Mair v Rhodes and Beckett
[2018] VSC 132
•29 March 2018
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL COURT
S CI 2015 1743 (Termination Proceeding)
BETWEEN:
| NELSON KEITH ROBERTSON MAIR | Plaintiff |
| - and - | |
| RHODES & BECKETT PTY LTD (ACN 118 576 304) (Administrators Appointed) | Defendant |
S CI 2015 1745 (Oppression Proceeding)
BETWEEN:
| BALNARING HOLDINGS PTY LTD (ACN 118 886 669) as trustee for the Balnaring Trust | Plaintiff |
| - and - | |
| VAN LAACK AUSTRALIA HOLDINGS PTY LTD (ACN 159 334 460) & ORS (according to the attached Schedule of Parties) | Defendants |
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JUDGE: | Digby J | ||
WHERE HELD: | Melbourne | ||
DATES OF HEARING: | 11-14, 18-22, 27-28 April, 26-27 May 2016 and 16 February 2017. | ||
DATE OF JUDGMENT: | 29 March 2018 | ||
CASE MAY BE CITED AS: | Mair v Rhodes & Beckett | ||
MEDIUM NEUTRAL CITATION: | [2018] VSC 132 First Revision: 27 July 2018 |
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CONTRACTS – General contractual principles – Construction and interpretation of contracts – Whether ambiguity required for admission of extrinsic materials – Effect of shareholders agreement on employment agreement.
CONTRACTS – Employment agreement – Discharge and breach – Termination of employee or director at common law – Whether termination clause ousts right of termination at common law.
CONTRACTS – Employment agreement – Discharge and breach – Repudiation – Whether dismissal was wrongful – Whether wrongful dismissal is repudiation of employment agreement – Whether acceptance of repudiation is effective.
EQUITY – Fiduciary obligations – Nature of fiduciary relationship – Consistency with employment agreement – Whether prescriptive equitable duties available – Diversion of principal’s resources – Whether knowledge of extraneous activities is informed consent.
EMPLOYMENT LAW – Contract of service – Long service leave entitlements – Long Service Leave Act 1992 (Vic), s 72.
STATUTORY OPPRESSION – Oppressive, unfairly prejudicial or unfairly discriminatory conduct towards member – Standing of minority shareholder – Manipulation of books and records – Legitimate expectation of involvement in management and operations – Divestment of assets and profit shifting – Adoption of new marketing strategies – Whether claim is defeated by ‘unfairness’ of the applicants’ conduct – Corporations Act 2001 (Cth), s 232.
STATUTORY OPPRESSION – Remedies for oppressive conduct – Order for the purchase of shares – Corporations Act 2001 (Cth), s 233.
CONTRACTS – Remedies – Specific performance – Order enforcing the terms of an option – Damages.
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APPEARANCES (in both proceedings): | Counsel | Solicitors |
| For the Plaintiff | Mr I Upjohn QC with Ms S Kelly | Patron Legal |
| For: Rhodes & Beckett Group Pty Ltd, van Laack Australia Holdings Pty Ltd and van Laack GMBH | Mr M Wyles QC with Mr B Holmes | Mills Oakley |
| For the Administrators of: Rhodes & Beckett Pty Ltd (Administrators Appointed) and Herringbone Pty Ltd (Administrators Appointed) | Mr M Galvin QC | Hall & Wilcox |
TABLE OF CONTENTS
Overview of the Proceedings........................................................................................................... 1
The Termination Proceeding....................................................................................................... 1
The Counterclaim - Termination Proceeding........................................................................... 1
The Oppression Proceeding........................................................................................................ 2
Summary of Conclusions................................................................................................................. 2
Mair’s Termination Claim............................................................................................................ 2
R&B’s Oppression Claim............................................................................................................. 4
Background......................................................................................................................................... 5
The Parties...................................................................................................................................... 5
The Contracts................................................................................................................................. 7
Herringbone Bonus....................................................................................................................... 8
Proposed Divestment................................................................................................................... 9
Resignation.................................................................................................................................. 10
Diversion of Resources and Dismissal.................................................................................... 10
Put Option.................................................................................................................................... 11
Accounting Adjustments........................................................................................................... 12
The Parties’ Submissions – Termination Proceeding............................................................... 12
Mair’s Primary Claim................................................................................................................. 12
Additional Breach of Contract Claim....................................................................................... 15
The Counterclaim........................................................................................................................ 16
Mair’s Response to the Counterclaim...................................................................................... 21
The Parties’ Submissions - Oppression Proceeding.................................................................. 23
Relief Sought for Oppression.................................................................................................... 29
Urgent Hearing on 16 February 2017....................................................................................... 31
TERMINATION CLAIM................................................................................................................ 34
Construing the ESA......................................................................................................................... 34
Clause 5 of the ESA..................................................................................................................... 36
ESA to be read with SPA and SUHA.............................................................................. 37
Relevant Obligations under the SUHA.......................................................................... 38
‘Just and Faithful’ Obligation in the SUHA................................................................... 39
Clause 5.1 as a Code for Termination............................................................................. 41
Exclusion of Common Law Termination....................................................................... 43
Suspension and Termination of Employment........................................................................... 45
Repudiatory Conduct................................................................................................................. 47
Acceptance of Repudiation....................................................................................................... 48
Decision on Termination of the ESA............................................................................................ 52
Allegations against Mair................................................................................................................. 53
Fiduciary Duties.......................................................................................................................... 53
Mair’s Alleged Fiduciary Duty to VLG......................................................................... 55
Summary Dismissal at Common Law – Mair’s Alleged Breaches...................................... 56
Allegations against Mair in the Termination Case – Analysis................................................ 58
Significant and Substantial Breaches of Employment as Managing Director.................... 58
Mair Refused to Obey a Lawful Direction.............................................................................. 60
Mair Was An Employee – ‘a very senior employee’.................................................... 62
Involvement with Luxury Retail Group and Establishment of Furla................................. 63
Mair Informed von Daniels about the Furla Distribution Agreement...................... 64
Potyka’s Visit in July 2014................................................................................................ 68
Informing Potyka and von Daniels that his Position was Non-Executive................ 71
Conclusion on van Laack’s Knowledge of Mair’sIinvolvement with LRG and Furla..... 72
Mair - Notice of Furla – Obligation to Inform............................................................... 73
Operation of LRG vis-à-vis R&B.............................................................................................. 77
The Herringbone Agreement........................................................................................... 80
Alleged Use of vLAH Employees to Open Furla Sydney.......................................... 82
Competing with R&B and the R&B Group............................................................................. 83
Confidential Information........................................................................................................... 84
Use of Director’s Loan to Fund LRG – Use of vLAH and Herringbone Funds to Pay LRG Employee Credit Card......................................................................................................................... 84
Use of R&B Financial Resources............................................................................................... 86
LRG Contributions and Accounting Procedures.......................................................... 87
Involvement in LRG’s Monthly Management Account........................................................ 91
LRG Weekly Activity Plans....................................................................................................... 94
Diversion to LRG and Lack of Devotion................................................................................. 96
Overdrawing Director’s Loan Account.................................................................................... 98
Unauthorised Establishment of a Loan Facility from vLAH to LRG.................................. 99
LRG involvement by vLAH Managing Director.................................................................. 102
Growing LRG............................................................................................................................. 102
Failure to Make Sufficient Disclosure to Keep vLAH’s Confidence................................. 103
Disclosure Requirement – Confidence Obligation.................................................... 104
No Mere Employee................................................................................................................... 104
Unauthorised Dividends......................................................................................................... 105
Miscalculation of Interest on Director’s Loan....................................................................... 107
Incorrect Accounting................................................................................................................. 107
Defendants’ Schedule 1 (Amended Defence and Amended Statement of Claim and Counterclaim 17 September 2015)............................................................................................................... 108
Defence – Schedule 2....................................................................................................... 112
Amended Counterclaim – Schedule 3................................................................................... 115
Superannuation – Breaches Alleged against Mair............................................................... 115
Mair’s Evidence Generally to be Preferred........................................................................... 121
Conclusion on Allegations in the Termination Proceeding.................................................. 122
Plaintiff’s Calculation of Loss and Damage – Termination Proceeding.............................. 123
Calculation of Loss and Damage in Counterclaim – Termination Proceeding.................. 126
Assayable elements of the vLAH Counterclaim.................................................................. 129
Counterclaimants’ Aide Memoir............................................................................................ 133
Conclusion – R&B and van Laack parties’ Counterclaims................................................. 135
OPPRESSION PROCEEDING.................................................................................................... 136
Oppression Claim..................................................................................................................... 136
The Plaintiff’s Submissions..................................................................................................... 138
The Defendants’ Submissions................................................................................................. 142
Disentitling Conduct - Analysis.................................................................................... 146
The Corporations Act 2001 (Cth) Affairs of the Company..................................................... 148
Oppressive, Unfairly Prejudicial or Unfairly Discriminatory........................................... 148
Factors Militating Against Relief............................................................................................ 151
Conduct of the Applicant............................................................................................... 152
Primacy of the Contract.................................................................................................. 152
Analysis............................................................................................................................................ 155
The EBITDA............................................................................................................................... 156
Specific Performance of Clause 12 of the SUHA.................................................................. 158
Relief Pursuant to s 233 of the Act.......................................................................................... 161
Alleged Acts of Oppression.......................................................................................................... 162
Unlawful Dismissal.................................................................................................................. 163
Conclusion........................................................................................................................ 163
Proposed Divestment............................................................................................................... 164
Conclusion........................................................................................................................ 166
Exclusion of Balnaring from the Operations of RBG........................................................... 167
Conclusion........................................................................................................................ 167
Marketing Strategies................................................................................................................. 168
Conclusion........................................................................................................................ 168
Non-Compliance with the SUHA, Put Option and the Dividends................................... 169
Put Option........................................................................................................................ 169
Dividends......................................................................................................................... 170
Conclusion........................................................................................................................ 171
Transfer Pricing......................................................................................................................... 171
Conclusion........................................................................................................................ 173
Improperly Recorded Adjustments (The Transactions)..................................................... 173
Expert Evidence on the [53A] Transactions................................................................. 175
The Transactions.............................................................................................................. 180
General Conclusion in relation to the Financial Expert Evidence........................................ 213
Conclusions on the [53A] Transactions....................................................................... 214
Remedy in the Oppression Proceeding..................................................................................... 216
Valuing the Minority Interests................................................................................................ 218
Specific Performance................................................................................................................ 220
Availability of Specific Performance............................................................................ 220
Appropriateness of the Order....................................................................................... 223
Discretionary Factors...................................................................................................... 223
Conclusion on Discretionary Factors.............................................................. 226
Damages..................................................................................................................................... 228
Statutory Relief.......................................................................................................................... 229
Winding up on Just and Equitable Grounds.............................................................. 231
Decision on Remedy in the Oppression Proceeding.......................................................... 234
Decision............................................................................................................................................ 238
HIS HONOUR:
Overview of the Proceedings
This matter involves two proceedings, a termination proceeding and an oppression proceeding. Each proceeding relates to companies that own and operate shirt, suit and accessory retail and wholesale distribution businesses.
