Reported Decision : 61 ACSR 144 (2007) 25 ACLC 302 New South Wales Supreme Court CITATION : Backoffice Investments v Campbell [2007] NSWSC 161 HEARING DATE(S) : 27, 28, 29, 30 November 2006, 4, 5, 6, 7 December 2006 [written submissions 18 December 2006] JUDGMENT DATE : 8 March 2007 JURISDICTION : Equity - Commercial List JUDGMENT OF : Bergin J DECISION : Plaintiff entitled to declaration of oppressive conduct and order for purchase of share at $853,000 CATCHWORDS : [CORPORATIONS] – Share Sale Agreement/Shareholders Agreement/Services Agreement - Whether vendor's conduct in excluding the purchaser of a 50% share in company from the management of the company amounted to oppression (s 232 Corporations Act 2001) - Whether an order for purchase of the share should be made when provisional liquidator appointed - Fixation of price at which share to be purchased (s 233 Corporations Act 2001) - [CONTRACT] - Whether vendor breached warranties in Share Sale Agreement - Whether appropirate to award damages for breach of warranties where order made for purchase of share - Whether vendor breached implied obligation to co-operate in causing company not to pay purchaser's entitlements under Services Agreement - Whether appropriate to award damages - [MISLEADING OR DECEPTIVE CONDUCT] - Whether vendor's conduct misleading or deceptive - Whether purchaser relied upon alleged representations - [PRACTICE AND PROCEDURE] - Practice Note governing commercial causes - Alleged deficiencies in plaintiffs' pleadings - Timing of complaints about pleadings - Ambit of "cards on the table" approach to litigation - Late application to amend pleadings Corporations Act 2001 (Cth) LEGISLATION CITED : Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth) Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 Aloridge Pty Ltd (prov liq apptd) v West Australian Gem Explorers Pty Ltd (1995) 127 ALR 410 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249 Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 Dynasty Pty Ltd v Coombs (1995) 13 ACLC 1290 ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1995) 15 ACSR 536 Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 (Unreported, Sheller, Hodgson and Ipp JJA, 24 April 2007) Hewlett Packard Australia Pty Ltd v Siltak Holdings Pty Ltd [2005] NSWSC 672 (Unreported, Barrett J, 8 July 2005) Hogg v Dymock (1993) 11 ACSR 14 John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd (1991) 6 ACSR 63 MacDonald v The Law Union Fire and Life Insurance Co (1874) LR 9 QB 328 Manning Shire Council v Caernarvon Pty Ltd [1977] 1 NSWLR 202 Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 CASES CITED : Minister for Immigration, Local Government and Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 National & General Insurance Co Ltd v Chick [1984] 2 NSWLR 86 Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116 Re a Company [1983] 1 WLR 927 Re London School of Electronics Ltd [1985] 3 WLR 474 Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634 Scottish Co-op Wholesale Society Ltd v Myer [1959] AC 324 Shelton v National Roads & Motorists Association Ltd [2004] 51 ACSR 278 The Commonwealth v Verwayen (1990) 170 CLR 394 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 Webb v Stanfield (1990) 2 ACSR 283 White v Overland [2001] FCA (Unreported, Allsop J, 20 September 2001) Yazbek v Aldora Holdings Pty Ltd (2003) 45 ACSR 53 Zempilas v JN Taylor Holdings Ltd (in liq) (No 6) (1991) 5 ACSR 28 Backoffice Investments Pty Ltd (first plaintiff) Timothy Andrew Weeks (second plaintiff) PARTIES : Douglas Ronald Campbell (first defendant) Sentinel Construction Managers Pty Ltd (second defendant) Healthy Water (NSW) Pty Ltd (third defendant) FILE NUMBER(S) : SC 50047/2005 COUNSEL : JB Simpkins SC/TL Wong (plaintiffs) DJ Hammerschlag SC/LTG Gibson (first and second defendants) Watson Mangioni Lawyers (plaintiffs) SOLICITORS : Rodd Peters Lawyers (first and second defendants) Dibbs Abbott Stillman (third defendant) - 67 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 8 MARCH 2007 50047/05 BACKOFFICE INVESTMENTS PTY LTD & ANOR v DOUGLAS RONALD CAMPBELL & ORS JUDGMENT 1 This litigation arises out of the purchase by the first plaintiff, Backoffice Investments Pty Ltd (Backoffice), of a 50% share in the third defendant, Healthy Water (NSW) Pty Ltd (in provisional liquidation) (the Company) from the first defendant, Douglas Ronald Campbell (Campbell). Backoffice, a company controlled by the second plaintiff, Timothy Andrew Weeks (Weeks), purchased the share pursuant to a Share Sale Agreement dated 24 January 2005 between it, the Company, Campbell and the second defendant, Sentinel Construction Managers Pty Ltd (Sentinel), a company controlled by Campbell. A Shareholders Agreement and Services Agreements were also executed on the same day. Campbell and Weeks fell into serious dispute within days of the execution of these Agreements and on 7 April 2005 consent orders were made for the appointment of a provisional liquidator to the Company. 2 The plaintiffs claim that Campbell conducted the affairs of the Company in a manner contrary to the interests of the members as a whole and in an oppressive and unfairly prejudicial and discriminatory manner against Backoffice, within the meaning of the Corporations Act 2001 (Cth) (the Act). 3 The plaintiffs also claim that Campbell was in breach of the Shareholders Agreement and caused the Company to breach certain implied and express obligations under the Services Agreement. The plaintiffs also seek damages: for alleged breaches of the warranties in the Share Sale Agreement; for alleged breaches of the Services Agreement; and for alleged misleading or deceptive conduct by Campbell in making representations relating to the financial position of the Company prior to the execution of the Share Sale Agreement. Although Campbell and Sentinel made similar claims against the plaintiffs by way of Cross-Claim those claims were abandoned on the sixth day of the trial. The reference in this judgment to "the defendants" is a reference to Campbell and Sentinel together. The Company was not represented in the proceedings. The facts 4 In 1993 Campbell began trading as a sole proprietor under the business name "Healthy Water Company" carrying on the business of selling and maintaining water filtration systems to private and corporate customers. The Company was incorporated in about 1994/1995 and continued the same business. In 2004 Campbell retained Bato Partners, Merchant Bankers, to assist him to restructure the Company's business. Bato Partners prepared a Memorandum of Information (the Information Memorandum) which included the following: A. Introduction and Background 1.1 Bato Partners has been retained by the proprietor of Healthy Water to assist a capital restructuring of the Company, that may involve the introduction of an equity investor/partner combined with a partial equity sell down by the existing proprietor, or as an outright sale of the business. 1.2 The purpose of this Memorandum is to provide potential investors/purchasers with a brief outline of the business operations so as determine the extent of their initial interest in the business. 1.3 It is clearly understood that any serious prospective investor/purchaser will undertake further investigative activities prior to arriving at a decision of any finality. 1.4 Healthy Water was established by its current proprietor, Doug Campbell, in March 1993 to provide access to clean (ie. safe, pure, healthy and chemical free) drinking water through the supply of and maintenance of leading edge, filtered water systems. … 1.10 Healthy Water's customer base is focussed on the commercial market in the Sydney CBD and north shore environs, whilst its growing residential client base is primarily the Sydney lower north shore and eastern suburbs. … 1.12 The extensive opportunities to further expend the business within the commercial market sector, as well as the growing residential market, require corporate resources (ie. funding, facility management expertise, direct interstate representation etc.) that the present proprietor is unable to provide. 1.15 The business is budgeting for sales of $1.3 million in 2005 with an EBIT of $545,000 based on existing maintenance contracts known new commercial installations. 1.16 A valuation of the business for "asking price purposes" in respect of an equity raising or trade sale, is $2.25 million representing a 24% ROI. 1.17 The business would provide an excellent opportunity for an operator in the facility management industry wishing to expand its product range/activities, or other water/environmental industry participants seeking to expand their existing operations. … C. Development and expansion There are excellent opportunities for further development and expansion identified and under evaluation by the company, including the following: - Implement intensive telemarketing campaign to target the growing demand for filtered water systems in the major corporates for their multiple locations. - Evaluate opportunities to joint venture with an existing facility management entity to expand their product range whilst utilising their existing facilities to service the customers. - Evaluate opportunities to develop the residential market sector by the establishment of concept stores within existing speciality retail chains. - Evaluate opportunities to replicate the Crows Nest location within our selected regions with similar demographics. D. Financial 1.1 The attached financial summaries demonstrate the development phase of the company's business in the establishment of an entity with the capacity to service the commercial market for its filtered water requirements on a national basis (ie. corporate multiple locations). 1.2 The installation sales to date underpin the service agreements that are designed to provide a recurring income stream for the business. 1.3 These summaries have been extracted from the company's annual statutory accounts, as well as management accounts and budgets. 1.4 The original operating results have been adjusted by the company's external accountants in respect of abnormal/non recurring items so as to establish a financial history of the company's present activities. 5 Summaries attached to the Information Memorandum recorded gross sales of $1.014 million for 2001; $1.058 million for 2002 and $1.020 million for 2003. They included a preliminary statement of gross sales for 2004 at $955,000 and a budgeted figure for gross sales for 2005 at $1.35 million. The summaries included EBIT at $208,000 for 2001, $245,000 for 2002 and $251,000 for 2003. The preliminary statement for 2004 recorded the EBIT at $356,000 and the budgeted EBIT for 2005 at $545,000. 6 Weeks was also a client of Bato Partners and was provided with a copy of the Information Memorandum. Phil Raby, Chartered Accountant, a friend and colleague of Weeks, assisted Weeks in the due diligence process prior to Weeks making an offer to purchase the share in the Company. On 1 December 2004 Weeks wrote by email to a partner of Bato Partners, Alan Horn, with whom he and Mr Raby had been dealing. That email referred to recent discussions with Mr Horn and the fact that the value of the business was based on the Company's current financial year performance and not on its historical results. Weeks advised Mr Horn that for this reason it was important that he received the profit and loss accounts for July to November 2004 together with the November 2004 Balance Sheet and Trial Balance. Weeks also advised Mr Horn that he was assuming, and certainly hoped, that "these numbers are prior to any significant 'adjustments', which would be excluded from any valuation consideration". 7 On 5 December 2004, Mr Horn wrote to Weeks and Campbell enclosing a revised "JV budget" for the year ending 31 December 2005. Mr Horn claimed that this budget was based on the "recent input provided by yourselves, as well as the previous budget estimate". At this stage it was envisaged that there would be a joint venture between the parties, however that ultimately changed to a share purchase. Mr Horn's 5 December 2004 email included the following: The sales budget reflects the JV strategy that will allow Doug to be "free" from the office to initiate major new business, as well as Spiros coming on board and Tim developing new business from selected target areas (ie. childcare, hospitals etc.). The operating results budget reflects the "new" JV cost structure and focuses on the need to secure new business asap. The attached are "draft schedules that should assist in the setting of various targets and the development of sales/marketing strategies for the JV in 2005. 8 On 6 December 2004 Weeks wrote to Mr Horn confirming that he had received the statutory accounts together with the Accountant's "add-backs" for the same years (being 2002, 2003 & 2004). Weeks advised: As we've discussed, the valuation of the business is very much dependant upon the current year's performance and likely short term outlook, as the proposed valuation is not supported by any historic data. To enable this review, I still need the P & L accounts for July '04 to November '04 inclusive, the Trial Balance for November '04 and the detailed Balance Sheet as at November 04. Although Doug also kindly provided a sales listing, this was by invoice and although providing a lot of detail, did not enable the required analysis. Obtaining this information was a very simple (15 minute) process and I have set-out the steps to be followed to obtain these reports using MYOB. I have also included examples (obviously taken from my own farm accounts) as these show what I'm looking for. Although Phil was perhaps a little over zealous, it would have been a very simple process to print these off while at Healthy Water, and if it would assist Doug in anyway – I would happy to come-in and do so. … Alan, as previously outlined the steps I [am] going through is: 1. Understanding historic performance 2. Reviewing present performance and evaluation 3. Developing a future outlook, with a particular emphasis on profitability and positive cash flow 9 Mr Horn had delivered a package of documents to Weeks at his home. The documents were headed "Healthy Water Operating Results" and two in particular are pivotal to many aspects of the plaintiffs' claims. The first was headed "Non recurring expenses" and was referred to in the evidence as the "Add Backs" document. It will be extracted later when I am dealing with the specific allegations made by the plaintiffs in relation to the contents of that document. The other document was referred to in the evidence as the "Sales Revenue Report". Similarly it will be extracted later when I am dealing with the plaintiffs' claims in relation to the contents of the document. 10 The Balance Sheet as at 30/11/2004 was also in the package of documents and recorded a loan to Campbell of $74,507.24. Weeks asked Mr Horn whether Campbell would be repaying that loan prior to settlement and Mr Horn said that he would find out. Weeks agreed in cross-examination that Mr Horn advised him that the Balance Sheet he had given him did not disclose Campbell's accrued long service leave and annual leave entitlements and that he thought they would be in excess of the loan amount (tr 44). Weeks claimed that Mr Horn advised him that the items in the Add Backs document were Campbell's non-recurring expenses that he had taken out of the business in the last 5 months. Weeks claimed that Mr Horn also said that Campbell realised that the items were not documented in any way and that is why he was providing Weeks with a warranty. Weeks claimed he asked Mr Horn whether there was "an audit trail" and that Mr Horn said: No, I've had a look at some credit card statements charged to Healthy Water, but nothing I could present to you. These are not the sorts of things Doug wants in the public arena and your protection is he's warranting Healthy Water's performance. It's making about thirty five thousand a month and that's going to continue to improve. Doug's prepared to guarantee this figure to justify your price, but he's limited as to how much information he can provide. 11 Mr Horn denied that the conversation was in the terms alleged by Weeks. He said that Weeks asked him how the figures in the Add Backs document could be "substantiated" and that the following conversation took place: Horn: This is fairly simple. The schedule is a summary of certain expenses that would not recur in the event that a purchaser takes over the business. It represents a normalisation of the operating results so as to provide an incoming investor or purchaser with a picture of the business going forward without certain expenses that would not be recurring. Weeks: I understand that, but how can I satisfy myself as to their validity? Horn: The schedule details $96,100 of non-recurring expenses. $2600 represents an accounting treatment for obsolete inventories that you can easily verify. $16,000 represents fees paid to Bato Partners that will not recur under the new ownership. Our fees can easily be checked in the company's accounting records. This leaves $77,500 for the 5 month period to 30 November 2004 and which represents the difference between the proprietor's drawings from the business and that amount for which a general manager could be employed for a small business of this size. In essence, Doug receives approximately $271,000 per annum from the business in salary, motor vehicle allowance and other expense allowances whereas we have estimated that a general manager could be recruited for this business at a salary of $85,000 per annum. The difference is $186,000 per annum and adjusted to 5 months to 30 November 2004, it leaves $77,500 as an expense that is non-recurring for that period. 12 Mr Horn also claimed that he advised Weeks that the Balance Sheet and Profit and Loss Statement in respect of the 5 months ended 30 November 2004 would be part of the sale contract and subject to the usual warranties but that the Add Backs document would not form part of the contract. As it turned out the amount in the Add Backs document was included by reference to the "Proprietor's estimates" of non-recurring expenses. Mr Horn claimed that he advised Weeks that he would have to undertake his own due diligence "to be comfortable with your estimate of the level of operating performance going forward". He claimed that Weeks said that he would "certainly" be doing his own assessment of the business' operating performance going forward. Mr Horn also provided a copy of a Memorandum of Understanding to Weeks. Although it referred to the obsolete plan for a joint-venture, it relevantly stated: Pricing: The agreed value of the Healthy water business is $2,250,000 with a 50% shareholding to have an acquisition cost of $1,125,000. The value of the business reflects the current operating results of the business and which on an annualised basis, approximates the original 2005 budgeted annual sales turnover of $1.3 million with a normalised EBIT of $545,000, after taking into account the current order book and existing customer service income etc. A copy of the management accounts at 30/11/04 will be attached to the contract. The due diligence process will verify the current profitability of business so as to provide support for the agreed business valuation. 13 On 14 December 2004 Weeks made an offer to purchase the share in the Company in the following terms: The basis of my offer is as follows: $'000's Annual Average 3 x EBIT 4 x EBIT EBIT EBIT Annual AverageAnnualAverage Management Accounts 2001/2 244.00 732.00 976.00 2002/3 251.00 283.67 753.00 851.00 1,004.001,134.67 2003/4 356.00 1,068.00 1,424.00 2004/5 (P7-12 x 2) 325.00 325.00 975.00 975.00 1,300.001,300.00 2004/5 (Estimate) 400.00 400.00 1,200.00 1,200.00 1,600.001,600.00 · Based upon the operational results provided for Healthy Water as tabled above (adjusted but unsupported), the value of 100% of the Company is around $1.6M. $1.7M tops. · Purchase of a 50% share would be paid in cash ($850,000 for 50%) · From January 1, 2005 the directors would each be paid a Salary of $150,000pa, plus super @ 9% and car allowance (as agreed) and a 'guaranteed' bonus of $100,000pa to be paid quarterly or thereafter subject to cash funds being available. · These payments equate to the current forecast level of profitability ($400,000pa) supporting the $1.7M valuation · Recognising that 'performance' expected to exceed the current forecast level of profitability, a performance bonus may be paid to the seller (ahead of any dividend payment) of up to $300,000 on March 31, 2005 or thereafter, subject to cash funds being available and sufficient profitability being achieved. No payment will be made based on profitability after December 31, 2005. Alan, I think this is pretty straight forward – a purchase price ($1.7M) and a performance bonus (up to $300,000) based upon forecast levels of profitability being exceeded within next 12 months to December 31, 2005. I do understand that new business has been achieved, however this has been included in the forecast and is reflected in the current purchase price. 14 On 16 December 2004 Mr Horn advised Weeks that Campbell was unhappy and that he wanted the money from the guaranteed bonus to come in earlier and that he wanted to delay the payment of Weeks' bonus. As a result of that discussion Weeks made an amended offer on 16 December 2004 by email to Mr Horn in the following terms: Further to our telephone conversation this morning, the basis of my revised offer is as follows: · Based upon the operational results provided for Healthy Water, which form part of this offer and any subsequent agreement to purchase, the value of 100% of the Company is estimated at $1.7M. · Purchase of a 50% share would be paid in cash ($850,000 for 50%) on January 1, 2005 – subject to Bank finance being approved. · From January 1, 2005 the (2) directors would each be paid a Salary of $150,000pa, plus super @ 9% and car allowance (to be agreed) and a 'guaranteed' bonus of $100,000pa to be paid quarterly or thereafter, subject to cash funds being available. · For the first year, payment of this bonus would be as follows: Doug Campbell Tim Weeks March 31, 2005 25,000 June 30, 2005 25,000 25,000 September 30, 2005 25,000 25,000 December 31, 2005 25,000 50,000 $100,000 $100,000 Where insufficient cash funds are available, no payment or a proportional payment may be made pro-rata to the amounts due each director. Any unpaid amount will accrue and be payable the following quarter. Payment of the 'guaranteed bonus' ranks ahead of any 'performance bonus'. · Recognising that 'financial performance' is expected to exceed the currently forecast level of profitability, a performance bonus of up to $300,000 will be paid to the seller, based upon net profitability to December 31st 2005. This performance bonus ranks after payment of the 'guaranteed bonus' and is subject to sufficient cash funds being available and sufficient profitability being achieved. Being a 'performance' bonus, no payment will be either due or payable if insufficient profitability is achieved. Alan I believe this represents the basis of our conversation, please let me know if I have misunderstood anything. 15 On 22 December 2004 Weeks sent an email to Mr Horn attaching a "P & L Forecast" as a "summary of the various information provided". Weeks advised that "these numbers are the basis" of the offer he had made to purchase the 50% share in the Company and stated: Somehow these results need to be warranted as being true and correct and representative of the Company's performance to date during the current financial year. They also represent the 'budget' for the remainder of the current year. I will also be asking my solicitor how these results can be incorporated and warranted in the purchase agreement … so we can adopt some appropriate wording. 16 There was an initial plan that settlement of the share purchase would be completed prior to 1 January 2005, however the Company's Christmas holiday arrangements prevented this occurring. Mr Horn suggested to Weeks that he should "spend time" in the Company's offices when it reopened on 10 January 2005 to "get a feel for how the business is being operated" and to conduct whatever remaining due diligence he required "of the accounting and other sale systems". Office arrangements 17 Diane Hannah, who had been working with the Company for a number of years was described by Campbell as a "senior scheduler". Ms Hannah's role included the maintenance of the customer database on the Company's computer and the scheduling of the appointments for services of installed products and installation of new products. Ms Hannah was "the link" between the customer and the Company after Campbell had completed the sale (tr 345). The "service department" consisted of the technicians who carried out the installation of products and servicing of the installed products. Those employees would attend the Company's office in the morning prior to departing in Company vehicles for the scheduled appointments for installation and/or service of the Company's products. 18 From October 2004 the Company employed Penelope Anne Hunt as a consultant. Ms Hunt described her duties as "day to day management of the office and staff and marketing of the Healthy Water business". Part of Ms Hunt's duties included the banking and payroll for the Company. The Company's banker, the Commonwealth Bank (the Bank), provided a tool known as "Quickline" to which Ms Hunt had access for the payment of some suppliers' accounts and employees' salaries directly into their bank accounts. The Bank also provided the Internet banking service, known as "Netbank" but Ms Hunt was not authorised to use this service. Both Netbank and Quickline were linked to the same account with only the former showing the account balance. Ms Hunt made arrangements for the employees of the Company who were using Company vehicles to be provided with fuel cards and e-tags whereby the Company paid the cost of petrol and tolls. From March 2004 to 29 January 2005 Campbell's son, Chris Campbell, was employed initially as a service technician and later as service manager. During the last week of January 2005 and the first week of February 2005 three new employees (Messrs Tzelis, Brady and Wood) joined the Company. 19 The Company employed a bookkeeper, Andrew Eustace, who, amongst other things, entered the data into the MYOB database and completed BAS statements and the monthly accounts. Mr Eustace attended the Company's premises from time to time to complete these tasks. Weeks commences "work" 20 Weeks attended the Company's premises commencing on 10 January 2005. During the period 10 January 2005 to 24 January 2005 there were a number of email communications between Weeks and Mr Horn and Mr Horn and Campbell's solicitors, Rodd Peters Lawyers (RPL), in relation to the preparation of the various agreements. On 12 January 2005 Weeks sent an email to Mr Horn which included the following: We still have not been able to obtain final P&L and Balance Sheets or to close-off FY2003/2004 and December 31st. Andrew Eustace will be in tomorrow (Thursday) with the aim of doing this and having some 'clean' figures for inclusion in the agreements and more importantly being able to get on with the business of invoicing and posting creditors. 21 At about this time Weeks requested Ms Hannah and Ms Hunt to "stop invoicing", apparently to assist the "close-off" referred to in this email. This was a request that caused some controversy, with which I will deal later. On 12 January 2005 Mr Horn sent an email to Weeks advising that he had received the "30/11/04 management accounts" and that he would provide a copy to Weeks "when they are in an appropriate format for inclusion in the contract". On 13 January 2005 Weeks sent an email to Mr Horn in which he summarised the "items/activities required before completion", including the following: 2. Completion and closure of HW accounts: - December 31st, 2004 Balance Sheet - P&L to December 31st, 2004 - Quick reconciliation of Debtors, Creditors and Cash (to Bank statement) – I'm anticipating no significant changes from November '04 B/S … 5. Reconciliation of Doug Campbell loan and agreement on treatment to discharge loan prior to completion. 6. Reconciliation or explanation of CBA Credit Card Account balance 22 On the same day Mr Horn sent an email to Campbell in which he asked him to "advise if there are any other financial commitments that we should disclose that have been included in the accounts". That email included the following: … the Balance Sheet at 30/11/04 shows a shareholder loan of $74,507.24 owing by D. Campbell to the company, and Andrew was to investigate/reconcile this account for you today. Has Andrew finished this yet? Also, the accrued annual leave/LSL liability for yourself amounted to $79,637.14 and will be included in the accounts … has Andrew adjusted this yet? Subject to Andrew's reconciliation of the above loan account, the amounts appear to offset each other. In view of your warranty requirements in the sale contract, and in the light of the recent accounting disclosures in respect of the debtors and employee entitlement liability adjustments, it would be very prudent to conduct the physical stocktake with Tim asap so as to ensure that there are no unpleasant surprises in that area. 23 Mr Eustace completed the "adjustments" to the accounts and forwarded them to Mr Horn by fax dated 13 January 2005. The covering facsimile referred to the "updated" Balance Sheet, Profit and Loss to 30 November 2004. The matters to which Mr Eustace referred Mr Horn were: "the reversal of invoice to DC loan account; G J entries for leave accrual (slightly different to your figures, as I excluded sick leave); the $2500 fortnightly trans. to DC loan have been re-allocated to "Financing Costs" expense; ATO Running Balance account has been cleared". The Balance Sheet to 30 November 2004 enclosed with the fax listed Mr Campbell's loan to the Company as a liability in the amount of $3,759.76. Total assets were listed as $303,192.55. Total liabilities were listed as $104,304.42 with net assets as $198,888.13. Retained earnings were listed as $163,203.06, current year earnings as $35,683.07 and total equity as $198,888.13. Trade creditors were listed as $9,130.36. 24 Later on 13 January 2005 Mr Eustace sent a further fax to Mr Horn in which he adjusted the Balance Sheet as at 30 November 2004 to change the trade creditors to $63,625.75; a slight adjustment to GST providing a total for liabilities of $154,866.45 with net assets at $148,326.10. Retained earnings were reduced to $116,844.11 and current year earnings were reduced to $31,479.99 with total equity reduced to $148,326.10. 25 Between 10 January 2005 and 24 January 2005 there were a number of conversations between Campbell and Weeks, one of which occurred on 20 January 2005 when Campbell and Weeks met with Mr Horn at Bato Partners' offices to discuss the share purchase, the future of the business and the allocation of duties. Campbell claimed the following conversation took place at that meeting: Weeks: I'm going to do a corporate 101. Campbell: What's a corporate 101? Weeks: Alan, he doesn't know what a corporate 101 is? Horn: It is an American corporate accounting term or procedure. Campbell: This is a small business, not a corporate business. If you are going to take on the servicing, financial services and IT responsibilities, you will need to ease yourself in. It would not be possible for anyone to carry out all these tasks, particularly as you will be very new to the business operations. Tim, with these service department guys, you will need to tread carefully and lead by example, such as being in the office at 7:30am and being able to deal with service problems as they arise. If we lose one of these guys, it will take us about 6 Mr Weeks to replace them. 26 Campbell claimed that at this stage of the conversation Weeks stood up and shouted at him: I will not be bullied. I am not going to be an employee of yours. I will own 50% of the company don't you forget. 27 According to Campbell, Weeks then left the room and slammed the door. Weeks put a different hue on this conversation. He denied that he said the words attributed to him by Campbell, however he admitted that he did say that it was not an employee/employer relationship and that they were going to be joint owners. He denied slamming the door but admitted that "at one point" he did leave the room to attend the bathroom. Campbell claimed the following conversation took place when Weeks returned to the room: Campbell: I think you should go away and think about whether you really want to be involved in this company. Think very hard about whether or not you want to be involved in this Company, in turn I don't want you to come back into the business premises until you have made your final decision. Weeks: Oh Alan, I have been dismissed. Horn: I agree with Doug. I think it is a good idea you should think about this. 28 The following day Mr Horn telephoned Campbell and informed him that Weeks was still interested in pursuing "the deal", that he had settled down quite a bit and was apologetic for what had happened. Mr Horn advised Campbell that the possible date for settlement was then 24 January 2005. Weeks telephoned Campbell that morning and the following discussion took place: Weeks: I guess you know, I'm still interested in coming in to Healthy Water. Campbell: Yes, Alan has told me. I just want you to understand that the guys you will be working with in the service department are pretty basic in their needs. They won't be interested in corporate 101. You need to take it slowly, let it happen and build some respect, they will respond. Weeks: I know what you mean. I am used to dealing with a lot of different people but whatever you think is a good thing I will go with. Share Sale Agreement 29 The Share Sale Agreement dated 24 January 2005, provided for the purchase of the share in the Company by Backoffice for $850,000 (cl 5). It also provided: 7. WARRANTIES 7.1 Warranties by the Vendor The Vendor [Campbell] warrants to the Purchaser [Backoffice] in terms of the Warranties set out in the Schedules. Each warranty is given as at the date of this Agreement and subject to any disclosure made by or on behalf of the Vendor to the Purchaser or its advisers before the date of this Agreement. 7.2 A Warranty which refers to "the knowledge, information and belief" of the Vendor, or which refers to the Vendor's "knowledge", or contains words to that effect, or which refers to the Vendor being aware or not being aware of a matter, must be treated as including an additional Warranty that the Vendor has made due and careful enquiry as to the matter. 7.3 Notwithstanding any other provision of this Agreement; (a) the Vendor shall have no liability in respect of any claim under the Warranties unless the amount of such claim exceeds the sum of $15,000 for any one event or $25,000 in aggregate; (b) the Vendor shall have no liability in respect of any claim under the Warranties unless reasonable particulars are given of the claim to the Vendor within twenty four (24) months after the date of this Agreement save and accept for any Claim against the Company by the ATO or Office of State Revenue relating to liabilities arising from the period prior to the Execution Date; (c) the liability of the Vendor in respect of any claim under the Warranties shall be reduced or extinguished (as the case may be) to the extent that the claim has arisen as a result of any act or omission of the Purchaser. 7.4 The Purchaser acknowledges that: (a) in entering into this Agreement and undertaking any of the transactions contemplated in this Agreement, it has not relied on any warranty made by or on behalf of the Vendor other than the Warranties given in sub-clause 1 of Schedule 1; (b) it has been afforded the opportunity of inspecting (either directly or through its advisers) the Company and Assets, and it has availed itself of such opportunities and has relied upon its own conclusions as to the Company and the Assets arising out of such inspections; and (c) it is not aware of any fact or circumstance that would make any of the Warranties incorrect which have not been disclosed to the Vendor. 8. COSTS 8.1 Each party must bear its own costs in relation to the preparation and execution of this Agreement. 8.2 The Purchaser shall pay and bear all stamp duty and similar duties or charges payable on or in relation to this Agreement. 9. ENTIRE AGREEMENT 9.1 This Agreement: (a) constitutes the entire agreement between the parties; and (b) in relation to that subject matter, supersedes any prior understanding or agreement between the parties and any prior condition, warranty, indemnity or representation imposed, given or made by a party. Schedule 1 to Share Sale Agreement 30 Schedule 1 of the Share Sale Agreement included the following: 3. MATERIAL CONTRACTS AND LIABILITIES 3.1 (a) The Company has no Liabilities other than the Liabilities disclosed in Schedule 3 and Schedule 7, and the Company is not party to any contract or arrangement which has not been disclosed to the Purchaser. … (g) The Company has not experienced any extraordinary expenses since the Balance Sheet Date and the business of the Company has been operated in the ordinary course and in good faith since the Balance Sheet Date. 4. FINANCIAL MATTERS 4.1 The Vendor warrants that: … (3) Profits or Losses The profits or losses shown in the Balance Sheet have not to a material extent, been affected (except as therein disclosed) by any extraordinary or exceptional event or circumstance or by any other factor rendering them unusually high or low. … 10. ACCURACY OF INFORMATION To the best of its knowledge, the Vendor warrants that:- 10.1 Information Accurate All information given by or on behalf of the Company or its advisers to the Purchaser or its advisers material to the sale of the Shares and the Assets is substantially accurate and complete and not misleading. 10.2 Schedules The information in the Schedules is materially accurate and complete and not misleading. Schedule 3 to Share Sale Agreement 31 Schedule 3 to the Share Sale Agreement contained a one page document headed "Balance Sheet as at 30/11/04" which extracted relevant figures from five pages which followed being: a two page document headed "Balance Sheet as of 30 November 2004", two pages headed "Entitlement Balance [Detail] Lifetime" (the first setting out the leave entitlements for Campbell and the second setting out the leave entitlements for Ms Hannah) and a one page document entitled "Healthy Water Asset Replacement Cost". These documents have been referred to in submissions as the "warranted balance sheet" and I will adopt that expression. 