Dick v Alan Powell Holdings
[2009] QSC 184
•14 July 2009
SUPREME COURT OF QUEENSLAND
CITATION:
Dick v Alan Powell Holdings & Ors [2009] QSC 184
PARTIES:
WAYNE KENNETH DICK
(Applicant)
v
ALAN POWELL HOLDINGS PTY LTD
(ACN 010 732 500)
(First Respondent)
and
AL POWELL HOLDINGS PTY LTD
(ACN 073 744 411)
(Second Respondent)
and
TREKMERE PTY LTD (ACN 082 912 025)
(Third Respondent)FILE NO/S:
No 1510/06
DIVISION:
Trial Division
PROCEEDING:
Trial
DELIVERED ON:
23 June 2009
DELIVERED AT:
Brisbane
HEARING DATE:
2 – 13 March 2009
JUDGE:
Philippides J
ORDER:
That Alan Powell Holding Pty Ltd be wound up.
CATCHWORDS:
CORPORATIONS – OPPRESSION – whether conduct oppressive to, unfairly prejudicial to, or unfairly discriminatory – whether contrary to interests of the members as a whole – whether relief should be ordered – nature of relief
Corporations Act 2001 (Cth)
Superannuation Guarantee (Administration) Act 1992 (Cth)Campbell v Backoffice Investments Pty Ltd (1991) 6 ACSR 63
Cherry v Boultbee (1839) 4 My & Cr 442
Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122
FCT v Stevens Agnew & Co (Vict) Pty Ltd (1951) 82 CLR 408
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688
Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] 4 All ER 164
Jarrett v Perpetual Trustee Co (2007) 64 ACSR 552
John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63
Latimer Holdings Ltd v SEA Holdings NZ Ltd [2005] 2 NZLR 328
Mopeke Pty Ltd & Ors v Airport Fine Foods Pty Lts & Ors (2007) 61 ACSR 395
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
O’Neill v Phillips [1999] 1 WLR 1092R & H Electrical Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280
Re Cy Jeffery (Mens Store) P/L (1984) 2 ACLC 421
Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247
Re Duomatic [1969] 2 Ch 365
Re Five Minute Car Wash Service Ltd [1966] 1 WLR 745
Re London School of Electronics Ltd [1986] 1 Ch 211
Re Lowes Park; Headlam v Lowes Park P/L (1994) 62 FCR 535
Re Polyresins Pty Ltd [1999] 1 Qd R 599, 604
Re Spargos Mining NL (1990) 3 WAR 166Re Tivoli Freeholds Ltd [1972] VR 445
Re Warrick Howard (Australia) Pty Ltd (1982) 7 ACLR 441
Spargo’s case (1873) 8 Ch App 407
Tan v St George Bank Ltd (2005) 192 FLR 315
Thomas v H W Thomas Ltd (1984) 2 ACLC 610
Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459COUNSEL:
Mr R Perry SC for the applicant
Mr J Bell QC with Mr D O’Sullivan for the respondentsSOLICITORS:
Lynch Morgan for the applicant
McCullough Robertson for the respondentsPHILIPPIDES J:
The present proceedings are brought by the applicant, Wayne Kenneth Dick, pursuant to Part 2F of the Corporations Act 2001 (Cth), alleging oppressive conduct of the affairs of the first respondent, Alan Powell Holdings Pty Ltd (“APH”).
Mr Dick owns 15 per cent of the issued capital in APH, with the remaining 85 per cent being owned by the second respondent, AL Powell Holdings Pty Ltd (“AL Powell”) and the third respondent, Trekmere Pty Ltd (“Trekmere”). AL Powell holds 75 per cent and is controlled by Mr Alan Powell. Trekmere holds 10 per cent and is controlled by Mr Tom Smith.
APH was formerly in the business of owning and operating car dealerships in Bundaberg, but had ceased trading by the time of the trial. Most of its assets have been sold. It presently has an excess of assets over liabilities. The intention of the current directors of APH, Mr Powell and Mr Smith, is to wind the company up.
The primary relief sought by Mr Dick is an order pursuant to s 233 Corporations Act that AL Powell and/or Trekmere (the respondent shareholders[1]) purchase his shares in APH at a price determined by the Court.
[1]Subsequent references to “the respondents” is a reference to the second and third respondents.
Background to the proceedings
The formation of APH
In July 1980 Mr Powell incorporated a company, Alan Powell Ford Pty Ltd, for the purpose of carrying on a Ford car dealership business in Bundaberg. The Ford dealership was known as Alan Powell Ford. In 1982 Alan Powell Ford Pty Ltd purchased six adjoining parcels of land, which collectively formed the property known as 26 Bourbong Street, Bundaberg. In 1984 a commercial building was erected on that land for the purposes of housing the Ford dealership. At that time dealership agreements were entered into with Suzuki and Land Rover. Those dealerships also operated from 26 Bourbong Street.
Alan Powell Ford Pty Ltd proved to be a successful venture and by 1987 had about 45 employees. In 1987 APH was incorporated to purchase the Ford dealership and the property at 26 Bourbong Street from Alan Powell Ford Pty Ltd. A further purpose was to provide for an employee incentive scheme; that is, to allow key employees to own shares in the business and provide them with an incentive for better performance by enabling them to share in APH’s profits.
At the time of its incorporation, the shares in APH were owned by Mr Powell (70 per cent) and by three of the then managers of Alan Powell Ford Pty Ltd, each of whom held a 10 per cent shareholding. In addition, each held a non-cumulative preference share. Mr Powell held an “A” class preference share which entitled him to a voting power equal to 76 per cent of the total votes of the members of the company. The other classes of preference shares (“B”, “C”, “D” and “E”) were held by the remaining members and each entitled the holders to six per cent of the total votes of members of the company. Some time after the incorporation of AL Powell in 1992, Mr Powell transferred all of his shares in APH into that company.
In addition to conducting the business of Alan Powell Ford, APH carried on business under the name Bundaberg Prestige. That business comprised a Mercedes car dealership which was transferred to APH in 2001 at no cost by another entity owned by Mr Powell. Chrysler and Jeep dealerships were later added to the Bundaberg Prestige business. Bundaberg Prestige carried on business at 26 Bourbong Street until 2004 when premises at 15-17 Bourbong Street were leased.
Between 1998 and 2002, APH also acquired four adjoining parcels of land in Walker Street, Bundaberg, which were amalgamated to form the property referred to in these proceedings as the “Walker Street property”.
Mr Smith was appointed a director of APH in 1994 and became General Manager of Bundaberg Prestige. He was also the Dealer Principal of Bundaberg Prestige. His company, Trekmere, held one “D” class preference share and 1085 ordinary shares (a 10 per cent stake).
Mr Dick commenced employment as a salesman with Alan Powell Ford in 1984. In 1996 he was promoted to the position of General Sales Manager, in which role he was in charge of new Ford sales. It was common ground that Mr Dick was involved solely in the operation of the Ford dealership – he was not concerned with the business of Bundaberg Prestige. At the time of his promotion, Mr Dick purchased a parcel of APH shares from a retiring employee. He also purchased further parcels in the period up to 2002. In total, Mr Dick’s investment in APH amounted to approximately $260,000, representing a shareholding of 1,628 ordinary shares (a 15 per cent stake) and one “E” class preference share.
