Re Hollen Australia Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

No. 9049 of 2007

IN THE MATTER OF HOLLEN AUSTRALIA PTY LTD (ACN 004 380 572)

REGINALD STANLEY ORMOND HOLT and WILMA MARY ANNE HOLT	Plaintiffs
v
GEOFFREY GORDON BURNSIDE and HOLLEN AUSTRALIA PTY LTD	Defendants

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	26 February & 2 March 2009
DATE OF JUDGMENT:	23 March 2009
CASE MAY BE CITED AS:	Re Hollen Australia Pty Ltd
MEDIUM NEUTRAL CITATION:	[2009] VSC 95

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CORPORATIONS – Oppression proceedings under s 232 of the Corporations Act 2001 – Conduct oppressive to the plaintiffs established – Breach of a director’s duties not necessarily oppressive conduct – Commercial unfairness central to making out oppressive conduct - Considerations in granting relief under s 233 of the Act – Objectives of relief - Relief intended to compensate plaintiffs for consequences of oppressive conduct – Whether winding up appropriate remedy – Winding up of solvent company to be avoided if possible – Defendant ordered to purchase plaintiffs’ shares – ss 232, 233 and 436 of the Corporations Act 2001.

PRACTICE AND PROCEDURE - Proceedings not otherwise within jurisdiction of a Master referred by Judge of the Trial Division to a Master under r 16 of the Supreme Court (Corporations) Rules 2003 – Associate Judge (formerly the Master to whom proceeding referred) determines proceedings - Plaintiffs seek leave to appeal to a Judge of the Trial Division – Leave at discretion of Judge of the Trial Division – Consideration of what constitutes decision possibly affected by error under r 16.5(3) of the Supreme Court (Corporations) Rules 2003 – Consideration of matters relevant to exercise of discretion to grant leave to appeal - Leave granted to plaintiffs to appeal - Whether appeal lies to a Judge of the Trial Division or the Court of Appeal – Appeal by a re-hearing de novo of whole of proceeding – rr 16.5(1),(2) and (3) of the Supreme Court (Corporations) Rules 2003; rr 77.06 and 77.07 of Supreme Court (General Civil Procedure) Rules 2005 and s 17(3) of Supreme Court Act 1986.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	J Langmead SC with K. Baker	Challenge Legal
For the Defendant	I. Upjohn	D E Jones & Associates

Aqua-Max Pty Ltd v MT Associates Pty Ltd (2001) 3 VR 473

Australian Securities Commission v Lucas (1992) 36 FCR 165

Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614

Re Bodaibo Pty Ltd (1992) 6 ACSR 509

Re Bright Pine Mills Pty Ltd [1969] VR 1002

Campbell v BackOffice Investments Pty Ltd (2008) 66 ACSR 359

Chan v Zacharia (1984) 154 CLR 178

Re a Company (1986) 2 BCC 99

Re Cumana Ltd [1986] BCLC 430

Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd (1977) 13 ALR 561

Dwyer v Calco Timbers Pty Ltd (2008) 234 CLR 124

Elder v Elder & Watson [1952] SC 49

Foody v Horewood (2003) VSC 347

Fox v Percy (2003) 214 CLR 118

French v Smith [2004] VSCA 207

GT Corporation Pty Ltd v Amare Safety Pty Ltd (No.3) [2008] VSC 296

Herbert v Herbert [2005] NSWSC 1034

John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63

Jones v Dunkel (1959) 101 CLR 298

Kelso v Tatiara (2007) 17 VR 592

Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606

Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478

Morgan v 45 Flers Avenue (1986) 10 ACLR 692

Phipps v Boardman [1967] 2 AC 46

Re D G Brims & Sons Pty Ltd (1995) 16 ACSR 559

Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588

Reid v Bagot Well Pastoral Co Pty Ltd; Shannon v Reid (1992) 9 ACSR 129

Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882

Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549

Scottish Co-Operative Wholesale Society v Meyer [1958] 3 All ER 66

Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331

Niemann v Electronic Industries Limited [1978] VR 431

Rankine v Rankine (1995) 18 ACSR 725

Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134

Shamsallah Holdings Pty Ltd v CBD Refrigeration and Airconditioning Services Pty Ltd (2001) 19 ACLC 517

Shum Yip v Chatswood Investment (2002) 40 ACSR 619

Re Spargos Mining NL (1990) 3 ACSR 1

Wallington v Kokotovich Constructions Pty Ltd (1993) 11 ACSR 759

Warman International Ltdv Dwyer (1995) 182 CLR 544

Warren v Coombes (1979) 142 CLR 531

Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459

Weatherall v Satellite Receiving Systems (Aust) Pty Ltd (1999) 30 ACSR 698

TABLE OF CONTENTS

INTRODUCTION.............................................................................................................................. 2

THE NATURE OF THE APPEAL.................................................................................................... 5

LEAVE TO APPEAL.......................................................................................................................... 8

BACKGROUND............................................................................................................................... 11

CREDIT.............................................................................................................................................. 17

PROFITING AT THE EXPENSE OF THE COMPANY............................................................ 20

EXCESSIVE REMUNERATION................................................................................................... 21

NON PAYMENT OF DIVIDENDS.............................................................................................. 22

REMEDIES FOR OPPRESSION................................................................................................... 23

SUPERANNUATION PAYMENTS............................................................................................. 28

THE PRECISE GROUND.............................................................................................................. 33

PAYMENT OF DIVIDENDS......................................................................................................... 37

COSTS................................................................................................................................................ 41

THE ORDER TO WIND-UP.......................................................................................................... 44

LEAVE GRANTED TO APPEAL AND HEARD INSTANTER.............................................. 45

THE RE-HEARING DE NOVO..................................................................................................... 46

THE SUPERANNUATION GROUND 1.................................................................................... 47

THE PRECISE GROUND - 2......................................................................................................... 47

THE DIVIDEND GROUND - 3..................................................................................................... 47

THE ECO PLOW GROUND - 4..................................................................................................... 47

THE TB BLADES GROUND - 5.................................................................................................... 48

THE TURF ENGINEERING GROUND - 6................................................................................. 48

THE DIRECTORS’ LOANS GROUND - 7................................................................................. 49

THE SHED GROUND - 8............................................................................................................... 49

THE HONDA MOTOR VEHICLE GROUND - 9...................................................................... 50

OTHER ALLEGED INSTANCES OF OPPRESSION............................................................... 50

WHAT ORDERS SHOULD BE MADE ON THE RE-HEARING.......................................... 50

VALUATION OF BARRY JAMISON.......................................................................................... 52

HIS HONOUR:

INTRODUCTION

Reginald Holt and Jeffrey Burnside are the sole directors of Hollen Australia Pty Ltd. Mr Holt and his wife Wilma Holt own half the shares in Hollen and Mr Burnside and Cheryl Burnside the other half. Hollen carries on two business trading under the names of Golf and Bowling Machinery (Vic) and Turf Engineering (Vic) respectively. Golf and Bowling operates from premises owned by Hollen at Melton and primarily sells, services and repairs turf maintenance equipment, mainly to or for bowls clubs. Turf Engineering operates from premises owned by Mr Burnside at Wedderburn and primarily manufactures turf maintenance equipment and sells such equipment to Golf and Bowls and directly to a business in England known as Greensward.

The two directors have fallen out and cannot agree on the management of the company. In June 2007, Mr Burnside applied against Hollen to have Hollen wound up on just and equitable grounds. In October 2007, Mr and Mrs Holt applied against Mr Burnside and Hollen for, amongst other things, an order that Mr Burnside purchase the shares held by Mr and Mrs Holt in Hollen at a price to be determined by the Court on the grounds that the conduct of Hollen’s affairs by Mr Burnside was contrary to the interests of the members of Hollen as a whole or was oppressive to, and fairly prejudicial to, or unfairly discriminatory against Mr and Mrs Holt in their capacity as members.

Both applications were heard and determined by an Associate Judge of this Court. He found that there had been several instances of conduct oppressive to Mr and Mrs Holt. For ease of reference I will describe all the conduct covered in s 232 as oppressive conduct. The Associate Judge declined to grant the purchase order relief sought by Mr and Mrs Holt in the oppression proceedings but rather made an order that the company be wound up under s 461(k), which s 233(1) permitted him to do. Mr Burnside had sought such an order in any event in the just and equitable proceedings. The Associate Judge also ordered that Mr Burnside pay 70 per cent of Mr and Mrs Holt’s costs of the oppression proceedings. The Judge ordered that Hollen pay Mr Burnside’s costs in the winding up proceedings.

The oppression proceedings were determined by the Associate Judge as in 2007 I ordered the oppression proceeding be referred for hearing to an Associate Judge under the Supreme Court (Corporations) Rules 2003 (the Corporations Rules). At that stage the Associate Judge was a Master but I will refer to him as an Associate Judge hereafter for convenience. On 16 November 2007, I ordered the winding up proceeding be heard at the same time as the oppression proceeding or immediately thereafter.

Before me, Mr and Mrs Holt apply for leave to appeal against the orders of the Associate Judge. Mr and Mrs Holt submit that if leave is granted, I should hear the appeal instanter. Mr Burnside resists the application for leave and submits that if leave is granted the appeal should be heard by the Court of Appeal.

The decision to grant leave to appeal is discretionary. But leave may be granted if the decision of the Associate Judge is arguably affected by error. Mr and Mrs Holt allege that the decision of the Associate Judge was in error in failing to find that the following conduct of Mr Burnside constituted oppressive conduct:

(1) The payment by Mr Burnside to himself of $490,000.00 as superannuation allegedly without the approval of Mr Holt (the superannuation ground);

(2) The establishment by Mr Burnside of Precise Machinery “N” Spares Pty Ltd (Precise) which allegedly conducted business diverted from Hollen without permission or approval of Mr Holt (the Precise ground); and

(3) The refusal by Mr Burnside to allow a dividend to be paid that was allegedly agreed to by Mr Burnside (the dividend ground).

They also allege the Associate Judge erred in the exercise of his discretion on his order for costs and on his order that Hollen be wound up rather than make the orders sought by Mr and Mrs Holt in the oppression proceeding including that Mr Burnside purchase the shares held by Mr and Mrs Holt for $1,300,000.00.

Mr Burnside contends that if leave to appeal is granted to Mr and Mrs Holt, and I have jurisdiction to hear the appeal, the appeal should be a re-hearing de novo. He contends that the Judge hearing the appeal would be required to consider afresh the instances of alleged oppressive misconduct that the Associate Judge found had been made out by Mr and Mrs Holt and which formed the basis of his order. This contention was not disputed by Mr and Mrs Holt.

The oppressive conduct the Associate Judge found may be summarised as:

(4) The diversion of business of Hollen by Mr Burnside to a company Ed Plow Pty Ltd established by Mr Burnside, to his gain and to the loss of Hollen (the Eco Plow ground);

(5) The outsourcing from Hollen by Mr Burnside of business of Hollen to TB Blades Pty Ltd to the gain of Mr Burnside’s son and daughter in law and to the loss of Hollen (the TB Blades ground);

(6) The re-location by Mr Burnside of the Turf Engineering business of Hollen from Hollen’s premises at Melton to Mr Burnside’s property at Wedderburn to the gain of Mr Burnside (the Turf Engineering ground);

(7) The repayment of directors’ loans by Mr Burnside to himself but not to Mr Holt to Mr Holt’s prejudice (the directors’ Loans);

(8) The payment by Mr Burnside out of Hollen’s moneys for the repair of a shed on Mr Burnside’s property to Mr Burnside’s advantage and to Hollen’s loss (payment for Mr Burnside’s shed);

(9) The payment by Mr Burnside out of Hollen’s loan to purchase a Honda motor vehicle to Mr Burnside’s advantage and to Hollen’s loss (the Honda ground).

(10) The exclusion by Mr Burnside of Mr Holt from management.

(11) Mr Burnside’s relations with Greensward.

(12) Mr Burnside’s establishment of an ANZ Bank account without the knowledge or authority of Mr Holt.

In summary, the issues before me are:

(a) Has the decision of the Associate Judge on the oppression complaints, costs and relief given been arguably affected by error?

(b) If so, should I, in my discretion, grant leave to appeal?

(c) If so, should the appeal be heard by a Judge of the Trial Division?

(d) If so, should the appeal be heard instanter?

(e) If so, have Mr and Mrs Holt made out oppressive conduct sufficient to activate the Court’s discretion under s 232?

