Entities; and
(c) on or about 20 September 2018, Hold Co and Chandy entered into a deed of access, indemnity and insurance ('Chandy Indemnity Deed') to similar effect in favour of Chandy in connection with his duties as company secretary of the Renex Operating Entities.
439 Thus, while broadly admitting the substance of the allegations, MSA denies that the conduct is conduct in the affairs of Founder or was oppressive or contrary to the interests of the members of Founder as a whole.
440 In its opening submissions, MSA conceded that some of the Impugned Legal Fee Payments exceeded those permitted under the scope of the indemnity granted in the Angelodemou Indemnity Deed and the Chandy Indemnity Deed (together, 'Indemnity Deeds').
441 MSA conceded in opening that there needs to be an adjustment to valuation/price for some of the legal costs, being the ones paid by Op Co that exceeded Angelodemou's and Chandy's entitlements under the Indemnity Deeds. These were partially identified by reference to Angelodemou's Eighth Affidavit, however there was no clarity in MSA's opening as to what legal costs were and were not covered by the Indemnity Deeds. I indicated to MSA's counsel that at some point this would need to be clearly set out for me.
442 In its oral closing submissions, MSA stated that the legal costs which were covered by the Indemnity Deeds were those associated with the s 237 Proceeding. I will come back to the quantum of the legal costs later.
443 Despite these submissions, MSA maintained in its written and oral closing submissions that payment by Op Co of the legal fees complained of was not oppressive conduct in the affairs of Founder. I will deal with this later in section T5 of these reasons.
444 In respect of the legal costs paid by Op Co which are the subject of the allegations, the Eighth Angelodemou Affidavit contains an exhibit which is a schedule of the invoices for those legal costs. Angelodemou deposes that:
(a) the three invoices issued by Marshall Dent Wilmoth Lawyers were for legal advice provided to Chandy and Artis Parra;
(b) the invoices issued by Clayton Utz (on my count, there were 39) each have one of the following descriptions:
(i) Renex: Founder Hold Co Share Sale;
(ii) Renex - Laverton North;
(iii) Renex: MSA Renex;
(iv) Marinos: Renex Land Derivative Leave Proceeding; or
(v) Renex: Wind up Renex Founder.
445 Angelodemou deposes as to each of the categories for the Clayton Utz invoices.
446 In respect of 'Renex: Founder Hold Co Share Sale', Angelodemou says the invoices with this description were for various legal services including advising:
(a) MSA in the later part of the 2019 calendar year in relation to a proposed acquisition of Create's share in Founder;
(b) Op Co in relation to its financing needs;
(c) Op Co in relation to its dealings with the EPA;
(d) in relation to the acquisition of the Laverton Properties (Angelodemou does not say who this advice was provided to); and
(e) MSA and Angelodemou in relation to the dispute with Create and Pulitano.
447 I note that the schedule records that all of the invoices with the description 'Renex: Founder Hold Co Share Sale' were issued to Op Co.
448 In respect of 'Renex - Laverton North', Angelodemou says the invoices with this description were issued to Angelodemou, Land Holdings and Land Co for legal advice and services for:
(a) the s 247A Proceeding;
(b) the s 1322 Proceeding;
(c) the dispute with Create and Pulitano;
(d) the s 459G Proceeding, which he describes as a relatively small amount in addition to the invoices with the description 'Renex: MSA Renex';
(e) the s 237 Proceeding, which he describes as a relatively small amount in addition to the invoices with the description 'Marinos: Renex Land Derivative Leave Proceeding'; and
(f) this proceeding, which he describes as a relatively small amount in addition to the invoices with the description 'Renex: Wind up Renex Founder'.
449 In respect of 'Renex: MSA Renex', Angelodemou says the invoices with this description were issued to MSA for various legal services including:
(a) legal advice and services in relation to the s 459G Proceeding; and
(b) legal advice in relation to the dispute with Create and Pulitano.
450 In respect of 'Marinos: Renex Land Derivative Leave Proceeding', Angelodemou says the invoices with this description were issued to him for legal advice and services in respect of the s 237 Proceeding. Clayton Utz acted for Angelodemou in that proceeding, and Land Co was not represented.
451 In respect of 'Renex: Wind up Renex Founder', Angelodemou says the invoices with this description were issued to himself and MSA for various legal advice and services in relation to this proceeding. He says that Clayton Utz acts for him, MSA, RG and Land Holdings in this proceeding and that Founder is not represented.
452 Unfortunately, Angelodemou does not give a total figure for all of the Clayton Utz and Marshall Dent Wilmoth Lawyers invoices or sub-totals for the 5 categories of Clayton Utz invoices referred to in paragraph 444(b) above.
(a) The Clayton Utz invoices total $1,364,700.70, comprising:
(i) $160,768.60 for invoices with the description 'Renex: Founder Hold Co Share Sale';
(ii) $357,935.03 for invoices with the description 'Renex - Laverton North';
(iii) $60,768.48 for invoices with the description 'Renex: MSA Renex';
(iv) $427,160.19 for invoices with the description 'Marinos: Renex Land Derivative Leave Proceeding'; and
(v) $358,068.40 for invoices with the description 'Renex: Wind up Renex Founder'.
(b) The Marshall Dent Wilmoth Lawyers' invoices, which the schedule records as having been issued to Op Co, total $24,399.04 and bear the description 'Advice'.
454 The schedule in the Eighth Angelodemou Affidavit also deals with an invoice issued to Founder by Value ADE, which was paid by Op Co, for $3,575. Angelodemou deposes in the Eighth Angelodemou Affidavit that this was for work done regarding the valuation of shares in Founder.
455 The schedule in the Eighth Angelodemou Affidavit also deals with an invoice issued to Hold Co by JLL, which was paid by Op Co, for $13,200. Angelodemou deposes in the Eighth Angelodemou Affidavit that this was for work done regarding the valuation of the Dandenong Site.
456 The invoices are exhibited to the Eighth Angelodemou Affidavit. Some of them have been redacted on the grounds of legal professional privilege. I have reviewed the Clayton Utz invoices and make the following observations:
(a) in respect of the invoices with the description 'Renex: Founder Hold Co Share Sale' it is impossible to discern which of the five topics for advice set out in paragraph 446 above relate to the particular line items or narrations contained in those invoices. Senior Counsel for MSA conceded as much during the course of oral submissions; and
(b) in respect of the invoices with the description 'Renex - Laverton North', while there are some redactions it is possible to discern, roughly, which of the topics referred to in paragraph 448 above the specific invoices or particular line items or narrations contained in those invoices relate to. However, this is not the case uniformly in respect of this category of invoices.
457 Create submits that the use of corporate funds to pay for private legal costs, including in defending an oppression proceeding, may constitute oppressive conduct.[82]
458 Create says that initially Angelodemou admitted he had procured, authorised or allowed Op Co to pay legal costs, including legal costs of him personally and legal costs of companies controlled by him that were not part of the Renex Group of Companies. However, it had been disputed as to whether such costs were indemnified under the relevant constitutions or Indemnity Deeds.
459 Create also says that Angelodemou now concedes (by his counsel in opening) that a number of the invoices for legal costs fall outside of the scope of the Indemnity Deeds, and ought be adjusted. Create submits that it is presently unclear precisely which invoices are now in dispute, and that there is insufficient evidence currently before the Court to enable it to properly quantify this amount. This is partly due to the fact that the invoices in the Eighth Angelodemou Affidavit are ones produced by Op Co to the Prothonotary in response to a subpoena issued in this proceeding by Create and do not include invoices issued after February 2022, and that they do not include invoices issued by Minter Ellison for legal fees in connection with a proceeding in the Administrative Appeals Tribunal ('AAT') in proceeding number 2016/4792 ('AAT Proceeding').
460 In respect of the Indemnity Deeds, Create submits that the evidence does not establish that these apply. It says that these are complex contractual arrangements and there is a factual question that has not been addressed as to whether particular costs fall within those arrangements.
461 MSA submits that the POC does not plead facts sufficient to sustain an allegation that Angelodemou's conduct was conduct for or on behalf of Founder; Create fails to identify how or why this is the case.
462 However, MSA and Angelodemou accept that if the Court is satisfied that Angelodemou's conduct in procuring Op Co to make the Impugned Legal Fee Payments was conduct in the affairs of Founder, the conduct constitutes oppressive conduct to the extent there is no justification for the payment of those fees.
463 MSA submits that the payment by Op Co of legal fees is justified insofar as the legal fees relate to legal services provided to the Renex Group of Companies, including general legal advice as to Op Co's financing needs, its dealings with the EPA and the acquisition of the Laverton Properties.
464 MSA also submits that the payment by Op Co of legal fees is justified insofar as the legal fees are connected with defending proceedings brought against any of the Renex Group of Companies or their directors/officers in relation to or arising out of their activities in that capacity.
465 MSA says that it is well established that a company has a legitimate interest in responding to a challenge to the validity of its decision making.[83]
466 MSA submits that further, the payment of legal fees incurred by Land Co and Angelodemou in the s 237 Proceeding in the total sum of $461,269.85 (GST inclusive), is expressly authorised by:
(a) the constitutions of Founder, Op Co and Land Co (together, 'Constitutions'); and
(b) the Indemnity Deeds.
467 In that regard, MSA refers to article 55(a) of the Constitutions which provide that 'to the extent permitted by law, the Company must indemnify each Relevant Officer' against a Liability of that person and the Legal Costs of that person. Relevantly, article 1 of the Constitutes defines:
(a) Relevant Officer to mean 'a person who is, or has been, a Director or Secretary';
(b) Legal Costs of a person to mean 'legal costs calculated on a solicitor-and-client basis incurred by that person in defending or resisting any proceeding (whether criminal, civil, administrative or judicial), appearing before or responding to actions taken by any court ... where that proceeding relates to a Liability of that person'; and
(c) Liability of a person means 'any liability including negligence (except a liability for legal costs) incurred by that person in or arising out of the discharge of duties as an officer of the Company or in or arising out of the conduct of the business of the Company, including as a result of appointment or nomination by the Company or a subsidiary ...'
468 MSA also refers to clause 3 of the Indemnity Deeds, which provide that:
(a) the company must indemnify the Officer against any Liability (other than Legal Costs, which are dealt with in clause 3.2) in connection with their role as director, chief financial officer, secretary or public officer (as applicable) of the Company or a Relevant Subsidiary, other than any Excluded Liability (clause 3.1); and
(b) the company must indemnify the Officer against Legal Costs, not limited to taxed costs, incurred by the Officer as a director, CEO, secretary or public officer of the Company or a Relevant Subsidiary, including Legal Costs incurred in defending or resisting an Action where the outcome of the Action is not yet known (clause 3.2).
(a) Liability as meaning 'a liability of whatsoever nature and howsoever and whensoever arising, whether actual or contingent, present or future, quantified or unquantified'; and
(b) Legal Costs means a Liability comprising legal costs or expenses, and may include any other reasonable and necessary fees and expenses incurred by the Officer with the consent of the Company.
470 To the extent that the payment of the pleaded legal fees is not authorised by the Constitutions and Indemnity Deeds, MSA accepts that such payments could potentially affect valuation and require an adjustment if the conduct is found to be conduct in the affairs of Founder.
471 MSA submits that Angelodemou's evidence at trial was that he is not aware of Op Co having paid any legal fees since February 2022 and it has not paid any legal fees in 2023. MSA submits that this is consistent with Chandy's evidence during cross-examination that legal fees have been recorded as a loan for at least the past 12 months.
472 MSA's oral closing submissions on this topic were a bit different to its written closing submissions, despite Senior Counsel confirming that he relied on the written closing submissions.
473 In relation to which legal costs exceeded the Indemnity Deeds and which were legitimately paid by Op Co, in oral closing submissions MSA submitted that the costs of the s 237 Proceeding which were paid by Op Co were covered by the Indemnity Deeds. MSA submitted that the other legal costs, set out in the Eighth Angelodemou Affidavit, ought not have been paid by Op Co.
474 As noted above, MSA conceded at trial that some of the legal costs paid by Op Co in this regard were costs that Op Co should not have paid. It disputed that this was conduct in the affairs of Founder Co and that it was oppressive, but acknowledged that some adjustment to the price of the share to be purchased may need to be made if the Court found to the contrary.
475 Taking MSA's concession that the legal costs other than those in connection with the s 237 Proceeding should not have been paid by Op Co, the questions which I need to decide are:
(a) Was the payment of legal costs by Op Co in respect of the s 237 Proceeding authorised by the Indemnity Deeds?
(b) Was the payment of legal costs by Op Co which were not authorised by the Indemnity Deeds conduct in the affairs of Founder?
(c) If so, was that conduct oppressive to Create or contrary to the interests of the members of Founder as a whole?
T.5.1 Was the payment of legal costs by Op Co in respect of the s 237 Proceeding authorised by the Constitutions and/or the Indemnity Deeds?
476 The focus of MSA's oral closing was on the Indemnity Deeds rather than the Constitutions, however I consider it important to begin with the Constitutions.
477 The indemnity in the Constitutions is in respect of Legal Costs incurred by a director or secretary relating to a Liability of that person. Liability is a defined term within the Constitutions. It covers liability incurred by the person arising out of the discharge of their duties as an officer or out of the conduct of the business of the company. However, there were no submissions made as to whether it extends to liability for breaches of duty as a director or secretary, or as to s 199A of the Act.
478 MSA's submissions in respect of the Indemnity Deeds also did not address the question of indemnity for legal costs in respect of conduct which involved a breach of director's or officer's duties.
479 There was insufficient evidence or submissions to allow me to make a finding that the payment of legal costs by Op Co in respect of the s 237 Proceeding was authorised by the Constitutions and/or the Indemnity Deeds.
480 In the circumstances of this case, I do not think that the derivative leave costs should be treated any differently to the remainder of the legal costs falling within this alleged act of oppression. This is because:
(a) there is no evidence before me to differentiate between costs incurred by Land Holdings and Angelodemou in respect of the s 237 Proceeding. While Land Holdings was not a party to that proceeding, the proposed statement of claim which Create intended to file if granted derivative leave named Angelodemou and Land Holdings as the defendants. To the extent that Land Holdings was the beneficiary of any of the legal advice and services provided by Clayton Utz in respect of the s 237 Proceeding, on no view could it properly be said that it was entitled to have its costs paid by Op Co;
(b) the arguments in respect of the Indemnity Deeds were under-developed and the facts required to support an analysis of whether Angelodemou's and Chandy's costs fell within the indemnified costs or not were not in evidence; and
(c) in circumstances where I have found that Angelodemou's failure to direct Land Co to initiate proceedings against Angelodemou and Land Holdings in respect of the Laverton Properties is oppressive conduct, which conduct led to the s 237 Proceeding being issued and to Court orders that the Laverton Properties be sold and the net proceeds paid to Land Co, it would be inconsistent and inappropriate to take the view that those legal costs should have been paid by Op Co.
481 The only evidence as to the legal costs paid by Op Co for invoices issued by Marshall Dent Wilmoth Lawyers to Op Co is Angelodemou's statement in the Eighth Angelodemou Affidavit that they were for legal advice provided to Chandy and Artis Parra, and the invoices themselves. I have reviewed the invoices, which are exhibited to the Eighth Angelodemou Affidavit, and I cannot discern what the subject matter of those invoices is. In those circumstances, it is impossible for me to determine whether they are covered by the Chandy Indemnity Deed. Further, to the extent that the advice was for Artis Parra, that could only have been in its capacity as a shareholder, which could not possibly be covered by the Constitutions or the Chandy Indemnity Deed. The information contained in the invoices themselves does not permit me to discern whether it was Chandy or Artis Parra who received the advice. In these circumstances, I am unable to find that they were legitimately paid by Op Co.
482 Insofar as the invoices referred to in the Eighth Angelodemou Affidavit are not for legal costs, I make the following findings.
483 The invoice issued by Value ADE ought not have been paid by Op Co, as it concerns the February 2021 Valuation which Angelodemou caused Founder to commission in a manner which was not in conformity with the Founder SHA. In this regard, it is worth noting that in cross-examination, Angelodemou said that he had paid this amount, but when confronted with Op Co's bank statement showing that it was paid by Op Co, he was forced to concede that he was incorrect.
484 The only evidence concerning the invoice issued by JLL to Hold Co is Angelodemou's statement in the Eighth Angelodemou Affidavit that it was for work done regarding the value of the Dandenong Site and the invoice itself, which is exhibited to the Eighth Angelodemou Affidavit. This invoice is dated 14 September 2021. There is no evidence as to the reason why this valuation was obtained at this time. In my view, it is unsurprising that Hold Co may from time to time seek and obtain a valuation of the Dandenong Site. I infer that in these circumstances, it was legitimate for Op Co to pay the JLL invoice.
485 There is in evidence five invoices issued by Minter Ellison to Op Co for a total of $35,372.72 bearing the description 'R&D Advice'. Angelodemou was cross-examined about the Minter Ellison invoices and he confirmed that they related to the AAT Proceeding. He had no explanation as to why the invoices were issued to Op Co, when his evidence was that the AAT Proceeding concerned RG, not any of the Renex Group of Companies.
486 In my view, the Minter Ellison invoices totalling $35,372.72 issued to Op Co for R&D Advice were not legitimately paid by Op Co.
T.5.2 Was the payment of legal costs by Op Co which were not authorised by the Indemnity Deeds conduct in the affairs of Founder?
487 Although MSA has conceded that legal costs paid by Op Co, with the exception of those in connection with the s 237 Proceeding were not properly paid by Op Co, such that it is not necessary for me to decide whether they were properly paid or not, discussion of those costs is still relevant in terms of determining whether it was conduct in the affairs of Founder.
488 I note that in respect of the provisions of the Constitutions relied upon by MSA:
(a) Angelodemou's legal costs of matters such as the EPA Charges would appear to be covered by the indemnity in the Constitutions and, by extension, the Angelodemou Indemnity Deed; and
(b) because of the state of the evidence in respect of the legal fees paid by Op Co, it is impossible to ascertain from that evidence how much of those fees is referable to matters such as the EPA Charges.
489 I accept that legal costs for matters such as advising Op Co in relation to its financing needs, its dealings with the EPA, and advising Land Co in relation to the acquisition of the Laverton Properties[84] (all matters included in the invoices with the description 'Renex: Founder Hold Co Share Sale') are ones where it would be legitimate for them to be paid by Op Co. However, as noted above, it is impossible to discern from the evidence as to what portions of the invoices in that category relate to those matters, and there are other matters within that category where the legal costs should not be paid by Op Co. These are advising MSA in respect of the 2019 Share Sale Agreement, advising MSA and Angelodemou in relation to the dispute with Create and Pulitano, and advising others (such as Land Holdings or Angelodemou) in relation to the acquisition of the Laverton Properties. For example, legal costs of Angelodemou and MSA in connection with the proposal to purchase Create's share in 2019, leading to the 2019 Share Sale Agreement, have nothing to do with Angelodemou's role as director of any of the Renex Group of Companies and is solely to do with MSA's role as a shareholder of Founder.
490 In respect of the invoices with the description 'Renex - Laverton North' issued to Angelodemou, Land Holdings and Land Co, there is simply no evidence to support a contention that the legal advice and services provided should have been paid by Op Co where they were services provided to Angelodemou or Land Holdings. Even though it is possible to discern from some (but not all) of the invoices (including the timing of those invoices) the likely subject matter of the legal advice and services, it is not possible for me to dis-aggregate them or to ascertain which persons or entities were actually provided with that advice and services. For example, of the $357,935.03 invoiced with this description, from my review of the invoices it seems that $165,922.56 is likely to be for the s 247A Proceeding; $45,238.57 is likely to be for the s 1322 Proceeding; $11,522.19 is likely to be for the s 237 Proceeding; $75,991.48 is likely to be for a mixture of the s 1322 Proceeding and the s 237 Proceeding; and for the remaining $59,260.23, it is simply impossible to tell what the legal advice and services was for.
491 While I will address matters to do with the quantum of the legal costs later in these reasons when considering valuation, I will make an observation here regarding the instances where I have made comments above about the state of the evidence and the impossibility of ascertaining from it the persons or entities to whom the particular advice or services was provided to, or the amounts referable to particular matters within the descriptions 'Renex: Founder Hold Co Share Sale' and 'Renex - Laverton North'. Such evidence was within Angelodemou's control and his failure to adduce it, or give evidence as to why it was not adduced, leads me to conclude that there is no justification for attempting to differentiate them or for making any allowance for the matters which may have legitimately been paid by Op Co.
492 I do not see how it can be seriously suggested that legal costs for matters such as the 2019 Share Sale Agreement or the s 1322 Proceeding are not matters within the affairs of Founder. After all, they concern shares in Founder and the removal of Pulitano as a director of Founder.
493 For the same reason as I found that Angelodemou's conduct in respect of the Laverton Properties, including such matters as the s 247A Proceeding and the s 237 Proceeding, was conduct in the affairs of Founder, I find that Op Co paying legal costs incurred by Angelodemou, MSA or Land Holdings in respect of these matters to be conduct in the affairs of Founder.
494 Insofar as the other subject matter of the Impugned Legal Fee Payments is concerned, since there is simply no justification for Op Co having paid those costs, and since the amount of those costs is significant and would undoubtedly have an effect on the valuation of the Renex Group of Companies, I consider Angelodemou's conduct in causing Op Co to pay those legal costs to be conduct in the affairs of Founder. Take the s 459G Proceeding as an example: the dispute itself and Angelodemou's conduct in respect of that proceeding was not conduct in the affairs of Founder, which makes it even more extraordinary that he would think it legitimate to have Op Co pay his (or MSA's) legal costs in respect of that proceeding.
