Pesec v Zivko (No 3) - [2024] ACTSC 325

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:	Pesec v Zivko (No 3)
Citation:	[2024] ACTSC 325
Hearing Dates:	6 March, 7 March, 8 March, 9 March 2023
Decision Date:	23 October 2024
Before:	McCallum CJ
Decision:	(1) The proceedings are dismissed. (2) I order the plaintiff to pay the defendants’ costs.
Catchwords:	CORPORATIONS – MEMBERS’ RIGHTS AND REMEDIES – Oppression – application by shareholder for relief under s 233 of the Corporations Act 2001 (Cth) for alleged oppressive conduct under s 232 – unlisted public company – where managing director granted option to acquire shares in company as part of remuneration package – whether options issued at an undervalue – where company prepares financial statements adopting the cost model of accounting – whether additional financial information necessary to enable shareholders other than directors to ascertain the value of their shares – whether unavailability of list or current valuations of real property assets produces commercial unfairness to shareholders other than directors – whether cumulative impact of separate allegations amounts to oppression
Legislation Cited:	Corporations Act 2001 (Cth), ss 173, 177, 198A, 232, 233, 236, 237, 247A, 251B, 257A, 257H(3), 297, 314 Evidence Act 2011 (ACT), ss 91(1), 136
Cases Cited:	Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201 Joint v Stephens [2008] VSCA 210 Latimer Holdings Ltd v SEA Holdings NZ Ltd [2004] NZCA 226; [2005] 2 NZLR 328 Lucy v Lomas [2002] NSWSC 448 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Owners of “Shin Kobe Maru” v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404 Pesec v Consolidated Builders Ltd [2019] ACTSC 142 Pesec v Consolidated Builders Ltd (No 3) [2021] ACTSC 105 Pesec v Consolidated Builders Ltd [2021] ACTCA 25 RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756 Sheehy v Nuix Pty Ltd [2023] FCA 56 Shum Yip Properties v Chatswood Investment & Development [2002] NSWSC 13 Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 Tomanovic v One Australia Pty Ltd [2015] NSWCA 11 Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459
Parties:	Anthony Pesec (Plaintiff) Josip Pavao Zivko (First Defendant) Frank Crnkovic (Second Defendant) Mirko Skrnjug (Third Defendant) Rein Heins (Fourth Defendant) Noel Edward McCann (Fifth Defendant) XO 1 Pty Ltd (Sixth Defendant) Consolidated Builders Limited (Seventh Defendant)
Representation:	Counsel M Pesman SC with R Higgins (Plaintiff) D Thomas SC (First and Sixth Defendants) J Hutton SC (Second to Fifth Defendants) M O’Meara SC with IJM Ahmed (Seventh Defendant)
Solicitors Chamberlains Law Firm (Plaintiff) Allens (First and Sixth Defendants) Ashurst (Second to Fifth Defendants) Clayton Utz (Seventh Defendant)
File Number:	SC 147 of 2021

McCALLUM CJ:

Introduction

1․The plaintiff, Anthony Pesec, holds shares in Consolidated Builders Limited, an unlisted public company incorporated in the Territory in 1989.
2․Consolidated’s managing director is Josip Zivko, the first defendant to the proceedings. He first became involved in the governance of Consolidated in 1994 as a non-executive director when he was 21 years old. In 1997, Mr Zivko became Consolidated’s managing director. Consolidated’s Board now consists of Mr Zivko and four non-executive directors, who are the second to fifth defendants to the proceedings. The sixth defendant, XO 1 Pty Ltd, is a company associated with Mr Zivko. Consolidated is the seventh defendant.
3․By these proceedings, Mr Pesec asks the Court to intervene in the governance of the company on the ground of alleged oppressive conduct of its affairs by its directors, invoking the Court’s power under s 233 of the Corporations Act 2001 (Cth). The alleged oppression concerns Mr Zivko’s remuneration package approved by the non-executive directors in 2015 and the unavailability of certain financial information sought by Mr Pesec which he contends is necessary to enable him and other shareholders to ascertain the value of their shares.

Legal principles to be applied

4․The circumstances in which the Court has power to make an order under s 233 of the Corporations Act are set out in s 232 of the Act, which provides:
Grounds for Court order
The Court may make an order under section 233 if:
(a)    the conduct of a company’s affairs; or
(b)    an actual or proposed act or omission by or on behalf of a company; or
(c)    a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d)    contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

5․The proper approach to the application of that section was largely not in dispute at the hearing. Mr Pesec noted that the decision of Jagot J in RBC Investor Services Australia Nominees Pty Ltd v Brickworks Limited [2017] FCA 756 contains a comprehensive collection of the relevant principles. However, as her Honour’s judgment implicitly acknowledges, the appropriate starting point in a field it has addressed is the authority of the High Court. In Brickworks at [32], Jagot J noted that the decision of Brennan J in Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459 at 472-473 remains the “most succinct statement of the overarching principles” in the field of oppression. The central principles for present purposes are:
(a)proof of mere prejudice to or discrimination against a member is not enough;
(b)in the case of a discretionary power, the scope of the power must be considered (does it contemplate that advancement of the object of the power might entail prejudice or discrimination?);
(c)at a minimum, oppression imports unfairness; and
(d)the test for unfairness is one of fact and degree to be determined by the court but with due regard to the skills, knowledge and acumen of the directors.

6․As I will explain, the scope of the power is significant in the present case.
7․The last part of the passage from Wayde at 472-473 cited by Jagot J in Brickworks warrants repetition in full:
The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.
8․Justice Jagot noted at [33] that “the unifying principle is one of commercial unfairness”. This reflects the adoption of a construction that the three terms in s 233(e), “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” are to be read as “a composite whole” in which the individual elements are seen “merely as different aspects of the essential criterion, namely commercial unfairness”: Morgan v 45 Flers Ave Pty Ltd (1986) 10 ACLR 692 at 704 (Young J), cited with approval by the New South Wales Court of Appeal in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [140] (Campbell JA; Macfarlan and Young JJA agreeing at [314] and [338]).
9․Mr Pesman SC, who appears with Mr Higgins for Mr Pesec, emphasised that, while the defendants’ written submissions identified numerous authorities by way of illustration of the application of s 233, the Court must ultimately be guided by the wording of the statute. He submitted that the breadth of the power conferred by s 233 should not be narrowed by judicial gloss. That unexceptionable proposition has been acknowledged repeatedly in the authorities: see for example Owners of “Shin Kobe Maru” v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404 at 421; Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [72] (French CJ), at [178] (Gummow, Hayne, Heydon and Kiefel JJ); Tomanovic v Global Mortgage Equity Corporation Pty Ltd at [178], [185], [233] (Campbell and Macfarlan JJA).
10․However, as noted by Mr Thomas SC, who appears for Mr Zivko, that is not to say that any discussion in the authorities as to the proper approach to the exercise of that power puts a gloss on the statute. For the purpose of determining when the powers under s 233 are enlivened, Mr Thomas noted the important distinction between the content of the review (whether the conduct complained of was “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members”) and the standard of review. He submitted, by reference to the judgment of Brennan J in Wayde, that the proper approach is to afford “a measure of deference”. The word “deference” does not appear in the decision in Wayde and, as already acknowledged, care must be taken not to supplant the test prescribed in the statute. However, the notion of deference is well understood as a juridical concept. It reflects recognition of the expertise or constitutional role of the original decision-maker. It is coherent with that analysis to adopt a deferential approach in the exercise of the Court’s jurisdiction in an oppression suit. The Court does not take over the governance of the company or become an external administrator of aspects of its affairs. Its jurisdiction is essentially supervisory or remedial. Understood in that way, the appropriateness of affording a measure of deference to the business judgment of those who had stewardship of the company at the relevant time is supported by the remarks of Brennan J in Wayde at 472:
The question of unfairness is one of fact and degree which [the predecessor of s 233] requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors.
11․Mr Thomas further submitted that “that level of deference and hesitation is particularly apt where the Board is making a decision concerning matters that go to its relationship with executive management”. Hesitation is perhaps not the right word in this context. The Court should not hesitate to give effect to a conclusion properly reached. Subject to that qualification, I accept that submission. The relationship between the board of a company and its executive management is peculiarly context-based.
12․Mr Hutton SC, who appears for the non-executive directors, expanded on that point in closing submissions by noting that, whereas the deferential standard of review of an administrative or judicial decision generally involves the application of the same skills as those of the original decision-maker, the court in an oppression suit is reviewing the decision of a decision-making body possessed of skills very different from those of the court and guided by very different objectives and parameters.
13․At the same time, as contended in closing submissions by Mr O’Meara SC, who appears with Mr Ahmed for Consolidated, the focus of the Court’s task must be on the impact of the Board’s decision (what Mr O’Meara termed “result unreasonableness”) rather than the process by which the decision was reached. Mr O’Meara submitted that, to the extent that it is established that the non-executive directors may have had regard to irrelevant considerations or failed to consider relevant considerations, those are “ultimately only process complaints”. The onus for the plaintiff is to establish that the result embodied in the decision to give Mr Zivko the remuneration package he sought was beyond the scope of a board acting reasonably. Perhaps another way of saying the same thing is that the court’s power to intervene would not be enlivened if the conduct complained of was an unsuccessful attempt to give effect to a decision that was commercially unfair on the members. Conversely, the Court’s power under s 233 may be enlivened by a decision made in good faith and within power but “which reasonable directors would think to be unfair”: Wayde at 472. Each is a logical corollary of the fact that the test is objective.

