Shirim v Fesena

COUNSEL : Ps/As - Mr N Cotman SC, Mr E Finnane Ds/ Rs - Mr G Lindsay SC, Ms M Painter SOLICITORS : Ps/As - McCabe Terrill, Lawyers Ds/Rs - Thompson Eslick, Solicitors CATCHWORDS : Corporations - oppression of minority - order that majority shareholders purchase shares and units of minority - appeal from Master as to the value to be paid on transfer - discussion of principles upon which compensation for oppression assessed. LEGISLATION CITED : Corporations Law s. 260 Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 Re Bird Precision Bellows Ltd [1986] 1 Ch 658 Re Bagot Well Pastoral Company Pty Ltd; Shannon v Reid (1992) 11 ACLC 1 Re London School of Electronics Ltd [1985] 3 WLR 474 Re O C (Transport) Services Ltd [1984] BCLC 251 CASES CITED : Re Jermyn Street Turkish Baths Ltd (1971) 1 WLR 1042 Coombs v Dynasty Pty Ltd (1994) 12 ACLC 915 Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia Pty Ltd) (1991) 6 ASCR 63 Re Broadcasting Station 2 GB pty Ltd (1964-5) NSWR 1648 Re H R Harmer Ltd [1958[ 3 All ER 689 DECISION : See paragraph 78

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

FRIDAY 25 JANUARY 2002 4086/94 - SHIRIM PTY LIMITED & ANOR v FESENA PTY LIMITED & ORS

JUDGMENT 1 HIS HONOUR: This is an appeal from an order of Master McLaughlin made on 6 February 2001. Earlier, on 14 March 1996, the Master had, by consent, ordered pursuant to s 260(2) of the Corporations Law that certain shares held in Fesena Pty Limited ("Fesena") and in Eastern Suburbs Private Hospital Pty Limited ("ESPH"), a trustee company, and certain units in the Netherleigh Unit Trust of which the ESPH was trustee, which shares and units were owned by Shirim Pty Limited ("Shirim"), a trustee company for Dr James Robert Smith and his family, be purchased by companies associated with Dr TR Wenkart. The Master also ordered that the proceedings be referred to the Master to inquire as to the value at which under the orders the purchasers should acquire the shares and units. 2 After a hearing on the issue, the Master, on 6 February 2001, determined that the value of the shares and units be certified as "Nil". He ordered that Shirim transfer its shares and units for no consideration to the companies which represented Dr Wenkart's interests. The Master also ordered that both plaintiffs, Shirim and Dr Smith, pay the costs of the defendants in the reference. 3 This appeal is brought under Pt 60 r 10 of the Supreme Court Rules. The principles to be applied are those applicable to an appeal to the Court of Appeal from the judgment or order of a judge of the Court. 4 In the late 1970's, Dr Wenkart, who had an interest in many private hospitals and associated businesses and who was the controlling figure in the Macquarie Hospital Group, became interested in acquiring the Netherleigh Private Hospital, which was situated in the Eastern Suburbs. Dr Wenkart sought to interest other doctors in the project but, ultimately, only Dr Smith agreed to participate. It was agreed that Dr Wenkart would take a 76 per cent interest in the project and that Dr Smith would hold a 24 per cent interest. Fesena was formed to acquire the real estate of the hospital and it subsequently also purchased some adjoining blocks of land. GAB (94) Pty Limited, which later changed its name to Eastern Suburbs Private Hospital Pty Limited ("ESPH"), was formed to run the hospital business as trustee for the Netherleigh Unit Trust. The shareholdings in Fesena and in ESPH were nominal only. No significant capital was provided to fund the venture although moneys may have been advanced by way of loan. Dr Wenkart's interests took 76 per cent of the shares in Fesena and in ESPH and of the units in the Netherleigh Unit Trust. Dr Smith's interests took 24 per cent. Dr Wenkart's interests and Dr Smith's interests had equal representation on the boards of the two companies. The shares and units in which Dr Smith was interested were held by Shirim. Dr Smith and a Mr Goodman were the directors representing Dr Smith's interests. Mr Goodman later resigned and was not replaced. 5 In 1994, Shirim and Dr Smith commenced an oppression suit under s.260 of the Corporations Law which provided, inter alia: -

"260. … (2) If the Court is of the opinion:

(a) that affairs of a company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members (in this section called the 'oppressed member or members') or in a manner that is contrary to the interests of the members as a whole; or

… the court may, … make such order or orders as it thinks fit, including, but not limited to, one or more of the following:

(c) an order that the company be wound up …

(e) an order for the purchase of the shares of any member by other members;" 6 In support of this application, the plaintiffs filed three affidavits by Dr Smith, one sworn 14 October 1994, the second on 21 April 1995 and the third on 28 April 1995. 7 As the defendants had filed no answering material, the plaintiffs, on 26 February 1996, filed a notice of motion seeking summary judgment under Pt 13 r 2, which provides, inter alia: -

"2 (1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff - (a) there is evidence of the facts on which the claim or part is based; and

(b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed, the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires. 8 This motion was resolved by a consent order made on 14 March 1996 which provided that, pursuant to s 260(2) of the Corporations Law, the shares and units held by Shirim would be purchased by certain companies with which Dr Wenkart was associated and that the proceedings be referred to the Master to inquire, inter alia, as to: - "2. … … (b) the value of Shirim Pty Limited's shares and units in Eastern Suburbs Private Hospital Pty Limited and the Netherleigh Unit Trust at which the purchaser or purchasers under these orders shall acquire the same;