32 Schedule 3 to the Share Sale Agreement also contained a one page document headed "Profit and Loss Statement For the 5 Months Ended 30/11/04" which extracted figures from a two page document headed "Profit and Loss Statement 1/07/2004 through 30/11/2004". These documents have been referred to in submissions as the "warranted profit and loss statement" and I will adopt that expression. Shareholders Agreement 33 The Shareholders' Agreement is dated 24 January 2005 and recited that Campbell had agreed to sell 50% of the shares in the Company to Backoffice and that the "Shareholders wish to enter into this Agreement to regulate their rights and obligations among each other as Shareholders of the Company". The term of the Agreement was for the "Initial Term" of 24 months and then to continue until terminated pursuant to the Agreement (cl 2). The agreement provided that, unless otherwise agreed by the Shareholders, the directors "must" meet at least once every month (cl 5.7). Campbell and Weeks, as Joint Managing Directors, were to have the day-to-day conduct and management of the Business and the Company (6.1). It was agreed that certain matters, including the identity of bank signatories had to be determined by resolution at a directors' meeting. The initial bank signatories were to be the two initial directors jointly for all financial transactions including electronic transfers. Any change to that arrangement had to be by resolution at a directors' meeting (6.4(m)). It was agreed to adopt the budget and an initial business plan by 15 May 2005 (9.1(a)). It also provided: 7 RESOLUTION OF BOARD DEADLOCKS 7.1 When a Deadlock Arises A deadlock arises between the Directors if: (a) the Directors cannot agree on a fundamental matter about operating the Company or the Business; and (b) the failure to agree materially and adversely affects the successful operation of the Business; and (c) the Directors cannot resolve the disagreement within 30 days of it first arising. 7.2 Voting Deadlock In the event of a Board Meeting voting deadlock the status quo shall remain and the Directors may: (a) appoint upon a unanimous decision a chairperson who shall have the casting vote; and (b) reconvene the Board Meeting at which the voting deadlock occurred within three (3) days. Services Agreements 34 Schedule 5 to the Shareholders Agreement contained two letters, each dated 24 January 2005 from the Company; the first was to Sentinel retaining it to provide the services of Campbell as Joint Managing Director of the Company; and the second was to Backoffice retaining it to provide the services of Weeks as Joint managing Director of the Company (the Services Agreements). The commencement dates of the Agreements were 1 January 2005 and were to remain in force for the Initial Term of 24 months and as long as the Shareholders' Agreement remained in force (2.1). 35 Sentinel and Backoffice were each to receive a total fee of $150,000 plus GST gross per annum in consideration of providing the services. Clause 5.2 of each agreement provided: The Fee will be paid in equal monthly instalments by electronic funds transfer into BackOffice's/Sentinel's nominated bank account within seven (7) days of receipt of original invoice which shall be issued at the end of each calendar month. 36 The Agreements also provided for a bonus of $100,000 during each year of the term of the Agreement in various instalments over the period (cl 6.1). Clause 6.2 of the Sentinel Service Agreement provided for a Performance Bonus of $300,000 to be paid out of "Available Profit" after the other bonuses had been paid. Both Campbell and Weeks were to attend the premises between 8:30am and 5:30pm Monday to Friday (cl 4) and each was to be provided with a fully maintained motor vehicle, including finance lease payments, during the period of the Agreement (cl 7). Schedule 1 to the Services Agreements provided as follows: HEALTHY WATER (NSW) PTY LTD SERVICES AGREEMENT SCHEDULE 1 POSITION DESCRIPTION Joint Managing Director (JMD) SUMMARY The JMD has joint management and budget responsibility for the complete Business. The JMD is jointly responsible for every facet of the success of the Business; delivering the budgeted Profit; Managing the Business; managing and motivating the people employed by the Business. PRINCIPAL JOINT ACCOUNTABILITIES · Accountability for the smooth running of the Business. · Research, analyse, and monitor financial, technological, and demographic factors in order to capitalize on opportunities and minimize the effects of competitive activity; · Create and manage strategic objectives in line with Company policy; · Ensure acceptance and implementation of policies at each level; · Manage, train, direct and motivate the staff within the Company; · Provide regular and accurate reports to the Board of Directors on a planned and ad hoc basis; · Attend professional and social events relevant to the Business as necessary. PERFORMANCE EVALUATION Joint General Tasks Generate new business; Generate new concepts for the business; Liaise with new and existing clients; Develop client relationships; Capitalize on opportunities; Minimize effects of competitive activity; Prepare costings and proposals; Negotiate with suppliers. Joint Budget Tasks Control expenditure; Understand and prepare budgets; Check and account for budgets; Liaise with Management Accountant; Liaise with Management Accountant ( sic ); Determine progress and status in attaining objectives. Other Joint Tasks Implement new ideas; Represent the Company in professional and business-like manner; Attend internal and client meetings; Look after Company property; Utilize Company computer system; Maintain professional personal presentation which reflects the professionalism of the Company; Liaise with Company personnel; Provide regular reports to General Manager and Directors; Absorb training; Organize training as deemed necessary; Attend professional and social events; Maintain a team focus. SUPERVISORY RESPONSIBILITIES You are responsible for all employees within the Company. 37 Campbell and Weeks agreed to divide the Managing Directors' obligations so that Campbell was responsible for Sales and Marketing and Weeks was responsible for Service and Installation and Finance, IT and Accounts. Weeks prepared a chart setting out those areas that was used at a staff meeting on 25 January 2005. Netbank access 38 On 24 January 2005 Ms Hunt sent an email to Weeks that included the following: Netbank Access In order for you to have access to the HW bank account, I've left a form on your desk which requires your signature. This will give you a client Id and your own password to give you access to the HW bank account. Once signed, please send the original back to the bank for processing. Note: to gain access you must have been Id'd by the bank and be a joint signatory to the account. 39 The "form" to which reference was made in this email is probably the form headed "Authority for Non Personal Accounts" receipt stamped by the Bank on 25 January 2005. It was signed by both Campbell and Weeks who were the "persons authorised to operate the account". In the space provided after the statement "Show method of operation eg, any one to sign, Treasurer plus one to sign or any two to sign etc.", the words "Any two must sign" were written. 40 On 27 January 2005 Campbell informed Ms Hunt that he had tried to pay some invoices using Netbank but was unable to obtain access. Campbell requested Ms Hunt to ask Weeks "what has happened to Netbank". The terms of the conversation between Ms Hunt and Weeks on 28 January 2005 are disputed. Weeks' evidence was that Ms Hunt claimed that he had changed the banking arrangements and expressed concern that she would not be able to run the payroll. Weeks claimed that Ms Hunt suggested that he had been "tampering with the bank facilities" and that he advised Ms Hunt that he had no idea what she was talking about and that he would call the Bank to find out what was going on. 41 Ms Hunt claimed that she asked Weeks whether he knew what happened to Netbank because Campbell could not get access to it. She claimed that Weeks looked at her "blankly and shrugged" and said: "well, so I can't do any thing". Ms Hunt claimed that when she expressed her concern that it may affect the payment of employees and suppliers and cause embarrassment to the Company, Weeks responded: "So, I don't care. Anyway, weekly pay is going to change, it's ineffective. Everyone will be changed to monthly payments. Also paying suppliers via EFT is not cost effective". Ms Hunt claimed that she said to Weeks: "it seems that whatever has occurred with you going to the bank this week, is affecting [the Company's] ability to meet its financial commitments" and that he responded: "I don't care, what can I do anyway". Ms Hunt claimed that Weeks refused to assist her and that he later ignored her and walked away from her. 42 Weeks' claimed that he subsequently called the Bank and was advised by an officer of the bank, Mr McAllister, that the "issue" with Internet banking had occurred because two signatories were then required to sign everything and that two passwords were required to access Internet banking. Mr McAllister advised Weeks that the payroll would not be affected. Immediately after his discussion with Mr McAllister, Weeks advised Ms Hunt that Mr McAllister had said that the payroll was unaffected but that NetBank now required two authorisations. He claimed that Ms Hunt informed Weeks that it was "unacceptable" and she would have to speak to Campbell to "change it back". 43 On either version of events it is obvious that the relationship between Ms Hunt and Weeks was not a happy one. It is clear on the evidence that the complexity of the commencement of this business relationship between Weeks and Ms Hunt was exacerbated by the fact that Campbell and Ms Hunt were in an intimate relationship. It was not suggested in the evidence that Weeks was unaware of this fact nor is it possible to know when he became aware of that fact. Campbell admitted that he was aware of and very upset about the developing conflict between Ms Hunt and Weeks and claimed that he was doing everything he could to avoid it (tr 445). Campbell agreed that Ms Hunt was making "regular complaints" to him about Weeks (tr 442). He gave evidence that he paid particular notice to what Ms Hunt was saying to him about Weeks because she was "overloaded with" Weeks' work and "she was trying to cope and it was very difficult" (tr 443). January invoices 44 Weeks prepared two invoices dated 31 January 2005. The first invoice included the following: Consulting Services for January 2005 per services Agmt dated 24/1/2005 with 5 days taken as unpaid leave/public holiday – from 1st to 10th January, 2005 (16/20* $150,000/12 = $10,000) $11,000.00 GST To reimbursement for the supply of IBM R51 Workstation as approved by DRC. (Copy of Tax Invoice attached) $3,511.00 GST January expenses (per attached expense report) $374.70 GST 45 The second invoice was in the following terms: To re-imbursement of January '05 motor vehicle lease expense per Services Agmt. dated 24/1/05 $2,233.99 GST 46 Weeks' affidavit evidence was that on 31 January 2005 he discussed these payments with Campbell in a conversation that included the following: Weeks: How do you want to process our consultant fees? Do you want to run them through the payroll system or use funds transfer, a cheque or what? Campbell: I don't know what you're talking about, it's the end of January and you only paid your money on the 24th. How can you possibly put your hand out for money when you have only been here for a week and in that time, you haven't brought in any business. I know your type. All you want to do is to come into my company and take control and strip it of its money. Weeks: Doug, I'm complying with the terms of our services agreements which are effective from 1 January and requires us to submit our invoice for fees at the end of each month. Campbell: I don't give a damn about any agreement. You only paid your money on the 24 January so you can ask for payment on 24 February. Then I'll consider paying you on 1 March if you bring in some business. Weeks: Doug, that's not what the services agreement says. Campbell: I don't care about the agreement. It's not relevant. I'm going to decide what's happening around here. Weeks: It's a legal agreement. Campbell: I really don't care about the agreement. You should sue me, plenty have tried before. Bring it on - I'm ready. Weeks: I'll confirm my understanding with Alan and we'll need to discuss this at Friday's management meeting. 47 Later that day, Weeks had a conversation with Mr Horn who, according to Weeks, said that he had raised the fact that the Services Agreement commenced from 1 January 2005 with Campbell. Mr Horn said that he would talk to Mr Campbell and "sort this out". Weeks claimed that during the afternoon of 31 January 2005 he was scheduled to review the payables procedure with Ms Hunt. Weeks asked Ms Hunt whether she was ready to go over the payables with him and according to Weeks, Campbell shouted from his office words to the effect of, "don't show him anything, all he wants to do is get his hands on the money". Both Campbell and Ms Hunt denied that this occurred. In cross-examination Weeks agreed that from the time he had the discussion with Campbell about the invoices for his fees dated 31 January 2005, their relationship commenced to deteriorate. Weeks subsequently communicated with Mr Horn who suggested that perhaps the commencement date for payment for services should be 10 January 2005 rather than 1 January 2005. Weeks advised that he would reduce the amount in the invoice to $10,120 and make the same claim as Campbell for the motor vehicle allowance. 48 The versions of events between Ms Hunt and Weeks in January and early February 2005 are the subject of dispute, however an email that Ms Hunt sent to Mr Horn on 1 February 2005 gives some indication of the environment, at least from Ms Hunt's perspective. That email referred to the problem with the Internet banking and the conversations with Weeks that Ms Hunt regarded as most unsatisfactory. Ms Hunt also claimed that Weeks behaviour was "offensive" and that he continually reminded her and Ms Hannah of his "superior business experience". Ms Hunt claimed that Weeks: seemed "obsessed" about Campbell's previous spending on his Visa credit card "for the past months before his entry into the business"; was "condescending and patronising" and "endeavouring to control and oversee everything"; and was trying to "corporatise" the service team when what they needed was encouragement and leadership. The email concluded: Last night, I received another explosive lecture from a red faced and finger pointing Tim (again after the rest of the team had left for the day), essentially reminding me that he had invested a lot of money in this acquisition an [ sic ] it's in his interest to make it work. I said I understand but it is not my business what he spent acquiring a share of HW! I said I was personally frustrated. That as a 'manager' of the business, if I escalated an issue to him, that he was not 'taking ownership of it'. By way of example I told him of the 5D contract not being completed and sent. (5D manage the CBA account, one of our most valued clients) and that even after last Friday, as a 'critical member of the team' that he claimed I was, he didn't once ask whether or not I had managed to be paid or could he do anything to help. Yet, since starting I have received two invoices from him, One dated 1.1.05 for his motor vehicle lease and another today for a new computer. … Unless he changes his disruptive and disrespectful behaviour it wouldn't surprise me that in the not so distant future the only ones left to represent Healthy water will be Tim & Doug. This is wrong as our team is beginning to look good under Doug's encouragement and training, it is their jobs we are dealing with and we should not be subjected to such a crazy out of touch management behaviour. 49 The "5D contract" referred to in that email was a contract that Ms Hunt said she gave to Weeks on 14 January 2005 as a result of a request made by Campbell. Ms Hunt 's evidence was that when she gave it to Weeks on that day she advised him that Campbell had said that the formalities for renewal needed to be finalised by 31 January 2005. According to Ms Hunt, the finalisation of this renewal was necessary before the Company could attend to service calls to the Commonwealth Bank sites. On Friday 28 January 2005 Ms Hunt sent an email to Weeks in the following terms: Last week I left in your file a contract which needed to be completed for 5D (Facility Mgrs for CBA) This is a friendly reminder, [f]ollowing our conversation yesterday, this is due back to 5D no later than 31 Jan 05. (Monday) If this is not received, it could jeopardize the ongoing servicing of the CBA sites and potential for HW to service other business managed by 5D 50 On 5 February 2005 Weeks forwarded Ms Hunt's email on to Campbell in the following terms: This is not something I have either the product or pricing knowledge to complete. If it is critical to our business then I suggest someone works with me to complete. 51 Campbell sent this response to Ms Hunt on 7 February 2005. Ms Hunt then purported to set up a meeting with Weeks by sending an email in which Weeks was identified as a "required attendee". That meeting did not eventuate and Ms Hunt attended to the material for finalisation of the 5D contract herself. It is obvious that by this time the relationship between Ms Hunt and Weeks had deteriorated very badly and was not assisted by the meetings between Campbell and Weeks on 4 and 7 February 2005 referred to below. Ms Hunt had also commenced to keep a "diary" in relation to the times during which Weeks attended the Company's premises and some of the conversations that occurred between them. Those vignettes included the following: Wed 12 January Diane and I are chatting with tim, welcoming him to the team, and he says to me out of the blue "wouldn't you rather be shopping? Than working?" I reply "no". Tim weeks goes on to say that his wife doesn't have a real job – and that he is very old fashioned. He says that he's never fired anyone who he hasn't employed before – though he mentions that he has fired staff who he never employed – goes on to qualify the point by saying that he has fired staff who he has "adopted" when he's accepted positions in companies. When Tim leaves, Diane asks me whether her job is secure. (I say not to worry) Thurs 13 January Tim says "no invoicing" to Diane and I. Once out of the door, Diane asks me whether she should be banking the cheques which are coming in I answer 'yes', thinking that $ better in our bank account than not. I ask DC about the invoicing. He says to continue business as usual. Mon 31 January Afternoon, expressed my disappointment with Tim not taking ownership of the issue I experienced on Friday. Tim replied "he didn't care and that he was going home". 52 On 3 February Mr Horn attempted to negotiate a compromise between Campbell and Weeks in relation to Weeks' claim for payment pursuant to his invoices dated 31 January 2005. Mr Horn wrote to Campbell in the following terms by email: Digressing to a housekeeping matter that is obviously emotive … Tim is seeking payment under the service agreement for January as you are aware … perhaps a not unreasonable compromise would be to start him from 10/1/05, as well as for the car allowance that would be parallel to yours. This seems to be a real bone of contention for some reason, and perhaps a compromise now may reap further benefits later. 53 Campbell responded to Horn promptly on the same day in the following terms: Thanks for your confidence; I am trying very hard Alan to facilitate Tim's needs and idiosyncrasies, in fact harder than I have ever had to do for someone in 28 years of business life. His transition to SME life is most difficult for me and also the Staff, made doubly hard because he won't listen when it comes to important issues like making HW sales and service operationally smooth AND functional. Life here is about hard work, empty bin so to speak thinking on your feet, treating people with respect and encouragement. Earning the respect of other team members is the order of the day. Just because one invests money into a business as a partner, it is not a license to break the rules of "contracts in business life" or demand special attention and/or dispensation. The people around us work here because they enjoy being here and feel equally important. Further more so they should. If we give into his wailing about dubious dates to be paid monies … where does it all end? How do I build respect for him? If he was a super contributor it may well be easier to digest, frankly he has really been quite negative to our business operations, and further more he wants us all to believe that he is God's gift to HW very existence and future progress! You place difficult decisions in my path. Alan I am not avoiding your request, I will think it through over night. Management Meeting – 4 February 2005 54 Mr Horn arranged for the Management Meeting to occur on 4 February 2005, in part to attempt to deal with matters that were obviously in need of compromise. Mr Horn had circulated an agenda prior to the meeting. The meeting commenced at approximately 12:30pm and after some discussion about the employees and sales activities, Weeks claimed the following conversation then took place: Campbell: We can no longer use internet banking because of you. You are deliberately trying to sabotage Healthy Water. All you want to do is get your hands on my money –; you just want to take control. I've been running this company for 12 years without you and I've always been able to do what I wanted to do. Weeks: The change in banking arrangements is nothing to do with me – it is a consequence of the requirement for both of us to authorise transactions. This is what we agreed to in the share sale agreement. Campbell: You are only interested in controlling the cheque book. You've deliberately upset Penny and you're trying to take over her role. Penny is extremely upset about her job. She's got an offer from her mother to work elsewhere, and the Company will collapse if she leaves. You are just incompetent, you don't understand how small business works. You haven't brought in any new business and all you want to do is polish what is already a smooth running machine. 55 Weeks then claimed that he tried to explain what had happened with the internet banking arrangements by saying: Listen and you might learn something, I'll try to explain what's happened. Can we concentrate on the solution and not personal abuse. Campbell's letter – 6 February 2005 56 On 6 February 2005 Campbell wrote by email to Weeks in the following terms: I refer to the Healthy Water management meeting held Last Friday 4th February 2005, 12.30pm – 4-45pm at Bato and Partners, Loftus St, SYDNEY. Present; Alan Horne, [Chair] Tim Weeks and Doug Campbell. At the meeting several potential problems were highlighted, your request for an unconstitutional back dated service fee payment and other already sanctioned expenditure of approx $22,000, after only eleven days service at Healthy Water and without adding any income at all to the company is particularly concerning. I firmly believe you need more time to adjust to small business life as opposed to your considerable corporate experience. Subsequently on Saturday 5th Feb 05 I gave proper consideration to our short term projected income vs. Tax commitments, Salaries, consultants, fixed expenditure costs and supplier outstanding invoices due now, if this trend continued, by March 15th 2005 we will exceed the Company's $60,000 overdraft by $20,000. Please note; I would be totally responsible for the OVERDRAFT extension as you still have not executed documents to support 50% responsibility for the $60,000 overdraft. In consideration of all these circumstances, I believe it to be imprudent and financially unwise to continue with the current split of responsibilities for each Director and Staff member. These following changes can again be reviewed within 90 days with Alan Horn adjudicating. Therefore I feel compelled to bring to your attention the following solutions/changes to relieve the strain on the Company's financial recources [ sic ], I urge you to adopt all without hesitation to protect the company from future financial hardship. 1. Both Directors reduce their fist consultancy fee; due and payable 1ST March 2005 totalling $27500.00 including GST by 50% to $6875.00 each. 2. The laptop computer you have already committed to and purchased for $3511.00 I will concede be paid in full. 3. Your motor vehicle lease of $1400.00 you have requested by made payable back dated to the 1st January instead of pro rata from the 25th of January 2005 the day you consolidated your equity partnership and signed partnership documents, I will concede once only to be paid in full. 4. I ask you to please refrain from any further expenditure commitments without consultation to myself. As such ,Healthy Water will not as a Company enter into any further extraordinary or abnormal expenditure outside normally required, at least until projected 60 day healthy cash flow can be guaranteed. 5. As a further act of prudent management, at this stage we will refrain from purchasing another motor vehicle van, Chris Campbell can relinquish his company motor vehicle which can be given to the new customer service person after his 1 month trial period if we are satisfied he can adequately fulfil the position we have planned for him. 6. I will loan a [sic] Chris my personal motor vehicle at his cost until he makes up his mind regarding full time study at TAFE Meadowbank. He will continue to work part time on Mondays and I have given him 14 days to make up his mind regarding a full time career as HW Service Manager. 7. As HW has been managed by myself successfully for the past 12 years, the Company's financial and administrative processing should return to being processed and managed by myself with assistance from Penny Hunt. Penny will continue in collections, also assisting you, Spiros and myself as marketing/telemarketing consultant. 8. When you return from unpaid leave in New Zealand it is imperative to the Company's profitable progress you concentrate on canvassing new and existing business customer opportunities with a view to convert as quickly as practicable to sales orders, I will continue to assist you every way possible to achieve this goal. Apart from the new premises negotiations sales should remain your primary function at Healthy Water until reviewed in 90 days as aforementioned. 9. My role as Sales Director at HW remains unchanged apart from the additional F & A duties. 10. I understand from 2 staff members you returned to the office Friday evening and announced the new Healthy Water East Chatswood premises offer we were still discussing at our meeting Friday afternoon had been accepted, I would appreciate the details of the acceptance be offered to both Alan Horn and I before any further announcement be made elsewhere. I am curious how an acceptance by the vendors could happen less than ½ an hour after our meeting finished, I for one would appreciate an immediate explanation. 11. We need to have a very hard look at the servicing dept labour resources due to some things which have been brought to my attention over this past weekend, it will require our immediate attention and decisive action. Meeting – 7 February 2005 57 Weeks received Campbell's letter of 6 February 2005 on that day as an attachment to an email. On 7 February 2005 Weeks met with Campbell and Mr Horn at the Company's offices. Weeks gave evidence that the following conversation occurred at that meeting: Weeks: You both know I have borrowed from the Bank to make this purchase and that I have an interest payment each month to service this debt. Now I'm being told that I'm not going to be paid and that Healthy Water does not have the funds to pay me. Campbell: If you want to be paid it's simple, just agree to everything I have set out in my letter and I'll pay you. Weeks: Doug, this isn't an employer/employee relationship; I'm a director and half owner. Backoffice's Services Agreement sets out how I should be paid and when. You can't blackmail me with refusing to pay me, knowing that I have made your commitments to the Bank, secured against my own home. Weeks (to Horn): Alan, we discussed this. I confirmed with you that my services agreement was to start on 1 January. You said that you would discuss it with Doug Did you Alan? Horn (to Campbell): Doug, you remember? I said that there were a couple of outstanding issues that Tim had raised and that I needed to discuss with you. Campbell: I don't give a fuck about any arrangements, as far as I'm concerned you can shove all of those agreements in the bottom drawer or better still tear them up. I've been running this business for 12 years and I know what to do and what you need to do is what I tell you. Leave the running of the business to me, and get out and get those sales that we need. If you want to be paid, then accept my letter. Forget all this service and administrative stuff, Penny and I can do all of that. Healthy Water needs sales and right now. 58 Weeks claimed that further conversation included the following: Campbell: I know your type; you corporate guys have no idea what business is all about. You sit in your ivory towers and have people running around doing all your work. You just don't understand what is required in small business and find it all too hard; you can't take the hard work and the long hours. You don't know how to treat staff. All you want to do is stick your hand out for money and try and take over my company, well I'm not going to let that happen – why don't you go back to where you came from, I don't want you here. Horn: Look, the solution is simple. All you have to do is agree with Doug's letter and you'll get paid. Campbell: Get him out of here. I don't want him in my business; he's a pest and I want him to go away. Find another buyer, I want him out. Find a way to get rid of him. 59 Weeks claimed that Campbell then walked out of the meeting and that he had a discussion with Mr Horn to the following effect: Weeks: Alan, all I want to do is get on with my job, help Doug grow Healthy Water and get paid. As you know I have financial commitments and need to be paid. This was all discussed and agreed. What is going on – Doug's telling me Healthy Water has no money? Horn: Tim it's simple: Doug just wants you to get out and sell. If you do that I'm sure that he will keep you whole financially. He knows you have debts to meet. It seems there is a need for cash and some urgent sales. Weeks: Alan, you know I'm in an impossible situation - I have no choice but to meet my obligations to the Bank, but this wasn't the deal we discussed and agreed. Doug would be able to do this because he's just received $850,000 from me but I've got my home on the line. 60 He claims that at no stage during the meeting on that day did he agree with the proposal in Campbell's letter or accept a 50% reduction in the payments due to Backoffice under the Services Agreement. 61 Horn gave a different version of the events of the meeting on 7 February 2005. He claimed that the following conversation took place: Weeks: You both know that I have borrowed from the Bank to make this purchase and that I have an interest payment each month to service this debt. Now I'm being told that I'm not going to be paid and that Healthy Water doesn't have the funds to pay me. Campbell: We have to be commercially prudent about this. My detailed proposals I believe set out a fair way in which we can conduct the business in the next three months. As part of that we'll both concentrate on sales and leave admin to Penny and Dianne who are more than capable of continuing to manage this function. I realise you need some money to meet personal obligations and I will personally lend you whatever you require tonight. If you agree to the proposals set out in my letter, the company will pay us as per my letter. Weeks: No. I don't want a loan. I just want what I believe rightfully owing to me by the company. 62 Mr Horn denied that he discussed with Weeks the start date of 1 January 2005. This denial is far from reliable having regard to Mr Horn's email to Campbell on 3 February 2005 suggesting a "compromise" to the start date of 10 January 2005. Mr Horn claimed that the following conversation took place at this meeting: Weeks: OK I agree to the letter. Can we now get on with running this business. Horn: Do you accept that Doug? Tim agrees to your proposal. Campbell: Good. Tim can you please confirm your acceptance overnight by email and I will personally make sure that your financial obligations are covered. But I need a written confirmation of your agreement. Weeks: OK, OK, I agree. I agree what more do you want? Horn: Tim, just confirm by email to Doug tonight and Doug will look after you for your personal financial obligations. Doug just believes that the business needs sales. Not more administration as Penny and Dianne can do that as they have done before. Just get out there with Doug and bring in the new business. Weeks: OK. But I just don't understand why I can't be paid what is owing to me. Campbell: I am late for a pre-arranged appointment. 63 Mr Horn claimed that when Campbell said that he was late for a prearranged appointment he appeared very exasperated and walked out of the office. Mr Horn claimed that the following conversation also took place at the meeting after Campbell had left: Horn: It is very simple. Doug just needs you to concentrate on working with him to bring in new sales. The administration matters can wait. The company has higher overheads now that you and Spiros are on board, especially at the new salary levels for Doug and yourself and Doug, just wants the primary focus on sales. I understand that the company has money in the bank, as always, but Doug is just being careful and wants to concentrate on new business. Weeks: OK I will do that. Horn: Just send the email to Doug tonight in confirmation. Weeks: OK I will send it tonight. 64 On 8 February 2005 Weeks wrote to Campbell by email in relation to an insurance recommendation. That email was in the following terms: Given your statement of the company's financial position, I don't think this is something to be pursued at this time or until such time as we can meet our other obligations. The monthly premium is $1,124 or annually $13,500 with additional legal costs to be incurred on top of the base premiums. This would obviously apply to other quotes in this regard. 65 On the same day Campbell responded to Weeks' email on the following terms: What statement regarding the company's financial position? At the moment the company's financial position is healthy. My statement to you was we need to be financially prudent and manage our cash flow, not take out $22,000 over Christmas without providing income to support expenditure. 66 In the afternoon of 8 February 2005 Campbell sent a further email to Weeks in the following terms: I understand during your fleeting visit to Healthy Water this afternoon you have downloaded the entire company records from the server: · I would like to know why you have done this as it always been company policy not to have any customer records off site. And as such it is a serious breach without consultation with me as your co-director. · Why are you refusing to sign the bank document to enable us to trade effectively? · Alan and I both knew you were struggling with your duties and personal financial problems. · At your request after hours Alan and I spent time with you to try to nut out a way to help you. · Now today you have once again refused to carry out your duties with senior members of the staff, claiming there are "bigger things afoot". What do you mean by this statement? · I take it your agreement Monday evening to the terms and revisions letter dated 6th February 2005 is no longer agreed? · In my view cashing the Company's Cheque for $3,511.00 during today's escapade is acceptance of my letter as above. Tim I think it is reasonable for me to ask for answers to these questions. Your behaviour in front of the staff today was at the very least unsettling at worst disrespectful to all concerned. I am afraid there is little more anyone can do to help you, if you continue acting in this way. I am so very disappointed in the current goings on after what initially looked to be so promising. 67 On 9 February 2005 the solicitors for Weeks, Watson Mangioni, wrote to Campbell in terms that included the following: Prior to settlement, Mr Weeks was provided by you with certain financial information purporting to establish the profitability of Healthy Water over a number of prior years and the purchase price of $850,000 paid by Back Office for one share in Healthy Water was based upon a four times multiple of an average EBIT over a period of prior years and an express indication by you that the future profit forecast for Healthy Water in the next 12 months would be around 150 percent of the 2003/2004. Express assurances were provided by you to Mr Weeks and to Back Office indicating anticipated healthy, positive cash flows in the immediate and medium term future and a solid current asset base. Subsequent to settlement, there have been a number of management meetings involving yourself and Mr Weeks and on occasions, Alan Horne, in which you have made it abundantly clear that you will not accept equal participation in the management of the affairs of Healthy Water with Mr Weeks. You have told him in no uncertain terms that you are in control. On 7 February 2005, you sent Mr Weeks a letter attached to an email which gives Mr Weeks cause for grave concern. First, having accepted Mr Weeks' payment of $850,000 for an equal share in Healthy Water on the basis of buoyant financial predictions and a strong balance sheet you now assert that the company's financial resources are strained to the point that director's fees cannot be paid and that motor vehicle and other normal business expenses have to be curtailed. Secondly, you have purported to unilaterally change the agreed management structure which would effectively relegate Mr Weeks to being your subordinate. Further, yesterday, you endeavoured to have Mr Weeks sign certain bank authorities on an urgent basis without allowing him the opportunity to ascertain what they were. This whole situation is entirely untenable. Mr Weeks is entitled to participate equally in every sense with you and the management of the company as a director and to protect and uphold the interests of the shareholders. Whilst Mr Weeks is overseas until early next week, we have, on his instructions, sent the attached letter to the Commonwealth Bank. Should there be any urgent requirements for business expenses to be made in his absence, Mr weeks [ sic ] will authorise them by direct communication with the Bank. To obtain his authority, you should contact him on his mobile telephone (0412 861 252) to make the necessary arrangements. Mr Weeks will not countenance any payments being made out of company funds without his joint authorisation with you. Upon his return, he will require a statement of all expenditures of company funds since settlement and will hold you accountable should there have been any inequitable distributions or payments. Mr Weeks expects: (a) that you scrupulously observe the terms of the shareholders agreement; (b) that you accord him equal status with you in the management of Healthy Water; (c) to be paid on equivalent terms with you under your respective service agreements. Any departure from these matters will be regarded as a fundamental breach of trust which will become litigious. 