Mr Pesec’s central complaints

14․As foreshadowed above, Mr Pesec maintains two central complaints of oppression. The first concerns Mr Zivko’s remuneration package approved by the Board in 2014 or 2015 and the Board’s decision at that time to grant Mr Zivko 150,000 options at an exercise price of $21 per share (with an annual increment). Mr Pesec contends that the options were granted at an undervalue. He concedes that this is not a complaint about the quality of Mr Zivko’s or the Board’s day-to-day management of the company, or whether the options were issued lawfully or in compliance with the company’s constitution.
15․Furthermore, Mr Pesec eschews any attempt to establish that the shares have a particular value. His case rests explicitly on the proposition that, whatever the value of the shares at the time the options were granted, it was significantly greater than the exercise price of $21. In addressing this complaint, Mr Pesman emphasised the concluding words of the passage from Wayde set out at [7] above, which holds that the notional reasonable director must have regard in the balancing exercise to “the disadvantage, disability or burden which their decision will impose on a member”. Mr Pesman submitted that, when the non-executive directors approved the generous grant of options to Mr Zivko in April 2015, “nobody thought about the ‘no’ case”.
16․The defendants’ response to the first complaint is that the options were granted as part of Mr Zivko’s remuneration package, that the remuneration package was approved by the non-executive directors and that it was in the interests of the company and the shareholders to grant the options at an attractive price so as to “incentivise” Mr Zivko to maintain “skin in the game”. Plainly, the non-executive directors’ assessment of Mr Zivko’s value to the company is a critical element of that response, as is the fact that the power to grant options necessarily contemplates a measure of prejudice to other members.
17․Mr Pesec’s second complaint concerns the unavailability to members of a list of the company’s real property assets or any current market valuation of those assets. Without such information, Mr Pesec contends that members other than directors are unable to ascertain the true value of their shares.
18․The company’s assets consist primarily of the properties it acquires for development (some of which it sells after development and some of which it holds after development as investments). Obviously, some information about those assets is provided in the company’s financial statements. However, under the accounting method adopted in the financial statements, acquisitions are brought to book at cost. No information is available to members as to the market value of the properties following development and over time.
19․Again, Mr Pesec concedes that this is not a complaint about the manner in which the company’s accounts are kept. He accepts the accounts are maintained and audited in accordance with accounting standards. His complaint concerns the unavailability to members of any additional information concerning the market value of the properties in circumstances where it may be inferred such information must be available to the Board.
20․It is uncontroversial that Consolidated has operated as a profitable developer for decades. The overwhelming likelihood is that its true asset backing is significantly stronger than may be gleaned from considering acquisition cost alone. The defendants submitted that there is insufficient evidence for the Court to make any finding on that issue. I accept that it is not possible to make any precise finding as to the current market value of the company’s assets. However, it is glaringly improbable that the position is otherwise than as contended by Mr Pesec. I would go so far as to infer that the company could not have survived, let alone thrived, had the properties it acquired not consistently and considerably increased in market value. Indeed, that was the effect of the evidence of the Chair of the Board, Mr Skrnjug, who positively boasted of the company’s financial success. However, as I will explain, that is not the end of the assessment of Mr Pesec’s second complaint.

Mr Pesec’s previous attempts to agitate his complaints

21․As a preliminary matter, I note that the defendants repeatedly emphasised that the present application is the latest in a series of attempts by Mr Pesec to challenge the manner of governance of the company. In my assessment, the evidence of that contextual history is of limited assistance in determining the present application. There was a hint in the defendants’ submissions of an argument that the failure of Mr Pesec’s prior attempts to address his concerns should inform the assessment of his present complaints. Having regard to the nature of the task for this Court (discussed above), the company’s treatment of Mr Pesec’s prior complaints is of limited relevance. I accept that, in principle, Mr Pesec’s own conduct could be relevant in balancing competing considerations to make an assessment as to whether the defendants’ conduct entailed commercial unfairness: Joint v Stephens [2008] VSCA 210 at [136]. However, the true merits of any prior complaints are impossible to discern. The defendants’ submission implicitly invited the Court to infer that, because those complaints have been rejected, they must have been without merit. That is not necessarily so. As a matter of logic, repeated unsuccessful attempts to address the governance of the company might be equally probative of oppression as of the insinuation that Mr Pesec is a meddlesome shareholder whose complaints are without merit.
22․Mr Hutton further contended on behalf of the non-executive directors that it was relevant to have regard to the fact that their conduct in approving the remuneration package in 2015 was ratified by the members in general meeting. That also is of marginal relevance, for the same reason. In accordance with the principles outlined above, I am required to make an objective assessment of the impugned decisions having regard to any special skill, knowledge or acumen possessed by the relevant decision-makers and “having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other”: Wayde at 473.
23․The fact of Mr Pesec’s earlier attempts to agitate his concerns nonetheless has some contextual relevance. I have accordingly addressed those events briefly in the narrative that follows.

Circumstances in which the present complaints are made

24․Consolidated was incorporated in July 1989, taking its current name in October 1989. At that time, it was subject to articles of association under the Companies Act 1981 (ACT).

25․The year 1989 was the year the Territory achieved self-government under the Australian Capital Territory (Self-Government) Act 1988 (Cth). One of the consequences of self-government was a change in the way land within the Territory could be allocated, creating an opportunity for the local construction industry. The founding shareholders of Consolidated were builders and tradespeople, mostly migrants, who pooled their resources to take advantage of the new regime by acquiring land for development.
26․Consolidated has grown to be a substantial property developer and landholder in the Territory and New South Wales. Under the management of Mr Zivko, it has increased its net asset backing considerably. The financial statements for the year ending 30 June 1997 recorded net assets of approximately $8 million. The financial statements for the year ending 30 June 2020 showed that the company’s net assets had increased to almost $60 million. The company has also paid substantial dividends to shareholders over the years.
27․Mr Zivko’s remuneration included the grant of options well before 2015. That first occurred in the financial year ending 30 June 2001, when he was granted 150,000 options at an exercise price of $6 per share. In the financial year ending 30 June 2005, he was granted 70,000 options at an exercise price of $10 per share.
28․When his remuneration package fell due for review at the end of 2014, Mr Zivko asked the Board for an increase of $50,000 in his salary, together with options for an additional 150,000 shares.
29․In late 2014 or early 2015, the non-executive directors met to discuss Mr Zivko’s proposal for his new remuneration package. The evidence concerning that meeting, which is central to Mr Pesec’s claim, is considered in detail below. For present purposes, it is enough to note that the discussion included reference to the desirability of granting further share options to Mr Zivko to “incentivise” him to maintain his allegiance to the company, in effect operating as “golden handcuffs”. One of Mr Pesec’s complaints is that the Option Deed entered into in due course did not handcuff Mr Zivko at all. It did not even link the options to his remaining in the role of managing director, let alone to his achieving any specified performance indicators.
30․The Board approved the additional $50,000 sought by Mr Zivko. One of the non-executive directors, Mr Noel McCann, gave evidence that the Board also agreed at that meeting to offer to grant the options. At that time, the non-executive directors were evidently labouring under the misapprehension that they had power to do so. That certainly appears to have been the Chaiman’s understanding. However, the power to increase the company’s share capital at that time reposed in the company in general meeting. Furthermore, article 7(b) of the company’s articles of association required shareholder approval for an issue of shares to an executive director.
31․What happened next is significant. The company’s solicitors, Clayton Utz, were instructed to draft a proposed new constitution. Mr Pesec made the point, apparently by way of criticism, that it was Mr Zivko who instructed the solicitors. However, that did not form part of the oppression case and there was no evidence to suggest any untoward conduct on the part of either Mr Zivko or the solicitors. As noted by Mr Thomas on behalf of Mr Zivko, there was no allegation against Mr Zivko that he engaged in bad faith in any way or suborned the non-executive directors in relation to any decision made by them concerning his remuneration or the Option Deed.
32․An Extraordinary General Meeting (EGM) of the company was convened on 8 April 2015 to consider the proposed new constitution. Mr Pesec was not yet a shareholder at that time but his parents were and he had evidently developed a personal interest in the affairs of the company. At that meeting, the company unanimously adopted the new constitution. The new constitution conferred on the Board the powers necessary to give effect to the remuneration package upon which they had agreed at the December meeting. In particular, article 5(a) authorised the Board to issue securities, while article 50(e) addressed the topic of remuneration of executive directors (of whom there was, and remains, only one: Mr Zivko).
33․Article 5(a) provided:
Subject to the Corporations Act and any rights and restrictions attached to a class of Shares or other securities, the Company may by resolution of the Board issue Shares, options to acquire Shares, and other securities with rights of conversion to Shares on any terms, to any person, at any time and for any consideration, as the Board resolves.
34․Article 50(e) provided:
Subject to Article 50(g) and any agreement with the Company, the Company may pay to each Executive Director an amount of remuneration determined by the Board.
35․As noted at the outset of this judgment, the scope of those powers is significant. In conferring power on the Company to issue shares or options to acquire shares “by resolution of the Board”, article 5(a) conferred a power, advancement of the object of which would necessarily dilute the percentage shareholdings of other members. As Mr Hutton put the matter, that meant the exercise of the power would necessarily prejudice a minority shareholder (as Mr Pesec was later to become).
36․On the same day as the EGM, Consolidated entered into an Executive Service Agreement with Mr Zivko. The agreement described Mr Zivko’s obligations and specified that he was required to devote his whole working time to Consolidated. In exchange for those obligations, Mr Zivko was to receive a salary at the rate of $534,588.60 per year effective from 1 January 2015, to be increased by 5% on 1 July each year of the term of the agreement.
37․The Executive Service Agreement was silent as to share options. However, on 14 April 2015, the Board approved the Option Deed and passed a resolution recorded in the minutes as follows:
It was resolved that approval of the members of the Company under Chapter 2E of the Corporations Act 2001 (Cth) is not required for the giving of the benefits to Mr Zivko which would arise from the entry into the Deed of Option to acquire Shares because the giving of those benefits would be reasonable in the circumstances of the Company for the following reasons:
1.shares were proposed to be issued at market value (with provision for escalation in price over time)
2.managing director would not be given financial assistance in relation to the acquisition of the shares
3.it was part of an overall remuneration package recognising the significant contribution made by the managing director to the company.

