Catalano v Managing Australia Destinations Pty Ltd (No 2) - [2013] FCA 672

FEDERAL COURT OF AUSTRALIA
Catalano v Managing Australia Destinations Pty Ltd (No 2) [2013] FCA 672

Citation: Catalano v Managing Australia Destinations Pty Ltd (No 2) [2013] FCA 672

Parties: NATHAN CATALANO, MAUREEN & NATHAN CATALANO AS TRUSTEES OF THE EQUICAP PTY LIMITED PROVIDENT FUND (ABN 70 739 750 546) and FINE FOOD SOLUTIONZ PTY LTD (ABN 83 134 923 005) v MANAGING AUSTRALIAN DESTINATIONS PTY LIMITED (ABN 58 070 373 689), BYRON KURTH, JUY HEPNER, THE GOURMET DIM SIM COMPANY PTY LIMITED (ACN 156 541 712) and BEN LYDEN

File number: NSD 715 of 2012

Judge: FLICK J

Date of judgment: 10 July 2013

Catchwords:
CORPORATIONS LAW – oppression – remedies – winding up – deferral of order

EVIDENCE – privilege against self-incrimination – certificate granted in respect to possible contravention by disqualified person managing a corporation

PRACTICE AND PROCEDURE – findings as to credit – observations of demeanour whilst not in witness box – need for caution

Legislation: Corporations Act2001 (Cth) ss 9, 206A, 206B, 232, 233, 234, 601AB
Competition and Consumer Act 2010 (Cth)
Evidence Act 1995 (Cth) s 128

Cases cited:
Ample Source International Ltd v Bonython Metals Group Pty Ltd [2011] FCA 1484, 285 ALR 488
Byrne v A J Byrne Pty Limited [2012] NSWSC 667
Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353
Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1
Doyle v Australian Securities and Investments Commission [2005] HCA 78, 227 CLR 18
Dynasty Pty Ltd v Coombs (1995) 138 ALR 64, 13 ACLC 1290
Edwards v Idaville Pty Ltd (1996) 22 ACSR 1
Fitzpatrick v Cheal [2012] NSWSC 261, 264 FLR 313
Gerrard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156
Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304
Ground and Foundation Supports Pty Ltd v GFS Management Services Pty Ltd [2002] WASCA 306, 21 ACLC 506
Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd [2011] FCA 567, 282 ALR 229
HNA Irish Nominee Ltd v Kinghorn [2012] FCA 228, 290 ALR 372
Hogg v Dymock (1993) 11 ACSR 14
John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63
Kuhl v Zurich Financial Services [2011] HCA 11, 243 CLR 361
Lindsay v Health Care Complaints Commission [2010] NSWCA 194
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342, 71 ACSR 343
Queensland Co-Operative Milling Association Ltd v Hutchison (1976) 2 ACLR 188
Re Bright Pine Mills Pty Ltd [1969] VR 1002
Re City Meat Co Pty Ltd (1983) 8 ACLR 673
Re G Jeffery (Mens Store) Pty Ltd; Re G Jeffery Ltd (1984) 9 ACLR 193
ReM Dalley & Co Pty Ltd (1968) 1 ACLR 489
Re Quest Exploration Pty Ltd (1992) 6 ACSR 659
Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549
Shelton v National Roads and Motorists’ Association Ltd [2004] FCA 1393, 51 ACSR 278
Smith Martis Cork v Benjamin Corporation Pty Ltd [2004] FCAFC 153, 207 ALR 136
Szencorp Pty Ltd v Clean Energy Council Ltd [2009] FCA 40, 69 ACSR 365
Thomas v H W Thomas Ltd [1984] 1 NZLR 686, 2 ACLC 610
Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, 84 ACSR 121
Vadori v AAV Plumbing [2010] NSWSC 274, 77 ACSR 616
Valda Pty Ltd v Macarthur Coal Limited [2012] FCA 1264
Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459
Weatherall v Satellite Receiving Systems (Aust) Pty Ltd [1999] FCA 218, 30 ACSR 698
Wilson v Meudon Pty Ltd [2004] NSWSC 1183
Zephyr Holdings Pty Ltd v Jack Chia (Australia) Ltd (1988) 14 ACLR 30
Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458

Sirianos, Problems of Share Valuation Under Section 260 of the Corporations Law (1995) 13 C & SLJ 88

Ford’s Principles of Corporations Law (14^th ed., 2010)

Date of hearing: 15, 16, 17, 18, 19, 22, 23, 24, 26 April 2013

Date of last submissions: 6 May 2013

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 287

Counsel for the Plaintiffs and the First, Second, Fourth and Fifth Cross-Respondents: Mr M Bennett

Solicitor for the Plaintiffs and the First, Second, Fourth and Fifth Cross-Respondents: Shaw McDonald

Counsel for the Defendants and Cross-Claimants: Mr M B Evans

Solicitor for the Defendants and Cross-Claimants: Norton Gledhill

Counsel for the Third Cross-Respondent: Mr R Notley

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 715 of 2012

BETWEEN:
NATHAN CATALANO
First Plaintiff

MAUREEN & NATHAN CATALANO AS TRUSTEES OF THE EQUICAP PTY LIMITED PROVIDENT FUND
(ABN 70 739 750 546)
Second Plaintiff

FINE FOOD SOLUTIONZ PTY LTD (ABN 83 134 923 005)
Third Plaintiff

AND:
MANAGING AUSTRALIAN DESTINATIONS PTY LIMITED
First Defendant

BYRON KURTH
Second Defendant

JUY HEPNER
Third Defendant

THE GOURMET DIM SIM COMPANY PTY LIMITED
(ACN 156 541 712)
Fourth Defendant

BEN LYDEN
Fifth Defendant

AND BETWEEN
JUY HEPNER
First Cross-Claimant

KURTH MANAGEMENT PTY LTD (ACN 102 842 580)
Second Cross-Claimant

AND
FINE FOOD SOLUTIONZ PTY LTD (ACN 134 923 005)
First Cross-Respondent

NATHAN CATALANO
Second Cross-Respondent

INNOVA FOODS PTY LTD (ACN 154 548 375)
Third Cross-Respondent

SAM CATALANO
Fourth Cross-Respondent

SAM, MAUREEN & NATHAN CATALANO
Fifth Cross-Respondent

JUDGE:

FLICK J

DATE OF ORDER:

10 JULY 2013

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The parties bring in Short Minutes of Orders to give effect to these reasons within 28 days.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 715 of 2012

BETWEEN:
NATHAN CATALANO
First Plaintiff

MAUREEN & NATHAN CATALANO AS TRUSTEES OF THE EQUICAP PTY LIMITED PROVIDENT FUND
(ABN 70 739 750 546)
Second Plaintiff

FINE FOOD SOLUTIONZ PTY LTD (ABN 83 134 923 005)
Third Plaintiff

AND:
MANAGING AUSTRALIAN DESTINATIONS PTY LIMITED
First Defendant

BYRON KURTH
Second Defendant

JUY HEPNER
Third Defendant

THE GOURMET DIM SIM COMPANY PTY LIMITED
(ACN 156 541 712)
Fourth Defendant

BEN LYDEN
Fifth Defendant

AND BETWEEN
JUY HEPNER
First Cross-claimant

KURTH MANAGEMENT PTY LTD (ACN 102 842 580)
Second Cross-Claimant

AND
FINE FOOD SOLUTIONZ PTY LTD (ACN 134 923 005)
First Cross-Respondent

NATHAN CATALANO
Second Cross-Respondent

INNOVA FOODS PTY LTD (ACN 154 548 375)
Third Cross-Respondent

SAM CATALANO
Fourth Cross-Respondent

SAM, MAUREEN & NATHAN CATALANO
Fifth Cross-Respondent

JUDGE:

FLICK J

DATE:

10 JULY 2013

PLACE:

