Supreme Court New South Wales Medium Neutral Citation: In the matter of Mosman & Co Pty Limited [2019] NSWSC 1155 Hearing dates: 7 February 2019 Date of orders: 05 September 2019 Decision date: 05 September 2019 Jurisdiction: Equity - Corporations List Before: Rees J Decision: Declaration of oppression and consequential orders: see [100] Catchwords: CORPORATIONS — Oppression — Real estate business — Members contributed equal capital but had 70/30 shareholdings — Shareholders' Agreement provided for all members to be directors — Removal of director by majority shareholder under replaceable rules — Wage and back-pay to majority shareholder's wife — Removal of access to books, records and bank accounts — sale of company's principal asset — irreconcilable differences — Whether fair offer to buy out minority interest — Oppression made out — Compulsory buy-out ordered. CORPORATIONS — Constitution and replaceable rules — Where no constitution in evidence — Where shareholders' agreement between all members of company — No express provision displacing replaceable rules — Whether replaceable rules displaced to the extent of inconsistency — Whether the principle in Re Duomatic applicable — Not necessary to decide in oppression suit. Legislation Cited: Corporations Act 2001 (Cth), ss 134, 135, 136, 181, 182, 183, 203C, 232, 233 Cases Cited: Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 Catto v Hampton Australia Ltd (in liq) (No 3) (2004) 89 SASR 234; [2004] SASC 242 Cody v Live Board Holdings Ltd (2014) 97 ACSR 606; [2014] NSWSC 78 Fexuto Pty Ltd v Bosnjak Hodlings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 In re London School of Electronics Ltd [1986] Ch 211; [1985] 3 WLR 474 Joint v Stephens (2008) 26 ACLC 1,467; [2008] VSCA 210 Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 71 ACSR 395; [2007] NSWSC 153 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222 Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 Re a company (No 00709 of 1992); O'Neill v Phillips [1999] 2 All ER 961; [1999] UKHL 24 Re Duomatic [1969] 2 Ch 365; [1969] 1 All ER 161 Re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273 Russell v Northern Bank Development Corp Ltd [1992] 3 All ER 161; [1992] BCLC 1016 Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd (2001) 19 ACLC 517; [2001] WASC 8 Shearwood (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 1451 Tomanovic v Global Mortgage Equity Corp Pty Ltd (2011) 84 ACSR 121; [2011] NSWCA 104 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68 Texts Cited: L.S. Sealy, "The Enforcement of Partnership agreements, Articles of Association and Shareholder Agreements" in P.D. Finn, ed. Equity and Commercial Relationships (1987, The Law Book Company) Category: Principal judgment Parties: Damian Cameron (Plaintiff) Mosman & Co Pty Limited ACN 165 325 208 (First Defendant) Bill Koutrodimos (Second Defendant) Representation: Counsel: J.P. Redmond (Plaintiff) D. Tang (Defendants) Solicitors: Eakin McCaffery Cox (Plaintiff) Brander Smith McKnight (Defendants) File Number(s): 2017/225783 Judgment 1. HER HONOUR: This is an oppression suit brought under section 232 of the Corporations Act 2001 (Cth) arising out of a real estate business in Sylvania. The plaintiff, Damian Cameron, and the second defendant, Bill Koutrodimos, are shareholders in the first defendant, Mosman & Co Pty Limited, which operated LJ Hooker Sylvania. Mr Cameron held 30% of the shares and Mr Koutrodimos held 70%. Both were directors. Mr Koutrodimos' wife, Connie Koutrodimos also worked in the business. The real estate business operated for two years before relations between Mr Cameron and Mr and Mrs Koutrodimos broke down, essentially over the payment of Mrs Koutrodimos' wages. The business was never particularly profitable and it appears that Mrs Koutrodimos was ultimately the only person who earnt a living from the business. That is not to criticise Mrs Koutrodimos but to note that, in circumstances where Mr Cameron was the minority shareholder, his wishes in this regard were, it would appear, given little weight and had the effect of inflaming his fellow director and majority shareholder, Mr Koutrodimos. 2. In mid-2016, in an apparent attempt to reimburse himself for business expenses before another back payment of Mrs Koutrodimos' wages, Mr Cameron transferred $8,000 from the company's bank account to his personal credit card. Mr Cameron's access to the company's bank account and records was removed and, in October 2016, he was removed as a director in a manner not envisaged by a Shareholders' Agreement. Mr Cameron complains that he has since been denied access to records and information about the company, and that Mr Koutrodimos has since paid himself a salary and increased that paid to his wife. Mr Cameron seeks an order under section 233 of the Corporations Act that Mr Koutrodimos buy Mr Cameron's 30% shares in the company at a proper value. Mr Koutrodimos has sold the company's only asset — its rent roll — and offered to pay Mr Cameron his share of the proceeds of sale but only after deducting damages which Mr Koutrodimos says have been caused by Mr Cameron's breach of directors' duties in securing for his new business the management of 10 rental properties formerly managed by the company. 3. Mr Cameron and Mr Koutrodimos both gave evidence and were cross-examined. Mr Cameron was a very confident young man. He made fair and reasonable concessions when answering questions but on occasion tended to make self-serving submissions and volunteer information in order to improve his position. Mr Koutrodimos was an older, more experienced man who, it would appear, was frustrated in dealing with what could be described as a 'generation gap' between himself and Mr Cameron. But Mr Koutrodimos did not help matters by sending inflammatory emails and endorsing his wife sending even more inflammatory emails to Mr Cameron. Mr Koutrodimos seems to have been, perhaps understandably, offended by Mr Cameron's wish to remove Mrs Koutrodimos from the business. Mr Koutrodimos failed to make reasonable concessions, such as denying that the relationship had broken down, or that he was angry when it was readily apparent from an email penned by him that he was, and tried to put his behaviour in a favourable light. Mr Koutrodimos misstated the position often enough for me to have some hesitation in accepting his evidence unless corroborated by contemporaneous documents. FACTS 1. In about 2013, Mr Cameron and Mr Koutrodimos began discussing going into business together. They agreed to contribute equally to the cost of setting up the business but that Mr Koutrodimos' shareholdings in the company would be 70% to reflect his greater experience as a real estate agent. Mr Koutrodimos said they would start drawing equal wages but only once the business was making a reasonable profit. Mrs Koutrodimos offered to assist in setting up the office and getting the business started, although there was a dispute as to whether Mrs Koutrodimos' offer was open-ended or for six months only. On 15 August 2013, Mosman & Co Pty Ltd was incorporated. Of its 100 ordinary shares, Mr Koutrodimos held 70% and Mr Cameron held 30%. In October 2013, business premises were found in Sylvania. The cost of fitting out the premises was shared equally between Mr Cameron and Mr Koutrodimos. Office furniture was leased. Shareholders' Agreement 1. On 6 January 2014, Mr Cameron and Mr Koutrodimos entered into a Shareholders' Agreement. Mr Koutrodimos drafted it from a document he had used for a previous transaction; indeed, the recitals largely refer to that previous transaction. Mr Koutrodimos described the document as 'defective', which appears to be because the actions which he subsequently took were inconsistent with it. In particular, clause 3 of the Shareholders' Agreement provided: (emphasis added) 3. DIRECTORS 3.1 Number of directors The Board will consist of all members of the Company. 3.2 Removal of a director (a) Any member entitled to appoint a director may, by notice to the Board, remove any director appointed by it in the following circumstances … As clause 3.2(a) made plain, a member was entitled to remove the director "appointed by it". Clause 3.2 did not give a right to a member to dismiss a director which that member did not appoint. Consistently with this, clause 3.2(b) provided: A member will have the sole right to appoint any person to be a director of the Company in place of a Director previously appointed by it where that director has ceased to be a Director of the company as a result of the removal of such Director or such shareholder or for any reason whatsoever. 1. The Shareholders' Agreement provided that, generally, questions arising at a board meeting were to be decided by the majority and, if an equal number voted for or against a motion, then the motion was not passed: clause 5.1, 5.2. Some questions required a special resolution, that is, three quarters of the votes (clause 5.3, 1.1(l)), but it is difficult to see how this clause could apply in a company with two directors. 2. Clause 8 provided that, if a member wished to sell their shares in the company, then other members had the option to purchase the shares. 3. Clause 14 provided: INSPECTION OF RECORDS At any time and from time to time during ordinary business hours, any person nominated in writing by party will be entitled to enter upon the premises of the company and to inspect and take copies of all records of the company and the business. 1. Clause 17, "Restrictions on Outgoing Members" contained restraints on "Outgoing Members", curiously defined in clause 16.3: In the event of death of (sic) permanent disability of any one of the members (the 'Outgoing Member') …" 1. Subject to this drafting curiosity, by clause 17.3: … the Outgoing member covenants with the continuing members of [sic] three years after the departure date he will not: (a) Solicit, canvas or in any way whatsoever seek the custom of or treat any person who was a client of the Company within the period 1 year prior to the departure date; … (c) approach directly or indirectly any clients of the Company to influence him to cease to be a client of the Company or otherwise to entice away from the Company … And in clause 17.4: Subject to any contrary law, the Outgoing Member further covenants with the continuing members that for the period of one (1) year after the departure date he will not accept any current rent-roll management clients of the Company under any circumstances whatsoever. 