Trend Laboratories Pty. Limited and Anor. v Redford

[2001] NSWSC 110

CITATION:	Trend Laboratories Pty. Limited & Anor. v. Redford [2001] NSWSC 110
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1856/98
HEARING DATE(S):	20, 21, 22, 23, 24 November, 4, 5, 6 December 2000
JUDGMENT DATE:	12 March 2001
PARTIES :	Trend Laboratories Pty. Limited - 1st plaintiff Envirolabs Pty. Limited - 2nd plaintiff Alan Redford - defendant
JUDGMENT OF:	Hodgson CJinEq at 1

COUNSEL :	Mr. B. Coles QC with Mr. C.R. Newlinds for plaintiffs Mr. C. Birch SC for defendant
SOLICITORS:	Michell Sillar, Sydney for plaintiffs M.C. Antunes, North Sydney for defendant
CATCHWORDS:	CORPORATIONS - Oppression - Arrangement for sale of product to majority shareholder - Prices fixed so that no profit made - Whether oppression against minority shareholder.
DECISION:	See end of judgment

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Monday 12th March 2001

NO. 1856 OF 1998
TREND LABORATORIES PTY. LTD. & ANOR. V. REDFORD

JUDGMENT

1   Between about July 1992 and March 1998, the defendant Alan Redford was employed by the second plaintiff Envirolabs as its managing director. From about August 1992, Mr. Redford held 20,000 shares in Envirolabs. The other 80,000 shares in Envirolabs were held by the first plaintiff Trend.

2   Mr. Redford’s employment with Envirolabs came to an end on or about 20th March 1998. On that day, Mr. Redford entered Envirolabs’ factory at Lisarow, and removed a component known as a blow pin from each of nine extrusion blow moulding machines.

3   In these proceedings, commenced on 26th March 1998, Trend and Envirolabs claim damages from Mr. Redford arising from this matter, and also from other alleged breaches of duty by Mr. Redford; and they also claim other declarations and orders.

4   Mr. Redford has brought a cross-claim against Trend, Envirolabs and James Hyde, a director of Trend and Envirolabs, claiming various relief, including remedies for alleged oppression of Mr. Redford as a shareholder of Envirolabs, and also remedies in relation to items of property allegedly detained or lost by the cross-defendants.

OUTLINE OF FACTS

5   Trend is the manufacturer of various types of toiletries, cosmetics and cleaning products, which it supplies in plastic bottles and caps.

6   James Hyde and Mr. Redford met in about February 1991. Mr. Redford was then employed by Viscount Plastics, a supplier of plastic bottles. As a result of this and subsequent meetings, Viscount Plastics supplied quantities of plastic bottles to Trend during 1991.

7   In about mid-1991, there was a discussion between James Hyde and Mr. Redford concerning the possibility of Trend setting up its own “in-house” facility for making plastic bottles, to be managed by Mr. Redford; and Mr. Redford agreed to prepare a proposal for this.

8   In about August 1991, Mr. Redford provided to James Hyde a document entitled “Proposal for In-House Moulding of Plastic Bottles”. This document gave estimates of costs, based on production of 10.2 million bottles per year. It involved the purchase of five single head and two twin head blow moulding machines. It suggested that equipment could be purchased for $885,000.00, giving rise to an expense of $256,897.00 per annum; that wages would amount to about $285,000.00 per annum; and that running costs would amount to about $207,000.00 per annum. This gave a total for annual expenses of $748,897.00, which over 10.2 million bottles gave a production cost per bottle of 7.34 cents. The cost of raw materials for the bottles would be additional to this. The annual expenses included rent given as $120,000.00 per annum, but no provision was made for transport.

9   There is in evidence a copy of this document containing notes made by James Hyde, giving rise to alternative figures for production costs per bottle: in one place, this is stated to be 9.23 cents, in another 8 cents, and in another 5 cents.

10   By late 1991, Mr. Redford’s employment with Viscount Plastics had terminated, and he commenced his own blow moulding operation in rented premises at Riverstone, manufacturing bottles for supply to Trend.

11   There is in evidence a document evidencing a loan of $5,000.00 made by Trend to Mr. Redford on 3rd December 1991, to assist with the start of this operation; and also the first invoice arising from the operation dated 11th February 1992 for $1,907.64 in respect of 15,897 bottles delivered between 10th and 18th December 1991, less 10% towards repayment of the loan.

12   In late 1991 or early 1992, it was agreed between James Hyde and Mr. Redford that the in-house operation would commence on 1st July 1992, and would be conducted by the company Envirolabs, in which Mr. Redford would be employed as managing director and in which he would have 20,000 one dollar shares, with Trend holding the remaining 80,0000 one dollar shares. It was also agreed that Mr. Redford would pay for his shares by supplying certain equipment. The operation was to continue at Riverstone, until a factory had been built on a property owned by the Trend group at Lisarow, which would be available in about three years’ time.

13   On 30th June 1992, Mr. Redford and James Hyde met at the Riverstone premises, and conducted a stocktake of material and equipment to be taken over by Envirolabs as at 1st July 1992.

14   The minute book of Envirolabs contains what purports to be a minute of a board meeting of Envirolabs held at Riverstone on 30th June 1992, recording as present James Hyde (chairman) and Mr. Redford (director) and signed by both of them. The minute is in the following terms:

A stock-take was conducted of all raw materials and bottle stocks.

The bottle stocks counted were sold by Alan Redford to Trend Laboratories Pty Limited before arrangements were made for Trend Laboratories Pty Limited to purchase the assets of Alan Redford at these premises.

The attached list gives a valuation of these assets that will be purchased on July 1st 1992 by Alanda Plastics, a Division of Envirolabs Pty. Limited which in turn is a subsidiary Company of Trend Laboratories Pty. Limited.

It was agreed that Alan Redford would purchase 20,000 one dollar fully paid shares for $20,000 in Envirolabs Pty. Limited.

It was also agreed that Trend Laboratories Pty. Limited would increase their share holding in Envirolabs Pty. Limited to 80,000 full paid one dollar shares for the total value of $80,000.

It was resolved that Envirolabs Pty. Limited would make a 10% profit on bottles sold to Trend Laboratories. This percentage may be adjusted if necessary at the discretion of the Directors.

It was resolved to appoint David Finlay James Crawford as Public Officer of Envirolabs Pty. Limited effective from 1st July 1992.

Also in the minute book is the list of assets referred to, which is as follows:
PLANT & EQUIPMENT
3 Grinders 2 400
10 HP Compressor 3 500
1 Large air receiver 850
1 Cooling lower 2 000
1 3 HP Tower Pump 1 000
1 3 HP Chiller 4 000
1 Pallet trolley 600
Excursion Tooling 2 000
3 Flick knives 1 600
1 Hot knife 1 000
Electrical wiring plus spare 3 000
Power outles (sic) 500
Water and air fittings on moulds and machine 2 000
Copper piping 1 000
Oil cooler 800
After cooler 1 000
Steel 500
Stainless steel 300
Drill Pedestall (sic) 300
Lathe 2 500
Old compressor 300
Stainless water tank 500
Truck 3 000
Trailer 2 500
Compressor shed 800
2 x 5 HP Pulford compressor 1 000
1 Radac after cooler 1 000
Employee fridge 150
Cyclone 200
3 Stage pump 750
Hopper magnets 1 200
2 Conveyor fans 300
1 Tail deflasher 200
$42 750

RAW MATERIALS

QUANTITY DESCRIPTION PRICE $
800 Kgs H D P E 1.35 Kg 1080.00
100 Kgs P P 1.40 Kg 140.00
75 Kgs White Masterbatch 3.35 Kg 251.25

D D 38/1/7/92

TOTAL 1471.25

15   There follow in the minute book consents signed by James Hyde’s son Steven Hyde and by Mr. Redford to act as director, these consents also being dated 30th June 1992. There then follows a minute of a board meeting of Envirolabs held at Frenchs Forest on 1st July 1992. This minute notes as present James Hyde, George Gladwin (an accountant), Mr. Redford and Steven Hyde. It records the election of Mr. Redford and Steven Hyde as directors, a resolution to apply for registration of the business name Alanda Plastics (which is in fact a name made from the first names of Mr. Redford and his wife), and a resolution that there be a general meeting to increase Envirolabs’ capital to $100,000.00. The minute book then contains a record of a general meeting which resolved on that increase.

16   The next minute in Envirolabs’ minute book is a minute recording a meeting of the board of Envirolabs at Frenchs Forest on 16th July 1992. It records as present Mr. Redford (director) and James Hyde (chairman), and it goes on to record the following matters:

It was agreed that as from July 1st 1992 Alan Redford would be employed as Managing Director of Alanda Plastics, a Division of Envirolabs Pty. Limited.

His commencement salary would be $40,000 per annum which is to be reviewed on October 1st 1992. A Mitsubishi Pajero is to be purchased by the Company for Alan Redford’s use and will be wholly owned and maintained by Trend Laboratories Pty. Limited.

17   The minutes of the board meetings held on 30th June 1992, 1st July 1992, and 16th July 1992 were all confirmed at a meeting of directors on 11th August 1992, the minute of which records the attendance of James Hyde and Steven Hyde.

18   During July and August 1992, Mr. Redford was corresponding with a manufacturer of blow moulding machines in Taiwan, concerning the purchase of machines and concerning becoming the agent of that manufacturer in Australia. A letter from Mr. Huang of that company, Horng Jen Enterprise Limited, dated 28th July 1992 welcomed Mr. Redford to become their agent in Australia. On 28th August 1992, Mr. Redford sent a facsimile to Mr. Huang in the following terms:

Purchase of your TC50 1988 and HJ50H is now confirmed and I would like to include a commission for myself refundable from you (sic) company once you have been paid. This is stickly (sic) confidential between us and no-one is to know this besides includes my bank and accountant

HJ50H $49,500USD 20 point controller $13,600USD

Total $63,100USD plus commission $5,000USD

Price $68,100USD

TC50 1988 $25,000USD plus commission $2,500USD

Price $27,500USD

Commission payable to myself Mr. Alan Redford. Please confirm if this arrangement is okay.

19   Further correspondence on these matters occurred in September to December 1992.

20   On 4th December 1992, Mr. Huang sent a facsimile to Mr. Redford with another quote. The covering letter stated that the price included 10% commission for Mr. Redford, and that when they received the money they would send the commission. The quote itself gave a figure of $84,200.00US, and stated that this was net without commission. On 22nd December 1992, Mr. Redford sent a facsimile to Mr. Huang advising that he had received the commission.

21   There is in evidence a document dated 31st December 1992, purporting to be a summary of loan account transactions between Envirolabs and Mr. Redford, prepared by David Crawford, Trend’s internal accountant. This summary showed a credit for raw materials $1,471.25 and equipment $42,750.00, a debit for balance of loan from Trend $2,777.24, a debit for shares $20,000.00, giving a credit balance of $16,444.01. Later summaries in respect of this loan account show $5,000.00 paid to Mr. Redford on 18th January 1993 and $7,219.89 paid on 17th February 1993.

22   The accounts for the first year’s trading, that is for 1992-3, showed the cost of goods manufactured as $529,961.00 (including $154,992.00 for materials) plus operating expenses of $58,754.00. The accounts showed a nil operating profit, this apparently being the result of some adjustment. It appears that about 1.5 million bottles had been made in that year, giving an average cost of manufacture of about 28.9 cents per bottle (although the plaintiffs’ calculations show 28.5 cents per bottle).

23   On 1st July 1994, the Envirolabs’ business was moved to a new factory built at Lisarow. By this time, five blow moulding machines had been acquired.

24   The 1993-4 accounts were approved at a directors’ meeting of 31st December 1994. These accounts showed costs of goods manufactured as $974,894.00 (including $316,052.00 for materials) plus operating expenses of $107,682.00. It appears that in that year about 6 million bottles were manufactured, and also about 700,000 caps. Treating two caps as equivalent to one bottle, this gave an average cost of manufacture of about 12 cents per bottle (although the plaintiffs’ calculations show 11.55 cents per bottle). These accounts also appear to have been adjusted so as to show a nil operating profit.