Developments in 2005
On 29 June 2005, APH sold the Bourbong Street property to the Powell Superannuation Fund for $3,400,000. To facilitate that transaction, an amount of $340,000 was advanced to the Powell Superannuation Fund to fund its GST liability and repaid on 2 August 2005. Concurrently with that sale, the Superannuation Fund entered into a lease with APH at a gross annual rental of $380,000 for that property and a holding yard which the Fund owned and had previously separately leased to APH. Also on 29 June 2005, interim dividends were declared at a meeting of the board of directors.
On 3 October 2005, APH signed a contract of sale for the Ford dealership business to DPH Ford Pty Ltd for $2,250,000. The contract of sale was completed on 1 November 2005. From that date, DPH Ford took over the lease of Bourbong Street and the holding yard at the same rental of $380,000 per annum. As a consequence of the sale of the Ford dealership, Mr Dick was made redundant and ceased employment on 31 October 2005.
It was understood by both Mr Dick and Mr Powell that upon Mr Dick’s resignation his shares in APH would be purchased by Mr Powell and that for that purpose APH’s accountants, Ulton, would prepare financial statements as at the date of Mr Dick’s redundancy, that is, 31 October 2005. The general understanding was that Mr Dick’s shares would be purchased at a price equivalent to 15 per cent of the net assets of the company as disclosed in the financial statements.
On the sale of the Ford dealership, Mr Dick purchased three vehicles and although he offered to pay for them at the time, it was arranged that payment be deferred until finalisation of the sale of his shares.
On 1 November 2005, upon the termination of Mr Dick’s employment with APH, Mr Powell approached Mr Dick with a draft loan agreement for $150,000 and a form for him to resign as a director. Mr Powell’s evidence was that the loan was to assist Mr Dick pending finalisation of the sale of his shares. Mr Dick declined the offer of a loan and refused to resign as a director of APH.
The Articles of Association
The Articles of Association made provision for the sale of the shares of an employee of APH upon ceasing to be an employee. Article 15 provided the holder of “E” class preference shares “shall, should they cease to be employed as an employee of [APH] offer for sale all of their shares in the company to the members as provided for in article 14 herein”.
Article 14 provided that the price payable for the shares be the sum specified as the fair value by the member seeking to sell his shares, or if the other members did not accept that price and required the shares to be valued, then the fair value as certified by the auditor of the company (or a chartered accountant appointed by the directors) if it be a lesser amount.
Neither party appears to have averted to these provisions during the period when negotiations were being undertaken.
Negotiations in respect of Mr Dick’s shares
As mentioned, it was understood that the accounts to 31 October 2005 would be prepared by Ulton and would form the basis of an offer to purchase Mr Dick’s shares. Mr Powell gave evidence that he told Mr Dick he would pay him “15 per cent of what the net worth or net value of the company was at that time” and added, “I probably went a bit further than that, and said it would probably be in the vicinity of $300,000. That figure was mentioned a couple of times to Mr Dick”. There was an informal oral arrangement that settlement would occur in December 2005, in order to allow enough time for the accounts to be prepared, cars to be sold, and the value fairly determined.
On 20 December 2005, draft accounts for the period to 31 October 2005 were provided to Mr Dick’s accountant, Mr Shorten. On the basis of those accounts, Mr Dick’s 15 per cent shareholding in the net assets of APH was valued at approximately $318,000. Mr Dick understood that that was the figure that Mr Powell was proposing to pay for the shares. However, after speaking to his accountant, Mr Shorten, Mr Dick was not willing to sell his shares on the basis of figures set out in the accounts.
By letters dated 21 and 22 December 2005, Mr Shorten raised a number of issues with Mr Corpe, an accountant with Ulton. One matter he raised was the failure to pay superannuation on Mr Dick’s commissions. He also queried the valuation of the Walker Street property and sought a copy of the valuation of the property which was shown in the draft accounts as having a value of $680,000. That value was derived from a valuation provided by Mr Browning of Browning Valuers dated 22 June 2005. Ulton provided a copy of the summary page of the valuation by Mr Browning which recorded a valuation of $685,000.
On 22 December 2005, Mr Dick telephoned Mr Powell and also raised both issues. In respect of the matter of superannuation on Mr Dick’s commissions, Mr Powell told Mr Dick that he did not believe that Mr Dick was owed anything but indicated that, if he was, he would be paid. He arranged for Ulton to investigate the matter. As to the valuation of the Walker Street property, Mr Dick’s evidence was that he told Mr Powell that he considered the Walker Street property was undervalued in the company accounts. He said that Mr Powell indicated that he believed the property was properly valued and that, Mr Dick was free to obtain his own valuation at his own cost, but “that it could be of no value” to Mr Powell. Mr Dick also gave evidence that Mr Powell told him that it was not going to alter the value, stating “that’s all I’m going to pay for [it]” (meaning the value set by Mr Browning). Something was sought to be made of the unreliability of this additional evidence. I note, however, that when cross-examined about Mr Dick’s recollection Mr Powell indicated: “I don't know that it would have changed my position whether I said it or not because I think that the value that was put on it by Browning for the bank was the only value that we could work on.”
Mr Dick proceeded to obtain his own valuation of the Walker Street property from Shelton & Co, Property Consultants and Real Estate Valuers. Mr Shelton’s valuation dated 3 January 2005 valued the property at $1,142,400.
The dispute as to the valuation of Walker Street marked a souring in the relationship between Mr Powell and Mr Dick, as is apparent from the following cross-examination of Mr Powell:
“So, is this the position, that after you were told by Dick that he didn’t want to accept the figures set out in the financials, you then determined that you weren’t interested in purchasing his shares at all?-- Well, I still would have but I told him I wasn’t, or told Darryl I wasn’t.
You told Corpe that you weren’t interested in doing that at all?-- Yes.
And the reason for that was that you apprehended that Mr Dick was of the view that because of the valuation aspect, his shares, in fact, might be worth more than what had been set out in the financials of December of ’05?-- On those figures, possibly, yes.
Yes. So the sequence is the financials are sent to him, which have a valuation of the land as part – a component of it; correct?-- Mmmm-hmm.
Right. Mr Dick, you say, gets back to you and tells you he’s not interested in that figure or doesn’t want to accept that figure?-- Mmm.
And you understood that one of the reasons for that was that he had a view about the value of the land?-- Yes.
… So when Dick tells you in this conversation in December that he thinks the land is worth more than that, your response is to tell Corpe to pass on to Shorten that you are no longer interested in purchasing his shares?-- This was spoken about over that January period, but, yes.
Yes?-- That was basically the time – I said to Darryl, ‘Did I have to buy his shares? I am obliged to buy them?’, and he said, ‘No’.
Thank you. That is Mr Corpe told you, what, that there was no mechanism whereby you could be obliged to purchase these shares?-- That’s basically it, yeah.
Thank you. Now, continuing on with this discussion between you and Corpe and what you told him to tell Shorten, you told Corpe to pass on to Shorten that the company was establishing a new brand in Bundaberg in the form of a Mercedes and Chrysler dealership or Mercedes and Chrysler, and that it was not expected to make a profit?-- At that stage, yes.
… Just listen to my question. That’s what I’m suggesting you told Mr Corpe to pass on to Shorten; is that right or not?-- Oh, look, it probably was something like that. I mean, I wouldn’t say it’s word for word, but-----
The effect?-- Yes.
