McLean v DID Piling Pty Ltd - [2014] SASC 76

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
MCLEAN v DID PILING PTY LTD & ORS
[2014] SASC 76
Reasons for Decision of The Honourable Justice Nicholson
24 June 2014
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - FIDUCIARY AND RELATED STATUTORY DUTIES
In December 2003, the plaintiff and the second and third defendants incorporated the first defendant company for the purpose of conducting a foundation piling business. Interests associated with the plaintiff and the third defendant each held, respectively, a 24.5 per cent minority interest and an interest associated with the second defendant held a 51 per cent majority interest in the issued share capital. The plaintiff was employed by the first defendant on commercial terms to conduct the day to day operations of the business and did so until about August 2007. At this time, the relationships between the plaintiff and the second and the third defendants broke down. On the defendants’ case and during the period after the plaintiff ceased any involvement with the business, the first defendant’s financial position deteriorated significantly. In April/May 2009 the Board of the first defendant (being the third defendant as its sole director at the time) resolved to issue additional shares in order, inter alia, to obtain additional working capital. Shares were offered to each of the plaintiff, the second defendant and the third defendant in accordance with the pre-emptive share issue provisions in the company’s constitution. The plaintiff chose not to take up his entitlement. As a consequence, his entitlement was offered to and taken up by the second and third defendants. After the recapitalisation, the plaintiff’s minority interest in the company was reduced to a negligible proportion. The plaintiff alleged that the actions of the first defendant, in obtaining additional working capital by this method, was an act of oppression by the company falling within s232 of the Corporations Act 2001. The plaintiff also alleged that other conduct engaged in by the second and third defendants on behalf of the company or on their own behalf was oppressive and in breach of fiduciary duties owed to the plaintiff by the second and third defendants in their capacities as a director.
Held: Plaintiff’s claim dismissed. No improper conduct or acts of oppression by any of the defendants were established by the plaintiff and, in particular, the share recapitalisation in April/May 2009 was not shown to have been for an improper purpose or oppressive.
Corporations Act 2001 s9, s232, s233; Fords Principles of Corporations Law to be supplied, referred to.
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; R v Bonython (1984) 38 SASR 45; Sych v Hunter (1974) 8 SASR 118; R v Reiner (1974) 8 SASR 102; R v Bjordal (2005) 93 SASR 237; Flavel v South Australia (2008) 102 SASR 404; Richard Brady Franks Ltd v Price (1937) 58 CLR 112; Mills v Mills (1938) 60 CLR 163; Ngurli Ltd v McCann (1953) 90 CLR 425; Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199; Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; Turnbull v NRMA Ltd (2004) 50 ACSR 44; Blatch v Archer (1774) 1 Cowp 63, 98 ER 969; Jones v Dunkel (1959) 101 CLR 298; O’Donnell v Reichard [1975] VR 916; Payne v Parker [1976] 1 NSWLR 191; Spence v Demasi (1988) 48 SASR 536; Frederick v State of South Australia (2006) 94 SASR 545, considered.

MCLEAN v DID PILING PTY LTD & ORS
[2014] SASC 76
NICHOLSON J.
Introduction

On 15 December 2003 the first defendant, DID Piling Pty Ltd (“DID”) was incorporated for the purpose of establishing and conducting a piling business.[1]
[1] Essentially the work of creating a deep base to enable substantial civil engineering works (buildings, bridges and the like) to be built on a sound and secure foundation. The process involves driving and embedding piles, in this day and age usually made of concrete or steel, into the ground.
At the time of incorporation and at all material times thereafter until 22 May 2009:
(i)interests associated with the plaintiff[2] (“Mr McLean”) subscribed for, obtained and held 245 one dollar shares out of an issued capital of 1,000 one dollar shares in DID;
(ii)Tari Pty Ltd, an entity associated with and controlled by the second defendant (“Mr Tarbotton”) held 510 of the issued shares in DID; and
(iii)F & V Trading Pty Ltd, an entity associated with and controlled by the third defendant (“Mr Vieceli”) held 245 of the issued shares in DID.
As a consequence, at all material times until 22 May 2009, interests under the control of Mr McLean, Mr Tarbotton and Mr Vieceli owned 24.5 per cent, 51 per cent and 24.5 per cent of the issued capital of DID, respectively. Mr McLean was the sole director of DID from the date of incorporation until 26 March 2004, Mr Tarbotton was the sole director of DID between 26 March 2004 and 14 December 2007 and Mr Vieceli has been the sole director of DID since 14 December 2007.
[2] BDS Contracting Pty Ltd until 12 June 2007 and the plaintiff, in his personal capacity, thereafter.
In these proceedings, Mr McLean has brought a minority oppression claim, within the meaning of s232 of the Corporations Act 2001, against DID. He also alleges breaches of a fiduciary duty said to have been owed to him by each of Mr Tarbotton and Mr Vieceli.
During his evidence, Mr McLean said that Mr Tarbotton and Mr Vieceli had no role in the day to day running of DID. Mr Tarbotton had a financial background and Mr Vieceli had an engineering background. Mr Tarbotton and Mr Vieceli also had a connection or association with a company called York Civil Pty Ltd (“York Civil”) which was engaged in the construction of large civil engineering works, including the provision of piling services either performed itself or through sub-contracting arrangements. In the early days, DID obtained some piling work as a result of this connection with York Civil. The nature of the connection between Mr Tarbotton and Mr Vieceli with York Civil was never fully explored in the evidence.
In any event, it would appear that neither Mr Tarbotton nor Mr Vieceli engaged in any hands on work on behalf of DID but rather assumed the roles of investors in the company, of being available for consultation and of exercising some measure of supervision over the management of the company.
For many many years prior to the incorporation of DID, Mr McLean had been a very experienced, and by all accounts very competent, piling contractor. From the beginning, he was engaged by DID, full time and on commercial terms as to his remuneration, as the general manager of DID. He was responsible for quoting for and obtaining work, procuring the necessary equipment, procuring the necessary labour and supervising the work to be done as a consequence of sub-contracts won. He also physically worked on the sites.
According to Mr McLean and during the years in which he was actively engaged in running DID, the company built up a successful piling business. Mr McLean was of the view that the company was financially successful. However, the relationship between Mr McLean, Mr Tarbotton and Mr Vieceli deteriorated during late 2006 and 2007. Ultimately, Mr McLean had a “breakdown” and, from in or about August 2007, ceased working in any respect for DID. Mr McLean started to receive worker’s compensation, although his claim for worker’s compensation was challenged by Mr Tarbotton and Mr Vieceli (on behalf of DID) which, no doubt, led to a further deterioration in the relationship. In late 2008, Mr McLean commenced a process which he hoped would lead to the valuation and the sale to Mr Tarbotton and/or Mr Vieceli of his 24.5 per cent interest in DID. That process was unsuccessful.
On 29 April 2009, a letter[3] was sent to Mr McLean by Mr Vieceli, in his capacity as director and secretary of DID. The letter was headed “Notice of offer of shares in the capital of the company”. The letter advised Mr McLean that Mr Vieceli, as sole director, had resolved to seek additional capital in order to:
(i)strengthen the company’s balance sheet;
(ii)increase the company’s ability to tender for future works and, in particular, larger government infrastructure work;
(iii)replenish the company’s cash reserves after refurbishing plant at a cost of $150,000 and a renovation of its barges at a cost of $320,000; and
(iv)provide working capital generally.
The letter indicated that the additional capital was to be provided partially by external debt funding and partially by a share capital raising.
[3] Exhibit P9, being page 235 of MFI P1.
An offer was made to Mr McLean, as holder of 24.5 per cent of the issued capital of DID, to subscribe for that same percentage of the proposed new issue shares. He was offered 61,250 one dollar ordinary shares for a total subscription amount of $61,250. Similar offers were made to Mr Tarbotton and Mr Vieceli himself.
Mr McLean chose not to participate in the capital raising. As a consequence, the allotment of the new issue shares, including those shares initially offered to Mr McLean, was taken up by Mr Tarbotton and Mr Vieceli in the proportions of their respective (vis a vis one another) existing shareholdings. On 22 May 2009, a further 158,125 ordinary one dollar shares in DID were issued to Tari Pty Ltd (as trustee of the Tarbotton Family Trust) and a further 91,875 ordinary one dollar shares in DID were issued to F & V Trading Pty Ltd (as trustee of the Vieceli Family Trust).
Following this recapitalisation of DID, the interest associated with Mr Tarbotton held approximately 63.2 per cent of the issued capital, the interest associated with Mr Vieceli held approximately 36.7 per cent of the issued capital and Mr McLean now held approximately 0.1 per cent of the issued capital.
In these proceedings, Mr McLean has brought two claims.
The first claim is that Mr Tarbotton and/or Mr Vieceli, in their capacities as director or directors of DID, owed Mr McLean, in his capacity as a shareholder of DID, a fiduciary duty that they would exercise their powers and discharge their duties as directors for a proper purpose, in good faith, and so as to avoid a conflict of duty and personal interest.
Mr McLean, in his fourth statement of claim sets out a number of particulars said to support this allegation against Mr Tarbotton and Mr Vieceli personally, including but not limited to, their respective roles in having Mr Vieceli cause DID to seek a capital subscription from shareholders,
when he knew full well that as at the time of the subscription DID did not require the funds, nor did Mr McLean have the capacity to pay them. The capital subscription was merely a device designed to further the objectives of Tarbotton and Vieceli in forcing McLean out of DID.[4]
[4] The third paragraph of the particulars sub-joined to paragraph 13(c) of the fourth statement of claim.
The fiduciary duty said by Mr McLean to have been owed by Mr Tarbotton and Mr Vieceli is alleged[5] to have arisen,
by reason of the positions held by Tarbotton and Vieceli as directors in conjunction with their combined majority shareholding in DID.
[5] See the particulars sub-joined to paragraph 10(b) of the fourth statement of claim.
Notwithstanding the level of influence Mr Tarbotton may[6] have had, as a matter of fact, over Mr Vieceli and notwithstanding his majority shareholding (51 per cent) and therefore his capacity to control at least ordinary resolutions by shareholders, it is difficult to see any justification for the plea that he owed, in his capacity as a director, a fiduciary duty to Mr McLean as at the time of the capital raising (22 May 2009) given that Mr Tarbotton had ceased to be a director on 14 December 2007.
[6] There is little, if any, evidence on this topic and no evidence that would permit findings on this topic to be reached. There is no pleaded claim that either Mr Tarbotton or Mr Vieceli, during the periods each was not fulfilling the role of director, was acting as a shadow director, see s9(b)(ii) of the Corporations Act 2001 and, for example, Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109.
The second, and primary claim, brought by Mr McLean is an oppression claim, within the meaning of s232 of the Corporations Act 2001, against the company, DID, and also against both Mr Tarbotton and Mr Vieceli (although in what precise capacities is not identified in the pleading). Paragraph 13A of the fourth statement of claim is in the following terms.
Further or alternatively and by reason of the matters pleaded in paragraphs 10, 11 and 13:
(a)Tarbotton; and
(b)Vieceli; and
(c)DID
have conducted the company’s affairs:
(i)in a manner contrary to the interests of the members as a whole; and/or
(ii)in a manner oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiff in his capacity as a member of the company
within the meaning of s232 of the Corporations Act 2001.
Particulars
The plaintiff refers to and repeats the particulars sub-joined to paragraph 11 of the statement of claim.
Section 232 provides as follows.
The Court may make an order under section 233 if:
(a)the conduct of a company’s affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, of members or a class of members of a company; is either:
(d)contrary to the interest of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
The essence of the plaintiff’s complaints
Mr McLean’s oppression claim is based on the contention that the reason given by DID (in the letter from Mr Vieceli) for the capital raising was false and that its true purpose was to bring about a reduction of Mr McLean’s interest in DID.[7] In addition, Mr McLean has pleaded other “oppressive” behaviour by Mr Tarbotton and/or Mr Vieceli on behalf of DID during the conduct of DID’s business affairs. However, during the opening and throughout the trial, it was made plain by counsel for Mr McLean that this other “oppressive” behaviour was not relied on as acts of oppression falling within s232.
