Ramsey & Ramsey
[2021] FamCA 405
•18 June 2021
FAMILY COURT OF AUSTRALIA
Ramsey & Ramsey [2021] FamCA 405
File number(s): BRC 9850 of 2018 Judgment of: KENT J Date of reasons for judgment: 18 June 2021 Catchwords: FAMILY LAW – PROPERTY – CONSENT ORDER – Where the husband and the wife agreed upon a 50 per cent/50 per cent division of whatever their property interests were found to be – Where resolution of a commercial dispute involving third parties is required to enable the property interests of the husband and the wife to be identified – Where it was not feasible to draft orders reflecting that agreement until the outcome of the commercial dispute was known – Where the parties ought be afforded the opportunity to make further submissions.
CORPORATIONS LAW – OPPRESSION – Where an issue of shares resulted in a majority shareholder being relegated to a minority shareholder – Where the company was essentially the vehicle utilised to operate a quasi-partnership – Where the husband was not provided any advance notice or opportunity to participate in discussion as to the issue of shares – Where the issue of shares amounted to oppression – Where the parties ought be afforded the opportunity to make further submissions as to the appropriate remedy.
Legislation: Corporations Act2001 (Cth) Ch 2D, ss 180, 181, 182, 198A, 203C, 232, 233, 234, 235, 249A
Family Law Act 1975 (Cth) ss 75, 79, 106B
Income Tax Assessment Act 1936 (Cth) Div 7A
Family Law Rules 2004 (Cth) Pt 10.3
Cases cited: Abrath v North Eastern Railway Co (1883) 11 QBD 440
Australian Securities Commission v Multiple Sclerosis Society of Tasmania (1993) 10 ACSR 489
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25
Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62; [2014] FCAFC 55
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122
Foody v Horewood and Ors (2007) 62 ACSR 576; [2007] VSCA 130
Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd (No. 3) (2011) 285 ALR 297; [2011] FCA 1370
Hillig v Darkinjung Pty Ltd (2006) 201 FLR 148; [2006] NSWSC 594
Hogg v Dymock (1993) 11 ACSR 14
Latimer Holdings Ltd v SEA Holdings New Zealand Ltd [2005] 2 NZLR 328
Lee v Chou Wen Hsien [1984] 1 WLR 1202
Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 61 ACSR 395; [2007] NSWSC 153
Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342
Re Bodaibo Pty Ltd (1992) 6 ACSR 509
Re D G Brims & Sons Pty Ltd (1995) 16 ACSR 559; [1995] QSC 53
Re Five Minute Carwash Service Ltd [1966] 1 WLR 745
Re London School of Electronics Ltd [1986] Ch 211
Re Tivoli Freeholds Ltd [1972] VR 445
Roberts v Walter Developments Pty Ltd & Ors (1997) 15 ACLC 882
Thomas v H.W. Thomas Ltd [1984] 1 NZLR 686
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310; [2011] NSWCA 104
Vigliaroni v CPS Investment Holdings Pty Ltd (2009) 74 ACSR 282; [2009] VSC 428
Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68
Yazbek v Aldora Holdings Pty Ltd (2003) 45 ACSR 53; [2003] NSWSC 330
Number of paragraphs: 257 Date of hearing: 15–17 July 2020 and 25 August 2020 Place: Brisbane Counsel for the Applicant: Mr Shoebridge Solicitor for the Applicant: McCarthy Durie Lawyers Counsel for the First Respondent: Mr Bunning Solicitor for the First Respondent: Simonidis Steel Lawyers Counsel for the Second, Third and Fourth Respondents: Mr Jordan Solicitor for the Second, Third and Fourth Respondents: Cooper Grace Ward Lawyers ORDERS
BRC 9850 of 2018 BETWEEN: MR RAMSEY
Applicant
AND: MS RAMSEY
First Respondent
B PTY LTD
Second Respondent
C PTY LTD
Third Respondent
MR FIELDS
Fourth Respondent
ORDER MADE BY:
KENT J
DATE OF ORDER:
18 JUNE 2021
THE COURT ORDERS THAT:
1.This proceeding be listed for a directions hearing at 9:30 am on 23 June 2021 for the purpose of making directions concerning further hearing from the parties about the terms of orders to be made to give effect to the findings recorded in Reasons for Judgment delivered on 18 June 2021.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Ramsey & Ramsey has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
KENT J:
Mr Ramsey (“the husband”) was born in 1970 and is now 51 years old. Ms Ramsey (“the wife”) was born in 1971 and is now aged 50 years. They commenced cohabitation in 1989, married in 2004, separated in mid-2016 and divorced in May 2018. Their relationship produced one now adult child born in 1994.
Overshadowing their property settlement proceedings[1] is a commercial dispute involving the third parties joined to these proceedings (for convenience referred to collectively as “the respondents”). Resolution of that commercial dispute is required to enable the property interests of the parties to the marriage to be identified.
[1] Pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”).
That is so primarily because the husband seeks (and the wife joins him in seeking) that the Court grant a variety of relief under the Act and/or pursuant to the Corporations Act 2001 (Cth) (“the Corporations Act”) directed to the respondents which, if granted, would result in the property interests of the husband and wife as regards their interest in the company B Pty Ltd crystallising in a fundamentally different way to that as at present.
Testament to the significance of the commercial dispute to these proceedings is that at the outset of the trial counsel for each of the husband and the wife respectively advised the Court to the effect that the husband and wife had resolved, as between themselves, all issues and were agreed upon a 50 per cent/50 per cent division of whatever their property interests were ultimately found to be.[2] The trial proceeded on the basis that there were no issues as between the husband and wife. For example, the wife’s counsel did not seek to cross-examine the husband,[3] and no oral evidence of either of the spouse parties, or cross-examination of either of them, was directed to any dispute between the husband and wife about s 79(4) contributions or any relevant s 75(2) matters. In short, the trial proceeded on the basis that the husband and wife were in agreement that “appropriate” and “just and equitable” orders, within the meaning of s 79 of the Act, would see their property interests, in whatever form determined once the commercial dispute was resolved, divided between them on a 50 per cent/50 per cent basis.
[2] Transcript 13 July 2020, p.2 and ff; Transcript 15 July 2020, p.5 line 25.
[3] Transcript 15 July 2020, p.7 line 5.
However, as will be seen, the nature of the issues raised in the commercial dispute, and more particularly the potential need for further expert accounting evidence depending upon the findings made in relation to those issues, dictates that the commercial dispute be resolved essentially as a discrete issue.[4] The parties recognised that this may involve the proceedings being adjourned for the purpose of further expert accounting evidence to be obtained before final orders are made. Moreover, as will be further discussed, it simply is not possible to determine the property interests of the parties and thus the orders which are appropriate and just and equitable within the meaning of s 79 until the ultimate outcome of the commercial dispute is known.
[4] Pursuant to Part 10.3 of the Family Law Rules 2004 (Cth).
BACKGROUND TO THE COMMERCIAL DISPUTE
From about 1998 the husband commenced business as a sole trader, trading under the name of G Pty Ltd undertaking civil construction work.
In May 2003 the husband and wife registered G Pty Ltd, a proprietary company limited by shares in which the husband and wife each held 500 shares.
G Pty Ltd continued to be the vehicle through which the husband and wife operated a specialist construction business. The bulk of G Pty Ltd’s work was derived via subcontracting to a company owned by one Mr H named A Pty Ltd.
In 2008 the husband and wife established D Pty Ltd as the corporate trustee of their family discretionary trust, the Ramsey Family Trust. The wife was appointed, and remains, the sole director of D Pty Ltd whilst the husband and wife were, and are, equal shareholders in D Pty Ltd.
By the year 2013:
(a)The husband and wife were the joint owners, subject to mortgage, of the real property at L Street, M Town (“the M Town property”) having purchased that property in 2008 for $585,000;
(b)The husband and wife were the joint owners, subject to mortgage, of the property at N Street, Suburb O (“the Suburb O property”) having purchased that property for $1,385,000 in September 2011;
(c)
G Pty Ltd owned 50 per cent of a real property described as an industrial yard at
P Street, Suburb Q (“the Suburb Q property”) used in the G Pty Ltd business with the other 50 per cent of that property being owned by Mr H’s company A Pty Ltd;
(d)G Pty Ltd owned a cruiser, this vessel having been purchased in 2010 for $310,000 financed by an equipment hire purchase loan with the National Australia Bank (“NAB”);
(e)G Pty Ltd owned a 5-tonne excavator and other equipment which, as part of G Pty Ltd’s business, was used by G Pty Ltd but was also let out for general hire;
(f)The NAB held cross-collateralised securities in respect of borrowings by the husband and wife personally and by G Pty Ltd, including over the M Town property, the Suburb O property and the assets of G Pty Ltd.
