Territory Realty Pty Ltd v Garraway

[2009] FCA 292

FEDERAL COURT OF AUSTRALIA

Territory Realty Pty Ltd v Garraway [2009] FCA 292

CORPORATIONS – Articles gave pre-emptive rights to existing members in proposed share transfers – shares to be transferred to non-member – transferee of legal title in shares to member to avoid concern about pre-emptive rights – beneficial owners of shares deliberately not made apparent – construction of Articles – whether share transfers inconsistent with pre-emptive rights in Articles – subsequent share transfers – whether failure to assert pre-emptive rights under Articles once aware of earlier share transfers amounts to acquiescence or election – whether participating in conduct of company amounted to election to deal with new shareholders – whether waiver of pre-emptive rights under Articles

CORPORATIONS – whether intentional and wrongful interference with contractual relationship by procuring or participating in breach of contract between members constituted by Memorandum and Articles

CORPORATIONS – various dispositions of assets made and series of decisions and implementation of those decisions in conduct of company – capital raising by share issue accompanied by offer to minority shareholders at substantial undervalue – whether conduct of company contrary to interests of members as a whole, or oppressive to or unfairly prejudicial to or unfairly discriminatory against applicants – whether amounts to oppressively conducting affairs of company within meaning of s 232 of Corporations Act 2001 (Cth)

CORPORATIONS -  misleading and deceptive conduct – whether statements associated with share transfers and conducting affairs of company amounts to misleading and deceptive conduct contrary to Consumer Affairs and Fair Trading Act (NT)

LIMITATION OF ACTIONS – extension of time – breach of contract, claim for damages for tort of intentionally interfering with contractual relations and misleading and deceptive conduct claims out of time under Limitation Act (NT) – whether extension of time appropriate – whether material fact ascertained within 12 months of institution of proceedings – whether failure to institute proceedings within limitation period resulted from representations or conduct of respondents, and whether such failure was reasonable in view of representations or conduct

Companies Ordinance 1963 (NT)
Corporations Act 2001 (Cth) s 232, 233
Planning Act (NT)
Consumer Affairs and Fair Trading Act (NT)
Limitations Act (NT)

Lennard’s Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705
A/S Rendal v Arcos Ltd [1937] 3 All ER 577
Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199
Lyle & Scott Ltd v Scott’s Trustees [1959] AC 763
Hunter v Hunter [1936] AC 222
Hagan v Waterhouse (1991) 34 NSWLR 308
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1
Adelaide Building Co Pty Ltd (in liq) v ABC Investments Pty Ltd (1990) 8 ACLC 445
Safeguard Industrial Investments Ltd v National Westminster Bank Ltd [1981] 1 WLR 286
Safeguard Industrial Investments Ltd v National Westminster Bank Ltd [1982] 1 WLR 589
Orr v Ford (1989) 167 CLR 316
Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1
Sargentv ASL Developments Ltd (1974) 131 CLR 634
Commonwealth of Australia v Verwayen (1990) 170 CLR 394
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1
Pacific Brands Sports & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395
Allcard v Skinner (1887) 36 Ch D 145
Northern Territory v Mengel (1995) 185 CLR 307
O’Neill v Phillips [1999] 1 WLR 1092
Fraser v NRMA Holdings Ltd (1994) 52 FCR 1
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Coombs v Dynasty Pty Ltd (1994) 114 ACSR 60
Coombs v Dynasty Pty Ltd (1994) 114 ACSR 60
Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541
Ulowski v Miller [1968] SASR 277
Vink v Schering Pty Ltd (No 1) [1991] ATPR 41-064
Sola Optical Australia Pty Ltd v Mills (1987) 163 CLR 628
Bjelica Investments Pty Ltd v TC Waters Pepper & Co Pty Ltd (2001) 12 NTLR 1
Lovett v Le Gall (1975) 10 SASR 479
Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Edwards v Idaville Pty Ltd (1996) 22 ACSR 1
De Tocqueville Private Equity Pty Ltd v Linden & Conway Ltd (2006) 59 ACSR 587
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688
Re Spargos Mining NL (1990) 3 ACSR 1
Ebrahimi v Westbourne Galleries Pty Ltd [1973] AC 360
Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386
Kirwin v Cresvale Far East Ltd (2002) 44 ACSR 1
Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285
Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd (2001) 19 ACLC 517
Marten v Australian Squash Club Pty Ltd (1996) 14 ACLR 452
Wilton-Davies v Kirk [1998] 1 BCLC 274

TERRITORY REALTY PTY LTD (ACN 009 644 339), DAVID JOHN BOOTH and JOHN DAVID SANDERS v ALLAN CHARLES GARRAWAY, HERBERT THOMAS HASSALL, ROBERT GEORGE KENDRAY, H & K EARTHMOVING PTY LTD (ACN 009 624 202), EXCESS PTY LTD (ACN 009 608 217), BISHOP ESTATE PTY LTD (ACN 070 455 837) and DUNDEE BEACH PTY LTD (ACN 009 631 136)

NTD 10 of 2007

MANSFIELD J
1 APRIL 2009
ADELAIDE (HEARD IN DARWIN)

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	NTD 10 of 2007

BETWEEN:

TERRITORY REALTY PTY LTD (ACN 009 644 339)
First Applicant

DAVID JOHN BOOTH
Second Applicant

JOHN DAVID SANDERS
Third Applicant

AND:

ALLAN CHARLES GARRAWAY
First Respondent

HERBERT THOMAS HASSALL
Second Respondent

ROBERT GEORGE KENDRAY
Third Respondent

H & K EARTHMOVING PTY LTD (ACN 009 624 202)
Fourth Respondent

EXCESS PTY LTD (ACN 009 608 217)
Fifth Respondent

BISHOP ESTATE PTY LTD (ACN 070 455 837)
Sixth Respondent

DUNDEE BEACH PTY LTD (ACN 009 631 136)
Seventh Respondent

JUDGE:	MANSFIELD J
DATE OF ORDER:	1 APRIL 2009
WHERE MADE:	ADELAIDE (HEARD IN DARWIN)

THE COURT ORDERS THAT:

1.The matter be stood over to a date to be fixed for the making of orders to give effect to these reasons for judgment.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	NTD 10 of 2007

BETWEEN:

TERRITORY REALTY PTY LTD (ACN 009 644 339)
First Applicant

DAVID JOHN BOOTH
Second Applicant

JOHN DAVID SANDERS
Third Applicant

AND:

ALLAN CHARLES GARRAWAY
First Respondent

HERBERT THOMAS HASSALL
Second Respondent

ROBERT GEORGE KENDRAY
Third Respondent

H & K EARTHMOVING PTY LTD (ACN 009 624 202)
Fourth Respondent

EXCESS PTY LTD (ACN 009 608 217)
Fifth Respondent

BISHOP ESTATE PTY LTD (ACN 070 455 837)
Sixth Respondent

DUNDEE BEACH PTY LTD (ACN 009 631 136)
Seventh Respondent

JUDGE:	MANSFIELD J
DATE:	1 APRIL 2009
PLACE:	ADELAIDE (HEARD IN DARWIN)

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1]
BRIEF OVERVIEW OF THE CLAIMS........ ........ ........ ........ ........ ........ ........ ........ ......	[9]
THE DEVELOPMENT OF DUNDEE BEACH AND DUNDEE DOWNS........ .......	[15]
THE SHAREHOLDING IN DUNDEE BEACH P/L........ ........ ........ ........ ........ ........ ...	[43]
THE EVENTS LEADING UP TO 4 MAY 1999........ ........ ........ ........ ........ ........ ........ ...	[47]
THE TRANSACTION OF 4 MAY 1999........ ........ ........ ........ ........ ........ ........ ........ .......	[78]
EVENTS SUBSEQUENT TO 4 MAY 1999........ ........ ........ ........ ........ ........ ........ ........ ..	[119]
THE SHARE TRANSFERS AND ARTICLES........ ........ ........ ........ ........ ........ ........ ....	[131]
OTHER CLAIMS ARISING FROM THE 4 MAY 1999 SHARE TRANSFERS.....	[154]
THE DISPOSITION OF ASSETS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[176]
(1) The Rainforest Block........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[176]
(2) The Dump Site........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[186]
(3) The School Site........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[193]
(4) Rezoning of Four CP Blocks........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[199]
(5) The 25 Lot Subdivision........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[203]
(6) The Pumphouse Gang Shares........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[208]
THE OPPRESSION ALLEGATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[219]
(1) Removal of Booth and Sanders as directors........ ........ ........ ........ ........ ........ .......	[223]
(2) The offers to buy out Territory Realty........ ........ ........ ........ ........ ........ ........ ........	[230]
(3) Dividend policy........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[240]
(4) Lack of disclosure........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[240]
(5) Management and consultancy fees........ ........ ........ ........ ........ ........ ........ ........ ......	[241]
(6) Setting off the loan account against the dividend........ ........ ........ ........ ........ ........	[256]
(7) The 2007 share issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[265]
(8) Conducting affairs of Dundee Beach P/L between 1999 and 2005........ ........ .....	[288]
(9) Payment of legal fees........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[290]
THE CONSEQUENCES OF THE FINDINGS........ ........ ........ ........ ........ ........ ........ ....	[293]
CONTRACT-RELATED CLAIMS AND EXTENSION OF TIME........ ........ ........ ...	[294]
THE OPPRESSION CLAIM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[307]
(1) The principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[307]
(2) Consideration and conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[315]
RELIEF........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[319]
(1) Form of Relief........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[319]
(2) Value of the land........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[328]
(i) The subdivided stock........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[341]
(ii) Stage 4 land........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[347]
(iii) Tourist Commercial land........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[352]
(iv) Conclusion as to land value........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[359]
(3) The value of Dundee Beach P/L........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[360]
CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[367]

REASONS FOR JUDGMENT

INTRODUCTION

1. This case concerns the control of Dundee Beach Pty Ltd (Dundee Beach P/L), the developer of Dundee Downs/Dundee Beach area and its management since 4 May 1999.  The relevant events occurred in the period leading up to, and after, that date so I shall first record my findings as to the state of affairs which existed at that time.

2. Presently, the shareholders of Dundee Beach P/L are Territory Realty Pty Ltd (Territory Realty), Excess Pty Ltd (Excess) and Bishop Estate Pty Ltd (Bishop Estate).  Subject to a recent share issue, which is contentious, the shareholding in Dundee Beach P/L between those three companies is equal.

3. It is helpful to identify who lies behind the three shareholders in Dundee Beach P/L, and to record a little of their corporate history.

4. Territory Realty was registered on 8 June 1988.  David Booth (Booth) and John Sanders (Sanders) are directors of Territory Realty.  Initially its directors were Paul Proctor (until 1 October 2002) and Booth.  Sanders was appointed a director only on 29 January 2007.  On the same date, one Ian Henry was also appointed a director.  Presently Booth holds one of the two shares in Territory Realty and Sanders Investments Pty Ltd (Sanders Investments) holds the other.  Previously, one share was held by Proctor, so presumably he transferred that share to Sanders Investments.  Booth says that he and Sanders incorporated Territory Realty to invest in, and develop land in, the Dundee Downs/Dundee Beach area of the Northern Territory.

5. For present purposes, it is convenient to regard Booth and Sanders as the persons behind Territory Realty.  Booth has clearly been the more prominent of the two in external dealings on its behalf.  Proctor was at material times until 1 October 2002 a director and its secretary.

6. At material times Booth and Sanders were also directors of a company now called David Booth Real Estate Pty Ltd (formerly The Territory Realty Corporation Pty Ltd).  It conducted business as Territory First National Real Estate (Territory Real Estate) during the 1980s and 1990s.  That is not a company which is concerned with the present proceedings, save that for a brief time it held the Booth/Sanders interest in Dundee Beach P/L before it was transferred to Territory Realty.

7. Excess is a long registered company.  It was a company controlled by Neville Walker (Walker), a prominent businessman in the Northern Territory, until his death on 7 February 2005.  He was a director of Excess until then, together with Danielle Pokorny.  His son David Walker became a director from 12 December 1997.  Pokorny and David Walker remain as its directors.  Walker held nine of its ten issued shares.  They are now held by David Walker and Pokorny as trustees for his estate.  The other share is held by Pokorny.

8. Bishop Estate was registered on 24 July 1995.  At all material times, its directors have been Allan Garraway and Robert Woolley.  They also each hold one of its two issued shares.

   BRIEF OVERVIEW OF THE CLAIMS

9. Territory Realty and its directors Booth and Sanders claim against the respondents (the proceedings against Robert Kendray were discontinued) by reason of the events by which Bishop Estate and Excess came to acquire at least an equitable interest in nine shares in Dundee Beach P/L on 4 May 1999, and subsequently came to hold 32 of the 48 shares in Dundee Beach P/L by further transfers on 25 November 2003 and 2 July 2004, and secondly by the way in which Dundee Beach P/L was run from 4 May 1999 (including a further issue of shares).