25   The minutes of a directors’ meeting held on 23rd January 1995 noted a statement by James Hyde to the effect that, in order for the operation to be profitable, it was “necessary to aim for these non-material costs to be $0.07 per unit”, that is, 7 cents per bottle.

26   During 1995, it appears that four more blow moulding machines were purchased. In addition, there are in evidence two invoices from Mr. Redford addressed to Trend specifying more equipment apparently being sold by Mr. Redford to Trend: one invoice is dated 10th April 1995, for a total of $23,800.00, and the other is dated 19th June 1995, for a total of $8,500.00.

27   The minutes of a meeting of directors dated 26th June 1995 record that four new machines have been installed; and it also records an agreement that, once the final profit figure was known for the year ended 30th June 1995, a dividend would be declared.

28   In the second half of 1995, the Trend group’s bankers Westpac required an investigation to be carried out by Arthur Andersen; and Arthur Andersen’s report dated 24th September 1995 is in evidence. Among other things, this report recommended that Alanda (that is, Envirolabs) run itself as a stand-alone company as much as possible. It recorded that the sales figures were adjusted at the end of each financial year, so that Alanda made a nil profit before tax. It also recorded that the average cost of manufacturing bottles by Alanda appeared to represent a cost saving for Trend.

29   Minutes of a meeting of directors dated 6th December 1995 recorded that, due to the financial results for the year ended 30th June 1995, there would be no dividend. The accounts for that year showed a profit, after provision for income tax, of $10,246.00. They showed the costs of goods manufactured as $1,221,880.00 (including $465,497.00 for materials) and operating expenses of $138,021.00. It appears that about 8.2 million bottles and 1.5 million caps were manufactured in that year, giving (on the same basis as before) an average cost of about 10 cents per bottle, apart from materials (although the plaintiffs’ calculations show 9.8 cents per bottle).

30   There are in evidence copies of three facsimiles from Mr. Redford to James Hyde, bearing the date 16th May 1996. Two of these were definitely sent: one is a two page facsimile sent at 2.45pm concerning a variety of matters, and the other is a one page facsimile sent at 2.51pm concerning the absence of an employee. The third facsimile bearing that date is alleged by Mr. Redford to have been sent on that date, and James Hyde denies receiving it. There is no record of the transmission of this facsimile. This facsimile is in the following terms:

Re Company useage (sic) of my personal equipment such as Blow Pins, Cold Cutters, Mill etc.

You have not given me an answer to our meetings regarding these matters and whether or not you intend to purchase them from myself or just continue using them without any regard to compensating me for these things particularly the blow pins & cold cutters.

I await again/still your reply.

31   Envirolabs’ accounts for the year 1995-6 showed a profit, after provision for income tax, of $5,765.00. The costs of goods manufactured were shown as $1,772,867.00 (including $704,673.00 for materials) and operating expenses of $182,820.00. It appears that about 9.7 million bottles were made in that year, and 4.5 million caps. On the same basis as before, this gave an average of about 10.5 cents per bottle, apart from materials (although the plaintiffs’ calculations show 9.78 cents per bottle).

32   On 23rd January 1997, Mr. Crawford resigned from Trend.

33   A facsimile dated 25th February 1997 from Mr. Redford to James Hyde dealt with matters concerning salaries, and ended as follows:

When do you feel the Company will be able to reimburse me the balance of goods purchased as per invoices you have received?

34   James Hyde responded to this facsimile on 26th February 1997, dealing with the matter of purchase of goods in the following terms:

With regard to the reimbursement for plant costs that you mention in your PS, David and you have spoken about this many times and he has told me that you were going to arrange for me to site (sic) the equipment in question. You have not approached me about it but next time I visit Lisarow I would be prepared to site (sic) it and asset register it and of course pay you for it. You might then pay us back the $25,000.00 I loaned you back in December 1994 that you were supposed to use to buy a waterfront property at Green Point.

35   The minutes of a meeting of directors of Envirolabs held on 10th March 1997 record that James Hyde presented two reports to the meeting, to explain:

(a) how overheads would be able to be recovered with the tooling that we have or have access to (included in the report were potential number of bottles and caps that were able to be produced per annum).

(b) how AR’s original proposal underestimated some of the overhead costs associated with the business which meant that the 10% profit originally planned for was not possible.

36   It appears that one of these reports was a document dated 8th March 1997 showing certain calculations and proposals, including the statement “you arrive at a figure of 7.11 cents per bottle and jars, which is the figure we have been attempting to get since July 1st 1992”.

37   In a facsimile from James Hyde to Mr. Redford dated 29th April 1997, there is a complaint about $1,100.00 spent for a chair from Viking. Mr. Redford responded on 1st May 1997 with a facsimile which asserted that the chair in his office broke, so that a new one was ordered; and that he would send the new chair back, and get a cheaper one thereby saving $200.00.

38   In a facsimile dated 26th September 1997 to Mr. Redford, James Hyde stated words to the effect that, following their meeting last week, Mr. Redford was to receive $13,520.00 covering the purchase of plant and equipment in the two invoices referred to above (invoices of 10th April and 19th June 1995), less $20,000.00 “you had with the company”.

39   The minutes of a directors’ meeting on 16th October 1997 recorded that, after much discussion, it was agreed that pricing between the two companies should reflect market rates, but take into account that Trend was a captive customer.

40   The accounts for the year 1996-7 were adopted at a directors’ meeting on 31st October 1997. These accounts showed a profit after provision for income tax of $237.00. They showed the cost of goods manufactured as $1,804,185.00 (including cost of materials $669,702.00) and operating expenses of $181,178.00. In that year, about 10.4 million bottle and 7 million caps were manufactured, giving an average cost of manufacture of about 9.5 cents per bottle, apart from materials (although the plaintiffs’ calculations show 9.01 cents per bottle).

41   In the latter half of 1997, the correspondence between Mr. Redford and James Hyde became increasingly acrimonious. There are in evidence two letters dated 18th December 1997 from Mr. Redford to James Hyde. The first was sent by facsimile, and the second apparently delivered on 19th December 1997. The second concerned among other things a conflict about an alleged overpayment of Mr. Redford’s wages. It included the following paragraphs:

You say you cannot allow me to spend money Willy-Nilly without any regard for the company structure. When things settle down in the new year you will decide how money is to be spent so that the company does not go into receivership is indeed a slap in the face in light of the personal property I have used within the company to the benefit of the company and from this day onwards you can purchase any equipment for breakdowns, R&M improvements etc because the way you want to run Alanda there will never be any of Alanda’s own money to spend on keeping the company going 24 hours.

To name only a few of the personal property within the company being used for the last 6 years is as follows:-

1. 3 welders 10. Electric drills
2. Power drills 11. Blow pins
3. Power jigsaws 12. Cold cutters
4. Drill bits 13. Extrusion gear blanks
5. Milling machine 14. Blow pin blanks
6. Milling bits 15. Oxy set & tips
7. Power hacksaw 16. Lathe centres
8. Guillotine 17. Mill vice.
9. Surface grinder
There are more which I will give you a full list of in the new year.
There are a lot of things I have used and purchased for the company and have not bothered to claim or mention them so your statement about not seeming to know the importance of spending money is not correct.

42   James Hyde replied to the first of those letters, but not the second. According to a facsimile which he sent on 22nd December 1997, he did not read the second letter until that morning. The facsimile stated that he would reply in full to that letter that day; but it appears that he did not do this. He suffered an injury which substantially damaged his vision on 24th December 1997, and did not subsequently respond to the letter.

43   The minutes of a directors’ meeting held on 11th February 1998 recorded that James Hyde advised the meeting that the new prices for products supplied to Trend had not been implemented; and that James Hyde proposed that they “should reconsider the original arrangement of price equating to cost plus 10%”.

44   On 17th March 1998, Mr. Redford met James Hyde at his office at Frenchs Forest. Mr. Redford handed Mr. Hyde a letter bearing that date, in the following terms:

I wish to tender my resignation as Managing Director of Alanda Plastics as of 17th March 1998.

My reasons for this resignation are many and I will submit a detailed letter to a board meeting which I would like to call this week at Trend Laboratories say 10am any day.

45   Mr. Redford also handed Mr. Hyde a proposal for a wage package for Craig Watson, who at that time was Envirolabs’ technical manager.

46   Mr. Redford asserts, but Mr. Hyde denies, that on this occasion, Mr. Redford also handed him two further letters. The first was a letter headed “Letter of Demands” in the following terms:

1. Sum of $500,000.00 which represents dividends which should have been received over the last 6 years.

2. Sum of $250,000.00 for the purchase of my shareholding.

3. Sum of $200,000.00 which represents the purchase of goods used over the last 6 years by Alanda Plastics. As per letter to yourself 12/97 and such payment to be made immediately or goods will be removed immediately.

All of the above are negotiable because of Trends Cash Flow. A time payment scheme could be implicated.

47   The second disputed letter is headed “Conditions Suitable For Both Parties”, and is in the following terms:

1. No need for a Managing Director in current Company structure therefore propose the following -
(a) Managing Directors position to cease and become consultant on part-time basis averaging 20 hours per week. This would result in a hefty salary decrease agreeable by both parties.
(b) Six months notice of termination of this position by either party to ensure both parties are secure.
(c) Current key staff receive new packages to fit in with increased responsibilities and fall in line with precedents set in printing.

2. Under the above proposal Trend Laboratories would have full control of Alanda Plastics and this may work to both parties mutual benefit.

3. If these conditions are agreed to then more time would be generated to try and repair damage to my personal life.

48   It is common ground that at this meeting James Hyde said words to the effect that he accepted Mr. Redford’s resignation; and it seems to be common ground that an arrangement was made for a meeting to be held at Frenchs Forest at 10am on Friday 20th March 1998. There is dispute as to further conversation.

49   On 18th March 1998, James Hyde had a notice put up at the Lisarow factory to the effect that Mr. Redford had resigned as managing director, and that Mr. Redford would be talking with Steven Hyde and James Hyde about taking up another position within the company or acting as a consultant.

50   On the evening of 18th March 1998 and on 19th March 1998, Mr. Redford removed from the Lisarow factory certain property claimed to be his, including a lounge suite.

51   On 19th March 1998, James Hyde arranged for a locksmith to attend on 20th March 1998 to change locks on the gates and building at the Lisarow factory.

52   On 20th March 1998, at about 10am, Mr. Redford arrived at the Lisarow factory with his wife in his wife’s car. He became aware that a locksmith was there changing locks. While he was there, the compressor servicing the machines became overheated because of a plastic bag across its air intake, and the machinery in the factory shut down. While the machinery was shut down, Mr. Redford removed the blow pin from each of the nine blow moulding machines, rendering them inoperable.

53   At about this time, there was a telephone conversation between Mr. Redford and James Hyde, and it is common ground that in this conversation, Mr. Hyde said words to the effect that Mr. Redford should come and attend the meeting that had been arranged. Otherwise, there is dispute as to the terms of that conversation.

54   After Mr. Redford left with the blow pins, a complaint was made on behalf of Envirolabs to the police alleging the taking of property of Envirolabs.

55   There are in evidence a number of documents produced on that day and in relation to events of that day.

56   First, there is a handwritten facsimile apparently sent at about 12.54pm by Mr. Redford to Envirolabs, in the following terms:

I formally request permission to enter Alanda Plastics and remove my personal property.

These properties belong to myself and you have no right to restrict my access to these.

57   Secondly, there is a typed facsimile sent by Steven Hyde to Mr. Redford, apparently at about 1pm, in the following terms:

Confirming our telephone conversation at 12.15pm today, the meeting, which you called at 10am this morning and did not attend, has been adjourned until 3.15pm this afternoon.

As advised, one of the resolutions which will be put to the directors is that you be summarily dismissed from your employment with Envirolabs Pty. Limited for serious and wilful misconduct having regard to the events that have occurred over the past days.

