Yelland Security Pty Ltd v Plus Architecture International Pty Ltd

[2021] VSC 416

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2018 00606

IN THE MATTER of Plus Architecture International Pty Ltd (ACN 603 207 405)
YELLAND SECURITY PTY LTD (ACN 130 078 894)	Plaintiff
v
PLUS ARCHITECTURE INTERNATIONAL PTY LTD (ACN 603 207 405) & ORS (according to the Schedule attached)	Defendants

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JUDGE:	Nichols J
WHERE HELD:	Melbourne
DATE OF HEARING:	13, 16, 17, 20, 21, 22, 23, 24, 27, 31 July 2020
DATE OF JUDGMENT:	13 July 2021
CASE MAY BE CITED AS:	Yelland Security Pty Ltd v Plus Architecture International Pty Ltd
MEDIUM NEUTRAL CITATION:	[2021] VSC 416

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CORPORATIONS – Oppression – Whether termination of appointment as director oppressive, unfairly prejudicial or unfairly discriminatory – Where breakdown in relationships between directors acting as quasi partnership – Whether plaintiff entitled to order remedying alleged underpayment for purchase of shares – Corporations Act 2001 (Cth), ss 232, 233.

CORPORATIONS – Constitutions – Whether directors empowered by constitution to terminate a director under constitution – Power to terminate reserved to company in general meeting – Contractual provisions reflecting replaceable rules – Where shareholders agreement accepted to provide power to terminate.

CONTRACT – Breach of shareholders agreement – Shareholders agreement required unanimous resolution as to value of shares – No valuation meeting contractual description undertaken – Whether unanimous informal agreement sufficient – Purposes of resolution.

EVIDENCE – Expert evidence as to valuation of company – Selection of appropriate capitalisation multiple – Weight to be placed on evidence from competing experts – Where some evidence not independently given – Expert evidence code of conduct – Supreme Court (General Civil Procedure) Rules 2015, Order 44.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Maiden QC with Mr N Wallwork	Sladen Legal
For the Defendants	Mr M Robins QC with Mr N Elias	Nathan Kuperholz

TABLE OF CONTENTS

Part A – Introduction and overview of the parties’ cases........................................................... 1

The Plus Architecture Entities..................................................................................................... 7

Part B – the Principal Oppression Claim..................................................................................... 11

B.1 Context and governing principles...................................................................................... 11

B.2 Circumstances and significant events before mid-September 2017.............................. 17

Summary – Position at September 2017......................................................................... 43

B.3 Events from mid-September 2017...................................................................................... 46

B.4 Witness evidence relevant to purpose for the Termination Resolutions..................... 57

Briggs’s evidence concerning the termination of Yelland........................................... 58

Strunz’s evidence concerning the termination of Yelland........................................... 61

Liew’s evidence concerning the termination of Yelland............................................. 64

Julka’s evidence concerning the termination of Yelland............................................. 65

Juric’s evidence concerning termination of Yelland..................................................... 68

B.5 Analysis – Principal Oppression Claim............................................................................. 71

B.6 Plus International Oppression Claim................................................................................ 77

Access to books and records............................................................................................ 80

Yelland’s Plus email account........................................................................................... 82

Access to premises............................................................................................................. 82

Access to staff..................................................................................................................... 84

Part C – Breach of Contract Claims............................................................................................... 90

C.1 Which took effect first – Yelland’s termination or his resignation?.............................. 91

C.2 Were the Termination Resolutions valid?...................................................................... 103

Part D – Breach of Contract – AGM valuations........................................................................ 109

D.1 Introduction and parties’ arguments.............................................................................. 109

D.2 Schedules 2A and 2B......................................................................................................... 114

Plus Melbourne................................................................................................................ 116

Plus Brisbane.................................................................................................................... 126

Plus Sydney...................................................................................................................... 129

D.3 Conclusions – Breach of Contract Claims...................................................................... 131

Part E – Damages............................................................................................................................ 131

E.1 Introduction and issues in contention............................................................................. 131

E.2 Jaski’s instructions – question of independence............................................................ 136

E.3 Should the relevant entities be valued as part of a “group”?...................................... 153

E.4 Future Maintainable Earnings.......................................................................................... 171

E.5 Capitalisation Multiple...................................................................................................... 179

E.6 Minority Discount.............................................................................................................. 188

E.7 Plus International................................................................................................................ 189

E.8 Conclusions – quantum..................................................................................................... 193

Annexure 1 – Relevant clauses of the Shareholders agreements.......................................... 195

Annexure 2 – Plus group structure............................................................................................. 204

HER HONOUR:

Part A – Introduction and overview of the parties’ cases

1. Members of the Plus Architecture group of companies conduct architectural practices in Melbourne, Sydney, Brisbane and Perth.  Until October 2017, Craig Yelland was one of the three principal directors of the Plus Architecture entities Plus Melbourne, Plus Sydney, Plus Brisbane and Plus WA, and his company the plaintiff (YSPL), held shares in those entities.  Plus International did not trade but held intellectual property available to the other entities and provided services to them, and was the trustee of the Plus International Unit trust, in which YSPL was a unitholder.  This proceeding concerns Yelland’s departure from Plus Architecture.[1]

   [1]The defendants are each of the Plus Architecture companies (the trading entities Plus Architecture Pty Ltd (known as ‘Plus Melbourne’), Plus Architecture Sydney Pty Ltd (Plus Sydney), Plus Architecture Brisbane Pty Ltd (Plus Brisbane), Plus Architecture Western Australia Pty Ltd (Plus WA), and Plus Architecture International Pty Ltd (Plus International), and the companies controlled by each of the directors of the trading entities, which held the shares or units in those entities.  The defendants were jointly represented at trial.  For convenience, they are referred to collectively, save where it is necessary to differentiate between parties.  The identity of the relevant entities and parties is described more particularity below.  There was a dispute about the proper characterisation of the relationship between the Plus entities, and the implications of that characterisation for the valuation of the plaintiff’s interests in the entities, which is dealt with below.  The expressions ‘group’ and ‘Plus Architecture’ are used for convenience, save where the context indicates otherwise.

1. Yelland was terminated as a director of Plus Melbourne, Plus Sydney and Plus Brisbane (together, the Principal Plus Entities) in November 2017, and the shares held by YSPL in those entities were transferred to other shareholders.

1. On 11 October 2017, the directors of Plus Melbourne, Sydney and Brisbane served notices proposing that at directors meetings to be held on 2 November 2017, Yelland’s employment as a director of each of those entities be terminated.  The following day, 12 October 2017, Yelland served notice of his resignation as a director of each entity, intended to take effect in January 2018.  The meetings proceeded on 2 November and the proposed resolutions (the Termination Resolutions) were passed.

1. YSPL contends that the conduct of the directors of the Principal Plus Entities (acting for their respective shareholder entities) in proposing and passing the Termination Resolutions and the resulting acquisition of its shareholding, were unfairly prejudicial to and oppressive to YSPL for the purposes of s 232 of the Corporations Act 2001 (Cth) (the Act).

1. Each of the Principal Plus Entities was governed by a constitution and a shareholders agreement executed in each case as a deed (shareholders agreement, or SHA).  The terms of the shareholders agreements were, for present purposes, materially identical.  The agreements prescribed a mechanism for the acquisition of shares from departing shareholders.  A 30% discount was allowed where shares were divested following the termination of a director and in other circumstances, but not where a director had voluntarily resigned (the schedule 2B discount).

1. YSPL’s central claim was that the purpose for the directors’ actions in convening the 2 November meetings and voting to terminate Yelland’s appointment was to obtain YSPL’s shares with the schedule 2B discount, and there was no legitimate commercial basis for the resolutions or the vote.  Alternatively, YSPL said that the termination of Yelland’s position and the transfer of YSPL’s shares was detrimental to YSPL and in the circumstances, unfairly and oppressively so.

1. It was common ground that the principal directors (Yelland, Rainer Strunz and Ian Briggs) had fallen into dispute about the future of Plus, but by mid-September 2017 they had agreed that Yelland would leave the business and that YSPL’s shares would be bought out, once a price had been agreed.  The significance of what was (or was not) agreed was contested.  YSPL said that whatever disputes had existed in the past were irrelevant by that time.  Moreover, by the time the 2 November meetings were convened Yelland had resigned by giving notice.  It was open to the directors to accept Yelland’s resignation immediately by waiving the three month notice period for which the shareholders agreements provided, in which case Yelland would have departed without serving out his notice period, but they did not do so.  The resolutions were unnecessary, and prejudicial to YSPL.  In pursuing them the directors formulated and implemented a ‘punitive scheme’ to force Yelland’s departure and to compulsorily acquire his shareholding at a discount.

1. YSPL also contended that the Termination Resolutions were legally ineffective because they were made by ordinary resolution at directors meetings, but the power to remove a director was in fact reserved to the members of each company.  However, in any event, once Yelland resigned by delivering his notices of resignation the contractual consequences of his leaving were determined; he was entitled under the shareholders agreements to be paid for his shares without the application of any discount (the schedule 2A value).  It was too late after that time for the defendants to engage the schedule 2B discount provisions by passing resolutions to terminate his directorship.

1. YSPL’s case was that the breach of the SHA was only an ‘integer’ but not a necessary part of its oppression case. Even if the resolutions terminating Yelland were made in accordance with the SHA, the directors’ conduct in making them was nevertheless oppressive within the meaning of s 232.[2]

   [2]The expressions ‘oppressive’ and ‘oppression’ are used where they appear in these reasons as a short hand expression for the criteria set out in s 232(e).

1. YSPL also alleged that once Yelland was terminated from Plus Melbourne, Sydney and Brisbane he was excluded from participating in the affairs of Plus International, of which he remained a director, and that that exclusion was unfairly prejudicial to and oppressive of YSPL.

1. YSPL formally seeks orders, pursuant to s 233 of the Act, that its shares in Plus Melbourne, Plus Sydney, Plus Brisbane and Plus International be purchased by the defendants.[3]  It should be noted that YSPL’s ordinary shares in Plus Melbourne, Plus Sydney and Plus Brisbane have already been transferred, and YSPL provided a sum of money in respect of those shares, at a price determined by those companies.  YSPL does not in fact seek to orders effecting a transfer of shares, but rather seeks to revisit the price for the transfers that have already occurred.  The Court is not being asked to make orders compulsorily requiring the defendants to make a purchase (save for with respect to Plus International), but to award YSPL compensation for the share price YSPL says it ought to have received, had there not been oppressive conduct.  YSPL contends that its shares in each of those companies should be valued at the market value or ‘genuine commercial value’ of the shares at the time of the oppressive conduct, less any sum already paid to YSPL in respect of the shares.[4]  In respect of the value of the shares at the time of the alleged oppression YSPL relies on an expert report prepared by Campbell Jaski of PWC.

   [3]YSPL has specified the particular defendants whom it submits should purchase its shares in each of Plus Melbourne, Plus Sydney, Plus Brisbane and Plus International.  Those defendants are other shareholders of each of the entities the subject of YSPL’s oppression claims.

   [4]YSPL also seeks compensation for being kept out of its money by reason of the fact that under the terms of schedule 2B of the SHA, the payment for its shares was received over a longer of period of time than would have been the case had the terms of schedule 2A been applied.

