Plaintiffs v Defendants [2019] VSC 547 | Case summary

Supreme Court of Victoria|2019-08-19|Before: ROBSON J

CORPORATIONS - Oppression proceeding - Quasi-partnership - Exclusion from participation in management - Failure to distribute earnings - Payment of legal fees in oppression proceeding - Order that oppressing party buy out the interest of the oppressed party - Section 232 of the Corporations Act 2001 (Cth) - Section 233 of the Corporations Act 2001 (Cth).

2 Mr Reiner and Mr Wajsman began their partnership in 1999 and conducted the business together until 2016. In 2016, Mr Reiner suffered a heart attack. He ceased assisting in the management of the business and went to the USA to recover. In his absence, Mr Wajsman took sole responsibility for running the business. The business, however, was Mr Reiner's sole source of income. During Mr Reiner's absence from the business, Mr Wajsman has refused to distribute any profits to Mr Reiner or his company Laurient Holdings Pty Ltd and also has purported to remove him as a director of all companies of the business.

3 Mr Reiner has instituted this oppression proceeding against Mr Wajsman and seeks an order that Mr Wajsman purchase Mr Reiner's half share in the business.

4 Upon the conclusion of the hearing, I found that I was satisfied that the conduct of the relevant companies caused by Mr Wajsman has been and is contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to, and unfairly discriminatory against Mr Reiner.

5 I found that it was not appropriate to wind up the corporations conducting the business. I did not consider it appropriate to order a sale of the business to the public, as I was satisfied that the business is far more valuable to Mr Wajsman than a potential third party buyer because of his close association with the operations of the business conducted by the corporations.

6 I found that since Mr Reiner went to the USA, Mr Wajsman has adopted the business as his own. I found that he has managed the business to suit his own interests. He has excluded Mr Reiner from any say in the management of the business, or in any share of the profits of the business.

7 In those circumstances, I found that the only fair remedy was to require Mr Wajsman to complete what he had done in practice, that is, take complete control and ownership of the business by buying out Mr Reiner's interest.

8 Accordingly, on 11 June 2019, I ordered that Mr Wajsman and his company purchase Mr Reiner's half share for a price to be determined.

9 I reserved my reasons for these findings and orders, which I now provide.

10 SRW Nominees Pty Ltd ('SRW') is the main trading entity within the Big Ben Group ('the companies') and carries on a business of commercial kitchen cleaning and related services.[1] Mr Reiner's company, Laurient Holdings Pty Ltd ('Laurient'), and Mr Wajsman's company, Softpro Australia' Pty Ltd ('Softpro'), each hold equal shares in SRW.

11 The Big Ben Group was founded in 1999 by Mr Wajsman, Mr Reiner and Mr John Sojka. In 1999, Mr Wajsman, Mr Reiner and Mr Sojka, through their respective companies, entered into an agreement ('the Agreement') governing their relationship and each took a one third interest.[2] SRW was incorporated, and the agreement provided for it to run the business formerly operated by Big Ben Oil Filtering Systems Pty Ltd, which was founded, owned, and run by Mr Wajsman. Mr Wajsman is the 'Big Ben' behind the brand. The agreement provided that each company was to provide a representative to work full-time in the business.[3] The agreement provided that the business should be for the benefit of the parties equally.[4] It provided that, subject to satisfactory cash flow, each representative would be paid a salary or be entitled to a weekly drawing, and if there was unanimous agreement, each party could draw out of the bank accounts their share of the expected profits.[5] Essentially the agreement was akin to a partnership agreement.

12 In 2004, Mr Sojka was bought out and Mr Wajsman and Mr Reiner became equal partners in the business.

13 Since then, the Big Ben Group has grown to include two other trading companies, Big Ben Services Sydney and Big Ben Speciality Foods, in which Mr Reiner and Mr Wajsman effectively each hold a one quarter interest.[6]

14 From 2004 to May 2016, the partners each participated in managing the business and shared equally in the profits.

15 Unfortunately in May 2016, Mr Reiner suffered an unexpected heart attack. In July 2016, he informed Mr Wajsman that he planned to return to the USA with his family to recuperate for a time. Mr Reiner says he told Mr Wajsman he would be away for one year; Mr Wajsman says Mr Reiner told him five years. Mr Reiner relocated on 30 August 2016. Mr Wajsman assumed sole responsibility for running the business in Mr Reiner's absence.

16 When Mr Reiner left for the USA, Mr Reiner and Mr Wajsman were involved with three loans. Two were loans relating to the Big Ben Group business. One was the HACO loan, which was an account that had been allowed to go into debit. It was originally an account that was intended to be kept in credit to enable funds to be available to take advantage of low cooking oil prices. The other was the Big Ben Funding Account, which was being paid off in monthly instalments but not drawn upon. The third account ('the US property loan') related to a business established in the USA to invest in and lease real estate. The US business was conducted by two US companies, Cadwa LP and Modim LLC. The shareholders of those companies were Mr Wajsman, Michelle Reiner (Mr Reiner's wife), Mason Reiner (Mr Reiner's brother), and Yusi Peronski (Mr Mason Reiner's father-in-law, who was a builder). Each held a 25 per cent interest. The initial funds made available to the US companies were provided by Mr Wajsman from a loan made to one of Mr Wajsman's companies. Mr Reiner says the four joint venturers agreed that the US companies would repay the loan, and if the venture failed, the four joint venturers would be liable for the loan.[7]

17 Since Mr Reiner left for the USA, Mr Wajsman has aggressively repaid all three loans from the funds of SRW without consulting Mr Reiner. The US property loan was repaid by SRW in four large instalments between January and May 2018. The HACO loan was repaid in two repayments by SRW, and is now in modest credit. The Big Ben Funding Account loan has also been repaid by SRW, through four large repayments from March to September 2017, in addition to the regular monthly payments.

18 Prior to Mr Reiner's heart attack, each partner received monthly drawings or stipends (the nomenclature is contested)[8] of between $8,000 and $20,000[9] and had personal expenses paid by the business.

19 Since Mr Reiner's departure, Mr Wajsman has not distributed any moneys to him or his company. This lack of funds was difficult for Mr Reiner, who tried to find a solution. He asked Mr Wajsman to buy him out, or permit him to sell to a third party. Mr Wajsman refused to assist Mr Reiner.[10]

20 In September 2016, Mr Wajsman removed Mr Reiner as a director of all the companies in the Big Ben Group without informing Mr Reiner. Mr Wajsman says Mr Reiner resigned by email. Mr Reiner says he only found out that Mr Wajsman had removed him as a director in August 2017.

21 By May 2017, Mr Reiner's health had improved and he planned to return to Melbourne and working full-time. In August 2017, Mr Reiner returned for a short trip and met Mr Wajsman for dinner to discuss his plans to return to work. It was positive. Mr Reiner says he found out that he had been removed as director shortly after that dinner and reacted badly. He tried to convince Mr Wajsman to reinstate him, to no avail.

22 Mr Reiner commenced these proceedings in September 2017, after one year of receiving no distributions of profits from the Big Ben Group.

