Plaintiffs v Defendants

CORPORATIONS - Oppression -Plaintiff received (but ignored) advice about corporate structure - Plaintiff participated in decision making - Plaintiff's employment terminated but remained director - Alleged acts of oppression not made out - Corporations Act 2001 (Cth) s 232

The Second Plaintiff in person and with leave on behalf of the First Plaintiff

The First Defendant in person and with leave on behalf of the Second and Third Defendants

1 Smash Enterprises Pty Ltd operates a successful plastic design business which has a gross turnover of about $35 million per year. The business employs just under 50 people - some in Australia and some in China. Dale Harbinson started the business in early 2000. Shortly after, he was joined by his brother Jason in running the business.[1] Dale's expertise is in the creative design, marketing and sales area, whilst Jason's strength is in dealing with the financial aspects of the business. Over many years, Dale has left financial matters (both business and his own personal matters) to Jason. Unfortunately, the trust which Dale had in his brother has disintegrated to the point that Dale suspects that his brother has wrongfully deprived him of what he is entitled to out of the Smash business.

2 A Little Something Else Pty Ltd ('ALSE'), as trustee for the Jason Harbinson Family Trust ('JHF Trust'), holds 80 per cent of the shares in Smash. Jason is the sole director and shareholder of ALSE. Both Dale and Jason are beneficiaries of the JHF Trust. Monster Tyson Pty Ltd holds 10 per cent of the shares in Smash. Dale is the sole director and shareholder of Monster Tyson. The remaining 10 per cent of the shares in Smash is held by S T & P Pty Ltd, which is a company controlled by Stefan Kursidim. Mr Kursidim works in the Smash business. Dale, Jason and Mr Kursidim are the directors of Smash.

3 Dale has brought this proceeding seeking orders that Smash correct its register of members to show that he is its only shareholder. In the alternative, he seeks orders for payment of compensation to him, for the purchase of his shares in Smash or an order that Smash be wound up. Dale seeks this relief on the basis that Jason has breached fiduciary obligations alleged to be owed to him and has engaged in misleading and deceptive conduct. Dale also alleges that Jason's conduct is in breach of his duties as a director of Smash and is contrary to the interests of shareholders as a whole and unfairly prejudicial to or unfairly discriminatory against Dale (within the meaning of s 232 of the Corporations Act 2001 (Cth)).

4 In a separate proceeding that was heard at the same time, Jason seeks orders to restrain the holding of meetings that Dale called in July last year for the purpose of removing Jason as a director of three other companies which are owned by entities controlled by the brothers.

5 I have found that Dale's claims must fail. The share register reflects the shareholding to which Dale agreed. Whilst he reposed trust in his brother, Jason, there is no fiduciary obligation that Jason owed to Dale. Even if there were, there has been no improper conduct on the part of Jason that would amount to a breach of a fiduciary obligation. Rather, Jason has ensured that his brother has received the benefit of an amount roughly equal to 50 per cent of the dividends declared by Smash. Jason has not engaged in any misleading or deceptive conduct, nor has Dale been the subject of any oppressive conduct. My more detailed reasons follow.

6 In the early to mid1990s, Dale was in business with another person. They owned and operated a company called AZ Designz Pty Ltd, which imported goods from China similar to the current range of Smash products. Dale left that business in about mid1997. For the next couple of years, Dale worked for Macquarie in a marketing and product development role. Dale continued to think about starting his own business along similar lines to the business that had been conducted by AZ Designz. Smash became that business.

7 Smash was incorporated in January 2000. At the time of its incorporation, Dale was the sole director and he held all 12 issued shares. From inception, the Smash Constitution provided that before issuing shares of a particular class, the directors must offer those shares to the existing holders of shares of that class and must give the members a statement setting out the terms of the offer. These requirements could be dispensed with if a resolution to that effect was passed at a general meeting. The Constitution also provided preemptive rights to shareholders if shares were to be transferred.

8 The Smash business initially operated out of the basement of Dale's home. The brothers do not agree on exactly how Jason came to start working in the business, but nothing turns on that. The point is that Jason was involved in the business from early on. Jason's role was to manage and oversee the financial side of the business, including Dale's personal finances. At the time, Dale was happy with this arrangement as he did not want to look after the finances himself. Over the years, he has not paid attention to the financial side of the business and he recognises that the management of money is not one of his strengths. Consequently, he has delegated to others, including Jason, the responsibility for looking after his personal financial affairs as well as those of Smash and other companies of which he is a director. From about April 2001, Lal Pardasani acted as the external accountant for Smash, the two brothers personally and for their other companies and trusts. Mr Pardasani was known to Jason and was introduced to Dale through him. Once the current dispute between the brothers crystallised, Dale engaged the services of a different accountant to assist him with his personal affairs and Mr Pardasani no longer acts as Dale's accountant. He has continued as the accountant for Smash and Jason.

9 According to Jason, he and Dale reached an agreement in May 2000 that he would be involved in the business on the basis that he had control of it. In return, Dale was to have one half of the profit of the business. Nothing was documented at that time. I accept that Jason and Dale proceeded on the basis of an understanding between them that Dale would have control of the business but that they would share the profits of the business equally. Jason's version of events accords with what happened subsequently. He appeared to be an honest and reliable witness. He was responsible for the financial side of the business and was much more familiar with legal concepts in respect of companies and trusts than is Dale. He is more likely to recollect more accurately the financial and business structure that was put in place. Whilst Dale gave some evidence that conflicts with the conclusion that I have reached, I found his evidence less reliable than Jason's. Dale struck me as someone who was exceedingly busy in the early days of Smash developing the creative and sales side of the business and he did not pay attention to the financial details, nor to the business structure. Indeed, in the early period, Smash struggled financially so there was little to worry about sharing. Dale's recollection of events that concerned the arrangements he had made with his brother was imprecise and often vague. I could not rely on his evidence, as I was not persuaded that his recollection accurately reflected what had occurred.