1. Separately, and as an alternative claim, YSPL sought damages for breach of the shareholders agreements.  YSPL claimed that under the SHA it was entitled to be paid for its shares in an amount reflecting a genuine commercial valuation prepared or determined by a unanimous resolution of the shareholders in the years following Yelland’s resignation, without the application of the schedule 2B discount (because schedule 2A was applicable to Yelland’s leaving the Plus entities).  No such valuations were determined, and the shareholders of the Principal Plus Entities paid a price for YSPL’s shares that had not been arrived at by the process mandated by the shareholders agreements.  YSPL had accepted those payments under protest but the defendants breached the shareholders agreements by failing to make payment in accordance with their terms.  The prices in fact paid for YSPL’s shares in each entity were, YSPL said, considerably below their market value and amortised over two years.  Given that the valuations for each entity had not occurred, YSPL said that the Court should, for the purposes of awarding damages on the breach of contract claim, adopt the value for the shares in each entity arrived at for the purposes of the oppression claim, on the basis of the expert evidence called at trial.

1. The defendants’ case was that the Termination Resolutions were made in accordance with the shareholders agreements and it was neither improper nor unreasonable to apply the provisions permitting a termination of Yelland’s directorships, in the circumstances.  The 2 November 2017 meetings were convened, and the resolutions were passed, in order to end a prolonged dispute that had led the principal parties into a deadlock.  Yelland’s resistance to any dilution of his shareholding and his obstruction of the promotion and encouragement of new directors had been a major contributor to that deadlock.  The dispute was inhibiting the ability of the Plus entities to make decisions regarding the promotion of staff and corporate structuring.

1. Furthermore, Yelland had engaged in a pattern of disruptive and at times abusive conduct towards certain Plus Architecture staff that the other directors considered had to be brought to an end.  The dispute had not been resolved despite Yelland’s statements about leaving or resigning.  No price for the purchase of YSPL’s shares nor any process for his exit had been agreed.  The directors did not think those issues capable of resolution.  The decision to terminate Yelland’s employment made commercial sense, and was justified because of the intractable dispute and dysfunctional relationships that it reflected.  It cannot be said that in those circumstances, the decisions made by the Plus directors were decisions that no reasonable director would have made.  The fact that the schedule 2B discount applied to the acquisition of shares where a director associated with a shareholding entity had been terminated was not a motivating factor in the decisions taken in respect of any of the Principal Plus Entities.

1. On the defendants’ case Yelland’s notice of resignation of 12 October 2017 made no difference to the validity of the resolutions passed on 2 November 2017. The resignation would not have taken effect before the expiry of the three months’ notice period specified by the relevant shareholders agreements, a date after the passing of the resolutions to terminate his directorship. The schedule 2B discount was properly applied and payments for the acquired shares were made in accordance with the agreements, by reference to amounts that had been determined at the 2017 annual general meetings for each of Plus Melbourne, Sydney and Brisbane. Finally, there was no conduct attracting ss 232-233 of the Act in relation to Yelland’s participation in Plus International.

1. The issues and claims for determination are:

1.Whether the conduct of the directors of the 2^nd to 4^th defendants (Plus Melbourne, Sydney and Brisbane) in proposing and passing the Termination Resolutions, and the compulsory acquisition of YSPL’s shareholding pursuant to the schedule 2B valuation provisions, was conduct attracting s 232 of the Act such that a remedy pursuant to s 233 ought be awarded (the Principal Oppression Claim).  Issue 3 below is also relevant to the principal oppression claim.

2. Whether Yelland (for YSPL) was excluded from participating in the affairs of Plus International, and if so, whether his exclusion was conduct attracting s 232 of the Act such that a remedy pursuant to s 233 ought be awarded (the Plus International Oppression Claim).[5]

[5]By its prayer for relief, YSPL seeks that the sixth defendant (Briggs Nominees Pty Ltd) and the seventh defendant (Strunz Nominees Pty Ltd) purchase YSPL’s shares in Plus International and that Plus Melbourne, Plus Sydney, Briggs Nominees and Strunz Nominees purchase YSPL’s units in the Plus International Trust, each in such proportions and on such terms as the parties agree or the Court determines.

3.          Did the relevant defendants breach the shareholders agreements by purporting to terminate Yelland and then acquiring YSPL’s shares at the price paid?  That question involves these questions involving the construction of the agreements: whether the directors, as opposed to the members of the relevant Plus entities, were empowered to terminate Yelland’s appointment as a director; which of Yelland’s resignation (resulting in the application of the schedule 2A valuation provisions) or the Termination Resolutions (resulting in the application of the schedule 2B discount) took effect; and whether the value of shares in Plus Melbourne, Sydney or Brisbane was determined by the members of each of those entities as required by the relevant shareholders’ agreements (the Breach of Contract Claims).

4.If oppression is made out, what relief should be awarded?  For that purpose, what was the value of YSPL’s shares in Plus Melbourne, Plus Sydney and Plus Brisbane?  If breach of the SHA is made out, what value should have been applied to the acquisition of YSPL’s shares? (Compensation and Damages).

5.For the reasons that follow:

(a)   The answer to Issue 1 (Primary Oppression Claim) is no.

(b)  The answer to Issue 2 (Plus International Oppression Claim) is no.

(c)   The answers to Issue 3 (Breach of Conduct Claims) are:

(i)     Yes, the directors were empowered to terminate Yelland’s appointment as a director;

(ii)  The Termination Resolutions resulting in the application of the schedule 2B discount took effect; and

(iii)             No, the value of shares in Plus Melbourne, Sydney or Brisbane was not determined by the members of each of those entities as required by the relevant shareholders’ agreements, although they were entitled to apply the schedule 2B discount to the properly determined value.

(d)  The value of the shares is considered in Part E.

The Plus Architecture Entities

1. The second defendant (Plus Melbourne) was incorporated in 2000 by SJB Architects and NFK Architects as the corporate vehicle for a joint venture for the provision of architecture services in relation to Melbourne’s Docklands precinct.  Charles Justin was one of the founding directors of the company, and remained a director until 2012.

1. After the Docklands project Plus Melbourne established its own practice.  Yelland, Strunz and Briggs, who had been associates of the firm, became directors of Plus Melbourne in 2006, and in 2007 companies controlled by them[6] each purchased 20% of Plus Melbourne’s shares.  Over time, the directors’ controlled entities increased their respective shareholdings, and Yelland, Strunz and Briggs jointly assumed responsibility for the management of Plus Melbourne.

   [6]Yelland’s company, YSPL, Strunz’s company, the seventh defendant, Strunz Nominees Pty Ltd and Briggs’ company, the sixth defendant, Briggs Nominees Pty Ltd. Details of the ownership of each Plus entity are annexed to these reasons.

1. In 2011, Justin’s company[7] purchased 10% of Plus Melbourne’s shares.  In 2015, Monster Architecture, a company controlled by Jessica Liew, an employee of Plus Melbourne,[8] purchased 5% of the shares issued in Plus Melbourne from Justin.  The circumstances surrounding the acquisition of shares by Liew’s company were central to the dispute between the principal players within Plus, and are considered below.

   [7]The eighth defendant, Family Clep Pty Ltd.

   [8]The ninth defendant, Monster Architecture Pty Ltd.

1. In 2014, Plus Sydney and Plus Brisbane were incorporated in an effort to expand the Plus Architecture brand nationally.  Each of Yelland, Briggs and Strunz, (through their respective companies[9]) obtained shares in Plus Sydney and Plus Brisbane, and each of them became directors of Plus Sydney and Plus Brisbane.

   [9]Strunz’s entity in these transactions was Ormond SSFM Pty Ltd, the tenth defendant.

1. Much of the day-to-day management of the business of Plus Sydney was conducted by Amit Julka and Rido Pin, directors of Plus Sydney. Julka’s company,[10] and Pin’s company,[11] are shareholders in Plus Sydney.  Danilo Juric, a director of Plus Brisbane, assumed much of the day-to-day management of the business of Plus Brisbane.  His company[12] is a shareholder in Plus Brisbane.

   [10]The twelfth defendant, Julka Nominees Pty Ltd.

   [11]The thirteenth defendant, Pin Design Pty Ltd.

   [12]The fourteenth defendant, Bright Young Things Projects Pty Ltd.

1. The first defendant, Plus International, was incorporated in 2014 and holds the intellectual property for the Plus Architecture brand, which it licenses to each of Plus businesses.  It is the trustee of the Plus International Trust, the unitholders in which were the plaintiff, and the second, third, sixth and seventh defendants.  Each of Yelland, Strunz and Briggs are directors of Plus International, and each of YSPL, Briggs Nominees and Strunz Nominees hold 400 shares in Plus International; as to the Trust itself, each of those entities held 30% of the issued units, and Plus Melbourne and Plus Sydney each held 5%.

1. By consent, during the trial, this proceeding was dismissed as against the fifth defendant, Plus Architecture Western Australia Pty Ltd (Plus WA), and two of its shareholders, the fifteenth and sixteenth defendants.

1. To summarise the role of each defendant:

(a)   The first to fifth defendants are the Plus Entities, and the second, third and fourth defendants and are the Principal Plus Entities, in respect of which YSPL’s shares were transferred.

(b) YSPL alleges oppression in respect of the first defendant Plus International, and seeks orders, pursuant to s 233 of the Act, that Briggs Nominees (the sixth defendant, a company controlled by Briggs) and Strunz Nominees (the seventh defendant, a company controlled by Strunz), who are, together, the other shareholders of Plus International, purchase YSPL’s shares in Plus International, and that Plus Melbourne, Plus Sydney, Strunz Nominees and Briggs Nominees (together, the other unitholders in the Plus International Trust) purchase YSPL’s units in the Plus International Trust;

(c) YSPL alleges oppression in respect of the second defendant, Plus Melbourne, and seeks orders, pursuant to s 233 of the Act, that certain other holders of ordinary shares in Plus Melbourne, namely, Briggs Nominees,[13] Strunz Nominees,[14] Family Clep Pty Ltd (a company controlled by Justin)[15] and Monster Architecture Pty Ltd (a company controlled by Liew)[16] purchase its shares in Plus Melbourne at a value to be determined by the Court;[17]

(d) YSPL alleges oppression in respect of the third defendant, Plus Sydney, and seeks orders, pursuant to s 233 of the Act, that the holders of ordinary shares in Plus Sydney, namely Briggs Nominees, Ormond SSFM Pty Ltd (a company controlled by Strunz),[18] Julka Nominee Pty Ltd (a company controlled by Julka)[19] and Pin Design Pty Ltd (a company controlled by Pin) purchase YSPL’s shares in Plus Sydney at a value to be determined by the Court;

(e) YSPL alleges oppression in respect of the fourth defendant, Plus Brisbane, and seeks orders, pursuant to s 233 of the Act, that certain other shareholders of Plus Brisbane, namely Briggs Nominees, Ormond SSFM Pty Ltd and Bright Young Things Projects Pty Ltd (a company controlled by Juric) purchase YSPL’s shares in Plus Brisbane.[20]

[13]The sixth defendant.

[14]The seventh defendant.

[15]The eighth defendant.

[16]The ninth defendant.

[17]As noted above, in fact the plaintiff sought a compensatory order adjusting the value paid for the shares already transferred.

[18]The tenth defendant.

[19]The twelfth defendant.

[20]The fourteenth defendant.

