Millsave Holdings Pty Ltd v Connective Group Pty Ltd
[2023] VSCA 326
•18 December 2023
| SUPREME COURT OF VICTORIA COURT OF APPEAL |
| S EAPCI 2022 0041 |
| MILLSAVE HOLDINGS PTY LTD (ACN 115 160 097) & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Applicants |
| v | |
| CONNECTIVE GROUP PTY LTD (ACN 162 397 060) & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Respondents |
S EAPCI 2022 0042
| MILLSAVE HOLDINGS PTY LTD (ACN 115 160 097) & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Applicants |
| v | |
| CONNECTIVE SERVICES PTY LTD (ACN 107 366 496) & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Respondents |
S EAPCI 2022 0043
| MILLSAVE HOLDINGS PTY LTD (ACN 115 160 097) & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Applicants |
| v | |
| SLEA PTY LTD (ACN 106 752 434) & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Respondents |
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| JUDGES: | McLEISH, MACAULAY and LYONS JJA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 15 – 19 May 2023 |
| DATE OF JUDGMENT: | 18 December 2023 |
| MEDIUM NEUTRAL CITATION: | [2023] VSCA 326 |
| JUDGMENT APPEALED FROM: | [2022] VSC 136 (Robson J) |
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CORPORATIONS – Oppression of minority shareholder – Strategy to remove minority shareholder at depressed price by applying financial pressure – Strategy involved exercising pre-emptive rights to prevent sale unless minority transferred portion of shares pursuant to purported agreement – Transfer of shares would result in majority shareholders obtaining special majority, enabling issue of special class of shares to their benefit – Insufficient support for trial judge’s finding of financial pressure strategy at early point in time – Strategy ended when majority offered to pay dividends on undisputed shares.
CORPORATIONS – Oppression of minority shareholder – Improper purpose – Corporate restructure undertaken to circumvent minority’s pre-emptive rights – Corporate restructure and sale deliberately concealed from minority – Corporate restructure and sale of business had substantial and immediate purpose of circumventing minority’s pre-emptive rights – Trial judge’s findings undisturbed.
CORPORATIONS – Oppression of minority shareholder – Improper purpose – Majority undertook sale of business and sought court approval for sale – Distinction between knowing consequence of action and consequence being motivating purpose – Trial judge erred in finding purpose to interfere with relief available to minority in ongoing proceedings – Undertaking asset sale, rather than share sale, understandable in context of ongoing litigation – All circumstances support inference that majority motivated by real commercial value in sale of business.
CORPORATIONS – Oppression of minority shareholder – Relief – Corporations Act 2001 (Cth) s 233 – Trial judge made order for minority to buy out majority – Whether order appropriate – House v The King (1936) 55 CLR 499 – Discretion only re-exercised if trial judge’s errors caused or materially contributed to result – Discretion enlivened – Court empowered to make any order it considers appropriate – Implied limitations on exercise to be treated with caution – Principle that courts normally give minimum relief to neutralise oppression of limited assistance in determining direction of buy-out – Impossible to identify clear buyer and seller – Majority responsible for wealth of business – Majority buy-out of minority would not compound oppression as sale of shares would be at fair price – Separate orders remedying oppression in relation to restructure – Orders giving majority option of acquiring shares of minority for fair value, failing which minority may acquire shares of majority for fair value.
EVIDENCE – Admissibility – Whether claiming confidentiality over highlighted passages of statement amounted to implied admissions as to truth – Whether assertions of third party could be accepted as admissions of applicants by virtue of applicants’ confidentiality claims – Silence may imply assent to representations where circumstances create expectation that person would deny statements if false – Applicants’ conduct in claiming confidentiality consistent only with truth of highlighted paragraphs – Highlighted passages admissible as implied admissions – Evidence Act2008, ss 81, 87.
APPEAL – 52-day trial – Judgment reserved for 25 months – Whether delay meant findings should be treated with special care – Expectation v PRD Realty (2004) 140 FCR 17, considered – Trial judge’s reasons gave full consideration to all evidence – No need to approach findings with special care.
APPEAL – Adverse credit findings – Findings of trial judge not glaringly improbable, nor contrary to compelling inferences – Credit findings largely undisturbed – One adverse credit finding based upon inconsistency of witness’ evidence with documents and other evidence – Documents and evidence reveal insufficient evidentiary foundation for dishonesty finding – Challenge to credit finding upheld in relation to one witness.
PRACTICE AND PROCEDURE – Appeal – Whether arguments raise new points not raised at trial – Argument open and properly made – Argument dependent upon examination of documents – No prejudice by lack of cross-examination on issue – Expedient in interests of justice that points be decided.
COSTS – Approval proceeding under Corporations Act 2001 (Cth) s 241 – Finding of ulterior purpose displaced with respect to sale process – Plaintiffs to pay defendants’ costs on standard basis.
Corporations Act 2001 (Cth) ss 181, 232; Evidence Act2008, ss 81, 87.
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| Counsel | ||
| Applicants: | Mr P Collinson KC with Dr C Parkinson KC | |
| Respondent (Slea Pty Ltd): | Mr M Hodge KC and Ms K Foley SC with Mr G Kozminsky and Ms C Mintz | |
| Respondents (Connective Companies): | Mr J Peters KC with Mr K Loxley (15 May 2023) | |
| Respondent (Macquarie Bank Ltd): | No appearance | |
Solicitors | ||
| Applicants: | HWL Ebsworth | |
| Respondent (Slea Pty Ltd): | Arnold Bloch Leibler | |
| Respondents (Connective Companies): | King & Wood Mallesons | |
| Respondent (Macquarie Bank Ltd): | Allens | |
TABLE OF CONTENTS
REASONS OF McLEISH AND MACAULAY JJA
Introduction
Proceedings and orders
Facts in greater detail
The Connective business
Mr Haron’s entry into the business
Events following Mr Tsialtas’s departure
Restructure and Macquarie sale
Sale process and AFG transaction
Three phases of oppression alleged
Challenges to findings of fact
Ground 35: Admission of Murray Lees statement
Applicants’ submissions
Slea’s submissions
Consideration of ground 35
Ground 61: Adverse credit findings
Applicants’ submissions
Slea’s submissions
Consideration of ground 61
First phase of the alleged oppression
Grounds 1–5: Departure of Mr Tsialtas in May 2008
Applicants’ submissions
Slea’s submissions
Consideration of grounds 1–5
Grounds 6–8: Majority’s knowledge of Tsialtas’ financial condition
Applicants’ submissions
Slea’s submissions
Consideration of grounds 6–8
Grounds 9–11: 19 May 2008 Murray email
Applicants’ submissions
Slea’s submissions
Consideration of grounds 9–11
Grounds 12–15: Mildura Finance negotiations
Applicants’ submissions
Slea’s submissions
Consideration of grounds 12–15
Grounds 16–18: Other potential third party buyers
Applicants’ submissions
Consideration of grounds 16–18
Grounds 19–25: Haron agreement
Applicants’ submissions
Slea’s submissions
Consideration of grounds 19–25
Grounds 26–27: ‘In principle’ agreement to purchase Slea’s shares for $1,291,666
Applicants’ submissions
Slea’s submissions
Consideration of grounds 26–27
Ground 28: Minerva agreement dated May 2009
Applicants’ submissions
Slea’s submissions
Consideration of ground 28
Grounds 29–30: Version 1 and 2 emails
Applicants’ submissions
Slea’s submissions
Consideration of grounds 29–30
Grounds 31–34: Subsequent dealings with Liberty/Slea prior to the restructure
Applicants’ submissions
Slea’s submissions
Consideration of grounds 31–34
Grounds 36–37: Failure to pay dividends
Applicants’ submissions
Slea’s submissions
Consideration of grounds 36–37
Grounds 38–39: Inappropriate payments and recording of directors’ fees
Applicants’ submissions
Slea’s submissions
Consideration of grounds 38–39
Conclusions as to first phase of the alleged oppression
Second phase of the alleged oppression
Grounds 40–44: Restructure and Macquarie Sale
Relevant factual findings
Restructure and Macquarie sale: The judge’s conclusions
Restructure and Macquarie sale: Grounds of appeal
Grounds 40–42: The purpose of the restructure and Macquarie sale
Applicants’ submissions
Slea’s submissions
Consideration of grounds 40–42
Ground 43
Applicants’ submissions on ground 43(a)
Slea’s submissions on ground 43(a)
Consideration of ground 43(a)
Applicants’ submissions on grounds 43(b) and (c)
Slea’s submissions on grounds 43(b) and (c)
Consideration of grounds 43(b) and (c)
Ground 44
Applicants’ submissions
Slea’s submissions
Consideration of ground 44
Third phase of alleged oppression
Grounds 45–60: The sale process and AFG transaction
Facts in greater detail
2018
2019
Judge’s findings
1. Where the idea for conducting a sale process originated (grounds 46 and 57)
Applicants’ submissions
Slea’s submissions
Consideration of grounds 46 and 57
2. The directors’ response to the AFG approach (grounds 54 and 55)
Applicants’ submissions
Slea’s submissions
Consideration of grounds 54 and 55
3. The role of Mr Korda (grounds 52, 53 and 58)
Applicants’ submissions on grounds 52 and 53
Slea’s submission on grounds 52 and 53
Consideration of grounds 52 and 53
Ground 58
Applicants’ submissions on ground 58
Slea’s submissions on ground 58
Consideration of ground 58
4. The known and intended effects of the sale process (grounds 50 and 51)
Relevant events prior to 2018
Steps taken in the sale process
Slea’s application for pleading amendments and injunctions
Further negotiations with AFG
Implementation deed and approval application
Judge’s reasoning
Submissions
Consideration of grounds 50 and 51
5. The reason for changes in the sale process (grounds 56, 57 and 59)
Judge’s findings
Grounds of appeal
Applicants’ submissions on grounds 56 and 59
Slea’s submissions on grounds 56 and 59
Consideration of grounds 56 and 59
Consideration of ground 57
6. Dishonesty findings about Mr Korda (grounds 60 and 61)
Applicants’ submissions
Slea’s submissions
Consideration of grounds 60 and 61
7. The directors’ inferred improper purpose (grounds 45 and 46)
Consideration of grounds 45 and 46
8. The legal consequence of the findings (grounds 48 and 49)
Consideration of grounds 48 and 49
Grounds 62–65: Appropriate relief
Ground 62
Ground 64 (c), (d) and (g)
Ground 64(e)
Ground 64(a)
Ground 64(b)
Ground 64(g)
Grounds 63 and 65
Grounds 66–68: Costs
Conclusion and orders
REASONS OF LYONS JA
Introduction
Third phase of alleged oppression
The judge’s reasons
The judge’s relevant findings and conclusions
The genesis of the AFG approach (finding 3)
The idea and decision to conduct the sale process: the facts
The idea and the decision to conduct the sale process: conclusions (findings 1, 2, 4 and 5)
The timing of the decision to conduct the sale process: the facts
Timing of the decision to conduct the sale process: the conclusions (findings 6 and 7)
The approval process: the facts
The asset sale decision and court approval: the conclusions (findings 9, 10, 11 and 13)
Other relevant findings (findings 8 and 12)
Applicants’ submissions
Relevant legal principles
Factual context of phase 3
Grounds 52–55, 57 and 58: Genesis of the sale process and timing of the decision to conduct it
Grounds 56 and 59: The disadvantages of the sale process
The reason for decision to have an asset sale and its consequences
Mr Korda and the 12 July 2019 meeting
Ground 50: Court approval
Grounds 45–49 and 51: The ultimate findings of the judge
Ground 60
Ground 61
Grounds 62–66
Ground 62
Ground 64
Grounds 63 and 65
Oppression findings
Exercise of the discretion
Grounds 66–68: Costs
Conclusion
Schedule of parties
Appendix 1: Proposed grounds of appeal
Appendix 2: Defined terms
Appendix 3: Key companies, law firms and people referred to in reasons
MCLEISH JA
MACAULAY JA:
Introduction
Over a period of more than 10 years, there has been discord among the owners of a mortgage aggregation business. The business was conducted by Connective Services Pty Ltd (‘Services’) and Connective OSN Pty Ltd (‘OSN’) until a restructure in 2013 which itself forms part of the controversy. Although the corporations making up the overall group have changed over time, it is convenient to describe them as the ‘Connective companies’.[1]
[1]A table of defined terms is included as appendix 2 and a table of key companies, law firms and people is included as appendix 3 of these reasons.
