Shannon v Reid File Nos. SCGRG 85/3455 and SCGRG 91/2787 Judgment No. 3646 Number of Pages 18 Corporations Companies Management and Administration (1992) 11 Aclc 1

[1992] SASC 3646

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA Cox J.(1)

CWDS
Corporations - companies - management and administration - Companies (SA) Code s. 320 - family proprietary company of the Life Governor kind - petition by dissident shareholder to wind up company or for order that Life Governor purchase her shares - company run for many years by Life governor as though he were sole proprietor - no dividends, but profits always ploughed back - financial arrangements with related family partnership disadvantageous to company - finding of oppressive and prejudicial and discriminatory conduct on company's part entitling petitioner to order for compulsory purchase - valuation date and matters to be taken into account in assessing price to be paid for shares - assessment referred to Master.

HRNG ADELAIDE, 7-14 September 1992 #DATE 16:10:1992
Counsel for plaintiff:         Mr R.W. Evans
Solicitors:   Clelands
Counsel for defendant:         Mr D.E. Clayton
Solicitors:   Adams Kandelaars

ORDER
Order for compulsory purchase of plaintiff's shares (at a price to be assessed by Master) made.

JUDGE1 COX J. Cambusdoon was, and perhaps still is, a mixed farming property in the Kapunda district. At one time it was owned by Mr J.K. Shannon. On his death it passed to his daughters and his youngest son, Edward Lawrence Shannon, who bought out his sisters and ran the property himself. E.L. Shannon and his wife, Margaret Ruth Shannon, had three children - James McDonald, Deidre McDonald and Colleen McDonald - who were all brought up on Cambusdoon. From the time he left school J.M. Shannon assisted his father and it was obviously intended that he would take over the management of the property at some future time. In 1961 E.L. Shannon established the Bagot Well Pastoral Company Pty Ltd ("Bagot Well"). He and his wife were the subscribing shareholders. The company acquired Cambusdoon from E.L. Shannon and thereafter a partnership known as Cambusdoon Proprietors conducted the farming and pastoral business on the company's land. The original partners of Cambusdoon Proprietors were the two parents and the three children, but in 1965, at the instance of E.L. Shannon, the daughters ceased to be partners. By that time E.L. Shannon was living in semi-retirement with his wife in Adelaide, and J.M. Shannon was managing Cambusdoon. E.L. Shannon died in 1969. Both daughters had left home by then. Since his father's death J.M. Shannon has managed the company and is the active partner of Cambusdoon Proprietors. The other partner, his mother, is elderly and is living in Adelaide. 2. An examination of the original Memorandum and Articles of Bagot Well shows that E.L. Shannon created a typical family company with the controlling power firmly in his own hands as governing director. The objects of the company included the acquisition of land by purchase or lease, the carrying on of a pastoral and agricultural business, the buying and selling of stock and plant and the acquisition of shares and securities in any kind of company. The Memorandum provided inter alia -
    (a) that whilst E.L. Shannon held the Governing Director's
    Share he should hold the office of governing director so long as he
    chose or until he ceased to hold such Share or became mentally or
    physically incapable of performing the functions of a director (as
    certified by two legal qualified medical practitioners);
    (b) that so long as the Governing Director's Share should be
    registered in the books of the Company in the name of E.L. Shannon
    or his personal representatives or any person to whom E.L. Shannon
    should have specifically bequeathed such Share by his will or
    codicil, the following special rights and privileges (inter alia)
    should be attached to the Governing Director's Share and should be
    exercisable by the holder thereof for the time being, namely :
    i) he should have three fourths of the votes in the Company;
    ii) he might assume by notice in writing the office of governing
    director and he should hold such office for as long as he chose or
    until he ceased to be the holder of such Share or became mentally or
    physically incapacitated (as certified by two legally qualified
    medical practitioners);
    iii) he might appoint any other person to be the governing
    director with such powers, authorities and discretions as he
    chose;
    iv) he might remove the governing director for the time being
    from office; and
    (c) that the governing director for the time being should have
    the power at any time to appoint any other persons to be directors
    of the Company with such powers, limitations and restrictions as he
    might define and that the governing director for the time being
    should also have the power to remove at any time any director
    howsoever appointed. Soon after its incorporation Bagot Well made
    an issue of 1,000 ordinary shares to Mrs M.R. Shannon and 3,000
    ordinary shares to each of the three children. In 1962 J.M.
    Shannon was appointed a director of the company and thereafter the
    directors were E.L. Shannon, M.R. Shannon and J.M. Shannon. 3. In 1964 Bagot Well adopted new Articles whereby the nominal capital of the company was divided into shares of different classes and also ordinary shares. Pursuant to Article 2 the expression "The First Life Governor" was defined to mean E.L. Shannon and the expression "The Second Life Governor" was defined to mean J.M. Shannon. Article 5 provided, in summary -
    (a) that the First Life Governor's Share (which was
    registered in the name of E.L. Shannon) was to remain a Life
    Governor's Share so long as E.L. Shannon was the registered holder
    of or entitled to such Share or until his death whereupon such Share
    was to cease to be a Life Governor's Share and thereafter rank as
    and become an "A" Class Share;
    (b) that upon the First Life Governor's Share becoming an "A"
    Class Share, the Second Life Governor's Share (which was registered
    in the name of J.M. Shannon) was to become a Life Governor's Share
    and so remain so long as J.M. Shannon was the registered holder of
    or entitled to such Share or until his death whereupon such Share
    was to cease to be a Life Governor's Share and thereafter rank as
    and become a "D" Class Share;
    (c) that a Life Governor's Share would have attached to it and
    confer upon the holder thereof (inter alia) the following rights
    qualities and privileges:
    (i) except during any period of incapacity to perform the functions
    of a director through mental defect or illness, the right
    at any time by notice in writing to take office as a director and to
    hold such office so long as he chose and at any time by notice in
    writing to resign and at any time to take office again as aforesaid
    and whilst holding such office to be Chairman of the Board and to
    exercise all the powers authorities and discretions vested in the
    directors generally and that all the other directors for the time
    being should be under his control and bound to conform to his
    directions;
    (ii) the right at any time by notice in writing to appoint any
    other persons to be directors of the Company and to define limit
    and restrict their powers and at any time by notice in writing
    to remove any director howsoever appointed;
    (iii) the right in respect of the Life Governor's Share at every
    general meeting and on every poll to 76 votes out of every 100
    votes cast;
    (iv) the right at any time to take up any unissued shares; and
    (v) the right in a winding up to all surplus assets. 4. Articles 35 to 52 created the familiar restriction on the transfer of shares, including the following provisions -
    "35. A share may be transferred by the registered holder
    thereof or other person entitled to transfer the same to the holder
    of or any person selected by the holder of the Life Governors Share
    or if there is no Life Governors Share to any person selected by the
    Directors or to any registered holder of shares in the capital of
    the Company selected by the transferor but save as aforesaid and
    save as provided by Articles 40 or 42 hereof no share shall be
    transferred to a person who is not a registered holder of shares in
    the capital of the Company so long as any registered holder of
    shares in the capital of the Company or any person selected by the
    holder of the Life Governors Share or if there is no Life Governors
    Share by the Directors as one to whom it is desirable in the
    interests of the Company that the share should be transferred is
    willing to purchase the same at the fair value provided that a share
    may not be transferred pursuant to the provisions of this Article to
    any member who is registered as the holder of shares pursuant to
    Section 256 of The Act, and is not otherwise registered as the
    holder of shares unless he is selected by the holder of the Life
    Governors Share or by the Directors as aforesaid.