23 As mentioned above, at the conclusion of the hearing on liability, I made an ex tempore ruling that conduct of the Big Ben Group's affairs by the defendant had been and is contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to, or unfairly discriminatory against the first plaintiff. I noted that it is unusual to make a decision without reserving in oppression cases, but considered the facts in this case so stark that justice required that I make orders without delay.

25 Mr Reiner and his company, Laurient, bring claims for breach of contract and oppressive conduct against Mr Wajsman, Softpro, and Mr Wajsman's investment entity, Shagil Pty Ltd, citing the same conduct for both claims.

26 The contractual claim was not advanced at trial. The plaintiffs complain of four types of conduct which they say establish four grounds of oppression under s 232 of the Corporations Act 2001 (Cth) ('Corporations Act'):

(a) Excluding Mr Reiner from participating in the management of the business through his wrongful removal as a director and refusal to reinstate him;

(b) Refusing to distribute any profits to the plaintiffs since September 2016;

(c) Causing the companies to pay Mr Wajsman's personal expenses to the detriment of Mr Reiner; and

(d) Altering the director's loan accounts to create the incorrect impression that the plaintiffs owe money to the companies.

27 As relief, the plaintiffs sought an order under s 233 of the Corporations Act that the defendants purchase the plaintiffs' shares in the corporations at a price to be determined by the court.

28 In their Amended Points of Claim dated 22 May 2019, the plaintiffs also allege that the defendants have caused the corporations to:

(a) fail to provide full and proper access to the books and records of the corporations to Mr Reiner; and

(b) frustrate and delay Mr Reiner's ability to access the books and records.[11]

29 The plaintiffs plead this conduct is oppressive,[12] but clarified at trial that they do not rely on these grounds to make out oppression.[13] Rather, they seek to prove these allegations to provide a reason for their inability to establish the true value of the business, given they dispute the valuation provided in the Independent Expert Valuation Report ('the Hockley Report').[14] As I have directed that the issue of the price to be paid for the shares be determined at a subsequent hearing, I will only resolve these issues to the extent required for judgment on liability.

30 The defendants' case is that the acts complained of are not unfair or oppressive, as they were done for good and proper corporate reasons.

31 In short, the defendants contend that Mr Reiner said he did not want any money whilst living in the USA and subsequently absented himself from management and resigned as a director. They contend that after his resignation, Mr Reiner was simply a shareholder in the corporations and so was not entitled to demand profits from the company, nor his reinstatement as director. The defendants submit that the Agreement of 1999 was terminated and no longer governed the relationship between the parties and so cannot form the basis of an understanding between the parties as to how the corporations were to be run. Mr Reiner denies the events relied on by the defendants.

32 The Corporations Act provides:

Part 2F.1-Oppressive conduct of affairs

The Court may make an order under section 233 if:

(a) the conduct of a company's affairs; or

(b) an actual or proposed act or omission by or on behalf of a company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d) contrary to the interests of the members as a whole; or

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

Note: For affairs, see section 53.

(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order:

(a) that the company be wound up;

(b) that the company's existing constitution be modified or repealed;

(c) regulating the conduct of the company's affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company's share capital;

(f) for the company to institute, prosecute, defend or discontinue specified proceedings;

(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h) appointing a receiver or a receiver and manager of any or all of the company's property;

(i) restraining a person from engaging in specified conduct or from doing a specified act;

(j) requiring a person to do a specified act.

33 Turning to the case law, for there to be oppressive conduct for the purposes of s 232(e) of the Corporations Act, there must be commercial unfairness to a member or members of the company.

34 The phrase 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' is a compound expression.[15] The words should be 'considered merely as different aspects of the essential criterion, namely commercial unfairness'.[16]

35 In Re Companies (Western Australia) Code,[17] Murray J of the Supreme Court of Western Australia said the concept of 'unfairness' takes many forms and may include:

the harm suffered as a result of the conduct of management, the prejudice caused, the lack of reasonable commercial justification for the course taken, or simply in the decision making processes within the company.[18]

36 In Re Ledir Enterprises Pty Ltd,[19] Black J of the Supreme Court of New South Wales noted that s 232(e) is concerned with conduct that involves 'commercial unfairness' or 'a departure from the standards of fair dealing, or where a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair.'[20]

37 The test for commercial unfairness has an objective standard.[21] It requires an assessment of whether objectively, in the eyes of a commercial bystander, there has been unfairness.[22] As Brennan J stated in Wayde v New South Wales Rugby League Ltd:[23]

The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.[24]

38 Evidence of conduct having been engaged in deliberately, knowing it to be unfair or not in good faith is persuasive, but not necessary.[25] As Sackar J of the Supreme Court of New South Wales stated: 'although proof of some improper purpose or ulterior motive may well make the finding of oppression irresistible, the absence of such motivation will not and cannot in and of itself defeat [sic] charge of oppression.'[26]

39 If the directors or a majority membership conduct the affairs of a company such that they advance their own interests or the interests of others of their choice, to the detriment of a minority shareholder, that conduct will ordinarily fall within the ambit of the oppression section.[27]

40 Therefore the court is required to determine whether, on the balance of probabilities, an objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly. This inquiry is not assessed in a vacuum: the context is relevant to assess the fairness of the conduct.[28]

Contrary to the interests of the members as a whole

41 Subsection (d) of s 232 of the Corporations Act empowers the court to make an order under s 233 if the conduct of the companies' affairs is 'contrary to the interests of the members as a whole'.

42 In Turnbull v National Roads and Motorists' Association Ltd,[29] Campbell J of the Supreme Court of New South Wales opined that subsections (d) and (e) are distinct grounds of relief.[30] Although Australian judgments have differed in their approach, Campbell J's approach has been widely adopted and is the preferred view.[31] I adopt this view.

43 There has been comparatively little judicial consideration of the phrase in s 232(d). In Sandy v Yindjibarndi Aboriginal Corporation RNTBC (No 4),[32] Pritchard J of the Supreme Court of Western Australia said:

Conduct by a board of directors will be contrary to the interests of the members as a whole if no board, acting reasonably, could have engaged in that conduct. It is not necessary to show bad faith on the part of the directors. In other words, conduct may be contrary to the interests of the members as a whole even though the board of directors does not act in bad faith.[33]

44 Although they are separate grounds, there may be conduct which falls within both subsections (d) and (e).[34] As I declared in my ruling, I am satisfied that the conduct of the defendants falls within both grounds. As such, when I refer to oppressive conduct, I also include conduct that is contrary to the interests of the members as a whole.

45 As discussed below, I find that the relationship between Mr Reiner and Mr Wajsman was that of a quasi-partnership, and as the case law discussed below establishes, this relationship has particular significance in this case in my finding that Mr Wajsman has behaved oppressively towards Mr Reiner.

