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Federal Court of Australia |
CORPORATIONS - oppression - where company is in the nature of a quasi-partnership - whether the termination of employment of a "partner" was oppressive of her as a shareholder within the meaning of s 260
CORPORATIONS - oppression - where company is in the nature of a quasi-partnership - whether a "partner's" refusal to divulge information essential to the conduct of the business can amount to "conduct of the affairs of the company" within the meaning of s 260 - whether such behaviour was oppressive within the meaning of s 260
CORPORATIONS - oppression - relief - power of Court to make order for compulsory purchase of shares
Corporations Law - s 260
New South Wales Rugby League Limited v Wayde and Anor (1985) 3 ACLC 177
Thomas v H.W. Thomas Ltd. (1984) 2 ACLC 610
Wayde and Anor v New South Wales Rugby League Limited [1985] HCA 68; (1985-6) 10 ACLR 87
Dynasty Pty Limited v Coombs [1995] FCA 1447; (1995) 13 ACLC 1290
Re Bodalbo Pty Limited (1992) 10 ACLC 351
LILIANE TAINSH v JUSTIN SAMUEL BARBER, DONNA ANGEL BOYCE- MONAGHAN and AUSTCORP No 452 PTY LIMITED; JUSTIN SAMUEL BARBER AND DONNA ANGEL BOYCE-MONAGHAN v LILIANE TAINSH and AUSTCORP No 452 PTY LIMITED
No. NG 3703 of 1995
CORAM: FOSTER J
DATE: 7 FEBRUARY 1997
PLACE: SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3703 of 1995
)
GENERAL DIVISION )
IN THE MATTER OF AUSTCORP No 452 PTY LIMITED
ACN 062 498 097
BETWEEN: LILIANE TAINSH
Applicant
AND: JUSTIN SAMUEL BARBER
First Respondent
DONNA ANGEL BOYCE-MONAGHAN
Second Respondent
AUSTCORP No 452 PTY LIMITED
Third Respondent
JUSTIN SAMUEL BARBER AND DONNA ANGEL BOYCE-MONAGHAN
Cross-Claimants
LILIANE TAINSH
First Cross-Respondent
AUSTCORP No 452 PTY LIMITED
Second Cross-Respondent
CORAM: FOSTER J
DATE: 7 FEBRUARY 1997
PLACE: SYDNEY
MINUTE OF ORDERS
THE COURT ORDERS THAT:
1. The application be dismissed with costs.
2. The cross-claim be allowed.
3. The cross-claimants purchase from the first cross-respondent, and the first cross-respondent sell to the cross-claimants, the first cross-respondent's share in the second cross-respondent for the sum of $52,000.
4. Each party to bear his, her or its own costs of the cross-claim.
THE COURT DECLARES THAT:
1. The dismissal of the applicant as an employee of the third respondent was reasonable in all the circumstances.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3703 of 1995
)
GENERAL DIVISION )
IN THE MATTER OF AUSTCORP No 452 PTY LIMITED
ACN 062 498 097
BETWEEN: LILIANE TAINSH
Applicant
AND: JUSTIN SAMUEL BARBER
First Respondent
DONNA ANGEL BOYCE-MONAGHAN
Second Respondent
AUSTCORP No 452 PTY LIMITED
Third Respondent
JUSTIN SAMUEL BARBER AND DONNA ANGEL BOYCE-MONAGHAN
Cross-Claimants
LILIANE TAINSH
First Cross-Respondent
AUSTCORP No 452 PTY LIMITED
Second Cross-Respondent
CORAM: FOSTER J
DATE: 7 FEBRUARY 1997
PLACE: SYDNEY
REASONS FOR JUDGMENT
HIS HONOUR: In these proceedings the applicant and the cross- claimants seek against each other, orders pursuant to s 260 of the Corporations Law. Each of them holds one of the three issued shares in the third respondent, a company engaged in the business of making and merchandising pasta products, including sauces and fillings ("the company"). As at 8 December 1995, each was a Director of the company and each was employed by it. I shall refer to the nature of the employment of the parties later in these reasons.
The employment of the applicant by the company was determined by the first and second respondents at a directors' meeting on 8 December 1995. The applicant alleges that this termination was "oppressive" within the meaning of s 260(2)(a) and (b) of the Corporations Law. This is denied by the respondents who, by their cross-claim, allege that certain conduct of the applicant was oppressive to them and necessarily led to the termination of her employment.
Both the applicant and the respondents seek orders that the respondents purchase the applicant's share. Although they are united in this desire, they have been unable to reach agreement on a proper valuation of that share. Nor have the expert valuers who have been called on each side of the record reached agreement. The Court is, therefore, called upon to decide whether oppression has occurred and, if so, by whom and, if necessary, to arrive at the proper valuation of the applicant's share. It is, therefore, appropriate that I set out in some detail the facts of the matter and my findings on the various issues that have been raised by the parties.
The applicant ("Mrs Tainsh") is 63 years of age. She has had considerable experience as a chef and restaurateur. Her work history, which is annexed to one of her affidavits filed and read in these proceedings, shows that from 1970 to 1974 she ran a French Provincial cooking school in Adelaide and that throughout the 1970s she was also actively engaged in the establishment and running of successful shops and restaurants in Adelaide which specialised in French cooking and the sale of associated equipment. She also wrote articles on French cooking for local newspapers. After working in similar positions in Sydney in 1980 and 1981 she returned to Adelaide where she established a successful restaurant business known as "Lili's Brasserie", in which she was engaged from 1982 to 1986. Thereafter, she appears to have ceased active engagement in the restaurant business. She managed a Guest House for two years, and then worked as a real estate agent up until November 1991 when she moved to Melbourne.
The evidence does not give a clear picture of her work in Melbourne. She was the recipient of a widow's pension. She interested herself in the development of pasta recipes. She claims to have developed, about mid 1992, a method of making fresh pasta from fresh raw ingredients on a commercial scale and also to have devised recipes for fresh pasta and pasta fillings. She regarded this method and the recipes as secret and known only to herself. She referred to them as her "intellectual property". It is conceded in this litigation, however, that the method and the recipes which she devised in Melbourne and further developed and refined in Sydney were not the subject of copyright or patent rights nor could they properly be described as trade secrets. However, her work in developing these products enabled her to start a small- scale manufacturing business in Melbourne in the course of which she sold pasta to certain restaurants.
As the result of telephone conversations in September or October 1992 with the second respondent ("Ms Monaghan"), Mrs Tainsh came to Sydney with a view to entering into a pasta manufacturing and merchandising business with Ms Monaghan and the first respondent ("Mr Barber"). Mr Barber and Ms Monaghan are husband and wife. The evidence establishes that Ms Monaghan and Mrs Tainsh had been on friendly terms for more than 20 years prior to Mrs Tainsh's arrival in Sydney. Ms Monaghan had previously worked as a waitress in restaurant businesses conducted by Mrs Tainsh. It is clear that they were good friends despite an obvious age difference. Ms Monaghan had a great respect for Mrs Tainsh's capacity as a creative chef, her general culinary skills, and her organising ability. It is also clear that she had considerable affection for her. Mr Barber and Mrs Tainsh became acquainted, apparently, in about 1991, prior to his marriage to Ms Monaghan. It is quite evident that he was also impressed by Mrs Tainsh's reputation as a creative chef.
At the time of the telephone conversations referred to, Ms Monaghan was working in Sydney in the fruit and vegetable industry and Mr Barber had a cleaning business. In their respective occupations they had made contacts with Sydney restaurants and food outlets. Additionally, Ms Monaghan had had experience in cooking in restaurants although her level of expertise in this regard was not that of a chef.
I am satisfied that both Ms Monaghan and Mr Barber were interested in starting a pasta production business in Sydney which could make good use of their existing contacts in the food industry. Ms Monaghan knew of Mrs Tainsh's developing pasta business in Melbourne and considered that the three of them could go into business together in Sydney in the production and merchandising of pasta products. She encouraged Mrs Tainsh to come to Sydney for this purpose, which Mrs Tainsh did in late 1992. Some sample products were produced by hand. These were shown to potential customers and provoked a favourable response. The result was that the three persons entered into a partnership for the production and merchandising of pasta products devised by Mrs Tainsh.