(f) If so, what orders should I, in my discretion, make under s 233?

For the following reasons, I have found as follows:

(a) That the Associate Judge’s decision was arguably affected by error on the superannuation ground, the Precise ground and the order that the company be wound up: otherwise his decision was not arguably affected by error.

(b) In my discretion, leave to appeal ought to be granted.

(c) The appeal in the nature of a re-hearing de novo should be heard by a Judge of the Trial Division.

(d) The appeal should be heard by me instanter.

(e) Mr and Mrs Holt have established oppressive conduct by Mr Burnside sufficient to activate the Court’s discretion under s 232.

(f) In my discretion, under s 233 I will order that Mr Burnside acquire Mr and Mrs Holt’s shares in Hollen.

THE NATURE OF THE APPEAL

Counsel for Mr Burnside raised a preliminary point that if I granted leave to Mr and Mrs Holt to appeal, the appeal should be heard by the Court of Appeal. I found that if I did grant leave to appeal, I would have jurisdiction to hear the appeal. I gave short reasons and it is appropriate that I repeat those reasons here.

Under r 16.5(2) of the Corporations Rules no order of an Associate Judge made on an application referred to the Associate Judge by a Judge of the Court shall be subject to an appeal except by leave of a Judge of the Court.

Rule 16.5(3) provides:

Without limiting the discretion to grant or refuse leave, leave may be granted if the Judge of the Court is satisfied, whether with or without oral argument, that the decision of the Associate Judge is arguably affected by error.

Rules 16.5(1) provides:

Subject to subrules (2) and (3), an appeal lies from the order of an Associate Judge made under these Rules as though it were an appellable order of an Associate Judge under Chapter I of the Rules of the Supreme Court.

Thus, if leave is granted, an appeal lies as though the order of the Associate Judge were an appellable order of an Associate Judge under Chapter 1 of the Supreme Court Rules.

Section 17(3) of the Supreme Court Act 1986 provides:

Unless otherwise expressly provided by this Act or any other Act or the Rules, an appeal lies to the Trial Division constituted by a Judge of the Court from any determination of the Trial Division constituted by an Associate Judge.

Rule 77.06 of Chapter I of the Supreme Court Rules provides:

(1) Subject to paragraph (2) and Rule 77.07, any person affected by any judgment given or order made by an Associate Judge under any Chapter of the Rules of the Supreme Court may appeal to a Judge of the Court.

Rule 77.07 of Chapter I of the Supreme Court Rules provides:

(1) For the purposes of section 17(3) of the Supreme Court Act 1986, in a proceeding to which any Chapter of the Rules of the Supreme Court (except Chapter V) applies –
(a)an appeal lies to the Court of Appeal from the Trial Division constituted by an Associate Judge in respect of a matter not otherwise within the authority of an Associate Judge which is referred to an Associate Judge by a Judge of the Court; and
(b)if the matter referred to the Associate Judge by a Judge of the Court was a matter of a kind from which an appeal lies from the determination of a Judge of the Court by leave of the Court of Appeal, the appeal from the Trial Division constituted by an Associate Judge shall only be by leave of the Court of Appeal.

At the end of the Rule there is a note as follows:

Chapter V contains its own rules about appeals from an order of an Associate Judge under that Chapter.

Accordingly, the appeal lies from the decision of the Associate Judge to the Trial Division constituted by a Judge. Rule 77.06(7) provides the appeal shall be by re‑hearing de novo.

Counsel for Mr Burnside contended that on their proper construction the Supreme Court Act 1986 and the Supreme Court Rules provided that the appeal from the Associate Judge in the proceedings at issue be heard by the Court of Appeal. He said that if the applicants for leave obtained leave under r 16.5 of the Corporations Rules they then moved to be dealt with by Chapter I of the Supreme Court Rules. He contended the now appellants remained to be dealt with in Chapter I and did not otherwise return to or become subject to Chapter V. He contended that the exception of Chapter V in r 77.07 of Chapter I of the Supreme Court Rules did not apply to this appeal (assuming leave was given) as no longer was the appeal under Chapter V, but rather the appeal was now under Chapter I.

I rejected this argument. In my opinion, such a construction would ignore the plain words of s 17(3) of the Supreme Court Act 1986 which provided that appeals from an Associate Judge lay to the Trial Division constituted by a Judge of the Court “unless otherwise expressly provided by … the Rules”. The exception of Chapter V from r 77.07 does not, in my opinion, constitute an express provision that appeals under Chapter V are excluded from s 17(3) of the Supreme Court Act 1986.

Counsel for Mr Burnside also contended that the Notice to Practitioners in relation to the Commercial Court of 12 December 2008 indicated appeals would be to the Court of Appeal. The Notice said in paragraph 18:

An appeal from the order of a list associate judge upon a trial of a matter referred by a list judge shall be to the Court of Appeal.

The Notice also said, however, that corporation cases will, subject to the provisions of the Notice, be managed generally, according to the practice currently applied for corporation cases.

In my view, the notice has no legislative force and in any event confirms that current practice still applies to corporation cases. I rejected Mr Burnside’s argument.

Accordingly, I found that I had jurisdiction to hear the appeal if leave was given.

LEAVE TO APPEAL

Before going to the facts of the proceeding it is necessary to ascertain the basis upon which I should decide whether or not to grant leave to appeal. Rule 16.5 of the Corporations Rules provides:

(1)Subject to subrules (2) and (3), an appeal lies from the order of an Associate Judge made under these Rules as though it were an appellable order of an Associate Judge under Chapter 1 of the Rules of the Supreme Court.
(2)No order of an Associate Judge made on an application referred to the Associate Judge by a Judge of the Court shall be subject to an appeal except by leave of a Judge of the Court.
(3)Without limiting the discretion to grant or refuse leave, leave may be granted if the Judge of the Court is satisfied, whether with or without oral argument, that the decision of the Associate Judge is arguably affected by error.

There are several points that can be made about this rule. First, the rule recognises that the Judge has a discretion to grant or refuse leave to appeal whether or not the decision of the Associate Judge is arguably affected by error. Secondly, the “error” referred to is not limited to any particular error and therefore could be an error of fact or law or mixed fact and law or in the exercise of a discretion. Thirdly it is not necessary for the applicant to seek leave to establish an error in the Associate Judge’s decision. The rule refers to the Court being satisfied that the decision of the Associate Judge is arguably affected by error and even then the Court has a discretion in any event to grant or refuse leave.

In Secretary to the Department of Premier and Cabinet v Hulls,[1] Phillips JA, with whom Tadgell and Batt JJA agreed, examined relevant considerations that ought to be given to an application for leave to appeal. He limited his comments to leave to appeal on a question of law, but his observations are relevant to applications for leave to appeal generally. He said the applicant must identify a question of law and a question of law which is important to the appeal’s success. He said:

The question of law must be such that, if there is shown to be error in respect of the question, the appellant’s claim to relief will thereby be advanced.[2]

[1][1999] 3 VR 331.

[2]Ibid at 335.

Phillips JA said it was not possible to lay down in advance any standard of satisfaction “for much may depend upon the importance of the question of law to the remedy to be sought.”[3]
[3]Ibid.

Phillips JA said he was attracted to the proposition articulated in Niemann v Electronic Industries Limited[4] that the decision should be “attended by sufficient doubt to justify the grant of leave to appeal.” Phillips JA said:

That seems to me to leave open what is ”sufficient”, while at the same time confirming that there must be doubt ”sufficient … to justify the grant of leave”.[5]

Phillips JA distinguished interlocutory orders where the granting of leave would interrupt the litigation.[6]

[4][1978] VR 431 at 441-2.

[5]Ibid at 336.

[6]Ibid.

Under s 35 of the Interpretation of Legislation Act 1984, the Court is directed that a construction that would promote the purpose or underlying object of the rule should be preferred to a construction that would not promote that purpose or object. In this instance the rule deals with appeals from applications referred to an Associate Judge by a Judge. In this case, the application is the final hearing of an originating proceeding and the trial of the action. Accordingly, the rule deals with appeals from orders made by an Associate Judge on an application that would, unless referred to the Associate Judge, be heard by a Judge. If heard by a Judge, then an appeal would lie to the Court of Appeal as of right if the matter were not an interlocutory hearing. Such an appeal would not be a re-hearing de novo. Such an appeal would require the identification of an error by the trial judge. Where error was identified the Court of Appeal would, in making the decision that ought to have been made by the trial judge, rely on the evidence adduced below and make up their own mind giving weight to the advantages the trial Judge had in assessing the evidence.[7]
[7]Warren v Coombes (1979) 142 CLR 531 per Gibbs ACJ and Jacobs and Murphy JJ at 552; Fox v Percy (2003) 214 CLR 118; Kelso v Tatiara (2007) 17 VR 592 at [65]-[95]; Dwyer v Calco Timbers Pty Ltd (2008) 234 CLR 124.

If I were to grant leave to appeal, then the trial of the originating proceeding will be heard twice. There will be no need for me to identify any error in the decision of the Associate Judge. On the re-hearing the evidence will be limited to that given below unless leave is otherwise given. On the other hand, unless leave is granted, the dissatisfied party will be denied an appeal on the final determination of his or her rights.

What is the object or purpose of the rule requiring leave? In other civil proceedings in the Trial Division, rule 77.07 of Chapter 1 provides that an appeal lies to the Court of Appeal from the Trial Division constituted by an Associate Judge in respect of a matter not otherwise within the authority of an Associate Judge which is referred to an Associate Judge by a Judge of the Court. The matters referred under the Corporations Rules are the sole exception to this rule.

In my view, the Court should not readily deny a party the right to appeal on a matter which is not interlocutory and finally disposes his or her rights. In my view, the object or purpose of rule 16.5(3) is not to do so. Rather, in my view, the rule leaves the matter of leave to the discretion of the Court but suggests that appeals should normally be allowed if the decision is arguably affected by error. The arguable error of fact or law must have affected the decision. Save for that, I do not see any reason to impose any further requirements to justify leave to appeal. In other words, all other things being equal, in non interlocutory matters, if the applicant is able to satisfy the Court that the decision of the Associate Judge is arguably affected by error, whether it be an error of law or fact or in the exercise of discretion, then leave to appeal ought to ordinarily be granted.

BACKGROUND

Before I deal with whether leave to appeal ought to be granted, it is convenient to set out the background history of events. In doing so, I accept evidence given by Mr Holt and Mr Burnside for this purpose without deciding any contested issues between them.

In September 1993, Mr Holt was the President of the Shire of Korong, in Victoria. Mr Burnside was carrying on business as a poultry farmer in Wedderburn. Mr Holt was approached by Mr Burnside about attracting industry, investment and jobs to Wedderburn. Shortly after this meeting, a business known as Turf Engineering, based at Melton, became available for sale. The company that owned the business had got into financial difficulties and the business was put up for sale by the receiver and manager of the company. Mr John Ellul owned the company and separately owned the premises in which the business was carried on.

Mr Holt and Mr Burnside agreed to purchase the business. Mr Holt says that Mr Gerard Frank McNamara, an engineer, was a party to the purchase. Mr Holt and Mr Burnside agreed to use Hollen, which at that stage was wholly owned by Mr and Mrs Holt, as the purchaser. Mr Holt loaned Hollen $30,000.00 and Mr Burnside loaned Hollen $27,000.00 to assist the purchase of the Melton business. Mrs Holt resigned as a director and Mr Burnside and Mr McNamara were appointed directors on 1 November 1993.

Mr Holt says he initially held shares in Hollen on behalf of Mr McNamara. Mr McNamara, however, resigned as a director on 5 April 2000 and his association with the company ceased. The shares held on his behalf were re-allocated between Mr and Mrs Holt and Mr and Mrs Burnside. Currently, the shareholding is as follows:

Mr Holt 4 shares

Mrs Holt 1 share

Mr Burnside 2 shares

Mrs Burnside 3 shares.

The Melton business was acquired for $120,000.00. Mr Holt says that he, Mr McNamara and Mr Burnside agreed that Mr Holt would arrange finance, generally administer the establishment of the business and manage the company. He says it was agreed that Mr McNamara would be the production manager and run the workforce and the factory; and that Mr Burnside would be the salesman and travel around to country bowling clubs and golf courses.

In early 1994, Hollen was able to buy the factory premises that Mr Ellul had retained.