46 In determining whether unfairness has occurred, the context of the business and the relationships between the people behind it are important.[35]

47 The plaintiffs submit that this case falls squarely within the circumstances outlined by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd,[36] which are often referred to as cases of 'quasi-partnerships' or 'in substance partnerships':[37]

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, including mutual confidence...; (ii) an agreement, or understanding, that all, or some... of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interests in the company - so that if confidence is lost, or one member is removed from management, he cannot take his stake and go elsewhere.[38]

48 In these circumstances, acts which are a valid exercise of power can still be said to be unfair if they are entirely outside 'what can fairly be regarded as having been in the contemplation of the parties when they became members of the company'.[39]

49 In Ebrahimi v Westbourne Galleries Ltd, the House of Lords considered the concept of unfairness in relation to the court's power to wind up a company if it is just and equitable to do so. In O'Neill v Phillips,[40] Lord Hoffmann stated that the approach to the concept of unfairness in oppression cases 'runs parallel' to the approach adopted in Ebrahimi v Westbourne Galleries Ltd.[41] In determining if there has been unfairness in oppression,

... one useful cross-check ... is to ask whether the exercise of the power in question would be contrary to what the parties, by words or conduct, have actually agreed. Would it conflict with the promises which they have appear to have exchanged?

... In a quasi-partnership company, [the limits] will usually be found in the understandings between the members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another...it would not be enforceable in law.[42]

50 Lord Hoffmann continued: 'The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree.'[43]

the standard case in which shareholders have entered into association upon the understanding that each of them who has ventured his capital will also participate in the management of the company. In such a case it will usually be considered unjust, inequitable or unfair for a majority member to use their voting power to exclude a member from participation in the management without giving him the opportunity to remove his capital upon reasonable terms. The aggrieved member could be said to have had a "legitimate expectation" that he would be able to participate in the management or withdraw from the company.[44]

52 Whilst there has been some concern that the term 'legitimate expectation' can be misunderstood,[45] Australian courts have adopted Lord Hoffmann's term.[46] In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd,[47] Priestly JA noted that

It is a convenient shorthand term, so long as Lord Hoffmann's caveat about its proper significance is kept in mind, namely that it is a consequence not a cause of equitable restraint upon legal rights.[4]

53 The defendants accepted the use of 'legitimate expectations' to decide this case.[49] In this judgment, I utilise the term whilst bearing its proper significance in mind.

54 Both Mr Reiner and Mr Wajsman gave evidence. Their evidence conflicted in relation to a number of pertinent factual matters. In general, I perceived Mr Reiner as a more truthful and credible witness. Mr Wajsman presented as arrogant, and dismissive of Mr Reiner's genuine concerns. Where there is a conflict between Mr Reiner and Mr Wajsman, generally I prefer the evidence of Mr Reiner.

55 Mr Brendan McCreesh, a Forensic IT Consultant, also gave evidence about his attempts to assist Mr Reiner access the financial records of the company, pursuant to an order of this Court. I accept Mr McCreesh's evidence.

56 The plaintiffs contend that the 1999 Agreement established the nature of the relationship between Mr Reiner and Mr Wajsman, in particular that each was entitled to share equally in the profits of the business and to participate in management. In the defendants' opening of the case they contended, however, that the Agreement had been terminated and thus provided no basis for Mr Reiner's claim based on the Agreement. As discussed below, Mr Wajsman nevertheless conceded in evidence that the business was run along the same lines as the Agreement provided.

57 The plaintiffs submit that the terms of the Agreement provide the best evidence of the shareholders' expectations. In their Defence filed 17 August 2018, the defendants contend that the Agreement was terminated by an agreement under seal around November 2004 ('the Deed').[50] Alternatively, they contend that it was terminated by conduct or implied agreement since then.[51]

58 The contractual claim was not argued at trial and so it is strictly unnecessary to decide whether the Agreement has been terminated. To establish oppression, the plaintiffs point to the Agreement as evidence of the expectations of the parties that each shareholder has a right to participate in management and share equally in the profits. Following O'Neill v Phillips, 'legitimate expectations' must be considered when determining whether conduct is oppressive.

59 In cross-examination, Mr Wajsman conceded that the business had been run in accordance with the relevant clauses of the Agreement, both before and after Mr Sojka's departure, up until Mr Reiner's heart attack.[52] I am satisfied that the parties had an understanding, which founded a 'legitimate expectation', that the corporations would be run according to the Agreement: that the business would be run for the benefit of all shareholders equally,[53] and each shareholder would be able to participate in management and share in its earnings.[54]

60 If I am wrong, I am satisfied on the balance of probabilities that the Agreement was not terminated. In oral evidence, Mr Wajsman conceded that the Deed had not been signed or executed, and that he had never seen it prior to these proceedings.[55] He further conceded that at the time of Mr Reiner's removal as director, he believed the Agreement was on foot, only varied to apply to just two parties.[56] This accords with Mr Reiner's evidence.[57]

61 As such, I am satisfied that the Agreement was not terminated by deed, conduct or implied agreement.

Did Mr Reiner absent himself from the business?

62 In response to the allegation of exclusion from participation in management, the defendants contend that Mr Reiner absented himself from the business by relocating to the USA for five years. Mr Wajsman gave evidence that in July or August 2016, Mr Reiner visited his home and informed him that he would be away for five years.[58] Mr Reiner disagreed with this account. His evidence was that at this meeting he told Mr Wajsman he would be away for one year, as this was the timeframe recommended by his doctors.[59]

63 I prefer the evidence of Mr Reiner and so I am not satisfied that Mr Reiner absented himself from the business as claimed by Mr Wajsman.

Did Mr Reiner instruct Mr Wajsman to use any spare money to pay down debts?

64 In response to the allegation of failure to distribute any profits, the defendants contend that Mr Reiner instructed Mr Wajsman to use any spare money to reduce the companies' debts, namely the HACO and Big Ben Funding Account loans.[60] Mr Wajsman's evidence was that the two men reached this agreement when Mr Reiner visited Mr Wajsman's home in July or August 2016.[61] Mr Reiner agreed that they met but strongly denied that this conversation occurred.[62]

65 Mr Wajsman also referred to this instruction in an email dated 2 May 2017, where he wrote to Mr Reiner: 'When you left you said you did not want any money from the business and to use any spare funds to pay off HACO etc'.[63] The statement was amidst a large email in a tense exchange. Mr Reiner gave evidence that things were heated between the men at that time but agreed that he did not reply in protest.[64] The defendants did not produce any reply email from Mr Reiner.

66 Again, I prefer Mr Reiner's evidence. On the balance of probabilities, I am satisfied that Mr Reiner did not instruct Mr Wajsman to use spare money to reduce the companies' debt to the exclusion of paying any moneys to Mr Reiner. In any event, even if Mr Reiner did refer to any 'spare money', it must have been understood by both Mr Reiner and Mr Wajsman that spare money did not include reasonable distributions of earnings to the partners.

67 The defendants also contend that Mr Reiner agreed to take no money from the business whilst living in the USA.[65] The two men discussed Mr Reiner's payments at the meeting in July or August 2016.