58   Thirdly, there is a facsimile sent by P.J. Donnellan & Co., solicitors acting for Mr. Redford, to Trend, apparently in the early afternoon of that day. This facsimile is in the following terms:

We wish to advise that we act for Mr. Alan Redford, formerly Managing Director of Envirolabs Pty. Limited t/as Alanda Plastics. Our client remains as a shareholder of Envirolabs Pty. Limited.

Our client instructs us that recently he gave notice to Envirolabs Pty. Limited and to the Directors of Trend Laboratories Pty. Limited that he intended recovering certain equipment of his, including nine (9) blow pins which are a component part of plastic blow-moulding machines.

We are informed by our client that he was today to have had a meeting with the other Directors of Envirolabs Pty. Limited and Trend Laboratories Pty. Limited but that meeting was declined by those other Directors because Mr. Redford insisted on having a witness present.

Our client now understands that a complaint has been made to the police concerning the removal by him of the nine (9) blow pins referred to above which he contends are his property and about which he gave notice of his intention.

If that be the case, we are instructed to inform you that our client views such a complaint with the utmost seriousness and will avail himself of every remedy at law, including damages, should any action be taken in regards to that complaint and should he or his reputation suffer.

You are therefore required, if such a complaint has been made, to withdraw it forthwith. You would be well aware that our client has a claim of right to the nine (9) blow pins; namely that those blow pins are his property. We refer you to his facsimile transmission of 16 May 1996 which confirms this. If that claim of right is disputed by you then you would be well aware that the proper forum to resolve such a dispute is in a civil court.

We recommend this matter to your urgent attention. We advise you that our client will proffer a copy of this letter to any member of the police force who might call upon him.

59   There are minutes of a directors’ meeting of Envirolabs held at 3.15pm on 20th March, noting as in attendance Jim Hyde and Steven Hyde, and noting as not in attendance Alan Redford. The minutes record the following:

It was noted by the Chairman that the meeting was originally called by Alan Redford at 10:00 am to provide reasons for his resignation as Managing Director of the company. Mr Redford did not arrive for this meeting as he was at the Lisarow premises. The meeting was subsequently adjourned until 3:15 pm. Mr. Redford has also not attended this adjourned meeting despite being contacted by telephone at 12:15 pm and advised of the time of the adjourned meeting (which was also confirmed by fax to his home fax number) and his commenting "that gives me enough time".

NOTICE OF RESIGNATION OF MANAGING DIRECTOR
The Chairman presented to the meeting the Letter of Resignation tendered by Alan Redford dated 17 March 1998 and confirmed that the resignation was accepted by him on behalf of the company on that date.

It was resolved that Steven Hyde be appointed Managing Director of Envirolabs Pty Limited effective immediately.

RESOLUTION TO TERMINATE THE EMPLOYMENT OF ALAN REDFORD
Steven Hyde presented to the meeting a resolution as follows:

That Mr Alan Redford be dismissed from the employ of the company without notice or payment in lieu of notice for serious and wilful misconduct so that his employment is terminated immediately upon the passing of this resolution having regard to the following:

1 the action taken by Mr Redford in entering the upon the company's premises at Lisarow and removing and taking away from those premises on 18 March 1998, 19 March 1998 and 20 March 1998 various items of property owned by the company or Trend Laboratories Pty Limited without the knowledge or consent of the company or Trend Laboratories Pty Limited:

2 the action taken by Mr. Redford when he entered the company's premises on 20 March 1998 which resulted in the company's factory operations coming to a complete standstill, which action included the removal of all blow pins from the 9 extrusion blow-moulding machines used by the company to carry out its business;

3 the unauthorised use by Mr Redford of a company vehicle which had been provided to another employee of the company without that employee's knowledge or consent.

The above resolution was passed.

CORRESPONDENCE RECEIVED FROM MESSRS P J DONELLAN & CO
Steven Hyde presented to the meeting a faxed letter received earlier today from Messrs PJ Donellan & Co solicitors on behalf of Alan Redford. Steven Hyde also presented to the meeting 2 draft letters prepared during the course of the afternoon by our solicitors, Messrs Michell Sillar. The first letter was addressed to Alan Redford and the second to his solicitors Messrs PJ Donellan & Co.

It was resolved that both letters prepared by Messrs Michell Sillar be forwarded at the conclusion of the meeting. It was also resolved that the company take the action stated in both letters should we or our solicitors not receive the responses or undertakings demanded in each letter.

There being no further business, the meeting was declared closed.

60   Next, there is a facsimile apparently sent by Envirolabs to Mr. Redford at about 4.30pm, in the following terms:

I note that you failed to attend the meeting of directors of this company which had been convened, at your request, for 10:00 am today. I confirm that at approximately 12:15 pm today you were notified by telephone and facsimile that the meeting had been adjourned to 3:15 pm today.

I am informed by members of the company's staff at Lisarow that earlier today you attended the company's premises and caused the company's factory operations to come to a standstill by placing a plastic bag over the air compressor located in the compressor room outside the factory proper, thus causing the compressor to overheat and the extrusion moulding and injection moulding machines located in the factory to cease to operate, and by then removing all of the blow pins from those machines.

I am further informed by members of the company’s staff at Lisarow that you left the company's premises after taking the action referred to in the preceding paragraph driving a Holden Commodore vehicle leased by Trend Laboratories Pty Limited for use by one of the other employees of the company without the knowledge or consent of the company or the employee in question.

I am further informed that as well as the blow pins removed by you from the company's machines this morning, you have also removed and taken away from the company's premises at Lisarow without the company's knowledge or consent various other items of property owned by the company or Trend Laboratories Pty Limited.

The actions taken by you in removing from the company's premises at Lisarow without the knowledge or consent of the company or Trend Laboratories Pty Limited property owned by either company and in causing the company's factory operations to come to a standstill are regarded by the company as serious and wilful misconduct by you in your capacity as an employee of the company and as a breach by you of the duties you owe to the company as a director. In taking this action, you have clearly evinced as intention to no longer be bound by the terms of your employment contract. In these circumstances, it was resolved at today's adjourned board meeting to immediately terminate your contract of employment with the company.

We now require you to immediately return to the company all items of company property which you have removed and taken from the company's premises, including the blow pins referred to above.

You are also required to immediately return to Trend Laboratories Pty Limited the Mitsubishi Pajero previously provided to you consequent upon your appointment as Managing Director of the company (which position you ceased to occupy upon the company's acceptance on 17 March 1998 of your letter of that date tendering your resignation as Managing Director) and the Holden Commodore vehicle which you have wrongfully taken from the company's premises and used this morning.

You are also required to refrain from approaching or entering upon the company's factory premises at Lisarow.

In the meantime, this company is taking steps to recommission the machines which ceased to operate as a result of your actions today.

The company has also reported to the Police the action taken by you whilst you were present at the company's factory premises this morning

The company has also instructed its solicitors to take appropriate action on its behalf.

Such action will, of course, include seeking to recover from you all loss and damage the company has suffered as a result of the actions taken by you this morning. This loss and damage will include, but not be limited to, the cost of obtaining replacement blow pins for the blow pins you removed from the machines, recommissioning the machines and repairing any damage to the machines caused by your actions.

61   Finally, on that day, there is a letter apparently sent by facsimile at about 6.00pm from Michell Sillar, solicitors acting for Envirolabs and Trend, to P.J. Donnellan & Co. That letter was in the following terms:

We act for Envirolabs Pty. Limited trading as Alanda Plastics (“Envirolabs”). We also act for the ultimate holdings company of Envirolabs, Trend Laboratories Pty. Limited (“Trend”).

Our clients have referred to us your letter to Trend of 20 March 1998. We are instructed to reply to that letter as follows:

1. Other than the enclosed copy facsimile from your client to Envirolabs of today’s date (which we note was not transmitted until 12.54pm today), neither Envirolabs nor Trend has received from your client either oral or written notice that he intended recovering any equipment alleged by your client to be his property.

2. The blow-moulding machines referred to in your letter consist of 9 extrusion moulding machines and 4 injection moulding machines located at Envirolabs’ factory premises at Lisarow. Those machines and all their component parts, including the blow pins, were purchased by Trend and have at all relevant times been owned by Trend. Your client was the Managing Director of Envirolabs at the time the machines were purchased and as such was aware of the purchase. At no stage during the process of the purchasing of the machines did your client notify or otherwise indicate to our clients that it was his intention to purchase for himself the blow pins or any other component parts of the machines. According to our clients’ records, the machines and all their component parts were purchased by Trend. Neither of our clients has any record of having received the facsimile transmission of 16 May 1996 referred to in the penultimate paragraph of your letter.

3. The meeting to which you refer in the third paragraph of your letter was a meeting of the directors of Envirolabs which, at your client’s request, had been convened for 10.00am today. Your client failed to attend that meeting. Subsequently your client was notified by our client that the meeting had been adjourned to 3.15pm today. When your client was so notified he said words to the effect “That gives me enough time”. Notwithstanding this statement, your client also failed to attend the adjourned Directors Meeting. At no time did the other directors of Envirolabs decline to proceed with the meeting as a consequence of your client’s request to have a witness present. Our client’s Chairman did indicate to your client, after your client had requested that his wife attend the meeting with him as an independent witness, that the other directors would prefer the independent witness to be someone other than your client’s wife.

4. The Police were notified by our clients of the removal of the blow pins. Our clients considered that they were entitled to so notify the Police as they maintain the blow pins are the property of Trend. Our clients also notified the Police of the damage occasioned to the machines as a result of the removal of the blow pins. Our client is not prepared to withdraw the complaint lodged with the Police. However, our clients are prepared to inform the Police of your client’s allegation that he is the owner of the blow pins. In so doing, our clients will, of course, also inform the Police that your client’s allegation is contested. In providing this information to the Police our clients do not admit, and are not to be taken to having admitted, that there is any merit in your client’s claim to be ownership of the blow pins.

We are further instructed in this matter as follows:

1. Until 17 March 1998 your client was the Managing Director of Envirolabs.

2. By your client’s letter dated 17 March 1998 to the Chairman of the board of directors of Envirolabs, Mr. Jim Hyde, your client formally tendered his resignation as Envirolabs’ Managing Director effective from 17 March 1998, which resignation was accepted by Envirolabs.

3. At the time of tendering your client’s resignation as Managing Director of Envirolabs, your client also indicated to Mr. Jim Hyde that in the near future he intended to also resign as a Director of Envirolabs.

4. As the Managing Director of Envirolabs, your client was provided with a Mitsubishi Pajero motor vehicle for both company and private use, which vehicle was leased by Trend.

5. On the evening of 18 March 1998, your client and his wife attended at the factory premises of Envirolabs at Lot 3, Sunnybank Road, Lisarow and removed and took away from those premises various items of property owned by Envirolabs or Trend without the knowledge or consent of Envirolabs or Trend.

6. On 19 March 1998 your client again attended at the factory premises of Envirolabs and removed and took away from those premises further items of property owned by Envirolabs or Trend without the knowledge or consent of Envirolabs or Trend.

7. On the morning of 20 March 1998 your client again attended at the factory premises of Envirolabs and removed and took away from those premises further items of property owned by Envirolabs or Trend without the knowledge or consent of Envirolabs or Trend.

8. When your client attended the factory premises of Envirolabs on 20 March 1998 your client took certain action to cause the factory operations of Envirolabs to come to a complete standstill. This action included causing an air compressor located outside the factory to overheat and cease to operate by covering the air compressor with a plastic bag, and removing all blow pins from the 9 extrusion moulding machines and the 4 injection moulding machines at the factory. These blow pins were included in the items of property owned by Trend which your client removed from the factory on 20 March 1998.

9. Your client left the factory premises of Envirolabs on 20 March 1998 using a Holden Commodore company vehicle leased by Trend which had been provided to another employee of Envirolabs, who had not authorised or consented to your client using the vehicle.

10. None of the items of property owned by Envirolabs or Trend which your client has removed and taken away from Envirolabs’ factory premises has been returned by your client.

11. The Holden Commodore which your client used to leave Envirolabs’ factory premises on 20 March 1998 has not been returned by your client to Envirolabs, Trend or the employee who is entitled to use it.

