Ubertini v Saeco International Group SpA

1 The first plaintiff, (Giorgio) Massimo Ubertini ("Ubertini"), arrived in Australia in 1989. After 4 years in Perth, he moved to Melbourne and started up a business importing coffee machines from Italy. The business was successful.

2 Ubertini involved others in the business, but predominantly maintained ownership, both directly and indirectly. Ubertini and the 2nd plaintiff, Ubertini Investments Pty Ltd ("Ubertini Investments") (collectively, "the Plaintiffs"), were the major shareholders of the company that ran the business; originally called CMS Coffee Machines Services Pty Ltd. This company changed its name to Saeco Australia Pty Ltd ("Saeco Australia") in January 2002. Saeco Australia is the 2nd defendant.

3 In mid 1996, Saeco Australia obtained exclusive selling rights in Australia of products manufactured by the 1st defendant, Saeco International Group SpA Societa A Socio Unico ("Saeco International"). At all relevant times, Saeco International was a multinational company. It sold coffee machines throughout many parts of the world. Its operations included selling its products to subsidiaries. The subsidiaries then sold the products to the local markets. Saeco International also owned subsidiaries by which it conducted different divisions of its business. One such subsidiary was Saeco Vending SpA ("Saeco Vending").

4 The success of Saeco Australia's business continued. So much so that, on 25 March 2002, Saeco International purchased 60 per cent of the total share capital of Saeco Australia from Ubertini and others for $2,429,397.[1] After this transaction Ubertini held approximately 18 per cent of the shares, and Ubertini Investments held approximately 17 per cent of the shares, in Saeco Australia.[2]

5 After Saeco International purchased its shares in Saeco Australia, it wanted Ubertini to remain as managing director. Ubertini agreed. However, by 2005 Ubertini had different ideas. He approached Saeco International stating that he and his wife wanted to return to his wife's home country of Canada. Ubertini expressed a desire to sell the Plaintiffs' shares and cease to be managing director.

6 In response, Saeco International said it was willing to purchase the shares. The basis of such a purchase was to be agreed in future discussions. In the meantime, Saeco International wanted Ubertini to continue as managing director for a transitional period. Again, Ubertini agreed.

7 Negotiations then ensued. For a while, the negotiations looked fruitful. However, they became drawn out. The relationship became strained. Conduct was engaged in by both camps to try and improve their respective negotiating positions. By August 2006, there was an impasse between the parties. By late October 2006 this impasse led to a falling out, in the sense that the negotiations between the parties ceased regarding the sale and purchase of the Plaintiffs' shares. The respective parties continued to escalate their commercial and legal tactics in order to seek to obtain their desired outcomes. Further, this proceeding was commenced on 26 October 2006.

8 The Plaintiffs seek relief under the Corporations Act 2001 (Cth) ("the Act"). They allege that the conduct of Saeco International, including its tactics of negotiation, was oppressive conduct.[3] The Plaintiffs identify 9 different courses of conduct in this regard. Saeco International makes allegations of oppressive conduct in relation to certain conduct of Ubertini (and effectively, therefore, Ubertini Investments). Saeco International identifies 5 different courses of conduct to support its position.

9 On 13 February 2007, by a contracted majority vote,[4] Saeco Australia was placed into administration by the directors of Saeco Australia nominated by Saeco International. Ubertini and another director not nominated by Saeco International voted against the resolution. The remaining director in attendance abstained. On 24 April 2007, Saeco Australia entered into a deed of company arrangement, by which Saeco International (through a subsidiary) acquired the business of Saeco Australia. The Plaintiffs, amongst others, remain minority shareholders of Saeco Australia. Save for any relief the Plaintiffs may obtain in this proceeding, their shares are now worthless.

(1) Whether Saeco International has engaged in oppressive conduct?

(2) If yes to (1), should Saeco International be required to acquire the shares of Ubertini and Ubertini Investments in Saeco Australia?

(3) Whether Ubertini has engaged in oppressive conduct?

(4) If yes to (3), should such conduct affect any entitlement of the Plaintiffs to obtain an order for the sale of their shares to Saeco International?

(5) In any event, whether Saeco Australia should be wound up?

Based on the reasons that follow, the answers to the questions are:

11 The parties agreed that if the court were to make findings in relation to issues (2), and (3) or (4) in favour of the Plaintiffs, and to find in the negative in relation to issue (5), then the proceeding would be the subject of a further hearing to determine the remaining issues in relation to any relief to be ordered in favour of the Plaintiffs.

12 It is not necessary to set out exhaustively the factual history of this proceeding. Many of the relevant facts are identified below in discussing the pleadings and in the determination of the issues in dispute. However, there are some critical background facts, including arrangements and agreements between the parties, that it is convenient to specify presently.

13 After Saeco International acquired 60 per cent of the total share capital of Saeco Australia, the agreement that Ubertini continue in his role as managing director of Saeco Australia was formalised. Saeco Australia and Ubertini entered into a document entitled "Executive Employment Agreement" ("the Employment Agreement") on 24 January 2003. The Employment Agreement was for a term of 3 years commencing 1 January 2003. Either party could terminate the Employment Agreement by giving the other party 6 months' written notice. The Employment Agreement also provided that Saeco Australia may elect to provide payment instead of the required notice, or a combination of notice and pay instead of notice.[5]

14 On 1 November 2003, Saeco Australia entered into an agreement ("the Brand Management Agreement") with another wholly owned subsidiary of Saeco International, namely Saeco Strategic Services Ltd ("Saeco Strategic Services"). Saeco Strategic Services was based in Ireland and was said to be the "Service Provider"; and Saeco Australia was referred to as the "Distributor". The term of the Brand Management Agreement was 5 years, commencing 1 July 2003. There was an option available for a further 5 years, apparently exercisable by either party.[6]

15 The purpose of the Brand Management Agreement was for Saeco Strategic Services to provide "all global brand management services" and the right to use the "Trademarks" as that term was defined.[7] Essentially, the trade marks the subject of the Brand Management Agreement were those referable to the coffee machines sold by Saeco International to Saeco Australia. Prior to the Brand Management Agreement, Saeco Australia was not required to pay a fee to use the trade marks.

16 The Brand Management Agreement also required Saeco Strategic Services to provide "the Services". The Services, which were extensive in number, were specified in an annexure to the Brand Management Agreement.

17 In return for the use of the "Trademarks" and the provision of the Services, Saeco Australia was required to pay 3.5 per cent of the value of the net sales of the previous trading year (exclusive of any value added tax payable on those sales).[8] Ubertini gave evidence, which I accept, that Saeco Australia agreed to sign the Brand Management Agreement on the express basis that there would be a 3.5 per cent discount given to Saeco Australia in respect of products purchased, to offset the cost of the payments due under the Brand Management Agreement. Ubertini also said Saeco International agreed that the trading terms of 150 days would remain if Saeco Australia executed the Brand Management Agreement.

18 The Brand Management Agreement could be terminated by Saeco Strategic Services in certain circumstances. These included if Saeco Australia was unable to pay its debts as and when they fell due.[9] Further, neither party was entitled to assign or transfer any rights arising under the Brand Management Agreement without the prior written consent of the other party.[10]

19 A price list issued shortly after the Brand Management Agreement was entered into corroborates Ubertini's evidence. On 1 January 2004, Saeco International sent a new price list for vending and other coffee machines. The covering letter sent to Saeco Australia stated the list had been approved by Saeco International. The list provided a 3.5 per cent discount in relation to all of the many products listed. However, after this price list was issued Saeco International failed to include such a discount. Saeco Australia did not receive any other discounts.[11]

20 On 28 November 2003, a shareholders' agreement was entered into between various parties, including Saeco International, Ubertini and Ubertini Investments ("the Shareholders' Agreement"). The remaining shareholders were also parties to the Shareholders' Agreement; namely, James Kremmer (approximately 2 per cent shareholding), Andrew Kremmer (approximately 1 per cent shareholding), Wayne White ("White") (approximately 1 per cent shareholding) and Pennidan Pty Ltd (approximately 1 per cent shareholding). The recitals record that the Shareholders' Agreement set out how the affairs of Saeco Australia would be conducted.

21 Each shareholder was required to do all acts and things as a shareholder to give full effect to the provisions of the Shareholders' Agreement.[12] It is only necessary to refer to a small number of clauses in the Shareholders' Agreement for the purposes of this proceeding.

22 There were particular limits upon the control that shareholders could exercise. Each shareholder was given the ability to appoint a director or directors, but such directors had specific and confined voting rights. Relevantly, Saeco International had the ability to appoint 2 directors, each to be called an "A" director. The Plaintiffs had the joint right to appoint 1 director, to be called a "B" director. For a quorum to exist at a board meeting, the 2 "A" directors and the "B" director were required to be present at all times.[13] A similar requirement existed in relation to a meeting of shareholders.[14]

23 The Shareholders' Agreement provided that there would be 100 votes at any board meeting. Of those, the "A" directors would have 60 votes. The "B" director would have 35 votes. The remaining directors, representing the remaining shareholders, had different voting rights which totalled 5 votes in all. Obviously, this guaranteed a majority to the "A" directors at any duly convened board meeting.

24 Each shareholder was required, by exercise of its "Shareholder Control",[15] to ensure that Saeco Australia carried on and conducted its business and affairs in a proper and efficient manner and for its own benefit.[16] A like obligation was imposed to ensure that Saeco Australia transacted its business on arm's length commercial terms.[17]

25 Both the Employment Agreement and the Shareholders' Agreement were governed by the laws of Victoria.

26 Up until May 2004, Saeco International was a publicly listed company. In May 2004, Saeco International was acquired by PAI Partners, a private equity group based in France ("PAI"). Upon PAI acquiring Saeco International, Nicholas De Gregorio ("De Gregorio") was appointed chief executive officer and president of Saeco International. Didier Schwartz ("Schwartz") was appointed as sales and marketing director. Luca Moroni ("Moroni") was appointed as the chief financial officer. Aldo Taddeo ("Taddeo") was appointed export commercial director.[18] Taddeo reported to Schwartz. Schwartz and Moroni reported to De Gregorio. De Gregorio and Schwartz were called to give evidence by Saeco International. Taddeo gave evidence as part of the Plaintiffs' case. Moroni was not called by any party.

27 From May 2004 onwards the management of Saeco International was monitored and directed to a substantial extent by its private equity owner, PAI. De Gregorio answered directly to PAI. Generally speaking, this resulted in a gradual change of attitude and approach of Saeco International to Saeco Australia and its business. When it was suggested to Ubertini that the relationship was never as warm as it had been after PAI became the owner of Saeco International, Ubertini responded that it was the opposite to warm, and over time became colder and colder. However, Ubertini said he still considered that Saeco International and Saeco Australia remained "partners".

28 On 26 July 2004, a written loan agreement was entered into between Saeco Australia and Ubertini Investments ("the Loan Agreement"). The Loan Agreement recorded that Ubertini Investments had previously granted loans of $1,570,035 to Saeco Australia and that the parties had agreed that those loans would be subject to the terms and conditions of the Loan Agreement. Effectively, the terms of the Loan Agreement recorded that the outstanding loans were repayable upon demand.[19] The Loan Agreement was prepared on instructions from Ubertini and executed without any involvement of Saeco International.

29 On 21 December 2004, De Gregorio and Schwartz were appointed by Saeco International as directors of Saeco Australia.

30 Taddeo was told that from 1 January 2005, his responsibilities would be expanded to include responsibility for Saeco Australia. But he was not involved directly with Saeco Australia until after June 2005.[20]

31 When Ubertini approached Saeco International in April 2005 and expressed his desire to sell his and Ubertini Investments' shares, it was a complete surprise to De Gregorio. De Gregorio said Saeco International had wanted to keep a local managing director in Australia who was familiar with the market and could run the business. There was no desire to remove Ubertini until well after Ubertini had enlivened the issue of his departure and the terms upon which he was willing to leave and sell the Plaintiffs' shares.

32 After the initial discussion, Ubertini wrote to De Gregorio on 22 April 2005 confirming he was willing to stay on for a further 12 months to assist the new manager to be nominated by De Gregorio to head Saeco Australia. Ubertini also offered to assist in a variety of other ways. With respect to the sale of shares, Ubertini invited De Gregorio to suggest "items which, to your judgment, may constitute the basis for a solid start of the discussion". Ubertini further stated that an accountant, Dr Pier Marcucci ("Marcucci"), was available to negotiate on Ubertini's behalf. Marcucci had attended a meeting on 6 April 2005 when Ubertini first raised the issue of selling the shares. Marcucci described himself as an accountant and a commercial economist.

33 Sometime before June 2005, Taddeo was told by Schwartz and De Gregorio that, because of the negotiation that was going on with Ubertini, the situation was delicate and they wanted to take care of the matter directly. Accordingly, Taddeo did not become involved with the business of Saeco Australia until after June 2005.

34 On 30 June 2005, a further meeting was held between De Gregorio, Ubertini and Marcucci. At this meeting it was agreed that Saeco International would purchase the Plaintiffs' shares on the basis of the EBITDA[21] for the year ending 31 March 2005. It was agreed the Plaintiffs would receive the proportion representing their shareholding of a figure to be calculated by multiplying 5 times the EBITDA for that trading period.

35 It was also agreed that the valuation method of Saeco Australia, using the calculation of 5 times EBITDA, would have the fees charged pursuant to the Brand Management Agreement added back into Saeco Australia's revenue for the purposes of ascertaining the earnings figure. De Gregorio said these fees were to be reinstated "to the benefit of [Saeco Australia]". Marcucci said this was De Gregorio's proposal; which appeared to reflect the cooperative nature of the discussions at that time.

36 There was a conflict in the evidence as to whether the agreement struck on 30 June 2005 was made subject to Saeco International being able to reduce the purchase price arrived at, based on the agreed calculation method, to take into account the outstanding debts of Saeco Australia. De Gregorio said this proviso was discussed perhaps in April 2005,[22] but certainly in June 2005. Ubertini said it was not. I prefer Ubertini's account for a number of reasons.

37 First, De Gregorio's account was not put to Ubertini in cross-examination. The cross-examination by Saeco International's senior counsel was detailed and thorough in its presentation.

38 Secondly, Ubertini's account is corroborated by Marcucci. Marcucci said it was proposed by De Gregorio, and then agreed, that the valuation was to occur on the basis of 5 times EBITDA, adding in the brand management fee to calculate the net profit. Although this account was put to Marcucci in a leading question in his evidence in chief, the question was not objected to and Marcucci was not the subject of any cross-examination.[23]

39 Thirdly, Ubertini's evidence is also corroborated by Taddeo. Taddeo said De Gregorio told him that De Gregorio had some kind of understanding or agreement with Ubertini that Ubertini would get a minimum of 5 times EBITDA. Taddeo also said such an understanding for the purchase of a subsidiary shareholding "was habit in the company".

40 Fourthly, Ubertini immediately went about retaining experts to make the calculation in accordance with his account of the discussions. The written report, dated 12 October 2005, provided by Grant Thornton included the following:

We understand following discussions with [Saeco International] that they are prepared to purchase your 36% shareholding based on a valuation of the shares in [Saeco Australia] equating to 5 times EBITDA at 31 March 2005. We note that the Brand Management Fee paid within the Saeco International Group is also to be an add back in terms of the EBITDA calculation. I note that the audited financial accounts for 31 March 2005 are a 15 month period and so these will have to be adjusted for a 12 month equivalent for the valuation calculation.

The calculation by the experts valued the Plaintiffs' shares on this basis at approximately $6.4 million. If it had been agreed that the debts of Saeco Australia were to be taken into account in some manner, it would be expected that Ubertini's instructions to the expert would have also incorporated this component, and the experts would not have purported to express a final figure on the relevant value without ascertaining and incorporating the relevant debts.[24]

41 Fifthly, Ubertini said that after the calculations had been completed later in 2005, he went to Italy in the belief he was going to collect his cheque based on the calculations of 5 times EBITDA. I accept this evidence. If there had been some other component to be taken into account before the final figure could be arrived at, it could be expected there would be some correspondence touching on the issue before Ubertini travelled to Italy. There was none. In this regard, I reject Saeco International's submission that De Gregorio's account is corroborated by objective evidence, namely documents in existence at the time. The documents referred to[25] relate to events in November and December 2005, and are entirely consistent with Ubertini's evidence of events in June 2005.

42 Sixthly, Ubertini said that he was shocked when, in late 2005, De Gregorio sought to introduce a new component to the basis upon which Saeco International would pay for the shares. Marcucci had a like reaction.[26] To reiterate, Marcucci's evidence was not the subject of any challenge by Saeco International. Further, contrary to Saeco International's submission, the fact that Ubertini did not seek to sue on the agreement as previously reached is entirely consistent with this reaction. Ubertini seeking to advance further negotiations in order to try and achieve a satisfactory outcome amicably does not logically undermine his version of events in mid 2005.

43 Finally, I accept the evidence of Marcucci, who explained the circumstances of the changed position of Saeco International. He said De Gregorio stated at a meeting in November 2005, also attended by Schwartz, and Ubertini and Marcucci, that Saeco Australia's profits had reduced from March 2005 to November 2005. Therefore, De Gregorio proposed a further meeting in the future to be held with Moroni to identify the criteria to value the shares. At the time, the proposed changes to the criteria were not identified.

44 During this discussion in November 2005, De Gregorio also stated that he wanted the Employment Agreement renewed on the same terms as had previously been agreed. On 29 November 2005, the Employment Agreement was renewed for a further 3 year term commencing 24 January 2006.

45 Marcucci said that, after the meeting in November 2005 with Ubertini, De Gregorio and Schwartz, he repeatedly tried to speak with Moroni. He said it was very difficult to make contact. Ultimately, a meeting was arranged in early December 2005 at Gaggio Montano, Bologna.

46 At this meeting, Moroni conveyed that Saeco International wanted the commercial debts of Saeco Australia subtracted from the result of the calculation of 5 times EBITDA. Marcucci said he was "really shocked" by Moroni's proposal. When this additional factor of the debts of Saeco Australia was incorporated into the valuation process, the Plaintiffs' shares were valued at "zero practically".

47 Marcucci said to Moroni such an approach was unacceptable. He told Ubertini of the proposed new criteria. Ubertini also said it was unacceptable.

48 Throughout 2006 negotiations ensued, further detail of which is referred to below. However, there is 1 matter that I refer to now.

49 As a result of Ubertini's proposal to sell the Plaintiffs' shares, Saeco International made inquiries about appointing a suitable replacement for Ubertini. They approached Christopher Egan ("Egan") through a global recruiting firm. This occurred in late 2005. Eventually, on 15 May 2006, Egan was appointed as a consultant to Saeco International with respect to its business in both Australia and New Zealand. This was done with the intention of Egan being appointed as managing director once a deal with Ubertini had been completed. Egan was a person with considerable involvement in business in Australia. Before being retained by Saeco International, Egan had gained experience in management, finance and marketing. However, he had no previous experience in the business of selling coffee machines.

B.7 Events after the commencement of this proceeding

50 The conduct of the negotiations, and in particular the inability of the parties to reach a satisfactory conclusion, gave rise to this proceeding being commenced in October 2006. At the first directions hearing on 10 November 2006, Saeco International stated unequivocally to the court that it intended to acquire the shares of the Plaintiffs. Upon completion of the directions hearing, orders were made by the court which included orders for a valuer to be appointed. Such an appointment occurred in November 2006.[27]

51 On 9 November 2006, Schwartz was replaced by Egan as an "A" director of Saeco Australia. Egan was still retained as a consultant of Saeco International and continued to act for Saeco International in relation to its issues with Saeco Australia. At around this time, Saeco International was seeking to have a board meeting of Saeco Australia. Because of the provisions of the Shareholders' Agreement, such a board meeting could not form a quorum unless the "B" director, Ubertini, attended. Ubertini put forward various reasons as to why he could not attend a board meeting. Eventually, Ubertini proposed a board meeting be convened on 13 February 2007. Saeco International expressed doubts about whether Ubertini would attend. Ultimately, this resulted in Saeco International approaching the court to seek orders allowing a board meeting to proceed without Ubertini's attendance.

52 On 9 February 2007, Ubertini gave an undertaking to the court that he would attend a board meeting scheduled to be held on 13 February 2007. A board meeting was duly held on that day. A tape recording of that board meeting was taken, which the parties accepted was accurate.[28] At the board meeting, the directors nominated by Saeco International (De Gregorio and Egan) used their voting majority to place Saeco Australia into administration and to appoint joint administrators ("the Administrators").

53 On 21 February 2007, Egan ceased to be a director of Saeco Australia. However, he continued to act as a consultant for Saeco International.

54 On 27 March 2007, the Administrators provided a report to creditors ("the Report to Creditors"). That report contained a recommendation that the return to creditors would be greater under a proposed deed of company arrangement put forward by Saeco International rather than in a liquidation scenario.[29]

55 On 24 April 2007, a deed of company arrangement ("the DOCA") was entered into between the Administrators, Saeco Australia, Saeco International and a wholly owned subsidiary of Saeco International, Saeco International Group (Australia) Pty Ltd ("the New Subsidiary"). Pursuant to the DOCA, the New Subsidiary acquired the business and assets of Saeco Australia.[30] Upon completion of the transfer, Saeco International agreed to reduce the amount of its "Admitted Claims" to a net asset value specified in a schedule to the DOCA.[31]

56 In relation to trade creditors other than Saeco International, it was agreed under the DOCA that they would be paid a dividend of 65 cents in the dollar up to a total of $1.3 million.[32] After this amount had been paid out, together with the other costs of the administration, the balance was to be paid to meet the "Admitted Claims" of Saeco International and its related entities.[33]

57 The sale of the business and assets of Saeco Australia to the New Subsidiary was completed on 1 May 2007. By that time, Egan had been appointed a director of the New Subsidiary.[34]

58 Prior to trial, the court ordered that pleadings be filed in this proceeding. The parties accepted that the trial was to be conducted on the pleadings. Consistent with this approach, on 2 occasions during the course of the trial, I allowed the Plaintiffs to amend their particulars of claim (which amendments included allegations previously pleaded by way of reply). The claims as made by the Plaintiffs are made in the Plaintiffs' 2nd further amended particulars of claim filed 11 September 2013 ("the Particulars of Claim"). In response, Saeco International filed an amended particulars of defence on 13 September 2013 ("the Defence"). The Plaintiffs also rely upon a reply filed 15 December 2010 ("the Reply").

59 A substantial part of the Particulars of Claim pleads background matters which pertain to the formal relationship and agreements between the Plaintiffs, Saeco Australia and Saeco International. As I have already set out the material aspects of this background, it is not necessary to refer expressly to those parts of the Particulars of Claim.

60 Further, not all of the claims made in the Particulars of Claim and the Defence were ultimately pursued by the parties.[35] I will confine my summary of the pleadings accordingly.

61 The first issue identified by the Plaintiffs was stated in the following terms:

Whether the charging of fees and demanding payment under the Brand Management Agreement by Saeco International's wholly owned subsidiary, Saeco Strategic Services, was contrary to s 232 of the Act.

62 The Plaintiffs allege that on 22 December 2006 Saeco Strategic Services, at the direction of Saeco International, demanded that Saeco Australia pay all moneys allegedly owing pursuant to the Brand Management Agreement by 12 January 2007. The demand was for Є1,166,771.48.[36]

63 In response, Saeco International admitted the demand was served by Saeco Strategic Services as alleged.[37] Accordingly, the only issue between the parties is whether or not the demand as made contravened s 232 of the Act.

64 The second issue referred to by the Plaintiffs was:

Whether Saeco International's non-supply of the new range of coffee machines was contrary to s 232 of the Act.

65 In paragraph 31 of the Particulars of Claim it is alleged that, from late 2005, despite requests by Ubertini on behalf of and in the interests of Saeco Australia, Saeco International refused to supply Saeco Australia with stock of a new range of Saeco products, or samples of that range, styled "Linea Primea" ("the New Range"). It is alleged this conduct was in breach of the "Supply Agreement"[38] and also in breach of the Shareholders' Agreement. The requests by Ubertini on behalf of Saeco Australia were alleged to be both oral and in writing and to have occurred from 10 March 2006 onwards. The last date given in the particulars of the requests is 11 January 2007.

66 The Particulars of Claim further allege that, from March 2006 until January 2007, concerns were expressed by Ubertini about Saeco International's conduct. These concerns included repeated complaints about the non-provision of samples for the New Range. It was alleged that despite these concerns, Saeco International, and the directors of Saeco Australia nominated by Saeco International, failed to address or remedy the matters raised.[39] It was alleged that each aspect of this conduct was contrary to s 232 of the Act.

67 With respect to the New Range, the Defence raises a number of matters in response.[40] Saeco International alleges the New Range was made available in Australia in or about June 2007.[41] It also alleges that samples of the New Range were forwarded to Saeco Australia on or about 27 November 2006. Further, it admits that Ubertini sought the New Range from early 2006, but alleges there were delays throughout the world in launching the New Range unconnected with events in Australia. Saeco International further alleges that it required Saeco Australia to provide marketing plans and budgets for the New Range, but that Ubertini caused Saeco Australia not to provide such marketing plans or budgets to Saeco International until 1 February 2007. Finally, and in any event, Saeco International alleges that any delay in the supply of the New Range was not in contravention of s 232 of the Act.

68 The third issue identified by the Plaintiffs was:

Whether Saeco International's failure or refusal to fill orders was contrary to s 232 of the Act.

69 In paragraph 30 of the Particulars of Claim it is alleged that, in breach of the Supply Agreement and also in breach of the Shareholders' Agreement, from about mid 2005, and again from mid 2006, Saeco International refused to fill Saeco Australia's orders for supply of Saeco products. The particulars to paragraph 30 refer to 2 letters written by Ubertini dated 3 March 2006 and 23 June 2006. Further correspondence is particularised later in the pleading to support an allegation that Ubertini notified his concerns to the Saeco International directors on Saeco Australia's board.[42]

70 It is then alleged that, with the knowledge of the matters Ubertini had communicated, Saeco International and its nominated directors failed to address or remedy the concerns. This failure is alleged to have constituted oppressive conduct.[43]

71 In response to these allegations, Saeco International alleges that in or about December 2005 Saeco Australia did not follow established ordering procedures for the supply of Saeco products. Saeco International also alleges that an order placed by Saeco Australia in or about February 2006 was inadvertently (and not deliberately) undersupplied, with the remainder of the stock supplied within a matter of weeks.[44]

72 Saeco International accepted that in 2006 and 2007 Ubertini did express concerns about Saeco International's conduct.[45]

73 The fourth issue pressed by the Plaintiffs was as follows:

Whether Saeco International's refusal to accept the return of 7 containers of stock, or to give a credit for that stock, was contrary to s 232 of the Act.

74 The Plaintiffs allege that, on or about 4 April 2006, Ubertini informed Saeco International that Saeco Australia was returning defective and unsaleable stock ("the Returned Stock"). It is alleged that Ubertini so informed Saeco International by way of a letter dated 4 April 2006,[46] with the relevant invoices attached in relation to the Returned Stock.[47] The Plaintiffs further allege that, in breach of the Supply Agreement and also the Shareholders' Agreement, on or about 29 August 2006 Saeco International refused to accept the Returned Stock, demanded payment by Saeco Australia of the invoices for the Returned Stock, and demanded Saeco Australia pay the storage costs that had been incurred.[48]

75 Again, the Plaintiffs allege Saeco International and its nominated directors on the Saeco Australia board were informed of the relevant matters and failed to act in response. This was also said to be oppressive conduct.[49]

76 In its Defence, Saeco International admitted that Ubertini informed Saeco International that Saeco Australia had returned the Returned Stock, and that Ubertini claimed by letter that the stock was defective or "not saleable because of technical problems resulting in lost clientele".[50] Saeco International alleges further that Ubertini had not obtained prior authorisation to return the Returned Stock. Saeco International also alleged the Returned Stock was not defective or unsaleable, and otherwise denied the allegations made.[51]

77 The fifth issue put forward by the Plaintiffs was:

Whether the demands by Saeco International, Saeco Vending (sic) and Saeco Strategic Services were contrary to s 232 of the Act.

This issue as identified overlaps with the first issue in relation to 1 of the demands made by Saeco Strategic Services. Accordingly, I will not repeat what I have said above.[52]

78 There were 3 demands made, 2 by Saeco Strategic Services and 1 by Saeco International ("the Demands").[53] The demand made by Saeco International ("the Principal Demand") was made pursuant to the Supply Agreement. That agreement was alleged by the Plaintiffs to be partly oral, partly written and partly to be implied. The terms of the Supply Agreement are alleged, relevantly, as follows:[54]

(1) Saeco Australia would order Saeco products from Saeco International.

(2) Saeco International would supply Saeco Australia with Saeco products pursuant to the orders received from Saeco Australia.

(3) Saeco International would invoice Saeco Australia for the Saeco products.

(4) Subject to (5) below, Saeco Australia would pay Saeco International, pursuant to the invoices issued by Saeco International, within 150 days of the date of invoice.

(5) Whenever Saeco Australia's working capital requirements demanded it, Saeco Australia could delay payment of the invoices issued by Saeco International for products supplied, such products constituting an advance of working capital by Saeco International.

The Plaintiffs alleged that between 2003 and 2006 Saeco International supplied Saeco Australia pursuant to these terms.[55]

79 It is then alleged that, in breach of the Supply Agreement, and also the Shareholders' Agreement, on 22 December 2006 Saeco International made the Principal Demand, namely that Saeco Australia pay all moneys owing in the amount of Є10,509,466.18 by 12 January 2007.[56] It is further alleged that, on the same day, at the direction of Saeco International, Saeco Strategic Services demanded Saeco Australia repay a loan in the sum of Є573,000 by 31 December 2006.[57]

80 Finally on this issue, it is alleged that on 22 January 2007, Egan, on behalf of Saeco International, sent an email to the board of Saeco Australia advising that he was concerned that Saeco Australia may not be able to repay its debts and that such an issue would be raised at the proposed directors' meeting on 13 February 2007.[58]

81 Saeco International denies the terms of the Supply Agreement as pleaded by the Plaintiffs. In stark contrast, Saeco International alleges that the terms of payment were 30 days (plus 10 days for netting).[59] Further, the Defence admits the Demands as alleged were made, but denies that the making of the Demands was oppressive. In addition, Saeco International alleges the following matters in response:[60]

(1) The Demands invited Saeco Australia to suggest a proposal for payment in the event that payment would not be made by the due date.

(2) The moneys the subject of the Demands were, in fact, overdue.

(3) No proposal for payment was ever received by Saeco International.

(4) Ubertini was informed on 22 December 2006 that the loan contract between Saeco Strategic Services and Saeco Australia was to mature on 31 December 2006 and that prompt payment was required on or by the due date. (In relation to the loan contract, this response effectively admits the facts pleaded by the Plaintiffs, but denies the conduct was oppressive.)

82 The sixth issue concerns the appointment of the Administrators to Saeco Australia. It is described as follows:

Whether resolving to appoint administrators to Saeco Australia and allowing Saeco International to obtain the full value of the Saeco Australia business without paying anything to the Plaintiffs was contrary to s 232 of the Act.

83 It is alleged that Egan, on behalf of Saeco International, requested a board meeting of Saeco Australia's directors for the purpose of proposing a resolution to put Saeco Australia into voluntary administration.[61] Reliance was also placed by the Plaintiffs on the email sent by Egan on 22 January 2007.[62]

84 Next, the Plaintiffs allege that, at the board meeting on 13 February 2007, Egan proposed that Saeco Australia be placed into voluntary administration on the basis that it was insolvent or likely to become insolvent in the future.[63] It is further alleged that another director of Saeco Australia, James Kremmer, proposed that the decision to place Saeco Australia into voluntary administration be deferred until after the next court hearing in this proceeding and/or after a response from Saeco International to implement a payment plan to be proposed by Saeco Australia.[64]

85 The Particulars of Claim allege that Egan and De Gregorio breached the Shareholders' Agreement by voting for the proposal to place Saeco Australia into voluntary administration and by appointing the Administrators.[65] It is further alleged that the appointment of Egan, by Saeco International, as a director of the board of Saeco Australia, was done for the purpose of placing Saeco Australia into voluntary administration, and was not for the benefit of Saeco Australia. This was supported by particulars which noted that Egan resigned from Saeco Australia's board shortly after Saeco Australia was placed into administration, namely on 21 February 2007.[66]

86 The Plaintiffs also rely upon events which occurred during the course of the administration as evidence of the intention of Saeco International at the time Saeco Australia was placed into administration. The Particulars of Claim allege[67] that subsequent to the administration, Saeco International, pursuant to the DOCA and through a wholly owned subsidiary (ie the New Subsidiary):

(1) Obtained the business conducted by Saeco Australia without paying the Plaintiffs anything for their shares.

(2) Disposed of the Returned Stock by selling it into the Turkish market (for which a credit, prior to the administration, would not be given by Saeco International to Saeco Australia and (presumably after the administration) the New Subsidiary).

(3) Received additional financial benefits by obtaining the stock of Saeco Australia at significantly discounted values and the book debts of Saeco Australia at values lower than their likely recovery.

87 By way of defence, Saeco International effectively admits Egan requested a meeting of the board of Saeco Australia on numerous occasions on and after 15 November 2006, and alleges that other directors had also made such requests since August 2006, but denies any purpose of proposing a resolution concerning voluntary administration of Saeco Australia.

88 In relation to events in 2007, there is little dispute on the pleadings as to what occurred prior to and at the meeting on 13 February 2007. However, it is denied that the relevant events constituted a breach of the Shareholders' Agreement or were oppressive conduct on the part of Saeco International or its nominated directors of Saeco Australia.

89 In relation to the allegations made concerning events after 13 February 2007, Saeco International admits it accepted benefits conferred pursuant to the DOCA in exchange for a promise by Saeco International to accept those benefits in full and final satisfaction and complete discharge of all "Claims" as defined in the DOCA. Saeco International alleges that the Returned Stock was sold by Saeco International into overseas markets, but that Saeco International received less than half the promised consideration for the Returned Stock.[68]

90 Saeco International further alleges that, subsequent to executing the DOCA, it wrote down in its own accounts the value of the asset comprising inventory sales to Saeco Australia by approximately a third.[69]

91 The seventh issue raised by the Plaintiffs concerns penalty interest. The issue is:

Whether claiming penalty interest in the administration of Saeco Australia was contrary to s 232 of the Act.