Mr Holt remained as the manager of the business at Melton until May 1994 when he stepped down, on medical advice, to reduce his workload. Since then, he has not been involved in the administration of the company. Mr Holt drew a salary for the six months that he acted as manager. After Mr Holt ceased administering the company, Mr Burnside took over the administration and has remained in charge ever since.

Mr Holt and Mr Burnside are each signatories on the companies’ bank accounts. They have held regular board meetings. Mr Holt has been regularly supplied with accounts of the company.

In 1996, Mr Burnside relocated the Turf Engineering business to Mr Burnside’s property at Wedderburn. The Golf and Bowling business remained at the company’s premises at Melton. Mr Holt says the re-location was done without his consent. He helped, however, in the re-location but he says he only did this as the re-location was a fate accompli. The re-location to and conducting of the turf engineering business at Mr Burnside’s property at Wedderburn constitutes one of the alleged instances of conduct by Mr Burnside oppressive to Mr and Mrs Holt.

In September 1999, Mr Burnside travelled to the U.S.A. When he returned, without the knowledge of Mr Holt he placed advertisements in the Greenkeeper magazine for a new enterprise called Precise Machinery “N” Spares and invited inquires to be made to him at Turf Engineering. Initially, Mr Burnside carried on this business at Wedderburn under the business name Precise Machinery “N” Spares but subsequently transferred the business to a company he incorporated in August 2005 known as Precise Machinery “N” Spares Pty Ltd. The business refurbished and sold second hand golf machines. The Precise company is owned half by Mr and Mrs Burnside and half by Simon Horne and Nicole Horne, the son-in-law and daughter of Mr and Mrs Burnside. The establishment and conduct of this business is alleged to constitute an instance of conduct by Mr Burnside oppressive to Mr and Mrs Holt.

In early 2000, Mr NcNamara resigned as a director and his shares re-allocated between the existing shareholders, as indicated above.

In April 2000, Mrs Burnside registered a business name of Turf Blades. Subsequently, in January 2002, a company known as TB Blades Pty Ltd was incorporated and took over the business. The business is conducted at Mr Burnside’s property at Wedderburn next to Turf Engineering. Mr Burnside’s son Troy is the sole director, secretary and shareholder of TB Blades.[8] Mr Holt alleges that Turf Blades sells grooming blades for various lawnmowers to TB Blades which on-sells them at a profit to Hollen. Mr Holt alleges that the blades were originally made by Hollen and could be still done so but this business has been outsourced and diverted to Turf Blades and TB Blades at the expense of Hollen and to the advantage of Mr Burnside or his son and daughter-in-law. The establishment and conduct of this business is alleged to constitute an instance of conduct by Mr Burnside oppressive to Mr and Mrs Holt.
[8]RSOH 17.

In June 2001, Mr Holt alleges he attended a meeting at the office of the company’s accountant, Mr McErvale, at 1202 Toorak Road Camberwell at the request of Mr Burnside. Mr Holt says that at that meeting he agreed to a one-off payment by Hollen to Mr Burnside of $100,000.00 as compensation for the “hard work” that Mr Burnside had done at Hollen. Mr Holt says that the proposal was subsequently signed off by himself and his wife at a combined shareholder and directors’ meeting on 24 February 2002. Mr Burnside admits that Mr Holt agreed that Hollen would pay him $100,000.00 but says they agreed the payment was to be an on-going annual payment and be paid to him as superannuation.

Both Mr Holt and Mr Burnside agree that in August 2003, Mr Holt objected to Mr Burnside taking a further $100,000.00 for superannuation and contended that he had only agreed to a one-off payment of $100,000.00. Since the agreement made in June 2001, Mr Holt has caused Hollen to pay to or for his benefit $590,000.00 as superannuation and Mr Holt alleges that all but the initial $100,000.00 has been taken without board approval. Mr and Mrs Holt contend this constitutes conduct oppressive to them.

In August 2001, Mr Holt alleges Mr Burnside took $10,951.51 from Hollen to make the final payment on a Honda car that Mr Burnside was acquiring. Mr and Mrs Holt allege this constitutes conduct oppressive to them.

Mr Holt alleges that between 10 October 2002 and 12 December 2002, Mr Burnside took approximately $17,668.00 out of Hollen and used it to build a shed at his Wedderburn property. Mr and Mrs Holt contend the use of Hollen’s monies to build the shed constitutes conduct oppressive to them.

In April or May 2003, two employees of Hollen, Wilfred Hutchinson and Matthew Cane, commenced work on developing a new plough. Eventually a plough known as the Eco Plow was developed and on 23 November 2003, the new plough was launched at the Wedderburn Golf Club. At some stage, Eco Plow Pty Ltd was incorporated by Mr Burnside and Mr Burnside caused the company to take over the development and manufacture of the plough.

In July 2004, Mr Burnside, through the company accountant, Mr McErvale, asked Mr Holt to assist the company with a tax audit. This request led to an exchange of correspondence where ultimately Mr Holt’s solicitors, Challenge Legal, sought copies of all leases which Hollen had entered into and copies of all competitive tenders for work outsourced by Hollen. In the correspondence, the solicitors alleged that Mr Burnside had unilaterally appropriated the new plough. These allegations were contested by Mr Burnside. The establishment and conduct of the Eco Plow business by Mr Burnside is alleged to constitute an instance of conduct by Mr Burnside oppressive to Mr and Mrs Holt.

By at least September 2004, Mr Burnside was operating an ANZ bank account which he had opened in the name of Hollen without the knowledge or authority of Mr Holt. Mr and Mrs Holt allege this constitutes oppressive conduct.

Mr Burnside says that at a directors’ meeting held on 17 September 2004, he informed Mr Holt that the “partnership” was not working and that they should go their separate ways.[9] He says he repeated that proposal at subsequent meetings on 6 May 2005 and 26 April 2006. At the board meeting on 6 May 2005, Mr Holt refused to sign any document in relation to Hollen. Mr Holt maintained his objection to the superannuation payments being made by Mr Burnside to himself.
[9][73].

At a directors’ meeting, held on 4 July 2006, Mr Holt and Mr Burnside agreed that Mr Burnside should be paid a salary of $130,000.00 a year for the next two years. Mr Holt also alleges that the directors agreed that a dividend of $20,000.00 per share should be paid. Mr Holt prepared a minute to that effect and he says that Mr Burnside subsequently refused to sign that minute and that the dividend was not paid. Mr and Mrs Holt contend that Mr Burnside’s conduct in not paying the dividend as agreed constitutes oppressive conduct.

In July 2007, Mr Burnside sought the winding up of Hollen on just and equitable grounds and in October 2007, Mr and Mrs Holt instituted the oppression proceedings.

THE EVIDENCE

For reasons expressed below, I do grant leave to appeal. It is convenient therefore to set out the evidence before me. Mr Holt relies on the following affidavits:

(a) Mr Holt’s affidavit sworn 1 August 2007 and filed in 6618 of 2007.

(b) Mr Holt’s affidavit sworn 24 October 2007 and filed in 9409 of 2007.

(c) Mr Holt’s affidavit sworn 24 November 2007 and filed in 6618 of 2007.

(d) Mr Holt’s affidavit of 8 February 2008 and filed in 9409 of 2007.

(e) Affidavit of Gerard Francis McNamara sworn 9 February 2008 and filed in 949 of 2007.

(f) Affidavit of Ajai Lyndon Thapliyal sworn 30 January 2009 and filed in 9040 of 2007. Under r 77.06 I gave Mr Holt special leave to rely on this affidavit. Insofar as it seeks to express a view on the relevant evidence given before the Associate Judge I indicated I would treat it as a submission rather than evidence.

Mr Burnside relies on the following affidavits:

(a) Mr Burnside’s affidavit sworn 7 June 2007 and filed in 6618 of 2007.

(b) Mr Burnside’s affidavit sworn 8 August 2007 and filed in 6618 of 2007.

(c) Mr Burnside’s affidavit sworn 23 January 2008 and filed in 9409 of 2007.

(d) Mr Wilfred Philip Hutchinson’s affidavit sworn 23 January 2008 and filed in 9409 of 2007.

(e) Richard Allan Lowman’s affidavit sworn 6 February 2008 and filed in 9409 of 2007.

Under r 77.06(7)(a) each party may, subject to any proper objections to admissibility, rely upon any affidavit used before the Associate Judge and upon any evidence given orally before the Associate Judge. None of the deponents sought leave to rely on oral evidence not given before the Associate Judge under r 77.06(7)(b).

CREDIT

The Associate Judge said that he did not regard either Mr Holt or Mr Burnside as lacking credit, nor was any other witness dishonest before him. Although an appeal before me is a re-hearing de novo, and although I indicated that if leave were given I reserved the right to decide the appeal instanter, neither party sought leave to rely on oral evidence not given before the Associate judge. In those circumstances, I will proceed on the credit findings made by the Associate Judge.

THE LAW

The Corporations Act 2001 provides:

Part 2F.1-Oppressive conduct of affairs
232 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.

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.
233 Orders the Court can make
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)that the company be wound up;
(b)that the company’s existing constitution be modified or repealed;
(c)regulating the conduct of the company’s affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company’s share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h)appointing a receiver or a receiver and manager of any or all of the company’s property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;

(j) requiring a person to do a specified act.

Order that the company be wound up
(2)If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply:
(a) as if the order were made under section 461; and
(b) with such changes as are necessary.

Order altering constitution
(3)If an order made under this section repeals or modifies a company’s constitution, or requires the company to adopt a constitution, the company does not have the power under section 136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless:
(a)the order states that the company does have the power to make such a change or repeal; or
(b)the company first obtains the leave of the Court.

Turning to the case law, for there to be oppressive conduct for the purposes of s 232 of the Corporations Act 2001, there must be commercial unfairness to a member or members of the company.[10] In Wayde v New South Wales Rugby League Ltd, [11] the only decision of the High Court to date on s 232 or its predecessors, Mason ACJ, Wilson, Deane and Dawson JJ stated:

In that kind of case it may well be appropriate for the court, on an application for relief under s 320, to examine the policy which has been pursued or the proposed course of action in order to determine the fairness or unfairness of the course which has been taken by those in control of the company. [12]

[10] Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 466.

[11]Ibid.

[12]Ibid.

In Morgan v 45 Flers Avenue[13] Young J of the Supreme Court of New South Wales stated that the court looks at the criteria of s 232 “… as a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness.”[14]
[13](1986) 10 ACLR 692.
[14]Ibid at 704.

In Re Spargos Mining NL[15] Murray J of the Supreme Court of Western Australia said the concept of ‘unfairness’ takes many forms and may include “the harm suffered as a result of the conduct of management, the prejudice caused, the lack of reasonable commercial justification for the course taken, or simply in the decision making processes within the company.”[16]
[15](1990) 3 WAR 166.
[16] Ibid at 189.

The test for unfairness has an objective standard.[17] It requires an assessment of whether objectively in the eyes of a commercial bystander, there has been unfairness.[18] If the conduct under scrutiny is the conduct of the directors, the bystander is taken to be a reasonable director with the special skill, common knowledge and acumen a director should possess.
[17] Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 472.
[18] Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704.

The grounds for relief may rely on past conduct and it is not necessary to establish the oppression or unfairness be continuing.[19]
[19]Re Spargos NL (1990) 3 WAR 166 per Murray J at 189.

In Wayde v New South Wales Rugby League Ltd[20] Brennan J stated:

The question of unfairness is one of fact and degree which s 320 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, common knowledge and acumen possessed by the directors. The operation of s 320 may be attracted to a decision made by the directors which is made in good faith for a purpose within the directors’ power but which reasonable directors would think to be unfair. 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.[21]

[20](1985) 180 CLR 459.

[21] Ibid at 472.

The conduct must relate to the ‘affairs of the company’.[22] Section 53 of the Corporations Act2001 provides some guidance as to what is meant by the affairs of the company. However, the concept of a company’s affairs is ‘very wide.’[23] Conduct which is not oppressive on its own may be considered oppressive when considered collectively.[24]
[22] Weatherall v Satellite Receiving Systems (Aust) Pty Ltd (1999) 30 ACSR 698 at 701.
[23] Australian Securities Commission v Lucas (1992) 36 FCR 165 per Drummond J at 184.
[24]John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63 at 73; Aqua-Max Pty Ltd v MT Associates Pty Ltd (2001) 3 VR 473 at 483.

