Murabito v Conspect Construction Pty Ltd

[2014] WASC 474

MURABITO -v- CONSPECT CONSTRUCTION PTY LTD [2014] WASC 474

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2014] WASC 474
Published:	12/12/2014
Case No:	COR:267/2013	Heard:	21 JULY & 11 SEPTEMBER 2014
Coram:	MASTER SANDERSON	Delivered:	20/11/14
No of pages:	10	Judgment Part:	1 of 1
Result:	Orders made in favour of plaintiff
Category:	B
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Parties:	GIUSEPPE MURABITO as Trustee for the PIPPO FAMILY TRUST CONSPECT CONSTRUCTION PTY LTD VALOKO PTY LTD as Trustee for GAVIN LEE FAMILY TRUST SPADANUDA HOLDINGS PTY LTD as Trustee for R G SPADA TRUST CAYENNE PTY LTD as Trustee for KCE FAMILY TRUST TORQUE RECRUITMENT PTY LTD BOWDEN SELECT PTY LTD CONSTRUCTION CONCRETE WA PTY LTD
Catchwords:	Oppressive action Plaintiff seeking an order company buy his shares Turns on own facts
Legislation:	Corporations Act 2001 (Cth)
Case References:	Nil

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : MURABITO -v- CONSPECT CONSTRUCTION PTY LTD [2014] WASC 474 CORAM : MASTER SANDERSON HEARD : 21 JULY & 11 SEPTEMBER 2014 DELIVERED : 20 NOVEMBER 2014 PUBLISHED : 12 DECEMBER 2014 FILE NO/S : COR 267 of 2013 BETWEEN : GIUSEPPE MURABITO as Trustee for the PIPPO FAMILY TRUST

Plaintiff

AND

CONSPECT CONSTRUCTION PTY LTD
First Defendant

VALOKO PTY LTD as Trustee for GAVIN LEE FAMILY TRUST
Second Defendant

SPADANUDA HOLDINGS PTY LTD as Trustee for R G SPADA TRUST
Third Defendant

CAYENNE PTY LTD as Trustee for KCE FAMILY TRUST
Fourth Defendant

TORQUE RECRUITMENT PTY LTD
Fifth Defendant

BOWDEN SELECT PTY LTD
Sixth Defendant

CONSTRUCTION CONCRETE WA PTY LTD
Seventh Defendant

Catchwords:

Oppressive action - Plaintiff seeking an order company buy his shares - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Orders made in favour of plaintiff

Category: B

Representation:

Counsel:

Plaintiff : Mr P D C Robinson
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : No appearance

Solicitors:

Plaintiff : William & Hughes
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : No appearance

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

Nil


1 MASTER SANDERSON: By originating process issued 24 December 2013 the plaintiff sought an order under s 232(e) of the Corporations Act 2001 (Cth) that the affairs of the first defendant, in which he was a minority shareholder, were being conducted in an oppressive fashion. By way of relief the plaintiff sought an order under s 233(e) that the company purchase his shares. Although this was a relatively straightforward application it has followed a rather unusual course.

2 At a directions hearing on 28 January 2014 certain programming orders were made which anticipated the defendants filing affidavit evidence and expert evidence. The time for compliance with programming directions was extended on a number of occasions and the matter was finally listed for hearing on 19 May 2014. By this stage both parties had filed extensive affidavit material and each party had filed detailed written submissions. It was anticipated each party would cross-examine the others' witnesses. During the course of counsel for the plaintiff's opening I pointed out a recent company search had shown between the date proceedings were issued and the date of hearing shares in the first defendant had been issued to three companies - Bowden Select Pty Ltd, Torque Recruitment Pty Ltd and Construction Concrete WA Pty Ltd. Furthermore the search showed certain AA class ordinary shares had been issued to both Bowden and Torque. There was no explanation as to the difference between AA class shares and the other shares held by the plaintiff and the second, third and fourth defendants. Clearly the orders sought by the plaintiff had the potential to effect the interests of those shareholders who were not parties to the proceedings. Inevitably the matter was adjourned to allow the shareholders who were not parties to the action to be notified of the plaintiff's claim and to allow the first defendant to explain the difference between the classes of shares.

3 The matter came back on for hearing on 3 June 2014. At that time the three companies who were shareholders, but not initially parties, were added as the fifth, sixth and seventh defendants. I gave all of the defendants the opportunity to file and serve further affidavits by 10 June 2014.

4 In fact further affidavits were filed on behalf of the defendants. However neither the fifth, sixth or seventh defendants filed an appearance or gave any indication they intended to be heard on the application.

5 At the commencement of the hearing on 21 July 2014, the solicitors for the first to fourth defendants applied to be removed as solicitors on record. This application was granted.

6 The matter came back on for mention on 21 August 2014. At that time counsel appeared for Mr Bryan Hughes and Mr Daniel Bredenkamp of Pitcher Partners who had been appointed as joint and several voluntary administrators of the first defendant. Counsel sought to have the matter adjourned on the basis the administrators wished to make submissions prior to any orders as sought by the plaintiff being made. Counsel for the plaintiff objected to the adjournment. He pointed out there had been some discussions with the administrators and the administrators had been provided with the opportunity to give any reason why the orders ought not be made. In my view the administrators had not had sufficient time to reach a considered conclusion and accordingly I adjourned the matter. I allowed the administrators 14 days within which to file any affidavit material. The matter was relisted on 11 September 2014.

