Karri Country Produce Pty Ltd as trustee for the Franceschi Trust v Advance Packing & Marketing Services Pty Ltd as trustee for the APMS Unit Trust [No 3]

[2024] WASC 151

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   KARRI COUNTRY PRODUCE PTY LTD AS TRUSTEE FOR THE FRANCESCHI TRUST -v- ADVANCE PACKING & MARKETING SERVICES PTY LTD AS TRUSTEE FOR THE APMS UNIT TRUST [No 3] [2024] WASC 151

CORAM:   HOWARD J

HEARD:   21, 22, 26, 28 FEBRUARY 2024 & 5, 6 March 2024 & LAST SUBMISSIONS 28 MARCH 2024

DELIVERED          :   1 MAY 2024

PUBLISHED           :   1 MAY 2024

FILE NO/S:   CIV 3076 of 2019

BETWEEN:   KARRI COUNTRY PRODUCE PTY LTD AS TRUSTEE FOR THE FRANCESCHI TRUST

Plaintiff

AND

ADVANCE PACKING & MARKETING SERVICES PTY LTD AS TRUSTEE FOR THE APMS UNIT TRUST

Defendant

Catchwords:

Equity - Unit Trusts and Trustees - Whether purported compulsory redemption of Unitholder's units was valid - Where Trustee issued a Trustee Redemption Notice based on a valuation - Whether valuation was independent - Whether breach of Trust Deed requirement to give Unitholders details of valuer was a necessary pre-condition to valid redemption - Whether Trustee acted within the power of the Trust Deed - Whether Unitholders' meeting was properly called and convened - Trustee Redemption Notice was invalid and of no effect - Whether Unitholder had acquiesced or laches with prejudice arose - Whether Unitholder needed to repay redemption sum prior to any relief being granted

Legislation:

Nil

Result:

Declaration that the Trustee Redemption Notice was invalid and of no effect and plaintiff remains a Unitholder of the Unit Trust

Category:    B

Representation:

Counsel:

Plaintiff	:	Mr L A Warnick SC & Mr S G Stewart
Defendant	:	Ms K R Lendich SC & Mr T J Langdon

Solicitors:

Plaintiff	:	Johnson Winter & Slattery - Perth
Defendant	:	HWL Ebsworth Lawyers (Perth)

Case(s) referred to in decision(s):

Byrnes v Kendle (2011) 243 CLR 253

Chevron (TAPL) Pty Ltd v Pilbara Iron Company (Services) Pty Ltd [2021] WASCA 193

Fysh v Page (1956) 96 CLR 233

Gambotto v WCP Ltd (1995) 182 CLR 432

Gra‑Ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65

Halford v Halford (2022) 58 WAR 254; [2022] WASCA 1

Lock v Westpac Banking Corporation (1991) 25 NSWLR 593

Macarthur Cook Real Estate Funds Management Ltd v APN Funds Management Ltd [2013] VSCA 240

Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587; [1991] 2 All ER 513

Montevento Holdings Pty Ltd v Scaffidi [2012] HCA 48, (2012) 246 CLR 325

Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146, (2011) 6 ASTLR 446

Wilden Pty Ltd v Green (2009) 38 WAR 429; [2009] WASCA 38

Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15

HOWARD J:

Introduction

1. The plaintiff (KCP) was, at least until 6 May 2019, the owner of 300 units in the APMS Unit Trust (Trust). 

2. The Trust was established, and is governed, by a Trust Deed dated 13 October 2007.[1]

   [1] Ex 2. I have referred to each exhibit tendered from the trial bundle as an Ex, bearing its trial bundle number. References to page numbers are to the pages of the Trial Bundle, rather than the page numbers of the particular exhibit.  There was also a Supplementary Trial Bundle (STB) and a Further Supplementary Trial Bundle (FTB) used at trial, which had separate page numbers.

3. The Trustee of the Trust was, and remains, the defendant (APMS or Trustee).

4. The Trustee was and is, for the Trust, engaged in providing services which include the processing, grading, packing and marketing of avocados grown in the South West of this State.

5. This case concerns whether the purported compulsory redemption of KCP's units by the Trustee by a Notice dated and given on 6 May 2019[2] (Trustee Redemption Notice) was valid and effective.

   [2] The Trustee Redemption Notice is Ex 173.

6. Broadly, KCP contends that the power of compulsory redemption under the Trust Deed was conditional on:

   1.a valuation having been obtained by the process mandated under the Trust Deed; and

   2.obtaining the approval of Unitholders by Special Resolution in accordance with the Deed.

7. KCP says that neither of these pre‑conditions occurred and so the purported redemption was not valid; rather, it was ultra vires.

Issues to be determined

1. By its outline of opening submissions, KCP identified 14 issues to be determined being:

   1.If there is a failure to comply with provisions of the Trust Deed in the exercise of the compulsory redemption power, what is the effect of that failure?

   2.Did APMS fail to comply with cl 10.2, and if so (having regard to the answer to Issue 1) what was the effect of that failure?

   3.Did APMS fail to comply with cl 10.1 in obtaining the valuation, and if so (having regard to the answer to Issue 1) what was the effect of that failure?

   4.Was the Unitholders' meeting properly convened and if not (having regard to the answer to Issue 1) what was the effect of that failure?

   5.Were the proxies (of the majority Unitholders) invalid by the operation of cl 12.2 of the Trust Deed and if so (having regard to the answer to Issue 1) what was the effect of their invalidity?

   6.Is BDO now an 'independent accountant or other expert valuer', in relation to any future proposed Trustee Redemption Notice?

   7.Has KCP otherwise established its entitlement to relief?

   8.Is KCP's acceptance of the redemption payment of $412,500 a defence?

   9.Did KCP acquiesce in any failure by APMS to comply with the Trust Deed, or any breach of duty by APMS?

   10.Is KCP estopped from asserting that the Trustee failed to act in accordance with the Trust Deed or otherwise acted in breach of any duty owed to the Plaintiff?

   11.Are KCP's claims barred by laches?

   12.Is a contract of sale to be inferred, binding KCP to sell its units?

   13.Has KCP failed, or is it unable, to 'do equity'?

   14.Does APMS lack 'clean hands' so as to bar its reliance on equitable defences?

2. By the conclusion of the trial, Issue 8 (as a separate defence), and Issues 10 and 12 had fallen away fully and did not need to be determined.

3. I will first set out my findings of fact and then consider the remaining Issues.

Found facts

1. In substance, there were few facts in dispute.  Notwithstanding that, I have set out my findings fully because of their importance to KCP's claims about the valuer's independence and some of the Trustee's defences.

2. The paragraphs below set out my findings of fact.  Where a particular finding has turned on a resolution of contested evidence, I have explained separately my reasoning for making the finding I have.

3. At all material times APMS acted as Trustee.

4. At the times material to these proceedings, the Unitholders of the Unit Trust were: 

   1.KCP as to 300 units - Mr and Mrs Franceschi are associated with this unitholder;

   2.French's Group 89 Pty Ltd (French's) as trustee for The Largs Bay Trust as to 300 units - this is the Unitholder associated with William French;

   3.George Athol Ipsen and Shirley Anne Ipsen as trustees for G & S Ipsen Family Trust (Ipsens) as to 150 units;

   4.Arkenstone Pty Ltd as trustee for G H Solomon Family Investment Fund (Arkenstone) as to 75 units - this is the unitholder associated with Greg Solomon;[3]

   5.Marchbells Pty Ltd as trustee for D H Solomon Family Trust (Marchbells) as to 75 units - this is the unitholder associated with Doug Solomon; and

   6.Fonty's Pool Farm Pty Ltd (Fonty's) as to 300 units from 1 July 2014 - this is the unitholder associated with Ian Crockett.[4]

   [3] Throughout these reasons, I use Greg and Doug Solomon's first names to distinguish them from each other.

   [4] This arose from a Subscription Agreement with Fonty's on about 20 October 2014 by which Fonty's was allocated Units in the Trust:  SOC [6]; defence [6]; Ex 6; Ex 7.  Unless otherwise specified, I have used SOC to refer to the last iteration of the statement of claim which is the plaintiff's fourth further amended statement of claim dated 20 October 2023; defence to refer to the last iteration of the defence which was the defendant's fifth further amended defence dated 5 March 2024; and reply to refer to its last iterations dated 5 March 2024.

5. On 19 August 2008, French's, KCP, the Ipsens, Arkenstone and Marchbells entered into a deed entitled Unitholders' Agreement The APMS Unit Trust (Unitholders' Agreement).[5]

   [5] SOC [4]; Ex 4.

6. The Unitholders' Agreement was varied in October 2014 when the relevant parties entered into a deed styled:

   1'Subscription Agreement';[6] and

   2a Deed of Variation of APMS Unitholders Agreement;[7] 

   [6] SOC [6]; defence [6]; Ex 6.

   [7] SOC [7]; defence [7]; Ex 7.

7. These two deeds brought Fonty's into the Trust (as to 300 units) with effect from 1 July 2014.

8. Relevantly, following the above instruments, from 20 October 2014, the Unitholders' Agreement provided at cl 6.7(b)(iii) that:

   (b)If any Unit Holder pays any sum of money by way of loan in an amount in excess of the amount derived by multiplying the total amount of loans provided by all Unit Holders by the Equity Proportion of the Unit Holder making the loan (the Loan) to the Trustee (in its capacity as Trustee of the APMS UNIT TRUST) then unless the Unit Holder and the Trustee have agreed the terms of the Loan in writing the following terms shall apply:

   …

   (iii)The Loan (together with any interest) shall be repaid to the Unit Holder within three years of the date of the advance when the cash flow of the Business permits as determined by unanimous agreement of the Unit Holders or upon the Unit Holder ceasing to hold Units in the Trust.[8] (emphasis in original)

   [8] Ex 4, page 117 as amended by Ex 7, page 170 (2014 amendments are in red and 2014 deletions in blue and struck through).

9. As will be seen, KCP was repaid its Unitholder loan by the Trustee following the purported redemption in May 2019. Until the plaintiff's oral closing submissions, the trial was conducted on the basis that the repayment was made to KCP pursuant to cl 6.7(b)(iii) of the Unitholders' Agreement as it was at that time. That matter will be returned to below.

10. On 26 September 2014, KCP and APMS executed a Contractor Agreement.[9]  As will be seen below, the Contractor Agreement was terminated by APMS with effect from 31 March 2018.

    [9] Ex 5.

11. Broadly, the Contractor Agreement:

    1.confirmed that KCP had been providing Services to APMS since 2008 without a signed agreement; and

    2.provided that KCP agreed to continue to provide the Services[10] defined in the Contractor Agreement[11] and to provide them for a fee.[12]

    [10] Ex 5 [2.1].

    [11] Ex 5 Sch 1 [1.1], Sch 3.

    [12] Ex 5 [7.1], [8.4], [7.5], Sch 1 [1.1], Sch 4.

12. Mrs Franceschi's unchallenged evidence was that she and Mr Franceschi (without specifying any corporate vehicle) from 2007 to 2018 essentially ran the whole operation of APMS[13] and that the agreement for their services and remuneration was only formalised by the Contractor Agreement.[14]

    [13] Witness statement of Mrs Franceschi, Ex 240 [9].

    [14] Witness statement of Mrs Franceschi, Ex 240 [10].

13. Mrs Franceschi, again in unchallenged evidence, stated that (and I find):

    1. KCP's position was different, financially, from the other Unitholders in that Mr and Mrs Franceschi worked full-time for KCP and only received salaries and bonuses through and from its arrangements with APMS;[15]

    2.APMS had trust profits on which Unitholders had to pay tax, but the profits were not distributed but were credited to Unitholder loans; but the amount the Franceschis (or KCP) was earning (outside of such credits) was not enough for them to meet their respective tax liabilities;[16] and

    3.the other Unitholders earned money from trees and fruit, and in some cases, other businesses, which put them in a different position from KCP.[17]

    [15] Witness statement of Mrs Franceschi, Ex 240 [17].