Right. Because you were attempting through Corpe to make Shorten understand that you weren’t interested any more in purchasing his shares?-- Well, yes.
And because of that you were telling Corpe what to say to Shorten to buttress your position?-- Um-----
Weren’t you?-- Well, wouldn’t you?
All right.
HER HONOUR: That’s not really an answer. Perhaps you should answer the question.
MR PERRY: The answer is yes, isn’t it?-- Yeah.
Yeah. You told Corpe to say to Shorten that you were no longer willing to buy the applicant’s shares on the basis of the draft accounts of 31 October?-- Yes, I did.
Yes?-- Can I just add a bit to this, though?
I am just asking you some questions. Please respond.
HER HONOUR: I think he should have the opportunity to explain his answer.
WITNESS: I think what you have got to understand is we’re all car dealers. We’re used to wheeling and dealing, and it is a you-give-a-bit, I-take-a-bit, and I would have been quite happy to sit down with Wayne at that stage ourselves without any accountants or solicitors or anyone else involved and reach an agreement. But, I mean, it wouldn’t happen because he got Shorten involved and from that moment on it was a disaster.
MR PERRY: So once he got his accountant involved you considered the negotiations no longer tenable, possible?-- Well, once his accountant started to make demands.
Make demands?-- And so on.
As I understood you earlier, what seemed to be, from your perspective, the real reason that you had formed the view that you wouldn’t purchase the shares was Mr Dick’s assertion that the value was in fact higher than what was set out in the accounts, but do I take it that-----?-- No, that’s not quite correct.
That’s not quite correct, all right?-- No. It was never meant that way. If that’s how it come out, that’s not how I meant to say it but that’s probably your words and I’ve-----
You told Corpe that your position was that you would be only willing to buy his shares for $150,000, didn’t you?-- I said to Darryl that’s all the shares are worth to me. If I buy the shares as a purchase because I am not going to get the franking credits on them, it is going to be a capital gains problem down the track if I pay more than that. And that’s why we started at that figure.
So your position to Corpe was that the shares would only be purchased by you for the amount of $150,000?-- That’s where we started, yes.
And you told Mr Corpe to pass on that that figure was your definite position?-- I don’t remember saying that but.
That was the thrust of it, wasn’t it?-- I do believe that that’s in Shorten’s statement. I don’t remember telling Darryl that but-----
That certainly would represent your position at that time, wouldn’t it?-- Oh, not necessarily. I would have been prepared to negotiate. I mean, I was for many months or years afterwards but no-one was interested.
And you also told Mr Corpe to pass on that any further discussion about the value of the applicant’s shares was to be held with Corpe?-- At that time yes.
…
Now, the $150,000 figure that you do recall was curiously, of course, the amount in what’s described as the loan agreement, wasn’t it?-- Yeah, but it had nothing to do with that.Wasn’t the $150,000 figure the figure that you settled on when this issue of purchase of shares first even arose back at the end of October when Mr Dick’s employment was terminated?-- No. That was a loan agreement that I had with him.
But the amount. The amount. Where did the amount come from, the 150?-- Well-----
How did you come to that figure to-----?-- Well-----
-----‘loan’ to Mr Dick?-- I will tell you how I come to the figure. I assumed it was about half of what he’d get but that was, you know, fair enough to give him some upfront.
Well, that position changed quickly because that’s about the 1st of November. A couple of months later you are telling Corpe what your stance is, weren’t you?-- Uh-huh.
And the reason that position seems to have changed, if you are right, was because Mr Dick had the temerity to suggest to you that he, Dick, did not accept the value of the property as set out in the accounts?-- Well, you might say that. I wouldn’t.
You would say that, wouldn’t you?-- I wouldn’t say it was temerity.
What would you say it was?-- I would say it is just a lack of any thanks for what’s been done for him over the years.”
Mr Powell also gave the following evidence:
“You see, the sequence in December is this, isn’t it: about the 22nd there is this conversation about the value of the land, correct?-- Uh-huh.
On about the 28th, the $195,000 loan is being transacted by APH to AL Powell without Mr Dick ever being made aware of that purpose at all. About the 20th of January you and Corpe were having a discussion about what Corpe should tell Shorten about your position, and then on the 23rd of January the resolution is framed till you get rid of Mr Dick as a director. That encapsulates that month, doesn’t it?-- Pretty well.
And you’d formed the view that you certainly weren’t going to offer him any greater amount than that sent out in the accounts by reason of any squabble about the value of the land, and in fact had formed the view, passed on to Corpe to go through Shorten, that you’d only offer him 150.
That reflects your position at that time, too, doesn’t it?-- Yeah.”
The concessions made by Mr Powell in the above excerpts accorded with Mr Shorten’s evidence about the events of 20 January 2006. Mr Shorten stated that on 20 January 2006 he received a telephone call from Mr Corpe, who told him that he was, at Mr Powell’s request, returning an earlier telephone call to Mr Powell. Mr Corpe said that Mr Powell “did not have a requirement” to buy Mr Dick’s shares at any price. Mr Corpe said that the value of the shares was going down since the company no longer had the Ford dealership and was unlikely to pay dividends. He said that the company was establishing a new brand in Bundaberg in the form of Mercedes and Chrysler and that it was not expected to make a profit. Mr Shorten’s response was to point out to Mr Corpe that the asset values in the draft financial statements were not values of intangible assets and profitability had little impact on their value. Mr Corpe replied that he understood this proposition but that Mr Powell was no longer willing to buy Mr Dick’s shares on the basis of net tangible assets reported in the draft accounts as at 31 October 2005. Mr Corpe said that Mr Powell was only willing to buy Mr Dick’s shares for $150,000. Mr Corpe said that this was Mr Powell’s definite position and that any further discussion about the value of the shares was to be held with Mr Corpe on Mr Powell’s behalf. I accept Mr Shorten’s evidence, which was not seriously disputed.
Subsequent developments
On 23 January 2006, a Notice of General Meeting was issued convening a meeting of APH on 16 February 2006 to consider a motion for the removal of Mr Dick as a director. On 16 February 2006, Mr Dick was removed as director by resolution of the board.
Prior to his ceasing to be a director, Mr Dick sought access to various books and records of APH, some of which was denied to him.
On 23 February 2006, Mr Dick commenced these proceedings, seeking an order for the compulsory purchase of his shares.
At the time proceedings were commenced, APH had sold the Ford dealership and the Bourbong Street property, but still operated Bundaberg Prestige and owned the Walker Street property. It was considering whether to develop Bundaberg Prestige by constructing a new site at the Walker Street property, but ultimately that did not proceed. APH continued the business of Bundaberg Prestige until 13 December 2006, when that business was sold for $550,000. Mr Smith was then made redundant. The Walker Street property was also sold on that date for $1,300,000.
The sale of APH’s assets has led to significant dividends being declared and paid. Between 1996 and 2007, Mr Dick received a total of $816,126.58 in dividends payments from APH.
Allegations of oppression
Mr Dick alleges that various conduct on the part of Mr Powell and/or Mr Smith in their capacity as directors of APH was contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Dick.
