Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd

[2001] NSWCA 97

Reported Decision: (2001) 37 ACSR 672
(2001) 19 ACLC 856

New South Wales

Court of Appeal

CITATION:	Fexuto Pty Limited v Bosnjak Holdings Pty Limited & Ors [2001] NSWCA 97
FILE NUMBER(S):	CA 40898/98
HEARING DATE(S):	28,29,30,31 August 2000 1 September 2000
JUDGMENT DATE:	12 April 2001
PARTIES :	Fexuto Pty Limited v Bosnjak Holdings Pty Limited; Slavko James Joseph Bosnjak; Carol Lynette Bosnjak; Feyama Pty Limited; Fexule Pty Limited; National Bus Company Pty Limited; Torsby Pty Limited; Flaren Pty Limited; Bosnjak Property Developments Pty Limited; Westbus Pty Limited; Bosnjak Investments Pty Limited; Bosnjak Coach Lines Pty Limited; St Marys Bus Services Pty Limited; Parramatta Bus Company Pty Limited; Bosnjak Bros Pty Limited; Bosnjak Enterprises Pty Limited; Bosnjak International Sales Pty Limited; Smithfield Coach Imports Pty Limited; Westbus (UK) Limited (Cross appeal) Slavko James Joseph Bosnjak; Carol Lynette Bosnjak; Feyama Pty Limited; Fexule Pty Limited; National Bus Company Pty Limited; Torsby Pty Limited; Flaren Pty Limited v Fexuto Pty Limited; Bosnjak Group Pty Ltd
JUDGMENT OF:	Spigelman CJ at 1; Priestley JA at 218; Fitzgerald JA at 586

LOWER COURT JURISDICTION :	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	ED 3799/97
LOWER COURT JUDICIAL OFFICER :	Young J

COUNSEL:	Appellant/Cross respondents - R.J. Ellicott QC / V.F. Kerr Respondents (2-8)/Cross appellants - M. Pembroke SC / J. Stevenson / N. Beaumont Respondents (1 & 9-20) - G.C. Lindsay SC / G.O. Blake (Submitting except as to costs)
SOLICITORS:	Appellant/Cross respondents - Piper Alderman Respondents (2-8)/Cross appellants - Atanaskovic Hartnell Respondents (1 & 9-20) - Freehill, Hollingdale & Page
CATCHWORDS:	Corporations Law - oppression - exclusion from day to day management - "legitimate expectation" - Corporations Law, s260 - Corporations Law - oppression - remedies - Corporations Law - directors’ duties - need for "fully informed consent" to absolve a breach of fiduciary duty
LEGISLATION CITED:	Companies Act 1948 (UK) Company Law Review Act 1998 Corporate Law Economic Reform Program Act 1999 Corporations Law Freedom of Information Act 1989 Uniform Companies Act 1961
CASES CITED:	Atwood v Maude (1868) LR 3 Ch App 369 Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 Belgiorno-Zegna v Exben Pty Ltd (2000) 35 ACSR 305 Blisset v Daniel (1853) 10 Hare 493; 68 ER 1022 Bosnjak’s Bus Service Pty Ltd v Commissioner for Motor Transport (1970) 92 WN(NSW) 1003 Brickenden v London Loan & Savings Co [1934] 3 DLR 465 Calabro Bros Pty Ltd v Commissioner of Motor Transport (Mahoney J, 6 April 1973, unreported) Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 Drinan v Drinan (1908) SR (NSW) 109 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 Foss v Harbottle (1843) 2 Hare 461; 67 ER 109 Furs Ltd v Tomkies (1936) 54 CLR 583 Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd (2000) 34 ACSR 469 In re a Company (No 002567 of 1982) [1983] 1 WLR 927 In re Astec (VSR) plc [1998] 2 BCLC 556 In re Pauling’s Settlement Trusts [1962] 1 WLR 86 In re Smith & Fawcett Ltd [1942] Ch 304 In re Wondoflex Textiles Pty Ltd [1951] VLR 458 In re Yenidge Tobacco Company Ltd [1916] 2 Ch 426 Knight v Bell (1887) 13 VLR 878 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 Lyle & Scott Ltd v Scott’s Trustee [1959] AC 763 McMillan v Toledo Enterprises Pty Ltd (1995) 18 ACSR 603 Maguire v Makaronis (1996) 188 CLR 459 Morgan v 45 Flers Avenue Pty Ltd (1996) 10 ACLR 692 O’Halloran v R.T. Thomas & Family Pty Ltd (1998) 45 NSWLR 262 O’Neill v Phillips [1999] 1 WLR 1092 Phipps v Boardman [1965] Ch 992 Phipps v Boardman [1967] 2 AC 46 Queensland Mines Ltd v Hudson (1978) 53 ALJR 399 R & H Electric Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280 Re a Company (No 00789 of 1987); ex parte Shooter [1990] BCLC 384 Re Blue Arrow plc [1987] BCLC 585 Re Brenfield Squash Rackets Club Ltd [1996] 2 BCLC 184 Re M Dalley & Co Pty Ltd (1968) 1 ACLR 489 Re Posgate and Denby (Agencies) Ltd [1987] BCLC 8 Re Saul D. Harrison & Sons plc [1995] 1 BCLC 14 Redwood v Redwood (1909) 28 NZLR 260 at 261 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 Spellson v George (1992) 26 NSWLR 666 Tay Bok Choon v Tahansan SDN BHD [1987] 1 WLR 413 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 Warman International Ltd v Dwyer (1994-1995) 182 CLR 544
DECISION:	1. Appeal allowed.; 2. Cross-appeal dismissed.; 3. Orders of trial judge dated 4 November 1998 varied as follows:; (a) Substitute the date 42 days from the date of formal entry of these orders for the date 18 November 1998 wherever it appears in Orders. 2 and 3.; (b) Substitute the date 28 August, 1997 for the date 10 January 1994 in Order 8(b).; 4. Orders of trial judge of 26 November 1998 varied by substituting 2/3 for 50 percent in Order 1.; 5. Order the Respondents to pay 2/3 of the Appellant’s costs of the appeal and cross-appeal.

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40898/98

ED 3799/97

SPIGELMAN CJ

PRIESTLEY JA

FITZGERALD JA

Thursday, 12 April 2001

FEXUTO PTY LIMITED v BOSNJAK HOLDINGS PTY LIMITED & ORS

The Appellant is a company controlled by Bob Bosnjak. It owns 2/7ths of the issued shares in the First Respondent (“Holdings”) which, as its main business, runs buses. The Appellant brought action alleging that the affairs of Holdings were being conducted in an oppressive manner contrary to the then s260 of the Corporations Law. The principal parties against whom the oppression was alleged were Jim Bosnjak, Bob Bosnjak’s brother, and Carol Bosnjak, the wife of Bob Bosnjak’s deceased second brother, and companies controlled by them (“the majority”).

The trial judge, Young J, found oppression and ordered that the Appellant be entitled to have its shares purchased by the majority at fair value. However, his Honour rejected a submission that Bob Bosnjak had an expectation to participate in the management of Holdings.

Young J found a breach of fiduciary duty against Jim Bosnjak concerning his participation in “Transcard”, a proposed joint venture with Cabcharge Australia Pty Ltd. His Honour also found that Jim and Carol Bosnjak breached fiduciary duties owed as directors of Holdings in relation to the successful tender by the National Bus Company Pty Ltd (“NBC”), a company controlled by them, of bus runs in Melbourne. Account of profits was ordered for each of these breaches of fiduciary duty. Young J held that the account for the NBC tender be assessed at 10 February 1994, the date at which his Honour found that Bob Bosnjak had acquired enough information about the NBC tender for the Appellant to commence action.