The largest shareholder of the Connective companies is, and has always been, Millsave Pty Ltd (‘Millsave’), which is the first applicant in three proposed appeals before the Court. Millsave is controlled by Glenn and Murray Lees, who worked as senior executives in the business until Murray parted company with Connective in about 2011 and was ultimately made redundant in 2015.[2] Millsave originally held two-thirds of the shares in Services and OSN. Glenn Lees is a director of the companies. Murray Lees was not, but until around 2011 he took part in decisions about the companies as if he was. It is therefore convenient to use the term ‘directors’ somewhat loosely to include both the Lees brothers until Murray ceased to take part in decisions about the Connective companies in about 2011.
[2]It is convenient, at times, to refer to Glenn Lees and Murray Lees by their first names.
The remaining shares are held by Slea Pty Ltd (‘Slea’), which is controlled by Sofianos Tsialtas. He was a director from inception of the business until his resignation in May 2008.
The conduct of the affairs of the companies after the departure of Mr Tsialtas spawned multiple legal proceedings. The essential substance of the dispute was resolved after a trial of three proceedings conducted over some 52 days between October 2019 and March 2020. By judgment delivered on 22 March 2022 and orders dated 6 April 2022, a judge in the Trial Division declared that the conduct of the affairs of the Connective companies by Millsave, its directors and Mark Haron had been oppressive and unfairly prejudicial to, and unfairly discriminatory against, Slea within the meaning of s 232(e) of the Corporations Act 2001 (Cth) (‘Corporations Act’). Among other things, the judge ordered that Slea have the option of selling its shares to Millsave and Mr Haron or purchasing the shares held by those parties.
Mr Haron became a director of the Connective companies in 2011, having worked as a senior executive since 2006. Like Murray Lees, he also acted at times as if he was a director and these reasons use the term ‘directors’ in that sense to include Mr Haron as well. The litigation also involved a dispute as to whether the parties had agreed that he would acquire a 25 per cent interest in the Connective companies. By virtue of a settlement of that issue with Millsave and Slea on 22 October 2013, Mr Haron acquired a 16⅔ per cent interest and Millsave’s share was reduced to 50 per cent.
As described later in these reasons, Graham Maloney also became a director in 2011.[3]
[3]See below [27].
Apart from Millsave, the other applicants in this Court are Glenn Lees, Mr Haron and Mr Maloney.[4] The applicants do not seek to challenge the judge’s conclusion as to oppression. They do, however, seek to confine the grounds upon which that finding was based. The principal result which they seek is an order setting aside the relief which the judge granted and substituting orders giving Millsave and Mr Haron a first option to purchase Slea’s shares, failing which Slea would, only then, have the option of purchasing those parties’ shares.
[4]Mr Maloney is not a party to the approval proceeding.
The oppression case identified 13 heads of oppression, of which the judge upheld 12. The applicants do not seek to challenge eight of those bases. In short compass, those eight grounds were that:
(a)inappropriate payments were made to directors;[5]
(b)directors’ fees in the financial years ending 30 June 2009 and 30 June 2010 were inappropriately recorded as unsecured loans, with the effect of shifting a tax liability from the directors to Services, to the detriment of Slea;[6]
(c)the business of the companies was restructured between December 2012 and October 2013 by incorporating a subsidiary of Services and OSN called Connective Group Pty Ltd (‘Group’) and transferring the business to Group and its subsidiaries (the ‘restructure’), with the effect of enabling pre-emptive rights enjoyed by Slea to be circumvented;[7]
(d)a 25 per cent interest in the business was then purportedly sold to Macquarie Bank Ltd (‘Macquarie’) in October 2013 by transfer of 25 per cent of the shares in Group (the ‘Macquarie sale’), in circumvention of Slea’s pre-emptive rights and with the effect of diluting Slea’s interest in the business to 25 per cent;[8]
(e)provisions were adopted in the constitution of Group which denied Slea the pre‑emptive rights it had previously enjoyed;
(f)Millsave and the directors engaged in misleading and deceptive conduct in inducing Slea to waive its pre-emptive rights so as to enable Mr Haron to acquire shares from Millsave in partial settlement of the dispute as to his shareholding, when Slea was unaware of the restructure and imminent sale to Macquarie which would have the effect of reducing its interest to 25 per cent;
(g)Services and OSN funded and participated in litigation that was for the benefit of the directors rather than those companies;
(h)Services failed, at the instance of the directors, to provide financial reports for the group in contravention of a written undertaking, requirements of the Corporations Act and discovery obligations.[9]
[5]By grounds 38–39, however, the applicants challenge the judge’s finding as to the reasons for this conduct.
[6]By grounds 38–39, the applicants challenge the judge’s finding as to the reasons for this conduct also.
[7]By grounds 40–44, the applicants challenge the judge’s finding as to the commercial reason for the restructure.
[8]By grounds 40–44, the applicants challenge the judge’s finding as to the commercial reason for the sale.
[9]Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136, [1613(3)–(4), (7)–(12)] (Robson J) (‘Reasons’).
The disputed heads of oppression allege:
(a)Glenn and Murray Lees and Mr Haron embarked in May 2008 on a course of conduct designed to enable them to buy Slea’s shares at a reduced value, including by applying financial pressure to Slea and Mr Tsialtas and preventing Slea from selling its shares to anybody else (grounds 1–35);
(b)Connective failed to pay dividends prior to 14 June 2013 (grounds 36–37);
(c)Connective inappropriately retained earnings in each of the four financial years ending 30 June 2010 to 30 June 2013 rather than paying dividends (grounds 36–37); and
(d)in August 2018, Glenn Lees, Mr Haron and Mr Maloney initiated a process to sell the Connective business, or shares in the restructured group, for the improper purpose of depriving Slea of the relief it sought in the pending proceedings, in particular the rescission of the restructure and sale to Macquarie and the return of direct ownership of the business to Services and CSN (grounds 45–60).[10]
[10]Ibid [1613(1)–(2), (6), (13)].
The disputed heads of oppression concern two broad subjects: first, an alleged strategy on the part of Millsave, the directors and Mr Haron to seek to remove Slea as a shareholder, at a depressed price (including by applying financial pressure to Slea by means including a failure to declare dividends); and, secondly, a process by which the directors sought to sell the business to Australian Finance Group Ltd (‘AFG’) for the allegedly improper purpose of thwarting the relief sought by Slea for the earlier oppressive conduct.
Proceedings and orders
The proceedings which are the subject of the three applications for leave to appeal now before the Court are as follows:
(a)the ‘oppression proceeding’ brought by Slea against Services, OSN, Millsave and Mr Haron, together with Group and other entities introduced as part of the restructure;
(b)the ‘derivative proceeding’ prosecuted by Slea in the name of Services and OSN against Glenn Lees, Mr Haron and Mr Maloney, Macquarie, the other Connective companies introduced in the restructure, and Millsave; and
(c)the ‘approval proceeding’ brought by those other Connective companies against Slea, Services and OSN seeking court approval of the sale to AFG.
By the derivative proceeding, it was alleged that the restructure and sale to Macquarie had been undertaken for the improper purpose of circumventing Slea’s pre-emptive rights. It was sought to have the restructure and the Macquarie transaction declared void.
The approval proceeding was discontinued during the trial, but there remained questions of costs.
The final orders made by the judge provided for:
(a)a declaration as to oppressive conduct in the affairs of Services and OSN;
(b)a declaration (not now in dispute) that Slea did not waive its pre-emptive rights when Millsave purportedly transferred shares to Mr Haron;
(c)a declaration (not now in dispute) that Glenn Lees, Mr Haron and Mr Maloney breached their duties in carrying out the restructure and sale to Macquarie;
(d)a declaration that Glenn Lees, Mr Haron and Mr Maloney breached their duties in giving effect to the sale process with AFG;
(e)orders (not now in dispute) rescinding the sale to Macquarie and reimbursing the Connective companies for associated costs, expenses and interest;
(f)orders restraining Glenn Lees, Mr Haron and Mr Maloney from giving effect to the sale to AFG and reimbursing the Connective companies and Slea for associated costs, expenses and interest (including, in Slea’s case, costs of the approval proceeding);
(g)orders that Millsave and Mr Haron reimburse various Connective companies for improperly incurred costs (not now in dispute, except that Millsave and Mr Haron seek to exclude costs of the approval proceeding);
(h)the options for Slea to purchase or sell shares in Services and OSN as referred to earlier;
(i)orders that Millsave and Mr Haron pay Slea’s costs of the oppression proceeding on an indemnity basis without indemnity from any of the Connective companies, and that Glenn Lees, Mr Haron and Mr Maloney, Millsave and Macquarie pay Services’ and OSN’s costs of the derivative proceeding on the same basis;
(j)various procedural matters; and
(k)an order that Macquarie, Millsave and Glenn Lees, Mr Haron and Mr Maloney not be reimbursed by any Connective company for any amount, including by way of costs, they are to pay by the orders.
As indicated, the applicants do not seek to disturb some of these orders, but primarily seek to replace the judge’s order giving Slea the option of buying the balance of the shares in Services and OSN with an order giving such an option to Millsave and Mr Haron instead. Further, in relation to the declaration of oppressive conduct, they seek to confine the relief to the eight matters set out at [8] above.
Facts in greater detail
The judge’s reasons are inevitably lengthy. For present purposes it suffices to explain them in broad terms, adopting in large part the summary usefully agreed by the parties in this Court.
The Connective business
In 2003, Mr Tsialtas, Glenn Lees and Murray Lees established Services and OSN to conduct the business of a mortgage aggregator, which they called the Connective business. Mr Tsialtas and Glenn Lees were directors of the companies, but Murray Lees was not.
The initial shareholders of each of Services and OSN were Glenn Lees (66⅔ per cent) (representing Murray Lees and himself) and Slea as trustee for the Tsialtas Family Trust (33⅓ per cent). Mr Tsialtas was and remains the sole director of Slea. In 2006, Glenn Lees transferred his shares to Millsave, which holds the shares as trustee for the Millsave Family Trust.
The constitutions of each of Services and OSN contain pre-emptive rights for existing members on the issue of shares and the transfer of shares, and they confer a discretion on the directors to refuse to register a transfer of shares for any reason.
Mr Haron’s entry into the business
Mr Haron entered the Connective business in 2006, initially as a principal, and became a director in 2011. At a meeting on 10 October 2006, Glenn and Murray Lees, Mr Tsialtas and Mr Haron agreed that Mr Haron should commence working in the Connective business and discussed Mr Haron acquiring a 25 per cent share in each of Services and OSN, so that Mr Haron and Slea would each hold 25 per cent and Millsave (representing Glenn and Murray) would hold 50 per cent. Whether a binding agreement was reached for Mr Haron to become a shareholder was a matter in dispute in the oppression proceeding.
