FEDERAL COURT OF AUSTRALIA
BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The fourth defendant, Imoda Realty Pty Ltd, and the fifth defendant, Mr Jay Peter McAlister, are to purchase the shares of the first plaintiff, BAM Property Group Pty Ltd, and the second plaintiff, Mr Brett Adam McAlister, in Imoda Group Holdings Pty Ltd and Yaroomba Holdings Pty Ltd for the sum of $710,996.
2. The fourth defendant, Imoda Realty Pty Ltd, and the fifth defendant, Mr Jay Peter McAlister, are to pay to the first plaintiff, BAM Property Group Pty Ltd, and the second plaintiff, Mr Brett Adam McAlister, interest on the sum of $710,996 from 16 September 2017 to the date of judgment at the rate of 5.5%, being $73,388.42
3. Until the fourth defendant, Imoda Realty Pty Ltd, and the fifth defendant, Mr Jay Peter McAlister, make the payments referred to in orders 1 and 2 hereof, the first plaintiff, BAM Property Group Pty Ltd, and the second plaintiff, Mr Brett Adam McAlister, are each entitled to a charge over the shareholdings of Imoda Realty Pty Ltd and Mr Jay McAlister in Imoda Group Holdings Pty Ltd and Yaroomba Holdings Pty Ltd, to secure the payment of the same.
4. The parties shall file and serve written submissions on the question of costs by 4.00pm on 16 August 2019, limited to a maximum of five pages.
5. Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
DERRINGTON J:
Introduction
1 This oppression action was commenced on 16 September 2017, and is brought pursuant to Part 2F.1 of the Corporations Act 2001 (Cth) (the Act).
2 By an informal agreement between three brothers it was determined that they would engage in the business of developing land, erecting dwellings on sub-divided portions and selling the resulting house-and-land packages. The business thrived for a number of years but, as is so often the case when family members do business together, the parties fell out and all that remains of the familial relationships is bitter acrimony. One brother, Brett McAlister, and a corporate entity owned by him, BAM Property Group Pty Ltd (BAM), allege the corporate entities established to run the family businesses have been operated in an oppressive manner, particularly by the exclusion of Brett from their operation. The other brothers are Jay McAlister and Chad McAlister. Without intending any disrespect, in these reasons the brothers will be identified by their first name only.
3 The essence of the claim is that Jay excluded Brett from the management of the family businesses and diverted commercial opportunities and, indeed, the substantial part of the family businesses, to companies owned and controlled by himself. For the reasons which follow, the plaintiffs have established their claims and they are entitled to relief under s 233 of the Act requiring Jay and a company controlled by him, being the fourth defendant, to purchase the plaintiffs’ shares in the companies which controlled the family businesses.
The facts
The defendants’ behaviour in the interlocutory stages
4 These proceedings have had an unfortunate history, the blame for which generally lies with the defendants, mostly Jay, and it is necessary to say something of their conduct over the course of the action. In general terms, it can be said that at every step in the proceeding, the defendants sought to obfuscate and delay its progression. The initial attempt at obstruction was to prevent the plaintiffs from obtaining the documents relevant to the operation of the companies of the family business so that they would be hindered in articulating their case. Necessarily, once Brett was removed from the businesses he was not in a position to know precisely the manner in which Jay had conducted them. The plaintiffs were required to make an application under s 247A of the Act for an order for inspection of the books of the companies. An order was made to that effect on 23 October 2017.
5 Thereafter, the defendants’ conduct disclosed an apparent attempt to further delay and hinder the progress of this matter. They frequently failed to comply with the Court’s directions and orders. On one occasion the solicitor representing the defendant, Mr Bothma, indicated an intention to cease to act, although that was subsequently withdrawn. Sometime thereafter Mr Bothma’s retainer was terminated. Otherwise the defendants’ solicitor sometimes found it necessary to inform the Court that he could not obtain instructions so as to enable him to undertake the steps required by the Court. All of this rendered the interlocutory processes somewhat cumbersome.
6 On 16 July 2018, extensive directions were made for the purposes of ensuring this matter proceeded to a trial. Amongst other things, the defendants were directed to file an amended defence, their statements of evidence and any expert reports on specific dates. Although they amended their defence and filed it within the stipulated time, they did not then take any step towards complying with the other directions.
7 The matter was relisted for a further case management hearing on 5 September 2018 at the request of the plaintiffs. There was no appearance for the defendants at that hearing. The defendants’ persistent failures to comply with various Court directions and their non-attendance at the case management hearings strongly supported the conclusion that they ceased to have any interest in the matter. Consequently, the matter was set down for hearing for one day on 26 September 2018.
8 On 25 September 2018, the defendants, or some of them, delivered three affidavits to the Court, all of which were deposed by Jay. One of the affidavits purported to annex valuations of the various entities in the group of companies which are the subject of the action.
The matter was called on for hearing
9 When the matter was called on for hearing on 26 September 2018, Jay attended and sought to appear on behalf of himself and the first to fourth defendants. Whilst he may represent himself in the Court, r 4.01(2) of the Federal Court Rules 2011 (Cth) provides that “[a] corporation must not proceed in the Court other than by a lawyer”. Nevertheless, his interests and those of the corporate defendants were effectively identical and, in the circumstances where the plaintiffs did not oppose such an order, Jay was given leave to appear on behalf of all of them.
10 Jay sought to rely on the late affidavits, including that annexing what were alleged to be expert reports from his accountants. It is relevant that the reports annexed to his affidavit were dated 17 January 2018 and 17 April 2018. No explanation was provided as to why those reports were not previously filed and served. In any event, they were not prepared in accordance with the Expert Evidence Practice Note GPN-EXPT and Harmonised Expert Witness Code of Conduct and were not deposed to in any way by their author. The plaintiffs objected to the receipt of the reports and that objection was upheld. Similarly, the plaintiffs objected to most of the content of the affidavits sworn by Jay. There was force in those submissions as the content was mostly argumentative, conclusory and inadmissible. Most of those objections were upheld and only a small portion of Jay’s late evidence was admitted.
11 No proper explanation was provided by the defendants as to why they had not complied with the timetable set by the Court for the filing of material. Jay, a builder and businessman, claimed the litigation caused him to be emotional and prevented him from providing instructions. I reject that assertion as being highly improbable, and it is not supported by any medical evidence. Moreover, Jay is an obviously intelligent businessman who is astute and rational in the manner in which he conducts himself. There was nothing in his demeanour before the Court which suggested that the conflict between him and his brothers impeded his preparation of the case in any way. The defendants have been given every opportunity to participate in this litigation but have used that to draw it out intolerably. In those circumstances there was very little warrant for allowing the introduction of further affidavit material at this late stage.
12 Despite being provided with guidance from the Court as to the manner in which a trial would occur and as to what he was required to do in the course of it, Jay was not able to adequately present any relevantly arguable case on his behalf or on behalf of the other defendants. He was not able to cross-examine with any effectiveness, nor was he able to give any sufficiently substantive evidence.
13 The result of the above is that the factual circumstances surrounding the issues this matter are not greatly in issue. More importantly, I take the conduct of the defendants in the course of the interlocutory steps to be reflective of the veracity of their defence to the action. That is, they attempted to obfuscate, obstruct and delay the proceedings for the apparent reason that they had no viable defence. That same attitude can also be seen in the manner in which Jay gave his evidence.
