Joint v Program It Pty Ltd
[2020] VSC 867
•17 December 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2019 01008
| PETER JOINT | Plaintiff |
| v | |
| PROGRAM IT PTY LTD (ACN 093 420 752) & ORS | Defendants |
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JUDGE: | DELANY J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 October 2020 | |
DATE OF JUDGMENT: | 17 December 2020 | |
CASE MAY BE CITED AS: | Joint v Program IT Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2020] VSC 867 | First Revision: 12 January 2021, paragraph [212] |
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CORPORATIONS – Oppression –Whether director had paid himself and family members excessive remuneration – Salaries paid not commensurate with work undertaken – Value of Company when salaries adjusted - Fair value of minority shareholding – Corporations Act 2001 (Cth) ss 202A, 233 - Re SRW Nominees Pty Ltd (No. 2) [2020] VSC 323 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G McCormick | Goldsmiths Lawyers |
| For the Defendants | Mr A Segal | Rigby Cooke Lawyers |
TABLE OF CONTENTS
A.. Introduction.................................................................................................................................. 1
B.. Shareholders, Directors and the business of the Company................................................ 2
C.. The First Oppression Proceeding............................................................................................. 8
D.. The Period 2009-2015................................................................................................................. 10
E... The period 2015-2020................................................................................................................. 14
F... The alleged oppressive conduct.............................................................................................. 18
G.. Legal principles: Oppression and ‘fair value’...................................................................... 22
I.... Valuation methodology and the expert valuation evidence............................................. 27
J:... Differences between the Experts concerning Future Maintainable Earnings............... 34
K:. FME: Weighting the Earnings.................................................................................................. 35
L:.. FME: the EBITDA Multiple..................................................................................................... 37
M: The balance Sheet of the Company and Disputed items of adjustment........................ 39
N.. The allegation of excessive directors fees paid to John Tan.............................................. 40
O:. Expenses paid by the Company relating to overseas travel by John Tan....................... 51
P... Payments to Sandia Rose.......................................................................................................... 53
Q.. The employment of Alex Tan.................................................................................................. 56
Rent Adjustment......................................................................................................................... 57
R.. Adjustment for Tax Effect........................................................................................................ 58
S:.. The Joint Loan............................................................................................................................ 58
T:. Legal Fees..................................................................................................................................... 61
U:. Oppressive Conduct.................................................................................................................. 63
U:. The contention that events prior to 2015 should be disregarded..................................... 64
Delay and Acquiescence: Mr Joint........................................................................................... 65
The balance sheet of the Company as at 30 June 2020: the Plaintiffs contentions............. 66
The balance sheet of the Company as at 30 June 2020: the Plaintiffs contentions............. 67
Determination of Fair Value...................................................................................................... 70
W: Disposition.................................................................................................................................. 74
HIS HONOUR:
A. Introduction
This is a claim by the 49% minority shareholder, Peter Joint, in the first defendant, Program IT Pty Ltd, (‘the Company’) for an order for the purchase of his shares in the Company by the third defendant, Sandia Kam Lin Rose (‘Sandia Rose’). Sandia Rose is the holder of the majority of the shares in the Company.[1] Mr Joint seeks an order that his shares be purchased by Sandia Rose at a price to be determined by the Court.[2]
[1]Mr Joint owns 49% of the shares in Program IT Pty Ltd while Ms Sandia Rose holds the remaining 51% of the shares. Refer to Plaintiff’s Points of Claim dated 24 April 2020 (‘Points of Claim’), [12], [32].
[2]Points of Claim, [B]–[C].
The proceeding was commenced on 12 May 2019. On 3 September 2020, the defendants accepted that Ms Rose be ordered to purchase the shares of Peter Joint at a price to be determined by the Court.[3] The agreed date for valuation is 30 June 2020.
[3]This position was made clear in the Defendants’ Response to the Amended Further and Better Particulars of Oppression dated 3 September 2020 [CB 31].
Although the parties now are agreed there should be a purchase of Mr Joint’s shares, they are not agreed about relevant factual matters to be taken into account in determining the price at which the share purchase should take place.
Mr Joint contends that there has been oppressive conduct. The defendants do not agree. In written submissions provided prior to trial the defendants contended that in the absence of oppressive conduct, it is appropriate that a 30% minority discount be adopted when determining the price to be paid by Sandia Rose for Peter Joint’s shares.[4] When the trial commenced counsel for the defendants qualified the requirement for a discount on account of the minority nature of the interest. If the defendant’s case as to the reasonableness of past remuneration paid was accepted, it would be unnecessary that there be an adjustment on account of minority interest, even if oppressive conduct is not made out. The law is clear that if oppression is established, there should be no discount on account of the interest being a minority interest.[5]
[4]Mr Tyshing adopted a 30% minority discount in his earlier Report, said on behalf of the defendants to reflect general valuation practice. Supplementary Expert Report from Graeme Tyshing of Farelday Consulting, dated 2 October 2020 (‘Supplementary Tyshing Report’), [12.2], CB 1169; Defendants, Outline of Submissions, dated 9 October 2020 (‘Defendant’s Opening Submissions’), [38].
[5]See the Full Federal Court in Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 145. Mr Tyshing notes in his report that whether a discount for a minority interest should be applied is a matter for the Court. Refer Supplementary Tyshing Report, [12.2], [CB 1169].
At trial evidence was given by the plaintiff, Mr Joint, the second defendant, John Tan, his son, Alex Tan and the third defendant, Sandia Rose, the domestic partner of John Tan. Each of those persons was cross-examined. In addition, the plaintiff relied upon two affidavits made by Andrew John Dennis,[6] a longstanding employee of the Company and its principal IT consultant. Mr Dennis was not required to attend for cross-examination.
[6]Plaintiff, Affidavit of Andrew Dennis dated 29 July 2020 (‘First Dennis Affidavit’), [CB 393–395]; Affidavit of Andrew Dennis dated 25 September 2020, (‘Second Dennis Affidavit’) [CB 850–853].
Two experienced expert accounting witnesses, Mr Tyshing and Mr Smith, gave evidence directed to their assessment of the value of the issued shares in the Company as at 30 June 2020. Both experts prepared comprehensive reports prior to trial.[7] Both participated in an expert conference process and provided a statement by experts (‘Joint Statement of Experts’).[8] At the trial, the experts gave evidence in a conclave. That evidence, and the Joint Statement of Experts considered each of the factual issues in dispute between the parties, and how those issues impacted upon an assessment of the value of the Company from an accounting perspective. That impact is helpfully demonstrated in Appendices 1 and 2 from the Statement by Experts, both of which are reproduced later in these reasons.
B. Shareholders, Directors and the business of the Company
[7]Plaintiff, Expert Report from Graeme Tyshing of Farelday Consulting dated 16 October 2019 (‘First Tyshing Report’), [CB 1092–1118]; Defendants, Expert Report from Michael Smith of CFAS Advisory dated 18 February 2020 (‘First Smith Report’) [CB 1119–1151]; Supplementary Tyshing Report [CB 1152–1182]; Defendants, Supplementary Expert Report from Michael Smith of CFAS Advisory dated 6 October 2020 (‘Supplementary Smith Report’) [CB 1183–1215].
[8]Joint Statement by Mr Tyshing and Mr Smith dated 12 October 2020 (‘Joint Statement by Experts’) [CB 1216–1238].
Program IT, the Company, was incorporated pursuant to the Corporations Act 2001 (Cth) (‘the Act’) on 22 June 2000.[9]
[9]See ASIC Company Search of Program IT [CB 1032- 1039].
The Company has 100 fully paid shares.[10] The history of shareholding is as follows:[11]
[10][CB 1032-1039].
[11]The details of the relevant shareholding are admitted and referred to at the ASIC Company Search [CB 1032-1039]. Affidavit of Peter Joint sworn 5 December 2018 (‘First Joint Affidavit’) [2]-[5], [CB 111-112].
(a) Initially, all of the shares were held by Jason Stephens (Stephens).
(b) On 31 October 2002, Stephens transferred 49 shares to Peter Joint.
(c) Between 31 October 2002 and 26 October 2009, Peter Joint held 49 shares and Stephens held 51 shares.
(d) On 28 September 2009, Stephens transferred his 51 shares to John Tan for $51.[12]
[12]Plaintiff, Affidavit of Peter Joint sworn 20 July 2020 (‘Third Joint Affidavit’), Exhibit PJ-9, [CB 200].
(e) On 23 December 2009, following Stephens becoming a bankrupt, the Report to Creditors by his trustee in bankruptcy stated that 25 of 51 shares held by Stephens were held on trust for John Tan and the other 26 were held by Stephens in his own right.[13] The same report identified the transfer of the 51 shares from Stephens to Tan as a possible voidable transaction.[14] However, there is no evidence that any such claim was pursued against John Tan and John Tan says that at the time, the Company and the shares were, in any case, worthless.
[13]Ibid.
[14]Ibid.
(f) Between 26 October 2009 and 11 May 2015, Peter Joint held 49 shares and John Tan held 51 shares.
(g) On 11 May 2015, John Tan transferred his 51 shares to Sandia Rose.[15]
(h) Since 11 May 2015, Peter Joint has held 49 shares and Sandia Rose has held 51 shares.
[15]Transcript, 12 October 2020, 20.
Peter Joint was involved in the early years of the business operations of the Company. In particular, he was:
(a) an employee of the Company from shortly after its incorporation until 22 October 2004;[16]
(b) the CEO of the Company from 2002 until his employment was terminated on 22 October 2004 by John Tan;[17] and
(c) a director of the Company between 31 October 2002 and 12 May 2009.[18]
[16]Affidavit of John Zing San Tan sworn on 17 September 2020 (‘Second Tan Affidavit’), [7] [CB 446].
[17]Transcript, 14 October 2020, 223. At that time Mr Tan was a director of the Company. In consultation with Mr Stephens, in whose name the majority of shares in the Company were held, Mr Tan decided to terminate Mr Joint’s employment.
[18]See ASIC Company Search of Program IT [CB 1032-1039]. See First Joint Affidavit, [3] [CB 112]; Second Tan Affidavit, [6]-[8] [CB 446].
John Tan, initially appointed as a director of the Company on 18 March 2002, has been the sole director of the Company since 12 May 2009.[19] Mr Tan is currently aged 72 and his partner, Sandia Rose, is a couple of years younger than him.
[19]See ASIC Company Search of Program IT [CB 1032-1039]. Second Tan Affidavit, [6] [CB 446].
John Tan has accounting background. He obtained a bachelor of business from Deakin University in the 1970s or 1980s.[20] He worked at the Australian Taxation Office (‘ATO’) and before that, with the National Crime Authority. In 1988 he went into private practice as an accountant. After about 12 years he retired from that practice and not too long after that, he began his involvement with the Company.
[20]Transcript, 14 October 2020, 217.
Mr Tan described Stephens as an entrepreneur.[21] Stephens ceased to be a director of the Company on 18 March 2002 and ceased to be company secretary on 17 May 2002. In 2002 Mr Tan was appointed Director and Secretary in his place. From that point on, leaving aside the period 2006 – 2009 when John Tan was absent due to illness, Mr Tan has been both the sole director in control of the affairs of the Company and, at times, has also acted as the CEO.
[21]Ibid, 234.
Mr Joint gave evidence that the Company had two principal software products that it distributed, iET solution (‘iET’) and the Dimensional Insight Diver platform (‘DI Diver’).[22] Mr Joint gave evidence that the iET software provides a customer relationship management program (‘CRM’) that provides service desk management services to call centre organisations; and that the DI Diver software was used to analyse and report on the data received in the CRM databases.[23] Until 2010 and again from 2014, the Company has had exclusive distribution rights to the iET software.[24]
[22]Ibid, 13 October 2020, 130-131; The full titles to the two programs are described in the Points of Claim, [4].
[23]Ibid, 132-133.
[24]Ibid, 14 October 2020, 254. Mr Tan was unable to recall exactly when in 2014 the Company regained the exclusive distribution rights to the iET software.
The Company continues to use the same two platforms, iET and DI Diver, that it relied upon for its core business in 2004. I accept the evidence of Mr Joint that these two products are not legacy products only.[25]
[25]Ibid, 13 October 2020, 131.
Mr Joint gave evidence that the core business of the Company was to set up the two software platforms in a manner specific to the needs of customers, to provide IT support to those customers and to provide regular upgrades.[26] He gave evidence that software distribution is one aspect only of the business of the Company. When put to him that the business of the Company was that of a distributor of software programs, he disagreed. Mr Joint also disagreed with the description of the business as a ‘call centre’. I accept his evidence concerning these matters.
[26]Ibid, 130-131.