92 The Particulars of Claim allege that Saeco International paid the purchase price for the assets of Saeco Australia (pursuant to the DOCA) by reducing the debt owed to it by Saeco Australia. However, it is alleged that the debt the subject of the reduction was overstated. The debt included penalty interest. The Plaintiffs allege it was not company policy of Saeco International to charge penalty interest and that it had not been the subject of a claim for penalty interest by Saeco International until Saeco International lodged its claim in the administration of Saeco Australia.[70] By way of defence, Saeco International admitted that it made a claim for penalty interest in the sum of Є1,150,589.30. It further stated that it had a legal entitlement to charge penalty interest in relation to the unpaid debt owed to it by Saeco Australia.[71]

93 The eighth issue as identified by the Plaintiffs overlaps with the sixth issue. The issue is defined as follows:

Whether Saeco International adopted a course of conduct to remove Ubertini (and Ubertini Investments) and take his (their) interest in the Saeco Australia business.

94 This allegation concerns a period of time from September 2005 to February 2007. It is alleged Saeco International developed and adopted a deliberate course of conduct over that time to remove Ubertini as managing director of Saeco Australia, to obtain control of Saeco Australia and to obtain the Saeco Australia business without paying anything to the Plaintiffs for their shares.[72]

95 By way of defence, Saeco International alleges that on 4 August 2006 it offered to pay the Plaintiffs $2.5 million for the Plaintiffs' shares in Saeco Australia (to be paid in 2 instalments), together with a further potential payment of $250,000, subject to future performance hurdles. The offer also included a termination payment to each of Ubertini and his wife.[73] Saeco International further alleges that in October 2006 it remained prepared to compromise on terms no less favourable than the offer made on 4 August 2006. It otherwise denies the allegations.

96 The ninth issue concerns the conduct of the directors of Saeco Australia nominated by Saeco International. It was referred to as follows:

Whether Egan's and De Gregorio's conduct in failing to assist Saeco Australia and acquiescing in the conduct of Saeco International (identified in the previous issues) up to the time of administration, and then resolving to appoint administrators based on the effects of the identified conduct, was contrary to s 232 of the Act.

97 The Plaintiffs allege that the directors nominated by Saeco International omitted to address or remedy concerns of Saeco Australia and that such omissions, and further or alternatively their actions of resolving to appoint administrators, were oppressive, unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs.[74] Saeco International generally denied the conduct alleged, and denied any such conduct came within the conduct referred to in any of the paragraphs of s 232 of the Act. By this defence, Saeco International raised the issue of whether its conduct and any of the alleged omissions of the 2 directors nominated by Saeco International was conduct of any of them in the company affairs of Saeco Australia.

98 As noted above, in response to the Plaintiffs' allegations, Saeco International makes its own allegations of oppressive conduct against the Plaintiffs. The first such allegation was described as follows:

99 The Defence refers to the provision in the Shareholders' Agreement[75] which recorded that, for there to be a quorum at a directors' meeting of Saeco Australia, there must be a "B" director present at all times during the meeting. The Plaintiffs alone held the right to appoint the "B" director, who at all material times was Ubertini.[76] It is further alleged that on many occasions commencing (at the latest) in August 2006, and continuing until February 2007, Ubertini deliberately took steps which had the effect that a meeting of the board of directors of Saeco Australia could not occur.

100 In response, the Plaintiffs pleaded a series of events commencing 6 April 2005.[77] The Reply then continued:[78]

In those circumstances, the refusal of Ubertini to attend directors' meetings was the result of his belief that [Saeco International] wished to hold the meeting of directors for an improper purpose, namely to remove him from his position as managing director and take control of Saeco Australia, to his exclusion and to the detriment of Saeco Australia and/or the Plaintiffs, which belief was reasonable and accurate.

As can be seen, the Plaintiffs accepted there was a refusal on the part of Ubertini to attend board meetings; though, at trial, this was put on the basis that the refusal was only for some of the relevant period. It was further alleged that the non-attendance by Ubertini at formal directors' meetings did not adversely affect the operation of the business of Saeco Australia.

101 The second allegation made by Saeco International was as follows:

102 By way of 2 transfers on 5 February 2007 and 13 February 2007, a total of $5.6 million is alleged to have been transferred from Saeco Australia's bank account into an account styled "Ubertini Investments Pty Ltd". It is alleged this account was controlled by Ubertini. It is further alleged that the transfers were not authorised by Saeco Australia and there was no valid basis for those transfers.[79]

103 In response, the Plaintiffs admit the transfers occurred as alleged, but plead that those transfers were to a specific account set up for Saeco Australia. The Plaintiffs allege that the purpose of the transfers was to avoid $5.6 million being unilaterally applied by Saeco International for its own purposes. Finally in this regard, it is alleged by the Plaintiffs that the funds were returned, together with interest earned, on 19 March 2007. In the circumstances, it was pleaded that the transfers did not adversely affect the operation of Saeco Australia.[80]

104 The third issue identified by Saeco International was described as:

105 Broadly speaking, it is alleged that some time prior to February 2007 Saeco Australia, and a subsidiary company, Saeco South Australia Pty Ltd, paid "significant management fees" to a company related to Ubertini. It is alleged that, despite requests, Ubertini never provided a valid explanation for the payment of the management fees.[81]

106 It is further alleged by Saeco International that, without proper authorisation, Ubertini authorised, directed and/or procured the payment by Saeco Australia of a sum of $1.5 million to Ubertini Investments as trustee of the Ubertini Family Trust.[82]

107 No substantive pleading in response was provided to the allegations concerning the payment of management fees to the related company.[83] In response to the allegation concerning the payment of $1.5 million to Ubertini Investments, it was alleged that Saeco Australia was truly and justly indebted to Ubertini Investments for that amount and that the loan had been the subject of a written loan agreement (ie the Loan Agreement), which provided that the loan was repayable on demand.

108 The fourth issue raised by Saeco International was simply defined as:

109 In the Defence, Saeco International alleges that approximately $100,000 was paid improperly to a legal firm, Maddocks, by Saeco Australia in circumstances where Maddocks were acting for Ubertini both personally and for entities associated with Ubertini.[84] In addition, it is alleged that approximately $30,000 was paid to Grant Thornton by Saeco Australia notwithstanding Grant Thornton was acting for Ubertini and associated entities.

110 In relation to the fees paid to Maddocks, the Plaintiffs allege in response that those fees were the subject of a proceeding in the County Court which was settled on a confidential basis.[85] As to the Grant Thornton fees, it is alleged that they were also the subject of a legal proceeding. This proceeding is alleged to have been brought by the Administrators of Saeco Australia, and to have been resolved on the basis that Ubertini was released from all claims relating to payments to Grant Thornton.

111 The fifth issue raised by Saeco International is described as follows:

Debts to Saeco International and related entities.

112 This aspect of Saeco International's case was only pressed in relation to the allegations contained in paragraph 79 of the Defence. That paragraph alleges that, in the period commencing 2004 and continuing until February 2007, Ubertini deliberately chose to cause Saeco Australia to pay creditors of Saeco Australia other than Saeco International and its related entities in a timely manner, while at the same time not paying the debts to Saeco International in a timely manner.

113 In response, the Plaintiffs allege as follows:[86]

[I]n the period September 2005 to February 2007, [Saeco International] developed and adopted a deliberate course of conduct, to remove Ubertini as managing director of the company, to obtain control of Saeco Australia, and to obtain the Saeco Australia business without paying anything to the Plaintiffs for their shares in business (sic) conducted by Saeco Australia. Such conduct by [Saeco International] justified the non-payment by Saeco Australia of disputed [Saeco International] invoices, until the dispute between [Saeco International] and Saeco Australia concerning:

(a) those invoices; and

(b) the providing of a credit for returned defective stock,

had been resolved.

The conduct of [Saeco International], by its representative directors placing Saeco Australia into administration on 13 February 2007, prevented this from occurring.

Further allegations were made in the same paragraph of the Reply. These allegations are now, in substance, contained in the Particulars of Claim.[87] These further allegations are not pleaded as a basis to justify the Plaintiffs' conduct. They cannot properly be characterised as matters for reply. Accordingly, they need not be repeated here.

114 The Plaintiffs submit the 9 matters which they have raised, both individually and collectively, are evidence of oppressive conduct on the part of Saeco International. Presently, I will determine whether the facts as alleged have been established.

D.1.1 Claim under the Brand Management Agreement

115 As noted above,[88] the Brand Management Agreement imposed a fee of 3.5 per cent on net sales, but this agreement was entered into on the basis that a 3.5 per cent discount would be given to Saeco Australia to offset these fees. Self-evidently, the overall arrangement meant that Saeco Australia was to be subsidised for the cost imposed by reason of the Brand Management Agreement.

116 The evidence discloses that the Brand Management Agreement was not performed by Saeco Strategic Services in accordance with its terms almost from the outset. I have already referred to the fact that the relevant annexure to the Brand Management Agreement listed a large number of Services. The Services were to be performed so that Saeco Strategic Services would "manage and co-ordinate the worldwide advertising of the Trademarks". In this regard, the Services were as follows:

(1) Providing advice and assistance to advertising agencies for brand recitals, non-fictions, presentation.

(2) Work, with the advertising agencies, on the layout of advertising for storyboards, TV, radio and print.

(3) Work, with the advertising agencies, on the production of advertising (that is all investments for the creation of TV and radio adverts).

(7) Conducting work on product placement and cross marketing.

(10) Manag[ing] relationships with TV, radio and the press.

117 According to Ubertini, with the exception of item (5) concerning the overseeing of the website design, none of the Services were ever provided to Saeco Australia by Saeco Strategic Services (or anyone else on behalf of Saeco Strategic Services). No evidence was led by Saeco International to contradict this evidence. Saeco Strategic Services was based in Ireland. No one from that office was called to give evidence. Taddeo gave evidence that Moroni was the managing director of Saeco Strategic Services. As already noted, Moroni did not give evidence. Schwartz, the director of sales and marketing for Saeco International, simply did not know whether or not any of the Services referred to in the preceding paragraph were provided.

118 Additionally, the Brand Management Agreement required Saeco Strategic Services to "conduct market research in relation to [Saeco International's] products and marketing positioning in co-operation with prime advertising agencies". Saeco Strategic Services was also required to provide data from its market research. Ubertini gave evidence that this was not done and that Saeco Australia paid its own subscription for a market research report published in the industry.[89]

119 Another Service required to be provided by Saeco Strategic Services was the sponsoring of a cycling team in Australia, and other sponsorships, including of clubs and associations. Historically, Saeco International had sponsored a cycling team in January of each year which, according to Ubertini, provided "fantastic exposure". At the time the Brand Management Agreement was signed, the cycling team had come to Australia for the previous 3 or 4 years.

120 However, in January 2004, being the first January after the execution of the Brand Management Agreement, no cycling team was sponsored by Saeco Strategic Services. Ubertini said he understood the cycling team would still be coming to Australia at the time he agreed to the Brand Management Agreement, but that Saeco International "sold" the cycling team shortly thereafter. In short, no Services were provided by Saeco Strategic Services by way of sponsorship.

121 The final Service to be provided was headed "Exhibitions". This required Saeco Strategic Services to co-ordinate the participation of the Saeco group of companies in all major trade exhibitions worldwide. It seems some Services were provided in relation to this aspect of the Brand Management Agreement, but they were minimal. Schwartz was unable to give any evidence as to the Services provided concerning exhibitions. Saeco International led no evidence as to what Services were provided in this regard.

122 It is abundantly clear from what is set out above that there was almost a complete failure on the part of Saeco Strategic Services to provide the Services in accordance with the Brand Management Agreement. The failure to provide the Services occurred almost from the very outset. Certainly, Saeco Strategic Services could not justify the fee of 3.5 per cent of net sales based on this aspect of the Brand Management Agreement.

123 In addition to the Services, Saeco Strategic Services granted Saeco Australia the right to use the "Trademarks" and the use of the name "Saeco" in Saeco Australia's name. This part of the Brand Management Agreement was performed. However, there was no delineation between this aspect of the Brand Management Agreement and the provision of the Services, to provide a means by which to allocate what part of the 3.5 per cent fee was attributable to the different features of the Brand Management Agreement.

124 Another factor relevant to consideration of the fairness of Saeco Strategic Services making the demand on 22 December 2006, is the manner in which the fees were treated by the parties at a time when they were not at loggerheads. Not only was there an arrangement put in place at the time the Brand Management Agreement was entered into for Saeco Australia to receive a 3.5 per cent discount on prices charged by Saeco International, but accommodation was also made in favour of the Plaintiffs when discussions commenced on how the Plaintiffs were to be paid for their shares.

125 As noted above,[90] De Gregorio himself proposed that the 3.5 per cent fee not be taken into account adversely to any valuation of the shares in Saeco Australia. He said the agreement was that this fee would be treated as revenue of Saeco Australia, rather than as an expense. Perhaps this might be explained, at least in part, by reason that Saeco Australia already had the right to use the name "Saeco", and the relevant trade marks as part of its business,[91] before it signed the Brand Management Agreement, coupled with the fact that most of the Services were not provided.

126 There was no evidence explaining why De Gregorio took the approach that he did. In any event, it is plain that the parties did not consider the 3.5 per cent fee was an unconditional debt due and payable in the usual way.[92] There was conflicting evidence as to whether and, if so, to what extent the fee had been paid by Saeco Australia in the past. De Gregorio claimed that, although it was recorded in the accounts of Saeco Australia,[93] the brand management fee was not paid by Saeco Australia from the beginning. Contrastingly, Ubertini said Saeco Australia paid the fee until he realised Saeco Strategic Services was not honouring the Brand Management Agreement. This was said to be in 2004 or 2005. The Report to Creditors suggested the fee had not been paid since December 2004.[94]

127 Certainly, there was no evidence to suggest that the fee was paid beyond the period ended 31 March 2005. This becomes an issue in the context of the Plaintiffs alleging that the demand for payment made on 22 December 2006 was contrary to established business practices and was unreasonable.

128 It is also alleged that De Gregorio knew that there was a dispute between Saeco Australia and Saeco Strategic Services as to whether or not the Services had been provided, and, further, whether stock purchased by Saeco Australia from Saeco International ought to have had a 3.5 per cent discount. Both of these issues were said to give rise to De Gregorio knowing there was a dispute as to whether or not the sum demanded on 22 December 2006 was truly due and payable.

129 There was no letter from Saeco Australia or Ubertini specifically setting out the basis upon which Saeco Australia was declining to pay the brand management fee after 22 December 2006. But it is clear De Gregorio did know there was a dispute in relation to the sums claimed under the Brand Management Agreement.

130 On 19 January 2007, De Gregorio sent a letter to Ubertini specifically directed to whether fees were payable under the Brand Management Agreement as demanded by Saeco International. In so doing, he rejected accusations that had been made by Ubertini about "profit transfers to off-shore subsidiaries". Further, on 24 January 2007, Ubertini sent an email to Egan, which was copied to De Gregorio and the 3 other directors of Saeco Australia, which challenged Egan's inactivity as a director of Saeco Australia concerning various issues. One of the issues raised was the fees claimed by Saeco Strategic Services under the Brand Management Agreement. Ubertini alleged improper transferring of company profits overseas in circumstances where "no service at all" was being provided by Saeco Strategic Services (with the minor exception of provision of the so-called GFK reports).[95]

131 The dispute about the fees payable was specifically addressed in an email from Egan sent on 24 January 2007, again copied into De Gregorio and others. Egan expressed the view that the fees were payable, and also asserted that without the Brand Management Agreement Saeco Australia would have no rights to the brand or product. The previous email also formed part of this email chain.

132 On 3 February 2007, Ubertini sent a further email on this topic to Saeco International, copied to all Saeco Australia directors (ie including De Gregorio). That email stated that the issue of payments to Saeco Strategic Services was with "the legal people to decide what to do". Ubertini referred to "a legal and and (sic) fiscal issue" without elaborating as to the precise basis upon which payment was being withheld. An alternative put forward by Ubertini was to refer the matter to the tax department for advice as to the legitimacy of the fee, rather than wait for the Saeco Australia lawyers to provide advice. (I doubt whether the alternative proffered was a serious alternative. Ubertini said he was not intending to convey a threat.)

133 Saeco International submits that this allegation cannot be established as pleaded because there is no evidence that De Gregorio knew there was a dispute as to the payment. The correspondence referred to above suggests otherwise. Although there was no evidence about whether De Gregorio knew the extent to which Saeco Strategic Services was providing the Services,[96] there can be no doubt he knew there was a dispute as to whether the moneys claimed were owing.

134 Saeco International then submitted that the subsistence of such a dispute did not make it unfair to vote in favour of the appointment of administrators. This may be correct in that there were other bases upon which such a resolution might be justified (which I will consider below). Saeco International relied on the fact that the amount alleged to be due under the Brand Management Agreement as at 13 February 2007 was approximately Є1.3 million ($2.16 million), whereas the total debt claimed was well in excess of this.

135 However, insofar as the conduct of passing the resolution was sought to be justified based upon the demand under the Brand Management Agreement, that demand, and seeking to treat it as enforceable, would not justify voting in favour of the appointment of the Administrators. Equally, to the extent that De Gregorio relied upon the debt claimed pursuant to the Brand Management Agreement,[97] he knew or ought to have known the debt could not be a proper basis to justify the appointment. Indeed, if De Gregorio had been acting in the best interests of Saeco Australia, he would have been challenging this part of the debt claimed, rather than using it to support the resolution to put Saeco Australia into administration.

136 In the circumstances, Saeco International has not established that it can justify the appointment of the Administrators based on the alleged existence of any debt claimed by Saeco Strategic Services under the Brand Management Agreement. The demand made in this regard was opportunistic and contrary to the history of the arrangements under the Brand Management Agreement.

137 There was a large amount of evidence given in relation to this topic. Much of that evidence need not be traversed, as the key facts are largely uncontroversial. However, it is important to emphasise that the claim made by the Plaintiffs concerning the New Range was confined to the range "Linea Primea".[98] To the extent there was evidence concerning other new models, ie not in the Linea Primea range, not being supplied, any issue concerning those products was not the subject of any allegations made by the Plaintiffs.

138 In April and May 2006, there was the launch of the New Range. This first occurred in Germany. At the time the launch commenced, Saeco International believed the coffee machines comprising the New Range worked properly. There was also a full warehouse of the New Range available.

139 According to De Gregorio, the New Range was "quite revolutionary". From late 2005, Ubertini was keenly seeking samples of the New Range. In response, he had been informed by Saeco International that the New Range would be in full production by the end of January 2006, with the anticipated sale of the New Range commencing at the end of March or the beginning of April 2006. In correspondence in mid January 2006, Ubertini said he expected to "make a killing" with the New Range as soon as it was available.

140 On 20 January 2006, Taddeo sent an email to Ubertini on behalf of Saeco International. That email informed Ubertini that the New Range would be in production by the end of May or the beginning of June "to be in Australia for August and sell-out for you in September".

141 It appears there were some delays in the production of the New Range. This did not simply pertain to products destined for Australia, but was a general delay. (No production records were produced to the court by Saeco International. The evidence on this topic from Saeco International's witnesses was vague as to precisely when production runs were performed and product was available.) The delay caused Ubertini, in March 2006, to follow up the availability of samples of the New Range with Saeco International, as he wanted "to show our customers and prepare our launching campaign".

142 In any event, Taddeo gave evidence that by April or May 2006 the New Range was available for Australia. No evidence was led by Saeco International to challenge this evidence. It must follow from this availability that samples could have been sent to Australia at this point in time. So much is conceded by Saeco International.[99] However, no samples were sent. Further, the stock that had been manufactured for Saeco Australia was also not sent. Schwartz gave evidence that in the period of April and May 2006 he believed there were no problems with the New Range. He said there was no reason for the New Range not to be sent. Schwartz denied telling anyone not to send the New Range to Australia.

143 Taddeo gave evidence that he was involved in the decision not to send any of the New Range to Australia. He said he discussed the matter specifically with Schwartz. He also suggested that De Gregorio and Moroni were part of the discussions concerning this decision. According to Taddeo, Schwartz explained that the reason the New Range was not to be sent to Australia was because Saeco International could not give Ubertini an advantage by being put in a stronger negotiating position.

144 As things transpired, the initial launch of the New Range, which was in Germany, was a disaster. There was a fault with the New Range which required all the products to be recalled. As a result of these events, provision was made in the accounts of Saeco International in the tens of millions of euros.

145 It follows that there was a perfectly plausible explanation for Saeco International not forwarding the New Range after the "disaster" had occurred, and during the time it was being dealt with. However, these events did not explain why, at the very least, samples were not provided to Saeco Australia in the first place.

146 Saeco International sought to explain the non-supply of samples to Saeco Australia on the basis that there was a global launch plan and Australia was to be supplied later. There are at least 3 responses to this.

147 First, Saeco Australia had been promised samples at an earlier time. When they were requested, there was no suggestion from Saeco International that they would be delayed.

148 Secondly, even if, which I accept, the actual launch of the product was to occur in Europe before other parts of the world, there is simply no good reason why samples could not be provided once they were available. Indeed, if Saeco International were acting commercially and reasonably, it would be expected that the samples would be provided in a timely manner so that Saeco Australia could promote the New Range, obtain the necessary regulatory approvals, and also prepare budgets and forecasts based on the reaction to the New Range.

149 Thirdly, there is no contemporaneous communication with Saeco Australia providing the explanation now professed. In my view, the explanation given is an attempt to reconstruct events to justify Saeco International's less than forthcoming conduct at the time.

150 Even without Taddeo's evidence, the obvious inference to draw is that Saeco International did not want to supply the New Range to Saeco Australia until the negotiations had been completed in relation to the purchase price of the minority shares in Saeco Australia. If the New Range were to be provided and it had been immediately successful, this would be likely to have had the effect of increasing the price Saeco International would have to pay for Saeco Australia's shares. In any event, I accept that Taddeo was a truthful witness and his evidence ought to be accepted, unless contemporaneous documents demonstrated that he was mistaken. Given the serious attempt by Saeco International to undermine Taddeo's credit, I will elaborate on the basis for my conclusion as to Taddeo's reliability.

151 Saeco International referred to the fact that Taddeo was dismissed in 2007 by Saeco International on the grounds of misconduct. Without descending into too much detail, Taddeo was dismissed for allegedly obtaining sponsorship from subsidiaries of Saeco International without authorisation. The sponsorship was for a Ferrari motor car that Taddeo drove in racing events. Taddeo had already secured a major sponsor, but sought to supplement this sponsorship with money from Saeco International or its subsidiaries. The relevant circumstances, briefly, were as follows.

152 In approximately April 2007, Taddeo raised the issue with Schwartz. After providing Schwartz with some background in relation to the sponsorship he had already secured, Taddeo suggested to Schwartz it would be nice if Saeco International could provide something because Taddeo had been a good manager. Schwartz responded by referring to the fact that Saeco International had stopped any sponsoring activity with the cycling team and that he could not accept sponsoring Taddeo because it would set a precedent.

153 Taddeo said, as a result of this discussion, he then approached distributors of Saeco International to see if they were interested. (He did not suggest Schwartz had authorised these preliminary approaches to these subsidiaries.) Taddeo had positive responses from Russia, Hungary and Poland. Having received these positive responses he then asked Schwartz to authorise him to put stickers on his car, because otherwise the distributors would come to the events and they would see the car without the Saeco brand. Taddeo said Schwartz responded, "Why not?".

154 The issue is whether Taddeo was duly authorised to obtain the sponsorship that he did from the Saeco subsidiaries. As to the level of authorisation, there is no doubt that De Gregorio knew nothing about these events. When De Gregorio found out, Taddeo said he was "really surprised". This led to Taddeo's dismissal in September 2007.

155 But Taddeo was adamant he had due authorisation, and that his immediate supervisor, Schwartz, knew and authorised the conduct. On the evidence before the court, I am satisfied Schwartz did know at the material times that Taddeo was seeking and obtaining sponsorship from subsidiaries. There are a number of reasons for this.

156 First, as already noted, Taddeo swore that Schwartz orally authorised the conduct. Taddeo said during the conversation[100] he asked for written confirmation from Schwartz, but it was not forthcoming. However, Schwartz said that he would procure an email from the marketing manager, Andrea Catani ("Catani"), recording the authorisation.

157 Secondly, the oral authorisation was corroborated by an email from Catani. This email was anticipated by reason of Taddeo's discussion with Schwartz referred to immediately above. The email, dated 12 April 2007, was in Italian but translates as follows:

Dear Aldo [Taddeo], as per the agreement with Didier [Schwartz], I confirm that you are authorised to the use of the brand Saeco for the 2007 championship Ferrari challenge,

Andrea [Catani].

(I have inserted "[Schwartz]" into the above translation as Taddeo said no one worked at Saeco International with the name "Didier" other than Schwartz).

158 Thirdly, the date of the email was before any of the races in the championship had taken place.

159 Fourthly, Taddeo swore that not only Schwarz, but others knew of his activities, including the marketing manager and the controller of his area. He was not challenged in relation to this evidence.

160 Fifthly, although senior counsel for Saeco International raised the topic with Schwartz in Schwartz's evidence in chief, much of what was said by Taddeo in evidence was not explored with Schwartz. Schwartz said he was aware of the use of the Saeco trade marks on the Ferrari motor car. Schwartz said he had a discussion with the marketing director about it and he had no objection to the Saeco brand being used but said "we are not prepared to pay anything for that, so it's up to him to do so or not". He was not asked what he meant by "we" in giving this evidence.

161 Having given this evidence, Schwartz was then asked what knowledge he had of Taddeo approaching subsidiaries of Saeco International for sponsorship. In response, Schwartz said he had discussions with some subsidiaries and confirmed their involvement in Taddeo's motor racing activities. Schwartz was then asked the very specific question of whether he had knowledge of Taddeo approaching subsidiaries in advance of Taddeo asking representatives of the subsidiaries for sponsorship. Schwartz responded that he did not have knowledge in advance. The topic was not the subject of any further evidence. The evidence given by Schwartz is entirely consistent with Taddeo's evidence that, after Taddeo received positive responses from some subsidiaries, he sought permission from Schwartz before giving effect to the sponsorship arrangements.

162 In short, the evidence given by Schwartz does not establish that Schwartz did not know and duly authorise, or at least permit, subsidiaries to pay sponsorship if they chose to do so. Further, Schwartz was not taken to the email from the marketing manager,[101] on its face sent with the agreement of Schwartz, authorising the conduct. In those circumstances, I assume that taking Schwartz to this email (which was already in evidence) would not have assisted Saeco International's case in attacking Taddeo's account of these events.

163 There is a further matter to record in relation to how this issue unfolded during the trial. Senior counsel for Saeco International was obviously instructed to seriously challenge Taddeo's suggestion that he had discussed the issue of sponsorship with Schwartz. It was put to Taddeo in cross-examination that Taddeo was not telling truthful evidence when he said he had spoken with Schwartz about obtaining sponsorship. It was in response to the suggestion to Taddeo that he was lying that Taddeo said he could produce an email to show that it had been discussed. The email[102] was forwarded by Taddeo and received in Australia while Taddeo was giving his evidence. It appears this is not a document of which senior counsel for Saeco International was aware before it was referred to in Taddeo's evidence given under cross-examination.

164 When the email was introduced into evidence, in the re-examination of Taddeo, it was tendered without objection. Saeco International did not seek leave to further cross-examine Taddeo once this document was before the court. Further, as I have already noted, when Schwartz was called by Saeco International, he was not taken to the email.

165 In addition to the above matters, I was impressed with the manner in which Taddeo gave evidence. Taddeo readily conceded he was angry for being dismissed. He did not shy away from his falling out with Saeco International. But he said that was not the reason why he was giving evidence. He said he felt responsible and sorry for Ubertini for what had happened to Ubertini. However, he did not give evidence entirely in favour of Ubertini. He also gave answers that were clearly in favour of Saeco International's position.

166 I gained the strong impression Taddeo was giving a truthful account to the best of his recollection. As to why he was giving evidence, he said he was approached by Ubertini after he had left Saeco International. Ubertini asked him whether he would agree to meet him the next time Ubertini was in Italy and he agreed to do so. He did not seek out Ubertini to give evidence.

167 For completeness in relation to Taddeo's evidence, I note that, in relatively minor respects, it was not consistent with contemporaneous documents. This is hardly surprising given the lapse of time and the fact that he was an independent witness who did not have access to all the relevant documents.[103] I do not think such matters detracted from his credit.

168 A considerable amount of time was spent at trial on an issue related to the supply of the New Range, namely the failure of Saeco Australia to provide Saeco International with details of launch plans for the proposed new products being sold in Australia. I do not intend to descend at length to the competing versions of events given the conclusions I have already expressed on this topic and the clear picture that ultimately emerged from this body of evidence.

169 The initial correspondence concerning the provision of the New Range made no mention of launch plans being required, let alone that they were a prerequisite to the supply of the New Range.[104] Indeed, the earliest written communication in evidence on this topic stated that Saeco International could comfortably say that there would be enough time realistically "in making the sell-out launch" for September 2006 in the Australian market. It appears Saeco International had no difficulty in ascertaining the amount of the production run for the Australian market, or the prospects of those products selling in the Australian market once they were available, without the assistance of a launch plan. Ubertini gave evidence that launch plans were not required from Saeco Australia for new products. When it was put to him that launch plans were required from May 2004, Ubertini rejected this suggestion stating that only budgets were required. No launch plans for the period from May 2004 to mid 2006 were produced to seek to contradict Ubertini's evidence.

170 As set out above, the actual supply of the New Range (as opposed to samples) could not occur in mid 2006 because of faults with the new products. However, the evidence of Taddeo suggests it is possible the New Range was available for delivery before these faults with the New Range became apparent.[105]

171 In any event, the New Range was available again for supply by Saeco International to Saeco Australia well before Saeco Australia was placed into administration in February 2007. The precise date as to when the New Range was available for distribution by Saeco International is not ascertainable because, as already noted, Saeco International did not produce any of the production records in relation to the New Range. The evidence available suggests the New Range was again in production by late November 2006 by reason that, amongst other things, Saeco International promised to forward samples of the New Range, as well as other new products, at this time. Also, Taddeo said if the "situation would unblock", Saeco International could have air freighted the New Range in time for Christmas.

172 Before dealing with the New Range generally, it is noteworthy to record that, notwithstanding that samples were promised in writing in November 2006 by the export department of Saeco International,[106] it appears Saeco Australia did not receive any samples of the New Range for some considerable period of time after this. Ubertini wrote to Saeco International on at least 3 occasions in November 2006, complaining about the non-delivery of samples.[107] On 11 January 2007, Ubertini wrote a letter to Taddeo expressing his extreme disappointment that the "new products" had been withheld. In the letter, Ubertini stated Saeco Australia needed the new products in Australia to enable the necessary regulatory approvals to be obtained. (Ubertini gave evidence at trial that a purpose of sending samples in advance of delivery of a product was that Saeco Australia would approach the relevant authorities to get the required approvals for selling in Australia.) This letter strongly suggests samples of the New Range had still not been sent.[108]

173 Further, notwithstanding the availability of the New Range from around late 2006, no arrangement was made for the New Range to be supplied to Saeco Australia because of what was said to be the mandatory requirement of launch plans to be provided by Saeco Australia. In other words, Saeco International's position was that it could not know the timing and quantity of products to send unless and until it had launch plans supplied to it from Saeco Australia. Some examples of the correspondence at the time demonstrates the position adopted.

174 On 12 October 2006, Taddeo sent a letter to Ubertini concerning the New Range. Taddeo said it was necessary to meet in Italy or Australia in order to "define the range, necessary investments, all needed activities to be taken for a launch of this relevance (sic) as we are doing with all the subsidiaries of the group". The letter asked for Ubertini's availability to meet.

175 Correspondence on this issue continued. This included a letter dated 29 November 2006 from Taddeo to Ubertini which refuted a suggestion that Saeco International had refused to meet Ubertini in order to discuss the launch of the New Range. That letter again recorded the need to meet in either Italy or Australia to discuss: (1) a new product plan and production; (2) delivery; (3) product price and strategy; (4) a communication plan in support of the New Range (such as events, advertising, etc). Taddeo also asserted that these steps were common practice and activities to be agreed with all Saeco subsidiaries like Saeco Australia.

176 Taddeo gave evidence that subsidiaries were generally required in late 2006 to give launch plans for new products. Having said this, he also gave evidence that different subsidiaries complied with this requirement at varying levels, some being very detailed and well prepared, others being quite the contrary.[109] However, it was clear from the evidence that there was nothing actually preventing delivery of the New Range to Saeco Australia, especially in circumstances where the Australian business was in desperate need of new products to prevent its ongoing decline in performance.

177 Indeed, the fact that the New Range was not being supplied to Australia was a source of frustration for Taddeo. He said he had to "push a lot all around the world to compensate" for the losses caused to Saeco Australia by loss of market share. He said that Delonghi were entering the Australian market and had 3 new machines. The absence of the New Range in Australia was hurting Saeco Australia's business. Taddeo said he discussed this "always" with Schwartz. There was no dispute that if the New Range was supplied to Australia in 2006 or early 2007, it was likely to be well received by the Australian market. In those circumstances, its non-supply by Saeco International cannot be explicable by reasonable commercial practices.[110]

178 Ubertini's position in late 2006 and early 2007 was that Saeco Australia had never been required to provide launch plans before in order to obtain new products. Further, he stated that he could not provide a meaningful launch plan until he had certain details about the products from Saeco International. There was some force in both of these points, given how matters had been handled historically.[111] He also said by early 2007 it was clear to him that Saeco International was not going to supply the New Range.

179 In the context of the ongoing dispute between the parties, in November 2006, there was still a real possibility that Saeco International might have been required to purchase Saeco Australia's shares held by the Plaintiffs. This fact provided an ongoing incentive to Saeco International not to deliver the New Range, if such non-delivery could be justified.