1. "Departure Date" meant "the date the relevant Director ceased to be a member of the Company for any reason whatsoever" where "Member", uncontroversially, meant a shareholder of the company: clause 1.1(i), (k). Mr Cameron is still a member of the company and it is difficult to see clause 17 having any application to him, for this reason alone. Business begins 1. In January 2014, the business commenced. Mr Cameron was in charge of building up the rent roll and Mr Koutrodimos was in charge of sales. The purchase of other agencies' rent rolls was proposed on several occasions, but none came to fruition. Different views were held on the nature of Mrs Koutrodiomos' role: Mr Koutrodimos said she was the office manager with a signed contract of employment (although no contract was produced) whilst Mr Cameron understood Mrs Koutrodimos was helping set up the office at no charge. 2. A difference in management style was evident by mid-2014 by reason of two incidents. First, Mr Cameron made a mistake in respect of the management of a property in Willeroo Street, but Mr Cameron regarded Mr Koutrodimos' reprimand as disproportionate and unhelpful. It is apparent from Mr Koutrodimos' response that he was concerned that Mr Cameron had overstated his previous experience and was making simple property management mistakes which required Mr Koutrodimos' continual supervision. Second, in August 2014, a member of staff was dismissed. Mr Cameron was unhappy with how Mr Koutrodimos dismissed the employee, whilst Mr Koutrodimos was unhappy that Mr Cameron had sat back and left it to him to deal with the matter, apparently in circumstances where the employee had been disrespectful to Mrs Koutrodimos. Mr Koutrodimos said that Mr Cameron needed to take more of an active role: he was unhappy that he had to manage the staff and a fellow director to the degree that he was. The day after the employee was dismissed, Mrs Koutrodimos sent an email to Mr Cameron tendering her resignation over the incident. Mrs Koutrodimos' email was emotive and unfortunately worded; suffice to say that she considered that Mr Cameron had failed to display any leadership as a director to address the employee's behaviour vis-à-vis Mrs Koutrodimos but left everything to her husband. Mrs Koutrodimos did not, in fact, leave the company. 3. The emails exchanged in relation to the dismissal of the employee indicate that, by mid-2014, Mr and Mrs Koutrodimos, perhaps unsurprisingly, had common views on how the business should operate, different opinions to those of Mr Cameron and were somewhat critical of Mr Cameron's abilities. Although Mrs Koutrodimos was not a director of the company, it appeared to me that Mr Cameron's views as to the management of the business were not particularly relevant if those differed to the views of Mr and Mrs Koutrodimos. 4. In about October 2014, the business received its first commission and Mr Cameron and Mr Koutrodimos agreed that Mrs Koutrodimos should begin to receive a wage of $365 a week. However, on 14 October 2014 Mr Cameron noticed a large sum of money had been transferred from the company's bank account described as "Connie back pay". He said that he had not agreed to this. This was in the context where, as described by Mr Cameron in an email sent the previous day : I feel that since opening the office I have contributed 50% to all running costs of the office, we have not withdrawn much/any funds from the office. In cross-examination, Mr Koutrodimos said that there was a tension in their working relationship at this time but it was a workable situation. In re-examination, Mr Koutrodimos said of his interactions with Mr Cameron in 2014, "there wasn't no sort of friction amongst us". 1. In February 2015, Mr Cameron and Mr Koutrodimos agreed to increase Mrs Koutrodimos' wage to $500 a week. Mr Cameron's approach to Mrs Koutrodimos' wages was somewhat inconsistent: on occasion he complained and on occasion agreed. 2. In March 2015, Mr and Mrs Koutrodimos wanted to get a bank overdraft as the general account was consistently short of funds. Mr Koutrodimos proposed: Can we have a meeting regarding this matter, I think that it's a bout [sic] time we get [sic] a small business overdraft loan to sustain the business a float [sic], otherwise, we cannot sit here and put our own monies into business any more, otherwise no point sitting here squattling [sic]. Mrs Koutrodimos was also in favour: I think you need to get an overdraft ASAP, you can't run a business like this anymore. Just saying! Mr Cameron did not accede to this course: I personally don't want an overdraw more money. I cannot see "light" at the end of the tunnel if I keep getting in debt. It is hard to disagree with Mr Cameron when, at the time, he had been working for 16 months and had yet to receive a salary or distribution from the company. 1. In April 2015, an opportunity to purchase Century 21 Lakemba arose. Mr Koutrodimos mooted the possibility of Mr Cameron running his own office: Damian are you ready or can you see yourself being or running a office as a licensee? This is apparently in response to Mrs Koutrodimos' suggestion that the only way to run two offices was to have Mr Cameron, rather than a stranger, be the licensee of the second office. Mr Cameron replied that he was not ready at that time to become a licensee. … I think we can be sure that I will be ready in the near future. I can see myself running an office with little guidance and eventually be the Capitan (so to speak). … Mrs Koutrodimos was strongly against acquiring the Lakemba agency. Nothing came of the Lakemba proposal, but it is significant because it indicates that relations between the directors had improved, as had Mr Koutrodimos' regard for Mr Cameron's ability. Mr Cameron did say, however, that Mr Koutrodimos continued to include his wife in all communications on the business and sought her opinion, and took more notice of her opinion than that of Mr Cameron. That does appear to have been the case. 1. Also in April 2015, Mr Koutrodimos sent Mr Cameron a detailed email raising a number of concerns about property management files and requesting a meeting with him and another member of staff. Mr Cameron responded in detail, and politely, and appears to have addressed each of the matters raised. Mr Koutrodimos says, however, that he started to lose confidence in Mr Cameron's ability and his capacity to learn. This is not consistent with Mr Koutrodimos' recent suggestion that Mr Cameron run the Lakemba office. 2. There continued to be discussions about the overdraft (which Mr Cameron did not support) and possible new offices in Wolli Creek, which Mr Cameron supported if he could have 50% of the rent roll for the second office. The discussions in respect of an office for Wolli Creek were not successful but, on 21 July 2015, Mr Cameron emailed Mr Koutrodimos: Unfortunately the meeting did not go the way we wanted … I feel that based on my performance to date, it would still be fair that the current rent roll be split 50/50 between you and I. I simply base this request on the equivalent amount of time, efforts and money that we have both put into this office to make it what it is today. Given that Mr Cameron was managing the rent roll, and had been doing so for 18 months without any salary or drawings, this request was not unreasonable. Mr Koutrodimos did not agree. 1. In August 2015, the directors agreed to increase Mrs Koutrodimos' wage to $658 a week. On 30 January 2016, Mr Cameron says he noticed that Mrs Koutrodimos had reduced her working hours without telling him. Mr Cameron sent an email to Mr Koutrodimos about the possibility of replacing Mrs Koutrodimos with a full time employee on a lower wage. This suggestion was not favourably received. Mr Cameron politely persisted where wiser men may have feared to tread. 2. In March 2016, the Century 21 Lakemba rent roll came back on the market. In emails formulating the offer to be made for the payroll, Mr Cameron suggested: Mosman and Co – Heads of agreement – If we are successful with the purchase of Lakemba and the idea is for me to run Lakemba, I feel that it would be best if we have a clean cut 50/50 for both sales and rentals. Mr Koutrodimos agreed but the transaction did not proceed. It reflects that, by this time, Mr Cameron considered himself able to run a second office of the company, and Mr Koutrodimos was content for him to do so. Deterioration in the business relationship 1. On 23 April 2016, Mrs Koutrodimos sent an email to Mr Cameron titled, "Back Payment owed" referring to an agreement at a meeting on 15 April 2016 to pay $22,000 to Mrs Koutrodimos in back-pay in four instalments of $5,500. I think I have been very patient all this time awaiting for the business to be finally be in a stable position which it is now and the company has finally made a profit. Mrs Koutrodimos sought confirmation from Mr Cameron that she could pay the first instalment. Mr Koutrodimos followed this up with Mr Cameron, but Mr Cameron wasn't prepared to agree to the back-pay in circumstances where he was unable to secure agreement to increase his share in the rent roll to 50%. Mr Cameron deposed that, if they couldn't agree on that, then he asked for 20% of the past outgoings of the company to be refunded to him in line with his shareholding. 1. Mr Koutrodimos described his relationship with Mr Cameron at this time as: We just had to sort of pursue the business and sort of work, try to work amicably and so it was just a bit of a touch and go situation. He denied, however, that he and Mr Cameron argued over the issue of the back-pay. "It wasn't an argument. It was a disagreement." It would appear, however, that this was the 'last straw' for Mr Cameron. 1. On 9 May 2016, Mr Cameron sent an email to Mr Petrakis, the company's accountant and also Mr Koutrodimos' personal accountant: The shareholders of Mosman & Co Pty Ltd ("the Company") have in principle agreed to dispose of the Company or the assets of the Company in a manner yet to be determined. I have sought independent legal advice in relation to the disposal. Mr Cameron asked Mr Petrakis to provide detailed accounting information since the inception of the company, adding: The matter in relation to Connie's back pay will also need to be determined in the course of finalising the disposal of the Company. 