Reported Decision : 63 NSWLR 167 New South Wales Court of Appeal CITATION : MMAL Rentals Pty Limited (ACN 008 293 490) & Ors v Bernard John BRUNING [2004] NSWCA 451 HEARING DATE(S) : 27 & 28 September 2004 JUDGMENT DATE : 9 December 2004 JUDGMENT OF : Spigelman CJ at 1; Mason P at 226; Hodgson JA at 227 DECISION : Appeal dismissed; cross appeal allowed. CATCHWORDS : CONTRACT - Meaning of "fair market value" - Share valuation - Use that may be made of evidence of an offer in a valuation exercise - Whether special potentiality or special value to one purchaser may be taken into account - Whether minority discount should apply - Whether minority shares have a 'greenmail' value - INDUSTRIAL LAW - Unfair contract - Jurisdiction under s106 - Relationship between s106 and oppression - Remuneration of managing director linked to share agreement - Disparity between expected financial benefit and benefit actually received Trade Practices Act 1974 LEGISLATION CITED : Corporations Act 2000 Industrial Relations Act 1996 Jurisdiction of Courts (Cross Vesting) Act 1987 Blefari v The Minister (1962) 8 LGRA 1 Boland v Yates Property Corporation Pty Ltd [1999] HCA 64, (1999) 74 ALJR 209 Brett Lees Norager v Charles Norager & Son Ltd (1999) NZCA 255 Bruning v Kingmill (Australia) Pty Limited (1988) 44 NSWLR 180 Caldwell v Minister of Transportation and Communications (1982) 23 LCR 286 Capricorn Diamonds Investments Pty Ltd v Catto [2002] VSC 105, (2002) 5 VR 61 Cattanach v Water Conservation and Irrigation Commission [1963] NSWR 304 Chen v Karandonis [2002] NSWCA 412 Commonwealth v Reeve (1949) 78 CLR 410 Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2004] FCAFC 48 E S Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 Freestone v Parramatta City Council (1974) 34 LGERA 35 Gambotto v WCP Ltd [1995] HCA 12, (1995) 182 CLR 432 Geita Sebea v Territory of Papua (1941) 67 CLR 544 Goold & Rootsey v The Commonwealth (1993) 42 FCR 51 Gregory v Commissioner of Taxation (Cth) (1971) 123 CLR 547 Harris v Municipal Council of Sydney (1910) 10 SR (NSW) 860 Henderson v Armadio Pty Ltd (No 1) (1995) 62 FCR 1 Holt v Cox (1994) 15 ACSR 313 Hustlers Pty Ltd & Robert Reid Pty Ltd v Valuer General [1967] 2 NSWR 760, [1967] 4 LGRA 269 In the Marriage of Dah and J E Hull (1983) 9 FamLR 241 In the Marriage of K D and P A Reynolds (1984) 10 FamLR 388 Inland Revenue Commission v Clay [1914] 1 KB 339 Inland Revenue Commission v Clay [1914] 3 KB 466 James Patrick & Co Pty Ltd v Minister of State for the Navy (1944) Argus Law Reports 254 CASES CITED : Marcus Clark and Co Ltd v Commissioner for Railways (1949) 29 LVR 98 Marks v GIO Australia Holdings Ltd [1998] HCA 69, (1998) 196 CLR 494 McDonald v Deputy Federal Commissioner of Land Tax for New South Wales (1915) 20 CLR 231 Melcann Ltd v Super John Pty Ltd (1994) 13 ACLC 92 Michon v National Capital Commission (1974) 6 LCR 152 Minister for Public Works v Thistlethwayte [1954] AC 475 Mordecai v Mordecai (1988) 12 NSWLR 58 Nelungaloo Pty Ltd v The Commonwealth (1948) 78 CLR 495 O'Neill v Phillips [1999] 1 WLR 1092 Old UGC Inc v Industrial Relations Commission of New South Wales [2004] NSWCA 197 Pastoral Finance Association Ltd v The Minister [1914] AC 1083 Pauls Ltd v Dwyer [2002] QCA 545, (2002) 43 ACSR 413 Percival Peterborough Corporation (1921) 1 KB 414 Phillipou v Housing Commission of Victoria (1969) 18 LGRA 254 Poirier-White v Regional Municipality of Ottowa-Carleton (1979) 16 LCR 210 QSR Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 199, (2004) 208 ALR 368 Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer [1939] AC 302 Re An Arbitration Fletcher Humphreys & Co Limited v Middleton [1944] NZLR 502 Re Bird Precision Bellows Limited [1986] 1 CH 658 Re ESC Publishing Ltd [1990] BCC 335 Sapir v Sapir (No 2) (1989) 13 FamLR 362 Scottish Cooperative Wholesale Society Limited v Meyer [1959] AC 324 Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 200, (2004) 208 ALR 328 Spencer v The Commonwealth of Australia (1907) 5 CLR 418 Stockl v Rigura Pty Ltd [2004] NSWCA 73, [2004] ANZ ConvR 265 Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456, (2002) 42 ACSR 354 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910, (2003) 47 ACSR 514 Waters v Thorn (1856) 22 Beav 547 MMAL Rentals Pty Ltd (ACN 008 293 490) (First Appellant) PARTIES : Mitsubishi Motors Australia Limited (ACN 007 870 395) (Second Appellant) Thrifty (Australia) Pty Ltd (Formerly Kingmill (Australia) Pty Ltd (ACN 003 966 649)) t/as Thrifty Car Rental (Third Appellant) Bernard John Bruning (Respondent) FILE NUMBER(S) : CA 40271/2004 Mr RJ Whitington QC / Mr A G Grant (Appellants) COUNSEL : Mr G Lindsay SC / Mr S Phillips (Respondent) SOLICITORS : Thomas Playford Lawyers (Appellants) Horton Rhodes Solicitors (Respondent) LOWER COURT Supreme Court JURISDICTION : LOWER COURT SC 3142/98; 4049/98 FILE NUMBER(S) : LOWER COURT Young CJ in Eq JUDICIAL OFFICER : - 69 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40271 of 2004 SPIGELMAN CJ MASON P HODGSON JA Thursday 9 December 2004 MMAL RENTALS PTY LIMITED (ACN 008 293 490) & Ors v Bernard John BRUNING FACTS The Appellant, a car manufacturer, decided to acquire a car rental business. The Respondent became managing director of the business and acquired an 18.75 per cent interest, with the Appellant holding the balance of 81.25 per cent, in a holding company, which held 80 per cent of the shares in the company conducting the business. Pursuant to a contract, the Appellant held an option to acquire the Respondent's shares, upon termination of the management agreement, for a "fair market value". The Appellant exercised its option to purchase the Respondent's shares. A dispute arose as to the value of the minority shareholding. The Appellant claimed that the "fair market value" of the shares was $58,911. The Respondent claimed that the "fair market value" of the shares was about $6 million. Both parties disputed the trial judge's valuation of the shares at $675,000 plus interest. The Respondent also asserted that the contract was unfair within the meaning of s106 of the Industrial Relations Act 1996 and sought relief under that section, or alternatively, by way of an oppression suit under the Corporations Act 2001 (Cth), in each case seeking that the Court determine a fair value of the shares. HELD (per Spigelman CJ, Mason P and Hodgson JA agreeing) A The trial judge's valuation of the shares was correct. [124], [226], [227] 1. The phrase "fair market value" requires an objective valuation test not a test of what is fair and equitable between the parties. [59], [60], [226], [227] Scottish Co-operative Wholesale Society Limited v Meyer [1959] AC 324; Re Bird Precision Bellows Limited [1986] 1 Ch 658; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60; United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910, (2003) 47 ACSR 514 at [36]; Re An Arbitration Fletcher Humphreys & Co Limited v Middleton [1944] NZLR 502; Holt v Cox (1994) 15 ACSR 313; E S Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 referred to. Spencer v Commonwealth (1907) 5 CLR 418 applied. 2. The "realistic basis" is not an alternative form of valuation methodology and the trial judge did not employ it as such. [64], [65], [68], [226], [227] In the Marriage of K D and P A Reynolds (1984) 10 FamLR 388; In the Marriage of Dah and J E Hull (1983) 9 FamLR 241; Sapir v Sapir (No 2) (1989) 13 FamLR 362 considered. 3. The trial judge was entitled to take into account the value of good will of the business on a hypothetical liquidation, notwithstanding the fact that on an actual liquidation the rights in the 'Thrifty' name would be surrendered. [67], [69] 4. The trial judge was entitled to take into account the "special potentiality" to Mitsubishi of acquiring 100 per cent of Rentals. In a majority controlled business that requires mutual trust and co-operation, the majority shareholder has an interest in ensuring that the minority shareholding is not acquired by someone who has no relationship with the majority holder and a valuation of the minority shareholding may take into account that the majority holder will be prepared to pay more for the minority than another person. [71], [72], [73], [75], [78], [226], [227] A minority discount is not appropriate in such circumstances. [106]–[107], [226], [227] Spencer v Commonwealth (1907) 5 CLR 418; Inland Revenue Commission v Clay [1914] 1 KB 339; Inland Revenue Commission v Clay [1914] 3 KB 466; Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer [1939] AC 302; Geita Sebea v Territory of Papua (1941) 67 CLR 544 applied. Mordecai v Mordecai (1988) 12 NSWLR 58; Melcann Ltd v Super John Pty Ltd (1994) 13 ACLC 92; Pauls Ltd v Dwyer (2002) 43 ACSR 413 considered. 5. The trial judge was entitled to take into account Mitsubishi's offer as evidence of value. Where a valuation involves the special potentiality of particular property for a specific purchaser, an offer by that purchaser to purchase that property is admissible. [84]–[100], [226], [227] McDonald v Deputy Federal Commission of Land Tax for New South Wales (1915) 20 CLR 231; James Patrick & Co Pty Ltd v Minister of State for the Navy (1944) ALR 254; Gregory v Commissioner of Taxation (Cth) (1971) 123 CLR 547; Nelungaloo Pty Ltd v The Commonwealth (1948) 78 CLR 495 distinguished. Goold & Rootsey v The Commonwealth (1993) 42 FCR 51; Henderson v Armadio Pty Ltd (No 1) (1995) 62 FCR 1; Stockl v Rigura Pty Ltd [2004] NSWCA 73 ; Inland Revenue Commission v Clay [1914] 1 KB 339; Inland Revenue Commission v Clay [1914] 3 KB 466; Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer [1939] AC 302; Chen v Karandonis [2002] NSWCA 412 applied. 6. The trial judge was correct to reject expert valuation evidence based on unsubstantiated assumptions and inappropriate industry comparisons. [110]–[114], [226], [227]. B It was not unfair that the Respondent did not earn a profit bonus under the contract or that the respondent was forced to comply with a restraint of trade provision. [167], [176] – [177], [185], [190], [192], [226], [227] C The was no evidence to establish that Mitsubishi diverted profits to itself or that Kingmill should have made profits by way of profit on resale of vehicles or by way of concessional leasing rates. However, the share allotment agreement became an unfair contract within the meaning of s106(2) of the Industrial Relations Act because of the disparity between the significant commercial advantages received by Mitsubishi and the minimal financial benefit received by Mr Bruning, in circumstances where original projections anticipated profit to both parties. [207], [226], [227] D In order to be fair, the Share Allotment agreement should be varied to allow the shares to be valued according to their "fair value" instead of their "fair market value". 207], [226], [227] E A "fair value" required recognition of the value of the business, not merely an interest rate type rate of return on investment. ORDERS 1. Set aside orders 1 and 2 made on 3 March 2004 2. Clause 11.2.3 of the Agreement for the Allotment of Shares dated 30 October 1990 by amended by substituting "fair value" for "fair market value" wherever appearing. 3. Subject to order 3 made on 31 March 2004, and noting that the period of 28 days therein referred to commences on the date of these orders the Second Defendant pay the Plaintiff the sum of $2,000,000 within 28 days of the date of these orders. 4. Amend order 4 made on 31 March 2004 by inserting "$2,000,000" in place of "$1,059,75" and noting that the reference to "order 2" is a reference to order 3 hereof. 5. The Appellants/Cross-Respondents pay 90 percent of the Respondent/Cross-Appellant's costs of the appeal and cross appeal. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40271 of 2004 SPIGELMAN CJ MASON P HODGSON JA Thursday 9 December 2004 MMAL RENTALS PTY LIMITED (ACN 008 293 490) & Ors v Bernard John BRUNING Judgment 1 SPIGELMAN CJ: Between 1990 and 1997 Bernard John Bruning acted as a managing director of a company conducting a car rental business under the trade name Thrifty Car Rentals ("Thrifty"). The operating company of the business was Kingmill (Australia) Pty Limited ("Kingmill"). The shares in Kingmill were owned as to 20 percent by Thrifty Inc of the USA ("Thrifty US") which had rights to the name "Thrifty" with respect to a car rental business. The remaining 80 percent was owned by MMAL Rentals Pty Limited ("Rentals"), the shareholding of which was held by Mr Bruning as to 18.75 percent and, as to the balance of 81.25 percent, by Mitsubishi Motors Australia Limited ("Mitsubishi"). 2 Mitsubishi is one of the major car manufacturers in Australia. In 1990 Kingmill acquired the pre-existing rental car business which operated under the Thrifty name in Australia ("Old Thrifty") which Mr Bruning had part owned and managed until 1984, when he sold it. By reason of his experience in the rental car business, Mitsubishi wished to obtain his services as manager director of the business of Thrifty. Mr Bruning sought equity participation in the venture. He acquired his shareholding in Rentals for an investment of $354,656.25 of his own funds. 3 The commercial motivation for Mitsubishi to participate in the rental car business is of significance for the valuation issues that arise in the present case. Achieving sales volumes was then of considerable importance to each Australian car manufacturer under the then Government Car Plan. The two major rental car companies, Hertz and Avis, were dominated in their fleets by GMH and Ford, Mitsubishi's major competitors. Shortly before the relevant agreements were entered into another rental car company, Budget, had gone into liquidation and Old Thrifty was close to liquidation. Mitsubishi could be left with no outlet in a significant market for sale of cars. The importance to Mitsubishi of the volume of sales available from involvement in a car rental company was emphasised in its internal documentation. Such volume was only available from a rental company with rights to operate at airports. Furthermore, a major car rental company with such rights provides exposure to potential purchasers of a kind which is not otherwise available to a car manufacturer. 4 The terms of the arrangement upon which this business venture was to be conducted were set out in four written contracts, all of which bear the date 3 October 1990, as follows: (i) A Share Allotment Agreement in relation to shares in Rentals between Mitsubishi and Mr Bruning (ii) A Management Agreement between Kingmill and Mr Bruning (iii) A Shareholders Agreement between Rentals, Kingmill and Thrifty US (iv) A License Agreement in relation to the name "Thrifty" between Thrifty US and Kingmill. 5 The agreements operated for five years and in March 1995 were extended for a further two years until 3 October 1997. Mr Bruning continued to act as managing director until July 1997 when the Management Agreement was terminated by Kingmill. 6 The issues that arise in these proceedings primarily concern the Share Allotment Agreement and the Management Agreement. 7 Mr Bruning brought two sets of proceedings. The first was instituted in the Federal Court of Australia and, relevantly, sought relief under the Trade Practices Act 1974, with respect to conduct that was alleged to be false and misleading, and also relief under what is now s233 of the Corporations Act 2000, in the form of an oppression suit. Mr Bruning also instituted proceedings in the Industrial Relations Commission of New South Wales under s106 of the Industrial Relations Act 1996 seeking relief, relevantly, directed to the price at which his shares in Rentals were to be acquired by Mitsubishi under the Share Allotment Agreement and also as to his entitlements to certain bonuses under the Management Agreement and the consequences for him of the enforcement of a covenant in restraint of trade, also under the Management Agreement. 8 By means of a cross claim, Mitsubishi asserted that it had validly exercised an option to purchase Mr Bruning's shares in Rentals, pursuant to the Share Allotment Agreement. 9 By reason of the overlap between the two proceedings, the proceedings in the Industrial Relations Commission were transferred to this court pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1987. (See Bruning v Kingmill (Australia) Pty Limited (1998) 44 NSWLR 180.) The Federal Court proceedings were transferred by order of that Court on 30 June 1998. 10 Both of the proceedings were heard by Young CJ in Eq. His Honour granted Mr Bruning a measure of relief pursuant to s106 of the Industrial Relations Act and also with respect to the computation of the purchase price upon exercise of the option by Mitsubishi under the Share Allotment Agreement. Significant parts of the relief sought by Mr Bruning were rejected. 