Slea Pty Ltd v Connective Services Pty Ltd (No 9)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL DIVISION

CORPORATIONS LIST

S CI 2011 04332

SLEA PTY LTD	Plaintiff
v
CONNECTIVE SERVICES PTY LTD & ORS (according to the attached Schedule)	Defendants

S ECI 2018 00073

CONNECTIVE SERVICES PTY LTD & ANOR
(according to the attached Schedule)

Plaintiffs

GLENN ANDREW LEES & ORS

(according to the attached Schedule)

Defendants

S ECI 2019 03862

CONNECTIVE GROUP PTY LTD & ORS

(according to the attached Schedule)

Plaintiffs

SLEA PTY LTD & ORS

(according to the attached Schedule)

Defendants

------

JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	7–10, 14–17, 21–24, 28–31 October 2019, 6–7, 11, 13–14, 18–21, 25, 27–28 November 2019, 2–5, 9 December 2019, 4–6, 10–13, 17–19, 24–27 February 2020, 2, 4 March 2020
DATE OF JUDGMENT:	22 March 2022
CASE MAY BE CITED AS:	Slea Pty Ltd v Connective Services Pty Ltd (No 9)
MEDIUM NEUTRAL CITATION:	[2022] VSC 136

CORPORATIONS – Oppression Proceeding - Company with two shareholders – One with two-thirds of shares – Minority shareholder with one-third – Thirteen instances of alleged oppression – Oppression made out.

CORPORATIONS – Directors – Breach of duties – Exercising powers for improper purpose – Company constitutions had pre-emptive provisions – Directors exercised power to establish a subsidiary to circumvent pre-emptive rights of minority shareholder – Directors sold portion of business to an outside investor without informing minority shareholder.

CORPORATIONS – Minority shareholder instituted proceedings for oppression – Directors exercised power of sale of business to avoid minority shareholder obtaining relief in oppression proceeding – Whether directors breached duty – Whether actions of directors oppressive.

CORPORATIONS – Relief on oppression proceeding – Whether majority or minority should be able to buy the other out – Discussion of authorities.

CORPORATIONS – Pre-emptive rights – Whether shares transferred from a member of the company to a third party, enlivened a right in the holder of the pre-emptive rights to acquire the shares transferred – Construction of pre-emptive rights clause – Right to acquire not enlivened.

------

Appearances: S CI 2011 4332	Counsel	Solicitors
For the plaintiff	Mr M Hodge QC, Ms KE Foley, Mr G Kozminsky and Ms C Mintz	Arnold Bloch Leibler
For the first, second and fourth to ninth defendants	Mr PH Solomon QC, Mr DG Guidolin and Mr SL Freire	Quinn Emanuel Urquhart & Sullivan
For the third defendant	Mr PW Collinson QC and Dr CO Parkinson	HWL Ebsworth Lawyers
For the tenth defendant	Ms CM Pierce	Obst Legal
Appearances: S ECI 2018 00073
For the plaintiffs and the eleventh defendant	Mr M Hodge QC, Ms KE Foley, Mr G Kozminsky and Ms C Mintz	Arnold Bloch Leibler
For the first, second and third defendants	Mr MI Borsky QC and Ms R Campbell	Gilbert + Tobin
For the fourth defendant	Mr C Young QC	Allens
For the fifth to tenth defendants	Mr PH Solomon QC, Mr DG Guidolin and Mr SL Freire	Quinn Emanuel Urquhart & Sullivan
For the twelfth defendant	Mr PW Collinson QC and Dr CO Parkinson	HWL Ebsworth Lawyers
Appearances: S ECI 2019 03862
For the plaintiffs	Mr PH Solomon QC, Mr DG Guidolin and Mr SL Freire	Norton Rose Fulbright Australia
For the defendants	Mr M Hodge QC, Ms KE Foley, Mr G Kozminsky and Ms C Mintz	Arnold Bloch Leibler

TABLE OF CONTENTS

Part 1: Introduction............................................................................................................................ 1

Factual background...................................................................................................................... 2
Mr Haron’s acquisition of an interest............................................................................... 4
The business is transferred to Group and Macquarie acquires an interest................. 8
Mr Tsialtas’s departure and resignation.......................................................................... 9
Mr Tsialtas’s attempts to sell Slea’s shares.................................................................... 12
The information memorandum and Liberty................................................................. 14
Attempted sale to MFL..................................................................................................... 15
Financial pressure strategy.............................................................................................. 16
Mr Tsialtas continues to negotiate the sale of Slea’s shares with MFL...................... 19
Mr Tsialtas’s request for financial information............................................................. 20
The MFL deal is thwarted by Mr Lees............................................................................ 22
Discussions regarding a share transfer to Mr Haron................................................... 24
Mr Butler’s role advising Mr Lees, Murray Lees, and Mr Haron.............................. 27
Discussions between Mr Tsialtas and Mr Lees on the purchase of Slea’s shares.... 28
Liberty agreement (the 2009 agreement)........................................................................ 29
Liberty and the Connective directors meet to discuss the 2009 agreement.............. 30
Rescission of the 2009 agreement.................................................................................... 32
Further discussions regarding the alleged Haron agreement.................................... 34
Discussions regarding the issue of a special class of shares....................................... 36
Further discussions on Slea’s exit and the issuance of a special class of shares...... 37
July 2009: Financial pressure strategy (Version 1 and 2 Emails)................................ 39
Mr Haron’s response to the version 1 and 2 emails..................................................... 41
Mr Butler’s reply to Mr Haron......................................................................................... 41
Murray Lees version 2 assent.......................................................................................... 42
Mr Haron version 2 assent............................................................................................... 42
Proposed share sale agreement....................................................................................... 42
Mr Lees’ evidence on versions 1 and 2........................................................................... 46
Did Mr Lees adopt version 2?.......................................................................................... 48
Mr Lees’ meeting with Liberty........................................................................................ 49
Revisions to the share sale agreement............................................................................ 50
Further dealings with Liberty.......................................................................................... 51
Mr Lees’ misleading dealings with Liberty................................................................... 52
Mr Tsialtas requests financial statements...................................................................... 52
Fifth draft of Haron agreement....................................................................................... 54
Further attempts to obtain Slea’s shares........................................................................ 56
Further pressure on Mr Tsialtas...................................................................................... 58
The accommodation agreement between Slea and Minerva (Liberty)...................... 59
Mr Lees’ credit................................................................................................................... 63
Haron agreement denied by Mr Tsialtas....................................................................... 64
AGM of Connective companies....................................................................................... 66
Haron proceeding.............................................................................................................. 69
Mr Maloney appointed as a director.............................................................................. 69
Commencement of the oppression proceeding............................................................ 69
Mr Maloney’s dividend proposal.................................................................................... 70
The funding agreement between Slea and Minerva.................................................... 71
Macquarie........................................................................................................................... 71
Negotiations with Macquarie recommence in April 2013........................................... 72
October 2013: The Macquarie sale is completed........................................................... 75
Mr Tsialtas becomes aware of the share sale................................................................. 75
Improper purpose and the oppression proceeding...................................................... 77
Derivative proceedings..................................................................................................... 78
The Connective companies’ pre-emptive rights proceeding...................................... 79
Proposed sale to AFG........................................................................................................ 79

Preliminary matters.................................................................................................................... 80
The structure of the judgment......................................................................................... 81
Appearances....................................................................................................................... 82
Macquarie........................................................................................................................... 82
Murray Lees........................................................................................................................ 83
Andrew Butler.................................................................................................................... 83
Quinn Emanuel Urquhart & Sullivan............................................................................. 83
Credit findings................................................................................................................... 83
Mr Lees................................................................................................................................ 84
Mr Haron............................................................................................................................ 84
Mr Maloney........................................................................................................................ 84
Mr Korda............................................................................................................................. 85
Evidence Act....................................................................................................................... 85
Application to admit the content of the Murray Lees statement as an admission in both the oppression and derivative proceedings............................................................. 87
Origin of the Murray Lees statement.............................................................................. 87
Slea’s submissions on the statement’s admissibility.................................................... 89
Representation as to silence............................................................................................. 92
Slea’s authorities on representation as to silence.......................................................... 94
The defendants’ submissions on the statement’s admissibility.................................. 96
Adoption of directors’ submissions by other parties................................................... 99
Section 135 application..................................................................................................... 99
Analysis and conclusion................................................................................................. 100
Application to use statement of Mr Myers QC as an admission.............................. 102
The second-hand hearsay issue..................................................................................... 103
Authorities on transcript evidence................................................................................ 105

Part 2: The oppression claims...................................................................................................... 109

Relevant legal principles................................................................................................ 112
Phase one of oppression................................................................................................. 118

1^st instance of oppression (failure to pay dividends) and 2^nd instance of oppression (inappropriate retention of dividends)................................................................................................... 119
Slea’s allegations.............................................................................................................. 119
Special purpose financial statements............................................................................ 120
Response from the Connective defendants................................................................. 122
The alleged Haron agreement....................................................................................... 122
Pleadings........................................................................................................................... 123
Slea’s opening submissions............................................................................................ 124
Evidence concerning the alleged Haron agreement................................................... 125
Mr Tsialtas’s evidence..................................................................................................... 125
Mr Lees’ evidence............................................................................................................ 126
Mr Haron’s evidence....................................................................................................... 133
Closing submissions on the alleged Haron agreement.............................................. 135
Mr Haron’s submissions................................................................................................. 135
Millsave’s submissions................................................................................................... 136
Connective companies’ submissions............................................................................ 137
Consideration and conclusion on the Haron agreement........................................... 137
No binding agreement.................................................................................................... 137
Belief that there was a binding agreement................................................................... 138
Conduct supporting the existence of a binding agreement...................................... 139
Conclusion........................................................................................................................ 140
Relevant principles on dividends.................................................................................. 140
Consideration and conclusion on 1^st and 2^nd instances of oppression.................... 142

3^rd instance of oppression (inappropriate payments to directors) and 4^th instance of oppression (inappropriate recording of directors’ fees as unsecured loans).............................. 143
The financial arrangements underpinning payments to the principals.................. 143
The scheme recommended by Mr Butler..................................................................... 144
Mr Maloney’s changes to the remuneration system.................................................. 147
Slea’s submissions on remuneration of the principals............................................... 149
Connective companies’ submissions on remuneration............................................. 150
Relevant principles on remuneration........................................................................... 151
Consideration and conclusion on 3^rd and 4^th instances of oppression.................... 154

5^th instance of oppression (failure to finalise a shareholders’ agreement)....................... 158
Consideration and conclusion on 5^th instance of oppression.................................... 161

