FEDERAL COURT OF AUSTRALIA Benjamin Corporation Pty Ltd v Smith Martis Cork & Rajan Pty Ltd [2003] FCA 1471 CORPORATIONS– oppression of minority shareholder – whether corporation's affairs conducted in a manner oppressive to, or unfairly prejudicial to, or unfairly discriminatory against minority shareholder – whether conduct sufficiently unfair from a commercial viewpoint – four individuals used shelf company to acquire business – subscribed the capital required to conduct the business by taking equal allotment of shares – each individual appointed as a director – no other directors appointed – each worked in the business – company's business conducted by them for ten years – one individual appointed managing director – other three individuals decided summarily to dismiss him as managing director and as a director and to remove him from the management of the affairs of the company – three months later they caused the company to dismiss him from its employment – whether that course of conduct was justifiable – whether a quasi-partnership – orders made for acquisition of minority interests. Corporations Act 2001 (Cth), ss 232-234 O'Neill v Phillips [1999] 1 WLR 1092 applied Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 applied Walker v Wilsher (1889) 23 QBD 335 applied Unilever PLC v The Procter & Gamble Co [2000] 1 WLR 2436 referred to Re Turf Enterprises Pty Ltd [1975] Qd R 266 referred to In Re Daintrey; Ex parte Holt [1893] 2 QB 116 referred to South Shropshire District Council v Amos [1986] 1 WLR 1271 referred to Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 applied Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 applied Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 applied Mordecai v Mordecai (1988) 12 NSWLR 58 applied Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari [2000] 2 Qd R 359 applied Shamsallah Holdings Pty Ltd v CBD Refrigeration and Airconditioning Services Pty Ltd [2001] WASC 8 applied MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 2) [2000] VSC 78 applied BENJAMIN CORPORATION PTY LTD v SMITH MARTIS CORK & RAJAN PTY LTD W3016 of 2002 CARR J 11 DECEMBER 2003 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W3016 OF 2002 BETWEEN: BENJAMIN CORPORATION PTY LTD (ACN 100 278 288) Plaintiff AND: SMITH MARTIS CORK & RAJAN PTY LTD (ACN 054 277 879) First Defendant JACK BRADLEY MANDERS as trustee for the Smith Family Trust, SHIMSHON NOMINEES PTY LTD (ACN 009 097 929) as trustee for the Patrick Cork No 2 Family Trust, PARVATHI BAI RAJAN as trustee for the Rajan Family Trust, VIRINDAR JOSEPH MARTIS as trustee for the VM Trust Second Defendants BRUCE RICHARD SIVALINGAM as trustee for the Sled Driver Trust, NAOMI JUDITH FLAVELL as trustee for the Flavell Family Trust and JENNIFER ANNE BURNETT as trustee for the Burnett Saliacus Family Trust Third Defendants JACK BRADLEY MANDERS as trustee for the Smith Family Trust, SHIMSHON NOMINEES PTY LTD (ACN 009 097 929) as trustee for the Patrick Cork No 2 Family Trust, PARVATHI BAI RAJAN as trustee for the Rajan Family Trust Cross-Plaintiffs BENJAMIN CORPORATION PTY LTD (ACN 100 278 288) as trustee for the Benjamin Trust Cross-Defendant JUDGE: CARR J DATE OF ORDER: 11 DECEMBER 2003 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The second defendants other than the fourth-named second defendant, each in their capacity as a trustee of the respective trusts described above, shall purchase from the plaintiff, in equal shares or in such other shares as those defendants may agree, and the plaintiff shall sell all of the plaintiff's shares in the first defendant and its special unit in the SMCR Unit Trust at the price referred to in paragraph 2 of these orders. 2. The price for the property referred to in paragraph 1 of these orders is $737,000 plus a further amount to be calculated by applying a rate of 7% per annum to that sum, calculated from 13 August 2002 to the date of settlement. 3. Settlement is to take place on or before 30 January 2004. 4. The first defendant shall take such steps as may be necessary to give effect to these orders. 5. (a) The parties have liberty to apply in relation to the implementation of these orders and also in relation to the making of such further orders as may be required in the interests of justice to give effect to the resolution of the matter in accordance with the reasons for judgment published today, including, if necessary, orders against a person not being a party to the proceedings. (b) In particular, any party may apply for an order that there be an assessment and taking of accounts before a District Registrar of any moneys owing as between the plaintiff and the first defendant in respect of dividends or other remuneration paid or payable by it to the plaintiff and Mr Joseph Martis in respect of the financial year ended 30 June 2002 and the period 1 July 2002 to 13 August 2002. 6. The second defendants other than the fourth-named second defendant pay the plaintiff's costs of the application. 7. The cross-claim be dismissed. The cross-plaintiffs pay the cross-defendants' costs of the cross-claim. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. I N D E X Factual and Procedural Background 2 - 9 The Plaintiff's Case 9 - 11 The Defendants' Case 11 - 14 Was there an Agreement or Arrangement in the Terms Pleaded? 14 – 17 What were the factual circumstances in which Mr Martis was removed from the positions of Managing Director, Chairman of Directors and Director and dismissed from his employment as an Authorised Representative? 18 - 32 Have the Grounds referred to in s 232 been Established? 32 - 35 The Defendants' Complaints 35 - 56 The Proceedings in the Western Australian Industrial Relations Commission 56 - 57 The Breakdown of the Relationship 57 - 58 Valuation of the Shares 58 – 71 Conclusion 72 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W3016 OF 2002 BETWEEN: BENJAMIN CORPORATION PTY LTD (ACN 100 278 288) Plaintiff AND: SMITH MARTIS CORK & RAJAN PTY LTD (ACN 054 277 879) First Defendant JACK BRADLEY MANDERS as trustee for the Smith Family Trust, SHIMSHON NOMINEES PTY LTD (ACN 009 097 929) as trustee for the Patrick Cork No 2 Family Trust, PARVATHI BAI RAJAN as trustee for the Rajan Family Trust, VIRINDAR JOSEPH MARTIS as trustee for the VM Trust Second Defendants BRUCE RICHARD SIVALINGAM as trustee for the Sled Driver Trust, NAOMI JUDITH FLAVELL as trustee for the Flavell Family Trust and JENNIFER ANNE BURNETT as trustee for the Burnett Saliacus Family Trust Third Defendants JACK BRADLEY MANDERS as trustee for the Smith Family Trust, SHIMSHON NOMINEES PTY LTD (ACN 009 097 929) as trustee for the Patrick Cork No 2 Family Trust, PARVATHI BAI RAJAN as trustee for the Rajan Family Trust Cross-Plaintiffs BENJAMIN CORPORATION PTY LTD (ACN 100 278 288) as trustee for the Benjamin Trust Cross-Defendant JUDGE: CARR J DATE: 11 DECEMBER 2003 PLACE: PERTH REASONS FOR JUDGMENT introduction 1 In this application the plaintiff seeks orders under ss 232-234 of the Corporations Act 2001 (Cth) ("the Act"). It alleges that the affairs of the first defendant ("the Company") in which it is a minority shareholder (22.5 per cent of the issued share capital) have been conducted in a manner which was oppressive to, unfairly prejudicial to and/or unfairly discriminatory against it. factual and procedural background 2 The following recital of facts is uncontroversial. Where, later in these reasons, it is necessary for me to make findings of fact, I shall indicate that and then make the findings. 3 Although the plaintiff and defendants are variously corporations or others acting as trustees, there are four individuals whose affairs are mainly concerned in this matter. I shall, generally, refer to them as "the four individuals". They are Mr Joseph Rozarius Silanand Martis, Mr Graham Herbert Smith, Mr Patrick Neville Cork and Mr Suresh Rajan. They have known each other for many years. Messrs Martis Cork & Rajan met while they studied at the University of Western Australia in the early 1980s. 4 By the end of 1987 all four individuals were employed by Joseph Charles Learmonth Duffy Ltd ("JCLD"), once a very well known estate agent in Western Australia, in its then newly-established investment division. Each of them was an "associate director". 5 On 15 November 1991 JCLD was put into receivership. The four individuals negotiated with the receiver for the purchase of the assets of JCLD's investment advisory business and securities dealing business. They acquired the Company, which had been a shelf company, as the corporate vehicle to purchase those assets. On 21 November 1991, each of the four individuals was appointed as a director of the Company. They remained in office as the only directors of the Company until Mr Joseph Martis (henceforth "Mr Martis") was removed at a general meeting of shareholders of the Company on 10 May 2002. The Company made the purchase from JCLD on 13 December 1991 ("the JCLD Agreement"). 6 At that time the Company had an issued capital of 60,000 fully paid ordinary $1 shares. Those shares (issued and allotted on 6 December 1991) were initially held equally (15,000 each) by the four individuals, who each paid $15,000 on subscription for the shares. 7 The Company, which at all material times has held a security dealers licence, conducted the business of financial planning and investment advising. 8 Between 1991 and May 2002 that business grew into a very profitable one. 9 During that period, the shareholding in the Company changed. In late 1992 or early 1993 the issued shares in the Company were transferred, in equal shares, to the respective trustees of four trusts associated with the four individuals. In late 1995 each of the trustees of those trusts sold 1500 ordinary shares in the Company to a trustee of a trust associated with Mr Martis' brother, Mr Virindar Joseph ("Andrew") Martis. At about the same time differential dividend shares were issued to the trusts associated with each of the four individuals and Mr Andrew Martis. 10 The plaintiff is the trustee of Mr Martis' family trust. The first defendant is the Company, the second defendants are the respective trustees of the family trusts of Mr Smith, Mr Cork, Mr Rajan and Mr Andrew Martis. 11 At the time when these proceedings commenced, no dividends had been paid in respect of any of the ordinary shares in the Company. 12 As at August 2002, a total of eighty fully paid differential dividend shares and one employee share had been issued. Their par value varied between $1 and $3.50. Those shares conferred no voting rights. The shares conferred on the holders the right to such dividends as the directors of the Company might from time to time recommend. They were used as a means to pay differential dividends as a reward for fees earned by the respective shareholders as Authorised Representatives of the Company. I have put the description of those offices into capital letters because, generally speaking, the parties have done so. It is not a statutorily defined term as far as I can gather, but describes a person who holds a "proper authority" from an "investment adviser" within the meaning of those terms in the Act and its predecessor. Ten of the differential dividend shares were issued to each of the trustees of the four trusts associated with the directors, a further ten to the trustee associated with Mr Andrew Martis, and a further ten such shares have been issued to each of three employees of the Company. The employee share was issued to one of those employees. 13 The four individuals, through their various associated entities, each held a single unit in the SMCR Unit Trust the trustee of which, SMCR Pty Ltd, leased the office premises at 35 Richardson Street, West Perth from the trustee of the Company's superannuation fund, and sub-leased those premises to the Company. SMCR Pty Ltd as trustee of the SMCR Unit Trust also provided administrative and other services to the Company. 14 The principal business of the Company was to provide investment advice and general financial planning services. The revenue and profitability of the Company grew steadily, but particularly over the five financial years ended 30 June 2002. 15 Each of the four individuals were, at all material times, employed by the Company as an Authorised Representative pursuant to four respective employment contracts which they entered into with the Company on 13 December 1991. 16 Over the three financial years ended 30 June 2002 the Company employed four other Authorised Representatives, being Mr Andrew Martis and the three other employees referred to above [Mr Bruce Richard Sivalingam who joined the Company in 1992, Mrs Jennifer Anne Saliacus, nee Burnett (1994) and Mr Timothy Flavell (1999)]. The third defendants are Mr Sivalingam as trustee for his family trust, Mrs Naomi Judith Flavell as trustee for the Flavell family trust and Mrs Saliacus as trustee for the Burnett-Saliacus family trust. 17 The operating profit before income tax for the Company and the SMCR Unit Trust combined for the years ended 30 June 2000, 2001 and 2002 was $1.32 million, $1.58 million and $1.24 million respectively. 18 The Company had various sources of income. They were mainly fees charged to clients for investment advice or financial planning, and commissions paid by fund managers in respect of investments placed by the Company on behalf of its clients. The profit and loss statements show that recurring income (as contrasted to one-off fees and one-off commissions) was very significant. Investment management fees, for example, in the four financial years ended 30 June 1999, 2000, 2001 and 2002 were respectively: $1,083,021, $1,349,182, $1,766,931 and $1,930,544. 19 It is necessary to descend into some detail in relation to two sources of fees and commissions which were treated specially and which play a part in the disputes between the parties. 20 The Company provided its clients with a service known as "Profit Watch". Profit Watch was a portfolio management services system which the Company had purchased from JCLD (then re-named Ficate Pty Ltd) pursuant to the JCLD Agreement. It involved initial and on-going investment advice, administration of a client's investment portfolio and the provision of access to a wide range of investments. The Company contracted most of the administration of Profit Watch to a company called Tower Trust Ltd. Fees, known as "Profit Watch trailer fees" were paid as recurring commissions to the Company by retail fund managers in respect of moneys invested in those funds on behalf of the Company's clients through Profit Watch. The commission was paid as a percentage of clients' moneys invested with each fund. The rate of commission varied from fund to fund. 21 Where an Authorised Representative of the Company had introduced a client to the Company and also provided investment advisory services to that client, he or she received all of the Profit Watch trailer fees payable in respect of the investments made on behalf of that client. Sometimes an Authorised Representative provided investment advisory services to a client introduced by another Authorised Representative of the Company. In those circumstances the Profit Watch trailer fees were shared. The manner in which that sharing took place is in contention and is the subject of factual findings below. 22 "ASGARD" is a master trust ultimately owned by St George Bank Ltd. At all material times it provided investment administration similar to the administrative function of Profit Watch. The Company's clients, on advice from the Authorised Representatives, chose various investment products which were administered by ASGARD. The clients paid ASGARD administration fees for administering their investments. The Company also charged its own service fee to its clients which were collected and paid to the Company by ASGARD. 23 ASGARD paid a recurring commission to the Company. That was known as the "ASGARD Volume Bonus". The bonus was a percentage of the recurring administration fees charged by ASGARD to the Company's clients. Those fees were calculated as a percentage of the funds invested by the clients with ASGARD. They were graduated so that the percentage decreased, on a graduated basis, as the amounts of the funds invested by each individual client increased. Accordingly, a relatively larger aggregate bonus was paid by ASGARD to the Company if many small clients, as opposed to a few large ones, placed funds with ASGARD. 24 The ASGARD Volume Bonus was allocated between the Company's Authorised Representatives in the proportion which the Authorised Representatives' "clients' funds under advice" with ASGARD bore to the total Company funds under advice with ASGARD. 25 The rest of the Company's income was divided by way of salary and dividends declared in respect of the differential dividend shares under what was referred to as a profit sharing arrangement. That involved taking the following steps. 26 First, from that income, there was deducted the Company's "total administration costs". The Company's total administration costs comprised common administration costs (i.e. costs common to and allocated to all Authorised Representatives) and "requisitions", being specific costs incurred by the Company on request by a particular Authorised Representative. When so allocated, those total costs were known as each Authorised Representative's "cost base". 27 The remuneration of Authorised Representatives comprised a relatively small salary, dividends to a related trust and superannuation contributions. The means of payment varied according to the particular circumstances of the recipient, but the manner of calculation of the remuneration was common to all eight Authorised Representatives. 28 The remuneration payable to an Authorised Representative was calculated at 80% of the revenue received by the Company from clients serviced by that particular Authorised Representative, less the Authorised Representative's allocated cost base plus "notional superannuation" of up to $10,519 (in the year ended 30 June 2003). 29 There then remained what was termed "the owners' profit pool". The owners' profit pool comprised the Company's gross margin less the remuneration paid to the Authorised Representatives. 30 The owners' profit pool was distributed among the four individuals and Mr Andrew Martis in proportion to their holdings of ordinary shares in the Company, but not as dividends payable in respect of those shares. 31 Mr Martis, as well as being an Authorised Representative, became responsible for the day to day management of the Company. Initially there was no formal appointment of him as manager, but the situation appears to have evolved over the years by consent of the other four holders of ordinary shares. 32 During the first half of 2001, Mr Martis informed the other directors that the Company was required under the regulations of the Financial Planning Association of Australia to appoint a chief executive officer or managing director as a primary contact with that organisation. Mr Martis suggested that he be appointed as managing director. The other directors accepted that proposal, and on 28 June or July 2001 (the evidence varies) Mr Martis was appointed as managing director of the Company. Mr Martis was not separately remunerated for his managerial work in that capacity whether before or after he became managing director. 33 The defendants' evidence is, in summary, that, so far as they were concerned, various problems arose in the affairs of the Company. They included the method by which Profit Watch retail trailer fees were shared, access to the Company's accounting system, attempts by Mr Martis to remove Mr Rajan as a director and reduce his shareholding, allocation of the ASGARD Volume Bonus trailer fees, the employment of Mrs Saliacus, client complaints, refusal to introduce changes, refusal to upgrade compliance standards, and cost over-runs in the renovation of the building at 35 Richardson Street, West Perth. 34 Matters came to a head at a strategy meeting held on 22 March 2002 (a Friday) attended by the four directors, Mr Sivalingam and Mr Flavell. I discuss the detail of what took place at that meeting later in these reasons. 35 On 24 March 2002, Messrs Smith Rajan and Cork met. They decided to remove Mr Martis as a director. 36 On 25 March 2002, Messrs Smith Rajan and Cork met with Mr Martis and told him of their decision. Later that day they called a meeting of the Company's staff at which they notified them that Mr Martis was no longer managing director and had no role to play in the management of the Company. 37 Mr Martis took legal advice. On 27 March 2002, Mr Martis' then solicitors wrote to Messrs Smith Rajan and Cork asserting that their purported dismissal of Mr Martis as managing director was of no effect at law and demanding, amongst other things, a written undertaking that Mr Martis would remain managing director of the Company. 