495 For all of these reasons, Op Co's payment of the legal costs of Angelodemou, MSA, Land Holdings, Chandy and Artis Parra is conduct in the affairs of Founder. So too is the payment of the Value ADE invoice and the JLL invoice.
T.5.3 If so, was that conduct oppressive to Create or contrary to the interests of the members of Founder as a whole?
496 I do not consider Op Co's payment of the JLL invoice to be conduct which is oppressive to Create or contrary to the interests of the members of Founder as a whole, for the same reasons as set out in paragraph 484 above.
497 I consider Op Co's payment of the Value ADE invoice to be conduct which is oppressive to Create, for the same reasons as set out in paragraph 483 above. The amount of the invoice is relatively insignificant, which tells against such a finding, however this is outweighed by the circumstances as to how and why the cost was incurred, which is as a consequence of conduct which itself was oppressive to Create.
498 I consider Op Co's payment of the Marshall Dent Wilmoth Lawyers' invoices for the benefit of Chandy and Artis Parra to be conduct which is oppressive to Create, for the same reasons as set out in paragraph 481 above. It is commercially unfair for the resources of the Renex Group of Companies to be deployed to meet legal costs of Chandy which are not authorised by the Chandy Indemnity Deed or of Artis Parra.
499 Op Co's payment of the Clayton Utz invoices was oppressive to Create and contrary to the interests of the members of Founder as a whole. This conduct was not authorised by the Constitutions or the Angelodemou Indemnity Deed and involves Angelodemou and/or his personal entities receiving a substantial personal benefit, to the tune of at least $1,364,700.70.[85] That is a significant amount of money and it is commercially unfair for Angelodemou to receive such a substantial personal benefit. This is particularly the case in circumstances where most of the costs concern disputes with Create. Angelodemou was using the resources of the Renex Group of Companies to fund the legal costs of his/MSA's disputes with Founder's other shareholder, being Create, in circumstances where Create was properly paying its own legal costs associated with those disputes.
U. Conclusion regarding Create's allegations of oppression
500 In summary, therefore, in respect of the 12 pleaded acts of oppression, I have found that:
Failure to provide information re Laverton Properties
Failure of Land Co to exercise rights against Angelodemou and Land Holdings
Use of Laverton Properties for Angelodemou's personal benefit
Op Co's payment of legal fees other than for benefit of Renex Group of Companies
501 Thus in respect of the alleged acts of oppression, seven of them have involved Founder's affairs being conducted in a manner which is oppressive to Create and/or contrary to the interests of the members of Founder as a whole. In addition, in respect of the alleged acts of oppression, four of them have involved breach of director's duties and obligations by Angelodemou.
502 Create characterises MSA's/Angelodemou's conduct as being part of a concerted campaign, after the difference of opinion as to whether Land Co should continue with the purchase of the Laverton Properties or they should be sold, to be rid of Create/Pulitano. It contends that MSA's/Angelodemou's conduct after that point was directed towards removing Create/Pulitano from the Renex Group of Companies and at the lowest possible price.
503 MSA rejects this characterisation. It says that there was no deliberate campaign to remove Create/Pulitano and obtain Create's share at less that its true worth. MSA submits that these are typical allegations of oppression and that properly analysed, they do not reveal a plan to drive down the value of Create's share and remove it, but a serious and genuinely held difference of views as to what should be done with the Laverton Properties for the benefit of the Renex Group of Companies and the Renex business.
504 Given that one act of oppression was admitted and I have found that six others amount to oppressive conduct, and that four involve a breach of director's duties by Angelodemou, the Court's jurisdiction under s 233 of the Act has been enlivened. Neither party made submissions as to what impact the matters referred to in the previous two paragraphs have in those circumstances.
505 It is well established that deliberate conduct, knowing it to be unfair or not in good faith is persuasive in finding oppression but is not necessary. Conducting the affairs of a company such that the director's own interests are advanced to the detriment of the other shareholder ordinarily is regarded as oppressive conduct.[86]
506 I am satisfied that MSA's/Angelodemou's conduct, where I have found oppression or breach of duty, falls within the ambit of deliberate conduct knowing it to be unfair or not in good faith and, at times, involves the conduct of Founder's affairs in a way which advantages MSA/Angelodemou to the detriment of Create. The motivation for MSA/Angelodemou in engaging in that conduct is not particularly relevant. However, whether MSA/Angelodemou had the motivation contended for by Create or not, it had that effect, which is important in finding that Create has been oppressed.
507 In the D & CC, MSA alleges that in commencing this proceeding seeking the winding up of Founder, Create has committed an event of default under clause 2.4(c) of the Founder SHA, further or alternatively that it has breached clause 12.7 of the Founder SHA, which event of default or breach which Create has not remedied.
508 In respect of this allegation, MSA relies on the following provisions of the Founder SHA:
(a) Clause 2.4 provides that Founder's shareholders are obliged to, amongst other things:
(i) comply with and give full force to each 'Transaction Document' and its intent (clause 2.4(a));
(ii) use all reasonable endeavours to procure that Founder carry on the 'Business' (clause 2.4(c)); and
(iii) cooperate with each other shareholder in relation to all matters concerning the affairs and activities of Founder (clause 2.4(d)).
(b) Clause 12.7 provides, amongst other things, that Founder must not, and each shareholder must procure that Founder does not, take any steps to dissolve or wind up Founder or appoint a liquidator to it.
(c) Clause 7.1 provides that a shareholder will be in default if, amongst other things, it is in breach of a material obligation under the Founder SHA which is not capable of remedy or, if capable of remedy, is not remedied within ten business days after being given notice of default.
509 MSA alleges that as a consequence of the unremedied event of default and breaches, under the Founder SHA:
(a) Pulitano must automatically resign as a director of Founder;
(b) Create has no right to exercise any vote under the Founder SHA or the constitution of Founder;
(c) Create must not appoint any director to Founder;
(d) MSA has the right to purchase Create's share in Founder; and
(e) if MSA does not purchase Create's share in Founder, Founder must buy-back that share.
511 MSA submits that, by filing its originating motion on 19 August 2021 in this proceeding and seeking orders that Founder be wound up and a liquidator appointed to it, Create breached its material obligations under the Founder SHA to use all reasonable endeavours to procure that Founder carries on the Business of holding shares in Founder (clause 2.4(c)), alternatively, its material obligation that each shareholder must procure that Founder does not take any step to wind up or appoint a liquidator to Founder (clause 12.7) ('Winding Up Breaches').
512 At trial, Create submitted that it did not contravene its obligation under clause 12.7 of the Founder SHA because Founder had not taken any step to wind up or appoint a liquidator. MSA says that Create's submission highlights its misunderstanding as to the proper construction of clause 12.7; it impermissibly seeks to ignore the words 'and each shareholder must procure that Founder does not'. MSA contends that the difficulty with Create's argument is that it gives those words no work to do. Create impermissibly seeks to render those words redundant. Further, on Create's construction, clause 12.7 would only operate where both shareholders agreed to Founder being wound up. This being a two-shareholder company, the second restriction in clause 12.7 that each shareholder must procure that the company "does not" must relate to something other than the company doing the thing. MSA says that this relates to circumstances such as this where a shareholder unilaterally takes steps to achieve the actions set out in part 2 of schedule 2 of the Founder SHA. Create's construction of clause 12.7 of the Founder SHA ought not be accepted. The Court is not entitled to disregard clear and unambiguous language used by the parties[87] and will not depart from a literal meaning of a term that is otherwise unambiguous.[88] Moreover, the Court will not render meaningful words in a contract acontextual[89] and will be reluctant to construe a contract in a manner which renders a provision superfluous.[90]
513 MSA submits that on its proper construction, the effect of clause 12.7 of the Founder SHA is that where one shareholder unilaterally takes a step to wind up Founder, an event of default is triggered which gives the other shareholder the ability to purchase the defaulting shareholder's share. That construction is consistent with the principle that a winding up remedy should be the last resort where another shareholder wants to continue the company.
514 On 27 August 2021, MSA gave notice to Create of the Winding Up Breaches. MSA says that Create failed to remedy the Winding Up Breaches within ten business days of receipt of the notice or at all. MSA alleges that in the circumstances, Create has committed events of default under the Founder SHA by reason of its unremedied Winding Up Breaches (Winding Up Events of Default).
515 In this regard, MSA then points to the following consequences which it says flow under the Founder SHA:
(a) Clause 7.3 of the Founder SHA provides that if an event of default occurs in relation to a shareholder ('Defaulting Shareholder'), that shareholder is taken to have given a transfer notice ('Transfer Notice') in relation to its shares which specifies a price equal to the 'fair market value' for its shares as at the date of the Event of Default. Clause 7.4 then provides that the Defaulting Shareholder's shares may be purchased by the non-defaulting shareholder pursuant to clauses 3.5, 3.6, 7.4 and 16.3, failing which Founder must buy-back those shares at the time its Board determines it is in a financial position to complete the buy-back and it is in a position to carry out the buy-back.
(b) Clause 7.5 of the Founder SHA provides that if an 'Event of Default' occurs, the Defaulting Shareholder ceases to have any right to exercise any vote under the Founder SHA and its constitution (clause 7.5(a)); any nominee director appointed by the Defaulting Shareholder must resign as a director of Founder (clause 7.5(b)); and any right of a Defaulting Shareholder to appoint a director under clause 9.3 is suspended (clause 7.5(c)). In turn, clause 9.4 provides that a person will be automatically and immediately removed as a director of Founder if that person becomes ineligible to be a director under the provision of the Founder SHA or its constitution.
516 MSA submits that as a consequence, it is entitled to purchase Create's share in accordance with the procedure laid down in the Founder SHA, alternatively that Founder may buy-back Create's share.
517 Create says that taking a lawful step under the Act to at first instance wind up Founder on just and equitable grounds, and not subsequently resiling from that application by withdrawing it, does not constitute a breach by Create of its obligations under the Founder SHA.
518 Create submits that clause 2.4(c) has not been contravened, for the following reasons:
(a) The obligation in clause 2.4(c) is limited to 'reasonable endeavours'. It is an admitted fact that there had been a breakdown of the relationship between the directors of the shareholding parties in Founder from at least 2020, and which had significantly soured following the events relating to the Laverton Properties. This proceeding was filed on 19 August 2021, which was after four separate court proceedings had been litigated (within a mere six months) between the parties and/or their related entities being:
(i) the s 247A Proceeding, commenced in November 2020;
(ii) the s 459G Proceeding, commenced in January 2021;
(iii) the s 237 Proceeding, commenced in February 2021; and
(iv) the s 1322 Proceeding, commenced in February 2021.
In this regard, it is submitted that reasonable endeavours of Create to procure that Founder carried on the Renex business, including by ensuring that all of the Renex group assets were properly accounted to it, had well and truly been satisfied.
(b) Whilst the initial originating process had sought as its primary relief a wind up of Founder on just and equitable grounds, it was made very clear to the parties that there were other options available to the Court in preference to a wind up at an early stage:
(i) ahead of the first directions hearing in this proceeding, Create filed submissions that a valuation be prepared as "one or other of the shareholders may wish to purchase the other's share thereby obviating the need for a winding up order;" and
(ii) on 3 May 2022, after leave was granted by her Honour Justice Button (MSA having opposed Create's proposed amendments), Create amended its originating process to make abundantly plain that it sought as the primary relief that there be an order for the purchase by Create of MSA's share in Founder.
519 Create submits that accordingly, it cannot be said that it has contravened clause 2.4(c) and therefore no 'event of default' has arisen under the Founder SHA.
520 In respect of MSA's further or alternative allegation that Create has breached clause 12.7 of the Founder SHA, Create refers to particular provisions of the Founder SHA.
12.7 Actions which require special majority Shareholders' approval
The Company must not, and each Shareholder must procure that the Company does not, undertake any of the actions listed in Part 2 of Schedule 2 unless and until:
(a) a resolution approving the specific action is passed by the affirmative vote of 75% or more of the votes cast by all Shareholders present and entitled to vote on that resolution; or
(b) all Shareholders who are entitled to vote on a resolution approving the specific action sign a document consenting in writing to the Company taking that specific action.
522 Part 2 of Schedule 2 of the Founder SHA provides:
Part 2 (Clause 12.7 - Matters requiring special majority (75%) Shareholder approval)
1. Issue or grant any right to issue any Shares or any Other Securities.
2. Vary the rights attaching to the Shares or to any Other Securities.
Vary the share capital of the Company including by way of buyback, a capital reduction, the conversion of shares of one class into shares of another class, or the conversion of shares into a larger or smaller number of shares.
4. Adopt, vary or repeal the Constitution.
5. Appoint, vary the terms of appointment or remove the Auditor.
6. Undertake an Exit.
7. Take any step to dissolve or wind up the Company.
- Take any step to appoint an administrator, receiver, manager or liquidator to, the Company or take advantage of any law providing for relief of debtors in adverse financial circumstances.
- Cease to carry on the Business or a substantial part of the Business, materially alter the nature, scale or direction of the Business or commence any business or operational activities other than the Business.
- Merge all or a substantial part of the Business with the business of any other entity or person (including by way of scheme of arrangement or otherwise).
- Any other action that requires a special resolution under the Corporations Act.
- Authorise, or agree conditionally or otherwise to do, any of the things referred to in paragraphs 1 to 11 above.
523 Create says that while MSA relies on item 7 of Part 2 of Schedule 2, it is helpful in the construction of the contract to have regard to all of the non-permitted actions without a special resolution for context.
524 Create submits that clause 12.7 of the Founder SHA must be read in its proper context having regard to the principles of construction of contracts. In this regard, Create refers to the following:
(a) Clause 12 as a whole deals with 'meetings and resolutions of Shareholders.'
(b) Clause 12.1 deals with shareholders meetings, and the calling of a meeting by a director; clause 12.2 deals with quorum of at least 75%; clause 12.4 deals with shareholder voting rights at a meeting; and clause 12.6 deals with resolutions which may be carried.
(c) Clause 12.7 governs which actions require a special majority of shareholders' approvals at shareholder meetings called in accordance with clause 12.1, and resolutions carried at clause 12.6. In that regard, clause 12.6(b) provides that a resolution of the Shareholders may only be carried in the case of a resolution approving an action which requires special majority approval under clause 12.7, if it is also passed in accordance with clause 12.7.
525 Create submits that having regard to the surrounding clauses:
(a) clause 12.7 is directed to resolutions of Founder which require a special resolution;
(b) clause 12.7 mandates that Founder must not, and each Shareholder must procure that Founder does not (that is, a shareholder participating in a meeting in accordance with clauses 12.1 and 12.6), undertake any of the actions in Part 2 of Schedule 2 unless and until a resolution is approved;
(c) clause 12.7 is directed only at Founder, and its actions (and its shareholders' actions) in the context of a resolution requiring special majority. This makes perfect sense in view of the types of actions which require special majority under Part 2 of Schedule 2 such as granting shares (item 1) and varying the constitution (item 4);
(d) what clause 12.7 does not necessitate an individual shareholder to do, not acting in the context of a shareholders' meeting, is to seek special majority of Founder (in this context, a 50/50 shareholding entity) before it undertakes a lawful step permissible under the Act to wind up Founder (at least at first instance) on just and equitable grounds;
(e) further, that this 'step' in any event was not persisting insofar that (as set out above) Create made it clear it sought a buy out as the primary relief; and
(f) in those circumstances, no 'Event of Default' has occurred.
V.4.1 Alleged contravention of clause 2.4(c) of the Founder SHA
526 In all the circumstances of this case, I do not accept that Create has contravened clause 2.4(c) of the Founder SHA by filing the originating process in this proceeding on 19 August 2021 seeking that Founder be wound up on just and equitable grounds.
527 In this regard, I agree with and adopt Create's submissions as set out at paragraph 518 above.
528 In particular, I do not consider that Create has failed to use all reasonable endeavours to procure that Founder carries on the 'Business'. By the time Create filed its originating process in this proceeding, there had been a serious breakdown in the relationship between the two 50/50 shareholders, being MSA and Create, and there had been extensive litigation involving them, their principals, and various of the Renex Group of Companies. In many ways, it was only because Angelodemou had sole operating control that the Renex Group of Companies, and the Renex business, was not paralysed in its decision-making. But that does not mean that the situation could continue indefinitely. The fundamental breakdown of the relationship between Angelodemou and Pulitano, with all that had gone before in the 2020-2021 period, meant that seeking a winding up of Founder on the just and equitable grounds was not a failure to use all reasonable endeavours to procure that Founder carry on the 'Business'.
529 Further, seeking a winding up on just and equitable grounds does not mean that the company will be wound up: s 467(4) of the Act means that if there is some other remedy available and a party is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy, the Court will not order a winding up. As Create points out, prior to the first directions hearing in this proceeding it raised the prospect of one party buying the other out as an alternative to winding up, and on 3 May 2022 it sought and was granted leave to amend its originating process to plead oppression and specifically seek a buyout as a remedy. Thus, alternatives to winding up were possibilities virtually from the commencement of the proceeding.
530 It follows then that Create did not commit an event of default in respect of clause 2.4(c) and that none of the consequences of an unremedied event of default flow based on clause 2.4(c) of the Founder SHA.
V.4.2 Alleged breach of clause 12.7 of the Founder SHA
531 Under clause 12.7, Founder cannot undertake certain actions unless there has been either a resolution approving the action passed by 75% vote of shareholders present and entitled to vote on the resolution (ie clause 12.7(a)) or all shareholders entitled to vote on a resolution approving the action give written consent to Founder taking the action (ie clause 12.7(b)). Part 2 of Schedule 2 of the Founder SHA sets out which actions are subject to clause 12.7. Item 7 of that schedule is 'Take any step to dissolve or wind up the Company'.
532 Thus, there are two ways in which Founder can undertake an action listed in Part 2 of Schedule 2; unless one of those is satisfied Founder cannot undertake that action.
533 Clause 12.7 also states that each shareholder must procure that Founder does not undertake any of the actions listed in Part 2 of Schedule 2 unless one of (a) or (b) has been complied with.
534 The focus of clause 12.7, on the ordinary meaning of the words used, is on what actions Founder cannot undertake without (a) or (b) of clause 12.7 being complied with. As part of that, the provision states that each Shareholder must procure that Founder does not undertake such actions without the Founder SHA having been followed. What it does not say is that the shareholder itself, in its own right and on its own behalf, cannot undertake any of the actions listed in Part 2 of Schedule 2. If it was intended that a shareholder itself be prohibited from undertaking any of those actions, then the Founder SHA could have provided as such. It did not.
535 I do not consider that interpreting clause 12.7 in this way involves disregarding clear and unambiguous language used by the parties or departing from a literal meaning of a term that is otherwise ambiguous.
536 I do not accept MSA's submission that construing the Founder SHA in this manner renders the words 'and each shareholder must procure that Founder does not' redundant or the provision superfluous.
537 Therefore, I accept Create's submission that clause 12.7 does not require an individual shareholder to seek a special resolution before that shareholder itself applies for Founder to be wound up on just and equitable grounds.
538 It follows from the above that I do not accept MSA's submission as set out at paragraph 513 above.
539 I should also note for completeness that it follows from paragraphs 531 and 532 above that I do not accept Create's submission that clause 12.7 is effectively confined to what can occur at shareholders' meetings. For the Company to undertake an action listed in Part 2 of Schedule 2 of the Founder SHA, there must either be a resolution passed by 75% of members present and entitled to vote or there must be written consent by all shareholders entitled to vote. Clause 12.7(b) is an alternative to a special resolution passed at a meeting. Rather, clause 12.7 is directed towards actions which Founder cannot take unless one of (a) or (b) has been complied with. To the extent that Create relies on this mistaken view of when clause 12.7 applies so as to contend that it has not breached clause 12.7, I reject that position.
V.4.3 Alleged event of default under the Founder SHA
540 It follows from the above findings that Create has not contravened clause 2.4(c) or breached clause 12.7 of the Founder SHA by filing the originating process seeking the winding up of Founder on just and equitable grounds that Create has not committed an event of default under the Founder SHA or that it has failed to remedy that event of default.
541 In those circumstances, none of the alleged consequences of an event of default arise.
542 Accordingly, MSA's counterclaim must be dismissed.
W. Whether Create can rely on certain 'un-pleaded' issues
543 During the course of the trial, Create cross-examined Angelodemou about two matters, being certain payments by Op Co to RG and a research and development refund, which Create had not pleaded.
544 MSA submits that neither of these issues were pleaded and it objected to questions put to witnesses on those two topics. A variety of reasons to justify the questions were given during the running by Create's Counsel, including as to credit. I allowed the questions and indicated that the relevance of this evidence should be addressed in closing submissions.
545 Angelodemou and Chandy were cross-examined extensively about the purpose of payments by Op Co to RG, over the objection of MSA.
546 I will note at this point that in its closing submissions, Create included a table of payments made by Op Co to RG ('Impugned Op Co RG Payments') between 3 July 2019 and 15 September 2021 totalling $4.735 million. I set this out here so that there is some clarity about what payments are under discussion.
547 When first dealing with MSA's objections to questions on these topics on the grounds of relevance in light of the pleadings, Counsel for Create said that they were referred to in Create's proposals to buy Founder's share, that there were bank statements showing the payments, and he was asking Angelodemou to justify the reason for the payments. He submitted that it went critically to the conduct of the case, in particular the relations between Op Co and RG.
548 In response, Senior Counsel for MSA submitted that the Impugned Op Co RG Payments were not relevant to any of the pleaded circumstances of oppression. He said that it pops up in a particular paragraph of Create's reply in a particular context and for a particular purpose.