6^th instance of oppression (conduct designed to remove Slea as a shareholder)............. 163
Other alleged instances of oppression................................................................................... 164
11^th instance of oppression (funding of and participation in litigation)........................... 165
The litigation costs........................................................................................................... 165
Connective’s pre-emptive rights proceeding.............................................................. 166
Connective companies’ submissions............................................................................ 169
Slea’s submissions........................................................................................................... 169
Consideration and conclusion: pre-emptive rights proceeding............................... 171
(i) Mr Maloney................................................................................................................. 174
(ii) Mr Haron.................................................................................................................... 177
Oppression and derivative proceedings...................................................................... 178
Relevant principles on funding litigation.................................................................... 178
Connective companies’ submissions............................................................................ 181
Slea submissions.............................................................................................................. 182
Consideration and conclusions..................................................................................... 185
(i) Participation of the Connective companies in the litigation................................ 185
(ii) Expenditure of the Connective companies in the litigation................................ 186
(iii) Liberty’s objective..................................................................................................... 186
(iv) Contesting discrete interests................................................................................... 187
Disposition........................................................................................................................ 189
(i) The first option............................................................................................................ 191
(ii) The second option..................................................................................................... 191
(iii) The third option........................................................................................................ 193
Conclusion........................................................................................................................ 193

12^th instance of oppression: withholding of financial records............................................ 194

Section 293 directions issued by Slea............................................................................ 195
Failure to provide consolidated reports....................................................................... 201
Orders for further discovery.......................................................................................... 203
Mr Lees and Mr Haron’s evidence................................................................................ 211
Consideration and conclusion....................................................................................... 214

Part 3: Restructure and sale (7^th and 8^th instance of oppression).......................................... 215

Opening discussions with Macquarie.......................................................................... 215
The options paper............................................................................................................ 217
Transfer of the Connective business to Group and its subsidiaries......................... 221
Relevant legal principles................................................................................................ 223
The duty to act for a proper purpose............................................................................ 224
The best interests of the company................................................................................. 233
Limits on the power to sell assets of the company and to issue shares................... 235
The directors’ purposes.................................................................................................. 238
Mr Lees’ evidence............................................................................................................ 243
Conclusion on Mr Lees’ evidence................................................................................. 244
Mr Haron’s evidence....................................................................................................... 244
Conclusion on Mr Haron’s evidence............................................................................ 245
Mr Maloney’s evidence................................................................................................... 245
Conclusions on Mr Maloney’s credit............................................................................ 249
Murray Lees’ evidence on the restructure and sale.................................................... 250
Concealment of the restructure and sale from Slea.................................................... 252
The directors’ submissions............................................................................................. 255
Resolution of breach of duties....................................................................................... 258
Millsave’s submissions................................................................................................... 259
Conclusion and findings................................................................................................. 259
Lack of a competitive bidding process......................................................................... 265
Section 1318 defence........................................................................................................ 265
Macquarie’s knowledge.................................................................................................. 270
Relief. 274

9^th instance of oppression (Group’s constitution)................................................................ 281

Part 4: Misleading or deceptive conduct (10^th instance of oppression)............................... 283

The Haron proceeding and Slea’s pre-emptive rights proceeding.......................... 283
The all parties deed of settlement................................................................................. 284
Slea’s claims in the oppression proceeding................................................................. 285
Relief sought by Slea....................................................................................................... 287
Summary of findings...................................................................................................... 287
Contractual claim: relevant provisions of the Services and OSN constitutions..... 288
All parties deed of settlement of 22 October 2013...................................................... 290
Relevant provisions......................................................................................................... 290
Slea’s submissions on the proper construction of the deed...................................... 291
Relief sought..................................................................................................................... 295
Millsave’s submissions on damages............................................................................. 296
Slea’s submissions on damages..................................................................................... 298
Rectification of the share register.................................................................................. 299
Finding on the contractual claim................................................................................... 301
Proprietary claim............................................................................................................. 302
Tett v Phoenix Property and Investment Co Ltd (Ch Div, High Court)................. 302
Tett v Phoenix Property and Investment Co Ltd (Court of Appeal)....................... 305
Other authorities relied upon by Slea........................................................................... 308
Finding on the proprietary claim.................................................................................. 313
Conclusion on the nature of the pre-emptive rights.................................................. 314
Are damages payable on the contract claim?.............................................................. 315
Misleading or deceptive conduct claim....................................................................... 315
Slea’s submissions........................................................................................................... 315
The submissions made by Services and OSN............................................................. 317
Millsave’s submissions................................................................................................... 318
Mr Haron’s submissions................................................................................................. 319
The directors’ submissions............................................................................................. 320
Slea’s submissions........................................................................................................... 321
Conclusion on the misleading or deceptive conduct claim....................................... 321

Part 5: Proposed sale of the Connective business (13^thphase of oppression and improper purpose)...................................................................................................................................................... 325

Slea’s allegations.............................................................................................................. 325
The approval proceeding............................................................................................... 326
Relevant background: Initial discussions with AFG.................................................. 327
Discussions regarding the sale process........................................................................ 330
Mr Korda’s involvement with the sale process........................................................... 331
Mr Korda’s appointment and further discussions with AFG................................... 333
The sale process commences.......................................................................................... 334
Slea’s injunction proceeding.......................................................................................... 336
Opening the sale process to potential bidders............................................................ 337
Offers are submitted........................................................................................................ 337
The implementation deed.............................................................................................. 339
Mr Korda’s credit............................................................................................................. 340
Improper purpose allegation: Findings sought by Slea............................................. 342
Finding 1: Interference with relief available in the oppression and derivative proceedings................................................................................................................................ 342
Finding 2: The idea to conduct a sale process............................................................. 346
Finding 3: Lack of candour regarding the dealings between Mr Lees and Mr Bailey prior to August 2018.......................................................................................................... 348
Finding 4: No sensible explanation for Mr Korda’s appointment to explore a merger or takeover................................................................................................................. 351
Finding 5: No sensible explanation for why the AFG approach led to a sale process 354
Finding 6: No sensible explanation for when or how the decision to conduct a sale process was made.............................................................................................................. 354
Finding 7: The involvement of Quinn Emanuel in the sale process........................ 356
Finding 8: Slea was not consulted about the sale process......................................... 357
Finding 9: The transaction was structured as an asset sale, despite a share sale being more advantageous....................................................................................................... 358
Finding 10: The sale process progressed, despite the disadvantages associated with an asset sale and the litigation context............................................................................ 360
Finding 11: Mr Lees, Mr Haron, and Mr Maloney approved the approval proceeding 361
Finding 12: That records were not kept or maintained.............................................. 363
Finding 13: The directors continued with their efforts to achieve a sale regardless of the outcome in the approval proceeding................................................................ 364
Conclusion on findings sought by Slea........................................................................ 365
Oppressive conduct......................................................................................................... 368

Part 6: Orders................................................................................................................................... 368

Orders made..................................................................................................................... 368
Oppression allegations................................................................................................... 368
Slea’s costs of the oppression proceeding.................................................................... 369
The restructure and sale to Macquarie......................................................................... 369
The sale process............................................................................................................... 370
Sale of shares by Millsave and Mr Haron to Slea....................................................... 371
Slea’s pre-emptive rights................................................................................................ 371
Balance of derivative proceeding claims...................................................................... 372
Costs incurred by Connective companies.................................................................... 373
Slea’s costs of the derivative proceeding..................................................................... 373
Slea’s costs of the approval proceeding....................................................................... 373
Relevant legal principles: indemnity and non-party costs........................................ 374
Conclusion on costs of approval proceeding.............................................................. 377
Relevant legal principles: Minority buy-out orders................................................... 377
Minority buy-out orders in the case law — divergent positions.............................. 377
No special inhibition on the court’s power to order a minority buy-out................ 387
Cases where a minority buy-out has been ordered.................................................... 387
Case where a minority buy-out was denied................................................................ 392
Cases of equal shareholding where the oppressed party buys out the oppressor 393
Buy-out orders: Party submissions............................................................................... 395
Slea’s submissions on any buy-out order.................................................................... 395
Slea’s submissions on the price at which the shares should be purchased............ 399
Millsave’s submissions on any buy-out order............................................................ 399
Relevant legal principles: Section 233 discretion........................................................ 404
Authorities on the general rule concerning majority buy-outs................................ 408
Conclusion on the Court’s power to order a minority buy-out................................ 411
Buy-out order: Other factors.......................................................................................... 412
Application of the principles......................................................................................... 417
Resolution: The buy-out orders..................................................................................... 419
Orders................................................................................................................................ 426

Schedule of Parties........................................................................................................................ 427

Schedule of Defined Terms......................................................................................................... 429

HIS HONOUR:

Part 1: Introduction

Slea Pty Ltd (Slea) is a one-third minority shareholder in Connective Services Pty Ltd (Services) and Connective OSN Pty Ltd (OSN) (together the Connective companies). The Connective companies have carried on business as mortgage aggregators (the Connective business). The two-thirds majority shareholders in each of the Connective companies are Millsave Pty Ltd (Millsave) and Mr Mark Haron, who is also a director of the Connective companies. Mr Glenn Lees (Mr Lees) is a director of Millsave and the dominant director of the Connective companies. Mr Sofianos Tsialtas is the sole director of Slea, which acts as trustee of a family trust in favour of Mr Tsialtas and his family. Mr Tsialtas was a director of the Connective companies from their incorporation until he resigned as a director, under pressure from the other directors, in 2008. Slea brings two proceedings: an oppression proceeding (oppression proceeding) and a derivative proceeding (derivative proceeding).

In the oppression proceeding, the defendants are the Connective companies, Millsave, Mr Haron and subsidiaries of the Connective companies.

In the derivative proceeding, Slea brings proceedings in the names of Services and OSN against Mr Lees (as a director of Services and OSN), Mr Haron (as a director of Services and OSN) Mr Graham Maloney (as a director of Services and OSN), Macquarie Bank Ltd (Macquarie), and Connective Group Pty Ltd (Group) and its subsidiaries, alleging that Mr Lees, Mr Haron and Mr Maloney breached their duties as directors of Services and OSN, and that Macquarie was a knowing participant in their breach of their duties as directors.

Regrettably, the relevant events cover the period from 2001 to 2020, a period of 19 years, which explains, in part, why the trial lasted 52 days. The transcript extended to 5,467 pages. Exhibits numbered 508, of which several were folders of documents. This is reflected in the length of the judgment.