The Termination Proceeding
The termination proceeding is brought by Mr Nelson Mair (‘Mair’) against Rhodes & Beckett Pty Ltd (‘R&B’). Mair was employed as the Managing Director of R&B pursuant to an Executive Services Agreement (‘ESA’).[1] He tendered his resignation on 19 March 2015 to take effect from 31 October 2015.[2]
[1]Termination Proceeding, Amended Statement of Claim, 3 September 2015 (TP-ASOC, 3 September 2015), [1A].
[2]Ibid [6].
On 27 March 2015, prior to the anticipated conclusion of his engagement, Mair’s employment was suspended and terminated by R&B.[3] Mair contends this was a repudiation of the ESA which, at his election, was thereafter brought to an end. He claims a loss of wages, long service leave, and a bonus to which he is entitled from R&B.[4] In addition, Mair claims that the circumstances surrounding termination of his employment deprived him of the benefit of a ‘Put Option’ to which he was entitled under a Share and Unit Holders Agreement (‘SUHA’) with R&B.
[3]Ibid [7]–[11].
[4]Ibid [13], [14A] and [15].
The Counterclaim - Termination Proceeding
A counterclaim in the termination proceeding is brought by five parties: R&B, Herringbone Pty Ltd (‘Herringbone’), Rhodes & Beckett Group Pty Ltd (‘RBG’), Van Laack Australia Holding Pty Ltd (‘vLAH’) and van Laack GmbH (‘vLG’). The defendants to the counterclaim are Mair, Luxury Retail No 1 Pty Ltd (‘LR1’), Luxury Retail Group Pty Ltd (‘LRG’) and Balnaring Holdings Pty Ltd (‘Balnaring’). The latter is the trustee of the Balnaring Trust controlled by Mair.
The essence of the counterclaim is that Mair breached statutory, fiduciary and contractual obligations to the plaintiffs by counterclaim with assistance from LR1, LRG and Balnaring. Further allegations of wrongdoing are levied against Mair in his role as Managing Director of R&B. Such wrongdoing is said to justify Mair’s termination and entitle the plaintiffs by counterclaim to relief.
The Oppression Proceeding
The oppression proceeding is brought by Balnaring against vLAH, R&B and RBG. Balnaring seeks orders including under s 233 of the Corporations Act 2001 (Cth) (‘the Act’) in respect of conduct that is alleged to be oppressive, unfairly prejudicial, or unfairly discriminatory. The alleged acts of oppression include excluding Mair from management of R&B and taking steps to reduce the value of a Put Option held by Balnaring.
The defendants deny their conduct was oppressive. The defendants contend the financial circumstances of which Mair complains were, in fact, the result of his own wrongdoing.
Summary of Conclusions
The termination proceeding and the oppression proceeding have been heard and determined together. Much of the same evidence has been tendered in each proceeding.[5]
[5]Order of Sifris J made 11 November 2015, [2].
In summary, I have ultimately concluded and found the following.
Mair’s Termination Claim
(a) The ESA contained the terms of Mair’s employment as Managing Director of R&B.
Clause 5.1 of the ESA is an exhaustive code of the circumstances and way in which Mair’s employment under the ESA could be terminated.
By cl 5.1 of the ESA the parties’ intention was to exclude the right of summary dismissal of the Executive without notice at common law.
(b) On 19 March 2015, Mair gave his employer formal notice of resignation under cl 5.2 of the ESA, effective at the expiration of six months.
(c) On 27 March 2015, R&B purported to suspend and then summarily terminate Mair without notice in a manner that was not compliant with, and was in substantial breach of, cl 5.1 of the ESA.
The above wrongful actions by R&B brought Mair’s employment relationship to an end, but the ESA remained on foot.
(d) By its conduct on 27 March 2015 R&B repudiated the ESA.
(e) By letter dated 31 March 2015, Mair accepted R&B’s repudiation and brought the ESA to an end.
(f) As a result of the above I uphold Mair’s Termination case and Mair is entitled to damages for breach of the ESA.
(g) The damages for breach of contract to which Mair is entitled include:
(i) Mair’s loss of salary entitlements under the ESA;
(ii) Mair’s superannuation contributions;
(iii) Mair’s long service leave entitlements;
(iv)the sum payable to Mair as the Herringbone Bonus; and
(v) update adjustments to the above entitlements and interest.
(h) By reason of the above findings, the allegations made by R&B in support of terminating Mair’s employment on the basis of significant and substantial breach and misconduct at common law are rendered irrelevant.
(i) Further, and in any event, I am not satisfied in all the circumstances that Mair perpetrated any significant and substantial breaches or serious acts and misconduct as alleged by R&B and the counterclaimant van Laack parties in this proceeding.
(j) As a result of my findings, the counterclaims of R&B and the plaintiffs by counterclaim fail.
(k) Further, R&B and the plaintiffs by counterclaim have not established that they have suffered recoverable loss and damage. Nor have R&B and the plaintiffs by counterclaim established that they are entitled to any other form of compensation.
(l) For the above reasons I dismiss the Counterclaims of the R&B and the plaintiffs by counterclaim.
R&B’s Oppression Claim
I consider that Balnaring has been oppressed by vLAH, by its conduct including through R&B, in relation to:
(a) R&B’s suspension and summary dismissal of Mair without notice as Managing Director of R&B and the R&B Group;
(b) the vLAH decision and plans to divest the Australian assets held by vLAH including R&B and R&B Group without consulting or involving Balnaring and Mair;
(c) the exclusion by vLAH of Balnaring and Mair from the operation of the R&B and R&B Group and vLAH’s refusal, including via R&B and R&B Group, to hold Directors’ meetings of R&B and R&B Group;
(d) VLAH and vLG refusing to comply with the SUHA in relation to Balnaring and Mair’s Put-Option and Dividend entitlements;
(e) the Transfer Pricing regime vLAH imposed on R&B and the R&B Group and vLAH’s breaches of that regime;
(f) R&B’s wrongful adjustment of books, records and accounts of the R&B Group and R&B, in which Balnaring and Mair held minority shareholdings;
As a result of the above, I find:
(a) Balnaring is entitled to damages for breach of the SUHA;
(b) but for Balnaring’s entitlement to damages for breach of the SUHA, as a result of the above, Balnaring would be entitled to orders for specific performance of the SUHA in relation to its Put-Option and Dividend entitlements;
(c) as a result of vLAH’s oppression of Balnaring, Balnaring is entitled to appropriate relief pursuant to s 233 of the Act; and
(d) the damages, alternatively the appropriate relief to which Balnaring is entitled in the oppression proceeding, is most justly and appropriately the amount of an independent expert evaluation of the Minor Party Interest pursuant to the SUHA, based on the R&B Group EBITDA for the Financial Year 2014 adjusted, including in respect of the effect of the Transfer Pricing and foreign exchange losses.
Background
The Parties
The parties and principal entities in the proceeding and their personal and corporate roles and interrelationships are as follows:
(a) Van Laack Australia Holding Pty Ltd (‘vLAH’) is a wholly owned subsidiary of van Laack GmbH (‘vLG’);
(b) VLG is a limited liability company formed in Germany;
(c) Mr Christoph Neizert (‘Neizert’) the Chairman of vLG;
(d) Mr Christian von Daniels (‘von Daniels’) is the Chief Executive Officer, a Managing Director, and majority shareholder of vLG and a director of vLAH;
(e) Dr Sebastian Potyka (‘Potyka’) was the Managing Director of vLG;
(f) Rhodes & Beckett Pty Ltd (‘R&B’) and the Rhodes & Beckett Group Pty Ltd (‘RBG’) are each 80 percent owned by vLAH. Until about 27 April 2015 R&B was trustee of the Rhodes & Beckett Unit Trust (‘R&B Unit Trust’);
(g) Boston Brothers Pty Ltd (‘Boston Brothers’) and Baubridge & Kay Pty Ltd (‘Baubridge & Kay’) are wholly owned subsidiaries of RBG;
(h) Herringbone Pty Ltd (‘Herringbone’) has been a wholly owned subsidiary of vLAH at all relevant times;
(i) Each of R&B, RBG, the R&B Unit Trust, Boston Brothers and Baubridge & Kay are from time to time collectively referred to as ‘the Group’;
(j) The businesses known as Baubridge & Kay, Boston Brothers and R&B are from time to time collectively referred as the ‘R&B Business’;
(k) The plaintiff, Mr Nelson Mair (‘Mair’), is the sole director of Balnaring Holdings Pty Ltd (‘Balnaring’) and owns all of the shares in Balnaring;
(l) Balnaring and R&B and RBG are from time to time referred to as ‘the RB Group’;
(m) Balnaring presently owns 20 percent of the shares in R&B and 20 percent of the shares in RBG.
(n) From 15 November 2013 until 11 February 2015, Luxury Retail No 1 Pty Ltd (‘LR1’) was named Luxury Retail Group Pty Ltd.
(o) In the period from 12 February 2015, LR1 was named Furla Australia Pty Ltd (‘Furla’).
(p) Luxury Retail Group Pty Ltd (‘LRG’) commenced on 12 February 2015.
(q) Mair and Mr Theo Poulakis (‘Poulakis’) were the directors of LR1 and LRG (hereinafter, collectively referred to as LRG), and all of the shares in each of the LRG companies were owned by Mair and Poulakis and/or their associates.
(r) Folli Follie Australia Pty Ltd (‘Folli Follie’) was a wholly owned subsidiary of LRG.
(s) Each of Sneakerboy Retail Pty Ltd, Sneakerboy IP Pty Ltd and Sneakerboy Pty Ltd (referred to herein collectively as ‘Sneakerboy’) were wholly owned subsidiaries of LRG.
The Contracts
In July 2012, vLAH acquired shares in R&B and RBG from Mair and Balnaring under a Share Purchase Agreement (‘SPA’) dated 3 July 2012. The parties to that agreement were R&B, RBG, vLAH, vLG, Balnaring and Mair and other parties listed in Schedule 2 of the SPA.[6] The SPA included two conditions precedent.