38․Mr Pesec noted that the resolution was drafted by Clayton Utz (who were receiving instructions from Mr Zivko) and given to Mr Zivko who then presented it to the directors at the meeting. Again, however, it is not clear what point was sought to be made by noting that fact, given that any allegation of bad faith was expressly disavowed.
39․The Option Deed was executed the same day. It granted Mr Zivko options to acquire 150,000 shares over 5 years at an issue price starting at $21 per share if acquired by 31 December 2015 and increasing by a dollar per share each year, ending at $25 per share if acquired by 31 December 2019.
40․Article 2.4 of the Option Deed protected Mr Zivko against dilution of the value of the shares, providing:
2.4 Anti-dilution
a) Subject to any action by the shareholders of the Company required by the law, the number of Shares for which the Executive is granted options under this Deed (collectively, Options), and the price per Share, will be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares resulting from a further allotment (other than to the Executive), subdivision or consolidation of shares (whether ordinary, redeemable, preference, convertible securities or otherwise), or the payment of a divided exceeding $1.50 per share fully franked in any given financial year, or the payment of a return of capital, but adjustment [sic] must not result in the issue of any fractional shares.
b) Where there are dividends paid that exceed $1.50 per share fully franked in any given financial year then the mechanism for adjustment will be that the price per share identified in the Options Table will be reduced by the amount by which the dividend exceeds $1.50 per share fully franked for that year and for each subsequent year that the options are capable of being exercised. The operation of this clause shall be cumulative with the intent that the price per share will be reduced by the amount by which dividends have exceeded $1.50 per share fully franked in the previous financial years.
41․As submitted by Mr Pesec, the effect of the anti-dilution clause was to protect Mr Zivko against the prospect of issues to any other person affecting his percentage ownership of shares in circumstances where the grant of the options to him significantly diluted the percentage ownership of all other shareholders.
42․Furthermore, while the resolution recorded that the shares were proposed to be issued at market value (with provision for fixed escalation in price over time), the non-executive directors did not obtain any professional advice as to what the market value of the shares was at that time; nor did they consult the company’s accountant (the Chair, Mr Skrnjug, thought they did but, as discussed below, appears to have been wrong about that).
43․Rather, the directors had regard to their own knowledge of prior share transactions which included the following. In 2007, Mr Crnkovic participated in a buy-back where he sold 5,000 shares to Consolidated at $30 a share. In 2008, Mr McCann and his wife acquired 2,000 shares for $46,000 at a price of $23 a share. Mr Crnkovic on that same day also acquired 2,000 shares for $46,000 at a price of $23 a share. Two of Mr Zivko’s companies were also issued shares at $18 a share, although the issues were pursuant to previous options and were not purchases.
44․Mr Zivko exercised all of the options, nominating his company, XO 1 Pty Ltd, to receive the shares as follows:
(a)39,000 shares were allotted on 17 April 2015;
(b)46,000 shares were allotted on 22 October 2015;
(c)65,000 shares were allotted on 15 November 2019.

45․The first two allotments were within the first year of the Option Deed and so were able to be exercised at the starting price of $21 per share. The options exercised in 2019, being the fifth year of the term of the deed, would have attracted the increased price of $25 per share. However, by force of the anti-dilution clause, Mr Zivko was able to exercise those remaining options also at the price of $21 per share, so that he paid a total of $3.15 million for 150,000 shares.
46․In October 2016, another shareholder, Mr Ivan Juric, sent a letter to the Board raising concerns as to the fact that the managing director then owned close to 500,000 shares, describing it as a takeover of the company “by stealth”. The company reacted by threatening him with potential criminal consequences.
47․In 2018, there was a buy-back offer of 158,445 shares. Mr Pesec submitted that, as this was 10% of the issued share capital, had it been fully subscribed (it was not), it would have resulted in an increase in every member’s interest by 10%, including Mr Zivko’s. Conversely, if I have understood its effect correctly, the buy-back if fully subscribed would have reversed part of the dilution of the shareholdings of other members resulting from the grant of the options to Mr Zivko.
48․On 22 June 2018, Mr Zivko’s Executive Service Agreement was extended.
49․On 13 December 2018, Mr Pesec’s solicitors wrote to the company’s solicitors making a variety of complaints about the governance of the company. In response to that letter, the Board appointed a Committee of Inquiry to investigate the matters raised. On 1 November 2019, the Committee of Inquiry considered two options “as set out in October CU advice” (presumably a reference to legal advice from Clayton Utz). The options were to obtain further advice about Mr Zivko’s entire remuneration package or to convene a shareholder’s meeting “at which the Board would seek shareholder support for the Board’s position not to pursue any member of the Board in respect of Mr Zivko’s 2015 remuneration package”. The Committee resolved to recommend the second option to the Board. At around the same time, Mr Zivko exercised his remaining 65,000 options. Those shares were allotted to XO 1 by resolution of the Board dated 15 November 2019.
50․On 25 November 2019, the shareholders were given notice of an EGM to be held on 18 December 2019. The noticed stated that the business of the meeting was:
“To consider and, if thought fit, to pass the following ordinary resolution:
That, to the maximum extent permitted by law, the members of the Company ratify and approve the decisions of the relevant Directors to enter into the 2015 Employment Contract and the Option Deed and resolve that the Company take no action against the relevant Directors in relation to those arrangements or any conduct of the relevant Directors in connection with those arrangements, including, without limitation, the matters referred to in the Explanatory Statement.”
51․The explanatory statement provided with the notice stated that the Board had convened the meeting to:
“inform shareholders about the allegations made by Mr Pesec, provide information about Mr Zivko's remuneration and Options, and propose a resolution that shareholders ratify and approve the decisions of the relevant Directors to enter into the 2015 Employment Contract and the Option Deed and resolve that the Company take no action against the relevant Directors in relation to those arrangements.”
52․The shareholders were also provided with an indicative valuation report dated 25 November 2019 from BDO Services Pty Ltd. The report gave an estimated value of Consolidated shares as at 14 April 2015 (the date of the Option Deed) ranging from a low of $20.50 to a high of $23.13. The defendants objected to the admission of the report as expert opinion evidence and initially sought a ruling under s 136 of the Evidence Act 2011 (ACT) limiting its use in the proceedings. It was not ultimately necessary to rule on that objection as Mr Pesman clarified in closing submissions that he sought to rely on the report only to prove the instructions given to the valuer and the implicit admission that those instructions reflected an appropriate method of valuation of the shares.
53․Importantly, that included the valuer’s view that the asset-based valuation method is the approach that is “appropriate to property development companies as the value reflects the value that could be realised for the assets of the company at the valuation date.”
54․The report then recorded:
“We understand that fair market valuations for inventories and property, plant and equipment at the Valuation Date is not available. In the absence of this information, we have been instructed to adopt the book value of the assets at the time. The ABV is representative of a controlling interest in Consolidated.”
55․Mr Pesman relied on that statement in the BDO report to found an inference that the shareholders were informed accordingly, namely, to the effect that the asset-based valuation method was appropriate for a property development company such as Consolidated and that this involved adopting the book value of the assets. As the book value is plainly lower than current market value of the assets, the suggestion was that the adoption of this approach undermined the members’ endorsement of the remuneration package. That argument is considered below.
56․Returning to the chronology, the resolution was passed at the EGM.
57․Mr Pesec sought to agitate his concerns again at the Annual General Meeting (AGM) on 4 November 2021. At that meeting, he said:
“… ultimately what it comes down to, which is what I’ve wanted and what many other shareholders want, is a simple valuation of the company’s assets on its balance sheet.”

Issues raised by the complaint concerning the decision to grant the options

58․In his opening written submissions, Mr Pesec contended that the financial component of Mr Zivko’s remuneration package was excessive. However, that aspect of the complaint was ultimately not pressed. As submitted by Consolidated, if that complaint had been maintained, it would have been necessary to call expert evidence on that issue. Mr Pesec’s case ultimately focussed primarily on the decision to grant the options on the terms contained in the Option Deed, which he contends had the effect that Mr Zivko obtained a substantial increase in his shareholding and was able to purchase his shares at a price far below their true market value.
59․Mr Pesman identified what he termed “the essential elements” of the case on this issue as follows:
(a)On 14 April 2015, Consolidated granted 150,000 options to Mr Zivko with an exercise price of $21 to $25 (subject to a potential adjustment by operation of the anti-dilution clause);
(b)The shares could be issued to Mr Zivko’s nominee. Mr Pesec noted that this in fact occurred, as the shares were all issued to the sixth defendant, XO 1;
(c)Although stated to be at market value, the option price was at a very substantial discount to market value;
(d)The options were exercised in three tranches, two in 2015 and one in 2019. In each case the shares were issued for $21;
(e)The effect of issuing the shares consequent on the options was a substantial increase in Mr Zivko's shareholding and a corresponding decrease in the shareholding of all other shareholders (as a percentage of total issued capital);
(f)The existing shareholders were denied the opportunity to increase their shareholding; and
(g)The conduct in issuing the options breached s 232.

60․Mr Pesman acknowledged (in response to a point taken by the defendants) that his Amended Statement of Claim does not specifically plead a further aspect of his case, that the directors failed to take into account the effect on other shareholders in making the decision to grant the options. However, he submitted that is implicit in a paragraph of the pleading where he contends that, by reason of matters pleaded earlier, “members who were not directors were denied the opportunity to increase their shareholding in Consolidated”. He further submitted that, by their defences, the non-executive directors have put in issue the adequacy of their decision-making in deciding that Consolidated should grant the options and that all of the defendants rely on or refer to the whole of the Option Deed.
61․It is not entirely clear how it is said that other members were denied the opportunity to increase their shareholding. That is a curious, isolated complaint that does not appear to have been made good. I am not persuaded that it implicitly raises the issue of the directors’ consideration of the diluting effect of granting the options.
62․However, taking a cautious approach, and in case my construction of the pleading is too constrained, I have proceeded on the basis that the question whether the non-executive directors did turn their minds to the impact of their decision on other shareholders is an issue in the proceedings. Ultimately, the state of the pleading on this issue may not matter much. As already explained by reference to Consolidated’s closing submissions, what is required to be established is “result unreasonableness”. Mr Pesec must establish that the result embodied in the decision to give Mr Zivko the remuneration package he sought was beyond the scope of decisions that might have been made by a Board in the position of this Board acting reasonably.