1. Neither party described the discussion forming the basis of the "in principle" agreement referred to in the email, although it is clear from Mr Koutrodimos' emails that there was one. Mr Koutrodimos expressed consternation at Mr Cameron's request to the accountant but noted that he had emailed the accountant to arrange a meeting the following week to answer any questions "and move forward in the sale". Mr Cameron replied that there was nothing out of the ordinary with his request, noting "We are selling the office, which I have not done prior to this, which is why I have sought legal advice for guidance". Mr Koutrodimos said he had been "insulted" but did not have any problem with Mr Cameron doing due diligence "but the way you go about it and after the event of our discussion and mutual agreeance of business matters. It's called communications." Mr Cameron replied that he had requested the meeting with the accountant "to place the office for sale". Mr Koutrodimos replied: I do not have a problem with you seeking legal advice! It's the way it has been done. When selling a business, both partners discuss it together, plan together and make appointments together to meet and visit the appropriate professionals ie – accountant and solicitor to collate and prepare all documents for the proposed sale. The emails point to significant disharmony between Mr Cameron and Mr Koutrodimos, but also an agreement to sell the business. 1. On 13 May 2016, Mr Cameron and Mr Koutrodimos met with LJ Hooker to discuss selling the business on a "walk in, walk out" basis. This was followed by a number of emails from Mr Koutrodimos proposing a price. Mr Cameron was not copied into these further emails, by and large, and says Mr Koutrodimos did not discuss the sale price with him before putting it forward. 2. Later that day, Mr Cameron sent Mr Koutrodimos an email objecting to a further back-payment of wages to Mrs Koutrodimos. Mr Koutrodimos interleaved his response (here in italics): I have noticed transactions in the general account have been made without my knowledge/authorisation. Let me correct you Damian, that you do know and we had discussed it on 3 occasions. and had agreed to pay Connie her back pay wages. Connie had also emailed you these instalment dates. Please remember that Connie worked for us and supported us from day one and 9 months without pay, at the end of the day she is an employee and not favoured as my wife and is entitled to her pay. I'm sure I also mentioned to you that no one works for free, and especially for 9 months, she could of easily not supported us , which would of meant we would of hired another person to do the work and pay them wouldn't we? Besides we were on a tight cash flow budget. 1. On 14 May 2016, Mr Cameron again asked the accountant to provide information and documents in advance of the meeting so that he had time to review them, and also sent an email to Mrs Koutrodimos: You are not to make any further payments to yourself regarding back pay. Mr Koutrodimos maintained the position that the material sought from the accountant would be available at the meeting but not before. Mr Koutrodimos' objection to a director having access to the books and records in time to review the material and prepare for the meeting was unhelpful and suggests that he did not want Mr Cameron to have that opportunity. On 18 May 2016, Mr Cameron and Mr Koutrodimos met with the accountant. They argued about Mrs Koutrodimos' back-pay. Some documents were provided by the accountant, but not all those for which Mr Cameron had asked. 1. From late May 2016 to 10 June 2016, Mr Koutrodimos spoke to and emailed LJ Hooker about the sale of the business, including considering an offer and making a counteroffer, without consulting or copying in Mr Cameron. Changing bank accounts 1. On 26 May 2016, Mr Cameron contacted the company's bank and changed the permissions on the bank account such that Mrs Koutrodimos was unable to make payments. On 15 June 2016, Mrs Koutrodimos endeavoured to make a further back payment of wages to herself but was unable to do so and called the bank. On 16 June 2016, Mrs Koutrodimos emailed Mr Cameron asking him to remedy the position, to which he replied: Changes were made, as payments from the general account were being made without my knowledge/authority. All payments will require multiple (2) authorisations, regardless of who is making the payments any authorisations can be made from any computer so I am sure there is no objection. I just checked the general account which is holding approx. $19k, I have the understanding that your payments are to be made when settlements have come through and you have put through 2 x $5,500.00 payments. No settlements have occurred so why is there back payments being made and why $11,000? Finally, with respect, you're not an [sic] share holder of Mosman & co PTY LTD and you're not a director of the company and I will not be taking commands from an employee so in future, simply ask me to approve the payment instead of making a demand. 1. Later that day, Mr Cameron made a payment from the company's bank account to his personal credit card account of $8,000. Mr Cameron gave evidence, consistent with the credit card statements, that he used the credit card for both business and personal expenses. When he made a personal purchase, he reimbursed the credit card account shortly thereafter. The business expenses stayed on the bank statement and, at the end of the month, the company usually paid the minimum balance only. The then most recent credit card statement, issued on 1 June 2016, had a closing balance of $9,746.52. By the date when Mr Cameron paid $8,000 onto the credit card, he had incurred further expenses to MYOB and for purchases of petrol on 2, 8, 15 and 16 June 2016. As such, the balance of the credit card at the time he withdrew the money was, it would appear, expenses incurred for the business for which he had not been reimbursed. Mr Koutrodimos accepted that "most of them" were work expenses like petrol. It seems to me that Mr Cameron apprehended that his ability to be reimbursed by the company for business expenses was rapidly coming to an end as the money standing in the company's bank account was being eroded by payments of back-pay to Mrs Koutrodimos in respect of which his resistance appeared futile and, by reason of the change he had made to the bank account, the parlous state of his business relationship with Mr Koutrodimos was about to worsen substantially. His ability to be reimbursed by the company was in jeopardy. 2. The following morning, Mrs Koutrodimos sent an email to Mr Cameron, copied to Mr Koutrodimos: If you have fraudly [sic] debited this amount you leave me no alternative but to contact the police with stealing monies from out account and an investigation on you will be conducted. Mr Cameron replied that "I don't need to get authorisation from you, you are not a shareholder or a director of the company." He noted that the description of the transfer clearly stated "DC credit card", being a card used for company expense only "so it is not theft, funds were used to reduced companies debt". 1. Mr Koutrodimos replied in regrettable terms: ATTENTION: DAMIAN. Further to you actions in stealing monies ($8,000.00) from our General Accoutn, yesterday, 16/6/2016, via eft and WITHOUT MY CONSENT OR KNOWLEDGE, I hereby give you this final notice once again to refund the monies into the General Account TODAY before EOB day today. It may be that, in Mr Koutrodimos' words, the payment was "unauthorised" in the sense that it was made without his prior knowledge or consent. There is no evidence before me, however, that the payment was fraudulent. The expenses standing on Mr Cameron's personal credit card related to the company for which he was entitled to be reimbursed. Mr Koutrodimos fairly accepted that, on reflection, the contents of the email could have been "over the top" and that to some extent the breakdown in relations could have been due to a misunderstanding on this subject. 1. Mr Cameron replied that he would return the funds, although only offered to do so "because they threatened to call the police on me. That is why". The monies were not repaid, as Mr Cameron was advised that he was not obliged to do so as the payment was for reimbursement of debts incurred for the company. 2. Also on 17 June 2016, Mr Cameron discovered that his access to the electronic banking system did not work. On attending a bank branch, he was informed that Mrs Koutrodimos had removed his access earlier that day, and that it could only be restored by Mr Koutrodimos. Mr Cameron could still log in and view the account but not make transactions. On 17 June 2016, Mr Cameron tried to log in to MYOB and was unable to gain access as the password had been changed. Mr Cameron re-set the password and notified the accountant of the new password, who forwarded the new password to Mr and Mrs Koutrodimos. 3. On 18 June 2016, Mr Cameron discovered that the key to the office filing cabinet had been moved. He sent an email to Mr and Mrs Koutrodimos: You have clearly hidden the key preventing me from doing my job, I am unable to get keys for my rental inspections. You are not only obstructing me from doing my job, but preventing me from gaining access to any company documentation which I have requested to review in yesterday's email to the companies accountant. 1. Mr Koutrodimos denied that, as a consequence of being locked out of the filing cabinet, Mr Cameron was unable to look at the wage books and bank statements of the company. His evidence in this regard was unsatisfactory: Q. Weren't those documents kept in the filing cabinet? A. They were. Q. How else would Mr Cameron be able to access those documents, if the cabinet was locked? A. He could have asked permission from myself, which I was always there, and his personal assistant had the keys in the front reception. Q. But as a director of the company he did not have a key to the cabinet? A. No, we had only one key, but after that event on the 16th of that money that he took, I held it in my possession as a licensee in charge. I had a duty of care. 1. Mr Cameron sent a further email to Mr and Mrs Koutrodimos on 21 June 2016 about the keys to the filing cabinet. I am aware that the keys were in Connie's "possession" last time. I have documents that need to be placed in the filing cabinet. Note, this is making it very difficult to conduct my duties here at the office and you are not making it a tolerable work environment for me. No response was in evidence to either email. Such conduct by Mr Koutrodimos was petty and unwarranted. 1. On 21 June 2016, Mr Cameron emailed Mr Koutrodimos on being informed by LJ Hooker of an offer to buy the business. Mr Cameron noted: Once again you have withheld important information from me further demonstrating your disregard for me as a director and shareholder as such the position of Mosman is untenable. Mr Cameron said he was willing to accept an offer of $3.60 per dollar of value of the rent roll immediately and would hold Mr Koutrodimos responsible for any losses incurred if the offer was not accepted. Mr Koutrodimos replied in incendiary tones, denying that any information had been withheld from Mr Cameron and suggesting that he get involved in the process and "show up at work". Mr Koutrodimos denied that he was obviously very angry when he wrote this email "not at all". Q. Why did you do it in capital letters? A. I just done it. There's no reason. 