In the period between Peter Joint commencing his employment with the Company and his termination as CEO in October 2004, the Company grew. It is the evidence of Mr Joint that by 2004 there were 25 staff.[27] When cross-examined John Tan gave evidence of his recollection of approximately 18 employees of the Company at that time.[28] By late 2004 the business of the Company was conducted both in Australia and in Asia, with an office in Hong Kong.
[27]Ibid, 14 October 2020, 204.
[28]Ibid, 224.
In 2020 the Company has a much smaller workforce. Mr Tan gave evidence that there are currently three employees involved in the provision of IT services: Mr Dennis, and two other IT consultants, Francis Azarcon and Cathryn Delany. In addition, a bookkeeper, Tiana Machim works part time as she has done since the business moved its premises to Brighton. John Tan said that from 2015 onwards, staff levels, apart from himself and Sandia Rose, had reduced to the current level, but that as at 2015 there were one or two additional IT people when the business was being conducted at the premises in Hawthorn.[29]
[29]Ibid, 289–290.
The Company moved from Hawthorn to Suites 11 and 14 Bay Street Brighton around March 2019. The March 2019 lease was for a term of one year only and the Company now occupies the Brighton premises, together with an associated storage room on a monthly tenancy.[30]
[30]Second Tan Affidavit, exhibit JT-A [CB 614]; Transcript, 14 October 2020, 243.
Mr Dennis has been employed by the Company since 2002.[31] He made two affidavits, filed and relied upon by Mr Joint.[32] His unchallenged evidence is that he is the principal consultant at the Company. He works both from home and at the Brighton office. He has a team of consultants that he mentors and leads. In addition, he is responsible for managing supplier relationships, customer relationships, customer projects and support with respect to the Company’s core business.[33] He has the required security clearance to provide services under the Department of Defence (‘DOD’) contract.[34] When Mr Joint was the CEO he also had the required security clearance.[35] Mr Tan does not have such a clearance.[36]
[31]Transcript, 24.
[32]First Dennis Affidavit, CB 394; Second Dennis Affidavit, responding to the Defendants’ evidence.
[33]Second Dennis Affidavit, [2].
[34]Points of Claim, 6.
[35]Ibid.
[36]Transcript, 14 October 2020, 297.
At the time Mr Joint ceased to be the CEO on 22 October 2004, the Company had approximately 30 customers, including the DOD, leveraged off the two software platforms.[37] In the early years, Sage Software Australia Pty Ltd (also referred to as Sage Micropay) was also a customer.[38]
[37]Ibid, 205.
[38]Ibid.
As at 30 June 2020 the Company has what Mr Dennis describes as two significant contracts: A contract with the DOD, and a contract between Unicom Systems Inc (the parent organisation for iET solutions) and Sage Software Australia, pursuant to which the Company acts as agent and reseller for Unicom Systems Inc.[39]
[39]First Dennis Affidavit, [4] [CB 394].
The expert accounting evidence is that as at 2020, the DOD contract accounts for approximately 90% of the annual income of the Company and that the Sage business accounts for around $100,000 in income, paid each year as a lump sum in advance.[40] In 2020 the Company is reliant upon those two customers for its income.
[40]Transcript, 12 October 2020, 33, 15 October, 438.
The DOD contract was extended by the Department in late 2019 via a mechanism described as a ‘Change Order’. The Change Order was signed by John Tan on 21 November 2019 and by the Department on 3 December 2019.[41] The previous contract value was $3,122,028, the new contract value is $3.957 million over three years.[42] The Purchase Order, a separate document to the Change Order, provides for an annual charge for the period 1 December 2019 to 30 November 2020 of $896,102.80.[43] The annual charge includes the cost of an upgrade. When cross-examined Mr Tan was not aware of the upgrade and said this was a matter that Mr Dennis was dealing with.[44]
[41]Second Tan Affidavit, exhibit JT-A [CB 799].
[42][CB 799].
[43][CB 793].
[44]Transcript, 14 October 2020, 272.
Mr Tan was keen to play down the security of the DOD contract. He said that every year, when he asked Mr Dennis how long the Company should plan for, Mr Dennis said, no more than 12 months.[45] When Mr Tan gave instructions to Mr Tyshing, at that time the independent court appointed expert, he told Mr Tyshing about the possibility of the Department of Defence going to tender. That was a matter that Mr Tyshing referred to in his initial report.[46] However, at trial, Mr Tan gave no evidence that the Department intended to go to tender and there is no evidence that there is or was any proper foundation for the giving of such an instruction.[47]
C. The First Oppression Proceeding
[45]Ibid, 273.
[46]First Tyshing Report, 18, [CB 1109].
[47]Transcript, 14 October 2020, 273, 15 October 2020, 357-358.
This is not the first case to come before this Court involving the Company.
On 18 November 2004, Peter Joint commenced oppression proceedings against Stephens seeking orders that Stephens purchase his shares in the Company (‘the First Oppression Proceeding’). Neither John Tan, nor Sandia Rose were parties to the First Oppression Proceeding[48] and they did not give evidence in any of the three separate trials relating to that proceeding.[49]
[48]Second Tan Affidavit, [9] [CB 446].
[49]The three previous decisions are Joint v Stephens [2007] VSC 145; Joint v Stephens (No. 2) [2008] VSC 69; Joint v Stephens [2008] VSCA 210. Refer Second Tan Affidavit, [10] [CB 446]; Transcript, 14 October 2020, 219.
As the cross-examination of John Tan revealed, he was involved in providing instructions to Rigby Cook in relation to the First Oppression Proceeding in 2015, as was Stephens.[50] The narrations on the detailed solicitor’s bills dated 21 December 2004 and 30 March 2005 record a number of communications with John Tan, including, expressly, the receipt of instructions from him.[51] I do not accept John Tan’s evidence that he did not give instructions to Rigby Cook concerning the First Oppression Proceeding.[52]
[50]Transcript, 14 October 2020, 219 – 222; Third Joint Affidavit, Exhibit PJ-10 [CB 207-210, 213].
[51]Third Joint Affidavit, Exhibit PJ-10 [CB 207-209, 213].
[52]Second Tan Affidavit, [9] [CB 446].
There were a number of judgments delivered in the First Oppression Proceeding. They include:
(a) On 14 May 2007, Dodds-Streeton J delivered judgment.[53] Her Honour rejected Peter Joint’s oppression case but, on the basis of Stephens having consented to a buy-out order, ordered that Stephens purchase Peter Joint’s 49 shares in the Company based on a valuation as at the date of the Court’s order.[54]
[53]Joint v Stephens [2007] VSC 145.
[54]Ibid, [247]–[250] [CB 913-914].
(b) On 7 February 2008, Robson J delivered his judgment,[55] in which he determined that, based on the current value of the shares in the Company, the shares had no value. Robson J declined to wind up the Company on the just and equitable ground.[56]
(c) On 21 November 2008, the Court of Appeal delivered its judgment,[57] allowing Peter Joint’s appeal from the decision of Dodds-Streeton J. It declared that Stephens had engaged in oppressive conduct and ordered that Stephens purchase Peter Joint’s shares in the Company, valued as at the date of the commencement of Proceeding, 18 November 2004, at $732,307 plus interest.[58] It is material to the present case to note that the sum of $732,307 was arrived at after allowing a reduction in the amount otherwise required to be paid by Stephens for Peter Joint’s shares for the loan of $110,053.85 recorded at that time as owed to the Company by Peter Joint (‘the Joint Loan’).[59]
(d) On 23 September 2009, Gardiner AsJ ordered that Stephens execute a share transfer in accordance with the Court of Appeal judgment and pay Peter Joint the sum of $920,075.97 plus interest.
[55]Joint v Stephens (No. 2) [2008] VSC 69.
[56]Ibid, [28], [42]-[43] [CB 922, 925].
[57]Joint v Stephens [2008] VSCA 210.
[58][CB 934-998].
[59][2008] VSCA 210 [156]; The loan amount is raised in the Defendants’ Response to Amended Further and Better Particulars of Oppression, 3 September 2020, [15] [CB 36].
Stephens did not comply with the orders of the court to purchase Peter Joint’s shares and to execute a share transfer.[60] On 25 November 2009, Stephens filed a debtor’s petition and declared himself bankrupt.[61]
D. The Period 2009-2015
[60]Ibid.
[61]See First Joint Affidavit, [7(a)-(c)] [CB 112]; Second Tan Affidavit, [18]-[20] [CB 447], exhibit JT-A, [4] [CB 471].
John Tan began to suffer from serious health problems in 2006 when he was diagnosed with inoperable stage 3 prostate cancer.[62] Mr Tan was told by doctors that he had only eight months to live. He spoke to Stephens. He told Stephens that he needed to leave everything behind. I accept his evidence that he left it to Stephens to organise his resignation as a director and for Stephens to continue running the business of the Company.[63] No resignation was advised to ASIC.
[62]Second Tan Affidavit, [11], [16]–[18] [CB 446].
[63]Transcript, 14 October 2020, 226.
In late 2009, John Tan returned to active involvement in the Company.[64]
[64]Second Tan Affidavit, [14] [CB 447]; Transcript 14 October 2020, 239–240.
Mr Tan found out in late 2009, just before Stephens became a bankrupt, that his intended resignation as a director had not been notified to ASIC.[65] Peter Joint had resigned as a director on 12 May 2009. Stephens may well have been acting as a de facto director, but as at November 2009 John Tan was the only remaining director of the Company according to ASIC records.
[65]Transcript, 14 October 2020, 227.
Mr Tan gave evidence that in late 2009 he found the Company to be in a poor financial state.[66] He was advised the Company was in substantial debt to the ATO. The evidence is that the ATO debt was $150,000. The MYOB records of the Company show that the Company also owed debts to critical suppliers. iET Solutions was owed approximately $70,000;[67] and Dimensional Insights was owed $46,000.[68] Debts owed to the Company had been the subject of factoring arrangements.[69]
[66]Ibid, 227.
[67]Second Tan Affidavit, [31(a)] [CB 449], exhibit JT-A, 55 [CB 522]; Transcript 14 October 2020, 230.
[68]Second Tan Affidavit, [31(a)] [CB 449], exhibit JT-A, 55 [CB 522].
[69]Ibid, [31(c)] [CB 450].
It was Mr Tan’s evidence that upon resuming active involvement with the Company in late 2009 he performed the role of CEO. I accept that evidence.
To reduce debt and costs, Mr Tan reduced staff numbers to five or six people.[70] He employed a bookkeeper and he arranged to move the Company’s business to rented premises at Oxley Road Hawthorn. The lease of those premises, dated 5 January 2010, provided for a term of occupation commencing 21 December 2009.[71] John Tan personally guaranteed the lease.[72]
[70]Second Tan Affidavit, [38(a)] [CB 451]; Transcript 14 October 2020, 233.
[71]Second Tan Affidavit, [38(k)] [CB 452], exhibit JT-A, 106 [CB 573].
[72]Ibid, exhibit JT-A, 105 [CB 571].
Mr Tan was cross-examined about his motivation at that time. He accepted that his primary concern was his exposure as a director to personal liability for debts of the Company. However, he said that as he had ‘no assets’, any attempt by the ATO to recover any debt from him would have been unsuccessful.[73] He referred to personal bankruptcy as a hazard of business.[74]
[73]Transcript, 14 October 2020, 228.
[74]Ibid, 229.
From late 2009 until the end of the 2012 financial year Mr Tan was focused on the financial turnaround of the Company.[75] If it were not for his drive and involvement at that time it is clear that the Company would have failed. Whatever drove Mr Tan to take up the role of CEO at that difficult time for the Company, as a result of his hard work he was able to restore the financial position of the Company within approximately two and a half years.[76]
[75]Second Tan Affidavit, [40] [CB 452]; Transcript 14 October 2020, 239–240.
[76]Second Tan Affidavit, [34]–[40] [CB 451-452].
Mr Tan turned around the Company without any assistance or involvement of the former CEO, Mr Joint. No meetings of directors or annual general meetings of the Company were held after 2009.[77]
[77]Section 248B of the Act provides for the passage of Board resolutions in the case of single director companies.
Mr Joint accepts, albeit in cross-examination he had difficulty coming to terms with it being the fact,[78] that John Tan clearly did a lot of work between late 2009 and early 2010 to turn the Company around.[79] Whilst Mr Joint did not accept that Mr Tan worked as CEO in the period from late 2009 until the end of FY12, or thereafter, in the manner described in Mr Tan’s evidence, Mr Joint accepted that he was not aware of what Mr Tan had actually done. He asserted that based on his knowledge of the Company, Mr Tan ‘should be doing very little’.[80] What cannot be disputed is that from late 2009 the affairs of the Company were in the hands of John Tan where they remain today, Mr Tan continuing as the sole director.