63․Some of the elements identified by Mr Pesman are common ground or else are clearly established. It is uncontroversial that the options were granted, could be issued to a nominee and were exercised (elements (a), (b) and (d)).
64․It is also uncontroversial that, in the result, Mr Zivko’s proportionate shareholding (whether in his own name or in the name of entities he controlled) increased substantially. As no shares have been issued other than to Zivko interests since 1994, it necessarily follows that there was a corresponding reduction in the proportionate shareholdings of other members (element (e)). Mr Zivko initially held 5,000 shares, representing 0.0386% of the company. Following the exercise of the options, he now controls at least 35% of the company. The proportion is 40% if the shares held by Mr Zivko’s parents are included. Mr Pesec submitted that it is appropriate to include those shares in the count because, as was common ground, Mr Zivko has held a general power of attorney in standard form for each of his parents since 21 June 1999. The difficulty with that submission is that I have no evidence before me as to the likelihood of those powers of attorney being exercised. Taking a disciplined approach, I prefer to consider only those shares held by Mr Zivko and his interests. However, that approach does not make any difference to my assessment of Mr Pesec’s concerns.
65․A further aspect of Mr Pesec’s case is that, over the same period, Mr Zivko’s proportionate shareholding was increased (as was that of all members) as a result of decisions by the company to buy back its own shares, as allowed under s 257A of the Corporations Act. The effect of a buy-back is that the shares transferred back to the company are cancelled by force of s 257H(3) of the Corporations Act, resulting in a concentration of the proportionate holdings of the remaining shareholders. Here, that includes both Mr Pesec and Mr Zivko.
66․Separately, Mr Pesec relies on the fact that the buy-backs were at a higher price than the price of Mr Zivko’s options. The highest buyback price was that paid in 2018 which, including franking credits, was $42 per share ($31 per share without the franking credits).
67․Consolidated does not dispute that the effect of the grant of the options was an increase in Mr Zivko’s proportionate shareholding. Consolidated submits that this effect was anticipated by the non-executive directors when they approved the Option Deed. It contends that, in this way, the options served the purpose of “incentivising” Mr Zivko and that this was done “in a manner that is common in corporate entities”.
68․As already noted, it was not made clear how the decision to grant the options denied existing shareholders the opportunity to increase their shareholding (element (f)). I am not persuaded to make a finding in those terms.
69․The critical issues are whether it is established that the option price was at a very substantial discount to market value (element (c)) and whether, in that event and in all the circumstances, the grant of the options was oppressive in the sense of being commercially unfair (element (g)).
70․The relief sought is the return of the shares (subject to repayment of the purchase price) or alternatively an opportunity to shareholders to restore themselves to the same percentage of the total as they had prior to the issue of the options.
71․Mr Pesec touched on some additional matters in his opening address. He noted that the information provided to shareholders in advance of the EGM in April 2015 did not disclose that it was proposed to grant 150,000 options to Mr Zivko. However, the significance of that omission was not explored.
72․Separately, Mr Pesec commented on the fact that the Executive Service Agreement did not contain an adequate description of duties, did not provide for performance review and was not the subject of any professional advice before it was entered into.
73․Those are not matters as to which I would substitute my own conception of best practice for the business judgment of the Board. The Executive Service Agreement obliged Mr Zivko to devote “the whole of his time and attention to the business of the company and its subsidiaries during normal working hours and at such other times as may be reasonably necessary and otherwise to assume the duties and perform the services assigned to him by the Board from time to time”. Consolidated submitted that, in the context of a company where Mr Zivko effectively was the executive management, no further elaboration of specific duties was necessary and no separate process for performance review was necessary as Mr Zivko’s performance was effectively under constant review at every Board meeting. Consolidated further submitted that, having regard to the diverse experience of the non-executive directors, there was no need for external advice as to the appropriateness of the remuneration package. There is much force in those submissions. I note in that context that three of the non-executive directors were experienced Canberra builders while the fourth, Mr McCann, was an experienced property valuer. Furthermore, all had lengthy experience of the business of the company under the management of Mr Zivko.
74․As to the grant of the options and the option price, Consolidated noted that the purpose of the grant was to keep Mr Zivko personally invested in the fortunes of the company so as to “incentivise” him to perform well. Importantly, as noted by Mr O’Meara, the whole point of that strategy was to give Mr Zivko an incentive to exercise the options. To do that, the Board had to set the exercise price at a level that was not higher than the price at which the shares were changing hands at that time.
75․Consolidated submitted that the kind of “back of the envelope” calculations proposed on behalf of Mr Pesec (based on net asset backing or dividend yields) was an insufficient basis for the Court to make any finding that the exercise price was below the true or proper value of the shares but that, in any event, the object was to offer the options at a price that would encourage Mr Zivko to exercise them and, in that way, retain his expertise for the benefit of the company. Mr O’Meara submitted that the company was under no obligation to offer options only at the true and proper value of the shares.
76․Mr Hutton repeated the submission that the Court is required to take a deferential approach in assessing Mr Pesec’s complaints. He noted Mr Pesec’s concession that the non-executive directors acted lawfully within the powers conferred on them under the constitution and that, on any analysis, the company was well-managed and was in a good financial position. In that context, Mr Hutton relied on Jagot J’s formulation of the proper approach in Brickworks at [42]:
The touchstone of oppression, that conduct be so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair, may appear circular but is designed to reinforce that the role of the court is not to step into the shoes of the directors and unilaterally decide what it thinks to be in the best interests of the company as a whole. The courts recognise that it is the responsibility of the directors to weigh the competing considerations with which they will be routinely confronted and determine what is in the best interests of the company as whole. They recognise also that as the task of the directors is evaluative it is necessarily one about which reasonable minds may differ. In performing its own evaluation, accordingly, the courts do not merely substitute what appears to them to be the preferable commercial decision.
77․Mr Hutton on behalf of the non-executive directors accepted that the grant of the options would have a dilutive effect on the percentage shareholding of the other shareholders. That is axiomatic. Furthermore, the issue of more shares necessarily meant that a greater profit would need to be earned to warrant the same dollar dividend per share. However, Mr Hutton submitted that the non-executive directors had to weigh those matters against their assessment of the benefit to the company and its members of “keeping Mr Zivko on”. I note that there is no suggestion in the evidence that Mr Zivko was contemplating moving on. However if, as appears to have been the view of the non-executive directors, he was the soul of the company’s success, the respective price or risk of keeping or losing him, and how difficult he might be to replace, were very much matters for their assessment. Mr Hutton submitted that, even if the Court were of the view that a different decision would have been preferable, that would not meet the high bar faced by Mr Pesec of having to establish that the decision to grant that number of options at that price was so unreasonable that no reasonable board would have come to it.
78․Mr Thomas made a similar point on behalf of Mr Zivko; that dilution of the shareholdings of the remaining shareholders is “the price the Board pays to retain the senior executive if that Board chooses to utilise an equity structure”. He submitted that there was almost no probative evidence on the strength of which I could find that the decision to execute the Option Deed was outside the range of options available to a board acting reasonably.
79․Mr Thomas further submitted that a relevant factor in this analysis is the very small percentage of shares held by Mr Pesec, particularly in circumstances where Mr Pesec does not claim that there has been discriminatory conduct against him alone but rather seeks to challenge management decisions concerning remuneration, asset valuation and the provision of information. If the small percentage of shares held by Mr Pesec is a relevant factor, it is one to which I would give little weight. As submitted by Mr Pesman, one aspect of that consideration is that, in bringing these proceedings, Mr Pesec is “putting a lot on the line for the benefit of a wider group of people”.
80․Mr Hutton referred in this context to the events of the AGM held on 12 November 2015 where Mr Skrnjug addressed the meeting in relation to Mr Zivko. Mr Skrnjug stated, “the company is very successful with our Managing Director who grow with the company from the bad spot where we were in real down and the last 20 years I have full trust in Josip, full trust in him”. He said that Mr Zivko is the managing director “24/7 and 365 days” and that “if we have any other managing director they’ll be 9 to 5, five days a week”. Mr Hutton submitted that, whether “right or wrong”, that is the impression Mr Skrnjug had of Mr Zivko as the director with “experience in this industry over decades”.

Issues raised by the complaint concerning access to information

81․As to the complaint concerning members’ access to information, Mr Pesec contends that members were not given sufficient information to make an informed decision as to the value of their existing shares or any shares they may wish to purchase or the price at which they should consider selling their shares. He contends that this has the effect of putting directors in a position of advantage over members in deciding whether to acquire or dispose of shares as the directors are privy to information as to the current market value of the real property assets held by Consolidated.
82․The essential elements of this aspect of the case specified by Mr Pesman are:
(a)The financial statements do not permit shareholders to evaluate the value of the shares because the use of historical cost accounting significantly understates the value of Consolidated's real property, which is its main asset;
(b)That has the effect that the shareholders do not have sufficient information to determine the price at which to sell their shares;
(c)Because the directors have information available to them to assess the value of those assets, the directors are in a position of advantage in buying and selling shares;
(d)Not making that information available to shareholders was contrary to the interests of the shareholders and unfair to them.

83․The relief the plaintiff seeks is that the unfairness be ameliorated by both or either of:
(a)A valuation being carried out;
(b)The shareholders being provided with sufficient information to do so themselves.

