Failure to Separate Interests
182Ground 1 of the Amended Notice of Appeal contends that the judge erred in failing to find that in all the circumstances Mr Tomanovic had a legitimate expectation either to be bought out along the lines of the Heads of Agreement as amended, or to be reinstated to management of the group companies, and that it was Oppressive to both deny that expectation and refuse to reinstate Mr Tomanovic to management of the group companies.
183Ground 3 (other than 3(b), dealt with separately at [279] below) alleges that the judge erred in failing to have adequate regard to the steps that both parties had taken towards the Sayer interests buying out the Tomanovic interests, and to Mr Sayer's refusal to reinstate Mr Tomanovic to directorship in the group companies, and in holding at [144] (set out at [147] above) that mere protracted negotiations did not give rise to a legitimate expectation.
184My reluctance to use the notion of "legitimate expectation" as an analytical term means that I would not uphold these grounds in their terms. However, the factual matters to which they point feature largely in my conclusion that the present is a situation where Oppression is made out.
185Exposition of the law concerning Oppression often occurs by reference to a list of types of circumstances in which Oppression can occur. Ford's Principles of Corporations Law , 13th edition (2007) provides such a list at [11.460], containing items such as "improper diversion of business" "payment of excessive remuneration to controller or associate" , "failure to prosecute an action" , "unfairly restricting dividends" and "improper exclusion from participation in management" . Such lists are undoubtedly helpful as reminders of matters that can be relevant to whether Oppression is made out, and to assist in identifying similarities and differences between the situation that obtained in a decided case and the situation that obtains in the case that falls for decision. However they do not provide a substitute for the application of the statutory test directly to the fact of the case in issue.
186The present is not the fairly common situation in Oppression litigation, where a small company is formed on the basis that the shareholders will all participate in the management of a single business enterprise conducted by the company, and the Oppression starts when one of them is excluded from management. One way in which the present situation does not fit that pattern is that the basis upon which the arrangement between Mr Tomanovic and Mr Sayer was entered was that they would operate a group of companies, for their common benefit, but in circumstances where each had his own special skills and area of primary responsibility. Mr Sayer explained their different roles as "Zoltan was the strategy expert and I was the financier" . Notwithstanding those primary areas of responsibility, each kept the other informed about activities within their respective spheres. Even though their arrangement was initially one whereby Mr Tomanovic "will be consulted on every decision made" ([13] above), well before the events giving rise to the present dispute they had consensually moved to a situation where each was informed of events in the other's domain after those events that happened. Further, the group was operated as a single financial entity, notwithstanding the existence of separate corporations within it. In all these ways, the finance and the non-finance sides of the business complemented each other. The judge's analogy of a marriage was apt in these respects. Though they were a comparatively late development during the time that the two men were co-operating together, the Multiown businesses were part of that joint enterprise.
187Another way in which the present case differs from the familiar model where there is exclusion from management of a jointly managed company is that there has been no exclusion from management (at least prior to 2008), and exclusion from management in 2008 was not the start of any Oppression.
188Concerning the companies in the finance group, Mr Tomanovic voluntarily relinquished his post as director rather than being excluded from it. The terms of the SPA meant that Mr Tomanovic could not regain his position as director while Macquarie was a shareholder, unless Macquarie consented. Mr Tomanovic's resignation of his directorship of companies in the finance group, and the consequent loss of legal rights associated with the position of director, put him in a position of some potential commercial weakness, so far as those companies were concerned. However, at the time of his resignation that was unimportant because of the trust that existed between the two men. Even after the change in the formal structures of the finance group arising from Macquarie becoming a shareholder, Mr Sayer's account was that "Zoltan and I continued to regularly meet or have 'catch ups' in his office, or my office or in the stairwell of the First Argyle Property, as we had done prior to the MBL Acquisition and I would update Zoltan on what was happening with the MHA Finance Business" . In that time, Mr Tomanovic had as much involvement in the management of the finance group companies as he had ever had. However, (at [5]), the judge has identified December 2004 as the end of the "business marriage" and (at [22]) found that "Mr Tomanovic has not played an active part in the finance group business since at least about December 2004, in consequence of the separation of interests ... " . It was December 2004 that marked the time at which Mr Tomanovic ceased to draw a salary, and began to receive payments as loans that could become payments on account of the purchase price. Thus, it was the reaching of the agreement in principle in regard to separation of interests, rather than resignation from directorships in the finance group, that provided the substantial reason for the cessation of such practical involvement in the affairs of the finance group as Mr Tomanovic had ever had.
189Mr Tomanovic's resignation from directorships in the companies in the non-finance group (other than Multiown) occurred on a different basis to his resignation from directorships of the companies in the finance group - it related directly to the hope and expectation that the separation of business interests that the two men had agreed upon would come to fruition. Again, however, it could not be said that, at that time, he was excluded from management of those companies.