68 The term 'remuneration' has caused much confusion in these proceedings. In his affidavit sworn 13 February 2018, Mr Wajsman deposed that he and Mr Reiner agreed that Mr Reiner would not be paid remuneration while living in the USA.[66] The standard definition for remuneration is money paid for work or a service. In oral evidence, Mr Wajsman explained that he understood remuneration broadly to mean receiving money.[67] His evidence was that Mr Reiner said he was not expecting to be paid any money from the business while away.[68] Mr Wajsman conceded that he did not draft the affidavit and had only scanned it before affirming it.[69]

69 Mr Reiner denied that he agreed to forgo his monthly drawings.[70] He confirmed that he did say to Mr Wajsman that he would not take any remuneration,[71] which he understood to mean a payment directly related to work done.[72] Mr Reiner explained that the directors had never taken remuneration, but rather received monthly drawings, which distributed the profits, and had personal expenses paid by the business.[73] When he went to the USA, Mr Reiner proposed to Mr Wajsman that he could take $150,000 per year 'off the top' before the profits were split, as compensation for doing most of the work.[74] Mr Reiner also agreed with Mr Wajsman that the business would not pay Mr Reiner's personal expenses whilst he was in the USA.[75]

70 I prefer Mr Reiner's evidence. I find it incredible that Mr Reiner would agree to receive no money from his business, particularly as it was his main source of income. On the balance of probabilities, I am satisfied that the two men agreed that the company would not pay Mr Reiner's personal expenses whilst he lived in the USA. I am also satisfied that, at some point, Mr Reiner and Mr Wajsman agreed that Mr Wajsman would receive an extra $150,000 per year in recognition of the fact that Mr Reiner was not working in the business but Mr Wajsman was. The fact remains, however, that the $150,000 payment to Mr Wajsman was to be before profits were calculated and split, which carries with it the implication that payment would then be made for the benefit of Mr Reiner from his share of the remaining profit.

Did Mr Reiner resign as a director in September 2016?

71 In reply to the allegation that Mr Wajsman unilaterally removed Mr Reiner as a director, the defendants contend that Mr Reiner resigned in an email to Mr Wajsman dated 22 September 2016 ('the resignation email').[76] The email said:

I'm pretty much over it all now and I don't appreciate your accusations at all.

So, as I've been advised, I'll give you the first right of refusal like our agreement calls for. You can take it or leave it as you see fit (of course I will ensure my 1/2 of outstanding debts will be discounted from the final purchase price once there is a fair reckoning of the debts, or if a third party purchases my shares that, my 1/2 of the debts will be deducted from the purchase monies and paid directly to SRW).

I will have a lawyer draft the offer as per the agreement and get it to you in due time. Nevertheless this email is to be accepted as notification under our Agreement, of my intention to sell all my shares and resign as a director from all companies we have shared holdings in.

Please ensure that you are advised of your legal obligation on how to proceed with corporate decisions of those entities now that, you have been given the aforementioned notice and I am not active in those company decisions.

AD

Mr Reiner signed his emails AD, which are his Hebrew initials.

72 Mr Wajsman gave evidence that he understood the email as an immediate resignation, and pointed to the final paragraph as justification for that understanding.[77] In response to the email, Mr Wajsman organised for the removal of Mr Reiner as a director of all the Big Ben Group companies the following day.[78] Mr Wajsman did not reply to the email nor inform Mr Reiner at this time that he had removed him as a director.[79]

73 The plaintiffs dispute the defendants' interpretation of the email. They contend that the email was no more than notice of Mr Reiner's intention to sell his shares and then resign in future, as the establishing Agreement envisaged. Mr Reiner gave evidence that he did not intend to immediately resign as a director on the 22 September 2016 but intended to resign after selling his shares.[80]

74 I find the resignation email did not constitute an immediate resignation by Mr Reiner. In the second paragraph, Mr Reiner clearly states 'this email is to be accepted as notification under our Agreement of my intention to sell all my shares and resign as a director.'[81] I am also satisfied that Mr Wajsman so understood.

When did Mr Reiner find out about his removal?

75 The defendants contend that Mr Reiner understood that he had resigned, and affirmed his understanding over dinner at the Kimberley Gardens Restaurant in November 2016. In November 2016, Mr Reiner returned to Melbourne for a short visit and the two men met for dinner.

76 Mr Wajsman deposed that at this dinner, he informed Mr Reiner of his removal as a director, which Mr Reiner accepted.[82] Mr Wajsman gave evidence that in the car park after dinner, Mr Reiner commented that his removal was 'possibly for the best'.[83] Mr Reiner denied this occurred and gave evidence that, had he been informed of his removal, he would not have accepted it.[84]

77 Mr Reiner deposed that he found out about his removal in August 2017, after another meeting with Mr Wajsman at the Kimberley Gardens Restaurant.[85] Mr Reiner was again in Melbourne for a short trip from the USA. At this stage, his health had improved. The purpose of the trip was to discuss his return to working in the business with Mr Wajsman. At dinner, Mr Reiner told Mr Wajsman that he was planning to move back to Melbourne with his family in the coming months and return to working full-time to the Big Ben Group office.[86] The meeting was positive and friendly. (Mr Wajsman's evidence was that Mr Reiner did not state he was moving back to Melbourne, and that they discussed him working remotely from the USA.[87] It is not a vital point).

78 Later that evening, Mr Reiner attempted to log on to the companies' online banking in order to start getting back into work. He was unable to do so, so he contacted the Australian and New Zealand Banking Group ('ANZ'), with whom the accounts were with. ANZ informed Mr Reiner that he was no longer a signatory to the accounts and that he could not be reinstated as he was not listed as director. Mr Reiner then confirmed his removal as a director with ASIC.[88]

79 Mr Reiner responded to this news by sending Mr Wajsman a number of strongly-worded emails and lodging a complaint with ASIC.[89] In a reply email, Mr Wajsman directed Mr Reiner to his email sent 22 September 2016 (the resignation email).[90] In his email, Mr Wajsman did not refer to the alleged conversation at the Kimberley Gardens Restaurant in November 2016. Mr Reiner asked Mr Wajsman to reinstate him as a director and restore his access to the corporations' bank accounts, and Mr Wajsman refused.[91]

80 As regards the conversations in November 2016 and August 2017, I prefer the evidence of Mr Reiner. I accept Mr Reiner's evidence that he first found out about his removal as a director in August 2017, particularly as this accords with the documentary evidence of his outraged emails.

Were the monthly distributions connected to working in the business?

81 The plaintiffs contend that prior to Mr Reiner's heart attack, the monthly drawings were a distribution of profits to shareholders, and were not connected to working in the business. The plaintiffs led evidence to establish that at various times, each shareholder received drawings as usual despite not working full-time in the business.

82 Mr Reiner gave evidence of a period where both directors worked for Axiom Energy Ltd ('Axiom') and so were not full-time at the Big Ben Group.[92] Mr Reiner worked full-time and Mr Wajsman worked part-time for Axiom. Both men continued to receive drawings from the Big Ben Group as usual, save that Mr Reiner's drawings were reduced to account for his slightly larger salary from Axiom, so both men received equal payments overall.[93] This evidence was generally accepted by Mr Wajsman.[94]

83 Mr Reiner also gave evidence that Mr Wajsman was mostly absent from the business for about 12 months, only working minimally from home, due to personal and family health issues.[95] A letter from SRW's lawyers to the Deputy Commissioner of Taxation, dated 25 September 2015, also notes that Mr Wajsman had been unable to fulfil his responsibilities for a time due to health issues.[96] Mr Wajsman accepted that the letter was drafted by Mr Shane Binstock, his son-in-law, who also worked for the Big Ben Group's accountants, Grant Thornton.[97] Mr Wajsman disputed Mr Reiner's account and the accuracy of the information in the letter, and deposed that he was not absent for more than a few days at a time.[98] I prefer Mr Reiner's evidence, particularly as it is in part corroborated by the 25 September 2015 letter, and I am not prepared to find that Mr Binstock misled the ATO in that letter.