84․Consolidated makes several points in response to this aspect of the complaint. First, as accepted by Mr Pesec, Consolidated’s financial statements are prepared in accordance with applicable accounting standards, are audited, and record the auditor’s opinion that they give “a true and fair view of the company’s and the consolidated entity’s financial position”.
85․The applicable accounting standards were explained in the evidence of Ms Hambley, considered below. In short, the standard requires the reporting entity to choose either the cost model or the revaluation model of accounting. As already explained, Consolidated has historically adopted the cost model and continues to do so. Consolidated contends that the adoption of the revaluation model would be problematic for a number of reasons. First, having regard to the nature of Consolidated’s inventory (properties bought, developed and then sold), Consolidated contends that very significant costs would be associated with obtaining a fair market valuation of every property every year, particularly where such valuations would not be required for any other purpose. Indeed, Consolidated submitted that, for some of its inventory (presumably referring to construction projects under development), the property would be a “work in progress” so that the expenditure associated with obtaining a formal valuation would be pointless.
86․Consolidated further contends that the recognition in the accounts of movements in unrealised market value would create significant tax and accounting complications. Mr O’Meara explained that, if the revaluation model were adopted, any unrealised gain in the current market value of an item of property, plant or equipment would have to be recognised in the accounts but would not yet reflect realised profit, which in turn would require the accounts to recognise a deferred tax liability. In the case of a decline in current market value, the decrease in value would have to be recognised as an expense in the profit and loss statement.
87․Mr O’Meara invited the Court to infer that the reflection of such fluctuations could have “very unfortunate consequences”, for example in the case where banking covenants reflecting the company’s asset value had been given. There was no evidence to establish that this was in fact a difficulty potentially faced by Consolidated and indeed no evidence that the value of Consolidated’s properties fluctuates in that way. Those considerations nonetheless afford a sound basis for the company’s preference for the cost model.
88․Consolidated submitted that, once it is accepted that the adoption of the cost model of accounting is a defensible choice (my words), to obtain market valuations other than for the purpose of the accounts would in effect require the company to keep a set of “shadow accounts”. Mr O’Meara submitted that, if the company were to maintain one set of accounts for statutory purposes and another for the purpose of providing information to shareholders as to the current market value of the company’s assets, it could make the accounts “highly volatile”.
89․While the spectre of the need to hold a set of “shadow accounts” may have posited a rhetorical straw man, the ultimate question that can be distilled from Consolidated’s submissions is whether the nature of Consolidated’s business (particularly its mixed asset profile) creates a commercial imperative, outside and beyond the statutory obligation to present a financial report that gives a true and fair view of the company’s financial position, to provide additional financial information, failing which shareholders can be said to have been subjected to commercial unfairness. Mr O’Meara noted that the basis for the allegation of oppression in this context is what he termed “an abstract principle”, having no foundation in statute or authority, that shareholders have a right to know the value of their shares. I accept that this premise of Mr Pesec’s application must be tested carefully. As submitted by Mr O’Meara, the content of any such right is elusive where, as here, shares in the company are not traded in a transparent, open market as the company is not listed on any stock exchange.
90․Expanding upon that point, Mr Thomas submitted on behalf of Mr Zivko that, in effect, Mr Pesec seeks by these proceedings to force the company to create a market for the shares where currently there is no ready market (because it is an unlisted company and so has no publicly available, regularly updated market price for the shares). He submitted that Mr Pesec is seeking to force the company to provide information that would enable shareholders to ascertain an updated market price or current market value. That is an important matter of context in the assessment of Mr Pesec’s claim.
91․Mr O’Meara noted that the disclosure obligations of both listed and unlisted companies are closely regulated under the Corporations Act. He submitted that a coherent analysis would hold those statutory obligations to be the obligations by which any asserted right to information or to know the value of a shareholding must be assessed. To that may be added a further submission made by Mr Thomas on behalf of Mr Zivko concerning Consolidated’s constitution which, by article 76, allows shareholders access to company records where permitted by the Board or the members in general meeting. I agree that, in determining whether the company’s failure or refusal to provide valuation information to members is oppressive within the meaning of s 232, the terms of the company’s constitution also provide important context. The grant of a power to permit or refuse access to company records is plainly one that contemplates the possibility of an element of discrimination, since the Board would necessarily have access to the records access to which could be denied to a member. As explained in Wayde, the conferral in the company constitution of a power the exercise of which contemplates discrimination is a factor that may militate against a finding of oppression.

Mr Pesec’s witnesses

Mr Pesec

92․Mr Pesec swore two affidavits dated 12 November 2021 and 1 April 2022. He was not required for cross-examination.
93․Mr Pesec became a shareholder of Consolidated in October 2016. At the time he swore his first affidavit, he held 14,510 shares in Consolidated, which is less than 1% (about 0.9%) of the 1,604,398 currently on issue. He inherited most of his shares from his late father. In 2019, he bought a small parcel of shares from his mother at the price of $50 per share. No party invited me to draw any inference from the payment of that price.
94․A few days before the EGM on 8 April 2015, Mr Pesec called Mr Zivko and expressed concern that the new constitution would allow Mr Zivko to take new options without the consent of the shareholders. Mr Pesec said there was no need for Mr Zivko to receive options as his base salary was very generous. Mr Pesec states that Mr Zivko assured him he would not be taking any new options. If that was said (it was not challenged), it was untrue. Mr Pesec did not attend the EGM on 8 April 2015. He was not a shareholder at that time.
95․As already noted, Mr Zivko exercised options to acquire 85,000 shares in 2015. He did not exercise his remaining 65,000 options until 2019.

96․The first AGM after the allocation of the 85,000 shares was held on 12 November 2015. Mr Pesec attended that meeting. He raised a concern addressed to Mr Zivko that, as part of his remuneration package, shares had been issued “at a discount” which he said had “led to a lot of dilution for shareholders”. He noted that the balance sheet was very healthy and very underleveraged. He wondered whether management had “some plans about doing capital raising for shareholders” but noted that historically that had not been done and asked Mr Zivko to “shed a bit of light” on the fact that it had been used as “purely a remuneration package”. A lengthy discussion followed, at the conclusion of which the Chair, in short, defended the remuneration package, saying “I haven’t got much fear if [Mr Zivko] have one third shareholding in company because if he have all his life for his future invested in this company, then you guys will be sleeping in peace. Because he will look after you.”
97․Mr Pesec’s affidavit of 12 November 2021 records two different numbers of shares he states Consolidated had issued as at 30 June 2016 (including the shares allotted to XO 1 in accordance with the Option Deed). The correct number appears to be 1,584,451 shares, the number stated at paragraph 69 of the affidavit. On that basis, and contrary to the calculation set out at paragraph 71 of the affidavit, the combined percentage held by Mr Zivko and the two companies wholly controlled by him as at 30 June 2016 was 31.4%.
98․Consolidated’s next AGM was held on 10 November 2016. In advance of that meeting, another shareholder, Mr Ivan Juric, wrote to shareholders expressing his concern at Mr Zivko’s “completely unacceptable” level of remuneration. Mr Juric gave evidence in the proceedings and that evidence is addressed below. Mr Pesec and Mr Juric both attended the 2016 AGM and again raised various concerns including Mr Zivko’s remuneration, the issuing of new shares and the accounting method adopted by the company. The meeting deteriorated into an unedifying exchange between shareholders and Mr Zivko. One shareholder asked, “which properties are you borrowing money on?”, to which Mr Zivko responded, “I don’t have to tell you, that’s management”. The response was legally correct but unhelpful. It displays an attitude that goes some way to explaining the concerns that have given rise to these proceedings.
99․Mr Pesec attended the 2017 AGM but did not make any further complaints at that meeting about the issues in these proceedings. He confined himself to minor observations and a question as to why the notice of the meeting had not been accompanied by a nomination form for shareholders to nominate a new director, as had occurred in previous years.
100․Mr Pesec attended the 2018 AGM. At that meeting, he repeated his question as to why the directors had stopped distributing nomination of director forms and why shareholders no longer received the minutes of previous meetings. He also queried the use of dividends to pay out shareholders who had participated in the share buy-back. At the same time, Mr Pesec congratulated the directors on a profitable year. There is a hint of sarcasm in those remarks as they were qualified by an observation about finally enjoying the success other property developers had enjoyed for the last decade. However, that is speculation on my part and I have not placed any reliance on that impression.
101․On 13 December 2018, Mr Pesec’s lawyers wrote to Consolidated setting out Mr Pesec’s three principal concerns as follows:
(a)that Mr Zivko has acquired or, through the actions of the Board, received options for the acquisition of, a substantial body of shares at what is believed to be below a fair or net-asset value, and otherwise in a context where the consent or approval of the general shareholders was not obtained;
(b)that in all the circumstances the remuneration that Mr Zivko received is to be taken to include the value of share options issued and as such his total remuneration was unreasonable under the Corporations Act and otherwise a breach of the Board’s common-law director’s duties;
(c)that Mr Zivko has otherwise caused the issuing of shares or the exercising of options in shares, at unreasonable values, to entities that are related parties of Mr Zivko within the definition of the Corporations Act or are otherwise individuals and entities within the control of Mr Zivko.

102․On 11 January 2019, the Board resolved to establish a Committee of Inquiry to investigate those concerns.

103․On 12 April 2019, Mr Pesec commenced proceedings in this Court seeking preliminary discovery. That application was granted by McWilliam AsJ (as her Honour then was) on 5 June 2019: Pesec v Consolidated Builders Ltd [2019] ACTSC 142.
104․On 11 June 2019, Mr Pesec received a letter from Consolidated which stated that Mr Zivko’s options had been “granted at prices which the Board considered at the time represented a reasonable price having regard to the price at which shares in [Consolidated] had traded” and that “the value of [Consolidated] has substantially increased”.
105․On 1 November 2019, the Committee of Inquiry recommended that Consolidated convene an EGM to consider a resolution in effect ratifying the decision of the Board concerning the 2015 remuneration package. Those events are considered in more detail in the discussion of Mr McCann’s evidence below.
106․On 15 November 2019, Mr Zivko’s remaining 65,000 options were exercised. Those shares were allotted to XO 1.
107․The EGM to consider the recommendation of the Committee of Inquiry was held on 18 December 2019. Mr Pesec attended that meeting. He raised concerns about the company’s failure to obtain a share valuation, made criticisms of the BDO report and again agitated his concerns as to the level of Mr Zivko’s shareholding. The meeting passed the resolution recommended by the Committee of Inquiry.
108․On 14 May 2020, Mr Pesec commenced proceedings seeking leave to bring a derivative action on behalf of Consolidated pursuant to ss 236 and 237 of the Corporations Act 2001 (Cth). That application was dismissed by McWilliam AsJ on 13 April 2021: Pesec v Consolidated Builders Ltd (No 3) [2021] ACTSC 105. An application for leave to appeal from her Honour’s decision was refused by Crowe AJ: Pesec v Consolidated Builders Ltd [2021] ACTCA 25.
109․On 23 July 2021, Mr Pesec filed the statement of claim in these proceedings.
110․On 4 November 2021, Mr Pesec attended Consolidated’s AGM. He had a conversation with Mr Zivko during which he expressed his concern about the expense of their legal battle and said, “all I really want is a valuation of the company’s assets. I’m happy to pay for those valuations out of my own funds”. Mr Zivko declined to engage on the issue, saying “Because you have initiated legal proceedings against me, I won’t discuss this with you.”