14 It should also be recorded that the trial had to be adjourned on two occasions at the request of Jay on the basis of claims that he was of ill health.
The facts giving rise to the dispute
15 The majority of the facts recited below are taken from the evidence of Brett. He provided four affidavits which were relied upon for the purposes of the trial. He gave his evidence in a straightforward and measured manner and he responded directly to questions put to him in cross-examination. That was, no doubt, a difficult process for him given he was being questioned by his brother, Jay, in circumstances where there has now been a number of years of animosity between them. He appeared honest and truthful in the manner in which he gave his evidence and it was generally coherent with the uncontentious facts. His evidence ought to be accepted for the purposes of this matter.
16 By contrast, Jay was pugilistic in giving evidence and he sought to dissemble where he perceived it to be in his interest to do so. He argued with Counsel for the plaintiffs and resorted to abuse when he was faced with difficult questions. Rather than answer the questions put to him, he sought to advance self-serving responses where possible. I have no doubt that he sought to evade and avoid responding to questions which he recognised to be detrimental to his defence of the claim. Some of his evidence was not credible and he cannot be accepted as a witness of truth. This is referred to again below.
Entry into the family agreement
17 It was not contentious that, in around late 2013 and early 2014, Brett, Jay and Chad reached an agreement pursuant to which they and companies associated with them would engage in business together. The business was to be the development, marketing and sale of residential properties on the Sunshine Coast, north of Brisbane. The detail of the structure by which the business would be carried out was not specifically agreed upon and the brothers left it to Jay to work out those arrangements. It was agreed that Chad would effectively be a “silent partner” and remain largely uninvolved in the management of the business. Brett and Jay were, otherwise, to participate jointly in the management of the family business. The effect was that Jay would have a minority interest of 6% whereas the other two brothers would have an equal and substantive interest in the remainder.
18 It is admitted on the pleadings that the family business comprised one or a number of the companies to be established engaging in:
(a) locating vacant land on the Sunshine Coast;
(b) entering into put-and-call options in respect of the vacant land;
(c) marketing house and land packages for sale to potential buyers;
(d) exercising the call option on vacant land once potential buyers were engaged;
(e) building houses on the vacant land; and
(f) selling the house and land packages to the purchasers.
19 It is also not in contest that Brett was to be responsible for the design and building of the houses. In that capacity he utilised his building licence for undertaking the construction work. Jay was to be responsible for the marketing and sale of the house and land packages. At the relevant times, Chad was employed full-time as a police officer and, for that reason, was unable to participate in the family business. He contributed capital to the venture but otherwise had no involvement in its day-to-day activities. He anticipated that at some time in the future he would leave his work as a police officer and participate in the family business. Again, it is uncontentious that until Chad’s future involvement, the business was to be conducted by Brett and Jay who would participate in the day-to-day management of the family companies and participate in the decision making necessary for their operation.
20 The overall family business was also intended to conduct a separate operation. Ultimately, that was carried on through the company Yaroomba Holdings Pty Ltd (Yaroomba). Evidently, that business was intended to establish a bank of rental properties by purchasing approximately two vacant lots of land each year, constructing a house or houses on them and renting the completed houses to third parties. These developed properties were not to be sold, but were to provide an income stream and property portfolio. Necessarily, this separate operation overlapped with the main business.
21 In the absence of any substantive evidence from Jay or any effective cross-examination of Brett, the latter’s evidence, with a few exceptions, can be accepted as the only evidence relating to the agreement between the parties concerning the contributions to and recoveries from the business as well as the work which was involved. In any event, the pleadings did not put much of this in issue.
22 Pursuant to the family agreement, the brothers agreed that Brett and Jay’s contributions to locating, building, marketing and selling properties were to be unpaid contributions. It was agreed that when the businesses made profits, the brothers would be paid dividends or distributions, depending upon how the corporate structure was arranged, in compensation for that hitherto unpaid work. Although in the defence of the second to fifth defendants allegations are made that Jay would be paid for his contributions when the cash flows permitted and, further, that he would be paid an additional $200,000 cash once lines of credits were established, there is scant evidence that such were the terms of the agreement.
23 It is unfortunate that the terms of the family business arrangements were not reduced to writing. It might be envisaged that the parties preferred to rely on trust and familial good will to secure performance by all of them of the agreed arrangements. If so, they were mistaken. It is also unfortunate that Brett and Chad were prepared to leave the creation of the corporate structure to Jay who, as the facts show, tended to utilise that authority for his own benefit. As matters transpired, Jay instructed a Ms Rosemary Brady, an accountant employed by one or a number of Jay’s businesses, to put in place the appropriate corporate structure. It appears she had some autonomy in undertaking that task. There are some peculiarities in the corporate structure. In particular, IGH operated as a trustee for the Imoda Group Holdings Trust, although what constitutes the corpus of that trust is not known. There is some evidence in the report of Mr Cassells, which is referred to subsequently in these reasons, that it was the shareholdings in the subsidiary, Imoda Properties, but that is not clear. Overall, no criticism can be made of Ms Brady, who appears to have undertaken the work she was instructed to do, and the corporate structure itself did not seem inappropriate.
The contributions to the family business
24 Necessarily, the fledging family business required the injection of capital or capital resources to enable it to commence and undertake work. The evidence disclosed that the following “contributions” were made by the various parties:
(a) Brett (and entities associated with him) contributed assets described as:
(i) the Ramona Street Property;
(ii) the Ramona Street Line of Credit;
(iii) the Yandina Coolum Rd Shed; and
(iv) the Yandina Coolum Rd Shed Line of Credit.
(b) Jay (by himself or through entities associated with him) contributed the following parcels of land:
(i) the Lot 8 Farm; and
(ii) the Lot 3 Farm.
25 Brett gave evidence the family business sought to avoid paying “unnecessary” stamp duty on the transfer to the new entities of the above identified assets by allowing the properties remain registered in the names of the original owners. However, the properties were available for use in the business and the newly created holding company for the family business, Imoda Group Holdings Pty Ltd (IGH), would pay the liabilities and outgoings in relation to them and the associated lines of credit. The contribution of those properties to the use of IGH was treated as a contribution of capital in return for which shareholding would be allocated to Brett and Jay.
26 Brett also gave evidence that IGH would operate the two farms to create an additional income stream which would cover the interest payments on the loans associated with the farms. It was apparently part of his duties in the family business to undertake those farming operations.
27 The brothers further agreed that Jay’s capital contribution exceeded that of Brett’s and, for that reason, Jay would be entitled to receive the first $100,000 profit from the venture to compensate him. There did not seem to be any dispute about this part of the agreement, subject to Jay’s further claim that he was to be paid for his physical contributions “when cashflow from the Family Business permitted”.
28 In the latest iteration of the defence, Jay pleaded the original family agreement included a further term to the effect he would be entitled another $200,000 “cash payment to him once lines of credit had been established for the Family Business”. The veracity of this claim is dealt with below.
29 Chad did not have real property to contribute to the venture. However, he transferred $100,000 as a capital contribution to his interest in the family business.
30 The brothers agreed between them that their respective contributions and the agreed adjustments had the consequence of entitling each to a proportionate interest in the family business. Brett and Jay were each entitled to receive a 47% interest in the companies, and Chad a 6% interest.