[78]Transcript, 13 October 2020, 119–122.
[79]Transcript, 14 October 2020, 227; Second Tan Affidavit, [30]–[39] [CB 449-452].
[80]Transcript, 13 October 2020, 118.
There was a gap in communications between Mr Joint and Mr Tan from at least late 2009 until 7 October 2011. On that day Peter Joint’s solicitors (Goldsmiths) wrote to John Tan seeking access to the books and records of the Company.[81] The letter stated that if no response was received, Peter Joint would make an application to the Court.[82] John Tan did not respond to the letter.[83] Mr Joint did not make application to the Court as he had threatened to do.
[81]Third Joint Affidavit, [49] [CB 188-9], exhibit PJ-25 [CB 383-385].
[82]Transcript, 13 October 2020, 161-162..
[83]Ibid. See also paragraph 67 of the Second Tan Affidavit, [CB 461].
John Tan gave evidence that he did not receive the 7 October 2011 letter, sent to his long term home address in Toorak. He sought to explain non-receipt of the letter by referring to thefts from letter boxes in Toorak.[84] I do not accept that evidence.
[84]Transcript, 14 October 2020, 281.
Mr Joint gave evidence that he had no involvement and effectively no visibility about the activities of the Company between 2009 and 2018.[85] There is a factual contest between the parties as to the extent of Peter Joint’s knowledge of the affairs of the Company from the time of his resignation as director in May 2009 until mid-2018 and also as to the reasons between Mr Joint’s lack of interaction with the Company and its affairs at that time.
[85]Ibid, 13 October 2020, 115.
I am sceptical of Mr Joint’s claim that he was unaware of the Company and its activities from mid-2009 until mid-2018. The Company maintained a website. It had the same major customer with whom Mr Joint had dealt when CEO and it had the same key IT employee, Mr Dennis who was there when Mr Joint was the CEO and who gave evidence on affidavit at the trial of this proceeding on behalf of Mr Joint. It could not have been too difficult for an IT savvy Mr Joint, previously the CEO of the Company, to find out what the Company was doing if he chose to investigate.
During the period 2010 - 2014 the Company was without the benefit of an exclusive agency for the iET software. Mr Tan blames Mr Joint for the 2010 loss of that exclusive agency.[86] The Company regained the exclusive agency for iET in 2014.[87]
[86]Ibid, 14 October 2020, 257; First Tan Affidavit, [20]–[22] [CB 399].
[87]Second Tan affidavit at [27] [CB 449].
Throughout the trial proper, the defendants contended that an adjustment of $235,274.39 should be made against Mr Joint when valuing the shares in the Company on account of lost revenue from the loss of iET exclusive agency during that four year period. In final submissions, the defendants abandoned the claim that an adjustment should be made against Mr Joint on account of those matters when determining the fair value of his shares.[88]
[88]Defendants, Final Submissions dated 30 October 2020 (‘Defendants’ Closing Submissions’), [88].
By 2012, even without the benefit of the iET exclusive agency, the financial position of the Company had improved markedly. According to its annual accounts, in FY12, it recorded a profit of $137,962 and in FY13 a profit of $149,923.[89] None of that profit was distributed to shareholders.
[89]Supplementary Smith Report, Table 6.5 and Appendix 1 [CB 1190, 1211 - 1212].
In FY14, according to its annual accounts, the Company recorded a loss of $4,198.[90]
[90]Ibid.
Directors fees were paid to John Tan from 2009. In FY12 Mr Tan’s director’s fees were $87,218, in FY13, $93,600, and in FY14, $85,254.[91] Mr Tan was not paid a salary as CEO or as an employee at any time from 2009.
E. The period 2015-2020
[91]Supplementary Smith Report, Appendix 1 [CB 1211]; Joint Statement by Experts, Table 6.6.4 [CB 1236].
On 11 May 2015, Tan transferred his 51 shares in the Company to Sandia Rose. The evidence of John Tan is that he decided to transfer his shares to Sandia Rose following a spike in his cancer markers and doubts about the efficacy of his treatment regime.[92] I accept the truth of that evidence.
[92]Second Tan Affidavit, [43] [CB 454].
After the 2015 share transfer the Company continued to pay directors fees to John Tan, and, in addition, it commenced to pay a wage to Sandia Rose. None of these matters were known to Mr Joint at the time.
There is a significant issue in the proceeding both as to the amount of work Mr Tan performed after the end of FY12, but also whether the role that he performed after that time equated to that of a CEO of the Company. Further, if it did, what was the appropriate remuneration for that role?
In final submissions, the defendants contended that John Tan’s role comprised three phases: from FY10 to FY12; from FY13 to FY18; and FY19 to FY20. They submitted that until the end of FY12, his role was full time. From FY13 to FY15, the Full Time Equivalent (‘FTE’) equalled 0.75; from FY16 to FY18, FTE equalled 0.45; and in FY19 and FY20, 0.3.[93]
[93]Defendants’ Closing Submissions, [54].
When cross-examined, Mr Tan described the impact of medication he is required to take and of his illness on the amount of work that he has been able to perform. He said that his medication causes mild symptoms of chronic fatigue.[94] Since 2013 he has been able to work a total of 3 to 3.5 hours in the day productively, but not ‘at a stretch’.[95]
[94]Transcript, 14 October 2020, 249, 285 – 286.
[95]Ibid, 277.
Mr Tan gave evidence that in the period FY13 to FY15 he attended the office daily;[96] but that for the sake of his health he reduced his attendance to approximately three days a week in FY16 – FY18.[97] In FY19 and FY20 his attendance was reduced to one to two days per week.[98]
[96]Second Tan Affidavit, [42] [CB 453].
[97]Ibid, [43] [CB 454].
[98]Ibid, [46] [CB 454].
The upshot of this evidence, which I accept, in contrast to John Tan’s evidence on witness statement of working 10.00 am – 4.00 pm days, is that when Mr Tan says he attended the office daily between FY13 and FY15, his attendance was for around 3.25 hours per day. From FY13 until FY15 that equates to 16.25 hours per week, a little over two FTE days per week. When Mr Tan says that he worked three days a week in FY16 to FY18, he worked 3 x 3.25 hour days – approximately 1.5 FTE days per week. In FY19 and FY20 the number of FTE days worked by Mr Tan reduced to 1.5 days at 3.25 hours per day, or around 4.85 hours per week, approximately one half day per week at the business premises.
Although Mr Tan’s attendance at the business was reduced substantially from FY13 and reduced further over the years that followed, the fees paid to him as director of the Company were not reduced on account of his reduced participation.
From mid-2018, Mr Joint again began active engagement concerning the Company.
On 29 June 2018 Mr Joint’s solicitors, Goldsmiths, sent a letter erroneously dated 29 July 2018 to Mr Tan.[99] The letter drew attention to Mr Joint’s entitlement as a shareholder to copies of the annual financial statements of the Company and to the receipt of dividends. It made a demand of John Tan and the Company for copies of the annual accounts since 1 June 2004 and a statement of all monies paid to Directors by way of wages dividends or otherwise since 1 June 2004, to be produced within seven days.
[99]Third Joint Affidavit, Exhibit PJ-23 [CB 373 - 374].
Mr Tan did not deny receipt of this correspondence, but he did not provide the requested books and records. His reason, he did not regard it as a ‘good faith enquiry’.[100]
[100]Transcript 14 October 2020, 281 – 282; Second Tan Affidavit, [70] [CB 462].
On 25 July 2018 Mr Tan responded, rejecting the matters raised in the Goldsmith’s letter.[101] He wrote:
should your client wish to invoke any specific rights pursuant to the Constitution or Corporations Act, we are open to consider however … the lack of any detail or basis for demand beyond makes consideration of the merits of your … “request” or determination of any legal basis for a grant of access to any corporate record sadly impossible.
Mr Tan otherwise asserted that the details in Goldsmiths’ letter were ‘prima facie vexatious’ and that the Company and its officers had complied with the applicable statutory reporting standards.[102]
[101]Third Joint Affidavit, Exhibit PJ-23 [CB 375].
[102]Ibid [CB 375].
By letter dated 6 September 2018 from his solicitors, Peter Joint renewed his demand for access to the books and records of the Company.[103]
[103]Third Joint Affidavit, [48] [CB 188], exhibit PJ-24 [CB 376-382]. See also Second Tan Affidavit, [66]-[73] [CB 461-463].
It is the case for the defendants that Mr Joint deliberately did not enquire as to the affairs of the Company between 2011 and 2018. There was much cross-examination of Mr Joint concerning this topic and his lack of activity in pursuing his interest as a minority shareholder in the Company from 2009 to 2018. In that context the defendants submitted that Mr Joint was a most unimpressive witness and, at times, deliberately untruthful.[104] In cross-examination it was put to Mr Joint that he deliberately took no action for seven years because of problems in his marriage. Mr Joint denied that problems in his marriage were the reason for lack of contact between 2011 and 2017.[105]
[104]Defendants’ Closing Submissions, [22].
[105]Transcript, 13 October 2020, 164.
Mr Joint mentioned in his affidavit that in 2012 his marriage started to run into difficulties.[106] When cross-examined, he said he and his wife separated in 2017 and there were proceedings in the Family Court in 2018.[107] His explanation for the initial delay in around 2012 was that he suffered from psychological difficulties after the events concerning Stephens and did not want even more litigation.[108]
[106]Third Joint Affidavit, [50] [CB 189].
[107]Transcript, 13 October 2020, 172.
[108]Third Joint Affidavit, [50] [CB 189].
Mr Joint gave evidence that he had been told in 2015 by a business associate, Mr Fraley that the Company had ceased trading and that a further contact from Mr Fraley in 2018 alerted him to the fact the Company was continuing to trade.[109]
[109]Ibid, [51]–[52] [CB 189], exhibit PJ-26 [CB 387]; Transcript, 13 October 2020 164, 166.
The 2015 email from Mr Fraley does not refer to the Company.[110] Mr Joint’s explanation for the delay from 2012 and his reliance upon two communications from Mr Fraley, one in 2015, the other in 2018, is less than compelling.
[110]Third Joint Affidavit, [51]–[52] [CB 189], exhibit PJ-26 [CB 387]; Transcript, 13 October 2020, 163.
It is clear that it was only following the resolution of Mr Joint’s family law disputes in June 2018 that Mr Joint again began to agitate for information concerning the Company following a seven year hiatus. He followed up correspondence from Goldsmiths on his behalf in 2018 with the issue of this proceeding on 8 March 2019.[111] Goldsmiths are the same lawyers who acted for him in the First Oppression Proceeding and in relation to family law matters. It is Goldsmiths who were responsible for sending the letter in October 2011,[112] and the letter dated 29 July 2018 sent on 29 June 2018.[113]
[111]Originating Process [CB 4].
[112]Third Joint Affidavit, exhibit PJ-25 [CB 384].
[113]Ibid [CB 373].
The Family Court made final orders in relation to property matters as between Mr Joint and his former wife on 6 June 2018.[114] The Orders do not expressly deal with Mr Joint’s shares in the Company. However, they provide that if not otherwise specified both he and his former wife are to retain property including choses in action in their respective possession.[115] Mr Joint gave evidence that at the time of the financial settlement, he ‘had no idea that they [his Program IT shares] ever existed’. I do not accept that evidence as truthful.
[114]Transcript, 14 October 2020, 182-183; Exhibit Z1 tendered 14 October 2020, Final order of Family Court proceeding 14 MLC429/2018 dated 6 June 2018 (‘Exhibit Z1’).
[115]Exhibit Z1; Transcript, 14 October 2020, 190 – 191.
Mr Joint took no steps to assert his interest as a minority shareholder in the Company between 2011 and 2018. He renewed his efforts only a few weeks after his family law proceedings were resolved. The defendants submitted that Mr Joint’s evidence concerning the reason for delay in bringing the proceedings between 2011 and 2018 was deliberately untruthful.[116] I agree. The explanation for the seven year delay is that Mr Joint waited until after that settlement before instructing his family law solicitors to again begin to assert his rights in the Company.
F. The alleged oppressive conduct
[116]Defendants’ Closing Submissions, [26]-[38].
Mr Joint relied upon the following matters in support of his claim to have been oppressed as a member of the Company:
(a) Mr Joint is ‘locked into’ his shareholding which, despite the judgments in the First Oppression Proceeding, but because of Stephens acting in concert with John Tan in 2009,[117] he is unable to exit.
[117]Ibid, [12(d)].
(b) John Tan has treated the Company as if it is totally his own and ignored Mr Joint’s minority interest.