Events following Mr Tsialtas’s departure
In May 2008, following a complaint made by an employee about his conduct, Mr Tsialtas resigned as a director and employee of the Connective companies. He did not secure other employment until October 2008, when he was engaged by BEAT Services, a subsidiary of Liberty Financial Planning Pty Ltd (‘Liberty’).
Initially Mr Tsialtas sought to sell his 25 per cent interest in each of Services and OSN on the open market. The trial judge found, however, that immediately after Mr Tsialtas resigned from the Connective companies, Glenn and Murray Lees and Mr Haron adopted a strategy to prevent Slea from selling its shares to a third party, and sought to force Slea to sell them its shares for a price below their true value. The judge also found that Glenn and Murray Lees and Mr Haron imposed financial pressure on Mr Tsialtas by denying him dividends and, at the same time, ensuring that they themselves were well remunerated.[11] The applicants seek to challenge these findings in the proposed appeals.
[11]See ibid [644]–[645].
Between July 2009 and December 2009, Mr Tsialtas and Glenn Lees discussed a transfer of shares from Slea and Millsave to Mr Haron so as to enable Mr Haron to acquire a 25 per cent stake in the Connective companies. No transfer of any shareholding took place at that time.
On 12 August 2010, Minerva Financial Group Pty Ltd (a related body corporate of Liberty) (‘Minerva’) and Slea entered into an ‘accommodation agreement’, and Slea executed a guarantee and indemnity in favour of Minerva. The accommodation agreement stated that Minerva was interested in providing financial support to Slea and set out a process to be followed should circumstances arise that would enable the purchase of all or a part of the shares in the Connective companies. Under cl 1.3, Slea agreed that it would take all reasonable steps necessary to exercise its pre-emptive rights and to exercise its new issue share rights if new shares were issued. Minerva also agreed to pay $575,000 to Slea in consideration for Slea entering into the agreement with Minerva. At this stage, neither Connective nor Glenn Lees had agreed for Minerva to become a shareholder of the Connective companies. They did not become aware of the accommodation agreement until it was discovered in related litigation in December 2011.
On 5 May 2011, Mr Haron commenced proceedings to enforce an agreement he alleged with Slea and Millsave for him to acquire a 25 per cent interest in Services and OSN (the ‘Haron proceeding’). Mr Haron alleged that, on 10 October 2006, the parties had reached a final agreement for Slea and Millsave to sell him 25 per cent of the shares in each of Services and OSN. Slea defended the Haron proceeding. The Connective companies and Millsave did not file defences.
On 16 August 2011, Mr Haron and Millsave settled the Haron proceeding as between themselves, pursuant to a deed of settlement and release (the ‘Millsave deed of settlement’). Mr Haron and Slea did not settle at that stage.
On 26 August 2011, the Connective companies held annual general meetings at which, over Slea’s objections, Mr Maloney and Mr Haron were appointed as directors of the Connective companies. Mr Maloney was appointed as chairman of the boards. In around 2011, Murray Lees ceased his senior role in the Connective business but retained his interest in Millsave.
In March 2012, Slea and Minerva entered into a new agreement to finance Slea’s costs of the litigation with the Connective companies, their shareholders and directors.
Restructure and Macquarie sale
In March 2012, the Connective companies began discussions with Macquarie about the sale of an interest in the Connective companies to Macquarie. The initial discussions did not lead to a sale.
Between December 2012 and October 2013, the Connective companies were restructured by incorporating a subsidiary of Services and OSN, namely Group, and transferring the Connective business to Group and five of its subsidiaries.
In April 2013, the Connective companies recommenced discussions with Macquarie about the sale of an interest in the Connective business to Macquarie. By this time, the restructure had been substantially completed.
In October 2013, by a share purchase deed, Macquarie agreed to purchase a 25 per cent interest in Group (the ‘Macquarie share purchase deed’). The sale settled on about 31 October 2013.
The trial judge found that the restructure was undertaken by the directors (Glenn Lees, Mr Haron and Mr Maloney) for the improper purpose of establishing a structure to circumvent Slea’s pre-emptive rights and thereby enable the sale of equity in the Connective business without enlivening those rights. The trial judge also found that both the restructure and the sale to Macquarie constituted oppressive conduct, and ordered that the Macquarie share purchase deed be rescinded. These findings and orders are not challenged in the proposed appeals but related findings are challenged.
On 1 October 2013, Slea commenced a claim against Millsave, and sought declarations that the Millsave deed of settlement of 16 August 2011, which settled the Haron proceeding as between Millsave and Mr Haron, had engaged the pre-emptive rights provisions in the constitutions of the Connective companies (‘Slea’s pre-emptive rights proceeding’).
On 20 October 2013, the Millsave deed of settlement was rescinded by Mr Haron and Millsave.
On 21 October 2013, the trial of Slea’s pre-emptive rights proceeding and the Haron proceeding began. Both matters were referred to mediation on 22 October 2013.
On 22 October 2013, both proceedings settled under a deed of settlement between Slea, Millsave and Mr Haron (the ‘all parties deed of settlement’).
Under the all parties deed of settlement, Millsave agreed to transfer shares representing a 16⅔ per cent interest in Connective to Mr Haron, and Slea waived any pre-emptive rights that it may have had in respect of that transfer. Slea also agreed to pay $1,150,000 to Mr Haron, in exchange for being released from any claim by him that Slea was required to transfer shares in the Connective companies to him.
On 25 October 2013, the boards of OSN, Services, and Group met and passed resolutions to give effect to the sale to Macquarie. On the same day, Millsave transferred 300 shares in each of the Connective companies to Mr Haron, pursuant to the all parties deed of settlement.
The trial judge found that Slea was misled and deceived into entering the all parties deed of settlement in circumstances where it was not informed of the restructure. He declared that Slea did not waive its pre-emptive rights in respect of the purported transfer. This finding is not challenged in the proposed appeals.
On 31 October 2013, the purchase by Macquarie was settled, and Services and OSN transferred 5,464,724 shares in Group to Macquarie.
In early November 2013, Mr Tsialtas became aware that shares in the Connective business had been sold to Macquarie. On 20 November 2013, Mr Maloney informed Mr Tsialtas of the sale to Macquarie of a 25 per cent interest in the Connective business for $5 million.
Sale process and AFG transaction
In late 2017, David Bailey, the chief executive officer of AFG, a publicly listed finance company, and Glenn Lees began discussing the possibility of AFG and the Connective companies undertaking a joint venture. They also discussed the potential benefits of a merger between AFG and the Connective companies. On 24 August 2018, AFG wrote to the Connective companies, formally seeking to explore a merger or acquisition.
On 31 August 2018, KordaMentha was engaged by the Connective companies. On 3 September 2018, Mark Korda signed an engagement letter with Group, and was appointed as a non-executive director of Services and Group.
From September 2018, a sale process was run in respect of the Connective business (the ‘sale process’).
The trial judge found that the idea to conduct a sale process was not Mr Korda’s, but instead originated in a discussion between the Connective companies’ lawyers in the litigation (Quinn Emanuel) and Glenn Lees, before Mr Korda was advised that his services were being sought by the directors.
On 12 August 2019, AFG announced to the Australian Stock Exchange that it had entered into a binding conditional implementation agreement to merge with Group, which would proceed by way of an asset sale for consideration of $120 million (comprising $60 million cash and 30,886,441 AFG shares).
On 23 August 2019, Group and its subsidiaries commenced the approval proceeding, seeking various declarations and injunctions approving and permitting the implementation deed to take effect. The directors sought to bring the approval proceeding on before the Court prior to the hearing of the oppression and derivative proceedings, but it was ultimately heard together with those proceedings, and as already mentioned was discontinued during the trial. The trial judge found that the decision to commence the approval proceeding was made with the approval of Glenn Lees, Mr Haron and Mr Maloney. That finding is challenged in the proposed appeals.
The trial judge found that a substantial purpose of Glenn Lees, Mr Haron and Mr Maloney, as directors of the Connective companies, in engaging in the sale process was, first, to prevent the Court from being able to make orders rescinding the restructure and sale to Macquarie and returning direct ownership of the Connective business to Services and OSN; and secondly, to confine the relief available to Slea in the oppression and derivative proceedings to monetary compensation. The judge also found that the approval proceeding was commenced for the collateral purpose of pressuring Slea to negotiate, and that it was part of a broader sale process conducted by the directors for an improper purpose. The applicants challenge these findings in the proposed appeals.
Three phases of oppression alleged
It can be seen that the alleged course of oppressive conduct on which Slea relied can be broken into three periods or phases. The judge described those phases as follows:
As stated earlier, Slea pleads 13 separate allegations of oppression, the conduct of which is substantially made up of three phases:
(a)In the first phase, Slea alleges that, by around July 2009, [Glenn Lees], Murray Lees, and Mr Haron had determined that they would remove Slea as a shareholder in Services and OSN, and acquire Slea’s shares at a depressed price. In order to achieve that objective, it is alleged that [Glenn Lees], Murray Lees, and Mr Haron engaged in oppressive conduct.
(b)The second phase of alleged oppressive conduct involves the restructure and subsequent sale to Macquarie in 2012 and 2013, the effect of which was to reduce Slea’s interest in the Connective business from 33⅓% to 25% and introduce a new shareholder, Macquarie. Slea says that this process was undertaken by the directors, [Glenn Lees], Mr Haron, and Mr Maloney, for an improper purpose.
(c)The third phase, in 2018 and 2019, involves the actions of the directors, [Glenn Lees], Mr Haron, and Mr Maloney, in seeking to sell the Connective business to a third party, AFG, for the allegedly improper purpose of denying the relief sought by Slea in the oppression proceeding.[12]
[12]Ibid [509].
The grounds of appeal concern each of the three phases. Most grounds (1–39) concern the first phase, and especially the alleged strategy to remove Slea as a shareholder. The second phase is the subject of grounds 40–44, which address findings bearing on the ultimate relief, without challenging the finding that the restructure was conducted for the improper purpose of circumventing Slea’s pre-emptive rights, or seeking to disturb the orders providing for the rescinding of the restructure and the sale to Macquarie. The third phase is the subject of grounds 45–60.
It will be necessary to explain in greater detail the reasoning of the judge as it bears on the various grounds of appeal. It is convenient to outline the judge’s reasons, and further factual background, in the course of identifying the parties’ arguments on the relevant grounds.
The remaining grounds concern the judge’s credit findings (ground 61), the form of relief (grounds 62–65) and questions of costs (grounds 66–68). In large part, the principles guiding the framing of relief for oppression are not in dispute. The question is instead whether the applicants succeed in establishing error, within the terms explained in House v The King,[13] in the exercise of the trial judge’s discretion in that regard. If so, the discretion falls to be re-exercised by this Court.
[13](1936) 55 CLR 419. The applicants refer also to Snell v Glatis (No 2) [2020] NSWCA 166, [37] (Leeming JA, Bell P agreeing at [1], Meagher JA agreeing at [8]) and Mualim v Dzelme [2021] NSWCA 199, [105] (Gleeson JA, Bathurst CJ agreeing at [1], Brereton JA agreeing at [192]).