The Appellant contended that the finding of oppression should have been made on a wider basis. It argued that Bob Bosnjak had an expectation to participate in “consensus style management” of Holdings or, alternatively, a right to participate in day to day management. The Appellant sought an order allowing it to purchase the shares in Holdings originally controlled by the majority. Alternatively, it sought a split of assets of Holdings. The Appellant submitted that the relief ordered with respect to the account of profits should be extended.

The majority cross-appealed on the basis that Young J erred both in the finding of oppression and in holding that Jim and Carol Bosnjak had breached their fiduciary duties to Holdings.

Held

A Oppression: Participation in Management

1 Discussion of the concept of “legitimate expectation”. O’Neill v Phillips [1999] 1 WLR 1092 and Re Saul D. Harrison & Sons plc [1995] 1 BCLC 14 discussed.

per Spigelman CJ and Fitzgerald JA

2 Holdings, although a family partnership, was set up in corporate form. A finding that Bob Bosnjak had a right of veto requires the existence of an understanding by which the ability of a majority to exercise its legal rights arising out of the corporate structure should be qualified. There was no evidence of such an understanding. Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, Tay Bok Choon v TahansanSDN BHD [1987] 1 WLR 413, R & H Electric Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280 referred to.

3 The fact that for a significant period of time only Bob and Jim Bosnjak were the active participants in the management of the company does not create a right to veto.

4 There was an understanding that the affairs of Holdings would be controlled by members of the family acting as directors. The deterioration of the relationship between Bob and Jim Bosnjak did not have the effect of disentitling the Appellant from relying on Bob Bosnjak’s exclusion from day to day management as a director as an element in assessing oppression.

per Spigelman CJ

5 A right of veto is inconsistent with the primary purpose of the structure of Holdings which was to provide for the economic well-being of the family.

per Priestley JA

6 In the relevant period of time the business was conducted under the direction and management of Bob and Jim Bosnjak. The two brothers were, in effect, partners who had to make joint decisions about partnership business. The veto power, which both brothers could use, was an inbuilt ingredient of decision by consensus. The consensus style management between Bob and Jim Bosnjak was recognised as appropriate in the family. Both brothers were entitled to take an equal part in direct management by consensus.

B Fiduciary Duty: Transcard

per Priestley JA, Spigelman CJ and Fitzgerald JA agreeing

7 Young J was correct in holding that the conduct of Jim Bosnjak with respect to “Transcard” was a breach of his fiduciary duty to Holdings.

C Fiduciary Duty: National Bus Company

per Spigelman CJ and Priestley JA, Fitzgerald JA agreeing

8 Young J was correct in holding that as Bob Bosnjak did not have knowledge of the extent to which the resources, personnel and information of Holdings were used in preparing the relevant documents for the tender process. The Appellant did not give a fully informed consent to Jim and Carol Bosnjak tendering for the Melbourne bus runs.

per Spigelman CJ

9 The issue for determination is whether Bob Bosnjak consented to the acquisition of the corporate opportunity of Holdings by Jim and Carol Bosnjak. Queensland Mines Ltd v Hudson (1978) 53 ALJR 399, Maguire v Makaronis (1996) 188 CLR 459, In re Pauling’s Settlement Trusts [1962] 1 WLR 86 and Spellson v George (1992) 26 NSWLR 666 applied. Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 distinguished.

per Priestley JA, Spigelman CJ and Fitzgerald JA agreeing

10 His Honour erred in holding that Bob Bosnjak had acquired enough information about the NBC tender for the Appellant to commence action as at 10 February 1994. The appropriate date is 2 August 1995.

D Relief

(i) Breach of Fiduciary Duty: NBC

per Spigelman CJ and Priestley JA, Fitzgerald JA agreeing

11 Young J was correct in holding that s260 of the Corporations Law is sufficiently flexible to allow the Court to order accounts for the claimed breaches of fiduciary duty pursuant to that section.

per Priestley and Fitzgerald JJA

12 The date of valuation for the account of profits for the NBC breach should be 27 August 1997, the date of the commencement of proceedings.

per Spigelman CJ

13 The appropriate date to value the account of profits for the NBC breach of fiduciary duty is the date at which the Appellant had enough information to institute proceedings; i.e. 2 August 1995.

(ii) Oppression

per Spigelman CJ, Priestley and Fitzgerald JJA

14 Order that the Appellant be entitled to sell its shareholding in Holdings at fair value upheld.

per Spigelman CJ and Priestley JA

15 It is not appropriate to order that the shares in Holdings originally controlled by Jim and Carol Bosnjak be sold to the Appellant. Re a Company (No 00789 of 1987); ex parte Shooter [1990] BCLC 384 and Re Brenfield Squash Rackets Club Ltd [1996] 2 BCLC 184 distinguished.

per Spigelman CJ and Fitzgerald JA

16 It is not appropriate to order a split of the assets of Holdings.

per Priestley JA

17 A split of assets is the appropriate order to make. It would allow Bob Bosnjak to receive a part of the business which he played a considerable part in building up.

per Fitzgerald JA

18 The question of what order is practically just depends on the particular circumstances of the each case. The facts of this case justify an order entitling the Appellant to purchase the shares in Holdings originally held by the majority.

Orders

1 Appeal allowed.

2 Cross-appeal dismissed.

3 Orders of trial judge dated 4 November 1998 varied as follows:

(a) Substitute the dated 42 days from the date of formal entry of these Orders for the date 18 November 1998 wherever it appears in Orders 2 and 3.
(b) Substitute the date 28 August 1997 or the date 10 January 1994 in Order 8(b).


4 Orders of trial judge of 26 November 1998 varied by substituting 2/3rds for 50 percent in Order 1.

5 Order the Respondents to pay 2/3rds of the Appellant’s costs of the appeal and cross-appeal.

- 235 -

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40898/98

ED 3799/97

SPIGELMAN CJ

PRIESTLEY JA

FITZGERALD JA

Thursday, 12 April 2001

FEXUTO PTY LIMITED v BOSNJAK HOLDINGS PTY LIMITED & ORS

JUDGMENT

1    SPIGELMAN CJ: I have read the judgment of Priestley JA in draft. His Honour sets out the background facts, summarises the judgment of Young J and outlines the issues on the appeal. Subject to my further discussion of some of these matters, I adopt his Honour’s judgment. There is little in his Honour’s recitation of the facts with which I disagree, save as to emphasis in certain respects. In some respects I have come to different conclusions.

The Court’s Jurisdiction

2 Section 260 of the Corporations Law is set out in the judgment of Priestley JA. The Company Law Review Act 1998 renumbered s260 as s246AA in a new Pt 2F.1 of the Act. Subsequently, by the Corporate Law Economic Reform Program Act 1999, subsection (1) is now subsumed in s232 of the Law and subsection (2) is subsumed in s233 of the Law. The case and the appeal proceeded by reference to s260.

3 A determination that the affairs of a company are being conducted in a manner which is either “oppressive or unfairly prejudicial or unfairly discriminatory” pursuant to s260(1) calls for a judgment on the part of the Court. In theory, where such a judgment is required there is notionally one correct answer. When it comes, however, to the exercise of a discretion such as that for which s260(2) provides, the Court at first instance has a choice for which, notionally, there is no single correct answer. An appellate court will not interfere, save in restricted circumstances, with the exercise of a discretion. The formulation of a judgment is not subject to such inhibition unless the right of appeal is itself restricted, e.g. by being confined to questions of law. The distinction between judgment and discretion is of significance. (See Bennion “Distinguishing Judgment and Discretion” (2000) Public Law 368).