The incorporation of the family companies
31 As mentioned, IGH was the central company in the corporate structure for the purposes of the family business. In accordance with the agreement, 47% of the shareholdings in IGH was held by BAM Property Group Pty Ltd (BAM), being a company controlled by Brett; 47% was held by Imoda Realty Pty Ltd (Imoda Realty), being a company controlled by Jay; and 6% was held by CRM Property Venture Pty Ltd (CRM), being a company controlled by Chad. IGH held 100% of the shareholding of Imoda Properties Pty Ltd (Imoda Properties). That company was incorporated to undertake the building and construction activities. Imoda Properties held 100% of the shareholding in Imoda Land Holdings Pty Ltd (Imoda Land). That company, as the name suggests, was a land holding company which was also incorporated to undertake joint ventures. It is not immediately clear why the land holding company was wholly owned by Imoda Properties which, being a building company, carried the greater risk. Nevertheless, that was the structure put in place.
32 As mentioned above, a separate business was established for the purposes of building homes and renting them. That business was operated by Yaroomba. The shareholding in that entity was divided amongst the interests of the brothers in the same proportions as the shareholding in IGH.
33 A consequence of the above is that the value of the family business was held predominantly in the shareholding of IGH. Those shareholdings were then owned by BAM, Imoda Realty and CRM. A much smaller proportion of the family business was held by the brothers personally through the shareholding in Yaroomba.
34 A feature of the operations of the family business or businesses is that no regard was paid to the separate existence of the corporate entities except, possibly, for the purposes of accounting and taxation. It would appear that Jay was appointed as a director of IGH by reason of the voting entitlement of Imoda Realty and, in that capacity, he later appointed himself as the director of Imoda Properties and Imoda Land, albeit with the agreement of others. He also became the director of Yaroomba, although that was most likely through the use of his own shareholding in that company. Of course, whether the voting power was actually exercised is somewhat questionable. As mentioned, it is not apparent that corporate legalities were recognised and complied with in relation to the administration of the companies or in relation to the operation of the businesses. From the thin evidence available it seems that the businesses were operated as one enterprise and the affairs of the separate corporate entities were intertwined.
The operation of the family business
35 The family business operated in a generally unsophisticated manner and involved Imoda Properties building houses on land held or controlled by Imoda Land. The houses were sold and the profit, if any, was intended to flow through Imoda Properties to IGH to be distributed to the shareholding entities.
36 Initially the business was successful, and in August 2015, Jay was paid the first $100,000 profit derived from trading. In December 2016, the one and only dividend of Imoda Properties/IGH was declared from which BAM and Imoda Realty were paid $23,500 each, and CRM $3,000. The evidence of a Mr Cassells, an expert called by the plaintiffs, identified that in the financial year ending 30 June 2015, sales from the business operations totalled $3,189,522, and by the end of the next financial year that had increased to $7,755,291. For the financial year ending 30 June 2017, sales increased even further to $11,733,358. Mr Cassells expressed his opinion that the family business generated an EBITDA profit from 2015 to 2017 which rose from $128,381 to $516,438.
Questions of contributions and of profits of the business
37 One of the acts of oppression alleged by the plaintiffs was that Jay made “special payments” to himself from the funds of the family business which were not authorised. On the pleadings, there is a suggestion by Jay that he would be entitled to further amounts of money, including the sum of $200,000, in respect of his “unpaid contributions” to the family business. Although advanced in the defence and amended defence in various and, perhaps, inconsistent forms, there was little evidence before the Court of any such agreement. That appears to have been a consequence of Jay’s failure to utilise the services of a lawyer in the preparation of his affidavits. As mentioned above, those which he filed were mostly inadmissible and did not address the issues which arose on the pleadings. The plaintiffs’ submissions to the effect such an agreement would be counterintuitive and illogical, given the “equal” contributions from Brett and Jay, should be accepted. Mr Brennan for the plaintiffs correctly submitted the alleged term, being very central to Jay’s interest, was not referred to in the initial version of the defence. The absence of any explanation for the failure to plead such a term, given its importance to the allegations of financial misconduct by Jay, is telling. Moreover, at that time the defendants were represented by solicitors, and that calls for a greater explanation as to why the claimed entitlement was not then asserted. No reason was advanced as to why Jay might be entitled to an additional $200,000 from the business when his contributions to it were equal to those of Brett. That is particularly so when it is considered that Jay was entitled to take the first $100,000 profit from the family business to equalise the contributions as between him and Brett.
38 The suggestion that the parties had agreed to Jay being entitled to a further $200,000 on top of the first $100,000 from the business is even more disingenuous when it is considered that the parties agreed that they would be paid dividends or distributions when the business became profitable. In about late 2016, dividends started to be paid, which appears inconsistent with the notion of money remaining owing to Jay for his work. Additionally, if Jay was to be paid in cash for his alleged “unpaid contributions”, such contributions would not be “unpaid” and there would also be no reason why he would participate in the distributions. Further, as the plaintiffs submitted, it would be highly unlikely that the brothers would agree to pay Jay for his “unpaid contribution” but not pay Brett for his work when the general thrust of the agreement was that profit was to be divided between them because they both contributed their time to the businesses.
39 It necessarily follows the plaintiffs’ submission, that there was no agreement between the brothers to the effect that Jay would be paid an additional amount of $200,000 as some form of equalisation of the respective parties’ contributions, should be accepted. The consequence is Mr Brennan’s submission, that Jay’s drawing of large amounts of money from the business for the purposes of paying himself “commissions” was unauthorised by the terms of the agreement, ought to be accepted. The further submission, that Jay’s use of his position to remove funds from the family business for his personal benefit was conduct which was oppressive within the meaning of that term as it is used in s 232 of the Act, should also be accepted. This is dealt with in greater detail below. Nevertheless, for present purposes the evidence supported the conclusion that the agreement between the brothers was to the effect that after Jay received the first $100,000 from the profits of the business to equalise his contribution, the brothers would share in the profits between them in the proportions of Jay 47%, Brett 47% and Chad 6%, and that there was no agreement that Jay was to receive any further special payments or commissions.
Jay demands the special payment
40 In around August 2015, Jay demanded (of Brett) that he be paid the “special drawing” in the amount of $200,000. At that time Jay had already withdrawn $100,000 and paid it to himself, but it seems he claimed he should have been paid more so that the contributions equalled their respective interests in the business. When challenged on this, Jay informed Brett that the business was about to start making substantial money from its activities and there would be an $800,000 net profit for the financial year ending June 2015 once the accounts were completed. Jay told Brett that each of them would start taking $10,000 per month from the company and there would be a significant dividend paid for the financial year ending 30 June 2015. It appears that Brett agreed to Jay’s demand, albeit grudgingly. Jay had advanced his claim forcefully to Brett who did not wish to have a falling out with his brother over the value of the initial contributions which Jay had raised to justify the withdrawals. In the course of the hearing, Brett acknowledged that he capitulated to Jay’s demand to be paid the $200,000, although he only did so on the basis of the representation about the dividends which would be shortly paid. The dividends were not paid and no evidence was adduced by Jay to suggest that the representations had any basis to them. It is relevant that Chad was not told about this payment and remained unaware of it until the commencement of these proceedings.
