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[2011] NSWCA 104
Court of Appeal (NSW)
2010-09-07
Campbell JA, Macfarlan JA, Young JA
Original judgment source is linked above.
McEwen v Combined Coast Cranes Pty Ltd [2002] NSWSC 1227; (2002) 44 ACSR 244 McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 O'Neill v Phillips [1999] 1 WLR 1092 Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Re a Company [1986] BCLC 362 Re Astec (BSR) Plc [1998] 2 BCLC 556 Re Bountiful Pty Ltd (1994) 12 ACLC 902 Re Polyresins Pty Ltd [1999] 1 Qd R 599 Re Posgate & Denby (Agencies) Ltd [1987] BCLC 8 Re Saul D Harrison & Sons Plc [1995] 1 BCLC 14 Re Suburban Hotel Co (1867) 2 Ch App 737 Surf Road Nominees Pty Ltd v James [2004] NSWSC 61 The Commonwealth v SCI Operations [1998] HCA 20; (1998) 192 CLR 285 Thomas v HW Thomas Ltd [1984] 1 NZLR 686 Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152 Trust Company Ltd v Noosa Venture 1 Pty Ltd [2010] NSWSC 1334 Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428 Warren v Coombes (1979) 142 CLR 531 Wayde v NSW Rugby League Ltd [1985] HCA 68; 180 CLR 459 Texts Cited: Ford's Principles of Corporations Law, 13th edition (2007) Category: Principal judgment Parties: In all proceedings Zoltan Tomanovic (First Appellant) Australian Financial Services Corporation Pty Limited (Second Appellant) In 76372 of 2010 Global Mortgage Equity Corporation Pty Limited (First Respondent) One Australia Pty Limited (Second Respondent) In 76370 of 2010 Argyle HQ Pty Limited (First Respondent) Kenneth James Sayer (Second Respondent) In 297497 of 2009 Kenneth James Sayer (First Respondent) Ken Sayer Investments Pty Limited (Second Respondent) Mortgage House of Australia Pty Limited (Third Respondent) Representation: Counsel: WG Muddle SC; P Newton (Appellants) DJ Higgs SC; H Stowe (Respondents) Solicitors: ERA Legal (Appellants) Brown Wright Stein Lawyers (Respondents) File Number(s): 76372 of 2010; 76370 of 2010 and 297497 of 2009 Decision under appeal Citation: Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152 Date of Decision: 2010-03-05 00:00:00 Before: Austin J File Number(s): 2008/282201; 2008/282203; 2009/297497
HEADNOTE (This headnote does not form part of the Court's judgment) Mr Zoltan Tomanovic and Mr Ken Sayer operated a business enterprise in a loose partnership arrangement. The arrangement involved various companies and trusts. Some of these entities were effectively controlled by Mr Tomanovic alone, some were effectively controlled by Mr Sayer alone, and some were jointly owned. The entire business enterprise was divided into finance and non-finance sides. The finance side included a retail business, which involved the sale of home loan products to customers; a wholesale business, which involved lending funds to a small mortgage manager; and a third party business, which involved the payment of commissions to mortgage brokers who referred loans to the retail business. The non-finance side included the ownership of two properties located in Parramatta and a business providing investment advice to customers. In 2004 a group of companies bearing the name "Multiown" was established to take over the running of the non-finance side of the business. No dividends were paid during the relevant period by any of the companies through which the partnership arrangement was implemented. In anticipation of an arrangement by which Macquarie Bank would acquire a 10% shareholding in the various companies in the finance group, Mr Tomanovic resigned as a director of the relevant companies, leaving Mr Sayer as the sole director. From late 2004 Mr Tomanovic and Mr Sayer had agreed in principle to separate their interests. Negotiations commenced for the Sayer interests to buy out the Tomanovic interests in the finance group companies. However, by 2008 they had still not agreed on all aspects of a basis for separating their interests. Over the course of the negotiations, the parties had executed a number of written documents. On 22 December 2004 Mr Tomanovic and Mr Sayer signed a brief handwritten document entitled "Heads of Agreement". This was followed by a document which came to be referred to as the "First Heads of Agreement", executed by Mr Tomanovic and Mr Sayer on 31 March 2005. The "First Heads of Agreement" made provision for the Tomanovic interests to attain sole ownership of the Multiown enterprises and for the Sayer interests to acquire the rest of the business enterprises. The document contemplated a purchase price of $6 million payable by the Sayer interests to the Tomanovic interests, along with an indemnity against tax liabilities arising from the sale and mutual releases from and indemnities against any liability arising under guarantees. Following these documents, the Tomanovic interests ceased receiving the weekly payments that they had thitherto received from the finance side of the business. Instead, the Tomanovic interests received payments by way of loan. These loans were to convert to payments of the purchase price upon the execution of formal documents. Between 23 December 2004 and 27 November 2006 the Sayer interests had caused payments totalling $1,341,750 to be paid to the Tomanovic interests. On 24 November 2006 Mr Tomanovic and Mr Sayer executed the Second Heads of Agreement. The Second Heads of Agreement was less favourable to the Tomanovic interests in several respects. The consideration was reduced from $6 million to $5 million, of which $2 million was deferred. Unlike the First Heads of Agreement, the Second Heads of Agreement provided no indemnity against tax liability for the Tomanovic interests and no releases or indemnities concerning guarantees. In April 2007 the Sayer interests' representatives provided to the Tomanovic interests a draft share sale agreement, of a kind that would implement the Second Heads of Agreement. The negotiations continued inconclusively until mid-March 2008, with both parties providing proposals and draft documentation. On 11 November 2008 Macquarie Bank sold its 10% shareholding in the financial group to the Sayer interests. The purchase was effected by a loan made by St George to a jointly owned company which in turn lent part of the purchase price to the Sayer interests. The relationship between the parties deteriorated and on 16 December 2008 the Sayer interests served a Notice of Demand on the Tomanovic interests demanding repayment of the loan payments. The Sayer interests subsequently began proceedings in the Common Law Division of the Supreme Court. The Tomanovic interests brought a cross-claim seeking judgment for sums of money alleged to be payable in accordance with the First and Second Heads of Agreement, or seeking specific performance of those documents. The trial judge found that none of the written documents produced by the parties in the course of their attempts to negotiate a separation of interests were contractually binding. The trial judge also rejected a claim that the Sayer interests were estopped from denying that the documents were binding. These findings were not challenged on appeal. As a result of the failure of the parties to finalise a separation agreement, there were two companies which were still jointly owned by the Sayer and Tomanovic interests. The Tomanovic interests commenced proceedings in the Equity Division seeking an order that the Sayer interests buy out the Tomanovic interests under the statutory oppression remedy or alternatively an order for winding up. The trial judge found that there was no basis for the invocation of the oppression remedy to impose a compulsory buy-out on the Sayer interests. The trial judge held that if the Sayer interests were neither contractually bound to acquire Mr Tomanovic's interests, nor estopped from denying they were so bound, there could be no basis for the Court to find any unfairness arising out of the failure to consummate the separation of interests. The trial judge found that the failure to consummate the separation of interests did not constitute oppression and that Sayer interests generally acted in good faith in relation to the negotiations of the separation of interests. Held (per Campbell JA, Macfarlan and Young JJA agreeing) (1) General Principles in relation to Oppression : The task of a court deciding whether there has been the type of commercial unfairness that generates a remedy under s 233 Corporations Act 2001 (Cth) ("Oppression") is to apply the text of the statute to the facts of the case. The words of the statute are not confined by reference to categories of situation derived from pre-existing case law or by judicial glosses: per Campbell JA (Macfarlan JA agreeing) at [177]-[178], [185], [232]-[234], per Young JA at [331] It is possible for there to be Oppression even if no breach of contract is involved and even if there is no departure from a position to which a party is bound by an estoppel: per Campbell JA at [176], [178], per Young JA at [326] and per Macfarlan JA at [314] It is possible for there to be the type of commercial unfairness that generates a remedy under section 233 Corporations Act 2001 (Cth) even if part of the reason for its existence is the conduct of the party asserting Oppression: [255] The terminology of 'legitimate expectation' is not appropriate and is unhelpful in connection with the oppression remedy: [166]-[171], [184] Breakdown in personal relations can be one of several factors that lead together to a conclusion that Oppression is made out: [199] Ordinarily it is difficult to say that there has been Oppression in a 50/50 company between two persons of equal strength of character: per Young JA at [321] (2) Saleability of the Tomanovic Shares : That the Sayer interests seek to keep the value of the equity of the Tomanovic interests locked up in the companies is an important element of the commercial unfairness in the situation, 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; (d)resumption of the former basis on which the two men co-operated is no longer possible; (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; and (f)the Sayer interests have been running the companies as though they were totally their own. per Campbell JA at [205]-[206] (Young JA at [332]-[333] agreeing) (3) Distribution of Dividends : The non-payment of dividends was an historical practice of the companies in the group. However there was an element of commercial unfairness in the situation because this historical practice occurred in a context where income was made available to both of the two men from the companies in other ways and there has been a departure from that historical practice. Further, there was an element of commercial unfairness because 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: [207] (4) Good Faith of the Sayer Negotiations : Conduct that is carried out in good faith can still constitute, or be part of, conduct that amounts to Oppression: per Campbell JA at [215]-[222], [256] (Young JA at [330] agreeing) (5) The Role of a "Reasonable Offer" in Whether Oppression is established : The making of a reasonable offer to buy out the minority shareholding is merely one factor that, in some but not all types of situations in which Oppression is alleged, can be relevant to whether oppression is made out. The existence of a reasonable offer does not necessitate a conclusion that there was no oppression: [235] It may not be necessary for the 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 is made out: [242] Whether an offer takes the form of an offer that was able to be accepted to constitute a binding contract, the period for which the offer was open and the reasonableness of the offer are all factors which are relevant to but not decisive of the issue of oppression: [255], [256] In any case, the trial judge did not find that the April and September 2007 documents amounted to reasonable offers: [239]-[240] (6) Winding Up Remedy : In circumstances where oppression is made out and where serious commercial detriment would arise from a winding up order, a compulsory buy-out order will be preferable to a winding up order on the just and equitable ground in s 461(1)(k) Corporations Act 2001: [291]-[292] (7) The Court's Power to Order a Buy-out of the Interests of a Unit Trust : The question as to the court's power to grant relief concerning assets that a corporate trustee held on trust was not raised at trial or on appeal and the court was not in a position to decide the issue: [305]-[306]
TABLE OF CONTENTS Para Nature of the Appeal 2 PART A - THE FACTUAL BACKGROUND 10 Pre-Macquarie Relationships 10 The Macquarie Bank Restructure 19 The Buy-Out Negotiations to September 2007 27 The First Heads of Agreement 33 The Second Heads of Agreement 40 Attempts to Identify the Transaction Structure 48 The April 2007 Draft Documentation 52 The September 2007 Draft Documentation 68 The Proposed St George Borrowing 70 The Buyout Negotiations from October 2007 77 The November 2008 General Meeting Called 112 Macquarie Sells 114 The November 2008 General Meeting 124 The Lead-Up to the Litigation 126 The Reinstatement Offers 132 PART B - THE STATUTORY POWERS INVOKED 135 PART C - THE JUDGMENT BELOW CONCERNING OPPRESSION 141 Failure to Complete Separation of Interests 144 Diversion of Money and Assets (Appeal Ground 13) 148 Oppression Allegations Affecting Argyle HQ 155 Increase in St George Bank Facility - (Appeal Ground 11) 155 Drawdown of Facility by Argyle HQ to Purchase Macquarie Bank's Shares - (Appeal Ground 12) 159 "Oppressive Conduct Generally" 161 PART D - THE OPPRESSION GROUND OF APPEAL 166 "Legitimate Expectation" 166 Standard for Appellate Review 172 The Grounds of Appeal 173 Appeal Ground 2 174 Failure to Separate Interests 182 Breakdown in Personal Relations 196 Saleability of the Tomanovic Shares 200 Significance of No Distribution of Dividends? 207 Significance of Position as Director? 208 Reinstatement Offer 212 Good Faith of the Sayer Negotiations 217 Tomanovic Failure to Complete on April or September 2007 Terms 225 The Role of a "Reasonable Offer" in Whether Oppression is Established 226 Any Finding that the Documents are Reasonable Offers? 238 Not an "Offer" Because Not Contractual? 241 Not an Offer that was Reasonable? 244 Is the Argument Open? 246 Effect of the April and September 2007 Documents on Whether there is Oppression 255 Appeal Grounds 4, 5 and 6 260 Ground 6 - Inadequacy of Reasoning re Para [224]? 266 Grounds 11 and 12 269 Remaining Grounds of Appeal Re Oppression 278 Appeal Ground 3(b) 279 Appeal Grounds 10 and 14 281 Appeal Ground 13 286 PART E - THE WINDING UP REMEDY 288 PART F - REMEDY 295 Remedy for Oppression 295 Orders 309
Nature of the Appeal 2Mr Zoltan Tomanovic and Mr Ken Sayer were in what the trial judge described as "a kind of business marriage from about 1999 to December 2004" . That "marriage" involved some complex legal relations between, or in, various companies and trusts, some of which were effectively controlled by Mr Tomanovic alone, some of which were effectively controlled by Mr Sayer alone, and some of which were jointly owned. For many purposes relevant to this appeal it is not necessary to distinguish the precise entities involved, so I shall refer to them collectively as "Tomanovic interests" or "Sayer interests" . 3In late 2004 Mr Tomanovic and Mr Sayer agreed in principle to go their separate ways. By 2008 they had still not agreed on all aspects of a basis for separating their interests. 4In anticipation of agreement being reached, the Sayer interests had caused payments totalling $1,341,750 to be paid to the Tomanovic interests. The last straw precipitating the proceedings from which this appeal is brought came on 16 December 2008, when the Sayer interests served a notice on the relevant Tomanovic interests demanding repayment of that money (the " Notice of Demand "). 5The Tomanovic interests then began the two sets of proceedings in the Equity Division of the Supreme Court (" the Equity Proceedings ") from which this appeal is brought. One proceeding related to Global Mortgage Equity Corporation Pty Ltd (" GMEC "), one of the companies that was jointly owned by the Tomanovic and Sayer interests. The other proceedings related to Argyle HQ Pty Ltd (" Argyle HQ "), another of the companies jointly owned by Tomanovic and Sayer interests. In each proceeding, the Tomanovic interests sought, in relation to the company that was the subject of those proceedings, either an order that the Sayer interests buy out the Tomanovic interests at a fair value determined by the Court (either through a referral to an Associate Judge, or appointment of a referee), or an order for winding up. 6In the orders appealed against, the primary judge ordered that each of the Equity Proceedings be dismissed with costs: Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152. 7Following the Notice of Demand, the Sayer interests began proceedings in the Common Law Division of the Supreme Court, seeking repayment of the $1,341,750 ( " the Common Law Proceedings " ). Those proceedings were transferred to the Equity Division, and the primary judge heard the Common Law Proceedings at the same time as he heard the Equity Proceedings. He held that the Tomanovic interests were obliged to repay the $1,341,750, and entered judgment for that sum plus interest, a total of $1,765,004.64. No appeal is brought from the judgment in the Common Law Proceedings. However, that judgment has been stayed pending the determination of the appeal from the Equity Proceedings, and some of the circumstances in which the $1,341,750 came to be paid to the Tomanovic interests need to be taken into account in the present appeal. 8In the course of attempting to establish a basis on which the separation of interests could occur, two documents (discussed in more detail below) known as the First Heads of Agreement and the Second Heads of Agreement had been executed. The Tomanovic interests filed a cross-claim in the Common Law Proceedings, contending that those documents were contractually binding, and seeking judgment for sums of money payable in accordance with their terms, or alternatively an order for specific performance of those documents. One basis on which the cross-claim contended that the documents were binding was that the Tomanovic interests were estopped from denying that the documents were binding. The judge dismissed that cross-claim. No appeal is brought from his decision in that respect. 9I have concluded, contrary to the decision below, that there are circumstances that justify the making of compulsory buy-out orders. I agree with the judge that an order for winding up is not appropriate.