84 On the balance of probabilities, I am satisfied that the monthly distributions prior to Mr Reiner's departure were drawings to distribute profits equally, as envisaged by clause 18 of the Agreement, and were not connected to work done in the companies. I reject Mr Wajsman's unsubstantiated contention that the distributions were not dependent on the trading of SRW.[99]

The HACO, Big Ben Funding Account and US property loans

85 In response to the allegation of failure to distribute profits, the defendants contend that it was a responsible corporate decision to use funds to pay off the debts on the HACO, Big Ben Funding Account and US property loans, instead of declaring a dividend or otherwise making a distribution to Mr Wajsman and Mr Reiner.

86 In relation to the repayments on these loans, the plaintiffs have two complaints.

87 First, the plaintiffs contend that the US property loan should not have been paid by SRW, as the loan had no connection with the business.

88 Mr Reiner's evidence was that the Big Ben Group had no responsibility to repay the loan.[100] He explained that Mr Wajsman obtained a loan in his name of approximately $250,000 from the National Australia Bank ('NAB') and on-lent the money to the US companies.[101] Mr Reiner said the loan was represented in the US companies' books.[102] He deposed that the US companies had assumed responsibility to repay the account and were making regular repayments.[103] He gave evidence of an informal agreement between the shareholders that if the venture failed, the four joint venturers would all be liable.[104]

89 The defendants contend that the loan was consideration for both Mr Wajsman's and Michelle Reiner's shares, and that Mr Reiner (strictly Michelle Reiner) owed Mr Wajsman half the money.

90 Mr Wajsman gave evidence that Mr Reiner promised to pay his share from the proceeds of the sale of his home,[105] and that when he did not pay after the sale of the house in October 2016, Mr Reiner gave Mr Wajsman permission to cause SRW to repay the loan.[106] Mr Wajsman deposed that the loan was facilitated and guaranteed by both him and Mr Reiner, although it was only in his name.[107]

91 Mr Reiner strongly denied this,[108] and deposed that the shareholders did not purchase their shares.[109] He explained that the US companies were formed before any money was lent.[110]

92 I prefer Mr Reiner's evidence, particularly as it accords with the payments made by the US companies towards the loan.[111] On the balance of probabilities, I am satisfied that the US property loan was not a liability of the Big Ben Group, and I do not find that Mr Reiner instructed Mr Wajsman to use SRW's moneys to repay the loan on their behalf.

93 The plaintiffs' second complaint is that Mr Wajsman caused the companies to aggressively pay down the debts to ensure there was less money left in the business to distribute for the benefit of Mr Reiner. For convenience, I set out the facts now but will resolve the issue further below.

94 Prior to Mr Reiner's departure, the companies had not made any repayments to the HACO loan account for a number of years.[112] It was repaid in two instalments: $100,000 on 27 February 2017 and $174,500 on 29 March 2017.[113] It is now in credit.

95 The US property loan was also repaid in large instalments. Mr Wajsman caused SRW to repay the loan in four instalments: $150,000 on 15 January 2018, $50,000 on 23 April 2018, $50,000 on 23 May 2018 and $13,412.91 on 1 June 2018.[114]

96 Mr Reiner gave evidence that before his departure, the companies were making regular repayments towards the Big Ben Funding Account loan to bring down the balance.[115] From August 2012, these repayments were around $15,000 per month.[116] Mr Reiner stated that he believed the repayments were made after drawings were distributed to the shareholders.[117] He explained that when he was a director, it was not a priority to repay the loans as quickly as possible.[118] Mr Reiner's opinion as a director was that the company could afford to service the loan.[119] In October 2016, the monthly repayments increased to $20,000.[120] In addition, one-off payments were made: $40,000 on 29 March 2017, $100,000 on 7 April 2017, $60,000 on 11 September 2017, and $125,000 on 25 September 2017.[121] The final repayment put the account in credit.[122]

97 The plaintiffs also complain that the amount owed by the companies to the Big Ben Funding Account is difficult to verify, as Mr Wajsman used the account to pay for kitchen and bathroom renovations in his home. Mr Wajsman agreed that he had done so.[123] He said that these amounts were equalised against money which the companies owed him for paying for Mr Sojka's shares and were resolved by the accountant at the time, a Mr Addlist, and checked later by Grant Thornton.[124] Mr Wajsman conceded, however, that the only record of this was his recollection.[125] Mr Wajsman did not call Mr Addlist or Grant Thornton to support his evidence. Furthermore, the plaintiffs raise the issue that the payment for the shares was not a business expense.

98 I resolve the remaining issues relating to liability as regards the loan repayments below.

Mr Reiner's access to the companies' financial records

99 The plaintiffs also allege that Mr Wajsman has restricted and continues to restrict Mr Reiner's access to the financial records of the companies since the commencement of the proceedings. Many letters have been exchanged by the parties' solicitors, and there have been a number of orders of this Court in relation to access.[126] The business has also undergone multiple changes to accounting and online storage systems in that time.[127] As discussed above, the plaintiffs do not seek to rely on this as a separate ground of oppression to establish liability[128] and so this matter will be resolved in more detail after the hearing on quantum. As such, it is unnecessary to decide all issues relating to access.

100 It is sufficient to say that the evidence shows that Mr Reiner had a great deal of difficulty accessing all the relevant financial records and he was unable to get the same unfettered access which he enjoyed for 17 years prior to the dispute, despite an order of this Court requiring the defendants to provide access by 10 November 2017.[129]

101 Mr Reiner and Mr Wajsman agreed that when he was a director, Mr Reiner had unfettered access and often accessed the business' computer systems remotely, including from overseas.[130] Mr Reiner's evidence was that, at various times during the proceedings, he had no access to the financial records and systems, and when he did have access it was always limited, and never the level of access he enjoyed prior to the dispute.[131] Mr Wajsman agreed that he had cut off Mr Reiner's access 'a couple of times' during the proceedings due to concerns about what Mr Reiner was accessing.[132]

102 The defendants contend they were providing assistance as best they could.[133] Mr Wajsman's evidence was that he 'went to a lot of trouble to fix this whole problem' and changed from a server to cloud-based storage system to make it easier.[134] Mr Wajsman, however, did not provide an explanation as to why he could not, or refused to, restore the same level of unfettered access to Mr Reiner as he enjoyed, to which Mr Reiner was entitled as a rightful director. Mr Wajsman suggested that the fault lay with Mr Reiner, for not knowing how to log on.[135] However, the evidence of Mr Brendan McCreesh indicates that even he, a professional IT consultant, was unable to log on with the credentials provided to Mr Reiner.[136] Pursuant to an order of Justice Riordan of this Court, Mr McCreesh attended the premise of the Big Ben Group in order to take an image of the servers and the network attached storage device ('NAS') and provide a copy of the data for the plaintiffs.[137] His evidence was that he had difficulty accessing two things with the credentials provided: the Big Ben System software and certain Reckon accounting files, which both required usernames and passwords.[138] Mr McCreesh sought correct credentials from Mr Lev Rozenblit, the IT manager for the Big Ben Group, to no avail.[139] In relation to the Big Ben System software files, Mr McCreesh resorted to asking a highly skilled colleague to hack into the data to access it, which was successful.[140]