180 The requirement for a launch plan as a precondition to any supply of the New Range was, in my view, Saeco International's attempt to make the delay in supply of the New Range appear reasonable. However, in truth, it was nothing more than an artifice which gave a means by which Saeco International could prolong the hiatus that the Australian business was suffering because of the non-provision of any new products for an extended period of time.

181 This conclusion is supported by the fact that, although De Gregorio and Egan were directors of Saeco Australia, neither of them sought to assist Saeco Australia in preparing a launch plan.[112] It is also suggested by Taddeo's evidence that, when he asked Schwartz why the New Range was not being shipped to Australia, he was told in substance by Schwartz that Saeco International could not give Ubertini an advantage or allow Ubertini to be stronger in the negotiations.

182 In summary, although there were reasons beyond the control of Saeco International which would have delayed supply of the New Range in any event, the evidence establishes that from April or May 2006 Saeco International decided it would not supply Saeco Australia with the New Range unless and until it had concluded an agreement satisfactorily with Ubertini in relation to acquisition of the minority shareholdings.

D.1.3 Alleged failure or refusal of Saeco International to fill orders

183 The allegation pleaded by the Plaintiffs is that for approximately 12 months, from mid 2005 to mid 2006, Saeco International "refused" to fill Saeco Australia's orders for supplies of Saeco products.[113] By the Plaintiffs' list of issues for determination, the issue has been identified as "failure or refusal" to fill the relevant orders. No complaint was made by Saeco International of this expanded description of the issue. Accordingly, I will proceed on the more expansive basis.

184 In March 2006, Ubertini complained, on behalf of Saeco Australia, about the "unilateral decision" to reduce orders relating to Christmas 2005. Complaint was made about this in writing on at least 2 occasions. Complaints were also made about the shortfall in delivery of orders for February 2006.

185 By a letter signed off by Taddeo dated 11 April 2006, Saeco International responded to the complaints about the non-delivery of earlier orders.[114] In response to the complaint about stock for Christmas 2005, Taddeo stated that the issue had already been discussed many times. He "repeat[ed] again" that Saeco International had not reduced the quantity to Saeco Australia and that the ordering procedure had required confirmation from Saeco Australia. Taddeo also said it was very difficult to put in place any modification of orders after the deadline (therefore, presumably, implying that that is what Saeco Australia had done). He also referred to previous correspondence about this matter. In short, Taddeo suggested the fault was with Saeco Australia's ordering procedures, and not with Saeco International.

186 In relation to the complaints about supplies in February 2006, Taddeo acknowledged there had been a mistake by Saeco International. He accepted that Saeco Australia had asked for a modification in relation to the order, but that a mistake had occurred on the side of Saeco International, as Saeco International forgot to add the machines required to Saeco International's production plan. In other words, there was no decision of Saeco International to reduce supplies to Saeco Australia, but rather there was a simple error in the relevant process.

187 There was no challenge to these explanations in any subsequent correspondence from Saeco Australia. When Taddeo gave evidence at trial, he was not questioned in relation to these explanations. Additionally, and perhaps more significantly, neither Schwartz nor De Gregorio were cross-examined in relation to the explanations given for the supply of goods for Christmas 2005 or early 2006. De Gregorio said that he played no role in relation to the supply of goods to Saeco Australia for Christmas 2005. This evidence was not challenged.

188 In those circumstances, the only sensible conclusion to draw is that there were administrative reasons, and related explanations, in relation to the non-supply of some of the orders made by Saeco Australia. These were incidental matters and not part of any conscious decision-making to treat Saeco Australia in a particular way.

189 Subsequently, in letters dated 23 June 2006 and 4 July 2006, Ubertini, on behalf of Saeco Australia, complained again about the reduction of supply in relation to orders made by Saeco Australia. In the latter letter, Ubertini referred to communications with Saeco International on 22 June 2006, in which Saeco Australia was informed that its July order would also be cut by 50 per cent.

190 No further evidence was led in relation to these events. No witness was cross-examined in relation to these matters either. Thus, I am left with nothing more than the fact that orders were cut in July, without there being any evidence as to why that might have been done. Without further explanation, there could be many plausible reasons consistent with good business practice, or unavoidable difficulties experienced at the time, which have nothing to do with oppressive conduct on the part of Saeco International.

191 In conclusion, I am not satisfied that any failure or refusal of Saeco International to fill orders of Saeco Australia was for any reason other than such matters can happen from time to time in the ordinary course of business. Certainly, there is nothing to suggest any reduction in supply to Saeco Australia was the result of oppressive conduct on the part of its majority shareholder.

192 For this issue to be understood, it is necessary to give some additional background.

193 One line of product sold by Saeco Australia was vending machines. Ubertini gave evidence that he had established significant and loyal customers in relation to these machines. However, the loyalty of these customers was tested, and ultimately lost, by reason of a faulty vending machine model sold by Saeco International to Saeco Australia and distributed by Saeco Australia to its customers. That model was known as the "8p".

194 As a result of the inability to remedy the defects of the 8p over an extended period, the product was returned to Saeco Australia by its customers. The faults of the 8p had a flow-on effect in relation to other vending machines, including the 7p and the 5p models. Ubertini stated, as a result of the problems with the 8p, Saeco Australia's customers were not interested in purchasing these other models either and Saeco Australia was unable to sell them at a commercial price. He also said that by 2006 the 7p and the 5p models were "dinosaurs".

195 Ubertini drew Saeco International's attention to the difficulties Saeco Australia was experiencing in relation to these vending machines. The volume of the returns from customers of Saeco Australia was significant, and a warehouse was utilised to store them.

196 In mid 2005, Schwartz and Taddeo visited Australia. Ubertini showed both of them, amongst other things, the vending machines and expressed his concerns about quality issues. On that occasion, Schwartz indicated that he would speak to those responsible at Saeco International and ask them to have a look at the problem. Taddeo said Ubertini was told to wait and that Taddeo would see what he could do which, he said, was a standard answer. Although Taddeo expressly acknowledged in his evidence that stock he was shown was defective,[115] Taddeo said he then did nothing. Other than raise the matter back in Europe with those responsible at Saeco Vending, with a very general instruction to find a solution, Schwartz also did nothing.

197 It is not to the point to suggest now, as Saeco International does, that those responsible from Saeco Vending, namely Antonio Manzardo (the commercial director and sales manager) and Stefano Folli (the manager), apparently had no interest in the outcome of negotiations between Saeco International and Saeco Australia. The net result of Saeco International's response was that, at this time, it took no responsibility, or at the very least took no meaningful action, for the substantial problem that existed.[116]

198 There is no dispute that the 8p was a faulty product. Customers of Saeco Australia described the problem in correspondence as the "8P Cold Cup Problem" and the "on-going problem". In November 2005, Saeco International attempted to provide a solution for the fault. This attempt was by means of an upgrade to the software utilised to run the machines. Ubertini said that the software upgrade provided by Saeco International did not work. He was not challenged in relation to this evidence.

199 A further inspection by senior executives of Saeco International occurred in late 2005. On behalf of Saeco International, this inspection was attended by Taddeo and Moroni. By this time, the amount of stock in question had grown substantially and, according to Ubertini, had doubled. On this occasion Ubertini was again told to wait. However, Saeco International led no evidence to suggest they took any steps to address these issues after this further inspection took place. Also, there was no suggestion that any of Taddeo, Schwartz or Moroni stated at either of the inspections that the concerns Ubertini raised in relation to the vending machines were other than properly raised.

200 By April 2006, Ubertini had had enough. The evidence shows, notwithstanding some suggestions to the contrary in cross-examination, that in April 2006 the faults with the 8p vending machines had still not been attended to satisfactorily.[117] In early April 2006, Ubertini categorically stated that this was the position. There was no probative evidence to the contrary and I accept this was, in fact, the position.[118]

201 Accordingly, Ubertini decided to take the matter into his own hands and return all the stock in question to Italy (defined above as "the Returned Stock"). He did so at the expense of Saeco Australia.

202 At the time Ubertini shipped the Returned Stock, he sent a letter to Moroni at Saeco International dated 5 April 2006. I will quote from the letter at length as it set out most of the relevant history of this issue. The letter included the following:

I am writing you to inform you that we have taken action to relieve our company in part, of what has been a concern to both of us for some time now. This being Saeco Australia's stock on hand situation.

...

We have worked to our extreme in satisfying our stock on hand issue, but there are too many factors that bear [Saeco International] responsibility which have prevented an acceptable stock rotation. This letter is to inform you that [Saeco International's] unreasonable pressure to sell defective units or units not saleable because of technical problems resulting in lost clientele, have been collated and sent to [Saeco International] for credit.

We have sent back to [Saeco International] a list of defective products that have cost us not only customers, but sales revenue and most importantly company profit. You will receive an invoice at our original invoice cost from [Saeco International] less accrued storage and transport costs.

The items included in the shipment are predominately the vending units.[119] These products through the neglect of technical rectification from [Saeco International], have caused a loss of confidence in the individual models, our company and [of] major concern, the highly recognised Saeco brand.

...

The period of Saeco Australia trying at desperate lengths to keep dissatisfied clients and incorporate any possible technical assistance from [Saeco International], and our efforts to meet an increasing demand for the coffee vending range, was extremely difficult [from] our vantage point to predict. Combine this with [Saeco International]'s manufacturing lead times and the transport lead times to Australia, our vending stock on hand had become impossible to manage.

The vending units we've returned to [Saeco International] were ordered predominantly by two customers. In the case of the major of these two customers [Saeco International] had taken two years to rectify a fundamental flaw in the 8p which was the delivery of the first cup being cold; a problem that [Saeco International] has accepted. That customer took legal action against us for the problem, not to mention ceased the fruitful business relationship. Their orders of other units includ[ing] 7p, 5p espresso and instant were also subsequently cancelled.[120]

The other main coffee vending client we had was also receiving loss sales of revenue and operational sites because of the same problem. In what can only be described as a small number of vending clientele we have here, these losses were to say the least significant. We are still trying to reconstruct the Saeco Vending reputation after where it has been.

...

I would like to clearly state for the record that in the entire history of Saeco Australia Pty Ltd and previously CMS Coffee Machine Services distributor of Saeco domestic coffee machines established in 1993, we have never, prior to now returned a single defective by design or manufacture machine. This is also to say that the countless thousands of machines that have been subject either of these issues and were repaired at our cost including replacement parts in most cases, has never been charged to [Saeco International] nor has such a thought entered my mind until now. Our actions historically in this regard and compared to other subsidiaries in Europe is extremely exceptional and should be noted. ... I would like to underline once more that in 13 years of history in between the two companies never ever a single cent was paid from [Saeco International] to Saeco Australia as contribution to defective products.

Please find attached invoices of items we are returning to [Saeco International] for credit of our account also attached some of the correspondence from the customer who ordered the most of the stock we are returning. One of the attached document[s] related to defective spare parts has a value of approximately 99,000 Euro the invoice will be forwarded to you in the next few hours. The cargo has already been shipped and the documentation will be forwarded to you via [courier] in the next few days. Saeco Australia is [wearing] the cost of transport to the Italian port.

(Emphasis added.)

203 It is clear that Ubertini was exasperated by the conduct of Saeco International.[121] In my view, he was entitled to feel this way. More importantly, it was reasonable for him to engage in a level of self-help when Saeco Australia was effectively being stonewalled.

204 Save for a failed attempt to rectify the problems in November 2005,[122] Saeco International had done nothing. Saeco International had failed for approximately 10 months to deal with something that was clearly a significant problem;[123] a problem caused by Saeco International providing defective product, and then failing to fix the defects. According to the letter dated 5 April 2006, the failure of Saeco International to remedy the problem had been extant for 2 years. Saeco International led no evidence to contradict this account of the duration of the problem.

205 Although not all the Returned Stock was defective, as already demonstrated there can be no doubt some of it was.[124] Further, as noted above, the defects had a flow-on effect which resulted in other vending products ceasing to be commercially viable in Australia. Schwartz acknowledged that Saeco vending machines had developed a bad reputation in Australia.

206 Ubertini said that he would have kept the Returned Stock if it had been saleable. I accept this evidence. The fact that Ubertini said Saeco Australia could possibly have sold it at a sufficiently reduced price does not detract from this. Properly understood, this evidence amounted to accepting the proposition that a person can sell almost anything at a price; not that the goods could be sold at a price acceptable to Saeco Australia or Saeco International. Further, the harm to Saeco Australia's reputation that would have possibly occurred by selling faulty products at heavily discounted prices in the Australian market was not an issue Saeco International sought to grapple with.

207 Saeco International says that Ubertini acted improperly because he did not obtain prior authorisation before returning the Returned Stock. Schwartz, De Gregorio and Taddeo all gave evidence of a company policy which required authorisation to be obtained by a subsidiary before any stock could properly be returned. Ubertini acknowledged he probably received a facsimile in 2005, which recorded the policy specifically with respect to Saeco Vending.

208 In cross-examining Taddeo, senior counsel for Saeco International put that it was "the usual procedure" for Saeco International subsidiaries, including Saeco Australia, to seek authorisation before returning stock. It is clear from the evidence that Saeco International expected Saeco Australia to comply with this "usual procedure". Although Ubertini had threatened to return the faulty products previously, he had never carried out the threat. Taddeo said that he, Schwartz and Moroni did not believe Ubertini would ever return the faulty machines.

209 The failure of Saeco Australia to comply with the usual procedure was put forward by Saeco International as a substantive reason why Saeco International was justified in refusing to accept the Returned Stock. There are difficulties for Saeco International in justifying its conduct based on the company policy.

210 First, the circumstances in which Saeco Australia found itself were not "usual". On 2 separate occasions, senior executives of Saeco International had inspected the Returned Stock and had not suggested that the claims by Ubertini in relation to the defects were anything other than properly made.

211 Secondly, there had been an inordinate delay in Saeco International providing a proper response to the situation. Saeco Australia was entitled to expect Saeco International to respond 1 way or the other within a reasonable period of time. In early April 2006, Saeco International had not promised, or even indicated, by when, or how, the issue might be resolved.

212 Thirdly, even if the company policy ought to have been complied with, the Returned Stock was sent back to Italy at the cost of Saeco Australia. Once the Returned Stock was located in Italy, there seems to be no sensible reason why Saeco International could not have taken the steps it ultimately took to sell the Returned Stock. Saeco International could have made it perfectly clear that, by seeking to sell the Returned Stock, it was not accepting that Saeco Australia was entitled to return the Returned Stock or to obtain a credit for it unless and until it was sold by Saeco International.

213 Fourthly, Taddeo gave evidence of what was the common practice for Saeco International when goods required repair. Taddeo identified that common practice as requiring the repair of the product locally, by obtaining spare parts and paying for the work to be done. He said that if this was not possible, then the goods should ordinarily be returned to Saeco International. He said that if it was too costly to get the goods back, then Saeco International would make a credit note.

214 When I asked senior counsel for Saeco International what else it was that Ubertini could have done in April 2006 given the inaction of Saeco International, I was given no alternative. The submission of Saeco International was simply that Ubertini should not have done what he did. The fact that no viable alternative was proffered by Saeco International speaks volumes, in my view, of the position in which Ubertini and Saeco Australia had been placed.

215 Although Ubertini's conduct on behalf of Saeco Australia might have been considered as pre-emptive by Saeco International, it was not, in the circumstances, high-handed or unfair. Saeco International left Ubertini little choice by reason of its failure to give any sensible or reasonable response to the situation.

216 Indeed, given Saeco International's substantial shareholding in Saeco Australia (and putting aside the price Saeco International might have to pay for the minority shareholdings in Saeco Australia), the conduct of sending the Returned Stock back to Italy was probably in the interests of all parties. Not only did it bring the matter in dispute between the parties to a head, it also gave rise to the realistic prospect of selling the Returned Stock in other international markets, and thereby perhaps realising a real return for Saeco Australia, rather than the Returned Stock languishing in a warehouse in Australia, where it could not be sold at a reasonable price.

217 The attempt to bring the matter to a head so it could be resolved in a reasonable manner failed because of the intransigence of Saeco International. The Returned Stock was left at the wharf at La Spezia for the remainder of 2006 and was still there at the time Saeco Australia was placed into administration on 13 February 2007. All costs incurred as a result of the standoff were charged to Saeco Australia.

218 The attitude of Saeco International to the Returned Stock, and its refusal to deal with it, is explained by Taddeo's evidence. After Saeco International became aware that the Returned Stock was in Italy, Taddeo met with Moroni and Schwartz. At this meeting, it was decided not to authorise acceptance of the Returned Stock and to keep it in the customs warehouse at La Spezia at Saeco Australia's expense for as long as it took to finish negotiations with Ubertini in relation to the sale of the minority shareholdings in Saeco Australia.

219 During this meeting, Schwartz was very clear in stating that the Returned Stock should not be accepted until an agreement was reached with Ubertini on the sale of the minority shareholdings. Moroni also said the Returned Stock should not be accepted. It was discussed that this was seen at the time as an opportunity to affect adversely the EBITDA of Saeco Australia. In turn, this approach was expected to benefit Saeco International in its negotiations about the appropriate price for the purchase of the shares of the Plaintiffs. At one point, Schwartz also suggested Saeco International should insist upon a valuer to value the Returned Stock. Schwartz said to Taddeo that Saeco International should do this because Ubertini would not accept such an approach.

220 The fact that this approach by Saeco International was motivated, at least in part, by a belief that Saeco Australia's EBITDA would be adversely affected is supported by other evidence.

221 Both De Gregorio and Schwartz believed that if Saeco Australia received a credit for the Returned Stock it would improve Saeco Australia's EBITDA by the amount of any credit. In August 2006, Egan received advice from Benson Partners (who were retained by Saeco International to value the Plaintiffs' shares in Saeco Australia). Egan had sent an email to Benson Partners suggesting that a credit for the Returned Stock being included in the reported EBITDA for 2005/2006 might result in the EBITDA being inflated. The response from Benson Partners was that there could be an impact on the valuation.

222 Whether, as a matter of accounting principles, any credit given by Saeco International for the Returned Stock would positively affect Saeco Australia's EBITDA is not necessary to determine. No evidence, expert or otherwise, was led as to the basis upon which views on this issue might be formed.[125] The absence of such evidence, combined with the absence of necessity, makes it plain I should not make any finding on the matter. The key point, and I so find, is that the decision-makers at Saeco International believed the delay in providing any credit would adversely affect Saeco Australia's ability to report satisfactorily as to EBITDA, which in turn would be likely to reduce the sale price of the minority shareholdings. Moreover, it is incontrovertible that the ongoing costs, incurred by Saeco Australia for as long as the Returned Stock lay abandoned in the warehouse, had an adverse effect on Saeco Australia's EBITDA.

223 Saeco International sought to justify its position on a number of bases. It was said that the senior officers of Saeco International were shocked when they learnt that the Returned Stock had been shipped back to Italy. I accept they were surprised that Ubertini had taken the steps that he did on behalf of Saeco Australia, but such a reaction cannot, of itself, justify the intransigence that followed.

224 Saeco International also pointed to the lack of authorisation. As already noted, the lack of authority on the part of Saeco Australia did not prevent Saeco International from taking appropriate steps to the benefit of all parties involved. I expect that, but for the perceived advantage in doing nothing, Saeco International would have taken positive steps to sell the Returned Stock in 2006 or early 2007 (as it ultimately did later in 2007 when no advantage would be afforded to Saeco Australia). Even as late as January 2007, Saeco International was still adopting what could only be characterised as non-responsive and unsatisfactory behaviour in relation to what it intended to do with the Returned Stock.[126]

225 I expect Moroni would have been able to give a first-hand account of why Saeco International adopted the position that it did. The evidence of Taddeo, which was not challenged on this point, was that Moroni was the person principally responsible for handling this issue.

226 In any event, De Gregorio also sought to explain Saeco International's approach by asserting that Saeco International could not be certain the goods comprising the Returned Stock were defective. There are 2 problems with this (to which I have already referred).

227 First, senior executives had inspected the Returned Stock on 2 occasions while it was located in Australia. Although those executives would not have inspected all the goods in question, they could be expected to have had a reasonable understanding as to the state of the goods.

228 Secondly, there was nothing preventing Saeco International inspecting the Returned Stock expressly on the basis that it did not acknowledge any liability arising out of such an inspection. I do not accept Saeco International needed Saeco Australia's or Ubertini's consent before it could adopt such a course. As to the submission that Saeco International sought Ubertini's agreement to have the stock independently assessed, I do not accept such a formal approach of obtaining Ubertini's consent was necessary. In any event, the correspondence referred to does not bear out the submission that Ubertini repeatedly refused to agree to this course.[127]

229 Saeco International further submits the Returned Stock was shipped to Italy by reason of an improper motive. In an email, dated 4 April 2006, Ubertini expressed the opinion that the Returned Stock was sent back "in order to overcome this unfair threat". The threat being referred to was Ubertini's belief that Saeco International intended to dismiss him without paying fair value for his shares in Saeco Australia.

230 I accept that Ubertini saw an advantage in returning the Returned Stock, including that his position would improve tactically from the conduct. However, that does not detract from the fact that there were legitimate commercial reasons which were relied upon for the steps that were taken. Further, these steps had become appropriate by reason of the absence of any meaningful response from Saeco International to a real and substantial problem.

231 There is 1 further material step that Ubertini took in relation to the Returned Stock. Once it became clear to Ubertini in around June 2006 that Saeco Australia was not going to get the credit for the Returned Stock, Ubertini caused Saeco Australia to stop making payments altogether for trading stock provided by Saeco International. Ubertini did not restrict the amount of the payments he withheld. In other words, he did not confine the withholding of moneys due to Saeco International to the amount in dispute in relation to the Returned Stock, which was approximately $1 million. From June 2006 onwards, up until Saeco Australia was placed into administration, all payments due to Saeco International were withheld.

232 In opening, senior counsel for the Plaintiffs said this was done stupidly. Notwithstanding this concession, at times Ubertini sought to justify the conduct. He said that Saeco Australia was part of the group and, given that Saeco International had a 60 per cent interest in Saeco Australia, he thought that Saeco International was "shooting in [its] own feet" by not dealing with the Returned Stock.

233 Under cross-examination, Ubertini acknowledged that he was probably a bit stubborn in not making payments to Saeco International after June 2006. He suggested the reason he did not make the payments was that he was a man of principle and that he had a point. While Ubertini may have believed this, it was not a reasonable course of conduct to adopt. Even in giving his evidence in chief, Ubertini acknowledged that he may well have made a mistake or been silly in stopping payment in this way.

234 In short, there can be no doubt that Ubertini's conduct in withholding all payments from June 2006 was unwarranted, at least once amounts in excess of the value of the Returned Stock were being withheld. It is apparent that Ubertini saw the ability to withhold such payments as 1 of the commercial tactics available to him in the continuing negotiations, which had become excessively drawn out by this time. However, it was an inordinate and disproportionate tactic, and ought not to have been engaged in. Not surprisingly, De Gregorio said this conduct was the main reason for the deterioration in the relationship. I will return to this issue below.[128]

235 In summary, Ubertini was acting reasonably in shipping the Returned Stock to Italy and seeking a credit for Saeco Australia. In contrast, the conduct of Saeco International regarding the Returned Stock, both before and after it was shipped in April 2006, was commercially unfair and motivated by a perceived ability to use the situation to Saeco International's advantage in its negotiations with Ubertini. The evidence establishes that it is highly unlikely it would have conducted itself in such a manner if it had been in a less hostile commercial relationship with Saeco Australia, and not an association infected by the drawn-out negotiations.

236 As already noted, on 22 December 2006, the Demands were sent to Saeco Australia. I have already found that the demand made by Saeco Strategic Services, under the Brand Management Agreement, was not justifiably made.[129] Of the remaining 2 demands, the demand for €573,000 gives rise to no real controversy. The maturity date of the loan was 31 December 2006 and Saeco Strategic Services was entitled to make the demand it did.[130] However, even though this demand was not met as it should have been, there is also no doubt that Saeco Australia had the cash reserves to pay the amount of this demand if it chose to do so. Of itself, this outstanding debt would not have founded a proper basis for the appointment of administrators to Saeco Australia.

237 Accordingly, the only remaining issue to address in this section of the judgment is whether the Principal Demand for €10,509,466.18 made by Saeco International was properly made and relied upon. As was stated by Saeco International in its closing submissions, it is sensible to focus on this debt in evaluating this aspect of the case.[131]

238 In order to consider this issue, the relevant facts at the time the Principal Demand was made must be viewed.[132]

239 The Principal Demand stated that Saeco Australia had been previously advised that the payment terms of Saeco International were 30 days from the end of the month, plus a further 10 days "for netting". The Principal Demand noted this was also recorded in the invoices sent by Saeco International. Consistent with the contents of the Principal Demand, Saeco International submitted at trial that, by reason of an email sent on 3 October 2005 to Ubertini's wife, who was an administration manager for Saeco Australia, and the contents of invoices sent by Saeco International from that time on, the shortened terms of trade were binding and properly enforceable.

240 Although the email dated 3 October 2005 was sent, Ubertini said he did not become aware of it until a number of years after the administration of Saeco Australia. Ubertini maintained that, notwithstanding the written terms of the invoices, the terms were 150 days from the date of the invoice rather than 30 days from the end of the relevant month. According to Ubertini, the terms were discussed on numerous occasions with Andrea Clementini, the group finance manager of Saeco Australia until early 2007. This evidence was not contradicted. Ultimately, this question as to the terms of trade was a non-issue. Although his evidence was that 30 days was standard for Saeco International subsidiaries, in re-examination De Gregorio accepted, unequivocally, that the payment terms for Saeco Australia were 150 days.

241 The evidence of both Ubertini and De Gregorio accords with the practicality of the situation. Saeco Australia did not have cash reserves or some other available working capital in order to acquire goods from Saeco International. The only way that Saeco Australia could fund purchases from Saeco International was to have extended payment terms, thereby giving Saeco Australia the opportunity to sell the products in Australia before making any payment to Saeco International. This had been the position that had been adopted by the parties throughout their relationship, and was confirmed at the time the Brand Management Agreement was entered into in late 2003.[133]

242 It follows that, to the extent that the Principal Demand was referable to debts that had been outstanding for less than 150 days, it was not made in accordance with the established trading terms. The Principal Demand was broken down into the following components:

(1) 30 days +, €572,739.31; (2) 60 days +, €135,606.55; (3) 90 days +, €140,517.75; (4) 120 days +, €1,003,222.68; and (5) over 120 +, €8,657,379.89.

243 There was no evidence as to the break up of the "over 120 day +" category, and, accordingly, the court does not have direct evidence as to the extent to which that category included debt owing for in excess of 150 days. Although inferences might be drawn based on the period of non-payment from June 2006, Saeco International proceeded on the basis that by 13 February 2007 the category of over 120 days "was now over 150 days overdue". No attempt was made by any party to identify how much of, and when, the debt referred to in this category moved to 150 days.

244 Based on the above matters, the evidence does not support the submission of Saeco International that as at 22 December 2006 the Principal Demand was validly made.

245 There are further matters that are of some significance in properly characterising the conduct of issuing the Principal Demand. First, no such demand had ever been issued by Saeco International before this time, notwithstanding that debts had been outstanding well in excess of 30 days from 2005 onwards.[134]

246 Secondly, I expect that it was Egan who played a material role in having the Principal Demand issued. While Egan was a director of Saeco Australia, he positively encouraged Saeco International to make the Principal Demand (and the other demands). It is difficult to see how this conduct could be seen to be in the interests of Saeco Australia, given, as Egan well knew, Saeco Australia had no capacity to pay all of the alleged overdue amounts by 31 December 2006.

247 Egan said he did this because he was mindful that Saeco Australia should be paying its bills. But to be making demands (and in Egan's case encouraging such demands[135]) contrary to the terms of trade that had been long established, in full knowledge that the Demands could not be met according to their terms, suggests there was an agenda on the part of Saeco International beyond simply being paid. This conclusion is supported by the evidence of Taddeo, who said the Demands were discussed within Saeco International before they were sent. In this regard Taddeo gave evidence that he said at the time:

If you ask [for] all this money back altogether for sure we win, [Ubertini] will never pay but will close the company and the market will know.

When asked what "we win" meant in this context, Taddeo said it meant for Saeco International to be the sole shareholder of Saeco Australia and manage Saeco Australia on its own.

248 The likelihood of an agenda beyond repayment of outstanding debts is also supported by further evidence given by Taddeo. Taddeo said that, in discussions with Moroni and Schwartz after Ubertini had rejected Saeco International's offer, Schwartz suggested "the control of the administration, asking [Ubertini] to pay the invoice and so on". This answer was given in the context of Taddeo being asked when discussions took place concerning putting Saeco Australia into administration.

249 Thirdly, the context of the Principal Demand being sent also needs to be understood in light of the working capital requirements of Saeco Australia and the established means by which they were met. Arrangements in relation to working capital were put in place at the time the Shareholders' Agreement was entered into. Ubertini had a discussion with the chief financial officer of Saeco International at the time, Andrea Golinelli ("Golinelli"). During this conversation, it was acknowledged that Saeco Australia had insufficient working capital and that 1 of the means by which it would secure the required funds was to have extended terms of payment in relation to Saeco International's invoices.

250 Ubertini said that, pursuant to this arrangement, Saeco Australia paid on an average of 150 to 160 days from the date of invoice. The stock purchased from Saeco International on such terms was used as working capital throughout. Ubertini could not recall a specific conversation where it was expressly discussed that Saeco Australia's obligation to make payments to Saeco International was conditional upon its working capital requirements, but said that that was how it worked. To elaborate, Ubertini said from time to time when required Saeco Australia took extended terms without any complaint from Saeco International and it was obvious to all that the extended terms were due to the working capital requirements.

251 Schwartz, a director of Saeco Australia until November 2006, agreed that the working capital of Saeco Australia was provided by extended terms of payment allowed by Saeco International. Schwartz also said that if Saeco Australia had been asked to pay for stock on 30 day terms, Saeco Australia would either have to recapitalise or borrow funds to pay for the stock. Schwartz also acknowledged that if the former of these 2 options were to occur, Saeco International would have to contribute 60 per cent of the equity to pay for its own stock. Schwartz gave similar evidence concerning the need for Saeco International to contribute at this level in relation to the possibility of borrowing funds.

252 Further, De Gregorio accepted, without reservation, that Saeco Australia's working capital was provided by Saeco International by way of extended payment terms. He accepted that Saeco Australia had to be able to repay Saeco International for stock purchased from sales made by Saeco Australia, and that unless it sold the stock it could not pay Saeco International. He accepted that he knew in December 2006 that that was "the way it worked". De Gregorio candidly acknowledged that if Saeco Australia was suddenly asked to repay all of its debts to Saeco International it would have no working capital.

253 Accordingly, by calling in all outstanding debts on 22 December 2006, Saeco International was seeking to change fundamentally the financial arrangements between Saeco International and Saeco Australia that had been in existence for approximately 4 or 5 years. Perhaps this attempt to change matters was implicitly acknowledged by De Gregorio in the following exchange during De Gregorio's cross-examination:

Is it your evidence that when the [Principal Demand] was made for the whole debt that Saeco International would have been satisfied initially to receive the money outstanding and leave the working capital in place, take the money that was in the bank and leave the working capital in place, is that your - they (sic) would have been happy with that?---I don't think we raised this question at the time.

You wanted all the money?---We wanted to evidence that all money was due and from a technical standpoint, Saeco Australia was trading insolvent because it couldn't repay it. One thing is the technical aspect, the other thing is the commercial aspect.

(Emphasis added.)

De Gregorio went on to explain that this approach was taken because it was "kind of a stalemate".

254 Moreover, Saeco International must have known there was no ability to meet the Principal Demand (or the other demands, when coupled with the Principal Demand). So much was effectively acknowledged by De Gregorio.[136]

255 When all the circumstances surrounding the making of the Principal Demand by Saeco International are considered, the intention of Saeco International can readily be discerned. Saeco International was unable to resolve its differences with Ubertini by negotiation, so it chose to resort to making demands contrary to established practices that could not be met. The Demands were a trigger or step as part of a process put in train to undermine Saeco Australia's business as a whole. The completion of this process would then allow Saeco International to obtain the business without the need to obtain Ubertini's cooperation or assent.

256 In drawing these conclusions in relation to the making of the Principal Demand, I have not ignored the fact that Ubertini had stifled payments to Saeco International for some time by reason that Saeco Australia had not received a credit for the Returned Stock.[137] Although Ubertini's conduct was disproportionate and not justifiable given the amount involved in relation to the Returned Stock, such conduct did not justify Saeco International also acting disproportionately in response by making unwarranted demands. Saeco International was perfectly entitled to make a demand, consistent with the long-established arrangements, in relation to outstanding debts for stock; but not in the terms that it did.

257 This topic cannot be completed without discussing the fact that the Principal Demand also invited a response from Saeco Australia if Saeco Australia suggested that the moneys were not owing as demanded. Saeco International also sought a response from Saeco Australia by way of a proposal for the repayment of the amounts claimed in the event that they could not be paid by 31 December 2006. Saeco Australia failed to respond to both matters. This was most unsatisfactory.

258 It is beyond controversy that Saeco Australia owed substantial amounts to Saeco International that should have been paid long before the Principal Demand was made. There should have been a response which indicated how and when any non-controversial debt would be paid. Also, Saeco Australia should have clearly identified the issues it had in relation to the Principal Demand and the other demands. Saeco Australia had a legitimate basis for challenging substantial sums claimed, based on working capital requirements, the Returned Stock and the non-provision of the Services under the Brand Management Agreement. These matters should have been put in response, so that Saeco Australia's major shareholder comprehensively understood the basis upon which Saeco Australia was, at that time, maintaining its position.

259 The significance of this will be considered later in the judgment.[138] Ubertini gave no proper explanation as to why a proper response was not given. I expect the reason was that it would have exposed more starkly the absence of a proper basis for withholding all payments (rather than some payments) from Saeco International, and also undermined Ubertini's negotiating strategy.

