Belgiorno-Zegna v Exben Pty Ltd
[2000] NSWSC 884
•6 September 2000
Reported Decision: [2000] 35 ACSR 305
New South Wales
Supreme Court
CITATION: Belgiorno-Zegna v. Exben Pty. Limited & Ors. [2000] NSWSC 884 CURRENT JURISDICTION: Equity Division FILE NUMBER(S): SC 1777/00 HEARING DATE(S): 14, 15, 16, 17, 21, 22, 23 August 2000 JUDGMENT DATE: 6 September 2000 PARTIES :
Marco Belgiorno-Zegna - plaintiff
Exben Pty. Limited - first defendant
Franco Belgiorno-Nettis - second defendant
Amina Belgiorno-Nettis - third defendant
Luca Belgiorno-Nettis - fourth defendant
Guido Belgiorno-Nettis - fifth defendantJUDGMENT OF: Hodgson CJinEq at 1
COUNSEL : Mr. N. Magee QC with Mr. R. Darke and Mr. N. Kidd for plaintiff
Mr. B. Oslington QC with Mr. D. Hammerschlag for defendantsSOLICITORS: Allen Allen & Hemsley, Sydney for plaintiff
Mallesons Stephen Jaques for defendantsCATCHWORDS: CORPORATIONS- Oppression - Winding up - Just and equitable ground - Shares in family company given by father and mother to three sons - Transfer restricted by agreement between shareholders - Agreement as to governance of wholly owned subsidiary - Eldest son unable to exit on terms satisfactory to him - Youngest son appointed managing director over opposition of eldest son - Whether breach of governance agreement - Whether oppression shown. LEGISLATION CITED: Corporations Law ss.232, 461, 467 DECISION: See pars.159-162 of judgment
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONCORAM: HODGSON, CJ in Eq.
Wednesday 6th September 2000
NO. 1777 OF 2000
BELGIORNO-ZEGNA V. EXBEN PTY. LTD. & ORS.JUDGMENT
1 These are proceedings brought for the winding up of the first defendant Exben, the family company of the other parties to the proceedings. For convenience, I will refer to these other parties by their Christian names. 2 The shareholders of Exben are the plaintiff Marco, his parents (the second defendant Franco and the third defendant Amina), and his brothers (the fourth defendant Luca and the fifth defendant Guido). Marco is about 47 years old, Franco about 84, Luca about 45 and Guido about 41. Marco seeks the winding up of Exben on the basis of oppression (Corporations Law s.232 and s.461(1)(f) and (g)), and on the ground that it is just and equitable that Exben be wound up (Corporations Law s.461(1)(k)). Marco also seeks “such further or other orders pursuant to s.233 of the Corporations Law as the Court sees fit”, although no other relief is identified, and the plaintiff has not articulated or supported any other relief in the conduct of the proceedings.3 The principal asset of Exben is all the shares in Transfield Holdings Pty. Limited: I will refer to this company, and also the general enterprise in relation to which this company is the holding company, as Transfield. Those shares are worth some hundreds of millions of dollars. It appears that the only other significant assets of Exben are a portfolio of properties worth about $20-$30 million. Exben is also trustee of a family trust, but the evidence is not clear as to what are the assets of that trust. 4 Transfield was founded in 1956 by Franco, and later in the same year he was joined in that enterprise by Carlo Salteri. Those two became joint managing directors of the relevant corporate entities. 5 Exben was incorporated on 23rd March 1960 under the name Belgiorno Investments Pty. Limited; and thereafter the interests of Franco and his family in Transfield were held through this company. Originally, Franco held one controlling share in the company, and Amina held one ordinary share. 6 Transfield grew rapidly in the 1950s and 1960s; and when Marco joined Transfield in 1976, it operated throughout Australia with a number of divisions, including construction and steel fabrication, bridge building, aircraft manufacture, and galvanising and transmission lines. 7 On 13th May 1976, there was an amendment to the Articles of Association of Exben which established new classes of shares. There was one “A” share, held by Franco, which carried 51% of votes at a general meeting. There was one “B” share, held by Amina, which took over the right of the “A” share if Franco should resign as a director or die. Then there were ordinary shares: these came to be held, as to 0.3% by Franco, and as to the remainder, 10% by Amina, and 30% each by Marco, Luca and Guido. The shares held by the three sons were gifts to them from Franco and Amina. 8 In 1989, Franco and Carlo Salteri retired as joint managing directors, and Marco and Paul Salteri (Carlo’s son) replaced them. Franco and Carlo Salteri became co-chairmen of directors. It appears that, until the two families went their separate ways in 1996, all major decisions still had to be agreed to by both Franco and Carlo, as had been the case at least since 1976. 9 Between 1989 and 1996, Transfield’s business was very successful, and grew in size and complexity. It appears that net assets increased from about $180 million to about $256 million. 10 In 1992, a committee known as the Managing Director’s Advisory Committee was established, chaired by Gerry Gleeson, who until 1988 had been the head of the New South Wales Premier’s Department. 11 In March 1993, the Shareholders of Exben executed a Shareholders’ Agreement, and Exben adopted new Articles of Association. 12 The Shareholders’ Agreement required Franco and Amina to make wills having the effect that one-third of the shares of each of them in Exben should go to each of Marco, Luca and Guido. The Agreement also provided a procedure for the disposal by Marco or Luca or Guido of shares in Exben. The provisions were detailed and complex, but in effect they required that any shares to be disposed of first be offered to other shareholders, and that genuine attempts be made to agree on a price; that if there was no agreement, the shareholder wishing to sell could seek offers from outside parties; and that if the shareholder wished to take up an offer received from an outside party, the existing shareholders must first have the opportunity to purchase the shares on the terms offered by the outside party. 13 Previously, under Articles 23-38 of Exben’s Articles, the only possible disposal of shares was at a “fair value” fixed by the directors. 14 In the new Articles of Association, Articles 3.1 and 3.2 provided for different classes of shares, in the following terms:
OUTLINE OF FACTS
15 The two “A” class shares were to be held by Franco, the “B” class share to be held by Amina, and one “C” class share to be held by each son. The proportions of ordinary shares remained substantially the same as before. 16 Article 15.6 provided for voting at general meetings, in the following terms:
3.1 Capital
(1) The capital of the company is thirty million dollars ($30,000,000.00) divided into fifteen million (15,000,000) shares of two dollars ($2.00) each of which:
(a) 2 shares numbered 1-2 inclusive are classified as 'A' class shares;
(b) 1 share numbered 3 is classified as a 'B' class share;
(c) 3 shares numbered 4-6 inclusive are classified as 'C' class shares;
(d) 13,691,511 shares numbered 7-13,691,518 are classified as non-voting shares; and
(e) the balance are ordinary shares which may, at the time of issue. be classified by the Directors as voting or non-voting shares.(2) The 45,490 ordinary shares standing registered at the date of the adoption of these Articles in the name of FBN are re-classified as non-voting shares as described in Article 3.1(1)(d). The 1,369,151 ordinary shares standing registered at the date of the adoption of these Articles in the name of ABN are re-classified as non-voting shares as described in Article 3.1(1)(d). Each of the 4,107,453 ordinary shares standing registered at the date of the adoption of these Articles in the names respectively of MBZ, LBN and GBN are reclassified as non-voting shares as described in Article 3.1(1)(d).
3.2 Conversion of Shares
(1) Upon the occurrence of any of the following events the 'A' class shares of a Member shall automatically cease to be classified as 'A' class shares and shall become non-voting shares:
(a) upon the Member, for any reason, ceasing to be a Director, or
(b) upon any transfer of the 'A' class shares.(2) Upon the occurrence of any of the following events the 'B' class share of a Member shall automatically cease to be classified as a "B' class share and shall become a non-voting share:
(3) If the holder of a 'C' class share transfers his share otherwise than in accordance with the unanimous consent of all Members, the "C' class share shall automatically become an ordinary share.
(a) upon the Member, for any reason, ceasing to be a Director; or
(b) upon any transfer of the 'B" class share.17 Article 23.1 provided for the management of the business of the company, in the following terms:
15.6 Voting at general meetings
(1) The 'A' class shares shall be entitled to exercise 51% of the votes of all issued voting shares at each meeting. The 'A' class votes may only be exercised as one block.(2) The ‘B' class share shall be entitled to exercise 10% of the votes of all issued voting shares at each meeting. The 'B' class votes may only be exercised as one block.
(3) Each 'C' class share shall entitle the holder:
(a) whilstever there are both ‘A' class shares and a 'B' class share, to exercise at each meeting 13% of the votes of all issued voting shares;
(b) whilstever there are 'A class shares but not a 'B' class share, to exercise at each meeting 1/3 of 49% of the votes of all issued voting shares',
(c) whilstever there is a 'B' class share but not 'A' class shares, to exercise at each meeting 30% of the votes of all issued voting shares; and
(d) at any other time to exercise at each meeting 1/3 of the votes of all issued voting shares.(4) Every resolution submitted to a General Meeting shall in the first instance be decided by a show of hands.
(5) All members holding non-voting shares shall be entitled to receive notices of and to attend all meetings.
(6) No resolution shall be effective, whether on a shown of hands or on a poll:
(a) whilstever there are 'A' class shares, unless the holder of the 'A’ class shares has voted in favour of such resolution; and
(b) thereafter, unless the holders of not less than 90% of all issued voting shares have voted in favour of such resolution.18 Article 32.1 provided for entitlement to dividends, to the effect that the “A” class shares were entitled to 22.5% of dividends, the “B” class share 10%, the “C” class shares none, and the balance was to be divided equally among the ordinary shares. Article 36.1 provided that, upon winding up, any surplus assets were to be distributed among all shares equally. 19 In 1996, the business of Transfield was split between the two families: the Salteris took the Williamstown Naval Dockyard, and the Belgiornos took the balance. It is common ground that, although the relationship between Franco and Carlo had become strained, Marco was the driving force in bringing about this separation. 20 On 4th July 1996, Marco was confirmed as managing director of Transfield. Luca’s position as Director of Asian Operations, and Guido’s position as Director of Development, were also confirmed. However, by this time there were tensions developing between Marco on the one hand, and Franco, Luca and Guido on the other. One source of tension had been a proposal that all three sons be managing directors; and there had also been differences of opinion in relation to projects. 21 The most significant differences of opinion occurred in relation to the Bakun hydro-electricity project in The Philippines. The substance of the position seems to be that this project was opposed by Marco, notably at meetings in February and March 1997, but his opposition was overridden by Luca and Guido obtaining Franco’s approval for the project. There have been substantial losses from this project. 22 According to Marco, following the disagreements and heated discussions concerning the Bakun project, he decided that he wanted to cease to be a shareholder of Exben; and he also wanted an agreement on the basis of which Transfield should be managed until the terms of his exit were finalised. 23 On 16th October 1997, there was a meeting of Exben at which all family members attended. The last paragraph of the minutes of that meeting recorded the following:
23.1 General Powers
The management and control of the business and affairs of the Company shall be vested in the Members. The Board shall act in accordance with the directions of the Members. Subject to the above, the Board may carry into effect all or any of the objects of the Company as expressed or implied by the Memorandum of Association and may exercise all such powers of the Company and do all such acts and things as may be exercised or done by the Company and are not by the Law or these Articles expressly directed or required to be exercised or done by the Company in General Meeting, subject nevertheless to the provisions of these Articles and of the Law and of any resolution of the Company in general meeting and to such Articles not being inconsistent with the aforesaid provisions as may be prescribed by the Company in General Meeting.24 There followed negotiations in which Mr. Gleeson communicated with Marco, with Luca and Guido, and with Franco. I will give some details of the communications later, when considering the meaning and effect of the agreement that was reached, and the parties’ understanding of it. In the event, Marco, Luca and Guido signed or otherwise bound themselves to what was called the Corporate Governance Agreement (or CGA), in about February 1998. On that basis, Marco was appointed managing director of Transfield for two years commencing 1st January 1998, plus a third year if he and Franco agreed. The full text of the CGA is set out in Appendix A. 25 Notwithstanding the CGA, there continued to be disagreements between Marco on the one hand, and Franco, Luca and Guido on the other hand. There were problems with the business. In the three years to June 1999, it appears that around $28 million was lost in general construction activities in Australia. 26 By late 1998, negotiations for the exit of Marco had not proceeded far. 27 On 17th February 1999, a proposal for Marco’s withdrawal was given to Marco by Guido, apparently on behalf of the other family members. It appears that Guido told Marco that, in the opinion of the other family members, the value of Marco’s shares in the market place was in the range of $70-$100 million dollars. The proposal was expressed as being without prejudice to the current Shareholders’ Agreement, but also expressed as not itself taking into account the exit provisions of that agreement. 28 On 12th March 1999, at a meeting of all family members, there were indications given by Guido and Luca to the effect that they did not wish to work with Marco. 29 There followed the negotiation of what was called the Memorandum of Understanding (or MOU), being terms upon which Marco would withdraw from Transfield. I will give some details of the negotiations later, in dealing with the meaning and effect of the MOU. It was finally executed on 25th May1999. A copy of the body of the MOU, and of Schedule 2 of it, is Appendix B to this judgment. 30 On 11th June 1999, Exben passed a resolution revoking Marco’s appointment as managing director of Transfield as from 1st January 2000. 31 Between June and September 1999, Marco re-located his office, and the staff who were to go with him, to rented premises in the AMP Centre. 32 By about November 1999, it became apparent that the MOU could not be implemented because the banks would not agree to it. Marco sought an extension of the MOU, or negotiation of a new MOU; and also the appointment of an external managing director. 33 On 17th November 1999, Luca wrote to Marco a letter, which among other things asserted that after the expiry of the MOU on 20th December 1999, Marco’s “role with Transfield will become solely that of a non-executive director”. 34 At an Exben Shareholders’ meeting on 19th November 1999, Luca and Guido attended with proxies from Franco and Amina. Marco was also present. It was resolved at that meeting, over the opposition of Marco, that Guido be appointed managing director of Transfield as at 1st January 2000. 35 Marco claimed that such an appointment required the unanimous agreement of “A” and “C” Shareholders in accordance with the CGA. 36 There was further correspondence in November and December, in the course of which there was reference to a possible role for Marco in an asset-realisation program requested by Transfield’s banks, and letters written by solicitors on behalf of Marco threatening proceedings on the basis of oppression, and also suggesting mediation. 37 Mediation was attempted, but by mid-March 2000, had not been successful. These proceedings were commenced on 17th March 2000. 38 Prior to the commencement of the hearing of this matter on 14th August 2000, there were further negotiations for settlement, which I will refer to later.
