Plaintiffs v Defendants

[2009] VSC 306

PRACTICE AND PROCEDURE - Referral of question of fair value of shares to Associate Judge for written report - Whether to adopt report - Supreme Court (General Civil Procedure) Rules 2005, r 50.04.

The First Plaintiff in person and, by leave, for the Second Plaintiff

No appearance by or on behalf of the Third and Fourth Defendants

1 The issue presently before me is whether I should adopt a report of Efthim AsJ dated 23 April 2009 which concludes that the fair value of Elbek Investments Pty Ltd's shares in Unique Doors Pty Ltd as at 30 June 2002 was $224,826, or in lieu thereof myself determine the fair value of the shares.

2 In order to understand how the present issue has arisen, it is necessary to set out the background and history of the proceeding in some detail.

3 In February 2000, several members of the Elhan family commenced to operate a business manufacturing doors for kitchen cabinets. The business was conducted by way of a company called Unique Doors Pty Ltd ("Unique Doors").

4 Although the business was a financial success, there was a bitter falling out within the family. On one side of the dispute was Adnan Elhan (who is known as and to whom I will refer as "Anthony") and his company, Elbek Investments Pty Ltd ("Elbek"). On the other side were Anthony's sister Nebahat Saykan ("Nebahat"), her husband Selahattin Saykan ("Selahattin"), Selfet Cokelek (who is married to Anthony's sister Kerry) ("Selfet"), and Selfet's company, SFK Cokelek Pty Ltd ("SFK Cokelek").

5 The dispute led to two proceedings being commenced in the Corporations list in 2002.

6 First, on 14 November 2002 Nebahat and Selahattin commenced proceeding 8134 of 2002 against Anthony and Elbek as defendants, seeking an order that the defendants execute the following documents:

• A resignation by Anthony as a director of Unique Doors,
• A transfer of its shares by Elbek, and
• A transfer by Anthony of his director's loan in Unique Doors.

The relief was sought on the basis of an agreement alleged to have been made between the parties on 2 August 2002, the essence of which was that Anthony and Selfet and their companies (Elbek and SFK Cokelek respectively) would withdraw from Unique Doors in favour of Nebahat and Selahattin, that they would resign as directors, transfer their directors' loans and the shares controlled by them to Nebahat and Selahattin or as directed in return for which each would be paid $220,000. Anthony and Elbek refused to perform the agreement.

7 Secondly, on 22 November 2002 Anthony and Elbek commenced proceeding 8291 of 2002 (the present proceeding) against Nebahat, Selahattin, Selfet and SFK Cokelek as defendants, seeking orders under the oppression provisions of the Corporations Act 2001 for the purchase by the plaintiffs or either of them of the shares held by the defendants, for regulating the conduct of the company's affairs in the future, and alternatively that the company be wound up.

8 I had the management of both cases and heard them together throughout. At the early directions hearings counsel for Nebahat and Selahattin[1] sought orders requiring Anthony and Elbek to perform the agreement. This was resisted by Anthony and Elbek who wished to buy all the shares in Unique Doors held by the other parties. The issue required resolution at an interlocutory stage as the lease of the Unique Doors premises was set to expire in January 2003 and Nebahat and Selahattin did not intend to renew the lease and planned to move the business, including the machinery, to other premises used by them. They deposed that they had the funds to make the payment of $220,000 to Anthony and Elbek. It was apparent on the evidence that Anthony and Elbek did not have the funds to pay $660,000 for the shares of the other parties who were united against Anthony.

9 In those circumstances, on 9 December 2002 I ordered that upon Nebahat and Selahattin paying $220,000 to Anthony and Elbek on or before 16 December 2002, and Elbek transferring its shares in Unique Doors to Selahattin on payment of the said sum, Anthony cease to be a director of Unique Doors. Those orders were made on the basis that the question of the value of Elbek's shares in Unique Doors had not been resolved and remained an issue for determination in the litigation. The amount of $220,000 to be paid (and which was in fact paid) to Anthony and Elbek was adopted as an appropriate interim solution to deal with an urgent situation on the basis that it was the amount that Nebahat and Selahattin were willing and able to pay, and in circumstances where it was not practicable that Anthony purchase the defendants' shares.