12. Your client failed to attend a Directors Meeting which, at your client’s request, had been convened for 10.00am, 20 March 1988 (sic). That meeting was subsequently adjourned to 3.15pm on 20 March 1998 and notice of this adjournment was given to your client by telephone and by facsimile at approximately 12. 15pm on that day.

13. At the adjourned Directors Meeting held at 3.15pm on 20 March 1998 it was resolved that your client be summarily dismissed from the employ of Envirolabs so that your client’s employment as General Manager was terminated immediately upon the passing of that resolution.

14. It is not possible for Envirolabs’ factory operations to resume until the blow pins your client removed from Envirolabs’ machines on 20 March 1998 have been returned or Envirolabs has obtained replacements for those blow pins.

15. The actions taken by your client in causing the factory operations of Envirolabs to come to a complete standstill have resulted and will continue to result in Envirolabs suffering significant loss and damage.

It is contended by our clients that in the circumstances set out above:

1. Neither your client nor your client’s wife were entitled to attend at Envirolabs’ premises at Lisarow on 18 March 1998 and remove and take away from those premises items of property owned by Envirolabs or Trend without the knowledge of Envirolabs and Trend (as the case may be).

2. Your client was not entitled to attend at Envirolabs’ premises on 19 March 1998 and 20 March 1998 and remove and take away from those premises items of property owned by Envirolabs or Trend without the knowledge of Envirolabs and Trend (as the case may be), including the blow pins referred to above.

3. Your client was not entitled to take the actions your client took on 20 March 1998 which resulted in the factory operations of Envirolabs coming to a complete standstill, which actions (together with the other action taken by your client in removing property owned by Envirolabs or Trend from the factory premises of Envirolabs without the knowledge or consent of Envirolabs or Trend (as the case may be)) amount to serious and wilful misconduct justifying your client’s summary dismissal from the employ of Envirolabs. Such conduct also constitutes a repudiation by your client of your client’s employment contract with Envirolabs which Envirolabs may (and has) accepted so as to terminate the contract.

4. The action taken by your client referred to above is in breach of your client’s duties as a Director of Envirolabs.

5. Following your client’s resignation as Managing Director of Envirolabs, your client is no longer entitled to retain or use the Pajero company vehicle previously provided to your client by Envirolabs. Accordingly, your client is obliged to immediately return to Trend this vehicle, together with all keys, registration papers, insurance documents and manuals relating to the vehicle.

6. Your client was not entitled to use the Holden Commodore company vehicle which was used by him to leave Envirolabs’ factory premises on 20 March 1998 or to continue to retain possession of that vehicle.

Accordingly, your client is required to immediately return to Trend:

(a) the Mitsubishi Pajero, together with all keys, registration papers, insurance documents and other manuals relating to that vehicle;

(b) the Holden Commodore which your client used to leave the factory premises of Envirolabs on 20 March 1998, together with all keys relating to that vehicle.

On clients are also concerned that your client may attempt to again enter upon and remove from Envirolabs’ factory premises at Lisarow other property owned by Envirolabs or Trend. If your client seeks to have access to those premises for the purpose of removing property which he alleges to be his personal property, he is requested to identify such property. If our clients then satisfy themselves that the property is the personal property of your client, arrangements will be made for the property to be delivered to your client’s premises at a mutually convenient time (however, our client notes that an inspection this afternoon of your client’s former office at Envirolabs’ factory revealed that most of the contents of the office, including files belonging to our clients, had been removed).

In those circumstances, we have been instructed to require your client to provide the following written undertakings to our clients:

1. An undertaking to return to Envirolabs by 5.00pm Tuesday, 24 March 1998, all items of property of Envirolabs which your client and/or your client’s wife removed from Envirolabs’ factory premises at Lisarow on 18 March 1998.

2. An undertaking to return to Trend by 5.00pm Tuesday, 24 March 1998, all items of property of Trend which your client and/or your client’s wife removed from Envirolabs’ factory premises at Lisarow on 18 March 1998.

3. An undertaking to return to Envirolabs by 5.00pm Tuesday, 24 March 1998, all items of property of Trend which your client removed from Envirolabs’ factory premises on 19 March 1998 and 20 March 1998.

4. An undertaking to return to Trend by 5.00pm Tuesday, 24 March 1998, all items of property of Trend which your client removed from Envirolabs’ factory premises at Lisarow on 19 March 1998 and 20 March 1998 including the blow pins referred to above.

5. An undertaking to return to Envirolabs by 5.00pm Tuesday, 24 March 1998, all keys to Envirolabs’ premises at Lisarow and Trend’s premises at Frenchs Forest, and all other items of property owned by Envirolabs or Trend which came into your client’s possession during the course of your client’s employment with Envirolabs. These items include a mobile phone and a ShellCard.

6. An undertaking not to approach or enter upon the factory premises of Envirolabs at Lisarow.

7. An undertaking not to remove by himself, or by anyone of his behalf, any other items of property owned by Envirolabs or Trend wherever such items may be located.

8. An undertaking not to approach, communicate or otherwise contact any employees of Envirolabs or Trend whilst such employees are in the course of their employment with Envirolabs or Trend, and not to otherwise approach, communicate or otherwise contact such employees in connection with the business and undertakings of Envirolabs or Trend.

If your client fails to comply with our clients’ request for the immediate return of the Mitsubishi Pajero and the Holden Commodore company vehicles referred to above and the undertakings requested above have not been provided by 5.00pm Monday, 23 March 1998, an application to the Court for appropriate interlocutory relief will be made by our clients without further notice to your client.

In any event, our clients will be taking action to recover from your client the loss and damage which has been, and continues to be, suffered as a result of the actions taken by your client today which caused the factory operations of Envirolabs to come to a complete standstill, as well as all loss and damage suffered as a result of breaches by your client of his duties as a Director of Envirolabs.

62   P.J. Donnellan & Co. responded with a letter dated 24th March 1998, in the following terms:

We refer to your letter of 20 March 1998. We are instructed to reply to the numbered paragraphs as follows:

Your letter of allegations dated 20 March 1998 - Pages 1 and 2.
1. This is denied. Mr James Hyde who is a Director of both Envirolabs Pty Limited ("Envirolabs") and Trend Laboratories Pty Limited ("Trend") has been engaged in a long running dispute concerning our client’s personal property being used in the business. This dispute has its origins as early as 1996. On 16 May 1996 our client sent a facsimile transmission to Mr Hyde at 14.51 dealing with this issue. The transmission report indicates that it was received by Trend. We enclose a copy of that facsimile report Appendix A. You will see that Mr Redford complains of the use of his personal equipment and, in particular, mentions the blow pins and, in the context of the transmission, refers to earlier requests to which he had not had an answer. Further, when our client purchased shares in Envirolabs on 30 June 1992 (recorded in Envirolabs' Minutes of that date) the assets purchased from our client at that time were referred to in the Minutes as "the attached list". The items of personal property recently recovered by our client, including the blow pins, were not included in that list and were never purchased by Envirolabs. We enclose a copy of that list Appendix B.

Further, by an invoice dated 10 April 1995, our client sold certain items of his personal property to Trend for the sum of $23,800.00. The now disputed items were not amongst them and your client took almost four years to pay. We enclose a copy of that invoice Appendix C.

On 17 March 1998 our client delivered to Mr Hyde a letter Appendix D hereto which listed certain matters in issue between he and Envirolabs. Item 3 in that letter refers to "goods used over the last 6 years by Alanda Plastics". Item 3 also refers to a lengthy letter of December 1997 addressed to Mr Hyde which also referred to those goods. In particular, at page 3 of that letter, are listed the items of personal property which were "within the company being used for the last 6 years...”. Item 11 (in that list) is the blow pins. We enclose a copy of the letter of 18 December 1997, Appendix E.

The facsimile transmission of 20 March 1998 was only sent because Mr Hyde contended to our client on 18 March 1998 that he had not received the letter of 17 March 1998, notwithstanding the fact that our client had handed it to him personally at Trend at Frenchs Forest.

Accordingly, the assertion made that there was no prior notice is rejected.

2. Our client does not dispute that the blow moulding machines belong to Envirolabs. Those machines were purchased complete with installed blow pins. The blow pins which our client recovered were his own. The blow pins which were delivered with the machines are still at the factory. Our client utilised his blow pins in the machines, as Mr Hyde well knows, because he believes they were superior. The blow pins which our client recovered and which are his property were obtained by him prior to 1992 and before he joined Envirolabs. This point bears repeating: your client purchased the blow moulding machines complete with pins. Our client had his pins from a time prior to joining your client company. Your client company utilised our client's blow pins because he believed they were superior.

The fact that your client asserts that it has no record of having received the facsimile transmission of 16 May 1996 is extraordinary given the successful transmission report which issued, given its terms, given the subsequent discussions between the parties (about which there will be parol evidence), given the letter of 18 December 1997 and given the knowledge of other employees (about which there will be parol evidence).

3. The meeting to which you refer in the paragraph numbered 3 of your letter was not a meeting of Directors of Envirolabs, so far as our client was concerned. Our client had resigned. As to this, see more later. The meeting was called to address some outstanding issues and was to be attended by our client and Ms Nicole Cooper, the office manager at Lisarow. This was because previously our client had complained about the standard of minute taking. Ms Cooper was to take an accurate record of the meeting for our client. Our client did not attend the meeting because he was refused permission to bring Ms Cooper with him. She, we are instructed, was told she would lose her job. When the meeting was postponed to 3.15 on the 20th, our client could see no point in attending because permission had also been denied to bring his wife as an independent witness. We repeat this was not a Directors Meeting. Our client had resigned as a Director and our client was seeking a meeting with the remaining Directors to resolve outstanding issues and to discuss a consultancy. To assert, as your client apparently does, that the Chairman only indicated that his objection was to our client’s wife as being independent, is to ignore the actions taken in respect of the attendance of Ms Cooper.

In relation to our client’s resignation: our client, by letter dated 17 March 1998, resigned as Managing Director. Our client intended, by that letter, to resign both as Managing Director and as Director. At a meeting with Mr. Hyde on 17 March 1998 and upon Mr. Redford rendering this resignation, Mr. Hyde said to him “Do you wish to resign as a Director also.” Mr. Redford replied “Yes”. So much is borne out by a further letter dated 17 March 1998 which Mr. Redford delivered to Mr. Hyde, Appendix F, in which Mr. Redford proposes his employment, after resignation, as a consultant. So much is also borne out by your client’s own published facsimile transmission to the factory staff at Lisarow.

The circumstances of our client's resignation are also referred to in paragraph No. 3 on page 5 hereof

4. The contents of this paragraph are noted. We would have thought that, given the contents of that paragraph, in particular the last three sentences, it would be prudent for your client to withdraw the complaint entirely. It cannot be the case that there can be a subsisting complaint (which can only amount to theft) when your clients acknowledge that the issue of property and our client’s claim of right will need to be the subject of proceedings in another forum.

Your clients should consider their position carefully because of the damage to our client's reputation for which he will vigorously seek recompense.

Page 2 of the letter of allegation of 20 March 1998
We note that you have begun the numbering of paragraphs anew rather than to continue them sequentially. We will adopt your numbering in reply:

1 Our client was the Managing Director of Envirolabs from June 1992 until 17 March 1998. Our client resigned as a Managing Director and Director on 17 March 1998. As to the circumstances of the resignation see paragraph No. 3 on page 5 hereof.

2. See 1 above.

3. This is disputed. At the time of tendering his resignation, our client was enquired of by Mr James Hyde as to whether or not he wished to resign as a Director of Envirolabs also. Our client indicated that he did. See paragraph 1 above.

4. Agreed, except that our client is not aware of the circumstances of the lease.

5,6,7. The allegations in their terms are denied. Our client attended at the premises and removed those items of his property previously notified and, in particular, notified in the letter of 18 December 1997, which were never the property of either Envirolabs or Trend. Nor were the items removed without your client's knowledge. Notice was given on at least two occasions in writing and orally on 18 March 1998 when Mr Hyde claimed that he had not received the letter of 17 March 1998, causing the further facsimile transmission to be sent.

