Plaintiffs v Defendants

1 Michael Drapac has been a successful businessman.[1] With the assistance of his staff, he has built a profitable property development and investment business over a period of more than two decades through a number of companies and trusts that he controlled ("the Drapac Group"). A list of the Drapac Group companies and trusts is attached to these reasons.

2 Over time, Mr Drapac has employed a number of young people in the business. Two such employees were Ashley Wain and Adam Murchie.[2] In a two year period from July 2004 to July 2006, Mr Wain and Mr Murchie (either directly or through companies that they control) were issued with shares in two companies, Endoline Pty Ltd and Drapac Management Ltd, and units in trusts that form part of the Drapac Group. Other employees (including Santino Mercuri, who was a witness in this proceeding) were also issued with shares and units. Mr Wain holds a 13.5% interest and Mr Murchie a 3.5% interest in the relevant entities.

3 Although they worked together harmoniously for a number of years, the relationship between Mr Drapac, on the one hand, and Mr Wain and Mr Murchie on the other hand, soured. Mr Wain's employment was terminated in October 2009. Mr Murchie resigned in December 2009.

4 Mr Wain and Mr Murchie seek orders under s 233 of the Corporations Act 2001 (Cth) for the purchase by Mr Drapac and entities that he controls of the shares and units they hold. Among other things, s 233 provides for relief to be given where the conduct of a company's affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member, whether in their capacity as a member or not.[3]

5 The first issue in this proceeding is whether Mr Wain and Mr Murchie are beneficially entitled to the shares and other interests registered in their names or whether they hold them for the benefit of entities controlled by Mr Drapac. There are no documents recording that any of the interests held by Mr Wain and Mr Murchie and their companies were issued on trust for Mr Drapac or his company, Briaroaks Pty Ltd. However, part of Mr Drapac's case is that the employees were only to have equity in the Drapac Group if they remained employed for a period of ten years to 31 December 2014. He alleges that no agreement for equity participation was entered into by the parties and they paid no consideration for the shares and units that were issued to them. He claims that the shares and units issued to Mr Wain, Mr Murchie and their companies are held as an escrow or on trust for entities related to him.

6 If Mr Murchie and Mr Wain hold the shares for themselves, then there is a question as to whether there has been oppressive conduct entitling them to the relief that they seek. In this regard, they rely on the manner in which their employment came to an end, matters concerning one of the Drapac Group projects (known as Le Boulevard), an alleged plan to dilute their interests in the Drapac Group and the absence of a reasonable offer to purchase their interests.

7 There is also an issue as to whether or not Mr Wain or Mr Murchie breached their employment contracts and duties as directors. These allegations mainly concern the retention and use of confidential information and three properties which the Drapac Group may have been interested in pursuing, but which it is alleged Mr Wain diverted away from the group.

8 By consent of the parties, the trial proceeded on all issues except:

(a) the valuation of the shares and units issued to Mr Wain, Mr Murchie and their companies; and

(b) the quantification of the claims by Mr Drapac and the other plaintiffs by counterclaim.

9 For the reasons which follow, I have determined that the shares and units are held beneficially by Mr Wain, Mr Murchie and their companies and that the conduct of the affairs of Endoline and Drapac Management is oppressive to and unfairly prejudicial to Mr Wain and Mr Murchie. Orders should be made for the purchase of their interests at fair value. Mr Wain and Mr Murchie did not breach their employment contracts.

10 The matter should be listed for further directions in advance of a trial on the remaining issues.

11 The structure of the remainder of these reasons is as follows:

• my observations about the key witnesses;
• consideration of whether Mr Wain, Mr Murchie and their companies own the various shares and units beneficially (beginning with the factual matters relevant to that issue);
• consideration of whether there has been oppression (including a review of various allegations concerning oppressive and unfair conduct - principally, the events leading to the termination of Mr Wain's employment (including his conduct in respect of properties at Cobden Street, South Melbourne, High Street, Kew, Church Street, Hawthorn and Fortitude Valley, Brisbane));
• the conduct of Mr Wain and Mr Drapac in respect of the Le Boulevard, Surfers Paradise project;
• Mr Wain's removal as a director and the circumstances in which Mr Murchie resigned;
• consideration of what relief is appropriate under s 233 of the Corporations Act;
• brief consideration of the defendants' counterclaim.

12 Before considering each of the issues, I will say a few things about the main witnesses who gave evidence about critical issues that were in dispute.

13 Mr Drapac's recollection of events was hazy. He had difficulty recalling the detail of discussions and the timing of them. He could not recall his state of mind at various points. He stated that things come and go from his memory. He struck me as someone who does not retain any detail of conversations. This meant that I could not rely on his evidence unless it was supported by contemporaneous documents or other credible evidence. Mr Drapac's evidence was that he relied heavily on professional advisers (lawyers and accountants). He expected them to look after the documentation. For example, if a trust was to be created, he expected that they would attend to any documentary requirements. Whenever a document did not exist or a document was signed by him that did not support his case, Mr Drapac gave evidence to the effect that he had relied on professional advisers.[4] When documents were put to him that had been prepared by his lawyer or personal assistant, he was quick to distance himself from the content if it did not support his case. It is not surprising that Mr Drapac would rely on professional advisers and his personal assistant, but it is difficult to accept that they were off on a frolic of their own, or were acting other than in accordance with his instructions.

14 From mid 2008, Ms Melissa Weston (or Lazzaro as she was then known) acted as Mr Drapac's personal assistant. Ms Weston subsequently became the general manager of the Drapac Group. She sent and received emails on behalf of Mr Drapac. Although she was cross examined in a very fair manner, she was, at times, visibly upset when she was giving her evidence. Ms Weston gave evidence the day after Mr Drapac. She denied receiving or reading the transcript of Mr Drapac's evidence or of speaking to Mr Drapac about his evidence. However, even allowing for the pressure or stress she appeared to be under in the witness box, and the effect that this might have on her evidence, her oral testimony seemed rehearsed and tailored to suit Mr Drapac's case.

15 Her evidence was often in direct conflict with the plain meaning of contemporaneous documents that she had authored. For example, because of the way that the defendants put their case, much of the evidence went to whether there was a contract between Mr Drapac and the employees that entitled them to equity in the Drapac Group. In emails and documents prior to these proceedings that were authored by her, Ms Weston referred to the "current agreement" relating to the equity entitlement of Mr Wain and Mr Murchie. She did not refer to it as a draft agreement. However, in her affidavit evidence and the oral evidence that she gave during the trial, she assiduously used the word "draft" when referring to the agreement.[5] She denied doing this because she thought it would assist Mr Drapac's case. Overall, her evidence was not reliable unless it was supported by contemporaneous documents. Other examples of unsatisfactory evidence that she gave appear in what follows below.[6]

16 Mr Wain was cross examined over a number of days. At times, he was not as forthcoming with answers as might have been expected in other circumstances. On occasion, he prevaricated. Given the length and nature of his cross examination, this is perhaps not surprising. In the main, his evidence accorded with the contemporaneous documents. One exception was that he was initially not willing to concede that the colloquial term "hand cuffs" had been used to describe the ten year restriction on the employees before they could realise their interests in the Drapac Group. As will be seen from what follows, that term is littered throughout the documents that Mr Wain received and some that he signed.

17 Mr Murchie was also cross examined at length. He struck me as an honest witness. There were some occasions when he was argumentative, but again, given the nature of the dispute and the length and nature of the cross examination, that was not surprising. He was a careful notetaker during the relevant period and I found his evidence to be reliable.

18 Mr Mercuri was not a party to the proceeding. He gave evidence in a forthright and open manner. I formed the view that he was a witness of truth.

Are Mr Wain and Mr Murchie beneficially entitled to the shares and units that they hold?

19 Mr Drapac has been involved in property investment and development since about 1979. He founded the Drapac Group in 1987. In more recent times, the Drapac Group has established several managed investment schemes.

20 In February 1996, whilst he was still a student, Mr Wain undertook a placement with Briaroaks[7] trading as Michael John Drapac & Associates and Drapac Consulting. As previously mentioned, Briaroaks is a company controlled by Mr Drapac. At the end of 1996, Mr Wain became a full time employee as a property manager. At this time, the Drapac Group had four employees (including Mr Wain and Mr Drapac). From November 2005, Mr Wain was employed by Drapac Consulting Pty Ltd until his employment was terminated.

21 Mr Wain's role in the Drapac Group was to source and investigate prospective property acquisitions, manage the financial modelling for the projects, secure debt funding and manage projects through the building stage to their completion. Mr Wain was involved in a number of the important projects that the Drapac Group undertook.

22 From the beginning of 1999, Mr Mercuri worked full time in the Drapac Group. He was responsible for sourcing new investment and development opportunities for the Drapac Group with most of his time spent on managing the investment projects. He and Mr Wain worked together closely.

23 Mr Drapac and Mr Murchie share an interest in cycling. They met when they both had roles at Cycle Sport Victoria - Mr Murchie was the executive officer and Mr Drapac was a director. Mr Drapac offered Mr Murchie employment with the Drapac Group and he became a fulltime employee in 2001. By this time, there were about ten staff working in the Drapac Group. Originally Mr Murchie performed a project co-ordinator role and later he moved on to other roles. From late 2002 or early 2003, Mr Murchie became involved in the funds management arm of the Drapac Group. Mr Murchie was employed by Drapac Consulting Pty Ltd until he resigned.

24 Over time, Mr Wain, Mr Murchie, Mr Mercuri and some other employees came to be referred to as the "key employees". In addition to their wages, the key employees were paid bonuses on a project by project basis, calculated as a percentage of project profits. The percentage of profit share paid to each employee varied, with the largest percentage commonly being awarded to Mr Wain. Some of the agreements about these bonuses were recorded in writing. Sometimes the bonus took the form of a percentage of units in the relevant trust vehicle for the project.

25 By about mid 2004, Mr Drapac realised that to grow and ensure the future sustainability and profitability of the Drapac Group he had to involve and retain some of the employees. He was conscious that in the property investment and development industry, it was not uncommon for competitors to poach a team from a rival business. Mr Drapac determined that the key employees who were to share equity in the Drapac Group would include Mr Wain, Mr Mercuri and Mr Murchie, together with a limited number of other employees. Mr Drapac says that he told the employees that he would ensure that those who committed to grow and develop the business over the following ten years from the start of 2005 would be entitled to equity in the Drapac Group, which would include a share of ongoing profits at the end of the period. Those interests were to be in addition to salaries and bonuses.

26 There were a number of discussions between Mr Drapac and the key employees as the concept evolved and, from time to time, shares and units in Drapac Group entities were issued to the key employees including Mr Wain and Mr Murchie and their companies, Burayda[8] and Murchie Investments respectively.[9]

27 The first units issued were in the Drapac Trust Number 2 on 28 July 2004. Drapac Management is the trustee of that trust. The trust was established in respect of an investment property at 140 Bourke Street, Melbourne. 130 units were issued to Burayda, 35 units were issued to Murchie Investments and Mr Drapac's company, Briaroaks, was issued with 630 units. Minutes of a director's meeting of 28 July 2004 of Drapac Management (as trustee for Drapac Trust No 2) record the resolution for the allotment of these units. A unit certificate of the same date certifies that Burayda (as trustee for the Ashley John Wain Family Trust) is the registered holder of the fully paid ordinary units. The certificate is signed by Mr Drapac and Mr Wain. Mr Wain says that he paid a nominal amount for Burayda's units. Mr Murchie says that he paid $1 per unit although that amount was not paid in cash but rather by way of loan account. There was no written loan agreement.

28 There is a dispute as to whether the arrangement for the key employees to have equity in the Drapac Group was subject to them continuing employment within the group for a particular period (which started out as 12 years and later became ten years). According to Mr Drapac, the employees were only to be entitled to equity once they had completed a further ten years service in the Drapac Group after the beginning of January 2005. Mr Drapac says that he told the key employees this many times both in group and one on one meetings. He says that the key point was to grow as a cohesive team and develop a sustainable diversified Drapac Group.

29 Mr Wain denies that there was any suggestion that the key employees were only entitled to equity after a further ten years service, or that he agreed to such a condition. According to him, Mr Drapac said that the arrangement was a new group structure to ensure that the team stayed together and grew over a ten year period with capital to be re-invested during that period. Mr Wain says that the first time he became aware that Mr Drapac was claiming that the interests were held as a trustee or custodian was when he received a copy of the defence and counterclaim in this proceeding in May 2010. He accepted that there was a lot of talk about ten year handcuffs with the intention to keep the group together for a ten year period, but he says this was an aspiration or an ambition and not a precondition or obligation that Mr Drapac was insisting upon. According to Mr Wain, the discussions between the key employees and Mr Drapac never got to a point of saying it was ten years or nothing. In cross examination, Mr Wain did accept that an early proposal was that there would be a hybrid arrangement where some assets would be held for ten years so that a fund of $50 million would be accumulated and would only be paid out after the expiration of the ten year handcuff period. However, Mr Wain says that the structure was simplified and this proposed arrangement did not proceed.

30 Mr Murchie says that in 2004 the general tenor of the discussions that he had with Mr Drapac was that a staff equity scheme was being worked on, that as he was a key employee he would be getting some equity in the Drapac Group and that Mr Drapac wanted him to commit to the group for a period of time. According to Mr Murchie, the scheme was being developed by others and he did not know all the details for it. His evidence was that the allotment of shares and units to him was not conditional on his agreement to spend the next ten or twelve years with the Drapac Group. From Mr Murchie's perspective, he had committed to the Drapac Group in good faith and was seeing that through.

31 Mr Mercuri denied that Mr Drapac ever said that his units or shares were provisional when they were issued to him. Mr Mercuri's evidence was that the first time that it was suggested to him that he was not the beneficial owner of his interests in the Drapac Group was when his accountant received a letter from Mr Drapac dated 6 July 2010. He recalled that Mr Drapac had wanted him to commit to work for a period of 10 years for the Drapac Group with the intent of trying to keep a motivated group of employees together to grow and develop the business. In cross examination he accepted that it was probably correct that in order to obtain equity participation in the Drapac Group it was a condition that they stay as a team for ten years.

32 Graham Haydar was the Drapac Group's external accountant. At the suggestion of Mr Haydar, Argyle Partnership Lawyers ("Argyles") were engaged to advise on the tax implications of the equity participation scheme. Argyles prepared draft trust documents in this regard, although those documents were never executed.

33 The correspondence that passed between Mr Haydar and Argyles lends support to the original idea being that the key employees would be entitled to income distributions prior to expiry of the handcuff period (originally 12 years) with any capital benefit only to be available after the handcuff period had expired. For example, in a letter from Argyles of 3 August 2004 to Mr Haydar, the following appears:

"The terms of the employee deed (together with the rights attaching to the units) must be structured to decrease the potential of an employee claiming (whether as part of an unfair dismissal claim or otherwise) their proposed entitlement under the DSIT should Michael Drapac terminate their employment for any reason prior to the expiration of the 12 years".

34 Another example is an email between Argyles and Mr Haydar of 9 September 2004, in which the question was asked whether a decision had been made as to the maximum entitlement to units being issued upfront so as to minimise the future capital gains tax and fringe benefit tax issues. The response was that the maximum entitlement to capital that each employee may ultimately become entitled to should be provided for on the terms of issue of the units (that is, upfront). It was said that this would minimise the potential tax issues.

35 In about September 2004, Mr Wain approached Mr Haydar to become the General Manager of the Drapac Group. To this end, Mr Wain sent an employment offer to him. The terms of the offer included a permanent share in the Drapac Staff Investment Trust which was conditional on execution of a 10 year employment contract until 31 December 2014. The following was also included in the letter:

Key Staff (Ashley Wain, Santino Mercuri, Adam Murchie) to execute minimum 10-year employment contracts until 31 December 2014 in conjunction with the settlement of the Drapac Staff Incentive Trust.

36 Attached to the letter of offer was a table setting out what Mr Wain described as "the proposed breakdown of the staff incentive trust between our various staff members." Amongst other things, that table showed "fixed trust entitlements" of 13% for Mr Wain and 3.5% for Mr Murchie and "annual allocation 2004/2005" for each of them of 11% and 1.75% respectively.

37 Mr Haydar took on the role of General Manager of the Drapac Group from January 2005. Some documents prepared by Mr Haydar from early 2005 support the contention that the entitlement to capital in the Drapac Group (through what was then known as the "Drapac Staff Incentive Trust" and later became the Drapac Holdings Trust) was to be linked to ten years of service from 1 January 2005. For example, there are a number of documents prepared by Mr Haydar that include statements such as:

"Payout of capital is only after ten years of service from 1st January 2005 or upon reaching a trigger event as defined under the Trust Deed."

38 In addition, many of the early documents include references to the "ten year handcuff period."

39 The objectives of the equity scheme were recorded from about this time as two fold. First, "to offer the key employees in the Drapac Group ownership of the business and to reward them for their loyalty to the business ('capital entitlement')" and secondly, "to allocate a share of annual profits to all employees in the Drapac Group for their loyalty, commitment and performance during the year ('annual income entitlement')."

40 On 12 April 2005, Mr Haydar sent an email to Argyles with a number of queries in relation to the "Drapac Staff Incentive Trust". Mr Haydar indicated that he wanted to finalise the draft documents and that the key employees were in the process of taking the drafts for legal review. One of the queries that Mr Haydar had was as follows:

"The deed needs to spell out the mechanism to calculate the redemption value of Ordinary Units if made either before 10 years or after 10 years? My thoughts are if redeemed within ten years, these are redeemed at cost and if redeemed after ten years, these are done at current market valuation."

41 In a document created in about mid-2005, the key features of the "Drapac Staff Investment Trust" were set out in bullet points. Under the heading "Profit Share Criteria", the following appears:

"Payout of capital is only after 10 years of service from 1st January 2005 or upon reaching a trigger event as defined under the Trust Deed. (eg tripper events include death of KE, winding up of the DSIT Trust, floating of the business, selling of the ASIC licences, et cetera)."

42 Mr Murchie says that by 2005, a period of 10 years was mentioned as the period of commitment the employees were expected to give. Mr Murchie understood from Mr Haydar that the Drapac Holdings Trust (which was established on 27 June 2005) was to be one of the vehicles through which the equity scheme would be given effect. By the time of the establishment of this trust, Mr Murchie understood that his interest was to be 3.5%. This accords with the 7 units that were issued to Murchie Investments on 27 June 2005. Burayda was issued with 26 units (13%). From the time that these units were issued, Mr Wain says that he understood (based on his discussions with Mr Haydar and Mr Drapac) that he would receive 13% of all profits from within the Drapac Group. Units were also issued to Briaroaks, amongst others.

43 Mr Wain and Mr Murchie say that consideration was given for the units allotted to Burayda and Murchie Investments. In the case of Burayda, Mr Wain's evidence (which was not challenged in cross examination) was that $1 per unit was paid. Mr Murchie's evidence was that there was a loan for payment of the amount per unit issued to Murchie Investments, although he could not say who the lender was or the terms and conditions of the loan. According to Mr Murchie, that was all being dealt with by Mr Haydar.

44 Endoline is the trustee of the Drapac Holdings Trust. Mr Drapac holds the majority of the shares in Endoline. On 27 September 2005, 130 shares in Endoline were allotted to Mr Wain, for which he says he paid $1 per share. Again this was not challenged in cross examination. 35 shares in Endoline were allotted to Mr Murchie for which he says he paid a nominal amount. The allotment of shares followed written applications by Mr Wain and Mr Murchie. Share certificates were issued for all the key employees and Mr Drapac, with each certificate being signed by him. A memorandum of the resolutions of the Directors as to the issue of the shares was signed by Mr Drapac. Mr Drapac also signed an ASIC form 484 notifying a change to the company's details in respect of the changed shareholdings. That form records that Mr Wain held 130 shares which were fully paid and held beneficially. In respect of Mr Murchie, the number of shares held was recorded in the ASIC form as 35 and again records that they are held beneficially and were fully paid.