11 His Honour, exercising the s106 power, varied the provision for exercise of the option to purchase Mr Bruning's shares by inserting a clause providing for a minimum price. However, in the event, this clause had no operative effect, other than in the alternative, because his Honour proceeded to calculate the fair market value and ordered the Appellants to pay the amount so computed. This amount was equivalent to that which resulted under the contract as ordered to be amended under s106, namely $1,059,750 (including interest to 31 March 2004). 12 The Court has before it an appeal by Mitsubishi, Rentals and Kingmill and also a cross appeal by Mr Bruning. 13 The appropriate starting point is Mitsubishi's case that it had validly exercised its option to purchase Mr Bruning's shares and the determination of the price that it is obliged to pay pursuant to the contractual option. Until that is determined it is not possible to say whether the contract was, or became unfair, within s106. The Acquisition of Mr Bruning's Shares 14 Mitsubishi exercised its option to acquire the 18.75 percent held by Mr Bruning in Rentals upon the termination of the Management Agreement between Kingmill and Mr Bruning. In the Share Allotment Agreement the "Sale Shares" are identified as the shares in Rentals owned by Mr Bruning. The relevant clause is 11.2 which provides: "11.2 If for any reason the Management Agreement is terminated or terminates by effluxion of time Mitsubishi shall have an option to purchase the Sale Shares upon the following terms and conditions: 11.2.1 the option shall be exercised with respect to all (and not part) of the Sale Shares; 11.2.2 the option shall be exercised by notice in writing by Mitsubishi to Bruning; 11.2.3 The purchase price of the Sales Shares shall be the fair market value thereof as agreed between Bruning and Mitsubishi. In default of Agreement the fair market value shall be agreed between the Auditor for the time being of the Company and a chartered accountant nominated by Bruning provided that in the event that Bruning fails to nominated a chartered accountant the determination of fair market value shall be by the Auditor. If the Auditor and the chartered accountant nominated by Bruning cannot agree on the fair market value then either party may request the President for the time being of the Institute of Chartered Accountants in South Australia to appoint a chartered accountant to determine the fair market value. The costs of the Auditor shall be borne by Mitsubishi, of the chartered accountant nominated by Bruning by Bruning and of the chartered accountant nominated by the President of the Institute, by Bruning and Mitsubishi equally; 11.2.4 The purchase price for the Sale Shares shall be payable to Bruning within twenty-eight (28) days of the ascertainment of the purchase price whereupon Bruning shall deliver to Mitsubishi duly executed transfers and share certificates of all the Sale Shares. Bruning warrants that Mitsubishi will obtain title to all the Sale Shares free of Encumbrances; 11.3 In the event that the option referred to in Clause 11.2 becomes exercisable and Mitsubishi does not exercise it Bruning shall have the option to require Mitsubishi to purchase the Sale Shares upon the following conditions: 11.3.1 the option shall be exercised with respect to all (and not part) of the Sale Shares; 11.3.2 The option shall be exercised by notice in writing by Bruning to Mitsubishi; 11.3.3 Clause 11.2.3 and 11.2.4 shall apply to this option as if herein set out; 11.4 In the event that Mitsubishi wishes to transfer any shares owned by it in the capital of the Company, then on receipt by Bruning of the transfer notice in accordance with Article 51 of the Articles (such transfer notice includes details of the proposed transferee (if any) and the consideration agreed to be paid by that proposed transferee) then Bruning may by notice in writing to Mitsubishi within 14 days of receipt of the transfer notice require Mitsubishi to acquire the Sale Shares. If after receipt of that notice Mitsubishi proceeds with the transfer of its shares in the Company to a 3rd party, Mitsubishi shall purchase or procure the purchase of the Sale Shares for a consideration equal to the greater of the consideration payable to Mitsubishi by the 3rd party and the amount determined in accordance with Clause 11.2.3 payable in accordance with Cluse 11.2.4. 11.5 Bruning and Mitsubishi agree that Articles 47 and 55 inclusive of the Articles shall not apply to the Sale Shares." 15 The clauses in the Articles referred to in cl 11.5, which are said not to apply to the Sale Shares, are, however, relevant to determining the proper construction of cl 11.2.3. Those Articles contained a pre-emptive rights provision in a common form. 16 The relevant Articles provide: "51… The transfer notice shall identify the share which it is proposed to transfer and specify the sum the proposing transferor fixes as the fair value thereof and shall constitute the Company's agent for the sale of the share at the price so fixed or at the option of the Member or person willing to purchase at the fair value to be fixed by the Auditor or an Accountant in accordance with Article 53. … 53. In case any difference arrises between the proposing transferor and the person willing to purchase as the fair value of a share then the Auditor (of failing him the Accountant) of the Company of failing him a duly qualified Accountant nominated by the President at the time being of the South Australian Branch or Division of the Institute of Chartered Accountants of Australia shall on the application of either party certify in writing the sum which in his opinion is the fair value and such sum shall be deemed to be the fair value and in so certifying the Auditor or Accountant (as the case may be) shall be deemed to be acting as an expert and not as an arbitrator and accordingly the Arbitration Act shall not apply." 17 I note that these pre-emptive rights provisions in the Articles refer to "fair value", not the formulation "fair market value" found in the Share Allotment Agreement. 18 By a Notice of 2 April 1998 Mitsubishi exercised the option to purchase Mr Bruning's shares pursuant to cl 11.2. There was no agreement. The parties could not agree as to what the "fair market value of the Sales Shares" was. Mitsubishi asserted, and maintained the position in its cross claim in these proceedings, that the fair market value of the Sale Shares was minimal. The Determination of Fair Market Value by Young CJ in Eq 19 The Appellants did not seek to enforce the arbitral mechanism for determining fair market value in cl 11.2.3. Before Young CJ in Eq, and in this Court, the parties proceeded on the basis that the Court should determine that value. The relevant date for valuation was 24 April 1998, being the date on which Mitsubishi exercised the option. 20 During the course of the proceedings expert valuation evidence was given on behalf of the Mitsubishi interests by Mr Wayne Lonergan and on behalf of Mr Bruning by Mr Norman Hilton. Mr Lonergan's evidence was to the effect that the fair value of the shares was $58,911 and it was for that valuation that Mitsubishi contended in the proceedings. Mr Lonergan valued the shares in Kingmill as nil. The positive value of the shares in Rentals comprised a discounted interest in real estate which was Rentals' only other asset. 21 The degree of difficulty involved in determining the fair market value of the shares is manifest in the widely different valuations. Mr Hilton valued Mr Bruning's indirect interest in Kingmill at about $6 million. Plainly the two experts were not engaged in the same discourse. 22 The two expert valuers accepted that, in the normal case of a well established business, the most appropriate method of valuation was to capitalise future maintainable earnings. 23 Mr Lonergan said that that approach was only appropriate for a business which had been, or was likely to be profitable. That methodology would lead to a nil valuation of Kingmill. Mr Lonergan adopted a net assets based valuation methodology. 24 Mr Hilton computed earnings on the basis of what, on his approach, Kingmill's profits ought to be, in view of Mr Bruning's assertions which he accepted, that past profits had been distorted. He adopted a formula of taking Thrifty's gross revenue and applying what he described as the "average industry net return percentage" which, presumably, would remove the alleged distorting effect of Mitsubishi's exercise of control. 25 Young CJ in Eq rejected the evidence of both Mr Lonergan and Mr Hilton. His Honour proceeded to determine the fair value on the basis of the materials before him, in the manner I will hereinafter describe. 26 In view of his Honour's rejection of the expert evidence, the scope of available information for determining "fair market value" was limited. Nevertheless, his Honour proceeded upon the basis that the Court must do the best it can with the evidence before it. This Court will find itself in the same position if it decides to interfere with Mr Justice Young's determination of fair market value. 27 Young CJ in Eq rejected Mr Hilton's approach. He said: "[194] I do not consider that Mr Hilton's valuation is of assistance as it is based on unverified assumptions put to him by Mr Bruning, most of which I have determined are without foundation." 28 The "assumptions" to which his Honour was referring focused on a list of allegedly lost opportunities to improve profit, many of which were said to have been diverted from Kingmill to Mitsubishi. I will return below to his Honour's comprehensive rejection of this aspect of the Respondent's case. 29 With respect of Mr Lonergan, his Honour noted that he valued the Rental shares in Kingmill at nil. Accordingly the value of Mr Bruning's shares in Rentals was simply an adjusted value of the real estate, being the only other asset. 30 Mr Lonergan used a "net assets base valuation" methodology, to which he applied a deduction of 25 percent by reason of the fact that the holding of Mr Bruning was a minority holding. 31 His Honour said: "[199] With respect this was as useful as valuing the Sydney Harbour Bridge on the basis of its scrap metal value. The bridge may have little value to its owners as it may make little profit, but its value to the community is considerable." 32 The equivalent person to "the community" in his Honour's analogy, in the present proceedings was and is Mitsubishi. As I will outline below, I agree with his Honour's implicit approach that Mr Bruning's shares had to be valued after taking into account what Mitsubishi would be prepared to pay. 33 Young CJ in Eq rejected Mr Lonergan's approach to valuation. His Honour said, inter alia: "[201] Mr Lonergan also made the assumption that all the figures which MMAL provided to him were correct. This was a handy way of avoiding difficulties in that there was a considerable amount of material which, if accepted, might lead to the conclusion that the Company may well have made profits if the accounting had been done differently so that profits were made in the Company and not in some other part of MMAL's empire. This in turn might have led to the conclusion that net maintainable profits was the preferred method of valuation of the shares." 34 His Honour went on to note that it was inappropriate to apply a minority discount in the case of a valuation done on a net assets backing basis. His Honour said that, if there was sufficient material to show a prima facie case for a winding up then a minority holder would get his share of the assets. His Honour referred to O'Neill v Phillips [1999] 1 WLR 1092 at 1107 per Lord Hoffman. 35 Having rejected the evidence of the expert valuers, and being urged by both parties to determine what the "fair market value" was, his Honour was left with a limited range of material on which to draw. 36 In the course of his rejection of Mr Lonergan's report, his Honour had drawn attention to the fact that Mitsubishi was prepared to pay a substantial amount of money for the Old Thrifty business, which his Honour described as "virtually bankrupt with low staff morale and unhappy creditors". The amount Mitsubishi paid for that business was $2 million. 37 His Honour also referred to evidence that in 1996, when Mr Bruning was told his shares were worthless, he offered to take over the Mitsubishi shares on that basis, but the offer was not even entertained. Mitsubishi then offered Mr Bruning $535,000 for his shares. His Honour said: "[203] Whilst an unaccepted offer is usually no evidence of value, the circumstances that the only likely buyer is prepared to pay $535,000 for the shares which have little assets backing rather than lose them goes a long way to making one think that a value of $58,911 is sorely suspect." 38 His Honour identified the offer as a signpost. His Honour said: "[216] Although an unaccepted offer is no real evidence of valuation, it is significant that MMAL was prepared to make such an offer." 39 His Honour identified a number of other signposts, which he said "may help one find one's way to the true value of the shares" [211]. 40 The first matter to which his Honour referred as a signpost was a computation derived from an internal Mitsubishi document in which an estimate was made of the financial advantage that Mitsubishi had actually received over the course of the period from 1990 to 1997 from the operation of Kingmill. That computation indicated that that advantage was in the amount of $7,886,000. On the basis that Mr Bruning's diluted interest in Kingmill was 15 percent, it had been submitted to Young CJ in Eq that 15 percent of this computation was about $1.2 million. His Honour did not accept this submission, but treated the amount so calculated as a "signpost". 41 His Honour then expressed a conclusion that he was satisfied that the operations of the Thrifty Company did have a goodwill value which included the right to have a desk at the major airports and that this value was "considerable". His Honour proceeded on the assumption that Mr Lonergan had made, which in effect involved a liquidation, to say that a theoretical liquidator would auction the goodwill of the airport desk and of the Thrifty licence to use its name and other ancillary rights. 42 Although, as is usually the case in arrangements of this character, liquidation would create, in Thrifty US, an option to terminate the licence and acquire rights, such as the right to occupy the airport desk, I do not understand his Honour to be considering an actual rather than a theoretical liquidation for purposes of computation. His Honour was well aware of the effect of the Thrifty US licence agreement in this regard. A few paragraphs later in his judgment, when his Honour explained the figure that he had come to, he referred to the figure as an amount that would be paid for Mr Bruning's shares by Mitsubishi "rather than lose them or be forced to wind up Kingmill and suffer the possibility of losing the Thrifty business". His Honour assumed, reasonably, that Mitsubishi would avoid an actual winding up, but that the valuation task could assume a theoretical winding up. 43 His Honour went on to say that he had no "reliable information on which to assess the likely value of these rights". However, he rejected Mr Hilton's figure of $29 million. He noted that Mitsubishi was prepared to pay the previous liquidator about $2 million in 1990 but his Honour was not prepared to assume that the conditions were the same then as now. However, as a "signpost", his Honour noted that if the liquidator received $2,388,000, Mr Bruning's share would be $447,750 and if he got $3,388,000, then Mr Bruning's share would be $635,250. These were amounts his Honour would use ([217]) when determining the appropriate range. In the absence of any figures or relevant expert evidence, this was the range which his Honour adopted, on the basis of all the material before him, as constituting a reasonable range. 44 On the basis of these signposts his Honour concluded that a "realistic value of the shares as at 24 April" was $600,000 plus interest. (Subsequently adjusted to $675,000 plus interest.) 45 His Honour concluded: "[218] This $600,000 is the figure that an arms length MMAL would pay for Mr Bruning's shares rather than lose them or be forced to wind up Kingmill and suffer the possibility of losing the Thrifty business. … [220] I am conscious that the figure of $600,000 is rather artificial in that there is no clear set of factors which establish it. It may well be that MMAL would prefer to have the company wound up rather than pay that sum, though the Quinn 1996 offer tends in the other direction." 46 This was the manner in which his Honour determined, as best he could on the materials before the Court, what the "fair market value" of Mr Bruning's shares was for the purposes of cl 11.2.3 of the Share Allotment Agreement. The Meaning of "fair market value" 47 It is convenient at the outset to determine the proper construction of the words "fair market value". All the words in the contractual formula in cl 11.2.3 must be taken into account in its construction. The term employed is neither "fair value" nor "market value" but "fair market value". 