549 In this regard, I need to go to the paragraph referred to, being paragraph 3 of Create's R & D to CC.
(a) In paragraph 3 of Create's R & D to CC, Create responds to paragraphs 32(c)(ii) and 33(b) of MSA's D & CC.
(b) Paragraph 32(c)(ii) of the D & CC pleads that the nomination of Land Holdings allowed the Renex Group of Companies to receive the benefit of the substantial increase in value of the Laverton Properties.
(c) The particulars to paragraph 32 of the D & CC include:
On or about 14 September 2021, Angelodemou paid $3,750,000 to Land Co as further proceeds of the sale of the Laverton [P]roperties.
(d) Paragraph 33(b) of the D & CC pleads that the net effect of the nomination of Land Holdings as the purchaser of the Laverton Properties was a benefit to Land Co and the Renex Group of Companies of approximately $14,760,577.44.[91]
(e) Paragraph 3 of the R & D to CC pleads as follows:
To paragraphs 32(c)(ii) and 33(b), Create says:
(a) any benefits to Land Co and the Renex Group [of Companies] arose as the result of Create commencing the proceeding under s 237;
(b) the benefits would have been greater if Land Co or a special purpose vehicle within the Renex Group [of Companies] had completed the purchase of the Laverton [P]roperties.
(f) The particulars to paragraph 3 of the R & D to CC include:
The sum of $3,750,000 referred to in paragraph B of the particulars of paragraph 32 was paid by [RG], a company that is not part of the Renex Group [of Companies]. Between July 2019 and 30 September 2021 [RG] received the net sum of $4,315,000 from Op Co. It is to be inferred that [RG] used the sum received or part thereof to pay the amount alleged in paragraph B.
550 In support of its objection, MSA submitted that this pleading was for a limited purpose, which was to say that it should be inferred that the $3.75 million paid by Angelodemou to Op Co was not made from his own funds but from the proceeds of the Impugned Op Co RG Payments. In response to that pleading, MSA says that it led evidence to show the receipt into RG's bank account of the amount of $3,679,738.09 on 14 September 2021 ('ATO Receivable') and the payment of $3.75 million to Op Co on the same day.
551 In response, Counsel for Create submitted that this identifies the reference in the pleadings to RG receiving money from Op Co and that it was therefore a legitimate area of inquiry. Counsel also said that it may go to valuation. When I pushed Counsel on this, including as to why the broader use would not have to be pleaded, he stated that it was a legitimate line of inquiry even if it was simply in relation to Angelodemou's credit.
552 I allowed questions about the Impugned Op Co RG Payments to be put on the grounds of credit, indicating that any other use would need to be clearly made out in the course of submissions.
553 When cross-examined, Angelodemou said that the reason for making the Impugned Op Co RG Payments was that they were an expense of Op Co. When asked how they were an expense of Op Co, he said that they were payment for licence fees. He was asked what the licence fees were for, and he said that they were for intellectual property he was developing for waste2energy technology, and that he was doing this privately and not as part of his role in the Renex Group of Companies. He said that the rights covered by the alleged licensing agreement were to use the technology developed by RG. He said that it was intended that the Renex Group of Companies would ultimately use this technology. Angelodemou was asked whether there were any agreements about this, and he said that there was nothing in writing. As for the basis upon which the licence fees were payable, he said that there were invoices. He said there was an agreement made about this in approximately June 2018 and when asked whether there were any documents referring to it, he said there may have been some emails but he couldn't recall, and that the emails were between himself, Mr So, Chandy and Pulitano. Angelodemou said the arrangement was that RG would be paid licence fees when he asked for them in amounts that the Renex Group of Companies could afford.
554 Chandy's evidence was that this is what he was told by Angelodemou. He said that it was a payment for building something in the future and that they were licence fees associated with intellectual property. He agreed with the proposition that licence fees for technology would probably be recorded as an operating expense. Chandy said that the intellectual property would later be transferred to the Renex Group of Companies. Chandy was asked how the licence fees were actually treated in the accounts: he acknowledged that there were no expenses listed as 'licence fees' and said that if it was in the accounts it would be reported in the balance sheet under 'depreciation and amortisation'. He said that the technology was capitalised as an asset and then amortised.
555 Wright was also asked questions about the Impugned Op Co RG Payments and their accounting treatment. These were mainly directed to usual accounting practices, such as when something is treated as an asset or an expense.
556 In closing submissions, Create relied on the Impugned Op Co RG Payments to attack the credibility and reliability of financial information provided by Angelodemou and Chandy to Rundell and Wright, for the purposes of submitting that the Court ought not be satisfied that a valuation based on either the Wright Reports or the Rundell Report is fair, just and equitable. In other words, Create contends that this issue goes to valuation.
557 Create submits that in Wain & Ors v Drapac & Ors (No 2),[92] a similar criticism was expressed by the defendant parties (as is expressed here by MSA) in relation to the state of the pleadings and accounting in the valuing of shares. In response, Justice Ferguson (as her Honour then was) stated that:
In my view, it was not necessary for the Plaintiffs to set out in the statement of claim matters to be taken into account in valuing the shares and units that they hold. It is not usual to plead such matters and there is no reason to require that it be done in this case.[93]
558 Create submits that in this case, MSA has been on notice of Create's complaint about the payments made by Op Co to RG, initially thought to amount to approximately $4.3 million. Further, it is expressly dealt with by both of the parties in their respective submissions to the valuers.
559 In these circumstances, Create submits that it is within the ambit of this Court to deal with the issues concerning the Impugned Op Co to RG Payments of $4.735 million. Angelodemou claimed that these generous payments constitute "licence fee payments". Wright's reports make no reference to the payments nor to any expense or asset resulting from the payments. In her oral evidence, Wright said that payments from Op Co would be credited to the bank account and debited either to an expense account or to an asset account. Neither of these seem to have occurred.
560 Create submits that the explanations for the payments themselves given in cross-examination are confusing and indiscernible. Angelodemou in cross-examination said that:
(a) they were payment for licence fees;
(b) there was no contract between Op Co and RG, but there were invoices. It is submitted that the invoices have not been produced either in discovery or pursuant to subpoena for production;
(c) the 'agreement' was made in approximately June 2018 between Mr So, Chandy, Pulitano and himself and that there might be some emails but he doesn't recall;
(d) there was no formal rate for the licence fee, 'the informal rate was based on um, the affordability of the company... That means that ah, provided Renex Op Co ah, had sufficient reserves and could afford the payments, it would make the payments.'
(e) the licence agreement was for technology. It was for rights to use the technology developed by RG. There was no patent or trademark; and
(f) he could not provide any explanation as to why there was no reference to any licence fee in his submission to Rundell,[94] which in respect of payments by Op Co to RG had stated that:
The payments to [RG] are capital and have been capitalised in the financial records. Given the speculative nature of the transactions, the capital expenditure has been fully depreciated in the year it was incurred.
561 Create submits that Chandy's evidence on the issue was equally unimpressive. In cross-examination he said that:
(a) in terms of the process for making the payments (thereby disavowing himself of all payments to RG):
(i) first, that Angelodemou would ask him, but that he (Angelodemou) would generally do the transaction himself in the bank account;
(ii) later, he was clearer. The following exchange is relevant:
Mr Northrop: So, is that part of the reason for needing the funds so that Op Co could pay [RG]?
Chandy: I did not pay that amount to [RG].
Mr Northrop: As far as the payments to [RG] are concerned, are there any amounts that you yourself authorised?
Chandy: Ah, generally for [RG], no.
Mr Northrop: So, it was just a case of Mr Angelodemou taking the money out?
Chandy: Yes.
(b) all payments for licence fees would be recorded as part of the expenses;
(c) the licence fee would be in the line item title depreciation and amortisation;
(d) amortisation 'could also include writing off intellectual property which is difficult to value, which is difficult to assess whether there's an enduring benefit ...';
(e) it was recorded as an asset throughout the year. Confusingly, he said the following:
Mr Northrop: And if Renex Group [of Companies] owned the intellectual property, why would Renex Group [of Companies] have to pay a license fee to anybody?
Chandy: Um, there are certain intellectual property that - that [Op Co] paid a license fee for during the year. That license fee was recorded on the balance sheet as an asset throughout the year, and then at year end, an assessment is done to determine whether this amount can be carried on the balance sheet. And if the assessment proves that it cannot, it then gets written off and it's expensed in the - in the profit and loss statement at year end, as a final year end adjustment.
(f) he knew of Op Co paying licence fees to RG, that it was variable, that it could be hundreds of thousands of dollars, could be millions of dollars; and
(g) from what he had been told by Angelodemou, 'he was designing a waste to energy plant in his personal capacity' and then the design rights will be transferred over to Op Co. That it was for 'building something in the future'.
562 Create submits that none of these explanations for the Impugned Op Co to RG Payments can be accepted by the Court and therefore, the valuation evidence as it stands ignores these significant payments.
563 MSA submits that apart from the reference in the R & D to CC set out in section W.1.1 above, the Impugned Op Co RG Payments are not mentioned in the pleadings, were not referred to in opening submissions (written or oral), and are not even referred to in the joint list of issues.
564 MSA submits that at trial, Create attempted to advance an unpleaded case in respect of payments made by Op Co to RG, Angelodemou's private company.
565 It says that Create ought be held to its pleaded case.
566 MSA submits that there are no pleaded allegations by Create that payments to RG are oppressive or in any way wrongful.
567 MSA submits that the function of pleadings is to state with sufficient clarify the case that must be met by a defendant. Therefore, pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her.[95]
568 In this regard, MSA says that as McKerracher, Robertson and Derrington JJ observed in Stefanovski and Others v Digital Central Australia (ASSETS) Pty Ltd:[96]
It is a fundamental characteristic of the adversarial system that trials are conducted on the basis of the issues the parties agitate in the pleadings and, as a general rule, relief is confined to that claimed or available on those pleadings. Ordinarily, an applicant is only entitled to obtain judgment on the case advanced before the Court. That is an emanation of the underlying principles of natural justice accorded to all litigants before the Courts. As was said by the majority of the High Court in Water Board v Moustakas "a trial is not at large but is of the issues joined by the parties".
569 MSA says that the issues defined in the pleadings provide the basis upon which evidence may be ruled admissible or inadmissible at trial upon the ground of relevance.[97]
570 In respect of Create's reliance on the cited passage from Wain v Drapac (No 2), MSA submits that this must be seen in its proper context. MSA submits that it is clear in that decision that the plaintiffs had pleaded the case they contended for in closing, that it was referred to in the plaintiffs' opening submission and the issues list.[98] MSA agrees that Wain v Drapac (No 2) stands for the proposition that it is not necessary to plead the matters to be taken into account in valuing the shares. However, MSA contends that it does not stand for the proposition that the plaintiff does not have to plead matters it says give rise to an adjustment in value, particularly if it is significant.
571 MSA submits that on Create's pleaded case, the only reference to payments to Renex Group Pty Ltd is in the particulars to paragraph 3 of Create's R & D to CC. MSA then sets out the pleading trail described in paragraph 549 above. MSA contends that it follows that on Create's pleaded case, the evidence in respect of payments to RG is relevant only to determining whether or not the sum of $3.75 million paid to Land Co on 14 September 2021 was from the funds of Op Co and that it is not relevant to any other issue.
572 MSA says that indeed, as counsel for Create acknowledged during the course of the trial, there may be a 'perfectly legitimate reason why [RG] received these amounts.' This acknowledgment is consistent with the limited evidence on this issue, being that the payments were made for licence fees to use technology developed by RG pursuant to an agreement entered into before Areo's exit and are supported by invoices and other documents. It is also consistent with the evidence of both Angelodemou and Chandy that there were discussions between Angelodemou, Chandy, Pulitano and Mr So about the payments.
573 MSA submits further that Create cannot make out its allegation on the evidence, and that the evidence clearly establishes that on 14 September 2021:
(a) RG received a payment from the ATO of $3,679,738.09; and
(b) RG made a payment to Op Co of $3,750,000.
574 MSA submits that it follows that the Court should not be satisfied that an adjustment to valuation is required in respect of payments to RG.
575 The issue of the Impugned Op Co RG Payments concerns me. Based on the evidence that was before the Court, the arrangements described by Angelodemou and Chandy seem quite incredible, for a number of reasons. These include:
(a) Why would a company be paying a considerable amount in licence fees for technology that did not yet exist? It just does not seem plausible that licence fees would be paid for this.
(b) If it was a licence fee, then that suggests that Op Co does not own the technology: one would not ordinarily pay licence fees for something that one owned.
(c) But if Op Co does not own it, then why would it be amortised in the balance sheet? One does not normally amortise an asset that one does not own.
(d) The notion that licence fees were payable when Angelodemou asked for them, in amounts that he requested, with the only proviso seeming to be whether Op Co could afford to pay them, also seems very strange.
(e) The total amount of the Impugned Op Co RG Payments is significant: some $4.735 million. These are payments made to RG, a company outside the Renex Group of Companies, whose sole director is Angelodemou. One would expect to see a proper justification for such payments.
(f) Wright's oral evidence was that she could not think of an example where payments made to buy an asset would be regarded as depreciation, and in terms of whether they would be treated as amortisation, her evidence was that the amortisation would come afterwards: first, the asset would be acquired; then, the amortisation would be the reduction in value of that asset. Wright explained that the purpose of amortisation was to allocate the cost of an asset across its useful life, which was done by deducting a certain value each year from the profit and loss as an expense. I accept this explanation. What I cannot accept is that Chandy's evidence (in respect of treating the licence fees in the line item 'depreciation and amortisation' in the balance sheet) is consistent with this. Indeed, Chandy did not seem convinced of his own evidence on this, referring to how it "would have" been treated rather than how it was. It leads me to the conclusion that Chandy's evidence on this was in the vein of post-facto justification.
576 Notwithstanding these concerns, nothing comes from them given what I am about to say.
577 Despite Create's reliance when dealing with objections to questions based on the Impugned Op Co to RG Payments on matters such as credit and whether the $3.75 million paid to Land Co was from RG's (or Angelodemou's) own resources or not, the gravamen of its submission by the time of closing address was that these payments affected valuation.
578 This requires consideration of whether matters affecting valuation must be pleaded or not, which in turn means considering Wain v Drapac (No 2).
579 In my view, the parties' differing approaches to this question are resolved by considering the distinction between determining the value of the shares in a company and, once that valuation is made, making an adjustment in the price to be paid for one party's shares in order to compensate for the found acts of oppression. I accept that the cited passage from Wain v Drapac (No 2) means that matters going purely to valuation need not be pleaded, but if the oppressed party seeks an adjustment of the price to be paid as compensation for an act of oppression, then that act of oppression must be pleaded. In this case, Create is saying because of the Impugned Op Co RG Payments the valuations are not correct, using them to say that the valuations ignore these significant payments. Create also says that the price to be paid for the share should be adjusted for the Impugned Op Co RG Payments. MSA is saying that if you say the price should be adjusted for the unjustified payments, you first have to plead them as an act of oppression.
580 I accept MSA's complaints about the Impugned Op Co RG Payments being relied on by Create. I accept that the limited and non-specific reference to it in the pleadings does not support a free-ranging inquiry into any payments made by Op Co to RG as part of this proceeding. Further, if Create wanted to rely on the Impugned Op Co RG Payments as oppressive conduct then it ought to have expressly pleaded as such. If Create wanted to contend that there should be an adjustment to the purchase price of the share in Founder on account of these payments then it also should have pleaded as such.
581 Create's failure to clearly plead or articulate any relevance of the Impugned Op Co RG Payments beyond, possibly, that use referred to in para 3 of the R to D & CC has disadvantaged MSA. It has not had the opportunity to lead evidence about the alleged licence fees. It did not have the opportunity to cross-examine Pulitano about the alleged licence fees, the alleged agreement in respect of them, and the alleged emails referring to them. At the time Pulitano was being cross-examined, none of these issues had been raised. As it submits, MSA came to trial prepared to meet the pleaded case and it ought not have to now, in the running, meet something else. Create did not even raise the issue of the Impugned Op Co RG Payments in the joint list of issues. It was not until the table of payments included in Create's written closing submissions that the payments were even identified, other than some of them being the subject of cross-examination. MSA has been caught by surprise on this issue and it would be unfair for me to take them into account. Accordingly, I will not do so.
582 Precisely what Create contends about this matter is unclear.
583 Create cross-examined Angelodemou about research and development tax credits and a research and development refund ('R & D Refund'). MSA objected to the questions on the grounds of relevance.
584 In dealing with the objection, Create conceded that there was no pleaded allegation concerning the R & D Refund but submitted it was relevant to valuation, based on one of the assumptions Wright was instructed to make. In this regard, Counsel referred to paragraph 3.4.29 of the First Wright Report, where Wright records she was instructed to assume "There is no R&D claim owing to the Renex Operating [Entities]. To avoid doubt, there is no R&D claim of $3.6 million currently owing." Counsel for Create also said that it was relevant to the payment that was made to discharge the Secured Lending Loan, in other words, the same issue as relied upon for the relevance of the Impugned RG to Op Co Payments, being whether the $3.75 million paid to Land Co on 14 September 2021 was from RG's own assets or was actually an asset already belonging to the Renex Operating Entities.
585 In support of the objection, Senior Counsel for MSA submitted that if Create was going to rely on the R & D Refund in this proceeding, including in respect of the valuation, it should have pleaded this so that MSA could have led evidence about it had it known that it was going to be relied on. MSA submits that Wright was instructed to assume that the R & D Refund does not exist and that Create does not provide any evidence that it does. This was referred to in the First Wright Report to respond to the First Lee Report. Assuming a negative when there is no evidence for the positive goes nowhere, according to MSA.
586 Create submitted that it is unnecessary to plead all matters going to a valuation and that it was entitled to test the assumptions made in the First Wright Report.
587 I allowed Create to ask questions about the R & D Refund for the purposes of dealing with the assumption given to and made by Wright, and I indicated that as with the earlier questions about the licence fee, I would need some persuading that it goes anywhere.
588 In its oral opening, Create referred to a reference in the administrators' report concerning the Old Renex Entities to a tax claim in respect of R & D incentives in the amount of $4.3 million, and says that this asset was included in the asset sale agreement between the Old Renex Entities and the Renex Group of Companies but which MSA says was not. Create then referred to a ruling made by the AAT in the AAT Proceeding on 24 March 2021 in PKWK and Innovation and Science Australia (Taxation),[99] submitting that the refund received pursuant to the AAT Ruling was what Angelodemou says was paid to RG and that he used to pay the $3.75 million to Land Co on 14 September 2021. Counsel for Create referred to the definition of excluded assets in the asset sale agreement, which stated that the definition of excluded assets included 'any right, title, interest in or claim in relation to any research and development grants'.
589 Apart from this, the only submissions which Create made in respect of the R & D Refund were those made in the course of dealing with MSA's objections to questions being asked of witnesses about it. Create made no mention of the issue in its written opening submission, written closing submission, or closing address.
590 Most of MSA's submissions on this issue are summarised above in section W.2.1.
591 In its closing submissions, MSA again objected to Create's attempt to advance unpleaded allegations in respect of the R & D Refund, saying that Create ought to be held to its pleaded case.
592 Apart from there being no pleaded allegations in this respect, MSA submits that there is only a smattering of evidence addressing the R & D Refund. It says that this evidence falls well short of establishing that the R & D Refund was an asset of the Renex Group of Companies.
593 MSA submits that the Court should not be satisfied that an adjustment to valuation is required in respect of the R & D Refund.
594 It seemed to be suggested by Create that MSA had not made good the assumption given to Wright.
595 Presumably, Create says that this means her valuation of the Renex Group of Companies is too low, as the R & D Refund, if not established to be an asset outside the group, should be treated as an asset on the balance sheet. But I am left to guess at this, because at no stage does Create state clearly what it is contending for in relation to the R & D Refund.
596 The problem for Create in this regard is that there is no evidence clearly establishing what the R & D Refund is for and that it is an asset of the Renex Group of Companies. MSA argues that it was an asset of the Old Renex Entities that was not part of the business and asset sale agreement with the administrators of the Old Renex Entities. There is also no evidence establishing how much the R & D Refund was. MSA submits that Create has confused the R & D Refund referred to in the administrators' report with the ATO Receivable and that these were two separate things. As I apprehend it, MSA contends that the ATO Receivable is the amount paid to RG by the ATO following the AAT Ruling.
597 There is reference in the affidavit material relied on at trial to the R & D Refund. In that way, it was raised prior to the hearing. But this is not really to the point: there is quite a lot of material in the affidavits that does not appear to be linked to any of the pleaded issues. Even if there is a link, it is not articulated anywhere in a way which elucidates its import.
598 The state of the evidence in respect of the R & D Refund is such that I am unable to reach any conclusion about it: I cannot reliably make findings as to its amount and who it belongs to, let alone whether it even now exists. In the latter regard, the administrators report seems to suggest it is only an asset if some successful action is taken against the ATO. Put simply, it is impossible for me to discern what it is that should be taken into account about the R & D Refund.
599 At the very least, these problems illustrate why it is important to plead matters which are sought to be relied upon. Even if it is not a matter required to be pleaded, it should at least be clearly articulated in the course of the case. Here, it has not been. It is one thing for Create to say it wants to attack an assumption made by an expert, but that goes nowhere in this instance, as Wright was instructed to assume a negative. Further, Create does not adduce evidence or make submissions about the effect this issue has on valuation or price.