38 On 3 April 2002 the defendants' solicitor wrote to Mr Martis' solicitors acknowledging that Mr Martis had not been properly removed as a director or managing director, but foreshadowing a meeting of the directors of the Company and a general meeting of the shareholders of the Company to consider removing him as chairman of directors, as managing director and as a director. These proposed resolutions, so the letter asserted, were not to impact upon Mr Martis' employment with the Company as a representative in its securities business or the basis of his remuneration in that employment. 39 On 8 April 2002, a meeting of the board of directors of the Company (notice of which had been duly given) took place. Various resolutions were passed including resolutions removing Mr Martis as chairman and managing director of the Company and a resolution that a general meeting of the shareholders be convened as soon as practicable to consider and vote on a motion to remove him as a director of the Company. 40 On 8 April 2002, through his solicitors, Mr Martis filed an application under the Industrial Relations Act 1979 (WA) in the Western Australian Industrial Relations Commission asserting that he had been harshly, oppressively or unfairly dismissed as managing director of the Company. He sought reinstatement or re-employment in that position and further or alternatively compensation for loss and injury of six months remuneration and in addition payment, in lieu of reasonable notice, of a benefit of 12 months remuneration. The Company was the respondent to that application. In the application the date of termination was stated as being 25 March 2002. 41 On 19 April 2002, the applicant, again through his solicitors, caused a further very similar application to be filed in the Western Australian Industrial Relations Commission citing the date of termination as being 8 April 2002 and seeking similar relief from the Company. 42 Those applications remain pending before the Western Australian Industrial Relations Commission. 43 The general meeting of shareholders which the board had decided (on 8 April 2002) to convene took place on 10 May 2002. Messrs Cork Smith and Rajan exercised their voting rights to cause resolutions to be passed which included removing Mr Martis as a director of the Company. 44 During the following three months Mr Martis remained in his employment as an Authorised Representative of the Company. Some negotiations took place between the parties and between their solicitors with a view to settling the disputes which had arisen between them. No settlement was reached. 45 On 6 August 2002 the Company served notice on Mr Martis of termination of his employment as an Authorised Representative. The termination was to take effect on 13 August 2002. 46 On 23 September 2002, Mr Martis, through his current solicitors, filed two applications in the Western Australian Industrial Relations Commission. In one he complained of harsh, oppressive and/or unfair dismissal as a director of SMCR Pty Ltd and sought compensation, but not reinstatement. In the other application he made a similar complaint in relation to his dismissal by the Company as an Authorised Representative and sought similar relief. In each application it was stated that the relationship between the parties was such that reinstatement would be impracticable. Those applications also remain pending before the Commission. 47 In the meantime, on 23 August 2002, the plaintiff had filed the application in this Court. the plaintiff's case 48 The plaintiff's case is that in or about November 1991 the four individuals made an oral agreement in the course of various conversations. The essential terms of the agreement were, so it is pleaded, as follows: · they would acquire the investment advisory and securities dealing business conducted by JCLD ("the Business"); · they would conduct the Business together and (subject to the payment of remuneration to other client advisers which the Company might later employ) would share the net profits of the Business; · they would each have (or entities related to each of them would have) an equal share in the Business; · they would be (or entities related to each of them would be) equal shareholders in the Company, although further shares might later be allotted to others; · each of them would be a director of the Company and they would conduct the Business under the name "Smith Martis Cork & Rajan Pty Ltd". 49 The plaintiff alleges that there was a common assumption amongst each of the four individuals and, from 1993, each of their related entities, and a reasonable expectation that the four individuals would remain directors of the Company, that each of them would participate in the Company's management and that if, as a result of a breakdown of the relationship between them, one of them was removed as a director of the Company, or was excluded from such management, the remaining directors would arrange the purchase of the shares held by that person's related entity at a fair value or on reasonable commercial terms. 50 That common understanding or reasonable expectation is said to arise from or be inferred from the following facts. Before the purchase of the shares in the Company each of the four individuals was a financial planner (client adviser) employed by JCLD. Each of them had established a business relationship with a number of JCLD's clients and together were in a position to take their clients from JCLD, had they wished to do so. Accordingly, the four individuals shared the goodwill of JCLD's investment advisory and securities dealing business. They had made the oral agreement referred to above. The ordinary shares in the Company were issued and allotted to each of them equally. Each of Messrs Martis Cork & Rajan were long time acquaintances, having been educated together at the University of Western Australia and had worked together at JCLD. Mr Smith had also worked at JCLD. From 1991 until 2002 each of the four individuals was a director of the Company, took a role in its management and was an equal shareholder in the Company. From 1993 to 2002, each of the related entities associated with the four individuals retained equal ordinary shareholdings in the Company and was paid differential dividends as a reward for the fees each earned as an Authorised Representative of the Company. 51 The plaintiff alleges that this common assumption and/or reasonable expectation continued down to and including August 2002. 52 The plaintiff's case is that, contrary to the common assumption and/or Mr Martis' reasonable expectation, the other three individuals caused the Company to carry out the steps which I have summarised above in relation to the removal of Mr Martis from the office of managing director and director and from employment as an Authorised Representative. It says further that the defendants have never offered to purchase or arrange the purchase of its shares in the Company at a fair value or on reasonable commercial terms. 53 By reason of the foregoing circumstances, the plaintiff asserts that the affairs of the Company have been, and/or are being, conducted in a manner which is oppressive and unfairly prejudicial to and unfairly discriminatory against the plaintiff. 54 The application has been resisted only by the respective trustees of the family trusts of Mr Smith, Mr Cork and Mr Rajan. 55 The plaintiff seeks an order that the defendants purchase its shares at a fair value to be fixed by the Court. Although the reference in the immediately preceding sentence to the defendants is intended as a reference to all of the defendants, as I have mentioned, only the trustees of the three family trusts referred to immediately above have defended the proceedings. It is convenient to refer to them as "the defendants" and I shall do so. The Defendants' Case 56 The defendants deny that there was an agreement as pleaded by the plaintiff. They also deny the three assumptions asserted by the plaintiff. That is, they deny the assumptions that: · the four individuals would remain directors of the Company; · that each of them would participate in the Company's management; and · if as a result of the breakdown of the relationship between them, one of them was removed as a director of the Company or was excluded from such management, the remaining directors would arrange the purchase of the shares held by that person's related entity at a fair value or on reasonable commercial terms. 57 The defendants say that during or about November and December 1991 each of the four individuals agreed orally that they would acquire the investment advisory and securities dealing business conducted by JCLD, that they would acquire a company through which that business was to be conducted (the company to be named Smith Martis Cork & Rajan Pty Ltd), that they were to each hold equal shares and each was to be a director of the Company, that each of them was to contribute "to the Business" the sum of $15,000 and that 60,000 shares in the Company were to be issued, to be held by them equally. Those matters appear to be common to the parties, but there is the following difference. 58 The defendants plead that there was an oral agreement, arrived at in various conversations between the four individuals, that each of them and Messrs Sivalingam and Andrew Martis "… were to retain 80% of their fees after deduction of costs with the balance of 20% to be retained …" by the Company to cover superannuation contributions and to create a profit pool. 59 The defendants admit that on 10 May 2002 they caused the removal of Mr Martis as a director of the Company and that on or about 13 August 2002 they dismissed him or caused his dismissal as an employee of the Company. But they say that they have made offers at fair value for the plaintiff's shares in the Company. 60 The defendants plead that if, which is denied, the four individuals had the assumptions referred to in paragraph [56] above, Mr Martis failed adequately over the period 1991 to 2002 to discharge his obligations as director and as manager of "the practice" and from 2001 as managing director. They provide the following particulars of that allegation: · in relation to the Profit Watch retail trailer fees and ASGARD Volume Bonus trailer fees, Mr Martis is said to have implemented and maintained an inequitable allocation of those fees, failed to disclose that allocation to the other directors and, when requested by them to review and change that inequitable allocation of fees, refused or failed so to do; · Mr Martis limited access to the Company's accounting system to himself and Mrs Saliacus; · he failed to address concerns raised by the other directors as to the performance by Mrs Saliacus of her duties; · he failed and/or refused to implement those changes to the support structure and administration of the Company which were reasonably required to service the "practices" of the advisers employed by the Company; · he failed to implement those changes to meet the requirements of the Financial Services Reform Act 2002 (Cth); · he failed adequately to control the costs of renovations carried out to the premises at 35 Richardson Street, West Perth and/or to obtain authorisation from the other three directors for the incurring of additional costs in that respect; · during or about 2002, without authority, he paid himself a managing director's allowance; · he failed to ensure that Mr Cork was paid reimbursement of insurance premiums; · he failed during or about October 1996 and subsequent thereto to implement a review of expenses charged by the SMCR Unit Trust to the Company, notwithstanding advice from the Company's auditors that "an urgent review thereof was required"; · he failed to ensure that the Company's business accounting system was adequately maintained and updated; · in or about 2002, without authority from the board of the Company, he authorised the expenditure of $15,000 on a photocopying machine; · he misled Mr Cork as to the conduct of their co-directors; · on or about April 2002, by an email sent to Mr Cork, Mr Martis provided Mr Cork with the password to a computer file which included a valuation spreadsheet for the Company for the period 1998-1999, that he knowingly and falsely informed Mr Cork that the spreadsheet had not been updated, whereas he (Mr Martis) had prepared updated valuation spreadsheets for the Company for the period 2000-2001 and 2001-2002 which revealed a fall in the capitalisation multiple; · he instructed his solicitors who, by letter dated 9 April 2002, put a proposal to his co-directors as to their purchase of the plaintiff's shares in the Company; and · in the circumstances, sought "as to the negotiations between himself and his co-directors as to the purchase of the shares" to mislead his co-directors about the value of the Company and the shares. 61 The defendants then plead that Mr Martis, on his removal as managing director, commenced proceedings against the Company in the Western Australian Industrial Relations Commission seeking reinstatement or substantial compensation and thereby and/or by his "further conduct" rendered unsustainable a continued working relationship with the other directors. 62 The defendants further say that by reason of the matters which I have summarised in paragraphs [59] to [61] above, the relationship between Mr Martis and the other three individuals broke down to such an extent that it was reasonable and appropriate to take steps to remove him as a director of the Company. 63 The defendants complete their defence by pleading that, by reason of the matters summarised above, the removal of Mr Martis as managing director and as a director of the Company was reasonable and was not oppressive. They deny that the affairs of the Company have been or are being conducted in a manner which was or is oppressive and unfairly prejudicial to the plaintiff and that the plaintiff is entitled to any relief whatever. the issues to be decided was there an agreement in the terms pleaded? 64 I think, and so find, that there was an agreement as pleaded by the plaintiff. Messrs Cork Smith and Rajan in their evidence denied that there was such an agreement. But the documentary evidence strongly suggests that there was. I refer to the JCLD Agreement, pursuant to which the Company purchased the goodwill of JCLD's investment advisory and securities dealing business (henceforth "the business"), and to the employment contracts made on the same date by each of the four individuals with the Company whereby each of them agreed to serve the Company as its representative in its securities business. Those employment contracts were in identical terms. They contained covenants on the part of each of the four individuals which were clearly designed to protect the business of the Company. I refer to clauses 4(1), (8), (11), (17), (22) and (23). I refer also to clause 7 which contains confidentiality obligations and a restraint on soliciting, canvassing or counselling the Company's clients to become clients of the respective individual. 65 Next there was the arrangement whereby each of the four individuals subscribed $15,000 to finance the Company and take up equal shares in it. The evidence suggests, and I so find, that this amount was subscribed for working capital and other cash required by the Company to set up its operations. The situation can be seen as one in which the four individuals "clubbed together" to provide finance for the Company and buy the goodwill and some other assets of the business formerly conducted by JCLD of which some $40,455.30 was allocated to the portfolio management services business carried on under the name "Profit Watch". The consideration for that purchase was principally the release by the four individuals of almost all their claims against JCLD for unpaid salary and commissions. 66 In February 1992 (i.e. very early in the piece) the Company prepared an "Internal Policy and Procedures Manual". In that document, under the heading "Directors – Job Description", there appears the following: '1. Tasks are shared amongst the Board of Directors. Write minimum business of $120,000 per year and assist the company in the growth of the fee base and referral sources (with minimum eligibility of 2 years of $120,000 achievement for new partner consideration).' [emphasis added] 67 The evidence relating to how the business was conducted for a period of just over ten years also confirms, in my view, the agreement or, failing the agreement, the understanding, as pleaded by the plaintiff. 68 That evidence shows that the four individuals conducted the business together. It is true that each individual provided services to four respective groups of clients which were identified as "belonging" to that particular individual. But, as I have mentioned above, the four individuals shared some clients in the sense that in respect of those clients, the services required were provided by more than one of the individuals. 69 It was common ground, in the end, that each of the individuals carried out various other roles (although some overlapped) as part of a joint endeavour. Mr Martis was responsible for administration and management and also spoke at seminars organised by the Company. Mr Smith organised seminars and spoke at them. Mr Cork managed the computer systems and software and spoke at seminars. Mr Rajan played a major role in marketing the services of the Company and generating media publicity. 70 Mr Cork acknowledged that the time which Mr Martis devoted to the administration and management of the Company freed him (Mr Cork) to cultivate relationships and earn fees. 71 Each of the individuals participated in monthly management meetings (which also constituted board meetings) and monthly investment review committee meetings. 72 The evidence shows that the four individuals promoted the business of the Company under the business name "SMCR Financial Planners" or "Smith Martis Cork and Rajan – financial planners". The former style was used in the telephone directory. Mr Rajan wrote newspaper articles about financial matters in which he was described as an economist, a director and proper authority holder with "Smith Martis Cork and Rajan – financial planners". They held seminars to promote the business in which they referred to themselves as the "SMCR team". In one seminar powerpoint presentation there was the following reference: "Stable team rarely seen in our industry (ten years now)". The Company published (quarterly) a client newsletter entitled "the Profit Report" which promoted its business under the name "SMCR Financial Planners" in which there were references to "your team" under which were listed the four individuals and the staff members. 73 I note that the Company's Constitution contained pre-emptive rights clauses. In my view, that is some indication that the four individuals regarded the legal relationship as being a reasonably personal one, akin to partnership. Their investment in shares in the Company was not one which was to be readily marketable. 74 The Company paid the premiums in respect of the four individuals' income protection policies. The Company owned the policy. Again, perhaps only to a slight extent, this indicates a joint venture in which each individual shared – through the Company – the cost of replacing their personal services. The minutes of a management meeting held on 30 August 2001 indicate it was agreed "… to look at insuring pay out in the case of an owner dying". 75 In paragraph 15 of the defence, as it was until the first day of the trial, Mr Martis' duties were described as "manager of the practice". Only after Mr D M Stone, counsel for the plaintiff, in his opening address so described the nature of Mr Martis' duties, did the defendants amend that paragraph to insert the words "a director and as manager of the practice". 76 When, in late 1995 each of the trustees of the four family trusts sold 1500 ordinary shares in the Company to the family trust of Mr Andrew Martis, this was done, not at par, but on the basis of a valuation which included an assessment of the goodwill owned by the Company. 77 I also note that the other three employed Authorised Representatives generated income for the Company in the form of the owners' profit pool. 78 Taking all of these factors into account, I consider that the Company was set up and, for a period of over ten years, operated as a quasi-partnership. 79 I acknowledge that, apart from the distribution of the owners' profit pool, the remuneration arrangements between the four individuals were such that each was largely rewarded in proportion to the fees generated by the clients whom they serviced. I refer to what was usually termed "the 80% arrangement", being the oral agreement pleaded in the defence and referred to in paragraph [58] above. 