    36. Except where the transfer is made pursuant to Article 35,
    40 or 42 hereof the person proposing to transfer a share
    (hereinafter called "the proposing transferor") shall give notice in
    writing (hereinafter called "a transfer notice") to the Company that
    he desires to transfer the same and deliver the share certificate
    for the same to the Company unless the Directors dispense with such
    delivery. Such notice shall specify the sum he fixes as the fair
    value and shall constitute the Company his agent for the sale of the
    share to the holder of the Life Governors Share or to any registered
    holder of shares or to a person selected as aforesaid willing to
    purchase the share (who are hereinafter severally included in the
    term the "purchasing member") at the price so fixed or at the option
    of the purchasing member at the fair value to be fixed by the
    auditor in accordance with Article 38 hereof. A transfer notice may
    include several shares and in such case shall operate as if it were
    a separate notice in respect of each. A transfer notice shall not
    be revocable except with the sanction of the Directors.
    37. If the Company shall within the space of twenty-eight days
    after being served with a transfer notice, find a purchasing member
    and shall give notice thereof to the proposing transferor, he shall
    be bound upon payment of the fair value as fixed in accordance with
    Article 36 or 38 hereof to transfer the share to the purchasing
    member.
    38. In case any difference arises between the proposing
    transferor and the purchasing member as to the fair value of a
    share, the auditor shall on the application of either party certify
    in writing the sum which in his opinion is the fair value, and such
    sum shall be deemed to be the fair value and in so certifying the
    auditor shall be considered to be acting as an expert and not as an
    arbitrator and accordingly the "Arbitration Act, 1891-1934" shall
    not apply." (There was no definition of "auditor" in the Articles. It was accepted by the parties that the auditor referred to in Article 38 was the auditor of the company appointed at the annual general meeting pursuant to Article 146.)
    "39. If in any case the proposing transferor after having
    become bound as aforesaid makes default in transferring the share,
    the Company may receive the purchase money and the proposing
    transferor shall be deemed to have appointed the holder of the Life
    Governors Share or any one Director or the Secretary of the Company
    as his agent to execute a transfer of the share to the purchasing
    member and upon the execution of such transfer the Company shall
    hold the purchase money in trust for the proposing transferor. The
    receipt of the Company for the purchase money shall be a good
    discharge to the purchasing member and after his name has been
    entered in the register in purported exercise of the aforesaid
    power, the validity of the proceedings shall not be questioned by
    any person.
    40. If the Company shall not within the space of twenty-eight
    days after being served with a transfer notice find a purchasing
    member and give notice in manner aforesaid the proposing transferor
    shall at any time within three months afterwards be at liberty,
    subject to Articles 43 and 48 hereof, to sell and transfer the share
    (or where there are more shares than one, those not placed) to any
    person and at any price.
    41. The shares specified in any transfer notice given to the
    Company as aforesaid shall be offered in the first place to the
    holder of the Life Governors Share and any shares not taken up by
    such holder unless the holder of the Life Governors Share or if
    there be no Life Governors Share then the Directors think fit to
    offer them or any of them to any person selected as aforesaid shall
    be offered by the Company to the registered holders of shares (other
    than the proposing transferor and the holder of the Life Governors
    Share) and except as hereinafter provided as nearly as may be in
    proportion to the existing shares of which they shall be the
    registered holders respectively otherwise then as a holder
    registered pursuant to Section 156 of The Act and the offer shall in
    each case limit the time within which the same if not accepted will
    be deemed to be declined and may notify to the registered holders of
    shares (except as aforesaid) that any registered holder of shares
    who desires an allotment of shares in excess of his proportion
    should in his reply state how many excess shares he desires to have;
    and if all the registered holders of shares do not claim their
    proportions the unclaimed shares shall be used for satisfying the
    claims in excess. If any shares shall not be capable without
    fractions of being offered to the registered holders of shares in
    such manner as may be determined by lots to be drawn under the
    direction of the Directors Provided always that for the purposes of
    this Article a member who is registered pursuant to Section 156 of
    The Companies Act as the registered holder of shares shall not in
    respect of those shares be entitled to any shares or any notice
    under the provisions of this Article.