[7] Plaintiff’s opening, transcript T15, T16.
Counsel was repeatedly pressed on this issue. He confirmed that Mr McLean sought to rely on this other “oppressive” behaviour for two reasons only. The first reason was, as evidence of background events – “old fashioned relationship evidence” - that will help in an understanding of how the parties were dealing with one another leading up to the act of oppression relied on, being the capital raising. The second way in which this additional “oppressive” behaviour was relied upon by Mr McLean was, in order to justify certain assumptions made by Mr McLean’s expert valuer (Mr Philip Plummer) in arriving at a valuation or assessment of Mr McLean’s capital loss as a consequence of the capital raising. On Mr McLean’s case, if certain aspects of the additional particularised behaviour relied upon were to be established, this would lead to an adjustment (by way of income add-backs) to the DID financial accounts relied upon by Mr Plummer when positing his valuation of the DID enterprise from which he purported to derive an assessment of Mr McLean’s alleged loss.
The concession that the additional particularised behaviour was relied on by Mr McLean for only these two purposes was important to the defendants. The defendants had drawn their defence and prepared for the trial after having taken certain forensic decisions based on what, in their view, was open for Mr McLean to pursue on the basis of his pleaded case. The defendants submitted that it was important, that Mr McLean, in presenting his case, not be permitted to stray into the pursuit of a derivative action, ordinarily brought by a shareholder on behalf of a company but not to be brought by a shareholder in their own name and for their own direct benefit.
Counsel for Mr McLean was clear to the effect that the additional particularised conduct was only relevant to the two matters just outlined.[8] In this respect, counsel agreed that if I were to be against his client and to hold that the capital raising was explicable on a basis that was not to be characterised as oppressive, that would be the end of Mr McLean’s liability case.[9] Counsel agreed that, if the capital raising had been for proper company purposes, the fact that the plaintiff was unable to participate (if so) would not, of itself, make the company’s conduct oppressive.[10] Given the way in which the trial was conducted, Mr McLean is to be held to this acknowledged or conceded position, concerning the additional particularised allegations.
[8] See, for example, T78-81.
[9] T81, 84.
[10] T84.
The additional conduct, complained of for these limited purposes, is described in the particulars sub-joined to paragraph 11(c) of the fourth statement of claim.
11.Whilst acting as directors of DID each of Tarbotton and/or Vieceli:
(a)     did not discharge their duties as a director with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of the company;
(b)     did not exercise their powers and discharge their duties;
(i)in good faith and/or
(ii)for a proper purpose;
(c)     improperly used their position as a director of the company to gain advantage for themselves or someone else.
Particulars
Tarbotton and/or Vieceli used their majority shareholding to influence DID and/or as directors of DID, acted in the manner described hereunder:
(a)     Tarbotton and/or Vieceli caused sub-contract jobs between DID and York Civil to be undertaken by DID at a reduced rate so as to profit York Civil, being another company associated with Tarbotton and/or Vieceli, to the detriment of DID;
(b)     McLean was induced by Tarbotton and/or Vieceli to purchase a truck mounted drill for DID and to sign a guarantee for finance in respect of the purchase in circumstances where it had previously been agreed between Tarbotton and/or Vieceli and McLean that no such guarantee would be required;
(c)     Tarbotton and/or Vieceli forced DID to provide a price for piling work to York Civil at a reduced price so as to enable York Civil to comply with a quote already provided by it to Abigroup in respect of the Prex project. The original quote of $2.3 million from DID was reduced by McLean to $2 million and thereafter by Tarbotton to $1.42 million;
(d)     the original job that DID was to perform for York Civil in respect of the Prex project was intended to be completed in a maximum period of 16 weeks at a profit of $450,000. Tarbotton continued to force DID into completing ongoing piling work as requested by York Civil at a substantially reduced cost to DID so as to in turn maximise the profit earned by York Civil on the Prex project;
(e)     variations that were sought to be claimed by DID from York Civil on the Prex project were refused and/or overruled by Tarbotton or Vieceli;
(f)    Tarbotton and/or Vieceli used the equipment owned and/or operated by DID for the benefit of York Civil and at no cost to DID thereby denying DID from a return in respect of the equipment and/or denying DID the opportunity to deploy the equipment in the pursuit of its own projects;
(g)     Tarbotton and/or Vieceli required DID to provide a price to York Civil in respect of a joint venture project between York Civil and McMahon Constructions known as “MYCON”. Tarbotton required the contract price to be stipulated at $320,000 and subsequently both Tarbotton and/or Vieceli determined that the piling work undertaken by DID would be charged to York at the direct cost to DID being $55,000 and that the $265,000 profit otherwise to be earned by DID on the project was to be retained jointly by McMahons and York in MYCON;
(h)     Tarbotton and/or Vieceli tried to secure a contract for York Civil on the Bakewell Street underpass and in so doing assured the head contractor that they would be able to obtain a $40,000 discount on the DID Piling price. In the event York Civil did not win the contract but DID Piling did and the head contractor then insisted that the $40,000 discount previously offered by Tarbotton on behalf of DID would remain;
(i)    Tarbotton and/or Vieceli used pricing information provided by DID so as to undercut the price of DID in respect of a contract at Berth 7 at Port Adelaide. Vieceli used DID’s pricing information so as to provide a cheaper quote for the supply of steel by York Civil which was $120,000 below DID’s price thereby diverting profit that would have been earned by DID to York Civil as well as costing DID the additional amount of $120,000 that it would have earned on its higher quote;
(j)    [Abandoned during the trial].
(k)     Tarbotton and/or Vieceli caused the land at Wingfield which was owned and/or occupied by DID to also be used by York Civil for its use and at no cost to York Civil;
(l)    Tarbotton and/or Vieceli retained York Civil to undertake construction works for DID at an inflated price and/or without taking into account:
(i)the benefit that had previously been provided by DID to York Civil in respect of York Civil’s use and occupancy of the land; and/or
(ii)the profits derived by York Civil at the expense of or as a consequence of DID
(m)    Tarbotton and/or Vieceli refinanced the land owned by DID at Wingfield by discharging a mortgage then held with St George Bank and replacing it with a mortgage with the National Australia Bank at a point in time shortly prior to the intended sale of the property. The refinancing with NAB provided additional funds to DID which was not required by DID nor for the benefit of DID;
(n)     Tarbotton and/or Vieceli caused DID to lodge a caveat over its own land so as to justify the immediate payment to York Civil of $330,000 in respect of improvement works without taking into account all of the previous benefits accorded to York Civil by DID as described above;
(o)     [Abandoned during the trial].
(p)     [Abandoned during the trial].
(q)     in late 2008 McLean wrote to Tarbotton and/or Vieceli seeking to ascertain a fair price for the sale of his 24.5% shareholding in DID. Vieceli subsequently determined to raise capital for DID purportedly:
(i)to strengthen the company’s balance sheet;
(ii)to increase DID Piling’s ability to tender for future works and in particular larger government infrastructure work;
(iii)to replenish the company’s cash reserves after refurbishing plant at a cost of $150,000 and renovation of its barges at a cost of $320,000;
(iv)for working capital generally
When no such requirement existed but where the true objective was to bring about the reduction in equity of McLean’s interest in DID.
Some of these particulars were abandoned during the trial (as noted above) others were either not referred to or referred to only in passing during the evidence (for example, (f), (k), (m) and (n)).
Evidence received during the trial
Documentary and oral evidence

At the beginning of the trial, the plaintiff’s tender volume (one lever arch folder) was provided and marked for identification, MFI P1. Many of the exhibits tendered in the matter can be found in this tender volume. The exhibits taken from the tender volume were each given individual exhibit numbers and were tendered by reference to particular pages in the tender volume. The remaining material in the tender volume is not before the court. Other documentary material not within MFI P1 was also tendered. In addition to the documentary evidence, two witnesses were called in the plaintiff’s case, Mr McLean himself and an accountant, Mr Philip Plummer. No oral evidence was adduced in the defence case.
Mr Plummer was called in the plaintiff’s case essentially to provide valuation evidence to support an assessment of Mr McLean’s claimed loss. His report and evidence of valuation was objected to by the defence, on a number of grounds. I deal with the admissibility of Mr Plummer’s valuation report in the next section. However, I am satisfied that throughout his evidence in chief and cross-examination he provided evidence, within his general expertise as an accountant and valuer of businesses, that has been of assistance to the Court in resolving a number of the essential issues in this matter. As it happens, Mr Plummer was cross-examined at length on his expertise and on the valuation exercise he undertook. For reasons that will become apparent, the valuation report as provided by Mr Plummer has turned out to be of little assistance to the Court and, ultimately, inadmissible. Mr Plummer’s evidence was carefully given, appropriately qualified and measured. I accept his evidence insofar as he felt able to describe the financial state of DID as based on the limited accounting records available to Mr Plummer and to the Court.
I formed the view that Mr McLean was an honest witness. By and large, he did his best to assist the Court to gain an understanding of the events that were within his knowledge. He did express strongly held negative views concerning both Mr Tarbotton and Mr Vieceli and a strongly held view that they had acted over a significant period of time: in their own interests (separate from their interests as shareholders in DID); in the interests of others; and not in the interests of DID or its shareholders (in particular, Mr McLean). Mr McLean’s evidence was given within this attitudinal framework which appeared to have coloured his interpretations of their actions and the events as he perceived them. In addition, and notwithstanding that Mr McLean gave his evidence honestly, I have not found it to be reliable in important aspects. Mr McLean’s evidence concerning the relationships between himself, Mr Tarbotton and Mr Vieceli and between DID and other contracting entities such as York Civil, during the periods of Mr McLean’s involvement with DID and leading up to its recapitalisation was bedevilled by two matters.
First, Mr McLean’s involvement in the day to day operations of DID (his only involvement with the company) ceased in or about August 2007 at which time his relationship with the other two men was in the process of breaking down irretrievably. However, the recapitalisation of DID occurred in May 2009, some 21 months or so later. Further, as the defence pointed out, the so called global financial crisis occurred during and after 2008. As a consequence, there was time and scope for the financial circumstances of DID to have changed significantly over that 21 month period without Mr McLean having any awareness or understanding of any such changes.
The second concern is that Mr McLean, for reasons not entirely explained during the trial, purported to give his evidence in chief only from memory. Mr McLean canvassed a number of quite complex topics concerning the day to day operations and financial arrangements of DID during the period December 2003 to August 2007. He gave evidence about a number of major contractual arrangements and ensuing construction activities. Mr McLean made little or no reference to contemporaneous documents when giving this evidence in chief. However, during cross-examination, it became apparent that, in a number of significant areas, Mr McLean had given evidence about the day to day activities of DID and its contractual arrangements with other parties that was quite inconsistent with the documentary record to which his attention was then drawn. Some of these inconsistencies were quite stark. In these cases I concluded that whatever Mr McLean’s impressions had been they were incorrect. In addition, Mr McLean purported to give evidence in chief of certain activities of the company during the period after he ceased working at the company in August 2007. Again, the inaccuracy of his perceptions or understandings was exposed when his attention was drawn, during cross-examination, to contemporaneous documentary records.
Mr McLean, from time to time, readily conceded that evidence he had given from memory was incorrect once documents were put to him. This is one, but not the only, reason why I have been prepared to accept Mr McLean as an honest witness. However, the number and significance of the mistakes made by Mr McLean when giving his evidence[11] are such that I am not prepared to accept Mr McLean as a reliable historian with respect to important issues except to the extent that his evidence was corroborated by or, at the least, was otherwise consistent with other evidence in the case.
[11] I provide examples later in these reasons.