68 The letter to the Commonwealth Bank advised that Watson Mangioni acted for Weeks and that the joint signature of Weeks and Campbell were required to transact any business on the bank accounts of the Company and that the Bank should ensure that it did not make any payment of any funds from any account of the Company without the joint instruction of Weeks and Campbell. 69 Prior to the settlement of the share purchase Weeks advised Campbell that he had booked a trip for his family to New Zealand. That trip occurred between 9 and 15 February 2005 during which time Weeks was not able to receive emails. Whilst Weeks was in New Zealand, Campbell wrote to him on 10 February 2005 by email in the following terms: Subject: equity partnership I acknowledge your phone call at home Tuesday evening saying you are going to need a rest on holiday in New Zealand. Respectfully this is causing further disruption to the company's operations. We can not trade effectively by cheque account without your signature on the joint signature document we ask ( sic ) you or ( sic ) last Tuesday. Your refusal to sign will without doubt damage our reputation with suppliers. Once again I ask you politely and urge you to please make urgent arrangements to remedy this situation. It has come to notice today certain pertinent HR Company and some of my personal hard files have been removed from my office, since our meeting on Monday Night do you have them? If so I urge you to return urgently them in tact. As I am unaware of your overall intentions, today I have been forced redeploy your duties to myself and other HW staff, it was impossible to wait any longer for attendance to your duties and your response to my letter. 70 On his return from New Zealand Weeks wrote to Campbell by email on 15 February 2005 in the following terms: I'm writing in response to your email of last Thursday, received upon my return from New Zealand. I believe my comment was that I felt it "best" to undertake to the trip to New Zealand as planned and greatly anticipated by both my wife and daughter and certainly as a family we were happy to have this opportunity. That said, it is not my desire or intention to cause any disruption to the operations of our company and if there are cheques or any other items that require my attention prior to my return to the office tomorrow, then I will be happy to review these (phone me on 0412 861 252). With regard to the check signatories, I had investigated this with a particular view to the capabilities of our accounting software and proposed an appropriate system to address this while still complying with the terms of the sale agreement. This was set-out in my earlier email on this subject. With your agreement, this can be promptly implemented. With regard to your HR files or any other files for that matter, I do not have these. I have no company files in my possession and seldom, if ever, remove files from my workplace. Previously, certain files have been stated as "missing", however I believe that ,these have all turned-up again at the office. Hopefully your files will do the same. This comment similarly applies to information stored on the 'network', where with the sole exception of a MYOB file being used to test the new electronic payment system, I have no company information. Recognising our communications have crossed while I have been away, I understand you now have a response to your letter and arrangements for managing our business going forward. 71 On 15 February 2005 RPL communicated with Watson Mangioni both by way of email and letter. The email referred to a discussion between Rodd Peters and Mr Rainbow of Watson Mangioni advising that RPL had taken instructions to the following effect: 1. From today until any settlement discussions are concluded (as notified by one party to the other) your client will not be required to attend the work premises of Healthy Water to provide his services under the Consultancy Agreement and that there is not to be any adverse inference against your client for his non attendance during this period. 2. Your client will need to meet with our client at a mutually convenient time and location, perhaps on a weekly or bi-weekly basis, to sign cheques for the proper running of the business. Your client also needs to sign a bank signatory card or mandate to make him a joint signatory with our client ie. both parties must sign every cheque. If this is acceptable, our client will contact your client directly to arrange a meeting tomorrow for both the purposes set out in this paragraph. 72 RPL's letter of 15 February 2005 to Watson Mangioni is in the following terms. Our client denies all the allegations which you have made on behalf of your client. In particular our client a. denies that he has made any statements to the effect that he "will not accept equal participation in the management of the affairs of Healthy Water" with your client, or to the effect that our client is "in control"; b. denies that the company's financial resources are strained in any way; and c. denies that he has purported to unilaterally change the agreed management structure which would relegate your client to being our client's subordinate. We are further instructed that: 1. during January 2005 your client attended only 8 days at Healthy Water's office, generally arriving after 9.30AM and leaving at 3-3.30PM. In the period 10-24 January 2005 he was primarily involved in his due diligence investigation of the company, and reviewing the draft documents for his purchase of 50% of the company prior to settlement. He attended a further 5 days spending less than 1 hour in the office, or at most attending from 9.30AM to 12.30PM. In February he has so far attended 3 days in the office arriving about 9.30AM and leaving at about 12.30PM. Furthermore he has failed to attend from 9.30AM to 12.30PM on Saturday 22 January and 5 February 2005, as otherwise agreed orally with our client; 2. except for looking for new business premises, investigating a new fleet lease plan, attempting to restructure the company's banking arrangements, and familiarising himself with the IT systems, your client has failed to carry out any of the tasks that he has undertaken to carry out under the Services Agreement between Healthy Water and BackOffice; 3. when asked why he did not commence carrying out his tasks under the Services Agreement, he stated either that he did not have the time, or that he was not meant to physically perform the tasks listed in the Services Agreement. In response our client suggested on 7 February 2005 that certain tasks reverted to our client or to other staff on a temporary basis. Your client agreed on 7 February 2005 to the temporary new allocation of tasks suggested by our client; 4. your client has refused to sign the bank mandate in respect of the cheque account for the business which effectively prevents the company from paying its suppliers. Our client requires your client to rectify this situation by close of business today; 5. your client left suddenly on 8 February 2005 to go to New Zealand notifying our client only on 7 February 2005 late in the evening; and 6. your client has been guilty of serious misconduct in that he has removed, without our client's consent or consultation, the client data base and financial records of the company and has also removed some Mr. Campbell's important financial records from his personal filing cabinet. Such behaviour would justify instant dismissal of your client and our client and the company reserves their rights in this regard. On this basis our client claims that your client has not observed the spirit and the wording of the Shareholders Agreement and the Services Agreement between Healthy Water and BackOffice, and that your client has been in substantial and repetitive breach of his obligations almost from the commencement of this co-venture. Despite your client's behaviour, which is a cause of grave concern to our client and causes additional workload for all Healthy Water staff, our client has observed, and will continue to observe, his obligations under the Shareholders Agreement and the Services Agreement which he has agreed with Healthy Water. In return our client urges and expects your client to do the same when he returns from New Zealand. If your client is still unable to or unwilling to carry out some of his tasks, our client suggest the implementation of the temporary arrangement mentioned under 3. We will write to you under separate cover (without prejudice) to propose a settlement of the dispute between the parties. 73 In the meantime on 9 February 2005, Ms Hunt had sent an email to Weeks advising that she was "frustrated" and had decided to list a number of what she described as "pressing issues". Those so-called pressing issues were listed as follows in the email. Consequently, I have listed a number of pressing issues, which require your attention, in short these are: · Bank Documents As you are aware, we are now unable to trade with our suppliers when you refused yesterday to co-sign the relevant banking documents you & Doug had requested Diane apply for. With payments due to suppliers, and me not having access to you to co-sign the cheques, this is going to cause supplier concerns and prevent us from trading effectively. (Classic example was when the Photocopier was returned to the office today) · Overdraft Documents: Have you completed this documentation as previously agreed with Doug? · Service Team. I raised an issue with you last week with regards to the Service Team. They are keen for some direction and leadership. We have received some call outs as a result of the work Pat & Mick did last week. Mick has also asked when you will be in the office as he had some matters he wanted to discuss with you one on one. · Info Link. With the impending deadlines, I need a full brief from you on your expectations before I undertake the relevant work. Vivien has called for you every day this week, at least twice per day. I have been forwarding you messages via email. Can you please call her. · 5D Contract. I have completed the necessary paperwork on your behalf and apologized to 5D for the delay with returning the materials. However, as this is quite a common request from our customers, I wanted to take you through it for future requests. · Saturday Supervision. A lead of the business (you or Doug) must be available for Saturday supervision from 9.30am till 12.30pm. I understand that you and Doug were going to do 2 Saturdays per month each. I would like to roster these days by alternative Saturdays. Please tell me when you will be starting your Saturday work. · Telephone Messages: It's very embarrassing to manage phone call enquiries when your appointments call to discuss meetings you had previously arranged with them. It's also difficult when no one in the office has an idea of your diary movements to try and re-organise appointments for you. · New Premises. When you returned to the office last Friday, you mentioned that we were moving premises. The team are asking me questions about dates, location etc. Can you please provide an update. · Purchase Order. You mentioned an order we were expecting for approx. $80,000. At the time you mentioned one of the orders was from your brother. He needed multiple floors of a building installed with drinking water facilities. Can you please provide his name & contact so I can organize an appointment to progress with the sale? Tim, during your brief to the Team on Thursday 27th January, it was communicated that you would be heading up the Servicing Team and other related duties (as outlined on the whiteboard). The Service Team is indicating to me that you are not accessible for enquiries and day to day management. I am trying to pick up the slack where possible, however, this is deviating me from my agreed role at Healthy Water. Tim, can you please, please, please contact me to organize a time to go through the above mentioned issues? Can you also give me or anyone else in the team an idea of your movements/calendar – as we have no idea from one day to the next where you will be. 74 On his return from New Zealand Weeks responded to Ms Hunt's email in the following terms. I'm writing in response to your email of last Wednesday, received upon my return from New Zealand. While appreciating there was a change in my plans regarding the visit to see my daughter in New Zealand, Doug was well aware of the background to this and I spoke with him early Tuesday evening confirming that we would be going ahead with the visit as originally planned. With regard to banking arrangements, these are something to be agreed between the directors and must be consistent with the terms of the company's sale. I'm awaiting an opportunity to discuss this with Doug. Regards the Service Team, I am planning to be in the office tomorrow and will spend time with both Pat and Mick to discuss whatever matters they wish to raise. Given that they've both been with us only a week or two and have only had a few days training, it's likely we'll have a few call backs; however, I'll review this with them and spend some additional time in the field together. Regarding the add for Infolink, has Doug decided yet what product he wishes to feature? Once this is known, I would anticipate it to be a relatively straightforward process to select a photo and write some copy. Let me know what product is to be featured (perhaps Spiros has a view) and I can put some words together. We've also discussed the 3 press releases to be prepared. Again, it would be useful to know what products we wish to feature. Saturday supervisions – again the need for Saturday working and supervision is a matter to be discussed between Doug and myself and I will do this when Doug is available. New premises – I'll raise this with the two service technicians when we meet (not knowing exactly what their concerns are and having previously discussed this with them). At present we continue to have the option of rental or purchase, although rental seems the more likely option now. Lastly the purchase orders you mention are potential sales to my brother and to one of my closest friends, I have updated Doug on these potential opportunities however for obvious reasons, I will be handling these discussions myself at an appropriate time. Penny, I hope this covers your outstanding questions. At this stage I'm planning to be in the office tomorrow and please feel free to raise any other queries with me then. 75 On 17 February 2005 Weeks and Campbell attended a coffee shop in Crows Nest for the purpose of signing a number of cheques. Weeks claimed that he signed cheques for the day to day running of the company at this meeting. Campbell's evidence was that Weeks refused to sign a number of cheques at this meeting and claimed that he did not have to sign what he believed to be unnecessary. Campbell claimed that Weeks said to him: "I am keeping the pressure on you Mr Campbell". Weeks denied saying these words but admitted that he declined to sign cheques for expenses that he did not believe were to pay for valid business expenses. Weeks sent an email to Campbell on 2 March 2005 suggesting that Campbell should let him know if there were creditors that required payment so that cheques could be drawn and processed. That email also suggested that he could always be contacted on his mobile. Campbell's evidence was that he accepted that he was writing to him indicating a willingness to sign cheques but that he had refused to sign some cheques that he regarded as "not necessary". 76 Between about 9 February 2005 and 17 February 2005 there were negotiations occurring between the parties which "stalled" on 17 February 2005. The respective lawyers made an arrangement that Weeks would not attend the office during the negotiations but after the negotiations failed he recommenced attendance from 21 February 2005. On his return to the office Weeks received a letter from Campbell dated 18 February 2005 together with an attached letter dated 21 February 2005 addressed to Campbell from Mr Pusell of the Bank. The letter from Campbell referred to the "ongoing discussions" with Weeks regarding his "continued refusal to sign a joint and several personal guarantee in support of the $60,000 overdraft facility" available to the Company for the previous eight years. The letter went on to advise Weeks that he had seven days to sign the relevant documents otherwise it would be necessary for Campbell to withdraw his personal guarantee which was supporting the overdraft facility. The letter from the Bank advised Campbell that even though the Bank held a charge over the Company's assets it still required a guarantee from all directors and shareholders. 77 On 23 February 2005 Campbell sent an email to Weeks in which he claimed that Weeks had ignored his letter regarding the overdraft. That email also made a raft of other complaints against Weeks including: ignoring Campbell's "urgent plight" to find new business premises since late January; ignoring general invoicing duties; inappropriately burdening a staff member with his personal grievances against Campbell; and a failure to discuss with Campbell current business opportunities. Campbell alleged that he believed Weeks was deliberately putting him under severe work pressures while trying to undermine him to staff. 78 Campbell's email of 23 February 2005 prompted a lengthy email from Weeks on 24 February 2005. That email included a claim by Weeks that Campbell was 'blocking' his remuneration under his service contract and that Campbell was advising him that the Company could not meet its financial commitments. In those circumstances Weeks advised that he was simply not in a position to expose either himself or his family further with the personal guarantees that would be required to purchase a suitable alternative property. That email included the following: When the investment in Healthy Water was presented, I was told the Company was 'very' profitable and with a positive cash flow. You have indicated more than once that this is not the case, which is obviously a huge concern to me; as it should be. Doug, I bought into Healthy Water because it was presented to me as a profitable business with a unique market opportunity. My sole objective was, and continues to be, to grow the profitability of Healthy Water and to contribute personally to its success. It is preposterous to think that I would invest the money I have, with any intention other than to see Healthy Water successful. Clearly you view my every action with suspicion, make endless and erroneous assumptions and constantly accuse me of actions that you have interpreted as improper. Constantly repeating your 'suspicions' does not make them facts. I am keen to make the maximum contribution to Healthy Water that I can and this would be significantly greater and much faster if there was a spirit of cooperation rather than one of distrust, suspicion and accusations. Trying to force my compliance by obstructing my participation in the running of the business and by refusing to meet our agreed obligations is obviously not appropriate. While I am of course concerned that Healthy Water is not financially the Company it was represented to be, I would have preferred that we discuss this, understand the issues and agree mutually an appropriate course of action going forward. That's what partners do! 79 On 24 February 2005 Weeks advised Campbell by email that he wished to call a board meeting for 3 March 2005 at 10am at the Company's offices, the agenda for which included: selection of new rental premises; bank signatories and authorisation of payments; director's guarantee for bank overdraft; car allowance and reimbursement of business expenses and directors' service agreements. 80 By this stage Campbell and Weeks were exchanging insults in emails: on the one hand Campbell was refusing to pay Weeks any money and on the other Weeks was not signing the guarantee for the overdraft. In respect of this guarantee Weeks' evidence was that he rang Mr Pusell at the Bank and advised him that he was a director of the Company and that he had recently acquired the Company. Mr Pusell advised Weeks that the Bank's records did not reflect that position. Mr Pusell advised Weeks that the Bank would not be able to process any guarantee provided by Weeks until such time as the ASIC records reflected that Weeks was a director. 81 There was debate between Weeks and Campbell as to whether Mr Horn could be present at the proposed board meeting. Weeks initially accepted that Mr Horn could be present at the meeting but should not chair the meeting. Weeks then changed his mind and advised Campbell that he did not believe that the issues for discussion required Mr Horn's presence. Campbell suggested that the board meeting be postponed for a week and proposed additional items for discussion at the meeting including the letter that he had written to Weeks on 6 February 2005. 82 In an email of 8 March 2005 Weeks provided Campbell with a document entitled "Report to the Board of Healthy Water (Australia) P/L". In that document Weeks referred to operating losses and significant cash payments prior to January severely impacting on the Company's cash flow. This document also referred to Campbell's alleged obstruction of any payment to Weeks pursuant to his Service Agreement in the amount of $30,000. Weeks noted that Campbell had been paid. The communications between Weeks and Campbell declined even further after this report and in an email to Weeks dated 17 March 2005, Campbell advised that he had estimated that they would each need to provide a loan to the Company of approximately $30,000. Weeks' response was that he felt that the Company should be structured in such a way that it could fund its operations without the need for ongoing cash injections. Weeks advised Campbell that "given the current circumstances" it was unlikely that he would be investing further in the Company and that it would have to operate within the current resources. By the end of March 2005 Weeks had sought access to the bank statements and cheque books of the Company, but was not provided with such access. By this stage Weeks had advised the Bank that cheques were being written without his signature, apparently causing the Bank to put a stop on the trading account of the Company. 83 On 31 March 2005, RPL wrote to Mr Weeks advising that they had been kept abreast of developments that had transpired since the acquisition of the 50% share in the Company. That letter included the following: It is abundantly clear from the correspondence between you and Mr Campbell, the actioning of stop orders with the Commonwealth Bank, the inability to hold directors meetings and to resolve day to day issues of the company and a number of other matters that there has occurred a loggerheads in the management of the company. In the circumstances, we have taken advice on behalf of our client from Senior Counsel who has advised that the company should be placed into voluntary administration. 84 Attached to the letter were proposed minutes of a meeting of directors of the Company, signed by Campbell and dated 31 March 2005 in which the following appeared: Resolved : It is in the opinion of the Directors that the company is insolvent, or is likely to become insolvent at some future time. Resolved : That it is in the best interests of the company to voluntarily appoint an administrator, pursuant to Section 436A of the Corporations Act 2001 to oversee the affairs of the company in accordance with the provisions contained of Part 5.3A of the Corporations Act 2001. 85 RPL advised that if they had not received the minutes executed by Weeks by 1 April 2005 they held instructions to approach this Court to seek the urgent appointment of a provisional liquidator. On 31 March 2005 Watson Mangioni responded to RPL advising that Weeks did not hold the view that the Company was insolvent or likely to become insolvent at some future time. However they also advised that Weeks had no detailed knowledge of the current financial state of affairs of the Company because Campbell had denied Weeks all access to such information. The letter continued: Based on the representations and warranties made by your clients up to 24 January 2005, and his general understanding as to the subsequent levels of income and expenditure of the company, Mr Weeks knows of no reason why the company should be considered to be insolvent or likely to become insolvent in the future. If your clients will reinstate Mr Weeks' access to the Company's books and records, Mr Weeks undertakes to review the state of solvency of the company immediately and then, if he forms the view the company is or is likely to become insolvent, to agree to pass the necessary resolution enabling the appointment of an administrator pursuant to section 436A of the Corporations Act 2001. Proceedings commenced 86 On 1 April 2005 RPL advised Watson Mangioni that they were instructed to file an application to wind up the Company on just an equitable grounds. On 1 April 2005 the plaintiffs filed the Summons commencing these proceedings. One of the prayers for relief was an order that the Company be wound up pursuant to either s 233 or s 461 of the Corporations Act 2001. On 2 April 2005 RPL requested that Weeks consent to the appointment of the provision liquidator. On 7 April 2005 the following order was made by the Court: BY CONSENT AND NOTING THAT THE DEFENDANT DID NOT REQUIRE THE PLAINTIFFS TO GIVE TO THE COURT AN UNDERTAKING AS TO DAMAGES, THE COURT ORDERS THAT: 1. Pursuant to s 472(2) of the Corporations Act 2001, Martin Green of GHK Green Krejci of Level 9, 179 Elizabeth Street, Sydney be appointed the liquidator of the Company provisionally. 87 The proceedings were heard on 27, 28, 29 and 30 November 2006 and 4, 5, 6 and 7 December 2006. The plaintiffs' final further written submissions were filed on 18 December 2006. Mr JB Simpkins SC and Ms TL Wong, of counsel, appeared for the plaintiffs and Mr DJ Hammerschlag SC and Mr JTG Gibson, of counsel, appeared for the defendants. OPPRESSION 88 The plaintiffs' oppression claims are contained in paragraphs 14 to 20 of the Further Amended Summons/ Commercial List Statement [FAS]. That claim is headed "Exclusion from Management of the Company's Business". The plaintiffs claim that on 10 January 2005 Weeks began to attend the Company's offices to participate in the management of the Company's business [FAS 14]. It is claimed that Campbell removed the financial and administrative functions from Weeks and returned them to Ms Hunt [FAS 15] and that on 7 February 2005 Campbell advised Weeks that he wanted him out of the business [FAS 16]. The plaintiffs claim that Campbell prevented Weeks from participating in the management of the Company's business as a joint managing director and that he prevented Weeks from undertaking the financial and administrative functions agreed to prior to the entry into the Share Sale Agreement [FAS 17]. It is claimed that between 24 January 2005 and 30 March 2005, Campbell caused Weeks' access rights to the computer network and financial accounting records of the Company to be withdrawn and that Campbell refused to attend a director's meeting scheduled to be held on 3 March 2005 or any future meetings of directors of the Company [FAS 18-19]. The plaintiffs also claim that at all material times from 24 January 2005 Campbell prevented the Company from making any payments to Weeks pursuant to the Services Agreement or otherwise. 89 The plaintiffs claim that Campbell's conduct by or on behalf of the Company was both contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to and unfairly discriminatory against Backoffice, within the meaning of s 232 of the Act. 90 In final submissions the defendants submitted that the oppression claim is bound to fail for a number of reasons but in particular because the plaintiffs have failed to articulate the conduct complained of as falling within s 232 of the Act. 91 Section 232 of the Act provides as follows: Part 2F.1 – Oppressive conduct of affairs 232 Grounds for Court order The Court may make an order under section 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or whether in any other capacity. For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company. 92 The Court may make any order under that s 233 of the Act that it considers appropriate including: that the company be wound up (s 233(1)(a)); that there be a purchase of any shares of a member of the company (s 233(1)(d)); that there be a purchase of shares with an appropriate reduction of the company's share capital (s 233(1)(e)); appointing a receiver or receiver and manager of any or all of the company's property (s 233(1)(h)); or that a person do a specified act (s 233(1)(j)). 93 The defendants submitted that it is necessary for the plaintiffs to delineate precisely whether the conduct in respect of which complaint is made is contrary to the members as a whole or against particular members and to spell out the conduct relied upon. In this regard the defendants relied upon the following passage from Tamberlin J's judgment in Shelton v NRMA [2004] 51 ACSR 278: [25] The operation of s 232 of the Corporations Act was recently considered by Campbell J in Turnbull v National Roads and Motorists' Assn Ltd (2004) 50 ACSR 44 ( Turnbull v NRMA ). In that case, his Honour had to consider whether the grounds in relation to the conduct set out in s 232(d) and (e) provided two separate bases for the court's intervention, namely, being contrary to the interests of the members of a whole, or being oppressive to, or unfairly prejudicial to, or unfairly discriminatory against, a member or members in whatever capacity. After reviewing authorities and considering the legislative history, his Honour came to the conclusion that the ground of being "contrary to the interest of members as a whole" in s 232(d) was intended to be independent to the ground of being "oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or any other capacity" in s 232(e). I agree with the conclusion his Honour reached on this point. In my view, the pleading should spell out the respects in which it is said that the conduct is contrary to interests of members as a whole pursuant to s 232(d), and should also precisely delineate the basis on which s 232(e) is relied on. This has not been done. It is of course possible that there will be a considerable amount of overlap between the grounds relied on in relation to subss (d) and (e), but this does not provide a basis for omitting to address each of the two heads relied on . [26] In the present case, however, the ASOC does not draw any distinction between the two grounds, and a substantial number of allegations combine the two criteria without laying the ground for each of these separate bases which can give rise to orders under s 233. The ASOC does not refer to ss 232 or 233 of the Corporations Act in terms or by reference but at times it does use in a rolled-up the language of s 232. It does not specify how the extensive relief sought, presumably under s 233, will have the effect of remedying the conduct complained of or the consequences of that conduct. This is largely a result of the fact that the pleading does not delineate the way in which the conduct is unfairly prejudicial, oppressive or discriminatory, nor how the NRMA, in the conduct of its affairs, has impacted detrimentally upon the organisation and its members. There is a leap from the reference to a alleged irregularities to the allegation that in some unspecified way it is "just and equitable" that the constitution of 2003 should be set aside or dramatically modified, and the previous constitution re-instated. The remedies provide for in s 233 are designed to alleviate or remove the adverse consequences of conduct carried out in contravention of s 232, but the ASOC is silent as to how this is to be achieved if the applicant is successful. Even if it were to be established that one or more acts of the NRMA, the board, or "majority" shareholders were to contravene s 232, it does not necessarily follow that the relief sought should or would be granted under s 233 . 94 The defendants maintained the submission that in the present case the plaintiffs have used a "rolled up format" and have failed to specify whether the conduct complained of offends s 232(d) or s 232(e) of the Act. The outcome of a complaint of this type will depend upon the particular characteristics of each case including, the nature of the pleading and the manner in which the trial is conducted. It may also depend on the timing of the complaint, whether it was made pre-trial or otherwise, and the impact, if any, it is alleged to have, or have had, on the defendants' capacity to meet the allegations. Shelton was decided at the pre-trial stage and in written submissions in reply (18 December 2006), the plaintiffs submitted that Tamberlin J's reasoning does not apply where there has been a full hearing, during which the plaintiffs' claims of oppression have been fully articulated both in the evidence and in detailed written and oral submissions. 95 The first time the pleading point was raised in this case was at the end of the evidence on the second last day of the trial. Mr Hammerschlag advised that "there will be submissions about this in due course" and that the "pleading is improper and does not come within the sections" (tr 549). The next time the pleading point was raised was when the defendants' written outline of submissions was filed after the completion of plaintiffs' closing submissions on the last day of the trial (tr 589). The written outline contained the defendants' submissions referred to above. However in final oral submissions Mr Hammerschlag said (tr 592): "I am not a great fan of pleading points. The point about it is that when your Honour comes to assess whether this is oppressive or not, your Honour doesn't have the assistance of how this fits into the subsections … which is not a matter of mere form …". Mr Hammerschlag was drawing the distinction between a claim that conduct was oppressive to the members of a company as a whole and a claim that the conduct was oppressive to an individual member of the Company. 96 There was no claim made on the defendants' behalf that they were unable to understand the case made against them or that they were prejudiced in any way in the conduct of the litigation. In paragraph 20(c) of the FAS the plaintiffs make claims under both subsections of s 232 of the Act. The written and oral submissions went into precise detail as to how it is alleged Campbell's conduct was oppressive. In my view this so-called pleading point is of no real consequence. 97 In reviewing the evidence for the purpose of determining whether the affairs of the Company were conducted unfairly, the test is whether on the balance of probabilities the objective commercial bystander would be so satisfied: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 per Young J; Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249 at [84] per White J. 98 To state the obvious, there must be an entitlement to share in the management of the Company before an "exclusion" from such management can be an indicium of unfairness. There is no doubt that Backoffice, through the provision of Weeks as a joint managing director, was entitled to share jointly in the day-to-day management of the affairs of the Company with Campbell (cl 6.1 Shareholders Agreement). Backoffice was entitled to the payment of the Fee under the Services Agreement for the procurement of Weeks to provide that day-to-day management of the Company. Backoffice claims that the conduct of the affairs of the Company was oppressive, unfairly prejudicial and unfairly discriminatory to it by reason of the exclusion of Weeks, and thus it, from the management of the Company. It also claims that the failure to pay the Fee to it pursuant to the Services Agreement was oppressive, unfairly prejudicial and unfairly discriminatory to it. 99 In support of the submission that improper exclusion from the management of the Company may be oppressive the plaintiffs relied upon Hogg v Dymock (1993) 11 ACSR 14 and Yazbek v Aldora Holdings Pty Ltd (2003) 45 ACSR 53. Hogg v Dymock was a case decided under the Corporations Law (the Law) in which a 50% shareholder complained of oppression by the conduct of the other shareholder in dismissing her from employment with the company. The complainant applied for an interlocutory injunction to retain the position as employee. Malcolm CJ refused the interlocutory injunction on the ground, inter alia, that it had not been shown that damages were an inadequate remedy. In concluding that there was a serous issue to be tried his Honour said at 20: The directors of a company are required to conduct the affairs of the company in the interests of the company and its shareholders as a whole. They may not engage in conduct which would be oppressive or unfairly prejudicial to or unfairly discriminatory against a shareholder. Such conduct clearly can exist in a small company such as the present. In Sanford v Sanford Courier Services Pty Ltd (1986) 10 ACLR 549; 5 ACLC 394 the high level of salaries and other payments made by a couple who ran the business to themselves were held to be oppressive because the plaintiff, who was an equal shareholder but no longer a director did not receive any salary and so did not share fairly in the company profits. The key word in s 260 of the Corporations Law is "unfairly": see Wayde v New South Wales Rugby League Ltd (1985) 59 ALJR 798; 10 ACLR 87 and Re Novabron Pty Ltd (No 2) (1986) 11 ACLR 279 at 290 per Derrington J. In Re Spargos Mining NL (1990) 3 ACSR 1 at 43 Murray J said: … unfairness may lie in the harm suffered as a result of the conduct of management, the prejudice caused, the lack of reasonable commercial justification for the course taken, or simply in the decision-making processes within the company. Removal from a salaried position within the company may be unfair, even though it might be a valid exercise of the powers of the majority of the directors: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 378-9 per Lord Wilberforce. While that case involved a partnership which had been converted into a company, it is common ground that the parties in this case envisaged in the first instance that they would be partners and share equally in the day to day conduct of the business as well as in the management of it at the level of directors. In the Westbourne Galleries case there was an expectation of continuing participation. This was also the case in Diligenti v RWMD Operations Kelowna Ltd (1976) 1 BC 36 in which a founding member was removed as a director and dismissed as a salaried manager. 