    [16] Witness statement of Mrs Franceschi, Ex 240 [17].

    [17] Witness statement of Mrs Franceschi, Ex 240 [17].

14. From about 12 November 2014 Mr Crockett became a director of APMS.

15. Mr Crockett became the Chair of APMS on 29 August 2016.  It was common ground that Mr Crockett was the guiding mind of and prime actor for the Trustee in the redemption process at the heart of this case.

16. By the beginning of 2018, in a broad sense, the business of APMS included two subsidiary companies:

    1.Fresh Produce Alliance Pty Ltd (FPA); and

    2.Avocado Export Company Pty Ltd (AEC).

17. FPA was a subsidiary established to process avocado by-products and waste products which were not suitable for direct sale to an end product. AEC was de-registered on 4 January 2023.  The accounting treatment of these two will be returned to below.

18. Mrs Franceschi's unchallenged evidence was that from 2014 the relationship between KCP and other Unitholders began to deteriorate for a variety of reasons.[18]

    [18] Witness statement of Mrs Franceschi, Ex 240 [15]; ts 214.

19. Mr Crockett's evidence was that by January 2018 he had concerns as to how the Franceschis (through KCP) were managing APMS's business.  Those concerns included:

    1there had been a breakdown in communication between KCP and the Board of APMS;

    2KCP had made 'significant strategic and spending decisions' without the Board's prior knowledge or approval; and

    3that through the subsidiary FPA, APMS had lost a considerable amount of money under KCP's management.[19]

    [19] Witness statement of Mr Crockett, Ex 247 [14].

20. It is unnecessary for me to make findings as to whether the difficulties in the relationship arose in 2014 or later (but before January 2018); nor do I need to make findings as to merits or otherwise of either parties' claims as to the source of the unhappiness.

21. Rather, I find that from some point in early January 2018 at the latest, there was tension between the Unitholders, with KCP on one side and the other Unitholders on the other.  As will be seen, that persisted through 2018 and 2019 up to and including the issuing of the Trustee Redemption Notice and the payments made to KCP in May 2019.

22. On 24 January 2018, there was a meeting between Mr Crockett and Mr and Mrs Franceschi.[20] Both Mrs Franceschi and Mr Crockett gave evidence about what was discussed at the meeting. 

    [20] Ex 8.

23. Mr Franceschi's evidence was that:

    1.the termination of the Contractor Agreement was 'informed to' her and Mr Franceschi at that meeting;[21] and

    2.the possible sale of KCP's Units was also broached in that meeting.[22] Mrs Franceschi described the conversation on 24 January 2018 as being a bit of a shock to her and Mr Franceschi.[23]

    [21] ts 215.

    [22] ts 215.

    [23] ts 216.

24. Mrs Franceschi accepted that there was a discussion in the meeting about whether KCP would be interested in retaining FPA. She did not accept that the suggestion came from her or Mr Franceschi, but rather said that it was something that Mr Crockett had suggested.[24]

    [24] ts 216.

25. Mr Crockett's evidence was that he effectively stated to the Franceschis that KCP's Contractor Agreement would be terminated as the other Unitholders had lost faith in the ability of the Franceschis and KCP to conduct the business of APMS in a manner the directors and Unitholders would like.[25] 

    [25] ts 317.

26. Mr Crockett's evidence was that he stated his assumption that the Franceschis would want to sell the KCP Units and get them valued.[26]  Mr Crockett's evidence was that Mrs Franceschi asked whether he knew a valuer and Mr Crockett made, in that meeting, a telephone call to Mr Spooner at Nexia Australia.[27]  Mr Crockett told Mr Spooner in that call that APMS would pay for the valuation.[28]

    [26] ts 317.

    [27] ts 317.

    [28] ts 318.

27. I do not consider that there is any real conflict in the above evidence as to what occurred at the meeting on 24 January 2018, and I accept the evidence I have set out.

28. I find that by no later than the conclusion of that meeting on 24 January 2018 that:

    1.it was the case, and KCP knew, that a majority of the directors of APMS would vote to terminate the Contractor Agreement;

    2.the Trustee, KCP and other Unitholders were of the view that KCP would leave the business of APMS (save possibly as to AEC and, or, FPA) and the Unit Trust;

    3.the exit of KCP would be achieved by it receiving payment for its Units; and

    4.the Trustee, KCP and the other Unitholders anticipated that KCP's exit would occur quickly and possibly at about the same time as the termination of the Contractor Agreement at the end of March 2018.

29. As will be seen, that meeting led to:

    1.the engagement of Nexia Australia;[29] and

    2.the Franceschis contacting Freshmax which was described as a New Zealand based fresh produce marketer.[30]

    [29] ts 185 - 186.

    [30] Witness Statement of Mrs Franceschi Ex 240 [20].

30. Later on 24 January 2018 Mr Crockett sent by email to the other Unitholders a summary of his discussion earlier that day with the Franceschis.[31]  Items (5), (6) and the final paragraph of that email stated:

    Discussion then took place regarding the possible sale of W&J's [Wayne and Jenny Franceschis'] equity in APMS.  It is fair to say that both W&J agree that the relationship with the other Shareholders has detracted to such an extent, that the best way forward, is to offer to sell their Units in APMS.  To that end they asked me to provide the name of an Independent Accounting Firm. I said that I would speak to one of the Partners at my old Accounting Practice ( Nexia ) and forward his details. The major purpose is for this Firm to undertake the valuation of APMS (cost to be born by APMS ).  I would suggest both parties make submissions as to the valuation process and, once finalized, can be a blueprint for negotiation. Brad can you provide any requested information that Nexia requires to complete the valuation. Subject to agreement from the majority of the APMS Board, I have said that we would extend the date of Termination [of the Contractor Agreement] past the 31^st March, 2018 if the sale of their share of APMS had not settled.

    I then tabled the possible opportunity for W&J to acquire 100% of the shares in FPA.  At this stage they cannot commit until the sale value of the units in APMS is ascertained.  They understand that FPA will require working capital and additional funds for capital works.

    …

    To conclude, I would like your feedback and comments as soon as possible. I hope the above is in line with your thinking and that it provides a fair and equitable position for all parties.  Finally, I would like to send this email to W&J and ask for your consent.[32]

    [31] Ex 8; ts 318.

    [32] Ex 8.

31. On 1 February 2018, Mr Spooner of Nexia sent an email[33] to Mr and Mrs Franceschi (copied to Mr Crockett) which attached an engagement letter addressed to the directors of APMS and which was to be signed by APMS.[34]  The email recorded Mr Spooner's understanding from a previous conversation that Nexia's fees would be paid by APMS.[35] It appears that in February 2018, Nexia Australia was retained.[36]

    [33] Ex 9.

    [34] Ex 10, pages 181 and 185 respectively.

    [35] Ex 9.

    [36] Ex 10; Ex 11; Ex 12.

32. The engagement of Nexia Australia was a disputed matter to some degree at trial. I have referred to the reasoning for my conclusions in the next paragraph.

33. As per par [244] to par [253] below, I find that APMS (by Mr Crockett) engaged Nexia Australia and set the scope of its engagement.

34. There was a series of emails between Mrs Franceschi and Mr Crockett commencing on 31 January 2018 (at 8.41 am)[37] through to 2 February 2018 (at 2.36 pm) which, amongst other things, discussed the future of FPA.[38]

    [37] Throughout these reasons, all times are expressed in AWST unless otherwise indicated.

    [38] Ex 15, pages 195 - 199.

35. In that exchange there was also discussion by email on 2 February 2018 as to the future of AEC.[39]

    [39] Ex 15, page 195.

36. In that exchange, Mrs Franceschi on 2 February 2018 (at 2.25 pm) by email said to Mr Crockett:

    Also Wayne said that the valuers are not to put a value on either FPA or AEC.[40]

    [40] Ex 15, page 195.

1. Mr Crockett responded on that same day (at 2.36 pm) by email to say:

   I have notified Nexia that the Valuation should ignore the investment in both FPA and AEC.  They will need to redraft their Engagement Letter.[41]

   [41] Ex 195.

2. By email on 2 February 2018 at 11.28 am, Mr Crockett had already instructed Mr Spooner to 'value the APMS Unit Trust without consideration as to a value for FPA or AEC'.[42]

   [42] Ex 12.

3. As will be noted below, Mr Crockett subsequently informed BDO that it was the possibility of there being a relationship or association between Mr Spooner (of Nexia) and Mr Crockett that later led to the need for BDO to prepare a different valuation.

4. On 2 February 2018, Mr Crockett as director of APMS issued a Notice of a Special Meeting of APMS directors for 12 February 2018.[43]  The Notice stated the meeting's purpose is to terminate the Contractor Agreement, pursuant to cl 8.1, from effectively 31 March 2018.[44] 

   [43] Ex 13; Ex 14.

   [44] Ex 14.

5. On 12 February 2018, that Special Meeting of APMS's directors resolved unanimously (including Mrs Franceschi) to terminate the Contractor Agreement with effect from 31 March 2018.[45]

   [45] Ex 19.

6. On 2 March 2018, Mrs Franceschi sent an email to Mr Crockett with the subject heading 'Valuation' in which she stated:

   It's already March and we still have not seen the valuation.

   Freshmax are asking for it so we can keep the ball rolling and you have given us very little time to move on.

   …

   Can you please chase up the valuation.[46]

   [46] Ex 243.

7. Between 16 and 19 February 2018 there was an email exchange between Mrs Franceschi and Mr Crockett which principally concerned whether the Franceschis, if they exited from APMS, would 'continue with' FPA.[47]

   [47] Ex 20; ts 218.

8. In the initial email of that string,[48] Mrs Franceschi referred to KCP negotiating the sale of its share of APMS and then stated 'We need to move forward with our lives and we have a lot to do in a short time, so I would appreciate you giving us the information we require'.[49]

   [48] of 16 February 2018 (at 5.36 pm) from Mrs Franceschi to Mr Crockett.

   [49] Ex 20, page 212; ts 218 - 219.

9. In February 2018, Mrs Franceschi had a conversation with a Mr Sillcock of Freshmax, in which she asked if Freshmax was interested in buying KCP's Units.[50] As will be seen, there were some contested factual questions between the parties as to Freshmax, which I have resolved with reasons below.[51] I have sought, here, to avoid the facts in contest.

   [50] Witness Statement of Mrs Franceschi Ex 240 [20]; ts 201 - 202.

   [51] See par [409] and following below.

10. Mr Sillcock then put the Franceschis in touch with Murray McCallum (who appears was the CEO).  Mr Sillcock was not a decisionmaker within Freshmax and Mr McCallum was a more senior officer of Freshmax.[52]

    [52] ts 202 - 203.

11. The Franceschis met with Mr Sillcock and Mr McCallum to discuss the possibility of Freshmax purchasing KCP's Units.[53]

    [53] Witness Statement of Mrs Franceschi Ex 240 [20]; ts 202.

12. There was then a meeting with Mr Crockett, Mr McCallum and the Franceschis on 19 February 2018.[54]

    [54] Ex 225, page 45.

13. On 28 February 2018, Mr McCallum sent an email to Mr Crockett 'looking for any feedback' and 'whether there is any interest from the board/shareholders in pursuing discussions with Freshmax'.[55]

    [55] Ex 225, page 44.

14. On 6 March 2018 Mr Crockett emailed Mr McCallum with a cc to Mr Franceschi and some of the Unitholders and stated:

    …The remaining Directors are of the view that Freshmax will not offer sufficient benefits to APMS and therefore would not be prepared to enter into further discussion … [56]

    [56] Ex 225, page 43.

15. That appears to have ended the possibility of Freshmax's involvement with APMS.  As will be seen, Freshmax's interest or otherwise was a matter that Mrs Franceschi returned to later in correspondence with Unitholders.[57]

    [57] As considered below under the heading 'Mrs Franceschi and Freshmax':  on 2 April 2019 she sent (for KCP) a letter dated 26 March 2019; Ex 110; Ex 111; facts found [179] below.

