New South Wales Supreme Court CITATION : Bruning v MMAL Rentals Pty Ltd; Bruning v Kingmill (Australia) Pty Ltd [2004] NSWSC 60 revised - 10/03/2004 HEARING DATE(S) : 11, 12 August 2003; 20, 21, 22, 23, 24, 27, 28 October 2003 JUDGMENT DATE : 18 February 2004 JURISDICTION: Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Contract varied as noted in catchwords. CATCHWORDS : INDUSTRIAL LAW [678]- Unfair contract- Managing director- Contract required man to invest his own money in enterprise in purchase of shares- At end of enterprise value of shares fallen greatly- Other party made profits from enterprise through collateral businesses- Other party given right to buy back director's shares at fair value- Appropriate to vary contract by ordering buyback to return director at least the sum invested plus reasonable interest. WORDS & PHRASES- "Partnership". Corporations Act 2001, s 233 LEGISLATION CITED : Industrial Relations Act 1996, ss 105, 106 Trade Practices Act 1974 Bruning v Kingmill (Australia) Pty Ltd (1998) 44 NSWLR 180 O'Neill v Phillips [1999] 1 WLR 1092 Premier Sports Australia Pty Ltd v Dodds [2001] NSWSC 707 Re A Company; Ex parte Glossop [1988] 1 WLR 1068 Re A Company [1997] 1 BCLC 479 Re Dah and Hull (1983) 9 Fam LR 241 CASES CITED : Re Reynolds (1984) 10 Fam LR 388 Re Sam Weller & Sons Ltd [1990] Ch 682 Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551 Sapir v Sapir (No 2) (1989) 13 Fam LR 362 Scottish Co-Operative Wholesale Ltd v Meyer [1959] AC 324 Swann v Ultratune Australia Pty Ltd (1983) 5 IR 284 Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1 Walsham v Stainton (1863) 1 De GJ & Sm 678; 46 ER 268 3142/98 Bernard John Bruning (P) MMAL Rentals Pty Limited (D1) Mitsubishi Motors Australia Limited (D2) PARTIES : Kingmill (Australia) Pty Limited (D3) 4049/98 Bernard John Bruning (P) Kingmill (Australia) Pty Limited (D1) Mitsubishi Motors Australia Limited (D2) FILE NUMBER(S) : SC 3142/98; 4049/98 COUNSEL : G C Lindsay SC and S J Philips (P) R J Whitington QC and A J Grant (D) SOLICITORS : Horton Rhodes (P) Thomson Playford (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Wednesday 18 February 2004 3142/1998 - BRUNING v MMAL RENTALS PTY LTD 4049/1998 – BRUNING v KINGMILL (AUSTRALIA) PTY LTD JUDGMENT 1 HIS HONOUR: I am trying two sets of proceedings. The first, 3142/1998 are proceedings originally commenced in the Federal Court of Australia by Mr Bernard John Bruning seeking relief under what is now s 233 of the Corporations Act 2001 in respect of a company MMAL Rentals Pty Limited ("Rentals") and also seeking relief under the Trade Practices Act 1974. The second, 4049/1998, is an application by Mr Bruning under s 106 of the Industrial Relations Act 1996, originally commenced in the Industrial Relations Commission (NSW). 2 There is another set of proceedings 2947/1998 which claims the same relief as the second set of proceedings and the parties have assumed that such proceedings have been subsumed into the second set. In due course, I will merely dismiss 2947/1998. 3 The Industrial Court proceedings were transferred to this court by Hodgson CJ in Eq on 24 June 1998. His reasons for so doing are reported as Bruning v Kingmill (Australia) Pty Ltd (1998) 44 NSWLR 180. The Federal Court proceedings were transferred to this court by Branson J on 30 June 1998. The third suit was the vehicle to enable the transfer to be effected. 4 I must also note that in the first set of proceedings there is also a cross claim by Mitsubishi Motors Australia Limited ("MMAL") that it has validly exercised an option to purchase Mr Bruning's shares in Rentals. 5 The background facts are that in 1989/1990, MMAL was one of five companies manufacturing motor cars in Australia. The other four were General Motors, whose largest selling product was sold under the name "Holden", Ford Motor Co, Mazda and Nissan. 6 At that time, there were five major car rental companies. The major companies were Avis and Hertz, the next rung down the ladder included Budget, Thrifty (called in the evidence "Old Thrifty") and Dollar. 7 Avis and Hertz had strong links to Holden and Ford. Old Thrifty was a good consumer of Mitsubishi vehicles, but was clearly having financial problems. 8 Thus, the executives of MMAL considered that it would be wise to explore the possibility of becoming involved with a car rental company which it controlled. 9 To this end, the executives of MMAL entered into conversations with the plaintiff, Mr Bruning. The executives of MMAL chiefly involved in these discussions were Messrs Quinn, Gardner and Ludgate. 10 Mr Bruning had with another gentleman operated Old Thrifty until he sold out in 1984. He entered into a five year restrictive covenant. This covenant having expired, he was seeking re-entry into the business. 11 I will need to go into the discussions between Mr Bruning and MMAL in more detail later in these reasons. For the moment it is sufficient to say that they culminated in an arrangement whereby a new company would be formed, MMAL Rentals Pty Ltd which would own shares in Kingmill Pty Ltd ("Kingmill") which would operate a car rental company. Kingmill was to be 20% owned by Thrifty Inc of the USA ("Thrifty US") which had certain rights to the name "Thrifty". 12 Kingmill would acquire the business of Old Thrifty and develop it. 13 The control of Thrifty offered considerable advantages for Mitsubishi, not the least of which was an outlet for its vehicles, access to airports (under the then existing agreements with the airports only a limited number of car rental companies had access to airports and Old Thrifty was one of these) and a chance of impressing potential buyers of the quality of its product because such persons would have driven one of the vehicles as a rental car. 14 Mr Bruning had considerable experience in operating a rental car company. He was to be the day to day controller and was to have an equity in the operating companies. 15 It was agreed that the shareholding in Rentals would be MMAL 81.25%, Bruning 18.75%. Mr Bruning claims that he invested $354,656.25 as consideration for the allotment of his shares. Rentals holds 80%of the shareholding in Kingmill, the other shareholder being Thrifty US which holds 20%. Thus, one could say that Mr Bruning has a 15% interest in Kingmill. 16 Mr Bruning was to be managing director and chief operating officer of Kingmill. He reported to the management committee and was subject to the detailed business chart attached to the management agreement. The management committee consisted of Mr Quinn, who was chairman, Mr Bruning and other appointees of MMAL. 17 The four contracts referred to in the next paragraph went through a number of drafts which were discussed between the key players and their advisors before the final documentation was signed. 18 To implement these arrangements, four written contracts which bear the date 3 October 1990 were entered into, viz: (a) a "Share Allotment Agreement" (in relation to shares in Rentals) between MMAL and Mr Bruning; (b) a "Management Agreement" between Kingmill and Mr Bruning; (c) a "Shareholders' Agreement" between Rentals, Kingmill and Thrifty US; (d) a "Licence Agreement" (in relation to the name "Thrifty") between Thrifty US and Kingmill. I will refer to these documents by the name I have put in quotation marks in this paragraph. 19 Pursuant to these agreements, Kingmill purchased the business of Old Thrifty from its liquidator and traded as Thrifty Car Rental throughout Australia. Mr Bruning was its managing director until 22 July 1997. 20 In essence, Mr Bruning's case is that he purchased shares in Rentals for $354,656.25 and agreed to work as managing director for a lower salary than would otherwise have been appropriate, on the basis of an expectation engendered by MMAL that at the end of the period, thought by him to be five years, he would receive a large sum for his shares. 21 The parties implemented the contracts and Mr Bruning acted as managing director and reported regularly to the management committee. The agreements operated for the five years and then, in March 1995, by consent, they were extended for a further two years until 3 October 1997 with an increase in salary of 10% from about July 1996. 