Mrs Tainsh had no money to put into the business. She could contribute only her technical expertise and the methods and recipes which she had created. Mr Barber had about $17,000 to put into the business and Ms Monaghan had $6,000. Obviously the business would be under-capitalised, but it was decided that they would make a start. They did not enter into any partnership agreement but I am satisfied that from late 1992, when Mrs Tainsh came to Sydney, they regarded themselves as in partnership in the business of manufacturing and selling pasta products in accordance with Mrs Tainsh's methods and recipes. At that stage they all lived in the same premises where numerous discussions about plans for the business took place. It is obvious from the evidence that all three were enthusiastic about the project and were prepared to work long and hard hours to establish it.
I am quite satisfied that all three entered into the partnership on the basis that each was an equal partner with the others and that profits from the enterprise would be shared on that basis. It was plain, of course, that the object of the partnership was to produce high quality pasta products in accordance with Mrs Tainsh's skill and experience and that these products would be those that she had already developed and would probably develop in the future. The quality of the product was also dependent upon her exercising her skill as a creative and accomplished chef. Clearly, the enterprise depended upon her continued contribution in this regard. Without this contribution there would be no business.
It was necessary to find business premises where the pasta products could be manufactured and sold. It was also necessary to obtain a suitable pasta-making machine and other necessary production equipment. Mr Barber sought, and ultimately located, suitable premises at 49 Albion Street, Surry Hills, Sydney. These premises apparently consisted of a downstairs shop, which was not in a suitable state of repair or fit-out, together with a residential flat upstairs. Ms Monaghan and Mr Barber moved into the upstairs flat and undertook, largely through their own labour, the fitting-out of the downstairs portion to make it suitable both for the manufacturing of pasta and also as a shop for sales across the counter. The work involved installing suitable flooring, tiling, refrigeration and kitchen equipment. It was necessary, for financial reasons, that the younger partners continue to work in their jobs whilst working long hours thereafter in the preparation of the business premises.
This operation took several months. Mrs Tainsh concedes that the two younger partners put very considerable effort into the preparation of the premises. Mr Barber leased the premises in his name and was responsible for the rent. He and Ms Monaghan continued to occupy the upstairs flat until October 1995. It was necessary, also, for Mr Barber and Ms Monaghan to purchase materials needed for the fit-out. No evidence has been placed before me as to the cost of these materials. However, as their purchase clearly occurred after the earlier discussions as to the finance that could then be provided by the younger partners, I am much inclined to the view that this expenditure was in addition to the amounts totalling $23,000 which were made available by Mr Barber and Ms Monaghan at the outset of the enterprise. It was all part and parcel of the broad understanding that the younger partners would contribute finance and labour and Mrs Tainsh would provide culinary know-how and skill.
A suitable pasta making machine was located in Italy and imported into Australia. Its purchase was financed through a loan from the National Australia Bank which was guaranteed by Mr Barber. On 5 February 1993 the partners registered the business name "Pastabilities", and in that month a bank account in that name was opened with the Bank. On 1 March 1993 Mr Barber and Ms Monaghan deposited $6,200 into that account to enable outstanding bills to be paid. Thereafter, Mrs Tainsh controlled the finances of the business, including the payment of all accounts. I am satisfied that she insisted on so doing and that the younger partners acquiesced in this. In the past she had had, of course, experience in the running of restaurant businesses which put her in a better position to attend to these matters and to the keeping of the business' books of account.
Mr Barber's accountant, Mr Pratt, of the firm Trood Pratt & Co, Chartered Accountants, was made accountant for the business. He was also the personal accountant for Mr Barber and Ms Monaghan. I am satisfied that Mrs Tainsh, at the appropriate times, provided Mr Pratt with information relating to the business' financial affairs. This was done during the period from 1 July 1993, when the business opened to the public, until 1 November 1993 when the business was incorporated by its being sold to and taken over by the third respondent, a shelf company purchased on Mr Pratt's advice for this purpose. Thereafter, the previous partners became shareholders, with one share each, in the company and were each employed by it. Mrs Tainsh continued to supply necessary financial information in relation to the company's affairs to Mr Pratt as its accountant.
I note that some portions of Mrs Tainsh's affidavit in support of the application in these proceedings, and some parts of the application itself, were directed to alleged problems in relation to the company accounts. It appears that any problems that might have existed have been rectified and that the accounts for the year ending 30 June 1995 and for the period thereafter, ending on 8 December 1995, are now accepted as giving a true picture of the financial position of the business. Complaints in this regard have not been persisted in and, consequently, I do not need to consider them.
During the period from late 1992 until 1 July 1993, when Mr Barber and Ms Monaghan were undertaking the work and incurring the financial obligations to which I have made reference, Mrs Tainsh was also busy in relation to the business. There is no dispute that in that period she worked full time in preparing costings for the pasta products, arranging supplies, developing new products, calculating quantities for ingredients required for the equipment and refining recipes and formulas in the light of trials on that equipment. I am satisfied that Ms Monaghan rendered some assistance in this period of experimentation with ingredients and new products. She did so, however, at a lowly level, simply providing help at Mrs Tainsh's direction. I am quite satisfied that her participation did not allow her to gain any worthwhile knowledge of what Mrs Tainsh refers to as her "intellectual property".
Some time in the period before the business opened on 1 July 1993, some problems and tensions began to develop within the partnership. These did not relate to the respective shares in the partnership, it being clear that these would be equal, but to the contributions made towards the setting up of the business. The evidence, both affidavit and oral, lacks clarity, but I am satisfied that the problems developed roughly along these lines. Mr Barber indicated that, should the business prosper, he would like to have repaid to him the amount, approximately $17,000, which he had provided. He said he was prepared to regard his contribution as an interest-free loan. It would appear that if this course were acquiesced in, Ms Monaghan would also seek the repayment of the amount of her initial contribution, approximately $6,000. Mrs Tainsh's response to this suggestion was that a value should also be placed upon her contribution, namely the provision of her "intellectual property", and that she should be paid an amount representing this value in the same way. No firm agreement was reached, either in principle or as to appropriate values. Indeed, Ms Monaghan expressed the view that neither she nor Mr Barber should get their money back as it should be regarded as a contribution to the business in the same way as Mrs Tainsh's contribution of her ideas and skills.
The question was not resolved in these discussions but, clearly enough, remained as a potential problem. Mrs Tainsh obviously sought to put a high value upon her contribution. In her affidavit she deposes to stating that it was worth upwards of $50,000. I am not prepared to accept that she in fact made a statement to this effect to the other partners, although it may well be that she harboured this view. Indeed, I am satisfied, on the whole of the evidence, that she regarded her contribution to the partnership as being substantially superior to that of the other partners, notwithstanding that she accepted that they both worked extraordinarily hard in the business.
I am satisfied that neither in these conversations, nor in later ones to which I shall make reference, was it alleged by Mrs Tainsh that she had not made available to the partnership but retained for herself exclusively her "intellectual property". She had brought with her from her incipient business in Melbourne recipes and methods for the commercial production of pasta which she had further refined after the partnership had commenced. Additionally, she had produced other recipes whilst the partnership was preparing to go into business. Quite clearly, these latter products were conceived whilst she was a partner. I am satisfied that she had contributed them to the partnership to be used in its enterprise as partnership property. The only question was what was a reasonable figure to be paid to her for that contribution. The payment of such a figure would be in the same category as the return to the other partners of the financial contributions that they had made.
The partnership business was successful. It began to obtain a niche in the top end of the market, namely by supplying its products to significant retail food outlets, such as David Jones Ltd, and to established and expensive restaurants in the city. A significant basis for its success was its ability to supply fresh pasta in commercial quantities at short notice. Undeniably the product was of a high quality, attributable to the use of fresh high quality ingredients combined with Mrs Tainsh's culinary skills.
It was also of major importance that the business maintain a reputation for reliability. This often necessitated the fulfilment of large orders placed at short notice. The product made by the business consisted of flat pasta and filled pasta which was, as I understand it, the type known as ravioli. Mrs Tainsh's fillings, which she had developed as described, were of a high quality and very attractive to the business' customers. In order to fulfil these orders it was necessary for the partners to work long hours. These are referred to in the evidence. As mentioned above, Mr Barber maintained his cleaning contract work, as a necessary source of income, in conjunction with his work in the partnership. He performed cleaning contracts in the early hours of the morning, then worked in the partnership delivering and marketing its products during the day. In the late afternoon and into the evening he performed cleaning work. Thereafter, he worked in the business making flat pasta to be delivered the next day. Mrs Tainsh worked during the day in the preparation of pasta other than the flat pasta, the production of which was the responsibility of Mr Barber. In order for him to make this pasta it was necessary for her to provide him with the recipes which she regarded as part of her "intellectual property". She did not, however, provide the recipes for the ravioli fillings and sauces which she made herself during the day, although in the later stages she used an assistant, Ms Tippane, to whom reference will be made later. Ms Monaghan worked throughout the day assisting Mrs Tainsh and operating the shop.