10. They claim that each of the share transfers was inconsistent with the “pre-emptive rights” which Territory Realty enjoyed as an existing shareholder of Dundee Beach P/L.  They seek declaratory relief to that effect, together with orders correcting the share register of Dundee Beach P/L, and (rather optimistically) orders that Bishop Estate and Excess hold their shares on a constructive trust in favour of Territory Realty.

11. The applicants also claim that the then shareholders in Dundee Beach P/L, by participating in those transfers, breached the contract between them and Territory Realty constituted by the  Memorandum and Articles of Association (the Articles) of Dundee Beach P/L by failing to comply, in particular, with the procedure for the transfer of shares specified in Article 5 of the Articles, and that Garraway intentionally and wrongfully interfered with that contractual relationship by procuring or participating in its breach.

12. Also arising from the conduct surrounding the share transfer of 4 May 1999, the applicants allege that Garraway, both personally and on behalf of Herbert Thomas Hassall (known as Peter Hassall) (Hassall) and of Dundee Beach P/L engaged in misleading and deceptive conduct, to the applicants’ detriment.

13. The two causes of action referred to in the preceding two paragraphs are well out of the time within which they may be brought under the Limitation Act (NT) (the Limitation Act), and the applicants seek an extension of time under that Act to bring those claims.

14. The other cause of action invoked by the applicants arises out of the conduct of Dundee Beach P/L by its directors, and by each of its shareholders or putative shareholders other than Territory Realty, in the management and operation of the affairs of Dundee Beach P/L up to, and including in one respect, the time of, these proceedings. They allege that by a series of decisions, and the implementation of those decisions, the affairs of Dundee Beach P/L over that time have been conducted oppressively within the meaning of s 232 of the Corporations Act 2001 (Cth) (the Corporations Act) and orders are sought under s 233 of that Act. The particular conduct in question is set out in the course of these reasons for judgment.

    THE DEVELOPMENT OF DUNDEE BEACH AND DUNDEE DOWNS

15. The history of the development of the Dundee Downs/Dundee Beach area is not really contentious.

16. During the 1980s, Booth knew Robert Kendray and Terrance Dowling.  In about the mid-1980s the three men had some discussions about purchasing and developing certain parcels of land at Dundee Downs/Dundee Beach.  That land was then “owned” by Terri Co Pty Ltd under a pastoral lease.  Terri Co Pty Ltd went into liquidation.  Its liquidator applied for, and succeeded in being permitted to effect, the conversion of the pastoral lease into a number of smaller parcels described as Crown Lease Terms intended for future development.  The liquidator then offered the Crown Lease Terms for sale by auction. 

17. Booth involved Sanders in the plan to acquire the Crown Lease Terms at auction.  Booth and Sanders through Territory Real Estate had marketing and sales skills.

18. Kendray was a director of, and the operator of, an earthworks construction business called H & K Earthmoving Pty Ltd (H & K Earthmoving).  Hassall had no formal involvement in H & K Earthmoving, but he was involved through his wife.  H & K Earthmoving was registered on 25 May 1984.  Its directors from mid-1984 were Kendray and his wife Brenda Kendray and Joan Hassall, the wife of Hassall.  Ms Kendray and Ms Hassall remained as directors of H & K Earthmoving until 12 November 1997 and Kendray remained as a director until 4 May 1999.  H & K Earthmoving now has four issued shares, currently held by Hassall, Ms Hassall and Hassall Earthmoving Pty Ltd (Hassall Earthmoving).  Until 1999, it had three issued shares held by Ms Hassall and by Kendray and Ms Kendray.  Although, according to ASIC records, Hassall was not a director of H & K Earthmoving, Hassall was understood by Booth at material times to have been a co-director with Kendray of the H & K Earthmoving. 

19. Dowling’s anticipated role was to develop and promote the planned hotel facility anticipated to be part of the development.  It later became the Lodge at Dundee.

1. The five men, that is Sanders, Hassall, Kendray, Dowling and Booth, agreed to acquire a shelf company for the purpose of bidding for certain of the Crown Lease Terms at the auction sale conducted by the liquidator of Terri Co Pty Ltd.  They did so on the basis that Sanders and Booth through one company would take a third share in the proposed new company, H & K Earthmoving on behalf of Kendray and Hassall would take a third share, and a third company to be nominated by Dowling (Dowling Investments Pty Ltd) would also take a third share.  Each of the shareholders was then to contribute equally to the cost of the project and share equally in the profits of the project.  They were all to have an equal say in control of the project.  It was anticipated that each of the three interest groups would contribute initially $100,000 towards the project, and a further $300,000 would be borrowed from the ANZ Bank on commercial terms to support the proposed acquisition of land and, to some extent, its development.

2. Hence, Dundee Beach P/L.

3. It was originally known as Howdah Pty Ltd.  It changed its name to Dundee Beach P/L on 21 January 1992.  Hassall, Sanders, Booth, Kendray and Dowling became its directors from 3 September 1986.  It will be necessary to refer to its share structure in some detail later.  Dowling left the arrangement on 1 November 1994 and ceased as a director at that time. 

4. At the auction sale, Dundee Beach P/L successfully acquired Crown Lease Terms 570 and 572 for Sections 2881 and 2883, respectively at Dundee Beach and Dundee Downs.

5. Dundee Beach and Dundee Downs are in an area south-west of Darwin at the end of the Fog Bay Road beyond the Cox Peninsula.  Dundee Beach is more westerly.  The two sections are separated by an area known as Dundee Forest.

6. Section 2881 (Dundee Beach) contained about 5210 hectares and was for a renewable term of 10 years from 1 September 1986.  The Crown Lease Term contemplated development of the land for tourism, recreation, weekender living and other uses.  The lessee was required to submit plans of sub-division and development for approval, and was entitled (once an acceptable development proposal had been approved) to apply for a fee simple title or Crown lease over individual allotments where approved development required sub-division.  The lessee was responsible for reporting to the Minister on at least an annual basis, as well being responsible for all development and associated costs, both within the proposed development and for the costs of the survey and construction of an access road to the coast to an acceptable standard during the term of the lease.

7. Section 2883 (Dundee Downs) is an extensive area to the east of Dundee Beach, also eligible for subdivision and development upon appropriate terms.

8. During the period up to 1998, the development of Dundee Beach and Dundee Downs was mainly managed by Booth and Kendray, although they met regularly also with Sanders, Dowling and Hassall to discuss the development plan.  As it happened, they agreed upon the development processes in a way which did not call for a formal vote of the shareholders or “partners” in Dundee Beach P/L.

9. At an early point, and as the Crown Lease Terms required, a development plan was prepared with the assistance of June D’Rozario, a town planner.  That plan, if accepted by the Minister for Lands and Housing (the Minister) would then provide the basis for securing planning approval from the Minister.  That led to the Namarada Area Plan 1990, in essence the development plan for Dundee Beach.  It was adopted by the Minister as the relevant planning instrument under the Planning Act (NT) and so was used in determining whether to grant the planning approvals sought from time to time. Those dealings with D’Rozario were mainly conducted by Kendray. By the time of the Namarada Area Plan 1990, the development of Dundee Downs in Section 2883 was well advanced and the development of Dundee Beach had progressed to some degree.

10. The development of Dundee Downs and Dundee Beach was, in a sense, organised by Kendray.  He spent considerable time assessing the topography and available resources.  He planned the timing and location of access roads having regard to the local resources.  Through H & K Earthmoving, Kendray also progressively arranged the construction or improvements to, and in some instances creation of, access roads as necessary as well as the smaller roads with the subdivisional areas.

11. It was during this period of development that, because Kendray through H & K Earthmoving had contributed so much in value to the progress of the development by road and other subdivisional construction, it was agreed that there should be four (rather than three) equal interests in Dundee Beach P/L.  A fourth share was issued to Kendray and Hassall jointly, in addition to that held by H & K Earthmoving.

12. There is some ambiguity in the evidence about which of the H & K Earthmoving and the Kendray/Hassall shares was issued first.  Nothing turns on that.  The allotment journal of Dundee Beach P/L shows one share each issued to David Booth Real Estate Pty Ltd (under a previous name, and subsequently transferred to Territory Realty), Dowling Investments and H & K Earthmoving on 29 September 1986, and a fourth share issued to Kendray and Hassall jointly on 6 November 1987.

13. The Namarada Area Plan 1990 zoned the Dundee Beach land according to a range of uses.  They included coastal detached dwellings with allotments of not less than four hectares, recreational living (at a lesser density) which permitted detached dwellings and some agricultural or horticultural use with allotments of not less than one hectare, rural living and agricultural use with allotments of not less than eight hectares, community purposes (including shops and schools), open space for public recreational use, conservation areas and tourist accommodation and facilities.

14. The promotion and marketing first of Dundee Downs and then of Dundee Beach, and progressively the sale of subdivided lots, was undertaken by Booth and Sanders through Territory Realty.

15. The development of Dundee Downs proceeded in two stages, leaving a small balance in its north-western border known as the Rainforest Block.  It preceded the development of Dundee Beach.  Revenue generated by the sale of allotments in Dundee Downs was planned to be used for the further development of Dundee Downs and then for the development of Dundee Beach.  Stage 1 of the development of Dundee Downs comprised 54 lots.  Well before 1998, it had been fully developed and sold.  Stage 2 comprised 108 lots and also well before 1998 had been fully developed and sold.  The allotments ranged between 8 and 70 hectares.  The Rainforest Block was left undeveloped.

16. As the Dundee Downs development neared completion, planning proceeded to the development of Dundee Beach, that is Section 2881.  It was planned in a series of stages, with more intense development in those areas with direct water frontage or access.  It required the construction of a 23 kilometre stretch of road from Dundee Downs to the coast.  That work was carried out by H & K Earthmoving.  Stage 1 was itself broken into three stages: 1A, 1B and 1C, comprising 142 lots, 124 lots and 149 lots respectively.  The first blocks were released in 1990.  The development of those lots had been completed by 1998.  Stage 2 was also broken into three stages: 2A, 2B and 2C, comprising 51 lots, 35 lots and 101 lots respectively.  Those stages also had been sub-divided and developed by 1998.  Adjacent to part of Stage 2B and just south of it was a small area comprising a proposed 12 lot sub-division which was completed after May 1999.  Some blocks in Stages 2A and 2C had seafront frontages, as did some lots in stages 1B and 1C.  Immediately to the north of Stage 2A was an area or allotment on which the Lodge at Dundee had been built with a significant surrounding service and support area.  Its construction was completed about late 1990.

17. In the northern part of Dundee Beach was a substantial area zoned TC (Tourist Commercial).  The Tourist Commercial zone was a long relatively thin strip of land of uneven dimensions on the north-eastern part of Section 2881 with its southern boundaries adjacent to parts of Stage 2A and Stage 2B and the Lodge at Dundee.  It also adjoined the eastern side part of what is described as Stage 4.  In the southern part of the Tourist Commercial Zone, an air strip had been constructed.  It had not been developed or the subject of any detailed planning proposed by May 1999.

18. The remaining development area comprising Stage 4 was a substantial area in the middle northern part of Section 2881.  Its south-western section had been the subject of an application for approval, and a grant of approval, to develop it into 25 two hectare subdivisional lots.  The much larger remaining portion of Stage 4 also had not, by May 1999, been the subject of a separate development application.  Its zoning specified that it was to be in eight hectare subdivisional lots.  The plan at that time was to complete the implementation of the 25 two hectare approved lots on the south-western section of Stage 4 first, and then to reapply to have the zoning approval changed for the balance of Stage 4 into two hectare allotments, rather than eight hectare allotments.

19. Although the subdivision of Dundee Beach had been completed to the point referred to by May 1999, a number of allotments had not been sold.  They had been progressively released for sale from time to time.  As might have been expected, also a number of allotments originally offered for sale and sold had come back onto the market from time to time.  Allotments were therefore released for sale only as it was thought that there was a strong market for them.

20. Consequently, at May 1999, the further subdivision and usage approvals required in relation to Dundee Downs comprised only the proposed use of the Rainforest Block.  The balance of Section 2883 comprised 162 subdivided allotments in respect of which separate freehold titles had issued.  At May 1999, the undeveloped parts of Dundee Beach comprised the proposed 12 lot subdivision to the south of Stage 2C and adjacent to Stage 2B on its western side, the balance of development of Stage 4 (for which approval for the sub-division of the south-western part into 25 lots of two hectares had been granted), and the Tourist Commercial area.

21. However, within the development as it existed up to that time, there were a number of features which should be noted, because for various reasons they featured in the evidence.

22. Within Stage 1A in the southern section of Dundee Beach, substantial sized lots numbered 3055 and 3056, and within Stage 1B on the south-western corner in lots numbered 3230 and 3231 (at the northern end of that stage), had been lots designated as Community Purposes (the rezoned sites).  In addition, there was a significantly sized lot called Section 3084 in the northern part of Stage 1A which had been designated for a school or proposed commercial site (also called the 21 lot Commercial Subdivision) designated Commercial Purposes (the school site).  Finally, in the south-eastern area of Dundee Downs, again in Stage 1A, a section called Section 3054 had been set aside for a dump site (the dump site).  Evidence was given about each of those sections or lots in the course of the hearing, as the way the directors of Dundee Beach P/L from May 1999 dealt with those sites was the subject of criticism by the applicants.