48 Under the contract there are three situations in which the determination of a "fair market value" may arise. The first, under cl 11.2.3 is Mitsubishi's exercise of its call option after the termination of the Management Agreement. The second is Mr Bruning's exercise of his put option under cl 11.3, if Mitsubishi does not exercise its call. The third, pursuant to cl 11.4, arises if Mitsubishi wishes to transfer any shares to a third party, in which case Mr Bruning has a put option for the greater of the consideration payable by Mitsubishi to the third party or the amount determined to be "fair market value". 49 The second feature of the contractual scheme is that the Mitsubishi call option under cl 11.2, and Mr Bruning's put option under cl 11.3 or cl 11.4, relate to the whole of Mr Bruning's share holding. No provision is made for a transfer of part of Mr Bruning's holding. Mr Bruning is either a participant in the venture or he is not. Clause 11.4 envisages that Mitsubishi may sell down. Mr Bruning cannot. 50 The third feature of the scheme is that both Mitsubishi under cl 11.2 and Mr Bruning under cl 11.3 or cl 11.4, will call or put, the Sale Shares without knowing what the price will be. 51 Finally, it is pertinent to note that cl 11.4 contemplates the possibility that Mitsubishi may sell to a third party at more than "fair market value" whereupon the higher price would have to be offered to Mr Bruning. 52 There are a number of contractual, statutory and accounting standards contexts in which the administration of justice must determine the "fair value" of property. The meaning of that formulation will vary with the context. In some contexts the formulation refers to what is just or equitable in all the circumstances. In such a case the scope of the relevant considerations which may be taken into account by the requisite decision-maker, whether an arbitrator or a judge, is wide. (See, e.g. with respect to oppression suits in corporations law: Scottish Co-operative Wholesale Society Limited v Meyer [1959] AC 324 at 369; Re Bird Precision Bellows Limited [1986] 1 Ch 658 at 669; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 at 102; United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910, (2003) 47 ACSR 514 at [36]; Re An Arbitration Fletcher Humphreys & Co Limited v Middleton [1944] NZLR 502 esp at 507-508. In another statutory context see, e.g. Holt v Cox (1994) 15 ACSR 313 esp at 334 and 336-337; E S Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 esp at 539-541; cf Capricorn Diamonds Investments Pty Ltd v Catto [2002] VSC 105, (2002) 5 VR 61 pp71-77.) Where the relevant test is "fair value", a market value is often not decisive. (See, e.g. Gambotto v WCP Ltd [1995] HCA 12, (1995) 182 CLR 432 at 457-458.) 53 A number of authorities suggest a distinction between a "market value" test and a "fair value" or "fair market value" test. (See, e.g. Fletcher Humphries & Company Ltd v Middleton supra at 507; Holt v Cox supra at 334; cf Cattanach v Water Conservation and Irrigation Commission [1963] NSWR 304 at 308-309.) The overall context will be determinative. 54 In my opinion, the Respondent's contention that the wide ranging approach applicable to the determination of a "fair value" can be applied to the contractual test of "fair market value", should be rejected. 55 A test of a "market value", whether in a statutory or contractual context, usually invokes the test long established and frequently applied in Spencer v The Commonwealth of Australia (1907) 5 CLR 418 esp at 432 and 440-441 of a willing but not anxious purchaser and vendor, bargaining with each other. This approach was most recently expressed in a joint judgment of three judges of the High Court in Marks v GIO Australia Holdings Ltd [1998] HCA 69, (1998) 196 CLR 494 at 514: " … The value … is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it." 56 It is convenient to refer to the Spencer's case formulation as the exchange value test (Spencer supra at 431.5 per Griffith CJ, as did Gleeson CJ in Boland v Yates Property Corporation Pty Ltd [1999] HCA 64, (1999) 74 ALJR 209 at [79].) 57 Where the focus of the valuation process is on a "market value", even in a context, as so often occurs, where there is no or little trading history in the relevant property, the approach will usually be quite different to that which arises where a "fair value" is required to be determined. The range of relevant circumstances to be taken into account is not as wide and regard is not had to the particular history of the commercial or personal relationships between the prospective vendor and purchaser of the property to be valued. 58 Where, as here, the formulation is "fair market value", the valuation test requires a similarly limited focus on the range of circumstances relevant to a process of determining exchange value. A "fair market value" may diverge from a "market value" for numerous reasons, e.g. where property is thinly traded, or the parcel is small, or there exist market distortions. 59 In the present contractual context, the intrusion of the word "market" between "fair" and "value" points away from a process of determining what is just or equitable between the parties, towards an objective standard. That that is so in the present case is strongly suggested by the decision-maker nominated in cl 11.2.3. The decision is to be made jointly by the company's auditor and a chartered accounted nominated by the vendor and, failing agreement, by a nominee of the President of the Institute of Chartered Accountants. Persons with such a background are not generally suited to determining what is just or equitable in all the circumstances. Their expertise is appropriate for determining exchange value. 60 Nevertheless, the word "fair" has, in my opinion, work to do. In a contractual context, this additional word suggests that the valuation should proceed on the assumption, which may be contrary to the facts of a particular contractual relationship, that there is no impediment to the process of bargaining, whether in terms of availability of information or restraints arising from the characteristics of a particular vendor or purchaser or otherwise. Issues will arise, however, when determining what aspects of the particular relationship are of a character which inhere in the item of property itself, as distinct from those which should be treated as excluded by the concept of a "fair market value". 61 It is not possible to set out in abstract terms how a fair market value should be computed. It is necessary to focus on the particular issues which arise in order to determine what the formulation requires in a particular case. The Methodology of Valuation 62 The first criticism that the Appellants advanced of his Honour's determination of fair market value was that his Honour failed to accept Mr Lonergan's methodology. Both the experts indicated that, normally, the appropriate method of valuation of a company in the situation of Rentals was the capitalization of future maintainable earnings. However, the Appellant submitted Mr Lonergan was correct to conclude that, in the absence of any likely dividend stream, the appropriate method in this case was to value Rentals on a net assets basis. It was submitted that his Honour erred in determining that there was some other methodology of valuation called the "realistic basis" or the "realistic value rule". 63 This terminology was derived by his Honour from cases in which the valuation of property had been carried out for family law purposes: In the Marriage of K D and P A Reynolds (1984) 10 FamLR 388; In the Marriage of Dah and J E Hull (1983) 9 FamLR 241 and Sapir v Sapir (No 2) (1989) 13 FamLR 362. In Reynolds the Full Court of the Family Court of Australia doubted whether valuation methods appropriate for commercial purposes were also appropriate for the purposes of family law. In Hull the issue arose in a context in which shares in a family company had to be valued where restrictions in the Articles could result in the shares of the family member not having any effective control over the company. A commercial approach would lead to a nil valuation. It was in such a context that Nygh J said in Hull supra at 246 that the Court had to approach valuation "on a realistic basis". It is sometimes unrealistic to assume that formal restrictions should be regarded as binding in situations where parties have a broader relationship. 64 However, it could not be said that this "realistic basis" constituted an alternative form of valuation methodology. If, by adopting this terminology Young CJ at Eq intended to suggest that it did, then in my opinion his Honour erred. 65 A close reading of his Honour's reasons does not suggest that his Honour was putting forward an alternative methodology. Indeed his Honour said: "[213] Normally, the result of applying the realistic value rule is that one applies the net assets backing rule with an allowance for the notional cost of a winding-up rather than the hypothetical purchaser rule. However, that will not always be the case." 66 It was at this point that his Honour went on to compute, on a theoretical basis, the possible value that could accrue to a liquidator who was selling the goodwill associated with the Thrifty business. His Honour noted that he had no reliable information on which to assess the value of the rights associated with that business particularly the right to access to airports and the value of the Thrifty licence. Nevertheless, after such a process his Honour identified a figure which could constitute Mr Bruning's indirect interest so computed. 67 The Appellant submitted that any such computation was inappropriate because if there were a liquidation then, pursuant to the terms of the Licence Agreement between Thrifty US and Kingmill, all such rights would be surrendered to Thrifty US. Nevertheless what his Honour was undertaking at this stage of his reasons was an entirely theoretical computation, setting aside the strict provisions of the legal arrangements in the same manner as the particular restrictions in the Memorandum and Articles of the companies involved in the family law cases had been set aside. Where, as here, the party with legal rights can be seen to be unlikely to enforce them, a liquidation being against its apparent interests, it is appropriate to set such rights aside in a valuation based on a hypothetical scenario. 68 In this regard, it appears to me that his Honour in fact applied a net assets value methodology with respect to the calculation of one of the "signposts" his Honour adopted. This, of course, was the methodology that Mr Lonergan adopted, with the difference that Young CJ in Eq thought it appropriate to take into account the value of goodwill of the business on a hypothetical liquidation, setting aside the fact that an actual liquidation could trigger certain rights in Thrifty US. His Honour's reference to a "realistic basis" was no more than the adoption of an approach, for the limited purpose that his Honour adopted it, i.e. as one of a number of "signposts", on analogous grounds to that found in the family law cases to which he referred. 69 It is easy to see why in a close relationship, such as that involved in a co-operative business venture and even more so in a family context, it may be appropriate, when determining what a "fair value" is between two co-venturers, to set aside as immaterial the restrictions that arise from particular provisions of the Memorandum and Articles of Association or, specific rights of third parties such as financiers or licensees of intellectual property that may arise on an actual liquidation. Where a "fair market value" is the test, it may be more unusual to do so. However, a net assets value approach to valuation is appropriate for an actual liquidation. When that methodology is adopted for purposes of a hypothetical liquidation, it may be appropriate to set aside as immaterial the legal consequences of an actual liquidation. 70 If the valuation exercise required the determination of the value of the business as a whole, then inherent in the market value would be the price which rival car manufacturers would be prepared to pay to acquire the full range of commercial advantages, including those which can accrue only to a car manufacturer. However, cl 11.2.3 is concerned with the valuation of the Sale Shares which extends only to Mr Bruning's minority shareholding. The property to be valued is a 18.5 percent Holding in Rentals. 71 The minority interest which must be valued in the present case was held by a person with direct involvement in a majority controlled business requiring mutual co-operation and a level of trust. (I avoid the often misleading terminology of quasi partnership.) The sale is triggered, and triggered only, by the termination of that involvement. The majority shareholder has an interest in ensuring that the minority holding is not acquired by someone who has no relationship with the majority holder of mutual co-operation or trust. The ability of the majority holder to get the full advantage from its controlling interest can be considerably attenuated by activities sometimes derogatively referred to as greenmail. In order to avoid the nuisance of such an investor, the majority holder will be prepared to pay more for the minority than another person. 72 The Appellants submitted that the formulation "fair market value" does not permit consideration of any special value to Mitsubishi. They submitted that in any market sale, the nature of the property had to be the focus of attention. This was a minority parcel of shares in a holding company with restrictive articles. Furthermore, the major asset, being a partly owned subsidiary, had substantial accumulated losses and substantial debt owed to the controlling shareholder so that, even if the business were to become profitable, dividends were a very remote prospect. All of that can be accepted without detracting from the proposition that a majority shareholder who has no intention of winding up the business and, therefore, for whom it has real commercial value, will be willing to pay more than net asset value to ensure 100 percent ownership. 73 In such a situation, valuation is not done on the basis of an estimate of what a third party would pay and then allowing the majority holder one more bid. This is because a vendor in a market, including a "fair market", would know that the majority holder was prepared to pay more and is well placed to bargain for a higher price by refusing to sell. The minority holder would not part with the property unless the majority holder offered a price that was substantially closer to the price the latter would be willing to go up to. The "one more bid" approach does not describe a situation of a "willing but not anxious vendor" in the exchange bargain test. (See Inland Revenue Commission v Clay [1914] 1 KB 339 esp at 349; Inland Revenue Commission v Clay [1914] 3 KB 466 at 472; Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer [1939] AC 302 at 314-317; Geita Sebea v Territory of Papua (1941) 67 CLR 544 at 557; Mordecai v Mordecai (1988) 12 NSWLR 58 at 69-70; Melcann Ltd v Super John Pty Ltd (1994) 13 ACLC 92 at [94]; Pauls Ltd v Dwyer [2002] QCA 545, (2002) 43 ACSR 413 at [30].) 74 As Cozens-Hardy MR said in Clay supra (1914) 3 KB at 472: "To say that a small farm in the middle of a wealthy landowner's estate is to be valued without reference to the fact that he will probably be willing to pay a large price, but solely with reference to its ordinary agricultural value, seems to me absurd. If the landowner does not at the moment buy, landbrokers or speculators will give more than its price agricultural value with a view to reselling at a profit to the landowner." 75 This represents the operation of a market and does so even if called greenmail. This is not an exception to the exchange bargain test established by Spencer's case. It is an application of the test involving the determination of how a willing vendor of a minority interest would behave. 