[6]TP-Defence, 17 September 2015, [1W]; CB1079.
The first required Mair and RB to execute an employment agreement.[7] Mair was appointed Managing Director of R&B from 1 August 2012 pursuant to the ESA entered into on 1 August 2012 between R&B and Mair.[8]
[7]OP-FAPOC, 22 June 2016, [11].
[8]Ibid [12].
Under cl 3.3 of the ESA, Mair may hold ‘up to two non-executive board positions that do not directly compete with the group’.
Clause 5.1 of the ESA provides, in part, as follows:
The Company may at its sole discretion immediately terminate the Executive’s employment by written notice to the Executive if the Executive at any time:
5.1.1 commits a significant and substantial breach of any of his obligations to the Company;
5.1.2is intentionally or wilfully negligent in the discharge of his duties including observance of the rules and procedures of the Company as published and notified to him from time to time (for the avoidance of doubt, it is agreed that policies and procedures do not enure for the benefit of the Executive or create enforceable rights in the Executive’s favour ); or
5.1.3 is bankrupt or commits an act of bankruptcy; or
5.1.4is convicted of a criminal offence which in the reasonable opinion of the Board will detrimentally affect the Company.
The second condition precedent required vLAH, Mair and Balnaring to execute a shareholders agreement.[9] This was also accomplished on 1 August 2012.[10] The SUHA, entered into on 1 August 2012 between Mair, Balnaring and vLAH and vLG, governed the relationship between four entities (vLAH, vLG, Mair and Balnaring)[11] in the conduct of the boards of R&B and RBG.[12]
[9]Ibid [11].
[10]Ibid [13].
[11]Ibid [13].
[12]Ibid [14].
The SUHA contains a provision for a Put Option that allows Balnaring to require vLAH to purchase its shares in R&B and RBG. The Put Option is ‘triggered’ by specified events which include where Mair’s ‘employment as Managing Director is terminated in accordance with the NM Employment Contract…’[13] The purchase price is calculated by reference to the Group earnings before interests, taxes depreciation and amortisation (‘EBITDA’).[14] ‘Group’ is defined in the SUHA as R&B, RBG, the R&B Trust, Boston Brothers and Baubridge & Kay both individually and collectively.[15]
[13]SUHA 12(6).
[14]Ibid Schedule (1).
[15]Ibid 1.1(‘group’).
Herringbone Bonus
Under the ESA, Mair submits that his terms of employment included a base salary and an annual incentive payment subject to satisfaction of certain performance targets.[16] Mair claims that he was directed to perform the duties of Managing Director of Herringbone after the previous Managing Director for whom Mair was providing ‘oversight’ resigned.[17] He submits his contract of employment was varied in August 2013 by oral agreement which was then reduced to writing.[18] If accepted, this amendment would entitle Mair to twenty percent of the profits of Herringbone during each year of his employment (‘the Herringbone bonus’).[19]
[16]TP-ASOC, 3 September 2015, [2].
[17]Termination Proceeding - Reply and Defence to Counterclaim, 10 August 2015, (TP-Reply & Defence to CC, 10 August 2015), [2G].
[18]TP-ASOC, 3 September 2015, [3].
[19]Ibid [3].
The existence of such an amendment is denied by the defendants.[20] As noted earlier, Mair did not previously have a direct financial stake in the Herringbone business.
[20]TP-Defence, 17 September 2015, [2I].
Proposed Divestment
From early 2015, Mair and Balnaring allege that vLAH planned to divest its Australian assets (including RBG).[21] In support, Mair and Balnaring claim vLAH sent senior representatives to Australia to inspect and audit the books and operations;[22] and met with KPMG, Rothschild & Co., and Hong Kong Bank for the purpose of arranging a sale of RBG and its assets.[23]
[21]OP-FAPOC, 22 June 2016, [19].
[22]Ibid [20].
[23]Ibid [20].
In response, vLAH claims that no firm decision had been made to divest Australian assets. Potyka and von Daniels met Mair in Germany in February 2015 to discuss various options for the future of the business. Only one such option was divestment.[24] Moreover, vLAH alleges that the meetings did not rely on the results of any internal audit of RBG;[25] and the discussions with merger firms did not require a Board Resolution from the R&B Group and were held with Mair’s knowledge and agreement.[26]
[24]Oppression Proceeding, Amended Points of Defence, 1 April 2016 (OP-APOD, 1 April 2016), [20].
[25]Ibid [20(i)].
[26]Ibid [21].
Resignation
On 19 March 2015, Mair gave six months’ notice of his resignation from his position as Managing Director of RBG. His resignation would be effective from 31 October 2015.[27]
[27]OP-FAPOC, 22 June 2016, [23].
On 23 March 2015, Mair alleges that von Daniels and Neizert (Chairman of vLG) proposed his shares in R&B and RBG be transferred to vLAH for nominal consideration ($1).[28] That is denied by vLAH, R&B and RBG. vLAH claims that this meeting was conducted on 25 March 2015 at which Neizert, Mair and von Daniels discussed the possibility of Mair exchanging his shareholding in R&B for a shareholding in vLAH.[29] In response to this proposal, Mair directed von Daniels and Neizert to the Put Option provision in the SUHA.[30] The price to be paid under this option was twenty percent of five times the EBITDA of RBG.[31]
[28]Ibid [24].
[29]OP-APOD, 1 April 2016, [24].
[30]OP-FAPOC, 22 June 2016, [24].
[31]Ibid [12].
Diversion of Resources and Dismissal
From 2015, vLAH and vLG believed that Mair was diverting financial, personnel and logistical resources from R&B to the LR1 and LRG businesses. They allege that Mair was, in substance, the Managing Director of LR1 (from November 2013) and LRG (after February 2015),[32] which were direct competitors. To work for those businesses was regarded as a violation of Mair’s principal obligations to the R&B Business.
[32]TP-Defence, 17 September 2015, [2P].
The shares in LR1 and LRG were owned by Mair, Poulakis and their associates.[33] While admitting that he directed resources to LR1 and LRG, Mair denies that he was in breach of obligations owed to the R&B Business under the ESA or otherwise.[34] On Mair’s submission, he was a non-executive director of LR1 and LRG,[35] the businesses are not direct competitors of the R&B Business,[36] and he was entitled to hold the positions under the ESA. He notes that Poulakis was also a director of the companies.[37]
[33]Ibid [1Q].
[34]Plaintiff’s Opening Submissions, 6 April 2016, [16].
[35]TP-Reply & Defence to CC, 10 August 2015, [2P], [9D].
[36]Plaintiff’s Opening Submissions, 6 April 2016, [12].
[37]TP-Defence, 17 September 2015, [1Q].
On 27 March 2015, at around 11:30am, Mair was suspended from his employment by R&B. The terms of the R&B letter of suspension and dated 27 March 2015 are set out in full below.[38]
[38]MS4355.
Mair alleges that he was detained by R&B at his office until around 6.00pm. Staff were forbidden to speak to him during this time while solicitors, directors and consultants of R&B ‘interrogated’ staff about Mair’s conduct.[39]
[39]TP-ASOC, 3 September 2015, [7].
On 27 March 2015 at around 7:30pm, by hand delivered letter from R&B, Mair was dismissed from his employment.[40] That dismissal was without notice and of immediate effect.[41]
[40]OP-FAPOC, 22 June 2016, [26].
[41]MS4356.
The termination of employment letter to Mair did not refer expressly to cl 5.1 of the ESA. That provision governs the circumstances in which the ESA can be terminated without prior notice.
On 31 March 2015 Mair communicated his acceptance of R&B’s repudiatory conduct to R&B by email letter to the solicitors for R&B.[42]
[42]MS4374-4376.
Put Option
The termination of the ESA was a ‘triggering’ event which activated Balnaring’s Put Option.[43] Balnaring submits the option was exercised on 17 April 2015.[44]
[43]OP-FAPOC, 22 June 2016, [29].
[44]Ibid [30].
On 1 May 2015, Balnaring requested that vLAH convene a Director’s meeting in order to give effect to the Put Option.[45] In a further letter dated 11 May 2015, Balnaring requested that vLAH convene a Directors’ meeting in order to review the performance of RBG in the preceding financial year and to prepare a business plan for the new Managing Director of RBG.[46] Balnaring asserts that the vLAH controlled companies of the R&B Group did not respond to these requests for Directors’ meetings. The final correspondence from vLAH’s solicitors refers to the Put Option in the SUHA being ‘on hold’ and the proposed arrangement for the inspection of books being ‘unsuitable’.[47]
[45]Ibid [31].
[46]Ibid [32].
[47]MS4579.
VLAH disputes that Balnaring was entitled to exercise the Put Option in the circumstances.
Accounting Adjustments
Up to mid-June 2015, Mair claims that the R&B entities made a number of retrospective accounting adjustments to lower the value of the R&B Business. The cumulative effect of the adjustments was to reduce the EBITDA for FY2015 (ending in March) to a negative sum. In particular, it is suggested that the reduction of the EBITDA to a negative sum was engineered to reduce the value of the Put Option held by Balnaring to nil.
The Parties’ Submissions – Termination Proceeding
Mair’s Primary Claim
In the termination proceeding, Mair’s submits the dismissal detailed above and the corresponding severance of the employment relationship was a repudiation of the ESA.[48] He claims to have accepted that repudiation by his lawyers communication of 31 March 2015 thereby bringing the ESA to an end.[49] Absent the wrongful termination, Mair contends his employment would have remained on foot until 31 October 2015.
[48]OP-FAPOC, 22 June 2016, [27].
[49]Ibid [28].
Mair submits that the ESA exhaustively covered the circumstances in which the Managing Director could be dismissed without notice. The ESA allowed Mair to terminate his employment by giving six months’ written notice.[50] It follows, on Mair’s submission, that R&B was required to give the same notice if it wished to terminate Mair’s employment without cause, though a payment could be made in lieu of notice.[51] Mair also alleges that because the contract operated as a code its terms exclude any common law right to summary dismissal which R&B may have otherwise had.[52]
[50]TP-ASOC, 3 September 2015, [4].
[51]Ibid [5].
[52]Plaintiff’s Closing Submissions, 17 May 2016, [16].
In contrast, the defendants submit the suspension of Mair was a ‘reasonable direction’ with which Mair was required to comply under cl 3.1.3 of the ESA.[53]
[53]OP-APOD, 1 April 2016, [25].