80 But I do not think that that factor outweighs the preponderance of other factors which point to the business of the Company being conducted as a quasi-partnership and the goodwill of its clients lawfully belonging to the Company itself and not to its directors. 81 If I am wrong in spelling out an agreement as pleaded from those factual circumstances, I consider that there was at least an understanding to the same effect. That understanding, in my view, extended to the matters of common assumption or reasonable expectation referred to at paragraph [49] above. In a quasi-partnership company, which in my view is a fair description of the Company, the understandings reached at the time of entering into an association are important – see O'Neill v Phillips [1999] 1 WLR 1092 at 1101 per Lord Hoffmann (with whom the other four Law Lords agreed). 82 The facts of this matter give rise, in my view, to a strong inference (and I so find) that the Company was taken off the shelf by the four individuals as a means of forming and continuing an association on the basis of a personal relationship, involving mutual confidence. There was an agreement or understanding that all of them would participate in the conduct of the business and that there would be restrictions upon the transfer of their individual interest in the Company, so that if confidence were lost, or one member was removed from management, he could not take out his stake and go elsewhere. I am, of course, tracking the words of Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 379. As Lord Hoffman observed in O'Neill v Phillips (again at 1102): 'In such a case it will usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in the management without giving him the opportunity to remove his capital upon reasonable terms.' 83 Lord Hoffman, later on the same page, equated that opportunity with an opportunity for the member concerned to sell his interest in the company at a fair price. what were the factual circumstances in which Mr martis was removed from the positions of managing director, chairman of directors and director and dismissed from his employment as an Authorised Representative? 84 I have read the numerous affidavits sworn by each of the four individuals. I listened to their evidence and the evidence of the other witnesses. I have read the transcript of the hearing. I have also read, in chronological sequence and otherwise, a vast number of documents which were put into evidence. 85 One searches in vain in those last-mentioned documents for evidence of emerging dissatisfaction with Mr Martis' performance as manager or managing director, until very shortly before the events of March 2002. 86 Those documents, as might be expected, included minutes of meetings. Some were of "Weekly Status Meetings", others were of "AR's Meetings" (attended not just by the four individuals but by all of the Authorised Representatives available). There were also minutes of Investment Review Committee meetings and Strategy Planning meetings. 87 Contrary to the evidence of the defendants of long-standing dissatisfaction with Mr Martis' management, there are indications in the minutes that they were satisfied with the way the business was being conducted. For example, at a meeting of the four individuals held in April 2000, which appears to have been convened to consider the acquisition of a similar business, Mr Suresh is recorded as saying: 'Business growing well. Favour acquisition rather than organic growth'. According to the minutes, Mr Smith said: 'Done well to get to this point. Industry issues have been handled well.' In fact, the minutes record Mr Cork expressing some concerns that they were imposing upon Mr Martis. He said: 'Have concerns about rewards that JM [a reference to Mr Martis] has. Either JM is rewarded financially or we chip in to assist him.' 88 But, at the same time, Mr Cork refers to a need to tighten up "systematisation" and staff management and the need to "organise ourselves a lot better". 89 The minutes of a Strategy Planning Day, held on 11 November 2000, record that the operating profit to the year ended 30 June 2000 had increased to $1.185 million against the figure for the previous year of $.898 million. Total income had increased from $2 million to $2.4 million. Revenue growth had been 19.2% with expenses growing by 9.1%. Mr Suresh commented: 'Business is growing well and is doing well'. 90 It is common ground that the four individuals had expressed some concerns about the structure of the Company and its ability to maintain quality service to its clients. However, I am unable, on the evidence, to put a date or dates or even approximate dates on when these discussions took place. 91 There is no hint in the minutes of any of the meetings in, say, the two years leading up to the events of March 2002, of dissatisfaction with Mr Martis on the part of the other three individuals. 92 A fair reading of the various minutes is that there was broad discussion of many topics of relevance to the Company's business. I infer that had there been any serious differences or problems with Mr Martis' performance, they would have been raised. In making that inference I reject the evidence of Mr Cork to the effect that he was intimidated by Mr Martis. I do so for three reasons. First, that evidence is inconsistent with the minutes, which reveal the wide-ranging discussions to which I have just referred. Secondly, it seems to me to be inherently unlikely given their long social and business relationship, that Mr Cork would have been so intimidated. Thirdly, (and I would not attach as much weight to this factor as to the first two) my impressions of Mr Martis and Mr Cork in the witness box were such that I simply could not believe that the latter was intimidated by the former. 93 The same applies (for the same reasons) to Mr Rajan's evidence to the effect that he was "very much" intimidated by Mr Martis. When one also takes into account the fact that they were two of three other individuals (i.e. potentially, and eventually "three against one") dealing on a daily basis with Mr Martis, I do not accept that they were too frightened to raise their alleged concerns with Mr Martis. 94 With the benefit of hindsight, it is possible to detect a hint of possible difficulties in the minutes of a Management Meeting on 13 December 2001 and a further Management Meeting on 21 February 2002. 95 At the first of those meetings, there is a very brief record of a discussion about Mr Smith taking on a "PA" (which I take to be a reference to a personal assistant), or an Authorised Representative. Some evidence was given at the trial that Mr Smith engaged his son to assist him in his work. The minute concludes "agreed that any likely progress to be discussed". The minutes certainly do not reflect any dissatisfaction with Mr Martis' performance. 96 At the second of those meetings (21 February 2002) there is the following record under the heading "Business Plans": 'GS [Mr Smith] advised the meeting that Stewart Langdon (Asgard) was interested in looking at career options outside of Asgard. GS was interested in holding discussions with SL [Mr Langdon] on a consultancy basis or joint venture or in some role with SMCR. JM [Mr Martis] did not feel that we need to look at a management position outside of the current structure. Discussions were held on future growth plans for the Company. PC [Mr Cork] GS both said they were confused on the issue of growth for SMCR given JM's reluctance to commit to a growth strategy. GS also wishes to employ his son Brad Smith initially as a PA. JM wants to have further discussions on this issue before agreeing to this appointment. Further discussions to be held at the Strategy Meeting.' 97 The Strategy meeting, or "Strategy Planning Day" took place on Friday 22 March 2002 at the Perth Zoo. Once again, the very abbreviated minutes of that meeting do not reflect deep-seated disagreement between the four individuals. But it is clear that some dissatisfaction was expressed. The minutes reflect concerns about the future growth of the business, the possibility that the business may need to be restructured and that a business manager might be appointed to replace Mr Martis in his role as managing director. That part of the minutes concludes: '… directors to have meeting to decide parameters for appointment of consultant to review business and see what is required. TF, JB, [Mrs Saliacus] AM, [Mr Andrew Martis] BS, [Mr Sivalingam] to have chance to input into brief and then hear the final brief.' 98 The meeting then moved on to other matters which do not reflect any degree of tension. 99 My findings in relation to what took place at the meeting on 22 March 2002 are mainly, but not exclusively, based on the minutes of that meeting, and are as follows. Messrs Smith Cork & Rajan again raised concerns about the structure of the Company and its ability to maintain quality service to its clients. They also told Mr Martis that they were concerned about or dissatisfied with his management and that he was obstructing their plans for the future of the Company. Mr Martis concedes this in his second affidavit. But Mr Cork acknowledged that they had done well – see the portion of the minutes which reads '… so far we have done a good [word missing probably, "job"]'. He referred to what he regarded as major strategic issues which included investment research, administrative support (to free the advisers from paperwork and simple tasks) and training. He said that a restructure of the Company might be required. 100 Mr Suresh referred to similar matters, including the matter of compliance. He said that his biggest fear was that Mr Smith and Mr Cork would "walk away", which saddened him. He proposed as an "easy solution" the engagement of a business manager to be in charge of training, personnel and compliance. 101 Mr Smith agreed that there was a need to change the current structure of the Company and that administrative support was required. He said that he and Mr Cork did not "feel heard". 102 Mr Martis responded to the effect that there was a need to be careful not to destroy what the four individuals had built up. He voiced caution about changing a "profitable formula". 103 I find that at that meeting Mr Martis said that he did not need to be the managing director. I accept his evidence to that effect. But I also accept his evidence that that was not an offer to resign immediately as managing director. 104 However, at the meeting Mr Cork took Mr Martis' comment as an offer to resign, said that he would be happy to accept the offer, and then proposed that they not have a managing director, but appoint a business manager. 105 I reject Mr Cork's evidence to the effect that Mr Martis dismissed the issues raised at the meeting as being unimportant and said that he would not support any change. I do this on the basis that I prefer Mr Martis' evidence, and also because Mr Cork's evidence on this point is inconsistent with the minutes of that meeting. 106 The minutes show (and I accept that this was more likely than not) that Mr Martis said he was happy to co-operate with proposed changes unless they affected profitability. Mr Martis agreed with the proposal that someone be brought in to review the business. He said that that person should be chosen carefully. He expressed the view that the business should be sold. Mr Cork disagreed that the business was ready for sale, but said that the consultant would examine whether to sell or restructure. 107 It is not necessary for me to decide whether, at the meeting on 22 March 2002, Mr Smith announced that he would leave the business and asked to be allowed to take his clients in return for a transfer of his shares in the Company. I am inclined to think that he did not do so. That is because, when he returned to the discussion of such a proposal at the subsequent meeting of 9 April 2002, he put that swap proposal as having taken place a few years previously. 108 I accept that Mr Smith may have said something to the effect that he would leave the Company if changes were not made. I also accept that Mr Cork may have said something to like effect. Mr Cork so swore and these findings are consistent with Mr Rajan's expressed fears that Mr Smith and Mr Cork would "walk away". 109 On Sunday 24 March 2002 Messrs Cork, Smith and Rajan met. Mr Cork's affidavit evidence was that they agreed "it would be better" if Mr Martis were removed as a director. In the relevant affidavit (Mr Cork's first affidavit) he explained, somewhat briefly, that this was because Mr Martis was opposed to introduction of change to the business "… and we felt that he would as a result not be able to make a positive contribution to board meetings whilst those changes were being made". In the witness box Mr Cork said, and I so find as a fact, that they decided to remove Mr Martis as a director because they thought that they would not be able to bring in the changes they wanted unless Mr Martis ceased to be a director. Mr Rajan, in his first affidavit said that Mr Martis "… was opposed to introduction of change to the business and we felt that he would obstruct the making of necessary changes." 110 Mr Smith's first affidavit is to similar effect. He said that Mr Martis was opposed to introduction of change to administration and management of the Company. "We agreed that introducing change to SMCR would be made more difficult, particularly at meetings of the board of directors if Martis remained as a director. It would have been impossible with him as managing director". 111 As Mr Stone pointed out in his closing address, there was no hint in any of this evidence that Mr Martis had misconducted himself in a way which led to the breakdown of the partnership relationship. 112 Mr Stone's point was that on and from 25 March 2002 the three other directors put in place, on legal advice, a series of steps which enabled them effectually to exclude Mr Martis from the business. He submitted, in my view with justification, that the events after 25 March 2002 did not cause a breakdown of the partnership relationship. I now turn to the details of what took place in the next few days and weeks. 113 On the morning of 25 March 2002 the four individuals met. It would appear that Mr Cork was the spokesman for the trio who had met the previous day. It is not necessary to decide who was the spokesman because they had agreed among themselves what was to be done. I will refer to them as "they". They told Mr Martis that he must either resign from his position as managing director or they would dismiss him from that position and remove him from the board of directors. They also told Mr Martis that he was to be excluded from management of the Company and that he was no longer to serve as a director. 114 Mr Martis refused to resign as managing director whereupon they told him that he was no longer managing director and that he was no longer going to be a director. 115 Immediately thereafter, Messrs Cork Smith and Rajan arranged a meeting of all the staff of the Company and told them that Mr Martis was no longer managing director. I accept Mr Martis' evidence that they went further and, in effect, also told the staff that Mr Martis had been removed as a director and no longer had any management role in the Company or the service trust. Mr Cork conceded in cross-examination that after 25 March 2002 Mr Martis was no longer involved in the management of the Company, although he attended board meetings until removed as a director on 10 May 2002. 116 I accept Mr Martis' evidence that, shortly after the other three directors had made their announcement to the staff, he returned to the room in which Messrs Smith Cork and Rajan were still meeting. He expressed concerns in relation to the manner in which they had treated him. Mr Cork said to Mr Martis words to the effect "Things will go badly for you if you do not co-operate". Mr Martis said that he would co-operate while he considered his position. 117 I think it is likely, and I so find, that there was a further meeting between the four individuals the next day, Tuesday 26 March 2002, at which Mr Martis told the other three directors that he was feeling very upset about what had happened. The defendants say that Mr Martis threatened to destroy the Company. Mr Martis denies this. I find that Mr Martis did say something along those lines i.e. that he would destroy the Company. But I do not consider that such a remark justified the defendants in taking the further action which they did. Mr Martis was in a position where his co-directors had acted illegally (as their solicitor was very soon to acknowledge) and had purported summarily to dismiss Mr Martis after more than ten years of co-operative endeavour, without any notice. They must have known that he was speaking in the heat of the moment. They must also have known, or be taken to have known, that he was not in a position to carry out his threat and any attempt to do so could be restrained by legal action. 118 Nonetheless, I must take into account, in assessing Mr Martis' overall credibility, that in his first two affidavits, he swore that he had never stated to any person that he was considering destroying the Company or that he would do so, but in cross-examination he conceded that it was possible he had said that to his three co-directors on or about 26 March 2002, had intended to say something else, was under stress and said the wrong thing. On the other hand, I have some reservations about believing parts of Mr Cork's evidence, a matter to which I return below. 119 On 27 March 2002 Mr Martis' then solicitors wrote to Messrs Smith Rajan and Cork pointing out that their clients' purported dismissal of Mr Martis was invalid, and requesting certain undertakings. 120 On 3 April 2002 the defendants' solicitors replied to that letter, acknowledging that Mr Martis had not been properly removed as a director or as managing director of the Company. They referred to the fact that a meeting of the board would be held the next day to consider resolutions to remove Mr Martis as chairman of the Company, and as managing director, and to substitute Mr Cork in those offices. The letter also foreshadowed a board resolution convening a general meeting of the shareholders of the Company as soon as practicable to consider and vote on a motion to remove Mr Martis as a director of the Company. The letter concluded in these terms: 'The reason for the removal of Mr Martis as Managing Director and Chairman of the company is that the Board of Directors has lost the necessary confidence in his ability to carry out the resolutions of the Board of Directors given: 1. His failure to account to the Board of Directors in a proper manner; 2. His opposition to the new management structure that the Board wishes to introduce; and 3. His statement to fellow Directors that he was considering destroying the company. The resolutions outlined do not impact upon your client's employment with the Company as a representative in its securities business or the basis of his remuneration in that employment.' 121 On the same date the defendants' solicitor wrote a "without prejudice" letter to the plaintiff's then solicitors. Shortly before the hearing of this application, the defendants purported to waive privilege in relation to that letter and certain other without prejudice letters. They did so with a view to resisting the oppression claim by seeking to establish that they made offers at fair value to buy the plaintiff's shares in the Company. 122 I find that from 25 March 2002 onwards the defendants effectively excluded Mr Martis from any management role in the Company. He attended board meetings until he was eventually removed as a director on 10 May 2002, but he was no longer involved in management. This was because the defendants had decided to exclude him from any such involvement. 123 In the meantime, the board meeting scheduled for 4 April 2002 was postponed and in fact held on 8 April 2002. At the start of the meeting Mr Martis asked that his solicitor, Mr Brian Jackson, be allowed to remain as his legal adviser. The other three directors required Mr Jackson to leave, and he did so. The minutes of that meeting, which I accept as a reliable record of what took place, show that Mr Martis made it quite clear that he had no intention of destroying the Company, pointing out that that would be tantamount to destroying himself. Mr Cork said that the other three directors could not work with Mr Martis any longer. Mr Martis requested reasonable notice to modify the behaviour which they found not acceptable. Mr Cork responded by saying that Mr Martis had received adequate notice of his "errant behaviour" in the notice convening the board meeting and in previous management meeting minutes which "reflected the lack of acceptance of our vision of the company". 