10 Following a contested trial on liability in 2003, I dismissed the first proceeding with costs, and upheld the oppression claims made by Anthony and Elbek in the second proceeding. On 7 April 2004 I made a declaration that the conduct of the affairs of Unique Doors in the period from 26 July 2002 was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Elbek as a member of Unique Doors. I also stated in my orders that it was necessary to determine the fair value of Elbek's shares in Unique Doors. I ordered the filing of expert reports on that issue, adjourned the further hearing of the proceeding to 30 July 2004, and reserved costs.

11 As events unfolded, the hearing scheduled for 30 July was adjourned to a date to be fixed, as the first and second defendants had filed a notice of appeal on 19 April 2004 and the parties effectively agreed to hold over the share valuation hearing pending the outcome of the appeal, which was ultimately dismissed on 26 October 2006. Nevertheless, during the period of more than two years between the filing of the notice of appeal and the determination of the appeal, there were further hearings before me of a procedural nature in respect of discovery of documents and the provision of material relating to the share valuation. In this period, the parties filed expert reports relating to the fair value of the shares. I note also that on 17 November 2005, the plaintiffs' solicitors Holding Redlich filed, pursuant to leave granted by me that day, a notice of ceasing to act for the plaintiffs, and on 3 February 2006, Holding Redlich filed, pursuant to leave granted that day by the Court of Appeal, a notice of ceasing to act for the respondents to the appeal. Since that time, Anthony has represented himself and Elbek.

12 Some time after the appeal was dismissed, Anthony requested that the fair value of Elbek's shares in Unique Doors be determined. Ultimately, on 30 May 2008 I referred to Master Efthim (as he then was) for his consideration of, and report in writing to myself his opinion (with reasons) as to, the fair value of Elbek's shares in Unique Doors Pty Ltd at 30 June 2002.

13 Efthim AsJ heard evidence and submissions from the parties[2] on 9 December 2008 and provided his written report on 23 April 2009. The report concluded that the fair value of Elbek's shares was $224,826.

14 On 3 June 2009 I heard the parties on the matter of adopting the report or otherwise under r 50.04 of the Supreme Court (General Civil Procedure) Rules 2005.

15 Anthony's primary position was that he wished to have his shares reinstated, in effect to undo the effect of my orders made on 9 December 2002. Upon my stating that I would not make that order in the circumstances, Anthony indicated that I should adopt the report in whole.

16 Counsel for the first and second defendants submitted that there were several errors in the report (to which I refer below) which produced an inflated and erroneous valuation. Correcting these errors led to the result that the fair value of the shares was $130,400 or, alternatively, $189,237. On this basis, counsel initially submitted that I should decline to adopt the report and that I should myself value the shares as suggested. Ultimately, counsel submitted that subject to the necessary corrections, I should make final orders "in conformity with the report". That is, with the corrections urged by counsel, the report was otherwise appropriate to adopt. This was a sensible approach.

18 The report commenced by stating what evidence was relied on by the parties in the hearing before Efthim AsJ. The evidence was as follows.

19 Anthony relied on four expert reports/valuations of Mr R H Dowling of Deloitte Growth Solutions Pty Limited, filed between September 2004 and August 2005. Dowling also gave oral evidence and was cross-examined. Following a request by Efthim AsJ at the close of the hearing, Dowling provided the Court with a revised calculation dated 9 December 2008. Efthim AsJ's report also states that Anthony relied on his own affidavit sworn 5 August 2005, however the transcript indicates that Anthony did not state that he relied on the affidavit and, as counsel for the first and second defendants submitted before me, the affidavit was not formally tendered in evidence. Nevertheless, the first and second defendants tendered an affidavit of Nebahat sworn 11 November 2005 which disputes certain matters raised in Anthony's affidavit, and thus requires reading particular passages of the latter. That is consistent with Efthim AsJ's understanding. In the circumstances, I proceed on the basis that the relevant parts of Anthony's affidavit were properly in evidence.

20 In addition to Nebahat's affidavit, the first and second defendants relied on an expert report of Mr Michael W McCann of Hayes Knight dated 25 October 2005, which was updated by his further report dated 16 November 2005. McCann gave oral evidence and was cross-examined by Anthony. The first and second defendants did not rely on the reports prepared by their other expert, Mr B J Hawkes, however they did rely on a joint report of Dowling and Hawkes dated 26 November 2004 which stated matters agreed and differences.