1. With respect to its breach of contract claim, YSPL submits that it was entitled to be paid for its shares in accordance with schedule 2A of the shareholders agreements and, thus, each of Briggs Nominees, Strunz Nominees, Family Clep Pty Ltd, Monster Architecture Pty Ltd, Ormond SSFM Pty Ltd, Julka Nominee Pty Ltd, Pin Design Pty Ltd and Bright Young Things Projects Pty Ltd breached the respective shareholders agreements to which they were party, by failing to value YSPL’s shares in accordance with schedule 2A, and pay for YSPL’s shares on that basis.[21]

   [21]Amended Statement of Claim, [43], [46] [47].

1. Yelland gave evidence for the plaintiff and was cross-examined.  Strunz, Briggs, Liew, Juric and Julka gave evidence for the defendants, as did former employee Amy McArthur, former director Justin, and the accountant for Plus Architecture Sam Marzano.  All but Justin and Marzano were cross-examined.  The plaintiff and the defendants called expert witnesses on the value of the plaintiff’s shares – Jaski for the plaintiff and Darryn Hockley for the defendants.

Part B – the Principal Oppression Claim

Issue 1 – Whether the conduct of the directors of the 2^nd to 4^th defendants (Plus Melbourne, Sydney and Brisbane) in proposing and passing the Termination Resolutions, and the compulsory acquisition of YSPL’s shareholding pursuant to the schedule 2B valuation provisions, was conduct attracting s 232 of the Act such that a remedy pursuant to s 233 ought be awarded.

B.1 Context and governing principles

1. Although the relationship between Yelland, Briggs, Strunz and Liew had become dysfunctional, this was not a case in which YSPL sought relief under s 233 of the Corporations Act because of the breakdown itself.  YSPL’s case was that in all of the circumstances there could have been no commercial basis for the actions of the directors in terminating Yelland.  YSPL’s pleaded case was that the Termination Resolutions were passed for the purpose of allowing the principal Plus entity shareholders other than YSPL, to acquire YSPL’s shares at the 30% discount and on the schedule 2B payment terms.  The case was opened and run on the basis that that was the sole purpose motivating the defendants.   As YSPL’s Senior Counsel put it in final submissions, it would be sufficient, however, were I to find that it was a motivating purpose in circumstances where the defendants did not need to terminate Yelland in order to obtain their stated commercial objectives.  The alternative case was that the effect of the Termination Resolutions and consequent acquisition of YSPL’s shares was detrimental to YSPL and in the circumstances, unfairly and oppressively so.

1. YSPL said that the defendants were not contractually entitled to act as they did[22] but even if they were, their actions were commercially unjustified and unfair.

   [22]See Part D.

1. On YSPL’s case the factual matrix relevant to its oppression claim is narrow – it turns on a nine week period beginning on 15 September 2017, the final day of a lengthy mediation between the central actors.  The defendants maintained, to the contrary, that developments in the relationship between Strunz, Briggs and Yelland, their negotiations over succession planning, and aspects of Yelland’s behaviour, all of which occurred well before September 2017, legitimately informed the assessments they made of their options and the actions the directors took later in 2017.

1. Much of the evidence of the defendants’ witnesses concerning the events that occurred prior to 15 September 2017 was unchallenged, and very few of the facts relevant to the whole period were contested.  The cross-examination of the defendants’ witnesses was limited, reflecting a forensic judgment by the plaintiff.  YSPL said in submissions that that course had been taken because on its case, the historical events were largely irrelevant.

1. It was not in contest that Briggs, Strunz and Yelland fell into serious dispute in 2017.  What was in contest was the characterisation of the facts and circumstances for the purposes of YSPL’s oppression claim.  YSPL’s case concentrated on the motivations for the directors in proposing and passing in the Termination Resolutions on 2 November 2017.

1. It is convenient at this point to briefly set out the principles governing the application of ss 232 and 233 of the Act, which are well understood. They can be summarised this way:

(a)        The question whether conduct is ‘oppressive’[23] to a member of a company involves the making of a judgment by reference to an evaluative standard.[24]  As Brennan J explained in Wayde v New South Wales Rugby League Ltd:

[23]As noted earlier, the expressions ‘oppressive’ and ‘oppression’ are used where they appear in these reasons as a short hand expression for the criteria set out in s 232(e).

[24]Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310, 353 [172] (Campbell JA, Macfarlan and Young JJA agreeing) (Tomanovic).

The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.[25]

[25](1985) 180 CLR 459, 473 (Brennan J) (Wayde).

(b)       At a minimum, the statutory phrase ‘oppressive to, unfairly prejudicial or unfairly discriminatory against’ imports a standard of unfairness to the evaluative determination whether conduct is oppressive.[26]  Whether conduct is relevantly unfair is a question of fact and degree, and is to be judged objectively.[27]

[26]Ibid, 472 (Brennan J).

[27]Knights Quest Pty Ltd v Daiwa Can Company (2018) 366 ALR 557, 588-589 [130] (Beach, Kyrou and Hargrave JJA).

(c)        Commercial unfairness may assume many forms.  It might inhere in the harm suffered by the conduct, the lack of reasonable commercial justification for the course taken, or in the character of the decision making process itself.[28]  That is not say that any decision by directors which might affect the interests of a shareholder adversely is to be considered oppressive, unless it was one that no reasonable directors could have made.[29]

[28]Re Spargos NL (1990) 3 WAR 166, 189 (Murray J).

[29]HNA Irish Nominee Ltd v Kinghorn (No 2) (2012) 290 ALR 372, 490 [507] (Emmett J); John J Starr (Real Estate) Pty Ltd v Robert R Andrew (Australasia) Pty Ltd (1991) 6 ACSR 63, 67 (Young J).

(d) Sections 232 and 233 are to be read broadly. Reference to decided cases may helpfully expose how the statutory concept of oppression is to be understood, but as French CJ said in Campbell v Backoffice Investments Pty Ltd (Campbell v Backoffice), ‘[t]he imposition of judge-made limitations on their scope is to be approached with caution’.[30]

[30](2009) 238 CLR 304, 334 [72] (French CJ).

(e) The conduct of a company’s affairs may be unfair notwithstanding that the relevant directors did not hold any particular state of mind or intent and the operation of s 232 may be attracted to a decision made in good faith and for a purpose within power, but which reasonable directors would think unfair.[31]  Nor is it to be supposed that there cannot be oppression ‘on the part of one who thinks that he or she is acting rightly’.[32]

[31]Wayde, 472 (Brennan J).

[32]Campbell v Backoffice, 360 [176] (Gummow, Hayne, Heydon and Kiefel JJ).

(f)        YSPL relied upon the decision of Byrne J in Re George Raymond Pty Ltd; Salter v Gilbertson, for the proposition that the fact that the conduct in question was engaged in bona fide and even on legal or other advice, is no defence to an allegation of oppression.[33]  While that statement of principle is undoubtedly correct, taken out of context it tends to obscure the nature of the relevant inquiry.  A finding of oppression involves an evaluative judgment, taking into account all the circumstances of the particular case.  Indeed as Byrne J also said, ‘[t]his does not mean that the honesty or probity of the majority is to be ignored’.[34]  While the absence of dishonesty is no answer by itself, to a claim of oppression, it may also be a factor to take into consideration.  Proof of intent on behalf of the alleged oppressor is neither required, nor necessarily irrelevant, to the inquiry.

[33](2000) 18 ACLC 85, 90 [18] (Byrne J).

[34]Ibid.

(g)       In analysing the conduct the subject of a claim, it is relevant to consider the course of conduct taken by the parties, including any relevant conduct of the plaintiff.[35]

[35]Joint v Stephens (2008) 26 ACLC 1,467, 1,497 [136] (Nettle, Ashley and Neave JJA).

(h)       The Court will not lightly interfere with the traditional roles of directors and shareholders in the management of a company;[36] the Court must avoid an unwarranted assumption of the responsibility for management of the company.[37]

[36]McCausland v Surfing Hardware International Holdings Pty Ltd [2013] NSWSC 902, [651]; Shamsallah Holdings Pty Ltd v CBD Refrigeration and Airconditioning Services Pty Ltd (2001) 19 ACLC 517, 520 [14].

[37]Wayde, 467 (Mason ACJ, Wilson, Deane and Dawson JJ).

(i)         The defendants submitted that, ‘actions taken by a corporation in accordance with a company’s constitution would rarely support an oppression claim, save where some improper or objectionable exercise of discretion occurred’ relying upon the decision of Beach J of the Federal Court in Donaldson v Natural Springs Australia Limited (Donaldson).[38]  Further, relying on the reasoning of Ferguson J in Arhanghelschi v Ussher (Arhanghelschi),[39] the defendants said that that principle also applied to any action taken by a corporation in compliance with a shareholders agreement.  That submission was put too highly.  In Donaldson, Beach J did not set down a general proposition. Rather, his Honour distinguished between those cases in which an action was taken by a corporation pursuant to a discretionary power exercisable under the constitution, and a power that was required to be exercised by the corporation under the constitution; in the former scenario Beach J found that ‘its exercise (or failure to exercise) in a particular way may enliven s 232’, but in the latter scenario, where there was no discretion and the company was obliged by its constitution to act in a certain manner, Beach J said that it was difficult to see how the conduct could enliven s 232.[40] This case is one in which actions were taken by directors of each of the Plus entities pursuant to discretionary powers found in each of the shareholders agreements. As such (and if it be the submission advanced), it is inappropriate to approach the inquiry required by s 232 from the presumptive position that any action taken in accordance with the terms of the shareholders agreements regulating the exercise of the discretionary power will be taken not to be oppressive, unless there is some degree of impropriety in the exercise of that power.

[38][2015] FCA 498, [246]-[268].

[39](2013) 94 ACSR 86.

[40][2015] FCA 498, [251].

(j)         However, as the reasoning of Arhanghelschi illustrates, the existence of terms in a shareholders agreement, voluntarily agreed upon by all parties, empowering certain shareholders or directors to take action, is a relevant factor to take into account when assessing the commercial unfairness of the impugned conduct.[41]  In that case, the fact that the aggrieved party had agreed to the terms of the unitholders deed (which included provisions which regulated the manner in which a unitholder’s interest would be acquired upon their exit, voluntary or otherwise, from the business) was found to be factor to which a reasonable director would have regard when assessing whether the conduct was commercially unfair.  Indeed, Ferguson J found that the plaintiff was relevantly aware that pursuant to terms of the deed the ‘majority would govern’ in the event the relevant clauses were invoked.[42]  The existence of a discretionary power pursuant to a shareholders agreement to engage in conduct is not, on its own, an answer to the question whether that conduct is oppressive; but, as the reasoning in Arhanghelschi elucidates, it is a highly relevant circumstance, in the matrix of circumstances, that informs how a reasonable commercial bystander would assess commercial unfairness.

[41]Arhanghelschi, 101 [52]-[54] (Ferguson J).

[42]Ibid, 101 [52].