PROFITING AT THE EXPENSE OF THE COMPANY

Setting up a business or diverting business from the company to companies in which the ‘oppressor’ has an interest but the applicant does not may constitute oppression.[25] In Re Bright Pine Mills Pty Ltd[26] the Full Court of the Supreme Court of Victoria found that certain shareholders had engaged in oppressive conduct by using the licences and facilities of the company to set up businesses in which the applicant had no interest. The Court said:

This article [referring to an article permitting directors to contract for a profit with the company] does not in any way affect the principle that a director of a company is obliged at all times to act in the company’s affairs in what he conceives to be the best interest of the company and its shareholders and to refrain from making decisions about the company’s affairs without regard to its interests, but in order to divert, what might otherwise be a profitable enterprise to another concern, particularly to one in which he himself has a proprietary interest, the real purpose of his action being to prevent a minority shareholder participating in that profit.[27]

[25] Re Bright Pine Mills Pty Ltd [1969] VR 1002; Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 at 556 (NSWSC).

[26][1969] VR 1002.

[27]Ibid per O’Bryan, Smith and Pape JJ at 1013.

In Sanford v Sanford Courier Service Pty Ltd,[28] some of the directors of a courier company in Sydney established a courier business in Melbourne where business otherwise open to the company was diverted, to its loss, to the company conducting the Melbourne business. Waddell J said in respect of the diverted business:

…. the undertaking by Axthorn [the company carrying on the Melbourne business] of these activities instead of by SCS [the company carrying on the Sydney business] is consistent with an inference that it was done for the purpose of enabling the second defendants , as the shareholders of Axthorn, to have the profits of the business to the exclusion of the plaintiff. If it was, it should be concluded that conduct coming within s 320 is occurring and has taken place: Scottish Co-operative Wholesale Society Ltd v Myer.[29] [30]

The Court found that the defendants had engaged in oppressive conduct. The court held that the directors had given the business to Axthorn “so that the benefit of any profits would be gained by the … defendants rather than the plaintiff.”[31]

[28](1986) 10 ACLR 549.

[29][1959] AC 324.

[30](1986) 10 ACLR 549 at 556.

[31]Ibid at 557.

In both these cases the Court identified that the diversion of business was done by the oppressors to gain profits at the expense of their fellow shareholders.

EXCESSIVE REMUNERATION

The payment of excessive remuneration to the ‘oppressor’ may constitute oppressive conduct.[32] In Roberts v Walter Developments Pty Ltd,[33] a decision by a director to disregard a remuneration consultant’s report as to salary was held to show a lack of consideration for the shareholders’ interests and amounted to oppressive conduct. In Sanford v Sanford Courier Service Pty Ltd[34] unreasonably high remuneration was paid to directors which resulted in the eroding of the company’s profit. The conduct was held to be oppressive.
[32]Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882; Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549; Shum Yip v Chatswood Investment (2002) 40 ACSR 619 per Austin J at 656 [190].
[33](1997) 15 ACLC 882.
[34](1986) 10 ACLR 549.

The court should exercise caution in finding such conduct oppressive. In Kizquari Pty Ltd v Prestoo Pty Ltd[35] Young J said:

However even though the court must be astute to see that this device is not used, on the other hand it must be careful not to overly censure directors who make a bona fide attempt to estimate proper remuneration according to the information and expertise they have available to them.[36]

[35](1993) 10 ACSR 606.

[36]Ibid at 611.

In Shum Yip v Chatswood Investment[37] Austin J said:

The payment of fees to directors can itself be oppressive, unfairly discriminatory or unfairly prejudicial conduct, where the fees are paid in improper circumstances and are excessive, without any bona fide basis for their calculation.[38]
[37](2002) 40 ACSR 619.
[38]Ibid at 656.

NON PAYMENT OF DIVIDENDS

The non-payment of dividends may constitute oppressive conduct. A mere failure to pay dividends, even when they are able to be paid, does not constitute oppression but is capable of being oppressive in some circumstances.[39] In Re D G Brims and Sons Pty Ltd,[40] the court considered the history of the company, its firm opposition to borrowing, the extent of its financial needs, the prevailing and expected economic circumstances, the reasonable expectations of its members generally, and the absence of any particular need of the applicants for money. The court concluded that the decision not to pay dividends was not oppressive. The following are situations where the non-payment of dividends was found to be oppressive:

-where the financial position of a company improves and there is a failure to consider the payment of a dividend on proper grounds;[41] especially where the directors review their salary packages over the same period of time and that review leads to significant increases in remuneration;[42] and
-where the profits of the company warranted the payment of a dividend but the directors applied profits to their own financial advantage.[43]

[39] Re D G Brims & Sons Pty Ltd (1995) 16 ACSR 559; Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882.

[40](1995) 16 ACSR 559 at 588.

[41] Foody v Horewood (2003) VSC 347 at [289] (affirmed on appeal).

[42]Shamsallah Holdings Pty Ltd v CBD Refrigeration and Airconditioning Services Pty Ltd (2001) 19 ACLC 517.

[43] Reid v Bagot Well Pastoral Co Pty Ltd; Shannon v Reid (1992) 9 ACSR 129 at 209.

In Foody v Horewood[44] the non-payment of dividends was not found to be oppressive where the withholding of dividends was for the purpose of strengthening the capital position of a small company.[45]
[44](2003) VSC 347.
[45] Foody v Horewood (2003) VSC 347 at [289] (affirmed on appeal).

REMEDIES FOR OPPRESSION

Generally speaking, there are two objectives in granting remedies for oppression: first, to bring an end to the oppressive conduct and secondly, to compensate the injured party for the injury done to him or her by the oppressive conduct.

In Re Dernacourt Investments Pty Ltd[46] Powell J of the Supreme Court of New South Wales said the purpose of granting a remedy under s 233 of the Corporations Act 2001 is to bring an end to the oppression.[47] He said the remedies should be used “if it be possible, to bring the ‘oppression’ to an end without recourse to a cure [winding up] the effects of which would, in many cases, be worse than the disease.”[48] In John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd[49] Young J of the Supreme Court of New South Wales stated that when selecting a remedy:

It is incumbent upon the court when making an order under s 320 to endeavour to find a scheme, short of winding up, if possible, which will “put the company back on the rails” and avoid the causes of conflict and oppression, yet will as far as possible allow all members to participate in the business.[50]

[46](1990) 20 NSWLR 588 at 620.

[47]Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 per Powell J at 620; Giles JA in Campbell v BackOffice Investments Pty Ltd (2008) 66 ACSR 359 at 386–7 (NSWCA).

[48]Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 per Powell J at 619-620.

[49](1991) 6 ACSR 63.

[50] Section 320 of the Companies Code (NSW) is the current equivalent of s 233 of the Corporations Act 2001; John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63 at 74; cited in Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359 (NSWCA).

Courts are generally reluctant to order that a solvent company be wound up on grounds of oppressive conduct. In John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd[51] Young J said that the winding up remedy is to be one of last resort.[52] In Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd[53] Lord Wilberforce, who delivered the judgment for the Judicial Committee of the Privy Council stated:

But to wind up a successful and prosperous company and one which is properly managed must clearly be an extreme step and must require a strong case to be made.[54]

[51](1991) 6 ACSR 63.

[52]Ibid at 66 and 74.

[53](1977) 13 ALR 561.

[54]Ibid at 566-567.

In French v Smith,[55] Charles, Chernov JJA and Harper AJA of the Victorian Court of Appeal, cited Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd[56] with approval and stated:

It is well accepted that the winding up of a solvent and flourishing company should be a last resort.[57]

See also John J Starr (Real Estate) Pty Ltd v Andrew (Australasia) Pty Ltd,[58] Kokotovich Constructions Pty Ltd v Wallington,[59] ASIC v ABC Fund Managers,[60]and Herbert v Herbert.[61]

[55][2004] VSCA 207.

[56](1977) 13 ALR 561.

[57][2004] VSCA 207 at [122].

[58](1991) 6 ACSR 63 at 66.

[59](1995) 17 ACSR 478 per Kirby ACJ at 480.

[60](2001) 39 ACSR 443 per Warren J at 470.

[61][2005] NSWSC 1034 at [3].

In some circumstances, in oppression proceedings courts have ordered the winding up of a company despite it being a remedy of ‘last resort’. In Wallington v Kokotovich Constructions Pty Ltd[62] Young J of the Supreme Court of New South Wales ordered in oppression proceedings the winding up of a company even though the company was solvent. The judgment was affirmed by the Court of Appeal in Kokotovich Constructions Pty Ltd v Wallington.[63] The Supreme Court and Court of Appeal took the following factors into consideration:

a)   That the shares could be liquidated at a fair price;[64]
b)     That the order to wind up could lead parties to a settlement;[65]
c)   That there was continuing animosity existing between the two shareholders;[66]
d)     That there was a real risk of further oppression;[67] and
e)   That the company’s activities were of a very limited nature (the company owned only one piece of land as its sole asset and its business was limited to renting out this piece of land).[68]

[62](1993) 11 ACSR 759.

[63](1995) 17 ACSR 478.

[64] Wallington v Kokotovich Constructions Pty Ltd (1993) 11 ACSR 759 at 770.

[65]Ibid at 771.

[66]Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478 at 480.

[67]Ibid.

[68]Ibid.

On appeal Kirby ACJ, with whom Priestly and Handley JJA agreed, confirmed that Young J had a discretion in the matter and that the Judge had taken into account all the relevant considerations. Kirby ACJ said:

True, winding up the company was an extreme step. However, Young J realised and stated this. Given the continuing animosity which exists between the two shareholders, the real risk, as I would judge, of further oppression, and the very limited nature of the company’s present activities, the order would seem to be soundly based. I am not therefore inclined to disturb what I consider to be the proper exercise of the trial judge’s discretion in this regard.[69]

[69]Ibid at 494.

In Re Back 2 Bay 6 Pty Ltd,[70] Thomas J of the Supreme Court off Queensland appointed a provisional liquidator with special directions to facilitate the purchase by the respondents of the applicant’s interests in the company at fair valuation.[71] In Shum Yip Properties Development Ltd v Chatswood Investment & DevelopmentCo Pty Ltd,[72] Austin J of the Supreme Court of New South Wales wound up the company under an oppression application. The company merely held an investment property and did not otherwise trade. Austin J considered :

(a)   The persistent nature of the defendant’s unreasonable and improper conduct;
(b)   The defendant’s failure to comply with the basic obligations arising under its overall relationship with the plaintiff;
(c)   That winding up would avoid problems which would arise when selecting an appropriate purchaser and when valuing the interest; and
(d)   That given the nature of the oppressive conduct by the respondents, remedies short of winding up would not be appropriate.

Austin J said winding up would take the company out of the control of the respondents and ensure an orderly realisation and distribution of assets. [73]

[70](1994) 12 ACSR 614.

[71]Ibid at 616.

[72](2002) 40 ACSR 619.

[73]Ibid at 620.

The relief ordered should also seek to compensate the member or members for the oppressive conduct. This objective may well be relevant in determining whether to order the purchase of their shares rather than order a winding up. The usefulness of ordering the oppressor to purchase the injured shareholders shares was stated in Scottish Co-Operative Wholesale Society v Meyer[74] where Lord Denning said:

One of the most useful orders mentioned in the section-- which will enable the court to do justice to the injured shareholders-- is to order the oppressor to buy their shares at a fair price; and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is, in effect, money compensation for the injury done to them; but I see no objection to this. The section gives a large discretion to the court, and it is well exercised in making an oppressor make compensation to those who have suffered at his hands.[75]

[74][1958] 3 All ER 66.

[75]Ibid at 89.

In Rankine v Rankine,[76] Thomas J of the Supreme Court of Queensland identified the compensatory aspect of an order for the compulsory purchase of the applicant’s shares. He said:

In granting a remedy in favour of an oppressed shareholder under CL s 260(2)(e) or 260(2)(f) by ordering the compulsory purchase of the applicant’s shares at a stated price, the court is in effect awarding compensation for the respondents’ breach of duty. The nature of the duty is both subtle and complex, and not capable of exhaustive definition, but the most useful expressions of it are collected in McPherson, The Law of Company Liquidation, 3^rd ed, Donovan, pp 143-44. One such expression describes it as a duty of probity and fair dealing [Scottish Co-Operative Wholesale Society Ltd v Meyer[77]]. The compensatory nature of the remedy is recognised by Lord Denning in Meyer[78]…., in Re a Company[79]and in Coombs v Dynasty,[80] .... The ultimate finding of the price that should be paid cannot be made until the nature and effect of the oppression has been identified and its effect quantified or allowed for. By contrast a valuation of shares on the basis of the value of the company as a going concern, or by reference to its underlying assets, as has been directed in this case, is a conventional valuation exercise without adjustments for the oppression factors.[81]

[76](1995) 18 ACSR 725.