SYDNEY

REASONS FOR JUDGMENT

The present proceeding was commenced by way of an Originating Application filed on 24 May 2012. A Statement of Claim was subsequently filed on 20 July 2012. Thereafter there have been a series of amendments to the pleadings.
As at the date of final hearing, there is a Further Amended Originating Process filed on 15 April 2013 and a Further Amended Statement of Claim filed on 23 April 2013. The First Plaintiff is Mr Nathan Catalano. Mr Nathan Catalano and his step-mother (Ms Maureen Catalano) are also Plaintiffs in their capacity as trustees of a superannuation fund (Equicap Pty Limited Provident Fund, “Equicap”). Mr Nathan Catalano’s father (Mr Samuel Catalano) is joined to the proceeding as the Fourth Cross-Respondent to the Cross-Claim. These parties can conveniently be referred to as “the Catalano camp”.
The Third Plaintiff is the company at the heart of the present dispute, Fine Food Solutionz Pty Limited (“Fine Food Solutionz”).
Included as Defendants are Managing Australian Destinations Pty Limited (“Managing Australian Destinations”), Mr Juy Hepner and his step-father, Mr Byron Kurth. These parties can conveniently be referred to as “the Kurth/Hepner camp”.
The Cross-Claimants in the Amended Notice of Cross-Claim filed on 15 April 2013 are Mr Juy Hepner and Kurth Management Pty Ltd. Included as Cross-Respondents are Messrs Nathan and Samuel Catalano and Ms Maureen Catalano. Also included as a Cross-Respondent is Innova Foods Pty Ltd (“Innova Foods”), a company associated with the Catalano family and through which it was argued that the Catalano camp diverted the profits of Fine Food Solutionz. It should be noted that the Amended Notice of Cross-Claim was dismissed as against Innova Foods at the outset of the hearing.
The principal issue in dispute is the fate of the company Fine Food Solutionz. In very summary form, that company carries on the business of supplying Asian food products to a number of retailers, including Woolworths and Coles. A business operated by Mr Peter Broadbent called WonSum had long supplied Fine Food Solutionz with a product known as shu mai and also meat balls. Mr Broadbent’s manufacturing facility was located at Hoppers Crossing in Victoria. Fine Food Solutionz has also been supplied with food products (including gyoza and dumplings) from Barramundi Gardens in Port Douglas, in northern Queensland.
The 1000 shares in Fine Food Solutionz are held by Equicap (500 shares), Kurth Management Pty Ltd (200 shares) and Mr Hepner (300 shares). There are currently two directors of Fine Food Solutionz – Mr Byron Kurth and Mr Nathan Catalano. But they are unable to agree on the future direction of the business. One of the issues – but only one of the issues – upon which they have been divided is the prudence of “vertically integrating” the manufacture and supply of its product by establishing a manufacturing and distribution factory in Sydney. Freight and storage costs, so it is said, could thereby be minimised.
The issues dividing the parties have previously been the subject of proceedings before this Court, namely:
·an interlocutory hearing before Middleton J in Victoria on 9 March 2012; and
·a further interlocutory proceeding before Yates J in Sydney on 13 June 2012: Catalano v Managing Australian Destinations Pty Ltd [2012] FCA 632.
There has also been a proceeding before:
·the Fair Work Commission in respect to the termination of the services of Mr Hepner: Hepner v Fine Food Solutionz [2013] FWC 1523.
Orders sought by the Plaintiffs in the Further Amended Originating Process include an order pursuant to s 233(1)(d) of the Corporations Act2001 (Cth) (“Corporations Act”) for the purchase of the shares. The Claimants in the Amended Notice of Cross-Claim, who are both Defendants to the original proceeding, seek a like order that they be entitled to purchase the outstanding shares. Those in each camp claim that for the purposes of s 232(e) of the Corporations Act, those in the opposing camp have conducted the business of Fine Food Solutionz in a manner which is “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members…”. A variety of declaratory relief is also sought, together with orders claiming damages.
The divergence of views as to the future conduct of the business of Fine Food Solutionz is such that the only way of bringing finality to the dispute is by way of judicial resolution. Prior attempts to mediate the dispute have proved unsuccessful.
It is concluded that the conduct of the business of Fine Food Solutionz by Mr Nathan Catalano and those in the Catalano camp is such that it falls within s 232(d) and (e) of the Corporations Act and that an order should be made (inter alia) for the purchase of their shares by members of the Kurth/Hepner camp pursuant to s 233(1)(d) as sought in the Cross-Claim.
It should also be noted that the Further Amended Originating Application includes causes of action relating to breaches of directors duties and breaches of the Competition and Consumer Act 2010 (Cth). Despite the myriad of causes of action there relied upon, the focus of attention during the course of both the hearing and the oral and written submission centred upon the competing claims of oppression. Other claims for relief fell by the wayside. If any other particular and discrete claim for relief requires further consideration, a limited liberty is reserved to the parties to apply to advance such further submissions as is considered appropriate.
FINE FOOD SOLUTIONZ & THE ARRIVAL OF THE CATALANOS
The origins of the business of Fine Food Solutionz can be traced back to a business primarily operating out of Port Douglas. Mr Juy Hepner had developed a series of recipes for Asian food products, which were being distributed under the name “Crazy Dragon Gourmet Foods”.
Consideration as to the means whereby the business could be progressed was being undertaken from at least late 2009. In September 2009 Mr Kurth had retained persons to conduct a Process Review of the “Crazy Dragon Business”. That Process Review identified a number of deficiencies in the business. In June 2010 a Business Information Memorandum was prepared largely by Mr Hepner with input from Mr Kurth on financial aspects. It set forth an analysis (inter alia) of the business of Fine Food Solutionz and a “vision” for the future. When addressing what it described as an “Investment Opportunity”, the review contemplated an investor providing $850,000 for a 20% equity.
The arrival of the Catalanos & the Heads of Agreement
The involvement of the Catalano family can be traced back to Mr Nathan Catalano looking for business opportunities and his coming across the website for Crazy Dragon. On 5 July 2010, Mr Nathan Catalano sent an email to Mr Hepner, expressing an interest in becoming involved in the Crazy Dragon business.
The fate of the two family interests was ultimately sealed with the execution of a Heads of Agreement on 23 November 2010. There was a variation of the Heads of Agreement on 3 June 2011.
In contrast to the content of the Business Information Memorandum stands the Heads of Agreement.
The Heads of Agreement as executed on 23 November 2010 contained a variety of provisions, including provision for the conduct of due diligence by Equicap (cl 1); the transfer of the Crazy Dragon “business name” to Fine Food Solutionz (cl 3); the sale of shares as between existing shareholders (cl 11); the sale of shares to third parties (cl 13); and warranties by Mr and Ms Kurth and Mr Hepner (cl 14.).
The Heads of Agreement also provided as follows for the provision of $250,000 by Equicap and the payment of monies to Managing Australian Destinations, referred to in the Heads of Agreement as “MAD” :
5. Equicap Loan
Equicap will lend [Fine Food Solutionz] the sum of $250,000 by way of five monthly advances of $50,000 commencing on the 49 days after the date of this Agreement and subject to a satisfactory outcome to the due diligence investigations (as provided in clause 1 hereof) and the transfer of half of the shares in [Fine Food Solutionz] and the transfer of all of the shares in [Good Food Solutionz] to [Fine Food Solutionz].
Each subsequent advance shall be conditional on the performance of this agreement and the adherence of the Companies to the business plan but not on any deviation from the business plan caused by the default of Equicap.
The loan shall from the date of the first advance by Equicap bear interest at the rate of 10% per annum to be paid or accrued monthly.
6. MAD Loan and Second Mad Loan
[Fine Food Solutionz] shall pay the MAD Loan in the sum of $250,000 and pay (or alternatively accrue) to MAD interest on the MAD loan calculated at the rate of 10% per annum, to be paid or accrued monthly as from 49 days after the date of this agreement.
The parties acknowledge that MAD is owed by [Fine Food Solutionz] a further $150,000 (the Second MAD Loan).
The parties agree that the total to be paid to MAD in respect of the MAD Loan or the Second MAD Loan will not exceed in total $400,000 in any event and that the parties other than Equicap will provide a release from any of them to each of the companies for any loan other than the MAD Loan and the Second MAD Loan.
The Second MAD Loan shall not bear interest if and to the extent MAD and [Fine Food Solutionz] agree the Second MAD Loan may be repaid by paying MAD the sum of $150,000 or part thereof for strategic marketing services provided to [Fine Food Solutionz] by MAD.
Clause 11 provides for the “Sale of Shares between Existing Shareholders”, and states (in part):
Subject to paragraph 11, in the event of serious default by any shareholder or a deadlock at a meeting of directors in relation to a substantial issue, which default or deadlock continues for 14 days after written notice of the same is given by a shareholder (not relying on his own default) to all other shareholders, the parties agree that any shareholder in the Companies may acquire the shareholdings of any other shareholder in the following way …
That power was limited by Clause 12, which provided as follows:
Conditions of Exercise of Power to Purchase Shares from Other Shareholders
The power set out in paragraph 11 may only be invoked by a shareholder and/or director after all of the following has occurred, namely:
(a)30 June 2011; and
(b)the discharge of the security that has been given over 22 Beachfront Mirage, and Lot 7, Bilkey Ct, Echuca; and
(c)the release of Byron and Vicki [Kurth] from any liability (other than as an equal guarantor with the director appointed by Equicap) to the Bank of Queensland in relation to the loan from that Bank.
Clause 16 provided as follows:
Employees
Nathan Catalano and Juy [Hepner] shall each be salaried employees of [Fine Food Solutionz] on terms and conditions and salaries to be determined by the directors.
The Deed of Variation to the Heads of Agreement executed on 3 June 2011 recited that Equicap had completed its “due diligence” and had paid “3 instalments totalling $158,434.62 in respect of the Equicap Loan and will pay a further $43,565.38 on signing of this Amending Agreement and the fifth and final instalment on 9 June 2011”. The relevant amendment to the earlier agreement was to delete from clause 6 the acknowledgment of the second MAD loan and the reference to the agreement as to the second MAD loan. The second to fourth sentences in clause 6 were thus deleted.
After the execution of the Heads of Agreement difficulties quickly emerged.
One matter fundamental to these competing accounts was the outcome that each camp envisaged as being achieved by the execution of the Heads of Agreement.
The expectations of those in the Kurth/Hepner camp and those in the Catalano camp were, accordingly, pursued in cross-examination. Relevant to whether one camp or the other was being oppressed was a consideration as to what each camp sought to achieve by executing the Heads of Agreement.
In the Kurth/Hepner camp, the expectation was that they would gain the “retail connections” of Mr Nathan Catalano and the management skills of both Mr Nathan Catalano and Mr Samuel Catalano. The expectations of Mr Kurth assumed particular significance. In cross-examination, he was taken to the manifest discrepancy between seeking $850,000 for a 20% share in the company as suggested by the Business Information Memorandum to the deal effected by the Heads of Agreement. The explanation provided by Mr Kurth was as follows:
There’s a significant difference between $850,000 for a 20 per cent stake, and $250,000 for a 50 per cent stake; do you agree with that?---Yes.
What changed between early 2010 and November 2010 that caused you to agree to the lower of the two purchase prices?---Well, at this stage I think we were just looking for venture capitalists so that we could get the funding to put in place the right structures, as outlined in that document that you just showed us before. Obviously to put in a lot of those processes, and the process review needed capital injection, and we were hopeful that maybe we could sell the dream to someone, but that was as an equity partner, buy-in, whereas when the Catalanos came, we saw potentially the benefit that they brought to the business with their experience in the marketplace, and so, therefore, we felt that they would help us move forward.
The – do you agree that a 20 per cent stake valued at $850,000 would value the business in total at [$]4.5 million?---I believe that’s probably the calculation.
But a 50 percent stake for [$]300,000 – for [$]250,000 would value the business at [$]500,000?---Again, it’s – yes, that’s the right math.
Well, the difference between those is [$]3.75 million. Are you saying that that difference was justified because of the management skill that Nathan Catalano was bringing to Fine Food Solutionz?---No.
Well, what other differences - - -?---It was the skills of Sam Catalano.
Sam Catalano?---Yes. And Nathan.
And what - - -?---The two of them as a package.
What skills were those?---Well, I believe Nathan had the sales skills and the retail connections, and Sam had the management and accounting skills, and the knowledge of running large companies.
So you knew – or you considered Sam had management and accounting skills; is that right?---Absolutely.
And you were looking to take advantage of those skills in the business?---Well, that was – yes, part of the reasons we went into partnership with them.
The role to be played by Messrs Nathan and Samuel Catalano after their services were secured was thereafter pursued as follows:
And you say that Nathan’s skills and Sam’s skills were a combination for which you were willing to take less capital?---Yes.
Because you wanted the Catalano input into the Fine Foods Solutionz business?---Yes.
... Prior to the entry of the heads of agreement, was it your intention, in relation to your investment in Fine Food Solutionz, to hold onto that long term, that is, hold your shareholding through various entities or directly, for the longer term?---In Fine Food Solutionz?
Yes?---The – the discussions that we had prior to the heads of agreement, with the Catalanos, was to get it to a point – the business to a point where it could potentially be an attractive offering for a larger company to buy out.
So ---- ?----That was my – that was my anticipation, so to hang on to the shares until that buyout occurred. Yes.
So the – I will paraphrase it, and we can just agree with my description – the intention was to build up the value of the business to the point where it could be sold - - - ?---Yes
Mr Kurth intended to allow Mr Nathan Catalano “some free rein” in carrying out the functions as initially envisaged - but he denied that he intended to “sit back”. He explained this position as follows:
After the heads of agreement was executed, did you sit back and allow the Catalanos free rein in the business?---I allowed them some free rein.
Why did you - - -?---But I didn’t sit back.
Why did you do that if it wasn’t your intention before the heads of agreement were signed?---Because they were bringing expertise that I wanted in the business, and I gathered that that’s what their roles were. We provided all the recipes, the equipment, the contacts, and lots of other things. We were expecting them to fulfil their obligations into bringing together the different areas of administration that they said they would bring to the business. So I wasn’t going to overrule them on that.
And did they end up bringing the contacts and levels of administration you anticipated?---Well, they brought their levels of – as I said, we provided the contacts and the recipes and the machinery. They brought the administration in that they – yes, they did.
The explanation provided by Mr Kurth is accepted.

The Kurth/Hepner camp, in very summary form, claimed that there had been misrepresentations by the Catalano camp and that the manner in which that camp sought to conduct the business was oppressive to their interests. Conversely, the Catalano camp maintained that there had been misrepresentations on the part of the Kurth/Hepner camp and that it was the Catalano interests that were being oppressed.
The development of the business of Fine Food Solutionz
Whatever may be the merits of the competing claims by those in the opposing camps, there can be no doubt that the business of Fine Food Solutionz improved, particularly if a comparison is made between the years preceding 2010 and thereafter.
A snapshot of the evolution of the business of Fine Food Solutionz is provided by the following table setting forth the quantum of gross sales from 2006 to 2012:

Year

Gross Sales

Tra[d]e creditors owed

Net Profit

Net Equity

2006

$56,149

Unknown

-$112,840

Unknown

2007

$183,569

Unknown

-$180,311

Unknown

2008

$355,542

Unknown

-$39,814

Unknown

2009

$77,844

$93,217

-$74,504

-$73,504

2010

$615,038

$245,867

-$174,734

-$248,238

2011

$687,153

$306,415

-$216,754

-$464,992

2012

$3,154,986

$445,010

$66,824

-$405,669

It was further an agreed fact that the turnover of Fine Food Solutionz for the financial year ending 30 June 2012 was $3,206,739 compared with $756,212 for the year ending 30 June 2011. It may be further noted that Messrs Nathan and Samuel Catalano commenced their involvement with Fine Food Solutionz in December 2010.