22 Mr Bruning says in his first affidavit that he considered that the Kingmill business was profitable and valuable in 1995 when he agreed to an extension of his agreements. 23 In early 1996, Mr Bruning needed money and approached Mr Quinn with a proposal that MMAL purchase the whole or part of his shareholding. Mr Quinn obtained a valuation of that shareholding from Mr Herald of Price Waterhouse Cooper, the auditors, which showed that the shares had no value. 24 This upset Mr Bruning and his relationship with the MMAL men changed, if it had not already done so. 25 Mr Quinn then made submissions to his superiors in Japan to the effect that as MMAL had gained considerable collateral advantages, Mr Bruning should be offered a substantial sum for his shares. He says that he obtained authority to offer $535,000 and that he put that offer in August 1996. 26 It would seem that the figure was calculated by taking Mr Bruning's original investment of $354,656.25 and adding interest at the 90 day bank bill rate. 27 Mr Bruning did not accept that proposal. 28 In July 1997, Mr Bruning was virtually dismissed. MMAL said that there was concern on their side that Mr Bruning had breached confidentiality by entering into discussions with a rival. In any event, the relationship between the parties had irretrievably broken down. 29 On 24 April 1998, MMAL formally exercised its option to acquire Mr Bruning's shares in Rentals at the auditor's valuation. 30 Mr Bruning says that if it be the case that according to the formula in the documents his shares are almost worthless, this is only so because MMAL has so pulled strings that the profits which ought to have been made by Kingmill and Rentals have found their way into other parts of the MMAL empire. It is thus appropriate that an order should be made that the contract is unfair. 31 The principal relief sought by Mr Bruning is that MMAL purchase his shares in Rentals preferably as valued by Mr Hilton or at least for a return of his capital contribution of $354,656, together with a share of the profits of the enterprise properly calculated. In addition, he claims $87,500 for "profit bonus" under clause 22.2 of the Management Agreement, $225,000 for one years' salary for the period during which the restraint of trade clause 17 of the Management Agreement operated, and interest under s 94 of the Supreme Court Act. He also seeks costs. 32 There is some argument as to the proper date for valuation of Mr Bruning's shares. The competing dates are 22 July 1997, when Mr Bruning's involvement with the business ceased or 24 April 1998 when the formal option was exercised, assuming it was properly exercised. I would prefer the second as it is usual to take the date of exercise of option provided that it occurs within a reasonable time of the triggering event, but it makes little difference in this case. 33 The parties were considerably apart on their ideas as to the commercial value of Mr Bruning's shares. To illustrate, evidence was given by Mr Lonergan for MMAL that Mr Bruning's shares had a value of $56,766 on 22 July 1997 and $58,911 on 24 April.1998. Mr Hilton, who gave valuation evidence on behalf of Mr Bruning said that on the basis of the assumptions on which he worked provided by Mr Bruning, he would value Mr Bruning's shares as at the former date at $5,730, 434. 34 The hearing commenced in Adelaide on 11 and 12 August 2003 and continued in Sydney on 20, 21, 22, 23, 24, 27 and 28 October 2003. Mr GC Lindsay SC and Mr SJ Philips of counsel appeared for the plaintiff and Mr RJ Whitington QC and Mr AJ Grant of counsel appeared for the defendants. 35 The reason why the oral hearing commenced in Adelaide was that one witness, Mr Ludgate was too ill to travel out of Adelaide. I sat as a Commissioner to take his evidence. It is common ground that the evidence taken in Adelaide is to be considered in the same way as all the other evidence in the case. 36 Mr Lindsay, in his overview of the litigation in his closing address, put that it was only necessary to consider the case under s 106 of the Industrial Relations Act as that jurisdiction was so wide as to subsume every other head under which the plaintiff could put his claim. The defendants seemed to agree in that course. I have also adopted it. 37 Section 106 of the Industrial Relations Act 1996, so far as is relevant is as follows: "(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. (6) In making an order under this section, the Commission must take into account whether or not the applicant … took any action to mitigate loss." 38 Both parties have approached the case on the basis that, as the proceedings have been transferred into this court from the Industrial Relations Commission, this court may exercise all or any of the powers of the Commission under the section. 39 The term "unfair contract" for the purposes of the Industrial Relations Act, is defined in s 105 as follows: "a contract: (a) that is unfair, harsh or unconscionable; or (b) that is against the public interest; or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work; or (d) that is designed to, or does, avoid the provisions of an industrial instrument." 40 Section 106(2) of the Act makes it clear that a contract may be an unfair contract either at the time it was entered into or, subsequently. "Subsequently" includes situations brought about by the operation of the contract. 41 The question as to what is an unfair contract under this legislation is, as the authorities show, to be approached in a practical and commonsense way. In making the assessment the judge must apply standards which appear to him or her to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract, bearing in mind the conduct of the parties, their appreciation of the bargain they had made and their comparative bargaining positions: Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1, 13. 42 It is difficult for a plaintiff to establish that a contract is unfair as formed if the plaintiff is an experienced person of business, has competent advisors and he or she is able to make his or her own inquiries as to the matters allegedly represented by the other party. 43 The authorities show that there is a wide discretion as to the orders that might be made under the section. However, it must always be remembered that the touchstone for the court making an order under s 106 of the Industrial Relations Act 1996 is that the contract is unfair: Premier Sports Australia Pty Ltd v Dodds [2001] NSWSC 707 [19]. 44 The actual orders sought were that the Share Allotment Agreement or alternatively the Management Agreement be varied by adding an additional clause closely defining the fair value for the purpose of Mr Bruning selling his shares in Rentals to reflect the true value of the Thrifty business without taking into account any alleged liability to MMAL. 45 By amendment, Mr Bruning sought an order that accounts be taken of the profits and other commercial advantages derived by MMAL by its ownership of Rentals and Kingmill and its dealings with Kingmill. 46 The evidence had the appearance of being voluminous. However, when one discarded the extra working copy of the 18 lever arch files of documents (for which I will allow no costs as they were completely unnecessary), discards duplicates and rejects long calculations made by Mr Bruning often on inadequate data, the vital material is in a relatively short compass. 47 The problem of bulk and duplicated documents was exacerbated when, for every main witness a further copy was made of documents called "the Ludgate cross examination bundle", "the Bruning cross examination bundle", etc. 48 One problem with cases that extend over a period of time is to separate the wheat from the chaff. The situation is exacerbated when the issue the court has to try is in the vague form as to whether or not a transaction is fair or just and equitable. 49 Mr Lindsay and Mr Phillips rely heavily on the negotiations which led to the four written contracts. In particular they rely on the use of the term "partnership" during those discussions. 