4    The statutory formulation has been extended over the years to confer on the Court a wide-ranging remedial jurisdiction. The addition of the words “unfairly prejudicial to” and “unfairly discriminate against”, to the original statutory reference to “oppressive”, indicates an intention that the jurisdiction should not be confined by technical distinctions. (See e.g. Re Saul D. Harrison & Sons plc [1995] 1 BCLC 14 at 17-20; O’Neill v Phillips [1999] 1 WLR 1092 at 1098-1101).

5 The Appellant must establish a basis upon which this Court would interfere with the exercise of the discretion by Young J under s260(2). The primary case in this regard was that his Honour erred in forming the judgment, for which s260(1) provides, by failing to rely on conduct which, the Appellant asserts, was oppressive or unfairly prejudicial.

The Finding of Oppression

6    Subsection 260(1) calls for a single overall judgment to the effect that the affairs of a company are being conducted in a manner oppressive or unfairly prejudicial to, or unfairly discriminatory against, relevantly, Fexuto. This requires the identification of the appropriate range of facts and matters which constitute “conduct” of the “affairs of” Holdings. His Honour approached his task in this way. As he put it:

“Although, there may well be cases where each single allegation in itself could not be regarded as oppressive, I must assess the totality of the allegations to see if there is oppression. The authorities show that this type of case has to be judged on all the circumstances.”

7 His Honour had earlier outlined various respects in which the Appellant alleged that the affairs of the company were being conducted in an oppressive or unfairly prejudicial manner. He rejected a number of these matters on the facts, most of which were not pressed before us. He also indicated that a number of those matters had been made out. He returned to these issues, for the purpose of making the overall judgment which the statutory provision requires, under the heading of “The Total Facts of this Case”. His Honour’s conclusion was that, having in mind the totality of the conduct, he formed the opinion under s260(1) that there had been conduct of the requisite character.

8    The facts and matters which his Honour found to have been established and which were relevant for purposes of making the ultimate judgment - details of which are set out in the judgment of Priestley JA - were as follows:

· The acquisition by Jim and Carol Bosnjak through the National Bus Company of a corporate opportunity of Bosnjak Holdings Pty Ltd (“Holdings”).

· The acquisition by Jim Bosnjak of an interest in Transcard, also a corporate opportunity of Holdings.

· The circumstances in which the 1992 will of the mother, Mrs Anda Bosnjak, was made.

· The failure of the controllers of Holdings to provide Bob Bosnjak with proper and lawful access to information about the affairs of the company.

· The exclusion by the controllers of Holdings of Bob Bosnjak from involvement in decision making processes.

· The role of Holdings in these very proceedings, which went beyond what was appropriate for the defence of its separate interests.

9    A number of submissions were made to the effect that his Honour’s findings in some of these respects should be strengthened. Many of the matters which his Honour had rejected, as either not occurring at all or not being relevant to the formulation of the judgment for which the statutory provision called, were not the subject of any challenge on appeal. The primary issue on appeal was his Honour’s rejection of the assertion of a right to participate in management.

10    As indicated above, his Honour did rely on the exclusion by the majority of Bob Bosnjak from the decision making processes of the company. However that was on the basis of a narrower right to participate than that for which the Appellant contended. His Honour held:

“Bob Bosnjak, despite his personality was entitled to be consulted much more than he was. Despite his propensity for abusing people who approached him, there was no reason why at least key proposals could not have been submitted to him in writing. His views as to the change from management by the directors to management by executives and to the use of consultants were entitled to be given greater heed than they were.”

11    The right to receive information about the affairs of Holdings and to be consulted about decisions of Holdings is much less than the right to participate in management for which the Appellant contended. This, as I will further discuss below, was said to extend to a right to participate in what was described as “consensus style management” which, in effect, was a right to veto. Alternatively, a somewhat lesser right was asserted, namely a right to participate in day to day management: in effect, a right on the part of Fexuto to appoint an executive director. The right to be informed and to be consulted, which Young J found to be made out, was narrower than either of these rights.

12    Young J held that if, contrary to his conclusion, there was a right to participate in management, that right had ceased to exist. His Honour based this conclusion on the breakdown of relations between Bob and Jim, so that a change in management and control became necessary. Alternatively, his Honour concluded that the business had grown so large that a change in management style became necessary.

13 If the Appellant’s contentions in this respect were upheld then, by reason of the significance of the issue, this Court would reach the same judgment that his Honour reached, i.e. that the affairs of Holdings were being conducted in a manner oppressive or unfairly prejudicial to Fexuto. It would, however, do so on the basis of facts and matters which so extended the scope of the judgment as to entitle the Court to set aside the exercise of his Honour’s discretion under s260(2) and exercise the discretion afresh. On that basis, the issue of relief would fall to be determined again in this Court.

The Respondents’ Submissions

14    The 2nd - 8th Respondents (“the Respondents”) cross appealed against the finding of oppression. The principal basis for the cross appeal involved what was said to be the conduct of Bob Bosnjak in the course of board meetings and in the affairs of the company generally. It was submitted that the matter which his Honour took into account, when drawing the ultimate judgment of oppression, involving the failure to supply Bob Bosnjak with information and the failure to consult him should be attributed to Bob Bosnjak’s own conduct, particularly in board meetings. It was submitted that Bob Bosnjak had abandoned his obligation to act reasonably and responsibly with respect to the exercise of his fiduciary duties as a director of Holdings. In these circumstances, it was submitted, it was not appropriate to make a finding of oppression. The same argument would lead to the conclusion that a right to participate in management, if it existed, had been lost.

Conduct of Management

15    It is convenient at this point to deal with one matter which the Appellant contends his Honour should have found, in its favour, to be a consideration relevant to the formulation of the judgment of oppression or unfair prejudice. Under the heading of “Declining Results of Holdings”, the Appellant submitted before Young J, and in this Court, that the failings of management reflected in declining profitability after 1995, was such as to justify a conclusion that management incompetence constituted oppression or unfair prejudice to a minority shareholder.

16    Young J said:

“However, in matters of management, the court usually takes the view that unless it can be seen that the majority have taken a line that involves self interest or a decision that no reasonable board could have taken, it does not interfere.”

17    In its grounds for appeal and submissions, the Appellant accepted this test and the significant burden which it imposes on a party contending that management incompetence was such as to be relevant to the formation of the statutory judgment.

18    In this Court, the Appellant submitted that decisions of the Board, notably the decision to appoint John Mostyn as Managing Director of the company, were such that no reasonable Board could have made such a decision.

19    In his judgment, Young J considered a number of different decisions which the Appellant had submitted were of a character that no reasonable Board could have taken those decisions. These included the use of and sale of real estate and the carrying out of renovations to property. His Honour’s reasons in this respect appear to me to be compelling. Allegations of mere error in the conduct of management are never sufficient in this regard. His Honour was right for the reasons he expressed.

20    Similarly, a decision to appoint a person as Managing Director who appeared to have qualifications for appointment to that position, cannot be called into question simply by observing that the profitability of the company declined in the period after his appointment. This is a post hoc ergo propter hoc error. Neither the submissions to this Court, nor the materials before the Court, suggest that there is any warrant for drawing a link between the appointment of the Managing Director and the decline in the fortunes of the company. In particular, there is no foundation in the submissions or the materials before the Court for concluding that the appointment of Mr Mostyn as Managing Director was an appointment that no reasonable Board could make.