Jay takes control of the family business
41 In or around November or December 2015, Brett raised with Jay an issue regarding the accountant, Ms Brady, charging Brett’s private company, Be! Building Group Pty Ltd, a proportion of the fees which she had charged in the conduct of the family businesses. The consequence was that an argument occurred between Brett and Jay. In the course of it, Jay told Brett words to the effect that he would “get [Brett] out of Imoda Properties and use a different building licence” for operating the family business. Subsequently, Jay demanded that he become a director of Imoda Properties. That company had been established with Brett as its sole director. Again Brett capitulated with this demand and the change occurred. On a number of occasions thereafter, Jay told Brett that he would get Brett out of the business.
42 Apparently Jay was true to his word about removing Brett from Imoda Properties. From about December 2015, he engaged in a number of steps which effectively removed him from the decision-making processes of the family business. The following matters are relied upon by the plaintiffs which are evidenced in their affidavits. In the absence of any evidence to the contrary, that evidence should be accepted.
(a) At around December 2015, Jay unilaterally appointed a Mr Christopher Lewis as the “general manager” of the family business. Mr Lewis was apparently a friend of Jay’s. That occurred despite Brett’s opposition to the engagement of Mr Lewis.
(b) Jay required Brett to obtain his approval in order to spend money on the farm lots. Prior to then Brett had been attempting to bring the farms into an operational state so as to be a source of revenue for the family businesses. A consequence of this demand by Jay was that Brett ceased his attempts to upgrade the farms.
(c) From about early 2016, Jay informed Brett that the family business would no longer have any meetings. Despite that, it is apparent that such meetings did occur although they were organised without inviting Brett to attend or, if Brett became aware of them and attended, the meetings were immediately cancelled. Jay also excluded other senior staff from the regular meetings of the family business. He did so when he discovered or believed they were providing information to Brett about the internal management of the family business. This is deposed to by Mr Foreman in his affidavit (see particularly paragraph 15).
(d) In or around August or early September 2016, Jay unilaterally changed the family business bank accounts and removed Brett’s access to them.
(e) From about September 2016, the family business commenced using Mr Lewis' building licence to construct houses for the family business.
(f) At around this time Jay also informed Brett that he was “not allowed to give directions to the staff”.
(g) Also at around this time, Jay unilaterally paid Imoda Consulting Pty Ltd (a company related to Jay) the sum of $82,500. In his report, which is discussed later in these reasons, Mr Cassells identifies that the payments totalling $82,500 were not commercial and were not in line with commissions paid to other non-related entities.
(h) From about this point in time onwards Jay also unilaterally paid to himself or to entities associated with him (and others) hundreds of thousands of dollars and, additionally, made loans to himself as a director.
(i) Jay also incorporated a new company, Imoda Homes, which was set up to act as a direct competitor to the family business. Jay used funds from Imoda Properties to pay the expenses for Imoda Homes’ competing business.
(j) It is also apparent that Jay allowed Imoda Homes to retain the profits that it made from the competing business which it operated with the use of funds from Imoda Properties.
(k) From around 18 August 2017, Jay caused the staff previously employed by Imoda Properties to commence work with Imoda Homes.
43 This conduct alleged by Brett was not seriously contested by Jay. Although, in the course of submissions, he expressed that he did not fully agree with the allegations, Brett’s evidence was not contradicted and it demonstrated Jay paid no attention to his obligations to his brothers in relation to the business which they had established together. Nor did he have regard to his obligations to the companies of which he was a director and, in particular, IGH and Imoda Properties. His actions are indefensible in the light of those obligations and, as the plaintiffs submit, the only motivation for them can be Jay’s attempt to take the benefit of the business established by the family for himself.
The claims advanced
44 The causes of action which are brought are necessarily inter-woven as a consequence of the operations of IGH and Yaroomba being part of the one family business although conducting separate operations. Whilst Jay was a participant in the operation of both companies, Imoda Realty’s role was only as a shareholder of IGH. Nevertheless, despite IGH and Yaroomba being separate, they were operated as a single business. The plaintiffs claim that Jay and Imoda Realty caused each of IGH and Yaroomba to be operated in a manner which favoured Jay’s interests. The relief sought from Jay and Imoda Realty is that they should be jointly and severally liable to acquire the shares in the family business operated through IGH and Yaroomba.
The legislative provisions
45 Sections 232 and 233 of the Act provide, relevantly, as follows:
232 Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company’s affairs; or
…
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
233 Orders the Court can make
(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b) that the company’s existing constitution be modified or repealed;
(c) regulating the conduct of the company’s affairs in the future;
(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e) for the purchase of shares with an appropriate reduction of the company’s share capital;
…
(j) requiring a person to do a specified act …
The established principles
46 The plaintiffs’ submissions that the principle relating to the application of ss 232 and 233 are “settled” ought be accepted: Mackay Sugar Ltd v Wilmar Sugar Australia Ltd (2016) 338 ALR 374, 377 [9]. Those settled principles were recited by Stevenson J in Munstermann v Rayward [2017] NSWSC 133 at [22]. With the omission of the extensive case citations, those principles ought be set out in full:
(1) The test of oppression is an objective one of unfairness.
(2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly.
(3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director.
(4) Conduct of a company’s affairs may be oppressive even though the conduct is otherwise lawful.
(5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole.
(6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used.
(7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined as at the date of the hearing.
(8) The discretion under s 233 is wide as to the appropriate remedy.
(9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive.
(10) The aim of any order under s 233 must be to put an end to the oppression.
(11) The court should only look to wind up an otherwise solvent company as a “last resort”.
(12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party.
(13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances.
47 As is reflected in the first principle, the concept of “oppression” is founded in unfairness in the conduct of the management of corporations. In Wayde v NSW Rugby League Ltd (1985) 180 CLR 459, Brennan J held at 472 that proof of oppression requires establishing unfairness and that “proof of mere prejudice to or discrimination against a member is insufficient”. His Honour went on to say:
The question of unfairness is one of fact and degree which [s 23] requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of [s 232] may be attracted to a decision made by directors which is made in good faith for a purpose within the directors’ power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. 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.
48 Somewhat more recently, Ferguson J in Wain v Drapac [2012] VSC 156 summarised the approach to determining whether oppression arose in a particular case in the following manner:
[272] Sections 232 and 233 are to be read broadly. Whether conduct is unfair or oppressive in a commercial company is assessed objectively through the eyes of a commercial bystander. If the conduct is so unfair that reasonable directors would not have thought it fair, then relief will be granted. The conduct will be considered in its context and while separate instances of conduct on their own may not be unfair, cumulatively they may constitute oppression. (footnotes omitted)
49 It is also now well accepted that the expression in s 232(e), “oppressive to, unfairly prejudicial to, or unfairly discriminatory against”, is a compound expression and concerned with “commercial unfairness”: Joint v Stephens (2008) 26 ACLC 1467 (Joint v Stephens) at 1496 [134].
50 As can be seen from the discussion which follows, no nuanced approach needs be taken with respect to the identification of “commercial unfairness” in the present matter. The unfairness in the operation of the companies was patent and engaged in deliberately to advance the interests of Jay and Imoda Realty to the detriment of the interests of Brett and BAM in the two operating companies.
Application to the present case
51 The plaintiffs only rely upon ss 232(e) and 233(1)(d) and (j) for the purposes of this case. They submitted that the conduct of Imoda Realty and Jay, and through them the conduct of IGH, was “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” Brett and BAM, whether as members of IGH or in any other capacity. It is also alleged that oppressive conduct extended to the operation of Yaroomba.