Pre-Macquarie Relationships 10The judge found that Mr Tomanovic and Mr Sayer established "some form of commercial relationship in 1994", and that in 1999 they began a "loose partnership arrangement". Mr Tomanovic has at all relevant times controlled Australian Financial Services Corporation Pty Ltd (" AFSC "). Mr Sayer has at all relevant times controlled One Australia Pty Ltd (" One Australia "). These were the respective corporate vehicles that the men largely (though not exclusively) used to structure their loose partnership. 11Mr Sayer had, prior to 1999, operated a business under the name "Mortgage House of Australia" . It was sometimes referred to as "MHA". 12During the time relevant to the proceedings the business was divided into finance and non-finance sides. The finance side operated through several companies, of which Tomanovic interests and Sayer interests were shareholders, and Mr Tomanovic and Mr Sayer were both directors. The business of the finance side was explained by Mr Sayer, in evidence not contested by Mr Tomanovic, as including a retail business, and a wholesale and third party business. The retail business involved the sale of home loan products directly to customers. The wholesale business involved lending funds through the sale of home loan products to a small mortgage manager, which would re-brand that product with its own name and provide it to its own customers. The third party aspect of the business involved the payment of commissions to mortgage brokers who referred loans to the retail business. 13It was agreed between the two men, from about 1999, that Mr Sayer would be "top boss and ultimate decision maker in control of the money side of business." On 28 July 2000, when Mr Sayer agreed to Mr Tomanovic becoming a director of the various companies, they both signed a letter that included: "It must also be noted that Kenneth James Sayer, has the final say and decision making process of the Mortgage House of Australia group, however Zoltan Tomanovic will be consulted on every decision made." 14Mr Sayer gave evidence, that was not disputed by Mr Tomanovic, as follows: "Zoltan and I regularly had informal discussions in relation to both the MHA Retail Business and the MHA Mortgage Management System Business. These discussions took place in the stairwell, in my office or upstairs in Zoltan's office, and occurred roughly every 2 weeks or so, and lasted for about 20 to 30 minutes. As to these meetings: (a) It was my practice to advise Zoltan of developments that had occurred in the MHA Finance Business including: (i) the changes to the finance products the MHA Finance Business were offering customers; (ii) the new services the MHA Finance Business could provide to customers; (iii) any developments in the advantages offered by the funding institutions to the MHA Finance Business; (iv) openings of new MHA Branches; (v) growth of the MHA Finance Business; (vi) profitability; (vii) competition in the market place (vii) marketing initiatives; and (ix) cashflow, and the deficit in cash position, and the need for funding. ... (c) it was not my general practice to seek the agreement of Zoltan (or advise him in advance) of proposals for future action in relation to the MHA Finance Business. Rather, it was my practice to inform him of developments which had already occurred in that business. I can not presently recall any exceptions to that general practice;" 15The non-finance side of the business involved the provision of mortgage management systems to customers. This involved providing investment advice to customers in order to encourage property investment, minimise mortgages and increase the investment portfolio of its clients. Another aspect of the non-finance side of the business was the ownership of two properties located in Argyle Street, Parramatta. Apart from activities of the retail part of the finance business that were conducted through branches, the activities of both the finance side and the non-finance side of the business were carried out from those buildings. The buildings were owned by Argyle HQ (though under a name different to its present one), which held them as trustee of the 9 Argyle Street Unit Trust. Apart from the issue of one B class share to Tomanovic interests in October 2003, the shares in Argyle HQ have at all relevant times been held as to 50% by Tomanovic interests, and 50% by Sayer interests. Mr Tomanovic and Mr Sayer were the sole directors prior to 20 January 2005. The unit holders in the unit trust have at all times been AFSC and One Australia on a 50:50 basis. The case both at first instance and on appeal has proceeded as though Argyle HQ was a company of real value, not a company all of whose assets were held on trust. 16Mr Sayer gave evidence, that Mr Tomanovic accepted was "substantially correct" : "The bulk of our discussions in these regular informal meetings addressed the operations of the MHA Mortgage Management System Business. As to this: (a) it was the practice of Zoltan to inform me about both the state of the business, of the MHA Mortgage Management System Business, and proposals and prospects for future growth; (b) it was not Zoltan's practice to seek my agreement or consent in relation to those proposals; (c) it was my practice from time to time to emphasise the need for growth in the MHA Mortgage Management System Business. However, it was not my practice to make specific proposals in relation to the growth or operations of the MHA Mortgage Management System Business. I understood that Zoltan had effective management autonomy in relation to the MHA Mortgage Management System Business." 17In the nomenclature used in Mr Sayer's affidavit the Mortgage Management System Business did not include the business of owning the properties in Argyle Street. 18No dividends were paid by any of the companies through which the partnership arrangement was implemented from the time the partnership began to the date of the trial before the primary judge. Mr Sayer said that paying dividends "wasn't our procedure. Intercompany loans was the going thing." As well, each man received what was in effect a salary. There was no finding about whether there were any distributions from the trust, and the evidence did not address that topic.
The Macquarie Bank Restructure 19Negotiations had been underway from at least November 2002 for Macquarie Bank, or a company associated with it, to acquire 10% of the shares in the finance group for a single payment of $2 m. A list of terms proposed by Macquarie in November 2002 included that a new group holding company be established with 100% ownership of the group, and that Mr Sayer be the sole director of that company. 20By May 2003 negotiations were well advanced for Macquarie Bank to acquire that interest. 21The records of the companies had indicated that Sayer interests held 75% of shares in companies in the finance group, while Tomanovic interests held 25%. Grant Thornton is an accounting firm instructed by the Sayer interests at all relevant times, and which also provided services to companies in the MHA Group. The minutes of a meeting held at the offices of Mortgage House on 4 June 2003, attended by both Mr Sayer and Mr Tomanovic, record the manner in which that shareholding was to alter prior to the entry of the Macquarie group company:
The Buy-Out Negotiations to September 2007 27In around 2004 a group of companies each bearing a name that included "Multiown" was established, in part to take over the running of the non-finance side of the business. At least some of those companies carried out their operations through being trustee of a unit trust. Those companies and trusts were to provide specialised mortgage strategies, loans and investments to clients. I will refer to the operations of these companies and trusts collectively as "the Multiown business" . It was initially established as an equal partnership between Mr Tomanovic, Mr Sayer and a Mr Gabriel Baca. The Multiown business operated from a floor of the Argyle Street building on a basis that did not involve the payment of any rent or any payment for telephone, internet, cleaning or electricity. As well, the Multiown business used for the purpose of its own operation the database of clients that had been set up and maintained by the MHA business. Mr Tomanovic or one of the entities in which he was interested from time to time wrote loans through MHA, on each of which a commission was paid. The Multiown business continued to occupy the Argyle Street premises on that basis for much, and perhaps all, of the time until proceedings were instituted. 28From around mid-2004 negotiations commenced for the Sayer interests to buy out the Tomanovic interests in various of the group companies. On 22 December 2004 Mr Sayer and Mr Tomanovic met at Kirribilli. They both signed a brief handwritten document entitled "Heads of Agreement" . Its text was: "MH Group Bus sold to Ken Sayer. Date after the holiday Zoltan in Europe before Ken going to USA 04 subject to contract for total of $6 mil net of taxes price to be determined about" 29Also on 22 December 2004 Mr Sayer sent an email to Mr Noel Dona (copying in Mr Tomanovic) saying: "Zoltan & I have come to agreement. Business is sold as at a day or two before I left for the US this year. (Agreement Signed) All drawings since that date, to be netted out of his 6 mil. Can u arrange for transfer of AFS shares, resignation of directorship & POA for AFS." 30In that email "AFS" refers to AFSC, and "POA" is an abbreviation for power of attorney. 31Prior to that time the Tomanovic interests had received payments of $3602.50 per week from the Mortgage House Group. After 22 December 2004 they did not receive any more such regular payments. However, the first of the payments that ultimately made up the $1,341,750 that was the subject of the Common Law Proceedings was made on 23 December 2004. Mr Derek Angel, who had responsibility for the accounts of the finance side of the business, wrote to Mr Tomanovic on 23 December 2004: "I have been advised by Ken Sayer that an agreement has been reached by the two of you with a signed acknowledgement to be delivered to me in due course. Ken has advised that the sum of $6,000,000 (Sixmilliondollars) is the agreed amount. All future payments to you will be deducted from this amount. Deductions will also be made from this amount in due course which represents payments made to you from the agreed date of sale. To ensure you are up to date with the reducing indebtedness of Ken to you, I will supply a monthly update of the current balance outstanding and amounts paid in that month. To initiate the process, I understand you require the amount of $150,000 to be paid today. In regard to this transaction the balance owing will be as follows: $6,000,000 Less amount paid $150,000 Total outstanding $5,850,000
The amount of $150,000 was duly paid on 23 December 2004. 32On 20 January 2005 Mr Tomanovic tendered his resignation as a director of the four companies, other than the Multiown companies, through which the non-finance side of the business was conducted. One of the companies from which he then resigned as director was Argyle HQ. Since 20 December 2005 Mr Sayer has been the sole director of Argyle HQ, except for the period from 9 June 2005 to 5 October 2006, when Derek Angel was an additional director. Bearing in mind that Mr Tomanovic had already resigned as a director of the various companies in the finance group on 27 June 2003, the January 2005 resignations had the effect that, of the companies that carried on the finance and non-finance sides of the business, he remained a director of only the Multiown companies. The First Heads of Agreement 33Between December 2004 and the end of March 2005 solicitors for the Sayer interests had prepared several drafts of a heads of agreement document relating to the proposed separation of interests. Mr Ken Gunderson-Briggs, of Grant Thornton, accountants, was also acting for the Sayer interests from that time onwards concerning the proposed separation of interests. On 31 March 2005 Mr Tomanovic and Mr Sayer executed a document entitled "Heads of Agreement" , that later came to be referred to as the "First Heads of Agreement" . Its text filled 7 closely typed pages. It commenced by saying: "Except paragraphs 8 and 9, this document is not intended to be a binding contract or give rise to legal rights and obligations (except as set out in the document). The document has been prepared in order to provide instructions to lawyers, accountants and other advisers in relation to the preparation of formal documents ..." Clause 8 was a confidentiality agreement. Clause 9 contained an agreement by Mr Tomanovic to give to the Sayer interests any authority needed to deal with the rights of the Tomanovic interests in the enterprises that the Sayer interests were to acquire. 34The First Heads of Agreement contemplated that formal documents would be entered into by 30 June 2005. It also contemplated that payments might be made to the Tomanovic interests, "... in anticipation of execution of formal documents and that these payments are by way of loans which shall: a. convert to payments of the Payment Sum upon execution of formal documents; or b. become immediately due and payable as a debt owing by ZT and other Zoltan Entities to Remaining Enterprises, in the event that formal documents are not executed by 30 June 2005 or such later date as KJS and ZT may agree to in writing." 35The balance of the document made provision for the Tomanovic interests to attain sole ownership of all the Multiown enterprises, and for the Sayer interests to acquire the rest of the business enterprises. It contemplated that the payment price would be $6m payable by the Sayer interests to the Tomanovic interests, plus an amount equal to the amount of any tax liability that the Tomanovic interests might incur as a result of receiving that $6 m. As well, Mr Tomanovic would procure a release from any guarantees that Mr Sayer had given concerning Multiown companies, or indemnify him against any liability under such a guarantee, and Mr Sayer would likewise procure a release for Mr Tomanovic from any guarantees he had given concerning the rest of the business enterprises, or indemnify him against any liability under such guarantees. 36Thereafter, various payments were made by a company in the finance side of the business to Mr Tomanovic, under cover of a standard form letter that stated, inter alia: "I have been advised that the Heads of Agreement has been entered into with a signed acknowledgement to be delivered to me in due course. I understand that the payment sum under the Heads of Agreement is six million dollars ($6,000,000) ("Payment Sum"). In accordance with clause 9(c) of the Heads of Agreement, all payments to you and your related entities are payments by way of loan which shall: a. convert to payments of the Payment Sum upon execution of formal documents; or b. become immediately due and payable as a debt owing by you and your related entities in accordance with clause 9(c)b. of the Heads of Agreement, in the event that formal documents are not executed by 30 June 2005, or such later date as you and Ken Sayers may agree to in writing. Following execution of formal documents: a all payments to you and your related entities will be deducted from the Payment Sum; and b deductions will also be made from Payment Sum in due course which represent payments to you and your related entities." 