The major individuals involved in the disputes are Mr Glenn Lees, Mr Haron and Mr Maloney, as directors of the Connective companies, and Mr Tsialtas, as the controller of Slea. At an early stage, Mr Murray Lees, Mr Glenn Lees’ brother, also acted in a senior role in the Connective companies. Mr Maloney became a director of the Connective companies in 2012 and was not involved in the earlier relevant events, but features in the later events.

In May 2008, Mr Tsialtas was asked to resign as a director of the Connective companies, and did so. Slea alleges that it was the subject of oppressive conduct after Mr Tsialtas resigned as a director.

The Connective companies carried on the business of a mortgage aggregator until 2011, when, unbeknown to Slea, the business was restructured (the restructure). In the restructure, the business was transferred from Services and OSN to a subsidiary of Services and OSN; namely, Group, and five of its subsidiaries (who are all defendants in the oppression proceeding and the derivative proceeding) (the Connective Group subsidiaries).

After the restructure, and unbeknown to Slea, a 25% interest in Group, and thus the business, was sold to Macquarie. The restructure and sale to Macquarie form part of the alleged oppressive conduct and are also critical parts of the derivative claim.

From the period 2003 to 2012, when the restructuring took place, ‘the Connective companies’ refers only to Services and OSN. After the restructuring, ‘the Connective companies’ refers to Services, OSN, Group and its subsidiaries unless the contrary is indicated. I refer to Mr Glenn Lees as Mr Lees and Murray Lees as Murray Lees. Murray Lees drops out of the picture around 2011.

Factual background

In the late 1990s, Mr Tsialtas was working in retail banking when he met Murray Lees. Murray Lees was a mortgage broker, with a business called Mortgage Results Pty Ltd (Mortgage Results). Mr Tsialtas met Murray’s brother, Glenn Lees (Mr Lees), in about 2000, when Mr Lees went into business with Murray Lees as a mortgage broker.

In around 2001, Mr Tsialtas was working at a mortgage aggregator. Individuals wishing to borrow monies on mortgage often use the services of a mortgage broker, who will introduce them to various mortgage lenders. A mortgage aggregator offers a means through which mortgage brokers can access a wide range of mortgage lenders and their various products, which the brokers can then offer to their clients. Mortgage aggregators earn a commission on the monies lent through the use of their service.

In 2001, Murray Lees proposed to Mr Tsialtas that they work together in the industry, but Mr Tsialtas declined that invitation as he did not feel ready. In 2003, Mr Tsialtas approached Mr Lees and Murray Lees to ascertain whether they were still interested in going into the mortgage aggregation business together.

In 2003, Mr Tsialtas, Mr Lees, and Murray Lees established Services and OSN to conduct the business of a mortgage aggregator, which they called the Connective business. When the Connective business was formed, Mr Tsialtas had experience working for a mortgage aggregator, and Mr Lees and Murray Lees had experience operating a mortgage broking business. In addition, Mr Lees had previously worked as a solicitor at Macpherson Kelley, and had some IT experience.

Services and OSN played different roles in the conduct of the Connective business. OSN had agreements with financial institutions and lenders, while Services was the operating entity which conducted the business, including entering into agreements with brokers.

The initial shareholders of each of the Connective companies were Mr Lees (66.7%) and Slea as trustee for the Tsialtas Family Trust (33.3%). In 2006, shares held by Mr Lees were transferred to Millsave, a company controlled by Mr Lees. Millsave holds those shares as trustee for the Millsave Family Trust. Millsave now holds a 50% interest in the Connective companies, after transferring 16.67% to Mr Haron in 2013.

Although Murray Lees played a significant role in the relevant alleged oppressive events up to and including the restructuring in 2012, acting on an equal basis with Mr Lees, Mr Haron and Mr Tsialtas, he was not appointed as a director of the Connective companies. He also did not hold shares in the Connective companies. He was entitled to some undefined interest in Millsave as beneficiary of a trust. He was not called by the defendants in the oppression proceeding or the derivative proceeding to give evidence and no explanation was provided for his absence. It appears that he fell out with Mr Lees at about the time of Macquarie’s entrance into the business.

The constitutions of each of Services and OSN contain pre-emptive rights for existing members on the issue of shares (cl 76) and the transfer of shares (cl 77). They each confer a discretion on the directors to refuse to register a transfer of shares for any reason (cl 79). The relevant clauses in each of Services and OSN are the same. The relationship between the founders was not otherwise governed by any formal agreement.

The Connective business was immediately successful. Its lender panel, fee structure, and software platform drove its success. Mr Lees, while working at Mortgage Results, had been the driving force behind the coding and implementation of technology and software platforms for brokers and lenders. These software platforms were brought to the Connective business by Mr Lees. Mr Tsialtas, in turn, brought substantial lender and broker contracts to the nascent business, including the ANZ Bank. By early 2006, Connective’s success was evidenced when a wholesale lender offered to purchase the business for $4 million.

Mr Haron’s acquisition of an interest

Mr Haron entered the business in 2006, initially as a principal, then becoming a director in 2011. As noted above, Mr Haron now holds 16.67% of the issued shares in Services and OSN. As discussed below, the terms upon which Mr Haron joined the business, and the circumstances in which he acquired his shareholding, are relevant to a claim made in the oppression proceeding.

Around February 2006, Mr Tsialtas met Mr Haron at an industry event. At that time, Mr Haron was the CEO of a mortgage aggregator, Finance and System Technology Pty Ltd (FAST). Mr Haron was highly successful at FAST, but was looking to leave FAST’s employment. He was unhappy about not having any equity in that business. Mr Tsialtas suggested to Mr Lees and Murray Lees that it would be beneficial to the Connective business for Mr Haron to join Connective. Mr Lees and Murray Lees were open to Mr Haron doing so.

Between March and September 2006, Mr Tsialtas, Mr Haron, Mr Lees, and Murray Lees met on several occasions to discuss Mr Haron joining the Connective business and taking equity in the Connective companies.

In September 2006, Mr Haron had arranged for Australian Finance Group Ltd (AFG) to fund his equity purchase in the Connective companies, with AFG also taking some equity themselves, at a profit to Mr Haron. However, this arrangement was not acceptable to Mr Tsialtas, Mr Lees, and Murray Lees, who objected strongly to the proposed sale to AFG, and discussions with Mr Haron almost ended.

On 28 September 2006, there was a meeting between Mr Haron, Mr Lees, Murray Lees, and Mr Tsialtas at the Knox Shopping Centre. Mr Haron was told that his proposed arrangement with AFG was not acceptable. Mr Haron says that it was agreed in principle at the meeting that he would acquire a 25% stake in the Connective business for a price of $875,000. Mr Haron says that he made it clear that he could not afford to pay that amount at that time, so the discussions included Mr Haron being funded by an investor.

A subsequent meeting was arranged on 10 October 2006 between Mr Lees, Murray Lees, Mr Tsialtas, and Mr Haron at the offices of Macpherson Kelley, the solicitors for Connective. At that meeting, agreement was reached that Mr Haron should commence working in the Connective business on the basis that he would become a shareholder. Whether a binding agreement was reached as to how Mr Haron would become a shareholder is a matter of dispute in the oppression proceeding.

It is undisputed that the parties discussed Mr Haron acquiring an equal 25% share in the business, with Slea and Mr Haron each holding 25% of the shares in the Connective companies, and with Millsave (representing Mr Lees and Murray Lees) holding 50%, being 25% each for Mr Lees and Murray Lees. However, there is a dispute regarding whether the parties agreed on the means and terms by which Mr Haron would acquire a 25% interest.

The main dispute concerns whether it was agreed that Mr Haron would be issued shares, or purchase shares, in each of the Connective companies to give him a 25% interest, and if so, on what payment terms. There seems to be agreement that the price would be $875,000, but no agreement regarding how it was to be paid and secured. As discussed below, it was suggested that whether it was a share issue or a share sale would be decided by either Mr Lees, Murray Lees and Mr Tsialtas, or some combination of them, after they took advice from Macpherson Kelley.

Slea submits that what came out of those discussions between Mr Lees, Murray Lees, and Mr Tsialtas was a draft share sale agreement (share sale agreement) from Macpherson Kelley, which contained various terms including reference to payment. However, Slea submits that from 2008 onwards, Mr Lees pressed an agreement with Mr Tsialtas for the transfer of Slea’s shares to Mr Haron with no payment terms.

In the oppression proceeding, the Connective companies and Millsave pleaded that the agreement reached was for the sale of shares by Slea and Millsave to Mr Haron, not a share issue to Mr Haron by the Connective companies.

However, during the trial, Mr Lees, giving evidence on behalf of Millsave, abandoned its pleaded case and alleged that an agreement was reached where Mr Haron would acquire a 25% interest, either by buying shares from Slea and Millsave, or through taking up an issue of shares by the Connective companies; and that it was agreed that Mr Lees, Murray Lees, and Mr Tsialtas would determine by subsequent agreement, and after taking advice, which method it was to be.

During the trial, Mr Haron also abandoned his pleaded case and, in evidence, said that whether the means was a share sale or an issue of shares would be determined by Mr Tsialtas and Mr Lees, but not Murray Lees.

The Connective companies maintained their pleaded case during the trial. In its final address, Millsave abandoned the case put by Mr Lees in his evidence; namely, that it had been agreed at the meeting that Mr Lees, Murray Lees and Mr Tsialtas would determine the method by which Mr Haron was to acquire his shares in the Connective parties. Instead, Millsave submitted that the agreement reached was that Mr Lees alone would determine whether there would be a share sale or a share issue — a case not supported by any evidence.

According to Mr Lees’ evidence, a final agreement about Mr Haron’s acquisition of a 25% interest in the Connective companies was reached in about May 2007, at another meeting at Macpherson Kelley, when Mr Lees, Murray Lees, and Mr Tsialtas agreed that the agreement with Mr Haron would be met by a share sale from Millsave and Slea to Mr Haron.

Mr Tsialtas denies any such agreement was reached. There is no evidence of a written agreement in this matter. Mr Haron was not advised that an agreement had been reached that affected him and his acquisition of shares in the Connective companies.

As explained below, I have found that no final agreement was reached between Mr Lees, Murray Lees, Mr Tsialtas, and Mr Haron, or Millsave, Slea and Mr Haron, regarding the method by which Mr Haron would receive shares in the Connective companies.

The dispute regarding whether a binding agreement was reached in relation to Mr Haron acquiring shares in the Connective companies led to the proceedings issued in 2011 by Mr Haron against Slea, Millsave, Services, and OSN, known by the parties as the Haron proceeding (Haron proceeding). In the dispute, Mr Haron alleged there was an agreement for Millsave and Slea to sell shares in Services and OSN to Mr Haron. The Haron proceeding was subsequently resolved in October 2013 with a settlement between Mr Haron, Millsave, and Slea, as discussed below. The settlement involved Slea consenting to Mr Haron being transferred shares in the Connective companies being transferred from Millsave to Mr Haron.