52 The conduct of which complaint is made by the plaintiffs must be assessed in the context of the business undertaking entered into by the venturers. That includes the corporate structure and management arrangements which were put in place. In this case it is apt to keep in mind that although the arrangements between the brothers were informal and not reduced to writing, it was clear that the family members and associated entities were to participate in the agreed proportions. More importantly, there was a mutual expectation that Brett and Jay, at least, would participate together in the management of the family business. To that end, both Brett and Jay were directors of the ultimate holding company, IGH. Each of Jay and Brett had their areas of independent control. Jay had control over Imoda Land which undertook the business of acquiring suitable development land, whilst Brett initially had sole control over Imoda Properties, which undertook the construction work. He also had responsibility for conducting the farming operations. It can be accepted, as the plaintiffs submitted, that the family business was to be conducted as a single enterprise, and scant attention was paid to the separate corporate identities of the various parts. Once the proportionate contributions had been agreed upon and allocated, it is apparent that the profit sharing was to occur by way of the payment of dividends. The overall joint management and profit sharing between the brothers clearly gave the operation of the family business a quasi-partnership complexion.
53 Similarly, in relation to Yaroomba, Brett, Jay and Chad held 47%, 47% and 6% respectively, although subsequently Jay came to be the sole director of that entity. That company held its property and business as trustee for the Yaroomba Property Trust and it appears that the interests in the trust were held by the brothers also in the above proportions. Despite Jay having sole directorship of that company, it too was to be operated as part of the overall family business which means that Brett should have had some control over its operation and management.
Exclusion of Brett from participation in the management of the companies
54 In the course of the hearing very little was said of the conduct of Chad. Neither Brett nor Jay made any real criticism of him, but it cannot be denied that as matters progressed he was prepared to allow Jay to proceed as he determined was appropriate in the operation of the family business. Whilst that support may not have been express, it was certainly tacit, and he took no steps to attempt to prevent Jay using his control of the companies to his own advantage. That said, by the time of trial, Chad had developed a somewhat neutral position.
55 As indicated in the facts referred to above, in around December 2015 Jay commenced to remove Brett from the family business and replace him with Mr Lewis. Ultimately, it did not seem that this allegation was denied and it is apparent that it followed upon Jay’s threat made to Brett to have him removed from the business. Under cross-examination, Jay said that he could not recall making the statement although his evidence in this respect, like much of his evidence, was evasive. He did not deny making the statement and even suggested that, if it was said, it would have been in a rather inconsequential conversation in the scheme of the acrimonious relationship between the parties. The statement was not dissimilar to one which Jay made in an email to Brett on 15 June 2016 where he wrote that he would have Brett’s licence off the business in the near future. That is an example of the manner in which Jay gave his evidence generally. In the course of being cross-examined, he was often evasive, argumentative and displayed resentment to being questioned about his conduct. Those expressions of resentment did not appear to be real, but merely attempts to avoid answering difficult questions about the manner in which he had controlled the family companies. Although during the course of addresses he apologised for his conduct during the hearing and, in particular, under cross-examination, that does not diminish the consequences of his behaviour. Given his failure to articulate any substantive relevant evidence or to negate the evidence of Brett, there is no need to make any significant credit finding in relation to particular parts of his evidence, however, were it necessary to do so, the evidence of Brett should be preferred to his.
56 By early 2016, Brett had been excluded from the management of IGH and Imoda Properties. This occurred shortly after the office from which the family business was conducted was relocated from Coolum to Mooloolaba. Although it appears Brett acquiesced in the move, it soon become apparent to him that he was being starved of information which would allow him to participate in the management of the companies and of the business. He claimed in evidence that the staff of the companies were told that he was not to be informed of the company’s operations. He further said he was no longer provided with the information which, hitherto, he had usually been given, and he was not invited to company meetings to the extent they were held at all.
57 The evidence before the Court clearly pointed to an irretrievable breakdown in the relationship between Brett and Jay once the premises from which the family businesses operated was moved to Mooloolaba in March and April 2016. It appears that there were regular and formal management meetings concerning the operation of the family business when it was based at Coolum and those continued for a while immediately upon it having moved to Mooloolaba. However, after a short period, Brett was effectively excluded from those meetings. I accept the effectively unchallenged evidence of Brett that he found out meetings had been called to which he was not invited and, on the occasions when he became aware of a scheduled meeting, it was cancelled at the last minute. This evidence was supported by Ms Hollingsworth and Mr Foreman. The latter indicated that Jay changed the usual recurring time for the meetings or would cancel them when Brett showed up. Mr Foreman was on relatively good terms with Brett and apparently informed him of when the meetings were occurring or what was being decided. Jay became aware of this, with the consequence that Mr Foreman was excluded from the management meetings to which he had previously been invited.
58 In his evidence, Jay said that he felt that there was no longer any need for management meetings as all the relevant persons were in attendance at the office at various times and that the meetings became casual ad hoc events. This was refuted by Mr Foreman who gave evidence, by affidavit, that the management meetings continued to the exclusion of Brett and himself. He said that he sat outside of the meeting room where Jay, Mr Lewis and Mr Mullins, the construction manager, would meet. I prefer the evidence of Mr Foreman in relation to this issue. He was relatively independent and, if he had close ties to any of the McAlister brothers, it was with Jay more than anyone else. He had no reason to give false evidence and he was not cross-examined. Jay was informed that if he did not cross-examine witnesses he would not be able to contradict their evidence and he nevertheless chose not to require Mr Foreman to give evidence. Even though the rule in Browne v Dunn remains relevant in matters conducted by litigants in person, it is often applied with much less force than where the parties are represented: Mimmo v Fernando [2016] VSC 510, [38]; R v Birks (1990) 19 NSWLR 677 at 688. That said, Jay was told of his obligation to put matters to the witnesses if he wanted to suggest to the Court during addresses a matter which challenged what they said. His failure to contradict the evidence for the plaintiffs, either by affidavit or in cross-examination, substantially diminished his evidence and submissions. On one view I am bound to accept the un-contradicted evidence of the plaintiffs’ witnesses: Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362, 370-371. That said, in this case I generally do not need to put much weight on Jay’s failure to put various matters to Brett’s witnesses. They were reliable and truthful witnesses and did not give any appearance of seeking to advance a particular point of view. Their evidence was more coherent and reliable than was Jay’s.
59 Ms Hollingsworth also gave evidence in support of Brett. She confirmed that Jay brought Mr Lewis into the Imoda Properties business and in a somewhat clandestine manner. Ms Hollingsworth was originally employed as a draftsperson for Be! Building Group although she only worked on Imoda Properties’ business and, indeed, worked at the Imoda Properties offices. At some time in June 2015, she became an employee of that company. She was also excluded from the management meetings even though she had previously been a regular attendee for a period of time. During 2016 and after the move of the companies to Mooloolaba she was also warned on a number of occasions by Jay not to divulge to Brett any information about the Imoda Properties’ businesses. Ms Hollingsworth further gave evidence that in around mid-2017 she was advised by Jay that she would have to enter into a new employment agreement and, from 18 August 2017, she was employed by Imoda Homes. She said that the change in employment occurred without her executing a new contract. Again, there was no reason not to accept Ms Hollingsworth’s evidence. She was responsive and her evidence coherent, and she was not seriously cross-examined on it.