The question of costs is complicated by the fact that the judge made orders precluding indemnification by the Connective companies of the directors and Millsave, and a non-party costs order against relevant directors in the approval proceeding.
Challenges to findings of fact
Most of the grounds of appeal seek to disturb findings of fact made by the trial judge.
A court conducting an appeal by way of rehearing, as we are in this case, is bound to conduct a ‘real review’ of the evidence given at first instance and of the trial judge’s reasons for judgment to determine whether the judge has erred in fact or law.[14] If the appellate court concludes that the judge has so erred, it is required to make its own findings of fact and to formulate its own reasoning based on those findings. The appellate court must exercise restraint with respect to the trial judge’s findings, if they are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence (including findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts).[15]
[14]Lee v Lee (2019) 266 CLR 129, 148, [55] (Bell, Gageler, Nettle and Edelman JJ) (‘Lee’); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679, 686 [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); [2016] HCA 22 (‘Robinson Helicopter’); Fox v Percy (2003) 214 CLR 118, 126–7 [25] (Gleeson CJ, Gummow and Kirby JJ).
[15]Lee (2019) 266 CLR 129, 148–9 [55] (Bell, Gageler, Nettle and Edelman JJ).
In that circumstance, the court should not interfere unless the findings are ‘glaringly improbable’ or ‘contrary to compelling inferences’.[16] Otherwise, however, ‘in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge’.[17]
[16]Ibid, quoting Fox v Percy (2003) 214 CLR 118, 128 [29] (Gleeson CJ, Gummow and Kirby JJ) and Robinson Helicopter (2016) 90 ALJR 679, 687 [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); [2016] HCA 22.
[17]Ibid, quoting Warren v Coombes (1979) 142 CLR 531, 551 (Gibbs ACJ, Jacobs and Murphy JJ).
The applicants do not submit that the trial judge’s findings of fact were ‘glaringly improbable’, contrary to ‘incontrovertible facts or uncontested testimony’ or ‘contrary to compelling inferences’ arising from such facts or testimony. They do however, submit that the judge’s adverse credit findings were in error (ground 61). As will be seen, with the exception of Mr Korda,[18] we are not persuaded that the judge ought to have accepted the evidence of witnesses whom he found lacking in credit. But in any event, most of the grounds are able to be dealt with on the basis of documentary evidence and evidence of witnesses, including those of whom the judge was critical, in relation to those documents. In other words, in most cases the conclusions we reach do not depend on any view as to the credibility of witnesses. In the remaining cases, subject to ground 61, the restraint mentioned above is applicable.
[18]See below [949]–[963].
Ground 35: Admission of Murray Lees statement
Before turning to ground 61, it is convenient to address a discrete ground which concerns the admissibility of evidence. The judge admitted into evidence a statement made by Murray Lees, who was not called as a witness. The statement, signed by him and dated 11 May 2016 (the ‘Murray Lees statement’), was admitted on the basis that, in claiming confidentiality in respect of parts of the document, the Connective companies, Millsave and Glenn Lees, Mr Haron and Mr Maloney had impliedly admitted the truth of those parts.
Ground 35 is as follows:[19]
35.The judge erred in finding that the applicants, by making or remaining silent in respect of claims of confidentiality, represented that the Murray Lees statement was true so as to make the statement admissible under s 87 of the Evidence Act.[20]
[19]A copy of the applicants’ proposed grounds of appeal is included as appendix 1 to these reasons.
[20]Reasons, [413]–[483]. All citations to the Reasons in the grounds are references provided by the applicants.
Before addressing the relevant facts and findings of the judge, it is appropriate to note the relevant provisions of the Evidence Act2008 (‘Evidence Act’) relied upon by Slea before the judge.
Section 81(1) of the Evidence Act provides that the hearsay rule (in s 59(1)) does not apply to evidence of an ‘admission’. An ‘admission’ is defined in the Dictionary forming part of the Evidence Act to mean a ‘previous representation’ that is
(a) made by a person who is or becomes a party to a proceeding (including an accused in a criminal proceeding); and
(b) adverse to the person’s interest in the outcome of the proceeding.
In the Dictionary to the Evidence Act:
(a) a ‘previous representation’ means ‘a representation made otherwise than in the course of giving evidence in the proceeding in which the evidence of the representation is sought to be adduced’; and
(b) a ‘representation’ relevantly includes an implied representation or a representation inferred from conduct.
Section 87 of the Evidence Act then provides the circumstances in which one person has the authority to make a ‘representation’ on behalf of a party for the purpose of determining whether that representation is taken to be an admission by that party.
As to the relevant facts, from late 2015, the relationship between Glenn and Murray Lees deteriorated (indeed in late 2015 Murray was made redundant from the Connective companies) and for a time Murray aligned himself with Slea and Liberty. As a result, on 11 January 2016, Murray together with his associated company, Mortgage Results, entered into a financial support agreement and a cooperation deed with Minerva. Pursuant to the cooperation deed, on 11 May 2016, the solicitors for Slea took a statement from Murray which he signed, namely the Murray Lees statement.
In the Murray Lees statement, Murray gave his version of conversations, events and decisions relevant to the oppression and derivative proceedings. This included steps taken after the departure of Mr Tsialtas in May 2008, efforts to give effect to the Haron agreement, the treatment of dividends and remuneration,[21] and the circumstances of the restructure and Macquarie sale.[22] In short, the Murray Lees statement supported key aspects of Slea’s allegations of oppression occurring from at least July 2009 up to and including the Macquarie sale.
[21]Set out in [419] of the Reasons.
[22]Set out in [1023] of the Reasons.
Slea first sought to rely upon the Murray Lees statement by exhibiting it to an affidavit in the derivative leave application made by summons dated 27 May 2016.[23] By the derivative leave application, Slea sought leave to bring the derivative proceeding against the directors for breach of directors’ duties.
[23]It was exhibit KCM-3 to the affidavit of Kimberley MacKay affirmed 17 May 2016.
There was correspondence between the solicitors for the Connective companies and the solicitors for Slea in which the Connective companies asserted confidentiality and/or privilege over the Murray Lees statement. By letter dated 10 June 2016 to Murray Lees (the ‘10 June 2016 letter’), Quinn Emanuel wrote:
[Y]our statement refers to and discloses confidential information and deliberations between directors and senior executive officers of Connective in relation to Slea. These include references to conversations and decisions said to have been reached between you and others on behalf of Connective, and in relation to Slea (the veracity of which is expressly not admitted).[24]
[24]Emphasis added.
By letter dated 16 June 2016, Arnold Bloch Liebler (‘ABL’) responded to this letter on behalf of Slea.[25]
[25]We note that this letter is not in evidence but is referred to in documents in evidence.
Further, by letter dated 10 August 2016 (the ‘10 August 2016 letter’), Quinn Emanuel wrote to Slea’s then lawyers MinterEllison, setting out six categories of confidential and/or privileged information which they alleged appeared to have been improperly disclosed by Murray Lees and identifying 20 paragraphs of the Murray Lees statement containing such information.[26] The letter continued:
In respect of each of these categories, our clients assert confidentiality, and do not waive or abrogate that confidentiality by reference to them in this letter. In referencing the above paragraphs, our clients expressly do not admit the matters stated by Mr Lees are in fact true and correct.
[26]Namely [12]–[14], [16], [18]–[22], [25], [27]–[35].
On 17 August 2016, Slea issued a summons in the oppression proceeding seeking to be permitted to take a more detailed witness statement or affidavit from Murray Lees in respect of the subject matter of the Murray Lees statement (the ‘Slea summons’).
On 30 August 2016, the Connective companies, including Group and its subsidiaries, commenced proceedings against Murray Lees and Slea alleging that the Murray Lees statement disclosed eight categories of confidential information of the Connective companies to Slea and/or ABL and that Slea and/or ABL had misused that information (the ‘confidentiality proceeding’). The particulars of the alleged breaches and misuse refer to the Murray Lees statement. Mr Haron signed the overarching obligation certificate pursuant to s 41 of the Civil Procedure Act 2010 (the ‘CPA’) on behalf of the ninth plaintiff, 530 Executive Pty Ltd, to the effect that there was a proper factual and legal basis for the claims made. There was no requirement for the other plaintiffs to sign such a certificate as Mr Maloney had signed overarching obligation certificates with respect to other civil proceedings within the previous two years. However, Beau Deleuil of Quinn Emanuel certified, pursuant to s 42 of the CPA, that there was a proper legal and factual basis for the claims made.
By letter dated 19 October 2016, and in response to issues raised at a directions hearing on 14 October 2016 in relation to the Slea summons, Quinn Emanuel highlighted in yellow the passages in the Murray Lees statement which they asserted were subject to claims of confidence and/or privilege (the ‘highlighted passages’).[27] The 19 October 2016 letter did not contain any statement denying or not admitting the truth of the highlighted passages or reserving the Connective companies’ rights.
[27]Namely part of [3], [12]–[14], parts of [16]–[17], [18]–[22], [25], [27]–[30], part of [31], [32]–[34] and part of [35], as extracted in [419] and [1023] of the Reasons.
Reliance on the highlighted passages was later confirmed in a statement of Glenn Lees dated 13 February 2017 (the ‘2017 Glenn Lees statement’) which was exhibit ‘EDM 1’ to an affidavit of Eleanor Doyle-Marwick, the solicitor for the Connective companies in the oppression proceeding. In his 2017 statement, Glenn Lees said:
9 I have prepared this statement for the purpose of explaining to the Court the basis on which Connective says relevant parts of the [Murray Lees statement] ought not to be admitted into evidence.
…
11 I make this statement in order to protect Connective’s confidential information. In order to do that I have necessarily described that information. In doing so, I do not waive Connective’s claim to confidentiality. Similarly, I have in this statement referred to legal advice received by Connective around many of the issues to which Murray refers in the [Murray Lees statement]. That advice, and the communications between Connective and its various legal advisors, remains subject to legal professional privilege and I do not waive it on behalf of Connective. I do not repeat these reservations each an [sic] every time I reference these categories of information for the purposes of brevity, but expressly reserve all of Connective’s rights.
Neither Ms Doyle-Marwick’s affidavit nor the 2017 Glenn Lees statement contained a statement denying or expressly not admitting the truth of the highlighted passages. However, in [11] of the 2017 Glenn Lees statement, set out above, he generally reserved all of the Connective companies’ rights in relation to the confidential information.
On 7 March 2017, Quinn Emanuel wrote to ABL noting that issues relating to the Murray Lees statement had ‘disabled the progression of the substantive [oppression] proceedings for more than six months’. As a result, the Connective companies proposed:
7. … Subject to the matters addressed in paragraph 9 below:
(a)Murray Lees be permitted to provide evidence to Slea for use in the Oppression Proceedings and — should leave be granted — in any derivative proceedings brought by Slea in Connective’s name;
(b)Slea be permitted to use the Murray Lees statement in support of the Derivative Leave Application; and
(c)Connective waive any right to object to Murray Lees’ evidence on the basis that it is provided in breach of duties of confidence that Murray Lees owes to Connective.
…
9. Connective does not waive any legal professional privilege over any communications to which Murray Lees was privy. … Connective expressly reserves its continuing right to object to Murray Lees’ statement on the grounds of relevance and any other admissibility related bases.
The letter did not contain any statement denying or expressly not admitting the truth of the highlighted passages or reserving the Connective companies’ rights generally. As a result of the letter, the confidentiality proceeding came to an end on 17 March 2017.
