Fitzpatrick v Cheal

Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 261
Hearing dates: 7-10 February 2012
Decision date: 21 March 2012
Jurisdiction: Equity Division - Corporations List
Before: Ward J
Decision:
Judgment for the plaintiffs

Catchwords: CORPORATIONS - breach of fiduciary duties or statutory duties pursuant to ss 180, 181 and 182 Corporations Act 2001 (Cth) - director of company set up competing company while still director and employee of first company - director appropriated company name of first and goodwill associated with previous trading history of first company (though not registered trade mark, which was at all relevant times property of director or family trust company) - HELD - breach of director's duties and knowing assistance by second and third defendants - CORPORATIONS - oppression - s 232 Corporations Act 2001 (Cth) - whether conduct engaged in by the first defendant in setting up the competing company and diverting the business of the first company to the new company was oppressive - HELD - conduct of "affairs of the company" by the first defendant objectively unfair and oppressive - REMEDIES - equitable compensation - valuation of shares of company - where intangible assets of the company include value associated with a trade mark used but not owned by the company and the value associated with the business name - HELD - value of shares to be calculated according to value of Net Operating Assets plus an amount attributable to goodwill (if any) independent of the trade mark
Legislation Cited: Corporations Act 2001 (Cth)
Trade Marks Act 1995 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited: Alcock v Robb (1978) 2 BPR 9625
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507
Arthur Young v Tieco International (1995) 182 LSJS 367
Attorney-General (NSW) v Brewery Employees Union (NSW) (1908) 6 CLR 469
Aubanel and Alabaster Ltd v Aubunel (1949) 66 RPC 343
Backoffice Investments v Campbell [2007] NSWSC 161; (2007) 61 ACSR 144; 25 ACLC 302
Banque Commerciale SA (In Liq) v Akhil Holdings Limited [1990] HCA 11; (1990) 169 CLR 279
Betfair Pty Ltd v Racing New South Wales [2010] FCFCA 133; (2010) 189 FCR 356
Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384
Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46; [1966] 3 All ER 721
Bowden Wire Co Ltd v Bowden Brake Co Ltd (1914) 31 RPC 385
Bray v Ford [1896] AC 44
Buckley v Tutty (1971) 125 CLR 353
Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95
Campbell and Another v BackOffice Investments Pty Limited [2009] HCA 25; (2009) 238 CLR 304; (2009) 257 ALR 610, at 654; (2009) 73 ACSR 1
Canadian Aero Service v O'Malley [1974] SCR 592; 40 DLR (3d) 371
Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
Charter Carter Pty Ltd v The Shop, Distributive and Allied Employees' Association of Western Australia (1987) 13 FCR 413
Cook v Deeks [1916] 1 AC 554
Copyright Agency Ltd v Department of Education of New South Wales (1985) 80 FLR 332
Delphic Wholesalers Pty Ltd v Elco Food Co Pty Ltd (1987) 8 IPR 545
Doyle v Australian Securities and Investments Commission (ASIC) [2005] HCA 78; (2005) 227 CLR 18; (2005) 223 ALR 218; (2005) 56 ACSR 159
Drinkwater v Caddyrack Pty Ltd [1997] NSWSC 431
Duke Group Limited (in liq) v Pilmer (1998) 27 ACSR 1
Dwyer v Lippiatt; Dwyer v Backpackers R Us.Com Pty Ltd (2004) 50 ACSR 333
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122
ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1995) 15 ACSR 536
Federal Commissioner of Taxation v Murry [1998] HCA 42; (1998) 193 CLR 605
Fexuto Pty Limited v Bosnjak Holdings [2001] NSWCA 97; (2001) 37 ACSR 672; (2001) 19 ACLC 856
General Electric Co v General Electric Co Ltd [1972] 1 WLR 729; [1972] 2 All ER 507
General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819
Gould v Mount Oxide Mines Limited (in liq) (1916) 22 CLR 490
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1136
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206
Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722
Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd and Or [2008] NSWSC 144; (2008) 66 ACSR 1
Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452
Mordecai v Mordecai (1988) 12 NSWLR 58
Nocton v Lord Ashburton (1914) AC 932
O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Old v McInnes and Hodgkinson [2011] NSWCA 410
Painaway Australia Pty Ltd v JAKL Group Pty Ltd [2011] NSWSC 205
Pioneer Kabushiki Kaisha v Registrar of Trade Marks (HCA, unreported, Aickin J, 1 November 2011)
Phillips v Phillips (1878) 4 QBD 127
Profinance Trust SA v Gladstone [2002] 1 WLR 1024
Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549
Rankine v Rankine (1995) 124 FLR 340
Ratcliffe v Evans (1892) 2 QB 524
Re a Company (No 002612 of 1984) (1986) 2 BCC 99,453
Re Baumler (UK) Ltd [2005] 1 BCLC 92; [2004] All ER (D) 139; [2005] BCC 181 (Ch D)
Re Bega Co-operative Society Ltd & Anor v The Milk Authority of the Australian Capital Territory & Anor (Unreported, Federal Court of Australia, 12 May 1992); [1992] FCA 200
Re Bright Pine Mills Limited [1969] VR 1002
Re Hollen Australia Pty Ltd; Holt v Burnside [2009] VSC 95
Re Leas Hotel Co [1902] 1 Ch 332
Re Leeds United Holdings Plc [1997] BCC 131
Re London School of Electronics Ltd [1986] Ch 211
Re Scottish Co-operative Wholesale Society Limited v Meyer [1959] AC 324; [1958] 3 All ER 66
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Shelton v NRMA [2004] FCA 1393; (2004) 51 ACSR 278
Short v Crawley (No 30) [2007] NSWSC 1322
Target Holdings Ltd v Redferns [1996] AC 421
Thomas v HW Thomas Ltd [1984] 1 NZLR 686; (1984) 2 ACLC 610; (1984) 2 NZCLC 99
Vadori v AAV Plumbing Pty Ltd [2010] NSWSC 274
Wayde v New South Wales Rugby League [1985] HCA 68; (1985) 180 CLR 459
WEA Records Pty Ltd v Stereo FM Pty Ltd (1983) 48 ALR 91
Weatherall v Satellite Receiving Systems (Aust) Pty Ltd [1999] FCA 218; (1999) 30 ACSR 698
Webb v Stanfield [1991] 1 Qd R 594
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
Texts Cited: R P Austin and I M Ramsay, Ford's Principles of Corporations Law (13th ed, 2007)
Category: Principal judgment
Parties: Simone Leah Fitzpatrick (First Plaintiff)
ACN 089 142 870 Pty Ltd (Second Plaintiff)
James Mitchell Cheal (First Defendant)
Cheal Industries Pty Ltd (Second Defendant)
Chilli Surfboards Pty Ltd (Third Defendant)
Representation: Counsel
M B Evans (Plaintiffs)
Ms R Francois (Defendants)
Solicitors
Lathams Lawyers (Plaintiffs)
Brown Wright Stein (Defendants)

File Number(s): 09/291052

Judgment

HER HONOUR : This is an application brought by the first plaintiff (Ms Fitzpatrick) on her own behalf and, pursuant to leave granted in July 2010 by Bergin CJ in Eq under s 237 of the Corporations Act 2001 (Cth), on behalf of the second plaintiff (ACN 089 142 870 Pty Ltd), which formerly traded as Chilli Surfboards Pty Ltd. I will refer to the second plaintiff, consistently with the way in which it was referred to in the proceedings before me, as (Chilli #1). Ms Fitzpatrick is the owner of 50% of the ordinary issued shares of Chilli #1. The remaining shares are owned by the first defendant (Mr Cheal), her former de facto husband. Chilli #1 at the relevant times conducted a business of the manufacture and sale of surfboards bearing a particular Chilli logo (the detail of which I will come to in due course).

In these proceedings, relief is sought on the basis of alleged breaches of statutory and fiduciary duties by Mr Cheal, in his capacity as a director of Chilli #1. As against the second defendant (Cheal Industries) and the third defendant (the entity subsequently incorporated as Chilli Surfboards Pty Limited and referred to in the proceedings as Chilli #2), relief is sought on the grounds of knowing assistance in Mr Cheal's breach of his duties as a director. Equitable compensation is sought in respect of those alleged breaches. In the alternative, relief is sought by Ms Fitzpatrick on the basis of alleged oppression by Mr Cheal in the conduct of the affairs of Chilli #1, in breach of s 232 of the Corporations Act .

In broad terms, the plaintiffs' complaint is that Mr Cheal effectively diverted the "business" of Chilli #1 (namely, the business of making and selling surfboards with the Chilli logo), including the goodwill of that business, to Chilli #2 (and dealt with the trade mark, or right to use the trade mark, pursuant to which the Chilli logo was affixed to surfboards made in the course of Chilli #1's business) with a view to excluding Ms Fitzpatrick from the business or a share in the business of Chilli #1 and with the effect that the business and goodwill in Chilli #1 was destroyed. It is alleged that Mr Cheal placed himself in a position in which there was a conflict between his duty to Chilli #1 (to act in the interests of that company and to preserve and promote its business) and both his personal interest and his duties as a director of the other entities which later gained interests in or the right to use the Chilli trade mark (Cheal Industries and Chilli #2); and that Mr Cheal in transferring or diverting the business (including the Chilli trade mark and associated goodwill) conducted prior to 1 July 2005 by Chilli #1 out of that company to a company (Chilli #2) in which he and his wife held interests (and Ms Fitzpatrick did not) breached the duties he owed to Chilli #1 and conducted its affairs oppressively.

Insofar as Mr Cheal is and was at all relevant times a director of Cheal Industries (to which the Chilli trade mark was assigned in February 2006) and Chilli # 2 (to which use of the Chilli trade mark was licensed from July 2006 and through which a business of shaping and selling Chilli surfboards has since then been conducted), it is contended by Counsel for the plaintiffs (Mr Evans) that the knowledge possessed by him must be possessed by those corporations so that the second and third defendants must be found to have actual knowledge of Mr Cheal's breaches of duty and are liable, along with Mr Cheal, to Chilli # 1 as third parties who have assisted in a dishonest and fraudulent design by a fiduciary in breach.

Mr Cheal denies being in breach of any relevant duty to Chilli #1 in relation to the incorporation of, and grant of rights in relation to the trade mark to, Chilli #2. The defendants' position, in essence, is that (whatever criticism may be made of the course of action taken by Mr Cheal in commencing to carry on the new Chilli #2 business, to the exclusion of Ms Fitzpatrick, while still a director of Chilli #1) the claims made against them must fail by reason of the fact that Chilli #1 did not at any time own the relevant Chilli trade mark (TM 767677) and that therefore Mr Cheal remained at all times free to dispose of his own intellectual property (and to use his surfboard making skills) as he saw fit (which argument, if correct, must logically mean that Mr Cheal was free at any time, though being a director of Chilli #1, so to act without regard to the effect this would have on Chilli #1 and its ability to continue to conduct its surfboard-making business).

The entries in Chilli #1's accounts for the period 2001-2004 referring generally to trade marks, which suggest that Chilli #1's intangible assets included (unspecified) patents and trade marks, were explained as being in error and replaced in the 2005 accounts by an entry recording the earlier amount as a receivable (a loan to Mr Cheal). The error was said to have been caused by a book-keeping error in that expenses relating to trade marks were incorrectly recorded on Chilli #1's MYOB accounting software.

It is further submitted that any decisions by Mr Cheal as to the use of the Chilli trade mark (or as to the ongoing provision or otherwise of his services as a surfboard designer or shaper) were not part of the conduct of the "affairs" of Chilli #1 and could not amount to oppression.

Even if a claim to relief for breach of directors' duties or oppression is made out, it is contended for the defendants that the goodwill of the business conducted by Chilli #1 resided (solely) in the trade mark and in Mr Cheal's personal labour; and that therefore, at the time Mr Cheal "changed corporate entities", Chilli #1 had no real value.

