Industrial Relations Commission of New South Wales in Court Session CITATION : Skinner & anor v Hal Data Pty Ltd & ors [2000] NSWIRComm 130 1ST APPLICANT: Anthony Philip Skinner 2ND APPLICANT: Aiden Family Investments Pty Ltd 1ST RESPONDENT: Hal Data Services Pty Ltd 2ND RESPONDENT: Andrew John Grant PARTIES : 3RD RESPONDENT: Christopher Peter Dawson 4TH RESPONDENT: George James Matis 5TH RESPONDENT: Grant Family Investments Pty Ltd 6TH RESPONDENT: Dawson Family Investments Pty Ltd 7TH RESPONDENT: Matis Investments Pty Ltd FILE NUMBER: 4543 of 1998 CORAM: Maidment J S106 Industrial Relations Act 1996 - Applicant dismissed as employee & removed as director of company. Unfairness. Claim for payment in lieu of adequate notice & orders which would result in applicants shares being purchased by respondents or the company being wound up. Basis of valuation of shares - whether on minority shareholding basis. CATCHWORDS : Whether relief should be withheld as a consequence of subsequent conduct of applicant. Industrial Relations Act 1991 Annual Holidays Act 1944 LEGISLATION CITED : Corporations Law ss 232 239 246 AA & 247A CASES CITED : Re Wondoflex textiles Pty Ltd [1951] VLR 458, Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882 HEARING DATES: 02/28/2000; 02/29/2000; 03/01/2000; 03/02/2000; 03/03/2000; 03/06/2000; 03/07/2000; 03/08/2000; 03/09/2000; 03/10/2000; 06/14/2000 DATE OF JUDGMENT: 07/27/2000 APPLICANTS: Mr G Hatcher of counsel SOLICITOR: Mr P A Terrett Terrett Lawyers LEGAL REPRESENTATIVES: RESPONDENTS: Mr P Kite SC with Messrs J Murphy & D Hammerschlag of counsel SOLICITOR: Mr P M Alter Morgan Lewis Alter JUDGMENT: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MAIDMENT J DATE: 27 JULY 2000 Matter No IRC98/4543 Anthony Philip Skinner v HAL Data Services Pty Limited & ors. Summons for relief under s 106 of the Industrial Relations Act 1996. JUDGMENT 1 In early 1993 Anthony Philip Skinner, Andrew John Grant, Christopher Peter Dawson and George James Matis agreed to form a company for the purpose of conducting a computer broking business. HAL Data Services Pty Limited ("HAL") thus came into existence. 2 Each of the four founders became both a director and an employee of HAL. The paid up capital of HAL was $20,000, each of the founders having acquired 5,000 $1 shares. 3 In about 1996 the shareholdings were re-arranged such that each of the founders held 1,000 shares and the family company of each held 4,000. 4 By resolutions of 20 August, 1998 the employment of Mr Skinner was terminated and he was removed from his position as director of HAL, he remains a shareholder. 5 Mr Skinner, and his family company, Aidan Family Investments Pty Ltd ("Aidan"), have brought proceedings against HAL, the other three founders of it and their respective family companies under s.106 of the Industrial Relations Act 1996. The monetary relief which is sought by Mr Skinner essentially goes to payment in lieu of notice in respect of his contract of employment and, in addition the value of his 1,000 shares in HAL to be paid in return for the transfer of his shares to the respondents. 6 The monetary relief sought by Aidan is essentially payment of the money equivalent of its 4,000 shares in HAL to be paid return for the transfer of those shares to the respondents. 7 Alternatively the applicants seek an order which would have the effect of causing HAL to be wound up and its assets distributed equally amongst the shareholders. THE HEARING 8 Mr G Hatcher of counsel represented the applicants, Mr P Kite SC, and with him Messrs J Murphy and D Hammerschlag of counsel appeared for the respondents. 9 Evidence was given in the applicants' case by: Mr Skinner; Todd Vincent Rimmer, ex employee of HAL; Wayne Geoffrey Kline; Graeme John Dean; John Alan Vardill; Craig John Baldock, ex employee of TLP; Anthony Zaknic; Matthew Byrne; Edward McDonald Psaltis, Partner in the firm BDO Nelson Parkhill, Chartered Accountants & Consultants. 10 In the respondents' case evidence was given by: Messrs Grant, Dawson & Matis; Brian James, director of Pannell Kerr Forster Corporate Advisers Pty Limited; Malcolm Elliott; Melissa Amelia Vardanega, a HAL employee, Stephen Jones, HAL finance manager, Cameron Scott McCullagh; Anthony David Fleetwood, TLP financial controller. 11 Further affidavits were tendered in the respondents' case without the deponents being required for cross-examination. 12 Although there are few contested matters of fact which I consider it necessary to decide I should record that I found both Mr Skinner and Mr Grant to be evasive, unhelpful and unreliable witnesses. SHAREHOLDERS AGREEMENT 13 In 1993 the joint venturers executed a three page Shareholders Agreement which had a two year term expiring in January 1995 and a provision that, six months prior to the end of that term, a new agreement would be negotiated. No new agreement has been reached. 14 On a periodic basis from about 1996 both Mr Grant and Mr Matis, at board meetings, had raised the desirability of a new agreement. In about August 1997, at a meeting of the directors, Mr Matis again raised the desirability and Mr Grant agreed to contact HAL's solicitor, Mr Lewis, about developing a new agreement. There was no demur from that proposition. 15 In late 1997 or January 1998 Mr Grant tabled a draft new agreement and, on 9 February it was agreed that a meeting with Mr Lewis be arranged to discuss the proposed agreement. 16 At a board meeting on 19 March 1998 Mr Skinner expressed reservations he had with the draft. Between 19 March and 1 April the directors and Mr Lewis met to discuss the proposal, however it became apparent to Mr Skinner that Mr Lewis was referring to a different draft to that which he had. It appears that some alterations to the earlier draft had been made by Mr Grant without Mr Skinner having been informed. On 1 April Mr Lewis forwarded a copy of the revised draft to Mr Skinner who, having taken advice, reached the view that the proposal was deficient in several respects. 17 At a board meeting on 28 April 1998 Mr Skinner informed the directors that he had concerns as to the proposal. Mr Grant suggested that Mr Skinner's solicitor, Mr Terret, contact Mr Lewis as to them. The board again met on 8 & 25 May, 9 & 23 June. At the 8 May meeting Mr Skinner was asked to have Mr Terret write to Mr Lewis as to his concerns with the draft. Correspondence flowed between Mr Terret and Mr Lewis on 11 & 25 May and 19 June. 18 Mr Terret sought basic information from Mr Lewis which he apparently considered necessary to take into account in advising Mr Skinner. Mr Grant, however, failed to either give the necessary instructions to Mr Lewis or provide the information himself, his explanations in the witness box as to this failure were lame and unacceptable. In my view he deliberately chose not to make the information available in order to make matters difficult for Mr Skinner. 