Mr H’s company A Pty Ltd was registered with S Corporation as an accredited civil service provider and A Pty Ltd held a construction contract with S Corporation for such work (“the S Corporation contract”). In late 2013 Mr H and the husband commenced negotiations about the sale by Mr H/A Pty Ltd to the husband/G Pty Ltd of:
(a)The 50 per cent share of the Suburb Q property held by A Pty Ltd;
(b)The S Corporation contract and the associated plant and equipment of A Pty Ltd (for convenience collectively referred to as “the A Pty Ltd assets”).
The husband contends that by the end of 2013 Mr H offered to sell the A Pty Ltd assets to the husband for $800,000 and that the husband accepted that offer.[5]
[5] The husband’s affidavit filed on 21 May 2020, paragraphs 49–52.
In the end result, as will be further discussed, it was not until 14 February 2014 that a sale contract was entered into between A Pty Ltd and G Pty Ltd, which by then had changed its name to B Pty Ltd.
Initially, after Mr H and the husband had agreed to a price of $800,000, the husband and the wife (“the Ramseys”) were unable to obtain sufficient finance to fund the proposed purchase of the A Pty Ltd assets in that amount. Unable to finance that purchase from their own resources they sought and obtained the agreement of Mr Fields and his wife Ms Fields (“the Fields”) to invest in the venture (“the joint venture”). In broad terms it was proposed that the Fields would invest $400,000 (plus $50,000 for working capital) and would as a result hold a one third interest in the joint venture, whilst the Ramseys would contribute G Pty Ltd assets and $400,000 (plus $100,000 for working capital) and would as a result hold a two thirds interest in the venture.
As will shortly be outlined, there are a host of disputed issues of fact largely as between the husband and wife on the one hand, and Mr Fields and Ms Fields on the other, surrounding the terms of the establishment of the joint venture, its structure and the accounting treatment of certain transactions.
A point of emphasis is that whilst the Ramsey and the Fields utilised accounting and legal advice over the period during which the joint venture was formulated, no concluded written agreement was ever entered into between the relevant parties expressly and clearly regulating their rights with respect to the joint venture from its outset. There is now a vast gulf between their respective versions as to what was actually agreed upon from the outset of the joint venture and in respect of relevant events thereafter.
Resolution of those disputed issues of fact, in the context of an absence of any relevant written agreement, depends upon assessing the evidence of the principal witnesses, in the context of such contemporaneous documents as exist. Resort must be had to such relevant contemporaneous documents as exist, as well as inherent probabilities, to provide important context to the assessment of the evidence and the findings to be made.
In approaching the resolution of disputed issues of fact it is necessary to apply the principle that a party asserting a fact or state of things bears the onus of proof. As Bowen LJ long ago observed in Abrath v North Eastern Railway Co:[6]
Wherever a person asserts affirmatively as part of his case that a certain state of facts is present or is absent … that is an averment which he is bound to prove positively.
[6](1883) 11 QBD 440 at 457.
SUMMARY OF CENTRAL EVENTS
The following summary of central events, incorporating findings of fact in relation to some of them, provides the context in which the disputed issues of fact surrounding the joint venture arise.
On 28 December 2013, subsequent to the husband having established with Mr H a price of $800,000 for the A Pty Ltd assets, and following the realisation by the Ramsey that they could not fund this purchase from their own resources, the Ramsey met with the Fields about the proposed joint venture. It was at that meeting, or at least soon thereafter, that the Ramsey provided to the Fields relevant financial figures with respect to the A Pty Ltd assets and in particular the S Corporation contract.
I find it more likely than not that it was either at that meeting on 28 December 2013, or at least prior to a subsequent meeting with accountants Mr R and Mr T on 16 January 2014, that an agreement at least in principle was reached as between the Ramsey and the Fields that the Fields would contribute $400,000 towards the joint venture in order to acquire a one third interest in it, whilst the Ramsey would contribute $400,000 plus the G Pty Ltd assets for a two thirds interest.
I base that finding on the combined effect of, first, the wife’s affidavit evidence that it was on or around 28 December 2013 that the meeting took place and that the Ramsey showed the Fields the figures for the relevant business. The wife further deposes that the Fields agreed to “buy in” to a one third share of “the S Corporation Business for $400,000”.[7] Second, each of Ms Fields[8] and Mr Fields[9] confirm the substance of the proposal by reference to relevant financial statements being provided to them. Next, is paragraph 60 of the husband’s trial affidavit filed on 21 May 2020. Whilst I do not accept, for reasons which will be further discussed, the husband’s contentions to the effect that the offer to the Fields was in relation to the existing business/shares of G Pty Ltd, it is clear on the affidavit evidence of the husband that the discussion and agreement about the Fields’ involvement predated the 16 January 2014 meeting which will be referred to shortly. Further, Mr R confirms that he was told by the husband on 8 January 2014 of the “agreement” for Mr Fields and Ms Fields to contribute $400,000 for one third of the business.[10] Mr R recorded a file note of that date which is annexed to his affidavit.[11]
[7] Affidavit of the wife filed on 15 June 2020, paragraph 115.
[8] Affidavit of Ms Fields filed on 26 June 2020, paragraphs 6 and 7.
[9] Affidavit of Mr Fields filed on 1 July 2020, paragraphs 7–10.
[10] Affidavit of Mr R filed on 30 June 2020, paragraph 18(g).
[11] Affidavit of Mr R filed on 30 June 2020, Annexure “AS-7”.
By the same process of reasoning I find that the meeting on 16 January 2014 with the accountants Mr R and Mr T at their offices attended by the Fields and the Ramsey, was a meeting to discuss not so much whether any agreement could be reached but rather was a discussion about proposed structuring giving effect to an agreement in principle already reached.
I make these findings to give focus to the feature that it would seem more likely than not that all relevant parties, up until seeking accounting advice, saw the investment of funds by each family as a contribution or investment of equity. At the point of the agreement in principle being reached, there had been no discussion or suggestion raised that the parties would be advancing funds by way of a loan. As will be discussed, the concept of loan was introduced by the accountants advising the parties as to the methodology to be adopted in structuring the joint venture.
On 16 January 2014 a meeting with the husband and wife’s accountants took place, attended by the Ramsey and the Fields. Mr R, the accountant, confirms in his affidavit that the structuring of the joint venture which was “discussed” at that meeting was as follows:
(a)A new company would be established called B Pty Ltd;
(b)The ownership of the new company would be two thirds Ramsey family and one third Fields family;
(c)The proposed structure would be two discretionary trusts as unitholders in B Trust (a unit trust with a corporate trustee);
(d)That the units would not be capitalised (that is, the Ramsey family would pay $60 and the Fields family would pay $30);
(e)That the assets in G Pty Ltd would be initially licensed to the new company B Pty Ltd and then “moved” from G Pty Ltd to the new company;
(f)
That each family would contribute $400,000 in order to purchase the
A Pty Ltd assets;
(g)That to allow flexibility and tax efficiency on return investment, the majority of funds contributed would be recognised as a loan from the respective unitholders.[12]
[12] Affidavit of Mr R filed on 30 June 2020, paragraph 18(h).
As Mr R outlines in his affidavit there were a number of permutations on proposed structuring following the meeting of 16 January 2014 despite some steps being taken, including the creation of relevant discretionary trusts, to put into place the structuring discussed at the meeting. For example, one significant permutation was the advice of the husband to Mr R on 22 January 2014 that he did not want G Pty Ltd to be a unitholder in the new company and instead simply wanted G Pty Ltd to transfer its assets to B Pty Ltd.[13]
[13]Affidavit of Mr R filed on 30 June 2020, paragraph 18(l).
Mr R outlines in his affidavit that by reason of “likely tax implications” he “briefed the tax team at Cooper Grace Ward to assist with advising on the proposed structure”.[14]
[14]Affidavit of Mr R filed on 30 June 2020, paragraph 18(r).