16. On 23 April 2018, Mr Spooner sent a draft report to Mr Crockett.[58]

    [58] Ex 36, page 285.

17. Later on that same day, Mr Crockett asked for the draft to be sent to APMS's accountant, Brad Giles, and asked some questions about the draft.[59]  The email string continued through to 27 April 2018 where Mr Spooner asked for Mr Crockett's confirmation that the report, as a result of the matters discussed in the email string, could now 'go as final'.[60]

    [59] Ex 36, page 284.

    [60] Ex 36, page 281.

18. On about 28 April 2018, Mr Spooner issued his valuation report (Nexia Report).[61]  By its subject heading, the Nexia Report said that it was a valuation of:  Advance Packing & Marketing Services Pty Ltd as Trustee for the APMS Unit Trust ('APMS', 'Unit Trust' or 'the business').  At [1.2] the author (Mr Spooner) stated:

    It is my understanding that a valuation of the business referred to above is required to determine the prevailing fair value of the units in the unit trust.

    [61] Ex 38; Ex 39.

19. The Nexia Report referred to the Trust and the Trust Deed[62] and to the Unitholders' Agreement in that same section.[63]

    [62] Ex 39, page 378 [3.2].

    [63] Ex 39, page 379 [3.2].

20. The Summary of Valuation was stated at [2][64] and at [7.12].[65]

    [64] Ex 39, page 377.

    [65] Ex 39, page 395.

21. It stated that the 'fair market value of the units in APMS is calculated to be $4,051,312'.[66]  As KCP held a quarter of the units, the Nexia Report valued its units at a little over $1 million.[67]  The value of the units, as is apparent from the Report, was calculated after the deduction of Unitholder Loans of $1.2 million.[68]

    [66] Ex 39, page 377.

    [67] ts 410.

    [68] Ex 39, page 377 [2]; page 392 [7.11(x)].

22. At [7.13], the Nexia Report discussed making an adjustment to reflect a minority share but noted that:

    No discount has been applied in this instance as a minority holding is not the subject of this valuation.[69]

    [69] Ex 39, page 395.

23. KCP was not happy with the Nexia valuation and considered that there were: 'key things' and 'definite details missing out of that valuation'.[70]  KCP retained Schirripa Evans, Lawyers, who wrote to the directors of APMS on 16 May 2018.[71]

    [70] Mrs Franceschi's evidence in cross-examination at ts 186.

    [71] Ex 40.

24. That letter stated, relevantly:

    13.Subsequent to the Termination Date APMS has sought a valuation of the Business from Nexia Australia (Perth).  A valuation report dated 27 April 2018 (Nexia Valuation) was provided on instructions from the Chairman of APMS, Mr Ian Crockett.  We note that the Nexia Valuation does not include a copy of any letter of instructions or any details associated with the instructions other than a note that 'a valuation of the business referred to above is required to determine the prevailing fair value of the units in the trust.'

    14.Our clients instruct us that they have not taken any steps to exercise any rights arising pursuant to the Unit Holders Agreement to seek to sell all or any of the Shares or the Units.  The Unit Holders Agreement prescribes a certain procedure with respect to the sale of any unit holder of their Shares and Units.  No steps have been taken to activate the procedures set out in clause 3 of the Unit Holders Agreement.

    15.We note that the financial statements for APMS for the financial year ending 30 June 2017 record that that there are beneficiary loans to each of the four unit holders including KCP. As at 30 June 2017 KCP is owed $1,714,998.55 (KCP Entitlement) representing unpaid accrued income distributions from APMS.

    16.Pursuant to the Contractor Agreement KCP is entitled to the 'Fee' (as defined in the Contractor Agreement).  The Fee is defined as a base management fee plus an amount calculated by reference to net profit before tax of the APMS Unit Trust (Additional Management Fee).  The Additional Management Fee has not been calculated or paid to KCP for at least three financial years. KCP is in the process of ascertaining the accrued Additional Management Fees that remain owing to date.  [I interpolate that this was a management bonus claimed by KCP.[72]]

    [72] ts 189.

    17.With respect to the KCP Entitlement, we note that that amount represents a present entitlement and is therefore due and payable forthwith on demand.  Obviously given the size of the amount, it may be difficult for APMS to make a payment at short notice. Accordingly, whilst KCP hereby formally demands the payment of the KCP Entitlement, KCP is prepared to permit the payment to be made on or before 5:00 pm Western Standard Time on 30 May 2018.

    19.With respect to the Shares and the Units, KCP will consider its position.  In particular, Wayne and Jennie will decide whether or not KCP will activate the provisions of clause 3 of the Unit Holders Agreement. [I interpolate that Mrs Franceschi confirmed in her evidence that, at that time, KCP was considering disposing of its units.[73]]

    [73] ts 190.

    25.In addition to the above we note that in February 2018, after the termination of the Contractor Agreement, our clients approached national produce wholesaler, Freshmax Pty Ltd (Freshmax) to ascertain if they had any interest in acquiring KCP's unit holding in APMS in the event that the existing unit holders have no interest.  Freshmax indicated that they did have interest.  We refer to a chain of emails between Mr Crockett and Mr Murray McCallum, Group CEO of Freshmax.  In particular, we refer to Mr Crockett's email to Mr McCallum sent on 6 March 2018.  In that email Mr Crockett, in response, to Mr McCallum's requests for a response to Freshmax's expression of interest, states the following:

    The remaining Directors are of the view that Freshmax will not offer sufficient benefits to APMS and therefore would not be prepared to enter into further discussion.

    We draw your attention to clause 3.4(e) of the Unitholders Agreement.  That provision states that the right to veto any proposed purchaser on the basis that the proposed assignee is not 'respectable, responsible or solvent'.  Whilst KCP has not exercised its rights pursuant to clause 3.4 we note that your outright rejection of Freshmax's expression of interest was without any reasonable basis and designed to place pressure on our clients and amounts to oppressive conduct.

    27.Wayne and Jennie consider that they were pivotal to the establishment and success of the Business.  They are entitled to be dealt with justly and equitably.  It is not their wish to end their involvement with APMS on a hostile basis if that is possible. As you are aware, their son Josh and daughter‑in‑law Sophia continue to be employed in the Business. Jennie and Wayne wish to preserve a relationship with APMS and, in fact, given their pivotal role in establishing the Business, intend to retain a small unit holding in APMS if possible (e.g., 5%).  Wayne and Jennie invite you to negotiate with them in good faith, however they will not be bullied.

    28.Our clients are prepared to consider selling the shares and units on fair commercial terms.  They are prepared to discuss those terms on a without prejudice basis with Mr Crockett, however on the strict condition that:

    28.1any agreement reached deals with all outstanding payments due to our clients; and

    28.2no binding agreement will have been entered into until the execution of formal documents; and

    28.3any negotiations are conducted through the writer.

25. On 16 August 2018, Mr Crockett emailed Mrs Franceschi[74] in which he said, in part:

    Given the amount of time that has elapsed between the 30^th May, 2018 … and now, I must assume that KCP and or its Directors have declined the offer of $760,000 to acquire all of the Units held by your company.

    Some notification would be appreciated.

    [74] Ex 45.

26. There was no direct evidence of the offer to which Mr Crockett was referring to in that email, but Mrs Franceschi's unchallenged evidence was that the Trustee had made an offer to acquire KCP's units which was based on the Nexia Report; and that she had rejected it because she considered it was too low.[75] 

    [75] Witness statement of Mrs Franceschi Ex 240 [22].

27. There was an email string between 19 August 2018 and 21 August 2018 between Unitholders in which the Franceschis were not included.[76]

    [76] Ex 48.

28. In the string Mr Ipsen and Mr French expressed discomfort at KCP's continued involvement in the business of APMS.[77]  Mr Ipsen's email, in this string, also referred to a settlement offer from APMS to KCP having expired on 31 July 2018.[78] 

    [77] Ex 48, page 478.

    [78] Ex 48, page 478.

29. Mr Crockett and Greg Solomon responded in that email string[79] referring to the interests of all Unitholders in APMS.  Greg Solomon went on to say in his email:

    The Constitution of the company sets out how this company shall operate, and the Unit Trust deed, as amended, sets out what must happen in the operation of the Unit Trust.  Both these documents must be complied with.  They are reasonably straight forward but contain a lot of detail and care (and suitable legal advice when matters are contentious or complicated) should be taken into short compliance.[80] 

    [79] Ex 48, page 477.

    [80] Ex 48, page 477.

30. Mr Crockett accepted, and I find, that he would have read that email string at the time.[81]

    [81] ts 377.

31. Subsequently to the Nexia Report, Schirripa Evans retained Morris Forensic to provide advice to them and KCP on the question of valuation.[82]  KCP did not deal directly with Morris Forensic.[83]

    [82] ts 190.

    [83] ts 191.

32. On 5 September 2018 Morris Forensic sent a letter (Morris Forensic Letter)[84] and an observations memo (Morris Forensic Memorandum)[85] to Schirripa Evans.

    [84] Ex 53.

    [85] Ex 54.

33. The Morris Forensic Letter and Memorandum considered the Nexia Report.

34. The Morris Forensic Letter, in part, stated:

    3.Enclosed with this letter is a memorandum that sets out our preliminary observations in respect of Mr Spooner's valuation of APMS.  It is clear from our review of Mr Spooner's valuation that there are various errors in his approach and calculations and some arguable alternative positions.

    4.We consider that if Mr Spooner's valuation was restated for these matters it would arrive at a value of $607,000 for APMS but would indicate a value of Karri's interests of $1.867 million, calculated as follows:

    Value

    Value of APMS                   $    607
            % of Units Held  25%
            Pro-rata value  $   152
            Minority discount  0%
            Value of Units  $   152
    
            Unitholder loan  $1,715
            Total Value of interests        $1,867

    5.The biggest difference arises from the value attributed to unitholder loans.  In this regard, Mr Spooner appears to treat unpaid distributions to unitholders as equity contributions rather than loans, a position which we consider untenable.

    6.There are also two important judgements made by Mr Spooner where his reasoning or analyses are not adequately set out in his report (being his determination of key management personnel remuneration and the EBITDA multiple).  We would recommend requesting that Mr Spooner provide his analyses such that we can better consider whether his judgements appear reasonable.

    Our Likely Approach to Valuation

    7.If we were to prepare a valuation of APMS and Karri's interests therein we would likely approach it in a different manner to Mr Spooner.

    8.In valuing APMS, I would anticipate we would, inter alia:

    8.1discuss the business and its trading outlook with your client;

    9.2endeavour to model a 3-5 year cash flow forecast based on your client's estimates of future fruit volumes;

    8.3determine and apply a discount rate based on an analysis of the risks and opportunities of the business and comparable market date to the extent it exists;

    8.4add the value of any surplus assets; and

    8.5deduct any loans payable (including loans provided by unit holders and unpaid trust distributions).

    …

    11.It is our view that if we were to prepare a valuation of the APMS Unit Trust and Karri Country Produce interests therein we would come to a substantially different figure to Mr Spooner and most likely a different figure to the restated valuation summarised at paragraph 4 above.

    Further Materials Required

    12.In order to prepare a valuation and or complete a critique of Mr Spooner's valuation, the following documents would be of assistance:

    12.all governing documents for APMS and Advance Packing & Marketing Services Pty Ltd and their unit/shareholders;

    12.2financial statements for APMS for the 2018 financial year;

    12.3any budgets, forecasts, business plans, etc prepared for APMS;

    12.4reports pertaining to production and sale volumes for 2015 to 2018 financial years;

    12.5the agreement(s) between APMS and Karri Country Produce Pty Ltd (Karri Country) for management services;

    12.6overview of current management structure and costs thereof (and copies of any relevant agreements / employment contracts;

    12.7any loan agreements pertaining to APMS's indebtedness to unit holders;

    12.8details of creditors at 31 March 2018;

    12.9details of rent received in FY16 and FY17 and any lease or agreement to which it may relate;

    12.10financial statements for FPA and AEC for 2015 to 2018 financial years; and

    12.11any valuations of land and buildings or plant and equipment owned by APMS, FPA and/or AEC.