19 The draft, which contained 32 pages of provisions, provided a mechanism for the termination of the employment of any of the directors and the consequential optional acquisition of his shares by the other shareholders on a minority interest valuation basis. 20 The other directors were content to accept the proposal tabled by Mr Grant. Mr Skinner asserts that discussions between himself and the other directors concerning the proposed replacement agreement were heated and acrimonious. 21 Mr Skinner expresses the view that his refusal to agree to the 1998 draft agreement resulted in his dismissal. The evidence suggests to me that the events concerning a replacement agreement were but symptoms of the underlying problem of a strained relationship between him and his fellow directors which Mr Grant chose to exploit. I also have little doubt that, had the proposed agreement been accepted, the dismissal and consequential share acquisition provisions would have been used to Mr Skinner's disadvantage. THE DISMISSAL 22 The events immediately leading up to the dismissal of Mr Skinner are as follows. 23 By a six page letter dated 21 July 1998 Messrs Grant, Dawson and Matis, on HAL letterhead, specified a variety of matters which were said to be causing concern to the Board, Mr Skinner was required to respond to the matters and to address future avoidance of the asserted problems. The letter commenced: Since the Board meeting on 9 June 1998, it has become apparent that a number of issues relating to your performance over the last 18 months require urgent attention. The Board is further concerned with your presentation of your account summary (which was particularly pessimistic and not in the least objective about the future) and your view that you were unlikely to fulfil your monthly sales budget/quota in the future (and therefore make a proper contribution to the Company). In light of this and the Board's low level of confidence in your past and current performance and lack of contribution to the management of the Company, it is incumbent upon us (for the long term future of both the Company and its shareholders) to address these issues with you in an open and constructive manner. This is done in the hope that you will appreciate the Board's position and put in place appropriate remedial steps for the benefit of the Company and all concerned. To this end, we set out the historic events which give cause for concern, indicating various (and sometimes recurring) problems over the last 4 years: … 24 A series of complaints was then set out; the letter concluded as follows: PROPOSAL AND RESPONSE It is quite clear that numerous attempts have been made in the past to give you management responsibilities, all or most of which have proved unsuccessful. Your proven mismanagement in the past has unfortunately placed the future of the Company at serious risk. As a result, Messrs Grant, Matis and Dawson have for the past 18 months been forced to increasingly assume all responsibility for the day to day management and issues relating to the Company and its employees. Messrs Grant, Matis and Dawson have also assumed responsibilities and involvement for the long-term strategic planning for the company's marketing and financial goals, whilst you now have no responsibilities whatsoever for these matters. At the same time your performance as a salesman has been seriously below the required standard. This situation is clearly untenable. We therefore require: (a) your response to each of the above issues; (b) your suggested remedy to avoid similar problems in the future and ensure their non-recurrence; (c ) your considered and serious plan of action for the future, indicating how you intend to become a contributing member of the Company, with equal responsibility for management, staff and other matters; (d) your undertaking to a full time and undivided commitment to the Company. We suggest you reply within the next 21 days, but are quite prepared to consider such other reasonable period as may be necessary. Failing an appropriate response however, the Company will have no option but to consider the termination of your employment and directorship with the Company. 25 By letter dated 10 August Mr Skinner replied as follows: This letter responds to your 21 July 1998 letter. The greater part of your letter comprises a list of bare assertions (numbered 1 to 18). Without doubt, your comments are skewed in a particular fashion to suit your personal agendas. Many, if not all, comments are inaccurate and/or misleading and/or have been taken well out of context. Taken as a whole, your comments are incorrect and provide no reasonable basis for the action which you have threatened. The central thrust of your letter, set out on page 6, is that you are threatening to terminate my employment and directorship because of alleged "mismanagement in the past" and "performance as a salesman [which] has been seriously below the required standard". I reject both of those allegations as completely false and unfounded. We have just been though a period of several months which have been marked by acrimonious and confrontational Board Meetings. In such Board Meetings you have repeatedly demanded that I should sign a shareholder legal document in a form which has been prepared by Morgan Lewis Alter, solicitors, under instructions form Andrew Grant. Your recent Boardroom comments have also shown a pre-occupation with the value of our shareholdings and with the suggestion from Andrew Grant that dissatisfied shareholders might wish to "surrender" their shares "to the other shareholders". You have improperly and unfairly criticised me on a repeated basis because of my unwillingness to sign the document which you have presented. You have told me that I have "ruined it for all of us" by failing to sign the Morgan Lewis Alter shareholder document. Given the recent history of Board Meetings, it is clear that the underlying reason which has prompted your 21 July 1998 letter is the fact that I have declined to sign the shareholder document which you have presented to me. That being the case, it is clear that, whatever else might be said about them, the list of complaints set out in your 21 July letter has simply been fabricated to put pressure on me to sign the shareholder documents or to "surrender" my