50 They submit that Mr Bruning employed the word more than once during the negotiations. Particular stress is put on Mr Bruning's letter of acceptance to Mr Robert Gardner of the offer of a business relationship with MMAL dated 9 February 1990 which reads so far as is relevant, "Thank you Robert for MMAL's offer of a partnership in any rental operation that they may either buy or start. I would like to say that I formally except their offer."(sic). Mr Lindsay says that it is significant that there was no disclaimer by MMAL of this description. 51 In his affidavit Mr Bruning swears that he entered into the arrangement on the basis of representations that the relationship between MMAL and himself would be akin to a partnership. He also says that, from time to time before the contracts were signed, Messrs Gardner and Ludgate severally said to him, "This partnership will be very profitable for you. You don't know how lucky you are." 52 Mr Bruning also says that, in May 1990, Mr Quinn said to him, "Being in partnership with Mitsubishi doesn't happen every day." There was further conversation at the end of which Mr Bruning said, "As long as you consider me as a partner and look after me that's OK", to which Mr Quinn agreed. 53 When Mr Bruning travelled to Japan, Mr Ueda, one of the chief officers of Mitsubishi again said, "It is very unusual for Mitsubishi to enter into partnership. You are extremely lucky to have this opportunity." Another key executive, Mr Kikuchi, said much the same. 54 Mr Bruning then says that, not only was he induced into the business by the lure of partnership, he was also strongly influenced to do so by the representation of profitability and that there would be a fair buyout at the end of five years. 55 As to this latter, Mr Bruning says that Mr Quinn said to him in February 1990, "If you come into partnership with us, we would be prepared to buy out your share after five years, so you would have a built-in buyer for your share of the business. 56 This letter was written eight months before the agreements were signed at a time when the whole scheme was in an incipient stage. The agreements which are the product of considerable careful work by the legal and commercial representatives of the parties are more likely to reflect the parties final analysis of their relationship. It should be noted that both parties had well respected firms of solicitors looking after their interests in the preparation and signature of these documents. 57 The concepts underlying the parties' arrangements were progressed and found their way into the final set of contracts. The relationship between the parties is precisely set out in those documents. 58 I was not at all impressed with the argument that when commercial people use the word "partnership" they should be taken as intending that a formal relationship that might be considered to be a partnership at law under the Partnership Act 1892 is intended to result. Indeed, I consider that this view has even greater force when the word is used in discussions with people outsider the common law legal system, as in this case, the Japanese. 59 I accept the MMAL witnesses that the word was used, but never in the sense of a partnership in the legal sense. 60 I should digress at this point and deal with the taped conversation evidence. 61 When things became sour between the parties in 1997, Mr Bruning resorted to taping conversations between himself and executives of MMAL secretly. Transcripts of these tapes (and indeed the tapes themselves) are in evidence. 62 The court does not think much of this tactic and, indeed, part of the activity may well have been illegal. Another problem for people using this tactic is that the court knows that the person making the tape will deliberately be asking trap questions with the aim of getting some admission from a non-suspecting person who may be bona fide attempting to reach some sort of settlement or diffuse an issue. 63 Again, the transcripts of the tapes and Mr Bruning's initial evidence based on the tapes omitted some significant matters and included some matters which were not on the tapes. This did not help establish his credibility. 64 In the present matter, on balance there is more in these tapes that assists MMAL than assists Mr Bruning. 65 On the subject of partnership, the tape of the meeting in Sydney of 27 March 1997 between Mr Bruning, Mr Quinn and Mr Takasaka includes the following: "BRUNING: … I mean you both agree that this is a partnership, don't you, Takasaka? TAKASAKA: Yes. … QUINN: We agreed on a set of rules and the rules were very clear … . I think that's one of the differences—very clearly at the beginning of this partnership and at the beginning of the arrangement we spelt out very clearly … that was our agreement about … . And we made that very very clear from the start so, yes, we're a very good partnership, but we agreed rules of partnership up front." 66 That passage to my mind says that there was, in a commercial, but not necessarily a legal sense, a partnership of a kind, but that its terms and conditions were clearly set out from the beginning. I do not consider it realistic to fasten onto the word "partnership" and imply some specific legal relation. 67 I must, however, note that the fact that there was what is often in corporate oppression cases called a "quasi-partnership" rather than a partnership in its strict legal sense does have significance for other aspects of this case. 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. 69 Mr Bruning's real complaint is that the way the contract was administered was contrary to his expectations and involved a diversion of profits which he reasonably expected that Kingmill and Rentals would derive from the enterprise. 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. 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. 72 From what I have said above, it is clear that I do not consider that any of the pre-contract conversations lead me to the view that we have an unfair contract. In particular, each party had an experienced lawyer acting, Mr Bruning was familiar with the industry and there is nothing in the contracts which exudes unfairness. 73 I should note that the principal parties to the conversations were cross examined before me at considerable length by skilled senior counsel. Despite this, with a few exceptions in the case of Mr Bruning, to which I shall return, the credibility of the witness or his evidence generally was not shaken. 74 It is now necessary to look at the key provisions of the four vital documents. 75 The Share Allotment Agreement contains no surprises. The purport is that Mr Bruning will be allotted 1,875 one dollar shares in Rentals at a premium of $188.15 per share. Clause 23 was an "Entire Agreement" clause in common form. 76 Clauses 11.2, 11.3 and 12 of the Share Allotment Agreement so far as relevant are as follows: "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 Sale Shares shall be the fair market value thereof as agreed between Bruning and Mitsubishi. In default of Agreement the fair market value shall be as 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 nominate 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 terms and 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; 12. DIVIDENDS 12.1 Mitsubishi agrees that if during the period when Bruning owns the Shares and/or any other shares in the Company the Company receives any dividend or other payment from Kingmill in connection with the Company's shareholding in Kingmill, then, subject to the Code Mitsubishi will procure the Company to declare a dividend of the amount received by the Company in favour of the shareholders of the Company; 12.2 Mitsubishi agrees to procure the Company to frank all dividends paid to shareholders of the Company to the maximum extent permissible under Part III A of the Income Tax Assessment Act." 77 The Management Agreement was for a five year term. Under clause 21, Mr Bruning was entitled to a salary of $175,000 per year, two fully maintained Mitsubishi vehicles and 5% superannuation. Under clause 22 he could receive a bonus if certain targets were achieved. (One of Mr Bruning's complaints is that MMAL so organized matters that no bonus could ever be earned). 