(k) YSPL submitted that the factors, as outlined in s 387 of the Fair Work Act 2009 (Cth), to which regard must be had by the Fair Work Commission when determining whether a dismissal was an unfair dismissal, could usefully inform the understanding of commercial unfairness where a claim of oppression involves the dismissal of a plaintiff or plaintiff shareholder’s principal, because those standards are the expectations set down by Parliament to govern workplaces in Australia. Accordingly, YSPL submitted, they form part of the factual landscape in which to assess what a reasonable director would find fair. I accept that the factors to be considered by the Fair Work Commission when determining whether a dismissal was unfair might be relevant to determining the standard of commercial unfairness that constitutes oppressive conduct in some contexts, but analogy to unfair dismissal principles in the current case is inapt. This claim was not brought by Yelland in his personal capacity as an employee of Plus, but through his company YSPL. The conduct complained of was not the fact of Yelland’s exit from Plus Architecture but rather the manner in which YSPL’s shares were acquired upon Yelland’s exit from Plus Architecture. Indeed, YSPL was at pains to stress that Yelland resigned voluntarily, both as a director and then as an employee. Unfair dismissal laws are designed to provide redress to employees who would otherwise have little bargaining power, and few avenues to challenge the termination of their employment. In this case Yelland, while technically an employee, was one of the senior directors of the companies, whose relationship with each company was governed by a voluntarily negotiated shareholders agreement.

(l) If a court determines that the grounds for making an order pursuant to s 233 (as set out in s 232) have been satisfied, s 233 confers on the court broad powers to fashion orders that cure or terminate the oppressive conduct, or compensate the wronged party for any loss occasioned by that conduct.

(m) In assessing whether orders should be made pursuant to s 233(1)(e) requiring the purchase of shares from a member (and, relatedly, in determining the price to be paid for any such shares) the Court must be guided by the principle that the price to be paid is compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct).[43] The purpose of granting relief pursuant to s 233 is to remedy, or compensate for loss occasioned by, the conduct considered oppressive for the purposes of s 232(e). As such, it is permissible that the price to be paid for an aggrieved party’s shares pursuant to such an order does not reflect their real or actual worth and that the price to be paid may be adjusted to reflect the value the shares would have had but for the oppressive conduct.[44]

(n)       Consistently with the compensatory principle, if the aggrieved party has not suffered any loss as a result of the oppressive conduct, the Court may exercise its discretion not to make any award at all.[45]

(o)        While the Court’s power to order relief is not conditional on the existence of ongoing oppressive conduct, the absence of continuing oppression may indicate that the awarding of relief is not an appropriate exercise of discretion.[46]

[43]Wain v Drapac (No 2) [2013] VSC 381, [39] (Ferguson J).

[44]Ibid.

[45]Donaldson, [78], [271], [272] (Beach J); see also this Court in KSG Investments Pty Ltd v Open Markets Group Ltd [2021] VSC 145 [279]-[280].

[46]Campbell v Backoffice, 362 [182] (Gummow, Hayne, Heydon and Kiefel JJ).

B.2 Circumstances and significant events before mid-September 2017

1. Before approaching the characterisation of the acts of November 2017 said to amount to oppression of YSPL, it is necessary to consider the events and the relationships between the parties leading up to November 2017.

1. By way of background, in 2011 Justin’s company acquired 10% of the shares in Plus Melbourne, and each of Strunz, Briggs and Yelland (through their nominated shareholders) held a 30% stake.  Over time, Yelland, Strunz and Briggs had jointly assumed responsibility for the management of Plus Melbourne.  They had different but complementary strengths which, as Yelland put it, together constituted the three pillars of a successful architecture firm.  Briggs was responsible for design; Strunz, for project delivery.  Yelland was responsible for ensuring that projects were financially viable and that developers made a profit out of the projects, but was not responsible for personally winning work.  His time was also spent on strategy, business development, marketing and mentoring of staff.  The three directors functioned as a quasi-partnership, making decisions by consensus or majority, and no single director dominated the decision making process.

1. Justin stepped down as a director of Plus Melbourne in July 2012, but continued to assist Yelland, Briggs and Strunz in the development of Plus by providing mentorship and strategic advice derived from his experience of more than 40 years in managing architectural practices.  He attended monthly board meetings, weekly breakfasts with the directors and key staff, and participated in annual general meetings and meetings on particular issues as they arose.  He was, evidently, a trusted advisor who was closely involved with Strunz, Briggs and Yelland, until the central relationships involving Yelland unravelled from early 2017.

1. The fracture in central relationship was precipitated by Strunz and Briggs on the one hand, and Yelland on the other, holding starkly different views of the succession model for the business.  That fact was revealed in deliberations over what would happen to Justin’s remaining shares on his retirement, and specifically whether they would be acquired by Liew, who had been with Plus Melbourne since 2003.  The dispute became deeply personal and the central relationships foundered.  It was also concentrated on Strunz’s and Briggs’ concerns about Yelland’s moves to minimise Justin’s involvement in the business, and Yelland’s relationships with some staff including Liew.

1. After they had assumed control of Plus Melbourne, Strunz, Briggs and Yelland had agreed upon a business model for its expansion which involved them establishing new businesses interstate by identifying in each case a key local person with whom to partner, who would become a director and shareholder with them in a new local Plus entity.  Both Briggs and Strunz believed that it had always been intended that as those entities grew, Strunz, Yelland and Briggs would sell down their shareholding over time to the local director or directors.  Briggs and Strunz placed significant value on the prospect of local directors being invited over time to acquire substantial equity stakes in their respective entities, which, they thought, would allow them to attract and retain quality people who would ensure the success of the Plus entities, enabling each entity to leverage off the success of the others.

1. Justin, although not a director, was closely involved with Strunz, Briggs and Yelland, and shared that vision.  Justin was not cross examined and YSPL submitted in closing that there was no reason not to accept his evidence.  He said that over the years he, Briggs, Strunz and Yelland had had many conversations in which they had discussed that the plan for the growth of the Plus business was founded on the principle that as the business grew, Strunz, Briggs and Yelland would sell down their shares to new incoming directors.  That Yelland took a different view did not become apparent to the other directors until discussions in mid-2016 (discussed below).

1. Justin had told Briggs, Strunz and Yelland that he wanted to retire when he turned 70 in 2017, and wanted to sell his shares.  Liew was identified as the person who would most likely be the next director of Plus Melbourne.  Yelland had mentored Liew.  In February 2013, Yelland handed Liew a letter about her future at Plus Melbourne which relevantly read:

We are very pleased to have watched your growth as an employee.  Your dedication, loyalty and hard work has placed you in high regard.  We trust this will continue and you will be able to make the transition from employee to business partner.  We would like to confirm our discussion around how we see your future at Plus – once you start winning work.  The following will give you our intended road map that we hope you follow … Once you have won and written over $2M in fees we intend to do the following:

1.Invite you to purchase shares in Plus. (This will make you a shareholder of Plus).

2.50% of your bonus for winning work will then be used to buy shares.  The share purchase is tied to your bonuses.  If you keep winning work you can buy shares.  If you stop winning work you can’t buy shares.

3.Make you a Director registered with ASIC.

4.You will receive dividends proportionate to your shareholding.  This will reduce your bonuses by the same amount.

5.Once you are a 10% shareholder the bonuses will no longer apply.

After you own 10% of Plus we are open to a discussion about increasing your ownership provided it is proportionate to input.

1. Justin’s understanding was that he, Strunz, Briggs and Yelland had agreed he would sell his shares to Liew in two tranches of 5% each, which would allow them to monitor her performance and ensure she was meeting her KPIs, and make buy-in affordable.  The minutes of the Plus Melbourne Annual General Meeting held on 6 August 2014 recorded in relation to shareholding that,

Next step is Jess buys 5% shares on 1^st Jan 2015 from Charles.  She will receive profits based on the time she owns shares.  Get lawyer to do a shareholder resolution … Jess current 2.5% bonus for willing work stays until she is 10% shareholder.  At that point, she will receive profit distributions instead of the 2.5% bonus.  Jess package to increase to $150K on next pay period.  RIC[47] to be increased to $200k … The second 5% will be offered on 1^st July 2016 provided she meets her KPIs.  RIC to create these.  This will include 25% of work generated by plus to be brought in by Jess.  And other KPIs such as profit, staff, design etc.

[47]RIC is a reference to Rayner (Strunz), Ian (Briggs) and Craig (Yelland).

1. Yelland accepted when cross-examined that the February 2013 letter and the 2014 AGM minutes recorded a clear intention agreed between Strunz, Briggs and Yelland that Liew would receive all of Justin’s shares, in particular that their shared expectation was that the final 5% tranche of shares would be transferred to Liew provided that she met her performance requirements.  In November 2014, a draft revised shareholders agreement was prepared for Plus Melbourne and circulated between Liew, Strunz, Briggs and Yelland.  It contemplated the transfer of shares from Justin to Liew in two tranches and provided for the transfer of the second tranche by 1 January 2016.

1. Liew met her KPIs, including writing $2 million worth of new business as specified in the February 2013 letter.  She became a director of Plus Melbourne in January 2015, at which time her shareholding entity, Monster Architecture Pty Ltd, purchased 5% of Justin’s entity’s shares, and in March 2015 she became an equal shareholder in Plus New Zealand, with Strunz, Briggs, Yelland and the local New Zealand director.  Liew exceeded her KPIs for 2015.  It was her understanding that because she was still meeting her KPIs and generating substantial fees for Plus Melbourne, that she would have the opportunity to acquire the remaining 5% of Justin’s shares on 1 July 2016.

1. The minutes for the 2015 AGM for Plus Melbourne which was held on 20 August 2015 recorded that Liew was to receive a pay rise to match Strunz, Briggs and Yelland.  It was noted that Justin intended to depart in 2017, that Strunz, Briggs, Yelland and Justin agreed that his ongoing involvement and support until 2017 was valuable, and that succession planning should be addressed soon.

1. Liew considered from about the time of the 2015 Melbourne AGM Yelland had begun to put her down in her presence, including in front of other staff and directors.  One incident (the only one discussed in any detail in the evidence) was a team-building workshop held in February 2016 with an external facilitator and attended by Briggs, Yelland, Liew and several senior associates.  Participants were asked to describe other people who were present in the session and, when asked to describe Liew, Yelland said that she was a ‘mean’ person who treated staff ‘badly’.  Liew was shocked by Yelland’s statement.  Some staff present responded to Yelland’s comment, disagreeing with it.  Yelland accepted Liew’s account of the training session.  He said, in justification of his comments, that because the facilitator had encouraged honest participation, it was appropriate for him to express his view in that way.

1. At about that time, Yelland told Liew in passing that his shares would only be sold some time far into the future and to someone his daughter’s age.  Liew began to doubt whether she would in fact acquire a further 5% shareholding if it was on offer.  By late 2016, Liew had begun to lose trust in Yelland and to question his motives in relation to her ongoing involvement in the company.  She found the situation, and working with him, very stressful.  The issues were significant enough for her to consult a psychologist.  None of her evidence in that regard was challenged.

1. In June 2016 Strunz, Briggs and Yelland first met to specifically discuss the future of their shareholdings.  They discussed the same issue several times over the next few months.  Briggs’ unchallenged recollection was that he attended 13 meetings between November 2016 and April 2017, with the early meetings moderated by Justin.  It became apparent from the first meeting that Strunz and Briggs shared a common vision of selling shares down to new partners sooner, with a view to reaching equal shareholding between all directors, but Yelland’s vision was that he, Strunz and Briggs maintain significant shareholdings for as long as possible until retirement, keeping new directors at a 5% shareholding but providing them with an increased salary to incentivise them.  Yelland said at one of their meetings that the next person to whom he would sell his shares was his then five year old daughter.  Yelland also said that he had no interest in what happened to the company once he retired.  Briggs and Strunz, however, wanted a business that could be handed on to future directors.