shares. As such, your approach is not only improper, it is likely to be unlawful. You will recall that I have declined to sign your shareholder document on the basis of legal advice. My solicitors have advised me that I am under no legal obligation to sign the document and that my existing legal interests would be significantly compromised if I agree to sign it. In summary, you have fabricated a range of false and/or misleading allegations against my performance as a director and employee in order to put pressure on me to sign a shareholder document which I am under no legal obligation to sign. That conduct is shameful. You have indicated your proposal to terminate my employment and directorship with the company. If my fellow directors, by majority vote at a properly constituted Board Meeting, resolve to terminate my employment then it would seem that you may have legal power to do so. However, your power to terminate my directorship is subject to considerable legal doubt. Should you seriously wish to terminate my position a an employee then please advise me of your position in that regard as soon as possible. In that event you will need to adequately compensate me for my loss of employment. I have been advised that I will be entitled to receive a minimum termination payment equivalent to at least 12 months' pay. Should you wish to terminate my employment on the basis of the unfounded allegations set out in your 21 July 1998 letter then it is clear that your actions would constitute unfair dismissal of my services and would be actionable accordingly. A dismissal may also trigger the immediate lapsing of the security which I have provided for the Company's trade finance. If the motivation behind your 21 July letter is to put pressure on me to "surrender" my shares to you then be assured that I do not propose to do so. I am entitled to receive full value for my shares. Irrespective of my positions as employee and director, I shall remain as a shareholder and shall be entitled to receive the full benefits, on an equal and fair footing, that all shareholders are entitled to legitimately expect. The Corporations Law, at section 260 and elsewhere, contains numerous provisions which protect my position as a minority shareholder against oppressive or unfair treatment. Andrew Grant has, on a number of occasions, said that the Company is worth $6-7 million. I have been advised that, given the value of recent leasing transactions, the Company is likely to be worth more like $8 million. If you or anyone else want to buy my interest in the HAL group business then you should be prepared to pay a proper value for it. I look forward to receiving your early comments in relation to the above matters. 26 The other directors responded on 12 August by way of refuting Mr Skinner's accusations and offering him until noon on 14 August to respond to the detail of the 21 July letter. 27 Meanwhile Mr Skinner had removed his personal effects from his office. 28 By letter dated 13 August Mr Skinner responded to that of 12 August as follows: I refer to your 12 August letter which you presented to me this morning. In my 10 August 1998 letters I have rejected the allegations made against me in your 21 July 1998 letter and stated that many, if not all, of the numbered comments in your letter were inaccurate and/or misleading and/or have been taken well out of context. As a result, taken as a whole, your allegations against me are incorrect and provided no reasonable basis for the action which you threatened. I stand by those comments and am confident that any fair and independent assessment would support my position. In any event, one must question what relevance matters allegedly arising "over the last 4 years" could possibly bear to the actions which you are now apparently contemplating (even if such allegations were admitted, which they clearly are not). Your letter of this morning professes an attempt on you part "to be as fair as possible". Over the course of the last few months and particularly since I received your 21 July 1998 letter, you have taken a whole range of actions which indicate that you have already put in place steps to implement the actions threatened in that letter. Your actions in that regard include, but are clearly not limited to, the following: You have systematically attempted to remove my normal duties as director and employee. You have systematically excluded me from significant business meetings in which I ought to have been included. Despite the fact that, at least as a formality, I still hold the position as Director of the company, you have interviewed and appointed a number of employees this week without my involvement and without even giving me the courtesy of introducing me to the new employees. I have had to introduce myself to the new employees. You have, in breach of the company's Articles of Association and the Corporations Law, purported to have numerous Directors Meetings without me and without notifying me of the calling of the meetings. You have clearly informed employees of the company, even very junior employees, of the actions which you propose to take against me. Gentlemen, let's be realistic. Your actions clearly disclose that you have long since embarked upon a course of action in relation to my position with the company without reference to any response which I might make to the unfounded allegations set out in your 21 July 1998 letter. What you are now doing amounts to nothing more than a witch hunt in an attempt to justify actions which you have already taken in breach of any notions of fairness or due procedure. Any fair and independent assessment would support that conclusion. In the final paragraph of your 12 August 1998 letter you have stated that if I do not respond in the manner which you require then your will assume that I am unable to answer your allegations or explain my conduct. That assumption, if made, would be unfounded. For the reasons set out above, I do not propose to further respond to your clearly unfounded allegations. 29 By letter dated 14 August the other directors informed Mr Skinner that the Board had resolved to terminate his employment and directorship with immediate effect. Payment in lieu of notice of six weeks was made. ALLEGED UNFAIRNESS 30 No dividends have been declared by HAL since at least 1996, however shareholders' loans had been advanced equally to the joint venturers via their family companies. Since the dismissal of Mr Skinner HAL has called in the second applicant's loans whereas it has extended further loans to the benefit of the individual respondents. 