21 It is convenient to interpolate at this point that the joint report attached an adjusted balance sheet for Unique Doors as at 30 June 2002. Dowling and Hawkes agreed that the total liabilities of the business amounted to $719,214. The list of liabilities included taxes, wages, a hire purchase debt ($318,923) and loan amounts owed by Unique Doors to Designerform Pty Ltd (as to $103,721), to Anthony (as to $51,000) and to Selfet (as to $51,000). As to the total assets of the business (excluding goodwill), Dowling and Hawkes agreed as to the value of each item, which included $71,576 in cash, $247,485 for trade debtors and $483,000 for plant, among other things. As to goodwill, Hawkes valued that item at zero, while Dowling valued it at $1,179,097. By adding the amount of goodwill to the amount of the other assets, Hawkes valued the total assets at $884,117, while Dowling arrived at a figure of $2,063,214[3]. To calculate net assets, it was necessary to subtract total liabilities from total assets. Hawkes arrived at a figure of $164,903 while Dowling arrived at a figure of $1,344,000. As the joint report noted, the difference between Hawkes and Dowling as to net assets was $1,179,097, which was Dowling's valuation of goodwill. That is, leaving to one side goodwill, Hawkes and Dowling agreed that the net assets of the business was $164,903.

22 Efthim AsJ's report set out (at [4]) Dowling's final valuation (dated 8 December 2008) as follows:

Estimated future maintainable earnings before tax based on annual revenue of $2.5m

Adnan Elhan is entitled to receive the following components

25% of net assets excluding shareholder loans based on adjusted net assets as agreed with Hawkes

23 Efthim AsJ's report set out (at [5]) McCann's final valuation (dated 16 November 2005) as follows:

24 Efthim AsJ's report noted two main areas of difference between Dowling and McCann. First, the figure for future maintainable earnings. Secondly, the value of the net assets plus the shareholder loans as against the value of net debt.

25 The report noted that the future maintainable earnings figure used by Dowling was $375,000, whereas McCann (and Hawkes in the joint report) used a figure of $237,256. Dowling's figure was calculated on the basis of earnings being 15% of future sales of $2.5M per year. The report noted that Dowling had initially used an earnings figure of 16% on future sales of $3M per year (the $3M figure being based on what Anthony had told him was possible), but he later abandoned these figures. The sales figures he did use ($2.5M in annual sales) took account of sales figures for each year between 2001 and 2005, as to which there was growth in each year except 2003[5]. In contrast, the first and second defendants' future maintainable earnings figure of $237,256 (calculated by Hawkes and adopted by McCann) used actual sales figures from 2002, and thus did not take into account any "future earnings", by which was meant earnings after 30 June 2002, as that was the date at which the shares were to be valued.

26 As to what the appropriate sales figures were, the report referred to evidence in Nebahat's affidavit to the effect that the number of doors produced by Unique Doors was limited by the output of the routing machine, and that by June 2002 that machine was operating for up to 20 hours per day (five or six days per week) to process 300 doors. In early 2004, a new CNC routing machine (costing over $270,000) was bought on hire purchase, changes were made to a press at about the same time, and two additional sales representatives were employed. The new machine produced 400 doors per day which, along with the other changes, allowed increased production capacity and sales. She believed that without these changes, sales figures would have stayed the same as in 2002 and 2003. Efthim AsJ noted that Nebahat's evidence was not challenged in cross-examination. Further, when her evidence about the reasons for increased production and sales was put to Dowling in cross-examination, he agreed that had he known about the acquisition of new items of equipment, he would have made more inquiries in relation to the capacity issue. Dowling also said that capacity was an issue he had addressed to Anthony and as to which Anthony had advised that capacity was not an issue restricting the company from further continuing to grow its revenues. Efthim AsJ then referred to statements in Anthony's affidavit to the effect that if the sales figures for July, August, October and November 2003 were annualised, sales for that year would be $2,216,715, and that the capacity of the machines was such that "if they worked 24 hours per day it was easily possible for Unique Doors to achieve $3M in sales".

27 Efthim AsJ said that if Nebahat was correct in stating that the business was working at full capacity, then it was appropriate to use the method adopted by the first and second defendants' valuers, by which was meant not taking account of "future earnings". On the other hand, he noted, there was Anthony's evidence about potential growth in future sales, and neither Anthony nor Nebahat were cross-examined about sales. Efthim AsJ concluded that as the company had been operating only two and a half years (as at June 2002), "one would expect future increases in sales", although on the evidence before him he considered that it was "impossible to determine what they would be with any degree of accuracy". He considered that if the business was mature, the first and second defendants' valuation approach was correct, however he agreed with Dowling that "any valuation based on an assumption that the company had matured would significantly discount the value of the business". Nevertheless, the 15% earnings figure used by Dowling was "again not anything other than an approximation on [sic] which Mr Dowling says is based on accounts that were not particularly accurate".