190During the months from February to November 2008 Mr Tomanovic's requests to be appointed a director were rebuffed, and after the November 2008 general meeting the substantial reason why Mr Tomanovic was not a director of GMEC was because Mr Sayer had voted against the resolution that Mr Tomanovic be appointed a director. However by 2008 there had been so many events connected with the buy-out proposals that even the failure of Mr Tomanovic's efforts to become a director in 2008 are vastly different to the common situation of exclusion from management.
191Nor is this a case where a shareholder has made a unilateral decision that he wants to leave a company, and uses the Oppression provision as a litigious tool to try to enforce that unilateral decision. Rather, there was a mutual decision by the two men that they should separate their business interests, on the basis that Mr Tomanovic should receive a substantial net payment.
192The separation of business interests had happened by the end of January 2005 in the day-to-day operation of the businesses, and (to the small extent it mattered) in the directorships of companies in both the finance and non-finance sides of the business. However it has not been reflected in the shareholdings of those companies or in any payment of capital to Mr Tomanovic.
193When that separation happened, Mr Tomanovic ceased to receive the regular and not insubstantial income that he had previously received from the companies, and instead received periodical payments on the basis that they were loans, that could convert to being, in effect, payments on account of the purchase price. Receiving the payments on that basis put him in a situation where he might be prejudiced significantly if the buyout did not go ahead. That prejudice has now come home, in the form of the judgment given against him in the Common Law Proceedings. The fact that he ceased to be involved in the day-to-day operations of the company from December 2004 does not provide an adequate explanation for his failure to receive that income stream - it is not suggested that the payments he received were calculated on the basis that they were a fair salary for the effort he put in, and indeed Mr Sayer was taking the position, in February 2008, that "Zoltan ads NO value" . While it is true that since December 2004 Mr Tomanovic has been devoting his time to the Multiown businesses, he has also been receiving no return on the equity of the Tomanovic interests in the group companies.
194The value of the shareholding of the Tomanovic interests can be inferred, on the evidence, to be significant. The prices that the Sayer interests agreed to pay under the First Heads of Agreement, and under the Second Heads of Agreement, are both indicative of that.
195While it could not be taken as proof of the current value of the equity of the Tomanovic interests in the companies, or indeed the value at any time (because Macquarie acquired its interest in association with entering an arrangement to provide funds to the group, and at the time it sold it appears to have been an anxious seller) the $2m that Macquarie paid in 2003 for its 10% stake in GMEC, and the $750,000 that Mr Sayer paid for that same 10% stake in 2008, provide other indications that the value of the shareholding of the Tomanovic interests in GMEC is not trivial.
Breakdown in Personal Relations
196Another relevant matter is that the trust between the men has broken down.
197The judge found, at [5]:
"The relationship became very sour when differences emerged between them as to the separation arrangements, and frustration mounted upon frustration as attempts to finalise a concrete separation agreement did not bear fruit."
198The judge also found, at [235] that:
"... there has been and is a breakdown and lack of trust between the two shareholders in this corporate group. The difficulty has been manifest since late 2004 but seems to have escalated in the months after the Second Heads of Agreement failed to mature into a formal transaction."
There is no appeal against that finding.
199The emergence of irreconcilable differences has been held not to be sufficient to establish Oppression: McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 at 614, Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [89]. That does not mean that breakdown in personal relations cannot be one of several factors that together lead to a conclusion that Oppression is made out.
Saleability of the Tomanovic Shares
200In October 2003 Mr Sayer caused to be issued to himself or One Australia, a B class share in Argyle HQ and three other companies (Direct Mortgage Solutions Pty Ltd, Mortgage House of Australia Pty Ltd, and Mortgage House Developments Pty Ltd). Each B class share conferred a vote, but no significant right to return of capital. There was a factual dispute, that the judge did not resolve, about whether the B class shares were issued in consequence of an express arrangement between Mr Tomanovic and Mr Sayer. The point, for present purposes, is that, by reason of the issue of the B class shares, the Tomanovic interests are minority shareholders in each of the companies in which they were issued. While the shareholding in GMEC was equal between the Sayer interests and the Tomanovic interests prior to Macquarie Bank selling its shares in November 2008, the acquisition of Macquarie Bank's shares by the Sayer interests has made the Tomanovic interests a minority shareholder in GMEC as well. Thus the Tomanovic interests are minority shareholders in both of the companies concerning which relief under section 233 is sought.
201The judge made no express finding about the saleability of the Tomanovic's shares in these two companies. Counsel for the Tomanovic interests below said in his final submissions that his clients were "locked in" (para [248] below), and that submission was not contested. During counsel for the Respondents' closing submissions in the court below the following exchange occurred:
HIGGS: ... there is no evidence that he is not able to go out and sell those shares on the open market, I accept -
HIS HONOUR: What open market?
HIGGS: I accept you might - sorry, I interrupted your Honour.
HIS HONOUR: What open market?
HIGGS: Did I say 'open market'?
HIS HONOUR: You did.