    42. Subject to the provisions of Article 48, any share may be
    transferred by a member to a father or mother or wife or husband or
    a child or other descendant brother sister nephew or niece or the
    spouse of any child or other descendant brother sister nephew or
    niece of such transferring member or to any company now or hereafter
    formed in which any one or more of such persons or the transferring
    member either alone or together holds or hold a controlling interest
    and any share of a deceased member may be transferred by his
    representative into his own name or into the name of the trustee for
    the time being of such deceased member's will or estate or any
    portion thereof or to the father or mother widow or widower or a
    child or other descendant brother sister nephew or niece or the
    spouse of a child or other descendant brother sister nephew or niece
    of such deceased member or to any company now or hereafter formed in
    which any one or more of such persons or such representative or
    trustee either alone or together holds or hold a controlling
    interest or to a person to whom the holder of the Life Governors
    Share shall by will or other testamentary disposition specifically
    bequeath the same and the restrictions of Articles 35 to 41 shall
    not apply to any such transfer or to a transfer of shares desired to
    be made merely for the purpose of effectuating the appointment of
    new trustees provided that it is proved to the satisfaction of the
    Board that such is the case. The holder of the Life Governors Share
    or the Directors may at any time give notice to a member or to his
    representative requiring such member or his representative forthwith
    to sell at the fair value thereof and transfer all or any of his
    shares except the Life Governors Share to a person named in such
    notice, and unless within fourteen days after the giving of such
    notice such member or his personal representative shall sell and
    transfer such shares in accordance with such notice he or they shall
    be deemed to have given a transfer notice in respect of such shares
    under and in accordance with Article 36 hereof and to have specified
    therein as the sum he fixes or they fix as the fair value of the
    shares - the fair value thereof to be certified in writing by the
    fair value thereof to be certified in writing by Auditor in
    accordance with Article 38 hereof as if a difference had arisen
    between a proposing transferor and a purchasing member, and all
    consequent and subsequent proceedings may be taken on that
    footing." 5. Finally, it is necessary to notice the Article which dealt with the distribution of assets on a winding up -
    "156. If the Company shall be wound up and the assets
    available for distribution among the members as such shall be
    insufficient to repay the whole of the paid up capital, such assets
    shall be distributed so that as nearly as may be the losses shall be
    borne by the members in proportion to the capital paid up or which
    ought to have been paid up at the commencement of the winding up on
    the shares held by them respectively. And if in a winding up the
    assets available for distribution among the members shall be more
    than sufficient to repay the whole of the capital paid up at the
    commencement of the winding up the excess shall be distributed
    amongst the members in proportion to the capital at the commencement
    of the winding up paid up or which ought to have been paid up on the
    shares held by them respectively. But this Article is to be subject
    to and without prejudice to the rights of the holders of shares
    issued upon special terms and conditions." 6. So under the revised Articles E.L. Shannon became the First Life Governor and J.M. Shannon the Second Life Governor with, in effect, the right of succession. The shareholdings of the other members of the family remained the same in number as before but each shareholder's shares were allotted to a different designated class. J.M. Shannon became the sole Life Governor of the company upon his father's death. 7. Neither of the daughters took any part in the management of Bagot Well. Deidre (now Mrs McKay) left home about 1960. So far as appears she took no active interest in the company and in 1976 she sold her shares to her brother for $2.60 a share. Colleen (now Mrs Reid) moved to Sydney in 1963. After her marriage in 1972 she showed considerable interest in the affairs of the company in which she had an important stake. That interest has culminated in these proceedings. 8. When E.L. Shannon made his last will in 1968 he gave the bulk of his estate to his son subject to a life interest to his widow. He declared that, apart from certain provision for his daughter Colleen while (to put it approximately) she remained unmarried, he had made no provision for his daughters in his will "for the reason that I have made sufficient provision for them during my lifetime." Mrs Reid has interpreted that as a reference to the allotment of 30% each of the issued shares in Bagot Well to her and her sister. This was, she put it, her "inheritance" and, while it cannot affect her legal position as shareholder, it does go a long way towards explaining the stand she has taken against her brother's management of Bagot Well since their father's death. She acknowledges his special position as the holder of the Life Governor's Share - it was always accepted in the family that the son, or eldest son, would carry on the business - but she believes she has a substantial interest in the company the value of which should be related, at least as a starting point, to 30% of the assets. Mr J.M. Shannon has always considered this view to be completely wrong-headed. Mrs Reid (he believed) was powerless as a shareholder and the value of her shares was very modest indeed. Asset backing simply did not come into it. So in money terms the two were, and remain, poles apart. 9. However, it has not only been a matter of money. Mrs Reid married a businessman and from the time of her marriage she has asserted, consistently and persistently, a claim to be informed about the company's affairs. She kept writing from Sydney to her brother for information. She complained repeatedly that the financial statements were late and that she had to keep asking for them. She would ask questions of her brother or of the company's secretary and accountant, Mr Flood, about its policies and financial affairs. What is the market value of the Bagot Well land holdings? Why did not the company pay dividends? A bulky correspondence accumulated between the opposing parties which was admitted in evidence. It shows that Mr Shannon's responses to his sister's importunities were always courteous but sometimes showed signs of strain. She had no right as a shareholder (he thought) to interrogate the directors by correspondence. If she wanted to ask questions she could attend the annual general meeting. It was not the company's duty to provide her with a valuation of her shares. However, Mrs Reid was not to be put off. She kept up her demands for information and eventually these proceedings were begun. In 1985 Mrs Reid lodged a petition for an order that the company be wound up; alternatively, that Mr Shannon or the company be required to purchase her shares at a price to be determined by the Court. Those proceedings were at a standstill for a long time while the parties made unsuccessful attempts to settle their differences. Then in 1991 Mr Shannon, to bring matters to a head, instituted his own action in this Court seeking a declaration that he was entitled to acquire Mrs Reid's shares compulsorily for $42,000. The two suits were tried by me consecutively, with the evidence in the one being admitted by consent in the other. 