The alleged incidents of oppression as set out in paragraphs 12 to 16 of the second further amended Statement of Claim (“the statement of claim”) are that Mr Powell and/or Mr Smith:
o Caused APH to tender to Mr Dick what was said to be a loan agreement for the amount of $150,000, but which conferred on APH an option directing Mr Dick to sell his shares to AL Powell and/or Trekmere in circumstances where the value of those shares exceeded the value of the loan agreement (para 12(a));
o Caused APH to retain McCullough Robertson Lawyers (“McCullough Robertson”) on two separate occasions, in February 2005 and February 2006, without convening a meeting of directors of APH (paras 12(b), 12(c));
o Instructed McCullough Robertson on various dates in February 2006 to refuse Mr Dick permission to inspect APH’s books and records contrary to his entitlement to do so as conferred by s 198F Corporations Act and article 85 of the Articles of Association (paras 12(d), 12(e), 12(f));
o Caused APH on 7 June 2006 to refuse Mr Dick inspection of certain of APH’s books and records contrary to s 198F Corporations Act (para 12(i));
o Caused AL Powell and Trekmere to exercise their votes as shareholders of APH to terminate Mr Dick’s appointment as a director of the company (para 12(g));
o Caused APH to fail to pay superannuation contributions due to Mr Dick pursuant to the Superannuation Guarantee (Administration) Act 1992 (Cth) in the sum of $28,915 for the period 1995 to 2000 (para 12(h));
o Caused APH to advance unsecured interest free loans to Mr Powell, his son and the Powell Superannuation Fund for their benefit, in circumstances where there was no meeting of the directors of APH (of which Mr Dick had notice) to authorise the loans, the making of those loans was of no commercial benefit to APH, and APH lost the benefit of earning interest on those monies, being:
§ an advance of $7,500 to Matthew Powell (para 12(j));
§ an advance of $340,000 to the Powell Superannuation Fund (para 12(l));
§ three advances of $15,000 to Mr Powell (para 12(m));
§ an advance of $195,000 to Mr Powell (para 12(q));
o Caused APH to pay rates payable on land owned by Alan Powell Ford Pty Ltd (para 12(n));
o Caused APH to expend $33,000 on capital works to 26 Bourbong Street in circumstances where the board of directors had not approved the expenditure and the works were of no commercial benefit to APH (para 12(o));
o Held directors’ meetings of APH on 25 February, 18 May, 29 June and 16 August 2005 in respect of which Mr Dick was excluded for the initial part of each meeting (para 12(p));
o Caused APH to declare interim dividends on 29 June 2005 in circumstances:
§ where Mr Dick had not been invited to be present at the meeting authorising the payment (para 12(r));
§ where a declaration of a dividend was made in favour of AL Powell to be credited against sums due by Mr Powell to APH (para 12(s));
§ which was contrary to the Articles of Association (para 12(t));
o Caused set-offs to be made against dividends payable to Mr Dick (paras 12(k), 12(dd));
o Caused APH to pay professional fees to lawyers and accountants for work undertaken for and advice provided to AL Powell and Trekmere in respect of the current proceedings (paras 12(u), 12(v), 12 (w));
o Caused APH to make redundancy payments to Mr Smith and Mr Matthew Powell which APH was under no legal obligation to make (paras 12(x), 12(z));
o Caused APH to make payments to the Powell Superannuation Fund totalling $22,489.26 which APH was under no legal obligation to make (para 12(y));
o Caused APH to sell a motor vehicle to Mr Smith at a trading loss (para 12(aa));
o Caused APH to pay for a motor vehicle for Mr Powell (paras 12(bb), 12(cc));
o Caused APH to enter into a sale contract for 26 Bourbong Street to the Powell Superannuation Fund in circumstances where the transaction was not for any bona fide business or commercial purpose benefiting APH or its shareholders, was at a undervalue, and was made in contravention of s 183(1) Corporations Act (paras 13,16);
o Exercised their powers in undertaking the conduct referred to in paras 8, 12(j), 12(l), 12(m), 12(n), 12(o), 12(q), 12(r), 12(s), 12(t), 12(u), 12(dd) in contravention of s 181(1) and s 182 Corporations Act (paras 15, 16).
Applicable principles
Section 232 of the Corporations Act 2001 (Cth) relevantly provides:
“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.”
In Wayde v New South Wales Rugby League Limited[2] Brennan J (as he then was), referring to the predecessor to s 232 Corporations Act, observed:
“In earlier times, the statutory precursors of s.320 empowered the court to grant a remedy when the affairs of the company were being conducted ‘in a manner oppressive to one or more of the members’ (see, for example, s.186 of the Companies Act 1961 (N.S.W.)). In that context, Viscount Simonds defined oppressive to be ‘burdensome, harsh and wrongful’ (Scottish Co-operative Wholesale Society Ltd. v. Meyer (1959) AC 324, at p 342). The strength of those epithets confined the grounds on which the court might intervene, but s.320 (both in its original 1981 form and in its amended 1983 form) broadens the grounds of intervention. Clearly the legislature intends to provide a greater measure of curial protection to members of a company, especially if they be in a minority, than the protection afforded under earlier Companies Acts. In Thomas v. H.W. Thomas Ltd. (1984) 2 ACLC 610, the Court of Appeal of New Zealand held that under a similar but not identical provision (s.209 of the Companies Act 1955 (N.Z.)) it was not necessary for a complainant to point ‘to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company’: per Richardson J., at p.617.”
[2](1985) 180 CLR 459, 470-471.
In the decision of Thomas v H W Thomas Ltd, to which Brennan J referred, Richardson J noted that there was an overlap between the various concepts identified by the terms “oppressive, unfairly prejudicial and unfairly discriminatory”:[3]
“The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the [provision] that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint … The statutory concern is directed to instances or courses of conduct amounting to unjust detriment to the interests of a member or members of the company.”
[3][1984] 1 NZLR 686, 693.
In Morgan v 45 Flers Avenue Pty Ltd [4] Young J (as he then was) stated that the individual elements “should be considered as different aspects of the essential criterion, namely commercial unfairness”. Chesterman J took a similar view in Re Polyresins Pty Ltd.[5] I note, however, that in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd [6] Young J qualified his statement in Morgan v 45 Flers Avenue Pty Ltd[7] that the question the court should ask is “whether objectively, in the eyes of a commercial bystander, there had been unfairness”, observing that circumstances could arise where unfairness might result from conduct which was not of a commercial nature. And in Campbell v Backoffice Investments Pty Ltd [8] Basten JA remarked that there was a danger in reducing the statutory language to a criterion of “commercial unfairness”, given the textual separation of paras (d) and (e) in s 233, and the potential for ignoring important distinctions between different kinds of complaint.
[4](1986) 10 ACLR 692, 704.
[5][1999] 1 Qd R 599, 604. See also Dynasty Pty Ltd v Coombs (1995) 59 FCR 122, 130.
[6](1991) 6 ACSR 63, 66-67.
[7](1986) 10 ACLR 692, 704.
[8](2008) 66 ACSR 359, [182] - [184].
Clearly, however, the focus of the oppression provision is on objective unfairness as emphasised in Wayde v New South Wales Rugby League Limited by Brennan J:[9]
“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.”
[9](1985) 180 CLR 459, 472-473.