Those in the Catalano camp seize upon this “turnaround” in the business of Fine Food Solutionz in support of a final proposition that it is they – and they alone – who can successfully carry forward the business. To grant the relief sought by the Kurth/Hepner camp in the Amended Notice of Cross-Claim, they submit, will only bring about the downfall of the business.
OPPRESSION – GENERAL PRINCIPLES
It was common ground that the very real difficulty in the present proceeding was the resolution of the many competing factual claims. There was limited diversion between the competing camps thereafter as to the application to those facts of the relevant statutory provisions and the range of available relief. The opposing camps were even in agreement in advancing a joint submission that an order for the winding up of Fine Food Solutionz should not be made.
Notwithstanding the absence of disagreement as to the general principles to be applied, the statutory provisions of central relevance and the applicable principles should be briefly set forth.
Section 232 of the Corporations Act provides as follows:
Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d)contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
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.
Section 233(1) provides as follows:
The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)that the company be wound up;
(b)that the company's existing constitution be modified or repealed;
(c)regulating the conduct of the company's affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company's share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)appointing a receiver or a receiver and manager of any or all of the company's property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j)requiring a person to do a specified act.
Section 234 outlines who can make an application under section 233 as follows:
(a)a member of the company, even if the application relates to an act or omission that is against:
(i)    the member in a capacity other than as a member; or
(ii)     another member in their capacity as a member; or
(b)a person who has been removed from the register of members because of a selective reduction; or
(c)a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or
(d)a person to whom a share in the company has been transmitted by will or by operation of law; or
(e)a person whom ASIC thinks appropriate having regard to investigations it is conducting or has conducted into:
(i)    the company’s affairs; or
(ii)     matters connected with the company’s affairs.
“The statutory jurisdiction created by ss 232 and 233 … provides a means by which the court can look beyond legal rights and do what is just and equitable in the particular circumstances”: Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342 at [85], 71 ACSR 343 at 357 per Barrett J. Once the discretion conferred by s 233 “has been enlivened by a finding of oppression under s 232, the court has a wide discretion as to both the appropriate remedy and, if it orders compulsory purchase of shares, as to the mode of valuation of the shares”: Smith Martis Cork v Benjamin Corporation Pty Ltd [2004] FCAFC 153 at [70], 207 ALR 136 at 145-146 per Wilcox, Marshall and Jacobson JJ.
The expression “company’s affairs” in both s 232 and s 233 includes – by reason of s 53(a) and (c) – “the promotion, formation, membership, control, business, trading, transactions and dealings” of the company and also its “internal management and proceedings…”.
Although there has been some academic and judicial discussion as to the manner in which s 232(d) and (e) are to be construed, it seems to be now recognised that:
·section 232(d) provides a ground of relief separate from s 232(e); and
·the expression “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” in s 232(e) is a “compound expression.”
See: Ford’s Principles of Corporations Law at para [11.450] (14^th ed., 2010). In Szencorp Pty Ltd v Clean Energy Council Ltd [2009] FCA 40, 69 ACSR 365, Goldberg J summarised the present position as follows:
[59] The “contrary to the interests” provision now contained in subpara (d) of s 232 has a separate and distinct area of operation from the “oppression” provisions in subpara (e) of s 232. The manner in which a company is being administered and in which its affairs are conducted may fall within the category of conduct contrary to the interests of the company’s members as a whole although it may not be described as oppressive, unfairly prejudicial to, or unfairly discriminatory against members of the company … An example of such conduct may be found where a company is formed for the purpose of undertaking particular activities but the directors and management disregard those activities and direct the company into different commercial areas.
[60] An essential feature of the “oppression” provisions in subpara (e) of s 232 is whether or not there has been commercial unfairness. …
The term “oppression” embraces a width of conduct and it is neither desirable nor possible to give an exhaustive account of that conduct which will or will not amount to oppression: Shelton v National Roads and Motorists’ Association Ltd [2004] FCA 1393, 51 ACSR 278. Tamberlin J there observed:
[23] It is not practicable to delineate the numerous ways in which oppressive conduct may be established. The Court will generally look at the overall course of conduct and consider whether it is so unfair that reasonable directors would not consider it fair. If directors exercise a power so as to impose a disability or burden on a member that is unfair according to ordinary standards of reasonableness and fair dealing, then such conduct may be described as oppressive. The question is one of fact and degree for the Court to determine, having regard to the view the directors have formed themselves, and allowing for any special skill or knowledge possessed by the directors. The test of unfairness is objective …
Conduct, for example, which is “inconsistent with arrangements and understandings between shareholders may be so unfair that it amounts to oppression”: Weatherall v Satellite Receiving Systems (Aust) Pty Ltd [1999] FCA 218 at [13], 30 ACSR 698 at 701 at per Whitlam J.
One of the many ways in which oppression may emerge is where salaries and emoluments are paid to those who run a business at the expense or to the detriment of the members as a whole. Thus, by way of example, in Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 at 560 Waddell CJ in Eq concluded:
In a general sense the evidence, in my opinion, justifies the conclusion that the second defendants are providing themselves with a salary and emoluments which are above the level which can be justified having regard to the plaintiff's position as a one-third shareholder. The 1984 year is, I think, significant in this respect. The adjusted profit after income tax was $9,714, out of which a dividend of $3,000 was paid, thus providing the plaintiff with $1,000 as his share of the profits. The total of the second defendants’ salary and emoluments was $169,000 approximately. There would not appear to be very much room for providing the plaintiff with similar salary and emoluments had he remained as a director and done the work which Mr Moynihan was engaged to do.
This consideration indicates that the dividend which was declared was not fair to him in that year. In the 1985 year the remuneration provided for the second defendants seems to me to be plainly more than could be justified having regard to the interests of the plaintiff.
In these circumstances it should, I think, be concluded in a general sense that the defendants have conducted the affairs of the company in respect of their own salaries and emoluments in their own interests and not in the interests of the members as a whole and that the affairs of the company are being conducted in a manner which is oppressive to the plaintiff. The extent of the unfairness to the plaintiff remains to be determined and is bound up with the question of what is an appropriate valuation to place on his shares, which is considered below.
Whatever the conduct relied upon to make out a claim of “oppression”, that conduct is looked at – as repeatedly acknowledged – objectively and through the eyes of a commercial bystander: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704. Young J there summarised the position as follows:
… it has been accepted that one no longer looks at the word “oppressive” in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair…
See also: Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458 at [509] per Gordon J. See also: Dynasty Pty Ltd v Coombs (1995) 138 ALR 64 at 72, 13 ACLC 1290 at 1296 per Spender, O’Loughlin and Branson JJ; Shelton v National Roads and Motorists Association Ltd [2004] FCA 1393 at [23], 51 ACSR 278 at 284-285 per Tamberlin J. Whether conduct is oppressive “is based on the objective facts”: cf. Fitzpatrick v Cheal [2012] NSWSC 261 at [180], 264 FLR 313 at 366 per Ward J.
Section 232 and its predecessors are thus concerned with “commercial unfairness”: Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd [2011] FCA 567 at [9], 282 ALR 229 at 232 per Gordon J; Ample Source International Ltd v Bonython Metals Group Pty Ltd [2011] FCA 1484 at [41], 285 ALR 488 at 494 per Robertson J. And, when considering “unfairness”, a Court should not take “a narrow view”: Edwards v Idaville Pty Ltd (1996) 22 ACSR 1 at 3 per Burchett and Ryan JJ. But a mere allegation of discrimination against a member is insufficient to attract the Court’s jurisdiction: Valda Pty Ltd v Macarthur Coal Limited [2012] FCA 1264 at [16] per Kenny J.
An incident of “fairness” is the honesty with which an act has been performed: Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1 at 26. Cohen J there said of the predecessor provision to s 232:
It is a requirement of s 260(2)(b) that acts must be not only prejudicial to or discriminatory against a member but must also be unfairly so. Fairness must be related to what is known at the time. In my opinion, to take a step in the honest belief of it being a correct one would not amount to acting unfairly. To be fair is to act free from bias, dishonesty or injustice (Macquarie Dictionary)…
But “want of probity is only one of the ways in which oppression can manifest itself”: ReM Dalley & Co Pty Ltd (1968) 1 ACLR 489 at 492 per Lush J. See also: Re Quest Exploration Pty Ltd (1992) 6 ACSR 659 at 669 per Mackenzie J. “Fairness” is not to be assessed in a vacuum: Thomas v H W Thomas Ltd [1984] 1 NZLR 686 at 694, 2 ACLC 610 at 618 per Richardson J. Although subjective intention or purpose may not be a necessary ingredient in determining improper use of a position, the presence of such an intention may nevertheless be relevant in assessing impropriety: cf. Doyle v Australian Securities and Investments Commission [2005] HCA 78 at [41], 227 CLR 18 at 29 per Gleeson CJ, Gummow, Kirby, Hayne and Callinan JJ; Vadori v AAV Plumbing [2010] NSWSC 274 at [164], 77 ACSR 616 at 646 per Ward J.
Even a decision taken by a director in good faith and a decision which is genuinely believed to be in the best interests of the company may nevertheless fall within the concept of oppression: Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459. When addressing the terms of s 320 of the Companies (New South Wales) Code, Brennan J there observed:
It is not necessarily unfair for directors in good faith to advance one of the objects of the company to the prejudice of a member where the advancement of the object necessarily entails prejudice to that member or discrimination against him. Prima facie, it is for the directors and not for the Court to decide whether the furthering of a corporate object which is inimical to a member's interests should prevail over those interests or whether some balance should be struck between them. The directors’ view is not conclusive, but an element in assessing unfairness to a member is the agreement of all members to repose the power to affect their interests in the directors [see s 78 of the Code]. Nevertheless, if the directors exercise a power — albeit in good faith and for a purpose within the power — so as to impose a disadvantage, disability or burden on a member that, according to ordinary standards of reasonableness and fair dealing is unfair, the court may intervene under s 320. The question of unfairness is one of fact and degree which s 320 requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of s 320 may be attracted to a decision made by directors which is made in good faith for a purpose within the directors’ power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision: (1985) 180 CLR at 472-473.
Oppression may thus occur “despite the absence of any transgression of the fiduciary requirements of good faith, proper purpose and subordination of personal interest”: Gerrard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 at [49]. Barrett J there went on to observe that a “director may act oppressively in the sense relevant to the operation of s 232 of the Corporations Act and its statutory predecessors yet not breach any fiduciary or other duty owed as a director”.
Commercial decisions, however, are – again as repeatedly acknowledged – best left to those managing the affairs of a company. A court should be hesitant in attempting to evaluate the competing merits of divergent commercial judgments. That process of decision-making is best left to the company to resolve: Zephyr Holdings Pty Ltd v Jack Chia (Australia) Ltd (1988) 14 ACLR 30 at 37. Brooking J there observed:
… Where, as in the present case, bad faith is not established and where, as in the present case, the allegation is that the proposed course of action is detrimental to the members as a whole, the court must take care that it does not too readily intervene in the affairs of a company under s 320. Compare Thomas v H W Thomas Ltd [1984] 1 NZLR 686 at 697; Wayde v New South Wales Rugby League Ltd, 61 ALR 225 at 231. It is only stating the obvious to say that, under s 320, the court does not sit as an appellate tribunal to review the decisions of the organs of a company or of a class of its members on the footing that the court will, as it were, automatically reverse the decision if it disagrees with it.
See also: Wilson v Meudon Pty Ltd [2004] NSWSC 1183 at [119] per Gzell J; HNA Irish Nominee Ltd v Kinghorn [2012] FCA 228, 290 ALR 372 at 489 per Emmett J.
“The mere fact that a member of a company has lost confidence in the manner in which a company’s affairs are conducted does not lead to the conclusion that he is oppressed; nor can resentment at being outvoted…”: John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63 at 66 per Young J. See also: Re G Jeffery (Mens Store) Pty Ltd; Re G Jeffery Ltd (1984) 9 ACLR 193 at 198 per Crockett J.
THE CONDUCT OF THE PARTIES
Unravelling the many factual disputes that engulfed the competing camps during the period from August 2010 through to the present day has not proved an easy task. On some occasions there was some measure of agreement as to the primary facts but a real division of opinion as to the best commercial way forward. On many other occasions, the primary facts were disputed. On other occasions it was also said that the contents of documents were written with a view to enhancing the position of the author rather than disclosing the objective facts. Reliance, so it was said, could not be placed upon the “written word” without some considerable measure of caution.
It is not practicable – nor necessary – to resolve each of the competing myriad of disputed evidence, facts and accusations. It is necessary, however, to address some of the principal factual disputes between the competing camps with a view to determining where the competing merits of each claim ultimately fall.