The evidence establishes that during 1993 Mrs Tainsh continued to assert that a value should be placed upon her contribution to the partnership. I am satisfied that from time to time she stated that she was not, in effect, making a gift of her culinary expertise. This was stated in the context that she should receive some payment for this contribution which was over and above the equal drawings that each partner was receiving from the takings of the business.
I am satisfied that neither Mr Barber nor Ms Monaghan considered that Mrs Tainsh had any such entitlement. They were of the view that the partnership was an equal one and that each partner had brought to it specific skills and finance which they devoted to the partnership business. The success of the business depended upon each one of them working extremely long hours and maintaining high standards of workmanship. Even though the partnership's and later the company's products were devised by Mrs Tainsh, the business, which was clearly an expanding one, could never have been brought into existence without the entrepreneurial and marketing skills of the younger two partners. It was because of their initiative that the business had been set up in Sydney where they already had potential customers. However, they were, quite obviously, in a difficult situation. They were, at that stage, convinced that Mrs Tainsh's products were unique and that the continuing success of the business depended upon those products being manufactured and marketed.
Apart from the recipe for flat pasta which had been necessarily divulged so that Mr Barber could make it, the fillings for the ravioli were, so far as they then understood, the product of "culinary alchemy" (a phrase used by Ms Monaghan in her evidence) known only to Mrs Tainsh. In these circumstances, if Mrs Tainsh abandoned the partnership or the company (which was, in effect, a quasi-partnership) the business could no longer supply its increasing body of customers with its products. In such circumstances it would, of course, come to an end. I shall consider the alleged uniqueness of Mrs Tainsh's method and recipes later in these reasons but, I am satisfied that in 1993 and, indeed, up to the point of time when Mrs Tainsh's employment was terminated, Mr Barber and Ms Monaghan held the views that I have just referred to. In these circumstances, they acquiesced in seeking to have a value placed upon Mrs Tainsh's contribution although not really accepting that she had any such entitlement.
Mr Pratt and another accountant were approached with a request that they calculate some appropriate figure. Each indicated that it was not possible for them to do so. It was a matter for the partners to agree amongst themselves. It appears that, in this period, Mr Barber had a form of partnership agreement drawn up which he handed to Mrs Tainsh for her consideration. It was rejected as being unsuitable. It has not been put in evidence. Consequently, it has no significance beyond the fact that it shows some effort on the part of Mr Barber to regularise the arrangements between them and that there was, apparently, no attempt by Mrs Tainsh to negotiate in respect of terms that were not to her liking.
Against this background, I come to consider an issue in this case raised in the cross-claim. It is alleged by Mr Barber and Ms Monaghan that an agreement was reached between the parties in relation to Mrs Tainsh's claim that she should be paid for the provision of her "intellectual property" to the partnership. It is asserted that an arrangement was entered into whereby each of the partners should draw moneys from the funds of the company by way of loans which were to be debited to a loan account in the name of each of them in the company's books. In fact, each of them did draw the sum of $230 per week until each had received the amount of $16,000. It is alleged in the cross- claim that Mrs Tainsh agreed to accept payment in this way for her "intellectual property". Mrs Tainsh denies this. She asserts that the payments were no more than a means by which each of them received moneys over and above their ordinary wages in a manner which did not make them immediately subject to tax. The amounts were received as loans which would ultimately have to be repaid but the repayment could be deferred. She asserted that this arrangement was entered into on the basis of advice received from Mr Pratt. It had nothing to do with any arrangement for payment to her for the contribution of her secret recipes and processes.
According to Mr Barber and Ms Monaghan the amounts received by them were intended to repay the moneys advanced in the setting up of the business. Insofar as they received between them $32,000, it would appear that the arrangement overpaid them as they had contributed directly only $23,000. Also, there was a certain logical problem in their being repaid loans in a manner which involved them in indebtedness to the company in the amounts that were intended to repay them. There was no record at any time in the partnership or company accounts of the amounts that were provided by them, either by way of loan or as a capital contribution. These matters were relied upon by Mrs Tainsh as supporting her contention that no such arrangement had been entered into.
I have come to the conclusion, however, that, despite these unsatisfactory aspects, there was an agreement entered into whereby the amounts taken in this way were intended as repayments of, or payments for, contributions which could broadly be described as of a capital nature made by each of the partners. I am satisfied that the arrangement was entered into because Mrs Tainsh was insistent upon recompense for her "intellectual property". It was consistent with the view that they were equal partners in the enterprise and insofar as some concept for repayment for contributions of a capital nature was accepted as desirable then it would be appropriate that the repayments be equal in amount. It may well be that the arrangement was a poor one in that it was accomplished by the use of loan accounts. However, it was the evidence of Mr Pratt, which I accept, that this seemed the only feasible way of doing it at that time.
I am not impressed by Mrs Tainsh's outright denial of the existence of any such arrangement. I regret to say that I was not particularly impressed with her as a witness. She tended to be very dismissive of facts which did not suit her case. She appeared to have developed, as the business progressed, an attitude of suspicion and distrust of her younger partners which, I am satisfied on the evidence, was not warranted. This coloured her approach to them and also coloured her evidence. I am confident that despite the affection which existed between her and Ms Monaghan she became difficult to work with and adopted an attitude of superiority towards them. Thus, having regard to the position of power which her culinary knowledge and skills gave her, required that the other partners, particularly Ms Monaghan, felt constrained to placate her and be generally wary of causing any rupture in the increasingly fragile fabric of the partnership. Indeed, I am satisfied that an arrangement was entered into of the kind asserted in the cross-claim out of a desire on the part of the younger partners to placate her.
Various matters satisfy me that an arrangement of recompense was agreed to. In the first place Mr Pratt gives evidence, which I accept, that after he had indicated that it was impossible to put any realistic value upon Mrs Tainsh's "intellectual property", he suggested that the partners should withdraw moneys by way of loan to, in effect, repay them for their respective capital contributions. He was of the opinion that this advice had been followed. I am not satisfied that he in fact suggested the figure of $16,000. As there was no documenting of the arrangement, it is very likely, having regard to the frailty of human recollection, that, because this was the amount that each partner actually took, it became accepted that this was the amount agreed upon in advance. I was impressed with Ms Monaghan as a witness. She was, in my view, very sensitive to the problems which existed with Mrs Tainsh, as it was she, and not her husband, who had known her for a long period of time. She was particularly anxious to avoid clashes which might destroy the partnership. I obtained the very strong impression from her evidence that she was aware that her husband regarded the partnership as an equal one in every respect and that there was no necessity for Mrs Tainsh to be paid for her contribution. He held the view that her admission to a one third share in the partnership business and its profits was her sole and proper entitlement. She was also well aware that this was not Mrs Tainsh's view. Consequently, she had to adopt the role of peacemaker and dealt with Mrs Tainsh, as it were, with kid gloves. Indeed, she described the arrangement as a "peace offering" to Mrs Tainsh. I am satisfied that she obtained Mrs Tainsh's rather grudging acceptance of the arrangement. I am also satisfied that it was not intended in the first instance to continue to the stage where each partner received $16,000. It appears that the amounts were paid by bank order and were intended to continue only until each partner had received an equal amount which would have been of the order of $11,000 or $12,000 which would correspond more closely with the total amount contributed by the younger partners. I am satisfied, on her evidence, that the arrangement was allowed to run on beyond the point where it should have been stopped. The result was that Mrs Tainsh received $16,000 and, in my view, this came to be regarded as the amount paid to her for her "intellectual property".
I am fortified in the view that there was such an arrangement by part of what I find to have occurred in a conversation in the office of Mr Blanks, Mrs Tainsh's solicitor, which took place shortly before Mrs Tainsh's dismissal. I shall refer in greater detail to this conversation later in these reasons. However, in relation to the agreement which I find was entered into, I am quite satisfied that Mrs Tainsh said of the payments that she had received that they were only for the provision of the recipes for flat pasta. Mrs Tainsh denies making this comment. I am quite satisfied, however, that Ms Monaghan has a very clear recollection of its being made and of her response to it, namely that it was untrue. She was supported by Mr Barber in this regard. Mr Blanks' evidence to the contrary did not impress me. It was based on recollection only and he had no file note to support it, although it was obviously a matter of significance.