35. With respect to the line of questions to Mrs Franceschi in cross‑examination,[86] I find that neither the Morris Forensic Letter nor the Memorandum was, nor can be read as, a valuation of APMS, nor of the value of Units in the Unit Trust.  So much is plain from [3], [5], [6] – [8], [11] and especially [12] of the Morris Forensic Letter[87] quoted above.

    [86] ts 192 - 197, 281 - 282.

    [87] Ex 53.

36. In closing, the Trustee accepted that the 'advice' as to value in the Morris Forensic Letter and the Morris Forensic Memorandum was 'qualified' and that Morris Forensic had said they could not reach a concluded view without reviewing certain financial information.[88]

    [88] Defendant's written closing submissions [171].

37. Schirripa Evans wrote to Hewett & Lovitt (the Trustee's then solicitors) by letter dated 8 October 2018.[89]  That letter recited a number of matters.  In [17], Schirripa Evans sought nine items of information from the Trustee[90] which were taken from the eleven items in [12] of Morris Forensic's Letter quoted above.[91]

    [89] Ex 228.

    [90] Ex 228, page 58.

    [91] Ex 53, page 488.

38. The information sought by the Shirripa Evans letter of 8 October 2018, with one exception, was never provided by the Trustee.[92]  That exception was the financial statements and tax return of APMS for the 2018 financial year which appear to have been received by KCP.[93]

    [92] ts 194, 196 - 197.

    [93] Ex 252.

39. On 2 November 2018, Schirripa Evans wrote to Greg Solomon.[94]  Relevantly for present purposes, the letter recorded:

    1.that the Trustee had provided its financial statements and tax return for financial year 2018;

    2.that the financial statements for financial year 2018 was the only information provided by the Trustee which had been requested in Shirripa Evans letter of 8 October 2018;[95] and

    3.referred to a without prejudice meeting which had been held in Perth between at least Greg Solomon and David Schirripa on 22 October 2018.

    [94] Ex 252.

    [95] Ex 228.

40. Mr Ipsen issued a Notice dated 13 November 2018, convening a meeting of directors of APMS for 28 November 2018.[96]

    [96] Ex 60; it appears the Notice was dated 13 November 2018 it was circulated to directors sometime earlier as KCP's lawyers, Shirripa Evans had it, by at least 9 November 2018 as is apparent from Ex 59.

41. That Notice of Meeting stated the purpose of the meeting was to consider, relevantly, the following proposed resolutions:

    1.For the purpose of APMS deciding whether to take further steps leading to a possible Trustee redemption of all the Units in the APMS Unit Trust held by Karri Country Produce Pty Ltd ACN 127 165 477 as trustee of the Franceschi Trust ('the KCP Units'), the following steps are to be taken:

    …

    (b)A suitably qualified independent accountant ('the Expert') be appointed by the Chairman on terms considered appropriate by the Chairman to carry out a valuation of the KCP units for the purposes of a Trustee redemption of the KCP units ('the Valuation').

    …

    (d)If required by the Expert, Nexia be requested to provide any clarification requested by the Expert of the steps, procedures and reasoning that Nexia undertook and applied in preparing its valuation in June 2018.

    2.When received from the Expert, the Chairman or any other director nominated by the Chairman is to circulate the Valuation to all Board members and all APMS Unit Trust Unitholders ('the Unitholders') and convene a further meeting of directors of APMS to determine whether APMS should convene a meeting of the Unitholders to consider and, if thought fit, to pass a Special Resolution ('the Special Resolution') approving a Trustee Redemption Notice being issued by APMS to redeem the KCP Units for the amount of the Valuation ('the Trustee Redemption Notice').

    3.If the Special Resolution is passed, APMS shall immediately execute and serve the Trustee Redemption Notice.

    (emphasis added)

1. As highlighted above, the Notice referred to a possible trustee redemption of the KCP Units[97] and that, (if passed), the Trustee was to circulate the valuation to all directors and Unitholders when it was received.[98]

   [97] Ex 60 and the chapeau to resolutions 1(a) - (d).

   [98] Ex 60, resolution 2.

2. By letter dated 9 November 2018,[99] but sent on 16 November 2018,[100] Schirripa Evans on behalf of KCP wrote to the other directors of APMS responding to the Notice of Meeting dated 13 November 2018. 

   [99] Ex 59.

   [100] Ex 249.

3. On the same day as receiving the Shirripa Evans letter dated 9 November 2018 (i.e., 16 November 2018) Mr Crockett forwarded the email to Greg Solomon[101] (who was not an addressee of the Shirripa Evans email of 16 November 2018).

   [101] Ex 249.

4. Mr Crockett asked Greg Solomon a number of questions arising out of the Shirripa Evans letter of 9 November 2018.

5. No further information was given to KCP or to Shirripa Evans in response to that letter.

6. Mrs Franceschi attended the directors' meeting on 28 November 2018 and recorded the meeting without informing anyone that she was doing so.

7. That recording was tendered on a USB.[102] By consent, a complete transcript of the recording of that meeting was also tendered.[103]

   [102] Ex 229.

   [103] Ex 230; Ex 231.

8. Mr Crockett was away from Perth at the time.  Mr Crockett's evidence was that as he was to be away, he appointed Greg Solomon to Chair the meeting as his alternate.[104] 

   [104] Mr Crockett's Witness Statement Ex 247 [33]; ts 342, where Mr Crockett accepted in cross-examination that there was no power within the APMS Constitution for an absent Chair to appoint an alternate Chair - see cl 19.11 of Ex 1, pages 18 - 19.

9. At the meeting of directors on 28 November 2018, resolution 1(b) was passed with Mrs Franceschi voting against the resolution.[105]

   [105] Minutes of directors' meeting on 28 November 2018 Ex 63, page 517.

10. Resolution 1(d) was passed with Mrs Franceschi voting against the resolution.  The Minutes record the following:

    This resolution was read out.  Ms Franceschi objected to any involvement of Nexia in the process and said that the valuer must be independent and not involve Nexia.  The Chairman [Mr Solomon] ruled that the valuer does not have to get information from Nexia and that the resolution is only directed towards enabling the valuer to enquire from Nexia in relation to work that they had done if the valuer deems it appropriate.[106]

    [106] Minutes of directors' meeting on 28 November 2018 Ex 63, page 517.

11. Resolution 2 was passed unanimously.[107] 

    [107] Minutes of directors' meeting on 28 November 2018 Ex 63, page 518.

12. Resolution 3 was passed with Mrs Franceschi voting against it.[108]

    [108] Minutes of directors' meeting on 28 November 2018 Ex 63, page 518.

13. I find the following occurred at the meeting as set out in pars [101] to [105] below.

14. At close to the outset of the meeting Mrs Franceschi reserved all of KCP's rights regardless of what occurred at the meeting[109] which was accepted by Greg Solomon as Chair of the meeting.

    [109] Ex 231, page 95.

15. Greg Solomon as Chair made the following statements:

    … all of these resolutions are intended to be preliminary steps towards the purpose of APMS deciding whether to take further steps leading to a possible trustee redemption of all units in the APMS unit trust, filled by [KCP] … And this is for the purpose of moving to a more formal approach, what we have been talking about since April or May …

    …

    There is a formal procedure that is set forth under the unit trust deed and all we're doing is implementing that formal process[110]

    …

    The certain pathway is simply the procedures that were incorporated in the unit trust deed that says, if you get to a situation where its - you know, for whatever reason, that you want to pass a special resolution to redeem your units, there is a procedure, or to - not necessarily your units any unitholders' units. There's a special procedure.[111]

    …

    Look, in terms of this, just in terms of trying to come to a number, we can go down this process.

    …

    There is a process that the agreement spells out.  We can follow that process, and we can get to an end point.  And we can do it - we can have - and, you know, what you say in terms of looking at valuations is all correct.

    …but the agreement sets out certain procedures and as long as - if there is an independent valuer who puts the valuation - and which is what the unit trust requires, we have to go down that process.  We're all going to be stuck with it.  Whatever that valuation is, we're going to be stuck with it.  You're going to be stuck with it.  That's what the unit trust deed talks about …

    …

    Short of selecting the valuer, we've actually put forward the proposal to get, from a different accountant, a formal valuation in accordance with the terms of the unit trust deed.[112]

    [110] Ex 231, page 96.

    [111] Ex 231, page 100.

    [112] Ex 231, page 104.

16. In discussing Resolution 1(b), Greg Solomon as Chair said:

    …The idea is to try and get a valuation that has put all of these issues on the table.

    And that's what we're trying to do.  We're not trying to get to something that is only half resolving the issues … Because at the end of the day, the valuation is going to be binding.  You know, that's - whatever they value, come to, that's how [the] unit trust deed is structured.  It's not - you can't challenge it, that's it.

    …

    You know, every valuer works out their own view on this.  And we're simply doing it legally in accordance with the agreement.  So it may well be that the valuer doesn't want Nexia's advice on it ….[113]

    [113] Ex 231, pages 117 - 118.

17. Mrs Franceschi said she (for KCP) had asked for information going to the valuation and the requested items had not been produced.[114]

    [114] Ex 231, pages 96 - 99, 110, 112, 114, 122 - 123.

18. Mrs Franceschi indicated at a number of points that KCP had retained lawyers and had taken legal advice on its position.[115]

    [115] Ex 231, pages 95, 97, 99 - 100, 104.

19. I deal below with the significance and meaning of what was decided at this meeting.

20. Following the meeting, Greg Solomon sent draft minutes to, amongst others, Mrs Franceschi and Mr Crockett.[116]  The final minutes of that meeting reflected that draft.[117]

    [116] Ex 251.

    [117] Ex 63.

21. Following the meeting, Mrs Franceschi sent the minutes to Mr Taylor, a lawyer who was then representing her.[118]

    [118] ts 232.

22. On 19 December 2018, Mr Crockett sent an email to the other Unitholders (not KCP) and some others within APMS[119] where Mr Crockett stated:

    I agree with Will [French] that there are a number of strategic issues going forward that need to be addressed, however some of these will need consent/agreement from all of the Unit holders.  Hence the priory [sic] is to resolve the sale/purchase of the units owned by KCP.

    To this effect an updated valuation pursuit [sic] to the last Directors [sic] Meeting needs to be completed and a further Board Meeting held to resolve or otherwise the redemption of the KCP Units.[120]

    [119] Ex 64.

    [120] Ex 64, page 520; cf Mr Crockett's evidence in cross-examination, ts 345 ‑ 346.

23. Sometime after the meeting on 28 November 2018, Mr Crockett selected Sherif Andrawes of BDO Corporate Advisory (WA) Pty Ltd to conduct the valuation.[121]

    [121] Mr Crockett's Witness Statement Ex 247 [37].

24. On 15 January 2019, Mr Crockett emailed Mr Andrawes.[122]  The email said:

    … another Company that I am involved we now require a Valuation and was hopeful for your assistance.

    Can you please confirm agreement or otherwise?

    I wish to see you to provide instructions and would appreciate your available times this week?

    [122] Ex 65.

25. It appears that Mr Andrawes was away from his office and Stuart Moore, an associate director at BDO, responded to the email and a meeting was then arranged between BDO and Mr Crockett.

26. On 18 January 2019, there was a meeting between Mr Crockett and Stuart Moore and Matthew D'Opera (both of BDO).[123]  Following that meeting on that day, Mr Moore sent an email to Mr Andrawes (still out of the office),[124] including some notes from the meeting prepared by Mr D'Opera.[125] 

    [123] Ex 67; Ex 68.

    [124] Ex 67.

    [125] Ex 68; ts 349.