It follows that the mere fact that a member of a company has lost confidence in the manner in which a company’s affairs are conducted is insufficient to amount to oppression; nor can resentment at being outvoted; nor mere dissatisfaction with or disapproval of the conduct of the company’s affairs, whether on grounds relating to policy or to efficiency, however well founded: Re Five Minute Car Wash Service Ltd;[10] Latimer Holdings Ltd v SEA Holdings NZ Ltd.[11]
[10][1966] 1 WLR 745, 751.
[11][2005] 2 NZLR 328, 340 [70].
Unfairness may occur even though all members of a company are treated equally. The unfairness may arise, for example, by reason of an advantage to a parent company: Re Tivoli Freeholds Ltd.[12]
[12][1972] VR 445, 453.
The content of fairness in an oppression application will be informed by the context. In this regard, all the relevant circumstances are to be considered in the assessment, including the history and type of company involved. As was observed in Thomas v HW Thomas:[13]
“Fairness cannot be assessed in a vacuum or simply from one member’s point of view. It will often depend on weighing conflicting interests of different groups within the company. It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and [the oppression provision] in particular: thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that [the oppression provision] is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member’s interests arising from the acts or conduct of the company in that way is justifiable.”
[13][1984] 1 NZLR 686, 694 - 695.
The conduct of the applicant may be relevant to the assessment of fairness. In Re London School of Electronics Ltd[14] Nourse J pointed out that an applicant’s conduct may be relevant in two ways: it might render the conduct of the other side, even if prejudicial, not unfair; and even if the conduct of the other side were unfair, it might nevertheless affect the relief that the court thinks fit to grant. An example of the first of these considerations is conduct amounting to acquiescence. It may thus be relevant that an applicant has not complained of the matters on which the claim of oppression is made until the institution of proceedings, although the affairs of the company have been conducted in the same manner for years: Re Lowes Park; Headlam v Lowes Park P/L;[15] Re Cy Jeffery (Mens Store) P/L.[16] In this regard, I note the observations in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd:[17]
“Oppression is something done against a person’s will and in his despite. It is not something done with [his] acquiescence or consent, and still less is something done with his cooperation.”
[14][1986] 1 Ch 211, 222.
[15](1994) 62 FCR 535.
[16](1984) 2 ACLC 421, 426.
[17](1991) 6 ACSR 63, 66.
Where matters of business judgment are concerned, the courts are reluctant to intervene on the basis of a finding of oppression, unless it can be shown that there is a lack of good faith or that no reasonable board could have come to the decision reached: Wayde v New South Wales Rugby League Ltd;[18] John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd.[19] In Latimer Holdings Ltd v SEA Holdings NZ Ltd, the New Zealand Court of Appeal referring to this well established principle noted:[20]
“Judges are ill-equipped to evaluate business strategies, and have accordingly exercised self-restraint … See Howard Smith Ltd v Ampol Petroleum [1974] AC 821 per Lord Wilberforce, … it would be wrong for the court to substitute its opinion for that of management, or indeed to question the correctness of management’s decision … if bona fide arrived at (at p832) … This is sometimes called the ‘business judgment’ rule. Judges, on the other hand, do have training and expertise in dealing, for instance, with fraud, illegality, or conflicts of interest.”
Exclusion from board meetings on 25 February, 18 May, 29 June and 16 August 2005 (para 12(p) of the statement of claim)
[18](1985) 180 CLR 459, 467- 468, 469.
[19](1991) 6 ACSR 63, 67.
[20][2005] 2 NZLR 328, 340 [71].
The complaint was made that Mr Powell and Mr Smith caused meetings of the board of directors of APH to be held on 25 February, 18 May, 29 June and 16 August 2005, which they commenced without Mr Dick being present and “thereby excluded [him] from attendance at the initial part of each meeting and only invited him to attend … after they had commenced the meeting”.
The respondents denied that Mr Dick was excluded from board meetings of APH. It was contended that APH held many management meetings as well as board meetings and that the meetings that occurred on 25 February 2005, 18 May 2005 and 16 August 2005 were in fact management meetings rather than meetings of the board of directors of APH.
However, it was submitted by Mr Dick’s counsel that Mr Dick was in fact never treated as a director, but simply as an employee. Mr Dick described the conduct of the monthly meetings as follows. Mr Powell would attend at the dealership once a month for a couple of days, during which time he and Mr Smith spent most of their time together, interviewing each manager. Mr Dick would be called in towards the end to discuss his side of the business, being the sale of new Ford motor vehicles.
The allegations of exclusion must be considered against the general background of the circumstances that pertained over the relevant period. It is apparent from the evidence, particularly that given by Mr Dick, that he was content to leave the overall direction and the financial management of the affairs of the company to Mr Powell and, to a lesser extent, Mr Smith. From the outset, Mr Dick appreciated that the purpose of operating the Ford dealership business through APH was to “provide an incentive through some sort of structure for senior employees” and that his participation was as a result of that incentive arrangement. At the time Mr Dick also understood that Mr Powell was effectively in control of APH. That understanding was based on his knowledge that AL Powell owned 75 per cent of the shares of APH, rather than his being aware that the articles gave AL Powell effective control through the “A” class share carrying 76 per cent of the voting power (however, he was not surprised to learn of that).
Mr Dick’s evidence was that Mr Powell was “very much the employer” and “very much in control of the bigger decisions involving policy … and the direction of the business”. This occurred against the historical backdrop of Mr Powell being the principal who established the business, having held the dealership with Ford and purchased the land at Bourbong Street, where he built the showroom. Mr Dick understood that his directorship and shareholding were “very much linked with [his] role as sales manager.” His involvement in APH was, as he stated in evidence, focussed on vehicle sales, not the running of the business as a whole.
The evidence clearly indicated that Mr Dick took a passive role as director and was unaware of important aspects of APH’s affairs. He did not, for example, know that the holding yard APH used did not belong to APH but to the Powell Superannuation Fund. An example of Mr Powell being very much the boss, with Mr Dick’s acquiescence to his management style, can be seen in respect of the decision in about 2003 to relocate the Prestige Business in respect of which Mr Dick had no input.
Mr Dick was not as a rule involved in dealing with APH’s accountants and lawyers – Mr Powell and Mr Smith did that. Mr Dick “was reliant on Mr Corpe and others to handle that side of things”. Mr Dick accepted that he did not become involved in discussions concerning “movement of money”, stating: “I wasn’t even involved in signing cheques or any of that sort of thing, so I was never involved in the authorisation of money”. As Mr Dick also volunteered, he “was asked to sign a lot of things over the years that [he] just signed”. In giving evidence, Mr Dick accepted that his role in the company was such that he did not take an interest in the way in which the accountants dealt with the transactions, so long as it was in the best interests of the company as a whole.
I do not consider on the evidence that Mr Dick was excluded from any of the meetings of directors as alleged. The manner in which the meetings were conducted as a matter of practice was generally to schedule a management meeting to coincide with the directors’ meeting and to be held before the directors’ meeting. That did not amount to excluding Mr Dick from directors’ meetings. The meetings the subject of the oppression allegations were conducted in the manner that had been adopted over many years after Mr Dick became a director and occurred without complaint by him. In the circumstances, there is no basis to this ground of complaint.
Loan to Matthew Powell in April 2005 (para 12(j) of the statement of claim)
A further complaint concerns the advancing of a loan by APH of $7,500 in April 2005 to Mr Powell’s son, Matthew (who was then an employee of APH) which was made on an unsecured and interest free basis.