1. Mr Cameron replied that Mr Koutrodimos' behaviour was such that it made it impossible for Mr Cameron to work from the office. Mr Koutrodimos replied: IT GOES TO SHOW THAT I CANT HAVE A MATURE CONVERSATION WITH YOU MOVING FORWARD AS YOU CANNOT HANDLE THE TRUE FACTS AND FACE REALITY. DO YOURSELF A FAVOUR AND LOOK AT YOURSELF FIRST, BEFORE YOU JUDGE OTHERS ABOUT BEING UN PROFESSIONAL AND DISRESPECTFUL. IT IS YOUR ACTIONS AND LACK OF BUSINESS ETHICS TOGETHER WITH YOU LIES TO ME AND MY CONSTANT MENTORING YOU, TRAINING YOU AND MY FOLLOW UPS WITH YOUR WORK PERFORMANCES, RIGHT FROM THE BEGINNING. WHEN GETTING INTO A BUSINESS WITH A PARTNERSHIP, YOU SHOULD OF BEING HONEST AND HONOURABLE IN DISCLOSING ALL TO ME ON WHAT YOU KNEW AND DIDN'T KNOW ABOUT PRTY MANAGEMENT. SO DO NOT POINT THE FINGER AT ME AND AGAIN STOP WITH FALSE AND MISLEADING ACCUSSATIONS [sic] OF ME, BECAUSE IF YOU KEEP IT UP, YOU WILL ALSO BE HEARING FROM ME WITH REGARDS TO YOUR CONTINUING ACTIONS, FALSE ACCUSSATIONS [sic] AND YOU SERIOUSLY NEED TO GROW UP AND BECOME MORE MATURE AND INDEPENDENT. SHAME ON YOU, AS SOMEONE WHO WAS CONSIDERED AS A FAMILY FRIEND. He added, in a further email: AS BUSINESS IS STILL AS USUAL UNTIL SOLD, ADVISE ME WITHING [sic] 24 HRS IF YOU WILL BE COMING INTO THE OFFICE FOR DAILY WORK … 1. Mr Koutrodimos says that, after June 2016, Mr Cameron began to absent himself from work and did not manage the properties to which he was assigned. Mr Cameron says that Mr Koutrodimos displayed hostility to him in various ways including slamming the phone and throwing desk items. This led Mr Cameron to minimise his time in the office by working from home and utilising the Cloud systems in place. He says he was able to continue to work in this manner until the sale of the business was concluded. Mr Koutrodimos deposed: As a result of Damian abandoning his duties and roll [sic] as the property manager, the business suffered as clients as they were unsatisfied with Damian's services. This is a significant overstatement, as far as I can see. From January 2014 to June 2016, there were three complaints from landlords in respect of properties which Mr Cameron managed. The complaints were not necessarily directed at Mr Cameron, nor necessarily clearly his fault. The complaints from landlords appear to reflect a usual incident of business: not all clients are happy all of the time. After June 2016, three more complaints were received: one in July and two in August 2016. Again, it is not apparent from the landlords' complaints that Mr Cameron had failed to perform his duties, and one can barely be described as a complaint at all. I have no doubt that Mr Cameron was far from perfect in the performance of his duties as a property manager, but it also seems that Mr Koutrodimos has overstated the extent of Mr Cameron's deficiency. 1. On about 20 July 2016, Mr Cameron says he saw an interested purchaser leaving the boardroom, where he had apparently been discussing the purchase of the business with Mr Koutrodimos and without Mr Cameron's knowledge or involvement. On 4 August 2016, Mr Cameron sent an email to Mr Koutrodimos proposing a settlement to dissolve their affairs, essentially along the lines of a 30/70 split. Mr Cameron advised that he would continue his operations from the Eastern Suburbs under a different entity which would not affect the company's operations. He no longer has the email as it was sent from his work email address to which he no longer has access. 2. In late August, the accountant sought Mr Cameron's instructions about further payments of back-pay to Mrs Koutrodimos. Mr Cameron sent two emails with various questions, to which he does not appear to have had a reply. On 16 August 2016, a further payment of back-pay was made for $7,262.20. Mr Cameron protested to the accountant that this was without his agreement and contrary to the Shareholders' Agreement, but does not appear to have had a reply to this email either. 3. In August 2016, Mr Cameron advised that he would be away on leave from 8 to 14 September 2016. Mr Koutrodimos "declined his request for leave", but Mr Cameron went anyway. It is not clear to me why Mr Koutrodimos thought he had authority to decline a fellow director's wish to be away from the office for a week. It is indicative, however, of how Mr Koutrodimos viewed and treated Mr Cameron, that is, as a difficult employee. 4. In early September, the company entered negotiations to engage a broker to sell the business. Mr Koutrodimos printed out the contract for Mr Cameron to sign, but he did not sign it because he had not reached agreement with Mr Koutrodimos as to how the proceeds of sale would be distributed; "I didn't know how the funds were to be divvied up. I requested for the directors' loans to be paid first, for the GST component to be paid and what was remaining was a 70/30 split …". Removal as director 1. On 20 September 2016, Mr Koutrodimos issued a Notice of Extraordinary General Meeting of the Company, to be conducted at the accountant's office on 18 October 2016, to consider a resolution to remove Mr Cameron as director pursuant to section 203C of the Corporations Act, which provides: Removal by members—proprietary companies (replaceable rule—see section 135) A proprietary company: (a) may by resolution remove a director from office; and (b) may by resolution appoint another person as a director instead. 1. Presumably it was proposed to remove Mr Cameron under section 203C as Mr Koutrodimos was not entitled to remove him under the Shareholders' Agreement. At trial, Mr Koutrodimos submitted that the Shareholders' Agreement did not 'cover the field' and so the replaceable rules continued to apply, relying on section 134 of the Corporations Act which provides: Internal management of companies A company's internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution or by a combination of both. Section 135 provides that the replaceable rules apply to companies as modified by the company's constitution. Section 136 provides that a company adopts a constitution, relevantly, by special resolution. 1. The purpose which may be served by a shareholders agreement in this context was explained by the learned Professor Sealy in an early article (L.S. Sealy, "The Enforcement of Partnership agreements, Articles of Association and Shareholder Agreements" in P.D. Finn, ed., Equity and Commercial Relationships (1987, The Law Book Company)) at 108: … the shareholder agreement stands available as a draftsman's device to reimpose certainty where company law might otherwise deny it. The typical shareholder agreement, as we normally think of it, will be an express contract, made between all the founders or proprietors of a smallish company — an incorporated joint venture, a "quasi-partnership" or a family business. The device can regulate virtually every aspect of internal management within the company, so as to exclude or restrict the operation of the principle of majority rule and most of the other accepted fundamentals of corporate governance. 1. But whether the Shareholders' Agreement can displace or modify the replaceable rules is unclear. I was not taken to, and have not found, authority which decides the point. The interaction between a shareholders' agreement and a constitution has been considered, for example, Russell v Northern Bank Development Corp Ltd [1992] 3 All ER 161; [1992] BCLC 1016; Cody v Live Board Holdings Ltd (2014) 97 ACSR 606; [2014] NSWSC 78; Shearwood (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 1451. In Re Rectron Electronics Pty Ltd [2013] VSC 384, it was held that the principle of unanimous assent (see Re Duomatic [1969] 2 Ch 365; [1969] 1 All ER 161) can have the effect that a shareholders' agreement can, without more, amend a company's constitution, being effective "as a resolution of the members": at [68]. Here, whilst the Shareholders' Agreement refers to the company's constitution, there was no other evidence that it actually had one. But it may be that the Shareholders' Agreement stood as the company's constitution as it was adopted unanimously by the members and thereby displaced or modified the replaceable rules. 2. If the Shareholders' Agreement had effect as a constitution for the purposes of the Act, a possible construction of clause 3.2 is that it enables a shareholder, and particularly a minority shareholder such as Mr Cameron, to effect the removal of "their director" in circumstances where they would not otherwise have the power to do so alone. Such a construction is consonant with the replaceable rule in section 203C and thus it is arguable that section 203C continued to apply to the company alongside the Shareholders' Agreement as the agreement does not purport to displace all replaceable rules. Of course, assuming Mr Koutrodimos was entitled to propose to remove Mr Cameron under section 203C, then the Notice of Extraordinary General Meeting did not also propose a resolution to address Mr Cameron's entitlement under clause 3.2(b) of the Shareholders' Agreement to appoint a new director to represent him on the board. Rather, the proposed resolution, if passed, would have the result that Mr Koutrodimos would continue as the sole director of the company contrary to clause 3.1 of the Shareholders' Agreement, which required that the board "consist of all members of the Company". 3. But assuming all of this in Mr Koutrodimos' favour, an action validly taken may nevertheless constitute oppression in all the circumstances. As Brennan J put it succinctly in Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68 at 470: The remedies … are available whether or not the resolution complained of is a valid resolution. To say that the resolution was adopted in good faith and for a purpose within the power conferred is relevant to but not conclusive of the question whether leave should be granted … See also Wayde at 466–7 (majority); Tomanovic v Global Mortgage Equity Corp Pty Ltd (2011) 84 ACSR 121; [2011] NSWCA 104 at [176]–[177]. 