27. It appears from Mr Moore's email[126] that Mr Crockett gave Messrs Moore and D'Opera a copy of the Nexia Report.  Mr Crockett accepted that by the time Mr D'Opera's notes were being sent on to Mr Andrawes, that BDO had the Nexia Report.[127]  Mr Moore stated, '… we can utilise some of that info [from the Nexia report] so I was thinking $8K to $10K'.[128]  As will be returned to below (under Issue 3.2.1), KCP has asserted that BDO's independence was compromised by it being given the Nexia Report.

    [126] Ex 67.

    [127] ts 349.

    [128] Ex 67.

28. Mr D'Opera's notes under the heading of 'Current Assignment' recorded that 'APMS want to buy [Mrs Franceschi] out' and referred to the valuations in the Nexia report.  The notes then record:

    BDO are being engaged to conduct and 'independent' valuation, as Mr Crockett was previously a Partner at the firm which Nexia acquired, and thus previously worked with Mr Spooner.[129]

    [129] Ex 68.

29. On 21 January 2019, Mr D'Opera sent Mr Crockett an email.[130]  That email proposed a 'valuation fee in the range of $8k to $10k' and sought certain financial information, including the 'Unitholder Agreement'.[131]

    [130] Ex 70; Ex 71.

    [131] Ex 70.

30. Mr Crockett responded that same day by email and said:

    Does the quote allow for an independent valuation and not just an update of the previous valuation?

    It is important, as I noted at our meeting, that BDO apply their own interpretation and methodology in determining this valuation.[132]

    [132] Ex 70.

31. Mr Moore responded to that email on 21 January 2019 and said:

    Yes the quote is based on an independent valuation.  The existing report will be of assistance only in relation to providing some background information.[133]

    [133] Ex 71.

32. Mr Crockett, also by email on 21 January 2019,[134] said:

    I confirm acceptance of your valuation quote …

    [134] Ex 71.

33. On 23 January 2019, BDO sent an engagement letter signed by Mr Andrawes to Mr Crockett.[135]

    [135] Ex 72; that was signed and returned to BDO by Mr Crockett on 1 February 2019, page 550.

34. The Engagement Letter stated:

    1.PURPOSE

    You have requested BDO to provide a valuation of APMS.  We understand this valuation is for the purpose of providing a fair value of the units of APMS.

    2.SCOPE OF ENGAGEMENT

    You have requested BDO to provide a valuation of APMS to be used for the purpose only of providing a fair value of the units of APMS.  We understand that the valuation will be in accordance with the provisions of the Unitholders Agreement.

    …

    4.TIMING

    …

    We will commence our work immediately upon receipt of the following information, as agreed on 21 January 2019:

    …

    ·    Unitholders Agreement

35. On 24 January 2019, there was an APMS management meeting attended by Mr Crockett and other Unitholders, but not the Franceschis.[136]

    [136] Ex 64.

36. Following that meeting, Mr Crockett told Mr French and Mr Ipsen that he had chosen BDO to perform a valuation of KCP's units in the Trust.[137]  I note that no retainer had at that time been entered into by the Trustee with BDO.

    [137] Witness Statement of Mr Crockett Ex 247 [46] - [48].

37. Mr Crockett did not inform KCP or the Unitholders associated with Greg or Doug Solomon at this point that he had chosen BDO to perform the valuation.

38. On 1 February 2019, Mr Crockett signed and returned BDO's engagement letter.[138] 

    [138] Ex 72 (Mr Crockett signing as Chair at page 550).

39. Mr Crockett accepted in cross‑examination,[139] and I find, that at this time he had not read the Trust Deed provisions as to the redemption process,[140] and was not aware of the requirements in cl 10.2 of the Trust Deed.[141]

    [139] ts 351.

    [140] ts 351.

    [141] ts 351.

40. On 7 February 2019, Mr D'Opera emailed Mr Crockett an Excel spreadsheet titled 'P&L Commentary.xlsx'.[142]  The spreadsheet had 'a few line items' highlighted on it and Mr Crockett was asked to:

    … provide some comments around these items so that we can determine the extent to which they are not part of normal ongoing operations and so for which a normalisation adjustment may be required'.[143]

    [142] Ex 82; Ex 83.

    [143] Ex 82.

41. On 14 February 2019, Mr Crockett responded with responsive comments (which had been prepared by Robert Musitano) in the spreadsheet.[144]  Mr Crockett's email said that he would ring Mr D'Opera 'shortly' and said:

    I note that your spreadsheet only includes APMS figures and is not consolidated by including FPA and AEC.[145] 

    [144] Ex 84; Ex 85.

    [145] Ex 83, page 665.

42. On 18 February 2019, Mr D'Opera sent an email to Mr Crockett.[146]  From the email, it appears there was a telephone conversation between Mr Crockett and Mr D'Opera on 18 February 2019.  Mr D'Opera's email also sought:

    … separate management accounts for the 6m to 31 Dec 2018 for APMS, FPA, and AEC as well as the consolidated accounts you have already provided.  Similarly for the 6m forecast of 30 June 2019.[147]

    [146] Ex 86.

    [147] Ex 86, page 675.

43. Mr Musitano responded on that day with an email and four attachments.[148]

    [148] Ex 86; Ex 87; Ex 88; Ex 89; Ex 90.

44. Emails passed between Mr Moore (BDO) and Mr Crockett on 19 February 2019[149] concerning the 'financials for FPA'.

    [149] Ex 91.

45. On 19 February 2019, BDO (by email sent by Mr D'Opera) provided a 'factual accuracy draft' report for Mr Crockett's review and comment.[150]  The covering email noted that all sections relating to value had been removed.[151]

    [150] Ex 92; Ex 93.

    [151] Ex 92.

46. The factual accuracy draft:

    1.stated that BDO had been engaged to provide a valuation report on the business of APMS;[152] 

    2.identified five sources of information,[153] but did not refer to the Trust Deed at all, or to any specific provisions of the Unitholders' Agreement;

    3.stated the 'purpose of valuation' as being 'required to assess the fair value of the units of APMS, in accordance with the provisions of the Unitholders' Agreement';[154] and

    4.noted that the business operated via a trust 'constituted by a Trust Deed dated 13 October 2007' and noted that the Trustee was APMS.[155]

    [152] Ex 93, page 679.

    [153] Ex 93, page 681.

    [154] Ex 93, pages 679, 686; The Unitholders Agreement was also referred, page 683.

    [155] Ex 93, page 688.

47. Throughout the draft, certain items were highlighted with requests made, effectively, for the Trustee to provide further information or confirm information included.

48. On 22 February 2019 (at 2.42 pm), Mr Moore sent an email to Mr Andrawes which attached an 'updated report following feedback from client'.[156]  The email went on to say that the attachment was:

    Named as a final draft but I think it could be final if you are okay.

    The only real issue from the client was in relation to how we treated FPA (we have clarified the wording for what we did) and to the weight we put on FY19 (again we have amended the words but now the client will see our selected FME range I don't think this will be an issue).  Otherwise it was just some of the background and reconciling a couple of figures.[157]

    [156] Ex 94.

    [157] Ex 94.

49. The attached draft[158] was marked up with changes (when compared with the draft, presumably sent on 19 February 2019).[159]

    [158] Ex 95.

    [159] Ex 93.

50. On 22 February 2019, BDO sent a report (by email from Mr Moore) to Mr Crockett (February 2019 Report).[160]  Mr Moore's email said:

    Please find attached our valuation report in final following receipt of your feedback on the factual accuracy of the draft.[161]  (emphasis added)

    [160] Ex 97; Ex 98.

    [161] Ex 97.

51. There was nothing on the face of the February 2019 Report, nor in the email which sent it, to suggest that it was anything other than a final report. 

52. Mr Andrawes, the author, accepted in cross-examination that the report was final[162] and, further, that his evidence‑in‑chief[163] (that this draft report) did not match the contemporaneous documents and was 'just wrong'.[164]  I find that BDO issued the February 2019 Report as a final report. 

    [162] ts 301 - 302.

    [163] Witness statement of Mr Andrawes Ex 246 [26] - [27].

    [164] ts 302.

53. In the February 2019 Report, BDO identified the 'future maintainable earnings methodology' as the most appropriate methodology to value the fair market value of APMS from a number of methodologies available to assess the value of a business.[165]

    [165] Ex 98, page 800.

54. By emails on 26 February 2019, Mr Crockett forwarded the February 2019 Report to Messrs Ipsen and French (at 10.06 am) and Greg Solomon (at 10.08 am).[166]  Mr Crockett's email said:

    Attached is the Valuation Report from BDO.  It does not consider a minority equity sale nor the likely discount.

    I will endeavour to have BDO address this issue and include in their report.

    Your thoughts or comments would be appreciated.[167]

    [166] Ex 99A.

    [167] Ex 99A.

55. On 26 February 2019 (at 10.14 am), Mr Crockett emailed Mr Moore of BDO.[168]  Mr Crockett said in that email:

    Can you please include in your report the value if one of the 25% equity holders wished to sell their units.  What would be the discount for the sale of a minority interest?

    [168] Ex 99.

56. Mr Crockett did not send the February 2019 Report to KCP at that time, and it appears that KCP only received it through these proceedings.

57. The question of the Trustee not sending BDO reports to KCP, including the February 2019 Report will be returned to below.

58. Later that day (at 12.10 pm) Greg Solomon, with a copy to Doug Solomon, (whose associated Unitholder Marchbells had not been included in Mr Crockett's emails earlier that day) responded for himself and Doug Solomon.[169]

    [169] Ex 99A.

59. Greg Solomon's email on 26 February 2019 at 12.10 pm,[170] stated:

    We think the only question to ask the valuer is to nominate a precise value, rather than a range of values, of the Redeemed Units under clause 8.3 of the Trust Deed, for the purpose of a possible compulsory redemption.

    The Trust Deed does not include a provision for a minority discount where the purchase is a compulsory redemption being made by the Trustee, and in our opinion is not a discount that will apply if we proceed … (emphasis in the original).

    [170] Ex 99A.

60. Mr Crockett responded to Greg Solomon and said, 'I will action today'.[171]

    [171] Ex 99A, page 1 (26 February 2019 at 12.50 pm).

61. Notwithstanding Mr Crockett's statement in that email, Mr Crockett did not communicate Greg Solomon's views to BDO before BDO issued a further Report on 6 March 2019. 

62. On 26 February 2019 at 2.24 pm Mr Ipsen sent an email in which he commented on the February 2019 Report and said:

    … It is in the high range of my expectation, although the original valuation by NEXIA was surprisingly low.

    In the interests of getting this done, I would be comfortable in the mid range of this valuation providing there is a consensus amongst APMS Unit holders.[172]

    [172] Ex 102A.

63. In response to that email, Mr Crockett on 26 February 2019 (at 4.46 pm) wrote to the other Unitholders:

    I am comfortable with the valuation subject to William Wemyss (sic) agreement.  I have also asked that the Accountants (BDO) to provide a value for a 25% equity and the discount that they may apply for a minority interest.[173]

    [173] Ex 102A.

64. I find that by no later than the time of the last of these emails on 26 February 2019, the Trustee had given details of the valuer to all Unitholders, except for KCP.

65. I find the following from the emails (with the attachment) passing between Mr Crockett and the other Unitholders on 26 February 2019:

    1.KCP was not included and did not receive a copy of the February 2019 Report;

    2.by no later than this date, all Unitholders (except KCP) were given the details of the valuer appointed; and

    3.the other Unitholders were afforded an opportunity to comment, or make submissions on the February 2019 Report, which was not afforded to KCP.

66. On 6 March 2019, by email (sent by Mr Moore)[174] BDO provided a report to Mr Crockett (6 March 2019 Report).[175]  Mr Moore said in his email that he was attaching an 'amended report as requested'. 

    [174] Ex 100.

    [175] Ex 101.

1. Again, there was nothing in the 6 March 2019 Report nor the covering email to suggest that the report was anything other than final.  I find that BDO intended for it to be final and that it was a final report.  Mr Andrawes in cross‑examination accepted that was the position.[176]

   [176] ts 302 - 303.