In very summary form, the Catalano camp submitted that it had been oppressed by the conduct of the Kurth/Hepner camp, that conduct being:
·the failure to agree to the sale of shares;
·the failure to agree proposals for business growth;
·the wrongful diversion of money and assets from Fine Food Solutionz;
·conduct that adversely affected the Crazy Dragon business; and
·their participation in the proceeding before the Fair Work Commission.
Mr Samuel Catalano is not a “member” of Fine Food Solutionz for the purpose of section 234 of the Corporations Act. The oppression claim is therefore brought by Mr Nathan Catalano, and by the trustees of Equicap, being Mr Nathan Catalano and Ms Maureen Catalano. It is noted, however, that the conduct of Mr Samuel Catalano is relevant to the alleged oppression of the Kurth/Hepner camp under the terms of section 232.
The Kurth/Hepner camp submitted that it had been oppressed by the conduct of the Catalano camp. Their Further Amended Statement of Cross-Claim grouped a variety of allegations under the headings of:
·“misrepresentations and failure to make adequate disclosure”;
·“wrongful diversion of business opportunities”;
·“supplier wrongdoing”; and
·“purporting to take control of FFS”.
It was admitted that Messrs Hepner and Kurth were “members” of Fine Food Solutionz for the purposes of s 232 of the Corporations Act. No distinction was sought to be drawn between Mr Kurth as an individual and Kurth Management Pty Ltd.
The evidence as to these competing complaints extended over a considerable period of time and a considerable variety of business relationships as between the members of each competing camp and commercial relationships with (for example) suppliers to Fine Food Solutionz.
It is concluded that the claim of oppression advanced by the Catalano camp should be rejected. It is further concluded that Cross-Claim claiming oppression of Messrs Hepner and Kurth at the hands of the Catalano camp should prevail.
When characterising the conduct of those in one camp or the other as “oppressive”, that term is used as a shorthand reference to the terms of s 232(d) and (e).
In reaching this conclusion it is prudent to make some preliminary observations as to the credit of some of those witnesses who gave evidence.
Findings as to credit
As with many cases, findings of fact have been made in the present proceeding by reference to both the documents relied upon and the oral evidence.
Those findings of fact have been made in many instances against the background of an assessment as to the credit of the principal witnesses who were called and cross-examined, namely:
·Mr Juy Hepner;
·Mr Byron Kurth;
·Mr Samuel Catalano; and
·Mr Nathan Catalano.
Mr Kurth was accepted by Counsel on behalf of the Catalano camp as a witness who was honest and frank. The major challenge to credibility was directed to Mr Hepner (on the one hand) and Mr Nathan Catalano (on the other hand).
Considerable reservation, it is respectfully considered, should be exercised before making any observation reflecting adversely on the credit of any witness. Such observations should be made, however, where it is necessary to fully explain – or more fully explain – the basis upon which a Court has approached its task in making findings of fact.
The present case is one in which brief observations as to credit should be made.
In large part, the ultimate conclusions that have been reached in the present proceeding are very much driven by the conclusion that the evidence of Messrs Hepner and Kurth should generally be accepted and the separate conclusion that the evidence of Messrs Samuel and Nathan Catalano is open to serious reservation.
Subject to expressing a cautious reluctance to make adverse findings except where necessary to more fully explain the basis upon which findings have been made, considerable reservation is expressed in respect to accepting the evidence of Mr Nathan Catalano. In very general terms, his evidence was characterised by:
·a recollection in considerable detail as to the facts pertaining to the business and the development of the business of Fine Food Solutionz; and
·an absence of any recollection as to other matters in respect to which either some recollection or some considerable recollection of events was otherwise to be expected.
To some extent, the better recollection on the part of Mr Nathan Catalano of the business affairs of Fine Food Solutionz may readily be understandable. He has unquestionably spent a great deal of his time in developing the business. But that is, with respect, no satisfactory explanation for other aspects of his evidence. With greater particularity, the evidence of Mr Nathan Catalano was characterised on many occasions by:
·his answers to questions not being responsive to the questions being put and on many occasions being more in the nature of self-justification; and
·his answers being more in the nature of an attempt to advocate his own case than an attempt to simply set forth a factual account.
On other occasions:
·his evidence is simply not accepted.
In making some findings of fact it is unnecessary to take into account such reservations as to the reliability of the evidence of Mr Nathan Catalano. Thus, for example, when it comes to considering his account of steps being taken to develop the business and the steps being taken to secure contracts with both Woolworths and Coles, no question as to his credit arises. But in other respects, the evidence he gave has to be considered against the background of an adverse view as to the reliability of that evidence. In particular, that adverse view necessarily impacts upon findings to be made in respect to:
·whether he had the objective either from the outset or from mid-2011 to develop the business of Fine Food Solutionz for his own interests or whether his undisclosed objective was to exclude the involvement of Messrs Kurth and Hepner;
·his commitment to work with Messrs Kurth and Hepner;
·the non-disclosure at the outset of the bankruptcies of his father, the non-disclosure of his father’s financial circumstances and the reasons for that non-disclosure; and
·the actual involvement of his father, Mr Samuel Catalano, in the decision-making processes affecting Fine Food Solutionz.
As opposed to these findings concerning the credibility of Mr Nathan Catalano’s evidence stand the findings to be made in respect to the challenge made to Mr Juy Hepner’s credibility.
Like Mr Nathan Catalano, the answers provided by Mr Hepner were on many occasions more characteristic of a witness who set out to explain or advocate his cause rather than a witness who confined himself to answering the questions asked. He was also, on occasions, reluctant to answers questions directly. By way of example only, an issue emerged in the proceeding as to the exercise of the power conferred by cl 11 of the Heads of Agreement to purchase the shares from “the other shareholder”. A condition to the exercise of the power was imposed by cl 12(b), being the discharge of a security that had been given over a property owned by Mr Hepner at Echuca in Victoria. When cross-examined about this property and cl 12(b), the following exchange occurred:
Do you agree with me that clause 12 sets out three conditions that have to be satisfied before clause 11 can be effected?‑‑‑Yes. I’m familiar with this clause.
But do you agree with me that the existing shareholders cannot sell their shares to each other until clause 12 is satisfied?‑‑‑Yes.
And you’ve mentioned Echuca property previously. Is that the property referred to there in clause 12(b)?‑‑‑Yes.
Have you discharged the security over that property?‑‑‑Like I said, it wasn’t for me to do.
Who owns the Echuca property?‑‑‑Me.
Well, if you own the property – I withdraw that – what security was on the property? Was there a mortgage in relation to the property?‑‑‑The equipment – the property’s held as collateral against the equipment finance for the spring roll machine.
And as the owner of the property you are the person who can sign the necessary documents?‑‑‑Well, it’s up to the bank.
Are you saying the bank can discharge that security without your ‑ ‑ ‑?‑‑‑No, I don’t think so.
-‑ ‑ signature?‑‑‑I don’t think so. No.
The reluctance on the part of Mr Hepner to answer these questions more directly is a source of some reservation when considering the reliance to be placed upon his evidence. Mr Hepner had also taken steps to support his own claims to relief by obtaining evidence which he knew he could not obtain himself. He thus requested a friend he had met in Port Douglas, Mr Andrianopolous, to make inquires of Yael’s Cakes of Distinction as to the supply of products to Innova Foods. Mr Andrianopolous also contacted the San Diego Tortilla Company because that company “wouldn’t actually answer Juy’s calls…”.
Of even greater concern is the fact that Mr Hepner was a person who was prepared to misrepresent himself to achieve a desired outcome. His conduct is certainly not without blemish. An instance where criticism can unquestionably be directed at his conduct is in respect to a telephone number which Mr Nathan Catalano had caused to be disconnected. Mr Hepner had long had the telephone number as a personal mobile phone number. A judge of this Court had previously ordered (inter alia) that that telephone number be transferred to Fine Food Solutionz. That transfer took place and Mr Nathan Catalano then “cut it off”. To regain the number Mr Hepner falsely represented himself to be Mr Nathan Catalano. In explaining this sequence of events Mr Hepner gave the following evidence:
Are you suggesting that someone at the Vodafone office suggested to you that you and he together call Telstra and represent yourselves as Nathan Catalano in order to have access to certain accounts?‑‑‑To get my number back, yes.
And did you call Telstra and pretend to be Nathan Catalano?‑‑‑Yes.
…
… After you approached Telstra, was the number transferred into your control or your name?‑‑‑It was, yes. I created another account and I kept my phone number, yes, for – for a time, and then – until the – until the injunction, which happened while I was overseas, where they convinced Yates J to take my number away, yes, the whole time was Sam was using his number for Innova.
Just so I have the timeline right, you had approached Telstra on or before 21 May and Yates Js orders were in June; is that correct?‑‑‑Yes. I can’t remember when it was. All I remember is that Nathan cut off my phone. I was distraught. I misrepresented myself to be Nathan and got my phone put back on in another account. I know it was dishonest of me to misrepresent myself to be him, but I didn’t know what else to do. Byron had no say on the Telstra account. It was just Nathan.
This particular event, obviously enough, reflects very poorly upon Mr Hepner. The evidence, however, assumes a more broadly expressed relevance. This evidence exposes the steps which Mr Hepner would pursue in order to achieve an objective. It provides a real reason to question the reliability of Mr Hepner in respect to the balance of his evidence.
Such considerations must necessarily be borne in mind when assessing the evidence given by Mr Hepner. Many aspects of his evidence, like the evidence of Mr Nathan Catalano, can be accepted and no question of considering that evidence against the backdrop of reliability arises. Other aspects of his evidence, however, do require more careful consideration. One example is his evidence as to his reasons for establishing the Gourmet Dim Sim Company Pty Ltd (“Gourmet Dim Sim Company”). Unlike the position of Mr Nathan Catalano, however, it is concluded that Mr Hepner had the best interests of Fine Food Solutionz at the forefront of his mind when taking the steps that he did. Another example is whether he was taking steps to preclude those in the Catalano camp invoking their right to purchase the shares of “the other shareholder” by refusing to remove the security over the Echuca property.
As a very general observation, it is concluded that Mr Hepner gave his evidence in an honest and forthright fashion. There is far less reason, it is concluded, to question Mr Hepner’s evidence as opposed to that of Mr Nathan Catalano.
Observations as to demeanour – but not whilst giving evidence
On many occasions findings as to credit are founded, in part, upon a trial judge’s observations of a witness whilst in the witness box.
On few occasions, reference is also made by a trial judge to observations of a witness whilst in court when another is giving evidence.
Such a question arose in the present proceeding. Observations were made as to the reaction (for example) of Mr Nathan Catalano to some of the evidence being given by Mr Hepner. Those reactions included obvious rejection and perhaps disbelief as to the evidence of Mr Hepner.
Whether reliance could be placed upon such observations was a question raised with Counsel during the course of submissions – it then being uncertain whether such observations may or could assist in resolving the submissions otherwise being made as to the credit of witnesses.
Both Counsel expressed a degree of caution as to the reliance that should be placed upon such observations. One factor alone which would support an approach of caution is the fact that a trial judge may well observe conduct occurring behind the bar table and hence not observed by either the instructing solicitors or Counsel. An ability to make meaningful submissions, except possibly on instructions, would thus be limited.
The difficulties in such circumstances were canvassed in part by Kirby P (as his Honour then was) in Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304 at 313-314 as follows:
6. By conventional theory, the observations made by a trial judge of the appearance and demeanour of a witness giving evidence are not only available to be used in the determination of a dispute but amount to important ingredients of the decision-making process. They normally provide the primary decision-maker a distinct advance which controls, and even limits, the exercise by the appellate court of its statutory functions in an appeal by way of re-hearing …
Justice is not truly blind. A decision-maker (whether judge or magistrate), sitting in a courtroom is not blinkered. The decision-maker observes the drama which is played out in the well of the courtroom. As Jacobs J remarked in [Jobst v Inglis (1986) 41 SASR 399] parties and witnesses frequently sit in court and grimace, frown, laugh and otherwise display facial and body language which it is virtually impossible for the decision-maker to fail to see. Burt CJ said, on his retirement, that he had whiled away the boring parts of cases by counting the panels at the back of his courtroom. Judges without panels are usually confined, when attention strays from parties, witnesses or their representatives, to observing those seated before them. It is impossible, in the geographical layout of a courtroom to do much else. The appearance of a witness as he or she approaches the witness-box may properly be taken into account where agility and ease of movement are in contest. To require otherwise would be to require a division of the mind quite unrealistic in the case of a jury and equally artificial for judicial officers. In this modern age, the suggestion that a form of transmogrification of the witness occurs by administration of the oath (or taking the affirmation) so that body language and facial features or other elements of the demeanour can be taken into account thereafter but not a moment before, would involve a rigidity and artificiality which the law should reject. So long as the conventional theory reigns that observations of a party or other witness are an important and legitimate element in curial decision-making, it is appropriate to permit at least the observations to be taken into account which occur inside the courtroom. However this conclusion leaves the question of notification to the parties and their representatives where the observations have occurred, as here, outside the actual period of the trial and when the person being observed is at the back of the court behind the representatives of the parties who thus have no opportunity to observe the features in question and by interrogation, evidence or advocacy, to persuade the decision-maker to a different view about them than has been formed;
7. So far as the duty to alert the parties or their representatives of such matters is concerned, it involves, as Davidson J acknowledged in Hodge v Williams [(1947) 47 SR (NSW) 489 at 492], the drawing of “a very fine line between what is proper and improper”. Or between what is essential and unnecessary. Inevitably, the point at which that line will be drawn depends upon the circumstances of the case. Matters relevant will include the opportunity which the parties have had to respond to the considerations in question; the significance of those considerations for the decision under challenge; and the apparent importance which the decision-maker attaches to the undisclosed material in reaching the decision. Courts have offered various formulae to describe the way in which the “fine line” is to be drawn in a hard case …
The need for parties to have an opportunity to make submissions in respect to the conduct of a witness which the legal representatives may not themselves have had an opportunity to observe was emphasised by Heydon, Crennan and Bell JJ in Kuhl v Zurich Financial Services [2011] HCA 11, 243 CLR 361 at 387. Their Honours there referred to the decision in Bailey and observed:
[69] … Judges are entitled to take into account the demeanour of party-witnesses, not only in the witness box, but while they enter and leave it, and also while they are sitting in court before and after giving evidence; but observations by the judge of conduct outside the witness box which the representatives of the parties may not have observed, should, if they are influential in the result, be drawn to the attention of the parties so that they may have an opportunity of dealing with the problem…
See also: Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [31] per Basten JA; Lindsay v Health Care Complaints Commission [2010] NSWCA 194 at [233] to [237] per Sackville AJA (Giles and Young JJA agreeing).
The observations made by Kirby P in Bailey and by Heydon, Crennan and Bell JJ in Kuhl are, with great respect, eminently sensible and founded upon good common sense.
The caution urged by both Counsel is thus acceded to. Indeed, it has been concluded that no reliance at all should be placed upon what the Court itself may have observed but what those appearing for the parties were denied the opportunity to observe. Such findings of credit as have been made in respect to Messrs Nathan Catalano and Juy Hepner are confined to observations as to their demeanour in the witness box whilst giving evidence.
THE CATALANO CLAIMS OF OPPRESSION
It is unnecessary to resolve in detail each of the claims of oppression advanced on behalf of the Catalano camp. The submissions, including both the oral and written submissions advanced in support of the claims to oppression, have been considered.
It is nevertheless prudent to address in summary form some of the more detailed claims made in support of the proposition that the Kurth/Hepner camp have acted in a manner which is oppressive of the interests of those in the Catalano camp.
Those claims and the submissions as to the oppression of the Catalano interests are rejected. In rejecting those claims, each of the instances of claimed oppression has been separately considered and each claim has also been considered as forming potentially part of a broader and more cumulative claim of oppression. The manner in which Counsel advanced the claim of oppression in the written submissions was to:
·identify a series of specific factual events;
and thereafter to:
·address one or other of those factual events by reference to a more generally expressed rubric, such as “a wrongful diversion of money and assets”.
This was a convenient way in which to proceed. On some occasions one specific factual event was relevant to more than one generally expressed proposition.