(c) the value of Shirim Pty Limited's shares in Fesena Pty Limited at which Macquarie Hospital Services Pty Limited shall acquire the same." 9 Before the orders of 14 March 1996 were made, counsel for Shirim and Dr Smith read to the Master the three affidavits of Dr Smith to which I referred. The orders of the Court were made on the footing that the Court had adverted to those affidavits. The orders of the Court read, inter alia: - "4. The Court notes that -

The orders referred to in Order 1 hereof are made pursuant to section 260(2) of the Corporations Law and that in making such orders the Court is of the opinion referred to in that subsection." 10 The Amended Summons in the proceedings had sought, inter alia: - "10 Alternatively to Orders 1, 2, 5 and 6: 10.1 an order that the shareholders of the first and second defendants respectively purchase the shares of the first plaintiff in each such company at fair market value ,

10.2 refer the matter to a Master for an assessment of the appropriate fair market values pursuant to 10.1 above." (Emphasis added) 11 However, the motion for summary judgment, which came before the Master on 14 March 1996, did not use the term "fair market value". The Notice of Motion sought, inter alia: -

"5. This matter be referred to the Master to hold an enquiry to determine the price of the purchases specified in orders 1 and 2 hereof." 12 In the proceedings before the Master in the inquiry into value, it was submitted on behalf of Shirim and Dr Smith that, in formulating an order under s 260, the Court had a wide discretion which it should exercise for the purpose of compensating the oppressed shareholder for the oppression which occurred. That principle has been well established since the decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324, where Lord Denning said at p 369: -

"One of the most useful orders mentioned in the section - which will enable the court to do justice to the injured shareholders - is to order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making an oppressor make compensation to those who have suffered at his hands." 13 In Re Bird Precision Bellows Ltd [1986] 1 Ch 658, the Court rejected a submission that an order that the price be paid when a purchase shares was ordered was to be arrived at only by ordinary valuation principles. At p 669, Oliver LJ said: -

"For my part I find myself quite unable to accept this submission. It seems to me that the whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company; and I find myself quite unable to accept that that discretion in some way stops short when it comes to the terms of the order for purchase in the manner in which the price is to be assessed. It has been pointed out, and I mention it again, that section 75(4) is merely a collection of possible methods of giving effect to section 75(3), and it is expressed to be without prejudice to the generality of subsection (3), which gives the court a very wide discretion as to the granting of relief in general terms in respect of the matters of which complaint has been made.

