Bountiful Pty Ltd, Re; Kilmanock Pty Ltd, Re [1994] QSC 252

IN THE SUPREME COURT OF QUEENSLAND No. 295 of 1994 Brisbane IN THE MATTER of BOUNTIFUL PTY. LTD. (ACN 010 964 977) -and- IN THE MATTER of Section 260 of the Corporations Law AND: No. 294 of 1994 IN THE MATTER of KILMANOCK PTY. LTD. (ACN 055 015 211) -and- IN THE MATTER of Section 260 of the Corporations Law JUDGMENT - MACKENZIE J. Judgment delivered 30 September 1994 CATCHWORDS: CORPORATIONS LAW - OPPRESSION OF MEMBERS - Section 260 - Company 1 as trustee of unit trust owned freehold on which hotel situated - Company 2 leased and operated hotel - directors of both companies dismissed hotel manager - manager a director and member of both companies - no reason for dismissal - whether conduct oppressive, prejudicial or discriminatory under s.260 - test in Wayde v. New South Wales Rugby League Ltd. (1985) 61 A.L.R. 225 applied. Counsel: M. Martin for applicant E. Morzone for respondents T.M. & S.A. Sadler J. Miles for respondents M.P. & L.A. Walsh Solicitors: Gill & Lane for applicant -- 1 of 7 -- M.J. Eastwood & Associates for respondents T.M. & S.A. Sadler Robert Lehn & Co. for respondents M.P. & L.A. Walsh Hearing date: 22 September 1994 -- 2 of 7 -- IN THE SUPREME COURT OF QUEENSLAND No. 295 of 1994 IN THE MATTER of BOUNTIFUL PTY. LTD. (ACN 010 964 977) -and- IN THE MATTER of Section 260 of the Corporations Law AND: No. 294 of 1994 IN THE MATTER of KILMANOCK PTY. LTD. (ACN 055 015 211) -and- IN THE MATTER of Section 260 of the Corporations Law JUDGMENT - MACKENZIE J. Judgment delivered 30 September 1994. Kilmanock Pty. Ltd. ("Kilmanock") owns the freehold of the Redcliffe Hotel in its capacity as trustee of the Moreton Bay Unit Trust. Bountiful Pty. Ltd. ("Bountiful") leases the hotel from Kilmanock and operates it. The directors of both companies are Mr. and Mrs. Sadler, Mr. and Mrs. Walsh and the applicant Kenneth Percy James Brundell. Mr. Sadler, Mr. Walsh and Mr. Brundell each own one share in Kilmanock. Mr. Brundell owns two A class and 2 ordinary shares in Bountiful. Mr. and Mrs. Sadler and Mr. and Mrs. Walsh each own one share of each class in it. Mr. Brundell has applied for orders under s.260 of the Corporations Law because he alleges that certain actions of his fellow directors are oppressive or unfairly prejudicial to or unfairly discriminatory against him or that the affairs of the company have been -- 3 of 7 -- 2 conducted in a manner contrary to the interests of the members as a whole. Mr. Brundell has been manager of the hotel since June 1993. On 11 April 1994 a meeting of directors of both companies took place at which he was informed by the other directors that he was to be dismissed as manager and replaced by Mr. Paul McEncroe and his wife who were to be paid a joint salary of $80,000 per annum. It is Mr. Brundell's opinion that Mr. McEncroe and his wife, who operated the hotel from 1990 until early 1992 are incompetent managers. They were succeeded by Mr. Comerford who managed it until the applicant took the management over. He complains that the directors did not provide at the time any reason why his employment was to be terminated. He says that for the year ended June 1993 the hotel operated at a loss of approximately $280,000 whereas for the seven months to January 1994 the hotel operated at a net profit of $190,000. He says that the profit was due entirely to his work as manager and that of his partner Ms. Pymont. He says that they have jointly drawn, until last month, $500 per week and in the last month, $712 per week. Correspondence exhibited to Mr. Brundell's affidavit which was read in the proceedings does not take the matter of the dismissal any further than saying that the Walshs and the Sadlers believe that the removal of Mr. Brundell was in the best interests of the company. It was asserted that there were "not only simple financial matters to be taken into account, but other matters such as accountability and standards of conduct, viz-a-viz other directors". It was also asserted that the steps taken by the directors affected all shareholders equally and that therefore Mr. Brundell was not treated any differently as a shareholder from other shareholders. The passage quoted above from the correspondence is consistent with what was put to Mr. Brundell in cross-examination, that a non-director would be more accountable to directions from the board that he was. He denied that that had ever been said to him. Mr. Brundell also disputed the notion that Mr. McEncroe was an independent person, because he was friendly with two of the other directors. -- 4 of 7 -- 3 If an order is to be made under s.260 it is necessary to find either that the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to or unfairly discriminatory against Mr. Brundell or that it is being conducted in a manner contrary to the interests of the members as a whole. The concept involved in s.260 is explained in the following passages from Wayde v. New South Wales Rugby League Ltd. (1985) 61 ALR 225. In the judgment of Mason A.C.J., Wilson, Deane and Dawson JJ. the following passage appears: "It is not a case where the directors of a company, in the exercise of the general powers of management of the company, might bona fide adopt a policy or decide upon a course of action which is alleged to be unfairly prejudicial to a minority of the members of the company. In that kind of case it may well be appropriate for the Court, on an application for relief under sec. 320, to examine the