100 There is no doubt that in the present case there was an expectation of continuing participation in the management of the Company. One issue in Yazbek v Aldora Holdings Pty Ltd was the validity of a meeting of shareholders in respect of which there was a claim that the notice of the meeting was deliberately sent to an incorrect address. There was also a question as to whether there was a quorum. There was a further claim that the conduct of the defendant, including the conduct relating to the meeting, was oppressive. Austin J held that the meeting was invalid and although his Honour was satisfied that oppression and unfair prejudice had been established and that the plaintiff was entitled to relief under s 233 of the Act, he concluded that the appropriate relief was to declare the meeting invalid and make orders reversing its effect. The passage of the judgment relied upon by the plaintiffs in respect of the improper exclusion from the management of the Company is as follows: 60 The plaintiff submits that the evidence as a whole constitutes strong evidence that the affairs of Aldora Holdings have been conducted, at least since April 2002, in a manner oppressive to the plaintiff or unfairly prejudicial to him. Apart from the evidence relating to the purported share transfers and the invalid meeting, the plaintiff draws attention to the fact that since April/May 2002, Robert, Annette and Leila have purported to control the affairs of Aldora Holdings so as to exclude the plaintiff from management and to keep him away from financial information in relation to the company. The information from which he was excluded extended to information as to the litigation in proceeding No 1507 of 2002, and information as to the purported disposal of Robert's shares, which Robert knew the plaintiff regarded as his primary asset for the purpose of negotiating and settling their litigation. I agree with these submissions. In my opinion a strong case of oppression and unfair prejudice has been made out: see Martin v Australian Squash Club (1996) 14 ACLC 452. 101 In the present case the plaintiffs submitted that Campbell excluded Weeks from the management of the Company within a very short time of the execution of the various Agreements on 24 January 2005. The defendants submitted that the plaintiffs' complaint is really one of "relegation" rather than exclusion. I do not accept that it is appropriate to characterise the claim for exclusion from management in that manner although I do accept that part of the plaintiffs' complaint is that Campbell decided that some of Weeks' directors' duties would be reallocated to Ms Hunt. 102 The plaintiffs relied on the letter of 6 February 2005 to demonstrate that Campbell had decided to exclude Weeks, unless he agreed to terms that were quite different to those that had been agreed two weeks earlier both in the Agreements and the arrangements that had been made as to the division of duties pursuant to those Agreements. That letter was in many respects quite extraordinary. Within less than two weeks of receiving $850,000 for the half share in the Company Campbell was claiming that the Company needed to be relieved of the "strain" on its financial resources. To that end he "urged", although I am satisfied it was a demand, that Weeks/Backoffice accept a reduction in the consultancy fee that had been agreed to only two weeks previously. I have no doubt that the reallocation of Weeks' directors' duties was a direct result of the complaints Ms Hunt made to Campbell about Weeks. 103 Campbell agreed in his oral evidence that he did not intend to pay any money to Weeks/Backoffice unless there was agreement to the terms of the 6 February 2005 letter (tr 442). Indeed Campbell refused to pay any of Backoffice's invoices for the Fee, notwithstanding that Sentinel was being paid. Campbell's evidence in relation to the refusal to pay the invoices included the following (tr 432-439): Q. Isn't the view that you took, Mr Campbell, in late January 2005, and for the months of February and March 2005, that you would run Healthy Water as you wanted to, regardless of any arrangements that you had made with Mr Weeks about the conduct of the business? A. That's not correct. Q. Isn't it correct that during that period of time you were prepared to sanction payments being made by Healthy Water, which you knew Mr Weeks did not approve of? A. Yes, that's correct. Q. Wasn't that because you intended to run Healthy Water in the same way that you had run it for a decade or so before Mr Weeks had acquired his interest? A. That's not correct. Q. When Mr Weeks first raised his invoices for January 2005 with you, you recognised, didn't you, that at least part of what he was claiming was a valid claim? A. The computer laptop was an agreement that we had and I paid that, yes. Q. But in relation to his claim for a fee for his services, you accepted, didn't you, that at least part of what he claimed was a valid claim? A. No, Mr Simpkins, I didn't. Q. Didn't you at least accept that from the date of completion of the sale, namely 24 January, Mr Weeks was entitled to receive a services payment? A. No, I did not. Q. Didn't you tell Mr Weeks that you were prepared to pay him a pro rata proportion of his January invoice? A. No, I did not. Q. You deny that, do you? A. I said we pay ourselves - we had an agreement and he reneged on the agreement - we pay ourselves from 24 January a 7-day invoice, which would have been to 24 February, and the payment would be due on the 3rd or 4th of March. Q. But does that answer mean that you accepted that at least from 24 January Mr Weeks was entitled to be paid a services fee? A. From 24 January, if he worked in the business, yes. Q. Well he was working in the business from 24 January, wasn't he? A. He was there, yes, periodically. Q. And entitled to be paid a services fee from 24 January at least? A. For four days - are you saying four days? Q. Are you agreeing, Mr Campbell, that Mr Weeks was entitled to be paid a services fee calculated from 24 January 2005 at least? A. To 24 February, yes. Q. And that was something that you recognised in late January, early February 2005? A. We were both entitled to payment under that system that we agreed. Q. You ensured, didn't you, that your service company, Sentinel, was paid? A. Only half the payment as we agreed in the meeting of the 6th - 7th, I think it was, in the office of Healthy Water with Alan Horn. Q. No, Mr Campbell. In February 2005 you ensured, didn't you, that Sentinel was paid an amount slightly in excess of $6,000? A. No, in March, 4th March. Q. Well, may I take it that you took steps, did you, to ensure that Mr Weeks was paid a similar amount? A. I did not. Q. Did you take steps to ensure that Mr Weeks was paid any amount? A. I did not. Q. Were you in doubt about when Mr Weeks wanted payment? A. I was not in doubt. Q. Isn't it the case, in relation to January 2005, that although you appreciated that Mr Weeks was entitled to some payment, you refused to make any payment; is that right. A. No. Mr Weeks was entitled to claim on 24 March for the 7-day invoice, as I was. SIMPKINS: Q. On 24 March you made a payment? A. To Mr Weeks? Q. No, on 24 March you made a payment to your service company? A. No. Q. Did you make any payment to your service company, do you say, in March 2005? A. I did. Q. When you made that payment, on whatever date it was, you made a similar payment to Mr Weeks? A. I did not. Q. You had a meeting, didn't you, with Mr Weeks and Mr Horn on 7 February 2005? A. We did. Q. And one of the things which was discussed at that meeting was the claim that had been made by Mr Weeks and his service company for payments from Healthy Water? A. It was. Q. He said to you at the meeting, didn't he, that he wanted a payment to normalise the payment between you and he? A. He did ask for the payment, yes. Q. And he said at that meeting, didn't he, on 7 February 2005 that credit card payments ought not to be automatically paid? A. No, he did not. Q. He said, didn't he, that there ought to be expense reports being produced? A. No, he did not. Q. And he reminded you at that occasion, that is the meeting on 7 February 2005, that this was something that had been agreed with you before? A. No, he did not. Q. But you had agreed with him about those matters before, hadn't you? A. Yes, we did. Q. And you hadn't forgotten them by this meeting held on 7 February 2005? A. No. Q. But you were just choosing to ignore the arrangements? A. At the time it wasn't a concern-- Q. You were choosing to ignore the arrangements, were you? A. No. Q. You weren't honouring them, were you? A. No. Q. When Mr Weeks at this meeting on 7 February 2005 said he wanted a payment to normalise the relationship, you gave consideration, did you, to whether you would make a payment to him? A. Yes, we did. Q. Whether you say "we", are you suggesting it wasn't your decision but your decision and someone else's? A. It is the decision of Mr Weeks and myself to make the conclusion that payments were to be paid and at what stage and what amount of payments was up to us to make a decision about. Q. At this meeting Mr Weeks was saying, "I vote in favour of getting a payment"? A. He did. Q. And were you voting against making payment? A. No. Q. Were you voting in favour of making some payment? A. Yes. I made a letter of compromise to him, and I said he should be paid for 90 days, which is half of what the original service payments were, until he settled into the company, and would he come back to the company and work in the company, to which he agreed. Q. You are going to have to help me. There was an agreement, wasn't there, relating to the services that Mr Weeks through his company was going to provide? A. A written agreement? Q. Yes? A. Yes, there was. Q. Didn't it have an amount in it that was required to be paid on a monthly basis? A. Yes, there was. Q. Wasn't Mr Weeks, as you understood it, at this meeting on 7 February 2005 entitled to take the view that he would insist upon payment of the agreed amount? A. He could take that view, yes. Q. *But are you telling her Honour that although you appreciated he could take that view and although he was taking it the position you adopted was you would make no payment until he agreed to the terms of your letter of 6 February? A. Safety first-- Q. Are you agreeing with me? A. That he could get a payment on 1 February? ... QUESTION MARKED * READ WITNESS: That's correct, yes. SIMPKINS: Q. One of the things that you were stipulating for in your letter that was being discussed at that meeting was that Mr Weeks had to agree to some interim reduction in the fee to be paid? A. I wanted him to agree, yes. Q. When you say that you required him to agree to your letter, one of the things you required him to agree to was to take a pay cut in effect? A. For Mr Weeks and myself, yes. Q. It is right, is it, that notwithstanding what the service agreement said, you were telling Mr Weeks that you would only agree to pay him something less, isn't that right? A. That's my agreement - that was my agreement I put to him, yes, or my suggestion I put to him for a compromise. … Q. You certainly said words to convey your view that it didn't matter what the services agreement said you were not going to make any payment unless Mr Weeks agreed with the terms of your letter? A. It was a very subdued meeting. I wouldn't have used those terms and I never said that, no. Q. A very subdued meeting, are you serious? A. I think it was, yes. I think Mr Weeks was very very calm and I think I was, too. Alan was there. Q. Mr Weeks had presented his claim for fees to you in late January? A. He had. Q. You had told him that you refused to pay his claim? A. His backdated claim, yes. Q. Because you were in disagreement over the matter, you had involved Mr Horn, someone independent? A. I would like Mr Horn to be there and we both agreed it was a good idea. Q. At this meeting Mr Weeks made it plain to you that what he required was a payment in order to normalise his relationship with you? A. He did ask me that, yes. Q. You became angry, didn't you, at the meeting and said you didn't care what the services agreement said? A. No, I didn't, Mr Simpkins. Q. Are you suggesting that after you told Mr Weeks in effect that he would have to take a pay cut otherwise he would get nothing that it was still a subdued meeting? A. Yes, it was. Q. He just meekly accepted that, did he? A. No, he didn't. Q. Did he indicate he strongly disagreed with it? A. He wasn't happy. Q. He was very unhappy? A. He was unhappy, yes. Q. He made it plain to you that he was very unhappy? A. And so was I. HER HONOUR: Q. The question is: Did he make it plain to you that he was very unhappy? A. Yes, he was unhappy but he agreed that it was a good idea to go ahead with the compromise. SIMPKINS: Q. You suggest, don't you, as I understand your evidence, that at this meeting Mr Weeks in effect said, "Well, in order to get paid, I will agree with your letter," is that right? A. I am trying to recall his exact words. It is difficult. But I remember he said to me "I would like to get paid but I understand that we need to compromise so I accept that compromise." Q. You were discussing a letter that you had there in the board room? A. In my office it was. Q. You were discussing a letter that you had at this meeting? A. Yes, that's correct. Q. Well, did you say to Mr Weeks at the time, "Thank you for the agreement with my letter, can you sign it so we know we are of the same mind about all this?" A. No, I didn't do that. Q. Did you say to Mr Weeks, "Go away and think about it and if you agree with it sign the letter"? A. No, I didn't. Q. Did you think you had got Mr Weeks' agreement at the meeting, did you? A. Yes, I did. Q. Do you acknowledge that repeatedly after this meeting held on 7 February 2005 you hounded Mr Weeks for some written acknowledgment that he assented to the terms of your letter? A. I wouldn't say "hounded", but I did ask him to formalise what he had agreed to at the meeting. Q. And you did that, didn't you, because you knew that Mr Weeks had not agreed to anything at the meeting? A. I did not. Q. You certainly accept, don't you, that whatever it was which was said by Mr Weeks at the meeting, by the next day it was perfectly plain he did not agree to the letter? A. It wasn't plain. I never spoke to him until that night. Q. It was perfectly plain to you, wasn't it, within a day or so of this meeting held on 7 February 2005, that Mr Weeks did not agree to your letter? A. Within two or three days I had a solicitor's letter, correct. 104 This evidence, like a great deal of Campbell's evidence referred to elsewhere in this judgment, contains a number of inconsistencies. Campbell initially denied that he accepted that any part of Weeks' claim was "valid". He then accepted that Weeks was entitled to be paid from 24 January 2005. He initially claimed that the meeting on 7 February 2005 was "very subdued", but when pressed by Mr Simpkins he admitted that not only did Weeks make it clear that he was very unhappy but also that he, Campbell, was also unhappy. In some instances when a witness changes position during the course of evidence, a conclusion may be reached that the witness was honestly mistaken and is attempting to do his best to give accurate and honest evidence. Having observed Campbell giving his evidence and having carefully reviewed his evidence in context and in conjunction with the documentary evidence I am satisfied that such a conclusion should not be drawn in relation to Campbell. 105 Ms Hunt's evidence in relation to the way in which she approached her business relationship with Weeks demonstrated a lack of openness and/or maturity. In a delicate and very effective cross-examination, Mr Simpkins established that Ms Hunt was motivated to record only matters adverse to Weeks in her diary. Ms Hunt agreed that within the first few days of Weeks' arrival, she recorded matters in her diary about Weeks because he made her feel "uncomfortable" and because she did not trust him (tr 516). Ms Hunt claimed she recorded in her diary Weeks' direction to her and Ms Hannah to "stop invoicing" so that she would have a record to justify her actions if someone asked about it "down the track" (tr 517). When pressed by Mr Simpkins as to whether she had asked Weeks for the reason for the cessation of invoicing at that time Ms Hunt claimed that she "would have" asked him (tr 517). When Mr Simpkins explored this matter further, Ms Hunt's following evidence was extremely unimpressive (tr 518): Q. If you had asked Mr Weeks what his reason was, is that something that you would have entered up in this diary you were maintaining? A. I am sorry? Q. If Mr Weeks had had been asked by you to give an explanation for his instruction about not invoicing, would have bothered to enter up what he told you, his reason for that instruction was, into your diary? A. No, it was a personal diary. Q. It was a personal diary in which you were making an ongoing record of things that Mr Weeks did that you disapproved of? A. Not disapproved of, but just observations, yes. Q. One of the things you wanted to make a note of by way of observation was that Mr Weeks had instructed you not to do invoicing? A. Correct. Q. Do you accept that if you were acting as a reasonable person, the appropriate thing to do in relation to that instruction was to ask for the reason the instruction was given? A. Yes. Q. Which you didn't do? A. No, I am not saying I didn't do, I can't recall if we did. If we did, I probably didn't get a satisfactory answer. I don't know. Q. Let's be serious about it. If you asked that question and you didn't get a satisfactory answer, do you have any doubt that we wouldn't find some note of that in your diary as well? A. No, because I didn't put everything down in my diary. 106 Later in her evidence Ms Hunt tried to suggest that the reason there was no entry in her diary recording the explanation Weeks gave in relation to his direction not to invoice was because "he never gave an answer that justified it" (tr 525). When pressed about this answer Ms Hunt said: "He never justified why, he never gave an explanation as to why, that I recall" (tr 525). Ms Hunt then resorted to further unimpressive evidence as follows (tr 525): Q. If you asked Mr Weeks for an explanation and he refused or failed to do it, you would inevitably, as part of your diary recording, have made a note of that fact; isn't that right? A. No. Because I don't record every detail of the day in my diary. It is just pieces of information. 107 What Ms Hunt did was to report to Campbell that Weeks had given the instruction in relation to invoicing and obtained from Campbell a direction to continue with the invoicing. When asked whether she had advised Weeks of Campbell's instruction to continue invoicing, Ms Hunt said: "Probably. I can't remember. I'm sorry" (tr 519). Ms Hunt accepted that the "reasonable thing to do" was to pass that information on to Weeks and although she claimed that she "probably would have" informed Weeks, she ultimately agreed that she had no recollection of doing so (tr 520). It is clear to me that Ms Hunt did not ask Weeks for any explanation and did not advise him of Campbell's direction to continue invoicing. 108 As I have discussed elsewhere in this judgment, I have no doubt that Campbell's relationship with Ms Hunt; the need, as he saw it, to keep her happy; and Ms Hunt's constant complaints against Weeks, blinkered Campbell from dealing fairly with Weeks and ultimately with Backoffice. I have no doubt that, notwithstanding Campbell's and Ms Hunt's denial of the conversation, that Campbell instructed Ms Hunt to "give him nothing". I also have no doubt that Campbell said that Mr Horn should "get [Weeks] out of here". 109 The defendants submitted that Campbell's letter to Weeks dated 6 February 2005 was prompted by Weeks presenting his invoices on 31 January 2005 and also by the meeting of 4 February 2005. It was submitted that by this time Weeks had already caused frustration, disillusionment and upset with the staff and that, whatever the rights and wrongs, shortly after 10 January 2005 something occurred which prevented the payment of bills electronically. It was also submitted that Weeks failed to follow up an important contract for 5D and had only responded to Ms Hunt's requests after the deadline had been missed. The defendants also submitted that what occurred was in substance a deadlock which might have grounded a winding up of the Company on the just and equitable basis, but that the conduct relied upon when viewed in context was not on ordinary principles, oppressive, unfairly discriminatory or unfairly prejudicial so as to attract the operation of s 232 of the Act. I disagree. 110 It is clear that Campbell decided not to pay Backoffice because Weeks would not agree with what appears to me to be a totally unreasonable demand in Campbell's letter of 6 February 2005, attempting to effect a change to Backoffice's and Weeks' rights under that the Share Sale Agreement and Service Agreement. Campbell's conduct in refusing to pay Backoffice's 31 January 2005 amended invoice or any other invoice unless the terms of his letter of 6 February 2005 were agreed to by Weeks would satisfy an objective commercial bystander that Weeks and Backoffice were unfairly and improperly excluded from the day-to-day management of the Company that had been agreed to prior to and in the execution of the Shareholders Agreement and Services Agreement. I am satisfied that Campbell's conduct in this regard was oppressive to Backoffice. 111 On 28 February 2005 Campbell forwarded an email to Mr Horn in which, inter alia, Campbell recorded that "a password has now been put on the account to avoid further interference from Weeks". This was a reference to a password into the Company's MYOB software. In cross-examination Campbell agreed that at some stage he gave an instruction for the password on the MYOB system to be changed (tr 453). This instruction appears to have resulted from the fact that Weeks accessed the MYOB system and entered the amounts of Backoffice's invoices as expenses of the Company. When Weeks attended the Company's offices on 30 March 2005, Ms Hunt advised him that the Company's bank statements and cheque books were "not here". Weeks attempted to log-on to the Company's computer network and found that access was denied. When he attempted to verify his access and password on the computer server, he found that the server password had been changed from the password with which he had been provided. 112 Campbell's evidence in relation to the changing of the password included the following (tr 454): Q. You changed the password on the MYOB system in late February, specifically to stop Mr Weeks accessing it, didn't you? A. No. Q. What do you say your reason was for changing the password in late February? A. We have never, in all the time I have been in business, had anyone had access from outside. I didn't know what the repercussions of that would be and I spoke to Mr Weeks about it. It was a very unhappy situation. Q. What do you say your reason was for changing the password in late February? A. I wanted no access from outside the business. Q. Wasn't it access by Mr Weeks that you were concerned about? A. There was a concern about that, but it wasn't the major concern. 113 When Campbell was shown his email of 28 February 2005 in which he recorded that the password had been put on to "avoid further interference from Weeks", he agreed that it recorded accurately the reason for the alteration to the password but then persisted in suggesting that the change had occurred to prevent competitors, as well as Weeks, from accessing the database (tr 456). 114 Weeks wrote to Campbell on 31 March 2005 advising him of the problem with accessing the system and also the claim by Ms Hunt that the bank statements and chequebooks were not at the Company's premises. Campbell claimed in his evidence that he was not aware that the bank statements and chequebooks were not on the premises. He gave the following evidence (tr 475): Q. Did you ask Ms Hunt, after you got this letter, whether she had told an untruth to Mr Weeks about where the chequebooks were? A. I didn't ask her. Q. Did you ask her did she tell an untruth? A. I asked her if the cheques were there or weren't there. I would have asked that question. Q. What did she say? A. She said yes. Q. Did you say why did you tell Mr Weeks apparently that they weren't there? A. I didn't have to ask her that. This conversation wasn't, to my knowledge, the one she said – the conversation wasn't had between Mr Weeks and her. They had fiery encounters constantly. This could have been the result of what he interpreted the account to be. Q. Did you communicate with Mr Weeks and say: I have the chequebook or I can give the chequebook to you or I have now told Penny Hunt she should give it to you or something like that? A. It is very difficult to remember, but I can remember this vaguely and I asked him, I think I rang him and said, look, as far as I know, the cheque books are here and I can't remember his response. I think it was – there was no response. Q. Well, did you or did you not speak to Penny Hunt and ask her whether, although the bank statements and cheque books were on the premises, she had told Mr Weeks that they weren't? A. No, I didn't ask her that question. 115 I do not believe Campbell's evidence in relation to the change of the password. His evidence in relation to the conversation between Ms Hunt and Weeks in relation to the cheque books and bank statements is an indication of his willingness to support Ms Hunt when there was no proper basis for such support. Once again his evidence is inconsistent. On the one hand he claims that the conversation between Weeks and Ms Hunt did not take place and on the other he says that he did not ask Ms Hunt whether he had told Mr Weeks the documents were not on the premises. As I have said elsewhere in this judgment, I am satisfied that Campbell is a most unreliable witness. 116 I am satisfied that Campbell's intention in changing the password was as he recorded in his email of 28 February 2005 to prevent what he saw as "interference" from his Joint Managing Director, whose services had been procured by Backoffice. I am satisfied that this conduct was oppressive to Backoffice. 117 The Shareholders Agreement required that meetings of directors take place at least once every month (cl 5.7). On 24 February 2005, Weeks suggested that a board meeting take place on 3 March 2005 at the offices of the Company. Campbell's initial response was: "you know exactly what is required to get the business and us working at full potential, so I do not get the point of another Board Meeting". On 25 February 2005, Weeks responded advising that this was the first board meeting that had been called. It appears that Campbell may have thought that the meetings that had occurred between Weeks, himself and Mr Horn were board meetings. 118 On 28 February 2005, Campbell said that he would not attend any board or management meeting unless Mr Horn was chairman. As I have said earlier, Weeks initially agreed that Mr Horn could attend the board meeting but subsequently withdrew his agreement for such attendance. Campbell indicated that he was not going to be available on 3 March 2005 and when Weeks tried to reschedule the meeting, Campbell indicated that he was "busy then too". Campbell subsequently advised Weeks that he was not willing to attend a board meeting with him unless Mr Horn was present. 119 The defendants submitted that the Shareholders Agreement provided machinery in the event of a "deadlock" and that Weeks did not avail himself of that mechanism. Clause 7.1 of the Shareholders Agreement must be read with clause 7.2. The mechanism was clearly one to be used in the event of a "Board Meeting voting deadlock". That point was never reached because Campbell would not attend the proposed board meeting. The breaking of the deadlock by the appointment of a Chairperson to have a casting vote was only to occur after a voting deadlock had been reached at a Board Meeting. Campbell was not entitled to demand that Mr Horn attend the Board Meeting, at least under the mechanism in clause 7.2 of the Shareholders Agreement. Obviously Mr Horn could have attended if both directors agreed, but that was not the case. 120 The plaintiffs submitted that the correspondence between Weeks and Campbell demonstrates that Campbell was behaving in an obstructive manner towards all reasonable attempts by Weeks to hold a board meeting with him. It was submitted that there was no obligation on Weeks to agree to Campbell's request that Mr Horn attend the meeting and that Weeks was entitled to request a meeting between only himself and Campbell. The plaintiffs submitted that Campbell's requirement that Mr Horn be present at such meeting was evidence of oppressive behaviour towards Weeks, consistent with his other efforts to exclude Weeks from the management of the Company. 121 If this correspondence and conduct in relation to the board meeting was the only evidence of alleged unfairness, I may have had some doubts about characterising it as oppressive. However when this conduct is viewed with Campbell's other conduct referred to above and later in this judgment, I am comfortably satisfied that it was part of Campbell's plan to keep Weeks and thus Backoffice from having any true management involvement with the Company. I am satisfied that the excuses Campbell gave to Weeks that he was "busy" on the dates proposed for the board meetings was part of Campbell's concerted efforts to exclude Weeks from the management of the Company. I am satisfied that Campbell's conduct amounted to a refusal to attend a Board Meeting and that it was oppressive. 122 Campbell authorised the Company to pay the entire amount of a Fees Memorandum issued by RPL on 3 February 2005 (Ex N) without seeking authorisation from Weeks. It appears that some of the services that RPL itemised in this Fee Memorandum were services personal to Campbell, however there is no proper evidence upon which I could reach a conclusion on the true nature of those services or the amounts to be allocated to those services. In the absence of that evidence it is very difficult to characterise this conduct, on its own, as oppressive. At its highest it is some evidence of Campbell continuing to operate the business of the Company without consultation with Weeks. 123 In Campbell's affidavit of 3 November 2006 he claimed that he reached Agreement with Weeks that once Weeks came on board, personal expenses would no longer be run through the Company. Campbell understood that to mean that there should no longer be any automatic payment of $750 to the credit card used by Campbell (tr 429). The plaintiff submitted that despite such agreement the Company continued to make payments to Campbell's personal credit card of $750 per week. Campbell was aware that the Company was making those payments at the time they were being made (tr 431-432). There is little doubt that Campbell continued to receive these payments inappropriately and inconsistently with the agreements between the parties. The fact that Campbell was receiving these payments whilst at the same time denying Weeks' claims for payment and refusing to pay Weeks or Backoffice any money, except for a laptop computer, is further evidence of Campbell's unfair and rather high-handed treatment of Weeks and Backoffice. 124 I am satisfied that Campbell's conduct was oppressive of Backoffice. Remedy 125 Backoffice seeks an order that Campbell purchase its share in the Company pursuant to s 233(1)(d) of the Act. The defendants submitted that an order for winding up is ordinarily a last resort: John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'Asia) Pty Ltd (1991) 6 ACSR 63. It was submitted that seeking a buy-out order when the consequence of the plaintiffs' own actions (in appointing a provisional liquidator) is to obtain relief involving the "destruction of the underlying subject matter (the Company's business) and the erosion of its value" is an attempt to unjustifiably and simultaneously approbate and reprobate. It was submitted that such an approach is inconsistent with the remedy sought: Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634 at 641-642; The Commonwealth v Verwayen (1990) 170 CLR 394 at 408. 126 The defendants submitted that the plaintiffs are not entitled to bring this action. It was submitted that where a company is in liquidation, an action by a minority shareholder "will not lie". In support of this submission the defendants relied upon Zempilas v JN Taylor Holdings Ltd (in liq) (No 6) (1991) 5 ACSR 28, the facts of which are distinguishable from the present case in that an order had been made winding up the subject company. The action had been commenced by a minority shareholder seeking the appointment of a provisional liquidator, an order winding up the company, declarations of breach of the Companies (SA) Code by certain of the directors, certain restraining orders and damages against the directors. After the Court made the winding up order, the liquidator made an application to have the subject company substituted as the plaintiff. It was in these circumstances that Debelle J referred, at 30, to: the "general principle" that the only proper plaintiff in an action to redress a wrong done to a company is the company; and that where an order winding up a company has been made, the "ordinary rule" in the "ordinary case" is that the authority to decide whether the company should bring or continue any action to recover damages or secure any other relief for any wrong done to the company vests in the liquidator. His Honour said, at 30: So, it follows that a minority shareholders' action will not lie if a company is in liquidation. The appropriate procedure in such a situation is for the liquidator to bring the action on behalf of the company or, if he refuses to do so, a contributory may apply to the court for an order authorising him to bring an action in the company's name or compelling the liquidator to do so on such terms as to indemnity as the court considers appropriate: see Fargo Ltd v Godfroy [1986] 3 All ER 279. … Because of the nature of the claim against the former directors, any damages recovered should be recovered on behalf of the company. Now that a liquidator of the company has been appointed, it is appropriate that he should take over and conduct of action. 127 As I have already said, in the present case there has been no order winding up the Company. The only relevant order that has been made is for the appointment of a provisional liquidator. The plaintiffs submitted that in the present case the appointment of a provisional liquidator serves an entirely different purpose to the appointment of a liquidator in a winding up. In this regard the plaintiffs relied upon the following passage from Burchett J's judgment in Aloridge Pty Ltd (prov liq apptd) v West Australian Gem Explorers Pty Ltd (1995) 127 ALR 410 at 415: It must be remembered that a provisional liquidator is, in a fundamental respect, not in the same position as a liquidator. He is appointed by an interlocutory order to fulfil a function analogous to that of a court-appointed receiver, whose task is "provisional only" and "does not at all effect the right": per Lord Hardwicke LC in Skip v Harwood (1747) 3 AtK 564; 26 ER 1125, cited in Shirlaw v Taylor (1991) 31 FCR 222 at 229-30; 102 ALR 551, where the ephemeral nature of the appointment was also emphasised at FCR 224. In Re Obie Pty Ltd (No 2) (1983) 8 ACLR 574 at 577, Thomas J said a provisional liquidator's "primary function is to maintain the status quo pending determination of the winding up proceedings", and he drew attention to the limitation on the provisional liquidator's powers inherent in his appointment by the court. 128 The plaintiffs submitted that the primary function of the "provisional" liquidator is to maintain the status quo pending the determination of the proceedings. The defendants also submitted that the plaintiffs' oppression suit must fail because the Court will not order compulsory purchase of shares after a company has been wound up. In support of this submission the defendants relied upon Webb v Stanfield (1990) 2 ACSR 283. That was a case in which there were cross-applications, one brought by Webb for orders, inter alia, that Stanfield purchase his shares in the subject company, and the other, later, application brought by Stanfield for an order that the company be wound up. Webb and Stanfield acquired the subject company to carry on the business of insurance agent for Capita Assurance group commencing on 1 October 1988. The business was not successful. There was disputation between Webb and Stanfield and their working relationship had been brought to an end by 26 April 1989. Webb claimed that Stanfield, on his own behalf, appropriated to himself or to a new company controlled by him, the advantages of the subject company's agency agreement or business with Capita. 129 At first instance, Webb's application was dismissed and after a contested hearing the primary judge ordered that the company be wound up on the ground of insolvency. In dismissing the appeal, the Court (Demack, McPherson & Williams JJ) observed that at 26 April 1989 "if not before, the company, was by all accounts, insolvent" (at 285). Although counsel for Webb argued that the "winding up" made no difference to his client's application for an order that Stanfield purchase his share, the Court held (at 287) that to allow the application to "continue unabated is to ignore that fact that the company is presently in the process of being wound up under an order of this court that remains unchallenged" and that an order for compulsory purchase of the share "at once confronts the statutory prohibition in s 368(1) [in relevantly similar terms to s 468 of the Act] against share transfers after winding up has commenced". The Court then observed that even if that difficulty were to be overcome by an order of the court under that subsection, Webb had difficulties bringing himself within the terms of s 320(1) of the Companies (Qld) Code [in relevantly similar terms to s 232 of the Act]. The Court observed that Webb's complaint was that Stanfield had acted on his own behalf and not "by or on behalf of the company" (287). In the present case the defendants have not claimed or suggested that Campbell's actions were on his own behalf. In any event I am satisfied that the conduct complained of was conduct by or on behalf of the Company. 