(c) John Tan has paid excessive remuneration to himself (both as to directors fees and expenses) in breach of s 202A of the Act. Without a resolution of the members, directors have no right to be paid for their services.[118]
[118]Hawcroft v Jameison [2017] NSWSC 1478, [139].
(d) John Tan and/or the Company have paid wages to Sandia Rose and to Alex Tan in excess of the value of any work they did.
(e) The payment of moneys to John Tan and his family to which they were not entitled had the effect of reducing the profit of the Company so that no dividend was paid or payable.[119]
(f) No annual general meetings have been held, no Profit and Loss Statements or Balance Sheets have been provided.
(g) The appointment of the administrators in 2020 was oppressive.
[119]Plaintiff, Closing Submissions dated 30 October 2020 (Plaintiff’s Closing Submissions’), [39]-[41].
In opening the case, three issues relating to remuneration and wages paid to Mr Tan and Sandia Rose were said to support a finding of oppressive conduct:
(a) First, Mr Tan’s evidence that currently he works one to two days per week.
(b) Second, that since 2002 day-to-day operations of the business are being run by Mr Dennis, an employee of the business who is paid approximately $160,000 per annum.[120]
(c) Third, relying upon s 202A of the Act, there have been no board meetings since 2009 and there cannot have been any resolution authorising payment of directors fees.[121]
[120]Supplementary Tyshing Report, 10 [CB 1162]; Supplementary Smith Report, table 6.6.10 [CB 1192].
[121]Plaintiff’s Opening Submissions, [15]–[16].
A further instance of alleged oppressive conduct was said to be the change in the business address of the Company from Arthur Street Eltham, to Oxley Road Hawthorn and then to its present address at Suite 11, 75 Bay Street, Brighton.
The facts concerning some of the alleged oppressive conduct relied upon are not controversial:
(a) Mr Joint was not invited to any General Meetings in the period between 2006 and 12 May 2009.[122]
[122]Third Joint Affidavit, [53(b)] [CB 190].
(b) No General Meetings have been held since 12 May 2009.[123] That is the date on which Mr Joint resigned as a director.[124]
(c) No annual financial statements have been provided to Mr Joint.[125]
(d) An application by Mr Tan on 28 July 2020 to appoint administrators to the Company was dismissed by Sifris J on 10 August 2020.[126]
[123]Defendants, Points of Defence, 25 May 2020 (‘Points of Defence’), [36(b)], [CB 19].
[124]Points of Claim, [24] [CB 11], admitted in Points of Defence, [24], [CB 17].
[125]Points of Defence, [36(c)], [CB 19].
[126]Peter Joint v Program IT Pty Ltd & Ors [2020] VSC 486, [77].
The defendants seek to excuse the failure to provide annual financial statements by relying on a plea that the Company, as a ‘small proprietary company’ with reduced reporting requirements, does not prepare financial reports and relies on its management accounts, as it is entitled to under the Act.[127] While it is correct the Company is exempt from producing a ‘financial report’ and a ‘director’s report’,[128] that plea does nothing to assist the defendants when the evidence shows that the Company produced annual Profit and Loss Statements and Balance Sheets, that copies were not provided to the minority shareholder and that in some years there were significant profits, none of which were distributed to shareholders.[129]
[127]Points of Defence, [36(c)] [CB 19].
[128]See s 292(2) of the Act. While Mr Joint has a prima facie right to direct the Company to prepare these documents pursuant to s 293, there is no evidence that he did so.
[129]Third Joint Affidavit, [53(a)] [CB 190]; The profit and loss statements are exhibited to the First Smith Report, Appendix 1 [CB 1144-1145].
Just as the attempted rebuttal by the defendants of the failure to provide financial accounts can be shortly dealt with, so too can Mr Joint’s complaint about the Company changing its business address. Mr Joint contended that the Company changed its business address because John Tan wanted to hide from him both, the fact the business was still operating, and where it was operating from.
The inference for which Mr Joint contends is not realistic. The Company’s website continues to identify its business address. Despite the failure to register the most recent change of business address with ASIC and the failure to notify Peter Joint of that change,[130] the suggestion that the change of address was a device used by John Tan to hide matters concerning the Company from Peter Joint simply fails to stack up[131] There is nothing sinister about the Company moving to new business premises and its actions in doing so, including not taking steps to notify Mr Joint, were not oppressive.
[130]Third Joint Affidavit, [48], [CB 188].
[131]Transcript, 14 October 2020, 187.
Accepting that every oppression case depends on its own facts, it was submitted on behalf of Mr Joint that there are marked similarities between the facts of the present case and the facts considered by the NSW Court of Appeal in Tomanovic v Global Mortgage Equity Corporation Pty Ltd[132] so as to support a finding of oppression.[133]
[132][2011] NSWCA 104; (2011) 288 ALR 310.
[133]Plaintiff’s Opening Submissions, [39].
In Tomanovic, Campbell JA, with whom Young JA agreed, said as follows:
204.If the judge did not implicitly do so, I infer that the shares of the Tomanovic interests in the various group entities would probably not be saleable to anyone other than the Sayer interests at a fair price. It is not only being a minority shareholder that would make the shares unattractive. As well, the complex intra-group dealings, dealings of group entities with entities associated with Mr Sayer but not Mr Tomanovic, and the informality with which the affairs of the group have been conducted for many years, would be significant deterrents to a potential purchaser.
205.Important elements of the commercial unfairness in the situation are that the Sayer interests seek to keep the value of the equity of the Tomanovic interests locked up in the companies, in circumstances where:
(a)the income that the Tomanovic interests used to receive on the basis that it was theirs to keep has stopped being paid;
(b)there is no present prospect of the Tomanovic interests receiving income from their shareholding other than at the discretion of the Sayer interests, regardless of how the companies fare;
(c)there is no real prospect of the Tomanovic interests selling to anyone else for a fair value; and
(d)resumption of the former basis on which the two men co-operated is no longer possible.
206.Further, …Since December 2004 [around 7 years] Mr Tomanovic has not had the regular provision of information about the activities of the companies that he formerly had.[134]
G. Legal principles: Oppression and ‘fair value’
[134]Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, [204] – [206], [332] – [333].
There is no dispute between the parties as to the applicable principles. The issue is as to their application to the facts.
In their written submissions, the defendants provided a list of propositions concerning oppression proceedings, the Court’s power and how the Court should approach such cases:
(a)Section 233 of the Act provides that the Court ‘can make any order under this section that it considers appropriate in relation to the company’. Consistent with this provision, courts have been held to have a ‘very wide discretion’ as to the relief that may be granted where oppressive conduct is established.[135]
(b)Such relief is expressly contemplated by both ss 233(1)(d) and (e) of the Act. The Court’s discretion under s 233 is as noted, very wide. The sub-section …says nothing about the price for which purchase of shares can be ordered, or the basis for calculation of such a price. The only legal restriction on the way in which the price may be calculated is that it be a proper exercise of a judicial discretion.[136]
(c)The granting of appropriate relief requires the Court to fix a price which is fair in all the circumstances.[137]
(d)The value that is fair is a value which the shares would have had, had it not been for the oppressive conduct.[138]
(e)The price to be paid is compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct).[139]
(f)Consequently the price to be paid will not always reflect the actual or real worth of the shares that might be obtained on the open market.[140]
(g)Further, ‘the method of determining the price is not confined to ordinary valuation principles’.[141]
(h)The relevant question is what is a ‘fair value’ to be attributed in all the circumstances and there is room for different approaches as to valuation.[142]
(i)As the Full Court of the Federal Court stated in Dynasty Pty Ltd v Coombs,[143] it is not just a question of value; it is a matter of fixing a price that should be paid.
[135]Campbell v Backoffice Investments Pty Ltd(2009) 238 CLR 304, [72] (per French CJ): ‘… ss 232 and 233 are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution’.
[136]United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 (at [36]), cited with approval in Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd (2004) 207 ALR 136 (at [70]–[78]) and in Crawley v Short (No 2) [2010] NSWCA 97 (at [9]). See also Ubertini v Saeco International Group SpA (No 5) [2014] VSC 234, [4(4)].
[137]Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd (2004) 207 ALR 136.
[138]Smith Martis Cork (supra); Rankine v Rankine (1995) 18 ACSR 725.
[139]Shirim Pty Ltd v Fesena Pty Ltd [2002] NSWSC 10: ‘The purpose of an order that the oppressor purchase the shares at a fair price is to compensate the oppressed shareholder for the oppression which has taken place’.
[140]Wain v Drapac (No 2) [2013] VSC 381.
[141]Ubertini v Saeco International Group SpA (No 5) [2014] VSC 234, [4].
[142]Re Cheal Industries Pty Ltd [2012] NSWSC 595.
[143](1995) 59 FCR 122.
In addition the defendants submitted that while there is no overriding requirement that the applicant must have clean hands, improper conduct on the part of the applicant may make the opponent’s conduct not unfair or may affect the exercise by the court of its discretion in granting relief.[144] There is no basis for an oppression claim in relation to conduct undertaken with the ‘acquiescence, or consent’ of the applicant.[145] Whether a person has acquiesced is a question of fact and degree.[146]
[144]Re London School of Electronics Ltd [1985] 3 WLR 474 at 482; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 706; 5 ACLC 222; Hunter v Organic & Natural Enterprise Group Pty Ltd (2012) 92 ACSR 183; [2012] QSC 383, [105].
[145]See Tomanovic v Argyle HQ Pty Ltd [2010 NSWSC 152 at first instance per Austin J applying John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63, at 66 per Young J.
[146]Crawley v Short [2009] NSWCA 410, [163] – [182] (per Young JA, with whom Allsop P and MacFarlan JA agreed on this point), when discussing the possible defence of laches in an oppression action .
Both parties agree that in determining the price for which Sandia Rose is to purchase Peter Joint’s shares, the exercise the Court is required to undertake involves a determination of the ‘fair value in all of the circumstances’. What constitutes fair value turns on the particular facts of the case.[147]
[147]The applicable principles were set out in Wain & Ors v Drapac & Ors (No. 2) [2013] VSC 381, [38]-[39] (per Ferguson J, as her Honour then was); Strategic Management Australia AFL Pty Ltd & Anor v Precision Sports & Entertainment Group Pty Ltd & Ors (No 3) [2017] VSC 35, [34]-[35] (per Sifris J as his Honour then was); Peter Exton v Extons Pty Ltd [2017] VSC 14, [48].
On behalf of Mr Joint it was submitted that the overriding aim when determining fair value is to put the shareholder in the position he would have been in if there had been no oppression.[148] When determining the fair price for shares in these circumstances, the method is not confined to ordinary valuation principles.[149] The expert evidence is not determinative, it is informative as to what the Court may determine to be a fair price, the calculation cannot be made with mathematical accuracy or by the application of strict accounting principles.[150]
[148]Re Cheal Industries Pty Ltd [2012] NSWSC 595, [27]-[36].
[149]Ibid, [36].
[150]Ibid, [30], quoting Lord Keith in Scottish Co-operative Wholesale Society v Meyer [1959] AC 324.
Recently in Re SRW Nominees Pty Ltd (No. 2),[151] Robson J made the following observations regarding the determination of fair value:
[151][2020] VSC 323.
22.Section 233 of the Corporations Act 2001 (Cth) empowers the Court, upon a finding of oppression, to “make any order ... that it considers appropriate in relation to the company, including an order … for the purchase of any shares …”. In United Rural Enterprises Pty Ltd v Lopmand Pty Ltd, Campbell J of the Supreme Court of New South Wales said that the section “says nothing about the price for which purchase of the shares can be ordered, or the basis for calculation of such a price”. His Honour said “The only legal restriction on the way in which the price may be calculated is that it be a proper exercise of a judicial discretion”.
23.Campbell J cited with approval In Re Bird Precision Bellows Ltd, where the defendants held a majority interest in the company, the oppressed shareholders held a minority interest and the majority was ordered to buy out the minority. There, Oliver LJ rejected the submission that the shares of the minority to be purchased by the oppressing majority should be valued on ordinary valuation principles, by which the minority shares would be valued without any premium for control. Rather, his Lordship said:
For my part I find myself quite unable to accept this submission. It seems to me that the whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company; and I find myself quite unable to accept that that discretion in some way stops short when it comes to the terms of the order for purchase in the manner in which the price is to be assessed. It has been pointed out, and I mention it again, that section 75(4) is merely a collection of possible methods of giving effect to section 75(3), and it is expressed to be without prejudice to the generality of subsection (3), which gives the court a very wide discretion as to the granting of relief in general terms in respect of the matters of which complaint has been made.