23. For convenience, I list the particular areas in Dundee Downs and Dundee Beach which were the subject of specific issues.  They are:

    ·the Rainforest Block (Dundee Downs);

    ·the 25 lot approved development in Stage 4 of Dundee Beach;

    ·the rezoned sites;

    ·the school site; and

    ·the dump site.

    THE SHAREHOLDING IN DUNDEE BEACH P/L

24. There is some inconsistency between the records of Dundee Beach P/L and in the evidence.  The records of Dundee Beach P/L, that is its share allotment journal, indicates that the two subscriber shares were transferred, and one further share issued, on 29 September 1986 to Dowling Investments, Kibosh (later transferred to Territory Realty on 26 June 1989), and H & K Earthmoving.  The other shareholders were informed of the “internal” transfer of the Booth/Sanders share, and apparently had no objection.  The procedures prescribed by Article 5 of the Articles set out below were not followed.  It is not suggested that anything turns on that oversight (as I find it was) relevant to the outcome of this action.  Subsequently as noted above, on 6 November 1987, one further share was issued to Kendray and Hassall jointly.  On 17 June 1994, a further 36 shares were issued equally to each of the four shareholders, so that they each then held 10 shares.  Then, on 15 October 1994 according to the share register, a further two shares each were issued to Dowling Investments, H & K Earthmoving, Territory Realty (which by then had become the registered holder of the Kibosh shares) and Kendray and Hassall, jointly so that each of the four shareholders held 12 shares.  Later that year, when Dowling Investments withdrew from the arrangement, its shares were transferred to the other three shareholders equally, although that is not recorded in the share register.  The ASIC records note those transfers.  From about that time the shareholders in Dundee Beach P/L, each holding 16 shares, were Territory Realty, H & K Earthmoving and jointly Kendray and Hassall.

25. Then, as briefly noted above, Dowling decided to “retire” from the partnership.  At that time, the remaining shareholders agreed to accept his withdrawal and to buy out his shares.  Funds to buy the Dowling Investments shares at the agreed sum were generated by shareholders’ loans made by Dundee Beach P/L to each of its remaining three shareholders.  Dundee Beach P/L became “cashed up” to the necessary extent by selling the Lodge at Dundee.

26. Hence, at 30 June 1998 and up to 4 May 1999, the 48 issued shares in Dundee Beach P/L were held as follows:

    Territory Realty – 16 shares

    H & K Earthmoving – 16 shares

    Kendray and Hassall jointly – 16 shares

27. Not withstanding the shareholding restructure in 1987, the evidence indicates that the Booth/Sanders interest, the Kendray/Hassall interest and the Dowling interests continued to be recognised by each of them by meeting regularly to discuss the ongoing operations and development of Dundee Beach P/L, and that each of those interest groups was given an equal voice and an equal vote in pact.  The evidence shows that practice continued between Booth, Sanders, Kendray and Hassall after Dowling withdrew from the “arrangement”.  I suspect that no vote came to be called for and that decision-making was generally by consensus.

    THE EVENTS LEADING UP TO 4 MAY 1999

28. During 1998, Kendray and Hassall fell out.  It was their falling out which gave rise to the circumstances and events which are contentious in this proceeding.  It was apparent to each of Kendray and Hassall that they would need to separate their respective business interests, including but not exclusively their interests in Dundee Beach P/L.  It is at this point, also, that Garraway and others come into the picture.

29. In essence, the position appears to have been that by the latter part of 1998 either Kendray was to buy Hassall out, or Hassall was to buy Kendray out, or some other form of asset sharing would have to take place.

30. Hassall came to know, or know of, Garraway through Hassall’s brother-in-law Walker.  Kendray had known Walker for many years, as he had in the 1970s worked for a company known as Henry Walker (later Henry Walker Eltin) of which Walker was a director and a “principal”.   Hassall had also worked for Henry Walker until about 1975.  Garraway and Walker were well acquainted.  Garraway, an accountant, was engaged by Hassall to advise him on the negotiations with Kendray.  Hassall also about then secured legal advice through Clayton Utz (variously through solicitors named Michaels, Mitaros and Philip).

31. A series of negotiations took place between Kendray and Hassall and their representatives.  Booth and Sanders were keen to retain Kendray’s interest in Dundee Beach P/L, and so they too became involved in that process, but only relatively briefly, then they appear to have stepped out of the direct negotiation process.

32. On 15 October 1998, Booth, Sanders and Kendray wrote to Hassall putting a proposal in relation to Hassall’s direct and indirect interest in Dundee Beach P/L.  It was to buy out his interest (that is, his interest in the 16 shares held jointly with Kendray, and his interest in the 16 shares held by H & K Earthmoving) upon the basis of a payment of $1,129,500.  That sum was to be made of $500,000 cash, $500,000 representing land at Dundee Beach to be transferred to Hassall at market value, and $129,500 being the outstanding balance of his loan accounts with Dundee Beach P/L.  That letter included the comment that Booth and Sanders did not have the resources to try and buy out all the interests in Dundee Beach P/L held by Kendray and Hassall either directly or through H & K Earthmoving.  Booth accepted in the course of his evidence that the offer in practical terms valued one third of Dundee Beach P/L at $1.129 million.

33. Not surprisingly, Hassall sought Garraway’s advice about that proposal. 

34. That letter was responded to by Garraways, the firm of which Garraway was a principal, on 20 October 1998.  It made the following comment:

    Given that together with my client you are all the other directors and shareholders of Dundee Beach Pty Ltd, would you please confirm that your shares (ie effectively 24 shares) are likewise available for purchase for $2m (cash $1m & Dundee land at market value $1m) with no forgiving of loan account.

35. As Booth pointed out in his evidence, in fact the proposal put forward by the three of them to Hassall involved the forgiveness of the loan account for an amount equivalent to it so that the loan account would be released.  That is the clear import of the earlier offer of 15 October 1998 despite Garraway, during his cross-examination, adhering to the view that the first proposal did not involve any release of the loan account.

36. Garraway followed up his letter of 20 October 1998 with a further letter of 4 November 1998.  He there referred to the initial offer as being “a proposal to sell H & K Earthmoving Pty Ltd shares in Dundee Beach Pty Ltd for a total sum of $1.2m” which, he said, “is of no interest to my client”.  The letter requested confirmation that the shares of Booth, Sanders and Kendray in Dundee Beach P/L were available for purchase at the price offered to Hassall.  It sought to impose time limits upon further negotiations.

37. Garraway said in cross-examination that he did not at the time have access to the Articles of Association of Dundee Beach P/L, but he assumed they were available to Philip of Clayton Utz, the solicitors advising Hassall at the same time.  He only learnt of the restriction upon share transfer contained in the Articles, he said, in early 1999.  Nothing turns on that issue.

38. On 6 November 1998, Booth, Sanders and Kendray responded.  They pointed out that their offer of 15 October 1998 was for all of the Hassall interests in Dundee Beach P/L (effectively 16 shares) and including forgiveness of the loan account.  They pointed out that there would then be 24 remaining shares.  They invited Hassall’s further response.  There is then, apparently, a letter from Hassall (presumably through Garraway) to Booth, Sanders and Kendray of 10 November 1998.  It does not appear in the evidence.  A response of 11 November 1998 simply rejects whatever offer was then made.

39. The background to the negotiation, or at least the further negotiation, is the pre-emptive rights in the Articles of Association of Dundee Beach P/L. 

40. The Articles of Dundee Beach P/L adopted Table A of the Fourth Schedule to the Companies Ordinance 1963 (NT) except as expressed in its Articles.  One of the changes concerns transfer of shares.  Article 5 relevantly provides:

    …

    (b)Subject to the provisions of Clause 4 hereof and Clause 5 of the Memorandum of Association, a share may be transferred by a member of other persons entitled to transfer to any member selected by the transferor but save as aforesaid and save as provided by sub-articles (g) and (h) hereof, no share shall be transferred to a person who is not a member so long as any member or any person selected by the directors as one whom it is desirable in the interests of the company to admit to membership is willing to purchase the same at the fair value thereof.

    (c)Except where the transfer is made pursuant to sub-articles (b), (g) or (h) hereof, the person proposing to transfer any share (hereinafter called “the proposing transferor” shall give notice in writing (hereinafter called “a transfer notice”) to the company that he desires to transfer the same.  Such notice shall specify the sum he fixes as the fair value thereof and shall constitute the company his agent for the sale of the share to any member of the company or person selected as aforesaid willing to purchase the share (hereinafter called “the purchasing member”) at the price so fixed, or at the option of the purchasing member, at the fair value thereof to be fixed by the auditor or auditors in accordance with sub-article (e) hereof.

    A transfer notice may include several shares and in such case shall operate as if it were a separate notice in respect of each.  A transfer notice shall not be revocable except with the sanction of the directors.

    (d)If the company shall, within the space of twenty-eight days after being served with a transfer notice, find a purchasing member and shall give notice thereof to the proposing transferor he shall be bound upon payment of the fair value thereof as fixed in accordance with sub-articles (c) or (e) hereof to transfer the share to the purchasing member.

    (e)In case any difference arises between the proposing transferor and the purchasing member as to the fair value of a share, the auditor of the company, or all the auditors of the company if more than one, shall on the application of either party certify in writing the sum which in his or their opinion is the fair value thereof.  Such sum (and in the case of difference between the auditors, the average of the sum certified) shall be deemed to be the fair value thereof and in so certifying the auditor or auditors shall be considered to be acting as an expert or experts and not as an arbitrator or arbitrators and accordingly the Arbitration Act 1891 shall not apply.

    …

    (g)If the company shall not within the space of twenty-eight days after being served with a transfer notice in manner aforesaid find a purchasing member, the proposing transferor shall at any time within three months afterwards be at liberty to sell and transfer the share (or where there are more shares than one those not placed) to any person approved by the directors and at any price.

    …

1. It is not suggested that cl 4 or cl 5 of the Memorandum of Association is relevant.

2. In my view, it is apparent that by reason of Article 5:

   ·a member of Dundee Beach P/L may transfer shares to any other member without restriction; or

   ·if there is a proposed transfer to a non-member,

   (i)the proposed transferor must give notice to Dundee Beach P/L of the proposed transfer and of the transferor’s proposed fair value, to be the nominated price;

   (ii)the company (through its directors) then within 28 days as agent of the transferor may transfer those shares to any member selected by them, or to a third person who they considered to be desirable to become a member of the company in its interests; and

   (iii)the price at which the directors may transfer those shares on behalf of the transferor is either at the fair value (price) fixed by the proposed transferor, or, at the purchaser’s option, at the fair value fixed by the auditors under Article 5(e); and

   ·if there is a proposed transfer to a non-member and the company has not transferred the transferor’s proposed shares within 28 days of receiving the notice of the proposed transfer, the transferor within three months is at liberty to sell the shares “to any person approved by the directors” at any price.

   Article 5 does not deal with what was to happen if the proposed transfer, assuming the directors had not procured another member or external purchaser satisfactory to them, was to an external person who was not approved by the directors.

3. For the sake of completeness, I note that Regulation 7 of Table A to the Fourth Schedule to the Company’s Ordinance 1963 (NT), which is part of the Articles of Dundee Beach P/L, provides as follows:

   Except as required by law, no person shall be recognized by the company as holding any share upon any trust, and the company shall not be bound by or be compelled in any way to recognize (even when having notice thereof), any equitable, contingent, future or partial interest in any share or unit of a share or (except only as by these regulations or by law other-wise provided) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.

4. In the meantime, Sanders also decided that he wished to sell his interests in Territory Realty.  He wrote to Booth about that.  He was not optimistic that Booth would want to buy him out at a satisfactory price, so he also wrote to Garraway on behalf of Hassall and Kendray exposing his wish.  Garraway in turn notified Hassall and Kendray of Sanders’ intention in relation to his shares in Territory Realty.  In the event, Sanders did not then dispose of his interest in Territory Realty.

5. The more significant negotiations seem then to have continued.  The position appears to have been reached that either Hassall or Kendray would acquire from the other all of the shares in H & K Earthmoving (and thereby its shares in Dundee Beach P/L), and their respective jointly held shares in Dundee Beach P/L, together with certain other assets in which they were both interested.  Territory Realty as the third shareholder was not expected, at least by Garraway and Hassall, to participate or to want to participate in that process.  Nor did it.  Its position appears to have been that Booth and Sanders, together with Kendray, did not think that Hassall had the resources to buy out Kendray’s shares in Dundee Beach P/L.  They did not take any direct part in the course of negotiation between Kendray and Hassall.  They were aware of the pre-emptive rights granted by Article 5 of the Articles, and expected that any other form of transaction would be subject to those rights.  Events proved them to be wrong, but not in the way which they had anticipated.

