Barbagallo v Clifton Fletcher Pty Ltd & Ors [2004] NSWSC 699

New South Wales Supreme Court

CITATION : Barbagallo v Clifton Fletcher Pty Ltd & Ors [2004] NSWSC 699 HEARING DATE(S) : 05/07/04, 06/07/04, 07/07/04, 08/07/04, 09/07/04, 12/07/04 JUDGMENT DATE : 10 August 2004 JURISDICTION: Equity JUDGMENT OF : Cripps AJ DECISION : Contract to be specifically performed. Case in oppression not made out. Cross Claim dismissed. Costs reserved. Matter to be listed for further orders re interest damage and costs

CATCHWORDS : Contract - Specific Performance - Oppression (Corporation Act s233) - Valuation of shares LEGISLATION CITED : Corporations Act s233 CASES CITED : Wenning v Robinson (1964-5) NSW R 614 Salvatore Barbagallo - plaintiff Clifton Fletcher Pty Ltd - first defendant Alfio Licciardello - second defendant PARTIES : Andrew James Cassar - third defendant Andrew Francis Duignan - fourth defendant

Anthony Vella - fifth defendant

FILE NUMBER(S) : SC 6138/02 Mr C N Birch SC and Mr P A Leary for plaintiff COUNSEL : Mr J B Whittle SC and Mr M S Zammit for defendants

SOLICITORS : Pryor Tzannes & Wallis for plaintiff Conomos & Spinak for defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