10. It is necessary to say something about the history of Bagot Well and those involved in it since the death of E.L. Shannon in 1969. I see no reason to doubt the evidence of Mr J.M. Shannon that the company was then in a fragile state financially. However, the company survived and by careful management its assets have been built up and it is now in a healthy financial position. It remains, Mr Shannon explained, a holding company, as it was in his father's time, with the farming operations being carried out by Cambusdoon Proprietors. There were certain dealings involving another partnership, Gloaming Proprietors, of which the partners are Mr Shannon and his wife. There were sales and purchases of land of which the most important by far was the company's purchase in 1977 of the old Anlaby homestead, in the same district, and some parcels of surrounding land. This was financed by the sale of the Cambusdoon holdings and a bank loan. Anlaby was a large historic homestead but the house and grounds and outbuildings were run down and their restoration has been a time-consuming business for Mr Shannon and his family and has involved, I have no doubt, considerable expense. The other two major enterprises in which the company has engaged have been the development and sale of subdivisional blocks in the town of Kapunda and a very profitable burst of share speculation around 1987 and 1988. Things have been more difficult in recent times, but the latest financial statements, properly interpreted, show that the company is in a basically sound position. 11. I should say that P.M. Shannon, who is Mr J.M. Shannon's wife, was appointed a director of Bagot Well in November 1978. M.R. Shannon ceased to be a director in March 1979. Since that time J.M. Shannon and P.M. Shannon have been the sole directors of the company and as such responsible for its policies and decisions. Mrs P.M. Shannon did not give evidence. It is obvious that the dominant force in the company is its Life Governor - more precisely, the holder of the Life Governor's Share - and I think it reasonable to conclude (if it matters) that Mrs Shannon concurred in all the decisions reached by Mr Shannon and expressed in the resolutions of the board of directors. It is therefore realistic as well as convenient not to discriminate always in these reasons between the actions and purposes of Mr Shannon and the actions and purposes of the board of directors. 12. The only witnesses in the trial were Mrs Reid, Mr Shannon and Mr Flood. However, there was a large amount of documentary evidence. Evidently an accountant advising Mrs Reid has gone through the financial records of the company and the associated partnerships and there were tendered as part of her case large extracts from those records, grouped under some 15 or so headings, preceded in some instances by a table summarizing an important aspect of the accompanying documents. There has been no challenge by Mr Shannon or the company to the documents themselves - there hardly could be - but I have been given competing interpretations of many of them. I have found this documentary material helpful up to a point. I should probably have found it far more helpful had the petitioner taken the normal course in such a case of calling an accountant to explain and analyse the documents and, most important, to interpret them in a comprehensive way - not just topic by topic, but in an overall fashion, and explaining what was and what possibly was not sound and generally acceptable business practice, so far as the buying and running of these properties and the division between holding company and operating partnership and their inter-related credits and debits and so on were concerned. It was unreasonable to leave the trial Judge to find his way through this mass of material without the usual expert assistance. 13. One of Mrs Reid's criticisms of the way Bagot Well has been managed for the past twenty years is that practically all of Mr Shannon's energies have been directed to building up the tangible assets of the company rather than seeking immediate profits from which a dividend might be paid. It is plain, I think, that having the company pay dividends was never a part of Mr Shannon's strategy. He made his position very plain in his conversations and correspondence with Mrs Reid. As he put it in a letter he wrote in September 1981, his "whole plan" was slowly to build up the company's landholding in order to pass it on to his sons who both wanted to go onto the land.

    "It is typical of rural properties where large capital values
    return practically nothing after running costs ... You can be
    absolutely assured that there will be no big bonanza pay-out to any
    shareholder. Even at my death the company will be carried on and no
    land sold and unless the whole company was liquidated there would be
    no spare cash to distribute..." 14. Two years later (December 1983) he referred to his and Flood's surprise that Mrs Reid should have taken up the latest share issue.
    "Once money is subscribed to shares it is virtually tied up.
    As I have pointed out to you in many letters there is no prospect
    of a dividend or capital return either while I am running the
company or later when it is being run by my sons." 15. He went on to offer Mrs Reid $32,000 for her shares to be paid over 5 years. "This", he said, "will compensate a little for the interest on your money." At that stage the nominal value of the shares was $27,000. 16. Mr Shannon was the Life Governor of Bagot Well. He had great powers. From a practical point of view, no-one could override his directorial or managerial decisions. Nevertheless he and his fellow director - and in the end the decisions of the board of directors are what matters - were obliged to exercise their powers in the interests of the company generally and not in the interests of themselves and their family alone. It may be that many, particularly country people, would sympathize with Mr Shannon in the position in which he found himself. This was a common form of financial arrangement in its time, with a company owning the land and a partnership running the business, no doubt designed to lessen the impact of the taxation and succession duty laws but at the same time keeping the de facto control of the whole enterprise securely in the hands of the family head who created it. It is possible that E.L. Shannon intended that he, and after him his son, should continue to be the effective owner of the enterprise, as well as its all-powerful director, but the allocation of 60% of the issued shares to his daughters was (whether he realized it or not) inconsistent with that view. Perhaps he expected that his children would always agree among themselves or that the daughters would be willing at all times to defer to the views of their brother. I can imagine that many family members in a situation similar to Mrs Reid's would have acknowledged the holder of the Life Governor's Share as the virtual owner of the company and at liberty to manage it as he chose and to concentrate on building up an asset to hand on to his sons, as his own father had handed the property on to him, and entitled when it suited him to acquire the shares in the company of anyone outside his immediate household at something like par value. However, that was not the way Mrs Reid saw it and it is not, as I understand it, the way the law sees it. Not even a Life Governor of the Bagot Well kind can run such a company, at least a company with a dissident shareholder, as though he were the sole proprietor. Yet the evidence establishes, in my opinion, that this is what Mr Shannon did, by and large, from the time he took control of the company upon his father's death. 