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. 27 I find Mr Barbagallo to be an intelligent person. He resented, I think, the hostility shown to him by Mr Licciardello, and he recognised that Mr Licciardello wanted him out of the company and that was an ambition shared by the other directors. Eventually Mr Barbagallo agreed to go. But I do not think his decision was the consequence of duress. I think he'd decided he'd had enough. He knew he was not wanted and agreed to go. Moreover I cannot ignore the fact that Mr Barbagallo who claims, in effect, that he was stripped of almost any capacity to make rational decisions in his own interests and which resulted in him being "forced" to leave the company has in fact maintained a six-day equity suit against Mr Licciardello and the other directors. This suggests to me that although, as Mr Barbagallo says, Mr Licciardello was hostile to him he, Mr Barbagallo was quite capable of making a rational decision to leave the company as he did in June 2001. So much, in my opinion, was made clear by the agreement which, as I find, he negotiated as a condition of his departure from Clifton Fletcher. 28 Relevant to Mr Barbagallo's claim in contract is what took at took place at a directors meeting on 4 May 2001 and at a later meeting on 7 June 2001. Mr Barbagallo has alleged (and the other directors have denied) that at the May meeting Mr Barbagallo said he would resign from the company as an employee and would play no further part in the management of it if the other directors would buy his 25 percent shareholding at "fair market value". 29 Mr Barbagallo said (and I accept it because it has not been challenged) that he was told not to take notes of the minutes of the meetings. Mr Barbagallo produced typed versions of the meetings. These typed versions have been the subject of some attack by Mr Whittle because the typed up versions of the minutes make reference to events that could not have been known immediately after the meetings and that therefore the notes that were typed must have been typed up much later. I think the criticism is well founded but it really does not assist the defendants, in my opinion, because there is other material, beyond Mr Barbagallo's word for it, that establishes the basic correctness of the minutes produced by Mr Barbagallo. 30 Although denying there had been any discussion concerning the purchase of Mr Barbagallo's 25 percent interest in the company at the meeting of 4 May when all directors were present Mr Licciardello circularised a memorandum which was drafted after the meeting of 4 May 2001 and before the meeting of 7 June 2001. It was circulated to the "partners" which included Mr Barbagallo prior to the meeting of 7 June 2001. 31 In it he referred to a "leak" concerning the "proposed sale of the business". The memorandum continued: "Not only was the person concerned but an amount quoted. There is no doubt the leak came from one of the five partners. On this basis you will recall I said at the last meeting (a reference to the meeting of 4 May) that if there was not strict confidentiality in the transfer that the deal was off." 32 Mr Licciardello and Mr Vella have emphatically denied that there was any "deal" of any kind in May 2001. However Mr Licciardello could give no sensible explanation as to why he would have recorded that the "deal was off" if there had been no "deal" in the first place. Mr Vella said, unconvincingly, that it appeared to be a reference to something that had never happened ie there had not been a deal at all. 33 What is perhaps less clear is what the "deal" was. In my opinion more probably than not the "deal" was that if Mr Barbagallo resigned as an employee and director the other directors would buy his shareholding at "fair market value". But what was meant by this? I would infer that "fair market value" was intended to refer to a valuation of the type undertaken by Mr Bevan when Mr Wehby sold his 25 percent shareholding a little over eighteen months earlier. I would infer that was what was understood by the parties when they referred to the "deal". Moreover support for that view derives from the circumstance that after the June meeting and after Mr Barbagallo had left the company Mr Bevan was approached to, in effect, update his valuation. As I have said, he declined to do so citing a conflict of interest and recommended Mr Licciardello approach Mr Murphy which he did. 34 Mr Barbagallo, Mr Licciardello and Mr Vella were cross-examined concerning what their understanding of what fair market value meant. On their understanding in cross-examination it had the meaning that the valuation had to be fair according to their lights. Mr Whittle has emphasised that in cross-examination Mr Barbagallo conceded that neither Mr Licciardello nor the other directors had indicated they would agree to be bound by any valuation that might be retained. Mr Barbagallo said he took the view that it was always open to him to disregard a valuation he did not see as fair. 35 I recognise the force in Mr Whittle's cross-examination. However at the meeting beyond assuming that the valuation would be done in accordance with the method used by Mr Bevan I do not think the parties really turned their mind to the questions they were asked in cross-examination. 