Although expressed as separate propositions, it would nevertheless be an erroneous approach to consider each of the propositions separately and not also to consider the propositions as a whole. One series of events may not constitute oppression; taken together with other facts, however, a claim in oppression may be established. This is the approach that has been pursued in the present proceeding.
The sale of shares – the Catalano offers to purchase
One instance of oppression relied upon by the Catalano camp is said to emerge from the series of offers it made to purchase the outstanding shareholding of the Kurth/Hepner camp.
Each of these offers need not be recounted in detail. It is sufficient to observe that the Catalano camp on a number of occasions sought to either purchase the shares held by the Kurth/Hepner camp, or sell their shares to the Kurth/Hepner camp, in order to break the deadlock between the parties.
The proposition advanced on behalf of the Catalano camp was that the failure to accept a reasonable offer to buy shares, together with the resultant consequence that capital was otherwise “locked up” in the ongoing business, either constitutes oppression or at least is one factor which assists in reaching such a conclusion: Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, 84 ACSR 121. Campbell JA (with whom Macfarlan JA agreed) there observed:
[235]    Further, it is not as though “exclusion from management” and “absence of a reasonable offer” are elements of a cause of action, so that a plaintiff in an oppression suit (or, perhaps, in the sub-species of oppression suits in which exclusion from management is a prime element in the oppression alleged) has the onus of proving absence of a reasonable offer. Rather, the making of a reasonable offer is merely one factor that, in some (but not all) types of situations where oppression is alleged can be relevant to whether oppression is made out. A party who wished to assert that a reasonable offer had been made would bear an onus of adducing evidence of the making of an offer, and an onus of persuading the court that it was reasonable, and that because it had been made there was no oppression.
His Honour went on to further conclude as follows that an offer for present purposes need not be an offer capable of acceptance such as to form an enforceable contract:
[242]    … [Counsel] accepted that it may not be necessary for an “offer” to be an offer in the sense that is relevant for contract formation before it could be capable of affecting a conclusion about whether oppression had been made out. In my view, he was right to make that concession. There might be situations in which, for example, a bona fide buyout offer was made, but subject to contract. Such an offer might be held open for long enough to justify a court in concluding that, when ignored or not accepted, any disadvantage that the addressee of that offer thereafter came to be in, concerning the affairs of the corporation to which it related, was not in itself oppression or the result of oppression. Other less concrete indications of a preparedness to negotiate and discuss a fair exit mechanism might also bear upon whether oppression was established. It is, however, very much a matter of the court forming a judgment about the facts of the individual case, and the role that the “offer” plays in them, as to whether that result follows. Whether a statement of preparedness to consider buying out a shareholder takes the form of a contractual offer might affect the weight that is given to it, in deciding whether there has been oppression. In Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 ; [2009] NSWSC 342 at [103] Barrett J, correctly in my view, rejected the proposition that a relevant “offer” had to be an offer in the contractual sense.
And, in Byrne v A J Byrne Pty Limited [2012] NSWSC 667, Black J observed:
[63]      … there are several cases in which oppression has not been established where a party was willing to buy out the other party for fair value. In Tainsh v Barber (1997) 23 ACSR 158 at 177, where the exclusion of a partner was necessitated by her failure to cooperate in the business, Foster J appears to have accepted that a willingness to buy that partner’s share in accordance with a valuation arrived at by an expert was sufficient to avoid oppression. (It is not clear from the report of that decision whether the valuation undertaken by the accountants in that case had applied a minority discount). In Belgiorno-Zegna v Exben Pty Ltd [2000] NSWSC 884; (2000) 35 ACSR 305, Hodgson CJ in Eq referred to the entitlement of a minority shareholder “to expect a reasonable approach to a negotiated exit” (at [139]) and observed that it was not necessary for the defendants’ offer to buy out a minority shareholder to satisfy the tests laid down in O’Neill v Phillips [1999] 1 WLR 1092 (to which I will refer below), where oppression was not otherwise established (at [150]). In Nassar v Innovative Precasters Group Pty Ltd above at [108], Barrett J observed that oppression was not established where parties showed a willingness to seek in good faith an agreed basis for buying out the remaining shareholder. This approach is consistent with the fact that the oppression remedy will often be directed to a situation where a person has “his or her capital locked up in a corporate enterprise under unfair conditions”: Crawley v Short [2009] NSWCA 410; (2009) 76 ACSR 286 at [158].
One offer relied upon in the present proceeding is set forth in an e-mail from Mr Nathan Catalano to Mr Kurth on 20 February 2012. That e-mail provided:
Thanks for the discussion this afternoon.
Just to recap, I see 3 solutions to the current issues that we have:
1)         You become a silent partner, allowing us make the necessary decision to continue to grow the business profitably
2)         You buy us out
3)         We split the business, us taking retail and you taking foodservice
If you can think of any others, that may solve the decision making and management issues that we discussed, then I am open to hear them.
Mr Kurth could not remember what his response was to this e-mail but maintained that only the second option was “plausible”. Thereafter, on 19 March 2012 a further e-mail from Mr Nathan Catalano to Mr Kurth requested Mr Kurth to “please send through the offer of $200,000, plus your requested term sheet in writing asap”. The e-mail further stated that Mr Catalano wanted to “get this wrapped up before any further damage is done to the business…”.
Without more, the failure to accept this offer – or to give it greater consideration – invites scrutiny. It is when this offer is considered against the factual background of what else was happening at the time, however, that the apparent reasonableness of Mr Nathan Catalano’s position takes on a different complexion. When explaining this background, Mr Kurth was taken to the 19 March 2012 e-mail and said during his cross-examination:
… The offer being discussed there was you purchasing the Catalanos’ interest in the business for $200,000; would you agree with that?‑‑‑That’s right.
And Nathan is chasing you up to try and resolve this issue before any damage is done to the business; would you agree with that?‑‑‑Well, that’s what he says, yes.
But that would be a business in which they have no interest after the sale; is that right?‑‑‑Sorry, rephrase that.
If you had purchased their shares for $200,000, Equicap would no longer have an interest in the business; is that correct?‑‑‑That’s correct.
So Nathan is chasing you up in an effort to protect the business you were going to own outright; do you agree with that?‑‑‑Well, I agree with that, but you’ve got to take it in the context of the Innova action because we didn’t know how much business was being built behind FFS, and we could have bought them out and they had another business ready to go in competition.
The concern of Mr Kurth, it is concluded, was well-founded.
A further offer was made on 6 September 2011.
These offers, and in particular the offer made on 6 September 2011, are said to constitute “reasonable offers” and that the failure to accept these offers is evidence of oppression.
The 6 September 2011 offer received particular attention during the course of oral submissions. The offer was contained in an e-mail from Mr Samuel Catalano to Mr Kurth and provided in part as follows:
Confirm our offer to acquire all the shares not held by Equicap Pty Ltd Provident Fund for the sum of $100,000 plus repayment of outstanding loans made [b]y MAD.
There are a number of other conditions that will be met such as releasing Vicki, Juy and yourself from guarantees etc offered to banks or Bibby etc.
These will be discussed with Lawyers etc at the appropriate time.
It is regretful we have arrived at this point but differences in management style and growth strategy for the business have combined to force the issue.
The fact that this e-mail left unspecified “a number of other conditions” that were to be “discussed with Lawyers” does not strip it of evidence upon which the Catalano camp can place reliance.
It is concluded, however, that neither this e-mail alone or in conjunction with other offers relied upon by the Catalano camp constitutes oppression. With specific reference to the 6 September 2011 e-mail, the fact is that it did leave “a number of other conditions” unspecified. The course of dealings between Messrs Samuel and Nathan Catalano (on the one hand) and Messrs Hepner and Kurth (on the other) had the necessary consequence that no confidence could be placed upon any real ability to reach agreement. The offers, for these reasons, were not “reasonable offers”.
Steps taken to preclude Equicap extracting itself
Allied to the theme that those in the Kurth/Hepner camp were taking steps to frustrate or preclude those in the Catalano camp extracting themselves from the Heads of Agreement was the submission that steps were taken to ensure that cl 12 of the Heads of Agreement could not be satisfied.
One particular aspect of this submission should be expressly addressed.
Clause 12 of the Heads of Agreement contained conditions as to the “exercise of power to purchase shares from other shareholders”. Clause 12(c) provided that any sale of shares could only take place if there had been a “release of Byron and Vicki from any liability (other than as equal guarantor with the director appointed by Equicap) to the Bank of Queensland in relation to the loan from that Bank”.
One submission made on behalf of the Catalano camp was that steps had been taken by Mr Hepner on 10 August 2011, namely the day before the shareholders meeting on 11 August 2011, to ensure that the Bank did not release Mr and Ms Kurth from any liability. Reliance was placed on an e-mail forwarded on 10 August 2011 by Mr Hepner to the Bank of Queensland confirming three matters. The e-mail stated in part as follows:
1. … Please check with your contract financiers and confirm to me and Byron in writing that under NO CIRCUMSTANCES UNLESS OTHERWISE INSTRUCTED BY ME will you accept any money over and above the normal monthly payment plan…
2. That the Byron and Vicki overdraft be maintained and not paid out except with prior written permission from them. I don’t want third parties paying out these loans…
3. …
Mr Hepner requested in the e-mail that it be kept “confidential between yourself and Les”, being officers within the Bank.
When confronted in cross-examination with this e-mail, Mr Kurth acknowledged that on its face the e-mail would “put in place a set of circumstances such that clause 12(c) could not be satisfied…”. But he could not say why that was done and that an inquiry should be made of Mr Hepner. The evidence of Mr Hepner when questioned about the e-mail was as follows:
Are you aware whether Nathan Catalano or Sam Catalano had contact with the Bank of Queensland employees before 10 August 2011?‑‑‑I don’t think anybody ever tried to make any extraordinary payments but I was so paranoid about their behaviour at the time that I was just like, let us know before anybody tries to do anything. So that Byron can make a decision on when the company can pay – make the – make any extraordinary payments. It’s ‑ ‑ ‑
Are you ‑ ‑ ‑?‑‑‑The fact is, we were kept in the dark about everything. I was so paranoid. I contacted Les in that email and I said, don’t let anything extraordinary happen until you consult with Byron.
But as someone who’s exposed under the security – the Bank of Queensland had, isn’t it in your interests that this be paid out earlier rather than later?‑‑‑Yes.
So why were you trying to frustrate that?‑‑‑I was just paranoid. I just didn’t know what they were thinking.
…
… Isn’t it the case, Mr Hepner, that you had taken this step in order to ensure that clause 12 could not be satisfied?‑‑‑No, I took it because I was concerned about corporate [governance] and it’s – we already found out that Sam was going around employing people, paying things without asking, and I just wanted to – Byron to be notified. You know, he didn’t have any control of any of the money. I wanted to know what – I wanted the bank – our property was secured by this bank and I wanted to know what payments were being made, when, and Byron should be authorising what gets paid.
Notwithstanding the need for caution when considering (in particular) this evidence of Mr Hepner, it is nevertheless concluded that the explanation provided by Mr Hepner is to be accepted.
This claimed aspect of oppression of the interests of those in the Catalano camp is also, albeit with some reservation, rejected.
Even greater reservation is expressed when consideration is given to:
·the failure on the part of those in the Kurth/Hepner camp to buy out the shares of those in the Catalano camp;
together with:
·the steps taken to preclude an ability to comply with clause 12(c) of the Heads of Agreement.
The written submission advanced on behalf of the Catalano camp was that the “failure to accept these offers, together with the conduct locking in Nathan, is oppressive”. But even both of these events taken together, it is concluded, do not constitute oppression. Those events necessarily have to be assessed against the background of:
·the reasons for concluding that the offers being made for the sale of shares were not reasonable; and
·the reasons why steps were being taken, by Mr Hepner in particular, in respect to clause 12(c).
Taken in their entirety, those reasons lead to the conclusion that these factual events relied upon – even taken together – do not constitute oppression.
The failure to agree to proposals for growth
Another instance of oppression on the part of the Kurth/Hepner camp which is said to be oppressive of the interests of those in the Catalano camp is the failure on the part of Mr Kurth (in particular) to agree to proposals for the growth of the business of Fine Food Solutionz.
It was self-evident that Mr Nathan Catalano wanted to take Fine Food Solutionz down a different path of commercial development to the more conservative path that Mr Kurth thought appropriate.
Differences emerged early. Mr Nathan Catalano dated the “numerous disputes between the shareholders and directors of the Company” back to June 2011.
A shareholders’ meeting was held on 11 August 2011. A number of matters were discussed. Mr Samuel Catalano presented a proposed budget. One matter concerned a proposal to increase the remuneration package of Mr Nathan Catalano from $100,000 (excluding superannuation) to $144,000 (excluding superannuation). Mr Kurth saw the proposed budget as “inordinately high”. But that observation can presently be left to one side. Of more immediate relevance was a proposal to curtail the substantial freight and storage costs that were being incurred with production occurring at both Hoppers Crossing in Victoria and in Port Douglas in Queensland. Messrs Nathan and Samuel Catalano proposed that Fine Food Solutionz could manufacture and store goods itself at a facility to be established in Sydney. The Catalanos considered that this would achieve savings in freight of approximately $250,000 per year. But Messrs Kurth and Hepner opposed the proposal. It was Mr Kurth’s view that at that time Fine Food Solutionz was “still a long way from consistent profitability”. Mr Kurth was also reluctant to sign a loan agreement with Bibby Financial Services that had been negotiated by Mr Samuel Catalano. Mr Kurth was also wary of the proposed guarantors to the loan: on the one side the guarantors were to be himself and his wife and Mr Hepner; on the other side, the sole guarantor was to be Mr Nathan Catalano.
On one view, the course being pursued by the Catalanos may well have been the one which ultimately proved to be that which was preferable. Mr Nathan Catalano had certainly been successful in developing the business of Fine Food Solutionz in securing contracts with both Woolworths and Coles. On another view, the more cautious view of Mr Kurth could not be summarily discounted.
On any view, however, it is concluded that this very process of decision-making is an instance where a Court should not intervene. The decision to be made, be it for good or for ill, is best left to the directors and shareholders to resolve.
A failure on the part of the Kurth/Hepner camp to agree to the proposed Sydney facility does not constitute evidence of oppression on their part.
The wrongful diversion of money and assets from Fine Food Solutionz
A further claim of oppression relied upon by those in the Catalano camp under the rubric of a claimed “wrongful diversion of money and assets” seized upon a number of discrete events.
Two events should be specifically addressed in order to give content to the nature of the claims being made, namely:
·a “breach” by Mr Kurth of what was described as the “banking protocol”; and
·the creation of a new corporate entity by Mr Hepner, namely the Gourmet Dim Sim Company.
Neither of these events, nor the other events relied upon by those in the Catalano camp, it is respectfully concluded make out a claim as to the oppression of their interests.
As far as the former event is concerned, it was common ground that on 30 September 2011 a resolution was passed which required the signature of both Mr Nathan Catalano and Mr Byron Kurth in respect to a cheque account held with the Commonwealth Bank. Notwithstanding that resolution, Mr Kurth in February 2012 paid a sum of $25,910.86 to Mr Broadbent. The amount was in respect to an outstanding account. Mr Kurth had “urged Nathan on numerous occasions to pay that account”. But the amount remained outstanding.
The amount outstanding and being claimed by Mr Broadbent was in respect to a very high volume of product that had been requested by Mr Samuel Catalano in July or August 2011. Mr Broadbent had to put on extra staff and buy extra ingredients. But when invoices were submitted for payment, Mr Broadbent maintained that arguments ensued from both Mr Samuel Catalano and Mr Nathan Catalano. Mr Samuel Catalano, according to Mr Broadbent, “began to cite low yield as an excuse for non payment”. Mr Samuel Catalano, according to Mr Broadbent, “suggested that we were cheating them”. Mr Nathan Catalano maintained in his cross-examination that Mr Broadbent “invoiced us three times for the one thing”. It was then that Mr Broadbent telephoned Mr Kurth and it was then that the monies were paid.
The payment of this amount by Mr Kurth, without the signature of Mr Nathan Catalano, may well be accepted as a breach of the “banking protocol”. Even though it is more likely the case that Mr Broadbent’s evidence should be accepted and a conclusion reached that Mr Samuel Catalano and Mr Nathan Catalano were indeed wrongfully raising fictitious reasons as an excuse for non-payment, it is unnecessary to make any such finding. For present purposes it may be assumed that there was a genuine dispute as to at least some of the amounts outstanding. Of continuing concern to Fine Food Solutionz was its ongoing business. And it was in order to protect this business that Mr Kurth arranged for the payment to be made. In his cross-examination, Mr Kurth thus provided the following account as to the payment:
Didn’t you make a payment well over $3000 under that banking protocol?‑‑‑Yes, I did. I – when I found out I paid Peter Broadbent the creditor that was threatening to take his lawyers to Woolworths for lack of payment.
That was approximately a $25,000 payment; is that right?‑‑‑Yes.
And that was the payment that was being disputed by Nathan and Peter Broadbent via email?‑‑‑The account in dispute was about five and a half grand, I believe, but they were withholding 30 grand or thereabouts.
And you didn’t seek Nathan’s approval in paying that $25,000?‑‑‑I urged Nathan on numerous occasions to pay that account.
But you didn’t seek his specific approval to transfer the $25,000?‑‑‑No.