45 The following day, Mr Wain, Mr Murchie and Mr Mercuri joined Mr Drapac as directors of Endoline.

46 Mr Drapac says he raised with Mr Haydar concerns he had with issuing the shares to the key employees but was assured by Mr Haydar that the employees had no entitlement to them.

47 In late June 2006, the units in Drapac Trust No. 2 were capitalised and unit holdings were increased. Taking the increase into account, Burayda holds 821,982 units and Murchie Investments holds 236,304 units. Additionally, another of Mr Wain's companies, AJ & KM Pty Ltd,[10] was allotted 15,000 units in the trust.

48 Drapac Management is an unlisted public company and holds a financial services licence. Burayda is the registered holder of 26 shares in Drapac Management and Murchie Investments holds 7 shares. The shares were transferred to Burayda and Murchie Investments from Drapac Holdings Pty Ltd.[11] The documents relating to the share transfers are all dated 20 July 2006. There is a standard transfer form signed by Mr Wain and Mr Drapac which recites the transfer of 26 shares from Drapac Holdings to Burayda. The consideration is expressed to be $24,700. Mr Wain says that that amount was paid for the shares. There is also a copy share certificate certifying that Burayda is the holder of 26 shares in Drapac Management and that document has been signed by Mr Drapac. Burayda gave written notice to the Secretary of Drapac Management on 20 July 2006 that it held those shares on behalf of the Ashley John Wain Family Trust.

49 There is also a standard transfer form in respect of Mr Murchie's interest in Drapac Management. It records that Drapac Holdings transferred 7 shares in the company to Murchie Investments for a consideration of $6,650. Mr Murchie claims to have paid that amount for the shares. There is a copy share certificate certifying that Murchie Investments holds the shares.

50 Finally, there is a memorandum of resolutions of the Directors which records the resolution to approve transfers of shares from Drapac Holdings to, among others, Burayda and Murchie Investments. The consideration for each share transferred was recorded as $950 and was said to be based upon the independent market valuation prepared by HLB Mann Judd dated 4 July 2006. The memorandum of resolution was signed by Mr Drapac, Mr Mercuri and Mr Wain. In addition to Mr Drapac, Mr Wain and Mr Mercuri were both directors of Drapac Holdings for a number of years prior to their departure from the Drapac Group. Mr Murchie was a responsible manager of Drapac Holdings for about 18 months prior to his departure.

51 Mr Drapac says that the HLB Mann Judd valuation was obtained to set a baseline valuation for capital gains and fringe benefits tax purposes. Mr Wain says that the valuation was to ensure that all assets acquired by the new Drapac Group structure were acquired on commercial terms and that the valuation informed the consideration that Burayda paid for its shares in Drapac Management.

52 None of the documents signed by Mr Drapac stated that the shares or units were held on trust for Briaroaks or Mr Drapac. There is no documentary evidence supporting a contention that the units and shares issued to the key employees or companies that they controlled were held on trust for Mr Drapac or entities controlled by him when they were issued.

53 Distributions were made from the Drapac Trust No. 2. For example, Murchie Investments as trustee for the Adam Murchie Family Trust received a net distribution of $2,924.96 on 13 October 2006 and Burayda received $10,864.12 on that day.

54 Mr Drapac gave evidence that the interests issued to the key employees in the Drapac Group companies and trusts were paid by loan accounts with accounting entries made to reflect this but that no cash consideration was paid, nor was any application for units accompanied by cash or something standing in place of cash. This was consistent with the evidence given by Mr Murchie. It also accords with an email that Mr Haydar sent to Mr Wain on 25 October 2007 in which he stated that on 26 July 2006, Mr Wain's trust had purchased 26 shares in Drapac Management for a total price of $24,700, with the amount owing on those shares being loaned to Burayda by Endoline (as trustee for the Drapac Holdings Trust). In respect of Drapac Trust No. 2, Mr Haydar stated that on 28 July 2004, Mr Wain's trust was allocated 130 of the initial units representing 13% of the total issued units, with the purchase price being paid by Mr Drapac on behalf of Mr Wain. He continued that on 28 June 2006, the Drapac Trust No. 2 was capitalised and Mr Wain's initial 130 units were cancelled and his trust was allotted more units on that date. Mr Haydar stated that again, no money changed hands, but the amount paid for the units was loaned to Mr Wain's trust by the Drapac Holdings Trust. Mr Haydar attached copies of unit and share certificates relating to Drapac Management and Drapac Trust No. 2 to his email.

55 Mr Drapac says that the shares in Endoline and Drapac Management and the units in the relevant trusts were issued when they were to minimise legally the capital gains and fringe benefits tax implications of the allocation of interests on or after the ten year hand cuff period had expired (said to be 1 January 2015). Argyles had given advice about this. According to Mr Drapac, at the time the units and shares were issued or transferred to the key employees, he told them (among other things) that they had to commit to grow and develop the Drapac Group over the following ten years from the start of 2005, that they would get a share of the ongoing profits at the end of the period, to minimise the capital gains and fringe benefits tax implications the units and shares would be issued at the beginning of the ten year period. He contended that the shares and units were held by the key employees as custodians[12] or on trust for Briaroaks, or for the Drapac companies or trustees which transferred or issued the units or shares, pending execution of a written agreement setting out the terms of the proposal Mr Drapac had made for them to share in the equity of the Drapac Group. Mr Wain says that he did not have any conversations with Mr Drapac in which he said that he was issuing shares or units on behalf of Briaroaks. Mr Murchie says he did not have any communication with Mr Drapac (either written or oral) where it was suggested to him that his interests in the Drapac Group were being held on trust by him for Briaroaks.

56 After the shares were issued in Drapac Management, there were further documents prepared in an attempt to record the key functions of the employee incentive scheme. One such draft document entitled "Drapac Holdings Trust" sets out bullet points in relation to a summary of the key features and profit share criteria. The document records that "payout of capital/redemption of units in DHT and shares in DML is only after 10 years of service from 1st January 2005 or upon reaching a trigger event as defined under the Trust Deed. (e.g. Trigger events include death of KE, major illness of KE, winding up of DHT, floating of the business, selling of the ASIC licences, et cetera)".

57 Some notes prepared by Mr Murchie on 21 January 2008 record "unplanned resignation is any resignation before December 2014 unless there is death or disability, loans are to remain until 2014". As to the equity payment, he recorded:

"- 100% if you stay ten yrs, death, disablement

- 70% if you leave early, are terminated et cetera

- 5% for 'big time' breach such as gross theft, negligence"

58 In early 2008, a management consultant, David Bristow, was retained to develop strategies for improving the business going forward and its overall operation.

59 At about this time, Mr Wain says that Mr Drapac was not happy with Mr Haydar's performance and that he (Mr Wain) suggested that if the business relationship between them was not working out, then there should be an amicable split. According to Mr Wain, Mr Drapac told him that he thought Mr Haydar was misappropriating funds. Mr Wain was concerned that this was just being used as a reason to get rid of Mr Haydar. Mr Drapac says that it was Mr Wain who was dissatisfied with Mr Haydar and that it was Mr Murchie and other employees who had raised concerns about improper accounting practices of Mr Haydar. Mr Murchie denies raising any concerns about Mr Haydar's conduct. In any event, Ernst & Young were retained to investigate Mr Haydar's conduct. Mr Drapac told Mr Wain that the investigation by Ernst & Young revealed that Mr Haydar had misappropriated funds. Mr Wain says that he was not shown any written Ernst & Young report although Mr Drapac says that it was circulated to all directors.

60 Mr Haydar's employment was terminated in mid June 2008. Mr Murchie says that the first he learnt of any alleged accounting impropriety was when Mr Drapac told him that Mr Haydar had been terminated for fraudulent behaviour and gross misconduct.

61 Proceedings against Mr Haydar were brought in the County Court of Victoria. In his defence and counterclaim, Mr Haydar admitted that the shares and units issued to him were to facilitate the distribution of the annual profit share pursuant to the profit share entitlement and in anticipation of the equity condition being fulfilled so as to provide Mr Haydar with the equity entitlement. He pleads that by reason of the failure of Drapac Consulting to give him the opportunity to execute a ten year employment agreement, the equity condition was not fulfilled. He makes no claim that he has an entitlement to the shares and units, and upon receipt of appropriate transfer forms indicated that he would transfer the shares and units to Briaroaks.

62 Shortly before the termination of Mr Haydar's employment, Melissa Lazzaro (now Weston) was employed as Mr Drapac's executive assistant. As will be seen from what follows, she was involved in many of the relevant events.

63 After Mr Haydar's employment was terminated, the relationship between Mr Wain and Mr Drapac deteriorated. Mr Wain was not comfortable with the handling of Mr Haydar's removal. Mr Drapac felt that Mr Wain's attitude to him and the Drapac Group changed, that he became less diligent in performing his duties, failed to allocate and devote energy and time to developing, mentoring and supervising junior staff, that he did not listen to Mr Drapac or take his advice.

64 Mr Wain approached Mr Drapac to see if they could sort out their issues. Whilst they did continue working together, their relationship was (at best) strained and worsened over time.

65 Drapac Management is also the responsible entity of the Drapac Sustainability Fund. A unit certificate dated 26 June 2008, signed by Mr Mercuri and Mr Wain, certifies that Murchie Investments as trustee for the Adam Murchie Family Trust is the registered holder of 100,000 ordinary units. Murchie Investments also holds 12,857 performance units in this fund. Mr Murchie says that he paid $1 per unit for his ordinary units in the fund. Endoline also holds 3,462,000 ordinary units in this fund.

66 Despite the deteriorating relationship between Mr Drapac and Mr Wain, the profit share scheme continued to evolve. Mr Bristow was engaged to assist with developing a new scheme that was to be simpler to administer. None of the foundation key employees were to be disadvantaged with the transition to the new scheme. It was proposed that for the foundation key employees, their existing minimum entitlements would be fixed and carried forward into the new scheme and forfeiture provisions would be developed which would recognise entitlement should an employee have been employed longer than a set period, the length of which was still to be determined.

67 By August 2008, Mr Bristow had developed a discussion paper. The paper progressed through a number of drafts. As part of the discussions between the employees and Mr Bristow, Mr Wain stated in an email that the discussion paper needed to be amended as there was "already an agreement in place - this is only improving and clarifying the existing agreement". Mr Bristow responded that, as he understood the situation, there was no formal agreement and that when he interviewed the key employees, they were all frustrated that there was no agreement.

68 On 12 August 2008, the final form of the discussion paper was signed by Mr Drapac, Mr Wain, Mr Mercuri, Mr Murchie and another of the key employees. On a page headed "Agreement to Proceed" and beneath the words "We agree with the principles outlined in this document as the basis for finalising the Drapac Share Scheme", each of the parties signed. The introduction to the document states:

"A share scheme with key employees has been a point of discussion prior to January 2005. It has been through a number of iterations.

Even though unsigned the Key Employees and Michael have been working on the basis that the spirit of the document will be fulfilled and will apply from January 2005.

The purpose of this discussion paper is to distil the points of contention with the draft scheme and to finalise the arrangements with key employees."

69 The objectives of the draft scheme were recorded in the discussion paper as being to offer the key employees ownership of the Drapac Group (capital entitlements), a share of ongoing profits (annual profit entitlement) and to reward them for their loyalty to the Drapac Group both then and into the future. A second objective was to ensure that the executive team remained intact for the medium to long-term to grow the Drapac Group into a sustainable and diversified investment group. The key features of the scheme were described as to include the ability of the key employees to gain equity in Drapac Holdings Trust, Drapac Trust No. 2 and in Drapac Management from 1 January 2005, with equity holdings to be purchased at market rates. The discussion paper listed the interests of each of the employees and included Mr Wain at 13% and Mr Murchie at 3.5%.

70 The discussion paper reviewed what it described as the "draft scheme". In respect of what it described as the "proposed scheme", the paper recorded that no foundation key employees would be disadvantaged with the transition to the finalised scheme. For those employees, their existing minimum entitlements were to be fixed and carried forward into the proposed scheme. The key employees were to gain a shareholding in the Drapac enterprise and not in individual property trusts. The legal entity for the Drapac enterprise was said to be the Drapac Holdings Trust. That trust was to be the equity holder of all of the investments by the Drapac enterprise and management companies as at 1 January 2005.

71 The discussion paper recorded that the existing key employees (including Mr Wain and Mr Murchie) were to be nominated as foundation employees in the scheme and were to gain unit holdings in Drapac Holdings Trust from 1 January 2005. Each foundation key employee was to purchase their entitlements at the going market rate as at 1 January 2005, with this to be taken up as a loan to them and repaid from future dividends. If a key employee was to leave Drapac, they would be required to sell their shares and the following would apply:

"If an unplanned exit occurs (e.g. unplanned resignation) the value of their share entitlement will be reduced by 30% (unplanned departure penalty) for the amount representing the difference between Loaned Employee Capital and the Net Asset Value. All loaned capital held by the group on behalf of the Employee will be retained by the group until 31/12/2014 and will be paid Overdraft Interest annually and secured via a subordinated debt facility.

Beyond 31/12/2014 'unplanned exit' is deemed to be no less than six months notice unless a reduced notice period is agreed by the Board.

An 'unplanned' departure penalty relating to an exit prior to 31/12/2014 can be reduced with the consent of the Board.

If terminated for an unlawful act of a serious nature (i.e: theft or fraud) the value of their share entitlement will be reduced by 95%.

The governance process will also allow individual foundation key employees to grow the amount of their unit holding."

72 An appendix to the paper describes the "pros and cons of ten year handcuffs".

73 Mr Drapac says that they agreed on the document and it was to form the basis of a formal document with the paper containing the principles upon which the formal document would be prepared. His view was that there was a lot that had to be developed from the paper. According to him, much of 2009 was spent endeavouring to formalise an agreement. All that they had, he said, was an agreement to enter into an agreement, but no agreement as to equity was reached and the key employees' entitlements were provisional provided that they did certain things. Mr Drapac says that whenever he used the word "entitlements" he meant provisional entitlements.

74 A few days later, Mr Wain contacted Norton Gledhill, solicitors, and stated:

As discussed we are seeking assistance in the drafting of a Shareholders Agreement for the Drapac Group.

A scheme has been in place since 2005 however to date has not been fully completed. Attached is a recently signed discussion paper that outlines the key principles of the Shareholders Agreement.

Given your involvement with the dispute between Drapac and Graham Haydar, we though (sic) it would be appropriate for your firm to prepare/finalise all necessary documentation surrounding the Drapac shareholding.

We look forward to discussing further next week.

75 Mr Bruce Cameron of Norton Gledhill took on the role of drafting an agreement. On 4 September 2008, he sent an email to Mr Drapac and Mr Wain in which he set out the background as he understood it. He included the following:

1. Participants in the Drapac Group all work for the Group and were granted their interest in Endoline, the Drapac Holdings Trust and Drapac Management in about 2005, and they acquired those interests for full market value although they have yet to pay the amount which is due.
2. The broad terms of the Equity Participants Agreement were agreed in 2005, but the terms have never been comprehensively set out in a written agreement, and that is what you would now like me to undertake for you.

He went on to set out what he understood were to be the terms of the "Equity Participants Agreement". Mr Drapac did not respond to Mr Cameron's email to state that any part of his understanding as to the background to the agreement was incorrect.

76 A draft document was prepared by Mr Cameron. That draft recorded the shareholding and unit holdings of Mr Drapac and the key employees and made provision for the mechanism for the sale and transfer of those interests. Mr Drapac did not correspond with Mr Cameron seeking amendments to the draft. His view was that the document was a draft for discussion.

77 Mr Wain's evidence was that although there was already an agreement in place, effort was put into a formal written agreement because it would be better to provide more certainty to the parties. Mr Murchie's evidence was that a formal documented agreement was required to deal with the broader mechanics of issuing new units, redeeming units and so forth.

78 By letter dated 12 September 2008, Mr Drapac wrote to Mr Wain confirming his salary for the financial year 2008/2009. Part of the salary package was an amount of $50,000 to be made up of a $30,000 advance payment against distributions from his equity entitlement as set out in the Drapac share scheme paper, and the additional $20,000 subject to meeting his Key Performance Indicators (KPIs) that had been agreed between them. In the event that Mr Wain failed to meet his KPIs, the additional $50,000 would be allocated entirely as an advance against distributions from Mr Wain's equity entitlement as set out in the Drapac share scheme paper. A similar letter of the same date was sent to Mr Murchie.

79 In early December 2008, Mr Wain sent an email to Mr Drapac with comments on the proposed agreement that had been prepared by Norton Gledhill. By this time, the employees had engaged Maddocks to advise them. There were a number of commercial matters for discussion, including the "ten year handcuff". In this regard, Maddocks stated (somewhat prophetically):

The details of the ten year handcuff issue need to be considered in more detail. For example, should the Company be compelled to hire each employee under this arrangement for the ten year period? If the employee is terminated prior to the end of the ten years, is the Company then required to pay them out? What are the obligations and ramifications of an employee voluntarily leaving before the end of the ten year period?

80 It was the practice, at least by 2009, for executive team meetings to be held on a monthly basis. Mr Drapac and the key employees attended those meetings. Such a meeting took place on 19 February 2009. According to Mr Murchie's note of the meeting, the attendees included Mr Drapac, Mr Wain and Mr Murchie. There was a discussion concerning the staff incentive plan and Mr Murchie recorded that when there was an unplanned exit, then equity would be converted into a loan at 35%. There would be a 95% haircut for a "monumentally serious breach". According to Mr Murchie, this was said by Mr Drapac at the meeting.

81 On 10 March 2009, Mr Wain sent an email to Mr Cameron noting that he was waiting for Mr Drapac to respond to outstanding queries so that the "Equity Participants Agreement" could be finalised. Mr Wain stated that they had held several discussions with Mr Drapac and had reached agreement on three of the four departure scenarios. In the case of fraud or theft, the interest of the shareholder was to be discounted by 95%. Where an employee resigned, there was to be a 30% penalty applied. In the event that the employee was made redundant, the company would pay out the employee's entitlements on departure in full with no discount applied. Where the employee was asked to leave the employment of the Drapac Group, the decision to terminate needed to be determined by a special majority vote of 85%. If 85% voted in favour of that termination, then there was to be a 30% discount on equity and the interest was to be "quarantined" until the end of the ten year period. The item not agreed, according to Mr Wain, was termination of employment instigated by the company.

82 On 13 March 2009, Mr Cameron sent an email to Mr Drapac about the agreement. The email from Mr Cameron stated that the unresolved issues related to the discounted price at which the equity of founder members and future members of the scheme was to be bought back by the employer or the other members in a number of circumstances of termination and the date at which equity and loans were payable in these circumstances.

83 On 16 March 2009, Ms Weston sent Mr Drapac an email in which she informed him that Mr Wain wanted a copy of the email that Mr Cameron had sent the previous Friday afternoon. Ms Weston said that she would await approval from Mr Drapac before circulating that email. Mr Drapac responded to say that he did not have a problem and "we need to make it look like it was an oversight we hadn't previously sent it". Ms Weston then asked if Mr Drapac had any comment on the potential for key employees to "get out" by selling down unit holdings. She commented that she was a bit sceptical of Mr Wain using the failure to send the email from Mr Cameron as an out. Mr Drapac responded to say that there was an easy solution - "they can't sell them until they've served the ten years!"

84 Ms Weston forwarded Mr Cameron's email to Mr Murchie, Mr Wain and others later that day. In the covering email Ms Weston apologised for not forwarding the document sooner and said that it was an oversight on her behalf as she thought it had been sent to everyone. Mr Drapac responded "You are a smoothie. I'm glad your [sic] on my side".