600 That being the case, I will not take the issue of the R & D Refund into account.
601 As set out in section E.1.2 above, once the Court has found that oppression has occurred, pursuant to s 233 of the Act the Court may make any order it considers appropriate in relation to the company, including for the company to be wound up (s 233(1)(a)) or for the purchase of any shares by a member of the company (s 233(1)(d)).
602 The following principles apply in respect of the Court's approach to the appropriate remedy once oppressive conduct has been established:
(a) The Court has a very wide discretion as to the relief which may be granted.[100] This wide discretion should be exercised in view of the remedies provided in previous cases involving similar facts.[101]
(b) The aim of any order under s 233 is to put an end to or terminate the effects of the oppression,[102] or to compensate the wronged party for any loss occasioned by that conduct.[103] In this regard, a shareholder of 50% of the shares in a company can seek relief for oppressive conduct, as they do not have control in the form of power to prevent the oppression.[104]
(c) The Court should choose the least intrusive remedy.[105]
(d) In this regard, winding up is:
a remedy of last resort and one which ought not to be granted if some other less drastic form of relief is available and appropriate.[106]
(e) Where there is another remedy desired by both parties that is less drastic than winding up, an order for winding up will usually not be made.[107] Further, generally speaking courts are "extremely reluctant to wind up a solvent company", including for reasons such as the potential adverse effect of winding up on employees.[108]
603 In this case, neither party contends for a winding up as the preferred form of relief. Both parties contend that a buyout of the other's share in Founder is the appropriate remedy. The only real dispute between them on this issue is who should be the buyer: each wants to buy the other out.
604 Given that I have found that Angelodemou has conducted the affairs of Founder in a manner which is oppressive to Create and/or contrary to the interests of Founder as a whole, the full panoply of remedies under s 233 of the Act is available.
605 Ordering one party to buyout the share of the other is clearly a less drastic remedy than winding up Founder. In this regard, I do not accept Create's submission that the effect of winding up Founder is not drastic as it just holds the share in Hold Co, does not have any employees, and would not interfere in the operation of the Renex business. Apart from anything else, that submission flies in the face of Create's reliance on the conduct of the Renex business and activities in the affairs of Hold Co and the other operating entities as conduct in the affairs of Founder. Further, I do not accept Create's submission that a winding up would mean that the parties would be able to compete and make a bid for the shares (as would third parties), thus ensuring that a fair value is arrived at. I do not see how it is efficient or just and equitable for Founder to go through the disruption and expense of a liquidation, just to arrive at an outcome where one party buys out the other. That is not a remedy of first choice.
606 Here, we have another remedy - a buyout by one shareholder of the other - which is desired by both parties (even though they differ on who should be the buyer) and is less drastic than a winding up. Accordingly, a buyout will be the remedy ordered in this proceeding.
607 However, I consider it necessary to provide for an outcome if neither party ends up buying out the other. In my view, if the buyout which I will order is not effected, then it is appropriate that Founder be wound up. I have found that oppression has occurred. I have also found that the relationship between Create/Pulitano and MSA/Angelodemou has broken down, such that it is just and equitable that Founder be wound up. It is clear that the breakdown in that relationship falls within the categories identified in the cases as constituting grounds for a just and equitable winding up.[109] I acknowledge that the Court should not wind up a company (other than in insolvency) when a less drastic remedy exists, which is why I have unequivocally selected a buyout as the appropriate remedy. But that does not mean that there should be no remedy at all if that preferred remedy is not effected.
Y. If the appropriate remedy is a buyout, then which party should be the buyer
608 Section 233(1)(d) of the Act provides that one of the orders the Court may make where oppression has been found is for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law. The Court's discretion under s 233(1)(d) is very wide.[110] The object of the provision is that an oppressed shareholder is entitled to be released from a company and have its invested capital returned to it.[111]
609 Consistent with that objective, the usual position is that the oppressed shareholder, who is usually a minority shareholder, is to be bought out by the oppressor shareholder, who is usually the majority.[112]
610 In the Connective Trial Judgment, the minority oppressed shareholder sought orders that it buy out the majority oppressor shareholder, which the majority shareholder opposed. Robson J found that there had been oppression and made orders that the minority buyout the majority. While this result was reversed on appeal, his Honour's statement of the principles and authorities was not the subject of any criticism by the Court of Appeal.[113]
611 Robson J undertook a comprehensive survey on the authorities which discussed who should buy out who, stating that:[114]
A number of Australian and English authorities have adopted the approach that there is no special inhibition on the court's power and, accordingly, a minority buy-out order can be made where it is appropriate in all the circumstances of a case. As expected, this has resulted in cases where both a minority buy-out order has been made, and where it has been rejected. Further, there are cases where an oppressed party has been permitted to buy out the oppressor where the shareholdings are equal.
612 Later in the Connective Trial Judgment, his Honour went on to say:[115]
The following observations and principles can be distilled from these cases:
(a) The making of an order for the minority to buy out the majority has been variously described as 'comparatively unusual', 'atypical', or 'unusual'. In other cases, the rarity or otherwise of such an order is not mentioned, even in ex parte Shooter, the first reported decision in which a minority buy-out order was made.
(b) The approach indicated by the cases is to determine whether the court's discretion is sufficiently broad to accommodate an order for a minority buy out of the majority, and then to justify the direction of the buy-out on the basis of all the circumstances in the case and what the justice of the case requires.
(c) Although some cases refer to 'repeated' behaviour or a 'pattern of ... management', there is no attempt to formulate a rule or otherwise define the circumstances in which a minority buy-out order might be made by reference to this factor.
(d) Minority buy-outs were ordered in cases where the majority was found to have acted without bad faith or dishonesty, as well as cases where it had acted dishonestly.
(e) Some cases contained express findings that the majority were unfit to continue running the company and, in others, the reasons strongly suggested that the majority were unfit. In no case, however, is there any attempt to formulate a rule or otherwise define the circumstances in which a minority buy-out order might be made by reference to this factor.
(f) The relevant oppressive conduct of the majority which contributed to a minority buy-out and, in some cases, a conclusion that the majority was unfit, was broad and varied across the cases, and included: repeated ignorance of company formalities; the majority treating the company as its own to the detriment of the minority; the exposure of the company to claims; conduct damaging to the company's interests including frustrating further investment and delaying payments to creditors; and dishonesty. A cautious approach to comparing fact circumstances in oppression cases is necessary, as such comparisons might be helpful in identifying potentially relevant matters but not in laying down an absolute rule.
(g) In Re Brenfield, the possible triggering of the minority's right to purchase the majority's shares in accordance with pre-emption provisions was a relevant factor. ...
(h) In three cases, the court expressly considered that the oppressor should not benefit from their conduct.
(i) Whether the majority (or oppressor) can afford to buy out the minority (or oppressed) interest can be relevant.
613 On the general principles regarding majority/minority buyouts, Robson J ultimately concluded that:[116]
... it is apparent that the approach to be adopted is for the Court to direct its attention to granting relief that is appropriate and would best remedy the oppression found in all the circumstances of the particular case. The suggestion that there is a judge-made test which needs to be satisfied before a minority buy-out order can be made should be rejected.
614 In my view, the summary of principles and the general approach set out by Robson J in the Connective Trial Judgment should be followed.
615 It is worth noting one aspect about the summary of principles before turning to the parties' submissions. It might be wondered why I have set out the principles regarding majority/minority buyouts in such detail when what we have here is a situation of equal shareholders. While most of the cases discuss the issue in terms of majority versus minority buyouts, the discussion is akin to one of oppressor versus oppressed buyouts, since the oppressor is usually the majority shareholder. In a case of equal shareholdings, the framing of the discussion is more usefully considered in terms of whether the oppressor should buyout the oppressed, or vice versa. There is a further reason for the appropriateness of this discussion, and that is that in this instance, while the shareholdings in Founder are equal, control of the Renex Group of Companies lies with Angelodemou given that he is the CEO and sole director of Hold Co and the sole director of each of the other Renex Operating Entities. During the course of oral submissions, I asked the parties if they were framing the discussion in terms of majority versus minority buyouts due to these factors, and they both indicated that they were.
616 Create submits that whilst not the precise circumstances in this proceeding given Create and MSA are equal shareholders, Robson J's principles set out in the Connective Trial Judgment, where his Honour ordered the minority shareholder to purchase the majority's shares (finding it was just and equitable in all the circumstances), are helpful insofar that the Court's discretion under s 233 is wide. Create also submits that whilst it may not be ordered in the 'majority of cases', to have regard to the circumstances where it is appropriate even for a minority shareholder, or in this case where Angelodemou is an equal shareholder (through MSA) yet the CEO of the Renex group, is justified in this instance. Create also refers to and relies on Robson J's summary of the principles as set out at paragraph 612 above.
617 Create rejects MSA's depiction of it as a passive investor. In this regard, Create points to Pulitano's cross-examination, where he said that:
(a) he disagreed that he was happy to take a backseat in relation to his investment in Founder, or that he was happy with his role being one of sitting in the background;
(b) he no longer trusted Angelodemou after October 2020;
(c) prior to the breakdown in the relationship, he had regular discussions with Angelodemou about the Renex business. Since 2015, he had gone to the Dandenong Site more than five to 10 times, and there were regular informal discussions between Angelodemou and him about various strategic matters; and
(d) he denied that at the commencement of this proceeding Create had no interest in acquiring the Renex business and running it.
618 Create submits that the appropriate relief in this case is that it be ordered to buyout MSA's share in Founder.
Y.3.1 MSA's submissions regarding the authorities
619 MSA refers to and relies on the authorities which describe the usual position as being one where the oppressor buys out the oppressed.[117]
620 MSA also relies on the line of authorities which suggest that something more than mere oppression is required in order for the Court to order a minority buying out the majority. In this regard, MSA cites Spigelman CJ's observation in Fexuto (Appeal) that an order allowing a minority to acquire the majority's shares is "extraordinary, and virtually unprecedented",[118] and that:
It is only a systematic course of improper conduct on the part of the majority that would justify an order that the minority acquire, by compulsion of the Court, the shares of the majority.[119]
621 MSA submits that there appears to be only two cases where Australian courts have made the unusual order that an oppressed plaintiff purchase the shares of the oppressor defendant where the defendant has not agreed to its shares being purchased.
622 The first case referred to by MSA is Munstermann v Rayward.[120] In that case, the plaintiff (Munsterman) and defendant (Raynard) were both directors of, and equal shareholders in, QIA Group Pty Ltd. An irreconcilable deadlock arose upon Raynard's decision to retire and the parties being unable to agree upon the price for the sale of his shares to Munsterman. Upon the breakdown in their relationship, Raynard reinserted himself into a management role for the purpose of leveraging a buy out of his shares. Munsterman sought relief in the form of a buyout of Raynard's shares. Stevenson J found that Raynard had oppressed Munsterman, including by implementing a plan to leverage a buy out of his shares, billing for work he did not perform, appointing himself as financial controller at a salary five times higher than the current financial controller, refusing to make payments to creditors and staff, refusing to authorise financial statements and budgets, attempting to reduce Munsterman's salary by 53% and mistreating employees. In light of those findings, Stevenson J determined that the justice of the case required Raynard to sell his shares to the plaintiff and observed that the defendant 'barely disputed' such an order, instead proposing that a winding up order was more appropriate.[121] The remedy fashioned by Stevenson J was consistent with Raynard wanting out of the company; the very reason he was acting oppressively.
623 The second case referred to by MSA is the Connective Trial Judgment. In that case, the plaintiff (Slea) was a minority shareholder and the defendants (Millsave Pty Ltd (its director being Glen Lees) and Mark Haron) were majority shareholders in Connective Services Pty Ltd and Connective OSN Pty Ltd (together, 'Connective Companies'). Slea alleged that the majority shareholders had engaged in oppressive conduct including by obstructing its attempts to realise fair value for its shares by selling to a third party (instead offering to buy the shares for a dramatically reduced price); attempting to dilute Slea's shareholding through a restructure and sale without Slea's consent; diverting profits; withholding the payment of dividends to Slea by concealing the fact that dividends had been paid; and attempting to deprive Slea of its right to seek relief by attempting to sell the Connective Companies. Robson J found that the majority shareholders had engaged in oppressive conduct and that the justice of the case required that the majority shareholders sell their shares to Slea. His Honour found that:
(a) the distinguishing feature in determining the remedy was that significant elements of the majority shareholders' oppressive conduct were intended to enable them to buy Slea's shares at less than their true value and therefore it was not appropriate to allow the majority defendants to achieve the object of their oppressive conduct;[122]
(b) Lees and Haron had been dishonest and deceitful in their oppressive conduct and their behaviour in conspiring to oppress Slea with the object of buying its shares at less than true value involved serious blameworthy conduct;[123]
(c) Lees and Haron had engaged in a decade-long campaign to eliminate Slea as a shareholder and actively sought to conceal critical aspects of their oppressive conduct from Slea;[124]
(d) Lees and Haron had inflicted financial hardship on Slea in the hope of being able to acquire its shares cheaply;[125] and
(e) Lees and Haron were unfit to act as company directors, and had:
(i) repeatedly displayed willingness to act dishonestly;
(ii) consciously refused to comply with Court orders;
(iii) destroyed relevant documents;
(iv) not complied with discovery obligations;
(v) made a false affidavit;
(vi) deliberately concealed information; and
(vii) invoked the Court's process for a collateral purpose and as a vehicle for oppression.[126]
624 MSA submits that a plaintiff who seeks the unusual order that it be entitled to purchase the shares of the oppressor shareholder needs to do more than establish oppression to be entitled to such relief. It is incumbent on such a plaintiff to establish that the usual order would be insufficient to remedy the oppression and that a fair remedy warrants the exclusion of the oppressor shareholder.
625 MSA also refers to QB Foods, where Black J declined to make orders entitling the plaintiff shareholder to purchase the shares of the defendant shareholder in circumstances where the 'usual remedy' was sufficient to remedy the oppression that had been established. In that case, the plaintiffs (Andriano and Pino Locantro) sought orders entitling them to purchase the shares of the second and third defendants (Amy and Gavin Stagnitta) in QB Foods Pty Ltd at fair value, adjusted to exclude the effects of oppression. Black J was satisfied that the second and third defendants had engaged in oppressive conduct by increasing Ms Stagnitta's salary without consent, taking funds from the company and resolving to issue shares in the company to substantially dilute the plaintiffs' shareholding. His Honour declined to make orders entitling the plaintiff shareholders to purchase the shares of the defendant shareholders, instead ordering the usual remedy that the defendant shareholders purchase the shares of the plaintiff shareholders. His Honour observed:
I am not persuaded that the buy-out order sought by Adriano and Pino should be made. First, and most importantly, the case law to which I have referred above indicates that it will commonly be sufficient to address an oppression claim, including one that involves an alleged exclusion from management, for the party that has been excluded to be bought out at the fair value of its shares. It seems to me that Adriano and Pino have not established that would be insufficient to remedy the oppression which has been established in this case, and there are other factors which suggest that a fair remedy does not require or warrant their excluding Gavin and Amy from the business. First, as I have noted above, Gavin had established the business, and QB Foods' constitution and the HoA contemplated that he would have management control of it. Second, while I recognise that Adriano has promoted sales of QB Foods' products to Locantro's customers and to associates, I am not persuaded that he worked in the business in the manner contemplated by the HoA or across the range of areas there contemplated, and it is plain that he took the attitude that he could do what he wished in that respect. Third, it seems to me that Adriano's and Pino's conduct has substantially contributed to the breakdown in the parties' relationship by seeking to condition the increase in Gavin's salary in December 2020 on their being provided additional rights not contemplated by the HoA, and particularly a right for Adriano to work full-time in the business if he wished, and by raising any concerns as to QB Foods' financial information with Ms Radovic rather than with Gavin. Fourth, at least since the date of their conversation with Mr Ersan on 30 July 2020, Adriano and Pino have been manoeuvring to "take over the business from Gavin", where it has now achieved a degree of success, a result which would allow them to profit from, rather than compensate them for, the matters of which they complain.
I am not persuaded that, in these circumstances, an order for the compulsory purchase of Amy's and Gavin's shares by Adriano and Pino is necessary or appropriate.[127]
626 MSA submits that a non-exhaustive summary of factors that courts have considered in determining buyout orders include:
(a) where one party has more involvement in the day to day running of the business and more continuing involvement overall, including whether either party provided security for company finance facilities;[128]
(b) the impact of an order on third parties, including employees, particularly in deciding whether to order a share buy out as an alternative to winding up;[129] and
(c) the relative size of the shareholders, as only in extraordinary circumstances would a majority shareholder be ordered to sell its shares to a minority shareholder.[130]
Y.3.2 MSA's submissions on why it should be ordered to buyout Create's share
627 MSA submits that should the Court determine to exercise jurisdiction under s 233 of the Act, the proper exercise of that discretion in the circumstances of this case is an order that MSA purchase Create's share in Founder. Such an order is said to be the least intrusive remedy available to terminate any oppression. MSA sets out thirteen reasons for this submission:
(a) First, an order entitling MSA to purchase Create's share in Founder is consistent with the objects of s 233(1)(d); being that an oppressed shareholder is entitled to be released from a company and have its invested capital returned to it. It is also consistent with the general object of s 233, being to put an end to oppression.
(b) Second, Angelodemou has more involvement in the day to day running of the Renex business. The evidence establishes that Angelodemou founded the Renex business, has at all times been the driving force behind the Renex business, and has at all times been responsible for the day-to-day operations and management of Hold Co, each of its subsidiaries and the Renex business.
(c) Third, Angelodemou has given personal guarantees and indemnities which the Renex Group of Companies are required to maintain to secure their finance facilities and Angelodemou's personal assets including his family home would be put at risk if Create was entitled to purchase MSA's share in Founder.
(d) Fourth, the Hold Co SHA contemplates that Angelodemou conduct the Renex business as CEO and vests him with responsibility for the management and operations of Hold Co and its business of operating and commercialising the waste treatment facility at the Dandenong Site.
(e) Fifth, Hold Co's other shareholder Artis Parra, its director Chandy and each of the longstanding senior employees of the Renex business all support Angelodemou remaining in control of the Renex business and do not support Create and Pulitano taking over the Renex business. Their evidence is that if Angelodemou were to leave the Renex business, they too would leave or seriously contemplate leaving and the Renex business would likely not survive. The evidence also establishes that the Renex business would be detrimentally impacted if Angelodemou and the senior employees were to leave.
(f) Sixth, Create is a passive investor in Founder and Pulitano has had no involvement in the day-to-day involvement in the operations or management of Hold Co or its subsidiaries.
(g) The evidence establishes that since September 2019, Create has been a willing seller if it considers the price for the sale of its share in Founder to be right. Create willingly entered into the 2019 Share Sale Agreement. Further, there is no evidence of any meaningful attempts by Create to be involved in the management or operations of the Renex business. Indeed, from the commencement of this proceeding on 19 August 2021 until May 2022, the only relief sought by Create was that Founder be wound up.
(h) Seventh, MSA has made reasonable offers to purchase Create's share in Founder from it and has the ability to obtain finance to fund that purchase. Indeed, the most recent offer made by MSA on 3 November 2023 was in the amount of $10.5 million (inclusive of the present day value of Create's investor loan); a figure well above the fair value of Create's share in Founder as determined by Wright. The quantum of MSA's offer is such that it provides adequate compensation to Create for any wrong suffered by it as a consequence of the payment of legal fees by Op Co that were not properly justified.
(i) Eighth, if Create were to acquire MSA's share in Founder, an event of default would be triggered under the Hold Co SHA as a consequence of a change of control of Founder without Artis Parra's consent. An event of default by Founder will trigger a share transfer process entitling Artis Parra to purchase Founder's shares, failing which those shares are to be bought back by Hold Co. So, there is substantial doubt as to whether Create will be able to successfully obtain control of the Renex Group of Companies.
(j) Ninth, an order winding up Founder is an extreme step and a remedy of last resort that is not appropriate in the circumstances. Amongst other things, Founder is solvent and the Renex business is a going concern with a substantial number of long-term employees. Further, a winding up order is inappropriate in circumstances where another remedy is available to Create (being MSA's offer to acquire its share in Founder) and Create is acting unreasonably in seeking to have Founder would up instead of pursuing that remedy.
(k) Tenth, the share purchase order sought by Create is grossly disproportionate given the objects of the remedy are to put an end to any oppression and return an oppressed shareholder's investment to it. The order sought by Create is punitive in nature insofar as it would destroy Angelodemou's and Chandy's livelihood and transform Create from a passive investor to one with full control. In effect, it would impermissibly confer on Create a windfall benefit to which it is not entitled.
(l) Eleventh, a grant of the share purchase order sought by Create would be a significant departure from the nature of relief granted pursuant to s 233 in previous cases.
(m) Twelfth, Create has not established that a buyout order in favour of MSA would be insufficient to remedy any oppression and a fair remedy does not warrant Create excluding MSA from the Renex Group of Companies. This is particularly so given Angelodemou established the Renex business and the Founder SHA and Hold Co SHA provide for him to have full management control.
(n) Thirteenth, the fact Create has committed an event of default under the Founder SHA which requires it to sell its share in Founder to MSA gives further support for the remedy under s 233 being that MSA buy out Create's share. The parties have agreed in the Founder SHA that in certain circumstances one should buy out the other. Those circumstances have now arisen.
628 MSA's submission as set out in paragraph 620 above, including that a minority buyout is "extraordinary" and "virtually unprecedented", is based on the comments of Spigelman CJ in Fexuto (Appeal).