103 An email from Mr Rozenblit in response to Mr Reiner's difficulties one year on from the initial order for access is also relevant. In an email to Mr Reiner dated 2 November 2018, Mr Rozenblit wrote:

We have several remote users in Victoria and in other states and in different time zones. Nobody is experiencing problems like yours. I myself nearly every day login to the server with your credentials and every time it is successful. May I suggest that you seek professional help to overcome your problems.[141]

104 From Mr McCreesh's difficulties and Mr Rozenblit's email, it is evident the defendants were not making suitable efforts to provide Mr Reiner, a half owner in the business and rightful director, with assistance to access records, as ordered by this Court. Furthermore, no effort was made to overcome the issues by simply providing all documents requested by the plaintiffs to them on a USB stick, as Mr Wajsman thought this would be too much effort.[142]

105 Therefore, I find that during the course of these proceedings, Mr Reiner has not had full access to all records of the company as he was entitled to, both as a rightful director and pursuant to orders of this Court, in order to litigate these proceedings. I also find that at times, Mr Reiner's limited access was completely cut off by Mr Wajsman.

Did the Big Ben Group operate as a 'quasi-partnership'?

106 I am satisfied that the Big Ben Group business fulfils the three elements outlined by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd. First, the association between the partners continued on the basis of a personal relationship. The partners were very close before the dispute. Mr Reiner explained that the two men and their families became very close.[143] He described their relationship as akin to that between a father and son,[144] and explained that he trusted Mr Wajsman.[145] No doubt this level of trust enabled the two men to successfully and peacefully manage the business together for 17 years. Second, there was an agreement or understanding that a representative of each shareholder would participate in the conduct of the business, as demonstrated by the establishing Agreement.[146] Finally, the Agreement provides for restriction upon the transfer of each shareholder's interest in the company.[147] Further practical restrictions exist because Mr Wajsman is integral to the successful running of the business, and therefore could dissuade any potential buyers by threatening to exit.[148]

107 Therefore I am satisfied that the Big Ben Group operated as a 'quasi-partnership', as characterised in Ebrahimi v Westbourne Galleries Ltd, and so, following O'Neill v Phillips, the understanding between the parties provides context in determining whether conduct constitutes oppression.

Did the conduct constitute oppressive conduct?

108 I now turn to the plaintiffs' four alleged grounds of oppression.

109 The plaintiffs contend that the defendants unfairly excluded Mr Reiner from participating in the management of the business by removing him as a director, failing to reinstate him to directorship, and refusing to permit him to return to manage and work in the corporations after August 2017. As discussed above, Mr Wajsman's refusal to reinstate Mr Reiner's access to the companies' online bank accounts obstructed Mr Reiner's ability to return to managing the corporations.

110 When a corporation operates as a 'quasi-partnership', excluding a member from participation in management can constitute oppressive conduct when the association was founded on an understanding (or 'legitimate expectation') that the member would participate in management of the business.[149]

111 I have found that the business was a quasi-partnership, and that the corporations were founded on an understanding that all shareholders would participate in managing the business. This understanding was codified in the 1999 Agreement and the relationship between the parties continued to conform to that understanding until 2016. As contemplated in O'Neill v Phillips, Mr Reiner's exclusion from management is unfair, as the corporations have used their legal powers 'to maintain the association in circumstances to which [Mr Reiner] can reasonably say [he] did not agree'.[150]

112 The defendants do not deny that Mr Reiner has been excluded from management, but contend that it is not oppressive, as Mr Reiner voluntarily resigned and absented himself from the business. As I found above, I am satisfied that Mr Reiner did not voluntarily resign nor absent himself for five years from the business. Rather, Mr Wajsman wrongly removed Mr Reiner as a director and deliberately excluded Mr Reiner from managing the business with Mr Wajsman upon his return to good health in August 2017.

113 The defendants also contend that it is not oppressive to refuse to buyout Mr Reiner, nor to reappoint him as a director because it would result in deadlock.[151] This contention cannot be accepted. Mr Reiner (and Mr Wajsman) committed his capital on the understanding that he would be able to participate in the management of the business. Therefore, as stated in O'Neill v Phillips, it is 'unjust, inequitable or unfair' to exclude Mr Reiner from management and refuse to reappoint him 'without giving him the opportunity to remove his capital upon reasonable terms'.[152]

114 I am satisfied that Mr Wajsman did not give Mr Reiner the opportunity to remove his capital upon reasonable terms. Mr Reiner sought to have Mr Wajsman buy his shares, to no avail. Between September 2016 and May 2017, Mr Wajsman repeatedly told Mr Reiner that he could not consider buying the shares, and that there was no point offering them to third parties, until all the books were complete, which took many months.[153] Although Mr Reiner could have sought to sell his shares to a third party by first offering them to Mr Wajsman,[154] it is unlikely Mr Reiner would have received a reasonable sum given Mr Wajsman's lack of cooperation_._ As I noted above, Mr Wajsman's indispensability to the business ensured he could control any sale.

115 I note that in O'Neill v Phillips, Lord Hoffmann refers to the oppression of a minority shareholder.[155] Mr Reiner is not a minority shareholder, but an equal shareholder in most of the companies. I do not consider that this should change the analysis: given the requirement for unanimous decision-making in clause 5 of the Agreement, Mr Reiner was unable to re-appoint himself a director or otherwise remedy his predicament despite his 50 per cent shareholding.[156]

116 I am satisfied that excluding Mr Reiner from participating in management, including by removing him as a director, failing to reinstate him as a director and refusing to enable him to return to managing and working in the business was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Reiner.

Failure to distribute any moneys to Mr Reiner

117 The plaintiffs contend that all distributions to Mr Reiner unfairly stopped after his heart attack, whereas payments to or for the benefit of Mr Wajsman since then total around $1.2 million. The plaintiffs allege that this is oppressive, particularly as Mr Reiner was restricted from removing his capital from the corporations.

118 It is clear from the case law that a failure to pay dividends or distribute profits is a commonly pleaded ground of oppression, and the court has often found it to be unfair.[157] As noted by Young CJ of the Supreme Court of New South Wales:

There have been abundant instances in cases decided under the oppression provisions of the Corporations Act where a minority shareholder has been given relief ... where there has been a deliberate ploy not to pay adequate and proper dividends.[158]

119 In this case, it is plainly unfair to fail to make any payments to Mr Reiner, a 50 per cent shareholder, for three years, without an adequate justification.

120 The defendants do not deny that they have not distributed any money to Mr Reiner in the three years since his relocation to the USA, but contend that this was a legitimate and necessary business decision, initially proposed by Mr Reiner. As discussed above, Mr Wajsman contended that Mr Reiner told him to use any spare funds to pay down the debts of the business. As I found above, I am satisfied on the balance of probabilities that Mr Reiner did not give this instruction. Even if that instruction was given, or a variation of it, as mentioned above, it does not provide any justification for failing to pay Mr Reiner any moneys at all, particularly when the business was Mr Reiner's sole source of income. I note that even if Mr Reiner had agreed to take no money, as a director and equal shareholder he was entitled to change his mind.