1. In late September 2016, Mr Koutrodimos received an offer to buy the rent roll at $3.50 per dollar of value, but that this could not proceed without Mr Cameron. On about 3 October 2016, Mr Cameron sent an email to the accountant outlining the terms on which he would agree to such a sale and provided a draft authority for the broker. Mr Cameron also offered to take the management of 'out of area' rental properties as payment of his 30% share in the company as he could then continue business, or open a new office from home in Bondi Junction. On 5 October 2016, the company paid a retainer to solicitors to act on the sale without consulting Mr Cameron. It would appear that Mr Koutrodimos was not prepared to agree on how the proceeds of sale would be disbursed before retaining professionals to assist in the sale of the rent roll. 2. On 12 October 2016, Mr Cameron was removed as a signatory of the company with the Rental Bond Board: Mr and Mrs Koutrodimos became signatories. As a consequence, Mr Cameron says he could not perform his duties as property manager. 3. On 14 October 2016, Mr Cameron's solicitors challenged the validity of the Notice of Extraordinary General Meeting as inter alia in breach of the Shareholders' Agreement. On 17 October 2016, Mr Koutrodimos' solicitor replied that the Shareholders' Agreement was "defective" and the meeting would go ahead. On 18 October 2016, the meeting took place. Mr Cameron attended with his mother and his solicitor. Mr Cameron asked for his solicitor to attend the meeting. Mr Koutrodimos objected but Mr Petrakis attended and minuted the meeting. Mr Koutrodimos explained why he objected to Mr Cameron having his solicitor present: No, I just said that it was both directors had to be there with my accountant. I didn't have my legal representative. I was alone. I think this was unfortunate in circumstances where Mr Petrakis was Mr Koutrodimos' personal accountant and it would appear had been such for some years. Mr Cameron was a much younger and less experienced person who had to attend an apparently hostile meeting with two more experienced and older men and it is, with respect, Mr Cameron who was "alone". Mr Koutrodimos voted in favour of the resolution removing Mr Cameron as a director over Mr Cameron's objection. Events since 1. From 18 October 2016, Mr Koutrodimos began to receive a salary of $1,502.03 (nett) a week which is roughly $2,000 (gross) a week. The next day, 19 October 2016, Mr Koutrodimos' solicitors wrote to Mr Cameron's solicitors: We are … instructed that Mr Cameron has abandoned his employment with the Company and did so many months ago. … Your client is no longer a director or employee … his only remaining relationship with the Company is as a shareholder. We are instructed that after the meeting yesterday your client contacted staff in the Company's office. Please advise your client that he must not contact or communicate with any of the Company's clients or represent himself as a director or employee of the Company or cause any person to believe that he is a director or employee of the Company. Please advise your client to return any and all Company property to the Company's office prior to the close of business today. Any such misrepresentation that affect the Company may result in legal proceedings. Your client's rights as a shareholder will be honoured by the Company. The closing line does little to ameliorate the overall import of the letter. 1. On 26 October 2016, Mr Cameron's solicitors replied denying the validity of the resolution to remove Mr Cameron as director but notifying that Mr Cameron resigned as a director. Mr Cameron sought repayment of his loans to the company. On 1 November 2016, Mr Koutrodimos' solicitors responded inter alia threatening to commence legal proceedings unless Mr Cameron ceased to "contact and harass employees of Mosman." There is no evidence that he was doing this. Further correspondence ensued. 2. On 20 October 2016, Mr Cameron incorporated a new company, DDIC & Co Pty Ltd. On 25 October 2016, the business name "DC Property Agents" was registered by DDIC & Co and the business commenced operations. In late November 2016, the company began to receive letters from landlords terminating their management agreements and moving to DC Property Agents. Ultimately, some 11 letters were received. Mr Koutrodimos advised the landlords that the notices of termination were void, for example: As per our recent telephone conversation with you I would like to once again advise you that Damian Cameron was removed as a Director from the company on 18th October 2016 for various reasons and we take the law quite seriously especially for the fact that I have been running my own business for over 25 years and know the requirements of the law. I am very sorry to hear that you do not wish to receive the upmost professional service to be continued by us. As Damian Cameron was a Former Director he still has Fiduciary Obligations by the Corporations Act and LJ Hooker Sylvania. He is not permitted to liase [sic], speak, or solicit in any way with clients of LJ Hooker Sylvania. Your file cannot be handed to Damian Cameron due to confidentially and safety reasons, therefore you will be required to pick up your files. Unfortunately he is not permitted in liaising whatsoever with any of our current clients but it seems he continues do so which we find quite disturbing. The content of the company's communications with landlords insinuated that Mr Cameron had done wrong. 1. On 23 November 2016, Mr Koutrodimos' solicitors alleged that loss had been caused to the company by Mr Cameron's use of confidential information to solicit the company's clients in breach of his duties. Any offer of settlement was to be contingent on accounting for this loss, said to be at least $37,891.55. At trial, Mr Koutrodimos relied on: 1. a series of letters and emails from landlords in November and December 2016 notifying LJ Hooker Sylvania of their appointment as agent of the properties, of which 5 were on a DC Property Agents form; 2. an email from Mr Koutrodimos to a landlord, and an email sent to himself as a file note, confirming that two landlords had appointed Mr Cameron; and 3. a letter of 5 September 2017 from LJ Hooker Campsie complaining that, in late March or early April 2017, Mr Cameron had contacted the landlord of one of the properties on the rent roll purchased by the agency and tried to get his business. 1. Mr Cameron agreed that he sent a text message to the landlord referred to by LJ Hooker Campsie. The landlord had a number of investment properties including one managed by Raine & Horne which was up for lease, and Mr Cameron expressed interest in managing that property. There is no evidence that LJ Hooker Campsie required reimbursement of any part of the monies it had paid by reason of the management of this or any other property moving to Mr Cameron. Mr Cameron agreed that, as property manager of LJ Hooker Sylvania, he had access to a client list of all properties being managed by the business and, on his mobile phone, contact details of clients. He denied contacting any of these clients after he left the business but said that a number had phoned him. The owners who called Mr Cameron said that they had received letters and emails from the office after he had left. They asked Mr Cameron where he was, what he was doing and why. Mr Cameron told them that he had set up an office on Bondi Junction but did not tell them why he had left the business, "Obviously, I couldn't disclose why". He denied writing to any of the clients to tell them that he had started a new business. 2. I was not satisfied on the balance of probabilities that Mr Cameron breached his duties under section 183 of the Corporations Act, or that he caused the company loss in the manner suggested. The loss of 10 managed properties is equally consistent with clients who enjoyed working with Mr Cameron receiving communications from the company about Mr Cameron's departure, prompting them to ring him to find out what had happened and deciding to take their business elsewhere. 3. Meanwhile, Mr Koutrodimos continued his efforts to sell the rent roll. On 1 December 2016, the management of 44 properties was sold, it appears without consultation with Mr Cameron. On 13 December 2016, Mr Cameron's solicitors wrote again requesting the company's books and records and noting that it was understood that the rent roll had been sold without Mr Cameron's involvement, and thus in breach of the Shareholders' Agreement. On 15 December 2016, Mr Koutrodimos' solicitors responded, maintaining that the Shareholders' Agreement was defective, Mr Cameron was not entitled to the books and records unless he was contemplating proceedings (which is at odds with clause 14 of the Shareholders' Agreement), insisting that Mr Cameron cease harassing staff and stressing that he was not entitled to enter the business premises (there is no suggestion he was doing either). The letter continued: The rent roll of the business has now sold for the price of $234,375.75. From the gross sale amount the current and future expenses of the business, including rent for the Company's premises, will be deducted and we expect to be in a position to advise you of this in February 2017. As set out to you in our correspondence of 8 and 23 November 2016, your client has, in breach of his duties as a former director and in breach of his duties of confidentiality, continued to solicit and work for clients of the Company. The direct losses caused to the Company from such breaches are currently $84,198.14. The above amount will be deducted from any dividend paid to your client. In the event that your client continues to solicit and work for clients of the Company the deduction will increase and will be deducted from any dividend your client may receive and ultimately any repayment of the loan your client may receive. At present and without allowing for any Company expenses or further breaches by your client, your client would receive no dividend and approximately 50% of his loan due to the losses your client has caused the Company. In the event that your client continues to breach his obligations to the extent that the loan owing to your client is extinguished we have instructions to commence legal proceedings seeking an injunction to prevent the operation of your client's business. We will provide you with updated and more detailed calculations in February 2017 when the calculation of the Company expenses has been finalised. It is apparent that Mr Koutrodimos was only prepared to pay Mr Cameron a share of the proceeds of sale after deducting losses and further business expenses as calculated by Mr Koutrodimos. The basis of his entitlement to do so is unclear. 1. On 22 December 2016, the company sold the management of a further 11 properties and, on 1 February 2017, the company sold the management of a further four properties. On 31 March 2017, the Company sold the management of a further property. The total sales proceeds were $276,388.50 in respect of the management of 60 rental properties. 