2. Mr Andrawes' evidence was that a final report had been prepared on 22 February 2019 and there was then a change of scope by the client and so a further final report was issued as the 6 March 2019 Report.[177]

   [177] ts 303.

3. The 6 March 2019 Report[178] was not marked up to show amendments to the earlier report of 22 February 2019.[179]  However, in the Executive Summary there was a new sixth bullet point included in the 'Valuation'[180] which stated:

   We have assessed the value of a 25% interest in APMS in the range from $1.22 million to $1.76 million with a midpoint value of $1.49 million.  This range is based on applying a discount for minority interest to the pro‑rata value; however we note that in the circumstances of a forced sale, the application of such a discount may be considered as unfair to the minority shareholder.

   [178] Ex 101.

   [179] Ex 98.

   [180] Ex 101, page 834.

4. So it may be seen, and I find, that the 6 March 2019 Report responded to Mr Crockett's earlier email asking for BDO to include the value for 25% of equity and any discount for such a minority interest.

5. On 11 March 2019, Mr Ipsen, by email (copied to all Unitholders except KCP) asked whether Mr Crockett had received a 'precise valuation for Jennie/Wayne share of APMS yet?'[181]

   [181] Ex 102A.

6. In response (by email at 5.33 pm on 11 March 2019) Mr Crockett said he was sending the 6 March 2019 Report to the other Unitholders, describing it as 'the final adjusted Valuation for APMS as completed by BDO'.[182]  Mr Crockett invited 'comments and input'.[183]

   [182] Ex 102A.

   [183] Ex 102A.

7. It appears that Mr Crockett did not attach the 6 March 2019 Report to that email as on 12 March 2019 (at 9.27 am), Mr Crockett sent another email with the 6 March 2019 Report to Mr Ipsen, Mr French, Greg Solomon and Mr Wemyss.[184]

   [184] Ex 102.

8. On 12 March 2019, by email at 5.15 pm, Mr Ipsen said that he was comfortable with the valuation and asked some questions.[185]

   [185] Ex 102.

9. On 13 March 2019, by email at 7.08 am, Mr French, made comments on the 6 March 2019 Report.[186]  Clearly, Mr French (as Mr Ipsen had been) was concerned with what the total payout to KCP might be and proposed, as a way of reducing that total figure, that '[t]he profit for this year should be minimised as much as possible also'.[187]

   [186] Ex 102, page 875.

   [187] Ex 102, page 875.

10. Mr Crockett responded by email later on 13 March 2019 (at 3.50 pm)[188] where he:

    1.questioned whether APMS should apply a minority discount and sought Greg and Doug Solomon's views;

    2.agreed that a value for [KCP's] Units must comply with the Unitholders' Agreement;

    3.made some observations as to other sums which may go into the total payout figure; and

    4.welcomed 'comment as to my understanding and interpretation of this matter'.[189]

    [188] Ex 102, pages 874 - 875.

    [189] Ex 102, page 875.

11. Greg Solomon, later again on 13 March 2019 (at 8.57 pm), emailed all the other Unitholders, and:

    1.said that he and Doug Solomon were of the opinion it would be unwise to pursue a 25% minority discount;

    2.commented on KCP's entitlements;

    3.expressed his and Doug Solomon's belief that a special resolution to redeem KCP's units should happen at the mid-point of the valuation;

    4.said that he and Doug Solomon agreed that KCP's actions had been deplorable;

    5.discussed the possibility of not redeeming KCP's units if the remaining Unitholders did not want to pay the mid-point of the valuation; and

    6.said that he and Doug Solomon firmly believed that the Unitholders should 'get rid' of KCP as soon as possible.[190]

    [190] Ex 102, page 874.

12. It might almost go without saying, but I find that KCP was not involved in any of these email exchanges and was not given an opportunity by the Trustee to consider or comment on the 6 March 2019 Report.

13. I find the following, including from the emails (with attachment) passing between Mr Crockett and the other Unitholders on 12 and 13 March 2019, that:

    1.KCP was not included and did not receive a copy of the 6 March 2019 Report at that time;

    2.other Unitholders were afforded an opportunity to comment, or make submissions, on the 6 March 2019 Report, which was not afforded to KCP; and

    3.Mr Crockett still had not, at that time, read the Trust Deed, in so far as it provided for redemptions.[191]

    [191] ts 357.

14. About a week before 26 March 2019 there was a meeting between Mr Hewett and Mr Crockett.[192]  I find that Mr Crockett asked Mr Hewett in that meeting:

    … whether in the redemption process it would be permissible to apply the 25% discount proposed by BDO to be applicable to a minority interest in the Trust.

    [192] See Mr Hewett's email to Mr Crockett of 26 March 2019, Ex 103.

15. 0

16. I find that the Trustee, by Mr Crockett, was advised by its external solicitor, Mr Hewett, at this time that:

    1.the 25% discount in the 6 March 2019 Report was not in accordance with the Trust Deed;

    2.the BDO valuation was not in accordance with the Trust Deed, particularly cl 10.5; and

    3.the 6 March 2019 Report would not allow a valid redemption process in numerous aspects.

17. On 26 March 2019 (at 1.45 pm), Mr Crockett forwarded Mr Hewett's email to Mr Moore,[193] and said:

    Please see advise [sic] from our Lawyer regarding suggested changes to the Valuation.  Can you please review and make any alterations accordingly.[194]

    [193] Ex 104.

    [194] Ex 104.

18. Mr Crockett accepted in cross‑examination that by that email he was telling BDO to review the 6 March 2019 Report and fix whatever was wrong with it as identified by Mr Hewett.[195] There was no evidence of Mr Crockett otherwise engaging with Mr Hewett's advice on the 'short  comings' of BDO's 6 March 2019 Report.

    [195] ts 361 - 362.

19. On 26 March 2019, the Trust Deed was sent to BDO by Mr Forster at Mr Crockett's request.[196] 

    [196] Ex 105; Ex 106.

20. It is common ground, and I find, this is the first time that BDO had the Trust Deed.[197]

    [197] ts 77, 89, 540 - 541.

21. On 29 March 2019 (at 4.12 pm), Mr Crockett sent an email to Mr D'Opera asking him to let Messrs Moore and Andrawes know that 'my lawyer will be ringing early next week to discuss the changes to the APMS Valuation'.[198]

    [198] Ex 107.

22. Mr D'Opera responded on 29 March 2019 (at 4.46 pm) to Mr Crockett, telling him that BDO had made some changes to the report and was currently completing an internal review.  Mr D'Opera then said:

    We will forward an updated copy early next week and will discuss with your lawyer once he has seen the updated version.[199]

    [199] Ex 107.

23. On 31 March 2019, Mr Crockett emailed Mr Hewett (at 12.57 pm)[200] forwarding Mr D'Opera's email of 29 March 2019.[201]  Mr Crockett asked Mr Hewett to ring Mr Andrawes or Mr Moore 'to discuss and agree the valuation points you have raised in your previous email to me'.[202] 

    [200] Ex 112.

    [201] Ex 108; Ex 112.

    [202] Ex 112.

24. On 1 April 2019, by email[203] from Mr Moore, BDO, provided a report (dated 29 March 2019)[204] to Mr Crockett.  Mr Moore described the attachment as 'an updated copy of our valuation report following receipt of comments from John Hewett'.[205]  There was no evidence as to what comments (of Mr Hewett) Mr Moore was referring to.  It appears that neither Mr Hewett nor anyone at BDO kept a note[206] of that telephone conversation and there is no evidence as to what was discussed other than that which was recounted in Mr Hewett's email.[207]

    [203] Ex 108.

    [204] Ex 109.

    [205] Ex 108.

    [206] I infer that Mr Hewett did not keep a note from the fact that he was the Trustee's solicitor and no such note has been discovered by the Trustee in these proceedings.

    [207] Ex 115; Mr Andrawes' evidence at ts 306.

25. Neither Mr Moore's email, nor the attached report of 1 April 2019, expressed that the report was in draft.

26. On 2 April 2019 (at 8.35 am), Mrs Franceschi (for KCP) sent[208] to the other Unitholders a letter dated 26 March 2019.[209]  This letter will be returned to below.

    [208] Ex 110.

    [209] Ex 111.

27. Mr Hewett responded by email (at 10.48 am) on 2 April 2019 (copying in Messrs D'Opera, Moore and Andrawes) to Mr Crockett's email (of 31 March 2019 at 12.57 pm),[210] and said to BDO:

    what might be most efficient would be if you could send through the revised valuation in draft for me to see whether I believe it addresses the requisite legal issues, and then I can call to discuss if there is any further attention required to it.  That would avoid potentially having a 2nd formal valuation issued that didn't quite fit the bill.[211]

    [210] Ex 112.

    [211] Ex 112.

28. On 2 April 2019, BDO (by email from Mr Moore at 11.47 am)[212] provided a further report to Messrs Crockett and Hewett also dated 29 March 2019,[213] which Mr Moore described as a:

    pdf version of the revised report in final draft format with all the changes to the 6 March version highlighted in yellow.

    [212] Ex 113.

    [213] Ex 114.

29. The attached draft did mark up amendments.[214]

    [214] Ex 114.

30. Later on 2 April 2019 (at 3.10 pm), Mr Hewett emailed Mr Andrawes,[215]  and said:

    Further to our telephone discussion just now, I confirm that my sole point of concern is whether or not the premise of the valuation reached of $2,162,500 is that the unitholder being redeemed will also fairly in addition be paid out whatever their loan account balance is.  That is what will legally be required because it is indisputably a debt owing, so I want to be confident that the value attributed to the units is calculated exclusive of that loan account balance, so there is not duplicated compensation.

    everything else that has been amended is great - comprehensively addresses the points of concern I previously noted.  Just one minor thing appears to have been missed being the first bullet point on page 33 where there is a continued reference to the unit holders agreement, which I suggest should be updated to be a reference to the trust deed

    [215] Ex 115.

31. From Mr Hewett's email of 3 April 2019 at 12.32 pm it appears there was a further telephone conversation between Mr Hewett and Mr Moore on 3 April 2019.[216]  Again, it does not appear that Mr Hewett nor Mr Moore kept a note of that telephone conversation. Mr Hewett's email says that he is 'looking forward to receiving a revised version of the valuation'.

    [216] Ex 118, page 1110.

32. On 3 April 2019 (at 12.57 pm or 12.58 pm) Mr Moore by email sent to Mr Hewett an 'updated draft valuation'.[217]

    [217] Ex 116, page 1057; Ex 118, page 1110.

33. Mr Hewett responded (with a cc to Mr Andrawes) by email on 3 April 2019 at 3.15 pm,[218] and said the updated draft was 'excellent' and went on to say:

    It would give great comfort to the directors I'm sure if you could make what is implicit explicit in the valuation itself, perhaps on page 28 where you discuss your method of assessing the equity value.  ideally [sic], your statement in this regard would use wording similar to that used in clause 8.13, something along the lines of 'the enterprise value of the Business assessed in this manner, and consequently the equity value of APMS, takes into account net income for the current financial year that has accrued as at valuation date'.[219]

    [218] Ex 118, page 1110.

    [219] Ex 118, page 1110.

34. On 3 April 2019 at 3.48 pm, by email[220] to Mr Hewett (with a cc to Messrs Andrawes and Crockett) Mr Moore 'attached valuation report dated 3 April in final format' (April 2019 Report).[221]

    [220] Ex 119.

    [221] Ex 120.

35. It is common ground that this is the only BDO report which complies with cl 10.5 of the Trust Deed.[222]

    [222] ts 152 - 153.

36. The April 2019 Report reflected the change[223] which Mr Hewett had proposed in his above email of 3 April 2019 at 3.15 pm.[224]

    [223] See at Ex 120, page 1150.

    [224] Ex 118.

37. Mr Crockett's evidence was that he considered the April 2019 Report to be final and that there was nothing more to be done and nothing more to be considered.[225]

    [225] ts 389.

38. On 8 April 2019, Mr Hewett emailed Mr Crockett[226] with a series of draft documents including draft notices convening directors' meetings of APMS and the Unitholders.