Moreover, the defendants that Mair could be dismissed summarily at common law in the following circumstances:
(a) there is a radical breach of the employee/employer relationship inconsistent with its continuance;
(b) the conduct of the dismissed employee is such that the employer is entitled to conclude that the employee no longer intends to be bound by the contract of employment;
(c) the conduct of the employee in respect of important matters is incompatible with the fulfilment of the employee’s duty, or involves an opposition or conflict between the employee’s interest and the employee’s duty to the employer, or is destructive of the necessary confidence between employer and employee, there being an actual repugnance between the employee’s acts and the employment relationship;
(d) the employee’s conduct is of a serious but not exceptional nature, but nevertheless repugnant to the relationship of employer-employee;
(e) the conduct of the employee is of a type inconsistent with his or her employment in such a grave way that it is properly to be regarded as incompatible with proper performance of the contract of employment;
(f) there is wilful disobedience of the lawful and reasonable direction of an employer;
(g) the employee is habitually neglectful in respect of the duties for which that employee was engaged;
(h) the employee acts in a manner which is incompatible with the due or faithful discharge of the employee’s duty to the employer;
(i) the employee does not render faithful and loyal service.
Mair also claims that he is also entitled to the payment of long service leave and the Herringbone bonus for the financial years ending 30 April 2014 and 2015, which has not been paid by R&B.[54] Against this, R&B claims to have paid (on or around 13 July 2015) an amount of $15,780.74 in respect of annual leave entitlements and $23,675.93 in respect of superannuation entitlements.[55] It denies Mair’s entitlement to any further Herringbone bonus.[56]
[54]TP-ASOC, 3 September 2015, [14A]–[15B].
[55]TP-Defence, 17 September 2015, [13A].
[56]Ibid [15].
In summary, in the plaintiff’s calculations of loss and damage in the termination proceeding (24 June 2016) Mair claims -
1.Loss of salary and entitlements in the sum of $352,241:
(a)$163,644 in base salary (calculated as 0.5973 years[57] x $273, 972 base salary per year[58]).
[57]Mair resigned his employment effective 31 October 2015 (MS4276). But for the dismissal Mair’s employment would have ended on that date. His employment in fact ended on 27 March 2016 (MS4356). Mair’s employment therefore ended 218 days (27 March 2015 – 31 October 2015) early. 218 days is 59.73 percent of 365 days per year (218/365*100). Mair is entitled to 59.73 percent (or 218 days) of his annual salary, representing the 218 days between the date of his wrongful dismissal and the date on which his employment would have come to an end by reason of his resignation.
[58]By cl 4 of the Contract (MS1904) Mair’s base salary was $300 000, inclusive of superannuation (see cl 4.6: MS1905). The base salary figure has been calculated by deducting 9.5 percent superannuation from the total salary amount, resulting in a base salary figure of $273,972.
(b)$15,546 in superannuation contributions (9.5 percent[59] x $163,644[60]).
[59]Superannuation Guarantee (Administration) Act 1992 (Cth), s 19(2).
[60]This is the salary Mair would have earned between the date of dismissal and the date on which his employment would have come to an end by reason of his retirement as set out in point 1(a).
(c) $2,590 in long service leave (1/60th[61] x 0.5973[62] x $273,972[63]).
[61]Section 58 of the Long Service Leave Act 1992 (Vic) provides that where an employee’s employment stops after 7 years but before 10 years, the employee is entitled to an amount of long service leave equal to 1/60th of the period of his or her continuous employment.
[62]This is the period of additional continuous service, expressed as a percentage of one year, that Mair would have served had his employment not ended early by reason of the wrongful dismissal.
[63]This is Mair’s annual salary exclusive of superannuation.
2.Long service leave
(a)$45 577 being $300 000 annual salary[64] / 52 weeks per year * 7.9 weeks:[65]
3.Herringbone Bonus 2014 + 2015
(a)The terms of the Herringbone Bonus are set out in vLAH’s letter, 19 August 2013 at [3] at MS2269 (point 3).
(b)For 2014 Mair is entitled to $113 739.80 calculated as 20 percent of actual net Herringbone profit for 2014 of $568,699.[66]
(c)For 2015 Mair is entitled to $125 564.60 calculated as 20 percent of projected net Herringbone profit for 2015 of $627,823.[67]
[64]By cl 4 of the Contract (MS1904) Mair’s base salary was $300 000, inclusive of superannuation (see cl 4.6: MS1905). Mair’s service was continuous from 2006 (see 2006 Contract at MS1161-1168 and 2009 Contract at MS1170-1177, particularly cl 4.1 (MS1904).
[65]Mair’s Witness Statement, [301]-[302].
[66]MS153, MS5211; MS2743-2767; refer Plaintiff’s Reply to the Amended Defence and Defence to Counterclaim, page 9; refer Defendant’s Closing Submissions, [5] and Plaintiff’s Closing Submissions, pages 2-4.
[67]MS153, MS5211; refer Plaintiff’s Reply to the Amended Defence and Defence to Counterclaim, page 9; refer Defendant’s Closing Submissions, [5] and Plaintiff’s Closing Submissions, pages 2-4; Plaintiff’s Calculation of Loss and Damage – Termination Proceedings (Email: 23 June 2016).
Additional Breach of Contract Claim
Balnaring’s claim also includes a breach of contract claim said by Balnaring to arise under cl 14 of the SUHA. Balnaring alleges that the contract requires van Laack to pay the purchase price for the transfer of the minority parties’ interests.[68] I interpolate that this is, in effect, the contract which arises upon the exercise and execution of the Put Option.
[68]OP-FAPOC, 22 June 2016, [56A]–[56C].
The defendants deny that Mair’s termination gave rise to repudiation of the ESA,[69] or that it was a ‘triggering event’ under the SUHA such as to enliven Balnaring’s Put Option.[70] The defendants allege that Balnaring and Mair were not entitled to exercise the Put Option[71] referred to in the SUHA, and deny that in the events which occurred the ‘transfer contract’ which Balnaring asserts arose under the SUHA.[72]
[69]OP-APOD, 1 April 2016, [27].
[70]Ibid [29].
[71]Ibid [56A]–[56C].
[72]Ibid [56A] and [56B].
The Counterclaim
The counterclaim revolves around the allegation that Mair was using his position with R&B to operate businesses through LR1 and LRG (including ‘Furla’, ‘Folli Follie’ and ‘Sneakerboy’) which were in competition with the R&B business.
The plaintiffs by counterclaim are R&B, RBG, the R&B Unit Trust, Boston Brothers Pty Ltd and Baubridge & Kay Pty Ltd.[73] The latter two entities, Boston Brothers and Baubridge & Kay, are wholly owned subsidiaries of RBG.[74] The plaintiffs by counterclaim also allege that these obligations were owed also to vLAH and Herringbone.[75]
[73]TP-Defence, 17 September 2015, [2C], [2J].
[74]Ibid [1H].
[75]Ibid [2J]; Mair’s amended his claims in Statement of Claim [MSCB8-9] deleting claims in [13(c)], [13(e)] and all [13A] and [14].
The plaintiffs by counterclaim allege that Mair owed the following fiduciary duties:[76]
[76]Ibid [2O].
(a) to act in the best interests of the Group, vLAH, vLG and Herringbone;
(b) not to act in his (Mair’s) own interests or for the advantage of LR1 or LRG at the expense of the Group, Herringbone, vLAH and vLG;
(c) not to misuse the confidential information of the Group and vLAH;
(d) not to cause detriment to the Group, vLAH, vLG or Herringbone;
(e) not to exercise his managerial powers for improper purposes;
(f) to exercise his powers and discharge his duties in good faith and in the best interests of the Group, Herringbone, vLAH and vLG;
(g) not to place himself in a position of conflict between his interests (and those of LR1 or LRG) on the one hand, and those of the Group, Herringbone, vLAH and vLG on the other;
(h) not to make any benefit or gain for himself, LR1 or LRG by reason of his fiduciary position.
The plaintiffs by counterclaim also submit that Mair has breached the SUHA and the ESA.[77] Those agreements imposed obligations on Mair to faithfully and diligently perform his duties, to use best endeavours to promote the interests of the business, and not disclose confidential information. Mair was prohibited from doing anything which would, or might, adversely affect the business and from being involved with business competitors.[78]
[77]Ibid [2F] and (iv).
[78]Ibid [2F(i)].
In substance, the nine separate allegations are made by the plaintiffs by counterclaim are as follows:[79]
[79]Ibid [9A].
(a) Mair made available to the LR1 and LRG the financial, personnel, physical and know-how resources of the Group, vLAH and Herringbone. This is alleged to have been done without the approval of the boards of R&B, Herringbone or vLAH, and not on an arms-length basis.
The particulars provided in this respect are extensive.[80] In summary, it is alleged that Mair directed certain employees of the Group to undertake tasks for the benefit of the LR1/LRG business. This included provision of IT support, human resources management (for example, using R&B employment contract templates and arranging recruitment through R&B staff), arranging accounting and banking facilities, undertaking tasks directly related to the LR1 and LRG business (such as paying LR1 invoices and co-ordinating stocktakes) and marketing for LR1. It is also alleged that R&B funds were used to make payments for the LR1 business, and that Mair caused R&B to sponsor an employee on a sub-class 457 visa, when in fact that employee worked for LRG. Furthermore, Mair is alleged to have used credit facilities provided to R&B to obtain bank guarantees in favour of the landlords of Furla and LRG premises.
[80]Ibid Sch 1.
(b) Mair established and conducted the LR1 and LRG businesses without first obtaining the informed consent of the Group, Herringbone, vLAH and vLG.
(c) Mair used confidential information of vLAH, the Group and Herringbone for the purposes of the LR1 and LRG businesses.
(d) The SUHA allowed for a loan of $600,000 to be made to Mair by the Group. This was to be done by drawing down $50,000 on certain specified dates.[81] The plaintiffs by counterclaim allege that amounts in excess of $50,000 were drawn down by Mair on dates other than those authorised by the SUHA. This is said to have been done for the purposes of making those funds available to LR1.
[81]Ibid [2C(g)].
(e) Mair failed to calculate and apply interest to these amounts.
(f) Mair paid himself loan amounts by allocating non-business related expenditure in lieu of cash draw-downs derived from the profit of R&B. While the SUHA allowed for certain personal loans to be made to Mair, these amounts were not in accordance with that agreement.
(g) Mair purported to pay down the loan allegedly made to him by the Group by causing Boston Brothers, Baubridge & Kay, RBG and vLAH to pay him a dividend on 31 March 2014. The plaintiffs by counterclaim allege that the dividend was paid in the absence of any resolution (as required by the companies’ constitutions), and in the knowledge that payment of the dividend would require further borrowing by the Group.