The upshot of these deliberations is that I am satisfied that there was an arrangement whereby Mrs Tainsh agreed to accept the sum of money that came to her as a result of it in satisfaction of the claims that she was asserting. I am equally satisfied that she became dissatisfied with the arrangement and considered that she had been hardly done by. She sought to avoid it by limiting it to the provision of the recipes for flat pasta which had had to be provided by her and later came to deny the existence of it at all.
Even after the arrangement had been entered into there continued to be tensions in the partnership to which Ms Monaghan was particularly sensitive. It is clear that the business was expanding and it became increasingly necessary for the partners to work very hard for long hours. Mrs Tainsh continued to be the sole producer of the fillings for the ravioli products. These had won considerable acceptance at the top end of the pasta market and the continued success of the business was very much dependent upon their constant production. As, in effect, Mrs Tainsh was the sole producer of them and no one else was being trained to do that work, the business was clearly in danger of collapse should she be unable for one reason or another to continue that work. This became an increasing source of concern to the younger partners who, naturally enough, felt very vulnerable.
At Christmas time 1994 the business was closed down for a period during which Mrs Tainsh took a holiday. Mr Barber was of the view that, having regard to the extent of competition in the industry, it was unwise to close down. It was not possible to continue the business in the absence of Mrs Tainsh as nobody else was able to prepare the ravioli fillings. It was not commercially possible to offer customers only the flat pasta which Mr Barber was able to make. Customers required the whole range. If they could not get it they would go to a supplier who could provide it. Mrs Tainsh had not only not trained anyone to take over from her, even at a less skilful level, but she had also kept secret to her the recipes for the ravioli fillings. It is clear to me that, because of their total dependence upon Mrs Tainsh for the preparation of the ravioli fillings, it was felt by the other partners that it would be impolitic to press the matter. The business accordingly closed.
In the following year the same tensions continued. They increased with the increase in size of the business. The total dependence of the enterprise on the continued ability of Mrs Tainsh to work the long hours that were required became a matter of increasing concern to Mr Barber and Ms Monaghan. Furthermore, each were of the view that Mrs Tainsh had a positive obligation to divulge her secret recipes to the partnership so that, if necessary, the fillings could be made by someone else, even if not to the high culinary standard achieved by Mrs Tainsh. They made repeated requests to Mrs Tainsh to write down the recipes so that they would be available if she were unable to perform her duties as a chef. I am satisfied that Mrs Tainsh fobbed- off these requests on the basis that she was too busy at the time and that she would do it in the future. I am further satisfied that she adopted this course because she was nurturing a suspicion that her partners wanted to obtain her secrets and then squeeze her out of the business. Having heard the evidence of Ms Monaghan and Mr Barber on this topic and having observed their demeanour when giving it, I am completely satisfied that that suspicion was totally unfounded. Nevertheless, it led Mrs Tainsh to adopt means of preventing her recipes and methods becoming known to the other partners. I am satisfied that insofar as she had recorded them in whole or in part she was at pains not to leave the record at the business premises where, as she saw it, it could be illegitimately copied or used. I am satisfied that she was not entitled to adopt this attitude. She had entered the partnership on the basis that she contributed her special knowledge to the business and also any other products that she devised whilst in the partnership. The only area of contention was whether she was entitled to receive some extra payment for so doing. I am satisfied that she had agreed to accept payments in accordance with the arrangement to which I have referred above. She was not, in these circumstances, entitled to refuse to divulge the recipes to the partnership so that they could be used in the event of her being unable to perform her duties as chef.
I should, at this point, record the view that I have formed on the evidence that Mrs Tainsh's recipes and methods, although capable of producing pasta products of a very high quality, were not unique in the sense that it was impossible for a competent chef to produce products at least significantly similar to them by the use of fresh high quality ingredients in conjunction with an appropriately high standard of culinary skill. Evidence in the case satisfies me that since the departure of Mrs Tainsh the business has been able to satisfy its customers with new products produced by a new chef using appropriately high standard ingredients and that it has overcome some of the problems associated with Mrs Tainsh's products and has increased the range of products available. I note that Mrs Tainsh, in her affidavit, emphatically expressed the view that Ms Monaghan would not have the ability to copy her methods and recipes simply by observing Mrs Tainsh at work. She has now expressed the view in evidence that the company's present products are the result of Ms Monaghan in fact copying her recipes, simply by learning from observation of Mrs Tainsh in the kitchen. I do not accept that this has occurred. That Mrs Tainsh now asserts this does little to assist her general credibility. I fully accept Ms Monaghan's evidence that she was surprised at the relative ease with which it was possible for another chef to produce pasta products of equivalent quality and also that she realised, in effect, that she and Mr Barber had to an extent been deluded by the mystique with which Mrs Tainsh had surrounded the development of her products.
The year 1995 was characterised by increasing uneasiness on the part of Ms Monaghan. Mrs Tainsh was becoming increasingly difficult to work with and was clearly harbouring the view that she was under no obligation to make available to the partnership her recipes in documented form. The problem became critical when Mrs Tainsh announced that she would be taking a holiday at Christmas time. Ms Monaghan, in my view, acquiesced in this in order to keep the peace. However, Mr Barber was of the view that the business should not close as, in the competitive situation in which it operated, this could be most injurious to it. It was pointless merely to supply the flat pasta which he could make without the ravioli and its associated fillings which, as things stood, could only be supplied by Mrs Tainsh continuing to work.
In these circumstances it became necessary for the younger partners to make a direct request, although couched in suitably conciliatory terms, to Mrs Tainsh to supply the ravioli filling recipes in written form so that the business should not be entirely dependent upon her continued presence. Reference was made to the parlous situation in which the business would find itself if she suffered illness or accident. Mrs Tainsh did not agree to provide written recipes. In fact, she said that this would be difficult as, in effect, she was fairly flexible in the way she prepared the fillings, a lot depending upon the available ingredients and the manner in which her culinary flair directed her on the occasion. The discussion took place in the office of the business premises at Albion Street. It is clear that it was a somewhat tense occasion. Mrs Tainsh grudgingly suggested that Ms Monaghan should observe her at work and, from those observations, write down the recipes for herself. This suggestion was accepted, in my view, partly because it was seen as at least a possible solution but primarily because it brought an embarrassingly confrontational situation to an end. As I have indicated, Mrs Tainsh made quite clear in her affidavit, firstly that she was suspicious of the other partners and did not trust them because she thought they were trying to "squeeze her out" and, secondly, that she did not believe that Ms Monaghan would have the ability to reconstruct recipes and methods merely by observing her, a view, which, I am satisfied, she chose to alter in her evidence when it appeared to suit her case to do so.
On a Friday in early November Ms Monaghan, working with Ms Tippane, Mrs Tainsh's assistant, succeeded, as she thought, in making one of the ravioli fillings. Mrs Tainsh was present and, it is clear, the atmosphere was somewhat tense. Ms Monaghan, in a somewhat joking fashion, claimed that she had succeeded. I am satisfied that this provoked an adverse reaction on the part of Mrs Tainsh. On the Monday she made contact with both Mr Barber and Ms Monaghan advising that she had set up a meeting with her solicitor, Mr Blanks, at which she wanted them to be present. She also said that they had "treated her appallingly". Re-reading and considering the evidence in relation to this meeting and what preceded it, I have come to the conclusion that Mrs Tainsh was alarmed by what had occurred on the Friday and had formed the view that her partners were succeeding in obtaining the recipes which she had been determined not to divulge.
The meeting was a somewhat strange and apparently unstructured one. Mrs Tainsh's solicitor, Mr Blanks, who gave evidence, does not appear to have kept any notes of what transpired. Mrs Tainsh, in her evidence, said in relation to the calling of the meeting, "I was under pressure to relinquish all of my intellectual property. We called the meeting to secure my interests in the business". She further said that she was very concerned about her financial interests in the business and that she needed an agreement to secure her share because she believed that "Mr and Mrs Barber were going to squeeze me out because the business was very successful". She complained that "it wasn't properly documented. I felt vulnerable and threatened".