[77][1959] AC 324 per Lord Keith at 364.

[78]Ibid 369.

[79]No 002612 of 1984 (1986) 2 BCC 99, 495

[80]13 ACLC 925 at 918.

[81](1995) 18 ACSR 725 at 730-731.

In Re Bodaibo Pty Ltd,[82] Vincent J cited with approval Scottish Co-Operative Wholesale Society v Meyer[83] and said:

The court is clearly endowed with a wide discretion in order that justice can be achieved in the variety of circumstances encompassed by the statute. As Lord Denning pointed out, in some situations an element of compensation is integral to the determination of a fair price. Certainly, in the ascertainment of a fair price, consideration must be given to the selection of the most appropriate method of valuation in the particular circumstances of the matter before the court, and to the possible necessity that some adjustment should be made to the figure arrived at in order to offset the effects of the oppressive behaviour. In other words, as far as reasonably practicable, the court must endeavour to achieve equity between the parties and to ensure that an oppressor does not profit from the wrongful behaviour in which that party engaged to the detriment of those against whom it has so acted.[84]

[82](1992) 6 ACSR 509.

[83][1959] AC 324.

[84](1992) 6 ACSR 509 at 513.

The English Court of Appeal has recognised that relief for oppression is of a compensatory nature: Re Cumana Ltd[85] and Re a Company.[86]
[85][1986] BCLC 430.
[86](1986) 2 BCC 99,453.

The impecuniosity of the oppressor should not be a relevant factor in ordering the purchase by him of the oppressed party’s shares. In Re a Company[87] Vinelott J considered that if the company were wound up the respondent oppressor (who was seeking such an order on the ground that he could not afford to purchase the shares of the oppressed) would be in a position to appropriate substantially the whole of the business of the company for himself, since he had always dealt with the company’s suppliers and customers the senior members of staff would follow him and there would be no one to outbid him if he made an offer to the liquidator for the right to use the company’s name and logo. Justice Vinelott said:

The result, it seems to me, would be far more unfair to Mr Lewis [the oppressed] than a compulsory order for the acquisition of the shares by Mr Bolton [the Oppressor]. It would be unfair that he should be deprived of a share in the “going concern” value of a company in the formation of which he participated and to the establishment of a business of which he made a significant if not indispensable contribution.[88]

[87]Ibid.

[88]Ibid at 99,483.

Accordingly, the following appear to be the relevant principles:

(1)Generally, the purpose of granting a remedy under s 232 is to bring an end to the oppression and to fairly compensate the person oppressed.
(2)Typically, the oppression can be ended and the oppressee properly compensated by the oppressor being ordered to acquire the oppressee’s shares at a fair value.
(3)Generally, the order should seek to put the company back on the rails and avoid the causes of conflict and oppression.
(4)Winding up is a remedy of last resort.
(5)Winding up a profitable and operating company is an extreme step and requires a strong case to be make.
(6)In choosing a remedy under s 233 the Court is exercising a discretion.
(7)In exercising that discretion, the Court should keep in mind the above principles.
(8)Bearing in mind those principles, circumstances may dictate that the most appropriate remedy to bring an end to oppression and to fairly compensate the person oppressed is a winding up.

SUPERANNUATION PAYMENTS

I now turn to the aspects of the Associate Judge’s decision which it is alleged were arguably affected by error. The first is that it is arguable that the Associate Judge decision was affected by error in failing to find that Mr Burnside’s conduct in relation to the payment to him of superannuation constitutes oppression. The trial Judge accurately summarised the evidence relating to the superannuation payments and I adopt and repeat below what he said.

Mr Holt deposes that in June 2001, he attended a meeting at the office of Justin McErvale of Premier Accounting Services (the company’s accountant) at Camberwell at the request of Mr Burnside. This was an informal meeting. At that meeting, Norm Bateson, Mr Holt’s accountant, was also present. Mr McEravale proposed that Mr Holt should sign over complete control of the company to Mr Burnside but Mr Holt refused to do so. Mr McErvale proposed that an amount of $100,000.00 should be paid to Mr Burnside as compensation for hard work that he had done and for the period of time that Mr Burnside had spent away from his family. At first, Mr Holt was against it but, after consulting with Mr Bateson, he agreed to a one-off payment of $100,000.00 to Mr Burnside. Mr Holt does not have minutes of that meeting.

Mr Burnside swears that at a meeting in early 2002, it was agreed that he would be paid $800.00 per week plus $100,000.00 per annum superannuation. It was not documented at Mr Holt’s request. In the middle of 2003, Mr Holt advised Mr Burnside that he was not happy about the amount of superannuation that Mr Burnside was withdrawing from Hollen. Mr Burnside told Mr Holt that he would not continue to work fifteen hours a day, seven days a week for only $800.00 per week. Accordingly, he arranged for Hollen to continue to pay $100,000.00 into his superannuation fund.

Mr Holt says that meeting was held on 24 February 2002 in the presence of Mr Burnside, Mr McErvale and John Fremantle. He says the proposal was signed off by him and his wife at that meeting. Mr Fremantle is an accountant and a friend of his who attended the meeting at his request. He says he does not have a copy of the minutes of this meeting. Nevertheless, by a letter dated 30 March 2002, from Mr McErvale to Mr Holt, Mr McErvale enclosed minutes of the meeting saying they were originally signed at the meeting last month but had been changed slightly.[89] Mr Holt did not produce the minutes forwarded to him. Mr McErvale is the Hollen’s accountant and he could have been called to give evidence of what was said at the meeting. Mr McErvale was present during the hearing before the Associate Judge but was not called to give evidence.
[89]Exhibit 3.

Mr Holt did not call Mrs Holt who he says was present at the meeting on 24 February 2002, nor did he call Mr John Fremantle who was a friend of Mr Holt. Mr Holt also did not call Mr Bateson who had been present when the matter of the $100,000.00 was first raised in 2001.

Under the rule in Jones v Dunkel,[90] the unexplained failure by a party to give evidence, to call witnesses, or to tender documents or other evidence may in appropriate circumstances lead to inferences that the uncalled evidence would not have assisted that party’s case. Further, the failure to call such evidence entitles the trier of fact the more readily to draw any inference fairly to be drawn from other evidence by reason of the person resisting the inference being able to prove the contrary had he chosen to give or call evidence. Accordingly, it is open to me to draw the inference that the calling by Mr and Mrs Holt of Mrs Holt, Mr Bateson or Mr Fremantle would not have assisted their case. On the other hand, Mr Burnside failed to call Mr McErvale and his failure to do so enables me to draw the inference that Mr McErvale’s evidence would not have assisted Mr Burnside.
[90](1959) 101 CLR 298.

The onus lies on Mr Holt to establish that the agreement only provided for one-off payment. That is an element of the oppressive conduct he alleges. On the evidence relied on and bearing in mind the rule in Jones v Dunkel, I am not satisfied that he has met that onus. I am not satisfied the agreed payment was one-off.

Nevertheless, what is not in dispute is that in or about 2003, Mr Holt told Mr Burnside that he was not happy about the amount of superannuation that Mr Burnside was paying to his superannuation fund and wanted it to stop. Mr Burnside concedes that Mr Holt continued to object to Mr Burnside paying the superannuation but that he nevertheless continued to do so and that this dispute led Mr Holt to refrain from and refuse to sign the necessary company documents.

On 6 May 2005, Mr Holt put a proposal to Mr Burnside that Mr Burnside be paid a salary at the rate of $60,000.00 per annum plus superannuation at the rate of 10% plus an incentive bonus equal to 20% of all profits earned by Hollen in excess of $400,000.00 per year. Mr Burnside rejected that proposal. He concedes, however, that he would have been paid more under the proposal offered by Mr Holt.

The wages received by Mr Burnside were as follows:

Between 1992-1994, $500 per week ($26,000.00 per annum) without any superannuation contributions.

Between 1995 – 1998, $600.00 per week ($31,200.00 per annum) without any superannuation contributions.

Between 1991 – 2001, $800 per week ($41,600.00 per annum) without superannuation contributions.

In July 2006, Mr Holt agreed that Mr Burnside should be paid a salary of $130,000.00 for the next two years. In managing the company, Mr Burnside had been working long hours which he swears were fifteen hours a day, seven days a week and had lived away from his family at premises at Melton and slept on the floor of the factory.

The Associate Judge held that even if he were to assume that the payment of the $100,000.00 was a one-off payment, it was not unfair that Mr Burnside be paid a salary of $40,000.00 plus $100,000.00 superannuation. He said that accordingly it was not unfair for Mr Burnside to continually pay himself that sum and that he could not conclude that such conduct was oppressive. He also noted that Mr Holt knew since 2003 that superannuation payments were being paid but did nothing in effect to stop them.

Generally speaking, under Corporate Law, a director is not entitled to remuneration from a company without shareholder’s consent unless the constitution otherwise provides. A director is treated much like a trustee. In the context, however, of a quasi partnership, the traditional corporate law principles may still apply but whether or not the relevant conduct is oppressive is a different question.

I am satisfied, however, that the decision of the Associate Judge is arguably affected by error. As indicated below, I grant leave to Mr and Mrs Holt to appeal. It is convenient therefore to consider whether this ground of alleged oppressive conduct is made out.

It is apparent in this case that Mr Holt and Mr Burnside had agreed that each would be remunerated for their efforts on behalf of the company. Mr Holt was paid for his six months initial administrative service.

Assuming the reasonable remuneration for Mr Burnside was $140,000.00 per annum, did his conduct in paying that sum to himself against Mr Holt’s objection, constitute oppression for the purposes of s.232. Section 232 refers to conduct that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member. As indicated above, the word “oppressive” has been construed to note some “unfair abuse of powers.”[91]
[91]Elder v Elder & Watson [1952] SC 49 per Lord Cooper at 55; cited with approval in Re Bright Pine Mills Pty Ltd [1969] VR 1002 per O’Brien, Smith and Pape JJ at 1012.

I find that the payment of a salary of $140,000.00 by the company to or for the benefit of Mr Burnside was not an unfair abuse of power by Mr Burnside in the circumstances. In July 2006, Mr Holt agreed to a salary of $130,000.00 for the next two years. No evidence was led by Mr Holt to establish that the payment of $140,000.00 in the circumstances was excessive. The onus lies on Mr Holt to establish that the conduct that he complains of falls within s.232.

I accept, however, Mr and Mrs Holt’s contention that the Associate Judge’s decision that the conduct they complain of was not oppressive is arguably affected by error.

As I do grant leave to appeal on other grounds, as referred to below, it is convenient that I express a finding on the re-hearing of this ground. For the reasons expressed above, I find that the payment of superannuation does not enliven the Court’s powers under s.232.

THE PRECISE GROUND

As indicated above, Mr Burnside established Precise to refurbish and sell golf machinery. Mr Holt alleges this was a business opportunity of Hollen which was wrongly exploited by Mr Burnside for his own benefit. Several issues arose out of this alleged oppressive conduct. First and foremost is Mr Holt’s allegation that Hollen was in the business of refurbishing golf machinery (although in a small way) and that Mr Burnside has misappropriated that business for Precise and developed it for his own benefit.

Mr Holt says that in September 1999 Mr Burnside asked him to go to Golf and Bowling, so that he could have a brief break. He says that Mr Burnside and a friend travelled to the U.S.A. Mr Holt says that while he was at Golf and Bowling, the Manger, Mr Lowman, the Sales Manager, Ray Thorne and the Workshop Manager, Tony Hutchinson, told him of a plan that had been discussed with them by Mr Burnside, to employ Simon Smethurst in Golf and Bowling to refurbish golf equipment.