We note that there was other correspondence from the solicitors for the Connective companies in which confidentiality was claimed over the subject matter of the Murray Lees statement but where no denial or non-admission as to the truth of its contents was made. However, the Connective companies reserved all of their rights in general terms.[28]
[28]This included, for example, letters from Quinn Emanuel to ABL dated 23 June 2016 and 8 July 2016.
At trial, Murray Lees was not called by Slea or the applicants. Rather, Slea contended that the applicants’ conduct between 10 June 2016 and 7 March 2017 (relevantly by failing to deny the accuracy of the contents of the Murray Lees statement, and by issuing and prosecuting the confidentiality proceeding) ‘necessarily involved an implied or inferred representation that [the highlighted passages] were true’ and thus was an admission for the purposes of s 81(1) of the Evidence Act. This was because ‘[a]bsent such a representation, the representations as to confidentiality (some of which were made on oath), and the [confidentiality proceeding], would have lacked a proper basis’.
The judge accepted that factual assertions in the highlighted passages in the Murray Lees statement were admissions of the Connective companies, Glenn Lees and Millsave, and Mr Haron and Mr Maloney pursuant to s 87 of the Evidence Act.[29]
[29]Reasons, [482].
In the case of the Connective companies, the judge was satisfied that the Connective companies had admitted the accuracy and truth of the highlighted passages ‘by the contentions made on their behalf and on their instructions, and by their failure to dispute the accuracy of any of the assertions made in the highlighted passages’ (the ‘accuracy representation’).[30] Based on the arguments before the judge, it is clear that the relevant conduct which formed the basis of the accuracy representation comprised the contentions and instructions relating to the correspondence prior to the issue of the confidentiality proceeding, the issuing and prosecution of that proceeding and other conduct in the oppression proceeding including the filing of the 2017 Glenn Lees statement.
[30]Ibid [477].
Before the judge, two legal issues were raised. The first issue was whether making a claim for confidentiality over information necessarily involved an acceptance of the truth of the information. Both parties relied upon the decision of Brereton J in AMI Australia Holdings Pty Ltd v Fairfax Media (‘AMI v Fairfax’).[31] The applicants contended that AMI v Fairfax was authority for the proposition that it is possible to claim confidentiality without conceding the truth of the relevant information: rather, it depends on the specific use of the information. Slea submitted that there can be no confidentiality in false information.[32] It submitted that AMI v Fairfax is authority for the proposition that confidentiality exists where a person misuses confidential information which is true to make a statement that is false (for example, a particular confection of falsehoods making use of confidential information). Slea noted that the only allegation in the confidentiality proceeding was that the information in the Murray Lees statement was confidential.
[31][2010] NSWSC 1395 (‘AMI v Fairfax’).
[32]Financial Times Ltd v Interbrew SA [2002] EWCA Civ 274, [27]–[28] (Sedley LJ, Longmore LJ agreeing at [59], Ward LJ agreeing at [60]) (‘Interbrew’).
The second issue related to the nature of a representation by conduct, in particular, whether the failure of a party to speak (where it would be reasonable to expect that party to do so) will give rise to an implied or inferred representation constituting an admission. Slea relied upon Zaya v Manidis Roberts Pty Ltd,[33] in which Campbell J concluded in the context of pt 3.4 of the Evidence Act 1995 (NSW) that silence in context may imply assent or acquiescence if, from the circumstances, one would have expected a denial by the party if the statement were false.
[33][2018] NSWSC 388, [25]–[28] (‘Zaya’).
As to the first legal issue, the judge noted the difference between this case and AMI v Fairfax, namely this was not a case involving a breach of confidence and that AMI v Fairfax involved the alleged misuse of ‘confidential information in confecting a statement of falsehoods’ whereas there were no such allegations in this case.[34] The judge noted that he did not need to decide whether Murray Lees had breached an obligation of confidence but whether, by their actions, the Connective companies had admitted the truth of the highlighted passages.[35] The judge found that, by the relevant conduct, the Connective companies made the accuracy representation.[36]
[34]Reasons, [475]–[476].
[35]Ibid [476].
[36]Ibid [477].
In the case of Mr Haron and Mr Maloney (each of whom were directors of the Connective companies), the judge concluded that they each made the accuracy representation because each of them either approved or authorised the confidentiality proceeding (for the purposes of s 87 of the Evidence Act) and failed to dispute the accuracy or truth of the highlighted passages.[37] Further, the judge found that Glenn Lees also made the accuracy representation,[38] having been a director of the Connective companies and having made the 2017 Glenn Lees statement.
[37]Ibid [478]–[481].
[38]Ibid [482]–[483].
As a result, the highlighted passages were admitted as admissions of the Connective companies, of Glenn Lees and Mr Haron, and the highlighted passages referring to conversations in which Mr Maloney was involved were admitted against Mr Maloney.[39] The judge also concluded that the evidence admissible against Glenn Lees was also admissible against Millsave of which he was a director. [40]
Applicants’ submissions
[39]Ibid [482].
[40]Ibid [483].
The applicants contend that the relevant representation had two aspects: first, confidentiality was claimed over the topics traversed in the Murray Lees statement whether the statements were true or not; and secondly, the applicants expressly did not admit that anything in the Murray Lees statement was in fact true or correct (based upon the express non-admissions in the 10 June 2016 and 10 August 2016 letters). Further, they contend that, even if the first aspect of the representation reflected a misapprehension of the law, the second aspect was unaffected.
The applicants contend that the absence in the 2017 Glenn Lees statement of any denial of the truth of the highlighted passages of the Murray Lees statement had to be viewed in the context of the express non-admissions in the 10 June 2016 and 10 August 2016 letters with the result that the accuracy representation could not be inferred. They submit that the judge’s reasoning would convert a claim for confidentiality into an admission of the truth of the subject matter of that claim.
Slea’s submissions
Slea contends that the applicants have not demonstrated any error by the judge. At the outset, Slea notes that the judge did not admit the highlighted passages as the evidence of Murray Lees but rather accepted that the applicants represented that the highlighted passages were true and, having made those representations, the applicants themselves made those admissions.
Slea disputes the first aspect of the relevant representation relied upon by the applicants, noting that the applicants did not claim confidentiality over the topics in the Murray Lees statement but rather that that statement disclosed confidential information. This was based upon the correspondence, the statement of claim in the confidentiality proceeding and affidavit material filed in the oppression proceeding. As a result, the judge was correct to conclude that those claims of disclosure amounted to the accuracy representation.
Further, Slea contends that the non-admissions (in the 10 June 2016 and 10 August 2016 letters) are not only irreconcilable with the ongoing prosecution of the confidentiality claim but are also irreconcilable with the 19 October 2016 letter and with the 2017 Glenn Lees statement, each of which attached highlighted passages of the Murray Lees statement without denying the truth of those passages or even making an express non-admission in respect of them. Thus, Slea submits the judge was correct to conclude that ‘at no stage did the Connective companies claim that any of the statements were false’.
Finally, Slea contends that the applicants’ admissions provide further evidence against them which undercuts much of their case on appeal. Conversely, if the highlighted passages do not constitute admissions for the purposes of s 81 of the Evidence Act, it would not affect the result. Slea refers, by way of example, to the statement of the judge at [1024] of his reasons to the effect that his conclusions in relation to the restructure and Macquarie sale were not affected by the admissions in the Murray Lees statement.
Consideration of ground 35
Any alleged ‘representation’ must be viewed in the context of all the relevant circumstances before founding an admission for the purposes of s 81 of the Evidence Act. In particular, in deciding whether an implied representation has been made by conduct (including by silence or failure to act) the court must consider all the circumstances.[41] This is consistent with Slea’s submissions before the judge that the court had to look at all of the correspondence and conduct between 10 June 2016 and 7 March 2017 to determine if the accuracy representation was made.
[41]See, eg, Rose v The Queen (2002) 55 NSWLR 701, 709 [262] (Wood CJ at CL and Howie J, Smart AJ agreeing at [314]) (‘Rose’). Rose involved considering whether a representation arose from silence or non-action on a particular occasion. See also R v Dolding [2018] NSWCCA 127, [48] to the effect that statements should not be treated in isolation from the conduct which accompanied them (Simpson AJA, Johnson J agreeing at [65], Harrison J agreeing at [66]).
When confronted with the Murray Lees statement, the Connective companies did not remain silent: rather, in the 10 June 2016 and 10 August 2016 letters, they expressly stated that they did not admit the truth or accuracy of the contents of the Murray Lees statement. Taken by itself, in our view, this conduct was inconsistent with an admission as to the truth of the contents of the Murray Lees statement. However, no such reservation was expressed in the 19 October 2016 letter, or in connection with the 2017 Glenn Lees statement. In light of the need to consider all the circumstances surrounding the alleged admission, and in particular the fact that no similar statements were made in subsequent significant communications, the 10 June 2016 and 10 August 2016 letters cannot be considered in isolation.
It is significant, in our view, that the applicants did not engage in a consistent course of expressly denying that they admitted the contents of the Murray Lees statement. As the judge pointed out, they also never denied the truth of those contents. We reject the applicants’ submission that the statements of non-admission in the 10 June 2016 and 10 August 2016 letters somehow had ongoing operation so as to govern all that followed. They did not purport to do so and it would be artificial to give them that operation when interpreting the subsequent conduct of the parties.
The real issue, in our view, is whether the commencement and prosecution of the confidentiality proceeding was consistent only with the truth of the highlighted paragraphs, such that this conduct constituted a representation to that effect.
By commencing the confidentiality proceeding, the Connective parties asserted that the Murray Lees statement contained confidential and privileged information which benefited Slea to the detriment of the Connective parties. They further asserted that Slea intended to use the information in the derivative and oppression proceedings.
It has been said that there is no confidentiality in false information.[42] That might be too broad a statement; in particular, a different position might apply where a false statement is sought to be restrained as a misuse of confidential information which is true.[43] In our view, however, the present case can be decided without resort to any such general principle. That is because the bringing of the confidentiality proceeding, taken with the silence of the Connective parties in that context as to whether they denied, or did not admit, the truth of the contents of the Murray Lees statement, amounted to a clear representation as to the truth of those contents.
[42]Interbrew [2002] EWCA Civ 274, [27] (Sedley LJ, Longmore LJ agreeing at [59], Ward LJ agreeing at [60]); Brand v Monks [2009] NSWSC 1454, [218] (Ward J).
[43]AMI v Fairfax [2010] NSWSC 1395, [24]–[25] (Brereton J). See also T Aplin et al, Gurry on Breach of Confidence (Oxford University Press, 2nd ed, 2012) 166–8 [5.62]–[5.67].
In the first place, the claims in the confidentiality proceeding concerned information that it was alleged would benefit Slea. Although it is conceivable that Slea might benefit from being able to deploy information in proceedings whether that information was true or false, the more natural meaning conveyed is that the information consists of facts that would advance Slea’s case. It is the information itself that is said to advantage Slea, not the mere fact that Murray Lees was prepared to swear to its truth.
Similarly, it was alleged that the information could be used to the detriment of the Connective parties. Again, the more natural reading of this assertion is that the information itself would damage their case. It is hard to see how such claims could sensibly be made if the information was not true. For Slea to adduce evidence that could be disproved would not be to the detriment of the Connective parties at all.
If the matter were still in doubt, we consider that it is resolved by the failure of the Connective companies to make plain that they did not admit the truth of the information. In the context of the provisions of the Evidence Act governing admissions, silence may permit the making of a representation to be inferred.[44] In particular, silence may imply assent to or acquiescence in the truth of a statement, if in the circumstances one would have expected a denial (or at the least a statement of non-admission) if the statement in question were false.[45]
[44]See, eg, Rose (2002) 55 NSWLR 701, 709 [262] (Wood CJ at CL and Howie J).