The dispute as to whether a binding agreement was reached between Millsave, Slea and Mr Haron is relevant to the oppression proceeding, as the alleged failure of Slea to observe the alleged binding agreement is relied on by the Connective parties, Millsave, and Mr Haron to justify some of the conduct that is alleged by Slea to be oppressive, such as the failure to pay dividends to Slea. In particular, the Connective parties, Millsave, and Mr Haron contend that conduct alleged by Slea to be oppressive was not oppressive, as it was conduct engaged in by the Connective parties, Millsave, and Mr Haron to induce Slea to meet its alleged obligations under the agreement with Mr Haron.

The business is transferred to Group and Macquarie acquires an interest

Prior to outlining the circumstances attending Mr Tsialtas’s departure from the Connective business in 2008, which occurred in the midst of the events outlined above, it is useful to foreshadow two key events that occurred later in the factual narrative. First, in 2011, the Connective business was transferred from Services and OSN to Group and its subsidiaries, without the knowledge or consent of Slea. Group was established as a subsidiary of Services.

Second, in 2013, Macquarie acquired 25% of the issued shares in Group for $5 million. Services holds the balance of 75%. Thus, Slea’s current effective commercial interest in the Connective business is 25%, Macquarie’s interest is 25%, and the remaining 50% interest is held by Millsave and Mr Haron. The whole of the sale price of the shares, less a provision for tax, was immediately distributed to the shareholders of Services and OSN. The restructure and sale to Macquarie are both alleged to constitute acts of oppression. They are also the subject of the derivative proceeding brought by Slea in the name of Services and OSN, which alleges that the directors of each company breached their duties as directors by exercising their powers to restructure and sell shares to Macquarie for an improper purpose.

Services and OSN both have pre-emptive rights clauses (the pre-emptive rights provisions) in their respective constitutions. In broad terms, the pre-emptive rights provisions required that, before the transfer of shares, those shares must first be offered to existing shareholders of that class, in proportion to the number of shares of that class already held by that shareholder.

The constitutions also provided that the Company could, by resolution passed at a general meeting, authorise the directors to make a particular issue of shares, without having to make the share offer contained in the pre-emptive rights provisions.

As Services and OSN each had only two shareholders, Slea and Millsave would both need to agree to the circumvention of the obligation that shares must be offered to Slea and Millsave, in the proportion of their existing holdings, before issuing to a new shareholder.

This effectively enabled each of Slea and Millsave to maintain their percentage shareholding in each of the Connective companies, should any further shares be transferred or issued.

By establishing Group, the directors of Services and OSN were able to effect the transaction with Macquarie, allowing it to take a 25% commercial interest in the Connective business, and avoid the application of the pre-emptive rights clauses in the constitutions of Services and OSN.

Mr Tsialtas’s departure and resignation

In May 2008, Mr Tsialtas was forced to resign as a director and employee of the Connective companies. His resignation resulted from a complaint made by an employee about Mr Tsialtas’s conduct when Mr Tsialtas and the employee travelled to South Australia on business. Mr Tsialtas denied the allegations made in the complaint.

The Connective companies’ solicitors, Macpherson Kelley, carried out an investigation of the complaint and prepared a report for the Connective companies. On receipt of the draft report, Mr Lees informed Macpherson Kelley that he, Murray Lees, and Mr Haron had resolved that Mr Tsialtas should go. The three also considered the transfer of Slea’s shares. The final report, dated 7 April 2008, concluded that it was a matter of Mr Tsialtas’s word against that of the complainant.

On the same day, the four partners met and Mr Tsialtas was shown a copy of the report. Mr Tsialtas asked for a further investigation. He was told, however, that Mr Lees, Mr Haron, and Murray Lees could not work with him and that they wanted Mr Tsialtas to leave the business. Mr Lees explained that he, Murray Lees and Mr Haron were concerned about the reaction of their staff if Mr Tsialtas remained in the business.

On 8 April 2008, Mr Lees spoke with Paul Kirton of Macpherson Kelley about acquiring Slea’s shares in the business. The file notes of the conversation record that Mr Lees discussed acquiring Slea’s shares, and that Mr Haron was to buy Slea’s shares to give him a one-third interest in the business. The note recorded that if Mr Haron could not afford to do so, then possibly the Lees brothers would buy Slea’s shareholding, and then sell them to Mr Haron. The note also records that if Slea’s shares were not sold, the directors’ fees would be increased to the benefit of the Lees brothers and Mr Haron (and by implication to the detriment of Slea).

On or about 17 April, Mr Tsialtas had a meeting with the Lees brothers and Mr Haron at Macpherson Kelley. According to Mr Tsialtas, he was told by Mr Lees that he, Murray Lees, and Mr Haron wanted Mr Tsialtas to resign and that, if he did not resign voluntarily, they would vote to remove him.

On 18 April 2008, Mr Lees sent an email to the email group named ‘directors’ with six options:

1. Mr Tsialtas to retain his shares until the business was sold.

2. Mr Tsialtas to sell to an acceptable third party at a price to be agreed between the two. The note gave the example of Mildura Finance Limited (MFL), or a related party, as an acceptable third party.

3. OSN/Services to buy back Mr Tsialtas’s shares. This would have to be done over time. It was said that this would not be attractive to Mr Tsialtas, because the payment would be treated as a dividend, not capital, and so be taxable as income.

4. Mr Tsialtas to sell his shares direct to Mr Haron. However, there would be a funding issue.

5. Mr Lees, Murray Lees, and Mr Haron to purchase an option to buy the shares at some future date. In exchange, an option fee would be paid over the next two years.

6. Mr Lees, Murray Lees, and Mr Haron to agree to purchase Mr Tsialtas’s shares. Again, however, there would be a funding issue, as well as a taxation issue for Mr Tsialtas.

Mr Tsialtas said that he understood from the email that Mr Lees, Murray Lees, and Mr Haron did not have the funds to purchase Slea’s shares themselves and buy out Slea.

On 24 April 2008, Mr Tsialtas was advised that Connective wished to announce his resignation and that, if he did not resign as a director, he would be voted out. Mr Tsialtas said that to preserve his reputation, he felt that he had no other option but to resign and sell his shares as quickly as possible, due to the financial pressure that he was under.

On 28 April 2008, Mr Tsialtas gave notice of his intention to resign in an email sent to Mr Lees, Murray Lees, and Mr Haron. The notice contained requests that, amongst other things, Mr Tsialtas be paid management fees for a period not exceeding six months; and, importantly for what followed, that Mr Tsialtas be kept ‘informed of any major decision that the directors may be considering, such as new employees or a change in management fees paid to directors’.

By email dated 7 May 2008, Mr Lees responded to Mr Tsialtas’s email. Mr Lees agreed that Mr Tsialtas would be paid management fees for three months (April, May, and June 2008). Mr Lees also undertook to provide Mr Tsialtas with ‘a monthly [profit and loss statement] and balance sheet, and an annual report by no later than 90 days after the completion of the financial year’.

Mr Lees, however, did not accede to Mr Tsialtas’s request to be told in advance of any major decision contemplated by the directors, instead stating that Mr Tsialtas ‘will be informed of any major decisions that have been taken as is your right as a shareholder’. Mr Tsialtas agreed to these terms, and formally resigned on 9 May 2008 as a director of the Connective companies.

On 9 May 2008, Mr Lees wrote to Mr Tsialtas in response to his resignation letter and asked him if he was intending on having discussions with parties other than MFL. This letter implies that, prior to resigning, Mr Tsialtas had informed Mr Lees that he was seeking to sell Slea’s shares in the Connective companies to MFL.

Slea alleges that after Mr Tsialtas resigned as a director of the Connective companies and ceased any employment with them, the conduct of the affairs of the Connective companies was oppressive to Slea. However, as mentioned above, Slea does not allege that the circumstances surrounding the resignation of Mr Tsialtas constituted oppressive conduct by the Connective companies, Millsave, or Mr Haron.

The defendants did not invite the Court to make any findings as to whether the allegation against Mr Tsialtas reflected events that actually occurred, and counsel for Slea expressly disavowed any case that Mr Tsialtas’s departure was motivated by ulterior motives or that the majority acted unreasonably in asking Mr Tsialtas to leave.

Slea does not make any allegations in the oppression proceeding relating to Mr Tsialtas’s exclusion from management of the Connective companies. In those circumstances, I do not intend to delve into any further details of the circumstances of Mr Tsialtas’s departure from management of the Connective companies, except for what briefly follows.

Mr Tsialtas’s attempts to sell Slea’s shares

When Mr Tsialtas left, Mr Lees was then the only director of the Connective companies. Murray Lees was not, and never became, a director. Mr Haron did not become a director until 2011. Nevertheless, Murray Lees and Mr Haron acted as if they were directors.

Mr Tsialtas says that when he was asked to leave, he asked Mr Lees, Murray Lees, and Mr Haron for time to consider his options. In substance, Slea alleges that Mr Lees, Murray Lees, and Mr Haron then led Mr Tsialtas to believe that they were agreeable to Mr Tsialtas selling Slea’s shares in Services and OSN to an outside investor. Slea alleges that, in fact, unbeknownst to Mr Tsialtas, Mr Lees, Murray Lees, and Mr Haron had no intention of approving such a sale, but instead resolved to seek to acquire Slea’s shares themselves, for less than their true value, by preventing Slea from selling to anyone else, and by withholding dividends from Slea. As discussed below, I find that Slea was grossly misled by Mr Lees about the Connective companies’ preparedness for Slea to sell its shares in the Connective companies to a third party.

After Mr Tsialtas ceased employment at the Connective companies, he sought to sell Slea’s shares in the Connective companies to obtain some capital, as he was in difficult financial circumstances. He was the sole breadwinner for his family, with a wife and two young daughters to provide for. On the basis of his previous earnings, he had built up significant financial obligations, including three mortgages and loans in relation to two cars. These obligations were ongoing, even though his earnings from the Connective companies had ceased. His departure from the Connective companies was unexpected and sudden. Mr Tsialtas gave evidence that he made arrangements to sell his interests in two properties (keeping the family home). However, Mr Tsialtas determined that these steps were insufficient to financially sustain him and his family, and decided to sell Slea’s shares in the Connective companies.[1]
[1]The Connective defendants point to various evidence to suggest that Mr Tsialtas was not, in fact, under any financial pressure or duress. For example: during the period between 2008 and 2010, Mr Tsialtas leased a $137,000 BMW; in 2009, he purchased a new Honda for his wife; he maintained credit cards and made mortgage repayments; he received three months’ management fees from April to June 2008; and he obtained further employment in October 2008. I do not consider that this evidence contradicts Mr Tsialtas’s own evidence that the steps he had taken were insufficient to financially sustain him and his family.