37On 23 June 2005 Mr Sayer and Mr Tomanovic signed a "Memorandum of Agreement" under which they agreed to extend the date for execution of the formal documents to 31 August 2005. 3831 August 2005 passed without the formal documents being entered, and without any agreement extending the time for entry of formal documents. However, payments continued to be made by a company in the finance group to Mr Tomanovic, under cover of exactly the same standard form letter as had been used from the time the First Heads of Agreement was executed. The last of those payments was made on 27 November 2006. 39On 6 November 2006, at a meeting at the offices of Grant Thornton, Mr Tomanovic and Mr Sayer signed a document entitled "Memorandum of Understanding" that Mr Gunderson-Briggs handwrote at that meeting. It was common ground that Mr Gunderson-Briggs described it as "an agreement to agree" and that he said it would need to be put into a proper Heads of Agreement form in due course. Mr Tomanovic expressed a wish to have it done as soon as possible, and stated his opinion that it should be done by Christmas. Mr Gunderson-Briggs agreed it should be done as soon as possible, but warned that there were a lot of things to do. The Second Heads of Agreement 40On 24 November 2006 Mr Tomanovic and Mr Sayer executed the Second Heads of Agreement. Apart from attestation clauses, its text was a single page. It stated: "This document is not intended to be a binding contract or give rise to legal rights and obligations (except as set out in the document). The document has been prepared in order to provide instructions to lawyers, accountants and other advisers in relation to the preparation of formal documents to give effect to the transactions contemplated by this heads of agreement ('formal documents'). 41After identifying the parties, it said: "(a) KJS and entities associated with KJS (collectively "Ken Entities") will purchase the assets which Ken Entities on the one hand and ZT and persons and entities associated with ZT including AFSC (collectively "Zoltan Entities") on the other hand own, for the price of $5,000,000.00 (the "Price"). (b) The Price will be paid as follows: (i) forgiving the loan to Zoltan Entities which is presently outstanding and owing in the amounts of $1,245,750.00; (ii) payment of $100,000.00 on execution of this Heads of Agreement; (iii) payment of $1,404,250.00 on completion of the sale under the formal documents; (iv) payment of $1,000,000.00 on the first anniversary of completion of the sale under the formal documents; and (v) payment of $1,000,000.00 on the second anniversary of completion of the sale under the formal documents. (vi) payment of $250,000.00 on achievement of the 20 sales per month performance hurdle. (c) For the avoidance of doubt the sale will exclude any of the Multiown Enterprises." 42The "loan" referred to in (b) (i) was the total of the amounts of periodical payments that by then had been paid to the Tomanovic interests. 43When para (b)(vi) referred to "sales" it was referring to occasions when the Tomanovic interests referred customers to the Sayer interests for obtaining finance. 44The value flowing to the Tomanovic interests under this document was considerably less than under the First Heads of Agreement, in several respects. First, the consideration of $5m payable under this document was less than the $6m under the earlier document. Second, the First Heads of Agreement included an indemnity against tax on that $6 m, but there was no corresponding provision in the Second Heads of Agreement. The value of the indemnity concerning tax could have been considerable (see [48] below). Third, the consideration was payable on less advantageous terms, because of the deferral of payment of $2m under (b) (iv) and (v). Further, the payment of $250,000 of it was dependent on a condition, under (b) (vi). Unlike the First Heads of Agreement, the Second Heads of Agreement made no provision for each side to procure releases for the other from any guarantees, or to provide indemnities concerning any guarantees. The document did not say expressly that the Sayer interests would transfer their interests in the Multiown companies to the Tomanovic interests, but that seems to have been what the parties contemplated. 45The amount of $100,000 contemplated by clause (ii) was duly paid to Mr Tomanovic on 27 November 2006. It was the last of the payments that made up the amount sued for in the Common Law Proceedings. 46Thereafter, Mr Mark Sellars assisted Mr Gunderson-Briggs in acting for the Sayer interests. Mr Geoff Ryan, Mr Tomanovic's accountant, was also involved in seeking to advance the transaction. 47Both sides seem to have expected settlement in a matter of weeks. Mr Sellars emailed Mr Angel on 24 November 2006 saying, "we are aiming to have formal documentation executed by 8 December. This will allow sufficient time for the various transfers and payments to be made prior to Christmas/New Year's break" . On 21 December 2006 Mr Tomanovic emailed Mr Gunderson-Briggs and Mr Sellars, saying "looks like we are not achieving as originally planned and agreed before Xmas finalisation of the final docs, as I have not seen any from your solicitors." Attempts to Identify the Transaction Structure 48On 8 December 2006 Mr Sellars emailed Mr Ryan, identifying the various entities in which the Sayer interests were proposing to acquire the rights of the Tomanovic interests. He continued: "The consideration payable will be $5,000,000 the payment schedule of which is 'loosely' detailed in the attached copy of the heads of agreement. I say loosely because we are prepared to be flexible on what the components of the end transaction are going to be (I note there is no flexibility on the payment dates) While our preference would be to simply purchase the direct interests in each of the above entities we note this could leave Zoltan in a position where he could conceivably loose [sic] 46.5% of the proceeds in tax. We are therefore open to suggestions as to how the transaction could be structured to achieve the best outcome for Zoltan. As we discussed Grant Thornton had not performed any detailed analysis of how tax leakage could be minimised as we have not been instructed to do so by our client. ... As a potential starting position for Zoltan we would be prepared to structure the transaction along the follows [sic] lines:
The Proposed St George Borrowing 70On 5 October 2007 Mr Adam Field, of Grant Thornton, received a copy of the terms on which St George Bank was prepared to make some financial accommodation available to Argyle HQ. Mr Field forwarded it to Mr Sellars, with a covering email that said: "Another hurdle for us is that Zoltan's & his company, are g'tors to this facility. What's do you think is prospect of him agreeing to this without an argument. All the more reason we need to revisit the Zoltan strategy & prepare an update of current situation for him. Can you pls draft some bullet points on the issues we should be rasing [sic] and the things that GMEC needs him to do to assist it given its current position, including loan account repayments etc." 71Mr Sellars replied to Mr Field on 5 October 2007: "Seems like there are a few hurdles to overcome with St George, however that said it is promising to see that additional facilities are available. In respect of Zoltan, in absence of KJS being able to come up with money to fund the present agreement with Zoltan that deal is dead. In any event Zoltan appeared to be hanging out for a better deal and did not want to execute any documentation which reflected what was agreed about a year ago. Generally Zoltan will not do anything unless he sees a benefit in it for himself. If Zoltan could be shown there was a benefit in him agreeing to sign the St George docs then he would be very willingly [sic] to do so. This leaves us with three positions we can take. The first two, while achieving either a short term or long term objective for KJS, are in conflict when looked at in isolation. They are:
The Buyout Negotiations from October 2007 77On Mr Sayer's own evidence, his attitude to the buyout proposal changed around October 2007: "In or around October 2007, I was coming to the view that the price was no longer appropriate, in light of certain developments in the MHA Finance Business. These developments included the losses on the St Peters Development ... in 2006 and 2007, the MHA Finance Business not going as well in 2007, and subsequently the unfolding global financial crisis in 2008 which further reduced the value of the MHA Business. Zoltan seemed committed still to the retention of the sale price at $6 million." The St Peter's development there referred to was a property development that had been carried out by a company in which Mr Sayer, Mr Tomanovic and Mr Noel Dona were equal shareholders. It is common ground that Mr Sayer had caused some funds from the MHA finance business to be applied towards the St Peter's development. Mr Sayer's change of attitude is consistent with his being unable to "come up with the money to fund the present agreement with Zoltan" , with the result that "that deal is dead" ([71] above), and with his withdrawal of instructions from his advisers in October 2007. 78Mr Sayer was asked in cross-examination, with respect to the period September 2006 to October 2007: "Q. In order to pay Mr Tomanovic at that time were you prepared to liquidate assets? A. I don't think so." 79On 24 October 2007 Mr Tuite replied to Mr Sayer's solicitors' letter of 24 September 2007: "As you are aware, there has been protracted and costly negotiation in relation to this matter. Given that paper negotiations have been unsuccessful, we propose an urgent conference take place between the parties. We consider that the relevant topics for discussion include:
The Reinstatement Offers 132In the course of Mr Sayer's cross-examination on 9 February 2010, the second-last day of the hearing, he gave the following evidence: "Q. ...Can I take it you do not wish Mr Tomanovic to be reinstated as a director of GMEC at this point in time? A. I am more than happy for Zoltan to be reinstated. Q. You are more than happy for him to be reinstated? A. I think both Zoltan and I are very aware of directors' responsibilities. If Zoltan wanted to return as a director, he may do so. Q. That is not something you are just saying for the purpose of these proceedings? A. I don't have to. I just tell you the way it is." 133So far as the evidence disclosed, that was the first time he had indicated his preparedness to have Mr Tomanovic reinstated as a director of GMEC since the refusal to reinstate him at the general meeting in November 2008. There was no offer at that time to reinstate him as a director of the companies in the non-finance group. There was no attempt at the trial to make clear whether the expressed willingness to reinstate Mr Tomanovic extended to any company beyond GMEC. There was no attempt to put the offer to reinstate in any more formal way, such as by proffering an undertaking to the court. 134On the second and final day of the hearing of the appeal, counsel for the Sayer interests proffered to the court, over the objection of counsel for the Appellants that it amounted to giving fresh evidence without leave to do so, an undertaking in the following terms: "Mr Ken Sayer and One Australia Pty Ltd, through their counsel, undertake to the Court that (if requested by Mr Tomanovic in writing) they will cause or permit:
PART B - THE STATUTORY POWERS INVOKED 135Sections 232 and 233 Corporations Act appear in Part 2F.1 of that Act. Section 233 Corporations Act empowers the Court to "make any order under this section that it considers appropriate in relation to" a company, including (relevantly) that it be wound up or for the purchase of any shares by any member. Section 232 Corporations Act sets out the circumstances in which such an order can be made as (relevantly) if: "(a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) ... or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company." 136Section 53 Corporations Act provides that for the purpose of (amongst other sections) sections 232 and 233 the affairs of a body corporate include: "(a) the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as ... trustee), property (... including property held as ... trustee), liabilities (including ... liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; and (b) in the case of a body corporate (not being an authorised trustee corporation) that is a trustee (but without limiting the generality of paragraph (a))-matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust; and (c) the internal management and proceedings of the body; and ... (e) the ownership of shares in ... the body; and (f) the power of persons to exercise, or to control the exercise of, the rights to vote attached to shares in the body ...; and ... (h) the circumstances under which a person acquired or disposed of, or became entitled to acquire or dispose of, shares in ... the body; ..." 137There is no dispute that the Tomanovic interests, who were plaintiffs in the Equity Proceedings in the court below, had standing to apply for such an order concerning each of the companies to which the Equity Proceedings relate. 138It is possible for section 232(e) to be satisfied by any conduct that falls within that statutory description. The history of the development of the section is summarised by Young CJ in Eq (as his Honour then was), in Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359 at [321]-[346]. That history of development from eg section 186 Companies Act 1961 (which was triggered only if "the affairs of the company are being conducted in a manner oppressive to one or more of the members" ) shows an evident intention to confer on the court a wider jurisdiction than to relieve against conduct which is oppressive, simpliciter. It is, however, convenient to have a shorthand way of referring to any conduct that falls within para (e). I shall use "Oppressive" or "Oppression" to refer to such conduct. 139Another basis upon which the Court has power to order the winding up of a company is that established by section 461(1)(k) Corporations Act , namely that: "...the court is of opinion that it is just and equitable that the company be wound up." 140In the court below, the primary judge set out at [39]-[53] some principles by reference to which the court decides whether to grant a remedy under either section 233, or 461(1)(k). Neither party questions, on this appeal, any part of that statement of principle. In those circumstances it is unnecessary to set it out in full in this judgment. It is common ground that the three phrases, "oppressive, unfairly prejudicial, or unfairly discriminatory" are construed as "a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness" : Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 per Young J (as his Honour then was).