85 In relation to these emails, Mr Drapac's evidence was that when the email from Mr Cameron (which was addressed to him alone) came in, he was overseas. When Ms Weston brought it to his attention, he told her he had no problem with it being forwarded to Mr Wain, that Ms Weston had been intimidated by Mr Wain and therefore, he told her to make it look like an oversight that the email had not been forwarded so that no tension would be created. His view was that her email to Mr Wain "smoothed" the tension. Ms Weston gave evidence that she was intimidated by Mr Wain and she was trying to minimise the tension. She said that her reference to "using it as an out" was a reference to getting out of the Drapac Group. In cross examination, Ms Weston said that she was prepared to send an untruthful statement (that not forwarding the email from Mr Cameron had been an oversight) to minimise the stress and tension on her from other staff in the office. She thought that she was just doing her job - the email was only addressed to Mr Drapac and the key employees were not entitled to it.

86 Throughout March 2009, negotiations continued in relation to the Norton Gledhill document. The outstanding issues by this time seemed to be limited to the discount to apply to their interest if a participant's employment was terminated for poor performance and also as to restraint of trade issues.

87 Throughout May and June 2009, Mr Wain was pushing for the equity participants agreement to be finalised. According to him, Mr Drapac said that finalisation of the agreement was imminent. Mr Drapac denies this and says that he told the employees that his position (rather than the agreement) would be finalised. By this time, Mr Drapac had serious doubts about the commitment of Mr Wain and Mr Murchie to the Drapac Group and he had the impression that Mr Wain was planning his departure.

88 On about 27 May 2009, Drapac Capital paid trust distributions to Burayda and to Murchie Investments. Mr Drapac says that these payments were in anticipation of them complying with their employee obligations.

89 The business relationship between Mr Wain and Mr Drapac continued to worsen. In late June 2009, they made further attempts to repair it (with Mr Mercuri acting as mediator). However, things did not improve.

90 On 30 July 2009, there was an executive management meeting attended by Mr Drapac, Mr Wain, Mr Mercuri, Mr Murchie, Ms Weston and Ms Oliver (the Drapac Group finance manager). The minutes of the meeting record that Mr Drapac was finalising the equity participants agreement with Mr Cameron the following week. Mr Drapac's evidence during cross examination was that he was finishing his input into the agreement - he could not finalise the agreement itself because it required the input of others. Mr Drapac had been overseas in the weeks preceding this meeting. He said that he had done some thinking while he had been away and he spoke about potential changes to the Drapac Group. Mr Drapac said that the business had not been profitable so he needed to look at a restructure. He told the other participants that he wanted to change the focus of the Drapac Group to a funds management business with a remaining commitment to agriculture. He raised the prospect of breaking the Drapac Group into separate business units - Property, Funds Management, Agriculture, Cycling and Administration. They ran out of time to discuss the matter fully at the meeting and it was agreed that they would reconvene at a later date.

91 At a meeting on 7 August 2009 (attended by the same people), a further discussion about restructuring the Drapac Group took place. Mr Drapac's proposal was that there be three distinct Drapac Group units - funds management, Drapac Agriculture and property. An administration structure would support all three parts of the Drapac Group. The minutes record that there was a question as to what would happen if the individuals could not agree on the new structure - "is there an opportunity that an exit strategy can be reached on the current agreement". Ms Weston typed the minutes during the course of the meeting. According to her, she understood the reference to the current agreement to be a reference to the draft agreement being prepared by Mr Cameron. According to Mr Wain, Mr Drapac stated that he wanted to step away from the day to day management of the Drapac Group and said that he would look at winding up the existing employee equity agreement over the next 12 months or so and distribute the proceeds. Mr Wain says that Mr Drapac reaffirmed that he wanted to focus on funds management predominantly and he was still committed to an agricultural business as well. Mr Wain says that Mr Drapac indicated that he and Mr Mercuri could pursue a property business and consult to the funds management and agricultural group. Mr Drapac asked them to give some thought to what he was proposing. Mr Mercuri's evidence in relation to the meeting was consistent with Mr Wain's evidence.

92 Ms Weston said that there was no discussion at either the meeting on 30 July or 7 August 2009 about paying out the entitlements of the key employees. She accepted that there was discussion at some time about entitlements under the "draft" agreement being paid out. Ms Weston confirmed that at one of the meetings (likely 30 July or 7 August 2009) Mr Drapac said that he did not want to be involved in the day to day operations and had asked the key employees to come back with another Drapac Group proposal or structure.

93 Ms Weston gave evidence that later in the day on 7 August 2009 she attended a further meeting with Mr Wain, Mr Mercuri and Mr Murchie and that during that meeting Mr Wain said that he wanted to leave and was not interested in the equity participation scheme but wanted to leave and take his money. According to Ms Weston, Mr Mercuri and Mr Murchie said that they did not want him to leave and he said he would think about it.

94 On 10 August 2009, Mr Murchie sent an email to Mr Wain and Mr Mercuri which contained information about how the three of them could proceed with a buy-out of the Drapac Group.

95 At a further meeting on 13 August 2009, Mr Wain raised concerns about the proposed new corporate structure that Mr Drapac had proposed. Mr Drapac said that he would provide the funding needed for the first 12 months and if it did not work, then it could be wound up. Mr Drapac did not want to be involved in the day-to-day operational side of the Drapac Group any more. He asked them to go away and think about it and come back with a written proposal.

96 Mr Mercuri prepared a draft discussion paper (dated 14 August 2009) in which he set out what he saw as the key principles for the current 10 year shareholders scheme (winding up the Drapac Group and realising the assets and distributing the proceeds to the shareholders). The discussion paper referred to the new Drapac Group, the basis of which would be a 40% ownership by Mr Drapac and 20% by each of Mr Wain, Mr Mercuri and Mr Murchie. Mr Drapac was to loan $2 million to the new Drapac Group for overheads for the first 12 months, with Mr Murchie, Mr Wain and Mr Mercuri to draw a wage from the overheads as an advance of future profits. The discussion paper referred to a review of the new Drapac Group to be undertaken at the end of 2009, with the profit to be treated such that Mr Drapac would receive the first $2 million (repayment of initial capital injection) and then the additional profits would be distributed in accordance with shareholdings.

97 The discussion paper was developed and forwarded to Mr Drapac on 17 August 2009 by Mr Murchie. The version sent to Mr Drapac had a similar structure to Mr Mercuri's draft with the key principles dealing first with the "current ten year shareholder scheme" and secondly, the "new Drapac Group". One of the key principles described in the paper was:

• To appropriately effectively restructure, the existing Drapac Group needs to be wound up. In doing so, this necessitates the termination of the existing shareholders agreement effective end of 2009. Collective agreement has been reached on this point.
• The current Drapac Group is proposed to be wound up as follows:
  • Determine which staff will be retained and for how long;
  • Calculate the necessary redundancies and termination payments;
  • Provide for a contingency to cover any windup of the Drapac Group (redundancies et cetera) and cover any capital requirements for remaining projects (Le Boulevard, Ridley etc);
  • Distribute any residual proceeds to the current shareholders in accordance with their current shareholdings;
  • Any assets that cannot be realised by the end of 2009 will continue to be owned by the Shareholders in accordance with the original shareholding agreement and equity/profit from these projects will be distributed to the Shareholders upon realisation.
  • There will be no caveats on Shareholders regarding any aspect of the dissolution of the original agreement. All Shareholders will be free to invest capital independent of the New Drapac Business.

98 The discussion paper again recorded that Mr Drapac would hold a 40% interest in the new Drapac Group and Mr Murchie, Mr Wain and Mr Mercuri 20% each. There was also still provision for Mr Drapac to loan $2 million to cover overheads. Again, repayment of the loan was to be the first priority.

99 An executive management meeting was held a few days later and was attended by, amongst others, Mr Drapac, Mr Wain, Mr Mercuri, Mr Murchie and Ms Weston. The purpose of the meeting was to discuss the proposal that Mr Wain, Mr Mercuri and Mr Murchie had put forward. According to Mr Murchie, the meeting began with Mr Drapac saying that they needed to wind up the existing agreement as the proposal by the key employees did not work for him. Mr Murchie says that Mr Drapac said that he would keep Mr Wain and Mr Mercuri as consultants and that he and Mr Murchie would run the funds management business. Mr Murchie says that Mr Drapac expanded by saying that if he was to wind up the existing agreement and pay out the entitlements that that pay out would be subject to certain caveats and, in the case of Mr Wain and Mr Mercuri, they would have to give "deal flow" (that is, access to property investment opportunities) to Mr Drapac for a certain period. At the end of the meeting Mr Drapac agreed to submit a paper to them outlining his view of how the Drapac Group may work going forward. The minutes record that there was discussion about creating three distinct Drapac Group units for funds management, Drapac Agriculture and property.

100 On 28 August 2009, Ms Weston sent an email to Mr Drapac with her comments and questions in relation to a document that Mr Drapac had prepared for the Drapac Group going forward. As part of her comments, Ms Weston stated the following:

1. % equity needs to be defined/Management control. I don't think equity should be linked to tenure as it has failed in the past eg. look at yours and AW relationship now and how the agreement has made an exit strategy extremely difficult.
2. Treatment of current entitlements needs to be more clearly defined. Again I know each will be treated differently in some respect but you need to specify caveats (if any). Also, consider if it is fair to place caveats that restrict the employees to the point where they are still tied to the business unwillingly.

101 In cross examination, Mr Drapac said that the only agreement by this time was the Bristow discussion paper (an agreement to agree) and that they were working on an agreement. When questioned about what he understood the words "current entitlements" in point 6 to mean, Mr Drapac deflected the question and said that Ms Weston should be asked what she meant but that entitlements had always meant to him "provisional entitlements" or "conditional entitlements". Although he could not point to any document recording the entitlements as "conditional" or "provisional" he says they were always referred to as "conditional" because an agreement had not been formalised or finalised. He also said that the word "entitlements" was thrown at him a thousand times by staff and what it meant to them and what it meant to him were two different things.

102 Mr Drapac's evidence was that there were many discussions over a period of about two months as the employees maintained that they had equity and he maintained that any interest was conditional. Mr Drapac said he was trying to get a feel for whether he could still create a dedicated team to drive his business. In this regard, it was his view that if any of the key employees were to be paid any amount (which would have to be negotiated) then they would have to substitute something in place of serving 10 years as an employee. According to him, it was in that context that the word "caveats" was used. However, these discussions did not result in a resolution of the dispute.

103 Later that day, Ms Weston sent a draft of Mr Drapac's business proposal to Mr Murchie, Mr Wain and Mr Mercuri. The introductory paragraph reads as follows:

Please find below a draft document. I have put as much detail in as possible but feel I need to have a 1:1 discussion with each of you to determine a more specific structure for moving forward. From this discussion, I would like to determine what your aspirations are, how (and if) you see your future in the Drapac business and also discuss the discharge of current equity entitlements.

104 Further on in the document, the following appears:

For the purpose of moving forward, it is suggested that the proposed staff incentive agreement not be finalised and any entitlements be individually dealt with and discharged.

105 Further on again in the document, it is stated:

The release of equity (and the concomitant Release of obligations) from the incentive agreement may carry caveats.

106 An executive team meeting was held on 31 August 2009 when Mr Drapac's proposal was discussed. According to Mr Wain and Mr Murchie, they told Mr Drapac that the proposal he had put forward was not a workable business plan. There was discussion about the entitlements of the employees - Mr Drapac referred to them as conditional or provisional until a new agreement was worked out. Mr Wain said that the entitlements had never been provisional. Mr Drapac wanted to meet separately with each of the key employees, but they wanted to discuss things as a group. Mr Drapac's view was that he had started the Drapac Group ten years before any of them had been employed in the business; they had no experience and skill in property development or funds management when they started but he trained them and gave them opportunities to develop themselves professionally; they did not make any financial contribution to the Drapac Group, but were employees who received salaries and bonuses for each profitable project; he was prepared to give them an interest in the Drapac Group on the basis that they commit to work for and grow it over a period of ten years, after which they would get the percentage interest in the Drapac Group as agreed in the final discussion paper of 2008; he had trusted them and allocated the units and shares to them provisionally and had subsequently negotiated with them to resolve the differences between them as to what the equity participation scheme should provide in case of them leaving the Drapac Group before the expiry of the ten year period. He felt that they were only intent on realising the assets and moving on for their own benefit which was not the vision that he had. According to Mr Murchie, Mr Drapac told them that the problem with their model for going forward was that he would not have control. According to Mr Mercuri, there was discussion at this meeting about conditions or restrictions (concerning a restraint on Mr Wain and Mr Mercuri from dealing with existing clients of the Drapac Group for a period of time and their providing "deal flow" to Mr Drapac giving him an opportunity to inject equity at cost for a certain percentage of equity for any project going forward) that would be imposed if entitlements were paid out. The meeting ended in a stalemate.

107 In email correspondence throughout the course of 2009, Ms Weston referred to a "current equity agreement". For example, in an email she sent to Mr Murchie on 2 September 2009, she referred to "working out a way to exit the current equity agt [sic] and enter a new one".

108 Mr Mercuri says that he met with Mr Drapac on 2 September 2009 at which time Mr Drapac expanded on the conditions that might apply if entitlements were paid out. They talked about clients of the Drapac Group, providing access to Mr Drapac to deals that they were able to secure in the future so that Mr Drapac could consider investing on a transaction by transaction basis. According to Mr Mercuri, Mr Drapac also talked about transition from the current workplace and how it was set up and going into the new venture; a potential consulting role for Mr Mercuri back to the Drapac Group for a period (mainly to look after existing projects) and the possibility of Mr Mercuri retaining a role on the compliance committee. Mr Mercuri says that Mr Drapac asked him to summarise what they had talked about and email it to him.

109 On 4 September 2009, Mr Mercuri sent to Mr Wain and Mr Murchie a document that he was planning to send to Mr Drapac. It was a similar discussion paper to that which had earlier been provided to Mr Drapac, but in an amended form. Under a heading, "Why the current ten year shareholder scheme will not work in the future", the following is recorded:

• The incentive share scheme was based on good intentions;
• It envisaged that the core group of key employees would work together for a long period of time achieving success for the group which in turn would benefit each of the shareholders;
• The scheme becomes unworkable when:
  • key employees have different aspirations;
  • key employees have different vision for the future of the business;
  • key employees have differences of opinion in major business decisions/lack of consensus;
  • key employees who are not enjoying their work, not performing or are looking for a change in direction - incentive to see out their tenure for the wrong reasons;
  • after 5 years - we are still trying to finalise certain aspects of the agreement which has caused a huge amount of distraction, stress and uncertainty for all shareholders;
• After five years of the agreement, the Drapac Group is in an enviable position whereby the Group has cash at bank with the remaining projects having a defined exit strategy in a relatively short space of time;
• The fact that we are not tied into any long-term project/investments provides an excellent opportunity for an exit opportunity for any or all of the shareholders.

110 Mr Wain had a short discussion with Mr Drapac on 3 September 2009. Mr Drapac believed that the discussion had occurred but said he could not recall it. According to Mr Wain, during the discussion Mr Drapac said that for him, dissolving the current arrangement and parting ways was a simple cost benefit exercise with his key priority being to reduce his stress levels. According to Mr Wain, Mr Drapac was proposing that he provide deal flow to him for a period of two to three years with the right for Mr Drapac to invest up to 30% of the equity at cost. Mr Wain says that he asked whether if he agreed to this Mr Drapac would release his capital from the Drapac Group and that Mr Drapac looked him in the eyes and essentially gave him a firm undertaking that he would. On that basis, Mr Wain says that he told Mr Drapac that he was prepared to move forward. Mr Drapac gave evidence that those sorts of points were discussed. He could not recall the precise terms of the discussion but he denied that he said that Mr Wain's "alleged" capital would be released.

111 On 7 September 2009, Mr Murchie sent Mr Drapac an email which he stated was a summary of an earlier discussion that they had had. Mr Drapac could not recall the discussion. In Mr Murchie's view, there were two clear options in relation to the broader Drapac Group. The first involved winding up the "existing staff entitlement agreement", resulting in the payment of "entitlements to all concerned (timing to be determined)". Mr Murchie said that caveats may also need to be discussed and defined as appropriate in relation to this option. The second option related to re-engineering the funds management business.

112 At an executive team meeting on 14 September 2009, Mr Wain says that there was further discussion about Mr Drapac having a "look in" for future deals that he may generate. According to Mr Wain, Mr Drapac said that it was preferable if it was not a contractual obligation but more of a gentlemen's agreement, but if it were to be contractual, it should be for as short a time as practicable, up to two to three years. He says that Mr Drapac was nodding his head and that when they left the meeting, he thought that they had agreed on the way their interests could be realised in an orderly fashion. Mr Drapac was to get back to them within a week to finalise arrangements. Mr Mercuri's evidence was consistent with this. According to him, by the end of the meeting they had an agreement with Mr Drapac that their entitlements would be paid out if they adhered to certain caveats, being that they would not deal with clients of the Drapac Group and that they would provide Mr Drapac access to any deal flow for a designated period. Mr Drapac denies agreeing to anything at this meeting.

113 In an email of 16 September 2009 from Ms Weston to Mr Drapac, Ms Weston stated:

Please realise that I feel very caught in the middle of all this. Adam, Santo and Ashley are all my colleagues and whilst I agree with some of the things you say I don't agree with everything. I have realised that most of the times I do say something you take it personally or negatively. This is not the way it is said. I am trying to make you see the other side of the story, or the legal side and some possible outcomes of what you are proposing. I am only trying to help.

I was thinking maybe it is worth having a 'mediator' in the meeting so everything is taken in the correct context. This may also speed up a resolution. Perhaps check with Bruce Cameron what he thinks.

114 With her email, Ms Weston sent a document headed "The Process Going Forward". In the document, Ms Weston recorded some of the meetings that had been held since the end of July 2009 about the Drapac Group. Under a heading, "What needs to happen now?", Ms Weston recorded that the three executives had agreed that they were happy for the current agreement to be wound up with caveats to be applied. For this to be done, it was necessary to define and document what the actual caveats were (according to Ms Weston) and these things fell into three categories: clients, deal flow and continuity of the business. Another question that Ms Weston raised in the document was as to the timeframe for the payment of moneys from the "previous agreement". Another question she had included was whether, if the new arrangement (e.g. caveats, timing et cetera) could not be agreed by all parties, the arrangement reverted to the current equity agreement. She raised the question of, if not, how they would move forward. In relation to the statement "In principle, the three executives have agreed that they are happy for the current agreement to be wound up" Ms Weston said during cross examination that this referred to the draft agreement being prepared by Mr Cameron although she was not too sure how a draft agreement would be wound up. Although Ms Weston had sent the email she was not sure whether she had received input from the key employees before sending it. Mr Drapac gave evidence that the views expressed by Ms Weston in this email were hers and did not necessarily reflect his views.

115 There was another executive team meeting on 23 September 2009. An item on the agenda was "Appointment of an Arbitrator". Mr Drapac said that he had decided to appoint an arbitrator as he found the situation extremely stressful and wanted someone independent to deal with the issues between him and the employees. He wanted to wind up the protracted dispute and to bring some finality to the matter which had been dragging on for a long time. He believed that there was no agreement but the employees were arguing that they had entitlements - if they were entitled to anything, Mr Drapac's view was that they would get paid their entitlement but remained of the view that they were not entitled to anything.

116 Ms Weston gave evidence that at about this time, when she sent emails to Mr Drapac, they were quite frequently dictated to her by one or other of Mr Mercuri, Mr Wain or Mr Murchie. An example is an email of 28 September 2009. The email read:

Hi Michael,

I hope you are well and enjoying the relaxation of Gwinganna.

Just following up on our conversation on Friday re how to progress with the Employees Participants Agreement. Could you please advise if you have given it some more thought and determined which way you wish to move forward. I would like to ensure the ball is kept rolling whilst you are away as I believe if we can settle the agreement/arrangement soon it will greatly assist your level of stress and wellbeing. However I know it is not a cut and dry scenario but if I could make any necessary appointments for you (sic) return next week to bring this matter to a close, I think it would be greatly beneficial.