2. Expert valuer Paul Brooks valued the business as at 18 October 2016. The property rent roll had 77 properties: 5 commercial properties, 32 properties in the Sutherland Shire and 40 properties outside the Shire. Depending on the type of property, Mr Brooks applied different multipliers to the rental income ranging from $1 to $3.60. The total rent roll value ranged from $315,064.69 to $346,475.90. Aside from the rent roll, Mr Brooks did not consider that the business had any value as it did not show enough profit to make it a saleable item. The parties accept this valuation. Mr Brooks' figure is higher than that for which the rent roll was sold, presumably because the valuation was based on 77 properties whilst a rent roll of 60 properties was sold. Of the 17 properties which formed part of Mr Brooks' valuation but were not 'sold' by Mr Koutrodimos, 10 went to Mr Cameron's new business and 7, presumably, went to another real estate agent. If one takes an average value for each rental property from Mr Brooks' valuation and applies it to the 60 rental properties 'sold', then the proceeds of sale realised by Mr Koutrodimos is consistent with Mr Brooks' valuation and thus I conclude that Mr Koutrodimos achieved a fair price for the rent roll. 3. On 9 March 2017, Mr Cameron attended the offices of Mr Koutrodimos' solicitors and was given access to part of the company's books that he had requested. He noted with concern the payments of salary to Mr Koutrodimos and further increases in Mrs Koutrodimos' salary. On 25 July 2017, these proceedings were commenced. 4. On 4 February 2019, Mr Koutrodimos made an open offer to Mr Cameron to pay 30% of the proceeds of sale of the rent roll less deductions of $52,172.16 for 10 properties poached by Mr Cameron less expenses of the company ($88,555.79), accounting fees ($16,170) and directors' loans. The basis for the calculation of loss by Mr Koutrodimos is that, were it not for the loss of these properties to Mr Cameron's new business, they would have formed part of the rent roll sold by the company at a value of the yearly management fee multiplied by $3.50. The balance calculated was $32,061.15 but $46,000 was offered, but not accepted. OPPRESSION The Law 1. In respect of the law, the parties were agreed as to the relevant principles. As the case was ultimately put, Mr Cameron seeks an order under section 233(1)(d) of the Corporations Act for the purchase of his shares in Mosman & Co by Mr Koutrodimos. Section 232 of the Act provides that the Court may make such an order 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 in any other capacity. 1. As Brennan J noted in Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459; [1985] HCA 68, in respect of the statutory predecessor to section 232, it is not oppression for the directors of a company to make a decision which is manifestly prejudicial to and discriminatory against a member. To amount to oppression, it must also be unfair, that is, so unfair that reasonable directors who considered the disability the decision placed on the member would not have thought it fair to impose it: at 472. In an oft-cited passage of Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222, Young J explained the position post-Wayde as follows, at ACLR 704; ACLC 233 (some citations omitted): … in my view as a result of the decisions … in Australia in Wayde & Anor v. N.S.W. Rugby League Ltd it has been accepted that one no longer looks at the word "oppressive" in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair. In my view the court now looks at subsec. (2)(a) as a composite whole and the individual elements mentioned in the section would be considered as different aspects of the essential criterion, namely commercial unfairness. This passage has been approved, inter alia, by the Victorian Court of Appeal in Joint v Stephens (2008) 26 ACLC 1,467; [2008] VSCA 210 at [135] per Nettle, Ashley and Neave JJA, and by the New South Wales Court of Appeal in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 84 ACSR 121; [2011] NSWCA 104 at [140], [177] per Campbell JA, with whom Macfarlan and Young JJA agreed. 1. More recently, the High Court has continued to extol a broad approach to the words of the statute. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, French CJ said of the present oppression provisions, at [72]: Their language and history indicate that ss 232 and 233 are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution. The majority (Gummow, Hayne, Heydon & Kiefel JJ) took a similar approach at [174]–[176] and [178]–[182]. Their honours did so in the context of differing approaches in the Court of Appeal as to whether the Court has power to grant relief for oppression where the conduct in question has ceased. Whilst the High Court did not consider it necessary to decide the point, there were "strong hints" that the Court may make an order under section 233 in respect of past conduct: French CJ at [68], [70], [72]; Gummow, Hayne, Heydon & Kiefel JJ at [182]; described as "strong hints" by Young JA in Tomanovic at [329]. 1. Many cases recognise that a closely-held company or quasi-partnership has features that form a species of oppression claims. In Re a company (No 00709 of 1992); O'Neill v Phillips [1999] 2 All ER 961; [1999] UKHL 24, Lord Hoffman, with whom Lords Jauncey of Tullichettle, Clyde, Hutton and Hobhouse of Woodborough agreed, referred to, at 970: … the standard case in which shareholders have entered into association upon the understanding that each of them who has ventured his capital will also participate in the management of the company. In such a case it will usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in the management without giving him the opportunity to remove his capital upon reasonable terms. … His Lordship's exposition has been described as "substantially consistent" with how sections 232 and 233 have come to be understood and applied in Australia: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 per Priestley JA at [418]; Tomanovic at [186]; Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 71 ACSR 395; [2007] NSWSC 153 at [55]; Campbell v Backoffice Investments Pty Ltd at [175]–[176]. 1. In Tomanovic v Global Mortgage Equity Corporation Pty Ltd, Campbell JA considered the question of a "reasonable offer" in determining whether oppression was made out, again emphasising the primacy of the statutory text. At [234]–[235]: [234] … However, the application of s 232 is not properly approached by seeking to create rules containing terms that are not found in the legislation, like "exclusion from management" and "reasonable offer". [235] Further, it is not as though "exclusion from management" and "absence of a reasonable offer" are elements of a cause of action, so that a plaintiff in an oppression suit (or, perhaps, in the sub-species of oppression suits in which exclusion from management is a prime element in the oppression alleged) has the onus of proving absence of a reasonable offer. Rather, the making of a reasonable offer is merely one factor that, in some (but not all) types of situations where oppression is alleged can be relevant to whether oppression is made out. … In his concurring judgment, Young JA agreed that "the maxims that have come into use in this area of the law are of limited assistance" and "every case has to be looked at on its own facts and circumstances and that, while the proposition in each of the maxims is correct, cumulative conduct may produce a different result": at [331]. 1. Of the many maxims and factors are referred to in the case law, one is worthy of note. In Fexuto, Spigelman CJ considered that irreconcilable differences in a quasi-partnership company do not of themselves constitute oppression or unfair prejudice but "the destruction of the personal relationship establishes a basis for granting relief in the usual case" unless the person excluded from participation in management as a consequence of the breakdown was also responsible for it: at [89]–[90], [104]. In Tomanovic, Campbell JA took a similar approach, noting that the emergence of irreconcilable differences may be one of several factors that together lead to a conclusion that oppression is made out: at [199]. Parties' submissions 1. Mr Cameron submitted that, in the eyes of the commercial bystander, there has been commercial unfairness which is inconsistent with the legitimate expectation of Mr Cameron as a shareholder of the company, although I note that the terminology of "legitimate expectation" is to be approached with caution: Fexuto at [62] (Spiegelman CJ), [415] ff (Priestley JA), [649] ff (Fitzgerald JA); Tomanovic at [166] ff. 2. Mr Koutrodimos made seven submissions. First, he submitted that in circumstances where the company has ceased to trade, there is no utility in determining whether there has been oppression given the relief claimed is an order requiring compulsory purchase of the shares by Mr Koutrodimos. Where the objective of the remedy under section 233 is to separate the oppressor and the oppressed party, and this has already occurred, there may be no occasion for making the order solely to achieve a compensatory objective: Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95 at [120]–[123]. This seems to be another way of saying that the Court would not grant relief where oppression has ceased. As I have noted, however, the High Court "strongly hinted" on appeal that the Court may make an order under section 233 in respect of past conduct. In any case, the submission that the parties have been separated where they remain shareholders in the same company is difficult to sustain. 3. Second, Mr Koutrodimos submits that there is no oppression as there has been an offer to purchase the 30% shareholding at fair value taking into account the loss suffered by the Company as a result of Mr Cameron's breach of directors' duties under section 183 of the Corporations Act and fiduciary duties. Whilst it is true that, where there is a claim of oppression on the basis of exclusion from management, the making of a reasonable offer to purchase the shares weighs against a finding of oppression, the difficulty here is that the offer has at all times been subject to deductions and losses, dictated by Mr Koutrodimos, which substantially diminish what would otherwise be the value of Mr Cameron's shares. 