629 This is discussed at length in the Connective Trial Judgment. As Robson J noted, before concluding as I have set out at paragraph 611 above:
(a) The judgment of Spigelman CJ in Fexuto (Appeal) insofar as it attempts to set out relevant principles should be considered highly problematic, as:[131]
(i) the description of a minority buyout order has changed from "comparatively unusual" to "extraordinary" and "virtually unprecedented";
(ii) the "exceptional" circumstance identified in ex parte Shooter is wrong; and
(iii) a "level of moral blameworthiness" is ascribed to the majority shareholders in each of ex parte Shooter and Re Brenfield, notwithstanding that in the former Harman J explicitly disavowed any findings of bad faith or dishonesty on the part of the majority shareholder and in the latter the explanation for why a minority buyout was ordered was not said to be linked to any moral blameworthiness.
(b) The test as postulated by Spigelman CJ in Fexuto (Appeal) was obiter: Priestley JA also concluded that the minority was not entitled to an order permitting it to buy the majority's interest, but his Honour's reasoning does not reveal any specific or general concurrence with the reasoning or tests applied by Spigelman CJ, other than such an order was not justified in the facts of that case.[132]
(c) Dissenting in the result, Fitzgerald JA would have ordered that the minority be permitted to buyout the majority. Fitzgerald JA recorded his disagreement with Spigelman CJ's statement of principle, saying:
I do not accept that there is some special inhibition on the court's power to order shareholders engaged in oppression to sell their shares because they constitute a majority. What order is practically just will depend on the particular circumstances of each case. Majorities should not be encouraged to think that oppression is unlikely to have any more adverse consequence than an obligation to purchase the oppressed minority's shares, which might well suit the majority's purpose.[133]
(d) Subsequent decisions have indicated support for both views, however Robson J preferred the approach of Fitzgerald JA as it accords with subsequent interpretative guidance.[134]
630 I agree with Robson J's conclusion that there is no special inhibition on the Court's power to order a minority buyout and such an order can be made where it is appropriate in all the circumstances of the case.[135]
631 Accordingly, it falls to me to determine whether the oppressed, or the oppressor, should be the buyer in this case. In my view, the evidence overwhelmingly leads to the conclusion that in this case MSA should buyout Create's share in Founder rather than the other way around. My reasons for this conclusion are set out below.
632 Create's submissions on this issue were brief and under-developed. Apart from submitting that the Court can, and should in this instance, order the oppressed to buyout the oppressor, Create did not provide reasons as to why the Court should adopt that course. Rather, its position seemed to be that it wanted to be the buyer and so the Court should order that.
633 Pulitano's affidavit evidence was that he had the expertise to run the Renex business, as he has run businesses before and if needs be he will be able to 'get in' specific expertise for this business. In cross-examination, Pulitano's response as to what he would do with the Renex business if he obtained control was both under-developed and weak. He was asked about this further in re-examination, where he was asked to describe what his intentions would be for the Renex business if Create was to take control of it. Effectively given free rein to tell the Court his vision for the Renex business should he obtain control, his feeble and under-whelming response was:
Our intention would be to - to see out - to carry on - to conduct the business that it's currently doing, just hopefully in a ah, well, I won't say that. Conduct the business (indistinct words) would be I'd be onboarding as many good - good personnel as we could, and we would try and break into other markets. There's - I sort of haven't really scratched the surface of my network in um, in the industry of construction. I've - I can rattle off a whole bunch of other close um, associates of mine that are in this industry and currently um, you know, we just - we haven't gone anywhere near where I think it could, so I would love to run this business and - and see it prosper.
634 In cross-examination, Counsel for Create appeared to attack the evidence and submissions relied on by MSA as to why MSA should be the buyer. Witnesses were cross-examined seemingly in an effort to establish that:
(a) Angelodemou was not as important or integral to the Renex business as made out;
(b) Angelodemou's relationship with the EPA was not as positive as he represented;
(c) the position of the Renex business' senior employees that they would all leave if Angelodemou was no longer in charge was over-stated;
(d) Create was not a passive investor;
(e) Pulitano had involvement in the Renex business and visited the Dandenong Site; and
(f) there are doubts as to whether MSA can afford to buy Create's share.
Curiously, apart from (d) and (e) above, none of these matters were the subject of submissions by Create.
635 I accept most (but not all) of the reasons advanced by MSA as to why it should be the buyer. In this regard, and using the same numbering as set out in paragraph 627 above:
(a) First, I agree that an order that MSA buyout Create is consistent with the objects of s 233 generally and s 233(1)(d) in particular.
(b) Second, Angelodemou's involvement in the day-to-day running of the Renex business is a very persuasive factor here. That he has had that role is undeniable and I accept that his role in the ongoing Renex business is important. In my view, MSA being the buyer is far less disruptive for the Renex business, in a number of important ways: for knowledge of operational matters, for employees, and for financing.
(c) Third, Angelodemou is the only current stakeholder who has given personal guarantees and indemnities to support and secure the finance facilities upon which the Renex Group of Companies is reliant. I accept that he would be reluctant to continue to provide this support and security if MSA's share in Founder was bought out. Presumably, for him to cease providing that support and security, alternate security would need to be obtained, which adds a level of uncertainty if Create is the buyer rather than MSA.
(d) Fourth, at the outset of the current structure for operating the Renex business, when it was purchased from the Old Renex Entities in December 2015, it was agreed between the parties that Angelodemou would be the CEO conducting the Renex business. It was never intended that any other stakeholder, such as Areo, Create or subsequently Artis Parra, would have such a role.
(e) Fifth, while I accept that Chandy and most of the other senior Renex employees, particularly de Clase and Panayi, support Angelodemou remaining in control and do not support Create and Pulitano taking over the Renex business, I find their evidence to be overblown on this issue. In this regard:
(i) I do not put much weight on the stated positions of the senior employees who gave evidence. I accept that they genuinely regard Angelodemou as important to the business and that they like working with him. I also accept that their intention to at least consider leaving Renex if Angelodemou is not in charge is genuine. However, the emphatic tone of their affidavits in this regard appeared to me to be over-stated, and at least in the cases of de Clase and Panayi, their oral evidence on this point was so dogmatic that I found it scarcely believable. The notion that Panayi, who denied a personal friendship with Angelodemou, describing them as friends at work, would leave Renex if Angelodemou left for any reason at all and would not wait to see how the business panned out, out of pure loyalty to Angelodemou, seemed ridiculous to me.
(ii) I accept that these employees are important to the running of the business, but I do not accept that their involvement is so vital that they are indispensable to it, at least in the medium to long term. For example, de Clase was emphatic that if he left all his customers would follow him and that he was indispensable to the Renex business. De Clase is the sales manager. That he has increased Renex's customer base and business since joining it from Cleanaway, with many of his customers following him when he came to Renex, does not seem to be disputed. He says that all of his customers would leave if he left and went to a competitor because this business is all about personal relationships. However, I find it difficult to accept that all of his customers would blindly and loyally follow him to a competitor if Renex was offering a good service at a competitive price.
(iii) I find it difficult to accept MSA's submission that the Renex business would likely not survive if Create were to buy out MSA, but I do consider that it would be hampered in its operations, at least in the short to medium term, if that occurred.
(f) Sixth, I accept the submission that Pulitano has had no day-to-day involvement in the operations or management of the Renex Operating Entities. True it is that Pulitano met with Angelodemou from time to time to discuss the Renex business and that he was involved in key decisions, such as the decision to purchase the Laverton Properties, but that is very different from being involved in managing and operating the Renex business. In my view, Create's position is close to that of a passive investor, since its only involvement in decision-making was in respect of key decisions at a high level. The relevant documents, being the Founder SHA and the Hold Co SHA, clearly envisage a passive investor role for Create. I also accept the submission that there is no evidence of any meaningful attempts by Create to be involved in the management or operations of the Renex business, although I question whether such attempts would have gone anywhere given Angelodemou's undoubted preference for having control of the business himself.
(g) I accept that the evidence establishes that at times Create has been a willing seller, although it has not been through the course of this proceeding.
(h) Seventh, whether MSA's offers to purchase Create's share in Founder have been reasonable and provide adequate compensation to Create for any found oppression is something I will consider later in these reasons. In terms of MSA's evidence regarding its ability to finance the purchase of Create's share, I accept that there is some evidence on this but it is indicative at best. That said, Create's evidence of its ability to finance a purchase of MSA's share is also indicative only. Therefore, I do not regard capacity to purchase as a factor of significant weight here.
(i) Eighth, I accept that there is a possibility of an event of default under the Hold Co SHA being triggered if Create was to acquire MSA's share without Artis Parra's consent. However, I do not regard this as a determinative factor in deciding who should be the buyer.
(j) Ninth, I have already found that winding up Founder is an extreme step and a remedy of last resort, and that it should be avoided if possible. However, this does not really assist in determining who should be the buyer, given that both parties want to be the buyer.
(k) Tenth, I do not accept MSA's submission that an order that Create be the buyer is grossly disproportionate to the oppression and that it is punitive in nature. I find it difficult to accept the submission that it would destroy Chandy's livelihood: he is a chief financial officer and one would expect his skill set to be readily transferrable. I accept that Angelodemou's position would be more problematic, given the length of his involvement with the Renex business, but I do not consider that the effect on him would be punitive in nature.
(l) Eleventh, I do not consider that a grant of the share purchase order sought by Create would be a significant departure from the nature of relief granted pursuant to s 233 in previous cases or if it was, that it would be determinative, for the reasons set out in paragraph 630 above. It is but one of many factors to be considered.
(m) Twelfth, I am satisfied that a buyout order by MSA of Create's share at a fair price is sufficient to remedy the found oppression in this case.
(n) Thirteenth, MSA's submission that Create has committed an event of default under the Founder SHA is not one to which I have had regard in considering who should be the buyer, given that I have found that Create did not commit an event of default under the Founder SHA.
636 Set out below is a table containing information about previous agreements between, or open offers by, the parties to purchase each other's share in Founder.[136]
$23.5m (comprised of $18.5m plus $5m for Create's investor loan)
$23.5m (comprised of $18.5m plus $5m for Create's investor loan)
$6m (based on Rundell valuation) plus $5m for Create's investor loan (to be paid on 1/7/28 together with interest of $900,000)
$4,424,513 (comprised of $789,859 based on Wright's valuation plus $3,634,654 for present day value of Create's investor loan)
$10.5m (comprised of $6,843,720 plus $3,656,280 for present day value of Create's investor loan)
637 In its written closing submissions, Create also referred to an offer by MSA to purchase Create's share for $3.2 million in February 2021, however the source cited for this is the February 2021 Valuation itself, which cannot be properly characterised as an offer. Therefore, I have not included it in the above table.
638 None of the offers referred to in the above table, with the exception of that which led to the 2019 Share Sale Agreement, were accepted by the offeree.
AA.1 Relevant principles regarding valuation matters
AA.1.1 General principles regarding purpose and valuation method
639 As noted above, the Court's discretion under s 233(1)(d) of the Act in respect of ordering a buyout is very wide. It has been said that s 233(1)(d):
says nothing about the price for which purchase of shares can be ordered, or the basis for calculation of such a price. The only legal restriction on the way in which the price may be calculated is that it be a proper exercise of a judicial discretion.[137]
640 In Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd,[138] the Full Federal Court summarised the relevant principles in respect of s 233(1)(d), as follows:
The authorities make it clear that once the discretion conferred by s 233 of the Act has been enlivened by a finding of oppression under s 232, the court has a wide discretion as to both the appropriate remedy and, if it orders compulsory purchase of shares, as to the mode of valuation of the shares. ...
If the court considers it is appropriate to make an order that the other members purchase the shares of the oppressed shareholder, its task is to fix a price that represents a fair value in all the circumstances ....
... the purpose of an order that the oppressor purchase the shares at a fair price is to compensate the oppressed shareholder for the oppression which has taken place. ...
... in Re Bird Precision Bellows Ltd [1986] 1 Ch 658 at 669 ... his Lordship specifically rejected a submission that the determination of the price was to be arrived at only by ordinary valuation principles.
... it is not just a question of value; it is a matter of fixing a price that should be paid.
...
Even if there is an agreement between the parties, as for example in the statutory contract contained in the constitution or articles of association, as to the way in which the shares are to be valued, the court is free to override the agreement if it makes a finding of oppression ....
... once a finding of oppression has been made, it would be unfair that the oppressed shareholder be bought out on the fictional basis applicable to a free election to sell the shares in accordance with the articles "or indeed on any other basis which involved a discounted price".[139]
641 Having cited this passage with approval in Wain & Ors v Drapac & Ors (No 2),[140] Ferguson J went on to say:
At the heart of these principles is that the price to be paid is compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct). Consequently, the price to be paid will not always reflect the actual or real worth of the shares that might be obtained on the open market. Whilst the valuation might be conducted on the basis of one of the traditional methods (including net tangible assets or capitalisation of maintainable earnings) the valuation will invariably take into account various adjustments that should be made to remove the effect of the oppression.[141]
In assessing whether orders should be made ... 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 addressing the wrong done (the oppressive conduct)". The purpose of granting relief pursuant to s 233 is to remedy, or compensate for loss occasioned by, the conduct considered oppressive for the purpose 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.
Furthermore, 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.[142]
AA.1.2 Relevant principles regarding the valuation date
643 There is no definite rule as to the appropriate date for determining the value of shares for the purposes of setting a price for a purchase under s 233(1)(d) of the Act.[143]
644 In Foody v Horewood, Chernov JA stated that "there is no firm rule by which the relevant date of valuation is to be selected, and that the observation of Nourse J in In re London School of Electronics Ltd[144] that 'prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased' was only a starting point for the enquiry." Rather, stated Chernov JA, "the overriding requirement is one of fairness and justice to both parties in all the relevant circumstances of the case."[145]
645 Chernov JA went on to cite London School of Electronics in more detail, where Nourse J said:
If there were to be such a thing as a general rule, I myself would think that the date of the order or the actual valuation would be more appropriate than the date of the presentation of the petition or the unfair prejudice. Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased. But whatever the general rule might be it seems very probable that the overriding requirement that the valuation should be fair on the facts of the particular case would, by exceptions, reduce it to no rule at all. That that is so is already suggested by such authorities as there are on this question.[146]
646 Chernov JA then observed that in London School of Electronics, Nourse J concluded that fairness in that case required that the shares be valued as at the date of the presentation of the petition.[147]
647 The date on which proceedings commence is a date regularly used for valuation of shares in oppression proceedings.[148]
648 In Rankine v Rankine,[149] the Queensland Court of Appeal observed that factors favouring the date on which proceedings commence as the valuation date include:
(a) the petition date is the point at which the claimant elects to claim the remedy; and
(b) equity leans against a dilatory claimant gaining benefits in an expanding business.
650 As part of his process, Rundell obtained an independent property valuation for land and buildings (ie the Dandenong Site) from Cushman & Wakefield, and an independent plant and equipment valuation from Assured Valuations (theses two valuations together, the 'PP&E Valuation'). Because Founder's main asset is its shareholding in Hold Co, Rundell says that his approach was to value the business operated by Hold Co and its subsidiaries and then take 95.71% of that value as being the value of Founder, based on its proportion of the issued shares in Hold Co. This is what he describes as the basis for his valuation.
651 Rundell's opinion is that the investor loans should be treated as equity, stating that in any settlement between the parties where one party fully exits Founder, the exiting party would likely require its investor loan to be paid out as well, absent further agreement that it would, say, convert its non-interest bearing subordinated investor loan to a commercial loan renegotiated at arm's length. In this regard, he says that consideration would need to be given as to whether the investor loans should be calculated at their face value when due to be repaid or at an adjusted amount if paid out earlier.
652 Rundell says that he has used multiple valuation approaches where, in the absence of any financial performance projections, he has estimated maintainable future cashflows, earnings figures, and then discounted these figures back to the valuation date of 1 October 2021 before applying trailing 12 month multiples in order to derive a sensible and plausible value range. He says that the estimated future cash flows were utilised in his other DCF valuation method. He says that he also estimated maintainable future revenue or sales figures, but these were much less complicated to do than the cashflow and earnings figures.
653 The table in the Rundell Report setting out the methodologies and valuations arrived at in respect of Founder is set out below:
$42,785,771 (as per 30 Sept 2021 financials, including investor loans)
$44,110,771 (as per 30 Sept 2021 financials, excluding investor loans)
$19,586,722 - $33,086,722 (as per 30 Sept 2021 financials adjusted for PP&E Valuation ranges, including investor loans)
$9,911,722 - $23,411,722 (as per 30 Sept 2021 financials adjusted for PP&E Valuation ranges, excluding investor loans)
$18m - $22m, with mid-point of $20m (including investor loan)
$9m - $13m, with mid-point of $11m (excluding investor loan
$17m - $27m, with mid-point of $22m (including investor loan)
$7m - $18m, with mid-point of $12.5m (excluding investor loan)
$13m - $19m, with mid-point of $16m (including investor loan)
$4m - $9m, with mid-point of $6.5m (excluding investor loan)
$31m - $36m, with mid-point of $33.5m (including investor loan)
$21m - $26m, with mid-point of $23.5m (excluding investor loan)
654 Rundell reviews results from various multiple and discounted cash flow methodologies, excluding the net asset backing figures in the 1 October 2021 balance sheet,[153] and applying his professional opinion that the investor loans should be treated as equity. Rundell says that he has used the DCF analysis as one of the ways to assist him in forming his views on value; that he has used the EV/Rev method to assist him to test some of the limits to the applicable value range; that he has used the EV/EBITDA[154] method as a third approach to assist him in developing an indicative value range; and that he has used the Price/Sales method to assist him to test some of the limits to the applicable value range. He explains what each of these methods are and states their advantages and disadvantages as far as methodology goes. He explains the matters taken into account under each method and sets out the analysis in some detail, which I do not attempt to replicate here. Rundell states that when the net asset backing is adjusted for the updated independent property and plant and equipment valuation ranges (ie the PP&E Valuation), the net asset backing falls to between $19.6 million and $33.1 million (including the investor loans) and $9.9 million and $23.4 million (excluding the investor loans), which he says coincidentally brings it closer to the value ranges obtained using the other valuation approaches he adopted.
655 The Rundell Report concludes that the value range for Founder (as at 1 October 2021) is:
(a) between $18 million and $25 million, with a reasonable mid-point of $21.5 million, if the investor loans are included as equity. His view is that these should be treated as equity; or
(b) between $9 million and $15 million, with a reasonable mid-point of $12 million, if the investor loans are not treated as equity.
656 Based on this, the Rundell Report values (as at 1 October 2021):
(a) Create's share in Founder at $10,912,500, if Create's investor loan of $5 million is included as equity. If it is not to be considered as equity, then Rundell values Create's share at $6 million.
(b) MSA's share in Founder at $10,587,500, treating MSA's investor loan of $4.675 million as equity. If it is not to be considered as equity, then Rundell values MSA's share at $6 million.
The difference in value as between Create's share and MSA's share if the investor loans are treated as equity is simply the difference in the amount of their respective investor loans.
657 Neither party relies on the Rundell Report. What I should make of it is something I will consider later.
658 In the First Wright Report, Wright values Create's share in Founder as at 1 October 2021 in the scenario where MSA is the purchaser as between $610,421 and $789,859. She values MSA's share in Founder as at 1 October 2021 in the scenario where Create is the purchaser as nil.[155] The difference between these is due to an adjustment Wright makes for the amount paid to Angelodemou as managing director/chief executive officer and the amount which would have to be paid to others (possibly one or two persons) to perform the role previously performed by Angelodemou if Create is the purchaser (since Angelodemou would no longer be involved).
659 Wright relies on equitable value as being the appropriate standard of value to adopt as it gives consideration to specified parties in specific circumstances, as opposed to a transaction between hypothetical market participants. She adopts a capitalisation of future maintainable earnings ('CFME') method to value the Renex Group of Companies and ultimately the shares in Founder. She describes the CFME method in this way: the value of the business is determined by estimating the level of earnings that the business is expected to sustain into the future, and capitalising it at an appropriate rate.[156] Wright then relies on the net asset/asset-backed valuation method as a cross-check to the CFME method and adopts a going concern premise of value. She adopts an EBITDA multiple of 6 to 6.5 based on similar companies with similar opportunities for expansion with a control premium of 25%.
660 Wright treats the investor loans by Create and MSA to Founder as debt rather than equity, on the basis that the loans are subject to formal loan documentation, there is no conversion clause whereby the loans may be converted into equity, and the loans specify a repayment date of 14 September 2028.
661 Wright includes a number of tables and detailed data to support her valuations. These are complex and lengthy, and I have not attempted to reproduce them here.
662 In the First Wright Report, Wright also provides a critique on aspects of the Rundell Report and the First Lee Report.
663 In addition, Wright provides a calculation of the net present value ('NPV') of the Create investor loan as at 1 July 2023 on the assumptions that the loan is for $5 million, is unsecured, does not accrue interest, and is due to be repaid by 14 September 2028, and an explanation as to how the NPV of the loan would be calculated. She provides the following explanation of this:[157]
A NPV assessment calculates the value, in today's terms, of a cash flow that occurs later in the future. In this case, the result of the NPV assessment is that less than $5 million would be required as at 1 July 2023 to repay a $5 million obligation that would otherwise be due on 14 September 2028.
The NPV formula requires an appropriate discount rate to be used in the calculation, which takes into account the time value of money. In my view, the cost of debt is a suitable discount rate to adopt in this calculation, as it takes into account the risk-free rate and a risk premium to account for some credit risk of Founder, but not the full operational risks in Founder that an equity holder would face. At Annexure 2 of the Rundell Report, Mr Rundell assesses the cost of debt before tax to be approximately 6.62%.