Early on 4 February 2014, Mr R received advice by email from Cooper Grace Ward which was in these relevant terms:[15]
[15]Affidavit of Mr R filed on 30 June 2020, Annexure “R-17”.
…
As discussed, we think moving the business into a new company will reduce duty costs in the long term. It will also give the new entity the flexibility to retain profits or pay dividends.
We suggest the following:
•A new entity is incorporated (V Company).
•Existing clients’ family trust agrees to lend $400k to V Company. The new clients’ family trust agrees to lend $400k to V Company.
•V Company agrees to pay $400k to G Pty Ltd for the business assets.
•The effect is that V Company has a $400k liability to the existing clients’ family trust, a $400k liability to the new clients’ family trust and a $400k liability to G Pty Ltd.
•If possible, the S Corporation contract is assigned directly from the current intermediary to V Company.
•The existing clients’ family trust subscribes for 80 shares in V Company. The new clients’ family trust subscribes for 40 shares in V Company. Profits can then be retained or paid out as a dividends on 1/3 to 2/3 split.
There would need to be a shareholder’s agreement to ensure that the parties cannot call on the respective loans other than in an agreed manner, so that V Company has sufficient working capital to run the business.
…
(As per the original)
Also on 4 February 2014, accountants Mr R and Mr T had a meeting with the husband and Mr Fields. It was during this meeting that the husband advised that he would not proceed with the business structure proposed and that instead he sought to simply change the name of G Pty Ltd to “B Pty Ltd” (obviously a name similar to that of Mr H’s company) as the vehicle in which the joint venture would proceed.[16]
[16]Affidavit of Mr R filed on 30 June 2020, paragraph 8(t).
Whilst the husband contends that S Corporation would not accept the proposed unit trust structure I found his evidence in this respect unconvincing. I find it more likely than not that the husband sought to maintain the existing company albeit with a change of name because of difficulties concerning the transfer of assets held by G Pty Ltd as a result of bank security arrangements as earlier referred to and as also referred to by Mr R in his affidavit.[17]
[17]Affidavit of Mr R filed on 30 June 2020, paragraph 8(u).
On 5 February 2014 Mr R forwarded an email to the husband and Mr Fields with what is described as an updated structure chart for B Pty Ltd reflecting the then recent discussions.[18] That structure chart referred to the use of G Pty Ltd rather than a new entity as being the vehicle for the joint venture. Importantly, the structure chart also records each family advancing $400,000 to the joint venture company by way of loans and the shareholding reflecting one third being held by the Fields family interests and two thirds being held by the Ramsey family interests.
[18]Affidavit of Mr Fields filed on 1 July 2020, Annexure “F-4”.
In my judgment Mr R’s structure chart of 5 February 2014 reflecting that funds be contributed by way of loan rather than equity assumes central importance to the issue between the parties in that respect. This is for several reasons. First, neither the Ramsey nor the Fields apparently expressed any disagreement with that approach in any response made to Mr R’s email. Second, performance by the Fields of their obligation to contribute $450,000 was made in that context. That is, Mr Fields and Ms Fields caused their family company C Pty Ltd to pay into B Pty Ltd’s bank account $100,000 on 10 February 2014 and a further $350,000 on 25 February 2014. They did so on the basis of the structure discussed as is reflected in the structure chart. Third, the Ramseys accepted the receipt by B Pty Ltd of these injections of funds and, as will be discussed, made use of those funds for their personal benefit. Fourth, at the time of making their injection of capital on the understanding it was by way of loan, the Fields reasonably expected that the husband and wife would be making their agreed capital injection on the same basis.
True it is, as will be discussed, that other subsequent documents exchanged between the accountant Mr R and legal advisers suggest that the question of treating the funds as loans or equity remained open, but at least as regards performance by the Fields of their obligation to contribute, it can readily be inferred that their intention in doing so was consistent with the structure chart of 5 February 2014 and the antecedent discussions on 4 February 2014, which contemplated funds being advanced as loans, as was likewise envisaged in the earlier discussion of 16 January 2014.
In terms of exchanges between advisers, Mr R forwarded an email to Cooper Grace Ward on 7 February 2014 summarising the meeting held on 4 February 2014 in this way:[19]
[19]Affidavit of Mr R filed on 30 June 2020, Annexure “R-19”.
…
After meeting with our client we have been advised that they are no longer interested in establishing a unit trust or another entity but retain the existing company G Pty Ltd to acquire the business.
I have summarised the following points resulting from our meeting with Mr Ramsey and Mr Fields (new client) on the 4 February 2014:
•The company known as G Pty Ltd is to be renamed B Pty Ltd.
•All business operations are to be carried out under this existing entity.
•This entity will be the purchaser of the business being acquired
•There are retained earnings in the this entity of $784,688 with a franking account balance of $205,293 as at 30 June 2013
•The new client is to be issued shares to reflect their 1/3 interest in the company i.e. 33 shares. Their shares will be held by the new clients discretionary trust
•The two existing shares issued are currently held under the individual names of Mr Ramsey and Ms Ramsey, with each holding one share.
•New shares are to be issued to the Ramsey Family Trust to effectively create 2/3 ownership interest i.e. 65 shares issued to the Ramsey Family Trust plus the existing shares to equate to 67
•A shareholder agreement will be required to ensure that Mr Ramsey and Ms Ramsey have exclusive rights to the quantum of retained earnings in G Pty Ltd at the before the new agreement takes place
•Both family trust will introduce $400,00 each into G Pty Ltd
What we would like to clarify is the following:
1. Are there any (legal) issues / risks associated in the structure above?
2.Should the funds from each Famiy Trust be represented by their shareholding i.e. capital or should it be introduced by way of debt i.e. loan to G Pty Ltd
3.There are recreational assets in G Pty Ltd equating to over $300,000 that are predominantly used by Mr Ramsey and Ms Ramsey (the cruiser vessel) – should this be included in the shareholders agreement?
4.If shares are issued to the respective family trusts will this create a potential problem under the general value shifting rules?
5.Your recommendation as to the share structure of the allotment to reflect a 1/3 ownership to the new client and the 2/3 ownership to the existing clients.
6. Any other matter which need to be considered
If you could provide your thoughts regarding the above that would be greatly appreciated.
Should you have any questions regarding this email please do not hesitate to contact me.
…
(As per the original)
That email drew the response from the legal advisers on 18 February 2014 in the following relevant terms:[20]
[20]Affidavit of Mr R filed on 30 June 2020, Annexure “R-20”.
…
Thanks for your email below. My apologies for the delay in replying.
As discussed last Thursday, if the business is to be carried on in the existing company, G Pty Ltd, then we suggest the following steps to push the retained profits out to Mr Ramsey and Ms Ramsey as the existing shareholders.
1G Pty Ltd could issue a dividend access share to a new company (V Company) with Mr Ramsey and Ms Ramsey each owning one share.
2.The personal use assets in G Pty Ltd could then be transferred into V Company by way of dividend. The boat and the Division 7A loans could be transferred to satisfy the debt created by the declaration of the dividend. There may be stamp duty on the transfer of the boat.
3.This would reduce the retained earnings in G Pty Ltd. At that time, Mr Ramsey and Ms Ramsey could transfer their existing shares in G Pty Ltd to the Ramsey Family Trust. There should be no value shifting issues in this regard, however CGT event A1 occurs for Mr Ramsey amd Ms Ramsey so there may be a capital gain to deal with.
4.New shares could then be issued to the two family trusts to obtain the required 1/3 to 2/3 split. There is a potential value shifting issue at this stage, however this should be removed if the family trusts pay market value for the issued shares. There is the option to inject the capital into V Company with either equity (purchase of new shares) or debt (family trust lending to V Company). There will be different tax outcomes depending on how the funds are contributed – let me know if you want to discuss this.
As discussed, the ATO are running a campaign against dividend access shares at present. However, if Mr Ramsey and Ms Ramsey are the only shareholders in V Company, and in the same proportions as in G Pty Ltd, then it is difficult to see how there is any tax benefit that the ATO could attack.
The alternative would be to issue a new class of shares to the family trusts. The rights of the new class of shares would be limited to dividends paid from profits after a certain date. However, this approach won’t fix the issue with the boat and Div 7A loans being held by G Pty Ltd, which is not ideal when unrelated parties want to invest.
Please give me a call if you would like to discuss.