78 In March 1995, it was agreed to extend the term of the Management Agreement for two years so that it would expire in October 1997. 79 The Management Agreement provided by clause 4 that Mr Bruning was to plan and manage Kingmill's business under the jurisdiction of the Management Committee and was to prepare Annual Management Plans to the Committee. He was to operate under MMAL's Business Chart as to the decisions that could be taken by management in various layers in the conglomerate. 80 At all material times, the Management Committee consisted of six members. Its initial composition was Messrs Quinn, Ludgate, Gardner, Takasaka, Miki (all MMAL men) and Mr Bruning. 81 Mr Bruning says that, after a while, the Management Committee met less and less frequently. However, his direction then came from Mr Quinn with whom he used to meet on most Saturdays. 82 The Shareholders' Agreement and the Licence Agreement were not documents to which Mr Bruning was a party and play little part in this case. 83 Kingmill commenced operating the Thrifty business from early October 1990. 84 The capital in Rentals was subscribed as to $1,536,843 by MMAL and $354,656 by Mr Bruning. 85 The figures produced by MMAL show that Kingmill lost $1,693,000 of its capital within the first three months of trading. By the end of 1991, it had a negative equity of $1,844,000. 86 MMAL had to provide a working capital facility to Kingmill of $3,300,000 by late 1990 and this facility was fully drawn down on 4 December 1991. 87 MMAL's figures show that Kingmill made a loss each year so that as at 31 December 1997, its shareholders' funds were negative $8,236,715. In addition, Kingmill was in arrears of lease payments to MMAL in the amount of $10,780,461. 88 No interest was in fact charged on those arrears. Under the documentation MMAL was entitled to charge interest of $5,751,000. 89 The core of this case is the way in which the Share Allotment Agreement and the Management Agreement were implemented in practice. 90 On about 28 August 1990, Mr Ludgate handed Mr Bruning a copy of the plan for Thrifty which he was told to use as his "bible". The document is to my mind a fairly innocuous set of pieces of paper often merely stating the obvious. However, Mr Bruning says that the plan was in accordance with his general understanding as to how Thrifty was to be run, save that he had not noticed that there was no reference to residual leases. 91 In his written submissions, Mr Lindsay put: "77. The contracts were unfair in formation because MMAL secured Mr Bruning's entry into them: (a) by representing to him (or, at least, knowingly permitting him to proceed upon assumptions) that: (i) he was, and would be treated, with fairness due to a partner. (ii) he, and Thrifty under his management, would have independence to conduct Thrifty's business profitably, despite the fact that he was, in formal terms, to have a minority interest in the corporate structure. (iii) the relationship between him and MMAL, in the conduct of the Thrifty business, would be profitable to him. (iv) to facilitate his retirement from the business after about 5 years, MMAL would be prepared to buy out his 'share of the business' so that he would have a 'built-in buyer' for his share. (v) he should accept a lower salary than he might otherwise require because MMAL would ensure that he received a share in profits/dividends and he would be able to realize his investment favourably at the end of his employment. (b) by concealing from him that: (i) profit maximisation in the rental car company (Kingmill) was never an objective of MMAL. (ii) MMAL and its Japanese shareholders always intended to ensure that the company was conducted as their 'captive'." 92 Mr Lindsay then submitted that the formal contracts were unfair in operation because: "(a) MMAL treated Thrifty as its 'captive'. (b) MMAL controlled the business and profitability of Kingmill for the advantage of itself, and its franchisees, to the disadvantage of Mr Bruning. (c) MMAL obtained contributions to its profitability (including profits from the sale of leased vehicles, and unquantified benefits from sales of spare parts, as well as profits on leases. (d) MMAL have sought to acquire Mr Bruning's shares in Rentals under clause 11 of the Share Allotment Agreement without in any way bringing to account the profits and other commercial benefits that it has obtained, and continues to enjoy, from its ownership of, and dealings with, Thrifty. (e) MMAL took advantage of Mr Bruning's expertise and contacts in the establishment, rapid development and management of Thrifty; removed him from the field as a competitor (before and after summarily dismissing him on 22 July, 1997); and, to its advantage in the marketplace, used his reputation as an independent and capable businessman, without honouring the representations made to him before 3 October, 1990, or the reassurances given to him after that date." 93 Mr Lindsay explained what he meant by "captive" by submitting: "Clearly enough, fairly soon after 3 October, 1990, Kingmill became perceived in the market as a captive company of MMAL. Each of Kingmill's first fleet manager (Mr Packham) and its second fleet manager (Mr Nottage) complained to Mr Ludgate that one of the consequences of the company being regarded as a 'captive' was that MMAL's competitors would not offer the company their cheaper lease rates of the best of their vehicles." 94 Mr Bruning fleshed out most of these heads of alleged prejudice. It will be necessary to pursue these matters in some detail. 95 Mr Bruning says that in his experience, it was common for car rental companies to operate along fairly standard lines and that he reasonably expected that Thrifty would be run along those lines. He says that, had his expectation been carried out, Thrifty would have made considerable profits. As it was, because of MMAL's policies, the profits that could have been made were not made and, as a consequence MMAL was enriched. 96 Alternatively Mr Bruning puts that as a result of conversations he had with key executives of MMAL he was led to believe that Kingmill would operate according to these standard lines and that he acted on those representations in signing the relevant contracts. 97 MMAL does not have that much to say about the former proposition. However, as to the latter, it says, and its key witnesses, Messrs Quinn, Ludgate and Gardner all affirm that no such representations were made. 98 I have already noted that I have accepted these MMAL witnesses who were not shaken despite close cross examination. 99 On the other hand, Mr Bruning did not fare so well under cross examination, though principally he gave his evidence in a logical way. However, he was in difficulty on a number of occasions. 100 Mr Bruning's explanation as to how in some reports he was talking about a 10% profitability factor and in others a 7% figure was awkward. The suggestion that the 3% was the profit on resale of cars was not convincing. Alternatively, if it were accurate, that was a good reason for concluding that the MMAL witnesses were correct when they said that the deal was never that Kingmill would sell cars. 101 On other occasions, the answers given in cross examination, whilst doubtless believed by Mr Bruning to be accurate, did not, as Mr Whitington suggested on more than one occasion, add up. 102 I got the impression both when the cross examination was taking place and later when I reviewed the evidence in chambers that 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. 103 Furthermore, Mr Nottage, the national fleet manager of Kingmill who might reasonably be expected to be in Mr Bruning's camp was not called and there was no explanation as to why he did not give evidence. I should assume that his evidence would not have supported Mr Bruning's case. 104 When one asks, what corroboration is there of this evidence of Mr Bruning, one can only give the answer, "Very little". The only witnesses called by Mr Bruning, apart from himself were the valuer Mr Hilton, Mr GJ Howlett, an expert witness (a former Avis managing director) and Mr JC Morgan (a Thrifty franchisee). 