Participation in Management

21 The conclusion of Young J, that the Appellant had established that the affairs of Bosnjak Holdings were being conducted in a manner oppressive to it, was not based on the Appellant’s contention that the oppressive conduct was constituted in part by the denial of what was said to be an expectation on the part of Fexuto that, by its representative Bob Bosnjak, it was entitled to participate in the management of the company and the group of companies. His Honour held, first, that there was no such right to participate and, secondly, if there ever had been such a right, it had ceased to exist and was not extant as at the date of the institution of the proceedings. Accordingly, when his Honour exercised the discretion under s260(2) of the Corporations Law to determine what were the appropriate orders, his Honour did not take into consideration the alleged exclusion from management as a matter relevant to the exercise of the discretion.

22    The pleadings asserted a right to “effectively participate in management”. The word “effectively” is too vague to be given content. In this Court, the Appellant propounded, as its primary submission, that the right to participate in management encompassed what it referred to as “consensus style management”, in effect that Fexuto had a right to veto. As Mr Ellicott QC, Senior Counsel for the Appellant, put it: “unless there was a full agreement between the directors nothing would happen.”. Alternatively, the Appellant propounded a right to participate in management on a day to day basis, in effect that Bob Bosnjak would act in the capacity of an executive director.

23    It does not appear to me that the right to veto was propounded in the same way in the submissions at first instance as it was put in this Court. Nevertheless, no objection was taken to the submissions on behalf of the Appellant in this respect.

24    A ‘right to veto’ is, in my opinion, quite distinct from a ‘right to appoint an executive director’. By reason of the failure to separately identify these elements before Young J, his Honour’s judgment proceeds in terms of a ‘right to participate in management’, although many of his Honour’s observations appear to be more pertinent to a ‘right to veto’, than they are to a ‘right to appoint an executive director’.

25    A ‘right to nominate an executive director’ involves active participation in the business, on a day to day basis, with correlative rights to receive income, which goes beyond the right to be consulted which his Honour found to exist. A right to veto is, in my opinion, a much more significant, and qualitatively different, right than a right to nominate an executive director. A ‘right to veto’ is a more significant intrusion into the affairs of a company, and is capable of having more important effects on the development of the business. I will use the terminology of ‘right to participate’ when I intend to encompass both rights, namely, the ‘right to veto’ and the ‘right to nominate an executive director’.

26    The Appellant’s case with respect to the right to participate was based on what was said to be an ‘understanding’ amongst family members, in their capacity as controllers of the respective shareholders in Holdings. It was this ‘understanding’ which, it was submitted, qualified the situation as to the control of the affairs of Holdings that would result from a literal application of its articles of association, particularly those articles which provide for the appointment and removal of directors and of a managing director.

27 Priestley JA outlines the history of the Bosnjak companies. Whilst I differ in terms of the emphasis I would place on particular aspects of that history, I generally accept his Honour’s analysis. It is appropriate to approach the issues that arise under s260 on the basis that the Court has before it a family partnership which has taken a corporate form.

28    The corporate form entitles a majority of shareholders to act in such a way as to exclude the right to participate asserted by the Appellant, in each of the alternative ways in which that case is put. The issue for this Court is whether by reason of the circumstances, including the basic nature of the arrangement as a family partnership, those legal rights should be qualified in such a manner that an assertion by the majority of its formal authority under the articles constitutes “oppression or unfair prejudice to or unfair discrimination against” Fexuto.

29    The House of Lords decision in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 is frequently cited as the origin of contemporary doctrine with respect to the exclusion from management in the case of a company that is, in effect, an incorporated partnership, sometimes referred to as a “quasi-partnership”. Although concerned with the “just an equitable” ground for winding up, similar considerations have been held to arise with respect to actions which, conveniently, are referred to as “oppression suits”.

30    In Ebrahimi Lord Wilberforce referred to the “just an equitable” ground and said:

“It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; consideration, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.” (379D)

31    In this, as in other authorities, reference is made to situation in which equity as a formal body of doctrine would intervene to prevent the exercise of the legal right. The statutory remedy, whether expressed in terms of winding up on the ‘just equitable ground’ or in terms of ‘oppression’ or ‘unfair prejudice’ or ‘unfair discrimination’, does not apply only to situations in which equity would intervene. No doubt the principles reflected in the formal doctrines of equity will assist the court in reaching the judgment for which the statutory provisions, respectively, provide. Nevertheless, the terminology employed by the Parliament was not of a technical character and was intended to confer a wide jurisdiction on the courts.

32    It is of some significance in the present case that the Appellant was not able to point to any document, nor give any evidence of any conversation, by which the ‘understanding’ for which it contended was created. There was no evidence of any communication constituting any such understanding, or on the basis of which any express understanding could be inferred. The case, in this respect, was entirely a circumstantial one. The right to participate was to be established by a process of inference. Such an inference may be drawn in an appropriate case. (See Tay Bok Choon v TahansanSDN BHD [1987] 1 WLR 413 at 417-418; R & H Electric Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280 at 295).

33    I will supplement Priestley JA’s outline of the factual matrix. Thereafter, I will consider whether either the right to veto or the right to appoint an executive director was part of any understanding or expectation of a character which, if denied, would be material for forming the statutory judgment of oppression or unfair prejudice.

Factual Matrix

34    Most of the facts relevant to determining the existence of a right to participate have been outlined in the judgment of Priestley JA and it is unnecessary for me to repeat them here.

35    The original position when the father was alive was clear. He was in complete control of the affairs of the company by reason of his ownership of the governor’s share, which conferred the elaborate rights set out by Priestley JA. This control was reinforced by his ability, not in the event exercised, to confer equivalent control upon any other person by assigning that governor’s share to that other person. I do not infer that there was, at any time, an intention to maintain the governor’s share control. Rather the power to do so - to prefer one son over the others or even to introduce a non-family member - was a manifestation of the totality of the control exercisable by the father as undisputed head of the family.

36    As Priestley JA has observed, the evidence does not establish whether, and if so to what extent, the authoritarian management of the formal corporate structure was modified in practice during the father’s life. There is no basis in the evidence to conclude that, at this stage of the corporate history, any shareholder had a right to participate in either of the respects for which the Appellant contends.

37    Priestley JA has set out the formal structure which was established on the basis that it would operate after the death of the father. It was, for the reasons Priestley JA sets out, a family partnership. It was, in my opinion, expected to endure.

38    By the time the structure was adopted the family had, under the leadership of the father with the active participation of the sons, established a substantial business. The primary purpose of the structure was plain. It was to provide for the economic well-being of the whole family by creating wealth and opportunities for remunerative employment. The structure made provision for all three sons and also for their families.

39    The structure was devised with considerable care and attention to detail. It was, in my opinion, designed to endure in the expectation that the family would remain tightly knit through the generations. That regrettably, but not without precedent, has not proven to be so.

40    A number of features of the formal structure are particularly pertinent for determining the existence of the right to participate asserted by the Appellant.

41    The first significant feature of the structure is that it was one based on a principle of equality amongst the three sons and, in my opinion, their families. Each of Fexule, Fexuto and Feyama, representing respectively John, Bob and Jim Bosnjak and their families, held two-sevenths of the shares in Holdings. The other one-seventh was held by Bosnjak Group Pty Ltd (“Group”) in which each of the father (after his death the mother), John, Bob and Jim held one share. The shares in Holdings held by Group were held on trust for the Anda Bosnjak Trust of which the beneficiaries were the children of John, Bob and Jim.