17. I have indicated that Mrs Reid kept pressing the company for a valuation of her shares. She had in mind selling them to her brother. There was a time when she was more interested in buying shares in the company than selling them - she would have liked to buy Mrs McKay's shares before they were sold to Mr Shannon - but she came to see after a time that the best solution was to sell her shares to her brother provided that she could get the right price for them. To that end she needed to have the shares valued. She kept asking her brother and Mr Flood for a valuation but she never got it. Of course, the company was under no obligation to provide a shareholder with a share valuation, unless it was an assessment by an auditor under Article 38, and neither party was taking any steps at that stage to invoke the formal transfer provisions of the Articles. Mr Shannon, for his part, insisted that he would only pay Mrs Reid for her shares what he had paid Mrs McKay, with a modest addition for interest. So there was a stalemate. In 1989, in an attempt to resolve it and to bring the dispute to an end, Mr Shannon gave Mrs Reid a notice, ostensibly under Article 42, with the object of acquiring her shares compulsorily for $42,000. This was the value that an accountant, Mr G.H. Parsons, chosen jointly by the parties, put on the 13,500 "B" class shares that Mrs Reid then held in Bagot Well. In Mr Parsons's opinion this was the "fair value" of the shares within the meaning of Article 38. At the same time Mr Parsons made another valuation - whether at the request of both parties is disputed - that treated Mrs Reid as having a 30% shareholding in the company, ignored the special position of the Life Governor, and valued her interest in accordance with the company's net assets. That produced in Mr Parsons's judgement, in December 1988, a figure of $332,700 but, as I have indicated, this was not what Mr Parsons considered to be the fair value or the market value of Mrs Reid's shares. Mr Shannon treated the $42,000 valuation as an effectual assessment by an auditor of the fair value of the shares for the purpose of Article 38, although he did not give Mrs Reid notice of his intention as Life Governor to acquire her shares under Article 42 until January 1989. In July 1989 Mrs Reid formally denied that her brother was entitled to acquire her shares as claimed, and in November 1991 Mr Shannon issued his summons seeking declaratory and other relief with respect to the purported share acquisition. 18. I turn to consider some of the more important of Mrs Reid's complaints about the policies and management of Bagot Well. 19. I have referred to Mrs Reid's determined attempts over the years to get information about the company's affairs. She sought by correspondence more than a shareholder was legally entitled to demand. She was invited to ask her questions at the annual general meeting, but it is an indication of the state that the dispute had reached that one such annual meeting was appointed to be held at Anlaby in the week after Christmas when Mrs Reid could reasonably be expected to be on holidays with her family in New South Wales. She was entitled to copies of the financial statements and these were chronically late. The explanation, that the accountant had more urgent duties to attend to, was unacceptable and Mr Shannon should have taken more vigorous steps to ensure that Mrs Reid always had adequate notice of general meetings, that the financial statements were produced within a reasonable time after the end of the financial year, and that Mrs Reid was sent a copy of the statements promptly and without having to ask for it. It was unwise of Mr Shannon to allow this justifiable ground for complaint to continue, with respect to one subject or another, year after year. 20. I have said that Bagot Well was set up as a holding company, with the farming business being carried on by Cambusdoon Proprietors, a firm owned by Mr Shannon and his mother. The financial relationship between the two entities, as indicated by the financial records, would be accounted strange indeed if considered as a commercial relationship between two businesses at arm's length. First, there is the matter of rent - the major source of income, one might think, for a company that owned valuable pastoral lands that were actually farmed by someone else. For the first twenty years or thereabouts Cambusdoon Proprietors paid Bagot Well a steady annual rent of $2,500. The relevant landholding fluctuated over that period, and the annual value of the land must have altered markedly, but the rent remained constant and, to say the least, modest. One may suppose that it suited those in charge, from a tax point of view, to keep the company's income down in this and other respects. In 1981, however, the rent was increased twelvefold to $29,600. In 1982 it was $32,800 and for each year from 1983 to 1986 it was $24,000. It was cut back to $5,000 in 1987 and then it was reduced to nothing. Mr Shannon said that he was advised by the accountants to increase it in 1981 in view of Mrs Reid's activity. He thought that Mr Flood's office assessed the rent, but Mr Flood implied in his evidence that it was fixed by Mr Shannon. Mr Shannon would not agree that the revised rent was a commercial rent. He said he cut it back to nothing as a result of the court proceedings taken by Mrs Reid. He explained that, by way of set-off, he practically eliminated the payment of directors' fees to the two Bagot Well directors. Mr Flood's evidence was that the higher rent was causing enormous problems for Cambusdoon Proprietors, but it is clear that the directors of Bagot Well were not entitled to provide its tenant farmer with rent-free land if that was to be done at the expense of its own shareholders. Prime facie at least, that is what was happening, even taking all reasonable offsets into account. There is no expert evidence as to what a reasonable rent for the land in all these years would have been. 21. Secondly, there is the matter of the Cambusdoon Proprietors' loan account. Until 1967 the partnership had a modest but significant credit (up to $7,667) in the books of Bagot Well, but that changed in 1968 to a debit of $21,646 and the figure rose steadily in the succeeding years. In 1980 it was $100,566 and in 1986 it reached its peak of $308,130. In 1991 (the latest figures available) it was $211,729. The debt is unsecured and no interest is paid on it. Meanwhile Bagot Well meets heavy annual interest charges ($65,034 in 1990-91) from its own loan creditors. I might say that it was put to me that the Cambusdoon Proprietors' debt appearing in the company's books does not really mean anything because the firm lacks the means to pay it. However, given that Cambusdoon Proprietors is a partnership, that could not be an answer until the personal fortunes of its individual members had been exhausted. 