HIGGS: If I said that was a flourish I should not have indulged in. If on the market your Honour may draw the inference that market is not that open or wide. The evidence is silent on that. I can understand your Honour can draw the inference the market would not be all that wide. I understand your Honour can draw the inference if is be likely to be buying 45 percent of the shares, probably Mr Tomanovic will buy Mr Sayer out or vice versa, or interests associated with it. This is something that may be available on the evidence. It is just a matter of how much and when.
While that is not express acceptance of the practical unsaleability of the interests, it comes quite close.
202The judge's statement of legal principles at [40] included:
" Inability to sell shares 'The mere fact a person is unable to regain capital or dispose of his or her shares is not a matter of oppression': Lucy v Lomas [2002] NSWSC 448, at [43], citing Re G Jeffrey (Mens Store) Pty Ltd (1984) 9 ACLR 193, at 199."
203Dealing with that topic at all would have been irrelevant if the judge had not been assuming the Tomanovic interests were for practical purposes unable to sell their shares at something like a fair price.
204If the judge did not implicitly do so, I infer that the shares of the Tomanovic interests in the various group entities would probably not be saleable to anyone other than the Sayer interests at a fair price. It is not only being a minority shareholder that would make the shares unattractive. As well, the complex intra-group dealings, dealings of group entities with entities associated with Mr Sayer but not Mr Tomanovic, and the informality with which the affairs of the group have been conducted for many years, would be significant deterrents to a potential purchaser.
205Important elements of the commercial unfairness in the situation are that the Sayer interests seek to keep the value of the equity of the Tomanovic interests locked up in the companies, in circumstances where:
(a) the income that the Tomanovic interests used to receive on the basis that it was theirs to keep has stopped being paid;
(b) there is no present prospect of the Tomanovic interests receiving income from their shareholding other than at the discretion of the Sayer interests, regardless of how the companies fare;
(c) there is no real prospect of the Tomanovic interests selling to anyone else for a fair value; and
(d) resumption of the former basis on which the two men co-operated is no longer possible.
206Further, all that occurs when (e) the Tomanovic interests have significantly prejudiced themselves by incurring, with the acquiescence of the Sayer interests and in the mutual expectation that a buyout would occur, a very significant debt, that the Sayer interests are intent on recovering. It occurs when (f) the Sayer interests, since December 2004, have been running the companies as though they were totally their own, including the making of loans to and from entities associated with Mr Sayer. Since December 2004 Mr Tomanovic has not had the regular provision of information about the activities of the companies that he formerly had.
Significance of No Distribution of Dividends?
207In Thomas v HW Thomas Ltd [1984] 1 NZLR 686 the New Zealand Court of Appeal found that there was no contravention of the then New Zealand oppression provision when a family company continued its long-adopted policy of having a very conservative approach to dividend distributions. In that case, it was relevant that the petitioner had inherited the shares, that various members of the founder's family continued to work in the company, and that there was no basis for concluding that the petitioner had contributed in any way to the value of the company's assets. By contrast, here the value of the corporations at the time Mr Tomanovic ceased to be actively involved in them had arisen in part from the efforts of Mr Tomanovic. Unlike the situation in Thomas , the historical practice of the companies in the group of not paying dividends occurred in a context where income was made available to both of the two men from the companies in other ways and, so far as Mr Tomanovic is concerned, there has been a departure from that historical practice.
Significance of Position as Director?
208While the submissions of the parties have spent considerable time on Mr Tomanovic's directorship of the companies, I do not think that is a topic of particular importance. Both Mr Tomanovic and Mr Sayer were directors of companies in the group before Macquarie became a shareholder in GMEC. However the reality of the way in which the companies operated was that there were informal conversations rather than directors' meetings, and the position of director was little more than a formality. It was trust that mattered, not strict legal rights.
209Mr Muddle, counsel for the Appellants, submits that holding the position of director gave Mr Tomanovic legal rights to be consulted and informed about the operations of the company, and to participate in management, that he was capable of invoking should he wish. He submits that his resignation has deprived him of those rights, and (at least until the second-last day of the trial) Mr Sayer was refusing to let him have those rights back. Mr Higgs, counsel for the Respondents, concedes that the right to be a director of a company is a valuable right.
210However, Mr Tomanovic's resignation as a director in the companies within the finance group was occasioned by the desire of both men to have Macquarie as a shareholder, and Macquarie's insistence that Mr Sayer should be the sole director of GMEC.
211In my view it is a distortion of the enquiry required by section 232(e), to ask (as Ground 4, considered later in these reasons, does) whether Mr Tomanovic's resignation as a director removed any legitimate expectation on his part to be a director. It is likewise a distortion of that enquiry to ask (as Ground 5, considered later, does) whether the fact that the Tomanovic interests were at all times after October 2003 minority shareholders in Argyle HQ, and at all times after November 2008 minority shareholders in GMEC, meant that he no longer had any legitimate expectation to be appointed as a director. The enquiry that section 232(e) calls for is whether, overall, the conduct of the affairs of the two relevant companies is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the Tomanovic interests. The circumstances in which he ceased to be a director, and the circumstances in which, from 19 February 2008 (para [ 99 ] above) Mr Tomanovic's requests to resume position as director were rebuffed are relevant matters to take into account in that enquiry. However, the enquiry involves considerably more than whether he had a "legitimate expectation to be a director" , and in any event the "legitimate expectations" of a shareholder, in the sense used in Oppression litigation, can be identified only once a finding of Oppression has been made.