Transfield Holding's Decisions: AND The working together of the three sons was discussed and it was agreed that there should be NO fighting between the sons in front of ANY staff. That they would try to develop a working relationship and this was agreed to be adjudicated on by Mr. G. Gleeson. The three sons should work together on this as this is a critical factor for the future success of the NEW TRANSFIELD GROUP.
39 It will be convenient to deal in turn with the following issues. 40 Firstly, I will say a few words about the credibility of the main witnesses in the case. 41 Secondly, I will consider the meaning and effect of the CGA. 42 Thirdly, I will consider the understanding of the parties as to that meaning and effect. 43 Fourthly, I will consider the meaning and effect of the MOU. 44 Fifthly, I will consider whether the plaintiff has established oppression, as at the commencement of the proceedings on 17th March 2000. 45 Sixthly, I will consider whether the plaintiff has established that it is just and equitable that Exben be wound up. 46 Seventh, I will consider the settlement negotiations, and whether they have any relevance to the question of oppression, the just and equitable ground for winding up, or the exercise of the Court’s discretion. 47 Eighth, I will consider the proceedings themselves, the manner of their conduct and the remedies sought and available, to determine whether those matters have any bearing on oppression, the just and equitable ground, or discretion. 48 Finally, I will draw together what I think should be the result of the proceedings.
ISSUES
49 There was robust cross-examination of some of the witnesses, in the course of which suggestions of dishonesty were made. I am not satisfied that any witness gave dishonest evidence. I do think the evidence of all witnesses was to some extent coloured by their interests in the matter, and their perception of the justice of their own positions. In some cases also, there was some confusion. 50 In circumstances where there is no overt factual contest which I need to resolve, I believe I need say no more about credibility at this stage.
CREDIBILITY
51 It was contended for Marco that the CGA bound Franco, Marco, Luca and Guido as to how they could use their Exben shareholding in controlling certain business decisions concerning Transfield. The defendants’ contention was that the CGA regulated only the conduct of business at the Transfield board; and left untouched the authority of Exben, and of Franco through his “A” class shares in Exben, to exercise such control as Exben had over Transfield as the owner of all the shares in Transfield. 52 In addition to the facts outlined earlier, it is pertinent to record certain matters which led up to the adoption, by the sons at least, of the CGA. 53 On 15th April 1997, a memorandum was prepared by John Scott, Franco’s accountant, dealing with Franco relinquishing inter alia his “A” class shares in Exben. This paper was as follows:
EFFECT OF CGA
Nature of Issue and Further FactsShares in Exben Pty. Limited and Amifra Pty. Limited.
1. Amina will stay as a shareholder of both Exben and Amifra.2 Franco is prepared to resign as a director of both Exben and Amifra and to sell all his shares in both companies on the following conditions:
(A) The shares in Exben and Amifra will be valued and Franco will be paid out in full in cash
Exben 45,492 shares at $24. Each 1,091,808
Amifra 3 shares at $39,000.each 117,000
$1,208,808
(B) Exben will pay out his loan account which was at 30th June,199654 At about the same time, Franco said to Marco words to the effect that he was “prepared to relinquish my “A” class share, but only when you sort out your differences with Luca and Guido”. 55 On 17th April 1997, there was circulated to Franco and his sons a memorandum prepared by Allen Allen & Hemsley, highlighting questions for consideration, including the way in which matters were decided by Exben. 56 In October 1997, an early draft of what became the CGA dealt with “matters reserved for Exben” or (as altered by Marco) “Transfield matters requiring Exben approval”. On the same page, there appeared the following paragraph:
(C) Franco will be appointed Chairman of the board of directors of the top Transfield company, which position he will hold for as long as he lives or wishes to hold, and will have the following benefits and rights:
$408,903
(I) Right of veto.
(D) Transfield will continue to supply the following benefits to Franco and Amina for as long as they live or wish to receive them:
(II) Directors fees of $1,200,000 per annum, payable at the rate of $100,000 per month.(I) The housekeeper at 1 Amiens Road.
(II) The valet/chauffeur for Franco.(E) The Exben Family Trust will give Franco and Amina for as long as they live or wish to receive it- the exclusive use of the penthouse at 19/20 11 Ellamang Road Kirribilli.
3 Amina will resign as a Director, Secretary and Public officer of both Exben and Amifra but will continue to hold her shares, take up her rights and maintain her 10% holdings in Exben and Amifra, provided she is paid a minimum amount of $16,000 per month, which sum will come from fully franked dividend on her shareholding, BUT if the proposed dividend for the year will not be sufficient to cover this sum, then she will be paid a property management fee sufficient to cover the payment at a rate to provide the same after tax benefit as if she had received the sum as a dividend.
(F) Exben and Amifra will enter into a non-revokable agreement with Franco and Amina appointing them the sole letting/management agents for all the properties owned by the two companies which appointment they may delegate if they wish. This agreement will also give them the exclusive right to decide when or whether any of the properties should be sold. This right can not be delegated by them.57 A memorandum dated 12th November 1997, on the subject of “Transfield Board”, was sent by Mr. Gleeson to Marco, Luca and Guido, in the following terms:
In practice at Transfield board meetings if the above voting requirements are met then it would not be necessary to hold additional meetings of Exben to consider such matters.
58 On the same day, Luca and Guido sent a memorandum to Marco and Mr. Gleeson setting out a “Draft set of words dealing with the key philosophical issue discussed on 11th November”, in the following terms:
1. I thought it desirable to set down my views concerning yesterday’s meeting and hopefully these will help towards resolving the issues. As I said yesterday we must achieve a satisfactory outcome to all parties involved and although it may not have been apparent I think we are close to achieving that.
2. I recognise that while it is desirable that the Transfield Board should adopt public company practices where appropriate there must also be a clear recognition that Transfield is not a public company and that the shareholders are executives and they have a right to participate in the management of the company.
This participation process must be defined so that there are clear lines of authority and responsibility and proper mechanisms for clear decision making.
3. Therefore, let's set down what I see as issues which are basically agreed:
(i) The Founding Chairman has a determining vote.
(ii) Governance mechanisms for Transfield must include:a) Recognition that the MD (no matter who he is) has the responsibility to manage the affairs of the company within certain constraints, namely, he must manage within policy and strategic directions approved by the Board.
b) Secondly, he must comply with delegations approved by the Board. These delegations will be stated by way of exceptions specifying matters that must be sent up to the Board for approval.
c) The Board is also constrained by schedules of matters that require Exben approval. Some will require the 90% approval of Exben shareholders and others by simple majority.
d) The Managing Director and the two Executive Directors will present monthly reports to the Board and will be able to raise for discussion any Transfield matter. (Such matters should be first discussed with the MD).
4. The schedules both for delegations and for matters to go to Exben may need some refining and each of you should specify amendments. The schedules are drawn up to cover every likely eventuality but I know Luca and Guido are concerned that they may not achieve this. If this is so, let us try to work to a satisfactory result.5. While the outcome of yesterday's meeting may not be seen to have been satisfactory I repeat again I think we are very close to resolving the issues.
At this stage we have not discussed Exben mechanisms and while I recognise the inter link between Exben and Transfield I still believe that we should solve the Transfield governance issue first.59 Mr. Gleeson, on 13th November, responded with a memorandum to Marco, Luca and Guido, in the following terms:
Any strategic matter can be raised by a majority of the ‘E’ Directors or the ‘E’ Chairman at the ‘T’ Board. Should no unanimous resolution be found at the ‘T’ Board, it would then be referred to the ‘E’ Board for resolution by simple majority or as governed by the Articles of Exben.
60 On 19th November 1997, there was a meeting between Mr. Gleeson, Marco, Guido and (by phone) Luca. Marco’s notes of that meeting were as follows:
Further to my Memo of 12th November I wish to respond to the suggestion from Luca and Guido of 12th November dealing with strategic matters.
1) I agree that it must be open to an executive director to raise any strategic matter at a meeting of the Transfield Board where hopefully it will be resolved unanimously.
2) The proposal in your Memo mixes Transfield and Exben. I think it better at this stage to concentrate on settling Transfield governance issues. I recognise there still is a major problem in settling the decision making rules for Exben but let us leave that for the moment. Therefore I would agree with your proposal but omitting the words “by simple majority or as governed by the Articles of Exben”.
3) One problem which could emerge would be the interpretation of strategic and it is essential that this interpretation not be so wide as to be able to embrace all kinds of management issues. In other words, there is to be some constraint on strategic or otherwise we will get interminable argument. I suggest we discuss this next week.61 On 20th November 1997, Luca sent a memorandum to Mr. Gleeson, with copies to Marco and Guido, in the following terms:
FBN’s role - currently he only has control @ Exben level.
GG noted that FBN wish to maintain his position @ Exben as well as having veto * at Transfield.
“Strategic”.
Firstly it is accepted that any director can bring any matter to the Board.
Consequently, Schedule 1 appropriately deals with all those issues that should go to the shareholder[s].
Limits to be set on delegation to MD regarding contract values; also shareholder approval be sought in excess of higher value.
* this issue still needs to be settled at a later time.62 Next, there was a memorandum from Mr. Gleeson dated 1st December 1997, to Marco, Guido and Luca, in the following terms:
Following our telecon this week, I thought a confirmation of those discussions needed to be had. As such, please advise if the following is a true record of the Meeting:
1. Directors are able to raise any matter for discussion at the Board. Such matters should be discussed beforehand with the M.D.
2. Chairman, Shareholder nominees/Executive Directors can raise any strategic matter at the Board. Failing unanimous resolution at the Board, the matter can be referred to the Shareholders for resolution. A strategic matter shall be limited to the matters requiring Shareholder determination (Schedule 1) and any matter within the purview of the Board (i.e. “essential function of the Transfield Board).
3. FBN and G.G. to discuss the authority of the founding Chairman.
Following our recent meeting I spoke with FBN as agreed and I have also had the note from Luca.
I thought after our recent meeting we just about got there. My summary of the current position is as follows:-
(1) It is now agreed that Directors can raise any matter for discussion at the Board. Where the matter comes within the Executive responsibility of an Executive Director then he should of course first discuss the matter with the Managing Director.
(2) There is no need for us to be concerned about strategic matters because as I have just said any matter at all can be raised which comes within the purview of the Board and that is agreed.
(3) I spoke with FBN and his main concern is the voting at the Transfield Board level and he wishes to have both a deliberative and casting vote. This is what we should now agree to and that settles that matter.
(4) The only outstanding matter is the suggestion in Luca's latest note that any 'strategic matter' if not resolved unanimously at the Board should be referred to the shareholders for resolution. I cannot support this approach. It would place a quite unreasonable constraint on the Board because it would mean that if any one shareholder/Executive Director opposed the matter then it would have to go off to Exben.
This is contrary to what we had decided in relation to Schedule 1 and the further decision that Schedule 1 be split into two parts, Part A and Part B, some requiring a unanimous and some requiring a simple majority.
(5) On further reflection, the appointment of the Managing Director should be in Part A, that is, unanimous approval of the shareholders. The nominated shareholder would not participate in this decision.