10 Mr Pardasani understood from what Jason told him that the two brothers owned the shares in Smash. This was not borne out by a company search which Mr Pardasani obtained in December 2001. The search showed Dale as the sole shareholder. Mr Pardasani raised this with Jason who told him that the paperwork needed to be changed to reflect joint ownership. Jason told Mr Pardasani that the shares in Smash did not have any value at that time. Nevertheless, Mr Pardasani advised Jason to consider capital gains tax issues and recommended that he obtain a valuation of the business to avoid any future disputes with the Tax Office. At the time, nothing was done about any of this.

11 In about late 2001, Mr Kursidim joined the business after being contacted by Dale. Among other things, Mr Kursidim had expertise in sourcing products out of China. Dale spoke to Mr Kursidim about being paid a smaller salary in exchange for which he would be rewarded with an interest in Smash. According to Dale, Mr Kursidim was to receive a 10 per cent interest. Mr Kursidim's evidence and that of Jason was that Mr Kursidim was to receive a 20 per cent interest. Nothing turns on this difference in evidence, although it is more likely that Mr Kursidim's version is the more accurate. As will be seen from what follows, Mr Kursidim eventually received a 10 per cent interest, but only after negotiation with Jason to reduce his interest in the business. It is likely that Dale's recollection is only as to the final position that was reached and that he has simply not recalled that Mr Kursidim was first offered a 20 per cent interest. This is an example of the unreliability of Dale's evidence. Dale also says that it was in about late 2001 that he agreed to give Jason a 20 per cent interest in the business. For the reasons that I have given, I cannot rely upon his evidence about this and I do not accept that this is what occurred.

12 As the business grew, Smash moved its operations from Dale's home to a property at 11 Redland Drive, Mitcham. Dale and Jason owned this property together.

13 Smash earned its first profit in the year ended 30 June 2002, although no dividend was paid. The following year, Smash earned a more substantial profit and a dividend of $60,000 was paid. That cash amount was shared equally between the brothers.

14 With the increase in profitability of the company, Mr Pardasani again raised with Jason that as the shares had not been registered in his name, capital gains tax may be a real issue.

15 In midMay 2003, Mr Pardasani met with Jason, Dale and Mr Kursidim. On his advice, they agreed that a shareholders' agreement should be drafted. In October 2003, Gadens was engaged to undertake that work. As might be expected, there were a number of drafts of the agreement.

16 The business continued to expand and needed an office and sales representative in Sydney. Sometime later in 2003, Dale approached Peter McCredie to join the business. He was based in Sydney and his expertise was in sales. Mr McCredie and Dale had known one another for about 20 years, having met at trade functions. They had worked together for a time at Sabco. The need for a formalised shareholders' agreement became more pressing when Mr McCredie agreed to join Smash, as he was not prepared to go forward on the basis of a handshake. He wanted the agreement to be documented.

17 When Mr McCredie agreed to join the business, Mr Pardasani was still concerned about the possibility of capital gains tax implications for Dale if the recorded shareholding was changed. He recommended that Jason and Dale obtain specialist tax advice about this, and Ambry Legal was engaged for this purpose. That firm provided final written advice on 1 September 2004 that there was no capital gain nor stamp duty issues if Dale transferred the shares to Jason. The advice was based on instructions given by Mr Pardasani as to the facts, including that on 19 May 2000, Dale had offered to transfer all of the shares to a family trust controlled by Jason and that Jason had accepted this offer on 23 May 2000.

18 Dale signed a transfer of the 12 shares that he held in Smash to Jason. The transfer form is dated 30 June 2004 and notes the date of purchase of the shares as 23 May 2000. The consideration is expressed to be $12. Jason transferred the 12 shares to ALSE, as trustee of the JHF Trust. That transfer form is also dated 30 June 2004 and the consideration is listed as $12. The date of purchase is specified as 15 December 2000. There are minutes of meetings of 30 June 2004 signed by Dale (as the sole director of Smash) which record the resolutions to approve the transfer of the shares from him to Jason and from Jason to ALSE. Dale remained as the sole director of Smash after his shares were transferred.

19 Jason would often give Dale documents to sign. He would tell Dale what the documents related to and Dale would then sign them. In his affidavit evidence, Dale deposed that this process was not followed in relation to the transfer of his shares and he believes that he was misled into signing the documents without knowing what they were. Dale's affidavit evidence was that he would never knowingly sign over his shareholding in Smash for $12 and at no time did he tell Jason that he wanted to sign such a transfer. In crossexamination, however, he recalled signing the minutes of meetings and the share transfer form although his recollection of what was done and said is hazy. It is likely that Jason gave him the documents to sign. Dale gave the following evidence in response to a question about whether Jason had talked to him about the documents:

I can't recall the exact details. I remember being in my office, him coming in and ... putting these forms in front of me with something kind of a reason for it but it just didn't seem ... you know acceptable at the time. I remember having to fill in one of the dates myself because he pointed that out. He'd left that off and it was in amongst - it was a busy time at that stage and it was just one of those things that just happened really quickly.

20 Dale denies that there was any meeting as those purported to have been held according to the minutes of 30 June 2004. He accepted during the course of his crossexamination that as the sole director, there was no need for a formal meeting. All that was required was that he sign the minute recording the resolution.[2] He also accepted that having signed documents, they took effect in accordance with their terms.

21 A significant profit was earned by Smash in the financial year ended 30 June 2004. From this time on, the financial structure for the affairs of Smash, the two brothers and companies that they controlled, took shape. Essentially, based on advice from Mr Pardasani, their affairs were structured to minimise the amount of tax that had to be paid. To some extent, for the structure to work effectively, it depended upon both brothers trusting one another.