260 Saeco International submits that there was never any binding contract whereby Saeco International was required to provide terms beyond 150 days in the event that Saeco Australia's working capital requirements demanded it. I accept this submission. The evidence on this issue[139] reflects an arrangement or understanding between the parties and does not establish the elements necessary for a binding contract. However, this fact did not entitle Saeco International to take steps, through its nominee directors, to destroy Saeco Australia's ability to conduct its business, which was the collective effect of the Demands if they were enforceable.[140] Nor, in the circumstances,[141] did it entitle Saeco International to prevent Saeco Australia from conducting itself in a manner that allowed it to have the necessary working capital, without putting in place, or at least attempting to make arrangements to put in place, some alternate basis for the working capital.

261 In my view, the position is distinguishable from that of an arms-length creditor who has agreed to continue to supply its customer. Such a creditor, ordinarily, would have far more capability legitimately to demand its debtor to pay strictly in accordance with contractual terms of trade as a condition of continued supply. However, where a parent company, which is also a creditor and the only possible supplier of the principal products sold by the subsidiary, has put in place an arrangement for providing working capital for its subsidiary by way of extended terms of trade, and has maintained that arrangement over many years, the situation is entirely different. In these circumstances, that parent company, ordinarily and consistent with acting fairly, cannot unilaterally and without reasonable notice, change the arrangement knowing full well that such a change would lead to the demise of the subsidiary.[142] This is particularly so in circumstances where the minority shareholding is offered for sale to the parent company, and such conduct would be likely to destroy any residual value in the minority shareholding.

262 In summary, the Principal Demand was made with an ulterior purpose. Although a significant amount of the debt claimed was legitimately included in the Principal Demand, the overall position went beyond what could properly be claimed. Saeco International made the Principal Demand to break the stalemate confronting it, with the purpose of improving its position in relation to the ongoing impasse and to provide a basis for obtaining the business for itself without the need for Ubertini's imprimatur.

D.1.6 Appointment of the Administrators to Saeco Australia

263 The ultimate outcome of Saeco Australia being placed into administration was that, when the administration came to an end, the Plaintiffs and Saeco International (amongst others) were left holding valueless shares in Saeco Australia. A further consequence of the administration, and the DOCA, was that Saeco International obtained ownership of the entire business of Saeco Australia without having to pay anything to the Plaintiffs for the business.

264 Saeco International submits it was effectively left with no choice but to put Saeco Australia into administration because of Ubertini's conduct and the resultant position of Saeco Australia. The Plaintiffs contend the appointment of the Administrators was a ruse to seize control of the business without having to pay out the minority shareholdings. The issues surrounding the appointment of the Administrators essentially form the cornerstone of the Plaintiffs' case. The Plaintiffs submit this conduct was oppressive conduct that, of itself, entitles them to the relief they seek.

265 By the time the directors' meeting was held on 13 February 2007, the debts overdue for more than 120 days as at the time the Principal Demand was made had become overdue by 150 days or more.[143] Therefore, subject to the issue of working capital, Saeco International was within its contractual rights to demand payment in relation to those sums once they became outstanding for that long. No fresh demand was issued after 22 December 2006. Accordingly, the issue remains whether or not Saeco International was properly able to act upon the Principal Demand (and the other demands) as it did in February 2007.

266 De Gregorio was entirely frank about what Saeco International sought to achieve from late October 2006 after the negotiations had collapsed and the litigation had commenced. From that time on Saeco International had a real desire to get rid of Ubertini, and replace him with a new managing director. Saeco International was looking for ways to achieve this outcome. Once things had moved to an adversarial position, De Gregorio relied upon Egan as a "local director who understood the local rules and so on and so forth" to represent Saeco International in achieving the desired outcome.

267 Although there is no direct evidence as to precisely when Saeco International first contemplated its nominee directors advancing a resolution to place Saeco Australia into administration, the evidence strongly suggests that such steps were contemplated at and before the time the Demands were issued on 22 December 2006. Egan said he could not recall when the issue was first raised. Egan said he was "guessing", but that he thought that consideration of the possibility of appointing an administrator was in the early part of 2007. De Gregorio could not give a precise date, but said that he first spoke to Egan about putting Saeco Australia into administration towards the end of 2006. Taddeo said "taking control of the branch" was discussed with De Gregorio and Schwartz if the parties did not reach agreement, which suggests alternate strategies were likely to have been discussed as early as October 2006, if not earlier. Taddeo also said the option of administration was being discussed with De Gregorio if Saeco Australia did not pay the invoices. He said a discussion was also had which involved Moroni and Schwartz. As to the timing of these discussions, Taddeo could not be precise save that it was after Ubertini rejected the offer "in September 2006".[144] In seeking to identify the relevant time frame, Taddeo also said it was after Ubertini had rejected the offer and De Gregorio was upset.

268 Egan said he was asked to try and achieve a way in which the shares of Saeco Australia could be obtained or purchased "and if there were any other ways in which we could try and achieve that". As already noted, Egan was an experienced Australian businessman and was advising Saeco International about the best way to proceed. Particularly given his finance background, it would be implausible that Egan would not have, at the very least, contemplated that the Demands he encouraged to be made in December 2006 would be used for the purpose of raising solvency issues, including the possibility of Saeco Australia being placed in administration.[145]

269 De Gregorio saw the administration process as providing Saeco International with the ability to restructure Saeco Australia. He perceived this would allow Saeco International to take Ubertini out of the business by selling the business to a new company which Saeco International would wholly own.

270 Furthermore, Saeco International did not rely upon Egan's advice alone. It sought advice from its lawyers throughout. A top tier law firm was retained in Melbourne, with no fewer than 3 partners involved in giving advice.[146] As noted below,[147] Egan discussed the possibility of appointing administrators with the lawyers, and then reported to De Gregorio. Although privilege was maintained at trial (and not challenged) in relation to any advice sought and obtained by Saeco International, it must be assumed that with both legal advice and the advice from Egan, Saeco International, including De Gregorio, understood that the Demands could provide a basis for challenging the solvency of Saeco Australia. Further, it must have been apparent to lawyers and executives of Saeco International that, if Saeco Australia were to go into administration, it was probable that Saeco International would be able to dictate its likely outcome. This position existed for a number of reasons.

271 Saeco International was the major creditor. It was the major supplier of goods to Saeco Australia and the only source of the main product lines sold by Saeco Australia. Further, Saeco International had the ability (which it ultimately asserted) to withhold supply to any prospective purchaser an administrator might have dealt with in relation to selling Saeco Australia's business. As noted above,[148] there was no ability of Saeco Australia to transfer its rights under the Brand Management Agreement without the written consent of Saeco International. In short, the only way any administrator would have been able to sell the assets and business of Saeco Australia as a going concern would have been with the consent of Saeco International.

272 The allegations made by the Plaintiffs suggested that Egan's involvement as a director of Saeco Australia was for an improper purpose throughout. Although there was no explanation given as to why Schwartz resigned, there is no probative evidence to find, on the balance of probabilities, that at the time Egan was appointed in November 2006, an improper purpose of placing Saeco Australia into voluntary administration to achieve outright ownership of the business, was in existence. Absent such evidence, I make no finding that Egan's appointment was, of itself, tainted with any improper purpose. As noted, the Shareholders' Agreement required Saeco International to have 2 directors on the board of Saeco Australia.[149]

273 That said, based on the evidence referred to above, it is highly likely, and I so find, that the plan to "restructure" by means of the appointment of an administrator (or some other means by which Saeco International would take control of the Australian business) was in existence before the Principal Demand and the other demands were sent on 22 December 2006.

274 In so finding, I reject Egan's speculative evidence that consideration of an administrator did not occur until 2007. Although I was invited by Saeco International to accept this evidence,[150] this invitation runs counter to Saeco International's own submission that the idea to appoint an administrator arose probably after Ubertini provided the November 2006 accounts in mid December 2006.[151] I strongly suspect it was earlier than this point in time, but the critical finding is that the plan was in existence before the Demands were sent, and that the Demands were, as I have already found,[152] an integral step in implementing the plan.

D.1.6.2 Events leading up to the board meeting on 13 February 2007

275 Events leading up to the board meeting concerning the convening of the meeting are set out in section D.2.1 below.[153] In addition to those facts, I will briefly refer to some further events that occurred prior to the board meeting.

276 On 15 January 2007, Ubertini sent a letter to Moroni stating that Saeco Australia was quite prepared to make payments to Saeco International in relation to the outstanding amounts. Ubertini stated that Saeco Australia had over $5.5 million in cash which, he asserted, Moroni, as chief financial officer of Saeco International, was fully aware. Ubertini stated the moneys were remaining in the bank account pending agreement and acknowledgement of the issue in relation to the Returned Stock.[154] He suggested that the Returned Stock had now been accepted by Saeco International. Ubertini stated as soon as Saeco International provided an acknowledgement of acceptance, payments would be recommenced.

277 Also in the letter of 15 January 2007, Ubertini asserted that Saeco International, as a 60 per cent shareholder, had "full access to the books and records and therefore knowledge of the accumulation of credit funds in the Saeco Australia bank account" and that it was obvious Saeco Australia had the means to make a very substantial payment. In no subsequent correspondence did Moroni suggest that Saeco International's knowledge of the financial position of Saeco Australia was other than as asserted by Ubertini in this letter.

278 On 18 January 2007, Moroni responded to Ubertini's letter of 15 January 2007. Although Moroni did not deny the level of access to the books and records of Saeco Australia, he stated that as chief financial officer of Saeco International he was not required to monitor cash currently available to Saeco Australia to satisfy its debts. Moroni went on to say that the debts far exceeded the amount in the bank account and this was of the "utmost concern to Saeco International". Moroni also rejected the suggestion that Saeco International had accepted the Returned Stock.

279 Moroni made further reference to the issue of the outstanding debts. He suggested the making of the Demands was not unreasonable or oppressive and that the outstanding amounts should be paid immediately. Again, an offer was made for an alternative repayment proposal in the event that immediate repayment was not possible. The proposal put forward by Ubertini, namely, of resolving issues relating to the Returned Stock before any further payments were made, was rejected.

280 Under cross-examination, Ubertini was asked whether he thought at the time that Moroni was being truthful when Moroni said that Saeco International had the "utmost concern" about the level of outstanding debt. Ubertini responded by stating Moroni was not being truthful, as having $10 million in debt outstanding was normal because it was the working capital of Saeco Australia. Ubertini accepted the additional amount of around $5.5 million did "not look good", but said that those moneys were sitting in a bank account.

281 Moroni was not called by Saeco International to rebut Ubertini's evidence. In particular, there was no evidence from the chief financial officer of Saeco International to contradict the evidence of Ubertini to the effect that approximately $10 million of outstanding debt to Saeco International historically represented the working capital of Saeco Australia. Further, none of De Gregorio, Schwartz or Egan contradicted this evidence.

282 On 19 January 2007, De Gregorio, in his capacity as chief executive officer of Saeco International, sent a letter to Ubertini dealing with issues relating to the Returned Stock, launch plans for new product, allegations concerning Taddeo's conduct[155] and fees outstanding under the Brand Management Agreement. De Gregorio said he would like the issues resolved as soon as possible. He also asked Ubertini to arrange for Saeco Australia to settle all overdue account payments as a matter of urgency. He was not specifically questioned on the contents of this letter, though much of its subject matter was canvassed in cross-examination.

283 On 22 January 2007, Egan sent an email to all the other directors of Saeco Australia. Egan stated that he had reviewed the financial position of Saeco Australia. As a result of that review, he said he was seriously concerned about the level of Saeco Australia's debts and whether or not Saeco Australia was able to pay them. He referred to the possibility that the directors may have personal exposure in relation to the issue. He said it was a serious matter that needed to be considered at the forthcoming board meeting on 13 February 2007. Egan suggested that such a discussion should address options available, including whether Saeco Australia should be placed into voluntary administration. Finally, on this issue, Egan strongly recommended that in the interim Saeco Australia not incur any new or additional liabilities.

284 On 23 January 2007, Schwartz responded to an email of Ubertini sent 19 January 2007. The email addressed various matters. One of the matters involved rejecting an assertion by Ubertini that Saeco International was trying to rob the minority shareholders. In rebutting that suggestion, Schwartz stated Saeco International was not engaged in such conduct "as the majority shareholder Saeco International would be the party most affected by the actions that may be damaging to the business which is not delivering profits or achieving the budgets agreed to". Of course, this would not necessarily be the case if Saeco Australia was able to be placed into administration, leaving creditors not fully paid and the business transferred to a wholly owned subsidiary of Saeco International without any additional payment beyond forgiving some of Saeco Australia's outstanding debts.

285 On 2 February 2007, Moroni sent a further letter to Ubertini. Amongst other things, Moroni reminded Ubertini that Saeco Australia had not paid the outstanding amounts or responded to the invitation to present an alternative payment proposal for Saeco International's consideration. The letter concluded that no alternative had been left to Moroni but to require Saeco Australia immediately to arrange for payment of all overdue amounts owing to Saeco International and Saeco Strategic Services.

286 The transcript of the directors' meeting held on 13 February 2007 runs for 28 pages. Much of what was stated at the meeting reflected the respective positions of the parties as set out elsewhere in the judgment. I will refrain from repetition.

287 There were some additional matters addressed during the course of the meeting. I will refer to the key matters, largely in the same order in which they were discussed at the meeting.

288 Egan, who chaired the meeting, referred to comments made in court by her Honour, Dodds-Streeton J, the previous Friday. Egan purported to quote her Honour in the following terms:

There is substantial evidence that the company, that is Saeco Australia, may be insolvent. It seems that the company cannot pay its debts based on the stipulated terms. It seems that it could only do so on the basis of an indulgence. There are difficulties about indulgences extending time for payment.

The evidence before her Honour, by way of affidavit sworn by Egan and filed on behalf of Saeco International, was (contrary to my findings) that the terms of payment were 30 days plus 10 days for netting.[156] It was also suggested in this affidavit (based on a report from an accounting firm) that it would take 20 years to bring the debt back within terms.[157] No mention was made in the affidavit to any arrangements previously in place in relation to Saeco Australia's working capital requirements.

289 Egan was not purporting to be exhaustive of what her Honour said. On the question of difficulties about indulgences extending time for payment, her Honour had said in her ruling as follows:

There are difficulties about arguments about concessions and indulgences extending time, but unless that could be established, the related entities would be entitled to demand payment immediately, and it would appear that demand has been made.

(Emphasis added.)

290 Reference was also made by Egan at the board meeting to comments by her Honour about the need for the directors to discuss and vote on the issue of solvency where there was credible doubt about whether or not Saeco Australia was solvent.

291 Egan stated that the most recent correspondence showed Saeco Australia was not making any payments to Saeco International, that Saeco Australia did not want to concede it would make any payments and "this has caused Italy to go to the Italian Courts and they're also considering their position under the [Brand Management Agreement]". Egan specifically referred to proceedings having already been commenced by Saeco International in Italy on 4 separate occasions during the course of the meeting. A reading of the transcript of the meeting suggests Egan did so to create a dichotomy between, on the one hand, the potential repercussions for Saeco Australia if judgment were awarded against it in Italy and, on the other hand, the repercussions of the appointment of an administrator. On each occasion that proceedings in Italy were referred to, De Gregorio said nothing to suggest what Egan was saying was incorrect.

292 The reference by Egan to existing proceedings in Italy and threatened proceedings under the Brand Management Agreement (which presumably would be in Ireland[158]) was also undoubtedly made by Egan to heighten the sense of urgency in relation to the business of the meeting. In my view, it is likely that such matters were raised also in order to seek to ensure that any resolution in relation to the administration of Saeco Australia was not deferred. Indeed, Egan went so far as to say:

If these [Italian] proceedings continue without the intervention of somebody, of an independent person, such as an administrator, I think we're really facing a problem.

293 There was no evidence from any witness to suggest that any proceedings had in fact been commenced in Italy by Saeco International.[159] Egan gave evidence that he could not recall whether or not any such proceeding had been commenced. De Gregorio also said he could not recall. It is highly unlikely that both De Gregorio and Egan were mistaken about the true position. As the chief executive officer of Saeco International, clearly De Gregorio would be expected to know if such a significant step as filing a proceeding against 1 of its own subsidiaries (of which De Gregorio was, himself, a director) had been taken by Saeco International. As for Egan, it is clear that at this time, and in the week leading up to the board meeting, he had been paying very close attention to the events relevant to Saeco Australia's position.

294 If such a proceeding had in fact been commenced, Saeco International had every opportunity to put such evidence before the court to establish this, but did not do so.[160] Taddeo gave evidence that issuing a proceeding in Italy against Saeco Australia was talked about, but he did not believe a proceeding was ever started. He was not challenged on this evidence in cross-examination. In the circumstances, I find that no such proceeding had been commenced when the directors' meeting was held on 13 February 2007.

295 Returning to the board meeting, Egan stated that, even if the debt to Saeco Strategic Services was put to one side, Saeco International still required "cold hard cash" to be paid, there and then, in satisfaction of the entirety of the debts owing to Saeco International, which Egan said was approximately $17 million. Egan also stated that if the cash available to Saeco Australia was paid towards meeting the debts, then Saeco Australia would not continue to have the resources to stay afloat. When, in response, Ubertini referred to the existing stock and debtors, Egan went so far as to say, in return, that Saeco International was "not interested in stock and debtors", but was only interested in cash.

296 During the course of this exchange Ubertini said, "We've got a plan". The details of the plan were not disclosed during the course of the board meeting. In evidence, Ubertini said that there was a plan but Saeco International wanted the whole payment the next day.

297 The plan Ubertini said he had was to provide approximately $8 million in cash. He also said Saeco Australia had plenty of stock and "stock is money", and he just needed time to sell it. He also said that he had debtors in the order of $6 million at that time. Finally, he referred to the fact that there were net assets in the company of approximately $7 million.

298 In relation to the contents of the plan, Ubertini said that Saeco Australia had never been required to sell stock below cost price. He also stated that within a few weeks, Saeco Australia could have repaid all of the debt claimed by Saeco International. Having stated this under cross-examination, Ubertini was not challenged as to the fact. It was put to him, however, that such a statement was not put to the meeting. Ultimately, Ubertini accepted that the details of the plan were not put at the meeting.

299 Although Ubertini had not given details of the plan he had in mind, a question was raised by an independent director,[161] James Kremmer, as to whether it was possible that the administrator could come to some arrangement with Saeco International to pay the debt, and if so, why the same arrangement could not be made with Saeco Australia. In response, De Gregorio stated that he anticipated there would be a meeting of creditors within 3 weeks and that he felt comfortable with the voluntary administrator because at least the administrator could have a good picture of what was inside the company. A little later on, James Kremmer stated:

... it would appear to be a little bit unfair to demand payment from Saeco Australia now when an administrator comes in and puts a proposition that [the debt] would be paid over a period of time, Saeco International would no doubt agree to that and I just see that as being unfair to Saeco Australia at this stage if in fact no leeway is given now other than a demand for immediate payment and an administrator comes in and would get a payment plan that would be acceptable but Saeco Australia is not given the chance to do that.

(Emphasis added.)

300 Neither De Gregorio nor Egan suggested that what James Kremmer said about Saeco International's position was incorrect. In response, Egan referred to the fact that the opportunity for a payment plan had been given in the last couple of months, but a response had not been forthcoming from Saeco Australia. This was followed by De Gregorio referring to the legal obligations of directors to deal with concerns about the solvency of Saeco Australia which, he said, had reached a very critical point.

301 The other independent director in attendance, White, then made an observation with which nobody disagreed. It was to the effect that, if Saeco Australia was forced to trade on 30 days with Saeco International, then the company was insolvent and an administrator could not do anything about that. However, he also stated that if Saeco International could provide some leniency in the trading terms he was sure Saeco Australia could trade out of the situation in a reasonable period of time. Egan queried what a reasonable time would be "considering a debt of $17 million odd". It appears this was not said in a positive manner, and perhaps even derisively, as it brought a retort from Ubertini that Egan was really working for Saeco International.

302 Shortly thereafter, White put forward the possibility of negotiating a repayment strategy with Saeco International. He suggested this would avoid the harm of tarnishing Saeco Australia's image by going into administration. A response was given to that but it was not recorded on the tape. Apparently, no witness could recall what had been said in this regard. No evidence was led by any party to recount the events the subject of the gap in the tape.

303 The tape recommences with Egan referring to the probable need to have an independent party to step in and try to resolve "that, such as an administrator". (Given the break in the tape it is unclear what the reference to "that" was.)

304 White then made the observation that, given that it was the first opportunity the board had had to meet at a board meeting with Egan in attendance, White was a little disappointed that Egan would not consider another alternative before taking the drastic measures of appointing an administrator. In response to this observation, Egan for the 3rd time referred to the Italian proceedings allegedly commenced by Saeco International.

305 A little further on in the meeting Egan acknowledged there was a dispute in relation to the Returned Stock, which dispute was for $1 million. He said for the purpose of the discussion at the board meeting, it was not necessary to resolve that issue, as a dispute over $1 million did not justify non-payment of in excess of around $16 million of further stock.

306 Ultimately, the discussion returned to the issue of a possible repayment plan. This resulted in a resolution being put forward by the independent directors that a response would be sought from Saeco International regarding a proposal to implement a repayment plan and that the matter of appointing an administrator be deferred pending the outcome of that response, alternatively deferred to the next court hearing. Egan indicated, before the resolution was formulated, that he would not be voting for it. Ubertini then said he wished to vote for it. The resolution was proposed by James Kremmer and seconded by White.

307 After some further discussion, De Gregorio voted against the proposed resolution to defer and suggested that the resolution to appoint an administrator be dealt with.

308 Upon the resolution to appoint administrators being proposed, both Egan and De Gregorio voted in favour of placing the company into administration. Ubertini and James Kremmer voted against this course. White abstained. When asked why he had abstained from voting, White expressed his contempt for the process. James Kremmer also noted that he held a proxy for Andrew Kremmer. The resolution was successfully passed.

309 Egan then produced the necessary paperwork for the appointment of the administrators. Ubertini and the independent directors had not seen these documents before production. The fact that the paperwork had already been prepared caused consternation amongst the other directors, excluding De Gregorio. In response, De Gregorio said the appointment was a natural conclusion of a year of no communication to the major shareholder, an enormous amount of money outstanding and that "we" (presumably a reference to Saeco International) "have been treated very unfair[ly]". De Gregorio also suggested he, both as managing director of Saeco International and as a director of Saeco Australia, had been treated unfairly.

310 De Gregorio said he thought all of this could have been avoided if a transparent game had been played instead of the postponing of meetings, the attempt not to inform, and other matters. De Gregorio also said he was very scared for Saeco Australia. He suggested the circumstances of Saeco Australia were an "absolute shambles, complete shambles". De Gregorio suggested there was no choice but to ask an administrator to "tell us and we will have a meeting of creditors in a few weeks so the creditors will express what they want to do. That's all." He also suggested that the administration could be stopped if an arrangement was agreed to.

D.1.6.4 Events after the Administrators appointed to Saeco Australia

311 Immediately after the board meeting, the Administrators, Salvatore Algeri and Simon Wallace-Smith, were appointed joint and several administrators of Saeco Australia.

312 After 13 February 2007, the parties returned before the court on numerous occasions. Various applications were made, including an application by Ubertini to challenge the appointment of the Administrators. Much of what occurred in relation to hearings before the court is set out in an earlier judgment.[162] It is not necessary to refer to such matters here. Suffice to say that the acrimonious approach continued in relation to the disputes between the parties.

313 In due course, the Administrators then went about investigating and arranging the affairs of Saeco Australia, including meeting with its directors. One such meeting was with Ubertini on 19 February 2007.

314 On 21 February 2007, the Administrators sent a letter to Ubertini terminating his employment with Saeco Australia. This was done on the basis that the Administrators no longer required his services. De Gregorio admitted that, once Ubertini was removed as chief executive officer (and Mrs Ubertini was removed as administration manager), Saeco International's problem was solved as Saeco International effectively then had control of Saeco Australia.

315 De Gregorio gave evidence that Saeco International's intention from the moment the Administrators were appointed was for the administration to cause as little interruption to the business of Saeco Australia as possible. No doubt this was to protect the business until Saeco International could achieve what De Gregorio said he saw as its ultimate outcome, namely obtaining 100 per cent of the business. This evidence makes the concluding remarks of De Gregorio at the board meeting on 13 February 2007[163] appear superficial, at best.

316 In any event, consistent with this intention, on 5 March 2007, Egan sent an email to 1 of the Administrators entitled "Saeco Australia: Draft Letter to Saeco Australia Customers". By that email, Egan provided a draft letter to be sent to customers of Saeco Australia. It was provided to replace part of a pre-existing draft. The new draft read as follows:

It is our belief that the underlying business of [Saeco Australia] is viable and well supported in the Australian market. Further, we understand that [Saeco International] is committed to strengthening the brand in the Australian market.

We would also like to confirm that [Saeco International] is continuing to supply Saeco products at the request of the Voluntary Administrators.

...

As previously mentioned, the Administration process allows the company to be restructured and has the full support of [Saeco International] which has expressed its desire to strengthen its presence in Australia.

In light of the above, a likely result of the Voluntary Administration process will be a restructure of the business, through a Deed of Company Arrangement, that will allow the business to continue to trade without disruption to customer supply, and ensure the greatest possible return to creditors.

(Emphasis added.)

317 Having been taken to this email, Egan was asked whether at that point, namely 5 March 2007, there were no longer any issues as to insolvency because Saeco Australia had the support of the major creditor. Egan rejected this suggestion and added that the business was going through administration. He further added that there had been no decision as to what was going to happen. Finally, he stated that the main focus of Saeco International was supporting the brand and the "brand equity" within the market. Essentially, as I understood Egan's evidence, he was stating that there had not been a final decision to enter into a deed of company arrangement, but that if that arrangement did not come to fruition for some reason, then Saeco International would have simply set up a new business and not allowed the business conducted by Saeco Australia to continue.

318 Whichever of these options were ultimately adopted by Saeco International, the result would have been that the business would be owned wholly by Saeco International and Saeco Australia would have no residual value by reference to that business. Accordingly, on either scenario as then contemplated, the Plaintiffs' shares would, subject of course to the outcome of this proceeding, ultimately be of only nominal value.

319 On the evidence available, the next material event occurred on 20 March 2007, when Egan sent an email to Ferrier Hodgson, who were acting as accountants for Saeco International. In that email Egan stated that Saeco International intended to apply a formula-based approach to the purchase of stock from Saeco Australia. The approach suggested paying 100 per cent of book value for current stock, 60 per cent of book value for excess stock (as identified by the Administrators) and 40 per cent of book value for spare parts. Having made this suggestion, Egan noted that the actual value of the stock finally purchased might vary according to what would be on hand at the date of acquisition. Contemplating that the New Range[164] would be introduced in August 2007, he noted that Saeco International would have from April to July 2007 to reduce the current inventory. With reference to spare parts, Egan noted that by ascribing a value of 40 per cent, Saeco International should have a buffer against any risk of obsoletion.

320 Later on 20 March 2007, Ferrier Hodgson forwarded a proposed deed of company arrangement to the Administrators, copied to Egan.

321 Also on 20 March 2007, Saeco Strategic Services relied on the appointment of the Administrators in giving notice to them, pursuant to cl 6.1.3 of the Brand Management Agreement, that the Brand Management Agreement would be terminated effective 2 April 2007. (This was later extended to 4 April 2007.) Given Saeco Australia was then in administration, it is likely there could be no issue as to the validity of the notice to terminate.[165] In any event, no issue was taken.

322 On 22 March 2007, Egan forwarded an email to representatives of Saeco International. In that email Egan referred to a previous request made by him to inspect the Returned Stock. Egan suggested it was no longer necessary to inspect the Returned Stock, and gave a number of reasons for this. These reasons included that it had been represented to the Administrators that Saeco International was owed around $27 million, which sum included penalty interest. Egan noted that the offer to the Administrators by Saeco International was based upon acceptance of the debt as represented. Egan also commented that the offer did not include purchasing the Returned Stock and that no value had been ascribed to that stock. In this regard, Egan stated he had advised the Administrators that due to the age of the Returned Stock and that it was "on the other side of the world", Egan regarded the Returned Stock as having zero value regardless of whether it was defective or not. He noted that this had been accepted by the Administrators.

323 Egan concluded the email by stating that he expected Saeco International to be able to conclude the matter by early April. Egan noted there might be still an outstanding issue in relation to Saeco Australia giving authority for access to the Returned Stock, but that he expected to be able to seek the Administrators' approval at the time access was sought.

324 On 23 March 2007, Egan sent an email to Ferrier Hodgson in which he set out his "confirming notes" to the Administrators. Those notes related to a meeting held on 19 March 2007 with 1 of the Administrators, at which the proposed deed of company arrangement was presented. The notes included what had been stated to the Administrators in relation to the Returned Stock. For various reasons set out in the notes, the email recorded that the Administrators were told that the Returned Stock had no value and had not been included in Saeco International's debt claim. It was noted that Egan had sought the Administrators' authority for Saeco International to remove the Returned Stock from storage and to dispose of it or otherwise manage it as it sees fit "to avoid further storage charges upon [Saeco Australia]". There was no suggestion of any return of proceeds being provided to Saeco Australia in the event Egan was wrong in his assessment of the value of the Returned Stock.

325 On 26 March 2007, a further offer was made by Saeco International which included a further proposed deed of company arrangement. The offer had a number of components to it, the full detail of which is not necessary to set out. The key aspects were as follows:

(1) The New Subsidiary to acquire the assets of Saeco Australia (as described therein) for $12.438 million, which included an amount of $9.628 million for stock (including spare parts reduced from a book value of $3,101,624 to $1,240,650, and what was said to be excess stock from a book value of $3,911,021 to $2,346,613).

(2) The New Subsidiary to commence trading on 2 April 2007, with settlement adjustments to be finalised over the succeeding 3 months.

(3) Saeco International's claim to be admitted for dividend calculation purposes at $27,137,000.

(4) The purchase price referred to in (1) above to be satisfied by a reduction of Saeco International's claim against Saeco Australia (ie leaving a claim by Saeco International, after the deduction of the purchase price, of $14.699 million).

(5) A dividend of 65 cents in the dollar to be paid to creditors not related to Saeco International, provided such claims did not exceed $2 million.

(6) The Administrators to act as the administrators of the proposed deed of company arrangement to realise the residual assets of Saeco Australia.

(7) An alternate cash offer was made of $3.303 million, which more heavily discounted the value of the stock held by Saeco Australia to a total amount of $4.210 million. (This alternate offer was not recommended by the Administrators, who proceeded with the DOCA which substantially embraced the first proposal.)

(8) The offer concluded with projected dividend distributions to creditors under the alternate scenarios. These figures demonstrated that the proposed deed of company arrangement provided a better return to creditors by approximately 22 cents in the dollar.

326 As already noted, on 27 March 2007, the Administrators provided the Report to Creditors. The Report to Creditors stated that the DOCA would provide a return to creditors greater than in a liquidation scenario. It was noted that the business carried on by Saeco Australia was entirely and completely dependent upon the terms of the Brand Management Agreement and, by reason of this, the Administrators had determined not to offer the business for sale. The Report to Creditors recorded that Saeco International had specifically advised the Administrators in writing that Saeco International was not prepared to grant the rights under the Brand Management Agreement to a third party.

327 The Report to Creditors set out, in very broad terms, the trading history of Saeco Australia for each of the years ended 31 December 2003 to 31 January 2007. Whether the figures recorded actually reflected the true position is open to question. The audit of Saeco Australia for the year ended 31 March 2006 was never completed, and there had been no audit for the then current trading period.

328 The accounts recorded a trading loss of $1,390,364 for the 10 months ended 31 January 2007. This result arose from total revenues on operating activities of $25,644,001. As to the net asset position as at 31 January 2007, a figure of $6,270,502 was given. This figure included components of $32,454,464 for current assets and $28,753,304 for current liabilities.

329 An analysis of the trading history was performed by the Administrators. This showed a declining net profit/sales ratio from 2003 to 2007; falling from 10.1 per cent in 2003 to negative 5.4 per cent in the 10 months ended 31 January 2007. It should also be noted that the total debt owed to trade creditors (including all Saeco International's debt and non-Saeco International creditors) was $23,313,657. (This is to be contrasted by Saeco International's claim that it alone was owed approximately $27 million.[166])

330 The Report to Creditors contained a section setting out what was said to be the reasons for Saeco Australia's "adverse financial performance". A large number of factors were listed. In his evidence, Ubertini disagreed with most of the reasons given. In relation to nearly all of the factors, no direct evidence was given on the underlying facts by any party before the court.

331 It is not necessary (and probably not possible) to express any meaningfully considered view on whether the reasons given by the Administrators were accurate or fair. Notably, though, Ubertini did agree with the proposition that diminished profit margins and lower than expected sales growth were contributors to the trading results to 31 January 2007. Ubertini said this position was explained by reason that Saeco Australia did not receive the New Range. This resulted in Saeco Australia increasing discounts in the old range in order to maintain sales. It was common ground between the parties that once the New Range became available it was likely to increase both sales and gross margins.[167]

332 Another section of the Report to Creditors dealt with the trading performance of Saeco Australia from 13 February 2007 to 16 March 2007, and also receipts and payments during that time. Notwithstanding Saeco Australia was in the realm of an administration, it was able to achieve a positive EBITDA during the period.[168] The total receipts during the period were approximately $11.5 million. Of this, approximately $9 million was recorded as being transfers from pre-administration accounts. Also debtor receipts were in excess of $2.5 million in this period, with day-to-day payments made during that time being only approximately $265,000. A payment to a secured creditor of $1.2 million was also required during this time. Taking all receipts and payments into account (including cash at bank that was available pre-administration), there was a "net movement" of $10,091,606.

333 The Report to Creditors noted that there had been no formal calling of proofs of debt to that time and that no unsecured creditor had been formally admitted. The Report to Creditors also noted that Saeco Australia's solvency was dependent upon the support of Saeco International, and that in the event that that support was withdrawn, the company would not be able to trade.