6. To this point, no notice had been given either by Kendray and Hassall, or by H & K Earthmoving to Dundee Beach P/L pursuant to Article 5(c) of its Articles.  However, it is apparent, and I find, that at least from early 1999 Hassall and Garraway and Hassall’s legal advisers were aware at material times of the provisions of that Article.

7. On 13 and 25 January 1999, Hassall through Clayton Utz expressed that awareness to solicitors for Kendray, in the context of suggesting that, if Territory Realty was to waive its pre-emptive rights under that Article, it would be more likely to do so at the instigation of Kendray than Hassall.  In correspondence from Clayton Utz on behalf of Hassall to Territory Realty of 1 February 1999, Territory Realty was asked about its insistence on maintaining its pre-emptive rights if a proposed transfer was to take place between Kendray and Hassall and Ms Hassall and Hassall Earthmoving (which was said to be owned by Hassall and Ms Hassall).  It is clear from the correspondence between Cridlands (solicitors for Kendray) and Clayton Utz, and correspondence from Garraways, that Garraway was equally aware of the implications of Article 5 of the Articles of Dundee Beach P/L.  The detail of the negotiation, in particular about the taxation implications of any structured arrangement between Kendray and Hassall or their entities, indicates that clearly.

8. As I noted, in the next month or two, it appears that Territory Realty sat back awaiting the outcome of the negotiations between Kendray and Hassall through their representatives.  That is probably because Booth and Sanders had the view that Hassall did not have the resources to buy out Kendray, so that ultimately Kendray would be the successful buyer of Hassall’s interests and remain a shareholder in Dundee Beach P/L.  They were not uncomfortable with that position.  As I have noted, that proved to be wrong.

9. In either the latter part of March 1999 or on about 5 April 1999, an arrangement was come to between Kendray and Hassall with respect to their respective interests in H & K Earthmoving, Dundee Beach P/L and other assets.  It involved funding being provided to Hassall through Garraway and Walker.  Walker’s funds were to come through Excess, and Garraway’s funds through Bishop Estate.  However, although those funds could legitimately have been provided by loans to Hassall, that is not the structure of the arrangement.

10. At a meeting on 12 April 1999, Garraway and Hassall announced to Booth, presumably on behalf of Territory Realty, that Kendray had sold out to Hassall.  He then foreshadowed a board meeting of Dundee Beach P/L on 19 April 1999, apparently to follow immediately upon the settlement of the arrangements between Kendray and Hassall.  As appears below, the transaction was quite a sophisticated one.  I also find that it was structured in a way which was intended to get around the pre-emptive rights under Article 5 of the Articles of Dundee Beach P/L, and to conceal that fact from Territory Realty, in particular Booth who, on behalf of Territory Realty, was in essence running its position. 

11. At that meeting, Garraway on behalf of Hassall gave to Booth a letter (prepared by Clayton Utz) which he proposed that Booth and Sanders should sign (presumably on behalf of Territory Realty).  It was addressed to Hassall and Ms Hassall, concerning Dundee Beach P/L and was in the following terms:

    We note that you have reached agreement to purchase all the shares in H & K Earthmoving Pty Ltd and certain other assets owned jointly by Robert Kendray and Peter Hassall.  The assets being acquired include 16 shares in Dundee Beach Pty Ltd which are registered in the joint names of Robert Kendray and Peter Hassall.  We confirm the following:-

    1.That we will join with you in passing the necessary company resolutions to:-

    (a)rectify the share register of the company to reflect the true ownership of shares held jointly by Robert Kendray and Peter Hassall as follows:-

    (i)        Robert Kendray – 8 shares;

    (ii)       Peter Hassall – 8 shares.

    (b)To allow you to register a transfer of any of the shares described in paragraphs 1(a)(i) and (ii) to any nominee or nominees that you choose to nominate and that we waive our pre-emptive rights (if any) in relation to any such transfer.

    (c)To record the resignation of Robert Kendray as a Director of the company.

    2.We note that you will nominate a time for a directors and shareholders meeting of the company to deal with the above matters.  We note your tentative date for this meeting is 19 April 1999.

    Space was left for the signatures of Booth and Sanders.

12. On 15 April 1999, Garraway wrote to Booth and Sanders again referring to the meeting of 12 April 1999 and to the arrangement which was then reported to them.  It included the following:

    I confirm my previous advice that Bob Kendray had sold all of his interests in H & K Earthmoving Pty Ltd and Dundee Beach Pty Ltd, and that a directors’ meeting has been called for Monday afternoon 19 April 1999.

    He requested certain documentation to be provided to that meeting.  That letter was signed by both Garraway and Hassall.  It did nothing to indicate that there was any transfer of shares other than between Kendray and Hassall in a way which would not engage the pre-emptive rights clause.  An attached agenda for the proposed meeting included the resignation of Kendray as a director and the appointment of Garraway as a director and “share transfers” as well as a “marketing report”.

13. Booth, I find, was somewhat uneasy about that letter but perhaps surprisingly somewhat passive about it.  He conveyed its contents to his solicitor by facsimile of 17 April 1999.  I accept that at that time he understood that Kendray’s shares were to be transferred to H & K Earthmoving, which as an existing shareholder would not attract the pre-emptive rights.  Shortly thereafter, he also learned that the proposed meeting of 19 April 1999 would be an informal one because there had been some delay in the settlement of the transactions between Kendray and Hassall.  The next meeting was proposed on 4 May 1999.

14. The formal agreement, that is the reaching of an agreement, was recorded in a letter from Clayton Utz on behalf of Hassall to Cridlands on behalf of Kendray of 12 April 1999. 

15. On 29 April 1999, Clayton Utz (Philip) wrote to Garraways (Garraway) discussing the proposed transaction.  He suggested three transfers to be prepared for the directors of Dundee Beach P/L meeting on 4 May 1999:

    (1)Kendray to H & K Earthmoving of his interest in eight shares, to be held on trust for Bishop Estate, on the basis that the trust was not to be stated on the transfer but created by a separate declaration of trust;

    (2)Kendray to H & K Earthmoving of his interest in eight shares, to be held on trust for Excess, but on the same basis; and

    (3)Hassall to H & K Earthmoving to be held on trust for Excess and Bishop Estate his interest in two shares again to be subject to an undisclosed trust.

16. The letter then commented:

    Cridlands have suggested that in order for H & K Earthmoving to be nominated as the Transferee, H & K must already have resolved to agree to do so.  I have disagreed and have said that H & K will hold a separate meeting after settlement to resolve to execute the Transfers.  This is an important issue because of the declarations of trust for the 2 transfers which they do not know about it.  If a resolution has to be made by H & K prior to settlement then we will need to disclose the existence of the trusts.  I am awaiting a response from Cridlands on this point before we can resolve the form of the transfers in Dundee Beach Pty Ltd.

17. Following the transfers, and the subsequent declarations of trust, the holding in Dundee Beach P/L was to be:

    Territory Realty – 16

    Excess / Bishop Estate – 9

    H & K Earthmoving – 16

    Hassall – 7

    In that way, Hassall would be seen to hold less than 50 per cent of Dundee Beach P/L, and Territory Realty would not know of the real nature of the transaction because the declarations of trust in Kendray’s transfer of shares in Dundee Beach P/L, or his interest in the shares in Dundee Beach P/L would be not disclosed.

18. That letter of 29 April 1999 reflects what was clearly the common understanding of Garraway, Excess and Bishop Estate and Hassall.  It was that the transferee H & K Earthmoving had been nominated as transferee to avoid the attraction of Territory Realty to any concern about its pre-emptive rights.  That letter was produced only during the cross-examination of Garraway.  Although the respondents had opened their case at the hearing to say that Philip would be called, he was not in fact called to give evidence.  I have no explanation for the contents of his letter other than its words.

    THE TRANSACTION OF 4 MAY 1999

19. Before discussing the detailed nature of the transaction of 4 May 1999, and the events surrounding it, it is necessary to say something about the reliability of the evidence of certain witnesses, in particular Garraway.

20. Of those persons who were involved, or interested in, the negotiations leading up to Kendray’s departure from Dundee Beach P/L on 4 May 1999, only Booth, Sanders, Kendray and Garraway gave evidence.  Of course, to the extent he had any direct involvement, Walker could not give evidence.  Hassall did not give evidence.  Also, Philip was not called to give evidence.  I infer that their evidence on the issue of the reason or reasons for structuring the arrangement between Kendray and Hassall as it was, and for the nature and content of any communications with Territory Realty, would not have advanced the respondents’ case, at least beyond what is disclosed in the documentation.  Territory Realty was, at the time, represented by David de Winter, solicitor.  His written statement was tendered by the applicants.  He was not required for cross-examination.  I accept his evidence.  The secretary of Dundee Beach P/L at the time, Paul Proctor, was not called to give evidence but the explanation for that lies in his illness.  I accept he could not give evidence.  David Fuller attended the meeting of 4 May 1999 as proxy for Booth, who was overseas in May 1999.  He gave brief evidence.  He was not really challenged in cross-examination.  I accept his evidence, although not surprisingly, given his limited earlier exposure to the background to the meeting, he was not particularly assertive in what he said.  His memory of that meeting accords largely with that of Sanders.

21. I found Sanders to be an impressive and reliable witness.  He was straightforward.  He did not appear to gloss over issues, nor to seek to enhance the position of Territory Realty beyond his memory.  He had largely left its interests to Booth in the later part of 1998 and in 1999.  However, his evidence of what transpired on important occasions, including the meeting of 4 May 1999, was given directly, and in a natural manner.  It accorded with certain of the other contemporaneous records.  It tied in with the notes of Proctor.  I accept his evidence.

22. Booth’s evidence was, in my view, on the whole reliable.  Much of it was unchallenged.  It reflected a person who, not surprisingly, was anxious for the proceeding to be successful so on occasions it was somewhat defensive.  In particular, I think his explanations for why Territory Realty was not more pro-active in protecting its asserted interests in the period from 2000 to 2007 requires careful consideration.  I shall refer to that later.  In addition, in some respects, I found his views about the appropriateness of actions taken, or not taken, by the board of Dundee Beach P/L after 19 May 1999 (when Booth and Sanders were removed as directors) somewhat overstated.  That does not detract from my overall impression that he was a generally reliable witness, but I have treated his evidence with a little caution.

23. Kendray’s evidence was given in a straightforward manner.  He is disinterested in the outcome of the proceeding.  His evidence was not challenged by the respondents.  I accept it.

24. Garraway’s evidence is more difficult to assess.  He is clearly an experienced and successful businessman, as well as an accountant.  Clearly, too, he was the driving force, or one of the driving forces, in the structure of the transfer of Kendray’s interests in Dundee Beach P/L to Hassall’s interests, and of course of Kendray’s interests in H & K Earthmoving.  He was also clearly the driving force in the operations of Dundee Beach P/L after 4 May 1999.  I was not impressed by certain aspects of his evidence.  I thought he was sometimes less than frank in giving his evidence and sometimes responsive but in a semantic way.  In particular, I formed the view that he was not reliably telling the Court about the reasons for the terms of his communications with Territory Realty or with Booth and Sanders in April and May 1999 and I consider that he deliberately concealed the fact that Bishop Estate and Excess were taking an equitable interest in shares in Dundee Beach P/L.  Unfortunately, that conclusion coloured my preparedness to accept other parts of his evidence without some caution.  It may be that his evidence was given that way because he had a strong belief in the correctness of his actions and in his ability to run Dundee Beach P/L better than it had been run in the past.  It may be that his strong belief in the ability of himself and Walker as prominent businessmen in Darwin has led him to lose sight of perhaps more venial motives initially in becoming involved as an investor in Dundee Beach P/L.  I do not need to speculate about those matters.  It is sufficient to say that in certain respects I have approached his evidence with caution.  I will, of course, refer to those respects when recording my findings on particular matters.

25. I accept Booth’s evidence, in preference to that of Garraway, that Garraway at the meeting on 12 April 1999 did not disclose that more was contemplated than a transfer from Kendray to Hassall, through H & K Earthmoving.  I accept that Garraway did not disclose to Booth the handshake agreement involving Excess and Bishop Estate, or that Excess and Bishop Estate were to be the real purchasers of nine shares in Territory Realty.  I further find that at that time Garraway was aware, as he had acknowledged in his cross-examination, of the pre-emptive rights restriction.  Territory Realty had earlier indicated that it would object to a transfer to a non-member which did not take account of its pre-emptive rights.  That is exactly what Garraway together with Hassall intended to achieve, namely to avoid Territory Realty having the opportunity to exercise those rights.  At best, Garraway’s communications to Booth at the time could be described as dissembling, and at worst as dishonest.

26. It is apparent that the precise roles of Excess and Bishop Estate in becoming “members” of Dundee Beach P/L (at least as beneficial owners of shares) was not made apparent, and deliberately not made apparent, until the last possible moment.  Obviously at the trial, that material would have come out.  The true facts were not disclosed until Garraway’s affidavit of his proposed evidence was filed and served in late January 2008.  There had been earlier correspondence from solicitors for Territory Realty, including letters of 10 and 19 April 2007 requesting precisely that information, but it was not adequately responded to.  It will be necessary to refer to that correspondence later in these reasons for a related purpose.