22 The structure involved the flow of cash and also paper transactions recording loans, trust and dividend distributions. The annexure to these reasons depicts the structure that I will now describe in broad terms. Smash would declare a dividend to its shareholders. Eighty per cent of the dividend was paid to ALSE as trustee of the JHF Trust. ALSE would then lend the cash that it received to the two brothers - approximately 62.5 per cent to Dale and 37.5 per cent to Jason. This meant that Dale received the equivalent of 50 per cent of the dividend declared by Smash because 62.5 per cent of 80 per cent equals 50 per cent. So it was that if Dale needed bills to be paid, he would give them to Jason who would arrange for them to be paid by Smash as a loan to Dale. Jason provided a list of the transactions and, in some cases, the records relating to the payment of the brothers' expenses, to Mr Pardasani who showed them as loans in the books of the JHF Trust. Dale says that he does not know where the money came from to pay his expenses, but until January 2012, when the current dispute crystallised, he was content to leave the payment of his accounts and expenses to Jason.

23 Turning then to the distributions from the JHF Trust, each year ALSE (as trustee of the JHF Trust) would resolve to distribute the income of the trust but would not pay the distribution. The bulk of that income was from the distribution that it had received from Smash. A small part of the income came from other business interests that one or other of the brothers held. Taking the year ending 30 June 2005 as an example, Smash paid a dividend of $1,539,080.00 to ALSE as trustee of the JHF Trust. ALSE's total accounting income for that year was $1,588,627.52. ALSE resolved to distribute that amount to Jodin Investment Group Pty Ltd (as trustee for the Jodin Investment Group Trust). Jason is the sole shareholder and director of Jodin Investment. Jodin Investment resolved to distribute the whole of that amount (plus a small amount of additional income) to Hanzon Australia Pty Ltd, Pilgram Transport Pty Ltd and Belowzero Pty Ltd ('the Downstream Companies'). The Downstream Companies do not trade. Jason and Dale are the directors of the Downstream Companies. Pilgram and Belowzero are owned by companies controlled by Jason (37.5 per cent) and Dale (62.5 per cent). Hanzon is owned by Dale (approximately 92 per cent) and Jason (approximately 8 per cent). In most years, Jodin resolved to distribute the income to Pilgram and Belowzero, but on some occasions (including the year ending June 2005) Hanzon was included. The distributions were not paid to Jodin nor to the Downstream Companies. As all of the dividends from Smash were fully franked, there was no tax payable by the Downstream Companies in respect of the dividends from Smash. The effect of the arrangements was therefore that neither Jason nor Dale had to pay personal tax on the amounts that they received from ALSE because they had taken the money as a loan from ALSE. This meant that payment of income tax above and beyond the corporate tax rate of 30 per cent was deferred until such time as the Downstream Companies called on their entitlements from Jodin and they were paid and they then distributed dividends to their shareholders. In 2009, legislative amendments were made which meant that the loans to Jason and Dale were subject to restrictions as to the payment of interest and the length of the loan, but the financial structure that had been put in place otherwise remained the same.

24 If, at any time, the Downstream Companies called on Jodin to pay the distributions, then Jodin would call on ALSE to pay the trust distribution to it as Jodin has no other funds with which to pay. ALSE is in a similar position and it would then have little option but to call in the loans made to the two brothers. If the brothers did not have the money to pay, then a likely option would be for the Downstream Companies to declare a dividend to them upon which tax at the personal tax rate of 46.5 per cent would be payable albeit that the franking credit of 30 per cent would be taken into account. A likely consequence of collapsing the structure that has been in place for over a decade would be this personal tax liability for Dale and Jason. In about July 2013, Dale took steps to have Jason removed as a director of the Downstream Companies. Jason seeks orders that Dale be permanently enjoined from holding the meetings he called last year for the purpose of removing Jason as a director. Jason seeks such orders to prevent Dale from causing the Downstream Companies from calling on Jodin to pay the trust distributions which have not been paid.

25 The allocation of funds was to some extent fluid and approximate. The Downstream Companies received distributions from other trusts controlled by Dale and Jason unrelated to Smash. From time to time adjustments would be made to take account of payments that had been made because one of the brothers needed funds at a particular time and to take account of shortterm loans that one or other brother granted to the other. Sometimes this worked in favour of Dale; sometimes in favour of Jason. Nevertheless, overall, the split of cash between the brothers ultimately saw Dale receive close to 50 per cent of the amount Smash declared as dividends. Whilst Dale suspects that he has not received his fair share, his suspicions are unfounded. He accepted that all of his accounts had been paid and that he owned two properties. When asked how all of this was paid for, Dale said that he had left it to Jason. He accepts that the only source of income is from the Smash business and that he has benefitted financially from Smash.

26 On 10 September 2004, ALSE as trustee of the JHF Trust, subscribed for 68 ordinary fully paid shares in Smash. Dale signed the minutes of meeting of directors which recorded the resolution for approval of this transaction. This meant that ALSE was recorded as the holder of 80 shares. Again, Dale's evidence was that he was misled or deceived into signing the minutes and that there was no such meeting. For the reasons that I have given, I do not accept that as reliable evidence. No meeting was necessary. The issue of the shares accords with what happened subsequently when further shares were issued to take the total issued shares to 100, which could more easily be split to give each of Mr Kursidim and Mr McCredie a 10 per cent share of the business, leaving 80 per cent in the name of ALSE.