36 It would seem to me, with respect to Mr Whittle's submission that the remaining directors would acquire Mr Barbagallo's share for fair market value and that by implication the method of determining fair market value was to be the method used by Mr Bevan. Leaving to one side the question of the restraint of trade clause and the period of retention it would seem to me that as at the time of making the agreement "fair market value" was a reference to what was objectively the fair market value and the circumstance that either party later did not think that the valuation was relevantly "fair" would not detract from that meaning. 37 It is not correct I think to conclude, on the findings I have made, that a fundamental term of the contract viz that fair market value be paid was void for uncertainty. (See Wenning v Robinson (1964-5) NSW R 614). In my opinion the phrase was not relevantly illusory or uncertain. If there was a dispute concerning what was the "fair market value" that matter would have to be determined by the Court. 38 At this point it is relevant to mention that Article 4 of the Articles of Association of Clifton Fletcher refers to the rights of members of the company to transfer their shares. Article 4 relevantly provides: "(1) All shares comprised in a transfer notice shall be first offered by the shareholder … to directors themselves in equal proportions so that in case of any difference between them as to the disposal or distribution of a share or shares the mode of disposal or distribution shall be determined by lot and any shares not taken by the directors or some of them within a period of fourteen days from the date of receipt by the directors of such transfer notice shall be then offered to the other members in such order as shall be determined by lot and in each case the person to whom the offer is made (whether a director or not) shall have the option of buying the same at a value independently determined by a Public Accountant or Public Accountants engaged by mutual agreement of the parties hereto for the purpose which is to be the consideration and price fixed in the transfer notice. …." …. (5) The directors may refuse to register any transfer of a share (a)…. or (b) where the directors are not of opinion that it is desirable to admit the proposed transferee to membership." 39 When the case came on for hearing Mr Whittle on behalf of the defendants sought to amend the defence to raise as a defence that Mr Barbagallo had failed to comply with Article 4(1) because he had not proffered a transfer to the directors and a value had not been obtained by a Public Accountant chosen by mutual agreement. However, as will be seen, I have come to the conclusion that the agreement entered into prior to Mr Barbagallo leaving the company and the conduct of the parties thereafter negatived any relevance of Article 4. 40 Before turning to the question of what was relevantly "fair market value" as at 30 June 2001 I should give reasons why, in my opinion, a claim in "oppression" has not been made out. 41 As I have said, I recognise there was hostility between Mr Licciardello and Mr Barbagallo and that the other directors sided with Mr Licciardello because they believed Mr Barbagallo's removal from the company would advance their interests. I have come to the conclusion that recognising that he was no longer wanted Mr Barbagallo made arrangements to leave. That arrangement was as I have earlier mentioned that he would be paid fair market value for his 25 percent interest in Clifton Fletcher calculated by the method used by Mr Bevan when Mr Wehby left the compony eighteen months earlier. But that in my opinion does not make out a case of oppression as those words must be relevantly understood. I have already referred to the allegations and counter-allegations which preceded Mr Barbagallo's resignation. I do not regard the conduct of the directors, and particularly Mr Licciardello, as being relevantly oppressive 42 Although most of the particulars of oppression related to Mr Barbagallo's claims of behaviour and conduct of Mr Licciardello prior to June 2001 he also sought to make out a case in oppression by reason of Mr Licciardello's conduct and behaviour after he Mr Barbagallo, left the company on 30 June 2001. 43 I was asked to have regard to the circumstance, for example, that Mr Licciardello dragged his feet in supplying information to Mr Bevan in 2002 which would have enabled Mr Bevan, as he hoped, to provide a valuation. However it is to be noted that it was Mr Barbagallo who dragged his feet for the last half of 2001. It is true as Mr Birch has submitted that Mr Licciardello thought that after 2001 Mr Barbagallo had left the company and that he was not entitled thereafter to be treated even as a shareholder. However that does not, in my opinion, amount to oppression bearing in mind that Mr Barbagallo and the other directors had come to an arrangement whereby he should be paid fair market value for his shareholding and he for his part would transfer the shares to them. 44 Further it has been alleged that he Mr Barbagallo, was not invited to directors meetings. I have already referred to the circumstance that although he purported to resign as a director Mr Barbagallo remained on the register. He was not invited to the meetings, as I find, because all parties (including Mr Barbagallo) thought he was no longer a director. Indeed that is what Mr Barbagallo claimed in his Statement of Claim. 