Mrs Tainsh was not able to give a clear picture of what had occurred at the meeting; nor, in my view, was Mr Blanks. In the correspondence between solicitors which followed this meeting there was no claim made that there should be a proper written agreement protecting her financial interest. The thrust of the correspondence was attempts to arrive at an appropriate figure at which the other partners could buy Mrs Tainsh's share. I consider that the evidence of Mr Barber and Ms Monaghan gives a clearer picture of what occurred.
I am satisfied that Mrs Tainsh made the complaint that she had been treated appallingly. This related to the requests that she document her recipes. Discussion then ensued as to her right to refuse to do so. Reference was made to the agreement for payment by way of loan account during which discussion I am satisfied, as already indicated, that she asserted that the payment was only for the flat pasta. I am also satisfied that Mr Blanks expressed the view that the partnership arrangement appeared to have broken down. Discussion then centred around the question of one or the other side buying the other out. Mrs Tainsh indicated that she was not prepared to buy the others out. The meeting was quite inconclusive as to what should be done in the future, including the running of the business over the approaching Christmas period. I am satisfied that the parties left the meeting with one abiding impression, namely that their business arrangements had, for practical purposes, come to an end and would continue in the short term only for the purpose of appropriate arrangements being reached for the parting of their ways.
In the meantime, the demands of the business being heavy, the parties returned to work but in a situation where the sub-stratum of mutual trust necessary for the proper working of the business had gone. Work continued but in an environment where there was no harmony and little communication between the parties. The rift was beyond repair. The situation was, for practical purposes, unworkable. It was unclear whether Mrs Tainsh would continue to provide her services to the company over the Christmas period. Also, she was clearly not prepared to make the ravioli recipes available to the company. The business went on but on the basis that Mrs Tainsh's contribution to it was to come to an end when suitable terms for her departure could be agreed upon. From the point of view of the other shareholders, who wanted the business to continue, but who, at that stage, saw that business as being totally dependent upon Mrs Tainsh's contribution, the situation was one of crisis. They said in evidence that they regarded themselves as being held to ransom. In my view, they had good reason for so thinking.
Against this background, correspondence passed between the solicitors of the parties. It is necessary that I make some reference to these letters.
In the first place a letter was obtained by Mr Barber from Mr Pratt, which could best be described as an informal valuation of the company's business. I am satisfied that Mr Barber asked Mr Pratt to provide a figure in circumstances where a full formal valuation would take too long and be too expensive. He asked Mr Pratt to err on the side of generosity. I am satisfied that he did so in the hope that a quick and reasonable settlement could be effected whereby Mrs Tainsh's share would be purchased at a price satisfactory to her. By letter dated 15 November 1995 Mr Pratt provided a figure based upon the method of "future maintainable profit" which resulted in Mrs Tainsh's share being worth $47,000. It appears that a copy of this valuation letter was provided to Mr Blanks. Mr Williams, solicitor for the company and Mr Barber and Ms Monaghan, wrote to Mr Blanks on 17 November 1995. It is appropriate that this letter be set out in full in these reasons. It read as follows:-
"In this matter we act for Austcorp 452 Pty Limited, Justin Barber and Donna Boyce-Monaghan. Mr Barber and Ms Boyce-Monaghan hold 2/3rds of the issued shares in the abovenamed company.
We understand that you act for Liliane Tainsh who is a one-third shareholder in the enterprise.
We are instructed that certain difficulties and differences have been encountered by the directors and shareholders of the company which may be summarised as follows:
1. That your client believes that she has been poorly dealt with by our clients;
2. That your client is the holder of certain intellectual property being the owner of rights to recipes and certain ingredients used by the company in the sale of its goods.
Our clients maintain that the business owned by Austcorp 452 Pty Limited was formed by way of an agreement between the shareholders. That agreement was that our respective clients would work in the business; that our clients would provide the finance to establish the business and that your client would make available her skills as a chef for the purpose of making pasta and pasta fillings for sale to the public.
Due to a recent necessary absence by your client, a request by Mr Barber was made to her to provide the recipes for certain fillings used in the manufacture of goods supplied by the company to be conveyed to them so that the business could continue in her absence. This request was refused.
Further, your client has maintained that her knowledge pertaining to those fillings was intellectual property in her possession a knowledge to which the company was not entitled.
Under these circumstances it is clear that your client has breached the agreement with her fellow shareholders and placed the company's business in jeopardy.
Our clients have approached Trood Pratt & Co, Chartered Accountants, the Accountants for the company who on the 15th November 1995 prepared a Valuation showing that the value of your client's interest amounted to $47,000.00.
Our clients are prepared to acquire your client's shares for that amount.
The dispute between our relevant clients renders the business of the company unworkable. Our clients, as directors of Austcorp 452 Pty Limited, believe that to protect the company's business it is necessary to:
(a) employ a qualified chef; and
(b) prepare and document the ingredients used in the company's products so that the business may be maintained.
We therefore require you to advise us by 5pm Tuesday 21st instant whether or not the offer made to your client is acceptable to her.
If the offer is not acceptable an amount which would be acceptable and a Valuation supporting it.
Would you also indicate whether your client will resign her present position with the company."
This letter was replied to by Mr Blanks on 22 November 1995. Again, I set out the letter in full:-
"We refer to your letter dated 17 November 1995 and our telephone conversations. We confirm we act for Ms Tainsh.
We note you refer to an agreement between the shareholders. We are not aware of any agreement in writing, and assume that you are referring to an oral or implied agreement. Please let us know if that is not the case. In any event, our client agrees that there was an agreement by the shareholders in the terms stated in the penultimate paragraph of page 1 of your letter.
The references in your letter to our client refusing to meet Mr Barber's request to reduce knowledge in her possession to writing, and maintaining that such knowledge is confidential to her is not inconsistent with her agreement to provide her skills as a chef, and accordingly, we do not understand the basis on which you assert a breach of the agreement. There is no basis on which it can properly be said that the company's business is in jeopardy as a result of our client's actions.
Our client also rejects the assertion that the company's business is unworkable.
Your clients' offer of $47,000 is unacceptable to our client, and our client is concerned that the accounts on which it is based do not present a true and fair view of the company's affairs. However, if your clients believe that such a figure truly represents the value of the company they would presumably be willing to sell their shares for that sum. Our client is wiling to acquire your clients' shares for a total of $94,000.
Our client would be willing to sell her shares for $183,315. We enclose a valuation supporting that figure prepared by Arnheim Hornbrook & Co, chartered accountants.
Our client will not resign her position with the company, and any attempts to have her removed without reaching an agreement will be met with an application to the Court. As discussed, such action would be regrettable in the circumstances of this case, as in our view, the parties should be able to secure by negotiation a position more commercially favourable on all sides than a ruling imposed by the Court. As we said, our client would be willing to participate in mediation to attempt to resolve the matters in dispute. We have had positive experience with mediations arranged through the Australian Commercial Disputes Centre, and would be happy to discuss this option with you further.
We look forward to hearing from you."
I make the following comments in relation to these letters. In the first place I disagree with Mr Blanks' interpretation of that part of Mr Williams' letter that refers to Mrs Tainsh's having agreed that she "would make available her skills as a chef for the purpose of making pasta and pasta fillings for sale to the public". In his letter Mr Blanks says that his client agrees that "there was an agreement by the shareholders in the terms stated". It is clear that Mr Blanks was conveying that Mrs Tainsh accepted that the agreement upon which the partnership was based absolved her from contributing the recipes for the pasta and pasta fillings. I am of the opinion that a fair reading of Mr Williams' letter in its entirety indicates clearly enough that he was not asserting on behalf of his clients any such narrow version of the agreement. It is clear, in my view, that he was asserting, as indeed his clients have maintained, that the failure of Mrs Tainsh to provide her "intellectual property" to the partnership and later to the company "breached the agreement with her fellow shareholders and placed the company's business in jeopardy". As I have already indicated, in my opinion, Mrs Tainsh had accepted the obligation to make these recipes available when she became a partner and the outstanding question of payment for them had been settled by the agreement subsequently entered into. Her subsequent failure to provide them was, in my view, a breach of the agreement and did in fact place the business in jeopardy.
Moreover, I am quite satisfied that Mrs Tainsh's behaviour and attitude were rendering the business unworkable. Mr Blanks' letter asserted, on her behalf, a version of the agreement between the parties which they, and also I, consider to be incorrect. Her persistence in it amounted to a repudiation of the contractual sub- stratum upon which the company and the partnership was placed. I do not consider that her counter-offer to sell her share for $183,315 was a serious one. The valuation upon which it was based has not been relied upon in these proceedings. Indeed, as I understand it, it has been disavowed.