Reinstatement Offer
212The surprise offer that Mr Sayer made in the course of cross-examination to reinstate Mr Tomanovic as a director in GMEC, and the undertaking that was proffered at the hearing of the appeal, would need to be approached with considerable caution, given the adamant opposition that Mr Sayer expressed from February 2008 onward to Mr Tomanovic's repeatedly made proposal that he become a director. The lateness of the offers is in itself a cause for suspicion. As well, I have no confidence that appointment of Mr Tomanovic as a director would enable the companies to operate with the board as an effective unit of corporate governance. While there has continued to be some business relationship between the Multiown companies under Mr Tomanovic's leadership, and the companies now controlled by Mr Sayer (judgment [236]), it has involved activities like referring clients; not the sort of activity requiring a willingness to listen, discuss, and give bona fide consideration to proposals that is involved in a board of directors that actually operates as a decision-making organ of a company.
213Part of the reason for the undertaking to reinstate that was proffered at the hearing of the appeal taking the form it takes ([134] above) is that GMEC presently has a provision entitling the chairman to a casting vote at a directors' meeting in the event of an equality of votes, but Argyle HQ lacks such a provision. Mr Higgs submits that that proffered undertaking does nothing more, in this respect, than give formal effect to the arrangement that the two men had from the outset ([13] above) that Mr Sayer would have the "final say" .
214However that arrangement was entered in very different circumstances to the present ones. Now, as the judge has found, the basis on which the two men worked together has broken down.
215Even if the court were to accept the undertaking, and even if Mr Tomanovic were to agree to the conditions to which the undertaking is subject, it would not cure the commercial unfairness that results from the factors I have earlier identified. There is no offer to pay him a director's fee, interest continues to accrue on the loans/prepayments that are the subject of the judgment in the Common Law Proceedings, and the only thing that now stands in the way of the Sayer interests enforcing that judgment is the stay that this Court has ordered pending the determination of this appeal.
216In all these circumstances I do not propose to accept the proffered undertaking.
Good Faith of the Sayer Negotiations
217The judge found that the Sayer interests generally acted in good faith in negotiations concerning the terms of the buyout. That finding is not challenged. No doubt there would be occasions where a finding of lack of good faith assisted a court in reaching a conclusion that Oppression had occurred. However, even action that is carried out in good faith can sometimes constitute, or be part of, conduct that amounts to Oppression.
218In Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459, the decision of the Board of the New South Wales Rugby League to exclude one club from the League competition was held not to infringe section 320 of the Companies Code . Section 320 resembled the presently applicable Oppression sections in making the court's power to intervene dependent upon a circumstance or action that was "oppressive or unfairly prejudicial to or unfairly discriminatory against" a member or members. Mason ACJ, Wilson, Deane and Dawson JJ at 466 said it was:
"... a point of great importance that the decisions were made in the exercise of a power that is expressly conferred on the Board, a power to determine the nature and extent of the competition that was to take place in 1985 and the clubs that were permitted to participate in it."
219Their Honours contrasted that situation with one:
"... where the directors of a company, in the exercise of the general powers of management of the company, ... bona fide adopt a policy or decide upon a course of action which is alleged to be unfairly prejudicial to a minority of the members of the company. In that kind of case it may well be appropriate for the court, on an application for relief under s 320, to examine the policy which has been pursued or the proposed course of action in order to determine the fairness or unfairness of the course which has been taken by those in control of the company. The court may be required in such circumstances to undertake a balancing exercise between the competing considerations disclosed by the evidence."
220Their Honours there referred to Thomas v HW Thomas Ltd at 695 and 697. In Thomas at 695 Richardson J said that the then New Zealand provision was:
"... a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member's interests arising from the acts or conduct of the company in that way is justifiable."
221At 697, Sir Thaddeus McCarthy said he agreed with Richardson J that:
"... it is not necessary for a complainant invoking s 209 to prove a lack of probity or want of good faith in every case, though it may well be so in some. But the powers given by s 209 are ones which in my view should not be lightly exercised, especially so when a lack of probity or want of good faith is not established."
(One wonders when it is that a court ever exercises a power lightly.)
222In Wayde Brennan J, at 470, said: "... to say that the resolution was adopted in good faith and for a purpose within the power conferred is relevant to but not conclusive of the question whether relief should be granted under s 320." At 471, Brennan J adopted the statement of Richardson J in Thomas at 693 that:
"... it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company."
223More recently, in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 Gummow, Hayne, Hayden and Kiefel JJ said, at [176]:
"Neither is it to be supposed that there cannot be oppression on the part of one who thinks that he or she is acting rightly."