27 With the business becoming quite profitable and Mr McCredie joining, Jason spoke to Mr Kursidim about reducing the percentage of shares that he was to be allocated from 20 per cent to 10 per cent. Following further negotiations, Mr Kursidim was persuaded to accept this on the basis that the business was much bigger than what had been envisaged when he first joined Smash. It was also necessary for Jason to speak to Dale about what share each of them was to have going forward. Until this time, the brothers shared the business between them on a fifty/fifty basis. I accept Jason's evidence that Dale wanted to keep his interest at 50 per cent and that he was not happy to do this as it would reduce his interest to 30 per cent such that Jason would lose control. I also accept his evidence that he wanted that control back and that Dale agreed to this. In this regard, I would observe that Jason's evidence is consistent with the payments by way of loan from Smash to the brothers that have been made since the financial year ending 30 June 2004. His evidence is also consistent with the resolutions as to the various trust distributions by ALSE and Jodin.

28 On 14 October 2004, Smash resolved to issue 10 ineligible convertible shares to ST&P Pty Ltd as trustee for the ST&P Family Trust for $10. That trust is Mr Kursidim's family trust. Dale signed the minute that recorded the resolution to issue those shares. Again his evidence was that he was misled into doing so. I do not accept that. He simply did not pay much attention to the documents that he signed.

29 On 8 December 2004, Smash resolved to issue 10 ineligible convertible shares to ARASAP Pty Ltd as trustee for the Macs Trust. The consideration for those shares was $600,000. Peter McCredie and his wife were the directors and shareholders of ARASAP. Dale signed the minute that recorded the resolution to issue the shares to ARASAP. Again, his affidavit evidence was that he was misled into doing so. The purchase price for Mr McCredie's interest in the Smash business was negotiated by Jason. In crossexamination, Dale said that he was not sure how they came up with the price, but it seemed reasonable at the time. He acknowledged that he knew that Mr McCredie was paying $600,000 for his shares. He was clearly aware of the share issue, and I do not accept his affidavit evidence that he was in any way misled.

30 Ineligible convertible shares were issued to ST&P and ARASAP so that they would not be eligible for dividends until the retained profits for the year ending 30 June 2004 had been distributed. Once that occurred, the shares were converted to ordinary shares and a further dividend of profits from the current year was distributed to all shareholders. The dividends were paid.

31 Also on 8 December 2004, ALSE, ST&P, ARASAP, Dale, Jason, Mr Kursidim and Mr McCredie entered into a shareholders agreement (the 'Shareholders Agreement'). The companies were parties in their capacity as the shareholders in Smash, which was also a party to the agreement. The individuals were parties to the agreement as covenantors. Their signatures on the agreement were witnessed by Mr Pardasani. Under the terms of the agreement, each covenantor was required to 'perform any action within [his] power and control necessary or desirable to procure the performance by [his] related shareholder of the terms' of the agreement. Clause 2.3(a) of the Shareholders Agreement provided that the provisions of that document governed and prevailed over the Constitution of Smash. Each shareholder confirmed the waiver of any preemptive rights they may have had in respect of the transfers or allotments of shares required to achieve a legal entitlement of ALSE to 80 ordinary shares, and 10 ineligible convertible shares to each of ST&P and ARASAP. The Shareholders Agreement established a preemptive rights regime in respect of future disposals of shares so that the shares of an outgoing shareholder were first to be offered to one of the other existing shareholders. The Shareholders Agreement also provided that Smash must offer employment to Dale, Jason and Stefan and must offer to enter into a consultancy agreement with Mr McCredie's company. The Shareholders Agreement also provided for each shareholder to appoint up to two directors.

32 Dale thought that the Shareholders Agreement was the formalisation of the share arrangements. He knew that the other parties to it intended the document to have legal effect and that they were asking him to agree. He knew that the agreement was important to the other parties. He was quite happy to have Mr Kursidim and Mr McCredie involved in the business. Dale recognised that the original arrangement he alleges existed (a 70 per cent interest to him, 20 per cent to Jason and 10 per cent to Mr Kuridisim) had to be adjusted when Mr McCredie bought into the business. Dale recalled speaking to Jason and Mr Kursidim about the Shareholders Agreement, although at the time he was travelling a lot for work and so he left the formalities to Jason.

33 Mr Pardasani had discussions with Jason, Dale, Mr Kursidim and Mr McCredie about the Shareholders Agreement before it was finalised and executed. Sometimes he spoke to them together, sometimes individually. He had at least one meeting with all of them to go through various clauses in a draft of the Shareholders Agreement. He was responsible for giving instructions about the Shareholders Agreement to Gadens. He had one conversation with Dale that he could recall quite well. As there was going to be a transfer of 80 per cent of the shares to ALSE, he asked Dale if he realised that Jason's trust would control Smash and that, among other things, Jason would be able to control the dividends. He explained to Dale that their affairs could be structured in an alternative manner so that the trustee of a trust in favour of Dale and the trustee of a trust in favour of Jason could be shareholders. Dale's response was that nobody could control him; that he was Smash and the business. In effect, he ignored the advice that Mr Pardasani gave to him. Jason had told Mr Pardasani that fiveeighths of the dividends would go to Dale or an entity controlled by him. Mr Pardasani did not speak to Dale about this in great detail although Dale was present once or twice when it was discussed.

34 On 14 March 2005, Dale resolved to appoint Jason, Mr Kursidim and Mr McCredie as directors. The minute recording this resolution is signed by Dale and is dated 14 April 2005. Although during the course of the trial Dale seemed concerned by the difference between the date of the meeting and the date of the minute, nothing turns on this. There could be many explanations for it. What is important is the fact that there was a resolution appointing the other directors and that Dale signed the minute.

35 Until about late 2007, Dale was the chief executive officer of Smash. With the growth in the Smash business, a decision was made for Dale to step down from that position so that a more experienced person could be appointed. A new chief executive officer was appointed. Following his appointment, Dale took a less visible role in the business and limited his time at Smash's offices.