…
(As per the original)
These exchanges of emails show that soon after the meeting of 4 February 2014 the structure of the joint venture to be adopted remained under active discussion at least amongst the relevant professional advisers.
On 5 February 2014 the name of G Pty Ltd was changed to B Pty Ltd.
As earlier noted, on 10 February 2014 the Fields caused their family company C Pty Ltd to transfer $100,000 to the bank account of B Pty Ltd. On 25 February 2014 C Pty Ltd caused a further $350,000 to be transferred to the bank account of B Pty Ltd.
On 19 March 2014 the existing shares in G Pty Ltd/B Pty Ltd were cancelled and new shares were issued in B Pty Ltd to the Fields Family Trust (one third) and to the Ramsey Family Trust (two thirds). The shares issued were not capitalised.
The evidence establishes that the husband and wife caused $311,072.06 of the $450,000 paid to B Pty Ltd by the Fields/C Pty Ltd to be applied to prior incurred liabilities of G Pty Ltd as well as to personal liabilities incurred by the husband and wife either personally or through the company. The evidence also establishes that the Fields were unaware that their contribution would be depleted in this way as they were not told this was to occur.
At the time the Fields made their contribution totalling $450,000 to the joint venture the husband and wife were due to contribute a sum totalling $560,000 to B Pty Ltd comprising $100,000 in working capital, a sum of $60,000 to extinguish the mortgage on the Suburb Q property and $400,000 as their matching contribution to the joint venture.
It was only after the Fields had made their contributions of funds totalling $450,000, on the understanding that the Ramseys would likewise be borrowing funds to make their agreed contribution to the joint venture/B Pty Ltd, that it was discovered that the Ramseys were unable to personally borrow $560,000 to meet their agreed contribution including the working capital they were to provide.
At that point, as Ms Fields explained in her oral evidence,[21] the Fields were already committed (to the joint venture) as Mr Fields had already left his employment to pursue this venture. Ms Fields was confident at the time that the venture would be profitable. As Mr Fields explained in his evidence, the funds the Fields advanced, sourced from the equity in their home, were effectively the Fields’ accumulated life savings.
[21]Transcript 16 July 2020, p.177 lines 35–38.
The inability of the Ramseys to raise the necessary finance personally to make their contribution to B Pty Ltd presented an obviously serious problem as B Pty Ltd would not have the funds to purchase the A Pty Ltd assets, the very objective of the joint venture, in circumstances where, from the Fields’ perspective, they had already performed their agreed obligation and contributed their funds.
There was then a fundamental variation of the agreement. It was agreed that, rather than the Ramseys personally contributing funds, B Pty Ltd would borrow the $560,000 that the husband and wife were supposed to personally contribute, from the NAB directly. I accept that this agreement was reached as between the Ramseys and the Fields on the initial understanding that the husband and wife were to be ultimately responsible for the $560,000 loan obtained by
B Pty Ltd from the NAB. As will be further discussed, that initial understanding did not come to pass.
To enable B Pty Ltd to obtain this loan a personal guarantee had to be provided by each of the husband, the wife, Mr Fields and Ms Fields, and security was given or retained by the NAB over the assets of the husband and wife.
As Mr R points out in his affidavit,[22] and I accept, the revised agreement was favourable to the Ramseys because:
(a)No interest on the NAB loan to B Pty Ltd was allocated to the Ramseys’ loan account;
(b)No interest was paid to the Fields in respect of their contribution;
(c)More than $150,000 of the Fields’ contribution was used to pay already existing G Pty Ltd liabilities and/or personal expenses of the Ramseys and this was not allocated to the Ramseys’ loan account or repaid by the Ramsey;
(d)The Ramseys avoided having to personally make any contribution of either of the previously agreed $400,000 lump sum nor the additional $100,000 agreed to be paid for working capital.
[22]Affidavit of Mr R filed on 30 June 2020, paragraphs 20–22.
Given their contributions the Fields had expected B Pty Ltd to be holding $800,000 in cash to fund the purchase of the A Pty Ltd assets together with $150,000 cash as working capital and for there to be $400,000 worth of G Pty Ltd assets including the unencumbered Suburb Q property owned by G Pty Ltd.
As Mr Fields details in his affidavit,[23] and I accept, the Fields were not advised about the debt situation of G Pty Ltd/B Pty Ltd and at the time of their transfers of funds were unaware that G Pty Ltd/B Pty Ltd had an overdraft that had to be paid. The Fields were not advised that their initial contributions would be used to pay the existing overdraft together with a number of transactions detailed by Mr Fields[24] which depleted the funds held by B Pty Ltd. The husband’s characterisation of these matters as being the product of failure by Mr Fields “to undertake his due diligence” ignores that in the circumstances in which the joint venture came about the Fields ought reasonably have expected a degree of good faith to be operative and it does the husband no credit that he dismisses these matters in the manner he does by attributing fault to Mr Fields.
[23]Affidavit of Mr Fields filed on 1 July 2020, paragraphs 21 and ff.
[24]Affidavit of Mr Fields filed on 1 July 2020, paragraph 27.
It was in that context, namely that $311,072.06 of the $450,000 that the Fields had transferred to B Pty Ltd had already been spent, that the Fields agreed to guarantee the B Pty Ltd loan from the NAB bank of $564,000 and it was also necessary to increase the B Pty Ltd overdraft for it to have sufficient funds to complete the purchase of the A Pty Ltd assets.
The $560,000 loan obtained by B Pty Ltd from the NAB has at all material times been funded by B Pty Ltd rather than by the Ramseys. That is, repayments of the NAB loan of the $560,000 borrowed, plus interest, by B Pty Ltd, notionally for the husband and wife to make their contribution, were made entirely by B Pty Ltd.
The financial records of B Pty Ltd from 2014 and following record the $450,000 advanced by C Pty Ltd as being by way of a loan. As will be discussed, that is now one of the significant issues in the commercial dispute.
The financial records of B Pty Ltd reflect that in terms of remuneration the Ramsey family were paid remuneration or management fees of $200,000 per annum and likewise the Fields family were paid remuneration or management fees of $200,000 per annum. Again, as will be discussed, there is a significant issue about that.
The evidence supports the conclusion that in the years following the acquisition of the A Pty Ltd assets the husband and wife used funds from B Pty Ltd well in excess of net management fees of $200,000 per annum. The accounting evidence, which I accept, supports the conclusion that the husband and wife spent, net of management fees, funds as follows:[25]
[25]Affidavit of Mr R filed on 30 June 2020, paragraph 26.
Financial year Personal spend 2013/2014 $155,375.17 2014/2015 $160,398.90 2015/2016 $231,139.71 2016/2017 $267,202.39 2017/2018 $334,687.37
Reference has already been made to the cruiser owned originally by G Pty Ltd. In March 2015 the husband sought to trade in the cruiser for a larger boat referred to as the “yacht”. The yacht was purchased by B Pty Ltd at a cost of $699,000 funded as follows:
(a)The cruiser was traded in for $209,000;
(b)B Pty Ltd paid out a loan relating to the purchase of the cruiser in the sum of $115,870;
(c)B Pty Ltd funded from its bank account a further $190,000 towards the purchase;
(d)The balance of $300,000 was borrowed by B Pty Ltd from the NAB.
Another significant issue in the case is the husband’s contention that it was originally agreed by the Fields that they/B Pty Ltd would not claim any equity in the boats held in the ownership of B Pty Ltd.
It is part of the case of the Fields, supported by the evidence of the wife, that the husband began to distance himself from the operations of B Pty Ltd and failed to meet his obligations. In the event, on 22 June 2018 the wife and Mr Fields caused the husband to be removed as a director of B Pty Ltd. Again, as will be discussed, there is a significant issue surrounding that removal.
As already noted, the husband and wife had separated in mid 2016. By late 2017 the husband was seeking to have the yacht sold and to have the proceeds of that sale transferred to him as part of his property settlement with the wife.
In the event, on 9 November 2017 a meeting was held at the NAB in relation to the sale of the yacht and the application of the proceeds of sale. The meeting was attended by NAB representatives, the husband, the wife and Mr Fields. It was clear at this meeting that the NAB would require its associated equipment loan for the boat to be paid from the proceeds of the boat’s sale. It is contended by the respondents that it was the NAB’s “preference” for the balance of the proceeds to be paid towards other B Pty Ltd loan facilities. However, an email dated 4 December 2017 from the NAB referring to the 9 November 2017 meeting suggests that it was expressed as more of a requirement, rather than a request, on the part of the NAB that the balance proceeds of sale of the boat be paid to the bank in debt reduction.[26] As will be further discussed it is a matter of dispute between the parties as to the utilisation of the proceeds of sale of the yacht contrary to what the husband says was agreed at the meeting with the NAB.