1. It also became apparent that Yelland was not willing to allow Liew to purchase Justin’s remaining 5% shareholding.  Briggs and Strunz told Yelland during those meetings, that they wanted to have Liew as a more significant shareholder and considered it relevant that at that time, she was bringing in more fees than Yelland.  Yelland strongly disagreed that Liew should become an equal shareholder.

1. Strunz and Briggs perceived that Yelland had moved the goalposts in those discussions both in relation to Liew and more generally.  In his evidence Yelland denied that he had changed his position, saying that he was consistent in his desire to maintain two tiers of directors – the original directors who would each continue to own about 25% of each Plus entity, and another tier, who would each own about 5% of the relevant entity.  That view had not been communicated to Briggs or Strunz before mid-2016.

1. In late 2016, Justin again raised the subject of his shares with Strunz, Briggs and Yelland because they were approaching the time when the second tranche of his shares (the remaining 5% parcel) was to be sold.  Yelland said that he would not allow the shares to be sold to Liew.  He also said that he did not trust her and thought that she was trying to get rid of him from Plus, and that her performance was ‘not that good’.  Justin’s evidence (which was unchallenged) was that Yelland’s views about Liew’s performance and her attitude towards Yelland were a complete surprise to him.  He considered that Yelland’s impression of Liew was unfounded and that in any case, they had all agreed that he would sell his remaining shares to Liew.  Strunz and Briggs said that they agreed with Justin and told Yelland so.

1. The fact that the differences between them on the subject of the ownership of Plus shares were stark, became plain during and in the aftermath of one of their regular breakfast meetings on 28 February 2017 at which Yelland, Justin, Liew, McArthur and Strunz were present.

1. At that meeting, the issue of the sale of the remaining 5% of Justin’s shares was again discussed and Justin said that he would not sell his remaining tranche until the group had decided who would get them.  Yelland proposed that each of Yelland, Briggs and Strunz purchase Justin’s remaining 5% shareholding and when Strunz said that he did not agree, Yelland said that he would exercise his right under the shareholders agreement to buy them himself.

1. Yelland (on Strunz’s account, which was unchallenged) appeared to became very angry and told Justin that he would sue him if he would not sell the shares, and that he, Yelland, was willing to buy them.  Strunz told Yelland, in response, that he would vote to terminate Yelland’s contract.  Strunz sent a WhatsApp message to Briggs later that day describing what had happened at the meeting, in these terms:

You missed quite a show at breakfast this morning.  Craig threatened Charles with legal action.  And after that I told him I’ll vote to have his contract terminated!  Wow.  It was awful.  Knives are out.  And it’s getting ugly.  Charles was hurt.

1. Yelland also sent a WhatsApp message to Briggs and Strunz that day, in which he said to Briggs:

Ian.  It’s all going pear shaped.  And I lost my cool this morning.  I told Charles I will be taking legal action if he breaches his contract to sell his last 5% on 1^st July.  RS asked me to resign.  Obviously I said no.

1. Yelland said in his evidence that he considered that Justin had made a legally binding agreement that he would sell his final shares by June 2017 to Strunz, Briggs and Yelland, and that he was entitled to force Justin to sell the shares regardless of whether the other directors agreed.  After the 28 February breakfast meeting, on the same day, Yelland emailed Justin attaching a letter dating from 2010 which, Yelland said, was a contract signed by Justin requiring him to sell his shares on 1 July 2017.  The letter, from Justin on behalf of SJB Architects, set out an ‘offer…agreed in principle’ in relation to the 40% shareholding in Plus Melbourne then held by SJB and FKA (that is, SJB Architects and Fender Katsilidis Architects), which included as one element, that the balance of the shares would be ‘similarly sold within 5 years… i.e. July 1^st 2017 the timing of which will be at the discretion of SJB and FKA’.  The letter appeared to have been subsequently signed by Justin, Briggs, Yelland, Strunz, and Karl Fender for Fender Katsilidis.  Yelland’s email also referred to the provision in the shareholders agreement governing the determination of the value of shares transferred between shareholders and requiring the company to first offer shares the subject of a transfer notice, to the remaining majority shareholders.

1. Justin’s response to Yelland on 28 February pointed to the fact that the structures within Plus Melbourne had substantially changed since the 2010 letter, which was a ‘side-agreement’ to the then current shareholders agreement.  He said that the current shareholders agreement, which superseded previous agreements, did not require Justin to sell his shares.  He went on to say –

… in the context of the above to be threatened with legal action is laughable.  … In addition I find it totally hypocritical that you expect me to honour an agreement that is superseded, yet you are not prepared to honour an agreement to sell another 5% of shares to Jessica which is currently in place and supported by 70% of the shareholders.  I refer you to clause 3(a) of the shareholders agreement which requires each director to be ‘just and faithful to each other and to carry out their duties so that the Company conducts the Business to the mutual benefit of the Shareholders’ I believe your conduct is in breach of this obligation.  Your position is self-serving … which all other shareholders regard as being detrimental to the long term growth and sustainability of Plus.  Your bullying, coercive and intimidating tactics are contrary to the ethos of Plus and is destroying all the goodwill which built Plus to the great company it is … The mechanisms within the shareholders agreement to resolve disputes is through mediation and arbitration.  Once lawyers get involved that will be the end.  I suggest you take a long hard look at yourself and the position you are taking and what the potential consequences will be.

1. Yelland’s response (copied to Briggs and Strunz), the following day, read,

I find it amazing that two intelligent people can have such completely different views.

Imaging [sic] for a minute that Alan and Michael[48] wanted to make Alfred an equal shareholder and for many reason you felt strongly that you didn’t.  Would they force you into it? I don’t think so.  I think they would respect your point of view and not bully you into it.  Now imagine for a minute that Alfred:

- can’t design

- is a tyrant with staff

- has not developed one single staff member since becoming a director

- asked that YOU be removed

- can’t be trusted

- doesn’t win enough work to cover his costs

- offers nothing as a board member.

Now how do you fell about your partners bullying you into Alfred’s promotion? Please ponder this.

[48]Alan and Michael were former partners of Justin.

1. Yelland was cross-examined about that email.  He accepted that the reference to the ‘Alfred’ was intended as an analogy to Liew.  He accepted that he meant to convey that Liew had the characteristics set out in the email.  Yelland considered that Liew’s relationships with staff were not good enough for her to become an equal shareholder.  He consistently maintained that position in his evidence.  He accepted the statement in the email that Liew was not winning enough work to cover her costs was false.  When asked why he wrote it, he said he was ‘just using examples’.  The purpose of the communication, he said, was to try to persuade Justin to his view about Liew.  He accepted that it was not true that Liew had nothing to offer as a board member, and agreed that in fact, she did have things to offer.  He said that he had tried to ‘base [the email in] as much fact as I could’, but that he ‘overstepped and exaggerated’.  The reference to Liew trying to get rid of Yelland was, Yelland said, a suspicion based on a conversation in which, on his account, Liew said to him that they should ‘get rid of Ian’ [Briggs] because they ‘need[ed] a starchitect’.  That conversation was not put to Liew.  Yelland agreed that Liew did not take any steps to try and get rid of Briggs.  That suspicion was the basis, Yelland said, of the statement that Liew could not be trusted.  Asked whether he regretted sending the email, given the exaggerated and in some respects false statements about Liew, his evidence was that, he was ‘trying to convince Charles, so no, I don’t regret sending it’.  I accept the defendants’ characterisation of that evidence as disclosing a preparedness by Yelland, in this instance, to prosecute his own case by making allegations he knew to be untrue.

1. The 28 February 2017 meeting and communications in the subsequent days revealed that, by that time, the relationships between Yelland and Justin and Yelland and Strunz were broken and antagonistic.  What Strunz said (as reported to Briggs after the meeting) was also significant because it reveals that he was prepared to contemplate voting to terminate Yelland at that point in time, as a response to Yelland’s attack on Justin and in the context of what by then appeared to have become an intractable dispute about the shareholding issue.

1. Briggs formed the view that from that point their relationship had broken down.  His unchallenged evidence was that it subsequently never recovered.

1. After the 28 February 2017 meeting Yelland told the others that he did not want to continue the weekly directors’ breakfast meetings with Justin.  Briggs and Strunz did not agree.  They each considered the meetings to be important and Justin’s contribution to be valuable.  Strunz, Briggs and Justin continued to meet over breakfast but Yelland stopped attending.  Strunz’s unchallenged evidence was that he was very upset by Yelland’s behaviour towards Justin.

1. Sometime in the ensuing weeks Yelland announced, without consulting Briggs or Strunz, that Justin was not to attend the board meetings anymore and that he should not take any further advisory role in the business.  Strunz and Briggs discussed the issue with Justin and agreed that he would not attend board meetings.  They did so, on their unchallenged accounts, despite considering Justin to have been contributing valuably to board meetings, in order to try to keep the peace and to try to resolve their differences with Yelland.

1. Around that time Yelland said he wanted to introduce other associates to acquire shares in Plus Melbourne from Justin (distributing the remaining 5% of Justin’s shares), rather than allowing Liew to acquire the shares, and without reducing the proportion of shares held by Strunz, Briggs and Yelland.

1. Briggs, like Strunz, became, as he described it, deeply concerned about Yelland’s refusal to support the transfer of the 5% shareholding to Liew.  He regarded Yelland’s position as a fundamental betrayal of Liew and considered that Yelland’s position departed from what had been previously agreed.  Strunz’s evidence was that by that time, his relationship with Yelland had begun to break down and it broke down completely a couple of months later.  Neither Strunz nor Briggs was challenged on their assessment of the impact of these issues on their partnership with Yelland.

1. From the latter part of 2016 and into 2017, Briggs observed what he considered to be Yelland ‘sniping’ at Liew both to her in person in the presence of other staff, and behind her back.  Briggs’ evidence was unelaborated but he was not cross-examined on this aspect of his evidence.  Briggs was concerned by early 2017 that Plus Melbourne may not be able to retain Jessica Liew who, at that time, was a significant fee earner and in his assessment a major contributor to Plus, if she was prevented from acquiring more shares as had previously been agreed.  He was also concerned the relationship between Yelland and Liew had broken down.

1. Shortly after the 28 February 2017 breakfast meeting, Strunz and Briggs sought legal advice.  The advice was not in evidence but Strunz said that he had sought clarity on what might happen if they could not agree, by which I infer he meant what their options would be if Briggs, Strunz and Yelland could not reach agreement on the shareholding structure going forward.  Later, during the final mediation session with Yelland (discussed below) he told Yelland that the advice had been that they could require Yelland to leave.

1. On 2 March 2017, Yelland met with Liew, at his instigation.  Yelland told Liew that he did not intend for her to acquire more than the 5% of Justin’s shares that she had already acquired, for the rest of her life.  He said he intended to reduce her salary to $100,000 plus 10% of the profits brought in on certain jobs.  She considered that to be a significant decrease on her existing salary.  Yelland showed her a copy of a spreadsheet setting out his version of share succession, with Liew retaining 5% of the company shares in perpetuity, and two other associates becoming shareholders in 2018 and by 2020 each holding a 5% share.  Strunz, Briggs and Yelland would sell down their shares commencing in 2019, but such that until and including 2030, each would hold 28.33% of the shares.