45 Mr Barbagallo also relies on the circumstance that the valuation of Mr Barbagallo's shares by Mr Murphy was not a "fair market valuation". As I have said efforts were made to obtain a valuation from Mr Bevan and later a valuation was obtained from Mr Murphy in 2002. Mr Barbagallo did not accept the assessment of Mr Murphy because, amongst other things, he said that he had wrongly excluded certain rental properties, he had failed to take into account price being paid for similar rent rolls, he failed to take into account the profitability analysis of each property management department (curiously enough this assertion is precisely the sort of criticism Mr Lonergan made of Mr Kelly's valuation and indeed the method of valuation that was adopted by Mr Bevan). 46 I have been asked not to have regard in assessing value to the valuation of Mr Murphy because neither party has relied on it and I record I do not. However it is relevant, in my opinion, to have regard to the circumstance that it was nowhere as high as that of Mr Kelly and, as will be seen, I do not think it reflected true fair market valuation. 47 Mr Barbagallo relies on the circumstances that he was effectively excluded from any aspect of the company's business during 2001. That is true but that was because he understood that he would not be playing any part in the company's affairs. He did not want to participate in the running of the company. He dragged his feet for about six months leaving the company to get the information that Mr Licciardello wanted to put before Mr Bevan. Thereafter there may have been some dragging of feet by Mr Licciardello and Mr Grace (the company's accountant) but this did not amount, in my opinion, to oppression. 48 I do not think oppression is established even if Mr Barbagallo's criticisms of Mr Murphy's assessment are established. There has been no suggestion that Mr Licciardello behaved improperly in accepting Mr Bevan's advice to retain Mr Murphy to undertake the assessment of fair market value. The circumstance that Mr Murphy's multipliers were regarded by Mr Barbagallo or even Mr Kelly as being too low scarcely establishes oppression. 49 After Mr Murphy furnished his valuation there were exchanges between the solicitors for the parties raising Mr Barbagallo's that Mr Murphy's valuation was too low. In December 2002 Mr Barbagallo commenced the present proceedings. 50 In my opinion a case in oppression has not been made out either before of after June 2001. Of some difficulty in the present case is the circumstance that after Mr Murphy's valuation was rejected and Mr Barbagallo commenced proceedings both sides took apparently diametrically opposed views. Neither side maintained that the Wehby sale should be used as the basis of valuation. Mr Barbagallo obtained the valuation of Mr Kelly using Mr Bevan's method and received an assessment a value a little under twice as much as the assessment of value by Mr Bevan of the same entitlement about eighteen months previously. Mr Licciardello for his part retained Mr Lonergan. The principle basis on which he fixed the valuation was by reference to comparable sales of minority shareholdings in real estate companies publicly listed on the New York Stock Exchange. He also relied on the circumstance that some allowance had to be made for minority shareholding and regard should have been had to the fact that the Kensington office was not profitable in June 2001. Depending upon the case put forward and accepted Mr Lonergan's value ranged between $240,000 and $600,000. 51 I have already mentioned that although Mr Barbagallo sought an order that fair market value should be determined by an independent valuer appointed by the Court I was asked, in opening, to fix fair market value as at 1st June 2001 if I came to the conclusion that Mr Barbagallo had made out a case either in contract or in oppression entitling him to an order that his 25 percent shareholding in Clifton Fletcher should be acquired by the other directors. That view was shared by Mr Whittle on behalf of the defendants although he maintained that the method of valuation adopted by Mr Kelly was erroneous and that I should adopt the method employed by Mr Lonergan which was, in effect, the valuation of a minority shareholding in a company as a going concern. 52 I have already referred to the circumstance that in 1999 Mr Wehby sold his 25 percent in Clifton Fletcher to Mr Duignan and Mr Vella. Mr Bevan assessed the value of Mr Wehby's shares at approximately $850,000. His assessment was one quarter of the value of the assets of Clifton Fletcher on a winding up basis. That is to say in that case the parties accepted that there was to be no allowance made for diminution in value by reason of a minority shareholding. That is to say Mr Bevan thought that the value of Wehby's shares was the value of the business on winding-up divided by four. 53 The method adopted by Mr Bevan is, apparently, a method accepted in the industry. That is, it is the value of the rent rolls and sales commissions that is used in the industry to value real estate businesses. The value of the rent rolls and commissions on sales depends upon the application of a multiplier which in turn depends upon, in my opinion, less on scientific certainty and more on the subjective opinion of the valuer. A consequence of valuing by reference to multiplier is that a modest change in the multiplier can lead to a significant change in value. Mr Lonergan has criticised this method as I have said and claimed that Mr Barbagallo's shares should have been valued on the basis that he was a minority shareholder in a company that was a going concern. As I have said above it is clear that whatever might be thought to be the proper basis of valuing 25 percent minority shareholding in Clifton Fletcher for, say, death or stamp duty purposes the fact remains that the parties as I hold assumed that Mr Barbagallo's 25 percent interest in the shareholding in Clifton Fletcher would be assessed the way Mr Bevan did it for Mr Wehby's sale to Messrs Duignan and Vella. 