At this stage, Mr Tsialtas sought to sell a 25% interest in the Connective companies, as he was still contemplating selling 8¹⁄₃% interest to Mr Haron, with Millsave selling 16²⁄₃% to Mr Haron.

The information memorandum and Liberty

Of the options set out by Mr Lees in his 18 April 2008 email, the only one that would result in Slea being immediately paid for its shares, was a sale to a third party. Following his departure, Mr Tsialtas prepared an information memorandum and delivered it to several interested parties, including MFL, Aussie Home Loans, Liberty Financial Planning (Liberty), Property Planning Australia, and Loankit. Mr Tsialtas also provided a copy of the information memorandum to Mr Lees.

The memorandum stated that: ‘[i]n October of 2006 the shareholders agreed to sell 25% of Connective companies to Mark Haron for a consideration of $875,000 that valued Connective at $3.5 million at that point in time’. Mr Tsialtas was looking to sell 25% of his one-third shareholding, with the remainder (8.3%) to form part of Mr Haron’s shareholding (either to be sold to Mr Haron or already sold to Mr Haron, depending on the view taken of the 10 October 2006 meeting).

At this point Liberty, a major privately held finance company, enters the picture. Liberty features significantly in this case, and assisted Slea with this litigation. After leaving the Connective companies, Mr Tsialtas subsequently found employment with BEAT Services (BEAT), a subsidiary of Liberty.

As discussed below, Liberty has an agreement with Slea to acquire two-thirds of the Connective companies’ shares if Slea is successful in obtaining an order for the purchase of Millsave and Mr Haron’s shares in the Connective companies. Under this arrangement, Slea would be left with its one-third share in the Connective companies.

Liberty is a non-bank finance company providing home and commercial loans, as well as motor loans and some insurance. It predominately makes its loans available through mortgage brokers and finance brokers. Liberty has relationships with many mortgage aggregators in Australia and New Zealand, and therefore access to their broking networks.

Liberty was on the Connective companies’ lending panel from around 2003 until about 2014. Liberty entered into an ‘introducer agreement’ with Connective in 2003. Being on Connective’s lending panel was very helpful to Liberty, as a network of brokers used the Connective panel to access lending products for their clients. Liberty had not been in competition with the Connective companies, but rather was a user of its services.

From 2009, Liberty has been interested in investing in the Connective companies or forming a business relationship with the Connective companies. Liberty formed the view that an association with, or acquisition of, the Connective companies would be of financial benefit. An increasing number of the loans that Liberty was making were coming through the Connective relationship. Liberty considered the Connective business to be a vibrant business and one that would continue to grow.

Accordingly, as discussed below, Liberty has sought to buy Slea’s interest in the Connective companies. It has also sought to buy the Connective companies as a whole, or enter into some sort of partnership with the Connective companies. All such approaches have failed, but they demonstrate Liberty’s genuine and continuing interest in investing in the Connective business.

James Boyle of Liberty learned that Mr Tsialtas had left the Connective business when Mr Tsialtas dropped off the information memorandum. Mr Tsialtas also informed Mr Boyle that he wanted to sell his shareholding in the Connective companies.

Mr Boyle gave evidence that, since the memorandum was not in a format that would allow Liberty to have an informed view of the Connective business, no further action was taken at this point.

Attempted sale to MFL

As noted earlier, Slea contends that it was falsely led by Mr Lees to believe that the Connective companies were agreeable to, or would not oppose, Slea selling its shares in the Connective companies to other interested parties.

It is necessary, therefore, to canvass the attempts made by Slea to sell its shares and the behaviour, particularly of Mr Lees, in misleading Slea as it alleges, when, in fact, Mr Lees, Murray Lees, and Mr Haron had secretly agreed to put financial pressure on Mr Tsialtas and Slea, in order for them, or their companies, to buy Slea’s shares in the Connective companies at an under value, and to prevent Slea from selling its shares in the Connective companies to an outside investor.

Mr Tsialtas began negotiating with Peter Schroeder and Jeff McDonald of MFL to buy Slea’s shares in the Connective companies.

On 13 May 2008, Mr McDonald emailed Mr Lees to inform him that MFL was keen to do a deal with Slea, but recognised that they also needed to sort out matters with Mr Lees, before negotiating with Mr Tsialtas.

On the same day, Mr Schroeder of MFL forwarded Mr McDonald’s email to Mr Tsialtas. In his email, Mr Schroeder said that he and Mr McDonald had been working on the deal for the purchase of Slea’s shares in the Connective companies. Mr Schroeder indicated that their approach was twofold, as without the Connective companies’ agreement, it would be difficult to make a deal that provided sufficient return to support the borrowings required to purchase Slea’s shares.

Financial pressure strategy

On 19 May 2008, 10 days after Mr Tsialtas had resigned from the Connective companies, Murray Lees proposed to Mr Lees and Mr Haron that they should put financial pressure on Slea by preventing it from selling its shares to a third party and reducing the profits available for distribution to shareholders. Applying such pressure would then enable Mr Lees, Murray Lees, and Mr Haron to purchase Slea’s shares in the Connective companies below their true worth.

This strategy, referred to in the oppression proceeding as the defendants’ ‘financial pressure strategy’, forms a significant part in the case against the defendants in the oppression proceeding.

The financial pressure proposal referred to above, and formulated by Murray Lees, was contained in his email to Mr Lees and Mr Haron of 19 May 2008 (the financial pressure email). In due course, I will consider two further emails, which were emails containing strategies for placing financial pressure upon Slea and Mr Tsialtas, which were put forward by Andrew Butler, the Connective companies’ accountant. These are known as the version 1 and version 2 emails.

The financial pressure email and the version 1 and version 2 emails were not discovered by the defendants in the oppression proceeding and, in fact, had been deleted from the relevant files of the Connective companies. However, the emails were discovered in the Haron proceeding, following orders by Associate Justice Daly for an independent expert to look for documents in the possession of the Connective companies. The expert provided a report dated 13 October 2013 in which he identified documents that had been deleted from the files of the Connective companies. As a consequence of the expert’s recovery of deleted documents, the Connective companies filed a supplementary list of documents in compliance with the order of Associate Justice Daly.

The financial pressure email sent by Murray Lees to Mr Lees and Mr Haron on 19 May 2008 states the following:

Sale of Sof’s Shares and other matters
With the sale of Sof’s shares possible it’s time for us to consider very carefully what WE want to occur.
What is our best result?
We don’t owe anybody anything!
Sof has created this situation himself, I strongly believe that he is on his own in this. We have paid him out 3 months’ pay despite not working and I think that is the end of our obligation to him. From here on in the sale of his shares poses a great opportunity for us and also equally the chance to get things very wrong.
Peter/ Mike buying in pros and cons
Clearly in one way or another they want the director’s fees to pay for their purchase costs of getting into the business. For what it’s worth Sof had the temerity to suggest that between Mike Geoff and Peter they should be able to command the same salary/director fee that he was getting!!
If Sof wants to sell to Peter [Peter Schroeder of MFL] and they become directors I would only agree to the payment of a token directors fee, equivalent to spending one day a month in the business attending a directors meeting. Anything else that is earned is via profit distribution.
I am not particularly keen on having another business partner come in particularly if it involves some sort of manufacturing a fee to satisfy their needs to make the deal viable.
I am very comfortable now with our ability between the 3 of us to make good decisions for the betterment of the company, and I also do not feel we need another director doing work at the directors pay level.
Whilst there is an argument that Peter and his cohorts may have some good ideas I don’t think now is the time to add any more people and just as importantly costs to the business.
Making COSN’s profits go away
We need to speak to Darren straight away so that any profits in COSN (the company with the commissions and therefore the profit it’s making from the interest it is earning) is brought back to neutral, to avoid having to distribute profits to shareholders. Perhaps this is best achieved by Services charging a management fee.
How do we go about it?
I think we need to drive Sof’s price down by making the deal impossible for Peter and/or anyone else to come in if they are relying on a profit distribution or directors fees to fund.
This, plus the fact that we can veto anyone we don’t want to buy in means we might be able to get his 25% for $500,000. Even then if we are the only realistic purchaser he might not have any choice. The only risk with this is if we cross the line into not treating fairly a minority shareholder, or if he then gets a job and decides to hold his shares till we all sell.
Time is on our side with this and though we would like to clear this up quickly the longer it goes the stronger our position.

In early 2006, a buyer had offered $4 million for the Connective business, thus ascribing a value of $1 million to a 25% holding. Presumably, the business would have been worth more by 2008. Murray Lees was proposing to put financial pressure on Slea and induce it to sell its shares in the Connective companies at $500,000 which was, on one reading, half of their true value, on the assumption that Slea’s holding would be reduced to 25%. Slea’s interest would be reduced to 25% if Mr Haron acquired his proposed 25% holding.

Also, two years earlier, in 2006, Mr Lees, Murray Lees, Mr Tsialtas and Mr Haron had agreed on a price of $875,000 for Mr Haron’s acquisition of a quarter interest in the Connective companies; a sum far in excess of the $500,000 suggested by Murray Lees.

Slea contends that the conduct of Mr Lees and Mr Haron, as discussed below, indicates that they accepted and implemented Murray Lees’ proposal. Slea submits that Mr Lees, Murray Lees, and Mr Haron all understood — and must have understood when Murray sent his email — that without a job, Mr Tsialtas would be under financial pressure, and that this was something that they could and should seek to take advantage of. Mr Tsialtas did not gain employment until October 2008.

The financial pressure email further establishes that Murray Lees had no serious intention of allowing MFL to acquire Slea’s shares in the Connective companies. That is a clear inference to be drawn from his email of 19 May 2008. Murray Lees did not give evidence to rebut that inference.

There was no written reply from either Mr Haron or Mr Lees to the financial pressure email. Notably, there was no evidence of any communication to Murray Lees rejecting his proposal. In cross-examination, Mr Lees denied wanting to make it impossible for MFL to come into the business, and said that he thought it was a ‘silly suggestion’ to try and get Slea’s interest for $500,000. Mr Haron stated that, while he thought that it would be ideal to buy Mr Tsialtas’s shares, they would have to do so at a fair price. The subsequent actions of both Mr Lees and Mr Haron establish that they accepted Murray Lees’ proposal and acted on it.