(h) Mair directed that the books and accounts of the Group, Herringbone and vLAH be manipulated. This is said to have been done in order to reduce the disparity between the forecast and actual performance of these entities, leading to an inability to prepare true and fair financial statements.
The particulars of the alleged manipulation claim that Mair directed Mr Jay Hewamanna, the Financial Controller of R&B,[82] to change certain line items in the books (whether in value, timing, or designation) by way of four specified emails between October 2012 and March 2015.[83]
(i) Mair failed to ensure that the Group complied with all relevant superannuation and tax legislation. Specifically, Mair failed to ensure that the Group, vLAH and Herringbone paid $463,352 in superannuation contributions, leading to a penalty and interest charges of $249,528. Mair also failed to ensure that a tax liability (of the Group and Herringbone) in the sum of $2,995,018 was paid. This led to a 24-month payment plan being entered into with the Australian Taxation Office and penalties and interest charges of $239,430.69.
[82]Ibid Sch 1 at [A].
[83]Ibid Sch 2.
Further, the plaintiffs by counterclaim allege that LR1 and LRG knew that Mair was breaching his fiduciary obligations by acting in these ways.[84] They allege that Mair was the directing mind and will of LR1 and LRG.[85] LR1 and LRG are also said to have taken the benefit of Mair’s breach of his fiduciary obligations.[86] Similarly, the knowledge of Mair is said to be that of Balnaring.[87]
[84]Ibid [9B].
[85]Ibid [2R].
[86]Ibid [9C]; Amended Counterclaim, 17 September 2015, [3].
[87]Ibid [9F].
The plaintiffs by counterclaim also allege that Mair told Potyka and von Daniels that his position with LR1 and LRG was of a non-executive nature.[88] They allege that this was not in the best interests of vLG and was done for the purposes of seeking to gain benefit for himself (Mair) and LR1.[89] The plaintiffs by counterclaim allege that if Mair had truthfully told them that he was the directing mind and will of LR1 and LRG, then vLG would have taken steps to ensure that the financial, personnel and physical resources of vLAH, the Group and Herringbone were not available to LR1 and LRG, other than on an arms-length basis.[90]
[88]Ibid [9D].
[89]Ibid [9E].
[90]Ibid [9F].
The plaintiffs by counterclaim allege that Mair’s conduct constituted a repudiation of the employment agreement.[91] This is a repudiation which they allege was accepted by the termination of Mair’s employment on 27 March 2015.[92]
[91]Ibid [10C].
[92]Ibid [10D].
The loss said to have been caused by Mair’s conduct includes penalty and interest liabilities to the Australian Taxation Office, the cost of consultants to attend to and rectify the tax issues and underpayment of wages, the expenses and payments improperly authorised by Mair, the cost of Mair’s salary (and those of R&B staff) while undertaking work for LRG, wrongly paid dividends and the unauthorised loans to Mair (with interest).[93]
[93]Ibid Sch 4.
The plaintiffs by counterclaim also allege that the actions of Mair and Balnaring have caused a diminution in the value of the business.[94]
[94]TP-Amended Counterclaim, 17 September 2015, [5].
The relief claimed in the counterclaim is equitable compensation, an account of profits from both LR1 and LRG, a declaration that R&B was entitled to terminate Mair’s employment and did so validly, damages for breach of contract, interests and costs.
Mair’s Response to the Counterclaim
Mair alleges that at no time did Balnaring, Sneakerboy, Folli, LR1 or LRG conduct a business which was the same or substantially similar to that of R&B, or compete with R&B (or any part of it).[95]
[95]TP-Reply & Defence to CC, 10 August 2015, [1L], [1N], [1P], [1R], [1T].
Mair alleges that the following parts of the SUHA are void and of no effect because they are either an unreasonable restraint of trade and/or uncertain:[96]
[96]Ibid [2C(i)], [2C(k)], [2C(l)], [2F(d)], [2F(j)].
(a) the prohibition on direct or indirect involvement with a business which competes (or could compete) with that carried on by the Group;[97]
[97]Ibid [2C(i)].
(b) the prohibition on encouraging or attempting to induce any person to terminate his or her employment with the Group;[98]
[98]Ibid [2C(i)].
(c) the prohibition on interfering with the relationship between the Group and any supplier or employee of the Group;[99]
[99]Ibid [2C(i)].
(d) the prohibition on knowingly doing anything which would, or might, adversely affect the business of the Group;[100]
(e) the obligation that Mair and Balnaring keep all Group information confidential except that which becomes known or generally available to the public (unless it becomes known through a breach of an obligation of confidence);[101] and
(f) the extension of this obligation of confidentiality to all financial, operational and technical information, trade secrets, ideas, concepts, know-how, processes and knowledge relating to R&B, RBG, vLAH, Boston Brothers, Baubridge & Kay and the R&B unit trust.[102]
[100]Ibid [2C(i)].
[101]Ibid [2C(k)].
[102]Ibid [2C(l)].
Mair similarly alleges that any such obligations arose under the employment agreement.[103]
[103]Ibid [2F(d)], [2F(j)].
Subject to some exceptions, Mair also denies that he owed the fiduciary duties alleged. He acknowledges that he owed duties in his capacity as director of R&B, RBG, Boston Brothers, Baubridge & Kay and vLAH.[104] He denies that vLG was in a position of vulnerability such as to give rise to fiduciary duties, because it had the capacity to conduct oversight of Mair’s activities at all times.[105]
[104]Ibid [2J].
[105]Ibid [2M].
The duties which Mair admits are limited to an obligation not to be in a position of conflict between the principal and his personal interest, and not to obtain any unauthorised benefit from his fiduciary position.[106]
[106]Ibid [2O].
In any event, Mair alleges that he was entitled to spend time on other projects from July 2012. He alleges that an agreement was reached with R&B at that time, which provided that ‘he [Mair] would be at liberty to devote time and attention to other businesses (including but not limited to Herringbone) and to accept remuneration in relation to those outside pursuits’.[107]
[107]Ibid [2II].
According to Mair, he sought and received approval from Potyka in relation to taking up a position as non-executive director with Sneakerboy, and from von Daniels in relation to a position as director and shareholder of LR1 (then named LRG).[108] Mair also pleads a number of instances indicating that von Daniels and Potyka were aware of the LR1 and LRG businesses, including visiting Furla premises.[109]
[108]Ibid [9AA].
[109]Ibid [9AA].
Mair acknowledges that there was some sharing of resources between the Group businesses and LR1/LRG, but submits this operated to the benefit of both parties and was impliedly or expressly authorised by R&B, RBG, vLAH and vLG.[110]
[110]Ibid [9AA].
In relation to his employment, Mair denies that there were grounds for his termination. In any event, Mair alleges that R&B had knowledge of his alleged ‘misconduct’. Retention of his service in such circumstances was an election and an attendant abandonment of any right of summary dismissal.[111]
[111]TP-Reply & Defence to CC, 10 August 2015, [10AA].
The Parties’ Submissions - Oppression Proceeding
Balnaring claims that it was oppressed by the conduct of vLAH. It puts this contention on seven separate grounds:
(a) Balnaring claims that it ought to have been, but was not, consulted about the proposed divestment by vLAH.[112] Further, it was not provided with information necessary to protect its own commercial interests and its interests were wholly subjugated to those of vLAH.[113]
[112]OP-FAPOC, 22 June 2016, [33].
[113]Ibid [33].
As noted above, the defendants allege that they made no divestment decision and deny that the meetings involved in the strategic review were held without Mair’s knowledge and agreement.[114]
[114]OP-APOD, 1 April 2016, [19]–[21], [33].
(b) Balnaring claims that Mair was improperly suspended from his employment. Balnaring alleges that the ESA contained no power to suspend Mair.[115] Balnaring also observes that this wrongful suspension was aggravated by the circumstances in which it occurred. It observes, in this respect, that security guards and legal representatives of vLAH, R&B and RBG were present when Mair was suspended. It also observes that employees of the R&B Group were told not to communicate with Mair, and that Mair was given no reasons for his suspension.[116]
[115]OP-FAPOC, 22 June 2016, [34].
[116]Ibid [35].
Moreover, Balnaring submits that there was no power to dismiss Mair, summarily or otherwise.[117] While RBG alleges that Mair engaged in misconduct, Balnaring denies as much and says Mair was not given an opportunity to answer the allegations put against him.[118]
[117]Ibid [36].
[118]Ibid [36].
Balnaring submits that this conduct was oppressive because it deprived RBG of Mair’s skill and expertise, resulted in significant financial outlays on an investigation into Mair’s conduct, affected staff morale and led to the termination of other senior employees, and caused or contributed to a reduction in the profitability and value of RBG.[119]
[119]Ibid [37].
The defendants submit that Mair’s suspension was a lawful and reasonable direction given to him under the employment contract.[120] The reasons for the suspension and the allegations against Mair were provided to him in writing, by way of letter delivered on 27 March 2015.[121]
[120]OP-APOD, 1 April 2016, [34]–[35].
[121]Ibid [35].
The defendants also allege that this conduct does not amount to oppression.[122] For reasons which are discussed more fully below in relation to the termination proceeding, the defendants allege that RBG was not deprived of Mair’s skill and expertise by reason of the termination, because Mair was, in fact, diverting his skill and expertise (along with resources) to work for LR1 and LRG, rather than directing these to RBG.[123] The defendants also allege that staff morale improved after Mair’s termination and that senior employees who are no longer employed by RBG are employed with LRG.[124]
[122]Ibid [37].
[123]Ibid [37].
[124]Ibid [37].
The defendants allege that the conduct of Mair was the cause, or at least a contributing factor, to the reduction in the profitability of the business.[125]
[125]Ibid [38].
(c) Mair was excluded from an active role in the management of RBG as the nominee for Balnaring.[126] RBG has also directed Mair to resign from all directorships within the R&B Group and to return all company documents and electronic records, which Balnaring alleges is contrary to the SUHA.[127]
[126]OP-FAPOC, 22 June 2016, [39].
[127]Ibid [40].
RBG also failed to hold directors’ meetings for the purpose of valuing the price payable under the Put Option, and failed to inform Balnaring of when and where any such meetings would be held.[128]
[128]Ibid [39].
Balnaring submits that this conduct was oppressive because it rendered nugatory those rights which it enjoyed under the SUHA and the general law prevented it from exercising those rights.