76 A similar approach was adopted in Mordecai v Mordecai supra. The issue was whether or not any value at all should be placed on the goodwill of the business in circumstances where the persons who conducted the business were not restrained by contract from departing with all the customers. The proposition that the goodwill was therefore valueless was dismissed by Hope JA, with whom Samuels and Priestley JJA agreed. His Honour said at 68: "This appears to me to be so unjust a result as to make it unlikely that it is a correct way to approach the question". Referring to the defaulting directors/trustees, his Honour concluded: "It does not lie in their mouths to say that they did not want to acquire the business, for that is precisely what they did. If, as the appellants assert, the goodwill would have been unsaleable to anyone else, it was certainly saleable, at its proper value to them, and as the position stood when they took the business …, the business had the potentiality, valuable only to them when it was in their hands, to free them from the restraints which the law otherwise would impose on them. It is well-established that if property has some special potentiality which only one person would buy, it is to be valued on the basis of a notional sale to that person. The property is not valueless or diminished in value because there would be no other buyers: Vyricheria Narayana Gajapatiraju Bahadur Garut (Sri Raja) v Revenue Divisional Officer, Vixagapatam [1939] AC 302 at 316, 317 and Geita Sebea v Territory of Papua (1941) 67 CLR 544 at 557. On this basis, the value of [the] goodwill is to be determined upon the basis of a hypothetical sale to the only person to whom, on the appellants' submissions, it could be sold, and to whom the matters which they submit would render the goodwill valueless in any other purchaser's hand would be irrelevant." 77 A similar approach was also adopted by McLelland CJ in Eq in Melcann Limited v Super John Pty Limited (1995) 13 ACLC 92. The Court was concerned with the fair value of shares in a context of an application for court approval for reduction of capital pursuant to ss191 and 195 of the Corporations Law. His Honour dismissed the application on the basis that the proposed reduction of capital would not be fair to minority shareholders because the valuation had not taken into account the value to the majority shareholder of the benefits it would receive from merging elements of the company's activities with its own activities. If the reduction of capital were to proceed, that shareholder would attain 100 percent ownership of the company. These special benefits to the majority shareholder should have been taken into account when computing the value of the minority shares. 78 In the present case a "fair market value" must take into account the "special potentiality" or "special value" to Mitsubishi of acquiring 100 percent of Rentals, thereby ensuring that it does not have to deal with a third party investor, with whom it has no relationship relating to the conduct of the business affairs of its partly owned subsidiary Kingmill. This element is not taken into account if Kingmill is valued only on net asset value basis or on a future maintainable earnings basis. 79 Although Young CJ in Eq did not approach the matter in precisely the same manner as I have done, his conclusion was expressed in analogous terms. Substituting the figure which his Honour ultimately determined to be appropriate, he concluded: "[218] This $675,000 is the figure that an arm's length MMAL would pay for Mr Bruning's shares rather than lose them or be forced to wind up Kingmill and suffer the possibility of losing the Thrifty business. [219] Thus, if an order for specific performance were to be made, it would be for $675,000 plus interest. [220] I am conscious that the figure of $675,000 is rather artificial in that there is no clear set of factors which establish it. It may well be that MMAL would prefer to have the company wound up rather than pay that sum, though the Quinn 1996 offer tends in the other direction." 80 There was no suggestion on the appeal that Mitsubishi was prepared to contemplate an actual winding up of Rentals and Kingmill. His Honour's test of what Mitsubishi would pay for the Sale Shares "rather than lose them or be forced to wind up business" is sufficiently close to the approach I have set out above for this Court to accept his Honour's judgment of what the value should be. Mitsubishi's Offer as Evidence of Value 81 The second criticism by the Appellants was the use made by Young CJ in Eq of the offer by Mitsubishi in 1996 to purchase Mr Bruning's shares for $535,000. His Honour referred to this as a "signpost" to which he had regard. His Honour said: "[203] Whilst an unaccepted offer is usually no evidence of value, the circumstance that the only likely buyer is prepared to pay $535,000 for the shares which have little assets backing rather than use them goes a long way to making one think that a value of $58,911 is sorely suspect." 82 At this stage of his judgment his Honour was dealing with the expert evidence of Mr Lonergan. His Honour returned to the subject and said: "[216] Our third signpost is the offer that was made by Mr Quinn in 1996 of $545,000 (sic). Although an unaccepted offer is no real evidence of valuation, it is significant that MMAL was prepared to make such an offer. Mr Bruning's reaction was that the interest rate was to mean (MMAL had offered 90 day bank bill interest)." 83 His Honour went on to adopt a different interest rate to apply to Mr Bruning's original investment for purposes of computing a reasonable rate of return. After correction in his second judgment (cf Bruning v MMAL Rentals Pty Ltd; Bruning v Kingmill (Australia) Pty Ltd [2004] NSWSC 60 pars [216] and [217] and Bruning v Kingmill (Australia) Pty Ltd; Bruning v MMAL Rentals Pty Ltd [2004] NSWSC 256 par [21]), his Honour used the Mitsubishi offer plus interest at the rate his Honour determined as, in effect, the floor in the small range which his Honour considered to be a reasonable estimate of fair market value. Within the range his Honour chose the approximate midpoint, i.e. a value of 675,000 as at 24 April 1998 plus interest to the date of judgment at 9.5 percent. This led to his Honour's order that the Respondent be paid $1,059,750. In substance his Honour awarded an amount somewhat above the Mitsubishi offer of 1996. It seems that this offer played a more significant role in his Honour's judgment than any of the other "signposts" to which his Honour referred. Indeed, subject to a small upward adjustment, perhaps allowing for the proposition that this was not a "best offer", although his Honour does not express the matter in that way, the Mitsubishi offer can probably be seen as the element which determined his Honour's assessment of fair market value to a very substantial degree. In my opinion, his Honour was right to do so. 84 The Appellants contend that his Honour erred in taking into account this offer and noted his Honour's own observations that unaccepted offers are not usually evidence of valuation. There is a line of case law that is often quoted as supporting the proposition that evidence of an offer is not evidence of value. I refer particularly to the High Court judgment in McDonald v Deputy Federal Commission of Land Tax for New South Wales (1915) 20 CLR 231 approving the prior decision in Harris v Municipal Council of Sydney (1910) 10 SR (NSW) 860 and subsequently applied by single judges of the High Court in James Patrick & Co Pty Ltd v Minister of State for the Navy (1944) Argus Law Reports 254; Gregory v Commissioner of Taxation (Cth) (1971) 123 CLR 547 and Nelungaloo Pty Ltd v The Commonwealth (1948) 78 CLR 495 at 507. 85 As was acknowledged in James Patrick & Co supra at 258 and Nelungaloo supra at 507, evidence of an offer has long been admitted in England as evidence of value. See, e.g. Waters v Thorn (1856) 22 Beav 547 at 557, 52 ER 1219; Percival Peterborough Corporation (1921) 1 KB 414 at 421; Re ESC Publishing Ltd [1990] BCC 335 at 339-340; Cripps on Compulsory Acquisition of Land London, Stevens & Sons, (1962) at 4-193. The same appears to be the case in New Zealand: Brett Lees Norager v Charles Norager & Son Ltd (1999) NZCA 255 at [3], [24]-[25] and in Canada: Michon v National Capital Commission (1974) 6 LCR 152 at 157-159; Poirier-White v Regional Municipality of Ottowa-Carleton (1979) 16 LCR 210 at 211; Caldwell v Minister of Transportation and Communications (1982) 23 LCR 286 at 287; The Canadian Abridgement (2nd ed) Carswell Toronto (1990) pp274-278. 86 More recent case law has rejected the proposition that McDonald and the subsequent cases authoritatively establish the proposition that evidence of an offer is never admissible in a valuation case. (See especially the careful analysis of Wilcox J in Goold & Rootsey v The Commonwealth (1993) 42 FCR 51 esp at 59-60 referred to with approval in Henderson v Armadio Pty Ltd (No 1) (1995) 62 FCR 1 at 122 and in this Court in Stockl v Rigura Pty Ltd [2004] NSWCA 73, [2004] ANZ ConvR 265 at [37]-[38].) 87 I agree with the observations of Wilcox J in Goold and would add a further factor which narrows the scope of McDonald as a precedent. In McDonald Isaacs J said at 237: "… it is plain that the mere fact of a statement by an owner to a stranger that he would be willing to sell at a given figure, and that the offer was not accepted, for some reason undisclosed, is no evidence of what the Statute requires , namely, the price which a willing buyer would give, supposing the seller announced reasonable conditions." [Emphasis added] 88 A statute which "requires" a test of "what a buyer would give" is not the exchange bargain test of market value identified in Spencer. More significantly, it is quite "plain", as Isaacs J said, that for such a test a price fixed by a seller is completely irrelevant. In contrast, in an exchange bargain test, offers to purchase and sell, particularly the very property under consideration, may be relevant by fixing a range and, accordingly, would be admissible. 89 The statute under consideration in McDonald was the Land Tax Assessment Act 1910-11. The relevant test was found in s3: "'Improved value' in relation to land, means the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require." ("Unimproved value" was defined in parallel terms.) 90 Isaacs J correctly characterised the relevant test. A "bona fide seller" stipulating "reasonable terms and conditions" is not the "willing but not anxious seller" of the test in Spencer's case. Once the terms and conditions are "reasonable" the only issue is what a buyer would pay. Accordingly, in my opinion, McDonald is not an authority on the admissibility of an offer to purchase in a case in which a market value must be determined. 91 In Goold Wilcox J referred to a number of Australian cases in which evidence of an offer to purchase had been admitted and quoted the persuasive reasons of the trial judges as to why such evidence could be relevant. (See Blefari v The Minister (1962) 8 LGRA 1 at 5; Hustlers Pty Ltd v Valuer General [1967] 14 LGRA 269 at 277 and Phillipou v Housing Commission of Victoria (1969) 18 LGRA 254.) To these authorities can be added the observations of Else-Mitchell J in Freestone v Parramatta City Council (1974) 34 LGERA 35 at 49. 92 As was noted in the consideration of this issue by the Full Federal Court in Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2004] FCAFC 48 at [123]-[125], the reasoning in McDonald focuses upon the inadmissibility of an offer with respect to land other than the land subject of the valuation. That was in fact the situation in Harris which was approved in McDonald. However, the factual situation in McDonald itself was that the relevant offer was an offer to sell by the owner of the land in issue. 93 Even if the reasoning in McDonald is applicable to an offer of sale or purchase the particular property the subject of valuation, it remains a decision about the admissibility of evidence. It is unnecessary to set out the passage from the judgment of the Court delivered by Isaacs J in McDonald. It is sufficient to note that it focuses on the degree of inconvenience that may be associated with investigating the comparable nature of land the subject of the offer. That critical part of the reasoning would not apply to an offer with respect to the very land or property in issue. In such a case I would have thought that the relevance of the offer is sufficient to make it admissible, although its weight will depend on surrounding circumstances. 94 I do not regard McDonald as constituting authority for the proposition which it is said to contain. This Court is not bound by judgments of single judges of the High Court. In an appropriate case it would be open to this Court to reconsider the matter. 95 For present purposes it is not necessary to qualify the conclusion of the Full Court of the Federal Court in Cordelia Holdings supra at [128], that the line of authority commencing with McDonald should be accepted as establishing the proposition that "such evidence is not permissible as direct evidence of value". I note that Sugerman J had reluctantly accepted that he was similarly bound in Marcus Clark and Co Ltd v Commissioner for Railways (1949) 29 LVR 98 at 107-108. However, if there be any such general rule, the present case falls with a recognised exception to it. 96 In the analysis by Wilcox J in Goold, particularly his Honour's reference to the judgment of Barber J in Phillipou, it is established that where a valuation must refer to the special potentiality of particular property for a specific purchaser, an offer by that purchaser to purchase that property is relevant. Both Barber J and Wilcox J refer to the cases of Clay and Raja Vyricheria supra. As Wilcox J concluded in Goold at 59-60, in a context in which a particular purchaser was willing to pay more than market value: " … It would be anomalous and unjust for the courts to adopt a blanket rule excluding offer evidence. Such a rule may exclude cogent evidence of the interest of a particular purchaser in the land being valued, a person who was willing to pay more than ordinary market price." 97 In my opinion, an offer by such a purchaser is not only relevant it is highly probative. Indeed, whilst allowing for the possibility of further bargaining, it is difficult to conceive what better evidence there could be. Expert evidence may establish that such an offer is inadequate but, unless there are special considerations, the offer clearly establishes a floor. 98 Where, as here, a particular purchaser has manifested its intention to acquire the particular property in a context where, on normal valuation principles based on maintainable earnings it may appear that the value is nil, the exclusion of the evidence of an offer by that purchaser would be "absurd", to use the language of Cozens-Hardy MR in Clay quoted above, and "unjust" to use the language of Hope JA in Mordecai quoted above and "anomalous and unjust" to use the language of Wilcox J in Goold quoted above. 99 A similar issue arose in this Court in Chen v Karandonis [2002] NSWCA 412 in which a party sought damages for the loss of interest in shares in a context in which there was no acceptable evidence of the value of the shareholding. There was, however, evidence that one of the Appellants had offered to sell the shares at a particular price. Beazley JA, with whom Heydon and Hodgson JJA agreed, held that the evidence of the offer was admissible and distinguished McDonald in part on the basis that there was no other evidence of value and that the offer provided some basis on which to make the relevant assessment. (See at [71]-[73].) 100 This analysis is equally applicable in the present case. The offer was not merely admissible, it was cogent evidence of, at least, a minimum value to the purchaser with a special interest and, accordingly, probative evidence of at least a minimum price for Mr Bruning's shareholdings. Indeed, as I have said, it is difficult to conceive, in the particular circumstances of the present case, what better evidence of the minimum value there could be. 101 It was submitted on behalf of the Appellants that Mitsubishi was motivated by a concern to ensure that Mr Bruning remained happy with his situation. The offer arose in a context in which Mr Bruning had raised the possibility of selling part of his shareholding and had been advised that the auditor had assessed the value of his shares at nil. That was a matter that caused Mr Bruning some consternation and, at a time when Mr Bruning was still managing director, Mitsubishi may have been motivated in part by considerations other than those that arose upon his departure from any involvement in the company, where the critical factor may be the desire to avoid the nuisance value of an independent investor who does not have ongoing participation in the business venture. 102 The circumstances of the offer are different from the circumstances of the exercise of the option. These considerations give rise to an issue similar to that of how comparable allegedly comparable sales are. There is no reason to believe, however, on the evidence in this case that an offer to avoid a greenmailing situation would be either higher or lower than an offer motivated in part by sympathy towards a disaffected managing director. These are matters of weight which are entitled to consideration. Nevertheless, the probative value of the offer remains high and, in the absence of any other evidence, is entitled to significant weight in the performance of the task which the Court is duty bound to perform on the basis of such evidence as is available to it. Minority Discount 103 The Appellants also submitted that Young CJ in Eq erred by not accepting Mr Lonergan's evidence that a minority discount had to be applied to any valuation. It has long been accepted that there are commercial advantages to control of a corporation. Many, if not most, of the advantages are not such as the law accepts to be legitimate. 