With respect to the present contention that Mr Kurth was informed as to the business of Fine Food Solutionz by means of the provision of “board packs”, it is concluded that he was regularly provided with information – albeit of uncertain content. It is further concluded, however, that he took very few steps to seek further information and did not avail himself of an opportunity to access “the financials of the business”.
Any contention that Mr Kurth was initially excluded from the management of Fine Food Solutionz by reason of those in the Catalano camp not providing him with the requisite degree of detail as to the financial affairs of the company would, most probably, not have prevailed.
It is concluded that Mr Kurth was initially content to allow Mr Nathan Catalano to conduct the business of Fine Food Solutionz in a manner consistent with the expectation prior to and immediately after the execution of the Heads of Agreement. Indeed, the intimate involvement of Mr Nathan Catalano in the conduct of the business was a principal reason for entering the Heads of Agreement.
But that position changed in about September 2011. Thereafter, it is concluded that Mr Kurth was excluded – or largely excluded – from participating in the management of Fine Food Solutionz.
That exclusion is evident from (for example):
·his non-involvement in the termination of the services of Mr Hepner; and
·his non-involvement in the retention of Mr Pierre Galiere.
Taken by itself, the extent to which Mr Kurth was initially excluded from the management of Fine Food Solutionz may thus not have made out a claim of oppression. But the later exclusion of Mr Kurth from decisions of central relevance to the business does evidence and make out a claim for oppression. Taken together with the other claims of oppression being made, the conclusion as to oppression by reason of his exclusion from the management of the company is only further reinforced.
Conclusions
Taken individually, one or other of the aspects of the dealings between those in the Catalano camp may thus not constitute oppression as to the interests of Messrs Kurth and Hepner. Other aspects of those dealings, it is respectfully concluded, do constitute oppression.
That which is beyond doubt, however, is that the conduct of those in the Catalano camp – taken as a whole – constitutes oppression of the interests of Messrs Kurth and Hepner. Taken as a whole, it is concluded that those in the Catalano camp have treated Messrs Kurth and Hepner in a manner which can readily and objectively be described as “commercial unfairness”. When resolving the claims as to oppression advanced on behalf of Messrs Kurth and Hepner, the Court – it is considered – should not take “a narrow view” and consider individual aspects of conduct separate and discrete from the overall conduct of those said to have exerted oppression.
That conclusion leaves open the remedy to the granted. Central to that question is the value to be given to the shares in Fine Food Solutionz.
THE VALUATION OF THE SHARES
Two separate issues were potentially presented for resolution, namely:
·the general principles to be applied in valuing the shares in Fine Food Solutionz; and
·the facts going to that valuation.
General principles
When making an order for the purchase of shares, the task of the Court is to fix a price that represents a fair value in all the circumstances: Smith Martis Cork v Benjamin Corporation Pty Ltd [2004] FCAFC 153 at [71], 207 ALR 136 at 146 per Wilcox, Marshall and Jacobson JJ.
General principles and some of the authorities as to the valuation of shares in oppression cases were summarised as follows by W B Campbell J in Queensland Co-Operative Milling Association Ltd v Hutchison (1976) 2 ACLR 188 at 192-193:
In Meyer v Scottish Co-operative Wholesale Society [1957] SC 110, the First Division of the Court of Session made an order pursuant to s 210 of the Companies Act 1948 (UK), corresponding to the Qld s 186, that certain respondents purchase the petitioners’ shares in a company at a price of £3/15/ - per share. In the circumstances of this case I think it important to set out the following passages from the judgments. In his reasons, Lord Sorn said, at 156:
The conditions of the section being satisfied, there remains only the questions of remedy. In the circumstances of this case, it is manifest that the only appropriate remedy is to make the majority shareholder, that is to say, the society, purchase the petitioners’ shares at a fair valuation. …
In arriving at a fair value, how should we go about it? I think we should look at the date when the proceedings were begun and ask ourselves what would have been a fair figure for the society to have paid at that date. In doing this, however, it must be remembered that the oppression had begun at an earlier date, with some resultant loss of share value, and what we must endeavour to do is to fix the value which the shares would then have had but for the effect of oppression.
The decision was affirmed by the House of Lords on appeal (sub nom Scottish Co-operative Wholesale Society v Meyer [1959] AC 324), and Lord Keith of Avonholm said at 364: “It was contended that the value of £3.15s put upon the shares was excessive. I see no reason for altering this figure. Lord Sorn has, in my opinion, approached this matter on a correct principle, by considering what would have been the value of the shares at the commencement of the proceedings had it not been for the effect of the oppressive conduct of which complaint was made. This is clearly not a matter on which a calculation can be made with mathematical accuracy or by the application of strict accounting principles …”.
Lord Denning said at 369: “One of the most useful orders mentioned in the section — which will enable the court to do justice to the injured shareholders — is to order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making an oppressor make compensation to those who have suffered at his hands.”
This method of fixing a fair price for shares ordered to be purchased under s 186 has been accepted ever since: see Re Associated Tool Industries Ltd [1964] ALR 73, per Joske J at 84…
Wanstall SPJ agreed. See also: Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 at 562 per Waddell CJ in Eq.
As the facts unfolded in the present proceeding, no dispute arose as to the general principles to be applied. It was unnecessary to resolve any problems that may have arisen as to methods of share valuation. See: Sirianos, Problems of Share Valuation Under Section 260 of the Corporations Law (1995) 13 C & SLJ 88.
The evidence of valuation
As those events unfolded, any potential problems that may otherwise have arisen in respect to the valuation of the shares in Fine Food Solutionz receded as the only evidence of valuation was that filed on behalf of the Plaintiffs, namely on behalf of the Catalano camp.
That evidence was a valuation prepared by Mr Robin Humphreys. Mr Humphreys qualified as a Chartered Accountant in 1968 and has been responsible for the audit of major public companies and subsidiaries of multinational corporations. He has previously been retained to provide expert opinions, reports and evidence in other litigation.
Mr Humphreys was retained by the lawyers acting for the Plaintiffs on 15 March 2013. He was asked to prepare “an independent valuation of the shares in the company…”. He was asked to assume that Fine Food Solutionz had two directors (being Mr Nathan Catalano and Mr Byron Kurth) and that there were 1,000 issued shares (being 500 shares held by Equicap and 300 shares held by Mr Juy Hepner and 200 shares held by Kurth Management Pty Ltd).
In the course of preparing his valuation, Mr Humphreys explained that the measure of return provided to an investor generally applied is “Earnings before Interest and Tax”, abbreviated to “EBIT”. The EBIT in respect to Fine Food Solutionz was then summarised in the following table:

2010 2011 2012 2013

$ $ $ $

Amended net profit (loss) as above (189,231) (224,254) 40,358 (120,484)

Add back:

Interest received (5) - - -

Borrowing costs 20,539 13,399 4,063 16,901

Interest paid 38,888 15,004 116,001 69,949

EBIT (129,809) (195,851) 160,422 (33,634)
If the loss for the seven months to January 2013 is annualised, the projected loss for the full year to June 2013 will be $57,582.

He thereafter expressed the opinion that the “figures indicate that there is a definite potential for future earnings, particularly from the establishment of sales of products to Woolworths and Coles…”.