1. After the meeting with Yelland, Liew became distressed and concluded that she was unsupported by Yelland in her role as a director and employee of Plus Melbourne and that her relationship with Yelland had substantially broken down.  She considered resigning from Plus Melbourne at that point.  Liew was eight months pregnant at the time, and contemplated whether she should resign after she had given birth to her child.  Shortly afterwards she went on maternity leave.  At around that time (probably from late 2016) Liew had sought advice from a psychologist in relation to the situation with Yelland.  As she explained it, she wanted to make sure that she was not being too emotional, and to get advice on how to handle the situation.

1. Yelland told Briggs about his meeting with Liew, reporting the substance of what had been discussed.  Yelland said, in his evidence, that Liew knew what the majority view was, and that he was putting his view to her.

1. Yelland’s evidence about the dispute over Liew’s shareholding was that he did not believe that the understanding they had reached at the time of the sale of the first tranche of Justin’s shares to her shareholding entity bound them to transfer the second tranche of shares to her at a later date.  He said that they had proposed a ‘roadmap’ providing that sometime after the sale of the first 5% tranche they would reconsider the sale of the second 5% tranche.  While it was true that Liew had been provided with a roadmap towards directorship with performance requirements spelled out, Yelland’s evidence that they would reconsider the second 5% tranche was inconsistent with the contemporaneous documentary evidence and with his later concession that in fact, the February 2013 letter and the minutes of the 2014 Plus Melbourne AGM each reflected the directors’ clear intention that Liew would receive all of Justin’s shares, subject to performance requirements.

1. In fact, as Yelland ultimately also accepted when cross examined, his position had changed by the time of the proposed sale of the second tranche.  He said that he did not believe that the sale of those shares to Liew was in the best interests of the company, and he would have preferred the shares to have been sold to two other associates who he regarded as more deserving candidates.  It was put to Yelland that Liew had exceeded every KPI that had been set for her.  Yelland agreed that over the 12 to 18 months after Liew obtained her first tranche of shares, her performance as an architect and director remained ‘stellar’ and on the question of fees generated, she performed well.

1. On the question of fees, in mid-2017 Strunz prepared spreadsheets showing the projected fees by director, on Plus Melbourne’s then current projects, assuming the projects proceeded to conclusion.  According to that analysis, the projects originated by Yelland, Liew, Briggs and Strunz were expected to generate respectively (in round numbers) $9.916m, $12.917m, $3.857m and $21.169m.  On the face of that analysis, Liew was the second-highest generator of fees.  Yelland was shown the spreadsheet in the course of his cross-examination, and it was put that Strunz had prepared the document in late 2016.  Yelland said the document had been ‘fabricated’ by whoever was its author, for the purpose of making his ability to win work, ‘look worse’; that the document showed ‘fabrication of a lot of numbers and columns and timing which is obviously to serve someone’s purpose, a bit of creative writing’.  In response to that evidence Senior Counsel for the defendants asked Yelland directly whether he was ‘saying someone fabricated this document for an ulterior purpose’.  Yelland said yes, he was saying that.  In submissions YSPL said that the use of the word ‘fabricated’ was inartful but accurate because ‘fabricated’ meant constructed or manufactured as opposed to falsified, and that Strunz had prepared the document for the purpose of demonstrating who was generating what work.  Although Strunz did prepare the document for that purpose, having heard Yelland’s evidence I did not construe the evidence in the way YSPL submitted it should be understood.  YSPL’s characterisation of the evidence was contrived.  Yelland’s evidence revealed that he was reluctant to accept the what the document revealed.  Ultimately, however, YSPL did not lead any evidence to contradict it.  The simple point was that the objective evidence established that Liew was a significant fee earner for Plus Melbourne.

1. Yelland accepted that he had regarded Liew as a highly skilled and very competent architect, but said that his opinion changed in relation to the way in which she handled staff.  Liew, he said, required staff to work hard but did not thank them, and associates had reported to him that they had had to ‘put out…fires’ caused by Liew.  When challenged to provide specific instances of Liew’s negative or unacceptable behaviour towards staff, Yelland recalled one instance, which he did not witness directly.  One staff member told Yelland that when he took leave after his mother’s death Liew told him to ‘get over it’.  That conversation was not put to Liew.  Yelland told Liew in the course of board meetings that she needed to say ‘thank you’, to staff.  Strunz and Briggs did not accept Yelland’s assessment of Liew.

1. On the subject of the treatment of staff, Yelland said, when criticising Liew, that it was a major priority in an architecture firm to treat staff well.  He also said, however, that there is nothing wrong with ‘raising your voice at staff who have made a mistake and won’t admit it’.  That evidence was evidently directed to justifying his communications with other staff, which he knew to be in issue.  His focus on Liew’s engagement with staff can be contrasted with his own interactions with staff members, a subject which is discussed below.

1. In May 2017, McArthur provided to Strunz an updated draft shareholders agreement for Plus WA that she had received from Plus’s lawyers for the directors’ approval.  Strunz noticed that controlling shareholders and controlling directors clauses had been inserted into the agreement.  The effect of the draft amendments was to ensure that no director or shareholder decisions were made without at least one of the controlling shareholders and a controlling director voting in favour of the motion.  The controlling persons were Yelland, Strunz, Briggs and Juric.  Strunz and Briggs consulted Plus’s lawyers and were told that the control clauses had in fact been inserted on Yelland’s instructions.  Yelland had ordinarily been charged with instructing Plus’s solicitors in respect of any variations to the shareholders agreements.

1. Strunz said in his evidence that he was very angry about what Yelland had done, because it had not been discussed with him and nor, he believed, with Briggs.  He and Briggs had previously told Yelland on several occasions that they did not want to be ‘better than anyone else’ meaning that they wanted equality with other directors.  Strunz believed that Yelland thought he was acting to protect the interest of himself, Strunz and Briggs, but at the same time, considered Yelland’s actions a substantial breach of his trust because he took it on himself to amend the terms of the draft agreement despite having been told that Strunz did not want that result, and without discussing it with him beforehand.  Briggs regarded Yelland’s amending the draft agreement as a betrayal of the values of Plus and did not believe that the new directors of Plus WA should be treated as ‘second class’ directors.  He was concerned the new provisions would impact negatively on their working relationship with the two new directors.  Yelland said that he believed that he, Briggs and Strunz had agreed to those clauses.  I prefer the evidence of Briggs and Strunz.  Yelland’s account did not sit with Briggs querying the draft when he received it and specifically raising with Strunz that a ‘controlling directors’ clause had been inserted, which was established by contemporaneous documentary evidence.  Strunz and Briggs told Yelland that the clause should be removed, and Yelland agreed.  Subsequently, no shareholders agreement for Plus WA was signed.

1. In and after May 2017 the ongoing meetings between Briggs, Strunz and Yelland about the Plus business model continued with an external mediator, Soozey Johnstone, whose involvement was proposed by Yelland with the agreement of Briggs and Strunz, after Yelland told Justin that he was not acting neutrally and could not mediate the dispute.

1. In August 2017, McArthur was instructed to advise Justin that he would no longer attend meetings with Yelland, Briggs and Strunz other than those required to fulfil statutory obligations, and that the AGM would only deal with those things required by statute.  She sent a text message to Justin the following day saying that that conversation ranked as a low point in her career and she was feeling very let down by Plus to have been put in that position and was now considering new opportunities.

1. At a Plus International conference held in August 2017 attended by most directors of each of the Plus entities (but not Briggs), Yelland conducted an informal survey of each participant’s vision for the future of Plus.  He said that his vision was for a company of around 50 staff and profits of over 25%, but most of the other directors said they could see Plus growing beyond 200 people.  Strunz considered that Yelland’s view about the future of the company did not align with his as being a national and international company with over 200 staff, even if that meant less profit.  He considered that to be a fundamental difference between them.

1. By about mid-2017, a decision had been taken to refresh Plus’s branding.  Work was done on a proposal throughout August 2017, with a vote to be taken at the directors conference held in Noosa in early September.  Strunz’s unchallenged account was that a vote was passed at that conference in favour of the proposed rebranding, however during lunch and at dinner on the day of the vote, Yelland pressed his problems with the branding and repeatedly asked for a revote.  Strunz perceived that Yelland was trying to exercise his power to control all decisions in relation to all Plus entities.  An argument ensued and Strunz left the conference dinner early because he did not want to be in the same room as Yelland or to be alone with him.  He described Yelland as ‘extremely aggressive and persistent’, in his manner, in one on one interactions.  He was not challenged on that evidence.  Strunz sent a WhatsApp message to Yelland the following day which read:

C, what happened last night was unfortunate.  But next time I tell you that I don’t want to talk about it, let it go.  I [sic] order to get through the next week until our session with Soozey: please do not talk to me unless Ian or Jessica are present.  No more one on one sessions.  I feel intimidated and bullied by you.  I’ll make my own way to the airport.

1. Yelland responded: ‘That’s a shame’.  Briggs replied that a session between each of them and Johnstone the mediator was a good idea, and Yelland agreed.

1. Yelland accepted that he had advocated for a second vote on the re-branding exercise at the Noosa conference, and the re-vote was held after he had spoken to most of the directors one on one and explained why he did not think the expense was worth incurring.  He considered that all of the directors had been fully informed by the time of the second vote and that rejecting the particular proposal the subject of the vote was financially prudent, and that the second vote had ‘vindicated’ his position.

1. As noted earlier, Yelland’s interactions with some staff members were of concern to the other directors.

1. Yelland had strong relationships with many staff throughout the Plus business.  When his exit from the business was announced, he received many messages of support.  YSPL produced some 12 such messages.  For example,

On 15 September 2017, Elissah Loh, an Associate at Plus, sent Yelland the following message:

cy, I’m so sorry to hear this.  n in shock so am lacking in words but i really wanted to send u something.  u have been so key to my growth.  i want to tell u that because i truly appreciate all the times spent w u n will always be one of my mentors.  eloh x.

On 16 September 2017, Uma Weerakkody, an associate at Plus Melbourne sent Yelland:

Craig not sure what to say except a huge thank you for being such a pivotal part of my career and giving me so much opportunity and growing me into who I am today.  Words aren’t enough.  I get through situations with “what would Craig do”.  Learnt so much from you.  I’ll continue to use your legacies.  Hopefully we catch up soon.  Xxxx

1. The defendants did not dispute that Yelland had successfully mentored younger staff and that he was regarded well by many of them, as messages of that kind attested.  Their concerns were focused on his interactions with Liew, Macarthur and Plus’s Marketing Manager Todd Shilton.

1. In respect of each entity on the question of control, Hockley considered the constitution of the board, the constitutional arrangements for the removal of directors and the ability to block resolutions, the dividend history of the entity and studies on control premium.  On the question of lack of marketability he considered the relative size of the parcel of YSPL shares to other shareholders, restrictions on the transfer of shares and the underlying assets of the company.  Having done so he considered that discounts should be applied as follows:

(a)   For Plus Melbourne, 10% for lack of control and 5% for lack of marketability;

(b)  For Plus Sydney, 15% for lack of control and 10% for lack of marketability;

(c)   For Plus Brisbane, 12.5% for lack of control and 5% for lack of marketability.