Mr Juric

111․Mr Pesec also relied on an affidavit from Mr Ivan Juric dated 12 November 2021. Mr Juric was not required for cross-examination. He is a member of Consolidated who, like Mr Pesec, has raised concerns at company meetings as to the unavailability of any valuation of the company’s real property assets.
112․As noted above, Mr Juric sent a letter in November 2016 to some of Consolidated's shareholders. The letter expressed concerns about the disclosure of directors’ shareholdings and the remuneration of Consolidated’s management. The letter sought support to elect Mr Emil Bulum to the Board at Consolidated's forthcoming 2016 AGM and attached a proxy form for that meeting.
113․On about 7 November 2016, Mr Juric received a letter from Consolidated's solicitors, Clayton Utz, identifying concerns about “significant inaccuracies” in Mr Juric’s letter. The solicitors noted that Mr Juric's letter was signed by him in an unknown capacity of Better Building Services Pty Ltd, which was not a shareholder of Consolidated. The letter also warned that Mr Juric had potentially breached s 177 of the Corporations Act because his letter disclosed the number of shares held by the managing directors. It was further contended that Mr Juric's letter contained misleading imputations concerning wrongdoing by the Board and Consolidated's auditor, the mandatory retirement age of directors and the Board's protection of shareholder rights. The letter concluded by requiring Mr Juric to undertake the following steps before 5pm on 7 November 2016:
(a)formally advise us that the Letter is withdrawn and will not be further circulated;
(b)advise us of the means by which you acquired the information contained on the share register, and the identity of any person who provided that information to you;
(c)provide a letter, for our approval, correcting the factual inaccuracies in the Letter and including an apology, to be circulated prior to the CBL AGM to shareholders to whom you provided the Letter;
(d)confirm you will read out the agreed apology at the CBL AGM;
(e)confirm your acceptance that the proxies are invalid; and
(f)provide a list of shareholders to whom the Letter was provided.

114․On or about the same date, Mr Juric sent a further letter to the shareholders to whom he had sent his first letter, clarifying his status as the director of a company that was a shareholder and the capacity in which he wrote the original letter. Mr Juric also responded to the letter from Clayton Utz acknowledging it was an error to write the original letter on the Better Building letterhead but denying any breach of s 177 of the Corporations Act. He declined to undertake the actions required in the letter from Clayton Utz. The matter does not appear to have been taken any further.
115․I am not in a position to judge the respective merits of the positions of Mr Juric and Consolidated in that dispute, save to observe that the company’s response appears to have been heavy-handed and likely to have contributed to the dissatisfaction of shareholders seeking some justification for the undoubtedly generous remuneration package awarded to Mr Zivko in 2015. It is not necessary for me to address that issue further.
116․Mr Pesec also filed in Court an affidavit of Mr Hugh Smith sworn 7 March 2023. That affidavit was relied upon to prove the provenance of documents tendered in the proceedings and does not otherwise appear to have been relied upon in any material way.

The defendants’ witnesses

117․It is convenient to summarise the defendants’ evidence together. In taking that course, I have not overlooked their separate interests and defences in the proceedings.
118․An affidavit sworn by Mr Zivko was filed and served. However, he decided not to put that affidavit into evidence. The significance of that decision is addressed below.
119․The principal witness concerning the decision to grant the share options was Mr Noel McCann, one of the non-executive directors. The Chair of the Board, Mr Skrnjug, also gave evidence. However, for reasons I will explain, I formed the view that his recollection of the critical meeting at which the remuneration package was discussed by the non-executive directors in 2014 was less reliable than Mr McCann’s. That is understandable, given the passage of time between the meeting and the commencement of these proceedings. The numerous discussions of the remuneration package at subsequent company meetings may also have created the risk of conflation as between what was discussed at the critical meeting in 2014 and what has been said since to justify the decision made at the meeting. Accordingly, I have not placed much weight on Mr Skrnjug’s evidence concerning those matters. The other two non-executive directors at the time of the decision, Mr Crnkovic and Mr Heins, did not give evidence. Furthermore, as noted by Mr Pesman in his closing submissions, none of the defendants called evidence from Mr Johnson, the company’s auditor.

Mr Skrnjug

120․Mr Skrnjug gave his evidence on affidavit and was cross-examined at the hearing. English is not his first language. I mention that fact only to acknowledge that it may inform the assessment of his evidence. For example, he appeared at times to be unfamiliar with parts of the contents of his affidavit. In one instance, he refused to answer a question as to the meaning of a phrase he had used in his affidavit (“what does interest cover mean?”). This gave rise to an obvious concern as to the amount of assistance he might have received in preparing it. Indeed, as to part of his affidavit where he stated he had extracted financial information, he frankly acknowledged that someone else would have done that for him. It is possible that his difficulties in explaining the financial information set out in his affidavit partly reflected language difficulties. In my assessment, however, Mr Pesman was also successful in establishing that Mr Skrnjug did not understand some of the terms used in his own affidavit concerning the company’s financial position, or indeed the concepts sought to be conveyed by those terms, except at a broad level.
121․Mr Skrnjug began his working life as an electrician in Croatia and has over 40 years’ experience of operating a building business in the Canberra region. He became a director of Consolidated on 24 November 1994 and has been its Chair since that time.
122․Mr Pesman cross-examined Mr Skrnjug with a view to establishing, as I understood it, that the present value of the company is considerably greater than can be discerned from knowing the cost at which its real property assets were acquired. Mr Pesman began with the statement in Mr Skrnjug’s affidavit that, from 2010, the company began holding some of its finished developments for investment purposes to derive rental income. Mr Skrnjug stated that Consolidated sought to generate sufficient net revenue to provide interest rate cover for loans.
123․When asked what sort of return from its rental properties the company wanted to achieve, Mr Skrnjug responded by speaking with evident pride of the growth of the company which they started “with nothing” and built “out before slowly up and up” to a point where the return was “really good”. By reference to the company’s annual report for the financial year ending 30 June 2010, he accepted that borrowings were in the order of $29.5 million. In other words, the company policy, which Mr Skrnjug intimated was successful, was that company assets were generating sufficient income to meet the interest cost of borrowings as at 30 June 2010 of some $29.539 million.
124․As to development projects that formed part of inventory, Mr Skrnjug said they have always chosen their projects carefully and that no project has been unprofitable. As to properties held for investment, he agreed that all have increased in value. He agreed that 212 Northbourne Avenue alone is “100% much, much more than it was paid, much, much more”.
125․It may be accepted that Mr Skrnjug’s evidence on that issue was broadly supportive of the inference that the company’s assets have increased in value over time. However, at the general level at which it was pitched, the evidence was no proxy for formal evaluation evidence.
126․As to Mr Pesec’s complaints concerning access to information, Mr Skrnjug said in his affidavit that he was not aware of the company holding a list of all of its real or property assets. However, he also stated that, in 2015, the company held 87 properties and that, by 2022, the number had grown to 171 properties. As noted by Mr Pesman during cross-examination, the precision of that evidence suggested, as might be expected, that the company is perfectly capable of providing at any particular point in time a list of the properties it holds. From the perspective of good corporate governance, it would be alarming if it could not.
127․Mr Pesman took that issue up in cross-examination of Mr Skrnjug in the following exchange:
Mr Pesman:It would have been easy for the company to produce a list of its assets in 2015. Correct? Of real property assets in 2015? ---
Mr Skrnjug:Well, at the time we thought we don’t have to do it. But, you know, on our AGM – our managing director was always to tell what we have, what we’re doing, noting a real number every unit because the change every year, every day, every week because our portfolio of the houses, units, apartments, what was the market sold and every day it did change.

128․The emphasised words indicate that Mr Skrnjug thought he was being challenged about the Board’s failure or refusal to provide information to Mr Pesec. However, the primary purpose of the question was to establish that the information existed and was readily available in 2015. Mr Skrnjug later appeared to accept that proposition. He agreed that, had the bank asked for a list of all properties in 2015, the company could have produced that information (“very easy”).
129․Concerning the decision to grant the options, Mr Skrnjug said in his affidavit:
In forming my view, my thinking included the following:
(a)the Company had been, and continued to be, managed very tightly and frugally by Mr Zivko in consultation with the Board, with low overhead costs;
(b)Mr Zivko’s performance had been strong over a long period of time. The value of the Company had increased significantly over the course of his tenure, and dividends and other returns to shareholders had been consistent and strong. In my judgment it was appropriate to recognise this strong performance;
(c)Mr Zivko’s options and shareholding would encourage Mr Zivko’s commitment to the Company and it was important that the Company retain Mr Zivko to ensure its continued success;
(d)in my judgment it was reasonable to expect that the Company would continue to grow, having regard to the financial performance of the Company (including its record of paying dividends) and the long-term performance of the markets in which the Company operates;
(e)his increased shareholding would act as a further incentive for Mr Zivko to enhance the long-term financial performance of the Company and consequently the value of shares in the Company, including those belonging to Mr Zivko and those affiliated with him; and
(f)Mr Zivko enjoyed strong support from the other members of the Board.

130․As emphasised in cross-examination, those considerations focussed almost exclusively on the non-executive directors’ assessment of the value to the company of Mr Zivko, of whom Mr Skrnjug could not speak highly enough. His admiration for Mr Zivko was evident in the following exchange:
MR PESMAN: From that, I take it when you were considering Mr Zivko’s options of remuneration in 2015, you didn’t go back and examine these accounts? ---
MR SKRNJUG: For Mr Zivko, when we – when – 2015, renewal of his remuneration, we have many years with Mr Zivko on the helm of Consolidated Builders. Mr Zivko show he is very capable, talented, workaholic, young man which we want to maintain in our company, because he was a bonus to our company. Your Honour, if you let me know, just to start, short with bottom, then 1994, Mr Zivko and Mr Spring, another director, in June ’94 come in board of directors and I come and Mr Ray Hyndes in November. Company was sliding in deep, deep drain. Took us three years in board just to stop the slide, stop with the managing director, who was a capital, to leave the company. I realised that, and I saw in that three years the directorship with Mr Zivko and other directors, I realise Mr Zivko is man who bring more in company for opportunities, talk about further investment and I form my strong opinion we have to give or should give Mr Zivko chance to lead the company as a managing director.