36 In 2008, the Smash business had grown to such an extent that new premises were required. The property at 33 Redland Drive, Mitcham was purchased by the brothers and Mr Kursidim through entities that they controlled. Dale's company, Fort Shamrock Pty Ltd, and Jason's company, ALSE, each held a 45 per cent interest in the property. Mr Kursidim's company, Relekur House Pty Ltd, held the remaining 10 per cent interest in the property. Dale's affidavit evidence was that he did not know why his company only owned 45 per cent of the property. In crossexamination, he said that he knew about the split of ownership. Dale and Jason owned the first building at 11 Redland Drive on an equal basis. When it came to the new property at 33 Redland Drive, the brothers agreed that Mr Kursidim would join them in the investment. Dale left it to Jason to sort out the details. The result was that each of the brothers owned 45 per cent and Mr Kursidim the remaining 10 per cent. Whilst Dale did not know the precise details of ownership, he was not surprised at how the ownership was split because it was what he expected. He never thought that he owned 100 per cent of 33 Redland Drive.

37 In about September 2009, the chief executive officer who had been appointed the previous year left the Smash business. Around late 2009, Dale came back to work in the business on a fulltime basis. At this time, Dale told the other shareholders that he wanted all the shares in Smash. As a result, in late 2009, Mr McCredie decided to leave the Smash business. This meant that the shares in Smash held by ARASAP had to be sold. Under the Shareholders Agreement, they had to be offered to the other shareholders first. Neither Jason nor Mr Kursidim wanted to purchase the shares. The only person who was interested in acquiring the shares was Dale. He believed that the shares should be given to him. Jason explained to him that the only way to get them was to pay. As matters transpired, Dale's company, Monster Tyson Pty Ltd, acquired the 10 per cent of shares for $750,000. Although that was above a valuation figure for Smash, Mr McCredie had wanted a lot more for the shares than that amount. After negotiation over about four months between Mr McCredie and Jason, the price that was struck was $750,000. I accept Jason's evidence that he discussed the price with Dale. Monster Tyson and Dale entered into a shareholder undertaking deed by which they agreed to perform the terms of the Shareholders Agreement.

38 In about February 2011, Dale's former partner brought family law proceedings against him. Dale's evidence was that, as a result, he had to obtain information about his financial affairs from Jason and Mr Pardasani. He suggested that he had difficulty in obtaining that information from them. I do not accept his evidence about this. Both Jason and Mr Pardasani gave evidence that they had provided everything that Dale or his family law solicitors requested. Dale was not able to specify any information that he had not received.

39 In any event, Dale says that it was through the family law proceedings that he learnt that his shares in Smash had been transferred in 2004 to Jason and that his interest in Smash as reflected by the records held by ASIC is 10 per cent, being his holding through Monster Tyson. His affidavit evidence was that until the family law proceedings, he believed that his shares were held in his family trust which Jason and Mr Pardasani had set up for him. I do not accept his evidence about this. As I have observed above, Mr Pardasani gave him advice about how the shareholdings would be structured. Dale simply did not concern himself with this.

40 In the latter part of 2012, Dale made a threat to Mr Kursidim for which he later apologised and which he accepted was inappropriate. He also sent emails to staff which he concedes were inappropriate. In addition, he terminated the employment of Smash's then general manager by email sent in the very early hours of 23 November 2012. Dale accepted that he should not have acted in that way, but he was angry and upset and did it in the heat of the moment. At the time of all of these events, Dale was experiencing many personal issues, including the breakdown of his relationship.

41 On 23 November 2012, a meeting of the directors of Smash was called for the purpose of Dale explaining his emails and conduct. The meeting took place on 28 November 2012. Dale apologised for the emails and the language that he had used in them. He did not think that his apology would fix the problem straight away. As things transpired, it did not. Rather, Jason and Mr Kursidim resolved as directors of Smash to terminate Dale's employment as its chief executive officer. Dale was paid 12 months' salary in lieu of notice of termination. Dale remained and continues as a director of Smash.

42 Having been terminated as an employee, Dale had concerns about what his brother was doing in respect of the Smash business, and he was afraid that with Jason at the helm, Smash would lose its competitive edge and its brand would be damaged forever. In particular, Dale's affidavit evidence deposed to concerns about Jason attempting to arrange a sale of the 33 Redland Drive property. Dale also feared that if he was not seen by the suppliers and customers of Smash, the business would suffer considerably. Seemingly, Dale's concerns and fears about Jason were not based on anything more than suspicion. Indeed, he was involved in discussions with Jason and Stefan regarding the proposed sale of the Redland Drive property and they all agreed to sell if they could get a good price. The idea was that if the property was sold, it would be subject to a longterm leaseback arrangement. Dale was also one of the recipients of an email from Jason to all Smash's staff which advised of the potential sale of the building. He received an email from Jason with a link to a virtual video tour of Smash from the agent engaged to sell the building. Jason emailed Dale and Mr Kursidim to let them know when the property was being listed for sale. All of this evidence goes to show that Dale knew about the property being offered for sale and condoned that course.

43 In a similar vein, Dale complained about a lack of information concerning litigation that Smash was involved in in the United Kingdom. He sent an email to Smash's lawyer during the course of that litigation which might best be described as incomprehensible. Jason's evidence, which I accept, is that the lawyer recommended that Dale be removed from giving any instructions. Jason took control of the litigation and Dale was not required nor requested to provide any further instructions. Smash was successful in obtaining a declaration that the court in which the proceedings had been brought did not have jurisdiction and the claim did not proceed any further.