31 Mr Skinner's case is that unfairness arises as the arrangements have denied any value to the applicants for their shareholdings in HAL, permitted termination of his employment without adequate notice or payment in lieu and did not entitle him to Annual Holidays Act 1944 entitlements. Additionally it is complained that the removal of Mr Skinner as a director manifests unfairness in the arrangements as does the expenditure of HAL funds on legal costs to the benefit of the respondents. 32 The respondents contend that Mr Skinner had desired the termination of his relationship with HAL as he had expected substantial compensation for both his loss of employment and his 25% equity in HAL. It is submitted that Mr Skinner repudiated his contract of employment by refusing to meet his obligation to properly respond to the letter of 21 July. THE COMPLAINTS 33 The complaints made as to Mr Skinner go both to work performance and as to behaviour associated with his work. I do not propose dealing with them in great detail as I consider that unnecessary. If one was to accept that the complaints were made out it is not my view that they were of such gravity as to deprive him of the financial benefits he had earned as a member of the HAL team. I accept that it was appropriate that the relationship be severed in mid 1998 on account of incompatibility. I do not accept that the allegations against him, if proven, should have diminished his entitlement to a fair share of the assets of HAL to which he had contributed. 34 The allegations said by the respondents to have been relied upon for the dismissal fall into two categories, firstly management issues and secondly financial performance issues. Additionally, and perhaps the paramount fact they rely upon, was his refusal to address those issues when invited to do by the letters of 21 July and 12 August. MANAGEMENT ISSUES 35 These issues are said to manifest a want of ability and/or commitment to the well being HAL. 36 Mr Dawson alleged that, in late 1994, Mr Skinner had forcefully removed Hitachi owned product manuals from Sydney University and had passed them on to FBA thus allowing FBA to research Hitachi products whilst in competition with it. Hitachi threatened court action. Mr Skinner denies the allegation, he says that FBA removed the manuals. In cross examination it became apparent that Mr Dawson had no concrete knowledge of what, if anything, Mr Skinner had to do with the episode. 37 A board resolution of 12 October 1994 was to the effect that Mr Skinner should attend the office at 9.00am on working days and become more involved in the other corporate and business activities of HAL. It is said that Mr Skinner did not comply with this resolution. Not only is this the only minuted complaint of this nature, but the evidence discloses that the contribution of Mr Skinner during 1994/95 was substantial, he contributed 39% of HAL's gross margin during that period. His work practices may have been different but they appear to have been effective. It seems to me that the inference to be drawn is that he did not fit in well with his fellow joint venturers. 38 It is alleged that, in 1995, Mr Skinner failed to keep information received from Interactive Maintenance, one of its customers, confidential. Mr Skinner maintains that he did not knowingly do so. Whatever the facts the matter is dated. 39 Various matters as to difficulties between Mr Skinner and HAL employees have been raised, the allegations are nebulous, the matters are not proved and in any event to the extent that there were difficulties they may not have been Mr Skinner's fault. 40 Evidence of unwelcome behaviour towards female employees was adduced which I accept as being of concern in that he, on occasions, had caused female employees to feel uncomfortable. Complaints as to an inability to manage his relationships with HAL employees were also raised. 41 Mr Skinner has also been accused of incurring excessive expenses whilst travelling and in his mobile phone use. The evidence does not suggest to me that Mr Skinner was relatively extravagant with HAL's expense account, especially bearing in mind the fact that much of the time he was representing HAL interstate as a director. It also appears that the other directors were not miserly in their expense account use. Mr Skinner was expected to travel interstate but is criticised for having done so in a market which was not producing results, however he had made known his concern that he was operating in a contracting market. 42 It does seem to me that the issues contained in the letter of 21 July comprise a manifesto of all of the criticisms of Mr Skinner that the directors could think of. FINANCIAL PERFORMANCE ISSUES 43 During the 1997/98 financial year Mr Skinner's return to HAL was some $204K below his budget of $480K whilst Mr Dawson, operating it is said in the same market and with the same budget, exceeded his budget by about $352K. This was an obvious matter of concern which however, when looked at historically, is seen in a somewhat different perspective in the sense of comparative contributions to the health of HAL. 44 Whilst the comparative performance of Mr Skinner to that of Mr Dawson began falling away during 1995/96 the evidence of Mr Grant is to the effect that, from June 1993 to June 1997, Mr Dawson had returned some $2.224M to HAL whilst Mr Skinner had returned about $2.44M. 45 The personal parties to these proceedings were joint venturers who each contributed equally in a financial sense. Each brought his own level of expertise and, as I view the evidence, it cannot be concluded that Mr Skinner achieved less overall than did the others. Mr Skinner's activities essentially related to the mainframe activities of HAL, a market which he says was declining. Mr Grant provided the following figures both as to Mr Skinner's contribution to HAL's mainframe margin and its gross margin: MAINFRAME HAL GROSS MARGIN GROSS MARGIN 30 June 1994 33% 33% 30 June 1995 44% 39% 30 June 1996 27% 18% 30 June 1997 31% 21% 30 June 1998 17% 10% 46 Whilst it is somewhat simplistic to assess those results on the basis that, as there were four joint venturers, the contribution of each to HAL's gross margins might be expected to be in the order of 25%, Mr Skinner's overall contribution was about 24%. 47 On the other hand I accept that the respondents shared considerable concern as to the lack of comparative success Mr Skinner was achieving in the market place. It is plain that his comparative performance in 1998 was unsatisfactory. Whilst, on one view of it, the letter of 10 August referred to stale matters and to issues of little moment, the concerns expressed as to Mr Skinner's deteriorating performance were real, deserved consideration and were not answered by him in any satisfactory sense. 