I have redrafted the document. You must finalise this matter so that the Company can settle down and get on with improving profitability.
FBN wants the matter settled quickly. This should be done this week.
63 Finally, there was a further memorandum from Mr. Gleeson, to Marco, Guido and Luca dated 10th December 1997, in the following terms:64 Written submissions have been provided by both sides. I have carefully read these submissions, and I will leave them with the papers. In recounting the parties’ submissions, I will focus on the oral submissions which were made. 65 Mr. Magee QC for Marco submitted that the CGA had to be construed against the background that the family members, and Mr. Gleeson, were keen to get in place a proper governance agreement to govern Transfield both through the present disputes and also after the “A” class shares lapsed, when a 90% vote would be required to pass resolutions at the Exben general meeting, that is, unanimity of the three sons. Franco wanted his sons to work together, both now and in the future: this had been hampered by his use of the “A” class vote to overrule Marco, particularly in circumstances where, until the split from the Salteris in 1996, major matters required unanimity of Franco and Carlo; where Franco had retired from his executive position nine years previously; and where Marco had been running the company successfully for nine years. Thus, Mr. Magee submitted, the purpose of the CGA was to provide minority protection, and give Guido and Luca a greater say pending Marco’s exit. 66 Further background, Mr. Magee submitted, was the willingness of Franco to give up his “A” class shares, as shown in the memorandum and Franco’s statement of April 1997. 67 Mr. Magee submitted that the plaintiff’s construction appeared from the clear meaning of the words of the CGA; and was also supported by the context created by the history of negotiations. 68 Mr. Magee submitted that the early draft of October 1997 contemplated that, once matters had been determined at the Transfield board, there would be no subsequent meeting of Exben. He submitted that the reference in paragraph 5 of Mr. Gleeson’s memorandum of 12th November to “Transfield governance” and to not having “discussed Exben mechanisms”, merely recognised that the discussions did not extend to so much of Exben’s business as did not relate to Transfield. Similarly, “determining vote” in paragraph 3(i) of that memorandum meant Franco’s determining vote at Exben in relation to non-Transfield matters. Similarly, Mr. Magee submitted, the reference in Marco’s notes of 19th November 1997 to Franco wishing to “maintain his position @ Exben” meant his position in relation to non-Transfield matters. 69 Mr. Magee submitted that Luca’s note of 20th November 1997 was plainly not “a true record” of the discussion. It was rejected by Mr. Gleeson’s memorandum of 1st December: paragraph 4 of that memorandum meant that if matters were not resolved unanimously at the Transfield board, they should not then go to Exben. 70 Finally, Mr. Magee submitted that where, in his memorandum of 10th November 1997, Mr. Gleeson referred to the corporate governance of Exben as still to be sorted out, and leaving Franco’s position unchanged, that meant in relation to non-Transfield matters not governed by the CGA. 71 Turning to the actual words of the agreement, Mr. Magee submitted that “shareholders” in the agreement meant shareholders of Exben. The requirement of “shareholder (Exben) approval” for matters specified in Schedule 1 meant approval as provided by the agreement itself, and not otherwise. Mr. Magee submitted that what was contemplated by paragraph 3(i) and 3(ii) was determination by the Exben shareholders in their capacity as class “C” and class “A” shareholders, that is, shareholders of Exben. Mr. Magee submitted that determination in accordance with that paragraph was the exercise of Exben approval contemplated by the CGA, and it excluded a later reversal of this at a separate Exben shareholders’ meeting. 72 Mr. Magee submitted that this was confirmed by the circumstance that items 6, 7, 8 and 9 in Part A of Schedule 1 were not matters for the Transfield board, but rather matters for Exben, and thus for the Exben shareholders. Plainly, he submitted, in relation to those matters, the Exben shareholders were acting as such, and their determination of those matters was to be in accordance with the CGA. 73 Mr. Magee submitted that otherwise it did not make sense that Franco would have required a veto in relation to Part A matters; and also that otherwise the CGA was pointless, because Franco could have determined everything at the Exben level in any event. 74 Mr. Oslington QC, for the defendants, submitted that it was most unlikely that Franco would have given up or watered down the rights connected with the “A” class shares, and particularly unlikely that he would have created a potential for deadlock where none previously existed. The statements in April 1997 related to an entirely different proposal, whereby Franco and Amina would be bought out of Transfield, and it was a proposal that would be adopted only if disputes between the sons ended (and they never did). Apart from the statements of April 1997, there was no suggestion, and no note made by Marco, to the effect that Franco was giving up rights associated with his “A” class shares. Furthermore, Mr. Oslington submitted, the CGA could not have been meant to control what happened at Exben, because on any view, Amina was an Exben shareholder, and she was not a party to it. 75 Mr. Oslington submitted that notes made by Marco on the October 1997 draft made it clear that he understood that it related to Transfield only, and other notes recognised the need for a change of Exben’s articles, if Exben was to be affected, and no such change of articles took place. Marco’s notes of 19th November, Mr. Oslington submitted, showed a clear recognition by Marco that Franco wanted both the maintenance of his position at Exben and also a veto at Transfield. Similarly, Mr. Gleeson’s memoranda made it clear that the Corporate Governance Agreement was not intended to touch Exben mechanisms or Exben rights.
Following our meeting last Thursday I have made some minor changes
to the Corporate Governance document. These are as follows:-
Procedures of the Transfield Board
1. Insert the word Founding Chairman
3. (i) and (ii) Replace Executive Directors with Class C Shareholders.In Schedule 1 - Part A include:
4. Approval of contracts greater than $250M.In Schedule 1 - Part B - insert in Item 5 the words new business
Delegations to the Managing Director of Trans .field - Add a new Item 12
5. Mergers, joint ventures, partnerships, new business, etc. outside of the ordinary course of business of Transfield.
12. Approval of contracts up to $100M.
2. This completes the document for the Corporate Governance of the Transfield Board and I recommend that you approve of this document in the next week.3. This still leaves the Corporate Governance of Exben. There are issues there yet to be sorted out and I would be pleased to assist in this if you so wish.
4. I have spoken to FBN concerning his role at Exben. He wishes to see you three agree on Transfield and Exben governance so we should leave his position unchanged at least for the present.
He wishes to see you three sign off on this document. Marco's appointment and delegations need confirmation by him when we get the sign off.
5. Therefore, I recommend again as follows:-
(1) The Class C shareholders approve the attached documents.
(2) The Chairman confirm his agreement and MBZ be appointed as Managing Director for three years from lst January, 1998; also that the delegations to the Managing Director be approved by the Chairman.
(3) Further, discussions take place concerning the articles of Exben.
Submissions76 I will consider the matter first without having regard to the negotiations which led to the adoption of the CGA. 77 In my opinion, where the CGA asserts “the Founding Chairman has a determining vote at Exben”, it means precisely what it says, namely that Franco’s vote can on its own carry resolutions at Exben members’ meetings. In addition, the CGA recognises that Franco also has a deliberative and casting vote at the Transfield board. In my opinion, in both matters this is referring to the situation as it is to be under the CGA; and if it is to be qualified, one would need to find fairly clear words in the CGA itself to qualify it. 78 It can be argued that the requirement of Exben approval for matters in Schedule 1, referred to in the previous paragraph, is taken up in paragraph 3, so that the determination at the Transfield board meeting is itself the Exben approval which is required. However, in my opinion, paragraphs 1, 2 and 3 are specifically directed to procedures of the Transfield board, and these paragraphs do not mean that this is the only way in which such matters can be determined by Exben. In all likelihood, compliance with paragraph 3 would as a practical matter amount to Exben approval, and, again as a practical matter, a separate Exben meeting would generally not be required. However, there is nothing in the CGA which excludes or precludes a later Exben meeting to consider what the Transfield board has done, and to take such action as may seem appropriate to that meeting in relation to it. 79 Certainly, in my opinion, it should not be implied in the CGA that Exben cannot exercise such authority as Exben’s shareholding gives it in relation to Transfield activities: this would in my opinion be inconsistent with express terms of the CGA, referring to Exben approval and to Franco’s determining vote at Exben; and also, the implication of such a term is not necessary for business efficacy. In fact, without acquiescence by Transfield directors, Exben’s authority in relation to Schedule 1 matters (apart from paragraphs 6, 7, 8 and 9 of Part A) could, under Transfield’s articles of association, only be exercised through Exben’s rights as a shareholder to appoint and dismiss directors; and for that reason also, the determination of these by the Transfield board in accordance with the CGA would generally be efficacious. 80 In my opinion, the fact that the matters in paragraphs 6, 7, 8 and 9 of Part A are matters which, under Transfield’s articles, can be directly dealt with by Exben as a shareholder of Transfield, rather than by the Transfield board itself, does not alter my view of the construction of the CGA. Those matters certainly can be subject of resolutions by the Transfield board; and the document was not drafted by lawyers. In arriving at this construction, I do not give any weight to the fact that the Exben articles were not amended; but I think the construction is supported by the circumstance that Amina, although a shareholder of Exben, was not involved in the making of the CGA. 81 On the construction which I favour, the CGA still has substantive effect. Even while Franco still has the “A” class shares, the agreement would promote open discussion of matters at the Transfield board, and would generally achieve a practical resolution of matters at that level. Although there would be the theoretical possibility of an Exben meeting in effect requiring a different decision, by threat or use of the power to appoint and dismiss directors, one might expect that this would rarely arise. A matter would generally need to go to Exben only if there was a lack of unanimity in relation to Part A matters. 82 The agreement would have greater substantive effect after Franco’s “A” class shares lapsed. In particular, once Part B matters had been determined by the Transfield board by a simple majority, those decisions could not be overridden in any way by Exben, without unanimity of the three brothers. 83 Although in my opinion that is the clear effect of the agreement, without reference to the negotiations, the negotiations strongly confirm it. Transfield was far and away the most important asset of Exben, and was Franco’s life’s work. In my opinion, it is fanciful to think that the reference in the negotiations to Franco’s wish to maintain his position at Exben could refer to his position only in relation to the relatively insignificant non-Transfield matters. 84 In my opinion also, paragraph 4 of Mr. Gleeson’s memorandum of 1st December is not saying that, where there is no unanimity at the Transfield board for those matters requiring unanimity at the Transfield board, the matter should not be determined by Exben. Plainly, in the light of Mr. Gleeson’s other memoranda, what is meant is that the CGA was only dealing with Schedule 1 matters, not “strategic” matters; and that within Schedule 1, Part B matters only needed a simple majority to be decided at the Transfield board. Mr. Gleeson was not saying that Exben could not determine the matter if there was a deadlock, or that Exben could not achieve the overruling of a simple majority decision of Part B matters by exercising its power to appoint and dismiss directors.
Decision85 Mr. Magee referred to the MOU, in particular clauses 1.2 and 9.3. He submitted that cl.1.2 showed that all the parties understood that Exben was governed by the CGA; and that could not be the case if the CGA merely regulated the proceedings of the Transfield board. Similarly, cl.9.3 showed that all parties recognised that Marco did have an effective veto over the ADI acquisition, a Part A matter. If such a veto was effective only at the Transfield board, and could be overridden by Franco’s use of the “A” class shares, cl.9.3 would have been unnecessary. 86 On the other hand, Mr. Magee submitted, Guido in cross-examination acknowledged that Mr. Gleeson’s memorandum of 1st December 1997 indicated that his view was that matters not decided unanimously at the Transfield board should not then go to Exben, and acknowledged that this was Marco’s view. Furthermore, Franco’s assertions that he was not bound by the CGA must indicate the realisation that the CGA did affect his use of his “A” class shares. On the other hand, he submitted, it was clear from Marco’s notes of the meeting of 12th March 1999 that he at least believed that Franco could not appoint a managing director of Transfield without all Shareholders’ agreeing. 87 Mr. Oslington submitted that the MOU focused on the terms of a proposed exit of Marco, not on the details referred to by Mr. Magee. There was no evidence of any discussion of the matters referred to, and Mr. Magee’s submissions attempted to give those particular clauses a significance out of all proportion to their true effect. He submitted that the alleged admissions of Guido and Franco were in response to confusing questions. He further submitted that it was plain from the negotiations leading up to the CGA that Marco must have believed that Franco’s “A” class shares at the Exben level were not affected: this was confirmed by evasive answers from Marco in cross-examination.