    [226] Ex 122.

39. It appears Mr Crockett sent Mr Hewett's draft documents to Greg Solomon by email on 15 April 2019 at 11.29 am.[227]

    [227] Ex 131, page 1236.

40. On that same day, about one hour, later Greg Solomon sent the email and drafts onto Doug Solomon.[228]

    [228] Ex 131, page 1236.

41. The draft documents prepared by Mr Hewett were supplied by Mr Crockett to Greg Solomon by email and sent on to Doug Solomon (both of whom are practising lawyers) for review.[229]

    [229] Ex 131; which was referred to in Mr Moore's email.

42. On 15 April 2019 (at 11.46 am) Mr Crockett emailed Mrs Franceschi seeking confirmation of her availability for an APMS directors' meeting on 6 May 2019 at 10.30 am, to be followed by a meeting of Unitholders and asking whether she was agreeable for those meetings to be held in Perth rather than Manjimup.[230]  Mrs Franceschi replied (at 12.37 pm) to confirm that Perth was suitable for them and they would be around for the meeting.[231]

    [230] Ex 130.

    [231] Ex 130.

43. Doug Solomon made comments on the drafts by email on 15 April 2019 at 1.49 pm,[232] and Greg Solomon forwarded that response to Mr Crockett who, in turn, forwarded it to Mr Hewett[233] at 3.33 pm.

    [232] Ex 131, page 1235.

    [233] Ex 131, page 1235.

44. Mr Hewett responded to Mr Crockett's email on 15 April 2019 at 3.53 pm.[234]  In that email, Mr Hewett:

    1.provided a draft email for Mr Crockett to send to Unitholders: in that draft Mr Hewett included the following 'As discussed, the purpose of the meeting is to deal with the issue of the redemption of the KCP units at fair value';[235] and

    2.said: 'As we discussed, the objective is to get them to agree short notice in principle, and then submit the papers to them'.[236]

    [234] Ex 132.

    [235] Ex 132, page 1237.

    [236] Ex 132, page 1237; ts 94.

45. Later, on 15 April 2019 (4.34 pm), Mr Crockett emailed Mrs Franceschi and the other directors.[237]  The email sought confirmation that the Unitholders were agreeable to an Extraordinary General Meeting of the Unitholders taking place 'at short notice immediately following the conclusion of the Directors [sic] meeting?' called for 6 May 2019.[238]  This email mostly followed Mr Hewett's draft provided earlier that day.[239]

    [237] Ex 133.

    [238] Ex 133.

    [239] Ex 132.

46. As submitted by KCP, [240] Mr Crockett's email, however, did not include a statement as to the purpose of the meeting notwithstanding that had been in the draft provided by Mr Hewett.[241]

    [240] ts 94.

    [241] Ex 132, page 1237 with Ex 133; ts 94 - 95.

47. Mrs Franceschi emailed Mr Crockett on 15 April 2019 (4.38 pm) confirming that KCP agreed to hold the Unitholders' EGM as discussed.[242]

    [242] Ex 134.

48. Greg and Doug Solomon indicated to Mr Crockett that neither of them would be available to attend the meetings on 6 May 2019[243] and Mr Crockett requested Mr Hewett to prepare proxy forms for them in favour of Mr Ipsen.[244]

    [243] Ex 131, page 1235.

    [244] Ex 136, page 1246 by email 16 April 2019 at 11.37 am.

49. On 17 April 2019 Mr Hewett sent to Mr Crockett proxy forms 'for all of the other unit holders apart from KCP'.[245]  Mr Hewett's email went on to state:

    [245] Ex 136, page 1245.

    As for KCP itself, you will observe in the template proxy form that is attached to the notice of meeting that it states that any authorised officer of the company who is a unitholder can sign the proxy form.  That would allow Jennifer Franceschi to sign the proxy form on behalf of KCP and then vote on its behalf at the EGM, and you should encourage her to do so and discourage any objection to KCP being given a vote.  The resolution doesn't require a unanimous passage to be effective, so KCP can vote against it and it will still pass.

    As discussed, strictly to convene an EGM you need to give 14 days notice, and this should only happen after the directors have resolved to do so.  So the only viable way to hold both the directors meeting and the EGM on the same day is if the unit holders unanimously agree to hold the meeting at short notice.  You indicated that all had foreshadowed that they would do so, including KCP. It's vital to proper process that this actually happen.

    The meeting papers have been adjusted to reflect this revised arrangement.

    Attached are the following (in addition to the proxy forms):

    *a notice of the directors meeting

    *draft notice of EGM

    *draft notice of redemption

    *draft minutes of the directors meeting

    The notice of the directors meeting contemplates that the drafts of the notice of EGM and the notice of redemption will accompany it.  A copy of the BDO valuation of 3 April should also accompany it

    When it is eventually issued, both the notice of EGM and the notice of redemption should also be accompanied by a copy of the BDO valuation.  

    The sequence of events would be as follows:

    1. convene the directors meeting, including provide copies of relevant papers

    2. hold the directors meeting and resolve to redeem subject to approval by unit holders

    3.hold the EGM, and get the resolution of approval passed

    4.issue the notice of redemption (this could be handed to Mrs Franceschi as a director of KCP, but I would recommend that it also be separately forwarded by email. In the absence of receiving specific instructions as to KCP's current address, I have used the address set out in the most recent document that was signed by unit holders being the subscription agreement in 2014)

    5.within 7 days of the issue of the notice redemption redeem the units and pay the purchase price plus repay the loan account balance

    6.within a reasonable time finalise and issue minutes of the directors meeting and the Unitholders' meeting[246]

    [246] Ex 136, page 1245; ts 96.

50. On 18 April 2019, Mr Crockett sent to Mrs Franceschi an email at 1.06 pm[247] which attached:

    1.Notice of meeting of the Trustee's directors to be held on 6 May 2019 at 10.30 am;[248]

    2.Notice of Unitholders' meeting to be held on 6 May 2019;[249]

    3.the April 2019 Report;[250] and

    4.proxy form in respect of a meeting of the Unitholders of the Trust.[251]

    [247] Ex 152.

    [248] Ex 154.

    [249] Ex 143.

    [250] Ex 153.

    [251] Ex 155.

51. Mrs Franceschi's unchallenged evidence was that she was unable to open the April 2019 Report (attached to Mr Crockett's email) on her iPhone on 18 April 2019.[252]

    [252] ts 175.

52. The email from Mr Crockett to Mrs Franceschi on 18 April 2019 included a statement that:

    The independent Valuation has been completed by BDO Accountants which shows a value for the Units held by KCP to be $412,500.00.  The Board of APMS will need to resolve at the next meeting (6th May, 2019) to pay to KCP the loan account balance of $1,714,998.55.  Both amounts, subject to approval, should be paid within 7 days of the conclusion of the EGM.[253]

    [253] Ex 152, page 1329.

53. Similar emails were sent to the other directors.[254]

    [254] For example, Ex 156.

54. Mr Crockett's email[255] (with attachments) on 18 April 2019 was the first time the Trustee gave KCP details of the valuer.  The Trustee did not contend otherwise. 

    [255] Ex 152.

55. The attached Notice of directors' meeting under the heading of 'Corporate Governance' stated the business to be:

    Proposed redemption of Karri Country Produce Units

    i.adoption of BDO valuation

    iiconvening EGM of Unit holders (draft attached)

    iiiissue of Trustee Redemption Notice (draft attached)[256]

    [256] Ex 154, page 1378.

56. The attached draft Notice of Unitholders' EGM[257] contained one resolution which was headed 'Redemption of Units' and stated:

    To consider, and thought fit, to pass the following resolution as a special resolution -

    'To approve the redemption by the Trustee of the 300 Ordinary Units in the Trust held by Karri Country Pty Ltd ACN 127 165 477 as trustee for The Franceschi Trust redeemed at a price of $412,500.00 ($1,375.00 per unit)'.[258]

    [257] Ex 154, page 1379.

    [258] Ex 154, page 1379.

1. I do not accept that before equity would grant KCP its remedy (consequential orders on the declaration that it effectively remained a Unitholder) it would require KCP to repay the two amounts it received on 10 May 2019.

2. That is, in circumstances where a further consequence of such orders would be that the Trustee has to account for the distributions which it ought, but has not, made to KCP.

3. I consider, rather, the true position (subject to pars [716], [717] below) to be that equity would allow either of the two 'matchings' I set out above.  That is the consequential orders on KCP being recognised as a remaining Unitholder would or could deal with the repayment by KCP of the two amounts (paid to it on 10 May 2019) at the same time as the reckoning of the distributions it ought to have received.

4. I have had regard to the confidential exhibits which are the financial statements for the year ended 30 June 2020,[634] 30 June 2021,[635] 30 June 2022,[636] and 30 June 2023.[637]

   [634] Ex 202C.

   [635] Ex 205C.

   [636] Ex 206C.

   [637] Ex 232C.

5. It seems to me, with respect, that there is a misapprehension in KCP's further submissions.  When one has regard to the financial statements for those years which include two loss making years, it appears that the Trustee has distributed only profits as per cl 9.3 of the Trust Deed but in the year that it has distributed profits, it does so after it has deducted a loss from a previous year or years.

6. So, whether one adopts the net position put by the Trustee in its written closing submissions [152] or only provides for KCP to receive the distribution from the profit making years, it appears to me that the result will be the same.

7. What is not apparent to me from the financial statements in evidence is whether the distributions to the other Unitholders in the years since KCP was a Unitholder have been in cash or have simply been applied to the benefit of the particular Unitholder through its loan account with the Trustee.

8. I consider that it is a matter on which I would need further information if the parties could not agree on that position.

9. Further, it seems to me that KCP's contention that it is entitled to know what has occurred with APMS's wholly owned subsidiaries and how they have been accounted for - whether on a consolidated or separately financially recorded basis - is reasonable and ought occur.

10. However, I do not think that a full account needs to be ordered in front of another judicial officer to achieve that.  It seems to me that in light of these reasons the Trustee ought provide that further financial information sought by KCP, and that the parties once fully informed could fashion orders to give effect to these reasons.

Issue 14

1. As seen above, I have rejected the Trustee's defences under Issues 9 and 11.  I do not need to deal with the contention made that the Trustee lacked 'clean hands' which barred its reliance on its asserted equitable defences.

Disposition

1. In short, I have found that the Trustee acted beyond power in issuing the Trustee Redemption Notice and that the Notice was invalid and of no effect.

2. Consequently, KCP is entitled to a declaration that it remains a Unitholder of the Unit Trust.

3. I find that the Trustee's defences fail.

4. I consider that the parties in light of these reasons ought be able to agree final orders (even if further financial information needs to be provided by the Trustee to KCP about the subsidiaries).

5. I will, accordingly, hear the parties as to the form of the orders to give effect to these reasons.

ANNEXURE A

Relevant provisions of the Trust Deed

1. The relevant provisions of the Trust Deed[638] are:

   [638] Ex 2.

   8.REDEMPTION OF UNITS[639]

   [639] The headings from the Trust Deed have been included as has any highlighted text, notwithstanding that clause 1.6 of the Trust Deed provides, in part 'clause headings and highlighting of text shall not affect the interpretation of this Deed…'.

   8.1Any Unitholder (Retiring Unitholder) may:

   …

   (b)receive a written notice from the Trustee that the whole or any part of their Unit holding is to be redeemed (Trustee Redemption Notice).

   8.2Any redemption is to be conditional upon the approval by Special Resolution.

   8.3A Trustee Redemption Notice or a Redemption Notice are to specify the number, class of Units (the Redeemed Units) and the price at which the Units are to be redeemed.  If no redemption price is stated in a Redemption Notice, or the price stated is the value placed upon the Redeemed Units by a valuer appointed by the Trustees, or the value stated in the Redemption Notice is not acceptable to the Trustees, the Trustees are to have the Redeemed Units valued.