224Their Honours refer to a remark made in the course of argument by Kitto J in M Dalley & Co Pty Ltd v Simms (1968) 120 CLR 603 at 606 to the same effect with citation of supporting authority. Kitto J's remark was made concerning section 186 Companies Act 1961 (Vic), which had as its trigger for relief that "the affairs of the company are being conducted in a manner oppressive to one or more of the members" . The present section has expanded the triggering circumstance to include being unfairly prejudicial to or unfairly discriminatory against a member, making it even clearer than it was in 1968 that lack of bona fides is not required before the section can be attracted. See also McMillan v Toledo Enterprises International Pty Ltd at 613 per Beazley J (as her Honour then was); Re a Company [1986] BCLC 362 at 367 per Hoffmann J (as his Lordship then was).
Tomanovic Failure to Complete on April or September 2007 Terms
225The Respondents submit that there is no Oppression because they made two reasonable offers to buy out the Tomanovic interests, namely submission of the draft documentation in April and September 2007, and those offers were not accepted. The Appellants dispute that submission of those documents amounts to an offer. The Appellants contend that the judge made no finding that the "offers" were reasonable; the Respondents contend the judge did so conclude. As well, the Appellants submit that, even if the April and September 2007 documents are an offer, and if the judge made a finding that they were reasonable, that finding is wrong. The Respondents contend that the Appellants are not entitled to raise on the appeal any argument that the submission of the documents does not amount to making a reasonable offer.
The Role of a "Reasonable Offer" in Whether Oppression is Established
226Before dealing with those submissions I should consider the role that the making of a "reasonable offer" plays in deciding whether Oppression has been made out.
227In O'Neill v Phillips at 1106-7 Lord Hoffmann gave consideration to the effect of an offer to buy shares as an answer to a petition alleging unfairly prejudicial conduct. The offer that was involved in that particular case was made after the petition had been presented. It was in that particular factual context that Lord Hoffmann said, at 1106:
"The offer is only material to the outcome at the trial if the court considers that the petitioner is otherwise entitled to succeed. So the fact that he made an earlier offer of the relief to which the court has now held him entitled after trial can logically go only to the question of costs."
I suspect that his Lordship was intending those remarks to be confined to the situation of an offer made after the litigation has commenced. If that is so, as the offers involved in the present case were made well before the legal proceedings alleging Oppression were begun, the second sentence in that remark has no bearing on the present case.
228If, contrary to the above, Lord Hoffmann's remark at 1106 that "[t]he offer is only material to the outcome at the trial if the court considers that the petitioner is otherwise entitled to succeed" was intended to apply to an offer made before ligation was commenced, and if the remark was taken to suggest that the court should first consider whether the petitioner is entitled to succeed on the basis of facts excluding the offer, and go on to consider the offer only if the answer to that artificial question was "yes", I see no justification for applying the remark to section 232. There is nothing in section 232 that suggests that this sort of a two-step reasoning process should be gone through. Rather, one decides whether the conduct of the affairs of the two relevant companies is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the Tomanovic interests as a single exercise in evaluation.
229In any event, the remark I have quoted from 1106 does not apply in the present case, because the relief I propose is not in substance the same as performance of the April or September 2007 documents.
230Lord Hoffmann also, at 1107, contemplated that exclusion from management might not be unfairly prejudicial conduct if the respondent "has plainly made a reasonable offer" . There, his Lordship was talking about an offer made before the petition had been presented, because the effect of making a reasonable offer at that time is said by his Lordship to be "the exclusion [from management] as such will not be unfairly prejudicial and he will be entitled to have the petition struck out" (at 1107). The type of offer that his Lordship was contemplating was not necessarily an offer to purchase - he said, at 1107, that where a majority shareholder wants "to put an end to the association ... it will almost always be unfair for the minority shareholder to be excluded without an offer to buy his shares or make some other fair arrangement " (emphasis added). He identified characteristics of a reasonable offer as being to purchase the shares at a "fair value" , and that "the value, if not agreed, should be determined by a competent expert", as an expert not an arbitrator, and in circumstances where both parties have access to information about the company and the opportunity to make submissions to the expert.
231All the remarks of his Lordship about the effect of an offer to buy the shares of a minority shareholder related, as his Lordship expressly recognised at 1106, to a point that his Lordship did not need to decide. Those remarks did not even provide an alternative justification for the outcome of the case. Thus, they were clearly dicta.
232In Campbell v Backoffice Investments Pty Ltd at [72], French CJ said:
"Their language and history indicate that ss 232 and 233 are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution."
233The test that a judge is to apply in deciding whether Oppression has been established is laid down by the words of section 232 itself, not by a judicial gloss on a somewhat similar, but not identical, English provision. In Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 421, Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ said:
"It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words."
See also The Commonwealth v SCI Operations [ 1998] HCA 20; (1998) 192 CLR 285 at 301 per Gaudron J; Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 at 279 [17] per Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ.