8. This is denied. This allegation is defamatory of our client and should be withdrawn forthwith. We are instructed to provide that opportunity. It was our client who, upon attending the premises, heard in the first five minutes when he did so that the air compressor was labouring for oxygen. He, upon inspecting it, found that it had overheated and had shut itself down. This air compressor is not outside the factory as you say but inside the factory and this type of air compressor, a rotary screw compressor, needs several hours before it will overheat, causing it to shut down. In other words, whatever the obstruction, which is now thought to be a luncheon plastic bag, it had been depriving the compressor of oxygen for some time. The allegation that either our client placed the bag where it would deprive the machine of oxygen or did it for the purposes of removing the blow pins is denied. Further, it is denied that the blow pins or any of the items of property which our client removed from the factory on 20 March 1998 are owned by Trend. All such items were our client's property.

9. Our client sought the permission, of the company employee referred to, to use the car because the Pajero would not start. The car was collected by the employee the following morning.

10. This allegation in its terms is denied. None of the property was owned by Envirolabs or Trend. Our client owns the property and will not return it.

11. This is denied. See 9 above.

12. Our client did not fail to attend a Directors Meeting. This, we repeat, was not a meeting of Directors but was a meeting which had been arranged to resolve outstanding issues being mainly those issues particularised in our client's letter of 18 December 1997 and 17 March 1998. When your client refused to allow either Ms Cooper or our client's wife to attend he declined to attend.

13. Our client was never the General Manager. The adjourned meeting was not a Directors Meeting so far as our client was concerned. The dismissal is disputed - our client had already resigned. For the circumstances of his resignation see paragraph No. 3 page 5 hereof.

14. This is denied. Your client is in possession of the blow pins which were delivered with the machines when they were delivered from the manufacturer. There is no question of replacements for the blow pins - the blow pins are presently available at Lisarow in the factory. They are the original blow pins.

15. This is denied.

Page 4 of the letter of allegation of 20 March 1998
We note that you have again begun the numbering of paragraphs anew rather than to continue them sequentially. We will adopt your numbering in reply.

1. This is denied. Our client had a claim of right. He had previously given notice of his intention to remove his property. That property had been the subject of a long running dispute with your clients and was particularised in some detail in the letter of 18 December 1997.

2. This is denied. See 1 above.

3. This is denied. Not only did our client not do anything which brought the factory to a complete standstill but those steps which he took in execution of his claim of right, with the knowledge of your client, do not in any way amount to serious and wilful misconduct. The question of repudiation does not arise from our client's conduct. Our client resigned as Managing Director and Director because of the conduct of your client fully particularised in his letter of 18 December 1997. His resignation was forced upon him by your clients' conduct, details of which are set out in that letter. That conduct constituted breaches of his employment contract which, by their magnitude, constituted a repudiation of his contact which he then accepted by offering his resignation.

Our client reserved his right to substantial damages and, of course, all his entitlements at law including holidays, leave and superannuation

4. This is denied.

5. This will be returned when our client has time to make alternative transportation arrangements.

6. This is denied. The employee who had custody of the Holden Commodore gave our client permission to use it. It has since been collected by that employee.

Page 5 of the letter of allegation of 20 March 1998
We note that you have again begun the numbering of paragraphs anew (this time alphabetically) rather than to continue them sequentially. We will adopt your numbering in reply.

(a) See 4 above

(b) See 5 above

As to the unnumbered paragraph concerning our client's present intentions to return to the property: if our client proposes to do so, he will (as he did before) give adequate notice.

He now proposes to seek to collect the following further items by giving 48 hours notice to the Lisarow management:-

Stessel tri hull boat
Johnson outboard motor
Honda Civic motor
Gerni pressure cleaner
2 wardrobes
2 air conditioners
Drink machines
Garden barbecue table and chair set (green)
Hare & Forbes mill
Mill cupboard
Sliding file cabinets
Herless surface grinder
DME mould clamps
Boat auxiliary equipment
2 fans
Power hack saw (green)


Page 5 of the letter of allegation of 20 March 1998
We note that you have again begun the numbering of paragraphs anew rather than to continue them sequentially. We will adopt your numbering in reply.

1,2,3,4. Our client does not proposed (sic) to give the undertakings in the paragraphs numbered 1, 2, 3 and 4, at the bottom of page 5 and at the top of page 6 of your letter.

5. Our client will agree to return the keys to which you refer by express post despatched no later than Friday 27 March 1998. It is not understood what you mean by "all other items of property...”. Please specify. The mobile phone and ShellCard will also be returned by express post.

6. Our client is not prepared to give the undertaking in paragraph 6 of your letter except to say that if he intends to approach or enter upon the factory premises he will give adequate notice. In the circumstances, where your clients still retain some of our client's property, such an undertaking is inappropriate where our client asserts a claim of right.

7. Our client will not give the undertaking referred to in paragraph 7 of the letter, it is of no utility. Of course our client will not take or remove property which is not his. Such an undertaking merely states the law.

8. Our client will not give the undertaking referred to in paragraph 8; whilst he agrees not to communicate with employees while they are in the course of their employment he cannot and will not be constrained from otherwise approaching them. As we have said previously there will be parol evidence in this matter given by witnesses other than our client and his wife. There is no property in a witness.

As to the last paragraph at the foot of page 6 of your letter (unnumbered): this has been dealt with above. There is no need to seek urgent interlocutory relief (nor would it be given it) in the circumstances which we have detailed in this letter.

As to the last paragraph of your letter, the contents have been noted.

Cross-Claim
Your client has threatened often and much in your letter. There is another circumstance about which you must be made aware. It was the case that, as at 30 June 1992, an agreement was reached between Mr Hyde and Mr Redford at a meeting of the Board of Directors of Envirolabs that Envirolabs “...would make a 10% profit on bottles sold to Trend Laboratories Pty Limited. This percentage may be adjusted, if necessary, at the discretion of the Directors".

Our client has, for some time now, been seeking financial information from your client concerning the amount of profit comprising 10% on all bottles sold by Envirolabs to Trend. The value of the merchandise sold over the almost six years amounts to approximately $10,000,000. The profit is substantial. Notwithstanding our client's repeated requests made both orally and in writing no particulars or an accounting have been provided by Trend nor by Envirolabs to our client of the "10% profit".

You would also be aware that our client is a shareholder of the Company. He is, in truth, an aggrieved shareholder, who will now move the Court to seek the winding up of Envirolabs and to seek that accounts be taken by the Liquidator as between Envirolabs and Trend to establish a full and accurate accounting of the profit to which Envirolabs is entitled. These proceedings will be taken without further reference to you. It may well be the case that they are constituted in the proceedings which your client threatens.

General
A. Given that:
(i) Our client gave adequate notice of his intentions; and
(ii) Your clients did not take steps to approach the Court for injunctive relief; and
(iii) Envirolabs has in its possession, in any event, blow pins which will allow the Company to function and not suffer loss or damage;
your clients' threats (for that is what they are) are empty. It will not succeed in obtaining interlocutory or final injunctive relief upon these facts and it will certainly not succeed in damages.

B. Our client is in possession of a Canon Printer of Envirolabs which will be returned before the end of the week. Mr Redford was looking at modifying this because it was not functioning properly.

C. There was an incident some years ago when your clients' Mr Hyde attempted, by stickers encoded with numbers, to claim that certain items of personal property of our client and others was his own or either or both of the companies'. This attempt was objected to by all the then owners, including our client, and a list was compiled and retained.

Your clients claimed (through Mr Hyde), for example, our client's barbecue table and chair garden setting. Your clients were rebuffed then from this process of appropriation. They will be similarly rebuffed now.

63   That letter enclosed as appendices copies of a number of documents. Appendix A comprised the disputed facsimile of 16th May 1996, and a copy of a transmission report (which however was shown at the hearing to be the report in respect of the undisputed one-page facsimile of 16th May 1996). Appendix B comprised the list of equipment sold attached to the minutes of 30th June 1995; Appendix C comprised the invoice dated 10th April 1995; Appendix D was the demand document dated 17th March 1998, the handing over of which is disputed; Appendix E was the letter dated 18th December 1997; and Appendix F was the other document dated 17th March 1998 the delivery of which is disputed.

64   These proceedings commenced with an application for an injunction made on 26th March 1998.

65   On 27th March 1998, P.J. Donnellan & Co. wrote to Michell Sillar noting an assertion in an affidavit by Steven Hyde in these proceedings that “enquiries have failed to disclose the location of the original blow pins”, and continuing:

We are instructed that they are to be found in a yellow fire-proof cupboard (which has red writing on the front) described as approximately 1.5m high and 2.0m in length and in a wooden box therein and that the yellow fire cupboard is located in the tool room in the factory at Lisarow.

66   In their reply dated 29th March 1998, Michell Sillar state the following:

We are instructed that a search of the cupboard referred to in the third paragraph of your letter was undertaken by one of the employees of Envirolabs Pty. Limited, Mr. Craig Watson, on Saturday 28th March 1998. That search revealed that there was present in the cupboard only one incomplete blow-pin body and one damaged blow-pin body. Consequently, neither of these blow-pin bodies can be used so as to enable any of the extrusion blow moulding machines to resume operation. Indeed, they are of no use to our clients whatsoever.

67   However, Craig Watson gave evidence that on 30th March 1998 he located four other blow pins in the storage warehouse at the Lisarow factory; that Mr. Redford collected all six blow pins found at the factory on the evening of 30th March, and returned them at about 3.15pm on 31st March; and that five of the six blow pins then worked satisfactorily in the blow moulding machines at the factory.

68   Meanwhile, by 25th March 1998, ten blow pins had been ordered from Avoca Engineering, at $397.00 each. It appears that they were supplied on or about 31st March 1998. The blow pins having been installed, one blow moulding machine was re-commissioned on 31st March 1998, three were re-commissioned on 1st April 1998, and the remaining five were re-commissioned on 2nd April 1998.

69   There are in evidence minutes of an extraordinary meeting of members of Envirolabs Pty. Limited held on 23rd September 1998, at which a resolution was passed that Mr. Redford be removed as a director of Envirolabs.

ISSUES

70   The first issue that needs to be dealt with is the credibility of witnesses, in particular Mr. Redford and James Hyde, but also Steven Hyde, Mr. Crawford, Mr. Gladwin, Mr. Watson and Nicole Florczak, another Envirolabs employee. In dealing with credibility, I will make a few findings as to disputed facts. I will not here deal with the credibility of expert witnesses, who have given evidence concerning accounting and other economic matters, and also concerning the market price of bottles. I will deal with that evidence separately.

71   The next issue I will consider is the terms of the original arrangement pursuant to which the Envirolabs business was set up. It was contended for Envirolabs and Trend that the arrangement was that Envirolabs would be permitted to make a profit if and when a target of producing bottles at the rate of 7.34 cents a bottle was achieved. Mr. Redford’s contention was that Envirolabs was to receive a profit of 10%, and that this was not conditional on the term suggested by Mr. Hyde.

72   Next, I will consider whether a case of oppression of Mr. Redford has been made out. This will involve also considering whether Mr. Redford is entitled to a remedy for oppression, in the light of his conduct, particularly in the light of his admitted taking of secret commissions. It will also involve considering the relevance and effect, if any, of certain accounting and other economic evidence.

73   Next, I will consider whether Envirolabs and/or Trend is entitled to a remedy arising from the taking of the blow pins by Mr. Redford, and if so, the extent of that remedy. This involves consideration of issues concerning the ownership of the blow pins, and also issues concerning the effect of any bailment of the blow pins. If a breach is found, it will be necessary also to consider the question of damages.

74   Finally, I will consider other claims made by the parties, in particular claims by Envirolabs in respect of other property of Envirolabs alleged to have been taken or lost by Mr. Redford; and claims by Mr. Redford for property alleged to be his and alleged to have been detained or lost by Envirolabs.