The last full paragraph of the letter sent on Mrs Tainsh's behalf clearly indicated an intention on her part to maintain the status quo, which I have found to be unworkable, until she achieved an agreement for sale which she regarded as satisfactory. In the context of her assertion that she had no obligation to divulge her recipes and her only offer being extravagant, unrealistic and based upon a valuation never subsequently relied upon, there was a reasonable basis for concern on the part of the other shareholders and directors as to the viability of the company's business.
Mr Williams responded to this letter by a letter dated 24 November 1995. It is not necessary to set this out in full. It asserted, once again, that the business in the present circumstances was unworkable. It concluded with the following offers:-
"In an attempt to avoid litigation and without prejudice to our clients' rights, our clients would be prepared to obtain a valuation, to be paid for by the company, of our clients' relevant interests in the company and its business from any one of the following firms:
1. Coopers & Lybrand
2. KPMG Peat Marwick
3. Ernst & Young
Would you and your client consider this offer on the following conditions that the valuation be on two basis:
1. With your client's alleged intellectual property;
2. Without your client's alleged intellectual property;
3. That such valuation be on the basis that the present directors and shareholders are not participants in the business.
Subject always to the examination of any valuation, our clients would be prepared to purchase your client's interest in the company on the basis that such purchase price was in accordance with a valuation which did not include her particular knowledge.
Alternatively, would your client consent to the appointment of a Receiver for the purpose of the sale of the company's assets?
Please let us have your early reply as a matter of urgency."
Mr Blanks replied to this letter on 27 November 1995. It asserted that Mrs Tainsh did not regard the business as unworkable and sought particulars of this allegation. It complained about the accounts for 30 June 1995, a matter no longer relevant. In relation to the offer in Mr Williams' letter, the following statement was made:-
"We note your suggestions that either a further valuation be obtained of the business, or that a Receiver be appointed to sell it. Our client rejects both those suggestions. We believe that a more practical solution could be achieved by appointing an agent to advertise the business for sale, with a brief to maximise the price to be obtained. The parties would then be free to consider any offers received."
Clearly, this response was not regarded by Mr Barber and Ms Monaghan as representing a genuine attempt to solve the crisis that was developing in the business. Mr Williams replied on their behalf on 27 November 1995. Particulars as to the unworkable situation in the business were provided as follows:-
"Firstly: Your client's refusal to communicate with her co-directors;
Secondly: As your client has breached the agreement to provide the company with her knowledge and skill in and about the preparation of food sold by the company, the company's business is forced to close during any absence by your client.
The business has in fact been forced to close in the past for this reason."
The letter concluded as follows:-
"It is the desire of Mr Barber and Ms Boyce-Monaghan to acquire your client's interest in the business excluding her alleged intellectual property at a proper valuation. It is apparent that your client does not wish to co-operate in this regard. The exclusion of your client's intellectual property has been canvassed previously.
In these circumstances unless your client's attitude changes within 48 hours we will advise our clients as to the company's rights in relation to employees and having regard to the agreement which exists between the shareholders.
We will also advise our clients as to their rights as shareholders."
Mr Blanks replied on 6 December 1995. The letter contained an assertion that his client "disputes that the business is unworkable for the reasons stated by you or for any other reason". It indicated that his client was willing to sell her share "for a fair value" and that she would "seriously consider any further offers your clients may make". There was also a suggestion that the business be sold on the open market "in a manner which maximises the potential sale price". The appointment of a receiver was once again rejected. Reference was made to an intended meeting of Directors called for 7 December. An adjournment of this meeting was sought "until further discussion concerning the possible sale of our client's share or the business as a whole can be held". It was said that there was "no reason for the meeting to be convened as a matter of urgency". It also asserted that "if our client's employment with the company is terminated, the company's right to use our client's product will cease". The letter concluded with a threat to commence proceedings in this Court if the meeting was not deferred.
Mr Williams replied by fax on 7 December 1995. He referred to the rejection of "our clients' practical offers to have the business valued". He indicated that his clients did not wish to dispose of their interests in the business. He stated that the Directors' meeting would be adjourned until Friday 8 December at 5.00pm. In relation to the urgency of the situation, the letter read as follows:-
"We deny that there is no urgency in relation to the holding of a Directors' Meeting to deal with the matters of business of which your client refuses to work for a period of 2 weeks over the Christmas period and in the light of the expansion of the business this cannot be tolerated.
Further, our clients have no assurance that at any time your client may be unable to attend at the business for perfectly valid reasons whereupon the business could not function."
In relation to the possible termination of Mrs Tainsh's employment, the letter continued as follows:-
"Our clients wish to maintain the value of the business. If ultimately the decision of the Directors is that your client's employment be terminated, it is their intention to immediately employ a qualified person to take her place so that the business may be protected. It is our clients' complaint that your client will not divulge her recipes. It is therefore not possible that our clients could use your client's products."
The letter concluded by noting a suggestion which had apparently been made by Mr Blanks that Price Waterhouse prepare a valuation. Mr Williams indicated that he would obtain instructions as to this as soon as possible.
One can only comment that this suggestion, coming at such a late stage, provides a strange contrast with Mrs Tainsh's outright rejection 10 days before of Mr Williams' suggestion that one of three other leading firms of accountants make a valuation.
Mr Blanks replied on the same day asserting that his client had never refused to work over the Christmas period and was willing to do so. There was a denial that a refusal to divulge the recipes was a breach of her contract of employment and that if her employment was terminated it would be unfair. There was a threat of the taking of proceedings for unfair dismissal "if her employment is unfairly terminated without adequate compensation". There followed a reference to the obtaining of an independent valuation from Price Waterhouse with an indication that Mr Blanks had instructions that such a valuation be sought. Mr Frank Fischl of that firm was suggested as the appropriate valuer.
Mr Williams replied on the same day. His letter asserted that Mrs Tainsh's offer to work over the Christmas period was "a recent invention". He agreed to the appointment of Price Waterhouse to prepare a valuation. However, in regard to the continued employment of Mrs Tainsh the letter concluded:-
"... we can restate our clients' position that in the light of your client's attitude to her co-directors and her unwillingness to comply with the terms of the original agreement, the business is unworkable and the directors must therefore consider your client's position."
The Directors' meeting went ahead at 5.00pm on Friday 8 December 1995. The three original partners were present. Mrs Tainsh's employment was determined. It was resolved that she be paid four weeks salary in lieu of notice together with other statutory entitlements. It was further resolved that "the company employ an experienced person to replace Ms Liliane Tainsh". It was further resolved that an extraordinary meeting of shareholders be called to consider and pass if thought fit a resolution that Mrs Tainsh be removed as a Director.
A notice to this effect was given for the holding of such a meeting on Friday 22 December 1995. In fact, this meeting was not held because Mrs Tainsh had commenced these proceedings. An undertaking was given that the meeting would not be proceeded with. In the event Mrs Tainsh resigned as a Director in 1996, at a time when she was setting up a new business for the exploitation of her skills.
The appointment of Mr Fischl went ahead. He was appointed as a Court referee for the purpose of valuing Mrs Tainsh's share in the company. His appointment was terminated in circumstances where he had made it clear to the solicitors that his valuation was unlikely to exceed $47,000, which figure had been the subject of an open offer made to Mrs Tainsh on behalf of the other shareholders. Mr Fischl had been nominated as the valuer by Mr Blanks on Mrs Tainsh's instructions. Although all the circumstances relating to his ceasing to act as valuer for all parties are not before me, it is quite clear that he was accepted, in good faith, by both sides as an independent valuer appointed to assist in the resolution of their dispute. Considerable cost had been incurred in the preparation of the valuation up to the time when his appointment was terminated. Thereafter, he finalised the valuation and was called as a witness, in this aspect of the case, on behalf of Mr Barber and Ms Monaghan.
I come, then, to the question posed by Mrs Tainsh's claim in these proceedings, namely whether the termination of her employment by the company was oppressive of her as a shareholder within the meaning of s 260 of the Corporations Law. That section, relevantly, provides as follows:-
"260(2) If the Court is of the opinion:
(a) that affairs of a company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members (in this section called the 'oppressed member or members') or in a manner that is contrary to the interests of the members as a whole; or
(b) that an act or omission, or a proposed act or omission, by or on behalf of a company, or a resolution, or a proposed resolution, of a class of members of a company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members (in this section also called the 'oppressed member or members') or was or would be contrary to the interests of the members as a whole;
the Court may, subject to subsection (4), make such order or orders as it thinks fit, including, but not limited to, one or more of the following:
...