124 The minutes of the meeting show a dogged refusal on the part of the other three directors to consider any further involvement on Mr Martis' part with them in the future management of the Company. Eight resolutions were passed with the three other directors voting in favour and Mr Martis against. Those resolutions: · removed Mr Martis as chairman and managing director of the Company and substituted Mr Cork in each of those offices; · called for a meeting of the shareholders of the Company to be held as soon as practicable to consider and vote on a motion to remove Mr Martis as a director; and · recorded the decision to appoint an accountant to examine the books of account of the Company and report to the board. (Mr Martis recorded his position as being in favour of that resolution, subject to the examination not costing more than $2,000). 125 There was then a resolution in relation to the disclosure of any password-protected document, a subject to which I return later in these reasons. 126 The minutes of that meeting were recorded in handwriting by Mr Rajan. They record Mr Martis asking whether there was any implication of impropriety and that the response was "Not at all". 127 Another matter which changed with effect from 25 March 2002 was the 40/60 fee sharing arrangement in respect of services rendered to shared clients. Mr Cork told Mr Martis that in future, if he (Mr Cork) introduced any new clients to be shared with Mr Martis he (Mr Cork) would keep a 55% share of the fees and Mr Martis would receive only 45%. This was to replace the previous 40/60 arrangement. 128 Almost immediately thereafter, the other three directors caused Mr Martis to be removed from the Investment Review Committee. Mr Flavell, who has never held any ordinary shares in the Company, was appointed to that Committee in his place. Mr Flavell was also appointed to the board in May, June or July 2002. 129 There was another, perhaps symbolic, humiliation for Mr Martis. Messrs Cork Smith and Rajan changed the locks to the Company's office and did not give Mr Martis a key. In cross-examination, Mr Cork said that the directors were concerned about security of company documents and resolved that only directors should have a key. He did not explain why other means could not have been employed to secure the Company's documents, or how the risk was eliminated during normal office hours. 130 The matter of the keys appears to have transpired in late July 2002. Something of the flavour of the manner in which Mr Cork saw fit to treat Mr Martis emerged when Mr Martis asked for a key and Mr Cork, in an email dated 29 July 2002 said this: 'With regard to the keys, please be informed that the Board has decided that only directors should have keys to the office. If you need access at non-work hours, then please see a director so that arrangements can be made.' 131 As a result of this somewhat petty exercise of power, Mr Martis was exposed to a further degree of humiliation. For example, early in the morning of 30 July 2002 he was obliged to wait in the car park, in the company of others, until one of the directors arrived. 132 As mentioned earlier in these reasons, a general meeting of the shareholders of the Company was held on 10 May 2002. Messrs Cork Smith and Rajan exercised their voting rights to cause resolutions to be passed which included removing Mr Martis as a director of the Company. 133 In the meantime, Mr Martis remained as an employee of the Company. There was an exchange of without prejudice correspondence in which offers and counter-offers were made and rejected. It is quite clear that the negotiations evidenced by that correspondence were conducted on a without prejudice basis. Not only was each letter marked "without prejudice", but it is obvious from their contents that the parties were endeavouring to negotiate a settlement of their dispute. This was in the context of proceedings having been commenced in the Western Australian Industrial Relations Commission and the likelihood that court proceedings would be instituted. The defendants exhibited this correspondence to an affidavit which was sworn on 8 October 2003 by Mr Cork and filed on 10 October 2003. That is, one clear working day before the first day of the hearing. 134 Part of the plaintiff's case of oppression is that at no time did the defendants offer to purchase or arrange the purchase of its shares in the Company at a fair value or on reasonable commercial terms. In their defence the defendants say that they have made offers at fair value for those shares. The defendants seek to rely, over the plaintiff's objection (on the ground that the terms of the offers were "of no significance"), to the offers which they made in their "without prejudice" letters. That is, they seek to use those letters to prove that they made offers to purchase the plaintiff's shares in the Company and that those offers were made at fair value. 135 Initially, I treated the plaintiff's objection to the use which the defendants attempted to make of their without prejudice offers as being that they were inadmissible in evidence on that point i.e. whether the defendants had made offers to purchase at a fair value or on reasonable commercial terms. 136 I was not taken to any authority on this question of the admissibility of such evidence in the context of a pleaded issue in an oppression case. I would decide the point on general principles. 137 As I have mentioned above, it is quite clear that these letters were in form and content without prejudice offers. 138 The authorities show that the protection derived from the "without prejudice" rule has at least two juridical bases. The first is an implied agreement between the parties: Walker v Wilsher (1889) 23 QBD 335 at 337, 338 and 339, Unilever PLC v The Procter & Gamble Co [2000] 1 WLR 2436 at 2448 (CA). See also Re Turf Enterprises Pty Ltd [1975] Qd R 266 at 267 and In Re Daintrey; Ex parte Holt [1893] 2 QB 116 cited with approval in South Shropshire District Council v Amos [1986] 1 WLR 1271 at 1276. 139 The other basis is, of course, the public policy that it is desirable to facilitate settlement of disputes. 140 In my opinion, it would undermine the whole foundation of the rule against admitting without prejudice communications into evidence, if the defendants were allowed to adduce these letters into evidence for the purpose which they intend. 141 The defendants were legally advised at all times. They knew that they had the choice of making open offers or making their offers without prejudice. They chose the latter course. 142 When those without prejudice negotiations came to an end without a settlement, they could at that point have chosen to send an open letter, to protect their legal position. Again, they chose not to do so. 143 On the above assumption about the plaintiff's objection, I rule that the letters are inadmissible. The plaintiff submitted that the letters were admissible as admissions by the defendants. Again I was provided with no authority. In my opinion, the basic principles reflected in the authorities require me to treat the without prejudice letters as not being in evidence and to disregard their contents completely. 144 If I have misunderstood the plaintiff's objection (made in paragraph 33 of its outline of closing submissions) to the defendants' attempt to rely on the without prejudice letters, and it was not based on inadmissibility, then I would still disregard the contents of those letters. The letters remained subject to the privilege attaching to their without prejudice status until the purported unilaterial waiver by the defendants on the eve of the trial, by which time the offers had lapsed. In my view, it would be procedurally unfair to allow the contents of the letters into evidence for the purpose intended by the defendants. The subject matter of the negotiations and the issue to be decided are the same, in contrast, for example, to the situation in Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1990) 98 ALR 659. 145 If, contrary to my view, I have a discretion to admit the letters for the plaintiff's limited purpose, I exercise that discretion against admitting them at all. My short reason for doing so is that, in my view, it would be unfair, and also contrary to the general rule that evidence once admitted in a civil case is in evidence for all purposes, to allow the plaintiff to rely on the evidence, but to deny the defendants any such right. In those circumstances I think that the proper course would be not to consider whether the without prejudice offers made by the defendants in those letters were reasonable or not. No other offers were in evidence. 146 In case I am wrong in that view,and on the assumption that the plaintiff has joined in a waiver of the privilege, I have examined the two offers. The first offer, on 3 May 2002, was to acquire all of the plaintiff's interests for $800,000. It was highly conditional and subject to contract. I reject the plaintiff's objection to the restrictive covenant condition, but I accept that two other matters justified the plaintiff in rejecting the offer. The first was that the offer price was subject to reduction if between May 2002 and May 2004 the Company lost clients identified as "Mr Martis' clients" for any reason whatsoever. Those reasons would extend to matters beyond Mr Martis' control and, as the plaintiff pointed out, would include incompetence of a company employee or dissatisfaction at the summary removal of their long-time adviser. A reduction of as little as $50,000 in client income would result in a "claw-back" of $125,000. In my view, the restraint of trade covenant should have sufficed to protect against anything Mr Martis might have done to lessen the value of the goodwill purchased. Secondly although, as I find later, the fair value was $737,000, the purchase price was not payable forthwith. The offer was on the basis that the purchase price would be payable, without interest, in instalments over a period of two years and on an unsecured basis. That reduced the then present value of the price offered by at least $24,000. 147 The second offer, made on 9 July 2002, was a very different offer. The price offered was $100,000 on the basis that Mr Martis' sole "clients" could elect to follow him. This offer was expressly stated to include only Mr Martis' share in the net asset value of the business and a further sum to assist him to establish his own business. In my view, this offer was nowhere near what I have assessed as the fair value of the plaintiff's relevant interests. 148 On 31 July 2002, the defendants' solicitor wrote an open letter referring to his without prejudice letter of 9 July 2002, alleging that Mr Martis intended "to exacerbate the unpleasant working environment referred to" in that letter, and asserting that in the previous two days Mr Martis had sent nine emails to Mr Cork on various issues. The letter then continued in these terms: 'My client is not willing to wait any longer and will, accordingly, proceed to take steps to protect its interests if the matter is not resolved by Friday 2 August 2002. My client accordingly hereby extends its offer, set out in my letter dated 9 July 2002, to 4 pm on Friday 2 August 2002. If your client does not accept the proposal, the Board of my client will meet on Tuesday 6 August 2002 to consider whether to terminate your client's employment with the company. If it decides to do so, my client will give proper notice (currently 7 days) under clause 15 of your client's contract of employment and will thereafter seek to enforce the restraint and other provisions of clause 7 of the contract. If your client does not wish to accept the offer, he may make written submissions to the Board concerning the possible termination of his employment. Any such submission must be delivered to Mr Cork by no later than 4.00 pm on Monday 5 August 2002 and will be considered by the Board at its meeting on 6 August 2002. All my client's rights are reserved.' 149 On 2 August 2002 the plaintiff's then solicitors wrote to the defendants' solicitors rejecting the without prejudice offer as being inadequate and "strongly refut[ing] the allegation that [Mr Martis] intended to exacerbate" what the defendants' solicitors had described as an unpleasant working environment. 150 On 5 August 2002, Mr Martis wrote to Mr Cork requesting that the proposed meeting of directors to discuss his continued employment be postponed until he had been provided with full details of all matters said to justify his termination and until he had had a reasonable opportunity to respond to those allegations. He stated that he remained willing and able to perform all of his duties as an Authorised Representative of the Company. On the same date Mr Cork responded to that letter advising Mr Martis that the meeting would proceed as scheduled the following day. 151 On 6 August 2002, Mr Cork, as managing director of the Company, sent a letter to Mr Martis, headed "Notice of Termination" informing him that the board had met on that date and decided to terminate his contract of employment as an Authorised Representative. He stated in that letter that it was felt that his continued presence in the business was no longer in the best interests of the Company as a whole. The letter gave him 7 days notice of termination, with his last working day to be 13 August 2002. The letter stipulated that during the notice period he was to abide by certain "directives to ensure a smooth handover of clients". Those directives included, in summary: · no communication with any clients; · provision of a list of all "your current clients" to Mr Cork by the close of business on the next day; · co-operation with representatives appointed to deal with "your clients" in order to ensure a proper and orderly hand over; · no photocopying of any document or information relating to the business of the Company or to any client. 152 The letter concluded in these terms: 'Finally, we remind you of your obligations under clause 7 of your contract of employment. Please do not attempt to contact clients of the business either during the period of notice or thereafter.' have the grounds referred to in sECTION 232 been established? 153 Section 232 of the Act is in the following terms: 'Grounds for Court order 232 The Court may make an order under section 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; 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. For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.' 154 The "affairs" of a company for the purposes of ss 232 and 233 are defined inclusively and very widely by s 53. 155 Section 320(2) of the Company (NSW) Code, a predecessor of s 232 of the Act which was in relevantly similar terms, was considered by the High Court of Australia in Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459. At p 472 Brennan J held that at a minimum, oppression imported unfairness. His Honour said: 'The directors' view is not conclusive, but an element in assessing unfairness to a member is the agreement of all members to repose the power to affect their interests in the directors. Nevertheless, if the directors exercise a power – albeit in good faith and for a purpose within the power – so as to impose a disadvantage, disability or burden on a member that, according to ordinary standards of reasonableness and fair dealing is unfair, the court may intervene under s 320. The question of unfairness is one of fact and degree which s 320 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 320 may be attracted to a decision made by the 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.' 156 In Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at p 704, Young J posed the test of asking: '… whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair.' 157 A Full Court of this Court adopted Young J's test in Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at p 130. 158 In my opinion, in view of the conclusions which I have already reached that the Company was a quasi-partnership, and subject to the matters raised in paragraphs 15 to 18 of the defence, the exclusion by the defendants of Mr Martis from the Company's management in itself was unfair and thereby gives rise to the exercise of the discretion conferred by s 232 – see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672. 159 Further, in my opinion, but again subject to the matters raised in paragraphs 15 to 18 of the defence, the combination of the following matters amounted to conduct which would offend the sense of fairness of reasonable directors, particularly in the context of over eight years of managerial service on Mr Martis' part during a period which saw the Company enjoying consistently improving financial success: · peremptorily dismissing Mr Martis from the position of managing director without tabling even an executive summary of what policies they wished to see implemented by him and giving him an opportunity to respond; · failing formally to adopt those policies at board level and then give Mr Martis reasonable notice that unless he agreed to implement those policies, he would be dismissed as managing director; · immediately announcing to the staff of the Company that Mr Martis was no longer managing director, had been removed as a director and no longer had any management role in the Company or the service trust. This must have been a humiliating experience for Mr Martis, even if that may not have been the intention of the other three directors; · excluding him from having any involvement in the management of the Company. No attempt was made to save him a degree of face by assigning him some executive responsibility, even on a trial basis. He was simply excluded from the managerial affairs of the Company which, over many years, he had helped to build into such a successful business; · exercising their voting power to remove Mr Martis from the board, thereby depriving him of any say, input or contribution to the formation of the Company's policies or to the broad supervision of the implementation of those policies. I think that it is relevant, when weighing that factor, to bear in mind that the plaintiff held 22.5% of the ordinary shares in the Company; · removing Mr Martis from the Investment Review Committee and appointing Mr Flavell in his place. I infer from the evidence about the role of this committee and from the very nature of the Company's business that this was a very important committee. An opportunity for Mr Martis to have some input into the Committee's decisions had at least the potential to help preserve the Company's reputation of providing what it promoted as appropriate investment advice. The quality of this Committee's decisions was obviously relevant to the Company's goodwill and thus to the value of Mr Martis' stake in the Company; · changing the lock to the Company's office, refusing Mr Martis a key, and requiring him to make arrangements with the directors if he wished to work outside normal business hours; · having taken all of the above steps, failing to make an open offer to purchase or arrange the purchase of the plaintiff's shares in the Company at a fair value or on reasonable terms; · threatening (and then carrying out that threat) to dismiss Mr Martis from his employment with the Company unless he accepted the defendants' without prejudice offer; · depriving Mr Martis of his income (including recurring income) from the business which he had helped to build. Mr Martis was not separately remunerated for his management services. The time which he spent on that work, so I infer, added value to the Company's business. My main reasons for that inference are as follows. The net profitability of the business improved steadily over the years he was in office. Gross income increased. But I note particularly the part which control over costs played in those results. That factor, in my view, reflects sound management. The contrasting financial results of the Company for the first full financial year after Mr Martis' departure speak volumes. One must allow for the stock market downturn, SARS and the war in Iraq, but very significant cost increases contributed to a marked decrease in the Company's profitability. The management time which Mr Martis spent over the years, freed the defendants from those tasks and increased the time in which they could cultivate "their" clients and earn proportionately more fees and commissions. The joint efforts made in previous years resulted in increasing recurring income in later years. In practical terms, by excluding Mr Martis from the Company, the defendants secured to themselves the fruits of his endeavours and the goodwill built up by all of the Authorised Representatives. The defendants' complaints 160 I now turn to the matters raised in paragraphs 15 and 16 of the Defence. In paragraph 17 the defendants plead that by reason of the facts referred to in paragraphs 15 and 16 the relationship between Mr Martis and the other directors of the Company broke down to the extent that it was reasonable and appropriate for the other directors during or about May 2002 to take steps to remove him as a director of the Company. 