To that end, do you need another appointment with Bruce Cameron? If so, I believe it may be beneficial to have Adam, Santo and Ashley there as well as Bruce is acting on behalf of the group and it may be beneficial so you all know (including Bruce) where each other is coming from. Also, please advise if you would like me to set up an appointment with David Lurie for yourself.

Michael, the worst thing we can do for everyone's sake is to let this drag out. Again, I reiterate I understand this is not a straight forward decision but everyone in the office, particularly those involved is feeling the stress of the unknown. I understand how difficult this is for you and the stress you are under and I just want to help bring this matter to a resolution so you can put this matter behind you.

117 As will be seen from what follows, David Lurie was the solicitor Mr Drapac engaged to (among other things) advise in respect of the termination of Mr Wain. Ms Weston says that the words "let this drag out" in the 28 September email were not her words.

Mel, I don't disagree with you, I've now spoken at length with 3 lawyers. All have given exactly the same advice, and I will be moving very quickly. I would be happy to discuss it with you if you feel that you want to be involved, otherwise leave it to me and the lawyers. The direction I'm taking won't please many but being bullied by Ash et al isn't fair or reasonable. I've asked Jenny Stillwell to work with David Lurie, as of now, to move on staff to be made redundant and Ash, Santo, Adam and Sarah. Jenny will contact you for docs. Mel, key point to be aware of is that as the boss of the company I should be acting in its best interests, in lawful and reasonable ways, and that doesn't mean that I have to dance to Ash, santo and Adams [sic] tune. In the first instance I need to reduce overheads and that means retrenching staff which aren't essential to going forward, that's not at Adam or Santo's call.

119 Ms Weston responded offering her assistance. Mr Drapac responded to that offer as follows:

I would like to involve you but only if you feel comfortable about it as it might get a little unpleasant. What you can be certain of is that I have insisted to all lawyers that I want to be absolutely fair and reasonable, obviously if Ash thinks he's entitled to 10X but the fairest minded lawyer says 3X, of course Ash is going to be SCREAMING. Let me know.

120 By early October 2009, Mr Drapac's relationship with the key employees had significantly deteriorated. In particular, he had a number of heated discussions with Mr Murchie in which he effectively accused the key employees of trying to destroy him and sabotage the Drapac Group. Mr Drapac gave every indication that he would stand up to the key employees and that they would not "ride roughshod" over him. According to Mr Mercuri, at a meeting on 8 October 2009, Mr Wain asked Mr Drapac if he had formulated a view on how they were going to transition into the new Drapac Group and Mr Drapac replied that they had their view and he would have his soon and when he finalised his view, they would know about it. According to Mr Mercuri, he asked what that meant and Mr Drapac replied that they would know about it when he had got a position. Mr Wain's evidence is consistent with this.

121 On 19 October 2009, Mr Lurie informed Mr Drapac that he had been in touch with Mr Gavin Debono of Pitcher Partners who were the group's external accountants. It was his understanding that the accounts for the Drapac Holding Trust had not been completed for the years 2007 to 2009. Mr Lurie stated that there did not appear to be any advantage to completing them in the short term. It seems that the delay in completion of the accounts may have resulted from the departure of Mr Haydar and the uncertainty as to the accuracy of the accounts prepared during his time as general manager of the Drapac Group. Mr Lurie's evidence was that in those circumstances, the sensible course to adopt was not to put anyone at risk to complete books of account. When Mr Drapac was cross examined about this, he said that he did not fully understand what Mr Lurie meant at the time. He said that the issue was how they would deal with the units which he maintained had been provisionally allocated and this was a question for Mr Lurie to answer. Mr Drapac maintained that he acted on the advice of Mr Lurie.

122 On 9 November 2009, Ms Weston sent an email to the internal Drapac Group finance manager, in which she stated that given the current situation regarding Mr Wain, Mr Lurie had asked them not to submit any further accounts for any of the entities.

123 Mr Wain has made a number of requests for financial information regarding the Drapac Holdings Trust for the years 2007 to 2010. He was informed that there were a number of issues that were being worked through and that it was uncertain when they would be complete, but that they were endeavouring to finalise them as soon as possible. At the time of the trial, accounts were still in the process of completion.

124 In relation to the delay in preparation of the accounts, counsel for the Drapac parties submitted that Mr Wain and Mr Murchie in their capacity as directors had the power to secure the timely provision of accounts. However, it is artificial to expect that having been terminated as an employee, Mr Wain as a director was still able to exercise control.

125 Against this factual background, the question is whether Mr Wain, Mr Murchie, Burayda, AJ & KM Pty Ltd and Murchie Investments ("the Wain and Murchie parties") have standing and are entitled to seek relief under s 233 of the Corporations Act. Such a claim may be made by a member of the relevant company.[13]

126 Share certificates were created and some copies are held by Mr Wain and Mr Murchie. The shareholdings have been registered with ASIC. There is no suggestion that the issue of the certificates and the registration of the shares with ASIC are a sham. In my view, Mr Wain and Mr Murchie as members of Endoline and Drapac Management have established that they have standing to bring the claim. However, if the Wain and Murchie parties are not beneficially entitled to the shares in Endoline and Drapac Management and the units in the Drapac Holdings Trust, Drapac Trust No. 2 and Drapac Sustainability Fund, then it is unlikely that relief would be granted. In this regard, Mr Drapac and the companies that he controls ("the Drapac parties"),[14] claim that it is they who are truly entitled to the shares and units.

127 The Drapac parties submitted that to answer the question of who is beneficially entitled to the shares and units, it is necessary to determine the basis upon which the copy share and unit certificates were issued. They submitted that the Court should focus upon the proposal made by Mr Drapac to the key employees. Their case proceeded on the basis that if there was no contract for the issue or transfer of shares and units to the Wain and Murchie parties, then they cannot have any beneficial interest in them. In this regard, the Drapac parties asked the Court to delve into each aspect of a contract - offer and acceptance, intention to create legal relations, consideration etc.

128 It seems to me that it is misconceived to look at whether there was a contract or not for the issue of the shares and units. As counsel for the Wain and Murchie parties submitted, their claim is not based on contract and it is not a necessary requirement for the granting of relief under s 233 that the Court enter into an analysis of any antecedent arrangement that led to the issue of the shares or units. The shares and units are registered in the names of the Wain and Murchie parties. In the absence of any claim by the Drapac parties to set aside the transfer or issue of shares, the contentions about contract go nowhere. Rather, what is at issue is whether the shares and units are held on trust or some other basis for the Drapac parties and that does not turn on whether there was a contract or not.

129 The Wain and Murchie parties do not hold the originals of the share and unit certificates. Rather, they hold copies. The Drapac parties submitted that the share and unit certificates are held as an escrow for the transferring entity pending entry into a legally binding shareholders agreement. The concept of escrow depends upon the intention of the party that executes the document having regard to all the surrounding circumstances.[15] If it can reasonably be inferred that the document was not to take effect until a particular condition was fulfilled, it will operate as an escrow.[16] In this regard, much turns on the intention of Mr Drapac (as the controlling mind of the relevant entities) when the shares and units were issued or transferred.

130 Mr Drapac gave evidence that he could not say what his state of mind was at the time that the shares and units were issued or transferred. However, viewing the evidence as a whole, it seems probable that he did intend the certificates to take effect as soon as they were signed by him and that he intended that the shares and units were to be held beneficially by the Wain and Murchie parties from the time they were issued or transferred. It also seems likely that he intended there to be some restriction on when they could cash in their interests, but this does not affect their beneficial ownership of their interests in the meantime. The contemporaneous documents support this conclusion. The forms lodged with ASIC all record that the shares held by the Wain and Murchie parties are held by them beneficially. There is no mention in any of the resolutions for the transfer, issue or allotment of shares and units to them being held otherwise than beneficially. Nor do the share or unit certificates contain anything indicating that they are not held beneficially by the Wain and Murchie parties. Nor is there such an indication in the applications for the issue of shares in Endoline. Further, the trust deed for the Drapac Holdings Trust does not refer to the unit-holders holding their interests on trust for anyone.

131 Moreover, the subsequent events are consistent with the conclusion that the shares and units are beneficially held by the Wain and Murchie parties. For example, the documents prepared by Mr Haydar refer to "payout of capital" being only after ten years service.[17] The scheme was to reward the employees (in part) for their past loyalty to the Drapac Group. Further, distributions were made to the Wain and Murchie parties from the relevant trusts.[18] If they had no beneficial interest in the trusts, then one would not expect them to receive trust distributions. I do not accept the contention on the part of the Drapac parties that the distributions were advances against "proposed future entitlements". The documentary evidence does not support this. There is no mention anywhere that these distributions were anticipatory, conditional or otherwise than normal entitlements that one might expect as a unit holder.

132 The Bristow discussion paper that was signed in August 2008[19] talks about the interests that the key employees had and states that none of them was to be disadvantaged with the transition to the finalised scheme. It makes no mention that those interests are not beneficially held. The discussion of the discount to be applied if an employee left before December 2014 suggests that the interest was held beneficially but that there was some restriction on when it could be realised.

133 The initial letter that Mr Cameron of Norton Gledhill wrote recording what he understood the background to be makes no suggestion that the interests are not held beneficially by the key employees.[20] Mr Drapac did not contact Mr Cameron to take issue with his description of the interests having been granted and acquired for full market value.

134 Whilst Argyles gave advice about minimising the potential capital gains tax and fringe benefits tax that may otherwise be payable, this only seems to have related to issuing additional units (up to the maximum number of units to which an employee might become entitled), but not to the starting units. For example, Mr Wain was initially to get an 11% interest with an increase to a maximum of 13%. The advice only seems to have related to the 2% difference not the whole 13%.

135 Further, following the issue and allotment of the shares and units, most of the discussions between Mr Drapac and the key employees were directed towards when the capital interests could be realised, not to the beneficial entitlement to hold those interests. Hence the references to "hand cuffs", "10 years" and the like and to the continued negotiations and attempts to document an agreement about it. Mr Drapac's email to Ms Weston on 16 March 2009 that the employees could not sell until they had served ten years is also consistent with the Wain and Murchie parties having the beneficial interest in the shares and units.[21]

136 The Drapac parties submitted that if the share and unit certificates are not an escrow, then the shares and units are held on a resulting trust for the company that issued or transferred them. Where property is transferred from one person to another without consideration there is a presumption that the property is held on trust by the transferee for the transferor.[22] The presumption may be rebutted by evidence.[23]

137 Mr Wain's evidence about the amounts paid for the shares and units he and his companies hold was not challenged. Even if no cash was paid for the shares and units, the weight of the evidence is that there was nevertheless consideration given for them. Mr Drapac's evidence was that the shares and units were certainly paid for and that this was not done by payment of cash but rather by the creation of loan accounts. According to him, the amount owing on those loan accounts has not been repaid. That is consistent with the evidence that Mr Murchie gave in cross examination. Although of less weight, it is also consistent with the email from Mr Haydar to Mr Wain in October 2007[24] and with Mr Cameron's email setting out the background, as he understood it, which was to the effect that the key employees acquired their interests for full market value, although they had yet to pay the amount which was due for them (which suggests a liability to do so).

138 The Drapac parties submitted that there was no evidence of any loan agreement underlying the book entries and that, in the absence of that evidence, the Court could not conclude that valuable consideration had been given for the shares and units. They relied on HCK China Investments Ltd v Solar Honest Ltd & Ors.[25] In that case, HCK entered into sale agreements for the purchase of shares from the Wah Nam Group of companies ("WNG") and parties friendly to WNG. HCK's nominee company (Eutopia) also entered into a sale agreement for the purchase of separate parcels of shares from Charmlink International Ltd and Wise Spencer Ltd (who were also friendly to WNG). HCK was to pay the net tangible asset value of the shares plus a 3% premium. The main sale agreements completed but the Eutopia sale agreement did not complete. There was then discussion about the preparation of a document to cover the amount owing to Charmlink and Wise and Spencer and the balance of an amount owed to WNG. WNG instructed a solicitor to draft an agreement to record the amount payable by HCK and to make it enforceable. The solicitor was told that 10 million shares were to be deposited by HCK as security for the payment and that Solar Honest was to act as a collection agent for the parties to whom the amount was owed. A document was prepared which recited that HCK was indebted to Solar Honest and that HCK had deposited with the solicitor (as escrow agent) a transfer form for 10 million shares in blank as to the transferee ("the Solar Honest document"). The document recorded that if the amount of the debt and interest was not paid within 45 days then the blank transfer form was to be delivered to Solar Honest "who shall be entitled to register such blank transfer form in its name" and to exercise its power of sale in respect of the shares to satisfy the debt. The moneys were not paid and the transfer form was provided to Solar Honest. The transfer form was completed by inserting the name of Solar Honest as transferee and inserting a consideration of $1.5 million. That figure was based on the last closing price for the shares. Solar Honest became the registered holder of the shares. HCK claimed that the shares were held on resulting trust for it because Solar Honest did not provide any monetary consideration for the transfer of shares to it. Hely J held that the Solar Honest document was not effective to create any debt or other obligation in HCK to Solar Honest and therefore, the transaction could not take effect by way of mortgage.[26] His Honour then turned to consider whether there was a resulting trust and looked at the share transfer for evidence of HCK's intentions. His Honour stated:

Nothing can be deduced from this document. The fact that it nominates consideration paid for the shares is of no moment - this was a fictitious entry made by Solar Honest: cf House v Caffyn at 80. Accordingly, a presumption of resulting trust arises. However, this may be rebutted by evidence of HCK's intentions.

The surrounding circumstances indicate that HCK did not intend to make a gift of the IAL shares to Solar Honest. Its intention was to assume an obligation to Solar Honest, and to provide the 10 million IAL shares as security for performance of that obligation. If the intended assumption of the obligation fails, then, it seems to me to follow that the intended provision of security also fails, and that there is a resulting trust in favour of HCK.[27]

139 Central to his Honour's reasoning was that HCK did not owe money to Solar Honest but rather owed money to Wise Spencer, Charmlink and WNG. His Honour stated:

Those creditors could sue HCK for breach of their respective agreements. Instead, for whatever reason, it was decided that Solar Honest should be interposed as the single creditor to which all the outstanding sums were due. That enterprise failed. The result is that Solar Honest cannot sue on a debt it is not owed and has no absolute entitlement to the property which was intended to secure a debt to be assumed by HCK, but which was not effectively assumed.[28]

140 The facts in that case are distinguishable from those here. This is not a case in which the transfer forms for the shares in Drapac Management were executed in blank by the transferor with the identity of the transferees and the amount of the consideration completed later. Nor does the evidence support the proposition that the wrong party received the shares as was the case with Solar Honest.

141 In this case, there is more evidence than simply the share transfer form to establish whether there was any consideration. For the reasons I have given, I am satisfied that consideration was given by the Wain and Murchie parties for the shares and units registered in their names.

142 Having determined that the shares and units are beneficially held by the Wain and Murchie parties it is next necessary to consider whether there has been any oppression that would justify the granting of relief under s 233 of the Corporations Act. In this regard, Mr Wain and Mr Murchie rely on the manner in which their employment came to an end, matters concerning one of the Drapac Group projects (known as Le Boulevard), an alleged plan to dilute their interests in the Drapac Group and the absence of a reasonable offer to purchase their interests. I will consider each of these matters.

143 To understand the context in which Mr Wain's employment was terminated, it is necessary to understand what happened in relation to three properties that the Drapac Group was considering or might have considered purchasing at different points towards the end of his employment. These are the properties at:

144 It is also necessary to have some understanding of the events concerning a project known as Fortitude Valley.

145 I will set out the facts relating to each of these properties in turn (so far as relevant to this proceeding).

146 The property at 1-13 Cobden Street, South Melbourne, was identified as a potential property acquisition by the Drapac Group.

147 On 23 October 2009, Mr Wain sent an offer to purchase the property to the agent.

148 On 26 October 2009, Mr Wain received a telephone call from the agent who said that if they could agree on a purchase price of $8.75 million, the owner would sell. Mr Wain said that they would agree to that. On the same day, the agent told Mr Harry Silver of Katz Silver Solicitors (who acted for the vendor) that the property had been sold to "Drapac" and that the contact person was Mr Wain.

149 On 27 October 2009, Peter Bazzani of Bazzani Scully Brand, solicitors, received a call from Mr Silver. Mr Silver told Mr Bazzani that the Cobden Street property had been sold to the Drapac Group subject to a due diligence period. Mr Silver asked Mr Bazzani to send him a copy of the usual Drapac due diligence agreement. Mr Bazzani's assistant sent an email to Mr Mercuri (copied to Mr Wain) informing him of the call from Mr Silver and requesting a copy of the normal Drapac due diligence agreement. In response, Mr Wain forwarded proposed heads of agreement to Bazzani Scully Brand. Mr Wain also sent a copy of the draft heads of agreement to the agent. The draft heads of agreement referred to the purchaser as Ashley Wain and/or nominee care of Bazzani Scully Brand with a purchase price of $8.75 million. The heads of agreement were conditional upon due diligence.

150 On the afternoon of 30 October 2009 (after his employment had been terminated) Mr Wain spoke to the agent who told him that subject to a few changes, the heads of agreement were fine. Mr Wain told the agent that his employment had been terminated and that he was not in a position to help the Drapac Group conclude the deal. According to Mr Wain, the agent told him that he had someone else interested in the property and that he would pursue that avenue. Mr Wain did not suggest to the agent that he contact anyone else in the Drapac Group. His view was that there was no concluded deal at that stage and the discussion he had with the agent was in the context of the turmoil that had been created through termination of his employment the previous day.

151 About a week later, Mr Wain spoke to the agent again. Mr Wain's evidence was that this was a courtesy call by the agent to tell him that he was about to sell the property to someone else. His telephone records were consistent with him having made or received a number of calls to or from the agent around this time. However, the calls were of very short duration and Mr Wain suggested that he may not have actually spoken to the agent. He said that he only recalled speaking to the agent once.

152 Heads of agreement dated 6 November 2009 were entered into by First Urban Pty Ltd and/or nominee as purchaser. The form of the heads of agreement was in virtually identical terms to the earlier proposed form of offer made by Mr Wain. It seems that the ultimate purchaser was Cobden Developments Pty Ltd which is not a company related to Mr Wain.

153 After Mr Wain's employment was terminated, Mr Mercuri was asked to follow up the status of the negotiations for purchase of the property. When he contacted the agent in early November 2009, he was told that it had been sold.

154 On 12 November 2009, Mr Mercuri informed Bazzani Scully Brand that he had spoken to the agent who told him that the property had been sold. Mr Bazzani spoke to Mr Silver who told him that the property had been sold to Mr Wain.

155 The Drapac parties allege that Mr Wain dishonestly attempted to secure benefits for himself or a related entity by diverting the opportunity to acquire the Cobden Street property. Mr Drapac did not raise any concern about Mr Wain's activities regarding the sale of the Cobden Street property until he issued the counterclaim in this proceeding in May 2010.

156 In determining, on the balance of probabilities, whether the allegation is made out, the Court may take into account the gravity of the matters alleged.[29] Here, the allegations are of a serious nature and, in effect, are allegations of fraud. As four members of the High Court stated in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd:[30]

The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.[31] [Citations omitted]

157 The Drapac parties rely on the following matters which they say support their case against Mr Wain:

(a) the property was on the property register maintained by the Drapac Group and was identified as a potential property acquisition;

(b) no electronic folder was created on the property drive of the Drapac Group server for the property and the heads of agreement document that Mr Wain used was stored on a different drive to the one commonly used for storing property information;

(c) Mr Wain pursued the property without the knowledge of Mr Drapac;

(d) although Mr Wain gave evidence that he told Mr Mercuri that he was pursuing the property on behalf of the Drapac Group, there is no corroborating evidence to that effect, despite the fact that Mr Mercuri swore an affidavit and testified in court;

(e) Mr Wain made an offer to purchase the property using heads of agreement with the purchaser described as Ashley Wain and/or nominee;

(f) Mr Wain's evidence as to his discussions with the agent are implausible - the offer put by Mr Wain was acceptable subject to some minor changes, so why would the agent not ask for contact details for someone else at the Drapac Group or attempt to contact someone there to finalise the sale?