… In my judgment, the 'proper price' is the price which the court in its discretion determines to be proper having regard to all the circumstances of the case." 14 In the application of this principle, the Court treats the order for the purchase of the shares as a means by which the minority shareholder is compensated for the oppression which has occurred. Thus, in Re Bagot Well Pastoral Company Pty Ltd; Shannon v Reid (1992) 11 ACLC 1, Cox J ordered that shares be valued on the footing of revised annual accounts and on certain assumptions, the adoption of which would put the shareholder in the position that the shareholder would have been in had the oppression not occurred. Another example is that a court may value a minority shareholding not on the basis that the minority shareholding would bring on the open market but on the minority holding's proportion of the total net asset value of the company. See In re Bird Precision Bellows Ltd [1984] Ch 419; In re London School of Electronics Ltd [1985] 3 WLR 474. Moreover, although valuations usually occur as at the date of the commencement of the proceedings, other dates may be selected if to do so will exclude the financial effects of the oppressive conduct complained of. In Re O C (Transport) Services Ltd [1984] BCLC 251, it was held that the valuation should be made at a date earlier than the date of the petition, at the date when the unfair prejudice had occurred. In In re Bird Precision Bellows Ltd, the valuation was made as at the date of the order that the shares be purchased. In Re Jermyn Street Turkish Baths Ltd (1971) 1 WLR 1042, the assets were valued as at the date of the Master's certificate. 15 In Coombs v Dynasty Pty Ltd (1994) 12 ACLC 915, these principles were discussed and applied by von Doussa J. At p 917, his Honour said that, "The Court must fix a price that represents a fair value in all the circumstances of the case" and that, "In the valuation exercise the oppressive conduct and the effects which it may have had on the value of the shares is to be disregarded". The principles were again discussed and affirmed on appeal in Dynasty Pty Ltd v Coombs (1995) 59 FCR 122. 16 On the basis of these principles and the events which had happened, counsel for Shirim and Dr Smith submitted before the Master that there was an estoppel in their favour resulting from the consent order that had been made on 14 March 1996 and the formation by the Court of an opinion that oppression had occurred. It was submitted that, as the Court had read the three affidavits of Dr Smith, the oppression found by the Court was necessarily explained in those affidavits. Counsel submitted that the defendants were estopped from denying that such oppression had occurred. Counsel asked for an order valuing the shares as at 30 June 1986, which, in counsel's submission, was a date before the oppressive conduct had reduced the value of Shirim's shares and units. 17 In the reference, the Master rejected the tender of Dr Smith's three affidavits as "artefacts", holding that he would not look at those affidavits to determine what was the oppression which the defendants were estopped from denying. The Master appears to have treated the consent orders of 14 March 1996 as having no effect other than to establish the jurisdiction of the Court to proceed with the inquiry into value. 18 I disagree with the Master's approach on this issue. The correct approach is explained in Spencer, Bower, Turner and Handley on Res Judicata. At para 39, the learned authors point out that it may not be clear from consent judgments and orders what questions were concluded, but that the court may examine the available evidence to ascertain what were the matters in dispute. The paragraph refers to para 204 which states, "The Court can consider the pleadings, particulars, evidence, the notice of appeal or cross-appeal, the reasons for judgment, the summing up, any questions put to the jury and its answers". The authors then go on to state in para 39, "Any issue which the parties recognised was the subject of the litigation and was fundamental to the judgment or order will be conclusively determined. Where, however, there are no such materials neither party is estopped from disputing anything but the actual judgment or order". 19 In my opinion, the defendants were estopped from denying that oppression occurred and that the nature of the oppression was to be found within the confines of the three affidavits of Dr Smith. The fact of oppression was not merely implicit in the order of 14 March 1996, it was made explicit by the note in the orders of 14 March 1996 that the Court was of the opinion referred to in s 260(2). 20 In this appeal, counsel for Dr Wenkart's interests submitted that the opinion formed by the Court could have been as to any of the matters referred to in s 260(2). In my opinion, it is clear from the affidavits which were tendered before the Master that the allegation was that the affairs of Fesena and ESPH were conducted in a manner that was oppressive or unfairly prejudicial to or unfairly discriminatory against Dr Smith's company, Shirim. The present respondents, who were the defendants below, were and are estopped from denying that point. 21 I therefore disagree with the approach of the Master who, after examining the totality of the evidence before him, held that, "I am in agreement with the submission of the Defendants that in those circumstances there is no oppression in fact". 22 I agree with the Master, however, that there were so many detailed acts and complaints set out in the three affidavits of Dr Smith that it would be wrong to conclude that the defendants were estopped from denying any particular fact stated in those affidavits. I agree with the Master that the proper course was for him to consider the issue of oppression and its financial consequences in the light of the totality of the evidence which the plaintiffs and the defendants brought before him. Unless a court, when it makes its order referring the matter for inquiry as to value, specifies the principles upon which the valuation will occur, it is the task of the court undertaking that inquiry to examine the evidence as to oppression and its financial consequences and to ascertain, in light of the whole of the evidence, what is the fair and just value to be determined in the light of the circumstances of the case. Indeed, the conduct of both parties in advancing material in addition to that contained in Dr Smith's first three affidavits made such an approach inevitable. 23 Having rejected the tender of Dr Smith's three affidavits as evidence of the oppression which had occurred, and having no further information at that stage about the case, the Master considered that guidance as to the nature of the valuation to be undertaken could be obtained from the terms of the Amended Summons which had sought an order that the first and second defendants should purchase the shares of the first plaintiff and Fesena and ESPH at "fair market value". Notwithstanding that the motion on which the consent orders had been made did not refer to either market value or fair market value and notwithstanding that the orders of 14 March 1996 did not refer to either market value or fair market value, the Master interpreted those orders as requiring an ascertainment of the fair market value of the shares and units as at 14 March 1996. For practical reasons, the Master substituted for that date the date of 30 June 1996. 24 In my opinion, as the orders of 14 March 1996 used the word "value", without referring to "market value,", and as the orders specifically noted that the Court was of the opinion that oppression had occurred, the orders should be interpreted as requiring that a valuation be made on the ordinary basis adopted in oppression cases, namely, as requiring that the oppression and its financial consequences be identified and that the value to be calculated be assessed so as to compensate the minority shareholder for the oppression which occurred. I reject the submission made by counsel for the respondents that the orders of 14 March 1996, having been drawn by counsel for Shirim and Dr Smith, should be read "contra proferentem". The orders were not ambiguous and did not use the term "market value" or "fair market value". 25 In approaching the issue of oppression, the Master considered that the central allegation of oppression asserted on behalf of the plaintiffs was that from 26 May 1987 Dr Smith was excluded from management of the hospital at all levels. The Master considered that the allegation put on behalf of the plaintiffs was as follows: -

"53. It was the assertion of the Plaintiffs that throughout that period, from 1984 to 1987, Dr. Smith protested against his exclusion from the management of the hospital, the way in which the building work was being organised, and what was described as Dr. Wenkart's management style; but that Dr Wenkart ignored Dr. Smith's views on these matters, and refused Dr. Smith's request to hold directors' meetings.

54. … from 26 May 1987 Dr. Smith had been frozen out of the management of the hospital at all levels. …" 26 The Master held that the evidence before him was fundamentally inconsistent with the proposition that Dr Smith was excluded from the management of the hospital at all levels after 26 May 1987. 27 That view of the Master was clearly correct, even on the evidence contained in the three affidavits of Dr Smith that I have mentioned, let alone the additional evidence that was before the Master in the inquiry, including Mr Smith's fourth affidavit of 4 November 1997. However, counsel's submission that Dr Smith was excluded from the management of the hospital at all levels after 26 May 1987, which was also put to me, was a gross overstatement or misstatement of fact. So also was the submission that, "Dr Smith never agreed to the work project which was in fact undertaken, and he made his objections known". In my view cases ought not to be determined on the inappropriately expressed submissions of counsel. It is therefore appropriate for me to examine what the evidence established as to the nature of any oppression which occurred and what were the financial and other ramifications of such conduct which ought to be taken into account. 28 The venture commenced as one in which Dr Wenkart, Dr Smith and their respective companies were interested. Dr Smith, in his evidence, gave evidence that he informed Dr Wenkart that he had been recently left some money from his wife's estate and was interested in making an investment for himself and his three young children to provide an income. He said to Dr Wenkart that, "I am making this investment to supplement my income". From Dr Smith's viewpoint, there were three sources of income to be gained from involvement in the project. The first was the receipt of a management fee, for it was intended, at least in the first instance, that Dr Smith was to be the manager of the hospital. Secondly, it was expected that there would be distributions of profit. Thirdly, Dr Smith was a surgeon, although, because of heart and blood pressure problems, he did not operate on a full-time basis. He expected to carry on his practice at the Netherleigh Private Hospital. The proposal was that Fesena would own the real estate, that ESPH would operate the hospital, that a unit trust would be established and that Dr Smith would hold a 24 per cent interest in the shares of the two companies and in the units of the unit trust. That arrangement suited Dr Smith's requirements. 29 A letter dated 30 June 1980, was drawn up which formalised the overall understanding between Dr Wenkart and Dr Smith. The letter was signed by both doctors. It stated, inter alia: -