Plummer report –admissibility
Mr Plummer purported to value the company, itself, as a going concern as at the date of the recapitalisation – an enterprise valuation exercise. In his written report[12] he valued the company “on the lower end of the scale” at $2,100,000. It was, at least as at the commencement of the trial, Mr McLean’s case that the loss caused to him as a shareholder, by the dilution of his shareholding as a consequence of the recapitalisation of DID, was to be assessed at 24.5 per cent of this enterprise value less the value of his shareholding after the recapitalisation (for sake of argument, negligible).
[12] MFI P 30 being pages 48-71 of MFI P1. Mr Plummer’s conclusions as expressed in his written report were substantially varied following and as a result of cross-examination by defence counsel.
The admissibility of expert evidence has been the subject of quite extensive consideration by Heydon JA (as he then was) in Makita (Australia) Pty Ltd v Sprowles[13] and by the High Court in Dasreef Pty Ltd v Hawchar.[14] However, a starting point often adopted in this state, is the observations of King CJ in R v Bonython.[15]
Before admitting the opinion of a witness into evidence as expert testimony, the judge must consider and decide two questions. The first is whether the subject matter of the opinion falls within the class of subject upon which expert testimony is permissible. This first question may be divided into two parts: (a) whether the subject matter of the opinion is such that a person without instruction or experience in the area of knowledge or human experience would be able to form a sound judgment on the matter without the assistance of witnesses possessing special knowledge or experience in the area, and (b) whether the subject matter of the opinion forms part of a body of knowledge or experience which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience, a special acquaintance with which by the witness would render his opinion of assistance to the court. The second question is whether the witness has acquired by study or experience sufficient knowledge of the subject to render his opinion of value in resolving the issues before the Court.
[13] (2001) 52 NSWLR 705 at, inter alia, [39]-[103] and in particular at [85].
[14] (2011) 243 CLR 588 in particular at [30]-[43] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) and Heydon J at [66]-[90].
[15] (1984) 38 SASR 45 at 46-47.
The defendants challenged the admissibility of the report of Mr Plummer on three grounds. The first ground was that Mr Plummer’s qualifications and experience as a chartered accountant did not provide a proper basis for him to provide a valuation report of the type he provided. The defendants conceded that the first requirement, described by King CJ in the passage above from Bonython, was established in this case but challenged Mr Plummer’s expertise in the sense of the second requirement. Mr Plummer was examined quite extensively on the voir dire both in chief and in cross-examination. I did not rule on this particular issue at that stage because I took the view that his further cross-examination during the trial on the contents of his valuation report and the assumptions underlying his opinion might also assist in answering this question. I therefore received Mr Plummer’s written report de bene esse. Having heard all of Mr Plummer’s evidence, both on the voir dire and in the trial proper, which I have found to be very helpful, I am quite satisfied that Mr Plummer has specialised knowledge derived from training, study or experience quite sufficient to permit him to give expert evidence in the areas about which he purported to give evidence, including the preparation of the valuation report itself. This basis for the defendant’s objection to the admissibility of Mr Plummer’s report is rejected.
However, the defendants also objected to the admission of Mr Plummer’s expert opinion as to the valuation of DID, as an ongoing enterprise, on two further grounds. First, it was submitted that an expert opinion will not be admissible unless evidence has been or will be admitted, whether from the expert or some other source, which is capable of supporting findings of fact which are substantially similar to the facts on which the opinion is said to be based to render the opinion of value.[16]
[16] Dasreef at [66]-[90].
Mr Plummer based his valuation of the enterprise value of DID as at the time of the recapitalisation, on instructions received concerning earnings for the 2007, 2008 and 2009 financial years. He received instructions as to adjustments that should be made to the balance sheets for these years with a view to determining or estimating the company’s future maintainable earnings. The defendants submitted that these instructions were not substantiated by the evidence before the Court and were not sought to be substantiated.
Mr Plummer conceded that his instructions concerning the add-backs to the 2007, 2008 and 2009 financial year accounts were essential to his opinion that a future maintainable earnings analysis based on the earnings for the 2007, 2008 and 2009 years was justified. However, in the event that the 2009 earnings adopted by Mr Plummer could not be substantiated, it was Mr Plummer’s view that the trend in earnings across the three financial years (if any) would be insufficient to justify a valuation methodology based on future maintainable earnings.[17]
[17] See the cross-examination of Mr Plummer on this topic at T293-295.
Mr Plummer was instructed to assume that DID’s profit, as recorded in its accounts for the financial year ending 30 June 2009, should be increased by $490,000 on account of monies that were earned and should have been received (but were not because of the conduct of Mr Tarbotton and/or Mr Vieceli) with reference to two particular jobs, that known as the Port River Expressway contract and that known as the Bakewell Smith Underpass contract. This assumption is recorded in Mr Plummer’s report in the following terms.[18]
[18] MFI P30 at p8 (that is, the MFI P1 tender book at p56).
The profit for the year ended 30 June 2009 has been increased by the following amounts as instructed by Mr D McLean in the letter from Marrone and Co dated 30 September 2010.
Port River Express contract $450,000
Bakewell Smith Underpass $ 40,000
$490,000
This approach is supported by the fact that the results for the year ended 30^th June 2009 are unusual in that:
·income reduced by 20.8%
·labour costs increased by 25.4%
·repairs and maintenance increased by 109.3%
However, the validity of any such add-back was not substantiated by the plaintiff in his evidence nor in any of the documentary evidence. Furthermore, the evidence demonstrated that any adjustment based on these two projects (if proved) could only relate to the 2007 or the 2008 financial years. I identify the evidence relevant to these matters later in these reasons.
Mr Plummer, in arriving at his valuation of the DID enterprise, had relied on the earnings data for only three financial years, 2007, 2008 and 2009. Whether an add-back of $490,000 (if proved) related to the 2007 or the 2009 financial year would not make any difference to the average earnings across those three years. However, it made a significant difference to the capacity to ascertain any trend. If $490,000 were to be added back to the 2007 year, that year’s earnings would be increased significantly, such that instead of a trend of increasing earnings across the three years: 2007, 2008 and 2009, there would be a material decrease in earnings when the situation in 2007 (and 2008) was to be compared with 2009. In these circumstances, as Mr Plummer agreed, there would be no reliable trend upon which he could base his chosen, maintainable earnings, valuation method.
The defendants submitted that, given the absence of evidence sufficient to provide a foundation for the adjustments to the 2009 year as assumed by Mr Plummer, his opinion as to the enterprise value of DID based on an increasing trend in earnings over the 2007-2009 financial years is unsustainable and therefore irrelevant to the issues in this case. In this respect, the defendants referred to the discussion of this issue by Heydon J in Dasreef[19] where his Honour observed,
An expert opinion is not admissible unless evidence has been, or will be, admitted, whether from the expert or from some other source, which is capable of supporting findings of fact which are sufficiently similar to the factual assumptions on which the opinion was stated to be based to render the opinion of value.
Heydon J cited a number of authorities for this proposition at common law, including authorities from this state.[20] His Honour went on to observe, in this context, as follows.[21]
It is irrelevant because it stands in a void, unconnected with the issues thrown up by the evidence and the reasoning processes which the trier of fact may employ to resolve them. If the expert’s conclusion does not have some rational relationship with the facts proved, it is irrelevant. That is because in not tending to establish the conclusion asserted, it lacks probative capacity.
[19] At [66].
[20] Sych v Hunter (1974) 8 SASR 118 at 119; R v Reiner (1974) 8 SASR 102 at 109-110; R v Bjordal (2005) 93 SASR 237 at 245 [27], 247 [31]; Flavel v South Australia (2008) 102 SASR 404 at 421 [67].
[21] Dasreef at [90].
The defendants also objected to the tender of Mr Plummer’s report on a third basis. The defendants submitted that the enterprise value of DID, even if properly arrived at, was irrelevant to the issues in these proceedings. The defendants submitted that the proper exercise in terms of endeavouring to ascertain any loss sustained by Mr McLean, as a result of the recapitalisation, was to value his (minority) shareholding immediately prior to the recapitalisation and compare it with a valuation of his (minority) shareholding immediately after the recapitalisation.
The defendants further submitted that the valuation of a minority shareholding involves the valuation of a chose in action comprising a limited bundle of rights, mainly: a right to vote; a right to dividends as and when declared; and a right to surplus on winding up. A proper value of this bundle of rights cannot be arrived at by a pro-rated allocation of an enterprise value of the organisation. Mr Plummer agreed with this. During cross-examination the following exchange occurred.[22]
[22] T300.
QDo you accept, I suggest, that a valuation of a company is a materially different question to a valuation of a minority shareholding.
AIt can be.
QIt’s a materially different valuation exercise.
AIt is.
QWhen you are valuing a minority shareholding you are valuing a limited bundle of rights, a right to vote, a right to dividends and a right to surplus on winding up but that is all you are valuing.
ACorrect.
QAnd it does not, of its nature, translate to a pro-rated allocation of the enterprise value of the organisation.
ACorrect.
QIndeed when one considers a capitalisation of future maintainable earnings that is normally used to value an entire enterprise, as you were asked to do, or at least a controlling interest.
ACorrect.
QAnd valuation of a minority shareholding, particularly as it relates to a private company, is a very different exercise.
AIt can be.
Mr Plummer agreed that the appropriate methodology by which to value a minority shareholding interest is normally the capitalisation of future maintainable dividends.[23] Mr Plummer gave the following evidence during cross-examination on this topic of the correct approach to valuing a minority shareholder interest and the disadvantages for a minority shareholder inherent in holding such an interest.[24]
[23] T303.11-.16.
[24] T301-310.
QMr Lonergan expresses the opinion, and I ask you to either agree or disagree, that a minority shareholder differs from an investor with a controlling interest in that the minor shareholder is not in a position to direct, and often not even in a position to influence the distribution of dividends or the investment of retained profits or the strategics of the business operations.
AI agree.
QAnd that is a significant matter when one comes to assess the value of your investment and what you will pay for it, that you are ceding control to other parties.
ACorrect.
QThat an investor in a minority shareholding in a private company is not normally entitled to any right of participation in the management of the company’s affairs. Would you agree with that.
ACorrect.
QAnd that, I would suggest, would be a material consideration in a valuation of the minority shareholding of Mr McLean, had you been instructed to undertake such a task.
ACorrect.
QThe point Mr Lonergan raises, and I ask you to agree or disagree, is that an investor in the position, say, of Mr McLean is dependent upon relations with the majority shareholder.
ACorrect.
QAnd similarly, any third party proposed arms length purchaser of Mr McLean’s shareholding would be very much dependent upon the relationship that he or she or it could hope to establish with the majority shareholders.
ACorrect.
QAnd indeed with the board.
ACorrect.
QRecognising that if you are being asked, for example, as an arms length purchaser of Mr McLean’s shareholding to take an interest in a company where the board may or may not pay dividends, may or may not distribute capital.
ACorrect.
QAnd indeed you might be stuck in a minority position ultimately subjected to whatever degree of cashflow into the future that the majority allow for.
ACorrect.
QAnd that’s something that a valuer of a minority interest in a private company would normally take into account.
ACorrect.
QMr Lonergan expresses the opinion, and I ask you to agree or disagree, that as a result of those matters the value of such a shareholding generally ultimately lies in the right to receive dividends.
AYes.
QAnd Mr Lonergan expresses the opinion, and I ask you to disagree if you like, that accordingly the appropriate methodology by which to value a minority interest is normally the capitalisation of future maintainable dividends.
ACorrect.
QOf course you didn’t consider that approach because you were asked here to value the company DID and not the minority shareholding.
ACorrect.
QWhen one does consider that task is it the case that you’re simply unable, on the basis of your present instructions and the matters that you presently considered, to express a view as to what a capitalisation of future maintainable dividends would have disclosed.
AI wasn’t instructed to do it.