104 The illegitimacy of much that is generally accepted to be the commercial advantage of control is reflected in the scheme of takeover regulation in Australia which has long set a low threshold of 20 percent as the trigger for regulation in order to ensure that the "control premium" is distributed to all shareholders, even where one shareholder is capable of delivering control to a purchaser and, in a sense, the other shareholders will not lose anything. (See, e.g. Fords Principles of Company Law par 23.070.) 105 To a significant degree the value of control reflects the substantial transaction costs involved before minority shareholders can insist on their legal rights, e.g. to ensure that all dealings with the controlling shareholder are truly at arms length and that directors are punctilious in honouring their fiduciary duties. The fiduciary duties of directors arise even if those directors are nominees of a controlling shareholder. In many cases of dealings with the controller – relevantly the purchase or lease of Mitsubishi vehicles by Kingmill – nominee directors may have a conflict of duty and/or interest, of a character which could require them to abstain from the decision-making process. This will not often happen because, in the normal case, no-one is likely to complain. 106 Whether by oppression suits or other proceedings, the assertion by a minority shareholder of legal rights give such a shareholding nuisance value, as I have indicated above. Notwithstanding the pejorative connotation it has acquired, greenmail, unlike blackmail, is neither illegal nor improper. 107 If it were relevant, the concept of "fair market value" implies that transaction costs which may inhibit the ability of a shareholder to receive the full value of its shares, because it is unlikely to enforce its rights against a controlling shareholder, should be set aside. No minority discount is appropriate in the present context. Indeed, my above analysis concerning the special value which the majority shareholder obtains by acquiring complete control, is inconsistent with any such discount being recognised in a case like the present. The Respondent's Approach to Valuation 108 The principal thrust of the Respondent's case on valuation is that the historical accounts of Kingmill should be set aside as not reflecting its true earnings. His Honour dealt with the litany of misconduct and error which was said to render the historical accounts of Kingmill irrelevant. Most of the significant items concerned allegations of diversion of profits to Mitsubishi from Kingmill. There were, however, a number of matters which suggested an inadequacy in operations, which were more in the nature of an allegation of negligence, than of misconduct. It is matters of the latter character which explain, to some degree, why the valuations advanced on behalf of the Respondent by Mr Hilton and also the valuations propounded by Mr Bruning himself, exceeded the amount computed by attributing to Mr Bruning his proportion of the total benefit that Mitsubishi received through Kingmill, further discussed below. 109 It is convenient to deal with the alleged errors in the context in which they primarily arise, namely with respect to the Appellant's case that the contract is unfair for the purposes of s106 or, alternatively, for the purposes of computing a fair value for a compulsory purchase of the shares in the oppression suit. Insofar as the starting point of this analysis is incorrect, as I believe it to be, then there is no foundation for proceeding on a basis other than that Kingmill itself would not produce a flow of profits and, accordingly, shares in Rentals could not be valued on the basis of future maintainable earnings in Kingmill. 110 I should note that the Respondent did not propound a case based on a net asset valuation or any methodology other than that propounded by Mr Hilton and Mr Bruning. On either basis, it is submitted, his Honour ought to have attributed a more substantial value to Mr Bruning's shares than in the event he did. The primary submission was that the Court should adopt Mr Hilton's valuation of Kingmill of $40.3 million with a value attributed to Mr Bruning's shares of $6.05 million. This, as I have indicated above, was based on an approach which computed what was described as an "average industry net return percentage applied to Thrifty's growth revenues". 111 I agree with Young CJ in Eq that this valuation methodology was of not assistance. There was no reason to believe that the three or four major car rental companies should be compared in any meaningful way on the basis of their capital structure, profit margins, or any of the other factors which go into the computation of a net return. There was no basis in the evidence for suggesting that the accounts of any of these companies could in some manner be subject to a process of averaging that produced anything useful. In any event, financial information of Hertz and Avis for a limited number of years were the only figures before the Court. Finally, the evidence was overwhelming that the operations of Kingmill were not anything like those applicable to the other car rental companies. In particular Kingmill was never capitalised or financed on the basis that it would acquire a significant proportion of its fleet on residual leases so that it could make the profits that other car rental companies apparently make by selling ex-rental vehicles. I will refer to his Honour's unimpeachable findings to this effect below. There were other differences, but this alone was so significant a component of the profitability of other companies as to render the concept of an "average industry net return percentage" completely useless. 112 The Respondent also relied on some evidence of valuation given by Mr Bruning himself. For reasons that I will outline below, Young CJ in Eq rejected Mr Bruning's evidence on credit grounds. There is every reason to conclude that on questions of valuation that rejection should be affirmed, if anything, with greater force. Not only did Mr Bruning have the most obvious bias, rendering any evidence of an expert opinion character of exceptionally limited weight, there was no attempt to qualify him as having any relevant expertise in valuing car rental companies, as distinct from managing such a company. In any event, one of the two methods that he used was based on what he asserted to be an industry based profit margin and price earnings ratio, which is subject to all of the inadequacies of Mr Hilton's evidence about "average industry net return percentage", which I have outlined above. A similar range of assumptions, which were not shown to be in any way justifiable, underlay Mr Bruning's alternative approach to valuation based simply on the number of vehicles in the Thrifty fleet. 113 Finally, the valuations by both Mr Hilton and Mr Bruning, proceeded on the basis that the valuation of Kingmill should take no account of the substantial indebtedness that had built up over the years because Mitsubishi had to finance Kingmill's continued losses. This debt stood at about $ 13.3 million in mid 1997. This approach was justified on the basis that the original agreement allegedly required Mitsubishi to provide finance, apparently without limit. 114 Even if that proposition had been established, which it was not, I can see no reason why the actual provision of working capital had to be, as it were, written off. I find the proposition that Mitsubishi should write off its investment whilst Mr Bruning should make a substantial return on his investment, to use the mildest expression I can adopt, difficult to understand. The Commercial Advantage to Mitsubishi from the Venture 115 On the evidence it is apparent that Mitsubishi received commercial advantages from the operation of the car rental business by Kingmill, which advantages were not reflected in the accounts of Kingmill itself. For purposes of his oppression suit and s106 case Mr Bruning sought to characterise the conduct of Mitsubishi as a diversion of profits from Kingmill to itself. I will return to this characterisation below. For purposes of the determination of "fair market value" under the contract, the question is what if any significance should be attached to these commercial advantages for purposes of a valuation. The issue is whether Kingmill should be valued on a basis that sets aside the accounting treatment of the commercial advantages to Mitsubishi, so that the future maintainable earnings of Kingmill should be regarded as positive and, indeed, substantial. 116 The principal document relied upon by the Respondent in this respect was a calculation prepared by an officer of Mitsubishi in May 1997, which calculated the total financial advantage accruing to Mitsubishi over the period of October 1990-1997 in an amount of $7,886,000, of which Mr Bruning's computed 15 percent indirect interest would have been, about $1,182,900. As noted above Young CJ in Eq used this figure as a "signpost". The computation was not of an accounting profit but a contribution to, in effect, the revenue of Mitsubishi. This commercial advantage to Mitsubishi from the operation of the venture could be expected to continue in the future. The size of the advantage that Mitsubishi received in this respect was directly related to the proportion of the total fleet which was comprised of Mitsubishi cars. This benefit emphasises Mitsubishi's interest in maintaining control of the venture and, accordingly, influences the amount it would be willing to pay to ensure that a minority parcel either stays in friendly hands or is acquired by Mitsubishi. However, going beyond such considerations, the Respondent sought to use this advantage for purposes of computing valuation by recalculating future maintainable earnings. Mr Hilton's or Mr Bruning's valuations were put forward as indicating the true value. 117 What, if any, consideration should be given to "special value" or "special benefits" to a purchaser in a valuation exercise has proven to be difficult in many different contexts. (See, e.g. Boland v Yates Property Corporation Pty Ltd supra esp at [78]-[87], [292]-[297]; Capricorn Diamond Investments Pty Ltd v Catto supra at [43]-[61]; Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456, (2002) 42 ACSR 354 at [16]-[20]. 118 The special value that land may have to an owner has long been accepted to be a relevant factor in determining market value for purposes of valuation after compulsory acquisition. (See, e.g. Pastoral Finance Association v The Minister [1914] AC 1083 at 1087-1089; Minister for Public Works v Thistlethwayte [1954] AC 475 at 491.) 119 I can see no reason in principle why special value to a purchaser should not also be a material consideration in a contractual context, particularly where what is to be assessed is fair market value. 120 While special value is to be taken into account, it is not permissible to compute the present value of the future flow of benefits as a measure of the value of the property. As the Privy Council said in Pastoral Finance Association supra at 1088-1089: "… That which the appellants were entitled to receive was compensation not for the business profits or savings which they expected to make from the use of the land, but for the value of the land to them. No doubt the suitability of the land for the purpose of their special business affected the value of the land to them, and the prospective savings and additional profits which it could be shewn would probably attend the use of the land in their business furnished material for estimating what was the real value of the land to them. But that is a very different thing from saying that they were entitled to have the capitalized value of these savings and additional profits added to the market value of the land in estimating their compensation. They were only entitled to have them taken into consideration so far as they might fairly be said to increase the value of the land. Probably the most practical form in which the matter can be put is that they were entitled to that which a prudent man in their position would have been willing to give for the land sooner than fail to obtain it. Now it is evident that no man would pay for land in addition to its market value the capitalized value of the savings and additional profits which he would hope to make by the use of it. He would no doubt reckon out these savings and additional profits as indicating the elements of value of the land to him, and they would guide him in arriving at the price which he would be willing to pay for the land, but certainly if he were a business man that price would not be calculated by adding the capitalized savings and additional profits to the market value." (Applied subsequently on a number of occasions, see e.g. Commonwealth v Reeve (1949) 78 CLR 410 at 419-420, 428-429.) 121 The test of "what a prudent man in their position would have been willing to give for the land sooner than fail to obtain it", is an exchange bargain test. It is consistent with the approach I have identified above, and that which his Honour applied in determining the price Mitsubishi would pay for the shares, "rather than lose them or be forced to wind up the business". The Respondent's approach is that rejected in Pastoral Finance Association, i.e. treating the full range of benefits to Mitsubishi as accruing to Kingmill. Those benefits only accrue because Mitsubishi has committed capital, taken risks and expended effort over and above the capital, risks and effort within Kingmill. That flow of benefits cannot be included in a calculation of the "fair market value" of shares in Kingmill. The Respondent's contentions in this respect should be rejected. Conclusion on "fair market value" 122 This determination of fair market value under the contract is a necessary first step which must be undertaken before the Court can determine whether the contract was or has become unfair within s106 of the Industrial Arbitration Act or whether the Court should intervene on grounds of oppression. 123 For the above reasons Young CJ in Eq was correct to reject all of the expert evidence before him. This left his Honour with a limited basis for valuation. His Honour approached the task in the manner which I have outlined. 124 In some respects my analysis differs from his Honour's but not in any fundamental manner. In my opinion the order of magnitude which his Honour determined to be the fair market value of the shares was, in the light of the extremely limited information base with which his Honour had to work, a reasonable one. There is no basis for this Court to intervene with the judgment his Honour made. In this regard the appeal and the relevant parts of the cross appeal should be rejected. Jurisdictional Issues under s106 125 In the light of certain judgments in this Court, delivered after the decision of Young CJ in Eq in the present proceedings, the Appellants sought to challenge, for the first time in this Court, the jurisdiction and the validity of the exercise of the power under s106 of the Industrial Relations Act 1996. Those authorities were Solution 6 Holdings Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 200, (2004) 208 ALR 328; Old UGC Inc v Industrial Relations Commission of New South Wales [2004] NSWCA 197; QSR Limited v Industrial Relations Commission of New South Wales [2004] NSWCA 199, (2004) 208 ALR 368. 126 The first issue that arises is whether or not there was a contract "whereby work is performed in an industry", within the meaning of s106 as discussed in the authorities. This matter is determined, in my opinion, by his Honour's finding of fact about the link between Mr Bruning's compensation under the Management Agreement and his investment under the Share Allotment Agreement. The requisite jurisdictional fact is present because there was, effectively, a single contract or arrangement for employment constituted by reading together these two Agreements. 127 There was a dispute about whether or not Mr Bruning received a lower compensation as part of his remuneration package under the Management Agreement, by reason of the fact that he would also be an investor and accordingly receive some kind of return on capital whether by way of dividends or capital gain. 128 His Honour said at one stage: "[70] The evidence confirms that Mr Bruning accepted a salary of $175,000 per year because he was looking forward to considerable profits on the buyback of his shares." 