The defendants allege that they were entitled to terminate Mair’s directorships.[129] They also allege that the SUHA does not require a valuer to be appointed in order for the Put Option to be exercised, and that what Mair is really seeking is a higher price than that provided for by the SUHA, making this claim an abuse of process.[130] In any event, the defendants allege that even if proved, this conduct does not amount to oppression.[131]
[129]OP-APOD, 1 April 2016, [39(a)], [40].
[130]Ibid [39(b)–(c)], [60].
[131]Ibid [40], [41].
(d) Balnaring alleges that vLAH, R&B and/or RBG have engaged in marketing strategies ‘inimical to the brand and market reputation of the R[&]B Group’.[132] This included a number of particularised sales with heavy discounts on goods, as well as a failure to release a collection of clothing for the new season in line with market expectations and releases in previous seasons.
[132]OP-FAPOC, 22 June 2016, [42].
Balnaring alleges that this reduces the value of the R&B Group. This is said to be oppressive to Balnaring because it reduces, in turn, the value of its Put Option.[133]
[133]Ibid [43].
The defendants allege that these sales were ordinary sales to clear old stock and to pay suppliers, landlords and employees.[134] This was necessitated by the misconduct alleged against Mair.[135] They also allege that new season lines were not held back. Rather, Mair’s misconduct had caused suppliers to delay or cancel orders and new supply agreements had to be struck in many instances.[136]
[134]OP-APOD, 1 April 2016, [42].
[135]Ibid [42(c)].
[136]Ibid [42(h)].
(e) Balnaring alleges that RBG failed to refer the valuation of the Put Option to an expert within 14 days of its exercise, as required by the SUHA. The shares have not otherwise been purchased, and nor has a dividend for the 2015 financial year been paid to Balnaring, to which it alleges it is entitled.[137]
[137]OP-FAPOC, 22 June 2016, [44]–[46].
Balnaring alleges that this is oppressive because it has been unable to take part in the affairs of the company, has been unable to divest itself of its interest in RBG while the value of its holding has been reduced, has been deprived of the value of the SUHA and capital to which it is entitled, and of the use of moneys to which it is entitled.[138]
[138]Ibid [45], [47].
The defendants allege that Balnaring had no right to exercise the Put Option.[139] Balnaring has been excluded because of the misconduct of Mair, which has also led to an inability to pay the dividend (which is subject to a determination of the board that it can be paid without increased borrowing).[140]
[139]OP-APOD, 1 April 2016, [44(a)].
[140]Ibid [45], [46].
(f) Balnaring alleges that the R&B Group entered into a ‘Transfer Pricing Arrangement’ in or around 2013. Balnaring claims that this arrangement involved the R&B Group paying a surcharge of €2 to van Laack Singapore Pte Ltd (‘vLS’) for each item manufactured in Vietnam and purchased for sale by RBG. The RBG paid similar surcharges of 20 percent to vLS for each item manufactured from European fabric and 40 percent for those manufactured from Chinese fabric. Balnaring claims that it issued an invoice to vLS for a share of the surcharges (proportionate to Balnaring’s shareholding in RBG) for the 2013 and 2014 financial years.[141]
[141]OP-FAPOC, 22 June 2016, [48].
Balnaring alleges that the transfer pricing arrangement continues and is oppressive for two reasons. First, the arrangement artificially reduces the value of the Put Option by reducing the earnings of RBG. Secondly, Balnaring (or its nominee) has been unable to recover the surcharges for the 2015 or 2016 financial years.[142]
[142]Ibid [50].
The defendants allege that they entered into an agreement with vLS for the supply of products to RBG which took effect on 1 July 2012, and that vLG agreed to pay Balnaring 20 percent of the amounts paid to vLS for financial year 2013.[143] It otherwise denies the allegations and submits that such conduct could not amount to oppression.[144]
[143]OP-APOD, 1 April 2016, [48].
[144]Ibid [50].
(g) Balnaring claims that the books and records of the R&B Group have been manipulated in a way which is oppressive to Balnaring. Balnaring alleges that a new auditor was appointed by RBG in or around April 2015, without consulting Mair or Balnaring.[145] The books for RBG were prepared by the new auditor in ways different from the 2013 and 2014 financial years. This included a failure to include transfer pricing write backs for Balnaring as described above, and the introduction of line items provisioning for inventory, doubtful debts and unearned lease incentives.[146] Balnaring’s claim also particularises a large number of individual errors in the books which, it alleges, resulted from a failure by RBG to make proper enquiries.[147]
[145]OP-FAPOC, 22 June 2016, [51].
[146]Ibid [52].
[147]Ibid [53], [53A].
Balnaring claims that these errors resulted in reduction in the gross profit of RBG, a substantial increase in RBG’s expenses and the creation (for the first time in its history) of a negative EBITDA (i.e. earnings before interest, tax, depreciation and amortisation) for RBG.[148] Balnaring alleges that this was conduct which was ‘engaged in for the purpose of reducing the EBITDA … and by that means … substantially reducing or destroying the value of the [put] Option’.[149]
[148]Ibid [54].
[149]Ibid [55].
In response, the defendants allege that no resolution was required for the appointment of a new auditor, and that any difference in preparation of financial statements arose from the fact that Mair (in breach of his obligations) failed to keep the books of RBG, Herringbone and vLAH in accordance with s 286 of the Act.[150] In any event, the defendants allege that the statements were prepared in accordance with the Australian Accounting Standards and s 286 of the Act.[151] The 2015 statements were also audited in accordance with Australian Accounting Standards and the Act.[152]
The defendants allege that any reduction in the EBITDA was caused by Mair’s misconduct.[153] The defendants also allege that Mair’s failure or refusal to cause correct entries to be made in the R&B Group’s books for the 2015 financial year constituted aiding, abetting, counselling, procuring or inducing a breach of s 286 of the Act by RBG and vLAH, or that Mair was knowingly concerned in or party to such a breach.[154]
Moreover, the defendants allege that the auditing process necessarily means that the financial statements gave a fair and accurate view of the financial position, and that this cannot be oppressive.[155] The defendants dispute the EBITDA figure given by Mair for the 2014 financial year, and allege that the 2015 EBITDA figure is a result of Mair’s own misconduct.[156]
[150]OP-APOD, 1 April 2016, [51], [52].
[151]Ibid [52A].
[152]Ibid [52B].
[153]Ibid [54].
[154]Ibid [54A].
[155]Ibid [56AA].
[156]Ibid [56AA].
More generally, the defendants assert that the allegations in relation to Mair can have no bearing on the oppression claim because Mair is not a party to that action.[157] Those allegations are the subject of the termination proceeding, and so ought not be pursued in the oppression proceeding.[158]
[157]Ibid [7].
[158]Ibid [7].
The defendants also allege that the misconduct of Mair means that the defendant’s conduct is ‘not unfair’ in the relevant sense such that Balnaring is not entitled relief.[159]
[159]Ibid [60].
Relief Sought for Oppression
Balnaring claims that the oppressive conduct of RBG has reduced the value of its shares the Group. It alleges that the purchase price for the option ought to have been paid by (at the latest) 24 July 2015. The value of the EBITDA for RBG has decreased from $3,644,000 to an ‘artificial figure’ of less than negative $5,000,000.[160]
[160]OP-FAPOC, 22 June 2016, [57]–[58].
Balnaring also claims the loss of $290,805 for the dividend for the financial year ending 30 April 2015.
Balnaring alleges that is entitled to relief from the oppressive conduct under s 233 of the Act. Sub-section (1) of that provision reads as follows:
233.Orders the Court can make
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)that the company be wound up;
(b)that the company’s existing constitution be modified or repealed;
(c)regulating the conduct of the company’s affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company’s share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)appointing a receiver or a receiver and manager of any or all of the company’s property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j)requiring a person to do a specified act.
Order that the company be wound up
(2)If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply:
(a)as if the order were made under section 461; and
(b)with such changes as are necessary.
Order altering constitution
(3)If an order made under this section repeals or modifies a company’s constitution, or requires the company to adopt a constitution, the company does not have the power under section 136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless:
(a)the order states that the company does have the power to make such a change or repeal; or
(b)the company first obtains the leave of the Court.
Balnaring seeks, in summary, the following orders:[161]
[161]Ibid [62].
(a) vLAH purchase Balnaring’s shares in R&B and RBG;
(b) the price of those shares be determined by an independent expert as provided by the SUHA, adjusted to account for the defendant’s wrongdoing;
(c) alternatively, orders that R&B and RBG be wound up (whether under s 233 or s 461(1)(k) of the Act);
(d) further or in the alternative to the above, specific performance (as against vLAH and R&B) of the Put Option contained in cl 12 of the SUHA or the contract requiring payment of the purchase price for transfer of the Minority Interests in RBG, with appropriate directions as to the valuation and timing of calculations of the EBITDA, and/or equitable compensation;
(e) further or in the alternative to specific performance, damages for breach of the contract with interest;
(f) further, payment by the defendants of $290,805, being the dividend for the financial year ended 30 April 2015;
(g) such further orders as may be necessary; and
(h) costs.
Urgent Hearing on 16 February 2017
The Mair parties brought an application for urgent relief on 16 February 2017. In summary, the applications were:[162]
[162]Urgency arises because amongst other very pressing circumstances relevant assets of R&B and Herringbone, now under administration and the subject of injunctions sought by the Mair parties, are being realised by the Administrators with indicative offers from prospective purchasers due to be submitted on 17 February 2017; see paragraph [20] below.
(a) an application, pursuant to liberty to apply, for various orders for relief in both the oppression proceeding and the termination proceeding which, in general terms, were that:
(vi) vLG be joined as a party to the oppression proceeding and that the Further Amended Points of Claim be amended to include the claim set out in Schedule 1 to the Mair parties’ Outline of Joinder and Injunction Submissions dated 15 February 2017;
(vii) the van Laack parties be directed to provide specified financial information to the Mair parties;
(viii) R&B be enjoined from selling the R&B Business other than on 72 hours’ notice to the Mair parties;
(ix) Herringbone be enjoined from selling the Herringbone business other than on 72 hours’ notice to the Mair parties;
(x) vLAH, RBG and R&B be restrained from taking any steps to pay, settle or otherwise compromise debts described in various notices of assignment dated 17 January 2017 and purportedly given in accordance with s 134 of the Property Law Act 1958 (Vic); and
(xi) vLAH, RBG, R&B and Herringbone be restrained from making payments to vLG.
(b) an application, by summons filed 14 February 2017, for orders against vLG, vLAH and von Daniels for alleged contempt of Court in both the oppression proceeding and in the termination proceeding.