Mr Evans contends that the appropriate remedy (assuming the alternative claims for relief are made out) would be an order under s 233 of the Corporations Act for the purchase of Ms Fitzpatrick's shares in Chilli #1, conditional upon the transfer of her share in Chilli #1 to Mr Cheal or his nominee upon payment to her of her aliquot share upon the winding up of Chilli #1. As I understand it, what is contemplated thereby is that Ms Fitzpatrick's shares should be acquired for the amount representing a half share in the value of Chilli #1's business as a going concern at the time and on the assumption that the company had the benefit of the Chilli trade mark and the goodwill that had, over the period from 1999, been derived therefrom. (If the reference to an aliquot share on the winding up of Chilli #1 was to suggest that the share was to be valued on the basis that the company was then to be wound up, that may or may not produce a different outcome - the expert accountant's report in evidence in these proceedings did not address that scenario, as I read the report. In particular, if Ms Fitzpatrick's shares were to be valued on a notional winding up of the company, then account would seemingly need to be taken of the tax implications for the receipt in the company's hands of any amount representing a notional sale of the business and goodwill therein and also of the notional repayment of creditors recorded on the company's accounts.)

As adverted to above, the plaintiffs rely upon the valuation of an expert forensic accountant (Mr Stephen McMahon), who was the only such expert to give evidence in the proceedings, as to the appropriate valuation of the business of Chilli #1 as at various dates including, relevantly, as at 30 June 2006 when it is said that the business of Chilli #1 was effectively transferred to Chilli #2 (that being in the order of $553,000, of which all but around $110,000 represented the value attributed to the goodwill of the company and that goodwill being treated as the value of the Chilli trade mark). That valuation was on the basis of a sale of the business as a going concern. No expert evidence was adduced by the defendants as to the value of Chilli #1's business or Ms Fitzpatrick's shares in the company. Rather, Counsel for the defendants, Ms Francois, challenged the conclusions reached in Mr McMahon's report on the basis of criticisms as to the accuracy of the calculations made by Mr McMahon and the assumptions on which those calculations were made.

Issues

The issues for determination in the proceedings, broadly, are as follows:

(i) whether Mr Cheal was in breach of his statutory or fiduciary duties, as a director of Chilli #1, in one or more of the ways alleged, those being in summary:

(a) causing Chilli #1 to transfer Trade Mark 767677 (or the right to use that trade mark) to himself at some time between 1 July 2004 and 30 June 2005;

(b) causing Chilli #1 to enter into an Intellectual Property Agreement with himself in July 2005 (under which the trade mark and associated goodwill were formally licensed by Mr Cheal to Chilli #1 for the first time but only for a one-year term);

(c) entering into the February 2006 agreement for the assignment of the trade mark (and associated goodwill) to Cheal Industries (as trustee of a family trust established for the benefit of Mr Cheal and his family);

(d) causing Chilli #2 to enter into the June 2006 agreement (in which Cheal Industries licensed Chilli #2 to use the trade mark and associated goodwill); and

(e) entering into the 2005/2006 agreements and failing or neglecting, on behalf of Chilli #1, to seek to negotiate further or better terms in relation to the trade mark;

and whether Cheal Industries and/or Chilli #2 knowingly assisted in any such breach of duty.

(ii) whether Mr Cheal conducted the affairs of Chilli #1 oppressively by reason of any of the conduct referred to in (a) - (e) above or by the conduct pleaded in [47] of the pleading (that being, in summary, the following conduct: entry into the February 2006 Agreement assigning the trade mark to Cheal Industries; neglect/failure on behalf of Chilli #1 to attempt to seek an extension of the June 2005 Licence Agreement; steps taken to bring about the acquisition or incorporation of Chilli #2; and entry into the July 2006 Agreement);

(iii) the appropriate relief (having regard to the evidence as to the valuation of the company's business) if the answer to any part of (i) or (ii) is in the affirmative.

As part of the determination of the above issues, there is a factual question to be determined at the outset as to whether Chilli #1 owned (or had an exclusive right as against Mr Cheal to use) the relevant Chilli trade mark (TM 767677) at any relevant time and, if it did not, then the question whether (having regard to the way in which the case was pleaded) this is determinative (as the defendants contend) of one or all of the claims for relief made in the proceedings.

On the oppression claim, the issues identified by Ms Francois for determination are whether Mr Cheal's decisions as to the use of his property and personal labour fall within the notion of 'the conduct of the affairs' of Chilli #1 within the meaning of s 232 of the Corporations Act and, if so, whether Mr Cheal's decisions as to the use of his property and personal labour were "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" Ms Fitzpatrick. Ms Francois also submits that an issue arises, if no relief is granted on the plaintiffs' primary claim for breach of directors' duties, as to whether there is any utility in any alternative relief that may be ordered under s 233 of the Corporations Act (as I understand it, on the basis that Chilli #1 had no rights in relation to the Chilli trade mark at the relevant time).

If an order for equitable compensation is warranted, then Ms Francois submits that questions arise as to whether it should be calculated by reference to the price that "ought" to have been paid for the trade mark in June 2005 or by reference to the value of Chilli #1 when Chilli #2 was established in June 2006; and as to whether any assessment of the value of Chilli #1 requires account to be taken of matters such as the asserted inability of Chilli #1 to borrow any further funds; the financial assistance given by Mrs Cheal to Chilli #2; the goodwill associated with the personal labour of Mr Cheal; and/or the likelihood of any sale with a 'non-compete' clause. (In relation to the last matter, Ms Francois points to the evidence as to Mr Cheal's lack of education and that his only skill lies in his ability to shape surfboards, which it is said makes it unlikely that he would have agreed to a non-compete clause on any sale of the Chilli #1 business. Conversely, such matters might lead to the conclusion that if a sale of the business of Chilli #1 by Mr Cheal included the Chilli trade mark and goodwill therein, Chilli #1 would have been wound up in any event.)

Summary

For the reasons set out below, I am of the view that:

(i) Mr Cheal was in breach of his statutory and fiduciary duties as a director of Chilli #1 by reason of his conduct (while still a director of Chilli #1) in facilitating the incorporation of Chilli #2 and effectively setting up a competing business to the business (of shaping and selling surfboards with a Chilli logo) that was then conducted by Chilli #1 (in the course of which he, in effect, appropriated for the benefit of Chilli #2 not only the name of Chilli #1 but also any goodwill associated with that name and the period of trade that the company had by then carried on), this being in essence, the conduct referred to in (d) and (e) above).

By that conduct, Mr Cheal diverted to the new company (Chilli #2) or permitted it to assume any goodwill then comprised in the company name (Chilli Surfboards) or associated with the previous use of the trade mark by Chilli #1.

In saying this, I accept that the evidence establishes that (though this is inconsistent with the Chilli #1 accounts for the period from 2001 to 2004) at all material times Mr Cheal was the registered owner of the relevant Chilli trade mark and that Chilli #1 was no more than an authorised user of that trade mark; and that, subject to any obligations that may have persisted on cessation of his employment with Chilli #1, Mr Cheal would have been in a position to cease his involvement with Chilli #1 and, after 30 June 2006, to make use of the Chilli trade mark, if authorised to do so by the then owner, Cheal Industries, in a new business venture separate from Chilli #1. However, I do not accept that this is determinative of all of the claims for relief based on breach of Mr Cheal's statutory or fiduciary duties as a director or oppression, for the reasons considered below.

I further find that Cheal Industries and Chilli #2, through Mr Cheal's knowledge as a director of those companies, knowingly participated in Mr Cheal's breach of directors' duties, at least insofar as that breach lay in him causing those companies to enter into the June 2006 agreement without having regard to his conflicting duty to act in the best interests of Chilli #1.

(ii) Mr Cheal conducted the affairs of Chilli #1 oppressively by reason of the conduct referred to in (i) above and/or the conduct pleaded in [47] of the Further Amended Statement of Claim. I do not consider that the conduct of Mr Cheal can be characterised as no more than a decision as to the use of his intellectual property and personal labour. I consider that the evidence establishes that Mr Cheal engaged in a course of conduct, in relation to the affairs of Chilli #1, which was oppressive within the meaning of 232 of the Corporations Act (in choosing not to pursue any opportunity for the continued operation of that company's main business undertaking and in diverting or permitting the diversion of that business to Chilli #2 without regard to the interests of Chilli #1 or its 50% shareholder, Ms Fitzpatrick, and with the intention of excluding Ms Fitzpatrick from any share in the business formerly carried on by Chilli #1).

(iii) The alternative claims for relief having been made out, the appropriate relief:

(a) for the breach of directors' statutory and fiduciary duties (and for knowing assistance therein) would be for the defendants to compensate Chilli #1 for the value (if that can be separately determined) of the goodwill represented by the Chilli Surfboards company name and associated with the previous use of the Chilli logo as at 30 June 2006 (noting that the Chilli trade mark and goodwill referable specifically to the use of that trade mark reposed not in Chilli #1 but in Mr Cheal and then Cheal Industries);

(b) on the oppression claim would be for Ms Fitzpatrick to be put in a position whereby her share in Chilli #1 is acquired by Mr Cheal for a price calculated as being a half share of the net operating assets of the company at that time ($55,000) and a half share of the value attributable to the Chilli Surfboards company name and associated goodwill had that been purchased by Mr Cheal (or through him Chilli #2) from Chilli #1 as at June 2006; and

to the extent that the value in (a) or the full price for Ms Fitzpatrick's shares in the company in (b) cannot presently be determined because the value (if any) attributable to the goodwill of Chilli #1's name and business separate from the goodwill attributable to the Chilli trade mark cannot be determined by reference to Mr McMahon's report (that having been based on the now proven to be erroneous assumption that the trade mark was owned by Chilli #1), then the appropriate course in my view would be to refer to an appropriate intellectual property expert the determination of that question (ie the separate value, if any, as at 30 June 2006 of the goodwill in Chilli #1 attaching to the company name and its trading history). Valuation of that intangible asset of the company would need to be on the basis that ownership of the trade mark reposed in Mr Cheal and that all Chilli #1 had in that regard, prior to the June 2006 agreement between Chilli #2 and Cheal Industries, was the right to use the trade mark at that time (and perhaps the expectation that such a right would continue beyond the expiry of the fixed term under the 2005 licence agreement or would not be terminated without reasonable notice) and the benefit of any residual goodwill associated with the Chilli Surfboards company name and its previous use of the logo from 1999-2006.

Although there would presumably be a cost saving in referring the determination of that issue to Mr McMahon (who has familiarity with the business from his previous report), it seems to me that the appropriate expert to value any such goodwill (ie any goodwill separate from the Chilli trade mark itself) would be an intellectual property expert.

If it be accepted by the parties that any such separate goodwill would be or be likely to be nominal then in order to avoid unnecessary costs being incurred, it may be appropriate for me simply to fix at this stage a nominal value (if it cannot be agreed)

I will hear submissions on the course to be followed in that regard and as to the costs of the proceedings.

Background Facts

Ms Fitzpatrick and Mr Cheal lived in a de facto relationship from about 1990 until October 2003. During that time, Mr Cheal learnt how to shape surfboards and, in 1998, he commenced business as a sole trader manufacturing surfboards under the name "Chilli Surfboards". Much was made by his Counsel, during the course of the hearing, of Mr Cheal's limited education and difficulty in reading and writing (due to his dyslexia), which it was submitted amounted to a disability and one that would preclude him from working otherwise than as an unskilled labourer were he not to be in a position to continue to make and shape surfboards (as he presently does through a company which the plaintiffs note currently has a million dollar annual turnover). Having regard to Mr Cheal's acknowledged educational limitations, it is not surprising then that Ms Fitzpatrick assisted Mr Cheal in the administrative aspects of the running of the Chilli #1 business from its incorporation, in particular assisting in relation to the paperwork of the business (that seems to have been attended to in an office in their home at least for some part of the initial years of the company's existence).

On 17 July 1998, his father apparently having advised him to register the Chilli logo he was using as a trade mark, Mr Cheal lodged an application under s 27 of the Trade Marks Act 1995 (Cth) for registration as a trade mark of the words "Chilli Shapes by James Cheal" accompanied by the image of a chilli. (Mr Cheal's nickname since school had been "Chilli", hence the association with that name.) The said words and image were registered as TM 767677. The trade mark applied both to "surfboards, body boards, leg-ropes, board bags/covers" and to "sunglasses" (though the evidence is that this trade mark was only (or mainly) applied to surfboards). Ms Fitzpatrick had assisted in the filling out of the application form (T 10.26ff) and said that she and Mr Cheal had together worked out the classes of trade mark to which the proposed use of the trade mark related (T 10.46). Mr Cheal had little recollection of the way in which the form was completed or as to how or why Ms Fitzpatrick came to fill in the relevant details on the application form but 'supposed' there would have been a conversation between himself and Ms Fitzpatrick (T 60.28).