42    The second significant feature of the structure is the element of interconnection amongst the family. This interconnection was achieved by the interposition of Group. The father (after his death the mother) and the three sons were the shareholders of Group. The directors of each of the three companies - Fexule, Fexuto and Feyama - were the sons and their respective wives. One of the two shares in each company was held by the son on trust for his related family trust. The other share was held by Group also on trust for that son’s family trust. Group, accordingly, representing a majority of the family, could exercise rights as a trustee with respect to the internal decision making of each of the three family companies.

43    Furthermore Group, as trustee of the Anda Bosnjak Trust, could exercise rights as a one seventh shareholder of Holdings. Two of the three second generation family companies could not carry a special resolution at a general meeting of Holdings. To do so, they needed the assent of Group.

44    Although, the position of Group as a one-seventh shareholder remained significant, these proceedings were conducted on the basis that each of the three families controlled their two-seventh’s share and nothing turned on the shareholding of Group in Fexule, Fexuto and Feyama. Indeed, before Young J had heard the case, Fexule and Feyama had transferred their shares in Holdings to the National Bus Company, in which Jim and Carol Bosnjak held one share each.

45    The control structure was such that two of the three second generation families could prevail over the third, subject to the need to have the agreement or abstention of Anda with respect to actions of Holdings that required positive action by means of a special resolution.

46    No doubt the expectation was that the family would stay unified and that decisions would be joint decisions in a partnership of three equals. Nevertheless, if harmony should not exist - hardly an unprecedented eventuality - the commercial affairs of the family could be effectively managed, on the formal structure, by a majority of the second generation families, i.e. two of the three.

47    The third significant aspect of this family structure is that there is no provision of any formal character for pre-emptive rights over dealings with the shares. Such restriction was, in the late 70s as now, a very well known mechanism for perpetuating family arrangements.

48    Holdings was a proprietary company and, accordingly, made provision for restriction on transfer of shares, in a common form. Subject to a right to transfer to an immediate family member, the directors were given a power to decline to register a transfer. This power could, like other directors’ powers, only be exercised bona fide in the interests of the company as a whole. (See e.g. In re Smith & Fawcett Ltd [1942] Ch 304; Lyle & Scott Ltd v Scott’s Trustee [1959] AC 763). Subject to the exercise of this power by a majority of the Board, there was no restraint on transfer. Specifically, there was no pre-emptive rights provision of any kind.

49    It has never been suggested that there was any relevant ‘understanding’ which constituted a restriction on the free transferability of the shares in Holdings by a family member to any third party. Indeed, during the course of the dispute, Bob Bosnjak suggested, more than once, that he may sell the Fexuto shareholding.

50    Whatever the rights to participate may have been - whether extending to a power of veto or limited to a power to nominate an executive director - no such right could continue once any member of any one of the three family groups transferred its shares to a person outside the family. Although under the Articles, a majority of the Board could refuse to approve a transfer to a non family member, that power has never been put forward as a significant factor in these proceedings.

51    One of the significant factors in virtually all of the case law about oppression and winding up on the just and equitable ground, has been a formal restriction which prevented the applicant for relief selling his or her interest for full value. (See e.g. Ebrahimi (supra) at 379, O’Neill v Phillips (supra) at 1102G-H, Tay Bok Choon (supra) at 417). Indeed in O’Neill v Phillips Lord Hoffmann stated the relevant test in terms of exclusion from management, without affording the aggrieved party an opportunity to sell at fair value. There was no suggestion in the present case that the majority of directors would have impeded the sale of the shares by Fexuto in any way.

52    Unlike other cases, this applicant for relief did not and does not wish to sell, at least as a first preference. Indeed, the Appellant has instituted an appeal rather than take up the opportunity to sell afforded to it by Young J.

53    It is of relevance to the Respondent’s cross appeal - that the judgment that oppression existed should not have been drawn - to note that, unlike the usual case, there was no apparent impediment to Fexuto realising the value of its shares, subject to adjustments for the other defaults which his Honour found to exist.

54    This factor may be relevant to determining what weight should be given to other particulars of oppression or unfair prejudice - including, if entitled, denial of the right to participate - when making the statutory judgment and exercising the discretion to grant relief.

The Right to Veto

55    As I have said above, the primary purpose of the arrangement was to provide for the economic well-being of the family, including the next generation. This Court should be very slow to imply any form of understanding which is inconsistent, to any significant degree, with this primary purpose. In my opinion, a right of veto over decisions of the company, held by one shareholder with only two-sevenths of the vote and a one-third indirect interest in a one-seventh share, is inconsistent with this purpose. The objective of ensuring the future economic well-being of the family as a whole is, and would have been understood in 1975 to have been, inconsistent with the conferral on one family member of an ability to frustrate the majority of the family pursuing what it believes to be the commercial interests of the whole.

56    The inability to make decisions by reason of the existence of a veto is a very significant burden for any active commercial organisation to bear. It could adversely affect all its commercial and financial relationships. It is not a burden which should be inferred in the absence of any foundation in the formal documents or in oral communication which creates such an impediment to the capacity of the group to grow and develop.

57    For that reason alone, in my opinion, there is no proper basis for a right to veto, in the sense of participation in what the Appellant called “consensus management”.

58    The Appellant placed particular reliance on what it alleged to be the fact that, from the death of the father and the eldest brother in 1979 until 1993, with the exception of a short period in 1988 and 1989, the affairs of the group were conducted on the basis of the exercise by Fexuto of the right to participate, it was submitted, in both respects, i.e. the right to veto and the right to nominate an executive director. The assertion that this was the situation throughout this relevant period was contested in certain respects. However, even accepting the proposition at its full value, I find the fact itself to be equivocal with respect to the ultimate inference sought to be drawn.

59    Management practices in a corporation develop for many reasons. They are subject to the exigencies of what falls for determination and to the personalities involved. The fact that a particular person exercises certain management rights, or has a de facto authority to carry on or to prevent certain actions, is as consistent with an inference that this is merely the result of an ad hoc procedure, as it is with an inference that it is a manifestation of an underlying ‘understanding’ to this effect. Although the proposition was not put in quite this way during the course of the submissions, it may be that the longevity of a particular mode of decision making will, of itself, create something in the nature of an expectation, the frustration of which may constitute oppression or unfair prejudice.

60    Priestley JA describes the arrangement between 1979 and 1993 (except for the period in 1988-1989) as a situation in which the two brothers were joint managing directors and partners making joint decisions. That may be so. The issue is whether there was any understanding, or proper basis for an expectation, that that would continue.

61    One cannot infer the right to have a status quo continue merely from the fact that it is the status quo. Something more is needed in order to establish a right or expectation that it would continue. That will usually take the form of an agreement or understanding between parties or an expectation induced by the conduct of the business. As Young J put it:

“It is true that between 1989 and mid-1993, Bob and Jim in fact had day to day management and control of Holdings. However, … that fact alone is insufficient from which to construct a legitimate expectation of continuing involvement in management.”

62    I note that Lord Hoffmann, who originally introduced the terminology of “legitimate expectation” into this area of discourse, has accepted that it is not appropriate. (See O’Neill v Phillips (supra) at 1102). The introduction of a word such as “legitimate” before a noun referring to an act or condition, is more a mode of expressing a conclusion than an independent criterion.