[45]Zaya [2018] NSWSC 388, [10] (Campbell J).
Here, the applicants failed to repeat, in the context of the confidentiality proceeding or thereafter, their previous statements not admitting the truth of the information. That is especially striking in the 2017 Glenn Lees statement, which refers to the Murray Lees statement and was directed at having it excluded from evidence in the oppression proceeding. The statement is silent as to the accuracy or otherwise of the Murray Lees statement. In our opinion, although the statement was made only for the purpose of addressing admissibility, it would have been expected that, had the contents of the Murray Lees statement been false, Glenn Lees would have said so. Instead, he confirmed the confidential nature of the discussions to which Murray Lees was a party, and explained how he was ‘in the tent’. The plain inference is that he acquired factual information in that capacity which should not be revealed.
The statement of Glenn Lees that he reserved all of Connective’s rights is insufficient to deny, or nullify, the accuracy representation. It is plain that this general statement was directed at preserving the claim for confidentiality itself, and legal professional privilege, not to the question whether the information said to be confidential was true or not.
We note for completeness that we do not accept the applicants’ characterisation of the representation made by the production of a copy of the Murray Lees statement with yellow highlighting. The applicants seek to treat the representation as one regarding merely the classes of subject matter dealt with in those paragraphs, rather than their actual content. In our view, the applicants represented that the highlighted paragraphs were themselves confidential, and not just that they canvassed kinds of subject matter that were confidential. It was, after all, the actual content of the highlighted paragraphs that the applicants sought to have treated as confidential.
In all these circumstances, we consider that the judge was correct to conclude that the Connective companies and their directors made the accuracy representation in respect of all of the information in the highlighted passages, with the result that they were admissible against the Connective companies, Glenn Lees, Mr Haron, Mr Maloney and Millsave.
We therefore reject ground 35.
Ground 61: Adverse credit findings
Ground 61 contends that:
The judge erred in making global adverse credit findings in respect of the evidence of Korda, Maloney, Glenn and Haron and ought to have found that they were reliable witnesses.[46]
[46]Reasons, [404]–[409].
In the paragraphs of the judge’s reasons cited, the judge found that:
(a)Glenn Lees was untruthful in giving evidence and willing to say anything that he thought would help him, and that he could get away with, such that he should not be believed unless his evidence could be corroborated;[47]
(b)Mr Haron’s evidence was unreliable and untruthful and he lied on important issues;[48]
(c)Mr Maloney was an unreliable witness and was untruthful in stating that he did not think about the pre-emptive rights during the restructure;[49] and
(d)Mr Korda was a dishonest witness and important aspects of his evidence were misleading.[50]
[47]Ibid [298], [404]–[405].
[48]Ibid [406].
[49]Ibid [408].
[50]Ibid [409].
In so far as this ground concerns the evidence of Mr Korda, it is dealt with in the context of the third phase of oppression, below,[51] where we explain why we uphold the ground in respect of Mr Korda. As appears below, whereas the applicants made specific submissions with respect to the evidence of Mr Korda, they largely approached the credit findings in respect of the other witnesses on a global basis.
Applicants’ submissions
[51]See below [949]–[963].
The applicants submit that the trial of 52 days was disproportionately long for the subject matter and that it turned on documents much more than the oral testimony, noting that there were only seven lay witnesses and no complex expert evidence. The applicants’ witnesses were subject to lengthy cross-examination. It is submitted that the witnesses did not evade, obfuscate or mislead but presented a common narrative on key events.
The applicants contend that the fact that judgment was reserved for 25 months was unexplained. The delay is said to make it incumbent upon this Court to look with special care at any finding of fact challenged on appeal. The applicants submit that, whereas ordinarily a judge’s failure to refer to evidence does not mean that it has been overlooked, no such assumption can be made where judgment has been significantly delayed.[52]
[52]The applicants cite NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 228 CLR 470, 473–4 [3]–[5] (Gleeson CJ); Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17, 31–5 [61]–[83] (Carr, Emmett and Gyles JJ) (‘Expectation v PRD Realty’); Monie v Commonwealth (2005) 63 NSWLR 729, 730 [2]–[3] (Giles JA), 741–4 [43]–[44] (Hunt AJA); Goose v Wilson Sandford [1998] TLR 85, [112]–[113] (Gibson, Brooke and Mummery LJJ); Natwest Markets PLC v Bilita (UK) Ltd [2021] EWCA Civ 680, [43]–[58] (Asplin, Andrew and Birss LJJ); Tex Services Ltd v Shibani Knitting Co Ltd [2016] UKPC 31, [7], [47]–[49] (Lord Mance); Bank St Petersburg PJSC v Arkhangelsky [2020] 4 WLR 55, [82] (Vos C); and Dansingani v Canara Bank [2021] EWCA Civ 714, [85] (Arnold LJ, Lewis LJ agreeing at [131], Lewison LJ agreeing at [132]).
The applicants submit that the adverse credit findings were unfair, relying on the submissions made under other grounds in respect of the ‘main issues’. They also make submissions about a specific finding that it is said the judge ‘appeared’ to have made about evidence of Glenn Lees as to why he did not forward certain taxation advice to Mr Tsialtas.[53] The applicants submit that a ‘remote and speculative’ point such as this was not a proper foundation for finding that Glenn Lees was a ‘liar’, as the judge did.[54]
[53]Reasons, [299]–[300].
[54]Ibid [298].
Finally, the applicants submit that it was unfair of the judge to have rejected Mr Maloney’s evidence that he was not thinking about pre-emptive rights during the restructure,[55] because he had no real involvement in obtaining legal advice or about the restructure generally. His evidence that he left the question about how the restructure intersected with the pre-emptive rights to Glenn Lees and the solicitors is said to be entirely credible.
Slea’s submissions
[55]Ibid [408].
Slea submits that an appeal court is generally bound to defer to conclusions as to credibility made by a judge who saw and heard the witnesses. They say that the test for challenging an adverse credit finding of that kind is whether it was ‘glaringly improbable’ or ‘contrary to compelling inferences’.[56]
[56]Slea refers to Li v So [2021] VSCA 32, [54]–[55] (Tate, Emerton and Sifris JJA); Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, 381 [76] (Heydon, Crennan and Bell JJ); and Fifteenth Eestin Nominees Pty Ltd v Rosenberg (2009) 24 VR 155, 170 [106],173–4 [118]–[123], 175 [127] (Maxwell P, Neave and Redlich JJA).
Slea submits that the applicants have not engaged with that test. The length of time judgment was reserved is not relevant. In addition, the supposedly ‘global’ credit findings were based on specific findings which the applicants have not challenged. Slea also points to the evidence of Glenn Lees accepting that he had destroyed documents during the litigation, and Mr Maloney’s evidence that he recommended the restructure and that legal advice was sought as a result of his recommendation.
Consideration of ground 61
As noted above, this ground succeeds in so far as it concerns Mr Korda, for reasons which we will come to when we reach the third phase of the alleged oppression. Otherwise we reject the ground, for the following reasons.
The test for appellate review in this context is set out at [56]–[57] above. The relevance of a significant elapse of time before delivery of judgment was considered by this Court in Stevens v Spotless Management Services Pty Ltd,[57] as follows:
[T]he trial judge’s advantage in assessing witnesses may be impaired by various matters. One such matter is any delay between the trial and the delivery of judgment. As the New South Wales Court of Appeal said in Monie v Commonwealth, ‘the trial judge’s advantage [in assessing witnesses] does weaken with time’.[58] …
While delay in delivering judgment may provide a basis for an appellate court to accord less weight than it usually would to the trial judge’s assessment of witnesses’ credibility, delay is not itself an appealable error. Rather, as Gleeson CJ explained in NAIS v Minister for Immigration and Multicultural and Indigenous Affairs, ‘the ground of appellate intervention is the error, or the infirmity of the decision, not the delay itself’.[59]
[57][2016] VSCA 299, [89]–[90] (Kyrou and McLeish JJA and Elliott AJA).
[58](2005) 63 NSWLR 729, 742 [43(5)] (Hunt AJA, Giles JA agreeing at 730 [1], Bryson JJA agreeing at 731 [7]). See also Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd [2016] VSCA 187, [148] (Warren CJ, Ashley and Osborn JJA).
[59](2005) 228 CLR 470, 474 [5].
In Expectation v PRD Realty, the Full Court of the Federal Court summarised the leading authorities in this way:[60]
In cases not affected by delay, an appellate court is entitled to assume that the mere failure to refer to evidence does not mean that it has been overlooked or that other forms of error have occurred. However, where there is significant delay, no favourable assumptions can be made. In such circumstances, it is up to the trial judge to put beyond question any suggestion that he or she has lost an understanding of the issues. Where there is significant delay, it is incumbent upon a trial judge to inform the parties of the reasons why the evidence of a particular witness has been rejected. It is necessary for the trial judge to say why he or she prefers the evidence of one witness over the evidence of other witnesses.[61]
Of course, where the trial judge, notwithstanding significant delay, demonstrates by his or her reasons that full consideration has been given to all of the evidence, the parties and the public may be satisfied that the delay has not affected the decision. More specifically, if the reasons demonstrate that the delay has not weakened the trial judge’s advantage, confidence will be maintained in the decision. For example, it would be open to a trial judge to explain in the course of giving reasons that contemporaneous notes were made of impressions formed as evidence was given by witnesses of importance.[62]
[60]Expectation v PRD Realty (2004) 140 FCR 17, 33 [71]–[72] (Carr, Emmett and Gyles JJ).
[61]Hadid v Redpath [2001] NSWCA 416, [34], [53] (Heydon JA, Stein JA agreeing at [1], Grove JA agreeing at [62]).
[62]R v Maxwell (New South Wales Court of Criminal Appeal, Spigelman CJ, Sperling and Hidden JJ, 23 December 1998).
The judge in the present case did not make reference to any contemporaneous notes of his impressions of witnesses. But we are none the less satisfied on the basis of his reasons that, despite the passing of time, he gave full consideration to all the evidence and that his decision, including his findings as to the credit of witnesses, was not affected by the time taken. The judge’s reasons deal comprehensively with the written and oral evidence and explain why critical findings were made, and why he did not accept certain oral evidence. Those explanations form a foundation for the overall adverse assessments made by the judge. It cannot be said, and nor was it submitted, that the judge had, with the passing of time, ‘lost an understanding of the issues’.
The attack on the adverse credit findings ultimately goes no further than the matters identified in other, specific, grounds of appeal, supplemented with submissions about two further adverse findings made against Glenn Lees and Mr Maloney respectively. Neither of those findings has any direct bearing on the substantive grounds of appeal. Moreover, the applicants’ arguments in respect of each of them should be rejected.
First, the challenge to the judge’s rejection of the evidence of Glenn Lees as to why he did not send Mr Tsialtas particular taxation advice rests on twin false hypotheses: first, that the judge rejected the evidence of Glenn Lees in this respect, and secondly that he treated this as a basis for finding that Glenn Lees was a liar. In fact, although he said the matter was ‘relevant’ to the credit of Glenn Lees, the judge went no further than pointing out that the relevant taxation advice dealt with an issue of shares to Mr Haron, which would have been advantageous to Slea.[63] The judge had immediately before this part of the judgment made his finding that Glenn Lees was a liar, on the basis that he did not accept his evidence on key issues and found him to be untruthful, including on the basis of observing his demeanour and behaviour in the witness box.[64] The judge stated that he had outlined his reasons for accepting the submission that Glenn Lees was a liar elsewhere in the judgment, rather than in the paragraphs that followed which referred only to an isolated matter ‘relevant’ to his credit, without deciding whether to accept that evidence.