28 This dilemma as to what allowance should be made for future sales growth in arriving at a figure for future maintainable earnings led to a consideration of the appropriate capitalisation rate. As to that, Dowling had used a figure of 2.8, McCann had provided two scenarios involving rates of 2.8 and 4.0 respectively, and in the joint report Dowling and Hawkes agreed that the appropriate capitalisation rate was 2.8 on pre-tax earnings. Dowling said in cross-examination that this was equivalent to using a rate of 4.0 on after tax earnings. When Efthim AsJ asked McCann which of his two figures, or whether something in between, should apply, McCann said that "you might take something in the middle; I am saying it was a pure commercial situation". As to using the mid-point figure of 3.4, McCann said:

"Yeah, because there is - as I understand it, there were prospects and the thought that the business might continue to grow. But the other balancing factor is that a lot of businesses in their infancy don't get beyond that. Businesses that have been going for two and a half, three years often - they might reach a point where they don't continue to grow and they will fall over within say a five year period. That's the whole other balancing factor I should throw into the whole equation, but from my perspective, if the two experts had come back and said look, we have agreed on three and you know, sort of - 3.4, I would say I would have thought that is a perfectly reasonable cap rate to use in these circumstances."

29 After noting McCann's evidence to the effect that a capitalisation rate "in the middle" would be appropriate, Efthim AsJ concluded as follows:

"22. Mr Dowling's figures are only approximate and I cannot be sure what is appropriate. I propose to use the sum of $237,256 as the future maintainable earnings as that amount is based on actual earnings. As the company is not mature and I would not only expect sales to increase but the costs of sales to decrease. In my view a capitalisation rate of 4.0 would be appropriate. It is at the top of the range that [sic] used by Mr McCann in his calculation".

30 The report described the differences between the experts in this area as follows.

31 Dowling used a figure of $164,903 for net assets. He used a figure of $205,721 for shareholders loans, which comprised the amounts owed by Unique Doors to Designerform Pty Ltd (as to $103,721), to Anthony (as to $51,000) and to Selfet (as to $51,000). Adding the net assets to the shareholders loans gave a figure of $370,623[6] which he deducted from the capital value of the business ($1,050,000[7]) to arrive at a figure of $679,377 representing goodwill. I interpolate that this goodwill figure was significantly less than the amount of $1,179,097 he had stated in the joint report.

32 McCann's approach was to calculate net debt by adding the hire purchase liability ($318,923) to the shareholders loans ($205,721) and then subtracting the amount of cash which was $71,576. This gave a total of $453,068 "net debt", which he subtracted from the capital value of the business.

33 Efthim AsJ concluded that McCann's approach "does not take into account the net assets as at 30 June 2002", as to which he noted that a figure of $164,903 was agreed between Hawkes and Dowling in the joint report. Efthim AsJ also referred to Dowling's evidence that "he did not believe that McCann correctly took into account the value of debtors, creditors and other assets and liabilities", that McCann excluded the value of other assets, and that that "does not demonstrate the entire picture". Efthim AsJ stated that "I accept that the method adopted by Mr Dowling in determining the net assets will produce a correct and fair result".

34 On that basis, Efthim AsJ performed the following calculations:

35 Efthim AsJ concluded that as Anthony had already received $220,000, he was entitled to receive a further $4,826 in respect of Elbek's shares.

36 Counsel submitted that the report of Efthim AsJ contained two errors. First, it used a capitalisation rate of 4.0, which was not supported by the evidence. Both Dowling and the joint report used a rate of 2.8, while McCann said that a rate of 3.4 was appropriate. Accordingly, the rate should have been 2.8 or 3.4. Secondly, Efthim AsJ made no allowance for the hire purchase liability of $318,923. That was a surplus liability which needed to be adjusted. Counsel submitted that taking these two matters into account, the fair value of the shares was $130,400. Alternatively, adopting the (different) valuation method used by Efthim AsJ, and substituting a capitalisation rate of 3.4, the fair value of the shares was $189,237.

37 Finally, counsel submitted that there was a reference in Dowling's first report to "an amount of money said to be $50,000 or thereabouts that was received in cash that wasn't accounted for" which, if taken into account, would constitute repayment of Anthony's director's loan.