QAnd therefore what you have been instructed to do has led to a methodology which doesn’t conform with the methodology that you would have applied had you been asked to value the minority interest of Mr McLean.
AYes, I would have had to look at it in an overall context and I don’t disagree with the approach taken or suggested by Mr Lonergan.
QAnd indeed if one gets to the point of trying to discount back, that is to use an enterprise value and then deduct back from that to get a value of a minority interest, it’s far from a pro-rated allocation of that value in any event. Do you agree with that.
ATo a minority shareholder, yes.
QBecause what one is then dealing with is a restriction on the negotiability of your shares because you are dealing with a private company with a limited liquidity.
ACorrect.
QAnd indeed as a minority shareholder one would normally expect to pay very much less to acquire your shareholding than the pro-rated allocation of a value for the very reasons that we have just been addressing, that you are not able to influence or control dividends and the like.
AGenerally true.
QAnd indeed, there are two discounts that are typically applied in a cumulative fashion, one being a discount for lack of negotiability in a private company and one being a discount for minority interest.
ACorrect.
QSo even if one were to use the enterprise value to begin with and then discount back for shareholding, it would be a matter for consideration as to the effect of the discount for negotiability, the effect of the discount for minority interest and how those two matters are applied together to arrive at the value of minority holding.
AThat is correct.
QBut in any event that is a secondary, or at least [sic: a less] desirable valuation methodology, rather than the valuation of the capitalisation of future maintainable dividends, which would normally be applied.
AThere’s two different questions in there. I was asked to value the company, I make no comment about the valuation of the individual shareholder.
QSorry, I do understand that, I’m not challenging –
AThere was a lead in there somewhere, but they are two different things.
HIS HONOUR: Put the question again
QI’ll preface it in this way: I’m not criticising you in answering the work that you’ve done, I’m exploring with you –
AYes.
Q– the difference as to how you might have approached it.
AYes, there would have been a different approach.
QAnd what I’m asking you, whether you agree or disagree, is that the approach of arriving at an enterprise value and then discounting back for lack of negotiability and discounting back for minority interest –
AYes.
Q– is a little less desirable valuation approach than one of capitalisation of future maintainable dividends.
AFor minority shareholders, certainly.
QBecause of course the purchase of minority share parcels in an unlisted company is primarily listed in the dividend yield because that’s the only cashflow the investor will be able to receive that can be counted on with any confidence.
ACorrect.
QIf, contrary to that, it was suggested that the commencement [sic: assessment] of an enterprise value with discounts for minority and discounts for lack of marketability were considered, they would ordinarily be very meaningful discounts, wouldn’t they.
AThey would be. I think probably the only other thing you could put in that equation though is if the minority shareholder had particular expertise that was vital to the company’s longevity, then you may well be in a position to influence the share price.
QIf on the other hand you were asked to value a minority shareholding where the minority shareholder was assumed to be ostracised, no longer involved in the operations of the company, and a silent minority at loggerheads with the majority –
AYes.
Q– there would be very meaningful discounts to be applied for minority discount.
AAgreed.
HIS HONOUR
QWhat do you understand by the term put to you meaningful discount.
AI agree that if there was a minority shareholder whose expertise was not required by the company who was ostracised and was not part of the company management, then you would only be looking at the fact of trying to establish what dividend yield may be available to that minority shareholder and in a normal commercial operation one would suggest the dividend policy would not be generous.
QWould it get to a point where a discounting of the enterprise value in the way Mr Roberts has explored with you, would not be a meaningful valuation for such a shareholder.
AIt would be very difficult to value shares of a minority shareholder who has no involvement in the management of the company because in fact the dividend yield – because there’s an ability to make charges between entities and I’m not in any way saying they are not appropriate but one can charge rent and management fees and whatever, so it can be quite common that there is no profit and therefore there can be no dividend, but that’s more in private companies that that occurs and so minority shareholding is difficult.
QYou would also want to know, wouldn’t you, whether the constitution of the company permitted differential dividend rights to different classes of shares.
ACorrect, but I don’t believe there were in this particular case.
QBut there would be nothing to stop the current management amending the constitution.
ACorrect.
QTo permit differential dividend rates.
AParticularly when the minority shareholder had 24.26%, just below the 25% rule.
XXN
QI was just about to ask you that. It is a material consideration of valuation minority that it’s a valuation of less than 25%.
ACorrect.
QIt’s also a material valuation consideration where the constitution of the company contains restrictions on transfer, including a preemptive rights regime.
ACorrect.
QBecause an arms-length purchaser would be very concerned about buying into an enterprise that then implies restrictions on their ultimate minority [sic: capacity] to sell out.
ACorrect.
QAnd indeed, it is a matter that is accepted the valuation principle to depress the price of a minority interest, that there is in fact restriction on transferability.
AThat is correct.
QIt is also a matter that you will take into account if you were valuing a minority interest in a private company, that the board has a right to refuse registration.
AYes, if it has good reason to do so.
QBut the mere fact that the constitution provides for it, is going to be a disincentive to an arms-length purchaser of a value.
AThat’s correct.
HIS HONOUR
QJust go back a few questions: I think you agreed with a proposition –
AWell.
QNo, wait for the question. I think you agreed to the proposition it was a material consideration that the minority shareholding was less than 25%.
AYes.
QWhat’s the basis for the figure 25% as being a sum –
AA special resolution requires 75% to go through, so the fact that Mr McLean had 24.62 may have been relevant at the time he entered in to the transaction, so it was structured that he had just less than 25.
QA special resolution amicable [sic: inimical] to his interest could be formulated by the 75 point something per cent.
ACorrect.
XXN
QAnd the point I suggest Mr Plummer is that if you’re an arms-length purchaser for value, but if a willing but not overanxious purchaser, you’re going to regard a minority interest where the majority holds collectively over 75%, that of a poisoned chalice.
AYes.
QAnd something that you’re not going to pay terribly much for.
ACorrect.
QAnd therefore why it is that there is a material difference between valuing the enterprise on one hand and valuing the minority interest on the other, because the two are fundamentally different, as of rights.
ACorrect.
QAnd why it is that when you ordinarily come to value a minority stake in a privately held company, you would look to the future assured dividends.
ACorrect, I would look to that.
QAnd that that’s the ordinary behaviour that one would expect of a willing but not overanxious purchaser, in the market transaction that you’re theoretically addressing as a valuer.
AYes, in the light that they didn’t provide any other additional expertise, which was necessary to the company. As a first premise, I agree with you, yes.
QAnd on the assumption I’ve asked you to make, which is that the vendor for this hypothetical transaction is somewhat ostracised and no longer performing any role in the company, that would address the proviso that you just raised.
AIt would.
HIS HONOUR
QExcept if the proposed purchaser was someone who was useful to the company, that might be itself a positive factor.
AIt could be but it would still have the difficulty that they would still see themselves with 24.62, or whatever it was, and so may well see themselves in the same light again.
XXN
QTo take up his Honour’s question of you just a moment ago: when one comes to undertake a market value transaction, one would exclude consideration of a special purchaser.
AYes, one would.
QAnd for that purpose, if you were looking not at the hypothetical willing but not overanxious purchaser but looking instead at a particular purchaser that might have a skill set to compliment the organisation, that particular purchaser would be characterised for valuation principles as a special purchaser.
AYes. I might sort of re-think my previous answer because in fact the only person who is likely to buy is someone who is in the industry who has expertise; because otherwise there is no reason for them. It’s not something that John or Jane Citizen is going to invest in DID Piling, it’s only going to be somebody who sees it as Mr McLean did in the original proposition; it’s only going to be someone who has the expertise and sees that they can add value to the company and so therefore they see that a shareholding is a satisfactory thing to do.

I accept the submissions put on behalf of the defendants concerning each of the second and third bases for their objection to the admissibility of Mr Plummer’s report. When it comes to valuing the loss, if any, that Mr McLean has suffered following the recapitalisation of the company, Mr Plummer’s report can be of virtually no assistance. However, I again say that this is not because Mr Plummer lacks the relevant experience or expertise. Accordingly, I reject the tender of Mr Plummer’s report, MFI P30. If I am wrong and it should be admitted into evidence, I am satisfied that it can carry little weight and be of little assistance when it comes to assessing any loss suffered by Mr McLean, for the reasons given as to why its tender should be rejected. In any event, I am satisfied that Mr McLean should fail on the question of liability and as such, strictly, the question of valuing any loss suffered does not arise. Ordinarily, in these circumstances, it still would be appropriate to proceed to an assessment of loss in case my findings on liability were ultimately found to be incorrect. Given my findings (below) as to the financial health of DID at the time of the recapitalisation and Mr Plummer’s evidence generally, any loss of capital value suffered by Mr McLean is likely to have been modest. However, given that I have now rejected Mr Plummer’s report, before attempting an assessment I would want to hear further submissions from the parties.
In addition to being cross-examined on the report and methodology underlying the report itself, Mr Plummer was also cross-examined at some length on matters relevant to the question of the financial health of DID as at the time of the capital restructuring and as to the validity (or otherwise) of the reasons given by Mr Vieceli as director of DID for the apparently perceived need to recapitalise the company. Mr Plummer’s evidence in this respect and insofar as it bears on the question of liability of DID for the alleged oppressive conduct has been of particular assistance in this matter. Accordingly, I have had regard to the evidence given by Mr Plummer on these topics. I will return to this evidence later in these reasons.
The plaintiff’s primary complaint
Mr McLean’s primary complaint is that the affairs of DID were conducted in a manner contrary to the interests of the members as a whole and, in particular, in a manner oppressive to, unfairly prejudicial to, or unfairly discriminatory of the plaintiff in his capacity as a member of the company.[25] Mr McLean submitted that the conduct of the company’s affairs, as particularised in paragraph 11 (set out earlier) falls within s232 of the Corporations Act.
[25] Paragraph 13A of the fourth statement of claim.
I have already described the limited basis upon which the particulars, apart from paragraph (q), sub-joined to paragraph 11 of the statement of claim can be permitted to bear on the issue, provided any or all of them were to be made out on the facts. However, the particular in paragraph (q) is central to Mr McLean’s claim and for convenience I set that out again.
(q)In late 2008 McLean wrote to Tarbotton and/or Vieceli seeking to ascertain a fair price for the sale of his 24.5% shareholding in DID. Vieceli subsequently determined to raise capital for DID purportedly:
(i)    to strengthen the company’s balance sheet;
(ii)     to increase DID Piling’s ability to tender for future works and in particular large government infrastructure work;
(iii)     to replenish the company’s cash reserves after refurbishing plant at a cost of $150,000 and renovation of its barges at a cost of $320,000;
(iv)    for working capital generally
When no such requirement existed but where the true objective was to bring about the reduction in equity of McLean’s interest in DID.
In the context of Mr McLean’s complaint brought against Mr Tarbotton and Mr Vieceli for breach of their fiduciary duty as directors owed to Mr McLean as a shareholder,[26] Mr McLean’s allegation relating to the capital raising is in slightly different terms.
… Vieceli caused DID to seek a capital subscription from shareholders when he knew full well that as at the time of the subscription DID did not require the funds nor did McLean have the capacity to pay them. The capital subscription was merely a device designed to further the objectives of Tarbotton and Vieceli in forcing McLean out of DID.
[26] Third paragraph of the particulars sub-joined to paragraph 13 of the fourth statement of claim.
It is here alleged that Mr McLean did not have the capacity to pay the amount required in order to subscribe for the new shares on offer (in Mr McLean’s case, $61,250). The pleading is ambiguous as to whether or not it is also alleged that Mr Vieceli knew that Mr McLean did not have the capacity to pay at the time the offer was made to him. However, the evidence before the Court on this topic is insufficient to justify a conclusion that Mr McLean did not, in fact, have the wherewithal to pay for the subscription offer whether by way of borrowing against his interest in the company or otherwise.[27] Furthermore, and in any event, there is no evidence from which Mr Vieceli’s state of knowledge as to Mr McLean’s capacity, at the time, to pay might be inferred. The allegations that Mr McLean did not have the capacity to pay and that Mr Vieceli knew this (if that is the intent of the pleading) are not made out.