230․Those remarks were made in the context that the Court of Appeal was applying the correctness standard of review. They apply a fortiori where I am required to afford a measure of deference to the business judgment of the non-executive directors in matters concerning the Board’s relationship with executive management.
231․In a separate concurring judgment in Tomanovic v One Australia, Barrett JA said:
In Gold Coast Selection Trust Ltd v Humphrey (Inspector of Taxes) [1948] AC 459 at 473, Viscount Simon LC said, "Valuation is an art, not an exact science"; and, "Mathematical certainty is not demanded, nor indeed is it possible". As the Chief Justice explains, the primary judge proceeded according to an objectively reasonable method of valuation and reached a conclusion that, having regard to the evidence before him and the submissions put to him, does not exhibit error. For the reasons stated by the Chief Justice, the appeal should be dismissed with costs.
232․Mr Pesman in effect invited the Court to undertake what the defendants termed a “back-of-the envelope” asset-backed valuation.   Mr Thomas submitted that an asset-backed valuation would not be appropriate. He relied on the decision in Tomanovic v One Australia (among other authorities) to support the proposition that the appropriate approach in the case of a company of going concern is to use an earnings-based methodology, as a prudent purchaser does not buy shares in a company which is a going concern with a view to winding the company up. Assuming that is the proper approach, or even an available approach, the difficulty (which is ultimately a difficulty for Mr Pesec) is that I am in no position to make any reliable assumption about future earnings on existing shares in the present case. As noted by Mr Hutton, there is no guaranteed income on shares; it depends on what dividends are declared in the future.
233․Even assuming it was possible on the evidence before me to reach the point of being comfortably satisfied that the options were worth “a lot more” than $21 each, I would then have to determine, having due regard to the experience and acumen of Consolidated’s non-executive directors, that their valuation was outside the range of reasonable valuations of the options or, in other words, that no reasonable board with the knowledge, experience and acumen of this board could have proceeded as the non-executive directors did. The decision in Tomanovic v One Australia reinforces my conclusion that I cannot reach that conclusion in this case.
234․The valuation method adopted by the directors in the present case was effectively the trading price of the shares, which the directors deduced from their knowledge of prior transactions. That was the only available source of information as to the trading price because the company is unlisted and there is accordingly no exchange to provide a ready reckoning of current market price. Mr Thomas submitted that, once it is accepted that there are multiple acceptable methods of valuation, it cannot be said to be unreasonable for a director to select one of the methods that is available and acceptable, to determine the price at which the options were to be issued. I agree.
235․Even if I could determine a value of the options as at 2015, or that their value was far greater than $21 per share, I do not think I could sensibly presume to determine whether the price to the company of granting the options at that price, with all its impact on members and shareholdings, was worth the benefit the non-executive directors perceived in aligning Mr Zivko’s financial interests with those of the company. In saying so, I am mindful of the fact that the resolution passed by the directors when the Option Deed was executed recorded that the shares were “proposed to be issued at market value (with provision for escalation in price over time)”. Mr Pesec’s concession to the authority of Tomanovic v One Australia in effect answers this point. That decision both holds and demonstrates that different acceptable methods of valuation can produce vastly different outcomes.
236․Mr Thomas emphasised that the task undertaken by the non-executive directors in assessing Mr Zivko’s request in 2014 was to assess his performance historically and to make a judgment about his likely future performance, basing that judgment on their day-to-day experience with him over many years. He submitted (respectfully) that the Court would not have the skills in effect to second-guess (my word) that evaluation. I agree. There is almost no evidence before me on which I could hope to assess the value of Mr Zivko to the company beyond the fact, as appears to be common ground, that he works hard, has steered the company through difficult times and returns a profit.
237․The determination of the remuneration package of a chief executive officer is (to avoid the use of a different term which Mr Pesman evidently considers to be overused) the purest example of a decision that falls within the commercial judgment of a board of directors. The non-executive directors might well be enthralled with Mr Zivko, or fearful of crossing him. They might rightly assess him to be indispensable to Consolidated’s future financial success. They might know him to have invaluable connections or a particular eye for development projects that will succeed. They might well be enthralled by him or overrate his value to the company. Whatever the many factors informing their assessment, the evidence does not permit me to reach any different view.

Remedies sought

238․The final proposition contended for by Mr Pesman was more in the nature of a submission and concerns only the question of the relief sought. Mr Pesec submits that, “as Mr Zivko has not given evidence, there are no discretionary reasons why the Court would not order the shares be returned”. In light of the conclusion I have reached, it is not necessary to consider that submission further.

Conclusion: was the decision to grant the options oppressive?

239․As already explained, the authorities make clear that I should not intervene in the governance of the company unless I am positively satisfied that no Board acting fairly and reasonably could have reached the decision impugned by Mr Pesec. As submitted by Mr Thomas, such a finding will not readily be made in respect of a decision concerning the relationship between the Board and executive management, particularly where no bad faith is alleged.
240․Mr Thomas relied in this context of the decision of the Federal Court in Sheehy v Nuix Pty Ltd [2023] FCA 56 at [314] (Halley J) where his Honour cited with approval the decision of the New Zealand Court of Appeal in Latimer Holdings Ltd v SEA Holdings NZ Ltd [2004] NZCA 226; [2005] 2 NZLR 328 at [71] (citations omitted):
Judges are ill-equipped to evaluate business strategies, and have accordingly exercised self-restraint ... it would be wrong for the court to substitute its opinion for that of management, or indeed to question the correctness of management’s decision ... if bona fide arrived at ... This is sometimes called the ‘business judgment’ rule. Judges, on the other hand, do have training and expertise in dealing, for instance, with fraud, illegality, or conflicts of interest.
241․Those remarks have considerable force in this case. Judges should stick to their strengths. A different aspect of the same point is to consider the knowledge, experience and expertise the non-executive directors have which I do not. Returning to the test stated by Brennan J in Wayde at 473:
The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.
242․A further point made on behalf of the non-executive directors concerns the importance of avoiding hindsight analysis. Mr Hutton noted that it is easy in hindsight to say the non-executive directors should have bargained with Mr Zivko but that might have undermined the trust underlying his relationship with the Board. Mr Hutton noted in that context that the process of making a business judgment is different from judicial decision-making. That is undoubtedly the case. To the extent that Mr Pesec’s application invites an administrative law style review of the decision, assuming the existence of something in the nature of a list of mandatory considerations, it is misconceived.
243․As I have indicated, I accept that the process by which the decision was reached was informal and unorthodox. I have the impression, which may or may not be well-founded, that the governance of this company has not always kept in step with its financial growth. As not uncommonly occurs in Australia, Consolidated has been built on the enterprise and hard work of a group of highly skilled migrants. It is not unlikely that the founders of the company may have focussed more on the construction opportunities presented to them and been content to leave governance to the apparently charismatic Mr Zivko. I have the impression, which may or may not be well-founded, that Mr Zivko is a forceful personality who drives a hard bargain, including with the Board he serves. I have the impression that it is primarily in response to the concerns of the second-generation migrant families that the governance of the company is now being scrutinised and management held to a higher level of accountability. But those are all just impressions; they are inadequate to support a finding of oppression.
244․Finally, as already noted, Mr Pesman relied on the decisions not to call Mr Zivko, Mr Crnkovic or Mr Heins. I accept that it can be inferred that Mr McCann’s evidence represented the high point for the defendants as to what was said at the café meeting. It is not necessary to consider the fact that the auditor, Mr Johnson, did not give evidence as I have found in Mr Pesec’s favour that no financial advice was obtained by the board in relation to the decision to grant the options. As to Mr Zivko, Mr Crnkovic and Mr Heins, their absence might, in accordance with well-established principle, have made it easier to draw adverse inferences against the defendants but cannot of itself form the foundation of an inference. In other words, their absence cannot fill any gaps in the plaintiff’s case.
245․As I have explained, there are gaps in the plaintiff’s case. Having regard to the findings and principles discussed above, I am not satisfied that the decision to grant 150,000 options to Mr Zivko in 2015 was either contrary to the interests of the members as a whole; or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members.

Assessment of the availability of information to shareholders

246․While Mr Pesec’s second complaint is ostensibly a stand-alone complaint about the unavailability of information to shareholders, his central concern is comparative. His complaint is that the directors have access to the information they refuse to provide to him and other members and so have an unfair commercial advantage over him and other members.
247․As with the case concerning the grant of the options, Mr Pesman provided a list of the findings contended for in support of Mr Pesec’s case concerning the provision of information. In this part of the case, most of the findings contended for are not in dispute. The question is whether the position adopted by the Board has resulted in commercial unfairness.

The company can produce a list of assets

248․The first finding contended for is that Consolidated can without difficulty produce a list of assets. That much is clear.
249․Mr Pesman noted that, whereas the two non-executive directors who gave evidence asserted that there was no single list, it became clear during cross-examination that producing such a list (including the purchase price of the properties) would not be difficult. Mr Skrnjug conceded as much (“very easy”). I have already noted my view that it would be alarming if the company could not readily produce such information.
250․The defendants noted, however, that while the plaintiff’s case in this Court focussed acutely on the fact that the company could without difficulty produce such a list, no such request was ever made of the company by Mr Pesec until the filing of the Amended Statement of Claim in these proceedings. Based on my reading of the transcripts of exchanges with Mr Pesec at the company’s AGMs and the evidence outlined above, I consider it unlikely that a list would have been provided had it been sought. Mr Skrnjug claims such information is commercially sensitive.
251․I appreciate that the point made by the defendants was that, absent any request for a list, it cannot be said that there was any refusal amounting to oppression. As it was put by Mr Thomas, the list is sought as a remedy but was not sought until this proceeding was commenced; “the remedy sought cannot itself form the basis of the alleged oppression”. Even understood in that way, the submission must be taken (with respect) to have been rhetorical. Mr Pesec’s unchallenged evidence summarised above discloses that Mr Zivko has not taken kindly to being sued. I am satisfied that Mr Zivko would not give Mr Pesec any information to which he does not have a statutory entitlement or a contractual right under the company’s constitution. Mr Skrnjug in effect acknowledged that was the stance the directors took. They unashamedly defend it.
252․I am satisfied that the company could without difficulty provide a list of its real property assets, including purchase prices, to Mr Pesec and that the Board chooses not to do so. However, that is not the end of the inquiry. The matters raised by Mr Pesec’s application in these proceedings are not to be determined by an expression of pious hope that men of business (they are all men in this case) should play nicely.