   8.4Following a Redemption Notice, the cost of the valuation is to be the sole responsibility of the Retiring Unitholder.  It is intended that the Trustees will seek a quote before the valuation is started and the quote given to the Retiring Unitholder.  The Retiring Unitholder is to pay to the Trustees the amount stated in the quote within fourteen (14) days of receipt of the quote.  If these moneys are not paid by the due date, the Redemption Notice is deemed to be ineffective.  If a valuation of the Trust Fund has been carried out within three (3) months preceding the Redemption Notice, that valuation may be used by the Trustees and the Retiring Unitholder is not required to pay any amount towards the cost of the valuation.

   8.5Upon receipt of the valuation, the Trustees are to provide a copy to each of the Unitholders.

   8.6Following a Redemption Notice, upon receipt of the valuation, the Retiring Unitholder has seven (7) days to withdraw the Redemption Notice, by written notice to the Trustees.

   8.7If the Retiring Unitholder does not withdraw the Redemption Notice, the Trustees may give the Retiring Unitholder written notice of their intention to redeem the Redeemed Units within sixty (60) days of the valuation for a price equal to the lower of the valuation and the price nominated in the Redemption Notice (the redemption price).

   8.8The Trustees must pay the redemption price within thirty (30) days of the Trustees giving written notice to the Retiring Unitholder of their intention to redeem the Redemption Units.

   8.9Before issuing a Trustee Redemption Notice, the Trustees must obtain a valuation of the Units to be redeemed. Upon receipt by a Retiring Unitholder of a Trustee Redemption Notice, the Redeemed Units shall be deemed to be redeemed as from the expiration of seven (7) days from the date of service of the Trustee Redemption Notice.

   8.10For the purpose of paying to the Retiring Unitholder the value of the Redeemed Units, the Trustees may in their absolute discretion do any or all of the following:

   (a)realise any of the Investments;

   (b)borrow such moneys as shall be necessary;

   (c)pay out of the Trust Fund any moneys in the hands of the Trustees whether or not received or held or deemed to be income or being cash contributed to the Trust Fund by the issue of further Units or whether representing the proceeds of sale of any investments of the Trust Fund;

   (d)set aside, transfer distribute vest or otherwise convey to the Retiring Unitholder any of the assets of the Trust Fund in specie, in whole or partial satisfaction of the amount due to the Retiring Unitholder upon the redemption of the Redeemed Units.

   8.11The Retiring Unitholder shall deliver his Unit certificate to the Trustees and the Unit certificate shall be cancelled.  The Trustees shall remove the name of the Retiring Unitholder from the register in respect of the Redeemed Units and the Trustees shall issue to the Unitholder a Unit Certificate relating to the balance (if any) of Units held by them.

   8.12Any Redeemed Units may be reissued by the Trustees as if they were an issue of additional or new units.

   8.13In addition to the value of the Redeemed Units the Trustees shall pay to any Retiring Unitholder that part of the net income of the Trust Fund which shall have accrued during the Financial Year in respect to the Redeemed Units to the extent that such income shall not have been accumulated or capitalised or otherwise taken into account in determining the value of the Redeemed Units.

   …

   10.VALUATION OF THE TRUST FUND

   10.1The Trustees may at any time, and must before issuing … a Trustee Redemption Notice pursuant to clause 8.1(b) …, commission a valuation of the Trust Fund by an independent account or other expert valuer (the Valuer). …

   10.2.The Trustees are to give all Unitholders details of the Valuer appointed to enable Unitholders to make submissions to the Valuer if they want to.  The Valuer is not obliged to either seek submissions from Unitholders or delay the valuation pending receipt of a submission.

   10.3The decision of the Valuer (who shall be deemed to be acting as an expert and not as an arbitrator), shall be final and binding upon all Unitholders.

   10.4A copy of the valuation report is to be provided to all Unitholders as soon as is reasonably practicable following receipt by the Trustees of the final draft.

   10.5The value of a Unit shall be determined by dividing the value of the assets of the Trust Fund less all liabilities by the total number of issued Units as at the date of the valuation.

   11.MEETINGS OF UNIT HOLDERS

   …

   11.2The Trustees may convene and Unitholders of not less than 10% of the issued Units may convene an extraordinary general meeting.

   11.3Fourteen (14) days' notice at the least (exclusive of the day on which the notice is served or deemed to be served but inclusive of the day for which the notice is given) of all general meetings specifying the place the day and the hour of meeting and in case of special business, the general nature of that business shall be given to the Unitholders.

   …

   11.14A resolution or consent in writing signed by all the Unitholders entitled to vote at a general meeting of Unitholders or of Unitholders of any class shall be as valid and effectual as if it had been passed at a duly called and constituted general meeting of Unitholders or of Unitholders of that class as the case may be. Any such resolution or consent may consist of duplicate copies of one document one of which copies shall have been signed by each Unitholder.

   12.PROXIES

   …

   12.2The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notorially certified copy of that power or authority shall be deposited with the Trustees not less than forty eight hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid.

2. I note that KCP contends that the Trustee's alternative arguments must fail because of cl 20.4 of the Trust Deed, which provides: 

   No waiver of any provision of this Deed nor consent to any departure from any provision, by any of the parties shall be effective unless the same shall be in writing and then such waiver or consent shall be effective only in the specific instance and for the purpose for which it is given.  No default or delay on the apart of any of the parties in exercising any rights, power or privileges pursuant to this Deed (together referred to as rights) shall operate as a waiver of any of those rights; nor shall a single or partial exercise of those rights preclude any other or further exercise of them, or the exercise of any other right, power or privilege.

3. Accounts and Audit cl 15.1 and 15.2

   15.1The Trustees hall keep a complete and accurate record of all receipts and expenditures on account of the Trust Fund.

   15.2Promptly after the close of each Financial Year the Trustees shall prepare a written accounting report (prepared in accordance with normally accepted accounting procedures ) for such a period consisting of a balance sheet and statement of income and expenditure and a list of assets held at the close of such period and a copy thereof shall be furnished to the Unitholders not less that fourteen (14) days before the annual general meeting if any is to be held and if none is to be held before 31 October in each ear.

ANNEXURE B[640]

[640] Ex 103; Reasons [168] above.

Dear Ian,

At our meeting last week you asked me to consider whether in the redemption process it would be permissible to apply the 25% discount proposed by BDO to be applicable to a minority interest in the Trust.

The short answer is that I don't consider that it would be permissible.  It may very well be a valid valuation principle, so in the abstract it probably is reasonable to say that a fair value for the 25% interest is a figure in this range specified by BDO.  However, this is not a valuation on general principles.  It's a valuation that needs to be carried out precisely in accordance with the dictates of the Trust Deed, because the redemption is being done pursuant to the powers in that deed.  The redemption will only be valid if it is done in accordance with the specified process, which includes the manner in which the redemption price is determined.

Clause 10.5 of the deed states that 'the value of a Unit shall be determined by dividing the value of the assets of the Trust Fund less all liabilities by the total number of issued Units as at the dated of valuation.'  Clearly, clause 10.5 requires that the price to be paid for a unit should be precisely proportionate to the total net value of all units, and there should not be any discounts if a transaction is only in respect of a minority interest.

Moreover, focusing on these provisions gives me cause for concern that the BDO valuation that you have obtained is arguably not in compliance with the prescribed procedure for the redemption process at all.  And a valuation that is non-compliant would also invalidate the redemption generally.

The perceived shortcomings include:

·the valuation doesn't reference the Trust Deed (although it does reference the unit holders agreement which is not strictly relevant to the redemption process).  This shortcoming is mentioned for completeness, and in itself is not likely to invalidate the redemption.  However, when aggregated with other shortcomings it is material

·there is a reference to the unit holders agreement on page 31 of the valuation where the minority interest discount is justified and they appear to be citing the provisions of clause 3 of the unit holders agreement as justifying the discount.  In my view this is a misinterpretation of that clause.  On the contrary, I think clause 3 of the unit holders agreement corroborates clause 10.5 because (in the context of exercising a pre‑emptive right) it only refers to valuing the Trust i.e. the whole of the units.  The suggestion that this supports application of a discount is wholly misplaced in my view.

·BDO has adopted the common practice of expressing a range of values (which arise from its adoption of 2 possible multiples).  Although it does refer to a midpoint value of that range the valuation does not purport expressly to be a determination of a particular value of the Trust Fund.  However, clause 8.3 requires the price to be stated in the Trustee Redemption Notice to be the value placed upon the Redeemed Units by a valuer appointed by the Trustees, so necessarily this requires a specific value to be determined by the valuer.  By necessity, a price has to be a fixed amount and cannot be a range of figures.

·It appears that BDO had valued as at 30 June 2018 having used the previous financial years accounts.  What is required is a valuation as at a date that is no less than 3 months from the redemption i.e. it should be current

·Page 28 of the valuation sets out an equity value of APMS which does in some respects follow the dictates of clause 10.5 in that it assesses an enterprise value and then adds cash and deducts net business debt.  However, what is plain from the 'net asset value cross check' process set out on page 29 is that BDO has been selective in the liabilities utilised in the calculation of the value of equity (i.e. units).  Page 29 specifically states that it has added back beneficiaries loan accounts 'as this is effectively equity'.  Clause 10.5 requires all liabilities (and all assets) to be taken into account.  Not to do so would in fact be problematic because Unitholders' loan accounts are liabilities and must be repaid.  The trustee's obligation to repay them would continue notwithstanding that the amount of those liabilities might be built into the purchase price if the BDO approach is taken.  It would result in an overpayment to the outgoing unit holder

Although I would hesitate to describe it as a shortcoming, because I don't have a conclusive view about it, I do note that it's an issue that might warrant further exploration as to whether the FME valuation method adopted by BDO is in compliance with clause 10.5 because it clearly takes into account an asset (goodwill) that is not in the balance sheet of the Trust.  See the reference on page 29 to the significant difference between the FME value and the net asset value as being explicable by 'implied goodwill'.

Clause 10.5 requires the value of all the assets of the Trust to be taken into account.  It doesn't specifically say that they are only to be taken into account if they are in the books of account of the Trust, but a conservative reading of the Trust Deed might take this view.  The alternative view is that every asset, whether in the balance sheet or not, should be taken into account on grounds of fairness.  My inclination is that this alternative view is the proper one, in which case the FME valuation method would be acceptable.  It might be worthwhile seeking Mr Solomon's input on this issue.

There may be solutions to the aforementioned shortcomings, and I would suggest the following:

1.the omission of any reference to the Trust Deed is both easily fixed and in any event not especially problematic if there were no other shortcomings

2.the reference to a minority discount is inappropriate in this context, as is any reference to the unit holders agreement, because the redemption process would not be carried out pursuant to the unit holders agreement.  These should be omitted from the next version of the valuation report

3.BDO needs to 'nail its colours to the mast' and express a particular net value for the units.  Alternatively, the trustee could resolve and the unit holder could approve a redemption on the basis of the highest value in any range submitted by the valuer, as that manifestly could not be unfair to the holder of the redeemed units

4.in order to make the valuation current it needs to be expressed as an opinion that is the value of the enterprise as at the date of the valuation report.  If it is dependent on calculations in financial statements from an earlier balance date then that may be permissible provided the expert is able to say that it is his or her opinion that that is still the value as at the time the report is issued.  Obviously, the more recent are the accounts relied upon, the more credible that statement of opinion would be

5.in order to come up for the particular price for the units the first step is to determine the value of the assets (the role of BDO or other independent expert) and then deduct all liabilities.  It would be legally prudent for the amount of liabilities to be ascertained and applied in the calculation as close as possible to the issue of the redemption papers.  This would include all unit holders loans to the trust.  This calculation ideally would be, but need not necessarily be done by BDO.

I confirm that you have also asked me to prepare the necessary paperwork for the redemption process, and I have largely completed this drafting.  These documents can't be finalised however until the shortcomings in the valuation are addressed.  However if you would like to see the preliminary drafts I can send them to you.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

JC

Associate to the Honourable Justice Howard

1 MAY 2024