The loan was advanced on the basis that it was to be repaid by 12 monthly payments of $625 through deductions from commission earned by Matthew. The loan was accounted for by being debited to AL Powell’s loan account on 30 June 2005, thereby increasing the sum owed by AL Powell to APH by $7,500. Four loan repayments were made by Matthew Powell from July 2005 to October 2005 totalling $2,500 and a corresponding credit to the AL Powell loan account was made. The remaining amount of $5,000 was accounted for by making a deduction in that amount from director’s fees payable on 1 January 2006 to AL Powell in respect of Mr Powell’s services as director. The maintaining of loan accounts is dealt with further below in relation to the complaints concerning the dividends declared on 29 June 2005.
Mr Powell’s evidence was that the giving of interest free unsecured loans to employees was not an uncommon practice within APH’s business and one of which Mr Dick was aware. Mr Powell’s evidence was that a number of employees were provided with such loans, in addition to Matthew Powell. The agreements to provide loans were usually made orally following a request from an employee, and were repaid by deduction from commission on sales due to the relevant employee. There was evidence of such loans being provided to two former employees in sums of up to $2,000. While somewhat larger than loans offered to other employees, the loan to Matthew Powell did not place APH at risk and was accounted for in the accounts of APH. In the circumstances, I do not consider that the making of the loan was contrary to the interests of the members of APH as a whole, commercially unfair to Mr Dick or otherwise oppressive.
Sale of 26 Bourbong Street to the Powell Superannuation Fund in June 2005 (paras 8, 13, 16 of the statement of claim)
The complaints about the sale of 26 Bourbong Street are that:
(a) It was undertaken by APH “not for any bona-fide business or commercial purpose” which benefited APH or its shareholders, but rather was a disposition of property to an entity related to Mr Powell, namely the Powell Superannuation Fund, and made for the benefit of the beneficiaries of the Fund (paras 13(a), 13(b));
(b) It was made at an undervalue, in that it was made in reliance upon a valuation:
(i) “for internal accounting use rather than for the purpose of determining the fair market value of the company land” (para 13(c));
(ii) which utilised an annual net market rental for the property of $323,350 in determining the value of the property when Mr Powell and Mr Smith knew that APH was going to execute a loan which obliged APH to pay annual lease rental of $380,000 (para 13(d));
(c) Mr Powell and/or Mr Smith acted in contravention of s 183(1) Corporations Act, by using the knowledge that the valuation was not calculated on the basis of the proposed new annual rental of $380,000, to gain an advantage for the beneficiaries of the Powell Superannuation Fund by allowing the Fund to purchase the land for less than its true market value and thereby causing a corresponding detriment to APH (para 16).
By way of background to the sale of the property, it appears that from about November 2004, Mr Powell had begun to have concerns about the Ford dealership’s performance. He wrote to Mr Smith and Mr Dick in April 2005 addressing those concerns. Mr Powell’s evidence was that at about this time, he indicated to the other directors that if the performance of the Ford dealership did not improve, he would consider voting in favour of selling it.
Also at around this time, Mr Powell had discussions with Mr Corpe, about restructuring APH’s assets by splitting the ownership of Bourbong Street from that of the Ford dealership. He discussed the option that the Powell Superannuation Fund purchase Bourbong Street and lease it back to APH. The reasoning behind this was that disposing of Bourbong Street separately would make it easier to sell the Ford business, as the price of the business standing alone would be lower. Additionally, APH would be able to eliminate debt (save for a small overdraft to Westpac) and make a significant dividend distribution. Mr Powell also had discussions with Mr Browning about the valuation of the property and an indication was given that the valuation was likely to be about $3,400,000. By letter dated 12 May 2005, Mr Corpe provided advice to Mr Powell on the most tax effective means for the Powell Superannuation Fund to purchase the property, assuming a valuation of $3,400,000. The letter also set out the dividends that would be payable to each shareholder on that basis.
The evidence indicates that at a meeting of the directors on 19 May 2005, Mr Powell discussed the proposed sale of Bourbong Street with Mr Dick and Mr Smith. According to Mr Powell’s statement, there was discussion “that in order to ensure that the transaction was for full value, APH would obtain a valuation from Browning Valuers”. Also discussed was “the fact that, as the proposed sale would leave the company with substantial cash assets, once the purchase had settled it would be in a position to issue a substantial dividend to the shareholders in proportion to their shareholding interests.”
Mr Dick’s evidence about the May 2005 discussions was as follows:
“… Do you recall having a discussion with Mr Powell in or about May of 2005 concerning the sale of the property at 26 Bourbong Street to the Powell Superannuation Fund?-- Yes.
Right. Can you detail or can you describe, better, what occurred in that conversation, that is what Powell told you and what you said, if anything, in response?-- Yes. I went to work one day and Alan Powell said to me, ‘Oh, Wayne, I'm buying the building back for my superannuation fund.’ That was the – that was basically the conversation, and he said, ‘You should receive about $450,000 for your shares.’
Mmm-hmm. Was that the sum of the discussion?-- Yes.
Was there any discussion at that time about a valuation that had been obtained with respect to the building?-- Yes. We – we had a meeting and it was said that he had – had or was going to get a valuation from Col Browning.
Was that meeting the one of June 2005, 29 June?-- No, no, no, because that valuation would have had to have been done before then.
Yes. Were you given a copy of the valuation?-- No.”
The minutes of the 19 May 2005 meeting record:
“Alan met with the fellow directors outlining the future plans for the property of the main dealership site, and the effect on the future of the Company and those of the directors regarding these changes. Tom advised that Col Browning had been in contact regarding his request to issue a letter regarding the current valuations, Col is to fulfil this request in the next week. Alan advised that settlement was planned to occur on June 29th.”
When cross-examined about the May 2005 meeting, Mr Dick accepted that Mr Powell had raised his concerns about the declining performance of the business and the view that they should proceed to try to sell the dealership if the price was right. Mr Dick also stated that, “It was said to me it will be easier to sell the business separate, have the land as a separate issue”. In addition, he gave evidence as follows concerning the meeting:
“… With that idea in mind, Alan said to you that the idea was to sell the land to Powell superannuation [fund] and lease it back to the business, the company?-- Yes
…
You understood from what he told you that the idea was that the land would be sold out to he and his wife's superannuation and leased back to the company?-- Yes, that's right.And he told you – can you recall him telling you that he'd spoken to Mr Browning or a valuer already about the indicative figure but he'd get him to do a valuation?-- Oh, I couldn't comment on that. I just know he said we were going to do a valuation on it.
Then I suggest to you that there was suggestion about the leaseback and the rental that would be calculated on the industry standard basis?-- No, it was told to me it was going to be $380,000 a year. … The figure was discussed of $380,000 a year but that was all that was discussed. There was no mention of Mr Rich or any way of calculating what the rental was going to be.
Okay. I suggest to you that he mentioned to you that the lease would also include his land, which was used as the holding yard as well?-- Oh, I don't know. I don't know.
In any event, it is also the case, isn't it, there was discussion about a large dividend going to you and Tom and to him by way of the transaction?-- Yes.
…
Well, see, I am suggesting to you that it was six to eight weeks before you went to that meeting at the accountant's office to sign up documents that this was on the table, that he'd get a valuation, that the superannuation company was buying the land, it was because of Mr Corpe's advice and there would be a leaseback arrangement to the company?-- Yes, it was probably a month or so, I don't know exactly, but before the settlement was, yes.