130 The plaintiffs emphasised the distinguishing features of that case of the company being in liquidation rather than "merely" provisional liquidation and that the appellant had failed to bring himself within the relevant section warranting relief. The plaintiffs also submitted that there is no prohibition on the transfer of shares prior to a winding up order being made. In this regard the plaintiffs relied upon s 468(3) of the Act, which provides that a Court may validate a disposition where an application for winding up has been filed but a winding up order has not been made. It was further submitted that the remedy sought by Backoffice against Campbell cannot be pursued by means of a proof of debt, and will not result in any prejudice to the creditors of the Company: Hewlett Packard Australia Pty Ltd v Siltak Holdings Pty Ltd [2005] NSWSC 672 (Unreported, Barrett J, 8 July 2005). 131 I am not satisfied that the appointment of the provisional liquidator precludes the plaintiffs from seeking an order under s 233(d) of the Act for the purchase of Backoffice's share. 132 The defendants also submitted that the plaintiffs should not be granted any relief under s 233(1)(d) of the Act by reason of the fact that Weeks/Backoffice had received an offer for the purchase of Backoffice's share and had refused such offer. In an email to Weeks dated 23 February 2005, Campbell claimed that "an offer was put to buy you out". Weeks responded by email dated 24 February 2005 that he had not received such an offer but that if he were to receive one he would give it due consideration. There is no evidence of the nature of the alleged offer and there is no evidence upon which a judgment can be made as to the reasonableness or otherwise of the offer, if made, or its rejection. The fact that there may have been an offer that was rejected is not an impediment to the exercise of my discretion in the plaintiffs' favour. 133 I am satisfied that the appropriate remedy in all the circumstances of this case is an order under s 233(1)(d), that Campbell purchase Backoffice's share in the Company. Price of the share 134 In Scottish Co-op Wholesale Society Ltd v Myer [1959] AC 324 Lord Denning said at 369: One of the most useful orders mentioned in the section-which will enable the court to do justice to the injured share-holders—is to order the oppressor to buy the shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making an oppressor make compensation to those who have suffered at his hands. 135 In that case valuation at the date of the petition was seen to be doing justice between the parties. That does not mean that in every case the "fair price" must be fixed at the date the claim is brought. It will depend on the circumstances of each case. The only legal restriction on the way the purchase price of the share is to be calculated is that it is a proper exercise of judicial discretion. If the circumstances of the case are similar to other cases in which the purchase price has been fixed, then the approach adopted in those cases should be taken into account: United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 at [34] – [38]. A basic requirement for determining the price is that it must be fair on the facts of the particular case: Re London School of Electronics Ltd [1985] 3 WLR 474; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60, at 102 (on appeal, (1995) 13 ACLC 1290). 136 As Young J said in ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1995) 15 ACSR 536 at 540: The flavour of the judgements in the company oppression cases is that in looking to the fair value one must look at all the circumstances of the case and seek to put the oppressed in the same position as nearly as can be as if there had been no oppression, erring, if there is to be any erring, on the side of the oppressed. 137 The defendants' submissions in relation to the availability of the cause of action included a submission that the plaintiffs should not be able to pursue the oppression suit by reason of Weeks' conduct in appointing a provisional liquidator, with the consequence of causing the value of the shares in the Company to become worthless. It seems appropriate that I should take that submission into account on this aspect of the matter. The appointment of the provisional liquidator was made by consent between the parties to the litigation. It was not, as the defendants put it, Weeks' conduct that caused such appointment. These proceedings were commenced on 1 April 2005 by Summons that included a claim for the compulsory purchase of Backoffice's share. The consent order appointing the provisional liquidator was not made until 7 April 2005. It was open to Campbell before consenting to the appointment of the provisional liquidator to purchase Backoffice's share. 138 The plaintiffs submitted that in the present case the appropriate date for valuation of the shares is 24 January 2005. By valuing the share at that date it was submitted that the Court will be able to exclude the financial effects of the oppressive conduct. In Re a Company [1983] 1 WLR 927 it was recognised that it could be appropriate to value the share as at the date that exclusion from the affairs of the company occurred (at 937). 139 It was within days of the acquisition of the share by Backoffice that Campbell decided the Company would not allow Backoffice to have the benefit of its purchase of the share and its entitlement to the Fee under the Services Agreement. Campbell and Sentinel have had the benefit of receiving payments out of the Company from 24 January 2005, whilst Weeks and Backoffice received nothing, except a small amount for a laptop computer and some fuel. 140 After the provisional liquidator was appointed, Campbell purchased the residual assets of the Company and continued to develop the business. That business was then sold to a competitor (tr 293). During the trial, the plaintiffs served a Notice to Produce on Campbell and Sentinel for the production of documents relating to the purchase of the assets and any subsequent sale. The defendants subsequently filed in Court a Motion to set aside that Notice to Produce. The defendants abandoned their Cross-Claim and the plaintiffs did not thereafter call upon the Notice to Produce. In the circumstances, the only evidence in relation to the transactions in which Campbell purchased the residual assets of the Company and then sold them to a competitor is the fact that they occurred. The marginal relevance of this fact is that it provides some support for the observation I make below in relation to the potential of the Company, but for the oppression. 141 The question of the valuation of the share in the Company was the subject of discussion between the experts. The plaintiffs relied upon the evidence of Goodwin Cullimore Allen Gower, a director of and chartered accountant with the firm GCA Gower & Co, Chartered Accountants. The defendants relied upon the evidence of Paul Alexander Russell, a chartered accountant and partner of the firm Sims Partners. Mr Gower and Mr Russell produced a Joint Report dated 23 November 2006 (Ex PD). 142 The experts approached the valuation of the share in the Company on different bases. Although they were not able to reach agreement on the value of the share, they were able to reach agreement on a number of related matters including that: (a) the most appropriate methodology to value one share in the Company is the capitalisation of future maintainable earnings (FMEs); (b) the valuation multiple of 3 to 4 times is an appropriate valuation multiple to adopt in valuing the share; and (c) in determining an appropriate level of FMEs it is necessary for the valuer to have regard to the historical and projected earnings of the business being sold after considering add-back adjustments and any other unusual variations in historical and forecast earnings. 143 On the one hand Mr Gower valued the share at 30 November 2004 and at 24 January 2005 on an historical basis, annualising earnings up to those particular dates. Mr Russell also valued the share on that basis, but in addition considered the budget and the potential of the Company to 30 June 2005, the end of the financial year in which the acquisition was made. This latter valuation approach of Mr Russell's was referred to as the "potential" approach. 144 Mr Gower valued the share as at 24 January 2005 as the mid-point between $300,000 and $520,000 at $410,000. Mr Russell valued the share on this basis as the mid-point between $496,404 and $661,872 at $579,138. Mr Russell's "potential" approach took into account the budget for the Company and concluded that the valuation was the midpoint between $731,085 and $974,780 at $852,933. The budgeted figures reflected increased levels of trading from new and identified customers. Mr Russell candidly conceded that he made no assessment of whether those levels of trading were justifiable. Indeed he was not instructed to do so. However, he did point to the $300,000 in annualised sales as a factor that he bore in mind in valuing the share on the "potential" basis (tr 541). 145 I am of the view that the circumstances of this case warrant the valuation being made as at 24 January 2005. The unfair and discriminatory way that Backoffice was treated meant that not only was it kept out of the fee to which it was entitled from 1 January 2005 or alternatively 10 January 2005, but also all efforts made by it and its agent Weeks were rebuffed by reason of the disputation that had arisen. I have no doubt that the dispute resulted from Campbell causing the Company not to honour its obligations to Backoffice and Weeks. I am satisfied that at the date of acquisition, this Company had good potential for growth and success. Campbell was obviously a successful operator within the business. Weeks had the intelligence and wherewithal, if permitted to be part of this Company, to assist it to grow and profit from the combined efforts of the two co-directors. I have little doubt that but for the oppression the relationship could have worked in a manner that fostered that growth. I am satisfied that in all the circumstances the "fair price" should be fixed on the basis of Mr Russell's "potential" approach. 146 I am satisfied that the fair purchase price of the share is $853,000. There will be an order made pursuant to s 233(1)(d) of the Act that Campbell purchase Backoffice's share in the Company at a price of $853,000. There will also be an order made that such disposition be validated pursuant to s 468(3)(a) of the Act. BREACH OF WARRANTY CLAIMS 147 Having regard to the conclusion I have reached in relation to the oppression suit, and the fact that an order will be made that Campbell must purchase Backoffice's share in the Company, I do not regard it as appropriate to allow relief for breaches of warranty of the Agreement by which the share was acquired. However I will deal with the plaintiffs' claims in relation to those alleged breaches. 148 The plaintiffs claim that Campbell breached warranties contained in the Share Sale Agreement in relation to the documents in Schedule 3 to that Agreement, being the warranted balance sheet and the warranted profit and loss statement. It is alleged that pursuant to clause 7.1 of the Share Sale Agreement, Campbell warranted to Backoffice in clause 3.1(a) of Schedule 1 to the Agreement that the Company had no liabilities other than those disclosed in the warranted balance sheet and the warranted profit and loss statement. The plaintiffs claim that in breach of that warranty, the warranted balance sheet understated the amounts owing to trade creditors by $12,360; and misdescribed a liability relating to Campbell's loan position with the Company as positive $3,760 instead of negative $74,507.24. 149 The plaintiffs also claim that pursuant to clause 10 of Schedule 1 to the Share Sale Agreement, Campbell warranted: that all information given by or on behalf of the Company or its advisers material to the sale of the share and the Company's assets was substantially accurate and complete and not misleading (cl 10.1); and that the information in the warranted balance sheet and the warranted profit and loss statement was materially accurate and not misleading (cl 10.2). It is alleged that the content of the warranted balance sheet and the warranted profit and loss statement referred to above were in breach of the warranties in clauses 10.1 and 10.2. It is alleged that in breach of that warranty, the warranted balance sheet overstated the Company's adjusted net assets and that the warranted profit and loss statement: overstated the Company's operating profit before tax and adjustments by $8,770 or 13%; overstated the estimate of non-recurring expenses by $45,331 or 47%; and as a result of these overstatements, overstated the Company's adjusted operating profit. 150 The plaintiffs also claim that pursuant to clause 4.1(3) of Schedule 1 of the Share Sale Agreement, Campbell warranted that the profits and losses shown in the warranted profit and loss statement had not, except as disclosed therein, been affected by any extraordinary or exceptional event or circumstance or any other factor rendering them unusually high or low. The warranted profit and loss statement included income of $14,500 relating to the sale/trade of two motor vehicles. It is alleged that this income was "unusual and extraordinary" and was not disclosed to Backoffice or Weeks. It is alleged that this was in breach of the warranty in clause 4.1(3) of Schedule 1 of the Share Sale Agreement. 151 The experts disagreed on only four areas of the non-recurring expenses, referred to in the evidence as the "add-backs": (1) obsolete inventories; (2) credit card reimbursement; (3) business expense allowance; and (4) general expenses. Mr Russell concluded that Campbell had correctly identified the amounts for items (1) and (3) and added them back to the Company's income, because they were appropriately described as non-recurring expenses. Mr Russell concluded that item (4) was also correctly identified and added back, except that Campbell had been too conservative and a greater figure should have been added back ($4,778 instead of $4,167). Mr Russell and Mr Gower agreed that in respect of item (2), Campbell had added back a figure that was too high. Mr Russell concluded that the amount should have been $21,991. Mr Gower concluded that the amount should have been $19,207. 152 Mr Gower and Mr Russell were able to reach substantial agreement on the Company's December 2004 adjusted operating results. This relates to a claim by the plaintiffs that Campbell failed to inform Weeks in January 2005 that the operating results for December 2004 differed from the estimates for December 2004 in the Sales Revenue Report provided to Weeks in December 2004. Mr Gower and Mr Russell agreed that the Sales Revenue Report overstated the sales revenue of the Company by $7,147 and the EBIT of the Company in the range of $15,318 to $20,022. Although the experts agreed that the amounts were "overstated", it seems to me that it is more appropriate to describe the figures as "differing" from the estimates that were made in the Sales Revenue Report. Warranted balance sheet 153 Trade creditors: The first complaint made by the plaintiffs in respect of the warranted balance sheet is the alleged understatement of trade creditors. The warranted balance sheet recorded the Company's liability to trade creditors as at 30 November 2004 as $51,388.27. Mr Eustace's second fax of 13 January 2005 to Mr Horn, referred to earlier in this judgement recorded the Company's liability to trade creditors as $63,625.75. Mr Horn gave the following evidence in relation to that figure (tr 290-290): Q. You realised, didn't you, that one of the things that Mr Eustace had done was to increase the current liabilities item described as trade creditors from the figure in his earlier document of $9,130.36 to an increased figure of $63,625.75? A. Yes. Q. Did you communicate with Mr Andrew Eustace to obtain an understanding of what it was that had led him to make that provision? A. Yes. Q. Did you do that by telephone? A. I don't believe so. Q. Did you did do that in writing? A. I think it was later, actually it might have been the next day, all I did was I noted that one of the schedules he sent with that was the detailed listing of the creditors which amounted to 63,000 and that agreed with the trade creditors figure in the balance sheet. Q. You accepted, did you, as a result of engaging in that process that Mr Andrew Eustace in this balance sheet provided to you under cover of the sheet at Court book page 702 was correct when a revised trade creditors to the figure of $63,625.75? A. I couldn't say whether that was correct, all I can say was his detailed listing of the payables agreed to the figure in the balance sheet. 154 The various positions adopted by Campbell in his evidence in relation to the changes Mr Eustace made to the MYOB records on 13 January 2005 (which included the increase of the amount of the Company's liability to trade creditors) does little to assist Campbell's credibility (tr 488-491). Although claiming positively that he recalled speaking to Mr Horn about what Mr Eustace was doing on 13 January 2005, when asked for his recollection of that discussion he moved to the position that he could not recall it and then moved to the position that "there was no discussion" (tr 489). He claimed that he would only have said "hello" to Mr Eustace and exchanged the "normal courtesies" with him when he was in the office on 13 January 2005 (tr 488). When he was asked whether on that day Mr Eustace spoke to him about what he was doing, he said: "Not to my knowledge"; but then added: "He may have caught me in between appointments. I don't know" (tr 489). He then claimed that Mr Eustace did not discuss the detail of changes to payroll, holiday leave, long service leave, depreciation and a number of other items with him and then he said: "All he did was highlight that this had happened" (tr 490). He then claimed to have a recollection that Mr Eustace "would have been making, reversing" the entries that he found that were "inflating the expenses and so on" (tr 490). When asked when he became aware of the changes that Mr Eustace had made he claimed: "I can't give you a date. I don't recall those sort of details" (tr 491). When Mr Simpkins challenged Campbell in relation to this claimed inability, by reminding him of his earlier evidence that he was regularly reviewing the operating results in the MYOB system against actual results, he claimed that such review related to "only the bottom line and the big numbers" (tr 491). He claimed that if Mr Eustace made changes he remained ignorant of them (tr 491). 155 Campbell's evidence on this aspect of the matter was in my view quite unsatisfactory and I do not accept it. I am satisfied that he was well aware that Mr Eustace was present in the office to make the adjustments to the accounts prior to the sale of the 50% shareholding in the Company to Backoffice. In other evidence referred to later in this judgment, Campbell claimed that he was reviewing the MYOB records because of the imminent sale of a 50% shareholding in the Company (tr 328; 348). Although Campbell claimed that he was limiting his review of the MYOB records to ascertaining the amount of profit, I am satisfied that for such purpose he would have been aware of the figure for the liability to trade creditors. Mr Eustace was the Company's bookkeeper and if the entry for trade creditors that he recorded on 13 January 2005 was erroneous or if it was a figure that was not discussed with Campbell then Mr Eustace could have given that evidence. Mr Eustace was not called as a witness. I am satisfied that Campbell was aware of the nature of the adjustments that Mr Eustace made on 13 January 2005. 156 A balance sheet for the Company as at 30 November 2004 was printed out from the Company's records by the provisional liquidator in May 2005. In that balance sheet, trade creditors are recorded as $63,748.70. When that balance sheet was tendered as part of Mr Gower's report, an objection was raised. That document (Attachment 8 to Mr Gower's report, Ex B) was admitted on the agreed basis that it was to rise "no higher than the ultimate proof or lack of it of the underlying source materials" (tr 17-18; 133-134). The "underlying source materials" for the figure recorded for trade creditors in the balance sheet would include the invoices or similar records from trade creditors and the various entries in the MYOB documents of the Company, relating to the amounts outstanding as at 30 November 2004. Those documents are not in evidence. Although an officer from the liquidator's office, Thomas James Dawson, gave evidence in the plaintiffs' case that he printed the subject balance sheet out on 27 May 2005, there was no cross-examination of him in relation to the underlying documents. I am satisfied that I am able to take the figure recorded for trade creditors in that balance sheet as some support for the accuracy of the figure that Mr Eustace recorded in the balance sheet as at 13 January 2005. 157 The financial documentation provided to Weeks by Mr Horn in December 2004 recorded the Company's liabilities for trade creditors as at 30 November 2004 at $49,983. The figure in the warranted balance sheet was $51,388.27. The figure "adjusted" by Mr Eustace on 13 January 2005 was $63,625.75. The additional liability of $12,630 was in the circumstances of this Company's operations for the year to 30 November 2004 a matter of moment or significance and thus material: Minister for Immigration, Local Government and Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 at 352; Manning Shire Council v Caernarvon Pty Ltd [1977] 1 NSWLR 202 at 204-205. 158 I am satisfied that the entry in the warranted balance sheet of the amount for trade creditors of $51,388.27 was $12,360 less than the actual liability of $63,625.75. I am satisfied that such entry was a breach of the warranty in clause 3.1(a) of Schedule 1 of the Share Sale Agreement, that the Company had no liabilities other than the liabilities disclosed in Schedule 3 of the Agreement. 159 An essential aspect to the plaintiffs' claim that this was also a breach of clause 10.1 and or 10.2 of the Share Sale Agreement is Campbell's knowledge that this figure was inaccurate or incomplete or misleading, which I have discussed later in this judgment. On this aspect of the warranted balance sheet I am satisfied that Campbell did have the requisite knowledge that this figure was inaccurate. I am satisfied that this was in breach of clause 10.1 and 10.2 of the Share Sale Agreement. 160 Campbell's loan: The warranted balance sheet recorded under the heading "Non-current Liabilities", the entry "Doug Campbell Loan to HW $74,507.24" The next entry was recorded as "Total Non-Current Liabilities", with a negative figure of $74,507.24. Mr Gower's report (Ex B) referred to that entry as follows: "item is a negative liability in Warranted Balance Sheet – i.e. Doug Campbell owed $74,507". 161 Weeks admitted in cross-examination that Mr Horn had advised him that Campbell claimed he did not owe the Company the amount in the loan account. He also admitted that Mr Horn advised him that Campbell had leave entitlements that would possibly allow an offset against the loan account amount. The balance sheet printed out by the provisional liquidator included the entry "Doug Campbell Loan to HW $3,759.76". 162 Weeks claimed that he did not receive any response to his email dated 13 January 2005 to Mr Horn, in which he sought a reconciliation of Campbell's loan and an agreement on the treatment to discharge the loan prior to completion. It was the work of Mr Eustace on 13 January 2005 that reversed the amounts stated in the accounts as owed by Campbell to the Company and converted it into a liability of the Company to Campbell of $3,759.76. Mr Horn's evidence in relation to this reversal was that as at 13 January 2005 he did not believe that the matter had been properly reconciled or finalised. Mr Horn went so far as to suggest that Mr Eustace was "unsure of what he was doing" and that he really did not place "much reliance on what he had done" (tr 279). This was an explanation provided after he agreed that he had not informed Weeks of the changes made by Mr Eustace. This observation seems to me to be unfair to Mr Eustace. Mr Eustace was the Company's bookkeeper and at the time of trial was still providing services to Campbell. If Mr Horn held that view, it is very odd that he would not communicate it to Campbell at that time. Mr Horn knew that Weeks wanted to finalise the matter of Campbell's loan account prior to the entry into the Agreements. The only 'response' to Weeks' query was the warranted balance sheet. 163 Mr Simpkins submitted that the logical conclusion to be drawn from the evidence is that Campbell believed that he did not owe the Company any money and that he gave an instruction to Mr Eustace to reverse the entries in relation to his loan account. Mr Simpkins submitted that it is inconceivable that Mr Eustace acted 'on a frolic of his own' and that Campbell was not aware on 13 January or thereabouts of what had been done. I agree. 164 Weeks gave evidence that at the time of entering into the Share Sale Agreement, he was not aware that the liability identified on the warranted balance sheet as 'Doug Campbell loan to HW' had a balance of positive $3,760 instead of negative $74,507.24. The adjusted Balance Sheet prepared by Mr Eustace listed Campbell's leave entitlements under "Payroll liabilities" and in this way adjusted the "loan" to a positive figure of $3,759.76. The warranted balance sheet did not include those entitlements in the Payroll Liabilities but listed them on a separate page entitled "Entitlement Balance". An 'offsetting' of these figures against the loan figure would result in a positive figure of either $2,508.13 or $5,129.90, depending upon whether the figure for sick leave accrual is taken into account. 165 The information contained in the warranted balance sheet in relation to Campbell's loan was in breach of the warranty in clause 3.1(a) of Schedule 1 to the Share Sale Agreement in that the Company did have a liability other than that disclosed in the warranted balance sheet. It had a liability of $3,760 to Campbell. This seems to be technical rather than a matter of real substance having regard to the fact that Weeks knew that it was probable that Campbell's leave entitlements would probably be set-off against the loan and that those figures were included in the warranted balance sheet. 166 Adjusted net assets: The plaintiffs also claim that the warranted balance sheet overstated the adjusted net assets. The amount in the warranted balance sheet was $210,856.89 and the figure in the balance sheet adjusted by Mr Eustace on 13 January 2005 was $148,326.10. 167 Mr Horn gave the following evidence in cross-examination in relation to that difference (tr 290-292): Q. I take it one of the things you also considered was what the balance sheet showed to be the net equity of Healthy Water, is that right? A. Perhaps, yes. Q. And you were aware that what had been stated in the balance sheet given to Mr Weeks was that the net equity of Healthy Water was slightly in excess of $293,000? A. I believe so, yes. … Q. One of the things you appreciated about the documents that have been given to Mr Weeks was that even taking account of Mr Campbell's accrued employee entitlements the net equity was being represented as being $210,856.89? A. Correct. Q. You knew from the revised balance sheet that Mr Andrew Eustace had given to you on 13 January 2005 that according to him, having taken account also of Mr Campbell's accrued employee entitlements, the net equity was only $148,326.10? A. Yes. Q. Didn't it occur to you that Mr Weeks might want to be told of that fact? A. No. Q. Did you not discuss with Mr Campbell whether you ought to be providing this more recent financial information to Mr Weeks? A. No. Q. Did you discuss with Mr Campbell at all at any time during the course of 13 January 2005 what ought to be done in relation to these revisions that Mr Andrew Eustace was making? A. Yes. Q. That was a discussion you had on 13 January 2005? A. On or about that day, yes. Q. Is that the discussion that you told her Honour about where Mr Campbell instructed in effect that he would warrant the accounts that you had provided to Mr Weeks? A. Not necessarily, no. Q. Perhaps I should ask you more neutrally, what do you say you and Mr Campbell spoke about? A. We spoke about that Mr Eustace and his external accountants were still trying to reconcile his loan account and they still had not reached a definitive conclusion. That was it. Q. Did you say to Mr Campbell that since he was warranting the financial information given to Mr Weeks that he should satisfy himself about the appropriateness of that material? A. I said that he will be warranting the balance sheet and the accounts that will be attached to the contract and he should satisfy himself as to the reasonableness of the values for the various assets and liabilities as well as the performance of the company to that date. Q. Did Mr Campbell say he would speak to Mr Andrew Eustace? A. I am not sure, I can't recollect. Q. Did Mr Campbell say he would speak to any external accountant? A. I can't recall that. Q. Do you have any recollection of what, if anything, Mr Campbell said he was going to do following on from the matter you discussed with him? A. He said he would get the accountant to sort it out. I believe that Mr Eustace only came in for those two days and was then disappearing back on annual leave or something. Q. At any time after receiving this financial material on 13 January and before the agreements were entered into on 24 January did you have any further communication with Mr Andrew Eustace? A. I can't recall. Q. Did you have any communications at all with any accountant about the financial position of Healthy Water? A. No, I don't believe so. Q. Did you have any further communication with Mr Campbell about the financial information that had been provided to Mr Weeks? A. No. 168 The claim the plaintiffs make in relation to this part of the warranted balance sheet is that it was a breach of the warranty in clause 10.2 of Schedule 1 of the Share Sale Agreement. That was a warranty that "to the best of [the Vendor's] knowledge" the material in the Schedules was "materially accurate and complete and not misleading". The warranty that the information in the warranted balance sheet was "materially accurate" means that there were no significant inaccuracies, or inaccuracies of moment, within it. The figure of $148,326.10 for net assets in Mr Eustace's adjusted balance sheet of 13 January 2005 is a figure reached in consequence of the other adjustments, including the increase in the figure for trade creditors. It could hardly be suggested, and in fact it was not, that the difference between those figures was not a material inaccuracy. Rather the defendants focused upon the fact that the warranty was prefaced with the words, "to the best of [the Vendor's] knowledge". 169 In final oral submissions, Mr Hammerschlag submitted that the plaintiff had failed to plead that Campbell had the knowledge that the figure for net assets was materially inaccurate or misleading. Mr Hammerschlag submitted that the pleader had failed to make a claim that recognised the words "to the best of the Vendor's knowledge" in clause 10. This submission occurred in oral submissions on the last day of the trial. However on the fifth day of the trial, Mr Simpkins asked Campbell the following question (tr 406): Q. Mr Campbell, one of the things that you were conscious of, in December 2004, was the importance of exercising an appropriate care in formulating add-backs that would be stipulated to Mr Weeks as appropriate to be considered in order to normalise the accounts for July through to November 2004? 170 Mr Hammerschlag objected to that question. I disallowed the question. Mr Hammerschlag suggested that there was another basis for the objection that I indicated was not necessary to raise at that time. Mr Simpkins asked the following question: Q. You thought it important, didn't you, to be very careful in the way in which you formulated these add-backs? 171 Mr Hammerschlag once again objected and the following exchange took place (tr 407): HER HONOUR: What is the point? HAMMERSCHLAG: If my learned friend is cross-examining exclusively as to credit, that is okay. If it is purportedly cross-examination as to an issue, there's no such issue in this case. HER HONOUR: It does seem there is an issue on the amount of add-backs and whether they were or weren't overstated. I am going to allow it on that basis. It does seem also that it is being pursued, it appears, in relation to credit. So I am going to allow it on that basis. 172 When the objections were made to Mr Simpkins' cross-examination as outlined above, Mr Hammerschlag did not identify the issue with the same specificity as he did in oral final submissions three days later. On that latter day, Mr Hammerschlag submitted that the exchange referred to above (at tr 407) was an objection that Campbell's "knowledge wasn't in issue" and that I had overruled him (tr 603). After reviewing the actual exchange that took place (at tr 407), the following exchange took place (tr 604-605): HER HONOUR: Just let me read it [407]. I overruled you and said that there was an issue as to the overstatement. HAMMERSCHLAG: No doubt about that. HER HONOUR: You didn't submit it was to do with the pleading point. HAMMERSCHLAG: No, your Honour, because it is not a pleading point. It is the case my learned friends made. HER HONOUR: But that wasn't explicit in your exchange with me at 407. … HER HONOUR: One of the problems with this is that you had in mind the pleading at 37.2. HAMMERSCHLAG: I did. HER HONOUR: No-one else did, it would appear. That is the problem. I understand that you say that you are entitled to sit by and wait but there is some authority on this that says these days you are not allowed to do it. Justice Allsop in the Federal Court. HAMMERSCHLAG: I know the footprints in the sand, your Honour, but that is not this case. This is my learned friend's case, not mine. He has pleaded the warranties and in my respectful submission that is his case. HER HONOUR: One of the problems with this at 407 I said to you it did seem there was an issue on the amount of add-backs and whether they were or weren't overstated and the question was really going to the question of knowledge. HAMMERSCHLAG: I submit to the contrary, your Honour. But the case has been conducted and I can't go back and if your Honour takes the view that it was conducted on the basis that knowledge was pleaded. HER HONOUR: It is not pleaded. There is no doubt about the fact that it is not explicitly pleaded. It doesn't say "to his knowledge", that it says at 120.1. But are you making a submission that you are prejudiced? HAMMERSCHLAG: Yes. HER HONOUR: How? HAMMERSCHLAG: That is not the case I have come to meet. HER HONOUR: You would have been able to call evidence? HAMMERSCHLAG: Perhaps not. I might have re-examined as to knowledge. I might have. HER HONOUR: Can you put it any higher than that? HAMMERSCHLAG: No. HER HONOUR: Let's move on. HAMMERSCHLAG: I can't tell your Honour what precisely I would or wouldn't have done. HER HONOUR: What is the submission you make? HAMMERSCHLAG: My submission is this; there is no cause of action in this case, no cause of action cognizable in this summons pleaded for breach of warranty 10.1. That is the submission. HER HONOUR: I understand. 173 In their written submissions in reply (18 December 2006) the plaintiffs submitted that clause 10.2 can be read in two ways, namely: (a) that to the best of Campbell's knowledge, the information in the Schedules was materially accurate and complete and not misleading; and (b) that Campbell had made due and careful enquiry as to whether the information in the Schedules was materially accurate and complete and not misleading. Mr Simpkins submitted that if there is an issue as to whether the warranties in clauses 10.1 and 10.2 can be read in the manner contended for, then the plaintiffs would seek to amend the FAS to allege breach of those warranties. 174 Pursuant to clause 7.2 of the Share Sale Agreement, the reference to the Vendor's "knowledge" in the words "to the best of its knowledge, the Vendor warrants that" in clause 10 of Schedule 1 "must be treated as including an additional Warranty that the Vendor has made due and careful enquiry as to the matter". The nature of the "matter" will depend upon the words of the warranty, to which the warranty is additional. The warranty in clause 10.2 is a warranty that to the best of Campbell's knowledge, the information in the Schedules is materially accurate and complete and not misleading. The "additional" warranty was that Campbell had made due and careful enquiry that the material in the Schedules was materially accurate and complete and not misleading. 175 The matters that arise for consideration in relation to the defendants' submissions outlined above and the plaintiffs' written submissions in reply are: (1) whether the FAS contains a proper claim that the figure for net assets in the warranted balance sheet was in breach of the warranty in clause 10.2 of the Share Sale Agreement (Issue 1); (2) if not, whether the plaintiffs should be permitted to amend the FAS at this stage to include such a claim (Issue 2); and (3) whether the plaintiffs should be permitted to amend the FAS to make a claim that Campbell breached the "additional" warranty (Issue 3). 176 As to issue (1); Practice Note SC Eq 3 (the Practice Note) provides that matters in the Commercial List are to be commenced in the general form of Summons prescribed under the Uniform Civil Procedure Rules 2005 and that a Commercial List Statement is to be filed with the Summons. The Practice Note relevantly requires the plaintiff to set out within the Commercial List Statement in summary form, inter alia, the nature of the dispute, the issues the plaintiff believes are likely to arise and the plaintiff's contentions (par 8). The Practice Note also provides that the plaintiff's contentions should, inter alia, avoid formality, state the allegations the plaintiff makes with adequate particulars and identify the legal grounds for the relief claimed (par 9). In the Commercial List Response the defendant is required to set out in summary form matters including its response to the plaintiff's contentions, including the legal grounds for opposition to the relief claimed in the Summons (par 11). The Practice Note governs the way in which cases in the Commercial List are "pleaded" and although the Court sitting in the Commercial List (and previously in the Commercial Division) has not been known as a court of strict pleading, the Summons and Commercial List Statement and the Commercial List Response (and any relevant additional particulars) define the ambit of the issues to be determined at trial: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, per Heydon JA at 171 [53]. A party is entitled to hold its opponent to the case "pleaded" against it, unless there is some reason, such as the way in which the parties have conducted the trial, justifying an expansion (or contraction) of the case so "pleaded". 