161 In paragraph 18 of the defence the defendants plead that by reason of the matters pleaded in paragraphs 15, 16 and 17 the removal of Mr Martis as managing director and as a director of the Company was reasonable and was not oppressive. There were thirteen matters raised in paragraph 15 of the defence which were said to show that Mr Martis failed adequately over the period 1991 to 2002 to discharge his obligations as a director and as manager of "the practice" and from 2001 as managing director. I shall deal with them in the order in which they were raised in paragraph 15. (a) Profit Watch retail trailer fees and ASGARD volume bonus trailer fees 162 The defendants complain that Mr Martis implemented and maintained an inequitable allocation of these two types of trailer fees, that he failed to disclose that allocation to the other directors, and that when requested by them to review and change "such inequitable allocation of fees" he refused or failed so to do. Profit Watch Trailer Fees 163 There was no dispute about the allocation of Profit Watch retail trailer fees other than in relation to shared clients. It was common ground that, as a matter of principle, Profit Watch trailer fees in respect of shared clients were to be split so that the Authorised Representative making the reference ("the referor") would get 40% and the Authorised Representative receiving the reference ("the referee") 60% of those fees. 164 My findings in relation to the Profit Watch trailer fees are as follows. The Profit Watch retail trailer fees represented less than 10% of the recurring fees earned by the Company or about 6% of its annual revenue. From about 1996 the Company's administration staff, probably Mrs Saliacus, but not Mr Martis (I believe his evidence on this point) introduced a method of allocating the Profit Watch trailer fees in respect of shared clients which was intended to reflect the 40/60 split. The method was not simply a mathematical calculation. Instead, fees received from retail funds whose name started with the letters "A" to "ML" were allocated to the referee. Fees received from retail funds whose names started with the letters from "MLC" to "Z" were allocated to the referor. 165 It transpired that most of the retail funds used by the Company's advisers had names beginning with letters from "A" to "ML". Messrs Cork and Rajan felt that this resulted in not just 60% of the fees being allocated to referee representatives, but the bulk of those fees i.e. to the detriment of the referor. In cross-examination, Mr Martis acknowledged that this had happened, i.e. their concerns were justified. 166 In the year 2000 Mr Cork proposed a reversal whereby the referors were to receive the fees from the funds with the names beginning with the letters from "A" to "ML" for a period and thereafter the allocation was to change on an alternating basis every two years. He prepared a memorandum in which that proposal was contained. He gave that memorandum to Mrs Saliacus and left it at that. He assumed that Mrs Saliacus would carry out his instructions. Mrs Saliacus agreed that she was so instructed by Mr Cork. Her evidence was that she changed the allocation system in accordance with those instructions. 167 Mr Rajan's evidence was that the decision to reverse the allocation was discussed at board level and Mr Cork's instructions to Mrs Saliacus were in accordance with a request from the board to so instruct her. 168 The evidence indicates that even before 2000 the alphabetical split was not consistently implemented in practice. The evidence also establishes that even after Mr Cork's instructions to Mrs Saliacus the alphabetical split was not consistently applied. A selection of the allocation of these trailer fees in relation to some six of the Company's clients was put to Mrs Saliacus. Generally speaking, in my opinion, those six allocations show a lack of consistency with Mr Cork's instructions. But Mrs Saliacus swore that, as a general rule, the swap which she was instructed to implement was in fact implemented. 169 I am not in the position to decide whether that is what happened and in the circumstances referred to below, I do not think that it is necessary for me to do so. 170 It emerged in the evidence that the defendants' complaint was that, for example, in the financial year ended 30 June 2002 alone Mr Martis had been overpaid $4,000 because "the proper calculation" had not been carried out. This was the figure reached by Mr Cork in Exhibit PNC 15 to his second affidavit. The problem with that calculation is that it was not based on the reversed alphabetical sequence which the defendants complain was not implemented. It is quite clear that it was calculated on the 40/60 split of commissions. The defendants simply did not adduce evidence to establish that Mr Martis had been overpaid a particular sum as a consequence of the failure to reverse the alphabetical allocation, or that it was likely that that had happened. 171 I find that the matter of the Profit Watch retail trailer fees allocation in respect of shared clients was a relatively minor matter in the scheme of things, until these proceedings were brought. From the evidence it would appear that the four individuals were generally aware that there was some difficulty in allocating the split to reflect a 40/60 share. They were also aware that the administrative staff were using an alphabetical system. This had been in operation for some four years when, in 2000, the board agreed to Mr Cork's proposal of reversing the particular alphabetical allocation and then, every two years, changing it back. 172 If there were deficiencies in the implementation of the scheme I find that they were Mrs Saliacus' responsibility, but I am not satisfied that Mr Cork's instructions were totally or generally ignored. Nor do I think that it was Mr Martis' function to engage in the checking process which Mr Cork subsequently carried out in respect of the six clients mentioned above. It was equally open to Mr Cork to follow the matter up, and on occasions he did so in relation to his own share of total trailer fees. 173 In my view, the evidence does not establish the allegations made in paragraph 15(a)(i), (ii) and (iii) of the defence in relation to the Profit Watch retail trailer fees. Whatever deficiencies there may have been in the allocation system or the implementation of the change in 2000, this was not a matter for which Mr Martis is to be blamed. Asgard Volume Bonus Trailer Fees 174 I accept Mr Martis' evidence that at some time before November 1997 he found it difficult to allocate the ASGARD volume bonus between the Authorised Representatives in relation to shared clients. On 25 November 1997 Mr Martis sent a memorandum to Messrs Cork and Rajan, with a copy to Mr Smith and Mrs Saliacus, in these terms: 'The Volume Bonus Dilemma I have spoken to Grant Vernon, Aaron McCracken and Renata Canci (on direction from Grant Vernon) regarding our need to have the above bonus broken down at the adviser level. So far there is no such breakdown available and it is not now anticipated in the near future. We need to have August, September and soon October 1997 bonuses allocated to the Accounts via each adviser sub account. Could you please recommend a basis of allocation to divide the bonus as soon as possible (including the way to calculate the actual underlying values or a simpler acceptable method).' 175 As it turned out (about five years later) Mr Cork discovered that a precise allocation could have been achieved from the outset, using a system devised by Mr Cork in 2002 after Mr Martis had been removed as a director. Mr Cork acknowledged that he had been invited to come up with a system of allocation, that he could have done so, but had not. 176 Mr Rajan agreed that Mrs Saliacus did not try to withhold the source documents relating to the allocation of trailer fees. Mr Smith's evidence was that the ASGARD allocation was the fault of Mrs Saliacus, and was not Mr Martis' fault. 177 My impression is that, like the Profit Watch fee split, the ASGARD trailer fees split is a relatively minor matter. I reject the allegation that in respect of these fees Mr Martis was at fault in the manner pleaded in paragraph 15(a) of the defence. Rather than implementing and maintaining an inequitable allocation of those fees and failing to disclose that allocation to his fellow directors, he asked them for their assistance in recommending a basis of allocation, but they were not sufficiently interested to follow the matter up, even though Mr Cork could have devised a method of allocation from the outset. 178 When one also bears in mind that Mr Martis was volunteering his time as manager, I do not consider that any blame can be sheeted home to him in respect of any mis-allocation of ASGARD volume bonus trailer fees. (b) Access to the Company's accounting system 179 The defendants' complaint is that Mr Martis restricted access to the Company's accounting system by limiting such access to himself and Mrs Saliacus. 180 In my view, this complaint was not established. In cross-examination of Mr Martis this complaint boiled down to eliciting from him a concession that Mr Rajan did not have access to the accounting system other than through Mrs Saliacus' computer on her desk or at the reception. Mrs Saliacus could not recall any request from Mr Rajan for general access to the system before Mr Martis was removed, but recalled such an instruction afterwards. The matter was not pressed in submissions. 181 My assessment is that had any of the directors really wanted general access to the accounting system, they would have made that request known and if they had insisted upon access, would have obtained it. I am not prepared to find that Mr Martis wrongly denied his fellow directors access to the Company's accounting system. (c) Failure to address concerns raised by the other directors about Mrs Saliacus' performance 182 The evidence suggests that Mr Smith and Mr Cork had difficulty dealing with Mrs Saliacus. They complained to Mr Martis and had a meeting in April 2000 to discuss the issue. In fact at that meeting Mr Cork supported Mr Martis "against Mr Smith". 183 I am prepared to accept and do accept, that these two directors had some difficulties dealing with Mrs Saliacus. She may well have been a difficult employee, but the reality was that if this was a serious problem, it was up to the directors as a whole, to rectify it. 184 The matter was also not pressed in submissions. My finding is that Mr Martis probably could have taken more steps to ensure that Mrs Saliacus co-operated with the other three directors and treated them more respectfully. But, in my view, this was not something to be weighed in the balance when deciding whether to remove Mr Martis as a director. I do not weigh it in that balance either. The proper course would have been for the board to take the necessary steps to have Mrs Saliacus dismissed if the problem was as major as the plea in the defence might suggest. (d) Failure or refusal to implement changes to the Company's support structure and administration 185 I accept, from my observation of him in the witness box, that Mr Martis would not have been an easy person to deal with. I also accept that he was resistant to any changes which might have impacted adversely on the Company's expenses. My impression is that until very late in the piece this was not a major problem. I have already made my findings in relation to the meetings in February and March 2002. The minutes of those meetings do not suggest that Mr Martis was prepared to resist all and any proposals for changes to the support structure and administration of the Company. If the other directors had some specific proposals to make, they should have been put into the form of, at least (as I have suggested above) an executive summary. The minutes show that Mr Martis was prepared to consider change, but was concerned about costs. 186 That concern is reflected in the financial results until his departure, which contrasts (as I have mentioned) with the subsequent financial performance of the Company. 187 In those circumstances I reject the proposition that Mr Martis failed or refused to implement these changes. 188 The defendants, in their written submissions say that the plaintiff's case that they: · deprived themselves of Mr Martis as an unpaid manager; and · removed from management of the Company someone who had set it up with them; without justification, is to suggest irrational and improbable conduct. They argue, in their written closing submissions that it would be improbable that men in their position would without warning, basis, or reason, move against Mr Martis in the way that they did. 189 I am unable to find why the three other directors behaved as they did in February and March 2002. Perhaps they lost patience with Mr Martis' attitude towards containing costs. Perhaps tension built up over Mr Cork and Mr Smith wanting to put members of their families on the Company's payroll. There may have been a combination of such factors. But I am not prepared to shoulder all of the blame for the breakdown of this relationship on to Mr Martis. I think that the three other directors moved somewhat precipitously, without due consideration, and with a degree of irrationality in the manner in which they treated Mr Martis. (e) Failure to implement changes to meet the requirements of the Financial Services Reform Act 2002 (Cth) ("the FSR Act") 190 The deadline for compliance with the standards in the FSR Act is March 2004. Mr Martis was removed from management participation on 25 March 2002, about 2 years before that deadline. Mr Cork acknowledged that that period was sufficient in which to implement the required changes. 191 I accept Mr Martis' evidence that he had started the process whereby the Company would meet the requirements of the FSR Act. He attended five industry forums concerning obligations under that Act. The first of those meetings was in August 2001. 192 On 19 October 2001, Mr Martis conducted a training session for the Authorised Representatives of the Company. The four individuals and the other four employees attended. Minutes and other documentation relating to that meeting show that it was concerned with compliance standards. 193 The evidence also shows that Mr Martis had contacted the Australian Securities and Investments Commission in November 2001 in relation to compliance obligations. He also sought guidance from the Financial Planning Association in relation to compliance with the FSR Act and obtained detailed information from it in early March 2002. 194 This was, and still is, a very important matter for the Company. Its license to remain in business depended upon compliance. 195 However, the evidence shows, in my view, that the Company had always taken its statutory obligations seriously. 196 Given that there was, at the relevant time, about two years left to attend to any compliance changes, and bearing in mind the evidence to which I have referred immediately above, I do not consider that this complaint has been made out. (f) Failure to control renovation costs 197 These were renovations to the office building referred to earlier in these reasons as being owned by the trustee of the Company's superannuation fund. The premises were leased to SMCR Pty Ltd as trustee of the SMCR Unit Trust (in which the four individuals held all the units) and sub-leased to the Company as part of a service trust arrangement. 198 The evidence is that the original contract cost for the renovations was $297,500. In Mr Cork's first affidavit (responding to Mr Martis' first affidavit) he sought to convey the impression that the building renovations were to be carried out for a fixed contract price and that Mr Martis had made changes to the works without his approval. 199 Then Mr Martis swore his second affidavit. In it he deposed to having completed a feasibility study in November 2001 in relation to the renovations in which he indicated a variation in cost of at least $15,000 above the original contract price. He also swore that a copy of the feasibility study was provided to Mr Cork who had agreed to discuss its contents with Messrs Smith and Rajan. He said that none of Messrs Smith Cork or Rajan raised any query or made any complaint. 200 In response Mr Cork swore his second affidavit in which he stated that he did not receive a copy of that feasibility study. By the time Mr Cork came to give evidence at the trial, a document had emerged which became Exhibit A20. The first page of Exhibit A20 bears Mr Cork's signature. Annexed to the document is a feasibility study dated September 2001 which shows on the third page that construction costs had increased to $325,100. 201 In cross-examination Mr Cork sought to wriggle out of his statement at paragraph 31 of his second affidavit (to the effect that he had not received a copy of the feasibility study) by saying that he did not see any feasibility study prepared in November 2001. 202 I find that Mr Cork was well aware that the renovations involved some extras over the original contract price and that he was a party with the other three directors to authorising those increases at least to the extent of some $28,000. 203 I accept Mr Martis' evidence that he thought the extras would be about $20,000-$30,000 and gave that estimate to his fellow directors. He conceded that his impression of what the total cost of the variations would amount to, was wrong. 204 There is no need for me to go into the details, but in my view the evidence establishes that Mr Martis decided to have better quality finishes and a slightly better quality of renovation job in certain respects than originally anticipated. The re-design of toilets downstairs as part of the renovations was expressly minuted in the minutes of the Management Meeting on 13 December 2001. I reject Mr Cork's complaint (in paragraph 73 of his first affidavit) that Mr Martis had appointed himself project officer without board approval. It must also have been obvious from the minutes of meeting which became Exhibit A20 and from what was happening on site that Mr Martis was in charge of the work. The renovations took some five months and all four individuals continued working at the premises. It must also have been obvious to the other three directors what the extent of the renovation work was. There is no suggestion that the price paid was excessive, or that the work was unnecessary. I accept Mr Martis' evidence that the variations, save for two minor ones, were carried out on a cost plus basis. 205 In their written closing submissions the defendants complained that Mr Martis had not responded to an undated letter, probably sent to him in June 2002, signed by Messrs Smith Cork and Rajan demanding clarification about written quotes and his authority to commit to expenditure. I infer that when they signed that letter, they had forgotten about the existence of the document which became Exhibit A20. 206 The evidence is that Mr Martis did not reply to that letter. 207 It is a fair inference, and one which I make, that that letter was sent by the three directors to Mr Martis as a forensic tactic. It was sent at a time when the parties were in dispute, with solicitors engaged on either side. In their written closing submissions the defendants assert that Mr Martis' failure to respond to that letter was unsatisfactory and that his conduct (which I take to be a reference to his conduct generally in relation to the renovations) was a breach of the trust which his co-directors reposed in him. 208 I reject that submission. The evidence does not establish that it was Mr Martis' fault that the renovations cost more than was reasonably to be expected or that the total cost did not reflect a fair price for the work done. (g) That Mr Martis, without authority, paid himself a managing director's allowance 209 The evidence shows that in the period June to October 2000 the four directors decided to make certain arrangements with a view to minimising fringe benefits tax. I suspect that the arrangements were to evade fringe benefits tax. I say that because of the nature of some of the items of expense which the Company reimbursed to the directors – see for example the items referred to in paragraph 57 of Mr Martis' second affidavit. The arrangements involved, at the very least, reimbursement of certain out of pocket expenses incurred by the directors on company business, some of which expenses were for the benefit of the directors. 