Ms Fitzpatrick accepted in cross examination that both the application to register the trade mark that became TM 767677 and the subsequent application to register the trade mark that became TM 804353 (to which I will shortly refer) were in the name of Mr Cheal (T 12.23) and that this was "because it was always the intention that Mr Cheal own his trademark" (T 12.27), the latter being an answer on which some weight was later put by Ms Francois. In that regard, insofar as the question at T 12.25 is as to the reason for the applications being in the name of Mr Cheal, logically the intention to which Ms Fitzpatrick there deposed (as having "always" been the case) would seem to me to be an intention held up to the time of lodgement of the respective applications (and one which might have changed thereafter - as it clearly did on Mr Cheal's part at least as at 2006 when the trade mark was assigned by Mr Cheal on his accountant's advice to the then newly established corporate trustee of his family trust). Ms Francois submits that this evidence goes further and amounts to an acknowledgement by Ms Fitzpatrick that this was always Mr Cheal's intention up to the present. In circumstances where the allegation that Chilli #1 came at some stage to be the owner of the trade mark was not ultimately pressed by the plaintiffs, I do not consider that anything turns on whether the evidence as to Ms Fitzpatrick's understanding in the witness box of Mr Cheal's intentions was one that persisted after the registration of the trade marks in question. (I note, however, Ms Francois' contention that is of relevance when considering whether the conduct alleged to be oppressive was objectively unfair.)

Chilli #1 was incorporated on 18 August 1999. Mr Cheal was appointed the director and secretary of the company and owned one A class ordinary share in the company. Ms Fitzpatrick owned one B class ordinary share in the company. Each owned one of the two issued ordinary shares in the company. (There is no evidence that either actually paid the subscription price for the shares, though again nothing in my view turns on this.) Ms Francois relies on the respective parties' contributions to the company as relevant to the objective fairness or otherwise of Mr Cheal's conduct in "changing corporate entities" (itself a revealing choice of words). In that regard, although Ms Fitzpatrick said in cross-examination (T 12.39) that she was involved in the majority of the major business decisions made by Mr Cheal in relation to Chilli #1 during the period 1999 to 2003, there is little evidence as to the business decisions made in that period or how she was involved therein. Broadly, the division of responsibility within the company seems to have been that the creative and marketing role was that carried out by Mr Cheal and that Ms Fitzpatrick's role (not to be discounted for that reason) was on the administrative side in the setting up and conduct of the business (while their relationship was on foot).

Mr Cheal seemed to accept in the witness box that the incorporation of Chilli #1 was or would have been done on the advice of his accountant (Mr Scott Jago), with whom he had established a working relationship from not long after he had started business as a sole trader (T 50.46-51.6), (see T 52.27; T 52.9), though he could not remember what Mr Jago had said to him (T 52.5). (At T 64.6, he accepted that he had first started shaping boards on his own account trading in his own name as an individual and that then in 1999 Mr Jago advised him to trade through a company and that in August 1999 Chilli #1 was incorporated and he traded through that company.) Mr Cheal did not recall any discussions as to the shareholding of the company or as to his position as a director (see T 55).

It seemed to me from his evidence that Mr Cheal did not draw much, if any, distinction between the corporate entity that had been set up and himself (and that may not be surprising having regard to the limitations on his education of which I was reminded by Ms Francois on more than one occasion). For example, when asked whether he knew why he had been included as a shareholder in the company, Mr Cheal's response at T 55.35 was:

To me I felt that the way I worked it out is that I'm - it's about me so I'm obviously an owner if you want to say or a shareholder. So to me I don't think twice about if I own something or not.

That is consistent with the statement in [44] of his affidavit that, from the time that Chilli #1 was incorporated, he operated his business through Chilli #1 (though the proposition that he does not think twice about if he owns something or not is somewhat inconsistent with the assertion later in his affidavit that it "was always my intention that I own the trade mark in my own right" - Mr Cheal explained what he had meant by this statement at T 76.41 when he said that "I felt that the trade marks represented me in my work and how I - ... from my nickname and, so....").

In any event, Mr Cheal accepted that from August 1999 he understood that the business of shaping and selling surfboards was Chilli #1's business (T 56.1) and that what he got from the conduct of that business was income by way of director's salary, a distribution of profit and the side benefit of the company paying for some travel and other expenses in association with the business (T 56.25), the benefits he obtained out of the company broadly being described by him as a wage (T 56.28).

As to the "business' carried on by Chilli #1 (and, in particular, Mr Cheal's understanding of what was comprised by that business), I interpose to note that the suggestion by Ms Francois, at various times during the course of objections in Mr Cheal's cross-examination, that there was or might be a confusion on Mr Cheal's part as to what was meant by questions as to or relating to the business of Chilli #1 (see for example at T 56.5, T 61.14, T 64.34, T 65.28), seemingly prompted by the concern that Mr Cheal might make some unintended admission as to the entity in which the intellectual property reposed or as to what if anything was being "transferred" to or conducted by the new company, seemed to me to point to a difficulty in determining what weight should generally be accorded to Mr Cheal's evidence as to matters in respect of the ownership and use of his trade marks or the like. In other words, if Mr Cheal's understanding of concepts relating to corporations and intellectual property was as limited as Ms Francois was concerned to ensure that I appreciated it was, then the manner in which his evidence was couched in his affidavit must also have been affected by such limitations (and hence seems likely to represent his legal representatives' characterisation of what was conveyed to them by him rather than necessarily representing his own understanding of the position). Ultimately, nothing turns on the juxtaposition between the portrayal of Mr Cheal as a skilled surfboard designer with limited education and the impression conveyed by his affidavit of someone understanding the concepts referred to therein, and I draw no adverse inference as to Mr Cheal's credit as a witness therefrom (though my observation was that at least some of the confusion on his part in the witness box derived from the interruption to the flow of the cross-examination by the objections made thereto).

In broad terms (leaving aside the question as to who was the legal owner of the Chilli trade mark at the relevant times and the distinction, to which little if any of the cross-examination seemed to me to be addressed, between intellectual property and a 'business'), it cannot seriously be disputed (and it was not disputed in the witness box by Mr Cheal) that: prior to August 1999, Mr Cheal was carrying on a business of shaping and selling surfboards that bore the Chilli logo; for the period from August 1999 until the incorporation of Chilli #2, Chilli #1 carried on a business that involved the shaping and sale of surfboards bearing the Chilli logo (and Mr Cheal ceased to carry on his earlier business in his individual capacity); from the time of the incorporation of Chilli #2, that new company carried on a business that involved the shaping and sale of surfboards bearing the Chilli logo (and did so under the same company name that had formerly been that of Chilli #1, using at least initially the same computer designs in relation to the shaping of the boards, operating out of the same premises and using the same equipment, and selling to some of the same customers as Chilli #1 had done); and Chilli #1, from that time, apart from finishing some orders and "glassing" some boards, ceased to carry on the business of shaping and sale of Chilli logo surfboards. The 'business' conducted successively by each of Mr Cheal, Chilli #1 and Chilli #2 was in substance the same (though I accept that Chilli #2 may have since expanded or developed that business).

The purpose of Ms Francois' objections to the cross-examination of Mr Cheal in this regard seemed to be to meet in advance any suggestion that Mr Cheal might be said to have accepted that the "business" of making surfboards on a day-to day basis (that was from 2006 carried on by Chilli #2), involved the transfer from Chilli #1 of the trade mark under which the Chilli logo was able to be affixed to the surfboards (T 66.10), something I do not consider was in fact then being put to the witness. To the extent that Mr Cheal was later asked questions as to whether he was happy for Chilli #1 to use the logo and that he accepted that this was 'part' of the business that Chilli #1 was conducting (ie prior to the incorporation of Chilli #2) (see T 76.48-77.3), I took this evidence to be descriptive of the arrangements that must at least informally have been in place whereby Mr Cheal (as registered owner of the trade mark) had made no complaint as to its use by Chilli #1 and of the fact (that cannot seriously be disputed) that Chilli #1's business involved the sale of surfboards bearing that Chilli logo.

There was no written agreement under which Chilli #1 used the Chilli trade mark on the surfboards it manufactured nor was there evidence of any oral agreement by which it was permitted to do so. Similarly, there was no evidence of any licence fee or royalty being paid by it for the period prior to 1 July 2005. In the absence of any such agreement, it would seem that the proper characterisation of the arrangements (subject to any contrary inference to be drawn from the entries in the company accounts) was that there was an implied licence by Mr Cheal to Chilli #1 for the use of the Chilli trade mark/logo (and that such a licence would be terminable at will or at least on the provision of a reasonable period of notice).

From August 1999, Mr Cheal provided his services to Chilli #1 in the design/shaping of the surfboards; and he managed quality control and the dealings with customers and suppliers. Ms Fitzpatrick provided administrative services to the company by way of attending to the paperwork and correspondence (albeit with the assistance of a part-time bookkeeper). There was no employment agreement between Mr Cheal (or, for that matter, Ms Fitzpatrick) and the company. Both Mr Cheal and Ms Fitzpatrick were paid a wage by the company (Ms Fitzpatrick at T 13.26; Mr Cheal's evidence, already referred to, being that he got the benefit of a wage from the company).

On 19 August 1999, a further application was made under s 27 of the Trade Marks Act for registration of a trade mark comprising the words "Chilli Surfboards Clothing Shaped by James Cheal", again with the image of a chilli, for use in respect of "clothes, headgear and footwear". The said words and image were in due course registered as TM 804353. Again, Mr Cheal signed this application but it was filled out by Ms Fitzpatrick. (There was a suggestion in Mr Jago's cross-examination that at some stage the company sold T-shirts with the Chilli logo but it is not clear at what stage that occurred, if at all, and nothing turns on it other than to explain why Mr Jago might have seen the entries in the company's accounts to "patents and trademarks" as referring to something other than TM 767677.)

In mid-2002, Chilli #1's business operation was relocated to leased factory premises in Warriewood. By that time there were 12 employees in the business and the operating sales revenue had grown (from $262,188 in 2001 to $312,424 in 2002). There was an office at the couple's home in Warriewood where Ms Fitzpatrick said she did a lot of the paper work and administration (T 13.8).

In October 2003, the relationship between Ms Fitzpatrick and Mr Cheal came to an end and Mr Cheal commenced a relationship with his now wife. At some stage thereafter, it seems that there were communications as to a property settlement of some kind between Ms Fitzpatrick and Mr Cheal (since, according to Mr Jago, the couple was going through a family law matter and he was aware of some involvement of a family law practitioner on behalf of Ms Fitzpatrick - T 150.2). Mr Jago's evidence in that regard was that "very early on after their relationship split", documents were prepared "in relation to the shares being signed over", which he said were signed by Mr Cheal but not Ms Fitzpatrick (T 149.30).

According to Mr Jago, his firm had at some time prepared documents (or perhaps a document) for the transfer of Ms Fitzpatrick's shares in Chilli #1 (T 149.35/45), after a discussion about the matter between himself and Mr Cheal (T 149.49) and after some documentation had been received from a family law practitioner acting for Ms Fitzpatrick. (Ms Fitzpatrick's affidavit evidence was that she had been asked to transfer of her shares in about 2006 but refused to do so as she regarded this as her and Mr Cheal's son's inheritance.) Mr Jago's evidence was that he did not discuss any payment to be made for the transfer of Ms Fitzpatrick's share in the company or the value to be ascribed for her shares (T 151.8ff), and said that he did not have an opinion as to the value of the company (T 148.31) (though he had earlier been quick to volunteer the opinion that "Practically, the company's worth nothing" (T 147.23) as the reason why he would not have been expected to suggest that Ms Fitzpatrick be paid anything for her shares in the company).