129 This is a reference to what was in Mr Bruning's mind. It does not indicate that any such understanding was shared by those representing Mitsubishi. That this may not have been the case is suggested by the immediately succeeding passage in his Honour's judgment: "[71] This material is not all the one way as it is significant that, in February 1990, Mr Bruning in fact suggested that the managing director's salary be $150,000 per year. In his affidavit, he says that, at that stage, he had no idea of the magnitude of the enterprise. He says in his affidavit that had he known the size, in view of his qualifications and experience he would have looked for a much higher salary. In discussions with Mr Quinn in April 1990, Mr Bruning mentioned a salary of $225,000-$250,000 per year." 130 Subsequently, his Honour returned to this matter in the course of the reasoning, which led him to conclude that the contract, in its actual operation, was unfair within the meaning of s106 of the Industrial Relations Act. His Honour found that the fact that Kingmill had made no profits was due to circumstances in the industry, rather than due to conduct on the part of Mitsubishi, and that, on that basis, if Mr Bruning were to be regarded as a "mere investor", then "he would have lost most of his money". His Honour then went on to say: "[226] Of course, investors often lose their stakes. However, where an investment is made as part and parcel of an agreement to work in an industry and where the parties take into account when fixing their package of remuneration that additional income or capital gain may pass to the "worker" because of his or her equity participation in the enterprise, there is some justification in examining closely the investment when determining whether the total contract is or is not unfair." 131 The Appellants submitted that this passage of his Honour's reasoning was simply a hypothesis, rather than a finding on the facts of the case. In the succeeding paragraph his Honour clearly turned to the making of findings with respect to the present case and said: "[227] In the present case, both parties contemplated that rewards would flow through to Mr Bruning from his investment and that when he left his shares would be purchased for at least the amount that would compensate for the return of the investment plus a reasonable rate of interest." 132 His Honour had earlier found that Mr Bruning's understanding of various matters was not necessarily shared by the representatives of Mitsubishi with whom he was dealing. He said: "[68] I believe that it is true to say that Mr Bruning and the MMAL men moved in two different levels of the corporate world. It is understandable from his perspective that Mr Bruning might think that he was going to receive more than the MMAL men thought they were giving. However, I do not see from the evidence material to suggest that either side was or reasonably ought to have been aware of the assumptions being made by the other." 133 The passage at [226] is not expressed to be a unilateral understanding and par [227] clearly refers to a mutual understanding. 134 Notwithstanding some ambiguity, I do not see any point to be served for the course of his Honour's reasoning if what his Honour said in [226] was simply a hypothesis of some character. If it was a hypothesis it led nowhere. In my view it was a finding that the possibility of making a return on investment was a relevant factor in determining Mr Bruning's remuneration package as managing director and that that was understood to be so by both parties. This conclusion is strengthened by the reference in [226] to the fairness of "the total contract". This has to be a reference to the combination of the Management Agreement and the Share Allotment Agreement. 135 The interrelationship between the Management Agreement and the investment is further affirmed by the fact that it is the termination of the Management Agreement, and that event alone, which triggers the call option in favour of Mitsubishi under cl 11.2 of the Share Allotment Agreement. 136 The Appellants submitted that there was no evidence to support his Honour's finding that the parties took into account the return on his investment when fixing Mr Bruning's package of remuneration. Mr Bruning's evidence that he accepted a lower salary because of expected profits was not, it was submitted, taken into account by Mitsubishi. 137 It appears, however, that Mitsubishi regarded Mr Bruning's investment as linked to his performance. In the first internal Mitsubishi request for allocation of funds to the acquisition, the proponents said, with reference to Mr Bruning: "An experienced manager is vital to the success of the rental operation and the granting of a minority interest will guarantee involvement and performance of such a manager." 138 The second internal submission for approval of the venture dated 3 April 1990, referred to as The Study, said: "It would be in MMAL's interests to negotiate a mutually acceptable arrangement with Mr Bruning which rewards him on the achievement of MMAL's volume and profit objectives. Mr Bruning has participated fully in the development of the profit plan, his remuneration will be linked to that plan and his personal capital will be committed to the rental company." 139 The Study contained provision for the salary of the managing director of $150,000 pa. This prompted a query from Mitsubishi in Tokyo: "Is not $150K for managing director too cheap? Please provide Back up data." 140 In response, an officer of Mitsubishi Australia said: "150K is base salary only since md will also be given incentive targets to meet. His total income will be subject to his performance. (Also as equity/partner he will share in profits/dividends). B. Bruning has accepted this concept." 141 In my opinion, there was evidence to justify his Honour's findings. 142 His Honour made this finding of fact although he rejected Mr Bruning's evidence in a number of other respects. This Court should not interfere with this finding. 143 This finding is also, in my opinion, determinative of the second matter which the Appellants sought to raise in this regard, namely whether the power in s106 extended to variation of the price determination formula of "fair market value" under cl 11.2.3. What is required is a close relationship between the performance of work and the aspect of the relevant contract that the Court is called upon to declare void or to vary. (See Solution 6 supra at [83]-[95].) I reiterate the view I there expressed at [94] that: "It is not appropriate … to take a narrow approach to the total package of benefits, conditions, rights and obligations which relate to performance of work." 144 In Solution 6 the Court concluded that the computation of the purchase price for the business had no relationship whatsoever to the performance of work. That case concerned the sale of an asset. In the present case Mr Bruning acquired equity at the very commencement of his relationship with Mitsubishi in a form envisaged to endure for the period of his employment, and no longer. Mitsubishi acquired a call option and, if that were not exercised, Mr Bruning had a put option, each exercisable after termination. His Honour's finding that the salary component of Mr Bruning's remuneration package was determined in part by reason of the existence of an incentive to perform in the form of an equity investment was, in my opinion, such as to establish the requisite close relationship between the performance of work and the mechanism for determining the price at which either option would be exercisable. 145 The Appellants did not raise any issue of jurisdiction or power before Young CJ in Eq. Leave to amend the Notice of Appeal is required. This is a matter, as the above analysis shows, on which evidence can be material. I would not grant leave so that these matters can be raised for the first time on appeal. In any event, for the above reasons jurisdiction and power under s106 are established. The Unfairness Case 146 Young CJ in Eq proceeded to determine the Respondent's case under s106 of the Industrial Arbitration Act without further reference to the oppression suit. Section 106 confers power to vary a contract which has become unfair in its operation, irrespective of whether or not it was unfair at its inception. It is difficult to conceive of any factor pertinent to an oppression suit which is not also relevant to the determination of unfairness for purposes of s106. No such factor was identified in the submissions in this Court. Furthermore, the determination of a "fair value" for the shares, following a finding of oppression, would not lead to any different order than that which would be likely to flow from a variation of the contract pursuant to a s106 order. Indeed, if the s106 case was successful, the order that should be made would be to vary the formula in cl 11.2.3 to provide for the words "fair value" in lieu of "fair market value". 147 His Honour did exercise the power under s106 in a particular respect. He said: "[227] In the present case, both parties contemplated that rewards would flow through to Mr Bruning from his investments and that when he left his shares would be purchased for at least the amount that would compensate for the return of the investment plus a reasonable rate of interest. [228] If the true construction of clause 11.2.3 does not include a provision to this effect then, in that respect, in my opinion the contract is unfair as performed and it should be amended by adding at the end, 'provided that in no case shall the purchase price be less than the amount subscribed for the shares together with a reasonable rate of interest from the date of subscription until the date of exercise of the option'." 148 His Honour made an order varying the contract in this regard, even though his Honour's calculation of "fair market value" was the same figure as that which would be arrived at under the contract as varied. Perhaps his Honour had in mind that, on appeal, this Court could take a different view on the issue of valuation, so that the s106 order operated as an alternative, or vice versa. 149 Where, as has proven to be the case, the operation of the contractual terms for computation of the price of the shares has resulted in a valuation at a particular level, I can see no justification for exercising the power in s106 to vary the contract in order to achieve the same result by other means. On this basis it would be appropriate to allow the appeal with respect to the variation ordered by his Honour. However, that is not the issue under s106 that must be determined. 150 The Respondent, by way of cross appeal, presses his case for a finding of unfairness on a broader basis and a determination under s106 or, in the oppression suit, of a "fair value" for the shares. As noted above a formulation such as "fair value" would, if the contract were amended, require consideration in the valuation exercise of the full range of circumstances, not merely those facts and matters that arise in an exchange bargain process of valuation. 151 In his unfairness case Mr Bruning sought a return of his capital, a share of the commercial advantages which Mitsubishi acquired from the operation in Kingmill and a share of the profits which Mitsubishi and its franchisees made or should have made on the sale of the leased vehicles. In this respect Mr Bruning's case turned on the nature of the relationship and the advantages that accrued to Mitsubishi over the period, being advantages not reflected in the profitability of Kingmill itself. He employed the term "quasi partnership" to characterise the relationship, a term that has had some currency in the oppression suit case law. He emphasised that both parties entered the relationship with an expectation that it would be profitable for both of them and that in the course of the relationship Mitsubishi obtained collateral financial advantages not available to him. 152 Before Young CJ in Eq, and in this Court, he placed particular reliance on various representations said to have been made to him during the course of the negotiations at the time the venture was created. He also placed reliance on what he submitted should be taken as the normal mode of conducting a car rental business, relying on a list of matters which may have improved the profitability of Kingmill, some of which were benefits which Mitsubishi acquired in its own right, but many of which were not done at all. 153 A number of the matters upon which Mr Bruning sought to rely in this respect were rejected by his Honour on the basis of his findings of credit. He rejected much of Mr Bruning's evidence about his communications at the time the venture was established. Significant aspects of his case of oppression and unfairness were undermined by these findings, which this Court should accept. 154 In a number of respects the evidence of Mr Bruning conflicted with that of Mitsubishi witnesses. His Honour concluded that he could not rely on Mr Bruning's evidence wherever there was a conflict with the evidence of the Mitsubishi witnesses. There was such conflict over a broad area of the evidence, primarily concerning whether or not various statements were made by certain officers of Mitsubishi to Mr Bruning. 155 His Honour identified a range of considerations which he took into account in reaching his credit finding, including his observation of the witnesses. However, he went beyond such matters. 156 I note in particular his Honour's references to the conversations which Mr Bruning had secretly taped after the dispute had arisen. The transcripts of those tapes became available on discovery at a late stage in the proceedings. Prior to that time Mr Bruning had put on evidence, apparently based on contemporaneous notes of the conversations. A comparison of the transcripts of the tapes, when they became available, with the evidence that Mr Bruning gave in chief indicated that significant matters had been omitted from his evidence and that his evidence included some matters which were not on the tapes at all. This was a factor to which, properly, his Honour gave substantial weight in determining that he would not accept Mr Bruning's evidence. 157 His Honour also referred to particular features of Mr Bruning's evidence which were unsatisfactory, as exposed by cross-examination. His Honour concluded: "[102] …a lot of Mr Bruning's evidence was reconstruction brought about by him poring over material with an obsessive view of the righteousness of his position rather than direct memory." 158 His Honour also noted that the transcripts of the tapes, when they became available, indicated that Mitsubishi witnesses continually rejected the case which Mr Bruning had sought to make about what the nature of the relationship was from the outset. His Honour also noted that during the whole of the period 1990 to 1997, when Mr Bruning was the managing director of Kingmill, he made no complaint of the nature which he now makes. The complaints commenced at the very end of that period, when the relationship had broken down. There was no complaint in the early years that the actual conduct of the affairs of Kingmill was in any way different from that which had originally been agreed. 159 These findings were of considerable significance in his Honour's rejection of Mr Bruning's case that profits had been directed from Kingmill to Mitsubishi itself. In large measure this rejection would be determinative of the oppression suit. It was also determinative of major aspects of the s106 case. 160 Before Young CJ in Eq a range of specific matters, of comparatively minor significance, were relied upon to suggest that, in some manner, Mitsubishi had inhibited the profitability of Kingmill or diverted profits from Kingmill to itself. His Honour dealt with these matters and dismissed them. Most were matters about which Mr Bruning had never made complaint during the course of his management of Kingmill. It is unnecessary to recapitulate all of these findings. 161 Of the litany of complaints about the defective profit performance of Kingmill, all of which were rejected by his Honour, some on the basis of triviality, only two were given emphasis in this Court: the absence of profits on resale of ex-rental vehicles and excessive leasing rates under the leases between Mitsubishi and Kingmill. 