(g) why would the agent call Mr Wain a second time to make sure that he was not interested before selling the property to First Urban? The Drapac parties contended that it follows that any conversation between the agent and Mr Wain on 6 November 2009 must have related to Mr Wain's personal interest in the transaction opportunity diverted to First Urban;

(h) if Mr Wain's evidence were to be accepted, he was still a director of Drapac Management on 30 October 2009 and, on his own evidence, he breached his duties as a director by informing the agent that he was not in a position to conclude the deal and permitted the agent to take the deal to another purchaser.

158 The allegations that the Drapac parties make against Mr Wain are very serious. Overall, the evidence is insufficient to support the case put by them. Mr Wain's employment had just been terminated in acrimonious circumstances. It was clear from his telephone records that he makes and receives a significant number of calls. The telephone calls between Mr Wain, the agent and the eventual purchaser were relatively few, compared to the number of calls over a period of a week. It is not surprising that he does not have a good recollection of the calls. Whilst his version of what occurred had some difficulties, I am not persuaded that he was untruthful or that he did divert an opportunity away from the Drapac Group to First Urban or that he stood to gain anything personally out of the sale of the property to the ultimate purchaser. Rather, it seems to me that in circumstances where he was disgruntled by what had occurred, it is quite likely that he told the agent that his employment had been terminated and that he was no longer the contact person. It also seems to me likely that he would not direct the agent to anyone at the Drapac Group. The fact that he had not told Mr Drapac about the property and the offer that had been made is not surprising given Mr Wain's seniority and position in the Drapac Group and the poor state of his working relationship with Mr Drapac at the relevant time. By mid October 2009 when the first offer was made for the property, there was a level of distrust between him and Mr Drapac. The storage of documents on different drives to those commonly used does not prove that anything inappropriate was done. There was no evidence that Mr Wain or anyone associated with him purchased the property. The ultimate purchaser was not called to give evidence.

159 The property at 118-120 High Street, Kew was identified as a potential property for acquisition by the Drapac Group. It was to be offered for auction on Wednesday 26 August 2009.

160 On 17 August 2009, Mr Wain emailed the real estate agent regarding the upcoming auction. The next day, he emailed a colleague in the Drapac Group regarding the Certificates of Title for the adjoining property. Mr Wain thought that the property may be more suitable if it could be consolidated with the adjoining properties.

161 On 20 August 2009, Mr Wain sent the advertising brochure for the forthcoming auction to Mr Mercuri.

162 On 24 August 2009, Mr Wain contacted his brother-in-law, Paul Cleary, who works for a mortgage originator, Balmain Finance, in regard to what information would be needed to obtain finance. One of the requirements was substantiation "of income via letter from your accountant". Mr Cleary stated in his email that, "In the event that you could substantiate income (via tax returns or Notice of Assessment) we would be more likely to secure better pricing and lower establishment fees for this transaction". Mr Wain gave evidence that he made an enquiry for finance in case he purchased the property at the forthcoming auction because he says he would have had to sign a contract requiring cash payment in 60 days. He did not make enquiries in relation to other properties where the offer to be put was highly conditional (for example, Cobden Street).

163 National Australia Bank ("NAB") was the main financier of the Drapac Group. Mr Hardy was the principal contact at the bank. He gave evidence that at the time of this proposed purchase, the Drapac Group was in good standing with the bank. If funding of $2 million had been sought, financials (profit and loss statement and balance sheet) of the proposed purchasing entity (from within the Drapac Group) would have been sought by the bank. The bank would not have asked to see the tax returns or notice of assessment.

164 Mr Wain attended the auction on 26 August 2009. The property was passed in. When Mr Wain returned to his office, he spoke to Ms Weston and told her the outcome of the auction. Ms Weston later emailed Mr Drapac informing him that Mr Wain had returned from the auction and that the property was passed in at $2 million without any bids.

165 On 2 September 2009, Mr Wain sent the agent a formal offer for the adjoining property at 114 High Street, Kew. The offer listed the purchaser as Odessy Pty Ltd and/or nominee, with Mr Wain's residential address given. That company is controlled by Mr Wain. The offer was subject to execution of an agreement for the purchase of the property at 118 to 120 High Street, Kew.

166 On 3 September 2009, Mr Wain instructed his accountant to change the details of his company to "Odyssey Property Holdings Pty Ltd". In a post script to the email, he said that he was about to go out into business on his own and needed to discuss this with him. Mr Wain says that he did this because he thought he had reached an agreement earlier in the day with Mr Drapac to release his capital from the Drapac Group.[32]

167 On 11 September 2009, Mr Wain sent the agent for the property at 112 High Street, Kew an offer to purchase. The purchaser was named in the offer as Odyssey Property Holdings Pty Ltd and/or nominee and its address was given as Mr Wain's residential address. The offer was subject to execution by Odyssey Property Holdings Pty Ltd of a contract of sale for the purchase of the adjoining property at 118 to 120 High Street, Kew.

168 On Friday 18 September 2009, the agent sent Mr Wain further information about the properties at 114 High Street and an adjacent property, in Denmark Street, Kew, which Mr Wain then forwarded to his personal Big Pond email account.

169 The next day, Mr Wain sent an email to the agent confirming that he would retain the agent to assist in the purchase of the Denmark Street property with the purchasing entity to be Odyssey Property Holdings Pty Ltd. The email was sent from his personal Big Pond email account and Mr Wain asked the agent to forward the authority to that email address or his personal property address. He says that he did this because it was a Saturday, he was working over the weekend, he does not have a laptop computer and it was easier for him to send correspondence to his home email address. He gave evidence that he was expecting the agent to send the authority to him on the Saturday. This may explain why he gave his personal email address, but does not explain why he gave his personal postal address. In regard to that, Mr Wain 's evidence was that that is the address of Odyssey and if the authority had been sent to that address, he would have taken it in to the Drapac offices. The use of his own address is consistent with his explanation that he used the name Odyssey in order to maintain anonymity and not to raise the vendors' expectations for higher sale prices. Mr Wain denied that he sought to purchase the High Street, Kew properties for himself and not for the Drapac Group. Mr Wain said that it was an arrangement that he was entering into on behalf of the Drapac Group and the authority, when executed, would have found its way back to the Drapac Group.

170 The agent responded the following Monday and sent his response to both Mr Wain's Big Pond email address as well as his Drapac email address.

171 Mr Wain did not make any offer for 118-120 High Street, Kew. He says that he stopped pursuing the transaction as he deemed the three properties as an amalgamated development site to be too expensive.

172 Mr Wain gave evidence that this was not the only time that he had offered to purchase a property on behalf of the Drapac Group in a name other than Drapac. As an example, he produced a letter of 14 November 2005 in relation to the purchase of the Metro Nightclub which listed the purchaser as Ashley Wain and/or Nominee. Mr Drapac says that the only time he could recall a property being pursued or purchased in a non-Drapac name was in relation to that property and this was done for reasons specific to that transaction. However, Mr Wain gave six other examples where the purchaser was listed as "Ashley Wain and/or Nominee". Mr Wain said that the real motivation for using Odyssey was so that the property owners did not have the perception that a large corporation (such as one of the Drapac entities) that has a limitless amount of money was trying to purchase the property.

173 Mr Drapac did not know about Mr Wain's offers for the adjoining properties. Mr Wain says that he did not need permission from Mr Drapac to undertake preliminary negotiations for the purchase of properties for the Drapac Group and that he often only presented potential properties to the executive team and Mr Drapac when the negotiations were advanced or concluded.

174 In the end, neither the Drapac Group nor Mr Wain nor entities associated with him purchased the properties.

175 The Drapac parties contend that Mr Wain tried to purchase the properties for his own benefit. They made the following submissions:

(b) Mr Wain saved the emails and heads of agreement in respect of his dealings relating to these properties on the C drive of his computer, which was accessible by him only rather than the drive where all property information was stored;

(c) he directed the agent to communicate with him by use of his home email or postal address;

(d) by that time, Mr Wain intended to go into business for himself;

(e) Mr Wain's explanation for asking the agent to use his private email address is clearly wrong and untruthful, because he could have accessed his emails sent to his Drapac address remotely. Moreover, he proffered no plausible explanation why he asked the agent to use his home address for mail.

(f) Mr Wain retained the agent to assist him in the purchase of the Denmark Street property, and his email confirming the retainer confirmed that he personally, rather than the Drapac Group, was retaining the agent. He described Odyssey as the purchasing entity, without any reference to a nominee;

(g) Mr Wain did not disclose to Mr Drapac that he was interested in and had made offers in respect the High Street properties, and that he had linked the purchase of 112 and 114 High Street with the purchase of the adjoining properties;

(h) Mr Wain has never tried to purchase property for the Drapac Group by using one of his companies as the purchaser. Previously, there were occasions where Mr Wain, with the knowledge of Mr Drapac, purchased properties in the name of "Ashley Wain and/or nominee". In respect of the High Street properties, however, the heads of agreement stipulated that the purchaser was "Odessy Pty Ltd", without stipulating any nominee. The spelling of "Odessy" was subsequently corrected;

(k) it was unusual, if the properties were to have been purchased on behalf of the Drapac Group, that funding enquiries were made through Balmain, a mortgage originator where Mr Wain's brother-in-law (who was not called to give evidence), worked, because:

(i) Mr Wain testified that the Drapac Group was cashed up at the time, and the purchase price involved was relatively small. His explanation that he had made enquiries about finance with Mr Cleary because he would have had to sign an unconditional contract at the auction is clearly false having regard to his evidence about the cashed up position of the Drapac Group at that time. He gave no sensible explanation for not seeking finance through the group's principal banker, the National Australia Bank;

(ii) the correspondence from Mr Cleary of Balmain was clearly addressed to Wain personally;

(iii) Mr Cleary contemplated attending the auction;

(l) it was also unusual for a financier to request the tax returns of a prospective purchaser, if the purchaser was a company such as Drapac Management, or a group of companies.

176 The Drapac parties contend that it is clear that Mr Wain was pursuing the High Street transaction for himself in August 2009.

177 Again the allegations made against Mr Wain in relation to these properties are serious and amount to an allegation of fraud on his part. Bearing this in mind, the strength of the evidence is insufficient to establish on the balance of probabilities that Mr Wain was pursuing the Kew properties for his own interests rather than for the benefit of the Drapac Group. The use of his personal email account on a weekend does not strike me as so out of the ordinary as to raise a serious concern, even though there may have been other ways of him accessing work emails from home. Whilst at first blush the use of Odyssey as the prospective purchaser is more suggestive that what Mr Wain was doing was for his own benefit rather than for the benefit of the Drapac Group, his explanation is plausible. In addition, it is consistent with past practice when other properties had been investigated by him for the Drapac Group using a non-Drapac name. The finance enquiry of Mr Wain's brother-in-law may raise some doubts, particularly in light of the type of financial information that he sought, but it is not sufficient to alter my overall view in circumstances where Balmain Finance had been involved in other transactions entered into by the Drapac Group.[33] Again, the fact that Mr Drapac did not know about the offers is not surprising. As I have said, Mr Wain was a senior person in the organisation with considerable experience by this time. His relationship with Mr Drapac was strained. In those circumstances, it is unlikely that he would consult Mr Drapac in respect of the Kew properties until he had something more concrete to discuss.

178 Mr Drapac says that the properties at 36, 36a and 38 Church Street, Hawthorn were identified as a potential acquisition for the Drapac Group. According to Mr Wain, the three properties were operating as a fish and chip shop, denture clinic and two bedroom shop-top dwelling respectively. Mr Wain says that the properties were too small and did not fit the development profile of the Drapac Group. He emailed his wife about them on 8 September 2009 as she was interested in renting a retail shop close to their home from which to operate a café or delicatessen. Mr Wain sent his wife a marketing summary and contract of sale and vendor's statement, noting that the property was being quoted for about $700,000 or a bit above. She replied saying that that figure did not sound too bad. It was put to Mr Wain in cross examination that it was ripe for purchase. Mr Wain agreed that it may have been, but he and his wife were not motivated by that. Rather, they took an interest in the price because their home is around the corner and they were taking a general interest in property values close to their home.

179 The Drapac parties' case in respect of these properties is that Mr Wain diverted or was involved with the diversion of the property at the expense of the Drapac Group.

180 There is a paucity of evidence in relation to the Church Street property. What evidence there is does not establish any wrongdoing on Mr Wain's part. His evidence is plausible and there is no evidence that he knew that the property was included in the property register maintained in the Drapac Group, nor is there any evidence that Mr Wain or his wife or any entity associated with them purchased the property.

181 One of the projects that the Drapac Group investigated was known as Fortitude Valley Homemaker City. Due to the deteriorating relationship between Mr Drapac and the key employees, issues arose as to whether or not the Drapac Group should proceed with the investment in this project. This culminated in a letter of 13 October 2009 from Mr Wain, Mr Murchie and Mr Mercuri to Mr Drapac. Consideration was given to raising equity from third party investors. The letter stated:

The uncertainty surrounding the future direction of the Drapac Group and the unresolved matters between yourself and the members of the Executive Team is of significant concern, especially in respect of disclosing all relevant information to prospective third party investors together with financiers. Furthermore, once disclosed, the broader Drapac Group employees, and the market at large, will be aware of this uncertainty which may adversely impact the group, its reputation and its existing finance facilities.

As a stable management team is critical to securing both debt and equity for this investment, it is necessary to resolve internal matters before undertaking any further Drapac Group investments. To not do so places considerable risk on the Group and potentially exposes Directors and Responsible Managers to civil and other action.

182 The letter went on to suggest that Mr Drapac had indicated that friends or associates of his would be keen to invest with him in a project such as Fortitude Valley and it was suggested that perhaps a solution to moving forward was to nominate an entity that could allow Mr Drapac to form a syndicate between himself personally and his friends and associates.

183 Mr Wain, Mr Murchie and Mr Mercuri sent a further letter to Mr Drapac dated 20 October 2009. The letter raised concerns about proceeding with the Fortitude Valley project when, in their view, the financial services licence that they had did not allow for underwriting of managed investment schemes and the Drapac Group did not have the financial capacity, in their opinion, to underwrite the fund. They requested that in light of Mr Drapac's desire to proceed with the project, legal advice be obtained in relation to disclosure issues and other related matters. They continued to state that the working relationship having deteriorated, it was in everyone's interests to resolve the outstanding issues between the shareholders prior to entering into any new investments. They suggested a mediation be conducted by a qualified mediator.

184 Despite the concerns of Mr Wain, Mr Murchie and Mr Mercuri, in early November 2009, Drapac Management as trustee for the Drapac Fortitude Valley Growth Fund, entered into option agreements in respect of stages 1-3 of the project. The agreements provided for a 60 day due diligence period followed by a 60 day settlement. In January 2010, Drapac Management decided not to proceed as the required commercial steps had not been taken in time. Mr Drapac blames Mr Wain, Mr Murchie and Mr Mercuri for this as he says in August to October 2009 they had already "downed tools" in progressing the due diligence, capital raising and preparation of the information memorandum. Mr Drapac says that the amount that was spent on legal costs and the due diligence was all lost, as was the potential for yearly management fees and to recoup an establishment fee.

185 It seems to me that given the deteriorating relationship, Mr Wain, Mr Murchie and Mr Mercuri were acting prudently and raising valid concerns that needed to be addressed. Their caution in the circumstances was warranted, particularly as third party investors and financiers were to be involved in the project.

Events leading to the termination of Mr Wain's employment

186 At the time Mr Wain's employment was terminated, it was governed by a written agreement that he had entered into with Drapac Consulting Pty Ltd in November 2005.

187 Mr Wain's employment could be terminated by giving two weeks' notice and Drapac Consulting could make the equivalent payment in wages in lieu of giving notice. In the case of gross misconduct, Mr Wain could be dismissed without warning, effective from the time of the incident which brought about the dismissal. In the employment agreement, examples are given of gross misconduct including, but not limited to, neglect of important duties. The agreement also provided that Mr Wain must at all times act in the best interests of the Drapac Group and should endeavour to avoid situations where a conflict of interest may arise between his activities as an employee of the company and his dealings with other parties. The employment agreement also recorded Mr Wain's agreement not to use or disclose any confidential information without written permission at any time during his employment with the company or subsequent to that employment.

188 In about early September 2009, Mr Drapac enlisted the services of a consultant, Ms Jenny Stillwell, to provide advice about restructuring the Drapac Group. Ms Weston and Mr Drapac took steps to ensure that Mr Wain, Mr Mercuri and Mr Murchie did not know that Ms Stillwell had been engaged. For example, rather than her invoices being paid through Drapac accounts, Ms Weston sought Mr Drapac's authority to pay them from Briaroak's funds.

189 By about the middle of September 2009, Mr Drapac had formed the view that the Drapac Group could not go forward with Mr Wain and that he had to go. In late September 2009 he engaged the services of Mr David Lurie of B2B Lawyers and asked Ms Stillwell to work with him. According to Mr Lurie, Mr Drapac wanted Mr Wain removed as an employee and a director of the Drapac Group companies.

190 When Mr Lurie became involved, he raised the possibility of Ms Stillwell organising an IT investigation on "at risk" staff members (being Mr Wain, Mr Mercuri and Mr Murchie), including "deleted" material. The purpose of the proposed investigation was to search for evidence of misconduct by those employees to justify their termination. Ernst & Young were engaged to undertake a search of Mr Wain's emails from the computer server used in the Drapac Group.

191 Ms Stillwell prepared a draft discussion document dated 7 October 2009. It was headed, "Drapac - Business Restructure 2009-2010". Listed as a priority was the removal of Mr Wain from the Drapac Group as an employee, with Mr Wain's tenure as a director to be effected with no payout of his entitlements. The second priority was recorded as "Restructure of the Shareholders Agreement to remove Ashley (goal is zero payout) ideally retain Adam and Santo, and support development of Drapac business". Under the heading, "Immediate Priority - Termination Strategy for Ashley Wain", the following is recorded:

I recommend terminating Ashley as an employee, to remove him physically from any business operations and to remove his negative influence on the rest of the team and particularly the other Directors. He can be seen to have acted in breach of the Employee Agreement that he signed in November 2005, based on evidence of his intention to do property deals not relevant to Drapac, using Drapac time and resources to investigate and work on these. It can be seen from copies of emails that he has also tried to induce other Directors to be involved as well.

192 Mr Drapac gave evidence that, by this time, there was a high probability that Mr Wain would be removed. According to Mr Drapac, by that time Mr Wain had had a poor performance review; Ms Weston had seen emails indicating that Mr Wain was pursuing projects which were not in the Drapac Group property register; he had informed his accountant that he was going out into business on his own; he had not been managing the staff who reported to him; no new serious deals had been done for two years; the Drapac Group was losing money; he had been intimidating Ms Weston; he had incited staff to leave; his handling of another project was of concern; he had been obsessed with assigning the lease for the premises from which the Drapac Group operated. Mr Drapac blames Mr Wain for the Drapac Group imploding and in Mr Drapac's view, for the Drapac Group to go forward, Mr Wain had to be removed.

193 In an email exchange between Ms Stillwell and Ms Weston on 13 October 2009, Ms Stillwell observed that not much was uncovered by Ernst & Young from the first foray into Mr Wain's emails. She made inquiries of Ms Weston as to whether or not further investigations could be made in respect of deleted messages.

194 According to Mr Drapac, they were looking for evidence to confirm the suspicion that Mr Wain, in particular, was pursuing assets for himself, rather than the Drapac Group.

195 On 14 October 2009, Mr Mercuri (at the request of Ms Weston) sent to Mr Drapac a list of all properties that the Drapac Group was currently pursuing or monitoring. The Cobden Street, South Melbourne property was included but not the Church Street, Hawthorn or Kew properties.