7 In fact the administrators did not file any affidavit material and they did not appear at the resumed hearing. While that situation was most unsatisfactory there was no warrant for further adjourning the matter particularly when the plaintiff was anxious to have his application heard. Accordingly, the matter proceeded on an undefended basis. None of the affidavits filed on behalf of the defendants were received into evidence. However I did take into account insofar as they were relevant the detailed submissions originally filed by counsel appearing for the first to fourth defendants.

8 On 20 November 2014 I made orders in terms sought by the plaintiff in an updated minute of orders of that date. I indicated I would publish reasons for my decision. These are those reasons.

9 The plaintiff relied on three affidavits he swore the first dated 23 December 2013, the second dated 2 May 2014 and the third dated 17 July 2014. In addition the plaintiff relied upon an affidavit of Jeffrey Laurence Herbert sworn 23 December 2013. There was an additional affidavit of Mr Herbert sworn 16 May 2014 dealing with matters arising from the adjourned hearing. That affidavit did not figure in my consideration of the matter.

10 Mr Murabito says that in the early 1990s he was operating as a sole trader in the concrete industry using the business name of 'Conspect Constructions'. He met Mr Gavin Lee and Mr Renato Palmiero who were operating a business under the name of 'Nexus Homes'. In the course of a business relationship the three men became friends. They decided to merge their businesses. They traded under the name of Conspect Constructions which each of the three men having an equal interest. In or about 2002 Mr Lee and Mr Palmiero introduced the plaintiff to Roberto Spadanuda. Mr Spadanuda's background was in interior design. It was determined Mr Spadanuda should be added to the business. On 23 July 2002 the first defendant was incorporated. All four men became directors. The first defendant specialised in manufacturing pre-cast concrete panels used in construction of buildings as well as other pre-cast products for the construction industry.

11 As at 23 December 2013 there were four shareholders in the first defendant. The second defendant held 216 ordinary shares. Mr Lee was the sole director of the second defendant. The third defendant held 582 ordinary shares in the first defendant. Mr Spadanuda was the sole director of the third defendant. The plaintiff held 216 ordinary shares in the first defendant and he did so as trustee for the Pippo Family Trust. The fourth defendant held 186 ordinary shares. Mr Robert Foti was the sole director of the fourth defendant. He is an accountant. He worked with his father and traded as 'Charles Foti Business Services'. This entity was the accountant for the first defendant.

12 By 2012 the plaintiff says he had concerns about the way the first defendant was being managed. He determined to sell his shares in the company. He approached Mr Foti suggesting his shares be purchased by the other shareholders for an amount of $3 million. That offer was rejected. The plaintiff then advised Mr Foti he wanted his shares valued and he wanted to sell his interest in the company. The plaintiff and Mr Foti discussed the matter during the course of a number of conversations. Eventually Mr Foti advised the plaintiff he should resign from the first defendant or he would be removed as a director. Mr Foti also said he would hand over details of the company's financial position in the near future.

13 Between February and June 2012 the parties discussed the appointment of a valuer. They were unable to agree. Eventually on 13 June 2012 the plaintiff instructed his solicitors to write to the first defendant and its directors seeking certain financial information and making a proposal for valuation of the shares. A day later a letter was received from solicitors acting for the first defendant and, it would seem, the second, third and fourth defendants. This letter indicated the documents requested by the plaintiff's solicitors could not be provided within the three day timeframe proposed in their letter. It also had attached a notice of resignation for the plaintiff to sign and a notice of meeting of members to be held on 6 July 2012. The resolution to be put to that meeting was that the plaintiff be removed as a director of the first defendant. The letter also confirmed the directors of the first defendant had resolved to appoint the accounting firm Crowe Horwath to determine a fair value for the plaintiff's shares.

14 On 6 July 2012 the meeting took place and the plaintiff was removed as a director of the first defendant and all related companies. Crowe Horwath were not appointed to value the plaintiff's shares. In fact the valuation was undertaken by Charles Foti Business Services. The result was the plaintiff was to receive nothing for his shareholding in the first defendant and was to repay the Conspect Group of Companies between $743,359.50 and $923,359.50. Unremarkably the plaintiff did not agree with that valuation.

15 In July 2012 the plaintiff appointed PPB Advisory to perform a valuation of his shares. Mr Simon Backhouse of PPB did meet with Mr Foti in September 2012 and was provided with certain management accounts. However the information was not sufficient to allow a full valuation to be undertaken. All that could be done was to provide an indicative valuation. This was done and a copy was provided to the first to fourth defendants' solicitors.

16 Since the date of his removal as a director the plaintiff was unaware of the progress of the first defendant, how it was being managed and had no real knowledge of its financial position. He did ask Mr Foti in October 2013 for copies of the financial statements for the year ended 30 June 2012. This information was not provided.