PART C - THE JUDGMENT BELOW CONCERNING OPPRESSION 141Early in his judgment, at [9], the judge said that he agreed with the overview submission of the Sayer interests that: "(a) the Heads of Agreement upon which the proposed separation of interests was based were never legally binding, whether by contract[,] estoppel or otherwise, and the proposal was subject to legal and accountancy advice; (b) the Sayer Interests generally acted in good faith in relation to the negotiations of the Heads of Agreement; (c) there is no basis for the invocation of the oppression remedy to impose on the Sayer Interests a compulsory buy-out, by reason only of the failure to consummate the separation of interests; (d) there is no basis for a finding of oppression in relation to the other miscellaneous allegations that were pressed at the trial; ..." 142In the court below both parties made submissions by grouping the Oppression claim into four categories, that the judge described as: "(a) failure of the Sayer interests to complete the separation of interests envisaged by the First Heads of Agreement (as amended by the Second Heads of Agreement) and the buy-out of the Tomanovic interests by the Sayer interests while excluding Mr Tomanovic from management; (b) diversion of money and assets of GMEC for the benefit of the Sayer interests; (c) reduction in equity in Argyle HQ assets for the benefit of the Sayer interests, without the consent of Mr Tomanovic, and unauthorised assumption [of] voting control of Argyle HQ; (d) oppressive conduct generally, including failure to make books and records available, failure to provide information, failure to maintain books and records, failure to convene annual general meetings, failure to pay dividends to AFSC since December 2004, failure to reinstate Mr Tomanovic as a director, attempts to dilute the shareholdings of the Tomanovic interests, and a complete breakdown in the relationship between Mr Sayer and Mr Tomanovic." The judge followed that structure in his own judgment. 143I shall recount the judge's reasons only to the extent that they bear upon the grounds of appeal. In recounting the reasons, I shall use (as did the judge) headings related to the four categories of oppression by reference to which the submissions were made.
Failure to Complete Separation of Interests 144The structure and emphasis of the judgment below was strongly influenced by the way the Tomanovic interests put their case. At the forefront, they put the claim that one or other of the Heads of Agreement was legally binding. The judge first dealt with the various actions that had been performed, on both sides, in anticipation of the buyout occurring, in the context of considering a submission that those actions resulted in the Sayer interests being estopped from denying that one or other of the Heads of Agreement was binding. Concerning the significance of Mr Tomanovic resigning in January 2005 as a director of the various companies in the non-finance companies, the judge rejected, at [131], the submission that the resignation was in reliance on the First Heads of Agreement (an impossible submission, when the First Heads of Agreement were not entered until March 2005). The judge also there found that Mr Tomanovic could not have believed the Kirribilli Agreement was legally binding, and "... the resignation was not a material source of detriment, in that it did not have any practical effect on the operations of the Mortgage House group (or Mr Tomanovic's role within it). It is common ground that prior to these resignations in January 2005, Mr Tomanovic had already resigned his directorships in the finance companies in June 2003, there were no directors' meetings, Mr Sayer had the final say, and it was not Mr Sayer's practice to advise Mr Tomanovic in advance of proposed courses of action." 145It was also in the context of that estoppel allegation that the judge considered the significance of Mr Tomanovic not receiving his salary of $3,602.50 per week after mid-December 2004 (at [139]): "(i) the discontinuance of salary did not relevantly constitute an act of reliance by Mr Tomanovic: rather, it was a decision taken by Mr Sayer; (ii) the discontinuance preceded the execution of the First Heads of Agreement, and logically could not be consequential upon any mutual assumption that the First Heads of Agreement (entered into in late March 2005) was contractually binding; Mr Tomanovic conceded ... that he "played no active part in the finance group business since December 2004", and so the discontinuance of salary is consistent with the discontinuance of the provision of any service by Mr Tomanovic to the business. Moreover, it is common ground that Mr Tomanovic thereafter dedicated his efforts to the Multi-own business, and there is no obvious basis for the inference that he suffered financial detriment by dedicating his time to Multi-own." 146After finding that no estoppel had been established, the judge then dealt with a submission that there was oppression in the Sayer interests not buying the Tomanovic interests out even if the Heads of Agreement were neither contractually binding, nor binding through an estoppel. The judge dealt with that argument in two stages. The first stage involved concluding (at [143]): "(a) the statutory grounds for intervention under Part 2F.1 generally concern some element of unfairness in the conduct complained of; (b) if the Sayer Interests were neither contractually bound to acquire Mr Tomanovic's interests, nor estopped from denying they were so bound, there can be no basis for the Court to find any unfairness arising out of the failure to consummate the separation of interests. As counsel for the Sayer interests submitted, the Sayer interests are free to walk away from negotiations, or modify their position, at any time; and Mr Tomanovic may be bitterly disappointed that his ambitions for a sale were not realised, but such frustration does not equate with oppression. It is well established that the oppression remedy is not simply a 'free ticket' for a forced sale of an interest." 147The second stage involved the judge saying (at [144]): "To the extent that counsel for the Tomanovic interests might have had in mind the defeating of 'legitimate expectations', I agree with counsel for the Sayer interests that: (a) there is no basis for the finding that there was a 'legitimate expectation' at the time of the formation of their business arrangement in 1999, or the incorporation of GMEC that Sayer would buy-out Mr Tomanovic from the Mortgage House group (let alone buy him out on particular terms); and (b) there is no basis for the Court to make any finding to the effect that the mere fact of protracted negotiations generated a 'legitimate expectation' that the Sayer Interests would buy-out Mr Tomanovic on the particular terms of the Heads of Agreement (indeed, such a finding would be inconsistent with the findings that the Heads of Agreement were not legally binding)."
Diversion of Money and Assets (Appeal Ground 13) 148At the hearing below the Appellants relied on four types of alleged wrongful diversions of money and assets from GMEC as the basis of the second category of oppression. For the appeal they rely on only one. It (ground 13) relates to cash taken from the MHA business by Mr Sayer. The judge recorded, at [173], that there was no dispute that: "(a) In the ordinary course of its business, the MHA Finance Business received cash from time to time, relating to application fees for home loans; (b) There was a practice by which Ms Dye (on instructions from Mr Sayer) provided such cash to him; (c) There was no accounting by the MHA Finance Business for the cash paid to Mr Sayer in that manner." 149Ms Dye gave evidence, evidently accepted by the judge at [174], that she was involved in the accounting of the business in the period before July 2003, when GMEC became the holding company. Mr Derek Angel came to be in charge of accounts "in or around 2004" , and Mr Charles King was CFO from December 2006 to December 2007. There is no evidence of cash being received by the company and passed to Mr Sayer during the time Mr Angel and Mr King occupied their respective offices. 150There was a dispute about the amount of cash that was involved. Mr Sayer said that the amount of cash was of the order of $1,800 to $3,600 per annum. Ms Dye's evidence was that significantly more cash was involved, of the order of $10,000 to $18,000 per month. 151The judge noted that Ms Dye gave evidence that she did not think there was anything unusual at the time about Mr Sayer's receipt of cash, and noted that that gave rise to a suggestion that her present recollection may be faulty. He also noted that Ms Dye gave evidence in cross-examination that, at least on some occasions when cash came in, Mr Sayer would ask her to bank it. The judge concluded that, "her evidence is consistent with Sayer's assertion that he only received $1,800 to $3,600 per annum " (at [177]). 152There was also a conflict of evidence on whether Mr Sayer split the cash with Mr Tomanovic. Mr Sayer asserted he did, while Mr Tomanovic asserted he did not. The judge's conclusion on this matter (at [179]) was that the: "... state of the evidence does not permit me to resolve the question whether the money was shared with Mr Tomanovic. Plainly there was a practice of Mr Sayer taking cash deposits during a period up to some time in 2004, but it has not been established to my satisfaction that the amounts involved were large. The Sayer interests submitted that the practice of receiving and sharing cash payments without making appropriate accounting entries is irregular and improper. But [ at ] the question before me is not whether Mr Sayer has contravened the law, but rather whether he has caused the relevant companies to act unfairly or oppressively. Given the evidence [I have] accepted as to the state of accounts between Mr Sayer and [the] companies, indicating the extent to which he has funded them over the years, I would not regard the siphoning of relatively small amounts of cash as establishing an oppressive or unfairly prejudicial course of conduct [ is ] sufficient of itself to ground remedial orders." The square brackets indicate amendments I have made to the text of the judgment as published, to correct an evident lack of proofreading and insert what I take to be the intended sense of the judge's decision. The judgment was delivered on the last day of the judge's term of office. The judgment as handed down, and as contained in the appeal books, contained numerous proofreading errors, some of which have now been corrected in the version of the judgment now to be found in Caselaw. Some of those corrections are recognised in the list of amendments at the end of the Caselaw version of the judgment, some are not. I am in some doubt about whether the date "2004" in the second sentence I have quoted from [179] is another proofreading error, as the evidence that the judge accepted seems to lead to a conclusion that there was a practice of Mr Sayer taking cash deposits during a period up to some time in 2003. However, that doubt does not need to be resolved to dispose of the appeal. 153I take it that the reference to evidence as to the state of accounts as between Mr Sayer and the companies is a reference back to [16], where the judge said: "From 1999 the finance arm of the business has pursued a strategy of rapid growth, which has involved both the reinvestment of profits and the need to raise substantial additional capital and finance. According to Mr Sayer's evidence, the Sayer interests have born the overwhelming financial burden of supporting the operations and growth of the finance business (and see Mr Tomanovic in cross-examination at T 214). From 1999 the Sayer interests have advanced very substantial sums to the business and the Tomanovic interests have not made corresponding contributions. Mr Sayer asserts that the net level of funding provided by the Sayer interests was $3,035,764 in 2003, and as at 30 June 2009 the Sayer interests were owed over $4 million. That is generally supported by Mr Gunderson-Briggs' affidavit, at [43], and the audited GMEC accounts at 30 June 2008 .... Mr Sayer says that in addition to bearing the burden of direct funding, the Sayer interests have provided numerous guarantees to support financing and business operations, in circumstances where no corresponding guarantees were provided by the Tomanovic interests ..." 154The reference to Mr Tomanovic in cross-examination at T 214 is to a passage that includes: "Q You agree, don't you, that relative to you, you knew that Mr Sayer had invested more money into the company than you, or lent more money? A. Never been quantified, but I would say that was the understanding, yeah."