In early 2000, on Mr Burnside’s return from the U.S.A., advertisements started to appear in the Greenkeeper magazine for a new enterprise called “Precise Machinery ’N’ Spares” which was in direct competition with Golf and Bowling. Mr Holt says that through this business (which was later registered as a proprietary limited company), Mr Burnside started to refurbish and sell second hand golf machines, a profit-making activity which had formerly been carried on by the company and which he had transferred to his new business without the approval of the board of Hollen. Mr Holt said the transfer of this activity also included the transfer of the tools that had been purchased by Hollen for Mr McNamara in the research and development section. He says this action had the effect of diminishing the company’s overall profit and was not in the interests of its shareholders.

Mr Holt says that he challenged Mr Burnside about what was going on but his response was to say that half the profits would be theirs. Mr Holt says that at the time he took this to mean Precise Machinery ‘N’ Spares would be a related business of Golf and Bowling. He says that at subsequent board meetings he would refer to the staff at Precise as part of the company’s resources for the assembly of overseas products. Mr Holt says that on no occasion did Mr Burnside comment to him on what he had said. He said on one occasion he questioned the accounts for Precise and Mr Burnside said “they are all there” which Mr Holt said he understood to mean they were incorporated in the accounting figures of Golf and Bowling.

Mr Holt says that in September 1999, he was working at Golf and Bowling and that whilst doing so he sold a Ransome Fairway Mower to the Inglewood Golf Club for $10,000.00. Mr Holt said the mower was refurbished by Hollen. Mr Holt says the sale to the Inglewood Golf Club was one of many transactions of this nature made by Hollen. He exhibits several invoices relating to such work.

It was suggested on behalf of Mr Burnside that the work done by Hollen was light engineering in the nature of repairs rather than a refurbishment involving stripping down and rebuilding of the full mowers.

Mr Holt and Mr Burnside agreed that Mr Burnside asked Mr and Mrs Holt for approval for the company to borrow $120,000.00. Mr Burnside says that the stated purpose was to develop the golf club side of the business. Mr Burnside conceded, however, that he did not mention Precise to Mr Holt before it was established.

There is no dispute that Mr Burnside used Hollen’s money to establish the business. Some $46,000.00 was taken from Hollen in the financial year ended 30 June 2003. The sum was repaid the following year.

Mr Holt asserts that tools purchased by Hollen for the use of Mr McNamara were transferred to Precise. Mr Burnside says he is not aware of any tools or any other property of Hollen which has been utilised by Precise. Mr Holt also produced wages sheets that showed Hollen paid wages to employees of Precise.

Mr Burnside concedes that because of the physical proximity of Precise to Turf Engineering, the similar nature of their respective businesses, his partial ownership of both companies, and the high level of co-operation between the two companies at both the management and operational level – the two companies often shared the use of each others’ employee labour in order to function efficiently. He said there are often times when Turf Engineering requires the assistance of Precise employees in order to fill orders and produce machinery for sale. He says much of the co‑operation between Precise and Turf Engineering takes the form of 10 minutes work here and there loading a truck and moving equipment and parts. He says that in most instances no payment is made or sought because the level of co-operation is minimal and usually evens itself out between the companies.

Mr Loman, the Manager of Golf and Bowling, admits that Precise is on the same premises in close proximity to Turf Engineering in Wedderburn – approximately 300 feet apart.

A director as a fiduciary has a duty not to misappropriate company property or opportunities for the director’s personal benefit or for any other person without the authority of the company.[92] Further, the fiduciary is accountable for all profits made in connection with his or her fiduciary office.[93]
[92]Chan v Zacharia (1984) 154 CLR 178 at 198.
[93]Phipps v Boardman [1967] 2 AC 46.

In my view, it is not of great relevance that Hollen was not refurbishing golf machinery in the manner that Precise now does. I accept that the work previously done by Hollen was not refurbishing in the manner which it is currently carried out by Precise. The opportunity to refurbish, however, arose out of Hollen’s carrying out the repair of golf machinery and its ongoing association with the potential market for the sale of refurbished golf machinery. Authority establishes that in considering whether a director has not observed his or her fiduciary duty it is not relevant that the company was unable to take up the business opportunity which has been availed of by the directors.[94]
[94]Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134.

In this case, the major matter relied on by Mr Burnside is that Mr Holt refused, when requested, to agree to Hollen borrowing extra money to develop the golf club side of the business by refurbishing golf machinery.

It may be the case that Mr Burnside has breached his duty as a director in profiting from the activity undertaken by Precise. The fact, however, that Mr Burnside may have breached a duty he owed Hollen does not necessarily mean that he has engaged in oppressive conduct for the purposes of s 232 of the Corporations Act 2001. As indicated above, the essence of oppression involves unfairness.

In this instance, Mr Burnside initially raised with Mr Holt the proposal that Hollen itself should exploit this new line of business. There is no dispute that Mr Holt declined to do so, but Mr Holt claims that he may well have done so if a proper business plan was subsequently presented. Nevertheless, Mr Burnside, in view of the refusal of Mr Holt to agree to Hollen undertaking this new enterprise, borrowed some $300,000 on his own home and established the Precise business.

Its main customer appears to be Hollen. It sells its refurbished golf machinery to Hollen and splits the profit with Hollen when Hollen sells the golf machinery to golf clubs. It is probably fair to say that Precise’s business depends on taking advantage of Hollen’s business in the golf club market and also in Hollen’s marketing skills. Precise also takes advantage, from time to time, of Hollen staff, as Mr Burnside freely admits.

From an objective point of view, the facts in this case are not dissimilar from those in Re Bright Pine Mills Pty Ltd[95] discussed above under. Nevertheless, there is, in my opinion, one important difference. Mr Burnside did not commence the Precise business to profit at the expense of Mr Holt. Rather, he established the Precise business as Hollen was not then prepared to do so. Further, Mr Burnside has shared the profit on the sale of a refurbished golf machine 50/50 between Precise and Hollen. True it is, as Mr Holt submits, that this is less than what Hollen would earn if Hollen wholly owned the Precise business. On the other hand, Mr Burnside has invested some $300,000 of his own moneys in the Precise business and deserves some return for that investment.
[95][1969] VR 1002.

Mr Holt led no evidence to show that, taking into account Mr Burnside’s investment in the Precise business, Hollen was being treated unfairly or achieving other than a satisfactory return for the benefits and advantages it provides to Precise in selling the refurbished machinery.

I am satisfied that the decision of the Associate Judge on this issue was arguably affected by error. Nevertheless, I find that Mr and Mrs Holt have not established that the conduct of Mr Burnside in relation to the Precise business is unfair. It may, as I indicated above, constitute a breach of duty by Mr Burnside of his duties as a director. But in the circumstances, I do not find that, for the purposes of s 232, Mr Burnside’s conduct is and was commercially unfair. In those circumstances, unusual though they be, I find that Mr and Mrs Holt have not established sufficiently that the conduct is unfair in order to activate the Court’s discretion under s 232.

PAYMENT OF DIVIDENDS

Mr and Mrs Holt allege that the Associate Judge erred in not finding that Mr Burnside has engaged in oppressive conduct by seldom agreeing to the payment of dividends. In particular, they allege that the board of the company resolved, on 4 July 2006, to pay a dividend of $200,000 ($20,000 per share). However, it is alleged when the necessary documentation for payment of the dividend was prepared, Mr Burnside refused to sign it, with the result that the dividend was not and has still not been paid.

Mr and Mrs Holt refer to the fact that only three small dividends have been paid, but primarily rely on the failure of Mr Burnside to agree to the payment of the dividend of $20,000 per share in July 2006.

Mr Holt deposes that on 4 July 2006, he met with Mr Burnside in the office of the factory at Wedderburn for a directors’ meeting. He says they resolved to pay a dividend of $200,000 ($20,000 per share). He says that they also resolved that the company would pay Mr Burnside a salary of $130,000 per annum for two years. Mr Holt says he went off and prepared the minutes and the necessary documentation, but when he returned with the paperwork, Mr Burnside refused to sign it. Notwithstanding this, Mr Holt says that Mr Burnside took his salary.

Mr Holt further deposes that Mr Burnside seldom agreed to the payment of dividends. The first time the dividends were paid was in 2001. Up to July 2006, the payment of dividends had only been declared on three occasions. Each of those dividends had been relatively small, being a total dividend of $15,000 in June 2001 and $22,000 in September 2001.

Mr Burnside agrees that the above dividends were paid, as well as a third dividend being issued on 20 June 2006 in the sum of $25,833.40. He also deposes that it is only in the last five or six years that Hollen has had any money at its disposal at all.

In cross-examination, Mr Burnside agreed that he did renege on the dividend agreement.[96] Mr Burnside explains his reason for reneging as follows:
[96]TR 305.

I put to you that you initially agreed that dividends should be paid; this is at 4 July 2006?---Correct.
But then subsequently you went back on that, is that right?---Would you like to hear the story why?
Same process; we will establish what happened first and then I may ask you some further questions. But before the 7/06 directors/meeting at Wedderburn, you and Mr Holt were both there?---We were.
The resolution was that there would be a dividend, I think of $20,000 per share?---It wasn’t a resolution, it was a discussion and we agreed upon it.
It was also the same discussion where it was agreed on the $130,000 for two years?---Correct. It had always been a sore in Reg’s side of the money. It was the first time I have heard him come to a reasonable amount of money for my salary.
So now let’s look at what happened to this agreement between the two directors of Hollen Australia Pty Ltd. One of the things you agreed on was essentially primarily to your benefit, the wage, and the other thing was something that would benefit Mr Holt and you; is that fair?---Correct.
What happened after this was you took the $130,000 salary?---Correct.
But you reneged on the dividend?---Correct.
Why did you do that?---I’m glad you asked that question.
Just answer it?---No, no, no. I’ve got to explain the story. Reg came in and I said to him, “It is your money as much as mine.” It was sitting in Macquarie bank. I said, “It’s fine, you’re (indistinct) the same as I am.” I said, “The trouble is, Reg, we’re not getting on. Everything is going against us. We have to start again. If you’re happy to start again, we’ll start right from scratch again, wipe all our problems out and we’ll start again. Yeah, I’m happy with that. I’ll go home and draw up the plan, that’s fine.” Off he goes, draws up the plan, comes back and I think it is in one of the affidavits. I have the pen in my hand I’m ready to sign the paper to say “Yes, okay, here we go” and I said, “Before I sign it, Reg, I expect you to go to Justin’s, sort out the financial, sign all the paperwork so we can start again as agreed.” “I’m not going to do that.” I said, “You and I see it different ways, but if that’s the way you feel, stick the paper up your arse and piss off.”
That’s the sort of language you use, isn’t it, Mr Burnside?---It is, because he makes me that wild.
None of those conditions that you sought to apply after the meeting were put forward to the meeting, were they?---Which conditions?
The conditions you have just talked about, what you asked Mr Holt to do that you said he refused to do, go to McErvale?---Exactly. Why didn’t he?
Why didn’t you put that condition on it when you agreed to it at the meeting?---I did. I said to start again, “We’re going to start again from scratch. Forget all our past problems. Let’s start again from scratch.”
Just concentrate, Mr Burnside. At the meeting you didn’t apply a condition that you’ve got to go to McErvale. That occurred later when you were asked to sign. That is your evidence?---That was part of the condition of starting again. If his main bone of contention is signing all the financials, wouldn’t you say starting again would be fixing up the financial?
If the agreement at the meeting is not going to be observed, is it fair to say that you were discriminating in the part of the agreement that you sought to give effect to, discriminating in that you took the $130,000 salary as you’ve agreed, didn’t you?---Yes.
And then you reneged on the dividends?---For that reason. Reg reneged
on - - -
The company could afford it?---Correct. It was just sitting there.
You just sought to impose a condition, an additional condition?---It wasn’t an additional condition, it was a condition I asked Reg to do at the start. I said, “If we’re going to keep going with this business, you’ve got to start again and we’ve got to start from scratch.” It is almost mediation. Let’s start from scratch and start again.

Before the Associate Judge, counsel for Mr and Mrs Holt submitted that company dividends probably straddled the boundary between company management, commercial decisions and matters that could constitute oppression. Evidence was given that the company was profitable and in such circumstances, Mr and Mrs Holt submit that a non-payment of dividends amounts to oppression.

The Associate Judge found from the evidence that dividends could be paid, but it was again a decision of Mr Burnside that it not be paid. He found that Mr Burnside also did not obtain a dividend whilst he was in control of the company. The Associate Judge found that Mr Holt was prejudiced, but so was Mr Burnside. He found that the parties by this time were in deadlock and the non-payment of dividends was not oppressive or prejudicial to Mr Burnside.