CREDIBILITY OF WITNESSES

75   Dealing first with Mr. Redford, Mr. Coles submitted that his evidence should not be accepted unless corroborated. He submitted that Mr. Redford had received secret commissions, refused on oath to acknowledge the true position, and indeed told a direct lie about it in his affidavit. Mr. Coles further submitted that the disputed facsimile bearing the date 16th May 1996 was a fabrication. He submitted that Mr. Redford’s evidence to the effect that, after a couple of months’ production at Riverstone, he had received no payment, and had complained that this was not as agreed and that he could not operate without payment, was plainly invented; and he submitted that Mr. Redford’s evidence concerning the directors’ meeting of 1st July, for example to the effect that he was unhappy about the meeting, was contradicted by Mr. Gladwin. Further points about Mr. Redford’s credibility are set out in written submissions furnished by Mr. Coles.

76   Dr. Birch submitted that it was unlikely in the extreme that the facsimile of 16th May 1996 had been fabricated. It was written on the 1996 edition of Alanda’s facsimile letterheads, which was different from the 1998 letterhead. He submitted that Mr. Watson had corroborated the sending of this facsimile, at least in the sense that Mr. Redford had told him that he had sent such a facsimile to Mr. Hyde.

77   I note that Mr. Watson’s evidence did not directly corroborate the sending of this facsimile: it was only to the effect that Mr. Redford had told him that he had sent a message or messages to Mr. Hyde asking for payment for equipment, and that this could have been in 1996; and such information could plainly have related to other communications of that type admittedly made on other occasions. The circumstance that this facsimile was produced by Mr. Redford, through his solicitor, attached to a transmission report that plainly related to another facsimile, causes me to be very suspicious as to whether the facsimile in question may be a fabrication. Certainly, having regard to my views on Mr. Redford’s credibility, to which I will come, I am not affirmatively satisfied that it was sent. However, I am not able to conclude affirmatively that it was a document dishonestly fabricated for the purpose of assisting Mr. Redford in this dispute.

78   However, I accept Mr. Coles’ other submissions, with the result that I consider that Mr. Redford did give dishonest evidence in this case, and that his evidence cannot be relied on unless corroborated by satisfactory evidence. In my opinion, he was plainly dishonest in accepting secret commissions, in seeking to conceal this from his employer, in attempting to explain this by reference to supposed services previously supplied to the payer of those commissions, and in falsely denying on oath that he received a secret commission. In my opinion, his evidence about delay in payment and a consequent conversation, early in the period when production began at Riverstone, was pure invention. In my opinion, his evidence that the minutes of meetings were false and that he protested about this, but ultimately gave up doing so, is also false. The minutes themselves, and the associated correspondence between Mr. Redford and Mr. Hyde, satisfies me that the minutes were reasonably accurate, and that there was no relevant protest by Mr. Redford about them.

79   As regards James Hyde, Dr. Birch submitted that he gave false evidence in relation to the preparation of the document dated 30th June 1992: Dr. Birch submitted that it could not have been prepared by Mr. Redford, but was prepared by James Hyde. Even on his own account, Dr. Birch submitted, Mr. Hyde disclosed himself to be disingenuous in saying that he signed a document, which did not set out the true terms of the arrangement, so that Mr. Redford “would be happy”. Further, Dr. Birch submitted, the agreement alleged by Mr. Hyde, to the effect that there would be no profit for Envirolabs, unless bottles were produced for 7.34 cents each, was plainly implausible and was never referred to in minutes or correspondence or other documents.

80   I am satisfied that there was no conversation between Mr. Hyde and Mr. Redford in which it was explicitly stated that there would be no profit earned by Envirolabs unless and until bottles were produced at a cost of 7.34 cents or less. Such an express term is in my view inconsistent with the document signed by Mr. Hyde and Mr. Redford dated 30th June 1992, and it is not referred to in any contemporary minutes or documents. Even in March 1997, when a document prepared by Mr. Hyde refers to amounts contemplated in 1992, it does so in terms of identifying 7.11 cents as “the figure we have been attempting to get since July 1st 1992”. In my opinion also, the notes made by Mr. Hyde himself on the proposal document, showing a number of different figures achievable per bottle on different scenarios, point strongly against 7.34 cents having been adopted as a definite benchmark against which the earning of any profit by Envirolabs was conditional. Furthermore, in my opinion, it is highly unlikely that any such agreement would have been reached: it must have been contemplated that costs could vary over ensuing years, and that Envirolabs could operate very much to the benefit of Trend, even if that precise figure was not reached; and it is also difficult to make sense of a fixed percentage of 10% if the making of any profit is predicated against achieving a particular figure or better.

81   I have difficulty coming to a decision as to the preparation of the document dated 30th June 1992. Both Mr. Redford and James Hyde deny having prepared it, as indeed both deny having prepared a document dated 16th July 1992. Both these documents were prepared on a different typewriter or printer from any other document in the case. In my opinion, the content of both documents is more consistent with James Hyde having prepared them than Mr. Redford. I think it unlikely that Mr. Redford would have inserted the provisions concerning the shareholding in Envirolabs which appears in the earlier document, or the material concerning the appointment of Mr. Crawford as public officer. I think it unlikely that Mr. Redford would have specified, in relation to the motor vehicle referred to in the second document, that this motor vehicle was to be wholly owned and maintained by Trend Laboratories Pty. Limited. In my opinion, it is unlikely that anyone other than Mr. Redford or James Hyde prepared the document: the appointment of Mr. Crawford as public officer had been suggested by him, but it is unlikely that Mr. Crawford would have taken the initiative of recording arrangements between Mr. Redford and Mr. Hyde; and in my opinion, it is more likely that Mr. Crawford conveyed his suggestion about this appointment to Mr. Hyde than to Mr. Redford.

82   I have expressed the view that Mr. Hyde gave incorrect evidence concerning an alleged express agreement relating to achieving a rate of 7.34 cents per bottle, although I have not yet found that this evidence was dishonest. The impression I have from minutes of meetings and from the correspondence between Mr. Hyde and Mr. Redford is that Mr. Hyde was straight-forward in his dealings. However, the circumstance, to which I will come, that Mr. Hyde fixed prices and made adjustments to Envirolabs’ accounts without consultation with Mr. Redford, could point in the other direction.

83   I am certainly not satisfied that Mr. Redford prepared these documents. I think it more likely that Mr. Hyde prepared them, or arranged for them to be prepared. However, although it might be thought unlikely that Mr. Hyde would be mistaken about this matter, on the whole I am not affirmatively satisfied that Mr. Hyde was deliberately lying in his evidence about the preparation of these documents. However, what I consider to be serious mistakes in Mr. Hyde’s evidence, both concerning the 7.34 cents condition and concerning the preparation of this document, mean that I must be very circumspect in accepting his evidence.

84   Steven Hyde also gave evidence supporting the condition concerning the 7.34 cents per bottle, and I consider he was at least mistaken in relation to that evidence. I am not satisfied that he has deliberately given false evidence, but again I must be circumspect in accepting his evidence.

85   Although Mr. Watson was called to give evidence on behalf of the plaintiffs, Mr. Coles submitted that his evidence should be viewed having regard to his long association with Mr. Redford and a consequent willingness to assist him. Dr. Birch submitted that he was an impressive witness. I considered Mr. Watson’s evidence somewhat vague on important matters, and I had the impression that he was anxious not to give evidence damaging either to Mr. Redford or to the plaintiffs, who are still his employers.

86   Dr. Birch submitted that Mrs. Florczak was a less impressive witness than Mr. Watson. He submitted that her insinuations that Mr. Redford had been derelict in his duties were contradicted by Mr. Watson, and that her evidence showed animus against Mr. Redford. He also cross-examined her about alleged inconsistencies in her evidence concerning seeing files in Mrs. Redford’s car, yet not seeing an exercise book or other books or documents.

87   In my opinion, Ms. Florczak gave evidence in a perfectly straight-forward way, and displayed no animus against Mr. Redford, and I considered that her evidence concerning Mr. Redford’s absences from work was wholly supported by other evidence in the case, including that of Mr. Redford and Mr. Watson. I did not think there was any inconsistency in her evidence concerning what she saw in Mrs. Redford’s car. I considered her an honest witness, with good recollection, and I accept her evidence about the events of 20th March. In particular, I accept her evidence that she was asked by Mr. Redford to arrive early that morning, more dressed up than usual; and also her evidence that she was not told by Mr. Hyde or indeed by anybody that she would not be permitted to attend the meeting arranged at Frenchs Forest. In my opinion, Mr. Redford’s contrary evidence was made up by him.

88   I considered that Mr. Crawford and Mr. Gladwin gave evidence honestly and with reasonable recollection. There were no particular submissions about other witnesses, apart from the expert witnesses, to whom I will return.

TERMS OF ORIGINAL ARRANGEMENT
Submissions

89   Both sides have provided written submissions, which I will leave with the papers. I will be brief in outlining the submissions of the parties.

90   Mr. Coles QC submitted that the agreement or arrangement was that Trend would purchase plastic bottles from Envirolabs at a price equivalent to the cost of production of those bottles until such time as the rate of 7.34 cents per bottle was reached; and at that time, Trend would pay a price equivalent to the actual production costs of bottles plus a 10% mark up. From that profit, the directors would be entitled but not bound to declare dividends. Mr. Redford’s contention was that the arrangement was that, regardless of the costs of production, Trend would pay a price equivalent to the cost of production plus 10%, and Mr. Redford would be guaranteed a dividend to that extent. Mr. Coles submitted that the plaintiffs’ version should be accepted. The commercial objective of the arrangement was to benefit Trend in the first instance, so that it was necessary for the parties to strike some benchmark to determine the point when Envirolabs would also benefit. It was commercial nonsense that Envirolabs should be guaranteed a 10% profit, regardless of costs. The document of 30th June 1992 made no mention of dividends, and referred to an overriding discretion of the directors. Dividends were not declared during any of the years that Mr. Redford was involved in Envirolabs, yet neither the minutes nor correspondence from Mr. Redford record any complaints from him. The suggestion by Mr. Redford that the original proposal was for an in-house operation, and was therefore superseded because the operation was never in-house, had no merit: it was never contemplated that the operation take place at Trend’s Frenchs Forest premises, because there was no room there, and furthermore the proposal allowed for rent. In fact, the rent at Riverstone and at Lisarow was lower than had been budgeted. This balanced the omission of an amount for freight from the original proposal. It was inherently unlikely that the parties would have left it to chance, or to Trend’s beneficence, as to when Envirolabs should be permitted to make a profit.

91   Dr. Birch submitted that the proposal document plainly contemplated use of the Trend factory, in that it made no allowance for freight or overheads for administration. Plainly, the profitability of the operation and the advantage to Trend did not depend upon the achievement of a cost of 7.34 cents per unit. Mr. Redford was given shares in the company to provide him with an incentive to stay, and the promise of 10% profit and dividends was an important aspect of that incentive. The document of 30th June 1992 confirms Mr. Redford’s evidence that he was promised that Envirolabs would make a profit and that there would be dividends arising from that profit. The document is inconsistent with there being an express proviso that no profit was to be made until a specified target had been achieved. The fact that the Arthur Andersen report makes no reference to any understanding or agreement or arrangement that Envirolabs would only pay a profit to Trend if a specified cost target was met confirms that there was no such agreement.

Decision

92   In my opinion, the document dated 30th June 1992 correctly records the arrangement made at the time, so far as it goes.

93   However, the arrangement as recorded in that document was made on the basis of representations made by Mr. Redford that there would be savings to Trend and representations as to the scale of expenses involved in the operation.

94   In my opinion, those circumstances and the terms of the discussions between Mr. Redford and James Hyde (the details of which I am unable to find) were such as to convey to both sides that the contemplated operation should achieve results along the lines of those set out in Mr. Redford’s proposal, and should achieve consequent savings to Trend; and that the contemplated 10% profit to Envirolabs was dependent on that happening.