24.In Dynasty Pty Ltd v Coombs, the Full Court of the Federal Court held that where an oppressed shareholder is ordered to be bought out by the oppressor, it was the duty of the Court “to fix a price for the shares that represented a fair value in all the circumstances of the case”.
25In Patterson v Humfrey, Le Miere J of the Supreme Court of Western Australia said:
The court’s primary objective in providing for a valuation of the company’s shares is to determine the fair value of the company’s shares. Where the defendant’s oppressive conduct has reduced the value of the shares then it must logically follow that the valuation must disregard the adverse effect of the oppressive conduct.
26.In dealing with ascertaining the fair value of shares to be acquired in a case of oppression, Young J said in ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd:
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 erring, on the side of the oppressed.
27.I also bear in mind that the aim of the remedial relief is to put an end to the oppression.
…[152]
[152][2020] VSC 323, [22]–[27] (footnotes omitted).
Delay in commencing an oppression claim is a factor to be considered as part of the discretion under the statutory oppression provisions.[153]
[153]Falkingham v Peninsula Kingswood Country Golf Club Ltd (2015) 318 ALR 140, [88] (‘Falkingham’).
The defendants relied in particular upon the following passage from Re Cheal Industries:[154]
[t]here is, therefore, room for a different approach to be taken in relation to the valuation of shares (where that would produce a fairer outcome on the facts of the particular case) than the textbook approach to valuation. The question is what is a fair value to be attributed in all the circumstances.[155]
[154]Transcript, 13 October 2020, 69.
[155]Re Cheal Industries Pty Ltd [2012] NSWSC 595, [36].
The defendants submit that in determining the appropriate amount to be paid, the following matters need to be taken into account:
(a) Firstly, the price ought not be adjusted for the effect of any conduct or payments occurring prior to Sandia Rose becoming a shareholder on 11 May 2015 or in which Sandia Rose was otherwise not involved.
(b) Secondly, any adjustments made should also take into account the income tax which would otherwise have been payable by the Company had it not deducted those expenses from its taxable income. The tax effect to the Company in the event that any payments made by the Company are to be reversed as not having occurred, or treated in a different manner.[156]
(c) Thirdly, if the balance sheet of the Company ought to include as an asset a related party loan to John Tan as suggested by Mr Smith in his report, then the value of that asset should to be reduced to nil because John Tan is unable to repay any such loan.[157]
(d) Fourthly, the amount which Sandia Rose is required to pay to Peter Joint for his shares should be reduced and/or adjusted to reflect the amount owed by Peter Joint in respect of the Joint Loan.
[156]See for example United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 at [68] and [81]; Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 at 563-564; Peter Exton [2017] VSC 14.
[157]Second Tan Affidavit, [89] [CB 466].
The defendants submit that while the policy underlying a refusal to apply a minority discount is obvious enough where a shareholder has been unilaterally excluded from management, there is no basis for extending the application of that policy to circumstances where a person seeks to leave the business rather than being unilaterally excluded from it.[158]
[158]Byrne v A J Byrne Pty Ltd [2012] NSWSC 667, [70].
In final submissions the Defendants contended that materially changed economic conditions due to the COVID-19 pandemic may cast doubt on the value of the Company and that a cautious approach is warranted.[159]
I. Valuation methodology and the expert valuation evidence
[159]Defendants’ Closing Submissions, [50].
Mr Tyshing provided his first report on 16 October 2019,[160] at that time as a single Court appointed expert. For the purposes of preparing his first report Mr Tyshing interviewed both John Tan and Peter Joint. He did not speak to Mr Dennis.[161]
[160]CB 1092 – 1118.
[161]Transcript, 15 October 2020, 359.
In his first report, valuing as at 30 June 2019, Mr Tyshing considered that the valuation of the Company hinged on two key issues. First, the DOD contract and second, the ‘Sandia Loan’. While issues concerning how the DOD contract continue to remain central to the value of the Company as at 30 June 2020, as the defendants now accept that the Sandia loan is not a liability of the Company that topic is no longer relevant to value. The previous assertions by the defendants concerning the Sandia Loan are only relevant to questions of oppressive conduct.[162]
[162]The ‘Sandia loan’ featured in earlier valuations by the two experts. See First Tyshing Report, [CB 1111-1114]; First Smith Report, [8.12.10] [CB 1132] Supplementary Tyshing Report, 9.6, [CB 1165]. The defendants did not explain why the Sandia loan is now conceded not to be a liability of the Company and why they previously contended to the contrary. The evidence of Mr Joint, now not challenged as to its accuracy, is that the loan was not made to Program IT but instead to another company of Mr Stephens. See Third Joint Affidavit, [12]–[17] [CB 181-183]. The company was Program Development Pty Ltd.
Mr Tyshing was told by John Tan that the Department was likely to put the DOD contract out to tender and that it was not prepared to commit to further business with the Company for more than 12 months.[163] When cross-examined Mr Tyshing agreed that he had been influenced when selecting a valuation methodology in his first report by his belief that the Company would have a single option contract only with the DOD for 12 months.[164] At the time he finalised his first report he was aware of a further option period, but that option had not been taken up. He valued accordingly.[165]
[163]Transcript, 15 October 2020, 356-357.
[164]Ibid, 359-360.
[165]Ibid.
Adopting those assumptions Mr Tyshing valued the Company on the basis of an orderly realisation of assets[166] and not on a going concern basis.
[166]First Tyshing Report, 3 [CB 1155].
Mr Tyshing prepared a second expert report dated 20 October 2020, this time valuing the Company as at 30 June 2020. For the purposes of his second report Mr Tyshing was retained on behalf of the defendants. In the interim Mr Smith had prepared his first expert report dated 18 February 2020 on the instructions of Mr Joint, valuing the Company as at 30 June 2019.
In his second expert valuing as at 30 June 2020 Mr Tyshing again adopted the orderly realisation of assets valuation methodology. He carried that methodology through his participation in the 12 October 2020 Statement of Experts.
Mr Tyshing considered the orderly realisation of assets method of valuation appropriate, first, because he considered the Company’s trading profile at the normalised EBITDA level to be unprofitable and second, because the Company has a significant reliance on the DOD contract. When valuing as at 30 June 2020 Mr Tyshing approached the valuation on the basis that the current option period for the DOD contract ends in November 2020.[167] Because he did not consider the Company to be a going concern as at 30 June 2020, an orderly asset realisation methodology was, is in his opinion, appropriate.[168]
[167]Supplementary Tyshing Report, 12.1 [CB 1168-1169].
[168]First Tyshing Report, 3 [CB 1155]; Supplementary Tyshing Report, 12.1 [CB 1168-1169]; Joint Statement by Experts, Chapter 3A [CB 1223].
Mr Smith relied on the capitalisation of future maintainable earnings method (FME) for the valuation of the shares in the Company in each of his reports. His first report was responsive to the first report of Mr Tyshing. He prepared a second report dated 6 October 2020, and participated with Mr Tyshing in the Statement of Experts.
Mr Smith was first retained on behalf of Mr Joint in late 2009. On 11 November 2019 he produced a preliminary indicative valuation of the Company, at that time having both limited information and limited time to prepare his report.[169] He was instructed by Mr Joint to assume that payments to John Tan and Sandia Rose and expenses incurred by them were not incurred in the normal operations of the business. I accept his evidence that in order to arrive at an appropriate figure for normalised EBITDA it is not appropriate to take into account items that do not relate to the business.[170] He valued the Company as at 30 June 2019 on that basis, adopting the capitalisation of future maintainable earnings valuation approach.
[169]Transcript, 15 October 2020, 333-334; Plaintiff, Affidavit of Peter Joint dated 17 March 2020, exhibit PJ-5 [CB 129].
[170]Transcript, 15 October 2020, 338-339.
The second report from Mr Smith in October 2020 proceeded on the basis of the same instructed assumptions, with some limited additional instructions.[171] It was put to Mr Smith that when writing his October 2020 report he sought to ‘bolster’ the case for Mr Joint by referring to Mr Joint’s evidence and by not referring to the evidence of Mr Tan.[172] I do not accept that criticism of Mr Smith’s evidence. I accept his evidence that the valuation task that he undertook was an appropriate accounting exercise based upon instructed assumptions.[173]
[171]Supplementary Smith Report, 3-4 [CB 1188-1189].
[172]Transcript, 15 October 2020, 348-349.
[173]Ibid, 350.
When opening the case, Counsel for the plaintiff asked the rhetorical question, how did the Company survive when on the face of its accounts it was loss-making. The consolidated profit and loss statements from 2012 to 2020 form part of Mr Smith’s second report.[174] It was submitted that the explanation for the survival of the Company in the face of continuing losses as reported in the accounts is that if non-cash items being depreciation, long service leave, annual leave and legal fees are backed out of the FY20 expenses ($132,509) then a loss of $124,234 translates to a cash profit of approximately $8,000.[175] Adopting a figure for normalised EBITDA takes non-cash items such as those identified out of the business goodwill valuation calculation.
[174]Supplementary Smith Report, [CB 1211–1222].
[175]Transcript, 12 October 2020, 29.
In his second report Mr Smith adopted $93,000, based on a weighted average of EBITDA for each of FY18, FY19 and FY20, as the appropriate figure to represent future maintainable earnings for the purposes of determining the value of the Company as at 30 June 2020.[176] He arrived at that figure after giving effect to his instructed assumptions.
[176]Supplementary Smith Report, [6.8], [CB 1192].
The defendants were critical of Mr Smith for proceeding to value the Company on the basis of his instructed assumptions. It was put to him that relying on those instructions made him a ‘mouthpiece’ for the plaintiff.[177] I do not accept that criticism. It is entirely appropriate for an independent expert to proceed on the basis of instructed assumptions. The reliance by an expert upon instructed assumptions does not render the valuation report by the expert inadmissible, as submitted on behalf of the defendants.[178] If it turns out those instructed assumptions are either not proved, or if the Court determines that on the basis of contested evidence it is not appropriate to proceed on the basis of such instructions, then the relevance of the opinion of the expert based upon such instructions falls away. However, that does not mean that it was not appropriate for Mr Smith to adopt and express expert opinion based upon such instructions. Mr Smith’s statement that he had no ability to assess the truth of an instructed assumption concerning Mr Tan’s asserted lack of involvement in the management of the Company and that such an assessment is a matter for the Court is correct.[179]
[177]Transcript, 15 October 2020, 336.
[178]Defendants’ Closing Submissions, [24].
[179]Transcript, 15 October 2020, 337-338.
The defendants submitted that Mr Smith was an unimpressive witness. I do not agree. Mr Smith presented as both a professional and an independent witness. The same is the case so far as Mr Tyshing is concerned.
In the Statement of Experts Mr Smith and Mr Tyshing addressed the various competing positions of the parties. In seeking to arrive at the goodwill of the Company, the experts agreed on certain adjustments to EBITDA,[180] following which the agreed adjusted EBITDA of the Company (prior to related party adjustments) was $156,329 for FY18, ($109,293) for FY19 and ($86,736) for FY20.[181]
[180]Joint Statement of Experts, Part 3 [CB 1217].
[181]Ibid [CB 1217].
After each of the adjustments for which Mr Smith contended based upon his instructed assumptions, his adjusted EBITDA figures were $299,853 for FY18, $34,281 for FY19 and $47,937 for FY20. The corresponding EBITDA figures for which Mr Tyshing contended were $163,083 for FY18, ($57,705) for FY19 and ( $41,247) for FY20. The competing figures and also the itemised reasons for the differences in the EBITDA figures are shown in Appendix 1 from the Statement of Experts reproduced at paragraph 107 below.
When valuing as at 30 June 2020 Mr Smith applied a weighting of 40% to FY20, 40% to FY19 and 20% to FY18. After applying that weighing to the adjusted EBITDA in the Statement of Experts and after making a reduction for assets employed in the business[182] and applying a multiple of earnings of three he arrived at a value for the goodwill of the business of $272,228. That figure is included by him in Appendix 2 to the Statement of Experts – Balance Sheet Assessment as representing the intangible assets of the Company, its goodwill.
[182]Mr Smith provides an explanation for this approach in the Supplementary Smith Report, Table 2.2 [CB 1187], Table 6.17 [CB 1196].
Assuming a FME valuation approach, which Mr Tyshing did not consider an appropriate approach,[183] Mr Tyshing adopted a different approach to weighting the EBITDA for each of the FY20-FY18 years than that of Mr Smith. In the Statement of Experts Mr Tyshing applied a weighting of 10% of for FY18, 30% for FY19 and 60% for FY20 to his calculated EBITDA figures. Adopting that weighting and applying a multiple of 1.5 to his weighted EBITDA figures, as Mr Tyshing contended to be appropriate did not result in a positive value for goodwill. In the result, in the opinion of Mr Tyshing, when conducting a Balance Sheet Assessment, it was appropriate to include a nil allowance for goodwill.