Before me, Mr and Mrs Holt submit that the evidence before the Court shows that Mr Burnside’s conduct was oppressive against the Holts and contrary to the interests of the members of the company as a whole. They submit that the Associate Judge erred in not taking cognisance of and applying the relevant authorities which they submit make it clear that a decision not to pay dividends, when they can be paid, will invariably constitute a breach of s 232 of the Corporations Act 2001. They rely on Shamsallah Holdings Pty Ltd v CBD Refrigeration and Airconditioning Services Pty Ltd;[97] Re DG Brims & Sons Pty Ltd;[98] and Roberts v Walter Developments Pty Ltd.[99]
[97](2001) 19 ACLC 517.
[98](1995) 16 ASCR 559.
[99](1997) 15 ASLC 882.

The evidence does not establish a course of conduct by Mr Burnside in refusing to agree to the payment of dividends. On the contrary, the evidence is that Mr Burnside withheld his agreement to the payment of the July 2006 dividend in circumstances where the ongoing dispute between Mr Holt and himself over the management of the company existed. He made it clear, and I accept, that if the past disagreements over remuneration and other matters had been resolved, that he would have been willing to pay the dividend. I agree with the Associate Judge that in circumstances where the parties were in deadlock and the payment of the dividend required the agreement of both parties, that in this instance the refusal and/or failure of Mr Burnside to agree to the payment of the dividend was not unfair and did not constitute oppressive conduct within the meaning of s 232.

I do not find the Associate Judge’s decision on this issue was arguably affected by error. As indicated, I find the conduct did not constitute oppression.

COSTS

In the oppression proceedings, the Associate Judge in his discretion ordered that Mr Burnside pay 70% of Mr and Mrs Holt’s costs. The Associate Judge noted in other matters in his order of 22 December 2008 as follows:

In relation to costs the general rule that costs follow the event may give way if a party raises allegations on which it fails. After considering the issues, some of which the plaintiff lost, 70% of the plaintiffs’ costs will be ordered to be paid by the defendant.

In the just and equitable proceedings, the Associate Judge ordered Hollen to pay Mr Burnside’s costs.

Mr and Mrs Holt submit that in making the order that he did in the oppression proceedings, the Associate Judge failed to apply the applicable law as to the awarding of costs. They submitted that as the proceeding was one claiming oppression and that the Holts were overwhelmingly successful (on the Associate Judge’s findings), then the usual rule that the costs follow the event should have been applied.

They further submitted that, although costs are a matter for the direction of the Court, that discretion must be exercised judicially. Mr and Mrs Holt submit that the Associate Judge failed to do so. They submit that the authorities indicate that the usual order as to costs should be made in favour of a successful litigant, save for certain exceptions. They rely on GT Corporation Pty Ltd v Amare Safety Pty Ltd (No.3);[100] Mickelberg v Western Australia;[101] Oshlack v Richmond River Council;[102] FAI General Insurance Co Ltd v McSweeney;[103] and Mok v Minister for Immigration.[104]
[100][2008] VSC 296 per Robson J at [31].
[101][2007] WASC 140 at [30] – [35].
[102](1998) 193 CLR 72 per McHugh J at 78.
[103](unreported), FCA, Lindgren J, 15 September 1998 at [9].
[104](1993) 47 FCR 81 per Keely J at 84.

In GT Corporation Pty Ltd v Amare Safety Pty Ltd (No.3),[105] I reviewed the authorities on awarding costs on separate issues. I said as follows:
[105][2008] VSC 296.

1.The award of costs is in the discretion of the Court or Judge: s 24 Supreme Court Act 1986.
2.The discretion must be exercised judicially: Donald Campbell & Co v Pollak;[106] Cretazzo v Lombardi.[107]
[106][1927] AC 732.
[107](1975) 13 SASR 4.
3.The discretion cannot be exercised arbitrarily or capriciously and it cannot be exercised on grounds unconnected with the litigation: Cretazzo v Lombardi;[108] or the circumstances leading up to the litigation: Oshlack v Richmond City Council.[109]
4.Costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings. The order is not made to punish the unsuccessful party: Latoudis v Casey.[110]
5.As a general rule, costs should follow the event, and a successful party should obtain all of the costs of the action even though it failed to establish some of the alternative heads of its claim: Ritter v Godfrey;[111] McFadzean v CFMBEU.[112]
6.Rule 63.04(1) permits the Court, in its discretion, to make an order not only as to a distinct question or issue in the pleading sense, but also to any part of the proceeding: Woolf v Burmon;[113] Cretazzo v Lombardi.[114]
7.The court may, in its discretion, decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim: McFadzean v CFMBEU.[115]
8.It is not necessary that the issue concerned was raised unreasonably by the party: Rosniak v GIO.[116] Although, a relevant consideration may include whether the issue was raised unreasonably: Mickelberg v Western Australia.[117]
9.The court may, in its discretion, make an order that is a single order, fixing what proportion of a party’s costs should be paid by another party, thus obviating cross-orders or particular orders as to particular costs: Byrns v Davie;[118] McFadzean v CFMBEU;[119] Nolan v Nolan.[120]
10.The caveat referred to by Jacobs J in Cretazzo v Lombardi[121] may have less weight today than when it was decided: Primcom Pty Ltd v Sqarioto;[122] Mickelberg v Western Australia;[123] and Victoria v Master Builders Association of Victoria.[124]
11.Although the quantum of damages recovered compared to that claimed may be a relevant consideration to the court in exercising its discretion, greater emphasis should be given to the failure or loss on discrete claims or issue and the time occupied in relation to them.

[108](1975) 13 SASR 4.

[109](1998) 193 CLR 72 per McHugh J at 97.

[110](1990) 170 CLR 534 per Mason CJ at 543, per Toohey J at 562 – 563, per McHugh J at 566 – 567.

[111](1920) 2 KB 47.

[112][2007] VSCA 289.

[113](1939) 13 ALJR 431 (HC).

[114](1975) 13 SASR 4 at 12.

[115][2007] VSCA 289.

[116](1997) 41 NSWLR 608.

[117][2007] WASC 140 (S) per Newnes J at [43] – [46].

[118](1991) 2 VR 568 per Gobbo J at 571.

[119][2007] VSCA 289 at [153] [158].

[120][2004] VSCA 134 at [6].

[121](1975) 13 SASR 4.

[122](Unreported, SCV, Eames J, 24 April 1995).

[123][2007] WASC 140 (S) at [30] – [35].

[124](Unreported, SCV CA, 15 December 1994, BC 9408430).

In this case, the Associate Judge found that the plaintiff had failed to establish oppression on three distinct grounds, two of which would had taken a significant amount of time during the hearing, that is, the superannuation ground and the Precise ground. The Associate Judge had a discretion which he had to exercise judicially and not capriciously. In my opinion, it was open to the Associate Judge to exercise the power that the rules give him under r 63.04(1) and order that Mr Burnside only pay 70% of the plaintiff’s costs. As indicated in point (9) above, the order may, as the Associate Judge did, fix a proportion of a party’s costs that should be paid by another party.

I find that the Associate Judge’s decision on costs was not arguably affected by error.

THE ORDER TO WIND-UP

Mr and Mrs Holt contend that the Associate Judge erred in ordering Hollen to be wound up, rather than Mr Burnside being ordered to purchase the shares of Mr and Mrs Holt at a fair valuation. The Associate Judge was entitled to make any order under s 233 that he considered appropriate in relation to the company.

The Associate Judge was alert to the relevant principle that winding up should be avoided where the company is viable, if there is an alternative remedy. He cited the decision of Young J in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd[125] where Young J held as much. The Associate Judge said that the question therefore before him was whether the purchase of the shares was a viable option. The Associate Judge found that there had been oppression as Mr Burnside had acted unfairly towards Mr Holt due to the establishment of Echo Plough Pty Ltd, the outsourcing of TB Blades Pty Ltd, the relocation of Turf Engineering, the repayment of directors’ loans, the payment for the shed on Mr Burnside’s property and the loan for Mr Burnside to pay for a Honda motor vehicle.
[125](1991) 6 ACR 63.

On the other hand, the Associate Judge said that the evidence demonstrated that Mr Burnside had worked extremely hard and ensured that the company was a success. He noted that Mr Holt was unable to assist in the establishment of the company and he said there was no doubt that Mr Burnside had to work long hours at a minimal wage and in difficult circumstances. He said there was no doubt that the relationship between the two directors had deteriorated significantly over the years.

The Associate Judge said that if the only application to be determined was the application by Mr Burnside pursuant to s 461(k) of the Corporations Act 2001, Hollen would have been wound up on the basis that there was a deadlock between the two defendants. The Associate Judge then said:

In my view, to do justice to both parties, a winding up order is appropriate. Mr Burnside’s efforts enabled the company to grow and acquire the valuable tangible assets it now possesses. A liquidator should be appointed to realise the tangible assets of the Company and distribute them to Mr Holt and Mr Burnside with appropriate adjustments for the oppressive conduct.

He went on to say the adjustments would deal with any compensatory relief which Mr Holt was entitled to.

As mentioned above, the Associate Judge was alert to the principle that the Court should avoid winding up a viable company if there as an alternative remedy. He took into account the various contributions towards the success of the company and formed the view that to do justice to both parties a winding up order was appropriate.

It is arguable, however, that the Associate Judge’s discretion on remedy was affected by error by giving insufficient weight to the desirability of compensating Mr and Mrs Holt for the injury they suffered by the oppressive conduct. The objective of the remedy was to fashion orders that removed the oppression, fairly compensated the oppressed parties and ensured, if possible, that the company continued. Arguably he may not have had sufficient regard to those matters. In my opinion, the decision on the relief of the Associate Judge is arguably affected by error within the meaning of rule 16.5(3) of the Corporations Rules. It is inappropriate for me to make any finding on whether the Associate Judge did in fact err in the exercise of his discretion, as if, on the appeal, Mr and Mrs Holt establish that the Court should exercise its discretion under s232, then the orders made will be in the discretion of the Court.

LEAVE GRANTED TO APPEAL AND HEARD INSTANTER

In summary, on the superannuation ground and the Precise ground I have found that the Associate Judge’s decision that Mr Burnside’s conduct constituted oppression was arguably affected by error. Further, I have found that the exercise of his discretion as to the order to be made under s 233 was also arguably affected by error. Taking into account those matters and the other circumstances of the case, in my discretion, I would grant leave to appeal to Mr and Mrs Holt against the decision of the Associate Judge. The parties argued the matter on the basis that if leave to appeal was granted the appeal would be hear instanter.

THE RE-HEARING DE NOVO

As indicated above, Mr and Mrs Holt allege the following grounds constitute instances of oppressive conduct by Mr Burnside that activate the Court’s discretion to make an order under s 232 of the Corporations Act 2001:

(1) The payment by Mr Burnside to himself of $490,000.00 as superannuation allegedly without the approval of Mr Holt (the superannuation ground);

(2) The establishment by Mr Burnside of Precise Machinery “N” Spares Pty Ltd (Precise) which allegedly conducted business diverted from Hollen without permission or approval of Mr Holt (the Precise ground);

(3) The refusal of Mr Burnside to allow a dividend to be paid that was allegedly agreed to by Mr Burnside (the dividend ground);

(4) The diversion of business of Hollen by Mr Burnside to a company Eco Plow Pty Ltd established by Mr Burnside, to his gain and to the loss of Hollen (the Eco Plow ground);

(5) The outsourcing from Hollen by Mr Burnside of business of Hollen to TB Blades Pty Ltd to the gain of Mr Burnside’s son and daughter in law and to the loss of Hollen (the TB Blades ground);

(6) The re-location by Mr Burnside of the Turf Engineering business of Hollen from Hollen’s premises at Melton to Mr Burnside’s property at Wedderburn to the gain of Mr Burnside (the Turf Engineering ground);

(7) The repayment of directors’ loans by Mr Burnside to himself but not to Mr Holt to Mr Holt’s prejudice (the directors’ Loans);

(8) The payment by Mr Burnside out of Hollen’s moneys for the repair of a shed on Mr Burnside’s property to Mr Burnsides’ advantage and to Hollen’s loss (payment for Mr Burnside’s shed);

(9) The payment by Mr Burnside out of Hollen’s loan to purchase a Honda motor vehicle to Mr Burnside’s advantage and to Hollen’s loss (the Honda ground);

(10) The exclusion of Mr Holt from management;

(11) Relations with Greensward;

(12) Minutes of meetings;

(13) Mr Burnside’s treatment of Hollen Australia as being his own; and

(14) The ANZ Bank account.