27. I also accept the unchallenged evidence of a telephone conversation from Garraway to Winter in which Garraway advised Winter (on behalf of Booth for Territory Realty) that the shares were to be transferred not to Hassall or Ms Hassall, but to H & K Earthmoving, so that the pre-emptive problem did not arise.  That is recorded in the contemporary file note of Winter.  Winter’s evidence was not challenged.  Nevertheless, despite counsel for the respondents having acknowledged those matters, in his evidence Garraway challenged the accuracy of the critical statement attributed to him that the pre-emptive problem did not arise.  That is directly inconsistent with a file note Garraway made on about that time in which he recorded that he had “advised David Winter 15 April 1999 no requirement pre-emptive rights”.  In fact, as I find and as Garraway ultimately had to acknowledge, in the face of that material, he had deliberately and carefully chosen his language in what he described as circumspect approach.

1. Garraway maintained that position at the meeting of 19 April 1999, namely that Kendray’s shares would be transferred to H & K Earthmoving.  Again, Garraway carefully chose his language so as not to disclose the real identity of the purchaser of at least nine shares in Dundee Beach P/L. 

2. In my view, Garraway on behalf of those whom he was representing, including Excess and Bishop Estate and Hassall, deliberately sought to disguise the involvement of Excess and Bishop Estate as the real buyers of shares in Dundee Beach P/L.  That was maintained on an agenda which Garraway prepared for a proposed directors’ meeting on 4 May 1999, sent to Booth and Sanders, confirming the previous position as explained, namely that Kendray had sold his interests in H & K Earthmoving and Dundee Beach P/L without disclosing to whom they had been sold. 

3. I also find that Garraway and Philip structured the transaction at least in part to overcome the pre-emptive rights issue. 

4. A directors’ meeting of Dundee Beach P/L then took place on 4 May 1999.  Booth was not present, then being overseas.  He was represented by a proxy, Fuller.  Sanders was also present.  Garraway, Philip and Hassall were present and the company secretary, Paul Proctor. 

5. There is some dispute about what transpired at that meeting.  One set of minutes was prepared by Philip, and another by Proctor. 

6. I accept Sanders’ evidence of the meeting.  There was a mass of paper at the meeting.  It was not carefully considered by him or Fuller (on behalf of Booth) because they understood beforehand that the shares were being acquired by Hassall for H & K Earthmoving and that no pre-emptive rights issue arose.  Early in the meeting, Philip made a presentation as to the nature of the transaction.  It was detailed and complex.  In essence, it involved the resignation of Kendray as a director, and the sale of his interests in Dundee Beach P/L to Hassall or his interests.  He specifically said, I find, that there were no pre-emptive rights issues.  I also find that he did not expressly refer to Bishop Estate or Excess, or to any proposed declarations of trust in relation to any shares to be transferred to H & K Earthmoving.

7. Proctor’s proposed minutes were sent to Garraway who read them at the time.  He did not take any point about the accuracy of their recording that Philip said that there were no pre-emptive rights issues.  Proctor’s minutes were not adopted by the directors.  They adopted a more formal and structured set of minutes, apparently prepared by Philip.

8. Share transfers were tabled, but contrary to the approved minute which says that they were “carefully considered” by the directors, I find that that did not occur.  The share transfers involved Kendray separately transferring his interest in two lots of eight ordinary shares in the company held jointly with Hassall to H & K Earthmoving.  Those transfers, as Philip, Garraway and Hassall intended, did not disclose the trusts upon which H & K Earthmoving was to hold them.  The third share transfer involved Hassall transferring his interest in two ordinary shares to H & K Earthmoving “as trustees for Bishop Estate Pty Ltd”.  I find that that document was not drawn to the attention of those present at the meeting.  I find that the document was presented at the meeting but, as the approved minute records, as

   A transfer by Peter Hassall of his interest in two shares in the company currently held by him with Robert Kendray to H & K.

   That transfer in fact records that the transfer is in respect of the payment made by “H & K Earthmoving as trustee for Bishop Estate and Excess”.

9. As I have said, I accept the evidence of Sanders and Fuller, that the share transfers were presented or “tabled” but those present were told by Philip that the transfers did not involve any pre-emptive rights issues.  Garraway remained silent.  He did so deliberately. 

10. I should at this point address some particular evidence.

11. On 5 May 1999, as the evidence shows, “Independent Management Services” secured a copy of the ASIC company extract relating to both Bishop Estate and Excess.  As noted above, that would have disclosed that Garraway and Woolley were the directors and shareholders of Bishop Estate and that, at the time, Walker was a director of and the principal shareholder of Excess.  I find that those company searches were initiated by Proctor.  Why he did so is unclear.  I accept the evidence of Booth and Sanders that up to that time, and indeed for some time thereafter, they had not heard of Excess and Bishop Estate.  Whether Proctor was prompted by looking at the documents which had been “tabled” at the meeting after the meeting, and saw the reference to Excess and Bishop Estate in the third transfer referred to above, is unclear.  It may have been prompted by the transfer of the Hassall share (or two half shares) which, as I have noted, set out that that transfer was to H & K Earthmoving as trustee for Bishop Estate and Excess.  In any event, I do not ascribe his then awareness of some involvement of Bishop Estate and Excess to that of Territory Realty in the circumstances.  It is a question of fact whether an individual who receives, or becomes aware of, certain information received, or has, that information as agent for another.  I accept Booth’s evidence, and that of Sanders, who were the two driving minds of Territory Realty that they did not receive that information at the time.  I do not consider that Proctor received it, in the sense of becoming aware of it, at the meeting on 4 May 1999.  He did not raise it at the meeting.  Booth’s agent, that is Fuller who attended the meeting as his proxy, did not receive it.  If, as seems likely, Proctor later noticed the names of Bishop Estate and Excess when going through the papers tabled at the meeting in the circumstances I have found, in my judgment his then awareness of those names was not knowledge of Territory Realty.  Fuller was the proxy for Booth at the meeting and Sanders was present as the other moving mind behind Territory Realty.  They were the two nominees of Territory Realty on the board of Dundee Beach P/L.  At that meeting, I find that Booth and Sanders were the agents of Territory Realty for the purpose of receiving information:  cf Lennard’s Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705. Proctor was present merely as its secretary. His later awareness of that information was not received as the agent for Territory Realty, and those who were its agents did not have passed on to them by Proctor that information: see A/S Rendal v Arcos Ltd [1937] 3 All ER 577 at 590. In any event, it was disclosed in respect of only one of 48 shares in Dundee Beach P/L. I would not infer that the transfer of only one share on those terms would have attracted real concerns on the part of Territory Realty, as it would have if reported to a directors’ meeting before the transfer. I do not, therefore, need to consider whether it is appropriate to have received the evidence about the company searches having regard to the circumstances in which it was acquired.

12. There is a further grouping of evidence which should be noted.  On 15 September 1999, Proctor, the company secretary of Dundee Beach P/L, copied a facsimile to Booth in which he referred to “the new shareholders” of Dundee Beach P/L having made “us” (presumably Territory Realty) a nominal offer for their shareholding.  Booth, a few days later by facsimile, sent an email to Deloittes in which he said the following:

    As you would be aware, the new shareholders of the above company (Dundee Beach P/L) have terminated by directorship.

    and therefore notified Deloittes of a change of address.  Subsequently, Territory Realty on 14 October 1999 wrote to Garraway following up on the letter of 10 May 1999 referred to above.  Territory Realty said that it would consider selling its shares in Dundee Beach P/L based on the balance sheet of that company, and taking into account the land valuation conducted by a Mr Mooney.  It again nominated a figure of $1.5m for its shares, including a preparedness to repay the existing shareholders’ loan account (netted at about $123,000) and releasing Dundee Beach P/L or the purchasers (whoever they may be) from various claims including the claim that:

    Territory Realty Pty Ltd would release any claim it may have in respect of the registration of the transfer of shares disposed of, inter alia, by Mr Kendray.

13. I note further that by letter of 12 October 2001, Dundee Beach P/L wrote to a solicitor then acting for Territory Realty, which said the shareholding of Dundee Beach P/L included H & K Earthmoving holding nine ordinary shares (“Held Non-Beneficially”).

14. The references in that material might be interpreted as indicating that Territory Realty was aware of the interest of Bishop Estate and Excess in Dundee Beach P/L at the time of those various communications.  I have carefully considered whether that is so.  However, I accept the evidence of Sanders and Booth that they were not aware of that interest until some time towards the latter part of 2003, or perhaps a little later.  Booth in his evidence explained that the reference to the transfer of shares disposed of by Kendray involved a suspicion of possible impropriety because Kendray’s transfers somehow involved Hassall’s interests when Hassall’s interests (beyond Hassall himself) were not shareholders.  I accept that the references to the new shareholders was an imprecise expression to refer to the fact that Hassall constrained by Kendray’s interest from exercising the majority shareholder’s influence.  He was seen to be doing so by his appointment of Garraway and others to the board and his removal of Booth and Sanders as directors.

15. I find, however, that at least by 29 May 2003, Territory Realty through Booth and Sanders knew of some interest on the part of Bishop Estate and Excess in Dundee Beach P/L.  Booth said he had that awareness at that time.  It is unclear whether he had that awareness much earlier.  The position was made quite explicit shortly afterwards.

16. The minutes of meeting of shareholders of Dundee Beach P/L on 29 May 2003 record those present as Garraway on behalf of “Bishop Pty Ltd / H & K Earthmoving Pty Ltd” and Walker on behalf of “Excess Pty Ltd / H & K Earthmoving Ltd” and Woolley on behalf of “Bishop Pty Ltd / H & K Earthmoving Pty Ltd”, as well as Booth, Sanders and Hassall.  However, Booth’s notes of that meeting do not record the entities on whose behalf persons were present, but simply the names of those present. 

17. On 12 February 2004, Garraway wrote to Territory Realty confirming a discussion of a few days earlier, and confirming in particular that the Hassall group had transferred 16 shares in Dundee Beach P/L to Excess and Bishop Estate, so that the share register of Dundee Beach P/L showed as follows:

Shareholder		No of Shares		% of Shareholding of Group
H. & T. Hassall		5)
H & K Earthmoving P/L		2)		14.6%
Excess Pty Ltd		12)
Bishop Estate Pty Ltd		12)		52.1%
Excess & Bishop Jointly		1)
Territory Realty Pty Ltd		16		33.3%
48		100.0%

That letter pointed out that, by reason of that purchase, Excess and Bishop Estate had acquired a joint controlling interest in Dundee Beach P/L, and offered to purchase Territory Realty’s 16 shares in Dundee Beach P/L for $800,000 conditional on repayment of the debt of Territory Realty to Dundee Beach P/L.  By letter of 11 March 2004, Territory Realty acknowledged the notice of change in shareholding without adverse comment, but declined to accept that proposal.

1. Subsequently, on 29 July 2004 Garraway wrote to Territory Realty notifying it that Hassall had transferred his remaining seven shares to Excess and Bishop Estate, so that each of Territory Realty, Excess and Bishop Estate held 16 shares in Dundee Beach P/L.  The offer of $800,000 was reiterated.  It was rejected.  But the rejection on 27 August 2004 again acknowledged the change in the shareholding.

2. There is another reason why, in my view, the Proctor version of the minutes as adopted and understood by Sanders, is more likely to be a reliable record of what transpired at the meeting.  It is more contemporaneously expressed, and includes reference to two additional directors to be nominated or proposed to be nominated, namely Walker and Woolley.  That is not recorded in the formal minutes of the meeting. 

3. I find that the transaction which then occurred as a result of negotiations up to that time between Kendray and Hassall and their respective advisors was that:

   (1)Kendray transferred his joint interest in eight shares to H & K Earthmoving;

   (2)Kendray transferred his joint interest in those eight shares to H & K Earthmoving by separate transfer;

   (3)H & K Earthmoving had previously agreed that those transfers should be held by it on trust for Bishop Estate and Excess, and subsequently and separately formal declarations of trust were executed to give effect to what had previously been agreed;

   (4)H & K Earthmoving paid Kendray for the transfer of his interest in those 16 shares with funds made available to it by Bishop Estate and Excess equally; and

   (5)Hassall on 4 May 1999 transferred his half interest in two of those shares (by then held as tenants in common rather than jointly because of the earlier transfer by Kendray of an interest in those shares severing the joint tenancy) to H & K Earthmoving pursuant to a declaration of trust held by H & K Earthmoving in favour of Excess and Bishop Estate jointly as that transfer reflected.

4. I will separately discuss the significance of those transactions, including the trusts which I find existed contemporaneously with the making of the agreement for the transfers and at the time of the transfers of those interests in the shares. 