PARTIES’ UNDERSTANDING OF THE CGA
Submissions88 In my opinion, on the basis of the negotiations referred to earlier, Franco, Guido and Luca believed that the CGA had substantially the effect which I have found it to have. In my opinion, the admissions of Guido and Franco relied on by Mr. Magee were the result of confusing questions, particularly in relation to Mr. Gleeson’s memorandum of 1st December 1997. Furthermore, claims that Franco was not bound by the CGA are somewhat ambiguous: they could be taken to mean (incorrectly) that he was not bound at all, or they could be taken to mean (correctly) that he was not bound by the CGA in relation to the exercise of the rights of the “A” class shares at the Exben level. 89 As regards the MOU, I do not think cl.1.2 amounts to a recognition that Exben could not exercise its rights as a shareholder of Transfield otherwise than in accordance with the terms of the CGA: it would give undue effect to the very general words of the recital, if they were taken as making such a major change to the effect of the CGA. I do not think cl.9.3 meant any more than that Marco could not use his veto at the level of the Transfield board. There would have been a point in dealing with that veto in the MOU, because if Marco had exercised his veto at the Transfield board level, on such a matter, Exben could have reversed this only by using its powers to dismiss and appoint directors. 90 As regards Marco, I am not able to find one way or the other what Marco’s belief was at the time of the CGA. However, I believe that by 12th March 1999, as shown by his notes of that day, Marco did genuinely believe that the CGA prevented Franco using the “A” class shares to appoint a managing director of Transfield. It may also be that by that time, Franco, Guido and Luca were aware that this was Marco’s belief. 91 In any event, the understanding of the parties does not, in my opinion, reflect in any way on the true interpretation of the CGA. The only way in which it might have done so, I believe, is that it might have supported inferences as to what objective communications occurred prior to the making of the CGA, which in turn might have affected its true interpretation. However, I do not believe that any such inferences can be drawn in this case. See generally Taylor v. Johnson (1983) 151 CLR 422; Hide & Skin Trading v. Oceanic Meat Traders (1990) 20 NSWLR 310.
Decision92 Mr. Magee submitted that Franco’s entry into the MOU removed any doubt that Franco was bound by the CGA, and also, inter alia through clauses 1.2 and 9, made it clear that Franco was bound by the CGA not to exercise his “A” class votes in a way contrary to the CGA. Furthermore, he submitted, the CGA was an objective indication of what the parties considered to be reasonable terms for the exit of Marco from Transfield. 93 Mr Oslington submitted that the MOU could not be regarded as the benchmark of what the defendants should reasonably agree to: the MOU was a particular provision for separation, with a limited lifetime.
EFFECT OF MOU
Submissions94 In my opinion, by entering into the MOU Franco and Amina did become bound by the CGA, on its true construction. For reasons I have already given, I do not think its true construction is affected in any way by clauses 1.2 or 9.3 of the MOU. 95 Furthermore, I accept that the MOU was a particular provision which, according to its terms, had a limited life. I do not accept that it was any commitment by the defendants that they would later agree to Marco’s exit on terms similarly advantageous to Marco.
Decision96 By early November 1999, it became apparent that the banks were unlikely to give the consents necessary to enable the MOU to be implemented. On 5th November 1999, Marco informed his brothers that he was prepared to negotiate an extension of the MOU. 97 This was repeated in a memorandum from Marco to his brothers dated 16th November 1999, concerning a proposed meeting of Exben Shareholders on 19th November 1999. This memorandum attached proposals for an extension of the MOU, and for an amended CGA to apply during the period of the extension. The memorandum contained the following paragraph concerning on-going management:
oppression
Additional Facts98 On 17th November 1999, Luca wrote to Marco the following letter:
If we are unable to reach agreement on terms for extension of the MOU the matter on which we must urgently focus is the appointment of the Managing Director from January 1, 2000. Luca has advised me that my position as Managing Director terminates on December 31, 1999. The current and ongoing management of Transfield should be of concern to the Shareholders, the staff and, I suspect, our financiers and clients. The very significant reversal in forecast for this financial year, so soon after you settled the budget for the corresponding period, should make us all take stock.
Without prejudice to my rights, should there be no extension to the MOU, then we should immediately begin the process of identifying a Managing Director acceptable to the Shareholders as provided for in the Corporate Governance Agreement.
99 The notice of the Exben Shareholders’ meeting for 19th November 1999 included, among items of business, the appointment of Guido as managing director of Transfield, and also the progress of the MOU. Franco had signed a proxy in favour of Luca, and Amina had a proxy in favour of Guido. Marco, Guido and Luca signed a consent to short notice of the meeting. 100 The minutes of that meeting, subsequently signed by Luca as chairman, included the following items:
Following the various discussion and correspondence between us, I believe it is timely for me, on behalf of the Board of Transfield, to advise of our position.
In the first place, it is vitally important that Transfield's good standing with the Syndicate Banks be maintained under the current very difficult circumstances. To that end, it is necessary in the interests of all of us that a positive approach be taken to the concerns the banks are expressing. The conversations and correspondence we have had with the banks' representatives have been motivated by an appreciation of this reality.
You have participated constructively in the development of an asset realisation program, as has Brian. Your commitment to the reality that Transfield must realise assets in an orderly and advantageous way to meet current pressures is thus clearly established.
When it comes to the MOU, we agree that the prospects of reaching a position on the proposed separation which proves acceptable to the banks do not look favourable.
Although there is still, in theory, a remote possibility that an implementation route can be devised and put into effect by the agreed deadline of 20 December, the much more realistic likelihood is that the MOU will expire at that point and the consequences the MOU itself lays down in that event will follow. As a result, the arrangements for separate management of parts of the overall Transfield business will come to an end, after which your role within Transfield will become solely that of a non-executive director and decisions regarding a management structure for the totality of the Transfield operations will be a matter for the Transfield Board.
I turn now to your Memo of 5 November and your concern that a number of matters requiring shareholder approval pursuant to the Corporate Governance Agreement have not been put to the Exben shareholders. I wish to assure you that the Transfield Board is committed to adhering to the process set out in the Corporate Governance Agreement and it will be diligent to ensure that these processes are followed.
You have raised five specific issues - two from Part A of Schedule 1, and three from Part B of Schedule 1. Your approval is now sought in respect of these matters and I propose that we put this on the agenda for resolution at Friday's Exben meeting, together with the appointment of the Managing Director as from 1 January 2000.
101 The minutes of the meeting taken by Marco’s personal assistant were as follows:
Agreed that the MOU dated 25 May 1999 was likely to lapse. When LBN was asked by BNA what it be replaced with, LBN advised that he thought that the Exben Shareholders’ Agreement would then take effect.
It was resolved, with MBZ dissenting and GBN abstaining, (FBN, ABN and LBN in favour) that GBN would be appointed as the Managing Director of Transfield Holdings Pty. Limited from 1 January 2000 (See Resolution attached).102 On 23rd November 1999, Marco wrote to Guido and Luca in the following terms:
MOU
MBZ asked whether, in principle, the deal was off and whether there was interest in discussing the basis of separation along the lines contemplated by the MOU.LBN advised that they had no interest in exploring a separation along the lines of the previous MOU; there is interest in exploring a separation, but the context in which that separation may take place is anyone's guess but in the absence of any agreement, the Shareholders Agreement is the only basis.
Both GBN and LBN stated that they had no other proposal to put forward.
GBN noted that the MOU was on foot only until December 20, 1999, or until there was agreement to some other modification/extension. LBN commented that the likelihood of the MOU being implemented is remote because of other circumstances, ie, the progress of the Company and the attitude of the Banks. He advised that they were happy for the MOU to take its course until December 20, 1999, but there were no grounds for negotiating a new basis.
MBZ asked that LBN/GBN clarify that they did not want to explore any meaningful method of separation along the lines of the previous MOU or similar. Both LBN and GBN agreed that was the case, and again stated that they had no other proposal to put to MBZ.
Appointment of Managing Director
MBZ pointed out that issue of the appointment of the Managing Director was a matter between the "A" and "C" class Exben Shareholders. LBN stated that he believed that the Corporate Governance arrangements had no bearing on this meeting. MBZ reminded GBN and LBN that they had agreed that it had been agreed that they would all have to take a joint decision on such an appointment.LBN advised that he wanted to move a resolution to appoint GBN as Managing Director as at January 1, 2000.
LBN stated that if the resolution is passed, he and GBN believe it brings into effect the appointment of the Managing Director within Transfield on the basis of the Articles, and that the Corporate Governance Agreement has never been incorporated into the Articles of Exben.
MBZ stated that he would like to support the nomination as long as needed to implement the MOU, but in this context, he did not believe it was the right decision, that it was contrary to their agreement and not in the best interest of the Company. LBN told MBZ that he could have a voice within the context of Transfield.
MBZ pointed out that there was an agreement in place, that he had been working in good faith and that this was an unnecessarily negative step.
LBN said MBZ could take whatever actions he felt appropriate, but he believed the meeting had been properly constituted and the members had voted as is their right.
GBN asked that the records show that, as required, GBN did not put himself forward, that he had abstained from voting himself, but voted positively on behalf of ABN by proxy and that LBN voted positively for himself and FBN by proxy, and that the motion was carried. MBZ dissented.
LBN then tabled the resolution.103 On the same day, Marco also wrote to Mr. Gleeson, confirming his understanding that the CGA provided that, for appointment of a managing director of Transfield, all “C” class and “A” class Shareholders must be in unanimous agreement; and enclosing a memorandum of 23rd March 1998 from Mr. Gleeson which stated that certain matters required the unanimous agreement of the “C” class and “A” class Shareholders. 104 Mr. Gleeson responded with a memorandum dated 24th November 1999, in the following terms:
I refer to last Friday's meeting of shareholders of Exben Pty Limited.
As I indicated to Guido and Luca at the meeting, the purported resolution to appoint Guido as Managing Director of Transfield Holdings Pty Ltd was in direct breach of the Corporate Governance Agreement, which requires unanimous agreement of all the "A" class shareholders and "C" class shareholders.
I do not agree with the appointment of Guido to the Managing Directorship of Transfield from January 1, 2000, or with the appointment of Luca as Associate Managing Director, as I do not believe it to be in the best interests of the Company. I confirm that Luca and Guido have advised me that my term as Managing Director will not be extended beyond December 31, 1999.
I therefore propose that the role of Managing Director be filled by an independent professional who will manage the Company in the interests of all shareholders. The successful candidate to be chosen from a list to be compiled by a reputable executive search firm on the basis that the final selection be with the unanimous agreement of the "A" class and "C" class shareholders of Exben, as provided for in the Corporate Governance Agreement. Such a process might be expected to go beyond January 1, 2000, and in the interim, I suggest that either Bruce James or Brian Eslick, be appointed Acting Managing Director reporting to the Board of Transfield Holdings Pty Ltd.
In order to ensure independence of the Acting Managing Director and the permanent appointment, there should be no executive roles held by Guido, Luca or myself, from January 1, 2000.
In view of the shortness of time before the year end, and the fact that I have today received your Notice of Meeting of the Board of Transfield Holdings Pty Ltd, proposing to deal with the appointments of Guido and Luca on Friday, November 26 at 3.00 pm, can I please have your reply to my proposal by noon on Friday 26th.105 On 26th November 1999, there was a Transfield board meeting attended by Marco, Guido and Luca. The appointment of Guido as managing director was noted, and Marco again expressed his opposition to this appointment. The meeting discussed, among other things, the question of the “Transfield investment staff”; that is, the staff who had gone with Marco to the offices at the AMP Building. It was noted that the parties would discuss this matter the following week. During that meeting, Marco suggested that they obtain joint legal advice about the meaning of the CGA; and that suggestion was rejected by his brothers. 106 Following that meeting, it appears that Marco believed that the relationship between himself and the other members of the family had broken down, and that negotiations between them had broken down, and he instructed solicitors Allen Allen & Hemsley to act for him. 107 On 1st December 1999, Luca wrote a letter to Marco in the following terms:
I refer to your memo of 23rd November re the management of Transfield Holdings Pty Limited.
Your proposal that Guido, Luca and yourself have no executive role from January 1 2000 is rejected. Such action would have a deleterious impact on the company. In the current difficult financial circumstances it is imperative that stability be maintained at the Senior Executive level.
Your proposal that the role of Managing Director be filled by an independent person is not acceptable. This is not in the best interests of the company at the present time and would send all the wrong signals to the banks and to our clients.
The corporate governance agreement specifically provides that:
(i) the Transfield Board is responsible for the direction and oversight of the company on behalf of the shareholders;
(ii) the Founding Chairman has a determining vote at Exben and is the Governing Director;
(iii) matters specifically in Schedule 1 require (shareholder) Exben approval.
Therefore in relation to the appointment of Managing Director, if unanimous agreement of Class C and Class A shareholders can not be reached as provided for in procedures of the Transfield Board then in the interests of the company the matter must be determined at the Exben shareholder level where the Founding Chairman has the determining vote.108 On the same day, Guido wrote a letter to Marco in the following terms:
We have highlighted that your entitlements as a Shareholder (subsequent to the MOU) are largely determined by the Exben Shareholders’ Agreement executed amongst us. We have indicated that we are prepared to facilitate your exit as a shareholder by undertaking a technical valuation, to start with, of your shareholding in Exben.
To this end, the latest audited Accounts of Transfield and Exben can be used to determine Exben's net equity.