121 Mr Wajsman also contended that he was unable to declare a dividend from the profits, as the companies had not turned a profit.[159] His evidence was that he was concerned about the level of debt in the business, and that it was responsible and necessary to use funds to reduce the debts of the companies instead of declaring a dividend.[160] This contrasts with Mr Reiner's evidence, which was that the loans were being paid down in a responsible manner prior to his heart attack, and were not of concern.[161]

122 As regards future dividends, Mr Wajsman contended that he must wait for all debts to be repaid before declaring a dividend from profits.[162] He reported that although the HACO, Big Ben Funding Account, and US property loans were now discharged, the companies faced a total payroll tax debt of around $600,000.[163] Mr Wajsman's evidence was that he planned to repay this debt first, he expected this debt to be paid within six months, and that he would then be able to declare a dividend to distribute profits.[164]

123 The payment of loans is not an expense in calculating earnings, and provides no justification for not paying reasonable sums to Mr Reiner from the companies' earnings.

124 The business' ability to make repayments totalling over $1 million to non-urgent loans within 18 months, in addition to paying Mr Wajsman, indicates that the business was making a profit, at least some of which should have been used to make a distribution to the shareholders.[165]

125 The amount of profit is uncertain. The Independent Expert Valuation Report ('the Hockley Report'), which was based on financials put forth by Mr Wajsman, indicated that SRW made a post-income tax profit of $285,666 for FY2017, and $260,092 for FY2018,[166] and Big Ben Speciality Foods, in which SRW has a 50 per cent interest, made a post-income tax profit of $96,016 in FY2017, and $100,685 in FY2018.[167] The plaintiffs dispute the veracity of the financial statements and therefore the accuracy of the report, and contend that the actual profits are far greater once improper loan repayments and any improper personal expenses are added back and cash in the business is fully accounted for. They point to an email from Mr Wajsman to Mr Reiner regarding the value of his shares, dated 21 September 2016. Mr Wajsman wrote: 'AD [Mr Reiner] you know very well I said our shares are worth $5 million each to us over the next ten years and not that the business is worth $10 million dollars [sic].'[1] This may indicate that Mr Wajsman's own assessment of the business' profit capability from 2016 to 2020 was far higher.

126 Given the difficulties with Mr Reiner's access to the financial records, at the conclusion of the hearing I directed that a further hearing be scheduled to determine quantum. I make no finding on the amount of profits at this stage, save for the fact the figures in the Hockley Report provide the minimum profit levels. I am satisfied that even on the Hockley Report figures, the business made sufficient profit to service the loans, none of which were urgent, and distribute some money to Mr Reiner.

127 Accordingly, I am satisfied that Mr Wajsman's decision to refuse to make any distributions to Mr Reiner and instead use the companies' spare capital after paying himself to aggressively pay down the companies' debts was contrary to the interests of the shareholders as a whole and oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Reiner.

128 Mr Wajsman's decision was a sudden and extreme change of practice, both in terms of the repayment amounts and in preferring payments over distributing drawings. It was not justified by the level of debt owed by the company, particularly considering Mr Wajsman decided to pay off the US property loan in full even though it was not the responsibility of SRW to do so, and, as I have found, Mr Reiner did not direct him to do so.

129 Mr Wajsman revealed his true feelings on the matter that motivated his conduct in cross-examination:[169]

Counsel: You know, you'd had Mr Reiner say to you on numerous occasions, 'I've got no money. You're not paying me anything. I'm not allowed - there's no books, I can't sell my share to a third person. You keep telling me not to wait'. He's in a desperate financial position, which he's told you, and you didn't care?

Mr Wajsman: No, I didn't care, Mr Grady.

Counsel: Okay. So you didn't care about your friend and business partner of 17 years?

Mr Wajsman: Correct, Your Honour.

Counsel: -- who was recovering from a heart attack?

Mr Wajsman: Correct, Your Honour.

Counsel: And you could see from the emails was in poor health?

Mr Wajsman: Correct, Your Honour.

Counsel: And the tap had been turned off?

Mr Wajsman: Correct, Your Honour. I think I'd supported him enough for the past 17 years without having to support him again now.

Counsel: Well, that's right, isn't it, Mr - you just didn't think he deserved anything, did you?

Mr Wajsman: I just didn't think that - it was time that I could support my family, rather than Mr Reiner and his family.

Counsel: That's right. So it was time you'd -

Mr Wajsman: All right. Okay. So I agree - I agree with 100 per cent.

130 It is apparent from this evidence that Mr Wajsman's actions have been dictated by his view that, in substance, Mr Reiner does not deserve any return on his investment in the business but all profits should be enjoyed by Mr Wajsman to the exclusion of Mr Reiner. This evidence also gives the lie to his claims that his failure to distribute any profits to Mr Reiner was driven by sensible commercial decisions made in the best interests of the business. Rather, one could interpret his decisions as being governed by his own personal interests and his inflated views on his own importance. It is not necessary, however, to make such findings.

131 The plaintiffs' third ground of oppression is that Mr Wajsman caused the companies to pay his personal expenses, including legal fees, to the detriment of Mr Reiner.

132 There was much dispute about which personal expenses were paid by the companies after Mr Reiner's departure, for whom, and how they were accounted for. Mr Reiner alleged that many of the expenses paid for by the companies after his departure were personal to Mr Wajsman. Some examples included: payments for removal of palm branches,[170] to a liquor merchant,[171] for mineral water,[172] to immigration lawyers,[173] to Penhalluriack's hardware store,[174] for flowers,[175] a swimming pool,[176] car washing,[177] newspaper delivery,[178] body corporate fees,[179] and house cleaning.[180] The defendants argue these expenses are either properly characterised as business expenses or have been debited to Mr Wajsman's director's loan account,[181] which counsel for the plaintiffs disputes.[182]

133 One area in which there was agreement was in relation to the legal expenses - Mr Wajsman agreed that the corporations had paid approximately $70,000 of his legal fees in this litigation.[183] He said that he believed the company should bear the cost, as he is a director (although the suit is not against the corporations, but against Mr Wajsman and his companies personally).[184] No such payments have been made for Mr Reiner's legal fees,[185] even though Mr Reiner is also rightfully a director. Mr Wajsman considered Mr Reiner undeserving as he chose to bring the proceedings.[186]

134 It is well established that the use of company funds to defend an oppression suit is, of itself, oppressive.[187] In Re DG Brims and Sons Pty Ltd, Byrne J of the Supreme Court of Queensland found that, when the essential dispute is between shareholders, using company funds to defend oppression proceedings 'is unfair and infringes the basal principle that "the powers, and the funds, of a company may be used only for the purposes of the company"'.[188]

135 I am satisfied that the payment of Mr Wajsman's personal legal fees and a refusal to do the same for Mr Reiner clearly constitutes oppressive conduct, and was contrary to the interests of the members as a whole.

136 As I have found that the plaintiffs make out this ground of oppression in relation to legal fees, I am not required to make strict findings on each contested personal expenditure.

137 I note the plaintiffs also relied on evidence about payment of personal expenses to prove the Hockley Report valuation was too low. This issue will be resolved at the subsequent hearing on quantum.