"(a) As from 30th October, 1979 all joint venture assets (viz Netherleigh Private Hospital business, goodwill etc., land on which Netherleigh hospital is situated and adjoining land on which various cottages are built) are to be apportioned as to 24% to you and /or your interests and 76% to me and /or my interests. (b) As from 1st April, 1980 James R. Smith or his nominee is to be paid for management services provided at Netherleigh Private Hospital equal to 3/4 % of the Gross Turnover of the Hospital, calculated for each year ending 30th June.

(d) The Trustee of the Netherleigh Unit Trust is to be varied as under: - (i) Clause 20.4 is to include James R. Smith and all decisions under this clause are to be jointly approved. In the event of death, or inability to carry out duties as a Trustee, of James R. Smith and /or Thomas R. Wenkart then their position is to be taken by their legal representatives. In the event of a reasonable request to change the Trustee, which in no way jeopardises either party, then such request should not be unreasonably refused by the other party. Should Thomas R. Wenkart or James R. Smith or their legal representatives cease to become beneficial owners of the units in the Trust, then they will have no power to act under Clause 20.4". … (e) The following Company matters affecting Gab No. 24 which were discussed on the 22nd April, 1980 are to be carried out. (i) Issued share capital Gab 94 is to be varied so as to reflect the same proportions of ownership as applies in the Netherleigh Unit Trust in as much that Shirim Pty. Ltd. will have 24% of the issued capital and Traknew Holdings Pty. Ltd. or Hapday holdings Pty. Ltd. Will have 76%. It is suggested that this be covered by allotment of 24 shares of Shirim Pty. Ltd. and 74 shares to Traknew or Hapday.

(ii) Mr. R.L. Davis is to resign as a Director and Director, Directors to be Dr. T.R. Wenkart, Mr. G.A. Holden, Dr. J.R. Smith, and Mr. B.V. Goodman.

(iii) Messrs. Davis and Yandel are to resign as Secretaries, the Secretary to be Mr. G.A. Holden." 30 Thus, the venture was seen to be very much a joint venture between Dr Wenkart and Dr Smith, with Dr Smith having, through his company, a 24 per cent interest in the capital, having an equal say in decisions at Board level and being the day to day manager of the hospital. The reference to clause 20.4 of the unit trustee deed was a reference to a clause which permitted the removal of the trustee. The amendment provided that any decisions under this clause were to be jointly approved. 31 The venture proceeded at first in that accord. 32 The hospital was an old one but had an existing clientele of doctors who used its facilities. In the early 1980's, some repairs were carried out without affecting the running of the hospital. Although the evidence is not entirely clear, it appears that Dr Smith received $20,000 per year for his work managing in the hospital. The following dividends and distributions from 1983 to 1986 were declared although, according to Dr Smith, they were not paid in full.: -

Financial year ended ESPH Fesena 30.6.1983 $ 89,353.00 30.6.1984 $ 107,147.00 $ 26.40 30.6.1985 $ 42,753.00 $ 81.00 30.6.1986 $ 52,265.00 $ 34.00 33 From Dr Smith's point of view, problems arose when, from 1984 onwards, Dr Wenkart took a personal interest in the affairs of the hospital. Dr Smith did not approve of Dr Wenkart's management style, which he regarded as autocratic. Moreover, changes in the provision of medical benefits and medical insurance began to affect the hospital. Dr Smith and Dr Wenkart did not communicate well. 34 In evidence, there are a number of letters written by Dr Smith to Dr Wenkart which reflect the atmosphere at the time. On 13 August 1985, Dr Smith wrote: - "Those current problems began this year when the occupancy fell: specific help and direction is needed, not 'head-kicking! Your allegation of 'interference", is nonsense, and childish at that."

"Do you mind if we have clear liason at the top of our company Structure. Recently I asked for a board meeting to discuss pertinent matters - it was refused. During my recent absence, I arranged a chain of communication - it was largely ignored …. Control at Board Level is not professional..."

"A note in friendship while that is still possible… I must admit I do wonder why you persist in being involved in all trivial matters, especially when liaison with you, especially on site, has been difficult and infrequent." 37 After Dr Wenkart took a personal interest in the affairs of the hospital, officers of the Macquarie Hospital Group became increasingly involved in the administration of the hospital. A restructuring of the operating theatres in the hospital and other works, which took place over the Christmas period 1986-1987, but which was not finally completed until May 1988, was largely driven by the aspirations of the Macquarie Hospital Group. 38 The Macquarie Hospital Group, which was Dr Wenkart's organisation, considered that the work should be done and it proceeded accordingly. It is not insignificant that Mr G A Holden, who was the secretary of the companies and an officer of the Macquarie Hospital Group, stated in his affidavit: -