105 Indeed, the tape evidence to which I have already referred shows that Mr Quinn and others continually rejected the proposition put forward by Mr Bruning that there was some sort of simple partnership and made it abundantly clear that they took the view that the respective rights and obligations of the parties were fully thrashed out in the negotiations and placed in the contract documents, that the parties had thereby made the rules for their engagement and that MMAL considered it had kept to those rules. 106 Mr Bruning on the tapes does not say much in reply to such statements. However, I discount this fact as I assume that the taped interviews were set up for Mr Bruning to make a statement with the hope of getting some admissions from the MMAL men and that Mr Bruning was not, in his turn, prepared to react to claims by those gentlemen. 107 Again, there is very little complaint about any of the matters about which Mr Bruning complains until 1996 or 1997. During the whole period 1990-97, Mr Bruning was the managing director of Kingmill and had ample opportunity to voice concerns. Moreover, Mr Bruning's reports, many of which are digested in these reasons do not suggest that any part of the reason for Kingmill's failure to meet performance targets was a result of the matters about which he now complains. 108 I thus reach the conclusion that I should not rely on Mr Bruning's evidence where it conflicts with the evidence of the MMAL witnesses. 109 In these circumstances, I do not see how I can conclude that the contracts were unfair as formed. 110 Thus I need to turn to the contract as performed. 111 So far as (a), (c) and (e) of Mr Lindsay's headings are concerned, I do not see how these are in any different plight to the case on contract as formed. On my view of the facts, what occurred was basically what the parties had contracted to do. 112 There may be situations where a contract which has been meticulously drafted after due consideration by both parties and their advisors may nonetheless become unfair because of circumstances which subsequently arise or because of the conduct of one of the parties. The existence of such a case is recognized in authorities such as Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551 and cases referred to in that authority. 113 However, ordinarily, if the rights and obligations of the parties have been so negotiated and stated, the mere fact that the terms are contrary to usual practice in the industry or that other persons in the plight of the plaintiff have obtained better pay for similar work will not make the contract unfair, at least in cases where the pay exceeds any applicable award. 114 I basically accept the submissions of Mr Whitington that the court should not permit the section to be used as a refuge for those who are merely disgruntled with a bargain entered into on even terms and must be particularly careful where the contract is entered into between experienced people of business. 115 I also accept the submission that ordinarily where a reasonable business risk has been undertaken in circumstances which are fair, the mere fact that the agreement afterwards proves unprofitable is no reason for the court to interfere: Swann v Ultratune Australia Pty Ltd (1983) 5 IR 284. 116 One must be very careful when comparing packages of remuneration to ensure that there is a true comparison. It is not an infrequent occurrence that one contract may involve high pay, but fewer vacations and less perquisites, more hours of work, but less accountability and it is quite wrong merely to compare the pay under the two contracts. 117 If the parties have agreed at arms' length and were properly advised as to what their rights and obligations are under the contract, it is difficult for a court to say that the operation of the contract is unfair. I do not consider I should do so in this case. 118 However, it is still necessary to consider the evidence as to the usual procedure in the industry, as it may be that the present contract is so far outside the pale as to be unfair. 119 Mr Bruning says that common practice in the industry included:- (a) Car rental companies make profits by on-selling leased vehicles. This means that a significant number of vehicles either have to be owned by the car rental company or taken on residual lease; (b) A car rental company needs to have a good spread of vehicles, both as to size and make. 60% from one supplier would be about the maximum; (c) A car rental company needs to be in a position to acquire vehicles at discount rates where that is possible; (d) A car rental company cannot be seen in the industry to be captive to one supplier as if it is, no incentive discounts will be offered by other suppliers; (e) The company needs to seek competitive leasing rates with flexible leasing periods; (f) The company needs to borrow at competitive rates; (g) The rental company must be permitted to compete with its own franchisees; (h) The car rental company must be able to make some profit selling cars to franchisees; (i) The car rental company should expect advertising rebates or subsidiaries from manufacturers; (j) The car rental company should be able to economise by using good, but "non-genuine" spare parts; (k) Car rental companies expect to have new model vehicles on their release or even prior to their release to the public; (l) Car rental companies usually own a number of their sites outright; (m) Lease periods must be flexible. 120 Furthermore, (n) generally, Mr Bruning says that MMAL declined to make Thrifty run as a high quality business. 121 Mr Bruning also says that (o) Mitsubishi used its dominant position to secure advantages for itself to the detriment of Rentals and Kingmill. These advantages included: (i) Being able to dispose of hard to sell product at full price; (ii) Subsidizing its dealer's profits by release to them of attractively priced second hand cars. 122 (p) Finally, Mr Bruning says that there were dealings between the parties which were advantageous to MMAL and disadvantageous to Kingmill, such as requiring Kingmill to take vehicles in unpopular colours or vehicles with metallic finishes which involved Kingmill in high maintenance costs. 123 To summarize MMAL's answers , there are: (1) Some general denials; (2) An allegation that Mr Bruning has omitted some very important countervailing considerations, particularly the supply of capital to Kingmill; (3) A denial that what Mr Bruning has put is the standard for car rental companies; (4) A denial that there was any representation in the pre-contract conversations; (5) An assertion that MMAL at all times acted in accordance with its contractual obligations; (6) An assertion that Mr Bruning acquiesced in the way Kingmill was being operated; and (7) An assertion that no action of MMAL affected the value of the shares in Rentals. 124 I will briefly examine each of the matters (a) – (o) in turn, noting what Mr Bruning says was the failure to live up to the standards and what MMAL has to say about the matter. 125 (a) In contradistinction to the orthodox method of operation, Mr Bruning says that MMAL did not authorise residual leases of vehicles. Instead, MMAL sold the vehicles after the end of the lease and pocketed the profits. Indeed, the cars were disposed of through a closed auction system where only Mitsubishi dealers could bid so that the dealers obtained a constant supply of relatively new vehicles that had been properly maintained at an attractive price. 126 I need to define the term "residual lease". Contrary to what it may mean in other contexts, a "residual lease" in the car rental business is a lease which, at the option of the rental company, a previously formulated amount is paid to the vehicle's owner and then the ownership of the vehicle passes to the car rental company. 