234Those principles lead to the conclusion that, even if the remarks of Lord Hoffmann about the effect of a buyout offer in Oppression proceedings might sometimes provide some assistance to a judge in seeking to apply section 232, they cannot be treated as either an addition to, or a substitute for, the statutory text. Aspects of the facts of previous cases that have been held to amount to Oppression (or the somewhat, but not completely, analogous concept applicable in the English legislation or earlier versions of the Australian legislation) might assist in drawing a judge's attention to matters that might be relevant in deciding whether Oppression has been established in a particular case. However, the application of section 232 is not properly approached by seeking to create rules containing terms that are not found in the legislation, like "exclusion from management" and "reasonable offer" .
235Further, it is not as though "exclusion from management" and "absence of a reasonable offer" are elements of a cause of action, so that a plaintiff in an Oppression suit (or, perhaps, in the sub-species of Oppression suits in which exclusion from management is a prime element in the Oppression alleged) has the onus of proving absence of a reasonable offer. Rather, the making of a reasonable offer is merely one factor that, in some (but not all) types of situations where Oppression is alleged can be relevant to whether Oppression is made out. A party who wished to assert that a reasonable offer had been made would bear an onus of adducing evidence of the making of an offer, and an onus of persuading the court that it was reasonable, and that because it had been made there was no Oppression.
236The judge's statement of principles, not challenged on this appeal, included, under the heading " Particular grounds for oppression" , paragraphs headed "Inability to sell shares" , "Mismanagement" and "Exclusion from management" . The latter paragraph, [42], was:
" Exclusion from management 'Improper exclusion from a legitimate expectation to participate in the management of the company may be oppressive': Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359 at [401], per Young CJ in Eq. However, unfairness does not lie in the exclusion alone, but in exclusion without a reasonable offer to buy the plaintiff's shares. Consequently, there will be no oppression, if the applicant has refused a reasonable offer to acquire the applicant's shares: O'Neill v Phillips [1999] 1 WLR 1092 at 1104; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343."
237I have earlier explained (paras [186]-[190] above) that the present is not a case where there was, prior to 2008, exclusion from management, and even in 2008 and afterwards there were many factors relevant to Oppression besides exclusion from management. Thus, the principles in [42] of the judgment below do not govern the present appeal. (In any event, I doubt that the judge intended them to be immutable rules, rather than aids that might be helpful in the evaluation of particular fact situations.) As well, the remarks of Lord Hoffmann in O'Neill v Phillips about the effect of a reasonable offer are not directly applicable because (apart from the difficulties I have already mentioned) all those remarks concerned a situation where there was exclusion from management. Further, his Lordship seems to have been considering a situation where exclusion from management was the only factor relevant to whether there was Oppression, as shown by his phrase "the exclusion as such will not be unfairly prejudicial ... " . These matters provide a reason why all the arguments that I have mentioned at [225] are not decisive of the outcome of this appeal. However as those arguments took significant time on the appeal I should consider them in more detail, and in their own terms.
Any Finding that the Documents are Reasonable Offers?
238It is convenient to deal first with whether the judge made any finding that submission of the April and September 2007 documentation amounted to the making of reasonable offers.
239In [224] of the judgment the judge said:
" ... there were two concrete and unimpeachably reasonable offers to effect a buy-out as envisaged by the Second Heads of Agreement. Those offers eliminate exclusion from management as a ground for oppression."
240However, as I have said (at [163]-[164]), paras [221], [222] and [224] of the judgment below are part of a reproduction of the Sayer interests' submissions. The judge in [226] appears to have accepted "the basic components" of those submissions. However, it is not clear what parts of the extensive submissions he had set out, he accepted as being the "basic components" . As well, the judge's acceptance of the "basic components" was done only "assuming the factual basis for their contentions is correct" . The submissions of the parties on the appeal do not attempt to show that the judge had found all of those "basic components" to have been made good. Nothing other than [224] and [226] is relied on as a finding of the reasonableness of the offers. In my view, the judge has not found that the April and September 2007 documents amount to reasonable offers.
Not an "Offer" Because Not Contractual?
241Mr Muddle initially submitted that neither of the April and September draft documents constituted an "offer" at all, because neither was presented on a basis that the Tomanovic interests were free to accept it, and thereby bring about a binding contract. Rather, he submitted, they were drafts put forward for discussion.
242In the course of argument, he accepted that it may not be necessary for an "offer" to be an offer in the sense that is relevant for contract formation before it could be capable of affecting a conclusion about whether Oppression had been made out. In my view, he was right to make that concession. There might be situations in which, for example, a bona fide buyout offer was made, but subject to contract. Such an offer might be held open for long enough to justify a court in concluding that, when ignored or not accepted, any disadvantage that the addressee of that offer thereafter came to be in, concerning the affairs of the corporation to which it related, was not in itself Oppression or the result of Oppression. Other less concrete indications of a preparedness to negotiate and discuss a fair exit mechanism might also bear upon whether Oppression was established. It is, however, very much a matter of the court forming a judgment about the facts of the individual case, and the role that the "offer" plays in them, as to whether that result follows. Whether a statement of preparedness to consider buying out a shareholder takes the form of a contractual offer might affect the weight that is given to it, in deciding whether there has been Oppression. In Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [103] Barrett J, correctly in my view, rejected the proposition that a relevant "offer" had to be an offer in the contractual sense.