22. As the elimination of directors' fees was related to the decision to stop charging Cambusdoon Proprietors rent, I should say what those fees were. Between 1962 and 1969 they amounted to only a few hundred dollars a year. No fees were paid between 1970 and 1981. In 1982 fees amounting to $1,750 were allowed and by 1985 they had grown to $7,425. In 1986 they jumped to $17,000 for no obvious good reason. In 1987 and 1988 the fees were set at $32,000 and $10,000 respectively. There were no directors' fees in 1989, but $500 was paid in 1990 and $700 in 1991. The abnormally high fees paid in 1987 and 1988 are explained in part by the company's intensive and very successful share trading in those years. 23. Looked at from a purely business point of view, the financial relations between Bagot Well and Cambusdoon Proprietors were very unsatisfactory, at least for Bagot WelL. Quite apart from the inadequate accounting system it would seem, so far as one can judge from the financial statements and as a matter of common sense, that the company was not getting a proper return on the land that it was making available to the firm that was farming it. Of course, none of this would matter very much if the interests of the company and the interests of the firm were identical, and plainly this was the basis upon which the two entities were run. However, that assumption was invalidated by Mrs Reid's persistent if implicit dissent. The directors of Bagot Well were obliged to conduct the affairs of the company in the interests of the shareholders as a whole, and that meant in practice that Mr Shannon could not, in effect, integrate the two businesses, Cambusdoon Proprietors and Bagot Well, simply for the benefit of himself and his family. It is impossible to resist the conclusion that this was really what he was doing. 24. However, it is necessary to say that the position is not as straight-forward as might superficially appear. If the submission of Mr Evans (for the company and Mr Shannon) that these were "only book entries" is rejected, as I think it must be, some analysis of individual items, and possibly a degree of balancing out, will have to be made. I have referred to the matter of directors' fees. Perhaps on the subject of loan accounts it is relevant to notice the debit item "Estate E.L. Shannon" that has appeared in the annual accounts of the company from the earliest days. In 1968 the company owed Mr E.L. Shannon $115,775. By 1991 this had only been reduced to $76,678. No interest was ever paid to the estate. Again, if one looks upon Bagot Well as the property of Mr J.M. Shannon and his family this is not of much moment because Mr Shannon is the sole residuary beneficiary of his father's estate. Then there are the loan accounts of Mr Shannon and his wife which - and particularly Mr Shannon's - have grown considerably in the past few years. For instance, in June 1987 the company owed Mr Shannon $50,912 and Mrs Shannon $9,950. In June 1991 the figures were $85,221 and $14,150 respectively. Another creditor in the 1991 balance sheet is "Cambusdoon Investments Pty Ltd as trustee for J.M. Shannon Family Trust" to the amount of $50,188, and Gloaming Proprietors for $7,977. The company paid no interest on those borrowings. Mr Shannon also gave evidence of a considerable amount of labour provided by him and his family to the benefit of Bagot Well but for which they made no charge. He spent a lot of time in the late 1980s organizing the share dealings that proved to be very profitable. In recent years the Kapunda subdivisions have involved considerable time and energy. There were other unpaid services as well. Mr Shannon referred to improvements on the Anlaby land - fencing and tree planting and the restoration work - which have enhanced the value of the property free of charge to Bagot WelL. I think a good deal of this work falls into the category of a labour of love by the proud occupiers of some fine buildings which are, after all, their home, but I accept that some of it, including the trees and fences and other such improvements, can validly be brought into account in reckoning the real state of affairs between Bagot Well and Cambusdoon Proprietors. It is a matter of what was reasonable from a business point of view. Assessing the overall position with anything approaching accuracy would be practically impossible. 25. I should say that it was Mrs Reid's case that the purchase of Anlaby, particularly the homestead, was a piece of self indulgence on the part of the directors that could not possibly be justified on elementary business principles. Bagot Well was simply a holding company and had no need to provide its manager with such a grand residence, especially as the Anlaby land that was bought about the same time was not very extensive. Mr Clayton (for Mrs Reid) argued that it would have been quite practicable for Mr Shannon to maintain proper oversight of the company's land at Anlaby and elsewhere in the district while living in a more modest but adequate house in Kapunda. I do not regard the submission as wholly unreasonable, but I am of the opinion that it should be rejected. After all, the same company owned the Cambusdoon homestead at one stage, with the Shannon family living in it free of charge and the farming business being conducted by Cambusdoon Proprietors, and I accept Mr Shannon's evidence that the purchase of Anlaby, financed largely by the sale of Cambusdoon, was all in all a sound commercial transaction. He claimed that the house added nothing to the cost of Anlaby, anyway; and there was no evidence to the contrary. While the point is arguable, I have come to the conclusion that the directors were not obliged to charge Mr Shannon rent for his occupation of the house. That does not mean, however, that the company was entitled to expend large sums of money in restoration work. For Mr Shannon to put his son, Andrew, on the payroll in the first half of 1987 was a dubious move, to say the least. 26. Next there is the matter of dividends. It seems that the only dividend the company has ever paid was a dividend of 10c. a share declared on 23 April 1987. That cost the company $6,475. It made a profit in its trading in other companies' shares in 1986-87 of $173,059 and showed an overall operating profit of $65,164. It paid Mr and Mrs Shannon $32,000 in directors' fees that year. In the circumstances the dividend was a very modest one indeed. As for the other years, Mr Shannon explained that the company generally made a loss, and dividends could only be paid out of income. However, the fact of the matter is that the extent of the company's income (if any) in any particular year was greatly dependent upon whether it chose to recover all the charges that it was entitled to levy, and the way income and expenses were shared between the company and the partnership, and these things depended to a substantial degree upon the discretionary judgement of the directors. There was also the dominant policy of building up the assets for the future benefit of the directors' sons. It was proper for the directors to preserve the assets of the company and to promote their reasonable enhancement, but a balance had to be maintained which acknowledged the legitimate interests of the shareholders generally. One may fairly conclude that, except in 1987, the question of declaring a dividend was never seriously considered by the directors, even in the best years. The policy of self-interest that Mr Shannon pursued in this respect was legally indefensible, and the failure of the directors to declare more dividends amounted, in my opinion, both before and after 1985, to unfair discrimination against