Increase in St George Bank Facility - (Appeal Ground 11) 155The particulars of oppression concerning Argyle HQ that the Tomanovic interests gave include the following: "A. In September/October 2007 mortgages over properties 9 and 15 Argyle Street (registered proprietor Argyle HQ as trustee of 9 Argyle Street Unit Trust, Sayer = sole director) with St George Bank are increased by $900,000.00 without Tomanovic's consent (Tomanovic, VT and AFSC = guarantors): (i) Tomanovic is requested to consent to increase and to sign documentation but refuses; (ii) increase proceeds anyway without Tomanovic's consent; (iii) $900,000.00 is advanced by St George Bank to Argyle HQ, then transferred to MHA; (iv) ultimately bulk of funds ($750,000.00) are used one year later in November 2008 to fund acquisition by One Australia of MBL's 10% shareholding in GMEC without Tomanovic's knowledge (also is breach of clause 3(g)(c)(ii) FHA)." 156The Sayer interests did not contest any of those facts. They contended that in the evaluation of the facts additional matters should be taken into account. The judge set those out seriatim at [184]: "(a) the Argyle Street Trust owned the Mortgage House business premises; (b) the 9 Argyle Street Trust procured a facility from St George Bank on 28 August 2003 for $4.9 million; (c) in October 2007, there was an extension of the facility to $5,749,000 (ie, an increase of $849,000); (d) at around the time of the increase in the facility, MHA had a critical shortage of working capital; (e) Mr Sayer first negotiated draft terms for an extension of the St George facility, on the basis that each of Mr Tomanovic and Mr Sayer would be co-guarantors; (f) Mr Sayer sought the agreement of Mr Tomanovic to the extension of the facility, explaining the criticality of obtaining additional funding; (g) in the course of cross-examination, Mr Tomanovic candidly acknowledged the business' need for cash, and the need to increase the facility (T242.41). Indeed, his recollection was that when Mr Tomanovic inquired of the CFO (Mr King) whether the increase in the facility was needed, King stated: "MHA needs money to pay many bills and to avoid trading while insolvent" (although King denies saying that). Notwithstanding the needs of the business, Mr Tomanovic refused to provide his consent to the extension, otherwise than on terms that Sayer cause all (or some) of the funds to payments to Mr Tomanovic; (h) Mr Sayer proceeded to secure the increase in the facility, without securing a guarantee from Mr Tomanovic for the increase; (i) The additional $900,000 funding was applied almost immediately to the MHA Business during the first months of the calendar year 2008, according to the evidence of the CFO, Mr King, and thereafter, the extension of the facility was used as an overdraft, and the balance fluctuated from time to time; (j) At the time the increase was obtained, Mr Sayer had no intention of using the facility to fund his purchase of MBL shares; (k) On 10 November 2008, a drawdown was made on the facility in the amount of $754,000 to fund the acquisition by One Australia of MBL's 10% shareholding in GMEC. The transaction was recorded as an advance to One Australia." 157At [185] the judge reproduced verbatim submissions of the Sayer interests as to why the obtaining of the facility from St George was not oppression: "(a) the increase in the facility was sought and procured for legitimate business purposes, entirely unrelated to the proposed purchase by One Australia of MBL's share of [GMEC]; (b) far from evidencing any oppressive preference for his own interests over the minority shareholders, the circumstances surrounding the procurement of the extension to the facility constitute a further example of Mr Sayer assuming disproportionate financial burden with respect to the operations of the MHA Finance Business. He alone incurred personal exposure in relation to the guarantee of the facility, in circumstances where the procurement of the extension was necessary for the conduct of the business; (c) it was not improper for Mr Sayer to proceed without the consent of Mr Tomanovic, in circumstances where Mr Tomanovic was not a director, the extension of the facility was necessary for the business, and Mr Tomanovic was opposing the extension only for the purpose of pressuring Sayer to cause payments to be made personally to Mr Tomanovic (and apparently without regard to the interests of the business)." 158The judge's decision concerning this aspect of the case was, at [186], "I agree with this reasoning" .
Drawdown of Facility by Argyle HQ to Purchase Macquarie Bank's Shares - (Appeal Ground 12) 159At [187] the judge reproduced, with deletion only of reference to the location of evidence, the submission of the Sayer interests: "As to the drawdown of $754,000 to make an advance to Ken Sayer Investments Pty Limited ATF Sayer Family Trust, which in turn on lent that money to One Australia: (a) at the time of the advance, Argyle HQ Pty Ltd (ATF 9 Argyle Street) was itself indebted to One Australia in the amount of $465,990.30; (b) at the time of the advance, the Sayer interests were very substantial net lenders to the MH Finance Business generally: as at 30 June 2008 the audited GMEC group accounts record the GMEC group as having a liability to Mr Sayer for $3,040,000.00 in respect of employment services; (c) as at 30 June 2008 Argyle HQ owed MHA $7,543,458 and GMEC $1,856,346, being a total amount of $9,399,804 owing from Argyle HQ to the GMEC Group; (d) as at 30 June 2008 the 9 Argyle Street Trust owed Argyle HQ $9,035,866; (e) in other words, to the extent that the loan from the 9 Argyle Street Trust to the Sayer Family Trust exceeded the loan from One Australia to the 9 Argyle Street Trust, that should be seen in the context of the 9 Argyle Street Trust owing $9,035,866 to Argyle HQ which in turn owed the GMEC group $9,399,804 which in turn had a liability to Sayer of $3,040,000.00; (f) the evidence clearly discloses that the companies in the MH group substantially conducted business as a single commercial entity; (g) in all the circumstances, the advance by Argyle HQ Pty Ltd of the sum of $754,000 was not unfair or oppressive." 160The judge's decision, at [188], was: "Once again, I agree with this reasoning, given the nature of this corporate group."
"Oppressive Conduct Generally" 161The judgment below from [216] to [226] is under the heading: "E Failure to reinstate Tomanovic as director of GMEC and finance group companies after exit of MBL in November 2008 - now no supervision of Sayer" 162That heading is taken directly from the Appellants' opening submissions below, as one of the items of "oppressive conduct generally" . It relates only to failure to reinstate Mr Tomanovic in the finance group companies in and after November 2008. So far as Mr Tomanovic's resignation from both the finance and the non-finance companies was relied on as a ground of oppression below, it had been as part of the first oppression ground. This ground concerned failure to complete the buyout, notwithstanding the fact that some steps were taken towards completing it. 163Concerning this topic, submissions and findings were made below by reference to the "legitimate expectations" of corporate shareholders. After referring to Mr Tomanovic's resignation of his directorships in GMEC and the finance group companies in around June 2003, and his not being reinstated after Macquarie had sold its stake in GMEC, the judge recorded at length ([217]-[225]) submissions made to him by the Sayer interests: "[217] The Sayer interests submit that failure to reinstate Mr Tomanovic is not oppressive, because Tomanovic has no legitimate expectation of reinstatement, for the reasons set out below. [218] Even at the inception of the business arrangement in around 1999, Mr Tomanovic had no legitimate expectation of an equal management role. Rather, it is common ground that the arrangement between Mr Tomanovic and Mr Sayer was that Mr Sayer would have the 'final say', as noted earlier. [219] Even if Mr Tomanovic had a legitimate expectation of being a director in around 1999, such an expectation would not be immutable. The non-fulfilment of expectations is not oppressive, if there are good reasons for their extinguishment. There are numerous good reasons for the extinguishment of any 'expectation' Mr Tomanovic may once have had to be a director. [220] First, as a matter of fact, Mr Tomanovic never played a significant management role in the MHA Finance Business. There is some dispute about the extent of Mr Tomanovic's role, but he does not dispute that the arrangement was that Mr Sayer had the 'final say'; that Mr Sayer was 'responsible for managing the key elements of the MHA Finance Business'; and that 'it was not [Mr Sayer's] general practice to seek the agreement of Mr Tomanovic (or advise him in advance) of proposals for future action in relation to the MHA Finance Business'. Senior employees affirm the absence of a significant management role of Mr Tomanovic: Derek Angel, the general manager, states in his first affidavit (at [44]) that as far as he was aware 'Tomanovic was not involved in the management of the MHA Finance Business'. Charles King, the CFO who was employed from the end of 2006, stated in his first affidavit (at [18]) he never took instructions from Mr Tomanovic, or observed him giving instructions to others. It is common ground that there was a practice of regular informal discussions between Mr Sayer and Mr Tomanovic in relation to the MHA business, and no formal directors' meetings. In circumstances where Mr Tomanovic acquiesced in the conduct of operations in which he had no significant management role, there is no basis for a continuing expectation of a directorship role. Any expectations with respect to involvement in the companies can be reasonably satisfied without directorship. [221] Second, Mr Tomanovic voluntarily resigned his directorships. There is no basis for the finding that the resignation was procured by unfair conduct by Sayer. The background to the resignation was that Macquarie Bank had expressed a preference for a management structure which excluded Mr Tomanovic from the board (according to affidavit evidence given by Mr Sayer and Mr Gunderson-Briggs). Mr Sayer did not consider that MHA was in any position to negotiate in relation to that preference. Mr Tomanovic contends that he resigned at Mr Sayer's request. Mr Sayer says he has no recollection of that request being made. However, he says, any such request was a necessary consequence of the position expressed by Macquarie Bank, for which Mr Sayer can not be blamed and in which Mr Tomanovic acquiesced. The fact that Mr Tomanovic voluntarily resigned extinguished any residual legitimate expectation to be appointed director. [222] Third, following the acquisition by Mr Sayer of the Macquarie Bank stake in GMEC, Mr Tomanovic no longer had an equal interest in GMEC to Mr Sayer, which further militates against a legitimate expectation of appointment to the Board. Mr Tomanovic cannot reasonably contend that the mere fact that Mr Sayer acquired Macquarie Bank's interest is itself a cause for complaint about the frustration of his legitimate expectations. Whatever was the relationship of the parties when they commenced their 'partnership' in 1999, the relationship ended and was replaced with a new shareholder relationship when the SPA was entered into and Macquarie Bank acquired an interest in GMEC. There was no partnership involving Macquarie Bank. The SPA expressly provided for the disposal of shareholdings, and created the obvious possibility that Macquarie Bank might subsequently dispose of its interests (in which case one or other or both of Mr Sayer and Mr Tomanovic would be reasonably foreseeable purchasers). It cannot reasonably be contended, in the submission of the Sayer interests, that the realisation of that clearly foreseeable consequence could be characterised as a frustration of Mr Tomanovic's 'legitimate expectations'. Further, Mr Tomanovic was given the opportunity to acquire Macquarie Bank's shareholding in GMEC, but declined the opportunity, according to Mr Sayer's evidence. [223] Fourth, since his resignation of directorships, Mr Tomanovic had caused Multi-own to establish a relationship with a company called Reismac for the provision to multi-owned entities of wholesale funding, for the purpose of providing finance to retail customers: T194.44. This is a business competitive with the MHA Retail Business. In those circumstances, there was scope for a conflict of interests if he were appointed a director. [224] Fifth, even if there were a frustration of a legitimate expectation of management (which the Sayer Interests deny), that does not ground a finding of oppression on these facts. The authorities make clear that it is not the mere exclusion from management which supports a finding of oppression; rather, it is the exclusion of [sic] management combined with the failure to make a reasonable offer to 'buy-out' the minority interest. On these facts 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. [225] Notwithstanding those matters, Mr Sayer gave sworn evidence that he is now willing consent to the appointment of Mr Tomanovic as a director." 164Every one of paras [218]-[225] of the judgment is, apart from removal of references to evidence and the occasional minor stylistic change, a verbatim reproduction of written submissions made by the Sayer interests. 165The judge's decision concerning those submissions was (at [226]): "This is a matter of some difficulty but in my view the basic components of the contentions of the Sayer interests are persuasive, assuming the factual basis for their contentions is correct. The proposition that Mr Tomanovic voluntarily left the board because of the attitude of Macquarie Bank is supported by the evidence of Mr Gunderson-Briggs, whom I regarded as an impressive witness. I am also influenced by the evidence at the trial concerning the management operations of the Group when both men were directors, the fact that the shareholding balance changed when Macquarie Bank sold out, and the fact that Mr Tomanovic is engaged in other ventures, particularly Multi-own. My conclusion is that no Part 2F.1 ground has been shown."