177 The claim of breach of the warranty in clause 10.2 of the Share Sale Agreement in relation to the net assets in the warranted balance sheet was pleaded in the Commercial List Statement as follows: 34. Schedule 3 to the Share Sale Agreement relevantly stated as follows: (a) that the non-recurring expenses for the five months ended 30 November 2004 were reasonably estimated to be $96,100.00 (the "Add-Backs" ); ; (b) that the income from sales for the five months ended 30 November 2004 was $407,142.01, that such income produced a gross profit of $352,321.24 and that there was other miscellaneous income of $14,500; (c) that the adjusted operating profit of the Company for the five months ended 30 November 2004 (being the net profit plus the Add-Back) was $163,078.99; (d) that the amounts owing to trade creditors of the Company as at 30 November 2004 totalled $51,388.27; (e) that the liability identified on the balance sheet as "Doug Campbell Loan to HW" was negative $74,507.24 (meaning thereby that Doug Campbell owed $74,507.24 to the Company). (f) that the adjusted net assets of the Company as at 30 November 2004 (being net assets less accrued employee entitlements) were $210,856.89; 35. Schedule 3 to the Share Sale Agreement: (a) in making the Add-Backs, overstated the non-recurring expenses of the Company for the five months ended 30 November 2004: (i) including Obsolete Inventories ($2,600); (ii) including General Expense Allowance ($4,167); (iii) including Business Expense Allowance ($25,000); (iv) including Credit Card Re-imbursement ($27,083) a significant proportion of which related to business expenses of the Company; (b) failed to disclose that the miscellaneous income of $14,500 related to the sale/trade of a Daewoo and a Toyota motor vehicle (the " Non-Recurring Income ") and, as such, did not represent income reflective of the true operating performance of the Company and/or failed to deduct such income to derive the net profit or adjusted operating profit; (c) overstated the adjusted operating profit of the Company for the five months ended 30 November 2004 by: (i) the inclusion within the calculation of the Add-Backs of the matters referred to in (a); (ii) the inclusion within the calculation of the adjusted operating profit of the income referred to in (b) (the " Profit Overstatement" ); (d) understated the amounts owing to trade creditors of the Company as at 30 November 2004 by $12,360; (e) stated that the liability identified on the Balance Sheet as "Doug Campbell loan to HW" had a balance of negative $74,507.24 instead of positive $3,760; and (f) overstated the adjusted net assets of the Company as at 30 November 2004 (being the net assets less accrued employee entitlements) by: (i) the inclusion within the calculation of the understatement of the trade creditors referred to in (d) above; (ii) the inclusion within the calculation of the incorrect amount for the liability identified in the Balance Sheet as "Doug Campbell loan to HW" referred to in (e) above (the "Assets Overstatement" ); all of which failures will be referred to in this Summons as the " Schedule 3 Deficiencies". 36. Campbell did not disclose the Schedule 3 Deficiencies to Backoffice or Weeks at any time prior to the entry into the Share Sale Agreement. 37. By reason of the Schedule 3 Deficiencies, Campbell breached the Vendor's Warranties under the Share Sale Agreement . Particulars (i) The inclusion of the Non-Recurring Income caused Schedule 3 to show a profit for the 5 months ended 30 November 2004 that was affected by an extraordinary or exceptional event or circumstance rendering the profit unusually high but which was not disclosed contrary to clause 4.1(3) of Schedule 1; (ii) The inclusion of the Non-Recurring Income and the overstatement of the Add-Backs caused Schedule 3 to be substantially inaccurate, incomplete and/or misleading contrary to clauses 10.1 and 10.2 of Schedule 1; (iii) The Profit Overstatement caused Schedule 3 to be substantially inaccurate, incomplete and misleading contrary to clauses 10.1 and 10.2 of Schedule 1; (iv) The understatement of amounts owing to trade creditors of the Company by $12,360 constituted a failure to disclose all liabilities of the Company contrary to clause 3.1(a) and meant that Schedule 3 was substantially inaccurate, incomplete and/or misleading contrary to clauses 10.1 and 10.2 of Schedule 1: (v) The overstatement of "Doug Campbell Loan to HW" by $78,267 caused Schedule 3 to be substantially inaccurate, incomplete and/or misleading contrary to clauses 10.1 and 10.2 of Schedule 1; (vi) The Assets Overstatement caused Schedule 3 to be substantially inaccurate, incomplete and/or misleading contrary to clauses 10.1 and 10.2 of Schedule 1. 178 The defendants' Commercial List Response to these contentions was in the following terms: 23. In answer to paragraph 34 of the plaintiffs' amended contentions, the first and second defendants, (a) admit that Schedule 3 of the Share Sale Agreement refers to the amounts in sub-paragraphs (a) – (f); (b) will rely on the terms of Schedule 3 as if it were set out in full; and otherwise deny the allegations in the paragraph 24. The first and second defendants deny paragraph 35 of the plaintiffs' amended contentions. 25. The first and second defendants deny paragraph 36 of the plaintiffs' amended contentions. In further answer to paragraph 36 of the plaintiffs' amended contentions, the first and second defendants deny that there were any Schedule 3 Deficiencies. 26. The first and second first defendants deny paragraph 37 of the plaintiffs' amended contentions. 179 The claim in paragraph 37(vi) of the Commercial List Statement that the overstatement caused the warranted balance sheet to be substantially inaccurate, incomplete or misleading could not, on its own, amount to a breach of the warranty in clause 10.2. In MacDonald v The Law Union Fire and Life Insurance Co (1874) LR 9 QB 328, Lush J, at 331 drew the distinction between a statement that facts are "truly set forth" and a statement that facts are true "to the best of my knowledge or belief". In Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14, Isaacs ACJ described a warranty of truth "to the best of my knowledge and belief" as a "limited pledge of truth" (at 25). In National & General Insurance Co Ltd v Chick [1984] 2 NSWLR 86, the application for insurance included the statement that "that the answers given above are to the best of my knowledge true and correct, and I have not withheld any information likely to affect acceptance of this proposal". The applicant had listed her husband's occupation as a "clerical officer" when he was actually working as a private investigator. When the respondent's husband died, the insurance company rejected her claim. All members of the Court [Hutley, Samuels and Mahoney JJA] found that the respondent knew to the best of her knowledge at the time she made the warranty, that the information she was providing was incorrect. Samuels JA said at 109: If the first warranty were not qualified [by the words "to the best of my knowledge], it would entail strict compliance; that is to say, it would require not only subjective truthfulness but absolute accuracy. The qualification is inserted, in my opinion, to mitigate the rigours of this doctrine, and not to modify the duty to disclose. 180 An essential element of a breach of the warranty in clause 10.2 is Campbell's knowledge that the figure for the net assets was not accurate or complete and was misleading. The claim in paragraph 36 of the Commercial List Statement that Campbell failed to disclose the overstatement is an implicit claim that Campbell knew that the assets were overstated. In paragraph 25 of the Response, the defendants denied that Campbell failed to disclose the deficiencies and also denied that there were any deficiencies. There was no express statement in the Response that Campbell did not know that the assets were overstated, but it seems to me that these denials infer or implicitly claim that Campbell did not know that the assets were overstated. I am of the view that although both the Commercial List Statement and the Commercial List Response are infelicitously pleaded in relation to this aspect of the alleged breach of the warranty in clause 10.2, the parties joined issue and understood that it was alleged that Campbell knew that the net assets in the warranted balance sheet were overstated at the time the Share Sale Agreement was executed. 181 As to Issue (2): Having regard to the conclusion I have reached in relation to Issue (1), there is no necessity to decide this issue. However if my conclusion on Issue (1) is wrong I would allow the plaintiffs to amend the FAS to make the claim explicit instead of implicit, having regard to the way in which the trial proceeded. Campbell's knowledge was tested, in particular at tr 489-491, referred to earlier in this judgment. I have already rejected Campbell's claims that he was unaware of the changes made by Mr Eustace. 182 As to Issue (3): I am not satisfied that the parties understood that the additional warranty was in issue in the proceedings. It was never suggested to Campbell that he understood that he had warranted that he had made due and careful enquiry. The case run at trial was not that Campbell had warranted that he had made due and careful enquiry as to the accuracy of the material and that he had breached the warranty by failing to make such due and careful enquiry. It was that he had made enquiry and knew that the warranted material in the Schedule was inaccurate. This is clear from the claim in paragraph 36 of the Commercial List Statement, that Campbell failed to disclose the deficiencies; and from the cross-examination as to his knowledge of the changes that were made by Mr Eustace. I refuse the plaintiffs' application to amend the FAS to plead the "additional" warranty in relation to the net asset position in the warranted balance sheet. 183 It may seem unsatisfactory that these issues were not fleshed out until the last day of the hearing and after the plaintiffs' final submissions had been made. The "cards on the table" approach to litigation is now accepted: Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 (Unreported, Sheller, Hodgson and Ipp JJA, 24 April 2007); Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116: White v Overland [2001] FCA 1333. However, a distinction needs to be drawn between a requirement on a party to notify the opponent that it has misconceived the party's case and a requirement on a party to notify the opponent that the opponent's case is in fact misconceived. It will depend upon the facts of each case as to whether either of these requirements is triggered, but it seems to me that to make the latter a requirement in aid of the "cards on the table" approach to litigation may be to go too far. The qualification to that observation is, as I have said, that it will depend on the facts of each case. I do not need to decide whether it was necessary to do more before the last day of the trial because I have decided that Mr Hammerschlag's analysis of the pleaded position in relation to the warranty in clause 10.2 should not be preferred. 184 I should now return to the claim as pleaded for breach of the warranty in clause 10.2. There is no doubt that Campbell was cross-examined about his discussions with Mr Eustace on 13 January 2005. That cross-examination was for the purpose of establishing that Campbell was aware of the adjustments that Mr Eustace was making on that day. As I have already said, notwithstanding Campbell's evidence I am satisfied that Campbell was aware of the adjustments made by Mr Eustace including the net asset position in the balance sheet. I am satisfied that Campbell knew that the warranted balance sheet contained the figure for the net assets and that it was inaccurate. I am satisfied that Campbell breached the warranty in clause 10.2 of the Share Sale Agreement in this regard. Warranted profit and loss statement 185 The warranted profit and loss statement included the following: Profit and Loss Statement For the 5 Months Ended 30/11/04 $ Income from Sales 407,142.01 Less, Cost of Goods 54,820.77 Gross Profit 352,321.24 Less, Expenses Operating Expenses 102,908.96 Utilities 42,831.16 Payroll Expenses 108,337.47 Motor Vehicle Expenses 29,636.70 Financial Expenses 16,127.96 299,842.25 Trading Profit 52,478.99 Other Income 14,500.00 Operating Profit 66,978.99 Less, Other Expenses 5,925.92 Net Profit $ 61,053.07 Notes: - Above results as per attached Company management accounts. - Above results do not include depreciation charges and accruals for LSL and annual leave, which are determined annually by the Company's external accountants $ Operating Profit (as per above) 66,978.99 Add, Proprietor's estimate of non-recurring expenses for the 5 months ended 30/11/04 96,100.00 Adjusted Operating Profit $ 163,078.99 Clause 4.1(3) warranty 186 I shall deal firstly with the plaintiff's claim that Campbell breached the warranty in clause 4.1 (3) of Schedule 1 of the Share Sale Agreement. That was a warranty that the profits or losses in the warranted profit and loss statement had not "to a material extent" been affected "(except as therein disclosed) by any extraordinary or exceptional event or circumstance or by any other factor rendering them unusually high or low". It was alleged that the inclusion of $14,500 as income for the sale/trade of the two motor vehicles was in breach of this warranty. 187 The amount of $14,500 was in fact disclosed as "other income". It was not suggested in Schedule 3 that this income had been received from sales in the usual course of business of the Company. Mr Simpkins submitted that it was assumed by Weeks that this amount was income from the ordinary course of the business of the Company. That assumption does not seem to me to have any proper foundation. The document highlighted the fact that this amount was income other than from sales. I do not accept that this was in breach of clause 4.1 (3) of Schedule 1 of the Share Sale Agreement. Clause 10.2 188 In adding the "Proprietor's estimate of non-recurring expenses for the 5 months ended 30/11/04", the operating profit was increased by $96,100. That was a reference to the "Add Backs document" that had been provided to Weeks in December 2004 at which was in the following terms: Non-recurring expenses: Obsolete inventories Rental stocks included in books as inventory at original cost, although for accounting/tax purposes, they are written off at replacement cost at the expiration of the rental periods. Replacement cost averages 20% higher than original cost. $ 2,600 Consulting fees Bato Partners $ 16,000 Doug Campbell Current annual salary 120,000 Motor vehicle allowance 16,000 General expense allowance 10,000 "Business" expense allowance 60,000 Credit card reimbursement ($5,000/$6500 pmth) 65,000 (All of the above are paid monthly) 271,000 Estimated salary for general manager/$1 million turnover business 85,000 Excess per annum 186,000 5 months to 30/11/05 $ 77,500 189 The plaintiffs claim that in this document the non-recurring expenses of the Company were overstated by: including $2,600 as obsolete inventories; including in the general expense allowance of $10,000 an amount of $4,167; including in the business "expense allowance" of $60,000 an amount of $25,000; and including in the credit card reimbursement amount of $65,000 an amount of $27,083. Obsolete inventories 190 The item of obsolete inventories was the subject of discussion between Campbell and Mr Horn. Mr Horn's evidence was in relation to what Campbell told him was as follows (tr 193): He told me that it was obsolete stocks, where it related to payments that he makes at the end of a period of hire, where he has hired out filtered systems to customers and he gets third party financing on that. So at the end of the period of hire he deals with the financing companies that he had to buy the equipment, at an agreed value, back from, the financing company who finances the deal, and when he has to pay the agreed value on that, which is like a sort of a residual value, and some of those payments I think were about $13,000, which he writes off. However, a lot of that equipment can be used again. It can be repaired or for used parts and some of the equipment he used, et cetera. So he estimated that about at least 20 per cent of those payments he could utilise in stocks or in other parts. So in other words, the write-off of the $13,000 was too high and an adjustment of, say, 20 per cent of that would be appropriate as an add-back. 191 Mr Horn accepted that the explanation Campbell gave to him is not what is recorded under the heading Obsolete inventories in the Add Backs document (tr 223). He also accepted that the explanation he gave in his evidence above about what Campbell told him regarding those inventories was "irreconcilable" with the entry in relation to obsolete inventories in the Add Backs document. His evidence was that "in hindsight" the entry in the Add Backs document had not been "very well worded" (tr 224). 192 Campbell said that he personally formulated the obsolete inventories add-backs because no one else understood it (tr 407). He accepted that the description in the Add Backs document was not a "proper" description and accepted that it would not be easy for anybody to understand what it meant (tr 408). However he then gave the following evidence (tr 408-410): Q. What is wrong with that? A. Well, it is partly right. It says "Replacement cost averages 20 per cent higher than original cost." The $20,000 – do you want me to explain how I did it? Q. Just take it step by step. The first statement under the heading "Obsolete Inventories" is "Rental stocks included in books as inventory at original cost". Is that statement right? A. Not quite, no. Q. What is wrong about it? A. That was the way it was understood by Alan, I think. Q. What is wrong about it? A. Rental included in the books as inventory at original cost means that if we take back the rental equipment from the third party provider, or our own paper, what we call our own paper rentals, we will then look at it and say, what can be used and what can't be used? What can't be used is discarded and written off and it also refers to when you have a third party financier, who takes the risk. That financier, at the end of the term, will ask you to inspect the equipment and have a look and see what you can derive from it. It usually works for about 5 per cent to 20 per cent and then you pay them that residual and then you take ownership of the equipment. Q. What is wrong, if anything, with the statement: "Rental stocks included in books as inventory at original cost"? A. I don't think there's anything really wrong with it. It is just difficult to understand that. I have even had my own lawyers saying: What does that mean? Q. You will see that the next statement, under that heading, court book page 614, is "although for accounting/tax purposes they are written off at replacement cost at the expiration of the rental period". Do you see that? A. Yes, I do. Q. Is there anything wrong with that statement? A. No. Q. Then it concludes with the statement, Replacement cost averages 20 percent higher than original cost"? A. I can understand that, yes. Q. Is there anything wrong with that statement? A. I don't think so. Q. Is this right, that everything that is actually said under the heading "Obsolete Inventories" at page 614 is an accurate statement? A. It is understandable, yes. Q. It is an accurate statement as well as understandable? A. Yes, it is, yes. Q. And when you read it sometime on or about 9 December 2004, you formed the view, did you, that it described with sufficient accuracy what it was you intended to be the add-back item of $2,600 for obsolete inventories? A. Yes, that's correct. Q. You gave Mr Horn the add-back of $2,600? A. Yes, I did. I gave him a formula. Q. Did you show anything to Mr Horn in relation to obsolete inventories or did you just give him the amount of $2,600? A. No. Mr Horn and I had notes and that was how we derived that cost. We had a formula which I had given to him, because he didn't understand it either. 193 When asked what the item "obsolete inventories" in the accounting records of the Company reflected, Campbell said (tr 412): It reflected items [that] had been retrieved from customers who had finished their period of rental and it also reflected sometimes that when you did receive it, you would throw out much of the equipment. You might keep a tap. You might keep anything that was "… that was, you know", - like tin plate receptacles that carried the water, all that would be thrown out. Sometimes if it was only a very short period of time, some customers had it for only 12 months, you could get a lot out of it. That it reflected that process. 194 The following cross-examination then occurred (tr 412): Q. Is the process you described something that occurred not only in the five months through to November 2004, but occurred during the years of the Healthy Water business? A. A good deal. Q. So that a regular part of the business carried out by Healthy Water was that it could recover stock formerly rented out and it would use or find it could use about 20 per cent of the reclaimed stock? A. That is a fairly accurate description. 195 As can be seen from the above, Campbell initially accepted that the description was not "proper" and not easy for anyone to understand. He later moved to the position that the description was "accurate and understandable". 196 Weeks' evidence was that he understood the entry in the Add Backs document to mean that the item was included in the books of the Company, but that somehow an inventory provision would have been set up against the item writing it down to zero. Weeks said that he did not make any investigation in relation to the $2,600 amount because he did not "consider it as a material amount" (tr 35-36). Notwithstanding this evidence, Mr Simpkins submitted that although Weeks did not regard the figure of $2,600 "alone" as a material matter, the plaintiffs should still be entitled to rely on this item in conjunction with the other items in the Add Backs document. In my view, Weeks' evidence was focused on the investigations that he was conducting. It was the fact that Weeks was of the view that the amount was not "material" that caused him not to investigate this item further. That evidence would be relevant in relation to whether this particular item was relied upon in the claim in relation to misleading or deceptive conduct, but it is not fatal to the plaintiff's claim that the item was not properly characterised as a non-recurring expense and should not have been added back to the revenue of the Company. 197 Mr Gower expressed the opinion that the obsolete inventory is an ordinary cost of a business and therefore should not be added back to the income or revenue of the company as a non-recurring expense. Mr Russell was instructed that the $2,600 add-back adjustment was determined by Campbell to provide an account of the value of stock from expired customer agreements that was capable of being reused, despite having been written-off for accounting purposes. Mr Gower expressed the further opinion that if this add-back adjustment related to 'refurbished' rental stocks, the benefit was part of the usual operations of the Company and therefore not appropriately characterised as a non-recurring expense. 198 This item in the Add-Backs document suffers from the flaws of description identified by Mr Horn and in part by Campbell. However, it seems to me that the utilisation of the stock that was otherwise written off falls more appropriately into the category of the usual operations of the Company rather than that of a non-recurring expense. Accordingly I am satisfied that the item for obsolete inventories was not accurately described as a "non-recurring expense". General Expense Allowance 199 Weeks gave evidence that Mr Horn advised him that the general expense allowance was an amount that reflected items that were charged to Campbell's credit card and that those items were reimbursed by the Company and charged to the Company. The amount claimed in the Further Amended Summons of $4,167 is the amount alleged to have been overstated as a non-recurring expense and it is claimed that it should not have been added back. Weeks gave evidence that by the time his offer to purchase the share in the Company was accepted, he had still not obtained any satisfaction in respect of the verification of the estimates of the general expense allowance and the business expense in the Add Backs document. He gave the following evidence in cross-examination (tr 50-51): Q. To just summarise your position Mr Weeks, the position was you couldn't get satisfaction, correct? A. Yes. Q. And what you agreed to do is to abandon the quest to be satisfied and take something in the contract to give you that satisfaction? A. Yes, that was Mr Horn's suggestion. Q. What you got in the contract ultimately were the warranties in schedule 1 which you will find Mr Weeks at page 877 of this bundle, is that right? A. I would have to read it all, but if it says that the performance of the company is as set out in the schedule 3 which I am more familiar with. Q. I want you to just read it? A. Yes. Q. And satisfy yourself that those are the warranties that you tell her Honour you took in substitution of satisfying yourself with respect to the expenses in the document at 614, I think it is, you tell her Honour please whether what I have put to you is right? A. Okay, what was the - - Q. You told her Honour that what you decided was not to investigate, you were not satisfied and what you took were instead the warranties in the agreement and I asked you are those the warranties, the one that started 177? A. Yes. Q. Those warranties at that time you had the assistance of a solicitor, a Mr Chris McClure? A. Yes. Q. You told Mr McClure that you were relying on your own investigations? A. Yes. Q. Is that you were relying on your background over many years in corporate management? A. Yes. Q. And you told him that you were relying on the due diligence conducted in respect of the subject business carried out over time by you and your accountant? A. Yes. Q. And by your accountant you meant Mr Raby? A. Yes. 200 In cross-examination Campbell gave the following evidence (tr 398-399): Q. Le[t] me just try and understand how this occurs. Mr Horn speaks to you in late November early December, tells you that Mr Weeks has some questions about general expenses; is that right? A. Yes. Q. And asks you how general expenses come together in your mind; is that right? A. He did. Q. At that time you say to him something about how the general expenses come together in your mind, is that right? A. I would have, yes, but I can't recollect exactly what was spoken about. Q. What general expenses did you understand Mr Horn to be asking you about in this telephone conversation? A. Generally, he was asking me generally, was I happy with the picture of general expenses. … Q. Was there a time, if it wasn't this telephone conversation, where you actually spoke to Mr Horn about an add-back item to be described as a general expense allowance? A. Yes, we did discuss that. Q. When was the first time you can actually recall talking about an add-back item described as a general expense item? A. Sometime between late November and early December. Q. And did you tell Mr Horn what the amount was that ought to be stipulated for as the add-back for the general expense allowance? A. We agreed on the picture we built was a correct picture to put forward. Q. Did you tell Mr Horn what the amount was? A. No, I didn't. Q. Did Mr Horn tell you what the amount was? A. Yes, he did. Q. What did he tell you the amount was? A. I can't recall. Q. Was it $60,000? A. I think that's a good figure, yes, that's in my mind. Q. For the general expense allowance? A. I think so, yes. Q. When Mr Horn put that figure to you, did he explain how he got to it? A. At that moment, no. Q. Did you ask him how he got to it? A. I would have asked him some detail, yes. Q. Can you recall doing so? A. Yes. Q. You asked him to explain how he got to it, did you? A. Yes. Q. Did he tell you? A. Yes. Q. Can you tell us anything about the explanation he then gave? A. I can't recall. Q. Wasn't the general expense allowance that you and Mr Horn discussed stipulating for an amount of only $10,000? A. I can't recall. Q. Do you recall there being an add-back item described as general expense allowance for $10,000? A. No, I can't recall. Q. If there was an add-back item described in that way, namely, general expense allowance, can you currently explain to her Honour how it was derived? A. I can't explain that to your Honour. Q. We would have to ask Mr Horn for an explanation, would we? A. Mr Horn would be - probably has a better memory than I do. HER HONOUR Q. How would he know? How would he know what your general expense allowance was? A. Because we would have discussed it on the past and built a picture around it. 201 Mr Gower expressed the view that there should be no amount added back for general expenses. He identified the expense as one relating to telephone and travel reimbursements to Campbell. He expressed the opinion that the payment of such expenses of business executives is usual business practice. He considered it was reasonable to assume that such reimbursements would continue to be paid in the ordinary course of business. 202 Mr Russell expressed the view that $4,778 (and not $4,167, as included in the schedule) should be added back as a non-recurring expense. Mr Russell's conclusion was based on the instruction that the amount of $4,778 represented undocumented telephone and travel claims paid to Campbell. Mr Russell's reasoning to characterise this item as a non-recurring expense seems to have been based solely on the fact that Campbell had not provided any substantiation or supporting documentation for these claims. The sloppiness of Campbell's approach to these claims does not mean that they were not incurred for travel and telephone expenses. I understand that Mr Russell formed the view that such expenses, if unsubstantiated, should not be allowed, but on the methodology adopted it does not mean that such expenses (properly substantiated) would not recur. However, it seems to me that Mr Russell's approach to these particular amounts as properly added back should be preferred. Business expense allowance 203 Weeks gave evidence that he asked for information concerning how the business expense allowance estimate was arrived at in the Add-Backs document and that he never received it (tr 41). He agreed that he was "perfectly conscious" when he made the offer to purchase the share in the business, that the adjustments which had been given to him in the Add-Backs document were unsupported but that he took the decision to proceed in any event (tr 41). His evidence was that he asked Mr Horn about the business expense allowance and that he was advised that he could not give him any figures because it was Campbell's estimation. He gave the following evidence in cross-examination (tr 77). Q. You are a person who is experienced in matters of financial import. You get told by Mr Horn that it is Mr Campbell's estimation and you just keep quiet. You don't go and ask. Is that right? A. Yes, that's what I did. Q. That is an absurd suggestion, Mr Weeks, I put it to you, that you would let that just lie without asking Mr Campbell. What do you say about that? A. Well, I preface that by the fact that all of the financial discussions were with Mr Horn. I had been directed that all of those approaches should be made to Mr Horn. I had a number of conversations with Mr Horn about the add-backs, what comprised them, and I did, on at least one or more occasions, say that, you know, how can I support these? We then reached the point of, there isn't a lot of detailed support and then we initiated a conversation, and I think, taking Mr Hammerschlag's point, yes, there was concern so I then initiated a conversation of, well, I need some kind of comfort level. If I can't have an accounting comfort level or documentary comfort level, I need some other kind of comfort level and initiated the warranty discussion. 204 Campbell claimed in his evidence that Mr Horn advised him that he had "pulled some figures out" that he wanted to describe as a business expense allowance and wanted his confirmation that the figures would be an appropriate add-back. Campbell said that he had a recollection of having a discussion with Mr Horn about this matter in late November or early December 2004. Campbell's evidence was that Mr Horn suggested the figure of $60,000 to him as the business expense allowance with reference to his loan accounts. 205 Campbell's evidence in relation to his discussions with Weeks about a number of items in the add-backs document suffered from the same vacillation as his evidence in relation to Mr Eustace's adjustments, referred to earlier in this judgment. He gave evidence that Weeks "couldn't get his mind around the credit cards" (tr 419). He claimed that Weeks mentioned the credit cards and said that he was "glad" that a lot of those expenses were not going to reoccur in the future. He said "that was all really we discussed" (tr 419). He then said that Weeks was a "man of detail" and that he "might bring up a mistake", but that he did not say to him that there was expenditure that should not have been made (tr 419). This was in contrast to his earlier evidence in which he claimed that he would sit in his office with Weeks and "take down documents" from a shelf relating to credit card expenses and discuss them with Weeks. He claimed that on two or three occasions he went through the credit card expenses with him. It is very difficult to accept Campbell's evidence when he changes it in the way that I have described. 206 I accept that Mr Horn advised Campbell that he would need to be sure about the figures that were included in the Add Backs document. Campbell claimed that it was Mr Horn who provided the figures to him and that Mr Horn had "chosen to pull out of the past figures" a number of items and asked him if they were "acceptable figures" to give to Weeks as part of the sale of the business. Campbell suggested that it was Mr Horn who created the document and it would be better to ask Mr Horn about the items within it. 207 Mr Gower conducted a detailed review of all of the expenses posted in the Company's MYOB system for the five months to 30 November 2004. Mr Gower was unable to identify any payments amounting to $25,000 paid to Campbell which could be regarded as a "business" expense allowance. Mr Gower did identify "financing costs" amounting to $25,000 paid to Campbell in that period. Both Mr Gower and Mr Russell agreed that it would be incorrect to allow for an add back adjustment for $25,000 of 'financing costs' paid to Campbell, because it was not reflected as an expense in the warranted profit and loss statement. Mr Gower concluded that the expenses listed by Campbell largely reflected ordinary business expenses and were not appropriate to be characterised as non-recurring expenses required to be added back. 208 Mr Russell accepted that the $25,000 was a "business" allowance. He reviewed the amounts listed in Campbell's affidavit and whilst he was of the view that some of that expenditure would be likely to be recurring, the amount of $25,000 appeared conservative out of a total of $49,730. It is very difficult to assess the true nature of these amounts in light of the very unsatisfactory evidence given by Campbell. The experts each have reasoned views in light of this very unsatisfactory evidence. I am of the view that the better view is that these amounts would not recur in a more rigorous and disciplined business environment and thus were added back appropriately. Credit card reimbursement 209 Mr Horn gave evidence that when he had the meeting with Campbell on 9 December 2004, he made a note of an Add Back item of $60,000 as an entertainment allowance. The credit card reimbursement item in the Add Backs document of $65,000 reflects the figure of $60,000 as the entertainment allowance. Mr Horn could not recall how the additional $5,000 was included or the basis for it (tr 224). He gave evidence that he informed Weeks that the credit card reimbursement add-back was an amount payable in respect of certain expenses that would not recur and that it was supported by various accounting records of the Company including credit card statements and could be "easily verified" (tr 248). Campbell claimed that Mr Horn gave to him the figure for credit card reimbursements and that that figure came from credit card statements (tr 411). Although there was nothing in any of his statements or affidavits, Campbell claimed in his oral evidence that he went through his credit card details with Weeks on a number of occasions during the process of due diligence (tr 502). 210 Mr Gower reviewed the detailed credit card expenditure and made a judgment as to whether the items were "business" or "private" expenditure. He concluded that of $31,751 credit card expenses reflected in the warranted profit and loss statement, an amount of $19,207 should be categorised as private expenditure, thereby requiring add-back. Both Mr Gower and Mr Russell identified $8,770 credit card expenses not reflected in the warranted profit and loss statement and agreed that the appropriate add back for those expenses (because they related to private expenses) was $3,730. Mr Gower therefore concluded that the figure to be added back for credit card reimbursement as non-recurring expenses was $22,937. There is very little difference between Mr Gower and Mr Russell in relation to the required add back for credit card reimbursements. Mr Russell concluded that the amount to be added to the agreed $3,730 should be $21,991, amounting to $25,720. What is clear from the experts' evidence is that some part of the amount for this item should not have been added back, however it is not necessary to decide the specific amount because of the conclusion I have reached as to whether Campbell committed a breach in this instance. Was there a breach? 211 The document in Schedule 3 recorded that the add-backs were the "Proprietor's estimate" of the non-recurring expenses. The plaintiffs claim that Campbell breached the warranty in clause 10.2 of Schedule 1 of the Share Sale Agreement, because the estimate overstated the amount of non-recurring expenses. The plaintiffs pleading in relation to this breach is extracted earlier, and consistently with my ruling in relation to the net asset figure, I am satisfied that the Commercial List Statement and the Commercial List Response do permit the plaintiffs to claim that the breach of warranty is that Campbell knew that the estimate for non-recurring expenses was inaccurate, or incomplete and/or misleading. 