Mrs Reid. Cf Re City Meat Co. Pty Ltd (1983) 8 ACLR 673. Complaint is made about certain of the company's share issues, especially those made in 1982 and 1984. Pro rata allotments had been made to all shareholders in 1978 and 1981, and Mrs Reid subscribed $3,000 and $18,000 respectively to take up her share entitlements and maintain her percentage of the total shareholding. Some criticism could be made of the directors with respect to the 1978 and 1981 decisions but they are not of great importance in themselves and there is no express complaint about them in the petition. That cannot be said about the later allotments. In 1982 the company allotted 13,000 ordinary $2 shares at par to Mr Shannon. No offer of shares was made to Mrs Reid. As a result Mrs Reid's percentage of the issued shares in the company was reduced from 30.5 to 23.6. The same sort of thing happened in 1984 when 7,500 ordinary $2 shares were allotted at par to Mr Shannon. No offer was made to Mrs Reid and her proportion of the issued shares slipped to 20.8%. Mrs Reid's complaints are that those share issues, if they were to be made at all, should have been made at a premium, that they were discriminatory and that they were in any case unnecessary. However, it is common practice to make share issues of this kind at par and I do not think that this particular complaint can succeed. It was not pleaded. I think there is a basic legal answer to the other objections, but in case I am wrong about that I shall deal with the facts relating to each allotment. Mr Shannon said that the first allotment was needed to complete a payment to the vendors on the Anlaby deal and the second to increase the company's issued share capital in conformity with the general requirements of the National Bank with which the company had its overdraft. In each instance the company was simply making a lawful and bona fide increase to its working capital. The evidence about the Bank's attitude is not very convincing. Perhaps the company was undercapitalized, but I doubt whether the Bank was expressing any concern about that in 1984. Mr Clayton argued that if the company needed more funds for any purpose it had simply to call up some of the longstanding loans to Cambusdoon Proprietors, something that it should have been doing anyway. I certainly think it possible that one of Mr Shannon's purposes in organizing the 1982 and 1984 allotments was to dilute the interest in the company of a dissident shareholder who was becoming increasingly troublesome. Perhaps he regarded it as a degree of insurance against the risk of Mrs Reid's claims meeting, however unexpectedly, with some success. Mr Shannon acknowledged in his evidence that the 1982 issue was a defensive measure. Plainly he considered for one reason or another that to allow Mrs Reid to take part in these issues would be to add fuel to her demands. ("I would think anything she subscribed she would want back five-fold if she could.") If one regards these two allotments as normal discretionary decisions of directors to make a share issue there are certainly grounds for asking whether they were made with the interests of the company in mind and not simply the interests of Mr Shannon, but I am not sure that the case is clear enough to support a positive finding that this was their dominant purpose. 27. However, there is a question whether the decision to make the 1982 and 1984 allotments were decisions of the board of directors to which the principles about fiduciary relationships in all respects applied. That would have been the case had the allotments been initiated by the directors themselves on the company's behalf, or even had the decision been made by a governing director having authority to exercise the powers of the board. Ngurli Ltd v. McCann (1953) 90 CLR 425; Whitehouse v. Carlton Hotel Pty Ltd

(1987) 162 CLR 285; J.D. Hannes v. M.J.H. Pty Ltd (1992) 7 ACSR 8. However, that was not the situation here. The company records show that the formal initiative, if not the inspiration, for these allotments came from Mr Shannon. Paragraph (f) of Article 5 gave the holder of the Life Governor's Share "the right at any time to take up any unissued shares in the capital of the Company," and in each case, in purported exercise of that right, Mr Shannon notified the company that he intended to exercise it and the board of directors made the allotment accordingly. It seems to me that it had no real choice in the matter. While the right to take up the unissued shares is attached under Article 5 to the holder of the Life Governor's Share, that person will not necessarily be a director - see par.(a) of Article 5 - and, even where he is, the right exercisable under par.(f) is not directorial in character. It seems more appropriate to regard it as a special right conferred by the Articles on a particular privileged shareholder and not itself affected by the fiduciary restraints applicable to persons acting as directors of a company. People usually apply for shares with only their own interests in mind and often with the object of increasing their own proportion of the issued capital at the expense of others. Generally speaking, a shareholder does not owe any fiduciary duty to the company or to his fellow shareholders. North-West Transportation Co Ltd v. Beatty (1887) 12 App Cas 589, at 600-1; Peters' American Delicacy Co. Ltd v. Heath (1939) 61 CLR 457, at 504. It is true that the application for shares by the Life Governor and their subsequent allotment by the directors are two different things, but I do not think that the Articles of Bagot Well can have been intended to make an application under par.(f) of Article 5 examinable by the directors by reason of the applicant's self-interest. That would limit the right conferred by the Article very severely if, indeed, it did not make it a dead letter. So for more than one reason this complaint must, in my opinion, fail. 28. I come to the matter of remedies. Mrs Reid's petition was lodged on 20 October 1985. 29. It was brought under s.320 of the Companies (SA) Code. That section has now been superseded by s.260 of the Corporations Law but the parties agree that the old provision remains applicable to this case. 30. The relevant parts of s.320 are -
    "(1) An application to the Court for an order under this
     section in relation to a company may be made -
     (a) by a member who believes -
     (i) that affairs of the company are being conducted in a manner
     that is oppressive or unfairly prejudicial to, or unfairly
     discriminatory against, a member or members, or in a manner
     that is contrary to the interest of the members as a whole;
     (2) If the Court is of the opinion -
     (a) that affairs of a company are being conducted in a manner
     that is oppressive or unfairly prejudicial to, or unfairly
     discriminatory against, a member or members (in this section
     referred to as the "oppressed member or members") or in a
     manner that is contrary to the interests of the members as a
     whole;
     ...
     the Court may, subject to sub-section (4), make such order or
     orders as it thinks fit, including, but without limiting the
     generality of the foregoing, one or more of the following
     orders:
     (c) an order that the company be wound up;
     ...
     (e) an order for the purchase of the shares of any member by
     other members;
     (f) an order for the purchase of the shares of any member by
     the company and for the reduction accordingly of the company's
     capital;
     ...