"Since 1984 all of the private hospitals within the Macquarie Group, … have had the theatre complex in the particular hospital ungraded and expanded…. That is, there has been a need to carry out a greater volume of surgical procedures to maintain occupancy levels. …By the mid-1980's, due to improvements in technology, more than one operating theatre was required to maintain occupancy levels." 39 As I have said, the submission was put to me, and it was no doubt put to the Master, that Dr Smith never agreed to this work project and that he made his objections known. That submission does not fairly state the position. Dr Smith certainly put the view that the work proposed was not warranted on a cost benefit analysis. On 18 December 1986, he wrote that the cost, which he estimated, would require the hospital to earn $270,000 extra profit each year for three years. He estimated that such extra profit would have to be generated by extra bed days. He estimated that, to increase profit by $250,000 per year, would require 5,000 extra bed days per annum, which was 100 extra bed days per week. He considered that the demand for such extra bed days would not be forthcoming. He wrote that a full cost benefit analysis should have been undertaken prior to any financial commitments being made and that a less expensive project would appear feasible. 40 It would have been clear to Dr Wenkart and to officers of the Macquarie Hospital Group that Dr Smith had reservations about the project. However, there is no evidence that Dr Smith ever stated that he was totally opposed to the project or that it would only go ahead against his opposition. On the contrary, Dr Smith participated in of the project. As licensee of the hospital, he wrote seeking approval for the plans and, as licensee, he received that approval. He attended on the officers of the local Council with Mr Holden to discuss an alteration to the plans which was found to be required. His opinion was sought and given with respect to many aspects of the planning and the work. 41 It is difficult to extract from the evidence any clear picture of the work that was carried out during the 1986-8 project. What is clear, however, is that the Netherleigh private hospital was an old hospital, that hospital needs changed significantly throughout the 1980's and that a degree of redevelopment became both desirable and necessary. In 1981, consideration was given to creating a very much larger hospital using the land occupied by the hospital and the land adjoining which Fesena owned. However, that proposal did not proceed. In the early 1980's some necessary works were carried out. In an affidavit, Dr Smith mentioned "the appointment (in 1985) of Phillip Cox, Architects, to prepare plans costing $250,000 for a major development of the hospital". That appointment appears to have been made with reference inter alia to the development of a fully operational day-care facility with theatrettes and new wing of approximately 40 beds. That program did not proceed. However, it remained the position that some refurbishment was desirable. 42 The application for development approval for the rebuilding of the surgeries, which was an essential part of the project commenced in late 1986, was signed by Dr Wenkart. However, on 4 November 1986, Dr Smith had written to the Health Commission enclosing plans and requesting the Commission's approval. That approval was given by the Commission in a letter dated 15 December 1986 addressed to Dr Smith. The evidence shows that, in general, the work that was carried out was largely under the control of persons other than Dr Smith. However, he was the licensee of the hospital and a member of management committees. He was aware of and participated in what was occurring. 43 Dr Smith's affidavits show that he played a positive part in the carrying on of the works. For example, Dr Smith deposed: "In early 1988 I had the following conversation with Ken Wolf: Smith: 'Why are you not finishing the wards'? Wolf: 'Tom Wenkart will not approve completion of the work. He says the hospital cash flow cannot support the expenditure to do it.' …. In early 1988 I had several conversations with Tom Wenkart when I saw him at the hospital and said to him: Smith: 'Tom, we must get Ward 7 finished. It's the only way we can achieve any savings.' Wenkart: 'I want to finish Ward 24 first'. … …. In about May 1988 I had the following conversation with Ken Wolf: Smith: 'When are you going to demolish part of the Matron's flat as agreed with the council?' Wolf: 'We'll get it done eventually'." 44 The evidence as a whole shows that Dr Smith cooperated in the project. The Master was correct in holding that the evidence was inconsistent with the submission, put on behalf of Dr Smith, that the project went ahead despite his expressed opposition. Dr Smith expressed concerns, particularly about the lack of a full cost benefit analysis, but he allowed the project to proceed. As his own affidavits show, he even pressed that certain work be done which Dr Wenkart and officers of the Macquarie Hospital Group were reluctant to undertake. 45 Unfortunately, although it had been planned that the work would be completed over the Christmas period and into February 1987 and although the hospital could in fact be used by the end of February 1987, there was continuing work up to May 1988. Part of delay was because a lift was installed to facilitate the moving of patients to and from an upstairs theatre. Dr Smith gave this evidence as to the effect of this work on the functioning of the hospital: -

"As a result of the renovations to the operating theatres, the hospital was not capable of being used by doctors for surgery for an expended period of time. The result of this was that doctors relocated their operating lists to other hospitals and this reduced the income of the hospital". The occupancy rate to the hospital was further reduced when a number of doctors indicated that they were not happy to continue to operate at the hospital. For almost twelve months, the doctor's car part was full of heaps of sand and materials, rubble and equipment. Parking was not always available close by in the street. To the best of my recollection at least seven doctors ceased to operate at the hospital during 1987. 46 The work project had adverse financial consequences for the hospital. As the result of the loss of doctors using the hospital, a fall in bed occupation rates and the cost of the work, it was necessary to borrow over $1,000,000. No distribution of profit were made after the year ending 30 June 1986. The hospital appears to have traded thereafter at a loss. By 30 June 1996, the accumulated losses of ESPH were $2,450, 416. 47 I agree with the Master that the mere carrying out of the work was not an act of oppression by the majority of shareholders. The work was done in good faith with a view to benefiting the hospital business. The making of a bad business decision is not, of itself, oppression. As Young J said in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia Pty Ltd) (1991) 6 ACSR 63 at 66, "It is not oppressive for those in control of a company to insist upon the adoption of a policy on a matter of business on which there are legitimate differences of opinion; Re Broadcasting Station 2GB Pty Ltd (1964-5) NSWR 1648". 48 However, that was not the only matter with which Dr Smith was dissatisfied. From about the time when these works were carried out, the Macquarie Hospital Group took over the effective management of the ESPH business. On 26 May 1987, there was a meeting of directors of ESPH. The Minutes record that Dr Wenkart, Dr Smith and Mr Holden were present. Mr Goodman had, at some stage, resigned and Dr Smith had been unable to find a replacement. At the meeting, the fact that the current indications were that the losses for the year ended 30 June 1987 would be approximately $300,000 was discussed. It was resolved, against the opposition of Dr Smith, that management fees paid to Dr Wenkart and Dr Smith would be terminated. Dr Smith's disagreement was noted. The Minutes mentioned the involvement of the Macquarie Health Corporation in the accounting and administration functions of the hospital. 49 In subsequent years, Dr Smith continued to be a director of both companies, was licensee of the hospital until 1992, was a member of management committees and performed many functions in the overall administration of the hospital. However, he formed the view that he was looked upon as little more than a staff member of the hospital. Although, Dr Smith continued to be a member of management committees including the Senior Management Committee of ESPH, in this role he was merely one of many persons who played a part in the management of ESPH. Dr Wenkart, who chaired the meetings of the Senior Management Committee, remained influential. Dr Smith, who was not a chairman of the committee, had little influence. 50 Board meetings of the two companies were held infrequently and when they were held, the minutes were brief. On 3 April 1987, Dr Smith wrote to Mr Holden: -