212 The plaintiffs sought leave to amend the FAS to plead the existence of the additional warranty, that Campbell had made due and careful enquiry as to the accuracy and completeness of the estimates of the non-recurring expenses, and due and careful enquiry that the estimates were not misleading, and that he breached that warranty. The questions that were objected to tr., 406-407, extracted earlier, were of course questions about these very estimates. In cross-examination Campbell agreed that it was important to be very careful about the "confirmation" of the add-backs (tr 407); and that in December 2004 he was ensuring to make sure that the entry for the obsolete inventories was properly described (tr 408). In their final written submissions (18 December 2006), the plaintiffs submitted that there is no reliable evidence of any detailed calculations being undertaken to prepare the Add-Backs document and that such estimates were really "guesstimates". That may well be the case, but the trial was not conducted on the basis of the existence of this "additional" warranty. The breach pleaded was a breach of clause 10.2 and as I have said earlier, an essential element of such a breach is proof of Campbell's knowledge that the estimates were not accurate or complete and that they were misleading. If the "additional" warranty had been pleaded, then the plaintiffs would only have had to prove that Campbell did not make due and careful enquiry that the estimates were accurate, complete and not misleading. This would perhaps have been a lesser burden on the plaintiffs than having to prove Campbell's knowledge that the estimates were not accurate or complete and that they were misleading. The "additional" warranty was not pleaded. I am not satisfied that the manner in which the trial was conducted justifies an amendment to the pleading at this late stage. I refuse the plaintiffs' application to amend the FAS. 213 The question for decision in relation to the estimates of the add-backs or non-recurring expenses is whether the plaintiffs have proved Campbell breached clause 10.2, that is, whether the plaintiffs have proved that Campbell knew that the estimates in the add-backs document were inaccurate, incomplete and/or misleading. 214 The defendants submitted that the plaintiffs' claims that the add-backs were unjustified if they related to general business expenses or operating expenses of the Company, was misconceived. It was submitted that the "notion is not that the add backs were unrelated to the business of the company but that they would not recur under different management" or, put another way, 'normalisation adjustments' needed to be carried out on the accounts of the Company "to reflect expenses and other adjustments that would not occur under a different management". The defendants supported this submission with the following evidence of Mr Horn and Campbell: Mr Horn (tr 185 and 188) Q. After you got the accounts from Mr Campbell in early December what did you say? A. Oh, we need to discuss those accounts and we need to, sort of, identify where there are non recurring items of expenditure, expenses that are not likely to be in place with the new purchaser in the business going forward. … Q. Do you now have any recollection of any calculation that Mr Campbell did with reference to the credit card statements in his file that you were shown? A. I recall that it was discussed that there were certain expenditure that had been incurred that would not recur in the next period with a new purchaser. Campbell (tr 405) Q. Mr Horn raised the matter with you, did he? A. He did. Q. What did he say? A. He said these figures were showing in this build up. You know, once Tim is a 50 per cent shareholder, that needs to cease and I said, of course. Q. Did you talk about whether that should be an add-back? A. Yes, we would have talk[ed] about that, that's correct. Q. What did you say? Q. My only recollection of the discussion was when he said that and I agreed that they should all cease, he said okay, we can use those as an add-back which are not a re- a non-recurring expense to the company. 215 In my view this evidence does not support a finding that the plaintiffs' approach is misconceived. The process of removing expenses from the Company's books, thus increasing the profit of the Company, is not done simply on the basis of different styles of management or some subjective whimsical fiat. It must have a proper basis and I have no doubt that the basis upon which Mr Horn and Campbell intended to remove expenses, was that they were able to be justified as proper expenses of the business and thus would not recur under the new management. 216 Mr Horn agreed that Campbell did not give him any detail of the components of the $60,000 business expense, other than an advertising component (tr 225). In fact it appeared to me that the discussions that Mr Horn had with Campbell in relation to the add-backs were very much dependant upon Campbell giving Mr Horn very general information without supporting documentation. Of course, Campbell claimed that it was Mr Horn who came up with the figures rather than himself. 217 The warranted items were said to be the "Proprietor's estimate of non-recurring expenses for the 5 months ended 30/11/04". The defendants submitted that if one takes all of the matters raised by Mr Gower in the plaintiffs' favour, the difference between the parties as to what was permissible as add-backs is $35,162. An "estimate" is "an approximate calculation or judgment of the value, number, quantity, or extent of something": The New Oxford Dictionary of English, Clarendon Press, Oxford, 1998. The add backs were warranted as Campbell's judgment of the value of the non-recurring expenses. There is an added difficulty for the plaintiffs. An "estimate" is not appropriately characterised as "complete". An approximation may be appropriately characterised as "accurate" or "misleading" but that would depend upon the circumstances of each case. In this case, the experts have endeavoured to express their opinions as to whether certain of the expenses should not have been added back. The experts' opinions have been described earlier and it can be seen that the divergence between them is not great. 218 The evidence establishes that Campbell made the estimates in a less than disciplined manner, but that does not equate to knowledge that the estimates were inaccurate or incomplete and/or misleading. Campbell's evidence in relation to the preparation of these estimates was unsatisfactory in the respects identified above, but I am not satisfied that the plaintiffs have discharged the onus of proving that Campbell knew the estimates were inaccurate or incomplete and/or misleading. The plaintiffs' claim that Campbell breached the warranty in clause 10.2 in relation to the add-backs fails. Remedy 219 The plaintiffs have proved that Campbell: (1) breached the warranty in clause 3.1(a) and clauses 10.1 and 10.2 of Schedule 1 of the Share Sale Agreement in that the Company did have a liability $12,360 greater than that disclosed for trade creditors; (2) breached the warranty in clause 3.1(a) of Schedule 1 of the Share Sale Agreement in that the Company did have a liability of $3,760, which was not disclosed; and (3) breached the warranty in clause 10.2 of Schedule 1 in that he knew that the information in Schedule 3 was inaccurate by recording the adjusted net assets as $210,856.89, instead of $148,326.10. 220 I have decided that the most appropriate relief in this case is that Campbell must purchase Backoffice's share in the Company. As I have said, I do not regard it as appropriate to allow Weeks and Backoffice to rely upon the Share Sale Agreement to obtain damages for breaches of warranties, when an order is to be made for the purchase of the share the subject of the Share Sale Agreement. It is therefore not necessary to deal with this aspect of the matter further. BREACH OF SERVICES AGREEMENT 221 The Services Agreement was between the Company and Backoffice. Backoffice was entitled to a "Fee" of $150,000, plus GST per annum "in consideration of providing the services". Backoffice agreed to procure Weeks to provide the services of Joint Managing Director. It was also agreed that the Company would provide to Weeks a fully maintained motor vehicle, including finance lease payments. The plaintiffs' claim, as contained in paragraphs 30 to 32 of the FAS, is that the Company failed to make the payments to which Backoffice/Weeks were entitled under the Services Agreement. Mr Hammarschlag submitted that this claim lies only against the Company that is in provisional liquidation and does not affect the other defendants. It was submitted that it was Weeks' own conduct in moving for the appointment of a provisional liquidator that has placed the Company in a position of being unable to meet the claim. 222 Mr Simpkins conceded that the plaintiffs do not seek any relief against the Company in respect of this claim. Although I granted leave to proceed against the Company, such leave was limited to the validation under s 468 of the Act, if the plaintiffs obtained an order in the oppression suit for purchase of Backoffice's share in the Company. 223 The plaintiffs claimed and the defendants admitted that both the Shareholders Agreement and the Share Sale Agreement contained the implied terms that: (a) the parties to the respective agreements would do all such things on their part to enable the other party to have the benefit of the agreement; and (b) neither party would act in a manner calculated to deprive the other party of the benefit of the agreements (implied duty to co-operate). There is no claim in the FAS that the Services Agreement contained an implied duty to co-operate. There is no express reference to the Services Agreement in the body of the Shareholders Agreements. However, the Services Agreements are contained in Schedule 5 to the Shareholders Agreement. Clause 6.1 of the Shareholders Agreement provides that: "Campbell and Weeks, as Joint Managing Directors, shall have the day-to-day conduct and management of the Business and the Company". 224 The plaintiffs' claim is that Campbell breached his implied duty to co-operate with Weeks in the management of the business as Joint Managing Director, one aspect of which was his refusal to make payments to Backoffice under the Services Agreement. It is alleged that such refusal had the effect of depriving Backoffice and Weeks of all the benefits under the Shareholders Agreement that included the benefits under the Services Agreement. 225 Backoffice made a number of claims for payment of the Fee, the first of which was in late January 2005 and sparked the decline in the relationship between Weeks and Campbell. Campbell refused to pay Weeks any amounts other than the amount for the laptop computer, which he said he would "concede". In the meantime Campbell and Sentinel were receiving payments from the Company, although the evidence in relation to the specific amounts received is lacking precision. Campbell admitted that in February and March 2005, Sentinel received payment from the Company (tr 412-413). He agreed that in the period January 2005 to the time the provisional liquidator was appointed, Sentinel received "$6,000 something" (tr 413). The following rather telling evidence was given by Campbell in cross-examination (tr 413): Q. You were seeking to convey, weren't you, in your various discussions with Mr Weeks, where he was making complaint about payments that you weren't being able to take any money out of the business either. Is that right? A. Yes, we had – well, as you said, there was a dispute at the end of 4 days, 5 days after he started, and being such a small business, everybody realised what was going on and there were claims for what everybody knew was not legitimate. And if I'd have drawn money or co-signed cheques for both of us, it would mean $30,000 to $40,000 in total of any expenditure within 4 or 5 days of Mr Weeks joining the company and paying his money, and the staff would have, we would have had two resignations immediately. 226 This evidence clearly suggests that one reason Campbell did not pay Weeks was because he was concerned that he may have had two resignations on his hands, one of which he admitted was Ms Hunt (tr 446). It is obvious that Ms Hunt was quite dissatisfied at the prospect that Weeks' January 2005 invoices might be paid. Her email to Mr Horn dated 1 February 2005 extracted earlier refers to Weeks' lack of enquiry as to whether she had been paid or whether he could do anything to help, followed immediately by the statement: "Yet, since starting I have received two invoices from him … ". The friction between Ms Hunt and Weeks was not handled well by anyone. It is obvious that Ms Hunt's dislike for Weeks had an adverse impact on Campbell's capacity to deal with the matter maturely and fairly when it came to Backoffice's/Weeks' entitlements. I am satisfied that Campbell let the relationship with Ms Hunt take precedence over a proper and businesslike relationship with Weeks. The prospect of Ms Hunt resigning should not have formed any basis of Campbell's refusal to pay Backoffice its entitlement. 227 Mr Horn's sensible suggestion in his email to Campbell on 3 February 2005 of a compromise in relation to Weeks' January 2005 invoices was met with a rather churlish response from Campbell. Rather than focusing properly on the Company's obligations under the Services Agreement with Backoffice, Campbell claimed that the "people around us work here because they enjoy being here and feel equally important", with the emphasis "furthermore so they should". After suggesting that Weeks was not a "super contributor", Campbell fell into the rather emotional language that Ms Hunt had deployed in her email to Mr Horn two days earlier, with the conclusion: "he wants us all to believe that he is God's gift to HW very existence and future progress!". 228 Campbell seems to have been blinkered to the reality that Backoffice had just paid $850,000 for a 50% shareholding in the Company and that it and Weeks expected and were entitled to be treated with some semblance of commercial courtesy. There was no proper basis for not paying to Backoffice the amount claimed at the very least in the amended January 2005 invoice, and I do not accept Campbell's suggestions that he did not make the payments because he regarded Weeks as having failed to perform his duties. Campbell's evidence in relation to the payments during the period January to April 2005 included the following (tr 413): Q. Isn't what you were telling Mr Weeks, when this dispute started to emerge, that both you and he were being put under financial pressure because there wasn't enough money to go around? A. Not at all. No, that's not correct. 229 That evidence is totally inconsistent with the tenor of Campbell's email of 6 February 2005 to Weeks in which he suggested a reduction in directors' fees and a restraint on further extraordinary or abnormal expenditure to accommodate the "strain on the Company's financial resources" and the need to avoid "future financial hardship". It is also at odds with his later evidence as follows (tr 413-415): Q. Didn't you tell Mr Weeks that you weren't being paid either? A. Yes, I did. Q. Didn't you tell Mr Weeks that you were under financial pressure as well? A. I would have said to Mr Weeks that I don't think we can afford to pay each other at the moment. There's $120,000 worth of collectables, let's get our noses to the grindstone and help the girls collect this. Because it is traditionally a low period when people weren't paying their bills. Q. Didn't you tell Mr Weeks that you were under financial pressure as well? A. I would have mentioned something like that, yes, correct. … Q. Was it the fact that you were under financial pressure in February or March 2005? A. No. Q. Was it the fact that you and your company weren't getting the amounts that you/they were entitled to in Healthy Water, in February and March 2005? A. Yes, it is. Q. What are the amounts you say you were entitled to and didn't get paid in those months? A. Well, the amounts of the service agreement tallied up to around about $15,000 including, and this is the best of my remembering, it meant that we would be paying each other over $30,000 in total and we needed to work hard to be able to do that, and that wasn't happening. The simplest of tasks were being either avoided or not been carried out by Mr Weeks and that was only one of the things that was happening at that particular time. Q. You were still paying yourself, weren't you, in late January and February 2005, a wage? A. No, sir, I didn't. Q. Didn't you receive an amount of $2307.69 on 18 February 2005 as your wage or salary? A. Yes, that would be right. Q. Didn't your company, Sentinel, receive an amount of $6,250 on 24 February 2005? A. I know that Sentinel had received money, yes. … Q. Didn't you have superannuation payments made for you by Healthy Water on 18 February 2005? A. It might have gone through the wages at that stage, yes. 230 Campbell then agreed that he also received payments for fuel and a motor vehicle lease. He claimed that the amount that he was being paid was to "run the business, in the absence of Mr Weeks" and that the payments were "agreed to in the letter of compromise" dated 6 February 2005 (tr 415). I do not accept that Weeks agreed to the contents of the letter of 6 February 2005, but in any event, even if that had been agreed to, the Company had an obligation to pay Weeks pursuant to the letter and did not do so. I accept Weeks' evidence that Campbell instructed Ms Hunt not to give documents to him, and I also accept Weeks' evidence that Campbell instructed Mr Horn to "get him out of here". 231 I am satisfied that Campbell caused the Company to fail to make the payments to Backoffice and that there was no proper basis for refusing to make those payments. One of the "benefits" to Backoffice of the Shareholders Agreement was the payment of the Fee it was entitled to for the provision of Weeks as Joint Managing Director in the Services Agreement attached to the Shareholders Agreement. Campbell was obliged to co-operate with Weeks and/or Backoffice to ensure that the Backoffice invoices were paid by the Company. Campbell breached the implied term of the duty of co-operation by failing to cause the Company to pay the Backoffice invoices. 232 The plaintiffs claimed an entitlement to damages for the whole of the term of the Services Agreement. If damages were to be awarded for this breach by Campbell I am satisfied that they should be limited to the total amount of the invoices rendered by Backoffice up to the time of the appointment of the provisional liquidator as pleaded in the Commercial List Statement, except that the amount for the January 2005 invoice would be the amount in the amended invoice. However I am satisfied that such an award is inappropriate in the circumstances of this case. 233 This is not a claim against the Company, the party to the Services Agreement. The plaintiffs 'got around' the problem of the Company being in provisional liquidation by the rather clever pleading that Campbell breached the implied obligation of co-operation in the Share Sale Agreement and the Shareholders Agreement. In the oppression suit the plaintiffs have achieved the remedy under s 233 of the Act with the fixation of the "fair price" of the share as at 24 January 2005. As I have said earlier Mr Russell's "potential" valuation approach took into account the budget for the Company during the period January to June 2005, part of the period for which the plaintiffs claim damages for Campbell's breach of the implied duty to co-operate. Although the budget was not "verified" by Mr Russell in the "potential" valuation approach the new and identified customers were an integral part of that budget. Those customers could only have been secured and retained by the joint efforts of Campbell and Weeks/Backoffice. In the earlier section of this judgment dealing with the remedy for oppression, I have recorded my conclusions about the capacity for the growth of the Company by reason of the business and commercial attributes of both Campbell and Weeks. Those conclusions were part of the justification for adopting Mr Russell's "potential" valuation approach and took into account the work that would have been provided by Weeks/Backoffice in the period January to June 2005. In those circumstances I am satisfied that it is not appropriate to compensate the plaintiff for any additional amount for the breach of the implied duty to co-operate. To do so would be to overcompensate the plaintiff. MISLEADING OR DECEPTIVE CONDUCT The Add Backs 234 The first document in relation to which the plaintiffs bring an action for breach of the Fair Trading Act 1987 by Campbell, is the Add-Back document. It is alleged that the provision of that document to Weeks was a representation that the Company had incurred non-recurring expenses of $96,100 for the five months ending 30 November 2004. It is alleged that the document contained false and/or misleading and deceptive information. In this regard the plaintiffs repeated the claims made about this document that were made in the breach of warranty claims. It must be remembered that this document was understood by Weeks to be Campbell's "estimation, you know, plus or minus a few thousand dollars" (tr 55). The evidence clearly establishes that at the time of the delivery of the document and subsequently, Mr Horn advised Weeks that they were Campbell's estimates. The representation as pleaded is not in terms of an estimation of this kind but rather of a firm statement of incursion of that specific amount. I am not satisfied that the representation as pleaded was made. However even assuming for the purposes of this analysis that the representation as pleaded was made, the plaintiffs have further difficulties. 235 In written submissions (27 November 2006), the plaintiffs submitted that they are not precluded from seeking relief in relation to this representation by reason of its "inclusion in the Share Sale Agreement as a contractual warranty". In support of this submission, the plaintiffs relied upon Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, a case in which three particular warranties had been made in a written contract as to the sole beneficial ownership of copyright in a certain accounting product, the entitlement to assign it and the absence of any claims in relation to that copyright. The primary judge was asked to answer the question as to whether the giving of the warranties, or any of them was, as a matter of law, capable of constituting misleading conduct within the meaning of s 52 of the Trade Practices Act 1974. The primary judge answered that question in the affirmative. That answer was held to be correct (Lockhart and Gummow JJ, Northrop J dissenting). The allegation was that the relevant "conduct" that was misleading or deceptive was the making of the contract itself and not any conduct that had occurred before the contract was made (Per Northrop J (dissenting) at 492). 236 The present case is quite different. Here the plaintiffs do not claim that the contractual warranties given by Campbell in the Share Sale Agreement were misleading or deceptive in breach of the Fair Trading Act 1987. They claim that the representation alleged to have been made by Campbell before entry into the Share Sale Agreement was misleading or deceptive. Here the defendants claim that there was no reliance upon the representation made before entry into the Share Sale Agreement by reason of Weeks' conduct in abandoning his quest for supporting information in relation to the Add Backs in exchange for the warranties. It depends very much on the evidence given by Weeks as to whether there was reliance upon the alleged representation. Some of this evidence is extracted earlier but it is appropriate to repeat it here in this context. It included the following (tr 50-51, 55 and 77): (tr 50-51) Q. By this time [the making of the amended offer on 16 December 2004] you tell her Honour you still had obtained no satisfaction with respect to the verification of the estimates of general expense allowance and business expense allowance in the 9 December document at page 614 of the bundle, correct? A. Yes, yes, it wasn't that I had no satisfaction, I had accepted the fact that it was going to be forth coming and we then had a discussion that in the absence of supporting documents there needed to be some kind of guarantee, warranty. I said, you know, clearly if you can't substantiate these numbers then I need some kind of you know, support, confidence that they are correct. Q. To just summarise your position Mr Weeks, the position was you couldn't get satisfaction, correct? A. Yes. Q. And what you agreed to do is to abandon the quest to be satisfied and take something in the contract to give you that satisfaction? A. Yes, that was Mr Horn's suggestion. (tr 57) Q. You were perfectly conscious, when you received schedule 3, that it contained nothing more than an estimation, correct? A. I was aware that it was an estimation simply because it was in round numbers. … Q. What I am putting to you is, you at the time understood it was an estimation, you tell her Honour that you couldn't satisfy yourself as to it and what you took to satisfy yourself was the protection you thought you were getting in this warranty? A. Yes. Q. And therefore it mattered not, to you, the extent to which the estimation would be out because you got what you believed was a warranty covering your situation, correct? A. Well, I didn't believe it to be out. Q. It didn't matter to you whether it was or it wasn't, because you were getting your warranty? A. No, I think it did matter to me, because it had a significant bearing. I mean, it represented more than 50 per cent of the profitability of the company. Q. You told her Honour you couldn't verify it and you made a decision, based on the proposition that you were getting a warranty, that what you were going to do was rely on the warranty; correct? A. Yes, I was prepared to accept that the non-recurring expenses, which I wasn't able to verify, were as warranted and that was important because it represented more than 50 per cent of the profitability of the company upon which I was basing the purchase price. (tr 77) Q. You say you asked Mr Horn about the business expense allowance? A. Yes. Q. You say Mr Horn said: Well, look I can't give you any figures; it is Doug Campbell's estimation? A. Words to that effect. I don't think those were the exact words, but yes. Q. You never went and asked Mr Campbell, on your evidence. You asked him nothing about it? A. Correct. Q. You are a person who is experienced in matters of financial import. You get told by Mr Horn that it is Mr Campbell's estimation and you keep quiet. You don't go and ask. Is that right? A. Yes, that's what I did. Q. That is an absurd suggestion, Mr Weeks, I put it to you, that you would let that just lie without asking Mr Campbell. What do you say about that? A. Well, I preface that by the fact that all of the financial discussions were with Mr Horn. I had been directed that all of those approaches should be made to Mr Horn. I had a number of conversations with Mr Horn about the add-backs, what comprised them, and I did, on at least one or more occasions, say that, you know, how can I support these? We then reached the point of, there isn't a lot of detailed support and then we initiated a conversation, and I think, taking Mr Hammerschlag's point, yes there was concern so I then initiated a conversation of, well, I need some kind of comfort level. If can't have an accounting comfort level or documentary comfort level, I need some other kind of comfort level and initiated the warranty discussion. 237 I am satisfied that Weeks was, as he said, "concerned" about these estimates. He did not rely upon them but went about trying to obtain documentary support for them. When that proved futile he decided that rather than rely upon them, he would rely upon a statement of warranty by Campbell in the Share Sale Agreement. This is a different situation to that discussed in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd. Here, at least on Weeks' evidence, there was a clear indication that he could not rely upon the figures represented before contract, because there was no supporting documentation. That is why Weeks abandoned his quest to arrive at a conclusion that he could rely upon them and opted instead for the contractual warranty. 238 I have referred to Weeks' evidence in relation to the way in which he structured his offer to purchase the share in the Company in the section of this judgment below dealing with the Sales Revenue Report. The observations I have made in relation to that offer apply equally to this alleged representation. Weeks did not rely upon these estimates. He structured his offer to ensure that if the estimates turned out to be wrong, he was, as he put it, "protected" from having to pay an extra $300,000 to Campbell by way of performance bonus. The Sales Revenue Report 239 The plaintiffs' claim also relates to the estimates in the Sales Revenue Report of sales revenue for December 2004 of $100,000 and the EBIT for December 2004 of $37,500. It is claimed that those estimates were express representations that they were a reliable prediction of the sales revenue and profit that would be achieved by the Company and were suitable to be used for the purpose of estimating the value of the Company. It is further alleged that the estimates in the Sales Revenue Report amounted to implied representations that: there was no information known to Campbell which was material to the accuracy of the estimates which tended to show they were false, misleading or deceptive; the Company would achieve those estimates; and that there was a reasonable basis for the belief that the estimates would be achieved. It is claimed that the representations should be implied on the basis that the Company's financial records were in the control of Campbell; that Campbell was aware that Backoffice was relying upon him to provide it with all financial information regarding the Company that was material to the purchase of a share in the Company; and that Campbell was aware that Backoffice was relying on the December 2004 estimates in the Sales Revenue Report when determining what price to offer for the share in the Company. It is alleged that the estimates overstated the sales revenue by $7,147 and the EBIT for December 2004 by approximately $25,000. 240 The Sales Revenue Report (at Court Book 615) was prepared by Mr Horn and included the following: 5 Mths. Est. 6Mths. Est. Est. 6 Mths. 12 Mths. 30/11/04 Dec. 31/12/04 30/06/05 30/06/05 $ $ $ $ $ Sales Revenue New business sales 52,410 12,954 65,364 300,000 365,364 Existing business sales 44,427 10,984 55,411 70,000 125,411 Shop/mail – out sales 3,111 768 3,879 7,500 11,379 Filter service income 253,954 62,768 316,722 330,000 646,722 Installations/ systems 1,735 429 2,164 7,500 9,664 Rentals 19,171 4,738 23,909 25,000 48,909 Parts (miscell.) 544 134 678 2,000 2,678 Relocation of systems 7,337 1,814 9,151 12,000 21,151 Urgent customer call –outs 21,354 5278 26,632 30,000 56,632 Freight recovered 539 133 672 1,000 1,672 352,172 87,046 439,218 485,000 924,218 $ 404,582 100,000 504,582 785,000 1,289,582 New Business Sales Order Book Gloria Jean 80,000 Hilton 40,000 David Jones 30,000 Energy Australia 20,000 AAPT (Bendigo) 20,000 Invocare 20,000 KPMG 20,000 230,000 General new business 70,000 $300,000 Sales December to date/10.12.04 $67,000 Operating results EBIT (as per Management Accounts) 67,490 Add, Non- recurring expenses Obsolete stocks 2,600 Consulting fees 16,000 DC 77,500 EBIT (Adjusted) $ 163,590 37,500 201,090 312,000 513,090 EBIT/Sales % 40.43 37.50 39.85 39.75 39.79 241 Although Mr Horn swore two affidavits (9 May 2005 and 7 June 2006), he did not give evidence as to the way in which the Sales Revenue Report was prepared. It was only in cross-examination that he described its preparation. In his meeting with Campbell on 9 December 2004, Mr Horn made a note that the sales that had been processed for that month amounted to $67,000 as at 10 December. Mr Horn was cross-examined as follows (tr 230): Q. Where did you get the information that you have included in the column EST December at courtbook page 615? A. We had the estimate of $100,00 sales for the month which was supported by 67,000 as sales that were in the bag and 100,000 was then basically applied on a pro rata basis on the five months to 30th November. We had no way of determining the allocation of that 100,000 in that degree of detail. It was just an effort to sort of allocate it on a pro rata basis, but the key number was of course the $100,000 for the month. Q. Well, for example, for the item described as existing business sales $10,984, that is not a number that you were given by Mr Campbell. Is that what you're telling me? A. Yes. Q. It was a number deduced by you? A. Yes, I basically used the $100,000 for the total sales for the month and then allocated that on the basis of the history to the five months. Q. Well, did you ask Mr Campbell in the relation to the estimate of $100,000 for December 2004 whether he agreed with the allocation that you had made of those sales over the various line items one sees at court book page 615? A. No. Q. I think you told me a moment ago that you were uncertain whether you showed this document to Mr Campbell before you gave it to Mr Weeks, but it is clear, isn't it, that you did at some stage speak to Mr Campbell about it? A. Yes. Q. And may I take it its also clear that at some stage you actually made sure that Mr Campbell was given a copy of it? A. I believe he would have received a copy of it subsequently, yeah. Q. Does that mean you have a recollection of giving him a copy? A. I don't have a recollection but it's my practice to provide copies. Q. Did you ever have any discussion with Mr Campbell about whether the allocation of the sales revenue over the various line items appearing at court book page 615 for December 2004 were in accordance with what he actually expected would happen? A. No. Q. And, for example, in relation to the figure that you have included for existing business sales for that month $10,984, other than telling me that that's some kind of pro rata that you included, is it correct to understand you have no basis yourself for thinking when you produced this document on about 9 December 2004 that a reasonable estimate for existing business sales for December 2004 was actually $10,984? A. That's correct. Q. Well, didn't it occur to you that it might be a bit misleading to actually suggest this degree of fine attention to an estimate in a document you're about to give Mr Weeks? A. No. Q. Did you understand from your discussions with Mr Campbell how the estimate of $100,000 for December 2004 had been derived? A. Yes. Q. That was something you discussed with him at the meeting on 9 December 2004? A. That's correct. Q. You asked him, did you, what he estimated the results for December 2004 would be? A. Yes. … Q. What did you ask him? A. I asked him what his best estimate of the sales for December 2004 were after noting that he had $67,000 already recorded. Q. Well, that $67,000 already recorded is for the period 1 July through to 10 December 2004? A. No, 67,000 related from 1st December to about 10th December. Q. I see. So the way to read the document at court book page 615 when it says "Sales December to date/10.12.04" is that the actual sales in December for the first 10 days were $67,000? A. That's correct. Q. According to Mr Campbell? A. According to the computer system and Mr Campbell's reference to installations being carried out and invoices to be processed. Q. There's information provided at this stage, court book page 615, for operating results with an EBIT figure described as per management accounts of $67,490. Do you see that? A. Yes. Q. And you say, do you, that that is intended to reflect the EBIT for December 2004? A. No. Q. Is that intended to reflect the EBIT for the five months through to 30 November 2004? A. That's correct. … Q. And an adjusted EBIT of $163,590. Again may I take it that is for the period five months through to 30 November 2004? A. Correct. Q. Now, in relation to the estimate for December 2004 at this same page of the Court book, page 615, there is an EBIT described as an adjusted EBIT of $37,500? A. That's correct. Q. That's a figure, is it, Mr Campbell gave to you? A. No. Q. Is it a figure that you deduced? A. Yes. Q. By what process did you deduce it? A. From the first column we had an EBIT adjustment of 163,590 and that provided a ratio of EBIT to sales of 40.43 percent, and to be conservative for the month of December, just for the purposes of providing an estimate, we used 37.5 percent so that we could arrive an estimate for the six months to December '04 and then bring in the next six months to 30th June '05 with the new business et cetera. HER HONOUR: Q. Just so I understand what you've done here, on page 615 your estimates that you placed for December are not real estimates, are they. They're just filling in a column starting with 100,000 and working backwards with the column five months to 30th November. Is that right? A. Yes, that's right. It's the sales -- Q. Just tell me if that's right? A. That's correct, yeah. Q. So there is no real suggestion that there was a proper estimate made for filter service income for the month of December? A. No. Q. That would be rather a quiet month for filter service, I presume, in this business, would it? A. Not necessarily. I think with the Christmas period - a lot of the business actually was commercial. It was sort of whole of buildings. As you can see on the schedule there, the type of clients were Gloria Jeans, Hilton Hotels, David Jones. Q. But in December? A. In December it reflects the same type of commercial work really. … Q. The filter service income for the five months is 253,000 odd? A. That's right. Q. That works out at about 50,000 a month? A. Right. Q. But you've increased it to 62,000 a month for December. Do you see that? A. Yes, I do. Q. Now that $12,000 increase in December is not really a true reflection of what was estimated, but merely a pro rata of taking 253, dividing it by 404, getting a percentage and multiplying it by 100. That's all you did, isn't it? A. No, to arrive at the 62,000 it was - yeah, of the 404. You're quite correct. Q. That's all you did, isn't it; to divide 253 over 404 odd and multiply it by 100? A. Yes. Q. So that was just a mathematical calculation? A. Yes, that's correct. 