"Legitimate Expectation" 166At the outset, I should explain the term "legitimate expectation" . In O'Neill v Phillips [1999] 1 WLR 1092 Lord Hoffmann considered the application of the then English section that was broadly analogous to sections 232 and 233. The English section was not identical - it did not use the criterion of "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" , but rather a single criterion of "unfairly prejudicial to" . Earlier, in Re Posgate & Denby (Agencies) Ltd [1987] BCLC 8 as a first instance judge, then in Re Saul D Harrison & Sons Plc [1995] 1 BCLC 14 at 19 in the Court of Appeal, his Lordship had used the term "legitimate expectation" in connection with the oppression remedy. In O'Neill v Phillips at 1102 his Lordship said he had used "legitimate expectation" : "... as a label for the 'correlative right' to which a relationship between company members may give rise in a case when, on equitable principles, it would be regarded as unfair for a majority to exercise a power conferred upon them by the articles to the prejudice of another member. I gave as an example the standard case in which shareholders have entered into association upon the understanding that each of them who has ventured his capital will also participate in the management of the company. In such a case it will usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in the management without giving him the opportunity to remove his capital upon reasonable terms. The aggrieved member could be said to have had a 'legitimate expectation' that he would be able to participate in the management or withdraw from the company. It was probably a mistake to use this term, as it usually is when one introduces a new label to describe a concept which is already sufficiently defined in other terms. In saying that it was 'correlative' to the equitable restraint, I meant that it could exist only when equitable principles of the kind I have been describing would make it unfair for a party to exercise rights under the articles. It is a consequence, not a cause, of the equitable restraint. The concept of a legitimate expectation should not be allowed to lead a life of its own, capable of giving rise to equitable restraints in circumstances to which the traditional equitable principles have no application." 167Earlier, in O'Neill at 1101, his Lordship had agreed with the statement of Jonathan Parker J in Re Astec (BSR) Plc [1998] 2 BCLC 556 at 588 that: "... in order to give rise to an equitable constraint based on 'legitimate expectation' what is required is a personal relationship or personal dealings of some kind between the party seeking to exercise the legal right and the party seeking to restrain such exercise, such as will affect the conscience of the former." 168In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 this Court considered the role of "legitimate expectation" in the application of the statutory oppression remedy. Spigelman CJ said, at [62]: "I note that Lord Hoffmann, who originally introduced the terminology of 'legitimate expectation' into this area of discourse, has accepted that it is not appropriate: see Re a Company (No 00709 of 1992) ; O'Neill v Phillips , above, at 1102. The introduction of a word such as 'legitima te ' before a noun referring to an act or condition, is more a mode of expressing a conclusion than an independent criterion." 169Fitzgerald JA at [649]-[650] said: "The concept of 'legitimate expectation' seems to me unhelpful in this context. It tends to distract attention from the central issue, which (oversimplified) is whether or not oppression is established. Circumstances can make it oppressive for one party to use his or her legal power to the disadvantage of another. ... One of the disadvantages of the use of 'legitimate expectation' in this context is that it can lead, as it did in this case, to a debate concerning whether, and if so why, any legitimate expectation which had existed had come to an end. The issue seems to me always to remain whether, in all the circumstances including the conventional understanding on which the parties' relationship was based, conduct engaged in was oppressive. That requires consideration of all circumstances, including the material conduct of all parties, including the party alleging oppression." 170Priestley JA at [421] was only a little more forgiving: "It is a convenient shorthand term, so long as Lord Hoffmann's caveat about its proper significance is kept in mind, namely that it is a consequence not a cause of equitable restraint upon legal rights. It seems to me to be a useful label for describing the result of the way in which equitable considerations operate. It is difficult to find a short counterpart for it. I will therefore use it, as counsel did, in the sense defined by Lord Hoffmann." 171Some of the submissions of the parties below and on appeal, some of the grounds of appeal, and some of the findings of the judge, were cast in the language of "legitimate expectations" . That requires me to continue to use that language in this judgment. For the reasons given by Spigelman CJ and Fitzgerald JA in Fexuto v Bosnjak , I do so reluctantly. An additional reason for my reluctance is that one of the propositions of law that the primary judge set out, and that is not challenged in this appeal, is the statement said to be of Giles JA in Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; ( 2008) 66 ACSR 359 at [181], that unfairness for the purpose of section 232 is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair . " (In fact [181] was in the judgment of Basten JA.) Using the language of "legitimate expectations" might suggest, contrary to that proposition, that it is the subjective expectations of a party that are of importance for the Oppression remedy. It should not be thought that by using the term I am doing any other than referring to the benefits or practices concerning the operation of a company that fail to materialise when there is conduct that meets the description in section 232(e) Corporations Act .
Standard for Appellate Review 172A decision about whether any of the conduct identified in section 232(a)-(c) Corporations Act is "oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members" involves the making of a judgment by reference to an evaluative standard: cf Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 at 262, 279; Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [30]-[41] per Spigelman CJ; Certain Lloyds Underwriters v Giannopoulos [2009] NSWCA 56 at [89]-[111] per Campbell JA (with whom Giles and Ipp JJA agreed). The standard for appellate review is therefore that found in Warren v Coombes (1979) 142 CLR 531, and is not confined to the circumstances in which House v R (1936) 56 CLR 499 will permit an appeal court to reverse or alter a trial judge's decision.
The Grounds of Appeal 173The grounds of appeal that remain live in the Further Amended Notice of Appeal relating to the Oppression remedy are numbered 1 to 6, and 10 to 14. It is convenient to deal with those grounds in a different order to that in which they were presented, and to deal with some of them collectively.
Appeal Ground 2 174The Appellants criticised the first sentence of (b) of [143] of the judgment ([146] above). That criticism is the subject of ground 2 of the Amended Notice of Appeal. It provides: "The trial Judge erred in focussing on whether or not the Heads of Agreement as amended was or was not legally binding and enforceable; and in holding (Jmt [143]) that unless Sayer was bound to act in a particular manner, then there was no basis to find that the failure so to act could be unfair within Part 2F.1 of the Corporations Act 2001 (Cth)." 175As to the first part of this ground, the trial judge is hardly to be blamed for focusing on whether or not the Heads of Agreement were or were not legally binding and enforceable, when that was the contention at the forefront of the Appellants' case below. 176The second part of this ground correctly identifies an error in the judgment. It is perfectly possible for there to be the type of commercial unfairness that generates a remedy under section 233 even if no breach of contract is involved, and even if there is no departure from a position to which a party is bound by an estoppel: see Fexuto v Bosnjak at [4] per Spigelman CJ ( "... the jurisdiction should not be confined by technical distinctions..." ), O'Neill v Phillips at 1098-1101. As Lord Hoffmann said in O'Neill , at 1098, the legislative history of the corresponding English provision shows that Parliament "chose this concept [of unfairly prejudicial] to free the court from technical considerations of legal right and to confer a wide power to do what appeared just and equitable" , where that notion of "just and equitable" must itself be guided by principle. His Lordship recognised, at 1099, that "unfairness may consist in a breach of the rules" (by which he meant the articles of association or collateral agreements between the shareholders) "or in using the rules in a manner which equity would regard as contrary to good faith" . He also recognised, at 1101, that it was incorrect "that exercising rights in breach of some promise or undertaking is the only form of conduct which will be regarded as unfair for the purposes of s 459." He recognised, at 1099-1100, that "the notion of fairness in s 459 does not mean that conduct will not be unfair unless it would have justified an order to wind up the company" . 177It is not necessary to consider in any detail whether Lord Hoffmann has here stated the full extent of the circumstances in which section 233 can apply. The (correctly) agreed basis upon which this appeal is being conducted, namely that Oppression is commercial unfairness, suggests that his Lordship's concentration on "just and equitable" , and how the equity court would regard the conduct in question, unduly narrows the section. Indeed, it would be very strange if Parliament had enacted the provision, using language different to that in which equitable principles are expressed, but for the section to be construed as though it was nothing more than familiar old equity, dressed up in new clothes. Situations concerning which a court of equity would provide a remedy may well provide a significant sub-class of situations where Oppression is established, but cannot be assumed to exhaust the scope of the term. 178An evident concern of Lord Hoffmann was to identify a basis of principle upon which the norm of behaviour that the section imposed could be applied. However in other situations where a statute has given a court power to enforce a broadly worded norm of behaviour, the words stating the norm are construed, like any legislation, beginning with the text itself, with reference if necessary to context and surrounding circumstances. Examples of such situations include "conduct that is in all the circumstances, unconscionable" in section 51AC Trade Practices Act 1974 (Cth), "conduct that is misleading or deceptive" in section 52 Trade Practices Act , "unjust in the circumstances relating to contract at the time it was made" in section 7 Contracts Review Act 1980 , concerning which "unjust" is defined in section 6 to include "unconscionable, harsh or oppressive" : Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at [47], [51]. Relevantly for present purposes, the words of the text are not confined by reference to categories created by existing case law. However, Lord Hoffmann's statements show that it is incorrect to say that if there is neither a contract nor an estoppel then there cannot be the type of unfairness that attracts section 233. 179In my view, the error identified in Appeal Ground 2 vitiates the reasoning below concerning Oppression. The judge's finding at [144] (b) that the mere fact of protracted negotiations did not generate a legitimate expectation that the Sayer interests would buy out Mr Tomanovic on the terms of the Heads of Agreement and that "such a finding would be inconsistent with the findings that the Heads of Agreement were not legally binding" illustrates the extent to which the judgment was influenced by the error identified in Appeal Ground 2. 180However, this error does not suffice to show that the conclusion at which the judge arrived was incorrect. Deciding whether the judge's conclusion was wrong will involve consideration of some of the other grounds of appeal, and this Court making its own assessment of whether Oppression is made out. 181Both parties accept that if the Court were to decide to set aside the judgment below, it had power to resolve the matter for itself, rather than involve the parties in a new trial. Given the significant time, cost and effort that would be involved in a new trial, it is desirable for this Court to resolve the matter if at all possible.
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.
Appeal Grounds 4, 5 and 6 260Appeal grounds 4 to 6 inclusive allege error in paras [221] and [222] and [224] of the judgment below. Those paras of the judgment are set out at [163] above. 261Appeal ground 4 alleges that the judge erred in finding, at [221], that the fact that Mr Tomanovic voluntarily resigned his directorships to meet the requirements of Macquarie Bank during its shareholding "extinguished any residual legitimate expectation to be appointed a director". 262Ground 5 alleges that the judge erred in finding, at [222], that after the sale by Macquarie Bank of its shareholding to Sayers' company, (using funds drawn down from an external financier by group companies) as "[Mr Tomanovic] no longer held an equal interest, he no longer had a legitimate expectation of appointment to the Board" . 263Ground 6 in the Amended Notice of Appeal contends that the judge erred in finding, at [224] that: "... exclusion from management had been 'eliminated' as a ground of oppression by 'two concrete and unimpeachably reasonable offers to effect a buy-out as envisaged by the Second Heads of Agreement' without identifying those offers, without considering the Appellants' submissions and without exposing his reasons." 264In considering Grounds of Appeal 4, 5 and 6, there is a preliminary question about whether the judge really made a finding in the terms of paras [221], [222] and [224] respectively: that voluntary resignation of directorships had extinguished any legitimate expectation of Mr Tomanovic to be a director; that inequality of shareholding in GMEC by the time of the annual general meeting meant that Mr Tomanovic no longer had a legitimate expectation of appointment to the Board, and that exclusion from management had been eliminated as a ground of oppression by the two offers. For the reasons given at [240] above, I am not satisfied there was any such finding. 265Those matters create a significant difficulty in dealing with grounds 4, 5 and 6 in accordance with their terms. However, the aspects of the facts to which they refer fall within the more general terms of grounds 1 and 3. Thus, I have already dealt with the facts to which grounds 4, 5 and 6 refer in the context of grounds 1 and 3. Ground 6 - Inadequacy of Reasoning re Par a [224]? 266There is a specific challenge to the adequacy of the judge's reasoning process (as opposed to his findings) only in ground 6. 267The aspect of ground 6 that complains about the judge not identifying the two offers fails. The course of argument on the appeal made clear that there was no real doubt about what was intended by the trial judge's reference to "offers to effect a buy-out" at [224] - they were the two sets of draft documents submitted by the Sayer solicitors on 4 and 5 April 2007 (at [53] and [54] above), and on 24 September 2007 (at [68] above). 268In circumstances where I have already concluded (at [240] above) that the judge did not make a finding as to whether the April and September documents amount to reasonable offers and concluded that in any event Oppression is made out, it is unnecessary to deal further with this ground.