[26]Affidavit of the husband filed on 21 May 2020, Annexure “H 12”.
It is the case that following the 9 November 2017 meeting with the NAB the husband was seeking to obtain $150,000 of the residual sale proceeds of the yacht to be paid directly to him.[27] Neither the wife nor Mr Fields agreed to these requests.
[27]Exhibit 1.
In the event, the yacht was sold in September 2018 for $570,000. After paying for costs of sale and paying out the associated NAB equipment loan the net sale proceeds of $374,436.08 were initially returned to B Pty Ltd’s accounts.
By reason of the excessive personal spend by the Ramseys earlier referred to, and their inability to repay B Pty Ltd loans made by the company to them by the end of each financial year, the Ramseys were paid a dividend each year to deal with Division 7A of the Income Tax Assessment Act 1936 (Cth) (“Income Tax Assessment Act”). That resulted in a one third shareholding dividend being declared for C Pty Ltd, albeit that the dividend was not actually paid, and credits to the loan account of C Pty Ltd accumulated as a consequence.
Taken from the affidavit of Mr R, the following dividends were declared:[28]
[28]Affidavit of Mr R filed on 30 June 2020, paragraph 34.
Dividend Declared 2015 2016 2017 2018 2019 TOTAL Ramsey Partners $300,132 $204,890 $243,612 $ - $ - $748,634 Fields Partners $149,331 $101,941 $119,988 $ - $ - $371,260
According to the books of account of B Pty Ltd, as at 30 June 2018 C Pty Ltd/J Family Trust (Fields) was owed $422,666.[29] On 27 September 2018 C Pty Ltd called upon the debt owed and $335,786.08 was transferred by B Pty Ltd to C Pty Ltd as a dividend payment from the available proceeds of the sale of the yacht.
[29]Affidavit of Mr R filed on 30 June 2020, paragraph 34.
On 2 November 2018 a directors meeting of B Pty Ltd was held and attended by Mr Fields and the wife. B Pty Ltd’s accountants, Mr R and Mr W, were also in attendance as was the then lawyer for the wife and B Pty Ltd, Mr U of Y Lawyers, and C Pty Ltd’s accountant, Mr Z.
At this meeting it was resolved that there be a share issue to C Pty Ltd in exchange for a capital injection. It was determined that the value of the share price be derived from a then recent valuation obtained from BB Group. Thus it was that on 12 December 2018 C Pty Ltd paid $311,400 for additional shares issued made up of:
(a)$241,400 in cash; and
(b)Reducing the debt owed to C Pty Ltd by B Pty Ltd in the amount of $70,000.
The important consequence of this transaction is that the Fields/C Pty Ltd moved from being a minority shareholder in B Pty Ltd (holding one third of its shares) to being its majority 51 per cent shareholder and, commensurately, the Ramseys/D Pty Ltd moved from being a two thirds shareholder to holding 49 per cent of B Pty Ltd.
ISSUES RAISED FOR DETERMINATION IN COMMERCIAL DISPUTE
At the conclusion of the evidence given at trial on 17 July 2020 and in advance of final oral submissions being received on 25 August 2020, this Court made orders with accompanying notations as to the issues identified to be addressed by the parties in written submissions and to be determined by the Court.
In summary, the issues which crystallised, some of which overlap with one or more of the others, are as follows:
(a)Whether the initial contribution of $400,000 paid by C Pty Ltd to B Pty Ltd in February 2014 was advanced by way of a loan or was paid and received as equity to fund the acquisition of a 33 per cent shareholding in B Pty Ltd;
(b)Whether there was any agreement that the Ramseys were to receive $400,000 by way of annual remuneration, made up of $200,000 payments and $200,000 payments with respect to boat costs, boat expenses and the business loan obtained by B Pty Ltd in the amount of $560,000;
(c)Whether it was agreed that the Fields would acquire no equity or interest in boats owned by B Pty Ltd;
(d)Whether Mr Fields breached his obligations as a director of B Pty Ltd;
(e)Whether the husband breached his obligations as a director of B Pty Ltd prior to his removal;
(f)Whether or not the removal of the husband as a director of B Pty Ltd was valid;
(g)Whether Mr Fields has engaged in conduct that amounts to oppression of D Pty Ltd as a shareholder of B Pty Ltd;
(h)Whether the November 2018 share issue by B Pty Ltd in favour of C Pty Ltd should be set aside pursuant to s 106B of the Act or pursuant to the Corporations Act;
(i)If the initial $400,000 contribution by C Pty Ltd was equity and not a loan, whether C Pty Ltd was entitled to receive payment of $335,786 as a dividend on 27 September 2018;
(j)Whether the $335,786 received in boat sale proceeds in 2018 ought to have been applied towards B Pty Ltd’s NAB debt;
(k)Whether B Pty Ltd’s financial statements and loan accounts accurately reflect the true financial position of B Pty Ltd; and
(l)Whether the B Pty Ltd financial statements and loan accounts accurately reflect the amount of annual remuneration and/or management fees to be paid to the Ramseys and/or D Pty Ltd.
CREDIT ISSUES
Before dealing with each of the above issues, it is necessary for some observations to be made about the credibility of the various witnesses given the importance of credibility when respective versions of the evidence are so diametrically opposed to one another.
I will make some further findings concerning credibility when dealing with specific issues and the following is by way of overview as regards some of the key witnesses.
In the context of making credit findings I am mindful of my unfortunate delay between receiving the evidence at trial in July 2020 (and final submissions received in August 2020) and the delivery of these reasons. I record my unreserved apology to the parties for that delay. Whilst I consider I retain a good recollection of each of the witnesses and their evidence at trial, I have relied upon my contemporaneous notes taken at trial, and have carefully reviewed the trial transcript, in expressing the credit findings contained in these reasons. More generally as to addressing delay, I have read (and re-read) the affidavit evidence and documentary exhibits in conjunction with the trial transcript in finalising these reasons for judgment.
The husband
I regret to have to record that the husband did not impress me as an entirely reliable witness.
In my judgment the husband’s version of the joint venture agreed to, to the effect that the Fields agreed to pay the husband and the wife $400,000 in exchange for one third of their existing shareholding in G Pty Ltd, is inherently implausible and clearly at odds with the versions of all other key witnesses, and with such contemporaneous emails and records of meetings that exist. As the wife pointed out, it was the financials in relation to the A Pty Ltd assets, in particular the S Corporation contract, which attracted the Fields’ interest and willingness to invest. Each of Mr Fields and Ms Fields also emphasised the significance of being shown the financial figures of the A Pty Ltd assets to be purchased, not those of G Pty Ltd. Exhibit 5 in the proceedings is an email written by the wife dated 21 August 2017 in which the wife emphasises the significance of the figures for the A Pty Ltd assets (and not G Pty Ltd) being shown to the Fields at the outset to entice them to participate.
I find that, as was well known to the husband at all material times, the Fields were interested because of the potential profitability of the S Corporation contract. The sale of existing shares held by the husband and wife in G Pty Ltd to the Fields would simply put funds in the hands of the husband and wife, not the company. The husband’s version in this respect is lacking in detail as to how it would be that that would assist the company in the purchase of the A Pty Ltd assets. The husband’s pursuit of this contention is completely at odds with not only the evidence of other central witnesses but with the contemporaneous documents produced by the accountant Mr R surrounding the discussions held at the time including emails and modelling as to the proposed structuring of the joint venture. The husband’s pursuit of this version at trial in the face of all other evidence damages his credit.
Allied to this aspect of the husband’s approach as a witness, it seemed that the husband tended to tailor his evidence depending upon the objective he sought to achieve. For example, in advancing the proposition as to the Ramseys buying shares from the husband and wife in G Pty Ltd, the husband in his affidavit advances the notion that G Pty Ltd’s value was such that a $400,000 purchase for one third of G Pty Ltd was “cheap”.[30] The husband includes the cruiser at a value of $300,000 as part of G Pty Ltd’s assets in support of the contention that the Fields were obtaining good value for their purchase of existing shares in G Pty Ltd from the Ramseys.[31] Leaving aside that the husband, disingenuously in my view, does not there detail the debts that were then existing in relation to G Pty Ltd, and specifically the debt on the boat, in addressing a different topic, that is his case as to ownership of the boat, he advances an “agreement” that the deal involved the Fields agreeing to receive no equity or ownership interest in the boat.[32] The inconsistency between these approaches is obvious.