38 Anthony made three main points. First, he contended that Nebahat was incorrect as to the business being at full capacity in June 2002. Secondly, he submitted that McCann did not take proper account of the debtors which led to him undervaluing the business. Thirdly, he submitted that the value of the shares could not be less than $220,000 because that was the amount that the first and second defendants were in fact willing and able to pay.

39 It is convenient to deal in turn with the two errors alleged by counsel for the first and second defendants.

40 As to the first alleged error, in order to determine whether Efthim AsJ used the wrong capitalisation rate, it is necessary to understand how the capitalisation rate was derived. It was common ground that the appropriate method of valuing Unique Doors was capitalisation of future maintainable earnings. As to that, counsel did not challenge Efthim AsJ's adoption of the amount of $237,256 as representing the future maintainable pre-tax earnings of the company. That figure, of course, was more favourable to the first and second defendants than the figure of $375,000 proposed by Dowling. It is apparent that Efthim AsJ preferred the lower figure because it was based on actual earnings in 2002, rather than earnings (whether projected or actual) in subsequent years. Further, he considered that the $375,000 figure was not based on reliable data. Inherent in this finding was a recognition that Anthony's evidence as to potential future earnings was speculative and imprecise. Nevertheless, and notwithstanding his adoption of the lower figure for future maintainable earnings, his Honour agreed with Dowling's opinion that a valuation based on an assumption that the company had matured would significantly discount the value of the business. In effect, he agreed with Dowling that the business was not mature and there was scope for future (post-2002) growth.

41 It was on this basis that Efthim AsJ considered that an appropriate capitalisation rate was 4.0. I do not overlook that he applied the rate of 4.0 to pre-tax earnings, whereas Dowling had suggested 2.8 on pre-tax earnings, which he (Dowling) said was equivalent to using a rate of 4.0 on after-tax earnings. In other words, Efthim AsJ opted for a capitalisation rate more generous to the plaintiffs than what Dowling had proposed. Nevertheless, as McCann's evidence made clear, the selection of an appropriate capitalisation rate was not an exact science. Rather, it was a commercial exercise involving the balancing of potential future growth tempered by the possibility that growth might not continue, or indeed that the business might fail. McCann said that taking the middle point between 2.8 and 4.0 would be "perfectly reasonable". In that sense, he accepted that 3.4 was an appropriate figure. But it does not follow that a higher capitalisation rate is not appropriate to take account of potential growth. As to that, Efthim AsJ clearly had regard to the different opinions as to the appropriate capitalisation rate and opted for a rate at the top of the range proposed by McCann in order to counterbalance his view that the (lower) future maintainable earnings figure adopted tended to undervalue the business.

42 As against this, counsel for the first and second defendants submitted that the conclusion as to potential growth was based on mere assertions in Anthony's affidavit as to potential profitability, in circumstances where the affidavit was not tendered in evidence at the hearing before Efthim AsJ, and would have been objected to had Anthony sought to tender it. And in any event, he submitted, Anthony's assertions as to achieving $3M in sales were not relied on by Dowling, who scaled down the figures and assumed annual sales of $2.5M. In my view, Efthim AsJ was entitled to have regard to the evidence in Anthony's affidavit as to sales and potential growth. In my view, he properly gave the evidence limited weight. In essence, the view he took was that the evidence went no further than establishing that there was potential for future growth as at June 2002. As to this, I reject counsel's submission to the effect that Nebahat gave uncontradicted evidence that the business was already operating at full capacity in 2002. Rather, her evidence was that production capacity was limited by the output of the routing machine, and by June 2002 that machine was operating for up to 20 hours per day (five or six days per week) to process 300 doors. I would observe that this evidence is not inconsistent with Anthony's suggestion that capacity may have been able to be increased. Presumably, at the cost of hiring additional labour, the machine may have been able to operate 7 days a week, and possibly for more than 20 hours per day. And while it may be accepted that increases in sales after June 2002 were attributable to additional machines purchased, and other changes made, by the first and second defendants rather than Anthony, that did not mean that there was no potential for growth as at June 2002.

43 In that regard, I note counsel's submission that it was not permissible to take account of events after 30 June 2002 for the purpose of the valuation. He relied on HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd[8] where the High Court said that[9]:

"The task of valuation is to be conducted without hindsight - that is, without knowledge of events which have not happened by the date at which the value is to be ascribed, though they may have happened by the date on which the valuation takes place."

44 Counsel also referred to Spencer v The Commonwealth[10] where, in the context of valuing land for the purpose of statutory compensation following compulsory acquisition thereof, Isaacs J said that "All circumstances subsequently arising are to be ignored"[11].