162 In addition, the Respondent sought to rely, in a repetitive manner, on two references in the internal documentation of Mitsubishi, as establishing impropriety on the part of Mitsubishi. The first was a reference to the fact that "profit maximisation" would not occur within Kingmill and the second that Mitsubishi wished to have a "captive" car rental company. These minor, and entirely innocuous, references were given such prominence in support of virtually every proposition advanced in argument, that I should deal with them first. "Profit Maximisation" 163 This issue arises from a document prepared by officers of Mitsubishi Australia in February 1990 with respect to the proposed takeover of the business of Old Thrifty. The document refers to the significance of obtaining the services of Mr Bruning as manager and notes that the number of potential managers with experience and a good track record was limited and that Mr Bruning's availability was of significance. The document states: "16. To secure (Mr Bruning's) involvement, MMAL would have to offer- (a) Sufficient rewards linked to MMAL's objectives (which would not be profit maximisation within the rental company) (b) The firm prospect of his involvement ending in say five years from inception with the ongoing viability from MMAL's view point being assured. 17. We know the following- (a) Mr Bruning is amenable to assisting with the study (b) (Mr Bruning) is amenable to the right proposition to an ongoing involvement in a minority position (has up to $0.75 million) (c) (Mr Bruning) will re-enter the rental market in some form, with or without us (d) Thrifty is in desperate need of funds and vehicles and cannot survive in its present form for more than a very short time (e) MMAL is not the only party who is considering acquisition of Thrifty." 164 Mr Bruning relied on the reference to the objective "not being profit maximisation within the rental company". This must be understood in the context of the whole of the document which included the conclusion, as follows: "21. We believe that the best form would be: (a) a separate company with a majority ownership being MMAL and a minority with (Mr Bruning) (b) (Mr Bruning) to be responsible for management under a service agreement which clearly sets out the objectives and the rewards This would include volume goals, profit goals, advertising practices etc. (c) head office in Sydney (d) MMAL to appoint the Financial Controller (e) independence from MMAL's operations, ie MMAL's role is in setting the objectives and ensuring these are followed. MMAL's short term needs cannot be allowed to adversely affect the rental company." 165 In its full context the reference to "profit maximisation" does not bear the connotation which Mr Bruning urged the Court to adopt, to the effect that from the outset it was the objective of Mitsubishi to divert profits to itself. The words mean no more than that the whole of the financial advantage which would accrue to Mitsubishi from the rental car company would not be located within that company. That that would be so was known to Mr Bruning at the time. 166 This becomes even clearer, a few months later, in the document known as The Study, which identifies the separate respects in which benefits would accrue to the rental company and to Mitsubishi itself in certain quantified amounts. This document was provided to Mr Bruning. The separate benefits to each of Mitsubishi and to the rental company are set out in a narrative form. The document states under the heading "Business Policy": "Our major objective in acquiring a rental car company is to secure incremental volume for MMAL, particularly for Magna, whilst earning a satisfactory return from the rental operation itself." 167 The reference in the document of February 1990 does not establish any plan or scheme on the part of Mitsubishi to divert profits to itself. Rather it is a recognition of the fact, known to Mr Bruning from the outset, as his Honour found, that the operation of the rental car company would confer additional substantial financial advantages on Mitsubishi which were not to be brought to account within the rental car company itself. The "captive" Kingmill 168 The word "captive" appeared in a letter of early February 1990 from an executive in Mitsubishi Motors Corporation in Tokyo seeking assistance from an Australian with respect to the proposed feasibility study for the acquisition of a rent-a-car company. At times the English in the letter is clearly stilted, including in the very sentence in which the word "captive" appears as follows: "Among other things, an idea acquiring captive rent-a-car company has caught MMAL management's attention." 169 The reference was clearly an aside of a descriptive character with no implications for how a majority shareholder would in the event deal with a minority shareholder. It probably meant no more than "subsidiary" or something to that effect. Subsequent references in correspondence from Japan and in other internal Mitsubishi documentation did not suggest anything untoward, let alone sinister, from the use of the term. 170 The repetitive reliance on use of the word "captive" in virtually every aspect of the Respondent's submissions, was entirely misplaced. Profit on Resale 171 The biggest single item in Mr Bruning's unfairness case was the fact that Kingmill made no profits from on-selling ex-rental vehicles. In order for a rental company to be in a position to do that it has to own vehicles in its own right or take them on residual lease. 172 It does appear to be the case that other car rental companies make profits from selling vehicles at the end of leases. For that to occur on any substantial scale requires either additional capital or the increased risks associated with additional loan funding or some variation in the lease terms otherwise applicable. Kingmill did not participate in this kind of activity to any substantial extent. His Honour rejected Mr Bruning's case that the fact that activity of this character occurred at the level of Mitsubishi itself, rather than at the level of Kingmill, was in any sense unfair or constituted some kind of diversion of profits from Kingmill to Mitsubishi itself. 173 His Honour referred to the oral and documentary evidence which established that, from the very outset of the discussions between Mr Bruning and officers of Mitsubishi, it had been clear that activity of this character would be conducted by Mitsubishi in its own name and that no such dealing was to be conducted at the level of the car rental company, which became Kingmill. His Honour expressly rejected Mr Bruning's evidence on this matter. He accepted the evidence of the Mitsubishi witnesses that there was an express understanding that the car rental company would not trade in this manner and that Mitsubishi would. His Honour found that that was understood by all parties from the outset. This understanding was confirmed in all of the contemporary documentation, including for example in The Study, which included estimates of profit from such dealings in the case of Mitsubishi, but without any such revenue stream in the case of the rental company. 174 Of general significance, but of particular significance with respect to the assertion that Mitsubishi appropriated to itself the profits from dealing with vehicles on residual leases, his Honour made the following findings: "[171] However, I basically accept the MMAL evidence that the way the business was to operate would be along the lines it did operate. Moreover it operated like that for five years without much protest by Mr Bruning who even renewed his contract for a further term. It was really only in 1997, that Mr Bruning began to show himself disturbed about some of these matters. [172] The parties agreed that there would be no car sales. The operation was financed on that basis. It may well be that had there been car sales made by Kingmill and had there been more residual leases, there would have been more profits. However, there would also have had to be more financing of the project, the financing solely being provided by MMAL." 175 This is one of the matters upon which Mr Bruning made no complaint in any of his management reports, even when the relationships between the parties had broken down. The Mitsubishi officers involved were quite consistent in their assertions that the position was always that Mitsubishi would undertake such dealings and the rental company would not. 176 There is no relevant unfairness or oppression. Mr Bruning's modest investment, pursuant to which he acquired a 15 percent indirect interest in the business, was not an investment in a business that had the capital base to conduct this kind of activity directly and borrowing, if available on that capital base on reasonable terms, would have distorted the risk profile of Mitsubishi's investment and that of Thrifty US. 177 His Honour's conclusion was based on his Honour's credit findings and is confirmed in all of the contemporary documentation. There is no basis for overturning the finding. This is not capable of being an element in an oppression suit, nor is it a matter suggesting unfairness of any contract or arrangement for s106 purposes. Concessional Leasing Rates 178 His Honour rejected the case advanced on behalf of Mr Bruning that the leasing rates were set to the disadvantage of Kingmill in the following passage: "[148] Mr Bruning says that MMAL's lease rates were simply based on Holden rates; the leasing periods were usually 12 months with a penalty for retiring a car early. This was too inflexible for the car rental company. [149] Mr Ludgate gave evidence as to how the lease rates were set. He commenced with the rate suggested by Mr Bruning of $475 per vehicle per month and then adjusted that figure for inflationary factors. He then cross-checked his result against other indices. MMAL deny this allegation completely. [150] Mr Boxall gave evidence for MMAL that in fact MMAL charged Kingmill less than its standard corporate lease rates by a total of $3,237,336. [151] It seems to me that there was nothing untoward with the fixing of the rates and that this head of complaint is not established." 179 The submissions in this Court about allegedly excessive leasing rates were confined to a narrower range of particulars than that with which his Honour had to deal. In this Court emphasis was placed on the need for Kingmill to receive "competitive leasing rates", in the sense that there should be a price advantage in this regard, when compared with the rates offered by other manufacturers to competitive car rental companies. 180 I would have thought that some differentiation was implicit in the fact that Kingmill, unlike its competitors, did not take cars on residual leases. Lease rates would presumably be higher if a lessee is entitled to buy the car at less than its true second hand value. There appears to me to be an element of double counting in the Respondent's case that he is entitled to compute his loss by taking into account both lower lease rates and profit on resale of cars. 181 The Respondent relied on a single document to support its submission that the lease rates provided by MMAL were uncompetitive – an untitled, undated report on the establishment of the car rental business prepared by Mr Bruning which, in relation to the projected cost of the fleet, states that "Due to expected MMAL lower lease costs, Thrifty should receive a price advantage." "Lower than" what, is not specified. This document reflects Mr Bruning's expectation, prior to any lease rates having been set. It does not establish that MMAL lease rates were uncompetitive. Against this, the appellants produced detailed evidence to show that MMAL lease rates were not, in fact, uncompetitive. 182 That evidence included evidence from Mr C Ludgate, a senior executive of Mitsubishi, that: - He set lease rates by reference to Mr Bruning's own suggested lease rates contained in the First Bruning Report (applying an uplift factor for certain variables such as inflation). - He calculated the lease rates for particular vehicles so as to ensure that the total lease costs in respect of that vehicle did not exceed 30 per cent of projected revenue based upon the utilisation rate and daily rental rates forecast by Mr Bruning. 183 It also included evidence from Mr M T Quinn, managing director of Mitsubishi, that: - All lease rates were presented to him for approval and, as a matter of practice, he sought to ensure that MMAL's lease rates were competitive with those of other manufacturers. - He was prepared to and did reduce MMAL's lease rates to Kingmill on many occasions between 1990 and 1997 if Mr Bruning indicated that strong competition was occurring in a particular market segment. - Having set the MMAL lease rates for a period of 12 months, they were never then increased during that year. - Despite many requests, Mr Bruning was never able to provide Mr Quinn with evidence of other vehicle manufactures' rates charged to other car rental companies. - MMAL's lease rates to Kingmill were more generous than those that applied to MMAL's other fleet customers. 184 His Honour's reference to the evidence filed on behalf of the Appellants on these issues was expressed in a summary way. This Court's attention was directed to the detailed evidence given with respect to these matters by witnesses on the part of the Appellants showing the precise manner in which the rates were determined, frequently in consultation with Mr Bruning. The evidence of those witnesses was to the effect that they sought to ensure that the rates were consistently competitive. No reason has been advanced on appeal why this evidence should have been rejected by his Honour. 185 The submissions on behalf of the Respondent on leasing rates did not identify any evidence said to establish that the leasing rates offered by Mitsubishi over the relevant period were not competitive in any sense. His Honour referred generally to the detailed evidence given on behalf of Mitsubishi about the consideration given between Mr Bruning, as managing director of Kingmill, and officers of Mitsubishi about the competitive position of leasing rates over the whole period of the relationship. His Honour's finding that there was "nothing untoward with the fixing of the rates" was his Honour's assessment of this detailed evidence. Nothing has been put to this Court which would suggest that that process resulted in non-competitive rates. Allowance for Profit Bonuses and Restraint of Trade 186 In addition to the claims made in his s106 case for return of an investment allowance for profitability of Mitsubishi's actual commercial advantages and a further allowance for alleged profits on resale of vehicles, Mr Bruning made claims for two specific smaller amounts. 187 The first concerned an allowance for profit bonuses pursuant to cl 22.2 of the Management Agreement which provided that Mr Bruning was entitled to a bonus of $12,500 if he exceeded profit targets set for any particular year. 188 Young CJ in Eq rejected this case for the following reasons: "[230] I have considered whether it is also necessary to make some adjustment with respect to bonuses which Mr Bruning might reasonably have thought would flow his way. [231] I have decided not to make any order with respect to bonuses. This is principally for two reasons, first in contrast to the value of the shares, no protest was made about this matter during the life of the contracts and, secondly, bonuses are always considered to be matters of chance rather than right." 189 The Respondent submitted that his Honour did not consider the extent to which the absence of recorded profits was a matter within the control of Mitsubishi rather than Mr Bruning. He submitted that an amount of $87,500 (representing an annual amount of $12,500 x 7) should be allowed under this head, on the basis that Kingmill's recorded profits were within the control of Mitsubishi and that Mitsubishi had made a range of decisions which determined that Kingmill did not make such profits. 190 As indicated above the Respondent's case in this regard should be rejected. There was no evidence that Mitsubishi had diverted profits to itself. The case that Kingmill should have made profits by way of profit on resale of vehicles or by way of concessional rates of leasing have also been rejected above. There was no conduct on the part of Mitsubishi that can be criticised that had the result that Kingmill failed to make profits which it otherwise would have made. In these circumstances, in my opinion, there is nothing unfair about the fact that Mr Bruning did not earn a profit bonus that was dependent upon Kingmill itself earning profit. 191 The second allowance which Mr Bruning sought was for the effects of the restraint of trade provision in the Management Agreement. He claims a continuation of his salary package of $225,000 for the year in which he was restrained from competing with his former employer. The only evidence of any character which could quantify his loss from the restraint of trade provision was what was said to be an offer of a consultancy with the Toyota company for an amount of $100,000. 