Mr Humphreys expressed his conclusion as follows:
Conclusion:
In my opinion, based on the above considerations, there has been little tangible progress in profitability from the date that the plaintiffs purchased their 50% interest in FFS. The Balance Sheet continues to show a deficiency of Net Assets and increased loan funding by the shareholders. There are indications that the business may develop and become profitable, subject to changes to distribution logistics still to be implemented. In my opinion, the value of FFS shares has not changed from 2010.
In my opinion, the value of FFS shares should be deemed to be $2,000, based on the nominal amount of $1,000 initially paid by the plaintiffs to purchase their interest in FFS.
In his oral evidence Mr Humphreys was taken to his initial assumption as to the number of shares acquired by the Catalano interest and was asked to change his assumption such that “the Catalano interest did not acquire 1000 shares for $1 but instead they acquired 500 shares for $1”. Not surprisingly, Mr Humphreys maintained that if “they only paid $500, then the value would be $1000 and not $2000”.
The evidence of Mr Humphreys was the subject of limited cross-examination.
His opinion as to value was accepted by the Kurth/Hepner camp.
There is, accordingly, no reason in the present proceedings why his opinion as to the value of the shares should not be accepted.
REMEDIES
Both the Further Amended Originating Process and the Amended Notice of Cross-Claim seek a variety of orders.
The principal order sought – by both those in the Catalano camp and those in the opposing Kurth/Hepner camp – was:
·an order for the purchase of shares – obviously the appropriate order being dependent upon which camp of interests was found to be “oppressing” those in the opposing camp.
In the event that the relief sought in the Amended Notice of Cross-Claim was to prevail, an order was also sought:
·restraining Mr Nathan Catalano and Mr Samuel Catalano from approaching those who have had an interest – be it as supplier or customer – in Fine Food Solutionz; and
·for loss or damage or for equitable compensation.
All parties have previously attempted to resolve the proceedings between themselves. Needless to say, those attempts have proved unsuccessful. But the attempts continue to have relevance to both the proper characterisation of the conduct of the parties and to the remedies to be granted.
An order for the purchase of the Equicap shares?
The conduct of those in the Catalano camp, it is concluded, falls within either s 232(d) and/or (e) of the Corporations Act. Section 233 thereafter confers wide discretionary powers upon the Court. The Court may make such order as “it considers appropriate”. One of those powers, namely that conferred by s 233(1)(d), provides that the Court may make an order “for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law”.
The conclusion that it is those in the Catalano camp who have oppressed the interests of Messrs Kurth and Hepner does not necessarily pre-empt an order being made that that it is they who should nevertheless have the benefit of an order that they purchase the outstanding shares in Fine Food Solutionz. It was certainly the position of those in the Catalano camp that they were in the best position to develop the business of the company and had the necessary expertise to best exploit (in particular) the growing business opportunities with Woolworths and Coles.
But it is concluded that an order in favour of the Catalanos should not be made.
To so order would be to permit them to benefit from their oppressive conduct and to forever exclude Messrs Kurth and Hepner from the business they had first established. Messrs Kurth and Hepner, it should be recalled, had invested considerable capital into the business even before the arrival of Messrs Nathan and Samuel Catalano. Nor would it be correct to assume that Messrs Kurth and Hepner could not themselves develop and exploit the future business opportunities, particularly with Woolworths and Coles. Messrs Kurth and Hepner may not have been as aggressively developing the business as Mr Nathan Catalano did, but the business was developing. Even if the view were to be formed that Mr Nathan Catalano may have been the better person to exploit future business opportunities – and it is unnecessary to reach any such concluded view – it was open to question whether the manner in which he was conducting the business would have been in the best interests of Fine Food Solutionz in the end. But such matters are matters of speculation.
The correct exercise of discretion is to make an order as sought in the Amended Notice of Cross-Claim for the purchase by those in the Kurth/Hepner camp of the outstanding shares in Fine Food Solutionz, currently held by Equicap. Such an order, it is respectfully concluded, gives effect (inter alia) to the fact that the relationship between the parties was essentially in the nature of a partnership; the fact that it is those in the Kurth/Hepner camp that have been oppressed; and also gives effect to what is considered to be in the best interests of the company overall.
The price at which they should purchase those shares is to be in accordance with the valuation evidence adduced by those in the Catalano camp, namely the valuation of Mr Robin Humphreys.
The Catalano camp’s dealings with others
Also relevant to the conclusion that an order for the sale of outstanding shares in accordance with the Amended Notice of Cross-Claim is in the best interests of Fine Food Solutionz overall is an assessment as to the manner in which the Catalanos have dealt with others. This consideration may only assume slight significance, but it is a matter which attracted some attention during the hearing.
Reference may be made to two instances.
First, there was the dispute between Fine Food Solutionz and an amount being claimed by Mr Broadbent. The culmination of that dispute was the following e-mail dated 4 July 2010 forwarded from Mr Broadbent to Mr Nathan Catalano stating:
I confirm that this amount of $14785.57 is full and final and ends the matter and that no further correspondence will be entered into.
On its face, the e-mail records an agreement to resolve an outstanding dispute as to the amount to be paid – or accepted – in full and final satisfaction of outstanding monies said to be owing to WonSum. Lurking behind the e-mail, however, was a sense of grievance on the part of Mr Broadbent as to the manner in which he had been treated. In cross-examination it was suggested that Mr Broadbent had been “duplicitous” in accepting the $14,785.57 but not telling Mr Nathan Catalano that he was also silently seeking to reserve his rights to pursue the balance of monies said to be owing. The following exchange occurred:
So what I put to you, Mr Broadbent, is that Nathan was frank and open in his dealings with you, but you were antagonistic with Nathan?---On the contrary.
To the point where you were more than happy to deceive him into paying you $14,000 on a false pretence?---Well, he deceived – no. On the contrary. That is his – his and his father’s entire game, going back almost all of the way through the dealings, that they were deceitful, they lied, they promised when they had no intention to deliver, they short-paid, they thought they had – they – they suggested to me that they had made agreements with me, which they had never done. So certainly not. I – it was – they are not honest people.
It perhaps does not reflect well on Mr Broadbent that he was not disclosing to Mr Nathan Catalano that he would accept the payment purportedly in “full and final” satisfaction of the amounts outstanding but that he was also secretly seeking to reserve his rights to pursue the balance. But the position of Mr Broadbent, it is considered, was thoroughly understandable.
Second, there was the dispute between Fresh By Noon and the Catalanos as to the amount of product said to have been delivered and, again, a dispute as to the amount payable. Mr Henshaw thus gave evidence of the rejection of what he regarded as a “gentleman’s agreement” and disputes which seemed to be always resolved against his interests as follows:
Right. When these issues about the stocktake were raised, was the – what was being put to you by Maureen Catalano or by anyone else on behalf of Fine Food Solutionz, was it ever to Fresh By Noon’s benefit or advantage on that stocktake?---No, no. We were always short product.
And in that process, you checked your own invoices and stock?---Yes. We – we kept a manual Excel spreadsheet. Every week, when we sent the invoice, we would send a – a worksheet of what we had done, and that dictated everything that had gone out that – that week, and, you know, within reason, if ever there was a discrepancy, it might have been a picking issue, where we pick one against another – one instead of another, which could have been a fault of ours, but there was always, you know, boxes and boxes that were – the discrepancy was boxes and boxes, not just one or two.
So there were issues about payment as a result of that were there?---I don’t know whether it was directly about that. All I know is from day one our payment terms as discussed in a gentleman’s agreement when we first had our first meeting were seven days from invoice. After our invoice became seven days overdue I rang Sam and Sam just bluntly told me that it was a 30 day account and that’s how he dealt with everybody.
All right. And in your dealings – while your day-to-day dealings with Fine Food Solutionz were with Maureen, on major matters who would you deal with as the person in charge?---I would call Sam.
When considering the future of Fine Food Solutionz such instances provide some further support for the conclusion that it is best left in the hands of Messrs Kurth and Hepner.
No order for the winding up of Fine Food Solutionz
Throughout the hearing a recurring concern which was repeatedly expressed with the parties was the prospect that the only remedy may be to wind up the company. A recurring concern was that the conduct of those in either camp was such that it may have been an erroneous exercise of discretion to order the sale of the shares of those in one camp to the other or that the business as a whole had become so marginalised and for so long that it could not continue to operate in any effective manner. That concern was only reinforced by an Interlocutory Application made after the close of submissions for an order to be made in respect to the payments of outstanding accounts of product supplied to Fine Food Solutionz. Even in the interim between the close of submissions and the delivery of judgment, the parties were unable to agree upon the necessity for payments to be made.

An order for the winding-up of the company can be made, it is accepted, but only should be made if no other option is effectively available: John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63 at 74. Young J there observed:
There is no doubt at all that the court is empowered to make such an order and the real question is whether it is a viable order.
It is incumbent upon the court when making an order under s 320 to endeavour to find a scheme, short of winding up, if possible, which will “put the company back on the rails” and avoid the causes of conflict and oppression, yet will as far as possible allow all members to participate in the business.
Notwithstanding continuing reservation, it is ultimately concluded that an order should not be made for the winding up of the company and that an order should be made for the purchase of the shares.
An injunction
The orders sought in the Amended Notice of Cross-Claim as against Mr Nathan Catalano and Mr Samuel Catalano and as filed on 15 April 2013 were expressed as follows:
(a)an order that they and each of them be restrained for a period of 12 months from the date of this order from approaching, indirectly or directly, by themselves or by any agent or by way of any corporation or entity in which they have an interest as shareholder, director or other officer, any supplier or customer of FFS and/or the Third Cross-respondent for the purpose of or in connection with any business involving the wholesale supply of food products;
(b)an order that they and each of them be restrained for a period of 12 months from the date of this order from being involved as an employee, manager, accountant, director or agent of any business engaged in the manufacture or supply of food products.
The form of an order that may be made may presently be left to one side.
Initially, there is a question as to whether any order should be made. That question, it is respectfully concluded, should be answered in favour of those in the Kurth/Hepner camp.
There is considered to be a sufficient threat that unless restrained either Mr Nathan Catalano or Mr Samuel Catalano would seek to divert business away from Fine Food Solutionz and establish a competing business. That threat is founded upon a number of considerations.
First, there is the involvement of Mr Samuel Catalano in the management of the business of Fine Food Solutionz.
Second, there is also the involvement of Mr Samuel Catalano with the business of Innova Foods and the setting up of an account with Fresh by Noon.
Third, not to be ignored was the commitment on behalf of the Catalano camp to establish their own manufacturing and distribution company in Sydney – as opposed to the more conservative approach of Mr Kurth that Fine Food Solutionz could not at that stage afford the financial commitment to do so.
Fourth, during the telephone conversation on 27 September 2011 Mr Nathan Catalano and Mr Hepner were discussing (inter alia) the ability of Messrs Hepner and Kurth to carry on and develop the business of Fine Food Solutionz and the following exchange occurred:
Nathan Catalano : “If you guys think you can do a better job of running it then guess what, here you go, here’s your opportunity to come and run it, and we’ll buy it out of receivership in six months time because I can assure you that mate within a couple of months Woolworths will go, PFD will go, AHL will… AHL I know for a fact will go.”
Juy Hepner : “Why, have you said that you are going to open your own business and take the customers away? Is that what you’re planning to do? Go and buy your own spring roll machine and take the customers away?”
Nathan Catalano : “It’s an option for us. We know the business. There’s opportunities there.”
Juy Hepner : “But you’re a director of Crazy Dragon! You’re not allowed to take customers away from Crazy Dragon!”
Nathan Catalano : “Once you pay me out I won’t be a director of Crazy Dragon any longer. What I do in the future is my call.”
Juy Hepner : “I don’t think you’re allowed to resign and run off and steal all the customers. I think that’s unethical.”
Nathan Catalano : “I don’t care whether you think it’s unethical. I think it’s unethical to try and use scare tactics to coerce me into agreeing with something that I don’t want to agree to. You can’t stop me ! If you think you can do a better job; if you and Byron think you can do it better, and you and Byron want to listen to your mate, do it.”
Juy Hepner : “Well we have to listen to our proper advisors. It’s not just him, even the Bibby guy said…
When considering that exchange, it must necessarily be taken into account that Mr Hepner knew the exchange was being recorded and that Mr Nathan Catalano was not privy to that fact. There must also be taken into account the fact that at that time the relationship between the two camps was under a considerable degree of stress. There nevertheless remains the fact that Mr Nathan Catalano was adopting a position that he remained free to take such steps as he considered were open to him and that such expressions of intent could not be summarily dismissed as mere posturing on his part.
These considerations, taken into account against the back-drop of the conduct of Messrs Samuel and Nathan Catalano from the outset of their dealings with Messrs Kurth and Hepner, it is concluded, gives rise to a reasonable basis for concluding that – unless restrained – one or other of them (and most probably both) will undermine the business sought to be developed by Fine Food Solutionz.
There is no reservation in concluding that an order should be made restraining both Mr Samuel Catalano and Mr Nathan Catalano from taking steps to compete with or to again seek to divert business from Fine Food Solutionz to a company or other entity in which they had control.
But difficulty is expressed as to whether the terms of the order as sought go beyond a protection of those more limited interests. The form of orders to be made require some refinement.
The cross-claim for loss and damage
The Amended Notice of Cross-Claim and a Further Amended Statement of Cross-Claim filed in Court on 15 April 2013 named the first Cross-Claimant as Mr Hepner; the second Cross-Claimant was Kurth Management Pty Ltd. The Cross-Respondents were Fine Food Solutionz, Innova Foods, Messrs Samuel and Nathan Catalano and Ms Maureen Catalano. The Amended Notice of Cross-Claim and Further Amended Statement of Cross-Claim, as amended, were both dismissed as against Innova Foods.
In very summary form, monies were sought in respect to loss and damage claimed to have been suffered by reason of:
1.the wrongful diversion of business opportunities to Innova Foods; and
2.“supplier wrongdoing”, namely loss and damage suffered by reason of a refusal to permit Fine Food Solutionz to contract its dumpling and gyoza manufacturing to Rethink Group Pty Ltd.
It is concluded that both claims for loss and damage have been made out as against Messrs Nathan and Samuel Catalano. It is concluded that loss and damage has been suffered by reason of both of the claims being made. The difficulty lies in attempting to give any certainty to the quantification of such loss and damage. To some extent this difficulty is attributable to the extent of discovery provided; to some extent it is also to be attributed to the manner in which the Cross-Claimants sought to quantify their loss or damage.
Initially there were attempts by Mr Kurth and Mr Hepner to calculate the quantum of any loss or damage.
One attempt was made by Mr Kurth. In his witness statement filed 25 March 2013 he calculated the loss or damage as follows:

Wages

Sam Catalano 15 months x $5,500 = $82,500 / 2 = $41,250

Nathan Catalano 15months x $12,149.95 = $182,249.25 / 2 = $91,124.60

Maureen Catalano 15 months x $5,500 = $82,500 / 3 = $27,500

Pierre Galiere 15 months x $7,500 = $112,500 / 3 = $37,500

Emil Haddad 8 months x $8726.42 = $69,811.36 / 2 = $34,905.70

Estimated loss of profit

AHL products 15 months x $9,500= $142,500

BarramundiGardens products: 6 Months x $27,130= $162,746

Total $537,526.30

But the difficulty with that calculation was that it was accepted by Mr Kurth as but a “guess” and “speculative”. There thus occurred the following exchange between Mr Kurth and his cross-examiner:
Well, if we just take the first line of Sam Catalano. Sam – on what basis did you include the $5500 a month?---$5500 is what we pay Sam for his accounting services.
So that was the money paid to MRS holdings?---Yes,
For Sam’s accounting services?---Yes.
And obviously the $12,149.95 is Nathan’s ---?---Yes.
- - -salary. How did you come to the figure of halving both Sam and Nathan Catalano’s pay for the purposes of this exercise?---Well, at the time I wasn’t fully aware of what Innova’s actions were, but I believe that a lot of Sam and Nathan’s time was spent in the Innova business.
And what led you to conclude that they both spent the same amount of time in the Innova business?---It was just a guess, really.
And is that the same in relation to Maureen Catalano having hers divided by three?---Yes, it’s all – all this is speculative, based on the fact that I didn’t have the detail at the time.