"Dear Sir Re: Conduct of Meetings of Directors Since the Company's inception there has been difficulty in obtaining satisfactory formal meetings of Directors. As you are the Secretary, I hold you responsible for any needed formalities, including minutes that have adequate enough information; no room for errors, or misled, actions." 51 Notwithstanding this letter, there was no change in the quality of the minutes until after the oppression said was commenced. In the evidence, there are handwritten notes which Dr Smith took at meetings which contain matters not referred to in the formal minutes. On some minutes of meetings, which recorded Dr Smith's presence, Dr Smith has noted that he was not present. Overall, the quality of the minutes compares most unfavourably with those taken in respect of the meetings which were held once Dr Smith had instituted the oppression suit. Those minutes are lengthy, detailed and informative. The earlier minutes tended to be brief and of a formal kind. 52 On the whole of the evidence, I have formed the view that, by the middle of 1987, the Netherleigh Private Hospital ceased to be operated as a joint venture between Dr Wenkart and Dr Smith and, for administration purposes, became just another hospital in the Macquarie Hospital Group. This change was no doubt encouraged by the fact that, from the 1987 year onwards, ESPH incurred debts and losses which only the Macquarie Hospital Group could fund. Dr Smith had no capital to fund the liabilities of the hospital. 53 The situation that occurred seems to me to be similar to that which was dealt with by Young J in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd (1991) 6 ACSR63. At pp 71-72, his Honour said: -

"It is essential in company law that all persons who are entitled to participate in meetings are able to participate in them to the extent which the law allows. There must be proper notices of meetings; there must be proper time for discussion at meetings; everybody's views must be respected before the vote is taken, on which the majority will succeed, if they wish, but only after they have listened. Where the rights of the minority are affected by persistent conduct at the board, so that they are not able fully to participate in meetings, then there is, in my view actual oppression and, in my view, there is actual oppression on the sum total of the events in this case." 54 Similarly, Romer LJ said in Re H R Harmer Ltd [1958] 3 All ER 689 at p 706: -