There is no suggestion that any share transfer form was ever signed by Ms Fitzpatrick. The significance of the evidence of its preparation, to my mind, is that it seems to have been understood at least as at that stage (certainly by Mr Jago, on whose advice Mr Cheal seems to have depended and acted throughout the relevant period, and presumably also by Mr Cheal) that Ms Fitzpatrick remained a shareholder of the company. Whether or not Mr Cheal appreciated that as a shareholder Ms Fitzpatrick had or might have certain legal rights/entitlements, and whether or not (as seems to have been the case) there was a concern that his wife should have a beneficial interest in "the business" if her property were to be put forward as security for a loan in respect of the business, it seems to have been understood that it would be necessary to secure Ms Fitzpatrick's agreement to any transfer of her shares in the company and that until this occurred she retained an interest in the company. The complaint now made by Ms Fitzpatrick in effect is that (her agreement to a transfer of the shares evidently not having been forthcoming for whatever reason), Mr Cheal proceeded to take steps or to adopt a strategy to divert the Chilli surfboard making business (loosely so-called) away from Chilli #1, so as to exclude Ms Fitzpatrick from that business. Such an inference is supported by the evidence that an attempt was made to obtain a transfer of her shares and that following her refusal to do so steps were taken to 'change corporate entities' (to use Ms Francois' words) and conduct the business of shaping and sale of Chilli surfboards from a new company. (The suggestion that it was a new business, as opposed to a new company, cannot in my view be sustained.)

Over the period from 2001 to 2004, the financial statements of Chilli #1 (prepared with the assistance of Mr Jago) recorded an entry under the item "Intangibles" for "Patents & Trademarks" in the sum of $9,183. (In the accounts for the year ended 30 June 2000, the entry for Patents & Trademarks was in the sum of $3,560.) Mr Jago gave evidence that the entries in this regard were based on MYOB entries and were in error, they having initially been accepted by him as correct based on the assumption that the bookkeeper's MYOB entries would have been accurate (see his affidavit para [8] and T 127.20-129.12). (Mr Jago emphasised more than once in the witness box that his concern to be sure that the entries in the company accounts were both accurate and correct or any enquiry as to the accounts was subject to "financial cost constraints" - T 128.41; and see T 130.11, Mr Jago there seemingly being anxious to justify his conduct by reference to what a "reasonable person would be expected to do under the circumstances and again at T 132.6.)

Mr Jago's evidence in the witness box was that he had queried the entry for Patents & Trademarks in the expense section of the profit and loss statements for the 2000 year with the bookkeeper (as well as an entry for legal fees) on the basis that a patent is not an expense (T 129.1) but that he had not queried the amount there shown. (Nor does it seem that he had queried how that could have increased from $3,560 to $9,183 for the 2001 year (see T 130.20-34).)

Mr Jago says that he had reprimanded both Mr Cheal and Ms Fitzpatrick for putting the trade marks within a company trading entity (T 130.46/50; T 131.47) both that year (2000) and the second year (2001) and that it "stopped from then on". From that answer, I can only assume that Mr Jago meant that the expenses related to the trade marks were no longer included in the MYOB entries (because the entries themselves were carried in the accounts through until the changes made to the accounting treatment of that item in 2005). Tendered in evidence during the hearing (Exhibit 4) were Mr Jago's record of the MYOB entries on which the initial accounting entries were based.

The thrust of Mr Jago's objection to what had occurred (which led to his reprimands to both Mr Cheal and Ms Fitzpatrick) thus seemed to be his view that, as a matter of principle, trade marks should not be held by a trading entity (T 132.26), not that the bookkeeper had recorded expenses in relation to the trade marks wrongly in the MYOB records. However, at the same time he was at pains to emphasise (see T 132.34) the wrong accounting treatment of moneys expended in relation to an intangible asset such as trade marks as an expense item (he said that he had corrected the bookkeeper as to the coding of these items as an expense when they were actually an "intangible asset").

The nature of the objection which led Mr Jago to reprimand Mr Cheal as to the holding/ownership of trade marks by the company therefore suggests that he had assumed at that stage that there were in fact trade marks held or owned by the company (though this is inconsistent with his oral evidence to which I will return in due course). As at 2000 and 2001 the only trade marks that could have been so held were TM767677 and TM804353, as Mr Jago accepted in the witness box. (As to whether Mr Jago was aware that there had been any new trade mark application (or trade mark created) as at 2001 (to explain the increase in the sum recorded as between the 2000 and 2001 years), his response at T 130.38 was that he was aware that Mr Cheal and Ms Fitzpatrick were looking at other trade marks but he does not suggest that he was aware of any such new trade marks having been obtained at that time.)

For the financial year ended 30 June 2005, there was no corresponding entry in the financial statements of Chilli #1 in respect of "Patents & Trademarks" as had appeared in former years. Instead, the figure of $9,183 was recorded under the hearing "Current Receivables" and described as "James Cheal (Patents & Trademarks)".

Mr Jago has deposed (in his affidavit filed on 7 February 2012) as to his usual practice in relation to the preparation of the financial statements for Chilli #1, namely that he would review the MYOB entries provided to him by the company's bookkeeper; would use those to prepare the financial statements; would rely entirely on those entries in so doing; was not provided with and did not examine any documents supporting those entries; did not audit the accounts of the company; and that once he had prepared the financial statements Mr Cheal would come to his office to sign them. Mr Jago said that "The only parts of the financial statements that I would occasionally draw to his attention were the profit and loss" ([6]). He has deposed that the entry of $9,183 for "Patents & Trademarks" in the 2001 Financial Statements was based solely on the MYOB entries and that for subsequent years this entry was "simply transferred" from the earlier statements.

Mr Jago then deposed that at some stage in or about 2005 he was involved in negotiations with companies in the USA and Japan respectively as to the payment of royalties to Mr Cheal and that an enquiry was made in that context as to who owned TM 767677 and TM 804353. (Mr Jago also gave evidence of a proposal by Billabong for distribution by it in Australia and Japan of surfboards made by Mr Cheal.) In his affidavit, Mr Jago said that he then became aware from an employee of Chilli #1 (Mr Eaton, who is now a co-director of Chilli #2) that Mr Cheal was the owner of the trade marks, not the company, and realised that the entries in the financial statements in the company's financial statements for the period 2001 to 2004 were incorrect. He said that he decided to change only the narrations from the year that the mistake was uncovered and that he assumed that the bookkeeper had entered "payments against the trade mark invoices as an expense (balance sheet item)" when "they were in fact payments on behalf of Mr Cheal. Mr Jago said that he corrected the financial statements by recording the sum of $9,183 as a loan to Mr Cheal in note 6 to the 2005 Financial Statements.

The evidence adduced as to the realisation, and correction, of the error in the accounts seems to have been responsive to the observance by Bergin CJ in Eq on the leave application for the derivative suit as to the lack of any explanation for the change in the accounting entries and to dispel any inference that the relevant trade mark had in fact been transferred to Chilli #1 and was an intangible asset of that company.

Meanwhile, on 30 December 2004, a fixed charge was granted over the assets of Chilli #1 in favour of National Australia Bank and duly registered. It appears that this was granted in the context of the acquisition at around that time of factory premises at Warriewood from which the company's business was then operated (and suggests that at least some finance was able to be procured in the company's name prior to the decision made to change corporate entities, which has been attributed to the difficulty in obtaining such finance).

As at mid 2005, therefore, the position was that: Mr Cheal and Ms Fitzpatrick's relationship had come to an end; there may by then have been an attempt to obtain her agreement for the transfer of her share in Chilli #1 in the context of attempts to reach an agreement as to the settlement of the couple's financial affairs at that stage (if Mr Jago's timing of the events is accurate, though Ms Fitzpatrick seems to put the enquiry as to the transfer of her shares at a later time); Mr Jago had been involved in negotiations with other entities looking at proposals for a broader distribution of the surfboards shaped by Mr Cheal in the context of which an enquiry had been made as to who owned the trade mark (an enquiry that, given Mr Jago's expressed confidence that it was Mr Cheal, might conceivably have been met by an immediate response rather than the need for a further enquiry, though I accept that Mr Jago may have wished for accuracy to have confirmation as to what precisely was the position at that stage); and at least some funding had been procured from the National Australia Bank in relation to the factory premises acquired at Warriewood.

It was in that context that, on 1 July 2005, an Intellectual Property Licence Agreement was entered into between Mr Cheal, as Owner, and Chilli #1, as Licensee, under which Mr Cheal granted to Chilli #1 an exclusive licence (for the period 1 July 2005 to 30 June 2006) to use the Intellectual Property defined therein for the permitted use of the manufacture of surfboards (and all associated and related uses). The Intellectual Property was defined as meaning and including "all of the rights of the Owner in respect of all Trade Marks and copyright in Chilli Surfboard logos, and all other Patent and Design Rights, rights in confidential information, rights in the name and reputation, rights for actions for passing off design rights, methods of manufacture and rights in respect of business systems and methods". The licence fee was $10 per surfboard (with the exception of team and promotional boards). Mr Cheal warranted that he was the owner of the Intellectual Property.

Under the licence agreement, the parties agreed that Mr Cheal was entitled to assign all or any part of the Intellectual Property and/or his rights under the licence agreement (though as a condition of such assignment he was to procure from the assignee a covenant for the benefit of Chilli #1 to the effect of the licence agreement).

Pausing there, insofar as the timing of the decision to enter into a formal licence agreement with Chilli #1 (when for the preceding years there had apparently been no perceived need to do so) occurred after an unsuccessful attempt to procure Ms Fitzpatrick's agreement to transfer her share in the company, this could support an inference that the licence agreement was, as Mr Evans contends, a step in the strategy of excluding Ms Fitzpatrick from the business. That could be the case if, by making it clear on the face of the agreement that there was no right to use the intellectual property after the expiry of the term, it was considered that this would make it difficult for Chilli #1 later to assert a continuing right to use the trade mark. However, there is some doubt as to when the request for transfer of the shares was made. Moreover, as at mid 2005 there had been discussions for the broader operation of the surfboard shaping business and the need for documentation of a formal licence arrangement may have been seen as commercially necessary in the context of those discussions. Mr Jago gave evidence that he had been "at" Mr Cheal for a long time "to get written down in a formal way a relationship between whoever he dealt with and the trademark holder" (T 141.45). (There was, I should note, no evidence to that effect in his affidavit (and it seems inconsistent with the suggestion in [16] of his affidavit) that he had not known, prior to discovery of the accounting error, that Mr Cheal was the owner of the trade marks.)

But for the fact that there were, at the time, commercial negotiations in relation to which the source of the right of Chilli #1 to use the trade marks would have been of relevance, it is possible that an inference might have been able to be drawn that the July 2005 agreement was a step designed to facilitate the termination of the right of Chilli #1 to use the trade mark. (That said, I consider such an inference would have been a tenuous one, since entry into the July 2005 agreement could only have been said to facilitate such a strategy if it operated to deprive Chilli #1 of some entitlement to a longer term right or to a longer period of notice before its termination. From the tenor of the evidence from Mr Cheal, I doubt that he would have appreciated the somewhat attenuated logic of such a strategy.)

In any event, given the plausibility of the alternative explanation for the July 2005 agreement (that being the context of the negotiations with overseas companies that might involve the use of the trade mark), I do not consider that it can be concluded that entry into the July 2005 agreement was part of an overall strategy to exclude Ms Fitzpatrick from the business of Chilli #1.

Cheal Industries was incorporated on 12 July 2005, Mr Cheal and his wife being the directors and each owning half of the issued share capital. Mr Cheal is the company secretary. Also in July 2005, a trust was established (the Hunga Trust) with Cheal Industries as the trustee and Mr and Mrs Cheal and their children as beneficiaries. A further trust with the same trustee and beneficiaries was established in February 2006 (the Eskmon Family Trust).

There was a notification of change of address form completed in September 2005 (CB p49) in relation to the Chilli trade marks, on which the owner of the trade marks was noted as Chilli Surfboards Pty Ltd (ie Chilli #1), not Mr Cheal. However, Mr Cheal's evidence as to the circumstances in which that form was completed was that he did not recall talking to the bookkeeper about what to put on the form (T 78.27) and would not have "picked up on" the fact that it was in the name of Chilli Surfboards (T 78.22). (His evidence in another context was that he did not really take much notice of paperwork (T 78.43), which is consistent with his evidence generally.) I therefore draw no inference from the fact that this document was lodged in the name of Chilli #1.