[27] The evidence, such as it is, if anything suggests the contrary, T440.14.
Mr McLean received the letter of offer on or about 29 April 2009. It was a condition of the offer that an enclosed offer acceptance form be returned to the company no later than 5pm Friday 15 May 2009 at which time the offer was to close. In the event that the offer were to have been accepted, Mr McLean would have been irrevocably bound to complete the subscription by payment of the subscription amount no later than 22 May 2009.[28] Mr McLean’s approach and response to the offer can be discerned from the following exchange during his examination in chief.[29]
[28] The letter comprising the notice of offer is exhibit P9, being p235 of MFI P1.
[29] T439-440.
QIf you turn back to p.235 of the volume, which I think is there in front of you.
AYes.
QYou recall receiving the letter for the offer of shares.
AYes, I do.
QAnd were you in a position to actually, had you of been so minded – and I’m mindful at this point in the time you had already raised the prospect of extricating yourself from the company but were you in a position, had you been so minded, to afford the payment that was required.
OBJECTION: MR ROBERTS OBJECTS
MR ROBERTS: On its face the financial position of Mr McLean is irrelevant. My learned friend might be able to establish a relevance of matters pertaining to a financial position that he expressed to my clients but what the uncommunicated financial position of Mr McLean comes –
QUESTION WITHDRAWN
XXN
QTell me, having received that letter, did you have any discussions with Mr Tarbotton or Vieceli about the acquisition of shares in the company, or indeed of the rejection of the offer.
ANo, I didn’t.
QWas there any communications happening at this point in time, that is March/April 2009 as between yourself and Mr Vieceli or Tarbotton.
APersonally?
QYes.
ANo.
QWas it something that was confined to communications between your lawyers or lawyer.
AThat is correct, yes.
QYou declined to take the offer up.
AYes, I did.
QAnd you subsequently ascertained that that resulted in the reduction of your shareholding from 24-and-a-half % to about 1%.
AIt did. I was concerned about that but I – I was advised not to take it up.
QAs far as the practical consequences of it, that’s what happened.
AThat’s what happened, yes.
HIS HONOUR
QWhen you say you were concerned, you were concerned at the time you received the offer.
AYour Honour, I don’t understand all of that stuff unfortunately but I asked the question ‘What does all this mean?’ You know ‘What’s going on here?’
QAsked whom.
AOf my legal representatives at the time.
QDon’t tell me what they said to you.
XN
QIn the event, you didn’t take up the offer.
AI didn’t take it up, no.
Background leading to the recapitalisation offer
To place this issue in context it is convenient to briefly summarise the evidence of Mr McLean concerning events leading up to the making of and his refusal to accept the capital subscription offer. My summary under this heading comprises findings of fact unless otherwise stated.
As general manager of DID from its inception, Mr McLean was responsible for the pricing of and tendering for projects and responsible for running the day to day operations of the company. He often worked 100 to 120 hours per week. He worked interstate and in Adelaide. The other two men did no work on site. It was Mr McLean’s role to ensure that the jobs were properly set up, the right plant and equipment and labour was available and the appropriate paperwork was in place. He was also responsible for ensuring work site safety and he physically worked on the sites himself, driving large cranes, large drill rigs, bobcats, shovelling dirt and so on.
Mr McLean did not test how successful his pricing and tendering ultimately turned out to be. He was not one for poring over the accounts of the company to satisfy himself whether or not money was being made. He said he did not have to do this, he could tell whether or not he was making money from a job because he was always on site and, for example, if he had priced a job at a certain rate of performance per day and his workers were not achieving that rate of performance, he knew he would be losing money.
Mr McLean had no involvement in the financial side of the company; this was attended to mainly by Mr Tarbotton. However, he did check that DID was being paid and he would routinely see payments coming in and would be responsible for approving and sending out cheques in payment of creditors. He kept “a bit of an eye on what was going on” but did not “physically see every invoice that went out”.[30] He did not scrutinise the invoices that went out because he had “all the confidence in the world” in the people that were doing these tasks. He left office management to the people in the office, in particular, a Mr Garvin and a Mr Kozlowski. He did not personally formulate the claims sent to contractors for work done by DID; he provided Mr Garvin and Mr Kozlowski with information about what had been done on site and invoices would be issued by those gentlemen to the various contractors concerned. In short, Mr McLean performed and supervised the physical work but he did not “run the paperwork”, although he maintained an overview by speaking with and instructing the men in the office.
[30] T483.
Neither Mr Tarbotton nor Mr Vieceli, other than occupying the role of director at various times, played any role in the day to day running of DID. Mr Vieceli was available (but as it happens not often called upon) to provide engineering advice and Mr Tarbotton supervised the financial arrangements.
Mr McLean’s opinion was that, during the first few years, the business of DID developed appreciably. In his view, a number of substantial jobs were won, performed and paid for. Mr McLean was working extremely hard both on site and in getting in the work. Mr McLean was of the view, although without any formal accounting knowledge or any appreciation of the company accounts, that the business was doing very well.
Initially, accounts for the supply of concrete and steel, as required from time to time by DID, were not set up directly with the suppliers in the name of DID. Initially, York Civil procured such supplies and DID reimbursed York Civil. However, not long after the company had finished its first major project, it was in a financial position to operate on a self-sufficient basis. Nevertheless, there remained a loose and apparently undocumented relationship with York Civil. York Civil sub-contracted jobs to DID and, from time to time, was instrumental in procuring work for DID. Mr McLean had no clear understanding (essentially because he had no direct knowledge) of the nature of any, if any, formal or informal relationship between York Civil and DID.
A difficulty for Mr McLean would seem to have been that, from time to time, DID (through Mr McLean) responded to suggestions and or demands made by Mr Vieceli and/or Mr Tarbotton in connection with jobs to be tendered for and the way in which a job might be priced for any such tender. Nevertheless, Mr McLean was of the view that DID was not being conducted as a subsidiary of York Civil but as an independent entity. Furthermore, Mr McLean was always of the view that there was no need for York Civil to provide DID with financial support in the long term.
From time to time DID would do jobs that were sub-contracted from York Civil and vice versa. DID would invoice York Civil for labour costs and material costs on occasion and York Civil would invoice DID on other occasions (albeit this was less frequent).
Mr McLean’s evidence concerning DID’s involvement with York Civil was at a very general level and, to a significant degree, almost anecdotal. On the evidence available, it is not possible to make any findings concerning the nature of the relationship (formal or informal) if any, that DID might have had with York Civil. Nevertheless, what is clear is that Mr McLean, after a while, became concerned about Mr Tarbotton’s and Mr Viceli’s involvement with York Civil, as Mr McLean perceived it, and the impact he believed this to be having on DID’s business. In short, Mr McLean had concerns that opportunities that properly ought to have been made available to DID were being diverted to York Civil and that, on occasions, DID was being required to price its own contracts at less than optimal levels in order to obtain the work, in circumstances where York Civil stood to benefit from the work being done by DID at sub-optimal prices.
In the fourth statement of claim, Mr McLean has made a number of allegations of this nature; they are set out in the particulars in paragraphs (a)-(i) and (k)-(n) sub-joined to paragraph 11. I have already identified the only two purposes for which these allegations, if substantiated, can be relied on.
What started out as a good relationship between Mr McLean and Mr Tarbotton and Mr Vieceli deteriorated significantly during 2006 and 2007. In about April 2007 Mr McLean approached Mr Tarbotton and asked him whether he would be able to put money into and become a part of York Civil. Mr McLean was concerned that DID was not benefiting from what he perceived to be cross-hiring of equipment from DID and York Civil and discounting by DID on York Civil projects. Mr Tarbotton sought to dissuade Mr McLean from becoming financially involved in York Civil. He suggested to him that there was a project proposed with another company (Greenstar Concrete) that Mr McLean might look to becoming involved in. This did not address Mr McLean’s concern “to stop the loggerheads between myself and him – or the two companies [DID and York Civil]”.[31]
[31] T424.
By mid-2007, Mr McLean was working six and a half to seven days a week and felt himself to be under extreme pressure. He had what he described as “a breakdown” and ceased working at DID in or about August 2007. As I indicated earlier, Mr McLean’s entitlements to WorkCover were challenged by DID (in effect, by Mr Tarbotton and Mr Vieceli) on the basis that his breakdown had not been caused by work pressure but had other causes. Again, it is not possible, on the evidence before the Court, to reach any findings on this aspect of the parties’ relationship and I was not asked to do so. Mr McLean decided not to return to DID and to attempt to realise the value of his 24.5 per cent holding in DID.
In late 2008, Mr McLean commenced a process directed at having his shares valued. He experienced difficulty in obtaining relevant financial statements from the company. Mr McLean had to make an application to the Supreme Court which (following his appeal from a Master’s refusal) was successful. An order was made directing that certain financial materials be made available to Mr McLean. However, whilst Mr McLean’s application was before the Court and before he was able to obtain access to the financial documents sought, Mr McLean received the recapitalisation offer of 29 April 2009. Mr McLean declined to participate but nevertheless proceeded to have the enterprise value of DID assessed by Mr Plummer which, as it happens, he now relies upon for the purposes of this litigation.
The capital raising and the issue of oppression – legal framework
Insofar as is material to the powers conferred on a director or directors to issue shares, the Constitution of DID[32] takes a reasonably conventional form for a small private trading company. Clause 4 provides:
Subject to the provisions of this constitution and without prejudice to any subsisting special rights previously conferred on the holders of existing shares, the unissued shares in the Company are under the control of the Board.[33] The Board may allot or otherwise dispose of the shares to such persons on such terms and at such times and with such rights as the Board thinks fit.
The Constitution provides for a regime of pre-emptive rights for existing shareholders where a new share offer is made by the Board. There is no suggestion in the present matter that the formal requirements of the Constitution were not observed by the Board of DID (that is, Mr Vieceli) in the steps that were taken which ultimately led to the issue of new shares in favour of Mr Tarbotton and Mr Vieceli.
[32] Exhibit D48.
[33] According to clause 1(a) “Board” means, inter alia, where the company has only one director… that director.
Clause 85 of the Constitution provides as follows.
No director is disqualified by that office from holding a material personal interest in a matter that relates to the affairs of the Company (except the office of auditor). No contract or arrangement entered into by or on behalf of the Company in which any director is in anyway interested will be avoided for such reasons. No director is liable to account to the Company for any profits arising as a consequence of holding such material personal interest or arising out of the fiduciary relation established by the holding of an office in the Company. No director is liable to account to the Company for any profits arising from such office or place of profit or realised by any such contract or arrangement by reason only of such director holding that office or of the fiduciary relations thereby established.
Clause 89 provides as follows.
A director notwithstanding the interest may be counted in the quorum present at any meeting and may vote in respect of any contract or arrangement in which the director is interested.
A director, in the position of Mr Vieceli at the time of the recapitalisation, owes a fiduciary duty to the company, in this case DID. The nature of that duty has been explored in a number of the authorities. A leading statement is that of Latham CJ in Richard Brady Franks Ltd v Price.[34]
[34] (1937) 58 CLR 112 at 135-136, authorities and citations omitted.
The powers of directors must be exercised not only in the manner required by law but also bona fide for the benefit of the company as a whole… . A court, however does not presume impropriety. In this case there is no doubt that the issue of the debentures was within the powers of the directors. The onus is on the plaintiff who challenges the action of the directors to establish that they did not act bona fide for the benefit of the company.
. . . .
It is not for a court to determine whether or not the action of the directors was wise. The question is whether it is shown that they did not honestly act for what they regarded as the benefit of the company.