196 On 19 October 2009, Ms Stillwell sent to Ms Weston a draft document for review in relation to the findings from the email review for Mr Wain, Mr Mercuri and Mr Murchie. The review had located emails in respect of the Kew properties from Mr Wain's records, the email to Mr Wain's wife in relation to the Church Street, Hawthorn properties and some other emails concerning other matters.

197 On 20 October 2009, Ms Stillwell contacted Mr Lurie and copied Ms Weston on her email. She stated that the emails had been reviewed by her and Ms Weston and that "We have enough to get rid of Ashley and nothing on Santo or Adam". She stated that she had a strategy for exiting Mr Wain and the rest of the identified staff.

198 Part of the timing relating to Mr Wain's termination appeared to involve consideration of whether or not it should occur before or after he had signed a witness statement in the proceedings against Mr Haydar. By 21 October 2009, the view had been formed that having him sign the statement should not be a concern as removing him was a "priority".

199 In the week commencing 26 October 2009, Ms Stillwell and Ms Weston were planning for the meeting at which Mr Wain's employment would be terminated. They received a draft report dated 27 October 2009 from Ernst & Young in relation to the electronic information that they had extracted. Ernst & Young noted that they had not interviewed Mr Wain, Mr Mercuri or Mr Murchie from whom possible further information may be forthcoming and they stated:

As the alleged improper conduct of the employees and the nature of Drapac's business are similar combined with the limited timeframe and without further supporting information, it is difficult for Ernst & Young to establish whether the emails are for legitimate business purposes.

200 In relation to potential conflicts of interest, Ernst & Young had this to say:

Ernst & Young has identified a number of areas of potential conflict of interest, however, these would require further investigation.

We have identified that there are a large number of emails between Mr Wain and Mr Cleary. A number of these emails relate to business transactions. We are unable to identify without further information whether the emails to Mr Cleary relate solely to personal transactions or also include Drapac transactions.

201 The draft report concluded with a summary of the further work that needed to be undertaken to finalise their investigation. Essentially, they needed to complete the assessment of emails and other documents with further optional tasks being to analyse policies and procedures, interview witnesses and examine other relevant Drapac Group documentation and "potential interview of the suspects".

202 Mr Drapac did not recall reading the draft report. However, he said that what was in the draft report, when considered in conjunction with the conclusions of Ms Stillwell and Ms Weston about the emails of Mr Wain that they had located, substantiated in his mind that Mr Wain was in serious breach of his employment agreement.

203 On 27 October 2009, Ms Stillwell sent a running sheet for the meeting with Mr Wain at which his employment was to be terminated to Ms Weston. From the covering email, it was clear that Ms Stillwell saw that Mr Mercuri and Mr Murchie may raise issues about their share and unit entitlements. The document was a detailed note with times, actions, actors and comments for the removal of Mr Wain from the Drapac Group both by termination of his employment and physically. The running sheet also provided for follow-up meetings to be held separately with Mr Mercuri and Mr Murchie. There was also a running sheet for the management meeting which was proposed to take place after Mr Wain's employment had been terminated, with possible questions and proposed answers. One of the questions was, "Is Michael going to get rid of anyone else?", with the proposed response of, "Please understand that Ashley is gone because he has committed an offence".

204 On the morning of 29 October 2009, Mr Wain was asked to meet with Mr Drapac. Also in attendance were Mr Lurie and Mr Andy Walsh, who is a friend of Mr Drapac and has some connection to the police force. Mr Lurie told Mr Wain that his employment had been terminated and handed him the letter of termination. Mr Wain was asked to hand over his security pass and leave the premises.

205 The termination letter of 29 October 2009 to Mr Wain stated that Drapac Consulting had elected to summarily terminate his employment effective immediately. The reasons given for termination were that in breach of his obligations of good faith and fidelity, Mr Wain had dishonestly attempted to secure benefits at the Drapac Group's expense by diverting, or attempting to divert, potential property purchases for the Drapac Group to his own use and benefit. Such conduct was said to include the properties at High Street, Kew and Church Street, Hawthorn[34] properties. It was also alleged that Mr Wain had been destabilising the Drapac Group for his own perceived interests with a view to shutting it down by, among other things, attempting to procure an assignment of the lease from which the Drapac Group operated and persuading staff to leave their employment with Drapac. According to Mr Wain, Mr Drapac had asked him to see if he could find a potential assignee for the lease but Mr Drapac later decided not to proceed with this. Mr Drapac says that he had discussions with employees about relocating the Drapac offices to smaller premises but says that Mr Wain was not asked to locate potential assignees for the premises. According to Mr Drapac, at the time Mr Wain tried to assign the lease, he had not arranged alternative premises from which the Drapac Group could operate. No assignment of the lease was entered into. I can see nothing wrong with Mr Wain having started a process to identify potential assignees. Mr Wain denies attempting to persuade staff members to leave the Drapac Group. Ms Weston gave evidence that Mr Murchie asked her about her plans for the future and whether she would join him and Mr Wain in a new business venture they were planning. She also gave evidence that Mr Wain approached her. There were no emails or other documentary evidence that supported her evidence and I prefer the evidence of Mr Wain who was a more reliable witness.

206 It was also stated in the termination letter that Mr Wain had attempted to frustrate or avoid the entry into the project which the Group proposed undertaking at Fortitude Valley. The letter of termination went on to state that Mr Wain's conduct also breached his statutory obligations as an employee of Drapac Consulting, and director of Endoline and Drapac Management. It was alleged that Mr Wain had breached his duty as a director to act in good faith in the best interests of each corporation not to improperly use his position to gain an advantage for himself or someone else or to cause detriment to the corporation and not to use information obtained in his capacity as a director or employee to gain an advantage for himself or someone else or to cause detriment to the corporation and using information obtained in his position as an employee or director dishonestly to gain an advantage for himself or someone else and to the detriment of the corporation.[35] It was also asserted that Mr Wain's conduct was completely contrary to his obligations in respect of the Australian Financial Services Licence held by Drapac Management. The letter concluded by stating that if his employment had not been terminated summarily, Drapac Consulting would have been entitled to give two weeks' notice or make payment of wages in lieu of giving notice. Two weeks' wages were provided to Mr Wain.

207 Mr Murchie and Mr Mercuri were not consulted as to the termination of Mr Wain. Mr Wain's solicitors wrote to Drapac Consulting disputing the company's entitlement to terminate his employment.

208 In early to mid 2009, an opportunity came up for the Drapac Group to invest in a complex of shops, offices and a rooftop restaurant called Le Boulevard at 42 The Esplanade, Surfers Paradise. The purchase price for the complex was $18.55 million. The deposit of $930,000 came from Mr Drapac's private trust, the MJD Holdings Trust. The purchasing entity was Drapac Management as trustee for the Le Boulevard Trust. There were two caveats registered on the title at the time of purchase and the vendor was entitled to terminate the agreement if those caveats were not removed. The settlement date for the contract was 30 October 2009. There was no requirement for a rescission notice to be served under the contract before it could be terminated as there might have been in other jurisdictions. As such, the settlement date could not be extended except with the vendor's consent.

209 The Drapac Group had some available funds for part of the purchase price. In addition, about $10.5 million needed to be borrowed. Mr Wain and Mr Mercuri negotiated with the National Australia Bank for a facility of about $14 million. The bank proposed conditions for finance that included the giving of a guarantee by Mr Drapac.

210 On 19 August 2009, Mr Wain suggested to Mr Mercuri that they needed to go back to the NAB to finalise the funding for the project. He suggested that the bank be given a limited guarantee for 50% of the debt from all directors on a proportionate basis (Mr Drapac 79%, Mr Wain 13%, Mr Mercuri 4.5% and Mr Murchie 3.5%). Mr Hardy had no recollection that this had been communicated to the bank and there was no documentary evidence in this regard. According to Mr Hardy, several guarantees (as proposed by Mr Wain) was not what the bank was looking for as security. It seems unlikely that the offer of limited guarantees from all directors was made to the bank or that if it had been made it would have been accepted.

211 There is a letter of 7 October 2009 from the NAB described as a funding discussion paper. Mr Hardy said that typically, discussion papers like this are issued to customers to gauge their commitment to have the bank proceed to formal approval. The letter records that it is not an offer of finance or an offer to provide finance in the future, and that to obtain a binding commitment from the bank a submission to and subsequent approval from the bank's credit and pricing approving authorities would be required. The paper then sets out the proposed terms for funding the Le Boulevard purchase. Part of the security foreshadowed was a first ranking registered mortgage debenture over the borrower and a first ranking registered mortgage over the property. In addition, it was proposed that a guarantee and indemnity limited to 50% of the facility amount plus interest, fees and charges would need to be provided by Mr Drapac.

212 On 9 October 2009, Mr Mercuri responded to Mr Hardy and stated that they agreed to the proposed terms of the funding packages as set out in the funding discussion paper. Mr Hardy responded to say that an updated valuation report was required.

213 After Mr Wain's termination on 29 October 2009, Mr Mercuri assumed total responsibility to ensure that settlement of Le Boulevard would occur.

214 Formal credit approval for the funding was given by the bank in mid to late October. Mr Hardy's evidence was that a formal letter of offer was prepared and issued to the Drapac Group on or just after 29 October 2009 although no signed copy of the letter was located and there was no documentary evidence that the letter had been sent to or received by the Drapac Group. Mr Mercuri did not recall receiving a letter of offer. Mr Hardy gave evidence that if the security documentation had been completed and if there was nothing else outstanding, the bank would have been in a position to settle the purchase. He recalled that there were certain trust issues relating to the Le Boulevard Trust that needed to be resolved, but he believed that those issues were resolved to the bank's satisfaction and the offer of finance could have been accepted up until 12 November 2009. Based on that evidence, I am satisfied that the bank would have provided funding to settle the Le Boulevard purchase.

215 However, the requisite documentation was not provided to the NAB by 12 November 2009. Mr Hardy gave evidence that if the completed documentation had been received after that date, the bank would have made a decision as to whether it was still prepared to go ahead on the same basis.

216 Drapac Management and the vendor successfully applied to the Queensland Supreme Court to remove the caveats. Orders were made for their removal on 29 October 2009. Settlement of the sale was scheduled for the following day.

217 Mr Drapac spoke to Mr Hardy and told him that Mr Wain's services had been terminated. He wanted to make sure that Mr Wain was removed from any signing authorities for the Drapac Group and wanted to make sure that Mr Wain could not be acting on behalf of the Drapac Group on any matter at all at that time.

218 On the morning of 30 October 2009, Mr Mercuri telephoned Mr Hardy to arrange a time to sign the necessary documents. According to Mr Mercuri, due to the termination of Mr Wain's employment, the bank was not willing to proceed on that day - they wanted to "let the dust settle" and readdress it the following week and refinance or draw down on the funds then. Mr Drapac also spoke to Mr Hardy that morning and he could not give Mr Drapac an unequivocal assurance that the NAB would be in a position to settle on that day. Mr Drapac gave evidence that if Mr Hardy had been able to give such a guarantee, he would have proceeded with the NAB loan. However, in light of the uncertainty concerning the NAB's position and the settlement proceeding and the serious consequences if settlement did not proceed, Mr Drapac determined that he would separately need to arrange funds.

219 Mr Drapac took advice from Mr Lurie who told him that having regard to the requirements of the NAB, the existing problems and disputes with Mr Wain and potentially with Mr Mercuri and Mr Murchie, as well as the termination of Mr Wain's employment the previous day, the last thing he should do was to put up a personal guarantee of a substantial nature or advance his own funds to Drapac Management and benefit the other directors.

220 Mr Drapac was extremely nervous about providing his own money in a situation where he feared that the funds may be frozen by someone. Mr Lurie advised him to require as a condition of providing funding that a different trust arrangement be put in place which would effectively substitute for the ultimate beneficiary, Drapac Holdings Trust, Mr Drapac's own private family trust. Mr Drapac asked Mr Lurie to prepare a facility letter and told him that the lender would be Camindu Pty Ltd (a company which he controlled) and that the borrower should be Briaroaks as trustee for the Michael John Drapac Family Trust.

221 At about midday on 30 October 2009, Ms Weston sent an email to Mr Bazzani with the subject line, "Confidential - Drapac Le Boulevard Trust Constitution". The email stated:

We confidentially (not to be discussed with anyone else at Drapac) and urgently require this trust deed to be cancelled (I have the original for shredding) and a new one to be drawn up. I attached [sic] the amendments that NAB have requested this morning. We need this document today ASAP as the property is due to settle.

The details that need to be changed are as follows:

Unitholder - Briaroaks Pty Ltd (ACN 007 055 745) ATF for the Michael John Drapac Family Trust as Trustee - Drapac Management Limited The name of the Trust - Le Boulevard Trust.

222 Ms Weston concluded her email stating that if any further information was required, Mr Bazzani should speak to either Mr Drapac or her and gave him their mobile telephone numbers. Mr Drapac's evidence was that he did not see this email on the day it was sent and he denied that Ms Weston was acting on his instructions. During cross examination, Mr Drapac attempted to distance himself from the actions and words of Ms Weston saying that at this time she was doing a lot of things without consulting him. He said he did not know what she meant by her statement relating to shredding the original trust deed. According to Mr Drapac, "shredding" is not a word that he uses, he has never shred a document in his life and would not instruct anyone to shred anything. Ms Weston said that she would have sent the email on advice from Mr Lurie. Ms Weston said she did not know why she said she had the original for shredding; there was no shredder in the office. She could not recall being asked by anyone to shred the document or any discussion about shredding the document. She knew that there was a request to have the trust deed amended or cancelled with a new one to replace it. According to Ms Weston, Mr Lurie advised that the beneficiaries in the original trust deed needed to be changed and Mr Drapac took that advice. In relation to the part of the email about not discussing the matter with anyone else at Drapac, Ms Weston's evidence was that she was acting on Mr Lurie's instructions. Mr Bazzani did not recall receiving the email from Ms Weston but accepted that he received it. He could not recall being asked by Ms Weston to shred a document and gave evidence that he has never shredded a document.

223 At approximately 1.00pm on 30 October 2009, Ms Weston sent an email to Mr Drapac copied to Mr Lurie and others at B2B Lawyers stating:

The settlement will occur at 2.15pm QLD time (3.15 Melb time). Michael will be using $10.5m of his own that is currently sitting in his Briaroaks Bank account. We need to ensure that there is no way any employee can claim right or access to these funds.

224 Ms Weston gave evidence that Mr Drapac had instructed her to include the final sentence of this email. According to Ms Weston, Mr Drapac was using $10.5 million of his own equity and wanted to secure his money and make sure that the key employees did not have access to that. She elaborated that Mr Drapac did not want to loan money to an entity only to find that later Mr Wain claimed an entitlement to this $10.5 million.

225 Once the facility letter was prepared by Mr Lurie, Mr Drapac gave it to Mr Mercuri and asked him to sign it so that settlement could proceed. Mr Lurie had told Mr Drapac that, in the circumstances, the terms of the facility letter were reasonable. Mr Mercuri was concerned about some parts of the facility letter. At some stage during the day, Mr Drapac told Mr Lurie that the amended trust deed had not been prepared and that it was likely that Mr Mercuri would not sign the trust deed with the amendment that the unit holder was Briaroaks as trustee for the Michael John Drapac Family Trust. Mr Lurie told him that he had to make a decision as to whether to risk the forfeiture of the deposit and other damages and losses that would flow if settlement did not proceed or just get the facility letter signed before advancing any money.

226 Mr Mercuri arranged a meeting with Mr Bazzani, Mr Drapac, Mr Murchie and others to go through the facility letter. Mr Mercuri and Mr Murchie say that at one point in the meeting, Mr Drapac said that if they did not sign the facility letter, he would not advance the funds and it would be on their heads if the settlement did not proceed. Mr Murchie says that Mr Bazzani advised them to sign the letter.

227 A number of amendments were made to the letter during the meeting. Originally, it provided for a facility of $20 million plus further advances (which was reduced to $10,661,851.81). According to Mr Drapac, the figure of $20 million took into account the possibility of further advances, capitalised interest and the facility fee. This accords with the total estimated expenses in respect of the property at approximately $20.8 million. The original form of the facility letter provided for an establishment fee of $400,000 (which was amended to $200,000), for an interest rate of 16% per annum with Camindu given the right to vary the interest rate with seven days prior notice to the borrower (this was amended to provide that the lender could not vary the interest rate and that the interest rate was fixed through the term of the facility at 16% per annum). The facility letter provided that the lender could cancel the facility or reduce the limit at any time. This was amended to provide that it could only do so on three months' notice. One of the conditions precedent in the original form of the facility letter stated that the lender had to be satisfied at its absolute discretion of the terms and conditions of the Le Boulevard Trust and the identity of the unit holder as Briaroaks as trustee for the Michael John Drapac Family Trust. Reference to Briaroaks as trustee for the Michael John Drapac Family Trust was amended to provide that the unit holder was Drapac Capital Pty Ltd as trustee for the Drapac Unit Trust. Other amendments were also made to the facility letter.

228 Mr Bazzani gave evidence that some of the amendments to the facility letter were in his handwriting. He could not recall whether the amendments were made as a result of his advice. He did not have a detailed recollection of the meeting.

229 Mr Drapac accepted that by comparison with the terms of the NAB proposed facility, the terms of the Camindu loan were onerous. In Mr Drapac's view, he would be taking all the risk whilst Mr Murchie, Mr Mercuri and Mr Wain would have only benefits. During his cross examination Mr Drapac described them as "provisional benefits" on the basis that the key employees maintained that they had entitlements whilst his view was that they had none.

230 Settlement took place later on 30 October 2009 with the use of the loan from Camindu.

231 Following settlement, Mr Mercuri was still keen to talk to the NAB to finalise a facility for Le Boulevard so that the Camindu loan could be discharged. His view was that if the NAB facility was used, it would have returned about $3 million back into the Drapac Group and discharged the Camindu liability so that cash flow issues that they were experiencing at the time would have been resolved.

232 On Friday 6 November 2009, Mr Mercuri sent an email to Mr Drapac informing him that the NAB had advised him that the finance documents for Le Boulevard were ready to be signed. He asked Mr Drapac to let him know when he would be available to sign the documents so that funds could be drawn down from the NAB and the loan to Camindu paid out.

233 In mid-November 2009, the finance manager for the group informed Mr Drapac that cash flow indicated that the Group would not have surplus funds by the end of November 2009 and that this cash position had only come to light since the settlement of Le Boulevard. The finance manager indicated that she wanted to manage cash flow effectively and consistently with everyone's expectations and wanted to arrange a meeting with Mr Drapac, Mr Murchie and Mr Mercuri as to how to go forward. One of the questions she asked was whether they should push ahead with the NAB loan for Le Boulevard and receive an extra $3.3 million into the Drapac Group. In response to this email, Mr Mercuri asked whether there was any reason why the NAB facility would not be drawn down for Le Boulevard. He stated that as he had previously conveyed to Mr Drapac, the loan documents were awaiting execution and funds would be available within 24 to 48 hours.

234 Mr Mercuri met with Mr Drapac and Ms Weston on 26 November 2010 and told them that the NAB facility was still there waiting for them to sign and that with cash flow issues, they needed to get money out of the Le Boulevard project that had been paid as part of the purchase price. According to Mr Mercuri, Mr Drapac said that he would not execute the NAB Le Boulevard finance facility until the issues with Mr Wain were sorted out.

235 Mr Drapac gave evidence that if the refinance had proceeded, the NAB would not have provided all of the funds needed without a guarantee from him (which he was still not prepared to give). Camindu would still have been a lender, but would take priority after the bank. Mr Drapac was not prepared to jeopardise the interests of Camindu by entering into such an arrangement.

236 The term of the Camindu facility was 6 months which was due to expire in late April 2010. In early December 2009, Mr Drapac and his lawyer discussed the possibility of converting some of the debt owed to Camindu to equity in the project.