CRIPPS AJ

Tuesday 10 August 2004

6138/02 SALVATORE BARBAGALLO v CLIFTON FLETCHER PTY LTD & ORS

JUDGMENT 1 CRIPPS AJ: At all relevant times and up to 30 June 2001 Mr Barbagallo (the plaintiff) owned 25 percent of the shares in Clifton Fletcher Pty Ltd (the first named defendant). 2 At all relevant times Clifton Fletcher operated a Ray White Real Estate Agency under its own name at Mascot, a Ray White Real Estate Agency at Maroubra under the name of its wholly owned subsidiary Drysan Pty Ltd and Ray White Real Estate Agency at Kensington under another subsidiary Fassilis Real Estate Pty Ltd. 3 At all relevant times and as at 30 June 2001 Mr Licciardello (the second defendant) and Mr Cassar (the third defendant) also owned 25 percent of the shares in Clifton Fletcher. Mr Duignan (the fourth defendant) and Mr Vella (the fifth defendant) each owned 12 ½ percent of the shares. 4 In all there were 12 shares in Clifton Fletcher. Mr Barbagallo, Mr Licciardello and Mr Cassar owned three each and Mr Duignan and Mr Vella owned one each and were joint owners of another. 5 Prior to 30 June 2001 and at all relevant times Mr Licciardello, Mr Cassar, Mr Duignan, Mr Vella and Mr Barbagallo were directors of Clifton Fletcher and each was an employee. 6 In his amended statement of claim Mr Barbagallo alleges that he ceased being a director and an employee on 30 June 2001. It appears, however, that his name has remained on the Register although, as I hold, nothing turns on this because, as will be seen, as at 30 June 2001 Mr Barbagallo resigned as an employee and a director and thereafter played no further part in the management of commercial activities of Clifton Fletcher other than tidying up after he departed. 7 By his Amended Statement of Claim Mr Barbagallo seeks a declaration that a valid and binding contract existed at all relevant times between him and the other four directors that they would purchase his 25 percent shareholding at "fair market value". He seeks an order of the Court that the other directors be compelled to specifically perform and carry the contract into effect. 8 Mr Barbagallo also seeks a declaration that the conduct of the other directors preceding, surrounding and after the termination of his employment and directorship in Clifton Fletcher amounted to oppression, unfair prejudice and unfair discriminatory conduct against him. In particular he has singled out Mr Licciardello (his brother-in-law) as being the person who, he claims, in effect, unfairly oppressed him resulting in his resignation as an employee and a director. Pursuant to s233 of the Corporations Act he seeks an order that the other four directors purchase his share in Clifton Fletcher at fair market value. 9 By his Statement of Claim he sought an order that the fair market value be determined by an independent valuer appointed by the Court. The claim has been abandoned and in lieu thereof he asks this Court to determine the fair market value. The other directors have accepted that if, contrary to their case that there was in fact a contract entered into and/or that they were guilty of oppressive conduct which would result in the order sought then it is appropriate that the Court should fix the fair market value. 10 Mr Barbagallo has also sought an order, in the alternative, that Clifton Fletcher Pty Ltd be wound up and a liquidator appointed – but that claim is no longer pursued. 11 Depending upon the findings by the Court with respect to the claim for specific performance or orders pursuant to s233 of the Corporations Act Mr Barbagallo claims interest damages. It is agreed between the parties that interest damages will not be the subject of a decision in this hearing but will be determined after relevant findings have been made. 12 Although operating through a corporate structure the five directors prior to 30 June 2001 ran the business of Clifton Fletcher as a quasi partnership. All were employed by Clifton Fletcher. No person held the office of managing director although it was accepted by the other directors that Mr Licciardello in effect undertook that role. 13 I should also mention however that prior to 1999 there were four directors/employees each holding 25 percent of the shareholding in Clifton Fletcher. The directors/employees were Mr Barbagallo, Mr Licciardello, Mr Cassar, and Mr Wehby. 14 Mr Wehby sold his three shares to Mr Duignan and Mr Vella in 1999 which had the effect of raising the "quasi partnership" from four to five. 15 Mr Vella and Mr Duignan purchased Mr Wehby' shares in 1999 for $750,000. That at least was the purchasers' (Mr Vella and Mr Duignan) contribution. In fact Clifton Fletcher paid Mr Wehby a further $50,000 and Mr Wehby received $800,000. 16 Mr Wehby, with the consent of the other parties (and which included Mr Vella and Mr Duignan) had his 25 percent shareholding valued by Mr Bevan. Mr Bevan adopted a method of valuing the shares on what was, in effect, a winding up basis and which had no regard to Mr Wehby's minority position. He valued a 25 percent shareholding in Clifton Fletcher towards the end of 1999 as being $850,000. 17 In due course I shall refer to Mr Bevan's method of valuation. In the present case Mr Barbagallo has retained another valuer Mr Kelly who has used Mr Bevan's method of valuation and has arrived at a valuation of 25 percent of the shares in Clifton Fletcher as at 30 June 2001. This is a little under twice the valuation of Mr Bevan made about twenty months earlier. The increase in value assessed by Mr Murphy owes less to any increase in the actual business of Clifton Fletcher (although there was some increase in rent rolls) and more to the multipliers used to assess the value of rent rolls and sales on commission – in particular the multiplier to be used for the purpose of establishing the value of rent rolls of the agencies. 18 Mr Bevan's valuation has some relevance to the issues for determination in this case. On the one hand Mr Lonergan an expert valuer called by the defendants has criticised Mr Bevan's method of valuation because, he says, it is, in effect, a valuation on winding up and not a valuation of a 25 percent minority shareholding in a company as a going concern. He is of the opinion that, amongst other things, the minority position of the holder of the 25 percent shares is relevant to the question of value. Also he thought regard should have been had to the profitability of Clifton Fletcher and, in particular, to the circumstance that the Kensington agency was running at a loss. On the other hand, as will be seen, all parties from mid 2001 onwards and, possibly until the lawyers retained by Mr Lonergan came into the picture, were of the opinion that fair market value should be assessed using the method employed by Mr Bevan. As will be seen Mr Bevan was asked to bring his 1999 valuation up to date. He declined to do so and recommended Mr Murphy. Mr Murphy approached his valuation on the same basis of Mr Bevan. Neither party now considers his valuation to be relevantly a fair market valuation as at June 2001 but, until the lawyers got involved at least, neither side maintained the methodology was wrong. Mr Licciardello sought the valuation from Mr Murphy on the basis it was given and Mr Barbagallo, although not accepting it, did not dispute his methodology. He claimed, for example, that Mr Murphy had omitted certain rent rolls. 