127 Furthermore he says that the release of ex-rental vehicles was controlled so that there would not be a flood of such vehicles coming on to the market at any one time. 128 MMAL says that a very good reason why Kingmill did not own vehicles was that it was capitalized on a very low budget. For Kingmill to have bought cars, there would have had to have been substantially higher capitalization. 129 Mr Bruning does not accept this argument. He says that had he been operating the business he would have commenced with 10 or 15 cars and gradually built up using borrowed money as car manufacturers are prepared to finance such purchasers at reasonable rates. However, such an operation does not appear to me to be the type of operation that was being considered by the parties for the "partnership" which was considering projections of 500, 750, 1,000 or even 2,500 cars. 130 Alternatively, Mr Bruning says that the cars could be purchased from bank bill financing and the bills retired by selling the car if the fleet were overstocked. 131 MMAL also says that it was standard industry practice for manufacturers to lease their vehicles to car rental companies on non-residual leases. However, it admits that it had obligations to maintain the second hand value of MMAL vehicles by not allowing ex-rental vehicles to flood the market. 132 The Management Agreement does not make any reference to how vehicles were to be leased to Kingmill or who was to sell surplus vehicles or any like matter. 133 MMAL says that this matter of residual leases or non-residual leases and that Kingmill would not be involved with receiving the proceeds from car sales was thoroughly discussed with Mr Bruning during the initial conversations. They particularly point to the very first meeting held at the Ramada Hotel, Sydney on 31 January 1990 (a meeting which was omitted from Mr Bruning's first affidavit). 134 Messrs Ludgate and Gardner say that it was made quite clear to Mr Bruning at the meeting in the Ramada Hotel Sydney on 31 January 1990 that Kingmill would not be selling vehicles. Mr Quinn's evidence was to the same effect with the exception of some Toyota buses. 135 Again, MMAL point to the fact that in his first report, Mr Bruning made no provision for sale of ex-rental vehicles when putting forward an estimate of the profits Kingmill was expected to make. 136 The First Appropriation Report of February 1990, which is an internal MMAL document made it clear that MMAL intended to take the profit on disposals. 137 Mr Ludgate's fax to Mr Bruning of 1 March 1990 made it clear that the contemplated arrangement as to the disposal of vehicles would be as MMAL's then existing system of closed auctions to MMAL dealers. 138 During 1996 and 1997, when relations between the parties were getting tense, the MMAL men on sundry occasions reiterated that the arrangement had always been that MMAL would dispose of surplus vehicles, not Kingmill. 139 I cannot accept Mr Bruning's views on this matter and accept the evidence of the MMAL witnesses. 140 (b) Mr Bruning says that the product range was too limited. 70% Mitsubishi vehicles was specified and often the percentage was over 80%. In addition, Kingmill was virtually forced to take unpopular vehicles in unpopular colours. 141 MMAL says that it relied on Mr Bruning for advice on this matter. In his first report of February 1990, Mr Bruning agreed that the corporate fleet could contain at least 60% of Mitsubishi product. In his report of 24 April 1990, Mr Bruning estimated the Mitsubishi fleet content at 73% At times he told Mr Gardner that the content could be 80%. 142 Mr Howlett, who gave expert evidence for the plaintiff agreed that there was much merit in a rental company having only a primary and secondary supplier. 143 I do not consider that Mr Bruning has established this proposition. 144 (c) Mr Bruning says that the opportunity to purchase cars at a discount was not available to Kingmill. Indeed, MMAL was able to and did unload old stock onto the company with no discount. Again MMAL says that it was made clear to Mr Bruning from the very beginning of the negotiations that, with specified exceptions, Kingmill was not to own cars. 145 I have basically dealt with this under (a), however, there was never any evidence that there was ever any proposal that discounts be given to Kingmill or why discounts should be given other than to purchasers. 146 (d) Mr Bruning says that by MMAL's action in maintaining such a high percentage of Mitsubishi vehicles, Kingsmill was perceived by the industry as captive to Mitsubishi. 147 I have already dealt with this under (b). 148 (e) 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. 152 (f) It is common ground that MMAL charged Kingmill interest rates based on its cost of borrowing plus 0.5%. Mr Bruning estimates that had Kingmill been able to borrow commercially, it would have saved about 5.3 million dollars. 153 The short answer to this is that Kingmill was never capitalized to the extent that it could borrow commercially. 154 (g) Mr Bruning says that Thrifty's franchisees were advantaged as they were not restricted to such a high percentage of Mitsubishi vehicles as was the case with Thrifty itself and thus had a trading advantage. 155 (h) Mr Bruning says that the franchisees were usually able to obtain vehicles on the market at a cheaper rate than that for which Kingmill could sell, thus depriving Kingmill of a legitimate source of profit. 156 (g) and (h) are variations on a theme I have already played. 157 (i) Mr Bruning says that no advertising rebate or subsidy was made available to Kingmill. A considerable amount of time was spent in cross examination on the way the parties conducted advertising. MMAL says that it made a contribution of $848, 688 to advertising and I basically accept that this was so. Whether the advertising was the most effective or that it could have been done in a better way, is, on the evidence before me, despite the considerable time spent on the matter, really pure speculation. 158 MMAL and Mr Bruning obviously had different ideas as to the effectiveness and cost of advertising, but whoever was right, the implications on the value of the shares must be small, and I do not consider it necessary to delve more deeply into the matter. 159 (j) Mr Bruning says that Kingmill was only permitted to use "genuine" spare parts at a premium cost. When he protested and wanted to use second hand or non-genuine parts, he was told by a senior MMAL executive that the genuine parts would be supplied to Kingmill as cheaply as any others. However, this did not occur. 160 I need to define "genuine" and "non-genuine" spare parts. A "genuine" spare part is one which is recognised by the manufacturer as genuine. A "non-genuine" spare part might even be made by the same manufacturer as the "genuine" spare part, and in any case is, for most purposes of the same standard, but does not have the car manufacturer's seal of approval. Mr Bruning illustrates the difference by noting that a genuine Mitsubishi radio costs about $1,000 more than a "non-genuine" radio. 161 This again is a minor matter and I cannot see that it has any real consequence even if established. 162 (k) It is common ground that this did not occur, though MMAL denies that any car rental company ever obtained vehicles prior to their general release. 163 (l) It is common ground that Kingmill only owned one site outright. However, MMAL say that Kingmill did not have the capital for a greater investment. 164 (m) MMAL says that Mr Bruning's claim is completely controverted by the contemporaneous evidence which shows that not only was a regime developed of alternative lease periods, but also as the business developed, permission was consistently given to the early retirement of vehicles without penalty. 165 I will deal with (n) and (o) later in these reasons as assessment depends on not only the matters listed above, but also on a general consideration of the operation of the Kingmill business. 166 As to (p) there was debate before me, which I do not find necessary to resolve as to what were popular colours. MMAL, also as a matter of grace, did allow small discounts on cars with metallic finishes. I cannot see how this matter can affect the result of this litigation. 