210 In cross-examination Mr Cork was asked: 'And the purpose of that was so as to ensure that fringe benefits tax would not be payable on the expenses reimbursement? – Yes.' 211 The method employed was to reimburse the directors by way of differential dividends to their respective trusts. The first such payments were made in respect of the financial year ended 30 June 2001. They were designed to be net of company tax. Mr Cork received an additional net amount of $1495 to compensate for an amount which he paid to "Japan Hi-Fi" on 4 August 2000. Mr Martis was paid $3156.50 being for the Company's "End of Financial Year" lunch at "Perugino" restaurant on 7 July 2000 ($656.50) and the balance to provide an allowance for $2,500 for other expenses to be incurred by Mr Martis on behalf of the Company during the next financial year. 212 The minutes of the respective meetings in which this matter was discussed in the period June to October 2000 are, perhaps understandably, somewhat brief and discreet. But the references to "FBT issues" and "FBT discussed" and to "provision for expenses paid by JM", in my view, substantiate Mr Martis' evidence of what happened. There are no complaints from the defendants about those payments. 213 The defendants' complaints are in respect of an amount of $12,000 ($8,400 grossed up at the Company tax rate of 30%). 214 I had some concerns about the manner in which Mr Martis carried out this transaction. But the defendants did not suggest that Mr Martis misappropriated company funds, or intended to do so, or that any of the expenses were other than proper company expenses. 215 I was particularly concerned about the different manner in which this $12,000 payment was shown in the spreadsheet of costs for the period ended 30 June 2001 which was provided to the directors of the Company and Mr Martis' own dedicated spreadsheet showing costs bases. In the former, the sum of $12,000 was disclosed as an item given the label "SGC paid to June 30 licence company" which was a disused label. In the latter it appears as "MD allowance". Initially I regarded that circumstance and Mr Martis' explanation with a significant degree of suspicion. 216 But I took into account that all of this was in the context of what might fairly be described as an exercise in fringe benefits tax evasion. Furthermore, the defendants' complaint is not that Mr Martis was defrauding them. Rather, that he paid himself $12,000 by way of an advance without board approval. 217 On balance, I decided to accept Mr Martis' evidence that he had authority to be paid in advance for anticipated expenses of this type. There is, as I have mentioned, a reference in the minutes of 4 October 2000 to "provision for expenses paid by JM". Mrs Saliacus' evidence was that she was the minute taker at that meeting and that she used those words because, in accounting terms (Mrs Saliacus is an accountant) a provision is to provide for a future anticipated expense rather than the word "reimbursement" which is to pay back an expense that has already been incurred. Mrs Saliacus was not cross-examined on that evidence. 218 I find that Mr Martis was authorised by his fellow directors to draw in advance of such payments. 219 I am not prepared to find that they specifically authorised him to draw the amount of $12,000 in that connection. I am inclined to accept Mr Cork's evidence that the amount was drawn at a time when the Company had need of liquid resources. That evidence had the ring of truth about it. 220 Nonetheless, given his general authority to draw an advance, and given Mr Martis' position as a managing director and, further, taking into account the substantial size of the overall cash flow of the business, I consider that it was within Mr Martis' implied authority to draw such an amount. I reject the defendants' submission that in doing so he acted in breach of the trust reposed in him by his co-directors. (h) Failure to ensure Mr Cork was reimbursed for insurance premiums 221 The evidence suggests, and I so find, that as part of the arrangements referred to immediately above the Company was to reimburse the four individuals for their professional indemnity insurance premiums. Apparently, soon after Mr Martis was removed as a director, Mr Cork discovered that his insurance premiums had not been paid by the Company on his behalf. In my view, Mr Martis is not to be blamed for that. It was up to Mr Cork to present a claim for reimbursement, as he subsequently did. (i) Failure to review expenses charged by the service trust 222 On 15 October 1996, by letter of that date, the Company's auditors, raised three matters of report which arose during the audit. Although the Company's auditors were not engaged to conduct an audit of the Service Trust (a fact which they expressed recorded in that letter), they noted that the service arrangement was based upon Phillips case which supported certain mark-ups. The letter concluded on this point with a recommendation that a review be made of all expenses charged and re-charged by the Service Trust, to ensure that in respect of labour the correct charges had been made relative to productive hours, and that there was justification for the mark-up of all expenses re-charged. 223 The complaint made by the defendants in paragraph 15(i) is that Mr Martis "failed during or about October 1996 and subsequent thereto to implement a review of expenses charged by the Service Trust to [the Company] notwithstanding advice from its auditors that an urgent review thereof was required". 224 In my view the auditor's letter does no such thing. 225 However, I accept that a prudent managing director, not wishing to cause the Company to fall foul of taxation laws, would probably have had the arrangements reviewed. 226 On the other hand, the uncontradicted evidence was that the Company received independent specialist tax advice at all stages, including advice in relation to the Service Trust. There is no evidence that the Company encountered any difficulties from the Australian Taxation Office in relation to the expenses incurred with the Service Trust. 227 In my opinion, there is nothing in this complaint. It appears to have been raised well after the decision was made to remove Mr Martis. (j) Failing to ensure that the Company's business accounting system was adequately maintained and updated 228 There was very little evidence called on this point. One affidavit was relied upon on each side. Mr Atkinson swore an affidavit for the defendants. Mr Atkinson is the manager of CA Management Services Pty Ltd which had provided "telephone support" to the Company since a "Triumph Accounting" system was installed in 1995. In August 2001 he says that he upgraded the Triumph system to the GST version and installed Windows. 229 In August 2002, Mr Atkinson reviewed the Company's use of the system and found that it was not using certain maintenance/upgrade services for which it had paid. He recommended changes to payroll procedures and recording of transactions with debtors. He made other recommendations, including changing from a manual bank reconciliation system. 230 Mr Martis was asked very little in cross-examination on this subject. He expressed the view that the accounting system was very effective. 231 In her affidavit sworn on 26 May 2003, Mrs Saliacus refuted Mr Atkinson's assertions, point by point and in some considerable detail. She took issue with virtually every factual assertion made by Mr Atkison. Mrs Saliacus referred to the cost implications of the additional modules available from Triumph and recommended by Mr Atkinson. She displayed (as might be expected) a distinct and particular familiarity with the accounting processes of the Company. 232 Mr Atkinson was not called for cross-examination and Mrs Saliacus was not cross-examined on this point. The point was not referred to in the defendants closing address. 233 I am not satisfied that this complaint has been made out. It is another matter raised long after the main events. If there had been something seriously wrong with the Company's business accounting system one would have expected complaints to have been raised much earlier. 234 In any event, the criticisms raised by Mr Atkinson, even if proved, would not have formed a proper basis for removing Mr Martis. (k) Unauthorised expenditure of $15,000 on a photocopy machine 235 Mr Cork, in his affidavit sworn 14 November 2002, swore as follows: '75. I was concerned about the changes [a reference to changes to the specifications for the building renovations] being made without my approval. I also became aware that Martis had begun to order business equipment like printers without consulting the directors. He was not authorised to do this. 125. Since becoming managing director I have discovered that Martis spent $15,000 on a printer/copier. This was done without the authority of the other directors of SMCR.' 236 Mr Rajan, in his affidavit sworn on the same day, swore as follows: 'Martis did not seek my approval to purchase the printer/copier referred to in paragraph 125 of Cork's affidavit.' 237 A month later Mr Martis swore his second affidavit. In that affidavit Mr Martis swore that the purchase of this piece of business equipment formed part of the original budget for the renovations and had been discussed at a management meeting held on 30 August 2001 at which all four individuals were present. A proposed budget of, in the order of $100,000, so Mr Martis swore, was allocated for business equipment including a printer. Annexed to that affidavit was a copy of the minutes of that meeting which specifically refers to "window treatments, furniture, phone system, printer, photocopier". I note that the parties have treated this item as being a printer-photocopier. 238 In cross-examination Mr Rajan admitted that the board had approved a budget for the renovations and the purchase of equipment which included the purchase of a printer-copier. 239 Mr Smith admitted that the printer was included in a budget that had been approved at the meeting on 30 August 2001. The minutes were in Mr Smith's handwriting. 240 When Mr Cork, having become aware that Mr Martis had possession of that document, came to swear his second affidavit he changed his tune into a complaint that the board at that meeting had not authorised Mr Martis to order a printer at a particular cost. 241 In cross-examination Mr Cork acknowledged, as he had to, that Mr Martis had consulted the directors about the purchase of business equipment. He said that this was in general, but was concerned that Mr Martis had ordered a printer without obtaining authority for the particular cost. 242 In my opinion, there is no substance in this complaint. (l) "Martis misled Cork as to the conduct of their co-directors" 243 This complaint surfaced in Mr Cork's first affidavit. The context was the lead up to a directors' strategy meeting on 14 April 2000. About three weeks earlier, at a board meeting on 23 March 2000, Mr Smith had told the other three directors that he was concerned about Mrs Saliacus' "unacceptable attitude" to him. At that stage Mr Rajan and Mr Cork supported Mr Smith on the point. 244 Mr Cork said in his affidavit that Mr Martis, on two subsequent occasions, made some statements to him about Mr Smith's attitude towards Mr Cork, the fact that Mr Smith was going through marital problems, that if Mr Smith were successful in his attempt to have Mrs Saliacus' employment terminated, Mr Martis and his brother would leave the Company with her, which would break up the Company and see it lose its profitability. Mr Cork alleged that in relation to Mr Rajan's complaint about Mrs Saliacus, Mr Martis made some derogatory statements about Mr Rajan and his motives. Mr Cork swore (again in his affidavit) that as a result of those statements, he supported Mr Martis in his defence of Mrs Saliacus, told Mr Smith that he would not support any action against Mrs Saliacus at the meeting on 14 April 2000 and said that that was why no action was taken. 245 Mr Martis, in his affidavit sworn on 24 December 2002 denied making those statements. He was not cross-examined on the matter. Nor, for that matter, was Mr Cork cross-examined on the matter. 246 There are thus two conflicting affidavits about whether these statements were made, with neither deponent being cross-examined on the matter. I am not prepared to find, on a balance of probabilities that the statements were made. Nor would I be prepared to find on a balance of probabilities that they were not made. The defendants have the onus of proof which, in my view, they have not discharged on this point. 247 Assuming, for the moment, that Mr Martis did make statements to that effect, I am quite unable to decide, on the evidence before me, whether the statements were factual or whether they were misleading. That is did Mr Martis, as the defendants allege, mislead Mr Cork? There is insufficient evidence for that assessment to be made. In those circumstances, I have decided to give no weight to this complaint. (m) The spreadsheets 248 This issue emerged initially in the context of assertions that Mr Martis had, in about April 2000, sought to have Mr Rajan removed as a director and to have the shareholding of his family trust in the Company reduced. It concerned the development by Mr Martis of computer models for the valuation of the business of the Company, initially in 1995, and the extent to which Mr Martis made that model available to his fellow directors. Until the hearing there was no express allegation of impropriety on the part of Mr Martis. 249 However, this matter emerged at the hearing (during cross-examination of Mr Martis) as a major issue of alleged impropriety on Mr Martis' part. It resulted in a fairly substantial amendment to the defence, by the addition of a new paragraph 15(m). In that new sub-paragraph the defendants allege that Mr Martis sent an email to Mr Cork on or about 8 April 2002 in which he provided Mr Cork with the password to a computer file which included a valuation spreadsheet for the Company for the period 1998-1999. The defendants allege that in that email Mr Martis knowingly "and falsely" informed Mr Cork that the spreadsheet had not been updated, whereas Mr Martis had in fact prepared updated valuation spreadsheets for the Company for the periods 2000/2001 and 2001/2002 which, so the defendants claim, revealed a fall in the capitalisation multiple. 250 Next the defendants say that Mr Martis instructed his solicitors who, by letter dated 9 April 2002, put a proposal to his co-directors about their purchase of the plaintiff's shares in the Company. 251 The defendants plead that in those circumstances, Mr Martis sought "… as to the negotiations between himself and his co-directors as to the purchase of the shares to mislead his co-directors as to the value of the company and the shares". 252 These allegations resulted in the postponement of re-examination of Mr Martis on this matter and subsequent further cross-examination of him. 253 This was a contentious issue. My findings of fact are as follows. 254 On 3 April 2002, the defendants' solicitor sent two letters to the plaintiff's then solicitors. One was an open letter of that date, to which I have referred above. The other was a without prejudice letter. I infer that negotiations for settlement of the dispute between the parties started at about that time. 255 On the same date, or possibly the next day (the evidence varies), Mr Martis prepared some spreadsheets on the Company's computer. They were headed "Business value 00-001 (new)", "Business value 00-002 (new)", "Restructure valuation (JM)" and "Restructure valuation (all)". I shall refer to these documents as "the Four Pages". 256 The Four Pages were derived from computer files maintained by the Company to value its business, based on the various types of its recurring income over the years commencing with the financial year ended 30 June 1993. 257 Mr Martis explained, in his third affidavit, the history of this computer model. He had previously developed it in 1995 as a valuation model for the Company's business as the basis of discussions with Mr Andrew Martis in relation to the purchase of 6,000 ordinary shares in the Company. The model valued the total business goodwill as a factor of the Company's gross revenue. 258 It is common ground that in September 2000, at Mr Cork's request, Mr Martis provided to Mr Cork a print-out of the business valuation model in its then current form. Mr Cork says, in his affidavit of 10 July 2003, that he used the document for his tax purposes. Mr Martis swore, and I accept this, that Mr Smith had asked him for a copy of the same valuation model in or about 1998 as the basis of a negotiated property settlement in the course of a matrimonial dispute. 259 I accept Mr Martis' evidence to the effect that he created the Four Pages on 3 April 2002 to work out what would be a fair value to put on his interest in the business, and for the purposes of putting a proposal to his fellow directors. Not only did he swear to that effect in further re-examination, but the documents themselves confirm this. 260 The minutes of the board meeting of 8 April 2002, which I accept as being accurate, reveal the following in relation to resolution 7: 'Resolution 7 of the notice of meeting: That all Directors and staff members be directed to disclose the existence of any password protected document on the company's computer system and the relevant passwords to the Managing Director immediately: Discussion: JM [Mr Martis] – Amend the motion to read "all company documents only". JM – Valuation model and pay model sheets are the only company documents Amend the resolution to read that all documents of a private nature be resaved under a new password that does not require disclosure: Amended resolution 7 of the notice of meeting put to the vote: Resolution to now read "That all Directors and Staff members be directed to disclose the existence of any password protected company documents on the Company's computer system and the relevant passwords to the Managing Director immediately". Votes: PC, GS, JM and SR all in favour …' 261 In my view, in the light of the fact that Mr Martis had created the Four Pages for the purpose described in paragraph [257] above, it is significant that Mr Martis moved an amendment confining the relevant documents to "company documents" which formed part of the resolution as passed unanimously. I infer that he did not want to disclose their contents to the other three individuals. 262 On 9 April 2002, Mr Martis sent an email to Messrs Cork Rajan and Smith under the subject heading "Excel Spreadsheets": 'Please note I have saved the following spreadsheets at G:Groups:Compliance: Administration · Companyrevenuerecords942002.xls · FinalBonus2001842002.xls · BusinessValuationModels942002.xls The password for all is "Denise". Please note that in particular the Business Valuation spreadsheet has not been updated in a long time and is not a representation from me that you should rely on it in any way or that it is accurate.' 263 I find that as a result of that email, the other three individuals would have obtained access to a file of computer spreadsheets described as "BusinessValuationModels 942002.XLS" showing business values from the year ended 30 June 1995 to the year ended 30 June 1999 with the revised versions for the last of those two financial years being identified as "Business Value 97-98 (New Mod)" and "Business Value 98-99 (New)" respectively. That was in a file which at trial was identified by the number 6. 264 In his own business valuation computations on the Four Pages Mr Martis made some adjustments to what the defendants referred to as multiples. In cross-examination Mr Martis acknowledged that if the defendants had used the valuation factors shown in what I will call the disclosed spreadsheet and applied that figure to the estimated income and other fees expected for the year ended 30 June 2002 they would have arrived at a higher valuation for the business of the Company than the one reached by Mr Martis in his own non-disclosed private calculations in the Four Pages. 265 I accept Mr Martis' evidence that he did not disclose those documents to the other directors because, in his view, they were personal documents. I also accept his evidence that he did not wish to provide "things" to his ex fellow directors that could have been misconstrued. 266 The defendants complain that the email of 9 April 2002 was misleading when it stated that the valuation spreadsheet for the period 1998-1999 had not been updated, whereas Mr Martis had prepared updated valuation spreadsheets for the financial years ended 30 June 2001 and 30 June 2002 which, so they claimed, revealed a fall in the capitalisation multiple. They allege that in the context of the negotiations for the purchase of his shares, he sought to mislead the other three individuals as to the value of the Company and the plaintiff's shares. 