5. In my judgment, the effect of the handshake agreement as recorded and implemented was for Hassall and H & K Earthmoving to pass ownership and control of nine shares in Dundee Beach P/L jointly to Bishop Estate and Excess on 4 May 1999.  Those nine shares represented nine of the 16 shares held by Kendray and Hassall jointly prior to that date.  They were transferred, as to Kendray’s half interest in each of 16 shares by Kendray transferring them to H & K Earthmoving (then controlled or imminently to be controlled by Hassall) and Hassall through H & K Earthmoving having agreed to declare a trust in respect of that interest in those shares.  Hassall similarly transferred a half interest in two of those shares to H & K Earthmoving, declaring at the same time a trust on behalf of H & K Earthmoving to hold that interest in those two shares for Bishop Estate and Excess.  Hassall retained seven of those 16 shares.  Hassall also controlled the 16 shares previously held by H & K Earthmoving in its own name.

6. That arrangement came to be reflected in the share registers of Bishop Estate and Excess made on 27 June 2003, although subsequently reversed on advice on 1 June 2007.  Whatever internal advice Bishop Estate and Excess may have had, or by that time Dundee Beach P/L may have had, about what should have been reflected in their share registers, the reality is that the ownership in nine shares in Dundee Beach P/L was from 4 May 1999 as follows:

   Territory Realty – 16 shares

   H & K Earthmoving in its own right – 16 shares

   H & K Earthmoving as trustee for Bishop Estate and Excess – 9 shares

   Hassall in his own right – 7 shares.

   I note that Kendray’s interests in those shares were transferred at a value of approximately $76,250 per share.  I shall call those transactions “the 4 May 1999 share transfers”.

7. I also find that Territory Realty (either through Booth or Sanders) was not aware of the trust elements of those transactions at any material time at least until some time in 2003.

8. There were subsequent share transactions on the share register of Dundee Beach P/L which it is convenient to note at this point.

9. Pursuant to an agreement of 12 November 2003 between H & K Earthmoving and Hassall on the one hand and Excess and Bishop Estate on the other, H & K Earthmoving sold to Excess and Bishop Estate separately seven of the shares it then held in Dundee Beach P/L in its own right, a total of 14 shares, and Hassall sold Bishop Estate and Excess one share he held in Dundee Beach P/L in his own right (the 2003 share transfers).  That reduced the shareholding of H & K Earthmoving held on its own behalf from 16 to two shares and the shareholding of Hassall held on his own behalf from seven to five shares.  Again, I accept that Territory Realty did not know of that transaction at that time or indeed until late 2007.  Subsequently, on 2 July 2004 Hassall and H & K Earthmoving transferred their remaining seven shares to Bishop Estate and Excess (the 2004 share transfers).  Those share transfers occurred at a price of $50,000 per share.

10. In respect of each of those transactions, no notice was given pursuant to Article 5 of the Articles of Dundee Beach P/L to Territory Realty.

11. Again, I accept that neither Territory Realty nor Booth nor Sanders knew of that further share transfer at any material time until late 2007.

12. It is also necessary to make some findings about what Territory Realty would have done had a notice been given, and Territory Realty had been given an opportunity, to purchase in particular the nine shares transferred in the manner referred to, and held on trust jointly for Bishop Estate and Excess on 4 May 1999.

13. I have noted earlier that in October 1998, Kendray, Booth and Sanders together proposed to buy out Hassall’s interest in Dundee Beach P/L (that is, one half of the 16 shares jointly held by Kendray and one half interest in the 16 shares held by H & K Earthmoving) for a sum in the order of $1.2m, earlier $1m and forgiveness of the loan account of about $129,000.  Kendray’s evidence was that he had the capacity to complete that transaction.  I am satisfied that, on behalf of the remaining shareholders in Dundee Beach P/L, the price at which Hassall sold his various shares in 1999 and in 2003 and 2004, a total in effect of about $920,000, would have been able to have been paid by Kendray, and as he said, to the intent that he would then have offered a half interest in those shares to Territory Realty through Booth and Sanders.

14. Booth gave evidence that he and Sanders would have and could have purchased the nine shares from Hassall and Kendray in May 1999, at the price at which they had been paid.  I infer, in addition, that the efforts on behalf of Hassall through Garraway to conceal the true nature of that transaction at the time was to avoid that opportunity being given to the existing shareholders of Dundee Beach P/L in circumstances where there was a realistic expectation that the other shareholders in Dundee Beach P/L may well have met the “fair price” nominated by Hassall or the “fair price” as determined by the auditors, assuming one or other of those amounts was likely to be (as I find it was) around the mark of that which Kendray agreed to sell those shares in equity to Bishop Estate and Excess through H & K Earthmoving.

15. I also find on the evidence of each of Booth, Sanders and Kendray that they would have continued to operate Dundee Beach P/L between the three of them on a 50/50 basis as a form of quasi partnership.

    EVENTS SUBSEQUENT TO 4 MAY 1999

16. It did not take long for Garraway as a director to exert his influence in conjunction with Hassall on the future direction of Dundee Beach P/L.

17. Booth and Sanders were removed as directors at a meeting of the company called on and held on 18 May 1999.  Those present were recorded as Hassall and Garraway as holding a proxy for H & K Earthmoving.  That followed a notice of a meeting for that purpose issued on 7 May 1999 by Garraway. 

18. Hassall remained a director until 6 October 2003.  On 4 May 1999, Allan Garraway was appointed as a director, and on 26 August 1999 Walker and Woolley were appointed as directors.  On 20 April 2005, (following Walker’s death) David Walker and Pokorny were appointed as directors.  Consequently, the current directors are Garraway, Woolley, David Walker and Pokorny.

1. I do not need to particularly consider the cases dealing with “oppression” (used generically) in the context of a quasi-partnership company:  cf Ebrahimi v Westbourne Galleries Pty Ltd [1973] AC 360. That is because, as appears below, I have not taken into account the 4 May 1999 share transfers or the conduct surrounding them. I have also found that Territory Realty, from about 18 May 1999 when Booth and Sanders were removed as directors, accepted that the consequence of Hassall’s buyout of Kendray generally in May 1999 was that the “quasi-partnership” relationship of the shareholders in Dundee Beach P/L had come to an end. It then adopted a passive role as a substantial, but minority shareholder in Dundee Beach P/L virtually up to the time of these proceedings.

2. The other conduct which may enliven s 232(d) or (e) referred to in [293] above is, in my view, to be measured in that context. It may be measured against a standard of whether the board’s decisions were so unreasonable that no reasonable board could have considered the decisions to be in the best interests of the company as a whole: Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386. However, that standard may be affected where the allegation (and in this case the finding) is that the conduct complained of is oppressive to, or unfairly discriminatory of, a minority shareholder. For instance, conduct which has the purpose or effect of ensuring that the interest of the minority shareholder is rendered valueless in practical terms may be caught within the web of s 232(e): Kirwin v Cresvale Far East Ltd (2002) 44 ACSR 1; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285.

   (2) Consideration and conclusion

3. As the applicants acknowledged, it is necessary to consider whether the conduct of Dundee Beach P/L through its board in the four respects discussed at [293] leads to a finding that the conduct of its affairs fell within s 232(d) or (e).

4. I do not consider that the circumstances surrounding the 4 May 1999 share transfers, or those share transfers themselves, provide a reason to attract the operation now of either of those placita.  In my view, the effects of that conduct have been spent by the 2003 share transfers and the 2004 share transfers in which the applicants have acquiesced.  The reality is that Territory Realty accepted, at least since 2003, that Bishop Estate and Excess are significant shareholders in Dundee Beach P/L and that it is a minority shareholder.  The applicants also accepted that the quasi-partnership relationship which existed up to May 1999 did not continue thereafter, albeit that for some years they believed that Hassall personally and through H & K Earthmoving controlled the majority shareholding.  There is nothing inherently contrary to the interests of the members as a whole or oppressive or unfairly discriminatory of a minority shareholder that the majority shareholder or shareholders who together operate as a majority (as obviously Bishop Estate and Excess do) should appoint the board and through it conduct the affairs of the company.  It is not oppressive to or unfairly prejudicial to, or unfairly discriminatory against Territory Realty that it is a minority shareholder.  I have also rejected the proposition that Territory Realty, as a minority shareholder, has (except in the specific respects that I have mentioned) been deprived of the flow of information concerning the affairs of Dundee Beach P/L to which, as a minority shareholder, it was entitled.

5. In my view, however, the 2007 share issue, together with the nature and terms of the offer made on 2 May 2007, do amount to the conduct of the affairs of Dundee Beach P/L in a way which is oppressive to Territory Realty. For the reasons I have given, I am satisfied that the decisions relating to the 2007 share issue, in the context of the more or less contemporaneous decision as to the terms and timing of the offer to purchase the shares of Territory Realty made on 2 May 2007, terminating just before the expiry of the time in which the share issue could be taken up, are so unreasonable that no reasonable board could have considered them to be in the best interests of the company as a whole at that time. Moreover, I find that the effect of those decisions of the majority at that time is unfairly prejudicial to Territory Realty. It was, in essence, to propose capital raising by share issue at the same time as a grossly low buyout figure was proposed to the minority shareholder in circumstances where, at the time, the need for future capital was not immediately apparent and the proposal for the need for future capital was undeveloped and somewhat speculative. I shall not repeat the findings I have made about that. Hence, the 2007 share issue was in the context of the majority shareholders, that is Bishop Estate and Excess, through the board which they had appointed, endeavouring to procure a buyout at a grossly unfair price in the face of the option, which they did not consider that Territory Realty would accept, of a very substantial and premature capital raising proposal. Consequently, whether I apply the “business judgment” test or a test more apt to oppression or unfair discrimination because of the motivation which I attribute to that composite set of decisions, in my view s 232(e) is enlivened.

6. I have found that the level of management and consulting fees was not justifiable.  It therefore adds to the picture of the oppressive conduct.  In the words of Owen J in Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd (2001) 19 ACLC 517 at [30], in the vernacular, I think it was “ripping off” the company and therefore the other shareholders. It would, however, be a difficult question to determine the appropriate relief if that were the only element of oppressive or discriminatory conduct. But it is not. It is further oppressive or discriminatory conduct which adds generally to the finding upon which I determine the appropriate relief.

   RELIEF

   (1) Form of Relief

7. The applicants contend that I should make declaratory orders in respect of adverse findings made concerning the 4 May 1999 share transfers.  I decline to do so.  I have recorded my findings above.  I do not think any purpose would be served by any formal declaratory order, where (as I have found) that conduct is not directly relevant to the present circumstances of Territory Realty as a minority shareholder of Dundee Beach P/L with Bishop Estate and Excess being together the majority shareholders

8. In view of my finding that the conduct of the affairs of Dundee Beach P/L is in the respects I have referred to oppressive to, or unfairly discriminatory against, Territory Realty, I am empowered to make one of the range of orders available under s 233 of the Corporations Act.

9. The appropriate remedy should be selected to regulate the affairs of Dundee Beach P/L to avoid further oppression or unfair conduct.  In this instance, given the relationship between the shareholders of Dundee Beach P/L and the fact that there are only three of them, in my view the least intrusive and most appropriate one is for the buy-out of one faction by the other:  Marten v Australian Squash Club Pty Ltd (1996) 14 ACLR 452, and in the first place that the majority buy out the minority: Wilton-Davies v Kirk [1998] 1 BCLC 274.

10. In my view, in the first instance, the appropriate order should be for the purchase of the shares of Territory Realty by Bishop Estate and/or Excess pursuant to s 233(1)(d). I have found that the offer made to Territory Realty of 2 May 2007 was at a gross under value, and indeed that may have been recognised by the proposal put on behalf of Bishop Estate and Excess by senior counsel at the commencement of the hearing.

11. I propose to order, therefore, that, in the first instance, Bishop Estate and/or Excess purchase the shares of Territory Realty in Dundee Beach P/L at a price which I will shortly determine.  In the event that those shareholders choose not to acquire the shares of Territory Realty, I would then propose to give Territory Realty the opportunity to buy the shares of Bishop Estate and Excess in Dundee Beach P/L at the same price per share.  Although the applicants pointed out that a fair price may extend beyond the value of the shares (see Dynasty Pty Ltd v Coombs 59 FCR at 143-4), I see no reason to depart from the value of the shares at a certain date as the appropriate value for the purposes of the orders I propose to make.

12. In the event that neither Bishop Estate and/or Excess acquire the shares of Territory Realty in Dundee Beach P/L, or vice versa, I will give the applicants liberty to apply for such further or other orders as may be appropriate under s 233(1) of the Corporations Act in the event that the parties are unable to agree upon some other form of order to give effect to the findings which I have made.

13. It is therefore necessary to determine the value of the shares in Dundee Beach P/L.  In my view, the appropriate date to do so is 30 June 2007.  That is the most convenient date, as its assets largely were real estate and evidence about the valuation of its interest in real estate spanned a period of time at and soon after that date.  I am also mindful that during the latter half of 2007 certain of the blocks of land included in the valuations were sold so that there has been a change in the cash assets of Dundee Beach P/L between 30 June 2007 and 31 December 2007.  I am mindful of the need not to double-count assets in determining the value of its shares.