95   There is some vagueness in that understanding, but in my opinion what is being dealt with here is not a clear and enforceable contract, but rather a broad arrangement on the basis of which Envirolabs was to be run by the persons interested in it, including Trend which was to be at least the principal purchaser of its product. My finding of this rather vague arrangement follows from my accepting Mr. Coles’ submission that it would not make sense to pay 10% profit to Envirolabs irrespective of production costs, and my acceptance of Dr. Birch’s submission that there was no explicit and precise condition that a target of 7.34 cents had to be achieved.

96   On the basis of that rather vague arrangement, I think it can be said that the allocation of any profit to Envirolabs could not possibly have been justified by the 1992-3 figures of over 28 cents production costs per bottle, or the 1993-4 figures of around 12 cents per bottle. However, by the year 1994-5 and afterwards, production costs were down to about 10 cents per bottle or less, so that in my opinion it was no longer plainly evident that the production costs were so out of line with the proposal or that there was no saving to Trend, with the result that there could in those years be a question whether or not it was appropriate to allocate a 10% profit to Envirolabs.

OPPRESSION AND RELATED MATTERS
Submissions

97   Dr. Birch submitted that there should be an order requiring Trend to purchase Mr. Redford’s shares in Envirolabs at a price reflecting two components, (a) a sum reflecting the value the shares would presently have if the business of Envirolabs had been conducted in such a fashion as to produce a reasonable profit, and (b) a sum reflecting the amount that would have accrued to Envirolabs had the cross-defendants not exercised their powers so as to cause Envirolabs to operate as a no profit/no loss company, but rather permitted it to earn a reasonable profit in the years 1993-2000. In relation to the second component, Dr. Birch submitted in the alternative that Mr. Redford should be granted damages in respect of loss of dividends that would have accrued to him, had oppression not occurred and dividends been declared.

98 Dr. Birch pointed out that the proceedings were commenced in March 1998, when the applicable section was s.260 of the Corporations Law. On 1st July 1998, the same provision became s.246AA of the Corporations Law. That section was repealed by the Corporate Law Economic Reform Program Act 1999, but by virtue of s.1471 of the Corporations Law, inserted at that same time, proceedings under s.246AA not determined at the commencement of the 1999 Act continued to be subject to s.246AA. What the section required in the first instance was proof that the affairs of the company had been conducted in a manner that was oppressive, prejudicial or discriminatory towards Mr. Redford.

99   Dr. Birch referred to the Arthur Andersen report, which he submitted was an important document prepared by parties with no interest in the outcome of the present litigation, and in relation to which the cross-defendants had advanced no criticism at the time. The report indicated that Envirolabs was operated as a nil net profit operation by transferring any possible profit at the end of each financial year to Trend, by adjustment to the sale price of the year’s product; and that the operation of Envirolabs was conferring a financial benefit on Trend in that the total cost of the operation was less than the price Trend would have paid for the bottles in the market. The financial records for the 1994-5 financial year showed that $137,383.00 in sales was transferred from Envirolabs to Trend at the end of 1995, so as to cause Envirolabs to show only a nominal profit. Both the Arthur Andersen report itself, and also this and similar transfers, were concealed from Mr. Redford.

100   Dr. Birch submitted that, despite criticisms made of Mr. Redford’s performance, the Arthur Andersen report made it clear that problems within the Trend group were not the result of Mr. Redford’s performance. In relation to evidence as to relevant market prices of the products supplied by Envirolabs to Trend, Dr. Birch submitted that the evidence of Mr. Barber was flawed, because of its reliance on the peculiar assumption that, if one was not presently in the business but was offered by a single customer the prospect that it would purchase the whole of the output, then a discount would be appropriate. The other evidence as to market price relied on by the plaintiffs, namely that of Steven Hyde, was of little weight, in that Steven Hyde had far less experience than other witnesses. Dr. Birch submitted that the evidence of Mr. Bonello, called for Mr. Redford, was to be preferred: the prices given by him plainly reflected prices actually achievable in the market, and did not depend upon the subjective estimates as with Mr. Barber.

101   As regards the value of Mr. Redford’s shares, Dr. Birch submitted that the valuation evidence of Mr. Haslock should be accepted. Because it was reasonable to accept that the costs structure of Envirolabs was as efficient as the industry average, it was appropriate to value the Envirolabs’ business by taking the actual costs of sales, and applying to it the typical gross margin in the industry. Mr. Haslock’s conclusions were corroborated by the accounts of Ms. Playne, compiled using a different methodology.

102   Dr. Birch submitted that the nil valuation given by the plaintiffs’ experts Mr. Singleton and Mr. Russell should be rejected. In particular, he submitted that those reports depended upon adopting market values given by James Hyde and Mr. Barber’s estimates of price; and also on extremely dubious assumptions as to what would be appropriate administration charges made by Trend to Envirolabs. Similarly, he submitted, the conclusion that Envirolabs would not have realised profits in the relevant years was similarly flawed.

103   Dr. Birch submitted that the affairs of Envirolabs had been conducted in a fashion oppressive to Mr. Redford through Mr. James Hyde directing that the company run as a no profit/no loss company, and in such a fashion as to confer very substantial financial advantages on Trend, where representations were made falsely to Mr. Redford by James Hyde that Envirolabs was not profitable, the true situation being as set out in the Arthur Andersen report; all this in circumstances where Mr. Redford had been induced to enter into the arrangement with the expectation that it would be operated as a profit-making enterprise and that dividends would accrue to him.

104   Dr. Birch submitted that the plaintiff should be ordered to purchase Mr. Redford’s shares for a price assessed on the basis of the value they would have had had it not been for the oppressive conduct: see Fexuto v. Bosnjak Holdings (1998) 29 ACSR 290 at 299. The price should be increased by Mr. Redford’s share of the moneys which should have been paid to Envirolabs in the meantime: see Fexuto at p.744 and Re Carrington Cotton Corporation Limited (2000) 23 ACSR 73 at 77. Alternatively, Mr. Redford should be awarded equitable compensation in relation to the profits that should have been made by Envirolabs and the dividends that should have been declared in his favour: see Brunninghausen v. Glavanics (1999) 46 NSWLR 538, and Karam v. Australian & New Zealand Banking Group (2000) 34 ACSR 545. That claim could be treated either as one open to a shareholder available directly against directors for breach of duty, or alternatively as one where Mr. Redford is entitled to press a representative claim on behalf of Envirolabs.

105   Dr. Birch submitted that, although Mr. Redford’s conduct in relation to secret commissions was reprehensible, it ought not defeat his entitlement to relief. Such a claim ought not be defeated by alleged lack of cleans hands: see Fexuto at p.741. Furthermore, the cross-defendants’ conduct was nothing less than a persistent deception of Mr. Redford as to the operation of Envirolabs, and it would be unjust if Mr. Redford was deprived of any remedy, leaving the majority shareholder to retain the benefits derived from its oppression.

106   Mr. Coles submitted that there was no obligation on the cross-defendants to ensure that the prices paid by Trend to Envirolabs were market prices: this would be inconsistent with the purpose of the arrangement of giving a financial advantage to Trend. In so far as market price was relevant, Mr. Barber’s evidence should be accepted. Mr. Bonello’s figures were unreliable: they were settled in consultation with Mr. Redford, and their unreliability was shown by a bizarre change in relation to Cashmere Bouquet bottles. Furthermore, they did not adequately take account of economies of scale.

107   Mr. Coles submitted that it was not oppressive not to pay dividends up to the extent that profits allow (Reid v. Bagot Well Pastoral Co. Pty. Ltd. (1963) 12 ACSR 197 at 209); and that the Court would exercise caution in substituting its own view of commercial matters for that of directors who had apparently considered the matter (Wade v. NSW Rugby League Limited (1983) 180 CLR 459 at 467-9).

108   Mr. Coles submitted that, even if the plaintiffs’ contentions as to the terms of the arrangement were not accepted, it was plain that the expectation of both parties was that Trend should be able to obtain its bottle supplies at prices less than those it would have had to pay to third party suppliers and at an overall cost which justified Trend in making the considerable outlay contemplated; and that these matters were appropriately considered at board meetings.

109   Mr. Coles submitted that the issue of re-writing the books was explained by a proper understanding of the workings of the agreement between the parties. Envirolabs did not issue invoices to Trend, but rather invoices were created by Trend on the receipt of goods for the purpose of their internal costings. The costs recorded in these invoices were provisional only, and, at the end of the year, draft accounts would be prepared which would show a profit or a loss, and this in turn would be adjusted once the true costs of production had been ascertained. James Hyde made the decision as to the invoice price and later revised that decision. There was nothing sinister about this: it was not hidden from Mr. Redford, and Mr. Redford did not complain at the time.

110   Mr. Coles submitted that, even if it were accepted that the arrangement was that Trend would purchase from Envirolabs at a market price, then plainly all costs borne by Trend and not charged to Envirolabs, such as a market rent for the Lisarow factory, and administrative, finance and other costs, should be brought to account. When that was done, as shown by the report of Mr. Lockwood, there was no evidence to justify a finding that Envirolabs made a profit so as to make it appropriate to consider a distribution by way of dividends.

111   Mr. Coles submitted that the Arthur Andersen report did not show the contrary. It did no more than say that, from their overview, there seemed to be a costs saving as compared with the market price. It did not go into the question of the extent of such saving, or the question of costs to Trend not charged to Envirolabs.

Decision

112   Looking first at the question of market price, which has some relevance both to the question of oppression and also the value of the business, I do not consider the evidence of any of the witnesses satisfactory. I do not think Mr. Bonello adequately took into account economies of scale, and I think it is a valid criticism that his evidence was settled in discussion with Mr. Redford. Having regard to Steven Hyde’s partisanship and my reservations about his evidence, I am not satisfied by his evidence. I think Mr. Barber made an artificial assumption in his approach, as submitted by Dr. Birch. In so far as Ms. Playne relied on prices achieved in sales made by Trend of bottles produced by Envirolabs, there again those prices did not reflect the economies of scale that would be achieved in Trend’s satisfaction of its requirements.

113   It would have been relevant to know what Trend was actually paying for its bottles before it entered into the arrangement with Mr. Redford, and how prices in the market have moved since that time; but there appears to be no evidence of that kind. In the result, the most that I can say is that the prices suggested by Mr. Bonello and the sales by Trend are somewhat high, and the prices suggested by Mr. Hyde and Mr. Barber are somewhat low.

114   There is the further problem about proper charging or accounting for all administrative costs borne by Trend and not recorded in the accounts of Envirolabs. Again, having regard to my reservations about the evidence of James Hyde and Steven Hyde, I do not accept evidence entirely based on their estimates. On the other hand, I think it is clear that there were costs incurred by Trend on behalf of Envirolabs that were not fully passed on to Envirolabs.

115   Accordingly, in so far as Mr. Redford’s claim depends upon establishing that proper decisions would have resulted in profits made by Envirolabs, and possibly also dividends declared by Envirolabs, in my opinion he has not discharged that onus. The Arthur Andersen report does not do so: its opinion as to cost saving to Trend is not based on any analysis of market prices, which, as the evidence before me shows, is no simple matter. It does not go into the question of costs of Trend not charged to Envirolabs. Most importantly, it does not touch on the question of whether, having regard to the assumption that the project would deliver savings to Trend even with Envirolabs making a profit, the saving to Trend was sufficient to justify a profit in Envirolabs.

116   On the other hand, I think the evidence does show that, at least by the 1994-5 financial year, a stage had been reached where proper consideration, with full disclosure to Mr. Redford, should have been given to the question of whether a profit should be achieved by Envirolabs and whether a dividend should be declared. This has some support from the Arthur Andersen report. The evidence indicates that Mr. Hyde’s practice of simply hitting upon a sale price at the end of the year, so as to ensure there was no more than a nominal profit, was not disclosed to Mr. Redford or discussed with him. That is, I do not think the question of whether Envirolabs should make a profit was appropriately addressed by the cross-defendants in 1994-5 and following years; and having regard to the evidence in these proceedings, I think there is little prospect that it will be appropriately addressed in the future.

117   In my opinion, that would be sufficient to make out a case for oppression, leaving aside the question of Mr. Redford’s dishonest conduct. Before considering the relevance of that conduct, I will look at what the remedy for oppression might be.