334 For completeness, I refer to the costs of the administration to 16 March 2007, which were $750,813.25. It was also estimated that future costs of the administration of the DOCA would be capped at $500,000.

335 The DOCA was duly executed on 24 April 2007. De Gregorio signed on behalf of Saeco International. Moroni and Egan signed on behalf of the New Subsidiary. Much of the detail contained in the DOCA is reflected in matters set out above. However, in the final arrangement recorded in the DOCA, there were some changes to the distribution of funds (as realised by the Administrators). Non-Saeco International creditors were to receive 65 cents in the dollar up to a total of $1.3 million (rather than the previous figure of $2 million). After this had occurred, the balance of the "Deed Fund" was to be paid pro rata in respect of the balance of the "Admitted Claims" of Saeco International.

336 Saeco International chose not to lead evidence as to the total of the ultimate amounts received by it both pursuant to the DOCA and otherwise out of the proceeds of the assets held by Saeco Australia as at 13 February 2007. It also gave no evidence on the gross margins that were achieved by the New Subsidiary in relation to its sales of stock and spare parts acquired pursuant to the DOCA. Although specific details were not provided, Taddeo said there were discussions with Egan concerning valuing the stock at levels which would allow certain margins to be made which would finance the start of the New Subsidiary. Accordingly, the court is in no position to make any assessment of what, if any, losses were suffered by Saeco International as a result of Saeco Australia being placed in administration.

337 In September 2007, the issue of whether moneys were payable by Saeco International in relation to Returned Stock was revisited. In an email to an assistant of the Administrators on 14 September 2007, Egan acknowledged that the purchase price of the assets of Saeco Australia would be increased by $175,000. In so doing, Egan also recorded that details of the initial demurrage charges referable to the Returned Stock would be sent to the Administrators in support of the storage costs incurred (presumably by Saeco Australia).

338 Without going into the detail, this arrangement for increasing the price by $175,000 was concluded based on representations previously made by Egan as to the history of the Returned Stock. Again, there was no suggestion that Saeco International would account for any profit which might be made on the sale of the Returned Stock. There was also no reference to attempts, successful or otherwise, of Saeco International to sell any of the Returned Stock.

339 At trial, I was handed 2 documents that were agreed documents between the parties in relation to the Returned Stock. These documents indicated that the invoices recording the amount of the sales of the Returned Stock totalled Є532,481.20. The documents included a table entitled "Summary of invoiced sales of [Returned Stock]". That table had 6 columns, 1 of which was entitled "Payment terms". Under that column, 5 entries had recorded that the terms of payment were "payment on delivery". I indicated to the parties that I understood that to mean that payment had actually occurred and that I would read it as such unless someone suggested otherwise. No other suggestion was made. The 6th entry recorded, in relation to payment terms, that there were to be 6 equal instalments. There was also no evidence directed to these instalments that suggests the moneys had not been paid.[169]

340 There are a number of observations to make in relation to the table referred to in the preceding paragraph. First, the total amount recorded as payment for the Returned Stock was Є463,431.76.

341 Secondly, 2 of the sales were recorded to have occurred on 4 July 2007. This is obviously well before Egan sent his email in September 2007 seeking an agreed price of $175,000 in relation to all the Returned Stock.[170] The amount of these 2 sales alone was Є103,560. On the exchange rate as agreed between the parties, these sales therefore totalled in excess of $170,000. The amount of stock the subject of these 2 sales represented less than a quarter of the total of the Returned Stock ultimately sold. Accordingly, at the time Egan sent the email on 14 September 2007, it ought to have been apparent that nearly all of the $175,000 figure suggested by Egan had already been recouped. It must also have been apparent that very significant sums above the amount paid were likely to be recovered. This is borne out by the fact that 3 of the sales occurred on 5 October 2007, totalling Є172,984, or approximately $288,306.

342 Thirdly, the vendor is recorded as the New Subsidiary, rather than Saeco International. Presumably this meant that the proceeds of the sales were included in the accounts of the New Subsidiary. There was no reason given to the court, nor is any reason apparent, why such events could not have occurred in the second half of 2006, thereby providing Saeco Australia with the benefit of similar such sales.[171]

D.1.6.5 Conclusions in relation to the appointment of the Administrators

343 When the events surrounding the appointment of the Administrators are viewed collectively, a clear picture emerges. The Administrators were appointed by the nominee directors of Saeco International not by reason of questions of solvency (or for that matter the protection of the interests of creditors generally), but rather so Saeco International could achieve its desired outcome of securing control of the Australian business.

344 The desire to achieve this outcome germinated in late 2006; the precise date is not clear on the evidence. This is of no consequence, as there can be no doubt that it had well and truly taken hold long before the meeting held on 13 February 2007.

345 Based on the matters set out above, I find that in August 2006, and again in October 2006, Saeco International made genuine attempts to reach a satisfactory settlement of its differences with the Plaintiffs. Before these attempts, Saeco International had taken various measures to place itself in an advantageous position in the negotiations. These included failing to provide samples in relation to the New Range,[172] failing to deal properly with the Returned Stock,[173] dragging out negotiations in relation to the purchase of the Plaintiffs' shares, and changing the means by which they ought to be valued to try and establish that they were worthless,[174] and failing to give any assurances as to when the New Range would be available. In relation to the last matter raised, this tactic continued after October 2006.[175]

346 Having strategically placed itself as Saeco International had, De Gregorio genuinely desired to settle all remaining disputes for approximately $2.5 million, perhaps more, between August and October 2006. It was clearly in Saeco International's commercial interests for such a resolution to be reached. However, Saeco International was not willing to pay the amount the Plaintiffs were asking. Ubertini gave De Gregorio no basis to believe the Plaintiffs were willing to accept what Saeco International would be willing to offer.

347 Once negotiations collapsed in late October 2006, and this proceeding was instituted by the Plaintiffs, all meaningful attempts to resolve the issues between the parties ceased. Notwithstanding overtures made by Saeco International to the court about the willingness to acquire the Plaintiffs' shares,[176] there was little, if anything, in the conduct of Saeco International which objectively suggests it was willing to pay anything for the shares of the minority shareholders, including the Plaintiffs.

348 The evidence led by Saeco International itself was that after the negotiations collapsed in October 2006, Saeco International wanted to remove Ubertini as managing director, and was looking for a solution to achieve this. De Gregorio discussed possible options with Egan, who had the benefit of legal advice from Saeco International's lawyers. Some time before the end of 2006, Saeco International, led by Egan and De Gregorio, decided upon a strategy of appointing administrators to get rid of Ubertini altogether as managing director, and also effectively to push him aside as a director and shareholder (together with Ubertini Investments) by transferring the business to another wholly-owned entity (or possibly re-launching the business with another wholly-owned entity).

349 It cannot be ignored that prior to 22 December 2006, if Saeco International had genuine concerns about non-payment for stock delivered to Saeco Australia, it could have made demands for payment, refused to supply further stock at all, or only agreed to supply on terms satisfactory to it or a combination of various alternatives that would have been available to it. Instead, it allowed the outstanding amounts in relation to stock to escalate without any substantive complaint in relation to non-payment.

350 It was suggested by Egan that this continued supply demonstrated Saeco International's ongoing support for Saeco Australia.[177] However, such conduct was also consistent with preserving the business, while increasing Saeco Australia's debts, which paved the way for Saeco International to assume control at some later stage. As discussed elsewhere,[178] the evidence as to the precise timing of these events is unclear, but it was probably not Saeco International's intention to acquire the business without paying for the interests of others in it before late October 2006. However, after that time, the more indebted to Saeco International that Saeco Australia became the more likely Saeco International would be able to exert control over the situation (beyond the control already provided for in the Shareholders' Agreement).

351 Indeed, the fact that the stock level was increasing and that such a circumstance might advantage Saeco International was the subject of at least 1 discussion. Taddeo was told by Schwartz to continue to supply Saeco Australia for 2 reasons; namely, to prevent Ubertini claiming Saeco International did not deliver stock to Saeco Australia and, more significantly for present purposes, because "while the stock is big, the EBITDA is lower".

352 As De Gregorio said in his own words, by the time the board meeting was held on 13 February 2007 "it was war". Although the characterisation of the position between the parties may not have been quite so acute at the end of October 2006,[179] any possibility of détente between the parties was extremely remote. The evidence discloses that, in this climate of animosity, and with an impasse that Saeco International did not consider resolvable with Ubertini's involvement, Saeco International set about getting the best outcome for itself, regardless of the consequences that might result for the remaining shareholders, including the Plaintiffs.[180] In so doing, Saeco International achieved, by design, an outcome which deprived the minority shareholders, including the Plaintiffs, of receiving any value for their shares.

353 As noted above,[181] this issue arises out of the fact that Saeco International charged penalty interest in relation to debts owing by Saeco Australia to Saeco International for the supply of stock.

354 On 22 February 2007, De Gregorio on behalf of Saeco International made a claim for penalty interest in the sum of Є1,150,589.30. Save that the demand specified that there was Є10,957,933.37 overdue, no basis for the calculation of the penalty interest was given. Also on 22 February 2007, Saeco Vending claimed penalty interest in the sum of Є178,588 on an overdue debt of Є1,700,839. It is unclear on the evidence specifically for what this latter debt was. The parties proceeded on the basis that there was a debt owing.[182]

355 When asked in evidence in chief why Saeco International charged interest on the outstanding debts, De Gregorio said that he tried to put on the table everything that was due to Saeco International "regardless of whether you will get it or not". De Gregorio went on to say that it was only common sense that Saeco International list everything that was due to it and to claim for it. He was not asked, and did not give any evidence, as to the basis upon which the penalty interest was claimed, or the manner in which it was calculated.

356 As part of his work as a consultant for Saeco International, Egan prepared a document entitled "Saeco International Group (SIG) and Saeco Australia (SA) financial details". Egan gave evidence this document was prepared in late 2006. The document expressly stated that Saeco International charged no interest on overdue debts to Saeco Australia "as per company policy".

357 When taken to this document, De Gregorio acknowledged that it appeared to be a document of Saeco International. There was no suggestion from any witness called on behalf of Saeco International that the contents of this document were incorrect. Indeed, De Gregorio also gave evidence that it was not the practice of Saeco International to charge interest to Saeco Australia on outstanding balances.

358 As already discussed, in December 2006, Saeco International made the Principal Demand in the sum of Є10,509,466.18. The entirety of this amount was claimed as overdue. The Principal Demand was signed by Moroni, the chief financial officer of Saeco International. Consistent with Saeco International's company policy referred to above, no interest was claimed on any of the outstanding amounts even though Є8,657,379.18 was claimed to be overdue for more than 120 days.

359 In response to the allegation of Saeco International in the Defence that it was entitled to charge penalty interest, the Plaintiffs sought particulars of the alleged entitlement. Particulars were provided by Saeco International's solicitors. They stated that interest was calculated in relation to the overdue account at a rate of 10.5 per cent "having regard to Italian law, legislative decree N231/2002". As to the calculation itself, the particulars provided that the penalty interest was calculated by multiplying the overdue amount by the interest rate of 10.5 per cent. In other words, this was a flat rate calculation on the entire amount, without any consideration of how long the debt had been owing, or, accordingly, any proportionality in relation to the charging of penalty interest and the time for which the debt had remained outstanding (MFI-6).

360 Saeco International submitted it was "entirely fair" for Saeco International to seek to charge penalty interest if relations broke down between the parties and Saeco International ceased giving Saeco Australia indulgences. It was submitted this was particularly so in the enforcement process effectively provided by the voluntary administration. These submissions were all premised on the basis that Saeco International was legally entitled to charge as it did.

361 In contrast to the position of Saeco Strategic Services,[183] Saeco International had no contractual right to charge interest on overdue amounts. Saeco Vending also had no such contractual right.

362 Saeco International relied upon an expert in Italian law to seek to justify the interest charged. By agreement with the Plaintiffs, it tendered an extract of a report provided by Enrico Caruso, an Italian lawyer who had prepared an expert report that had been filed on behalf of the Plaintiffs. The extract addressed the question of whether or not Saeco International was entitled to charge interest on unpaid invoices. The relevant extract of the expert report concluded with the following:

Since Italian Law no. 231 of October 9, 2002 applies only to the contracts entered into [from] August 8, 2002, consequently [Saeco International] was entitled to charge interest only at the legal rate (as per Enclosure 3).

One of the annexures, presumably Enclosure 3,[184] provided a series of rates from 8 August 2002 until 31 December 2012. The rates commenced at 10.35 per cent and increased to as high as 11.2 per cent. The final rate for the period 1 July 2012 to 31 December 2012 was 8 per cent.

363 Based on the evidence put before the court, there are at least 3 fundamental problems with the submissions made on behalf of Saeco International.

364 First, the rate of 10.5 per cent charged does not appear anywhere in the extract of the expert report or the relevant enclosures. Further, for the entire period from 1 January 2012 to 31 December 2012, the specified rate is 8 per cent. There is no apparent basis to justify a rate of 10.5 per cent.

365 Secondly, the extract of the expert report does not explain how the "legal rate" is to be calculated. Presumably, it would be calculated pro rata, based on the number of days in which the debt was outstanding. In any event, there is nothing in the extract of the expert report to suggest that the legal rate, whatever the correct percentage, could be flatly charged immediately upon a debt being overdue, regardless of the period for which it is overdue. As noted above, this is the approach that was taken by Saeco International.

366 Thirdly, the submissions of Saeco International proceed on the assumption that Italian law applies to the amounts outstanding. No submission was made by Saeco International (or any party) as to which law was applicable to the agreements pursuant to which the relevant stock was supplied. Although the expert report proceeds on the assumption that the Italian law applies, the extract that was tendered does not address this issue specifically. Accordingly, it is an assumption that has not been established and therefore the opinion evidence cannot be relied upon.[185]

367 There is 1 further matter that should be addressed. As part of the offer made by Saeco International by way of a proposed deed of company arrangement, the Administrators were required to accept Saeco International's claim in its entirety, including the claims for penalty interest. This was done by the Administrators without any investigation as to whether or not penalty interest was properly payable. Accordingly, there is no evidence before the court to suggest that any investigation has occurred which supports the contention that claims by Saeco International for penalty interest were properly made.

368 In summary, on the evidence before the court, there was no proper basis for Saeco International to claim penalty interest in February 2007. The same position applies to Saeco Vending.[186] At best, the claims for interest appear to be an opportunistic attempt by Saeco International, and Saeco Vending, to inflate artificially the debt claimed in the administration of Saeco Australia.

D.1.8 Alleged course of conduct to remove Ubertini and obtain the Australian business

369 As stated above, each part of paragraph 59 of the Particulars of Claim is conjunctive. Accordingly, for the allegation to be made out the Plaintiffs must establish that from September 2005 it was Saeco International's "deliberate course of conduct" to obtain the business of Saeco Australia "without paying anything to the Plaintiffs for their shares".

370 Such an allegation is not supported by, and is directly contrary to, the undisputed evidence concerning events in August and October 2006. Although events in late 2005 and early 2006 might have given rise to Ubertini reasonably believing Saeco International had such an agenda,[187] on 4 August 2006, Saeco International made an offer by which the Plaintiffs could receive in excess of $2.5 million for their shares, together with other benefits. Although it was not an offer capable of immediate acceptance,[188] the proposal was a genuine attempt to try and provide significant value to the Plaintiffs in return for their shares. It was not suggested at any time during the course of the trial that the offer was made other than in good faith.

371 Further, De Gregorio gave evidence that he flew to Australia from France in late October 2006 in order to try and settle all outstanding matters with Ubertini in relation to Saeco Australia. He said at the time he was willing to offer at least as much, and probably a little more, than had been previously offered in order to try and resolve the matter. The discussions did not proceed very far as Ubertini, apparently on the advice of his lawyers, did not engage De Gregorio in meaningful discussions.

372 In the circumstances, it cannot properly be suggested that at all times from September 2005 to February 2007 Saeco International was seeking to obtain the business of Saeco Australia without paying anything to the Plaintiffs for their shares.

D.1.9 Saeco International's nominee directors' conduct

373 The nub of Saeco International's submissions was that the conduct of Saeco International, through its nominee directors, was commercially fair. In a number of respects, I have, in substance, rejected that submission. Further, in critical respects, De Gregorio and Egan were involved in conduct I have found, in substance, to be unfair.

374 The conduct of De Gregorio and Egan after De Gregorio's visit to Melbourne at the end of October 2006 was integral to the deliberate strategy of Saeco International to maintain control of the business of Saeco Australia in accordance with the Shareholders' Agreement, but at the same time bring about its demise (in the hands of Saeco Australia) and subsequent transfer, without having to pay the minority shareholders, including the Plaintiffs, for their shares. Such conduct implemented by De Gregorio and Egan while directors of Saeco Australia was undoubtedly in the "affairs" of Saeco Australia as that term is understood in s 232(a) of the Act.[189] Accordingly, the issue of the nominee directors' conduct might be dealt with relatively briefly. However, I have decided to elaborate on some aspects of the conduct of De Gregorio and Egan, as such conduct is relevant to the views I have formed on the strategy engaged in by Saeco International from approximately November 2006 onwards.

375 In 2006, De Gregorio was a senior executive in a demanding and difficult position. He was required to report to private equity investors. As he made clear in his evidence, they expected results, were "interested only in financial data" and were not tolerant of non-performance. This lack of tolerance, according to De Gregorio, was specifically directed at the position of Saeco Australia when the outstanding debts became unacceptable in amount and time overdue.

376 As managing director of Saeco International, De Gregorio oversaw a large international business with subsidiaries and sales networks in many countries. The consolidated financial statements dated 31 March 2007 record Saeco International having majority or outright ownership, either directly or indirectly, of 29 companies. Collectively, these companies conducted business throughout a very large area. Although the evidence was not exhaustive, it does disclose Saeco International conducted its business through western and eastern Europe, north and south America, Asia, and Australasia. In short, Australia, while not insignificant, was only 1 of De Gregorio's many responsibilities.

377 Once an impasse had been reached in late October 2006, De Gregorio, understandably, wanted a solution. Naturally, De Gregorio was entitled to pursue a solution that was in the interests of Saeco International if it did not conflict with his duties as a director of Saeco Australia. However, in my view, De Gregorio took the matters beyond this position.

378 As the evidence referred to immediately below demonstrates, De Gregorio did not take kindly to Ubertini standing up to him or acting in such a difficult manner. The evidence also discloses that De Gregorio not only pursued Saeco International's interests in seeking to find a solution, but also that he decided to harm, and acted in a manner that was harmful to, Ubertini's interests.

379 In relation to De Gregorio's attitude towards Ubertini in late 2006, Taddeo said that around the time of the last offer being put by Saeco International to Saeco Australia, De Gregorio said (in Italian[190]) to Taddeo and Schwartz that he would crush Ubertini. Although the evidence is not entirely consistent as to whether this was said shortly before the last offer was put or after the last offer had been rejected, Taddeo's evidence was entirely clear that De Gregorio expressed such a sentiment. Taddeo also said that De Gregorio stated in substance: De Gregorio had given Ubertini his last chance; he had never met someone like Ubertini; Saeco International would go until the end; and that it would never give Ubertini any money or anything.[191]

380 Saeco International does not accept that such statements were made by De Gregorio. When Schwartz was asked whether De Gregorio had said that he would crush Ubertini, Schwartz said he did not recall. When he was informed in cross-examination that Taddeo had already given evidence to the effect that these words were said, Schwartz simply said, "He give (sic) his evidence, okay".

381 De Gregorio specifically denied making any statement to the effect that he would crush Ubertini. De Gregorio admitted he was angry at the time the last offer was rejected. He said he considered Ubertini's refusal of the offer was like a declaration of war. But De Gregorio said "I crush him" could not have been his words. He went on to say that being angry was one thing but making such a statement was as far apart as the distance between Paris and Moscow.

382 I do not accept De Gregorio's denial. It is quite possible De Gregorio has forgotten stating that he would crush Ubertini. In contrast to De Gregorio's poor recollection of events as to what was said when Ubertini refused the offer, Taddeo's recollection was very clear. Indeed, Taddeo could recall De Gregorio coming out of his office and making the statement that he did. As I have noted elsewhere, I found Taddeo to be a credible witness.[192]

383 In any event, if my view of the facts on this issue is incorrect, whether the precise words as recalled by Taddeo were said is of no great moment. The significant evidence is that Taddeo recalled numerous statements made by De Gregorio which reflected a state of mind in De Gregorio to devise a strategy to ensure that Ubertini would be challenged by Saeco International in such a way as to, if possible, deprive Ubertini of any payment for his minority shareholding.

384 Before discussing various aspects of Egan's conduct, a general observation should be made in relation to the situation in which Egan found himself. Egan was initially retained by Saeco International in circumstances where it was anticipated that there would be a relatively uneventful transition from Ubertini departing as managing director and Egan replacing him. Schwartz said that it was from about May 2006 that Egan was made responsible for the negotiations with Ubertini. By the time Egan was asked to be a director of Saeco Australia in November 2006, the relationship between Saeco International and Saeco Australia was, at best, an extremely difficult one.[193]

385 Because of Egan's involvement in the negotiations prior to his appointment as a director, it is unlikely Egan would have received anything other than a negative, perhaps even hostile, reception from Ubertini in the event that he sought to engage Ubertini more directly in the issues that faced Saeco Australia in late 2006 and early 2007. Indeed, this expectation was part of the reason given by Egan for not including Ubertini in some of his correspondence.

386 That said, the existence of Ubertini's attitude did not make it permissible for Egan to pursue Saeco International's interests, inasmuch as those interests were contrary to the interests of Saeco Australia. Certainly, it did not relieve Egan of his obligations to take steps to assist Saeco Australia if his duties as a director of Saeco Australia required him to take such steps. Further, whatever reception Egan thought he might receive, his failure to speak with Ubertini directly before the board meeting on 13 February 2007 must also be viewed in light of Ubertini's implicit request that Egan meet with him, or at least telephone him.[194]

387 The overwhelming impression I gained from Egan's conduct from around November 2006 to September 2007 was that Egan was doing his utmost to assist Saeco International in achieving the most favourable outcome it could in relation to its disputes with Saeco Australia. Such an approach might not necessarily have conflicted with Egan's duties as a director of Saeco Australia. However, in a number of respects, Egan chose to act contrary to Saeco Australia's interests in pursuing the desired outcome of Saeco International.

388 It was put squarely to Egan that, from the time he became a director of Saeco Australia, he was acting entirely in the interests of Saeco International and not in the interests of Saeco Australia. Egan denied this suggestion. Whatever Egan's belief may have been, an objective consideration of his conduct demonstrates that this suggestion put to him in cross-examination was soundly based. A few examples of Egan's conduct illustrate the point.

389 Egan dealt directly with Saeco International's lawyers for and on behalf of Saeco International in relation to disputes between Saeco International and Saeco Australia. Before he was appointed a director of Saeco Australia, Egan was already in the practice of dealing with Saeco International's lawyers. As Taddeo put it, Egan "was helping in the organisation of the new company, talking with lawyers, talking with auditors, solicitors, everybody". Taddeo described Egan's role up until his appointment in November 2006 as building "the platform of the new launch" of the New Subsidiary. Without being exhaustive in relation to correspondence between Egan and Saeco International's solicitors after Egan's appointment, I will refer to some correspondence while Egan was a director of Saeco Australia to illustrate the nature of Egan's involvement.

390 On 22 November 2006, Egan sent an email to De Gregorio in relation to attempts to convene a board meeting of Saeco Australia. The email included the following:

We will dispute his arguments tomorrow and indicate he is failing in his duties. The lawyers are not surprised by this and consider his further obstruction assists our position. You will receive a copy of our response tomorrow and the lawyers are currently reviewing my draft.

(Emphasis added.)

Egan acknowledged in his evidence that the reference to "the lawyers" in this email was a reference to the solicitors for Saeco International. This email shows that Egan was dealing firsthand with Saeco International's lawyers from as early as November 2006.

391 On 1 February 2007, Egan sent an email to De Gregorio, copied into numerous other persons, including at least 4 lawyers acting for Saeco International. The subject of the email was a conference call to be held on the upcoming Friday. The meeting was to be held at 8.30 am Italian time, and the participants "on our side" were identified by Egan as himself, 3 partners from Allens Arthur Robinson (solicitors for Saeco International) and a partner from Toomey Pegg Drevikovsky (also solicitors acting on behalf of Saeco International). The email referred to a few meetings planned in Australia, which meetings included a meeting with Allens Arthur Robinson, Ferrier Hodgson and the independent valuer (John Selak) from Ernst & Young. The email also referred to a subsequent discussion with Ferrier Hodgson about voluntary administration implications in the event the directors resolved voluntary administration was necessary. The email concluded by stating that Egan expected to update De Gregorio on these issues (amongst others) at the upcoming conference call.

392 The subject matter of the items listed in this email were core issues between the parties, including issues already on foot in this proceeding, and issues for the upcoming board meeting.

393 On 7 February 2007, Egan sent an email to Schwartz, copied to various people including the 4 lawyers referred to in the email sent 1 February 2007. This email set out a draft of a "possible response" to Ubertini in relation to Saeco Australia's plans for 2007/2008. This was done without Egan expressing any of his views to any director of Saeco Australia (other than De Gregorio who was sent a copy of the email). Egan set out a covering note and the "many queries" that were said to exist in relation to the plan. The email included the following:

I expect you also have a variety of queries about the plans but potentially some of my observations may have been addressed during your conference call [with Ubertini[195]].

Unless you are satisfied with the plans we consider it is important to properly respond to [Ubertini] advising him of [Saeco International]'s concerns and the actions [Saeco Australia] needs to take in response prior to budgets or launch plans being agreed.

(Emphasis added.)

394 When asked what the reference to "we" was in the passage set out above, Egan said he thought he might have had a discussion with the legal team about the issues the subject of the email. There is little doubt that he did. Egan was in regular contact with the solicitors for Saeco International around this time. For example, Egan swore a lengthy affidavit on behalf of Saeco International on 5 February 2007, which was filed in this proceeding.[196]

395 The draft comments forwarded by Egan were in the first person (ie ostensibly being comments of Schwartz as if Schwartz were the author of the document). On 9 February 2007, Schwartz sent an email to Ubertini attaching comments in relation to the 2007/2008 plan. Although there were modifications, the comments were clearly derived from the draft provided by Egan. Egan was copied into the email sent by Schwartz to Ubertini. There was no suggestion in the email that Egan had had any involvement in preparing the comments. Also, the comments in the covering email largely replicated what had been drafted by Egan.

396 Without descending to the detail of the email chain at this point, it is also noteworthy that in December 2006 Egan was both a recipient and a sender of emails containing privileged communications. Indeed, in 1 of the emails sent by Egan, the entire contents were the subject of a claim for client legal privilege by Saeco International.

397 When Egan was asked in cross-examination why he forwarded a particular piece of correspondence to solicitors for Saeco International, he said he could not recall but that he "was routinely keeping them informed of many aspects". On another occasion when he was asked whether he had informed the directors of Saeco Australia about his discussions with solicitors for Saeco International, Egan stated that he had not. Based on the evidence before the court, it appears that Egan was routinely in contact with solicitors for Saeco International from at least November 2006 in relation to matters in dispute between Saeco International and Saeco Australia, and kept those communications confidential to the extent that he did not disclose them to directors of Saeco Australia. The regime in place before Egan was a director of Saeco Australia was that all correspondence to Ubertini had to be checked by Saeco International's lawyers. Further, any letter involving marketing or sales had to be seen by Schwartz and the lawyers. According to Schwartz, this regime continued under Egan once he took over in November 2006, with Egan being required to see such correspondence as well as the lawyers.

398 During the course of his cross-examination, Egan was asked whether, while he was a director of Saeco Australia, he received advice from Saeco International's solicitors about the appointment of an administrator to Saeco Australia. Before a response was given the following objection was taken by senior counsel for Saeco International:

We object to that question on the grounds of privilege. The reason we object on the grounds of privilege is that Saeco International claims privilege in confidential communications involved in legal advice which it received from Allens Arthur Robinson.

(Emphasis added.)

399 The objection could only be maintained if Egan was receiving any advice on the appointment of the administrator, and maintaining its confidentiality, other than in his capacity as a director of Saeco Australia. If he was not acting other than in this capacity for Saeco Australia, the communications could not be confidential to Saeco International, and therefore privilege could not be claimed or maintained (even if there were some basis for the privilege being properly claimed in the first place).[197]

400 On numerous occasions, senior counsel for Saeco International reminded the court that Saeco International maintained privilege in relation to all communications with its lawyers that were capable of attracting the protection afforded to privileged communications. To reiterate, to the extent that Egan was involved in these communications, he could only be acting for and on behalf of Saeco International for there to be a proper basis for the privilege to be claimed and maintained.

401 Further, based on the evidence given by De Gregorio, and Egan's active involvement in applications before the court prior to the board meeting being held on 13 February 2007, there can be little doubt Egan discussed with Saeco International's lawyers the issue of having administrators appointed to Saeco Australia. Indeed, De Gregorio said he believed Egan discussed the issue with the lawyers and then reported back to De Gregorio. I accept that De Gregorio's belief reflected what occurred. Further, Taddeo gave evidence, which was not challenged, that from as early as April 2006 onwards, everything that was written to Saeco Australia was checked by Saeco International's lawyers.

402 In summary, Egan was actively involved in communicating with Saeco International's lawyers in relation to advancing Saeco International's position on the disputes it had with Saeco Australia, including the means by which Saeco International could obtain control of the business conducted in Australia.

403 A further activity Egan engaged in after becoming a director of Saeco Australia was to assist Saeco International in formulating correspondence to Saeco Australia, and providing such drafts to Saeco International, to advance its position to the disadvantage of Saeco Australia.

404 By way of examples (in addition to the matters already referred to[198]), on 13 December 2006 Egan drafted a response to be sent to Saeco Australia in relation to the timing of the introduction of the New Range. Egan's draft referred to the earlier requests for launch plans from Saeco Australia in relation to new products being sold in Australia in the future. The email suggested that Saeco International was unable to plan production and determine the timing of new model launches without receiving such launch plans. It concluded by suggesting it was most unlikely, therefore, that the launch of the New Range could be achieved in time for the budget development. Egan agreed in cross-examination that his draft suggested that Saeco Australia should not budget for receiving the New Range, but only budget on the existing range. Such an approach would necessarily reduce any figures that could reasonably be budgeted for by Saeco Australia.

405 Also in respect of the New Range, Egan sent an email to Taddeo on 17 January 2007 (which was also copied to a partner of the legal firm acting for Saeco International). The email included the following:

Although they are yet to satisfy your planning requests [let's] assume they presented the plans to you and you were satisfied with them.

If this was the case when do you expect [Saeco International] could supply?

I estimate that even if [Saeco International] supplied today by the time stock was received by sea they would probably not have it in the market until April at the earliest.

Thus they may have little contribution to first quarter sales.

They could potentially airfreight but ...

(Emphasis added.)

In passing, I suggest that it is no coincidence or mistake that Saeco Australia was referred to in this email as "they" (see italics), even though Egan was a director of the company.

406 Egan suggested this email was sent by him making the inquiry on behalf of Saeco Australia. I find this evidence difficult to accept. There are a number of reasons for this, aside from his use of language as already emphasised. First, Egan did not copy in or send a copy of the email to Ubertini (or for that matter any other director of Saeco Australia). There is no evidence he ever communicated the details of this communication to anyone at Saeco Australia.

407 Secondly, the email was copied to a lawyer of Saeco International. This would be curious conduct indeed if Egan were acting on behalf of Saeco Australia. There appears to be no plausible reason for Egan to copy in the communication to the solicitor for the party with whom Saeco Australia was at loggerheads, but not copy in anyone from Saeco Australia, if Egan believed he was acting on behalf of Saeco Australia.

408 Thirdly, Egan suggested in his evidence that he sent this email to try and facilitate the availability of the New Range. It is not readily apparent that that was the intention of the email. The email contains a succession of reasons for drawing the conclusion that Saeco Australia could not obtain the New Range in time to be able to make any substantive contribution to first quarter sales. This hardly seems to be assisting with facilitating the availability of the New Range. Indeed, there is not 1 suggestion in the email as to how Saeco International could more promptly provide the New Range to assist Saeco Australia.

409 On 4 February 2007, Egan sent an email to Schwartz, copied to De Gregorio and other officers of Saeco International. The email was concerned with reviewing the launch plan and budget review provided by Saeco Australia. Egan, a director of Saeco Australia, was reporting to Saeco International that he did "not consider either very credible". Egan continued:

My observations are attached and I would appreciate your comments as they may influence how [Saeco International] should respond to [Saeco Australia].

This could be important in light of the current events and disputes.

Especially with the budget I may have made some incorrect observations as I am not fully familiar with the reports but there appear to be many inexplicable projections.

As a non-executive director, if Egan had uncertainty in relation to the reports, one would have expected him to contact the finance department of Saeco Australia for clarification before seeking to criticise the reports that had been provided. At the very least, an attempt in this regard would be expected to be made before promoting an adverse position and seeking the requisite information from Saeco International to achieve that adverse position.

410 Egan sought to explain the absence of any communication with Saeco Australia in relation to this email on the basis there was clearly some resistance to having a meeting of the directors and clearly some resistance shown to himself. He said in the circumstances he considered it far better to have a board meeting to discuss these types of operational issues as well as the business. The problem I have with his explanation is that the board meeting was held less than 10 days later. Egan did not seek to raise any of these issues at the board meeting, even though he was the chairman of the meeting.

411 There is a further, more general, problem with the explanation proffered by Egan in relation to his minimal communications with other directors and officers of Saeco Australia. In cross-examination, it was put to him that, before the meeting held on 13 February 2007, he had never met with any of the other directors of Saeco Australia (other than De Gregorio). In refuting that suggestion, Egan said that he believed he had a telephone conversation with White at one point. Save for that, it appears he made no attempt to have meaningful discussions with the other directors of Saeco Australia (other than De Gregorio). Indeed, he conceded that he never spoke to Ubertini prior to the meeting, nor did he ever visit the premises of Saeco Australia.