192 I note that no submission was made before Young CJ in Eq or in this Court that any part of the restraint of trade was void as an unreasonable restraint. I can see no impropriety in Mitsubishi insisting on the application of the restraint of trade clause. In the light of the conclusion to which I have come with respect to the basis on which his shares should be valued, I do not see that any allowance is appropriate for this factor. I do not see that it is in any respect "unfair", for the purposes of s106. Disparity in Expected Commercial Advantages 193 One factor that requires further consideration on the issue of fairness, for purposes of the exercise of the power under s106, is the evidence that indicates that Mitsubishi received substantially more by way of the indirect benefits than it had expected at the time the venture was entered into and that this occurred despite the fact that the profitability of Kingmill, and therefore Mr Bruning's indirect benefit, was substantially less than originally projected. 194 Once Young CJ in Eq had rejected, correctly in my opinion, Mr Bruning's case that that occurred by reason of the diverting of profits by Mitsubishi from Kingmill to itself, there were two principal reasons for this divergence. Kingmill made less than it was expected to make primarily because competitive pressures in the car rental business prevented it charging higher rates. Mitsubishi made much more by way of indirect advantage, primarily because the composition of the fleet, in large measure determined on the advice of Mr Bruning himself, contained a much higher proportion of Mitsubishi vehicles than originally anticipated. 195 In April 1990 Mitsubishi put forward a proposal to its head office in Japan to acquire the rental car operation known as Old Thrifty. This proposal, referred to in the proceedings as The Study, identified the benefits to Mitsubishi from participating in the venture based on a range of assumptions as to how it would operate. In addition to the profits projected for the rental car operation, a calculation was made, for the same period of five years, of the financial advantage that would accrue directly to Mitsubishi because the rental car operation would employ a significant proportion of Mitsubishi vehicles in its fleet. 196 The particular computations contained in this Study projected profits within the rental car company, ie what became Kingmill, of $3.3 million and profits in Mitsubishi over and above the operations of the rental car company of $4.2 million. The total of about $7.5 million was put forward as the possible purchase price of Old Thrifty, although it was contemplated that Mitsubishi would negotiate for a lower price. It recommended a purchase price between $5 and $6 million. 197 The original projections in the Study were based on a break up of 60 percent of the corporate fleet and 40 percent of the franchisee fleet as being Mitsubishi vehicles. The fact that the percentage proved to be much higher, in excess of 70 percent and sometimes as high as 80 percent, was the principal reason why the benefit to Mitsubishi proved to be so much higher than was projected in the original Study. Nevertheless, in the Study it was stated that this portion was a "conservative" assumption and that the objective would be to achieve a higher share for Mitsubishi vehicles. 198 There was in evidence two computations of the net financial advantage that had actually accrued to Mitsubishi over the course of the operation of the Thrifty rental car business. These calculations established that the advantage was considerably greater than that which had been projected in the document of April 1990 known as the Study. 199 In June 1996 Mr M T Quinn, the managing director of Mitsubishi, put forward a submission to his head office in Japan recommending that an offer be made to acquire Mr Bruning's shares for an amount in excess of that which was required under the contract. That letter said: "As Kingmill Pty Limited has accumulated losses greater than its share capital from the financial point of view Mr Bruning's shares have not value – see attached Price Waterhouse letter. However, in view of the overall profit of the rent a car business to MMAL it is recommended that we buy back Mr Bruning's shares at original value plus interest based on 90 day bank bill rate – see attached calculation." 200 Mr Quinn also said: "Although Mr Bruning works hard to expand the business of Thrifty he is not in a position to enjoy a profit like the other two shareholders. (See P&L Account attached which confirms his understanding.)" 201 The reference in parentheses "which confirms his understanding", indicates Mr Quinn's agreement with the view expressed by Mr Bruning, as recorded in the first sentence. 202 Mr Quinn supported his recommendation with figures of what returns were originally expected, which were not precisely identical to the Study, but were of a similar order of magnitude. The figures were put forward as the projections at the time the venture was initiated. They indicated that the profit within the rental company over the period of the first five years had been projected to be in excess of $3.5 million, whereas what had actually happened was a loss of $4 million, a deficiency of $7.5 million. The document also stated that the projection of profit before tax for Mitsubishi, over and above its interest in the rental company, had been $6.825 million, whereas what had actually happened was a return of in excess of $19.871 million, a surplus of $13 million. Considered overall, the venture, had proven to be about $5.5 million more profitable to Mitsubishi than had been originally projected over the first five years, i.e. something less than double. However, the rental company had suffered considerable losses. 203 The document of June 1996 also projected the likely results in 1996 which showed a smaller loss of $175,000 in the rental company but a continued additional profit for that year for Mitsubishi in its own right of $4.9 million. On this basis, over the six years 1990-1996, the Mitsubishi advantage would be about $25 million, before tax. 204 Further computations were done in this regard in May 1997 which made adjustments for a number of factors, including tax, and brought the position up to 1997. The Appellant's submissions to this Court referred to the statement in the May document that the original estimate of the benefit to Mitsubishi was $6.875 million. It extended the calculation to 1997 by adding an average of the five year projections for two additional years of about $2.7 million. This would give a hypothetical original seven year projection of about $9.6 million. This should be compared with what actually occurred over the seven year period of a net contribution to Mitsubishi of about $18 million, i.e. almost double. 205 The Appellants' computation was directed to establishing the proposition that the actual benefit to Mitsubishi was not such as to justify a conclusion of unfairness. It drew particular attention to the fact that the original projection was based on an assumption that only 50 percent of the Kingmill fleet would be Mitsubishi cars. Mr Bruning had always said that it would be higher. Recalculation of the original projection on the basis of 80 percent of the fleet would increase the Mitsubishi benefit over the nine years from about $9.6 million to $15.4 million, only $2.6 million below the actual amount of $18 million. The Appellants also noted that at the end of the seven years, the unpaid lease obligations owed by Kingmill to Mitsubishi amounted to $10.8 million. 206 In his s106 case and, alternatively, in his oppression suit, the Respondent asked this Court to fix a fair value for his shares in Rentals. Under s106 that would require the Court to vary the Share Allotment Agreement by substituting "fair value" for "fair market value" in cl 11.2.3. After such an amendment, as I have noted above, the Court could take into account the full range of relevant circumstances, including the significant divergence between the original expectations and the ultimate result with respect to the commercial advantages accruing to the parties. 207 In my opinion, the Respondent has established that the Share Allotment Agreement had become an unfair contract within the meaning of s106(2) of the Industrial Relations Act 1996, because of this disparity. I reiterate my acceptance of the finding by Young CJ in Eq that the original expectations played a part in determining the remuneration of Mr Bruning under the Management Agreement. 208 The commercial advantage to Mitsubishi was not an accounting profit, but its own internal assessments treat the advantage as real. It has received benefits of about $18 million over the first seven years of the venture. This required an expenditure of $1,536,843.75 for its original acquisition of a 81.25 percent interest and additional funding to finance Kingmill's losses. When assessing the fairness of the arrangement in the events that have happened, it is necessary to bear in mind that Mitsubishi provided additional funds, but Mr Bruning was not called upon to do so. 209 The additional funding advanced by Mitsubishi to Kingmill had two components. There was a substantial amount of accrued arrears of lease payments. (As at 31 December 1997 this amount was $10.78 million.) However, these amounts were taken into account in computing the net loss within Kingmill in both the June 1996 and May 1997 documents, to which I have referred above. Indeed the May 1997 document allowed for interest on outstanding receivables. Mitsubishi did, however, advance $3.3 million by way of loan to Kingmill. 210 As at 24 April 1998, when it exercised its option to acquire the Sale Shares and when the valuation must be performed, Mitsubishi had an asset which could be valued for itself on a future maintainable earnings basis. This valuation was not carried out, but if the full range of commercial advantages were taken into account, the value would clearly be substantial. 211 Mr Bruning had invested $354,656.25 of his own funds and, on his Honour's findings, had received lower remuneration because of the prospect of returns by way of profit and capital gain on his investment. He received no commercial return of any kind over the seven years and was left with an asset which, on a "fair market value" test, was worth $675,000 computed on, in effect, a nuisance value basis, with no allowance for future maintainable earnings. 212 There can be no doubt that Mr Bruning's contribution to building the business to the advantage of Mitsubishi was substantial. When compared with the respective benefits each of the parties expected to receive when their original investments were made, the operation of the fair market value test for valuation leads to a valuation that is, in my opinion, unfair. 213 This Court should order that the Share Allotment Agreement be varied by deleting the word "market" in the formulation "fair market value" in cl 11.2.3, wherever appearing. Determination of Fair Value 214 I have set out at various stages of this judgment the nature of the relationship between the parties in the context of the operations of the car rental business in which Mr Bruning was both a managing director and, indirectly, an investor. Against this full range of circumstances, I have identified only one matter as rendering unfair the formula for determining the price on which his shares can be acquired by Mitsubishi. The application of the "fair market value" test provided to him a comparatively small return on his original investment whereas Mitsubishi had not only received a substantial return on its investment but would be left with an asset of considerable value which, subject to the interest of Thrifty US, it would completely control. 215 There are few available quantitative guidelines for determining what "fair value" is in this case. However, I am satisfied that the fair market valuation to which his Honour came and which I have confirmed, on a slightly different basis, of $675,000 as at the date of the exercise of the option was not fair value. 216 His Honour's computation, like Mr Quinn's recommendation that an offer be made to purchase the shares, involved applying an interest rate type rate of return to the original investment. This is, in my opinion, an unfair approach to rewarding a person who has assisted significantly in building a business of, it appears, substantial capital value. Some recognition of the value of the business is required on a "fair value" test. 217 The submissions of the Respondent identified three separate elements cumulatively required to restore fairness. The three elements were: first, the return of the capital he originally invested; secondly, a computation based on a 15 percent share of the profits which Mitsubishi had actually received over the seven years 1990-1997; and, thirdly, an estimate on what profit ought to have been made on the sale of ex-rental vehicles. 218 In my opinion, neither the first nor third are appropriate to be considered in the quantification. The return of capital is not a separate item in the relevant equation. The issue is what is fair value, as at the date of the exercise of the option, of the Sale Shares. The third element, the profit on sale of vehicles is, for the reasons already outlined, not a matter that was ever of any relevance in the Kingmill business as it was capitalised and structured. 219 The second element identified does, however, provide assistance for quantifying the fair value of the Sales Shares. The Respondent's submissions focused on the computation in the May 1997 document to which I have referred that the cumulative total commercial advantage obtained by Mitsubishi over the seven years from 1990-1997 was $7,886,000. Mr Bruning's 15 percent of that amount would be $1,182,900. It is appropriate to round this item upwards because the computation was made as at 31 December 1997, whereas the determination of fair value must be done almost five months later as at 24 April 1998. 220 What is involved here is a matter of broad judgment rather than any form of mathematical precision. I would round up the figure as at 24 April 1998 to an amount of $1,250,000 as the fair value at that date of the Sale Shares. I note that this constitutes almost double the fair market value of the shares as originally computed by Young CJ in Eq and which I have affirmed above. There is some justice in this ratio in view of the fact that, on the basis of the May 1997 document, Mitsubishi's actual net commercial advantage proved to be about double the commercial advantage it was expected to receive on the adjusted seven year projection set out in the May 1997 document which I have outlined above. 221 To this amount of $1,250,000 as at late April 1998 must be added an interest component. There was no substantive criticism of the approach of Young CJ in Eq in this regard or of the rate he chose. This requires the addition of 9.5 percent for approximately six years and six months being $118,750 per annum or an addition of $771,875 which, in view of the broad brush approach that the calculation in fact involves, should be rounded down to $750,000 for an ultimate value of $2 million. Costs 222 The Appellants contend that even if their appeal is dismissed, his Honour erred in making the order for costs that he did make: that the Appellants pay 90 percent of the Respondent's costs, but no costs be allowed for the Respondent's expert valuer. 223 The figure of 90 percent was an allowance for the issues pursued in this hard fought case upon which the Respondent failed. The Appellants submit that this was an inadequate allowance. This was a discretionary matter for this Honour. I would not intervene, particularly in view of the additional success that the Respondent has had in this Court. 224 The Respondent asserts, by way of cross appeal, that his Honour erred in excluding an award for the costs of his valuation expert, Mr Hilton. I have indicated in my agreement with the conclusion of Young CJ in Eq that this report was of no value. I would not disturb the costs order at first instance. Orders 225 The orders I propose are as follows: 1 Set aside orders 1 and 2 made on 31 March 2004. 2 Clause 11.2.3 of the Agreement for the Allotment of Shares dated 30 October 1990 be amended by substituting "fair value" for "fair market value" wherever appearing. 3 Subject to order 3 made on 31 March 2004, and noting that the period of 28 days therein referred to commences on the date of these orders, the Second Defendant pay the Plaintiff the sum of $2,000,000 within 28 days of the date of these orders. 4 Amend order 4 made on 31 March 2004 by inserting "$2,000,000" in place of "$1,059,750" and noting that the reference to "order 2" is a reference to order 3 hereof. 5 The Appellants/Cross-Respondents pay 90 percent of the Respondent/Cross-Appellant's costs of the appeal and cross appeal. 226 MASON P: I agree with Spigelman CJ. 227 HODGSON JA: I agree with Spigelman CJ. ********** Last Modified: 12/21/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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