237 In late January 2010, Mr Drapac and Mr Lurie discussed a possible structure for a revised loan arrangement taking into account that the NAB funding was still available. One of the considerations was the priority arrangements between Camindu and the NAB that would need to be put in place.

238 On 25 March 2010, Ms Weston informed Mr Lurie that Mr Drapac would like to convert the Camindu loan into equity as soon as possible.

239 On 20 April 2010, Mr Drapac ceased being a director and shareholder of Camindu and was replaced in both capacities by his son, Damion. This was done by Mr Drapac on the basis of advice he received from Mr Lurie.

240 The facility granted by Camindu was extended on terms including payment of an acceptance fee of $231,000 and interest at the rate of 20% (an increase from 16%). An additional transaction fee was payable to Camindu of 10% of the net profit of the project. The memorandum of terms for the extension of the facility dated 27 May 2010 provided that the sequence of release of the funds from the designated project trust account would be first to Drapac Consulting Pty Ltd (to repay all operational and other expenses incurred by that company as project developer and manager of the property) and a fee of 2.5% of turnover of the project plus a bonus of 20%; secondly to Camindu to pay interest and all other costs and expenses; thirdly, to pay Camindu the establishment fee; fourthly, to pay Camindu its facility transaction fee; fifthly, to pay Camindu the principal sum; sixthly, to MJD Holdings Trust No. 1, Drapac Capital Trust and Drapac Victoria Street Trust; and lastly, to the Le Boulevard Trust, the balance.

241 Mr Lurie sought advice from Charter Keck Cramer for comment on the key commercial terms of the agreement to extend the loan. They refer to the facility as a mezzanine facility and considered the proposed rate of interest of 20% to be appropriate. Mr Lurie accepted that this was not a mezzanine facility. Charter Keck Cramer considered the proposed transaction fee payable to Camindu of 10% of the profit appropriate.

242 At the time the extension was granted, Damion Drapac relied on his father for an explanation of the background to the transaction. In fact, every time his son signed something, Mr Drapac explained it to him. Mr Drapac gave evidence that although he could not force his son's hand, if he made a recommendation to him, his son would follow his instructions. Mr Drapac continued to give instructions to Mr Lurie on behalf of Camindu after he had been replaced by his son as a director. Although the change of directorship rid Mr Drapac of the appearance of conflict between his duties as a director of Camindu and his duties as a director of Drapac Management, there was no substance to the change because his son acted at his behest.

243 On 25 October 2010, Ms Weston sought advice from Mr Lurie in relation to the Camindu facility which was due to expire at the end of October. She inquired as to whether finance should be sought from an external lender such as the NAB. She stated that "Given current legal matters, I am mindful in doing the right thing by the trust in order to minimize any potential claim against it or the lender".

244 Mr Lurie responded and, amongst other things, noted that he continued to act for Camindu and that Drapac Management (as trustee of the Le Boulevard Trust) should seek its own independent advice.

245 The facility was extended for a further period.

246 The Drapac parties contend that it is clear from the evidence that Mr Drapac acted appropriately and that no criticism can properly be levelled against him once regard is had to the following:

(a) settlement had to occur on 30 October 2009, otherwise the vendor could have terminated the sale agreement and retained the deposit of about $1 million already paid by Drapac Management. Drapac Management would also have forfeited the stamp duty in the sum of $959,000 it had already paid, lost money in the sum of about $2 million expended on improvements to the property, and the pre-sales worth about $10 million would have been in jeopardy. This would potentially have resulted in significant claims for damages against Drapac Management;

(b) although the deposit and other funds were physically paid by Drapac Management, the funds to do so actually came from Mr Drapac's private trusts, not from money in the Drapac Group, or from Mr Wain, or Mr Murchie. Drapac Management was a trustee company and had no assets or resources of its own. It would not have been able to repay Mr Drapac the money advanced by him in the event of the Le Boulevard transaction not settling. Mr Drapac provided those funds without any security and stood to lose the money he advanced to Drapac Management for the acquisition of the property;

(i) the NAB was not in a position to settle the Le Boulevard transaction on 30 October 2009;

(ii) the NAB required Mr Drapac to sign a personal all moneys guarantee in respect of any funding the bank would be prepared to advance. There was no communication between the NAB and Mr Drapac before settlement day stipulating that he was required to provide a personal guarantee. Further, Mr Drapac was not obliged by virtue of being a director of Drapac Management or for any other reason to provide a personal guarantee, and he was not prepared to do so in circumstances where Mr Wain had been dismissed, was likely to commence legal proceedings against him, and where none of the other key employees was required to provide a personal guarantee. Whether or not the key employees were prepared before 30 October 2009 to provide proportional guarantees in respect of the funding to Le Boulevard by NAB is irrelevant because Mr Hardy clearly stated that the bank was not interested in such guarantees and there is no evidence that any key employee was willing and able to give a personal guarantee at all after 30 October 2009;

(iii) no formal funding offer was put by the NAB to Drapac Management either on or after 30 October 2009 and he could not recall whether or not he had any conversation with Mr Mercuri about funding of Le Boulevard after 30 October 2009;

(d) the NAB funding would have attracted an establishment fee in the amount of $150,000 (for a facility of $13.95 million), and a facility fee at the rate of 3% (being about $250,000 to $300,00 per year). The facility letter used by Camindu, compares favourably with the NAB proposal having regard to the fact that Camindu had to extend the facility on very short notice and without any security. The establishment fee provided for in the Camindu facility letter was $200,000;

(e) the funding was originally intended by Camindu to be for a period of a few months only, because the money generated from the sales of units in the Le Boulevard property was expected to be applied to extinguish the indebtedness;

(f) Mr Mercuri duly signed the loan agreement with Camindu after he and Mr Murchie obtained independent legal advice from Mr Bazzani;

(g) Mr Wain, Mr Murchie and Mr Mercuri sent the Fortitude Valley letter to Drapac on 13 October 2009, followed by their letter of 20 October 2009 in which they stated, among other things, that all outstanding issues between them had to be resolved "prior to entering into any new investments". Although the letter, drafted by the plaintiffs' solicitor, Mr Isakow, related to the Fortitude Valley project, the letter clearly stated that Mr Wain, Mr Murchie and Mr Mercuri were of the view that Drapac Management ought not to be seeking external funding unless and until the dispute between them and Mr Drapac had been resolved.

247 Paragraphs (a) - (f) of the submissions of the Drapac parties have force if Mr Drapac's conduct in relation to Le Boulevard could be considered in isolation. However, it must be considered in the context of the other conduct alleged to constitute oppression. That context includes other events that followed the termination of Mr Wain's employment and which are dealt with below.[36] Before considering those matters, I will first outline Mr Drapac's complaints against Mr Wain in respect of the Le Boulevard property.

248 The Drapac parties say that Mr Wain and Mr Mercuri failed to arrange finance facilities for the purchase of the Le Boulevard property; that they took no steps to remove the caveats registered over the property; and it was only as a result of Mr Drapac's actions when he heard about the caveats about 10 days before settlement that legal action was successfully taken to remove the caveats.

249 Mr Drapac says that Mr Wain is responsible for a $400,000 loss from the Le Boulevard project due to what he says was a miscalculation of the body corporate outgoings to be charged to some of the tenants and the prices to be paid by them for car parking bays. Mr Mercuri gave evidence that the pricing for the parking bays was set by Knight Frank who had been engaged by him or another Drapac employee to establish the body corporate for the strata subdivision, to set budgets for the body corporate and then to manage the body corporate. Mr Wain gave evidence that he used the information provided by Knight Frank to determine the body corporate outgoings. The first time that Mr Wain knew that Mr Drapac had any complaint about his role with the Le Boulevard property was when he saw the defence and counterclaim in this proceeding. The evidence is insufficient to support the allegations made by the Drapac parties against Mr Wain.

250 On 4 November 2009, Mr Drapac gave notice of an extraordinary general meeting for Endoline. The business of the meeting was said to include the election of new directors (including Mr Lurie) and the removal of Mr Wain as a director. Notice was also given of an extraordinary general meeting for Drapac Management, again for the election of new directors and the removal of Mr Wain as a director.

251 On Friday 13 November 2009, Mr Lurie met with Ms Weston and Ms Stillwell. He sent his note of the meeting to them and to Mr Drapac. The notes contain the following:

1. It appears that Wain has acquired a property in Cobden Street which he was negotiating prior to his termination.

We will do a search to ascertain who the actual purchaser is and clarify (if possible) whether Adam and Santo are involved. ...

1. We suggested that a new responsible entity be incorporated to act in lieu of Drapac Management Limited, going forward.
2. An expression of interest has been put in through Camindu for a new project and signed off by Tim. The subject of this project needs to be clarified. Not DML or Endoline or any interest in which Endoline has an underlying interest. ...
3. Terminate Adam and Santo before Christmas. Care should be taken as to the basis. As the 'heads of agreement of 2005' refers to a 95% penalty if termination for material breach (rather than say redundancy for Adam).
4. Shareholders meeting with DML and Endoline to remove Santo and Adam as directors ...
5. Capitalise part of the debt for The Le Boulevard into equity.
6. Appoint Melissa formally as an Executive Manager so she has authority.
7. Capitalise DML and Endoline and dilute shares and units of Wain, Adam and Santo.

252 Ms Weston developed a timeline in respect of a number of the matters that were the subject of Mr Lurie's note. In that document, she recorded that she and Ms Stillwell did not agree that Mr Murchie and Mr Mercuri's employment should be terminated.

253 Mr Drapac did not attend the meeting which was the subject of Mr Lurie's note and he described it as suggestions to him made by those who did attend the meeting. He said that he recalled circling item 13 of the note as he did not want to terminate the employment of Mr Murchie and Mr Mercuri. His view about this subsequently changed.

254 Mr Drapac's evidence in respect of item 19 was that he never used the words "dilute shares" and this was not something that would come into his mind. He said it was not his view.

255 Mr Lurie gave evidence that item 19 related to a possible corporate restructure - the idea was to remove unsecured creditors and risk so that the underlying viability of the enterprise would be stronger. Mr Lurie commented that all the memorandum talked about was diluting shares and units but did not talk about diluting value. He did not know why he had not referred to the shares and units held by Mr Drapac. He denied that item 19 was directed to disadvantaging Mr Wain, Mr Mercuri and Mr Murchie and noted that the step had not been implemented.

256 Ms Weston said that she did not understand what was meant by item 19 and that she had never discussed the dilution of shares with Mr Drapac. She said that the reference to shares and units of Mr Wain, Mr Mercuri and Mr Murchie were the shares and units they held "provisionally" as part of the draft agreement that they were entitled to if they saw out their ten year tenure. She denied speaking to Mr Drapac about her evidence but said that the word "provisionally" was a term that was always used in the office. It does not appear in any of the contemporaneous documents.

257 The Drapac Management meeting took place on 30 November 2009. Mr Drapac cast his votes in favour of the appointment of the new directors and the removal of Mr Wain. Mr Wain, Mr Murchie, Mr Mercuri and the other key employee all voted against the resolution. A similar result came from the Endoline meeting. Mr Drapac says that Mr Wain's exclusion from the management of Drapac Management and Endoline was a corollary of his being properly removed as a director of those companies.

258 Mr Murchie executed an employment agreement dated 18 November 2005 with Drapac Consulting. It was in similar form to that executed by Mr Wain, save in relation to his duties and salary.

259 From about early October until early December 2009, Mr Drapac and Mr Murchie had a number of heated discussions. The tenor of those discussions was that Mr Drapac believed that the key employees were attempting to destroy the Drapac Group and him personally, and that Mr Murchie and the other key employees were siding against him. During a discussion on 1 December 2009, Mr Drapac made it clear that he thought that it would be better if Mr Murchie was no longer involved in the Drapac Group. By this time, Mr Murchie had formed the view that he could no longer stay with the Drapac Group and that his employment was untenable.

260 At about this time, Mr Drapac had a strong view that the employment of Mr Murchie and Mr Mercuri would be terminated and B2B Lawyers prepared draft letters of termination in this regard. The lawyers noted that "the grounds are not as strong as with Ashley". It was clear from the email correspondence that the termination of Mr Murchie and Mr Mercuri was to be timed so that responses to the correspondence from Mr Wain's lawyers about alleged wrongful termination would be sent following termination of Mr Murchie and Mr Mercuri.

261 At a meeting on 7 December 2009, Mr Murchie tendered his letter of resignation. He also tendered his resignation as a director of Endoline and responsible manager of Drapac Management and Drapac Investment. His letter included the following:

With respect to the Employee Participation Agreement, for 5 years I have worked in the spirit of this Agreement with the goal of building a Drapac business and some wealth for myself. To date, I believe we have been successful in this regard and each person has had an important role to play.

Whilst it is disappointing that plans have changed, I see no reason why any parting should not be amicable, and why we cannot discuss entitlements in the same spirit effectively applied to the Agreement during the last 5 years.

I look forward to having such discussions with you.

263 The Drapac parties say that Mr Wain misused information belonging to Drapac Consulting. As part of that allegation they say that Mr Wain made or caused to be made a copy of the Drapac Consulting server current to 13 November 2009 and a backup of Mr Murchie's Drapac Consulting computer, after his employment had been terminated. The copy of the server and backup of Mr Murchie's computer were made, but not at the instigation of Mr Wain.

264 Prior to termination of his employment, Mr Wain printed a number of documents from his work computer to prepare a brief of papers for his lawyers in relation to the litigious path he thought they were heading down with Mr Drapac. About 13 November 2009, Mr Mercuri made a copy of the Drapac Consulting computer server. Sometime during that month, he gave a copy of it to Mr Wain. They believed that they were entitled to the information on the server because they were both directors of Drapac Management and Endoline (which ultimately controlled Drapac Consulting). The copy of the server was made without the consent of Drapac Consulting or Mr Drapac. The server contained information confidential to Drapac Consulting such as the database listing all property identified by the Drapac Group as potential investment opportunities. Mr Drapac alleged that Mr Wain used the database to contact Drapac Consulting clients and potential investors, but this was not established on the evidence.

265 Mr Mercuri made the copy of the server because of what had been happening in the Drapac Group - there had been the sacking of one senior employee and it seemed to Mr Mercuri that information was either being moved or deleted and he could not find information about specific properties; he was notified that IT consultants were coming in over a weekend to change to a new server - he put all of that together, thought that things were happening and that he was not being informed, thought that it would be a good idea to have a copy and, based on previous legal advice, thought that they were entitled to books, records and files of the company as directors.

266 Mr Murchie made fortnightly routine back ups of his Drapac laptop computer on an external hard drive that he owned. The reason for doing this was that it took a copy of his computer which had some personal files on it and his personal emails. He forgot about the hard drive when he handed back his computer upon his resignation from the Drapac Group. He told his lawyer that he thought that he had some working files that he had saved on the hard drive and asked his lawyer if he should be handing it back. He gave the hard drive to his lawyer and retained a copy of some of the data that related to this proceeding which he described as his personal files. According to Mr Murchie he wanted to ensure that if there was litigation, he had information that was relevant as he did not trust Mr Drapac to provide information regarding his employment.

267 On 24 February 2010, Mr Wain's lawyers wrote to Mr Drapac informing him that Mr Wain had provided to them a number of emails which were confidential to Drapac Consulting. The emails were contained in the copy of Drapac Consulting's server which Mr Wain had in his possession. The solicitors also informed Mr Drapac that Mr Wain had also provided to them a hard disk containing a routine back-up of Mr Murchie's computer. They returned copies of the documents and the hard disks to Ms Weston. Mr Wain provided a written undertaking that he had returned all confidential information and that he had no further confidential information in his possession or control. He undertook not to divulge or disclose any of the confidential information and to maintain secrecy and confidentiality of the information. That undertaking was given on 12 April 2010.

268 I accept that the copy of the server came into Mr Wain's possession. He thought that he was entitled to it as a director of the ultimate holding company of Drapac Consulting. Once he sought legal advice, the copy of the server was returned. It seems to me that any breach by Mr Wain was remedied.

269 Mr Wain's evidence was that he did not have the backup of Mr Murchie's computer. Although the letter that his solicitor sent when returning the copy of the backup might be interpreted as suggesting that he had a copy, it seems far more likely that it was Mr Murchie (for whom they also acted) who provided the backup to them.

270 Counsel for the Drapac parties conceded that the use of the information that was on Mr Murchie's computer would not have constituted a ground upon which he could have been dismissed. However, counsel submitted that it was a matter that could be taken into account by the Court in considering whether it ought to exercise a discretion in favour of him or any company associated with him.

271 Section 232 of the Corporations Act provides in part that the Court may make an order under s 233 (including orders for the purchase of shares) if the conduct of a company's affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. Section 53 provides that for the purposes of ss 232 and 233, a company's affairs include:

(a) the ...control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as ...trustee), property (whether held alone or jointly with any other person or persons and including property held as ...trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses outgoings and expenditure of the body; and

(b) in the case of a body corporate... that is a trustee (but without limiting the generality of paragraph (a)) - matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive , under the terms of the trust; ...

272 Sections 232 and 233 are to be read broadly.[37] Whether conduct is unfair or oppressive in a commercial company is assessed objectively through the eyes of a commercial bystander.[38] If the conduct is so unfair that reasonable directors would not have thought it fair, then relief will be granted.[39] The conduct will be considered in its context[40] and while separate instances of conduct on their own may not be unfair, cumulatively they may constitute oppression.[41]

273 Although the right to the relief in respect of oppressive conduct is based in statute, the courts have made it clear that equitable considerations have a role to play in determining whether the relief should be granted. This is best summarised in the following passage from Lord Wilberforce's speech in Re Westbourne Galleries Ltd[42] when his Lordship was referring to the English provisions for winding up on the just and equitable ground:

[A] limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The 'just and equitable' provision does not, as the respondents [the company] suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be "sleeping" members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere. It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to "quasi-partnerships" or "in substance partnerships" may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words "just and equitable" sum these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure. But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.[43]

274 In considering this passage, Cooke J, of the England and Wales Companies Court, recently said that:

If it is found that the company falls into this quasi partnership category, the court is more likely to conclude that it is unfair to fail to give effect to, or bring to an end, arrangements which have been made on an informal basis, even though they do not give rise to legal entitlements, or to exclude a participator from the management or conduct of the company's business, if it was part of the arrangement that he should take part in it. Furthermore, the most commonly sought remedy in unfair prejudice petitions is an order that the petitioner's shares should be bought out by one or more of the respondents, and the establishment of a quasi partnership is normally a precondition for the court to find that such a buyout should be made without a minority discount.[44]

275 The Drapac parties criticised the way the case for the Wain and Murchie parties was put as a "global" claim. They submitted effectively that each entity had to be considered in isolation from the other, that is, each company had to be considered and each of the trusts had to be treated separately. For example, they submitted that the termination of Mr Wain's employment by Drapac Consulting could not be regarded as conduct in the affairs of Endoline or Drapac Management.

276 The Wain and Murchie parties submitted that in accordance with the broad interpretation to be given to ss 232 and 233, those sections are intended to be beneficial provisions designed to benefit the oppressed, not to give comfort or protection to the oppressor. Counsel for the Wain and Murchie parties submitted that this is particularly so in circumstances where the corporate structure was chosen by Mr Drapac. They submitted that an artificially technical construction of the kind urged by the Drapac parties is antithetical to the way in which the provisions ought to be approached. Those submissions have much force, particularly when regard is had to s 53 which refers to the affairs of the company as including a company's business, transactions and dealings conducted jointly with another and including transactions and dealings as trustee. In this case, that requires consideration of the business conducted by the Drapac Group. Separate legal entities with their own rights and obligations make up that group. However, it would be artificial in the extreme to classify, for example, the termination of Mr Wain's employment as a matter only relevant to the conduct of the affairs of Drapac Consulting. Such an analysis would ignore the reality of how the business operated with the same natural persons making decisions no matter which company hat they were wearing and with the employees working for the Drapac Group although employed by Drapac Consulting. There is no proper basis to restrict the interpretation of ss 232 and 233 in this narrow way.