412 If Egan genuinely believed he was acting in the best interests of Saeco Australia, it would be expected that at least some form of meaningful dialogue would have occurred, at the very least with the executive directors other than Ubertini.[199] I do not accept that the inability to call a board meeting satisfactorily explains this complete absence of meaningful communication.[200] As Taddeo noted in his evidence, he had spoken with "Mr Kremmer" (presumably James Kremmer) "of sensible topics alone many times".

413 Egan was also criticised by the Plaintiffs' senior counsel for not putting forward any payment proposal in relation to the Principal Demand. Egan gave a number of reasons for not doing this. He said that he thought it was the role of executive management and the executive directors to provide such a proposal. Egan never made such a suggestion at any time leading up to 13 February 2007.

414 Egan also said he thought it was a topic for the board to discuss. However, there is no suggestion in Egan's email sent 22 January 2007 that this would be a topic for discussion at the board meeting. Nor was there any such suggestion in any other communication from Egan. Further, as may be seen above,[201] when the topic actually came up for discussion at the board meeting, Egan did no more than, in substance, indicate that the opportunity for a repayment plan had already been given; he certainly did not seek to explore the possibility of any repayment plan.

415 Also relevant to the proper characterisation of Egan's role is Egan's conduct at the board meeting on 13 February 2007. When the transcript of the meeting is read as a whole, it is clear Egan was advancing the interests of Saeco International. Further, it is my view that if he was also acting in the interests of Saeco Australia he would have acted differently. This may be illustrated by way of examples.

416 First, the transcript discloses that executive directors other than Ubertini genuinely sought the opportunity to provide a repayment plan to Saeco International. As previously noted,[202] Egan said this subject matter was appropriate to be discussed at the board meeting. Further, on 22 January 2007, he had recommended that Saeco Australia not incur any new or additional liabilities.[203] Presumably, Egan did this as he believed there was an ability for Saeco Australia to cease incurring new or additional liabilities for a short period of time.

417 The evidence does not suggest any good reason why Egan would not have supported a suggestion from the independent executive directors for a short period of time to enable a repayment plan to be put to Saeco International. Egan said the question of insolvency had arisen while he was reviewing the end of November 2006 accounts. The financial reports for Saeco Australia as at 30 November 2006 were provided by Ubertini to Saeco International in an email, addressed to the directors of Saeco Australia, including De Gregorio[204] and Egan, sent 14 December 2006. Egan said he reviewed the materials when he received them. Although Egan could not recall exactly when this review took place, it is highly likely it was shortly after the financial reports had been forwarded by Ubertini. Accordingly, by the time of the board meeting on 13 February 2007, the financial position of Saeco Australia was not something that had only recently been discovered.

418 Secondly, Egan suggested that he was putting the interests of the creditors generally ahead of the shareholders in acting as he did and agreeing to the resolution for administrators to be appointed. It is difficult to reconcile this evidence with the fact that Egan also accepted that creditors other than Saeco International were being paid in the normal course within their trading terms. If Egan was genuinely acting in the interests of all creditors, one would have expected he would have explored options available to Saeco Australia to repay Saeco International over time and therefore ensure that all creditors were ultimately paid all moneys owed in full. In the result, the trade creditors only received up to 65 cents in the dollar from a pool of $1.3 million.

419 In many instances, a suggestion by some directors for more time to formulate a repayment plan to a major creditor, in circumstances where the debt demanded cannot be paid in its entirety, would be a forlorn and misconceived response to issues concerning insolvency. However, in this case, where the creditor in question was the only creditor not being paid satisfactorily and was also a 60 per cent shareholder in the debtor, the proposal for a short period of time to formulate a repayment plan needed to be taken seriously. This is particularly so when the context was that there had been a long dispute between the major shareholders which had become locked down and entrenched, without any consideration of the position of the remaining shareholders of Saeco Australia.

420 Further, Saeco Australia had very substantial and liquid assets available to it. Although the figures available are not audited, the accounts and other evidence strongly suggest when cash and current debtors[205] are combined those amounts would have far exceeded the undisputed amounts claimed by Saeco International, also making an allowance for the usual amount provided for working capital. The following demonstrates the point:

Current Assets

Cash $ 8 million approximately

Debtors $ 6 million approximately

$14 million

Liability to Saeco International companies

Amount Claimed (as at 13 February 2007) $17 million approximately

Less Returned Stock ($ 1 million approximately)

Brand management fee ($ 3 million approximately)

Working capital ($10 million approximately)

$ 3 million.

By putting forward these figures, I am not suggesting there was not significant room for debate or controversy about the extent to which Saeco Australia would be able to maintain a working capital base of $10 million based on extended terms; or that the non-provision of the Services meant no moneys were payable at all under the Brand Management Agreement; or that Saeco Australia ought to receive a credit for the full amount of the Returned Stock. However, each of these matters was of real substance and, as the figures demonstrate, there were significant resources available to Saeco Australia to meet non-disputed debt in the meantime.

421 Finally, in considering the context of the request to provide a repayment plan, Saeco Australia was likely to be able to continue to trade on a profitable basis if Saeco International did not insist on immediate repayment of the entire amounts claimed. This is demonstrated by the positive EBITDA results achieved by the Administrators from 13 February 2007 to 16 March 2007,[206] which were achieved at a time when the New Range was yet to be made available. All parties expected that once the New Range was available (which at the time was imminent), the profitability of Saeco Australia would be increased significantly.

422 As already noted, Egan did give some response to the repayment plan proposal, but it was not recorded on tape. In the absence of any evidence as to what Egan said, I am left with the remaining evidence upon which to decide whether the repayment plan was given due consideration by Egan or De Gregorio. The remaining evidence shows that both Egan and De Gregorio were intent upon administrators being appointed. I find that the repayment plan was not seriously considered, as it would have been by directors in their position who were acting reasonably and in the interests of Saeco Australia, and that De Gregorio and Egan proceeded to put Saeco Australia into the control of the Administrators in order to best serve the interests of Saeco International.

423 There was a suggestion that Egan and De Gregorio were risking personal liability in relation to Saeco Australia continuing to trade. Whilst this proposition might generally be correct if demands for payment had been validly made,[207] there was no evidence to demonstrate that any exposure would increase if a very short postponement of the administration resolution occurred (say 24 to 48 hours[208]) in order that a repayment plan could be put together. Indeed, as already noted,[209] Egan's email sent 22 January 2007 suggests there was an ability to cease incurring further debts.

424 Finally, the role of Egan being properly characterised as acting for Saeco International is also evidenced by the fact that, shortly after the Administrators were appointed, Egan resigned as a director of Saeco Australia. Presumably, such a resignation allowed Egan to act officially in the interests of Saeco International unfettered by any obligations he might have had to Saeco Australia if he remained a director. Egan said he essentially "reverted" to a role of advising Saeco International during the administration process. While Egan's choice of language acknowledges, correctly in my view, he had been performing this role in the past, in fact Egan never ceased acting in the interests of Saeco International.

425 Consistent with the approach above, I will now consider each of the matters raised by Saeco International.

D.2.1 Prevention of board meetings of Saeco Australia

426 There is no doubt that Ubertini did prevent a board meeting of Saeco Australia from occurring in late 2006 and early 2007. Ubertini defended his position at the board meeting on 13 February 2007, stating he acted the way he did because he did not want to be sacked. As noted above,[210] a board meeting could not be properly constituted unless Ubertini, as a "B" director, was in attendance. In order to assess whether, and the extent to which, the prevention amounted to oppressive conduct, it is necessary to set out the relevant events from August 2006 until February 2007. However, before doing this, the approach that had been taken historically to Saeco Australia holding board meetings must be considered.

427 Generally speaking, Saeco Australia functioned without the board holding formal meetings.[211] The usual means by which matters were considered was by Ubertini discussing Saeco Australia's business, either by telephone or in person, with the relevant senior executives of Saeco International. No minutes of such discussions were kept.

428 In addition to these discussions held from time to time, regular reporting procedures and obligations were in place. Saeco Australia was required to comply with these on a weekly basis. De Gregorio was not aware of any suggestion from Saeco International that Saeco Australia was not meeting its obligations of reporting.[212] Tellingly, Schwartz acknowledged that, aside from the falling out with Saeco International, there was no difficulty in the way in which Saeco Australia was administered up until the time he ceased to be a director (namely, 9 November 2006).

429 Thus, it is clear that, despite some assertions from De Gregorio which might be understood to be putting a contrary position, Saeco International did not see itself as generally shut out of the management of Saeco Australia, even though board meetings were not held. That said, once Ubertini unilaterally decided to withhold all payments from Saeco International in June 2006, the desirability of a board meeting to address various issues undoubtedly increased.

430 It was in this context that, on 29 August 2006,[213] solicitors acting for Saeco International sought a time, date and place for the conduct of a directors' meeting of Saeco Australia in Melbourne in the period from 12 to 14 September 2006. The letter stated that De Gregorio did not wish to travel to Melbourne from Italy for the purpose of attending a meeting only to find that Ubertini would not attend, and therefore prevent the meeting from occurring. The letter recorded that Saeco International had lost confidence in Ubertini and intended to propose a resolution at the meeting to terminate the Employment Agreement and to give Ubertini 6 months' pay in lieu of notice.

431 On 7 September 2006, the Plaintiffs' solicitors responded. They stated that Ubertini was not in Australia between 12 and 14 September 2006 and, accordingly, the meeting could not occur on those dates. The letter also stated that the proposal to terminate Ubertini was completely ill-conceived.

432 On 22 September 2006, the Plaintiffs' solicitors informed Saeco International that Ubertini was then overseas and would not be returning until 5 October 2006. It also referred to the fact that he was attending a funeral at the time. An extension of time to respond to matters then raised was sought until 12 October 2006. I was not made aware of any response by Saeco International to this letter.

433 Ubertini said that "after September" there was a request for a board meeting. The precise timing of this evidence was unclear. Ubertini said he was unable to attend because his mother was ill in hospital in Italy.

434 On 12 October 2006, the Plaintiffs' solicitors sent another letter in which they stated that Ubertini accepted a meeting of directors would have power to resolve to terminate his role as managing director. However, it was suggested that this was not in the best interests of Saeco Australia. The letter also stated that Ubertini was willing to convene a directors' meeting during the week commencing 12 November 2006. The letter inquired as to whether the directors of Saeco Australia nominated by Saeco International were willing to attend a directors' meeting at that time in Melbourne on the basis that there would not be a resolution to remove Ubertini as managing director.

435 On 23 October 2006, the Plaintiffs' solicitors responded by letter to a suggestion from Saeco International that the proposed timing of the meeting had been suggested by Ubertini deliberately to inconvenience Saeco International as it coincided with another meeting. This suggestion was refuted. It was stated in this letter that there had been communications as to why a meeting in the previous week was inconvenient to Ubertini's legal representatives. On 25 October 2006, another letter was sent stating why it was not appropriate to have a meeting in the week commencing 6 November 2006 given the unavailability of Ubertini's lawyers.[214]

436 By letter dated 27 October 2006, the Plaintiffs' solicitors noted that proceedings had been issued in this court (the proceeding having commenced the previous day). The letter reiterated that Ubertini was willing to convene a meeting of directors on or after 13 November 2006, but only if an undertaking was given not to propose a resolution for his termination as managing director of Saeco Australia. Ubertini admitted, under cross-examination, that from the time the Plaintiffs initiated this proceeding, he was not willing to voluntarily attend a board meeting where a proposal to remove him as managing director might be put.

437 On 3 November 2006, Ubertini wrote a letter to De Gregorio informing De Gregorio that on 1 November 2006 he had received a notice of meeting of the board of Saeco Australia. Ubertini suggested that the proposed meeting time of 8 November 2006 did not comply with s 248C of the Act, as it did not constitute reasonable notice. Ubertini also raised a minor point in relation to the time of the proposed meeting, which was a technical point at best. I infer that Ubertini was looking for any reason to justify not agreeing to the meeting on 8 November 2006.

438 However, of more substance, Ubertini also complained that he had stated he was available at any time on or after 13 November 2013 and that the availability at this time had been completely ignored by De Gregorio. I note, although not referred to in the letter, the timing as proposed by De Gregorio was also inconvenient to Ubertini's solicitors for the reason referred to above. Both parties had lawyers heavily engaged in all material communications. Ubertini reiterated he was willing to meet on or after 13 November 2006, provided it was not proposed to dismiss him as managing director of Saeco Australia.

439 On 15 November 2006, Egan, as a director of Saeco Australia, issued a formal notice of directors' meeting to be held on 30 November 2006. Ubertini responded the following day, complaining that no undertaking had been given not to propose a resolution to dismiss him as managing director. He said that once such an undertaking was given he would convene a meeting of directors of Saeco Australia.

440 On 17 November 2006, both De Gregorio and Egan provided written undertakings to Ubertini that they would not propose, nor vote in favour of, any resolution to remove Ubertini as managing director without giving Ubertini at least 21 days' written notice. They reserved the right to withdraw the undertaking upon giving 21 days' written notice.

441 On 21 November 2006, Ubertini wrote a letter to Egan which suggested that the notice given by Egan was defective. The basis of the suggestion was that Egan had proposed that the directors attend by telephone. It was suggested this was contrary to the constitution, unless all the directors had agreed to such a means of holding a meeting. It was not suggested by counsel for the Plaintiffs that such an approach by Ubertini was reasonable. Nor was it suggested that it was necessary for all directors to be in attendance personally.[215]

442 On 22 November 2006, Egan sent an email to De Gregorio[216] noting that Ubertini had again rejected the proposed board meeting. Egan stated that Ubertini's arguments would be disputed in court and it would be suggested he was failing in his duties. Egan also stated that Saeco International's lawyers were not surprised by Ubertini's position, and considered "his further obstruction assists our position". No elaboration was given on the position referred to. Presumably, it was a reference to the position of the parties in relation to this proceeding.

443 On 24 November 2006, Ubertini persisted with his opposition to a board meeting being held on 30 November 2006. He maintained that it was not acceptable for some directors to attend by telephone. However, he also offered to hold a meeting of the board of Saeco Australia before Christmas 2006, provided that De Gregorio and Egan attended in person.

444 On 28 November 2006, Egan sent an email to Ubertini stating there was no proper basis to withhold his consent to the meeting being attended by telephone by some directors. Egan noted that he intended to attend in person. Confirmation was sought that Ubertini would attend the meeting at 9.00 am on 30 November 2006. No such confirmation was forwarded by Ubertini, and the meeting did not occur.

445 On 8 December 2006, Ubertini forwarded by email a notice of a meeting of the board of directors of Saeco Australia, to be convened at the company's offices on 13 February 2007. The covering email stipulated that all directors were to attend personally. De Gregorio had been in Australia in November 2006. Ubertini was aware of this. In his evidence, Ubertini said that by stating that all directors "must attend personally" he did not understand that required De Gregorio to come back out to Australia again. When he gave this evidence under cross-examination, he was not challenged. However, it is difficult to discern what else could have been intended at that time. (Given De Gregorio was not ultimately required to attend this meeting in person, little significance attaches to this piece of evidence.)

446 Although there is no direct evidence on the point, it appears that Saeco International's nominee directors of Saeco Australia proposed a meeting of directors on 21 December 2006. The day before, an email was sent by Ubertini to the other directors of Saeco Australia, amongst others, stating that he was unable to attend because of ill-health. A medical certificate was attached to indicate Ubertini was not fit for work for a period of 1 week. It was not suggested that this was anything other than a legitimate excuse for his non-attendance.

447 On 22 December 2006, Egan sent an email to the directors of Saeco Australia in which Egan said he hoped Ubertini would make a speedy recovery. In light of the fact that the board meeting had not occurred, Egan proposed a new time, namely 10.00 am on 16 January 2007 at Saeco Australia's premises.

448 On 8 January 2007, Ubertini wrote to Egan stating that no board meeting had been called on 16 January 2007. He insisted that the directors meeting was scheduled for 13 February 2007. Egan immediately responded by forwarding the email that he had previously sent on 22 December 2006.

449 On 10 January 2007, Egan responded to Ubertini's email sent 8 January 2007. Egan addressed a number of issues, including the proposed board meeting he had called for 16 January 2007. Egan insisted that reasonable notice had been given. Egan concluded the email by advising[217] that he remained conscious of his obligations as a director, and would make "all necessary disclosures" at the upcoming board meeting. Save for suggesting these disclosures would not take up much time, Egan did not provide any detail of what they concerned. The evidence does not suggest there was any later communication on this issue.

450 Also, on 10 January 2007, Ubertini stated he did not understand the earlier email of 22 December 2006. He said he had also made further inquiries which indicated that the email of 22 December 2006 did not attach a notice of the board meeting. Ubertini asserted that the attempted convening of a board meeting for 16 January 2007 was defective. He concluded by stating that, in any event, a properly convened meeting could go ahead on 13 February 2007. He also attached a new notice of meeting of the board of directors for Saeco Australia. As there is no evidence of any alternate date subsequently suggested by Saeco International's nominee directors, I infer that after this communication, it was accepted by Saeco International that the board meeting would go ahead on 13 February 2007.

451 On 22 January 2007, Egan stated in an email that various matters needed to be addressed at the upcoming board meeting.[218] He expressed a belief that a meeting before 13 February 2007 was warranted, but that his attempts to achieve this had been thwarted.

452 On 23 January 2007, Ubertini wrote to Egan asking whether it was intended to appoint a voluntary administrator or liquidator to Saeco Australia on 13 February 2007. Egan responded the following day stating that the appointment of a voluntary administrator would be a matter for the board to decide at the meeting. In the same email he asked for confirmation that Ubertini would attend on 13 February 2007.

453 Without descending into the detail, Saeco International formed the view that they could not be certain Ubertini would attend the board meeting on 13 February 2007. Accordingly, on 30 January 2007, Saeco International served an interlocutory process, seeking an order that Ubertini was not required to attend the board meeting in order for there to be a quorum. Ubertini gave assurances that he would attend the board meeting in correspondence. This did not satisfy Saeco International and the matter was brought before the court, ultimately on 9 February 2007. Ubertini gave an undertaking to the court that he would attend and stay at the board meeting on 13 February 2007. Also on 9 February 2007, the court dismissed an application made by Ubertini seeking to restrain Saeco International from appointing an administrator to Saeco Australia.

454 In summary, I conclude from the above chronology of events concerning a proposed board meeting, that there was a period in the second half of November 2006 during which Ubertini clearly was acting unreasonably in preventing a board meeting of Saeco Australia from occurring. I further conclude that, although there were genuine reasons from time to time as to why Ubertini could not attend a proposed board meeting, in essence Ubertini was keen to avoid a board meeting being held for as long as the parties remained in dispute.

455 Given the various legitimate matters which intermittently prevented the board meeting from being held before 13 February 2007, it is difficult to make precise findings as to the length of time a duly convened board meeting was delayed. It is possible that the board meeting might have been held on 16 January 2007, but I accept the explanation of Ubertini that he did not understand the contents of the email of 22 December 2006 from Egan. Part of his lack of understanding might have been from the fact that he was ill at the time the email was sent. After 10 January 2007, it appears Saeco International were content to proceed on 13 February 2007.

456 Considering all of the matters referred to above, together with the acknowledgment in the Reply that Ubertini did, in fact, refuse to attend directors' meetings for a period of time,[219] I find that a meeting of the board of directors of Saeco Australia ought to have been held in November or early to mid December 2006. I also find the fact that a meeting was not held in this period was because Ubertini unreasonably failed to agree to a meeting being duly convened. But the delay from mid December to 13 February 2007, even though it was caused largely by Ubertini, was not the result of any improper or unfair conduct on his part.

457 The evidence in relation to this aspect of the case does not go very far beyond the facts pleaded by the respective parties.[220] Ubertini explained that, in early February 2007, when he had been informed of the prospect of Saeco Australia being put into administration, he was uncertain as to the power of an administrator. In effect, he said he was concerned, because of the attitude of Saeco International, that an administrator would pay all the money to Saeco International and he wanted to protect all of Saeco Australia's suppliers.

458 In his evidence in chief, Ubertini was incorrect as to the timing of these transfers. He suggested they occurred immediately after the board meeting on 13 February 2007. Despite the fact that his memory was incorrect in relation to the timing (at least in relation to 1 of the transfers), little turns on this. Whether it was shortly before or shortly after the meeting of 13 February 2007, the substantive point is that Ubertini perceived that Saeco Australia was under siege and he wanted to protect the available funds for all creditors.

459 Although his conduct was ill advised, I do not believe it was sinister or prompted by improper motives. I accept his evidence that he was seeking to protect all creditors.

460 No doubt the transfer of funds caused some inconvenience and some legal costs. However, when the moneys were demanded by the Administrators they were returned in full, together with interest. At the time this was agreed to, the Administrators gave a full release in relation to the events concerning these transfers.

461 Saeco International submitted that Ubertini was motivated by personal considerations. It was suggested that Ubertini had given personal guarantees to some of Saeco Australia's creditors and that he transferred the funds out of Saeco Australia's bank account to try and avoid the guarantees being called upon. I reject this submission.

462 There was no evidence before the court of any such guarantees.[221] Ubertini did give some evidence concerning "non-Saeco suppliers which [Ubertini] guarantee[d] personally". However, it is clear, when Ubertini's evidence is read as a whole, he was referring to what he considered was a moral obligation that he might have to pay suppliers, rather than any legal obligation.[222] No guarantees actually existed. The fact that Ubertini believed that morally he ought to choose to pay non-Saeco creditors does not, in my view, warrant a finding that Ubertini was acting improperly in seeking to quarantine the funds. Presumably, if his true purpose was to advantage these creditors to achieve a personal advantage, he would have immediately paid out the funds to the non-Saeco suppliers rather than holding them in the bank account as he did.

463 The first related party transfer concerns payments totalling $74,642 paid to 2 companies, UBC Marketing Research Pty Ltd ("UBC") and Cordart Pty Ltd ("Cordart"). It was said 1 of these companies, UBC, was related to Ubertini by reason that Ubertini was a director of that company. Ubertini was also a 50 per cent shareholder of UBC. There was no suggestion that Cordart was a related company of Ubertini.

464 It was unclear how much was paid to each of the 2 companies in question. No clarification was sought from Ubertini during cross-examination. Although the precise amount is unknown, the evidence shows most of the moneys were paid to the related company, UBC.

465 Ubertini gave evidence that payments made to UBC, sometime between January 2004 and March 2005, were expressly authorised by the chief financial officer of Saeco International at the time, Golinelli. Ubertini said that Golinelli specifically authorised him to have Saeco Australia issue a cheque to make up the difference for the discount that had not been provided to Saeco Australia in relation to the fees for Saeco Strategic Services which were paid in 2003 pursuant to the Brand Management Agreement. Ubertini said he specifically discussed with Golinelli that the moneys be paid to UBC rather than to Ubertini himself. Ubertini said he understood there was some tax benefit in doing so. It appears from the evidence that a sum of approximately $70,000 was paid by reason of this arrangement.

466 Saeco International led no evidence to contradict the account given by Ubertini. In Saeco International's closing submissions, nothing more was said other than the fact that the payment had occurred and that UBC was a related entity to Ubertini. There was no submission as to why Ubertini was required to give any further explanation to Saeco International in relation to these payments.[223] In the circumstances, where Ubertini was specifically authorised to do what he did, the allegation by Saeco International that Ubertini failed to give a valid explanation for the payment is a hollow plea.

467 There was simply no evidence to support any wrongful conduct on the part of Ubertini. The express authorisation from the chief financial officer was entirely consistent with the operation of an agreement which I have found was in existence.[224] The allegations are of no substance.

468 As to the other aspect of these allegations, Saeco International led no evidence as to the basis upon which Ubertini Investments lent the sum of $1.5 million to Saeco Australia initially. Complaint is made by Saeco International that a written contract was prepared "with Ubertini in substance on both sides". While this observation is correct, there is nothing to suggest that the Loan Agreement reflected anything other than the basis upon which the funds were advanced to Saeco Australia in the first place.

469 Further, Saeco International's submissions completely failed to address the evidence of Ubertini that the repayment of the moneys to Ubertini Investments was disclosed to Saeco International at the time. Ubertini gave evidence that Saeco International was informed of the repayment, effectively, immediately after it was made. This was by way of a group report sent to Saeco International by Saeco Australia. Although the evidence is not clear as to precisely when this occurred, the repayment was in the 15 month period ending 31 March 2005. This is apparent from the Report to Creditors.[225]

470 None of the witnesses called on behalf of Saeco International suggested that Ubertini Investments was wrongly repaid in relation to this loan. Further, the moneys were repaid at a time when Saeco Australia was profitable and had positive cash flows, even after repayment of this and other loans.

471 The allegation made by Saeco International is that the repayment was made "without any proper authorisation". The Defence does not identify what the proper authorisation was said to be. No evidence was led in this regard. Given there was no complaint made at the time the loan was repaid, and the transaction was fully disclosed contemporaneously on at least 2 occasions to Saeco International, I am not satisfied there was any absence of authorisation, either at the time the repayment was made or shortly thereafter. Indeed, Ubertini was managing director of Saeco Australia and also had a power of attorney at the time for both Saeco Australia and Saeco International. There appeared to be an abundance of authority, coupled with complete disclosure.

472 Saeco International made very limited submissions on this topic in closing. It submitted from at least February to December 2006 "Ubertini procured the payment of approximately $130,000 from Saeco Australia to solicitors and accountants for work at least in part provided to Ubertini and entities associated with him" (emphasis added). Saeco International suggested this was a use of company funds for the personal benefit of Ubertini "in circumstances where he was deliberately choosing not to apply company funds to the reduction of the debts to Saeco International".

473 Dealing with the latter point first, from June 2006 Ubertini had chosen not to pay the outstanding debts of Saeco International for reasons explained elsewhere.[226] In other words, whether or not Saeco Australia had paid these adviser fees at Ubertini's direction, the moneys would not have been paid to Saeco International from June 2006.

474 As to the payment of the moneys itself, Ubertini said the moneys were paid at a time when he was trying to protect Saeco Australia and himself. A reputable law firm and a reputable accounting firm (which firm acted as auditors of Saeco Australia until 22 February 2006[227]) apparently saw no issue at the time in these moneys being paid in the way that they were. Once the issue was raised by the Administrators, Ubertini said he immediately repaid the moneys in full. Also, when the issue was raised (apparently for the first time on 16 January 2007) by Egan in an email, Ubertini gave a prompt response 3 days later in which he disclosed, in broad terms, the nature of the fees, why they had been incurred and to whom the moneys were paid. Egan was not content with the response and further correspondence ensued, the details of which it is not necessary to go into.

475 Although the conduct in making these payments was unquestionably inappropriate to the extent they related to affairs of Ubertini rather than Saeco Australia, these events appear to be relatively insignificant. I accept Ubertini's evidence that he did not turn his mind to whether or not it was appropriate at the time. Further, the cash reserves of Saeco Australia at the relevant times meant that all creditors, other than Saeco International, could be paid their debts as and when they fell due. Finally, the evidence does not properly disclose the extent to which the services performed related to work other than for the business affairs of Saeco Australia.

476 In these circumstances, and where Saeco Australia has been fully compensated by the repayment of the relevant amounts, I cannot see that any real prejudice was caused to Saeco International, or that it was treated unfairly because of these events.

D.2.5 Debts to Saeco International and related entities

477 The matters pleaded by the Plaintiffs by way of the Reply on this issue[228] are at odds with the facts in a number of respects. From earlier than 2005 up until the parties started to seriously fall out with each other in their negotiations, all parties were seeking to achieve a satisfactory exit strategy for Ubertini. Therefore, there can be no impropriety in Saeco International making arrangements consistent with Ubertini's ultimate goal.

478 Further, as I have already found,[229] it is unsustainable to suggest that Saeco International was seeking to acquire Saeco Australia without paying anything to the Plaintiffs in circumstances where, as late as October 2006, Saeco International was willing to pay a significant amount for the minority shareholdings of the Plaintiffs.

479 Accordingly, there is no basis for suggesting that the conjunctively pleaded matters in the Reply could justify the non-payment of Saeco International's outstanding invoices.

480 It follows that the only question is whether Saeco International has made out its allegations in paragraph 79 of the Defence.[230] The threshold issue for the court is what is to be understood by the term "timely manner" in relation to the outstanding debts of Saeco International. As already noted, the competing allegations are that the debts of Saeco International were due 150 days after the date of invoice (the Plaintiffs' case) or 30 days from the end of the month in which the invoice was issued, plus 10 days for netting (Saeco International's case).[231] For the reasons set out above,[232] it is clear that the parties treated 150 days from the date of invoice as the applicable payment period. Therefore, the complaint that Saeco Australia paid creditors other than Saeco International more quickly than Saeco International, does not, itself, substantiate a claim of wrongful or unfair conduct.

481 As for the period from June 2006 to February 2007, this issue is addressed above, in considering whether or not the Demands were properly made.[233] It is not necessary to discuss that issue separately here. It is plain the reasons for Saeco Australia withholding payments (at Ubertini's direction) were not to give priority to creditors other than Saeco International, or to have a strategy to pay Saeco International other than in a timely manner for no apparent reason. However, as I have already found,[234] the reason for Ubertini causing Saeco Australia not to pay Saeco International was an unwarranted and disproportionate response to the unfair conduct Saeco Australia was being subjected to, from around May or June 2006, concerning the Returned Stock.

482 A further submission was made by Saeco International to the effect that Ubertini had given personal guarantees in relation to some of Saeco Australia's creditors. On this premise, it was submitted that the non-payment of debts to Saeco International was to achieve a personal benefit for Ubertini in avoiding having to meet any obligations under the alleged guarantees. This issue has already been addressed in section D.2.2 above.[235]

483 The short point is that there were no legally binding guarantees. In any event, as the repayment terms to Saeco International were 150 days from the date of invoice, delay in payment of each invoice at least up until that point in time must be seen as being in accordance with trading terms, rather than being prejudicial to Saeco International. Failure to pay beyond these terms was principally motivated by Ubertini's concerns about the Returned Stock and any concomitant advantage in the negotiations with Saeco International; it was not motivated by any advantage he might have gained himself in avoiding personal liability.

484 For completeness, I also note that the issue of the alleged guarantees was not pleaded by Saeco International. Rather, it was only raised during cross-examination and in submissions.

485 In summary, Saeco International has established that Ubertini caused Saeco Australia not to pay Saeco International in a timely manner, but only for debts due longer than 150 days from the date of the invoice and only for the period from June 2006 to 13 February 2007. However, this was not conduct engaged in to avoid personal liability for the debts.

486 To summarise, the Plaintiffs have established the allegations in relation to each of the 9 issues raised by them, except for those matters referred to in sections D.1.3 and D.1.8 above. Further, Saeco International has proven the allegations in sections D.2.1 and D.2.5 to the extent set out above.

487 In so far as the findings above are concerned with the commercial fairness of the conduct in question, I have been mindful of the relevant principles that have been identified in this area of the law, to which I will now turn.

E.1 Section 232

488 Section 232 of the Act provides as follows:

The Court may make an order under section 233 if:

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

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

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

is either:

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

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

489 The language and history of this provision and its predecessors indicate the section is to be read broadly.[236]

490 For the purposes of s 232(a) of the Act, amongst other sections, "affairs" is non-exhaustively defined[237] in s 53 of the Act to include "control, business, trading, transactions and dealings ... of the body".[238] The definition provides "an expanded identification"[239] of "affairs", which includes the power of persons to exercise, or control the exercise of, the rights to vote attached to shares in the body.[240]

491 The words "contrary to the interests of the members as a whole" in s 232(d) may overlap with the conduct referred to in s 232(e). However, the words must be given a separate and independent operation. As was explained by Basten JA in the New South Wales Court of Appeal in Campbell v Backoffice Investments Pty Ltd:[241]

Arguably there are two points of distinction which explain the separation of paragraphs (d) and (e). Although paragraph (e), by the inclusion of conduct oppressive to members, may include conduct oppressive to members as a whole, one sphere of operation of paragraph (e), though not (d), is conduct which, either through intention or effect, operates prejudicially with respect to a member or class of members, as opposed to members as a whole. The second point of distinction is that the terminology of paragraph (d) characterising conduct "contrary to the interests of" the members would appear to extend not only beyond disparate treatment of members, but also beyond conduct oppressive to the members as a whole. It is in this sense that the example ... "pointlessly wasteful" conduct has force.

In short, the language is not confined to "commercial unfairness" as that term is understood by reference to s 232(e).[242]

492 The phrase in s 232(e) "oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member" is to be viewed as a whole to ascertain whether there has been a degree of commercial unfairness that would justify the court making an order under the section. The approach to be taken by the court was succinctly put by Brennan J in Wayde v New South Wales Rugby League Ltd[243] where, in relation to a predecessor to s 232, his Honour observed as follows:

The question of unfairness is one of fact and degree which [the section] requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of [the section] may be attracted to a decision made by directors which is made in good faith for a purpose within the directors' power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.

(Emphasis added.)

493 Consistent with the above passage, as Young J stated in Morgan v 45 Flers Avenue Pty Ltd:[244]

It has been accepted that one no longer looks at the word "oppressive" in isolation but rather asks whether objectively in the eyes of the 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: see Wayde's case per Brennan J;[245] per majority.[246] In my view a court now looks at [the expression] 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.

494 The task of determining whether or not there has been commercial unfairness must be considered in the context of the particular relationship in issue, which will not infrequently involve a balancing exercise between competing considerations, including examination of the conduct of the applicant.[247] As was observed in Re London School of Electronics Ltd:[248]

The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First, it may render the conduct on the other side, even if it is prejudicial, not unfair. Secondly, even if the conduct on the other side is both prejudicial and unfair, the petitioner's conduct may nevertheless affect the relief which the court thinks fit to grant ... In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands.

(Citations omitted.)