On 9 February 2006 (hence some 4 months or so prior to the expiry of the Licence Agreement), Mr Cheal (who deposed in his affidavit to it always being his intention to keep his own interest in the trade mark) entered into an Assignment Agreement under which, as assignor, he assigned to Cheal Industries, as trustee of the Hunga Trust, the "Intellectual Property" (defined in the same terms as that expression was used in the Licence Agreement) in consideration of the sum of $14,500 (that being identified as $12,000 for patents/trade marks and $2,500 for other intellectual property). No covenant was procured from Cheal Industries, as assignee, to perform the obligations of Mr Cheal under the Licence Agreement (in apparent breach of the condition upon which the assignability of those rights had been made subject under that agreement).

Further trade mark applications were then made by Cheal Industries in May 2006 in relation to the Chilli name and logo. (The basis for, or significance for present purposes of, those applications was unexplained.)

On 16 June 2006 (shortly prior to the expiry of the term of Chilli #1's licence agreement but also prior to the actual incorporation of Chilli #2), Cheal Industries, as owner, entered into an Intellectual Property Agreement purportedly with Chilli #2 (a company then seemingly yet to be formed). In its terms the licence was to commence on 1 July 2006 and continue "until terminated". Under that agreement, Cheal Industries granted to Chilli #2 an exclusive licence to use the Intellectual Property (defined in the same terms as the Chilli #1 Intellectual Property Licence Agreement) for the same permitted use (at a licence fee initially at $25 per surfboard sold, excluding promotional or team surfboards). By reference to the assignment of intellectual property to Cheal Industries in February 2006, the licence granted to Chilli #2 under the June 2006 agreement extended to the trade marks registered in 1998 and 1999 as well as to the 2006 trade marks. Mr Cheal was involved, as a director of Cheal Industries, in those steps.

On 23 June 2006, the name of Chilli #1 was changed from Chilli Surfboards to its present (non-descriptive ACN) name. On the same date, Chilli #2 was incorporated under the name of the former Chilli #1. Mr Cheal is a director and secretary of Chilli #2. Cheal Industries owns one A class share and 90 ordinary shares in the company. There is a co-director, Mr Taylor Eaton (the former Chilli #1 employee who had responded to the enquiry in 2005 as to the ownership of the Chilli trade marks). A company by the name of Tecro Management Pty Ltd owns one B class share and the remaining 10 ordinary shares.

On 1 July 2006, Chilli #2 commenced the business of the manufacture and sale of surfboards bearing the Chilli logo. Although Mr Jago was reluctant to make any concession in this regard (T 142.30/50), it seems impossible not to conclude (and Mr Cheal conceded as much) that this is in substance the same business that was formerly carried on by Chilli #1 (ie the shaping and sale of boards bearing the Chilli surfboard logo). Mr Cheal accepted that when Chilli #2 commenced operating, the same surfboard shapes or catalogue of shapes that had been used up to that date with Chilli #1 were used (T 76.33) and the process of shaping the boards occurred in the same way (T 76.29).

The distinguishing factors that Mr Jago asserted made it a "new business" were that it was a new company and it was a different licensing agreement (T 142). Such a distinction is not compelling. (Mr Jago ultimately agreed that the "type of business" that Chilli #1 had been carrying on was, from 1 July 2006, going to be carried on by Chilli #2 - T 148.48 - but he did not accept that the end result of achieving the purpose set out in [26] of his affidavit (namely that Mrs Cheal have a beneficial interest in "the business") was that Chilli #1 was effectively of no value since "It's a manufacturing company and it was free to continue on sourcing work from other people and trading, so a bump in the road..." T 148.42; a view on its face inconsistent with the earlier expressed view that as at the time that he was considering the desired purpose of setting up the business so that Mr Cheal and his wife were the beneficial interest holders of "the business" (by which he meant the company), the company was "worth nothing" ("Practically, the company's worth nothing, so why would I do that" T 147.23).

Mr Jago denied that Mr Cheal had approached him and said that he and his wife had decided that they wished to set up a new company and to run the business through that company and to exclude Ms Fitzpatrick from any involvement in that business (T 140.37) or that Mr Cheal said that he wished to set up a business in such a way that Ms Fitzpatrick was excluded from it (T 141.4). He maintained that the reason for the establishment of Chilli #2 was as set out in [18] of his affidavit (namely so that both Mr Cheal and his wife were "beneficial interest holders in the business") (T 146.34). He referred in his evidence to the financial position of the company:

Well, if you look at the chain of events that I have described, which you are excluding, but if you look at those chain of events there was a sequence and orders for what happened. We had a situation where Chilli's parents were proposing [propping] up Chilli #1 and were wanting to withdraw their money for personal reasons. We had a situation where they were continually complaining that they were short on cash flow. If you understand small businesses it's a huge concern and risk area. I would have continual conversations with them about that. The only way that they were able to secure funding to continue to even keep going or for Chilli to keep going in his business was to get funding from the bank and the way that that happened was from Simone Vince Cheal his wife putting up her property as security. I think it would be unfair for anyone to assume that she would do that without any proprietary interest in a company so certainly I think that was fair, so if you look at the whole story I think it fits.

Mr Jago (whose role seems to have gone beyond that of the provision solely of accounting services and to have encompassed instead a trusted advisory role) deposed in general terms to having made many attempts on behalf of Mr Cheal to obtain various forms of finance and funding from banks to support Chilli #1 over the period between 1998 and 2006 and that he was unable to secure funding without the provision of security in the form of a real property mortgage (though, as I have noted earlier, there was some funding in 2004 secured by a fixed charge over the company assets). He also deposed that Chilli #2 was incorporated following discussions with Mr Cheal in which "Mr Cheal and I had discussed that the purpose of incorporating Chilli #2 which was so that both Mr Cheal and his wife Ms Vincze-Cheal were beneficial interest holders in the business" ([26]). An alternative way to achieve this, without the cost of setting up a new (and seemingly competing) company would have been to buy out Ms Fitzpatrick's shares in the company but Mr Jago seemed to consider this a surprising suggestion.

Some 20 months after Chilli #2 was incorporated, an overdraft was provided to Chilli #2 in the sum of $100,000 secured partly on a mortgage over property owned by Mr Cheal's wife. (Perhaps not surprisingly, in the context of the personal relationships involved, Mr Cheal and his wife gave evidence that she was not prepared to allow her property to be used as security for any borrowings unless she had an interest in the business.) The delay between incorporation and the provision of the overdraft (which might be thought to gainsay the impetus for the incorporation of Chilli #2), was attributed by Mr Jago to the usual delays in dealing with banks.

On the basis of that evidence, it is submitted by Ms Francois that the reason for the incorporation of Chilli #2 was the difficulty that Chilli #1 had encountered in not being able to borrow from institutional lenders to finance its trading activities (and not a strategy of the kind alleged by the plaintiffs of excluding Ms Fitzpatrick from the business). Whether or not there was such a strategy, however, the effect of what was done was to exclude Ms Fitzpatrick from any share in the business then going forward and, relevantly, to destroy the value of the shares in Chilli #1.

Over the period from 2001-2006, the financial statements of Chilli #1 record growth in the operating sales revenue ($262,188 in 2001, $312,424 in 2002, $398,887 in 2003, $400,901 in 2004, $554,047 in 2005 and $879,374 in 2006). (Ms Francois notes that Chilli #1 had not paid any dividends and had made a retained loss in 2004 ($1,968) and had only small retained profits in 2005 ($947) and 2006 ($24,527). There was a drop in the company's operating sales revenue in the 2007 financial year (to $65,258) and, even further, to $8,033 in the 2008 statements. By contrast, the operating sales revenue in the Chilli #2 financial statements for the 2007 and 2008 years was $1,669,598 and $1,695,551, respectively. No intangibles or patents or trade marks are recorded in the Chilli #2 accounts, nor does any licence fee payable to Cheal Industries under the Chilli #2 licence agreement there seem to be recorded.

There seems to be no dispute that the steps taken by Mr Cheal in establishing Cheal Industries, assigning the trade marks to it, and then establishing Chilli #2 (on most, if not all of which, Mr Jago seems to have advised) were done without the knowledge of Ms Fitzpatrick. They were also taken at a time when Mr Cheal (as a director and employee of Chilli #1) owed various duties to Chilli #1 (as a director, to promote the business and interests of that company and not to place himself in a position of conflict between his personal interests (or his duty to Cheal Industries/Chilli #2) on the one hand and his duty to Chilli #1 on the other hand; as an employee, one might expect a duty at least of loyalty/good faith).

Pleading

The case as pleaded, by the time of the hearing, was that contained in the Further Amended Originating Process filed consequent upon leave being given for the bringing on behalf of Chilli #1 of the derivative suit in these proceedings.

The nub of the defence to the allegations of breach of duty and oppression, in essence, is that the plaintiffs' case rests on the foundation that Chilli #1 was the owner of TM 767677 (that being the initial registered trade mark). Ms Francois took me through the pleading at some length to make good the submission that this was a critical issue on which the plaintiffs' case must fail. (It was conceded by Ms Francois that if Chilli #1 in fact owned the trade mark then the conduct alleged against Mr Cheal would have amounted to a breach of his duties as a director - T 5.47.)

Ms Francois submits that, of the claims made by the plaintiffs, all but that pleaded in [47] (the general claim of oppression) are predicated on the allegation contained at [15] that:

At some time prior to 30 June 2001 the first defendant [Mr Cheal] caused Trade Mark 767677 or the right to make use of Trade Mark 767677 and any associated goodwill attached to products bearing that Trade Mark to be transferred to Chilli #1 to be used in the business of that company as described in paragraph 13 above [that being, relevantly, the manufacture and sale of surfboards under the brand name 'Chilli Surfboards']. (my emphasis)

Insofar as [15] alleges the transfer of a "right to use" the trade mark, Ms Francois submits that what must be implicit therein is that the right that was 'transferred' was equivalent to a proprietary right such that Mr Cheal was no longer free after that point in time to deal with the trade mark as his property. (She accepts that there is no contention that Chilli #1 was not able to use Mr Cheal's trade mark, as Mr Cheal's conduct is said to demonstrate; issue being taken only with the proposition that in some way Chilli #1 acquired an exclusive right as against Mr Cheal to use the trade mark.) Ms Francois maintains that [15] must be read as an allegation that Mr Cheal was thereafter no longer free to deal with the trade mark as his own property. It seems to me that this places too much weight on the use of the verb "to transfer". The grant of a right to use a trade mark, for example, would not of itself necessarily imply that the right was one of exclusive use or that Mr Cheal would not have remained able (subject to this being consistent with his duties as director/employee of Chilli #1) to make use in some way of his trade mark. However, where (in later paragraphs of the pleading) a breach is predicated on the transfer back to Mr Cheal of such a right, then I accept that the pleading is premised on Mr Cheal having previously given it away in some fashion.

As to the allegation in [19], Ms Francois contends (as must logically be the case) that if Mr Cheal was always the owner of the trade mark then there can have been no improper transfer back to himself of the trade mark. She further points out that there is no allegation in [19] of any improper transfer back to himself of the rights to use the trade mark.

In that regard, while Mr Evans concedes that the evidence shows that Mr Cheal was the owner of TM 767677 at all times from 1998 to about February 2006, he submits that the evidence also shows that, in the period from the incorporation of Chilli #1 in August 1999 until 1 July 2005, Mr Cheal permitted Chilli #1 to use the trade mark in the business then conducted by Chilli #1 of making and shaping surfboards bearing the chilli logo covered by that trade mark. Mr Evans submits that, in that respect, the pleading at [15] is correct and that Mr Cheal did grant to Chilli #1 a right to use TM 767677 during that period. Further, it is submitted that, having permitted Chilli #1 to use the trade mark without fee for the period from August 1999 to 1 July 2005, Mr Cheal had for that period waived his rights with respect to the trade mark (and that the entry into the July 2005 licence agreement must be seen in that context).