267 Mr Martis acknowledged, in further cross-examination, that his calculations were updates of the earlier calculations. But, in my view, Mr Martis was under no obligation to disclose his calculations to the defendants. It is obvious that they were prepared for his own purposes in the context of a dispute over the valuation of the Company's business. 268 In the sense that Mr Martis had made his own calculations, it was not strictly accurate for him to say in his email of 9 April 2002 to the other three individuals, that the business valuation spreadsheet had not been updated in a long time. However that email contained a strong disclaimer to the effect that the spreadsheet was not a representation from him that they should rely on it in any way, or that it was accurate. 269 The plaintiff submitted that the defendants' contention that the Four Pages would have disclosed the appropriate capitalisation multiple to be applied to historic, or forecast company earnings, so as to assess value, was misconceived. The plaintiff submitted that Mr Martis' evidence showed that the spreadsheets were based on historical company earnings, and a projection of earnings for 2001/02, which applied consistently a "weighting" or "valuation factor" which was applied in earlier spreadsheets to the historic or protected earnings. The only thing which the Four Pages contain, so it was put, and which the other three individuals did not know, was Mr Martis' view of gross revenue for the 2001/02 year, but they could and did make their own assessment of that. 270 I have endeavoured to verify that submission by tracing through the various percentages shown on the spreadsheets which comprise the Four Pages. I was unable to extrapolate from a comparison of actual figures for the years ended 30 June 2000 and 30 June 2001 the percentage valuation factors which flowed through on to those spreadsheets and eventually into the calculations of the expected figures for the year 2001-02 (wrongly shown in the second of those documents as "2000/01 Expected"). I also had regard to Mr Martis' evidence to the effect that he was not sure that the valuation factors of 19% and 17% were annual growth or the five-year growth rate (he said it was most likely the annual growth rate, but I was unable to verify that by my calculations) or that the spreadsheet automatically calculated the percentage between the two years or whether that had to be done manually. He ended up by saying that "… its possibly just automatic." 271 In those circumstances I am not prepared to find that the other three individuals could have made their own assessment of the current year figures for the year ended 30 June 2002 and end up with the same valuations as those prepared by Mr Martis. 272 However, I do not think that that affects the assessment of whether Mr Martis' conduct was improper. 273 The calculations which Mr Martis made for the year ended 30 June 2002 (as I have mentioned, wrongly shown as "2000/01 Expected" on p 1052 of the exhibit) were somewhat gloomy. A close analysis shows that all he did was to extrapolate the 2000/01 figures but reduce the item "Commission Income" by about $100,000 ($100,515 to be precise) – down to a rounded $442,000 from the previous $542,515. This was a 3.57% reduction in the item "Category Totals" which meant that the respective valuation factors of 1 and 1.5 were reduced to .96 and 1.46 (rounded to two decimal points) on his spreadsheet resulted in a 3.57% reduction in the valuation factors. This in turn fed through to his own calculation of the value of the plaintiff's shares in the Company as the end of the then current year. 274 I infer that Mr Martis kept his figures to himself because he was in dispute with the other three individuals and was negotiating a proposed sale of the plaintiff's shares. I think that he was entitled to do this. The amended motion passed at the meeting on 8 April 2002 clearly contemplated that there would be some private documents in the Company's computer systems. 275 In providing the other three individuals with access to the previous business valuations of the Company and stating that they had not been updated, I do not think Mr Martis is to be found to have acted improperly. In terms of strict Company records they had not been updated. I reject the defendants' submission that his conduct was "inconsistent with a notion of fair dealing". The express terms of the email of 9 April 2002 clearly should have put them on their guard. The proceedings in the Western AustraliaN industrial relations commission 276 I have already described those proceedings above as part of the chronological narrative. In paragraph 16 of the amended defence the defendants plead that following his removal of managing director Mr Martis commenced those proceedings "… seeking reinstatement as managing director or substantial compensation and thereby and/or his further conduct rendered unsustainable a continued working relationship with the other directors". The words in quotes were added by amendment at the hearing. 277 The defendants submitted that it was inappropriate for Mr Martis to: · insist on reinstatement as managing director or to institute in this regard proceedings in the Western Australian Industrial Relations Commission; · attempt to insist that his solicitor attend the board meeting on 10 May 2002 on the basis that he believed that his co-directors would later be untruthful as to what had taken place at the meeting; · insist on being returned to a position of power in order that he might deal with his co-directors, in his view, appropriately; · make a statement to his co-directors that he would destroy the Company; and · refuse the without prejudice offer made on 3 April 2002. 278 The defendants contend that the attitude revealed by Mr Martis in this conduct led his co-directors to the conclusion that they could no longer work with him on the board of directors of the Company. my reasoning 279 In the light of the manner in which the other three individuals treated Mr Martis, I do not think that it was either unreasonable or inappropriate for him to have recourse, on legal advice, to the Western Australian Industrial Relations Commission. Recourse to an industrial tribunal in those circumstances should not be held against him in the context of these proceedings. 280 Nor do I think that it was inappropriate or unreasonable for Mr Martis to seek to have his solicitor attend the board meeting. The other three individuals had shown a preparedness to act illegally. It was not unreasonable, in those circumstances, to ask to have his solicitor present to protect his interests even if it later emerged that those interests included preserving a record of what transpired at the meeting. 281 As I understood Mr Martis' evidence in Court on the question of being restored to his former position of power, it was motivated by wishing to have the status quo restored so that he could negotiate from what he perceived would be a less disadvantaged position. It is useful to recall that his fellow directors had submitted him to an illegal dismissal and a humiliating announcement to the staff of the Company which he had helped to establish. 282 I have already dealt above with the relevance or otherwise of Mr Martis' intemperate statement about destroying the Company. 283 In my view, the rejection of the without prejudice offer is irrelevant. 284 I do not regard these matters, individually or cumulatively, as justifying the manner in which the defendants conducted the affairs of the Company vis-a-vis Mr Martis and the plaintiff. the breakdown of the relationship 285 In paragraph 17 of the defence the defendants plead that by reason of the matters which I have discussed above (i.e. the 13 matters of complaint and the matters referred to at paragraphs [276] to [278] above), the relationship between Mr Martis and the other directors of the Company broke down to the extent that it was reasonable and appropriate for the other directors during or about May 2002 to take steps to remove Mr Martis as a director of the Company. 286 I accept that by May 2002 the relationship between those two sets of parties had broken down to the extent that it would probably have been just and equitable to wind the Company up at that stage. 287 I do not think that the matters raised in paragraphs 15 to 18 of the defence, whether individually or in combination, provide sufficient to counter-balance my then provisional assessment above (which I now make as a final assessment) that the combination of matters, referred to in paragraph [158] of these reasons, amounted to conduct which would offend the sense of fairness of reasonable directors. Nor do those matters, in my opinion, prevent the exclusion by the defendants of Mr Martis from the management of the business of the Company, being a quasi-partnership, from being properly characterised and unfair. I so characterise that behaviour. 288 In my view, the plaintiff has established two separate bases (being those referred to in paragraphs [158] and [159] above) for the exercise of the discretion conferred by s 232 of the Corporations Act. My assessment of the defendants' conduct, in all the circumstances, is that that discretion should be exercised in favour of the plaintiff. In short, the plaintiff is entitled to the relief which it seeks. 289 The plaintiff seeks an order that Messrs Smith Cork and Rajan or their related entities acquire its shares in the Company at a fair price. Messrs Smith Cork and Rajan are not parties to the proceedings. (But it may prove necessary in the interests of justice and to give effect to the resolution of this matter to join them and consider making orders against them). In those circumstances, in my opinion, the appropriate orders at this stage will be that the respective trustees of their family trusts acquire the plaintiff's shares in the Company at a fair price, which I will now proceed to assess. valuation of the shares 290 I should clarify something about the process upon which I am about to embark. As a matter of convenience, I refer to the value of the plaintiff's (ordinary) shares in the capital of the Company. But the plaintiff also owns 10 "D" class shares and one special income unit in the SMCR Unit Trust (the service trust). In my view, it is appropriate to assess the value of the totality of the plaintiff's interests in the business, including the special income unit in the assets of the entity which the four individuals organised to provide services essential to the conduct of that business. Section 233 of the Act empowers the Court to make any order "that it considers appropriate". I consider that it is appropriate to include all of the plaintiff's shares in the Company and its special income unit in the SMCR Unit Trust as part of the purchase orders referred to immediately above. However, I shall continue to refer to "the plaintiff's shares" as a convenient shorthand reference to its interest in the business. 291 I exclude from the calculations below Mr Martis' interest (apparently about 20%) and the SMCR Staff Superannuation Fund. I do so for two reasons. First, it was not considered as a relevant factor in the expert valuations. Secondly, such an entitlement is specifically regulated by federal legislation of various types and my impression is that such an interest cannot be readily (if at all) bought and sold. 292 I shall approach the task of assessing a fair price as being akin to assessing the value of a 22.5% share in a partnership business in which the four individuals were equal capital partners. I think that is consistent with the evidence and my finding that the Company was set up and operated as a quasi-partnership, albeit one whereby a sum equivalent to 80% of the net profit generated by a particular partner was paid to that partner and a sum equivalent to the balance shared equally by the four individuals and Mr Andrew Martis. 293 The first question is the date at which the plaintiff's shares are to be valued. Some of the authorities on this question were reviewed at p 144 in Dynasty, the Full Court decision to which I have already referred. The authorities suggest that the Court has a discretion to fix the date of valuation as being one which, in all the circumstances it is fair to select. 294 The plaintiff submits that the relevant date should be 25 March 2002, being the date at which Mr Martis was in effect removed from the Company's management. I accept that Mr Martis was on that date removed, albeit illegally, from the position of managing director. But it was not until 10 May 2002 that the legal steps for removing him from the Company's management were completed i.e. the date upon which his fellow directors exercised their voting power to remove him from office as a director. 295 In my view, that date, 10 May 2002, would be an appropriate valuation date, being the date when the defendants relegated Mr Martis to the status of an employee, with no say in the management of the business. If the value of the Company's business fell after that date due to the manner in which the business was conducted, then that risk should not be borne by the plaintiff. It is not necessary to consider whether that actually occurred or what might have been fair if the value of the business had increased for reasons not connected with its management. The method of valuation adopted will show why that is not necessary. 296 It is important to exclude the effects of oppression from the valuation: Dynasty at 143 and the authorities there cited. I think that what I consider to be the deleterious effect of excluding Mr Martis from management of the Company would not have started to bite by 10 May 2002, although it is difficult to be precise about such matters. There was a significant downturn in the net profit for the year ended 30 June 2002, but matters such as the stock market correction and the events of 11 September 2001 need to be taken into account. 297 I consider that 10 May 2002 is an appropriate date for additional reasons. If the other directors, having determined on 24 March 2002 to remove Mr Martis, had made open offers to purchase the plaintiff's interest in the Company and if the plaintiff had accepted those offers, 10 May 2002 would have been a realistic date for settlement of that transaction. I say realistic, because that would have allowed a reasonable time for negotiations leading to a contract and then a reasonable time for settlement to be organised, a total period of about six weeks. It is also a date closer to the latest reliable full year financial statements. The 2003 accounts were in evidence, but only in draft form. 298 Accordingly, for the reasons just given, I have selected 10 May 2002 as the date of the valuation. some preliminary observations 299 Each side called two expert witnesses on the question of valuation. 300 The plaintiff called Mr Andrew Edwards, a chartered accountant and managing partner (Perth) with Messrs Price Waterhouse Coopers, and Professor Wesley McMaster, a consultant to financial institutions, accounting groups and financial planning businesses. The defendants called Mr Duncan Calder, also a chartered accountant (a partner of KPMG Chartered Accountants), and Mr David Mazengarb, a corporate strategy and business consultant. 301 There was a considerable amount of agreement between Mr Edwards, Professor McMaster and Mr Calder. The matters agreed were the subject of a statement of agreement which became Exhibit A41. 302 Those three experts agreed that the shares in the Company should be valued on a future maintainable earnings ("FME") basis. Mr Mazengarb disagreed. 303 Messrs Edwards and Calder agreed that, for the purpose of calculating FME, the revenue of the Company from operations net of direct costs was $2.35 million based on historic performance to 30 June 2002. They also agreed that, for the purposes of that calculation, the total expenses before the remuneration of the Authorised Representatives was $570,000 subject to the resolution of a disagreement relating to certain costs to which I return below. 304 Mr Edwards' calculation of FME was on the basis that each Authorised Representative would be paid at "industry rates". But Mr Calder prepared his calculation of FME on the basis that after the notional sale of the shares in the Company to a purchaser had taken place, each of the four individuals and the employed Authorised Representatives would continue to receive the 80% net margin, referred to earlier in these reasons. 305 Another basic disagreement was that Mr Edwards valued the business on the basis of assuming a sale of the business as a going concern. Mr Calder's valuation was based on the future earnings from the owners' profit pool. 306 Mr Edwards valued the ordinary shares in the Company on a before tax basis, but Mr Calder valued them on an after tax basis. However, this presents no difficulty because it was common ground that, provided the multiplier was properly applied, an after tax multiplier can be converted to an equivalent before tax multiplier. 307 Messrs Edwards and Calder were agreed that if the assumption were made that Authorised Representatives would be paid at industry rates, an appropriate multiplier was in the range of 4-5 times earnings before tax which would equate to an after tax multiple of between 5.7 and 7.1. 308 I have mentioned that Professor McMaster also adopted the FME basis of valuation. He was in broad agreement with Messrs Edwards and Calder as to revenue, level of expenses and the multiplier, subject to the assumption that Authorised Representatives would be paid at industry rates. 309 I was not impressed by Mr Mazengarb's evidence. I formed the impression that he had unduly allied himself with the defendants' cause. To start with, there was evidence that he took on the role of an adviser to the defendants in as early as May 2002. In his report there is a schedule describing the meetings he had with various of the defendants, including the dates of those meetings starting on 18 March 2002. In oral evidence Mr Mazengarb corrected those dates. When he prepared the report he thought that the meetings had started in April. His oral evidence was that their first meeting was in the first week of May 2002. 310 But my point, at this stage, is that Mr Mazengarb appears to have immersed himself in the affairs of the defendants, as their adviser, from a fairly early stage. This was some three months before Mr Martis was dismissed. After that dismissal the four individuals retained him to help them in relation to their final without prejudice settlement offer. 311 Mr Mazengarb, in my view, adopted the role of an advocate for the defendants, rather than a dispassionate expert. This was in marked contrast with the evidence of Mr Edwards. 312 Mr Edwards was prepared to make concessions where reasonable matters were put to him. That did not apply to Mr Mazengarb. Mr Mazengarb doggedly refused to give straightforward answers to questions, which then had to be repeated, relating the fundamental question of ownership of the goodwill of the business. 313 The foundation stone for Mr Mazengarb's opinion was that the business in which the defendants were engaged was not "corporatised" and that it did not belong to the Company, but to the individual Authorised Representatives. 314 When the employment agreements between the Company and those representatives containing various covenants, including the restraint of trade, were put to Mr Mazengarb he dismissed them as being "ineffective". 315 In Mr Mazengarb's view, the business was to be valued on a net asset basis. In that regard he even differed from Mr Calder. Mr Calder was prepared, at least, to allocate a value of the business which included the value of the future maintainable earnings reflected in the owners' profit pool. 316 I decided to place very little weight on Mr Mazengarb's evidence. 317 I decided to prefer Mr Edwards' evidence over that of Mr Calder, not for the sort of reasons which caused me to discount Mr Mazengarb's evidence, but principally because Mr Calder's valuation was based on assumptions which I did not regard as valid. In fairness to him, it is clear that his assumptions, and hence his valuation, were based on express instructions from his clients. 318 One, very basic, assumption was that the four individuals were free to leave the Company and take their clients with them. This led to Mr Calder's view that the Company should not be valued on the basis of its future maintainable earnings, but only on the basis of the owners' profit pool. 319 Mr Edwards valued the business of the Company and that of the SMCR Trust as a single combined group. As I have mentioned, he valued the business on a going concern basis. That is, he assumed that Mr Martis would continue as a director and as an Authorised Representative of the Company. Mr Edwards defined fair value as the amount of consideration that would be agreed upon in an arm's length transaction between knowledgeable willing parties who were under no compulsion to act. In his calculation of FME, Mr Edwards adjusted the amounts payable to the Authorised Representatives downwards from 80% of net income to 40% net income which he regarded as levels typically paid in the financial planning industry. He did this to recognise the profit which the four individuals derived as owner operators, but which formed part of the payments to them as Authorised Representatives. 