[30]Affidavit of the husband filed on 21 May 2020, paragraph 63.8.
[31]Affidavit of the husband filed on 21 May 2020, paragraph 63.7.
[32]Affidavit of the husband filed on 21 May 2020, paragraph 83.
A further example, as will be further discussed, is the husband’s holding up as a firm agreement reached at the NAB meeting of 9 November 2017 that all net sale proceeds of the yacht were to be paid to reduce liabilities to the NAB, yet the evidence clearly establishes that, contrary to any such agreement, the husband was agitating to be paid personally part of those sale proceeds.
An example of the husband’s inconsistency is the contrast between his affidavit evidence suggesting that there was no time limit on the completion of the purchase from Mr H, yet in oral evidence admitted to there being time pressure.[33]
[33] Transcript 15 July 2020, p.9 lines 40–45.
I interpolate here that I am comfortably satisfied that at the time of negotiating and entering into the joint venture all parties proceeded on the basis that G Pty Ltd was to be taken as worth $400,000. This explains the structure whereby, with the $800,000 acquisition of the A Pty Ltd assets, the Fields were to receive a one third interest for the contribution of $400,000 and the Ramseys would, with their contemplated injection of $400,000 plus the assets of G Pty Ltd, have a two thirds interest, leaving aside the respective amounts to be injected for working capital.
Returning to credit issues, as will be discussed the husband’s version as to agreed remuneration is unsupported by any contemporaneous note or document, including the various emails and diagrams of the accountants, and is at odds with the versions of all other relevant witnesses including, ultimately, the wife.
In my judgment the husband’s credibility was damaged by his reluctance or obfuscation concerning the expenditure by he and the wife of substantial parts of the initial capital contributed by the Fields at the outset, or the significance of that. To like effect was the husband’s apparent dismissal of the significance to the Fields of the expenditure of part of the funds the Fields contributed on existing personal liabilities incurred by the husband and wife.
I accept the submissions of the respondents to the effect that the husband’s preparedness to attribute fault or blame to the independent accountant Mr R concerning the cancellation of the G Pty Ltd shares and the reissue of shares in G Pty Ltd/B Pty Ltd does him no credit. I consider that the husband’s criticism of Mr R to the effect that Mr R took it upon himself, effectively without instructions, to cancel the existing shareholding in G Pty Ltd and to issue new shareholdings did the husband no credit.[34] I accept Mr R’s evidence that the steps taken to cancel the existing shareholding and reissue shares in accordance with the proportions agreed was consistent with the parties’ agreement at the time as to how the joint venture was to be structured.
[34] Respondents’ written submissions filed on 21 August 2020, paragraph 4.3.
Other aspects of the husband’s credit will be addressed in dealing with the issues to be discussed but the point is that a cautious approach must be taken to the husband’s evidence.
The wife
It is obvious that through much of the history of this litigation the wife aligned herself to Mr Fields in opposition to the husband in the context of her martial separation and property settlement dispute with the husband. A prime example of that is the wife joining with Mr Fields in acting to remove the husband as a director of B Pty Ltd. Another is her participation in the steps taken to cause the issue of further shareholding in B Pty Ltd to C Pty Ltd, as will be discussed.
However, by the time of trial the wife had fundamentally altered her position and aligned herself to the husband in opposition to Mr Fields albeit that, as will be discussed, her evidence at trial did not support the husband’s case in some important aspects.
This complete change of allegiance explains, in my judgment, much of the inconsistencies in the wife’s earlier affidavit evidence compared with her trial affidavit, and even inconsistencies between her trial affidavit and oral evidence, and results in the conclusion that a cautious approach must be taken to the wife’s evidence generally.
One stark example of the wife fundamentally departing in her oral evidence at trial from her affidavit evidence on one of the central issues in the case was her oral evidence on the remuneration issue. Even taken specifically to what is contained in her trial affidavit by counsel for the husband during cross-examination the wife did not adhere to her affidavit version, as evidenced in the following exchange:[35]
[35] Transcript 15 July 2020, p.76 lines 11–22.
[COUNSEL FOR THE HUSBAND]: So in your affidavit, you say:
I agree with [the husband] that the intention for accessing funds from B Pty Ltd was that, firstly, the Ramseys would receive a wage of one-third. The Fields family would receive a wage or dividend of one-third. The Ramsey family would also receive funds, being those funds paid by B Pty Ltd for above expenses –
and that’s a reference to the boat and the CC loans –
as its other one-third.
Do you remember saying that in your affidavit?
[THE WIFE]: No.
[COUNSEL FOR THE HUSBAND]: Okay. Do you remember those conversations when you were with the accountants?
[THE WIFE]: No.
(As per the original)
The wife gave evidence that she suffers from anxiety which can give her difficulties with memory.[36] That difficulty produced the need for an early adjournment on the first day that the wife gave her evidence.[37] However problems with memory did not explain, in my assessment, the many fundamental inconsistencies in the positive evidence the wife gave which was at odds with the husband’s evidence.
[36] Transcript 15 July 2020, p.76 lines 36–38.
[37] Transcript 15 July 2020, p.81–82.
One fundamental concern about the wife’s affidavit evidence is the extent to which others have influenced the content, particularly of earlier affidavits, rather than this being the unpolluted evidence of the wife herself. One example is the detail in her affidavit concerning structures such as trusts, yet her acknowledgement in oral evidence confirming that she really had no understanding of such structures. In my judgment an extremely cautious approach needs to be taken to the wife’s affidavit evidence where there is any conflict or inconsistency in that evidence and the wife’s oral evidence under cross-examination. As to the wife’s oral evidence, I had the impression that the wife was generally doing her best to give frank and truthful evidence and I consider her oral evidence to be generally reliable.
By the conclusion of her oral evidence the wife agreed that her affidavits ought be read on the basis that where they relate to matters concerning the marriage that is information the wife is able to provide from her own knowledge, but where her affidavit evidence deals with structuring of the joint venture and the purchase of shares and the like, the wife has relied upon others to supply that information so that she might put it in her affidavit. “Others” in this context includes Mr Fields, the lawyers for the company, the lawyers for Mr Fields and accountants.[38]
[38] Transcript 16 July 2020, p.111 lines 34–45.
It should not be taken from the foregoing that all of the wife’s affidavit evidence is to be rejected. Rather that a cautious approach must be taken to the assessment of that evidence, given in particular the wife’s changes of allegiance, and predominating the wife’s oral evidence where there is any inconsistency between the two.
Mr Fields and Ms Fields
The husband’s counsel mounted a concerted attack on Mr Fields during his cross-examination concerning the manner in which Mr Fields issued invoices to customers of B Pty Ltd.[39] To the extent that this is relied upon as a challenge to Mr Fields’s credibility more generally it is convenient to deal with that topic.
[39] Transcript 16 July 2020, p.115 and ff.
It is submitted that by keeping a second set of invoices for B Pty Ltd a “secret”, and by failing to make disclosure of these invoices, Mr Fields deprived the husband and the Court expert of the chance to satisfy themselves that the income received by B Pty Ltd for the period of time considered by the expert was in fact accurate.
Exhibit 7 comprises copies of several issued invoices. It was suggested to Mr Fields in
cross-examination that with respect to one of these invoices in particular the payment advice it contains directed the customer to make payment to Mr Fields personally.[40] Mr Fields rejected that suggestion. It is clear from the invoice itself that the payment details it contains are the bank details of B Pty Ltd. That is, that the invoice itself directs that payment be made to the account of B Pty Ltd. I accept that the reference on the invoice to Mr Fields is simply that he was the personal contact within B Pty Ltd. I further accept Mr Fields’s evidence overall to the effect that there was no compromise to data recorded in the company’s Xero accounting system, irrespective of any identified inaccuracies in the transcription from his template system to the Xero system.[41]
[40] Transcript 16 July 2020, p.122 lines 20–22.
[41] Transcript 16 July 2020, p.120 lines 24–29.