664 Adopting Rundell's cost of debt before tax as the discount rate, Wright sets out a formula for calculating the NPV of Create's investor loan and concludes that the NPV of a $5 million loan payable on 14 September 2028, at a valuation date of 1 July 2023, is $3,579,543. Wright sets out a formula for this calculation, which would enable a calculation of the NPV of Create's investor loan at any chosen valuation date.
665 In the Second Wright Report, using the same scenario that MSA is the purchaser, Wright values Create's share in Founder as at the alternative valuation dates of 13 and 22 September 2021 at between $610,421 and $789,859. As can be seen, this is the same as for 1 October 2021, as she did not consider there to be any material differences in the position of the Renex Group of Companies at the alternative dates to 1 October 2021. Wright was instructed to value Create's share on those alternative dates as MSA regarded them as the dates of the events of default by Create under the Founder SHA. Since I have found that Create did not commit events of default under the Founder SHA, those alternative valuations are irrelevant.
666 The First Lee Report critiques aspects of the Rundell Report. These include the following matters:
(a) Lee states that the appropriate valuation basis in respect of Renex is equitable value, which he describes as involving specific identified parties involved in a hypothetical transaction. He says that Rundell does not specify the valuation basis he has applied.[158]
(b) Lee disagrees with Rundell's view that the Renex business has been largely unprofitable, as he considers that the historical losses have been driven by a number of abnormal items (which he sets out) and the underlying performance of the business has been positive.
(c) Lee says that Rundell did not have sufficient information to prepare a forecast, which is something Rundell himself raised concerns about. Lee's view is that Rundell's projections are conservative and may not be realistic, and it is likely that the items in the forecast he disagrees with would result in Rundell's forecast cashflows being understated.
(d) In terms of valuation methodologies, Lee says that the most suitable methods for valuing Renex are the EV/EBITDA[159] and alternate acquirer methodologies. He says the alternate acquirer methodology considers the price that an alternative bidder may be prepared to pay to acquire a business and that this approach should have been considered by Rundell, due to the presence of the 2019 Share Sale Agreement and the First Offer. Lee says that the First Offer is relevant to the valuation of Renex, applying equitable value, given that it was made less than a year before the valuation date and was known by the parties. He says the net asset approach is relevant, especially as a cross-check methodology. Due to the limitations of the forecast projections, he says that the DCF methodology may only be relevant as a cross-check to the other approaches. Lee says that the EV/Rev and Price/Sales methodologies should not be considered in this instance, even as a cross-check.
(e) Lee makes various criticisms of the way in which Rundell applied the valuation methodologies. He agreed with Rundell's approach to treating the investor loans as equity.
(f) Lee does not agree with Rundell's valuation conclusions. He says that these are understated for a number of reasons, those reasons being that:
(i) the offers made by MSA to Create should have been considered. The offers have an implied value significantly higher than any other valuation conclusion obtained by Rundell;
(ii) the net asset methodology should not have been excluded from the valuation conclusions; and
(iii) the issues referred to in sub-paragraph (c) above are likely to understate the valuation conclusions.
667 In respect of the equitable value valuation basis, the First Lee Report cites extracts from the International Valuation Standards,[160] some of which it is helpful to set out here:
(a) Equitable value is "the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties".[161]
(b) Equitable value requires "the assessment of the price that is fair between two specific, identified parties considering the respective advantages or disadvantages that each will gain from the transaction".[162]
(c) An example of the use of equitable value includes "determination of a price that is equitable for a shareholding in a non-quoted business, where the holdings of two specific parties may mean that the price that is equitable between them is different from the price that might be obtainable in the market".[163]
668 The Second Lee Report critiques aspects of Wright's valuations as contained in the First Wright Report and the Second Wright Report. In this regard, Lee opines that:
(a) The assumptions Wright was instructed to make as to a decline in the value of the Renex business since September 2019 and December 2020 have an impact of reducing her valuation opinion. These instructed assumptions were that there had been a decline in value as described, due to:
(i) a decline in ordinary income due to increased competition, a decline in the number of active construction projects, the impacts of COVID-19 and the change to the regulatory landscape;
(ii) an increase in operating costs due to increased waste volumes being sent to landfill and the increase cost per tonne of that;
(iii) a decline in net profit after tax and net assets;
(iv) changes to the EPA regulations and the EPA Licence; and
(v) changes to the EPA waste levy programs.
(b) The instructed assumption to Wright that there is no R&D claim owing to the Renex Operating Entities of $3.6 million has the impact of reducing her valuation outcome. If there is an R&D claim owing, that would be a surplus asset and therefore increase the equity value of the business.
(c) Wright's assessment of the CFME and its adjustment if Angelodemou is no longer involved in the Renex business assumes that he is completing the role of two full-time executives at an ASX-listed entity and does not take into account whether Pulitano may be able to fulfil some or all of Angelodemou's role.
(d) Having been provided with further information since the First Lee Report, particularly that the investor loans have an agreed repayment date, he now agrees with Wright that the investor loans would be considered debt for valuation purposes, rather than equity.
(e) Depending on how the Impugned Legal Fee Payments are recorded and treated in the financial accounts, Lee says that they may have an impact of valuation. In this regard, if the legal costs are recorded as an expense of Op Co, included in the normalised expenses advised by the business, and recorded as a loan/other in the balance sheet, then there would be no impact on the value of the shares as the issue would have been accounted for. However, if they were either: (a) recorded as an expense of Op Co, included in the normalised expenses advised by the business, and are not recorded as a loan/other in the balance sheet; or (b) recorded as an expense of Op Co, not included in the normalised expenses advised by the business, and are not recorded as a loan/other in the balance sheet, then the equity value would increase by the amounts incurred.
669 In respect of the impact of the First Offer on a valuation of the Renex business, Lee cites the following from the Third Angelodemou Affidavit:
... the $18.5 million figure offered on 23 December 2020 was not the result of a formal valuation process. The $18.5 million figure was based on a valuation methodology and framework that was agreed between me and Mr Pulitano, which did not necessarily represent the actual value of the Renex Business, but represented a commercial figure that we could both live with. The figure of $18.5 million was used in the Share Sale Agreement dated 16 September 2019, which I refer to above. That figure was preceded by a valuation methodology proposed by myself and Mr Chandy and a valuation from Pitcher Partners obtained by Create. The valuation methodology proposed by myself and Mr Chandy and I was circulated by email by Mr Chandy to Mr Pulitano on 12 August 2019. The valuation prepared by Pitcher Partners was sent by Mr Pulitano to Mr Chandy and myself on 14 August 2019. Mr Pulitano then conceded the valuation prepared by Pitcher Partners was incorrect. I then discussed a value for the Share Sale Agreement with Mr Pulitano. We ended up agreeing on $18.5 million. There is no spreadsheet showing how that figure was calculated. It was not calculated through a valuation process. It is simply what Mr Pulitano and I ended up agreeing on.
670 Lee then makes the following comments regarding the First Wright Report, the Third Angelodemou Affidavit and the First Offer:
671 Lee does not determine a value for the shares in Founder. He was not instructed to do so.
672 By the time of its final submissions, the primary relief sought by Create was an order that it purchase MSA's share in Founder for $14 million; alternatively at the current value as assessed by a valuation to be conducted by an independent valuer. As a further alternative, Create seeks an order that the parties have 21 days in which to negotiate the sale and purchase of a share, and failing agreement, Founder be wound up.
673 Create submits that one option may be for the Court to give directions for a 'silent auction' as happened in Russell v Lee Holdings Pty Ltd (No 3),[164] where each party was given the "same one (1) contemporaneous 'winner takes all' opportunity to submit a silent $ per share bid for the shares not held in Lee Holdings, in effect, on a one-off basis, to purchase from the rival side all those shares in Lee Holdings they did not already own or control."[165]
674 Create submits that if s 462 of the Act is engaged, the court can order a winding up after giving the parties an opportunity to negotiate a sale.
675 It also says that any orders made will have to take into account the loans made by Create and MSA to Founder. Currently, repayment is not due until 2028, although a winding up order would make these repayable immediately.
676 The date adopted for the valuations (1 October 2021) is pursuant to the Court-Ordered Valuation, as contained in the order of Delany J on 11 October 2021. Create submits that a purpose for a valuation at the early stage of this proceeding was to facilitate the resolution of this case. It was submitted by Create in submissions ahead of the first directions hearing that "[f]ollowing the preparation of a valuation, one or other of the shareholders may wish to purchase the other's share thereby obviating the need for a winding up order."
677 Neither party has sought to rely upon the Rundell Report. In fact, both parties' independent experts were in agreement in relation to their criticism of the methodology and assumptions adopted by Rundell in determining his valuation of Founder. Create submits that given neither party agitated the findings in the Rundell Report in cross-examination of either parties' respective expert, the Court ought put the Rundell Report to one side.
678 In its defence and counterclaim dated 19 October 2021, MSA stated it would rely on the Court-Ordered Valuation to determine the price to pay for Create's share. At a directions hearing on 24 June 2022 before Justice Button, Create informed the Court it intended to look at the Rundell Report and to critique it. In response to a question from Justice Button, MSA stated it would be relying on the Rundell Report. Justice Button stated that she specifically asked that question because she did not want Create's proposal to critique the Rundell Report to misfire if MSA later turns around and says "well actually we're not relying on Rundell". Create describes this as prescient. Subsequent to the First Lee Report, MSA engaged Wright and later amended its pleading to remove reliance on the Rundell Report.
679 Create submits that the Court therefore only has to hand the two Wright Reports by way of valuation evidence.
680 Create submits that the date of valuation used in the First Wright Report, being 1 October 2021, is not just and equitable, as:
(a) this date was chosen at the very early stages of this proceeding;
(b) the financial evidence available is that Hold Co and its subsidiaries in the financial year ended 2022, made:
(i) an operating profit of $13,439,741.56; and
(ii) a net profit of $1,688,045.36.
(c) further, Chandy's evidence is that the Renex Group of Companies has again made a profit at the EBITDA number for the financial year ended 2023 (despite him, the chief financial officer, not being in a position to quantify this amount);
(d) thus, the current financial position of the Renex Group of Companies is very different from its position in the financial year ended 2021, where:
(i) there was an operating loss of $803,518.82; and
(ii) a net loss of $8,679,122,98.
681 Create makes a number of submissions as to what it describes as critical assumptions made by Wright. These submissions are as follows:
(a) Wright adjusts the head office employment costs (indirect wages) for FY2021 from $1.2 million to $1.8 million, as MSA's submissions to Rundell stated that $600,000 of staff bonuses in FY2021 were not recorded in the profit and loss statement for that year."
(b) In cross-examination, Wright said that the 'correct estimate of the annual wages should include bonuses payable for that year', and conceded that she had not sought clarification as to whether, in the 2021 financial year bonuses payable in the 2020 financial year had been deducted from the 2021 financial accounts.
(c) The only quantifiable difference between the value of Create's share if MSA purchased, and MSA's share if Create purchased, was the additional salary that might be paid to someone to replace Angelodemou. In the First Wright Report, Wright suggests that a replacement manager/chief executive officer would cost $580,000, whereas Angelodemou's wage was $375,000. In cross-examination, Wright confirmed that in relation to the assessment of salary of a replacement manager for Angelodemou that "I've said it's outside of my expertise to specifically assess compensation, but for illustrative purposes, I've ah, adopted figures for my calculation." Given that the only real difference between the two values is the replacement salary of a manager, and where no expert opinion has been offered on this, this undermines the reliability and weight the Court ought place on this report.
(d) In re-examination, Wright explained that she had assessed $260,000 per year as the maintainable legal fees. Wright was not provided with the actual legal invoices rendered to Op Co and others,[166] only the entries into the accounting system. Wright said in cross-examination that (on the assumption) if legal costs included amounts paid for example by Op Co for MSA, she would need to reduce the expenses of the company by that amount. Therefore, it is submitted, this cannot be a fair assessment of the maintainable legal fees of Founder and further that the expenses of Founder may in fact be reduced, increasing its profit and therefore the assessment of its future maintainable earnings.
(e) Finally, unlike Rundell, Wright was provided with a copy of Angelodemou's affidavit. It is evident that she has used the information in that document to make a number of assumptions about the Renex business, including increasing costs. In cross-examination, the following exchange occurred:
Mr Northrop: Did you assume that those issues would continue?
Wright: There is -there were some ah, comments by Mr um - Mr Angelodemou's affidavit, but also coming from other individuals ah, about the costs. The increasing costs. Which I have also seen in the financial statements.
Mr Northrop: And you assumed those increased costs would continue into the future?
Wright: Yes.
682 Create also submits that a real issue arises as to the credulity and the reliability of the financial information supplied (or not supplied) by Angelodemou and Chandy to Wright and Rundell. The two issues relied upon by Create in this respect are the Impugned Op Co RG Payments and employee bonuses of $600,000 purportedly paid or to be paid in FY2021. Create submits that the net effect of these matters is that the Court cannot be satisfied that a valuation based on either the First Wright Report or the Rundell Report, is fair, just and equitable, in all of the circumstances of this case.
683 In respect of its point about bonuses, Create submits that:
(a) Chandy, in cross-examination, could not provide a credible explanation as to why these bonuses were not included in the profit and loss statement.
(b) There was similar confusion in cross-examination of Angelodemou as to the timing of these payments. Part of the exchange was as follows:
Mr Northrop: If they were paid in the 21 financial year they'd be recorded in the 21 financial statements?
Angelodemou: That's right.
Mr Northrop: If they were paid in the 21 financial year, why were they not recorded in the financial statements?
Angelodemou: If they were paid in the FY21 financial year they would have been recorded in the FY21 financial statements.
Mr Northrop: What exactly are you trying to say in paragraph 32?
Angelodemou: Exactly what it says, Mr Northrop.
Mr Northrop: Just to be clear, are you saying that $600,000 was paid during the 21 financial year?
Angelodemou: No, I'm saying that it may not have been paid during the 21 financial year.
Mr Northrop: If it's paid in the 22 financial year it would be in the 22 financial year documents?
Angelodemou: That's what I'm saying there.
684 I have already set out Create's submissions about the Impugned Op Co RG Payments earlier in these reasons.
685 Create submits that given the critical (and problematic) assumptions made by Wright and the quality and credibility of information provided to her, the Court ought be slow to place any great weight on her report.
AA.3.3 Relevance of the offers made between the parties
686 Create submits that the offers between the parties are more indicative of a fair market value for the shares in Founder than the valuation in the First Wright Report.
(a) the price offered for each party's respective share is substantially over and above what was assessed by Rundell and Wright, albeit those valuations are now some two years old;
(b) the recent offer of $14 million from Create is indicative of its financial ability to purchase MSA's share and its willingness to take over the management and control of the Renex Group of Companies; and
(c) Founder is a valuable going concern wherein each party is willing to offer substantial payments.
688 In addition to the offers described in section Z above, Create refers to a proposal put via email by Angelodemou on 19 February 2019 to Equis, a prospective lender to the Renex business, wherein Angelodemou stated:
a. The valuation can be justified to your committee as follows:
i. Total Equity value of properties $55m.
1. Equity value of Dandenong South property - $35m (going concern).
2. Equity value of Laver ton North prop[e]rty - $20m (being $30m less proforma debt $10m on property required at settlement).
ii. Implied value of RENEX' s existing business $55m.
1. This implies a forward EBITDA multiple of 5.5x (assuming an EBITDA of $10m).
2. The market is trading on an EBIT DA multiple of 10 to 12 times.
3. Our facility is fully Licenced and fully operational.
Incentive payments tied to progressing the 2 W2E projects to a shovel ready state.
If the valuation of the business, properties and projects is greater than $110m, then an incentive payment will be triggered. For example, if the EV was $150m (assuming approvals are issued at the same time for both projects), then the incentive payment would be $20m (being 50% of $150m, less $55m). ...
...
689 Create submits that Angelodemou's representations in this regard are relevant. It submits that in cross-examination, in an effort to downplay the numbers, he said "they were just hypothetical figures." Create contends that the numbers in this email are reflective of what Angelodemou subjectively believed the value of the Renex business to be at the time.
690 Create submits that on any valuation of the shares in Founder and/or price to be paid, adjustments ought to be made. It says this is particularly the case if the order is that MSA may purchase Create's interest; the Court's task being to compensate the oppressed shareholder for the oppression that has taken place.
691 Create submits that these adjustments include the following, which it identified in closing submissions and by reference to its letter containing the Fifth Offer:
(a) the legal costs improperly paid by Op Co ($1,506,593.97), plus any wrongfully paid after February 2022 which were not included in that calculation;
(b) the amount paid to Value ADE for the February 2021 Valuation ($3,750);
(c) the costs of the Rundell Report ($213,000);
(d) the Impugned Op Co RG Payments ($4,735,000);
(e) the R & D Refund ($3,750,000); and
(f) the bonuses/incentive payments purportedly made but not satisfactorily recorded/established ($600,000).
692 In oral submissions, Counsel for Create stated a number of times that further information was required before the adjustments could be fully calculated, due to the inaccurate financial information provided by Angelodemou and the invoices for the legal fees only going up to when the subpoena was answered, being February 2022. There were also items referred to by Counsel for Create which had not been quantified at all, such as additional costs incurred in respect of the GCI Facility.
693 MSA submits that if the Court determines that the appropriate remedy in this proceeding is an order that MSA be entitled to buy out Create's share in Founder, the appropriate course to determine the value of that share is to adopt the valuation of Create's share in Founder as determined by Wright as accurate, subject to:
(a) any adjustments necessary to account for the effects of oppression (if the Court is satisfied that there is a proven instance or instances of oppression that impact value); and
(b) any adjustment deemed necessary by the Court to the valuation date (if the Court is satisfied that an alternative valuation date is fair in all the circumstances).
AA.4.2 MSA's submissions regarding the valuation evidence
694 MSA refers to the valuation evidence, which I have already referred to above.
695 It submits that despite Create seeking orders for the appointment of an independent business valuer and for the independent valuer having full access to the books and records of the Renex group of companies, being the Court-Ordered Valuation, Create does not seek to rely on the Rundell Report.
696 Instead, Create relies on the Lee Reports, but Lee does not determine a value for the shares in Founder. MSA submits that Create has elected not to lead any expert evidence as to the actual value of Create's share in Founder.
697 MSA submits that Wright's valuation evidence, which it describes as unchallenged, should be accepted by the Court. MSA submits that Wright has provided comprehensive valuations of Create's share in Founder, supported by sound analysis of valuation standards and the financial information of the Renex Group of Companies.
698 In respect of Lee's reports and evidence, MSA submits that:
(a) Wright's evidence is also supported by Lee, insofar as he gives opinions as to the appropriate valuation standards and methodology to be adopted in valuing the shares in Founder;
(b) Lee agrees that equitable value is applicable to the valuation of Founder. Lee also agrees that the CFME Method is relevant to valuing the Renex Group of Companies and therefore Founder, and that the valuation should be on the premise of a going concern. Lee does not express opinions as to the appropriate EBITDA multiple or control premium; and
(c) Lee agrees with Wright that the investor loans are debt for valuation purposes if there is an agreed repayment date.
699 MSA submits that in its opening, Create submitted that Angelodemou, and Chandy at his direction, did not provide Rundell complete and frank information to assist him in the preparation of his expert valuation of the shares in Founder. MSA says that Create's submission is not pleaded and therefore must be disregarded, and that further and in any event, Create's submission is inconsistent with the evidence.
700 MSA points to the Court-Ordered Valuation, which provided for:
(a) the appointment of an independent business valuer to express an opinion as to the value of the shares in Founder as at 1 October 2021;
(b) Create and its advisors to inspect and take copies of the books and records of Founder and the Renex Operating Entities within the categories identified in the annexure to the order;[167]
(c) the parties to provide to the independent business valuer any documents they wish the valuer to see for the purposes of the valuation;
(d) the parties to make submissions to the independent business valuer; and
(e) the independent business valuer to have a right to inspect 'all or any of the books' of Founder and the Renex Operating Entities for the purpose of the valuation.
701 MSA says that both parties provided documents and written submissions to Rundell, and that in addition, Rundell:
(a) met with Chandy (in the presence of Create's representative) at the Dandenong Site for the purpose of obtaining information to enable him to perform the valuation pursuant to orders of Button J made on 21 December 2021; and
(b) was given access to Renex's accounting systems in Xero.
702 On the basis of the previous two paragraphs, MSA submits that Rundell was provided with the information necessary to prepare his report.
703 The Rundell Report was produced to the parties on 7 March 2022.
704 On 24 June 2022, orders were made (at the request of Create) for the filing of further expert evidence. MSA says that Create did not make any complaint to the Court at that time to the effect that 'complete and frank' information had not been provided to Rundell, and that Create did not seek orders for the production of further documents for the purposes of valuation.
705 Create then engaged Lee to prepare an expert report critiquing the Rundell Report. Lee was provided with the documents provided to Rundell. He was instructed to critique certain aspects of Rundell's (and subsequently Wright's) valuation, and was not instructed to provide an opinion as to value of shares in Founder.
706 MSA engaged Wright to prepare an expert report as to valuation. MSA says that she was also provided with the documents which had been provided to Rundell.
707 MSA submits that there is no evidence of any complaint by Rundell or Wright that they were not provided with 'complete and frank information' or insufficient information to value the shares in Founder.
708 MSA submits that Create has never sought orders compelling MSA to comply with the existing orders for production of documents for valuation nor did it ever seek orders for the production of further documents for the purposes of valuation.