4. Third, Mr Koutrodimos submitted that it was fair to deny Mr Cameron access to the electronic banking system and the company's files, wage books, cheque books and bank statements because the payment of $8,000 to his personal credit card was said to be use of company funds for personal benefit in breach of his directors' duties of care and diligence and good faith under sections 181, 182, Corporations Act, and that denying him access to the banking system was done in the best interests of the company. For the reasons already given I do not agree that Mr Cameron took company funds for his personal benefit. Nor do I agree, as was submitted, that Mr Cameron continued to have access to the company's hard copy records after he was excluded from the MYOB system: the files were in a filing cabinet in respect of which Mr Koutrodimos held the only key. 5. Fourth, in respect of Mr Cameron's removal as a director, Mr Koutrodimos submits that the resolution on 18 October 2016 was valid and where a member has a fair and reasonable means of exit from the Company, it is unlikely to be oppression: Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 at [92]–[94], [101]. Clause 8 of the Shareholders' Agreement set out a procedure for a member to sell their shares, including by reference to independent valuation, and where that offer is declined or lapses, then by winding up the company. It was submitted that the procedure satisfied the criteria set out by Lord Hoffmann in O'Neill v Phillips [1999] 2 All ER 961 at 975–6 as to what is reasonable: cf. Nassar at [101]–[102]. I think this is a difficult submission for Mr Koutrodimos to press in circumstances where he repeatedly contended before commencement of these proceedings that the Shareholders' Agreement was defective or, it would now appear, selectively defective. I also have difficulty in directly applying Lord Hoffman's checklist (which Barrett J notes in Nassar, at [102], is merely obiter), when the courts in this country have emphasised that oppression is not a cause of action which is readily susceptible to being compartmentalised in this way. But it is a factor. 6. Fifth, Mr Cameron did not show a willingness to engage in the negotiations for the sale of the rent roll, or to authorise the broker to sell the rent roll, and in the circumstances it is submitted that Mr Cameron was not denied a reasonable opportunity to negotiate reasonable terms of withdrawal from the company as he chose not to participate in that process: Nassar at [109]–[110]. I do not think this submission fairly encapsulates events as they unfolded. Mr Koutrodimos was keen to sell the rent roll and not keen to involve Mr Cameron if he could avoid it. Mr Cameron protested from time to time but otherwise left Mr Koutrodimos to it. 7. Sixth, the resolution to remove Mr Cameron as a director was said to be a fair decision as from May 2016 it was acknowledged that the business of the Company would be brought to an end. But by September 2016 the parties had not progressed negotiations to sell the rent roll. A reasonable director in those circumstances, balancing the interests of the company against the burden the decision may have on the minority shareholder, would not consider the decision to remove Mr Cameron as director as unfair, noting, of course that irreconcilable differences do not in themselves constitute oppression: Nassar at [96]–[98]. The resolution to remove Mr Cameron as director was to bring about the sale of the rent roll in the context of irreconcilable differences. The legal consequence of the decision to sell the company's assets applied equally to the majority and minority shareholders: Catto v Hampton Australia Ltd (in liq) (No 3) (2004) 89 SASR 234; [2004] SASC 242 at [93]–[99] It seems to me, however, that Mr Koutrodimos removed Mr Cameron as a director because Mr Koutrodimos wished to progress the sale of the rent roll without having to consult with Mr Cameron or agree how the proceeds of sale of the rent roll would be distributed. 8. Further, in November 2016, when the company entered into the first agreement to sell its rent roll, it was submitted that Mr Cameron was no longer a director of the company. Mr Koutrodimos, as sole director, had a right to enter into the agreements to sell the company's rent roll under clauses 1.1(l) and 5.3 of the Shareholders' Agreement. In the circumstances, it was submitted that the sale of the rent roll could not form the basis of any prejudicial, discriminatory or oppressive conduct under section 232, nor could it be said to be contrary to the interests of the members as a whole. However, Mr Cameron does not contend that the decision to sell the rent roll was the oppressive conduct but, rather, the manner in which the company's main asset was then sold, without consultation with him and without keeping him 'in the loop'. It is also, I think, not to the point to say that, after Mr Koutrodimos removed Mr Cameron as a director — in a manner not envisaged by the Shareholders' Agreement — that Mr Koutrodimos was thereafter authorised under that agreement as the sole director of the company to enter into contracts on its behalf. 9. Finally, in respect of the increase in salary to Mr and Mrs Koutrodimos, it was submitted that the question was whether the salary level was so high as to amount to oppressive conduct: Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd (2001) 19 ACLC 517; [2001] WASC 8 at [30]–[31]. Whilst Mr Koutrodimos' salary increased from nil to $2,000 a week, it was more than reasonable: Mr Koutrodimos was the licensee of the business, and had been since January 2014, that is, over two years. A salary of $2,000 a week commencing on 18 October 2016 could not be said to be an amount so high so as to amount to oppressive conduct. This was at a time when Mr Cameron ceased to work at the company, and Mr Koutrodimos was then the sole real estate agent. But Owen J also described the "real issue" in Shamsallah as being whether a salary was "justifiable" and therefore not "unfair". Whether it is "justifiable" need not be determined only by taking into account the level of the salary. I think the more relevant context is that both Mr Cameron and Mr Koutrodimos had been working in the business for over two years, unpaid, and it was only after Mr Cameron had been removed that Mr Koutrodimos paid himself a salary, and then a relatively handsome one in the history of the company's activities. There was no particular change to the company's financial performance to support such a change; the only thing that had changed was that Mr Cameron was no longer a director and the company's only asset was in the process of being sold. Nor do I think that Mr Koutrodimos can justify his salary by reference to the fact that he was a sole director in circumstances where he had brought about that result. 10. With respect to the increase in Mrs Koutrodimos' salary, it was submitted that Mrs Koutrodimos did not receive any salary for the first 9 months and only began receiving a salary around September or October 2014. Mrs Koutrodimos was an employee of the company working as a sales and marketing assistant, payroll officer and office manager. There is no evidence to suggest that payment of her wages was improper. Her wages are a valid expense of the company. Accordingly, that conduct cannot amount to oppression. I cannot fail to notice that, after Mr Cameron's access to the bank account was cancelled, Mrs Koutrodimos' wage increased from $658 a week to, on 8 July 2016, $670 a week to, on 29 July 2016, $873.96 a week to in various increments, on 18 August 2016, $918.48 "award wages" with a further back payment of wages of $7,262.20 paid on 26 August 2016. Despite Mr Koutrodimos' assertion that Mrs Koutrodimos was an employee, no contract of employment was ever proffered. There was no clear, agreed, or documented basis on which Mrs Koutrodimos was employed or paid wages and, in a business which was barely profitable, Mr and Mrs Koutrodimos' actions in ensuring that Mrs Koutrodimos was paid over the objection of the minority shareholder and director were problematic at the time and remains so in the context of an oppression suit. Determination 1. It seems to me that the following factors are relevant to whether there was oppression in this case. First, the basis of the agreement between the members of the company was that both members would contribute equally to the cost of the business but one member (Mr Koutrodimos) would be the majority shareholder. This reflected the different skills which the members brought to the new company and how those skills were valued by the members, but had the potential for the majority shareholder to oppress the minority shareholder. This potential was ameliorated by a Shareholders' Agreement, drafted by Mr Koutrodimos, which provided, in essence, that each member had to be represented on the board, and only the member appointing a representative could remove their representative and appoint a replacement. Resolutions had to be decided by the majority, which in this case meant, effectively, unanimity. As unworkable as the Shareholders' Agreement was due to numerous drafting infelicities, it represented a contract between the members directed to ensuring that each member was represented on the board and involved in the management of the company. 2. The protection of Mr Cameron's minority interest afforded by the Shareholders' Agreement was nullified by Mr Koutrodimos calling a meeting and proposing to remove Mr Cameron under the replaceable rules and, having done so, to proceed as sole director in circumstances where the Shareholders' Agreement envisaged that all members of the company would be represented on the board. Mr Koutrodimos did so at a meeting of directors at which he refused to permit a much younger and less experienced director from having his solicitor present in circumstances where Mr Koutrodimos had his personal accountant present. 3. Second, in the early days of the business, Mr Cameron's level of experience was less than that of Mr Koutrodimos, both in real estate and in business generally. Mr Koutrodimos took the lead and ran the business with occasional input from Mr Cameron and also Mrs Koutrodimos. In Joint v Stephens, at [137], their Honours referred to Re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273 where the prejudicial conduct consisted of one director running a quasi-partnership company virtually as his own, and it was held that the conduct was not unfair because the plaintiff had not shown any interest in being involved in the management or decision making. However, here it seems to me that Mr Cameron's experience and willingness to participate in the business increased such that by March 2016 he was keen to run a second office of the business and Mr Koutrodimos was keen for him to do so. 4. Third, Mr Koutrodimos persisted in paying his wife "back-pay" in the absence of agreement from Mr Cameron or any clear entitlement to "back-pay" in a contract of employment or at all. In the circumstances of this business — where the members had yet to receive a distribution after 16 months — the amounts in issue were substantial and the absence of agreement or entitlement significant. Mr Koutrodimos was in a position of conflict of interest between his obligations as a director of the company to the members, and his personal loyalties. This was compounded, when Mr Koutrodimos became the only director of the company, by instigating the payment of salary to himself and increasing his wife's wages further. 