14. By 2 June 2007, that is the date of close of the 2007 share issue, both Bishop Estate and Excess had respectively subscribed for an additional $1m capital, making a total of $2m.  Why they subscribed to that extent, and not to the full value of the shares offered was not much explored in the evidence.  That money has been paid into Dundee Beach P/L.  In my view, for the purposes of calculating a fair value of the shares in Dundee Beach P/L, it is appropriate to unravel that transaction.  To select the value of shares at 30 June 2007 avoids the necessity to adjust retrospectively the interest earned by Dundee Beach P/L on that additional subscribed capital.

15. I turn to consider the value of the interests of Dundee Beach P/L in the land at Dundee Beach.

    (2) Value of the land

16. The value of the shares in Dundee Beach P/L depends largely on the value of its real estate assets.  That comprises both already subdivided land, of which there are relevantly 22 or 23 parcels, and what is called in submissions the “en globo land” being the land in Section 2881 not yet developed.

17. The evidence as to value was primarily given by Peter Phippin on behalf of the applicants and by Michael Mooney on behalf of the respondents.

18. In addition, the applicants called Desmond Fanning a registered real estate who now works in the Dundee Beach area (and a land owner at Dundee Beach since 1996).  Fanning’s evidence concerned the value of the dump site, the school site, the Rainforest Block and the previously approved 25 lot subdivision into two hectares each which was originally part of Stage 4 of Dundee Downs.  For reasons appearing above, I do not consider his evidence about the value of the dump site, the school site or the 25 lot subdivision, and I have determined the value of the Rainforest Block.  His evidence about the Rainforest Block was ultimately quite confined.  Hence, I do not need to refer further to his evidence.  As noted earlier in these reasons, the applicants also called Mark Harris, an experienced valuer, to value the developed pump house site.  I have briefly referred to his evidence, but as I did not accept the applicants’ primary complaint about the sale of shares in The Pumphouse Gang, again it was not necessary to refer in detail to his evidence.

19. The respondents, in addition to Mooney, called Jeffrey Pollard, also an experienced licensed real estate agent who has worked for many years in the Dundee Beach area.  In the light of the number of blocks at Dundee Beach for sale in late 2007 and early 2008 by resale, he did not think it wise for Dundee Beach P/L to put newly developed blocks on the market at that time.  It then had available about 20 blocks.  In the financial years ended 30 June 2004, 30 June 2007 and for the period 1 July 2007 to 14 February 2008 (shortly before his evidence) there had been 87, 65 and 49 sales at Dundee Beach respectively.  He said there was at the time of his evidence a demand for blocks of various sizes at Dundee Beach, but that – in the light of resale blocks – it would take some 12 to 24 months for Dundee Beach P/L to sell its then remaining current stock of land at a proper market value.  I generally accept his evidence.  I note that Phippin’s valuation of the subdivided stock contemplated its progressive realisation over a period of 12 months or so, a slightly higher time frame than Pollard suggested.

20. I have earlier referred to certain of the evidence of D’Rozario, a well qualified and experienced town planner.  On the aspect of valuation, she generally confirms Phippin’s understanding of the zoning applicable to what was, at an early stage, described as Stage 4 of the Dundee Beach development proposals, that is the area to the north east of the existing substantial developments and generally east of the Lodge at Dundee, and to the parts of the Tourist Commercial zoned land in the northern part of Dundee Beach north and a little east (where the airstrip was established) of the Lodge at Dundee.  Her supplementary report addressed whether the Stage 4 area could be developed into 54 allotments, with planning approval, as was the case when the Namarada Area Plan 1990 was formulated.  She considered that such approval could still be obtained, albeit with some caution, and that adequate groundwater supplies are feasible without too much difficulty.  Part of Phippin’s valuation is based on her views.

21. The licensed surveyor Kevin Dodd was called by the respondents on that latter topic.  His evidence had a possible dual significance, albeit relatively minor in the overall picture.  Firstly, he agreed with D’Rozario that the lapsed development approval in relation to the 25 lot subdivision in Stage 4 was unlikely to be able to be revived unless it could be shown that adequate water for domestic purposes would be available from groundwater supplies (if not reticulated), as that is a requirement of the NT Planning Scheme, February 2007.  The same applied to Phippin’s premise that the Stage 4 land could be developed into 54 allotments.  He doubted that rainwater harvesting would be regarded as sufficient for procuring approval to such a proposal.

22. As I have not concluded that the lapsing of the earlier development approval should attract any conclusion adverse to the directors of Dundee Beach P/L, on that aspect the evidence is not important.  However, his evidence raises some doubt as to the extent to which Stage 4 will be able to be developed until a “natural resources assessment” of the area had been carried out.  He accepted that the Namarada Area Plan 1990 might make further development proposals easier to achieve.  That was one of the factors taken into account by D’Rozario.  I think the difference between their respective professional views is one of emphasis.  It is not possible to say who is correct, but I will adopt a cautious approach to the prospects of developing 54 (or some other number of) allotments in Stage 4 of Dundee Beach when considering its value.

23. Incidentally, Dodd’s evidence might also support the view that the strict imposition of a reticulated water supply by a water treatment plant from a dam served by a pipeline from the Finniss River may be an overstatement despite Garraway’s assertion to the contrary.  However, I have not taken his evidence into account adversely to the respondents in forming my conclusions about the reasons for the 2007 share issue because it did not arise in that context and was not the subject of testing in that context.

24. Both Phippin and Mooney, with somewhat different professional backgrounds and experience, were well qualified and generally impressive witnesses.  Each gave evidence responsively and carefully.  Where they differed to a significant degree, the difference principally flowed from Mooney being somewhat more cautious about the development potential of the undeveloped Tourist Commercial land in the north-western part of Dundee Beach.  On that topic, I generally prefer the approach of Mooney, because he has a greater familiarity with the real estate market in the Northern Territory and because, upon careful reflection, I think his more cautious approach is likely to be the more realistic one.  I shall explain that conclusion in a little more detail when considering the separate areas of the Dundee Beach P/L land which has not yet been developed and sold.

25. On the other hand, as I explain below, I also formed the view that Mooney’s evidence was unnecessarily conservative, perhaps because he saw his function as being to provide as low a valuation overall as professionally maintainable.  That is not to conclude that his evidence was not given honestly or that his approach was not professional, but I had the overall impression that because he had worked with Garraway for some time his perspective may have been a little narrow.

26. Each of the principal valuation witnesses separately considered the value of the subdivided stock, and the en globo land.  And each then considered the Stage 4 land separately as part of the en globo land.  Phippin further broke up the Tourist Commercial land in the north of Dundee Beach.

27. A table of the comparative valuations is as follows:

Phippin	Mooney
1.  Subdivided stock	$6,905,000            (23 blocks)	$6,694,000            (22 blocks)
2.  Stage 4 land	$3,220,000	$2,119,000
3.  Northern TC land	$6,000,000            (40 hectares)	$1,923,750            (405 hectares)
4.  Airstrip (lower part of northern TC land)	$5,000,000            (100 hectares)	(included above)
5.  Remainder land	-            ___________	-            ___________
Total	$21,125,000	$10,866,750

1. As can be seen, Phippin has separately valued parts of the en globo land comprising the TC land in the north eastern part of Dundee Beach, whereas Mooney has valued that land in one amount.  The difference in their overall valuations is largely accounted for by the difference in approach to valuing that land, and the value ascribed to it.

   (i) The subdivided stock

2. Consistent with the professionalism of both Phippin and Mooney, the assessed value of the 22 lots of subdivided land already “in stock” was reached by valuing each lot individually on the basis of comparable sales.  Phippin’s individual valuations totalled $6,905,000 and Mooney’s totalled $6,694,000.  That is a minor variation, entirely within an acceptable range.  As suggested by the parties, I adopt the average of the two valuations, namely $6,800,000.

3. The first issue between the two valuers was whether the allotment on which there is a Telstra tower should be included.  Mooney did not include it; Phippin gave it a relatively low value.  The basis for that difference was not fully explored in the evidence.  I do not need to resolve it.  That difference is not significant when I adopt the averaging to which I have just referred.

4. The second, and more important issue, is the extent to which the valuation figure should be reduced by reason of the realisation costs and holding costs whilst those allotments were realised.

5. Mooney has reduced his valuation figure for selling costs (legal fees, commissions, advertising and promotion), the purchaser’s margin, “stamp duty and legal on purchase”, and “interest on holding” calculated on half the parcel for 12 months on the basis that all the allotments would be sold over 12 months.  He did so on the basis of a “one line sale”, that is a sale on the one day to the same purchaser.  He equated that process to the valuation of the shares in Dundee Beach P/L. I do not agree that all those deductions should be made.  The purpose of the valuation is to assess the value of Dundee Beach P/L (and so the value of its shares) at 31 December 2007, a date which the parties agreed to use.  The comparable sales analysis of Phippin (and Mooney) assumed that the blocks would be progressively sold over a period of a year or so.  I accept Phippin’s evidence that “stamp duty and legal on purchase” is not an appropriate reduction.  It is based upon a premise I do not accept – that the valuation methodology involves the purchase of the allotments by an investor for resale and so looks at what that investor would pay to secure a profit on resale.  That was not the basis of Phippin’s valuation.  Nor was it the basis on which Mooney reached his primary figure, namely comparable retail sales.  Stamp duty and legal fees are paid by the retail purchaser.  For the same reason, I do not agree that a deduction should be made for a “purchaser’s margin”.  That involves mixing two valuation methods inappropriately, namely the comparable sales method and the hypothetical development analysis method.  The developer in this instance is Dundee Beach P/L and it has no development risk because the development of this land is in place.  Nor do I accept that it is appropriate, having regard to the purpose of the valuation and the history of Dundee Beach P/L to make a deduction for holding costs.  That cost was not being incurred.  Nor had it been incurred or brought to account in the preceding years in relation to that stock when Dundee Beach P/L was not actively marketing its stock.  My impression of Mooney during his cross-examination on these matters was that he was uncomfortable in trying to justify them, and indeed that he was to some degree endeavouring to reduce the valuation of these allotments by putting forward barely tenable deductions.  If those sorts of costs were to be taken into account, the starting point would not be the primary valuations on comparable sales analysis, but on a hypothetical development basis.  Mooney’s deductions did not start from that premise, and as I have noted there was no developer’s profit margin or risk to take into account because the development had occurred.

1. Phippin did not directly contest the fact that Dundee Beach P/L would incur some selling and promotional costs in realising these allotments.

2. I propose to reduce the average valuation by 6.7% (the percentage suggested by Mooney) to $6,344,400.  I have taken that figure, although there is no direct evidence of commissions paid to selling agents or promotional costs, to include also an allowance for the possibility that the sale of the allotments might extend beyond 12 months.  As was said, the market may change over that time.  But the evidence suggests that the market has, if anything, strengthened so the allowance for adverse market movements is a small one.

   (ii) Stage 4 land

3. Phippin’s valuation of the Stage 4 land was on the hypothetical subdivision basis.  He thought that it could be subdivided into 56 allotments.  If that anticipated development had been approved, he thought the realisable value of those allotments would be $14,855,000.  He adopted the hypothetical development analysis approach.  Allowing for the cost and risks of development, he reached a figure of $3,222,000.

4. Mooney valued that land at $2,119,000 based upon a direct comparison basis, because he had doubts that the hypothetical development analysis valuation approach was appropriate.  His criticism of that approach was in relation to the whole of the en globo land (Phippin agreed in relation to the balance of the en globo land), and I think it suffers for that reason.  He refers to whether permission would be granted to clear all the en globo land, and to whether purchasers would want that land fully cleared.  Those two matters may be apt to the Tourist Commercial land, but the Stage 4 land at all times was earmarked for development and, under the Namarada Area Plan 1990, in eight hectare allotments.  Moreover, Phippin did not assume a total clearing of the Stage 4 land.  I think that Mooney’s comments in relation to the Stage 4 land to that extent reflect too cautious an approach.

5. Mooney raised a more significant question as to whether the proposed subdivision of the Stage 4 land would be approved, especially in the light of changed planning expectations and in particular relating to water supply.  Those matters are considered by D’Rozario and Dodd above.  Their views, perhaps that of D’Rozario more than that of Dodd, indicate that probably the sort of subdivision contemplated by Phippin would be approved.  He proceeded on that assumption, based upon D’Rozario’s report.  He is not to be criticised for that.  He did not see D’Rozario’s supplementary report, but it does not materially change her opinion.  Apart from the issue of water supply, there is no reason to think that other services and facilities in Dundee Beach would be less available to the Stage 4 land than to the earlier developed sections.  The Stage 4 land comprises some 653 hectares, so clearly even allowing for access roads and for areas where natural vegetation remained or where development was limited by topography, the proposed 56 allotments were of a substantial average size.