Mr Tsialtas continues to negotiate the sale of Slea’s shares with MFL

Unaware of the financial pressure email, Mr Tsialtas continued to negotiate with representatives of MFL for the sale of 25% of the shares in the Connective companies. Mr Tsialtas believed that MFL had been approved by Mr Lees as a purchaser of Slea’s shares in the Connective companies. Mr Lees had no such intention.

Mr Tsialtas gave evidence that in July 2008, he and MFL had reached an in-principle agreement for the sale by Slea of a 25% holding in the Connective companies for about $1.25 million.[2] At the same time, Mr Tsialtas also continued to pursue alternative buyers. By July 2008, Mr Tsialtas (who had not yet secured a job) was drawing on credit cards to meet his financial commitments.
[2]Some documentary evidence suggests the number may have been $1 million.

Mr Tsialtas’s request for financial information

On 1 July 2008, Mr Tsialtas wrote to Mr Lees seeking financial statements for the Connective companies and sought to schedule a meeting to discuss the payment of a dividend by the Connective companies.

Mr Tsialtas also confirmed his understanding that Mr Lees had arranged to meet the management of MFL to discuss MFL’s purchase of Slea’s shareholding in the Connective companies. In the email of 1 July, Mr Tsialtas said that, as Mr Lees was aware, Mr Tsialtas and MFL had made an in-principle agreement in line with the discussion that Mr Lees had held with Mr McDonald, as well as Mr Lees’ confirmation that the Connective companies had accepted MFL as a purchaser of Slea’s shareholding in the Connective companies. Although not expressly stated, I infer that Mr Tsialtas wanted the financial information from Mr Lees to assist in his negotiations with MFL.

In any event, Mr Lees declined to provide the information sought by Mr Tsialtas. Instead, in an email dated 3 July 2008, Mr Lees indicated that he could prepare interim financial reports for Mr Tsialtas, and that he would make these reports available for inspection by Mr Tsialtas at a mutually agreed time and place. In his email, Mr Lees wrote that they were reluctant to release the figures in hard or soft copy.

The email continued:

We will meet with Jeff, Peter & Mike Nichols (?) next Tuesday. We point out that it is not correct to say that we have approved MFL – we have only ever said that they were a party that we would consider. This is what we have consistently said in the past and remains so now. Having said that, we may also be comfortable in principal [sic] with the Property Planning guys, should your dealings with them prove fruitful, and on that basis are prepared to issue them with a copy of your information memorandum. Can you please provide a copy of the document by email.
Our acceptance of any purchaser will ultimately depend very much on what they propose and what they offer to the business. As you can understand, we are very cautious about taking on a new business partner – especially in an operational role.
I also understand that you are of the opinion that we do not have the right to refuse to transfer shares to a party not approved by us. Our advice is that both company constitutions are quite clear on this. Please let me know if you have advice to the contrary.
Finally, I remind you that under the constitutions of both companies, you are obliged to offer the shares to the existing shareholders at the same terms prior to any sale being considered to a third party, and that we may elect to purchase all or part of your shares on the same terms. Can you please confirm if an offer has been made to you that you are prepared to accept.
As a last but critical matter, we must finalise the transfer of shares to Mark before we can entertain any other transaction. Do you require copies of the documents M&K drafted for the transfer? If so, let me know and I will forward them to you.

Mr Lees was, by this conduct, still conveying to Mr Tsialtas that the Connective companies were open to Slea selling its shares in the Connective companies to MFL, at a point in time when the Connective directors had resolved to thwart any such sale and to buy Slea’s shares themselves.

Regarding Mr Tsialtas’s request for financial information, Mr Lees said that:

The companies legal obligations to shareholders is to provide a copy of the end of financial year statements and directors reports. We anticipate that these will be ready by September when Darren has had time to finalise them. The detailed broker numbers that you have requested do not fall under this obligation, but we are happy to go over these with you at a meeting. If you require these for a potential purchaser of your shares, then please direct them to us, and we can provide the information directly.

With respect to dividends, Mr Lees said ‘there won’t be a dividend declared for 07/08 as the company has effectively traded at breakeven over the year’.

The reason for the Connective companies claiming that they did not having sufficient funds to pay a dividend was that Mr Lees, Murray Lees, and Mr Haron had put in place measures to make that so. They had begun increasing their ‘management fees’ and thus reducing profits. In this way, they were able to extract money for themselves and, at the same time, reduce the profits available for distribution to Mr Tsialtas. This conduct is discussed later as one of the heads of oppression.

The MFL deal is thwarted by Mr Lees

On 16 August 2008, Mr Tsialtas received an email from Mr Butler, an accountant with Wellingtons Accountants Pty Ltd (Wellingtons). Mr Butler advised Mr Tsialtas that he acted for MFL in relation to Mr Tsialtas’s sale of equity in the Connective companies and sought a meeting with Mr Tsialtas. Mr Butler attempted to renegotiate the MFL deal with Mr Tsialtas, offering him a lower price.

Mr Butler subsequently acted for the Connective companies. Mr Butler became a party to the financial pressure strategy to acquire Slea’s shares at a reduced value. Mr Butler was the author of the version 1 and version 2 emails referred to earlier, which proposed strategies for acquiring Slea’s shares at below their true worth. These are discussed below.

The above authorities establish that the usual order is for the majority to buy out the minority, but that a buy-out in favour of the minority, which is invariably the oppressed party, may be made where such an order is appropriate and the justice of the case is satisfied by such an order. However, as discussed above, the authorities establish that an appropriate order should be designed to relieve the oppressed party of the oppressive conduct. Further, the authorities establish that the order should be the least intrusive option consistent with making an appropriate order and achieving the justice that the case requires.

I accept that a buyout by a minority may be justified where the conduct of the majority shareholder demonstrates unfitness to exercise control over the company, to the extent that allowing them to remain in control would be damaging to the company or its business, or would pose a serious risk to the public.[529]
[529]Koh Keng Chew [2016] SGHC 140, [105]; see also Re Nuneaton [1990] BCLC 384, 395 (Harmann J); Lantsbury [2010] EWHC 390 (Ch) [79]; Munstermann [2017] NSWSC 133, where orders for the sale of shares by the oppressor were made in circumstances including: refusal to approve payments ([51]–[72]); mistreatment of staff and admitted workplace bullying ([73]–[78]); refusal to recognise the company’s managing director ([79]–[81]); and refusal to approve budgets or financial statements ([82]–[85]); and see Koh Keng Chew [2016] SGHC 140, [113], regarding Oak Investments (on appeal) [2010] 2 BCLC 459.

I find that the current directors of the Connective companies, Mr Lees and Mr Haron, have been dishonest and deceitful in their oppressive conduct. Further, their behaviour in conspiring to oppress Slea, with the object of buying Slea’s shares at less than their true value, involved engaging in serious blameworthy conduct. Having said that, if Mr Lees and Mr Haron remained in control, there is no evidence that they, or Services and OSN, or their business, would pose a serious risk to the public.

One of the effects of ordering Slea to sell to Mr Haron and Millsave, as opposed to providing Slea with an option to sell, is that the oppressed minority would be forced, or compelled, to do something against its will, as a consequence of being oppressed. I accept that as a matter of principle, that does not appear just. In Fexuto (discussed above), both at first instance and on appeal, the oppressed minority was given the option of selling its interest to the oppressing party, but was not compelled to sell its interest.

I do not propose to order a majority buy-out of Slea’s shares in the Connective companies. I will order that Millsave and Mr Haron offer to buy Slea’s shares in the Connective companies at an appropriate value.

On the basis of my review of the relevant authorities, I am satisfied that the wide discretion afforded to this Court by s 233 of the Corporations Act allows me to order that the minority may buy out the majority, where I consider that such an order is appropriate in all the circumstances of the case, and the justice of the case so requires. Such an order would relieve the oppression and deny the oppressors the fruits of their oppressive conduct.

A significant factor in this case is that part of the established oppressive conduct is that the majority sought to use this conduct to buy out the minority shareholder at an under value. If a majority buy-out order was made in this case, it would not be at an under value; although, the majority’s oppressive conduct would be rewarded and its aim achieved through a majority buy-out of the minority.

As discussed earlier, a part of the directors’ oppressive conduct, as outlined in Slea’s complaint, involved reducing Slea’s commercial interest in the Connective business from one third to one quarter, through the restructure and sale. I find that to further reduce Slea’s interest to zero, by allowing a majority buy-out, does not relieve the oppressive conduct, but instead compounds it.

In addition to the acts of oppression referred to above, there are other relevant factors that I have taken into account. First, the majority shareholders have agreed that Group should sell the Connective business to AFG, and a contract of sale has been entered into. That action was found to be oppressive. Further, the vendors have contracted with AFG to seek the Court’s approval to buy out Slea’s interest, further compounding the oppressive conduct.

A consequence of my proposed order that Group transfer the Connective business back to Services and OSN is that the sale to AFG can no longer proceed. Nevertheless, it does establish that the majority shareholders wished to sell the Connective business. There was no evidence to suggest that, if the majority shareholders acquired the minority interest in Services and OSN, they would no longer wish to sell the Connective business to AFG or some other buyer. In fact, the evidence of Mr Lees was that he wished to sell the business and hoped to obtain a board position with AFG.

In contrast, Slea wishes to keep its one-third interest in the Connective business. It has agreed, however, that if it acquires the majority’s shares, then that interest will be on-sold to Liberty. Mr Tsialtas did not express any interest at being involved in the running of the Connective business.

The majority shareholders have expressed criticism regarding this proposed arrangement; however, I see nothing wrong in the arrangement. Slea entered into the arrangement with Liberty in its own best interests. Slea is quite content to remain a one-third interest holder in Services and OSN, as managed and controlled by Liberty.

On the other hand, Mr Lees and Mr Haron would be content to have no interest in the Connective companies, if the Connective business was sold to AFG.

In the Connective companies’ opening, they made much of the allegation that Slea was Liberty’s puppet. In my view, this suggestion has no bearing on the alleged oppressive conduct, nor on whether the directors exercised their powers for an improper purpose. The only possible relevance is to whether the majority buys out the minority or vice versa. As it is, I have taken into account the agreement between Liberty and Slea, in which Slea has undertaken to sell shares to Liberty if it acquires more than a third interest.

In their opening, the Connective companies also referred to an alleged falling out between Mr Lees and Mr Murray Lees, and suggested that it might have some relevance on any buy-out order. This issue was not pursued in evidence or closing by the Connective companies.