Judgment in respect of the above applications was delivered on 17 February 2017.[163] The following orders were made:
[163][2017] VSC 54.
Application for Injunctive Relief
Proceeding S CI 2015 1745
1.Pursuant to rule 9.06(b) of the Supreme Court (General Civil Procedure) Rules 2015 van Laack GmbH be joined as the fourth defendant in proceeding S CI 2015 1745.
2.The plaintiff has leave to amend its points of claim to include a claim against van Laack GmbH as guarantor of the first defendant’s payment obligations under the Share and Unit Holders Agreement dated 1 August 2012 by filing and serving amended points of claim together with the Originating Process amended to reflect the joinder in paragraph [1] above on or before 4.00pm on 22 February 2017, substantially in the form annexed to the plaintiff’s submissions on the application for joinder dated 15 February 2017.
3.By 4.00pm on 1 March 2017, van Laack GmbH file and serve its Defence to the plaintiff’s amended points of claim.
4.The hearing and determination of the matters the subject matter of the amended and responsive pleadings referred to above be deferred until a date to be fixed by the Court after the delivery of judgment in the Oppression Proceeding.
Proceedings S CI 2015 1743 and S CI 2015 1745
5.Pursuant to s 440D of the Corporations Act 2001 (Cth) the plaintiff in each proceeding has leave to proceed against Rhodes & Beckett Pty Ltd (Administrators Appointed).
6.Save subject to further specific leave of the Court, the plaintiff shall not enforce any order made against Rhodes & Beckett Pty Ltd (Administrators Appointed).
Provision of information
7.By 4.00pm on 2 March 2017, van Laack Australia Holding Pty Ltd by its directors serve on the plaintiff an affidavit as to the following matters:
(a)the current value of the debt owed by the Rhodes & Beckett Group and Herringbone Pty Ltd (Administrators Appointed) to van Laack GmbH;
(b)the circumstances in which the debt described in (a) above has increased in the period April 2015 to 14 February 2017;
(c)details of each debt described in the said notices of assignment dated 17 January 2017 to van Laack Australia Holdings Pty Ltd and Rhodes & Beckett Pty Ltd (Administrators Appointed) and to Herringbone Pty Ltd (Administrators Appointed) including:
(i)the security, if any, held by Toga Beteiligungsegesellschaft mbH prior to the assignment of the debt; and
(ii)whether the debts were assigned for consideration, and, if so, details of that consideration; and
(iii)details of all payments made to van Laack GmbH under each of the assignments.
Provision of accounts
8.By 4.00pm on 27 February 2017 van Laack Australia Holdings Pty Ltd give the plaintiff a copy of:
(a)the end of year accounts for the 2016 financial year, whether audited or not; and
(b)the management accounts as at 6 February 2017
for each of:
(c)van Laack Australia Holdings Pty Ltd
(d)Rhodes & Beckett Group Pty Ltd;
(e)Rhodes & Beckett Pty Ltd.
9.The plaintiff pay the Administrators’ costs of and associated with the plaintiff’s applications, made by way of liberty to apply, on a standard basis such costs to be taxed and paid forthwith.
Ultimately, only the availability of damages impedes the granting specific performance as claimed by Balnaring.
If Balnaring were not to have succeeded in establishing an entitlement to damages at common law, which for the reason I note below, are to be finally assessed in connection with the breaches of the SUHA and its embedded Transfer Contract, I would grant Balnaring specific performance of that agreement.
Damages
Balnaring however also presses its claim for damages at common law for breach of the SUHA and the Transfer Contract as an alternative to specific performance. Failure to perform that contract according to its terms will engage a secondary obligation to pay damages.[743]
[743]Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 848-50.
Senior Counsel for Mair submitted that the measure of damages in this context is the price of the Minority Party Interest shares.[744]
[744]T1348.21-24.
That submission can be accepted. The principal objective of an award of damages for breach of contract is to place the injured party in the position he would have occupied had the contract been performed.[745] In this case, if the defendants had complied with the SUHA and Transfer Contract, Balnaring would have received the purchase price of itsshares from vLAH and R&B.
[745]Robinson v Harman (1848) 1 Ex 850, 855.
I consider that Balnaring is entitled to damages from vLAH in respect of its breaches of the SUHA, in particular cls 12, 13 and 14 and embedded Transfer Contract.
Further, in my view, those damages are most justly and appropriately in a sum to be valued in the same manner I have identified above in relation to Balnaring’s claim for specific performance.
Balnaring is also entitled, pursuant to its claim for breach of cl 5.4 of the SUHA, to damages in respect of the non-payment of that Dividend entitlement which was agreed to be calculated as 20% of 60% of the net profit for the R&B Group, B&K and BB. This Dividend entitlement has been calculated by Paolacci in his Report of 17 March 2016.[746]
[746]MS807; MS812-813 (7.3) and Appendix 9.
Statutory Relief
If the Court finds oppression within the meaning of s 232 of the Act, an order can be made under s 233. Section 233 provides in part:
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b)that the company's existing constitution be modified or repealed;
(c)regulating the conduct of the company's affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e) for the purchase of shares with an appropriate reduction of the company's share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)appointing a receiver or a receiver and manager of any or all of the company's property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j)requiring a person to do a specified act.
The possible orders outlined in subparagraphs (a) to (j) above are not exhaustive of those which might be appropriately made in the exercise of the court’s powers pursuant to s 233 of the Act. The court can make any order it deems appropriate in the circumstances of each case.[747]
[747]RP Austin, Ford Austin & Ramsay’s Principles of Corporations Law (LexisNexis Butterworths, 2015) [10.475].
The principal form of relief sought under s 233 is an order requiring vLAH to purchase their shares in R&B and R&B Group pursuant to the independent valuation detailed above. That has been described as ‘the most usual order’ in circumstances where the applicant seeks to leave the oppressed company.[748] Such an order can be made against the company itself and its members.[749]
[748]Ibid [10.475.12].
[749]Corporations Act 2001 (Cth), s 233(1)(d)(e).
In Scottish Co-operative Wholesale Society Ltd v Meyer,[750] Lord Denning observed:
One of the most useful orders mentioned in the section — which will enable the court to do justice to the injured shareholders — is to order the oppressor to buy their shares at a fair price… It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making an oppressor make compensation to those who have suffered at his hands.[751]
[750][1959] AC 324.
[751]Ibid 369.
In Rankine v Rankine,[752] Thomas J of the Supreme Court of Queensland approached the issue in similar terms:
In granting a remedy in favour of an oppressed shareholder…by ordering the compulsory purchase of the applicant's shares at a stated price, the court is in effect awarding compensation for the respondents’ breach of duty. The nature of the duty is both subtle and complex, and not capable of exhaustive definition…[753]
[752](1995) 18 ACSR 725.
[753]Ibid 730-31.
If the Court does not grant such an order, Balnaring submits the appropriate remedy is for the companies to be wound up pursuant to s 233 of the Act.
In Cumberland Holdings Ltd v Washington H Sould Pattinson & Co Ltd,[754] Lord Wilberforce, delivering the judgment of the Privy Council on appeal from the Supreme Court of New South Wales, observed:
…the statutory provisions are widely expressed and effect should be given to them in accordance with their terms whenever the court comes to the conclusion that there has been a lack of fairness, or oppression, or lack of probity on the part of the majority, or of the directors representing the majority. But to wind up a successful and prosperous company and one which is properly managed must clearly be an extreme step and must require a strong case to be made.[755]
[754](1977) 13 ALR 561.
[755]Ibid 566.
The authorities indicate that engaging in oppressive conduct exposes the wrongdoer to potential liability to pay compensation for loss.[756]
[756]Re Hollen Australia Pty Ltd [2009] VSC 95, [89] (Robson J).
In crafting a remedy under s 233 of the Act, the Court will have regard to the need to bring the oppressive conduct to an end and to place the injured party in the position it would have occupied, to the extent that this is possible, had the oppressive conduct not occurred.
Where the injured party seeks to leave the company in question, it may be appropriate to order the person guilty of oppression to purchase the injured parties’ shares at a fair price. Winding up the subject company as a response to shareholder oppression is a remedy of last resort, including for the reasons identified above by Lord Wilberforce in Cumberland Holdings.[757]
[757]French v Smith [2004] VSCA 207, [122]; Re Hollen Australia Pty Ltd [2009] VSC 95, [79].
Winding up on Just and Equitable Grounds
If the Court does not find that there has been statutory oppression within the meaning of s 232 of the Act, Balnaring seeks winding up on just and equitable grounds.
Section 461 of the Act provides in part:
(1) The Court may order the winding up of a company if:
…
(k)the Court is of opinion that it is just and equitable that the company be wound up.
In Re Westbourne Galleries Ltd,[758] Lord Wilberforce explained the jurisprudential basis for a ‘just and equitable’ winding up provision as analogous to equitable constraints on the assertion of legal rights. His Lordship observed:
The words [‘just and equitable’] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. The ‘just and equitable’ provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.[759]
[758][1973] AC 360.
[759]Ibid 379 (citations omitted).
In Australian Securities and Investments Commission v Letten (No. 11),[760] Gordon J summarised some of the circumstances in which companies have been wound up under s 461(1)(k) of the Act:
The categories of circumstances that satisfy the just and equitable ground are not closed or rigid. In the past, orders under s 461(1)(k) of the Act have included cases:
1. Where, on application by a public authority, it is in the public interest that a company be wound up because there is a justifiable lack of confidence in the conduct and management of the affairs of the company
2. Where the winding up will serve to protect investors
3. The affairs of the company have been conducted in a way which demonstrates a lack of probity productive of a justifiable lack of confidence in the administration of the company, or where there has been misconduct or illegality in the conduct of the affairs such as it is in the public interest in the protection of investors that the company be wound up.[761]
[760][2010] FCA 468.
[761]Ibid [12]-[14] (citations omitted).
Balnaring points to the disintegration of the parties’ working relationship as the basis for a winding up order on just and equitable grounds.[762] That has been recognised as a sound basis for such an order. In Kokotovich Constructions Pty Ltd v Wallington,[763] Kirby ACJ held:
True, winding up the company was an extreme step. However, Young J realised and stated this. Given the continuing animosity which exists between the two shareholders, the real risk, as I would judge, of further oppression, and the very limited nature of the company's present activities, the order would seem to be soundly based.[764]
[762]T1350.1-9.
[763](1995) ACSR 478.
[764]Ibid 494.