60 Although Jay denied that he excluded Brett from the business, the overwhelming weight of evidence, which is identified above, shows that he did. Although he said that if it came to a physical altercation Brett was bigger than him, so that he could not have made Brett do anything he did not want him to do, there was no suggestion that Brett would resort to that type of conduct. On the contrary, in the course of evidence Jay admitted that he gave instructions to the staff of the business not to allow Brett access to the Mooloolaba office of IGH and the family business and, further, that if he attended the staff were to call the police. He gave no explanation as to why he gave those instructions.
61 Jay did not challenge Brett’s evidence in any substantial manner. It may be he had a different view of the evidence, however, even if that were so he did not advance it in cross-examination. That is not to say that it is appropriate to apply the rule in Browne v Dunn with any great strictness. However, orders were made over time for the filing of affidavits for the hearing. At the time of the making of those orders, Jay and his companies were represented by solicitors. Unfortunately, he did not file any substantive affidavits in answer to the applicants’ filed material. Although he was given leave to file parts of some new affidavits at the trial, there was very little in them which went to the substance of the allegations made by the applicants. In his oral evidence Jay was given leave to make additional statements in relation to the matters in issue although, again, he was not able to advance any substantive material in support of the defendants’ claims. The Court was left with very little evidence on which to rely in support of any of the defendants’ arguments.
62 In the result it must be accepted that from about 2016 Jay set about excluding Brett from the management of the Imoda companies and, in particular, from the operational company, Imoda Properties. He did so by excluding Brett from the management meetings and denied him access to adequate information on which he might make any useful contribution to the company. This would seem to apply in relation to Yaroomba as well.
63 For Brett, his exclusion from operational aspects of the business was most concerning. It was his building licence which was utilised by Imoda Properties for the purposes of carrying out its construction work. That being so, he was obliged to monitor the conduct of the building work being undertaken and the work of subcontractors. He said he was not able to do this once he was starved of information and prevented from attending meetings. His evidence on this was not challenged in any substantial respect by Jay.
64 It can be accepted that the exclusion of a shareholder director or a shareholder’s nominee director from management of a company in the context of a quasi-partnership is indicative of the existence of oppression, even if it does not constitute oppression in every case: Joint v Stephens [133]-[134]; Allways Resources Holdings Pty Ltd v Samgris Resources Pty Ltd (2017) 121 ACSR 1 (Allways Resources), [361]-[369]. When businesses are conducted as quasi-partnerships, control of the business is a vital and essential element and, apart from the right to receive profits, is probably the most important element of a party’s right. That is necessarily so because the management of a company may expose shareholders to a loss in the value of their shares or, if guarantees are in place, to liability on guarantees. In relation to this issue the plaintiffs relied upon the reasons for judgment of the majority in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 360 [175]-[176]:
… The facts found at trial showed that Mr Campbell excluded Mr Weeks from participation in the management of Healthy Water despite the agreement recorded in both the shareholders agreement and each of the services agreements that he and Mr Campbell were to be joint managing directors. Under an earlier form of companies legislation dealing with oppression of members, wrongful exclusion from participation in the management of the company was held in In re H R Harmer Ltd to be a species of oppressive conduct.
Section 232 should not be read more narrowly. Wrongful exclusion from management may be a form of oppression. It is not to be supposed that the only conduct of a company’s affairs that is to be classified as “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member” is conduct of the company’s affairs that is otherwise lawful. The fact that Mr Campbell’s conduct was said to constitute breach of his or Sentinel’s contractual obligations under the shareholders agreement, or the procuring of a breach by Healthy Water of its obligations under the services agreement with Backoffice, does not preclude engagement of the oppression provisions. Neither is it to be supposed that there cannot be oppression on the part of one who thinks that he or she is acting rightly. It is therefore not to the point to examine Mr Campbell’s motives for acting as he did.
(footnotes omitted)
65 In this case it might be said that, to some extent, Brett might have been more robust in his dealings with Jay in relation to the operations of Imoda Properties. However, it is to be kept in mind that the business office was moved to Mooloolaba, where Jay was more often present. It was a move which put the office of the businesses in a place which was physically more distant from Brett. In that context, Jay was obviously able to have greater and more effective control over the staff and was able to instruct them as to what ought to be done. He was also able to call meetings without Brett. It is fair to say that, despite their equal directorial control over Imoda Properties at the relevant time, Jay had a greater degree of practical control and was able to conduct the business in the manner he saw fit.
66 The exclusion of Brett from the company meetings is also telling. The importance of the meetings of IGH and Imoda Properties to those interested should not be underestimated. The latter was a building company engaged in substantial projects. Necessarily, frequent important decisions would have to be made. Such decisions will often involve directorial control and it is apparent that, in the period after August 2016, Jay was making them by himself. As Bond J said in Allways Resources at [367]:
I note and agree with the observations by Young J in John J Starr at 71-2:
It is essential in company law that all persons who are entitled to participate in meetings are able to participate in them to the extent which the law allows. There must be proper notices of meetings; there must be proper time for discussion at meetings; everybody’s views must be respected before the vote is taken, on which the majority will succeed, if they wish, but only after they have listened. Where the rights of the minority are affected by persistent conduct at the board, so that they are not able fully to participate in meetings, then there is, in my view actual oppression and, in my view, there is actual oppression on the sum total of the events in this case.
67 The defendants admitted in their pleading that Brett and Jay shared a common expectation that they would both participate in the management of the family business. That seems to be common ground. It also appears to be common ground that Brett left the business in or around August or September 2016. Brett deposed that, given he was not able to supervise the construction work which was being conducted through the use of his licence, he resigned as a director of Imoda Properties in 2016. That resignation was registered with ASIC in September that year. Jay asserted this disclosed that Brett chose to leave the family business. That should not be accepted. It is clear that Jay’s conduct left Brett with no option but to resign. Jay’s exclusion of Brett from participation in management meant that he could no longer perform the duties required of him as a director and as the holder of the building licence.
68 In this context the difficulties which Jay faced as a result of his lack of legal representation are significant. He did not file any relevant affidavits going to this point. Brett did. Jay did not attempt to refute Brett’s evidence in any way by any responsive affidavit although he had substantial time in which to do so, and he did not cross-examine Brett about the evidence he gave. Whilst Jay gave some oral evidence about the circumstances, where his evidence and Brett’s conflict I prefer the evidence of Brett. In giving his evidence Jay was evasive and pugilistic. He sought to avoid answering uncomfortable questions and when he did many of his answers were non-responsive.
69 There does not seem to be any reason why Brett would walk away from the newly established business to which he had contributed significant funds. As the evidence which has been set out above disclosed, he was really faced with no choice but to resign as a director. He was denied access to the business and any control of it such that he was not able to fulfil his duties as a director.
70 The companies of the family businesses were founded upon the equal participation of Brett and Jay in their management. Jay’s exclusion of Brett from the management of those companies constituted oppression.
Denial of access by Brett to information
71 In the course of the hearing, a substantial amount of time was taken up with whether Brett was denied access to information pertaining to the family businesses. That was not a particular of oppressive conduct although it might be thought to be consumed within the allegation concerning Brett’s exclusion from the business. Brett gave evidence that the employees of Imoda Properties were told not to give him any information about the business. That was consistent with the fact that he was not actually given information about the business from about the time that it relocated to Mooloolaba. The information which he saw as important was that which concerned the day-to-day running of the business, the land acquired, the call options entered into, the day-to-day construction issues which had to be addressed, programming of works and cashflow. Although Jay attempted to contradict that by alleging that Brett had access to the server for the business, Brett’s evidence was that he was only able to access the server for some time until he was locked out of it. He also said that he did not have the time to go searching for whatever information might have been saved to the server. I accept his evidence that the information on the server was in the form of raw data and it was not collated in a manner by which it could be used for making decisions about the operation of the business. I also accept Brett’s evidence that the information was not complete.