242 What Mr Horn did in estimating the individual line items for December 2004 in the Sales Revenue Report was to feed into the estimate for the particular line item a pro rata figure that reflected the performance in respect of each line item in the previous five months. For instance, the existing business sales between 1 July 2004 and 30 November 2004 were recorded as $44,427. That figure was 10.98% of $404,582, the total sales revenue for the period. In recording the estimated figure for the existing business sales for December 2004, Mr Horn calculated 10.98% of $100,000 and allocated $10,984 as the estimate. The same method of calculation was applied to each of the line items for the month of December 2004. 243 Campbell's evidence in relation to the content of the Sales Revenue Report included the following (tr 348): Q. You remember that, do you, that there is customer resistance to closing deals in December 2004? A. Yes, I do, historically. Q. For that reason, may I take it in providing an estimate of sales for December 2004, if that was to be done reasonably, one would have to be conservative about the prospect of such sales happening in December 2004? A. You have to be conservative, particularly in the situation we were in at the time, yes. Q. When you refer to the particular situation you were in, what do you mean? A. The fact that we were selling, or I was selling, 50 percent of my shares in Healthy Water to Mr Weeks. Q. You regarded it as being appropriate, did you, in making estimates for December 2004 to be particularly prudent in-- A. Yes. Q. -- in estimation? A. Yes. 244 Campbell gave evidence that in the estimate of $100,000 for December, he included an amount of between $2,000 and $5,000 based on conversations with people at Christmas parties in which he had been informed that things were "busy at the moment" but that a decision to buy a new water system was imminent (tr 349). When Campbell was asked to identify the particular "friends" with whom he had such conversation at these parties, he said that he really could not recall, but that they were people that he had known for a long time (tr 350). Campbell gave evidence as to how the difference between $67,000 and $100,000 was reached. He gave evidence about analysing the profit and loss accounts, Ms Hanna's schedule, his own list of customer negotiations and urgent call-outs for the historical period, in order to see what had happened over the last couple of years in the statutory profit and loss accounts. He said that he then looked at what could potentially happen in early December and the end of December and made an allowance for urgent call outs which consisted of a call out fee, same day call out fee, parts, labour and perhaps replacement of equipment (tr 351). Mr Horn's evidence was that Campbell did not explain in any detail at all how he estimated a balance of $37,000 for the rest of December, after the sales of $67,000 (tr 234). 245 Campbell's evidence as to how he reached the estimate was less than satisfactory. However, when it came to describing how the estimates were reached in each line item for the month of December 2004, Campbell's evidence was totally at odds with Mr Horn's evidence. That evidence was as follows (tr 380-383): Q. In the column headed "EST DEC", do you see that, it is the second column? A. EST December? Q. Yes? A. Yes Q. That was a column that you spoke to, was it, at this meeting attended by yourself, Mr Horn and Mr Weeks? A. Yes. Q. Now do you see that in that column the first figure which is included is one for new business sales, $12,954? A. Yes. Q. That's a figure that you gave to Mr Horn, is it? A. That's a figure that we were discussing, yes. Q. That's a figure that you gave to Mr Horn, is it? A. Yes. Q. You can recall doing that, can you? A. I can now by looking at it, yes. Q. What about each of the other figures in this column. Just look at them, take a moment to reflect on what they are? A. Yes. Q. Is it your evidence to her Honour that in relation to each of the items for which a figure is included in the "Estimate December" column, you gave that figure to Mr Horn? A. Those figures were what we discussed and Mr Horn would have them, yes. Q. Is it your evidence to her Honour that each of those figures in that column you gave to Mr Horn? A. Yes. Q. And you gave them to Mr Horn, did you, at some meeting you and he had prior to this document at court book volume 2 page 615 being provided to Mr Weeks? A. It would have been on a phone call. I recall now we discussed these figures on the phone call before we had the meeting with Tim Weeks. Q. Where did you get the new business sale figure of $12,954 from? A. 12,954, it would have been from the small - some of the smaller accounts I mentioned earlier on and some of the other accounts that might have happened at the time, yes. Q. You are telling us, are you, what you actually recall doing? A. Pretty much I can, yes. Q. And you can recall, can you, in the course of a telephone conversation with Mr Horn looking at information available to you for new business sales, is that right? A. Mm hmm. Q. Did you, during the course of this telephone conversation with Mr Horn, tell him to write in the document that he was to prepare an estimate for new business sales for December 2004 of $12,954? A. Yes. Q. And just explain to me what your process was in formulating that figure for Mr Horn? A. Okay. New business sales is derived from what you think either it's going to end up at or its going to be for the period of December; 31st of December. Q. Well, it's a very precise looking figure. Did you engage in some process of calculation, did you, to derive it? A. I would have been looking at the figures on the P & L and at that time they were the figures that I felt were going to happen. Q. Does that mean that there was a calculation? A. Well, sometimes what happens, if I may add, is that you move – the figures are moved around in the income streams. Q. Mr Campbell, it is easy, I think, did you or did you not do a calculation to derive the new business sales figure of $12,954? A. Yes. Q. What was the calculation? A. Based on what had already been sold to that date, and also what I felt was going to sell from there on end. Q. So ultimately it was just an estimate for December? A. Yes, it was. Q. But one that you instructed Mr Horn to include in the precise amount of $12,954? A. The $12,954 is what it ended up, but there would have been discussion around that figure and how it was derived. Q. Mr Campbell, the difficulty we are having at the moment – and maybe you can assist – is if the new business sales figure was just an estimate, can you explain, please, why it was included in the very precise amount of $12,954? A. No, I can't. Q. And isn't it the fact that none of these figures that appear in this column "Estimate December" at court book volume 2 page 615 were figures that you gave to Mr Horn, none of them? A. I don't agree with that. Q. And isn't the evidence that you have just given this afternoon that you instructed Mr Horn to include these figures something that you have just made up? A. No, I don't agree with that either. There are two figures there in the total. Q. Sorry, you say there are two figures there in the total. What figures are you referring to? A. There is $87,046. Q. Yes. A. And then there is the $100,000. HER HONOUR Q. Yes, but if you add 12,954 and 87,046 you get 100; don't you? A. Correct. Q. You told her Honour earlier today that your estimate for the new business was a figure that you couldn't recall, but was something like two to five thousand dollars? A. Correct. Q. That estimate of two to five thousand is included, is it, in the figure given for new business sales of $12,954. A. Correct. Q. Mr Campbell, it is clear, isn't it, that the figure that appears in this document for new business sales in the "Estimate December column", is not a figure that you gave to Mr Horn? A. No. Q. It is a figure that you gave to Mr Horn, you say, is that right? A. Yes. 246 As can be seen from this evidence, Mr Simpkins gave Campbell every opportunity to suggest that the figures in the column were pro-rata figures based on the estimated $100,000. The evidence that he gave in respect of how he reached the specific figures and the fact that he gave the specific figures to Mr Horn is in my view totally unreliable evidence and I do not accept it. 247 There is an issue as to whether the management accounts for the month of December 2004 were produced and provided to Weeks prior to the settlement of the purchase of the share in the Company. Campbell gave evidence that on a regular basis during 2004 and the early part of 2005, at least until Weeks participated in the business, he would review the actual performance of the Company against the budgeted performance of the Company. He would do this in the first week after the end of the relevant month (tr 323). Campbell said that at the end of the year he would take a lot of paperwork with him on his holidays and do a lot of budget extensions and planning for the future. Campbell claimed that when he returned to work on about 10 January 2005 he had only had a "cursory review" of the comparison between the December 2004 budget and the actual operating result for that month (tr 324). His evidence in cross-examination included the following (tr 324-325): Q. And you appreciated, may I take it, that that estimate having been given to Mr Weeks was likely to be treated by him as something that he could rely upon for the purpose of making a decision about investment? A. That's correct. We discussed it at length prior to the holidays. Q. And didn't you want to satisfy yourself in January 2005 that the estimate that you had given to Mr Weeks and upon which he was likely to rely in fact was consistent with the actual operating result for December 2004? A. I did and there was about an 8 percent shortfall. Q. When you say an 8 percent shortfall, are you referring to an 8 percent shortfall in sales? A. An 8 percent shortfall in the bottom line, I suggested to Mr Weeks and to Mr Horn that we actually had as an estimate, an assessment. Q. Let us take it step by step. When you referred to an 8 percent shortfall, were you referring to sales or were you referring to something else? A. Sales. Q. It is correct to understand that by no later than 10 January 2005 you were aware that the actual sales for December 2004 were not the estimated $100,000 but only about $92,000? A. That's correct, sir, you're right. Q. Are you wanting to suggest that that was something that you actually communicated to Mr Horn? A. Most definitely. Q. And to Mr Weeks? A. Absolutely. 248 Campbell volunteered that a comparison of the estimate for 2004 with the actual operating result would be material to a purchaser (tr 334). Mr Simpkins cross-examined Campbell in relation to his claim that he had communicated the difference between the actual operating result and the budget for December 2004 to Mr Horn and to Weeks. His evidence in cross-examination was as follows (tr 325-329): Q. Let us take Mr Horn first. When is it, do you say, you told Mr Horn that the actual operating result for December 2004 was for sales only of $92,000 and not the estimated $100,000? A. Very difficult to recollect exactly the date, but I would suggest it would be mid January. There was still discussions going on with Mr Horn and Mr Weeks and myself from time to time. Q. So you spoke to Mr Horn your best recollection is sometime in mid January, is that correct? A. Yes. Q. And you spoke to him at that time about the shortfall in sales? A. Yes, but not - there wasn't a lot of emphasis placed on it because it was an estimate and there seemed to be no real concern coming from Mr Weeks. Q. Let us take it step by step. When you spoke to Mr Horn in mid January and told him about the 8 percent shortfall in sales for December 2004, what do you want to suggest you said to Mr Horn? A. Well, I think it was just a general discussion. By that time Mr Weeks -- … Q. What did you say to him? A. I can't recall exactly the discussion, but I would suggest it was about the shortfall, about a 10 or 15 percent shortfall, maybe more, I am not sure. I don't know what the calculation is, and Mr Horn would have gone away and looked at it. Q. You told him, did you, words to the effect of "I've looked at the actual operating results for December 2004 and they're about 10 to 15 percent less than the estimate, I'm not sure"? A. That's correct, something to that effect, yes. Words to that effect. … Q. When you spoke to Mr Horn you told him, did you, that looking at the sales figures the operating result for December 2004 was about 8 percent less than the estimate of sales for that month? A. Well, I spoke to him about it in general terms and said to him there could be a 10 to 15 percent difference but in actual fact it turned out to be an 8 percent difference so there was a benefit. … Q. About the time you were speaking to Mr Horn in January you had actually compared the estimate of $100,000 for sales in December 2004 with the actual operating performance for sales for that month? A. I did. Q. And you knew as a result of that that the actual shortfall in sales was in the order of 8 percent? A. I did. Q. You told Mr Horn that, did you? A. No I didn't. I believed that there needed to be a discussion between Mr Horn and Mr Weeks because he was the main person talking to him, so I gave him a shortfall of 10 to 15 percent approximately. It didn't seem to be too much of a concern at that point. It was an estimate. Q. When you were speaking to Mr Horn in January 2005, did you realise as a result of the review that you had carried out that not only were the sales down by about 8 percent but also the cost had increased by a percentage that you had not taken account of? A. In the management accounts, if that is purely what we are talking about, yes. Q. Well, when you did your review in January 2005 you agreed it was 8 percent out in relation to sales; what percent was it out in relation to expenses? A. I can't recall. The bottom line was that we had made a profit and a good sized profit. … Q. You were concerned, were you, as part of this review that you engaged in in January 2005 to satisfy yourself that the estimate that you had given Mr Weeks about the performance for December 2004 was an accurate estimate? A. Absolutely. Q. And to the extent your comparison revealed it might not be accurate you were concerned to pass that information on to Mr Horn? A. You are correct there. It might not be accurate and I passed it on to Mr Horn. Q. And Mr Weeks? A. Mr Horn would have spoken to Mr Weeks. There were some times I had spoken to Mr Weeks but it wasn't a direct discussion we had about that. Once Mr Horn was informed he said, "Doug, I better talk to Mr Weeks and let him understand that." And I left it to them, as I did with most of the negotiations. Q. Is this right, you never yourself spoke to Mr Weeks and said to him, "The results for December show a shortfall of about 10 to 15 percent on the estimate"? A. No, I can't recall speaking to him. I may have - he was in the office on and off probably every day during the periods that he was doing his due diligence, but you know, I don't recall saying anything to him during January because it was during the period I was on holidays that I reviewed this. … Q. Are you seriously seeking to suggest that at no time in any of these discussions in January 2005, with knowledge that the December estimate might be out by about 10 to 15 percent, you ever discussed the actual operating result for December with Mr Weeks? A. I can't say for sure. To the best of my recollection, and the honest truth is, that I did hand it on to Alan Horn, who was the broker, and it was always best to have someone inbetween [ sic ] you and the person because sometimes it can - you can be misconstrued. There could have been a time when he walked into my office and we sat down and there could have been a time when he said, "How did December go?" And I would have said, "I think there's a bit of a shortfall in the revenue, there could have been," but I can't honestly say to you that I remember talking to him. 249 Campbell agreed that in January 2005 he had the management accounts for December 2004 available to him (tr 330). He said that Mr Horn asked him for the "latest figures" because he needed to get them to Weeks, and by that time he had already told Mr Horn that his comparison of actual operation against budget had shown that sales for December 2004 were down by 8% (tr 331). He claimed that Mr Horn advised him that he would speak to Weeks about the shortfall (tr 332). 250 Campbell gave further evidence in relation to the management accounts and his knowledge of the difference between the operating result and the budgeted figures for 2004. His cross-examination included the following (tr 368 - 369): Q. Indeed, you told her Honour earlier today that as a result of realising that there was a difference you communicated with Mr Horn? A. Of course. Q. Didn't you do that because you thought the difference to be significant? A. No, I didn't. Q. Did you do it because you thought the difference was insignificant? A. No, I didn't. I think Alan Horn was my representative and he needed to know there was, at that stage there was a difference and would it be a significant thing in regards to having an estimation put in front of Mr Weeks. Q. You were concerned, were you, by 10 January 2005 about whether the difference was significant? A. I was concerned, yeah. I didn't want it to be a major difference, no. … Q. What did you realise by no later than 10 January 2005 was the reason for the difference? A. Well, I didn't have any real concerns myself -- HER HONOUR Q. No, what did you realise was the cause of the difference? A. Your Honour, the only thing that I could see that caused the difference was we hadn't billed everything the way that we wanted to bill it in the income streams because we were very very busy. Q. When you say you hadn't billed everything, do you mean that you formed the view that there had been work done in December which had not been invoiced in December? A. Yes. Q. Was that based upon information that you had available to you about work which had been performed in December but not invoiced? A. Some, yes. Q. Being information you had in your office? A. Being information I gathered from 27 years in business. Q. Being information you had in your office? A. No. Q. Not being information you had in your office? A. No. Q. Being information you had in your head? A. Yes. Q. Based upon what? A. Experience. 251 After this extraordinary evidence, Mr Simpkins pressed Campbell further in relation to the difference between the estimate and the operating result and the following evidence was given (tr 369-370): Q. You didn't think, did you, by 10 January 2005 that the reason for the difference was that there was work done which had not been billed in December 2004? A. No, I didn't. Q. What did you think the difference was between the estimate for December and the actual operating result for December 2004 when you reviewed it in January? A. Sir, I can't recall. Q. Weren't you interested, given the fact that you had given an estimate to Mr Weeks-- A. Yes. Q. … of $100,000 to try and work out what had actually happened in December that had produced a figure under the estimate? A. Yes. Q. That was part of your purpose in reviewing the financial information, is that right? A. When we came back on the 10th you are talking about? Q. Whilst you were doing the review in January, weren't you concerned once you ascertained that there was a difference to try and work out why it existed? A. That's correct, sir. I have answered that question. … HER HONOUR Q. What was the reason for the difference? What did you think the reason for the difference was between $100,000 and $92,000? A. There were bills that had to be invoiced and servicing that had to be done. I mean, there were a number of different factors that you take into consideration, but in my experience from what was going on in the office and in the field, I believed that I didn't have any real need to be totally concerned, but it was important to make sure that Alan was abreast of the current situation. Q. Is the reason that you say you had no reason to be totally concerned the fact that you did have a concern about what had happened in December? A. I always have a concern if I'm giving an estimate, particularly in light of the fact if I was giving it to the bank or to Mr Weeks and Mr Raby, I wanted to make sure it was close enough to be the figure that I had been -- I had estimated. 252 This evidence demonstrates once again Campbell's proclivity to change his position. At first he claimed that the reason for the difference between the estimates for December 2004 and the actual operating results for 2004 was that work had been done which had not been invoiced. He then suggested that this claim was based on his "experience". He finally agreed that in January 2005 he did not think that the reason for the difference was that invoices had not been issued for work that had been done. When pressed for a reason he resorted to the answer "I can't recall". If Mr Simpkins had not pursued Campbell on this topic, his evidence that work was done and not invoiced, which was obviously wrong, to use a neutral term, would have been left unchallenged. Campbell's evidence on this aspect of the matter is further support for the conclusion that I have reached that he a very unreliable witness. 253 Campbell then claimed that throughout January 2005 he spoke to Weeks on the topic of the difference between the estimates and the operating results on one or maybe two occasions (tr 371). He also claimed that he spoke to Weeks in January 2005 about the management accounts and what they showed for December 2004 on two or three occasions (tr 372). He claimed that the first occasion was on 10 January 2005 when they were driving to a meeting in Chatswood, and Weeks asked him whether the company would achieve the estimates, and he responded "yes". He also claimed that Weeks asked him whether "servicing" in December had been in accordance with the estimate, and he informed him that it had (tr 372). When it was suggested to Campbell that it was obvious to him that Weeks did not have the December 2004 management accounts, he said that as far as he knew he would have had the estimates, but not the finalised accounts. He agreed that he understood that Weeks would want the management accounts (tr 373). 254 Campbell claimed that in January 2005 he informed Mr Horn that the accounts were in "good order". He also claimed that on 14, 15 or 16 January, Weeks made an enquiry about whether he could rely upon the December 2004 management accounts. However he suggested that it was "a very fleeting thing" (tr 374). Campbell was cross-examined further as follows (tr 376): Q. Mr Campbell, you did not provide, did you, to Mr Horn at any time in January 2005 the December 2004 management accounts? A. No, that's not correct. Q. You didn't instruct either Miss Hunt or Mr Eustace to produce some accounts that Mr Horn might give to Mr Weeks relating to December 2004? A. That's not correct either. Q. You knew, didn't you, that Mr Weeks, in or about January of 2005, was actually seeking to get a copy of the December 2004 management accounts? A. Yes, I do. Q. And you know, don't you, that although he was seeking the provision of that material it was never given to him? A. No, I do not. 255 Campbell agreed that the management accounts for December 2004 were completed a long while before 24 January 2005 when the Share Sale Agreement was signed but continued to deny he knew that Weeks was not given those accounts (tr 378). Mr Horn's evidence in relation to the management accounts included the following (tr 267-270): Q. Did you at any time during the course of December 2004 ask Mr Campbell what the management accounts were showing as the operating results for Healthy Water for that month? A. For December? Q. For December 2004? A. No. Q. Did you at any time prior to the agreements being entered into on or about 24 January 2005 have any discussion with Mr Campbell about the results for December 2004? A. No. Q. No discussion at all? A. No, not that I can recall. … Q. When you got this e-mail from Mr Weeks you appreciated, didn't you, one of the things he was stipulating for prior to completion was the production of Healthy Water accounts showing the profit and loss to December 31, 2004? A. Yes. … Q. You knew however, didn't you, in January 2005 that there was still work which was taking place on the management accounts of Healthy Water? A. Yes. Q. And work which was likely to affect or capable of affecting the financial information which you had provided on behalf of Healthy Water to Mr Weeks? A. That's correct. Q. And may I take it you were concerned to ensure in January 2005 that if there were changes made to the information that you had provided to Mr Weeks that you were given a copy of the document making the change so that you in turn could ensure it was given to Mr Weeks? A. Yes. 256 The following written submission was made on behalf of the defendants in relation to whether Weeks received the management accounts: It was forcefully put to Campbell that he had not given and Weeks had not received, the management accounts for December 2004. This material was, amongst others, the subject of Weeks emails of 20/12/04 … In his affidavit (28/10/05) paragraph 80 he refers to his email of 13 January 2005 … and does not say he never received the management accounts. This is all consistent with his attempt to portray an image of ignorance. 257 Although paragraph 80 of the affidavit referred to in this submission does not state that Weeks did not receive the management accounts there is a clearly implied claim that he did not receive such accounts in paragraph 92 of the same affidavit in which he claims that he was not aware of the difference between the estimates and the actual results for December 2004. I accept Mr Horn's evidence that he did not discuss with Campbell in January 2005 the contents of the management accounts for December 2004. I do not accept Campbell's evidence that Mr Horn informed him that he had received the December 2004 management accounts and that he had "passed on the details" to Weeks (tr 333). When Mr Simpkins asked Campbell whether he had asked Mr Horn what Weeks thought about the 10% to 15% shortfall (which had been identified in the management accounts) Campbell's answer was (tr 333): Well, there was an 8 per cent shortfall on revenues. I would have said to him, was there any response, and he said no. He has bunkered down in his farm somewhere and that's it. There was no comment that I can recall, that I could relate to you, that would be of the nature that it was, you know, there was a problem with it. 258 I do not accept this evidence. I accept that Mr Horn did not give Weeks the management accounts. I do not accept Campbell's evidence that he discussed the December 2004 management accounts and their contents with Weeks during January 2005, prior to entry into the various agreements on 24 January 2005. I accept Weeks' claim that he did not know that there was a shortfall in revenue as against the December 2004 estimate at the time he executed the Share Sale Agreement. 259 It is abundantly clear that the Sales Revenue Report was prepared in the manner in which Mr Horn claimed it was. It is also abundantly clear that Campbell knew the estimate of $100,000 was 8% higher than the actual operating results for the Company in December 2004 well before the settlement of the purchase on 24 January 2005. I am of the view that Campbell knew that Weeks did not know of the difference between the actual operating result and the estimated budget for December 2004. Representations 260 There are real issues in relation to the representations that are alleged to have been made by the provision of the Sales Revenue Report to Weeks in December 2004. There is also the issue of whether the representations were continuing up to the date of execution of the Agreements on 24 January 2005. I will assume for the purposes of this analysis that there was a representation that Campbell knew of no information that was material to the accuracy of the estimates in the Sales Revenue Report, which tended to show that they were false, misleading or deceptive. I will assume for the purposes of this analysis that the representation was false. Reliance 261 It was submitted that the plaintiffs' case should fail on reliance. It was claimed that on Weeks' own evidence, he relied on Mr Horn to provide information but was well aware of the disclaimers contained in the Information Memorandum prepared by Bato Partners in July 2004. It is true that the Information Memorandum referred to Bato Partners' understanding that a purchaser would undertake further investigative activities prior to arriving at a decision of any finality (1.3). It is also true that the front sheet to the Information Memorandum included a statement that the advice, information and estimates in it were provided by the directors of the Company and that Bato Partners had not attempted to verify the accuracy or reliability of it. It also stated that no warranty of accuracy or reliability was given and that no responsibility for omissions was accepted by Bato Partners. Those disclaimers related to information that was provided very early in the negotiations with Weeks. 262 The defendants also referred to clause 7.4(b) of the Share Sale Agreement, which is an acknowledgment by Backoffice that it had been afforded the opportunity of inspecting the Company and the Assets and had availed itself of that opportunity. The defendants accepted that the presence of such an acknowledgment is not definitive but submitted that its presence militates against reliance upon any of the alleged representations. It was submitted that this is particularly so where Weeks had carried out extensive due diligence with the assistance of his accountant, Mr Raby. 263 It was submitted that Weeks' claim of reliance should not be accepted for a number of reasons. The first was his acknowledgement that the figure for non-recurring expenses was an "estimate" (tr 55) and that he made an allowance for "plus or minus a few thousand dollars" (tr 55). Secondly, Weeks had various views about the prospects for the Company and said that he was imbued by a sense of optimism. He admitted that he considered it to be an exciting prospect and refused to sell his share after disputation arose. The third was Weeks' experience in evaluating risks, together with his academic qualifications of an Honours degree in Economics and his sophisticated negotiating skills in achieving the locking up of the purchase price into a performance bonus. I accept that all of these matters are important to consider in relation to the question of whether Weeks relied upon the representation. 264 Weeks was obviously having difficulty in obtaining detailed information, including the management accounts for December 2004. His email of 13 January 2005 to Mr Horn set out what he wanted prior to completion. It is clear from that email that Weeks was not happy to rely on the estimates in the Sales Revenue Report. It is clear that he wanted to check the actual operating results for December 2005 for himself. He was not able to do that because the management accounts were not provided to him. He admitted that he abandoned his quest for information in relation to the non-recurring expenses in the Add Back document, in exchange for warranties in the Share Sale Agreement (tr 51, 55-56 and 77). Although Weeks claims in his affidavit (13 September 2007 pars [92]-[93]) that he would not have entered into the Share Sale Agreement if he had known that the operating results for December 2004 were different from the actual results (by overstating sales by $7,147 and EBIT by the range referred to earlier), the real question for determination is whether he relied on the December estimates in entering into the Share Sale Agreement and the alleged representation. 265 When Weeks received the financial documentation from Mr Horn in December 2004, including the Sales Revenue Report that contained the estimated sales figure of $100,000 for December 2004, he estimated an annual result for the Company that he said was "somewhat conservative" (tr 44). He factored in a number of matters, including the fact that he would "come on board and make a positive contribution" with the capacity to "enhance the profitability" of the Company (tr 45). He structured his offer to purchase the share in a way that recognised that he and Campbell had a different view of the value of the Company (tr 47). That part of the offer was contained in the fifth dot point, referred to earlier in this judgment, extracted here again for ease of reference: · Recognising that 'performance' expected to exceed the current forecast level of profitability, a performance bonus may be paid to the seller (ahead of any dividend payment) of up to $300,000 on March 31, 2005 or thereafter, subject to cash funds being available and sufficient profitability being achieved. No payment will be made based on profitability after December 31, 2005. 266 Weeks amended that part of his offer on 16 December 2004 as follows: · Recognising that 'financial performance' is expected to exceed the currently forecast level of profitability, a performance bonus of up to $300,000 will be paid to the seller, based upon net profitability to December 31st 2005. This performance bonus ranks after payment of the 'guaranteed bonus' and is subject to sufficient cash funds being available and sufficient profitability being achieved. Being a 'performance' bonus, no payment will be either due or payable if insufficient profitability is achieved. 267 Weeks gave the following evidence in cross-examination in relation to that part of the offer (tr 47): Q. And what you were there proposing was a mechanism recognising that that may be so and that mechanism was to remunerate or compensate Mr Campbell for the additional value if it turned out that was the position? A. Yes. Q. And you understood by making that offer you were getting the benefit of any doubt, namely that if the company did not transpire to have the additional value Mr Campbell wouldn't get it, correct? A. Correct, just making the point that that bonus ranked behind other bonuses, yep. Q. So the fact of the matter is that the substance of this proposition that you are putting in dot point five is that Mr Campbell will not get his consideration, the additional consideration for what he thinks is the value of the share if it turns out that the company doesn't make the expected additional money? A. Yes. Q. So that is a protection for you, isn't it, if the company does make the money he gets it, if it doesn't the price is lower? A. Yes, although I would put the reverse of that, I felt the price was only worth X amount and I was giving the option that if I am wrong, I think I used words to that effect, that if it proved to deliver a higher figure than I thought or exceed my expectations then there was a potential up side but I didn't think there was. Q. Put it how you like Mr Weeks, the sophisticated thinking behind this dot point was that if the company turned out to be worth more [than was contemplated] Mr Campbell would get it and if it didn't, he wouldn't? A. Correct. Q. That was part of the bargain, as you saw it, that you were going to pay a certain amount, you were going to not give an undertaking to pay that by way of initial purchase price but leave conditional upon the company performing in a subsequent period, correct? A. Yes. 268 Weeks had the assistance of a solicitor, Mr McClure, from whom he sought advice in relation to the Agreements executed on 24 January 2005, including the proposed warranties. An email from Mr McClure to Weeks dated 11 January 2005 that Weeks forwarded on to Mr Horn on 12 January 2005, included Mr McClure's notation of Weeks' "reliance on your own investigations, relying on your background over many years in corporate management and the due diligence conducted in respect to "[the Company] carried out over some time by you and your accountant". Weeks confirmed in his cross-examination that he had informed Mr McClure of this reliance (tr 51). 269 Weeks is a sophisticated businessman with the capacity to review financial records and make judgments about the prospects of a business, using his commercial common sense to his own advantage. That is what he did in making his offer to purchase the share in the Company. I am satisfied that the evidence extracted above establishes that Weeks did not rely upon the estimated sales figures in the Sales Revenue Report. Rather, it establishes that Weeks doubted those figures to the point that he built in a protection for himself if the figures were not achieved. That was a "protection" that was included in clause 6.2 of Sentinel's Service Agreement, that provided for a "Performance Bonus based upon the Company's profitability, of up to $300,000" to be paid to Sentinel only if there was "Available Profit". I am not satisfied that Weeks relied upon the representation as pleaded. EBIT representation 270 The plaintiffs also claimed that in providing the financial documents to Weeks in December 2004, Campbell represented that the Company had an EBIT (after adjustment for the add-backs) for the 5 months to 30 November 2004 of $163,590. Without deciding on whether the representation was made, the observations I have made in relation to the Add Backs document and the Sales Revenue Report and the structure of Weeks' offer, also apply to this alleged representation. Conclusion – misleading and deceptive conduct 271 I am satisfied that Weeks and/or Backoffice did not rely upon the representations. The plaintiffs' claim of misleading or deceptive conduct fails. ORDERS 272 Backoffice has succeeded in its oppression suit and is entitled to an order that Campbell purchase its share in the Company for $853,000. Although the plaintiffs have proved that Campbell breached some of the warranties as pleaded and also breached the implied duty to co-operate, it is inappropriate in the circumstances to award any damages for those breaches. The plaintiffs have failed to make out their claims of misleading or deceptive conduct under the Fair Trading Act 1987 and they are to be dismissed. The plaintiffs are entitled to a declaration that Campbell's conduct by or on behalf of the Company was oppressive, with an order under s 233 of the Corporations Act 2001 for purchase of Backoffice's share together with an order under s 468 of the Corporations Act 2001 validating that disposition. 273 The parties are to bring in Short Minutes of Order reflecting this outcome, together with an agreed costs order. If the parties are unable to agree on a costs order, I will hear argument when the matter is listed for the filing of those Short Minutes. The parties should make contact with my Associate to have the matter listed for that purpose, such contact to occur no later than 23 March 2007. ******************************** 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.