We would be prepared to look at alternative exit arrangements should we not find a solution under the Shareholders' Agreement within a defined period of time.109 Marco responded with a letter dated 2nd December 1999 to Guido in the following terms:
As we have discussed, it would appear that the MOU between the Exben Shareholders is likely to lapse on the 20th December next. As such, at the beginning of January your role would revert to that of a Director.
We reiterate the Transfield Management Board and the Transfield Holdings Board's confidence in the existing Management structure. We request that you refrain from making detrimental comments about the Management outside of the Board meetings as this is likely to destabilise our position in the marketplace and bring further concern to our Banking syndicate if they were to hear of it..
Given our present financial difficulties, we would welcome your assistance with regard to the Asset Realization Programme requested by the Banks and which has also been agreed to by the Board.
As for the staff now located with you at 50 Bridge Street, we anticipate that most could be usefully engaged with us here. We would be pleased to discuss this further over the next few days.110 On 3rd December 1999, and again on 6th December 1999, Luca wrote to Marco attaching a proposed announcement by Franco to Transfield staff, advising them that the re-structure of Transfield into two companies may not proceed. 111 On 6th December 1999, Marco wrote to Luca the following letter:
I take issue with some of the statements in your letter of 1st December 1999.
Firstly, you state that my role will revert to that of a Director from the beginning of January. As you are aware, the two year limit on my term as Managing Director of Transfield was established in, and only in, the context of the separation of my share of the (properly valued) assets of Exben, as a means of ensuring an orderly succession to the new Managing Director. In the absence of any such separation, my role does not revert to that of a Director. The MOU expressly provides for my resumption as Managing Director if the MOU is not implemented by 20 December, 1999. I expect you and the other shareholders to comply with the MOU.
Secondly, it is not surprising that the non-family members of the Transfield Management Board have expressed confidence in the existing Management structure, given the restructure in their entitlements. I resent and expressly deny any allegation that detrimental comments about the management (however warranted they might be) are being made to other than Board members. This policy will continue, of course, while ever there still remains a prospect of an amicable settlement. And by the way, the Banking Syndicate are quite capable of coming to their own conclusions.
I do not understand your comment about assistance with the Asset Realisation Programme. Would you please elaborate.
As for the staff, I await your proposals.
I understand from Gerry Gleeson this afternoon that you intend to call a meeting to discuss these matters and others, tomorrow. Could you please advise what arrangements are proposed.112 On the same day, Allen Allen & Hemsley wrote on behalf of Marco to Franco, Amina, Luca and Guido a letter, a copy of which is Appendix C to this judgment. 113 On the same day, Guido wrote to Marco a letter in the following terms:
I refer to your letter of 3rd December, enclosing FBN’s draft announcement to Transfield staff, which you handed to me on 3rd December, 1999, and to the revised draft received today under cover of your letter of 6th December, 1999.
Firstly, I am not aware of any comments in the media relating to the separation or its status since the reports surrounding the press release in May.
In view of a letter which will be delivered to you this afternoon from my solicitors, it is not appropriate that the proposed press release be issued.
I refer to my letter to you dated 1 December and to our discussions on 3 December.
I have made it clear that we would welcome your assistance with regard to the Asset Realisation Programme requested by the Banks and agreed to by the Board.
My purpose in writing to you now is to re-confirm that there is a key role for you to play in the Asset Realisation Programme and to invite you again to agree, in the interests of Transfield, to take up that role as from 1 January 2000, with some staff currently with you also being assigned to the programme and other important Transfield initiatives.
As you know, on 21 December, management of all the Schedule 2 assets reverts to Transfield Pty Ltd and as such we would appreciate a complete summary of the status by 15 December next.
114 Luca also wrote a letter to Marco on that day in the following terms:115 On 8th December 1999, Guido wrote to Marco the following letter:
I refer to my letter to you dated 1 December and to our conversation on 3 December concerning your exit from Exben.
You expressed concern that your ability to rely on the exit mechanisms in the Exben Shareholders Agreement would be frustrated by other shareholders' unwillingness to accept an external party as a shareholder in Exben.
1 am writing to say that all four of the other shareholders are agreed that, in order to allow you to take advantage of the shareholder agreement provisions, the principle that you must be free to sell your shares to an external, unrelated party is accepted.
With the possibility of your shares passing into the hands of such a party thus recognised, you are free to take the course the shareholders agreement provides.
I confirm that this letter is sent with the concurrence of all four Exben shareholders apart from yourself.116 On the same day, Allen Allen & Hemsley wrote to Guido in the following terms:
I refer to my previous correspondence concerning your role (post the MOU) and the roles of the Transfield staff currently located with you. I reaffirm our invitation to you to lead the asset realisation program.
As you would appreciate, irrespective of the discussion which may be occurring with respect to your shareholding in Exben Pty Ltd, it is timely that the status of the Transfield staff currently located with you be clearly identified as soon as possible.
Irrespective of your decision in realisation of the asset sale program, we would seek Brian Eslick's participation in the management of our asset sales program while also assisting in the communication of these and other matters to our banking syndicate. We would look to use Fred Bidwell to lead/assist in the resolutions of many legal and commercial matters with a particular emphasis on Melbourne City Link issues. Of course, some support staff would assist in the above roles.
Next week we intend to communicate directly with some of the staff, inviting them to take up new assignments in the company, with the balance to be made redundant.
Please advise should you have come to separate employment arrangements with any of the staff.
As you know, we act for Mr Marco Belgiorno-Zegna.
We refer to your fax dated 6 December 1999 to our client.
In order for our client to consider your offer, could you please provide us with details of:
1. Precisely what role our client would be engaged to perform;
Our client seeks this information without prejudice to his rights arising from the conduct described in our letter dated 6 December 1999.
2. The terms on which he would be engaged;
3. The staff who would be employed, the terms of their employment and the scope of the work that they would do.
117 Luca responded on the same day, in the following terms:118 During December and January, there were negotiations for mediation, and mediation proceeded during February 2000. 119 On 20th December 1999, Guido wrote to Marco the following letter:
Following the letter from your lawyers dated 8 December 1999 to Guido, I respond as follows:
We would prefer for you to indicate whether you are interested, in principle only, with the offer we put to you in our earlier correspondence, before discussing the specific details of such a role. You are aware of the programme as outlined to the Banks and we are asking you to lead that programme, with reporting lines to be agreed.
A simple yes or no should suffice, without prejudice to anyone's rights thereafter. We do not think it appropriate to correspond with your solicitors on this subject.
As far as the support staff for such a role, we have separately indicated to you that Brian would be allocated to assist as well as liaising with the Banks.
I am happy to sit with you and Brian to talk more specifically about these matters.120 Around the same time, it appears that Guido and Luca were requiring Marco to enter into a lease in relation to the AMP premises. Agreement was reached that Transfield would continue to pay the rent of the AMP premises, and pay the salaries of Marco and his staff, until the conclusion of the mediation. 121 Both sides have put on expert evidence as to the price which Marco could expect to receive for his shares, if he sold them in accordance with the procedure laid down by the Shareholders’ Agreement. Without going into the details, it is common ground that a fair conclusion from this evidence is that, if that procedure was used, there would be something like a fifty percent discount on the value of Marco’s shares suggested by their asset-backing.
I would like to advise you “without prejudice” as to our legal advice regarding the status of employment of the Transfield Investment staff.
Our advice is that as at approximately mid June 1999 the following staff resigned from Transfield Pty Limited in order to accept employment with Transfield Investments. They are Brian Eslick, Fred Bidwell, Richard Smith, Sandra Leal, Bronwyn Stockwell.
Our advice is that we have been acting as agents for Transfield Investments for the purposes of paying wages and superannuation contributions since mid June 1999. This arrangement ceases today, 20 December 1999. Transfield Pty Limited recognises that for the period up to mid June 1999, leave entitlements accrued to the relevant employees may still be outstanding. These amounts remain to be reconciled and paid.
Regarding Brian Eslick and Fred Bidwell, as indicated to you in previous
correspondence, Transfield Pty Limited would be pleased to enter negotiations to re-employ them.122 Mr. Magee referred me to a number of cases, and in particular to O’Neill v. Phillips (1999) 2 AllER 961 and Fexuto v. Bosnjak (1998) 28 ACSR 688. 123 Mr. Magee submitted that oppression was shown both by the repudiation of the CGA, and the exclusion of Marco from management. 124 Mr. Magee submitted that Franco, Luca and Guido claimed that Franco was not bound by the CGA; and that in itself was a repudiation of it. The appointment of Guido as managing director was a repudiation of the CGA. Mr. Magee submitted that, even on the defendants’ interpretation of the CGA, it was breached in that there had not been first an attempt to obtain unanimity at the Transfield board, before the matter was referred to the Exben shareholders. 125 Next, Mr. Magee submitted that there was no real offer to Marco of any role in the company, following the expiry of the MOU. Luca and Marco had advised that his role was to be that of a non-executive director. All that was subsequently offered was a vague role in asset-realisation, which Marco did not understand, and in respect of which Guido and Luca would not give details. It was unreasonable of them to request Marco to acknowledge that he was interested in principle in taking up such a role, before giving any details. In the light of the previous history of disputes and of Marco’s wishes being overruled, Marco had no reason to trust his brothers. If this had been a genuine job offer, a proper description would have been given. Furthermore, the events of November had been humiliating to Marco. This was exacerbated by the dealings with his staff and in relation to the lease of the AMP premises. 126 Mr. Oslington submitted that the case was not about oppression, but was a continuation of Marco’s efforts to achieve an exit from Exben on the most favourable terms. Although it had been suggested that Marco’s wishes had constantly been overridden, the evidence showed only two cases, namely the Bakun project and the appointment of Guido as managing director. 127 In considering Marco’s position, it had to be remembered that Transfield had been created by Franco and was Franco’s life work. Marco’s only attempt at a business venture on his own had not been successful. But for Franco’s patronage, he could not have had his position with Transfield. His parents had been supportive of him, and he was given the shares with no strings attached. Those shares that he was given were shares in a company over which Franco had total control, and were shares which, if Marco wanted to sell, would plainly have to be sold at a discount. 128 Mr. Oslington submitted that Marco had been the driving force behind the split with the Salteris, because he did not like having to share control with Paul Salteri; and also behind the Exben Shareholders’ Agreement, which provided more favourable terms for exit by a shareholder. 129 Mr. Oslington submitted that there was no suggestion in the plaintiff’s case that anything had been done by the family in connection with the management of the company out of self-interest, or for the purpose of preferring their interests over that of the company as a whole. There had been no use of voting power to reduce Marco’s equity, or threat to adopt any discriminating dividend policy. There was no basis for any fear that the family would attempt to frustrate his use of the exit provisions of the Shareholders’ Agreement. There was no justifiable complaint of exclusion from management. 130 Mr. Oslington submitted that the reason why Marco wished to sell his holding was that he wanted to be in control: otherwise, he did not want to be involved. His family had agreed to a reasonable and generous exit arrangement in the MOU, and although the MOU was subject to bank approval and had a finite time for implementation, Marco was now saying that this should be the benchmark of his reasonable entitlement. There was no suggestion that the defendants had done anything to frustrate the implementation of the MOU. 131 Mr. Oslington submitted that there had been no breach of the CGA, on its true interpretation. If, contrary to that submission, there was a breach involved because the appointment of Guido as managing director had not first been considered by the Transfield board, that was a purely technical breach, not objected to at the time, and had no consequences.
