MMAL Rentals Pty Ltd v Bruning

MMAL Rentals Pty Ltd (the appellant) appealed to the Court of Appeal of New South Wales against orders made by the primary judge concerning the valuation of shares in MMAL Holdings Pty Ltd. The dispute arose from a share sale agreement between the appellant and Mr Bruning (the respondent), which stipulated that the shares would be valued at "fair market value" at a particular date. The primary judge had determined this valuation, and the appellant sought to overturn this decision.

The Court of Appeal was required to determine several key legal issues. These included the proper interpretation of "fair market value" in the context of a share valuation, specifically whether evidence of an offer to purchase the shares could be considered in the valuation exercise. Furthermore, the court had to consider whether a "special potentiality" or "special value" to a particular purchaser could be taken into account, and whether a minority discount should be applied to the shares, including whether minority shares possess a "greenmail" value. The court also considered the application of s 106 of the *Industrial Relations Act 1996* (NSW) regarding unfair contracts, and its relationship with oppression claims, particularly in relation to the remuneration of a managing director linked to the share agreement and the disparity between expected and actual financial benefits received.

The Court of Appeal reasoned that the primary judge had erred in their approach to the valuation of the shares. The court clarified that "fair market value" should be assessed on the basis of what a willing but not anxious purchaser would pay to a willing but not anxious vendor, considering all relevant factors. The court held that while evidence of an offer could be relevant, it should not be determinative and must be considered in light of the overall valuation. The court also found that the primary judge had incorrectly applied a minority discount, stating that such a discount should not be applied in circumstances where the shares had a specific value to the vendor, and that the concept of "greenmail" was not applicable in this context. The court further addressed the application of s 106 of the *Industrial Relations Act 1996* (NSW), finding that the primary judge had not properly considered the scope of this provision in relation to the share agreement.

Consequently, the Court of Appeal set aside the orders made by the primary judge on 3 March 2004.