[183]Statement of Experts, Chapter 3A, [CB 1223].
It is convenient to reproduce Appendix 1 from the Joint Statement of Experts that helpfully identified areas of difference in their approaches to the calculation of normalised EBITDA:
Appendix 1 Assessment of Normalised Profit
Program IT Pty Ltd
Profit and Loss normalisations FY15 FY16 FY17 FY18 FY19 FY20 Reference
Profit before income tax 13,837 (56,334) (131,969) 34,075 (163,692) (117,057) Accountants adjustments Advertising and marketing (209) Computer software (1,536) Software subscriptions 151 Interest income 69 Annual leave expense (7,238) Reduction in LSL expense 290 Adjusted net profit before tax 13,837 (56,334) (131,969) 34,075 (165,217) (124,005) less: interest income (199) (133) (108) (157) (199) (230) add: interest expense - - - - - - add: depreciation expense 5,477 - - 8,475 - 2,981 EBITDA 19,115 (56,467) (132,077) 42,393 (165,416) (121,254) Agreed normalisation adjustments Bad Debts Written Off 39,394 - - - - - Legal Fees - - - - 12,911 61,907 Revenue Adjustment - Sage Micropay - - - (182,684) 95,314 87,371 Cogs adjustment on Sage Revenue - - - 91,099 (47,530) (43,569) Revenue Adjustment - Sage Micropay - - - (94,726) Cogs adjustment on Sage Revenue - - - (4,306) Write off unrecoverable loans - - - 210,093 - - Add back long service leave accrual - - - - - 60,383 Long service leave expense allocation (4,572) (4,572) (4,572) (4,572) (4,572) (4,572) Government grants - - - - - (27,970) Agreed adjusted EBITDA -prior to related party adjustments 53,937 (61,039) (136,649) 156,329 (109,293) (86,736) Smith related party adjustments Donations - 100 - - - - Note 1 Bookkeeping services - PJ legal costs 4,560 Note 2 Related party wages 84,918 100,348 71,426 71,426 72,826 67,904 Note 3 John Tan directors fees and expenses 69,957 60,091 50,398 46,721 48,990 41,205 Note 4 Consultant payments - - 5,909 - - Note 5 Annual leave expense on-costs (704) Note 6 Rent - Hawthorn/ Brighton 27,501 21,685 18,400 19,468 21,758 21,707 Note 7 Smith Adjusted EBITDA 236,313 121,185 n/a 299,853 34,281 47,937 Tyshing related party adjustments Salary: S Rose 52,068 70,025 71,426 71,426 72,826 67,904 Note 3 Imputed salary: S Rose (24,589) (25,162) (25,652) (26,245) (5,666) (5,804) Note 3 Directors fees 60,227 53,026 50,398 44,057 40,874 41,205 Note 4 Directors fees (imputed) (128,801) (79,079) (80,621) (82,484) (56,446) (57,816) Note 4 Tyshing Adjusted EBITDA 12,842 (42,229) (121,098) 163,083 (57,705) (41,247)
The competing Balance Sheet Assessments of Mr Tyshing and of Mr Smith as at 30 June 2020, $23,137 and $1,804,029 and the reasons for those very different figures are also helpfully summarised by a further table from the Statement of Experts, Appendix 2:
J:Differences between the Experts concerning Future Maintainable Earnings
The table that appears at CB 1217 of the Joint Statement of Experts summarises, the agreed adjustments to EBITDA prior to related party adjustments. It separately identifies each of the related party adjustments that Mr Smith contends, based upon his instructed assumptions should be made in order to arrive at normalised EBITDA. It also separately identifies the related party adjustments that Mr Tyshing considers appropriate to be made in order to arrive at normalised EBITDA. It is convenient to reproduce that table:
As will be apparent, there are a number of specific items that are in contest in the proceeding that impact upon the calculation of the appropriate EBIDTA.
K: FME: Weighting the Earnings
When applying the FME methodology, Mr Smith adopted a weighting to EBITDA of 20% for the 2018 year, 40% for the 2019 year and 40% for the 2020 year.[184] In the Statement of Experts, expressing his view should the Court consider a FME approach appropriate, Mr Tyshing preferred to adopt a weighting of normalised EBITDA of 10% for FY18, 30% for FY19 and 60% for FY20.
[184]Supplementary Smith Report, [6.8] [CB 1192].
When cross-examined, Mr Smith said that in his initial report he gave a greater weighting to the FY18 year, but lowered that weighting to 20%.[185] In the Joint Statement of Experts he gave a double weighting to the two most recent years. It was his evidence that to put a weighting of only 10% on FY18, as was Mr Tyshing’s approach, was close to making the earnings in that year immaterial, or close to immaterial/negligible.[186]
[185]Transcript, 15 October 2020, 435.
[186]Ibid.
Mr Tyshing agreed that it was appropriate to give more weight to the more recent years. He considered that a heavier weighting should be attributed to the most recent year of the trading results, that year being more reflective of the current and therefore the ongoing trading profile of the business.[187] He considered that the last two years were more indicative of the current performance of the business. He said his weighting was to be preferred because he considered 2018 to be an abnormally high year and that more recent years were more reflective of the current value of the business.[188]
[187]Joint Statement of Experts, Chapter 3A, [CB 1223].
[188]Transcript, 15 October 2020, 435.
The adoption of the Tyshing approach to weighting compared to the Smith approach has a significant impact upon the figure for future maintainable earnings. In the defendants’ final submissions, they calculated that adopting Mr Smith’s normalised EBITDA at $73,000 after reversing the rental adjustment, and factoring in Mr Smith’s approach to appropriate imputed remuneration for John Tan and Sandia Rose, future maintainable earnings on a 20%/40%/40% basis, as per Mr Smith, are $27,143. If, on the other hand, Mr Tyshing’s 10%/30%/60% weighting is adopted, future maintainable earnings are only $4,512. Assuming a multiple of 3 in each case, the comparative values are $81,429 (Smith) and $13,536 (Tyshing).
I prefer Mr Smith’s approach to the weighting of the three years in question. However, I do not accept as valid the criticism of Mr Tyshing that when he determined to adopt 10% for FY18, with a 10-30-60 weighting that he was attempting to ‘skew the outcome’.[189]
[189]Ibid, 12 October 2020, 39.
I accept Mr Smith’s evidence that a weighting of 10% on the FY18 year, which both experts agree to be relevant and be taken into account, is not sufficiently significant. I accept Mr Smith’s evidence that a weighting which puts twice as much weight on the most recent two financial years than on the FY18 year is appropriate. I also accept his evidence that, in light of the long history of the Company and its overall financial performance, the fact that FY19 and FY20 have negative financial results does not mean that it is appropriate to disregard future maintainable earnings as the basis for valuation.[190] Whilst FY18 was certainly a very profitable year, taking the Smith adjusted EBITDA in Table 1 to the Joint Statement of Experts (referred to above), FY15 with an adjusted EBITDA of $236,313, only five years prior to the valuation date, was also a strong year. It is also relevant to consider the new Change Order.[191] The Change Order expressly extended the DOD Contract from 1 December 2019 to 30 November 2022. The structure of the Change Order is to provide for three option periods, each of year within that extension. The total value of the previous contract was $3,122,028.53 inclusive of GST, the total value of the new Change Order is $3,957,763.69 GST inclusive.
[190]Ibid, 15 October 2020, 435.
[191]CB 799.
To the extent that Alex Tan performed some work, whether pursuant to the employment agreement or otherwise after FY12, I do not accept that the work that he performed related or contributed to the business or activities of the Company or to the value of the Company. I am not persuaded that whatever work Alex Tan carried out under the direction of his father in relation to the ShopWithFingers project was work for the benefit of the Company.
I consider that adjustment should be made to the balance sheet calculation of value as at 30 June 2020 on account of payments to Alex Tan in the sum of $129,278 less $13,000 per annum for each of the 2011 and 2012 years, a net amount of $103,278 made to Alex Tan.
Rent Adjustment
It is now accepted on behalf of the plaintiff that contrary to earlier instructions provided to Mr Smith and upon which he based his expert reports, it is not appropriate to make an adjustment to the item ‘rent – Hawthorn/Brighton’ that appears in table 1.
When calculating normalised profit Mr Smith made an adjustment on account of this item of $19,468 in FY18, $21,758 in FY19, and $21,707 in FY20. Those adjustments, which had the effect of increasing what would otherwise have been the EBITDA of the Company must be reversed out of Mr Smith’s calculations.
It was the evidence of Mr Smith that, assuming no other adjustments to his calculation of EBITDA in the Statement of Experts, that Future Maintainable Earnings are approximately $73,000.[271]
[271]Transcript, 14 October 2020, 428. Mr Smith said further that if, as per Tables 4(b) and 4(d) in the Statement of Experts, he allowed $42,000 per annum combined payment to John Tan and Sandia Rose, that the future maintainable EBITDA would reduce to $50,000. Refer Transcript, 15 October 2020, 430-431.
The amount of additional rent incurred, treated as part of Mr Smith’s calculation of ‘related party asset loans’ $183,374.[272] No such adjustment should be made when preparing the notional balance sheet of the Company as at 30 June 2020.
R. Adjustment for Tax Effect
[272]Joint Statement of Experts, Part 3A [1225].
The defendants submitted that an adjustment to the balance sheet calculation of value should be made on account of the ‘tax effect’. In particular, if the Company overpaid $292,557 then the after-tax impact of that overpayment on the value of the Company is $210,969.[273] The calculation of this tax effect is set out in Mr Tyshing’s report section 13.6.[274]
[273]Transcript, 15 October 2020, 414.
[274]Supplementary Tyshing Report, [13.6] [CB 1174].
As explained during the conclave, Mr Tyshing assumed overpayments on an annual basis. However, as Appendix 1 to the Statement of Experts shows, in nearly all of the relevant years the Company paid no tax. In each of the years commencing FY16 to FY20 no tax was paid. If the Company had made a profit, the Company would have been able to take advantage of carried forward tax losses.
Whilst conceptually the proposed adjustment for ‘tax effect’ has some attraction, because of the impact of losses on the taxation obligations of the Company, there is no proper basis in fact to make the proposed adjustment.
S: The Joint Loan
Peter Joint contended that the Joint Loan should be disregarded when valuing the Company in 2020, relying upon a number of arguments. First, he contended that any claim by the Company for payment is statute barred. Second, he gave evidence that in any case the loan should not be treated as a personal liability of his because it related to use of his AMEX card on behalf of the Company for expenditure related to the business of the Company. Third, he argued that in any case the Joint Loan merged in the Court of Appeal judgment.[275] Fourth and in the alternative, Mr Joint sought to rely upon findings made in the First Oppression Proceeding as giving rise to an estoppel in his favour, drawing upon the decision of the High Court in Tomlinson v Ramsey Food Processing Pty Ltd.[276] The Tomlinson founded argument was that Mr Tan, as a person on whose behalf Stephens held shares at that time in the Company, is a person who should be bound by findings in that proceeding that otherwise bind Stephens.[277]
[275]Plaintiff Opening Submissions, [51].
[276](2015) 256 CLR 507; [2015] HCA 28 (‘Tomlinson’).
[277]Tomlinson (2015) 256 CLR 507; [2015] HCA 28 at [39] and [40] (per French CJ, Bell, Gageler and Keane JJ).
The first argument concerning the Joint Loan, the claim that it is statute barred, is soundly based. The evidence reveals that on 27 March 2008 a demand was made by the Company for payment of the Joint Loan.[278] There is no evidence of any acknowledgment of the Joint Loan as a debt by Mr Joint in the intervening 12 years.
[278]Plaintiff, Affidavit of Peter Joint dated 24 September 2020 (‘Fifth Joint Affidavit’), exhibit PJ-29 [CB 832-833].
When undertaking a valuation, reconstructing a balance sheet of the Company as at 30 June 2020, because the debt is statute barred and therefore unrecoverable, the asserted debt, even though recorded in the books of account of the Company, must be disregarded. Neither expert included this loan as an asset in the balance sheet, Appendix 2 to the Statement of Experts.
From a valuation perspective, the Joint Loan is not appropriately treated as an asset of the Company. Whether it should be disregarded when it comes to the determination of what constitutes a ‘fair value’ in all the circumstances of the case, is a separate question. The other arguments upon which Mr Joint relies are relevant to that separate question.