54 Bearing in mind what took place after Mr Barbagallo left Clifton Fletcher it is clear, in my opinion that the partners considered the same type of valuation should be made. They asked Mr Bevan to do it and although successively Mr Barbagallo and later Mr Licciardello and Mr Grace dragged their feet, finally in August 2002 Mr Bevan was asked to update his valuation. He said he would not do so because he had a conflict of interest and recommended the task be referred to Mr Murphy. Mr Murphy undertook the valuation but Mr Barbagallo said he was not bound by it because he did not think it was a fair valuation for reasons referred to above when I dealt with Mr Barbagallo's claim of oppression. 55 Both the parties accept, I think, that fair market value can be best arrived at by recourse to relevantly comparable sales adjusted where necessary to accommodate different circumstances. In the present case the sale by Mr Wehby of his 25 percent interest in Clifton Fletcher to Mr Duignan and Mr Vella is relevantly, in my opinion, a comparable sale. Mr Bevan fixed the value as being about $850,000. In fact Mr Wehby received $750,000 from Mr Duignan and Mr Vella and $50,000 from Clifton Fletcher. I would therefore hold that a fair market value of Mr Wehby's shares calculated by reference to the method applied by Mr Bevan was about $800,000 as at 1999. In my opinion this would be the view that would be taken by a hypothetically reasonably minded purchaser and seller both willing to conclude the transaction but neither being forced to do so. 56 There were three essential ingredients in the valuation arrived at by Mr Bevan. They were the value of rent rolls, the value of sales commissions and the value of other assets of Clifton Fletcher. Mr Bevan's modus operandi was to adopt multipliers to rent rolls and of sales commissions. In 1999 these were $2.75 for residential and $3 for commercial. 57 Mr Kelly although adopting the method of Mr Bevan applied multipliers to the rent rolls and to sales commissions much in excess of those used by Mr Bevan (and of those used by Mr Murphy although the parties have not advanced Mr Murphy's valuation as one the Court could have regard to for the purpose of assessing of fair market value). The increase in valuation from about $800,000 in 1999 to almost $1.4 million about twenty months later was the result of the multipliers used by Mr Kelly. As I have said the greatly increased value was due less to any increases in the business of Clifton Fletcher than it was to Mr Kelly's adoption of higher multipliers. He used multipliers of $3.5 and $3.75 for residential and commercial rent rolls respectively. By way of contrast Mr Bevan had used multipliers of 2.75 for residential rolls and 3 for commercial rolls. 58 I do not think I should accept Mr Kelly's valuation. It is true that the defendants have not presented a valuation on the "Bevan basis" and, as will be seen, I have rejected the method advance by Mr Lonergan for the reason that as I have concluded the valuation should be undertaken by the method adopted by Mr Bevan. Accepting as I do, that the fair market value of the 25 percent interest in Clifton Fletcher as at the end of 1999 was $800,000 (being the sum Mr Wehby accepted and the sum Mr Duignan and Mr Vella offered in circumstances where the additional $50,000 was to come from Clifton Fletcher) it remains only to make an appropriate adjustment to that figure to arrive at a fair market value for the same interest in June 2001. 59 In the course of criticising Mr Kelly's valuation Mr Whittle has pointed to certain aspects of it which Mr Kelly agreed would have to be modified. However I need not deal with these matters because I am of the opinion that the reasonably minded hypothetical purchaser and vendor on the basis adopted by Mr Bevan would not pay nearly twice as much for a 25 percent share in Clifton Fletcher than was paid in an arm's length transaction a little over eighteen months earlier. Doing the best I can and having regard to the circumstance that by reason of the transaction actually entered into in 1999 that was comparable and making some allowance in Mr Barbagallo's favour for the slight increase in rent rolls by June 2001 I would assess fair market value upon the basis that the parties had agreed to use to be $900,000. 