44 Dale also suspected that Jason may have used money from Smash to purchase a property in Ceylon Street, Nunawading. That too is unfounded. Jason contributed $193,422.72 which he borrowed against his family home. Jason has paid all the costs associated with his share in that property.

45 Neither Jason nor Mr Kursidim is able to work with Dale as a director of Smash. Since the breakdown in relations between the brothers, there have been no meetings of directors or shareholders. What then should happen?

Should the share register of Smash be rectified?

46 Dale's pleaded claim is that the various share transfers were all effected without complying with the requirements of the Constitution of Smash and were therefore void. He seeks an order for rectification of the register to show Dale as the owner of all shares in Smash, alternatively Dale as a 70 per cent shareholder and Jason as a 20 per cent shareholder. Dale seeks declaratory relief and ancillary orders. As an alternative, Dale seeks compensation under s 1317H of the Corporations Act or equitable compensation under the general law.

47 Section 175 of the Corporations Act provides that a person aggrieved may apply to the Court to have a register kept by the company corrected. Where the provisions of the company's constitution have not been complied with in respect of the issue or transfer of shares, this may give rise to a right to rectification.[3] The remedy is discretionary and rectification may not be ordered if the circumstances do not justify it.[4]

48 There is no evidence as to whether there was compliance with the provisions of the Constitution of Smash to which I have referred in [7] above. Even if there were evidence of noncompliance, I would not be willing to exercise the discretion to order rectification of the register. First, Dale signed the documents that record the issue and transfer of shares. He accepted that he had signed them, that he is bound by them and that they take effect according to their terms. Secondly, I am not satisfied that he was misled in any way in relation to the transfers. Rather, he was involved in the discussions about the transfer of his shares, the purchase of shares by the companies controlled by Mr McCredie and Mr Kursidim and Monster Tyson's later purchase of the shares held by Mr McCredie's company. Moreover, Mr Pardasani gave him express advice about the effect of the transfer of his shares to Jason as well as advising him that the shareholding in Smash could be structured differently. Thirdly, while the Constitution contained provisions concerning the issue and transfer of shares, the shareholders, the people who controlled them, and Dale separately agreed how they would regulate matters pertaining to Smash between them. Dale signed the Shareholders Agreement as a covenantor as well as executing the agreement on behalf of Smash as its sole director. What occurred was in accordance with that agreement. As I have noted above, clause 3(b) of the Shareholders Agreement provided that the parties would do all things necessary or desirable so that ALSE would be legally entitled to 80 ordinary shares and ST&P and ARASAP would each be entitled to 10 ineligible convertible shares. Again, Dale accepts that he signed that agreement and that he is bound by it. As I have said, he had advice from Mr Pardasani before he entered into the Shareholders Agreement. In addition, when Monster Tyson acquired ARASAP's shares, Dale signed the Shareholder Undertaking on behalf of both himself and Monster Tyson thereby agreeing to perform the terms of the original Shareholders Agreement. Fourthly, for about 10 years the parties have conducted their affairs on the basis of the share structure from time to time reflected in the register and ASIC's records.

49 Dale's claim for rectification of the register must fail.

Was there any breach by Jason of any fiduciary duty owed to Dale?

50 Dale alleges that from about late 2000 a fiduciary relationship existed between him and Jason because he reposed trust and confidence in Jason and was vulnerable to abuse by Jason of his position as a director of Smash, employee of Smash and advisor to Dale. The particulars of these allegations are that:

(a) Jason had significantly greater experience than Dale in financial matters;

(b) Jason had previously worked for the Commonwealth Bank and was experienced in matters of finance, cash flow and bookkeeping;

(c) Jason being Dale's brother, Dale trusted him implicitly in relation to the matters referred to;

(d) Jason was responsible, amongst other things, for overseeing the financial side of Smash's business and even Dale's personal financial and taxation affairs;

(e) By around 2004, Jason was the person at Smash with the primary responsibility for hiring Smash's employees;

(f) Jason was responsible for engaging external accountants for Smash; and

(g) Jason set up or arranged to be set up companies and trusts relating to Dale.

51 Dale pleads that Jason was under a fiduciary duty to bring the changes in shareholding and the transfers expressly to his attention. He alleges that Jason owed duties to him (which he breached) to avoid conflicts between their respective interests and not to make profits at the expense of Dale.

52 In Hospital Products Ltd v United States Surgical Corporation,[5] Gibbs CJ observed that the categories of fiduciary relationships are not closed.[6] His Honour recognised the difficulty of articulating a universal test for determining whether such a relationship does exist.[7] He continued:

I doubt if it is fruitful to attempt to make a general statement of the circumstances in which a fiduciary relationship will be found to exist. Fiduciary relations are of different types, carrying different obligations and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose....

In the decided cases, various circumstances have been relied on as indicating the presence of a fiduciary relationship. One such circumstance is the existence of a relation of confidence, which may be abused. However, an actual relation of confidence - the fact that one person subjectively trusted another - is neither necessary for nor conclusive of the existence of a fiduciary relationship; on the one hand, a trustee will stand in a fiduciary relationship to a beneficiary notwithstanding that the latter at no time reposed confidence in him, and on the other hand, an ordinary transaction for sale and purchase does not give rise to a fiduciary relationship simply because the purchaser trusted the vendor and the latter defrauded him.

Another circumstance which it is sometimes suggested indicates the existence of a fiduciary relationship is inequality of bargaining power, but it is clear that such inequality alone is not enough to create a fiduciary relationship in every case and for all purposes....