"Members are entitled to expect that their board shall perform its functions as a board and that the proceedings of the directors shall be carried out in a normal and orthodox manner. They are entitled to the benefit of the collective experience of the directors, and to expect that the directors and each of them can freely express their views at board meetings and that regard shall be had to what they say and to resolutions properly passed." 55 In my opinion, on the whole of the evidence, there was conduct upon the part of Dr Wenkart and his companies which amounted to oppression of Shirim, and which concerned Dr Smith. From the end of 1986 onwards, the affairs of ESPH and Fesena were conducted on the footing that the Netherleigh Private Hospital was a hospital in the Macquarie Hospital Group. It was controlled and administered on that footing and insufficient attention was given to the fact that the hospital had been acquired as a joint venture between Dr Wenkart and Dr Smith and on the understanding that Dr Smith would be consulted and his views would be influential in the affairs of the hospital. 56 Dr Smith had joined in the venture for the purpose of earning income. He had pointed out to Dr Wenkart and Mr Holden that the carrying out of works without undertaking a full cost benefit analysis could have adverse effects upon the profitability of the hospital. And in this he was correct. Once Dr Smith's management fee was stopped in May 1987, he received no income from the hospital other than that, until his health prevented his doing so, he continued to use the hospital for his part time surgery. Moreover, the borrowing of $1,000,000 to fund the works and the losses in 1987 imposed a heavy liability on Dr Smith under the personal guarantee he had given to the bank for the debts of ESPH and Fesena. Over the years, that liability grew to more than $5,000,000, although the debt was ultimately paid off by another company in the Macquarie Hospital Group. 57 But having found oppression, it is another matter to find that Dr Smith and Shirim should be compensated by way of a substantial value for the shares and units. 58 In his negotiations with Dr Wenkart over the years, Dr Smith sought $1.6 million to $1.8million. In the proceedings before the Master, a valuation by Mr TJ Nelson was relied upon. Mr Nelson arrived at a value of the hospital at $7million and of the real estate of the hospital and the adjoining land and buildings of $1,200,000, giving a total of $8,200,000 as at I December 1986. Counsel for Shirim and Dr Smith sought a determination of 24 percent of that figure, being $1,968,000. 59 However, there are substantial reasons why such a figure should not be determined. One is that to order any such sum would be to provide a great windfall for Shirim and Dr Smith. They provided no capital to the enterprise, or no significant capital other perhaps than loan funds which were repaid. The figure that was calculated by Mr Nelson was high because the demand for private hospitals was high in December 1986. An amount of $100,000 per licensed bed would than have been paid. By the time Shirim and Dr Smith commenced their suit, the market had fallen. In 1999, Colliers Jardine estimated the value per bed as at 30 June 1996 at $44,318. At the time of the hearing before the Master, the debts of Fesena and ESPH exceeded their assets. The Master held, as at the date which he adopted for the valuation, 30 June 1996, that the subject shares and units had no market value. 60 There are additional reasons for not adopting the date of 1 December 1986. One is that the proceedings were not commenced until 1994 and the inquiry before the Master was not held until the year 2000. There would need to be very sound reasons for adopting a date for valuation more than a decade earlier than the determination. Even in December 1986, the shares and units did not have the value which Shirim and Dr Smith sought. In subsequent years, Dr Smith sought a buyer for Shirim's interests but found that there was little market for minority interests in a private hospital. 61 I agree with the Master that the determination of value should not be made on the basis of the value of the shares and units as at 1 December 1986. I also agree with the Master that, if the shares and units were valued on the basis of market value as at 30 June 1996, the valuation would be nil, as the Master held. 62 Counsel for Shirim and Dr Smith relied upon a report dated 26 October 1998 of Mr R S Humphreys, an accountant, who calculated that, if the work had not been carried out in 1986-8, if ESPH had not had to borrow the cost of the works and if the clientele of doctors had been retained, the economic entity comprising Fesena and ESPH would have had a net asset value of over $14million at 30 June 1996. It is unnecessary to deal with Mr Humphreys' report in any detail. It seems to me that his adjustments and assumptions do not reflect the underlying factual situation. The work that was done in 1986 to 1988 was carried out because Dr Wenkart and officers of Macquarie Hospital Group considered it necessary to upgrade the hospital. The undertaking of the works caused problems which were not foreseen. However, it was not only the work in 1986-8 which affected the position of the hospital. There were changes occurring which affected the type of clientele which the hospital could attract. One of those was a change to the health benefits system which brought about the transfer of many long term stay patients from private hospitals to nursing homes. The Netherleigh Private Hospital had to accommodate itself to changing demands for private hospitals. I consider that Mr Humphreys' report is an interesting mathematical exercise which does not reflect the probabilities of the case. 63 Two particular challenges were made to the Master's findings as to the market value of the shares and units as at 30 June 1996. The first was that the Master took into account a liability of $5,180,000 which Fesena and ESPH had to the bank. It was submitted that this sum should not have taken into account because Dr Wenkart, who with Dr Smith had also guaranteed the debt, had told Dr Smith it would be taken care of by Macquarie Hospital Group. That subsequently occurred in 1998 when funds from WWW Machealth Pty Limited, a company in the Macquarie Hospital Group, were used to pay off ESPH's the debt to the bank. In my opinion, the Master was correct to take the liability into account. The debt had been incurred for the purposes of the businesses of Fesena and ESPH and arose from the borrowing of moneys to fund works for capital improvements and to fund trading losses. Fesena and ESPH remained liable to WWW Machealth to reimburse that company, if called upon to do so, for so much of their debts as that company had paid off.

64 I have referred to the liability of $5,180,000 which Fesena and ESPH owed to the bank. The greater part of that obligation was due by ESPH. But each company guaranteed the bank debts of the other. Counsel for the appellants submitted that the obligation owed by Fesena to the bank in respect of ESPH's debts was conditional only and should be ignored. I agree with the Master that, for practical purposes, it is sensible to look at the overall position of the enterprise as at 30 June 1996. The total obligation which Fesena had to the bank was a real and pressing one. 65 Another amount taken into account was a sum of $1,548,751 which represented moneys which had been taken out from the Netherleigh Private Hospital Superannuation Fund and interest thereon. The moneys had been paid back to ESPH being surplus to the Fund's requirement. In my opinion, the liability should largely have been disregarded. It was not proved before the Master that there was any likelihood that ESPH would be called upon to reimburse the Funds to any significant extent. ESPH had paid the moneys into the Fund in the first place. Once the funds were not required, ESPH had a restitutionary claim for their return. At the time of the hearing before the Master and indeed at the time of hearing before me, it was uncertain whether ESPH would be called upon to pay any amount and whether, if so, the sum would be other than a small amount. Mr Holden gave evidence in an affidavit, tendered in the appeal, that a sum of $40,000 or $47,000 had been repaid to the Fund. 66 On the issues discussed in paras 63, 64 and 65, evidence which was not before the Master was tendered. In my opinion, that material should be received. I have already indicated my view that the Master adopted a wrong approach and that it is necessary for the Court to re-examine the facts for itself. It was therefore proper for counsel to tender the additional material to bring the Court up to date. 67 Insofar as there was oppression by reason of Dr Smith's guarantee of the bank debts of ESPH and Fesena, which rose to $5,180,000, that oppression ceased when first, in 1996, Dr Smith's guarantee was limited to $400,000 and, secondly, when the funds of WWW Machealth Pty Limited were used to pay off the liability. Counsel for the respondent gave a formal assurance to the Court that no claim would be made upon Dr Smith by reason of his guarantee. 68 The Master considered that any oppression which had occurred was overcome when, in mid 1987, Dr Wenkart made a proposal to float the interests of the Macquarie Hospital Group and gave an opportunity to Dr Smith to join in the public listing of the Group. Dr Smith was advised that he would receive shares in the public company worth a little over $1.6million in return for the shares and units held by Shirim. Dr Smith declined to accept the offer. In my opinion, Dr Wenkart's offer has no significance. The public float did not proceed. It was a proposal totally different from the venture on which Dr Wenkart and Dr Smith had originally embarked. 69 The orders made by the Master seem on their face to be fallacious. The proceedings before the Master commenced with an application for relief against oppression. The Master found oppression and ordered by way of relief that the shares and units held by Shirim be acquired by members of the Macquarie Hospital Group at a value to be determined. As a result of the Master's determination that the value be nil, Shirim's shares in Fesena and ESPH and its units in the Netherleigh Unit Trust were to be transferred to companies in the Macquarie Hospital Group for no consideration. That order provided no relief whatever against oppression and its effect was to benefit Dr Wenkart and the Macquarie Hospital Group by transferring the 24 per cent interest which Shirim held in the enterprise for no consideration whatever. 70 In my opinion, an order should be made which reverses that result and which gives to Shirim and Dr Smith relief against the oppression which occurred and which recognises that the transfer of the shares and units representing a 24 percent interest in the enterprise is of benefit to Dr Wenkart and the Macquarie Hospital Group. In all the circumstances, the amount which is fixed should be relatively low but should recognise that the interest which Shirim has in the enterprise has a tangible monetary value so far as Dr Wenkart and Macquarie Hospital Group are concerned. 71 The Netherleigh Private Hospital continues to function as a private hospital. In 1999, Colliers Jardine estimated the value of the land and of the hospital business as at 30 June 1996 at $4,014,000. The hospital is old and relatively small. It continues to need substantial upgrading. Nevertheless, the hospital continues to have potential. A business plan entitled "Vision 2000", which was prepared in 1998, contained these passages: "ESPH currently has a philosophy focusing on quality and value for money and service. To achieve the long term Vision a quality service must continue to be offered to all customers, particularly for the established services such as Rehabilitation and Cosmetic surgery.