495 This passage was referred to with approval by the Court of Appeal of this court in Joint v Stephens.[249] Having referred to this passage, the Court of Appeal continued:[250]

It is not clear whether Nourse J also had in mind the sort of case in which a respondent reacts with prejudice to an applicant because of prejudicial conduct by the applicant. But in Morgan v 45 Flers Avenue Pty Ltd, which did involve that sort of reactive prejudicial conduct, Young J said in considered obiter that it does:

I should indicate that in my view the approach taken by Nourse J in Re London School of Electronics Ltd is the correct one, that is that such conduct may either render the conduct on the other side not unfair or may affect the relief which the court thinks fit to grant and that there is no overriding requirement in a case under [the oppressive conduct section] that the plaintiff should come to the court with clean hands.[251]

496 In summary, the authorities make it clear that the court must carefully consider the conduct of both applicant(s) and respondent(s) before making any determination about first, whether the section has been contravened and, secondly, if so, whether, and what, relief ought to be granted.

497 The mere fact that there are irreconcilable differences between the parties is not sufficient to establish oppressive conduct.[252] Further, although ultimately not an issue in this case, it is convenient to record that the fact that a member cannot dispose of its shares does not, of itself, attract any relief under ss 232 and 233 of the Act.[253] Accordingly, the Plaintiffs can make no complaint based solely on the fact that Saeco International failed to reach agreement with them in relation to the acquisition of their minority shareholdings in Saeco Australia.

498 In assessing the fairness or otherwise of conduct for the purposes of s 232, the objective assessment must be based on what is known at the time of the conduct, rather than based on matters that subsequently transpire or come to light.[254] That said, events subsequent to the conduct, in particular conduct engaged in by the alleged oppressor, may be relevant to support a finding that particular conduct was engaged in at the relevant time.

499 The act of passing a resolution to appoint an administrator may amount to oppressive conduct.[255] Further, it is not only action of the controllers of a company that may amount to oppressive conduct. In certain circumstances, inaction may also amount to oppressive conduct.[256] This inaction can include a repeated or persistent failure to hold board meetings of directors which are required to be held.[257]

E.4 When conduct of a company may be conduct in another company's affairs

500 By reference principally to the decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd v Meyer,[258] Saeco International made extensive submissions in relation to the extent to which a parent company's conduct, including its nominee directors' conduct, could be considered to be conduct in the affairs of its subsidiary.

501 In that case, the House of Lords considered the conduct of a parent company after the parent company had failed to reach agreement to buy out the minority shareholders of its subsidiary. After these unsuccessful negotiations, the parent company adopted a deliberate strategy of transferring business, previously conducted by the subsidiary, to itself.

502 To elaborate, similar to Saeco International's position, the parent company, Scottish Co-operative Wholesale Society Ltd, was the supplier of goods to its subsidiary. The subsidiary used the goods to manufacture products for sale, namely, rayon cloth. The strategy of the parent company involved not only going into business in competition with the subsidiary, but also pricing the goods for sale to the subsidiary uncompetitively, making it uneconomical for the subsidiary to continue to manufacture its product and offer it for sale.[259] The nominee directors of the parent company, who formed the majority of the subsidiary's board, knew of this strategy[260] but did not take any steps to stop its implementation, or to disclose it to the subsidiary. Such inaction was held to be oppressive conduct in the affairs of the subsidiary.

503 Submissions were made by Saeco International in relation to the correct approach in determining when conduct of nominee directors can be conduct in the affairs of a subsidiary. Distinctions were drawn between the broader approach of Viscount Simonds[261] and what was submitted by Saeco International, by reference to Lord Keith's judgment, to be the narrower basis of deciding the case.[262] It was further, and correctly, submitted by Saeco International that the other law lords based their judgments on the narrower basis.[263]

504 Given I have made findings[264] that the conduct of passing the resolution on 13 February 2007 to appoint the Administrators was in the circumstances, itself, conduct that was commercially unfair, and that this activity was correctly accepted by Saeco International to be conduct in the affairs of Saeco Australia, strictly there is no need to consider the differing approaches of the law lords, nor how those approaches have been treated in subsequent cases in Australia.[265] However, in deference to the submissions made, and also because it may be of some assistance to the parties, I will briefly address these matters.

505 As may be seen from the brief summary above of the facts in Scottish Co-operative Wholesale Society Ltd v Meyer, there are some significant similarities between the circumstances of that case and the issues presently before the court. On the facts as found above, Saeco International effectively determined in late 2006 that Saeco Australia had served its purposes, and that Saeco International wished to continue conducting business in Australia without the burden of dealing with Ubertini and the other minority shareholders.[266] Although the means by which the desired outcome was to be achieved was quite different from the circumstances in Scottish Co-operative Wholesale Society Ltd v Meyer, the general approach of shedding a subsidiary that had served its purposes from the business previously conducted by the subsidiary is clearly analogous.[267]

506 The broader approach referred to above was the finding of Viscount Simonds that it was not possible to separate the affairs of a parent and a subsidiary. It was said that every step taken by the subsidiary was determined by the policy of the parent.[268] Accordingly, on this approach, it was not necessary for Viscount Simonds to consider the role of the nominee directors appointed by the society to the board of the subsidiary in seeking to ascertain whether the oppressive conduct of the society was conduct in the affairs of its subsidiary. In arriving at this position, Viscount Simonds stated that his own views could not be stated better than the words stated by Lord President Cooper at first instance, which were:[269]

[T]he section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view. The truth is that, whenever a subsidiary is formed ... with an independent minority of shareholders, the parent company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense is own affairs to deal fairly with its subsidiary.

(Emphasis added.)

This passage has been referred to with approval in subsequent cases.[270]

507 In contrast, Lord Keith[271] primarily focussed upon the role and conduct of the nominee directors. In this regard, Lord Keith said as follows:[272]

On the vital matters affecting the [subsidiary]'s prosperity known to the nominee directors these directors remained silent, concealed the facts from the petitioners and took no action and gave no advice helpful to the [subsidiary] ... [T]heir conduct as directors was a negative one to "let the company drift towards the rocks".[273]

(Emphasis added.)

508 Lord Keith referred to the situation where a subsidiary is established with a minority shareholding that is independent from the parent. His Lordship said that in these circumstances a parent company "conducting what are in a sense its own affairs may amount to misconducting the affairs of the subsidiary" (emphasis added).[274] In identifying what may amount to misconduct in the affairs of the subsidiary, Lord Keith continued:[275]

Misconduct in the affairs of a [subsidiary] may be passive conduct, neglect of its interests, concealment from the minority of knowledge that it is material for the [subsidiary] to know.

509 Then, after referring to the various views expressed by their Lordships below in the Court of Session, Lord Keith continued by considering the position of the nominee directors and then the position of the holding company itself:[276]

My Lords, these views indicate that the conduct of the society on the [subsidiary]'s affairs was negative conduct. That, in a sense, is true, for it is just the other side of the shield from that which displayed the society acting positively to destroy the [subsidiary]. But I cannot think that where directors, having power to do something to save a [subsidiary], lie back and do nothing, they are not conducting the affairs of the [subsidiary], perhaps foolishly, perhaps negligently, perhaps with some ulterior object in view. They are certainly conducting the affairs of the [subsidiary] in breach of their duty as directors. In the present case I would go further, for I think that the production of rayon cloth at the mill was an affair of the [subsidiary] and that the society being majority shareholder in the [subsidiary] cannot claim that in diverting this production to itself and obstructing supplies to the [subsidiary] it was acting for itself and not conducting the affairs of the [subsidiary] in a manner unfair and oppressive to the minority shareholders [of the subsidiary].

(Emphasis added.)

Lord Keith then stated that the fact that the subsidiary might have secured its supply of product from the parent company by a contract, but had not done so, was "beside the point".[277]

510 Lord Keith rejected a submission that the subsidiary ought to be wound up. This submission was put on the basis that the subsidiary's business had been successfully destroyed by the parent company. In so doing, his Lordship stated:[278]

But, that means that if oppression is carried to the extent of destruction of the business of the [subsidiary] no recourse can be had to the remedies of the section. This would be to defeat the whole purpose of the section. The present position is due to the oppression and but for the oppression it must be assumed that the [subsidiary] would be an active and presumably flourishing concern. The section is, in my opinion, very apt to meet the situation which has arisen.

Accordingly, although there may ordinarily be no proper basis for orders to be made pursuant to s 233 of the Act if the oppressive conduct has ceased,[279] if the impugned conduct has brought about the destruction of the company's business, it may be appropriate for relief (other than winding up the company) to be granted.[280]

511 Lord Morton held that although the parent company adopted a strategy to oppress the subsidiary, such conduct was not conduct of the subsidiary's affairs.[281] His Lordship then considered the position of the directors of the subsidiary. In that regard, he said:[282]

As these directors of the [subsidiary] were also directors of the society, they must, no doubt, be treated as parties to the oppression by the society in the conduct of its own affairs; but I have had great difficulty in arriving at a conclusion upon the question just posed, which is directed only to the affairs of the [subsidiary] ... My difficulty is that the conduct of which complaint is made consists rather of sins of omission than of sins of commission, and the day to day affairs of the [subsidiary] appear to have been "conducted" by [the executive directors of the subsidiary] without any active interference by the other directors ...

After referring to 2 possible exceptions to the last statement in the passage quoted above, his Lordship continued:[283]

Suffice it to say that in the end I have reached the conclusion that there is evidence to justify the view that the affairs of the [subsidiary] were "conducted in a manner oppressive" to the [petitioners].

512 Lord Morton did not elaborate in relation to how he reached this conclusion beyond stating that he was not disposed to give a narrow meaning to the words in the section.

513 Lord Denning also delivered a separate judgment. He posed the question as to how the conduct of the parent company could touch the manner in which the affairs of the subsidiary were conducted,[284] and then said, "[t]he answer is, I think, by their impact on the nominee directors". Accordingly, his Lordship focussed on the position the nominee directors found themselves in. In so doing, he made the following observation:[285]

So long as the interests of all concerned were in harmony, there was no difficulty. The nominee directors could do their duty by both companies without embarrassment. But, so soon as the interests of the two companies were in conflict, the nominee directors were placed in an impossible position. Thus, when realignment of the shareholding was under discussion, the duty of the three directors to the [subsidiary] was to get the best possible price for any new issue of its shares, whereas their duty to the co-operative society was to obtain the new shares at the lowest possible price - at par, if they could.

(Citations omitted, emphasis added.)

514 Having elaborated further on the conflict that the nominee directors found themselves in, Lord Denning continued:[286]

It is plain that, in the circumstances, these three gentlemen could not do their duty to both companies, and they did not do so. They put their duty to the co-operative society above their duty to the textile company in this sense, at least, that they did nothing to defend the interests of the [subsidiary] against the conduct of the co-operative society. They probably thought that "as nominees" of the co-operative society their first duty was to the co-operative society. In this they were wrong. By subordinating the interests of the [subsidiary] to those of the co-operative society, they conducted the affairs of the [subsidiary] in a manner oppressive to the other shareholders.

(Emphasis added.)

515 Lord Denning then observed that conduct may be oppressive even if it only involves inaction. Having made this observation, Lord Denning suggested that, at the very least, the nominee directors could have protested against the conduct of the society.[287] In response to a submission that any protest by the nominee directors would not have altered things, Lord Denning made a further observation, which is apposite to the circumstances of this case:[288]

The answer is that no one knows whether [the protest] would have done any good. They never did protest. And it does not come well from their mouths to say it would have done no good, when they have never put it to the test.[289]

Finally, Lord Denning considered the appropriate remedy, expressing views consistent with those made by Lord Keith, namely that an order winding up the subsidiary was inappropriate in the circumstances.[290]

516 Turning to the submissions made, with respect, I do not agree with the summation of what was contended to be the different approaches taken by the law lords (as set out in paragraph 503 above). On my reading of the judgments:

(1) There was a broader approach taken (by Viscount Simonds) and a narrower approach propounded (by Lord Morton). The broader approach may permit a court to treat the conduct of a parent company to be the affairs of a subsidiary company if the conduct affects the subsidiary's affairs, regardless of whether the parent company's conduct is being engaged in by its nominee directors on the board of the subsidiary. In contrast, Lord Morton decided the conduct of the parent company, even if oppressive towards its subsidiary, would not, per se, be in the subsidiary's affairs. His Lordship found it required wrongful conduct,[291] whether action or inaction, on the part of the nominee directors before the parent company's conduct could be characterised as of the subsidiary's affairs.

(2) Lord Keith did not confine himself to the narrower approach in deciding the case. The passage set out in paragraph 509 above demonstrates this; see "I would go further" and following. The conduct referred to by Lord Keith in the last sentence of this passage speaks of the conduct of the parent company independent of any conduct of the nominee directors.

(3) Lord Denning's position does not make it clear whether he would have rejected the broader approach if he had been required to consider it. In light of the question posed and answered,[292] his judgment is directed towards the conflict that the nominee directors faced as providing the basis for establishing their conduct, on behalf of the parent company, was of the subsidiary's affairs.

(4) Even if I am incorrect in this understanding of Lord Denning's comments, it does not follow that the majority of the law lords decided the case on the narrower basis, and thereby rejected the broader approach.

517 Saeco International submitted that, consistent with the ratio for the decision being the narrower approach, Australian authorities had followed this narrower view. With respect, I do not accept this submission. I do not read any of the subsequent decisions, referring to Scottish Co-operative Wholesale Society Ltd v Meyer when considering conduct of parent companies and subsidiaries, as necessarily confining the meaning of "'affairs' of a company" in this context to conduct that is performed by the nominee or common directors on the board of the other company (ie the company whose affairs are not the subject of the application).

518 The earliest of the Australian cases referred to in the closing submissions of the parties was Re Cumberland Holdings Ltd.[293] In that case the broader approach of Viscount Simonds was expressly referred to with approval.[294]

519 The next case, Re Norvabron Pty Ltd (No 2),[295] was decided on the narrower approach. That approach was sufficient for there to be a basis to find oppressive conduct in the affairs of the company the subject of the application. (In that case, it was successfully established that conduct in the subsidiary was conduct in the affairs of the parent company.) Derrington J found that the directors of the holding company knew what was happening to the subsidiary, as they were directly involved as directors of the subsidiary, and were in breach of their duties as directors to fail to remedy the wrongful conduct in question.[296] His Honour refers to this as the "technical answer" to the submission that the conduct was not in the affairs of the holding company.

520 On my reading of the judgment of Derrington J, there is nothing stated which suggests his Honour was rejecting the broader approach. Indeed, Derrington J refers[297] to Scottish Co-operative Wholesale Society Ltd v Meyer, by reference to the judgment of Viscount Simonds.[298]

521 The trial in Re Norvabron Pty Ltd (No 2) was heard after the defendants had successfully argued a demurrer, both at first instance and on appeal.[299] Saeco International submitted that the Full Court of the Supreme Court of Queensland concluded that a case could only be pleaded properly with the narrower approach in Scottish Co-operative Wholesale Society Ltd v Meyer.[300] This position, it was contended, applied in relation to the affairs of a parent company or the affairs of a subsidiary, by reason of conduct of its subsidiary, or its parent company respectively. I do not agree that such a finding was made.

522 The criticisms of the statement of claim in the appeal before the Queensland Full Court, which were upheld, were that the conduct pleaded was confined to the conduct of the board of the subsidiaries.[301] As was stated by Macrossan J (who delivered the leading judgment of the court), given the way in which the case had been pleaded "the argument turned on a very narrow point and did not necessarily involve any matter of substance".[302] In referring to Scottish Co-operative Wholesale Society Ltd v Meyer, Macrossan J expressly referred to each of the judgments, including Viscount Simonds.[303] Having done this, Macrossan J said, "even accepting all of what was decided in the Scottish Co-operative case" and then went on to give his ruling. That ruling makes clear that the case stands for no wider proposition than this:[304]

[I]f a case is to be made of oppressive inactivity within the affairs of the [parent] company, it cannot be effectively pleaded solely by a statement, however extended, of the activities in the affairs of the subsidiaries. It requires as well to be accompanied by a statement of activity in the affairs of [the parent company] (or it seems that a correlative "inactivity" may be relied on) because this is the basis for relief in the jurisdiction concerned with oppression.

(Emphasis added.)

523 The last Australian case referred to by the parties was Re Dernacourt Investments Pty Ltd.[305] In that case, Powell J proceeded on the basis that conduct of a holding company may be in the affairs of its subsidiary, and, conversely, conduct of a subsidiary may be in the affairs of its holding company.[306] The case involved allegations of oppressive conduct of a parent company in refusing to procure its wholly owned subsidiaries to make available certain records to shareholders of the parent company.

524 In determining the issues before him, Powell J adopted the approach of Derrington J in Re Norvabron Pty Ltd (No 2).[307] However, Powell J was not seeking to make any determination about the extent to which the conduct of a subsidiary may be of the affairs of its holding company, or vice versa. So much is clear from the following:[308]

Although some of the authorities would suggest that the phrase "the affairs of the company are being conducted"[309] requires, prima facie, that the relevant plaintiff must establish both a continuing course of conduct, and that that conduct is still continuing at the time when the court's aid is invoked, I am content to proceed on the basis that, in an appropriate case, a refusal to do some act, or to permit some act to be done, which refusal is persisted in at the relevant time, may constitute such a continuing course of conduct. Further, although the relevant plaintiff must demonstrate that it is the relevant company's affairs which are being so conducted, I am prepared to proceed upon the bases, first, that, in an appropriate case, the conduct of a holding company, or of such of its directors who happen to be directors of the relevant subsidiary, towards a subsidiary, may constitute conduct in the affairs of that subsidiary, and, secondly, that, in an appropriate case, the conduct of a subsidiary, or of some or all of its directors who happen as well to be directors of the holding company, may be regarded as part of the conduct of the affairs of the holding company.

(Citations omitted, emphasis added.)

525 As may be seen, in dealing with the position of each of a subsidiary and a holding company, Powell J directed his observations to both the conduct of the holding company and the subsidiary respectively and, in addition as an alternative, to the common directors in each situation. Powell J then proceeded to decide that the case before his Honour was concerned with inaction, rather than action, and that, as the directors in question had no duty to act, the inaction comprising the conduct complained of was not conduct of the parent company.[310] In my view, this finding does not indicate any rejection of the broader approach in an appropriate case.

526 The passage from Re Dernacourt Investments Pty Ltd set out above was quoted with approval in Rackind v Gross.[311] I do not read reference to this passage in Rackind v Gross as a suggestion by the Court of Appeal in that case that the narrower approach was the correct approach. On the contrary, as I have stated, the passage referred to with approval appears to entertain the possibility of either the narrower or the broader approach being adopted.

527 In the leading judgment in Racklind v Gross, having considered both Re Norvabron Pty Ltd (No 2) and Re Dernacourt Investments Pty Ltd, amongst other Australian cases,[312] Sir Martin Nourse said the following:[313]

In my judgment none of the ... further authorities can be said to diminish the persuasive value of the decisions in In re Norvabron (No 2) and In re Dernacourt. Those were considered judgments of the Supreme Courts of Queensland and New South Wales respectively and they are directly in point. I would follow them accordingly.

(Citations omitted.)

There was nothing said by Nourse J which qualified this endorsement of these 2 Australian cases.

528 In summary, I do not understand the authorities to limit a court's approach, when considering whether conduct is "conduct of a company's affairs" in the context of a relationship of a holding company and a subsidiary, to the narrower approach taken by Lord Morton in Scottish Co-operative Wholesale Society v Meyer. As has been noted, the issue as to the extent of the meaning of "affairs" in this context is not settled.[314]

F. Further application of the principles to the circumstances

529 I have set out my conclusions at the end of each part of section D above. The findings in section D demonstrate that the Plaintiffs have largely been successful in establishing the facts upon which they seek relief. It is now necessary to ascertain which of those findings might support the relief sought.

530 As the relevant authorities indicate, in considering this issue, the court must also take into account the facts as proven by Saeco International against Ubertini. These facts show that Ubertini's conduct during the relevant period was not without blemish. In those circumstances, the court is required to consider the extent to which Ubertini's conduct might lead the court to not granting any relief, or alternatively making orders other than those sought by the Plaintiffs.

F.1 Saeco International's oppressive conduct of the affairs of Saeco Australia

531 The conduct of Saeco International in relation to the making of the Demands,[315] accompanied by the decision to obtain control and ownership of the Australian business then conducted by Saeco Australia, and in continuing with that strategy up to and including 13 February 2007 when the Administrators were appointed, was clearly conduct that was oppressive to the affairs of Saeco Australia. For the reasons stated, such conduct, when viewed objectively, was commercially unfair to the interests of Saeco Australia.

532 As to whether the conduct referred to in the preceding paragraph was of Saeco Australia's affairs, there is no need to go beyond the narrower basis of the decision in Scottish Co-operative Wholesale Society Ltd v Meyer.[316] The evidence discloses that De Gregorio and Egan were actively involved in, and had full knowledge of, the strategy intended to be, and in fact, implemented by Saeco International. The evidence also demonstrates that this strategy, which was to be implemented to allow Saeco International to gain outright control and ownership of the Australian business, was concealed from Ubertini and the independent directors. Such conduct was of the affairs of Saeco Australia.

533 As already noted, the implementation of the strategy involved positive steps being taken by De Gregorio and Egan, which they duly took. To the extent the allegations concern inaction on the part of the nominee directors, each of De Gregorio and Egan plainly owed a duty to Saeco Australia to disclose the harmful intentions of Saeco International. This inaction was also conduct of the affairs of Saeco Australia.

534 It is not necessary to make any finding in relation to what other courses might have unfolded if De Gregorio and Egan had not simply implemented Saeco International's strategy, but had acted consistent with their duties as directors of Saeco Australia.[317] It is sufficient for the court to find, and I so find, that Saeco International has not established that if De Gregorio and Egan had acted differently the outcome which would have eventuated in any event would have been the same or substantially similar to the outcome of the meeting on 13 February 2007, and the events that subsequently followed. On the contrary, De Gregorio gave evidence that with a different subsidiary, and with different personalities involved, he, on behalf of Saeco International, may have been prepared to not require payment of the working capital component of the debts claimed in the Principal Demand.

535 Regarding the findings made above in relation to the New Range, the Returned Stock and the claims by Saeco International for penalty interest, these matters have been taken into account in arriving at the court's overall conclusions. But it is not necessary to make any findings as to whether those matters would also form a further basis upon which the Plaintiffs might be entitled to relief. Save to note that such matters might be relevant to the basis upon which the Plaintiffs' shares in Saeco Australia might be valued, it is not necessary to address these matters further. Based on the court's findings in sections D.1.5 and D.1.6,[318] in the circumstances of the commercial relationship that prevailed at the time, the Plaintiffs have established their case that orders ought to be made by the court under s 233 of the Act.

536 The findings made bring this case squarely within the conduct referred to in s 232(e) of the Act. In those circumstances, it is not necessary to decide whether s 232(d) has also been contravened. As the focus of the Plaintiffs' submissions is almost entirely on s 232(e), I do not propose to address s 232(d) separately.

F.2 Ubertini's oppressive conduct of the affairs of Saeco Australia

537 The failures of Ubertini in relation to the non-payment of Saeco International's debts from June 2006 to February 2007, the non-provision of a repayment plan from late December 2006 until 13 February 2007 and the prevention of board meetings of Saeco Australia from late 2006, do not provide any proper basis for Saeco International resisting orders that ought to be made concerning the purchase of the Plaintiffs' minority shareholdings in Saeco Australia.[319] Although such conduct by Ubertini was materially unfair, any response which had the effect of totally destroying Saeco Australia's ability to conduct the Australian business was totally disproportionate and commercially unfair. As I have found, this was the intended effect, and the actual result, of the conduct of Saeco International.

538 Further, the conduct of Ubertini from mid 2006 onwards cannot be characterised as conduct that would inevitably, or even reasonably, lead to a response such as the response by Saeco International.[320] There are numerous other ways in which Saeco International might have responded, which would not have involved engaging in oppressive conduct. Given that Saeco International had the majority vote on the board, once a board meeting finally could be held, various other options might have been taken which did not involve effectively destroying Saeco Australia's ability to conduct the Australian business.[321]

539 Saeco International submitted that in the event that the Plaintiffs successfully established that Saeco International had engaged in oppressive conduct of the affairs of Saeco Australia, Saeco Australia ought to be wound up. In my view, to make a winding up order would be to allow Saeco International to successfully complete its strategy. To echo the words of Lord Keith,[322] to make such an order would deprive the Plaintiffs of any recourse in circumstances where the oppressive conduct has effectively caused the destruction of Saeco Australia. Such an order would defeat the whole purpose of the section.

540 Accordingly, no order will be made for the winding up of Saeco Australia. Rather, the appropriate relief is that Saeco International be ordered to purchase the shares of the Plaintiffs held in Saeco Australia, on terms to be decided in due course.

G.1 The rule in Browne v Dunn[323]

541 Saeco International submitted that substantial parts of the evidence of Taddeo should not be accepted because that evidence was not put directly to either Schwartz or De Gregorio when those witnesses were cross-examined by the Plaintiffs. The evidence referred to in section D above shows that I have not accepted this submission as I have referred to, and relied upon, evidence given by Taddeo the subject of this submission.

542 As has been stated on numerous occasions, the rule in Browne v Dunn is not a rigid rule, but rather is a rule of fairness. The rule generally requires a party or a witness to be put on notice that evidence may be used against a party or a witness, or the court will be invited to draw an adverse inference or make an adverse comment about a witness, so that the party or the witness may respond to the issue and have the opportunity to give an explanation.[324] As has also been repeatedly recognised, the rule does not apply, and will not be treated as being transgressed, notwithstanding a witness' version is challenged, an inference may be drawn against her or him, or an adverse comment may be made, if the witness is on notice by reason of the contents of the pleadings, an opening in the case or the manner in which the case is conducted.[325]

543 Further, in commercial litigation, where issues have been clearly defined, there is often little or no point in formally challenging every aspect of the evidence which is contested. This is particularly so in a case like this where there is a large number of matters in respect of which it ought to be apparent from the pleadings and particulars that there is clearly a contest on the issue or issues in question. If this is the case, the rule need not be applied in an unduly technical way.[326]

544 In this case, Taddeo gave his evidence 6 days before any evidence was called on behalf of Saeco International. In my view, there was no inability on the part of Saeco International to address the evidence raised by leading evidence in chief from De Gregorio and Evans on the matters now the subject of challenge.[327]

545 There also can be little doubt that Saeco International would have fully appreciated the use to which the evidence now the subject of challenge would be put. At the close of evidence at the trial, the parties were given a short time to prepare written submissions. Given the limited time allowed, written submissions were exchanged rather than served sequentially. In the written submissions of Saeco International,[328] Saeco International said it apprehended that the Plaintiffs would seek to rely on the evidence now referred to "in relation to the issues in the case and, in addition, as to the credit of Schwartz and De Gregorio". Given Saeco International was able to accurately apprehend the position of the Plaintiffs at the time written submissions were exchanged, it is highly likely such apprehension was capable of materialising at the end of the evidence led by the Plaintiffs, as it ought to have been.

546 In any event, to the extent the rule is directed towards the position of a witness rather than a party, there can be little doubt that if the substantive matters the subject of this submission were put to Schwartz and De Gregorio respectively, they would have denied the matters raised. In substance, much of the evidence in question goes to the case that, broadly speaking, Saeco International had a plan or desire to obtain control of the business conducted by Saeco Australia either at a reduced price, or by the means or similar means to those which ultimately transpired. Both Schwartz and De Gregorio were emphatic in their denial of such suggestions when they were put by counsel for the Plaintiffs.[329] In short, the fact that some matters were not expressly put to some witnesses has been taken into account in reaching the conclusions set out above.[330]

547 In the preceding paragraph, I refer to "substantive matters", rather than all the evidence the subject of objection. I have not been exhaustive in my reference to the evidence objected to because I am of the view that some of this evidence is not of any great moment. For example, objection was made to evidence by Taddeo that he was asked to step aside in dealing with Australia until June 2005 because Schwartz and De Gregorio wanted to take care of what was said to be a delicate situation. This evidence seems to be of little moment in circumstances where the real issues for consideration concern the second half of 2006 and early 2007. It is not apparent to me why such peripheral matter needed to be put to either Schwartz or De Gregorio.

548 Equally, to the extent that objection is taken to evidence that Saeco International's position was that Ubertini would have to go as managing director, this appears to be uncontroversial. From the time that Ubertini expressed his desire to have the minority shareholdings of the Plaintiffs sold to Saeco International, there does not seem to be any real issue that Ubertini was to ultimately cease to be managing director. The real issues pertained to the circumstances in which that role would cease.[331]

549 For completeness, I also note that some of the evidence sought to be excluded pursuant to the rule in Browne v Dunn included evidence of matters to which it was said by Taddeo that Moroni was also privy. Obviously, the rule is inapplicable to that evidence insofar as it related to Moroni because Moroni was not called by Saeco International.

550 Saeco International submitted that, save for the specific criticisms made of Taddeo's evidence, the witnesses called on behalf of the Plaintiffs should be accepted as "generally having attempted to give truthful evidence". With respect, this was an entirely appropriate submission. As will be apparent from the findings I have made above, I found each of the witnesses called on behalf of the Plaintiffs to be truthful, and generally credible.

551 It was suggested by Saeco International that Taddeo's evidence was very vague and in general terms in a number of respects. I accept that this is an appropriate description in relation to some of his evidence, but I cannot agree with the submission that "much" of his evidence was of this kind. Further, my assessment of Taddeo was that he made frank admissions when he could not actually remember the details of conversations that occurred in 2006 or 2007. In my view, this added to his credibility, as he did not gratuitously give evidence based on speculation or reconstruction, but was only willing to express his recollection when he had one.

G.3 Credibility of Saeco International's witnesses

552 As may be seen, I have not accepted various matters put forward by each of the witnesses called on behalf of Saeco International. Given the delay in bringing this matter to trial, each witness was asked to give evidence about matters that occurred 6 to 9 years before the time of giving the evidence. In these circumstances, with the passage of this length of time, the ability of witnesses to give evidence not reconstructed, but rather from actual recollection, is necessarily impaired.[332] Although this observation applies to all witnesses in this case, speaking generally I found that the quality of the recollection of each of the Saeco International witnesses' recollection in relation to critical events was substantially impaired. This is particularly so in relation to their inability to recall, with any specificity, when it was that the intention to place Saeco Australia into administration was formed, or at least initially discussed. In contrast, although Taddeo could not remember the precise dates, he was able to recall the surrounding events in relation to when the prospect of an administration was first discussed, amongst other significant matters.[333]

553 Although I have not accepted the evidence of Saeco International's witnesses in significant respects, I do not accept the submission made on behalf of Saeco International that it was necessary for the court to find conduct of any of the Saeco International witnesses was "deceitful and in substance fraudulent" in order to find in favour of the Plaintiffs.[334] In this regard, I note that lawyers were heavily involved in every stage of the dispute between Ubertini and Saeco International.[335]

554 I have not been asked to consider the position of the minority shareholders of Saeco Australia beyond the position of the Plaintiffs. The remaining minority shareholders are not parties to the proceeding.[336]

555 As presently advised, it is not apparent how the remaining minority shareholders are in any different position to the Plaintiffs in relation to the conduct of Saeco International the subject of the findings made by the court. However, as no submissions have been made in relation to the other minority shareholders other than in the most general terms, I do not propose to say anything further on this topic.

556 For the reasons stated, the Plaintiffs are entitled to an order that their shares in Saeco Australia be purchased by Saeco International. The form of any such order will now be the subject of further submissions if the parties are otherwise unable to agree upon the disposition of the proceeding.

[1] In fact, this amount was the total paid for the acquisition of 60 per cent of Saeco Australia, another related company based in New South Wales, and certain retained profits. However, it is unnecessary to expand on these details.

[2] According to the Shareholders' Agreement (referred to in par 20 below), Saeco International held 667,333 shares, Ubertini held 200,200 shares and Ubertini Investments held 189,087 shares. In a report to creditors dated 27 March 2007 prepared by the Administrators of Saeco Australia the shareholding of Ubertini and Ubertini Investments was said to be 200,200 each. It is unnecessary to deal with this possible discrepancy at this point in time.

[3] The term "oppressive conduct" is used in this judgment to refer to conduct "contrary to the interests of the members as a whole" or conduct which is "oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members" as those phrases are used in s 232(d) and (e) of the Act respectively.

[4] See pars 22-23 below.

[6] The Brand Management Agreement was governed by Irish law. No submissions were made on how the option for a further period might be exercised. Nothing turns on the issue as the events relevant to the issues between the parties ceased in 2007.

[11] But see section D.2.3 below, pars 463-467, in relation to moneys paid in lieu of the discount being received by Saeco Australia.

[15] This term was defined to mean any voting power or other rights of a shareholder.

[18] A reference to "director" in these titles does not equate to being a director of the company.

[19] Clause 3.1, together with the definition of "Termination Date".

[20] See par 33 below.

[21] Earnings before interest, tax, depreciation and amortisation.

[22] When that month was put to De Gregorio, he said he did not know if that timing was correct.

[23] T617.01, 618.20. See also T616.09, 623.01.

[24] The report went on to record an analysis which involved extracting the tangible assets of the business to ascertain an assumed goodwill figure, but the value as calculated was the EBITDA figure (adjusted for the brand management fee and the 15 month period) multiplied by 5, without any other considerations.

[25] A note from Marcucci to Ubertini dated 20 February 2006 and an email chain of communications with Moroni in December 2005. For completeness, I refer to a note of De Gregorio's made in relation to the meeting on 30 June 2005. The Plaintiffs submitted this note supported Ubertini's account of the meeting. In my view, the note and the circumstances in which it was taken, are too vague to provide any meaningful indication of what was said at the meeting.

[26] See par 46 below.

[27] Valuations were duly prepared, but the parties were unable to resolve the proceeding after the valuations had been completed.

[28] A transcript of the 13 February 2007 board meeting was tendered by agreement. It was largely complete, though some matters were not satisfactorily recorded.

[29] Paragraph 1.2 and sections 17 and 18.

[30] What was acquired were "the Assets" as defined in the DOCA. It is unnecessary to set out the detail.

[32] If $1.3 million was insufficient to pay such a dividend in full, payment was to be made pro rata out of that sum: clause 9.2(c).

[34] He was appointed on 29 March 2007.