In that same case, Dixon J (as he then was) said this.[35]
[A] transaction carried out by directors for their own or some other person’s benefit and not to further any purpose of the company is voidable but not void.
. . . .
Those impeaching the transaction must sustain the burden of proving that the directors acted in their own interests and were not in fact exercising their powers in supposed furtherance of any purpose or advantage of the company. In considering such a question, it is important to ascertain what are the purposes for which powers are given and to remember that the fiduciary duty of the directors is to the company and the shareholders.
[35] At 143. See also Rich J at 138.

Latham CJ revisited the matter in Mills v Mills[36] in a context closer to the present.
[36] (1938) 60 CLR 163 at 163-164.
Thus, if directors issue shares only for the purpose of conserving their own power, the resolution creating the shares will be set aside or… . But before the exercise of the discretionary power by directors will be interfered with by the court it must be proved by the complaining party that they have acted from an improper motive or arbitrarily and capriciously… .
. . . .
It must, however, be recognised that as a general rule, though not invariably… directors have an interest as shareholders in the company of which they are directors. Most sets of articles of association actually require the directors to have such an interest, and it is generally desired by shareholders that directors should have a substantial interest in the company so that their interests may be identified with those of the shareholders of the company. Ordinarily, therefore, in promoting the interests of the company, a director will also promote his own interests. I do not read the general phrases which are to be found in the authorities with reference to the obligations of directors to act solely in the interests of the company as meaning that they are prohibited from acting in any matter where their own interests are affected by what they do in their capacity as directors. Very many actions of directors who are shareholders, perhaps all of them, have a direct or indirect relation to their own interests. It would be ignoring realities and creating impossibilities in the administration of companies to require that directors should not advert to or consider in any way the effect of a particular decision upon their own interests as shareholders.
In Ngurli Ltd v McCann[37] Williams A-CJ, Fullagar and Kitto JJ observed:
The power [of the directors to issue new shares] must be used bona fide for the purpose for which it was conferred, that is to say, to raise sufficient capital for the benefit of the company as a whole. It must not be used under the cloak of such a purpose for the real purpose of benefiting some shareholders or their friends at the expense of other shareholders or so that some shareholders or their friends will rest control of the company from the other shareholders.
. . . .
[A director] could take advantage of the power to benefit himself if such a benefit was incidental to a bona fide exercise of the power but he could not use the power ostensibly to benefit the company but really to benefit himself at the expense of [other shareholders].
[37] (1953) 90 CLR 425 at 439-440.
Insofar as Mr McLean alleges that Mr Vieceli and/or Mr Tarbotton exercised the power available to the Board of DID to recapitalise the company by the issue of new shares for an improper purpose, in the sense outlined in the authorities above, the onus is upon Mr McLean to demonstrate such impropriety.[38]
[38] See the passages just dealt with but also, Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199 at 206 (Knox CJ), 219 (Isaacs J) and 233 (Starke J); Richard Brady Franks (above) at 135-6 (Latham CJ) and 143-144 (Dixon J); Mills v Mills (1937) 60 CLR 150 at 163 (Latham CJ); Ngurli (above) at 445 (the Court) and Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 at 492-494 (the Court).
Mr McLean’s primary claim is brought against the company, DID. He alleges that in undertaking the recapitalisation, DID breached s232 of the Corporations Act in such a way as to empower the Court to make an order for one of the remedies envisaged by s233 of the Corporations Act. Section 232 has been set out in full earlier in these reasons. However, it is convenient to do so again here.
The Court may make an order under section 233 if:
(a)the conduct of a company’s affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, of members or a class of members of a company; is either:
(d)contrary to the interest of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
Paragraphs (a) and (b) target conduct of the company and paragraph (c) targets conduct of shareholders. Insofar as the conduct of DID (and its director, Mr Vieceli) concerning the issue of new shares is attacked by Mr McLean, that attack does not extend to any attack on Mr Tarbotton or Mr Vieceli in their capacity as shareholders.
Returning to the terms of s232 and, in particular, paragraphs (d) and (e) the conduct complained of by Mr McLean must be shown by him to have been either:
(d)Contrary to the interests of the members as a whole; or
(e) Oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity.
The received position is that paragraphs (d) and (e) establish separate grounds of relief.[39] Mr McLean’s overarching complaint falls to be determined by reference to paragraph (e). The overall approach to be taken to the consideration of an application of s232 has been summarised by Young J in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd.[40]
[39] See for example Turnbull v NRMA Ltd (2004) 50 ACSR 44 at [32] (Campbell J).
[40] (1998) 28 ACSR 688 at 739-740, authorities and citations omitted. His Honour’s approach has received general acceptance; it was not departed from on appeal in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672.
Section 260 of the Corporations Law[41] permits a member of a company who believes that the affairs of the company are being conducted in a manner that is oppressive or prejudicial to, or unfairly discriminatory against a member, to apply to the court for relief. The court may give relief if the court is of the opinion that the affairs of the company are being so conducted. The relief that may be given includes making orders for purchase of shares of any member by any other member. Winding up is only to be ordered under the section as a last resort.
[41] Young J was dealing with an earlier iteration of s232.
.  .  .  .
There is a considerable amount of authority on the construction of the section… [a form of the test supported in a number of the authorities is] whether there is conduct which is so unfair that reasonable directors who consider the matter would not have thought the decision fair.
.  .  .  .
The authorities also are to the effect that the court should not take any narrow approach to cases under s260. … [A] court must consider that the legislature has bit by bit greatly enlarged the scope of the section since it first appeared in the company’s legislation and apply the section broadly, though, because of the serious consequences of its application, it is not to be lightly applied.
.  .  .  .
No order can be made at all unless the court comes to the opinion set out above. The fact situations in this class of case are infinitely various. However, I spent a fair amount of time reviewing the cases in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd… .
In summary, I there said that it was legitimate for the majority to use its numbers to achieve its wishes by voting at meetings. However, once the court could see that there was caucusing before meetings, or that the meetings were becoming just a formality or that the majority was so conducting themselves so as to be overbearing, there may well be oppression; … .
Because it is easily overlooked, it is necessary to repeat that a plaintiff must actually prove oppression before actually obtaining relief. Oppression is not normally established merely by showing that the majority are in control of the company, that the applicant is consistently outvoted nor because the majority have made some decisions which were questionable from a business point of view or have later turned out to be disastrous.
.  .  .  .
In New South Wales Rugby League Ltd v Wayde… the Court of Appeal emphasised that relief under s260 was exceptional and that care must be taken to ensure that the traditional roles of directors and shareholders to manage and control their own companies was not invaded without due cause. In Re Posgate & Demby (Agencies) Ltd… Hoffmann J said that prima facie one looks at the articles to see the parties’ rights and duties and that ordinarily what is sanctioned therein is not unfair. He points out that, “all decisions concerning the business of the company involve the risk that other decisions may turn out to have been better.”
In Re M Dalley & Co Pty Ltd…, Lush J pointed out that the mere disadvantages of being in a minority no matter how “galling and even financially damaging these may be… do not in themselves constitute oppression…”.
Whilst not conclusive, of potential significance in the present matter is that it cannot be said that the conduct of DID, that is, of Mr Vieceli on behalf of the company, fell outside the powers conferred on the Board by the Constitution. Furthermore, Mr McLean, from the outset, had not just a minority holding but one that comprised less than 25 per cent of the issued capital. At all times following the incorporation of DID, Mr McLean’s wishes as a shareholder, apart from with respect to matters that required some form of special resolution requiring 75 per cent of shareholder votes, could be overridden by Mr Tarbotton who held 51 per cent of voting shares. In all cases, Mr McLean’s wishes could be overridden by the combined vote of Mr Tarbotton and Mr Vieceli who, between them, held 75.5 per cent of the voting shares.
In addition to a number of the authorities referred to above, the Court’s attention has also been drawn by the defendants to an extract from Fords Principles of Corporations Law[42] which I am satisfied, with respect, summarises the relevant law sufficiently for present purposes.
Normally, there is no unfairness in a company deciding to obtain finance from its members without considering their individual capacities to pay for the issue. But if a small company has been founded upon a basis of mutual trust and confidence, giving rise to legitimate expectations as to maintaining fixed proportional stakes in the company, it may be unfairly prejudicial for a majority shareholder to procure the company to make a rights issue when the majority shareholder is unable to subscribe. The applicant for relief may succeed on showing that the majority shareholder’s purpose was to reduce the proportional state of the minority shareholder… . Knowledge on the part of the majority shareholder that the minority shareholder did not have funds to take out rights could be a relevant factor.
[42] R P Austin & I M Ramsey, Ford's Principles of Corporations Law, (LexisNexis Butterworths, 15th ed, 2013), [10.460] (authorities and citation omitted but emphasis supplied).
I again observe, in this context, that there is no evidence before the Court that would permit a finding that Mr McLean had been unable to subscribe for the new shares as offered or that either Mr Vieceli or Mr Tarbotton knew that he did not have access to sufficient funds ($61,250) to subscribe for the shares.
Has DID been shown to have acted oppressively in undertaking the capital raising? Has there been a breach of any fiduciary duty owed to the plaintiff?
The plaintiff bears an onus of proving that the capital raising was for an improper purpose. The essence of the defence case is that the plaintiff has not discharged this onus. The defence goes further and maintains that the evidence before the Court shows the capital raising in April 2009 to have been for proper company purposes and, as such, did not constitute an act of oppression.
The evidence principally relied upon by the defendant comprised various financial documents for DID relevant to the 2009, 2008 and 2007 financial years, including in the main (but not limited to) annual accounts, payables reconciliation summaries, bank statements, bank account reconciliation reports and hire purchase schedules.[43] Whilst the financial documentation concerning DID’s operations over those three financial years, to a degree, speaks for itself, Mr Plummer was cross-examined at some length and in quite some detail as to the inferences that might fairly be drawn from this material concerning DID’s financial position, as at April 2009, when the decision to recapitalise was made. After having regard to the financial documentation available to the Court[44] and with the benefit of Mr Plummer’s evidence which on this issue I accept, I am satisfied of the following matters.
[43] Exhibits P18-P26, being pages 256-368 of MFI P1, P28, P28A, D31, D32, D33 and D34.
[44] Principally that set out in the preceding footnote.
As at 30 June 2008, the liquidity position of the company was healthy[45] and the company enjoyed a positive working capital in the order of $1,000,000.[46] The financial position of the company, as recorded as at 30 June 2008, showed a substantial improvement over that, as recorded as at 30 June 2007.[47] However, the situation was to change throughout the 2009 financial year.
[45] T327.
[46] T326.
[47] Exhibit P24 at p338 and 341 of MFI P1.
The Lehman Brothers collapse occurred in September 2008 and the commercial world in general suffered the worst effects of the, so called, Global Financial Crisis during the second half of 2008 and throughout the 2009 calendar year.[48] The financial position of DID deteriorated throughout the 2009 financial year including, in particular, during the earlier months of the 2009 calendar year, bearing in mind that it was in April and May of 2009 that the share re-capitalisation took place.[49]
[48] T324.
[49] The notice of offer of shares in the capital of the company, exhibit P9 being pages 235-236 of MFI P1, was dated 29 April 2009.
Mr Plummer agreed that the financial records for DID as at 30 April 2009, at face value, disclosed a situation confronting DID which did call for a consideration of the need to recapitalise the company.[50] The situation is best explained in Mr Plummer’s own words given in the following exchange with cross-examining counsel.[51]
[50] T365.
[51] T359-362.
QWe have addressed I think the position as at February. Now, moving forward to March.
AYes.
QWhat his Honour would see there I would suggest is $900,000 odd worth of liquid assets being trade debtors less negative bank balance.
AYes.
QAnd $900,000 worth of creditors, trade creditors that is.
ACorrect.
QSo as at March, accepting the qualification.
ACorrect. It is lineball.