Mr Haron does not wish to run or work in the Connective companies, although, like Mr Lees, he said that he would accept an appointment to the AFG board.[530]
[530]Mr Tsialtas gave incredulous evidence that he had not thought through what he would do with the purchased shareholding. (Mr Lees gave evidence that he would not work for a company controlled by Liberty.)

There are other relevant factors that I should take into account. Mr Tsialtas has been out of the Connective business for over a decade. The current management has increased the value of the business from approximately $20 million in 2012 to well over $100 million today. The business is attractive to many buyers in the market.

In addition to the acts of oppression, I have taken into account the following conduct of Mr Lees and Mr Haron.

I am satisfied that Mr Lees has deliberately lied in giving evidence. Importantly, I am satisfied that he lied in giving his explanation of why Group conducted a sale process.

I am satisfied that Millsave and Mr Haron have engaged in a decade-long campaign to eliminate Slea as a shareholder: first by ‘starving out’ Mr Tsialtas; and later (when Mr Tsialtas managed to secure financial support), by engaging in various types of oppressive conduct, including improperly effecting the restructure and sale. Moreover, Mr Lees and Mr Haron have actively sought to conceal critical aspects of their conduct from Slea.

I am satisfied that Millsave and Mr Haron have inflicted financial hardship on Mr Tsialtas and Slea in the hope of being able to acquire Slea’s shares cheaply.

I am satisfied that Millsave and Mr Haron have conducted themselves on the basis that the Connective companies’ assets are their personal assets. A primary example is the extensive use of company moneys to fund their own legal costs.

I am satisfied that Mr Lees and Mr Haron are unfit to act as company directors.[531] Both men have repeatedly displayed a willingness to act dishonestly. I am satisfied that they have consciously refused to comply with court orders, destroyed relevant documents, not complied with discovery obligations, made a false affidavit (in the case of Mr Haron) and (at best) a sharp affidavit (in the case of Mr Lees) to deliberately conceal information, and have twice invoked the Court’s process for a collateral purpose and as a vehicle for oppression.
[531]In a different context, Robson J previously held that a director who is prepared to ‘tell untruths in his dealings’ with a co-director ‘when it suited his own personal interests’ cannot be trusted to tell the truth, and was therefore unfit to conduct proceedings on behalf of a company: Re Junior Academy Elc Pty Ltd (No 3) [2019] VSC 161.

In my opinion, an order requiring Slea to sell its shares to Millsave and Mr Haron would effectively reward Mr Lees and Mr Haron for their wrongful conduct. They are the ones that have brought about the situation that the ownership of Services and OSN must be resolved in favour of one party or the other. In those circumstance, I find that it would be unfair and inequitable that the burden of sale should fall on the innocent party, Slea.

Mr Haron conceded that he was a seller. Mr Korda said that Mr Lees had advised him that he was a seller on the right terms. Through counsel, Millsave admitted that it was a seller in relation to AFG.[532] Mr Lees lacked clarity on this issue; however, I accept that Mr Lees was a seller on the terms of the proposed AFG transaction. By contrast, Slea is a buyer and does not wish to exit the business which it established.
[532]Although counsel for Millsave subsequently sought to resile from the admission.

Mr Lees and Mr Haron submit that the relationship between Liberty and Slea is a relevant factor in determining who should buy whom out. I do not consider the relationship has much relevance. Liberty will provide the funds necessary to buy out the majority and Liberty will end up the majority shareholder. This, however, is all being done pursuant to Slea’s wishes. If Mr Lees, Millsave and Mr Haron had not engaged in oppressive conduct, there would have been no need for Slea to seek the help and support of Liberty.

In my decision on the derivative leave application[533] (which was unanimously upheld by the Court of Appeal),[534] I said:

The premise of this argument, that the objectives of a joint venture between Slea and Liberty diminishes or somehow taints the legitimate interest of Slea, is false. The argument ignores the fact that by assisting the joint venture, Slea advances its own commercial interests, both in the joint venture and in its shareholding in the Connective companies.

[533]Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609, [259]. See also [113], [259]–[261].

[534]Slea Pty Ltd v Connective Services Pty Ltd [2018] VSCA 229, [106]–[116].

There is nothing relevantly unfair about a minority shareholder, which is experiencing sustained financial hardship, having a relationship like the one between Slea and Liberty.[535] Nor could such a relationship alter the character of the oppressive conduct in this case. On the contrary, it is natural that an oppressed shareholder might seek assistance in its contest with those oppressing it, and thus be obliged to compensate the party assisting it to obtain relief from its oppressors.
[535]In analogous circumstances, see Re Coroin [2014] BCC 14.

In fashioning relief that is appropriate, I have taken all these matters into account. It is not an easy decision to make, but in my discretion, and in accordance with the power granted to me, I consider that the oppressive conduct towards Slea would not be relieved if the majority were able to succeed through their oppressive conduct, and by means of court order, in obtaining what they sought to achieve with their oppressive conduct, which is to buy out Slea. Further, Mr Lees is content not to have an interest in the Connective business, as evidenced by his agreement to sell to AFG. Mr Tsialtas, however, wishes to keep his one-third interest, and an order that the minority buy out the majority will achieve this end.

Orders

In my opinion, an order entitling Slea to purchase the majority shares is just and equitable in all the circumstances, and meets the justice that the case requires; and, in the words of s 233, it is the order that I consider appropriate in relation to Services and OSN.

I therefore propose to order that Slea have the option of purchasing the majority’s shares in Services and OSN at their current value, to be agreed; and, in default of agreement, at the price determined by the Court, subject to the adjustments to the price already referred to in this judgment.

It was accepted during the hearing that further evidence may have to be led in determining the current value of the Connective companies, to determine the purchase price of the shares. As discussed, in default of agreement, the hearing of the valuation of the shares shall be conducted before an associate justice or such other judicial officer as the court sees fit.

Schedule of Parties

S CI 2011 04332

SLEA PTY LTD	Plaintiff
and
CONNECTIVE SERVICES PTY LTD	First Defendant
CONNECTIVE OSN PTY LTD	Second Defendant
MILLSAVE HOLDINGS PTY LTD	Third Defendant
CONNECTIVE GROUP PTY LTD	Fourth Defendant
CONNECTIVE BROKER SERVICES PTY LTD	Fifth Defendant
CONNECTIVE LENDER SERVICES PTY LTD	Sixth Defendant
CONNECTIVE FUNDER SERVICES PTY LTD	Seventh Defendant
CONNECTIVE GROUP IP HOLDINGS (NO 1) PTY LTD	Eighth Defendant
CONNECTIVE GROUP IP HOLDINGS (NO 2) PTY LTD	Ninth Defendant
MARK SEAMUS HARON	Tenth Defendant

S ECI 2018 00073

CONNECTIVE SERVICES PTY LTD	First Plaintiff
CONNECTIVE OSN PTY LTD	Second Plaintiff
and
GLENN ANDREW LEES	First Defendant
MARK SEAMUS HARON	Second Defendant
GRAHAM EDWARD MALONEY	Third Defendant
MACQUARIE BANK LIMITED	Fourth Defendant
CONNECTIVE GROUP PTY LTD	Fifth Defendant
CONNECTIVE BROKER SERVICES PTY LTD	Sixth Defendant
CONNECTIVE LENDER SERVICES PTY LTD	Seventh Defendant
CONNECTIVE FUNDER SERVICES PTY LTD	Eighth Defendant
CONNECTIVE GROUP IP HOLDINGS (NO 1) PTY LTD	Ninth Defendant
CONNECTIVE GROUP IP HOLDINGS (NO 2) PTY LTD	Tenth Defendant
SLEA PTY LTD	Eleventh Defendant
MILLSAVE HOLDINGS PTY LTD	Twelfth Defendant

S ECI 2019 03862

CONNECTIVE GROUP PTY LTD	First Plaintiff
CONNECTIVE ASSET FINANCE PTY LTD	Second Plaintiff
CONNECTIVE BROKER SERVICES PTY LTD	Third Plaintiff
CONNECTIVE CREDIT SERVICES PTY LTD	Fourth Plaintiff
CONNECTIVE FUNDER SERVICES PTY LTD	Fifth Plaintiff
CONNECTIVE GROUP IP HOLDINGS (NO 1) PTY LTD	Sixth Plaintiff
CONNECTIVE GROUP IP HOLDINGS (NO 2) PTY LTD	Seventh Plaintiff
CONNECTIVE LENDER SERVICES PTY LTD	Eighth Plaintiff
ICONNECT FINANCIAL PTY LTD	Ninth Plaintiff
and
SLEA PTY LTD	First Defendant
CONNECTIVE SERVICES PTY LTD	Second Defendant
CONNECTIVE OSN PTY LTD	Third Defendant