167 Generally speaking, apart from the matters referred to in the preceding paragraph, I do not consider that Mr Bruning has made good his attacks. 168 Mr Bruning says that had Kingmill been operated in accordance with standard practice, it would have earned megadollars and his shares would be very valuable indeed. 169 Mr Bruning's contentions as to value are supported by the valuer called on his behalf, Mr Hilton. However, Mr Hilton's figures are based on Mr Bruning's information, assumptions and suppositions. Thus, if these are not established, Mr Hilton's evidence does not advance Mr Bruning's cause. However, MMAL endeavoured to use some of Mr Hilton's evidence to its advantage by noting that even the leaders in the car rental field were only getting an average return of 1.62% on gross sale value in the relevant period. 170 I do not consider that the matters raised by Mr Bruning in the circumstances discussed above even if established would make the operation of this contract so far outside what is reasonable in the industry as to make it unfair in operation. 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. 173 Some of the matters raised impact on the remaining discussion. However, generally, I do not consider that the contract was unfair in its operation. 174 I now turn to Mr Lindsay's points (b) and (d) [on the same lines to (n) and (o) of Mr Bruning's list] which, it may be remembered, are as follows: (b) MMAL controlled the business and profitability of Kingmill for the advantage of itself, and its franchisees, to the disadvantage of Mr Bruning. (d) MMAL have sought to acquire Mr Bruning's shares in Rentals under clause 11 of the Share Allotment Agreement without in any way bringing to account the profits and other commercial benefits that it has obtained, and continues to enjoy, from its ownership of, and dealings with, Thrifty. 175 It is this part of the case that has caused me the most concern. 176 It has been a matter of concern in corporation law for centuries that those in control of corporations must not so conduct themselves that one section of the shareholders or investors are benefited or burdened as compared with another section. One of the earliest situations calling for the court's attention in this regard was where funds were so quarantined that dividends were reduced and thus the value of the shares fell making them a good buy for those in the know; see eg Walsham v Stainton (1863) 1 De G J & Sm 678; 46 ER 268. 177 There have been abundant instances in cases decided under the oppression provisions of the Corporations Act where a minority shareholder has been given relief where the majority has sought to wind a company's business down in order to benefit their own business (see eg Scottish Co-Operative Wholesale Ltd v Meyer [1959] AC 324) or where there has been a deliberate ploy not to pay adequate and proper dividends; see eg Re A Company; Ex Parte Glossop [1988] 1 WLR 1068; Re Sam Weller & Sons Ltd [1990] Ch 682 and Re A Company [1997] 1 BCLC 479, 494. 178 One can easily transpose this learning into the sphere of unfair contracts. 179 In my view, ordinarily, a contract is unfair in its operation if those in control of a company so manipulate its operations that the value of the shares held by workers falls, but the real commercial value of the enterprise to the majority is high. This is so even if the majority are acting completely legally and perhaps also if they are acting without breach of fiduciary duty. 180 To see whether there has been conduct of the type to which I have just referred, it is necessary to look at the minutes and records of the Management Committee and Mr Bruning's Annual Management Plans and the way the business was conducted with the acquiescence of all parties whilst they were on good terms. 181 In cross examination, Mr Bruning conceded that the object of setting up the car rental business was to achieve profits and, indeed, profit maximization. He, Bruning was the expert in operating such a company and was initially retained as a consultant. 182 Mr Bruning advised that 7% profit was achievable in each of the first three years of operation. This 7% did not include any factor for profit on sale of vehicles. 183 Mr Morgan called on behalf of the plaintiff said that he achieved 10% profit when he was managing a Hertz Rental Car branch. 184 It is common ground that Thrifty never made a profit, its losses for each of the eight calendar years 1990-1997 being between $99,000 and $3,093.420. 185 It is necessary to ask why the 7% profit was not attained, why losses were made and, in particular, whether any of the losses occurred as a result of MMAL pursuing its own interests as against those of Kingmill. 186 Mr Whitington and Mr Grant in their closing submissions on the facts say that the results were explained by Mr Bruning at the relevant times because of a failure to attain the predicted vehicle utilization rate principally through heavy discounting by competitors and because of Kingmill's inability to maintain its market share of business generated at airports. 187 Mr Bruning's reports also claimed that there were also substantial problems with under performing computer systems which absorbed considerable amount of management time and made it difficult to see the state of the fleet. Again there was evidence that Mr Bruning informed MMAL that a car rental company with a head office in Adelaide rather than on the Eastern Seaboard would be under a handicap. 188 In his report of five years' operations made to the Board for its meeting in August 1995 (12/4623) Mr Bruning noted that the predictions had not been met, but that the key reasons for this were the loss of good customers as a result of heavy marketing by competitors, the failure to be able to attract new customer and the failure of various franchisees. 189 Counsel note that nowhere in Mr Bruning's reports to the Board does he ever say anywhere that any failure to adopt agreed operational policies contributed to the poor results. 190 The bulk of the material suggests that it was these factors rather than the bulk of those which are the subject of Mr Bruning's current complaints which led to the loss of profits. 191 My conclusion is that, with one exception to which I will shortly come, the contracts were not unfair as performed. 192 I should now deal with the valuation evidence about Mr Bruning's shareholding in Rentals. 193 As I have noted, Mr Hilton and Mr Lonergan produced widely differing valuations of these shares. 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. 195 Mr Lonergan valued the shares on a net assets based valuation, but deducted 25% for a minority holding. 196 Mr Lonergan's principal report is over three hundred pages. Much of this bulk is devoted to attacking Mr Hilton's valuation in the way of an advocate. He also annexes a large amount of copy documents. 197 When one pares it to its essentials, the report DX143 simply says that Mr Lonergan valued the shares by taking the value of Rental's real estate at $428,000 adjusted this figure for depreciation etc of $15,000, added back some profits of $5,922 to reach his figure of $418,922 as at 24 April 1996. 198 He then discounted 25% for a minority interest to value Mr Bruning's shares at that date at $58,911. 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. 200 However, to be fair, as Mr Lonergan acknowledged during his cross examination, his valuation was a difficult one and one where he did not give much weight to what might be called the subjective factors. 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. 202 There was uncontradicted evidence that the Old Thrifty business was virtually bankrupt with low staff morale and unhappy creditors, yet MMAL were prepared to pay about $2,000,000 for it. There was also evidence that when, in 1996, Mr Bruning was told his shares were worthless, he suggested that he would take over the MMAL shares on this basis, but such a proposal would not even be entertained by MMAL which offered $535,000 for the shares. 