72 The relevant point is that Jay caused the internal business operations to be altered such that information that had previously, regularly been provided to Brett was no longer given. That effectively prevented Brett from being able to contribute to the day-to-day management of the business. In order to participate in that he would need to have timely information about the decisions to be made. It is irrelevant that he would be able to find it if he knew when it became available and where it was located. The reduction in Brett’s access to information concerning the operations of the business was consistent with his exclusion from meetings and the office from which it was conducted. I am satisfied that the limitations which Jay put on Brett knowing what was happening with the business were intended to exclude him, as much as possible, from having any relevant input into the business.
73 The attempt to prevent Brett knowing what was happening in the business was consistent with Jay’s subsequent attempts to prevent Brett knowing what had occurred in the new competing business of Imoda Homes. As mentioned above, orders had to be made requiring the respondents to disclose relevant documents to the plaintiffs. It is apparent that Jay was prepared to do what he could to conceal his actions and the evidence about the operation of Imoda Properties and Imoda Homes from Brett. I accept Brett’s evidence that Jay denied him access to relevant information from around early 2016.
74 Jay’s denial of access by Brett to information concerning the operation of the companies constituting the family businesses was a further act of oppression: Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1, 58 [194].
Conclusion on exclusion from the business
75 It follows that there is more than sufficient evidence to establish that from around early 2016, Brett was excluded from the operation of the family business by Jay. Brett was denied access to the business operations of IGH and its subsidiaries, Imoda Holdings and Imoda Land as well as from Yaroomba.
Diversion of corporate opportunities
76 The second major act of oppression relied upon by the plaintiffs was the diversion of the IGH and Imoda Properties business to Imoda Homes, the latter a company established and controlled by Jay.
77 The evidence showed that, in March 2017, Jay caused Imoda Homes to be incorporated. The employees of Imoda Properties were transferred to either Imoda Homes or a company providing administrative services to Imoda Homes. The newly created company carried on the same business as Imoda Properties and, effectively, assumed its business. The similarity in names suggests that it also sought to assume the goodwill as well.
78 Jay claimed in cross-examination he created the new company because Brett had disparaged Imoda Properties and himself such that he considered that it would be appropriate to start a new business. Brett denied that allegation. His denial was supported by Mr Foreman, who had knowledge about the building industry generally. Jay’s response was that he was told by Chad of Brett’s disparagement of the family company. It soon became apparent that Jay had no reasonable basis for suggesting that Brett had been disparaging Imoda Properties. The following cross-examination of Jay is telling:
Brennan: I’m sorry, I don’t understand that. If the only people who know about this apparent badmouthing are you, Brett and Chad, and you only found out about it through Chad, how does that affect the good name of Imoda Properties?---Okay. Yes.
How does it?---So if he’s – if he’s saying it to one person, he’s saying it to others. And Chad knows and has had the conversation with Brett saying – and his favourite saying is, “You catch more flies with honey. Why are you trying to go at Jay and go at the business?” There’s obviously stuff that has been said. I mean, it’s – it’s tough for me to say because I don’t have a relationship with Brett and I can see youse all perplexed and going “what are you talking about”, but it’s reality. And I would – I would put - - -
79 That amply demonstrated that Jay had no reasonable basis for believing that Brett had publically disparaged the business. Indeed, it is apparent that he had no basis at all for that claimed belief. That is especially so given that public statements disparaging the business would damage Brett’s interest in the business as much as anyone else’s. The explanation was so implausible it must be rejected. He failed to challenge any of the evidence about this topic given by Brett and Mr Foreman and, further, Chad was not cross-examined on it either. I reject Jay’s explanation in this regard.
80 It should also be recognised, as Mr Brennan submitted, that even if it were the case that Brett had made disparaging remarks about Imoda Properties and Jay’s management of it, that could not justify the egregious breach of fiduciary duty committed by Jay in effectively transferring the business owned by the family companies to his own company.
81 Having effectively transferred the business to his own company, Jay compounded his breach of duty by causing Imoda Properties to meet some of the business expenses of Imoda Homes. He did not seek to justify that conduct and there was no way he could. As a director of Imoda Properties he was obliged to act in its interest and only its interest.
82 The inappropriate diversion by Jay of the business of IGH and Imoda Properties to companies controlled by him was yet another act of oppression: Vigliaroni v CPS Investment Holdings Pty Ltd (2009) 74 ACSR 282; Vadori v AAV Plumbing (2010) 77 ASCR 66.
Diversion of money from the business
83 As has been discussed previously, it is apparent that Jay caused the family companies to pay him extra money as some form of remuneration for his work. That was not part of the agreement between the participants to the family arrangement and its effect was to divert working capital out of the business and to Jay for his own benefit. Although it seems that Brett was prepared to agree to the special drawing, he did so on Jay’s assertion that the business was operating well and there would be a sizable dividend payable at the end of the financial year. As Jay had relevant operational control of the business, he was believed, even though the representation was false.
84 In the context of the above discussion, the making of special payments to Jay, which were also not paid to the other members of the business, can be viewed as being commercially unfair to Brett and BAM.
Conclusion on oppressive conduct
85 The transfer by Jay of the business of Imoda Properties to Imoda Homes was an egregious breach of the fiduciary duty by Jay to Imoda Properties. He was prepared to use his control of the central company, IGH, which he had obtained by sidelining Brett, to further his own ends at Brett’s expense. There is no doubt that his action in doing so falls well within the scope of the concept of being “commercially unfair” or oppressive. That necessarily was conduct which contravened s 232. The mere act of excluding Brett from the management of IGH also falls within that category of conduct. The diversion of funds from IGH only compounded that act of oppression. It follows that the plaintiffs have established that the companies, IGH and Yaroomba, were operated oppressively or unfairly prejudicially to Brett and BAM.
The relief sought
86 The plaintiffs seek orders that Imoda Realty and Jay purchase BAM’s shares in IGH and Brett’s shares in Yaroomba. IGH is a trustee of the shares it holds in the operating companies and, similarly, Yaroomba holds its assets on trust. That poses no obstacle to the making of an order that certain parties acquire the shares in them: cf Vigliaroni v Concrete Precast Systems Pty Ltd (2009) 74 ACSR 282; Wain v Drapac [2012] VSC 156, [283]ff.
87 There is no reason why an appropriate order should not be made requiring those who engaged in the oppressive conduct, being Jay and his company, Imoda Realty, to acquire the shareholding of Brett and BAM. In this respect it cannot be doubted that Imoda Realty as the other major shareholder in IGH acted by and through Jay as its agent. The actions of Jay through his control of IGH, because Imoda Realty was a major shareholder, were also the actions of that company.
88 No relief other than the purchase of shares is appropriate given the conduct of Jay has substantially damaged the businesses of TGH and Yaroomba and he has sought to transfer the benefit of those companies to himself. Jay did not submit that any alternative relief was more appropriate.