48 That being so and the relationships having soured the only real question was the basis upon which dissolution of the arrangement should occur. THE TERMINATION 49 The applicants contend that the relationship between the parties had irretrievably broken down before 10 August 1998 on which day Mr Skinner forwarded his letter to HAL declining to answer the detail of the assertions made against him. They contend that the personal respondents had connived to dismiss Mr Skinner from employment, remove him as a director and to deprive him of his fair share of the fruits of the enterprise. 50 The respondents contend that, by failing to address their concerns, Mr Skinner had repudiated his contract of employment and had disentitled himself to benefits beyond those afforded to him. 51 I am of the view that, irrespective of the intentions of the respective parties, their behaviour and attitudes were such that, by 10 August, the employment relationship could no longer be expected to continue. The relationship had been acrimonious and confrontational for some months, Mr Skinner felt isolated and unwanted, the respondents had lost faith in his ability to satisfactorily contribute to the well being of HAL. I am of the view that, at least by March 1998, Mr Grant had become determined to be rid of Mr Skinner. It is difficult, on the evidence, to determine the intentions of the other personal defendants. 52 Even if one accepts the applicants' proposition it is difficult to accept that a situation then existed which demanded a lengthy notice of termination of the relationship. In any event by his letter of 10 August Mr Skinner ensured that the relationship was soured beyond repair. His response was considered and he had taken advice. It is my view that, unless he desired that his employment be terminated, the letter was ill advised. Whatever the intent the ultimate response was predictable. Bearing in mind the letter from HAL of 12 August again requesting that Mr Skinner provide assurances as to the future, his refusal to do so and his removal of his personal effects from his office, the outcome then became inevitable. Additionally, it does seem to me that Mr Skinner had contributed to the friction, he seems to have made little attempt to "fit in" with the others and manifests resentment of the good relationships between the personal defendants. As I see it lengthy notice of termination could not be expected in such circumstances. I do not consider the six weeks payment in lieu of notice to have been unfair in the circumstances then prevailing of Mr Skinner precipitating his own dismissal. 53 I am also of the view that Mr Skinner could not, in any realistic sense, have remained as a director of HAL, not only was there a break down of relationships but also the nature of HAL was such that unless Mr Skinner remained as a working partner in the venture there was little sense in his remaining as a director as he would have had nothing to contribute to the enterprise. COMPANY STRUCTURE 54 The applicants hold 25% of the shares in HAL, the personal respondents, with their respective companies, hold the other 75%. HAL has a 100% interest in HAL Financial Services Pty Ltd ("HFS") which in turn has a 75% interest in Technology Leasing Partnership ("TLP"), the other 25% being held by one Malcolm Elliot. 55 HAL was funded by equal contributions by the four joint venturers totaling $20K. Additionally, the directors provided broadly equivalent securities to HAL's bank in order to secure loans necessary to the venture. LACK OF DIVIDENDS 56 HAL had adopted a policy of not paying dividends. Additionally, it had called up the shareholder loans advanced to Aidan and, not only had it not called up the other shareholder loans, it had advanced further loans to the benefit of the personal respondents. That conduct was clearly discriminatory and was unfavourable to the applicants. In cross examination Mr James accepted that, in the absence of dividends, the applicants' shareholdings would be of no value. It thus seems to me that the conduct was oppressive and unfair to the applicants. 57 Mr Kite contends that, as the respondents continued to provide security to HAL's bankers and were thus supporting the business financially while the applicants no longer did so, Mr Skinner cannot successfully complain that company loans have been extended to the respondents and not to the applicants. Unfortunately for that submission I perceive no connection between the maintenance of security by shareholders and the extension to them of shareholder loans. I should add that, as I understand the evidence, loans were extended to the remaining directors in September 1998 and to their respective family companies on 24 December 1998. The evidence of Mr Skinner is that he was not released from the security he had given in favour of HAL until late December 1998. 58 As to those loans I note the following extract from the transcript of the cross examination of Mr McCullagh: Q. And there was also advice proffered at about that time that it was more sensible for HAL Data Services to be distributing benefits to the directors by way of director loans rather than by way of dividends? A. That would make sense. The company, if it paid dividends, they would be unfranked which would be very undesirable. 59 Accepting the view expressed by Mr James that, in the absence of dividends, the applicants' shareholdings would be of no value, it is plain that, in the absence of access to either dividends or shareholders loans, the applicants' shareholdings are of little value either to them or to any outside purchaser. 