On the other hand, the fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm's length and on an equal footing has consistently been regarded by this Court as important, if not decisive, in indicating that no fiduciary duty arose_._[8]

53 Mason J described fiduciary relationships in the following way:

The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman (25)), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of", and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.[9]

54 In my opinion, no fiduciary relationship as alleged in the pleadings existed between the brothers. While Dale trusted Jason and was content to leave the financial aspects of the business and his own personal affairs to Jason, that did not give rise to a fiduciary relationship when other matters are taken into account. Dale was capable of looking after his own interests; he simply chose to delegate responsibility to Jason in relation to his financial affairs.

55 In any event, if there was a fiduciary relationship, Dale has not established that there was any breach of it by Jason. Dale read the documents that he signed, albeit that I accept that he may not have read them in great detail. He exercised independent judgment about whether to sign them or not. In more recent times, there were some documents which he refused to sign because he identified errors in them. The documents which he signed in relation to the share transfers and issue of shares were prepared by Mr Pardasani's firm, and Dale understood that they reflected the arrangement between him and his brother. Mr Pardasani told him what effect the share transfers would have and told him what the alternative was to achieve the same financial result. Dale ignored that advice. Fortunately for him, his brother did not take advantage of him, nor of the fact that the shares were all held by ALSE. In effect, although Dale's shares were transferred to ALSE, Jason ensured that he fulfilled his part of the arrangement with an amount roughly the equivalent of 50 per cent of the Smash share dividends ending up with Dale.

56 In view of the conclusion which I have reached, it is not necessary to consider whether ALSE was knowingly involved in a breach of fiduciary duty by Jason as alleged by Dale.

Was there any misleading and deceptive conduct on the part of Jason?

57 Dale's claim of misleading and deceptive conduct is premised on there being a fiduciary relationship. Dale pleads that Jason procured his signature to the transfers and changes in shareholding without bringing the transfers and changes expressly to Dale's attention when Jason had an obligation to do so because of the alleged fiduciary relationship. Consequently he alleges that this constitutes misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law and/or s 9 of the Fair Trading Act 1999 (Vic). He seeks orders setting aside the transfers and the changes to shareholding that occurred when Mr Kursidim's and Mr McCredie's shares were converted from ineligible to ordinary shares and when Mr McCredie's shares were transferred to Monster Tyson Pty Ltd.

58 No transfer or change to shareholding occurred at a time when s 18 of the Australian Consumer Law was in operation. To the extent that the former Fair Trading Act 1999 (Vic) had any operation, a sixyear limitation period operated and any claim in respect of the 2004 share transactions and the changes from ineligible to eligible shares, is statute barred.[10] The claim in respect of the transfer of shares from Mr McCredie's company to Monster Tyson is not statute barred.

59 Even if some of the claims were not statute barred, for the reasons that I have given in the preceding section, there was no fiduciary relationship between the brothers and the claim could not succeed. Moreover, even if there were a fiduciary obligation imposed on Jason, again for the reasons that I have given, I am not satisfied that Dale was misled or deceived into signing the documents that he did. He knew the substance of the transactions and had advice about the critical initial transfer of his shares to Jason and then to ALSE. There was no misleading or deceptive conduct involved.

60 Among other things, s 233 of the Corporations Act 2001 (Cth) empowers the Court to make orders to redress conduct of a company's affairs that is contrary to the interest of the members as a whole, or is oppressive to, unfairly prejudicial to or unfairly discriminatory against a member of the company.[11]

61 Whether conduct is 'oppressive to, unfairly prejudicial to or unfairly discriminatory against' a shareholder within the meaning of s 232 is assessed objectively through the eyes of a commercial bystander.[12] If the conduct is so unfair that reasonable directors would not have thought it fair, then relief will be granted.[13] The section is aimed at 'commercial unfairness' which must be judged in the context of the particular relationship which is in issue.[14]

62 Dale and Monster Tyson seek to rely on this provision. The acts of oppression alleged by them are Jason's:

(a) use of his position as a director to procure an advantage for himself and ALSE;

(b) procuration of the transfer of the shares and the changes to shareholdings because it was not done for a proper purpose in that it facilitated Jason's control and ownership of Smash and reduced Dale's control and ownership of Smash;

(c) misleading or deceptive conduct (which I have dealt with above);

(d) attempted sale of the 33 Redland Drive property;

(e) role in the termination of Dale's employment and exclusion from Smash;

(f) refusal to convene a meeting of shareholders until 28 January 2013 when in late 2012 Dale had asked Jason to convene a meeting;

(g) use of Smash's money to fund the proceeding; and

(h) interference with witnesses alleged to arise as a result of correspondence from his solicitors to Dale's solicitors about contacting Mr Pardasani.

63 Dale and Monster Tyson allege that this conduct on the part of Jason amounted to various breaches by him as a director of Smash of ss 180 to 182 of the Corporations Act.

64 In addition to relief under the oppression provisions of the Corporations Act, Dale relies on these matters to seek an order for rectification of the share register under s 175 of the Corporations Act.

65 For the reasons that I have given, there was no oppressive conduct, nor was it contrary to the interests of the members as a whole in respect of the transfer of the shares and changes in shareholdings, nor was there any misleading or deceptive conduct. Rather, what occurred reflected the arrangement between Dale and his brother and the other shareholders. Taking into account the broader context, nor was there any misappropriation of the dividends declared and paid by Smash such as would constitute oppressive conduct. There is nothing unfair in establishing a mechanism which saw Dale receive the equivalent of 50 per cent of the dividends to which he had agreed with advice about the corporate structure.

66 As to the proposed sale of 33 Redland Drive, as I have said, Dale agreed that the property should be sold. In any event, Smash only leases that property - it does not own it. In the circumstances, the proposed sale of 33 Redland Drive does not amount to conduct which is either contrary to the interest of the members as a whole, nor oppressive to Dale, nor Monster Tyson.