policy which has been pursued or the proposed course of action in order to determine the fairness or unfairness of the course which has been taken by those in control of the company. The Court may be required in such circumstances to undertake a balancing exercise between the competing considerations disclosed by the evidence: cf. Thomas v. H.W. Thomas Ltd. (1984) 2 ACLC 61 at pp. 618, 620." Brennan J. said the following: "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." The case is not one where Mr. Brundell had an expectation that he would remain as manager of the hotel. The history of the management of it indicates this clearly enough. In that respect it differs from cases like Hogg v. Dymock (1993) 11 A.C.S.R. 14. In my view the limited evidence before me does not disclose a case under this limb of the section. All it discloses is that, for reasons that are related to a belief on the part of the majority directors that they wish to have greater control over the management of the hotel, a decision was taken to dismiss Mr. Brundell as manager. In my view this falls considerably short, on the limited -- 5 of 7 -- 4 evidence before me, of establishing the first limb of s.260. So far as the other aspect is concerned there must be proof that the affairs of the company are being conducted in a manner that is contrary to the interests of the members as a whole. The decision, if it has the consequences predicted by Mr. Brundell, will impact upon all shareholders to an equal extent. While there is no reason to believe that Mr. Brundell is not a good manager and he has expressed the opinion that Mr. McEncroe will not be a successful manager, it is difficult to see anything in the evidence that suggests that the decision to employ Mr. McEncroe rather than the applicant is not bona fide. Fundamental disagreement with a decision of the majority shareholders and directors does not necessarily entitle a minority shareholder to relief (Re Five Minute Car Wash Service Ltd. (1966) 1 W.L.R. 745). Further the evidence does not establish that the decision was unfair in the sense described by Brennan J. When one applies the tests in Wayde v. New South Wales Rugby League Ltd. the evidence falls short of establishing that the course of action followed is unfairly prejudicial to a minority of the members of the company. Undoubtedly the dismissal impacts on Mr. Brundell's financial situation. He has sworn he has no income other than that from managing the hotel. However, it is important to keep separate the questions whether his dismissal was fair in the industrial sense and whether a decision to dismiss him can be characterised as conducting the company affairs in a manner contrary to the interests of the members as a whole. Concentrating on the second question I am unable to find that it has been satisfactorily established that the conduct should be so characterised and accordingly the application under s.260 must be dismissed. This conclusion renders it unnecessary to determine the other issues argued in the case. However, in view of the inconvenience that would be caused if the matter had to be remitted to me I will record my views on the content and principles relating to the valuation evidence. The evidence came solely from an accountant Mr. Vanderstaay. Following a ruling -- 6 of 7 -- 5 earlier in the trial refusing to admit a valuation report by a valuer Mr. Margison under s.92 of the Evidence Act because his attendance for cross examination had not been arranged, Mr. Vanderstaay worked from the balance sheet and associated financial statements of the company and derived a value of about $1,000,000 for Bountiful. The applicant's interest in this was one- third of that figure. In the absence of any evidence to the contrary it becomes an assessment of the weight of the evidence. It was conceded by the respondents that the evidence could be used for the purpose of determining the relevant values. The evidence relied on current trading figures rather than an average because Mr. Vanderstaay took the view that the value should reflect the applicant's management rather than previous management. He did not believe that any substantial allowance should be made for industry fluctuations. In the circumstances, I accept the thrust of his evidence but slightly discount the applicant's share to $300,000 to allow for the fact that his figure is an approximation and for the possibility that ordinary trading variations may render it high. So far as Kilmanock is concerned it is a company which is the trustee for the Moreton Bay Unit Trust. Its paid up capital is $3. It was submitted on behalf of the applicant that I should take the value of the units in the trust into account in assessing the value of the applicant's share in Kilmanock. I was urged to adopt the approach taken by Vincent J. in Re Bodaibo (1992) 6 A.C.S.R. 509. The respondent submitted that I should follow the contrary decision of Young J. in Kizquarie Pty. Ltd. v. Prestoo Pty. Ltd. (1993) 10 A.C.S.R. 606 where it was held that an order under s.260 could not be made in respect of the trustee company where the oppression had occurred in relation to the operation of the trust but had not affected the value of the shares in the trustee company. If the matter were a live issue I would adopt the view of Young J. in this respect. Accordingly the value of Kilmanock is $3 of which the applicant's share is $1. The formal order is that the application is dismissed with costs to be taxed. -- 7 of 7 --