60 As I have said Mr Lonergan gave evidence of the value. He was critical of the approach taken because, as he rightly points out, the valuation was based on a notional winding up which of course was not going to happen. He thought that having regard to rent rolls and applying multipliers to them was not an appropriate way to value Mr Barbagallo's shares as at June 2001. He sought to advance in evidence what was said to be evidence of the value of comparable sales of minority shareholders on the New York Stock Exchange of five or six publicly listed real estate companies in the United States. Notwithstanding Mr Lonergan's view that deregulation had made possible the reasonableness of using this method I rejected it on the ground that even if it could be said that the shares in this case should be valued on the basis he advanced it seemed to me that even in these days of deregulation the value of shares on the New York Stock Exchange of public listed companies engaging in real estate activities in the United State would be of no value in determining the value of Mr Barbagallo's 25 percent interest in Clifton Fletcher's business in the eastern suburbs of Sydney as at June 2001. If the question was posed was a reasonably minded purchaser or reasonably minded vendor have regard to the value of shares in public companies on the New York Stock Exchange I believe that answer would be no. 61 Accepting the method used by Mr Bevan and accepting that it resulted in a transfer of a comparable holding in Clifton Fletcher in 1999 a reasonably minded purchaser would have concluded that for Mr Kelly, in the changed circumstances, to have reached a value so much in excess of that which the parties had agreed to accept in 1999 was that they would have concluded that he pitched his multiplier too high. 62 My conclusions therefore are as follows. 1. The "deal" made in May or June 2001 was that if Mr Barbagallo resigned as an employee and ceased having any part in the management of the company the other four directors would pay him fair market value assessed as at 30 June 2001 and that it was recognised by all parties that "fair market value" would be calculated by reference to the method employed by Mr Bevan when he valued Mr Wehby's shares a little eighteen months earlier. Moreover in my opinion it can be inferred that the parties accepted that the fair market value of the 25 percent shares n Clifton Fletcher a little over eighteen months earlier was about $800,000. 2. For reasons which have given I do not think a case in oppression has been made out. 3. I do not think the defence raised by Mr Whittle when the case was opened that Mr Barbagallo had failed to comply with Article 4(1) has been made out. As I have found an enforceable arrangement had been entered into. Thereafter the parties proceeded on the basis that the other directors would acquire Mr Barbagallo's share for fair market value. $50,000 on account was paid and first Mr Barbagallo and later Mr Licciardello and Mr Grace gave material to Mr Bevan to carry out the valuation to give effect to the arrangement. In my opinion the failure of Mr Barbagallo to proffer the transfer in accordance with Article 4(1) or the failure of both to agree on a Public Accountant being retained to assess value really became irrelevant once the agreement for sale had been concluded and both parties proceeded on the basis of (as they then believed) Mr Bevan undertaking the valuation as he had eighteen months earlier. 4. I think the Court ought order the contract between Mr Barbagallo on the one hand and Messrs Licciardello, Cassar, Duignan and Vella on the other be specifically performed. No evidence was put forward, or submissions made, asserting an inability by them to pay what I have found to be "fair market value". I do not think specific performance should be denied because, as Mr Whittle submits, no final agreement had been reached about the restraint of trade clause and/or any allowance that would be made for "retention". That is because it is now 2004 and the operation of these clauses has in fact been taken over by events. It has not been alleged, for example, that Mr Barbagallo engaged in real estate activities which would have been in conflict with the restraint of trade clause that would have been inserted in the agreement for the sale of shares. 5. The cross claim of Clifton Fletcher is dismissed. 63 The parties have asked me to list the matter for further disposition depending upon the conclusions I have reached. One question that has to be determined is whether Mr Barbagallo is entitled to interest damage on the amount of $900,000 which, as I determine, is the fair market value of his shares in June 2001. Such evidence as is before me concerning the affairs of Clifton Fletcher since Mr Barbagallo departed leads me to the view that at the present time the four present directors receive profits from the business by way of salaries and other employment entitlements rather than by way of dividend. Mr Lonergan has expressed the opinion (which was not, I think, challenged) that from a tax savings point of view under the present regime they would all have been better off had they been paid dividends in lieu of the salary advantages. 64 On my finding I would hold that Mr Barbagallo would not have accepted anything like $900,000 and that the figure I have fixed is much closer to Mr Murphy's valuation than Mr Kelly's valuation. As I have said I have not used Mr Murphy's valuation because neither party have asked me to do so. 65 The question of costs reserved. 66 My formal order therefore is that the matter be listed before me for further orders to give effect to the conclusions I have come to ie that is the contract between Mr Barbagallo and Messrs Licciardello, Cassar, Duignan and Vella be specifically performed and to receive further submissions concerning the entitlement, if at all, of Mr Barbagallo to interest damages and to the question of costs ********** Last Modified: 09/07/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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