320 By contrast, Mr Calder valued the plaintiff's shares in the Company as a stand alone passive investment detached from the involvement of Mr Martis as a principal. 321 Mr Calder assumed that if an Authorised Representative left the Company he or she would take with him or her the clients which they serviced. Mr Calder's valuation of the plaintiff's shares was based on the proposition that FME should be calculated only in respect of the owners' profit pool i.e. the 20% of the net income retained for distribution to the owners of ordinary shares in the Company. The capitalisation multiple which Mr Calder selected was expressly affected by his assumption that Authorised Representatives were able to leave and take clients with them. my reasoning 322 I accept the opinions of Mr Edwards and Mr Calder to the effect that the valuation should be on the basis of future maintainable earnings. As I have mentioned, they differ about what are the relevant earnings. 323 Both those experts agree that the revenue from operations net of direct costs, based on historic performance to 30 June 2002, is $2.35 million per annum. (Henceforth I shall not repeat "per annum"). I accept the validity of this calculation because (as Mr Edwards explained in his initial report) it was based on an approximate average of the actual gross fees achieved over the three years ended 30 June 2002 i.e. $2.7 million. By 10 May 2002 there were negative factors emerging, which I have already mentioned above. But I think Mr Edwards' use of an average is fair, because its computation includes the year ended 30 June 2000 in which total revenue for operations was the significantly lower figure of $2,390,000 followed by a substantial increase in the year ended 30 June 2001 to a figure of $2,808,000. In short I accept the starting point of gross revenues of $2.7 million. 324 I accept also that the first figure to be deducted from that sum should be $350,000 of direct costs. That comprised an approximate average of those direct costs, namely, 13% of total revenues, taken over the three years ended 30 June 2002. The result is the figure agreed between Mr Edwards and Mr Calder of $2.35 million. 325 For the reasons which I have earlier given in relation to my conclusion that the Company was a quasi-partnership and the further reasons set out below, I reject the approach taken by Mr Calder to calculation of fees payable to Authorised Representatives. That is, I accept Mr Edwards' calculation of FME on the basis that each of the Authorised Representatives is paid normal industry remuneration of 40% of gross fees (after deducting direct costs). I shall state my further reasons briefly. 326 Mrs Grace Cox (a chartered accountant employed by Messrs Price Waterhouse Coopers) gave evidence that Mr Cork told her at a meeting on 27 November 2002 that a generally-accepted industry standard remuneration for Authorised Representatives was commonly 30 of gross fees, so calculated. In his first affidavit Mr Cork said that normal commercial practice was to pay an adviser 30 of fees with "the rest to the owners". Mr Edwards said that this was consistent with his knowledge of other financial planning businesses. His knowledge was quite extensive. Mr Calder initially, (in his first report), stated that a "more typical" financial planning industry salary in his experience was equivalent to 30 of gross income with "rainmakers" perhaps receiving a larger share. In his March 2003 report, Mr Calder changed his mind and said that whilst 40% of gross fees was a commercial rate for a junior financial planner with a limited client base, a more experienced financial planner with a large client base would generally demand a significant premium to this rate. 327 My assessment is that Mr Calder's subsequent view on this point was very much influenced by his understanding that the Authorised Representatives employed by the Company (including the four individuals) would be at liberty to take clients with them upon ceasing such employment. 328 But this was legally impossible. The goodwill of the business belonged to the Company. The Company bought the Profit Watch portfolio management service, all trailer fees and the goodwill of JCLD pursuant to the terms of the JCLD Agreement. JCLD had, shortly before that time, ten Authorised Representatives. Six of them joined the Company in the same capacity i.e. the four individuals and Messrs Andrew Martis and Bruce Sivalingam. Each of them signed the employment contracts which I have described above, which included restraints on soliciting the Company's clients. 329 There are two further reasons why, so far as the four individuals are concerned, Mr Calder's understanding, and indeed Mr Mazengarb's assumption to the same effect, are wrong. First, a fair valuation assumes a willing seller (in fact, for present purposes five willing sellers – including Mr Andrew Martis). To obtain the best price for the business, those sellers would enter into such agreements as would ensure that the full value of the goodwill of the business passed to the purchaser. That is a reason which does not depend upon legalities. 330 The second reason does so depend. If any of the four individuals, each of whom were at all material times directors of the Company, attempted to take away from it the clients whom they were advising, the Company could obtain ample legal relief to restrain such conduct and full compensation for any loss – see the principles discussed by Hope JA (with whom Samuels JA and Priestley JA agreed) in Mordecai v Mordecai (1988) 12 NSWLR 58 at pp 68-71. See also Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari [2000] 2 Qd R 359 at 366-368 and 373-374, and Shamsallah Holdings Pty Ltd v CBD Refrigeration and Airconditioning Services Pty Ltd [2001] WASC 8 at [70]. The defendants adduced evidence from several accountants about their loyalty, in terms of referring business, to Mr Cork and Mr Smith rather than to the Company. In view of the conclusion which I have just expressed, that evidence is irrelevant. 331 The foundation for Messrs Calder and Mazengarb's opinions is, in my opinion, fundamentally flawed. 332 I accept the evidence which indicates that 40% is a reasonable commercial rate to apply for the purposes of these calculations. Mr Edwards' calculation involved adding 9% superannuation on the total notional salary, notwithstanding that there was no requirement for an employer to provide superannuation above certain prescribed maximum contribution levels. In my view, that adds a further degree of fairness to his estimate. 333 I have not overlooked the evidence of Mr Timothy Flavell who has been an Authorised Representative employed by the Company since 2000. Mr Flavell swore that if his remuneration were changed from 80% of the net fees of business written by him to 40% he would leave the Company and seek employment elsewhere on terms more acceptable. 334 The evidence suggests that in the year ended 30 June 2003, Mr Flavell's remuneration was significantly below 40% of his fees, yet he remained in the employment of the Company. I accept, to some extent, his explanation that it was an unusual year and that if things were not going to get any better he would certainly consider looking for another job. 335 However, my assessment is that if Mr Flavell were to leave the Company, it would not be difficult for it to find a replacement. 336 I differ from Mr Edwards in relation to the appropriate level of administration staff costs. 337 Mr Edwards reviewed a budget prepared by Mr Cork which included an estimate of additional recurring costs. The main additional items were for salaries payable to new administration staff, a rent increase and a Dealer Service Fee. Mr Edwards accepted all of those extra costs for the purposes of making a calculation which he described as "Scenario A". That involved a budgeted increase in administration costs of 2˝ times the actual administration staff salary costs paid in the year ended 30 June 2002. 338 In recognition of the size of that budgeted increase, Mr Edwards prepared a different set of calculations for what he described as "Scenario B". Scenario B assumed only one additional staff member (an administration officer at a recurring cost of $43,600) over and above the staff levels for the year ended 30 June 2002. Scenario B involved an acceptance of the other main additional items referred to in paragraph [337] above. 339 Over and above the budgeted figures, there was the question of whether a still further sum of $139,000 (in precise terms $139,418) should be added to these additional expenses. This sum comprised depreciation on Mr Cork's computer equipment ($5418), salaries paid by him to his brother Mr Fred Cork ($35,970) and Ms Marie Williams ($24,000) and salaries paid by Mr Smith to his sons Mr Brad Smith ($52,230) and Mr Scott Smith ($21,800). 340 I am not satisfied that the amounts which comprise this total of $139,000 should be added to the expenses for the purposes of calculating FME, as Mr Calder advocated in certain spreadsheets which he prepared fairly late in the proceedings. Mr Calder said that he was unaware whether these additional costs were appropriate and he had not studied whether each of the additional costs was appropriate. My reason for rejecting these extra costs is that I do not accept the proposition that it would be reasonable to incur these extra expenses over and above a reasonable increase in the budget for administration staff costs, an item to which I now return. 341 My impression from the evidence is that Mr Martis ran a very tight ship, particularly in relation to administrative salaries. The evidence suggests, and I so infer, that each of the Authorised Representatives carried out a fair amount of administrative work on their own behalf which might reasonably be expected to be carried out for them by office staff. The evidence also shows that the industry in which the Company operated was about to move into a more highly regulated state with increasing on-going compliance costs. I find that, on the balance of probabilities, a reasonable well-informed purchaser would probably have engaged some extra administrative staff upon taking over the business and could not have run quite as tight a ship as Mr Martis had managed to do. Mr Edwards accepted that extra administration staff costs had to be factored in to his Scenario B calculations. 342 Where I differ from Mr Edwards' Scenario B is that I do not think that the allowance for extra administrative costs which Mr Edwards made in that Scenario ($43,600) was sufficient. But, on the other hand, I do not accept the total additional administrative costs reflected in Scenario A which, for calculation purposes, assumed the reasonableness of all Mr Cork's budgeted extra administrative salaries for the year ending 2003 (other than the further $139,000 referred to above). I take into account the fact that actual administration salaries (excluding payments made to Ms Sharon Cork) for the 6 months ended 31 December 2002 were about $2,000 per month less than those allowed in Scenario B. I also gave consideration to Professor McMaster's calculation of additional staff costs. He considered two additional staff members were justifiable, i.e. an administrative officer ($48,600) and a practice manager (general manager $70,200). He had no opinion about salary levels, and applied Mr Cork's figures to reach a total of an additional $118,800. But although the Company appointed a general manager, his services were subsequently dispensed with due, so I understood, to the cost being too high. He was replaced by either an administrative officer or a part-time bookkeeper, or both (the evidence is not entirely clear). 343 In dollar terms, the difference between Mr Edwards' Scenario A and Scenario B was $92,000. 344 To accommodate the findings which I have referred to above I think that there should be an upwards adjustment in the item of the staff costs shown in Scenario B. I select a figure of an additional $46,000 for two reasons. First, it splits the difference between Scenario A and Scenario B i.e. the difference between $560,000 and $468,000 shown in columns 2 and 2(A) of the spreadsheet enclosed in Mr Edwards' letter dated 30 October 2003 to the plaintiff's solicitors. Secondly, that further increase ($46,000) is approximately equivalent to the salary of a second additional administration officer. This would bring the ratio of administrative support staff to Authorised Representatives more in line with the industry ratios referred to in, for example, Mr Calder's first report. 345 The next matter is whether in the FME calculations, there should be an allowance for the impact of Mr Martis' departure. Technically, I appreciate that this would not be logical in a valuation which assumed his on-going presence in the business. 346 However, the truth of the matter is that, although the defendants were originally minded (and by Mr Cork's letter dated 6 August 2002 attempted) to restrain Mr Martis from working for former clients of the Company, eventually they chose not to do so. Some of the clients went with Mr Martis. I accept Mr Edwards' calculation of the net impact on earnings caused by Mr Martis' departure as being $70,000 – see his letter dated 30 October 2003 paragraph 3(b). I think that factor must be taken into account to do justice between the parties. 347 Accordingly, a total of $116,000 ($46,000 plus $70,000) should be deducted from the figure of $847,000 assessed by Mr Edwards as the FME under his Scenario B. The resultant sum is $731,000 from which tax at 30% ($219,300) should be deducted to produce an after-tax figure of $511,700, which I round up to $512,000 for FME. 348 The next question is the multiple to be applied to that figure. Messrs Edwards and Calder are broadly agreed on the multiplier to be applied on the assumption that (contrary to Mr Calder's view) the Authorised Representatives would be paid by the notional purchaser at industry rates. The evidence establishes, in my view, that the industry scale was 30. As discussed above, I have decided that it is appropriate to apply a figure at the highest end of that scale of industry rates i.e. 40%. The agreed multiplier is a range of 5.7 to 7.1. I accept Mr Edwards selection of a multiplier of 6.4 as lying mid-way in that range. That puts a value on the business of $3,276,800. Applying a percentage of 22.5% to that resultant figure produces a valuation for the plaintiff's shares of $737,280 which I will round to $737,000. After I first reached that figure I reviewed again some of the financial evidence. I was comforted to note that my figure is within $13,000 (1.73%) of a figure described as "Preferred" in a document, Exhibit A13, prepared by Mr Edwards and headed "Adjustment to Valuation for Matters Agreed by Experts". 349 I have considered whether a discount should be applied to that figure for the fact that Mr Martis' interest is a minority interest. For the reasons discussed by the Full Court in Dynasty at 145-146, I have decided not to apply such a discount. See also the decision of Gillard J in MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 2) [2000] VSC 78 at [636]-[640] and the further authorities there referred to. 350 I think that the plaintiff should be compensated for being deprived of what would have been the benefits of continued ownership and participation in the management of the Company. In terms of s 233 of the Act, I think that it would be appropriate for an amount equivalent to interest to be awarded to the plaintiff on the above amount. 351 I have given consideration to whether there may be an element of double-counting in allowing an amount equivalent to interest from 10 May 2002 if Mr Martis or the plaintiff had received remuneration or other distributions of income in respect of the period up to termination of his employment i.e. 13 August 2002. 352 Mr Cork swore to the accuracy of a document entitled "Final pay-out for Joe Martis for the period 1 July to 13 August 2002" which dealt with both the Company and the Trust. It purported to show that Mr Martis owed the former $11,683.51 and the latter $23,683.51. Mr Cork acknowledged in cross-examination that the service fees (13% of which were expensed to Mr Martis) were grossly overstated for the month of July. I note that the figure for August was for the whole month rather than for the period to 13 August 2002. I decided that it was not safe to rely on Mr Cork's calculations of the state of indebtedness as between Mr Martis and the plaintiff on the one hand and the Company and the Unit Trust on the other. 353 There was simply not enough evidence for me to assess who was in debt to whom and in what amounts. 354 I have decided that the fairest course in the circumstances would be to let the issue of any rights to payment or re-payment on account of remuneration and dividends for the relevant period be decided, if necessary, by an assessment in the nature of a taking of accounts before a District Registrar, in respect of the (13˝ month) period 1 July 2001 to 13 August 2002. If that process has to be engaged in, it is not to delay implementation of the orders for sale and purchase. 355 Mr Martis can be seen to have been working with his invested capital and enjoying the fruits of his labour and investment until the end of that period. From 13 August 2002 I consider he should receive compensation in the nature of interest calculated on the sum of $737,000 referred to above. 356 The next question is what would be an appropriate rate of interest. I have regard to Order 35 rule 8 which provides that a judgment debt carries interest at the rate of 10.5% per year unless in a particular case the Court determines that justice requires that a lower rate should be applicable. But the amount which I am considering is, in a non-technical sense, to be part of a judgment itself. 357 Section 51A provides that, unless good cause is shown to the contrary, a Court shall include in an amount for which judgment is given interest at such rate as the judge thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered. Again, strictly that is not the present situation. 358 Even in today's economic climate of gradually increasing interest rates, a rate of 10.5% is, in my view, on the high side. I take judicial notice from "The Australian Financial Review" 10 December 2003, that in relation to listed stocks it appears that a yield of about 4% in respect of market leader stocks is currently regarded as reasonable. However, in that situation there is the capacity for capital growth which to some extent compensates for a lower yield. 359 If the plaintiff had had the use of this sum since 13 August 2002, I doubt very much whether it would have been able to have invested it for a return of 10.5% with reasonable safety. Again from "The Australian Financial Review", I note 90 day bills of exchange yield around 5.5% and 180 day bills not much more. 360 All in all, I consider that the compensation payable to the plaintiff for being out of pocket to the extent of the abovementioned sum would be fairly assessed at a rate of 7% per annum on that sum. For the reasons given above, I think that it would be appropriate for the calculation to be from 13 August 2002 to the date of payment. Conclusion 361 For the foregoing reasons there will be orders that each of the second defendants other than the fourth-named second defendant in their capacity as a trustee of the respective trusts described in the heading of these proceedings, acquire, in equal shares or in such other shares as they may agree, all of the plaintiff's shares in the first defendant and its special unit in the SMCR Unit Trust at the price fixed by the Court. The price so fixed is $737,000 plus a further amount to be calculated by applying a rate of 7% per annum to that sum calculated from 13 August 2002 to the date of settlement. Settlement is to take place within 28 days of the date of judgment or at such earlier time as the parties may agree. I certify that the preceding three hundred and sixty-one (361) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr. Associate: Dated: 11 December 2003 Counsel for the Plaintiff: Mr D M Stone Solicitors for the Plaintiff: Messrs Williams & Hughes Counsel for the Defendants: Dr P MacMillan Solicitor for the Defendants: Mr Stephen Kemp Date of Hearing: 14-17 October, 20-24 October, 30 October 2003 Date of Judgment: 11 December 2003