63    This Court is in as good a position as Young J to draw the inference as to whether or not a right to participate in management in either of the respects identified existed. However, his Honour made findings as to primary facts which are directly pertinent to this inference, which findings this Court should not overturn. Indeed, no basis for overturning the findings of primary fact, to which I will refer below, has been established in the submissions to this Court. These findings of primary fact by Young J were of great significance to his Honour’s refusal to draw the inference for which the Appellant contended. In my opinion, his Honour’s assessment of these primary facts was correct and, indeed, compelling.

64    The findings lead to the conclusion that the existence of “consensus management” between 1979 and 1993, save for the period in 1988-1989 when Carol Bosnjak was on the Board, was a result of Bob’s conduct, not a result of any understanding or expectation which this Court should acknowledge as material to the formation of the statutory judgment.

65    After her husband’s death, Carol Bosnjak worked in the family business but did not seek appointment to the Board until 1988. At this stage, only the two brothers were active in management. There were three directors of Holdings, the two brothers and their mother Anda. Although not active in management, there was some evidence of involvement on her part. In principle she could resolve a deadlock but, as a mother, would obviously do so with reluctance.

66    I see no basis for concluding that the effective veto Bob Bosnjak had during this period was anything other than the de facto situation. It was not based on any understanding that it should continue.

67    This is confirmed by the events that occurred when Carol Bosnjak was, for the first time, appointed to the Board of Holdings in 1988. His Honour made clear findings of primary fact about this period. There is no warrant for this Court interfering with any of those findings of primary fact. The findings indicate an attitude on behalf of Bob Bosnjak which is inconsistent with the principle of equality amongst the three shareholders - a principle which I have identified above to be a significant feature of the structure - in relation to a ‘right to participate’, in either of the respects contended for. It is of particular significance for the right to veto, insofar as the de facto situation of “consensus style management” only continued to exist because of conduct which denied the principle of equality.

68    The position taken by Bob Bosnjak was that Carol Bosnjak, the relevant controller of the shares in Holdings in the name of Fexule, did not even have a right to be appointed to the Board of Directors, let alone a right to appoint an executive director, or even further, a right to veto decisions of the company. In his affidavit, which I will quote below, he asserts an acknowledgment of a “right to have her say”, which is plainly more amorphous than his own claim.

69    His Honour’s findings included the following:

“Bob Bosnjak was very emotionally affected by the appointment of Carol Bosnjak as a Director in 1988. That emotional torment has to a great extent led to Bob Bosnjak being obsessed and seeing a conspiracy in almost everything that was done in the company.”

70    His Honour expressly rejected Bob Bosnjak’s evidence that he opposed Carol’s appointment because it destroyed the concept of the family business. His Honour found:

“I formed the impression that one of the reasons Carol was not accepted as a director in 1988 was because she was a woman.”

71    His Honour referred to a number of instances in which Bob Bosnjak had made sexist comments. His Honour concluded:

“However, Bob’s main reason for opposition was that the balance of power changed.”

72    His Honour also held:

“It is not uncommon in cases where there is a family who have moved from overseas to Australia that the eldest male occupies a very significant position. Bob Bosnjak became the oldest surviving male in 1979. He would and did expect that due respect be paid to him and his wishes. This does not always happen in modern day Australia. However when it does not, the person concerned suffers considerable emotional torment.”

73    His Honour refers to Bob Bosnjak’s reaction upon Carol’s appointment and categorises it as “the senior male asserting his will”.

74    These findings of primary fact represent conduct which is inconsistent with the proposition that each of the three shareholders have a right to participate either by a right to veto or by a right to appoint an executive director. In the case of the right to veto, the findings undermine the assertion that this Court should infer such a right from the fact that it existed over a period of time.

75    It is of significance that, in his evidence, Bob Bosnjak did not assert a right to veto based on any kind of understanding. The relevant paragraph in his affidavit of 25 May 1998 was as follows:

“When the proposal to appoint Carol was made, I objected because I believed that as the company had been operating successfully for many years with only two directors since the death of my father and John, that such an appointment was unnecessary for several reasons. Firstly, my father had always made known to both Jim and I that it was a family company, which should therefore be managed by family members, namely his sons. Secondly, I was of the view that if Carol was appointed as a director of Holdings that she would in all likelihood vote in support of Jim and thereby reduce the extent to which I would, in the future, be able to provide direction and management of the day to day operations of the business. I was however appreciative at that time that Carol, as the wife of my brother John, was both entitled to receive the shareholding which John had held in the company and to have her say in relation to the manner and direction in which the company was to be taken. Mr principal concern however in opposing the appointment of Carol was that her appointment would in all likelihood diminish discussion and compromise in relation to decisions and thereby my contribution to the day to day operations of the company for the benefit of us all.”

76    This evidence is consistent with the finding of Young J that the main reason for opposition was “that the balance of power changed”. However, the significant aspect of this affidavit, for present purposes, is that there is no assertion of any understanding, or of any basis for an expectation, that the de facto situation of a right to veto would continue. He simply says that because of the successful operation of the company since 1979 the appointment of an additional director was “unnecessary”, that the probability that Carol Bosnjak would vote with Jim Bosnjak would reduce his own ability to “provide direction and management” and that it would “diminish discussion and compromise”. None of this suggests any understanding that the status quo would continue. The highest the case Bob Bosnjak himself put was that it was desirable, in his opinion, for that position to continue.

77 In my opinion, Young J was correct when he rejected the suggestion that a right to veto in the sense of “consensus style management” was based on any form of understanding or expectation that could legitimately be taken into account in forming the judgment for which s260 provides.

78    Priestley JA suggests that the intervention by Mrs Anda Bosnjak to secure the resignation of Carol Bosnjak in 1989 was “powerful support” for Bob Bosnjak’s view that consensus style management was “appropriate in the family”. I do not agree. The intervention of a mother to restore a situation of harmony between two sons is equally consistent with resignation in the fact of petulance, as it is with accepting the appropriateness of the demands. The former appears to me to be the more likely explanation in the present case. It is suggested by Young J’s findings of primary fact. The motive for her intervention was an attempt to restore a family relationship which business conflict had ruptured. It is not, in my opinion, correct to infer that it constituted a recognition of an appropriate business relationship.

Right to Appoint an Executive Director

79    Members of the family have throughout been employed by the Bosnjak group of companies. Each worked at different levels of the corporation, no doubt in accordance with their capacity. The brothers John, Bob and Jim were capable of participating at an executive level and did so. In my opinion, at least for a substantial period of time, there was an understanding that the affairs of the business would be controlled by members of the family acting as executive directors. Bob Bosnjak was entitled to the benefit of this understanding.

80    This issue turns on whether or not, for any particular reason, this situation changed in such a manner that exclusion from day to day management would no longer constitute a matter appropriate to be weighed in the balance when forming a judgment of oppression or unfair prejudice. Young J came to the conclusion that the expectation of such participation, if it existed at all which he rejected, did cease for two different reasons.

81    It is convenient to deal with the second reason his Honour expressed first. His Honour said:

“As has been seen, Holdings started from very humble beginnings to become the largest private bus company in Australia. It is very hard to conceive how a management style which was suitable for a small bus service out of a few suburban railway stations was necessarily suitable for a large concern.
Indeed, it is a generally accepted sociological fact that when an organisation exceeds about 150 people, it is no longer practicable to operate it on a personal relationship basis and that some hierarchal structure becomes necessary. It is clear that, at some stage of its growth, business moved through that barrier.
In my view, the mere expansion of the company indicates that it was no longer possible for the 1989 status quo to continue so far as management was concerned.”