The defendants submit that the amount Sandia Rose is required to pay for Mr Joint’s shares should be adjusted on account of the Joint Loan.[279] They submit that as a matter of legal principle, where the loan account is between the Company and a shareholder, it is appropriate to factor in the loan account when determining fair value.[280] They submit that to apply limitations arguments is a misnomer when what is required is to determine fair value of the shares. The proceeding is not one to enforce a debt by the Company.
[279]Defendants’ Closing Submissions, [89].
[280]Re Optimisation Australia Pty Ltd [2018) 362 ALR 374, [416] and [446].
At the trial of this proceeding Mr Joint said that the Joint Loan was made up amounts that he had paid on his personal American Express account relating to the business of the Company. I do not accept the veracity of that evidence. The reference to an American Express account as the basis for the liability recorded in the accounts was first mentioned in his affidavit of 24 September 2020.[281] It is a long time after 2004 to mention such an explanation. If it was a legitimate explanation one could reasonably expect that it would have been advanced at the trial of the proceeding before Dodds-Streeton J. Mr Joint could not recall raising this issue before her Honour and no reference is made to that explanation in her Honour’s reasons.[282] Even if there was such evidence, it clearly did not cause either her Honour, or the Court of Appeal to extinguish the loan as a liability outstanding to the Company. The American Express explanation is not a reason to disregard the Joint Loan as an asset of the Company.
[281]Fifth Joint Affidavit, [19].
[282]Transcript, 13 October 2020, 155; Joint v Stephens [2007] VSC 145.
In the First Oppression Proceeding the Joint Loan was brought to account by the Court of Appeal when determining the amount that should be paid by Stephens in exchange for the transfer of Peter Joint’s shares. The loan was treated by the Court of Appeal as a liability owed by Peter Joint that was to be offset against the sum otherwise payable by Stephens for Peter Joint’s shares.[283]
[283]Joint v Stephens [2008] VSCA 210, [156].
Relying on Tomlinson, it was submitted on behalf of Mr Joint that the defendants were ‘bound by the findings’ made in the First Oppression Proceeding.[284] However, an analysis of the decision of the Court of Appeal shows that this argument is misconceived. The decision of the Court of Appeal required that Stephens purchase Mr Joint’s shares in the Company. It was only on the completion of the purchase of those shares by Stephens that the loan to the Company by Mr Joint was to be written off. The amount of the Joint Loan, $110,053.85 was ‘taken off’ the amount that Stephens was otherwise required to pay Peter Joint for his shares in the Company. Unfortunately for Mr Joint, after the decision of Gardner AsJ which required specific performance of the obligation imposed upon Stephens to purchase Peter Joint’s shares was made, Stephens became a bankrupt. Specific performance never occurred. It would only have been upon the completion of specific performance that the Joint Loan would have been extinguished.
[284]Plaintiff’s Closing Submissions, [64].
It follows that, even if the decision of the Court of Appeal in the First Oppression Proceeding was binding on John Tan, who was not a party to that proceeding, no estoppel arises against John Tan on the facts. There was no finding by the Court of Appeal that the Joint Loan was not payable. The reverse was in fact the case. The Joint Loan amount was treated as payable and as an offset to the amount otherwise payable by Stephens to Mr Joint for his shares.
Just as no estoppel arises, no question of merger in the judgment of the Court of Appeal arises. Subject only to the limitation of actions issue, the Joint Loan in the sum of $110,053.85 is appropriately treated as an asset of the Company.
T: Legal Fees
Appendix 1 includes two amounts for legal fees, $12,911 in FY19 and $61,907 in FY20. These amounts were disregarded by the experts as an agreed normalisation adjustment when calculating EBITDA.
Mr Joint contends that using the funds of the Company to pay legal fees of these proceedings is inappropriate and constitutes an example of oppressive conduct and that such amounts should be treated as a further loan owing to the Company.[285] It was the evidence of Mr Tan that he had given authority for the Company to pay the initial legal fees of $12,911 and that the authority remained in place, enabling fees of $61,907 to be paid in the 2020 financial year.[286]
[285]Plaintiff’s Closing Submissions, [53]-[55].
[286]Transcript, 14 October 2020, 253.
In response, the defendants submit these expenses do not relate to the s 447A application which occurred after 30 June 2020 and that costs relating to the defence of the proceedings are appropriately recognised as abnormal items, adjusted for the purpose of normalising EBITDA, but are not appropriately amounts owing by the defendants, or any of them, to the Company.[287]
[287]Defendants’ Closing Submissions [77]–[78].
In his report Mr Smith treated legal expenses as part of a related party loan.[288] The defendants contended that such expenses should not be added back, first, because early correspondence from Mr Joint’s solicitors made serious allegations against the Company and threatened the application of external administrators,[289] second, because the Company is a named defendant to the proceeding and has an interest separate from the shareholders in resisting a compulsory buyout order, third, because costs were incurred in preparing the initial expert report prepared by Mr Tyshing, including legal costs of giving disclosure of financial records ,and fourth, the payment of legal fees by the Company was considered appropriate and justified by Robson J in the First Oppression Proceedings.[290]
[288]Supplementary Smith Report, Table 6.13.6 [CB 1194].
[289]Third Joint Affidavit, exhibit PJ-23, exhibit PJ-24 [CB 373–381].
[290]Joint v Stephens [2008] VSC 69, [19]–[27].
I do not agree with the defendants. The legal costs relating to these disputes are the costs of internecine warfare. With the possible exception of the costs of the initial Tyshing report, no part of the legal costs of such warfare should be paid by the Company. There is no evidence as to the cost of the Tyshing report. Both amounts, $12,911 and $61,907 should be treated as a loss.
U: Oppressive Conduct
I have found that for many years John Tan has been conducting the business of the Company as if he/Sandia Rose is the sole shareholder. That approach to the affairs of the Company is reflected in the payments made to Mr Tan since 2013, the personal travel expenses payments and the payments to Sandia Rose since 2015. All of this conduct is oppressive of Mr Joint as the 49% shareholder in the Company.
It is also the case that there has been no financial reporting to Mr Joint since at least 2009 and no annual general meetings of the Company. Those matters also constitute oppressive conduct engaged in by the majority shareholder, until 2015 Mr Tan and since 2015 Sandia Rose.
The earlier agitation of the Sandia loan issue, a loan without any proper foundation, raised by the defendants in answer to the plaintiff’s claims and subsequently abandoned by them, while not relied upon as a particular of oppression in the proceeding is another example of oppressive conduct. The same is the case with the 2020 application to appoint administrators, a matter relied upon in this proceeding as oppressive conduct.
The appointment by John Tan of Administrators to the Company on 28 July 2020 just when this proceeding was about to come on for trial is perhaps the most egregious example of oppressive conduct. As Sifris J held, the appointment was invalid because the Company was not insolvent, or likely to become insolvent, it was an abuse of the provisions of Part 5.3A of Chapter 5 of the Act and it was in the interests of justice that the administration end.[291] As his Honour said:[292]
The Appointment of the Administrators on 28 July was, in the circumstances, audacious, entirely improper, without any justification, in bad faith and entirely misconceived. It must end immediately.
[291]See Peter Joint v Program IT Pty Ltd et al [2020] VSC 486, [77].
[292]Ibid.
In the circumstances it is clear that the defendants have engaged in oppressive conduct. They have done so over a very long time. As a result, when it comes to determining the price which Sandia Rose must pay to Peter Joint for his shares in the Company, there is no proper basis to apply a ‘minority discount’.
U:The contention that events prior to 2015 should be disregarded
The defendants contended that no adjustment to the valuation of the Company as at 30 June 2020 should be made on account of matters that predate 2015, being when John Tan’s shares were transferred to Sandia Rose. However, there are difficulties with that approach.
The submissions on behalf of Mr Joint argue that to adopt 2015 as the cut-off point overlooks that the calculation is intended to put the plaintiff in the position as if the oppression had not occurred. Further, that it overlooks the domestic relationship between John Tan and Sandia Rose and the income splitting engaged in by them.[293]
[293]Plaintiff’s Closing Submissions, [110]-[112].
The selection of 2015 is fortuitous only. March 2015 just happens to be the date when John Tan transferred his shares to Sandia Rose due to his renewed health concerns. John Tan continued on as a director after the 2015 share transfer and to all intents and purposes there was no change in the control and management of the Company. Nor was there any change in the business activities of the Company when the activities of the Company before and after 2015 are compared. There was no change in the way John Tan, by making payments first to himself, after FY12; and then to himself and Sandia Rose, after 2015, treated the Company as his own. There is no reason of substance to differentiate between matters that took place before 2015 and after 2015 when it comes to determining the ‘fair value’ of the Company.
The submission that events prior to 2015 should be disregarded is also inconsistent with other specific arguments advanced on behalf of the defendants. By way of example, the defendants say that the historic Joint Loan that goes back to a time prior to 2004 and which is statute barred should be taken into account.
If an approach to fair value that goes back prior to 2015 is adopted, then all of the issues which formed part of the issues in dispute between the parties at trial and which were considered by the experts, can be taken into account as appropriate. Those issues include the Joint Loan and amounts paid to Mr Tan commencing with the FY13 financial year.
The 2015 cut off argument has no substantive basis and is rejected.
Delay and Acquiescence: Mr Joint
Mr Joint deliberately refrained from asserting his rights in relation to the Company between 2011 and 2018, only reviving his active engagement with the Company after resolution of his family law property settlement. His only attempt to engage with Mr Tan and the Company in 2011 was ignored by Mr Tan, even though, as I have found, Mr Tan was aware of his request at that time for the financial accounts of the Company.
Whilst there has been delay on the part of Mr Joint, this is not a case where Mr Joint has acquiesced in the Company being run by Mr Tan as if it was his own and without regard to Mr Joint’s interests. The failure to pay any dividends to Mr Joint arose in the context of the Company making payments to Mr Tan and to his family, payments to which they had no proper entitlement. At no time did Mr Joint acquiesced in this conduct on the part of Mr Tan that preferred his personal interests over the interests of the shareholders including Mr Joint.
Delay and acquiescence is not a reason to deprive Mr Joint of the relief to which the parties agree he is entitled. Nor is it a reason of itself to adjust the fair value of the shares in the Company held by Mr Joint when it comes to determining the price that Sandia Rose must pay for those shares.
However, where the delay is relevant, concerns the statute barred Joint Loan. It is not appropriate when determining the fair value of the Company to disregard the statute barred loan. The passage of time between 2011 and 2019 is attributable to a deliberate course of conduct on the part of Mr Joint.
The balance sheet of the Company as at 30 June 2020: the Plaintiffs contentions
The written closing submissions on behalf of Mr Joint contended for a net asset value of $1,284,558 of which 49% equated to $629,433.[294] In the course of final address, counsel for Mr Joint accepted there were some arithmetic errors in the steps set out in the written submissions leading to those amounts.[295] In those circumstances it is appropriate to set out in summary fashion, the revised calculation contended for and behalf of Mr Joint as discussed in closing submissions.
[294]Plaintiff’s Closing Submissions [100]-[101].
[295]Transcript, 2 December 2020, 76.
As to the value to be adopted for the goodwill of the business, the value for which Mr Joint contends in his written closing submissions is $255,500.[296]
[296]Plaintiff’s Closing Submissions [92]
The first item requiring balance sheet adjustment concerns John Tan’s overpayment of director fees. John Tan received $687,859.[297] The written submissions allow for a reduction of $132,000 for financial years 2010 – 2012. It was accepted in closing submissions that the $132,000 reduction represented only FY10 and FY11 and that it was also necessary, to deduct amounts paid to Mr Tan for FY12. In FY12 the amount paid was $87,218.[298] It was accepted in final submissions that the correct amount to be deducted for the financial years FY10 to FY12 is $219,218.[299] In the result, on behalf Mr Joint a loan in the sum of $380,913 is said to be attributable to amounts overpaid to John Tan.
[297]Comprising $555,859 for his director’s fees for FY12 to FY20 as calculated by Mr Smith in the Supplementary Smith Report, Table 6.6.4 [CB 1190] combined with $132,000 for his director’s fees in FY10 and FY11, as calculated by Mr Smith in the Joint Statement of Experts, Appendix 4, Table 4a [CB 1237].
[298]Joint Statement of Experts, Appendix 4, Table 4b [CB 1237]; Transcript, 2 December 2020, 75.
[299]Transcript, 2 December 2020, 75-76.
Next, Mr Joint submitted that related party payments to Sandia Rose of $332,679 should be brought to account. This sum is arrived at on behalf of Mr Joint by taking the midpoint in overpayment calculations between the sum of $292,557 as per Mr Tyshing and $372,802 as per Mr Smith.[300]
[300]Plaintiff’s Closing Submissions [95], [97(a)].