709 MSA also submits that during cross-examination, Lee accepted that he could have prepared a valuation if he had been given a valuation date and if he had been instructed to prepare one. He also admitted that he had enough information to prepare a valuation.
710 MSA makes a number of submissions in respect of the appropriate valuation date, which it says is 1 October 2022. It refers to a number of the authorities I have set out above, before going on to submit that the following factors support a finding that a valuation date of 1 October 2021 is fair in all the circumstances:
(a) 1 October 2021 is a date close to the commencement of this proceeding (being 19 August 2021);
(b) 1 October 2021 is the date for valuation for the Court-Ordered Valuation;
(c) Wright and Rundell have expressed opinions as to the value of the shares in Founder as at 1 October 2021;
(d) the parties have been put to considerable expense in preparing valuation evidence using that valuation date (the Rundell Report alone costing the parties $213,000);
(e) there is no evidence before the Court on the question of value on a date other than 1 October 2021;
(f) Create has had ample time to prepare its case and put on any evidence and submissions it wishes to make on the question of valuation (and the date of valuation):
(i) it instigated the Court-Ordered Valuation;
(ii) it instigated the orders made on 24 June 2022 for the filing of further expert evidence; and
(iii) it filed two expert reports prepared by Lee;
(g) Create has made a forensic choice not to lead any evidence as to:
(i) valuation (save for evidence critiquing aspects of Rundell's and Wright's evidence);
(ii) a more appropriate valuation date; or
(iii) any prejudice it may suffer as a consequence of a valuation date of 1 October 2021.
Accordingly, any submissions Create makes against a valuation date of 1 October 2021 ought be rejected;
(h) the only instance of oppression which could reasonably be said to affect valuation, if proven to be conduct in the affairs of Founder, relates to the payment of legal fees; the overwhelming majority of those fees being incurred post-1 October 2021; and
(i) the party whose share is the subject of a compulsory buyout order can be compensated with interest from 1 October 2021.[168]
AA.4.3 Adjustments to account for effects of oppression
711 MSA submits that in determining the fair value of Create's share in Founder, the Court should fix a price based on Wright's valuation and, to the extent pleaded and proven oppressive conduct is found that impacts the value of that share, order that the valuation be adjusted to compensate for that oppression by redressing the wrong.
712 MSA submits that the value of shares is to be assessed by establishing what their value would have been but for the effects of oppressive conduct. It is common ground between the parties that in determining price, the Court should first determine the fair value of an oppressed shareholder's share, and thereafter make any necessary adjustments to account for the effects of oppression. As Create states in its opening submissions, the price to be paid is to be determined having regard to the principle that Create be compensated for any wrongs perpetrated against it, taking into account any adjustments necessary to remove the effects of oppression.
713 MSA submits that the only alleged instance of oppression which requires an adjustment to value to remove the effects of oppression, if the Court is satisfied the conduct in question constitutes conduct in the affairs of Founder, is the payment by Op Co of legal fees.
(a) the schedule of legal fees paid by Op Co and exhibited to the Eighth Angelodemou Affidavit comprises total legal fees of $1,405,874.74 (GST inclusive); of which $1,089,943,44 (GST inclusive) were incurred before the valuation date of 1 October 2021 and $315,931.30 (GST inclusive) were incurred after that date. These amounts include fees paid to JLL and Value ADE, which are not legal fees;
(b) the total legal fees paid by Op Co in respect of the s 237 Proceeding forming part of the legal fees the subject of the abovementioned schedule total $461,269.85 (GST inclusive). MSA maintains that the payment of these legal fees is justified pursuant to the Constitutions and Indemnity Deeds; and
(c) of the total legal fees paid in respect of the s 237 Proceeding, $447,872.44 (GST inclusive) were incurred before the valuation date of 1 October 2021, and $13,997.62 (GST inclusive) were incurred after that date.
715 MSA submits that in any case, Wright gave evidence that she has already adjusted the expenses of the Renex Group of Companies for legal fees that were not properly incurred. At paragraph 5.3.16 of the First Wright Report, Wright says she has analysed legal costs for the period from FY2019 to FY2021 and deducted those costs that she "consider[s] to be outside of the ordinary course of business of the Renex Operating Entity, being the costs associated with the AIG claim, borrowing costs, equity/shareholder issues and the property". After these adjustments, she adopted maintainable legal fees of $260,000 per annum based on the average of the FY2019 to FY2021 adjusted legal costs.
716 MSA submits that no adjustment should be made for the Impugned Op Co RG Payments, for the reasons I have summarised earlier.
AA.5.1 Approach to valuation/price in this case
717 In this case, I have a joint independent expert report (being the Rundell Report) prepared pursuant to orders made by the Court, along with Wright's valuation prepared on behalf of MSA. Those valuations, while both assessing the value as at 1 October 2021, are vastly different. I have a third set of reports, being the Lee Reports prepared on behalf of Create, which critique the other reports but which do not provide a valuation.
718 In the circumstances of this case, my view is that the Court can take the Rundell Report into account. True it is that both parties have critiqued it and neither have relied upon it, but it is in evidence and given the history of this case, it is appropriate for the Court to have regard to it. This is because it was carried out pursuant to Court orders in this proceeding. Rundell was appointed as a joint independent expert. Both parties had input into the Rundell Report. For some time, MSA relied on it. Create obtained orders that it could get another report, and MSA then obtained its own report as well.
719 Some of the criticisms made by Lee and Wright of the Rundell Report are valid. In particular, the difficulty they both experienced in identifying with precision the valuation method applied by Rundell is understandable. However, I do not consider that their criticisms are such that I should disregard the Rundell Report.
720 I do not accept Create's position that I should effectively start all over again in ordering a new independent joint valuation. Such would require me to ignore the previous court orders and the expense to the parties of obtaining the Rundell Report, along with the costs of the other expert reports they obtained. Create could have obtained its own valuation but elected not to do so. Its own expert said he could have valued the shares as at 1 October 2021 based on the information he had been given, which included all of the material that had been given to Rundell, had he been instructed to do so. Lee indicated that there would be some shortcomings in doing so, but did not cavil with the proposition that he could have valued the company if instructed to do so. In my view, if Create wanted to lead evidence of a different valuation it could have, but it clearly made a forensic decision not to do so. That is its choice, however it would be antithetical to the overarching purpose under the Civil Procedure Act 2010 (Vic) to start the expert valuation process all over again.
721 As for the valuation date, I consider it should be 1 October 2021. This is because both Rundell and Wright have based their opinions on that. If any other valuation date is chosen, and here Create urges that the valuation date be the date of the orders to be made by the Court, further evidence would be required. This is likely to be extensive and expensive. Again, it would not be in keeping with the overarching purpose to adopt another date.
722 Choosing 1 October 2021 as the valuation date in this context is not arbitrary. As set out in the authorities, there is no firm rule by which the valuation date is selected; rather, the "overriding requirement is one of fairness and justice to both parties in all the relevant circumstances of the case."[169] 1 October 2021 is close enough to the date upon which this proceeding was commenced for it to be a reliable proxy for that date. The valuation date being taken to be the date of commencement of the proceeding is a very common approach, as set out above. In any event, the approach I have decided to take (set out below) means that the valuation date does not loom large in the analysis.
723 Create suggested that adopting 1 October 2021 as the valuation date would result in a low watermark for value, since it says that the evidence is that the financial performance of the Renex Group of Companies has improved since then. I accept that this works in favour of a later valuation date, but for the reasons just expressed, I consider 1 October 2021 to be the better date for me to choose. In any event, the approach which I intend to adopt, as set out below, effectively takes the improved financial position of the Renex Group of Companies into account because it factors in the offers made by the parties, which were made by the parties with their knowledge of the more recent financial performance. An award of interest will also be made, thus compensating for some of the improvements in financial performance since then.
724 Wright's methodology and reasoning appears sound. However, there are two related aspects of it which concern me.
725 First, Wright says that she has chosen equitable value as the basis, which has at its foundation the fact that the parties to the proposed transaction are known, so that their idiosyncrasies are taken into account, and this includes taking account of past offers between the parties. Wright says that equitable value goes beyond the market value approach by taking into account the respective interests of the parties, and therefore should take into account what price at which the parties were willing to transact to transfer the shares in Founder. In this regard, she says that it is irrelevant to an assessment of equitable value to consider whether the price of $18.5 million[170] was based on a formal valuation process or was an agreed value between the parties. By this point, Wright is effectively agreeing with Lee's opinion as I have set out at paragraph 670(a) and (b) above.
726 Wright says she has taken the previous offers into account, and the First Wright Report refers to at least the First Offer.
727 However, I could not see anywhere in the First Wright Report where the previous offers were specifically taken into account, and when I asked about this, Wright said that it did not have any effect on the numbers. It is unclear to me how this could be the case. Obviously, I would not expect Wright's valuation to take into account offers made after the date of her reports, but this does not explain her answer.
728 Second, the valuation at which Wright arrived is exceptionally low, compared to the February 2021 Valuation and Rundell's valuation, to the previous agreement for $18.5 million plus the $5 million investor loan, and to the offers made by the parties from December 2020 onwards. Further, I consider that a number of the assumptions Wright made or was instructed to make were either insufficiently substantiated or incorrect, and that these had a distorting effect on her valuation. By way of example, I refer to:
(a) the ongoing costs of waste removal are based on figures for the previous year, which were abnormally high;
(b) the estimated wages of an executive to replace Angelodemou, which seemed too high;
(c) the improperly paid legal fees, which were not accounted for;
(d) the cost of remediating the Dandenong Site, which was assumed to be $10.55 million and which was the amount of the financial assurance Op Co was required to provide to the EPA for future remediation costs. There was no correlation between these two items established on the evidence;
(e) the accuracy of the financial statements, which was in doubt, due to matters such as bonuses and the Impugned Op Co RG Payments. While I have indicated that I will not take these specifically into account for the reasons already stated, there is a sufficient basis for me doubt the accuracy of the accounts due to these matters, in particular the Impugned Op Co RG Payments.
729 It seems to me that the parties, when formulating the 2019 Share Sale Agreement and their subsequent offers, did not focus merely on matters such as cash flow but took into account the value of the Dandenong Site, the plant and equipment, and the ongoing business, as well as the future potential of the Renex business.
730 In my view, to effectively ignore the 2019 Share Sale Agreement and the subsequent offers made by the parties and focus solely on the experts' valuations is to ignore reality. This is particularly so in the case of the Wright Reports, since her valuation is so far divorced from the state of the offers. It is also inconsistent with the equitable value basis of the valuation for the offers to be ignored. Despite Wright saying they should be considered, I could not discern any aspect of her reports which actually took them into account when carrying out the actual valuation. Indeed, it seems to me on a close reading of all of the expert reports that Wright and Lee both say expressly that equitable value should be the valuation basis in this case, and although he doesn't say so expressly, I think it likely that Rundell also favoured equitable value as the valuation basis.
731 However, I do not consider it reasonable to focus solely on the amounts of the offers. An offer to purchase can be based on more than a perception of the value: in other words, there is a distinction between price and value. True it is that value can be the price you are prepared to pay, but the valuation of companies is rather more involved than that. There can also be conditions attached to the offers which mean that one is not necessarily comparing like with like, such as the timing of payment(s). One also has to be cautious, in that there is sometimes more involved in the making of an offer; negotiation tactics often come into play.
732 The role of the Court is to arrive at a fair price to be paid for the shares, and it is not required to focus on traditional valuation concepts and methods. As set out above, the price to be paid may not reflect the actual or real worth of the shares as it is intended to be "compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct)" and will usually take into account various adjustments to remove the effect of the oppression.[171]
733 In light of the vastly different valuations before the Court, the criticisms of those valuations, and the fact that as the Rundell Report was not relied upon by either party he was not required for cross-examination, the Court is placed in a somewhat difficult position. I do not consider it appropriate to effectively start again insofar as obtaining an independent expert report is concerned, for the reasons already stated, and also because I have no confidence that it will not result in the same sort of back-and-forth disputation over valuation evidence as has already occurred.
734 Therefore, I have decided that the appropriate course for the Court to take is to determine a fair price for the shares by using the offers made by the parties as a starting point, informed by the expert valuations and the evidence that has emerged in the case. Despite the parties not relying on it and the criticisms they made of it, the Rundell Report will be afforded some weight, given that it is the product of the Court-Ordered Valuation and that both parties had input into it. The judicial task in arriving at a valuation is to be decided "not by a strict adherence to precise arithmetical calculations, but by a commonsense endeavour, after consideration of all the material before the Court, to fix a sum satisfactory to the mind of the Court as representing the value ..."[172]
AA.5.2 Adjustments to valuation due to oppression
735 In light of my earlier findings, and so as to ensure that the price to be paid for Create's share sufficiently compensates it for the oppression which I have found in these proceedings, I consider the following adjustments ought to be made.
736 I do not accept MSA's submission that no adjustment needs to be made for the legal costs paid by Op Co of Angelodemou, Chandy and their related entities which are not part of the Renex Group Companies. MSA submits that no adjustment is necessary because Wright has already factored them into her valuation, as set out at paragraph 715 above. While Wright attempted to normalise the expenses by treating most of these legal costs as one-offs and then using a figure which she considered more closely aligned with the costs going forward in a normal situation as part of her calculation of CFME, she did not take into account the effect on the Renex Group of Companies' financial position of the fact that these legal costs should not have been paid at all by Op Co. Since they should not have been paid by Op Co, an appropriate accounting treatment would have been to add these legal costs back in as a loan to Angelodemou and therefore as an asset of Op Co.
737 I do not accept MSA's submissions that only the legal costs paid prior to 1 October 2021 should be included in the adjustment. While I have accepted that date as the valuation date, the Court's approach in such matters is not rigid and I consider that cutting them off in this way would result in Create not being sufficiently compensated for the oppression.
738 In my view, the amount of $1,424,472 (rounded) for legal costs ought to be included in the adjustment, comprising:
(a) $1,364,700.70, being the fees invoiced by Clayton Utz and paid by Op Co;
(b) $24,399.04, being the fees invoiced by Marshalls Dent & Wilmoth and paid by Op Co; and
(c) $35,372.72, being the fees invoiced by Minter Ellison and paid by Op Co.
739 In light of the findings made above, it is appropriate to adjust the price to be paid for Create's share in Founder to account for the $3,750 paid by Op Co to Value ADE as part payment for the February 2021 Valuation. Given that I have found it was oppressive to commission the February 2021 Valuation, Angelodemou ought not to have caused Op Co to make that payment.
740 During the course of Create's closing submissions, counsel for Create submitted that additional costs incurred for the GCI Facility for the Laverton Properties due to GCI charging a higher rate of interest or default interest after Create threatened to take litigation against Land Co in respect of those properties ought to be included in the adjustment. Counsel submitted that GCI was not entitled to do that, and that this all arose due to the Laverton Properties being put in the name of Land Holdings instead of Land Co. Counsel acknowledged that he was not in a position to provide any amounts for these alleged increased costs. While I accept that these increased costs were connected with the oppressive conduct, there is no evidence as to their amount and therefore I will not make any adjustment to price based on those purported increased costs which have not been quantified.
741 There was some confusion during Create's closing submissions as to the $40,000 establishment fee paid by Op Co in respect of one of the loans connected with the Laverton Properties. The evidence establishes that this fee was charged pursuant to the GCI Term Sheet in respect of the GCI Facility and was paid by Op Co on 22 October 2022. It was unclear to me whether Create's submission is that this $40,000 fee should be included in the adjustments. However, I do not think it should be. The Renex Group of Companies ultimately received the benefit of the Laverton Properties upon their sale, and so it is not unreasonable that at the end of the day Op Co bore that cost. Therefore, I do not consider it necessary to adjust the price for Create's share in Founder for this amount.
742 I do not consider it appropriate to make an adjustment for the cost of the Rundell Report, as submitted by Create. There is no evidence before the Court that MSA's share of it was paid by Op Co.
743 The Second Pulitano Affidavit contains evidence about the costs orders made in favour of Create and against Angelodemou, MSA and/or Land Co in respect of the s 247A Proceeding, the s 237 Proceeding and the s 1322 Proceeding. Pulitano deposes that the payment obligations arising from those orders have been met, but that Create did not recover all of its out-of-pocket expenses associated with these. There is no evidence as to the quantum of these out-of-pocket expenses. Had there been, I would have considered further adjustments to the share price so as to compensate Create for its out-of-pocket expenses, since these were incurred only by reason of the oppressive conduct. As it is, no adjustment will be made for these costs.
744 In light of my earlier findings, I do not consider it appropriate to make any adjustments to the price to be paid by MSA for Create's share in Founder in respect of other items which have been mentioned, being:
(a) the R&D Refund;
(b) the Impugned Op Co RG Payments;
(c) the costs associated with the EPA matters; and
(d) bonuses/incentives paid to certain employees.
AA.5.2.3 Conclusion regarding adjustments for the found oppression
745 For the reasons set out in sections AA5.2.1 and AA5.2.2, the adjustments which should be made to remediate the effects of the oppression amount to $1,428,222, being the amount of $1,424,472 in respect of legal costs plus the amount of $3,750 for the Value ADE payment.
746 Since Angelodemou wrongfully caused Op Co to make these payments, it is necessary to adjust the price to be paid for Create's share to remove the effect of the oppression. As Create and MSA are 50/50 shareholders in Founder, this means that half that amount should be included in the price to be paid by MSA for Create' share. That comes to $714,111.
AA.5.3 Assessment of the fair price to be paid by MSA for Create's share in Founder
747 In my view, the fair price for MSA to pay for Create's share in Founder is $11,364,111. This amount comprises:
(a) $3,806,280 for Create's investor loan (including an adjustment to bring the loan's value up to the date of judgment); plus
(b) $6,843,720 for Create's share in Founder (based on the Sixth Offer); plus
(c) $714,111 for the adjustments for the effects of the oppression.
748 My reasons for arriving at this amount are as follows.
749 First, it is consistent with the offers made between the parties. At one point, both parties offered the other $10.5 million, with Create repeating its $10.5 million offer after MSA had met its earlier offer of that amount with an offer to purchase Create's share at $10.5 million. I note that these offers are not equivalent, as Create's offer to purchase takes into account what it considered at the time to be the effects of oppression, such that it would say that if the purchase was to be by MSA, then Create should be paid more than $10.5 million so as to take into account the effects of oppression.
750 Second, it is close to the mid-point of Rundell's preferred valuation.
751 Third, it is consistent with an equitable value basis for valuation as it specifically takes the known position of the parties into account.
752 Fourth, I do not consider it appropriate to use Create's offer of $14 million to buy MSA's share. This Eighth Offer was expressed to be subject to there being "no material change to the affairs of the Renex Group [of Companies] from the position disclosed in the financial statements" for FYE June 2022, including any materially adverse transaction involving the group and its assets (including any transaction to or for the benefit of Angelodemou, his family, and his related entities). In addition, the Eighth Offer was subject to Create being provided with immediate access to the books and records of the Renex Group of Companies; access to employees to enable Create to provide assurances of continued employment if appropriate; and an undertaking that upon settlement of the share sale agreement, Angelodemou will immediately resign as director of all companies in the Renex Group of Companies. It is unclear what the effect of these conditions actually mean, since the letter does not express what is to happen if there has been a material change. There is no mechanism for this to be assessed.
753 I also do not consider it appropriate to use the offers of $23.5 million (the 2019 Share Sale Agreement and the First Offer) or of $4,425,513 (the Fourth Offer), all of which I consider to be outliers. There were also different conditions attached to them. For example, under the 2019 Share Sale Agreement, the payment was in tranches such that the entire amount would not have been received until 15 months later. Payment under the First Offer was also in tranches, this time over a two year period. Angelodemou's attempts in cross-examination to walk away from the figures mentioned in his 19 February 2019 email (set out at paragraph 688 above) do him little credit. He was cross-examined on these:
Mr Northrop: Where do you get those figures from?
Angelodemou: They were just hypothetical figures.
Mr Northrop: Did you just make them up?
Angelodemou: Of course I made them up.
He later said that the numbers were accurate enough for the purposes of the hypothetical discussion he was having. Despite the unsatisfactory nature of Angelodemou's evidence on this point, I have not taken those figures into account. Those figures were well prior to the 2019 Share Sale Agreement and appear to me to be fairly speculative.
754 Fifth, I accept the analysis in the First Wright Report and the Second Lee Report that the $5 million investor loan is debt, not equity, but I consider it better for the relationship between the parties to be brought completely and finally to an end. My concern is that if the loan component is left to be paid until 2028, then there is the potential for further disputation between the parties. Accordingly, the price to be paid ought to include an amount on account of Create's investor loan. This is consistent with the parties' more recent offers, which all included amounts for the investor loans.
755 As already mentioned, MSA's position is that if the investor loan is to be paid before its due date of 14 September 2028, then the NPV of the face value of the loan should be calculated and that is the amount which should be paid. Create's position was that its filing of the originating process in this proceeding by which it sought a winding up of Founder is an 'insolvency event' for the purposes of the Investor Loan Agreement, and an insolvency event is an event of default under that agreement such that the repayment obligation may be accelerated by Create while that default subsists. As I apprehend it, Create's submission is that the full amount of its $5 million investor loan was therefore either repayable on 19 August 2021 (the date its originating process was filed) or when the Court makes a winding up order. Create submits that it should not be required to take a discount for early repayment when it says that the amount is already due.