82    It does not appear to me that the issue of whether, and if so when, Holdings passed beyond the stage at which a right to participate in day to day management was appropriate, was the subject of any detailed evidence before his Honour. His Honour refers generally to the growth and the size of the operations including, it would appear, the activities of the National Bus Company in Victoria, the right to a proprietorial interest in which on the part of Holdings was an issue before his Honour.

83    In their submissions to this Court, the Respondents did not seek to support his Honour’s conclusion with any reference to the evidence. Financial information about the size and operation of the group of companies was not comprehensive. Various documents refer to aspects of the financial structure and there is evidence both documentary and in the form of affidavits about the size and scope of the operations. However, no attempt was made in the proceedings, or in submissions, to systematically set out the financial situation and growth in size of the operation. Nor was any attempt made to establish that some significant role in day to day management would not be available to Bob Bosnjak as an executive director, albeit in a hierarchy of executive directors, in which he was not necessarily a managing director. In my opinion there was not a sufficient evidentiary base for the conclusion which Young J drew in this regard.

84    The other, and first, reason which Young J gave for drawing the conclusion that, even if an expectation of participation in management had existed, it had ceased to exist for pertinent purposes, was the emergence of the conflict over a long period of time between Bob and Jim Bosnjak. His Honour concluded that relations between them had “became strained to the degree that they could not work together”. His Honour referred to material before him and concluded that:

“… the point has been reached where the brothers cannot work together and any legitimate expectation has ceased.”

85    His Honour further concluded:

“Whichever version of the facts one takes, or whoever was at fault, Bob Bosnjak was not able to work as part of a management team with Jim Bosnjak or with Carol Bosnjak. Or, to put it the other way round, Jim Bosnjak was not able to work in a management team with Bob. On the authorities to which I have already referred that meant that any legitimate expectation to be involved in management by Bob Bosnjak ceased.”

86    The first authority to which his Honour referred, was the following statement by Lord Templeman in Tai Bok Choon (supra):

“Although no specific undertakings may have been given an obligation is to be implied or inferred from the conduct of the parties to allow the petitioner to participate in management and to be a director unless by withdrawal of his support or for some other good reason a change in management and control became necessary. ” (at 417-418 underlining added by Young J)

87    The other authority to which his Honour referred was the judgment of Robert Walker J in R & H Electric Limited v Haden Bill Electrical Limited (supra) at 295:

“Lord Templeman qualified the expectation of the position in that case by limiting it to the period until ‘for some other reason the change in management and control became necessary’; and that qualification is no doubt appropriate in any similar case, including the present case. The personal troubles between Mr Pitt and Mr Watkins … made it inevitable that there should be a change in management and control, and Mr Watkins’ alliances with the Hoggs … made it inevitable that Mr Pitt should be the one to go.”

88    However, in that case the petitioner, Mr Pitt, and his company R & H Electric, did obtain relief. Robert Walker J continued at 295:

“Conversely, however unmeritorious Mr Pitt’s personal conduct, it could not in my judgment justify the majority shareholders in summarily ejecting him without consultation or discussion about the future of Mr Pitt’s equity capital, and R & H’s loan capital, in Haden Bill.”

89    It may be accepted that the existence of irreconcilable differences amongst persons involved in what is, in effect, a partnership, will destroy the personal relationship involving mutual confidence, that lies at the heart of the partnership analogy. This analogy has been applied both to applications for winding up on the just and equitable ground and also to oppression suits. (Although the differences in form are not immaterial. See In re a Company (No 002567 of 1982) [1983] 1 WLR 927 at 935-936 per Vinelott J). Irreconcilable differences may establish a basis for winding up, they do not of themselves constitute oppression or unfair prejudice. (See McMillan v Toledo Enterprises Pty Ltd (1995) 18 ACSR 603 at 614). Nevertheless, the destruction of the personal relationship establishes a basis for granting relief in the usual case, not for concluding that the partnership analogy has ceased to be pertinent. (As to partnership law, see Atwood v Maude (1868) LR 3 Ch App 369 at 373; Knight v Bell (1887) 13 VLR 878 at 885-886).

90    There will be circumstances in which the emergence of irreconcilable differences will cause the court to conclude that an understanding or expectation as to participation in management should be taken to have ceased, in a manner not entitling the person excluded from such participation to relief under the statutory provisions. That would be so where the Court decides that it is the person excluded who is responsible for the breakdown in the relationship. This appears to have been the case in Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd (2000) 34 ACSR 469. See also Belgiorno-Zegna v Exben Pty Ltd (2000) 35 ACSR 305 esp at [142], [151].

Even if there was dishonesty in the case of the NBC, I would consider that this was a case where, notwithstanding that dishonesty, a sizable allowance would need to be made to the erring fiduciaries for their efforts.
…… . No [Holdings’] money went into NBC, Jim and Carol Bosnjak financed the acquisition from their own resources, they bore all the financial risk, NBC was for a while, unprofitable, but became profitable by a renegotiation with the Victorian Government independent of [ Holdings] and day to day managerial success was achieved not through [Holdings], but primarily through the skill of [NBC’s CEO] Mr Oliver.
…
…. Bob Bosnjak waited quite a time before commencing these proceedings. He waited until after NBC started to become profitable and then asked for a 1/3 share, even though he had the opportunity to object sooner. ….
… . I …. found … that Bob Bosnjak had adequate knowledge to commence proceedings by 10 January, 1994.
Although Bob Bosnjak mounted Federal Court proceedings in 1995 to force disclosure of more documents and kept up his suggestion for an asset split, he only became interested in becoming involved in NBC in January, 1997. The present proceedings were not commenced until late August, 1997.
I realise that, apart from Bob Bosnjak, the 1-7th interest of Anda Bosnjak’s estate [Group] is also affected. However, that estate is not a claimant, and I do not consider I need examine when its controllers had sufficient knowledge of the matter.
In my view, the only account that Bob Bosnjak should have is an enquiry as to what, if anything, is the amount which Jim and Carol Bosnjak should refund to [Holdings] because they utilised the time and information of [Holdings] in connection with the acquiring of the NBC franchise for the Melbourne bus operations up to 10 January, 1994.”

720    It might be added that, if Bob had known what Jim and Carol were doing, he would have insisted that they stop, not that any tender submitted be submitted on behalf of Holdings.

721    Taking all these matters into account, as well as the provision for just allowances, the earliest possible date, consistently with the High Court’s judgment in Warman,68 for the assessment of NBC’s profits for the purpose of Jim and Carol accounting to Holdings for their breach of fiduciary duty is January 1997. In the circumstances, I agree with Priestly JA that an appropriate date is the date of commencement of this proceeding on 28 August 1997.

722    Three matters remain for consideration.

723    The trial judge ordered that, if Fexuto elected to sell its shares in Holdings, it was to be paid their fair value “ascertained without regard to [Fexuto’s] shares being a minority interest in [Holdings] and on the basis that … the amounts found to be due to [Holdings]” for breach of fiduciary duty had been paid. That was the correct course.

724    If Fexuto elects to purchase NBC’s shares in Holdings at a fair price, the amounts found to be due to [Holdings] for breach of fiduciary duty should be disregarded but the price paid by NBC to Fexule and Feyama for their shares in Holdings and to Jim by NEG in respect of NBC’s shares in Holdings should be available to be taken into account.

725    The final issue concerns costs. The trial judge awarded Fexuto only 50% of its costs; i.e., although it was successful it was deprived of half its costs. Broadly stated, his Honour was influenced by Fexuto’s failure on some issues and its failure to obtain the relief which it primarily sought. Its position has been improved in this Court although it still has not succeeded on all issues or obtained the order which it sought for a division of Holdings’ assets, which it put at the forefront of its claims.