…
… So the situation was that when you were asked to go to Ulton's office in Bundaberg on the 29th of June to sign documents, you were well aware that it was in relation to the sale of the land?-- Oh, yes, yes, yes.”
It seems that no valuation figure was mentioned at the May 2005 meeting and that, while an indication was given to Mr Dick as to what his dividend resulting from the sale was likely to be, he sought no clarification as to its calculation.
At the 29 June 2005 meeting, Mr Corpe and Mr Marles (a solicitor from MRH Lawyers who acted in the transaction) met with Mr Smith, Mr Dick and Mr and Mrs Powell at the offices of Ulton. There was some conflict as to the extent to which the valuation was discussed at that meeting. Mr Dick conceded in cross-examination that “there was talk about Browning’s valuation”. In his affidavit sworn 10 September 2006, Mr Powell stated that Mr Browning’s valuation of Bourbong Street was discussed and that Mr Dick did not raise any objection to the valuation. He also stated that it was tabled, but I note that the minutes of the meeting do not indicate any valuation was tabled. Mr Dick denies that he was given any valuation.
At the meeting on 29 June 2005, the directors signed the transfer and lease documents necessary to effect the sale of Bourbong Street to the Powell Superannuation Fund for $3,400,000 and the lease to APH for a rental of $380,000 per annum. As it turned out, APH only rented the premises for some four months (until the end of October 2005) when the Ford business was sold. Shortly after the settlement of the sale of Bourbong Street, APH paid the sum of $610,000 which was owing to General Electric Finance. The balance of the sale proceeds together with some profit which APH had accumulated, totalling $3,000,000, was then paid as a dividend to shareholders as follows: $300,000 (10 per cent) to Trekmere, $450,00 (15 per cent) to Mr Dick and $2,250,000 (75 per cent) to AL Powell.
No bona fide purpose
The argument advanced by counsel for Mr Dick was that the sale was simply designed for the purpose of channelling the Bourbong Street property into the Powell Superannuation Fund and was thus entered into solely for the benefit of the Powells and was not in the interests of APH. In advancing this submission, counsel seized, in particular, upon the following cross-examination of Mr Powell concerning the sale:
“And the true position is that it was structured in the way it was, not because it necessarily made the on-sale of the Ford dealership any more or less attractive [to] a potential purchaser, but that if a purchase of that kind might at some stage in the future go ahead, the superannuation fund would be left with a very significant income earning asset?-- Yes.”
However, as Mr Powell went on to add by reference to Mr Corpe’s letter of 12 May 2005:
“I mean, there is mention in that letter about the benefits for Alan Powell Holdings.
Mmm?-- It shows that there would be an after tax profit of $3.3 million.
Yes, of course?-- And the dividend payable to the shareholders of 3. – well, it's got 3.2, but it was actually more than that we paid.
I will-----?-- Less, sorry, it was 3 million.
Yes. That, you see, what was being looked at was a means whereby one of the principal assets of the company would be disposed of to your superannuation fund so that – and I rather understood you agreed with this proposition in the last question – so that your super fund would retain a significant ongoing income earning asset?-- Well, I guess so, but, I mean, we had to sell it somewhere if we were going to sell the property and it was quite easy to do it that way.” (emphasis added)
That the Powell’s Superannuation Fund was proposed as the buyer no doubt played a role influencing the timing of the sale so as to coincide with the end of the 2005 financial year. But it does not lead to an inevitable conclusion that the sale transaction was not for a bona fide commercial purpose. The separation of the ownership of the business from that of the land on which it was conducted was a commercial objective discussed and agreed to by the directors and shareholders and undertaken to facilitate the ultimate purpose of selling the business as a stand alone enterprise. It is apparent from the evidence that Mr Powell discussed the sale to the Superannuation Fund with the other directors in terms of assisting in the ultimate sale of the Ford dealership and allowing for substantial dividends to be distributed, after reducing debt. I note that Mr Dick was aware of the relevant details of the transaction and that not only did he not raise any objection to the course proposed, he cooperated to achieve that result by signing all documentation required for the sale to proceed. Indeed, at no time until approximately February 2006, after relations between Mr Powell and Mr Dick deteriorated over the valuation and sale of his shares, did Mr Dick seek any further details of or raise any question about the sale of Bourbong Street. In the circumstances, I am not persuaded that the transaction was not for a bona fide business or commercial purpose.
Sale at an undervalue
As mentioned previously, the valuation of Bourbong Street provided by Browning Valuers dated 28 June 2005 valued the property at $3,400,000. The valuation was determined using a capitalisation rate of 9.5 per cent and taking as the rack rental the sum of $323,350 used for a previous valuation report of 5 September 2003. The previous valuation had proceeded on a 10 per cent capitalisation rate and valued the property at $3,230,000.
The basis of the allegation that the sale of Bourbong Street was at an undervalue centres on the fact that, in reaching the valuation using a capitalisation method, Mr Browning proceeded on the basis of the rack rental of $323,350. It is contended that had Mr Browning been appraised of the proposed new rental of $380,000, a higher valuation would have resulted.
As counsel for the respondent noted, echoing the point made by Mr Browning in his evidence, a difficulty with the submission made on behalf of Mr Dick is that the rental of $380,000 also included rental for the holding yard owned by the Powell Superannuation Fund. APH had rented the holding yard over many years at $2,000 per month (and although the lease executed on 29 June 2005 did not identify the holding yard as being included in the property leased, that omission was subsequently realised and corrected). In his affidavit, Mr Powell stated how the new rental figure of $380,000 had been calculated, explaining:
“I calculated what is called a ‘planning volume’ of cars, which is the number of cars sold per annum, and multiplied it by what is called the rental factor, which is a industry-wide accepted guideline for determining rental. In this case, I calculated the planning volume at 520 new cars and 240 used cars (a total of 760 cars) and multiplied that by the rental factor of $500 and came up with a figure of $380,000 for rental including the holding yard. … I have subsequently been advised by Mr Ken Rich, who at the time was a partner at BDO Kendalls and is a recognised industry expert, and I verily believe that the figure of $500 per new and used vehicle as a rental factor is reasonable for a regional city.” (emphasis added)
Mr Dick did not call any valuation expert to contradict Mr Browning’s valuation. Reliance was placed on the expert report prepared by his expert accountant, Mr Benjamin, who in his report of 16 October 2008 took the approach of recalculating the valuation by using a 9.5 per cent capitalisation rate based on a rental of $380,000. However, in utilising this method Mr Benjamin, acknowledged in para 6.45 of the report:
“I do not have expertise in, nor am I qualified to prepare, valuations of real property. Accordingly, I have merely recalculated the valuation using the base rent of $380,000 and that recalculation does not represent an opinion by me as to the market value of Bourbong Street.”
In the joint report of the expert accountants of 27 February 2009, the Mr Benjamin modified his calculation by making allowance for land tax.
“…it appears that the directors [APH] have purported to declare certain dividends from the monies held by the company. We note that [APH] has purported to set-off against dividends apparently payable to our client an amount of legal costs which your clients assert are owing to them by [Mr Dick].