It is further submitted that this Court could find that Mr Fields has maintained an alternate set of invoices, produced by him on his own computer rather than through the company accounting package, with a view to benefiting himself in a number of ways including:
(a)To control the way in which the company reports income received and specifically to reduce the reported income received by the company to suit the objectives of Mr Fields in relation to these proceedings; and
(b)To deprive any of the other directors or any of the experts engaged throughout these proceedings to have access to the true state of invoices issued by the company.
With respect to these submissions, I did not consider at the time of Mr Fields’s
cross-examination that there was any substance to the attack mounted in this respect. Undoubtedly, as Mr Fields readily conceded in cross-examination, there were some irregularities in the invoices that he caused to issue from his template, but in my judgment cross-examination demonstrated no more than that these amounted to some relatively minor transposition errors in relation to the carrying of data from his template invoices to the actual invoicing system of the company. Cross-examination did not, in my judgment, produce any evidence anywhere near sufficient to support such serious findings as were contended for in respect of this issue, and I decline to make them.
I do not find any substance in the other challenges mounted by the husband and/or wife directed to the credibility of Mr Fields. In my assessment, save in respect of one matter, Mr Fields presented as a witness committed to providing honest and truthful evidence and I did not find anything in his presentation as a witness to give cause for hesitation in accepting his reliability generally. The exception is, as will be further discussed, Mr Fields’s evidence concerning the November 2018 issue of additional shares in B Pty Ltd to C Pty Ltd.
Ms Fields presented as a reliable witness with a commitment to giving truthful evidence. There was nothing put to her in cross-examination as would give pause to an assessment of her as a reliable witness.
Overall, then, my assessment is that the evidence of Mr Fields and Ms Fields generally is more reliable and is to be preferred to that of the husband and the wife respectively where there are any significant diversions between the two, save in respect of the qualification upon Mr Fields’s evidence referred to.
Mr R
In the course of her evidence the wife rejected propositions to the effect that she was unable to “stand up to” Mr Fields or did whatever he asked of her. The wife resisted counsel for the husband’s attempts in this respect as evidenced in the following exchanges:[97]
[97]Transcript 16 July 2020, p.90 lines 10–12 and p.91 lines 1–10.
[COUNSEL FOR THE HUSBAND]: You didn’t feel like you could stand up to Mr Fields?
[THE WIFE]: He wasn’t threatening at all. I just – like, Mr Fields said it’s pretty much the best thing to do for the company. I said, “Okay.”
…
[COUNSEL FOR THE HUSBAND]: You just did what Mr Fields told you to do?
[THE WIFE]: And Mr U.
[COUNSEL FOR THE HUSBAND]: And, for his Honour’s benefit, Mr U was the solicitor from Y Lawyers?
[THE WIFE]: Elements.
[COUNSEL FOR THE HUSBAND]: Who was acting for the company but also for yourself?
[THE WIFE]: Mmm.
[COUNSEL FOR THE HUSBAND]: As organised by Mr Fields?
[THE WIFE]: Mmm.
Moreover, the wife identified in her evidence that she did not rely solely upon Mr Fields but she relied also upon the legal advice of Mr U, the lawyer then acting for her in the proceedings as well as acting for the company, and of course the meeting of 2 November 2018 was also attended by their accountants Mr R and Mr W with whom the wife had dealt.
With these things noted, with all due respect to the wife, she does not present as having any sophisticated degree of understanding of legal or commercial issues generally and it is clear that throughout these events she placed some considerable trust and reliance upon Mr Fields. In my judgment the wife’s refusal to agree with the propositions put to her as referred to made her evidence about Mr Fields intimating a “transfer back” of shares all the more convincing.
I accept the wife’s evidence that it was never explained to her, by anyone, that the transaction would result in D Pty Ltd losing its majority shareholding in B Pty Ltd with the consequent dilution of D Pty Ltd’s voting power and voting rights. I further accept the wife’s evidence that it was never explained to her by the accountants or otherwise the concept of a discount applying to the value of a minority shareholding interest in a private company.
The further troubling feature of the context in which the share issue occurred is that no notice was given to the husband of its occurrence. Legal formalities aside, the reality of the subject joint venture was that the company B Pty Ltd was essentially the vehicle utilised by the four individuals involved (the Fields and the Ramseys) to operate a quasi-partnership. There appears an inherent unfairness to one of those quasi-partners – the husband – that this significant transaction occurred without any advance notice to the husband or any opportunity for him to participate in any discussion. It was obviously known to Mr Fields and the wife that the wife had no specific authority from the husband, there having been no meeting or resolution of D Pty Ltd for example, for her to agree to the share issue on the husband’s behalf.
Chapter 2D of the Corporations Act contains the statutory duties and powers of directors and officers of a corporation.
Section 180 of the Corporations Act requires directors to exercise their powers with care and diligence.
Section 181(1) of the Corporations Act provides as follows:
(1)A director or other officer of a corporation must exercise their powers and discharge their duties:
(a) in good faith in the best interests of the corporation; and
(b) for a proper purpose.
Note 1: This subsection is a civil penalty provision (see section 1317E).
Note 2: Section 187 deals with the situation of directors of wholly‑owned subsidiaries.
Section 182(1) of the Corporations Act provides as follows:
(1)A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Note: This subsection is a civil penalty provision (see section 1317E).
Sections 232 to 235 deal with the oppression in the conduct of affairs of a corporation.
Section 232 is expressed in the following terms:
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.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
Note: For affairs, see section 53.
Section 234 of the Corporations Act provides as to the persons who have standing to make an application under s 232 of the Corporations Act. This question was not addressed by any party in submissions. Obviously D Pty Ltd, as a member of B Pty Ltd, has standing to make an application however, as currently constituted, D Pty Ltd is not a party to these proceedings. It appears that the husband and the wife, either individually or collectively, do not have standing under s 234 of the Corporations Act in their own right to bring an application. However, obviously enough the husband and the wife are the controlling minds and wills of D Pty Ltd and they have advanced the application purportedly on behalf of D Pty Ltd. The respondents have taken no point about standing or the fact that D Pty Ltd is not in fact a party to the proceedings. However, in the circumstances the respondents could have no objection to any necessary joinder of D Pty Ltd as a party to these proceedings.
The following principles can be distilled from authority as those to be applied in assessing whether relevant conduct transgresses s 232:
(a)What is required is proof of oppression or proof of unfairness: proof of mere prejudice to or discrimination against a member is insufficient to attract the court’s jurisdiction to intervene.[98]
[98]Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 472 (“Wayde”).
(b)Section 232 is directed to conduct which is unjustly detrimental to any member of the company whether such conduct comprises a single instance or courses of conduct amounting to unjust detriment to the interests of a member or members of the company.[99]
[99]Thomas v H.W. Thomas Ltd [1984] NZLR 686 (“Thomas v H.W. Thomas Ltd”), referred to by Brennan J in Wayde at 471.
(c)The test of unfairness requires an objective assessment of the conduct in question in the particular context in which it occurs. The question is whether objectively in the eyes of the commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair. As the test is objective, whether or not the conduct is oppressive will not depend on the motives for what was done. It is the effect of the acts that is material.[100]
[100]Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62 at [9] citing Wayde at 472–473; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 (“Campbell v Backoffice Investments”) at [176].
(d)Context informs what is fair or unfair in any particular case: thus, it is relevant to have regard to matters such as the history of the company, its structure and its members’ reasonable expectations so as to determine whether any detriment occasioned to an applicant’s interest, arising from the acts or conduct of the company, is justifiable or not.[101]
(e)Allied to the above, the statutory remedy is frequently invoked where the company is in effect an incorporated partnership and the “partners” are shareholders, directors and employees of the company. A dispute between those partners can lead to one of them being excluded. The Court may find that the exclusion of one party from the management of the company is unfair even though the company’s constitution has been complied with.[102]
(f)Hogg v Dymock[103] is an illustration that where the common understanding of parties when a company is formed that all shareholders would participate in the day to day management of the company, it can amount to oppressive and unfair conduct for some shareholders to use their majority position on the board of directors to exclude another shareholder from management of the company.
(g)In contrast, relief may be refused if irreconcilable differences have developed between the parties that make it impossible for the expected level of participation in management to continue, and it can be concluded that the person excluded from management of the company’s affairs is responsible for the breakdown of the relationship.[104]
(h)The individual alleged particulars need to be considered in totality (and not in isolation) and in the context of the particular relationship the question is whether there has been, objectively viewed, “commercial unfairness” (being conduct that is so unfair that reasonable directors would have thought it unfair) to the party alleging oppression.