5. Fourth, Mr Koutrodimos was resistant to Mr Cameron's efforts to obtain financial information about the company from the company's accountant, who was also Mr Koutrodimos' personal accountant. Mr Koutrodimos would not agree to Mr Cameron having the information sought before a directors' meeting, and then only some of the information sought was provided at the meeting. I infer that Mr Koutrodimos did not want to give Mr Cameron a proper opportunity to consider the information before meeting or deciding how he wished to proceed. 6. Fifth, Mr Koutrodimos took charge of selling the company's only asset, the rent roll, without consulting Mr Cameron or making any reasonable effort to reach agreement on how the proceeds of sale would be divided between them. 7. Sixth, Mr Cameron's access to the bank account was removed, as was his access to the MYOB accounting system and hard copy files in the filing cabinet and his authority with the Rental Bond Board. This was prompted by the events I have described, but if Mr Cameron's transfer of $8,000 from the bank account was unexpected and the basis initially unclear, Mr Cameron explained himself and, as a director, he was entitled to transfer the funds to pay for business expenses which he had been carrying on his personal credit card for some time. Mr and Mrs Koutrodimos' reaction (and I refer to both as they appear to have acted together) was to exclude Mr Cameron from the management of the business. 8. Seventh, there were irreconcilable differences in a quasi-partnership company. Following Fexuto, the destruction of the personal relationship establishes a basis for granting relief in the usual case unless the person excluded from participation in management as a consequence of the breakdown was also responsible for it. Overall, it does not seem to me that Mr Cameron was responsible for the breakdown in relations between himself and Mr Koutrodimos. Whilst a more experienced business person in Mr Cameron's position may have dealt with the dilemma posed by Mrs Koutrodimos' requests for back-pay, and the majority shareholder's support of those requests over his objection, with more consistency and firmness, Mr Cameron found himself in a difficult position as the younger director against, effectively, two people. His imperfect attempts to stand his ground were met with overwhelming force and his exclusion from management. 9. Eighth, a plaintiff's conduct is relevant to the question of whether oppression is made out: it may render the defendant's conduct, even if prejudicial, not unfair or otherwise affect the relief which the court things fit to grant: Joint v Stephens at [136] adopting Nourse J in In re London School of Electronics Ltd [1986] Ch 211 at 222; [1985] 3 WLR 474 at 482. Mr Cameron contributed to the disharmony between himself and Mr Koutrodimos, in particular, by withdrawing $8,000 from the company's bank account without first discussing it with Mr Koutrodimos. Mr Cameron was somewhat inconsistent in how he dealt with the issue of Mrs Koutrodimos' wages and back-pay and in whether he wanted to be involved in the sale of the rent roll or to leave it to Mr Koutrodimos. He did ultimately leave the sale of the rent roll to Mr Koutrodimos, and that appeared to suit them both. 10. Ninth, Mr Koutrodimos has made offers from time to time to pay out Mr Cameron's 30% interest in the assets of the company. However, these offers have been subject to onerous conditions unilaterally imposed by Mr Koutrodimos, in particular, by deducting losses calculated by Mr Koutrodimos in circumstances where the basis for attributing those losses to Mr Cameron's conduct was not established, either at trial or from the information available to Mr Koutrodimos at the time fairly viewed. 11. Having regard to each of these matters, I consider that a situation of commercial unfairness has evolved. The majority shareholder has used his voting power, contrary to the terms of a Shareholders' Agreement, to exclude the minority shareholder from participation in the management of the company but has not given the minority shareholder the opportunity to remove his capital on reasonable terms. The conduct of the company's affairs has amounted to oppression within the meaning of section 232(e) of the Corporations Act on the minority shareholder entitling Mr Cameron to relief under section 233 of the Act. Relief 1. Mr Cameron seeks an order that his 30% share in the company be purchased by Mr Koutrodimos for the mid-value assessed by Mr Brooks, being $99,231. Mr Koutrodimos submitted that from this amount should be deducted the loss to the company by reason of Mr Cameron acquiring 10 of the managed properties. Mr Koutrodimos did not rely upon any breach of the Shareholders' Agreement but an un-pleaded equitable duty of confidence. I am not satisfied on the balance of probabilities that Mr Cameron breached any (un-pleaded) equitable duty of confidence or any continuing duty as a director under section 183 of the Corporations Act by improperly using information which he had acquired as a director of the company to gain an advantage for himself or to cause detriment to the company. But in any event, Mr Cameron's shares in the company are worth, essentially, 30% of the net assets. In selling the rent roll, the company realised its main asset. I consider the more accurate way of quantifying the value of this asset is to take 30% of the proceeds of sale of the rent roll rather than 30% of what could have been sold if all landlords had stayed with the company. 2. Mr Cameron seeks an order that the company repay his director's loan, and Mr Koutrodimos accepts that he is entitled to this. Mr Cameron is not entirely sure what the balance of the loan is but was content to accept the figure calculated by Mr Petrakis in the balance sheet as at 18 October 2016, that is, $45,122.10. After the hearing, Mr Cameron advised that he did not accept a reduction in his loan account from $55,133.33 as at 19 June 2016 to $45,122.10 as at 16 October 2016. I do not know where the balance of the loan account for 19 June 2016 comes from. There is a balance sheet as at 17 June 2016 which records a balance of the loan of $42,714.59. The general ledger for the company from 17 June 2016 to 18 October 2016 records an opening balance of $42,714.59 and a closing balance of $45,122.10. There were two director allowance payments of $400 and $480 to Mr Cameron of 16 September 2016 and 1 October 2016 respectively. Given the small nature of these payments I will take the figure in the balance sheet as at 16 October 2016, being $45,122.10. 3. Mr Cameron accepted that the liabilities of the company should also be taken into account and, in the absence of knowing the precise financial position of the company, was prepared to accept the liabilities as set out by the accountant. I directed the parties at the conclusion of the hearing to confer in respect of the financial statements for the company and, if possible, reach agreement on what amounts should be deducted from Mr Cameron's portion of the proceeds of sale of the rent roll. The parties were unable to agree, which is regrettable given the very small amount of money in issue in these proceedings. 4. Mr Cameron noted that the balance sheet as of 18 October 2016 did not allow for commissions due in respect of sales of properties where contracts had been exchanged but the commission had yet to be received. One would not expect the balance sheet to account for commissions which may be expected to come to the company in due course. There is no evidence as to what those commissions might be. It is too uncertain for me to make an adjustment on that account. Further, Mr Cameron submitted that the balance sheet did not include business expenses incurred by Mr Cameron on his credit card for the company which had not been reimbursed and were not included in his loan account, said to be $5,029.58. However, there is no evidence of this. 5. Mr Koutrodimos submitted that the total liabilities of the company as at 18 October 2016 were $182,719.80 comprising expenses of $88,555.79 and director's loans. However, this is to confuse profit and loss items with balance sheet items. The profit and loss statement from 1 July 2016 to 18 October 2016 records expenses of $88,555.79 but also income of $56,484.32 and a net loss for this period of $32,071.47. The largest expense by far was employment expenses of $47,322.46 of which Mrs Koutrodimos' wage comprised some 86%. Mrs Koutrodimos was paid more than either director of the company throughout its history. As Mr Cameron, a director of the company, did not authorise the salary increases or back-payments during this period, I am reluctant to include the expenses given that the largest portion of the expenses represents Mrs Koutrodimos' wages. 6. Aside from the proceeds of sale of the rent roll, the balance sheet as at 18 October 2016 recorded cash on hand of $7,131 and other assets such as office equipment, fixtures and fittings less depreciation totalling $60,886.18. With the proceeds of sale of the rent roll, total assets were $344,405. The balance sheet records current liabilities for GST, PAYG and superannuation totalling $18,261.93 and directors' loans of $95,034, with total liabilities of $113,296. Net assets were thus roughly $230,000. Mr Cameron's 30% shareholding in the company should thus be purchased for $69,000. ORDERS 1. I make the following orders: 1. Declare that the second defendant engaged in oppressive conduct within the meaning of section 232 of the Corporations Act 2001 (Cth) in the conduct of the affairs of the first defendant. 2. (Share purchase) Order pursuant to section 233(1)(d) of the Corporations Act 2001 (Cth) that the second defendant purchase the plaintiff's shares in the first defendant for $69,000. 3. On payment by the second defendant of the judgment in Order 2, order the plaintiff to transfer his shares in the first defendant to the second defendant or as directed by him. 4. (Director's loan) Order that the defendants pay the plaintiff $45,120. 5. Order the second defendant to pay the plaintiff's costs of the proceedings. 6. Grant liberty to the parties within 14 days to notify any amendment sought to these orders to correct any errors or omissions. ********** 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. Decision last updated: 06 September 2019