67 Whilst exclusion from management may constitute oppressive conduct,[15] here Dale accepted that his conduct was inappropriate and he did not dispute that there was an entitlement to terminate his employment. He remains as a director of Smash and is entitled to participate in the affairs of Smash in that capacity. In short, he has not been excluded. In all the circumstances, the termination of his employment does not support his claim to relief. It is not oppressive nor is it contrary to the interests of the members as a whole.

68 Next, there was no meeting 'refusal' as contended for by Dale. He asked for a meeting to be convened and Jason offered a date that was available within a relatively short period, given the time of year.

69 Early in the proceeding, Jason, ALSE and Smash gave undertakings to the Court which Dale accepted that dealt with the use of Smash's funds in relation to the costs of this proceeding. There is no evidence that Smash's funds have been used inappropriately.

70 The allegation of interference with witnesses has no substance. As I have said above, before the dispute between the brothers began, they both engaged Mr Pardasani as their accountant. Dale had Family Court proceedings on foot and Mr Pardasani was in possession of information from those proceedings as well as other information. Dale's accountant sent a request for information to Mr Pardasani. In those circumstances, Jason's solicitors wrote to Dale's solicitors requesting that correspondence not be sent direct to Mr Pardasani but rather that correspondence be sent through their office. The solicitors said that they would forward the correspondence accordingly. Their letter concluded:

We do not need to remind you of the importance of maintaining the implied undertaking established in Home Office v Harman [1983] 1 A.C. 280. For the purpose of maintaining the implied undertaking it is essential that the documents exchanged in this matter be passed between the solicitors. We have directed our clients and Mr Pardasani not to communicate directly with your office [or] anyone else representing your client.

71 In context, that letter does not amount to an interference with witnesses. The solicitors were mindful of the Harman obligations and suggested what they saw as a safe method for the exchange of information.

Conclusion in respect of claims by Dale and Monster Tyson

72 The claims alleged by Dale and Monster Tyson have not been made out. There is no basis for rectification of the register, there has been no breach of any fiduciary obligation by Jason, there has been no misleading and deceptive conduct, and there is no conduct that needs to be redressed by orders under s 233 of the Corporations Act. Their claims should be dismissed.

Should Dale be restrained from holding a meeting of the Downstream Companies?

73 Jason commenced a separate proceeding which was heard at the same time as the proceeding brought by his brother. Jason seeks an order that Dale be enjoined permanently from holding meetings of the Downstream Companies pursuant to notices that were served on Jason on 10 July 2013. The resolution to be considered at each of the meetings is a resolution to remove Jason as a director. As Dale controls the majority of the shares in each of the Downstream Companies, if he voted in favour of the resolutions, they would be passed. Jason, Jodin Investments and ALSE claim that the removal of Jason as a director of the Downstream Companies by the majority shareholders (controlled by Dale) would be unfairly prejudicial to or unfairly discriminatory to them as minority holders within the meaning of s 232 of the Corporations Act.

74 As I have discussed above, if the financial structure that the brothers have operated under for many years is brought to an end, the effect will be to impose tax liabilities on each of the brothers at the difference between their personal tax rate and the franking credits attaching to the dividends that were originally declared by Smash in favour of the Downstream Companies. I accept Jason's submission that if either brother were to take sole control of the Downstream Companies at the directorship level, then in the current conflict situation between them, that brother would be in a position to inflict significant financial harm on the other by calling for payment of the distributions from ALSE before any arrangement was made for either funds to be raised to pay the tax or for appropriate distributions to be made to enable the tax to be paid. I agree that by calling a meeting to remove Jason as a director, the balance of the arrangements that have been in place for a decade was placed into jeopardy. Nevertheless, on one view, the meetings should be allowed to proceed as a decision to remove Jason and any decisions made thereafter by Dale as the sole director might be able to be reversed if they constituted oppressive conduct. However, in the circumstances of this case, and in particular taking into account the almost inevitable outcome of the meetings, that it would be unfairly prejudicial to or unfairly discriminatory against the minority shareholders (controlled by Jason) for the resolutions to remove Jason to be passed, the fact that the brothers have been engaged in the current litigation for over twelve months and that further litigation would lead to increased cost for them, in my opinion it is more appropriate to grant a permanent injunction restraining the holding of the meetings that have been called. I would note, and Jason's counsel conceded, that such an order would not prevent the calling of another meeting.

75 Counsel for Jason urged the Court to publish reasons and then to hear from the parties as to the appropriate orders to be made in circumstances where the evidence shows that Jason and Mr Kursidim cannot work with Dale as a director of Smash. I propose to follow that course.

(Shareholders - Jodin Investments Group Pty Ltd - 9 Monster Tyson Pty Ltd - 15)

A Little Something Else Pty Ltd (as trustee for the Jason Harbinson Family Trust)

Pilgram Transport Pty Ltd (Shareholders - ALSE Pty Ltd - 9

[1] To avoid confusion and for ease of reference, I will refer to the brothers by their first names.

[2] Corporations Act, s 248B.

[3] Grant v John Grant & Sons Pty Ltd [1950] HCA 54; (1950) 82 CLR 1.

[4] Ibid 51 (Fullager J); Re Motasea Pty Ltd (2014) 97 ACSR 589, 603 [47].

[5] [1984] HCA 64; (1984) 156 CLR 41.

[10] Fair Trading Act 1999 (Vic) s 159(3).

[11] Corporations Act s 232(a), (d) and (e).

[12] Joint v Stephens [2008] VSCA 210; Aqua-Max Pty Ltd v MT Associates Pty Ltd [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. For ease of reference, I will use the term 'oppressive' in these reasons as shorthand for the longer phrase.

[13] Joint v Stephens [2008] VSCA 210; Wayde v NSW Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692..

[14] Joint v Stephens [2008] VSCA 210 [134]-[137].

[15] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 360 [175].