6. On the whole of the evidence, in my view it was appropriate to consider the development potential of Stage 4 separately from the development potential of the Tourist Commercial land.  The evidence shows Stage 4 had always been identified for rural/residential use in larger blocks, including in the Namarada Area Plan 1990.  It is zoned for rural living.  It was proximate to the existing developed areas.  Part of it had previously been approved for 25 lots of two hectares, although that approval was allowed to lapse.  D’Rozario’s evidence was to the effect that a fresh development application for 56 blocks had good prospects of success, albeit with some caveats expressed.  Mooney had earlier discussed with Garraway that form of development for the Stage 4 land, without saying it would not be permitted.

7. In my judgment, the Phippin approach to the valuation of the Stage 4 land is more technically correct upon the information he had, and upon the findings I have made about the effect of D’Rozario’s evidence.  However, given the uncertainty about the adequacy of the water supply, I think the hypothetical developer would have allowed a greater risk factor than that allowed by Phippin.  It may have been necessary, for example, to reduce somewhat the density of the allotments or to locate the allotments a little differently so as to satisfy the planning authority on that score.  Phippin applied a reduction of about 23 per cent on the anticipated sales less cost of sales.  In my view, an appropriate profit and risk factor should be in the order of 30 per cent.  That would reduce his valuation of the Stage 4 land quite considerably, to about $2,225,000.  It is coincidental only that that figure is not significantly different from the value ascribed to the Stage 4 land by Mooney.

   (iii) Tourist Commercial land

8. Phippin’s approach to this part of Dundee Beach was on the basis that, consistent with its zoning, an area should be valued for sale to a developer as a tourist resort, especially in the beach front area.  That, he thought, would encompass a high quality hotel, a motel, a caravan park, a shopping centre, a pub, and a community centre.  Such a development would, he accepted, require full service facilities including a reliable water source.  The airstrip section of that land would be suitable for a resort development.

9. The only comparable sale, he thought, was the Lodge at Dundee.  It had been sold in October 2006 for $3,500,000.  As noted earlier, it has a beach front location.  He allowed for the value of the current buildings there, and for the value of its adjoining land, and concluded that the residual land value of the Lodge at Dundee was $2,530,000 or $26.30 psm. (for 96,200 square metres).  He said there was some 400,000 square metres of comparable land in the northern part of this area, and about 1,000,000 square metres of such land around the airstrips, although it did not have a beach frontage.  He applied rates of $15 psm and $5 psm respectively to those parts of this area to value them at $6,000,000 and $5,000,000 respectively.  He attributed no value to the residual land in this area.

10. Mooney agreed that this area of land was suitable for en globo use or subdivision.  He agreed with Phippin that a hypothetical subdivision approach was unhelpful (as noted, he extended that view to the Stage 4 land), and that a direct sales comparison method should be used.  It is at this point that he parted company with Phippin.  He did not regard the sale of the Lodge at Dundee as comparable.  He also criticised Phippin’s assessment of the area of land available in the Tourist Commercial zone.  I have heard their respective evidence about the assessment of the area of land available for development.  I think the dispute is relatively marginal to the reliability of the respective valuations.  Nevertheless, the adoption of the per square metre value for the sale of the Lodge at Dundee would have to be applied carefully because the two areas given value by Phippin were some four times the value per square metre and 10-11 times the land size of the Lodge at Dundee.

11. Mooney then identified 13 “sales of assistance” in other relatively remote or non-urban areas in the “Darwin” region.  The range of values they exposed is dramatic:  from $41,954 per hectare to $13 per hectare.  They show that higher prices per hectare are paid for smaller areas of land which are ripe for subdivision.  Having regard to those sales, he applied a value of $4,750 per hectare to 405 hectares of this area and the nominal sum of $150,000 in total to the balance of the area, making a total of $2,073,750 for the Tourist Commercial land.  He entirely discounted the relevance of the sale of the Lodge at Dundee, except to say that the fact that so much had been paid for it and that it was likely to be developed promptly would inhibit another developer from contemplating another substantial resort development.  In my view, his reasons for discounting any real relevance to the Lodge at Dundee sale were not persuasive.  It was a sale in close proximity for a similar usage, and over a substantial area of land.  Its sale value per square metre (as calculated by Phippin) was $26.30.  I also thought that the arithmetical permutations presented by Mooney to demonstrate some fallacy or inconsistency in Phippin’s approach were unhelpful; they did not lead to the conclusion that his overall approach was erroneous.  Phippin valued only the small part of the overall area which, at least topographically, he considered would be suitable for a resort development including such features as golf courses.

12. However, Mooney demonstrated a considerable knowledge of resort developments in the Northern Territory and, relatively speaking, their lack of success.  Even though there is in the northern section some 40 hectares available for such a development, the assumption that there is a present market for such land in the Northern Territory for “international resort chains” is not a self-evident one.  It was made without Phippin having had access to any study of occupancy rates in Darwin or (for instance) at Kakadu.  It is not clear that the particular area at Dundee Beach is or would be in competition with other geographical areas in the South East Asian region for their acquisition and development by international chains.  It is not clear whether the present lack of basic facilities (other than power) within a reasonable distance would inhibit such developers or make this area less attractive to them.  The Lodge at Dundee, so the evidence shows, has satisfactory potable water access at present, and it carries an existing business and hotel licence.

13. In my judgment, overall, the approach of Phippin to the valuation of the Tourist Commercial land is the correct one.  I do not think Mooney’s analysis of “sales of assistance” really addresses the value of that land adequately, especially as it effectively discounts the sale of the Lodge at Dundee.  Phippin has then applied his professional judgment in adopting a price per square metre separately for the northern and eastern (airstrip) positions of the land.  As he said, there is no science about that.  His valuation involved a value per square metre of about 60 per cent and 20 per cent of the price paid for the Lodge at Dundee.  However, for the reasons given, I think he has not been conservative enough in his judgment.  The evidence persuades me that there are a number of matters to which I have referred which should have weighed more heavily towards a lower value.  It requires a particular purchaser with the resources and experience to acquire and develop such an area of land.  Such a developer has not yet emerged for land in the Northern Territory (so far as the evidence goes).  Consequently, I think the per hectare rate applied to the two areas of that land which are available for development in that way should be further reduced by about half.  In my view, the value of the en globo land should be fixed as follows:

    Northern TC Land (40 hectares at $6 psm)                  $2,400,000

    Airstrip Land (100 hectares at $2 psm)            $2,000,000

    Remainder Land  -
      __________

    TOTAL  $4,400,000

    As it happens, that is more than the Lodge at Dundee was sold for in October 2006 but less than its selling price of $5,200,000 or thereabouts in November 2007.

14. Although Crown Lease Term 2881 was due to expire in August 2008, both Phippin and Mooney proceeded on the assumption that it would be renewed.  In the absence of any evidence suggesting the contrary, in my view that was an appropriate assumption to make.

    (iv) Conclusion as to land value

15. For the reasons I have given, in my judgment the value of the Dundee Beach P/L real estate at 31 December 2007 was as follows:

    Subdivided stock  $ 6,344,400

    Stage 4 land  $ 2,225,000

    Tourist Commercial land  $ 4,400,000

    __________

    TOTAL  $12,979,400

    (3) The value of Dundee Beach P/L

16. As at 30 June, the assets of Dundee Beach P/L comprised cash at the bank and a deposit totalling $4,077,554 and its interest in real estate, said to be $226,426.  It is common ground that that simply reflects historical cost.  Its liabilities totalled $209,956.

17. After deducting the funds paid by Bishop Estate and Excess in subscribing for further shares to the sum of $2,000,000, so as to put aside the 2007 share issue, and adjusting the value of the interest in real estate to the sum I have determined in the preceding section of these reasons, I consider the equity value of Dundee Beach P/L is as follows, as at 31 December 2007:

    Cash including money on deposit  $ 2,077,554

    Interest in real estate  $12,979,400

    $15,056,954

    Less liabilities  $     209,956

    Shareholders’ Equity  $14,846,998

    So each of the 48 shares had a value of (say) $309,312, and the 16 shares held by Territory Realty at that date would have a value of $4,948,992.

18. That calculation adopts the calculation made on behalf of the respondents, except as to the value of the interests in real estate, with one qualification.

19. The respondents have sought to reduce the value of the interests in real estate held by Dundee Beach P/L by the goods and services tax which, they say, will be payable on the realisation of those interests and by the amount of income tax that will be payable on their realisation.  The question of GST and income tax being so payable was not addressed in evidence.  It emerged only in the final submissions.  The applicants acknowledge some allowance should be made for income tax, but only as included in the financial statements.  The statement of assets and liabilities of Dundee Beach P/L at 30 June 2007 included a liability for income tax of $206,804 in the total liabilities of $209,956 so – at least to that extent – that liability has already been taken into account.

20. I do not propose to make the further adjustments sought by the respondents.

21. In relation to income tax, I note that the realisation of much of the interests in real estate of Dundee Beach P/L will depend upon the timing of the disposition of those interests and upon the expenditure incurred from time to time in relation to it.  I consider it is too speculative to make such a deduction, particularly in the absence of clear evidence from the valuers that such an allowance was an appropriate one or how it would be calculated.  It appears to depend on the particular valuation method chosen.  Also, I have adopted a date for the valuation of the shares in Dundee Beach P/L which, apart from fixing a different value for the real estate, adopted the figures put forward by the respondents.  That included provision for income tax.  How that provision was fixed, and what it allowed for, is not clear.  The submission in this regard is, in my judgment, not sufficiently founded in the evidence to be accepted.

22. In relation to GST, similar considerations apply.  I do not think the evidence is clear enough to make such a deduction in fact.  How GST is ultimately allowed for is unclear.  It is unclear whether, ultimately, it will be passed on to the purchaser or purchasers.  How, if at all, it should be allowed for may depend upon the chosen valuation methodology.  For instance, Phippin appears to have allowed for “non-recoverable” GST in reaching a value of the hypothetical 54 lot subdivision in the Stage 4 land.  I am not prepared to make the deduction suggested, on a hypothetical basis, without that basis being explored sufficiently in the evidence, and being satisfied that it is appropriate to do so.

    CONCLUSION

23. For the reasons given, the appropriate orders should be that Bishop Estate and/or Excess do purchase the 16 shares of Territory Realty in Dundee Beach P/L within a specified period of time at the price of $309,312 per share.

24. Subject to any further submissions of the parties, I would allow 60 days for that to take place.  I would specify that the preparedness of Bishop Estate and/or Excess to purchase those shares be notified in writing to Territory Realty within a period of 30 days.

25. In the event that Bishop Estate and/or Excess are not prepared to purchase those shares at that price, I would allow Territory Realty the opportunity to purchase all of the 16 shares held by Bishop Estate and the 16 shares held by Excess in Dundee Beach P/L at the same price, allowing a period of 30 days after the notification period fixed for Bishop Estate and/or Excess within which Territory Realty is to give such notice to Bishop Estate and Excess that it proposes to purchase those shares at that price, and a further 60 days for settlement.  I distinguish between the settlement period for Bishop Estate and Excess on the one hand, and Territory Realty on the other, because I am mindful of the possible availability of some funds to Bishop Estate and Excess by shareholders’ loss from Dundee Beach P/L.

26. In the latter event, that is in the event that Territory Realty is to buy the shares of Bishop Estate and Excess in Dundee Beach P/L, I would also make orders rectifying the share register of Dundee Beach P/L to retract the shares issued to them following the 2007 share issue, but upon the basis that they promptly be repaid the amount of the subscribed capital, together with the interest on that amount which has been earned by Dundee Beach P/L since the payment of $2m was received by Dundee Beach P/L.  That amount should be relatively readily ascertainable.

27. I will give liberty to the parties to apply at any time in the event that it emerges that neither of the share transfer options to which I have referred is to be taken up.  It will then be necessary to consider what further or different orders should be made to give effect to my findings and conclusions. 

28. I will also give the parties the opportunity to make such written submissions as to costs to date as they may be advised.  The applicants are to file and serve their written submissions as to costs within 21 days of the date of these reasons for judgment, and the respondents should have a further 21 days within which to respond in writing.  I will then give a separate ruling on the question of costs, if it is necessary to do so.

29. I direct the applicants, by their solicitors, to provide draft minutes of proposed orders to give effect to these reasons for judgment, including the directions as to submissions on costs, to the respondents within 14 days, in anticipation that the parties will be able to agree the appropriate form of orders to give effect to these reasons for judgment within 21 days.  In the event that the parties are unable to reach agreement, I direct that each of the applicants and the respondents file and serve the respective forms of orders which they propose within 21 days, and I will then call the matter on for further submissions as to the appropriate form of orders and for making formal orders.  I would, of course, extend the timetable I propose in any respect if it is with the agreement of the parties.

I certify that the preceding three hundred and seventy-three (373) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate:

Dated:        1 April 2009

Counsel for the Applicants:	RJ Whitington QC and I Robertson
Solicitor for the Applicants:	Morgan Buckley Lawyers
Counsel for the Respondents:	M Maurice QC and G Clift
Solicitor for the Respondents:	De Silva Hebron

Date of Hearing:	18, 19, 20, 21, 22, 25, 26, 27 and 28 February 2008 and 15 and 16 May 2008
Date of Judgment:	1 April 2009