Grounds 11 and 12 269Ground 11 relies upon the increase in the St George Bank facility instigated in October 2007 as an element of Oppression. 270Though it was not withdrawn, virtually no attention was paid in submissions to this ground. In light of the judge's findings ([155]-[158] above), to the effect that the facility was obtained for the general purposes of the group, and promptly expended for the purposes of the group, no specific prejudice is shown to have flowed to the Tomanovic interests from it. In my view, the raising of the facility is relevant to Oppression only in that it provides an example of Mr Sayer running the group as his own. It adds nothing else of substance to other grounds that I have upheld. 271Ground 12 relies upon the drawdown on that facility in November 2008 for the purpose of the Sayer interests acquiring Macquarie Bank's shares as an element of Oppression. 272No submission is made that there was any unfairness connected with the pre-emptive rights process through which the Sayer interests gained a majority shareholding in GMEC, apart from the manner in which the purchase price was raised. Mr Tomanovic was given the opportunity to purchase the Macquarie shares, but did not avail himself of it. At the time that Mr Sayer made his offer to buy the Macquarie shares, namely 12 August 2008, there were no proposals for an extraordinary general meeting of the company, and he did not know that the Tomanovic interests would not take up their entitlement. 273In my view, the fact that the St George Bank facility of Argyle HQ was the source from which the Sayer interests obtained the purchase price to acquire Macquarie Bank's shares is, on balance, a contributor to the Oppression that has occurred. The state of the loan accounts between the Sayer interests and the corporate group (see [159] above) was that Argyle HQ was indebted to One Australia at the time in the amount of $465,990.30, and the whole of the drawdown of $754,500 was used for the purpose of buying the Macquarie Bank shares. Thus, $288,509.70 was, in effect, advanced by Argyle HQ to the Sayer interests to enable them to purchase the Macquarie Bank shares. Mr Muddle submits that, to the extent of that $288,509.70, the Sayer interests have used an asset in which the Tomanovic interests had, in commercial reality even if not in strict legal form, an equal interest with the Sayer interests, for a purpose ultimately harmful to the Tomanovic interests. The Appellants argue that this purpose was shown by the prompt use of the Macquarie shares to defeat the resolutions proposed by Mr Tomanovic at November 2008 meeting. 274Whether that submission is accepted depends on both the state of the loan accounts within the group, and the cash resources of the group. 275The principal, and perhaps the sole, activity of Argyle HQ Pty Ltd was to act as trustee of the 9 Argyle Street Trust. That Trust owed over $9m to Argyle HQ. It was in its capacity as trustee of that Trust that Argyle HQ owned the two buildings in Argyle Street, Parramatta. It was in its capacity as trustee of that Trust that Argyle HQ established the facility with St George that was eventually drawn upon. Thus, the payment of the remaining $288,509.70 of the borrowing could have been effected by, first, the Trust repaying its loan to Argyle HQ to the extent of $288,509.70. Argyle HQ owed the GMEC group over $9 m, and the GMEC group owed Mr Sayer over $3 m. Argyll HQ could then have repaid that amount of the loan to the GMEC group, which could have in turn repaid that amount of the loan it had from Mr Sayer, who could have in turn caused the money to be paid to One Australia, which then could have paid it to Macquarie. There is no basis in the evidence for believing that the inter-group loans were anything other than payable on demand. 276It might appear, from this analysis, that all that would have been necessary for the $288,509.70 to have been paid to the Sayer interests in a way that involved no impropriety was for a few extra cheques to be written to enable the funds to flow in the way I have outlined. If that were so, it could be argued that making the funds available to the Sayer interests did not contribute to any Oppression, because whether there has been Oppression is a matter of the substantial commercial realities of a situation, not of whether accounting proprieties have been observed. That is in substance the argument that the judge accepted ([160] above). 277However, writing the extra cheques that I have mentioned would result in the funds flowing only if those cheques would be met on presentation. It has not been established that it would have been possible for the cheques to be met, if they had been written. Indeed, it would be consistent with the evidence that the reason why the loan was obtained from St George is because the amount borrowed from St George was not available elsewhere in the group. When that is not a question that was specifically litigated I would not make a finding to that effect, but it suffices that it has not been established that it would have been possible for the $288,509.70 to be made available to the Sayer interests other than from funds in which the Tomanovic interests had, in commercial reality, a beneficial interest. In those circumstances, I regard the making available to the Sayer interests of the whole of the drawdown from the St George Bank as being a matter that contributes to the Oppression. However, I would have concluded that there was Oppression, without taking that factor into account.
Remaining Grounds of Appeal Re Oppression 278In my view, the remaining grounds of appeal relating to Oppression all fail. I shall deal with them briefly. Appeal Ground 3(b) 279A specific contention in ground 3(b) is that the judge failed to have regard or adequate regard to Mr Sayer "unilaterally withdrawing the final and binding documents to give effect to the Heads of Agreement as amended" . In my view the factual basis of this particular contention is not made out - there never were any "final and binding documents" to give effect to the Heads of Agreement as amended. The draft documents that were sent by the Sayer interests to the Tomanovic interests in April 2007 were not sent on the basis that they were final, but rather on the basis that they were drafts, on which comment from the Tomanovic side was invited. Likewise, the draft documents that were submitted in September 2007 were not submitted on the basis that they were final, but on a basis where queries or comments were requested. 280To the extent that ground 3(b) alludes to the circumstances of the negotiations ending, rather than to characterisation of the draft documents, the relevant matter is that while Mr Sayer withdrew his solicitors' instructions in October 2007, Mr Sayer continued to negotiate in person, though not with a view to a prompt settlement of the transaction envisaged by the September 2007 documents. The history does not bear out that he ever unilaterally withdrew from the negotiations, let alone withdrew final and binding documents. I would not uphold ground 3(b). Appeal Grounds 10 and 14 281The Appellants submit that the trial judge erred by considering seriatim the various matters alleged to be respects in which the conduct of the affairs of the company had been oppressive, deciding with respect to each that there had not been oppressive conduct, but failing to give separate consideration to whether the overall effect of all the conduct complained of, taken together, amounted to oppression. A specific complaint is that the judge failed to have regard to the combined effect of absence of compliance with proper procedures in issuing B class shares in some of the finance companies, and other matters complained of. 282The Respondents do not dispute the legal proposition that is inherent in these grounds of appeal, that various acts that individually do not meet the description laid down by section 232 might collectively meet that description. Rather, they point to various passages in the judgment, and submit that they show that the judge had considered the collective effect of the conduct complained of. They also submit that there is some implausibility in the proposition that a judge with the depth of experience in corporations law that his Honour has would have overlooked the need to consider the collective effect of the conduct complained of. 283The Respondents point to various passages where the judge refers to considering all the evidence. In his preliminary overview at [8] he said: "Now that I have had the chance to consider the evidence as a whole , I have reached the conclusion that there are no sufficient grounds under Part 2F.1 for any of the relief that the Tomanovic interests have sought. The accumulated evidence has persuaded me that they are unsuccessful on all counts." (emphasis added) At [182] the judge, when discussing the circumstances in which some B class shares had been issued to Mr Sayer in some of the companies in October 2003, in circumstances where correct procedures were not followed, said that that fact "would reinforce other evidence though probably not justifying an order of itself." At [201] the judge considered a contention that the failure of the Sayer interests to hold any annual general meetings in 2005, 2006 and 2007 was indicative of oppression. He said: "Refusal to convene shareholders' meetings is sometimes a very serious matter, when the evidence as a whole shows that the oppressing party is using the machinery of corporate governance to excluded [sic] a minority member from participating in corporate affairs, usually with some additional collateral motives. But that is not the present case. It seems to me that in this case contention about general meetings has arisen as a tool to promote the conflict that has emerged between Mr Tomanovic and Mr Sayer since December 2004. I do not regard the evidence before me as of any significance for making out a Part 2F.1 ground." (emphasis added) At [210] when considering the significance of an alleged inadequacy in maintenance of books and records, the judge said: "As with meetings, failure to keep proper books and records and financial statements can be a matter that the Court will regard very seriously. But in this case I am influenced by all four points made on behalf of the Sayer interests, and I would not regard such non-compliance as is shown by evidence as constituting a ground relief in the Part 2Ff.1 [sic], or as making any significant contribution to such a ground. " (emphasis added) At [232] when considering the effect of some changes made, before the incorporation of GMEC, in the shareholding records of companies operating the finance business, the judge said: "... t his matter is not of any significance for the purpose of assessing grounds under Part 2F.1". At [237], (quoted at para [290] below), the judge stated his conclusion "upon review of all the evidence" concerning the just and equitable ground. 284These passages make clear, in my view, that the judge was well aware of the need to consider the evidence as a whole, and stated that he had done so. 285We were not pointed to, and my own reading of the submissions below has not found, any specific submission made to the judge about a basis on which he might conclude that the conduct as a whole amounted to Oppression, even if none of its individual components was so classified. In my view, even though the judge's reasons were brief relating to taking into account all the evidence, that fact did not have the consequence that he had failed to deal with the case that the parties presented to him. Appeal Ground 13 286Even if one accepts that Mr Sayer was taking cash deposits up to some time in 2004, without making appropriate accounting entries, there is no evidence of that practice occurring after 2004. Section 232 is cast in the present tense - the relevant verb is "is" . The practice of which complaint is made had ceased at least four years before the Equity Proceeding were begun. The judge's finding that what was involved was "relatively small amounts of cash" is not appealed against. There might be situations where misappropriation of a company's assets, that occurred long before proceedings were commenced, but which has not been remedied, leaves the company in an altered condition to such an extent that at the time the proceedings are brought the conduct of the company's affairs is Oppressive to one or more members. In Campbell v Backoffice Investments Pty Ltd in the High Court, Gummow, Hayne, Heydon and Kiefel JJ at [182] observed that "the current form of the oppression provisions in Pt 2F.1 was introduced with a view to making it clear that the Court may make orders even if the act, omission or conduct complained of has yet to occur, or has ceased". While the taking of the cash without appropriate accounting entries is undoubtedly irregular and improper, for it to be "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" Mr Tomanovic, it would need to be an impropriety of which he was not an equal (or perhaps substantial) beneficiary. He has failed to satisfy the judge on that topic. I would not uphold ground 13. 287The Respondents filed a Notice of Contention providing additional reasons why, in their submission, Mr Sayer's receipt of cash did not amount to or contribute to a finding of Oppression. In light of the conclusions to which I have come, it is unnecessary to consider those submissions.