1. In the Joint Report Jaski said that if a discount was appropriate, the percentage ranges identified by Hockley were appropriate, with a larger shareholding typically attracting a lower discount.

1. The discounts assessed by Hockley in my view are soundly based and should be applied.

E.7 Plus International

1. YSPL did not make a breach of contract claim in respect of Plus International.  I have dealt with its ‘notional royalty’ adjustment to its valuation of the ‘Plus Group’, for completeness, given the attention paid to this issue at trial.

1. As mentioned earlier (see the ‘Plus Group’ point), Jaski adjusted his assessed FME for each entity by determining a notional ‘royalty’ payment by each entity to Plus International.  As he explained in his Report, ‘I have allocated value to each Plus Group entity based on my assessed FME.  However, because Plus International is not a trading entity and operates at break even, in order to allocate value to Plus International, I have incorporated a notional royalty payment from the trading entities to Plus International’.[130]  He said that an adjustment was necessary because Plus International (‘albeit via the unit trust’) owned the intellectual property of the business, which he took to have ‘significant value’.  In order recognise that value, as he put it, ‘we need to come up with a methodology of how to appropriately put that in place’.

   [130]Jaski report, [155].

1. In his report Jaski said that the ‘Plus Group’ operates in a similar way to a franchise business because Plus International operates as a ‘head entity’ that owns the group’s intellectual property and licences it to each of the trading entities, and has service agreements in place with the trading entities.  By analogy, royalty payments made under a franchise agreement represent the regular fee paid by the franchisee to the franchisor in exchange for the use of the franchisor’s systems and brand name for the provision of other support services such as marketing and training.

1. Jaski applied a notional royalty fee of 5% of revenue.  He made the adjustments that he described as akin to normalisation, by calculating for each of the Plus entities 5% of their assessed FME revenue, deducting that amount from the FME for that entity and allocating it to Plus International.  As a result, the notional royalty payment had the effect of increasing the assessed value of Plus International and decreasing the value of the other entities.  As he explained it, ‘it doesn’t affect my valuation of the Group as a whole, but it does affect my allocation to the shareholders’.

1. The impact of characterising the Plus entities as a group, and then as a franchise, resulted in a significant value shift between the operating entities and Plus International which indirectly increased the value attributed to the Yelland interests.

1. For the following reasons I reject Jaski’s assessment.  It was made without any proper evidentiary or conceptual foundation.

1. First, the ‘franchise’ analogy and the imposition of a charge on the trading entities on that basis (or at all, on the evidence) was unsound.  More particularly, it was a means by which a structural and financial relationship between Plus International and the trading entities was assumed to exist or was imputed.  Jaski adopted that framework without proper regard to the evidence.

1. Jaski was not aware of the details of the relevant agreements or of the previous market transactions at the time of the Joint Report.  He accepted that the licence agreements were due to expire in mid-December 2017.

1. In fact, the arrangements between the Plus entities and Plus International were such that Plus International operated on a cost recovery basis with Plus International making a net loss in 2016 and 2017.  Plus International did not charge royalties to any of the Plus entities and the contractual arrangements did not provide for such fees to be charged.  Not all Plus entities had documented agreements with Plus International or agreements between each of the operating practices.  Yelland had accepted when cross-examined that the intention from its inception was that Plus International would provide services to the Plus entities at cost and not obtain a mark-up.  Yelland had written to Liew on 15 December 2014 to assure her that the Plus International licences would be perpetual to the existing licences and that subject to CPI increases, the licensing fees to those existing licences would stay at $1,000 per annum.

1. Jaski assumed that the intellectual property held by Plus International held significant value, but he had not valued it nor been instructed to do so.  Jaski accepted when cross-examined that the terms of the transfer of intellectual property from Plus Melbourne to Plus International in December 2014 was relevant to any determination of the value of Plus International.  An independent valuation of the intellectual property including trademarks, brand and website as at 2 December 2014 produced a valuation of nil.  The transfer price from Plus Architecture to Plus International was $10,000.  Hockley’s uncontradicted opinion was that because of market substitution rules by reference to which it was to be regarded as commercial valuation, it ought not be ignored.  Otherwise, the folio of work owned by Plus International was not determined to have any particular or any substantial value.

1. Jaski did not consider any of these matters.

1. Furthermore, insofar as the imposition of a notional charge on the trading entities relied upon their characterisation as franchisees, the Plus entities had autonomy in operating their own businesses, including in respect of staffing issues, operational control including costs and budgets, and the planning and operational execution of their businesses (see the analysis in relation to the ‘Plus Group’ point).  Jaski assumed that Plus International was a ‘head entity’, but in fact, the manner in which they operated did to fit the franchise analysis.  Cross-examined on the use by the trading entities of the intellectual property held by Plus International, Jaski said he ‘didn’t drill into that’, and that,

I think my analogy for a franchise was at a very high level.  Somebody owns IP, and licenses it, and regulates where you can use it.  I didn’t go into details as to all the different franchise models and whether this, specifically, aligned to a particular type of franchise model, and what was positive or negative. … But at a very high level, um, I consider it an analogy to a franchise.  But in any further detail, no, I didn’t get into that detail.

1. Second, even leaving to one side the conceptual mechanism by which a notional fee was imposed on the trading entities, there was no proper basis for calculating it at 5% of revenue.  Jaski said that his adoption of 5% was based on his experience (which was not set out or analysed) and his research from which he determined that a typical royalty rate for a franchise business was between 5% and 7% of revenue.  As the defendants correctly submitted, the research quoted in support of the royalty rate was not itself the product of specialised knowledge or academic research, but was obtained by a Google search from a UK franchiser’s blog post.  The article did not support the claim made.  Jaski accepted that it was not a peer reviewed piece of literature (or anything approaching that), but a blog post that his staff had uncritically accepted because it corroborated his 5% reference, that he said was based on his experience.  Jaski himself had said that the level of royalty payable under a franchise agreement will depend on a number of factors, including the level of service provided and the industry in which the business operates.

1. Third, the notional royalty fee was a substitute for a legitimate valuation of the units in the Plus International Unit Trust.  Jaski did not value the units and was not asked to do so.  He accepted that there were numerous inquiries he would have had to have made in order to conduct that exercise.

1. Hockley accepted that in allowing some value for the intellectual property held by Plus International it would be appropriate to allocate value according to the income that could be extracted from the other Plus entities for the use of the intellectual property.  It would have been open to YSPL to prepare and place evidence before me in relation to that question, but it did not do so.  In all of the circumstances it has not established any proper basis for making an adjustment of that kind.

1. I infer, in light of the matters discussed under the heading of Jaski’s independence, that this wholly unsatisfactory exercise was driven by Yelland’s instructions and was not sufficiently the product of a critical analysis by an independent expert.  If even I am wrong in so concluding, the difficulties with the opinion speak for themselves.

1. Hockley valued the interest held by YSPL in Plus International on a minority interest basis by reference to its adjusted book value, which I accept as an appropriate methodology.  No financial statements were prepared for the company.  Hockley made the assumption that the only assets held by it were represented by its paid up share capital of $1,200.  No valuation of the units in the unit trust was made.

E.8 Conclusions – quantum

1. To summarise, YSPL’s interests in Plus Melbourne, Plus Sydney and Plus Brisbane are to be valued by adopting Hockley’s valuations of each entity with the adjustments that follow.  Adopting Hockley’s valuation as the base assessment is appropriate given the views I have reached above, in which I have largely accepted Hockley’s valuations:

(a)   As to FME, applying Hockley’s assessments with the adjustments set out in paragraphs 485 and 486 in respect of wage normalisations and at paragraph 502 in respect of directors salaries;

(b)  Applying the multiples at paragraphs 509;

(c)   Applying minority discounts as set out at paragraph 534.

1. The schedule 2B discount is to be applied.

1. The amounts already paid to YSPL and accepted under protest are to be deducted.

1. I will hear the parties in relation to interest.

1. I will ask the parties to prepare an order to reflect these reasons.

Annexure 1 – Relevant clauses of the Shareholders agreements

Clause 1.1      Definitions

(a)Associated director means, in respect of a Shareholder, the Director which is that Shareholder or has Practical Control over that Shareholder, and who as at the date of this Deed are the corresponding parties set out in Item 0, in each case for so long as the Director is such a Director;

(b) Ordinary Resolution means a resolution of the Board approved at a Director's meeting by at least the percentage specified in Item 0 of the votes of all of the Directors of the Company (whether or not all present and entitled to vote on the resolution);

(c)Ordinary shareholders resolution means a resolution at a meeting of Shareholders where each Shareholder has one vote per Share held and where the total number of votes required for passing the resolution is at least the percentage specified in Item 0;

(d)Transfer Notice has the meaning given to that term in clause 11(a).

Clause 2        Company's obligations to the Shareholders

The Company will conduct the Business as a going concern and as successfully as the Company using its best endeavours can achieve and ensure that it:

…

(c)       insurance:

(i) insures and keeps insured the assets of the Company which are of an insurable nature against damage or destruction;

(ii) insures and keeps insured each of the Directors against death and total and permanent disablement:

(A) each year for a sum nominated by the Company by way of Ordinary Resolution and which takes into account the Company's profit in the preceding year; and

(B) with the nominated beneficiary of each insurance policy to be any person (including, without limitation, a Shareholder) nominated in writing as such by the Director to whom the insurance policy relates and which are, as at the date of this Deed, the beneficiaries set out in Item 11; and

(iii) takes out and keeps in force workers' compensation and public risk insurance; and

(iv) otherwise takes out and keeps in force insurance in amounts and against risks that a company holding assets and carrying on a business similar to that of the Company would prudently insure for and against;

Clause 17      Decision Making

17.1 General

(a) At all times, issues will be sought to be determined between the Directors or the Shareholders on a consensus basis.

(b) If a vote becomes necessary, a Director or a Shareholder (as the case may be) may submit a motion.

(c) Unless otherwise stated in this Deed, a motion submitted shall be passed by Ordinary Resolution and/or Ordinary Shareholders' Resolution (as the case may be and as required under this Deed).

(d) In respect of a Board resolution, each Director shall have one vote.

(e) In respect of a Shareholder's resolution, a Shareholder shall have one vote per Share held by it.

(f) If one or all Directors or Shareholders (as the case may be) request a meeting to be convened to consider a motion proposed by them then the meeting shall be convened as soon as practicable to consider the motion.

(g) A quorum of Directors shall be the number of Director which together represent at least the percentage specified in Item 0 of the total voles of all of the Directors.

(h) A quorum of Shareholders shall comprise the Shareholders of the company that hold at least the percentage specified in Item 0 of all Shares of the company.

(i) Reasonable notice of proposed meetings and agendas is to be given.