726    There is no reason whatever for an order for indemnity costs in favour of Fexuto. Bob and Jim were both obdurate and the intransigence of each unnecessarily complicated and lengthened the litigation. Nonetheless, in legal terms Bob won and Jim lost. On the broad approach which is inevitable, I accept Priestley JA’s view that Fexuto should be awarded 2/3 of the costs of the proceedings other that the proceedings in this Court.

Addendum

727    The Court: We are agreed that the appeal should be allowed and that cross-appeal dismissed. Further, although our conclusions differ in some material respects, there is a majority opinion in relation to each aspect of the relief sought by the appellant, Fexuto Pty Ltd.

728    A majority have decided that the assets of Bosnjak Holdings Pty Ltd and its subsidiaries should not be split between its shareholders. A different majority have decided that Fexuto should not have an option to purchase National Bus Company Pty Ltd’s shares in Holdings. Those orders will therefore be refused.

729    All members of the Court agree that Fexuto should have an option to sell its shares in Holdings and that the shares should be valued for that purpose on the basis provided for in the trial judge’s orders of 4 November 1998 except that the date specified in paragraph 8(b) of those orders should be varied. A majority of the Court consider that the date 27 August 1997 should be substituted for the date 10 January 1994 in paragraph 8(b) of those orders.

730    All members of the Court agree that an appropriate order for the costs of the proceedings in this Court is that the respondents should be ordered to pay 2/3 of the appellant’s costs, including the costs of the cross-appeal.

731    The Court’s orders are:

1. Appeal allowed.

2. Cross-appeal dismissed.

3. Orders of trial judge dated 4 November 1998 varied as follows:

(a) Substitute the date 42 days from the date of formal entry of these Orders for the date 18 November 1998 wherever it appears in Orders 2 and 3.
(b) Substitute the date 28 August, 1997 for the date 10 January 1994 in Order 8(b).


4. Orders of trial judge of 26 November 1998 varied by substituting 2/3 for 50 percent in Order 1.

5. Order the respondents to pay 2/3 of the appellant’s costs of the appeal and cross-appeal.
_______________________

1 For those interested in how private bus routes were controlled at that time, it is all explained in Bosnjak’s Bus Service Pty Ltd v Commissioner of Motor Transport (1970) 92 WN (NSW) 1003, and the related unreported decision of Mahoney J in Calabro Bros Pty Limited v Commissioner of Motor Transport (6 April 1973). (These cases incidentally show the rivalry between the Bosnjak and Calabro families which later played a part in the history of the present case.)
2 Alleged in the Statement of Claim and not contested in the defence.
3 The section has since been put in a somewhat different form: it became s 246A and was later divided into ss 232 and 233.
4 Introduced in the UK in 1947 and in New South Wales by the Uniform Companies Act 1961 as s 186.
5 [1959] AC 324.
6 In s 260 they are in subsection (1)(a)(i). This amendment was made in 1980 in the UK and in 1983 in Australia. Other amendments were made later.
7 Par 121 of final Statement of Claim.
8 The daughter of Mrs Carol Bosnjak.
9 [1973] AC 360.
10 [1987] BCLC 8.
11 Posgate and Denby was one of these cases. The decision was made by Hoffmann J sitting in the Chancery Division. Later, in the Court of Appeal, he explained the idea more fully in Re Saul D Harrison & Sons plc [1995] 1 BCLC 14.He gave a further exposition, in the House of Lords, later than Young J’s decision in the present case: O’Neill v Phillips [1999] 1 WLR 1092.
12 [1987] BCLC at 14.
13 [1987] BCLC at 14.
14 [1987] BCLC 585.
15 (1968) 1 ACLR 489 at 492.
16 In the amended notice of appeal subsequently filed by leave of the court there was a claim for winding up, but counsel for Fexuto acknowledged it could not be pursued in the appeal.
17 Further Amended Notice of Appeal, Order 12.
18 Further Amended Notice of Appeal, Order 12.
19 Further Amended Notice of Appeal, Order 14; cp Trial judge’s Orders, para. 2.
20 Further Amended Notice of Appeal, Order 7A.
21 Further Amended Notice of Appeal, Order 20; cp Trial judge’s Orders, paras. 8(b) and (d).
22 Further Amended Notice of Appeal, Order 10.
23 Trial judge’s orders, para. 8(a).
24 Further Amended Notice of Appeal, order 13.
25 Trial judge’s orders, para. 8(c).
26 Further Amended Notice of Appeal, Orders 14A and 14B.
27 Further Amended Notice of Appeal, Order 2.
28 [1987] BCLC 585; see text at fn 14.
29 [1999] 1 WLR1092; Lord Hoffmann’s was the leading opinion; the other four Law Lords all agreed with him.
30 At 1102.
31 [1995] 1 BCLC 14.
32 At 1102.
33 At 1098.
34 At 1098.
35 (1853) 10 Hare 493; 68 ER 1022.
36 [1951] VLR 458.
37 [1999] 1WLR at 1102.
38 Report of the Company Law Committee (Cmnd 1749, 1962) (The Jenkins Committee Report); of the many articles, I mention only “ Oppression or Unfairness by Controllers ” J.F. Corkery (1983-1985) 9 Adel LR 437; “ A Fresh Approach to Section 320 ” D. Wishart (1987) 17 UWAL Rev 94; “ Protecting Minority Shareholders and Reasonable Expectations ” J. Hill (1992) 10 C & SLJ 86; this does not downgrade any of the others; there are simply too many to sift and evaluate comparatively.
39 See par 7A of the orders sought in the final amended notice of appeal.
40 See par 351 above.
41 See text at footnote 34.
42 Phipps v Boardman [1965] Ch 992 at 1000.
43 Formerly Bosnjak Bus Service Pty Ltd.
44 Corporations Law , s260(1)(a)(i).
45 Para. 427.
46 Para. 429.
47 Para. 444.
48 Para. 445.
49 Para. 445. See also paras. 563, 564, 567.
50 Para. 447.
51 See also paras. 566, 568 and 569.
52 I will assume that, despite Group’s shareholding, there would have been no breach of fiduciary duty or conduct which was oppressive, unfairly prejudicial or contrary to the interests of Holdings’ members as a whole if Bob had given his informed consent to what occurred notwithstanding that Holdings’ other 2 directors, Jim and Carol, were party to NBC’s conduct and stood to benefit from it.
53 See, for example, Furs Ltd v Tomkies (1936) 53 CLR 583; Warman International Ltd v Dwyer (1995) 182 CLR 544; Maguire v Makaronis (1996) 188 CLR 549.
54 Priestley JA’s reasons for judgment, para. 562.
55 Priestley JA’s reasons for judgment, para. 562.
56 Priestley JA’s reasons for judgment, para. 562.
57 Corporations Law , s260(2).
58 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102; Maguire v Makaronis (1996) 188 CLR 449.
59 No consideration has been given to an order that Group’s shares in Holdings be purchased if it wishes to sell.
60 Para 179. See also para. 180.
61 Paras 181-183 .
62 Trial judge’s orders, para. 8(a).
63 Further Amended Notice of Appeal, order 13.
64 Trial judge’s orders, para. 8(c).
65 (1995) 182 CLR 544.
66 (1995) 182 CLR 544, 561-562.
67 182 CLR 544, 559.
68 182 CLR 544.

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