(i)The objective test requires the court determining whether reasonable directors possessing the skill, knowledge or acumen possessed by the directors and bearing 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.[105]
(j)The loss of confidence by a member of a company about the manner in which the company’s affairs are being conducted or dissatisfaction or disapproval of the conduct of the company’s affairs (on whatever grounds and even if well founded) is insufficient to amount to oppression.[106]
(k)The fact that all members of the company are treated equally does not mandate a conclusion that there has not been unfairness.[107]
(l)An applicant’s conduct may be relevant in that it might render even prejudicial conduct by a respondent not unfair and it may affect the assessment of relief.[108]
(m)Where matters of business judgment are concerned courts have been reluctant to intervene unless an applicant is able to establish a lack of good faith or that no reasonable board could have arrived at the decision made.
[101]Latimer Holdings Ltd v SEA Holdings New Zealand Ltd [2005] 2 NZLR 328 (“Latimer”) citing Thomas v H.W. Thomas Ltd.
[102]Australian Securities Commission v Multiple Sclerosis Society of Tasmania (1993) 10 ACSR 489; Yazbek v Aldora Holdings Pty Ltd (2003) 45 ACSR 53; Vigliaroni v CPS Investment Holdings Pty Ltd (2009) 74 ACSR 282; Campbell v Backoffice Investments.
[103](1993) 11 ACSR 14.
[104]Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343.
[105]Wayde at 472–473.
[106]Re Five Minute Carwash Service Ltd (1966) 1 WLR 745 at 751; Latimer.
[107]Re Tivoli Freeholds Ltd [1972] VR 445 at 453.
[108]Re London School of Electronics Ltd [1986] Ch 211 at 222 (“Re London School of Electronics”).
PRINCIPLES AS TO RELIEF FOR OPPRESSION
Authority[109] also identifies the following principles to be applied in exercising a discretion as to the appropriate relief to be awarded in response to any oppression so found:
(a)An event or agreement reached that makes a particular order unnecessary to bring the oppression to an end.[110]
(b)The object of the power prescribed in s 232 and s 233 of the Corporations Act is to identify a remedy which is fair to overcome the oppression found in the case.
(c)The power to order the compulsory acquisition of shares is not hedged about by limitations.
(d)The court’s discretion to determine the price of the shares ordered to be purchased from an oppressed shareholder is wide and absolute and the exercise of the same in any case is to be informed by the justice and fairness of the particular circumstances in that case.
(e)The requirement imposed on the court is to fix a price for the shares of an oppressed shareholder that represents a fair value in all the circumstances of the particular case.
(f)The only “rule” in exercising the discretion to determine the date at which it is appropriate to value shares is that there is no rule – the exercise of the wide discretion reposed in the court simply requires that consideration be given to the relevant circumstances in each particular case, that the discretion be exercised judicially and that the overriding requirement is that the date of valuation should be fair on the facts of the particular case.
(g)It is generally inappropriate to apply any discount to the value of the shares of a minority shareholding where the shares are ordered to be purchased as a result of oppression of the shareholder.[111]
[109]Re London School of Electronics Ltd; Re Bodaibo Pty Ltd (1992) 6 ACSR 509; Foody v Horewood and Ors (2007) 62 ACSR 576; Campbell v Backoffice Investments; Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd (No. 3) (2011) 285 ALR 297; Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310.
[110]Campbell v Backoffice Investments at [68]–[73]; [179]–[180].
[111]Dynasty Pty Ltd v Coombs (1995) 59 FCR 122; Re D G Brims & Sons Pty Ltd (1995) 16 ACSR 559; Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882 at 906-907; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 61 ACSR 395.
DISPOSITION
In my judgment the November 2018 share issue to C Pty Ltd constituted oppression of D Pty Ltd within the meaning of s 232 of the Corporations Act.
It was unjustly detrimental to the interests of D Pty Ltd for that member of B Pty Ltd to be relegated to a minority shareholder position within B Pty Ltd given the history to that point.
In my judgment the conduct surrounding the share issue involved unfairness in the sense that reasonable directors of B Pty Ltd would not have considered a decision resulting in D Pty Ltd holding a minority interest a fair decision. That is particularly so having regard to the history of B Pty Ltd and the history of D Pty Ltd as its majority shareholder. Moreover, in what is essentially a quasi-partnership, it was inherently unfair for these steps to be taken without any reference at all to the husband, one of the four quasi-partners from the outset of the joint venture.
As already noted, the object of the power prescribed in s 232 and s 233 of the Corporations Act is to identify a remedy which is fair to overcome the oppression found.
There obviously exists a deep dispute between the quasi-partners here, Mr Fields and Ms Fields on the one hand and the husband and the wife on the other. There is obviously a further divide as between the husband and the wife. Equally obvious then is that the best solution which would see the continuation of the B Pty Ltd business is for one side to buy out the other’s interest at a fair value.
There is no realistic prospect of the husband and wife, either individually or collectively via D Pty Ltd, having the capacity to buy out the Fields’/C Pty Ltd’s interests at fair value. Moreover, against the chronology that the Fields, rather than the Ramseys, have been the prime contributors to B Pty Ltd over recent years, it would not be an appropriate remedy to force their exit, contrary to their own wishes.
The only practical option appears to be for orders to be made to facilitate a buy-out of the Ramseys’/D Pty Ltd’s interests by the Fields/C Pty Ltd in B Pty Ltd at current fair value.
The alternative is to make an order for the winding up of B Pty Ltd given the breakdown of the relationships between the quasi-partners to the joint venture.
The parties ought be afforded an opportunity to address these options in the light of the findings made.
Whilst the valuation reports concerning B Pty Ltd of the single expert accountant Mr K are in evidence, I consider that the parties ought be afforded the opportunity to consider and make further submissions to the Court, in the light of the findings made, concerning the orders to be made to give effect to these findings. This would include submissions as to the fair value of D Pty Ltd’s shares, if that option is to be pursued, and the alternative of orders being made for the winding up of B Pty Ltd.
I record, with respect to s 106B of the Act, that in my judgment even if the November 2018 share issue were considered a “disposition” within the meaning of that section, it would not be an appropriate exercise of discretion to set aside the share issue, given that on the evidence of Mr W and Mr K, B Pty Ltd would not have the capacity to repay C Pty Ltd. In my judgment it would not be fair or appropriate as an exercise of discretion, in the circumstances of this case including the time that has elapsed since 2018, to artificially return C Pty Ltd to a position as a creditor of B Pty Ltd in respect of the amount paid for the share issue. Moreover, it would obviously be damaging to the interests of B Pty Ltd for capital of the company to be reduced in this manner.
In my judgment, on the findings made and for the reasons discussed, other than the relief to be granted for the oppression found, the husband and wife do not establish any case for relief against the respondents otherwise, whether pursuant to the Corporations Act or pursuant to the Act.
I am mindful that the parties have made applications for costs. The opportunity to be afforded to the parties to address further submissions as to the orders to be made to give effect to the findings recorded in these reasons will also afford the opportunity to the parties to consider any costs applications consequent upon the outcome in the light of the conclusions reached. Obviously, without pre-empting in any way any questions of costs, the determination of costs of the proceedings may have a material impact upon the property settlement orders to be made pursuant to s 79 of the Act as between the husband and the wife.
SECTION 79 PROCEEDINGS
As already noted, at the outset of, and during, the trial the husband and wife were in firm agreement upon a 50 per cent/50 per cent division of their property interests. The difficulty, given the commercial issues in dispute, was in identifying those property interests. Perhaps ambitiously the parties entered into consent orders on 17 July 2020 which provided for the parties to provide to the Court, inter alia, an order reflecting their agreement.
In the event no such orders were provided. That is for the obvious reason that the difficulty remains that until the ultimate outcome of the commercial dispute is known, determination of a 50 per cent/50 per cent division of the property interests of the husband and the wife and determination of the just and equitable orders to be made to give effect to such division is simply not feasible.
There will thus be the opportunity to the husband and wife to address the Court at the further hearing contemplated as to the further directions to be made with respect to the s 79 proceedings.
I certify that the preceding two hundred and fifty-seven (257) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kent. Associate:
Dated: 18 June 2021
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