QLive to what the work in progress position is, suggesting a lineball work in capital.
ACorrect.
QA lineball working capital position is, itself, a matter that would cause you to inquire about the company’s capacity to lawfully pay its debts as and when they fall due.
AOn the basis of the figures presented, yes.
QMoving forward to April, the position is I would suggest deteriorating further. One has a $1.237 million trade debtors figure but $350,000 overdrawn in the bank. In other words around $900,000 word [sic: worth] of liquid assets.
AYes.
QBy way of contrast, $926,000 worth of current trade creditors.
ACorrect.
QAgain, subject to the qualification ‘work in progress’, suggesting a liquidity position that is a problematic one.
AYes, and subject to the decision by management as to where they were going to hold cash.
QPutting to one side at the moment whether there is a strategic decision within York to not bank cheques, the point this entity, viewed in isolation, has a tenuous working capital position by March/April subject to the qualification of ‘work in progress’.
ASubject to the qualification and subject also to the qualification if DID was doing work for Civil, York Civil, if York Civil hadn’t paid for the work they were doing, that would make it more tenuous. I have no reason to doubt that either way, it is just a statement, it is a management accounting principle.
QBut viewed in isolation this legal entity by March/April –
ACorrect.
Q– is sitting on a tenuous working capital position.
ACorrect.
QThe sort of working capital position if you were advising the directors as their accountant it would be your advice to them that they need to look carefully at the capitalisation of this organisation.
ACorrect.
QBecause if they don’t look carefully at the capitalisation they might run into the position of trading while insolvent.
ACorrect.
QNow when one then comes to May the position I would suggest has deteriorated even further. One has a liquid asset position of around $1 million.
AProbably less than that – no, million, yes.
QAnd a trade creditor position – I am sorry perhaps hasn’t deteriorated – further trade creditor in the order of $740,000.
HIS HONOUR
QLooks like a marginal improvement.
AYes.
XXN
QAnd by the end of May, it is your understanding that $250,000 had been received by way of capital injection.
ACorrect.
QMarginal improvement that we have seen to take it out of borderline working capital position and place it in a marginal improvement of approximately $250,000 worth of positive working capital would be attributed to the capital raising.
ACorrect.
QBecause the capital raising of its nature is going to improve the working capital position.
ACorrect.
QWhen one comes to the end of June, the position is now at a stage where there is a million worth of net assets. I am sorry, liquid assets.
ALiquid assets, yes.
QAnd liabilities of a liquid nature of approximately $700,000.
ANo, the liquid expense of 128 makes that 810.
QSo, there is a positive working capital balance of about $190,000.
ACorrect.
QFollowing on from a month earlier at $250,000 capital injection.
AYes, but if you take that to your previous point at that level you would be looking for a further capital raiser [sic: raising] that is getting very tight on face value.
QSo, in other words, the May capital injection wasn’t enough to put you into a healthy working capital position.
AOn the basis of the financial provided, yes.
QWithout the capital injection in the month of May, you would not merely be borderline, you would be well into a working capital deficiency.
ACorrect.
QOstensibly a position of insolvency subject to further consideration.
ACorrect.
Notwithstanding the $250,000 increase in working capital generated by the share capital raising in May 2009, DID moved to a positive working capital balance of only $190,000.[52] Without the May share capital raising, DID would have had a deficiency of working capital.[53] Even so, in August 2009, DID effected a further increase to its working capital by way of an approved overdraft of $200,000.[54]
[52] T361.
[53] T362.
[54] T369-370, exhibit D35.
The evidence given by Mr Plummer in the above passages refers to a “qualification”.[55] The qualification refers to the issue of “work in progress” and whether contract payments might have been received in advance of doing work or still be due after having done the work. The qualification is important but it must be considered in the light of the requirement that it is the plaintiff who bears the onus of establishing that the share recapitalisation was not effected for proper company purposes. The qualification was explained by Mr Plummer in the following way.[56]
[55] See, for example, T360.10.
[56] T358.3-.9, T358.28-359.18 (emphasis added).
A… so what I’m saying is in fact if you are looking at a balance sheet, which you’re looking at there, you’re missing out probably one of the major assets – or potential liabilities, I’m not saying it’s one way or the other. But we can’t look at that without the evaluation of the work in progress or the contract amounts received in advance.
. . . .
ACorrect. Because if you look at the working balance Thiess paid in that amount, so what I’m indicating is we don’t know what the balance is. So from an accounting aspect, it is dangerous to read that balance sheet without – it may not necessarily be an asset. It may well be a further liability because we could end up with a contract in advance figure which would increase the amount of potential creditors that were available. It could be one way or the other, but it’s dangerous to read that.
HIS HONOUR
QYou flag that as a relevant issue in terms of applying a conclusion.
ACorrect.
QBut are you not in a position to assist on what that –
ANo, but it could.
Q– will be.
ANo, but you could have easily paid the contractors because they need to be paid on a monthly basis and Thiess is paying you on a three month basis so there could be a potential large work in progress or the other way around.
QI understand. I understand the nature of the qualification, but you are not in a position to assist the qualification.
ACorrect.
QWe can only deal with what we have in front of us.
AThat’s right.

DID’s financial records, on their face, suggest that at the time of the share issue in May 2009, the company was in need of a capital injection at least as great as the amount of $250,000 in fact raised.[57] The records suggest that, by the end of June, a further capital raising, over and above and notwithstanding the May 2009 capital raising, was indicated.[58] The records, show that DID continued to have a working capital deficiency after the share issue in May 2009.[59]
[57] T353.
[58] T361-362.
[59] T353.
The defendants made a number of other submissions in support of the proposition that from no later than March 2009 and thereafter, DID was suffering a significant and sustained shortage of working capital. These include the following, all of which I accept as being supported by the evidence.
(i)There appears to have been a practice of drawing cheques where DID was not in a position to honour those cheques immediately upon an early presentation. [60] The inference to be drawn is that this was used as a means of managing cash flow difficulties.[61]
(ii)DID had a substantial deficiency in its working capital position as at March 2009 and this worsened by May 2009.[62]
(iii)The liquidity position of DID as measured by its accounting bank balances (a combination of cash at bank and unpresented cheques) had deteriorated to a significant extent between 1 July 2008 and 30 June 2009.[63]
(iv)There were substantial delays in the presentation for payment of cheques payable to York Civil from which it can be inferred that York Civil was assisting DID to alleviate its working capital deficiency.
[60] T338-339, 342-345, 349, 351, 353-354.
[61] T346.
[62] T360-362.
[63] T353, 355.
At the time that DID was engaging in the April 2009 share capital raising and thereafter during 2009, DID was also raising additional loan finance. It entered into an asset finance facility with the NAB on 3 July 2009.[64] The purpose of this debt facility was to enable DID to draw down on it in order to acquire plant and equipment as needed to perform individual contracts.
[64] Exhibit P23, being pages 325J-325L of MFI P1.
The apparent decline in the company’s financial position leading up to and continuing after the April/May 2009 share capital raising must be viewed in the context where DID had no promise of ongoing support from York Civil,[65] DID was not conducted as a subsidiary of York Civil,[66] DID was meant to function on an arm’s length basis with respect to York Civil[67] and DID had no legal entitlement to call upon York Civil to provide financial support, if and when it required capital to pay its debts.[68]
[65] T463.
[66] T463.
[67] T464.
[68] T464.
I have qualified my findings by the notion that the financial records, on their face, disclose the matters I have set out. I have done so because this was, in effect, a qualification that underpinned much of Mr Plummer’s evidence on this issue. However, the plaintiff has not adduced any evidence sufficient to demonstrate that the company’s financial position was not that as recorded in or which might be inferred from the company accounts. On this basis, it can be inferred that the capital raising was instigated and engaged in for proper company purposes or, at the least, the plaintiff has not demonstrated to the contrary. In other words, the plaintiff has not established that the share capital raising by DID in April/May 2009 was contrary to the proper interests of DID or was unfairly prejudicial to the plaintiff. Nor has the plaintiff established that the bona fide purpose of the capital raising was not as expressed in the April 2009 letter of offer. It is to be remembered that there is no evidence that, as at the time the decision to recapitalise was made and at all times thereafter until the new shares were issued, the defendants were aware of any (if any) incapacity on the part of Mr McLean to subscribe. Had he chosen (if able) to subscribe, the extent of Mr McLean’s minority shareholding would have been preserved. At the time the relevant decisions were made this was a potential outcome or, more precisely, there is no evidence that the defendants expected otherwise.[69]
[69] With reference to my findings in this paragraph, see generally the passages extracted earlier from Ngurli Ltd v McCann (1953) 90 CLR 425 at 439-440; Mills v Mills (1938) 60 CLR 163 at 163-164; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 739-740; and Fords Principles of Corporations Law.
These findings are sufficient to lead to the conclusion that the plaintiff’s case, as to liability, whether framed against DID for oppressive conduct within the meaning of s232 of the Corporations Act or as a breach of any fiduciary duty owed by either Mr Tarbotton or Mr Vieceli in their respective capacities (at certain times) as a director, should fail.
Mr McLean did not accept that the financial position of DID during the first half of 2009 was as borderline if not perilous as the financial documentation and Mr Plummer’s evidence would suggest. However, it must be remembered that Mr McLean had no active involvement in the day to day operation of DID after August 2007. And, as I have already mentioned, the Global Financial Crisis of 2008 and 2009 intervened after Mr McLean ceased having any active involvement with the company.
Mr McLean, in his evidence, asserted that Mr Tarbotton and Mr Vieceli engaged in conduct that was against the interests of both DID and Mr McLean and was designed to favour their personal interests or those of York Civil. His basis for this submission is summarised in paragraph [19] of the plaintiff’s outline of closing argument. This submission and its asserted factual basis is relied on as background to and in support of the primary claim that the defendants, by engaging in the April 2009 recapitalisation, acted oppressively. Paragraph [19] is in these terms.
Bearing in mind the above principles, the relevant conduct or acts which when taken together, have constituted the oppression of McLean include:
(a)the diversion of profits and work from DID to York Civil or other entities associated with Tarbotton and Vieceli;
(b)the exploitation of McLean’s skill and expertise in the same manner as (a);
(c)the retreat from the original “partnership” to the end position where McLean worked long hours in circumstances where DID and McLean were being exploited as in (a);
(d)the cumulative work pressures placed upon McLean by Tarbotton and Vieceli which led to his work induced breakdown;
(e)the consequential breakdown in the personal relationship between McLean and his two partners;
(f)the suggested preparedness of Vieceli to negotiating in good faith so as to enable Mclean to exit the company and the subsequent conduct contrary.
These matters are stated and were argued for both in the plaintiff’s opening address and closing submissions at a very general level. The evidence relied on by Mr McLean is insufficient to support findings in terms of (a) to (d). This is particularly so given, as I have already indicated, that Mr McLean’s involvement in and awareness of company matters, such as it was, ceased some 21 months or so before the act of recapitalisation which act is central to the claim of oppression.
As far as the assertions in 19(a) and 19(b) above are concerned, the cross-examination of Mr McLean demonstrated that he was unfamiliar, in material respects, with the details of a number of the company projects about which he complained. The following are examples of this.
Mr McLean alleged[70] that he was induced by either Mr Tarbotton or Mr Vieceli to sign a guarantee for the finance obtained in respect of the purchase of a particular truck-mounted drill. It is also alleged that it had earlier been agreed between the three men that no such guarantee from Mr McLean would be required. Mr McLean gave evidence in chief to this effect.[71] This evidence was incorrect. The financial documents relevant to the purchase of the Soilmec truck-mounted drill machine which were put to Mr McLean during cross-examination showed that a guarantee for the relevant facility was given but it was given by Mr Tarbotton and not by the plaintiff.[72] I accept the submission of the defendants that Mr McLean was mistaken as to: the timing of the relevant meeting; that he had signed the document concerned; and that he had signed the document because at the time of execution he was the director of DID.[73] At the time the guarantee was executed by Mr Tarbotton, he was the sole director of DID. Mr McLean’s evidence with respect to this issue is relevant in two respects: first, as an illustration of the unreliability of Mr McLean’s apparent recollection of events given without reference to contemporaneous documentation and second, as illustrating an ordinary commercial transaction entered into by DID in circumstances not indicative of oppressive conduct, but all the same pleaded and relied on by Mr McLean (in paragraph (b) of the particulars) as an example of oppressive conduct.