Schedule of Defined Terms

2009 agreement	Agreement of May 2009 between Mr Tsialtas and Minerva for the sale of Mr Tsialtas’s shares in Slea, in exchange for $1.15 million and three BEAT home loan licenses. Ultimately set aside.
accommodation agreement	Agreement of 12 August 2010 between Slea and Minerva, in which Minerva promised various consideration in exchange for a right to purchase Slea’s interest in the Connective companies.
all parties deed of settlement	Agreement of 16 August 2011 between Mr Haron, Slea, Millsave, Services and OSN in respect of the Haron proceeding.
alleged Haron oral agreement	An oral agreement alleged to have been reached either on 10 Oct 2006, or in May 2007, for Mr Haron to become a shareholder. Alleged to have been given effect by the share sale agreement.
approval proceeding	Supreme Court of Victoria proceeding S ECI 2019 03862 commenced 26 August 2019 by Group and its subsidiaries; joined to the trial of the oppression and derivative proceedings, but discontinued in 2020. Concerned the Connective companies seeking court approval for the AFG transaction.
confidentiality proceeding	A proceeding commenced by the Connective companies against Murray Lees and Slea on 30 August 2016, alleging that the Murray Lees statement disclosed confidential information of the Connective companies.
Connective business	The substantial mortgage aggregation business conducted initially by Services and OSN, and transferred to Group and its subsidiaries via the restructure.
Connective’s pre-emptive rights proceeding	Supreme Court of Victoria proceeding S ECI 01168, commenced in 2016 by the Connective companies. Concerned allegations that the 2009 agreement and the accommodation agreement constituted breaches of other parties’ pre-emptive rights.
derivative proceeding	Supreme Court of Victoria proceeding S ECI 2018 00073, commenced by Slea on behalf of Services and OSN in 2018; one of the proceedings resolved in this judgment. Concerns, primarily, allegations of breaches of director’s duties at the Connective companies.
directors	Refers to Mr Lees, Mr Haron and Mr Maloney in their capacities as directors of the Connective companies. NB: Does not refer to Mr Tsialtas, Mr Korda, James Angus or James Atkins, despite their directorships of relevant companies at various points.
financial pressure strategy, the	A set of plans conceived and executed by Mr Lees, Mr Haron, Murray Lees, Mr Butler and Mr Burchartz, with the effect of imposing financial pressure on Mr Tsialtas, to the end goal of having him sell his shares in the Connective companies back to them at a reduced price.
financial pressure strategy email	The email sent by Murray Lees to Mr Lees and Mr Haron on 19 May 2008 which first communicated the underpinnings of the financial pressure strategy.
funding agreement	Agreement of March 2012 between Slea and Minerva, in which Minerva agrees to cover Slea’s costs of litigation.
Haron proceeding	Supreme Court of Victoria proceeding SCI 2011 02114, commenced in 2011 by Mr Haron and settled on 22 October 2013. Concerned Mr Haron’s contested rights to shares in the Connective companies.
Haron version 2 assent	Mr Haron’s email at 10.49am on 24 July 2009 expressing his assent to the plan outlined in the version 2 email.
implementation deed	Agreement of 11 August 2019 between AFG, Group and its subsidiaries to give effect to the proposed merger between those companies.
marked-up minutes, the	The marked-up record of minutes from the 2011 AGM of the Connective companies, sent from Mr Tsialtas’s solicitors (Baker & McKenzie) to Mr Lees on 20 April 2011.
Millsave agreement	The part of the all parties deed of settlement which concerned agreements for a share transfer between Millsave and Mr Haron.
Millsave deed of settlement	Agreement of 16 August 2011 between Mr Haron and Millsave in respect of the Haron Proceeding. Ultimately terminated on 20 October 2013.
Millsave shares	The shares that Mr Haron was to obtain from Millsave pursuant to the all parties deed of settlement.
Murray Lees statement, the	A statement of Murray Lees dated 11 May 2016, taken by Slea’s solicitors, purporting to record Murray Lees’ version of relevant events featured in the oppression and derivative proceedings.
Murray Lees ‘text from Sof’ email	The email sent by Murray Lees to Mr Butler on 28 June 2010 concerning current and future steps to apply pressure to Mr Tsialtas, as part of the financial pressure strategy.
Murray Lees version 2 assent	Murray Lees’ email at 9.01pm on 23 July 2009 expressing his assent to the plan outlined in the version 2 email.
Myers QC statement, the	A statement made by Mr Myers QC at the hearing of the derivative leave application, which Slea seeks to have admitted as an admission against the defendants to the oppression and derivative proceedings.
oppression proceeding	Supreme Court of Victoria proceeding SCI 2011 04332 commenced in 2011 by Slea; one of the proceedings resolved in this judgment. Concerns allegations of Slea’s oppression as a minority shareholder in the Connective companies.
pre-emptive rights provisions	Clause 77 of the constitution of each of Services and OSN, which provided, inter alia, that before transferring shares of a particular class, a member was required to offer them to the existing holders of shares of that class.
Project Wookie	The codename used internally at AFG for their dealings with the Connective companies, referring at first to the proposed joint venture and subsequently to the sale process.
restructure, the	The transfer of the Connective business from the Connective companies to Group and its subsidiaries in 2013.
sale process, the	The process undertaken by Connective, with KordaMentha’s assistance, to identify potential buyers of its shares, business or assets, instigated by the approach of AFG and ultimately concluding in AFG’s proposed merger with the Connective companies.
share purchase deed	Agreement of 31 October 2013 between Macquarie and the Connective companies for Macquarie’s purchase of a 25% interest in Group.
share sale agreement	The agreement redrafted several times over in 2009, under which Millsave and Slea would sell to Mr Haron 25% of the shares in each of OSN and Services. Ultimately not finalised.
Slea’s pre-emptive rights proceeding	Supreme Court of Victoria proceeding S CI 2013 05099 commenced in 2013 by Slea. Concerned allegations that the Millsave deed of settlement constituted a breach of Slea’s pre-emptive rights.
version 1 email	The email sent from Mr Butler to Mr Lees, Murray Lees and Mr Haron on 22 July 2009 which outlined the first possible offer for a planned share transfer from Slea to Mr Haron (involving all of Slea’s shares).
version 2 email	The email sent from Mr Butler to Mr Lees, Murray Lees and Mr Haron on 22 July 2009 which outlined the second possible offer for a planned share transfer from Slea to Mr Haron (involving only 25% of Slea’s shares).

Key companies and law firms

AFG	Australian Finance Group Ltd, an entity that approached the Connective companies seeking to merge with them, and ultimately proposes to do so via the sale process.
ABL	Arnold Bloch Leibler, solicitors for Slea in these proceedings and various earlier matters.
Baker & McKenzie	Solicitors for Mr Tsialtas in earlier matters.
CBS	Connective Broker Services Pty Ltd, a subsidiary of Group; fifth defendant in oppression proceeding; sixth defendant in derivative proceeding; third defendant in the approval proceeding.
CFS	Connective Funder Services Pty Ltd, a subsidiary of Group; seventh defendant in oppression proceeding; eighth defendant in derivative proceeding, fifth defendant in the approval proceeding.
CLS	Connective Lender Services Pty Ltd, a subsidiary of Group; sixth defendant in oppression proceeding; seventh defendant in derivative proceeding; eighth defendant in the approval proceeding.
Connective companies	For matters occurring prior to or during the Restructure, this term refers to the combination of Services and OSN. For matters after the restructure, this term refers to Services, OSN, Group and Group’s subsidiaries.
Connective Credit Services (Credit Services)	Connective Credit Services Pty Ltd, a subsidiary of Connective Group not involved in the oppression and derivative proceedings; fourth plaintiff in the approval proceeding.
Connective Group (Group)	Connective Group Pty Ltd, a subsidiary of Services; holding company of the Connective Group subsidiaries; fourth defendant in the oppression proceeding; fifth defendant in the derivative proceeding; first plaintiff in the approval proceeding.
Connective Group subsidiaries	CBS, CLS, CFS, IP Holdings 1, and IP Holdings 2; fifth to ninth defendants in the oppression proceeding; sixth to tenth defendants in the derivative proceeding; third and fifth to eighth plaintiffs in the approval proceeding; operating companies of the Connective business following the restructure. NB: Group had other subsidiaries, which are not referred to by this term unless otherwise specified.
Connective OSN (OSN)	Connective OSN Pty Ltd, second defendant in the oppression proceeding; second plaintiff in the derivative proceeding; third defendant in the approval proceeding.
Connective Services (Services)	Connective Services Pty Ltd, operating company of the Connective business prior to the restructure; holding company of Connective Group; first defendant in the oppression proceeding; first plaintiff in the derivative proceeding; second defendant in the approval proceeding.
Henry Davis York	Solicitors for Macquarie.
Herbert Smith Freehills	Solicitors for AFG.
IP Holdings 1	Connective Group IP Holdings (No 1) Pty Ltd, a subsidiary of Connective Group; eighth defendant in the oppression proceeding; ninth defendant in the derivative proceeding; sixth defendant in the approval proceeding.
IP Holdings 2	Connective Group IP Holdings (No 2) Pty Ltd, a subsidiary of Connective Group; ninth defendant in the oppression proceeding; tenth defendant in the derivative proceeding; seventh defendant in the approval proceeding.
Liberty	Liberty Financial Planning Pty Ltd, a subsidiary company of Minerva; variously a business partner and competitor of the Connective business; sought to purchase an interest in Connective, at various points, including via the accommodation agreement.
Macpherson Kelley (MK)	Macpherson Kelley, solicitors for Connective in early matters, including the Haron Sale Agreement.
Macquarie	Macquarie Bank Limited, a shareholder in Connective Group from 2013; fourth defendant in the derivative proceeding.
Maddocks	Maddocks & Associates Pty Ltd, solicitors for Connective in the Haron proceeding, and in relation to other matters including the restructure.
Millsave	Millsave Holdings Pty Ltd, a shareholder in the Connective companies, with benefits from its shareholding flowing to Glenn and Murray Lees; third defendant in the oppression proceeding; twelfth defendant in the derivative proceeding.
Minerva	Minerva Financial Group Pty Ltd, a holding company of Liberty; party to the 2009 agreement, accommodation agreement, and funding agreement with Slea; a financial backer of Slea in this litigation.
Norton Rose Fulbright	Norton Rose Fulbright Australia Services Pty Ltd, Connective’s solicitors in the approval proceeding, and advisors to the sale process.
Obst Legal	Obst Legal Pty Ltd, solicitors for Mr Haron in this proceeding and earlier matters.
Quinn Emanuel	Quinn Emanuel Urquhart & Sullivan, LLP, solicitors for Connective since 2016, including in this proceeding.
Slea	Slea Pty Ltd, a shareholder in the Connective companies, to the beneficial interest of Mr Tsialtas; plaintiff in the oppression proceeding; eleventh defendant in the derivative proceeding.
Wisewould Mahony	Wisewould Mahony Lawyers, solicitors for Millsave and Mr Haron in the Haron proceeding and other matters.

Key individuals

BAILEY, David	The CEO of AFG.
BOYLE, James	A representative of Liberty.
BURCHARTZ, Sven	One of Connective’s solicitors at MK; a party to the financial pressure strategy.
BUTLER, Andrew	An accountant for Wellingtons, who did work for MFL, and subsequently became Connective’s accountant; a party to the financial pressure strategy; a director of Millsave.
DELEUIL, Beau	One of Connective’s solicitors at Quinn Emanuel.
HARON, Mark	Principal in Connective companies from 2006; director of Connective companies from August 2011; shareholder in Connective companies from 2013; tenth defendant in oppression proceeding; second defendant in derivative proceeding.
KIRTON, Paul	One of Connective’s solicitors at MK.
KORDA, Mark	A representative of KordaMentha, appointed by Connective as a director in 2018 to manage the sale process.
LEES, Glenn (Mr Lees)	Founding director, founding shareholder, and executive director of the Connective companies; director of Millsave and a beneficiary of Millsave’s interest in Connective; director of Connective Group and its subsidiaries; first defendant in the derivative proceeding.
LEES, Murray	Former principal in the Connective business; beneficiary of Millsave’s interest in the Connective business.
MALONEY, Graham	An independent, non-executive director of the Connective companies from August 2011; third defendant in the derivative proceeding.
TSIALTAS, Sofianos	Former founding director of the Connective companies; sole director of Slea and beneficiary of Slea’s interest in Connective.

These definitions and descriptions do not form part of the judgment, but are provided to assist the reader.

[2022] VSC 136

22 March 2022