118   It follows from what I have said that I am not satisfied that profits were or should have been made by Envirolabs at any time while Mr. Redford was involved. In my opinion, all the valuations made of Envirolabs are flawed.

119   In my opinion, Mr. Haslock’s evidence is flawed by his assumption that one can take Envirolabs’ costs as being reasonable, and assume that the appropriate sale price for its products are those costs plus an industry average for mark up. In my opinion, Ms. Playne’s evidence is flawed by the acceptance of high market prices, and inadequate allowance for additional administrative expenses. In my opinion, the evidence of Mr. Singleton and Mr. Russell is flawed by acceptance of market prices that are too low, and acceptance of administrative costs based on information from the two Messrs. Hyde.

120   In those circumstances, I think the appropriate approach, but for the question of Mr. Redford’s dishonesty, would be to require Trend to purchase Mr. Redford’s shares for the $20,000.00 which he paid for them, plus interest. From this would need to be deducted the $7,500.00 secret commissions admitted by Mr. Redford. I take this to mean $US7,500.00, having regard to the relevant documentary material; and in line with the fairly broad-brush approach I am taking, I will take that to be equivalent to $A12,500.00. $20,000.00 less $12,500.00 gives $7,500.00. 12% interest on $7,500.00 from about August 1992 would give a further $7,500.00, and, although the secret commissions were probably received later than August 1992, I think this gives an appropriate interest figure, resulting in a total now of $15,000.00.

121   Turning to Mr. Redford’s dishonesty, his admitted dishonesty of itself could well be sufficient to deny him this relief. Without at this stage looking at the evidence in detail, there is material from which inferences of further dishonesty could be drawn, and it may be that, even if the taking of secret commissions several years ago would not now preclude relief, the sum total of the dishonest actions that might be inferred would do so. However, it appears that the plaintiff is willing to have a result where the relationship between the parties is appropriately severed, and it may be that the plaintiff will not press a defence based on Mr. Redford’s dishonesty so as to disentitle him to an order that his shares be purchased for $15,000.00.

TAKING OF BLOW PINS
Submissions

122   Mr. Coles submitted that all relevant times Envirolabs was in possession of the blow pins in question, and that possession afforded evidence of ownership unless Mr. Redford could establish that he was the true owner of the blow pins as at 20th March 1998. Mr. Redford did not include the blow pins in any of his early lists of assets for sale. There was positive evidence that Envirolabs acquired and purchased blow pins and that Mr. Crawford, on the instructions of Mr. Redford, included blow pins as capital assets of Envirolabs. In any event, even if blank blow pins were originally supplied by Mr. Redford, it was clear that the tip and cutting sleeve of each blow pin had been supplied by Envirolabs by 20th March 1998.

123   In any event, Mr. Coles submitted, even if the blow pins were the property of Mr. Redford, they were being used by Envirolabs upon some form of implied licence or other agreement, pursuant to which Mr. Redford would not remove them without reasonable notice, that notice being at least such time as would be required to acquire replacement blow pins. The evidence showed that this was at least two weeks.

124   Furthermore, Mr. Coles submitted, Mr. Redford on 20th March remained a director and an employee of Envirolabs, and accordingly had a duty not to damage Envirolabs by unreasonably putting his own interests in front of those of the company. What he did breached that duty.

125   Dr. Birch submitted that Mr. Redford had given clear evidence of possession of the relevant blow pins prior to the commencement of the Envirolabs’ operation, and this was corroborated by Mr. Watson. He submitted that there was no evidence of the purchase by Envirolabs of any blow pins, but only of material to manufacture blow pin tips and blow pin cutting sleeves. Mr. Redford had made a number of demands in relation to blow pins, including the 1996 facsimile and the December 1997 letter.

126   Mr. Redford gave notice of his intention to remove the blow pins on 17th March 1998, which was reasonable in the circumstances, because, with Mr. Redford’s co-operation which could have been procured had the cross-defendants not acted as they did, replacement blow pin tips could have been made ready within 24 hours. Furthermore, Envirolabs had taken steps to lock Mr. Redford out and refused to treat with him, making it clear that Envirolabs was not willing to acknowledge any entitlement on his part to his property, thereby repudiating any bailment and thus any entitlement to notice. Dr. Birch further submitted, that even if longer notice had been given, it is plain that Envirolabs would not have permitted Mr. Redford to remove the blow pins and would not have taken steps to acquire substitute blow pins, so that the same damage would have been suffered if Envirolabs had at that stage not denied Mr. Redford his lawful right to recover his property.

127   Dr. Birch submitted that the damages claimed by Envirolabs were plainly excessive. There were a number of blow pins on the premises capable of being used with only minor modification, and the search for them could not have been thorough. Mr. Edwards, who turned up for the night shift on the first weekend after the shutdown, sat around and did nothing when he could have been searching the factory if it was desired to find them. Envirolabs had been informed of their existence by Mr. Redford’s solicitor on the afternoon of Friday, 20th March 1998. The evidence of Mr. Edwards suggested that James Hyde was not concerned about getting back into production because delay in recommencing production would generate a substantial claim against Mr. Redford.

Decision

128   I accept Mr. Coles’ submission that Envirolabs was in possession of these blow pins, so that there is an evidentiary onus at least on Mr. Redford to show a better title. In my opinion, Mr. Redford has not shown a better title in relation to any of the cutting sleeves or tips. In relation to the blow pin bodies, having regard to the corroboration by Mr. Watson, and the circumstance that five useable blow pins were found in the factory, which I infer were blow pins taken from machines purchased by Envirolabs in order to be replaced by blow pins in the manner described by Mr. Watson, I am satisfied, on the balance of probabilities, that Mr. Redford owned five of the nine blow pins which he took. Because only five useable blow pins were found (rather than the nine that should have been there if all nine had been replaced), because of my inability to rely at all on Mr. Redford’s evidence, and because of the vagueness of Mr. Watson’s evidence, I am not satisfied that Mr. Redford owned the other four of the blow pins which he took, and the prima facie right of Envirolabs given by its possession prevails.

129   In any event, in my opinion, the blow pins owned by Mr. Redford were subject to a bailment or licence which could only be terminated with reasonable notice, sufficient to enable the replaced blow pins to be located and made ready for use, or to enable new blow pins to be manufactured. I am satisfied that no notice was given: I accept James Hyde’s evidence that the document which could constitute notice was not handed over on 17th March. In the circumstances, I do not think the steps taken towards changing the locks on the premises amounted to a repudiation of the bailment or licence agreement, so as to entitle Mr. Redford to take possession of the blow pins without notice.

130   Furthermore, I do not accept Mr. Redford’s evidence that he orally resigned as a director. In my opinion, Mr. Redford’s resignation as managing director, which was accepted on 17th March, did not cause him to cease to be a director and employee of Envirolabs; and in my opinion his actions in taking the blow pins were also in breach of his obligations as a director and employee.

131   I am not satisfied that Mr. Redford deliberately put a plastic bag over the compressor intake causing it to malfunction. However, I have to say I am not affirmatively satisfied that he did not do this. I note that Mr. Redford gave evidence that this circumstance would not cause machinery to malfunction for some hours, whereas Mr. Watson gave evidence that it did so in ten to fifteen minutes.

132   Turning to the question of damages, I find again I must take a broad-brush approach. In my opinion, Envirolabs is entitled to the price of four blow pins, that is $1,588.00 (say, $1,500.00). Envirolabs is not entitled to all the holding costs claimed in respect of inactive equipment for the period 20th March 1998 to 1st April 1998, that is about $33,000.00, if only because this includes costs in respect of an injection moulding machine, and, for reasons I give in the next section, in my opinion Envirolabs has not established this entitlement. However, Envirolabs may perhaps be entitled to about $16,000.00 under this heading. Envirolabs claims $12,000.00 in respect of overtime to catch up with lost production. I have not been given sufficient material to be satisfied that the totality of additional overtime in the period referred to was caused by this problem, and again taking a broad-brush approach, I could allow about $6,000.00 under this heading. $111,000.00 is claimed in respect of loss of gross profits for lost sales, but this relates to the period 20th March 1998 to 25th March 1999. Nearly half of the sales appear to be in respect of the period July 1998 to March 1999, and I am not satisfied that those lost sales can be attributed to these events. Again taking a broad-brush approach, I could perhaps attribute about $40,000.00 to this claim. That would give a total of about $62,000.00, apart from the $1,500.00 for the blow pins. I note that the costs and sales of Envirolabs for a whole year at the time amounted to about $2 million, and if one takes that amount over 365 days, that suggests a figure of $5,500.00 per day, or about $60,000.00 for eleven days. Although that calculation is not a precise way of working out damages caused by eleven days of substantially lost production, I think that the figure arrived at on the other basis suggests that this is close to the mark. In my opinion, $61,500.00 (that is, $60,000.00 plus $1,500.00 for the blow pins) would be an appropriate figure for damages.

133   I would add that I think reasonable efforts were made to get the factory into production as soon as reasonably possible, and I do not think it was unreasonable not to stand workers down during this period.

134   As I have noted, I have taken a broad-brush approach, because I think this is the only approach possible on the evidence. I would be prepared to hear submissions from either party to the effect that a more precise approach is possible on the evidence before me, or that there should be some further hearing or submission to quantify damages.

OTHER MATTERS
Submissions

135   Mr. Coles referred to a schedule detailing the plaintiffs’ claims against Mr. Redford. As regards Mr. Redford’s claim for missing items, Mr. Coles submitted that the claim was based on unjust enrichment, not on negligence by a bailee. In any event, since Envirolabs was at most an involuntary bailee, the standard of care would be low. Furthermore, there was no satisfactory evidence of ownership by Mr. Redford. Finally, with the exception of one pressure cleaner valued new at $1,600.00, there was no evidence of value.

136   Dr. Birch submitted that Mr. Redford’s assertions as to ownership of property were corroborated by Mr. Watson, wherever it was within Mr. Watson’s knowledge. He submitted that it was not open to Envirolabs to rely on the circumstance that the goods had gone missing, because demand was made for them shortly after Mr. Redford left, so they should have been at least put in a safe place.

Decision

137   As regards the plaintiffs’ claims against Mr. Redford, one substantial claim is in respect of a pump and motor for an injection moulding machine. Having regard to Mr. Watson’s evidence that this was removed on 16th March 1998 because it was defective, and was of no use, that claim must fail.

138   In my opinion, the plaintiff has proved its claim in relation to the computer backup unit purchased for $307.00: I accept Mr. Florczak’s evidence on this. I accept her evidence and reject Mr. Redford’s evidence concerning the Viking chair, purchased for $495.00. I do not accept Mr. Redford’s evidence concerning the lounge and coffee table, so the plaintiff succeeds in relation to those items, purchased respectively for $1,600.00 and $200.00. I accept Mrs. Florczak’s evidence concerning drawers purchased for $346.00, and a sweeper purchased for $69.00. These items total $3,017.00, and I would value them in their used condition at $2,000.00. I accept that Mr. Redford has to account for a float of $2,500.00.

139   I do not think the plaintiffs’ evidence proves any of the plaintiffs’ other claims.

140   As regards Mr. Redford’s claims, I am not satisfied as to his ownership of the Hare & Forbes mill or the Herless surface grinder. Although Mr. Watson corroborated that Mr. Redford claimed they were his, I am not satisfied, having regard to my view on Mr. Redford’s credibility, to accept this as establishing ownership. For similar reasons, I am not satisfied as to Mr. Redford’s other claims.

CONCLUSION

141   In the result, the plaintiffs will recover $61,500.00 plus $4,500.00, that is $66,000.00 from Mr. Redford. Assuming the plaintiffs do not rely on a dishonesty defence, the plaintiffs will be required to purchase Mr. Redford’s shares for $15,000.00. I will hear submissions on costs; but the plaintiffs have been substantially successful, and I anticipate making an order that Mr. Redford pay at least a substantial proportion of the plaintiffs’ costs.

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Last Modified: 03/13/2001