60 The respondents submit that as the scheme of the Corporations Law, ss.232, 239, 246AA & 247A in particular, and the common law provide for the protection of the interests of shareholders, the applicants' shares cannot be worthless. The existence of resultant remedies in circumstances of any future oppression is held up by Mr Kite as protecting the value of the applicants' shareholding in HAL and as denying any justification for interference under s.106. As I see it the fact that the applicants (or a purchaser of their shares) may be able to assert rights elsewhere does not derogate from the fact that, on the open market, their shares would have little value; it is difficult to conceive of an outside purchaser who would be prepared to buy the shares at anything like their intrinsic value in circumstances in which there is no promise of dividends, the directors have been extending loans for their own benefit and a purchaser would have little, if any, say in the future management of HAL. 61 The calling up of Aidan's loan was obviously a considered action and, at the very least, demonstrates that while the applicants remain shareholders in HAL neither they nor this Court can expect their interests to be properly catered for by the board. The fact that the value of those interests has been rendered presently negligible (save for any relief which a court may grant) coupled with little promise of future resurrection of their intrinsic value, imposes an unfairness upon the applicants which entitles them to their fair share of the value of HAL. SHARE VALUATIONS APPLICANTS' VALUATION 62 By report of 7 April 1999 Edward Psaltis valued HAL and its related companies and entities. He used future maintainable earnings ("FME") methodology to value HAL, Net Tangible Assets ("NTA") methodology to value HFS and discounted cash flows ("DCF") methodology to value TLP. The report was based upon material which was historical to 30 June 1998. 63 In the report Mr Psaltis valued HAL and its related companies and entities at being between $9.2 and $10.1M. These amounts were comprised of $3.1 to $3.6M for HAL plus $6.1 to $6.5M being the value of the HFS 75% interest in TLP. TLP had been valued at between $8.1 and $8.7M. He expressed the opinion that the Skinner shareholding should be valued at 25% of the valuation of HAL. 64 On August 12 the TLP valuation was amended by Mr Psaltis to between $7.2 and $7.7M and the value of the HAL group adjusted to between $8.5 and $9.375M. However cross examination by Mr Hammerschlag on 6 March 2000 resulted in Mr Psaltis accepting that the TLP valuation was flawed by errors which he corrected the following morning, the corrected valuation was between $5.825 and $6.14625M. This resulted in a valuation of the Skinner shareholding at between $1,376,875 and $1,536,562. 65 Mr Psaltis's valuation of TLP was based upon certain assumptions he made as to future net cash flows. Cash flows totalling $6.325M from 1999 to 2004 were estimated. Neither the accounts as at 30 June 1999 nor leasing information up dates, which were available at the time of the hearing, were taken into account by Mr Psaltis. That later information, when applied to a simulation of Mr Psaltis's analysis by Mr James, resulted in a negative cash flow total of $1.052M to 2004 being estimated. 66 Objection was taken to the introduction of the later material, however, upon the acceptance of the tender no adjournment was sought in order to further consider the applicants' valuation evidence nor was Mr Psaltis recalled to comment upon the negative estimate by Mr James. 67 The valuation by Mr Psaltis was based on a variety of assumptions including that, at the expiration of leases of equipment, TLP would be able to sell the equipment for 16.5% of its original cost. During cross examination Mr Psaltis said that the 16.5% was one of the most crucial assumptions in the DCA valuation. Later evidence suggests that the true figure is 9.07%. Mr Psaltis assumed that 80% of the leases would continue beyond the expiry date, later evidence suggests that the true figure is 29%. The reliance upon these two assumptions, which appear to have been remote from the actuality, would seem to have resulted in a grossly inflated estimate of the value of HAL. Other assumptions are similarly suspect. Many of the assumptions were based wholly or partly upon hearsay. 68 The end result is that I am unable to rely upon the valuation put forward by Mr Psaltis. RESPONDENTS' VALUATION 69 Brian James was asked to provide a fair market value of the applicants' shares in HAL, he was not asked to perform a valuation of HAL. He used the capitalisation of dividends methodology. He said: This method, in essence, reflects the fact that the Skinner Shares are a minority shareholding in HAL. As a consequence, the Skinner Shares are only entitled to dividends from HAL. Specifically, any third party purchaser of the Skinner Shares will not necessarily be entitled to be appointed as a Director of HAL, or be employed in the day-to-day operations of the Company. 70 His evidence was that, as the Skinner shareholding is a minority shareholding, its market value is considerably less than 25% of the value of HAL. 71 In May 1999 Mr James valued the applicants' shares as at 31 March 1999 at $237K. Subsequently, having received the accounts of HAL for the year ending June 1999 and a directors' report dated 11 January 2000, he revised his valuation of the shares to $164,375. QUASI PARTNERSHIP 72 Mr Hatcher submits that, in valuing the applicants' shares, HAL should be treated as though it is a partnership between the personal shareholders, he relies in this respect upon Re Wondoflex Textiles Pty Ltd [1951] VLR 458, in which Smith J, in considering a winding up petition in circumstances in which the statute authorised the remedy if it was "just and equitable" to do so, said: Secondly, there is the rule that in the case of a private company which is in substance a partnership, the Court, in exercising its jurisdiction under sec. 166 (1) ( f ), should apply the same principles as would be applied in a claim for dissolution of partnership: see In re Yenidje Tobacco Co. Ltd ., [1916] 2 Ch. 426; Loch v. Blackwood (supra) ; In re Straw Products Ltd ., [1942] V.L.R. 139, 222. This second rule can ordinarily have no application where the company's capital has been obtained by public subscription: compare In re Brunswick (Aust.) Ltd. (1931), 32 S.R. (N.S.W.) 545, at pp 552, 566: Symington v. Symington's Quaries Ltd. (1906), 8 F. (Ct. of Sess.) 121, per Lord M'Laren, at pp. 129-130. And the mere fact that the company is a proprietary company does not necessarily render the principle applicable. A proprietary company may have fifty or more members and may have little or no resemblance to a partnership: compare Tench v. Tench Bros. Ltd ., [1930] N.Z.L.R. 403, at p. 407. But the principle will, I think, ordinarily be applicable where the members of the company are a relatively small number of persons who have become associated as members in pursuance of an agreement or arrangement involving the creation of a personal relationship between them, and where, in addition, there are restrictions upon the transfer of shares which, as in the case of a partnership, prevent a member from extricating his interest upon just terms without a winding up: compare Re Sydney & Whitney Pier Bus Service , [1944] 3 D.L.R. 468, at p.471. 