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 lose them goes a long way to making one think that a value of $ 58,911 is sorely suspect. 204 Of course, an obvious error in the valuation is that when one is valuing on a net assets backing basis one does not a apply a minority discount as if there is sufficient material to show a probable prima facie case for winding up on the oppression or just and equitable ground, a minority holder will get 100% of the value of the assets on a winding up; see O'Neill v Phillips [1999] 1 WLR 1092, 1107 (HL) per Lord Hoffmann. 205 At this point, I should consider MMAL's cross claim. 206 The cross claim seeks a declaration that the option has been exercised, a determination that the value of Mr Bruning's shares is $58,911 and orders for specific performance of the contract formed on the exercise of the option. 207 The defence to this is not to challenge the right of MMAL to acquire the shares, but rather to challenge the price for which MMAL seeks to acquire them and the date on which the shares should be valued. 208 As will be clear from what I have said above, I neither accept Mr Hilton's valuation (it is far too high), nor Mr Lonergan's valuation. 209 Mr Lindsay, in his closing address, made submissions based on Mr Quinn's document MTQ138 which appears to show that MMAL derived a profit from its operations in Thrifty of $7,886,000 over the period of 1990-1997. This is not a figure for profits earned by Kingmill, but rather a financial advantage that MMAL received because of the existence of Thrifty and being able to sell and lease cars that had been "processed" through Thrifty and which profits would not have been earned by MMAL had Thrifty not been in existence and under its control. 210 The suggestion made in the submission was that 15% of this figure would be an appropriate figure to take for the value of the shares as $1,118,290 or, as Mr Lindsay rounded it off, $1,200,000. 211 I do not consider that one can take such a seemingly simple step. However, the $1,200,000 figure is again a signpost which may help one find one's way to the true value of the shares. 212 In my view the greatest assistance on the valuation issue is provided by what is called the realistic basis. This rule applies mostly in family law cases where it is unrealistic to apply the usual commercial methods of valuation because, for instance, the commercial value of shares in a family company is often no real guide to their value to the other spouse; see eg Re Reynolds (1984) 10 Fam LR 388, 394 (Full Family Court) ; Re Dah and Hull (1983) 9 Fam LR 241, 246 (Nygh,J) and my decision in Sapir v Sapir (No 2) (1989) 13 Fam LR 362, 365. 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 costs of a winding up rather than the hypothetical purchaser rule. However, that will not always be the case. 214 In the instant case, I am satisfied by the evidence that the presence of the Thrifty company with its goodwill value which must include the right to have a desk at the major airports, has considerable value. On a liquidation, assuming Mr Lonergan's major assumptions are correct, the liquidator would get in $418,000 and distribute that less say $30,000 costs of the liquidation. However, he would also auction the goodwill of the availability of the airport desk and the Thrifty licence to use the name and other ancillary rights. 215 I have no reliable information on which to assess the likely value of these rights. Mr Hilton's figures of some 29 million do not impress me. I know that MMAL were prepared to pay the previous liquidator about two million dollars back in 1990, but it may be quite unrealistic to assume that conditions then are the same as now and to ignore the difference between 1990 dollars and 2004 dollars. However, as a signpost, if the liquidator got in $2,388,000 net, Mr Bruning's share would be $447,750; if he got in $3,388,000 net, Mr Bruning's share would be $635,250. 216 A third signpost is the offer that was made by Mr Quinn in 1996 of $545,000. 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 too mean (MMAL had offered 90 day bank bill interest). However, if one took the formula of Mr Bruning's original investment of $354,656.25 and took the average of the court rate less 1% (as the court rate usually has a 1% penalty built into it to encourage people to pay judgment debts) one would be looking at an average interest rate of about 12%. Five and a half years' simple interest at that rate would produce $234,073.12 which would give a price as at 24 April 1996 of $588, 729.37. 217 These signposts give me the indication that the realistic value of the shares as at 24 April 1996 is between $447,750 and $1,200,000. As the latter figure is more rubbery, somewhere between $588,000 and $635,000 is more likely to be as near as the mark as I can find on the evidence. I thus consider that Mr Bruning's shares had a value of $600,000 as at 24 April 1996. 218 This $600,000 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 $600,000 plus interest. 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. 221 Before I dealt with the cross claim, I said that one matter concerned me about the contract as performed. 222 There is no doubt that Mr Bruning was performing work in an industry in which he (and MMAL) reasonably considered would be profitable for them both. The evidence of all the witnesses as to their conversations before the agreements were executed bears this out. 223 Unusually, as well as being employed Mr Bruning invested a large sum of money in the company. 224 It seems to me that neither party considered the possibility that Mr Bruning might lose that sum. 225 As the contracts worked out, competition from other participants in the industry meant that there was no profit and that, had one viewed Mr Bruning as a mere investor, he would have lost most of his money. 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. 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. 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". 229 On this basis the plaintiff is entitled to an order for adjustment of the contract and an order that on the basis that he transfers the whole of his right title and interest in the shares in Rentals to be paid $600,000 plus interest at the court rate from 24 April 1996. Using an average rate of 9.5% and a period of 7 years 10 months, this interest, on my calculation, amounts to $446,310. 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. 232 Thus, either under s 106 of the Act or by way of specific performance on the cross claim, the plaintiff should give up his shares and be paid $1,046,310. 233 The court is required under s 106(6) of the Industrial Relations Act, added in 2002, to consider whether the plaintiff has mitigated his loss. Mr Whitington put an argument as to why there was some failure to mitigate. However, the limited degree of unfairness which I have found means that there could not be any question of mitigation of loss arising. 234 I will publish these reasons and stand the matter over so that they can be considered by the lawyers and the parties. 235 I was asked to postpone questions of costs until after these reasons were delivered. This subject raises quite complicated questions as the plaintiff basically failed on his principal case, but gained some relief on a subsidiary issue, that relief being an order for payment of a sum of over one million dollars, a not insubstantial sum. 236 In addition to the problems noted in the preceding paragraph, there is also the matter of the costs of the excess paper work mentioned earlier in these reasons. 237 It may well be difficult to find a suitable time to finish off these issues. I will formally fix 9:30 am on 4 March 2004, but counsel should contact my Associate to see if a mutually convenient time can be arranged when an estimate of the amount of time needed to complete the matters is available. 238 I would expect that counsel for the plaintiff would serve on the defendant draft short minutes of order well in advance of the next hearing date. ****************** Last Modified: 03/12/2004 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.