277 The Drapac parties submitted that this is not a "quasi partnership" case. They contended that here, Mr Wain and Mr Murchie were employees and the interests they were to have were not large (Mr Murchie 3.5% and Mr Wain 13%) and this was not the hallmark of partners going into business together. Although Mr Drapac held the majority interest in the companies and trusts that did not diminish the fact that the type of relationship he had with the key employees when their interests were granted was one of mutual confidence; Mr Drapac and the key employees expected to take an active role in management and there were to be restrictions on when the interests could be realised. In those circumstances, equitable considerations become relevant.

278 The relationship between the parties having broken down completely, there is perhaps little to be gained by a detailed analysis of why that has occurred.[45] The termination of Mr Wain's employment was not based on proper grounds (given the findings that I have made). Mr Drapac used his power as the majority owner unfairly to exclude Mr Wain from management. Mr Murchie's continued employment was untenable. There was no offer to purchase their interests. Rather, their equity was to remain trapped even though they would no longer be part of the Executive Team charged with management of the Drapac Group business. These are all hallmarks of oppression.[46]

279 In addition, there is the conduct of Mr Drapac in relation to the Le Boulevard project. The Drapac parties submitted that all that occurred in relation to this project was that an offer was made by Camindu on the basis that the beneficiary of the trust would be changed. That offer was not accepted because Drapac Management's interests were being looked after by Mr Mercuri and Mr Murchie as directors and employees and Mr Bazzani as the company's independent solicitor. They say that Mr Drapac was acting in his capacity as an officer of Camindu, not Drapac Management and therefore his conduct could not be oppressive. Viewed in isolation, what Mr Drapac did may be considered reasonable.[47] However, when considered in the context of the other conduct, including the plans to get rid of Mr Wain and Mr Murchie with "zero payout" if possible,[48] and to dilute their interests (but not the interests of Mr Drapac),[49] it can be seen that it was really aimed at diminishing the value of their interests. All of this simply adds to the conclusion that the allegations of conduct oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Wain and Mr Murchie have been made out.

280 The plaintiffs seek orders that Mr Drapac purchase the shares of Mr Wain and Mr Murchie in Endoline. They also seek orders that Briaroaks purchase their shares in Drapac Management and the units held by their companies in the various trusts on the basis that Briaroaks is a unit holder itself.

281 Counsel for the Drapac parties noted that Mr Wain and Mr Murchie are shareholders in Endoline but that neither of them directly holds units in the trusts. Rather, the unitholdings are held by their respective companies. They submitted that there are no authorities that would permit the Court to order Mr Drapac (in his capacity as a member of Endoline) to purchase the shares of Mr Wain and Mr Murchie in Endoline at a value that reflected the value of their companies' unit holdings in the trust of which Endoline was trustee.

282 The Drapac parties also submitted that the trustees of the various trusts had done nothing wrong, but if they had, that would fall to be dealt with under the provisions of the Trustee Act 1958 (Vic) not under the oppression provisions in the Corporations Act. They submitted that the law does not lack remedies as there are plentiful remedies in the area of equity and trusts but the solution is not to be found in the oppression provisions of the Corporations Act.

283 In Vigliaroni v CPS Investment Holdings Pty Ltd[50] Davies J was of the view that, by virtue of s 53, there was power to grant relief concerning assets that a corporate trustee held on trust.[51] In reaching this conclusion, her Honour did not follow earlier authorities on the same topic.[52] Her Honour's reasoning was as follows:

The Court is given the power under s 233 to make any order "that it considers appropriate in relation to the company". The legislature deliberately conferred a wide discretion on the court, giving it extensive powers, so that the remedy will eliminate the oppression and enable the causes of any future oppression to be avoided. The High Court in Campbell v Backoffice Investments Pty Ltd very recently affirmed that ss 232 and 233 are to be read broadly and that "[t]he imposition of judge-made limitations on their scope is to be approached with caution".

If oppression is found, counsel for Gargaro has urged me to follow Kizquari Pty Ltd v Prestoo Pty Ltd and to refuse relief under s 233, despite s 53 and the wide discretion. In Kizquari, Young J (as he then was) held that it was not the function of s 233 to remedy oppression within a trust and that an order could not be made under s 260 of the Corporations Law (the predecessor section to s 233) in respect of a trustee company.

In Kizquari the plaintiffs successfully proved oppressive conduct by directors of a corporate trustee in paying themselves and their wives excessive remuneration, which diminished the profits available for distribution to the unit holders. Young J observed that the oppression "may well cease" if the corporate trustee pursued the overpayments or stopped distributions until the money had been replaced. However, the plaintiffs wanted to be bought out by the defendants. The plaintiffs sought an order that the defendants purchase the plaintiffs' shares in the corporate trustee at the fair value of their units in the unit trust. Young J formed the view that there were trust remedies that were available to effect the buy-out and would not make any order under s 260. His Honour reasoned as follows:

The company in question ... is a trustee company. It has no assets of its own. It operates a business as a trustee on the basis of loan capital. The only oppression is in relation to the operation of the trust. That oppression has not affected the value of the shares one whit. The shares in [the trustee company] either have no value or alternatively a value of $1 being the amount paid for each share and they continue to have that value. It would be a very bold step indeed to order the [defendants] to buy the plaintiffs' $1 share for a sum anything like say $189,000 on the basis that the plaintiffs thereby relinquished any interest in the trust.

Young J declined to follow the decision of Vincent J (as he then was) in Re Bodaibo Pty Ltd where his Honour had made an order under the oppression remedy requiring the purchase of shares of a trustee company at the value of the business which the trustee company conducted on behalf of a unit trust, although the oppressive conduct had not directly affected the company or decreased its value but "rather created a situation that is intolerable for the minority shareholder". Young J commented that "it would not seem that [Vincent J's] intention (sic) was drawn to the difficulty caused where the only business that the company carries on and the only assets it possesses are held pursuant to a trust in which it is not a beneficiary". [53]

284 Her Honour then referred to the subsequent decisions that had referred to Kizquari with approval and continued:

These cases, properly considered, do not, in my view, place limitations on the kind of orders that I "consider[] appropriate in relation to the [CPS] company[ies]", having regard to the particular circumstances before me. The point that I have to consider was not dealt with in Kizquari or any of the other cases mentioned above. None of those cases considered the scope of the oppression power and jurisdiction of the court to grant relief having regard to s 53, although s 53 appeared in the legislation at the time those cases were decided in terms similar to the provision as it now appears. It would appear that s 53 was not brought to the attention of the courts in those cases. Section 53 has been brought to my attention and I must decide in light of s 53 whether my powers are circumscribed so that I cannot make an order under s 233 in respect of a trustee company. In my view, s 53 puts beyond any doubt that the court's jurisdiction and powers under the statutory oppression provisions are not circumscribed in respect of a trustee company and accordingly I conclude that I should depart from the view expressed by Young J in Kizquari and the cases which have supported that view, in view of s 53. I would also respectfully disagree with the view that Chesterman J expressed in Re Polyresins which Young JA cited with approval in McEwen that the equitable interests in the trust cannot be dealt with by the court under s 233. The only limitation imposed on the court on the kind of order that it can make under s 233 is the requirement for the order to be one that (sic) that the court considers appropriate "in relation to the company". The phrase "in relation to" requires a rational and discernible link between the remedy and the company in which the oppression has occurred. In other words, any remedy granted under s 233 must not be extraneous to achieving the object of relieving the oppression and must be appropriate to putting an end to the causes of oppression, including where the company acts as trustee and the oppression relates to the affairs of the trust. In appropriate cases the remedy may include orders dealing with the equitable interests in the trust, in my view.[54]

[citations omitted]

285 The Drapac parties submitted that the facts in this case are distinguishable from those in Vigliaroni because in that case, the relevant party was a beneficiary of the trust whereas here, Mr Wain and Mr Murchie are not beneficiaries. Rather, their companies are beneficiaries of the relevant trusts. However, a close reading of the decision suggests that this analysis is flawed. The schedule to her Honour's reasoning makes it clear that the corporate structure in that case had many similarities to the structure of the Drapac Group.

286 The correctness of the decision in Vigliaroni was questioned in Trust Company Ltd v Noosa Venture 1 Pty Ltd.[55] In that case, Windeyer AJ found that there was no oppressive conduct. In case that was incorrect, Windeyer AJ went on to consider whether in any event an order could be made for purchase of the units held in the trust of which the relevant company was trustee and stated:

With respect to the decision of Davies J and accepting the requirement for coherence in corporations law I find it difficult to accept that an order "in relation to the company" includes an order in relation to the affairs of the company because if that were the legislative intention it would have been easy enough to insert the words "or the affairs of the company" after the words "the company" in the commencement part of s 233(1) of the Act. It is a question of power not scope. It follows that if it were necessary for me to decide this question I would not have felt bound to follow the decision in Vigliaroni in preference to the earlier decisions though accepting so far as those earlier decisions are concerned that at least their judgments do not appear to have given consideration to s 53 of the Act or its predecessors in earlier Acts. Thus I would not consider it within power to make an order requiring one trust beneficiary to buy out the interest of the other trust beneficiary. Such an order would, I think, be an order in relation to the trust not to the company.[56]

287 The words "in respect of" have a very wide meaning.[57] Bearing this in mind, and with respect, in my opinion Windeyer AJ's construction of the legislation is too narrow. Were that interpretation to be accepted, then in cases such as the present, where there is a complex corporate structure that is a mixture of companies and trusts but in a real sense only one business is conducted by the corporate group, the legislation would be rendered virtually useless to remedy the real harm that has been caused by the oppressive conduct. It would strike me as odd if the Court could take into account oppressive or unfair conduct in the company's affairs in determining whether relief may be granted but then could not give effective relief to redress the harm caused by that conduct. That this is not intended is, I think, clear from the terms of s 233 in respect of at least one form of order for which specific provision is made. In this regard, the section provides that the Court may make any order that it considers appropriate in relation to the company including an order regulating the conduct of the company's affairs in the future.[58] As noted above, the company's affairs includes its business, transactions and dealings with others.[59] In my view, it is clear that the legislative intent was to include the power to grant relief provided that (in the words of Davies J) there is a "rational and discernible link between the remedy and the company in which the oppression has occurred." In a complex corporate structure (such as the Drapac Group) there is such a link between the companies and the relevant trusts which together operate the business. In my opinion there is power to grant the relief sought and consideration needs now to be given to whether, as a matter of discretion, it should be given.

288 In this regard, in relation to the two companies, Endoline and Drapac Management, the Drapac parties submitted that the shares have only nominal value as those two companies only operate as trustees and do not hold any assets beneficially. In those circumstances, it was contended that the Court ought not to make orders for purchase of the shares. However, it seems to me that it is appropriate to make such orders so that there is a complete separation of the business interests of the Drapac parties from the Wain and Murchie parties. This will serve to redress some of the oppressive conduct.

289 The Drapac parties submitted that if the Court was satisfied that orders ought be made under s 233 of the Corporations Act because Mr Wain had been removed as a director of a company that only acted as trustee, then the appropriate order would be to order that he be permitted to be a director again. Because the companies only act as trustees, it was submitted that any inability of Mr Wain and Mr Drapac to work together in the future would not matter. Counsel submitted that every person who is a director of the trustee would be entitled to participate in the decision making, would be privy to all of the discussions and documents necessary to make decisions. This submission proceeds on the basis that the relief to be granted should be determined on an entity by entity basis. However, this seems to me to be a flawed approach. For the reasons given earlier, the Court can consider the cumulative effect of the conduct alleged to be oppressive, unfair or discriminatory and can take into account conduct that might strictly be conduct of only one entity but which does affect the conduct of the relevant companies. The natural progression from this is that when granting relief, the Court should look to make orders that overall will redress the harm caused by the conduct.

290 In relation to the Le Boulevard matter, the Drapac parties contended that if the Court formed the view that what occurred resulted in some loss then an order could be made to address that loss rather than to go to the drastic step of ordering a purchase of shares or units. Further it was submitted that if there had been oppressive conduct in relation to the Le Boulevard Trust, that could not be taken to be oppressive conduct in respect of a separate trust (such as the Drapac Holdings Trust) even if there was a common trustee. In those circumstances, as a matter of discretion, it was contended that the Court ought not to make orders for the purchase of units in the trust in respect of which there had been no oppressive conduct. I have already dealt with this last argument in respect of whether consideration can be given to conduct that might technically be said to only relate to one entity or trust. As a matter of discretion, this is not a proper basis for limiting the form of relief to be granted. Again, it seems to me that to redress the harm caused by the conduct complained of, there should be a complete separation of Mr Wain and Mr Murchie's interests from those of Mr Drapac.

291 So far as the units in the relevant trusts were concerned, the Drapac parties contended that the correct approach would be for the unit holders to make an application for redemption of their units and for that redemption to be considered by the trustee. Further, one of the trusts (Drapac Trust No. 2) is a public trust in the sense that it is a registered managed investment scheme and the constitution needs to be followed (including in respect of the procedure for redemption of units). Counsel noted that in that scheme there are a number of unit holders other than the parties in this proceeding. The Wain and Murchie parties submitted that it makes no difference that there is a registered managed investment scheme. The responsible entity (Drapac Management) is controlled by Mr Drapac. The Wain and Murchie parties submitted that in those circumstances there was no point in following the procedure laid down in the constitution for redemption of units, just as there would be no point in following the constitution of any of the companies controlled by Mr Drapac. I accept those submissions.

292 I have formed the view that originally the plan in relation to equity participation was that the key employees would not be entitled to realise their interests until the end of 2014. However, over time, that changed. This can be seen in the August 2008 Bristow paper that the key employees and Mr Drapac all signed, and in the negotiations concerning the agreement that Mr Cameron was drafting. By September 2009, Mr Drapac, Mr Wain, Mr Mercuri and Mr Murchie had all come to the view that there had to be a parting of the ways with the key employees' interests in the Drapac Group to be paid out albeit with some caveats to apply. In particular, I accept Mr Wain's evidence that Mr Drapac effectively undertook to release his equity during the conversation that they had on 3 September 2009 that I have referred to in [110] above. It accords with the similar conversation that Mr Mercuri had with Mr Drapac the p[60]vious day.60 Further, Mr Drapac's evidence about the conversation with Mr Wain was vague and equivocal.

293 In the context of this case, it would be unfairly prejudicial and inequitable to deny the Wain and Murchie parties relief on the basis that the original date for realisation of their equity (that is, December 2014) has not yet arrived. They are entitled to orders that their interests in Endoline and Drapac Management and the units in the various trusts be purchased at fair value.

Did Mr Wain and Mr Murchie breach their employment agreements or duties as directors?

294 A number of allegations pleaded in the counterclaim brought by the Drapac parties were not the subject of cross examination of Mr Wain and Mr Murchie nor were they pursued by the Drapac parties in the closing submissions. In those submissions, the Drapac parties stated that the counterclaim relates to the reasons for termination of Mr Wain's employment (which I have already dealt with above). Given the findings that I have made, the counterclaim must fail.

295 The Wain and Murchie parties are the beneficial owners of the shares and units issued to them in relation to the Drapac Group. Taken cumulatively, the conduct of the Drapac parties was oppressive or unfairly prejudicial to them within the meaning of s 232 of the Corporations Act. As sought in the prayer for relief to the statement of claim, the Wain and Murchie parties are entitled to orders for Mr Drapac and Briaroaks to purchase their interests at fair value.

296 Once the parties have had the opportunity to consider these reasons, I will hear submissions, at a mutually convenient time, as to directions to be made in advance of a trial on the fair valuation of the interests of the Wain and Murchie parties.

The following companies and trusts form the Drapac Group. The list is taken from paragraph 1 of the amended defence of the Drapac parties filed 25 July 2011.

[1] Mr Drapac is the first defendant and a plaintiff by counterclaim. The other defendants and plaintiffs by counterclaim are companies controlled by Mr Drapac.

[2] Mr Wain and Mr Murchie are the first and fourth plaintiffs and the first and fourth defendants to counterclaim. The other plaintiffs and defendants to counterclaim are companies controlled by either Mr Wain or Mr Murchie.

[3] Sections 232 (a), (e) and 233 Corporations Act.

[4] See, for example, [121].

[5] See, for example, [91], [92], [107]

[6] See [85], [222] and [256] below.

[7] Briaroaks Pty Ltd is the second defendant and first plaintiff by counterclaim.

[8] Burayda Pty Ltd is the second plaintiff and the second defendant to the counterclaim.

[9] Murchie Investments is the fifth plaintiff and the fifth defendant by counterclaim.

[10] AJ & KM Pty Ltd is the third plaintiff and third defendant to the counterclaim.

[11] Drapac Holdings Pty Ltd is the seventh plaintiff by counterclaim.

[12] The claim that the shares and units were held as custodian was abandoned by the Drapac parties in closing submissions.

[13] Section 234 Corporations Act.

[14] This definition is limited to the named plaintiffs by counterclaim.

[15] Federal Commissioner of Taxation v Taylor [1929] HCA 13; (1929) 42 CLR 80.

1. [16] Bowker v Burdekin [1843] EngR 277; [1843] 152 ER 744; (1843) 11 M. & W. 128, at 147 (per Parke B) quoted with approval in Federal Commissioner of Taxation v Taylor [1929] HCA 13; (1929) 42 CLR 80 at 89.

[17] See[37] above.

[18] See [53] and [88] above.

[19] See [68] to [72] above.

[20] See [75] above.

[21] See [83] above.

[22] Napier v Public Trustee (WA) (1980) 32 ALR 153 at 158.

[24] See [54] above.

[25] [1999] FCA 1156; (1999) 165 ALR 680.

[29] Section 140(2)(c) Evidence Act 2008 (Vic).

[30] [1992] HCA 66; (1992) 110 ALR 449.

[31] Ibid at 449-50 (Mason CJ, Brennan, Deane and Gaudron JJ).

[32] See [110] above.

[33] See [200] below.

[34] The termination letter referred to this property as Church Street, Richmond, rather than Hawthorn.

[35] Sections 181 to 184 of the Corporations Act 2001 (Cth) were relied upon.

[36] See [251] and following.

[37] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304.

[38] Aqua-Max Pty Ltd and Others v MT Associates Pty Ltd and Others [2001] VSCA 104; (2001) 3 VR 473_, Wayde v NSW Rugby League Ltd_ [1985] HCA 68; (1985) 180 CLR 459, Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692.

[40] Vigliaroni & Ors v CPS Investment Holdings Pty Ltd & Ors [2009] VSC 428; (2009) 74 ACSR 282.

[41] Aqua-Max Pty Ltd and Others v MT Associates Pty Ltd and Others [2001] VSCA 104; (2001) 3 VR 473.

[42] [1973] AC 360.

[44] Croly v Good [2010] EWHC 1 (Ch) at [8].

[45] See the comments of Lord Hoffman in O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092 at 1104.

[46] Ibid. See also Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304.

[47] See [247] above.

[48] See [191] above.

[49] See [251] - [256] above.

[50] [2009] VSC 428; (2009) 74 ACSR 282.

[52] Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Re Bountiful Pty Ltd (1994) 12 ACLC 902; Re Polyresins Pty Ltd [1999] 1 Qd R 599; Surf Road Nominees Pty Ltd v James [2004] NSWSC 61; and McEwan v Combined Coast Cranes Pty Ltd [2002] NSWSC 1227; (2002) 44 ACSR 244.

[53] Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282, 304 - 305 at [64] - [66].

[55] (2010) 80 ACSR 485.

[57] Technical Products Pty Ltd v State Government Insurance Office (Qld) [1989] HCA 24; (1988) 167 CLR 45 at 47.

[58] Section 233(1)(c) Corporations Act.

[59] See[271] above.

[60] See [109] above.