756 Leaving aside the question of what would happen under the Investor Loan Agreement if a winding up order is actually made by the Court, I find it difficult to accept Create's position in respect of its investor loan. It seems to me to be counter-intuitive that Create could create the insolvency event of filing an application that Founder be wound up, thus creating an event of default under the Investor Loan Agreement, which it could then itself rely upon to contend that repayment of its $5 million investor loan is accelerated.
757 In my view, the appropriate course in terms of providing for the investor loan in the amount to be paid by MSA to Create is to discount the amount of $5 million by virtue of the fact that it is going to be repaid before its due date. Wright's NPV formula seems a reasonable approach in this regard.
758 The Sixth Offer of $10.5 million by MSA to purchase Create's share included the amount of $3,656,280 for Create's investor loan (based on the NPV as at 2 November 2023). It seems tolerably clear to me that when MSA made the Sixth Offer, it wished to 'match' Create's Fifth Offer of $10.5 million and that MSA then worked out the NPV of Create's investor loan as at the date of the Sixth Offer and deducted it from $10.5 million to arrive at the share value component of $6,843,720. Thus, there was no real 'science' around arriving at the figure of $6,843,720 for the share component. Nonetheless, it can be adopted for these purposes.
759 Therefore, the amount of $10.5 million needs to be increased so that it better reflects the value of the investor loan component, given the amount of time which has passed since the Sixth Offer was made. I am going to increase this to $10.65 million, to bring it up to around the time of this judgment, which I estimate is an additional $150,000, roughly calculated by reference to Wright's formula.[173] This gives a figure of $3,806,280 for Create's investor loan, as opposed to the investor loan component of $3,656,280 as expressed in the Sixth Offer.
760 That explains my conclusion that the amount to be paid by MSA to Create is $11,364,111.
761 If Create was to buy MSA's share rather than the other way around, then the price would be $6,843,720 plus the NPV as at 1 May 2024 on MSA's investor loan of $4,675,000, which I have not calculated, less the amount of $714,111 (being the adjustments for the effect of the oppression on Create).
762 I do not consider it appropriate to adopt Create's suggestion of a silent auction along the lines of that used in Russell v Lee Holdings (see paragraph 673 above). My understanding is that this approach was followed with the agreement of the parties, which is not present here.
763 Since I have concluded that MSA should buy out Create, the matter that then arises is establishing a mechanism for that to occur and for contingent arrangements if MSA does not do so.
764 MSA's position was that it should have first option to buy out Create, with Create to have the option to buy out MSA if MSA does not do so, and with the proceeding to come back to Court if neither of those eventuate.[174] Create's position was that it should buy out MSA, but if it does not, then the parties should have a period of time to negotiate a sale failing which it would come back to Court. Precisely what the matter would come back to Court for, and on what basis, was not stated.
765 I do not favour an approach which does not create certainty and finality. Hence, rather than having the matter come back to Court if the buyout does not occur, the appropriate course is to provide for a winding up of Founder as a last resort.
(a) MSA have first option to buy Create's share in Founder for $11,364,111, payable within a specified period;
(b) if MSA does not purchase Create's share in accordance with (a), then Create can buy MSA's share in Founder for $6,843,720 plus the NPV as at 1 May 2024 on MSA's investor loan of $4,675,000, payable within a specified period; and
(c) if Create does not purchase MSA's share in accordance with (b) above, Founder be wound up.
767 I am prepared to hear from the parties, including with limited evidence if they elect to adduce it, as to the period required for the purchases referred to in (a) and (b) above.
768 For the reasons set out above, I have concluded the following:
(a) The affairs of Founder include the conduct of the Renex business by the Renex Operating Entities.
(b) Allegations regarding breaches of directors' duties and fiduciary obligations may amount to oppressive conduct and are relevant when considering whether there has been oppressive conduct.
(c) Of the 12 acts of oppression pleaded by Create, seven have been found to constitute conduct which is oppressive to Create (three of which also constituted conduct which was contrary to the interests of members as a whole).[175]
(d) Of the five of these acts of oppression which were also pleaded by Create as involving a breach of duty by Angelodemou, four have been found to involve a breach of duty by him.
(e) The claims made in MSA's counterclaim must fail.
(f) Create cannot rely on matters which it has not pleaded, in particular, the Impugned Op Co RG Payments and the R & D Refund.
(g) The appropriate remedy in this case is a buyout by one party of the other party's shares in Founder.
(h) In the circumstances of this case, MSA should be ordered to buyout Create's share in Founder.
(i) The price which MSA is to pay for Create's share, inclusive of its investor loan and adjustments to remove the effects of the found oppression, is $11,364,111.
(j) The orders should provide for Create purchasing MSA's share if MSA does not purchase Create's share by a specified date, with Founder to be wound up if neither buyout eventuates by a specified date.
769 The proceeding will be listed so that I can hear from the parties as to the matters referred to in paragraph 767 above. I will also hear from the parties as to the appropriate form of orders, interest, and costs.
[1] It is noted that while the orders stated that it was made on 17 May 2021, it was submitted and I accept that the date was erroneously recorded.
[3] These are all discussed in much more detail later in these reasons.
[4] Indeed, de Clase's evidence can generally be classed as emphatic, for example insisting that something was "a fact" when it was clearly an opinion.
[5] Section 234 of the Act sets out who can apply for an order under s 233 in relation to a company.
[6] [2019] VSC 547 ('Re SRW Nominees').
[7] Re SRW Nominees, [33]-[44], citations omitted. These passages were cited by Robson J in Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136, [518] (the 'Connective Trial Judgment'). Although the Connective Trial Judgment was appealed and aspects of Robson J's judgment reversed, his Honour's statement of the principles was not disputed on appeal and was not the subject of any criticism by the Court of Appeal: Millsave Holdings Pty Ltd v Connective Group Pty Ltd [2023] VSCA 326 (the 'Connective Appeal Judgment'). Robson J's summary in Re SRW Nominees has been adopted in other cases: see, for example, Re Skytraders Pty Ltd [2022] VSC 416, [29] ('Re Skytraders').
[8] Connective Trial Judgment, [519(a)-(f)], citations omitted.
[9] [2017] VSC 14 ('Exton v Extons Pty Ltd').
[12] Re Norvabron Pty Ltd (1986) 11 ACLR 33 ('Re Norvabron Appeal'), see in particular at 36 (Macrossan J, with whom Andrews CJ and Carter J agreed).
[13] See for example Shelton v NRMA [2004] FCA 1393; (2004) 51 ACSR 278 at 285, [24] ('Shelton'), (citing Weatherall v Satellite Receiving Systems (Australia) Pty Ltd [1999] FCA 741; (1999) 92 FCR 101).
[15] Dare v Pulham (1982) 148 CLR 658 at 664 (cited with approval in Shelton at 285, [20]).
[16] Shelton, 285 [26]; Valda Pty Ltd v Macarthur Coal Limited [2012] FCA 1264, [24] (Kennedy J).
[18] [2023] FCA 280 ('Read-Zorn v Origin Distillers Group').
[19] Read-Zorn v Origin Distillers Group, [19]-[23]. Cited with approval by Black J in In the matter of Munja Bakehouse Pty Ltd [2024] NSWSC 6, [22] ('Re Munja Bakehouse').
[21] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 359 [173] ('Campbell v Backoffice Investments').
[23] [1959] AC 324 ('Meyer').
[24] [2014] VSC 47 ('Ubertini').
[30] (1986) 11 ACLR 279 ('Re Norvabron (No 2)').
[34] (1990) 20 NSWLR 588 ('Re Dernacourt').
[36] Noting that in respect of Hold Co, Angelodemou has been the sole director since September 2018, prior to which he was one of two directors.
[37] See Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588; Ubertini v Seaco International Group Spa (No 4) [2014] VSC 47; (2014) 98 ACSR 138 at 236, [528] (Elliott J).
[38] Even if that proposition was propounded, which I did not apprehend it to be, I would not accept it in the circumstances of this case.
[39] I note that the phrase "affairs of Founder" is not used in the 15 January 2021 Letter, but allegations of breach of the Founder SHA can hardly be said not to be part of Founder's affairs.
[40] The POC and the D & CC use different defined terms to those I have employed in these reasons. However, when describing the content of the pleadings I have ensured that what is referred to therein matches the defined terms in these reasons.
[41] [2019] NSWSC 446; 370 ALR 698, ('Lukaszewicz') at [271].
[42] Lukaszewicz, [271], citing Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 ('Fexuto (Appeal)'); LPD Holdings (Aust) Pty Ltd v Phillips [2013] QSC 225; (2013) 281 FLR 227 at [53]; Re JGS Investment Holdings Pty Ltd [2014] NSWSC 1532; Taxa Australia Pty Ltd v Wang [2016] NSWSC 1913 at [23].
[43] [2014] WASC 446; 103 ACSR 152 ('Patterson v Humfrey').
[45] Relying on Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; 24 ACLC 1308. Brereton J stated at [103]: "Where the directors and the shareholders are one and the same, ratification is implicit. Although the shareholders of a company cannot release the directors from their statutory duties imposed by s.180, 181 and 182, their acquiescence in a course of conduct can affect the practical content of those duties, including any question of whether directors acted with a reasonable degree of care and diligence, and whether they made improper use of their (citations omitted)."
[46] cf. Exton v Extons Pty Ltd, [39].
[47] Established by Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461; 67 ER 189.
[48] Elkington v Farsands Solutions Pty Ltd [2012] NSWCA 334, [15]-[16] (Barrett J) ('Elkington v Farsands').
[52] An indicative term sheet had been provided by GCI in September 2020.
[53] This email is replete with typos and grammatical errors, but has been reproduced here verbatim.
[55] Relying on Rowland v Meudon Pty Ltd (2008) 66 ACSR 83, [23]-[37] (Bryson AJ).
[56] Relying on Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; (2009) 76 ACSR 236, [36] (Barrett J).
[57] Relying on Acehill Pty Ltd v Incitec Ltd [2002] SASC 344, [29(3)] (Debelle J).
[58] [2021] NSWSC 1227, [85] ('QB Foods').
[59] In some places the shortfall is stated as $6.1 million; in others, $6 million. I don't think anything turns on this difference.
[65] I apprehend 31 January 2020 here to be a typographical error, and that it was meant to state 31 January 2021.
[66] [2017] HCA 12; 261 CLR 544 ('Ecosse').
[68] Relying on Whitworth Street Estates Ltd v Miller [ 1970] AC 583 at 603 per Lord Reid, repeated by Gibbs J in Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at 446; [1973] HCA 59; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57, [35].
[69] Relying on Floyd v Floyd [2023] VSC 115, [19].
[70] Relying on Lewison and Hughes, The Interpretation of Contracts in Australia, 2021, [7.02].
[71] Austin and Ramsay, Ford, Austin and Ramsay's Principles of Corporations Law, (LexisNexis Butterworths, 17th ed, 2017), [10.460.45].
[72] Create Environment Pty Ltd v Renex Land Co Pty Ltd & Anor [2021] VSC 317 ('s 237 Proceeding Reasons').
[73] s 237 Proceeding Reasons, [2].
[74] s 237 Proceeding Reasons, [3].
[75] s 237 Proceeding Reasons, [4].
[76] It is submitted that these orders erroneously record 17 May 2021, but that they were in fact made on 17 June 2021.
[77] It was common ground that it was to secure short-term finance in order to meet a settlement in an unrelated Court proceeding (APC Projects Pty Ltd v Stelios Angelodemou & Ors, SECI 2020 03146), CB3398, [7].
[78] In this instance, I am not aware of there being any evidence as to this, one way or the other.
[80] It is common ground that the share sale did not proceed due to a condition precedent of the 2019 Share Sale Agreement not being satisfied. I will have more to say about this agreement later in these reasons.
[81] Relying on Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428, [84] citing Lucy v Lomas [2002] NSWSC 448.
[82] Relying on Morara Pty Ltd v Kingslane Property Investments Pty Ltd (No 2) [2022] WASC 372, [74], where the Court found that payment of legal fees in defending proceedings for oppression may be relied upon by a member as a ground of oppression. Further, in Re DG Brims and Sons Pty Ltd (1995) 16 ASCR 559 at 591-592, Byrnes J stated that '[m]any thousands of dollars of company funds have been spent on lawyers, accountants and valuers in defending these proceedings on behalf of the majority shareholders'. His Honour found it was unfair and infringed the principle that the powers and the funds of a company may be used only for the purposes of the company.
[83] Relying on Power v Ekstein [2010] NSWSC 137, [120]; Morara Pty Ltd v Kingslane Property Investments Pty Ltd (No 2) [2022] WASC 372, [76] (Hill J).
[84] In respect of advising in relation to the acquisition of the Laverton Properties, Angelodemou does not give any evidence as to who that advice was for. On my reckoning, it could have been for Land Co, Land Holdings, himself and possibly others.
[85] Noting that Create maintains that the amount is more than this.
[87] Relying on Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1.
[88] Relying on Apple & Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280; (2016) 343 ALR 112 (VSCA), [99]-[100] (Tate JA; Ferguson and McLeish JJA agreeing); Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544, [98] (Nettle J).
[89] Relying on Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635; [2019] HCA 13, [83] (Edelman J, in agreement with the plurality on the question of construction).
[90] Relying on Tokio Marine & Michido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114, [57].
[91] This amount is the net sale proceeds of $16,260,577.40 less $1.5 million. This $1.5 million is said to be the amount Land Co would have received had the Vendors' Offer been accepted.
[92] [2013] VSC 381 ('Wain v Drapac (No 2)').
[94] This submission was part of the process in the Court-Ordered Valuation. T448.5-9.
[95] Relying on Banque Commerciale SA En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279, 286, 296, 302-303 ('Banque Commerciale v Akhil').
[96] [2018] FCAFC 31; (2018) 368 ALR 607, at 623 [63].
[97] Relying on Banque Commerciale v Akhil at 296.
[98] Referring specifically to Wain v Drapac (No 2), [20], [22], [23].
[99] [2021] AATA 706 ('AAT Ruling').
[100] Campbell v Backoffice Investments Pty Ltd, [72].
[101] United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910; (2003) 47 ACSR 514, [34]-[38] (Campbell J) (cited in Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd [2004] FCAFC 153; (2004) 207 ALR 136, [70]).
[102] Campbell v Backoffice Investments Pty Ltd, [121] per Giles JA, [172]-[173] per Basten JA and [354]-[363] per Young CJ in Eq (cited in Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343, [125]).
[103] KSG Investments Pty Ltd v Open Markets Group Ltd [2021] VSC 145 ('KSG Investments'), [278] (Nichols J).
[104] Patterson v Humfrey [2014] WASC 446, [52]-[53].
[105] Re Enterprise Gold Mines NL (1991) 3 ACSR 531; 9 ACLC 168 at 539.
[106] Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247; 3 ACLC 74. See also Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413.
[107] Exton v Extons Pty Ltd, [87].
[108] Exton v Extons Pty Ltd, [89], referring to International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc [No 2] (1994) 13 ACSR 368 at 372; Short v Crawley [No 30] [2007] NSWSC 1322, [1236]; Re Hollen Australia Pty Ltd [2009] VSC 95, [175].
[110] Fedorovitch v St Aubins Pty Ltd (No 2) (1999) 17 ACLC 1588; [1999] NSWSC 776, [4] ('Fedorovitch').
[112] Patterson v Humfrey [2014] WASC 446; (2014) 291 FLR 246, [199]; Fedorovitch, [8]-[10]. See also QB Foods, [139].
[113] See the Connective Appeal Judgment.
[114] Connective Trial Judgment, [1679].
[115] Connective Trial Judgment, [1737], citations omitted.
[116] Connective Trial Judgment, [1747].
[117] For example, MSA relies on Patterson, [199] (Le Miere J); Fedorovitch, [8]-[10]; Backoffice, 387 [122] (Gilies JA) (reversed on other grounds in reversed on other grounds in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304); Territory Realty Pty Ltd v Garraway [2009] FCA 292, [321] (Mansfield J); QB Foods, [132] (Black J).
[120] [2017] NSWSC 133 ('Munstermann').
[122] Connective Trial Judgment, [1769].
[123] Connective Trial Judgment, [1782].
[124] Connective Trial Judgment, [1799].
[125] Connective Trial Judgment, [1800].
[126] Connective Trial Judgment, [1802].
[128] Relying on In the matter of ICB Medical Distributors Pty Ltd [2018] NSWSC 1315, [221]-[223] ('ICB Medical Distributors').
[129] Relying on ICB Medical Distributors, [221].
[130] Relying on Victory Projects Pty Limited & Anor v AAA Self Storage Pty Limited & Ors [2016] NSWSC 1758, [131].
[131] Connective Trial Judgment, [1664].
[132] Connective Trial Judgment, [1667], [1671].
[134] Connective Trial Judgment, [1671], [1672].
[135] Connective Trial Judgment, [1679].
[136] The description in the 'Description' column are all to be taken as defined terms in these reasons.
[137] United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910, [36].
[138] [2004] FCAFC 153; (2004) 207 ALR 136 ('Smith Martis Cork'). See also Re SRW Nominees Pty Ltd (No 2) [2020] VSC 323, [22]-[27].
[139] Smith Martis Cork, [70]-[78], citations omitted.
[140] [2013] VSC 381 ('Wain v Drapac (No 2)').
[142] KSG Investments, [279]-[280].
[143] Foody v Horewood [2007] VSCA 130, [37] (Chernov JA, Ashley and Neave JJA agreeing) ('Foody v Horewood'). See also Re Quest Exploration Pty Ltd (1992) 6 ACSR 659; Joint v Stephens [2007] VSC 145; (2007) 62 ACSR 309; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395.
[144] [1986] Ch 211, 224 ('London School of Electronics').
[146] London School of Electronics, 224.
[148] For example, see Ubertini v Saeco International Group SpA (No 5) [2014] VSC 234, [33]-[39] (Elliott J); Joint v Stephens [2008] VSCA 210; (2008) 26 ACLC 1467, 1500 [155] (Nettle, Ashley and Neave AJA), referring with approval to Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324, 364.6 (Lord Keith); Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882, 907 (Wheeler J); Foody v Horewood, [34]-[37] (Chernov JA), [93] (Ashley JA).
[150] See for example, Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 61 ACSR 254.
[151] Dynasty Pty Ltd v Coombs (1995) 13 ACLC 1290.
[152] United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910; (2003) 47 ACSR 514.
[153] Rundell compares the amounts stated in the 1 October 2021 balance sheet for fixed assets with the PP&E Valuation and concludes that they are materially overstated in the balance sheet. This is why he excluded those net asset backing figures.
[154] Rundell concludes that an EV/EBITDA multiple of 7-9 is applicable to the Renex group.
[155] This is because the equity value in Hold Co under the Create as purchaser scenario is ($261,803) to ($14,928), which when used as the input into the valuation of shares in Founder (by taking Founder's 95.7% interest in Hold Co, adding in the net cash/debt funding and surplus assets/liabilities, to arrive at the equity value of Founder) produces a valuation range of ($125,273) to ($7,143) for MSA's share if Create is the purchaser. As both the high and low point of the range are negative numbers, Wright treats MSA's share in Founder as having nil value if Create is the purchaser.
[156] Wright describes the DCF method in this way: assesses the value of a business by forecasting its future cash flows and then discounting them back to their present value at the valuation date by applying an appropriate discount rate. She describes the net assets method/asset backed method as estimating the value of a business by reference to the value of its assets.
[157] First Wright Report, [6.5.2]-[6.5.3], CB 487.
[158] I note that Wright makes the same criticism of the Rundell Report.
[159] Lee says that the EV/EBITDA methodology is also known as the capitalised future maintainable earnings approach, that is, CFME.
[160] Published by the International Valuation Standards Council, effective 31 January 2020 ('IVS').
[164] [2020] WASC 346 ('Russell v Lee Holdings').
[165] Russell v Lee Holdings, [171].
[166] These were provided in answer to Op Co's subpoena, and exhibited to the Eighth Angelodemou Affidavit after Wright had been engaged and her first report.
[167] The 41 categories of books and records Create was authorised to inspect and copy are set out in Annexure A to the 11 October 2021 orders and include, amongst others, financial statements, management accounts, tax returns, BAS statements, cash flow statements, projections, loan agreements, bank statements, customer contracts.
[168] Which MSA submits is an approach adopted in Dynasty v Coombs (1195) [1995] FCA 1447; 59 FCR 122.
[169] Foody v Horewood, [37] (per Chernov JA).
[170] It is apparent from the way this is discussed in the First Wright Report that this is a reference to the First Offer, not to the 2019 Share Sale Agreement, as Wright refers to the Clayton Utz letter of 23 December 2020 as containing the offer. She also says that this offer should be treated as $10,718,330 on the basis that the letter states that the $18.5 million figure would be reduced by a portion of the net proceeds of sale of the Laverton Property if they were sold in a specified period, which they were.
[171] Wain v Drapac (No 2), [39]. See also KSG Investments, [279]-[280].
[172] Garraway v Territory Realty Pty Ltd [2019] FCAFC 9, [57], citing Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157 at 162.
[173] Based on 1 May 2024 as the relevant date.
[174] This was the approach adopted in Patterson v Humfrey, [215].
Plaintiff
RENEX FOUNDER HOLD CO PTY LTD
(2004) 207 ALR 136
(1999) 92 FCR 101
(1982) 148 CLR 658
(2009) 238 CLR 304
(1990) 20 NSWLR 588
(2013) 281 FLR 227
(1973) 130 CLR 353
(2011) 86 ALJR 1
(2016) 343 ALR 112
(2017) 261 CLR 544
(2019) 366 ALR 635
(1990) 169 CLR 279
(2018) 368 ALR 607
(2014) 291 FLR 246
(1995) 124 FLR 340
(1953) 90 CLR 157