Mr Hepner separately attempted to calculate loss or damage. He believed that Fine Food Solutionz had “suffered loss and damage of at least $250,000 as a result of the ‘Innova Conduct’ and the ‘Supplier Conduct’, on the assumption Innova has sold in the order of $120,000 worth of products that should have been sold by FFS, at a margin of 40% and on the further assumption that FFS would have saved costs of in the order of $200,000 if the gyoza and dumpling manufacture had been moved to Rethink Group Pty Ltd from about September 2012”.
Given the difficulties with this evidence, leave was given to the parties to file further written submissions. The written submissions of the Defendants and Cross-Claimants separately addressed the amount claimed in respect to the diversion of business to Innova Foods and the amount claimed for what was characterised as “supplier wrongdoing”.
In respect of the former claim, a profit and loss statement for Innova Foods for the period from November 2011 to June 2012 set forth a gross profit of $8,203.40. The written submissions extrapolated that amount for a further ten month period from July 2012 to April 2013 calculated in the sum of $61,570.00. A total amount was claimed of $69,773.40.
But one of the difficulties with that approach, however, was that the gross profit had been earned in respect to the sale of product which was said to be the “non-core” business of Fine Food Solutionz.
In respect to the latter claim, Rethink Group Pty Ltd was a supplier of food products to Fine Food Solutionz.
The Further Amended Statement of Cross-Claim filed in Court on 15 April 2013 alleges that since about September 2012, Fine Food Solutionz has been required to contract its dumpling and gyoza manufacturing to Innova Foods rather than from the Rethink Group. The difficulty experienced by the Cross-Claimants was to quantify the extra costs that have been incurred.
The ultimate method employed by the Cross-Claimants to quantify these extra costs was by a process of written submissions to refer to the evidence that had been filed and to attempt a calculation based essentially upon:
·costs of sales; and
·average costs of production
and thereafter a calculation as to:
·the total number of “units” produced
and then the application to that number of “units”:
·the estimated “savings” per “unit”.
By that process of submission, the amount claimed in respect to “supplier wrongdoing” is calculated to be $296,694. But that amount, whatever other deficiencies it may experience, does not take into account freight costs.
Not surprisingly, the written submissions filed by the Cross-Respondents maintain that the alternative bases upon which loss and damage is sought to be calculated remain “speculative”.
The choice foist upon the Court by the Cross-Claimants is either to award no amount for loss or damage (notwithstanding a conclusion that some loss or damage has been suffered) or to award an amount which falls safely below what could reasonably be regarded as a minimum amount representing loss or damage.
Albeit involving an element of considerable approximation, it is concluded that loss or damage has been suffered in respect to both of the claims made in the Amended Notice of Cross-Claim. It is concluded that loss or damage should be assessed in respect to:
(a)the diversion of business to Innova Foods – in the sum of $30,000; and
(b)“supplier wrongdoing” – in the sum of $100,000.
It is considered that the loss and damage suffered is at least that amount. Any ability to award any greater sum which may better approximate the loss and damage in fact suffered nevertheless must be visited upon the Cross-Claimants and their inability to adduce reliable evidence.
CONCLUSIONS
The principal issue in dispute in the present proceeding is the fate of the company, Fine Food Solutionz. That was the principal focus of attention of the written and oral submissions. Other claims for relief mentioned in the written submissions sought (for example) declaratory relief as to the ownership of food production machines and declarations as to breaches of director’s duties. None of that other relief, however, assumed any prominence when it came to final submissions.
In respect to the principal issue dividing the parties, and for the purposes of s 232 of the Corporations Act, it is concluded that “the conduct of the affairs” of Fine Food Solutionz under the control of Messrs Nathan and Samuel Catalano was either:
·“contrary to the interests of the members as a whole” – for the purposes of s 232(d);
or:
·“oppressive to, unfairly prejudicial to …. a member of members” – for the purposes of s 232(e).
That conclusion has been reached by looking at both:
·the conduct relied upon by those in the Kurth/Hepner camp – and irrespective of any conclusion as to the conduct of those in the Catalano camp; and
·the conduct relied upon by those in the Catalano camp.
The conclusion has been reached by looking at the overall conduct of the parties. Viewed objectively, there can be little doubt that there has been “commercial unfairness” towards the interests of those in the Kurth/Hepner camp.
For the purposes of s 233(1)(d) of the Corporations Act, it is further concluded that an order should be made “for the purchase of any shares by any member or person” as valued by Mr Humphreys. If that conclusion had not been reached in favour of those in the Kurth/Hepner camp, an order would have been made for the winding up of Fine Food Solutionz. But any order for the winding up of the company would have been deferred for a period of 28 days with a view to giving the parties one final opportunity “to reach agreement among themselves”: e.g., Re City Meat Co Pty Ltd (1983) 8 ACLR 673 at 682 per Millhouse J. Given the history of the opposing parties being unable to reach agreement in the past, including during the course of a mediation, such an opportunity may have proved to be of limited utility. But all such matters need not be further pursued – given the conclusion that an order should be made for the purchase by those in the Kurth/Hepner camp of the outstanding shareholding.
An order should be made for the payment of $130,000 to represent loss or damage or compensation payable by Messrs Nathan and Samuel Catalano by reason of their conduct in respect to “supplier wrongdoing” and their diversion of business opportunities otherwise available to Fine Food Solutionz to Innova Foods.
An injunction should be granted restraining Messrs Nathan and Samuel Catalano from interfering in the business of Fine Food Solutionz.
The parties are to bring in Short Minutes of Orders to give effect to these reasons within 28 days. These orders are expected to address issues of interest and costs as between the parties. Given the time permitted to bring in such orders, it is not considered necessary to defer the making of any orders for any period of time. If the parties are not able to reach agreement with the benefit of these reasons and the general nature of the orders to be made within that period, orders will be made to finally bring this dispute to an end.
A number of attempts have been made to file further material in addition to the submissions for which leave was granted during the hearing. An Interlocutory Application brought by the Plaintiffs/Cross-Respondents was heard and resolved on 14 May 2013. A further Interlocutory Application bought by the Defendants/Cross-Claimants together with two affidavits were refused for filing by the Duty Registrar on 27 June 2013. An additional affidavit of Mr Byron Kurth was mistakenly accepted for filing on 5 July 2013, but as leave to file additional evidence had been neither sought nor granted, the affidavit was removed from the Court file. A subsequent attempt to seek leave to file the affidavit was refused.
If there remains outstanding any claim for other relief which remains a “live issue” between the parties, the identification of those outstanding issues and the manner of their resolution can also be addressed in the Short Minutes of Orders.
THE ORDERS OF THE COURT ARE:
1.The parties bring in Short Minutes of Orders to give effect to these reasons within 28 days.

I certify that the preceding two hundred and eighty-seven (287) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.
Associate:
Dated: 10 July 2013

Citation:		Catalano v Managing Australia Destinations Pty Ltd (No 2) [2013] FCA 672
Parties:		NATHAN CATALANO, MAUREEN & NATHAN CATALANO AS TRUSTEES OF THE EQUICAP PTY LIMITED PROVIDENT FUND (ABN 70 739 750 546) and FINE FOOD SOLUTIONZ PTY LTD (ABN 83 134 923 005) v MANAGING AUSTRALIAN DESTINATIONS PTY LIMITED (ABN 58 070 373 689), BYRON KURTH, JUY HEPNER, THE GOURMET DIM SIM COMPANY PTY LIMITED (ACN 156 541 712) and BEN LYDEN
File number:		NSD 715 of 2012
Judge:		FLICK J
Date of judgment:		10 July 2013
Catchwords:		CORPORATIONS LAW – oppression – remedies – winding up – deferral of order EVIDENCE – privilege against self-incrimination – certificate granted in respect to possible contravention by disqualified person managing a corporation PRACTICE AND PROCEDURE – findings as to credit – observations of demeanour whilst not in witness box – need for caution
Legislation:		Corporations Act2001 (Cth) ss 9, 206A, 206B, 232, 233, 234, 601AB Competition and Consumer Act 2010 (Cth) Evidence Act 1995 (Cth) s 128
Cases cited:		Ample Source International Ltd v Bonython Metals Group Pty Ltd [2011] FCA 1484, 285 ALR 488 Byrne v A J Byrne Pty Limited [2012] NSWSC 667 Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1 Doyle v Australian Securities and Investments Commission [2005] HCA 78, 227 CLR 18 Dynasty Pty Ltd v Coombs (1995) 138 ALR 64, 13 ACLC 1290 Edwards v Idaville Pty Ltd (1996) 22 ACSR 1 Fitzpatrick v Cheal [2012] NSWSC 261, 264 FLR 313 Gerrard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304 Ground and Foundation Supports Pty Ltd v GFS Management Services Pty Ltd [2002] WASCA 306, 21 ACLC 506 Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd [2011] FCA 567, 282 ALR 229 HNA Irish Nominee Ltd v Kinghorn [2012] FCA 228, 290 ALR 372 Hogg v Dymock (1993) 11 ACSR 14 John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63 Kuhl v Zurich Financial Services [2011] HCA 11, 243 CLR 361 Lindsay v Health Care Complaints Commission [2010] NSWCA 194 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342, 71 ACSR 343 Queensland Co-Operative Milling Association Ltd v Hutchison (1976) 2 ACLR 188 Re Bright Pine Mills Pty Ltd [1969] VR 1002 Re City Meat Co Pty Ltd (1983) 8 ACLR 673 Re G Jeffery (Mens Store) Pty Ltd; Re G Jeffery Ltd (1984) 9 ACLR 193 ReM Dalley & Co Pty Ltd (1968) 1 ACLR 489 Re Quest Exploration Pty Ltd (1992) 6 ACSR 659 Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 Shelton v National Roads and Motorists’ Association Ltd [2004] FCA 1393, 51 ACSR 278 Smith Martis Cork v Benjamin Corporation Pty Ltd [2004] FCAFC 153, 207 ALR 136 Szencorp Pty Ltd v Clean Energy Council Ltd [2009] FCA 40, 69 ACSR 365 Thomas v H W Thomas Ltd [1984] 1 NZLR 686, 2 ACLC 610 Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, 84 ACSR 121 Vadori v AAV Plumbing [2010] NSWSC 274, 77 ACSR 616 Valda Pty Ltd v Macarthur Coal Limited [2012] FCA 1264 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 Weatherall v Satellite Receiving Systems (Aust) Pty Ltd [1999] FCA 218, 30 ACSR 698 Wilson v Meudon Pty Ltd [2004] NSWSC 1183 Zephyr Holdings Pty Ltd v Jack Chia (Australia) Ltd (1988) 14 ACLR 30 Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458 Sirianos, Problems of Share Valuation Under Section 260 of the Corporations Law (1995) 13 C & SLJ 88 Ford’s Principles of Corporations Law (14^th ed., 2010)
Date of hearing:	15, 16, 17, 18, 19, 22, 23, 24, 26 April 2013
Date of last submissions:	6 May 2013
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	287
Counsel for the Plaintiffs and the First, Second, Fourth and Fifth Cross-Respondents:	Mr M Bennett
Solicitor for the Plaintiffs and the First, Second, Fourth and Fifth Cross-Respondents:	Shaw McDonald
Counsel for the Defendants and Cross-Claimants:	Mr M B Evans
Solicitor for the Defendants and Cross-Claimants:	Norton Gledhill
Counsel for the Third Cross-Respondent:	Mr R Notley

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 715 of 2012

BETWEEN:	NATHAN CATALANO First Plaintiff MAUREEN & NATHAN CATALANO AS TRUSTEES OF THE EQUICAP PTY LIMITED PROVIDENT FUND (ABN 70 739 750 546) Second Plaintiff FINE FOOD SOLUTIONZ PTY LTD (ABN 83 134 923 005) Third Plaintiff
AND:	MANAGING AUSTRALIAN DESTINATIONS PTY LIMITED First Defendant BYRON KURTH Second Defendant JUY HEPNER Third Defendant THE GOURMET DIM SIM COMPANY PTY LIMITED (ACN 156 541 712) Fourth Defendant BEN LYDEN Fifth Defendant
AND BETWEEN	JUY HEPNER First Cross-Claimant KURTH MANAGEMENT PTY LTD (ACN 102 842 580) Second Cross-Claimant
AND	FINE FOOD SOLUTIONZ PTY LTD (ACN 134 923 005) First Cross-Respondent NATHAN CATALANO Second Cross-Respondent INNOVA FOODS PTY LTD (ACN 154 548 375) Third Cross-Respondent SAM CATALANO Fourth Cross-Respondent SAM, MAUREEN & NATHAN CATALANO Fifth Cross-Respondent

JUDGE:	FLICK J
DATE OF ORDER:	10 JULY 2013
WHERE MADE:	SYDNEY

JUDGE:	FLICK J
DATE:	10 JULY 2013
PLACE:	SYDNEY

Year	Gross Sales	Tra[d]e creditors owed	Net Profit	Net Equity
2006	$56,149	Unknown	-$112,840	Unknown
2007	$183,569	Unknown	-$180,311	Unknown
2008	$355,542	Unknown	-$39,814	Unknown
2009	$77,844	$93,217	-$74,504	-$73,504
2010	$615,038	$245,867	-$174,734	-$248,238
2011	$687,153	$306,415	-$216,754	-$464,992
2012	$3,154,986	$445,010	$66,824	-$405,669

Wages
Sam Catalano	15 months x $5,500 = $82,500 / 2 =	$41,250
Nathan Catalano	15months x $12,149.95 = $182,249.25 / 2 =	$91,124.60
Maureen Catalano	15 months x $5,500 = $82,500 / 3 =	$27,500
Pierre Galiere	15 months x $7,500 = $112,500 / 3 =	$37,500
Emil Haddad	8 months x $8726.42 = $69,811.36 / 2 =	$34,905.70
Estimated loss of profit
AHL products	15 months x $9,500=	$142,500
BarramundiGardens products:	6 Months x $27,130=	$162,746
Total		$537,526.30