The following allegations are then said to be dependent on a finding that the trade mark in question or the right to make use of that trade mark, and any associated goodwill, had been transferred to Chilli #1 at some time prior to 30 June 2001:

(i) the allegation in [22] (the first allegation of breach of director's duties) that in causing Chilli #1 to transfer TM 767677 to himself (as alleged in [19], namely at some time between 1 July 2004 and 30 June 2005 for a sum equal to the amount recorded as the value of "intangibles" in the balance sheet of Chilli #1 for the year ending 30 June 2004) and in the manner and with the intent pleaded in [20] (namely without disclosure of this action to Ms Fitzpatrick, with the deliberate concealment of the fact of transfer from her and without the informed consent of Ms Fitzpatrick or Chilli #1) Mr Cheal breached the statutory duties owed to Chilli #1 under ss 180, 181 and 182 of the Corporations Act and the fiduciary duty he owed as a director; the pleading in [22] goes on to allege that the breach of statutory and fiduciary duties arose in that Mr Cheal exercised his powers as a director to transfer the trade mark to himself "for the purpose of using that trade mark and the associated goodwill of the business of Chilli #1 to set up a business in competition with Chilli #1 and, in effect, to destroy the business and goodwill of Chilli #1 and to appropriate the benefit of that business and goodwill for himself and Mrs Cheal.

Pausing here, I accept that the allegation of breach of statutory and fiduciary duties pleaded in [22] is clearly predicated on Chilli #1 having acquired either ownership of the trade mark or some kind of exclusive or proprietary right to use it, since otherwise logically there could be nothing to be 'transferred' back to Mr Cheal.

(ii) the allegation of oppressive conduct in [23] (prefaced with the words "further to the matters pleaded in [22]") that, in causing Chilli #1 to transfer TM 767677 to himself as alleged in [19] and in the manner and with the intent pleaded in [20], Mr Cheal acted in a manner oppressive of the interests of Ms Fitzpatrick as a shareholder in Chilli #1 contrary to s 232 of the Corporations Act;

I accept that this allegation is also predicated on Chilli #1 having had an interest in or some kind of proprietary or exclusive right to use the trade mark, though this conclusion flows not from the words "further to the matters pleaded in [22]" but from the fact that otherwise there could be nothing to transfer back to Mr Cheal.

(iii) the allegation in [26] that, in causing Chilli #1 to enter into the Intellectual Property Agreement on 1 July 2005 (as pleaded in paras [24], [25], [25A], [25B] and [25C]) (under which a licence was granted to Chilli #1 to use the trade mark for a one year period) and by entering into it himself, Mr Cheal breached the statutory and fiduciary duties owed by him;

Here, it must be noted that [26] contains both an allegation of breach "by causing Chilli #1 to enter into the July 2005 agreement, as pleaded in [the specified paragraphs]," - those qualifying words being grouped within commas - and an allegation of breach not so qualified by those words, namely the breach constituted "by entering into the said agreement himself".

The conduct that qualifies the first allegation of breach, relevantly includes the allegation in [25A] that the Intellectual Property and associated goodwill was "in whole or substantial part then owned by Chilli #1 and Chilli #1 was, and had at all relevant previous times been, entitled to the exclusive use and benefit of the Intellectual Property and the associated goodwill" and the allegation in [25C] that the 2005 Agreement "was a sham intended to set up a false legal situation" in which Mr Cheal "could claim that he was the lawful owner of the Intellectual Property and the associated goodwill prior to 1 July 2004 and, further, that Chilli #1's right to use the said Intellectual Property was subject entirely to the terms of the July 2005 Agreement which terms included a power available to [Mr Cheal] to terminate the said agreement at any time".

Whether the allegation in [26] is dependent on a finding that Chilli #1 was the owner/exclusive user of the trade mark depends on whether the alleged breach in [26] is to be read conjunctively or not - since it is only the first part of the paragraph that is qualified by the reference to the ownership of the intellectual property.

Mr Evans submits that the case pleaded at [24] to [27] does not rest on the proposition that Chilli #1 was the owner of Trade Mark 767677. Rather, it is said that the breach of directors' and fiduciary duties (and oppression) by entry into the July 2005 Agreement rests on more than the licence agreement being with respect to intellectual property and associated goodwill (alleged in [25A] to have been in whole or substantial part then owned by Chilli #1 and to which it had been entitled to the exclusive use and benefit), namely that it was the first step in the implementation of a strategy by Mr Cheal to transfer the beneficial interest in the business conducted by Chilli #1 into an entity owned and controlled by himself and his wife to the exclusion of Ms Fitzpatrick.

Mr Evans thus submits by entering into that agreement Mr Cheal placed himself in a position in which there was a conflict, or a potential conflict, between his duty as a director to advance and promote the business of Chilli #1 and his personal interest in making use of the trade marks for his own benefit and in effectively transferring the business of Chilli #1 to Chilli #2.

I also note that the consequence of the alleged breach of fiduciary duties in entering into the July 2005 agreement is in [28] pleaded to be that the agreement was void or unenforceable and ineffective to confer any rights on either Chilli #1or Mr Cheal.

(iv) the allegation in [27] (expressed to be "Further to the matters pleaded in paragraph 22 above") that, by causing Chilli #1 to enter into the Intellectual Property Agreement on 1 July 2005 (and, unlike [26], this is not qualified by the words "as pleaded in" any earlier specified paragraphs) and by entering into it himself, Mr Cheal acted in a manner oppressive of the interests of Ms Fitzpatrick as a shareholder in Chilli #1 contrary to s 232 of the Act;

The only textual basis for a contention that this is dependent on the factual finding that Chilli #1 was the owner or exclusive user of the trade mark is the prefatory words "Further to the matters pleaded in [22]". It seems to me that such a contention cannot be maintained. The words "Further to" must in ordinary parlance and in a pleading context be read as introducing an allegation that is separate and additional, hence further, to the previous allegation. I see no basis for reading it as incorporating by reference the earlier allegation as part of the further allegation.

(v) the allegations in [33] and [34] that by entering into the February 2006 agreement (described in [30] as an agreement under which Mr Cheal purported to assign to Cheal Industries the Intellectual Property and associated goodwill at what was said to be a gross undervalue), and by causing Cheal Industries to enter into it, Mr Cheal acted in breach of his fiduciary and statutory duties as a director of Chilli #1;

While [33] and [34] do not themselves make reference to the ownership/right of exclusive use of the trade mark, [31] pleads that the agreement was ineffective at law to assign the Intellectual Property and the associated goodwill "which was then owned by Chilli #1". The words "or in the alternative held by Chilli # 1 pursuant to the July 2005 Agreement" were deleted when the amended pleading was filed.

The allegations in [33] and [34] are not in their terms dependent on a finding that Chilli #1 was the owner of the trade mark in question, although the allegation that it was sold at a gross undervalue logically would suggest that the owner was Chilli #1 since the fact that Mr Cheal may have sold his own intellectual property at an undervalue is surely of itself not something of which Chilli #1 could complain.

(vi) the allegations in [38] that the 2005 and 2006 agreements (and the June 2006 licence agreement with Chilli #2) were all shams "in the sense that they were legal contrivances created with the intent to give the colour of legality to the conduct of [Mr Cheal] in breach of his duties as a director of Chilli #1 as pleaded in [22]" and [39] that, to the extent that they were valid to convey any legal rights to the trade mark or the right to make use of the trade mark, there is a liability on the part of the defendants to compensate Chilli #1 for the transfer and assignment of the trade mark and any associated goodwill "by reason of the matters pleaded in [22]";

At [88], his Honour noted the distinction between goodwill (which attaches to a business and cannot be dealt with separately from the business with which it is associated) and the sources of that goodwill (which may be assets of the business which are not themselves elements of the goodwill), referring to Federal Commissioner of Taxation v Murry [1998] HCA 42; (1998) 193 CLR 605 at [22], [24], [30], saying:

The sale of an asset of a business which may itself be a source of the goodwill of the business does not involve any sale of goodwill unless the sale of the asset is accompanied by or carries with it the right to conduct the business. That is because goodwill is the right or privilege to conduct a business in substantially the same manner and by substantially the same means as have attracted custom to it: Federal Commissioner of Taxation v Murry at [23], [31], [45].

and went on at [89] to say that, to the extent that a number of the assets of that business which were sources of its goodwill were acquired or used by one of the former partners in a new entity after the termination of the partnership then the appellant Mr Old was entitled to have the value of those assets brought to account in the winding-up of the partnership and that the value of those assets would usually take account of their potential use "which is an attribute of the asset and not an element of the goodwill", citing Murry at [33], [51]. However, to the extent that those assets might thereafter be said to have generated goodwill, this would be goodwill attaching to the new business.

His Honour also considered whether the equitable compensation for which the appellant was liable (for breach of his fiduciary duty in removing files prior to the termination of the partnership) included an amount for his having appropriated goodwill or otherwise reduced the value of goodwill of the former partnership. The referee (to whom the taking of partnership accounts had been referred) had recommended that the compensation for breach of fiduciary duty should include an allowance for loss of value of goodwill attributable to the wrongly removed files. The primary judge had rejected a contention that there should be no allowance for any loss of goodwill by way of equitable compensation but had varied the referee's recommendation so as to reduce the amount for which compensation was required to be made. This was on the basis that part of the damage by reason of the breach of fiduciary duty occurred while the partnership was still in existence and that "the mere fact that, on dissolution it ceased to exist does not mean that at the time of the breach of duty it had no value". A discount to the value of the goodwill was, however, applied by the trial judge on the basis that the breach occurred "very close to the obvious finish of the partnership" and "because of the chances of its becoming valueless in any event".

At [94], Meagher JA noted the appellant's argument that the measure of compensation for breach of fiduciary duty is to be assessed at the date of judgment and that it is assessed as the amount then necessary to put the beneficiary back into the position it would have been in had there been no breach (reference being made to Target Holdings Ltd v Redferns [1996] AC 421 at 437; Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [35] and [50]; O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 274-276) and addressed at [95] the position that would have been the case had the files not wrongly been removed and retained by the appellant (noting that in event the partnership would have generated revenue from those files until 30 June 2003 when the partnership was dissolved and the business ceased to be carried on and that thereafter revenue would have been generated from the files, probably for the benefit of that partnership in its winding-up, until such time as the files were allocated in accordance with the wishes of the clients which process had concluded by late July/early August).

It was accepted in Old that compensation had been provided compensation in respect of fees generated by the client files up to 30 June 2003 and that an allowance had been made for the costs incurred in July 2003 in locating and dealing with the removed files which he had removed. It had further been conceded that it was not possible on the evidence to establish whether any other losses had been incurred as a result of the removal of the files. Meagher JA said that on no view of the matter would the respondents have received any amount reflecting a proportion of the value of the goodwill of the partnership business and that (at [97]) to award compensation reflecting any part of the value of the goodwill of the former partnership would be to put the respondents in a better position than they would have been in had the breach of fiduciary duty not occurred.

The question here is as to how to value the loss of the opportunity for Chilli #1 to extract value from its existing goodwill when that goodwill was liable to be lost (and, even if the Mordecai approach is adopted and one assumes that Mr Cheal was required to be treated as the purchaser of that goodwill, it could hardly be postulated that he be required to pay to acquire the rights to use his own trade mark).

Further, while I consider that theoretically the past goodwill and company name would have had a value, I am not in a position to determine what that value might be (since the expert's report expressly disclaimed any attempt separately the value the company's goodwill from its business independently of the goodwill attributable to the Chilli trade mark.

At paragraph 2.2 of the Report, Mr McMahon states:

Although it is possible to attempt to separately estimate the value of each identified intangible asset (such as a brand name or a patent) which have a separate identity of their own, independent of the business (as distinct from Goodwill which is regarded as an unidentifiable intangible asset which cannot be separated from the entity), it is often neither feasible nor practicable to do so. We see no good reason to seek to separately estimate the value of the brand name from the value of goodwill for Chilli #1 and regard then as essentially one and the same thing in this instance. Therefore, in the remainder of this report, references to the value of goodwill should be read as including the value of the brand name "Chilli Shapes by James Cheal" as recorded in Trademark 767677 . (my emphasis)

Mr McMahon explained this in cross-examination as follows:

Q. Mr McMahon, in paragraph 2.2 of your report you say in this case you see no good reason to seek to separately estimate the value of brand name from the value of goodwill for Chilli #1?

A. Yes.

Q. And what you mean by that is that you consider that the value of the trade mark is essentially the goodwill of Chilli #1?

A. No, it's a much bigger picture and I feel that it was impossible to separate the value of the trade mark from the value of the commercial goodwill of the business. I couldn't separate them, I had no precise information to do that.

Mr McMahon seems to me to be unable to assess the value of the brand name from the value of the goodwill for Chilli #1 because of lack of information, not because the task per se was impossible.