45 In my view, Efthim AsJ did not conduct the valuation with hindsight in the sense referred to in the authorities. Rather, he considered the value of the business as at June 2002 in light of the potential future growth as at that time. That is apparent from the fact that the future maintainable earnings figure adopted related to actual sales, rather than future sales. And, as McCann recognised in cross-examination, the very purpose of the capitalisation rate was to take account of potential future growth. That is what Efthim AsJ did. It follows that I do not accept counsel's submission that the figure of 4.0 he used was unsupported by the evidence. In my view, Efthim AsJ was entitled to reach the view that he did, and nothing put in the submissions has persuaded me that the rate he adopted was incorrect. With respect, I agree that a capitalisation rate of 4.0 on pre-tax earnings was appropriate.

46 As to the second alleged error, I reject the counsel's submission that Efthim AsJ made no allowance for the hire purchase liability of $318,923. In my view, Efthim AsJ properly took this liability into account. The hire purchase liability was one of a number of liabilities, including the shareholder loans, which Dowling and Hawkes agreed in the joint report amounted to $719,214 as total liabilities of the business. That was offset by the total assets which, leaving to one side the amount of goodwill, produced an agreed net asset figure of $164,903. Efthim AsJ expressly adopted this net asset figure in the report.

47 In contrast, McCann had calculated "net debt" of $453,068, which was derived by adding the hire purchase liability ($318,923) to the shareholders loans ($205,721) and then subtracting $71,576 for cash. He deducted that net debt amount from the capital value of the business, to reflect his view that a purchaser would typically not take on the liabilities comprising that net debt. McCann said in cross-examination that he had not added the debtors to the value of the business, as he would normally expect a purchaser to assume those debtors as they would also assume other short term liabilities of the business.

48 It is apparent that, in circumstances where McCann's calculations had the effect of reducing the value of the business on account of liabilities, Efthim AsJ considered that an adjustment should have been made to take account of the trade debtors. In effect, Efthim AsJ accepted Dowling's evidence to the effect that McCann did not correctly take into account the value of debtors, creditors and other assets and liabilities. In my view, that finding was open and appropriate.

49 Finally, as to counsel's suggestion that Anthony might have already been repaid the $51,000 owed to him by Unique Doors, I note the following. Dowling's first report stated that:

"[Anthony] indicated that he had in his possession diary records of cash received of $50,000 on account of sales that had not been recorded in the company's accounts, thus understating the true profit. We have not been provided with details of these records and accordingly have made no adjustment in respect thereof."

Counsel cross-examined Dowling about this matter. Dowling said that he had asked Anthony for details of these records, but Anthony was unable to locate them. Dowling said that he mentioned the matter in his report for completeness but did not include it in his calculations. Anthony did not mention this matter in his affidavit referred to above, did not give oral evidence before Efthim AsJ, and was not cross-examined. And counsel did not mention the matter in his submissions to Efthim AsJ. Before me, counsel said that if Anthony had given evidence before Efthim AsJ, "there would have been cross-examination about that cash transaction" and "if it was found that he had in fact received $50,000 in unaccounted for cash that would constitute repayment of their loan". In my view, counsel's submission was speculative, and premised on facts which were not established. In short, there is no evidence on which I could be satisfied that Anthony has been repaid his director's loan of $51,000.

50 I am not satisfied that Efthim AsJ's report contains the errors alleged by the first and second defendants. On the contrary, I consider that the approach adopted in the report is open and correct and that the report accurately states the fair value of Elbek's shares. It is therefore unnecessary to consider the extent to which the amount already paid for the shares can be taken into account in determining the value of the shares.

51 In all of the circumstances, having regard to the stage the proceeding has reached and the fact that the parties have urged me to make final orders, I consider that it is appropriate to adopt the report with its conclusion that the fair value of the second plaintiff's shares in Unique Doors Pty Ltd as at 30 June 2002 was $224,826. The effect of that is that the plaintiffs are entitled to receive a further $4,826 in respect of the shares.

52 I will hear from the parties on the form of the orders and as to costs.

[1] I note that throughout the proceeding, Mr Northrop has appeared only for the first and second defendants.

[2] I note that while the third defendant represented himself and the fourth defendant at the trial on liability, these defendants did not appear and did not seek to make any submissions to Efthim AsJ or myself on the question of the fair value of Elbek's shares.

[3] This figure was obtained by adding the amount of goodwill to the figure of $884,117.