17 The two subsequent affidavits of the plaintiff really address evidence led on behalf of the defendants. They can be put to one side. Based upon the summary above it is clear the plaintiff has been the victim of oppressive conduct. In particular his forced removal as a director of the company and the failure of the directors to provide the plaintiff with relevant financial information as to the company's affairs is conduct which is unfair. There is then no real difficulty about a finding of oppression (at least in the absence of evidence from the defendants). The more difficult question in this case was the remedy which should follow from the oppression finding. A winding up order would present no difficulty. But given the way this matter has proceeded the making of an order for the purchase of the plaintiff's shares by the company did present real difficulties. However after hearing submissions on behalf of the plaintiff I did make the following orders:

1. That the Second Defendant, Third Defendant and Fourth Defendant do purchase the Plaintiff s shareholdings in the First Defendant (Company) on the following terms:

1.1 Settlement of the sale and purchase of the Plaintiff's 216 shares in the Company (Sale Shares) must be effected at 2pm on 26 November 2014 at the office of the Plaintiff's solicitors (Settlement).

1.2 The purchase price for the Sale Shares shall be the sum of $1.1 million (Purchase Price).

1.3 The First Defendant, Second Defendant, Third Defendant and Fourth Defendant must pay to the Plaintiff interest at Supreme Court rate (6%) on the Purchase Price from 8 March 2013 (being the date of Mr Herbert's indicative valuation annexed 'JLH9' to Mr Herbert's affidavit dated 23 December 2013) until 26 November 2014 (Settlement Date), being $113,556.16 / 628 days - $1.1 million + $113,556.16 = $1,213,556.16 (Settlement Sum).

1.4 At Settlement, the Settlement Sum must be paid by bank cheque in exchange for transfers of the Sale Shares signed by the Plaintiff as trustee for the Pippo Family Trust in favour of :


(i) Valoko Pty Ltd as trustee for the Gavin Lee Family Trust;

(ii) Spadanuda Holdings Pty Ltd as trustee for the RG Spada Trust

(iii) Cayenne Pty Ltd as trustee for the KCE Family Trust,

as tenants in common with equal shares (the Transfers).

2. In the event the Second Defendant, the Third Defendant or the Fourth Defendant default on the Settlement (in order 1):

2.1 the Company must register the Transfers;

2.2 the Second Defendant, the Third Defendant and the Fourth Defendant shall be jointly and severally liable to pay and must pay the Plaintiff the Settlement Sum; and

2.3 the Plaintiff have leave to enforce the Settlement Sum against the Second Defendant, the Third Defendant and the Fourth Defendant, jointly and severally, as a monetary judgment of this Court.


3. The First Defendant, Second Defendant, Third Defendant and Fourth Defendant must pay the Plaintiff's costs of the application including any reserved costs to be taxed if not agreed save for the costs thrown away by reason of the adjournment on 19 May 2014.

4. The First Defendant, Second Defendant, Third Defendant and Fourth Defendant must pay the Plaintiff's costs thrown away by reason of the adjournment on 19 May 2014 on a full indemnity basis to be taxed if not agreed.

5. There be liberty to apply generally and in particular if there is a default by any of the Defendants on any of these orders.

18 Much of Mr Herbert's affidavit which sets out the methodology used in the 'indicative valuation' highlights information which was not available and which Mr Herbert regarded as essential to properly value the first defendant. For instance, Mr Herbert sets out problems with information provided by Mr Foti in par 15 of his affidavit. That paragraph reads as follows:

15. I reviewed the Additional Financial Information provided by Mr Foti between 13-29 September 2012. There were a number of material discrepancies and inconsistencies in Conspect's FY2012 management accounts. I could not complete a valuation of Mr Murabito's shares in Conspect without the following:

15.1 a breakdown of the contracts performed by Conspect in FY 2012 including an analysis of the variances between the original contract quotes, direct costs and gross profit margins;

15.2 a breakdown of the overheads incurred in FY 2012;

15.3 an explanation from management why actual GP Margins were only 14% (compared to 20% in FY2011);

15.4 details of the costs incurred in FY 2012 that were exceptional or non-recurrent;

15.5 details of Conspect's sponsorship of the West Coast Eagles Football Club (as Conspect was a premier sponsor);

15.6 a breakdown of the salary paid by Conspect to Mr Spadanuda Snr; and

15.7 a breakdown of the directors' salaries.

(collectively Valuation Information)

19 Two things can be said about Mr Herbert's valuation. First, and most obviously, it is nothing more than a 'best guess'. That is not Mr Herbert's fault - he was simply denied all of the relevant material upon which to make a proper valuation. Second, Mr Herbert's evidence was not challenged. It might have been had the defendants chosen to be represented at any hearing. As it was the evidence was simply received without comment and without objection. So if the valuation put by Mr Herbert is wrong and as a consequence the defendants are penalised then the defendants have only themselves to blame. On that basis it seemed to me proper to receive Mr Herbert's evidence and to act upon his valuation whatever its limitations.

20 Accordingly orders were made in the plaintiff's favour.