243Notwithstanding that, any significance that the April documentation had is lessened by the fact that it was sent to the Tomanovic interests on the basis that it was a draft, for consideration and discussion ([53] above). Likewise the September 2007 documentation was submitted on the basis that there might be "queries or comments" on it from the Tomanovic interests ([68] above).
Not an Offer that was Reasonable?
244Mr Muddle submits that at the time that the two lots of draft documents were submitted, the value was not agreed, the documents did not provide for a price found to be fair by the court or by some independent expert, and there was no finding, or basis for finding, that those documents made a reasonable offer. While the buyout price in the draft documents closely approximated the $5m that had been the price under the Second Heads of Agreement, the Second Heads of Agreement was not legally binding, extremely schematic, and self confessedly not complete. Furthermore, the parties entered into the Second Heads of Agreement in circumstances where both parties were anticipating a very quick settlement. Mr Muddle accepts that the fact that Mr Tomanovic agreed to the Second Heads of Agreement is some evidence that it was a reasonable arrangement in November 2006. However he submits that when the draft documentation of April 2007 and September 2007 was more complex, and contained warranties and other terms of commercial significance that were not in the Second Heads of Agreement, and when the Second Heads of Agreement were entered in the expectation that settlement would occur in a matter of weeks, one cannot conclude that the April and September 2007 documents made reasonable offers. Further, he points out that the First Heads of Agreement had provided for a materially higher price, and contained numerous provisions that were not found in the Second Heads of Agreement, and were not reproduced in the draft documents. The judge did not consider the reasonableness of the various changes that Mr Tomanovic was requesting, between the April and September draft documents. Further, the proposal contemplated by the 24 September 2007 documentation could not be carried through - by 5 October 2007 Mr Sellars was writing "in absence of KJS being able to come up with money to fund the present arrangement with Zoltan that deal is dead" . Mr Muddle submits that an offer that is reasonable in its terms, but not able to be performed, could hardly be sufficient to stop a conclusion of Oppression being drawn, if such a conclusion were otherwise appropriate.
245As well, Mr Muddle submits that the September 2007 draft documents were sent to Mr Tomanovic's solicitor at a time when Mr Tomanovic was overseas and not due to come back until the first week of October, and the documents were very complex. If the documents amounted to an offer, it became unavailable in early October 2007, and thus was not open for a sufficient time to stop a conclusion of Oppression that might otherwise be drawn.
Is the Argument Open?
246The Respondents submit that the Appellants are not entitled to put this argument, because it was not put below.
247The Respondents' written submissions below contended that "there were two concrete and unimpeachably reasonable offers to effect a buyout as envisaged by HOA 2 ... Those offers eliminate exclusion from management as a ground for oppression."
248The Appellants submit that the reasonableness of the April and September 2007 offers was contested below. They rely on a passage in the closing oral address, of counsel for the Appellants at the trial (who did not appear on the appeal). The transcript records that counsel submitted (tp 587) that the thrust of his case was that his client was :
"... locked in, no control, and no fair offer.
And I don't think I could have got a clearer example of that than in my final question to Mr Sayer this morning, this also deals with remedy, but Mr Sayer was quite prepared to complete and effectuate separation of interests. But price was uncertain, was the word that he used. I think he said precisely, I don't think anybody could calculate price. So that is the evidence and the thrust of where I go on the heads of agreement.
There is some support for that, and I will take your Honour to the evidence in a moment, in the surrounding facts and circumstances. I submit that the court can infer from the exchange of draft documentation between the solicitors in the period April 2007 to September 2007 that during that period, draft documents were being prepared. They were being negotiated, for want of a better word argued. But at least by 24 September 2007, the solicitors for Mr Sayer's interests had produced documents which, according to Mr Sellars' evidence, were documents he would have recommended that his client sign at that time.
So sofar as Mr Sayer is concerned, and I put that when Mr Sellars was doing that he was doing so with authority - that was the terminal point of that long extended failings, at least by that date. There was a fair offer on the table, but it didn't happen from them, and that is the oppression, first ground of oppression on which my client relies.
So it is necessary to understand what happened from 24 September onwards. I am well aware that my learned friend cross-examined Mr Tomanovic, his dealing with accountants, his change of solicitors, and all the events of 2007 . What I put to your Honour is that that is simply not relevant. All of that was superseded by the issuing of draft formal documentation in final form from Mr Sayer's camp.
The evidence as to what occurred after September 2007 is also clear. Mr Sayer took over the conduct of negotiations himself. He terminated the retainer of Grant Thornton in earlier October 2007. Nothing further was done about the draft documentation that was between the parties. And he himself attended meetings with Mr Tomanovic and Mr Tomanovic's solicitors, which was a change, because the previous meetings Mr Sayer and his accountants had been there but Mr Tomanovic had been unrepresented."