Value of the shareholding
89 The purpose of granting a remedy between parties in an oppression case is to “to compensate the oppressed shareholder for the oppression which has taken place”: Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd (2004) 207 ALR 136, 146 [72] (Smith Martis Cork). In cases where the relief to be granted is the compulsory purchase of shares, that object is achieved by the Court having a wide discretion to fix a price that “represents a fair value in all the circumstances”: Smith Martis Cork (145-146 [70]-[72]). That does not necessitate fixing a price only by reference to ordinary valuation principles: Smith Martis Cork (146 [73]-[78]) and Re Bird Precision Bellows Ltd [1986] 1 Ch 658, 669. The question is to identify the price which should be paid in the circumstances.
Methodology of valuation for compensation purposes
90 It can be accepted that, where shares are to be valued as a starting point for determining the price which should be paid, the usual date for valuation is the date of the filing of the proceedings, but that is by no means a universal approach. The valuation does not value the shares at that date as if nothing but the ordinary course of business had preceded it. That would effectively allow the oppressing party the benefit of the wrongful conduct as, inevitably, that conduct has diminished the value of the oppressed party’s interest in the company before the proceedings are commenced. In Scottish Co-operative Wholesale Society v Meyer [1959] AC 324, Lord Keith identified (at 364) that the valuation process must negate the effects of the oppressive conduct. His Lordship said the amount to be determined was:
…what would have been the value of the shares at the commencement of the proceedings had it not been for the effect of the oppressive conduct of which complaint was made. This is clearly not a matter on which a calculation can be made with mathematical accuracy or by the application of strict accounting principles…
91 Similarly, Lord Denning said at 369:
One of the most useful orders mentioned in the section–which will enable the court to do justice to the injured shareholders–is to order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression.
92 In Fitzpatrick v Cheal (2012) 264 FLR 313, Ward J articulated a similar idea at 374-375 [223]:
In relation to the claim for oppression, when the court is valuing the oppressed shareholder’s interest in the determination of the relief to be awarded for oppression, the aim is to put the applicant in the position as if there had been no oppression, as stated by Young J (as his Honour then was) in ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 at 540:
However in cases dealing with the price at which an oppressor is to purchase the oppressed’s shares in a company the word “fair” has been given significance. For instance in Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 369, Lord Denning said that one of the most useful orders that could be made is to “order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression”. The concept of “fair price” in this sense has been followed subsequently; see for instance Re Associated Tool Industries Ltd (1963) 5 FLR 55 at 70; Re Golden Bread Pty Ltd [1977] Qd R 44 at 55; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 at 102 and cases cited by von Doussa J in that case at para 25.5. The flavour of the judgments in the company oppression cases is that in looking to the fair value one must look at all the circumstances of the case and seek to put the oppressed in the same position as nearly as can be as if there had been no oppression, erring, if there is to be any erring, on the side of the oppressed.
(Emphasis added)
93 Jay did not suggest that any other approach be taken in relation to the valuation of the shares in IGH and Yaroomba.
94 Here, where Brett was shut out of the business and it was then operated by Jay for his benefit to Brett’s detriment, it is appropriate to value the shares as at the date Brett was completely shut out of the management of the companies which controlled the family businesses. After that time he was not able to control what had until then been a successful enterprise. As the plaintiffs submitted, that was also prior to the date on which Jay established Imoda Homes which he then operated in competition with the family business whilst using the financial resources of the family business to meet that company’s expenses.
95 Consequently, the shareholding in the two companies ought to be valued as at 5 September 2016, being the date on which the Brett effectively resigned from the entities within the group.
The valuation of Mr Cassells
96 The plaintiffs called Mr Frank Cassells, a Chartered Accountant, who valued the shareholdings of BAM and Brett in the entities of the Imoda Group, including Yaroomba. He made his valuations of the companies as at 5 September 2016, so as to disregard the effect of the transfer of the business to Imoda Homes. He used the figures from Imoda Homes’ continued trading to determine the Estimated Future Maintainable Earnings as at 5 September 2016.
97 The methodology adopted by Mr Cassells was the Capitalisation of Future Maintainable Earnings and there was no suggestion that this orthodox approach was not appropriate for this type of valuation. He used a discounted EBITDA multiplier of about 2.5. He was slightly cross-examined on this by Jay and his evidence was to the effect that the figure was derived from an industry standard sourced from the Master Builders Association. That organisation is well known and there is no reason to suggest that a multiplier of that rate is not appropriate. There was no relevant cross-examination by Jay as to the composition of the figure identified as future maintainable earnings. The plaintiff’ submission that the evidence of Mr Cassells remained wholly intact despite the questions asked of him by Jay should be accepted.
98 Mr Cassells valued the Imoda Group on a consolidated bases between $1,385,066 and $1,567,205 with a mid-range value of $1,471,799. He valued Brett’s 47% share using the mid-range value and concluded that it was worth $710,996.
99 It is to be observed that Jay adduced no admissible evidence of the value of the Imoda Group as at that date or as at any date. He did not effectively cross-examine Mr Cassells or undermine the valuation in any way whatsoever. Whilst he expressed the view from the Bar table that the companies in the group were worthless because they had no remaining business, he did not grasp that the issue in dispute was what would have been the value of the group had he not engaged in the oppressive conduct.
100 There is no reason not to accept Mr Cassells’ opinion as to the valuation of Brett and BAM’s share holdings in the Imoda Group and the plaintiffs have established that value as being that identified by Mr Cassells at $710,996.
Appropriate orders
101 The family business conducted by the brothers was through an amalgam of companies. The value in them was mostly held in IGH, although the separate business of Yaroomba was held directly by the three brothers. Despite the different shareholdings, the companies were operated as one business. The plaintiffs submitted that, where it was appropriate to value the business on a consolidated basis, it is appropriate for the Court to exercise its discretion in making the orders on a consolidated basis for the purchase of the shareholdings. Relevantly, the scope of the power in s 233 would be wide enough to require Jay (as director) to acquire BAM’s share in IGH along with Imoda Realty: LPD Holdings (Aust) Pty Ltd v Phillips (2013) 281 FLR 227, 236 [39] and 237 [43]. That being so, and where the consolidation of Yaroomba actually serves to reduce the overall liability (due to its negative net assets) otherwise imposed on the defendants, the plaintiffs’ submission should be accepted. An order should be made requiring Jay and Imoda Realty to acquire Brett’s and BAM’s interests in IGH and Yaroomba.
Interest
102 There is no reason why interest should not be payable at the usual rate of 5.5% from 16 September 2017, being the date of the commencement of this action, to the date of judgment.
Security for payment
103 The plaintiffs sought security for the payment of the judgment ordered. Jay made no submissions as to why such an order should not be made, and it is appropriate in the circumstances to ensure that whatever little is left in the companies is not dissipated by Jay. It is therefore appropriate to make an order that until payment of the share price and interest or other further order, BAM is entitled to a charge over the shareholding of Imoda Realty in IGH and Brett is entitled to a charge over Jay’s shareholding in Yaroomba.
Costs
104 The plaintiffs asked for leave to make submissions in relation to costs once judgment has been handed down. That is appropriate in a case of this nature.
I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington. |
Associate:
QUD 482 of 2017 | |
IMODA REALTY PTY LTD ACN 148 144 950 | |
Fifth Defendant: | JAY PETER MCALISTER |