[63]Reasons, [299]–[300].
[64]Ibid [298].
Secondly, the matter raised regarding Mr Maloney, which again has no bearing on any substantive ground of appeal, is no more than a routine finding regarding the credibility of a witness. The applicants do not explain why the judge ought not to have rejected the evidence Mr Maloney gave as to his state of mind, bearing in mind his involvement in the restructure proposal.
The judge erred in finding that the Connective directors breached their duties as directors in giving effect to the sale process, (J1620) and making consequential orders (J1621, 1622).
The judge erred in finding that the sale process and AFG transaction were oppressive (J1613, 1788).
The judge erred in finding that the sale process and AFG transaction as entered into could have prevented the Court from being able to make orders rescinding the restructure and returning direct ownership of the Connective business to the Connective companies, and that this was a known and desired outcome by the directors (J1464–1466,1471) by reason that:
(a)the sale process alone could not have prevented the relief because testing the market for interest in the Connective assets did not lead to a binding outcome;
(b)the AFG transaction as executed in August 2019 was conditional upon the oppression and derivative proceedings settling, or the Court sanctioning or giving approval to the transaction (J1445, 1446, 1450);
(c)the Connective companies applied to the Court under s 241 of the Corporations Act for approval of the transaction, with notice to Slea;
(d)the application for approval was sought, which conferred general powers on the Court to make orders in relation to the very same proceedings in which the orders were sought rescinding the restructure and returning direct ownership of the Connective business to the Connective companies;
(e)by design, the AFG transaction could not occur without:
(i) the Court hearing submissions on the approval application from all parties to the derivative proceedings and oppression proceedings;
(ii) the Court being satisfied that, notwithstanding the relief sought in the derivative proceedings and oppression proceedings, it was in the best interests of the Connective companies to proceed with the AFG transaction; and
(iii) the Court making orders under s 241 of the Corporations Act:
(f)the Court would not have made the approval orders unless it was satisfied, after hearing from Slea, that doing so was in the interests of the companies, taking into account the relief sought by Slea in the derivative proceedings and the oppression proceedings;
(g)completion of the AFG transaction would not have ‘preserved’ the restructure and the Macquarie’s investment in Group because orders could be made unwinding the Macquarie investment, which was a key objective in the derivative proceedings;
(h)the sale process was conducted openly, such that all bidders had notice of the oppression and derivative proceedings, and any transaction was liable to be set aside if the Court decided to rescind the restructure and return direct ownership of the Connective business to the Connective companies.
The judge erred in finding that a known and desired consequence of the sale process, if successful, was that if Slea was successful in acquiring the shares held by Millsave and Haron in the Connective companies through the oppression proceeding, then Slea would not acquire control of the Connective business, but merely access to cash and shares in AFG (J1467, 1468). The judge ought to have found that this was not a known and desired consequence of the directors, including because the sale process commenced in September 2018, and Slea only amended its relief seeking a buyout order of the majority in April 2019.
The judge erred in finding that Glenn and Korda did not discuss the potential merger with AFG during a meeting on 16 August 2018, and solely discussed Korda conducting a sale process (J1410). The judge should have found that Glenn and Korda discussed the potential merger with AFG and the process that ought be followed to explore that.
The judge erred in finding that there was no sensible explanation for the appointment of Korda to explore a possible merger or takeover with AFG, (J1512–1513, 1517, 1518–1542) and should have found that Korda was appointed as a director by reason of his independence and his previous experience in dealing with complex and contentious situations, including shareholder disputes.
The judge erred in finding that the Connective directors offered no sensible explanation for why an approach by AFG led to a process seeking bids from multiple parties to purchase the Connective business, (J1526–1530, 1595–6) and should have found that a reasonable response to AFG’s approach was for the Connective companies to test the market to ensure that AFG’s offer to merge with Connective was optimal.
The judge erred in failing to find that a natural or reasonable response to AFG’s proposal was a managed process (in the form of the sale process) to explore the nature and merits of the AFG proposal, and any other opportunities, and adopting that course was prudent and in the commercial interests of the Connective companies (J1428, 1519).
The judge erred in finding that originally the sale process was to achieve a sale of shares in Group and that, due to the injunction application seeking to restrain the sale of the shares, Group adopted the plan of selling the assets (J1588). The judge ought to have found that:
(a)as pleaded by Slea in the derivative proceedings, the sale process sought, from or before 31 August 2018, to achieve a sale of the Connective business, whether by way of a sale of the shares or a sale of the business and assets of the Connective group and its subsidiaries;
(b)a sale of the shares in companies party to the litigation was not commercially feasible absent a resolution of the litigation between the parties, but remained an option in the event such a resolution occurred;
(c)absent a resolution of the proceedings, a sale of the business and assets of the Connective was, subject to Court approval, the only means of effecting a sale;
(d)there was no change in the sale process plan by reason of Slea seeking injunctive relief to restrain the sale process;
(e)the prospect of a sale of shares, subject to resolution of the litigation, continued to be the subject of discussions with bidders throughout the sale process.
The judge erred in failing to find that Korda was in control of the decision to commence, and the timing of, the sale process and the approval proceeding (J1571).
The judge erred in finding that Korda did not consult with Slea about the sale process (J1492, 1552).
The judge erred in finding that Korda’s reason for proceeding with an asset sale instead of a sale of the shares in Group was ludicrous (J1556). The judge ought to have found that:
(a)a sale of the shares in Group, while legally available, was not commercially feasible as any purchaser would thereby assume ownership of a company which was party to the litigation, which risk was borne out by bidders’ responses to the sale process;
(b)the only way that a bidder could sensibly acquire the Connective business (whether by way of merger or acquisition) was by acquiring the assets of the business, after obtaining Court approval to do so; and
(c)the reason that the directors of Group could sell the shares in Credit Services was because that company was not a party to any of the litigation.
The judge ought to have found that the conduct of the Connective directors (and Korda) concerning the AFG transaction did not evidence individual dishonesty, for the following reasons (further to the above grounds):
(a)the directors obtained legal advice in relation to the proper steps to explore AFG’s approach for a merger (J1391, 1393);
(b)the directors, following the receipt of that legal advice, caused Korda to be engaged to act as an independent director to explore AFG’s approach for a merger (J1399);
(c)Korda’s appointment was directed at having an independent director assume control of the sale process who was experienced in contentious situations, not having someone experienced in mergers and acquisitions;
(d)the directors approved the appointment of 333 Capital, a firm experienced in mergers and acquisitions, to provide advice and assistance in relation to the sale process;
(e)the directors acted reasonably in relying upon Korda as an independent director to act properly in conducting a sale process to explore AFG’s approach to merge and, after executing the Implementation Deed, in bringing the approval proceeding.
Ground 61: Adverse credit findings
The judge erred in making global adverse credit findings in respect of the evidence of Korda, Maloney, Glenn and Haron and ought to have found that they were reliable witnesses (J404–409).
In circumstances where the judge erred in his findings on significant aspects of the alleged oppressive conduct, this Court ought to re–exercise the discretion as to appropriate relief under s 233 of the Corporations Act.
By reason of the following matters, this Court should order that Slea sell or be given the opportunity to sell its shareholding to the majority for fair market value:
(a)the usual order is that the majority buy out the minority at fair market value with any appropriate adjustment on account of the adverse financial impact of oppression by the majority;
(b)the ‘least intrusive’ remedy should be ordered and the oppressed minority are entitled to be released from the company if they find that because of the majority’s oppression they can no longer have their capital invested in it;
(c)the majority have operated the Connective business to the exclusion of the minority since May 2008 generating extraordinary wealth for the minority;
(d)to the extent that ‘moral blameworthiness’ of the majority might sometimes justify a minority buyout, no such circumstances arise;
(e)the preference of the minority, Slea, that a non–shareholder in the Connective companies, Liberty, be given the opportunity to control the Connective business should give way to the desires and preferences of the majority.
The judge further erred in making findings that:
(a)the majority engaged in a decade–long campaign to eliminate Slea as a shareholder (J1799);
(b)Glenn (Millsave) and Haron were sellers by reason of the AFG transaction (J1789), 1792, 1804, 1808);
(c)Glenn and Haron were unfit to act as company directors (J1802);
(d)Glenn and Haron displayed a willingness to act dishonestly (J1802);
(e)Glenn and Haron consciously refused to comply with Court orders, destroyed relevant documents, did not comply with discovery obligations, made false/sharp affidavits and twice invoked the Court’s process for a collateral purpose as a vehicle for oppression (J1585, 1586, 1802);
(f)Glenn deliberately lied in giving evidence including his explanation concerning the AFG sale process (J1798);
(g)a buyout of the minority would effectively reward Glenn and Haron for their wrongful conduct (J1803).
The judge erred in ordering that Slea be given an option to purchase the shareholding of the majority.
The judge erred in ordering that Haron and Millsave pay Slea’s costs of the oppression proceeding on an indemnity basis.
The judge erred in ordering that Glenn, Haron, Maloney, Millsave and Macquarie pay Slea’s costs of the derivative proceeding on an indemnity basis, and without indemnification from the Connective companies (J1635).
The judge erred in making a non-party costs order in the approval proceeding against Glenn, Haron and Millsave in the approval proceeding on an indemnity basis (J1635-1639, 1646).