[70] Paragraph (b) of the particulars subjoined to paragraph 11 of the fourth statement of claim.
[71] T181-182.
[72] T455; exhibit D41.
[73] T453-454.
Mr McLean also complained about the conduct of Mr Tarbotton and/or Mr Vieceli with respect to a project undertaken by DID described as the Port River Expressway or “PREX” project.[74] In essence, the pleaded allegations are to the effect that:
(i)Mr Tarbotton reduced DID’s quoted price to York Civil for DID’s proposed role in the PREX project from its original quote of $2.3M to $1.2M;
(ii)initially it was intended that DID would complete its task over a maximum period of 16 weeks at a profit of $450,000. However, Mr Tarbotton forced DID into completing ongoing piling work, as requested by York Civil, at a subsequently reduced cost to DID so as to maximise the profit earned by York Civil on the PREX project; and
(iii)variations that DID sought to claim from York Civil with respect to the PREX project were refused or overruled by Mr Tarbotton or Mr Vieceli.
During his examination in chief, Mr McLean gave some evidence purportedly in support of these allegations. That evidence rose no higher than assertions by Mr McLean that these events in fact occurred. The evidence was of a general character. When cross-examined on these matters and with the assistance of contemporaneous documentation, Mr McLean’s evidence was either shown to be or conceded by him to be incorrect.[75] Again, his evidence, given solely from memory, was shown to be inaccurate and unreliable in connection with the circumstances in which DID quoted for, performed and was paid for the PREX project.
[74] Paragraphs (c)-(e) of the particulars subjoined to paragraph 11 of the fourth statement of claim.
[75] T479, 483, 488, 490-494, 497, 498 and exhibits D43 and D44.
It was the allegation that DID was entitled to but was improperly deprived of a profit of $450,000 with respect to the PREX project that was relied upon by Mr Plummer, by way of an assumption, so as to generate an add-back of $450,000 into DID’s accounts for the financial year ending 30 June 2009. I am unable to find, on the evidence available, that DID was ever improperly deprived of a $450,000 profit in this respect. In addition, the contemporaneous documentation[76] indicates that the performance of and remuneration earned for this project related to the 2007 financial year and early in the 2008 financial year not the 2009 financial year. In instructing Mr Plummer to base his maintainable earnings valuation of the company on an assumed add-back of $450,000 for the 2009 financial year, Mr McLean’s memory again failed him.
[76] D43 and D44.
Mr McLean also pressed allegations of improper conduct with respect to a job known as the MYCON project.[77] This was, apparently, a joint venture project between York Civil and another company, McMahon Constructions. Again, the evidence given by Mr McLean[78] did not support the pleaded allegations. On the evidence given by Mr McLean, I cannot be satisfied that there was any improper or oppressive behaviour, in this respect, by DID or by Mr Tarbotton or Mr Vieceli on its behalf.
[77] Paragraph (g) of the particulars subjoined to paragraph 11 of the fourth statement of claim,
[78] T501-523.
Mr McLean also alleged that Mr Tarbotton and/or Mr Vieceli used pricing information provided to them by DID in order to enable York Civil to provide a cheaper quote with respect to work to be done for a project described as “Berth 7 at Port Adelaide”.[79] It is alleged that by making use of DID’s pricing information, Mr Tarbotton and/or Mr Vieceli, acting on behalf of York Civil, were able to undercut DID’s quote by an amount of $120,000. Mr McLean alleged that, through this process, profit that should have been had by DID was diverted to York Civil. However, this project occurred or at least was completed at a time when Mr McLean had no active role with the company.[80] Mr McLean in his evidence demonstrated that he did not know the terms on which DID contracted with York Civil for the undertaking of the project, the price that DID ultimately tendered for the project, nor the total price actually paid by York Civil to DID upon completion of the project.[81] Again, the evidence given by Mr McLean was not based on direct knowledge of events, was unreliable and did not support the alleged improper conduct.
[79] Paragraph (i) of the particulars subjoined to paragraph 11 of the fourth statement of claim
[80] T530-531.
[81] T530-535.
It was a part of Mr McLean’s case that the company made a substantial profit in the 2008 financial year which resulted in the declaration of a dividend to all shareholders totalling in excess of $300,000 and that Mr McLean received approximately $70,000 by way of dividend in early 2009. It was alleged in the opening address of counsel for Mr McLean that the recapitalisation for an approximately similar amount which occurred within the matter of a month or two of the dividend, should be seen, inferentially, as being a means to claw back this distribution of profits to Mr McLean, given his intention to withdraw from the company. Counsel said this during the opening.[82]
Put another way, the only objectively sensible course in those circumstances would be to have cancelled the proposed distribution would then have allowed the company to retain $300,000 – more than what it sought by the capital raising.
[82] Written outline of opening at [11]-[12].
The suggestion put in opening was to the effect that, given the company had distributable profits in the amount of $300,000 available as at early 2009, such was entirely inconsistent with any need to recapitalise in the amount of $250,000 as at April 2009. Mr McLean agreed that he gave instructions to his counsel to the effect that the dividend had been paid in approximately early 2009.[83] However, the evidence discloses that the dividend was in fact paid and received in August 2007.[84] Again, the unreliability of Mr McLean’s evidence based solely on his recollections is evident. Furthermore, the fact that the company was in a position to pay a dividend in or about August 2007 does not detract from the fact that, as the evidence would support, the financial circumstances of the company had changed for the worse by April/May 2009, the time of the recapitalisation.
[83] T467.
[84] T467.
In paragraphs 19(b) and 19(c) of the plaintiff’s outline of closing argument, the allegation is that Mr McLean was exploited. It is true that he conducted DID’s day to day operations, worked extremely hard and ultimately succumbed, health wise, to various significant pressures including, at least, those associated with running a high pressure and, according to Mr McLean, very successful (at the time) business. However, this was the arrangement from the start and Mr McLean was employed to perform this role on a commercial basis. He was well remunerated for his labour which was to be in addition to whatever financial gain might result from holding a minority share interest. The situation was not necessarily one that spoke of exploitation but, even if so, it is not of itself, an act of oppression relied upon by Mr McLean. Further, it can be seen as inconsistent with any anterior intention to remove Mr McLean from the company.
Paragraphs 19(d), (e) and (f) lend more support for an inference to be drawn that Mr Tarbotton and Mr Vieceli wanted Mr McLean out of DID. I am satisfied that there was a breakdown in the relationships (paragraph (e)). However, there is little evidence in support of paragraph (d) and in particular, that Mr McLean’s breakdown was work induced[85] or that the work pressures which caused the breakdown (if so) were (as implied) improperly imposed upon Mr McLean by either or both Mr Tarbotton and Mr Vieceli.
[85] I make no finding that it was not; only that Mr McLean has not proved that it was or was solely, so caused.
The breakdown of the relationships between Mr McLean and Mr Tarbotton and between Mr McLean and Mr Vieceli, the inability of Mr McLean to continue to manage the day to day operations of DID and the manner by which DID negotiated with Mr McLean over his proposed share buyout are all capable of supporting the conclusion that Mr Tarbotton and Mr Vieceli wanted to have no further involvement with Mr McLean. But this, on its own, is not sufficient to characterise conduct that was not otherwise for improper company purposes as improper and oppressive. I am satisfied that the principal conduct challenged by Mr McLean – the April 2009 recapitalisation – has not been shown to have been for an improper company purpose and oppressive. Even if the background to the recapitalisation as asserted in paragraphs 19(a) to (f) above were to be accepted at face value, such would not dissuade me from this position.
Mr McLean also submitted that in the circumstances of this matter the failure by the defendants to call either Mr Tarbotton or Mr Vieceli or both to give evidence to refute Mr McLean’s allegations should enable the Court to more readily draw inferences in favour of the case propounded by Mr McLean.
In Blatch v Archer[86] Lord Mansfield CJ said:
It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced and in the power of the other to have contradicted.
Comprehensive discussions of this principle and illustrations of its application in civil trials are to be found in Jones v Dunkel,[87] O’Donnell v Reichard,[88] and Payne v Parker.[89] A leading discussion in South Australia still would appear to be that of Cox J in Spence v Demasi.[90] Another helpful discussion can be found in Frederick v State of South Australia.[91]
[86] (1774) 1 Cowp 63 at 65; 98 ER 969 at 970.
[87] (1959) 101 CLR 298.
[88] [1975] VR 916.
[89] [1976] 1 NSWLR 191, particularly at 200-202 per Glass JA.
[90] (1988) 48 SASR 536 at 547-549.
[91] (2006) 94 SASR 545 at [36]-[42].
For present purposes, I set out and adopt, with respect, a number of the propositions arrived at, following a review of the then available authorities, by Glass JA in Payne v Parker.[92]
[92] [1976) 1 NSWLR 191 at 201 (citations omitted).
1.The rule [known in Australia as the rule in Jones v Dunkel] is a principle of the law of evidence whereby a particular form of reasoning is authorised.
2.The reasoning which is permissible involves the treatment of a failure to adduce evidence as a reason for increasing the weight of the proofs of the opposite party or reducing the weight of the proofs of the party in default. The principle may be invoked for a deficiency in the evidence either of a party bearing a legal onus of proving an issue, or of a party bearing the evidentiary burden only. If the failure is of the latter kind, the direct evidence of the party with the onus of proof can be more readily accepted, and inferences in his favour may be more confidently drawn. If the failure is of the former kind, a consonant formulation would be that the direct evidence of the party carrying the onus may be more readily rejected, and the inferences for which he contends may be treated with greater reserve. The default “brings a great slur on his cause”.
3.…
4.[I[t is for the judge to determine whether the principle could be applied, and for [the trier of fact] to decide whether it should be applied. The determination has the same legal status as a decision whether the res ipsa principle can or should be applied.
5.Whether the principle can be applied is a question of law, which admits of only one answer. No exercise of discretion is involved… .
6.Whether the principle can or should be applied depends upon whether the conditions for its operation exist. These conditions are three in number:
(a)     the missing witness would be expected to be called by one party rather than the other,
(b)     his evidence would elucidate a particular matter,
(c)     his absence is unexplained.
7.…
8.…
9.…

I accept that the three basic conditions for the application of the rule in Jones v Dunkel are satisfied in the present case. However, the rule does not permit inferences to be drawn or matters to be established which are not themselves available on the evidence that is before the Court. I cannot use the absence of evidence from Mr Tarbotton and/or Mr Vieceli as positive evidence in favour of the plaintiff’s case. Their absence might lead to an inference that their evidence would not have assisted the defendants’ case and operate as a reason for increasing the weight of the plaintiff’s proofs.
However, there is no matter, based on the evidence that is before the Court, about which I would be prepared to more readily draw an inference in favour of the plaintiff because of the absence of evidence from either Mr Tarbotton or Mr Vieceli. On the contrary, I have formed a clear view that the plaintiff’s account of events critical to his allegations of oppression is unreliable. In addition, I have formed a clear view based on the objective, documentary, evidence that is available and with the assistance of the evidence from Mr Plummer, that it has not been established that the company engaged in improper or oppressive conduct by undertaking the April/May 2009 recapitalisation at the time and in the circumstances in which it did. In these circumstances the plaintiff gains no assistance from the defendants’ failure to call Mr Tarbotton or Mr Vieceli.
The plaintiff’s claim is dismissed. I will hear the parties on the question of costs.