[35] A number of matters were pleaded and were the subject of evidence at trial, but were not identified as relevant matters for the purposes of the court's considerations. The parties agreed to be confined to the lists of issues they produced respectively towards the end of the trial.

[36] This allegation is in par 43 of the Particulars of Claim, which also refers to a breach of implied terms of the Brand Management Agreement. However, it is unnecessary to refer to this breach as the paragraph in the Particulars of Claim alleging the implied terms (namely par 23) was withdrawn and no longer forms part of the pleading.

[38] The Supply Agreement is defined in par 19 of the Particulars of Claim. It is alleged it was entered into between Saeco Australia and Saeco International on or about 28 November 2003. The terms of the Supply Agreement alleged are referred to in par 78 below.

[39] Particulars of Claim, pars 51 and 53.

[41] The New Range was made available to the New Subsidiary rather than Saeco Australia.

[43] Particulars of Claim, pars 51 and 53. Senior counsel for Saeco International submitted par 51 did not incorporate allegations in relation to the directors of Saeco Australia nominated by Saeco International. I do not accept this submission. The submission appears to ignore the final words of par 51, namely "on behalf of [Saeco Australia] (the [Saeco International] directors' omissions)". In any event, par 51, especially when read in conjunction with pars 50, 52 and 53, was clearly directed to both the conduct of Saeco International itself and also to the directors it nominated.

[46] In fact the letter was dated 5 April 2006.

[49] Particulars of Claim, pars 51 and 53.

[52] See pars 61-63 above.

[53] There was also some evidence to suggest that Saeco Vending sent a demand. For example, Taddeo said demands were sent by each of Saeco International, Saeco Strategic Services and Saeco Vending. See par 354 below. However, the 3 demands the subject of the Plaintiffs' allegations on this issue did not include any demand by Saeco Vending.

[57] Particulars of Claim, par 44. This is in addition to the demand for payment referred to in par 62 above.

[62] Particulars of Claim, par 49. See par 80 above.

[73] Defence, par 58A(b). Although this defence was pleaded, Saeco International did not advance a case that the existence of this offer, and its rejection by Ubertini, precluded a finding of oppressive conduct against Saeco International: cf Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121, 173-175 [226]-[237] (Campbell JA, with whom Macfarlan JA agreed), 193 [331(C)] (Young JA).

[74] Particulars of Claim, par 53 (incorporating the relevant paragraphs of the Particulars of Claim preceding it which identified the relevant conduct) and par 58.

[75] See par 22 above.

[83] Reply, par 6. It was contended in the pleading that the Plaintiffs could not plead to the allegation until further and better particulars were provided. At trial, this issue was dealt with as a matter of evidence without objection from any party.

[87] See par 58 above. Most of what is quoted above also appears in the Particulars of Claim to support the case against Saeco International of oppressive conduct.

[88] At pars 14-19.

[89] The evidence of Ubertini was not entirely clear on this issue. He said that Saeco Strategic Services provided 2 reports per year, but they were not complete, and that Saeco Australia was required to pay for its own reports (known as GFK reports) because it could not run the business without them. From this evidence I infer that the obligations of Saeco Strategic Services were not met and Saeco Australia was required to incur the costs of obtaining relevant market research for the purposes of marketing its products: see T258.23-259.06. Schwartz was unable to say whether or not Saeco Strategic Services provided any reports.

[90] At par 35 above.

[91] Ubertini agreed with the proposition put to him in cross-examination that he thought it was an existing contractual right.

[92] See also section D.2.3 below, pars 463-471.

[93] For example, for the 15 months ended 31 March 2005, $808,330 was recorded as an expense for "Brand management fees". Further, for the year ended 31 December 2003 (which only consisted of 6 months in relation to the fee, which was imposed from 1 July 2003: cl 3.5), the amount was $387,512. I also note the report to the directors for the period ended 31 March 2005 records the fees as having been "paid to Strategic Services for the full year", but Ubertini gave evidence he could not recall it actually ever being paid. This evidence is to be contrasted with earlier evidence in which Ubertini said (after reading extracts from the accounts) that it had been paid. It is clear he was not sure of the precise details, however, he gave evidence which indicated certainly some fees were paid: see pars 463-471 below. (The relevant records of any payments were not produced by any party.)

[94] Report to Creditors, section 5, p 5.10.

[95] See fn 89 above.

[96] The question was put to De Gregorio in cross-examination, but when objected to by opposing counsel it was not pressed.

[97] There was no direct evidence of this, but clearly it formed part of the amounts said to be owing as at 13 February 2007. See also par 295 below, concerning the suggestion by Egan that, for discussion purposes, this debt be taken out of the calculation of the total debt claimed.

[98] See par 65 above. Evidence was given in relation to new products styled "Talea" and "Odea". Schwartz said these products had "nothing to do with Primea". He was not challenged in relation to this evidence.

[99] Saeco International's written closing submissions, par 104(a). See also the evidence of Schwartz where he conceded the samples of the New Range could be sent whether or not Saeco Australia had provided a launch plan: T740.22, 743.03. As to which, see pars 168-169 below.

[100] See par 153 above.

[101] See par 157 above.

[103] Taddeo gave evidence by audio and visual link. He said he had read "some documents" in preparing to give evidence, though these documents were not specifically identified.

[104] An email was sent on 16 December 2005 by Taddeo to Ubertini and others foreshadowing the New Range being in production for Australia in May/June 2006 to land in Australia by, at the latest, August 2006.

[105] See par 142 above.

[106] An email from that department was sent to Ubertini on 23 November 2006, which stated that, as Ubertini required, the department was organising an air shipment the following day of "[s]amples of Primea (Ring and Touch Plug) Odea and Talea (full ranges)". The email said Saeco Australia would receive the samples soon.

[107] Letters dated 16 November 2006, 21 November 2006 and 24 November 2006.

[108] See also correspondence from Ubertini dated 24 January 2007 and 31 January 2007 which seems to imply that this remained an ongoing issue.

[109] For example, while Poland and the United States of America gave very detailed launch plans, Canada's plan was less detailed, Brazil's and Argentina's were "practically not detailed" and Japan's was practically non-existent.

[110] There was no suggestion the non-supply was due to Saeco Australia's failure to pay outstanding invoices as Saeco International continued to supply the existing products to Saeco Australia.

[111] A launch plan was in evidence which was provided in early February 2007. However, the ability to provide a meaningful launch plan was problematic. Leaving aside the criticisms of the plan made by Egan, correspondence between the Australian chief financial officer and Saeco International in December 2006 makes it clear Saeco Australia did not have the necessary information to provide the level of detail required by Saeco International: see email dated 6 December 2006, 03.41 am, concerning budget information and the lack of information about the New Range.

[112] Indeed, Egan took positive steps to inform Saeco International as to why a proposed launch plan ought not to be accepted by Saeco International without communicating any of his views directly to the management of Saeco Australia: see pars 404-410 below.

[114] Taddeo gave evidence that the letter was checked by Schwartz and the legal office before it was sent. He also suggested that some parts of the letters were not his words. However, this evidence is not relevant to the issue at hand.

[115] Taddeo said 90 per cent of the defective stock inspected was vending machines.

[116] There was evidence from Taddeo that Manzardo tried to sell defective vending machines internationally. However, this evidence related to 2005 and the evidence does not establish that the attempts to sell vending machines related to the vending machines in question. Even if it did, Taddeo said Saeco Vending did not try very hard to sell the machines.

[117] There was a suggestion in cross-examination that by April 2006 the problems had been rectified. No specific date was put to Ubertini in relation to this. Ubertini did not accept the suggestion. He said he did not know when the problems were fixed. No evidence was led in chief by Saeco International to establish at what point in time the problems with the vending machines were remedied. Even if it were April 2006, I am not satisfied that the problems were remedied in Australia before the Returned Stock was sent on or about 5 April 2006.

[118] Under cross-examination, Ubertini was unable to identify what percentage of the stock was defective. He said he would need to see the invoices before he could answer. In another context, senior counsel for Saeco International said he would take Ubertini to some of the invoices, but this did not occur in relation to this issue: see also T457.11. In these circumstances, the lack of specificity in relation to some of Ubertini's evidence on this topic was of no real moment.

[119] The other items of stock were not related to coffee machines. There was no suggestion that these other items were anything other than faulty. It was not suggested that anything turned on these other items in relation to the issues in the proceeding.

[120] I note that although Ubertini described these models as "dinosaurs", this letter suggests they might have been saleable but for the problems with the 8p.

[121] Ubertini's state of mind is also reflected in an email he sent on 6 April 2006. This email, addressed to Christian Palmieri, was written in Italian. An agreed translation was tendered. Ubertini was not taken to the document in cross-examination. The email refers to the problem being in existence for 2 years. The contents of this email do not establish the problem was solved completely in April 2006. The document was not relied upon for this purpose.

[122] See par 198 above.

[123] One customer alone spent over $1.5 million on the 8p model, according to correspondence in November 2005.

[124] There was 1 piece of conflicting evidence in this regard. An email from Egan sent on 11 September 2007 referred to an evaluation that had apparently been conducted by a consultant on 5 June 2007. This evaluation was by way of "items that were sampled and inspected". The items were not identified. In relation to the items sampled and inspected there was said to be "no abnormal condition". I refer to this evidence for completeness only. The evidence was not advanced by Saeco International to suggest none of the 8p machines were defective. Having considered the evidence, it does not alter the views I have expressed in relation to the condition of the Returned Stock.

[125] Egan expressed an opinion at trial that a credit would not affect Saeco Australia's EBITDA. I was invited by Saeco International to accept this evidence on the basis it was "the preferable conclusion". The basis upon which I might form such a view was not the subject of any evidence.

[126] In an email from Egan to Ubertini sent on 10 January 2007, Egan said he had made inquiries on the issue, and expected a response from Saeco International in the following week. On 18 January 2007 Moroni, on behalf of Saeco International, sent a letter to Ubertini in which it was reiterated that Saeco International was not accepting the Returned Stock and that the Returned Stock remained the responsibility of Saeco Australia. A similar position was put by De Gregorio in a letter sent the following day and in an email sent by Schwartz on 23 January 2007. There is later correspondence on this matter, but, essentially, the position remained unchanged.

[127] At fn 170 of Saeco International's written submissions it referred to 8 pieces of correspondence. Without descending to the detail, having read the correspondence it shows, amongst other things, that Ubertini made it clear his permission was not necessary.

[128] See section D.1.5, par 256 below.

[129] See pars 115-136 above.

[130] According to Ubertini, the loan was originally advanced by Saeco International, but then it was the subject of a "transfer" to Saeco Strategic Services.

[131] Saeco International's closing submissions, par 122.

[132] Reliance on the Demands will be addressed subsequently in section D.1.6, at pars 263-352 below.

[133] See par 17 above.

[134] In making this observation, I am not ignoring the fact that prior to this time the issue of Saeco Australia's failure to pay its debts to Saeco International on time had been raised in earlier correspondence. This was raised, for example, in an email to Olivia Zampichelli (Saeco Australia's company accountant) from Livio Valentini (Saeco International group finance officer) dated 21 November 2006.

[135] Egan said Saeco International were encouraged by him to call up the outstanding debts both before and after he became a director.

[137] As to which, see pars 231-234 above. There was no case put that, by this conduct Saeco Australia had repudiated the Supply Agreement between Saeco Australia and Saeco International, thereby allowing Saeco International to call in all outstanding debt. The likely explanation for no such case being put is that, notwithstanding Saeco Australia's refusal to pay, Saeco International continued to supply products to Saeco Australia as and when ordered.

[138] See par 537 below.

[139] See pars 249-252 above. See also par 281 below.

[140] See pars 492 and 509 below, concerning the fact that conduct that may be within a party's contractual rights does not mean the conduct may not also be oppressive. See also: Aqua-Max Pty Ltd v MT Associates Pty Ltd [2001] VSCA 104; (2001) 3 VR 473, 481-482 [60] (Brooking, Charles and Chernov JJA); O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, 1098D (Lord Hoffmann, with whom Lord Jauncey, Lord Clyde, Lord Hutton and Lord Hobhouse agreed).

[141] This statement is necessarily qualified by reason that, in some circumstances, a parent company in a position similar to Saeco International would be justified in demanding all outstanding debts because of the conduct of its subsidiary or the state of the subsidiary's business.

[142] Of course, this still leaves the issue of whether the conduct of the parent company is conduct of the subsidiary's affairs: see discussion below, pars 490, 500-528.

[143] As already noted, a complete accounting of the extent to which debts were overdue was not before the court. Some evidence suggests the debts had been outstanding well beyond 150 days. In February 2007, Ubertini informed Grant Thornton that as at October 2006 the trading terms had gone beyond 240 days.

[144] In fact the offer was rejected in August 2006.

[145] At the meeting held on 13 February 2007, Egan suggested he was not an expert on administration of companies. Although this may have been his view, he clearly was conversant with such issues at the time.

[146] Correspondence also indicates a partner from a Sydney firm was also involved, though the evidence was not clear as to the extent of this firm's involvement.

[147] See par 389, 391 and 401 below.

[148] See par 18 above.

[149] See par 22 above.

[150] Saeco International's written submissions, par 69.

[151] Saeco International's written submissions, par 148.

[152] See par 255 above.

[153] See pars 426-456 below.

[154] The funds were held in a term deposit account with Westpac Banking Corporation, and totalled $5.6 million as at February 2007.

[155] Ubertini had previously made allegations concerning Taddeo's conduct, the details of which were not the subject of any allegation at trial. Indeed, Ubertini acknowledged he was wrong to have made the allegations against Taddeo that he did.

[156] Paragraph 14: sworn on information and belief based on a copy of a sample invoice and information from Moroni.

[158] Clause 9.10 of the Brand Management Agreement stated that it was governed by Irish law. It also provided for disputes to be decided by an arbitrator agreed between the parties or, in default of agreement, an arbitrator nominated by the president of the Law Society of Ireland.

[159] It is clear no proceeding had been commenced less than a week before the meeting. A letter was sent by Moroni to Ubertini on 7 February 2007 suggesting that Ubertini had left Saeco International "no option other than to commence proceedings in Italy". However, the correspondence before the court does not suggest the matter was taken any further.

[160] Although this observation might be made in relation to a number of aspects of the case, this was a particularly stark example of Saeco International not putting relevant evidence before the court. As to which, see Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63, 65 [1774] EngR 2; [98 ER 969, 970.2]. See also, for example, Australian Securities & Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345, 412-413 [165]-[167] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ), 441-442 [250] (Heydon J) and the cases there cited.

[161] I use this term in the sense of the director not being aligned with the Plaintiffs or Saeco International.

[162] Ubertini v Saeco International Group SpA [2013] VSC 468.

[163] See par 310 above, last 2 sentences.

[164] Precisely what products were to be introduced is not specified in the email; ie it is not clear whether Egan was referring to products beyond the New Range, such as the Talea and Odea.

[165] Without the appointment of administrators there might have been a real question as to whether Saeco Strategic Services could lawfully terminate the Brand Management Agreement. However, as this was not explored at trial, it has not formed part of the court's reasoning.

[166] See par 322 above.

[167] For example, this position is reflected in an email from Egan to Taddeo sent on 17 January 2007.

[168] This is before the costs of administration were taken into account.

[169] Egan gave evidence that Saeco International did not receive full payment when it sold the Returned Stock. However, there was no suggestion he was involved in the process and his evidence appeared to be speculative. No evidence was put before the court to suggest there was a basis for the assertion made.

[170] See par 337 above.

[171] De Gregorio accepted in cross-examination that the Returned Stock could "possibly" have been sold in 2005 or 2006.

[172] See pars 137-149 above.

[173] See pars 192-235 above.

[174] See pars 29-49 above.

[175] See pars 168-182 above.

[176] See Ubertini v Saeco International Group SpA [2013] VSC 468, [8].

[177] There was evidence given by Taddeo and Schwartz on the reason for continuing to supply, which might be thought to be conflicting. The evidence concerned whether such conduct was motivated by Saeco International trying to keep Saeco Australia's EBITDA down. In my view, not much turns on this. The objective fact is that Saeco International willingly continued to supply Saeco Australia.

[178] See pars 247-248, 343-347 above.

[179] Taddeo described the situation in October 2006 as "a kind of paper war". He referred to 2 letters he sent on 12 October 2006 as being part of that paper war. Taddeo also said, at the direction of Schwartz, he was sending "bombs to stay on the safe side".

[180] See also pars 377-383 below.

[181] At pars 91-92 above.

[182] This is contrary to some of the evidence. For example, see pars 77-78 above; submission to Ernst & Young dated 22 December 2006, 17 [5.8]; compare Report to Creditors, in which it is suggested Saeco Australia ceased paying Saeco Vending in November 2006.

[183] There was a written loan contract between Saeco Strategic Services and Saeco Australia which expressly provided for interest to be charged in circumstances where Saeco Australia failed to pay any sum due under the Loan Agreement. The amount claimed was only Є5,926.22. Accordingly, it was the other 2 demands for interest that were the focus of submissions by the parties.

[184] The enclosures were not marked to identify them. I was given no explanation in relation to the enclosures to the expert report by any counsel. From my reading of the document, it would appear that Enclosure 3 and Enclosure 4 need to be read together: see the penultimate paragraph of the extract tendered. In any event, the enclosure I have referred to appears to be the only enclosure to meet the relevant description.

[185] See Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588, 604 [37] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) (referring with approval to Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705, 743-744 [85] (Heydon JA)), 622 [90], 631 [108], 632 [110] (Heydon J).

[186] No separate submissions were made by Saeco International in relation to the claim for penalty interest by Saeco Vending.

[187] See pars 36-46 above in relation to an offer in late 2005 of negligible value for the plaintiffs' shares. Also, on 10 February 2006, Marcucci sent an offer to sell the Plaintiffs' shares for $6.8 million. Saeco International provided no response to this offer.

[188] The offer expressly stated that any agreement arising out of the offer would only be binding where recorded in formal documentation.

[189] For a discussion in relation to the meaning of the affairs of the company, see pars 490-528 below.

[190] The court was told that the translation of the words used was "I crush him".

[191] I also note that on 29 August 2006 solicitors for Saeco International stated in a letter that Saeco International had lost confidence in Ubertini: see par 430 below. Presumably, this letter was sent with the knowledge and authority of De Gregorio. De Gregorio said his confidence in Ubertini changed from probably March 2006.

[192] See pars 150-167 above.

[193] In making this observation, I am not suggesting that in 2006 the relationship could be compared to a situation where there is an irretrievable breakdown between shareholders. For elaboration, see pars 347-352 above.

[194] On 16 November 2006, Ubertini sent a letter directly to Egan complaining that a decision had been made to call a board meeting and a notice in that regard had been issued "without even the courtesy of a telephone call or visit [upon] myself as Managing Director".

[195] A later email from Schwartz to Ubertini dated 9 February 2007 indicates that a conference call had been held between Schwartz and Ubertini the previous Thursday, 1 February 2007.

[196] This affidavit, consisting of 24 pages and 72 exhibits, was sworn and filed in support of the application by Saeco International to convene the board meeting on 13 February 2007 without requiring the presence of Ubertini at the meeting in order for there to be a quorum.

[197] For the position under the Evidence Act 2008 (Vic), see ss 118 and 119, together with the definition of "confidential communication" and "confidential documents" contained in s 117. The existence of confidentiality in relation to a communication was essential for a claim of legal professional privilege to be successfully made at common law: see, for example, Baker v Campbell (1983) 153 CLR 52, 60.8, 65.2 (Gibbs CJ), 78.6 (Mason J), 101.5 (Brennan J); R v Braham and Mason [1976] VicRp 56; [1976] VR 547, 549.2 (Lush J).

[198] At pars 391-393 above.

[199] Egan accepted that there were 3 executive directors, namely Ubertini, White and Andrew Kremmer.

[201] At pars 295-307 above.

[202] At par 414 above.

[203] See par 283 above.

[204] De Gregorio forwarded the email to Moroni on the same day. There was no suggestion in any of the evidence that Moroni was surprised by the financial reports, or that he was not aware of Saeco Australia's general financial position before this email was sent: see pars 277 above and 428 below.

[205] The evidence discloses that Saeco Australia's debtors were reliable and there was no need to make any significant provision in the accounts for bad or doubtful debts.

[206] See par 332 above.

[207] Ubertini himself raised the issue of the directors being exposed to personal liability. In a letter to Egan dated 8 January 2007, Ubertini stated that, if Saeco International was correct in its suggestion concerning the insolvency of Saeco Australia, then such issues would arise. Egan responded to that letter by email sent 10 January 2007 (see par 449 below), but did not address the issue of any personal liability the directors might have been exposed to.

[208] Although there was no evidence as to how quickly a plan could be put together, on the information available to the directors there can be no doubt a plan could have been put together in that timeframe.

[209] See pars 80, 283 and 416 above.

[210] At par 22 above.

[211] This position is confirmed in the Report to Creditors, 29 [12.2].

[212] Egan apparently made suggestions to this effect to the Administrators, but in general terms: see Report to Creditors, 29-30 [12.2]. Not only were there no allegations at the time by Moroni to this effect, but no case was positively put by Saeco International that Saeco Australia did not meet its reporting requirements. For completeness, I have already referred to the fact (at par 417) that Egan was provided with financial reports for Saeco Australia as at 30 November 2006, by email on 14 December 2006. It was from these reports that Egan expressed concerns about the financial position of Saeco Australia. There was no suggestion from Egan that there was delay in providing this information or that it was inadequate in its detail. See also pars 277-278 above.

[213] There was some evidence that Ubertini did not want to go to a board meeting from May 2006. However, there was no evidence of any request for a board meeting before August 2006.

[214] The explanation given was the Melbourne Cup racing carnival was occurring that week. The solicitor conducting the matter indicated he did not work on the Monday, Tuesday or Thursday of that week. This is not unusual in Melbourne (at least for some) at this time of the year.

[215] The position adopted by Ubertini appears to be contrary to cll 4.2, 4.3 and 21.2 of the Shareholders' Agreement. However, there is no need to make any finding in relation to this given that counsel for the Plaintiffs did not seek to defend Ubertini's position.

[216] See also par 390 above.

[217] Egan said he was repeating advice previously given by an email dated 12 December 2006. The earlier email was not in evidence.

[218] See par 283 above.

[219] In par 4(g) of the Reply, the Plaintiffs seek to justify why Ubertini refused to attend a board meeting of Saeco Australia. No dates are specified in the Reply as to the duration of the refusal.

[220] See pars 102-103 above.

[221] See also pars 482-484 below.

[222] I note, a moral obligation which he said he honoured to the amount of $800,000 over a 3 year period.

[223] See par 105 above.

[224] See par 17 above.

[225] Section 7, p 11. The transaction was also recorded in the report to directors of Saeco Australia for the period ended 31 March 2005.

[226] See pars 231-234 above.

[228] See par 113 above.

[229] See pars 369-372 above.

[230] See par 112 above.

[231] See pars 78-81 above.

[232] See pars 240-241 above.

[233] See pars 258-262 above.

[234] See par 234 above.

[235] See pars 457-462 above.

[236] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 330-331 [61]-[65], 334 [72] (French CJ), cf 360 [176] (Gummow, Hayne, Heydon and Kiefel JJ); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672, 675 [4] (Spigelman CJ), 763 [527] (Priestley JA).

[237] This observation was made in Australian Securities Commission v Lucas [1992] FCA 234; (1992) 36 FCR 165, 184.3 (Drummond J), where it was said that "the concept of the affairs of a corporation is a very wide one indeed". See also Rackind v Gross [2004] EWCA Civ 815; [2005] 1 WLR 3505, 3512, [26], 3513-3514, [29] (Nourse J, with whom Keene and Jacob LJJ agreed).

[238] Section 53(a).

[239] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 359 [173] (Gummow, Hayne, Heydon and Kiefel JJ).

[240] Section 53(f).

[241] [2008] NSWCA 95; (2008) 66 ACSR 359, 400 [183], referring with approval to Turnbull v National Roads and Motorists' Association Ltd [2004] NSWSC 577; (2004) 50 ACSR 44, 52 [32] (Campbell J); see also 430-431 [363]-[364] (Young CJ in Eq).

[242] See also Turnbull v National Roads and Motorists' Association Ltd [2004] NSWSC 577; (2004) 50 ACSR 44, 54 [39] (Campbell J).

[243] [1985] HCA 68; (1985) 180 CLR 459, 472.7-473.3. See also 467.8-468.2 (Mason ACJ, Wilson, Deane and Dawson JJ).

[244] (1986) 10 ACLR 692, 704.4 (referred to with approval in Joint v Stephens [2008] VSCA 210 (Nettle, Ashley and Neave JJA).

[245] [1985] HCA 68; (1985) 180 CLR 459, 472.

[247] Joint v Stephens [2008] VSCA 210, [136], referring to Austin and Ramsay, Ford's Principles of Corporations Law, 13th Ed. [11.450].

[248] [1986] Ch D 211, 222B (Nourse J).

[249] [2008] VSCA 210, [136] (Nettle, Ashley and Neave JJA).

[251] (1986) 10 ACLR 692, 706.9.

[252] Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121, 193 [331(B)] (Young JA); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672, 687-689 [89]-[104] (Spigelman CJ).

[253] Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121, 193 [331(A)] (Young JA); Lucy v Lomas [2002] NSWSC 448 [43] (Young CJ in Eq); McWilliam v LJR McWilliam Estates Pty Ltd (1990) 20 NSWLR 703, 707C-D, 708F (Young J).

[254] Joint v Stephens [2008] VSCA 210, [138] (Nettle, Ashley and Neave JJA); Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1, 26F (Cohen J).

[255] Saykan v Elhan [2006] VSCA 230, [18] (Nettle and Ashley JJA and Smith AJA).

[256] Re Bright Pine Mills Pty Ltd [1969] VicRp 121; [1969] VR 1002, 1013.5-1013.7 (Full Court); Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324, 363.4-363.7 (Lord Keith), 367.5-367.6 (Lord Denning). See also fn 265 below.

[257] Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd [2002] NSWSC 13; (2002) 40 ACSR 619, 659 [205], 665 [239] (Austin J).

[258] [1959] AC 324.

[263] At 346.7-347.2 (Lord Morton) and 366.5-368.1 (Lord Denning).

[264] See pars 343-352 above.

[265] See: Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588, 615D-616D (Powell J); Re Norvabron Pty Ltd (1986) 11 ACLR 33, 36.3-36.7 (Macrossan J, with whom Andrews CJ and Carter J agreed); Re Cumberland Holdings Ltd (1976) 1 ACLR 361, 376.5 (Bowen CJ in Eq). See also, in relation to cases concerned with matters pertaining to shareholders or directors privately, as opposed to a company's affairs, Crossman v Taylor (No 3) [2011] FCA 734, [289]-[295] (Besanko J); Re Leeds United Holdings Plc [1996] 2 BCLC 545, 559h-560a (Rattee J); Weatherall v Satellite Receiving Systems (Australia) Pty Ltd [1999] FCA 218; (1999) 30 ACSR 698, 701 [13] (Whitlam J).

[266] Cf [1959] AC 324, 341.2.

[267] In contrast to the facts before this court, in Scottish Co-operative Wholesale Society Ltd v Meyer, the minority shareholders had the right to sell their shares to the parent company at a price to be fixed by the auditors: see at 351.2. Although this is a material distinction and the absence of such a right, as submitted by Saeco International, may have affected Ubertini's conduct to some extent, it is not a fact which lessens the relevance of the observations made in that case concerning whether matters may be properly considered as affairs of a subsidiary.

[270] For example, Nicholas v Soundraft Electronics Ltd [1993] BCLC 360, 368 (Ralph Gibson LJ), referred to with apparent approval in Rackind v Gross [2004] EWCA Civ 815; [2005] 1 WLR 3505, 3511-3512, [23] (Nourse J, with whom Keene and Jacobs LJJ agreed); Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588, 605F-G (Powell J); Re Cumberland Holdings Ltd (1976) 1 ACLR 361, 376.7 (Bowen CJ in Eq).

[271] I refer to Lord Keith before Lord Morton in light of Saeco International's submission at par 503 above.

[273] The reference in this passage to "the petitioners" is a reference to the minority shareholders in the subsidiary.

[278] At 364.3. See also Lord Denning at 368.5, 368.9-369.2.

[279] See, for example, Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 361-362 [180]-[182] (Gummow, Hayne, Heydon and Kiefel JJ).

[280] See also par 515 below; and Tomanovic v Global Mortgage Equity Corp Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121, 193 [329] (Young JA, agreeing with Campbell JA, with whom Macfarlan JA also agreed), Szencorp Pty Ltd v Clean Energy Council Ltd [2009] FCA 40; (2009) 69 ACSR 365, 382 [72]-[76] (Goldberg J), Re Hollen Australia Pty Ltd [2009] VSC 95 [66] (Robson J), Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359, 387 [123], 387-388 [125]-[126] (Giles JA), 401-404 [191]-[204] (Basten JA), cf 431-433 [366]-[386] (Young JA).

[289] See also Heywood v Wellers [1975] EWCA Civ 11; [1976] QB 446, 459D (Lord Denning); Coldman v Hill [1919] 1 KB 443, 457.7 (Scrutton LJ).

[290] At 368.4-369.6. See par 510 above.

[291] Lord Morton referred to the conduct in question as "sins of omission": at 347.6.

[292] See par 513 above.

[293] (1976) 1 ACLR 361.

[295] (1986) 11 ACLR 279.

[298] [1959] AC 324, 342.4. However, equally, I do not understand this as preferring Viscount Simonds' approach as the reference is confined to the meaning of "oppressive".

[299] Re Norvabron Pty Ltd (1986) 11 ACLR 33 (Andrews CJ, Macrossan and Carter JJ).

[300] [1959] AC 324.

[301] More specifically it was submitted there was no express pleading "of any conduct, either positive or negative, or any act or omission of [Norvabron] or by the directors of [Norvabron] as such or by members of [Norvabron] or by persons on its behalf ...": at 34.9-35.1.

[305] (1990) 20 NSWLR 588.

[306] At 615E-F; see par 524 below.

[309] This language is taken from the Companies (New South Wales) Code, s 320(1)(a)(i).

[311] [2004] EWCA Civ 815; [2005] 1 WLR 3505, 3513-3514, [29] (Nourse J, with whom Keene and Jacob LJJ agreed).

[312] One of the other Australian cases considered was Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, in which Young J held that the conduct of a director of a subsidiary, who had been appointed to the board of the subsidiary by the holding company, was not conduct in the affairs of the holding company. As was expressly acknowledged by Young J (at 704.3), his Honour's observations in relation to what comprised the affairs of the holding company was obiter dicta (albeit "considered obiter": see par 495 above) for a number of reasons, including that the conduct in question was held not to be oppressive conduct: at 705.8. Further, the decision is confined to a finding that the mere fact that a person is a nominee director "is [not] sufficient for one to conclude that when so taking part in a board meeting on a company one is acting in the affairs of the appointor company": at 705.7.

[314] Austin and Ramsay, _Ford's Principles of Corporations Law (_15th Ed, 2013), 719 [10.445]. In adopting this statement of the present position, I am not ignoring cases such as Hough v Hardcastle [2005] EWHC 1415 (Comm) (Sir Donald Rattee). In that case, the 2 companies in question were not parent and subsidiary, but related companies (see at [2]-[15] for the company structures in place). It was held that conduct of 1 of the companies could not possibly be in the affairs of the other company. For this reason, and others, the petition was struck out summarily.

[315] The Principal Demand was made by Saeco International itself: see par 78 above. In relation to the demands other than the Principal Demand, Saeco International caused, or at least permitted, its wholly owned subsidiary, Saeco Strategic Services, to send these demands.

[316] [1959] AC 324.

[317] See par 515 above.

[319] This is an order that may be made under the Act: s 233(1)(d).

[320] Cf Tainsh v Barber (1997) 23 ACSR 158, 177.5 (Foster J), referred to with approval in Saykan v Elhan [2006] VSCA 230, [29] (Nettle and Ashley JJA and Smith AJA).

[321] See par 534 above.

[322] See par 510 above.

[323] (1894) 6 R 67, 70.5-71.5 (Lord Herschell LC), 75.8, 76.9-77.1 (Lord Halsbury), 79.5 (Lord Morris).

[324] See, for example, Lord Buddha Pty Ltd (in liq) v Harpur [2013] VSCA 101, [204] (Vickery AJA, with whom Weinberg and Tate JJA agreed); White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 216.9 (Goldberg J).

[325] White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 218.5, and the cases there cited.

[326] See, for example, Raben Footwear Pty Ltd v Polygram Records Inc [1997] FCA 370; (1997) 75 FCR 88, 101E-F (Tamberlin J).

[327] This can readily be done properly by counsel without infringing any order for witnesses out, such an order having been made in this case.

[329] Cf Raben Footwear Pty Ltd v Polygram Records Inc [1997] FCA 370; (1997) 75 FCR 88, 102B (Tamberlin J).

[330] Cf Burke v Corruption and Crime Commission [2012] WASCA 49; (2012) 289 ALR 150, 188 [192] (Buss JA, with whom Martin CJ and Mazza JA agreed).

[331] In making this observation, I am not ignoring the evidence concerning the proposed resolution to remove him at a board meeting in late 2006. In any event, the intention to remove Ubertini at this point in time is also uncontroversial as the evidence makes it clear that Ubertini knew at the time of Saeco International's intentions in that regard.

[332] See, for example, Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541, 551.6 (McHugh J), referring with approval to R v Lawrence [1982] AC 510, 517B.

[333] See par 267 above.

[334] Saeco International's written submissions, par 58.

[335] Saeco International made submissions about the case being put at the level of fraud as the basis for a submission that when considering the standard of proof as prescribed in s 140(1) and (2) of the Evidence Act 2008 (Vic), the level of satisfaction required equated to that stipulated in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 362.2 (Dixon J). Although I have not accepted the premise upon which the submission is made, if I had been required to be satisfied on the balance of probabilities to such a level, on the critical issue of whether or not Saeco International, De Gregorio and Egan intended Saeco International to take control of the Australian business before or at the time the Principal Demand and the other demands were sent, and continuing until 13 February 2007, and then conducted themselves to achieve that end, I would have been so satisfied.