PART E - THE WINDING UP REMEDY 288In a summary of conclusions early in the judgment the primary judge said at [9]: "(e) there is also no basis for winding up on the just and equitable grounds arising merely from the failure to consummate the separation of interests, and no basis for a finding that there is a justified lack of confidence in Mr Sayer's management of the business; (f) another factor weighing against the making of a winding up order is that the relief would likely compromise the business as a going concern and cause a very substantial loss of shareholder value." 289The primary judge's statement of legal principles, not challenged on this appeal, recognised that winding up is a remedy of last resort so far as the oppression ground for relief is concerned, and one which ought not be granted if some less drastic remedy for Oppression is available and appropriate. 290The judge turned to consider the application of the principles concerning winding up on the just and equitable ground only after he had dealt with whether either of the Heads of Agreement were legally enforceable and he had dealt with the Oppression claim. The totality of the reasoning directed particularly to the application of principles concerning the just and equitable ground was: "234 'Lack of trust' or 'breakdown' is not a ground of oppression. This allegation is presumably an invocation of the 'just and equitable' ground for winding up. 235 One only has to observe the serious and personal nature of the allegations that the Tomanovic interests have made against the Sayer interests, and (to a lesser extent) the Sayer interests have made against the Tomanovic interests, to realise 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. 236 But this is a case where one needs to be cautious about the conclusions to draw from the obvious breakdown in the shareholder relationship at a personal level. First, the breakdown in the relationship has apparently not prevented the business interests associated with Mr Sayer and Mr Tomanovic from co-operating. It appears that the MH group and Multi-own continue to refer work to each other. More importantly, the breakdown in the personal relationship does not appear to have had any significant effect on the business of the MH group in a managerial sense. Because Mr Sayer was already in managerial control of the business before difficulties occurred, he has been able to continue on in much the same fashion. There is no deadlock as Mr Sayer controls 55% of the company. It appears that the business has been operated successfully (subject to the vicissitudes of the credit market) for over 5 years since Mr Tomanovic withdrew from active participation. 237 I have reached the reasonably firm view that grounds for relief under Part 2F.1 have not been established. There remains the question whether the Court should make a winding up order on the just and equitable ground in s 461(1)(k). The possibility that I might do so was very much on my mind during the trial. But I have concluded upon review of all the evidence that the plaintiffs' case in the two equity proceedings is not factually strong. And having considered the submissions of the parties, I have decided that it would be unwise to order the winding up of the viable and now reasonably long-standing business, in circumstances where the breakdown in the shareholder relationship is not materially frustrating the commercially viable and sensible operations of the company." 291For the purposes of the appeal, the Appellants do not contest the proposition that: "The winding up GMEC (or other companies in the GMEC group) would cause or facilitate the extinguishment of the rights or practices which sustain the elements described in paragraph 474 of the affidavit of Ken Sayer sworn 7 August 2009." 292In that paragraph of his affidavit, Mr Sayer had deposed: "The conduct of the MHA Finance Business as a going concern (and the generation of sustainable income from that business) depends upon the following elements: (a) The continued operation of the Macquarie Wholesale Funding Arrangements (referred to in paragraph 136 above), and the CBA Wholesale Funding Arrangements (referred to in paragraph 229 above). These provide the source of wholesale funds, which are essential for the conduct of on-lending to customers of the MHA Finance Business; (b) Further, the currency of the Macquarie Wholesale Funding Arrangements is necessary for the continued right to earn trailing commission in relation to loans written pursuant to those arrangements; (c) The existence of a working capital facility with the CBA presently in the amount of $7.9 million, which is necessary for supporting the costs of running the MHA Finance Business. The CBA Facility is secured by a series of fixed and floating charges over various entities which are relevant to the operation and conduct of the MHA Finance Business as follows: (i) GMEC; (ii) MHA; (iii) MH Broker; (iv) Paladin Wholesale; (v) Mortgage Loan Company; (vi) Direct Mortgage Solutions ... (d) The maintenance of various regulatory approvals for the conduct of the MHA Finance Business, the most important of which is the Australian Financial Services Licence from the ASIC to Paladin Process ... This licence is required to permit and enable the management and operation of the CBA Wholesale Funding Arrangements; (e) The maintenance of accreditation with lenders pursuant to mortgage origination deeds, relevant to the right to introduce customers to those lenders for the purpose of the lender providing a home loan. This is essential for aspects of the operation of 'mortgage broking' (as described in paragraph 9 to 12 above). Entities conducting the MHA Finance Business which have obtained accreditation include: (i) MHA pursuant to the mortgage origination deed between MHA, Perpetual Trustees Company Limited ACN 000 001 007 in its capacity as trustee of Fidelity Mortgage Trusts and Resimac Limited ACN 002 997 935 ... (ii) Array Home Loans Pty Limited (now known as Mortgage House Broker Services Pty Limited ACN 096 357 596) (' Array' ) pursuant to the mortgage origination deed between Array and St George Bank Limited ACN 055 513 070 dated 8 June 2001 ... (iii) MHA pursuant to the broker agreement between MHA and Westpac Banking Corporation ACN 007 457 141 dated 29 March 2007 ... (iv) MHA pursuant to the commercial origination agreement between Australia and New Zealand Banking Group Limited ACN 005 357 522 and MHA dated 25 July 2005 ... (f) The right to use the 'Mortgage House' trademarks, in respect of which goodwill has developed in a manner which facilitates the generation of new business. As noted in paragraph 118 above, my company KSIPL, in its own right, owns the 'Mortgage House' trademark. There is presently no formal agreement with respect to the licence of the 'Mortgage House' trademark by my company KSIPL to the GMEC Group, which would mandate the continued licence of the mark into the future. In other words, the GMEC Group has no legal right to use the mark for any fixed term into the future. The advertising and marketing expense of the GMEC Group (based on the 'Mortgage House' trademark) was for the years ended: (i) 30 June 2005 - $2,298,160.00; (ii) 30 June 2006 - $2,080,164.00; (iii) 30 June 2007 - $2,673,628.00; and (iv) 30 June 2008 - $747,987.00 (g) The maintenance of a branch network, through which Mortgage House-branded financial products are sold. The branches are operated by independent businesses, which split the income generated from branch with the MHA Finance Business. The relationship with the branches is governed by branch agreements. A copy of an example of which is entitled 'Business Partner Agreement' between MHA, MH Broker Services, Brokerage House Pty Ltd ACN 726 209 054 and Lee Anthony McIntyre (as guarantor) ... The operators who conduct the branch business are at liberty to terminate the Business Partner Agreement on giving 60 days notice without cause." 293Both sides in the appeal submit that, if the Court is faced with a choice between a compulsory buyout order and winding up on the just and equitable grounds, the compulsory buyout order would be preferable. 294In circumstances where I have concluded that Oppression is made out, and (as appears below) that a compulsory buyout order should be made, there is no reason not to act on that submission. The serious commercial detriment to the companies in the group that the parties agree would arise from a winding up order would in any event make the Court unwilling to follow a course as destructive as ordering the winding up of companies, if any other alternative were available. I will not order the winding up of the companies.
Remedy for Oppression 295The relief claimed by the Originating Process in each of the Equity Proceedings was an order that the shares of the Tomanovic Interests in GMEC and Argyle HQ be purchased by the Sayer Interests at their fair value, and that it be referred to an Associate Justice to determine that fair value taking into account the oppressive conduct. In my view, a buyout order is the preferable remedy. 296However, no submissions were directed to the way in which it was contended that the value of the shares had been affected by the conduct alleged to amount to Oppression. Undertaking a valuation on a counterfactual basis - ie assuming that conduct that has in fact taken place has not taken place - is a difficult process, and gives rise to problems about what should be assumed to be the state of affairs that existed instead of that conduct. In those circumstances, the basis of valuation should be the actual value of the shares bought. 297No submissions were made in the court below about the date as at which any such valuation should take place. On the appeal the Court sought submissions on that topic. Mr Muddle pointed out that the possible dates included the date of the start of the Oppression (which he contended was December 2004), and the date of filing of the initiating process, but left the fixing of a date for valuation entirely to the Court (including whether the question of the date for valuation should itself be left to an Associate Judge to determine). Mr Higgs proposed the date as at which the last accounts of the companies had been prepared. 298The High Court in Campbell v Backoffice Investments at [178] has made clear that the court has a wide discretion in fixing the date as at which the value of shares should be ascertained for the purpose of a buyout order. In my view it is preferable, on the facts of the present case, to fix a date that is comparatively recent. I recognise that this would have the effect that the Tomanovic interests received both the benefit and the disadvantage of the significant fluctuations that there have been in the mortgage business since 2004. However, no submission is put on their behalf as to why this is inappropriate. The Sayer Interests favour a more recent date of valuation (though it should be recognised that it is more a vote for a recent date than a reasoned submission) and it is often easier to conduct a valuation as at a comparatively recent date. For the want of any better reasoned suggestion, I would order the valuation to take place as at 30 June 2010. 299A complication in the granting of relief arises from the fact that the Multiown business was part of the joint enterprise between the Sayer interests and the Tomanovic interests. The original intention to separate their business interests was carried through in part, by the transfer of the Sayer interests' shares in the Multiown companies to the Tomanovic interests, and also by in some fashion the Sayer interests ceasing to hold units in the Multiown trusts. The structure of both the First Heads of Agreement and the Second Heads of Agreement was that the joint interests should be separated by the Tomanovic interests receiving the rights of the Sayer interests in the Multiown business, plus a top-up payment. If there were to be a buyout order that required the Sayer interests to purchase the shares of the Tomanovic interests in GMEC and Argyle HQ for 45% and 50% respectively of the net worth of those companies, without taking into account that the Tomanovic interests have already received the value of the interest in Multiown business that the Sayer interests formerly had, that would not, in the circumstances of the present case, be an order for transfer at a fair value. The fair value must take into account the value of the whole of the consideration that the Tomanovic interests receive. When they have received part of the consideration already, the fair value that the court should order be paid upon transfer of the shares should be 45% and 50% of the value of the respective companies, less the value of the Sayer interest in the Multiown business that the Tomanovic interests have already received. 300No attention was paid, at either the trial or on the argument of the appeal, to the way in which the available remedy for Oppression operated in relation to the units in the 9 Argyle Street Unit Trust. Even if the court were to make a buyout order concerning Argyle HQ, that would not have any effect on the beneficial ownership of the assets it held on trust - the beneficial ownership of those assets could be altered only if a buyout order were to be made concerning the units in the 9 Argyle Street Unit Trust. When the Trust has at all times been an important part of the overall commercial group, failure to deal with ownership of units in the Trust would result in any relief granted by the Court not totally resolving the commercial relations between the parties. 301There is a question about whether the court would have power to make an order requiring buyout of the interests in the Trust. Various cases seem to lead to the conclusion that there is no such power: Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Re Bountiful Pty Ltd (1994) 12 ACLC 902; Re Polyresins Pty Ltd [1999] 1 Qd R 599; Surf Road Nominees Pty Ltd v James [2004] NSWSC 61; McEwen v Combined Coast Cranes Pty Ltd [2002] NSWSC 1227; ( 2002) 44 ACSR 244. 302However, section 53 Corporations Act has a very wide definition of "affairs of a body corporate" , that extends to matters concerning trustees. It extends to "(a) ... business ... transactions and dealings (... as ... trustee), property (... held as ... trustee)." 303In Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428 Davies J at [63]-[69] was of the view that, by virtue of section 53, there was power to grant relief concerning assets that a corporate trustee held on trust. 304Vigliaroni has since been questioned in Trust Company Ltd v Noosa Venture 1 Pty Ltd [2010] NSWSC 1334 at [104]-[105]. 305After judgment had been reserved, further submissions were invited from the parties on that topic. The Respondents' submissions in response to that invitation objected to the matter being raised at this stage, when it was not part of the case of the Appellants at either the trial or on appeal. 306Once this objection is taken, it must be acceded to, as the Court is in no position to be satisfied that the availability of relief concerning the units in the Trust could not be affected by facts additional to those investigated at the trial. However, it is likely that it will still be necessary for some aspects of the dealings between the Trust and other corporate entities to be investigated as part of the process of valuing the shares in GMEC and Argyle HQ. 307When a buyout order is to be made, it will be necessary to return the matter to the Equity Division to enable the necessary valuations to take place. I would not make an order requiring the valuations to be carried out by an Associate Judge, as the parties should have the opportunity of deciding whether it would be preferable for the valuations to be carried out by an expert, or on a reference, rather than by an Associate Judge. 308It is appropriate for a stay of the judgment in the Common Law proceedings to be granted, prima facie until the determination of the valuation process and payment of any amount that the Sayer interests are required to pay to the Tomanovic interests following that process. However, liberty should be reserved to a judge of the Equity Division to vary or dissolve that stay.
Orders 309At the hearing of the appeal submissions about the type of orders that would be appropriate were made only at a level of broad principle. Uninstructed by any detailed submissions from counsel, the type of orders that presently seem appropriate to give effect to these reasons for judgment are:
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 May 2011
Tomanovic
Global Mortgage Equity Corporation Pty Ltd
[2009] VSC 428
(2009) 239 CLR 27
(2000) 200 CLR 270
(1991) 23 NSWLR 256
(2009) 238 CLR 304
(1936) 56 CLR 499
(1968) 120 CLR 603
(1994) 181 CLR 404
(1998) 192 CLR 285
(1979) 142 CLR 531
(1985) 180 CLR 459
[2009] HCA 41