73 Lord Wilberforce, in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 379, having said that the whole judgment of Smith J in Wondoflex is of value, reviewed authorities as to courts subjecting the exercise of legal rights of shareholders to equitable considerations of a personal nature in winding up proceedings, and said: My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words "just and equitable" and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The "just and equitable" provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding that all, or some (for there may be "sleeping" members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere. 74 Mr Hatcher also relied upon the decision of Wheeler J of the Supreme Court of Western Australia in Roberts v Walter Developments Pty Ltd (1997) 15 ACLC 882 at 888, who, having cited the above two cases, said: Generally, it appears that where a court orders the purchase of a share by way of relief against oppression, it is considered to be inappropriate to apply any discount to a minority share which might be applied if one were seeking a "market value" of the share. The reason, is that the transaction is not a market one but is a judicial remedy. It further appears to be generally considered that it is unfair to apply a discount to a sale which takes place only because of oppressive conduct on the part of others. 75 Wheeler J did not apply that approach in Roberts as the plaintiff therein had initially sought to sell his shares upon a fair market value basis which would have attracted a minority shareholding discount. 76 The respondents urge that, as the valuation by Mr Psaltis is totally unreliable, that of Mr James, who gave evidence that a minority shareholding basis is appropriate, should be accepted. They contend that as the Skinner shareholding is a minority shareholding, its value is that assessed by Mr James and it would be erroneous to value the shares on anything other than a minority shareholding basis. 77 I accept that, on the open market, the shares would attract the considerations appropriate to a minority shareholding, however, that is not the end of the matter. 78 It seems to me that the circumstances of the present case attract the approach espoused in the decisions cited above. It is clear that the venture created a personal relationship between the joint venturers, they having formerly worked for the same employer and decided to band together in order to form a company to compete against that employer. They depended upon their personal business relationships which required mutual confidence. The four directors had received equal remuneration and shared equally in the benefits of the company. A restriction is placed upon the transfer of the shares by clause 5 of the Shareholders Agreement which provides: (5) OWNERSHIP AND TRANSFER OF SHARES. During the term of this agreement, the original principals will not unless agreed unanimously be permitted to transfer or sell any or all of their shareholding to any other; individual, body, company, trust or any other entity. After this period, any principal wishing to sell or transfer all or part of their shareholding must first offer them up to the remaining principals at their paid value to be divided equally amongst them. However, this in no way confers any obligation upon the remaining principals to take up the offer. In the event that they are not taken up, the remaining principals may by unanimous decision take one of the following courses of action; (a) elect for the company to buy back the shares (b) Approve ownership by another person or entity. 79 Whilst accepting that my evaluation of the evidence as to comparative performance is simplistic it nonetheless fortifies my view that this is not a case in which a minority shareholding valuation should be applied. Mr Skinner had contributed a fair share to the wealth of HAL, I fail to comprehend why at the parting of ways he ought not, as a matter of fairness, have been entitled to an equal share of its assets. 80 Theoretically his 25% shareholding might have been expected to ensure that he would enjoy 25% of the fruits of the success of HAL to which he had contributed, however, the behaviour of the personal defendants has de facto reduced his shareholding to a valueless asset. 81 While HAL had not paid dividends since at least 1996, it had, however, issued shareholder loans to the directors' private companies, ie., the second applicant and the fifth, sixth and seventh respondents. Subsequent to the dismissal of Mr Skinner further shareholder loans were granted to each shareholder other than the applicants, whereas the second applicant's loans have been called in and winding up proceedings instituted against it by HAL on the basis of the outstanding loan and interest. Thus the applicants' shares provide them with no tangible benefits. These factors combine to effectively prevent the sale of the applicants' shares at anything like their intrinsic value however measured. 82 True it is that interest runs upon the shareholder loans and they are repayable, the reality is that such loans provide to the beneficiaries access to the assets of HAL and the actions of the remaining directors have not only deprived Mr Skinner of such access but have taken away from him the benefit of the loan to Aidan which he had enjoyed whilst he was a director of HAL. 83 I therefor reach the view that, bearing in mind the unfair conduct of the respondents and the contribution of Mr Skinner to HAL, the approach articulated by Wheeler J in Roberts of not adopting a minority shareholding valuation, would seem appropriate. An order having the effect of causing a winding up and distribution of the assets of HAL may be an appropriate remedy in respect of the unfairness which has been demonstrated; an order which results in the acquisition of the applicants' shares by some or all of the respondents may be more suitable as I would consider a forced winding up of HAL to be a remedy of last resort. ANNUAL HOLIDAYS ACT 84 The evidence does not support the claim under this heading. It is dismissed. STATUTORY ALTERNATIVE 85 The fact that the Corporations Law contains provisions intended to protect the interests of shareholders, eg. ss.232, 239, 246AA and 247A, does not derogate from the duty of this Court, in appropriate circumstances, to grant relief. The fact of such provisions may in some cases support the view that this Court ought not interfere in given circumstances, however, as I am of the view that unfairness has arisen in this case it is my view that relief should follow. It would not be appropriate to leave the applicants in a position in which issues ventilated in these proceedings would need to be re-agitated pursuant to the provisions of the Corporations Law. 86 I should add that Mr Kite did not submit to the contrary. SUBSEQUENT CONDUCT 87 Mr Kite submits that the conduct of Mr Skinner subsequent to his dismissal has disentitled him to any relief which he otherwise might receive in these proceedings. That conduct was reprehensible. 