249Counsel for the Appellants went on to specifically put to the judge (tp 588) that by October 2007 the companies in the group did not have sufficient money to enable the Sayer interests to perform the Second Heads of Agreement, and also (tp 589) that "Mr Sayer wasn't willing to put his hand into his own pocket to finance Mr Tomanovic's exit, but was only prepared to utilise the company's assets to the extent that they were available, which at that stage they weren't . "
250The "final question to Mr Sayer this morning" , referred to by counsel, and the question preceding it, were:
"Q. Mr Sayer, are you prepared to purchase Mr Tomanovic's shares today in GMEC?
A. Yes.
Q. Is your attitude that it's a question of price to be determined?
A. I don't think a price can be determined."
251The Appellants submit that the passage "there was a fair offer on the table, but it didn't happen from them" should be read as though its sense was "there was a fair offer on the table, but it didn't come from the Sayer interests" - ie, that Mr Tomanovic had made a fair offer, but the Sayer interests had not.
252I do not think that that is the correct way of reading this passage of transcript. One cannot identify any offer that Mr Tomanovic made. I take the sense of counsel's submission to be that when he was saying the Appellants were "locked in, no control, and no fair offer" he was referring to the absence of a fair offer at the time of the hearing. That was the point of his reference to the evidence that Mr Sayer had given that morning.
253In its context, it seems to me that there are two possible readings of the passage that the transcript reproduces as "there was a fair offer on the table, but it didn't happen from them" , each of which is similar in substance. One possible reading is that "them" a typographical error for "then" . The other possible reading is that "but it didn't happen from them" has the sense of "but having made the offer the Sayer interests did nothing to advance it" . Regarding the September 2007 documents as making a reasonable offer was consistent with the stance of the Appellants at the hearing; that the Heads of Agreement were legally binding and ought be performed. In its context, counsel was saying there was a fair offer put on the table as at 24 September 2007, but very soon after 24 September 2007 it ceased to be available.
254Thus, counsel for the Appellants at the trial did not accept that the April documentation amounted to an offer, because at the time it was made it was envisaged there would be the ongoing negotiation concerning it, and that negotiation in fact occurred. I do not understand his concession that the September 2007 documents were a fair offer to mean more than that the documents set out an offer that was fair in its terms. In the context where he drew attention to the offer then promptly ceasing to be available, and also contested the ability or willingness of the Sayer interests to perform the terms of that offer, he was not accepting that the making of that offer had the consequence that there was no Oppression.
Effect of the April and September 2007 Documents on Whether there is Oppre ssion
255In my view the Court should not permit departure from the concession that the September 2007 documents amounted to an offer that was reasonable in its terms. However, even on the basis of that concession, I would not conclude that there was no Oppression. The significance of the September 2007 documentation is lessened by its not being an offer that was able to be accepted to constitute a binding contract, by it being submitted on the basis that there might be queries or comments, and it being submitted at a time when Mr Tomanovic was known to be overseas and not returning until early October. I agree with the submission of counsel for the Appellants in the court below that very soon after those documents were made available, Mr Sayer terminated instructions to his advisers, "nothing further was done" by the Sayer interests to advance the proposal in the draft documentation (as opposed to other proposals), and Mr Sayer became either unable or unwilling to carry out the transaction envisaged by the draft documentation.
256So far as the April documents are concerned, Mr Muddle's submissions (para [244] above) provide good reason for declining to draw an affirmative conclusion that they made a reasonable offer.
257No submission is made that Mr Tomanovic acted in bad faith in the negotiations. However, it must be recognised that his conduct was often not well calculated to bring the negotiations to an end, particularly in the period before Mr Sayer's attitude to the buyout proposal changed in about October 2007 (at [71], [77], [78] above). Nevertheless, that does not lead to a conclusion that there is no Oppression. The situation that the Tomanovic interests now find themselves in concerning the two companies, is in my view a commercially unfair one, even if part of the reason for its existence is the conduct of Mr Tomanovic. There is nothing unusual about recognising that when a marriage has ended one of the parties is left in an unfair situation, even if that party's conduct has partly contributed to the situation arising. Carrying on the activities of the company without remedying that unfairness involves conducting the affairs of the companies in a way that is oppressive to, unfairly prejudicial to or unfairly discriminatory against the Tomanovic interests.
258By a Notice of Contention, the Respondents submit that the only "legitimate expectation" that the Tomanovic interests could have had arising from the conduct of the negotiations was that the Sayer interests would negotiate in good faith, and the judge found that the Sayer interests did so. I would not accept that this provides a basis for supporting the judge's decision, because (a) many factors other than the course of negotiation are relevant to whether the situation in which the Tomanovic interests now find themselves amounts to Oppression, and (b) in any event, good faith is not decisive of the absence of Oppression.
259Though the reasoning so far leads to the conclusion that Oppression is made out, I should also refer to the other grounds of appeal that were argued.