It is next submitted on behalf of Mr Joint that legal fees totalling $74,818 and expenses of $35,299 should be added to Mr John Tan’s loan account.[301]
[301]Ibid, [98].
In the case of Alex Tan, it was submitted that applying a mid-point of salary range of $13,000 per annum for the 6 years he was paid is a total amount of $78,000. The amount recorded in the books for him as wages is $164,445 which means that he was overpaid an amount of $84,445.[302]
[302]Ibid, [96].
Taking these adjusted amounts together, the value of the business as at 30 June 2020 for which Mr Joint contended in final address is $1,132,330 of which $554,841 represents the value of the 49% shareholding without any minority discount. Assuming oppression is established. $555,000 was said to represent the fair value of Mr Joint’s minority shareholding.
The balance sheet of the Company as at 30 June 2020: the Plaintiffs contentions
The defendants do not accept the validity of the calculation of the 49% minority shareholding advanced on behalf Mr Joint in final address.
The defendants did not put forward in final address either, their own calculation of what they contend to be the value of the Company as at 30 June 2020 or, as to the amount that they consider appropriate to be paid to Mr Joint for his 49% shareholding based upon the fair value of those shares.
The Fair Value of Mr Joint’s 49% Shareholding in the Company : Consideration
The evidence of the expert witnesses provides a sound foundation for and informs the determination of what constitutes the fair value of Mr Joint’s shares, but as the method of determining fair value is not required to adhere to strict accounting principles, it does not dictate the outcome.[303]
[303]Refer to Re Cheal Industries Pty Ltd [2012] NSWSC 595, [36], cited at [85] above; Wain & Ors v Drapac & Ors (No. 2) [2013] VSC 381, [38].
The first issue that falls for consideration concerns the value of the goodwill of the business of the Company as at 30 June 2020. For the reasons that I have previously given, it is appropriate to make each of the ‘Smith’ adjustments to normalised EBIDTA shown in table 1 of the Statement of Experts. Similarly, it is not appropriate to make any of the Tyshing proposed adjustments when determining the appropriate EBITDA of the Company as at 30 June 2020.
However, Mr Smith’s adopted EBITDA in the Statement of Experts requires adjustment to back out the adjustment that he made for rent. As was his evidence, with that single adjustment, EBITDA as at 30 June 2020 is $73,000.
The appropriate multiplier to be adopted to determine the goodwill of the business of the Company is 3. As a result, the correct figure for goodwill of the Company for inclusion in the balance sheet as at 30 June 2020 is as contended for on behalf of Mr Joint, $219,000.
When dealing with ‘related party loans’ it is appropriate to treat ‘loans’ made to Sandia Rose and ‘loans’ made to John Tan separately. The same applies to payments made to Alex Tan.
So far as adjustments to the balance sheet in Appendix 2 are concerned, in accordance with the reasons earlier stated from an accounting perspective the following is the position:
(a) John Tan is indebted to the Company the amount of $376,205. There are two elements to that debt. The first, overpaid remuneration $340,906 net, the second, expenses wrongly paid, $35,299. Given his position as director throughout the relevant period and as no limitation issues were raised in respect of these claims, $376,205 should be treated as a loan.
(b) Sandia Rose is indebted to the Company in the amount of $405,675. No argument was advanced that any part of this loan is statute barred.
(c) Alex Tan; $103,278. Reflects amounts paid to him when what he was engaged in doing was not work for the benefit of the Company. However, amounts overpaid to Alex Tan prior to 30 June 2014 would be statute barred. In addition it is doubtful that such amounts paid to him in circumstances where he performed work albeit, not for the benefit of the Company, would be able to be recovered from him as a debt. No adjustment should be made.
(d) no adjustment is to be made in relation to the asserted loss of profits claim concerning IET; that claim was abandoned in final submissions.
(e) no adjustment is be made in relation to tax consequences.
Taking the balance sheet for the Company as at 30 June 2020 as prepared by the experts, Appendix 2, and bringing these adjustments into account, treating the Company as a going concern reflects the following:
Total Current Assets (agreed) $ 179,176
Non-Current Assets
– John Tan loan (agreed) $ 39,332
Related Party Loans
– John Tan $ 376,205
– Sandia Rose $ 405,675
Fixed Assets (as per Smith on a going concern basis)[304] $ 22,717
Intangible Assets (goodwill) $ 219,000
Total Assets $ 1,241,605[304]Joint Statement of Experts, Part 3, Note 3, CB 1221.
Less Total Current Liabilities (as per updated management accounts as adopted by Smith)[305] $ 186,987
Net Assets $ 1,054,618
[305]Ibid, Part 3, Note 5, CB 1221.
If the John Tan loan account is created as not recoverable for accounting purposes the total assets of the Company are reduced from $1,054,618 to $678,413. However, neither expert adjusted their assessment of the balance sheet as at 30 June 2020 in that manner.
Determination of Fair Value
Fair value of the Company for the purposes of determining the price to be paid for Mr Joint’s shares being 49% of the shares in the Company is not governed by the balance sheet as at 30 June 2020. The price to be paid for the shares is required to be a fair price to compensate the oppressed shareholder for the oppression that has taken place.[306] As Young J said in ES Gordon Pty Ltd v Idameneo (No. 123) Pty Ltd,[307] to which Robson J referred in Re SRW Nominees Pty Ltd:[308]
… 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 occurring, on the side of the oppressed.[309]
[306]Shirim Pty Ltd v Fesena Pty Ltd [2002] NSWSC 10, [12], applied in Wain v Drapac (No 2) [2013] VSC 381, [38].
[307](1994) 15 ACSR 536 (‘ES Gordon’).
[308][2020] VSC 323.
[309]ES Gordon (1994) 15 ACSR 536, 540.
In seeking to determine a price that puts Mr Joint in the same position as nearly as can be, if there had been no oppression, the following issues require consideration:
(a) What if any allowance should be made on account of the statute barred Joint Loan, not brought into account in the balance sheet for that reason,
(b) How should the issue of the potential non-recoverability of the $376,205 ‘loan’ from John Tan be approached,
(c) Should adjustment be made on account of the overpayment of $103,278 to Alex Tan?
(d) Should adjustment be made on account of the legal fees?
Turning first to the Joint Loan, there are two reasons why the Joint Loan in the sum of $110,054 must be brought into account when it comes to determining the fair value of Peter Joint’s shares. The first reason concerns the history of that loan and the dealings between the parties. The second concerns a need for consistency of approach when the ‘loans’ owed by interested parties to the Company are taken into account.
In 2009 when John Tan assumed control of the business of the Company the Joint Loan was outstanding. After a demand for repayment of that loan in 2008 the Company took no action to recover it.[310] However, for his own reasons, with the exception of a single letter from his solicitors in 2011, Mr Joint took no action to assert his rights in relation to the Company. Had he done so at that time, it is likely that the loan would have been brought to account in any order for the purchase of his shares. That is, in the same way that the Court of Appeal brought the loan into account in relation to the purchase of his shares by Stephens. Delay in commencing an oppression claim is a relevant factor to be considered as part of the discretion.[311] It would not be fair to permit Mr Joint to rely upon the passage of time and therefore the limitation of actions in relation to the Joint Loan when that delay has been brought about by deliberate conduct on his part to take no action until the finalisation of his family law settlement.
[310]Refer Transcript, 12 October 2020, 56; Plaintiff’s Closing Submissions, [109].
[311]Falkingham (2015) 318 ALR 140, [88].
It would also be unfair when determining the fair value of the shares to bring into consideration amounts owed by John Tan that are more than six years old and, could arguably be the subject of a limitation of actions defence, not to apply the same approach to the Joint Loan.
Turning next to the recoverability issue concerning the John Tan ‘loan’. When cross-examined Mr Smith said that he did not have any understanding of John Tan’s financial position. He agreed that he had not considered the recoverability of the ‘loan’ to Mr Tan. He assumed, incorrectly, that Mr Tan owned 51% of the asset.
The evidence of Mr Tan’s financial position,[312] and it was not challenged, is that he has no assets, apart from a 2014 motor vehicle.[313] The defendants contend that in those circumstances the value of any John Tan-related party loans should be reduced to nil for valuation purposes.[314] If he had not transferred his shares in the Company to Sandia Rose in 2020, he would have been the 51% shareholder in the business. However, the timing and fact of the transfer of his shares are not related to this proceeding or issues related to it. I proceed on the basis that the share transfer was prompted by Mr Tan’s concern for his health and Sandia Rose’s future. It was not put to John Tan or Sandia Rose that there was any improper motive behind the 2015 transfer.
[312]Plaintiff’s Closing Submissions, [110]-[112]; Defendants’ Closing Submissions, [65].
[313]Second Tan Affidavit, [89].
[314]Defendants’ Closing Submissions, [65], relying upon Supplementary Tyshing Report [CB 1166-1167].
On behalf of Mr Joint it is submitted that the fact John Tan has put himself in a position where he is unable to pay, but all the assets are with Sandia Rose, is not a basis for the exercise of discretion so as to disregard the amounts the Court may find due by him to the Company.[315]
[315]Plaintiff’s Closing Submissions, [112].
No adjustment should be made on account of the asserted lack of recoverability of the loan owed by John Tan when determining fair value. That is so, first, because those monies should not have been paid by the Company to him. The payment of those monies was itself oppressive to the minority shareholder. Had those monies not been paid then the Company would have had a corresponding increase in its net asset position as at 30 June 2020. The only reason they were paid and the balance sheet is diminished accordingly, is because Mr Tan acted oppressively and in breach of his fiduciary duty. He was in a position of conflict and he chose his own interests over those of the Company. Second, when consideration is had to what is the fair value of the Company, it is an accident of history that he transferred his shares in the Company to Sandia Rose and that he is no longer the owner of the shares. If that had not occurred then the amount he owes the Company on the basis of the findings set out above could have been set off against his shareholding. Third, given the domestic relationship between John Tan and Sandia Rose and the ‘income splitting’ payments to Sandia Rose, of which she received very substantial direct benefits from 2015, in determining the fair value that Sandia Rose must pay for Peter Joint’s shares it would be artificial on a practical level to differentiate between moneys owed by her and moneys owed by John Tan based on recoverability. The same may be said of the travel expenses, expenses incurred when John Tan and Sandia Rose together enjoyed the benefit of Company funded travel.
Similar considerations apply to the overpayments by the Company to Alex Tan, $103,278. These payments were made at a time when John Tan was engaged in oppressive conduct, treating the Company as his own and making payments to his son accordingly. In determining fair value they must be brought to account.
The legal expenses of $74,818 should also be added back when seeking to arrive at the fair value of the Company.
If further adjustment is made to the balance sheet of the Company as at 30 June 2020, so as to bring back into account the Joint Loan, the overpayments to Alex Tan, and the John Tan loan of $376,205, each of which adjustments are required in order to arrive at a fair value of the Company as at 30 June 2020, the following is the result:
Net assets as per paragraph 250 above $ 1,054,618
Add Joint Loan $ 110,054
Add Alex Tan overpayment $ 103,278
Add Legal Fees $ 74,818
Total $ 1,342,768
It is appropriate in the circumstances that Sandia Rose purchase Peter Joint’s shares in the Company, his 49% interest, for the sum of $657,956.32 being 49% of the fair value of the Company determined on the basis that brings back into account the Joint Loan as an asset of the Company.
Just as the Court of Appeal considered it appropriate that the amount of the Joint Loan be offset against the amount to be paid to Peter Joint by Stephens, so too it is appropriate that the amount of the Joint Loan, $110,054 be offset against the amount of $657,956.32 to be paid by Sandia Rose for Peter Joint’s shares. That results in a net payment for the shares of $547,902.32.
W: Disposition
As agreed by the parties should be the case, I determine the amount to be paid by Sandia Rose to Peter Joint for his minority shareholding in the Company (after bringing into account the Joint Loan) is $547,902.32.
For the avoidance of doubt, that amount must be paid within 30 days in exchange for an executed share transfer from Peter Joint.
The parties should prepare a proposed form of order to give effect to these reasons and submit it to chambers.
If questions of interest and costs are not agreed, then, at the same time the parties should file submissions as to appropriate orders for interest and costs.[316] Once those submissions have been received the Court will determine whether costs issues will be determined on the papers or whether a further hearing is required.
[316]Plaintiff’s Closing Submissions, [116].
If further submissions are needed, those submissions should be filed and served no later than Friday, 22 January 2021.
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SCHEDULE OF PARTIES
PETER JOINT
Plaintiff
and
PROGRAM IT PTY LTD (CAN 093 420 752)
First Defendant
JOHN ZING SAN TAN
Second Defendant
SANDRA ROSE LIN KAM
Third Defendant
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