THE SUPERANNUATION GROUND 1

I have already found that Mr Burnside’s conduct did not constitute oppressive conduct.

THE PRECISE GROUND - 2

I have already found that Mr Burnside’s conduct did not constitute conduct oppressive to Mr and Mrs Holt although it may have constituted a breach of his fiduciary duty to Hollen.

THE DIVIDEND GROUND - 3

I have already found that Mr Burnside’s conduct did not constitute oppressive conduct to Mr and Mrs Holt.

THE ECO PLOW GROUND - 4

In my view, the Associate Judge fairly summed up the evidence on this matter in paragraphs 33 to 40 of his judgment. The exploitation of a business opportunity of a company by some of its directors for their own benefit to the disadvantage of the company is often cited as an example of oppression.[126] In this instance, Mr Burnside has invested $300,000 of his own moneys in the venture. Unlike with Precise, he did not put the proposal to Mr Holt. Of course, as Mr Upjohn submits, due allowance must be made for the work and investment of Mr Burnside: Warman International Ltd v Dwyer.[127] Nevertheless, as the evidence discloses, Mr Burnside did not give Mr Holt the opportunity of participating in the ECO Plow. He did use the drawings of Hollen and caused Mr Hutchinson, an employee of Hollen, to leave Hollen and take up employment with Precise. I find that the conduct of Mr Burnside towards Mr and Mrs Holt in relation to the ECO Plow was unfair and constitutes conduct oppressive to them within the meaning of s 232.
[126]Re Bright Pine Mills [1969] VR 1002.
[127](1995) 182 CLR 544 at 567-568.

THE TB BLADES GROUND - 5

In my view, the Associate Judge fairly summarised the evidence on this matter in paragraphs 41 – 45 of his judgment.

This is another example of the oppressive conduct of Mr Burnside wrongly misappropriating business opportunities to his own benefit or to his family’s benefit that could have been exploited by Hollen. I agree with the Associate Judge’s comments that Mr Holt should have been advised that the manufacturing of Blades was being removed from Hollen, particularly when the business was to be given to the son of Mr Burnside. I also agree with his conclusion that Hollen may be benefiting but it may also have benefited more if it, or another company, manufactured the Blades when Mr Burnside took up the opportunity. I find that the conduct of Mr Burnside in this regard is unfair and constitutes conduct oppressive to Mr and Mrs Holt within the meaning of s 232.

THE TURF ENGINEERING GROUND - 6

In my opinion, the relevant evidence on this issue is accurately set out by the Associate Judge in his judgment at paragraphs 46 – 50.

I agree with the Associate Judge’s finding that Mr Burnside and his wife are profiting by the decision to move Turf Engineering to Mr Burnside’s property. As he says, rent is being charged to the benefit of Mr and Mrs Burnside. On the other hand, Mr Holt assisted in the transfer. The transfer took place in 1996. The very object of the enterprise was initially to attract business to Wedderburn. Mr and Mrs Holt had known about the transfer for some eleven years before they complained. They led no evidence that the rental paid was excessive. There was not evidence before me that the arrangement is commercially unfair to Mr and Mrs Holt.

I find that the payment of rent to Mr and Mrs Burnside does not constitute conduct oppressive to Mr and Mrs Holt.

The Associate Judge said, and I agree, that money belonging to Hollen was spent on improvements on the land owned by Mr and Mrs Burnside without the authority or knowledge of Mr Holt. That conduct was unfair and did constitute conduct oppressive to Mr and Mrs Holt within s 232. I understand it is dealt with under the shed ground below.

THE DIRECTORS’ LOANS GROUND - 7

In my view, the Associate Judge has fairly summarised the relevant evidence on this issue in paragraphs 51 – 54 of his judgment.

The nub of the matter is that Mr Burnside resisted the attempts by Mr Holt to recover the moneys he had loaned to the company to set it up, whereas, without informing Mr Holt, he had secretly repaid his own loan moneys. I agree with the Associate Judge that this conduct was unfair and constituted conduct oppressive to Mr and Mrs Holt within the meaning of s 232 of the Corporations Act 2001.

THE SHED GROUND - 8

In my view, the Associate Judge fairly sets out the facts relating to this issue in paragraphs 55 – 57 of his judgment.

I agree with the Associate Judge that the conduct of Mr Burnside in secretly lending himself money to build a shed at his property at Lot 7 Nardoo Court, Wedderburn was, in the circumstances, unfair. In my view, such conduct constitutes conduct oppressive to Mr and Mrs Holt under s 232 of the Corporations Act 2001.

THE HONDA MOTOR VEHICLE GROUND - 9

In my view, the Associate Judge fairly summarised the evidence on this issue in paragraphs 58 – 60 of his judgment. As the Associate Judge said, this is another instance where Mr Burnside ignored Mr Holt, caused Hollen to “loan” him the money, and paid no interest which was to his benefit and to the detriment of Mr and Mrs Holt. In my view, this conduct was unfair and constitutes conduct oppressive to Mr and Mrs Holt under s 232 of the Corporations Act 2001.

OTHER ALLEGED INSTANCES OF OPPRESSION

The Associate Judge also found other instances of oppressive conduct which Mr and Mrs Holt rely on as follows:

(a) The exclusion of Mr Holt from management – 10.

(b) Relations with Greensward – 11.

(c) The ANZ Bank account - 12.

I agree with the analysis of the facts given by the Associate Judge on these issues in paragraphs 61 – 74 of his judgment.

In my view, the exclusion of Mr Holt from the management did constitute conduct oppressive conduct towards Mr Holt. I find that Mr Burnside’s exclusion of Mr Holt from meeting with Greensward representatives was oppressive. I find that Mr Burnside’s conduct in relation to the ANZ Bank account was oppressive. In each case the oppression has finished.

WHAT ORDERS SHOULD BE MADE ON THE RE-HEARING

Under s 233 the Court in its discretion can make any order that it considers appropriate in relation to the company including that the company be wound up or for the purchase of shares. As indicted earlier, Mr Burnside seeks an order that the company be wound up whereas Mr and Mrs Holt seek an order that Mr Burnside purchase their shares.

I have found that Mr Burnside engaged in a range of conduct oppressive to Mr and Mrs Holt. When Mr Holt retired from active participation in the management of the company in late 1994, the nature of relationship between him and Mr Burnside changed. It was only fair that thereafter Mr Burnside be properly remunerated for managing the company. On the other hand, his entitlement to be properly remunerated for his management of the company provides no justification for his improper use of the company’s moneys or for the improper diversion of business opportunities from the company to himself, particularly where he had not invited Mr and Mrs Holt to participate in those opportunities.

Hollen operates a profitable business and the company employs several employees. No evidence was led on the consequences of it being wound up but a winding up may put at risk the interest of existing employees and creditors.

Mr and Mrs Holt submit that Mr Burnside sought a winding up of the company under the just and equitable proceedings. They submit a winding up would be financially advantageous to Mr Burnside. They submit that Turf Engineering is situated on Mr Burnside’s property in Wedderburn without a secure long term lease. They argue that because of this the attractiveness of the businesses of Hollen to any potential purchaser would be greatly reduced and affect the purchase price. They submit that the probability is that Mr Burnside will, on a winding up, be able to purchase Hollen for far less than it is actually worth. The liquidator informed the Court that it is his intention to offer the businesses for sale as going concerns.

They submit that another impediment to obtaining a fair price is the loose contractual arrangement that the company has with its main customer, Greensward in England. They say this, too, would put off any potential purchaser other than Mr Burnside and further reduce the price for the company on a winding up.

They also point out that Mr Burnside as the manager of the company has a close personal relationship with the employees who are loyal to him.

They submit that an order to wind up the company fails to take into account the oppression by Mr Burnside and in fact rewards Mr Burnside for his oppressive conduct.

No formal evidence was led on these issues. I can assume, however, that a potential purchaser would take into account that it had no security of tenure over the factory premises at Wedderburn.

More importantly, however, the evidence does establish that the businesses do have peculiar advantages to Mr Burnside. First, the businesses provide a ready market for the blades that TB Blades makes. Secondly, the businesses provide benefits to the Precise company which operates on the same property at Wedderburn. Thirdly, the businesses will assist in the sale and promotion of the Eco Plow. These advantages would be of value to Mr Burnside. A winding up of the company involving a sale of the businesses as a going concern may allow Mr Burnside to reap these benefits without any corresponding benefit to Mr and Mrs Holt.

Will Mr and Mrs Holt be properly compensated for the oppression and the value of their shares if the businesses of the company are sold? I find that they would not. There seems substance in the argument that the value of the business to Mr Burnside is in excess of what it would be to a third party. As indicated above, some of that value has accrued through his oppressive conduct to Mr and Mrs Holt.

In my view, the fair way of addressing these issues is to order that Mr Burnside purchase the shares of Mr and Mrs Holt. I turn now to the question of the price to be paid. I propose to take advantage of the valuation already carried out by Mr Jamison.

VALUATION OF BARRY JAMISON

By an order made 14 July 2008, the Associate Judge ordered that Hollen be valued by Barry Jamison, a valuer nominated by the President of the Institute of Chartered Accountants and appointed by the parties. He provided a valuation dated 7 October 2008.

The valuer was ordered to take into account the effect (if any) of the oppressive conduct as found by the Associate Judge under the following heads:

(a) The establishment of ECO Plow Pty Ltd;

(b) The outsourcing of the business to TB Blades Pty Ltd;

(c) The relocation of the business of Turf Engineering to the Wedderburn property of Mr Burnside;

(d) The payment by Hollen of the shed on Mr Burnside’s property at Wedderburn;

(e) The loan by Hollen to Mr Burnside to pay for a Honda motor vehicle.

Mr Jamison valued the company as follows:

(a) As a going concern based upon a capitalised earnings valuation - $900,000;

(b) On a nett tangible assets valuation - $2,600,000,

as at both 24 October 2007 and 30 June 2008.

Mr Burnside contended that the valuation based on the nett tangible asset basis should be $2,435,000. The Associate Judge found that the nett tangible asset valuation was based on median property values and, in his view, appropriate.

Mr Jamison valued the instances of oppression as follows:

(a) Establishment of ECO Plow Pty Ltd – Nil.

(b) TB Blades Pty Ltd - $206,339.

(c) Relocation of Turf Engineering business - $120,000.

(d) Repayment of directors’ loan – Nil.

(e) Rebuilding of shed on Mr Burnside’s property – Nil.

(f) Honda motor vehicle loan – Nil.

Mr Jamison valued Hollen as at 24 October 2007 and as at 30 June 2008 on two bases. On a capitalised earnings basis he valued the company at $900,000. On the nett tangible asset basis he valued the company at $2,600,000. That valuation was reached after adding back to the value of Hollen the adjustments for the loss of the business to TB Blades and the other adjustments. Without the relocation of the Turf Engineering business, the value would be reduced to $2,480,000.

He was of the view that the net tangible asset basis better reflected the true value of the company. In my view, a purchaser is likely to take into account the earning capacity of the business as well as the asset values shown by the balance sheet. The assets in the balance sheet are valued on a going concern basis. The going concern value of the businesses on a capitalized earning basis is only $900,000. It is notorious that companies for sale do not always achieve the book value of their net assets. I consider the just and equitable basis to value the business for the purpose of valuing the shares under s 233 is to take the mid point between the net value of the assets of $2,480,000 and $900,000; in other words fixing a value of the company at $1,690,000 and Mr and Mrs Holt’s shares at $845,000.

There has been no suggestion that I should not use the valuation of Mr Jamison or that the date of valuation should be other than either 27 October 2007 or 30 June 2008.

Mr Upjohn requested that I not make a final decision on purchase of the shares until I had heard further submissions from him on Mr Burnside’s ability to buy the shares. I will hear Mr Upjohn.

My preliminary view of the orders I will make is:

(a)That Mr Burnside should purchase the shares of Mr and Mrs Holt for $845,000.
(b)That the winding up of the company be terminated forthwith and Hollen pay the costs of the winding up.
(c)That there be liberty to apply on any matter arising out of the fixing of the costs of the winding up.

I will hear the parties on costs.

[2009] VSC 95

23 March 2009