17.2 Ordinary Resolution

The Company must not do, or commit to do.  any of the following without an Ordinary Resolution unless it is expressly required or permitted to do so under this Deed:

(a) Directors: any decision to appoint or terminate a Director or vary the terms of service (including compensation, remuneration and emoluments) of a Director;

(b) Board: any decision to change the minimum or maximum number of Board seats;

(c) redemption: the redemption, cancellation or buy back-of any Shares in the Company;

(d) provision of financial accommodation: any decision to lend any money to any person (other than by way of deposit with a bank or other institution the normal business of which includes the acceptance of deposits) or grant any credit to any person (except to its customers in the normal course of the Business) or give any guarantee, indemnity or security in respect of the obligations of any other person except in the normal course of business;

(e) non-arm's length transaction: the Company entering into any arrangement to enter into, vary or terminate any contract or arrangement (whether legally binding, or not) with any of its Directors or any relation of a Director.  or any Shareholder or any relation of a Shareholder or with any related body corporate (as that term is defined in the Corporations Act 2001) of a Shareholder;

(f) dividends and distributions: pay or make any dividend or other distribution including without limiting the foregoing make any distribution out of capital profits or capital reserves (including any capital redemption reserve fund);

(g) litigation: any decision to commence, defend or compromise any litigation other than collection of trade debtors in the ordinary course of business;

(h) budget: adoption of every budget for the Company and approval of the financial statements and any material deviation from those budgets;

(i) business plan: adoption of the business plan for the Company and any material deviation from a business plan;

(j) taxation: any decision to make any claim, disclaimer, surrender, election or consent of a material nature for tax purposes;

(k) change in business: the establishment by the company of any new business, or any material alteration in the nature and/or direction of the Business; or

(l) capital expenditure: all capital expenditure of $20,000 or more in any financial year.

17.3 Ordinary Shareholders’ Resolution

The Company must not do, or commit to do, any of the following without an Ordinary Shareholders' Resolution unless it is expressly required or permitted to do so under this Deed:

(a) Winding-up: any proposal to cease to carry on the Business or a substantial part of the Business of the Company or to wind-up or dissolve the Company or to take advantage of any law providing for the relief of debtors in adverse financial circumstances;

(b) encumbrance: the grant of any mortgage, charge or other security interest over, or negative pledge in respect of, any assets of the Company;

(c)       new issues: the issue or allotment of any new Shares;

(d) disposal of Business: the sale, merger, transfer, assignment or disposal of the Business or any substantial part of it;

(e) acquisitions: the acquisition by the Company of any interest in any company or business, the establishment by the Company of any interest in any company or business;

(f) Shares: the modification or abrogation of any rights for the time being attached to any Shares;

(g) third party members: the approval of third-party transferees for any transfer of shares allocated to persons other than existing Shareholders; or

(h) modify this deed: the modification and or amendment to this Deed including to any obligation of the Company under this deed.

Clause 10      Directors - resignation, death or disability

(a)Any Director upon giving the minimum notice set out Item 0 to the Company, may resign as a Director of the Company:

(b)A Director shall resign as a Director effective immediately where, following a Ordinary Resolution, written notice is served upon them requiring them to resign because:

(i)any executive agreement entered into with the Company has been terminated;

(ii)they have fundamentally acted or omitted to act or are about to act or omit to act to the significant financial detriment of the Business;

(iii)they are totally and permanently disabled as defined in a policy of insurance effected on that one’s life or, in the absence of such a policy, as determined by Ordinary Resolution;

(iv)they fail to resign as a director of another company and consequently are in breach of clause 18;

(v)their Nominated Shareholder fails to provide to the Company moneys required pursuant to clause 5.1 or has otherwise not complied with its obligations under this Deed in a material respect;

(vi)they or their Nominated Shareholder commences any action which could lead to the Company being liquidated;

(vii)their Nominated Shareholder retires as trustee of the respective trusts for which they are currently trustees and hold shares in the Company and the new trustee does not thereupon enter into a deed on terms similar in substance to this Deed under which it assumes the past and prospective obligations of the retiring trustee;

(viii)their Nominated Shareholder ceases to be a Shareholder or, in accordance with clause 11(p), ceases to be entitled to an Associated Director; or

(ix)in respect of an Associated Director, that Director ceases to Practically Control their Nominated Shareholder.

(c)If an Associated Director resigns, is required under this Deed to resign or whose employment is terminated as a director of the Company, dies or suffers a total and permanent disability, their Nominated Shareholder shall be deemed to have served a Transfer Notice which cannot be withdrawn pursuant to clause 11(d).

Clause 11 Transfer or Buy-Back of Shares of Shareholder

(a)If a Shareholder wishes to transfer all or any of their Shares or to have the Company buy-back all or any of their Shares (either party being collectively called “the Transferor”), the Transferor shall give written notice (“Transfer Notice”) to the Company setting out full details of the proposal.  …

…

(c)If a Transfer Notice is given under clause 10(a) [sic][131] or is deemed under this Deed to have been so given, the value of the shares for transfer or for buy-back in respect of that Transfer Notice will be determined in accordance with Schedule 2A or Schedule 2B as set out therein.

[131]It was agreed that the reference to clause 10(a) should be read as a reference to clause 11(a).

(d)Within three business days of determination of the value, the Transferor who gave a Transfer Notice under clause 10(a) may notify the Company that the Transfer Notice is withdrawn and shall thereupon pay all costs incurred by the Company in determining the value PROVIDED THAT this right to withdraw the Transfer Notice does not exist if a Transfer Notice is deemed to have been given under this Deed.

(e)If the Transferor withdraws the Transfer Notice under clause 11(d), the Company ceases to be the Transferor’s agent for the sale or buy-back of the Shares.

(f)If the value of the shares is to be determined under this Deed in accordance with Schedule 2B, the Company may decide by Ordinary Resolution that those shares are to be immediately bought back instead of pre-emptive rights offers first being made under clauses 11(g) and 11(h).

…

(j)Upon acceptance of an offer for the shares, the Transferor shall forthwith transfer the shares and pass title to the acquiring Shareholder or Shareholders or to other persons notwithstanding that the payment terms are in accordance with Schedule 2A or Schedule 2B.

…

(l)Upon the transfer being signed and delivered, the name of the persons so acquiring shall be entered in the register of members as the holder of the shares or, upon a buyback, the shares shall be cancelled.  However, in respect of a buy-back of shares under this clause 11 for which the value is to be determined in accordance with Schedule 2B, the shares shall be cancelled immediately upon election by the Company to buyback the shares under this clause 11 notwithstanding that the payment terms are in accordance with Schedule 2B.

(m)The Transferor shall receive payment for the shares in accordance with the payment terms set out in Schedules 2A or 2B (as the case may be) from the Company in respect of a share buy-back and from the transferee in respect of a share transfer.

…

23       Notices

23.1General

Unless stated otherwise in this Deed, a notice, consent, approval, waiver or other communication in connection with this Deed must be in writing in English and signed by the sender or a person authorised by the sender.

…

23.3     When effective

Notices take effect from the time they are received (or deemed to have been received), unless a later time is specified.

Schedule 1

Item 6 – Minimum percentage votes of Directors (inclusive)

65%

Item 7 – Minimum percentage votes of Shareholders (inclusive)

80%

Item 13 – Minimum Notice for a director’s voluntary resignation – 10(a)

Three calendar months.

Schedule 2A

VALUE OF SHARES AND CREDIT LOAN ACOUNTS [sic] NOT IN A DEFAULT SCENARIO

1.Value of Shares and credit loan accounts

The value of a Shareholders’ shares and any credit loan accounts and a Director’s credit loan accounts in respect of: (i) the resignation, death or total and permanent disability of that Director, Employee Shareholder or that Shareholder’s Associated Director (as applicable); or (ii) a transfer or buy back (other than a transfer permitted under clause 11(q)), in either case which:

(e)arises due to the death or total and permanent disability of its Associated Director; or

(f)arises due to clause 10(a); or

(g)satisfies the requirements of clause 10(a) and which does not arise due to clause 10(b), or any other default or non-compliance with this Deed

shall be a value determined as follows:

(h)in respect of a Director and/or a Nominated Shareholder who dies or is permanently disabled, the aggregate sum of $1 or the value of the amount payable to the beneficiary of the insurance policy maintained by the Company pursuant to Clause 2(c)(ii) in respect of that Director or the Associated Director of that Nominated Shareholder (as applicable), whichever is the greater; or

(i)in respect of a Shareholder that does not have an Associated Director or in the event the Company is in default of its obligations under Clause 2(c)(ii) of this Deed, then:

(i)as to the value of the shares, an amount determined annually by unanimous resolution of the Shareholders; and

(ii)as to the value of the credit loan account, the amount as determined by unanimous resolution of the Shareholders,

in each case, failing the unanimous Shareholders’ resolution required above, the relevant amount will instead be:

(iii)as determined by a suitable independent firm of accountants agreed to by a unanimous Shareholders’ resolution; or

(iv)failing agreement as to a suitable independent firm of accountants, as determined in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Expert Determination Rules by a suitable independent expert nominated by the President or Chapter Chairman of the Institute of Arbitrators and Mediators Australia,

in each case by applying a consistent valuation methodology to that applied in determining previous valuations.  Such valuation will be at the cost of the Company.

2.Payment and repayment of Shares and credit loan accounts

(a)In respect of Shareholders and Associated Directors, payment and/or repayment of Shares and credit loan accounts for which the value has been determined under this Schedule 2A must be made at the time that the transfer of Shares instrument is duly signed and delivered to the Company for registration.

(b)In respect of Directors that are not Associated Directors, repayment of credit loan accounts for which the value has been determined under this Schedule 2A must be made within 14 Business Days of the Company receiving notice of the event giving rise to repayment.

Schedule 2B

VALUE OF SHARES AND CREDIT LOAN ACOUNTS [sic] IN A DEFAULT SCENARIO

1.        Value of Shares and credit loan accounts

Where Schedule 2A above does not apply, the value of a Shareholders’ shares and any credit loan accounts and a Director’s credit loan accounts in respect of: (i) the resignation or termination of employment of that Director, Employee Shareholder or that Shareholder’s Associate Director (as applicable); or (ii) a transfer or buy back (other than a transfer permitted under clause 11(q)), shall be a value determined as follows:

(a)a Shareholders’ shares shall be seventy percent (70%) of a value as determined annually by unanimous resolution of the Shareholders; and

(b)any credit loan accounts in the name of the Director, Employee Shareholder or the Shareholder and its Associate Director (as applicable) shall be the amount as determined by unanimous resolution of the Shareholders,

in each case, failing the unanimous Shareholders’ resolution required above, the relevant amount will instead be:

(j)as determined by a suitable independent firm of accountants agreed to by a unanimous Shareholders’ resolution; or

(k)failing agreement as to a suitable independent firm of accountants, as determined in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Expert Determination Rules by a suitable independent expert nominated by the President or Chapter Chairman of the Institute of Arbitrators and Mediators Australia,

in each case by applying a consistent valuation methodology to that applied in determining previous valuations.  Such valuation will be at the cost of the party to be paid or repaid the amount so determined.

2.Payment and repayment of Shares and credit loan accounts

(a)Payment and/or repayment of Shares and credit loan accounts for which the value has been determined under this Schedule 2B must be made by way of equal monthly instalments for two years from:

(i)in respect of Shareholders and Associated Directors, the date that the shares are cancelled or from the date the share transfer is registered (as applicable); or

(ii)in respect of Directors that are not Associated Directors, the date that the Company receives notice of the event giving rise to repayment.

(b)No interest will accrue in respect of the deferred payment contemplated above and, in respect of a buy-back only, the Company will issue a bank guarantee (on terms reasonably determined by the Company) to the Transferor in respect of the amount payable by its [sic] unless the Company instead pays the whole of that amount on the date of the first monthly instalment.

Annexure 2 – Plus group structure

Plus International

Plus Melbourne

Plus Sydney

Plus Brisbane

Plus Western Australia

Plus NZ