(e) an order for the purchase of the shares of any member by other members;
..."
In order to succeed in her application, Mrs Tainsh must establish to my satisfaction that the resolution passed by her co-directors on 8 December 1995, over her opposition, was an act of, or conduct of the company which, within the meaning of the section was oppressive or unfairly prejudicial to, or unfairly discriminatory against her as a member of the company. The words of the section have been the subject of interpretation by Courts of high authority. Earlier legislation referred only to "oppression" or "oppressive conduct". The scope of the section was extended by later legislation until it assumed its present form. It is, nevertheless, helpful to have regard to authoritative expositions of the concept of oppression in earlier cases. Reference to some of the most important definitions of the term was made in the joint judgment of Street CJ, Kirby P and Hope JA in New South Wales Rugby League Limited v Wayde and Anor (1985) 3 ACLC 177 at 185 in the following passage, which related to the same section when differently numbered:-
"The present form of sec. 320 is the latest in a series of legislative enactments in pursuit of the prevention of unfairness in the internal management of the affairs of companies. The original concept at which legislation was directed was conduct amounting to 'oppression'. This was paraphrased in the leading judgment of Viscount Simons in Scottish Co-operative Wholesale Society Ltd. v. Meyer ((1959) A.C. 324 at p. 342) as 'burdensome, harsh and wrongful'. Later cases have tended to enlarge the scope of conduct attracting the operation of the relevant legislative provision. In Elder v. Elder and Watson Ltd. ((1952) S.C. 49), Lord Cooper, at p. 55, glossed the word 'oppression' as 'a visible departure from the standards of fair dealing, and a violation of the conditions of fair play'. Lord Keith, at p. 60, expressed the view that 'oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary right as a shareholder'."
In the same judgment reference is made to the judgment of Richardson J in the New Zealand Court of Appeal in Thomas v H.W. Thomas Ltd. (1984) 2 ACLC 610 where, in the following passage (at 617-8), his Honour gave consideration to the scope and application of the section in its extended form, involving the further concepts of unfair prejudice and unfair discrimination:-
"The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company ... That detriment may be to the financial interests of the member as a member or it may be conduct which is adverse to his interests in other capacities, as where, for example, he is excluded from management participation in the company. Where the member is adversely affected in that sense, the determination as to whether it is unjustly so within subsec. (1) calling for the granting of relief under subsec. (2) must turn on an overall assessment of the position in the company. Fairness cannot be assessed in a vacuum or simply from one member's point of view. It will often depend on weighing conflicting interests of different groups within the company. It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and sec. 209 in particular: thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but recognise that sec. 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member's interests arising from the acts or conduct of the company in that way is justifiable."
I also have regard to the following passage from the judgment of Brennan J (as his Honour then was) in Wayde's case in the High Court ((1985-86) [1985] HCA 68; 10 ACLR 87 at 95-96):-
"... if the directors exercise a power - albeit in good faith and for a purpose within the power - so as to impose a disadvantage, disability or burden on a member that, according to ordinary standards of reasonableness and fair dealing is unfair, the court may intervene under s 320. The question of unfairness is one of fact and degree which s 320 requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of s 320 may be attracted to a decision made by directors which is made in good faith for a purpose within the directors' power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision."
It follows, in my view, that, having regard to these authoritative expositions of the section, Mrs Tainsh must not only establish that the decision of her co-directors to terminate her employment was burdensome, prejudicial and discriminatory against her, but was unjustly and unfairly so.
Her counsel has relied heavily upon the fact that the company was in the nature of a quasi-partnership (Dynasty Pty Limited v Coombs [1995] FCA 1447; (1995) 13 ACLC 1290) and that, in such circumstances, Mrs Tainsh as a shareholder and director on equal footing with the other two members of the company would have had a reasonable expectation that she would not be prevented from exercising a managerial role. Furthermore, as was cogently put, the way in which the finances of the company were organised necessarily meant that the shareholders received their income from its operations not from dividends but by way of wages. Accordingly, the termination of Mrs Tainsh's employment necessarily meant that she would be excluded from what was her only source of earnings. Counsel correctly pointed out that actions on the part of a company which had these effects in respect of a quasi-partner have frequently and properly been held to amount to breaches of the section. He submitted that the resolution of 8 December 1995 was passed by Mr Barber and Ms Monaghan with, as they conceded, full knowledge that the termination of Mrs Tainsh's employment would, for practical purposes, prevent her receiving any income from the company and also that the intended removal of her as a director would terminate her managerial role. This was, it was put, particularly harsh and oppressive to her as she had no other income and, being 63 years of age, was unlikely to obtain employment at least within a reasonable time.
I should note that I am quite satisfied, after hearing their evidence and observing their demeanour, that both Mr Barber and Ms Monaghan adopted the course of terminating Mrs Tainsh's employment only after receiving advice that this was, in the circumstances, the appropriate course and then with extreme reluctance. So far from following a plan, hatched over some time, to rid themselves of Mrs Tainsh from the company they were, I am confident, totally unaware that the avenue of dismissal was available until they received advice from their solicitor. I am quite satisfied that Mrs Tainsh's suspicions of them in this regard were and are quite without factual foundation. Ms Monaghan said in the witness box that, in her view, Mrs Tainsh should still be with them. I am satisfied that this was a bona fide expression of her view.
The fundamental question posed for the Court is whether the termination which was necessarily prejudicial was also unfair. I have regard to the words of Richardson J (in Thomas' case at 618): "[f]airness cannot be assessed in a vacuum or simply from one member's point of view". After considering all the material placed before me and the arguments of counsel I have come to the conclusion that Mrs Tainsh has failed to establish unfairness. In my opinion, she had herself brought about a situation where her co-directors had no option but to terminate her employment. She was in fundamental breach of her obligations to provide to the company the means of producing its products. She had contributed her recipes from the outset although, because of an increasing and unfounded suspicion and an unwarranted sense of grievance, she later sought to withhold them. Her fellow directors, in the closing stages of the relationship, quite reasonably, in my view, perceived that because of her behaviour and attitude her continued employment in the company would lead, in the relatively short term to the substantial destruction of its business. In these circumstances, although there was a very perceptible risk in seeking to continue that business with the help of another chef, it was a decision reasonably taken in the interests of the company as a whole.
I should add that it was taken in circumstances where, as indicated by the course of correspondence between the solicitors, it was accepted that they were to buy Mrs Tainsh's share in accordance with a valuation arrived at by an expert who had in fact been nominated on her behalf. It was reasonable for them to assume that, in those circumstances, any period of hardship occasioned to Mrs Tainsh through her being unemployed would soon be alleviated by the payment to her of an agreed amount for her share. The alternative of allowing her to remain in employment into the approaching Christmas period could reasonably be regarded as having the potential detrimentally to affect the value of the business and of her share.
I am, therefore, of the view that Mrs Tainsh's claim must fail. Accordingly, I dismiss her application with costs.
I turn, then, to consider the cross-claim.
One order sought by the cross-claimants is a declaration that the dismissal of the applicant as an employee of the third respondent was reasonable in all the circumstances. It follows from the findings I have already made that the grounds for this declaration have been established. It has been submitted that the period of notice was inadequate. It is not suggested, however, that Mrs Tainsh was not provided with her statutory entitlements. Although a longer period of notice might well have been given to her, I am not satisfied that the period she received was so short as to be unreasonable. In the circumstances I think it appropriate that I make the declaration sought.
The remaining relief sought in the cross-claim is an order that the cross-claimants purchase the share of the first cross-respondent in the company in a sum determined by the Court as representing the value of the share. It was, of course, part of the applicant's case that the Court should make such an order in her favour. Considerable expert evidence has been placed before me as to the appropriate valuation of her share as at the date of her dismissal. It is, indeed, remarkable that expert witnesses can be so far apart in their valuations, whilst being in agreement as to the principles to be applied. Mr Barber and Ms Monaghan as cross-claimants rely upon this evidence and seek that the Court make an order in their favour under s 260 of the Corporations Law for the compulsory sale to them of Mrs Tainsh's share at a valuation determined by me. Indeed, it is the earnest submission of counsel on both sides that the Court arrive at such a valuation so that the sale may take place and this whole unhappy dispute be finalised.