Submissions132 Sections 232 and 461(1)(f) and (g) of the Corporations Law are in the following terms:
Decision133 In my opinion, it is convenient first to consider what, as a matter of legal entitlement and also as a matter of fairness, Marco was entitled to expect when, in November 1999, it became clear that the MOU could not be implemented. 134 Relevant factors bearing on this, in my opinion, include the fact that Transfield had been built by Franco, over a period of forty-three years; the fact that Marco’s shares had been gifts from his parents; the fact that Marco had devoted twenty-three years of his life to Transfield, and had been instrumental in its growth from 1989 to 1996; the fact that Franco and his sons had agreed to the Shareholders’ Agreement, the CGA and the MOU; the fact that there had been disagreements concerning management, and a deterioration in the fortunes of Transfield coinciding with increased participation in management by Luca and Guido; the fact that Marco had over a considerable period made it clear that he wished to leave Exben and Transfield; the fact that, at the time of negotiation of the MOU, Luca and Guido had indicated that they wished Marco to leave; and the fact that it had not been possible to give effect to the terms of the MOU. 135 In all those circumstances, in my opinion Marco was not entitled to expect a continuation of the MOU, or a new agreement on terms more favourable to him than the Shareholders’ Agreement. The MOU itself expressly provided that the MOU would come to an end. 136 In my opinion, Marco was not entitled to expect that, after the MOU came to an end, he could continue running a separate operation. The MOU plainly contemplated a return to a single organisation, so that Marco was not entitled to expect continued funding of a separate office and separate staff. 137 Marco was entitled to expect compliance with the CGA, on its true construction; but not that he would be managing director after 1st January 2000, or that there would be an independent managing director. He was also entitled to expect compliance with the letter and the spirit of the exit provisions of the Shareholders’ Agreement; but he was not entitled to expect that the family would agree with him to an exit on more favourable terms than the terms of the only agreement which would then be applicable. 138 He was entitled to expect, unless and until some other agreement was made, reasonable co-operation with a view to agreeing on a role and remuneration for him in Transfield appropriate to his shareholding in the company, the contribution he had made to the company, and to his experience and abilities, provided he also participated appropriately in that endeavour. He was also entitled to expect reasonable courtesy and consideration in dealings with his family. 139 Subject to the above matters, I think he was also entitled to expect a reasonable approach to a negotiated exit, although he had no entitlement to insist on anything substantially more favourable from those negotiations than the provisions of the Shareholders’ Agreement, at least unless he was denied an appropriate role in the company, or otherwise oppressed, or unless and until more favourable terms were agreed. 140 In the events that ensued, I think there was some fault on the defendants’ side. In particular, in my opinion the reference to Marco becoming a non-executive director could have been better expressed. In one sense, it might be thought that, because his appointment as managing director expired on 31st December, and because his existing executive role in the separate operation was to come to an end on 20th December, Marco would become a non-executive director; but, as noted above, in my opinion he was entitled to expect reasonable efforts to agree on an appropriate executive role in the company. Furthermore, some of the exchanges at the meetings in November could have suggested a lack of preparedness in Guido and Luca to agree with Marco on a role in Transfield, or to consider further negotiations for exit. The dealings in relation to the AMP offices and the staff also appeared somewhat high-handed. 141 However, in my opinion, the offer made to Marco of heading an asset-realisation program was a genuine offer of a significant executive role in Transfield, and it was not unreasonable to enquire whether Marco was interested in principle in such a role before going into details. I do not think that the appointment of Guido as managing director of Transfield, without first seeking unanimity at a Transfield board meeting, was even a technical breach of the CGA. 142 In my opinion, the main cause of the breakdown in the relations was Marco’s own attitude. He maintained, honestly but incorrectly, that the appointment of Guido as managing director was a breach of the CGA. He acted as if he had an entitlement either to the continuation of the MOU, or to a continuation of the separate operation provided by the MOU until some new agreement satisfactory to him could be negotiated. He held back from participating in any attempt to try to identify an appropriate on-going role for him in the company. He did not, in my opinion, join appropriately in attempting to look for a satisfactory way to re-integrate into the Transfield business his separate operation and his staff, or at least so many of them as could be re-integrated. Then, when he considered matters were not proceeding to his satisfaction, he threatened winding up proceedings. 143 In my opinion, viewed in that light, the totality of what occurred prior to the commencement of the proceedings did not amount to oppression.
232. The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
is either:
(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;(d) contrary to the interests of the members as a whole; or
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
461.(1) The Court may order the winding up of a company if:
...
(f) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole;
(g) an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole;
In this judgment, as in the parties’ submissions, I will use the word “oppression” to refer generally to the circumstances specified to in those provisions. I do not think a closer analysis of the provisions is necessary in this case.
144 Mr. Magee submitted that there was in this case an association formed or continued on the basis of a personal relationship, involving mutual confidence; an agreement or understanding that the three sons should participate in the conduct of the business; and a restriction upon the transfer of the members’ interest in the company, so that if confidence was lost or a member was removed from management, that member could not take out his stake and go elsewhere: see Ebrahimi v. Westbourne Galleries Ltd. (1973) AC 360 at 379; Stapp v. Serge Holdings (1999) 17 ACLC 896. In this case, the relationship between Marco and the other Shareholders of Exben had broken down to the point where, in the absence of any satisfactory alternative, Exben should be wound up. Not only did Marco wish to leave, but also Guido and Luca did not want to be in partnership with him. 145 Mr. Oslington submitted that there was no deadlock, and no such breakdown of the relationship as to require the winding up of a solvent company. Rather, the situation was that Marco wanted to get out because he could not control the company, and Marco was not prepared to get out on the basis which had been agreed, namely the Shareholders’ Agreement.
JUST AND EQUITABLE GROUND
Submissions146 In my opinion, having regard to the circumstances of acquisition of Marco’s shares and the circumstance that exclusion from participation in management has not been shown, and having regard to the availability of an exit in terms of a Shareholders’ Agreement negotiated by the parties, the just and equitable ground for winding up was not made out on the facts existing at the time of commencement of the proceedings. The parties were having difficulty in working together; but the defendants were prepared to offer Marco a significant on-going executive role. On the evidence, Marco’s use of the exit provisions of the Shareholders’ Agreement would have given him something like 15% of the net value of Transfield, perhaps about $75 million, for shares which had been given to him by his parents. Even taking into account Marco’s contributions to Transfield over twenty-three years, and the fact that the asset-backing of his shares was of the order of $150 million, this would not in my opinion have been unfair to Marco, particularly where it had proved impossible to give effect to the MOU and in that way to give Marco assets equal to the full asset-backing of his shares.
Decision147 I was taken in detail through the settlement negotiations between the parties, particularly the negotiations in July and August this year.
SETTLEMENT NEGOTIATIONS
148 Mr. Magee referred me to O’Neill v. Phillips, especially pp.975-6. He submitted that the offers did not satisfy the requirements set out on those pages: they did not represent an offer to purchase at a fair value, without a discount for it being a minority holding; and they did not provide for payment of Marco’s costs. Indeed, under the offers Marco would be paid nothing unless and until the banks approved; and they did not include a general offer to arbitrate differences, but proposed arbitration only in the limited circumstances of a float not occurring. 149 Mr. Oslington submitted that the history of the negotiations showed that the defendants were prepared to revise their proposals to meet Marco’s claimed concerns; whereas it was obvious from Marco’s evidence that nothing short of total capitulation would satisfy him. He submitted that Marco had used the threat of these proceedings to achieve a result to which he was not entitled. Marco was not prepared to accept 25% of the net tangible assets, to be determined by the market in relation to assets to be floated and an independent valuation of the non-floated assets; this notwithstanding that winding up would be grossly unfair to Franco, in that Franco would receive only 0.3% of the surplus assets, whereas his “A” class shares carried control and 22½% of dividend rights.
Submissions150 I accept Mr. Magee’s submissions that the offers made by the defendants did not satisfy the tests laid down in O’Neill v. Phillips; but because I have not found oppression, in my opinion it was not necessary that the defendants’ offers satisfy those tests. In my opinion, the conduct of the settlement negotiations could not conceivably amount to oppression, where oppression had not previously been established. 151 I did find it surprising that Marco appeared so unwilling to compromise in the settlement negotiations. The offers made to him could be considered unsatisfactory because, on one interpretation, they did not promise payment even after three years, unless the banks agreed: but this was not specifically raised by Marco, and was not the basis of his objections. I am inclined to think that Marco’s unwillingness to compromise confirms that he genuinely believed in his interpretation of the CGA, and genuinely believed that he had been oppressed. However, I do think Marco’s attitude to the settlement negotiations shows him to be a person who tends to be very certain of the correctness of his own views, and who has difficulty in recognising any merit in the point of view of other persons, where that point of view differs from his. Marco was prepared to go through with Court proceedings, which would obviously cause harm to Transfield and very great distress to his father and benefactor, rather than compromise to any significant extent on what he believed to be his just entitlement. This assessment of Marco confirms the opinion, which I reached independently, that the breakdown of the relationship and negotiations, which occurred in November and December 1999, was due to Marco’s firmly-held views and unwillingness to compromise, rather than to any oppression by his father and brothers.
Decision152 Mr. Oslington submitted that, even if a ground for winding up had otherwise been made out, winding up should be refused as a matter of discretion. 153 He submitted that Exben and Transfield were both solvent companies. Transfield had a substantial on-going business, involving commitment to numerous on-going construction and maintenance contracts, and employing about 8,000 people worldwide. Transfield had in place a strategic plan to retire debt and contain losses, involving the float of some of its assets. There was no cross-examination of the defendants on their bona fides and genuineness in connection with that plan, and no suggestion that it was not for a proper commercial purpose. Winding up would be grossly unfair to Franco, entitling him only to 0.3% of the assets. Although Marco did offer to give to Franco, from his share of the winding up, one-third of the fair value of the “A” class shares, that offer was very belated and unlikely to translate into anything substantial. 154 Mr. Oslington submitted that Marco, as a director of Exben and Transfield, owed fiduciary duties to those companies. Nevertheless, although it was patently obvious to him, as he admitted, that the publicity of Court proceedings would be damaging and could be avoided by private arbitration, Marco chose to pursue Court proceedings in his own self-interest. Furthermore, he sought only winding up, rather than any more appropriate remedy. In the conduct of the case, an offensive and irresponsible submission was made as to Franco’s capacity. 155 Mr. Magee submitted that it had not been shown that Marco was acting unreasonably in not pursuing any remedy other than winding up. Indeed, he submitted, the case itself was a factor in the irretrievable breakdown of the relationship between the two parties. In the conduct of the case, despite the defendants well knowing that the press would report them, questions had been asked calculated to insult and humiliate Marco.
PROCEEDINGS, CONDUCT THEREOF, AND REMEDIES
Submissions156 Section 467(4) of the Corporations Law provides as follows:
Decision157 That appears to indicate that the Court should not refuse winding up simply because of the availability of another remedy, unless the Court is of the opinion that the applicant for winding up is acting unreasonably in seeking to have the company wound up, instead of pursuing the other remedy. However, in my opinion this does not detract from the reluctance of the Court to wind up a solvent company, particularly where that could lead to disruption of business and loss of employment. Of course, in this case the winding up of Exben would not necessarily mean the winding up of Transfield, but it could bring about that result. 158 There is some force in the submission that the conduct of the proceedings has contributed further to the breakdown in the relationship between the parties. However, I am not satisfied that it has brought about a situation, as at this time rather than the time of commencement of the proceedings, where there has been oppression which would justify winding up Exben, or where it is otherwise just and equitable that Exben be wound up.
467(4) Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
shall make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.159 For the reasons I have given, I am not satisfied that there was at the commencement of the proceedings, or is now, any such oppression as could justify winding up Exben. Nor am I satisfied that it was at the commencement of the proceedings, or is now, just and equitable that Exben be wound up. In my opinion, I should dismiss the application to wind up Exben, and order Marco to pay the defendants’ costs of the proceedings to date. However, I am not certain that I should immediately dismiss the proceedings altogether. 160 I am concerned about the situation in which the parties now find themselves. The proceedings, and the robustness with which they were conducted, must have made it more difficult than ever, if not impossible, for the parties to work together; and it will continue to be difficult for them to achieve an agreed parting of the ways. Even if Marco were now to use the Shareholders’ Agreement to sell his shares, there is considerable scope for disputes in carrying that procedure through. There is a real prospect of further litigation; and if this involved the commencement of fresh proceedings, this could mean the revisiting before another judge of many of the matters contested before me. This would not I believe be in the best interests of either side. 161 If both sides request me to stand over the application for remedies other than winding up for a period, in the hope that an agreed resolution can be achieved, but leaving open the possibility of an application for a specific remedy if it is not, I would be prepared to do this. If one side requests this, and the other side opposes it, I would need to hear further submissions. 162 I am firm in my view that oppression justifying winding up has not been shown; but it could possibly be submitted that the robustness of the attacks on Marco in these proceedings, coupled with the prior circumstances, could give rise to oppression or a threat of oppression justifying some lesser remedy.
CONCLUSION
***********
APPENDIX A
CORPORATE GOVERNANCE
On behalf of the Shareholders the Board is responsible for the direction and oversight of the Company.
Those matters specified in Schedule 1 will require shareholder (Exben) approval.
The Founding Chairman has a determining vote at Exben. Also, he has both a deliberative and casting vote at the Transfield Board. Thus he is the Governing Director.
The essential functions of the Board include:
Approving strategies and plans prepared by management
Approving financial plans and annual budgets.
Approving key management recommendations such as major capital expenditure acquisitions, restructuring
Appointing and reviewing the performance of the Managing Director and senior management.
Meeting statutory and regulatory requirements.
PROCEDURES OF THE TRANSFIELD BOARD1. The Founding Chairman (Governing Director) has both a deliberate and casting vote at the Transfield Board.2. Directors can raise any Board matter for discussion at the Board. In the case of Executive Directors wishing to raise matters within their respective areas of executive responsibility the matter should first be discussed with the Managing Director.
3. In relation to matters listed in Schedule 1, while the current shareholder arrangements exist, the determination of such matters at a Transfield Board meeting will require that:
(i) Part A matters have the unanimous agreement of Class C and Class A shareholders;
(ii) Part B matters require a simple majority of Class C and Class A shareholders.