88 In September 1999 Mr Skinner sent anonymous e-mails to three officers of Hitachi Data Systems, one in the United States of America and two in Australia. These e-mails contained an allegation that HAL fraudulently retained an amount of $260,000 in relation to a transaction between it and Hitachi. The second and third respondents and Mr McCulloch were named in the correspondence as being involved in the scheme. 89 In October 1999 Mr Skinner sent an anonymous letter to David Roberson, Executive Vice President, Enterprise Resources and Chief Financial Officer, Hitachi Data Systems Corporation in Santa Clara, USA. It also alleged that HAL fraudulently retained an amount in excess of $260,000 which rightfully belonged to Hitachi and named the second and third respondents and Mr McCulloch as having involvement in the scheme. 90 In February 2000, when first cross examined about this matter, Mr Skinner claimed no recollection of it, however he admitted authorship of the letter when confronted with it in the witness box. He said that he sent it to clear his name, an illogical explanation as to an anonymous communication which I do not accept. 91 Under cross examination Mr Skinner demonstrated that he had no concrete basis for making the allegation. If he is to be believed his knowledge arises from overheard conversations which occurred in 1996 whilst he was a director and stood to benefit from the alleged fraud; he then, however, took no action to cause the alleged debt to be honoured. 92 On the same day in September 1999 Mr Skinner forwarded an anonymous e-mail to St George Bank, with which HAL had done significant business. Pretending to be a former employee of the bank, he made serious allegations of corrupt conduct against the third respondent and a number of bank employees. 93 When initially cross examined about this matter Mr Skinner also denied recollection of this e-mail even though it was sent only 10 minutes after the Hitachi e-mail. He only admitted being the author of it when confronted with a copy in the witness box. 94 His evidence was that he was trying to do business with St George Bank and did not want to "go in under a cloud". I do not accept this implausible explanation. 95 Mr Skinner had no hard evidence to support the allegation, but expressed the view that once he had made the allegation it was a matter for HAL to prove its innocence. 96 Apparently in or about August 1999 Mr Skinner's solicitor, Peter Terret, drafted a form letter addressed to the directors and shareholders of HAL which expressed an understanding that, on account of litigation currently on foot, a significant re-arrangement of the shareholders' interest in HAL and TLP might occur and proffered an interest in purchasing some or all of the company. 97 Letters based upon the draft were signed in August 1999, and I presume forwarded, by IT Leasing Ltd and Total RISC Technology Pty Ltd at the behest of Mr Skinner. 98 Also in August 1999 and at the behest of Mr Skinner, a letter in terms similar to the draft was sent to HAL by Matthew Byrne on the letterhead of Atlantic Computer Enterprises Pty Ltd, Anthony Zaknic, his joint managing director, was unaware of the letter. Mr Zaknic agreed that putting the word around that a company was in difficulty and that some or all of it was up for sale would have an adverse affect upon it in the marketplace. 99 John Vardill of Riverstone Computer Services Pty Ltd declined an invitation from Mr Skinner to send a similar letter. 100 As Mr Terret did not give evidence no explanation of his motive in drafting the letter was forthcoming. 101 Mr Skinner claimed an inability to recollect whether or not more e-mails were sent containing allegations against HAL, similarly he professed no recollection of how many companies he had provided with a copy of the draft letter. 102 I have no doubt that the actions of Mr Skinner were designed to harm HAL in its marketplace. 103 As much as I disapprove of this subsequent behaviour by Mr Skinner I am not of the view that the respondents can successfully rely upon it as shielding them from the natural result of the unfairness they imposed upon him. I am unaware of any authority of this Court or its predecessors which suggests that, in circumstances such as the present in which no damage has been shown to have inflicted upon the respondents, relief should be withheld on account of subsequent behaviour by an applicant such as that demonstrated in this case. CONCLUSION 104 Assuming, without deciding, that the contract of employment permitted termination of Mr Skinner's contract of employment with six weeks pay in lieu of notice I do not find the contract to have been unfair on that account. 105 In circumstances which permitted shareholder loans to be extended in favour of the respondents whilst being withdrawn to the detriment of the applicants in the context of no dividends being declared, I consider the Shareholders Agreement and the arrangements between the parties to be unfair to the extent that they permitted the dismissal of Mr Skinner as a director without his shareholding and that of Aidan being acquired, or having been offered to be acquired, by his co-venturers for the equivalent of 25% of the value of HAL. 106 I would vary the contracts and arrangements to the extent necessary to remedy that unfairness. 107 An order having the effect of causing a winding up and distribution of the assets of HAL may be an appropriate remedy in respect of the unfairness which has been demonstrated; an order which results in the acquisition of the applicants' shares by some or all of the respondents may be more suitable as I would consider a forced winding up of HAL to be a remedy of last resort. 108 The parties have expressed the view that a finding in favour of the applicants would not necessarily require, at this stage, the Court to formulate orders giving effect to such a finding. I accept the invitation to provide the parties with an opportunity to be heard as to the form of orders appropriate to this decision. In the absence of agreement I will also entertain submissions as to costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.