138 In my brief ex tempore judgment, I did not rule on the plaintiffs' allegation that the defendants had made inappropriate alterations to the director's loan accounts. This aspect of the dispute essentially concerns how personal expenses of Mr Reiner (and Mr Wajsman) which were paid by the companies, as well as the loan repayments to the HACO and US property loans, are dealt with in the books.

139 As I have found and declared that, based on the other three grounds of oppression alleged, the conduct of the corporations' affairs by the defendants satisfies the definitions in s 232(d) and s 232(e) of the Corporations Act, I believe it is unnecessary for me to decide this point or make strict findings on the alteration of the loan accounts. These matters can be taken into account in the hearing on the amount Mr Wajsman is to pay for Mr Reiner's half share of the Big Ben Group.

140 If it is necessary for me to decide, I would be satisfied that the alteration of the loan accounts was oppressive to Mr Reiner. Mr Wajsman conceded that the new practice of allocating personal expenses to a director's loan account was introduced after Mr Reiner's departure.[189] Mr Wajsman contended that his personal expenses were also debited to his loan account, but as $300,000 was credited to his account as remuneration, it is in considerable credit. Meanwhile Mr Reiner's account is in debit because Mr Wajsman has refused to distribute any money to Mr Reiner. It follows from my findings, that excluding Mr Reiner from management and failing to distribute any moneys to him were unfair, that this change in practice when Mr Reiner is receiving no payments is also oppressive, as it is unfairly to the detriment of Mr Reiner. As this is the case, it is unnecessary to decide whether the personal expenses allocated to Mr Reiner's loan account are valid.

141 I have ordered that Mr Wajsman purchase Mr Reiner's interest in the Big Ben Group. It was strongly pressed by Mr Wajsman that I should not order that Mr Wajsman purchase Mr Reiner's share. Mr Wajsman said that he was now over 70 and that it would be fairer to order the sale of the business on the open market.

142 In my brief ex tempore judgment, I said that Mr Wajsman has run the business as his own since Mr Reiner had his heart attack. In my view, I see no hardship in Mr Wajsman completing his de facto taking of full control of the business (which he has done for the last several years) by buying out Mr Reiner. The only change facing Mr Wajsman is that he must now pay to the rightful owner his half share for the business, the fruits of which Mr Wajsman has been almost exclusively enjoying. Otherwise, things will continue as they are at the moment for Mr Reiner.

143 I said in my short ex tempore judgment that the business was worth more to Mr Wajsman than to an outside buyer. Mr Wajsman has personal knowledge of his customers and their preferences. This knowledge would not be known to an outside buyer. Mr Wajsman has personal knowledge of his suppliers and their abilities. This would also not be known to an outside buyer. In my view, the value of the business to Mr Wajsman would be far more than its value to an outside buyer who would not have the benefit of this expertise and knowledge.

[1] The Big Ben Group of companies includes SRW Nominees Pty Ltd, Big Ben Services Sydney Pty Ltd, Big Ben Specialty Foods Pty Ltd, GES Services Pty Ltd, Big Ben Services Group Pty Ltd, Big Ben Services Group IP Pty Ltd, and Wickham Commercial Properties Pty Ltd.

[2] Exhibit P 2 ('Shareholder Agreement of 1999').

[6] In Big Ben Services Sydney, Laurient and Softpro each own 25 per cent. In Big Ben Specialty Foods, SRW owns 50 per cent: Exhibit P 1 ('Plaintiffs' Outline of Argument'), 30 April 2019, 3 [6].

[7] Transcript of Proceedings (29 May 2019) 348.16.

[8] Mr Reiner called them drawings: Transcript of Proceedings (27 May 2019) 119.29; Transcript of Proceedings (29 May 2019) 315.29. Mr Wajsman preferred the term 'stipend': Transcript of Proceedings (5 June 2019) 820.31.

[9] Mr Reiner said distributions were between $10,000 and $20,000 per month: Transcript of Proceedings (27 May 2019) 133.26. Mr Wajsman said the distributions were between $8,000 and $12,000 per month: Transcript of Proceedings (5 June 2019) 821.13.

[10] Exhibit P 16 ('Bundle of Emails').

[11] Plaintiffs' Amended Points of Claim as handed up, 22 May 2019, [54].

[13] Transcript of Proceedings (27 May 2019) 2.14, 25.11.

[14] Transcript of Proceedings (27 May 2019) 25-27; Exhibit P 8 ('Independent Expert Valuation Report by Darryn Hockley dated 10 October 2018').

[15] Joint v Stephens [2008] VSCA 210, 53 [134] (Nettle, Ashley and Neave JJA).

[16] Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704 (Young J). See also Joint v Stephens [2008] VSCA 210, 53 [134] (Nettle, Ashley and Neave JJA); Hillam v Ample Source International Ltd (No 2) [2012] FCAFC 73; (2012) 202 FCR 336, 337 [4] (Emmett, Jacobson and Buchanan JJ).

[20] Ibid 53 [178]. See also Morgan v 45 Flers Ave Pty Ltd (1986) 10 ACLR 692, 704 (Young J); Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, 472 (Brennan J).

[21] Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, 472 (Brennan J).

[22] Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704 (Young J).

[25] Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639; (2015) 109 ACSR 369, 434 [471] (Sackar J). See also Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, 470 (Brennan J); Campbell v Backoffıce Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 360 [176] (Gummow, Hayne, Heydon and Kiefel JJ); Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 288 ALR 310, 361 [217].

[26] Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639; (2015) 109 ACSR 369, 434 [471].

[27] Re Bright Pine Mills Pty Ltd [1969] VicRp 121; [1969] VR 1002, 1011 (O'Bryan, Smith and Pape JJ); Re Companies (Western Australia) Code (1990) 3 WAR 166, 191 (Murray J).

[28] O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, 1098 (House of Lords) (Lord Hoffmann).

[31] See, eg, Shelton v National Roads and Motorists' Association Ltd [2004] FCA 1393; (2005) 51 ACSR 278, 285 [25] (Tamberlin J); Szencorp Pty Ltd v Clean Energy Council Ltd [2009] FCA 40; (2009) 69 ACSR 365, 378 [59] (Goldberg J); KGD Investments Pty Ltd v Placard Holdings Pty Ltd (2015) 110 ACSR 379, 386 [27] (Almond J); Exton v Extons Pty Ltd (2017) 53 VR 520, 531 [39] (Sifris J).

[33] Ibid 395 [102] (citations omitted).

[35] O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, 1098 (House of Lords) (Lord Hoffmann).

[39] Re Wondoflex Textiles Pty Ltd [1951] VicLawRp 65; [1951] VLR 458, 467 (Smith J) cited in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, 378 and O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, 1100.

[45] See, eg, ibid; Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326; (2014) 88 NSWLR 689, 734 [201] (Barrett JA).

[46] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672, 745 [421] (Priestly JA); Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395, 407 [45], 417 [69] (Brereton J); Ananda Marga Pracaraka Samgha Ltd v Tomar (No 6) [2013] FCA 284; (2013) 300 ALR 492, 562 [464] (Dodds-Streeton J).

Plaintiffs v Defendants

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Cases Cited (9)