DELEGATIONS TO THE MANAGING DIRECTOR OF TRANSFIELDThe Board delegates all powers necessary to carry out the functions of Managing Director of Transfield unless varied by written direction of the Board with the following exceptions:-
1. Determination of the remuneration of the Managing Director of Transfield
2. Establishment of a bonus pool which the Managing Director may allocate to individual employees as he sees fit.
3. Establishment or modification of any superannuation scheme or variation of any benefits payable thereunder.
4. Execution/commitment to execute any contract which is not in the ordinary course of business.
5. Authorisation of the write-off of any debt which is considered irrecoverable and which is greater than $200,000. (This does not include the processing of credit notes against claims).
6. Raising of any form of equity capital.
7. Commitment to invest/actual investment of equity greater than $5 million in project structures/business ventures.
8. Actual expenditure or commitment to incur capital expenditure for the acquisition of any real property.
9. Disposal or commitment to dispose of any real property or any other property with a sale price of $250,000 or more.
10. The actual expenditure or commitment to spend capital expenditure for the acquisition of any other property other than real property, with a purchase price of $250,000 or more per item or group of related items (including lease obligations where the total rent exceeds $250,000).
11. Acquisition of any securities of any other corporation for an amount greater than $5,000.
12. Approval of contracts over $100M.
13. Determining the overall percentage increase of Transfield salary reviews.
SCHEDULE 1Part A
1. Disposal of any asset of Transfield valued at more than $20 million.2. Acquisition of any asset by Transfield greater than $20 million (including. shares, etc.)
3. Incurring of financial indebtedness by Transfield greater than $50 million.
4. Approval of contracts greater than $250M.
5. Declaration of dividends arising from Transfield profits other than as provided for in the Shareholders' Agreement.
6. Amendments to the Memorandum or Articles of Association of Transfield.
7. Appointment of Chairman and Directors of the Board of Transfield.
8. Wind-up provisions of Transfield.
9. Appointment of the Managing Director of Transfield. A Class C shareholder being considered for appointment must abstain from voting.
Part B
1.Delegated authorities to the Managing Director of Transfield (refer Schedule 2).2.Approval of a Remuneration Committee to consider Transfield senior executive remuneration, including remuneration of Managing Director and bonuses.
3.Any employee bonus schemes of Transfield.
4.Cessation of a material business operation of Transfield or a material change in the nature, scope or geographical area.
5.Mergers, joint ventures, partnerships, new business, etc. outside of the ordinary course of business of Transfield.
6.Approval of appointment of Transfield senior executives who report to the Managing Director.
7.Approval of accounts of Transfield.
8.Approval of business of Transfield.
9.Commencement of major legal proceedings.MEMORANDUM OF UNDERSTANDING
APPENDIX B
Dated: 25th May 1999
1. INTRODUCTION
1.1. Exben Pty Limited ("Exben" hereafter) and Amifra Pty Limited ("Amifra" hereafter) are each jointly owned as to 10% by Amina Belgiorno-Nettis ("ABN”) and as to 30% by each of Marco Belgiorno-Zegna ("MBZ"), Luca Belgiorno-Nettis ("LBN") and Guido Belgiorno-Nettis ("GBN"). Franco Belgiorno-Nettis ("FBN") has an "A" class share providing voting control during his lifetime in each of Exben and Amifra. Exben is also the trustee for the Exben Family Trust whose beneficiaries are, amongst others, all of the shareholders of Exben and Amifra (collectively Exben, Amifra & the Exben Family Trust are referred to as "the Exben Group”).1.2. Exben is governed by its Articles, Shareholders' Agreement and the Transfield Corporate Governance Agreement.
1.3. Dividends from Exben are distributed 10% to ABN and 22.5% to each of FBN, MBZ, LBN and GBN.
1.4. Exben's principal asset is its 100% shareholding in Transfield Holdings Pty Limited ("Holdings" hereafter) plus its shareholding in those companies formerly owned by Exben & Romap which subsequently became wholly owned subsidiaries of Exben ('the Romap Companies" hereafter). Collectively Holdings and its subsidiaries and the Romap Companies are referred to as "the Transfield Group".
1.5. For reasons associated with generational succession planning, the Parties wish to restructure their joint ownership of the Exben Group and record their agreement as to the organisation and operation of the Transfield Group. The result of the restructure will be the creation of two separate holding companies, Exben I, to be owned as to 10% by ABN and as to 45% by each of LBN and GBN, with FBN holding for his lifetime an "A" Class share with similar rights to the Exben "A" Class share & ABN holding for her lifetime a "B" Class share which assumes the rights of an "A" Class share when FBN's "A" class share lapses (collectively "the Exben I Shareholders") and Exben II, to be owned by ABN as to 10% and by MBZ as to 90% ("the Exben II Shareholders"). Amifra will be owned as FBN and ABN decide. (Collectively the Exben I Shareholders and the Exben II Shareholders are "the Parties".) A proposed structure post implementation is attached as Schedule 1.
1.6. Subject to Clause 5.4 it is contemplated that the dividend rights in Exben I and Exben II will reflect shareholdings.
1.7. This Memorandum sets out the broad principles of a transaction agreed between the Parties to effect the restructure ("the Transaction” hereafter).
1.8. The Parties will work together in good faith to implement the Transaction as expeditiously as possible. In so doing, the interests of FBN and ABN will need to be addressed.
2. BROAD PRINCIPLES
2.1. This Memorandum contemplates a division of the assets of the Exben Group such that all Exben Group real property except for the Transfield Group real property is transferred to Amifra or to FBN and/or ABN as they wish. As to the balance of the assets of the Exben Group, Exben II will own those assets listed in Schedule 2 while Exben I will own the remainder.2.2. The Parties agree to the establishment of a Foundation in honour of FBN and that it will be seeded with all of the Transfield artworks and such other assets as determined by the Trustee.
2.3. While the precise method of implementation of the division is subject to agreement between the Parties, at present it is contemplated that this might be achieved by Exben selling its shares in Holdings on or before 30th June 1999 to a newly formed and nominally capitalised company owned by the Exben I Shareholders ("Exben I” hereafter). Until the Implementation Date appropriate security arrangements will be put in place to protect the interests of the Exben II Shareholders.
2.4. The Romap companies would then be liquidated. Exben would be left with a loan to Amifra, a loan to Holdings and a loan to Exben I and sundry assets and liabilities, all of which would be distributed in specie to the shareholders of Exben on voluntary liquidation of Exben.
It is contemplated that the Exben I Shareholders will use their proceeds from the above liquidation to subscribe for a combination of equity and loan funds in Exben I, that the Exben II Shareholders will use their proceeds to subscribe for a combination of equity and loan funds in Exben II. Amifra will be capitalised to the extent necessary to purchase the Exben real property. ABN will hold 10% in both Exben I and Exben II.
Unlike the Exben I Shareholders, MBZ is not subscribing for equity or subordinated debt in Exben I. It is contemplated that the loans of MBZ to Exben I, Holdings and Amifra will rank prior to any such loans of the Exben I Shareholders and will be repaid in accordance with predetermined schedules.
2.5. Upon the liquidation of Exben, Amifra will become the trustee of the Exben Family Trust and the trustee of the FBN Foundation.2.6. Following Exben's sale of its Holdings' shares to Exben I, it is contemplated that the Schedule 2 assets ("the Exben II Assets" hereafter) will be sold by Exben I and/or its subsidiaries to a wholly owned subsidiary of Exben II ("Transfield Investments" hereafter) and/or its subsidiaries, with the purchase price being settled by Exben II making predetermined repayments on commercial terms.
3. EFFECTIVE DATE AND IMPLEMENTATION DATE
3.1. The Effective Date of the Transaction is the date of this Memorandum of Understanding.3.2. The Implementation Date is the date by which the Transaction is completed and the structures set down in Schedule 1 have been formed and is to be on or before 20th December, 1999.
4. DIRECTORS
4.1. The directors of Exben I will include FBN (Founding Chairman), ABN, LBN and GBN.4.2. The directors of Exben II will include FBN (Founding Chairman) ABN and MBZ.
4.3. The shareholders' agreements for both Exben I and Exben II will provide for life appointments of FBN as Founding Chairman and for ABN as Director.
4.4. On the Implementation Date the Transfield Corporate Governance Agreement will cease to have effect.
5. DIVISON OF ASSETS/INCOME
5.1. Broadly, it is contemplated that Transfield Investments shall own the Exben II Assets as listed in Schedule 2 and shall be entitled to all income arising from them from the Effective Date.5.2. It is contemplated that Exben I shall retain all of the Exben Assets remaining after the Exben II Assets are transferred to Transfield Investments ("the Exben I Assets" hereafter). Exben I shall be entitled to all income arising from the Exben I Assets from the Effective Date.
5.3. Exben II shall accept the Exben II Assets in full settlement of its entitlement to its interest in the value of the Exben Group.
5.4. It is contemplated that FBN & ABN will receive as income the whole of the income of Amifra and the Exben Family Trust. In addition, it is contemplated that FBN will receive Director's fees of $600,000 per annum indexed by $30,000 per annum, of which two thirds will be paid by Exben I and/or its subsidiaries and one third by Exben II and/or its subsidiaries. Additionally, FBN will receive for his lifetime 22.5% of the dividends from each of Exben I and Exben II, subject to a minimum annual payment equivalent to a franked dividend of $1 million indexed at $25,000 per annum, of which two thirds will be paid by Exben I and/or its subsidiaries and one third by Exben II and/or its subsidiaries. ABN will receive 10% of the dividends from each of Exben I and Exben II, provided that the total annual dividend payments is not less than $600,000, indexed at $12,500 per annum in the proportion of two thirds from Exben 1 and/or its subsidiaries and one third from Exben II and/or its subsidiaries.
Minimum annual dividend distributions from each of Exben I and Exben II shall be 30% of after tax profits.
Subject to restrictions imposed in covenant tests by bankers to Exben I and Exben II, ABN will be entitled to drawings from her loan accounts with Exben I and Exben II from time to time but always such that the drawings will be in the ratio of 2 parts from Exben I and one part from Exben II. At any time total drawings from both sources may total $1.5 million, over the $600,000 annual sum in any one year repayment of which will be interest free and out of future dividends.
6. MANAGEMENT OF ASSETS
6.1. From the Effective Date, GBN and LBN will have day to day management of the Exben I Assets. Similarly, from the Effective Date, MBZ will have day to day management of the Exben II Assets.6.2. From the Effective Date Exben II and Exben II shall conduct separate sets of accounts for the Exben 1 Assets and the Exben II Assets respectively. If it is agreed to change the makeup of the Exben II Assets ("the Revised Exben II Assets" hereafter) during the period from the Effective Date to the Implementation Date , the two sets of accounts will be retrospectively adjusted to reflect the transactions related to the Revised Exben II Assets.
6.3. Notwithstanding the provisions of the Transfield Corporate Governance Agreement and only for the purposes of day to day management, during the period from Effective Date until the Implementation Date MBZ shall have the title of Executive Director - Transfield Investments, GBN shall have the title Executive Director, Transfield Pty Limited and LBN shall have the title Executive Director, Transfield Pty Limited.
6.4. It is acknowledged that amendments to the Transfield Corporate Governance Agreement are necessary to allow the respective management groups to have day to day management of their businesses ("the Amended Corporate Governance Agreement" hereafter). From the Effective Date until the Implementation Date, the Amended Corporate Governance Agreement will apply.
6.5. In the event that, for whatever reason, the Transaction is not implemented by 20th December 1999, this Memorandum of Understanding will come to an end and the Amended Corporate Governance Agreement will lapse in favour of the Transfield Corporate Governance Agreement and MBZ will resume the position of Managing Director of Transfield as provided in the Transfield Corporate Governance Agreement dated 3rd February, 1998.
6.6. On the Implementation Date, the employees of the Transfield Group listed in Schedule 3 will be transferred to Exben II subject to their concurrence. Their work assets, such as but not limited to computers, software, relevant files, motor vehicles, furniture, etc. and their employee entitlements will be similarly allocated. The superannuation entitlements will be actuarially determined as at the Implementation Date and the entitlements of the employees of the Party employing the lesser number of Transfield Superannuation fund members will be transferred to a newly constituted superannuation fund as soon as practical after the Implementation Date.
6.7. On the Implementation Date MBZ will resign from all offices held in companies which from that date fall under the ownership of Exben I. Similarly LBN & GBN will resign from offices held in companies which fall under the ownership of Exben II.