The information sought by Mr Pesec is available to the directors

253․The next finding contended for is that the directors know the present value of at least some of the properties and pay close attention to their value. I have no doubt that is the case. The only qualification I would make to that finding is that the “present value” is not an objective fact. However, I accept that the directors should and do hold an opinion as to the present value of the significant real property assets held by the company.

The assets have increased in value

254․The next finding contended for is that the directors know that every single property has increased in value (and some very substantially). Although Mr Skrnjug broadly accepted that proposition, the evidence does not permit me to make a finding in the unqualified terms contended for. However, as already explained, the overwhelming likelihood is that many of the real property assets have substantially increased in value.

The financial statements

255․The next finding contended for is that, because the assets in the balance sheet in the financial statements are valued at a cost (and in the case of property, plant and equipment also depreciated), the net asset position very substantially understates the present value of those assets.
256․This contention takes me back to the dark art of valuation. Contrary to the submissions of the defendants, I consider that I can be comfortably satisfied that individual real property assets have increased substantially in value such that, on a liquidation basis, many of those assets would realise considerably more than the value at which they are reflected in the company’s financial statements. However, as already noted, Mr Pesec acknowledges that the financial statements are prepared in accordance with applicable accounting standards. It follows, in effect as an accounting fact, that the financial statements represent a true and fair view of the company’s financial position as a going concern.
257․Properly understood, the contention as framed (“the net asset position very substantially understates the present value of those assets”) is a statement about the fact that an asset can be valued or reflected differently for different purposes. The finding contended for is accordingly unhelpful because its import is unclear. More significantly, it is pitched at such a high level of generality as to be forensically unhelpful.

Trading on shares

258․The next two findings contended for concern trades on shares in the company. They are:
(a)that all of the directors (or their associates) have bought shares from other shareholders (usually in the $20-24 range);
(b)that, apart from Mr Crnkovic's participation in the 2007 buy-back (at $30) no director has sold any shares to a third party.

259․Neither of those facts is in dispute. Each is established by documents tendered in the proceedings. Mr Pesman submitted that this creates a fundamental structural unfairness in the company. He did not suggest that the directors have misused that advantage. However, he submitted that it is significant that the directors have always been buyers of the shares and never sellers.

Information available to directors

260․The critical findings contended for on this aspect of the case are:
(a)that the directors have access to substantially more information in making decisions about buying or selling shares than the members generally;
(b)that this is unfair.

261․Mr Pesec further invited the Court to infer that Consolidated will not remedy that unfairness unless ordered to do so. For the reasons already explained, I am satisfied that Consolidated will probably not provide information to Mr Pesec beyond that to which he has a statutory or contractual entitlement if not ordered to do so. The larger question is whether the fact that the directors have access to substantially more information in making decisions about buying or selling shares than the members generally is unfair.

Conclusion: is the company’s position commercially unfair?

262․As established by the authorities considered at the outset of this judgment, the measure of unfairness in this context is “commercial unfairness”: Joint v Stephens [2008] VSCA 210 at [134]. The test is whether objectively, in the eyes of a commercial bystander, there has been conduct that is so unfair that reasonable directors who consider the matters would not have thought the decision fair: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704; cited with approval in Joint v Stephens at [135].
263․Mr Pesec submits that if the company chooses, as it is entitled to do, to value its assets on a historic cost basis in the case of property, plant and equipment, less depreciation, the inevitable consequence is that, over time, the assets in the balance sheet will be undervalued. He accepts that there is no evidence that property prices have gone up but relies on the fact that Mr Skrnjug effectively accepted that they had. That being the case, Mr Pesman submitted that, in the circumstance where the shares are thinly traded, there is no reason in principle why I cannot find that the failure to provide information as to the current value of those assets is oppressive.
264․The defendants submitted that there are two principal difficulties for this aspect of Mr Pesec’s case. First, he seeks information that does not currently exist. Secondly, he seeks information that exceeds the information to which he is entitled under the regime of the Corporations Act. Both aspects of the submission should be accepted.

265․As to the first point (seeking information that does not currently exist), Mr Thomas (who took the lead on submissions on this issue) submitted that a company in the position of Consolidated is under no obligation to perform regular market valuations of its real property assets. This submission is allied to the defendants’ contention that the appropriate method of valuing shares in the company as a going concern is the likely future income from shareholdings. Mr Thomas noted that the company’s profits and dividends have always been published.
266․I have already referred to Mr McCann’s evidence about the complexity of undertaking regular valuations. While I can understand Mr Pesec’s desire to know the current market value of assets recorded in the financial statements at cost, I am not persuaded that the company’s decision not to undertake valuations or to create a list of assets amounts to oppression, particularly where the only identified purpose for doing so is to enable members to estimate the value of their shares. Valuations are not necessary for the preparation of the financial statements on the accounting method chosen by the company. It cannot be said to be unreasonable to choose an available accounting method. Furthermore, for the reasons explained by Ms Hambley and addressed in submissions by Mr O’Meara, to convert to the revaluation method would have significant disadvantages.
267․As to the second point, Mr Thomas submitted that Mr Pesec’s complaints are at odds with the architecture of the Corporations Act, which prescribes what materials and information must be made available to members. He noted that Mr Pesec has not identified any case in which the court, through s 233, has given access to material to which the shareholder was not otherwise entitled under an existing obligation or right. For his part, Mr Thomas relied on the decision of the NSW Supreme Court in Shum Yip Properties v Chatswood Investment and Development [2002] NSWSC 13 (Austin J) at [191] where, after noting the plaintiff’s entitlement to receive information as a shareholder of a company, pursuant to a statutory right to inspect the registers the company was required to keep, to inspect the company’s minute books and to receive financial reports each year, his Honour said: “As a member, its rights to information were limited, and did not extend to detailed information about income and expenses beyond the information required to be contained in the company's financial statements and reports”. Austin J further noted that the plaintiff had the right as a member to apply to the court under s 247A of the Corporations Act for an order authorising it to inspect any “books” of the company, which order the court could make if satisfied that the plaintiff was acting in good faith and that the inspection was to be for a proper purpose.
268․The defendants note that no such application has been made by Mr Pesec. Mr Thomas submitted that “the oppression regime does not operate to impose additional positive entitlements on members for information that the Corporations Act does not otherwise require”.
269․Mr Thomas noted that Mr Pesec has statutory rights to access company information and, as a matter of inference, may be taken to have exercised those rights. Section 173 of the Corporations Act confers a right on a member to inspect the register of shareholders. Mr Pesec’s affidavit contained evidence drawn from the register. Mr Thomas also noted the right of a member under s 251B of the Corporations Act to access the minute books for meetings of members of the company but not meetings of directors. Finally, Mr Thomas noted the entitlement of a member under s 314 of the Corporations Act to an annual financial report. He submitted that the purpose of this regime is indicated by s 297 of the Corporations Act, which imposes a requirement that the company’s financial statements must “give a true and fair view of the financial position and performance of the company”.
270․Furthermore, Mr Pesec has made no attempt to obtain access to the books of the company as allowed under 247A(1)(a) of the Corporations Act. Mr Thomas noted that, provided Mr Pesec could demonstrate that he was acting in good faith and that the inspection was for a proper purpose, the court’s discretion to grant access would be enlivened. However, in that event, he would be bound by the strict confidentiality regime provided for in the Corporations Act.
271․Separately, Mr Thomas noted the provisions of article 76 of Consolidated’s constitution adopted in 2015, which provides:
Subject to the Corporations Act, the Board may determine whether and to what extent, and at what times and places and under what conditions, the accounting records and other documents of the Company or any of them will be open to the inspection of Shareholders (other than Directors)
A Shareholder (other than a Director) does not have the right to inspect any documents of the Company except as provided by law or authorised by the Board of by the Company in general meeting.
272․In light of that article in the constitution, which forms the agreed basis of the relationship between the company and its members, it is difficult to see how any refusal to create and provide additional information could amount to oppression.
273․Finally, Mr Thomas submitted that the purpose for seeking the information is relevant. In his Amended Statement of Claim at paragraph 75(c), Mr Pesec states that he seeks the information to enable members “to make an informed decision as to the value of any existing new shares that they might wish to purchase or the price at which they should sell or offer to sell their shares.” Mr Thomas submitted that the problem with that approach is that an inability to purchase or sell shares in a company is not oppressive: Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [40] (Austin J) citing Lucy v Lomas [2002] NSWSC 448 at [43].
274․Mr Thomas submitted that, in the absence of any statutory, general law or Constitutional entitlement to the material the unavailability of which is said to amount to oppression, this aspect of the claim must fail. The submission must be accepted. This aspect of the claim accordingly fails.

Cumulative effect of the two complaints

275․As a final task, it is necessary to consider whether the cumulative effect of the conduct complained of amounts to oppression: Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201. In that case, the Full Court of the Federal Court accepted at [136] that, “depending on the circumstances, an accumulation of conduct, even where none of the separate matters of conduct is found to be oppressive, may have that result”.
276․In light of the conclusions I have reached, I am not persuaded that there is an accumulation of conduct that has that result in this case. Each of the matters complained of by Mr Pesec is a matter of the management of the company which, in accordance with s 198A of the Corporations Act, is vested in the Board, not the members. Article 55 of the constitution is to like effect, providing that “the Board has the power to manage the business of the company and may exercise to the exclusion of the company in general meeting all powers of the company which are not, by the law or this constitution, required to be exercised by the Company in general meeting”.
277․Accordingly, I am not persuaded that the cumulative effect of the conduct complained of amounts to oppression.

Conclusion and orders

278․For those reasons, I make the following orders:
(1)The proceedings are dismissed.
(2)I order the plaintiff to pay the defendants’ costs.

I certify that the preceding two hundred and seventy-eight [278] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Chief Justice McCallum

Associate:

Date: 23 October 2024