I therefore cannot assess the measure of equitable compensation that would be appropriate in the present case (and if a remedy were to be sought on that basis it would be appropriate for it to be referred out to an intellectual property expert).

This brings me to the remedy for oppression.

The general principle, when determining relief for oppression, was said in Scottish Co-operative Wholesale Society v Meyer , at 86, per Lord Keith to be to determine:

what would have been the value of the shares at the commencement of the proceedings had it not been for the effect of the oppressive conduct of which complaint was made. This is clearly not a matter on which a calculation can be made with mathematical accuracy or by the application of strict accounting principles...

In that case, Lord Denning, at 89, said:

One of the most useful orders mentioned in the section-which will enable the court to do justice to the injured shareholders-is to order the oppressor to buy their shares at a fair price; and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression.

The Court, in those circumstances seeks to fashion relief which removes the adverse effects of the oppression ( Shelton v NRMA at [26], cited by Bergin J (as her Honour then was) in Backoffice Investments v Campbell [2007] NSWSC 161; (2007) 61 ACSR 144; 25 ACLC 302, at [93], and reaffirmed in Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95 , at [195], [332]).

The remedy chosen should be the least intrusive ( Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452, at 475; Fexuto v Bosnjak Holdings Pty Ltd , Young J (as his Honour then was), at 742).

In relation to the claim for oppression, when the court is valuing the oppressed shareholder's interest in the determination of the relief to be awarded for oppression, the aim is to put the applicant in the position as if there had been no oppression, as stated by Young J (as his Honour then was) in ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1995) 15 ACSR 536, at 540:

However in cases dealing with the price at which an oppressor is to purchase the oppressed's shares in a company the word ``fair'' has been given significance. For instance in Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 369, Lord Denning said that one of the most useful orders that could be made is to "order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression". The concept of "fair price" in this sense has been followed subsequently; see for instance Re Associated Tool Industries Ltd (1963) 5 FLR 55 at 70; Re Golden Bread Pty Ltd [1977] Qd R 44 at 55; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 at 102 and cases cited by von Doussa J in that case at para 25.5. The flavour of the judgments in the company oppression cases is that in looking to the fair value one must look at all the circumstances of the case and seek to put the oppressed in the same position as nearly as can be as if there had been no oppression, erring, if there is to be any erring, on the side of the oppressed . (my emphasis)

In Rankine v Rankine (1995) 124 FLR 340, Thomas J (as his Honour then was), with whom Macrossan CJ and McPherson JA agreed, said at 345-346:

In granting a remedy in favour of an oppressed shareholder under CL s 260(2)(e) or 260(2)(f) by ordering the compulsory purchase of the applicant's shares at a stated price, the court is in effect awarding compensation for the respondents' breach of duty. The nature of the duty is both subtle and complex, and not capable of exhaustive definition, but the most useful expressions of it are collected in McPherson, The Law of Company Liquidation , 3rd ed, Donovan, pp 143-44. One such expression describes it as a duty of probity and fair dealing (Meyer, above, 364, per Lord Keith). The compensatory nature of the remedy is recognised by Lord Denning in Meyer at 369, in Re a Company No 002612 of 1984 (1986) 2 BCC 99 at 495 and in Coombs v Dynasty , above, at ACLC 918. The ultimate finding of the price that should be paid cannot be made until the nature and effect of the oppression has been identified and its effect quantified or allowed for. By contrast a valuation of shares on the basis of the value of the company as a going concern, or by reference to its underlying assets, as has been directed in this case, is a conventional valuation exercise without adjustments for the oppression factors.

In Short v Crawley (No 30) [2007] NSWSC 1322, White J said at [1237ff] that the overriding requirement when valuing the shares of the company for the purpose of a compulsory purchase order is that the valuation, and the time at which the valuation is to be carried out, be fair. His Honour noted that "[f]airness depends on the facts of the particular case ( Re London School of Electronics Ltd [1986] Ch 211 at 224; Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 144; Profinance Trust SA v Gladstone [2002] 1 WLR 1024 at 1034)" and confirmed that the valuation must exclude the depreciating effect on the value of the applicant's shares brought about by the oppressive conduct ( there citing Scottish Co-operative Wholesale Ltd v Meyer at 364 and 369). His Honour did not agree that there was any prima facie principle or starting point of valuation for such a valuation to be undertaken as at the date proceedings are commenced (a submission to that effect having been made to his Honour by reference to what was said in Re a Company per Vinelott J at 99,492-99,493). Rather, his Honour considered that the test was simply as to what is the fair time to adopt as the time for valuation of the shares in question. His Honour observed that in Profinance Trust SA v Gladstone , the Court of Appeal had noted that w here a company has been deprived of its business, an early valuation date (and compensating adjustments) may be required in fairness to the claimant (referring to Scottish Co-operative Wholesale Society Ltd v Meyer ).

As I noted in Vadori, there is some judicial support for the approach of valuing an applicant's shares in a company which has lost business opportunities due to breaches by the directors (where this conduct also constitutes the oppression) by treating the new company, which took the business opportunity, as if it were a wholly-owned subsidiary of the subject company ( Re Bright Pine Mills , at 1013-1014; Dwyer v Lippiatt; Dwyer v Backpackers R Us , at [83]; Drinkwater v Caddyrack Pty Ltd [1997] NSWSC 431).

Here, it seems to me clear that the relevant time for valuing the shares would be 30 June 2006 the time immediately before the business was assumed by Chilli #2. Ms Francois submits that an inherent difficulty in establishing a value for Chilli #1 is its lack of profitability and that this causes a difficulty for the use of any earnings based approach to determining value. Criticism was made of the expert valuation report on the basis of the asserted inaccuracy of Mr McMahon's assumed growth rates for the discounted cash flow calculation adopted by him.

I turn then to the Expert Report (Exhibit A). It is clear that the valuation made by Mr McMahon is predicated upon the trade mark "Chilli Shapes by James Cheal" being (or remaining) an intangible asset of Chilli #1. No criticism is intended of Mr McMahon in this regard. This was an assumption he was instructed to make (as is clearly set out in the report). (As to the criticism made of the mathematical accuracy of the calculations, if Ms Francois' submissions are correct and this is an issue of arithmetic not methodology, then the report does not explain how present value of the business is calculated from the terminal value and therefore, the report provides no way of assessing the present value of the business on Ms Francois' figures.)

At [2.3], the methodology for calculating the value of the goodwill is set out (Mr McMahon having explained at [2.2] that goodwill in an intangible asset is the amount an acquirer is prepared to pay over and above the fair market value of the Net Operating Assets of a business or entity):

... the value of Goodwill (as described in paragraph 2.2 above) can best be estimated by first valuing the business of Chilli #1 as at the specific dates requested and then deducting from these valuations the fair market values of what we call the Net Operating Assets of the Chilli #1 business at these specific dates. The resultant figure, if positive, is the estimated value of the goodwill (predominantly comprising the value of the brand name "Chilli Shapes by James Cheal") associated with the Chilli #1 business . (my emphasis)

This approach is reinforced on page 6 of the Report, which sets out the assets and liabilities of Chilli #1 as at 30 June 2005 and 30 June 2006 for the purposes of calculating the book value of "net operating assets". Note b on page 6 states:

... We are instructed to assume that Chilli #1 had the benefit of the ongoing right to the use of the intellectual property and associated goodwill recorded in Trade Mark 767677 and, therefore, we have recorded these Patents and Trademarks as an intangible asset of Chilli #1. This treatment has no bearing on our valuation of the Chilli #1 business or on our estimates of the value of goodwill as this asset is included in the goodwill estimate regardless . (my emphasis)

This is again stated at paragraph 6.2.5.16:

In arriving at the valuation of the market value of the Chilli #1 business as at 30 June 2006 (and in all valuations) we have been instructed to assume that Chilli #1 had the benefit of the ongoing right to the use of the intellectual property and associated goodwill recorded in Trade Mark 767677 and it could assign or otherwise transfer the ongoing right to the use thereof to the purchaser royalty fee.

Based on the methodology set out above, no separate valuation has been conducted of the goodwill in Chilli #1 on the scenario (proven to be correct) that TM 767677 is not the property of Chilli #1 and Chilli #1 at the relevant time no longer had the right to use the trade mark.

The valuation methodology adopted by Mr McMahon, of the two available methodologies - Earnings/Cash Flow Approach and an Assets Approach, was the former on the basis that this was a performing (not underperforming) business; on such an approach Mr McMahon noted that there were two available methods of valuation: a Discounted Cash Flow Method (being a universal method but one where the major difficulty lies in the forecast of further cash flows) and the Capitalised Maintainable Earnings Method (which looks to investment return or the appropriate capitalised rate or earnings multiple). In this regard, he chose the former. Mr McMahon noted at [4.14] that the Discounted Cash Flow Method is suitable to value demonstrable growth businesses that either "do not presently generate positive EBIT or free cash flows but which have the strong potential to do so in the future and for business which are still in the early stages of their development and are exhibiting strong growth in revenues and or free cash flows." (Ms Francois challenged the assumption as to strong growth but it is not necessary to consider this given the conclusion I have reached on the effect of the flawed assumption on which the report was based.)

Paragraph [4.15] set out the methodology involved in the Discounted Cash Flow Method; that comprising a forecast of "future free cash flows" discounted back to the valuation date using an appropriate risk adjusted discount rate and then capitalised to an "appropriate horizon date". That method produces a ' terminal value' at the start of future horizon year which, in turn, is then discounted back to the valuation date to obtain its present value; the present values are summed to obtain the estimated value of the operating business and an appropriate risk adjusted discount rate is then applied.

Ms Francois criticised the mathematical calculation of the "growth rate" upon which the yearly cash flows are calculated (that being one of the assumptions in the Discounted Cash Flow Method adopted by Mr McMahon). In summary, it is submitted (and not only does that mathematically seem to be the case, it was accepted by Mr McMahon that this was the case) that what has been used is not the actual average annual growth period over the relevant periods but the growth rate over the relevant period divided by the number of years in that period. This, Ms Francois submits, and Mr McMahon accepted, produces a higher growth rate than the actual average of annual growth (for the period ending 30 June 2005 a rate of 26% as opposed to 22.3%; for the period ending 30 June 2006 a rate of 46% as opposed to the rate of 31.5%, though it must be noted that in that case Mr McMahon adopted a lower rate of 36% than the rate produced on his calculations in order, he said, to be conservative).

Mr Evans submitted that the calculations provided by Ms Francois were misleading and that the purpose of the growth rate assumption adopted by Mr McMahon was to provide a starting point for projected future growth such that the application of that growth rate to past sales data is of no assistance. Further, it was submitted that the figure of 26% did not represent a compound rate of growth (as Ms Francois had contended).

It was submitted by Mr Evans that, insofar as the thrust of the criticism of the growth rate methodology applied by Mr McMahon was that it operated unfairly, this proposition was put to Mr McMahon in cross-examination and rejected by him by reference to the common practice in the industry and his view that the alternative method suggested to him would produce an inaccurate result in that it included an extraordinary year for which there may have been a reasonable explanation. (Mr Evans further submitted that the hypothesis of the unfairness of the growth rate methodology adopted by Mr McMahon could be tested with the benefit of hindsight, since the growth rate of 36% assumed by Mr. McMahon in his model for the 2007 sales was below the actual growth rates achieved in both 2005 and 2006.)

In cross-examination, Mr McMahon gave the following explanation for how he calculated the growth rate (at T 22.20 and T 23.20-23.30):

A. The simple average percentage truly reflects the overall trend in the business which was up quite considerably apart from the 2004 year which did no grow. So I felt that the simple average percentage of those three years was best calculated in the way to demonstrate the overall upward trend of the business.

...

Q. But if one wanted to use a more accurate history in terms of what actually happened the more accurate average percentage is 22.3 in terms of the actual history of this company?

A. No, I don't agree. As I have said before I have explained why I picked 26 percent, and I stand by that.

Q. Is it normal practice when evaluating businesses of this kind to use a certain rate?

A. Yes, it is important to get a feel for the trend in the business, be it up, down or stable, and it is a normal procedure used to calculate that trend.