As I indicated to counsel in the course of argument I have felt some hesitation as to whether s 260 empowers me to make such an order on this cross-claim. Reliance was placed in argument upon the words in the section "in a manner that is contrary to the interests of the members as a whole" as well as the words "unfairly prejudicial".
It is submitted on behalf of the cross-claimants that a combination of matters established in the evidence entitle them to an order under the section. In the first place, they were misled by Mrs Tainsh's insistence that her recipes and methods were novel and unique and could only be reproduced by her whilst, for practical purposes, any experienced and skilful chef could produce similar even if not identical results using fresh, high quality ingredients. I have already found this to be so, although I should add that I do not find that Mrs Tainsh engaged in the course of deliberate deception. Indeed, to the contrary, I am satisfied that she held this opinion of her products and that it was this opinion which erroneously coloured her approach to her partners and engendered her mistaken belief that they were seeking to steal her recipes as a precursor to excluding her from the business. It was submitted that the effect of being thus misled was unfairly prejudicial to the cross-claimants and was also contrary to the interests of the company.
It was further submitted that Mrs Tainsh's conduct in keeping to herself her recipes and methods and failing to train Ms Monaghan or any other suitable person to perform her work and produce the products when she was not available was, especially when coupled with her attitude that she was, despite her agreement, entitled to take this course, a further source of unfair prejudice to the cross-claimants and inimical to the interests of the company. The findings that I have already made, in my view, establish these matters in favour of the cross-claimants.
Two matters have troubled me. The first is whether this behaviour on the part of Mrs Tainsh can amount to conduct of the affairs of the company within the meaning of the section. I have taken into account the width of the definition of "affairs" in s 53 of the Corporations Law and also the fact that the company was a quasi-partnership in which the directors all worked so that it could be reasonably said that Mrs Tainsh, whilst exercising her skills in the manufacture of the company's sole products was conducting the affairs of the company. She was performing an integral part of its "business" (see s 53(a)). By refusing to divulge her recipes she was conducting the company's affairs in an unfairly prejudicial way to her co-owners and contrary to the interests of the members as a whole.
I have concluded, therefore, that I should accede to the submissions that I can and should make an order for the purchase by the cross- claimants of Mrs Tainsh's share. I have come to the view that I can adopt this approach consistently with the remedial nature of the section and the view that has been taken of the breadth of its scope and operation (see e.g. Re Spargos Mining NL (1990-91) 3 ASCR 1; Re East-West Promotions Pty Limited (1986) 10 ACLR 222; Re Bodalbo Pty Limited (1992) 10 ACLC 351)). In the last mentioned case Vincent J said (at 356):-
"The provisions contained in s 260 of the Corporations Law have been drafted in wide form in order to accommodate the utmost limitless varieties of oppressive behaviour possible and the need for the Court to have an appropriately extensive discretionary power to effect justice in the particular circumstances of individual cases."
Having been thus persuaded that I can and should make the order for compulsory purchase, I come to the question of the appropriate value to be placed upon Mrs Tainsh's share, deriving what assistance I can from the conflicting evidence of the expert witnesses called in the case.
Both Mr Fischl, to whom reference has already been made, and Mr Sergent, an expert called on behalf of Mrs Tainsh, provided valuations based upon future maintainable profits capitalised at what each regarded as the appropriate capitalisation rate. Each provided a valuation as at 8 December 1995 on the basis that no relevant act of oppression had occurred. Mr McLaughlan provided evidence as a licensed business broker. He followed a different method from the other men, each of whom was a chartered accountant. He based his assessment of value upon his experience upon the buying and selling of businesses.
Both Mr Fischl and Mr Sergent provided lengthy reports containing a number of calculations necessarily involved in their arriving at the figure for future maintainable profits and the appropriate capitalisation rate. I do not intend further to lengthen these reasons by setting out the material in these reports. I have had regard to it and to the lengthy oral testimony of each of them. Their approach is based upon hypothetical considerations. In particular, it is assumed as a basis in each report, that a hypothetical investor would seek to buy the company's business or the single share of Mrs Tainsh. Each conceded that no such investor was likely to exist in fact, having regard to the nature of the company's business, its structure as a quasi-partnership, and the enormously long hours worked by the shareholders in the production of the pasta products. It was accepted by both that an investor would have regard to the risk and seek, accordingly, a high interest return on the money invested. It is clear that Mr Sergent was influenced to a far greater degree than Mr Fischl by the alleged uniqueness of the product. He saw the business as supplying a niche market which it virtually had to itself. In view of the findings I have made, I must feel some doubt about the validity of Mr Sergent's approach. On the other hand, I can see some weight in the criticism of Mr Fischl's approach as being too conservative in his choice of the estimated capitalisation multiple which he applied to his estimate of future maintainable earnings.
There is also an inherent difficulty in my utilisation of this accounting evidence. Both reports are based upon the proposition that Mrs Tainsh had not been the victim of oppression on 8 December 1995 by her being wrongfully dismissed from her employment. I must have regard, however, to my finding that it was in fact Mrs Tainsh who was dealing wrongfully with her co-shareholders by, at that date, wrongfully withholding from the company the recipes upon which its business depended. In these circumstances, the company's business and consequently the value of her share in it would be adversely affected by the possibility of her leaving its employment and taking with her her recipes. As against this, the company's business was obviously increasing throughout 1995 with a consequent improvement in its market share, even if that market could not properly be described as a niche market. It was obviously developing a reputation for the provision of high quality pasta products with a corresponding increase in the value of its goodwill. Also, in a real sense, I am being asked to establish a reasonable price for the purchase of Mrs Tainsh's share at that time by the other two shareholders who had come to the conclusion that her continued presence in the business was detrimental to it and who were prepared to buy her out and take the risk of the effect that her absence would have on its continued prosperity. Moreover, upon leaving the business she would be taking with her her recipes which would enable her to establish an opposition business which, in fact, she is doing.
This is a situation in which I can regard the evidence of the three expert witnesses as providing me with nothing more than a guide. To a very large extent my decision must be one of intuitive judgment.
In general terms, I was more impressed with the evidence of Mr Fischl than of Mr Sergent or Mr McLaughlan. I obtained some guidance from his valuation of the company in paragraph 6.24 of the report annexed to his affidavit. I consider that the capitalisation multiple which he has chosen is too conservative. The substitution of a multiple of three would produce a valuation of the company in the amount of $111,000. One third of this amount is $37,000. However, I consider it reasonable to have regard to the fact that the company's business was increasing together with its goodwill. In all the circumstances of the case, I consider that a fair purchase price to have been paid for Mrs Tainsh's share on 8 December 1995 was $45,000.
It has been submitted by her counsel that I should make some additional award on the basis that the accounts of the company show undistributed profits. There is no basis in the expert testimony for my taking such a course. Indeed, it would appear that this would have been one of the items brought to account by the witnesses in their calculations. To add anything by reference to these undistributed profits would, consistently with their approach, amount to duplication. Although I have used their approach only as a rough guide, I am not persuaded that it would be correct, in principle, to add to the figure I have arrived at some amount to reflect undistributed profits.
Mrs Tainsh has, of course, not had the use of the value of her share since her dismissal. It is appropriate that interest be allowed. Having regard to the global approach that I have adopted I think it appropriate that I arrive at a final figure of $52,000 as being the appropriate amount to be paid to her now for the value of her share which is to be compulsorily acquired by the other shareholders.
In view of the cost order I have made against Mrs Tainsh upon the dismissal of her application, I do not think it appropriate to make any order for costs in the cross-claim.
I certify that this and the preceding fifty-four (54) pages are a true copy of the reasons for judgment herein of the Honourable Justice M. L. Foster.
Associate:
Date: 7 FEBRUARY 1997
A P P E A R A N C E S
COUNSEL FOR THE APPLICANT: D.G. STAEHLI
INSTRUCTED BY: STEPHEN BLANKS & ASSOCIATES
COUNSEL FOR THE RESPONDENTS: M.R. ALDRIDGE
INSTRUCTED BY: B.Q. WILLIAMS & CO
DATES OF HEARING: 28, 29, 30 OCTOBER; 9, 10 DECEMBER 1996
DATE OF JUDGMENT: 7 FEBRUARY 1997
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1997/37.html