19 Mr Barbagallo's primary case is that there was an enforceable contact between Mr Barbagallo on the one hand and Messrs Licciardello, Cassar, Duignan and Vella on the other that in consideration that Mr Barbagallo would resign as an employee and director of Clifton Fletcher by the end of June 2001 Messrs Licciardello, Cassar, Duignan and Vella would acquire his 25 percent shareholding in Clifton Fletcher at fair market value. 20 Messrs Licciardello, Cassar, Duignan and Vella deny there was any agreement, in terms, that they would acquire Mr Barbagallo's shares as alleged by him. However, as will be seen, they recognise they had an obligation (however characterised) to acquire his shareholding in Clifton Fletcher. On 11 August 2001 and after discussions between Mr Barbagallo and Mr Licciardello concerning the payment of the purchase price by instalments Drysan Pty Ltd forwarded to Mr Barbagallo a cheque for $50,000 as an instalment towards the sale of Mr Barbagallo's interest in Clifton Fletcher. The letter was signed by Drysan but, in my opinion, nothing turns on that. Moreover some time after Mr Barbagallo left the valuation of his shareholding was undertaken at the instigation of Mr Licciardello by Mr Bevan in the first instance and later when he announced a conflict of interest by Mr Murphy who had been recommended by Mr Bevan. As I have said, Mr Murphy's valuation was rejected by Mr Barbagallo and neither side in the litigation has relied on it as establishing fair market value as at 30 June 2001. 21 Mr Barbagallo's alternative case is that he was the victim of oppressive conduct by the other directors for some years prior to his resignation in June 2001 and thereafter. He also claims that he was, in effect, "forced" to resign as a director and employee of Clifton Fletcher. Although the allegation of oppressive conduct is directed against all the present directors Mr Barbagallo has pitched his case at the conduct of Mr Licciardello and maintains that Mr Cassar, Mr Duignan and Mr Vella acquiesced in Mr Licciardello's conduct and were therefore parties to it. The defendants deny the existence of an enforceable agreement in terms alleged by Mr Barbagallo and they deny they have been guilty of oppressive conduct as alleged. 22 Clifton Fletcher has cross-claimed against Mr Barbagallo alleging, in substance, that his conduct while an employee and director of Clifton Fletcher fell short of that required of him both as a director and an employee causing the company to suffer losses which they calculated to be in the order of $300,000. A good deal of time in the litigation was concerned with how Mr Barbagallo performed his duties as an employee and reference was made to complaints Clifton Fletcher received concerning his failure adequately to deal with tenants, and in particular, his consistent failure to return telephone calls. Messrs Licciardello, Cassar, Duignan and Vella have denied relevant oppression but they do not deny they believed Mr Barbagallo was incompetent and/or lazy in the years preceding his departure from the company entitling them to take the stand they did in 2001 by requesting his resignation. 23 It is unnecessary for me to recite the allegations and counter-allegations beyond finding that from early 2002 Mr Licciardello was determined, if he could, to have Mr Barbagallo resign from the company. It is, of course, always difficult to judge the extent of or justification for mutual hostility between two people particularly where, as in the present case, they are co-employees and related by marriage. I think Mr Licciardello was a forceful character and was, in effect, the dominant "partner". I am satisfied that he had some cause to be dissatisfied with the work being undertaken by Mr Barbagallo and, in particular, the consistent failure of Mr Barbagallo to respond to the telephone calls from landlords and tenants and from which Mr Licciardello and the other directors had received complaints. 24 Mr Licciardello gave evidence that he believed Mr Barbagallo was not pulling his weight and that he was a "drain" on Clifton Fletcher. The other directors agreed with him. I think the opinion that was held by Mr Licciardello was reasonably open to him or at least it has not been established that it was not. 25 Mr Barbagallo alleges, in effect, that Mr Licciardello's conduct towards him amounted to duress causing him to leave Clifton Fletcher 2001. He says that he was constantly bullied and humiliated by Mr Licciardello and he instanced an occasion in 2002 when Mr Licciardello caused him to be transferred from the Maroubra office to the Mascot office where he was then to work under the supervision and control of Mr Vella who had only recently become a shareholder and partner. (Curiously enough in his Statement of Claim his transfer from Maroubra to Mascot was not alleged to be part of the oppressive conduct against him. However his case was conducted on the basis that it was). 26 I do not accept Mr Barbagallo's claim that he was in effect acting under duress when he left Clifton Fletcher. He has given evidence to the effect that was often abused and frequently humiliated in front of staff by Mr Licciardello. He said he was intimidated and he was unable to deal with the overbearing attitude demonstrated by Mr Licciardello. He took exception to being called "kafoops" and, as I have said, resented having been transferred from Maroubra to Mascot. There were occasions, I think, when Mr Barbagallo was criticised by Mr Licciardello in front of the staff. However I do not accept his evidence that Mr Licciardello "threatened" him as he alleged about his decision to stand for re-election as treasurer for the Eastern Suburbs division of the Real Estate Institute of New South Wales and that Mr Licciardello's conduct was relevantly oppressive. (I should also note that that conduct was not part of the oppressive conduct particularised in the Statement of Claim but the case was conducted on the basis that it was). I think Mr Licciardello told Mr Barbagallo he should be attending more to the business of the company and less to outside activities but I do not accept that Mr Barbagallo's will was overborne. Moreover I do not accept Mr Barbagallo's evidence given in Court (but not at all referred to at all is his detailed affidavits) that he was assaulted by Mr Licciardello.