7. NON-COMPETE COVENANT/TRANSFIELD NAME
7.1. It is acknowledged that Transfield Pty Limited will own the name of Transfield. The Party which owns Transfield Pty Limited will permit the use of the Transfield name by the other Party for the shorter of:
7.1.1. A period of three (3) years from the Implementation Date, or
7.1.2. The period that FBN remains on the Board of the other Party.
7.2. The Parties agree that neither shall engage in activities carried on by the other ("the Exben I Non-Compete Activities" and Exben II Non-Compete Activities" respectively) during the period that both use the Transfield name.7.3. The Exben I Non-Compete Activities and the Exben II Non-Compete Activities are defined by the Transfield Group's current activities and any new activities that either Exben I or Exben II and/or their subsidiaries commence in the period of 3 years from the Effective Date providing that the initiating Party notifies the other in writing of the natures of the new activities.
7.4. In the event of a dispute between the Parties as to whether an activity is part of either the Exben I Non-Compete Activities or the Exben II Non-Compete Activities, the Parties agree to be bound by the decision of an independent arbitrator as stipulated in Clause 11.1.
7.5. The Parties contemplate that whilstever both Parties use the Transfield name, neither they nor any related entities shall seek to recruit employees from the other's business/businesses, except with the prior agreement of the other.
8. TRANSACTION COSTS
8.1. All costs of implementing the Transaction (for example capital gains tax, stamp duty, including stamp duty, valuation fees and legal fees relating to the transfer of the Exben real property and the costs of jointly employed advisers), except for costs associated with advisers employed by the Exben I Shareholders on the one hand or the Exben II Shareholders on the other, shall be borne as to two thirds by Exben I and as to one third by Exben II.8.2. The Parties will work together in good faith to develop a Transaction structure which minimises transaction costs and is also mutually acceptable.
8.3. An implementation team will be established to assist the Parties to implement the Transaction. The team under the direction of Brian Eslick and Glenn Fraser (the joint Project Managers) will be comprised of Holdings staff and jointly employed advisers, such as advisers assisting with the sale and transfer of assets for the Transaction, with the requisite skills, such as taxation, treasury, legal, investment advisory and accounting skills. The team will work in good faith to bring about an optimal result for Exben, Exben I, Exben II, Amifra and the Exben Family Trust. All internal and external advisers will be jointly briefed by a representation of MBZ and LBN or GBN or their respective nominees.
8.4. In terms of Clause 5 above, the advisers will be briefed as to develop a workable restructure that is the most efficient possible from a transaction costs, tax and external advisory cost basis. Should it become apparent that, while working with the nominated allocation of assets, the transaction costs become prohibitive, the Parties may explore other rearrangements of these assets to help deliver a cost effective restructure.
9. EXTERNAL APPROVALS
9.1. The statement of intention as summarised in this Memorandum of Understanding is subject to any required external approvals and clearances.9.2. The Parties will jointly approach Holdings' banks as soon as practical after the Effective Date to negotiate revised and mutually acceptable financing arrangements.
9.3 Subject to not materially prejudicing the implementation of this MOU, it is agreed that any bids and any financial commitments in relation to the acquisition of ADI will be subject to the approval of the Transfield MFA Syndicate Banks and will not be subject to MBZ veto.
With regard to the acquisition and financing of ADI, there will be no communication between Exben II and banks, partners or other parties associated with the bid without Exben I approval.10.2. There shall be no media comment on the Transaction or the revised management arrangements unless jointly agreed by the Parties.
10. COMMUNICATIONS
10.1. All general communications with the employees and all external parties in relation to the Transaction shall be jointly agreed by the Parties.
11. DISPUTE RESOLUTION
11.1. Any dispute arising over any matter pursuant to this Memorandum of Understanding shall be arbitrated by Mr. Bill Neill with technical assistance to be provided by PricewaterhouseCoopers. The Parties agree to be bound by the decision of the arbitrator._________________________________________SCHEDULE 2
Exben II Assets
50% of Transfield's interest in Transurban100% of Transfield's interest in:
Perisher Blue
Macarthur Water
Yan Yean WaterAll of Transfield non-operational properties as below:
South side of Seven Hills (balance of Seven Hills to Operations)
Lots 355 & 356 and 12 Karoonda Close, Rathmines
27-49 Nelson Rd, Yennora
374 Vardys Road, Kings Park
Unit 14B, 52 Old Burleigh Road, Surfers Paradise
Apartment 39, Snow Crystal Inn, Falls Creek
Lots 2 & 3 Cnr Hope Valley & Lee Rds, Kwinana
Lot 5, Cnr Lee Rd & Lionel Street, Kwinana
Lots 525, 527 & 528 Lionel Street, Kwinana
27 Wst Street, Mt Isa
Hudson Ave, Castle Hill (InstalComm)$2.150 million Cash
$5.00 million debt owing. Principal to be repaid on the third anniversary of the Implementation Date. Security to be Tulk Osbome Park property and terms to be commercial including appropriate environmental considerations. Interest payments to be monthly.
APPENDIX C
We act for Mr Marco Belgiorno-Zegna (MBZ).We are instructed as follows:
The other shareholders of Exben are as follows:
1. MBZ owns one "C" class share in Exben Pty Ltd (Exben) and a 30% interest in Exben.
Franco Belgiorno-Nettis (FBN) Both “A” class shares giving him voting
control of Exben during his lifetime.
Amina Belgiorno-Nettis (ABN) The “B” class share and a 10% interest in Exben.
Luca Belgiorno-Nettis (LBN) One "C" class share and a 30% interest in Exben
Guido Belgiorno-Nettis (GBN) One "C" class share and a 30% interest in Exben
Since 1996, Transfield Holdings Pty Ltd and its subsidiaries and certain other associated companies (Transfield) have been wholly owned subsidiaries of Exben. That state of affairs arose from a series of transactions by which Romap Pty Limited (a company controlled by the Salteri family) sold its 50% interest in Transfield in exchange for the defence business which had previously been carried on by Transfield.
2. Following the desire of LBN and GBN, supported by FBN, to become involved in the senior management of Transfield and disagreements in relation to the management of Transfield, MBZ initiated discussions on how he could be bought out of Exben. Although the Shareholders Agreement provides a mechanism for one shareholder to be bought out by the others, GBN and LBN have made it clear that they cannot afford to buy MBZ out and were not prepared to have another person acquire his shares. Against that background, it was agreed 'm principle that the shareholders of Exben should investigate how MBZ might be bought out. For that purpose in May 1997, the shareholders retained Macquarie Bank to advise them in relation to the restructuring of the assets owned by Exben and the financial viability of that restructuring.3. In early 1998 MBZ, GBN, LBN and FBN reached an agreement, referred to as the Corporate Governance Agreement, setting out a number of matters relating to the management of Transfield pending an investigation of how the assets of Exben might be divided between NMZ, GBN, LBN and ABN. Under the terms of that agreement and in the context of MBZ's proposed separation from Exben occurring, it was agreed that MBZ would remain as managing director for 2 years to allow for proper management succession with an option for a further 12 months should the separation be delayed. LBN was appointed Executive Director - Asia some 7 years ago. GBN was appointed CEO of the Engineering & Construction Division in August 1998. GBN and LBN were appointed Deputy Managing Directors in December 1998 whilst still retaining those previous responsibilities. The scope of MBZ's powers as managing director were set out in the Agreement. The Agreement provided that a number of decisions of Transfield required unanimous approval of the "A" class and "C" class shareholders. One of those decisions was the decision to appoint the managing director at the expiry of MBZ's term in the event he had not departed as a shareholder.
4. Notwithstanding the Corporate Governance Agreement, disputes in relation to the management of Transfield continued. The circumstances relating to those disputes are complicated. In substance, however, they arise because both LBN and GBN, with the approval of FBN, have frustrated MBZ in the proper execution of his duties as managing director. In doing so, Transfield companies at the instigation of both LBN and GBN have entered into a number of transactions which MBZ believes are not in the interests of shareholders as a whole and were contrary to good commercial judgment and, on occasion, expert advice. LBN and GBN have also given instructions to executives of Transfield in relation to those transactions (and others) which were inconsistent with the views which had been expressed by MBZ or which were given without the knowledge of MBZ.
5. Examples of these transactions are the Bakun and Nam Theun hydro-electric projects and General Construction - Asia and also Project Development in Asia and the Coal Seam Methane Project in Australia. Losses on these examples alone are more than A$70 million and continuing. In addition to these examples, other major losses exist in areas GBN has had responsibility for (for example, Project Development - Asia, Eastern Gas Pipeline, Technipetrol NSW Construction and Century Zinc) and under LBN's control (for example, Construction Asia and the representative offices in Asia, and for some time, Materials Handling and Modular Waste Systems). Within only two months of setting the 1999/2000 Transfield budget, the most recent full year forecast (as at October) is showing a reversal of over $48 million.
6. In MBZ's opinion, these examples, among others, illustrate that LBN and GBN are not capable of managing Transfield in the interest of the shareholders as a whole and that, if they continue, similar losses are likely to be incurred in the future due to inadequate risk assessment and pricing, and poor choice of management and poor commercial judgment. These examples also illustrate that Transfield has become unmanageable under the present arrangements.
7. On 25 May 1999 each of the shareholders of Exben signed a Memorandum of Understanding (MOU) which sets out broadly the terms on which the parties had agreed on how the assets of Exben would be divided between the shareholders.
8. The MOU also provided that LBN and GBN would take management control of part of Transfield in the period 5 May 1999 to 20 December 1999.
9. Clause 6.5 of the MOU relevantly provides that if the transaction contemplated by the MOU was not implemented by 20 December 1999, the MOU would come to an end and MBZ would resume the position of managing director of Transfield as provided in the Corporate Governance Agreement and that the Corporate Governance Agreement would apply in its original form.
10. As a result of the deteriorating financial position of Transfield, Transfield's bankers would not agree to the transaction contemplated by the MOU. Consequently, it has become clear that the transaction will not be implemented by 20 December 1999.
11. On 20 October 1999 LBN and GBN convened a general meeting of Exben. The notice of meeting stated that the business to be considered at the meeting was, relevantly, the progress of the MOU.
12. In fact, at that meeting, without adequate prior notice to MBZ, LBN and GBN, exercising a proxy in their favour from FBN and ABN respectively, purported to pass a resolution appointing GBN as managing director of Transfield and LBN as associate managing director from 1 January 2000. MBZ opposed that resolution. The resolution which was purportedly passed is a breach of the Corporate Governance Agreement. At a later Board meeting of Transfield, GBN and LBN purported to confirm those appointments despite the fact that each of them had participated in a Resolution of the Transfield Management Board on November 18 which expressly affirmed commitment to adherence to the processes set out in the Corporate Governance Agreement. When MBZ challenged LBN on his disregard for the Corporate Governance Agreement, LBN said "when you're in the minority it is tough, the minority member can get pushed around but that's the way it is". In his letter of 17 November, LBN advised that, on expiry of the MOU, MBZ would become a non-executive director. The effect of the decisions which have been taken is to exclude MBZ from the management of Transfield.
13. Our client has no confidence that Transfield will be managed in the interest of the shareholders as a whole. At a meeting on 25 November 1999 which was called by the Group's banks, the banks expressed serious concern in relation to the financial state of Transfield. The banks indicated that Transfield's credit rating had been downgraded since September 1999 and was continuing to fall. This is in the context of an existing breach of a financing charges covenant and the threat by the banks to impose an event of default in the event of any repetition of conduct in breach of the requirement to obtain approval for capital expenditure. MBZ does not believe GBN and LBN have managed Transfield's banking relationship in a way to give the Banks confidence in Transfield's management.
Against this background, we have advised our client that he should seek relief under section 246AA of the Corporations Law. Relevantly, that section permits a court to make any order or orders as it thinks fit where the affairs of a company are being conducted in a manner that is oppressive or unfairly prejudicial or unfairly discriminatory against a member or in a manner that is contrary to the interests of the members as a whole. The orders that a court might make under that section include:
(a) an order for the winding up of Exben;
(b) an order appointing a receiver or a receiver and manager of property of Exben including all of the shares in Transfield Holdings Pty Ltd;
(c) an order for the purchase of the shares of any member by other members;
(d) an order for regulating the conduct of the affairs of Exben and Transfield;
Our client has attempted for some weeks now to engage you in discussions to find an amicable solution for all parties. While he remains reluctant to commence proceedings your actions leave him little choice. As an alternative, he is willing to sign a mediation agreement for the appointment of Mr Trevor Morling QC or such other mediator as is agreed, for the purpose of attempting to resolve by agreement all issues relating to the management of Transfield and the circumstances in which our client should be bought out of his interests in Transfield or the assets of Transfield should be fairly divided between the shareholders. We enclose a draft Mediation Agreement for this purpose. Mr Morling has confirmed that he is available in January to mediate the dispute.
Unless each of GBN, LBN, ABN and FBN sign a Mediation Agreement substantially in the form of the enclosed draft and return it to us by Friday 10th December 1999 - or, if the Mediation Agreement is signed, unless a settlement is reached before the Mediation Agreement expires - our client will have no alternative but to make an application to the court for appropriate relief under section 246AA of the CorporationsLaw.
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