APPENDIX 2: DEFINED TERMS
| accommodation agreement | The agreement of 12 August 2010 between Slea and Minerva, in which Minerva promised consideration in exchange for a right to purchase Slea’s interest in the Connective companies. |
| accuracy representation | The alleged representation of the Connective Companies that the highlighted passages in the Murray Lees statement were accurate and true. |
| all parties deed of settlement | The agreement of 22 October 2013 between Slea, Millsave, Haron, Services and OSN in settlement of the Haron proceeding. |
| approval proceeding | Supreme Court of Victoria proceeding S ECI 2019 03862, commenced on 23 August 2019 against Slea, Services and OSN by the remaining Connective companies. The proceeding sought court approval of the sale of the Connective business to AFG and was joined to the trial of the oppression and derivative proceedings. It is now the subject of this appeal in proceeding S EAPCI 2022 0041. |
| confidentiality proceeding | Supreme Court of Victoria Proceeding S ECI 2016 01185, commenced on 30 August 2016 by the Connective Companies against Murray Lees and Slea. The proceeding alleged that the Murray Lees statement disclosed the Connective companies’ confidential information and sought to restrain Murray Lees from using, disclosing or making known to Slea that information. The proceeding concluded on 17 March 2017, following an agreement between the parties. |
| Connective companies | All of the corporations making up the corporate group of Connective at the relevant time (ie, OSN and Services prior to the restructure and OSN, Services, Group and Group’s subsidiaries after the restructure). |
| Connective’s pre-emptive rights proceeding | Supreme Court of Victoria proceeding S ECI 2016 01168, commenced in August 2016 by the Connective companies. The proceeding alleged that the accommodation agreement breached the Connective companies’ pre-emptive rights. On 9 October 2019, the High Court determined that the bringing and funding of this proceeding was a breach of s 260A of the Corporations Act and upheld an injunction restraining the Connective companies from pursuing the proceeding. |
| cornerstone investor purpose | The alleged commercial purpose of the directors in restructuring the Connective companies, being to introduce a cornerstone investor such as Macquarie. |
| deliberate concealment | The directors’ deliberate decision to conceal the restructure and Macquarie sale from Slea and Mr Tsialtas. |
| derivative proceeding | Supreme Court of Victoria proceeding S ECI 2018 00073, commenced in March 2018 by Slea in the name of Services and OSN against the directors, Millsave, Macquarie and the remaining Connective Companies. The proceeding alleged that the directors had breached their duties as directors of Services and OSN (namely through the restructure and Macquarie sale). It is now the subject of this appeal in proceeding S EAPCI 2022 0042. |
| directors | A term used to refer to the directors of Services, OSN and/or Group at the relevant times, including Glenn Lees, Murray Lees (until he ceased to take part in decisions) and Mr Haron (including prior to his formal appointment in 2011). |
| equity realisation purpose | As found by the trial judge, the commercial purpose of the directors in restructuring, being for the directors to realise a portion of their investment in the Connective companies. |
| Eversgerd request | ABL’s (acting for Slea) request of Maddocks (acting for the Connective companies), dated 13 June 2013, to be furnished with certain further information pertaining to the structure and ownership of the Connective companies. The request was made to facilitate the preparation of an expert report by Mr John-Henry Eversgerd of McGrath Nicol in relation to the Haron proceeding. |
| financial pressure email | The email from Murray Lees to Glenn Lees and Mr Haron, dated 19 May 2008, set out at [153]. Also referred to as the ‘19 May 2008 email’. |
| Haron proceeding | Supreme Court of Victoria proceeding S CI 2011 02114 , commenced on 5 May 2011 by Mr Haron against Slea, Millsave, Services and OSN. The proceeding aimed to enforce an alleged agreement for Mr Haron to acquire a 25 per cent interest in Services and OSN. This proceeding settled on 22 October 2013 under the all parties deed of settlement. |
| highlighted passages | The parts of the Murray Lees statement that Quinn Emanuel (acting for the Connective companies) highlighted, to denote them as being subject to claims of confidence and/or privilege, by letter to ABL (acting for Slea) dated 19 October 2016. |
| implementation deed | The agreement dated 11 August 2019 between AFG and the Connective companies to give effect to the proposed merger. |
| Macquarie sale | The sale of a 25 per cent interest in Group to Macquarie for $5 million in October 2013. |
| Macquarie share purchase deed | The October 2013 agreement pursuant to which Macquarie agreed to purchase a 25 per cent interest in Group. The trial judge ordered that this agreement be rescinded. |
| Millsave deed of settlement | The deed of settlement, signed on 16 August 2011, by which Millsave and Haron settled the Haron proceeding as between themselves. The deed was rescinded on 20 October 2013. |
| Minerva agreement | The agreement, dated May 2009, between Mr Tsialtas and Minerva for the sale of Mr Tsialtas’ shares in Slea. The agreement was rescinded on 3 June 2009. |
| Murray Lees statement | The statement of Murray Lees, taken by ABL (acting for Slea) and dated 11 May 2016. It is the subject of ground 35. |
| oppression proceeding | Supreme Court of Victoria proceeding S CI 2011 04332 commenced in August 2011 by Slea against the Connective companies, Millsave and Mr Haron. It is now the subject of this appeal in proceeding S EAPCI 2022 0043. |
| options paper | The options paper produced on 7 June 2012 by Henry Davis York, solicitors for Macquarie, setting out four potential acquisition structures in relation to the Macquarie sale. |
| PPB Advisory report | The expert report of PPB Advisory, dated 10 October 2013, identifying 30,000 documents, including the previously undiscovered financial pressure email, version 1 email and version 2 email. Undertaken pursuant to Daly AsJ’s orders of 29 August 2013. |
| restructure | The corporate restructuring of the Connective companies between December 2012 and October 2013, including incorporating Group as a subsidiary of Services and OSN and transferring the business to Group and its subsidiaries. Undertaken to facilitate the Macquarie sale, in breach of Slea’s pre-emptive rights. |
| restructure plan | The restructure plan produced on 8 May 2012 by Maddocks, then solicitors for the Connective companies, in relation to the Macquarie sale. |
| sale process | The sale process, commenced in September 2018 by Mark Korda and KordaMentha, in respect of the Connective business. |
| Slea summons | The summons, issued on 17 August 2016 by Slea in the oppression proceeding, seeking for Slea to be permitted to take a more detailed witness statement or affidavit from Murray Lees in respect of the subject matter of the Murray Lees statement. |
| Slea’s pre-emptive rights proceeding | The proceeding, commenced on 1 October 2013 by Slea against Millsave, by which Slea sought declarations that the Millsave deed of settlement had engaged the pre-emptive rights provisions in the constitutions of the Connective companies. The matter settled on 22 October 2013, following the rescission of the Millsave deed of settlement on 20 October 2013. |
| version 1 | The email sent on 22 July 2009 by Mr Butler to the directors, setting out what Mr Butler referred to as the version 1 strategy in relation to Mr Tsialtas’ shares. Its contents are set out at [346] above. |
| version 2 | The email sent on 22 July 2009 by Mr Butler to the directors, setting out what Mr Butler referred to as the version 2 strategy in relation to Mr Tsialtas’ shares. Its contents are set out at [347]–[348] above. |
| 19 May 2008 email | The email from Murray Lees to Glenn Lees and Mr Haron, dated 19 May 2008, set out above at [153]. Also referred to as the ‘financial pressure email’, a term used by the trial judge. |
| 2017 Glenn Lees statement | The statement of Glenn Lees, dated 13 February 2017, taken by Quinn Emanuel (acting for the Connective companies) in relation to the Murray Lees statement. |
These definitions and descriptions are intended to assist the reader and do not form part of the judgment.
APPENDIX 3: KEY COMPANIES, LAW FIRMS AND PEOPLE REFERRED TO IN REASONS
| ABL | Arnold Bloch Leibler, solicitors for Slea in these proceedings and various earlier matters. |
| AFG | Australian Finance Group Ltd, a company in the mortgage aggregation industry. AFG and the Connective companies sought to merge from late 2019, including by virtue of the approval proceeding. |
| Azure | Azure Capital, financial adviser to AFG throughout the sale process. |
| BAILEY, David | The CEO of AFG throughout the sale process. |
| BOYLE, James | A representative of Liberty, involved in discussions regarding Liberty’s potential purchase of Slea’s 25 per cent interest in the Connective companies in and around 2008 and 2009. |
| BUTLER, Andrew | The Connective companies’ adviser since April 2009 and a director of Millsave. He was involved in advising the directors on negotiations with Mr Lees and was the author of the version 1 and version 2 emails. Formerly an accountant for Wellingtons, who did work for MFL. |
| CBS | Connective Broker Services Pty Ltd, a subsidiary of Group. |
| CLS | Connective Lender Services Pty Ltd, a subsidiary of Group. |
| Connective companies | All of the corporations making up the corporate group of Connective at the relevant time (ie, OSN and Services prior to the restructure and OSN, Services, Group and Group’s subsidiaries after the restructure). |
| Connective Credit Services | Connective Credit Services Pty Ltd, a subsidiary of Group. |
| DELEUIL, Beau | Solicitor at Quinn Emanuel, acting for the Connective companies. |
| Grant Thornton | Grant Thornton Corporate Finance Pty Ltd, a company engaged by Group to prepare an independent report in relation to the sale process. |
| Group | Connective Group Pty Ltd, a subsidiary of Services and OSN formed as part of the restructure. The business of Services and OSN was transferred to Group to facilitate Macquarie’s purchase of a 25 per cent interest in Group in October 2013. The trial judge ordered that the Macquarie share purchase deed be rescinded. |
| HARON, Mark | Principal in the Connective companies since 2006 and director of the Connective companies since 2011. A minority shareholder (16⅔ per cent) in Services and OSN, following the settlement of the Haron proceeding via the all parties deed of settlement on 22 October 2013. |
| Henry Davis York | Solicitors for Macquarie in relation to the Macquarie sale. |
| HSF | Herbert Smith Freehills, solicitors for AFG. |
| KIRTON, Paul | Solicitor at Macpherson Kelley, acting for the Connective companies in around 2008 at the time of Mr Tsialtas’ departure. |
| KORDA, Mark | A non-executive director of Services and Group, appointed by the Connective companies in 3 September 2018 to oversee and conduct the sales process. |
| KordaMentha | KordaMentha Pty Ltd, corporate services firm appointed to advise the Connective companies throughout the sale process. |
| LANGDON, Scott | Partner at KordaMentha. |
| LEES, Glenn | Founding director, shareholder and director of the Connective companies. Controller of Millsave and a beneficiary of Millsave’s interest in Connective. |
| LEES, Murray | Former principal in the Connective business. Beneficiary of Millsave’s interest in Connective companies. At times, referred to as being one of ‘the directors’, despite not being formally appointed to that role. |
| Liberty | Liberty Financial Planning Pty Ltd, a financial services company and related body corporate of Minerva. Since 2008, this corporate group has at various times sought to purchase an interest in the Connective companies, including through the Minerva agreement of 2009 (which has since been rescinded) and the accommodation agreement of 2010. |
| Macpherson Kelley | Solicitors for the Connective companies in earlier matters, including in relation to the Haron agreement. |
| Macquarie | Macquarie Bank Ltd, a company that purportedly purchased a 25 per cent interest in Group in October 2013. The trial judge ordered that this agreement be rescinded. |
| Maddocks | Solicitors acting for the Connective companies in relation to earlier matters, including the Haron proceeding and the restructure. |
| MALONEY, Graham | A non-executive director of the Connective companies since August 2011. |
| MFL | Mildura Finance Ltd, a potential purchaser of Slea’s 25 per cent shareholding in the Connective Companies in 2008. |
| Millsave | Millsave Pty Ltd, the largest shareholder of the Connective companies, controlled by Glenn and Murray Lees. Millsave originally held two thirds of the shares in Services and OSN and now owns half. |
| Minerva | Minerva Financial Group Pty Ltd, a related body corporate of Liberty. Since 2008, this corporate group has at various times sought to purchase an interest in the Connective companies, including through the Minerva agreement of 2009 (which has since been rescinded) and the accommodation agreement of 2010. |
| Norton Rose | Norton Rose Fulbright, solicitors acting for the Connective companies’ in relation to the sale process. |
| OSN | Connective OSN Pty Ltd, one of the original companies that conducted the Connective business (the other one being Services). |
| Quinn Emanuel | Quinn Emanuel Urquhart & Sullivan, LLP, solicitors for the Connective companies. |
| Services | Connective Services Pty Ltd, one of the original companies that conducted the Connective business (the other one being OSN). |
| Slea | Slea Pty Ltd, a minority shareholder of the Connective Companies, controlled by Mr Tsialtas. Slea holds one third of the shares in Services and OSN. |
| TSIALTAS, Sofianos | Founding director of the Connective companies until his resignation in May 2008. Controller of Slea and sole beneficiary of Slea’s interest in Connective. |
| Wellingtons | Wellingtons Accountants Pty Ltd, MFL’s accountants at the time of the negotiation regarding the potential purchase of Slea’s 25 per cent shareholding in Services and OSN. |
| 333 Capital | A corporate advisory firm and subsidiary of KordaMentha, engaged by the Connective companies as sale agent for the sale process. |
These definitions and descriptions are intended to assist the reader and do not form part of the judgment.
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