In Nassar v Innovative Precasters Group,[765] three companies, each of whom had the same three directors, were wound up after a series of events culminated in a physical altercation. Notwithstanding the applicant’s failure to show statutory oppression, Barrett J observed:
…this is a classic case for the making of a winding up order on the ground that irretrievable breakdown of the relationship between the members makes winding up just and equitable.[766]
[765](2009) 71 ACSR 343.
[766]Ibid 366.
Even so, a similar concern to ensure that winding up is a remedy of last resort conditions the exercise of the Court’s power under s 461(1)(k) of the Act. Section 467 provides in part:
(4) Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a)the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy
This provision directs the Court to alternatives which are less coercive remedies. Such remedies include orders facilitating the acquisition of the oppressed party’s shares and non-statutory remedies.[767] In Host-Plus Pty Ltd v Australian Hotels Association,[768] Hansen J noted:
In so far as the matter of power is concerned, I am of the view that ‘other remedy’ in s467(4) is not restricted to a legal remedy in the sense of a cause of action but is to be understood in the wider sense of a course of action otherwise open to the party. This interpretation accords, in my view, with the nature of the ground, the flexibility desirable in the resolution of such cases, and is consistent with the dictionary meaning of the word ‘remedy’. In the particular circumstances of this case ‘other remedy’ would, in principle, extend to acquisition of the AHA shares, and constitutional change.[769]
[767]Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368, [217]-[220].
[768][2003] VSC 145.
[769]Ibid [67].
Although the disintegration of the relevant parties’ working relationship may necessitate winding up the subject companies on just and equitable grounds, such a coercive measure should not be ordered where less drastic relief, such as an order requiring the purchase of the plaintiff’s shares, is available and would be effective in the circumstances.
Decision on Remedy in the Oppression Proceeding
In respect of the relief for oppression sought, I consider that the most appropriate, fair and just remedy likely to have the least severe commercial ramifications on, and in relation to the R&B and R&B Businesses, is to order that vLAH purchase Mair’s Minor Interests, including as canvassed above in relation to specific performance, shares in R&B and in RBG.
As to the question of the purchase price, Mair urges for an independent valuer to be appointed using the R&B Financial Accounts from the Financial Year 2014, to determine the EBITDA for the purposes of the contractual formula in the SUHA for the valuation of the Put Option and Balnaring and Mair’s share value in respect of their Minor Party Interests, and Balnaring’s entitlements in the circumstances pursuant to the SUHA..
This is because the oppressor, vLAH and the R&B Group, has rendered the 2015 Accounts (which if the contract terms were working as intended would be used as the base for the sale price calculation), inaccurate, unsafe and reflecting a large operating deficit.
The oppressive conduct has therefore also created the situation where it would likely be very costly, and time consuming and doubtful of a sufficiently certain result, for an independent valuer to attempt to reconstruct the 2015 Financial Accounts.
The defendants submit that application of SUHA formula to value the Put Option using the accounts from the 2014 Financial Year to determine the EBITDA is not contractual and that this would be re-writing the parties’ agreement.
In my view, in the above circumstances, Balnaring is entitled to orders pursuant to s 233 of the Act, which provide for very flexible remedies and if called for I should resolve the above by ordering that Balnaring’s Minority Interest Put Option be valued using the financial accounts of the R&B Group in Financial Year 2014.
These accounts have been verified, in substance, by both an Australian and a German auditor engaged by the van Laack parties, as I have earlier alluded. Nor is it established that these accounts have been tainted or are unreliable or unsafe by reason of any adjustment, like the Transfers infecting the 2015 Financial Year Accounts of the R&B Group.
Prominent amongst my reasons for upholding Balnaring’s entitlement to relief under s 233 are the following considerations:
I have found oppression pursuant to s 232 of the Act in relation to a number of Balnaring’s grounds:
(a) one successful ground of oppression is that R&B, controlled by the van Laack parties, summarily dismissed Mair and emasculated his ability to manage the R&B Business while also wrongfully excluding him from the management of the R&B Business;
(b) another successful ground of oppression is that the R&B Group effected many and substantial incorrect and inappropriate adjustments (the Transactions) to the books of account of R&B Group in the 2015 Financial Year, via unjustified adjustments made in error byRanieri. This also effected, unless somehow rectified, a reduction in the R&B Group EBITDA for the 2015 Financial Year in Balnaring and Mair’s share value in respect of their Minority Party Interests and Balnaring’s entitlements, in the circumstances pursuant to the SUHA;
(c) yet another successful ground is founded on the imposition of surcharges by vLAH on the R&B and the R&B Group which adversely affected the EBITDA for the Financial Year 2015 and thereby Balnaring’s Minority Party Interest in the R&B Group.
I accept that the accounting evidence indicating the adjustments represented by the Transfers in respect of the R&B Group’s 2015 Financial Accounts has resulted in it being a herculean, slow and likely very costly exercise to try and undo the adjustments wrongfully made, identified and yet to be identified, and reconstitute those accounts. I am also of the view that there is a very real risk that the outcome of that task will be unacceptable uncertainty in relation to the EBITDA for the 2015 Financial Year.
Further, pursuant to the SUHA:
(a) upon the Triggering Event of the Managing Director’s termination in accordance with the terms of his ESA , he and Balnaring would be entitled to exercise a Put Option pursuant to Cl 12 of that SUHA in relation to the Minor Parties’ Interest, including their shareholding.
The ESA provides that upon exercise of the Put Option the Majority Shareholders shall acquire the Minor Parties interests by paying 5 x EBITDA for the 12 calendar months preceding the date the Put Option Notice is given (‘the Relevant Period’);
(b) the notice by which Mair exercised the SUHA Put Option was given by him to the R&B Group on 17 April 2015 pursuant to cl 12(d)(b) of the SUHA;
If Mair had been dismissed as Managing Director pursuant to the terms of the ESA, then the Relevant Period for the purpose of the exercise of his Put Option would have been the 12 months from 1 April 2014 to 31 March 2015, under the terms of cl 12 of the SUHA.
In addition the independent valuation of the purchase price should be adjusted for the imposition of the surcharges identified and complained of by Balnaring and foreign exchange losses.[770]
[770]MS810-811; Paolacci (5.8.5), (6.2.4) and (6.3.3).
Accordingly, the payment for the relevant Minority Interest under the SUHA might be effected on two bases.
The first could be via an order for specific performance of the Transfer Contract. In this regard, however I again refer to my above conclusion about this potential remedy given the availability of damages for breach of the SUHA. As detailed above, I am of the view that the Put Option entitlement was enlivened by Mair’s resignation, but although the SUHA remains on foot the subsequent repudiation of the ESA and the SUHA by R&B and vLAH has disrupted the contractual scheme provided for in cls 12, 13 and 14 of the SUHA.
The second is via appropriate equivalent relief ordered pursuant to s 233 of the Act. To the extent that it is not possible or practical to invoke the SUHA in this regard, Balnaring is entitled to be granted relief analogous to specific performance under s 233 of the Act ordering the purchase by vLAH of Balnaring’s shares in R&B and RBG, at a price to be assessed by reference to the R&B Group EBITDA for the Financial Year 2014 adjusted for Fabric and Item Surcharge and foreign exchange losses. Such an order is appropriate, just and would obviate great expense and delay for reasons I have touched on in relation to the adjustments/Transactions to the R&B Group EBITDA for the Financial Year 2015.
Balnaring is also quite separately entitled to damages at common law for breach of the SUHA Put-Option entitlements pursuant to cls 12, 13 and 14 includng via the Transfer Contract mechanisms in cl 14 and in relation to non-payment of the Dividend to which it is entitled hereunder. I have earlier identified the way in which those damages are quantified, including by means of the R&B Group’s EBITDA for 2014 adjusted for transfer pricing of surcharges and foreign exchange losses.
I shall provide the parties an opportunity consider and propose the precise term of orders suitable to effectuate the above decisions. I observe that in the circumstances Balnaring is in a position, subject to hearing from the defendant parties to the claims, to elect as to the precise relief it now seeks to have ordered.
Decision
For the above reasons I:
(a) uphold the Mair Termination claims;
(b) dismiss the Counterclaim brought by the plaintiffs’ to counterclaim;
(c) uphold the Balnaring Oppression claims;
(d) uphold Balnaring’s claim for damages, including in relation to a Dividend, for breaches of the SUHA;
(e) uphold Balnaring’s alternative claim for the purchase by vLAH and transfer by vLAH of Balnaring’s shares in R&B and RBG pursuant to s 233 of the Act.
I shall await the parties’ submissions, if necessary, in relation to the Orders and the relief on the plaintiff’s claims referred to above.
---
SCHEDULE OF PARTIES TO THE TERMINATION PROCEEDING
| S CI 2015 1743 |
BETWEEN
| NELSON KEITH ROBERTSON MAIR | Plaintiff |
| - and - | |
| RHODES & BECKETT PTY LTD (ACN 118 576 364) (Administrators Appointed) | Defendant |
AND BETWEEN:
| RHODES & BECKETT PTY LTD (ACN 118 576 364) (Administrators Appointed) | First Plaintiff by Counterclaim |
| HERRINGBONE PTY LTD (ACN 135 481 953) (Administrators Appointed) | Second Plaintiff by Counterclaim |
| RHODES & BECKETT GROUP PTY LTD (ACN 135 008 801) | Third Plaintiff by Counterclaim |
| VAN LAACK AUSTRALIA HOLDINGS PTY LTD (ACN 159 334 460) | Fourth Plaintiff by Counterclaim |
| VAN LAACK GMBH | Fifth Plaintiff by Counterclaim |
| - and - | |
| NELSON KEITH ROBERTSON MAIR | First Defendant by Counterclaim |
| LUXURY RETAIL NO 1 PTY LTD (ACN 166 798 723) | Second Defendant by Counterclaim |
| LUXURY RETAIL GROUP PTY LTD (ACN 604 195 717) | Third Defendant by Counterclaim |
| BALNARING HOLDINGS PTY LTD (ACN 118 886 669) | Fourth Defendant by Counterclaim |
SCHEDULE OF PARTIES TO THE OPPRESSION PROCEEDING
| S CI 2015 1745 |
BETWEEN
| BALNARING HOLDINGS PTY LTD (ACN 118 886 669) as trustee for the Balnaring Trust | Plaintiff |
| - and - | |
| VAN LAACK AUSTRALIA HOLDINGS PTY LTD (ACN 159 334 460) | First Defendant |
| RHODES & BECKETT PTY LTD (ACN 118 576 364) (Administrators Appointed) | Second Defendant |
| RHODES & BECKETT GROUP PTY LTD (ACN 135 008 801) | Third Defendant |
| VAN LAACK GMBH | Fourth Defendant |
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