     (4) The Court shall not make an order under sub-section (2) for
     the winding up of a company if it is of the opinion that the
     winding up of the company would unfairly prejudice the
     oppressed member or members." 31. In her petition Mrs Reid claimed that by reason of the matters pleaded - and I have dealt with the substantial grounds for complaint - the affairs of Bagot Well had been and were being conducted in a manner that was oppressive, and unfairly prejudicial to and unfairly discriminatory against her. They were also being conducted in a manner that was contrary to the interests of the members of the company as a whole. She sought an order that the company be wound up; alternatively, for specified relief in accordance with the provisions of sub-s.(2) of s.320. That was the basis upon which her case was presented at the trial. However, in his final address Mr Clayton no longer pressed for a winding up order. Instead, he sought an order under par.(e) of sub-s.(2) for the purchase by Mr Shannon of Mrs Reid's shares at a price to be determined by the Court, such price to reflect the value of the assets of the company. It will be remembered that Mr Shannon's own action in this Court is designed to enforce his claim that Mrs Reid must sell her shares to him pursuant to Articles 42, 36 and 38 for $42,000, being the amount of Mr Parsons's valuation. It is now agreed, then, that the shares are to change hands, but whether this will be done under the Articles or under the Code may have a considerable bearing upon the price to be paid. The parties agree that, should I make the order that Mrs Reid seeks, the value of her shares will be assessed by a Master, if necessary after taking further evidence. 32. I might observe that Mr Shannon's application appears to me to be flawed, at least if one has regard only to the provisions of the Articles of the company, for a reason that I have already touched upon. Article 42 entitles the holder of the Life Governor's Share to give notice to a member requiring the member to sell his shares to a nominated purchaser at the fair value thereof and, by virtue of that Article and Article 38, the fair value, in the event of disagreement, is to be certified in writing by the company's auditor. In this case, to avoid any question of partiality, the parties agreed that the valuation would be made by Mr Parsons. The valuation certificate was given to the company by Mr Parsons on 16 December 1988. Mr Shannon gave Mrs Reid notice under Article 42 of his intention to acquire her shares by letter dated 10 January 1989. There must be a question in those circumstances whether Mr Parsons's valuation is a valuation within the meaning of the Articles. As will appear, there is no need to reach a decision on the point. 33. There is a considerable body of case law on s.320 and its various predecessors here and elsewhere. The principles are well settled. See generally Wayde v. New South Wales Rugby League Ltd (1985) 59 ALJR 798. In my opinion Mrs Reid has standing under sub-s.(1) of s.320 to make an application to the Court and she has also made out her case for an order under sub-s.(2). On the findings that are implicit in my discussion of her complaints I am satisfied that the affairs of Bagot Well were, throughout the relevant period, conducted in a manner that was oppressive and unfairly prejudicial to, and unfairly discriminatory against, Mrs Reid and in a manner that was contrary to the interests of the members of the company as a whole. While the evidence, and also these reasons, traverse the whole period of Mr Shannon's effective direction of the company, both before and after the petition was lodged, no application was made to amend the petition and I have formed my judgement about the conduct of the company's affairs with regard only to the period prior to October 1985. I refer especially to the very unsatisfactory financial arrangements with Cambusdoon Proprietors which, I have no doubt, worked seriously to the disadvantage of the shareholders of Bagot Well, and also to all the other manifestations of Mr Shannon's single-minded policy of building up the assets of the company for the benefit of his family and not for the benefit of the shareholders generally. The policy was typified by the failure to pay any dividends at all in that period. However, I do take the evidence relating to the period between petition and trial into account in determining whether this is a proper case for making an order under sub-s.(2). The situation in that respect is, I think, quite clear. No-one now wants to have the company wound up but it would be very difficult for the directors to reorganize it - and I have in mind particularly the relationship between Bagot Well and Cambusdoon Proprietors - in a way that would meet the reasonable expectations of a dissident shareholder. As I have said, it is not surprising, given its history, that the company was run as though as the Life Governor were the sole proprietor. It would be asking a great deal of Mr Shannon to expect him to make the required changes to his attitude and actions now. The best course for everyone is for him to buy out Mrs Reid, but that will have to be at an equitable price to be determined by the Court. 34. I have little doubt that Mr Shannon, in all his dealings with Mrs Reid, genuinely believed that he was acting properly and in the best interests of the company. His error lay in identifying those interests with the sectional interests of himself and his household. He obviously considered that a minority shareholder with, from a practical point of view, no effective voice and only a relatively insignificant stake in the company was making quite unwarranted and invasive demands on the organisation that he had built up successfully over many years - "going to try to bust it up," as he put it. He thought that he was entitled to use his powers as Life Governor, including his directorial powers, to defend assets that he regarded as, for all practical purposes, his own. No doubt he considered that he was thereby acting correctly and lawfully, but for the reasons that I have given he was mistaken about that. Cf In re Westbourne Galleries Ltd (1973) AC 360, at 381; Wayde's Case, at 802-3. 35. I think in all the circumstances that Mrs Reid's shares should be valued as at the time she lodged her petition. That is the date for which Mr Clayton argued. She is not entitled to have the price assessed according to the company's net assets. That would be to ignore her very disadvantageous position as a shareholder under the Articles, including Article 5 which gives the holder of the Life Governor's Share the right in a winding up to all surplus assets. Cf Abrahams v. FCT (1945) 70 CLR 23; O'Donnell v. Thor Industries Pty Ltd (1977) 51 ALJR 569; Sanford v. Sanford Courier Service Pty Ltd (1986) 10 ACLR 549, at 562. Nor, on the other hand, should the shares be valued as though the company were being or were about to be wound up, for that was not the position in 1985 just as it is not the position now. The assessment should be based upon revised annual accounts of the company, for the period prior to October 1985, that assume proper commercial arrangements between the company and those bodies or persons with whom it had relevant financial relations - Mr and Mrs Shannon, Cambusdoon Proprietors, Gloaming Proprietors, the Estate of E.L. Shannon Deceased and so on - and that also assume the dividend history that would have occurred had the directors maintained a fair and justifiable balance between capital growth and an immediate return to shareholders in the years when, on such revised accounts, a dividend could prudently have been paid. Allowance must be made, of course, in this exercise for any offsets that the company should reasonably have allowed in favour of those other bodies or persons. A relevant factor in the valuation will be the advantage to Mr Shannon of having complete control of the company in the future. Cf Sanford's Case at 563. Values to be put on the company's tangible assets should be real values, not just book values. 36. I have spoken of valuing Mrs Reid's shares, but an order under s.320 will not necessarily be restricted to the market value. It is a matter of fixing a price that Mr Shannon should reasonably be required to pay for the shares in all the circumstances. Cf Re Bright Pine Mills Pty Ltd (1969) VR 1002, at 1013. While the hypothetical accounts that I have in mind should produce on balance more buoyant financial statements for 1985 and probably an expectation of dividends in the future, the resultant enhancement of the market value of the shares as at October 1985 is unlikely to compensate Mrs Reid sufficiently for the lost dividends in the period prior to 1985, particularly as the assumption that some of the profits had been used to pay dividends and not simply to enlarge the company's tangible assets in that period would doubtless tend to diminish the assets at the valuation date. I think it equitable that the price to be paid for the shares take into account Mrs Reid's loss of income by reason of the company's failure to pay proper dividends in the period prior to 1985. 37. The assessment of a reasonable price to be paid for Mrs Reid's shares cannot be made on the evidence as it now stands. However, I do not envisage that the accounting exercise that I contemplate should be carried out in meticulous detaiL. No more than an approximate appraisal of the relevant factors is required. Apart from the impossibility of achieving exactness, the expense of pursuing that goal would probably not be economically worthwhile. Enough information, probably with expert advice, to make a fair estimate is all that is needed. 38. The assessment will be referred to a Master, but I shall hear counsel as to the precise form of the order.