I accept that the decision to use the growth rate figures adopted by Mr McMahon is not a question of the mathematical integrity of the calculations, but instead reflects a decision as to the appropriate rate to be applied in the application of the Discounted Cash Flow model applied by Mr McMahon. In the absence of any other expert evidence upon which I could conclude that the methodology adopted by Mr McMahon was incorrect and having had the opportunity to hear Mr McMahon's explanation as to why he had chosen the figures he did, had the issue rested on this I would have accepted the valuation arrived at by Mr McMahon.

In the present case, however, the valuation proceeded on the basis of an assumption that has not been made out. Therefore, I am unable to accept that the valuation of the business is in the order Mr McMahon estimated. I note that footnote 22 to Mr McMahon's report notes that if Chilli #1 were to be valued after the acquisition of the business then the only value would be the fair market value of the Net Operating Assets with no component for goodwill. The latter conclusion is due to Mr McMahon's conclusion that there is no separate value for goodwill independent of the Chilli trade mark. In this regard, I also note the following answer given by Mr McMahon regarding how to value Chilli #1 if there were no goodwill (at T26.15):

A. I can explain that. For example, if the net operating assets of the business was $114,000 but the discounted cash flow of the business only came to $110,000, there would be no reason to use the cash flow basis because it didn't achieve a value greater than the net operating assets. So there was no goodwill, so therefore you would not proceed using a discount cash flow method. So the test is whether your discount cash flow method exceeds the net operating assets of the business. That's the test, and once that's exceed you know you're on the correct path of valuing it using DCF, using the discounted cash flow method. So the test - does that make sense?

Therefore, it seems to me that the appropriate approach is to value Chilli #1 according to the value of the Net Operating Assets as at 30 June 2006, plus any amount attributable to goodwill independent of the Chilli trade mark.

Conclusion

I consider that the appropriate relief on the oppression claim is to order a compulsory purchase of Ms Fitzpatrick's shares at a value that represents half of the fair market value of the Net Operating Assets as at 30 June 2006 (ie half of $110,000 - that being the book value of $119,000 less the $9,000 wrongly attributed in the accounts to the patents/trade marks entry) plus half of the amount (if any) that may be attributable to the goodwill of Chilli #1 independent of the Chilli trade mark. The latter has not yet been valued. It seems to me open to infer that it must have had some value to Mr Cheal or Chilli # 2 since Mr Cheal proceeded to appropriate the company name for the benefit of Chilli #2.

Absent any valuation of that amount, the appropriate purchase price would be $55,000. (Mr McMahon in the witness box explained that the valuation of a share to be acquired on this basis would not take into account company debt and, in circumstances where there seems to have been no claim in that regard, and the circumstances in which the remedy has been sought, I do not take that into account.)

Any equitable compensation to the company would require a similar determination (and any value thereafter to be obtained by Ms Fitzpatrick in respect of her shares would require the winding up of Chilli #1 at no doubt further expense). Therefore, it seems to me that that the alternative relief based on oppression would be the relief most consistent with the just, quick and cheap resolution of the real issues in dispute.

The only question then is whether to refer to an expert the valuation of the goodwill represented by the company name or simply to attribute a nominal value to that in circumstances where it seems unlikely that in quantum it would have approached anywhere near the value attributable to the Chilli trade mark itself. I will hear submissions on this aspect of the relief to be granted and will hear submissions on costs.

Orders

For the reasons set out above, I propose to order as follows:

1. Declare that the first defendant, by acting in his capacity as director of the third defendant (Chilli #2) to negotiate the June 2006 Agreement on terms favourable to third defendant at the expense of the second plaintiff (Chilli #1) (and neglecting to attempt to extend the July 2005 agreement with Chilli #1 or to negotiate a new agreement for the use by Chilli #1 of the Intellectual Property the subject of that agreement) breached the statutory and fiduciary duties owed by him as a director of Chilli #1.

2. Declare that the second and third defendants knowingly assisted in the breaches of duty by the first defendant that related to its conduct in causing the entry by Chilli #2 into the June 2006 agreement.

3. Declare that the first defendant has conducted the affairs of Chilli #1 in a manner oppressive to the interests of the first plaintiff and so breached s 232 of the Corporations Act 2001 (Cth) in entering into the February 2006 Agreement with the third defendant (Cheal Industries Pty Ltd), causing the Cheal Industries to enter into that agreement, neglecting and failing to attempt to seek an extension of the June 2005 Agreement on behalf of Chilli #1, by bringing about the acquisition or incorporation of Chilli #2, by causing Industries and Chilli #2 to enter into the July 2006 Agreement.

4. Order that the defendants are liable to make payment of equitable compensation to the second plaintiff in an amount to be determined as being the value attributable to the Chilli Surfboards Pty Ltd company name and associated goodwill as at 30 June 2006 (valued on the basis that ownership of the Chilli trade marks reposed in the second defendant at the relevant time).

5. In the alternative to 4 above, order that the first defendant acquire the shares of the first plaintiff in the second plaintiff company for the sum of $55,000 plus half of the value of attributable to the Chilli Surfboards Pty Ltd company name and associated goodwill as at 30 June 2006 (valued on the basis that ownership of the Chilli trade marks TM 767677 and 804353 reposed in the second defendant at the relevant time).

I will consider the terms on which there should be a referral to an intellectual property expert (failing agreement between the parties) as to the value of the goodwill the subject of the orders in 4 and 5 above, or the attribution of a nominal value in respect thereof, after hearing submissions from Counsel. I will also hear submissions as to costs.

**********

Decision last updated: 21 March 2012

[2012] NSWSC 261

21 March 2012

Key Legal Topics

Areas of Law

Corporate Law & Governance

Legal Concepts

Breach of Fiduciary Duty

Oppression

Equitable Compensation

Medium Neutral Citation:	In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 261
Hearing dates:	7-10 February 2012
Decision date:	21 March 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Ward J
Decision:	Judgment for the plaintiffs
Catchwords:	CORPORATIONS - breach of fiduciary duties or statutory duties pursuant to ss 180, 181 and 182 Corporations Act 2001 (Cth) - director of company set up competing company while still director and employee of first company - director appropriated company name of first and goodwill associated with previous trading history of first company (though not registered trade mark, which was at all relevant times property of director or family trust company) - HELD - breach of director's duties and knowing assistance by second and third defendants - CORPORATIONS - oppression - s 232 Corporations Act 2001 (Cth) - whether conduct engaged in by the first defendant in setting up the competing company and diverting the business of the first company to the new company was oppressive - HELD - conduct of "affairs of the company" by the first defendant objectively unfair and oppressive - REMEDIES - equitable compensation - valuation of shares of company - where intangible assets of the company include value associated with a trade mark used but not owned by the company and the value associated with the business name - HELD - value of shares to be calculated according to value of Net Operating Assets plus an amount attributable to goodwill (if any) independent of the trade mark
Legislation Cited:	Corporations Act 2001 (Cth) Trade Marks Act 1995 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Alcock v Robb (1978) 2 BPR 9625 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507 Arthur Young v Tieco International (1995) 182 LSJS 367 Attorney-General (NSW) v Brewery Employees Union (NSW) (1908) 6 CLR 469 Aubanel and Alabaster Ltd v Aubunel (1949) 66 RPC 343 Backoffice Investments v Campbell [2007] NSWSC 161; (2007) 61 ACSR 144; 25 ACLC 302 Banque Commerciale SA (In Liq) v Akhil Holdings Limited [1990] HCA 11; (1990) 169 CLR 279 Betfair Pty Ltd v Racing New South Wales [2010] FCFCA 133; (2010) 189 FCR 356 Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46; [1966] 3 All ER 721 Bowden Wire Co Ltd v Bowden Brake Co Ltd (1914) 31 RPC 385 Bray v Ford [1896] AC 44 Buckley v Tutty (1971) 125 CLR 353 Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95 Campbell and Another v BackOffice Investments Pty Limited [2009] HCA 25; (2009) 238 CLR 304; (2009) 257 ALR 610, at 654; (2009) 73 ACSR 1 Canadian Aero Service v O'Malley [1974] SCR 592; 40 DLR (3d) 371 Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 Charter Carter Pty Ltd v The Shop, Distributive and Allied Employees' Association of Western Australia (1987) 13 FCR 413 Cook v Deeks [1916] 1 AC 554 Copyright Agency Ltd v Department of Education of New South Wales (1985) 80 FLR 332 Delphic Wholesalers Pty Ltd v Elco Food Co Pty Ltd (1987) 8 IPR 545 Doyle v Australian Securities and Investments Commission (ASIC) [2005] HCA 78; (2005) 227 CLR 18; (2005) 223 ALR 218; (2005) 56 ACSR 159 Drinkwater v Caddyrack Pty Ltd [1997] NSWSC 431 Duke Group Limited (in liq) v Pilmer (1998) 27 ACSR 1 Dwyer v Lippiatt; Dwyer v Backpackers R Us.Com Pty Ltd (2004) 50 ACSR 333 Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1995) 15 ACSR 536 Federal Commissioner of Taxation v Murry [1998] HCA 42; (1998) 193 CLR 605 Fexuto Pty Limited v Bosnjak Holdings [2001] NSWCA 97; (2001) 37 ACSR 672; (2001) 19 ACLC 856 General Electric Co v General Electric Co Ltd [1972] 1 WLR 729; [1972] 2 All ER 507 General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 Gould v Mount Oxide Mines Limited (in liq) (1916) 22 CLR 490 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1136 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206 Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd and Or [2008] NSWSC 144; (2008) 66 ACSR 1 Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 Mordecai v Mordecai (1988) 12 NSWLR 58 Nocton v Lord Ashburton (1914) AC 932 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Old v McInnes and Hodgkinson [2011] NSWCA 410 Painaway Australia Pty Ltd v JAKL Group Pty Ltd [2011] NSWSC 205 Pioneer Kabushiki Kaisha v Registrar of Trade Marks (HCA, unreported, Aickin J, 1 November 2011) Phillips v Phillips (1878) 4 QBD 127 Profinance Trust SA v Gladstone [2002] 1 WLR 1024 Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 Rankine v Rankine (1995) 124 FLR 340 Ratcliffe v Evans (1892) 2 QB 524 Re a Company (No 002612 of 1984) (1986) 2 BCC 99,453 Re Baumler (UK) Ltd [2005] 1 BCLC 92; [2004] All ER (D) 139; [2005] BCC 181 (Ch D) Re Bega Co-operative Society Ltd & Anor v The Milk Authority of the Australian Capital Territory & Anor (Unreported, Federal Court of Australia, 12 May 1992); [1992] FCA 200 Re Bright Pine Mills Limited [1969] VR 1002 Re Hollen Australia Pty Ltd; Holt v Burnside [2009] VSC 95 Re Leas Hotel Co [1902] 1 Ch 332 Re Leeds United Holdings Plc [1997] BCC 131 Re London School of Electronics Ltd [1986] Ch 211 Re Scottish Co-operative Wholesale Society Limited v Meyer [1959] AC 324; [1958] 3 All ER 66 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Shelton v NRMA [2004] FCA 1393; (2004) 51 ACSR 278 Short v Crawley (No 30) [2007] NSWSC 1322 Target Holdings Ltd v Redferns [1996] AC 421 Thomas v HW Thomas Ltd [1984] 1 NZLR 686; (1984) 2 ACLC 610; (1984) 2 NZCLC 99 Vadori v AAV Plumbing Pty Ltd [2010] NSWSC 274 Wayde v New South Wales Rugby League [1985] HCA 68; (1985) 180 CLR 459 WEA Records Pty Ltd v Stereo FM Pty Ltd (1983) 48 ALR 91 Weatherall v Satellite Receiving Systems (Aust) Pty Ltd [1999] FCA 218; (1999) 30 ACSR 698 Webb v Stanfield [1991] 1 Qd R 594 Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
Texts Cited:	R P Austin and I M Ramsay, Ford's Principles of Corporations Law (13th ed, 2007)
Category:	Principal judgment
Parties:	Simone Leah Fitzpatrick (First Plaintiff) ACN 089 142 870 Pty Ltd (Second Plaintiff) James Mitchell Cheal (First Defendant) Cheal Industries Pty Ltd (Second Defendant) Chilli Surfboards Pty Ltd (Third Defendant)
Representation:	Counsel M B Evans (Plaintiffs) Ms R Francois (Defendants) Solicitors Lathams Lawyers (Plaintiffs) Brown Wright Stein (Defendants)
File Number(s):	09/291052