The Articles of Association [of APH] do not permit any such set off and our client will be relying upon these actions as further evidence of oppression….”
No argument was raised on behalf of Mr Dick as to the effectiveness of the assignment. The submissions made by counsel were directed to whether a set off was permitted by the articles. As I have already stated, I do not consider that the articles precluded the making of a set-off against dividends. I find no oppression in respect of the set-off. There is no need, in the circumstances, to consider the additional issue of waiver and estoppel raised by the respondents.
Relief
Given the finding that there has been conduct coming within the meaning of s 232 Corporations Act, the question then arises as to what, if any, order is appropriate. The powers conferred on the court pursuant to s 233 are extensive.
On behalf of the applicant, it was contended that the appropriate relief was an order for the compulsory purchase of Mr Dick’s shares, with the valuation date being as at 31 October 2005 when he ceased employment.
Counsel for the respondents argued that if oppression was found to have taken place, and the Court was minded to make an order in Mr Dick’s favour, the appropriate order was one that APH be wound up rather than a compulsory buy out. But, it was also contended on behalf of the respondents that, in the circumstances of this case, there were three matters that weighed against any relief being granted even if a finding of oppression was made. The contentions raised in this regard were:
· Firstly, Mr Dick’s refusal to offer his shares for sale in accordance with the Articles of Association;
· Secondly, Mr Dick’s refusal to accept two reasonable offers to buy his shares;
· Thirdly, Mr Dick having known since at least October 2007 that the remaining directors of APH intend to wind the company up, and to distribute the assets to the shareholders in proportion to their entitlements.
As to the first matter, it was said that before instituting proceedings Mr Dick made no offer to sell his shares to the respondents, in circumstances where he had an obligation to do so by virtue of article 15 on his ceasing to be an employee of APH. It was contended that, given under article 14, Mr Dick had an entitlement to have the shares valued by an independent expert and purchased at fair value, no relief should be ordered in Mr Dick’s favour.
The existence of a mechanism in the articles for the purchase of a member’s shares does not necessarily preclude an order for relief being made in favour of an oppressed member: Re Dalkeith Investments Pty Lt;[38] Dynasty Pty Ltd v Coombs.[39] It seems that the procedure provided for in article 14 was not one that was averted to by any of the parties at the time and was indeed only raised by the respondents quite late in the proceedings. While Mr Dick did not formally offer his shares for purchase in accordance with the articles, it was nonetheless perfectly clear that the discussions in October 2005 proceeded on the basis that he was seeking to sell his shares. It is also pertinent to observe that although article 14 provided for the purchase of a member’s shares at fair value, it did not compel the purchase of the shares. In the circumstances, I do not consider that it ought to be counted against Mr Dick that he did not formally offer to sell the shares in accordance with the provisions in the Articles of Association.
[38](1984) 9 ACLR 247, 254.
[39](1995) 59 FCR 122,139.
Regarding the second matter, counsel for the respondents submitted that the making of a reasonable offer to purchase militates against relief being given, either in the form of a winding up order or a compulsory purchase order : O’Neill v Phillips;[40] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd;[41] John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd.[42] Indeed, it was said that it may well be an abuse of process to continue with oppression proceedings after such an offer: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd.[43]
[40][1999] 1 WLR 1092, 1107.
[41](1998) 28 ACSR 688, 743.
[42](1991) 6 ACSR 63, 66.
[43](1998) 28 ACSR 688, 743.
As to the submission that there had been an “offer” by Mr Powell to purchase Mr Dick’s shares on the basis of the draft accounts as at 31 October 2005, I note that, in his affidavit sworn 2 March 2006, Mr Powell stated that the “provision of the draft accounts was not intended to, and did not, constitute an offer” by him or AL Powell to purchase Mr Dick’s shares. And while there was an understanding that Mr Powell was prepared to purchase the shares at a price equivalent to 15 per cent of the net assets of the company as disclosed in the draft accounts, it was only an informal arrangement, and one from which Mr Powell himself resiled after the dispute concerning the valuation of Walker Street. Indeed, Mr Powell’s position in January 2006 was that he was only prepared to pay $150,000 for Mr Dick’s shares. In the circumstances, I do not consider that it can be said that Mr Dick’s attitude to the so called “offer” based on the draft accounts, weighs against relief being granted in Mr Dick’s favour.
As to the arguments that Mr Dick unreasonably refused the offers contained in the letter of 8 October 2007 and that he unreasonably pursued the oppression proceedings after the sale of much of APH’s assets and the indication by the Mr Powell and Mr Smith of their intention to wind up APH, I note that all of this occurred against the background of ongoing oppression through the use of APH’s funds to pay for legal fees for the respondents’ defence of the proceedings. The funds of APH so utilised have only recently been brought into account in their entirety (by reimbursement or an undertaking to do so) and were not taken into account in the letter of 8 October 2007 and the offers made therein.
As to the question of what relief ought to be ordered, I note that it has been observed that, while it is not necessary that the unfair conduct the subject of complaint be continuing at the time the oppression proceedings are brought or the Court comes to consider the matter, that question may well be relevant as to whether relief is granted at all or what the appropriate relief is: Re Spargos Mining NL.[44] See also the varying views expressed in Campbell v Backoffice[45] as to this matter and as to whether a buy out is appropriate where the oppression has ceased.
[44](1990) 3 WAR 166.
[45](2008) 66 ACSR 359, [122] - [132] per Giles JA, [195] - [203] per Basten JA, cf [366] - [372] per Young CJ in Eq.
Accepting that a winding up order is not to be made lightly, nevertheless, there are attractions in such an order over a compulsory purchase order in the present case. There have been significant transactions since 31 October 2005, primarily the sale of Walker Street and sale of Bundaberg Prestige, which have resulted in large distributions being made to members. Since 31 October 2005, Mr Dick has received dividends totalling $233,240. As was submitted on behalf of the respondents, relief in the form of a winding up order would permit Mr Dick to benefit from the windfall gained from the sale of Walker Street, which was sold at a higher price ($1,300,000) than the value Mr Dick’s own expert gave the property as at 31 October 2005 ($1,142,400).
In addition, although Mr Dick’s accounting expert, Mr Benjamin, assessed the value of Bundaberg Prestige as at 31 October 2005 at $550,000, he conceded that the valuation was problematical because the business was operating at a loss at the time and that his valuation was influenced by the sale price of the business achieved some considerable time later. A winding up order permits Mr Dick to benefit from the full price achieved for the sale of Bundaberg Prestige without qualification.
Although a winding up order is an option to be approached with caution, it would work no prejudice in the circumstances of the present case since APH is no longer a going concern; APH is a dormant entity, holding only cash and a small parcel of shares, and the current directors wish to wind up the company. In the circumstances of the present case, it is appropriate to order the winding up of APH.
I note that the respondents indicate that they will seek to claim a component of the legal expenses repaid to APH. I note that the respondents contend for at least 30 per cent to be allowed, while Mr Dick’s counsel argued for only five per cent to be allowed. On the material before me, I am unable to make an assessment of what would be an appropriate contribution by APH in relation to its legal expenses but it would seem likely to be more in the order contended for by Mr Dick’s counsel. Nevertheless, the respondents remain able to make a claim in respect of what is properly attributable to APH’s legal fees in the liquidation.
I shall hear submissions from the parties as to the formal orders to be made and as to costs.
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