The long term Vision for Eastern Suburbs Private Hospital is to continue to develop the current core services of Cosmetic Surgery and Rehabilitation. It is expected that by 1999/2000 ESPH will have become the market leader in both these niche markets in the Eastern Suburbs. … There are two different images that ESPH currently projects to its customers. Firstly it is perceived in the local community that ESPH offers a quality Rehabilitation program and is accredited as a medical training hospital. This image is also held amongst some of the local General Practitioners and local surgeons, but further marketing of this quality service is required to raise our profile. The second distinct image is that of providing quality cosmetic surgery. This is due mainly to the fact that ESPH has several well regarded cosmetic surgeons. This image needs to be developed separately from the Rehabilitation image, especially with regards to the physical presence of the hospital." 72 As the shares and units have not yet been transferred, I consider that the Court should fix a sum which is appropriate as at the time of the transfer. In fixing that sum, I look primarily to the facts and figures as they stood at 30 June 1996. That is convenient as much of the evidence directed its attention to that date. I reject the contention put by counsel for the appellants that I should ignore the debts of Fesena and ESPH totalling $5,180,000 which were later paid off from the funds of WWW Machealth Pty Limited. Those debts were incurred in the ordinary course of the business. I reject the approach taken in Mr Humphrey's report to which I have referred which, in effect, assesses damages for mismanagement on the part of the respondents. In my opinion, the carrying out of the refurbishment works during 1986-8 was a matter in which Dr Smith and Shirim participated. Dr Smith and Shirim participated in plans to redevelop the hospital as far back as 1981. There is no justifiable claim for compensation for the expense and losses which occurred. Compensation is not sought for the loss by Dr Smith of his management fee. 73 In the circumstances of the case, I can do no more than assess a figure which is fair to all parties. I consider that a figure of $250,000 would be an appropriate figure to fix as the value at which the shares and units should have been transferred, if transferred at 30 June 1996. Taking into account the passage of time and the rates of interest as reflected in Schedule J to the Supreme Court Rules, but without making any precise calculation, I assess the present value at $375,000. I would attribute one-half of that sum to the shares in Fesena, and the balance to the units in the Netherleigh Unit Trust. The shares in ESPH, a trustee company, should have a nil or nominal value. 74 Another issue was raised in the proceedings. The Master ordered that both Shirim and Dr Smith should pay the costs below. It was submitted that Dr Smith's relief should have been by way of appeal by leave to the Court of Appeal rather than an appeal in these proceedings. It was submitted that Dr Smith's only interest in the present appeal was that of costs. 75 In my opinion, Dr Smith had a greater interest in the present appeal than that of costs. The Notice of Appeal shows that he and Shirim appealed against the substance of the orders below as well as the question of costs. Dr Smith was very much interested in the issue of oppression. Accordingly, the appeal on the issue of costs was properly joined with the substantive appeal. 76 On the issue as to whether the Master's order as to costs was wrong, I need say no more than that I agree entirely with the Master that a personal order for costs against Dr Smith was appropriate. He was a party to the proceedings before the Master and his personal interests were the factors which drove the litigation. 77 Another specific issue as to costs was raised. The notice of appeal was filed prematurely and was subsequently amended. I agree with the submission of counsel for the respondents that the appellants should pay the costs thrown away by the premature filing of the notice of appeal and its subsequent amendment. 78 For the reasons I have given, the appeal will be allowed. Counsel should, within 10 days, bring in short minutes of the orders proposed. The minutes should include the orders proposed in respect of costs.

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